Annual Sustainable Development Report 2018 2019

1 Contents

2 SOCAR son illərdə öz uğurlu fəaliyyəti ilə regional və Birləşmiş Millətlər Təşkilatı tərəfdən müəyyən edilən beynəlxalq enerji bazarlarında mövqeyini gücləndi- Dayanıqlı İnkişaf Məqsədləri proqramına qoşulmuş və rir, ölkəmizin iqtisadi qüdrətinin möhkəmlənməsinə, proqramda göstərilən hədəflərə nail olmaq üçün qüv- 1.0 Message from the President 04

2.0 About this Report 07

3.0 About the Company 11

4.0 SOCAR’s Contribution to the Sustainable Development Goals 37

5.0 Corporate Governance 43

6.0 Human Resources 63

7.0 Support for Local Social Development 89

8.0 Occupational Health and Safety 97

9.0 Environmental Activities 111

10.0 SOCAR’s Performance Indicators 141

11.0 GRI Content Index and Independent Assurance Statement 168

xalqımızın maddi rifah halının yaxşılaşmasına dəyər- vələrini səfərbər etmişdir. Ölkə iqtisadiyyatının aparıcı li töhfələr verir. Azərbaycan Respublikası 2015-ci ildə qüvvəsi olan SOCAR fəaliyyət və təşəbbüslərini In reIn

3 MESSAGE FROM THE PRESIDENT

In recent years, SOCAR has been reinforcing its position in both regional and global energy markets to support the strengthening of the country’s economic power and improvement of the nation’s welfare. In 2015, the Republic of Azerbaijan adopted the UN Sustainable Development Goals and mobilized its forces to achieve the goals set out in the program. As one of the driving forces in the country’s economy, SOCAR seeks to align its activities and initiatives with the Sustainable Devel- opment Goals. We have already begun to set targets to achieve the Sustainable Development Goals by the year 2030.

In light of the need to adapt to rapid development and changes in the world oil and gas industry and to keep pace with global competition, SOCAR began the drafting of “SOCAR’s Corporate Strategy to 2035” based on its “Comprehensive Strategic Development Plan to To overcome these challenges, we need to develop our 2035”2025” that was approved in 2011. human resources, improve staff’s abilities skills and involve them in upskilling or reskilling training courses. To ”SOCAR’s Corporate Strategy to 2035”, which the this end, the Company has developed a comprehensive Company started to draft in October last year, analyzes training program. Webinars are held for employees in the current state of the Company from the value chain various specialties. perspective, identifies the future steps capitalizing on regional and global benchmarks, and examines the Today, we are observing how our measures digitalizing prospects for further rationalization and optimization production yield fruit – we have managed to make “Pet- measures. kim”, one of our strategic assets, acknowledged as one of the most digitalized petrochemical factories in the In recent years, we have observed growing digital com- world.High-tech plants of the “SOCAR Polymer” Com- petition in the global oil industry, impacted mostly by the plex producing polypropylene and high-density polyeth- Fourth Industrial Revolution. SOCAR has agreed a uni- ylene, the STAR oil refinery in Turkey, and the Carba- fied road map, which covers digitalization projects in all mide Plant, which we launched as part of the Sumgait areas of focus of the Company. The roadmap overarch- Chemical Industrial Park Project, are among the key es the entire value chain, from production to processing achievements of our company. TANAP, the longest and sales, and is currently being implemented with the and largest-diameter natural gas pipeline in Turkey, the support of Caspian Innovation Center. Middle East and Europe, has been in operation since last year. The Company has launched the construction The Fourth Industrial Revolution led to a decrease in of the Azeri Central East platform, and the first oil and demand for traditional jobs while creating many new gas production expected in 2023. Preparations for the jobs in the digital sector. The COVID-19 pandemic has development of the “Karabakh” field are underway as made it urgent to shift to working remotely in many ar- scheduled. New wells are being drilled in the “Umid-1” eas today. The sharp drop in global demand for oil could platform to increase production from the “Umid” field. lead to a standby period for thousands of workers in the oil industry, creating a need to limit production in many fields. 4 As a company with a strong understanding of corpo- universities thanks to having the largest number of stu- rate social responsibility, SOCAR is actively involved in dents awarded a Presidential Scholarship. The renewed Azerbaijani society, providing support to key social and and higher standards introduced by the Baku Higher Oil economic projects in the country. In addition, with so- School in technical subjects serve the development of cial responsibility and sponsorship projects in Turkey, the country’s education system. the Company provides support for the environment, ed- SOCAR will continue to work further to respond to the ucation, culture, arts, and sports of our natural partners. call of Ilham Aliyev, President of the Republic of Azer- The Company’s social activities in Georgia continue baijan, “to turn black gold into human capital”, and will successfully. expand the scope of its programs to support the sus- Today, SOCAR has become an international company tainable development of our country. that meets global standards for industrial and environmental safety. The Company carries out comprehensive environmental monitoring on a regular basis at both offshore and onshore production sites to ensure environmental safety and exercise operational control of adverse effects on ecosystems in structural units and facilities. During 2019, a total of 70 environmental monitoring activities were conducted to protect the envi- President of SOCAR ronment, including 56 at onshore and 14 at offshore facilities. Rovnag Abdullayev

At present, the Company continues cleaning and restoration work in accordance with the landscaping and architectural plan for areas contaminated with oil and oil products and flooded by produced waters. A total of 130 ha of contaminated area were re-cultivated in 2019.

As a member of the Steering Committee of the World Bank’s GGFR since 2008, SOCAR has managed to collect 1 bcm of gas emitted into the air over the past 20 years in order to transfer it to the country’s gas supply facility. We highlight that Azerbaijan is the lowest air polluter among the top 10 countries exporting oil to the European Union, thanks to low emissions in associated gas production.

SOCAR has launched the expanded use of alternative wind and solar installations at a number of sites and production systems. Today, most of the measuring devices installed in oil and gas pipelines and production processes run on solar energy. A number of facilities use windmills and solar panels to illuminate office buildings.

Staff training is among the priority areas at the Com- pany. SOCAR’s Baku Higher Oil School has quickly become one of the country’s top-ranking universities. All these measures, including education and career opportunities, have significantly raised interest in technical subjects among young people. School graduates with ever higher admission scores choose this university each year, and the Baku Higher Oil School leads other

5 01

6 About this Report

7 About this Report This Sustainable Development Report (hereinafter, this Identification of material topics Report) is the ninth Report of the State Oil Company of the Republic of Azerbaijan (hereinafter, SOCAR) on SOCAR holds regular meetings with them and shares Sustainability. With the publication of Sustainable De- information through various mechanisms (see Table velopment Reports, our goal is to inform all our stake- 24 for more details). To provide a comprehensive and holders about our economic, social, and environmental transparent Report on the impact of our activities, the performance, as well as our approach to and princi- interests of both internal and external stakeholders and ples for managing sustainable development activities their comments made throughout the year were tak- throughout the year. The latest Report reflects the sus- en into account during the preparation of this Report. tainable development performance in 2019 achieved by Further, in order to identify material topics and aspects, SOCAR’s subsidiaries and affiliates abroad, along with we analyzed the highlights of SOCAR’s activities in the the Company’s structural units in Azerbaijan. mass media and sustainability reports of five international oil and gas companies, and held interviews with various stakeholders on a number of sustainable development areas. As a result of the analysis, material issues Applicable standards associated with SOCAR’s activities were identified and This Report has been prepared in accordance with the are illustrated in Figure 1. Moreover, Table 1 provides “Core” option of the Global Reporting Initiative (GRI) information on which aspects are the most important to Standards. The contents of the Report are based on SOCAR’s stakeholders. the GRI principles of materiality, stakeholder inclusive- This Report focuses on social, governance and environ- ness, sustainability context, as well as principles of mental aspects as key elements of sustainability. balance, comparability, clarity, timeliness, transparency, and reliability. The disclosure statuses of the GRI indices are provided in the Table on page 149.

Independent assurance of the Report This Report was independently audited by Ernst & Young. The Independent Assurance Statement (see 159 ) con- firms that this Report has been prepared in accordance with the “Core” option of the GRI Standards. Given the extensive and diversified portfolio of SOCAR’s operations, particular care is required to ensure a consistent approach to calculating indicators and their scope. If the scope of material indicators is modified, relevant notes are provided. This Report covers information on SOCAR’s facilities in Azerbaijan across economic, social and environmental aspects, as well as the operations of SOCAR En- ergy Turkey, SOCAR Energy Georgia, SOCAR Energy Ukraine, and SOCAR Energy Switzerland.

8 FIGURE 1. MATERIAL ASPECTS

MATERIA

T H I IG IA y and equ H R versit al righ M TE Di ts A A • T E M • O R M c IA IU rgy consump cu D Ene tion • R p IT E • e a y l ti M it at o n ocurem • io n u • Pr ent E n a t m du s l n ractices c w h e m p • a e o E t i a c c i th m l o o lt s a n n e h e o c ive • a m a s o Biod rsit A m n s l • y n d p n a t ic d e i l l - d o h • c a s a t Wate W e y i e f • r o n e a c o a r d v c h s r e e f t n ump u e o i e ns tio • t s l s e o n e p o t s g c E o w s a t p y ’ m i c e s o m s s r i i r u s n a n p t s l e e i o i i t s o i n l n l m t e n t p e a a i i s l k p p r r c e e a u a ﬁ t f c R S a t M E s • •

• • m

Material

•

Aspects

Environmental issues Economic issues Social issues

TABLE 1. SCOPE OF MATERIAL ASPECTS

Scope of the aspects

Investors and List of Material Local Company Employees Society Customers Competitors prospective Aspects population investors

Emissions

Waste

Economic and social impacts

Employee relations

Occupational health and safety Education and development

Anti-corruption

Diversity and equal opportunities Procurement experience

Energy consumption

Water consumption

Biodiversity

9 02

10 About the Company

11 About the Company

In 2019, SOCAR managed to expand its scope of activities in oil and gas production that is one of the Com- pany’s strategic objectives, while maintaining long-term commitments fulfilled in accordance with the approved programs. Further, large-scale search and exploration, development and production projects were implemented in the oil and gas segments to ensure that the country is constantly supplied with high-quality fuel.

Our mission, vision and values

At SOCAR, our mission is to protect the fuel tal responsibility with best international practice. and energy security and strategic interests We aim to hold a pivotal position in regional and inter- of the Republic of Azerbaijan in the develop- national energy projects and maximize profit from the ment of the oil, gas and petrochemical industries. sale of hydrocarbon reserves and refined products in It is our objective to support the development of both domestic and international markets. Guided by the scientific, technical, economic, and intellec- our values below, we continuously strive to achieve tual potential of Azerbaijan by introducing ad- sustainable development, to benefit our country vanced and environmentally friendly technologies. and our citizens, and all our stakeholders in general. Our vision is to become a large and vertically integrated international company that aligns its operating efficiency and social and environmen-

FIGURE 2. KEY VALUES OF SUSTAINABLE DEVELOPMENT

“SOCAR’s Comprehensive Strategic Development Plan ally to ensure the effectiveness of our mission as well to 2025” that was developed in 2011 is updated annu- as sustainable and long-term strategic development.

12 SOCAR in Azerbaijan Increase of production During the reporting year, SOCAR produced a total of 7,683.1 thousand tons of oil (including condensate) within the country and in the part of the Caspian Sea bounded by Azerbaijan, of which 6,346.3 thousand tons were extracted from “Azneft” PU’s fields and 1 336.8 thousand tons were extracted from fields in which the Company holds shares, exceeding projected output by 99.3 thousand tons, or 1.3%.

TABLE 2. SOCAR’S PROVEN OIL AND GAS RESERVES IN 2017-2019 Oil, 10³mt Condensate, 10³mt Gas, 10⁶mt³ Resource categories 2018 2019 2018 2019 2018 2019

Proven, developed and produced 71 055 67 179 3 595 4 751 42 097 51 275

Proven, developed and not produced 7 158 6 833 25 0 4 878 4 052

Proven and developed 78 213 74 012 3 620 4 751 46 975 55 327

Proven and not developed 47 693 46 192 4 380 5 303 40 480 44 159

Proven in general 125 906 120 204 8 000 10 054 87 455 99 486

TABLE 3. OIL PRODUCTION AND PROCESSING IN 2017-2019

2017 2018 2019 Oil production, thousand tons 7,427.1 7,542.3 7,683.1

Gas production, mln. m3 6,089.1 6,525.6 6,818.6

Oil processing, thousand tons 5,815.5 6,090.5 6,194.4

Gas processing, mln. m3 2,918.3 2,952.2 3,215.0 Oil Production

FIGURE 3. TOTAL PRODUCTION INDICATORS

Azneft PU 6,346.3 thousand tons

Total production (including condensate) 7,683.1 thousand tons Fields where the Company holds shares 1,336.8 thousand tons

1SOCAR’s proven oil and gas resources are provided with reference to the 2019 research and assessment report by DeGolyer & MacNaughton.

13 During the reporting year, 84 new production wells and 84 non-functioning wells were commissioned following onshore and offshore repair works.

FIGURE 4. OIL PRODUCTION IN AZERBAIJAN IN 2017 2019, THOUSAND TONS

2017 2018 2019 For AR 38,688.9 For AR 38,814.3 For AR 37,453.6

19% 19% 21%

81% 81% 79%

Others – 31,261.8 Others – 31,272,0 Others – 29,770,5 SOCAR - 7,427,1 SOCAR – 7,542,3 SOCAR – 7,683,1

Development of the refining sector

Heydar Aliyev Oil Refinery

The Company continued the reconstruction and modernization of Heydar Aliyev Oil Refinery during the reporting year. During this period, a total of 6,230.5 thousand tons of raw materials were processed, including 6,189.7 thousand tons of oil and 40.8 thousand tons of imported raw materials. SOCAR fulfilled 101.4% of the crude oil processing plan and 103.1% of the overall raw material processing plan.

Oil processing

TABLE4. HEYDAR ALIYEV OIL REFINERY OUTPUT IN 2019, THOUSAND TONS

Product Volumes 2019 Gasoline 1,161.38

Primary distilled gasoline fraction (to “Azerkimya” PU) 246.79

Jet engine fuel 591.13

Diesel fuel 2,080.20

Light reflux 351.69

Heavy reflux 10.42

14 Stove oil 126.46

Oil coke 238.44

Liquefied gases 197.92

Treated dry gas (to “Azerkimya” PU) 54.27

Atmospheric gasoil 85.38

Vacuum gasoil 162.91

Engine fuel 32.55

Bitumen 260.09

Lubricants 22.91 Note: Data for 2017 and 2018 are given in Appendix 1 in comparison with 2019.

Gas production, processing and sale

During the reporting year, of 3,214.99 mln.m3 of natural In 2019, 92,313 new customers were registered, in- gas at the Gas Processing Plant , 3,161.02 mln.m3 of cluding 37,046 in Baku and 55,267 in the regions. In treated gas, 5.49 mln.m3 of technical butane and 0.03 2019, gas was brought to 150 settlements in the re- mln.m3 of gasoline were processed. gions. These settlements are covered by 43 administrative districts of the country. The company paid particular attention to gas supply to frontline regions and border areas settled by internally displaced persons.

0,03 of gasoline mln.m3

3 214,99 mln.m� 5,49 3 of technical butane of crude mln.m natural gas

3 161,02 of treated gas mln.m3

FIGURE 5. GAS PRODUCTION IN AZERBAIJAN IN 2017 2019, MLN. M

2017 2018 2019 For AR 28 597,9 For AR 30 394,0 For AR 35 616,5

21% 21% 19%

79% 79% 81%

Others - 22,508.8 Others - 23,868.4 Others - 28,797.9 SOCAR - 6,089.1 SOCAR - 6,525.6 SOCAR - 6,818.6

15 Chemical industry

”Azerkimya” PU During the reporting year, “Azerkimya” PU processed 366.41 tons of raw materials (Table 5 – Appendix A).

TABLE 5. “AZERKIMYA” PU PRODUCTION, THOUSAND TONS

Production breakdown 2019 Ethylene 117.22

Propylene 88.19

Butylene-butadiene fraction 38.08

Pyrolysis resin 85.18

Heavy resin 18.92

Propane 0.50

Fuel gas 101.57

Polyethylene 94.40

During the reporting year, the Methanol Plant produced 383.00 thousand tons of methanol. 97.6% of production was exported, while the remaining 2.4% was sold on the domestic market. 125.0 thousand tons of carbamide products were sold out of 171.2 thousand tons produced by the Carbamide Plant, of which 115.0 thousand tons were exported and 10.0 thousand tons were sold domestically. FIGURE 6. THEPLIT BETWEEN DOMESTIC SALES AND EXPORTS OF PRODUCTS FROM THE METHANOL AND CARBAMIDE PLANTS

97.6% 10.0 thousand tons 115.0 thousand 2.4% Exports Domestic market tons exports Domestic market

383.00 171.2 thousand thousand tons tons Methanol Carbamide

Total oil and petrochemical production of SOCAR in 2019 amounted to 2,142.04 thousand tons.

TABLE 6. PRODUCTS EXPORTED BY SOCAR IN 2019, TONS

Products exported 2019 TS¬1 fuels for jet engines 50,551.49

Diesel fuel L¬62 507,219.30

Vacuum gasoil 192,372.57

Stove oil 243.11

BNB 50/70 oil bitumen 12,091.27

Depressor AKI 443,425.25

16 High pressure polyethylene 79,297.50

Butylene-butadiene fraction 38,487.95

Propylene 4,412.05

Liquefied pyrolysis resin 78,019.24

Pure isopropyl alcohol 250.98

Cylinder oil 11 263.09

Auto-tractor oil of Baku AK-15 711.82

Low Sulphur oil coke KT Q 223,357.27

T-1500 transformer oil 4,204.64

Turbine oil 1,119.15

Methanol 390,628.40

Carbamide 115,388.29

Total 2,142,043.37

Key countries to where crude oil and petrochemical products are exported are presented on the map below.

Countries where Countries where reﬁned oil Countries where both crude crude oil is exported and petrochemical products oil, reﬁned and petrochemical are exported products are exported

17 Economic impact and industrial activity

Being one of the largest taxpayers in the country, SOCAR is the driver of the country’s economic development and plays a prominent role in contributing to the state budget. In 2019, the Company’s payments to the budget were 1,622,208.2 thousand AZN (excluding income tax). Tax payments increased by 14,145.1 thousand AZN in 2019 compared to the previous year.

FIGURE 7. BUDGET PAYMENTS OF SOCAR IN 2017- FIGURE 8. SOCAR’S CHARTER CAPITAL IN 2017-2019 2019 (BILLION AZN) (BILLION AZN)

1,509 1,608 1,622 3,036 4,147 4,323

2017 2018 2019 2017 2018 2019

18 FIGURE 9. SHARE OF SOCAR IN ONSHORE FIELDS 15% 20% 20% 20% 20% 20% 25% 25% 25% 25% 50% fields “Pirsaat” Kurovdag Surakhani Mishovdag Mishovdag other fields other and Zardab and Kalamaddin Zigh Hovsan Neftchala and other oil fields oil other Balakhani and and Balakhani West Gobustan West Binagadi and other Muradkhanli, Jafarli Kursangi Garadagli 3rd Block of South-

FIGURE 10. SOCAR’S SHARE IN FIELDS LOCATED IN THE AZERBAIJANI SECTOR OF THE CASPIAN 10% 20% 25% 50% 50% 50% 50% 50% 80% ACG D230 Absheron Bahar and Shahdeniz Gum-Deniz Perspective Perspective Umid Babek Umid Ashrafi- Dan Dan Ashrafi- shallow waters Shafag Asiman Shafag Ulduzu- Aypara Ulduzu- Absheron peninsula peninsula Absheron

19 SOCAR Bonds

While playing a unique and leading role in the develop- According to information from PSG Kapital, the mar- ment of the securities market in Azerbaijan, the Compa- ket maker of SOCAR bonds, trades were executed at a ny established SOCAR Capital LLC in 2016 to ensure price of $1,041 per bond on 5 December 2019. This is full integration of SOCAR Group companies with both the highest selling price since the issue date of SOCAR local and global financial markets and to build sustain- bonds. able relations with the international securities market. SOCAR bonds are popular securities, offering an al- SOCAR bonds are securities issued in dollars in 2016 ternative investment opportunity for citizens. Investors by SOCAR, the largest company in Azerbaijan. SOCAR were paid interest amounting to $1 million 250 thou- bonds totaling $100 million and with a nominal value of sand with the 13th coupon payment on 17 October. $1,000 were issued for a period of 5 years, on favorable With this, the total interest income of the bondholders terms not previously available in the market – with an increased to $15 million. annual yield of 5%, providing citizens with a completely New bonds are planned to be issued in the first months new alternative investment opportunity in the financial of 2021, after the interest rate, term and amount are instruments market. determined using surveys and other research that will SOCAR Capital LLC aims to attract more international meet the interests of the capital markets and investors. investors to Azerbaijan, implement the Company’s internal structuring and diversification program, continue active circulation of SOCAR bonds in the local market, expand its international investment portfolio, and carry out economic and financial research. As a part of the strategic plan, the Company aims to attract foreign investors to Azerbaijan, while focusing on SOCAR bonds. Holders of SOCAR bonds can now take out short-term loans through REPO operations on favorable terms, as well as attract Manat loans from any relevant bank ith an annual interest rate of 15-16% for up to 2 years by pledging the bonds with the National Depository Cen- ter. In this case, bondholders do not lose their 5% income, and the actual interest rate on their loan drops by 9-10%.

20 The supply chain

FIGURE 11. TYPES OF EXPENSES ON RAW AND OTHER MATERIALS

Purchase and improvement Purchase of raw Other costs of investment activity materials of securities and shares

Purchase and improvement Purchase and improvement Fuel for internal needs of intangible assets of key assets

Daxili tələbat üçün Qeyri-maddi aktivlərin Əsas vəsaitlərin alınması və yanacağın alınması alınması və təkmilləşdirilməsi təkmilləşdirilməsi

FIGURE 12. TYPES OF EXPENSES ON SERVICE PROVIDERS

Advertisement, announcement, Communication services Transport services press and other services of this kind

Banking services Representation services Talent development services

Current repair services Insurance services Key assets capital repair services

Scientiﬁc research and design Safeguard services Other operational costs and surveying services

TABLE 7. . PROPORTION OF FUNDS SPENT ON LOCAL SUPPLIERS

Year SOCAR Azerbaijan SOCAR Energy SOCAR Energy SOCAR Energy SOCAR Energy Turkey Georgia Ukraine Switzerland

2018 78 94 65 5 95

2019 89 90 67 45 95

21 Business optimization

In 2019, total accrued salaries and other payments in- ing drafting documents on Job Management and Stan- creased by 81,034.22 thousand AZN, and the average dardization (taking into account job analysis and busi- monthly salary increased by 112.70 AZN. ness processes). The increase in salary payments and average monthly Employee Competence Management continued as part wages was mainly due to a 20% increase in the salaries of the HR Transformation Project, an initiative imple- of SOCAR employees as of 01.09. 2019 in accordance mented with the purpose of achieving dynamic growth with SOCAR’s “Order on Increasing the Salaries of Em- at the Company. ployees at SOCAR’s Facilities”, dated 2 August 2019, Having a multi-dimensional organizational structure, along with the improvements made to SOCAR’s payroll SOCAR has undergone regular structural changes to system. enhance its overall performance and optimize its busi- To improve the management mechanism at SOCAR, ness processes. and to further increase the effectiveness of its activities, the Company continued the HR transformation project implemented at several SOCAR structural units, includ-

New strategy

In order to adapt to the rapid development and chang- identifies future steps drawing from regional and glob- es in the world oil and gas industry, to be at least one al benchmarks, and examines prospects to implement step ahead in global competition, and to make flexible streamlining and optimization projects. decisions, SOCAR, like other oil and gas companies, Due to the global COVID-19 pandemic, which began considered it necessary to update its strategic plan and to spread in early 2020 and worsened in March, many decided to develop ”SOCAR’s Corporate Strategy to forecasts and strategic approaches in the oil and gas in- 2035” based on “SOCAR’s Comprehensive Strategic dustry have been affected. Thus, the forecasts of many Development Plan to 2025”, taking into consideration indicators related to SOCAR had to be reconsidered. the need for a future-oriented Corporate Strategy along the entire value chain of SOCAR’s operations. “SOCAR’s Corporate Strategy to 2035” will soon be completed and is expected to be approved in the com- SOCAR organized competitive bidding to develop the ing months. strategy paper, and pursuant to the procurement strategy the bidding was organized by the Procurement Group with the participation of branches of Boston Consulting Group, EY, McKinsey and Company (Azerbaijan) and PwC in the Republic of Azerbaijan. The branch of McK- insey and Companyin Azerbaijan, an internationally recognized company, won the bid. The Company began to draft the document on the corporate strategy in October 2019. ”SOCAR’s Cor- porate Strategy to 2035” provides an analysis of the current situation at SOCAR along the entire value chain,

22 Expansion into foreign markets

Overseas activities Trans-Anatolian Natural Gas Pipeline (TANAP)

An enormous infrastructure project, the Southern Gas meters of natural gas will be transported to Europe, and Corridor comprises four projects. Three of the four proj- the remainder to Turkey. Azerbaijan holds a 58% stake ects –”Shah Deniz”, South Caucasus Pipeline Expan- in the project. The new gas pipeline will turn Azerbaijan sion and TANAP – have been completed and are fully into a regional supplier, which will compensate for oil commissioned. The fourth project – TAP – has been revenues that are expected to decrease from 2020. 90% implemented. The binding agreement on TANAP, According to the project, TANAP is expected to get one of the most important links of the Southern Gas connected with the Trans Adriatic Natural Gas Pipeline Corridor, was signed in 2012 between the President of (TAP) at the beginning of 2020 to carry Azerbaijani gas Azerbaijan Ilham Aliyev and then Turkish Prime Minis- to Europe via Greece, Albania and Italy. The total cost of ter of that period Recep Tayyip Erdogan. The construc- the Southern Gas Corridor infrastructure is $40 billion. tion work began in 2015 following the ground-break- ing ceremony in Kars. The construction of the 1,850 km TANAP was completed at the end of 2019 and the first natural gas was delivered to Europe following the opening ceremony in Ipsala. The capacity of the pipeline is 16 billion cubic meters, which is expected to be increased to 23 billion cubic meters by 2023 and then 31 billion cubic meters by 2026. In 2020, 10 billion cubic

23 TANAP is implementing an effective and sustainable • All Project employees to be responsible for compli- Community Relations Management System during the ance with this Social Policy. Individual and collective im- project’s construction and operation phase to avoid or plementation of its commitments and principles. minimize the negative impact on labor and maximize the The TANAP Project is committed to safe, high-quality reaching of objectives. and environmentally and socially responsible design, Within this framework, all work carried out will comply as part of the construction and operation of a natural with national laws, regulations, and international stan- gas transmission pipeline system which will support the dards. In this context, the TANAP Project involves the economic development of the country while protecting following; the sustainability of natural resources. TANAP will provide the necessary resources, and is working towards • Open dialogue with people living in areas directly and the establishment and maintenance of an effective en- indirectly affected, and strong efforts made to build last- vironmental management system to prevent pollution in ing relationships. line with this overall objective. • Assessment of the Project’s social impact. In this re- Maintaining occupational health and safety of our em- gard, open consultations will be held with interested ployees and all parties involved in these strategic proj- parties. ects is an integral part of TANAP’s strategy, and one of • An effective and sustainable Community Relations our key objectives. Management System implemented to register and man- The route of the pipeline will be determined by consid- age complaints. This system, along with its policies and ering all residential areas at the pipeline’s design stage, procedures, will be established in accordance with ap- and care will be taken to avoid damage. During the next plicable laws and regulations. stage of the Project, relevant studies will be carried out. • Awareness-raising training for all employees and contractors’ employees on the implementation of the Proj- ect’s Social Policy.

Trans Adriatic Pipeline (TAP)

TAP will get connected directly with TANAP on the Tur- which will allow gas from Italy to be diverted to Sout- kish-Greek border and transport natural gas via Greece heast Europe if required. The Intergovernmental Agre- and Albania, across the Adriatic Sea to Southern Italy. ement on the TAP project was signed by Albania, Italy TAP is expected to play a key role in the EU’s strate- and Greece in February 2013. The TAP groundbreaking gic goal of energy security and diversification of energy ceremony was held on 17 May 2016. The pipeline will sources, as it will be the shortest and most direct met- be 878 km long and is expected to become operational hod of exporting gas from Azerbaijan to European mar- in 2020. Initial transportation capacity will be 10 bcma kets. TAP is also expected to have reverse flow features, (expandable to 20 bcma).

24 Shah Deniz

The “Shah Deniz” consortium shareholders are: BP In 2019, the “Shah Deniz 2” project achieved final ac- (28.8%) - the operator, TPAO (19%), Petronas (15.5%), ceptance of both offshore and onshore facilities. The AzSD (10.0%), SGC Upstream (6.7%), Lukoil (10%) project team continued to support operations through and NICO (10%). the first year of production to ensure high operating efficiency of the “Shah Deniz 2” assets. During the year,

FIGURE 13. SHAH DENIZ SHAREHOLDERS

28.83% BP 19% TPAO 15.5% Petronas 10% NICO 10% Lukoil 10% AzSD 6.67% SGC Upstream

the project also continued to perform subsea construc- “Shah Deniz” operating expenditure was about $544 28.25% BtionP activities, including the installation of infrastructure million and capital expenditure constituted $1.1 bil- 18.62% TatPA theO deep-water flanks to support the next East-South lion in 2019, the majority of which was onspent on the Petronas 15.19% flank start-up in 2021. Delivery of subsea assets and in- “Shah Deniz 2” project. The “Shah Deniz” field contin- AzSCP 9.80% stallation activities using the subsea construction vessel ued to provide reliable deliveries of gas9. to80% the markets Lukoil “Khankendi” and the pipeline barge “Israfil Huseynov” in Azerbaijan, Georgia and Turkey, as well9.80% as to BTC NICO will continue over the coming years to deliver plateau in multiple locations in 2019. The field 6.53%produced about SGC Midstream gas production. 16.8 billion standard cubic meters (bcm) of gas2.00% and 3.5 South Caucasus Pipeline Holding Company ltd CP million tons (about 28.6 million barrels) of condensate In 2019, the “Shah Deniz Alpha” platform rig was on in 2019 from the ”Shah Deniz Alpha” and ”Shah Deniz warm stack and conducted rig maintenance and only Bravo” platforms. preventive work was carried out when needed. By the end of 2019, the above two rigs had already drilled 17 Production from ”Shah Deniz29. Bravo”19% has been ramping BP wells in total, and completed 16 which are for “Shah up since the first gas delivery at24.25% the end of July last year. AzBTC 8.63% MODenizL 2” production and future subsequent ramp up. Production capacity of “Shah Deniz” facilities is current- 8.44% Equinor ly over 56 million standard cubic meters of gas per day, 6.33% TPAO or more than 20 bcma. 4.85% Eni 4.85% Total 3.29% ITOCHU 3.00% BTCII 2.42% INPEX 2.42% ExxonMobil Limited 2.28% ONGC (BTC)

30.37% BP 25.00% Azerbaijan ACG ltd 9.57% MOL 9.31% INPEX 7.27% Equinor 6.79% ExxonMobil 5.72% TPAO 3.65% ITOCHU 25 2.31% ONGC Videsh Limited (OVL) South Caucasus28.83% PipelineBP (SCP) 19% TPAO The South Caucasus Pipeline (SCP) shareholders are: BP (28.25%), TPAO (18.62%), AzSCP (9.80%), SGC 15.5% Petronas Midstream (6.53%), Petronas (15.19%), Lukoil (9.80%) and NICO (9.80%), South Caucasus Pipeline Holding 10% NICO Company ltd CP 2.00% 10% Lukoil 10% AzSD 6.67% SGC Upstream FIGURE 14. THE SCP SHAREHOLDERS

28.25% BP 18.62% TPAO 15.19% Petronas 9.80% AzSCP 9.80% Lukoil 9.80% NICO 6.53% SGC Midstream 2.00% South Caucasus Pipeline Holding Company ltd CP

In 2019, about $48 million constituted operating expen- has two operators – BP is the technical operator for diture and about $34 million was capital expenditure the construction and operation of SCP facilities, while 29.19% BP on for the South Caucasus Pipeline Expansion (SCPX). SOCAR Midstream Operations serves as the pipeline’s 24.25% AzBTC 28.83% BP SCP has been operational since late 2006,8.63% transport- MOcommercialL operator. 19% TPAO ing “Shah Deniz” gas to Georgia and Turkey.8.44% SCPX Equinor 15.5% Petronas commenced commercial deliveries to Turkey6.33% in June TPAO 10% NICO 2018. During 2019, the daily average throughput4.85% of Eni 10% Lukoil SCP was 29 million cubic meters of gas per4.85% day. SCP Total 10% AzSD 3.29% ITOCHU 6.67% SGC Upstream 3.00% BTCII 2.42% INPEX 2.42% ExxonMobil Limited 2.28% ONGC (BTC) 28.25% BP Baku-Tbilisi-Ceyhan18.62% (BTC)TPAO 30.37%15.19% BPPetronas 25.00% 9.80% AzerbaijanAzSCP ACG ltd BTC Ko shareholders are: BP (29.19%),9. 89.AzBTC0%57% (24.25%),MOLukoil LMOL (8.63%), Equinor (8.44%), TPAO (6.33%), Eni NICO (4.85%), Total (4.85%), ITOCHU (3.29%),9.80%9.31% BTCII (3.00%),INPE XINPEX (2.42%), ExxonMobil (2.42%) and ONGC (BTC) Limited (2.28%). 6.53%7.27% EquinorSGC Midstream 62.00%.79% ExxonMobilSouth Caucasus Pipeline Holding Company ltd CP 5.72% TPAO FIGURE3.65% 15. BTC SHAREHOLDERSITOCHU 2.31% ONGC Videsh Limited (OVL)

29.19% BP 24.25% AzBTC 8.63% MOL 8.44% Equinor 6.33% TPAO 4.85% Eni 4.85% Total 3.29% ITOCHU 3.00% BTCII 2.42% INPEX 2.42% ExxonMobil Limited 2.28% ONGC (BTC) 26

30.37% BP 25.00% Azerbaijan ACG ltd 9.57% MOL 9.31% INPEX 7.27% Equinor 6.79% ExxonMobil 5.72% TPAO 3.65% ITOCHU 2.31% ONGC Videsh Limited (OVL) 28.83% BP 19% TPAO 15.5% Petronas 10% NICO 10% Lukoil 10% AzSD 6.67% SGC Upstream

28.25% BP 18.62% TPAO 15.19% Petronas In 2019, BTC had approximately $138 million9.80% of operat- Atons)zSCP of crude oil loaded on 296 tankers at Ceyhan. The ing expenditure and about $44 million of9. capital80% expen- LBTCukoil pipeline currently carries mainly ACG crude oil and diture. Since the 1,768 km BTC pipeline9.80% became oper- N“ShahICO Deniz” condensate from Azerbaijan. In addition, ational in June 2006 and up to the end 6.53%of 2019, it had SGotherC Midstream volumes of crude oil and condensate continue to South Caucasus Pipeline Holding Company ltd CP carried over 3.35 billion barrels (over 447 million2.00% tons) be transported via BTC, including volumes from Turk- of crude oil sent to the world markets. In 2019, BTC menistan, Russia and Kazakhstan. exported around 233 million barrels (about 31 million

29.19% BP 24.25% AzBTC “Azeri-Chirag-Guneshli”8.63% MO L(ACG) 8.44% Equinor ACG shareholders are: BP (30.37%), Azerbaijan6.33% ACG TltdPA O(25.0%), MOL (9.57%), INPEX (9.31%), Equinor (7.27%), ExxonMobil (6.79%), TPAO (5.72%),4.85% ITOCHU (3.65%)Eni and ONGC Videsh Limited (OVL) (2.31%). 4.85% Total 3.29% ITOCHU 3.00% BTCII FIGURE 16.2.42% ACG PARTICIPATINGINPEX INTERESTS 2.42% ExxonMobil Limited 2.28% ONGC (BTC)

30.37% BP 25.00% Azerbaijan ACG ltd 9.57% MOL 9.31% INPEX 7.27% Equinor 6.79% ExxonMobil 5.72% TPAO 3.65% ITOCHU 2.31% ONGC Videsh Limited (OVL)

BP Exploration (Caspian Sea) Limited is the operator tion is progressing ahead of schedule at Heydar Aliyev on behalf of the Contractor Parties to the ACG Produc- Baku Deepwater Jackets Factory (BDJF) with a view tion Sharing Agreement. In 2019, about $567 million to installing the pin piles later this year. Living quarters in operating expenditure and $1,476 million in capital module fabrication is progressing ahead of schedule in expenditure was spent on ACG activities. In April 2019, Sweden, and subsea pipe coating qualification testing the ACG partnership took a decision to commence the has commenced. next stage of development of the ACG field with a $6 billion project, which includes a new offshore platform In 2019, ACG continued to deliver stable production and facilities at a depth of approximate 140 meters safely and reliably. Total ACG production for the full year with 48 shaft production designed to process up to was on average about 535,000 barrels per day (b/d) 100,000 barrels of oil per day. The project is expected (over 195 million barrels or 26 million tons in total) from to achieve first production in 2023 and produce a total the “Chirag” (41,000 b/d), “Central Azeri” (134,000 of 300 million barrels of oil over its lifetime. In 2019, b/d), “West Azeri” (121,000 b/d), “East Azeri” (89,000 the project joined the main fabrication, marine and sub- b/d), “Deepwater Gunashli” (96,000 b/d) and “West sea contracts, and started construction activities in July. Chirag” (54,000 b/d) platforms. These activities continued to ramp up through the year. Currently, topsides and drilling rig fabrication and as- sembly are progressing in accordance with the plan at the “Bibi-Heybat” yard. Jacket and pin pile fabrica-

27 SOCAR Energy Georgia

SOCAR entered the Georgian market in 2006 and has SOCAR Georgia Petroleum Ltd.’s key activities are to invested in the energy sector of this country. Between import oil products (gasoline, diesel, aviation fuel, LPG, 2007 and 2019, SOCAR and its subsidiaries invest- bitumen, black oil, and oils), as well as wholesale and ed over $1.1 billion in the Georgian economy. SOCAR retail sales of oil products and the construction of SO- Energy Georgia, SOCAR Georgia Petroleum, SOCAR CAR branded filling stations and oil bases according to Georgia Gas, SOCAR Georgia Security and Kulevi Oil modern standards. Terminal continue to operate successfully in Georgia. Over 12 years, the companies have paid $1.5 billion in taxes to the Georgian state budget. This amount ap- E-Space has installed electric vehicle chargers at SO- proximately equals to the amount paid by SOCAR to CAR petrol stations in Tbilisi, Kakheti, Imereti, Adjara, the Azerbaijani budget each year. SOCAR is also the Shida and Kvemo Kartli. The charging stations can be largest taxpayer in Georgia. used free of charge. Moreover, the petrol stations in Tbilisi, Imereti and Adjara are equipped with electric wires. SOCAR Georgia Gas LLC, a company that sells oil products of Azerbaijan and third parties in the Georgian wholesale and retail markets, currently has 111 fuel fill- E-Space Level 2 EV chargers are manufactured by Aus- ing stations, 16 service centers and 5 oil terminals in trian company KEBA. The EV charger enables charging Georgia. TAt present, the company has about 1,500 up to 22 kW/h, however, all electric vehicles have differ- employees. SOCAR Georgia Gas LLC is involved in the ent on-board chargers. supply and distribution of natural gas to Georgian re- Through the collaboration between E-Space and SO- gions and manages the local gas network in the country. CAR, the first rapid charger will be installed in Gori. It will reduce the charging time to 30 minutes.

28 The primary areas of focus of SOCAR Georgia Gas are: SOCAR Georgia Security Ltd is a subsidiary of the founding company SOCAR Energy Georgia Ltd. It was • The supply and distribution of natural gas established on 6 August 2007 and operates as an in- • Provision of the population with natural gas dependent entity. The company has more than 610 em- • The construction, renovation and operation of ployees. gas distribution networks. The main activity of SOCAR Georgia Security Ltd is to ensure the security of the oil terminal, port, oil bases, petrol stations, separate offices and sites of the com- SOCAR Gas Group currently provides natural gas to pany, as well as of individuals and legal entities. As of more than 715 thousand subscribers throughout the today, more than 130 sites are under its protection. country. There are 45 consumer service centers and 16,114 modern call centers operating throughout Georgia. With 2,200 employees, SOCAR Gas Group is one of the largest employers in Georgia.

29 SOCAR Energy Turkey

2019 was of special importance for SOCAR Energy success in 2020. With exports to over 78 countries, Turkey, as the investments made by the company start- Petkim Petrochemical Complex stands out in the world ed to yield results. In October 2018, the Presidents of markets for the high quality of its products. The compa- Azerbaijan and Turkey inaugurated Star Refinery in Tur- ny will continue making investments in its digitalization key, the largest investment project in the country with journey and the modernization of its factories in 2020. $6.3 billion of investment and an annual crude oil pro- In 2019, about $120 million was invested in the Petkim cessing capacity of 10 million tons. STAR Refinery start- Petrochemical Complex. In order to modernize and im- ed to work at full capacity in 2019 after selling to the do- prove production efficiency, Petkim launched a special mestic market and now produces petroleum products program called “Petkim Benim”. It stimulates a more in- such as naphtha, xylene, diesel, jet fuel and LPG. The tensive participation of the employees in the manage- purchase of “Bursagaz”, “Kayserigas”, ”SOCAR Enerji ment, them to submit proposals to increase efficiency Ticaret”, “Enervis” and “Millenicom” in June 2019 was of the complex’s operations. The proposals by the em- another important achievement last year. SOCAR Ener- ployees were analyzed and the ones with the most op- gy Turkey has started to participate in the distribution of timal implementation were selected. As a result, about natural gas and is now, thus, involved in all elements in $5 million of the total amount of the investments was its supply chain: oil processing, petrochemical produc- made based on these proposals. The investments pos- tion, energy generation, logistics and distribution. itively impacted the work of the complex and boosted additional income.

Petkim Petrochemical Complex, in which we acquired a 51% stake from the Privatization Department in 2008, Preliminary engineering and design work on the petro- is the first and only integrated petrochemical plant in chemical complex project, which is aimed to be imple- Turkey. Petkim, which is the most reliable supplier on mented in 2019, within a joint project with BP in the Turkey’s petrochemical market, produces nearly 60 Aliaga Special Economic Zone of Izmir has continued. different petrochemical products at 15 major and six A final investment decision on the project is planned for auxiliary facilities. Petkim Petrochemical Complex broke 2020. With the commissioning of this facility, the import production records with 3.4 million tons of gross pro- of pure terephthalic acid to Turkey is expected to de- duction in 2019 and the company aims to continue its crease to zero. At the same time, this Complex will be

30 able to produce 800,000 tons of paraxylene products, In 2019, a total of 9.2 bcm of natural gas was deliv- which are currently imported into the country. ered from Azerbaijan to the Turkish market, including 2.8 bcm of natural gas via the Southern Gas Corridor and SOCAR Marine, another SOCAR subsidiary in Turkey, TANAP. The Turkish market accounted for 79% of over- became the leader of the marine fuel market in 2019. all gas exports from Azerbaijan. The company secured a 25% market share, with record sales of 600,000 tons of fuel in the year. The sales were carried out using ships, which used Turkey’s straits for transit and visited Turkey’s ports to carry out sales in the country’s ports.

31 SOCAR Energy Ukraine

SOCAR Energy Ukraine, SOCAR’s subsidiary in SOCAR plans to open new fuel filling stations in the Ukraine, was established in December 2009. The pri- Ukrainian cities of Kyiv, Kharkiv and Dnipro in 2020. mary focus of the company is wholesale and retail sale The company already launched the construction of new of petroleum products, natural gas and aviation fuel. filling stations in Kyiv and Kharkiv in late 2019 and will SOCAR has invested a total of $300 million in the com- proceed with construction in Dnipro in January 2020. pany since its inception. The company has more than The new stations will have a modern industrial style with 60 petrol filling stations and 4 oil depots in Ukraine. a special design in accordance with SOCAR’s tradition. In 2019, SOCAR Energy Ukraine launched two oil tankers, floating filling stations designed for filling small and medium-sized vessels. One of them is located in Kyiv, on the territory of the Muromets park and Primatel yacht club, while the second one is in the Odessa region, in the waters of the Sauvignon yacht club. SOCAR offers the same high-quality imported fuel on its floating filling stations as at its stationary filling stations.

32 SOCAR Energy Romania SOCAR Petroleum S.A. is SOCAR’s subsidiary in the be charged at SOCAR’s most recently purchased filling Romanian market. The company was established on 30 station in Timisoara. Customers are offered both local January 2011 in Botosani on the basis of Romtranspet- and Azerbaijani products, as well as free internet in the rol with only 12 filling stations. The company is engaged “Nar” cafe at the filling stations. in wholesale and retail sale of petroleum products in the Romanian market. SOCAR has a network of petrol stations in 18 regions of Romania. During 2019, the number of SOCAR petrol stations in Romania reached 43 (two new stations), equipped with the latest technology. SOCAR Petro- leum SA sells four types of nano fuel. Electric cars can

33 SOCAR Energy Holdings

In December 2017 SOCAR Energy Holding SC en- SOCAR Energy Switzerland has won one of five con- tered the fuel retail market in Austria by acquiring Pron- cessions awarded by the Federal Roads Office (FED- to Oil from the well-known family business group A1, RO) for the construction of 20 fast electric charging specializing in the trading of oil lubricants. stations at Swiss motorway resting places. The company is the only traditional fuel station operator to win SOCAR Energy Austria LLC was established by SO- a concession. With 7 fast charging stations at its 11 CAR to manage these companies. A1, a leading player service stations, the company has the largest network company in the refueling market across Styrian refueling on the Swiss motorways, which will now gradually ex- market, owns 82 petrol stations throughout the coun- pand over the next few years with the addition of motor- try. In July 2019, the first petrol station under the SO- way resting centers. Besides its fuel services, SOCAR CAR brand was launched in Graz. A1 filling stations in is pro-actively developing its role as a mobility provider Graz-Eggenberg now operate entirely under SOCAR and is investing in future mobility solutions. brand. The opening of the first filling station in Austria is a new stage for SOCAR. The company launched another filling station under the SOCAR brand at the end of July.

34 SOCAR Trading

SOCAR Trading and SOCAR Energy Switzerland are In November 2019, SOCAR Trading signed a con- subsidiaries of SOCAR in Switzerland. SOCAR Trad- tract with “Binh Son” Refining, while Petrochemical Co ing, established in Geneva in 2008, sells crude oil and (BSR), a unit of PetroVietnam, signed a contract with other products from Azerbaijan and third countries. The SOCAR Trading on 29 November 2019 to supply crude company was established to increase revenues from oil to the “Dung Quat” refinery in Hanoi. Accordingly, the sale of Azerbaijani crude oil in global markets via the SOCAR Trading will provide five million barrels of Azeri BTC pipeline and to expand the scope of influence of Light crude to BSR’s “Dung Quat” refinery during the Azerbaijan around the world. The company is headquar- first half of 2020. tered in Geneva and has offices in Singapore, Dubai, London, Houston and Calgary. SOCAR Trading has established contacts worldwide with refineries capable of processing ”Azeri Light” and enhanced its reputation after successfully participating in the construction of both an oil products terminal at Fujairah port of the United Arab Emirates and anat LNG terminal in Malta.

35 SOCAR Energy Switzerland

“SOCAR Energy Switzerland is involved in wholesale 182 fuel filling stations, gas filling plants located in Van- and retail sale of oil products in the Swiss market. The gen-Olten, as well as jet fuel stations at Geneva and assets of Esso Switzerland were transferred to SO- Zurich airports, that operate under the SOCAR brand. CAR’s control following an agreement signed between 4 filling stations were launched in 2019. SOCAR Ener- SOCAR and ExxonMobil in 2012. SOCAR entered the gy Switzerland plans to build 20 fast charging stations oil market of Switzerland seven years ago with a new in 2019-2023 in the country. approach, involving selling high-quality goods that meet the needs of local consumers at retail outlets with a high standard of customer service. SOCAR Switzerland has

FIGURE 17. NUMBER OF FILLING STATIONS OPERATING UNDER THE SOCAR BRAND IN SWITZERLAND

2017 169 2018 178 2019 191

36 TABLE 8. ECONOMIC INDICATORS OF SOCAR FOR 2019, THOUSAND AZN

SOCAR Azerbaijan 2017 2018 2019 Economic value generated 5,816,411 5,898,383 6,416,530 Revenues 5,816,411 5,898,383 6,416,530 Economic value distributed (3,596,185) (3,500,627) (3,647,379) Operating costs (1,387,533) (1,102,105) (1,111,402) Employee wages, social security and benefits (582,625) (703,866) (788,388) Payments to providers of capital (363,899) (356,869) (393,562) Payments to government (482,928) (550,197) (553,632) Community investments (779,200) (787,590) (800,395) Economic value retained 2,220,226 2,397,756 2,769,151 SOCAR Energy Turkey Economic value generated 5,068,992 5,127,458 9,541,087 Revenues 5,068,992 5,127,458 9,541,087 Economic value distributed (4,167,387) (4,755,107) (9,051,596) Operating costs (3,674,305) (3,983,314) (8,346,648) Employee wages, social security and benefits (215,059) (214,807) (290,160) Payments to providers of capital (152,125) (501,617) (385,218) Payments to government (125,898) (55,369) (29,570) Community investments 0 0 0 Economic value retained 901,605 372,351 489,491 SOCAR Energy Georgia Economic value generated 974,806 1,007,693 1,050,871 Revenues 974,806 1,007,693 1,050,871 Economic value distributed (904,411) (951,311) (1,000,326) Operating costs (841,956) (877,481) (920,922) Employee wages, social security and benefits (40,377) (46,121) (42,575) Payments to providers of capital (22,078) (27,451) (36,602) Payments to government 0 (258) (227) Community investments 0 0 0 Economic value retained 70,395 56,382 50,545 SOCAR Energy Ukraine Economic value generated 594,798 832,058 729,512 Revenues 594,798 832,058 729,512 Economic value distributed (560,816) (796,465) (696,169) Operating costs (538,895) (769,050) (658,395) Employee wages, social security and benefits (18,354) (22,531) (33,321) Payments to providers of capital (375) (1,524) (517) Payments to government (3,192) (3,360) (3,936) Community investments 0 0 0 Economic value retained 33,982 35,593 33,343 SOCAR Energy Switzerland Economic value generated 1,990,963 2,603,281 2,670,599 Revenues 1,990,963 2,603,281 2,670,599 Economic value distributed (1,882,161) (2,484,873) (2,551,584) Operating costs (1,781,012) (2,363,227) (2,422,699) Employee wages, social security and benefits (95,166) (110,502) (113,270) Payments to providers of capital (1,327) (2,278) (8,118) Payments to government (4,552) (8,794) (7,421) Community investments (104) (72) (76) Economic value retained 108,802 118,408 119,015 Note: Indicators for 2017 and 2018 are presented comparatively in the SOCAR’s business indicators section.

37 03

38 SOCAR’s contribution to the Sustainable Development Goals

39 SOCAR’s contribution to the Sustainable Development Goals

YOXSULLUĞA ACLIĞA YAXŞI SƏHİYYƏ TƏMİZ SU VƏ SƏRFƏLİ VƏ SON SON VƏ RİFAH SANİTARİYA TƏMİZ ENERJİ

The Republic of Azerbaijan adopted the UN Sustainable Development Goals in 2015 and committed to achieve the targets under these goals. Governments are key actors responsible for the implementation of the Sustainable Development Goals; however, the responsibility for achieving these goals lies not only with governments but also with the private sector and civil society. To this end, SOCAR tries to align its activities and initiatives with the Sustainable Development Goals to support the government and make its own contribution. SOCAR has prioritized 11 Sustainable Development Goals and has undertaken a number of initiatives guided by the commitments set by the government for each target.

Sustainable Targets prioritized Our contribution Development Goal by the Government

1.2. By 2030, reduce at least by As the largest employer in Azerbaijan, half the proportion of men, SOCAR employs young specialists, as well women, and children of all ages as members of internally displaced families living in poverty in all its and other vulnerable groups. dimensions according to national Further, SOCAR has been supporting low- deﬁnitions income families due to the coronavirus (COVID 19) pandemic in 2019-2020.

3.7. By 2030, ensure universal SOCAR has been providing health and life access to sexual and insurance and free medical examinations to reproductive health-care employees for many years. In addition, services, including for family health and occupational safety procedures planning, information and and initiatives are regularly reviewed and education, and the integration of improved. reproductive health into national The Company and facilities have been strategies and programs. disinfected to combat the coronavirus (COVİD 19) pandemic and protect the health of employees.

40 4.4. By 2030, substantially In addition to technical and non-technical increase the number of youth and training provided by SOCAR to employees adults who have relevant skills, on a variety of topics, the Baku Higher Oil including technical and vocational School established by the Company is skills, for employment, decent among the Country's top-ranking jobs and entrepreneurship. universities. Further, the Company provides employees with scholarship opportunities to study abroad.

5.1. End all forms of SOCAR attaches great importance to discrimination against gender equality and implements initiatives women and girls everywhere aimed at women's career advancement. 5.5. Ensure women's full and The Company guarantees equal career effective participation and equal advancement for both women and men. opportunities for leadership at all levels of decision-making in political, economic, and public life

6.3. By 2030, improve water The Company keeps control over water quality by reducing pollution, consumption in manufacturing facilities eliminating dumping, and and ofﬁce buildings and promotes minimizing release of hazardous recycling in water use. chemicals and materials, halving Compared to the previous year, the the proportion of untreated volume of recycled water increased by wastewater and substantially 1.1%, which was due to the increase in increasing recycling and safe overall water consumption. reuse globally.

7.1. By 2030, ensure universal Given that SOCAR is part of an energy- access to affordable, reliable, intensive industry, the Company has set and modern energy services. annual energy consumption targets and 7.b. By 2030, expand encouraged energy efﬁciency among infrastructure and upgrade facilities and employees. technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, small island developing states, and landlocked developing countries, in accordance with their respective programs of support.

41 8.2. Achieve higher levels of Continuous staff training and increased economic productivity through satisfaction and productivity among diversiﬁcation, technological employees are always in the spotlight at upgrading, and innovation, SOCAR. including through a focus SOCAR's Human Resources Functions on high-value added and Transformation Program is successfully labor-intensive sectors runrunning for the fourth year.

9.1. Develop quality, reliable, SOCAR supports the development of sustainable and resilient clean technology and invests in renewable infrastructure, including regional energy. and trans-border infrastructure, to Modernized infrastructure and technology support economic development and expanded technological capabilities and human well-being, with a are areas particularly focused on by the focus on affordable and equitable Company. access for all

10.2. By 2030, empower and ·For SOCAR, the principles of fairness and promote the social, economic, and equal opportunities are of vital importance, political inclusion of all, and the Company's decision-making irrespective of age, sex, disability, process is guided by these principles. The race, ethnicity, origin, religion, or Company takes regular measures to economic or other status. recruit young people and people from 10.4. Adopt policies, especially vulnerable groups. ﬁscal, wage, and social protection As the industry is male-dominant, the policies, and progressively achieve Company pays particular attention to greater equality gender equality and takes steps to avoid discriminatory behavior in the workplace and across the value chain

11.A. Support positive economic, SOCAR contributes to the protection of social and environmental links the cultural and natural heritage of the between urban, per-urban and country, eliminating the risks associated rural areas by strengthening with operations in the urban environment. national and regional development planning

12.2. By 2030, achieve the SOCAR produces high-quality products sustainable management and leveraging natural resources efficiently. efficient use of natural resources 12.4. By 2020, achieve the The Company ensures that waste is environmentally sound significantly reduced thanks to proper management of chemicals and management, reduction, recycling and all wastes throughout their life reprocessing techniques. cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order to minimize their adverse impacts on human health and the environment

42 13.1. Strengthen resilience and SOCAR, as a large energy consumer, adaptive capacity to climate- continuously monitors energy consumption related hazards and natural and GHG emissions, and strives to reduce disasters in all countries the volume of emissions. 13.2. Integrate climate change The modernization and reconstruction of the measures into national policies, Heydar Aliyev Oil Reﬁnery is a project which strategies and planning. will result in a reduction of emissions from motor vehicles.

14.4. By 2020, effectively Protection of the Caspian Sea basin is one regulate of the priority issues of SOCAR's harvesting and end overfishing, environmental policy. illegal, unreported and SOCAR has been utilizing a surface water unregulated fishing, and management system for many years to destructive fishing practices and prevent a discharge of produced waters into implement science-based surrounding areas during the production of management plans, in order to hydrocarbon products, and to ensure the restore fish stocks in the closed utilization of such waters. shortest time feasible, at least to levels that can produce maximum sustainable yield as determined by their biological characteristics

15.1. By 2020, ensure the SOCAR maintains strict monitoring over conservation, restoration, and potential adverse impacts and their sustainable use of terrestrial and prevention in order to maintain biodiversity inland freshwater ecosystems of its areas of oil and gas operations, and their services, in particular including the protection of ﬂora, fauna, and forests, wetlands, mountains, and soil. drylands, in line with obligations The past three years have seen a 40% under international agreements. reduction in areas polluted with oil products and produced waters as a result of SOCAR's recovery actions.

16.5. Substantially reduce SOCAR constantly monitors the corruption and bribery in all its sustainable management of structural forms units to ensure increase in efﬁciency, 16.6. Develop effective, accountability and transparency. accountable and transparent institutions at all levels 16.7. Ensure responsive, inclusive, participatory and representative decision-making at all levels

43 17.9. Enhance international It is of utmost importance for the Company support for implementing to collaborate with more experienced effective and targeted capacity- organizations and experts to achieve SDGs building in developing countries and relevant targets. to support national plans to SOCAR builds strong relationships through implement all the Sustainable strategic partnerships in areas such as Development Goals, including environmental protection and education, through North-South, South- and contributes to sustainable South, and triangular development. cooperation

SOCAR has started to determine specific and measurable targets to increase its contribution to the SDGs aligning with the Company’s scope of activity. The Company has involved all facilities and relevant employees in charge to discuss their suggestions and expectations and to properly identify new targets. The results of this process will be reflected in future SOCAR reports.

44 45 04

46 Corporate Governance

47 Corporate Governance

SOCAR’s corporate governance involves relations between the Company’s senior management executives, Board, shareholders (in this case, the state) and other stakeholders. The role and responsibilities in this corporate governance system are determined within the system’s integrity. In general, SOCAR’s Corporate Governance System involves shaping relations with all stakeholders of the Compa- ny, with an emphasis on the interests of stakeholders and contributions to the Company’s operational and strategic performance, as well as sustainable development. Corporate governance should have a vision that guides all the strategic decisions and activities of the Company, the goals and objectives that determine the Company’s mission, the principles and values that embody the Company’s concepts, policies that reflect techniques and approaches to activities, and quality, vitality and sustainability in the steps and decisions taken to achieve the Company’s targets.

Responsibility Transparency Justice Accountability

Ensure that the Company Share accurate, clear and Ensuring equal Protect Company’s acts in accordance comparable information opportunities assets and balance the with laws and with the public rights of shareholders regulations regulations, and other stakeholders maximizes social and environmental values while generating value for and investors

SOCAR’s Strategic Development Targets Management Structure SOCAR’s management structure consists of the senior management, the Company’s Board, the Audit Committee, the Risk Management Committee, the Procurement Committee, the Human Resources Management Commit- tee and the Information Security Committee. Top Management involves the President of the Company and 12 Vice-Presidents responsible for various fields. The President and Vice-Presidents of the Company are appointed by the President of the Republic of Azerbaijan.

Top Management As part of the corporate governance system, SOCAR’s top management works hard to identify the best way to achieve the Company’s strategic goals, organize and monitor activities, as well as maintain a balance when protecting the interests of stakeholders and informing them about actions taken. Top management salaries are paid in accordance with the Labor Code of the Republic of Azerbaijan, based on the ”Unified Tariff Qualification Reference Book of Works and Occupations of Workers” prepared by the Collegium of the Ministry of Labor and Social Protection and the Ministry of Justice, as well as based on Regulations on Labor Compensation at SOCAR.

48 FIGURE 18. SOCAR’S TOP MANAGEMENT STRUCTURE IN 2019

Rovnag Abdullayev President of SOCAR

Suleyman Gasimov Elshad Nasirov Khoshbakht Yusifzade Vice President for Vice President for The First Vice President Economic Issues Investments and Marketing

Badal Badalov David Mammadov Mikayil Ismayilov Vice President for Vice President for Reﬁning Vice President Social Issues

Khalik Mammadov Rahman Gurbanov Raﬁga Huseyn-zade Vice President for HR, IT and Vice President for Oil and Gas Vice President for Ecology Regulations Transportation and Gas Facilities

Toﬁg Gahramanov Bahram Huseynov Yashar Latifov Vice President for Vice President for Vice President for Strategic Development Geology and Geophysics Field Development

HIGHEST GOVERNANCE BODY SOCAR'S BOARD COMPOSITION IN 2019

Rovnag Abdullayev President of SOCAR

Head of the Azerbaijan Trade SOCAR's Vice presidents Union Republican Committee of Oil and Gas Industry Workers

49 Committees and sub-elements of the tion, reduction and management of risks in the activities management system of the facilities and units, as well as to gain the trust of business partners. In light of the above, the Company In the context of modern economic relations it is now of has formed the Audit Committee, the Risk Committee, vital importance for the senior executives to be informed the Procurement Committee, the Information Security promptly on the expansion of production processes, in- Committee, and the Human Resources Management creased control of production, assistance in addressing Committee. shortcomings, maintenance of financial stability, improvements to the quality of management, and elimina-

TABLE 9. COMMITTEES AND THEIR FUNCTIONS

Committee Functions

Audit Committee Determines internal audit policy and strategy Approves internal audit plans Monitors internal auditing activities Provides recommendations on improvement of control system Submits proposals to improve the risk management system to the relevant governing agencies Identiﬁes ﬁnancial risks and other high-risks areas at SOCAR and structural divisions

Risks Sets up a risk management system Management Monitors risk management procedures, and manage Company-related risks Committee effectively Shapes and increases the effectiveness of the internal control system

Procurement Monitors the compliance of procurement procedures with the regulatory Committee documents Coordinates the procurement process among structural units Approves procurement strategy Involves external consultants and experts to ensure the effectiveness of procurement procedures, and determines expected value

Information Ensures that appropriate decisions are made on issues related to manage - Security ment of information security Committee Ensures that the development priorities of information security functions are determined to achieve the necessary level of protection of the Company’s assets

Human Resources Sets SOCAR’s stafﬁng policy Management Supervises human resource management and its activities Committee Undertakes the employer function on behalf of SOCAR with respect to employees determined by SOCAR’s president Supervises the Scholarship Program for students studying at both local and foreign educational institutions.

50 TABLE 10. COMPOSITION OF THE COMMITTEES

Name of the committee Composition of the committee

Procurement Chairperson: Committee Vice President for Field Development Deputy Chairperson: Vice President for Refining Members: 1. Procurement Department 2. Legal Department 3. Capital Investments Department 4. Economics and Accounting Department 5. Mechanics and Energetics Division 6. Manufacturing Process Automation and Metrology Division 7. Advisor to Vice President for Oil and Gas Transportation and Gas Facilities 8. Information Technologies Department 9. Department of Control for Transportation

Information Chairperson: Security Vice President for HR, IT, and Regulations Committee Members: 1. Vice President for Economic Issues 2. Vice President for Oil and Gas Transportation and Gas Facilities 3. Legal Department 4. SOCAR Head Office, Information Technologies Department 5. SOCAR Head Office, Secret Regulations and Military Draft Division 6. SOCAR Head Office, Geology and Geophysics Division 7. SOCAR Head Office, Manufacturing Process Automation and Metrology Division 8. Information Technologies and Communication Department 9. Security Department

Chairperson: Human Vice President for HR, IT, and Regulations Resources Members: Management 1. Vice President for Economic Issues Committee 2. Vice President for Social Affairs 3. Vice President for Oil and Gas Transportation and Gas Facilities 4. Vice President

Risk Chairperson: Management Vice President for Economic Issues Committee Members: 1. Vice President for Oil and Gas Transportation and Gas Facilities 2. Vice President for Refining 3. Legal Department

Audit Chairperson: Committee Vice President Members: 1. Vice President for Economic Issues 2. Legal Department

51 Risk Management System

The Company’s risk management system was estab- The Head Office Risk Management Department as well lished in 2008 in accordance with the COSO Enter- as risk managers and the risk management departments prise Risk Management concept. established at SOCAR entities act as executive bodies within the risk management system. Each year, the ex- Each year the Company identifies and assesses opera- ecutive bodies, at both the corporate and facilities lev- tional, strategic, reporting and compliance-related risks els, prepare risk lists for the next year and submit them faced by the Company, in line with the regulatory docu- to the Risk Management Committee. The document is ments on risk management approved by the Company’s then approved by the President of SOCAR as the Cor- President, and gives necessary instructions to respec- porate Risk Map. tive structural units to keep control and manage these risks. The company’s risk management system contributes to the Company’s efforts to eliminate or minimize risks in the following four main areas.

FIGURE 19. RISK MANAGEMENT SYSTEM

Risk regulation and Risk acceptance prevention

Risk avoidance Risk transfer

FIGURE 20. CORPORATE RISKS MAP APPROVAL PROCESS

Corporate risk map approval process

Structural units Risks Committee SOCAR's President Monitoring of the risks listed in the Corporate Risk Map Corporate Risk Map Corporate Risk Map coordination approval Submission of reports to the Risk Management Committee

52 TABLE 11. TYPES OF RISK IDENTIFIED

Risk group Risk

Liquidity Lack of floating assets caused by lack of full payment for consumed natural gas

Logistics Damage to/loss of transported production Processing Disruption of production due to accidents (unscheduled interruptions) Processing Damage to key equipment due to accidents Processing Interruption in the crude supply (gas supply) Energy Interruption in the power supply Currency Fluctuations in the exchange rate (AZN/Euro/USD) Interests Increase in interest rates for loans received Procurement of goods and Inaccurate planning and execution of procurement of goods and materials (equipment) materials (equipment) Procurement of goods and Risk of inaccurate procurement planning materials (equipment) Processing Accidents at processing facilities Energy Interruptions in the electric power supply Processing Damage and loss of equipment as the result of accidents

Along with critical and moderate risks, the Company, re- with social welfare. Actions taken to manage these risks gardless of the risk level, has prioritized managing eco- are included in SOCAR’s quarterly monitoring reports. nomic risks, environmental risks and risks associated

Internal Control System (ICS)

The Internal Control System introduced by the Compa- General Corporate Basic Business Processes ny aims to ensure a unified approach to internal control, • Funds management identify reasons for deficiencies discovered at SOCAR • Human resource management structural units, provide recommendations to address • Legal guarantees these deficiencies and apply best practices, render op- • Procurement and inventory management erational and methodical support, verify the accuracy of • Occupational safety and health information received about deficiencies, and take nec- • Asset management essary actions based on the verification results. To raise • Ecology awareness of how to improve the internal control sys- • Social security tem, the Company organized a training for the relevant • Risk management Head Office personnel in 2018. In addition, in the same • Enforcement and clerical work year, the Company launched monitoring of the internal • Information technology management control system at SOCAR’s structural units. Reports Along with the General Corporate Basic Business on monitoring were submitted to the Risk Management Processes at 19 SOCAR structural units, the Compa- Committee. ny has identified Basic Business Processes and their Throughout 2019, 51 sub-business processes were sub-business processes specific to the individual struc- identified across 11 General Corporate Basic Business tural units in order to develop risk control tables with Processes under the Internal Control System, and all graphical representations. structural units of the Company developed risk control Based on the graphical representations of business tables with graphical representations. processes, risk control schedules and test plans, the Company has planned to conduct tests in SOCAR’s structural units in 2020.

53 Internal Audit

The Company has created a risk-oriented internal audit by the Audit Department. Annual audits are performed system to help SOCAR achieve its goals, to develop by the Audit Department with final reports submitted to control and corporate governance processes, and to the Audit Committee for approval. The Audit Committee assess the efficiency, adequacy and effectiveness of then submits these approved reports to the President the control and management systems. The Company’s of the Company. Compliance internal audit system involves decision-making and ex- The Company complies with the applicable laws, as well as takes ecutive bodies, with the functions of the former carried into account the cultural traditions and business out by the Audit Committee and of the latter carried out

FIGURE 21. ROLE OF SENIOR MANAGEMENT

SOCAR’s President and senior executives Effectiveness assume additional duties to fulfil the following The Company strives to increase ethical norms and values effectiveness of its operations by implementing social programs, improving well-being of employees and broader society

Ensure that full and accurate information Ethical about the Company is disclosed in due time as required by laws and Avoid making Demonstrate principles international decisions that lead to exemplary conduct in documents Accuracy and transparency significant and implementation of unjustified reduction of ethical norms and The Company operates properly, fulfills employees in the principles determined all its responsibilities and tries to company by the present Code of maintain its reputation as a reliable Conduct partner, as well as ensures transparency of its operations and transactions.

Take actions to Perform business in promote an view of social environment of truth, responsibility to the integrity, mutual Professionalism and public and community Role of respect, and honesty competency Senior The Company strives to involve highly qualiﬁed candidates, Management increase their qualiﬁcation by investing in training and development

Act honestly with respect to employees Provide workers with and respond promptly safe working conditions and in a timely manner that do not threaten to their suggestions, their life or health ideas, requests, and complaints.

Build Company and employee relationships Avoid discrimination, on the basis of ensure equal rights and long-term cooperation, opportunities in common goals, respect remuneration and career and mutual interest, progression social partnership

Code of Business Ethics, 2013

54 Compliance The Company complies with the applicable laws, as well as takes into account the cultural traditions and business

Effectiveness The Company strives to increase effectiveness of its operations by implementing social programs, improving well-being of employees and broader society Ethical principles Accuracy and transparency The Company operates properly, fulﬁlls all its responsibilities and tries to maintain its reputation as a reliable partner, as well as ensures transparency of its operations and transactions.

Professionalism and competency The Company strives to involve highly qualiﬁed candidates, increase their qualiﬁcation by investing in training and development

Anti-corruption System SOCAR has doubled its efforts to combat corruption Company would rely on in all its undertakings. Each of and enhance transparency in order to address threats the standards bases on the concept of increased trans- that are likely to affect the widely recognized business parency and involves regulations governing various as- reputation of the Company and weaken its position in pects of combatting corruption. the market. The regulatory framework of this process The first three standards of the package and the most is a set of documents composed of 9 standards on recently adopted policy on regulation of conflicts of in- Combatting Corruption and Enhancing Transparency terests at the Company are available on SOCAR’s cor- approved on 10 August 2012. The package came into porate website. force on 1 January 2013 and assumed a role that the

55 2013 2013 2017

Set of anti-corruption and Standard for methodology of Policy governing the conﬂict transparency standards anti-corruption system of corporate interests evaluation

FIGURE 16. KEY ANTI-CORRUPTION PRINCIPLES

Key anti-corruption principles

Intolerance to Elimination of Inevitability of corruption hierarchical barriers punishment The Company adheres to All employees of the Employees who violate the the principle of Company, regardless of anti-corruption principles non-acceptance of any the position, must follow and requirements will be type of corruption the principles and held liable regardless of requirements of the policy the size and form of the violation

56 SOCAR identiﬁes three categories of business processes in terms of their approach to the corruption risk

Sensitive to Manages corruption risk Neutral to corruption risk corruption risk

Four main objectives guide the Company in combatting corruption as part of the anti-corruption system.

Objective Tool

Develop a corporate Training on combatting anti-corruption corruption and culture and raise enhancing transparency awareness accordingly

Develop action plan for Management of pre- assessment and corruption-related risks prevention of corruption cases

The Hotline – SOCAR’s tool for Discover cases and ensure informing on violations of the Code a secure ﬂow of information of Conduct and anti-corruption requirements

Ensure that the system for combatting corruption Checking compliance and enhancing transparency is adequate

57 All employees of the Company, especially senior execu- Along with the Company’s staff involved in risk manage- tives, have been instructed on the new standards in the ment, senior executives in SOCAR’s joint ventures were Code of Conduct. Held via distant-learning or in per- also trained in combatting corruption and enhancing son, training helps the Company to explain SOCAR’s transparency in 2019. anti-corruption policies, procedures and associated In total, over 600 employees from 16 SOCAR structural commitments to the senior executives. At the end of units have been trained in anti-corruption policies since the training, the Company assesses the effectiveness they were introduced. and sufficiency of the training and reports to the senior executives the feedback on what it should additionally introduce in the upcoming years.

The Hotline

The SOCAR whistle-blower system known as the • Environmental and production safety Hotline consists of specialized channels used by SO- • Charity, social and sponsorship activities CAR’s employees and other interested parties to submit doubts about the lawfulness and / or ethics of actions • Accounting and tax accounting, reporting, in- by SOCAR employees or other related parties, rea- cluding financial, managerial, etc. sonable suspicions of violations of SOCARSOCAR’s • Procurement activities Code of Business Ethics and Anticorruption Policy, as Financial, debt and investment transactions, well as other violations that cause or may cause material • mergers and acquisitions damage to SOCAR and / or its employees, or harm to its business reputation. • Asset management, use or disposal of property SOCAR aims to ensure that the Hotline functions ef- • Contractual relations, settlements with contrac- fectively, and that it processes all messages received tors and other third parties in accordance with the requirements of applicable laws • Confidentiality of information and this Standard. • Other areas of SOCAR’s activities aimed at Scope of application of the Hotline and areas for identi- achieving its economic and / or socially import- fying possible violations at SOCAR ant goals.

• Transparency and business ethics, sustainability-related activities • Anti-fraud and anticorruption

Checking Compliance

SOCAR found it necessary to assess the anti- uponupon requestsis prepared after the results of the corruption system itself in order to increase its integrity auditing procedures become known and is submitted to and effectiveness. The Company has developed an the Risk Management Committee. It includes violations anti-corruption system compliance program based discovered and an assessment of the tolerance system on SOCAR’s Anti-Corruption System Evaluation of the Company. Methodology, a document approved by the Company’s Executive Order of 29 January 2013. A report

58 Corruption Risk Management

Corruption risk management is recognized to be the ports, including cost monitoring reports, reviews of doc- most effective specific mechanism to prevent corrup- uments on the inspection of commercial deliveries, re- tion. The Company identifies, measures and effectively views of media reports, and expert opinions. Based on manages risks to minimize the risk of corruption that it the monitoring, the Company develops an action plan to may be exposed to. Further, risk scenarios are devel- eliminate risks, taking into account the specifics of each oped based on the specifics of business procedures business process and structural unit of SOCAR. that are likely to identify the corruption risks at the Com- pany. In 2019, corruption risk was monitored in both key and supporting business processes at SOCAR to identify the extent to which corruption risk was present. Monitoring and assessment of corruption risk is based on the stakeholders’ opinions, internal and external re-

Regulation of Conflicts of Corporate Interest

We also have a policy governing conflicts of corporate as to obtain knowledge of potential conflicts of interest interest to prevent situations or circumstances that are before they happen. likely to hinder the achievement of SOCAR’s strategic Confidentiality is especially important in the process objectives or that have an adverse impact on corporate of data collection, and the Company has established values. a channel to ensure confidential storage of collected We are guided by the set of standards for combating data, including confidentiality of internal letters on conf- corruption and enhancing transparency, as well as the licts of interest that may arise between employees and standard for governing the conflicts of corporate inte- the Company (with the exception of certain cases). The rest. The former standard explains in detail how to hand- risk of potential conflicts of interest turning into actual le conflicts of personal and corporate interest, while the conflicts of interest is also analyzed by the Company. latter one governs conflicts of corporate interest.Each Afterwards, a comprehensive report on the collected standard has relevant clauses that focus on an emp- data is submitted to the Risk Management Committee. loyee failing to perform duties because of a conflict of A database has also been established to ensure the personal and corporate interest, and on preventing cir- anonymity of whistle-blowers who submit information cumstances likely to affect objective decision-making at on corruption, conflicts of interest and violation of ethi- the Company. cal principles through the Hotline. In 2014, the Company created warning notices for personal conflicts of interest, commercial conflicts of interest and other conflicts of interest with the aim of preventing situations where employees are unable to fulfill their duties as a result of conflicts of interest between them and the Company, or situations or conditions that could influence their objective decision-making, as well

59 Stakeholders

As one of the most powerful companies with a high cor- tween its open dialogue policy, transparency and com- porate responsibility in the country and region, SOCAR mercial interests.ləndirmək və inkişaf etdirməyə xususi emphasizes the maintenance, strengthening, and de- diqqət ayırır. Şirkət bu cərcivədə acıq dialoq siyasəti, velopment of relationships with its stakeholders. In this şəffaflıq və biznes sirri anlayışları arasında balansın qo- context, the Company seeks to maintain a balance be- runmasına calışır.

FIGURE 24. SOCAR'S KEY STAKEHOLDERS

Media Community

Employees Government of the Republic of Azerbaijan and state institutions

Business partners Foreign and international organizatons

Competitors Suppliers and contractors

60 TABLE 12. SUMMARY OF STAKEHOLDERS COMMUNICATION MECHANISMS

Stakeholders Communication channel Communication frequency

Government of Reports Quarterly, yearly and in the Republic of Public meetings, response to inquiries Azerbaijan and state Site visits, institutions Inspections and monitoring

Media Public Year round based on the visiting Social projects days of vice-presidents (http:// Local meetings socar.az/socar/az/home/contact- Hotline us/visiting-days) Social media Meetings with vice-presidents on scheduled dates

Suppliers and Procurement process contractors Supplier performance Year round evaluation

Special events Year round Mass media Press releases

Joint industrial projects Business partners Year round Conferences and events

Performance evaluation, training and development programs Company Individual meetings Year round employees Anonymous surveys Internal communication mechanisms

Conferences Competitors Projects Year round Industrial associations

TABLE 13. SOCAR FOLLOWER STATISTICS ON SOCIAL MEDIA PLATFORMS IN 2019

Facebook Instagram Youtube Twitter Linkedin Total

SOCAR 97 000+ 25 000+ 2 000+ 7 400+ 37 000+ 168 400+

Employee relations The Company considers human capital to be its most duct. Key principles include the prohibition of discrimi- important asset. Key principles necessary for the devel- nation, as well as equal opportunities for all employees opment of this capital are stated in the Code of Con- regardless of their religion, race and gender.

The Company seeks to ensure a healthy working environment, enabling new opportunities necessary to increase the professionalism and competence of each employee

Discriminatory behavior is prohibited, and the Company prohibits conduct that is deemed normal by local cultures and traditions in various countries but contradicts the Company’s Code of Conduct.

Employee relations, including hiring and dismissal, attestation and assessment, training and development, compensation and bonus payments, etc. must be based on applicable legislation, transparency and objecti- vity

Employee competence and accomplishments are assessed based on professionalism, qualifications and performance, without considering gender, race, nationality, religion, physical capabilities, or political views.

61 05

62 Human resources

63 Human Resources

SOCAR’s primary goal is to provide broad and promising employment opportunities at all Company facilities and overseas offices, as well as to develop professionals meeting present-day requirements and to promote a working environment enabling employee satisfaction and equal opportunities for all.

The personnel policy pursued by SOCAR is aimed at maintaining the existing staff, developing them, and making effective use of human resource opportunities, while improving management in line with international standards, meeting the changing demands of the market economy and developing SOCAR’s strategy.

FIGURE 25. HUMAN RESOURCES MANAGEMENT FUNCTIONS AT SOCAR

Training and Testing and Personnel development eamination services Reports

Training for assisting Electronic test employees; employee examinations are Different personnel training for workers; conducted to check the operations regulated by selection of young logic, professional and the means of the SAP system specialists for education in company-related and various stafﬁng prestigious foreign knowledge during reports prepared by the universities; various recruitment and placement, system exchange programs; staff certiﬁcation, as well as scholarship programs for selection of scholarship local students are organized recipients or implemented

HR Portal Employment Performance assessment

The Human Resources A centralized, multi-stage, Competency and Portal has been launched automated, fair and effectiveness management to provide effective transparent methods have been electronic communication competition-based developed. Competency to employees employment process was Management Project was developed and initiated in Azenft PU, the implemented in SOCAR Company's largest entity

Human resources management policy at SOCAR is 2013. The strategic goal of human resources policy at governed by the Company’s Personnel Policy approved SOCAR is to build a human resources management by SOCAR President’s Order No. 57, dated 22 April system meeting international standards.

64 Human Resources Transformation Program

SOCAR’s Human Resources Transformation Program In 2018, implementation of the processes under the (HRTP), currently implemented at the Company, pur- HRTP continued in accordance with the schedule. suant to the Agreement signed between SOCAR and Moreover, in 2018, all facilities of “Azneft” Production international consultant SAP CIS in 2015, involves the Union introduced Competency Management, a part of subprojects provided in Figure 27. the HRTP.

FIGURE 26. SOCAR'S HR TRANSFORMATION PROGRAM

Competency Training and management development management

Introduce development methods assessment Actualize competencies Introduce a platform that will support distant Evaluate competencies education Determine high and very important tasks Unify and automate the catalogue of teaching Identify successors materials Develop individual development plans

Effectiveness Recruitment, management placement and adaptation

Set and evaluate targets on an annual basis Develop applicant proﬁle system Automate the additional / changing part of Track career development of newly hired awarding procedure employees Plan career development for employees Assist in adaptation of newly hired based on targets employees

65 FIGURE 27. COMPETENCY MANAGEMENT INDICATORS AT AZNEFT PU, 2019

Number of employees Line manager successfully 6046 subjected to 800 tested for behavioral competency evaluation competencies at HR Portal

Line managers involved Important and 1839 in theoretical 906 very important positions and practical training

Number of successors 1027 selected for important and very important positions Talent attraction and recruitment Recruitment at SOCAR is based on a competitive pro- Moreover, 4,638 employees retired in 2019 what access taking into account relevant standards and other counts for 9.01% of the workforce. Of those, 2,983 regulatory documents of the Company, in accordance were granted early retirement, 114 retired due to age, with labor legislation of the Republic of Azerbaijan. and 1,541 retired as they received disability pension. According to provisions of the collective agreement, if As of 1 January 2020, number of SOCAR employees an employee is dismissed within one month after reach- was 51,695, including those of the Company’s facilities ing retirement age, that employee shall be paid five times and subsidiaries. During 2019, employment contracts their monthly salary. In general, a notice of any potential with 2,948 employees were terminated for various rea- change in the Company’s structure, i.e., the closure of sons. Of the overall number, 1,440 employees left to a facility or staff redundancy, is mailed to employees at take another job, while the remaining 591 were trans- least two months in advance. ferred to other facilities and subsidiaries of the Com- pany.

FIGURE 28. EMPLOYEE DYNAMICS

6 181 Senior executives

8 989 Specialists

35 632 Manual 857 workers Technical personnel

66 FIGURE 29. NUMBER OF EMPLOYEES AND NEWLY HIRED EMPLOYEES IN 2019

1 008

47 177 3 518

2 510

Already working Internal rotation Newly hired Employed from outside

67 2018-ciYoung ildəWorkers İRFT proqramı Training çərçivəsində proseslər Innəzərdə 2019, tutulmuşSOCAR’s plan Training qrafikə Center əsasən received davam 180 etdirilm stu-- The third stage of the contest – a test – was taken by dentsişdir. 2018-ci to train asil ərzində qualified “İnsan workers. resurslarının In total, idarə347 edilməstudents- 918 applicants. 307 of them achieved the pass score weresi proseslərinin enrolled in Sumgaittransformasiyası” Training and proqramının Education Centertərkib and were entitled to study at the training centers. How- (STEC),hissəsi olan Gobustan “Səriştəliliklərinin Regional Trainingidarə edilməsi” Center (GRTC)lahiyəsi ever, 40 places remained vacant as there werewas a andistiqaməti Personnel üzrə TrainingSOCAR-ın Organization “Azneft” İstehsalat Center across Birliyinin 20 small number of applicants who attended the test and bütündisciplines. təşkilatlarında tətbiq edilməsinə başlanmışdır. achieved the pass score (which is 11 points) in some specialties. A repeated contest was announced for the SOCAR-da2,138 applicants işə qəbulsubmitted Azərbaycan e-applications Respublikasının to participate in the contest, 1,745 of which were awarded the vacant places and only 160 of the 335 applicants were əmək qanunvericiliyinin tələbləri nəzərə alınmaqla, Şirkə- right to participate in the second stage of the contest as invited to interview as they applied for the first time, tin müvafiq standartlarına və digər normativ sənədlərinə they successfully met the conditions provided for in the while the remaining 175 were invited directly to the test uyğun olaraq müsabiqə yolu ilə həyata keçirilir. ”Rules for Admission of Students to SOCAR’s Training as they had already participated in the previous con- SOCARCenters”. üzrə294 ofmüəssisə the candidates və təşkilatlar who were daxil granted olmaqla,1 the test. Overall, 182 out of 208 were eligible to participate yanvarright to 2020-ciparticipate il intarixinə the second işçilərin stage faktiki were sayı registered 51695 in the test. Based on the results of the test from the repeated contest, 34 of those who achieved the pass nəfəras candidates təşkil edir. with 2019-cu secondary il ərzində vocational müxtəlif education, səbəblərə and score were successful in the contest in the specialty görə1,451 2948 were nəfərregistered işdən as azad candidates olunanlardan with full yalnız secondary 1440 education (11 years). which they chose. nəfəri kənara getmiş yəni Şirkəti tərk etmişdir. 2948 Finally, 341 applicants were declared winners of the nəfərdənA total of 1,064591 nəfəri people Şirkətin participated digər müəssisələrində in the second stage işə contest of the 2019-2020 academic year and were qəbulof the olunmuşdu.contest – interviews – with 996 of successful candidates becoming eligible to participate in the next awarded the right to study at SOCAR’s Training Cen- stage.Eyni zamanda qeyd etmək lazımdır ki, 2019-cu ildə təqa- ters. üdçülərin sayı 4638 nəfər olmuş, bu da ümumi işçilərin sayınınOverseas 9.01%-ni Scholarship təşkil edir. OnlardanProgram 2983 nəfəri güzəştliIn 2019, şərtlərlə, 9 students 114 were nəfəri selected yaşa görə for SOCAR’s və 1541 Overnəfər- tech, the University of Toronto, the University of New- əlilliyəseas Scholarship görə təqaüdə Program. çıxanlardır. The selectedKollektiv studentsmüqavilədə will castle, Imperial College London and George Washing- qeydstudy olunan at world müddəalara leading universitiesəsasən, işçi –təqaüd the University yaşına çat of- ton University. In addition, 3 graduates of the Overseas dıqdaAberdeen, bir ay the ərzində French işdən Institute azad ofolunarsa, Petroleum həmin (IFP), işçiyə the Scholarship Program were hired by SOCAR upon suc- əməkUniversity haqqının of Melbourne, beş misli ödənilir.the University Ümumiyyətlə, of Mines Şirkətin Paris- cessful graduation from university. strukturunda baş verəcək dəyişiklik, yəni müəssisənin ix- Internaltisarı və ya Scholarshipştatın ixtisarı haqqında Program xəbərdarlıq ən azı iki ay öncədən müvafiq işçilərə məktub şəklində göndərilir. A call for applications for the Internal Scholarship Prog- the program requirements. 260 students who achieved ram was announced electronically at www.socar.az/ the pass score set by the ISP Commission were invited tehsil website for the academic year 2018-2019 from to take part in the next stage – interview. Following the 6 March 2019 through 1 April 2019. 2,305 students interviews held on 27, 29, and 31 May 2019, and 3, 7, from 26 universities applied for the program, with 1,558 and 10 June 2019, 94 students were awarded a SO- students admitted to the test, as they successfully met CAR scholarship.

Unpaid Internship Program SOCAR has been running its Unpaid Internship Prog- nology, mechanics, oil and gas extraction, or constru- ram for many years. Every year, SOCAR offers oppor- ction engineering, at universities in both the Republic tunities to students who are citizens of Azerbaijan stud- of Azerbaijan and foreign countries, to take part in the ying control-gauging instruments, automation, ecology, Internship Program. A total of 1,675 students from both energy, geological exploration, information and commu- local and foreign universities attended the Unpaid Inter- nication technologies, economics, chemistry and tech- nship Program in 2019. ASAN Volunteer Internships at SOCAR On 21 October 2016, as part of the Master 2 program, their specialty. As part of the cooperation, 245 ASAN SOCAR and the State Agency for Public Service and volunteers were nominated to take internships at ap- Social Innovations under the President of the Republic propriate structural units of SOCAR in 2019. 67 ASAN of Azerbaijan (ASAN) signed a cooperation agreement volunteers who were successful in the interview were on internship opportunities for ASAN volunteers in all selected for internships in 2019. SOCAR entities and departments in accordance with

68 68 Employee and talent development

TABLE 14. TYPE AND NUMBER OF TRAINING SESSIONS

Number of training Number of Training or Education Center sessions provided participants

Employee Development Center 576 4 717

Training Center for the Safety 199 1 405 of Life at Sea

Sumgait Education and Training Center 41 368

Gala Education and Training Center 68 503

Gobustan Regional Training Center 27 344

External training centers 206 2338

TABLE 15. AVERAGE TRAINING HOURS PER EMPLOYEE IN 2019, BY GENDER AND EMPLOYEE CATEGORY

SOCAR Azerbaijan SOCAR Energy Turkey

Senior executives 30 Senior executives 108 Specialists 40 Specialists 859 Technical personnel 33 Technical personnel 638 Manual workers 64 Manual workers 2 577 Women 35 Women 461 Men 53 Men 3 721

SOCAR Energy Georgia SOCAR Energy Ukraine

Senior executives 184 Senior executives 176 Specialists 802 Specialists 648 Technical personnel 2 080 Technical personnel 30 Manual workers 1 449 Manual workers 1 181 Women 893 Women 1 025 Men 3 622 Men 1 010

SOCAR Energy Switzerland

Senior executives 58 Specialists 118 Technical personnel 643 and Manual workers Women 539 Men 280

69 69 06

70 Social activities and support for local development

71 Social activities and support for local development SOCAR fully recognizes its social responsibilities. It toward identifying and managing social impacts that ari- participates in the country’s social initiatives and cont- se as a result of the Company’s interventions, as well as ributes to all important social and economic projects creating positive social change by maintaining an open implemented at local level. The Company takes steps dialogue with all interested parties/stakeholders.

Charity and sponsorship

SSOCAR carries out various activities to achieve pos- ments made in accordance with the standard on Chari- itive outcomes for the society. Table 17 presents pay- ty, Social and Sponsorship Assistance in 2019.

CƏDVƏL 16. PAYMENTS MADE IN ACCORDANCE WITH THE STANDARD ON CHARITY, SOCIAL AND SPONSORSHIP ASSISTANCE SOCARSS009.2012 IN 2019

Material assistance Charity Social expenditure Sponsorship Total, AZN

34,150.00 244,637.40 5,083,953.93 2,908,097.08 8,270,838.41

THIS INCLUDES:

Scope of support Paid in 2019 (AZN)

Sports 1,380,360.00

Financial Associations and Trade Unions 4,865,010.01

Education 771,000.00

Financial aid to individuals 1,240,581.00

Disabled veterans and other persons 13,887.40

Total 8,270,838.41

72 Well-being of employees SOCAR constantly strives to find solutions to social Program, which consists of 352 items approved by the problems faced by its staff and takes large-scale mea- joint order of the State Oil Company of the Republic of sures in this respect. In order to improve the social Azerbaijan and Republican Committee of Trade Unions well-being of its employees, the Company continued of Azerbaijan Oil and Gas Industry Employees. initiatives under the 2016-2020 Social Development

FIGURE 30. IMPROVED HOUSING CONDITIONS FOR EMPLOYEES

Housing queue Provided with housing

441 33

2 529 37

Baku city Land plot Regions Apartment

TABLE 17. AMOUNT OF MATERIAL ASSISTANCE AND NUMBER OF RECIPIENTS IN 2019

For 2019 Article № Type of assistance Payment ratio Number of recipients Amount of assistance, (AZN)

Assistance to one of the family 4.1.1. 20 161 620,650.00 members of a deceased employee

4.1.2. Death of a family member 5 1 318 1,233,500.00

Children of employees who died in the 4.1.3. Nagorno-Karabakh War or during 19-20 January, 5 1 11,700.00 until they reach 18 years of age (or until the age of 23 if they are full-time students) for each child, monthly

Children of a deceased employee until they reach 4.1.4. 18 years of age (or until the age of 23 if they are 2.5 915 5,009,244.00 full-time students) for each child, monthly

Payments under the Standard on Charity, 4.2. and Social and Sponsorship Assistance 54 8,270,838.41 (SOCAR - 009.2012)

Total 2 449 15,145,973

73 Support of families of ill or injured employees

Telemedicine service

Starting from 2018, SOCAR has incorporated Teleme- whether they are at work or at home, to obtain medical dicine and International Experts’ Alternative Advisory advice and a supplementary medical report based on Services into the Voluntary Medical Insurance Program the diagnosis issued to them. to enhance the level of health care provided to Com- The Company raised the awareness of this service pany employees. among staff at some structural units during 2019. As Company employees may be unable to visit clinics due to work, time constraints or distance to health care facilities, this service enables them to be in contact with a doctor 24/7 using an online service regardless of

Establishing positive relations with the community

Building mutually beneficial relationships with local peo- struction and repair works in various regions and cit- ple is one of the issues constantly in focus at SOCAR. ies of the country as part of the state programs for so- Our Company keeps track of the social impact of its cio-economic development of the regions. activities and tries to eliminate negative environmental SOCAR has launched the construction of the Baku Tal- or social impacts if they pose a threat to the local pop- ents Education Complex in the Bibiheybat settlement ulation. Additionally, a dialogue is constantly maintained of Sabayil district in Baku, as well as of the Demirchi with stakeholders, and their suggestions and com- Archaeological Museum in Shamakhi district pursuant plaints are considered. to the respective executive orders of the Company. The Company has completed landscaping works Social projects in sports, education and around Baku Olympic Stadium, road surfacing in A. culture Manafov street, D. Aslan street, and at the intersection of T. Abbasov and Uzbekistan streets in Nizami district, in Goradil settlement of Binagadi district, Buzovna set- SOCAR fully recognizes its social responsibilities, par- tlement of Sabail district, around the Salyan highway, ticipates in the country’s social initiatives and contrib- in the Zira and Shagan settlements of Khazar district, utes to all important social and economic projects im- in the Novkhani settlement, as well as in the Hovsan plemented at country level. settlement of Surakhani district. SOCAR has provided financial support to capital con-

74 Social activities at SOCAR’s overseas subsidiaries SOCAR Turkey Education The schools named after Heydar Aliyev are the flagship Social responsibility and Sponsorship of SOCAR’s corporate social responsibility initiatives in Turkey, with schools for about 5,200 students built in Projects Izmir, Adana, Kars, Ankara and Kocaeli. SOCAR Turkey supports Turkey’s environment, educa- In addition, SOCAR Energy Turkey cooperates with tion, culture, arts and sports with various social respon- Koch University in the Anatolian Scholarship Program to sibility and sponsorship projects. provide equal educational opportunities to all students. Under the program, three students were awarded study grants for the duration of their education. Environment As part of the cooperation between SOCAR Turkey and With the Heydar Aliyev Friendship and Memorial Forest the Tohum Autism Foundation, SOCAR has supported project, Petkim has planted 11,000 trees over 75 ha the Foundation in providing training for trainers from to prevent deforestation and the looting of more than Birge Saghlam Public Association, which was estab- 200 hectares of forest damaged by a fire in Yeni Focha lished to provide services to autistic children in Baku in 2009. This forest is a symbol of Turkish-Azerbaijani for 3 years. brotherhood. The aim of the “Teachers’ Trace” Project, implemented in The Company transported 31,380 cubic meters of land partnership with the Teachers’ Academy Foundation, is excavated from the STAR Oil Refinery (1,155 trucks) to to support the personal and professional development use on the terraces and green areas of Penitentiary and of teachers and school principals in schools of 12-years Penal İnstitutions Campus duration along the TANAP route in Ankara, Bayburt, As a pilot sector, SOCAR joined the Market Prepared- Bilecik, Bursa, Erzincan, Erzurum, Eskisehir, Giresun, ness Partnership Project (MPP) implemented by the Kars, Sivas and Yozgat provinces. As part of the project, Ministry of Environment and Urban Development and a total of 81 training sessions were provided for 1,886 actively participated in the drafting of regulations and teachers and school principals. In addition, since De- implementation of the project. To support the Carbon cember 2018, the E-Campus distance learning portal Trading System, STAR Refinery has shared all relevant has been operating to serve this purpose. information and documents with the MPP Project. Petkim built seven schools in Izmir city and Kocaeli prov- Hundreds of disabled citizens have gained skills thanks inces and signed a memorandum with the Ministry of to the Gülümseyen Kapaklar Gülümseyen Yüzler Proj- National Education of Tukey in 2018 to build an eighth ect launched in 2011 with the support of Aliaga City school. In addition, SOCAR Energy Turkey cooperates Council. The income generated has helped citizens with Koch University within the Anatolian Scholarship with disabilities to obtain vocational training. Those who Program to provide equal educational opportunities to successfully complete the training have the chance to all students. Three students were awarded education obtain a permanent job in the cooperatives. grants under the program. Petkim has invested about half a million dollars in 12 energy efficiency projects, two of which involve an EEP Arts and culture (Efficiency Enhancing Project). Thanks to the project with PAGDER, SOCAR Turkey has achieved success As part of National Sovereignty and Children’s Day in preventing the unnecessary use of resources and re- 2016, the children of SOCAR Turkish employees took cycling of waste. As part of the project, shelters for stray part in a seminar on Energy of the Future organized at dogs were made from 100% recycled plastic. the Istanbul Museum of Modern Art. SOCAR Turkey has worked with the Turkish Society of Journalists to support the culture of journalism.

75 SOCAR Georgia stereotypes. Weekly posts on the SOCAR Facebook page are also made as part of this campaign, containing stories of Georgian and foreign women, their scientif- The Company has continued social projects in the fol- ic achievements and courage. In 2018, SOCAR joined lowing five areas: the United Nations Women’s Empowerment Principles, • Environmental protection ensuring the protection of women’s rights in the workplace, promoting women to senior positions and hir- • Support of youth ing women to “nontraditional” positions. The project is • Safety aimed at eliminating and preventing discrimination and sexual harassment. • Women’s empowerment • Enforcement of rights of persons with disabilities and older people Safety The company attaches great importance to road traffic Environmental protection safety and occupational safety and health issues. SO- CAR has introduced and permanently upgrades H&S The company has built a number of parks in Tbilisi and systems to foster a safe and healthy work environment the regions, including recreational zones in Tbilisi and in order to ensure personnel protection. The company Rustavi. SOCAR focuses on waste management and offers health insurance to all employees. SOCAR Geor- recycles waste in compliance with all the rules and gia Petroleum promotes road safety rules and standards standards. through various campaigns, raising awareness through SOCAR protects the environment by monitoring fuel social networks and the media. In addition, with the quality through its own accredited laboratory and sys- launch of a campaign for pedestrians and vehicle driv- tematically cleans the reservoirs. The company tar- ers, SOCAR makes every effort to raise public aware- gets obtaining an international fuel quality certificate ness of road safety. soon. The great majority of SOCAR stations (throughout the highway from Kakheti to Batumi and in Tbilisi) are equipped with electric vehicle charging points (all Enforcement of rights of people with charging points are free of charge, except for fast char- disabilities and elderly people gers). The company has launched an Active Lifestyle campaign with a number of sports events. Military veterans, celebrities and people with disabilities living in the re- Youth support gion are invited to join the campaign. With the support of vocational training and pro bono services, SOCAR has been involved in vocational education over the years. SOCAR Georgia Gas LLC, a member of the SOCAR group, implements an educational project that trans- lates video classes in English into Georgian to help people overcome language barriers and gain valuable information. SOCAR contributes to the development of youth sports in Georgia, mostly football and rugby.

Women’s empowerment Over recent years, SOCAR has initiated several women’s empowerment informational campaigns. It has raised awareness by means of vehicle stickers #ქალივიციმესაჭესთან (#womendrivers) to fight

76 77 07

78 Occupational Health and Safety 79 Occupational Health and Safety

The Company focuses on ensuring that operations con- work and production operations without incidents, acci- tinue safely, reliably and in accordance with the requi- dents, and occupational diseases, and without causing rements, prioritizing the lives and health of employees any harm to the environment. over production activities. Our goal is to carry out all

Occupational health and safety

Application of international manage- The Company has prepared and disseminated aware- ment systems ness-raising materials followed by talks with staff, as well as other measures on a regular basis to help employees follow the hygiene rules. The Company continued to apply the OHSAS 18001 Support of SOCAR: International Management System standard for occupational health and safety at its facilities. Health and safety practices at most of SOCAR’s entities are based on • Support for Azerbaijani citizens in Turkey: this standard. The Company has conducted certifica- SOCAR, together with the Ministry of Education of the tion audits in facilities and business units to renew the Republic of Azerbaijan and the Embassy of Azerbaijan existing certificates due to the transition to an updated in Turkey, has established a support fund to cover the version of the standard. SOCAR has also continued shelter and living needs of more than 10,000 Azerbaijani efforts to ensure that non-certified facilities operate in citizens and students unable to return home due to the accordance with the requirements of this standard. Ef- coronavirus pandemic, including food and transporta- forts are also ongoing to replace OHSAS 18001 with tion costs, as instructed by the First Vice-President of ISO 45001 Occupational Health and Safety Manage- the Republic of Azerbaijan. ment System, an international standard with an updated structure and form. As a result of the measures taken, the Company has gained certification of the operations • SOCAR continues to deliver food assistance of the Gas Export Department and Marketing Economic to elderly and low-income families in various districts of Operations Department in accordance with internation- Baku. al standard ISO 45001. SOCAR continues its efforts to acquire these certificates for other business units within the Company.

Coronavirus (COVID 19) Pandemic

SOCAR took a number of measures in 2019-2020 to address the spread of the coronavirus (COVID 19) pandemic. The Company has changed its work schedule to help protect occupational health. The Company’s facilities have carried out disinfection work. In addition, the temperature of people entering the Company’s production sites is checked at the entrances. All necessary conditions are ensured for first aid examinations at facilities.

80 Education of employees During the reporting period, a number of measures were Center to train maritime workers in emergency survival taken at SOCAR’s departments and facilities to ensure methods, as well as in the appropriate usage of the sur- that occupational safety met all the modern require- vival and rescue equipment available on the platforms. ments. Certificates were awarded to participants who successfully completed the training course. In 2019, a training course entitled “Safety introduction, preliminary training and instructions for personnel on stationary offshore platforms and floating drilling rigs” was organized at the Training Center for Safety of Life at Sea of SOCAR’s Education, Training and Certification

TABLE 18. 2SAFETY TRAINING FOR OFFSHORE WORKERS IN 2019

Training duration Number of participants Training subject (person/hours)

Safety induction, preliminary training and instructions for personnel on 1,125 6,300 stationary offshore platforms and ﬂoating drilling rigs

Survival techniques, use of personal rescue equipment and swimming 73 5,840 basics for offshore oil workers and ship crew members

Basic offshore safety induction and emergency training 63 1,008

Firefighting, organization of fire brigade groups and guidance for stationary 10 320 offshore platforms and floating drilling rigs (for senior executives)

Safety induction, preliminary training and instructions for maritime workers 8 448

Other courses 142 2,940

Total 1,421 16,856

Safety measures During 2019, substantial work was carried out to create and machinery, most of these devices and equipment healthy and safe working conditions at SOCAR’s en- have undergone technical examination and periodic tes- terprises, to reconstruct production facilities, buildings ting. In order to facilitate human labor and the applicati- and workplaces in accordance with modern standards, on of safe working methods in technological processes, and to take preventive measures with respect to indust- automatic control and measurement systems meeting rial injuries, accidents and occupational diseases. In or- modern requirements have been installed and begun der to ensure the safe operation and suitability for ope- operation in many production areas. ration of complex technological processes, equipment

81 Assessment of hazardous factors at the workplace SOCAR undertakes a regular workplace attestation to Permanent Occupational Safety Commissions at SO- assess workplace safety at Company facilities. During CAR and its entities conducted a total of 538 inspec- the reporting period, the Company undertook certifica- tions at production facilities to minimize production risks tion of 3,233 (101%) workplaces at SOCAR’s facilities, and check workplace conditions during the reporting while the certification of only 3,194 workplaces was period and to eliminate occupational safety-related vio- planned. In addition, industrial and sanitary laboratories lations. Measures are currently underway to address the functioning at 5 SOCAR facilities have carried out as- remaining shortcomings. sessmentat 6,240 workplaces.

TABLE 19. SAFETY RISKS IDENTIFIED AND MONITORED BY SOCAR

Risk Sources Preventive measures

Personnel safety Violation of occupational Monitoring of instructions and awareness raising before works are risk safety rules by carried out by personnel; employees; Adaptation of lighting in workplaces, workshops, and auxiliary Lack of personal rooms to the requirements of regulatory documents; protective equipment for Observance of safe conduct rules during the use and employees; transportation of flammable and toxic chemicals during work; Failure to organize Monitoring of observance of safety rules during operation of workplaces in machines and mechanisms; accordance with the Instructions to staff to provide first aid in the event of health occupational safety hazards and how to take appropriate action; requirements reflected in Provision of voluntary health insurance to staff to ensure that quality sanitary and construction and timely medical services are provided; standards; Technogenic accidents Monitoring of compliance with the standardized safety rules during and natural disasters. transportation, storage and use of explosives and radioactive substances; Provision of staff with special clothing and personal protective equipment appropriate to the work performed; Setting up of production premises, facilities and work places in accordance with occupational safety requirements provided for in the sanitary and construction standards; Installation of ventilation systems, aspirators and dust collectors in workshops to prevent occupational diseases and poisoning; Monitoring of the application of protective devices to ensure that steam, water, gas, acid and other production facilities and communications operate safely.

Drilling accidents Geological, production, Comply with requirements of project QLTP, Unified Technical technological and Rules for the Construction of Oil and Gas Wells, Safety Rules in technical factors; the Oil and Gas Industry, and other regulations. environmental impact; side effects; natural calamities; human error.

Accidents Geological, production, Undertake regular extensive diagnostic operations, inspections at hydraulic technologicaland technical and measurements to determine the current condition of existing installations factors; environmental hydraulic and mining facilities; impact; side effects; All types of insulation layers in metal structures must comply with natural calamities; human relevant standards. error.

82 Risk Sources Preventive measures

Accidents at Geological, production, Compliance with regulations applicable to the operation of oil GCS or gaslift or technological and technical and gas pipelines; in transportation, factors; environmental Preventive measures and repair of pipelines. during impact; side effects; production natural calamities; human error.

Gas accidents Geological, production, Use methanol instead of hydrate formation in view of the gas during technological and volume, air temperature and regimes; transportation, technicalfactors; Regular monitoring of production progress during gas injection storage and environmental impact; at compressor stations, take preventive actions in due time as delivery to side effects; natural planned; warehouses calamities; human error. Carry out regular monitoring of production progress in wells, analyze results and take preventive actions in due time as planned.

Accidents at Production, Machines and equipment must be maintained in accordance with processing technological and the standards and rules; facilities technical factors; Methods in the production regulations must be observed. environmental Carry out capital and current repairs on production installations. impact; side Learn the rules of conduct pursuant to the Accident Elimination effects; natural Plan to ensure that potential accidents are rapidly addressed. calamities; human Use modern monitoring and measuring devices. error

Damage and loss Production, technological Machines and equipment must be maintained in accordance with of equipment due and technical factors; the standards and rules; to accidents and environmental impact; Methods in the production regulations must be observed. fire side effects; natural Carry out capital and current repairs on production installations. calamities; human error Learn the rules of conduct pursuant to the Accident Elimination Plan to ensure that potential accidents are rapidly addressed. Use modern monitoring and measuring devices.

Potential Geological, production, Timely diagnosis as specified by regulations; accidents in the technological and Carry out technical and metrological maintenance of measuring oil / gas pipelines technicalfactors; and testing equipment on a scheduled basis; system environmental impact; side Carry out corrosion protection works at production facilities effects; natural calamities; (pipelines, tanks, etc.); human error. Take necessary measures for the repair and restoration of inoperative technological equipment; Develop an action plan to eliminate possible accidents in the pipelines and provide training on a regular basis.

Third-party management

The Company is strongly focused on ensuring that the SOCAR. Designated SOCAR officials undertake regu- performance of third-party contractors is aligned with lar monitoring of occupational safety arranged by those SOCAR’s principles and values. SOCAR requires all contractors of SOCAR’s joint ventures and subsidiaries. third party contractors to carry out effective health, Joint ventures and operating companies submit monthly safety and risk management at their sites. Prior to the reports on occupational injuries to SOCAR, which are commissioning of work with those contractors, their ac- subject to further analysis and assessment. tivities and major risks are reviewed and evaluated by

83 Accidents and injuries

Despite the measures taken, the Company experienced 10 accidents in 2019. The relevant agencies TABLE 22. OHS INDICATORS OF SOCAR IN 201922 were informed of the accidents so that they could conduct investigations in accordance with legislation. The Indicators 2018 circumstances and reasons for the occurrence of the accidents were identified, and the Company took ap- Total number of accidents, including 10 propriate preventive measures to further improve workplace conditions at its entities and increase the scope Fatal accidents 3 of awareness raising activities. Total number of injured employees 12

Number of deceased employees 3

TABLE 20. ACCIDENTS IN SOCAR AZERBAIJAN IN 2019 BY THE TYPE OF OPERATIONS Number of missing people 0

Type of operations Number Number of occupational diseases 0

Number of days lost due to Oil and gas extraction 4 occupational injuries 1,564

Oil and gas processing 1 Absence due to occupational illness 330,471

Gas supply and transportation 1 Average number of employees 51,189

Total worked hours 80,393,496 Construction 2

Total worked days 10,049,187 Geophysics and geology 1 Lost time injury ratio 0.03 Information technologies and communication 1 (per 200 000 hours worked) Lost days ratio (per 200 000 hours worked) 3.89 Absence in the workplace ratio TABLE 21. OCCUPATIONAL HEALTH (per 200 000 hours worked) 6,577.07 AND SAFETY EXPENDITURES IN 2019 Accidents frequency ratio (number of accidents per 0.195 Thousand 1000 employees) Occupational safety expenditures, AZN Accidents severity ratio 223.43 On occupational safety, including: (number of lost days per accident)

On measures to improve working 18,164,527 conditions TABLE 23. OCCUPATIONAL HEALTH AND SAFETY INDICATORS OF JVS AND OCS IN 2019 On special clothing, special shoes and 4,244,167 other personal protective equipment Indicators 2018 On milk supply 958,017

Other expenses 164,512 Total number of accidents 12

Total number of deceased employees 2

Number of injured employees 13

Accidents severity ratio (number of lost 31,5 days per accident) Accidents frequency ratio (number of 0,5 accidents per 1,000 employees)

84 Overseas Entities

TABLE 24. OHS INDICATORS OF SOCAR’S FOREIGN ENTITIES IN 2019

SOCAR Energy Turkey 2019

Total number of injured employees 33

Total number of deceased employees 0

Number of working hours dismissed due to occupational diseases 0

Number of days lost due to occupational injuries 243

Total hours worked 4,501,265

Occupational injury ratio (per 200,000 hours worked) 146,625,448

Accidents severity ratio (number of lost days per accident) 7,363,636,364

OHS indicators of SOCAR Energy Turkey suppliers and contractors 2019

Number of injured employees 16

Number of deceased employees 0

Total hours worked 9,304,590

Occupational injury ratio (per 200,000 hours worked) 0,852424408

SOCAR Energy Ukraine, own employees 2019

Number of injured employees 0

Number of deceased employees 0

Absence due to occupational illness 0

Number of days lost due to occupational injuries 0

Absence due to illnesses 10,165

Number of employees 0

Total hours worked 3,796,533

Total days worked 417,392

Total scheduled working hours 4,158,793

Occupational injury ratio (per 200,000 hours worked)

Lost days ratio (per 200,000 hours worked) 0

SOCAR Energy Switzerland, own employees 2019

Number of injured employees 22

Number of deceased employees 0

* 2019-cu ildə “Cəmi işlənmiş saat” sayında muşaidə olunan kəskin azalma, “Star Refinery”-də tikinti mərhələsinin tamamlanması ilə əlaqədardır. 85 SOCAR Energy Switzerland, own employees 2019

Absence due to occupational illness 0

Number of days lost due to occupational injuries 238

Absence due to illness 5,830

Number of employees 688

Total hours worked 1,267,616

Total days worked 150,907

Total scheduled working hours 1,267,616

Lost time injury ratio (per 200,000 hours worked) 3.48

Lost days ratio (per 200,000 hours worked) 37.56

Absence in the workplace ratio (per 200,000 hours worked) 919.92

Accidents severity ratio (number of lost days per accident) 10.82

86 87 08

88 Environment SOCAR and Alternative Energy Policy

89 Environment / SOCAR and Alternative Energy Policy

As a result of continuous efforts, SOCAR has beco- protect the environment, ensure environmental safety, me an international company meeting leading global in- and eliminate any environmental impacts during opera- dustry and environmental standards. The Environmental tions in all segments of the Company’s activities, inclu- Policy, adopted by Order of SOCAR’s President Num- ding upstream, midstream and downstream operations. ber 77 dated 12 May 2008, has been a key document The document describes the baseline environmental as- for the Company’s environmental activities since 2008. sessment in new areas of activity and compliance with The main goal of SOCAR’s Environmental Policy is to the principle of zero waste to minimize negative impacts.

TABLE 25. COMPANY’S ENVIRONMENTAL EXPENDITURES IN 2017-2019

2017 2018 2019 SOCAR Azerbaijan, thousand AZN 19,745 24,180 19,000

SOCAR Energy Turkey, thousand USD 2,254.779 6,766.75 6,218.92

SOCAR Energy Ukraine, thousand USD 31.21 225.97 255

SOCAR Energy Georgia, thousand USD 0 233.985 158.789

Environmental monitoring SOCAR carries out regular extensive environmental 28 May OGED: monitoring at both offshore and onshore production • “Guneshli” field sites to ensure that business units and facilities maintain timely monitoring over environmental safety and adverse impacts on ecosystems. Absheronneft OGED: • “West Absheron”, In total, environmental monitoring was carried out by the • “Gurgan-Deniz”, Company during 2019 at 70 sites, including • “Absheron bankasi”. • At onshore facilities - 56; • At offshore facilities - 14 According to the terms of reference developed for the Offshore environmental monitoring covered the follow- project, these monitoring initiatives include evaluations ing fields: of the positive and negative impacts on the environment, pollution of the marine ecosystems by oil and gas N. Narimanov OGED: products, the degradation of natural sedimentation, the • “8 Mart”, density of plankton during water stratification, marine • “Alat- Daniz”, fauna studies, and environmental monitoring in spring and summer seasons at selected stations of the above • “Sangachal-Duvanny-Khara-Zire”, fields. • “Bulla-deniz” fields

Neft Dashlari OGED: • “Neft Dashlari”, • “Palchig Pilpilesi” fields

90 Monitoring of operations

During the year, specialists sent by the Company to its and industrial wastewater in onshore areas, leaks from facilities to study the environmental impact of produc- wellhead equipment, non-compliance with the Waste tion conducted regular observations and took measures Management Plan (WMP) in management of waste, to register and eliminate shortcomings, as well as to im- non-operation of treatment plants despite their installa- plement policies aimed at protection of the environment. tion, inaccurate reporting of waste and produced water, etc.. During the monitoring, the specialists observed environmental shortcomings such as inadequate management Environmental violations found during monitoring were of produced water, pollution of the marine ecosystem kept under observation and further monitored until their during drilling, use of land for collection of oil sludge elimination.

FIGURE 31. THE NUMBER OF OCCURRENCES OF ENVIRONMENTAL PROBLEMS DURING THE REPORTING YEAR BY TYPE

Total 44 Other 182 Sanitary or hygiene problems 192 Oil sludge in reservoirs 123 Produced water management 37 Caused by treatment activities 32 Waste management 84 Well surrounding contamination 410 Leakage from installations and equipment 118 Caused by drilling 1222

FIGURE 32. . NUMBER OF OBSERVED ENVIRONMENTAL AND SANITARY OR HYGIENE VIOLATIONS, BY TYPE

100% 90%

80% 41 178 188 119 25 28 77 245 110 1011

70% 60% 50% 40% 30%

20%

10% 44 182 192 123 37 32 84 410 118 1222

0 Total Other tutumlar activities Sanitary or- management management contamination contamination and equipment Well surrounding surrounding Well hygiene problems hygiene Caused by drilling Caused by Waste management Waste Produced water Caused by treatment Oil sludge in reservoirs Leakage from installations installations Leakage from Total number of issues Remediated issues

91 FIGURE 33. ELIMINATIONS OF VIOLATIONS, BY TYPE

1012

1222

General environmental problems Eliminated

Laboratory services

The Complex Research Laboratory (CRL) received a shore areas, and analyzed them across 37,619 param- total of 4,733 samples taken from the fields in 2019, eters (13,547 analyses of samples from offshore areas including 1,878 from onshore areas and 2,855 from off- and 23,622 from onshore areas, respectively).

FIGURE 34. RESEARCH DATA BY YEAR

1892 3830 4733

2017 2018 2019

As can be seen from the diagram, the reason for the Under the agreement signed between the Environmen- increase in the number of studies to determine envi- tal Department and SOCAR’s structural units, samples ronmental quality indicators is CRL’s increased scope, analyzed by CRL are received from the following enti- compliance of the analyses with international require- ties: ments, as well as the implementation of an effective monitoring and evaluation process.

92 “Azneft” PU mine metals, biogenic substances, organic and inorgan- ic parts, and to conduct chromatographic, granulomet- “Azerigas” PU ric, anion-cation, and microbiological analyses across “Azerkimya” PU various parameters, achieving 95-100% conformity. Geophysics and Geology Department Moreover, CRL undertook analyses to compare the cur- Oil Pipelines Department rent ecosystem of the Caspian Sea with previous years, publishing scientific articles in periodicals. Heydar Aliyev Oil Refinery NQTT (Oil and Gas Construction Trust) Gas Processing Plant CDWT (Complex Drilling Works Trust) Diving and Emergency Rescue Department Oil and Gas Research and Design Institute Transportation Department Training, Education and Certification Department Carbamide Plant. In addition, the CRL analyzed samples received from the following external entities: BP Azerbaijan Gobustan Operation Company SGS Azeri LLC BOS SELF LLC Intertek Azeri LTD SOCAR Fugro LLC Ekol Engineering Services CJSC Gunesh Company Chinar Service LLC Azecolab LLC Azlab LLC El-VE-EM LLC Chukurova Water Heating Installation LLC Coca-Cola Bottlers Ltd. In 2019, Complex Research Laboratory continued work to expand its equipment supplies and launched the introduction of new reagents, devices and other equipment. In addition, the laboratory took all the necessary measures to ensure that analyses have the required quality. As part of these measures, CRL participated in inter-laboratory comparative testing organized by both local and international companies, such as WEPAL, FAPAS and LGC. In 2019, CRL joined international testing to deter-

93 Data digitalization - GIS Geographic Information System (GIS) steering group background, etc., identified during monitoring of SO- using information obtained from monitoring operation CAR’s onshore production sites was entered into the zones of oil and gas production departments in the Ab- GIS-managed Electronic Database and archived. Using sheron peninsula. these results, the Company developed an Environmen- tal Atlas. Based on that environmental monitoring, the Company continued to draw a map of contaminated soils in the The GIS team ensured that the results of environmen- Electronically Managed GIS in 2019. tal monitoring in the oil and gas operations of SOCAR are included in the electronic database and archived the Data such as the geographical coordinates of the existing data.A total of 32 different schemas and maps polluted areas, the degree of pollution, the depth, vo- were developed in 2019 using GIS data. lume and type of absorption of polluted soil, radiation

Treatment and reverse osmosis facilities in production areas

In 2019, the Environmental Department monitored the Samples taken from inlets and outlets of facilities during activities of biological treatment plants and reverse os- the monitoring were analyzed by CRL to determine ef- mosis facilities in SOCAR’s offshore areas. fectiveness of the osmosis facilities.

Biological treatment plants

During 2019, the Company monitored the state of BTPs SOCAR’s operation sites have 33 BTPs with different installed at SOCAR’s offshore and onshore sites to en- productivity statuses, including 21 operational and 12 sure that their operation is kept under control. non-operational BTPs.

FIGURE 35. BTP STATUS ANALYSIS DIAGRAM FOR 2019

17 15 2 8 1 7 2 2 6 3 3

29 52.1

28 May OGED Neft Dashlari OGED N.Narimanov OGED Absheronneft OGED

Total number Operated Idle

94 Reverse osmosis equipment and its operation

During the monitoring of SOCAR’s offshore sites, the further analyzed at CRL after monitoring the facilities. Environmental Department inspected the operation of The monitoring identified that 31 of the reverse osmosis reverse osmosis equipment installed to desalinate se- facilities that have been installed on the platforms and awater on platforms and water jackets. water jackets were put into operation. The Company carried out the inspection of 33 reverse osmosis equipment items installed at SOCAR’s offshore sites. Water samples taken from the facilities were

FIGURE 36. . NUMBER OF REVERSE OSMOSIS EQUIPMENT ITEMS, BY OGED

22 6 1 2

28 May OGED Neft Dashlari Absheronneft N. Narimanov OGED OGED OGED

Water management Water consumption during operations

TABLE 26. WATER CONSUMPTION OF SOCAR, MLN. M3

Indicators 2017 2018 2019

SOCAR Azerbaijan 54.02 46.76 51.65

SOCAR Energy Turkey 18.79 18.73 22.38

SOCAR Energy Georgia 0.13 0.15 0.16

SOCAR Energy Ukraine 0.11 0.13 0.12

TABLE 27. WATER INTENSITY RATIO FOR 2017-2019 (THOUSAND M3 OF WATER CONSUMPTION PER EMPLOYEE)

Müəssisələrin adı 2017 2018 2019

SOCAR Azerbaijan 1,071 0.915 0.999

SOCAR Energy Turkey 5,368 4.555 4.482

SOCAR Energy Georgia 0,030 0.033 0.035

SOCAR Energy Ukraine 0,059 0.070 0.059

95 TABLE 28. SEAWATER USAGE AT SOCAR AZERBAIJAN, MLN. M³

Desalinated seawater 2017 2018 2019 Purpose

Desalination in reverse osmosis equipment “Azneft” PU 35.02 26.95 27.74

Production cooling systems and desalination in Gas Processing Plant 0.56 0.03 0.03 reverse osmosis equipment

Complex Drilling Production cooling systems and desalination in 0.09 0.07 0.07 Works Trust (SDWT) reverse osmosis unit

Oil Pipelines Water used in technological processes 0.08 0.02 0.021 Department (OPD) (pumped to fire tanks)

Use in production for cooling and firefighting Oil Refinery (REF) 0 0 0 (sea water has not been used since 2017)

Total for SOCAR 35.75 27.07 27,91

TABLE 29. WATERS USED IN CLOSED SYSTEM DURING PRODUCTION PROCESS AT SOCAR, MLN. M³

Indicators 2017 2018 2019

SOCAR Azerbaijan

Recycled water 266.15 272.94 276.01

Reused water 2.26 1.44 2.04

Produced water management

In 2019, SOCAR continuously monitored the environ- refront of SOCAR’s environmental policy. To this end, ment to ensure that produced waters generated during the Company has built a plant at Enlarged Oil Collec- oil and gas operations met environmental requirements. ting Station 2 A in Neft Dashlari made by British Com- pany FLS. It has a capacity of 4,400 m3 of produced Produced water management reports submitted by en- waters from oil and sand day that it can treat. tities were further summarized and analyzed over the years by the Environmental Department. As a result of the measures taken, modern equipment with a capacity of 3,550 m3 / day is currently used for Since 2017, produced water at SOCAR facilities has the recycling and reinjection of produced water in layers been transferred to a fully closed system, and the Com- at the Offshore Stationary Water Jackets in the “Gu- pany has managed to prevent its discharge into the en- nashli” field of 28 May OGED. vironment once and for all. Protection of the Caspian Sea water basin is at the fo-

96 FIGURE 37. . PRODUCED WATERS AT “AZNEFT” PU IN 2019, BY OGED (MLN M.3)

1556,2 607,3 361,0 200,2 816,1 1252,1 766,7 327,5

“28 May” “Neft “Absheronneft” “N. Narimanov” “H.Z. Tagiyev” “Bibiheybatovneft” “A. Amirov” “Siyazanneft” OGED Dashlari” OGED OGED OGED OGED OGED OGED OGED

TABLE 30. PRODUCED WATERS OF SOCAR AZERBAIJAN, MLN. M3

Entity 2017 2018 2019

Total for SOCAR Azerbaijan, 24.66 24.29 24.47 including:

“Azneft” 5.43 5.61 5.88

JVs and OPs 19.23 18.68 18.59

Household sewage waters management

Large-scale measures are taken to manage household household sewage in residential areas, settlements, sewage in areas where the Company operates. Such playgrounds and water jackets – places far from the that, biological treatment plants are used to manage sewage system.

Re-cultivation measures

SOCAR takes focused measures to study international Based on the laboratory analysis of water and soil sam- best practices, and to research, choose and apply the ples taken during the monitoring, the Company has de- latest rehabilitation technologies in order to clean the veloped land-soil recovery maps and selected appro- lands contaminated with oil and oil products and flood- priate recovery methods for the contaminated areas. In ed by produced waters. addition, the degree of contamination, the composition of pollutants and the use of the area in future play an Since 2006, SOCAR has been rehabilitating oil and important role in the choice of rehabilitation methods. gas-contaminated extraction areas. The following methods are mostly used in the rehabilita- As an initial step towards the rehabilitation of contam- tion of contaminated soils: inated soils, the Head Office and the Environmental Department have conducted comprehensive environ- Mechanical reclamation mental monitoring in the areas of operation and have Biological reclamation entered data such as pollutants, scope of spread, depth of absorption, and geographic coordinates of contami- Phytoremediation. nated areas into the GIS system. The Company applies approved technologies in SO-

97 CAR’s areas contaminated with oil and oil products de- After the recovery process, the Company undertakes pending on the depth of contamination, the nature of regular environmental monitoring of the rehabilitated ar- the contaminants, physical and chemical properties of eas in accordance with a monitoring plan developed for the soils, and the future use of the areas to be rehabil- control of pollutants in the soil. itated. The Company lays extensive vegetation zones with ap- Treatment and rehabilitation in accordance with land- propriate agro-technical services to recover the soil and scaping and architectural plans using approved tech- vegetation and develop soil structure in the rehabilitated nologies is currently underway in SOCAR’s areas areas. contaminated with oil and oil products and flooded by SOCAR continues to implement environmental protec- produced waters. tion and safety projects, including projects to rehabili- In 2019, a total of 130 hectares of land contaminated tate regularly contaminated lands, landscaping and re- with oil and oil products were reclaimed by SOCAR. forestation, to achieve sustainable development goals. From 2006 through 1 January 2020, 2,145 hectares of SOCAR’s cleanup of contaminated lands is focused on land contaminated with SOCAR’s oil and oil products eliminating the sources of pollution and managing the were reclaimed and rehabilitated. Rehabilitation works re-pollution risks. were carried out mainly in the Sabail, Surakhani, Sabun- chu, Khazar and Garadagh districts of Baku, where SO- CAR’s oil fields are located.

TABLE 31. SOILS CONTAMINATED WITH OIL AND FLOODED BY PRODUCED WATERS AT SOCAR’S ”AZNEFT” PU, JVS AND OCS

Area of land, by year, ha Reasons for soil contamination 2017 2018 2019

2 115,7 1 326,9 1 241,13 Total area of land polluted by oil products and flooded by produced water “Azneft” JV and “Azneft” JV and “Azneft” JV and PU OC PU OC PU OC including: 949.7 1,166.0 574.57 752.355 532.17 708.96

Total area of land polluted by oil and gasoline products 676.28 701.88 448.73 449.165 409.23 433.21

Total area of land flooded by produced water 273.42 464.12 125.84 303.19 122.94 275.75

TABLE 32. RESTORATION AND REHABILITATION OF SOCAR’S LAND PLOTS POLLUTED BY OIL, OILY WATER, AND OTHER INDUSTRIAL WASTE, HA

Restored polluted land, ha Entity 2017 2018 2019

Total for SOCAR, including: 69,61 144,247 87,03

“Azneft” PU 16,28 57,9 42,4

JVs and OCs 53,33 86,347 44,63

98 Waste management

Waste generated at SOCAR’s facilities and depart-ments The Waste Management Center (WMC) is SOCAR’s is managed in accordance with the requirements of primary unit for waste management. both local and international environmental legislation WMC’s primary focus is to collect, accommodate and and SOCAR’s WMP plan. recycle industrial waste generated from both offshore The Company has implemented the SAP EHS- and onshore oil and gas operations. Waste Management module of the SAP ERP system to ac-count for processes in the system such In 2019, WMC received 59,652.36 tons of drill- as digitization of waste management, as well as waste ing waste, 3,314.17 tons of production sludge and collection, pro-cessing, recycling and delivery. 1,746.65 tons of industrial waste.

FIGURE 38. DRILLING WASTE RECEIVED BY WMC

2019 59074,12 2018 57534,48 2017 19455,6 2016 13127 2015 11077 2014 20670,6 2013 21052 2012 17180 2011 15792 2010 6409,7 2009 1905,2 2008 2104,3 0 10000 20000 30000 40000 50000 60000 70000

The data shows an increase in full delivery of all types increased monitoring of environmental requirements in of drilling waste to WMC generated during drilling op- production. erations, which is mainly due to compliance with and

FIGURE 39. INDUSTRIAL WASTE RECEIVED BY WMC

2019 1750,31 2018 1412,8 2017 854 2016 505,6 2015 695 2014 1151,8 2013 631,6 2012 421,8 2011 296,2 2010 196,6

0 500 1000 1500 2000

99 The WMC received increased delivery of industrial waste, which is due to effective management of industrial waste by the facilities and departments.

FIGURE 40. DRILLING AND OIL SLUDGE GENERATED AT SOCAR (AZERBAIJAN) IN 2017-2019, THOUSAND TONS

14,8 37,6 18,4 52,1 30,2 52,8

2017 2018 2019 Drilling sludge Oil sludge

TABLE 33. WASTE MANAGEMENT AT SOCAR, THOUSAND TONS

Type of waste 2017 2018 2019

SOCAR Azerbaijan

Generated waste 89.88 165.1 175.9

Hazardous 80.32 156.02 163.6

Non-hazardous 9.56 9.1 12.3

Utilized waste 1.96 2.95 2.54

Hazardous 1.79 2.78 2.24

Non-hazardous 0.17 0.17 0.30

Waste transferred to third parties 65.98 135.7 128.2

Hazardous 62.63 32.2 116.2

Non-hazardous 3.36 18.2 12.0

Waste disposed of at the Waste Center 20.97 19.8 32.2

Hazardous 14.68 19.66 32.14

Non-hazardous 6.29 0.14 0.06

SOCAR Energy Turkey

Generated waste 55.58 38.63 59.25

Hazardous 20.15 12.72 20.82

Non-hazardous 35.43 25.91 38.43

100 SOCAR Energy Turkey

Recycledwaste 7.05 5.42 8.70

Hazardous 7.05 5.42 8.70

Non-hazardous 0.00 0.00 0.00

Waste transferred to third parties 48.48 33.25 50.08

Hazardous 13.10 7.34 11.64

Non-hazardous 35.38 25.91 38.44

SOCAR Energy Ukraine

Generated waste 2.16 2.35 3.874

Hazardous 0.01 0.01 0.007

Non-hazardous 2.15 2.34 3.867

Utilized waste 0.00 0.00 0.00

Hazardous 0.00 0.00 0.00

Non-hazardous 0.00 0.00 0.00

Waste transferred to third parties 2.16 2.35 0.00

Hazardous 0.01 0.01 0.00

Non-hazardous 2.15 2.34 0.00

TABLE 34. WASTEWATER MANAGEMENT AT SOCAR, M3

Entity 2017 2018 2019

SOCAR Azerbaijan

Volume of generated wastewater 6 983 429 8 133 119 8 913 382

Volume of wastewater discharged without treatment, including, 194 953 316 175 292 693

Onto soil 57 30 074 12 334

Into the water 84 949 148 070 171 525

Volume of wastewater discharged after treatment 5 983 265 6 831 955 7 408 965

101 SOCAR Energy Turkey

Volume of generated wastewater 8 051 324 7 709 531 8 185 529

Volume of wastewater discharged without treatment 0 0 0

Volume of wastewater discharged after treatment 8 051 324 7 709 531 8 185 529

Waste disposal at WMC

Drilling waste is disposed of in lines I, II and III of the disposal facilities installed at WMC. From SOCAR’s facilities, in 2019, WMC:

received - 30,499.74 ton, disposed of - 5,042.55 ton. Digər müəssisələrdən: received - 5,042.55 ton, disposed of - 21,443.71 ton.

Climate Change Mitigation

Azerbaijan supports the Paris Agreement on climate change. At the 21st Conference of the Parties to the UN Framework Convention on Climate Change in Paris in 2015, the Paris Agreement, a new international legal instru- ment for climate change, was adopted and ratified by 173 countries, including the Republic of Azerbaijan. As a contribution to global climate change prevention initiatives, the Republic of Azerbaijan targeted reducing greenhouse gas emissions by 35% by 2030 compared with the 1990 baseline. SOCAR is fulfilling obligations accepted by Azerbaijan under the Paris Agreement. SOCAR drafted the ”Climate Change Impacts Mitigation Strategy to 2020” to contribute to the national targets. The strategy aims to develop a comprehensive and systematic approach to GHG management at the Company. The Action Plan developed under the Strategy involves projects and measures primarily in the following four areas: Introduce a regular measurement, reporting and monitoring system for GHG emissions Reduce associated gas emissions Discover and address sources of leakage Enhance energy efficiency in production processes Use alternative energy sources

102 Plant greenery Drafting of “SOCAR’s Climate Changes Mitigation Strategy for 2021-2030” is underway. This strategy will address issues such as GHG inventory, associated gas emissions mitigation, increased energy efficiency, the application of environmental and innovative technologies, GHG targets in key efficiency indicators, and greenery planting. It will support coordinated efforts through raising environmental awareness, as well as climate change mitigation, adaptation, education and research activities. In November last year, SOCAR organized an international conference entitled Climate Change and the Role of the Paris Agreement for the Environment. The conference aimed to draw attention to the problems caused by global climate change, to projects implemented by oil and gas companies, and to adaptation and mitigation measures. Further, it aimed to support the exchange of international best practices, highlight scientific and practical environmental experience, develop existing regional and global cooperation, and encourage new cooperation. The conference topics included Climate Change and the Paris Agreement, Green Technologies and Innovations, Environment and Sustainable Development, Climate Change, and International Cooperation in the Oil and Gas Industry.

Introduction of a regular GHG waste measurement, reporting and verification (MRV) system

As a company combining oil and gas and chemical in- Inventory data is used as the basis for effectiveness dustries, as well as storage, transportation and distri- assessments in SOCAR’s “2010-2020Climate Chan- bution functions, SOCAR expands its operations to ges Mitigation Strategy”, “2017-2022 Associated Gas increase oil and gas production, develop the chemical Emissions Reduction Plan” for SOCAR and Projects in- industry and ensure that the entire population is provi- volving SOCAR , and the World Bank’s Global Initiative ded with gas – which, however, causes increased gre- for “Zero Routine Flaring by 2030”, which SOCAR has enhouse gas emissions Increased GHGs are one of the joined. primary factors that cause global climate change. Efficient management of atmospheric emissions is di- To prevent increases of GHGs, SOCAR conducts an rectly dependent on the proper inventory, reporting inventory of greenhouse gases in the Company’s struc- and monitoring of emissions. To calculate atmospheric tural units, JVs and OCs each year in accordance with emissions, we use IPCC methodology and the EMEP/ its order On Measures to Implement the 2008 Fra- CORINAIR Guidelines. The calculation of the volume of mework Convention on Climate Change. The results are GHG and contaminants emitted into the atmosphere by reflected in the relevant Company reports. SOCAR entities is based on a document prepared by relevant institutions.

103 TABLE 35. GHG EMISSIONS AT SOCAR, THOUSAND TONS OF CO2 EQUIVALENT

GHG emissions 2017 2018 2019

SOCAR Azerbaijan 6 567.7 6 654.3 7 904.3

Direct emissions, thousand tons of СО2 equiv. 5 893.1 5 979.6 6 441.8

674.6 674.7 686.3 3 Indirect emissions, thousand tons of СО2 equiv.

SOCAR Turkey 2.393.2 1 634.9 T/O 4

Direct emissions, thousand tons of СО2 equiv. 2 176.5 1 409.2 T/O

216.7 225.7 484.2 Indirect emissions, thousand tons of СО2 equiv.

SOCAR Energy Georgia 3.8 4.0 3.1

Direct emissions, thousand tons of СО2 equiv. 0.7 0.7 0.6

3.1 3.3 2.0 Indirect emissions, thousand tons of СО2 equiv.

“SOCAR Enerji İsveçrə” üzrə 0.4 0.4 0

Direct emissions, thousand tons of СО2 equiv. 0 0 0

0.4 0.4 0 Indirect emissions, thousand tons of СО2 equiv.

TABLE 36. DIRECT GHG EMISSIONS AT SOCAR AZERBAIJAN, THOUSAND TONS OF СО2 EQUIVALENT.

GHG emissions 2017 2018 2019

Total for SOCAR, thousand tons of СО2 equivalent, 5 893,1 5 979,6 6 441,8

including:

From stationary sources, including: 5 782,2 5 871,9 6 352,8

Business units 5 539,2 5 640,5 6 102,6

JVs and OCs 243,1 231,4 250,2

From mobile sources, including: 110,8 107,7 89,0

SOCAR Transportation Department 84,3 87,3 57,0

JVs and OCs 26,5 20,4 32,0

3 The increase in indirect emissions was not directly due to SOCAR’s activities, but to areas of activity of other entities serving SOCAR, including SOCAR AQS, SOCAR Uniper, Azerbaijan Caspian Shipping CJSC, and Silk Way Helicopter Services LLC, as they are included in the report. 4 Information on SOCAR Turkey’s emissions will be made public in October 2020. 5 The increase in the indirect emissions in 2019 in SOCAR Turkey is explained by the beginning of production process.

104 Indirectly calculated emissions

TABLE 37. INDIRECT EMISSIONS OF SOCAR AZERBAIJAN,

THOUSAND TONS OF CO2 EQUIVALENT

GHG emissions (indirectly) 2019

Total 1,462.5

From electric power consumption: 686.3

Service areas not belonging to SOCAR’s structure, 776.3

including:

SOCAR AQS 258.9

SOCAR Uniper 413.3

Azerbaijan Caspian Shipping Company 96.5

Silk Way Helicopter Services 7.6

TABLE 38. INDIRECT EMISSIONS OF SOCAR AZERBAIJAN (BASED ON ELECTRICITY

CONSUMPTION), THOUSAND TONS OF CO2 EQUIVALENT

Entity 2017 2018 2019

Total for SOCAR, including: 674.6 674.7 686.2

Business units 447.3 449.5 466.1

JVs and OCs 227.3 225.2 220.2

TABLE 39. INTENSITY RATIO OF DIRECT EMISSIONS IN 2017-2019

(THOUSAND TONS OF CO2 EQUIVALENT PER EMPLOYEE)

Entity 2017 2018 2019

SOCAR Azerbaijan 0,117 0,140 0,125

SOCAR Energy Turkey 0,622 0,343 T/O6

6 Data on the direct emissions intensity ratio for SOCAR Turkey will be made public in October 2020.

105 TABLE 40. UPSTREAM EMISSION, WATER CONSUMPTION AND POWER USE COEFFICIENTS

Coefficients 2017 2018 2019

Production (“AZNEFT” PU + OCs) (t oil) 7,427,100 7,542,300 7,683,100

Emission coefficient

Direct (t CO2 e/t oil) 0.42 0.43 0.44

Indirect (t CH4 e/t oil) 0.09 0.09 0.09

Water use coefficient (m3/t oil) 7.27 6.20 6.72

Electric power coefficient (kVt/t oil) 45.76 141.64 44.63

TABLE 41. MIDSTREAM EMISSION, WATER CONSUMPTION AND POWER USE COEFFICIENTS

Coefficients 2017 2018 2019

Oil refinery (“Azerkimya”PU+REF+Carbamide plant) 5,815,500 6,090,500 6,194,400

Emission coefficient

Direct (t CO2 e/t oil refinery) 0.34 0.27 0.31

Indirect (t CH4 e/t oil refinery) 0.06 0.05 0.06

Water use coefficient (m3/t oil refinery) 9.29 7.68 8.34

Electric power coefficient (kVts/t oil refinery) 107.99 101.79 121.35

Gas processing (GP) (m3) 2,918,300,000 2,952,200,000 3,215,000,000

Emission coefficient

Direct (t CO2 e/m3 gas processing) 0.00009 0.00008 0.00007

Indirect (t CH4 e/m3 gas processing) 0.000005 0.000005 0.000004

Water use coefficient (water/m3 gas processing) 0.019 0.016 0.016

Electric power coefficient (kVts/m3 gas processing) 0.009 0.009 0.008

The increase in GHG emissions at SOCAR Azerbaijan SOCAR plans to continue these measures in the up- is due to the operation of the Methanol Plant and the coming years. One such planned measure is to ensure newly commissioned Carbamide Plant, which have be- that natural greenhouse gases are pumped back into come part of SOCAR’s structure. In 2019, the Compa- the system to prevent their release into the atmosphere. ny saw GHGs increase by 72.2 thousand tons of CO2 eq. compared with 2018, excluding emissions from new production facilities included in SOCAR’s structure.

106 TABLE 42. GASES EMITTED INTO THE ATMOSPHERE AS A RESULT OF SOCAR AZERBAIJAN’S BUSINESS ACTIVITIES, THOUSAND TONS

GHG indicators 2017 2018 2019

Methane (CH4) 126.7 130.9 138.7

Carbon (CO2) 3,231.2 3,220.3 3,506.4

Management of Associated Gas

As part of the cooperation with the World Bank’s Global The current plan has been prepared using information Gas Flaring Reduction Partnership (GGFR), SOCAR received from SOCAR’s structural units, as well as the adopted the 2010-2015 and 2017-2022 Plan to Redu- OCs and JVs, meetings, discussions, monitoring, inven- ce Associated Gas Emissions at SOCAR and Projects tory and laboratory analysis. Involving SOCAR. Based on the projected data and measures taken, the To implement the document, the Company carried out Company expects a 95 mln. m3 reduction in associated an inventory of measures taken by SOCAR’s facilities, gas emissions by 2022. and developed proposals to achieve the set goals.

FIGURE 41. ASSOCIATED GAS EMISSION TARGETS

million/m

500 450 109,0 400 113,0 350 152,0 125,2 108,0 107,0 95,0 300 131 135,4 250 129,2 200 119,6 124,6 150 259,2 263,0 270,5 234,0 100 201,8 152,0 176,0 124,6 50 96,2 96,8 106,3 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Baseline Actual Projections

The emissions up to 2018 provided in the diagram cov- • Emissions at OCs and JVs in 2019 were 2.0 million er only “Azneft” PU. The emissions in 2019 include “Az- m3. neft” PU, the OCs and JVs. • In 2019, a total reduction of 103 million m3 (44%) • Emissions at “Azneft” PU in 2019 were 128.9 million was achieved in overall emissions (131 million m3) com- m3 (a 6.4 million m3 decrease compared to 2018). pared to the baseline for “Azneft” PU, OCs and JVs. The projected emission reduction was achieved 83%.

107 • In 2016-2019, a total reduction of 248.6 million m3 of Nationally Appropriate Mitigation Actions (NAMA), was achieved for SOCAR. a project jointly implemented by SOCAR and UNDP Azerbaijan since 2015 to reduce carbon emissions in To address these problems, it is necessary to know the the Azerbaijani fuel consumption sector and which sup- volume and composition of associated gas emissions ports SOCAR’s Climate Change Mitigation Strategy. from all oil and gas fields. It is therefore necessary to The Project supports energy efficiency and less carbon carry out instrumental measurement. emitted technologies in the country. Based on the 2019 Work Plan, SOCAR carried out and The Company selected the “Zagli-Zeyva” field at “Si- reported on instrumental measurement to determine the yazanneft” OGED as a pilot area and carried out joint current state of associated gas emissions and flaring activities to collect associated gas as part of the 3rd at production sites of “Azneft” PU, operating compa- component of NAMA. A new compressor and separa- nies and joint ventures, as per the approved schedule. tor, as well as a refrigeration and online control system This was to implement the “2017-2022 Plan to Reduce were installed at 3 gas collection points in the area. In Associated Gas Emissions at SOCAR and Projects In- addition, the Company laid a gas pipeline with a total volving SOCAR”, approved by the Company and the length of 32 km. SOCAR plans to collect 6.8 million m3 World Bank’s initiative “ by 2030. of associated gas per year during 2 years following the The Company followed the KIP-034 Procedure for implementation of the project. The distinctive feature of Instrumental Measurements of Associated Gas Emis- the project is that the associated gas will be used by sions during instrumental measurement and monitoring. people after processing, which will help the Company The monitoring focused on scrutinizing progress in im- to deliver natural gas to 15 surrounding villages with plementing planned projects for 2018-2019 as part of 1,250 subscribers.For information, since 2015, SO- the Action Plan on Associated Gas Emission Mitigation CAR has been implementing a project Nationally Ap- in production sites of “Azneft” PU, OCs and JVs. propriate Mitigation Actions (NAMA) to reduce carbon Thanks to instrumental measurements in 2019, the emissions in the fuel consumption sector of Azerbaijan. number of wells connected to the gas storage system The Project supports energy efficiency and less carbon at “Neft Dashlari” and “28 May” OGPD, the most pro- emitted technologies in the country. ductive offshore fields of “Azneft” PU, accounted for 95% and 85%, respectively, of each field’s number of operating oil wells . In September last year, the Company launched the operation of a new compressor station in Siyazan to collect associated gas in the “Zagli-Zeyva” field operated by SOCAR. The compressor station was built as part

TABLE 43. ASSOCIATED GAS MANAGEMENT AT “AZNEFT” PU IN 2017-2019, THOUSAND M3

Indicators 2017 2018 2019

Total associated gas produced by “Azneft” PU, thousand m3 1,460,012 1,439,783 1,506,200

Associated gas reused for internal needs 183,444 189,626 159,207

Associated gas delivered to other entities or returned to the system 1,544,413 1,493,179 1,557,937

Associated gas flared 840 840 840

108 Detecting leak sources and volumes

Detecting methane and other volatile emission sources and eliminate leaks in SOCAR’s upstream operations and carrying out necessary repairs to prevent leaks and – in the well – pipes chain of the processing plants , volatile emissions are a priority for SOCAR. pipeline wellheads, fountain fittings, flanges, valves, measuring joints and other connecting parts. SOCAR uses modern measuring equipment to detect sources of leaks during oil and gas operations. As part of the project, specialists from CL and ED car- The Company takes measures to detect and eliminate ried out instrumental measurement at “Azneft” PU on- sources of leaks from pipeline heads, fountain fittings, shore facilities – ”Absheronneft”, ”H.Z. Tagiyev”, ”A. flanges, valves, measuring joints and other connect- Amirov”, ”N. Narimanov” and ”Bibiheybatneft” OGEDs. ing parts during oil and gas operations using modern Instrumental measurements found that the average an- equipment based on infrared wave technology that de- nual leakage from the sources at the above OGEDs tects gas leaks remotely without contact. amounted to 1.8 million m3, and 30,000 tons / year of CO2 equivalent. Leakages were eliminated following Since the infrared wave range is invisible to the naked repair works undertaken by “Azneft” PU. eye, a modern measuring camera is used to easily detect gas leaks that are invisible and odorless at a safe We also highlight that project interventions aimed at distance.. preventing leaks helped the Company conduct instrumental measurement of the mitigation of greenhouse This issue was addressed by a project which SOCAR gas and methane emissions. continued to implement in cooperation with Norway’s Carbon Limits (CL). To implement this project, the En- vironmental Department (ED) signed an Emissions Re- duction Agreement with CL. The project aims to detect

TABLE 44. SEMISSION OF POLLUTANTS FROM STATIONARY SOURCES AT SOCAR, THOUSAND TONS

Entity 2017 2018 2019

Total for SOCAR Azerbaijan, 124,33 127,51 131 including

Solid particles 0.23 0.24 0.23

Gaseous and liquid substances, 124.1 127.27 130.6

including

Sulphur dioxide 0.17 0.12 0.29

Nitrogen oxide 1.69 1.33 1.66

Carbon oxide 4.14 3.48 3.41

Hydrocarbons (without volatile organic compounds) 107.83 112.32 113.5

Volatile organic compounds 9.42 9.33 10.8

Other gaseous substances 0.86 0.77 0.88

109 Entity 2017 2018 2019

Total for SOCAR Energy Turkey 9.50 0 0 including:

Sulphur dioxide 2.95 0 0

Nitrogen oxide 5.96 0 0

Carbon oxide 0.56 0 0

Volatile organic compounds 0.03 0 0

Total for SOCAR Energy Georgia 0.65 0.71 0.65 including

Sulphur dioxide 0.35 0.42 0.43

Nitrogen oxide 0.03 0.02 0.02

Carbon oxide 0.27 0.27 0.20

Use of alternative energy sources

SOCAR has expanded the use of alternative wind and and energy saving technologies, heating and cooling, solar installations in a number of areas and production ventilation systems and other projects that would in- systems. The majority of measuring devices installed on crease the use of alternative energy sources. The Com- oil and gas pipelines, as well as in production process- pany used special insulation materials with increased es, run on solar energy. In addition, the Company uses energy saving capabilities on the facade of the building wind turbines and solar panels in a number of facilities and installed solar panels with a capacity of 10 kW to to illuminate office buildings. provide both indoor and outdoor lighting. The Waste Management Center of the Environmental Department has installed wind turbines with a capacity In addition, to ensure increased use of alternative ener- of 3.6 kW / h and solar panels with a capacity of 15.4 gy sources and improve energy efficiency, the Company kW / h. In 2019, wind turbines produced 636 kWh of has installed 23 kW solar panels and thermal insulation energy used for illumination of the area. materials totalling 1,200 m2 on the roof of the ”Kimya- The façade and ceiling of the administrative and house- chi” Palace of Culture. hold buildings of the Waste Management Center of the The Company saved 22,400 kWh of electricity during Ecological Department have been insulated with stone the year by installing solar panels at the polyethylene wool, and heating panels have been fastened to the facilities and on the ”Kimyachi” Palace of Culture roof. facade of the buildings. In addition, the Company has hermetically sealed windows to prevent heat loss and 17,502 kWh of electricity generated thanks to solar increase energy efficiency. With all these measures, the panels installed at the Gas Export Department site was Company plans to achieve energy savings of up to 40%. used in anti-corrosion installations and for pipeline lighting. In 2016, “Azerkimya” PU started repairing the office building in accordance with the new project. To increase energy efficiency of polyethylene production in the household building, the Company introduced water

110 TABLE 45. ENERGY CONSUMPTION OF SOCAR, THOUSAND KW/HOUR

Entity 2017 2018 2019

Total for SOCAR 2,364,175 2,172,717 2,462,739 including:

SOCAR Azerbaijan 1,093,796 1,059,426 1,220,221

SOCAR Energy Turkey 1,220,040 1,073,550 1,193,436

SOCAR Energy Georgia 26,108 27,739 24,426

SOCAR Energy Ukraine 10,831 12,018 12,056

SOCAR Energy Switzerland 13,400 13,000 12,600

TABLE 46. ENERGY INTENSITY RATIO IN 2017-2019, PER EMPLOYEE

Entity 2017 2018 2019

SOCAR Azerbaijan 21.7 20.7 23.6

SOCAR Energy Turkey 348.6 257.9 265.7

SOCAR Energy Georgia 6.0 6.2 5.4

SOCAR Energy Ukraine 6.0 6.5 5.9

SOCAR Energy Switzerland 16.9 16.5 15.4

TABLE 47. FUEL CONSUMPTION AT SOCAR

Indicators 2017 2018 2019

SOCAR Azerbaijan

Gasoline, tons 5,786.7 6,050.6 6,403.5

Diesel, tons 35,875.7 38,155.9 40,848

Natural gas, thousand m³ 866,054.5 721,706.7 711,336.1

SOCAR Energy Turkey

Gasoline, tons 0.0 0.0 0.0

Diesel, tons 646.5 3,712.9 1,227.2

Natural gas, thousand m³ 470,859.3 429,440.30 447,309.89

SOCAR Energy Georgia

Gasoline, tons 578.0 635.0 572.0

Diesel, tons 521.0 475.0 367.0

Natural gas, thousand m³ 110.1 83.4 0.99

111 Greenery planting measures

SOCAR’s structural units, OCs and JVs took a number Greenery activities at SOCAR’s facilities included the of environmental measures in 2019 in their various are- planting of 105,076 trees by SOCAR structural units, as of activity which helped to save electric power and which is estimated to cause 1,071 tons of CO2 ab- fuel, and to decrease GHG emissions. In addition, the sorption according to an assessment based on IPCC Company achieved an increase in CO2 gas absorption methodology. and a decrease in emissions through the planting of trees and other vegetation activities.

Environmental inspection of motor vehicles

The Environmental Measurement Center (EMC) has two are subjected to environmental inspection once a year mobile and one stationary environmental measurement (excluding repeated environmental inspections). points to ensure that emissions from vehicles owned by Vehicles that comply with emission standards are re- SOCAR’s Transportation Department meet standards quired to present a certificate, and to display special applied in Azerbaijan. environmental emblems (50 mm in diameter for passen- The EMC provides recommendations on the application ger cars and 70 mm in diameter for large vehicles) with of advanced methods to reduce exhaust gas emissions, an adhesive surface, valid in the given year and renewed and reports to management and respective entities on annually. These are provided to the driver to attach them the results of environmental inspections, sources of on the windscreen to differentiate the vehicle. leaks discovered, and instrumental measurements con- During the reporting period, environmental emblems ducted to determine the volume of associated gas. were assigned to 2,880 vehicles that met existing stan- During 2019, EMC conducted 5,312 initial /or repeat- dards during environmental inspections. The below ta- ed environmental inspections of vehicles. 3,911 vehi- ble demonstrates the results of environmental inspec- cles were initially inspected with 2,163 vehicles passed, tions. while 1,748 failed to meet the current standards. SOCAR’s order No. 53 dated 22 April 2010 “On approval of environmental signs and rules of environmental inspection of vehicles” approved the environmental inspection rules. These rules set out that vehicles owned by the SOCAR Transport Department and joint ventures

FIGURE 42. ENVIRONMENTAL INSPECTIONS OF VEHICLES, BY YEAR

6065 4601 4069 3904 3710 4914 5353

2013 2014 2015 2016 2017 2018 2019

112 TABLE 48. AMOUNT OF AIR POLLUTANTS EMITTED FROM MOBILE SOURCES OF SOCAR, TON

Indicators 2017 2018 2019

Total for SOCAR Azerbaijan, including

Solid particles 0 0 0

Gaseous and liquid substances including: 127 151 119

Sulphur dioxide 0 0 0

Nitrogen oxide 22 26 20

Carbon oxide 97 116 92

Hydrocarbons (excl. VOC) 8 9 7

Volatile organic compounds 0 0 0

Other gaseous substances 0 0 0

TABLE 49. NUMBER OF ENVIRONMENTAL INSPECTIONS OF VEHICLES AT SOCAR AZERBAIJAN

Type of vehicle 2017 2018 2019

Inventory of technical equipment and vehicles 4,571 4,495 4,570

Number of vehicles subject to initial and/or repeated inspections 3,710 4,914 5,312

Number of vehicles not complying with existing standards 200 741 681

Number of vehicles withdrawn from operation 3 16 16

Number of vehicles that underwent complete overhaul 36 56 41

Vehicles failing environmental inspections due to other reasons 822 899 860

EIA and Drafting of Regulatory Documents

During 2019, the Company continued the environmen- The preparation of EIA documents involves the study of tal impact assessment (EIA) based on orders from en- the baseline environmental situation, taking into account tities and facilities, the drafting of regulatory documents operational aspects for various projects, an assessment applicable to the environment, and coordination with of potential impacts, mitigation measures for each im- respective government agencies. pact factor, an assessment of alternative projects, and the development of environmental management and monitoring plans. The EIA documents developed are Drafting of regulatory documents then submitted to their requesters after an expert examination and approval from the State Expertise Depart- The Environmental Department is currently drafting EIA ment of the Ministry of Ecology and Natural Resources documents at the request of SOCAR’s enterprises and of the Republic of Azerbaijan. business units, as well as external organizations.

113 The Law of the Republic of Azerbaijan (No. 1175-VQ, Inventory of electrical equipment with dated 12 June 2018) “On Environmental Impact As- PCB oils in contents sessment” established a much clearer than previously The Government of Azerbaijan committed to controlling existing list of activities subjected to EIA and strength- persistent organic pollutants (POPs) with the ratifica- ened control of the process, which eventually increased tion of the Stockholm Convention by the Milli Majlis of orders at the Environmental Department. the Republic of Azerbaijan in 2003. Each facility oper- During 2019, the Environmental Department prepared ating in the country is required to carry out an inven- 12 EIA documents, and submitted them to the request- tory pursuant to the methodology of the convention to ers after approval from the MENR’s Department of Ex- determine the presence of POPs in the territory of the pert Examination. entity. To fulfill this obligation, SOCAR has been con- ducting an annual inventory since 2009. This is because the Company undertakes structural changes from time Environmental Regulatory Documents to time, and old equipment is replaced with new items During the reporting period, a specialized group of the to make improvements. In 2019, SOCAR specialists to- Environmental Department drafted 75 environmental gether with UNIDO experts conducted an inventory of regulatory documents for SOCAR entities and external the Company’s structural units, OC and JV sites. They organizations and submitted them to requesters after created a database following the study of existing elec- approval from the respective bodies of the Ministry of trical equipment: transformers, capacitors and circuit Ecology and Natural Resources of the Republic of Azer- breakers, as well as oils stored as waste in appropriate baijan. places. No change was recorded in the number of PCB capacitors owned by related structural units, OCs and Below is the list of documents drafted during the re- JVs of SOCAR compared to the previous year, as the porting year: amount of PCB oil was reduced by 335 kg and amount- • Ecological datasheets - 23 items ed to 2,739 kg. Oil samples taken from transformers and oil switches at SOCAR were analyzed, and the • Emission thresholds - 7 items Company made changes compared with the 2018 re- • Discharges thresholds - 5 items port on equipment with chlorine content of 50 ppm and • Hazardous waste datasheets - 19 items more in oil. Consequently, the amount of chlorine in the transformers and oil switches with chlorine content of • Environmental inventories - 21 items 50 ppm and more was reduced by 584 kg, from 78,554 kg to 77,970 kg.

FIGURE 43. PCB OILS WITH CHLORINE CONTENT OF 50 PPM AND MORE IN 2018-2019 (KG)

78554 29826 48728 77970 29242 48728

For SOCAR For JVs and For SOCAR For JVs and Total Total 2018 OCs, 2018 2019 OCs, 2019

114 Protection of biodiversity

The Environmental Department continuously monitors ings. In addition, the “Sangachal-Duvanni-Khara-Zira”, and evaluates SOCAR’s operation areas to study the “Bulla Deniz”, “8 March “, “Alat Deniz”, “Neft Dashlari”, impacts of production on eco-systems, as well to in- “Palchig Pilpilesi”, “Western Absheron”, “ Absheron spect flora, fauna, and soil stability. The primary goal Bankasi”,“ Gurgan Deniz” and “Gunashli”oil and gas of these studies is to improve the management and fields along the Caspian Sea were monitored during the monitoring system for the conservation of biodiversity reporting period to assess their biodiversity. and ecosystems in general, including the protection of rare and endangered species of flora and fauna. During 2019, the Company monitored biodiversity in the areas of operation of “Azneft” PU, the Carbamide Plant, Waste Management Center, Oil and Gas Construction Trust, and the Oil Pipeline Department. It inspected the sites to study the flora and fauna and reported the find-

TABLE 50. GREENERY AND VEGETATION MAINTAINED AT SOCAR UNITS BETWEEN 2017-2019

2017 2018 2019 Company Area of land Number of plants in Area of land Number of plants in Area of land Number of plants in covered with the areas covered covered with the areas covered covered with the areas covered vegetation (ha) with vegetation vegetation (ha) with vegetation vegetation (ha) with vegetation

SOCAR Azərbaycan 7 471.68 756,700 485.24 805,372 524.35 1,049,605

In addition, the Company monitored and assessed bio- Landscaping and design project at the “Kal- diversity in the “Umid Babek” oil and gas field, “Dashgil” maz” Gas Compressor Site of the “Azneft” PU Gas terminal and “Mozdok-Gazimammad” site as part of the Storage Operations Department EIA process. Vegetation around the administrative building Overall, 32 monitoring projects were carried out in of the Counter-Fountain Mining Paramilitary Rescue 2019 to assess biodiversity at SOCAR’s oil and gas Squad operation sites. Greenery planting around buildings located at During 2019, the Company provided 81 consulting ser- non-production sites of the Carbamide Plant vices to carry out agro-technical services for 614,930 Modern landscaping and design work in the trees and shrubs, and 249,457 flowers (in total, surrounding area of SOCAR Tower 865,691), planted across 489,76 ha of SOCAR’s business units and facilities, as well as inspecting 176,777 Green Nature project over 25 ha around the m² of lawn area. WMC The Environmental Department’s Eco-Park: Center for A vegetation restoration project in the sur- Environmental Research Public Association cultivates rounding area of the WMC 140,439 trees and shrubs. These plants are used to A forestation project in SOCAR’s areas meet the tree and shrubs needs of SOCAR’s facilities. In 2019, the ED provided 25,351 trees and shrubs to SOCAR’s departments and facilities to plant greenery. That year, the following landscaping and design projects were prepared by the ED at the request of SO- CAR’s facilities and business units.

7 SOCAR-ın müəssisələrinin balansından çıxarılmış və digər qurumlara ötürülmüş sahələrdəki bitkilərin hesabına 2018-ci ilin sonuna ümumi sayda azalma müşahidə edilir.

115 Hygiene and Epidemiology Services

The Hygiene and Epidemiology Center (HES) oversees ance with sanitary and hygiene requirements in residen- the protection of the working environment at SOCAR tial areas, the prevention of infectious diseases, and the entities, the prevention of occupational illness, compli- implementation of anti-epidemic measures.

FIGURE 44. HYGIENE CONTROL IN 2018-2019DINAMIKASI

112 115 384 364 1 1 2 2 31 34 97 94 18 19 87 90

Industry Children-teenagers Food facilities Utilities

Number of Number of Number of medical Number of medical facilities 2018 facilities 2019 examinations 2018 examinations 2019

The diagram shows growth in the number of facilities The insufficiency indicator for water samples taken for subjected to hygiene control and observation in 2019 bacteriological examinations declined from 181 in 2018 compared to 2018. This growth is due to the increased to 40 in 2019. scope of SOCAR facilities subjected to hygiene control To assess the quality of reserve drinking water tanks in 2019. and water in the tanks at SOCAR’s facilities, the Com- The Company closely monitors its facilities and busi- pany collects the discharge of reserve drinking water ness units and conducts lab analyses of foodstuffs to tanks, prepares sanitary or hygiene inspection plans for ensure that employees are provided with quality food. tanks followed by an inspection of sanitary or hygiene and equipment conditions at facilities, and prepares ins- After hygiene examinations, the insufficiency indicator pection reports. dropped from 248 in 2018 to 207 in 2019.

Medical examinations

According to the annual plan, 23,835 employees were tection rate amounting to 0.1 and detection percentage planned to undergo periodical medical examinations 11.2%. last year. However, after the plan was updated due to The number of employees leaving permanently due to structural changes and for other reasons, the final num- health reasons was 25, while the number of those who ber was 23,242. temporarily transferred to another job was 45. 26 em- In respect of the quality of medical examinations, the ployees were sent to the Medical Social Expert Com- number of employees with initial diseases detected mission to determine their degree of disability. during medical examinations was 2,583, with the de-

8 Aşkarlanma göstəricisi ümumi tibbi müayinədən keçən işçi personalda aşkarlanan xəstəliklərin say göstəricisidir.

116 310 patients with initially identified diseases were re- Preventive examinations uncovered derivatives in 42 ferred to various hospitals for treatment, while 1,652 employees who were referred to oncology dispensaries were reported to be in need of sanatorium treatment. for further consultation, while 16 employees were diagnosed with malignant tumors. 252 employees were In 2019, no suspected occupational diseases were de- diagnosed with diabetes. tected during medical examinations. SOCAR will continue to take all necessary measures to The list of the most common diseases split by noso- detect existing and potential diseases. logical category is dominated by hypertension (1,473), followed by cardiovascular system diseases (691), and In addition, 3 hepatitis, 5 chicken pox (varicella), and 3 lung diseases (120), with pulmonary tuberculosis ac- measles cases were recorded, upon which the Compa- counting for 9. ny took anti-epidemic measures. The second most common type of disease consists of eye diseases, diagnosed in 381 employees.

Disinfection measures

To prevent the outbreak and spread of infectious dise- Necessary preventive disinfection work was also car- ases, the Company carried out sanitary or hygiene and ried out in the offshore areas of CDWT, the Transport anti-epidemic measures in 2019 at 27 business units Department, Oil and Gas Construction Trust, and “Az- under the supervision of a medical epidemiologist. neft” PU, including the disinfection of reserve drinking water tanks. During 2019, preventive disinfection measures were carried out at the facilities and units of Complex Drilling Further, deratization of 8,662,361 m2, disinfection of Word Trust (CDWT), the Transportation Department, 4,351,127 m2 and disinfection of 213,482 m2 was car- Oil Pipelines Department, Information Technologies ried out by the Company. A water tank of 4,275 m3 was and Communication Department, “Azneft” PU, “Azeri- disinfected, and protective measures against snakes gas” PU, Drilling Works Department, and Geophysics were taken in an area of 155,000 p / m. and Geology Department located in the regions. The Company also took measures to protect the staff from reptiles.

117 INTERNATIONAL COOPERATION

Cooperation with Carbon Limits tinued efforts to expand its scope of activities, joining the World Bank’s Zero Routine Flaring by 2030 Initiative and Shell and BP’s uiding Principles for Mitigation of SOCAR continued cooperation with Norway’s Carbon Methane Emissions initiative. These principles are the Limits in 2019 to reduce its climate change impact. result of a collaborative effort among the oil and gas industry, international institutions (including the World As part of the activities planned under the Emissions Re- Bank, the United Nations Environment Programme and duction Agreement signed between the Environmental the International Energy Agency), non-governmental or- Department (ED) and Norwegian Carbon Limits (CL), ganizations, and universities (Columbia University, Im- SOCAR launched its Leaks Detection and Prevention perial College, and University of Texas). Project in the Company’s oil production process. As part of the implementation of the project, the specialists SOCAR has prioritized a gradual reduction in methane from CL and ED carried out instrumental measurement gas emissions along all elements of the oil and gas in- at onshore facilities of “Azneft” PU – “Absheronneft”, dustry value chain, from production to distribution. In “H.Z. Tagiyev”, “A.Amirov”, “N. Narimanov” and “Bibi- January 2018, R. Huseynzade, SOCAR’s vice-president heybatneft” OGPDs, as per the planned schedule. for Ecology, signed the Guiding Principles for Mitiga- tion of Methane Emissions initiated by Shell and BP on “Azneft” PU carried out repairs and drafted a project 22 November 2017 to ensure efficient management of document to eliminate the leaks detected. natural gas. To approve the project, a third party, TUV Nord, was involved in assessing the current state of the project. It issued a positive validation report on the basis of the Cooperation with GGFR assessment. SOCAR has been a member of the Steering Commit- Consequently, the project was submitted to the German tee of the World Bank’s Global Gas Flaring Reduc- Environmental Agency for registration to obtain carbon tion (GGFR) partnership since 2008. SOCAR joined credits under the European Union’s Fuel Quality Direc- the World Bank’s initiative To “Zero Routine Flaring by tive. Approval of the project is scheduled for the end of 2030” To reduce greenhouse gas emissions, the Com- June this year. The Company has planned repeat instru- pany adopted the Climate Changes Mitigation Strategy mental measurements at the production sites covered at SOCAR by 2020. SOCAR, jointly with GGFR, ad- by the project document in order to obtain a certificate opted the 2010-2015 and 2017-2022 Plans to Reduce confirming decrease in real carbon emissions. Associated Gas Emissions at SOCAR and Projects In- volving SOCAR. Cooperation with IOGP With the implementation of the above projects, the Company managed to collect 1 bcm of gas emissions SOCAR, as a member of the International Association during the past 20 years to be reused by the population. of Oil and Gas Producers (IOGP) since 2018, was in- The Expert Council of the World Bank has twice given vited to submit its annual Environmental Performance awards for these projects run by SOCAR. Indicators Report (EPI). In 2019, the Environmental De- We also highlight that Azerbaijan has recorded the low- partment was involved in the preparation of SOCAR’s est emissions of associated gas during oil production EPI report to submit it to IOGP. among the top 10 countries exporting oil to the Euro- pean Union. Guiding principles for methane emissions mitigation To expand the scope of work aimed at reducing methane gas emissions, SOCAR has joined projects initiated by a number of international companies. SOCAR con-

118 Planning, awareness raising and monitoring in oil spill prevention.

SOCAR is currently working on a project to establish The Company has also launched an update to its Oil ECOBARPA – an Oil Spill Response Center – and its Spill Prevention and Response Plan for the next five ye- stations at selected SOCAR sites (Garadagh, Chilov ars. Data has been collected, analyzed and summarized and Dubandi). Preparatory work for future activities of following a request from SOCAR’s enterprises to renew the center is underway. the plan. The project is at the completion stage.

Application of international management systems

In 2019, courses on raising safety awareness and inter- CRL applied to TurkAK for an audit to support the labo- national management systems were provided as per the ratory in gaining accreditation for the ISO / IEC 17025: approved schedule. 2017 certificate. On 24-25 June 2019, CRL hosted the audit by TurkAk, with the latter providing a notice of cor- On 23-25 January 2019, the Turkish Standards Institute rective actions for detected discrepancies. (TSE) conducted a third-party audit of the ISO 9001 quality, ISO 14001 ecology and OHSAS 18001 oc- On 18-22 November 2019, an internal audit was con- cupational safety and health management systems. No ducted by the EI’s internal audit team on the ISO 9001 inconsistency was discovered during the audits. quality, ISO 14001 environment and OHSAS 18001 occupational safety and health management systems. The set of documents on the laboratory management The audit identified a number of discrepancies and the system has been revised in order to accredit the CRL relevant units received a notice of corrective actions. analyses in line with ISO / IEC 17025: 2017. On 22-23 The discrepancies were eliminated within the specified May 2019, the audit team of the Environmental Depart- period. ment conducted an internal audit at CRL.

119 TABLE 51. LIST OF SOCAR AZERBAIJAN FACILITIES CERTIFIED ACCORDING TO ISO 14001 INTERNATIONAL MANAGEMENT STANDARD

Entity Date of first Renewal issue, year date, year

Environmental Department 2015 2018

Oil and Gas Construction Trust 2002 2015

Gas Processing Plant 2012 2018

Geophysics and Geology Department 2012 2018

”Azerigas” PU 2013 2018

Transportation Department 2012 2015

Diving and Emergency Rescue Department 2012 2018

“Azneft” PU Experimental Department for Repair and Rent of Submersibles 2012 2015

“Azneft” PU Gas Storage Operation Department 2013 2016

“Azneft” PU 28 May OGED 2013 2016

Gas Export Department 2013 2016

Baku Higher Oil School 2014 2017

Complex Drilling World Trust 2016 2016

“Azerkimya” PU 2016 2017

Environmental awareness raising

Environmental awareness raising activities were imple- In 2019, the Company held presentations, open and mented together with SOCAR’s employees, schoolchil- practical lessons in about 45 schools in Surakhani, Bi- dren, students of universities and secondary vocational nagadi, Narimanov, Sabunchu, Khazar, Sabail, Khatai education facilities, and non- governmental organiza- and other regions, on the following topics: tions in accordance with the Environmental Policy ap- Use of alternative and renewable energy proved by SOCAR order No. 77, dated 12 May 2008 the “On Environmental Awareness Raising” document Healthy lifestyles approved by SOCAR’s Order 123, dated 12 August Green behavior 2008 and “SOCAR’s 2018-2020 Action Plan for Rais- What should we do? ing Environmental Awareness”. Biodiversity of Azerbaijan On 30 January 2017, the SOCAR Environmental De- partment and the Baku City Education Department Noise pollution signed a Partnership Agreement to encourage students’ What is environmental monitoring? interest in ecological science and develop their ecological knowledge and skills. The agreement envisages the Waste management. implementation of Ecology Month, Green School, and other projects jointly with SOCAR’s Environmental De- partment under the slogans “Let us Turn Education into In addition, the presentations included information on a Value” and “Environment and Health”. SOCAR’s environmental projects and were followed

120 by a question and answer session with schoolchildren. campaign in Azerbaijan is the IDEA Public Union. On 30 Held interactively, the presentations raised interest March 2019, SOCAR joined the event at the invitation among both teachers and students. of IDEA Public Union. To fulfil the obligations arising from the Memorandum • On 25 September 2019, SOCAR’s Environ- of Understanding on Environmental Education signed mental Department and “Azneft” PU held a We are between the Republican Center for Child and Youth Cleaning the World campaign dedicated to World Ma- Development (RUGIM) of the Ministry of Education of rine Day. the Republic of Azerbaijan and SOCAR’s Environmen- • On 18 September 2019, an open class ded- tal Department, staff members from the Environmental icated to International Day for the Protection of the Department made presentations on the environment Ozone Layer was held for students of secondary school for members of 17 “Eco Clubs” founded by RUGIM in No. 230. Information on the ozone layer and SOCAR’s schools. environmental projects was provided during the open In addition, on 31 January 2019, a tree planting cam- class, which was later followed by a question and an- paign was held at the Eco-Park Environmental Research swer session. Center Public Union with the participation of AIESEC • On 13-15 November 2019, the 10th Anni- Azerbaijan, volunteers from the Global Volunteer inter- versary Caspian Ecology International Environmental national program, and employees of the Environmental Exhibition was held at the Baku Expo Center with the Department. support of the Ministry of Ecology and Natural Resourc- During 2019, the ED held the following special events es of the Republic of Azerbaijan. The Company’s envi- to mark World Environment Day: ronmental projects were exhibited on SOCAR’s stand, and visitors were informed of the activities organized to • On 19 February 2019, an open class dedicated protect the environment. to World Aquatic Mammal Day was held with the participation of students of secondary school No. 145. The During the reporting year, all information on joint events Environmental Department provided information about held by SOCAR’s departments and facilities with gov- water mammals and the Caspian ecosystem, and an- ernment agencies, international organizations, environ- swered questions from schoolchildren during the open mental NGOs, universities, schools and other public class. organizations, excursions to the Eco-Park, round tables, exhibitions, brain-ring contests and open classes was • Earth Hour has been held by the World Wildlife published on www.socar.az, in the “Iki Sahil” newspa- Fund (WWFon the last Saturday of March every year per, and in the media. since 2007. The official coordinator of the Earth Hour

121 09

122 SOCAR Performance Indicators Human Resources Management Indicators 123 SOCAR Performance Indicators Human Resources Indicators

SOCAR Azerbaijan

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES

2017 2018 2019

Women 8 421 8 505 8 459

Men 42 003 42 620 43 236

Total 50 424 51 125 51 695

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE

2019 2019 Women Men Women Men

Permanent employees 8 380 42 834 Full-time employees 8 458 43 233

Temporary employees 79 402 Part-time employees 1 3

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES IN 2019, BY CATEGORY AND GENDER

Women Men

Senior executives 538 5 644

Specialists 2 925 6 080

Technical personnel 628 229

Manual workers 4 368 31 283

MEMBERS OF THE HIGHEST GOVERNANCE BODY NUMBER OF SOCAR AZERBAIJAN EMPLOYEES OF SOCAR AZERBAIJAN IN 2019, BY AGE AND HIRED IN 2019, BY AGE AND GENDER GENDER 2019 2019

Women 1 Women 507

Men 13 Men 2 003

Under 30 years old 0 Under 30 years old 1 396

30-50 years old 0 30-50 years old 886

Over 50 years old 14 Over 50 years old 507

124 NUMBER OF EMPLOYEES, BY AGE CATEGORY

2017 2018 2019

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

4 839 25 326 20 259 4 750 25 103 21 272 4855 25098 21742

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES HIRED AND TERMINATED

2017 2018 2019

Hired personnel 1 728 2 417 3 668

Terminated personnel 1 083 1 780 3 409

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES HIRED RATIO OF ENTRY-LEVEL WAGE TO THE OFFICIAL IN 2019, BY AGE AND GENDER MINIMUM WAGE IN THE COUNTRY

Women 281 2019 Woman Men Men 1 159 Employees of SOCAR 250 250 Under 30 years old 407 Individuals serving the Company but not registered as official employees 284 284 30-50 years old 704 of the Company

Over 50 years old 329

Collective employment 2017 2018 2019 EMPLOYEE TURNOVER AT SOCAR AZERBAIJAN, % agreement

Percentage of employees 100 100 100 2017 2% covered by collective employment agreement, % 2018 3%

2019 2,78%

Number of employees EMPLOYEES THAT TOOK PARENTAL LEAVE 2017 2018 2019

Number of employees entitled to parental leave, by gender 783 797 793

Number of employees entitled to parental leave, by gender 315 407 435

Number of employees who returned from parental leave during the reporting period, by gender 159 160 172

Number of employees expected to return from parental leave during the reporting period 315 407 435

Number of employees who returned from parental leave and stayed at work for 12 months 135 141 134

Level of return to work 48,5 39,3 39,5

Level of staying at work 88,2 88,1 87,6

125 SOCAR Energy Turkey

NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES

2017 2018 2019

Women 320 436 490

Men 3 180 3 676 4 002

Total 3 500 4 112 4 492

NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE

2017 2018 2019 Women Men Women Men Women Men Permanent employees 319 3 178 436 3 676 490 4 001

Temporary employees 1 2 0 0 0 1

2017 2018 2019 Men Women Men Women Men Women Full-time 320 3 180 436 3 676 490 4 002

Part-time 0 0 0 0 0 1

NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES, BY AGE CATEGORY

2017 2018 2019

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

776 2 304 420 895 2 801 416 799 3 289 404

NUMBER OF SOCAR ENERGY TURKEY MEMBERS OF THE HIGHEST GOVERNANCE BODY OF EMPLOYEES IN 2019, BY CATEGORY AND SOCAR ENERGY TURKEY, BY GENDER GENDER

Woman Men 2019

Senior executives 20 106 Women 1

Specialists 323 594 Men 16

Technical personnel 102 753

Manual workers 45 2 549

126 NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES HIRED AND TERMINATED

2017 2018 2019

Hired personnel 845 656 293

Terminated personnel 239 173 218

NUMBER OF SOCAR ENERGY TURKEY NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES EMPLOYEES HIRED IN 2019, BY AGE AND GENDER TERMINATED IN 2019, BY AGE AND GENDER

2019 2019

Women 61 Women 42

Men 232 Men 176

Under 30 years old 127 Under 30 years old 18

30-50 years old 159 30-50 years old 84

Over 50 years old 7 Over 50 years old 116

PERCENTAGE OF EMPLOYEES COVERED EMPLOYEE TURNOVER AT SOCAR BY COLLECTIVE EMPLOYMENT AGREEMENT ENERGY TURKEY FOR 2019-2020, %

Collective employment 2018 2017 2018 2019 7% agreement 2019 4% Percentage of employees 60 59 59 covered by the Collective Employment Agreement 2020 5%

RATIO OF ENTRY-LEVEL WAGE PAID TO EMPLOYEES TO THE MINIMUM WAGE IN THE COUNTRY

2017 2018 2019 Women Men Women Men Women Men Employees of SOCAR 1,55 1,69 1,72 1,48 1,46 1,29

TRAINING IN HUMAN RIGHTS

Human rights training held during the reporting period 2017 2018 2019

Overall duration of training courses on human rights policies and 1 928 2 772,5 5 879 procedures, hours Percentage of employees trained in policies and procedures on 30% 31% 58,46% aspects of human rights, percentage

127 SOCAR Energy Georgia

DYNAMICS OF THE NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES

2017 2018 2019

Women 869 888 893

Men 3 460 3 617 3 622

Total 4 329 4 505 4 515

NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE 2017 2018 2019 Women Men Women Men Women Men Permanent employees 866 3 455 884 3 610 893 3 622

Temporary employees 3 5 4 7 0 0

2017 2018 2019 Women Men Women Men Women Men Full-time 868 3 460 887 3 617 892 3 622

Part-time 1 0 1 0 1 0

NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES, BY AGE CATEGORY

2017 2018 2019

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

1 137 2 104 1 088 946 2 168 1 391 843 2 215 1 457

MEMBERS OF THE HIGHEST GOVERNANCE BODY OF NUMBER OF SOCAR ENERGY GEORGIA SOCAR ENERGY GEORGIA IN 2019, EMPLOYEES IN 2019, BY CATEGORY AND GENDER BY AGE AND GENDER

Women Men 2019

Women 0 Senior executives 24 160 Men 5 Specialists 358 444 Under 30 years old 0 Technical personnel 212 1 868 30-50 years old 0 Manual workers 299 1 150 Over 50 years old 5

128 NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES EMPLOYEE TURNOVER AT SOCAR TERMINATED IN 2019, BY AGE AND GENDER ENERGY GEORGIA, %

2019 2017 16% Women 84 2018 17% Men 623 2019 16% Under 30 years old 262

30-50 years old 306

Over 50 years old 139

RATIO OF ENTRY-LEVEL WAGE (AZN) PAID TO EMPLOYEES TO THE OFFICIAL MINIMUM WAGE IN THE COUNTRY

2017 2018 2019 Women Men Women Men Women Men Employees of SOCAR 11,11 7,44 11,11 7,44 11,11 7,44

SOCAR Energy Ukraine

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES

2017 2018 2019

Women 862 921 1 025

Men 955 940 1 010

Total 1 817 1 861 2 035

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE 2018 2019 Women Men Women Men Permanent employees 862 955 921 1 010

Temporary employees 0 0 0 0

2017 2018 2019 Women Men Women Men Women Men Full-time employees 843 935 902 918 993 984

Part-time employees 19 20 19 22 32 26

129 NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES, BY AGE CATEGORY

2017 2018 2019

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

759 872 186 712 914 235 692 1 051 292

NUMBER OF SOCAR ENERGY UKRAINE MEMBERS OF THE HIGHEST GOVERNANCE EMPLOYEES IN 2019, BY AGE AND GENDER BODY OF SOCAR ENERGY UKRAINE IN 2019, BY AGE AND GENDER

Women Men 2019

Women 0 Senior executives 67 109 Men 5 Specialists 470 178 Under 30 years old 0 Technical personnel 3 27 30-50 years old 1 Workers 485 696 Over 50 years old 4

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES HIRED AND TERMINATED

2017 2018 2019

Hired personnel 1 306 1 030 1 095

Terminated personnel 1 226 986 921

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES HIRED IN 2019, BY AGE AND GENDER TERMINATED IN 2019, BY AGE AND GENDER

2019 2019

Women 495 Women 389

Men 600 Men 532

Under 30 years old 548 Under 30 years old 483

30-50 years old 462 30-50 years old 390

Over 50 years old 85 Over 50 years old 48

130 EMPLOYEE TURNOVER AT SOCAR PERCENTAGE OF EMPLOYEES COVERED BY ENERGY UKRAINE, % COLLECTIVE EMPLOYMENT AGREEMENT

2017 67% Collective employment 2017 2018 2019

2018 53% Percentage of employees covered by the Collective 12.44% 12.25% 10.01% 2019 45% Employment Agreement

RATIO OF ENTRY-LEVEL WAGE (AZN) PAID TO EMPLOYEES TO THE OFFICIAL MINIMUM WAGE IN THE COUNTRY

2017 2018 2019 Women Men Women Men Women Men

Employees of SOCAR 1.00 1.00 1.00 1.00 1.00 1.00

SOCAR Energy Switzerland

NUMBER OF SOCAR ENERGY SWITZERLAND NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES EMPLOYEES 2019 2017 2018 2019 Women Men Permanent employees 522 256 Women 508 510 539

Temporary employees 17 24 Men 285 279 280

Total 793 789 819

2017 2018 2019 Women Men Women Men Women Men Full-time employees 193 185 191 183 205 184

Part-time employees 315 100 319 96 334 96

131 NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES, BY AGE CATEGORY

2017 2018 2019

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

323 319 151 315 164 310 311 345 163

MEMBERS OF THE HIGHEST GOVERNANCE BODY NUMBER OF SOCAR ENERGY SWITZERLAND OF SOCAR ENERGY SWITZERLAND, EMPLOYEES IN 2019, BY CATEGORY AND GENDER BY AGE AND GENDER

Women Men Women 0

Senior executives 13 45 Men 6

Specialists 73 45 Under 30 years old 0

Technical personnel 453 190 30-50 years old 5 and manual workers Over 50 years old 1

NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES HIRED AND TERMINATED

2017 2018 2019

Hired personnel 321 299 310

Terminated personnel 323 297 281

NUMBER OF SOCAR ENERGY SWITZERLAND NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES HIRED IN 2019, EMPLOYEES TERMINATED IN 2019, BY AGE AND GENDER BY AGE AND GENDER 2019 2019

Women 203 Women 170

Men 107 Men 111

Under 30 years old 190 Under 30 years old 162

30-50 years old 107 30-50 years old 94

Over 50 years old 13 Over 50 years old 25

EMPLOYEE TURNOVER AT SOCAR PERCENTAGE OF EMPLOYEES COVERED BY ENERGY SWITZERLAND, % COLLECTIVE EMPLOYMENT AGREEMENT

2017 Collective employment 43,7% 2017 2018 2019 agreement 2018 37,64% Percentage of employees covered by the Collective T/O 9 82,60% 82,54% 2019 34.31% Employment Agreement

9 Collective employment contracts with the staff of petrol stations of SOCAR Switzerland are valid from February 2018.

132 SOCAR Performance Indicators SOCAR’s Business indicators

About the Company 2017 2018 2019

Production results

Oli production thousand tons 7 427,1 7 542,3 7 683,1

Gas production mln, m3 6 089,1 6 525,6 6 818,6

Oil processing thousand tons 5 815,5 6 090,5 6 194,4

Gas processing mln, m3 2 918,3 2 952,2 3 215,0

Payments to budget billion AZN 1,509 1,608 1,622

Charter capital bln, AZN 3,036 4,147 4,323

Produced in Oil Refinery, thousand tons 5 262,31 5 540,26 5 622,54

Gasoline 1 215,21 1 185,64 1 161,38

Primary distilled gasoline fraction (to Azerikimya PU) 168,41 204,63 246,79

Jet engine fuel 587,98 617,04 591,13

Diesel fuel 1 849,15 1 921,78 2 080,20

Light reflux 302,35 348,77 351,69

Heavy reflux 13,24 10,55 10,42

Stove Oil 236,12 106,57 126,46

Oil coke 226,86 243,95 238,44

Liquefied gases 200,56 204,02 197,92

Treated dry gas (to Azerikimya PU) 60,07 53,60 54,27

Atmospheric gasoil fraction 83,73 35,94 85,38

Vacuum gasoil 0 190,82 162,91

Engine fuel 46,54 34,11 32,55

Bitumen 237,07 289,67 260,09

Lubricants 35,02 50,93 22,91

Heady diesel fraction 0 42,24 0

133 Products produced at Azerikimya PU, thousand tons 429,33 450,14 544,06

Ethylene 96,01 98,95 117,22

Propylene 48,45 56,28 88,19

Butylene-butadiene fraction 31,57 33,12 38,08

Pyrolysis resin 63,86 69,25 85,18

Heavy bitumen 13,68 14,29 18,92

Propane 0,47 0,50 0,50

Fuel gas 82,09 81,72 101,57

Polyethylene 93,20 96,03 94,40

Pure isopropyl alcohol 11,89 7,28

Pure diisopropyl ether 0,57 0,45

Products exported by SOCAR, tons 1 129662,43 1 532 959,95 2 142 043,37

TS-1 fuels for jet engines 47 533,52 29 560,76 50 551,49

Diesel fuel L-62 561 520,95 470 960,35 507 219,30

Vacuum gasoil 19 413,63 126 205,73 192 372,57

Stove oil 355,50 237,90 243,11

BNB 50/70 oil bitumen 0 0 12 091,27

Depressor AKI – 426 237,83 443 425,25

High pressure polyethylene 74 898,00 79 666,50 79 297,50

Butylene-butadiene fraction 30 800,35 30 512,57 38 487,95

Propylene 39 535,65 35 002,15 4 412,05

Liquified pyrolysis resin 56 786,79 69 257,67 78 019,24

Pure isopropyl alcohol 621,89 260,96 250,98

Cylinder oil 11 3 555,93 4 740,23 263,09

Auto-tractor oil OF Baku AK-15 2 243,28 1 513,74 711,82

Low-sulphur oil coke KT-Q 255 153,16 227 824,03 223 357,27

T-1500 transformer oil 6 157,13 4 394,97 4 204,64

Turbine oil 858,85 67,86 1 119,15

И-8А industrial oil 6 156,12 18 993,18 0

Methanol 0 63 864,90 390 628,40

Carbamide T/O T/O 115 388,29

10 SOCAR’s carbamide plant was put into operation in 2019.

134 Percentage of the procurement budget spent by SOCAR Azerbaijan on

local suppliers, % 66 78 89%

Percentage of the procurement budget spent by SOCAR Energy Turkey

on local suppliers, % 88% 94% 90%

Percentage of the procurement budget spent by SOCAR Energy

Georgia on local suppliers , % 56% 65% 67%

Percentage of the procurement budget spent by SOCAR Energy

Ukraine on local suppliers, % 5% 5% 45%

Percentage of the procurement budget spent by SOCAR Energy

Switzerland on local suppliers, % 98% 95% 95%

Financial indicators (thousand AZN) 2017 2018 2019

For SOCAR Azerbaijan

Economic value generated 5 816 411 5 898 383 6 416 530

Revenues 5 816 411 5 898 383 6 416 530

Economic value distributed (3 596 185) (3 500 627) (3 647 379)

Operating costs (1 387 533) (1 102 105) (1 111 402)

Employee wages, social security and benefits (582 625) (703 866) (788 388)

Payments to providers of capital (363 899) (356 869) (393 562)

Payments to government (482 928) (550 197) (553 632)

Community investments (779 200) (787 590) (800 395)

Economic value retained 2 220 226 2397756 2 769 151

For SOCAR Energy Turkey

Economic value generated 5 068 992 5 127 458 9 541 087

Revenues 5 068 992 5 127 458 9 541 087

Economic value distributed (4 167 387) (4 755 107) (9 051 596)

Operating costs (3 674 305) (3 983 314) (8 346 648)

Employee wages, social security and benefits (215 059) (214 807) (290 160)

Payments to providers of capital (152 125) (501 617) (385 218)

Payments to government (125 898) (55 369) (29 570)

Community investments 0 0 0

Economic value retained 901 605 372 351 489 491

11 According to the scope of activities of SOCAR Energy Ukraine, the main part of the procurement budget is spent on fuel purchased by foreign companies. Local suppliers are mainly involved in providing administrative services, as well as supply of additional products sold at filling stations. 135 For SOCAR Energy Georgia

Economic value generated 974 806 1 007 693 1 050 871

Revenues 974 806 1 007 693 1 050 871

Economic value distributed (904 411) (951 311) (1 000 326)

Operating costs (841 956) (877 481) (920 922)

Employee wages, social security and benefits (40 377) (46 121) (42 575)

Payments to providers of capital (22 078) (27 451) (36 602)

Payments to government 0 (258) (227)

Community investments 0 0 0

Economic value retained 70 395 56 382 50 545

SOCAR Energy Ukraine

Economic value generated 594 798 832 058 729 512

Revenues 594 798 832 058 729 512

Economic value distributed (560 816) (796 465) (696 169)

Operating costs (538 895) (769 050) (658 395)

Employee wages, social security and benefits (18 354) (22 531) (33 321)

Payments to providers of capital (375) (1 524) (517)

Payments to government (3 192) (3 360) (3 936)

Community investments 0 0 0

Economic value retained 33 982 35 593 33 343

For SOCAR Energy Switzerland

Economic value generated 1 990 963 2 603 281 2 670 599

Revenues 1 990 963 2 603 281 2 670 599

Economic value distributed (1 882 161) (2 484 873) (2 551 584)

Operating costs (1 781 012) (2 363 227) (2 422 699)

Employee wages, social security and benefits (95 166) (110 502) (113 270)

Payments to providers of capital (1 327) (2 278) (8 118)

Payments to government (4 552) (8 794) (7 421)

Community investments (104) (72) (76)

Economic value retained 108 802 118 408 119 015

136 Human Resources

Human Resources 2017 2018 2019

For SOCAR Azerbaijan

Number of employees, total 50 424 51 125 51 695

Number of employees hired 1 728 2 417 3 668

Number of employees dismissed 1 083 1 780 3 409

For SOCAR Energy Turkey

Number of employees, total 3 500 4 112 4 492

Number of employees hired 845 656 293

Number of employees dismissed 239 173 218

For SOCAR Energy Georgia

Number of employees, total 4 329 4 505 4 515

Number of employees hired 777 908 717

Number of employees dismissed 701 732 707

SOCAR Energy Ukraine

Number of employees, total 1 817 1 861 2 035

Number of employees hired 1 306 1 030 1 095

Number of employees dismissed 1 226 986 921

For SOCAR Energy Switzerland

Number of employees, total 793 789 819

Number of employees hired 321 299 310

Number of employees dismissed 323 297 281

137 Social activities

Social activities 2017 2018 2019

Payments by type of grant, AZN 19,959,859 4,614,715 8,271,837

Material 699,853 112,311 34,150

Charity 820,745 0 244,637

Social 4,597,288 245,200 5,083,953

Sponsorship 13,012,672 4,257,204 2,908,097

Financial 829,301 0 0

Payments by target of grants, AZN 19,959,859 4 614,715 8,271,837

Sport 10,473,003 527,728 1,380,360.00

Financial associations and Trade Unions 2,508,172 890,902 4,865,010.01

Education 4,292,677 196,700 771,000

Art and Culture 2,104,826 2,826,510 0

Healthcare 12,252 0 0

Financial aid to individuals 568,929 172,875 1,240,581

Disabled persons and veterans 0 0 13,887

Amount of material assistance and number of recipients, AZN 5,253,909 4,559,255 6,875,094

When a worker dies, to one of the employee’s family members 424,920 355,640 620,650

Death of a family member 793,145 846,900 1,233,500

Children of employees who died in the Nagorno-Karabakh War and during the events of 20th January, until they reach 18 years of age (or 12,038 7,800 11,700 until they reach 23, if students), for each child, monthly

When a worker dies, for their underage children until they reach 18 4,023,806 3,348,915 5,009,244 years of age (23 years old), for each child, monthly

138 Occupational health and safety 12

Occupational safety 2017 2018 2019

Industrial Results

Number of participants on the Safety of Life at Sea 2 654 1 404 2 842

Number of accidents by area of activity 10 11 10

Oil and gas production 4 3 4

Oil and gas treatment 2 0 1

Gas supply and transportation 0 2 1

Construction 2 1 2

Geophysics and geology 0 2 1

Transportation - 2 0

Drilling 2 1 0

Information technology and communication 0 0 1

Occupational health and safety expenditures, thousand AZN 19 903 22 877 23 531

Measures to improve working conditions 15 166 15 831 18 165

Special clothing, special shoes and other protective equipment for personnel 3 537 5 690 4 244

Milk 907,7 1 198 958

Other expenses 292,3 158,7 164,5

SOCAR Azerbaijan’s OHS performance indicators

Total number of accidents 10 11 10

resulting in death 4 3 3

Number of injured employees, including 12 11 12

Number of deceased employees 4 3 3

Number of missing employees 0 0 0

Number of occupational diseases 0 0 0

Number of days lost due to occupational injuries 2,071 358 1,564

Absence due to occupational diseases, 254,064 300,937 330,471

Average number of employees 50,248 50,479 51,189

Total worked hours 77,313,080 78,003,136 80,393,496

12 SOCAR Enerji Gürcüstan üzrə göstəricilər əhəmiyyətli olmadığı səbəbindən, cari TAblelərdə əhatə olunmamışdır. 139 Occupational injury ratio (per 200,000 worked hours) 0.03 0.03 0.03

Lost days ratio (per 200,000 worked hours) 5.36 0.92 3.89

Absence in the workplace ratio (per 200,000 worked 5,257.87 6,172.82 6,577.07

Accidents frequency ratio (number of accidents per 1,000 employees) 0.20 0.22 0.195

Weighted ratio of accidents (number of lost days per accident) 345.17 44.75 223.43

Performance indicators of JVs and OCs in OHS

Total number of accidents, including 15 7 12

resulting in death 3 0 2

Number of days lost due to occupational injuries 256 690 346

Weighted ratio of accidents (number of lost days per accident) 21.3 98.6 31.5

Accidents frequency ratio (number of accidents per 1,000 employees) 0.2 0.22 0.5

OHS performance indicators at SOCAR affiliates 13

SOCAR Energy Turkey’s own employees

Number of injured employees 24 42 33

Number of deceased employees 0 0 0

Absence due to occupational diseases 0 0 0

Number of days lost due to occupational injuries 534 381 243

Total worked hours 5,482,748 7,011,060 4,501,265

Occupational injury ratio (per 200,000 worked hours) 0,86 1,20 1,47

Weighted ratio of accidents (number of lost days per accident) 22,25 9,07 7,36

SOCAR Energy Turkey’s suppliers and contractors

Number of injured employees 133 64 16

Number of deceased employees 1 3 0

Total worked hours 56,530,769 42,283,534 9,304,590

Occupational injury ratio (per 200,000 worked hours) 0,46 0,30 0,85

SOCAR Energy Ukraine’s own employees

Number of injured employees 2 1 0

Number of deceased employees 0 0 0

Absence due to occupational diseases 0 0 0

Number of days lost due to occupational injuries 14 157 0

13 SOCAR Energy Georgia has not been included in this report due to not having any material indicators. Only injuries resulting in lost days have been included for all entities 140 14 Substantial decrease in the “Total Worked Hours Section” is due to the construction works in “Star Refinery” Absence due to illness 9,285 9,635 10,165

Number of employees 1,817 1,861 2,035

Total worked hours 3,545,288 3,715,626 3,796,533

Total worked days 395,258 410,140 417,392

Total hours to be worked 3,658,034 3,984,710 4,158,793

Occupational injury ratio (per 200,000 worked hours) 0,112 0,052 -

Lost days ratio (per 200,000 worked hours) 7,0 76,4 -

SOCAR Energy Switzerland’s own employees 22

Number of injured employees 22 13 22

Number of deceased employees 0 0 0

Absence due to occupational diseases 0 0 0

Number of days lost due to occupational injuries 181 265 238

Absence due to illness 4 206 5,767 5,830

Number of employees 793 789 688

Total worked hours 1,265,545 1,259,012 1,267,616

Total worked days 158,193 157,377 150,907

Total hours to be worked 1,265,545 1,259,012 1,267,616

Occupational injury ratio (per 200,000 worked hours) 3.48 2.06 3.48

Lost days ratio (per 200,000 worked hours) 28.60 42.10 37.56

Absence in the workplace ratio (per 200,000 worked 664.79 916.19 919.92

Weighted ratio of accidents (number of lost days per accident) 8.23 20.38 10.82

Environmental activities

Environmental activities 2017 2018 2019

SOCAR Azerbaijan environmental expenditures, thousand. AZN, 19,745 24,180 19,000

including:

SOCAR Energy Turkey (thousand dollar) 2,254.779 6,766.75 6,218.92

SOCAR Energy Ukraine (thousand dollar) 31.21 225.97 255

SOCAR Energy Georgia (thousand dollar) 0 233.985 158.789

16 The costs associated with SOCAR Energy Turkey include the costs incurred by Petkim,

141 İEYQ emissiyaları haqqında məlumat

SOCAR Azerbaijan 6,567.7 6,654.3 7,904.3

Direct emissions, thousand tons in СО2 equivalent 5,893.1 5,979,6 6,441.8

Indirect emissions, thousand tons in СH4 equivalent 674.6 674.7 686.3

SOCAR Energy Turkey 2,393.2 1,634.9 N/A

Direct emissions, thousand tons in СО2 equivalent 2,176.5 1,409.2 N/A

Indirect emissions, thousand tons in СH4 equivalent 216.7 225.7 484.2

SOCAR Energy Georgia 3.8 4.0 3.1

Direct emissions, thousand tons in СО2 equivalent 0.7 0.7 0.6

Indirect emissions, thousand tons in СH4 equivalent 3.1 3.3 2.0

SOCAR Energy Switzerland 0.4 0.4 0

Direct emissions, thousand tons in СО2 equivalent 0 0 0

Indirect emissions, thousand tons in СH4 equivalent 0.4 0.4 0

Greenhouse gas emissions at SOCAR Azerbaijan

Total for SOCAR, thousand tons in СО2 equivalent 5,893.1 5,979.6 6,441.8

From stationary sources, including: 5,782.2 5,871.9 6,352.8

Business units 5,539.2 5,640.5 6,102.6

JVs and OCs 243.1 231.4 250.2

From mobile sources, including: 110.8 107.7 89.0

Transportation Department 84.3 87.3 57.0

JVs and OCs 26.5 20.4 32.0

The intensity ratio of direct emissions from SOCAR (thousand tons in CO2 equivalent of emissions per employee) 20

SOCAR Azerbaijan 0.117 0.140 0.125

SOCAR Energy Turkey 0.622 0.343 N/A21

Upstream emission, water consumption and power use coefficients

Oil refinery (“Azerkimya” PU + REF+ Carbamide plant) 5,815,500 6,090,500 6,194,400

17 Direct GHG emissions measurements were carried out only for Petkim by a third-party enterprise on SOCAR Energy Turkey. 18 Information on emissions from SOCAR Turkey will be publicly available in October 2020. 19 The growth of indirect emissions of SOCAR Energy Turkey in 2019 is due to the beginning of production processes. 20 SOCAR Energy Georgia, SOCAR Energy Ukraine and SOCAR Energy Switzerland are not included in the table as the value of emission intensity is not significant, 21 Information on the intensity of direct emissions for SOCAR Turkey will be released to the public in October 2020

142 Emission coefficient

Direct (t CO2 e/t oil refinery) 0,34 0,27 0,31

Indirect (t CH4 e/t oil refinery) 0,06 0,05 0,06

Water use coefficient (m3/t oil refinery) 9,29 7,68 8,34

Electric power coefficient (kW/t oil refinery) 107,99 101,79 121,35

Gas pro cessing (GP) (m3) 2,918,300,000 2,952,200,000 3,215,000,000

Direct (t CO2 e/m3 gas processing) 0,00009 0,00008 0,00007

Indirect (t CH4 e/m3 gas processing) 0,000005 0,000005 0,000004

Water use coefficient (water/m3 gas processing) 0,019 0,016 0,016

Electric power coefficient (kW/m3 gas processing) 0,009 0,009 0,008

Greenhouse gas emissions, calculated by consumption (indirectly) of electricity at SOCAR Azerbaijan, thousand tons in CO2 equivalent

Total for SOCAR 674,6 674,7 686,2

Business units 447,3 449,5 466,1

JVs and OCs 227,3 225,2 220,2

Emissions into air as the result of SOCAR Azerbaijan’s operation, thousand ton

Methane (CH4) 126.7 130.9 138.7

Carbon gases (CO2) 3,231.2 3,220.3 3,506.4

Associated gas at“Azneft” PU

Volume of associated gas at “Azneft” İB, thousand m3 1,460,012 1,439,783 1,506,200

Associated gas used for internal needs 183,444 189,626 159,207

Associated gas delivered and pumped back to the system 1,544,413 1,493,179 1,557,937

Associated gas burn 840 840 840

Quantity of pollutants emitted from permanent sources into the atmosphere at SOCAR, thousand ton 22

Total for SOCAR Azerbaijan, including: 124,33 127,51 131

Solid particles 0,23 0,24 0,23

Gas and liquid substances including: 124,1 127,27 130,6

22 “SOCAR Energy Ukraine and SOCAR Energy Switzerland have not been included in the table since their volumes are immaterial. 23 For SOCAR Energy Turkey, the volume of pollutants emitted into air is measured by a third party every two years,

143 Sulphur dioxide 0,17 0,12 0,29

Nitrogen oxide 1,69 1,33 1,66

Carbon oxide 4,14 3,48 3,41

Hydrocarbons (without volatile organic compounds) 107,83 112,32 113,5

Volatile organic compounds 9,42 9,33 10,8

Other gas substances 0,86 0,77 0,88

Total for SOCAR Energy Turkey 9,50 0 0

including:

Sulphur dioxide 2,95 0 0

Nitrogen oxide 5,96 0 0

Carbon oxide 0,56 0 0

Volatile organic compounds 0,03 0 0

Total for SOCAR Energy Georgia 0,65 0,71 0,65

Sulphur dioxide 0,35 0,42 0,43

nitrogen oxide 0,03 0,02 0,02

carbon oxide 0,27 0,27 0,20

Volume of pollutants emitted from mobile sources into air at SOCAR Azerbaijan, thousands ton 24

Total for SOCAR Azerbaijan, ton 127 151 119

including:

Solid particles 0 0 0

Gas and liquid substances, 127 151 119

including:

Sulphur dioxide 0 0 0

Nitrogen oxide 22 26 20

Carbon oxide 97 116 92

Hydrocarbons (without volatile organic compounds) 8 9 7

Volatile organic compounds 0 0 0

Other gas substances 0 0 0

Number of environmental inspections of vehicles at SOCAR Azerbaijan

Technical equipment and vehicles included in the balance sheet 4 571 4 495 4 570

Preliminary and repeat environmental inspections 3 710 4 903 5 312

24 Since the indicators on SOCAR Energy Ukraine and SOCAR Energy Switzerland are not significant, they have not been added to the table.

144 Vehicles not complying with existing standards 200 741 681

Vehicles withdrawn from operation 3 16 16

Vehicles undergoing capital repairs 36 56 41

Vehicles failed environmental inspections due to other reasons 822 899 860

Electricity consumption at SOCAR, thousand kW/hour

Total for SOCAR including: 2,364,175 2,172,717 2,462,739

SOCAR Azerbaijan 1,093,796 1,059,426 1,220,221

SOCAR Energy Turkey 1,220,040 1,060,534 1,193,436

SOCAR Energy Georgia 26,108 27,739 24,426

SOCAR Energy Ukraine 10,831 12,018 12,056

SOCAR Energy Switzerland 13,400 13,000 12,600

Ratio of energy intensity at SOCAR

SOCAR Azerbaijan 21,7 20,7 23,6

SOCAR Energy Turkey 348,6 257,9 265,7

SOCAR Energy Georgia 6,0 6,2 5,4

SOCAR Energy Ukraine 6,0 6.5 5,9

SOCAR Energy Switzerland 16,9 16.5 15,4

SOCARFuel consumption Azərbaycan at SOCAR Azerbaijan 25

SOCAR Azerbaijan

Petrol, tons 5 786,70 6 050,6 6 403,5

Diesel, tons 35 875,74 38 155,9 40 848

Natural gas, thousand m3 1 428 867,99 721 706,7 711 336,1

SOCAR Energy Turkey

Petrol, tons 0,0 0,0 0,0

Diesel, tons 646,5 3 712,9 1 227,2

Natural gas, thousand m3 470 859,3 429 440,30 447 309,89

SOCAR Energy Georgia

Petrol, tons 578,0 635,0 572,0

Diesel, tons 521,0 475,0 367,0

Natural gas, thousand m3 110,1 83,4 0,99

25 This indicator reflects the amount of fuel used in special machinery and vehicles

145 Fuel consumption at SOCAR Azerbaijan 25

For SOCAR Azerbaijan

Generated waste 89.88 165.1 175.9

Hazardous 80.32 156.02 163.6

Non-hazardous 9.56 9.1 12.3

Utilized waste 1.96 2.95 2.54

Hazardous 1.79 2.78 2.24

Non-hazardous 0.17 0.17 0.30

Waste dispatched to external organizations 65.98 135.7 128.2

Hazardous 62.63 32.2 116.2

Non-hazardous 3.36 18.2 12.0

Waste disposed of at the Waste Center 20.97 19.8 32.2

Hazardous 14.68 19.66 32.14

Non-hazardous 6.29 0.14 0.06

For SOCAR Energy Turkey

Generated waste 55.58 38.63 59.25

Hazardous 20.15 12.72 20.82

Non-hazardous 35.43 25.91 38.43

Recycled waste 7.05 5.42 8.70

Hazardous 7.05 5.42 8.70

Non-hazardous 0.00 0.00 0.00

Waste dispatched to external organizations 48.48 33.25 50.08

Hazardous 13.10 7.34 11.64

Non-hazardous 35.38 25.91 38.44

For SOCAR Energy Ukraine

Generated waste 2.16 2.35 3.874

Hazardous 0.01 0.01 0.007

Non-hazardous 2.15 2.34 3.867

Utilized waste 0.00 0.00 0.00

Hazardous 0.00 0.00 0.00

Non-hazardous 0.00 0.00 0.00

25 This indicator reflects the amount of fuel used in special machinery and vehicles 146 Waste dispatched to external organizations 2.16 2.35 0.00

Hazardous 0.01 0.01 0.00

Non-hazardous 2.15 2.34 0.00

Produced water for SOCAR Azerbaijan, mln, m3 24.66 24.29 24.47

“Azneft” PU 5.43 5.61 5.88

JV and OC 19.23 18.68 18.59

Contaminated land and land flooded by produced water at SOCAR’s Azneft PU, JVs and OCs, ha

Contaminated with oil products and flooded by produced waters 2 115,7 1 326.9 1 241,13

Total area of lands “Azneft” PU / JV and OCs

Including: 949,7 1 166,0 574,57 752,355 532,17 708,96

Areas of lands contaminated with oil and oil products 676,28 701,88 448,73 449,165 409,23 433,21

Areas of lands flooded by produced waters 273,42 464,12 125,84 303,19 122,94 275,75

Waste waters management at SOCAR, m3 28

SOCAR Azerbaijan

Volume of waster waters generated 6,983,429 8,133,119 8,913,382

Volume of wastewater discharged without treatment, including 194,953 316,175 292,693

Into the ground 57 30,074 12,334

Into water 84,949 148,070 171,525

Volume of discharged wastewater after treatment 5,983,265 6,831,955 7,408,965

SOCAR Energy Turkey

Volume of generated wastewater 8,051,324 7,709,531 8,185,529

Volume of wastewater discharged without treatment 0 0 0

Volume of discharged wastewater after treatment 8,051,324 7,709,531 8,185,529

Water used at SOCAR, mln. m3

SOCAR Azerbaijan 48,81 54,02 46,76

Underground sources 5,49 5,57 5,62

Above-ground sources 37,59 43,05 35,52

Other sources 5,72 5,41 5,62

SOCAR Energy Turkey 19,60 18,79 18,73

Underground sources 0,00 0,00 0,00

Above-ground sources 19,60 18,79 18,73

28 As the activities in SOCAR Energy Georgia, SOCAR Energy Ukraine and SOCAR Energy Switzerland are limited, their indicators are not covered in the table. 147 SOCAR Energy Georgia 0,17 0,13 0,15

Underground sources 0,02 0,00 0,03

Above-ground sources 0,15 0,13 0,12

SOCAR Energy Ukraine 0,13 0,11 0,13

Underground sources 0,04 0,04 0,05

Above-ground sources 0,09 0,07 0,08

Water intensity ratio for SOCAR (use of thousands m3 of water per number of employee)

SOCAR Azerbaijan 1,071 0,915 0,999

SOCAR Energy Turkey 5,368 4,555 4,482

SOCAR Energy Georgia 0,030 0,033 0,035

SOCAR Energy Ukraine 0,059 0,065 0,059

Seawater usage at SOCAR Azerbaijan, mln m³ 35,75 27,07 27,91

Azneft PU 35,02 26,95 27,74

Gas Processing Plant (GPP) 0,56 0,03 0,03

Complex Drilling Works Trust (SDWT) 0,09 0,07 0,07

Oil Pipelines Department (OPD) 0,08 0,02 0,021

Oil Refinery (REF) 0 0 0

Volume of recycled and reused water at SOCAR, mln m3 29

Recycled water 266,15 272,94 276,01

Reused water 2,26 1,44 2,04

Water reused as a share of the total volume of water, % 0,49 0,58 0,58

For SOCAR Energy Turkey

Recycled water 699,74 711,70 602,12

Contaminated land and land flooded by produced water at SOCAR’s Azneft PU, JVs and OCs, ha 2,115.7 1,326.9 1,241.1

Total area of land polluted by oil and oil products

Azneft PU 676, 28 448,73 409.23

JVs and OCs 701,88 449,16 433.21

Total area of land flooded by produced water

Azneft PU 273,42 125,84 122.94

JVs and OCs 464,12 303,19 275.75

29 The indicators of SOCAR’s facilities in Georgia, Turkey, Ukraine and Switzerland are not recorded as these facilities do not need recycled and reused waters. 148 Restoration and renovation of SOCAR’s land plots polluted by oil, oily water and other industrial waste, ha 69.61 144.247 87.03

Azneft PU 16.28 57.9 42.4

JVs and OCs 53.33 86.35 44.63

Greenery and vegetation maintained at SOCAR Azerbaijan

Area of land covered with vegetation (ha) 451.1 494 524.35

Number of plants in the areas covered with vegetation 898,914 805,372 1,049,605

149 GRI Index Table

102-20. Executive-level Disclosed, Sub-elements of responsibility for economic, Committees and Management environmental, and social System, pp.50-51 topics GRI Standard Disclosure Disclosure status and Independent assurance reference 102-21. Consulting Disclosed, Stakeholders, p. 60- stakeholders on economic, 61 102-1. Name of the Disclosed, About the Report, p.8 environmental, and social organization topics

102-2. Activities, brands, Disclosed, About the Company, 102-22. Composition of Disclosed, Supreme products, and services p.12 highest governance body and Management; Sub-elements of 102-3. Location of Disclosed, p.160 its committees committees and management headquarters system, p. 48-51 102-4. Location of Disclosed, Expansion of 102-23. Chair of the highest Disclosed, Supreme The President of SOCAR holds both operations activities in foreign markets, p. governance body Management, pp.48-49 the position of Executive Chairman 23-24 and the Chairman of the highest 102-5. Ownership and legal Disclosed, p.8, 12 governing body. GRI 102: form 102-24. Nominating and Disclosed, Supreme General 102-6. Markets served Disclosed, SOCAR in selecting the highest Management, p. 48-49 Disclosures – Azerbaijan; Expansion of governance body Organizational activities in foreign markets, p. 102-25. Conflicts of interest Disclosed, Conflict of Interest profile 13-37 Regulation, p. 59 102-7. Scale of the Disclosed, About the Company, 102-26. Role of highest Disclosed, Supreme SOCAR's strategy, goals and organization p.12 governance body in setting Management, p. 48-49 principles on economic, social and 102-8. Information on Disclosed, Interaction with purpose, values, and strategy environmental issues, as well as the employees and other workers Employees; Human Resources, strategic direction are reviewed and p. 61, 64-67 approved by the President and the 102-9. Supply chain Disclosed, Supplier Highest Management Body of the Chain, p. 21 Company. 102-10. Significant changes Disclosed, SOCAR Bonds; 102-27. Collective Disclosed, Supreme to the organization and its Supplier Chain; Structure knowledge of highest Management, p. 48-49 supply chain optimization; New strategy, p. governance body 21-22 102-28. Evaluating the Disclosed, Supreme The performance of the highest 102-11. Precautionary Disclosed, Risks highest governance body’s Management, p. 48-49 governing body is evaluated on the Principle or approach management system, performance basis of annual reports. pp.52-53 102-29. Identifying and Partially disclosed, Committees 102-12. External initiatives Partially disclosed, Expansion of managing economic, and sub-elements of the Activities in Foreign Markets, p. environmental, and social management system, p. 50-51 23- 37 impacts 102-13. Membership of Partially disclosed, 102-30. Effectiveness of risk Disclosed, Risk Management associations INTERNATIONAL management processes System, p. 52-53 COOPERATION PROJECTS, p. 102-31. Review of economic, Disclosed, throughout the report Monthly, quarterly and annual reports 118- environmental, and social on economic, environmental and 119 topics social issues are submitted to the GRI 102: 102-14. Statement from Disclosed, p .4-5 relevant vice-presidents of SOCAR. General senior decision-maker 102-32. Highest governance Disclosed, Corporate structure The audit of the Report, as well as its Disclosures – 102-15. Key impacts, risks, Disclosed, Identifying Important body’s role in sustainability and Management, p. 48-53 official review and approval is carried Strategy and opportunities Topics; Economic impacts and reporting out by the higher management. industrial activity; Risk 102-33. Communicating Disclosed, Higher Management, management system p. 8-9, critical concerns Committees and sub-elements 18-19, 52-53 of the management system p. GRI 102: 102-16. Values, principles, Explained, Our Mission, Purpose 48 - 51 General standards, and norms of and Values, p.12 102-34. Nature and number Partially Disclosed, Hotline, p. Disclosures – behavior of critical concerns 58 Ethics and 102-17. Mechanisms for Disclosed, Business Ethics; 102-35. Remuneration Undisclosed integrity advice and concerns about Corruption Risk; Anti-corruption policies ethics system; Hotline, pp.54-59 102-36. Process for Disclosed, Interaction with GRI 102: 102-18. Governance Disclosed, Management determining remuneration employees, p. 61 General structure Structure, p.48 102-37. Stakeholders’ Partially Disclosed, Interaction Disclosures – 102-19. Delegating authority Disclosed, Sub-elements of involvement in remuneration with employees, p. 61 Governance Committees and Management 102-38. Annual total Undisclosed System, pp.50-51 compensation ratio

150 102-20. Executive-level Disclosed, Sub-elements of responsibility for economic, Committees and Management environmental, and social System, pp.50-51 topics 102-21. Consulting Disclosed, Stakeholders, p. 60- stakeholders on economic, 61 environmental, and social topics 102-22. Composition of Disclosed, Supreme highest governance body and Management; Sub-elements of its committees committees and management system, p. 48-51 102-23. Chair of the highest Disclosed, Supreme The President of SOCAR holds both governance body Management, pp.48-49 the position of Executive Chairman and the Chairman of the highest governing body. 102-24. Nominating and Disclosed, Supreme selecting the highest Management, p. 48-49 governance body 102-25. Conflicts of interest Disclosed, Conflict of Interest Regulation, p. 59 102-26. Role of highest Disclosed, Supreme SOCAR's strategy, goals and governance body in setting Management, p. 48-49 principles on economic, social and purpose, values, and strategy environmental issues, as well as the strategic direction are reviewed and approved by the President and the Highest Management Body of the Company. 102-27. Collective Disclosed, Supreme knowledge of highest Management, p. 48-49 governance body 102-28. Evaluating the Disclosed, Supreme The performance of the highest highest governance body’s Management, p. 48-49 governing body is evaluated on the performance basis of annual reports. 102-29. Identifying and Partially disclosed, Committees managing economic, and sub-elements of the environmental, and social management system, p. 50-51 impacts 102-30. Effectiveness of risk Disclosed, Risk Management management processes System, p. 52-53 102-31. Review of economic, Disclosed, throughout the report Monthly, quarterly and annual reports environmental, and social on economic, environmental and topics social issues are submitted to the relevant vice-presidents of SOCAR. 102-32. Highest governance Disclosed, Corporate structure The audit of the Report, as well as its body’s role in sustainability and Management, p. 48-53 official review and approval is carried reporting out by the higher management. 102-33. Communicating Disclosed, Higher Management, critical concerns Committees and sub-elements of the management system p. 48 - 51 102-34. Nature and number Partially Disclosed, Hotline, p. of critical concerns 58 102-35. Remuneration Undisclosed policies 102-36. Process for Disclosed, Interaction with determining remuneration employees, p. 61 102-37. Stakeholders’ Partially Disclosed, Interaction involvement in remuneration with employees, p. 61 102-38. Annual total Undisclosed compensation ratio

151 102-39. Percentage Undisclosed GRI 201: 201-1. Direct economic Disclosed, Economic impacts increase in annual total Economic value generated and and industrial activity compensation ratio Performance distributed GRI 102: 102-40. List of stakeholder Disclosed, Stakeholders, p. 201-2. Financial implications Undisclosed Will be revisited in the upcoming General groups 60,61 and other risks and reporting periods. Disclosures – 102-41. Collective Disclosed, SOCAR’s opportunities due to climate Stakeholder bargaining agreements Performance Indicators, p. 124- change engagement 141 201-3. Defined benefit plan Partially Disclosed, Interaction 102-42. Identifying and Disclosed, Stakeholders, p. 60- obligations and other with Employees; Human selecting stakeholders 61 retirement plans Resources, p. 61, 64-59 102-43. Approach to Disclosed, An approach to Although the Company does not have 201-4. Financial assistance Disclosed No financial assistance was received stakeholder engagement engaging stakeholders, p. 60- a set of specific policies and rules for received from government from the state during the reporting 61 communication with stakeholders, all year. issues in this area are closely GRI 202: Market 202-1. Ratios of standard Disclosed, Human Resources monitored by management and are Presence entry level wage by gender Indicators, p. 124-137 indirectly reflected in various compared to local minimum standards and internal regulations. wage For example, the relationship between 202-2. Proportion of senior Disclosed All SOCAR executives in Azerbaijan employees and management, the management hired from the are Azerbaijani citizens, accounting relationship with suppliers, and so on. local community for at least 90% of this total. In other 102-44. Key topics and Partially Disclosed, Developing a countries, this figure varies according concerns raised good relationship with the to the requirements of the current society, p. 74 position. In any case, SOCAR adheres GRI 102: 102-45. Entities included in Disclosed, Economic impacts to global ethical standards in this area. General the consolidated financial and industrial activity; SOCAR's For example, the management of Disclosures – statements Performance Indicators, p. 18- SOCAR Petkim consists of citizens of Reporting 19 both Turkey and Azerbaijan. practice 102-46. Defining report Disclosed, Defining material GRI 203: Indirect 203-1. Infrastructure Disclosed, Charity and content and topic Boundaries topics, p. 8 Economic investments and services Sponsorship, p. 72 Impacts supported 102-47. List of material Disclosed, Defining material topics topics, p. 8 203-2. Significant indirect Disclosed, Social Activity and economic impacts Local Development p. 72-76 102-48. Restatements of Disclosed, p. 8 information GRI 204: 204-1. Proportion of Disclosed, Supply Chain, p. 21 Procurement spending on local suppliers 102-49. Changes in Disclosed, Production Information on changes in the scope Practices reporting development; Structure and aspects of the report compared to optimization; New strategy, p. the previous reporting period is GRI 205: Anti- 205-1. Operations assessed Disclosed, Anti-Corruption 13, 22 presented as a note in the relevant corruption for risks related to corruption System, p. 55-58 tables, throughout the Report. 205-2. Communication and Disclosed, Anti-Corruption 102-50. Reporting period Disclosed, About this Report, p. training about anti-corruption System, p. 55-58 8 policies and procedures 102-51. Date of most recent Disclosed, Inventorization of 205-3. Confirmed incidents Disclosed There were no corruption cases report electrical equipment containing of corruption and actions identified in the reporting period. PCB oils, p.8 taken 102-52. Reporting cycle Disclosed, About this Report, p. GRI 206: Anti- 206-1. Legal actions for anti- Disclosed SOCAR is a state-owned company 8 competitive competitive behavior, anti- and manages the country's oil and gas Behavior trust, and monopoly practices in the interests of the state. Given that 102-53. Contact point for Disclosed, p. 160 SOCAR accounts for 21% of the questions regarding the country's oil production and 21% of report gas production, unfair competition is 102-54. Claims of reporting Disclosed, Implemented not appropriate for the Company, and in accordance with the GRI Standards, p.8 during the reporting period no such standards cases were detected. 102-55. GRI content index Disclosed, p. 149 GRI 301: 301-1. Materials used by Disclosed, SOCAR in Azerbaijan, 102-56. External assurance Disclosed, Report’s Independent Materials weight or volume p.13 Evaluation, p. 8 301-2. Recycled input Disclosed GRI 103: 103-1. Explanation of the Disclosed, Defining Material materials used Management material topic and its Topics, p. 8-9 301-3. Reclaimed products Disclosed Approach Boundary and their packaging materials 103-2. The management Disclosed, Throughout the GRI 302: Energy 302-1. Energy consumption Partially Disclosed, Ecology/ approach and its components Report within the organization SOCAR and Alternative Energy 103-3. Evaluation of the Partially Disclosed, Throughout Policy, p. 111 management approach the Report

152 GRI 201: 201-1. Direct economic Disclosed, Economic impacts Economic value generated and and industrial activity Performance distributed 201-2. Financial implications Undisclosed Will be revisited in the upcoming and other risks and reporting periods. opportunities due to climate change 201-3. Defined benefit plan Partially Disclosed, Interaction obligations and other with Employees; Human retirement plans Resources, p. 61, 64-59 201-4. Financial assistance Disclosed No financial assistance was received received from government from the state during the reporting year. GRI 202: Market 202-1. Ratios of standard Disclosed, Human Resources Presence entry level wage by gender Indicators, p. 124-137 compared to local minimum wage 202-2. Proportion of senior Disclosed All SOCAR executives in Azerbaijan management hired from the are Azerbaijani citizens, accounting local community for at least 90% of this total. In other countries, this figure varies according to the requirements of the current position. In any case, SOCAR adheres to global ethical standards in this area. For example, the management of SOCAR Petkim consists of citizens of both Turkey and Azerbaijan. GRI 203: Indirect 203-1. Infrastructure Disclosed, Charity and Economic investments and services Sponsorship, p. 72 Impacts supported 203-2. Significant indirect Disclosed, Social Activity and economic impacts Local Development p. 72-76 GRI 204: 204-1. Proportion of Disclosed, Supply Chain, p. 21 Procurement spending on local suppliers Practices GRI 205: Anti- 205-1. Operations assessed Disclosed, Anti-Corruption corruption for risks related to corruption System, p. 55-58 205-2. Communication and Disclosed, Anti-Corruption training about anti-corruption System, p. 55-58 policies and procedures 205-3. Confirmed incidents Disclosed There were no corruption cases of corruption and actions identified in the reporting period. taken GRI 206: Anti- 206-1. Legal actions for anti- Disclosed SOCAR is a state-owned company competitive competitive behavior, anti- and manages the country's oil and gas Behavior trust, and monopoly practices in the interests of the state. Given that SOCAR accounts for 21% of the country's oil production and 21% of gas production, unfair competition is not appropriate for the Company, and during the reporting period no such cases were detected. GRI 301: 301-1. Materials used by Disclosed, SOCAR in Azerbaijan, Materials weight or volume p.13 301-2. Recycled input Disclosed materials used 301-3. Reclaimed products Disclosed and their packaging materials GRI 302: Energy 302-1. Energy consumption Partially Disclosed, Ecology/ within the organization SOCAR and Alternative Energy Policy, p. 111

153 302-2. Energy consumption Undisclosed This disclosure is not being 306-4. Transport of Partially Disclosed, Reduction outside of the organization documented . hazardous waste of the impact of Global Climate Change, p. 100 302-3. Energy intensity Partially Disclosed, Ecology/ SOCAR and Alternative Energy 306-5. Water bodies Disclosed No such cases had been identified Policy, p. 111 affected by water discharges during the reporting period. and/or runoff 302-4. Reduction of energy Disclosed, Use of Alternative consumption Energy Sources, p. 111 GRI 307: 307-1. Non-compliance with Disclosed, Waste Management, Environmental environmental laws and p. 99 302-5. Reductions in energy Undisclosed Compliance regulations requirements of products and services GRI 308: 308-1. New suppliers that Disclosed Supplier were screened using GRI 303: Water 303-1. Water withdrawal by Partially Disclosed, Produced Environmental environmental criteria source Water Management, p. 95 Assessment 308-2. Negative Disclosed, p. 21, 113 303-2. Water sources Disclosed No such water sources have been environmental impacts in the significantly affected by identified in the reporting period. supply chain and actions withdrawal of water taken 303-3. Water recycled or Disclosed, Household Sewage GRI 401: 401-1. New employee hires Disclosed, Human Resources reused Water Management, p.97 Employment and employee turnover Indicators, p. 137-138 GRI 304: 304-1. Operational sites Disclosed None of SOCAR's operations cover 401-2. Benefits provided to Disclosed, p. 69-69 All payments, benefits and privileges Biodiversity owned, leased, managed in, protected areas with high biodiversity full-time employees that are applicable to full-time employees also or adjacent to, protected value. not provided to temporary or apply to temporary and part-time areas and areas of high part-time employees employees. biodiversity value outside protected areas 401-3. Parental leave Disclosed, Human Resources Will be revisited in the upcoming Indicators, p. 125 reporting periods. 304-2. Significant impacts of Disclosed, Protection of activities, products, and Biodiversity, p.115 GRI 402: Labor 402-1. Minimum notice Undisclosed Will be revisited in the upcoming services on biodiversity Management periods regarding operational reporting periods. Relations changes 304-3. Habitats protected or Disclosed, Recultivation Efforts, restored p.97 GRI 403: 403-1. Workers Disclosed SOCAR does not have a health and Occupational representation in formal joint safety committee with the joint 304-4. IUCN Red List Disclosed Health and management-worker health participation of management and species and national Safety and safety committees employees. conservation list species with habitats in areas affected by 403-2. Types of injury and Disclosed, p. 64, Transparency operations rates of injury, occupational and the fight against corruption, diseases, lost days, and p. 84-86 GRI 305: 305-1. Direct (Scope 1) Disclosed, Reduction of the absenteeism, and number of Emissions GHG emissions impact of Global Climate work-related fatalities Change, p. 104 403-3. Workers with high Disclosed, Accidents and 305-2. Energy indirect Disclosed, Reduction of the incidence or high risk of Injuries, p. 84 (Scope 2) GHG emissions impact of Global Climate diseases related to their Change, p. 104 occupation 305-3. Other indirect (Scope Disclosed 403-4. Health and safety Disclosed, Employee Welfare, p. 3) GHG emissions topics covered in formal 72 305-4. GHG emissions Disclosed, Reduction of the agreements with trade intensity impact of Global Climate unions Change, p. 104 GRI 404: 404-1. Average hours of Disclosed, Employee and talent 305-5. Reduction of GHG Disclosed, Reduction of the Training and training per year per development, p.69 emissions impact of Global Climate education employee Change, p. 104 404-2. Programs for Partially Disclosed, Employee 305-6. Emissions of ozone- Disclosed No related to Company operations. upgrading employee skills and talent development, p.69 depleting substances (ODS) and transition assistance 305-7. Nitrogen oxides Disclosed No related to Company operations. programs (NOx), sulfur oxides (SOx), 404-3. Percentage of Disclosed This information is provided in the and other significant air employees receiving regular appropriate tables, starting on page emissions performance and career 64. GRI 306: 306-1. Water discharge by Partially Disclosed, Reduction of development reviews Effluents and quality and destination the impact of Global Climate GRI 405: 405-1. Diversity of Disclosed, p. 64 This information is provided in the Waste Change, p. 101 Diversity and governance bodies and appropriate tables, starting on page 306-2. Waste by type and Partially Disclosed, Reduction of Equal employees 64. disposal method the impact of Global Climate Opportunity 405-2. Ratio of basic salary Disclosed Salaries and bonuses in the company Change, p. 100 and remuneration of women are not affected by gender. 306-3. Significant spills Partially Disclosed, Reduction to men of the impact of Global Climate Change, p. 119

154 306-4. Transport of Partially Disclosed, Reduction hazardous waste of the impact of Global Climate Change, p. 100 306-5. Water bodies Disclosed No such cases had been identified affected by water discharges during the reporting period. and/or runoff GRI 307: 307-1. Non-compliance with Disclosed, Waste Management, Environmental environmental laws and p. 99 Compliance regulations GRI 308: 308-1. New suppliers that Disclosed Supplier were screened using Environmental environmental criteria Assessment 308-2. Negative Disclosed, p. 21, 113 environmental impacts in the supply chain and actions taken GRI 401: 401-1. New employee hires Disclosed, Human Resources Employment and employee turnover Indicators, p. 137-138 401-2. Benefits provided to Disclosed, p. 69-69 All payments, benefits and privileges full-time employees that are applicable to full-time employees also not provided to temporary or apply to temporary and part-time part-time employees employees. 401-3. Parental leave Disclosed, Human Resources Will be revisited in the upcoming Indicators, p. 125 reporting periods. GRI 402: Labor 402-1. Minimum notice Undisclosed Will be revisited in the upcoming Management periods regarding operational reporting periods. Relations changes GRI 403: 403-1. Workers Disclosed SOCAR does not have a health and Occupational representation in formal joint safety committee with the joint Health and management-worker health participation of management and Safety and safety committees employees. 403-2. Types of injury and Disclosed, p. 64, Transparency rates of injury, occupational and the fight against corruption, diseases, lost days, and p. 84-86 absenteeism, and number of work-related fatalities 403-3. Workers with high Disclosed, Accidents and incidence or high risk of Injuries, p. 84 diseases related to their occupation 403-4. Health and safety Disclosed, Employee Welfare, p. topics covered in formal 72 agreements with trade unions GRI 404: 404-1. Average hours of Disclosed, Employee and talent Training and training per year per development, p.69 education employee 404-2. Programs for Partially Disclosed, Employee upgrading employee skills and talent development, p.69 and transition assistance programs 404-3. Percentage of Disclosed This information is provided in the employees receiving regular appropriate tables, starting on page performance and career 64. development reviews GRI 405: 405-1. Diversity of Disclosed, p. 64 This information is provided in the Diversity and governance bodies and appropriate tables, starting on page Equal employees 64. Opportunity 405-2. Ratio of basic salary Disclosed Salaries and bonuses in the company and remuneration of women are not affected by gender. to men

155 GRI 406: Non- 406-1. Incidents of Disclosed No such cases have been identified in GRI 415: Public 415-1. Political contributions Disclosed There have been no political discrimination discrimination and corrective the reporting period. Policy contributions during the reporting actions taken period. GRI 407: 407-1. Operations and Disclosed During the reporting period, there GRI 416: 416-1. Assessment of the Partially Disclosed Work is carried out on a regular basis Freedom of suppliers in which the right to were no transactions or suppliers that Customer Health health and safety impacts of to develop products and services, Association and freedom of associations and endangered freedom of association and Safety product and service including environmental monitoring, Collective collective bargaining may be and the right to use collective categories but there is no percentage reporting. Bargaining at risk. agreements. It will be covered in the next reporting GRI 408: Child 408-1. Operations and Disclosed During the reporting period, no cases period. Labor suppliers at significant risk of child labor were detected in any of 416-2. Incidents of non- Disclosed No such cases have been identified in for incidents of child labor SOCAR's operations or in the compliance concerning the the reporting period. operations of its suppliers and health and safety impacts of contractors. products and services GRI 409: Forced 409-1. Operations and Disclosed No such operations have been GRI 417: 417-1. Requirements for Undisclosed or Compulsory suppliers at significant risk identified. Marketing and product and service Labor for incidents of forced or Labeling information and labeling compulsory labor 417-2. Incidents of non- Disclosed No such cases have been identified in GRI 410: 410-1. Security personnel Disclosed All new employees of the company compliance concerning the reporting period. Security trained in human rights receive initial instructions before product and service Practices policies or procedures starting work. These guidelines also information and labeling include human rights training. In 417-3. Incidents of non- Disclosed No such cases have been identified in addition, the job descriptions of compliance concerning the reporting period. security personnel include human marketing communications rights clauses. GRI 418: 418-1. Substantiated Disclosed No such cases have been identified GRI 411: Rights 411-1. Incidents of violations Disclosed No such cases have been identified in Customer Privacy complaints concerning in the reporting period. of Indigenous involving rights of indigenous the reporting period. breaches of customer privacy Peoples peoples and losses of customer data GRI 412: Human 412-1. Operations that have Disclosed No such cases have been identified in GRI 419: 419-1. Non-compliance with Disclosed No such cases have been identified in Rights been subject to human rights the reporting period. Socioeconomic laws and regulations in the the reporting period. Assessment reviews or impact compliance social and economic area assessments

412-2. Employee training on Disclosed No such operations have been human rights policies or identified in the reporting period. procedures 412-3. Significant investment Disclosed All investment agreements concluded agreements and contracts by the Company during the reporting that include human rights period covered human rights clauses or that underwent provisions. human rights screening GRI 413: Local 413-1. Operations with local Disclosed All operations carried out by the Communities community engagement, company carry out the process of impact assessments, and environmental impact assessment development programs (EIA). 413-2. Operations with Disclosed SOCAR's activities have a major significant actual and impact on the oil and gas industry. potential negative impacts on Drilling, production, processing and local communities transportation, as well as air pollution and waste generation, are monitored by SOCAR and discussed during the Report. GRI 414: 414-1. New suppliers that Disclosed All suppliers are inspected on the Supplier Social were screened using social basis of a common standard of mutual Assessment criteria inspection before establishing cooperation. 414-2. Negative social Disclosed All suppliers are inspected on the impacts in the supply chain basis of a common standard of mutual and actions taken inspection before establishing cooperation. During the reporting period, no significant negative social impacts were found in the Company's supply chain.

156 GRI 415: Public 415-1. Political contributions Disclosed There have been no political Policy contributions during the reporting period. GRI 416: 416-1. Assessment of the Partially Disclosed Work is carried out on a regular basis Customer Health health and safety impacts of to develop products and services, and Safety product and service including environmental monitoring, categories but there is no percentage reporting. It will be covered in the next reporting period. 416-2. Incidents of non- Disclosed No such cases have been identified in compliance concerning the the reporting period. health and safety impacts of products and services GRI 417: 417-1. Requirements for Undisclosed Marketing and product and service Labeling information and labeling 417-2. Incidents of non- Disclosed No such cases have been identified in compliance concerning the reporting period. product and service information and labeling 417-3. Incidents of non- Disclosed No such cases have been identified in compliance concerning the reporting period. marketing communications GRI 418: 418-1. Substantiated Disclosed No such cases have been identified Customer Privacy complaints concerning in the reporting period. breaches of customer privacy and losses of customer data GRI 419: 419-1. Non-compliance with Disclosed No such cases have been identified in Socioeconomic laws and regulations in the the reporting period. compliance social and economic area

157

Ernst & Young Holdings (CIS) B.V. Ernst & Yanq Holdinqs (SiAyEs) Bi.Vi. Port Baku Towers Business Centre Port Baku Tauers Biznes Mərkəzi South Tower, 9th floor, Cənub Qülləsi, 9-cu mərtəbə 153, Neftchilar Ave. Neftçilər prospekti, 153 Baku, AZ1010, Azerbaijan Bakı, AZ1010, Azərbaycan Tel: +994 (12) 490 70 20 Tel: +994 (12) 490 70 20 Fax: +994 (12) 490 70 17 Faks: +994 (12) 490 70 17 www.ey.com/az

Independent Assurance Report on the Sustainability Report for

2019

To the Management and Stakeholders of SOCAR

Identification and description of the subject matter interviews with the representatives of the Company's At the request of SOCAR (hereinafter ‘the Company’), we management responsible for its sustainability policies, have provided a limited level assurance on the qualitative activities, performance and relevant reporting; and quantitative information disclosed in Sustainability Report for 2019 (hereinafter ‘the Report’) of the Company • analysis of key documents related to the Company's except for forward-looking statements on performance, sustainability policies, activities, performance and events or planned activities. relevant reporting;

Identification of the criteria • benchmarking of the Report against sustainability reports of selected international peers of the The criteria of our engagement were the Global Reporting Company; Initiative Sustainability Reporting Standards (hereinafter ‘GRI Standards’) and the Company’s sustainability • review of a selection of corporate and external reporting principles as set out in the section ‘About the publications on the Company’s sustainability Report’. We believe that these criteria are appropriate policies, activities, events, and performance in given the purpose of our assurance engagement. 2019; Management’s responsibilities • identification of sustainability issues material for the The management of the Company is responsible for the Company based on the procedures described preparation of the Report and the information therein in above and analysis of their reflection in the Report; compliance with the GRI Standards and the Company’s sustainability reporting principles. This responsibility • review of data samples regarding human resources, includes designing, implementing and maintaining environment, social investment as well as data internal controls relevant to the preparation of a collection processes to assess whether these data sustainability report that is free of material misstatements, have been collected, prepared, collated and selecting and applying appropriate reporting principles reported appropriately at the central office level; and using measurement methods and estimates that are reasonable in the circumstances. • gather and audit evidence from Company’s subsidiaries such as “Azneft” Production Union, Our responsibilities “Azerigas” Production Union, Gas Processing Unit Our responsibility is to independently express as well as “SOCAR Energy Turkey” to support the conclusions that: assertions on the Company’s sustainability policies, activities, events, and performance reflected in the Report; • the information in the Report is in all material respects a reliable and sufficient representation of sustainability policies, activities, events and • collection on a sample basis of evidence performance of the Company for the year ended substantiating the qualitative and quantitative December 31, 2019; information included in the Report at the central office level; • the Report is consistent with the principles and the requirements of Core option of the GRI Standards. • assessment of compliance of the Report and its preparation process with the Company’s sustainability reporting principles, and Summary of work performed

Our engagement was conducted in accordance with • assessment of compliance of information and data International Standard on Assurance Engagements disclosures in the Report with the requirements of (ISAE) 3000, Assurance Engagements Other than Audits Core option of the GRI Standards. or Reviews of Historical Financial Information, issued by International Federation of Accountants (IFAC), and accordingly included the following procedures:

158

A member firm of Ernst & Young Global Limited

We believe that our procedures provide a basis on which we can provide limited assurance. Our evidence gathering procedures are more limited than for a reasonable assurance engagement, and therefore, less assurance is obtained than in a reasonable assurance engagement.

Conclusions Based on our work described in this report, nothing has come to our attention that causes us to believe that the information in the Report, in all material aspects does not provide a reliable and sufficient representation of sustainability policies, activities, events and performance of the Company for the year ended December 31, 2019 in accordance with the GRI Standards and the Company’s sustainability reporting principles.

Nothing has come to our attention that causes us to believe that the Report does not meet the requirements of Core option of the GRI Standards.

July 22, 2020

Baku, Azerbaijan

159

A member firm of Ernst & Young Global Limited We would like to know your comments and suggestions on SOCAR’s Annual Report on Sustainable Development. Contact details: Nijat Hanifayev The lead economist of the Risk Management Department of SOCAR Head Office State Oil Company of Azerbaijan Republic, Baku, AZ1029 Heydar Aliyev avenue 121 Tel: (+994 12) 521 00 00 Fax: (+994 12) 521 03 83 E-mail: [email protected] 160