Sustainable Development Report

Sakhalin Energy Investment Company Ltd.

Head Office: 35 Dzerzhinskogo St., Yuzhno-Sakhalinsk, 693020, Russia Tel.: +7 4242 66 2000; Fax: +7 4242 66 2801 Moscow Office: 31 Novinskiy Blvd, Moscow, 123242, Russia Tel.: +7 495 956 1750; Fax: +7 495 956 1760 Sustainable Development Report Development 2015 Sustainable

www.sakhalinenergy.com TO BE THE PREMIER ENERGY SOURCE FOR ASIA-PACIFIC Content 1. Message from the Chief Executive Officer ...... 5 5.4. Corporate Culture 44 8.1.3. Waste Management 77 9.1.6. Individual Performance Review 2. About the Report ...... 7 5.5. Code of Conduct 45 8.1.4. Energy 79 of the Employees 107 2.1. General 9 5.6. Risk Management 46 8.1.5. Greenhouse Gas and Ozone-Depleting 9.1.7. Staff Learning and Development 108 2.2. Principles of the Report Content 5.7. Anti-Bribery and Corruption 50 Substance Emissions 80 9.2. Labour Safety and Protection 117 and Quality Definition 10 6. Economic Impact Management ...... 51 8.1.6. Utilisation of Associated Gas in Production 80 9.2.1. General Information 117 2.3. Defining Material and Priority Topics 6.1. Importance of the Sakhalin-2 Project for the 8.1.7. Environmental Protection Costs 9.2.2. Industrial Safety 119 to Be Included in the Report 11 Russian Federation and the Sakhalin Oblast 53 and Payments for the Negative Impact 81 9.2.3. Safety Culture 120 2.4. Definition of the Report Scope 14 6.2. Financial Benefits to the Russian Federation 8.2. Environmental Monitoring 9.2.4. Road Safety 123 2.5. Public Endorsement of the Report 14 and the Sakhalin Oblast 53 and Preserving Biodiversity 82 9.3. Occupational Health 125 3. Corporate Social Responsibility 6.3. Russian Content 55 8.2.1. Soil Monitoring 83 9.4. Human Rights 127 and Sustainable Development ...... 15 6.4. Supply Chain Management 56 8.2.2. River Ecosystems Monitoring 84 9.4.1. Human Rights: Principles 3.1. Introduction 17 6.5. Vendor Development Programme 58 8.2.3. Flora and Vegetation Monitoring 86 and Management System 127 3.2. Sakhalin Energy CSR System 17 7. Stakeholder Engagement Management ...... 59 8.2.4. Wetlands Recovery Monitoring 87 9.4.2. Grievance Mechanisms 128 3.3. Performance Standards 19 7.1. Engagement Strategy, Principles, 8.2.5. Protected Bird Species Monitoring 88 9.4.3. Grievance Handling in 2015 129 3.4. Sustainable Development Policy 20 Mechanisms, and Tools 61 8.2.6. Steller’s Sea Eagle Monitoring 89 9.4.4. Human Rights Training 130 3.5. HSE and Social Performance Management 21 7.2. Stakeholder Engagement Performance in 2015 62 8.2.7. Offshore Environment and Biota Monitoring 90 9.4.5. Monitoring Human Rights 130 3.5.1. HSE and Social Performance 7.3. Engagement with Personnel 63 8.2.8. Ballast Water Control 91 9.5. Social Investments and Contributions to Sustainable Management System 21 7.4. Local Communities Engagement through 8.2.9. Gray Whales Monitoring 92 Development of the Host Region 131 3.5.2. Impact Assessment 23 the Company Information Centres 64 8.3. Pipeline Right-of-Way Maintenance 94 9.5.1. Social Investments and Sustainable 3.5.3. Checks and Audit 24 7.5. Engagement with the Sakhalin 8.4. Oil Spill Prevention and Response Preparedness 95 Development: Sakhalin Energy’s 4. About the Company ...... 25 Indigenous Minorities (SIM) 65 8.4.1. General Information 95 Principles and Approaches 131 4.1. Sakhalin Energy 27 7.6. Engagement with Non-Governmental 8.4.2. Oiled Wildlife Rehabilitation 96 9.5.2. Children’s Safety (What to Do in Emergency 4.2. Main Production Results in 2015 27 and Non-Profit Organisations 68 9. Social Impact Management ...... 97 Situations Programme) 133 4.2.1. Assets 27 7.7. Engagement with Japanese Stakeholders 68 9.1. Personnel: Management and Development 99 9.5.3. Sakhalin Road Safety Council 135 4.2.2. Development Projects 31 7.8. Engagement with Customers 69 9.1.1. Approaches to HR Management 9.5.4. Energy Social Initiatives Fund 136 4.2.3. Hydrocarbon Production and Export 32 7.9. Engagement with State and Local and HR Policy 99 9.5.5. Hurry Up for Good Deeds 137 4.2.4. Sanitary Protection and Safety Zones 34 Government Authorities 70 9.1.2. General Information 100 9.5.6. Korsakov Sustainable Development 4.3. Operational Excellence Programme 36 7.10. International and Regional Cooperation 71 9.1.3. Recruiting Personnel and Onboarding Partnership Council 138 5. Corporate Governance ...... 37 8. Environmental Impact Management ...... 73 New Employees 102 9.5.7. Victory Day Project 138 5.1. Company Mission, Vision, Values, and Principles 39 8.1. Industrial Environmental Control 75 9.1.4. Remuneration and Bonus System 103 9.5.8. Sakhalin Indigenous Minorities 5.2. Corporate Governance System and Structure 39 8.1.1. Impact to the Atmospheric Air 75 9.1.5. Social Guarantees, Benefits Development Plan 139 5.3. Corporate Governance Model 41 8.1.2. Impact on Water Bodies 76 and Compensations 104 10. 2016 Plans and Development Strategy up to 2020 . .143

2 3 Message from the Chief Executive Officer Appendices ...... 147 Appendix 1. GRI Guidelines Compliance Table (Rev. 4.0.) 148 Appendix 2. Comments and Suggestions of Stakeholders on Individual Aspects, Indicators and/or Programmes, and Company’s Response and Commitments 157 Appendix 3. The List of Participants of Dialogues with Stakeholders for Preparation of the 2015 Sustainable Development Report 165 Appendix 4. Useful Links 167 Appendix 5. Company Information Centres List 169 Appendix 6. Feedback Form 170 Appendix 7. Certificate of Public Endorsement 171 Appendix 8. Conclusion on the Review of Sakhalin Energy’s 2015 Sustainable Development Report by the RUIE Council for Non-Financial Reporting for the Purpose of Public Endorsement 172 Appendix 9. Abbreviations 176

4 5 1. Message from the Chief Executive Officer About the Report the condition that each employee has while the proportion of the Sakhalin Oblast a responsible attitude to safety, actively budget revenues coming from Sakhalin participates in the Effective Observation and Energy were over 60%. Intervention Programme, and company’s leadership unconditional commitment to In spite of the challenging economic safety. situation, the company does not reduce its expenditures on social programmes but In 2015, the company exceeded its continues to meet all its commitments. production targets and shipped 57 cargoes of oil and 166 cargoes of LNG (while the We achieved a lot in 2015 and continue target figures were 51 and 162 cargoes, moving forward. I am confident that the respectively). long-term growth of the company, and, above all, the implementation of the LNG Thanks to increasing reliability, the Train 3 project, will strengthen Russia’s company reduced unplanned production position as a leading energy supplier, losses fourfold in comparison with the bring economic benefits to the Russian previous year and threefold as compared Federation and the Sakhalin Oblast, and with the average indicator for the period contribute to further strengthening of from the beginning of its operations. In energy security in the Asia-Pacific region. 2015, during the first major turnaround campaign at train 1 of the LNG plant Regards, we completed the modifications of the Dear colleagues, equipment which resulted in a 1 to 2% further output increase at train 1. I am happy to present the Sakhalin Energy Robust at $40 corporate programme 2015 Sustainable Development Report. helped the company to optimise the costs to the required level without affecting As with previous reports, this document safety and production. Roman Dashkov was prepared in compliance with the Global Reporting Initiative (GRI) inter- Sakhalin Energy was able to achieve this national standards. While creating the success thanks to its personnel. The Report, we tried to take into account, to company creates an environment for the fullest extent, the opinions of all our professional growth and development of its stakeholders. employees and is committed to providing an attracting and competitive employee Despite the economic situation in Russia value proposition package. and in the world, it was another year of success for Sakhalin Energy. An integral part of our work is engagement with stakeholders: shareholders, Safety remains a top priority for the customers, contractors, representatives of company—technological, economic, or government authorities, and communities. administrative decision is made on the basis of a thorough assessment of all Sakhalin Energy effectively cooperates with safety aspects. the Sakhalin Oblast Government, success- fully solving complex problems that require We pay utmost attention to the reliability coordination among the various parties. and integrity of our assets. The prevention of incidents is the main task that Sakhalin Since we were able to optimise work in all Energy sets in the area of safety. In this areas, the financial performance of the regard, success is possible primarily on company remained at a high level in 2015,

6 7 2. About the Report

2.1. General

Sakhalin Energy treats sustainable internal and external processes in the • use the Feedback Form on the company development reporting as a corporate company; website (www.sakhalinenergy.com); governance tool that systematises its non-financial efforts (environmental, • increase the company competitiveness. • fill out the Feedback Form at one of social and other programmes and the company information centres (see Material topics and initiatives) and improves the quality of The Report describes the company SD Appendix 5 Company Information Cen- corporate governance, which increases performance in 2015 and presents mate- tres List). aspects, which are the overall sustainability of the company. rial topics, issues, and indicators of the An open reporting culture demonstrates company economic, environmental, and reflected in the the company commitment to CSR and social performance, including executives’ SD principles and concepts and provides appraisals of the company performance Report, and their publicly meaningful information about in the period under review as well as the priority were identified the economic, environmental, social and stakeholders’ areas of attention. ethical aspects of the company activities in close cooperation and performance. The target audience of the Report is both internal and external stakeholders listed with the company CSR and SD reporting benefits the in Section 7.2 Stakeholder Engagement company in a number of ways, including Performance in 2015. stakeholders. opportunities to: The Report is prepared in accordance • identify the stakeholders` opinions and with the procedures and schedule expectations of the company activities approved by the Committee of Executive and clarify the company CSR and SD Directors. A dedicated working group is strategy; established to prepare the Report. This group includes managers and specialists • demonstrate that the company is from a majority of the company divisions aware of and takes into account the responsible for particular aspects of stakeholders’ opinions, creating long- corporate governance and production term trust as well as transparent and as well as for economic, social, and constructive cooperation; environmental impacts. The Report is approved by the Committee of Executive • serve as an effective tool for identifying, Directors. preventing, and mitigating non-financial risks, creating a sustainable reputation This Report has been prepared in ac- (as a responsible employer, partner, cordance with the GRI G4 Sustainability etc.); Reporting Guidelines (Core).

• create new opportunities and areas The Report is posted on the company of involvement for the company in website and distributed in Sakhalin production, environmental, and social communities (through the company spheres; information centres and district libraries), and among key stakeholders. • identify CSR and SD performance indicators, evaluate and apply them The company values opinions, suggestions to enhance the quality of managerial and comments from all stakeholders on decisions at all levels; this Report. To share your opinion, you may:

• help to comply with the principle of • fill out the Feedback Form attached to continuous improvement and stimu- the Report and sent it to the specified late the subsequent improvement of address;

8 9 2. About the Report

2.2. Principles of the Report Content and Quality 2.3. Defining Material and Priority Topics Definition to Be Included in the Report

The company acknowledges and uses the Principles of Report Content and Quality Definition following SD reporting principles presented on the Principles of Report Content and Stakeholder Quality Definition chart. Engagement Material topics of the company activities, which are reflected in the 2015 Report, and Materiality Timeliness their priority were identified in close co- operation with all key stakeholders of the company, including: Completeness Report content Accuracy • shareholders; and quality • lenders; Clarity definition Reliability • government authorities; • customers; • personnel; Balanced Approach Compatibility • contractors; • community; • Japanese stakeholders; Sustainable Development • international organisations; Context • NGOs and other non-profit organisa- Comments and suggestions of the as well as corresponding response and Indicators and/or Programmes, and tions; stakeholders concerning specific aspects, commitments of Sakhalin Energy are listed Company’s Response and Commitments. • mass media; indicators, and/or programmes of the in Appendix 2 Comments and Suggestions • other stakeholders. Two rounds of dialogue meetings were Development Report and recommen- company to be included in the 2015 Report of Stakeholders on Individual Aspects, traditionally held while preparing the dations of the RUIE Non-Financial The Report pays particular attention to Report, in correspondence with the Reporting Council that conducted the Most Priority Topics to Be Included in the 2015 Report Based on Stakeholders’ Opinions safety as a key priority of the company АА1000SES international standard. The public endorsement of the 2014 Report. Number Included in the Report production, economic, environmental stakeholder representatives were able to Subjects/Aspects of answers (section of the Report) activities, and social performance. ask questions about the company activities, The company has also analysed the receive answers and express their opinions materiality of the topics presented in the Main production results and development projects 113 4.2 The company used the most preferred on the materiality of any aspect of Sakhalin non-financial reports prepared by Russian Environmental, health, and social impact assessment of the Sakhalin-2 project 106 3.5.2 engagement mechanisms and informa- Energy’s activities in real time (see and foreign companies in accordance Stakeholder engagement performance in 2015 96 7.2—7.10 tion exchange channels for interacting Appendix 2 Comments and Suggestions with best international practices. Detailed with each group of stakeholders, taking of Stakeholders on Individual Aspects, information on the results of engaging Importance of the Sakhalin-2 project for the Russian Federation and the Sakhalin Oblast 95 6.1 into account the practice of relationships Indicators and/or Programmes, and stakeholders while preparing the Report, Financial benefits to the Russian Federation and the Sakhalin Oblast 94 6.2 (see Section 7 Stakeholder Engagement Company’s Response and Commitments). including meetings and consultations, General information about Sakhalin Energy and the Sakhalin-2 project 90 4.1 Management). Representatives of stake- surveys, etc., is presented in the Material Oil spill prevention and response preparedness 89 8.4 holders were involved in defining the Re- In addition, in defining the Report content, Topics to Be Included in the 2015 Report port content by means of: the company took into account the Based on Stakeholders’ Opinions and Most Mission, vision, values, and principles of the company 88 5.1 following: Priority Topics to Be Included in the 2015 Industrial environmental control 84 8.1 • electronic surveys and surveys at vari- Report Based on Stakeholders’ Opinions Engagement of the Russian party, contracting and procurement management, 84 6.3—6.5 ous events; • systematic media analyses; tables. vendor development programme Health, safety, environmental, and social performance management system 82 3.5.1 • personal interviews; • annual public opinion surveys and analysis of the subjects of the inquiries Personnel development and training 81 9.1 • dialogue meetings with external stake- submitted to the company (see Section 7 Hydrocarbon production and export 80 4.2.3 holders; Stakeholder Engagement Management); Labour safety and protection 73 9.2

• discussions with the company person- • recommendations and comments nel. regarding the 2014 Sustainable

10 11 2. About the Report

Material Topics to Be Included in the 2015 Report Based on Stakeholders’ Opinions

Boundaries Stakeholders

Topics Substantiation Included in the Report (section of the Report) Internal External Shareholders and their Lenders advisors Customers Company senior management Personnel author - Government ities - and con Suppliers tractors Social programmes partners - Japanese stake holders media Mass and Non-profit non-governmental organisations Community

Main production Sakhalin Energy aims to be the primer energy source and conducts its business on the basis of efficient, reliable, and safe results and production, as well as a responsible attitude toward social and environmental issues. development projects 4.2

Oil spill prevention Prevention of oil spills and constant preparedness for oil spill response (OSR) are the absolute priority for Sakhalin Energy. and response The company uses the comprehensive approach to handle this important task. preparedness 8.4

Corporate governance Corporate governance is the process of ensuring the proper organisation, management and control at Sakhalin Energy. Governance is carried out through cooperation between Sakhalin Energy senior management, shareholders, and the Russian party. They define the areas of activity, establish responsibilities, and evaluate the results achieved. 5

Risk management Sakhalin Energy considers that effective risk management is of great importance for achieving company goals. The risk management system of the company is aimed at maximising opportunities or minimising negative effects of identified risks, including risks of failure to reach the goals, risks of losses, and negative factors affecting such areas as operational excel- 5.6 lence, respect for human rights, labour relations, health, safety and environment, anti-bribery and anti-corruption, and others.

Impact assessment of The company is committed to making an impact assessment prior to any new activities or significant changes in existing the company activities projects. This is the basis of the due diligence approach and all risk management processes. Sakhalin Energy seeks to avoid or reduce the impact to the lowest possible level or to compensate for it by taking appropriate measures. 3.5.2

HSE and social The company uses a systemic approach to handle HSE and social performance issues, which enables continuous improve- performance ment in this area. The comprehensive HSE and SP management system defines the controls used by Sakhalin Energy to management system handle hazardous situations and risks. 3.5.1

Contracting and The Sakhalin-2 project is one of the most complex projects undertaken in recent decades by the global oil and gas industry. procurement Effective management of contracting and procurement is key for the project to be successful. management 6.4

Stakeholder The company considers regular and meaningful engagement with stakeholders to be an important component of its success- engagement ful business operations. 7

Economic impact The Russian Federation and the Sakhalin Oblast receive numerous benefits from the Sakhalin-2 project, including financial management and tax revenues to the budgets of the Russian Federation and the Sakhalin Oblast, new opportunities for developing new technologies, experience in managing complex high-tech projects, contracts with Russian companies, promotion of employ- 6 ment and human resources development, etc.

Environmental impact Due to its scope and complexity, the project can potentially cause environmental impacts, and Sakhalin Energy is committed to management dealing systematically with these impacts so as to mitigate risks and prevent negative consequences. Arranging and implementing industrial environmental control and monitoring, as well as conserving biodiversity, are essential 8 components of the environmental impact management system.

Social impact The company and its stakeholders attach special importance to social impact management, such as HR management and management development, respect for and promotion of human rights, occupational safety and health, social investments, and contribution to the sustainable development of the host region. 9

12 13 Corporate Social Responsibility 2.4. Definition of the Report Scope and Sustainable Development

The Report contains information on the nal boundaries) and outside (external activities of all structural units and as- boundaries) the company. See Material sets of the company in all areas related Topics to Be Included in the 2015 Report to sustainable development, including Based on Stakeholders’ Opinions table economic, environmental, and social above. impacts that occur both within (inter-

2.5. Public Endorsement of the Report

The RUIE Non-Financial Reporting Coun- Sustainable Development Report by the report according to the best practices cil was engaged to provide external pub- RUIE Council for Non-Financial Report- of conducting business. lic endorsement of Sakhalin Energy ing for the Purpose of Public Endorse- non-financial report. This Council issues ment). independent expert evaluations at the highest professional level in the Russian The primary focus of public endorsement Federation; (see Appendices 7 Certificate is the materiality and completeness of of Public Endorsement, and 8 Conclusion the information on the company perfor- on the Review of Sakhalin Energy 2015 mance disclosed in the non-financial

14 15 3. Corporate Social Responsibility and Sustainable Development

3.1. Introduction

Since Sakhalin Energy was founded, The company has developed a system to Sakhalin Energy won the national contest corporate social responsibility (CSR) has account for and control external produc- of the Russian Union of Industrialists been a mechanism for implementing tion, financial, technological, social, and and Entrepreneurs (RUIE) — Leaders corporate strategy to improve the com- environmental impacts, which allows the of Russian Business: Dynamics and pany role in society and its image and company to mitigate all types of risks and Responsibility – 2014 — in the main In 2015 Sakhalin guide the company business activities in enhance its overall sustainability (see nomination Business with Outstanding compliance with the standards of sus- Section 5.6 Risk Management). Social Responsibility. Energy won the tainable development and good business ethics. It is an integral part of the Sakhalin The awards ceremony took place in national contest of Energy production and business activities Moscow on 19 March 2015 during the and strategic development plan. Due to plenary session of the RUIE Congress held the Russian Union high transparency and active stakeholder as part of the 8th Annual Week of Russian of Industrialists and engagement, corporate governance at Business. Sakhalin Energy has gradually progressed Entrepreneurs (RUIE) to managing the company as an open system continuously exposed to impacts — Leaders of Russian from the outside business environment. Business: Dynamics and Responsibility – 2014 — in the main 3.2. Sakhalin Energy CSR System nomination Business Corporate social responsibility applies arranges training sessions and workshops For details, see Section 7 Stakeholder to all activities of Sakhalin Energy. This to ensure these principles are effectively Engagement Management. with Outstanding approach is supported by its mission, vision, integrated into the work of its contractors and values. Practical aspects are reflected and to oversee their compliance (see Sec- The company regularly provides the Social Responsibility. and approved in a number of corporate tion 6.4 Supply Chain Management). general public with reports on sustainable documents (see Section 5 Corporate development and fulfilment of commit- Governance), including: At Sakhalin Energy, CSR trends and ments. To define the Report content and indicators are regularly evaluated material topics, consultations with all • Statement of General Business Princi- by authorised personnel and senior stakeholders are conducted. In 2015, the ples; management within the company system stakeholder engagement process for of internal oversight and audit, as well as defining material topics of the Report • Code of Conduct; by lenders, their advisers, and independent was considerably extended as part of the third-party auditors. Assessments are also final transition to the G4 version of the • Sustainable Development Policy; done through stakeholder engagements: GRI Guidelines (see Section 2 About the Report). • Human Rights Policy; • public consultations;

• Health, Safety, Environment, and Social • workshops and topical discussions; Performance Policy and Commitment. • opinion surveys; The company applies a considerable part of the requirements and principles defined in • consultations at information centres set these documents to its suppliers and con- up by the company all over the Sakhalin tractors, in accordance with the require- Island; ments of the new G4 GRI Guidelines. In addition to special contractual provisions • grievance addressing in accordance with and specific requirements, the company the established system, etc.

16 17 3. Corporate Social Responsibility and Sustainable Development

3.3. Performance Standards

Company’s CSR System Russian companies refer to CSR business, social, and environmental activities defined by legislation, as well as a range of additional programmes • Statement of General Business and responsibilities with regard to Principles • Defining the Standards: employees and society. The results • Code of Conduct are reflected in various non-financial Russian and International • Sustainable Development Policy reports on practical activities. A number • Risks and Impacts Assessment • Human Rights Policy of companies take on additional respon- • Health, Safety, Environment, sibilities beyond the minimum set by • Commitments and Policy on and Social Action Plan (HSESAP) legislation based on their strategic and Health, Safety, Environment, regional priorities and their level of and Social Performance • HSE and SP Standards • HSE and SP Plans corporate culture. Sakhalin Energy is no exception. It operates in accordance with the best international standards POLICIES PLANNING established with regard to CSR.

Many initiatives and standards have been established worldwide in the area of environmental and social responsibility. The leading ones are the UN Global IMPROVEMENT IMPLEMENTATION Compact and the CSR centres all over The main international standards that the globe, which bring together com- Sakhalin Energy applies are as follows: mercial and non-commercial entities, the Global Reporting Initiative (GRI), • ISO standards (environmental the АА 1000SES, i.e. the Stakeholder management, quality control, health, Engagement Standard, the International and safety); CONTROL AND ANALYSING Financial Corporation (IFC) Standards, as well as ISO 26000:2010 Guidance on • European Union and United Nations • Monitoring Implementation Mechanisms Social Responsibility approved in March standards and directives (environ- • Audit and Checks are according to: 2013 and many others. ment, human rights, indigenous • Reporting • Public Consultation people, etc.); In 2009, Sakhalin Energy joined the UN • Tracking Through Automatic and Disclosure Plan Global Compact (UNGC) and pledged • World Bank and International Finance Monitoring System (Fountain) • Community Grievance Procedure its commitment to consistently follow Corporation standards (governance • Public Opinion Survey • HSE and SP Plans and Other the UNGC’s principles concerning systems, risk and impact assessment, human rights, labour, environment, and biodiversity, public health, cultural anti-corruption. In 2011, Sakhalin Energy heritage, indigenous people, involuntary became the first and (as per beginning resettlement, stakeholder engagement, of 2016) the only Russian company grievance management, etc.); chosen by the UN to participate in its new Sustainable Corporate Leadership • GRI and AA1000SES standards platform — the UN Global Compact (non-financial reporting, stakeholder LEAD, established in the framework of engagement). the UN Global Compact. LEAD compa- nies must perform certain activities in the environmental, social protection, and management spheres and create new CSR standards.

18 19 3. Corporate Social Responsibility and Sustainable Development

3.4. Sustainable Development Policy 3.5. HSE and Social Performance Management

• embed SD principles into all the regu- latory documents and standards of the company;

• ensure ongoing compliance with the HSE and Social Performance commit- ments, as well as regulatory documents and standards stipulated in the Health, Safety, Environmental, and Social Management System and Action Plan;

• inform and engage with our stake- holders on our performance and seek feedback;

• develop and implement social invest- ment and sustainable development pro- grammes that are linked to the company strategy, and have clear procedures and controls;

3.5.1. HSE AND SOCIAL PERFORMANCE MANAGEMENT SYSTEM The Sustainable Development Policy The main provisions of the company • develop strategic partnerships with has been pursued since the foundation Sustainable Development Policy are as stakeholders to maximise the positive The company pursues the goals of not a number of fundamental documents, The above documents were approved by of Sakhalin Energy by incorporating SD follows: impact of community development pro- harming people, protecting the environ- including: the Committee of Executive Directors, principles into the company business grammes; ment, and contributing to sustainable signed by the Sakhalin Energy Chief strategies, plans, and processes. • Sakhalin Energy will carry out its development. This attitude is beneficial • Sustainable Development Policy; Executive Officer, and communicated to According to the UN definition, sustainable business responsibly and efficiently • maintain non-financial reporting in to the residents of the Sakhalin Island the staff and contractors. development is about ensuring that the so as to deliver a robust project that accordance with the Global Reporting and other key stakeholders. The Russian • Health, Safety, Environment, and Social needs of the present generation are met will maximise benefits to the Russian Initiative (GRI) standards and principles; Federation and the Sakhalin Oblast receive Performance Policy and Commitments; This comprehensive approach applied by without compromising the ability of future Federation, the Sakhalin community, numerous benefits from the Sakhalin-2 the company to the HSE and SP management generations to meet their own needs. In and shareholders. • observe and promote the principles of project, including billions in investments, • Health, Safety, Environment, and Social system is designed to ensure continuous its practice, Sakhalin Energy relies upon the UN Global Compact (UNGC); increasing local employment, contracts for Performance Management System; improvement in this area. The company this definition. This approach presumes • Sakhalin Energy will contribute to the Russian companies, etc. (see Section 6.1 integrated health, safety, environment, and ensures economic effectiveness, present and future needs of society • participate in the Global Compact LEAD Importance of the Sakhalin-2 Project for • Health, Safety, Environment, and Social and social performance management environmental safety, social justice, and on Sakhalin Island, while keeping a programme of the UN Global Compact, the Russian Federation and the Sakhalin Performance Action Plan; system describes the controls which ethical behaviour of the corporation balance between economic develop- leading the sustainable development Oblast). Due to its scope and complexity, Sakhalin Energy utilises to manage and its employees, combined with an ment, environmental protection, and efforts of the international community. the project can potentially cause environ- • Hydrocarbon Flaring Commitment; impacts and risks. The system is applied overall reduction of human impact on the social responsibility, beside taking mental and social impacts, and Sakhalin to all assets, projects, and operations, ecosphere. This is implemented via strong, into account cultural diversity. Energy is committed to dealing systematically • Statement of Sakhalin Energy Invest- including those carried out by contractors. transparent, constructive, and systematic with these impacts so as to mitigate risks ment Company Ltd. Industrial Safety Sakhalin Energy considers the management cooperation and two-way communication • Sakhalin Energy will work with all and prevent negative consequences. Policy; of such risks as critical to its business with all the stakeholders. stakeholders to identify ways to The company uses a preventive approach success and regularly updates and contribute to the wider, long-term with a strong focus on proactive risk • Regulations on the Industrial Safety optimises this management system. In 2015, Sakhalin Energy consistently economic, environmental, and social management and impact assessment Management System; implemented the provisions of the Sus- benefits in the Sakhalin Oblast. (see Section 5.6 Risk Management). The system is based on the Plan-Do- tainable Development Policy — the public • Business Continuity Policy; Check-Act methodology of ISO 14001 strategic document approved by the Com- To comply with the abovementioned Health, Safety, Environment, Social Perfor- and OHSAS 18001 standards. mittee of Executive Directors in 2003. The principles, Sakhalin Energy’s commit- mance, and Industrial Safety Management • Business Continuity Management Policy sets forth the company principles, ments are: is an integral part of the entire corporate System Manual. directions, and responsibilities in this area. governance system and is regulated by

20 21 3. Corporate Social Responsibility and Sustainable Development

The commitments adopted by the com- Health, Safety, Environment, and Social tasks as well as legal and other require- 3.5.2. IMPACT ASSESSMENT An integral part of any impact assessment In 2015, the company completed a pany on the basis of the ESHIA that was Performance Management System ments, reporting results, incidents, carried out by the company are consul- comprehensive impact assessment conducted before phase 2 construction and non-compliance; take corrective The company is committed to making tations with the stakeholders to inform and held public consultations with the began are included in the Health, Safety,  and preventive measures; and conduct an impact assessment prior to any new them about the planned activities, identify stakeholders in regard to the planned AN Environment, and Social Action Plan L HSE audits at the company assets and activities or significant changes in exist- concerns, take into account their opinions, OPF Front–End Compression Project P

(hereinafter — the Plan). The development functional units. ing projects. This is the basis of the due and discuss possible measures to manage construction works (see Section 4.2.2.1). of the Plan was necessary in order to D diligence approach and all risk manage- the impact. O

obtain a loan for Sakhalin-2 phase 2 • Review the management system on a ment processes. In 2015, the company carried out an

implementation. regular basis and take measures for The results of previous environmental and impact assessment in accordance with

continuous improvement of the company Impact management is a process of pre- social impact assessments (including the Russian and international requirements

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The Plan was developed in compliance with HSE and SP. dicting and managing the future project results of comprehensive and strategic and conducted public hearings and

the Russian legislation and international activities by improving project solutions, environmental assessments as well consultations with the stakeholders

standards, including World Bank Policies The governance structure of the HSE and taking measures targeted at minimising as the required additional and special in regard to the implementation of the

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and Directives, International Finance SP Management System at Sakhalin Energy potential adverse impacts and increasing studies) are taken into account in the Programme of Marine Geophysical

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includes the HSE Management Committee benefits from the company activities. company standards, while its ongoing (Seismic) Surveys in the waters of the

Corporation standards, etc. The Plan

E 

H describes the HSE and Social Performance C which oversees overall compliance in activities are based on relevant plans Lunskoye and Piltun-Astokhskoye oil Management System, provides detailed this sphere. The Committee is chaired Sakhalin Energy seeks to avoid or re- and programmes. and gas fields. information on the actions to be taken to by the company CEO. The HSE General duce the impact to the lowest possible minimise potential adverse impacts, the The Plan-Do-Check-Act methodology is Manager reports to the CEO and oversees level or to compensate for it by taking The impact assessment results are posted The results of the assessments for both monitoring, the activities in environmental applied in order to: the development, implementation, perfor- appropriate measures. The following on the company website. The validity and projects are posted on the company and social areas, as well as on all the mance, and monitoring of the management measures are taken when any potential completeness of the assessments are website. internal and external standards regulating • Set objectives and establish procedures system. HSE teams have been formed in negative impact is identified: monitored by government authorities and the company HSE and SP activities. The required for achieving the desired results the company structural and functional units project lenders. Plan has been approved by project lenders. in accordance with the company HSE to ensure compliance with industrial safety • avoid; The fourth edition of the document was and SP Policy. This includes a definition and HSE standards. • prevent; approved in 2014 and published in 2015. of legal and other requirements, iden- • decrease; tification of hazards, risk and impact • compensate; The Plan was posted on the company assessment, determination of controls, • use experience to reduce the probability website (in Russian and English) and is and development of objectives and annual of occurrence. available at company information centres improvement plans. and libraries of the towns located in the vicinity of the company assets. Some of • Introduce procedures, including these materials are available in Japanese organisation, awareness, training, and Stages of Impact Assessment for stakeholders in Japan. The implemen- competence processes, contractor tation of the Plan is regularly monitored by management, participation and DESIGN AND DECISION-MAKING the company, lenders and their advisors, engagement, change management, and the results are published on the company emergency preparedness and response; website (www.sakhalinenergy.com). also, operational control of occupational health, personal safety, asset integrity, and process safety, transportation, Impact identification Baseline information and assessment. Impact management environmental protection, and social Impact scope and borders performance, including cultural heritage, gathering and description Mitigation measures and monitoring land acquisition, resettlement and identification supplemental assistance, planned public consultations and information disclosure, addressing of grievances, and social investments. STAKEHOLDER ENGAGEMENT

• Monitor and determine process effectiveness in compliance with given

22 23 About the Company 3.5.3. CHECKS AND AUDIT

Since 2005, to monitor the integrated HSE conducted, including six external and four and SP Management System, internal and internal ones (see the Checks and Audits external checks and audits have been per- of the HSE and SP Management System formed in accordance with approved annual in 2015 table). plans. External audits are conducted by the company shareholders and lenders, exter- nal certifying authorities, etc. For internal audits, specially trained auditors (the com- pany qualified employees and shareholder specialists) are engaged. In 2015, ten HSE and SP Management System audits were

Checks and Audits of the HSE and SP Management System in 2015

Number Audit level of audits Content External 6 Control over the compliance with HSE and SP standards exercised by the representative of lenders — an external advisor on environmental issues* Recertification audit for compliance with ISO 14001 and OHSAS 18001 standards Audit of flight operations (helicopters and charters) with the participation of Shell auditors Marine transportation performance review (by Shell specialists) Monitoring / final assessment of the Sakhalin Indige- nous Minorities Development Plan implementation* Independent assessment of social investments / sustainable development programmes / projects Internal 4 Project Department HSE System Audit Diving Operations HSE Audit (with the participation of a Shell SME) Offshore and Drilling Operations HSE Audit (with the participation of Shell auditors) LNG Plant HSE Audit

* The reports are posted on the company website (www.sakhalinenergy.com)

24 25 4. About the Company

4.1. Sakhalin Energy

Sakhalin Energy Investment Company Ltd. Gazprom (50% plus one share), Shell Because of Sakhalin Energy, the Russian (Sakhalin Energy or the company) was (27.5% minus one share), Mitsui (12.5%), Federation has become one of the key founded in 1994 to develop the Piltun- and Mitsubishi (10%). players on the promising Asia-Pacific Astokhskoye and Lunskoye oil and gas market. fields in the Sea of Okhotsk near Sakhalin To develop the two fields, the company Island. constructed a large-scale infrastructure About 4% of the for extracting, transporting, processing, Sakhalin Energy operates under the and then selling hydrocarbons. This in- global LNG is sup- Sakhalin-2 Production Sharing Agree- frastructure includes three fixed offshore ment (PSA) that was signed by the com- platforms, offshore and onshore pipeline plied from Sakhalin pany and the Russian Federation repre- systems, an onshore processing facility, sented by the Government of the Russian two booster stations, an oil export termi- Energy’s LNG Plant. Federation and the Sakhalin Oblast nal with a tanker loading unit, a liquefied Administration (currently, the Sakhalin natural gas (LNG) plant, and gas transfer Oblast Government). terminals. This has been one of the most technically complex projects carried out The following companies hold shares in over the last few decades in the global oil Sakhalin Energy through their subsidiaries: and gas industry.

4.2. Main Production Results in 2015

4.2.1. ASSETS

In 2015, PA-B and LUN-A platforms 4.2.1.1. Molikpaq Platform (PA-A) water injection wells, well interventions embarked on a 10-month improvement and side-tracking. The company did a 4D programme in Maintenance Execution and In July 2015, it was 16 years from the seismic survey to manage and optimise Integrity Assurance. time the Molikpaq platform first started the waterflood front. producing oil. Over the first nine years, Following a self-assessment in late 2014, starting from 1999, Molikpaq operated Normalised water injection in conjunction a detailed action plan was drawn up and only during the ice-free season. In 2008, with steady well performance helped the implemented both offshore on the plat- year-round production of hydrocarbons company to exceed annual oil production forms as well as onshore with the support commenced. targets. teams. The onshore support is focused on Integrity Assurance—making sure In 2015, the operating well stock of the Because of this, the company prepared the the correct maintenance routines are in Molikpaq platform included 13 oil-pro- Addendum to the Reservoir Management place. Offshore focused on maintenance ducing wells, five water injection wells, Plan for the Astokhskoye Area Development execution—planning, preparing, and exe- and one intake well for re-injecting drill of the Piltun-Astokhskoye Field in 2015, cuting the maintenance. cuttings back into the reservoir. In 2015, which was approved by the Gas Industry the average daily production rate on the Committee of Gazprom and CDC Shell completed an external assessment platform was 6.2 thousand t (45.83 thou- Rosnedra. in October 2015, and PA-B and LUN-A sand bbl) of oil and 0.99 mln m3 of Integrity Assurance achieved the highest associated gas. Two oil producers were worked over score ever in Shell globally. Both PA-B with side track drilled to layers XXI1 and and LUN-A are now among the top 10 In 2015, the decline in pressure was XXI-s. The wells were completed using Shell assets, together with OPF, which addressed and stable production was Frac&Pack technology to provide sand reached the top 10 in 2014. achieved at the Astokhskoye area by control. drilling and commissioning additional

26 27 4. About the Company

PA-B and LUN-A achieved a new global record in MIE in 2015.

Another oil producer was sidetracked and of the oil well. Open-hole stand-alone The platform’s average daily production In the summer of 2015, a 4D seismic 4.2.1.5. Trans-Sakhalin Pipeline System, to prevent or eliminate these potential converted to water injector to layer XXI1. screens were installed. rate was 45.27 mln m3. survey was done at the Lunskoye field to Booster Stations, and Gas Transfer Ter- hazards: track the impact of gas-water contact and minals 4.2.1.2. Piltun-Astokhskoye-B Platform Pilot holes drilled in the producer enabled Existing gas wells met production tar- pressure variation on field development. • to deal with external surface corrosion, (PA-B) experts to appraise the area and iden- gets and utilised the full capacity of the The 1997 3D seismic survey was used as The trans-Sakhalin pipeline system com- the pipeline has a cathodic protection tify the oil-water contact and geological LNG plant. the baseline for this survey. Results were prises about 300 km of offshore pipelines system; In 2015, the PA-B platform had eleven pro- structure. submitted to a service company to be pro- and over 1,600 km of oil and gas onshore duction wells, seven water injection wells, One watered-out oil well (water cut cessed and interpreted. pipelines, as well as 105 block valve sta- • to monitor internal surface corrosion, and two cutting re-injection wells. By year-end 2015, four years will have above 99%) was sidetracked into Block tions, five pipeline maintenance depots, Sakhalin Energy internally pig the pipe- been invested in improving Voidage IV of Lunskoye field in 2015. The com- 4.2.1.4. Onshore Processing Facility (OPF) two booster stations (BS), and two gas lines using intelligent pigs that can The platform’s average daily production Replacement, primarily by isolating gas pany started drilling a side track to the transfer terminals (North and South). detect internal corrosion; rate in 2015 was 3.36 thousand t cusping and making the integrated water gas layer at the end of 2014, and in April The onshore processing facility (OPF) (24.78 thousand bbl) of oil and injection system work. As a result, reser- 2015 the well became a gas producer. handles the initial processing of gas Sakhalin Energy and Gazprom Transgas • the offshore and onshore oil pipelines 1.2 mln m3 of gas. voir pressure and oil production have now and condensate from the Lunskoye Tomsk (contracted by Sakhalin Energy are pigged on a regular basis to remove stabilised in the heartland of the field. In December 2015, a second cutting field before they are pumped into the to maintain the trans-Sakhalin pipeline water and sediments; In 2015, one additional water injector well re-injection well was completed in pipelines for transportation to the oil system) are tasked with maintaining the and one oil producer well were drilled and A 4D seismic survey was done at the Pil- Block V. There was a concerted effort to export terminal and LNG plant. The oil integrity of the pipeline systems. • to ensure a timely response in case of put into operation, the latter will provide tun-Astokhskoye field in 2015. The results acquire data from this well, including and associated gas from the Piltun- an earthquake, Sakhalin Energy uses “new oil” production from the southern are now being analysed. It is expected that 180 m of core and sampling of downhole Astokhskoye field are also processed Sakhalin Energy has developed and its own seismic monitoring system with area of the field. the data will help clarify injection front fluids. This was the first core acquisi- at the OPF. implemented an HSE case for its pipe- detectors located along the entire pipe- location, localise undeveloped areas, and tion of the company, prior cores were line systems that identifies all the line and the USGS (United States Geo- The water injector was drilled ahead identify areas for in-fill drilling and water- obtained from appraisal wells. OPF daily capacity reached 58 mln m3 potential hazards to the integrity of the logical Services) system; of schedule with horizontal completion flood optimisation. of gas and about 25 thousand t assets. These hazards include internal installed in the well. The primary purpose During the year, a total of five cased (195 thousand bbl) of oil and and external surface corrosion, exces- • seismic faults are monitored every year of the well is to maintain reservoir pres- 4.2.1.3. Lunskoye-A Platform (LUN-A) hole logging well interventions were condensate in 2015. sive pipe pressure, earthquakes, land- to assess movements and displace- sure in the northern part of Piltun. executed successfully. The results from slides, soil erosion, seabed gouging, ments; In 2015, the LUN-A platform continued this help to estimate well inflow, and shore scouring, ship traffic, illegal hot Sand control technology was successfully to perform stably, producing an uninter- contact movement and well bore access. taps, and inadvertent or wilful damage. • prior to seasonal drops in ambient air implemented with drilling and completion rupted flow of gas from the existing wells. The following measures have been taken temperature, the pipeline is checked

28 29 4. About the Company

for water in the pipeline fault crossing numbers in case of questions or con- 4.2.1.6. The Prigorodnoye Production experience and was able to complete the 4.2.2. DEVELOPMENT PROJECTS 4.2.2.2. South Piltun Area Development trenches so as to avoid freezing and cerns. Complex work in time and safely. Upon completion, Project limiting pipe movement; the work was discussed and analysed in 4.2.2.1. OPF Front-End Compression Sakhalin Energy continues to route gas The Prigorodnoye production complex is order to optimise future shutdowns. Project The decision whether to develop the South • the pipeline RoW is monitored regularly condensate from the Sakhalin-3 project situated in the south of Sakhalin on the Piltun area will be based on the depletion with helicopter overflights and physical complex gas treatment plant (Kirinskoye shore of Aniva Bay, which stays ice-free The whole gas section of the Sakhalin-2 The company completed FEED works on of the Lunskoye field, the construction of checks of all pipeline features including field) into the Sakhalin Energy oil pipeline nearly year-round. It incorporates the project was suspended, however gas the OPF front-end compression project, LNG train 3, the macroeconomic situation, rivers, fault crossings, swamps, system as per the agreement between LNG plant with the LNG jetty and the oil supply to south gas transfer terminal which will help to maintain the projected and the situation on the energy market. liquefaction areas, road crossings, rail Gazprom Export and Sakhalin Energy. export terminal (OET) with the tanker was not interrupted. This allowed production levels as the wellhead pressure crossings, etc. Also, the entire pipeline loading unit (TLU) installed 5 km from the Yuzhno-Sakhalinsk Heat and Power Plant at the Lunskoye field begins to decline. Sakhalin Energy is updating information RoW is walked every twelve months; This gas condensate is transported to shore. The plant covers 490 ha and has to keep running on gas and save the on the geological structure and geological the oil export terminal (OET) along with two trains, each with a design capacity of environment instead of reverting to coal. In 2015, a contract with REP Holding was and recoverable reserves at the Piltun-As- • space technologies are also used to Sakhalin Energy’s oil. 4.8 mln t of LNG per year. Over the years, signed for manufacturing and supplying tokhskoye field, including the South Piltun monitor the vegetation growing on the efficiency and reliability enhancement An important event for the Prigorodnoye three drivers/compressors for the OPF area, and is planning to submit an inte- RoW. programmes have steadily increased the production complex in August 2015 was compression project. grated reservoir management plan to the plant’s capacity by 10%. achieving more than 9 mln man-hours State Reserves Committee of Rosnedra. According to statistics, 70% of pipeline without a lost time injury (LTI) for seven It is anticipated that the Early Works and incidents in the world are caused by unin- Mid July 2015, Sakhalin Energy completed years. The countdown for these seven Еngineering, Procurement and Construc- tentional damage from human activity. a major gas system shutdown of years started in August 2008, even before tion (EP+C) contract will be awarded in Sakhalin Energy has been proactively Sakhalin-2. Every year the company the commencement of LNG production. 2016. educating the community about how to performs maintenance on its gas The Prigorodnoye production complex identify the pipeline system and its impor- facilities. This year was the first time successfully maintains ISO 9001 for its tance. Local authorities, contractors, and the shutdown lasted 28 days to perform Quality Management System (QMS). land users are regularly informed about a major turnaround. The extensive land use limitations within the RoW and preparations for the shutdown took more are provided with the contact information than a year, including ordering spare and telephone numbers of the company. parts, equipment, and materials. Various Additionally, special notice boards are divisions and departments were involved. located along the RoW with free telephone The company drew from its previous

30 31 4. About the Company

In August 2015, total LNG production reached 65 mln tonnes.

4.2.2.3. LNG Train 3 Construction Project gas liquefies and contracts to 1/600th of Sakhalin Energy announced the Best LNG In 2015 Sakhalin Energy received 3.49 mln t About 3.5% of the oil produced was sold Terminal to the Sakhalin – Khabarovsk – its initial volume, becoming suitable for Project Operator (25.77 mln barrels) of oil grade and and successfully delivered to Indonesia Vladivostok gas main line for further usage In 2015 Sakhalin Energy signed design collection, storage, and sea shipment. 1.64 mln t (14.47 mln barrels) of condensate. and Singapore. That shows there is sta- as part of the Far East and Primorye fuel and development contracts for Sakhalin-2 Sakhalin Energy was awarded first prize The company received 92.55 thousand t ble demand from Asia-Pacific refineries for energy sector development programmes. LNG train 3. Due to successful debottlenecking and in the Best LNG Project Operator cate- (765.5 thousand barrels) of condensate in Sakhalin Energy crude oil, even in an over- In total, about 1.084 bln m3 of gas were equipment adjustment, the LNG plant gory at the 10th Annual Russia Offshore 2015 from the Kirinskoye field Sakhalin-3 supplied market. supplied to the Russian party in 2015. According to the contracts, Shell Global exceeded its design output (9.6 mln t per Conference held in Moscow on 3–4 March project. Solutions International and Giprogaztsentr, year) by producing 10.82 mln t of liquefied 2015, with the theme of “Strengthening In 2015, the share of Sakhalin Blend 4.2.3.4. Oil and LNG Supply Safety a Russian design institute, are entrusted natural gas in 2015. partnership for the development of In 2015, Sakhalin Energy exported 5.22 mln t exported by the company in the Asia-Pacific with developing the design for Sakhalin-2 offshore and LNG projects in Russia.” (41.01 mln barrels) of oil grade from the region was 0.4%. Since the company began to supply oil LNG train 3. Sakhalin LNG is transported in spheri- Prigorodnoye production complex. and LNG from Prigorodnoye Port, it has cal-hold customer vessels and in Grand-se- Top managers of Russian and interna- 4.2.3.3. Natural Gas been committed to ensuring the safety of The Sakhalin-2 LNG expansion project is ries LNG tankers (Grand Elena, Grand Aniva, tional companies and representatives In total, 10 companies from five countries shipments and supplies. The company has the optimal and economically sound way to and Grand Mereya) that were constructed of scientific and expert communities purchased the oil blend in 2015. Sakhalin Since 2011, Sakhalin Energy has been avoided incidents that could have adverse strengthen Russia’s presence on the world especially for this project and provided to the and research centres took part in the Blend was delivered through 17 transit and supplying natural gas to the gas main consequences. This has been achieved by LNG market. company under long-term charters by two conference and in the voting. destination ports in Japan, China, South line system of Gazprom to pay royalties following key principles for organising the Russian-Japanese consortiums. It is also Korea, Singapore and Indonesia. payable in kind to the Russian Party. The shipments and supplies of our products, 4.2.3. HYDROCARBON PRODUCTION transported on the Amur River, Ob River, Fuji Among the projects considered by the gas is transferred via two terminals in the the main of which are: AND EXPORT LNG, and Energy Frontier vessels chartered expert commission were current as well Historically, the main markets for Sakhalin northern and southern parts of Sakhalin on a short-term basis. Amur River started as forthcoming developments, including Blend have been Japan, South Korea, Island. Since the commencement of • chartering vessels that meet international 4.2.3.1. LNG to operate on 1 July 2015 in place of Fuji large-scale projects for constructing oil and China, which did not change in 2015. natural gas delivery via the Yuzhno- standards (international conventions, LNG and Energy Frontier vessels. Thus, the and gas infrastructure on the arctic shelf These are strategically important markets Sakhalinsk Southern Gas Transfer Termi- regulatory acts, etc.) and additional Liquefied natural gas (LNG) is a colourless company fleet consists of five LNG tankers. that are being currently implemented. because of their geographical proximity nal to Yuzhno-Sakhalinsk Heat and Power safety requirements adopted in the and odourless liquid with a density half that and their stable demand for light sweet Plant and other Sakhalin infrastructure industry (Oil Companies International of water. It consists mainly (up to 90%) of In 2015, Sakhalin Energy shipped LNG to 4.2.3.2. Oil crude oil. assets, more than 2.1 bln m3 of natural Marine Forum, etc.); methane (CH4), the simplest natural gas in Japan, South Korea, China, and Taiwan. gas have been delivered (including the group of gaseous hydrocarbons. When Sakhalin’s share of LNG in the Asia-Pacific Sakhalin Blend is an oil grade introduced Japan became the largest Sakhalin-2 oil 617 mln m3 delivered in 2015). In 2015, • working with shipowners that have cooled to approximately -160 °C (-250 °F) region was about 6%, and they had about 4% by Sakhalin Energy to the Asia-Pacific customer in 2015 (45% of total volume). about 467 mln m3 of natural gas were implemented and effectively use a safety at standard atmospheric pressure, natural of the global market in 2015. region. It is a light, low-sulphur oil blend. delivered via the Northern Gas Transfer management system in accordance

32 33 4. About the Company

Sakhalin LNG Sales Market Structure in 2015, %

TAIWAN CHINA The 400th oil standard cargo was loaded on 18 August 2015. 2.39 1.83 SOUTH KOREA The 1000th LNG standard cargo was loaded 25.16 on 22 August 2015. JAPAN 70.62 with the International Safety Manage- • development of incident response Prigorodnoye production complex, the ment Code, that have experience and are plans; interaction with territorial, fed- OPF, and BS 2 were not changed in 2015. internationally recognised; eral, and international bodies regarding responses; and insurance of cargoes, The onshore main pipelines run in • identifying, assessing, and reviewing cur- vessels, and crews against accidents the same right-of-way and are clearly rent risks (commercial, environmental, and incidents. designated with special signs. A safety Structure of Oil Blend Sales Market in 2015, % professional, etc.) as well as developing zone is established along the entire and implementing programmes to reduce Because of the above measures, buyers pipeline route, and its boundaries are the likelihood and impact of these risks are fully assured that the cargoes will be clearly marked with signs. INDONESIA SINGAPORE on the supply of products; delivered on time and safely. A safety zone was established for the main • setting high requirements for the qualifica- 4.2.4. SANITARY PROTECTION AND pipelines to prevent any possible damage 2.92 0.48 tions and experience of the crews of ves- SAFETY ZONES to them. sels carrying company goods (mandatory training in and experience of sailing in To ensure the safety of the population and This zone is mandated by the Rules for icy conditions, training in and experience according to Federal Law No. 52-ФЗ On Main Pipelines Protection, approved SOUTH KOREA in steering large-capacity vessels, etc., the Sanitary and Epidemiological Welfare by Ruling No. 9 of Gosgortekhnadzor in addition to the requirements of the of the Population of 30 March 1999, a (currently, Rostekhnadzor, the Federal International Convention on Standards of special-use area, i.e. a sanitary protection Service for Environmental, Technological, 23.15 Training, Certification and Watchkeeping zone (SPZ), was established around assets and Nuclear Supervision) of the Russian for Seafarers); and production sites that may impact the Federation, dated 22 April 1992. The safety human habitat and health. The size of such zone along the pipelines transporting oil • close cooperation along the “shipowner – a zone mitigates the impact of pollution and natural gas is a strip of land extending crew – charterer” chain, which allows to on the atmosphere, keeping it in line with 25 m on either side of the pipeline. CHINA find the best solutions for issues related health standards. JAPAN to the safety of supply and fleet manage- ment (safe routes, optimal speed, and The sanitary protection zone limits safety analysis of ports and mooring confirmed by the Chief State Medical 28.89 44.56 systems); Officer of the Russian Federation for the

34 35 4.3. Operational Excellence Programme Corporate Governance In 2015, Sakhalin Energy continued The CED had a two-day intensive LEAN • Expertise and organisational capability: implementing the Operational Excellence workshop. The CED is committed to leadership creates an environment programme. Most of these improvements continuously improving our business where “continuous improvement” were carried out internally, but external processes based on the following key is part of who we are. experts were also engaged in two success factors: cross-directorate improvement drives (in In 2016, the Operational Excellence the CP contract award process and Well • Management making commitments on programme will be renamed Continuous and Facilities Reservoir Management the basis of understanding: leaders and Improvement, making it clear that the (WRFM)). Significant reductions in waste managers are personally convinced, focus is across every area of our business. and improvements in the processes were involved, and engaged with staff. identified and are being implemented in 2015 and into 2016. • Linked to the business imperative: improvement is linked to a few (2-4) During these two projects, approximately performance/strategic imperatives. 120 staff completed LEAN training, followed by on-the-job practical application • Management and work processes are of this training. supported and engaged at all levels.

Operational Excellence Programme Main Directions

Lean Execution

World Class Field Development/ Continuous Wells, Reservoir and Facilities Sustainable Growth Management

Fully Engaged Customers Best Practice and Stakeholders OPERATIONAL Contractor Management EXCELLENCE

Competitive Excellence in People Cost and Value

Goal Zero Safety, Environment Total Reliability and Asset Integrity

36 37 5. Corporate Governance

5.1. Company Mission, Vision, Values, and Principles

Sakhalin Energy is guided by general VISION: To be the premier energy source The general business principles cover, business principles, with underlying core for Asia-Pacific. among other areas, economic features, values of honesty and integrity, respect and competition, business integrity, political care for people, individual accountability MISSION: Sakhalin Energy is committed activities, health, safety, security, supported by teamwork, professionalism, to being a premier energy supplier, environment, local communities, as well Sakhalin Energy and continuous improvement. These recognised for its operational excellence, as communication and engagement with principles are exemplified by the company reliability, and safety. We conduct our stakeholders. The full text of the company activity underlies responsibilities to its shareholders, the business in an ethically, socially, and General Business Principles is available Russian party, customers, company environmentally responsible manner. on the Sakhalin Energy website on core values of employees, and business partners—i.e. all (www.sakhalinenergy.com). parties that have business relations with honesty and integrity, the company, as well as to the community. respect and care for people, individual accountability supported by teamwork. 5.2. Corporate Governance System and Structure

Corporate governance is a process Corporate Governance System ensuring due diligence in organisation, management, and oversight within LEADERSHIP AND COMMITMENT Sakhalin Energy. Corporate governance is accomplished by engaging the Sakhalin Energy senior management with its Policy and Strategic Objective shareholders and the Russian party to determine the direction of the company activities, establish areas of responsibility, Risk Management and assess performance.

The Sakhalin Energy Business Manage- Organisation, Responsibilities, ment System Manual describes the main Resources, Competences principles and approach to managing the company. Processes, Assets, and Standards

Leadership and Commitment Planning Sakhalin Energy senior management is fully committed to the Business Actions Corrective Management System. Compliance Implementation Monitoring with senior management decisions is mandatory for all staff and contractors. The senior management plays a leading Assurance role in the constant improvement of business processes through their decisions and actions. Communication

38 39 5. Corporate Governance

5.3. Corporate Governance Model

Strategic planning is carried out through and Gas Fields on the Basis of Production • the Board of Directors is responsible for In 2015, the company improved the management of non-technical and IT projects and engaging the Sakhalin Energy senior Sharing (PSA). The Supervisory Board overall company governance; management with the Russian party supervises the fulfilment of the PSA terms introduced the uniform Change Management Policy. This will help to respond to emerging (representatives of the federal execu- and approves the company long-term • daily management and operation of the needs in a more structured and effective way based on risk assessment and the objectives tive authorities and the Sakhalin Oblast development plans and budgets, annual company is the prerogative of the Com- of the company, while involving a wide range of experts not only in production and technical Government) and company shareholders work programmes and budgets, LNG sales mittee of Executive Directors. areas but also when introducing changes in corporate functions. that determine policy directions, establish agreements, procurement procedures, areas of responsibility, and assess the Russian national employment and training The company governing bodies have the results achieved, including those in the plans, etc. The Supervisory Board also following tasks in the governance model. area of sustainable development. Under reviews the company annual reports and Policy and Strategic Objectives management are in place and understood thoroughly investigated and reported. Any the shareholding structure of Sakhalin appoints auditors. The Supervisory Board Board of Directors (BoD), appointed by at the appropriate organisational levels. lessons that are learned are disseminated Energy, which has not changed since 2007, consists of 12 members: six representatives company shareholders, is responsible for The company policies and standards Process owners ensure the proper throughout the company. Gazprom holds 50% plus one share, Shell from the company and six representatives the overall governance of the company comply with Russian laws and regulations implementation of control procedures holds 27.5% minus one share, Mitsui holds from the Russian party. Information on and for key decisions regarding economic, as well as with the requirements of its through regular assurance and compli- Assurance 12.5%, and Mitsubishi holds 10%. All the members of the Supervisory Board is environmental, and social activities as well shareholders and lenders. Sakhalin Energy ance activities adopted by the company. shareholders operate through their sub- available on the Sakhalin Energy website as the strategy and business direction of strategic objectives are inspiring and clear Assurance is in place to ensure the sidiaries. (www.sakhalinenergy.com). the company. to everyone and are consistently Planning management system is reasonably incorporated into the policies, standards, effective. It includes independent audits The Supervisory Board is the Sakhalin-2 Sakhalin Energy uses a three-stage corpo- The BoD members in 2015 included all processes, and plans adopted by the All approved plans are optimised and of processes and assets. Audits are project strategic management body rate governance system, in which: the executive (7) and non-executive (8) company. fully resourced. Performance targets are followed up in a timely manner. established and operating in accordance directors of the company. Olivier Lazare, set that will ensure progression towards Management regularly reviews the with the Agreement on the Development of • certain key decisions are made by share- Vice-President of Russia at Shell, served Risk Management the long-term objectives. The five-year suitability and effectiveness of the the Piltun-Astokhskoye and Lunskoye Oil holders; as the Chairman of the Board in 2015. plans, which are annually assessed and assurance framework. When establishing objectives, the com- adjusted, form the basis of planning. They Corporate Governance Model pany identifies, assesses, and considers are established through active and open Communication overall risks related to achieving these discussions with the company staff from RUSSIAN FEDERATION SHAREHOLDERS goals and identifies ways to manage all directorates at the annual 100 Work- Transparent and open communication is risks, including decreasing, mitigating, shops (see Section 7.3 Engagement with essential to ensure the company busi- or preventing them (see Section 5.6 Risk Personnel). ness objectives are met. Line managers Management). engage with their staff, communicating RUSSIAN PARTY Contingency and emergency response business goals and priorities. The CED 12.5% Organisation, Responsibilities, plans are implemented and regularly receives their feedback for information 50% 27.5% Resources, and Competency evaluated. and possible follow-up. The CEO and +1 share –1 share other members of the CED reinforce this SAKHALIN OBLAST 10% The organisation and resources are The Journey Book, which is published communication framework with regular adequate to meet the strategic objectives. annually, is used to inform all company staff engagement sessions (see Section Responsibilities at all levels are clearly employees about the company goals, 5.4 Corporate Culture and Section 7.3 described, communicated, and under- strategy, targets, and measures to achieve Engagement with Personnel). stood. The employees are prepared and them. trained in accordance with training plans Supervisory Board PSA (1994) Shareholder Agreement Board of Directors coordinated with structured competency Implementation assessment systems. Performance indicators are established Processes, Assets, and Standards and monitored, and results are reported. Corrective measures are taken as SAKHALIN ENERGY INVESTMENT COMPANY LTD. Processes and assets are defined with necessary, and policies, organisational clearly assigned responsibilities. Process / structure, risks, plans, and processes COMMITTEE OF EXECUTIVE DIRECTORS asset standards and procedures are updated. All incidents with significant incorporating controls and means of risk potential or actual consequences are

40 41 5. Corporate Governance

The BoD activities are supported by the that meet to discuss external affairs, such • Business Assurance Committee; Committee of Executive Directors functions of several committees. as formulating and coordinating company positions and communications with • Claims Steering Committee; Commercial Committee—chaired by the shareholders; monitoring and responding company Commercial Director and consisting to press reports, releases, and inquiries; • HSES Management Committee; of the representatives from Sakhalin Energy and coordinating issues associated with and its shareholders who meet to discuss managing the company reputation. • Operational Excellence Committee. commercial issues and related proposals and strategies pertaining to PSA / share- Board Assurance Committee—consists The company organisational structure holder issues, PSA amendments, Licence of two representatives from each of the ensures that functional tasks related to Security proposals, infrastructure sharing / company shareholders, one of which is a both assets and processes are completed. cooperation issues, and business strategies Non-Executive Director. The meetings are relating to crude oil, LNG and natural gas, attended by the company Chief Executive Roman Dashkov and other commercial issues. Officer, Finance Director, Legal Director, Chief Executive Officer and any other executive directors who Technical Committee—chaired by the are responsible for the agenda items of a company Technical Director and consisting Committee meeting, the Audit Manager, of the representatives from the Sakhalin and other individuals the Committee invites. Energy Technical and Production Directo- rates and its shareholder companies that Board Remuneration Committee—an advi- meet to discuss technical issues such as sory committee to the BoD. This Committee value assurance reviews, development reviews and makes recommendations with proposals, well drilling and completion, regard to annual performance against tar- development work programmes and related gets by executive directors as well as over- budget proposals, operational activities, all HR policies. The Committee includes contracting plan and strategy, tender board two representatives (one of which should be policy, project development schedules, HSE a Non-Executive Director of the company) Rob Ole Benjamin Alexander Ruslan Andrey van Velden Myklestad Lamb Sheykin Oblekov Okhotkin management, and engineering, procure- from each of the shareholders. Finance Production Legal HR Technical Commercial ment and construction plans. Director Director Director Director Director Director Committee of Executive Directors (CED)— Finance Advisory Committee—chaired by headed by the company CEO. The CED, the Finance Director and consisting of the which consists of all the executive directors representatives from Sakhalin Energy and of the company, is responsible for the day- shareholder companies that meet to discuss to-day management of the company. Company’s Organisational Structure financial issues. The standard agenda of a It designates, directs, and oversees the FAC meeting includes the following items: operations of Sakhalin Energy through equity / project financing arrangements; business plans and strategies and by CHIEF EXECUTIVE OFFICER assurance framework (including financial deciding how best to implement them. business); cost recovery issues; internal / The CED members as of 31 December 2015 external audits; work / service contracts, are shown in the Committee of Executive agreements and amendments; tax liabilities; Directors organisational chart. insurance; treasury; accounting policy and Internal Audit HSE External and Corporate Corporate Security supply chain management matters. The CED is supported by internal commit- Department Department Affairs Department Department tees, including, but not limited to: External Affairs Committee—an advisory committee to the BoD. The Committee is • Tender Committees; chaired by the Sakhalin Energy Head of the Government, Shareholders and External • Management Development Committee; Finance Production Legal HR Technical Commercial Affairs Division, and consists of representatives Directorate Directorate Directorate Directorate Directorate Directorate from the company and its shareholders • Business Integrity Committee;

42 43 5. Corporate Governance

5.4. Corporate Culture 5.5. Code of Conduct

Respect, support, and promotion of human Corporate Values rights are core principles for Sakhalin Energy, and company employees are fun- Operational damental to its success. The basic qualities Excellence each company employee should strive for are professionalism, responsibility, initiative, integrity, self-development, improved effi- ciency, and strict observation of ethical prin- ciples and standards of conduct. Strength- VALUES ening and developing corporate culture is Honesty and integrity an important component of achieving and improving operational excellence. Respect and care for people Apply professionalism and take In order to ensure compliance with pro- individual accountability fessional and business ethical standards, for performance the company Code of Conduct explains the Continuous improvement norms of behaviour which Sakhalin Energy and team work expects from its employees and describes how these norms correlate with the com- Internal Corporate pany business principles and core values communication culture Engagement (see Section 5.5 Code of Conduct). Sakhalin Energy employees share the core values of The Code of Conduct is the primary • Sakhalin Energy aims to operate In 2015, the company conducted a the company, which are: document that explains the fundamental in environmentally and socially Business Integrity poll to assess staff rules and standards acceptable to the responsible ways. awareness on how to use confidential • honesty and integrity; These documents ensure that Sakhalin as direct communication (all-staff com- company to ensure compliance with hotline channels such as the HR Energy operates within the framework of munication sessions, internal meetings the Statement of General Business • Sakhalin Energy does not tolerate Grievance Procedure, the Whistleblowing • respect and care for people; applicable laws and in accordance with of all units, etc.), as well as various types Principles. It regulates behaviour and bribery, insider dealing, market abuse, Procedure, and the Community Grievance the ethical requirements set out in the of electronic and written communications spells out requirements and guidance, fraud, or money laundering. Procedure. The questionnaire was • apply professionalism and take individual Sakhalin Energy General Business Princi- and feedback (see Section 7.3 Engage- expressed as clearly, concisely, and con- distributed to all the staff and was accountability for performance; ples. The human rights principles control ment with Personnel). sistently as possible in a single, compa- • Sakhalin Energy is committed to free, turned in by 333 people. Of these, 67% system requires the company senior ny-wide document for all our employees. fair, and ethical business dealings. demonstrated that they understand • continuous improvement and team work. management to provide employees with a The company has developed and applies The Code of Conduct includes, but is not the procedure for using the hotline safe and confidential setting for raising any the Conflict of Interest Procedure. limited to, the following main rules: • Intellectual, physical, and financial channels. These values are reflected in Sakhalin concerns and reporting non-compliance. Under the procedure, an annual con- assets of Sakhalin Energy are valuable Energy standards, policies, and procedures, Sakhalin Energy employees, in their turn, flict of interest declaration must be com- • Sakhalin Energy endeavours to com- and must be preserved, protected, and such as: are expected to report to the company pleted by all the employees. This pro- ply with principles of respect, support, properly managed. any incidents of non-compliance with the vides an understanding of the ethical and promotion of human rights in all • Statement of General Business Principles; General Business Principles. principles of the company activities and its activities. allows the company to assess potential • Code of Conduct; Sakhalin Energy operates in a manner conflicts and take measures to protect that is intended to complement the core both Sakhalin Energy and its personnel • Sustainable Development Policy; values and provide a way of thinking and from the risk of actual conflict between behaving that is in the best interests the employees’ private and professional • Human Rights Policy; of the overall business. Leadership, interests. The General Business Principles of the company are communicated to newcomers accountability, and teamwork characterise • Whistle Blowing / Grievance Procedure; this behaviour. during the regular onboarding sessions. All employees biannually complete online trainings dedicated to the Code of Conduct, • Conflict of Interest Procedure; The company constantly works to rein- Anti-Bribery and Corruption principles and Conflict of Interest procedure. force engagement with staff and inter- • Anti-Bribery and Corruption Procedure. nal communications, using such methods

44 45 5. Corporate Governance

5.6. Risk Management

Sakhalin Energy believes that effective The process for managing risks at Sakhalin Risk management is the responsibility Risk Management Lifecycle risk management plays an important Energy involves identifying and assessing of those who are accountable for role in achieving company objectives. risks, planning and implementing a achieving the objectives associated with Continuous response, monitoring performance, and these risks. All executive directors of improvement The goal of risk management is to reassessing risks on an ongoing basis to the company shall apply proactive risk Monitor and reassess Identify and assess risks maximise opportunities or minimise the ensure that areas for improvement are management as an integral part of their controls framework to achieve the objectives adverse impact of the identified risks, captured and such improvements are management activities. Risk control is including the risks of losses or failure implemented (see the Risk Management exercised by the person responsible for to achieve the goals, as well as the Lifecycle chart). This process is regulated by the risk (risk coordinator), the company risks of adverse factors in various areas the corporate Risk Management Procedure. Business Assurance Committee which such as safety, production effectiveness, includes company executive directors, environment, social areas, observance The risk assessment matrix is a vital tool for and the Board Assurance Committee of human rights, labour relations, assessing risks which is applied to classify (see Controls Framework chart). Continuous COMPANY Continuous occupational health and safety, counter- actual and potential consequences, deter- improvement OBJECTIVES improvement acting bribery and corruption, etc. mine risk significance, and guide appropriate risk management. The risks are assessed in At Sakhalin Energy, a risk is understood terms of their probability and level of impact to be a potential situation in the future on the process to achieve goals. which may impact the achievement of goals. All risks are therefore divided One of the most important components into threats and opportunities. Risks of an efficient risk management process Implement responces Develop and plan reflect the degree of uncertainty is impact assessment. This process must and controls responses / internal controls affecting the intended course of action be carried out prior to commencement Continuous of the business. This uncertainty must of any operation which may potentially improvement be taken into account, monitored, and affect various spheres of activity (see controlled, i.e. managed. Section 3.5.2 Impact Assessment).

Controls Framework Risks Which are Believed by the Company to Be Significant, and Ways to Control Them

Risks Description / Controls Reference POLICIES AND PROCEDURES AWARENESS Operational excellence Many Sakhalin Energy processes can be improved to become more effective and/or more For details, see (opportunity) efficient, to enable the company to realise its vision of becoming the premier energy source for Section 4.3 Asia-Pacific. Controls in place: In 2010, the company developed a strategy to achieve maximum performance indicators, referred to as the Operational Excellence programme COMPANY OBJECTIVES Economic risks

• HSES • Customers Cost management The main elements of cost management are making investment decisions that optimise scarce For details • Reliability and Integrity • Stakeholders resources and challenging the costs to use resources more effectively. Transparency, awareness, about and efficiency in managing costs and contracts all aid in achieving the goal of reducing long- managing • Production and Development • Operational Excellence term costs. The cost management strategy of the company is supported by the Journey Book, contractors and • Costs and Value Journey Business Plan, and Operational Excellence programme suppliers, see Section 6.4 • People • Growth Potential sanctions The EU, US, and a number of other countries have imposed sanctions related to the situation in Ukraine that may affect the company business. A cross-discipline sanctions working group has been established to monitor this risk COMPLIANCE REPORTING AND ASSURANCE

46 47 5. Corporate Governance

Risks Description / Controls Reference Risks Description / Controls Reference

Cash flow management in the Significant and continuous drops in oil prices affect the company performance. The company Safety risks conditions of falling oil prices monitors the market continuously in order to make informed decisions on cash flow management and dividends policy, on oil sales under the most favourable conditions on the market, as well as Process safety Process safety is the management of hazards that can cause major accidents that release For details, see on the level of commitments for future expenditures potentially dangerous materials or energy such as a fire or explosion or both. Potential sources Sections 4 of major accidents are: hydrocarbon releases from production installations or wells, onshore and and 9.2 Rouble devaluation The devaluation of the rouble has impacted the company financial and operational performance. offshore assets and pipelines which could result in a fire or explosion; loss of structural integrity The risk is regularly discussed at the CED. The company monitors and analyses market of offshore installations; marine hazards such as a ship colliding with an installation or another fluctuations in order to make balanced decisions and provide optimal value propositions to its vessel; aviation hazards such as a helicopter crash; major road traffic accidents; contamination employees and contractors of food or water affecting personnel at the assets; loss of power to remote locations during the winter; dropped objects; and transferring personnel between offshore installations and vessels. Social and reputational risks The Process Safety Control System consists of three elements:

Staff retention, competence, It is important for the company to retain the necessary level of trained and qualified personnel. For details, see • Design Integrity—designing and building company assets so that risks are as low as and succession plan Losing professionals and specialists, especially those in technical fields, can lead to insufficient Section 9.1 reasonably practicable (ALARP); trained personnel in the skill pool to fill critical positions and can lower the general qualification • Technical Integrity—applying technical control measures through effective maintenance, level of technical experts. inspection, repair, and quality assurance; In order to mitigate the risk, the company strives to support the succession process, including • Operating Integrity—applying technical control measures and managing critical work at the level of managerial targets and goals. Programmes of managerial and leadership skills processes by using work permits, monitoring technical processes manually, overseeing development are being implemented. The competitiveness of the employee value proposition changes in processes, etc. is regularly assessed. The Traineeship Agreement is updated annually in cooperation with the Senior management must take a leading role in ensuring process integrity in order for this shareholders. The Programme for Employing and Training Russian Nationals is being updated system to be successful. Leaders should have the ability to pick up on weak signals and create an atmosphere in which people can halt unsafe work and speak up when they feel something is not Risk of occupational diseases The company applies the following controls to reduce the risk of occupational diseases: For details, see right. personnel health risk assessment at the facilities, harmful factors production control, special Section 9.3 workplace attestation, periodic medical and clinical examinations, control over the compliance The process safety risks have been assessed at each company asset based on Russian with the work instructions during work, control over the use of PPE, and education on the Federation legislation and international practice prevention of occupational diseases

Risk of not meeting the In order to minimise the flaring of associated petroleum gas, the company is constantly taking For details, see Personnel safety risks These risks mainly include personnel safety risks during lifting operations, risks of falling For details, see utilisation rate of 95% for steps to enhance equipment reliability, increase operating time, and minimise the number of Section 8.1 objects, risks of falling from height or as a result of slipping or tripping, and electrical safety Section 9.2 associated petroleum gas unplanned shutdowns risks. To reduce the safety risks, relevant precautionary measures and controls are being implemented Environmental risks Road traffic safety Traffic decreased during the operations phase, but the risk levels remain high over the entire For details, see Risks with regards to the The company uses the following controls to reduce the risk of negative impact on environment For details, see service life of the assets. Traffic volumes are still high, often in difficult weather and road Section 9.2 environment and the risk of its contamination in line with the requirements of the environmental legislation Section 8 conditions. and international standards: The most common violation among contractor drivers is speeding. To manage risks and prevent • identifying all environmental aspects and performing an environmental impact assessment the violations of the road traffic rules, the company monitors speed limit violations using IVMS when planning business activities and implementing a project; and Traffic Safety Team inspectors, conducts training sessions and discussions with drivers, and • developing and operating within acceptable limits for emissions and discharges, waste performs strict journey management. Other precautionary measures and controls are also being generation volumes, obtained approvals, and limits; implemented • developing and implementing comprehensive programmes for industrial environmental control, local environmental monitoring, and biodiversity conservation in the areas of the production assets; • analysing results of monitoring, assessing the efficiency of controls, and developing and implementing environmental protection plans. Risks are managed in accordance with the general requirements of the Risk Management Standard and Atmospheric Air Protection Standard, Water Use Standard, Waste Management Standard, Soil Use Standard, Groundwater Use Standard, Land Plot Use Standard, Marine Environment Protection Standard, and Biodiversity Standard

48 49 Economic Impact 5.7. Anti-Bribery and Corruption Management In order to counteract bribery and financing activities have undergone this • The Legal Directorate shall monitor corruption, the company: additional training. any changes in standard contract clauses which specify the company • does not tolerate bribery, insider Additionally, all newly hired staff must anti-bribery and corruption dealing, market abuse, fraud, or money be briefed about the requirements set requirements. laundering (facilitation payments are forth in the Procedure as part of their considered bribes and are not allowed); induction. The Finance Controller in • The Supply Chain Manager shall collaboration with the Governance, Risk, ensure that standard company • complies with all Russian and and Assurance Manager is required to contracts contain such clauses and applicable international laws and ensure that Sakhalin Energy employees that controls established by this regulatory acts; are made aware of this Procedure Procedure are effectively integrated (including through training sessions) and into the company supply chain • adheres to the principle of integrity and that all employees comply with the Anti- management processes. legality in all company activities. Bribery and Corruption Procedure. The Business Assurance Committee Sakhalin Energy assists its employees, Furthermore, the company Legal shall review monitoring results for business partners, contractors, and Directorate will consult employees on compliance with anti-bribery and suppliers in fulfilling requirements for anti-bribery and corruption legal issues corruption requirements. counteracting bribery and corruption. The and the legal risks associated with non- primary company document regulating compliance. the issues of counteracting bribery and corruption is the Anti-Bribery and The Anti-Bribery and Corruption Corruption Procedure (hereinafter Procedure establishes an overall set of referred to as the Procedure). controls for compliance with the anti- bribery and corruption laws, including: Risks associated with non-compliance with this Procedure come from the • meeting anti-bribery and corruption company failing to follow anti-bribery requirements; and corruption legal requirements or failing to comply with ethical business • identifying violations; standards. These risks may lead to reputational damage, financial losses • reporting to the Business Assurance (through fines), and criminal liability Committee; associated with company employees as well as with the activities of its agents, • utilising potential risk indicators, or contractors, and intermediaries. The the so-called “red flags” (e.g. risks Procedure includes a list of categories associated with demands for payment of employees who are considered to for services not covered by a contract, be high-risk for violating anti-bribery lack of transparency in invoice and corruption laws and must attend supporting documents, etc.); individual training on the requirements of this Procedure. • utilising pre-contractual due diligence, mandatory contract provisions, etc. The company Anti-Bribery and Corruption programme was reinforced In order to integrate anti-bribery and in 2015 by developing new focused corruption requirements into the training for categories of personnel company supply chain management at risk. Supply chain management processes and to implement further employees and personnel involved in the controls: company social investment and targeted

50 51 6. Economic Impact Management

6.1. Importance of the Sakhalin-2 Project for the Russian Federation and the Sakhalin Oblast

The Russian Federation and the Sakhalin • The Russian Federation has gained • Many contracts and subcontracts have Oblast have gained numerous benefits valuable experience in managing been awarded to Sakhalin companies from the Sakhalin-2 project. complex high-tech projects in remote that took part in the Sakhalin-2 project. locations and in subarctic conditions. Their capacity and competitiveness has • Since Sakhalin Energy started its opera- been enhanced significantly. About tions, the Russian Federation’s proceeds • The infrastructure on Sakhalin Island from the Sakhalin-2 project have totalled has undergone large-scale upgrades • The company has carried out extensive over US$ 18.8 bln, including US$ 6.7 bln (over US$ 600 mln was invested by the social and public initiatives on Sakhalin US$ 5.2 bln that was received by the Sakhalin Oblast. company). Island.

Sakhalin Energy paid • Russian companies have gained access • Local employment levels and local In 2015, according to the International to the Russian to new technologies and business workforce quality have notably increased Accounting Standard (IAS), revenues of development opportunities. (both direct and indirect effect). Sakhalin Energy amounted to US$ 6,192 mln, Federation in 2015 and its total net income was US$ 1,962 mln. • Over US$ 23 bln worth of contracts have • Incomes and living standards for the including been awarded to Russian companies and local population have risen. organisations. US$ 2.4 bln to the Sakhalin Oblast budget. 6.2. Financial Benefits to the Russian Federation and the Sakhalin Oblast

In 1994, Sakhalin Energy signed the According to the PSA, the state retains the In total, for the reporting period, Sakhalin Agreement on the Development of the ownership rights to the field and grants the Energy paid about US$ 5.2 bln (in kind and Piltun-Astokhskoye and Lunskoye Oil and investor an exclusive right to develop the in cash) to the Russian Federation. Gas Fields on the Basis of Production mineral resources. The investor develops Sharing (PSA) with the Russian Federation, the resources by its own means and at its Royalties (in kind payment) amounted to represented by the Government of the own risk and invests funds required for the US$ 409 mln. Russian Federation and the Sakhalin exploration and development of the fields. Oblast Administration. A PSA is a The Russian party’s production profit share commercial contract between an investor Under the PSA, some types of taxes, levies, was US$ 434 mln. In addition, the 2014 and a state, allowing the investor to make and duties are replaced with production fiscal year profit tax totalled US$ 2.7 bln large-scale, long-term, and high-risk sharing. This effectively means that instead and dividends totalled US$ 1.6 bln (paid by investments under a stable tax regime. of some taxes (including mineral extraction the company in 2015). tax, property tax, etc.) and levies, Sakhalin Production sharing between the company Energy is using hydrocarbons as a form of Based on the performance results for and the state is triggered when the inves- royalty payment, and after product sharing 2015, the profit tax in the amount of ap- tor recovers all of its costs (the specific starts, it will use them as the profit share. proximately US$ 1.4 bln will be paid to the shares of each party are not fixed but Financial benefits to the Russian party budget in 2016. depend on the profitability of the project). include the profit tax paid by the company The PSA also stipulates that the company and a number of mandatory payments, should pay a profit tax, and the profit tax contributions, and levies. In addition, the for the company is currently payable at Russian party receives income on R-share a rate higher than the profit tax rate for dividends (a special preference share non-PSA tax payers. providing the right to receive dividends).

52 53 6. Economic Impact Management

6.3. Russian Content

The Russian Content means the utilisation opportunities for Russian Content devel- (Yuzhno-Sakhalinsk), SLT TRADING of Russian labour, equipment, and ser- opment, providing targeted assistance to HOUSE (Yuzhno-Sakhalinsk)—a number vices. In accordance with the PSA require- Russian companies in order to increase of purchase orders for providing light ments, the Russian Content is measured their competitive potential, and developing vehicles, passenger coaches, heavy vehi- in labour input (in man-hours) as well the workforce and suppliers. cles, road construction and specialised as materials and equipment (in weight equipment for Sakhalin Energy assets. units) delivered by Russian contractors The total value of contracts awarded to (both legal entities and natural persons). Russian companies since the project Russian companies involved in the project Sakhalin Energy will make its best efforts was launched through the end of 2015 have unique access to international best to achieve a Russian Content level of 70% has reached approximately US$ 23.2 bln. practices, global business opportunities, over the life of the entire Sakhalin-2 pro- In 2015, the value of new contracts and and management skills. ject. In 2015, the company reached a Rus- amendments to existing contracts with sian Content level of 89% man-hours and Russian companies totalled approxi- In addition to new jobs as well as person- 79% of materials and equipment used. mately US$ 628.4 mln or 46% of the nel and capacity development, Russian total value of the contracts. companies also benefit from the following: During the Sakhalin Oil and Gas 2015 conference, Sakhalin Energy signed Some of the contracts awarded to Russian • improving the quality of services and two important documents with Russian enterprises in 2015: materials as well as safety standards; manufacturers. • JSC REP HOLDING (St. Petersburg)— • introducing technologies that are new The first document is the contract supply of compressor packages and to the Russian Federation and acquiring For the entire period of project implemen- Total Amount of Payments to the Russian between Sakhalin Energy and JSC REP associated services for OPF Compres- unique experience; tation (1995–2015), the Russian party has Party from the Project in 1995–2015, Holding to supply equipment for the sion Project; received US$ 18.8 bln from the Sakhalin-2 US$ mln Sakhlain-2 project. Under the contract, • doing business with international project, taking into account the 2015 three gas pumping units (GPU) will be • SEACOR MARINE SAKHALIN— partners and setting up joint ventures; amounts. manufactured and supplied for Sakhalin chartering of accommodation support 1,298 1995–2009 608 Energy OPF Compression Project. This vessel; • increasing their competitiveness as The amount of taxes and other mandatory 539 2010 60 contract provides new prospects for bidders in other project tenders, both in payments made to the Sakhalin Oblast REP Holding to increase supplies of • SCF GEO—provision of 4D marine the Sakhalin Oblast and worldwide. budget and to local budgets totalled 1,230 2011 60 high-performance equipment to develop seismic services; US$ 2.4 bln in 2015 (which is US$ 177 mln the Far East region and achieve oil and more than in 2014). 1,813 2012 391 gas industry improvements in Russia. • POLARUS—provision of crew boats; 2,655 2013 947 Revenues from the Sakhalin-2 project The second document is the Memoran- • SAKHALIN BRANCH OF MRS were a significant part of the total fiscal 6,077 2014 2,234 dum of Understanding between Sakhalin ROSMORRECHFLOT—provision revenues of the Sakhalin Oblast in 2015 Energy and TMK (Pipe Metallurgical of standby OSR support; (over 60% of the total amount). 5,188 2015 2,411 Company). The Memorandum provides the framework for cooperating on TMK’s • FAR EAST HYDROMETEOROGICAL Taxes and Other Mandatory Payments tubular product qualification and certifi- RESEARCH INSTITUTE (Vladivostok)— Made to the Sakhalin Oblast Budget cation with a view to testing its suitability offshore environmental monitoring; and to Local Budgets from the for Sakhalin Energy’s operations. Sakhalin-2 Project in 1995–2015, • BUSINESS PROFI (Moscow)—supply of US$ mln Sakhalin Energy has identified its key OEM materials; activities and mechanisms for maximising the Russian Content, which are featured in • ENKI CONSTRUCTION COMPANY LLC the Russian Content Policy and the Rus- (Yuzhno-Sakhalinsk)—repair / construction sian Content Development Strategy. The work (Zima RC, the company offices); company efforts are primarily focused on the long-term planning for Supply Chain • SAKHALINZAPCHASTSERVICE Management requirements, identifying (Yuzhno-Sakhalinsk), AVTO-LIDER

54 55 6. Economic Impact Management

6.4. Supply Chain Management

The company pays close attention to the • safety—causing no harm to people, The Policy lists rules and measures that • conducting technical bid evaluation • the company conducts contract • verify that they are in compliance with effectiveness of Supply Chain Manage- the environment, or to property; ensure compliance with these principles. (including HSE, etc.); performance audits. similar HSE standards and provide the ment (SCM). ensuring the contractors comply with necessary advice on these issues, etc. the company safety standards; In accordance with the above-listed • conducting commercial bid evaluation. Sakhalin Energy Requirements for Our fundamental Supply Chain Manage- principles, the contract award and Contractors and Suppliers Requirements for the Quality of Supplied ment document is Sakhalin Energy Supply • additional value in SCM—value maximi- management process follows these steps. Contract Award: Materials, Equipment, and Services Chain Management Policy (hereinafter sation, economic efficiency, and long- Sakhalin Energy attaches great impor- referred to as the Policy). This Policy term commercial benefit; Creating a List of Qualified Vendors • upon completion of all stages of the tance to the fulfilment of the company Contractors must: applies to all company employees and (for Certain Scopes of Resources / bidding process, the company awards requirements by contractors and contractors but primarily to company per- • zero tolerance for personal gains, Services or for Specific Tender Scopes): the contract under the terms and suppliers. These requirements include: • develop and comply with the company sonnel that are directly engaged in supply bribery, or corruption—in all SCM conditions specified in the ITT. quality assurance policy; chain management. The Policy applies operations in accordance with the supply • conducting workshops for potential Health, Safety and Environment (HSE) to all activities that involve spending transparency principle; vendors (see Section 6.5 Vendor Contract Management: Requirements • specify (develop) and comply with the company funds on equipment, materials, Development Programme); quality control process and its proce- resources, services, and works. • competition—development of open • during the performance of the Contractors must: dures; competition in markets; • pre-qualifying potential vendors. contract, the company monitors The Supply Chain Manager is responsible contractor activities by tracking the • include compliance with HSE principles • specify (develop) and comply with for ensuring that our model contracts • Russian content—maximisation of the Conducting Tenders for the Purchase mutually agreed Key Performance in the performance assessment; quality assurance procedures. contain the appropriate terms and condi- Russian content and development of of Materials / Equipment or Provision Indicators (KPIs) and by organising tions, for effectively implementing these Russian suppliers and contractors; of Services: meetings to review the contractor • perform checks and investigate any Russian Content Requirements terms and conditions in the procurement performance; breaches of the HSE rules to ensure processes and for ensuring control and • human rights—ensuring respect for, • competitive bidding is preferred when a the company HSE policy is properly Sakhalin Energy Russian Content require- assurance measures that are specified observance, and promotion of human sufficient market capacity exists; • the company raises awareness and followed; ments have arisen from the Production in the Policy and other Policy-based rights by the counterparties; conducts training in order to ensure Sharing Agreement concluded with the documents. • distributing Invitations to Tender (ITTs) compliance with its requirements • independently evaluate the HSE Russian party. The parameters being • sustainable development—ensuring sus- and Clarification Bulletins; (including those related to HSE and management system for compliance used to measure the Russian content Sakhalin Energy adheres to the following tainable development in the process of social performance, anti-corruption with generally recognised standards; are weights of material and equipment, SCM principles: selecting a counterparty and in making • submitting bids (proposals); and bribery, human rights, etc.); man-hours and their cost equivalents. supply chain management decisions.

56 57 Stakeholder Engagement Management Requirements for a Tender Proposal • a quality assurance system and procedure are in place; A tender proposal shall clearly demon- strate and confirm the following: • resources are available to meet the work / supply schedule. • a company is financially stable and solvent;

• a company has the relevant experience;

• services provided, works performed, and materials supplied are high quality and reliable;

• HSE management systems and procedures are in place;

6.5. Vendor Development Programme

For several years, Sakhalin Energy has Open Workshop for Potential Contrac- been actively implementing the Russian tors and Vendors (Joint Vendor Day) Vendor Development Programme, which main purpose is to offer greater Joint Vendor Day for potential Russian opportunities to Russian businesses and contractors and contractors of Sakhalin-1 to increase the Russian content in the and Sakhalin-2 projects was held in Sakhalin-2 project. Moscow in June 2015. This event, the first of its kind, was organised in An important component of the Vendor cooperation with Exxon Neftegas Limited. Development Programme is its edu- The purpose of the workshop was to cational module that provides regular identify potential opportunities for workshops on the following important Russian companies to participate subjects: in supplying materials and providing services for the projects. • HSES; The workshop was attended by • Quality Management System; representatives of over 70 companies (including Sakhalin companies) from • Tendering skills. different sectors of business.

As part of the Vendor Development In addition to offering the training Programme, in 2015, the company held module, the Vendor Development 15 workshops for potential contractors Programme targets particular Russian of Sakhalin Energy, including one off-site companies to ensure that they receive workshop in Moscow. The workshops the technical qualifications necessary to were attended by more than 238 special- be added to the approved vendor list of ists from 99 Russian companies, includ- Sakhalin Energy. ing 60 Sakhalin companies.

58 59 7. Stakeholder Engagement Management

7.1. Engagement Strategy, Principles, Mechanisms, and Tools

Assuming that regular and meaningful Sakhalin Energy’s engagement with The selection of the most effective engagement with communities and key stakeholders is based on its commitments mechanisms and tools is determined by stakeholders is an important element of as set forth in key corporate documents, the goals and objectives of engagement successful operations, Sakhalin Energy which include: and depends on a particular stakeholder has been sharing information and group (see Public Consultation and consulting with stakeholders since the • Statement of General Business Principles; Disclosure Plan at the company website). About 3000 start of the Sakhalin-2 project. • Code of Conduct; people visited Stakeholders are organisations, com- panies, individuals, or groups who have • Sustainable Development Policy; Sakhalin Energy a vested interest in the company or the project, i.e. individuals or entities that are • Health, Safety, Environment, and Social information centres influenced by the company or themselves Performance Policy and Commitments; influence or can potentially influence the in 2015. company operations. • Social Performance Standard of the Company (Public Consultation and The company has defined the stakeholders Disclosure section); to include the following key groups: shareholders, personnel, lenders, • Public Consultation and Disclosure government authorities, customers, Plan (updated annually). suppliers and contractors, community, stakeholders in Japan, international These documents define the strategy, organisations, public organisations and principles, process, mechanisms, and other non-governmental and non-profit tools of stakeholder engagement and are organisations, mass media, etc. available to the general public.

Company Stakeholders

Community Contractors

Authorities Japanese stakeholders

Shareholders International organisations COMPANY Lenders NGOs

Customers Media

Company personnel Other stakeholders

60 61 7. Stakeholder Engagement Management

7.2. Stakeholder Engagement Performance in 2015 7.3. Engagement with Personnel

In 2015, Sakhalin Energy continued • work of the company’s information Key statistics on engagement in 2015: systematic and consistent engagement centres established in local libraries with key stakeholders. (for more details, see Section 7.4); • 11 public meetings held in commu- nities located near the company’s The key activities included the following: • engagement with indigenous people un- facilities, with the participation of der the Sakhalin Indigenous Minorities 68 Sakhalin residents; • engagement with personnel (for more Development Plan (for more details, see details, see Section 7.3); Section 7.5); • 2,919 visitors to the information centres; • public, group and individual meetings • engagement with non-governmental to update the participants on the latest and non-profit organisations (for more • 2 rounds of public consultations under development and other aspects of details, see Section 7.6); the preparation of Sakhalin Indigenous the company activities and to receive Minorities Development Plan 3 (for feedback; • engagement with Japanese stakeholders more details, see Section 9.5.8.4); (for more details, see Section 7.7); • information sharing through the • 2 rounds of dialogues with the stake- company website, Energy weekly TV • engagement with customers, suppliers, holders as part of preparation of the programme broadcast on Sakhalin, and contractors (for more details, see Sustainable Development Report. Vesti monthly corporate newspaper; Sections 7.8, 6.4, and 6.5); distributing information reports and Moreover, to prepare non-financial printed materials in the communities • engagement with state and local reports in accordance with international and through the media (radio, government authorities (for more standards, additional opinion surveys Engagement with personnel is an impor- employees are interested in sports, were continued. These sessions raise newspapers, TV); details, see Section 7.9). and meetings with stakeholders were tant component of strengthening and to identify staff commitment to work employees’ awareness about the work held to determine the range of topics developing the company corporate culture safety in winter conditions, etc.); and achievements of various depart- to be included in the Report (for more (see Section 5.4 Corporate Culture) and is ments and are very popular among the details, see Section 2 About the Report). carried out, among other ways, through • Vesti corporate newspaper and various staff; the internal communication system, informational and reference materials. which includes the following: Vesti is distributed within the company, • corporate intranet site available to all sent to the information centres, and the employees where they can find • regular staff communication sessions posted on the website; information on the company’s activities Stakeholder Engagement Process to inform the employees of the results and documents, including policies, of the meetings of the Committee • news releases distribution through the procedures, schedules, etc. of Executive Directors, the Board of daily news bulletin and email messages Directors, and the Supervisory Board on behalf of the company directors; The 100 Workshop Identification STRATEGY Improvement as well as other important events in of interests and potential Sakhalin Energy; • distribution of printed information The 100 Workshop was traditionally held • Regular and constructive issues engagement materials such as posters, leaflets, in November 2015. This was the seventh • opinion surveys. In 2015, a regular brochures, etc. to inform the employees annual workshop. About one hundred • Open and wide informing survey was conducted to study the about the various aspects of safety, employees attended it. Along with the opinion of the company’s employees. operational excellence, HR issues, and directors, the company’s leadership Identification of stakeholder KEY PRINCIPLES Analysis and controls The questions concerned personnel upcoming events; forum members and heads of business • To be constructive engagement, their attitude toward units, representatives of all directorates and target-oriented the company and its management, • posting advertisements, posters, and participated in its work. The results of • To be open and transparent responsibilities, working conditions, other information on special informa- the discussions formed the basis of the Scope of engagement, • To hold positive relationships teamwork, participation in the company tion boards in the company’s offices; Journey Book for 2016–2020, with a methods and tools • To apply efficient mechanisms, Plans implementation, held activities, and respect for national, focus on the objectives for the next year. opinion exchange regarding keeping records of results cultural, and individual differences. In • training workshops and information issues and ways for solution addition, quick polls on various subjects sessions to explain new procedures Development of engagement plans were published on the corporate and programmes of the company. For intranet website (to find out if the example, lunch-and-learn sessions

62 63 7. Stakeholder Engagement Management

7.4. Local Communities Engagement Through 7.5. Engagement with the Sakhalin Indigenous the Company Information Centres Minorities (SIM)

The information centres established at The work of the information centres The Donated Book Project district and village libraries are located in included the following: the communities along the trans-Sakha- In 2015, the company continued The lin pipeline system and in close proximity • regularly updating materials of the com- Donated Book project. The company to other company’s facilities. They are pany’s information stands; donated sets of books on the history of equipped with required office equipment, Russian literature and about the winners computers with Internet access, and • helping people find information on the of the Nobel Prize for Literature to information stands. This helps meet the company website; 25 libraries of Sakhalin Island, including company’s objectives and increase the 23 libraries that host the company infor- functional capacity of the libraries. • providing assistance to the community mation centres and two regional libraries. in preparing and submitting complaints The selection of books is not random, The librarians provide consultations to in accordance with the Community as 2015 was announced the Year of information centre visitors on the issues Grievance Procedure; Literature in the Russian Federation. related to the company activities during working hours. • providing requested company informa- In 2015, 2,919 people visited Sakhalin tion materials; Energy information centres. The statis- In December 2015, the librarians tics is presented in the Statistics about participated in the regular workshop • providing support in carrying out compa- Inquiries at the Information Centres in to obtain first-hand knowledge of the ny’s social campaigns in the communi- 2015 chart. company’s activities. ties (e.g., St. George’s Ribbon campaign).

The company considers the SIM to be a Sakhalin, Sakhalin Oblast Government, declarations translated into the lan- special group of stakeholders for which and Sakhalin Energy), a SIM representative guages of the four major ethnic groups the issues of industrial and environmental in the Sakhalin Oblast Duma, a representa- of indigenous people living on the island; safety, as well as of preservation of their tive of the Sakhalin Public Chamber, a Statistics about Inquiries at the Information Centres in 2015, % culture, are of paramount importance. representative of the Russian Association • prepared and published a calendar for Sakhalin Energy takes this into account of Indigenous Minorities of the North 2016 in the languages of the Sakhalin in its operations and implementation of (RAIPON), and an external expert. The Indigenous Minorities. The calendar 2 Vesti corporate newspaper social programmes. objectives of the Working Group were was prepared with the support of native to jointly prepare consultations with the speakers, representatives of the Sakha- 13 28 General information about the project (website, Since 2006, the company has been indigenous people of Sakhalin Oblast, lin Indigenous Minorities, as well as the information stands, printed materials) implementing the Sakhalin Indigenous to respond to their concerns and wishes Institute of the Peoples of the North of Minorities Development Plan (hereinafter— regarding SIMDP 3, and to develop the Herzen State Pedagogical University of Employment the SIMDP or the Plan; for information Plan (for information on preparing SIMDP 3, Russia; about the Plan, see Section 9.5.8). see Section 9.5.8 Sakhalin Indigenous Social programmes Following the recommendations of Minorities Development Plan). • jointly with the Sakhalin Oblast Govern- the stakeholders received during the ment, implemented a special project 29 23 Series of books about the nature of Sakhalin Island preparation of SIMDP 2 for 2011–2015, Since 2006, the SIMDP has been the key dedicated to the anniversary of Vladimir in 2015, the partners focused on raising document that Sakhalin Energy uses in Sangi, the classic author of Nivkh 5 Other (environmental protection, the programme the community awareness about the its work with the SIM. In addition, the literature, to preserve and promote the for safe behaviour on the pipeline route, etc.) programmes implemented and the new company implements other projects cultural and linguistic heritage of the opportunities (see www.simdp.ru). related to indigenous ethnic groups. In Sakhalin Nivkhs using his work as an 2015, the company: example. On 18 March 2015, Vladimir In early 2015, the final year of SIMDP 2 Sangi celebrated his 80th birthday. implementation, a Working Group was • jointly with the Office of the UN High formed to develop SIMDP 3 for 2016–2020. Commissioner for Human Rights in The most significant project events in This group consisted of representatives Russia, published a collection of basic Russia and abroad: of three partners (the Regional Council United Nations documents in the of the Authorised Representatives of the languages of the Sakhalin Indigenous • Preservation and Promotion of the Indigenous Minorities of the North of Minorities. This edition includes the Cultural and Linguistic Heritage of the

64 65 7. Stakeholder Engagement Management

Sakhalin Indigenous Minorities (Nivkhs) North 2015 Exhibition-Fair. The main Sakhalin Energy’s “Sakhalin: Cultural Message from Ms Irina Bokova, Director-General of UNESCO round table at UNESCO Headquarters idea of the exhibition was to introduce Heritage of Mankind” exhibition received on the occasion of the 80th anniversary of Vladimir Sangi in Paris (see Section 7.10 International the general public to the literary world of an award in the “Best Thematic Exhibition: and Regional Cooperation). By decision Vladimir Sangi and give every visitor an Relevance and Professionalism” category I wish to extend my greetings to all the participants of the Inter- I believe that it is only by joining the effort of government, of the Minister of Foreign Affairs of the opportunity to read the digitised works of at the 10th International Treasures of the national Round Table on Preservation and Promotion of Cultural business, and civil society that the challenges facing the world Russian Federation Sergey Lavrov, the the author and receive his autograph; North 2015 Exhibition-Fair. and Linguistic Heritage of the Sakhalin Indigenous Minorities today can be addressed effectivity. I am pleased that this Inter- event was held under the auspices of the (the Nivkhs), which is timed to coincide with Mr Sangi’s anniver- national Round Table, organised with the Sakhalin Government Commission of the Russian Federation • meeting of the writer with readers at the The company’s dedication of communicating sary. and Sakhalin Energy, builds on strong support from the local for UNESCO; Ethnomir Ethnographic Park-Museum; with the SIM was highly acknowledged at indigenous peoples and their contribution. Such cooperation the following events: UNESCO has always highlighted the importance of preserving creates new opportunities for society to effectively address social • publication and presentation of a • two exhibitions at Sakhalin Regional cultures, languages, traditions, and identities of indigenous issues, including those connected with safeguarding culture and collection that included the works of the Art Museum, which completed the • parliamentary hearings on “Legislative peoples. Education in mother language is an essential part of cultural diversity, on the basis of human rights, as a wellspring classic writer; programme of events. The first exhibition Support for the Livelihoods of the Indige- achieving these goals. Regrettably, half of the 7,000 contempo- of identity, inclusion and sustainable development. called “Tales of the Nivkh Land” displayed nous Peoples of the North, Siberia, and rary languages in the world are endangered. These include the • digitisation of the writer’s works and the results of the literary and art contest the Far East of the Russian Federation” languages of the indigenous peoples of Sakhalin, include the I am confident that this initiative will send a strong message their publication on the Russian State in which more than 200 children aged (Russian State Duma) in April; Nivkh language. to all societies about the important contribution of indigenous Library website (www.rsl.ru), which was 3 to 14 years old from different parts of peoples to innovation and creativity, as well as to cultural a joint project of the company and the the region took part. The second exhibi- • 17th International Ethnic Reality Scien- Vladimir Sangi is rightly recognised as the founder of the Nivkh diversity. Russian State Library; tion, “The World of Nivkhs,” displayed tific and Practical Conference (Herzen literature and the modern Nivkh alphabet. One cannot overesti- paintings, graphics, sculptures, works of State Pedagogical University of Russia) mate Mr Sangi’s role in preserving the culture and language of • preparation of a series of printed decorative and applied arts representing in November. the Nivkh people, as the developer of Nivkh spelling rules, the products to promote linguistic heritage: the life of the Nivkhs: people, traditions, author of ABC books for Nivkh schools, and a translator of the books, postcards, bookmarks with the and ethnographically precise details of classics of Russian literature into the Nivkh language. writer’s poems, puzzles, etc.; everyday life.

• information board presentation about the culture and languages of the Sakhalin Indigenous Minorities under the 10th International Treasures of the

66 67 7. Stakeholder Engagement Management

7.6. Engagement with Non-Governmental and Non-Profit Organisations 7.8. Engagement with Customers

In 2015, the company continued to cooperate • collaboration with the Western Gray with local, regional, and international public Whale Advisory Panel (WGWAP) to organisations in various forms, including develop optimal solutions to minimise meetings and correspondence. Among the the impact on whales. Within the frame- important areas of engagement are: work of the consultations of the Advi- sory Panel in 2015, there were meetings • collaboration with Japanese stakeholders: of Sakhalin Energy representatives with Hokkaido authorities, Hokkaido fishery scientist members of the Panel, as well associations, and other stakeholders in as representatives of environmental Hokkaido regarding oil spill response organisations included in the WGWAP and preservation of biodiversity as observers. (see Section 7.7 Engagement with Japanese Stakeholders);

7.7. Engagement with Japanese Stakeholders Maintaining constructive, respectful discussion includes issues of transporta- on the commercial transportation of oil Engagement with Japanese stakeholders • meeting with the Hokkaido Fisheries relationships with customers helps the tion, maintenance, safety, environmental and gas under the Sakhalin-2 project. The is of special importance to Sakhalin Environmental Centre (February, company resolve operational challenges protection and many others. conference discussed the issues related Energy, considering the geographical Sapporo, Japan); that arise in the course of oil and LNG to the prospects and opportunities of the proximity of the Sakhalin Island to the contract execution and enter into new In March 2015, Yuzhno-Sakhalinsk hosted maritime transportation market, ship- Hokkaido Island. Japanese specialists, • participation in the meeting of stake- agreements with the best terms and condi- the Annual LNG Buyers Forum for entities building development, and improvement businessmen, and representatives of holders on safety and prevention of tions for both parties. During the reporting that charter vessels for delivering LNG from of shipping management. The conference NGOs, fishermen, and other stakeholders accidents during navigation of tankers year, there were no complaints from the Prigorodnoye port. The forum was attended participants discussed the issues related are concerned about issues related to as part of Sakhalin projects. The customers about the quality or delivery by 19 representatives of seven LNG buying to improving and optimising marine indus- environmental aspects of the company’s meeting was organised by the Japanese terms of Sakhalin Energy’s products. companies from Japan and South Korea. try operational processes, the organisation activities — for example, oil spill response Coast Guard (May, Tokyo, Japan); and performance of vessel-to-vessel cargo operations and biodiversity preservation. Partnerships with the customers and The 6th Annual Oil Buyers Forum was held operations, modern systems for ballast • participation in the Forum on Sakhalin reliable supplies of hydrocarbons are in August 2015. Among the participants water management, etc. The conference The company has been successful in Projects (September, Rumoi, Japan). among the company’s priorities. In May were employees of nine customers: Tonen was attended by 26 representatives of establishing a regular, open, and con- 2015, Sakhalin Energy held a regular General, Mitsui & Co. Energy Trading, GS shipowners providing vessels to Sakhalin structive dialogue with Japanese stake- annual customers reception in Tokyo. Caltex, JX Nippon Oil, Fuji Oil, SK Energy, Energy for short- and long-term charter. holders. During 2015, Sakhalin Energy The event was attended by over 200 Cosmo Oil, Idemitsu Kosan, Showa Shell, held a number of consultations and people, including representatives of oil as well as representatives of the Sakhalin Such forums allow participants to meetings with the Japanese stakeholders, and gas-buying companies, international Energy shareholders, Mitsui and Mitsubishi. strengthen business relations and share including: financial institutions acting as lenders, It was the first time the representatives the unique experience gained during the representatives of the Russian party, and of SK Energy, Cosmo Oil, Idemitsu Kosan, implementation of the Sakhalin-2 project. • meetings with representatives of the company shareholders. The participants and Showa Shell visited Sakhalin, which Hokkaido Government (February, discussed the prospects of cooperation indicates the growing interest of the Sapporo, Japan); and stressed the importance of the further Asia-Pacific oil refineries in the Sakhalin-2 development of Sakhalin-2 project. project. • participation in the 30th International Symposium on the Sea of Okhotsk The company holds annual forums with In August 2015, Yuzhno-Sakhalinsk hosted (seminar on oil spill response — customers that help foster constructive the 10th Annual Conference on Maritime February, Mombetsu, Japan); relationships. The range of topics for Hydrocarbon Transportation, which focused

68 69 7. Stakeholder Engagement Management

7.9. Engagement with State and Local Government Authorities 7.10. International and Regional Cooperation

In 2015, Sakhalin Energy continued to LNG Congress of Russia 2015, Russian–Japanese Forum on Cooperation vigorously promote its business reputa- 31 March – 2 April, Moscow. in Business, Investment, and Sport, tion and image as a socially responsible 21 May, Tokyo (Japan). company both within and outside of the The international event was held to Russian Federation. The participation address the issues of production develop- The aim of the international event was in prestigious Russian and international ment and the use of liquefied natural gas to facilitate a direct dialogue between forums enables the company to determine in Russia. At the congress, the company the representatives of business, science, and put into practice the most advanced presented information on the Sakhalin-2 culture, and sports in Russia and Japan. Russian and international experience and project, the first and the only supplier of The forum was organised by Rossiyskaya best practices in sustainable development LNG in Russia. Gazeta and Mainichi Shimbun, a Japanese and corporate social responsibility, which national newspaper. At the forum, the is necessary for the company to maintain Charity in Provincial Russia Conference, company presented information about the its leading position in this area. 15 April, Moscow. Sakhalin-2 project, cooperation between Russia and Japan under the project, and Sakhalin Energy attended a number of The company was a partner of the con- plans for company development. important international and regional ference and participated in the discussion events, including: platform Charity in the Regions: Chal- 9th Asia LNG Summit held under the lenges of the time. Views of the regions auspices of the China Petroleum and 14th Annual LNG Conference, and the centre, and shared its experience Petrochemical Engineering Institute, 26–27 February, Houston (USA). at the Partnership in Solving Local Prob- 27–28 May, Beijing (China). lems session. Since the start of the Sakhalin-2 project, was routine interaction at a working level Individual Aspects, Indicators and/or The international conference dedicated to The summit was dedicated to the LNG Sakhalin Energy has been engaging with on various issues of the project, includ- Programmes and Company’s Response the issues of production, transportation, 10th International Treasures of the North industry in Asia (in particular, in China). It various state authorities of the Russian ing waste management, reconstruction and Commitments. and LNG marketing. 2015 Exhibition-Fair, 22–26 April, Moscow. was attended by about 200 representatives Federation, including the legislative and of the road section near the LNG plant, from 15 countries—existing and potential executive bodies of federal, regional and border clearance of tankers at Prigorod- Round Table on Preserving and Promoting The exhibition was held to celebrate the LNG buyers from China, foreign LNG local levels. noye port, and many others. the Cultural and Linguistic Heritage of 25th anniversary of the foundation of the suppliers, and experts from Asia. Sakhalin Sakhalin Indigenous Minorities (Nivkhs), Russian Association of the Indigenous Energy delivered a report entitled LNG In 2015, as in the previous years, Representatives of state authorities 18 March, Paris (France). Peoples of the North, Siberia, and the Supply from Russia to Asia: Experience of engagement with state authorities was regularly participate in dialogues with Far East of the Russian Federation. Sakhalin Energy. carried out in various ways, the most the stakeholders conducted by the The event was held at UNESCO Headquar- Together with the Association, the significant of which is the work of the company during the preparation of this ters. It was organised by the Permanent company organised The Soul of the North 18th Annual General Meeting of the official groups of the Sakhalin-2 project, Report. The results of the 2015 dialogues Mission of the Russian Federation to UNESCO, literary readings dedicated to the works European Business Congress, 28–29 May, such as the Supervisory Board (SB) and are presented in Appendix 2 Comments the Sakhalin Oblast Government, and of writers and poets of the indigenous Belgrade (Serbia). the SB Working Group. Besides, there and Suggestions of Stakeholders on Sakhalin Energy. The objective of the round people of the North, Siberia, and the Far table was to contribute to the preservation East. The company received an award in The congress deals with practical issues of and promotion of the cultural and linguis- the Best Thematic Exhibition: Relevance economic cooperation, the development of tic heritage of the Sakhalin Nivkhs using and Professionalism category. proposals to remove obstacles and create the works of Vladimir Sangi as an example. favourable conditions for an effective and Parliamentary Hearings on Legislative safe business environment. 5th International Conference HSE in Oil Support of Livelihoods of Indigenous and Gas. Russia and CIS, 30–31 March, People of the North, Siberia, and the Far Round Table on Corporate Social Respon- In 2015, the Coordination Council for cooperation between the Administration of Moscow. East of the Russian Federation, 23 April, sibility and Social Partnership: Models of Yuzhno-Sakhalinsk and Sakhalin Energy was established to effectively deal with Moscow. Effective Cooperation and Development various operational and long-term tasks. Its working groups deal with the safety The international event was dedicated to Prospects, 31 July, Khabarovsk. the issues of environmental and industrial At the hearings held at the RF State Duma, and environment issues, the development of operations and office infrastructure, safety, energy efficiency, and health. At the the company presented its experience of The company delivered a report on modern education, establishment of the Sakhalin Tekhnopark, as well as land use and conference, Sakhalin Energy shared its engagement with the indigenous people of trends in corporate philanthropy and legislative compliance. experience in environmental and industrial the North. presented its social programmes. safety under the Sakhalin-2 project.

70 71 Environmental Impact Management Eastern Economic Forum, 3–5 September, Shanghai International Petroleum the 70th anniversary of the United Nations Vladivostok. Petrochemical Natural Gas Technology Organisation. During the round table, the Equipment Exhibition (SIPPE 2015), company shared its experience in the use It was the first economic forum to be 24–26 November, Shanghai (China). of the Guiding Principles on Business and attended by more than 1,500 delegates Human Rights. including officials, business representatives, During the business programme, the and experts from 26 countries of South- Sakhalin Energy delegation learned about 4th St. Petersburg International Cultural East Asia, Europe, and America. At the modern technologies and innovative Forum, 14–16 December, St. Petersburg. forum, the company delivered a report on solutions in the oil and gas industry, met the Sakhalin-2 project and the measures with the leaders of the largest industrial oil The company participated in the Charity aimed at the conservation of gray whales and gas companies, discussed the issues in Culture panel discussion organised as listed in the Red Book of Russia. of equipment supplies, etc. part of the programme of the education section, and shared its experience of social 19th International Conference Sakhalin Oil Leaders of Corporate Philanthropy, investment in the cultural sector. and Gas-2015, 28 September – 1 October, 25 November, Moscow. Yuzhno-Sakhalinsk. The company participated in the business It is the only international event dedicated part of the award ceremony of the 8th to oil and gas projects of Sakhalin and the Annual Leaders of Corporate Philanthropy Far East, where the participants discuss project and presented its cultural develop- issues of energy supply to the growing ment projects. economies of the Asia-Pacific Region. Sakhalin Energy presented several reports 4th International Scientific Conference related to the status of work under the Environmental Safety in the Gas Industry Sakhalin-2 project, LNG production, safety (ESGI 2015), 2–3 December, Moscow. and environmental responsibility, import substitution, marine transportation, etc. At the conference, Sakhalin Energy pre- sented information on the drilling waste Far-East Civil Forum, 15–16 October, re-injection technologies in the framework Khabarovsk. of the Sakhalin-2 project.

The company participated in the forum 4th Moscow Forum Corporate Volunteer- and shared its experience in corporate ing: Business and Society, 8 December, philanthropy and evaluation of social Moscow. programmes. The company delivered a report entitled 4th Annual UN Forum on Business and Professional Skills and Competencies for Human Rights, 16–18 November, Geneva the Benefit of Society: Myth, Reality, or (Switzerland). Prospects for the Development of Corpo- rate Volunteering. The company gave a presentation entitled Indigenous Peoples: An Effective Grievance Round Table on Business and Human Mechanism Rights: Promotion and Implementation of the Guiding Principles on Business and PEOPLE INVESTOR Business Forum, Human Rights, 9 December, Moscow. 19 November, Moscow. The event was organised by the Office of The company made a presentation on its the United Nations High Commissioner partnership initiative in road safety. for Human Rights and Sakhalin Energy. The event was held in the celebration of

72 73 8. Environmental Impact Management

The environmental policy of the company implementing industrial environmental con- National Rating Agency. The rating is is a part of the company General Business trol, environmental monitoring, and biodi- aimed at promoting the efficient use of Principles, Sustainable Development Policy, versity conservation. hydrocarbon resources, environmental and HSE and SP Policy and Commitments. protection, and socially responsible In 2015, Sakhalin Energy was ranked business administration. In 2015, Sakhalin The environmental management system is third in the annual Environmental Re- described in Section 3.5 on HSE and Social sponsibility Rating of Oil and Gas Com- The list of rated companies included Energy was ranked Performance Management. In its environ- panies in Russia. The company was also leading oil and natural gas producers mental protection activities, the company given an award for its contribution to the (over 1.5 mln t per year). third in the annual follows the Russian Federation legislation development of corporate biodiversity on environmental protection, taking into conservation programmes. According to its organisers, the rating Environmental account the international standards and “is an opportunity to effectively influ- Responsibility best international practices of the oil and The rating is run by the World Wildlife ence the environmental decisions made gas industry. Fund (WWF) of the Russian Federation by oil and gas companies, reinforcing Rating of Oil and Gas and CREON Energy, the provider of the feedback channels between the The environmental management system of advisory services to the fuel and energy industry and the society.” Companies the company is focused on organising and industries, with the participation of the in Russia, and was given a special award 8.1. Industrial Environmental Control for its contribution Sakhalin Energy exercises industrial envi- 8.1.1. IMPACT TO THE ATMOSPHERIC AIR ronmental control of its assets to ensure to the development the compliance with legislation on environ- Sakhalin Energy seeks to minimise envi- The company uses fuel tanks equipped mental protection, to observe established ronmental impact, including by reducing with fuel vapour recirculation system noz- of corporate pre- environmental regulations, and to provide air emissions. zles connecting the tank with the tanker. the rational use of natural resources and serving biodiversity fulfilment of the plans for minimising the In order to reduce emissions, the com- This leads to the reduction of volatile programmes. environmental impact. pany uses gas turbines equipped with hydrocarbon emissions by 90% during the low-NOx burners. A system that increases refuelling operations. The company exercises industrial environ- gas turbulence is used on flaring units, mental control in the following areas: which facilitates the gas flaring in a soot- In 2015, the total gross emissions re- free mode. mained at the previous year’s level. • air emissions control; Gross Air Emissions in 2012–2015, thousand t • water use and discharge control; Pollutant 2012 2013 2014 2015 • waste management control. Carbon oxide 4.0 4.3 4.2 4.1 Nitrogen oxide (in NO equivalent) 4.7 4.8 4.1 4.1 The company has developed and 2 implements the Air Emissions and Methane 0.86 1.08 1.1 1.0 Energy Management Standard, Water Sulphur dioxide 0.06 0.07 0.05 0.04 Use Standard, and Waste Management Other pollutants 1.08 1.15 1.15 1.1 Standard. Total 10.7 11.5 10.6 10.3

74 75 8. Environmental Impact Management

Consolidated Figures of Water Use in 2012–2015, thousand m3

29,538.09 28,858.15 25,999.47 2012 28,483.93 387.88 25,142.98 3,390.75 25,866.29 122,3

28,041.90 27,313.55 23,843.03 2013 26,981.85 316.76 22,862.17 4,099.38 23,602.49 229.09

27,991.58 27,432.14 23,003.41 2014 27,094.88 300.78 22,344.33 4,765.14 22,803.91 169.72

29,489.71 28,573.81 23,212.21 2015 28,225.09 310.19 22,126.72 6,104.22 22,988.01 193.56

Water intake, including: Water consumption, including: Water discharge, including: from surface sources for production needs (not including consump- into surface water bodies from underground sources tion for reservoir pressure maintenance needs) on the surface for reservoir pressure maintenance needs

Specific Air Emissions in 2015, by areas of activity 8.1.3. WASTE MANAGEMENT Activity Value UoM The objectives of the company with regard • separating waste to allow for reuse Waste Breakdown by Hazard Class in 2015 Hydrocarbon production 0.19 kg/toe to waste management are to: or recycling, reusing containers and (not including drilling waste), % Hydrocarbon transportation 0.06 kg/thousand t-km packaging, recycling waste back into the • comply with regulations and other plant process, recycling materials where I II LNG production 0.24 kg/toe requirements; a market solution is available; 0.06 0.99 III 8.1.2. IMPACT ON WATER BODIES • protect the environment and minimise • utilising wastes by reusing, recycling, or 9.86 risk relating to waste management; recovering energy from the waste; The company strives to reduce water No unit exceeded water intake limits Environmental monitoring did not reveal consumption for production needs and to set for 2015. The water disposal level any adverse impact on the water bodies • provide reliable waste management • treating waste to reduce risks via minimise the environmental impact from remained the same as in the previous year. located in the area of the company pro- solutions to support projects and decontamination or volume reduction; wastewater discharge. Only 1% of the wastewater was insuffi- duction assets. operations; ciently treated, 4% of wastewater treated • disposing in a safe and secure location V In 2015, the total water intake remained to standard quality, and the other 95% met • optimise waste management by applying such as a landfill that meets regulations. 42.18 at the previous year’s level. minimum standards without treatment. the Waste Management Hierarchy and encouraging a healthy company culture Most of the company waste is classified IV regarding environmental waste manage- as low-hazard (hazard class IV and V); it is 46.91 Specific Water Use in 2015, by areas of activity ment. mainly drilling waste and solid household waste. Water consumption Disposal of polluted water The Waste Management Hierarchy lists the Activity for in-house needs into surface water bodies UoM following solutions, ordered from highest Compared to the previous year, the total Hydrocarbon production 1.0 0.002 m3/toe to lowest priority: volume of waste decreased by 68% due to reductions in the amount of drilling waste, Hydrocarbon transportation 0.001 – m3/thousand t-km • avoiding waste by choosing alternative associated water, and water used for in- LNG production 0.01 0.001 m3/toe design, maximising use of raw materials ternal production and technological needs before they become waste, avoiding that is disposed of deep in the subsoil. packaging;

76 77 8. Environmental Impact Management

Energy Consumption in 2015, %, As compared to 2014, the volume of waste Waste Management Indicators (including drilling waste) in 2012–2015, thousand t 8.1.4. ENERGY Yuzhno-Sakhalinsk and Korsakov infra- by areas of activity transferred for use or disposal decreased structure assets are power-supplied from 2012 2013 2014 2015 by 24% due to a reduction in the total Sakhalin Energy is committed to using the central electrical networks but generate 3.9 Amount of waste at the beginning volume of hazard class II waste generated 0.000097 0 0 0 materials and energy efficiently when their own energy for heat supply. The energy as well as due to the increase in hazard of the year (all hazard classes) providing products and services. To fulfil consumption balance is shown in the table. Waste generated in the reporting year class III waste used at the company. 105.37 154.07 95.87 30.52 its commitment, the company implements (all hazard classes) efficient and lean production methods. Sakhalin Energy assets are highly energy 21.5 The volume of waste disposed at landfills Waste used for internal production 0.04 0.04 0.01 0.02 efficient and meet international standards. in 2015 decreased by 25% compared to The company assets were built based on In 2014–2015, specific energy consumption Transferred to other organisations the previous year since it was temporarily 6.86 2.72 2.37 1.81 modern technologies and state-of-the-art by the assets producing hydrocarbons was impossible to dispose waste at the for use and disposal solutions in the oil and gas industry. All pro- less than 1 GJ/t of hydrocarbons produced. Transferred to other organisations Sakhalin Oblast landfills. A portion of the 4.05 3.60 2.67 2.01 duction assets have their own autonomous The value of this indicator for hydrocar- waste was transferred for disposal at for burial at landfills, including: power supply sources. Process equipment, bon-producing assets was 1.4 GJ/t of hy- landfills in other regions. Waste accumu- in the Sakhalin Oblast 3.22 3.46 2.52 1.82 boiler units, and power plants run on gas. drocarbons produced in 2014, according to lated at the end of the year will also be Diesel fuel is used for assets standby power the International Association of Oil and Gas 74.6 transferred for disposal in 2016. outside the Sakhalin Oblast 0.83 0.14 0.15 0.19 supply, with low-sulphur fuel preferred. Producers.

Waste disposed at own facilities Energy Consumption Balance of the Company in 2013–2015, mln GJ 94.42 147.71 90.82 26.54 (burial of drilling waste) LNG production Amount of waste at the end of the year 2013 2014 2015 0 0 0 0.14 (all hazard classes) Primary energy generated 867.80 864.92 846.85 Hydrocarbon production Primary energy sold, including: 758.39 754.16 790.36 Specific Energy Consumption, by areas of activity Hydrocarbon transportation energy transferred to the Russian party 51.42 53.58 38.61 Activity Value UoM Primary energy consumed, including: 58.89 58.45 58.26 Hydrocarbon production 0.71 GJ/t of hydrocarbons produced energy direct consumption* 56.93 56.59 56.45 Hydrocarbon transportation 0.14 GJ / thousand t-km primary energy acquired 1.96 1.86 1.81 LNG production 4.01 GJ/t of LNG produced Secondary energy acquired / consumed 0.12 0.12 0.11 * Generated from the natural gas produced 78 79 8. Environmental Impact Management

8.1.5. GREENHOUSE GAS AND OZONE-DEPLETING SUBSTANCE EMISSIONS 8.1.6. UTILISATION OF ASSOCIATED GAS IN PRODUCTION Sakhalin Energy shares the global concern GHG Emissions in 2015, %, by areas The company strives to reduce associated about climate change and routinely of activity gas flaring to a minimum. Associated gas measures and controls greenhouse gas 3.6 produced at PA-A and PA-B platforms is (GHG) emissions in compliance with the transported via offshore pipelines to the Petroleum Industry Guidelines for Reporting shore. PA-A and PA-B gas is transported Greenhouse Gas Emissions developed by to the northern gas transfer terminal, and the American Petroleum Institute (API). excess gas goes to OPF, where it is mixed Greenhouse gases include the following with LUN-A gas for further transportation substances: carbon dioxide, methane, 25.7 to the LNG plant and the Southern Gas dinitrogen monoxide, and hydrofluorocar- Transfer Terminal. A part of the associated bons (HFC). In 2015, the global warming gas is used as fuel for production assets. potential (GWP) indices of greenhouse gases changed. Currently, the company does not re-inject associated gas into the reservoir. 8.1.7. ENVIRONMENTAL PROTECTION COSTS AND PAYMENTS FOR THE NEGATIVE IMPACT GWP Indices of Greenhouse Gases in 2014–2015 70.7 The company has included targets for To comply with international standards and • Amur Water Basin Committee of the Environmental Operating Expenses Greenhouse gas 2014 2015 associated gas utilisation in the Reservoir Russian legislation, Sakhalin Energy im- Federal Water Resources Agency; Breakdown in 2015, % Methane 21 25 Management Plans for the PA-A, PA-B, plements measures to protect the environ- LNG production and LUN-A platforms. The actual associated ment. The cost of these measures in 2015 • Ministry of Natural Resources and En- 1 3 Dinitrogen monoxide 310 298 gas utilisation in 2015 was 96.1%. was 2,248 mln roubles. vironmental Protection of the Sakhalin Hydrofluorocarbons 1300 1430 Hydrocarbon production Oblast. 17 Utilisation of Associated Gas During The actions of Sakhalin Energy to protect 17 The company emitted slightly more Hydrocarbon transportation Production in 2015, % the environment are overseen by federal In 2015, regional offices of federal super- greenhouse gases in 2015 compared to the and regional authorities, including: visory agencies conducted inspections and 6 previous years. This is because the GWP Structure of GHG Emission Sources 3.9 revealed violations related to permission indices for greenhouse gases were changed in 2015, % • Ministry of Natural Resources and Envi- documentation. and emissions from acid gas incineration ronment of the Russian Federation; during LNG production were added. Source % No significant violations of environmental • Federal Service for Surveillance on legislation that could have had a negative Fuel consumption 89.510 GHG Emissions in 2013–2015, Consumer Rights Protection and Human impact on the environment were identified Gas flaring 6.290 Wellbeing; in 2015. 56 mln t of CO2 equivalent Uncontrolled leakages 0.793 2013 2014 2015 • Federal Subsoil Resources Management The share of payments above the per- Atmospheric air protection and Direct emissions Mobile sources 3.128 Agency; mitted standards in the total payment for climate change prevention 3.502 3.518 3.699 (coverage 1) the negative impacts was 0.25, which was Gas venting emissions 0.120 Indirect emissions • Federal Service for the Supervision of mainly due to the lack of disposal limits Wastewater collection and treatment 0.006 0.006 0.005 (coverage 2)* HFC emissions 0.015 96.1 Natural Resources; for waste at the landfills of the Sakhalin Oblast that are not included in the state Waste management GHG emissions 3.508 3.524 3.705 Indirect emissions 0.143 • Federal Water Resources Agency; registry of waste disposal sites. * From electric power purchased Produced Protection and restoration of land, Payments for Negative Environmental Impact in 2012–2015, thousand roubles surface and subsurface water, Specific Emissions of GHG, by areas of activity Flared including offshore zone 2012 2013 2014 2015 Activity Value UoM In 2015, the company continued imple- Biodiversity conservation and Air emissions 4,664.7 3,498.8 11,516.884 4,931.253 menting the action plan aimed at the protection of natural territories Hydrocarbon production 0.054 t СО eq. / t of hydrocarbons produced 2 gradual cessation of using ozone-depleting Discharges into water bodies 242.5 127.1 166.208 91.602

Hydrocarbon transportation 0.008 t СО2 eq. / thousand t-km substances (ODS) by 2020 in accordance Waste disposal 850.2 886.7 684.210 13,263.975 Other environmental with the Montreal Protocol requirements. TOTAL 5,757.4 4,512.6 12,367.302 18,286.830 protection activities LNG production 0.242 t СО2 eq. / t of LNG produced

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8.2. Environmental Monitoring and Preserving Biodiversity

to discuss Sakhalin Energy and Exxon In 2015, Sakhalin Energy continued to and oil and gas companies discussed the Neftegas Limited partnering to conduct cooperate with the UN Development best practices for reclaiming and recovering seismic surveys on the north-eastern Programme / Global Environmental oil-contaminated and disturbed soils. shelf of Sakhalin Island where the feeding Facility (UNDP/GEF) and the RF Ministry ground of gray whales is situated. Also, of Natural Resources on Mainstreaming group members discussed and approved Biodiversity Conservation into Russia’s the final version of the Biodiversity Action Energy Sector Development Policies Plan in the Sakhalin Oblast. and Operations. As part of this project, a training session was held on reclamation • In May 2015, the Group meeting was and recovery of oil-contaminated and focused on assessing the preparedness of disturbed soils on Sakhalin Island at oil and gas companies for rescuing oiled which scientists, experts, representatives wildlife and birds. of state authorities, public organisations,

8.2.1. SOIL MONITORING

The company is supporting a number In 2015, experts were brought in to conduct • ballast water control in the Aniva Bay The monitoring programme involves Benzopyrene, a key indicator of potential The soils of the test sites in the vicinity of local environmental monitoring and the following environmental monitoring and coastal area near the Prigorodnoye pro- assessing the soil condition along the contamination, was not detected in layer of the RoW do not differ in their charac- biodiversity preservation programmes biodiversity preservation activities: duction complex; route of the onshore pipelines, including 0–25 cm at the monitoring sites around teristics from the soils in baseline areas to determine the condition of the infrastructure assets, and within the the Prigorodnoye production complex. located beyond the pipeline potential environment, assess the impacts of • soil monitoring in the area of impact from • Gray Whales monitoring. areas around the Prigorodnoye production The average content of oil hydrocarbons impact area. production assets, and develop measures the onshore pipelines and Prigorodnoye complex and OPF. in the soils of the area potentially for eliminating or mitigating such production complex; The steps Sakhalin Energy takes in ac- affected by the Prigorodnoye production In 2015, no works causing soil distur- impacts. cordance with the Biodiversity Action Plan The system of regular soil monitoring complex was 42 mg/kg in layer 0–5 cm bance were carried out. By the end of • river ecosystem monitoring in the area of (BAP) help the company fulfil its commit- allows identifying negative tendencies in and 15 mg/kg in layer 5–25 cm, which 2015, the area of disturbed land was The company objectives compel to continue impact from the onshore pipelines, OPF, ments to minimise impacts on biodiversity changing soil characteristics over time. is many times lower than the maximum 6.4 ha, where logging had been conducted environmental monitoring and biodiversity and Prigorodnoye production complex; and the environment. allowable level of 1,000 mg/kg. for the OPF Compression Project in 2013 preservation programmes. In 2015, soil monitoring was carried out (for more information on the project, see The objectives are: • flora and vegetation monitoring in the area In 2015, the Biodiversity Working Expert at 100 test sites. According to the survey Reclaimed areas gradually recover in Section 4.2.2.1 OPF Front-End Compres- of impact from the onshore pipelines, OPF, Group of the Ecological Council under the results, the soil characteristics around biological, geological, and chemical sion Project). • risk management; and Prigorodnoye production complex; Sakhalin Oblast Governor founded by the the company assets were close to the cycles of plant mineral nutrition initiative of the company in 2008 continued baseline indicators of the relevant soil elements, which positively affects the • complying with the Russian legislation • wetlands recovery monitoring; its activities. Representatives of supervisory types. rate of vegetation growth. In 2015, a and international best practices. authorities, non-governmental organisa- particular focus was made on assessing • protected bird species monitoring in the tions, oil and gas companies, and research The soils of the ecosystems adjacent to the measures taken to eliminate the Local environmental monitoring and biodi- Chaivo Spit area; institutions meet twice a year to discuss the Prigorodnoye production complex are degradation identified in some areas of versity preservation programmes have the results of the studies conducted in in good condition, with an increased con- the right-of-way in the previous years. confirmed that the company is minimising • Steller’s Sea Eagle monitoring; the areas where the company assets are tent of organic matter for black bog soils, Monitoring in 40 areas with a total length the effects its production activities have on located as well as the issues of biodiversity relatively low content for raised bog soils, of over 70 km showed that 33 areas have the environment through its environmen- • offshore monitoring in the area of impact conservation on the island. In particular: and low content for brown forest soils. In no evidence of erosion. Recommenda- tal protection management system, which from the offshore platforms and marine 2015, no incidents were recorded related tions were made for the areas where includes risk assessment and prevention, assets at the Prigorodnoye production • In March 2015, the meeting of the Biodi- to soil damage or degradation caused by erosion was identified. and prompt mitigation of identified risks. complex; versity Working Expert Group was held the operation of the company assets.

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(2013–2015), 16 species of fish and fish- like vertebrates from seven families were found in the basin of the Lazovaya River. The structure of species composition of the river is fairly stable. Seasonal changes in fish species composition, abundance, and biomass during the studies in the Lazovaya River were associated with the spawning run of Pacific Salmon and other species as well as feeding migrations of fishes. It was noted that there was a reduction in the quantity of fish that are of interest to amateur fishermen.

In 2015, the Pacific Salmon monitoring was continued in the Goluboy Stream, which flows partly through the area of the Prigorodnoye production complex. The spawning grounds in the stream were less populated than the long-term average annual level, the values varied from 0.01 8.2.2. RIVER ECOSYSTEMS MONITORING (in top areas) up to 40 individuals / 100 m2 (in the LNG plant area). The estimated Special programmes have been developed • hydromorphological changes drological cycle: spring floods, summer low • Seasonal fluctuations in the concentra- • The particle size distribution of bottom number of Pink Salmon spawners that to monitor the rivers. Under these pro- characteristics; water, and autumn high water. Sampling tion of suspended substances are within sediments in almost all of the water- entered the waterway in 2015 was 0.5 grammes, the quality of surface waters was carried out at two cross-sections—the the natural value. ways was homogeneous in all seasons. thousand individuals. According to the and the bed sediments is monitored, • benthic composition and abundance; upstream baseline (with no impact from study results, the occupancy rate in and changes in the water bodies due to the company infrastructure assets) and • The waterways are clean based in terms In 2015, benthos monitoring studies September was 25% of the norm, which in natural and man-made factors can be • area and quality of potential Pacific downstream monitoring sections. of the content of highly oxidising matter continued. The variability of benthos some cases exceeded the occupancy rate detected. Moreover, it is possible both to Salmon spawning grounds; specified by BOD5 (biochemical oxygen quantitative indicators was caused by of the rivers in Aniva Bay. assess the impact of production assets On the most river-crossing sites demand for five days) values. natural processes. Differences in the on watercourses and aquatic ecosystems • ichthyological community in model investigated (from the upstream to the composition and abundance of benthos In general, the results of the water bodies and to identify the inverse impact of the waterways. downstream cross-sections) no significant • Of all the studied metals, concentrations at different cross-sections are associated monitoring did not reveal any impact environment (changes in the river bottom hydromorphological changes were found of iron and copper had the highest with the granulometric characteristics of of production assets on the quality of structure and river bed configuration, In 2015, hydrological and hydrochemical in the river beds. Engineering surveys were variability. In the most of waterways, soil and the variability of the hydrological surface waters, their flora and fauna. changes in the hydrological regime, surveys were conducted: conducted at the sites where river bed the content of these metals exceeded characteristics within the river bed. etc.) on the integrity of the engineering deformations were identified to draw up relevant MPC standards, which is typical structures. • along the pipeline route from the Val River design documentation for future repairs. for the local surface waters of Sakhalin The water quality and environmental in the north of the island to the Maly Takoy The crossings are in satisfactory condition, due to its geochemical specificity. state of waterways were analysed using As a part of the monitoring programmes, River in the south (33 water bodies); and no damaged utility lines were found. the Woodiwiss biotic index and structural the following issues are tackled: • No contamination of surface water with indices. Overall, most of the waterways • in the area of potential impact from the The analysis of the physical and chemical oil products, phenols, or ASAS (anionic studied were characterised as “clean”, • hydrological characteristics of water- Prigorodnoye production complex (the composition of surface waters showed the surface-active substances) was revealed. the water quality level was Class II. ways; Mereya River and the Goluboy Stream); following results: • The content of oil products in bottom In 2015, a three-year cycle of studies • hydrochemical characteristics of water; • in the area of potential impact from OPF • Physical properties of the waterways sediments changed just slightly in of the ichthyic fauna was completed (the Vatung River). meet the regulatory criteria. different seasons. The concentrations in in the basin of the Lazovaya River and • condition of the bottom sediments in the monitoring cross-sections corresponded its tributaries classified as freshwater river beds; As in previous years, the surveys were • The content of biogenic substances is to the values measured in the baseline waterways of south-eastern and southern conducted during three phases of the hy- within standard limits. cross-sections. Sakhalin. During the monitoring period

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8.2.3. FLORA AND VEGETATION MONITORING

Vegetation is a key biota component the north to the south of the island, and in of which are on the IUCN Red List (Cho- which determines the scenery and plays the vicinity of OPF, at a point which is 6 km senia Arbutifolia, Sakhalin Spruce, and a significant part in the life of nature. Vege- from Lunsky Bay. As in 2014, 162 species Japanese Yew), indicate they are in good tation prevents river banks and hill-side of vascular plants were identified at the condition. There is only one exception, a scouring as well as soil erosion; it affects sample sites around the production assets. local area in the Mereya River floodplain, the atmosphere, waterways, lakes and About 570 species of vascular plants were where individual Sakhalin Spruce trees swamps, underground water, and wildlife. found along the onshore pipelines, which is were found to be distressed due to soil Plants are sensitive to environmental approximately one-third of Sakhalin plants. waterlogging in the previous years. After changes caused by both natural phenom- corrective measures were taken to improve ena and man-induced impacts. The latter The results of the 2015 Monitoring Pro- the soil hydrology in that area, no new can also lead to the extinction of some gramme show that the tree layer at the trees appear to be distressed. plant species and emergence of new ones, sample sites does not show any decrease which can ultimately result in a partial or in the number of individual tree species. In 2015, the assessment of the degree complete change of the existing vegetation Insignificant variations in the population and nature of the right-of-way regrowth community. of shrubs and herbs at some sample sites showed a good growth of vegetation over are due to natural reasons associated with more than 80% of the surveyed sample Sakhalin Energy implements the Envi- the specifics of their biology. sites on the right-of-way. Herewith, more ronmental Monitoring Programme for than 60% of the sample sites are covered vegetation cover, which allows assessing Man-induced impacts on vegetation are by a dense grass canopy and 30% have a the current vegetation condition and timely observed only at the boundary of the right- projective cover of at least 50-60%. Indi- 8.2.4. WETLANDS RECOVERY MONITORING respond to any adverse environmental im- of-way passing through dark coniferous vidual lightly overgrown areas are located pacts from the operating assets. forests due to stronger wind and light mostly on steep slopes and in the northern Sakhalin Energy implements the long- areas (57%) recovery of natural wetland factors. To improve the microclimatic con- parts of the island, which is explained by term Wetlands Recovery Monitoring Pro- ecosystems can be seen on the right-of- The Monitoring Programme includes the ditions, the company implements a range insufficient soil fertility in sandy and clayey gramme within the right-of-way, the ob- way. In other areas, vegetation is reinstated following objectives: of actions designed to protect the young land plots. However, even in these areas jectives of which are: with the species typical for the vegetation undergrowth along the forest edge in those there are changes for the better. cover of adjacent wetlands and the species • to control the condition of vegetation identified areas. • to control wetlands recovery processes not typical for these ecosystems. This is on the areas adjacent to the company within the right-of-way and adjacent typical for the initial stages of vegetation assets; The studies demonstrated that some areas; recovery. In some areas of the right-of- epiphytic lichens had experienced a certain way, recovery of moss, lichen, and shrub • to evaluate and forecast natural and impact initially associated with the change • to assess all potential negative impacts covers is observed. None of the surveyed man-induced changes / successions in in the microclimatic conditions (stronger on wetlands resulting from onshore areas demonstrated underflooding or dry- the plant communities; lighting and wind, dusting caused by pipeline construction and operation ing out as a result of hydrological regime soil denudation) occurred during the activities; violation. • to control state of rare and protected construction of the company assets. On species of plants, lichens, and the other hand, almost all of the sample • to develop impact mitigation measures. The condition of the protected plant spe- mushrooms; sites showed rudiment young thalluses cies (Pogonia Japonica and Dicranum alongside with the older thalluses, which In 2015, 30 wetland areas along the Drammondii moss) found in the surveyed • to control the restoration of vegetation indicates the restoration of the lichen entire pipeline route were surveyed. The areas is good. The 2015 monitoring sea- within the rights-of-way and generate cover. Twelve protected lichen species are surveyed areas belong to the category son did not identify aggressive invasive recommendations for additional works included in the Monitoring Programme of acid bogs characterised by poor species at the crossings of wetland required in some areas. to control their habitat condition. The mineral nourishment of peat soils, acidic ecosystems. results of the 2015 Monitoring Programme environment, and a peculiar plant species In 2015, the company monitored the state indicate all habitats of protected species composition. Generally, monitoring of the wetlands in of the environment in the vicinity of the are in satisfactory condition. the right-of-way shows that their recovery Prigorodnoye production complex on the It was noted that the degree of grass cover goes with the expected speed. shore of Aniva Bay, along the right-of-way Studies of habitats and conditions of 18 reinstatement on the right-of-way was of the onshore pipelines which run from protected species of vascular plants, three good in all the areas. In 17 of 30 wetland

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8.2.5. PROTECTED BIRD SPECIES MONITORING 8.2.6. STELLER’S SEA EAGLE MONITORING

In 2015, the monitoring of protected bird species: Steller’s Sea Eagle, Sakhalin Steller’s Sea Eagle is one of the world’s onshore pipelines, 3-km zone around OPF species took place in the Chaivo Spit wet- Dunlin, Aleutian Tern, and Long-Toed Stint. largest birds of prey. It is endemic to the boundaries, and in the control zone at a lands inhabited by the Sakhalin Dunlin and In 2015, nesting was reliably ascertained Russian Far East and has a localised distance of up to 2 km from the Lunsky Aleutian Tern colonies. for all the key species, i.e. nests with eggs habitat and small population. This species Bay shoreline. and younglings were found, and clutches is listed in the Red Books of different Over the years of monitoring, the total and young birds were observed. levels (IUCN, Russia, and Sakhalin The 2015 breeding season was more number of avifauna species on the Chaivo Oblast). This determines the need to favourable than the 2014 one. During the Spit has reached 193, and 33 of which are In addition, three new species were develop and implement special protection field studies, 172 birds were identified classified as protected at the regional level observed: the Little Bittern, which is listed measures within the framework of the (119 individuals in 2014). In 2015, the Sea (Red Book of the Sakhalin Oblast, 2001), in the Red Book of the Sakhalin Oblast Sakhalin-2 project. Eagles bred up 12 younglings in the area and ten species are on the Red List of as a limited species nesting on the range of potential impact (6 younglings in 2014), IUCN (IUCN, 2010). periphery; and the White-Winged Black Tern The North-Eastern Sakhalin Sea Eagle and 22 younglings successfully bred up in and Winter Wren, which are vagrant species Population Monitoring Programme was the control zone as well (seven younglings In the 2015 breeding season, 83 species of not typical for the Chaivo Spit habitats. developed and has been implemented in 2014). birds were recorded, 14 of which are rare since 2004. The main objective of the and protected species. The key species Based on the results, ornithocomplexes programme is to obtain reliable data on The condition of Steller’s Sea Eagle that have been monitored on the Chaivo on the Chaivo Spit appear to be in stable long-term variations in the main para- nesting pool within the impact zone and Spit since 2004 are four regularly nesting condition. meters of the indicator species (Steller’s the control zone can be considered to be Sea Eagles and White-Tailed Eagles) good. Within the potential impact area, within the control zone and in the impact 80% of all marked nests were in good or zone. Based on a comparative analysis of satisfactory condition, within the control the data, the man-made impact and the zone of Lunsky Bay—84%. effectiveness of measures to mitigate it are assessed. During the ten-year period, there were no significant changes in the condition of Monitoring is being conducted in Nogliki Steller’s Sea Eagles nesting pool. District within the 2-km corridor along the

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8.2.7. OFFSHORE ENVIRONMENT AND BIOTA MONITORING 8.2.8. BALLAST WATER CONTROL

In 2015, Sakhalin Energy continued the Ma- monitoring studies around the PA-A, PA-B, • Oil hydrocarbons and methane were not Every year, more than 200 oil and gas and ballast water undergoes express variability of qualitative and quantitative rine Environmental Monitoring Programme, and LUN-A offshore platforms and the well- detected near the wellheads of aban- tankers from various worldwide ports physical and chemical tests. Only after it characteristics is analysed within the with a view to analyse the hydrological, hy- heads of abandoned appraisal wells located doned appraisal wells. (Japan, South Korea, China, Taiwan, etc.) is confirmed that ballast water was ex- planktonic and benthic communities drochemical and hydrobiological characte- in the Piltun-Astokhskoye and Lunskoye arrive at the Prigorodnoye Port. Interna- changed in the open sea, water discharge monitoring programme. ristics of the marine environment and biota fields, and also in the areas of oil and LNG • Benthos and plankton communities tional experience shows that the ballast is permitted in the Prigorodnoye port. condition within the area of potential impact export terminals at the Prigorodnoye Port demonstrated high species diversity with water taken in these ports for the purpose As a result of long-term monitoring, a from its offshore production assets. in Aniva Bay. high quantitative values, which indicates of vessel stability may contain dangerous Along with these control measures, the significant amount of new data on Aniva the habitat near the production assets invasive species of flora and fauna. The company conducts biological testing of Bay flora and fauna has been obtained. As a result of the studies, which were The key conclusions of the 2015 monitor- has favourable environmental conditions. company takes a whole range of actions the ballast water in tankers and monitors Over 600 species of phytoplankton, carried out with a consistent methodologi- ing are: The characteristics identified in the on ballast water control to preserve the flora and fauna in Aniva Bay. In the period over 90 forms of zooplankton, about cal approach, multi-year comparative data studied areas were generally consistent unique ecosystem of Aniva Bay. from April to November, when the risk is 40 species of ichthyoplankton, and were obtained on the distribution of the • Hydrochemical parameters including oil with the baseline values. No noticeable highest for invasive species to be intro- 160 benthic species have been identified. qualitative and quantitative characteristics hydrocarbons, heavy metals, phenols, effect on the marine biota was detected Exchanging ballast water in the open sea duced and adapted, samples of phyto- and New species of plants and animals of marine biota and its habitat both near and detergents complied with the base- from production. is an effective way to prevent transferring zooplankton are taken from each vessel, have been discovered that had not been the production assets (in the cross-section line values approved for these water invasive species in accordance with the when technically possible. The results of observed in Aniva Bay before but that are area) and outside its boundaries (in the areas and with the standards established International Convention for the Control multiyear monitoring indicate that there biogeographically and environmentally area of potential impact and in the for the fishery water bodies. and Management of Ship’s Ballast Water are no dangerous invasive species in the related to local inhabitants. baseline area). and Sediment. According to the Conven- ballast water of tankers entering the • The content of chemicals (phenols, tion and taking into account the interna- Prigorodnoye port. This means that all During the environmental monitoring, no Based on this comparative data, scientifically detergents, oil hydrocarbons, and tional best practices, in 2009, Sakhalin tankers are following company rules and, protected species of flora and fauna were robust conclusions can be made on the heavy metals) in bottom sediments was Energy developed and introduced a consequently, comply with the Interna- observed in the Prigorodnoye port water condition of the offshore ecosystem; distributed unevenly due to the regional corporate Ballast Water Management tional Convention. area. and impacts can be promptly detected, geology and the distribution of different Policy. Russia joined the IMO Convention prevented, or minimised. types of seabed. As a whole, the concen- in April 2012. Environmental monitoring has been trations were varied within the baseline conducted since 2007 to assess the Thus, the comprehensive offshore survey ranges and had lower values, which could To ensure compliance with this Policy, the condition of flora and fauna in the Aniva programme in 2015 included environmental result in biological effects. documentation of each vessel is checked, Bay coastal area. Spatial and seasonal

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8.2.9. GRAY WHALES MONITORING

The company is committed to gray Sakhalin-1 operator, Exxon Neftegas community was performed. The scien- the research vessel; additional real-time whales monitoring and preservation, Limited) continued the Integrated tists also took samples of tissues from acoustic and visual monitoring was as the Okhotsk-Korean gray whales are Monitoring Programme near the nine whales. conducted (to prevent the noise impact). currently classified in the RF Red Book North-Eastern coast of the Sakhalin In the course of the seismic survey, as threatened and by IUCN Red List as Island. The Programme consists of In 2015, the company conducted 4D an independent observer from IUCN critically endangered. Sakhalin Energy scientific study and research of whale seismic surveys in Lunskoye and supervised all mitigation measures. allocates considerable resources to the distribution, food resources, acoustic Piltun-Astokhskoye licenced areas. monitoring programme, far more than monitoring, photographic identification The seismic surveys were designed and Not a single gray whale was observed required by standard procedures included of individual whales, and assessment of carried out in compliance with Russian within the buffer zone around the seismic in the company area of liability. Other their external appearance, and gathering legislation and international standards. survey vessel during the surveys. Accord- protected cetaceans such as the Bow- biopsy samples for genetic analysis. In 2015, Sakhalin Energy and Exxon ing to the onshore monitoring data, there head Whale, North Pacific Right Whale, Neftegas Limited carried out geophysical were no gray whales (mother and calf Fin Whale, Curvier’s Beaked Whale, and According to preliminary data obtained researches near the Piltun feeding area. pairs) present within the area affected by Harbour Porpoise and pinnipeds such as during the field season in 2015, 168 In order to reduce the cumulative impact 156 dB sound (behavioural effect level). the Steller’s Sea Lion can be observed gray whales were identified, including of simultaneous operations, the compa- The seismic survey operations were in the vicinity of the company offshore 11 new calves and three adult whales nies worked sequentially, according to a started and completed in July, before assets as well. In accordance with the that had not been previously registered schedule they had agreed upon. most of the gray whales returned to the principles of sustainable development, in north-eastern Sakhalin waters. They feeding areas of north-eastern Sakhalin. the company believes that risks to have been recorded in the photo cata- In compliance with the SEER conclusion, marine mammals arising from indus- logue, which includes 259 animals. As Sakhalin Energy, in co-operation trial activities must be considered and in the previous years, gray whales were with experts from the Western Gray mitigated in a timely manner; not only for observed in both feeding areas, Piltun Whale Advisory Panel (WGWAP) to the endangered species, but for all marine (coastal) and Morskoy (offshore). Same International Union for Conservation inhabitants. common factors as in the previous years of Nature (IUCN), developed some were noted in regards to their distribu- additional mitigation measures to reduce In 2015, as in previous years, Sakhalin tion. A full scope of acoustic monitoring, the impact on gray whales. In particular, Energy (in close cooperation with survey of structure and variety of benthic safety zones were established around

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8.4. Oil Spill Prevention and Response 8.3. Pipeline Right-of-Way Maintenance Preparedness

8.4.1. GENERAL INFORMATION

Oil spill prevention and oil spill response The ratio of the total hydrocarbons spilled They are issued Level III Incident Command (OSR) preparedness are the top priorities (26.54 bbl) to the total hydrocarbons System (ICS-300) certificates. The OSR for Sakhalin Energy. The company applies produced (ca. 396 MMbbl in 1999–2015) is drills are conducted regularly. a complex approach to addressing this less than 0.0000067%. important mission. An integrated emergency oil spill response None of the project-to-date crude oil drill involving over 10 vessels took place The company has established a Crisis and/or petroleum product spills from the in Aniva Bay in May 2015. Management Team and an Emergency company assets can be defined as an Coordination Team that are on duty 24/7 “emergency situation”. According to observers, the company and to coordinate the response in emergency contractors acted in a well-coordinated situations. Global practices of providing response and effective manner during the drill. to large-scale emergencies have The objectives of the drill were fully The OSR plans have been developed proven that an effective response to realised. As a follow-up to the drill, and duly deployed at all of the company major oil spills is possible subject to an recommendations were developed and assets. integrated application of mechanical and appropriate measures were taken to non-mechanical technologies. Namely, improve the OSR systems. The analysis The company has concluded contracts for using dispersants allows significantly of the drills and exercises conducted OSR services to be provided by the profes- mitigating the environmental damage, by the company showed it to be fully sional emergency response teams of: reducing the time to be spent on oil spill prepared to respond in the event of an response, and rescuing unique wildlife emergency oil spill, whether offshore or • CREO (Center of Rescue and Ecological species. Sakhalin Energy has conducted onshore. Currently, regular monitoring and geo- Based on outcomes of RoW monitoring, Operations) for onshore assets; surveys based on the results of which a technical surveys are in place on the RoW. a RoW maintenance plan has been package of documents was developed Their results are recorded in order to have developed. • Ecoshelf and Sakhalin branch of the and approved by government authorities relevant actions taken. Rosmorrechflot Offshore Rescue that allow the company to use disper- Repair and maintenance of the RoW were Service for offshore assets. sants in emergencies. The company is The list of RoW monitoring actions for 2015 completed in December 2015, as planned. ready to implement burning—yet another included: Work was performed at 22 plots and Also, certified Non-Professional non-mechanical method of responding to included eliminating the consequences Emergency Response Teams (NERTs) emergency oil spills. • helicopter fly-overs and photoshooting; of natural erosion as well as repairing have been established at Sakhalin Energy existing anti-erosion structures. production assets. In order to increase the personnel’s OSR • river crossing surveys; level and improve their practical skills, Landslide sites have been identified in The OSR vessels are continuously on the company regularly conducts practical • river surveys based on geomatics principles; Makarov and Dolinsk districts. Landslides standby near the offshore platforms and and theoretical training sessions, drills on those sites were triggered by the in the Prigorodnoye port. and exercises of various levels, including • monitoring of river hydrological charac- construction of telephone lines done by periodic corporate exercises. All basic teristics; third parties. Stabilising measures for The number and volume of oil spills have Incident Command members receive three sites will be carried out in 2016. decreased significantly in recent years Level I and II OSR programme as well as • surveys of geological hazards, cover (since 2010), with only 23 emergency Level I (ICS-100) and II (ICS-200) Incident thickness; As for one water crossing and one oil spills totalling 118.50 litres reported Command System training. Level I of landslide which became active, a special between 2010 and 2015 versus 21 the programme is basic and is designed • plant growth and soil local monitoring; subcontractor completed bank protection emergency spills releasing 3504.46 litres for regular rescuers and emergency repair and right-of-way stabilisation. of oil in 2008–2009. responders, while Level II is designed for • groundwater surveys; Several landslides were observed during training supervisors, team leaders, and oil the 2015 monitoring. Design engineers In 2015, the total amount of crude oil and spill responders. Key Incident Command • satellite surveys of the pipeline RoW; completed required surveying and started petroleum products spilled was just about members completed Level III training for to develop plans to mitigate the impact of 8 litres. asset managers, department heads, crisis • boggy areas surveys. landslides. managers, and ER coordinators.

94 95 Social Impact Management personnel practised capturing, hazing, and transporting birds. In October, a two-day theoretical and practical training course in bird hazing, capturing, and cleaning was conducted. The company maintains a database of trained person- nel who are able to provide aid in case of emergencies on Sakhalin.

In autumn 2015, Sakhalin Energy participated in a meeting with experts from MERRAC NOWPAP (Marine Environmental Emergency Preparedness and Response Regional Activity Centre) to discuss the issues of oiled wildlife response.

8.4.2. OILED WILDLIFE REHABILITATION

In keeping with its commitment to It remains the only one of its kind on biodiversity preservation and in line with Sakhalin and in Russia at large. the international best practice, Sakhalin Energy has been implementing the Oiled The Manual includes general recommen- Wildlife Rehabilitation Programme to dations and guidelines for the deploy- train personnel. ment and use of equipment, assets, and infrastructure needed to put into The Programme was developed in operation the wildlife rehabilitation site cooperation with the International Fund at the Prigorodnoye production complex. for Animal Welfare (IFAW) and with the International Bird Rescue Research Coastal bays and lagoons temporarily Centre (IBRRC), taking into account or permanently inhabited by birds and Sakhalin’s flora, fauna, and severe other wildlife species, many of which are climate. In 2009, the Oiled Wildlife protected species, as well as rivers and Response Plan was developed to prevent wetlands, are especially vulnerable to oil and rescue animals contaminated with spills. oil and petroleum products and to identify resources and procedures to coordinate To implement the Programme, the actions of corporate and external entities. company installed specialised equipment in the central and northern parts of As part of its integrated Oil Spill Response the island, at the onshore processing Plan, the company developed the Wildlife facility (OPF) near Lunsky Bay and at the Rehabilitation Site Implementation pipeline maintenance depot (PMD) in Manual (hereinafter—the Manual). In Gastello. 2011, the Oiled Wildlife Rehabilitation Site was established on the territory of In May 2015, during a regular OSR the Prigorodnoye production complex. exercise on the Aniva Bay coast, company

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9.1. Personnel: Management and Development

9.1.1. APPROACHES TO HR MANAGEMENT AND HR POLICY

The HR Directorate meets the compa- In 2015, 1,901 people participated in The HR Directorate makes maximum ny manpower needs, which includes the employee opinion survey, which use of human capital management preparing organisational changes is about 90% of the employees in the (HCM) software from SAP. This allows In 2015, the employee for upcoming large-scale projects, company. The survey showed that the to significantly reduce time and costs training and retaining current staff, general level of employee engagement and to optimise many processes in opinion survey showed and attracting skilled employees was very high—84%. Employees the HR Directorate and other units of from shareholder companies and continue to point out how seriously the company. In particular, the system the external labour market. The the company commitment is to safety modules used by the company not only Directorate is guided by the following and work quality, occupational safety automate the process of preparing HR that 98% of the strategic priorities: and the environment, and equipment documents and reports, but also aid in company employees reliability and process safety. They managing important processes such as • attract, hire, and retain the most tal- would recommend Sakhalin Energy learning and development, succession were ready to ented employees in the global energy as a reliable and socially responsible planning, performance reviews, and market by relying on internal talent employer that offers an attractive recruitment. recommend pool, the expertise of shareholder remuneration and benefits package. companies, and other sources; At the same time, employees expect Sakhalin Energy the company to continue to make gains • invest in the professional and in optimising and improving work as a responsible personal development of Russian processes, enhancing the quality of employer. experts to ensure staff is retained communications, and accelerating the and a talent pool for key managerial rate at which important operational and engineering positions is created; decisions are made.

• offer an attractive and competitive To pursue these goals and objectives, employee value proposition; Sakhalin Energy implements its HR strategy through its HR policy. • promote simple and clear HR processes using lean manufacturing The HR policy is an integral and methodologies and high-quality HR strategic set of documents, methods, information systems; and tools that governs the company relations with its employees and helps • develop a collaborative work envi- it to promptly respond to changing con- ronment that unites the company ditions in the global oil and gas market offices and facilities. and the market of qualified professionals. All required notifications regarding The company senior management changes in employment conditions are believes that all employees should feel communicated to the employees as engaged in their work, be confident the required by labour legislation of the company supports and respects them, Russian Federation. and be given the opportunity to contribute to the growth of the company using their The HR Director and the Committee of knowledge, skills, and abilities. Employee Executive Directors oversee the develop- engagement is measured annually via ment, modification, and approval of the employee opinion surveys and is viewed company HR policy. These processes as one of the most important indicators are based on our HR management of employee work satisfaction at the policy, which is in line with international company. standards.

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9.1.2. GENERAL INFORMATION

As of 31 December 2015, there were 2,230 leave. Of these, 41 people continued their Personnel Structure Personnel Structure by Facilities Personnel Age Structure Managerial Personnel Structure people on the company payroll, including employment with the company. 1,959 Russian employees, which is 88% of the total. Sakhalin Energy operates About 28% of the employees are women Russian personnel Offices Below 30 Russian personnel mostly on the territory of the Sakhalin (627 people at the end of 2015). Of these, Including Sakhalin residents Including Sakhalin residents LNG plant 31–50 years Oblast, Russian Federation. There were 78 occupy executive positions, making up (61% of the Russian personnel) (53% of the Russian personnel) OPF 2,199 people working in Sakhalin, and 31 17% of the company management team Foreign personnel Above 50 years Foreign personnel working in the Moscow office. (see the Structure of Personnel in Platforms Managerial Personnel Structure 80% The company strives to hire as many diagram). 88% Other 374 pers. Russian citizens as possible, mostly 12% 1,959 pers. 63% 13% 22% Sakhalin residents, to work on the The number of employees has been 271 pers. 1,378 pers. 287 pers. 487 pers. Sakhalin-2 project. This approach is increasing steadily over the past three set forth in the company HR policy and years. This is mainly due to the new complies with the terms of the PSA. At projects underway to construct a booster Total 1% Total Total Total the end of 2015, 1,192 people, which is station and upgrade the offshore facilities. 2,230 pers. 33 pers. 2,230 pers. 2,230 pers. 20% 470 pers. 53% of the personnel, were residents of Unlike the tourism or agricultural indus- 14% 96 pers. the Sakhalin Oblast. tries, the company does not experience 316 pers. significant seasonal fluctuations in the 53% 6% 16% 65% 43% 1,456 pers. At the end of 2015, 26% of company number of personnel. 1,192 pers. 142 pers. 361 pers. 200 pers. employees were working on a rotational basis and living in hotels and rotational Since Sakhalin Energy is actively replacing camps that have been built in accordance foreign workers with Russian personnel, 83% 17% with Russian legislation and best interna- we are in need of Russian experts, includ- 392 pers. 78 pers. tional practices. ing technically skilled ones. At the end of 2015, the average age of Company Employee Working Schedules employees was 38 years. Employees aged Three hundred seventy-four of the In 2015, 171 employees (133 men and 38 under 50 accounted for more than 87%. 5/2 Rotation-based Shift work Russian employees were in managerial women) resigned from their positions in Offices positions (see the Structure of Person- the company. This number includes 50 The working hours established by the nel in Managerial Personnel Structure foreigners and 121 Russian employees company are found in the Internal LNG plant diagram), 200 of which are residents of (including 52 residents of the Sakhalin Working Rules: OPF the Sakhalin Oblast. In addition to train- Oblast). This gives a turnover rate of ing, developing, and promoting existing 8.14%. The voluntary turnover rate of • everyday work under five-day working Platforms Russian staff, the company is actively re- critical technical personnel was 4.95% in week with two days-off; Other cruiting new qualified Russian specialists 2015. in order to increase the share of Russian • rotation-based work with 28 calendar executive personnel. By hiring trainees, The number of employees who left the days of work and 28 calendar days-off; Changes in the Number of Personnel in 2012–2015, persons we can guarantee a constant influx of company in 2015 is broken down by age young technicians (see Section 9.1.7.3 group in the table below. • shift work. Russian personnel Foreign personnel Personnel Training and Section 9.1.7.4 Of which Sakhalin residents (61% of the Russian personnel) Traineeship Programme). Number of Employees Who Left the The working schedules at the company Total Company in 2015, by age group assets are shown in the Company In 2015, 63 employees were granted child Employee Working Schedules table. 2012 1,806 (1,129) 246 2,052 Persons % care leaves. Among employees who took Below 30 years 35 20 advantage of this right were two fathers. 2013 1,862 (1,163) 282 2,144 During the same period, 47 employees 31–50 years 99 58 2014 1,921 (1,194) 277 2,198 (46 women and one man) resumed their Above 50 years 37 22 job duties at the end of their child care Total 171 100 2015 1,959 (1,192) 271 2,230

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9.1.3. RECRUITING PERSONNEL AND ONBOARDING NEW EMPLOYEES 9.1.4. REMUNERATION AND BONUS SYSTEM

At Sakhalin Energy, we recruit new per- In 2015, Sakhalin Energy participated in One of the key performance indicators The remuneration system used by • annual performance bonus; sonnel based on the manpower plan and three career fairs in Yuzhno-Sakhalinsk of the HR Directorate remains the the company is based on grades and recruitment plan developed and approved and in similar events in Moscow, Tomsk, percentage of critical technical jobs that establishes remuneration depending on • special recognition award (SRA); annually. Various tools and methods are Ufa, Vladivostok, Sochi, and Ukhta. As a are filled. In 2014, the figure was 93.8%, the employees’ skills and position. This used to attract potential candidates and result, Sakhalin Energy received more and in 2015, 95.7%. encourages efficient work and provides • long service award (10 years or more); advertise new vacancies, such as: than 500 applications for vacancies. motivation for excellent performance. Sakhalin Energy continues its new • employee referral reward; • posting on the official website of In 2015, the company hired 206 people employee onboarding programme, which Sakhalin Energy main principles of Sakhalin Energy (in 2015, the method (150 men and 56 women). Forty-nine of aims to maximise productivity of new remuneration are to pay its employees • one-off payment to the employees in for submitting CVs on the website the personnel hired were foreign em- employees from their first day at work. competitive salaries that are not lower connection with rewarding; was simplified). The website offers ployees, and 157 were Russian nationals In 2015, new workers coming from other than the average salary in the Russian guidelines for uploading CVs; applicants (including 73 residents of the Sakhalin regions received the company guidebook, oil and gas industry, and to use a • bonus for participation in a research- can edit their CVs in their personal Oblast). which describes the main stages of transparent bonus system for all staff to-practice conference held by the accounts; moving to Sakhalin and the living categories. company on a regular basis; The number of employees hired in 2015 conditions on the island. • providing information to is broken down by age group in the table Remuneration of Sakhalin Energy • Committee of Executive Directors Yuzhno-Sakhalinsk Labour below. Once every two months, new employees employees includes: award to employees who achieved Centre (monthly); are given a presentation about the com- special success in teamwork. pany with a full overview of the specific • base salary, hourly rate as per the • working with recruitment agencies; features of the production activities and employment agreement; Employees may be awarded certificates processes and the interaction between of honour and honorary letter for • participating in career fairs; the units and stakeholders. • compensating or incentive allowances many years of excellent work and for and uplifts to the base salaries achievements in the development of fuel • publishing vacancy lists in other online and hourly rates payable as per the and energy sector and petrochemical resources and print media; Regulations on Labour Remuneration, industry on the occasion of professional Bonuses, and Social Benefits, RF holidays (Oil and Gas Industry Workers • using social networks to search for Labour Code and other normative acts; Day) or company anniversaries. Awarding candidates; Number of Personnel Hired in 2015, 8.2% employees may also be given to celebrate by age group 17 pers. 37.4% • bonuses payable as per the Regu- anniversary dates of employees (50 years • promoting the company Employee 77 pers. lations on Labour Remuneration, and then every 5 years). Referral Programme, according to Below 30 years Bonuses, and Social Benefits and which Sakhalin Energy employees can other local normative acts. To make sure that its salaries are recommend candidates and are given 31–50 years Total competitive, Sakhalin Energy regularly a bonus if these candidates are hired 206 pers. Sakhalin Energy remuneration policy, monitors the financial segment of the to work at the company; Above 50 years practices, and methods are designed job market and annually adjusts salaries to recognise and encourage excellent to account for the employees’ individual • attracting skilled employees from 54.4% personal and production performance. performance (see Section 9.1.6 Individual shareholder companies. 112 pers. The company remuneration system is the Performance Review of the Employees). same for men and women. In 2015, the minimum salary in the The existing incentive system uses a company was five times higher than the single unified, standard approach to minimum wage established by Russian motivating employees in all the company legislation. Sakhalin Energy labour subdivisions. This is achieved through remuneration expenses totalled the following types of bonuses as per the 13.85 bln roubles in the reporting year, Regulations on Labour Remuneration, with award / bonus payments totalling Bonuses, and Social Benefits: 3.56 bln roubles.

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9.1.5. SOCIAL GUARANTEES, BENEFITS AND COMPENSATIONS Medical Insurance Mortgage Programme Corporate Pension Plan

The company makes every effort to • free meals at the company assets and • corporate pension programme; As part of the health insurance contracts, The mortgage programme is governed by The company offers a corporate pension provide a competitive compensation and free meals in the company offices; the company continues to contract with the Regulations on Payments to Employees. plan under which employees and the benefits package to attract highly skilled • material assistance in case of the birth SOGAZ Insurance Group for voluntary Since the beginning of the mortgage company pay contributions towards workforce. The compensations and bene- • housing for employees and their (or adoption) of a child; and difficult medical insurance programmes, voluntary programme, 126 Russian employees occupational pension schemes. fits provided to Sakhalin Energy personnel families for the duration of their personal circumstances; insurance against accidents and diseases, (6.6% of total staff) have participated in it. ensure the wellbeing and social security employment (for those employed on travel insurance, and insurance against Participation in the corporate pension of employees and their families. terms of relocation from other Russian • sport and recreation facilities (see accidents for children participating in the The programme provides for compensating plan is voluntary and allows each em- regions and CIS countries, as well as Section 9.3 Occupational Health); Happy Holidays Programme. The com- a part of mortgage interest for purchase ployee to independently pay into their In addition to the guarantees and benefits from the Far North and equivalent pany also aids employees in purchasing (construction) of dwelling premises. retirement pension. provided by Russian labour law, Sakhalin areas), or payment for housing rent for • additional benefits for female voluntary medical insurance policies for Under the programme, the company Energy provides its employees with a such employees; employees on maternity leave; family members on favourable terms. reimburses 40% of interest payments At the end of 2015, 24% of the company social benefits package that includes: actually paid by an employee during the Russian employees are enrolled in the • mortgage programme; • programmes for the company In 2015, the Voluntary Medical Insurance accounting period, not exceeding the corporate pension plan. • voluntary medical insurance for employees’ children. Programme was expanded. It was amount set by the company. employees and their families; • annual payment of round-trip travel ex- supplemented with a number of additional The company contributed a total of penses to the employees’ chosen place Housing for Employees (and their Family services, and new medical institutions 145 mln roubles to Gazfond from • health benefits; of vacation within the RF territory; this Members) were added to the existing list. 2011 to 2015. applies to employees and non-working • accident and sickness insurance; members of their families (spouses Presently, most of the company-owned In the five years of working with SOGAZ, and children up to the age of 18 years) housing is located at Zima residential 132 company employees have received • travel insurance; living in Far North areas and equivalent complex. There are also sports and enter- insurance payments under the Contract areas; tainment facilities within the territory of of Voluntary Insurance against Accidents Zima residential complex, in particular: and Diseases totalling more than 121 mln roubles, including more • Oasis recreation and sports complex; than 38 mln roubles in 2015.

Additional Social Guarantees and Benefits Package at Sakhalin Energy • Hub leisure centre;

• RecCentre Zima-1 sports centre;

Voluntary • RecCentre Zima-3 sports and enter- medical insurance Mortgage Programmes Housing and other programme for children tainment centre. insurance In 2015, in order to provide staff with health benefits aimed at improving health, The company also has leased residential preventing and early detection of diseases, as well as health protection and premises in Strawberry Hills complex. treatment, the company launched a new project as part of the expansion of the Voluntary Medical Insurance Programme. The programme provides comprehensive Benefits for Material specialised medical care for Russian employees working on a rotational basis. This employees on Free assistance maternity meals benefit includes treatment at sanatoriums, rehabilitation treatment, and a complete in special cases leave medical examination at leading medical and preventive treatment facilities of the Russian Federation.

Annual Pension vacation programme travel

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9.1.6. INDIVIDUAL PERFORMANCE REVIEW OF THE EMPLOYEES

Programmes for the Children of the Happy Holidays Programme for School- Other The Individual Performance Review All employees undergo annual perfor- This assessment shows whether profes- Company Employees children Employees and their families can use process is one of the main tools used to mance review. An employee’s performance sional training is required for the em- Children of company employees have company shuttle buses, which run on a achieve the company strategic goals of is assessed based on the degree to which ployee to continue to grow professionally Wonder Island Leisure and Development the opportunity to attend Happy Holidays set timetable and stop at city educational building a performance culture. he/she reaches business and individual and improve the company efficiency in Club Leisure and Recreation Programme institutions. goals set at the beginning of the year. general. Since 2012, Wonder Island Leisure and during the summer at the sports and Development Club in Zima Highlands cultural facilities of Zima Highlands RC. School counsellors are available for RC has been providing early childhood The programme has been offered for five employees and their children. High school education, art classes, and afternoon years already, and is designed for chil- students can take the Proforientator test, Individual Performance Review of the Employees childcare groups for children who do not dren from preschool up to 16 years old. which can help them identify careers that attend kindergarten. The programme has a different theme may interest them. every year, and each of the five summer INDIVIDUAL PERFORMANCE REVIEW sessions is unique.

In 2015, the theme was “The World of Your Capabilities.” The activities were aimed at developing each child’s individual qualities. Employee achievements Personnel training Contribution Development of sustainable in accordance with his/her in accordance with to the achievement culture of professional individual goals the needs for professional The number of children participating in of company goals efficiency the programme increases every year. and objectives development In 2015, 652 children attended the five sessions. This is 5% more than in 2014.

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9.1.7.2. Staff Assessment her career during his/her work at the The 360 Degree assessment is car- company. CEP is evaluated once every ried out by surveying the employee’s The company uses the competency two years for company employees JG5 business environment. To do this, the approach for HR management. A profile and above. The assessment criteria are employee, his supervisor, subordinates of functional, leadership, and personal known by the acronym CAR: Capacity, and peers fill in an online questionnaire competencies has been developed for Achievements, and Relationships. designed on the basis of the company’s each position. The assessment of these model of leadership competences. The competencies is used to recommend In 2015, CEP was calculated for 993 final results are presented as average further development and training for the employees. The assessment results ratings of each group and are accom- employee at this position as well as for are used for human resources plan- panied by the key findings regarding the other personnel decisions. Job compe- ning, creating a successors pool in the employee’s strengths and weaknesses tency profile is a list of competences and company, planning the individual and as well as recommendations for em- levels of those needed for a certain job. career development of the employees, ployee development. as well as developing staff retention Competence Based Assessment is a programmes. • Structured Interview. In 2015, the process that gives a clear picture of the Learning and Development department professional and behavioural require- • Assessment Centre—a technology of developed information sessions on ments for employees depending on their integrated expert assessment of the the structured interview methodology skill pool, position, and current duties. employees’ leadership competency, during which videos were shown that Identifying employee competency levels which has been widely used in the gave examples of proper and improper in their functional areas and further company since 2009. This method behaviour of managers during the com- Training planning 9.1.7. STAFF LEARNING AND DEVELOPMENT developing them are important for incorporates such components as petency assessment. One hundred and and implementation successful business tasks fulfilment. business games, structured interviews, sixty-six line managers were introduced 9.1.7.1. General Information • development of scientific potential; Company employees can assess their and feedback with a detailed analysis of to this methodology. competencies and have them approved the employee’s strengths and areas for Competence assessment Staff development at all levels is a key • retention of knowledge; by their line manager via an electronic further development. • Personal and Business Competences element in creating and maintaining a automated system—ESS/MSS portal (a Assessment Tests. This new tool for high level of professionalism and mo- • scholarship programme; SAP HCM module). The target audience of the Assessment assessing business skills has been Career planning tivating personnel as well as retaining Centre is high-potential employees successfully applied throughout the and development them at Sakhalin Energy. To ensure the • traineeship and pre-graduation In 2015, 98% of competency profiles included in the successors pool for year. Currently, a company specialist best performance, the company strives to internship programme. for personnel (office staff, specialists, senior positions. In 2015, 92 employees can assess each business competency Recruitment and development maximise the potential of its employees, and managers) were posted in SAP of this category passed the Assessment using a comprehensive, professionally of talent pool taking into account diversity and individual New Cooperation Models HCM, and 86% of personnel underwent Centre. designed test to help the line manager characteristics. a full competency assessment. The with the assessment. In 2015, 124 employees underwent this kind of Development of young In September 2015, representatives company continues to use competency Since 2009, the company has assessed professionals The company uses a comprehensive ap- of the Sakhalin Energy shareholders level reports for personnel as a tool that the leadership competency of 423 com- assessment using a total of 266 tests. proach to staff development, in particular: Sergey Khomyakov, Deputy Chairman of helps to identify cases when the actual pany employees using the Assessment It is important that, in addition to the the Board of Directors of Gazprom, and competency level of an employee does Centre. competency level, the tests determine Traineeship and • personnel training planning and imple- Hugh Mitchell, Chief HR and Corporate not match the standard competency level the basic knowledge required for the

Personnel development Personnel pre-graduation internship mentation; Officer of Shell, visited Sakhalin. The of that employee’s position in terms of • 360 Degree—an additional tool used given competency. main purpose of the visit was to discuss organisational units or skill pools. to assess leadership competency and Development of scientific • annual competency assessment; cooperation in personnel issues in the personal effectiveness of employees The company continues to improve the potential framework of the Shareholders Agree- To assess the leadership potential and that was developed and implemented in personnel learning and development • career planning and development; ment on the Strategic Cooperation. This managerial qualities of personnel, the the company at the end of 2014. In 2015, system based on the competency assess- new model of cooperation opens up company uses modern tools, including: 86 people underwent this assessment, ment. Retention of knowledge • recruitment and development of the opportunities for company personnel including 74 individual and two team talent pool; such as participating in joint training • Current Estimated Potential (CEP) assessments, followed by sessions The Competence Assurance Programme programmes, developmental assign- Ranking Exercise—a current estimate to interpret the results and prepare was designed to encourage safe and Scholarship programme • development of young professionals; ments programmes, etc. of the highest position that the em- development plans. trouble-free operations at the production ployee can occupy at the peak of his/ assets. The programme is a system

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to examine the knowledge and skills 9.1.7.3. Personnel Training competencies and the ability to safely to the competency assessment results Learning Priority Areas at Sakhalin Energy of technicians involved in technical and efficiently perform production tasks of technicians. processes and repair and maintenance of The company prepares annual plans of any complexity. Compulsory training in accordance with Russian laws production equipment. It is based on the for personnel training and professional Training is carried out at the company criteria developed in accordance with the development based on new production The development of the technical compe- hands-on training workshop by trainers • labour and safety; professional norms and the standards targets, career development plans, and tencies of the employees is carried out in and instructors in production technology, • industrial safety; for performing job functions / tasks on a employee competency assessment. the in-house technical training system. maintenance, and repair as well as by • ecological safety. specific production site or type To do this, the PrD Technical Training instructors using operations training of equipment. Personnel training options include on- Subdivision was established, which simulators. HSE training in accordance with internal company standards the-job training, e-learning, conventional provides continuous technical training During the assessment, the employees training courses, workshops, and case for technicians working at company • process safety; demonstrate professional knowledge studies. In 2015, 1,747 people attended production assets and for employees of • prevention of emergencies and protection of facilities from emergencies; acquired through learning and professional workshops and professional development the main contractors. • health protection. development as well as the skills and courses, including e-learning (one or abilities developed in the course of their more courses per individual). The company The PrD Technical Training Subdivision Vocational training duties. Assessing employee competencies provides training for all categories of implements programmes and in-house also provides an opportunity to draw personnel without exception. The average technical courses: • targeted professional training in technical and other disciplines; attention to the rules and standards of duration of training was 10.5 training • professional development; labour behaviour in the team and the man-days per employee (excluding on- • in the existing disciplines (LNG process • training of personnel in the operation of equipment (vendor training); attitude of the employees towards their the-job training). In 2015, Sakhalin Energy technology, operation, repair, and • international professional qualification (CIMA, ACCA, CIPS, NEBOSH, etc.). work, which is an important component of invested 325 mln roubles in personnel maintenance of production equipment); operating hazardous production assets. training. Personnel development training • on-the-job and off-the-job training in The assessment is conducted by Sakhalin Energy unique training resources all disciplines; • leadership skills development for all levels of managers in programmes experienced employees from among include both Russian and foreign training developed by the leadership competence model; the production personnel. Specialised service providers. Employees themselves, • in developing practical process control • PC skills, Internet and Intranet training and other IT courses; training and subsequent certification from their line managers, the HR Directorate, skills on existing process training • language proficiency. City & Guilds international organisation and company senior management all see simulators and training equipment; allows them to master modern assess- that training plans are implemented. ment methods and become familiar • in targeted modules aimed at developing Employee Training in 2015, by personnel categories with the best international practices. The top priorities for Sakhalin Energy specific technical competencies and The assessment is overseen by trained training policy are as follows: specially adapted to the production Number Number of trained % Categories and accredited internal verifiers in order assets; of personnel personnel of trained personnel to ensure the assessments are made • compulsory training in accordance with Managers 470 361 77 objectively, assessment conclusions are Russian laws; • in safe production asset operations, Specialists 1,433 1,066 75 valid, and follow-up activities are offered developed in accordance with best to close any gaps. • HSE training in accordance with inter- international practices as well as Clerks 18 11 62 nal company standards; based on the findings of audits and Workers 309 309 100 Competency assessment results are investigations of industrial accidents; TOTAL 2,230 1,747 79 used later to recommend areas for • vocational training; employee development, prepare individual • in technical areas developed by development plans, and make decisions • personnel development training. equipment vendors; to promote and transfer to other units and areas of work within the production asset. In-House Technical Training • in the target areas for the main The growth of the company and the contractors whose personnel work at The company has made it a priority to study the best practices in industrial training, use of advanced technologies in the company production assets; the integration of Russian and international approaches, the use of modern constructing and operating production technologies in the educational process, as well as the development of classroom assets require technicians to have a • in developing technical competencies training, material, and technical equipment for industrial training. particular knowledge base and skills in accordance with the approved career within the framework of their technical development scheme and with regard

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makes all employees aware of mandatory 9.1.7.4. Traineeship Programme At the end of 2015, 27 people continued graduates of the Polytechnic College of ensure that they master the material E-learning industrial safety standards and general training as company trainees. The the Sakhalin State University. at the required level. Different training In the past three years, the company principles of work and business ethics, In order to ensure there are enough programme focuses on professional methods are actively used, such as: strategy has been to teach general making other resources obsolete. The qualified technical specialists at development and further employment The technical training focuses on helping business skills online. The company has number of e-learning courses designed the production assets, the company for young residents of the Sakhalin the trainees develop practical skills • having trainees prepare projects; developed the Competence Gap Closure specifically for the needs of the company continues to implement the traineeship Oblast with blue-collar professions with and acquire work experience. Practical Programme based on the competency as- is constantly growing. Building on this programme. Since 2003, 236 people have specialisations the company needs. lessons during which the trainees put • having trainees independently develop sessment, which offers a series of online trend, the company is saving money, courses for developing each competency. been trained under this programme. Programme participants are mainly into practice the skills they have learned and deliver presentations; involving more employees in training, and E-learning at the Shell Open University providing them with necessary informa- and on ESS/MSS portal of SAP HCM tion in modern electronic formats. • simulating various production scenarios. Traineeship Programme (a three-year course) At all stages of the traineeship Comment on the traineeship programme in key technical disciplines right in the programme, industrial and personal by Dmitry Merkuryev, a trainee who Industrial Training subdivision at the • Intensive training in English safety are emphasised for various types enrolled in the programme in 2010, LNG plant. They emphasised industrial English (3 months) of work, and the trainees are taught the currently a Mechanical Technician safety and working with flow charts and safety culture. at the PA-A offshore oil production technical documents for the equip- platform: ment, which was later used for practi- English, The programme graduates are in cal training. HSE standards/ demand at all production assets. In “The Traineeship Programme gives • Combining lessons in English with elements requirements hands-on setting, they demonstrate a a graduate or junior staff member a The theoretical training and practical of technical disciplines of the RF legislation, and technical high level of knowledge and practical great opportunity to start his or her mastering of the material are struc- • Training in company HSE standards and requirements Combined disciplines skills acquired during the programme, career by acquiring the necessary set of tured so that future employees acquire of the RF legislation training steady motivation for further professional knowledge about oil and gas production, the most relevant information. The (3 months) development, and commitment to the industrial processes and principles of management of the subdivision have principles of the industrial safety culture. repair and maintenance of oil and gas taken significant steps to improve the equipment. programme. For example, they intro- duced mandatory rotation for trainees I now know English well enough to across all production areas of the LNG • Training in technical disciplines work with technical documents and plant, and the trainees now have the • SAP communicate with foreign colleagues. opportunity to work at other produc- • ISSOW What’s more, we were taught by expe- tion assets of the company under the rienced industrial training instructors programme.” Intensive technical • Training on process training simulators, Technical training work with training equipment training (12 months)

• Mentoring • Interim competence assessment • Competence assessment in accordance with Sakhalin Energy On-the-job Essential knowledge training standards and identification of gaps and skills (18 months)

Recruitment and selection of Sakhalin Energy personnel

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9.1.7.5. Successors Pool Planning and 9.1.7.6. Leadership and Management Also the company develops its leaders Stages of the Graduate Development Programme Development Development Programmes through two types of mentoring pro- grammes: Successors pool planning and develop- In order to achieve its strategic and ME AND MY COMPANY ME AND MY PROFESSION ME AND MY CAREER ment is a high priority activity for further production goals, the company requires • Individual mentorship. Set up as pairing development of personnel capacity of the highly qualified leaders. The leadership of employees of different levels of company. The key stages of the process skills of the company staff are enhanced by responsibility in order to encourage Further professional development Building and consolidation Input assessment of business and of a graduate are as follows: developmental classroom and online train- professional and personal development of the junior staff member’s personal skills of a graduate ing courses, on-the-job training, as well as of the employee with the lower level of professional skills • identification of potential candidates learning methods based on relationships responsibility. In 2015, 87 employees Evaluation of prospects from among the Russian personnel such as coaching and mentoring. participated in the programme as mentees, for career in the company to fill positions occupied by expatriate and 37 employees as mentors. Preparing and approval Creation of motivation for further specialists and key and managerial Leadership development programmes of the graduate’s individual Professional competencies assessment professional growth positions occupied by Russian nationals; have been developed for all management • Group mentorship. A series of sharing development plan levels based on the Nine Planets leader- knowledge sessions under the Journey • assessment of the potential successors’ ship competency framework. to Nine Planets project. The company Assessment of business and personal readiness to succeed the positions leaders share their experience in Individual development Assignment of a mentor and coach skills using the Assessment Centre according to the succession plan; In 2015, 147 Russian employees of the building a career and managing projects plan implementation company occupying managerial positions and people as they relate to leadership • the potential successors’ development at various levels were trained under the competences. The audience includes in accordance with the job requirements leadership programmes. high potential employees in managerial for the positions planned for succession. and supervisory positions and potential 9.1.7.7. Graduate Development 9.1.7.8. Personnel Development Assign- successors to leadership roles. Nine Programme ments During the succession planning process sessions were conducted in 2015. for 2015–2019, potential successors (in the Since 2010, the company has been imple- plant, and a meeting with the heads of An integral part of the Sakhalin Energy short- and long-term) were identified for menting the Graduate Development Pro- various company divisions, during which HR strategy regarding the recruitment, 612 of the 673 positions within the scope gramme aimed to meet Sakhalin Energy the participants discussed career- retention, and development of employees of the succession planning (91%). For all Leadership and Management Development Programmes needs for talented staff. In 2015, repre- building strategies. is arranging personnel development employees included into the successor’s sentatives of company shareholders began assignments. pool, individual development plans were Management level Course title to participate in the programme. Future Horizons Programme developed incorporating training and CCL Leadership Programme Participation in the development assign- JG 1 development events to be taken under Highest Standard The company organises systematic work In order to improve competency of ments allows employees to gain extensive management the company’s learning and development Leadership Mastery with graduates in accordance with the graduates and provide them with basic experience in project work and receive level JG 2 framework (professional training, develop- Module Programme three-year development programme management skills, the Future Horizons additional opportunities for personal and ment of leadership and management (see Stages of the Graduate Development modular programme was developed career development. Transformational Management JG 3 skills, developmental assignments, Medium Module Programme Programme above). in 2014. The main objectives of the coaching, overseeing of projects, etc.). management programme are to realise the potential of In 2015, Sakhalin Energy signed seven Way to Success level JG 4-3 In 2015, the company hired 12 graduates young professionals, develop skills needed Framework Agreements on Arranging Module Programme under the programme. Since 2010, 94 for effective team collaboration and for Developmental Assignments with share- Access Code JG 5-4 people have participated in the Graduate understanding tasks and manager’s holder companies. Module Programme Development Programme. role as well as to create conditions to Initial Horizons of the Future management identify their own strengths and areas In 2015, developmental assignments at Module Programme Young Energy Graduates Club for development. In 2015, 30 graduates shareholder companies were arranged for level JG 7-5 Basic Management Skills participated in the programme. seven Sakhalin Energy employees, and six Module Programme Since 2012, the Young Energy Graduates developmental assignments of shareholder Club has been functioning in the company companies employees were arranged in Effective Team Management, Executive Management, Performance Management, to help graduates adapt quickly and Sakhalin Energy. Effective Business Meetings, Coaching develop their business and leadership Standard Programmes skills. In 2015, the Club organised a num- ber of events, including a visit to the LNG

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9.2. Labour Safety and Protection

9.1.7.9. Developing Scientific Potential 9.1.7.10. Internship Programme 9.1.7.11. Scholarship Programme 9.2.1. GENERAL INFORMATION

Sakhalin Energy pays great attention to In order to form an external successors The scholarship programme was In order to successfully implement major Data on instances of employees and The company also requires contractors to the development of scientific potential pool for “Graduate” positions, the company launched by Sakhalin Energy in 2003. projects and operate production facilities, contractor organisations violating the Life manage HSE issues in compliance with of its employees. As part of developing has been implementing the Internship the main focus must be health and safety. Saving Rules in 2015 are shown in the this approach and international standards joint technical projects, the company Programme since 2000. Working alongside The programme focuses on talented Sakhalin Energy has made a commitment chart Violations of the Sakhalin Energy adopted by the company. The company cooperates with universities and research highly qualified professionals, students graduates of secondary schools and to industrial safety and causing no harm Life Saving Rules in 2015, number of main fields of activity in the area of safety institutes. Company specialists are of Russian universities and vocational vocational schools of the Sakhalin to people. cases. remain: involved in the work of student scientific schools can become acquainted with Oblast who are interested in obtaining an societies, in preparing and delivering advanced production technologies and the industry-specific education and building At the end of 2012, the Health, Safety, Any violation of the Life Saving Rules • occupational safety; lectures, etc. best international and domestic business a career with the company. Environment, and Social Performance leads to serious consequences, including practices as well as gain unique practical (HSE and SP) Steering Committee decided dismissal. • industrial safety; The company holds scientific and practi- experience. The educational grants offered by to revise the company’s existing Life cal conferences for young professionals Sakhalin Energy are awarded in the form Saving Rules to bring them in line with The company uses a consistent approach • road safety. annually. All Sakhalin Energy employees In 2015, 88 university students and 21 of a scholarship (for those receiving state the company new Risk Profile. At present, when handling HSE issues (see Section 3.5 aged 35 or younger that have worked at students of vocational schools underwent funds to study at a university) or reim- the company uses eight Life Saving Rules HSE and Social Performance Management). the company for at least 12 months are on-the-job training and pre-graduation bursing of tuition costs (for those admit- adopted in March 2013. These rules are This approach complies with both legisla- invited to participate in these conferences. internships at the company. In 2015, about ted to the fee-based slots for a full-time particularly associated with the high-risk tion and risk management so as to ensure 75% of the interns were residents of the study at a university). zones. continuous improvement in this area. In October 2015, the company held the Sakhalin Oblast. 7th Scientific and Practical Conference In 2015, 10 graduates of Sakhalin schools of Young Professionals. Participants The company has a successful partnership became the contest winners. presented 25 reports in three areas: with the Polytechnic College of the Engineering and Geology, Production and Sakhalin State University in the area of As of the end of 2015, 30 Sakhalin resi- Maintenance, Information Technology, vocational education: dents who participated in the scholarship LIFE SAVING RULES and HR Management. This was the first programme studied at RF universities conference that was attended by someone • Every year, the company provides on-the- with the financial support of the company. outside Sakhalin Energy: one of the job training and pre-graduate internship I WILL NOT APPEAR AT WORK UNDER I WILL WEAR A SEATBELT WHEN papers was presented by a student of the opportunities for third- and fourth-year THE INFLUENCE OF DRUGS OR ALCOHOL TRAVELLING IN A VEHICLE Polytechnic College of the Sakhalin State students at the Prigorodnoye production University. complex. The internship programme for college students began in 2009. From 20 The Conference Evaluation Committee to 30 students studying in fields relevant I WILL ONLY DRIVE ON COMPANY BUSINESS included experts from the Production, to Sakhalin Energy receive internships at I WILL NOT SMOKE, CARRY OR USE IGNITION WITH A VALID DEFENSIVE DRIVING TRAINING Technical, and HR Directorates of the the company annually. SOURCES IN ACTIVE HYDROCARBON AREAS company as well as representatives of the AND JOURNEY AUTHORIZATION Gubkin Russian State Oil and Gas Univer- • Every term, the company holds career sity and the Sakhalin State University. guidance seminars for second-, third-, and fourth-year students. The students receive general information about the Sakhalin-2 project and about Sakhalin I WILL NOT WALK UNDER A SUSPENDED LOAD I WILL NOT EXCEED THE SPEED LIMIT Energy as a potential employer. These events help to motivate young people to work in their chosen profession after graduating from the college. Various kinds of internships at the company I WILL COMPLY WITH THE REQUIREMENTS I WILL NOT USE COMMUNICATION production assets and the traineeship OF PERMIT TO WORK DEVICES WHILST DRIVING programme are also discussed with the students (see Section 9.1.7.3 Personnel Training).

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Violations of the Sakhalin Energy Injury Rates for the Company and Contractor Organisations in 2013-2015 9.2.2. INDUSTRIAL SAFETY Life Saving Rules in 2015, number of cases 2013 2014 2015 Sakhalin Energy has an industrial safety The company submits production control such declarations for all hazardous policy and an Industrial Safety Manage- data to Rostekhnadzor annually as production facilities. Number of people injured in accidents 12 6 9 1 at the workplace, total ment System (ISMS) that comply with required by law. 1 Russian legislation and international best The company conducts industrial safety 3 including fatalities 0 0 0 practices. The company main industrial The company operates hazardous produc- training and certification for employees safety goal is to ensure individuals and tion facilities with the following hazards: working at the company hazardous Number of accidents for contractor society are protected from accidents at production facilities in compliance with 10 9 4 9 5 organisations at company facilities hazardous production facilities and to • reception, use, processing, generation, law and the ISMS. The procedure for mitigate their effects. storage, and transportation of hazardous industrial safety training, examination, including fatalities 0 0 0 substances listed in Appendix 1 to the and certification is in compliance with the An integral part of ISMS is overseeing Federal Law On the Industrial Safety of current legislation. Total registered incidents compliance with the industrial safety Hazardous Production Facilities; 5 0.89 0.46 0.68 (per 1 mln man-hours) requirements. This is done by evaluating The company achieves high productivity 9 the functioning of all hazardous produc- • use of equipment operated under and observes all industrial safety regu- Number of people injured in road traffic accidents 0 0 0.07 tion facilities of the company, preventing excess pressure (over 0.07 MPa); lations by using the latest technologies (per 1 mln man-hours) accidents at these facilities, and ensuring and regularly assessing and managing we are prepared to respond to accidents • use of permanently installed lifting industrial safety risks. The company takes Alcohol / drug abuse Failure to use safety belts and incidents and their consequences. equipment. many measures to improve performance, including: Smoking / use of ignition Failure to provide a valid defensive All aspects of industrial safety are As required by law, the company has sources in a hydrocarbon area driving certificate / trip permit continuously and regularly inspected by registered 10 hazardous production • setting up and operating the company company experts under the ISMS. These facilities in the state register, and hazard Industrial Safety Management System Failure to follow the requirements Speeding limit exceeding inspections are planned and carried classes were assigned. as required by law; of a work permit out so that the safety of all operations Use of handheld communication is effectively monitored at hazardous For hazard class I and II facilities, it is • auditing at different levels and regularly devices while driving production facilities. mandatory to develop industrial safety reviewing the ISMS; declarations. The company has developed

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• having an efficient and unbiased 9.2.3. SAFETY CULTURE achievements. Company and contractor The company has been holding Sum- senior management committed to an HSE In 2015, 115 line managers, HSE procedure for accident and incident employees are awarded monthly for con- mer and Winter Safety Days for the last culture. In 2015, supervisors at all levels specialists, and HSE critical contract investigation at the assets, preparing One of Sakhalin Energy priorities is to tributions to developing a safety culture eight years. All company and contractor (directors, facility managers, and heads holders underwent training to demon- reports as required by law; develop a corporate culture that will help such as excellent and safe work, timely employees meet to discuss relevant safety of subdivisions) visited the company and strate a commitment to HSE. Seven- achieve Goal Zero, which is no harm to response, and prevention of hazardous issues, such as how our actions and contractor production facilities 93 times. teen people were promoted to trainers • monitoring compliance with the people, bringing the incident rate to the situations. behaviour affect the safety of others and under the programme. The aim of the industrial safety rules set forth in lowest possible level, and encouraging what we can do to make work safer. They By doing this, they personally demon- programme is to achieve a common federal laws, other regulations, and proactive HSE behaviour in personnel Twenty-nine nominations were received also discuss following safety rules both at strated their commitment to a safety understanding of the current HSE local regulations; both in the company and in contractor in 2015. Six company employees received the workplace and outside working hours. culture to company and contractor situation, motivate employees to seek organisations. this award. Also, six awards were given to employees. This is an important factor in continuous HSE improvement, and • developing preventive measures and contractors. The key factor in developing a successful motivating employees and improving the remind them of the company’s goal organising accident and incident Personnel from Sakhalin Energy and con- safety culture is to have the company safety culture in general. to be an HSE leader. prevention work at all hazardous tractor organisations demonstrate their The Safety Culture Evolution Ladder production facilities of the company; commitment to safety principles and Goal shows how a safety culture evolves Zero. Goal Zero is to prevent incidents by toward the generative level. At this level, Safety Culture Evolution Ladder • offering industrial safety training and recognising hazards early and managing company employees trust their managers Generative a certification system for company risks. It is possible to achieve this goal sufficiently to share information that employees as required by law. only if each and every employee maintains will prevent incidents. Achieving this a responsible personal attitude towards level of corporate culture is the primary Proactive All the above measures implemented by safety. goal of all labour safety programmes the company along with a number of the implemented by the company. best practice tools guarantee that the If employees take personal responsi- Calculative company complies with industrial safety bility for complying with the HSE Rules When employees change their behaviour Increasing informed regulations at all stages of production, and intervening in unsafe situations, the so that safe behaviour is the norm at starting from designing each new well up company can reach its safety targets and production sites, in the office, and at to the moment oil is loaded into tankers production goals. home, it will be a tremendous step Reactive and liquefied natural gas is loaded into towards achieving the highest (generative) Increasing trust and accountability LNG carriers in Aniva Bay. In April 2008, the CEO award was estab- level of HSE culture. lished to promote safe behaviour and HSE Pathological

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The company continues to promote the and contractor employees took a training An interactive online course effective observation and intervention course. programme. The objective of the pro- An interactive online course was gramme is to prevent serious incidents by A workshop on managing safety technology, developed in International Minimum responding quickly to potential hazardous part of the Annual Sakhalin Energy HSE Industry Safety Training (IMIST) to be situations. Plan, was held in October 2015 and was used by companies and their contractors. a continuation of the series of workshops The course describes basic elements of As this programme is implemented in the started in 2012 for the company executive safety for the oil and gas industry as well company and contractor and subcontrac- management. The workshop in 2015 was as potential hazards and controls for all tor companies, a safety culture is being interactive and covered the following main employees. The course helps to reduce created and improved. topics: the number of injuries and incidents by ensuring that all personnel have the According to the Health, Safety, Environ- • major international process safety safety knowledge and basic skills neces- mental, and Social Performance Policy incidents; sary to recognise and minimise risks. and Commitments, it is the right and duty In 2013–2015, more than 500 employees of every employee to intervene in a poten- • learning from process safety incidents of the company and contractors received tially hazardous situation. at Sakhalin Energy; the training.

The effective observation and intervention • thinking biases and their impact on programme has been successfully used process safety; at all company facilities. In 2015, about 45,000 interventions by company and • reflective learning training for frontline 9.2.4. ROAD SAFETY contractor employees were recorded at all staff to bring the lessons learned from facilities. process safety incidents to remote assets In 2015, the Sakhalin Energy Road Safety non-compliance, and allows the com- perform oversight on a daily basis in (with support from Shell Russia); Programme received the Shell CEO’s pany to take steps to prevent situations different regions; Observation and intervention cards can be Special Award for HSE&SP excellence in that may lead to road traffic accidents. filled in when an employee sees positive • role of leadership in preventing major 2014, in the Achieving Good HSE and SP This year, the IVMS reports demon- • interaction with other organisations. examples of safety compliance or when process safety incidents; Results category. strated an improvement in driving. The The company initiated cooperation best practices are applied at the work- entire monitoring system covers more with Gazprom Dobycha Shelf, which place. In 2015, over 36,000 cards were • continuous improvement: how to create Company’s vehicles drove more than than 1,500 drivers and 640 vehicles; develops the Kirinskoye field, in order filled in with safety culture examples. chronic unease when things are going 9 mln km during 2015. In November to jointly solve road safety issues at the well; 2015, Sakhalin Energy reached a level • defensive driving training. All profes- south access road to Lunsky Bay. The The company also has a hazard iden- of high safety performance. We had sional and non-professional drivers Road Safety Monitoring team and the tification programme. The goal of the • improved frontline collaboration four years with no road traffic acci- take defensive driving courses. In 2015, State Traffic Safety Inspectorate keep programme is to identify and eliminate between Technical and Production dents in which people were injured. the courses were conducted for more watch over the south access road; potentially hazardous situations associated Directorates. This achievement is especially im- than 1,400 drivers of various catego- with equipment or system breakdown. portant taking into consideration the ries. Moreover, the company allowed • active participation in various forums, Every employee who identifies such a Participants at the workshop included difficult situation on the roads of the any employees to attend the defensive where the company shares its experi- hazard should fill in a hazard identifica- frontline supervisors, technical experts Sakhalin Oblast. driving training; ence in ensuring road safety under the tion card to report hazardous conditions, and contractor representatives. More than project; factors, or technical failures that they 50 process safety leadership commit- To maintain and improve its road safety • vehicle compliance control. All company cannot correct themselves. These cards ments as well as eight process safety performance the company continues to and (sub-)contractor vehicles used • implementation of the safe journey should be immediately submitted to the improvement plans were developed by implement the following: in production activities are checked, management programme at the com- manager in charge or HSE staff, so seri- participants, all aiming to improve the and company and (sub-)contractor pany facilities. Each Sakhalin Energy ous incidents are prevented. safety culture at Sakhalin Energy assets. • monthly meetings of the Road Safety drivers are monitored to see that production facility has appointed persons Steering Committee chaired by the they comply with road safety rules responsible for road safety who monitor Training sessions for developing a safe company CEO; and strictly comply with the RF the daily operation of all vehicles within behaviour culture are offered at all traffic legislation and the company the facility, including journey manage- production facilities of the company. In • analysis of IVMS reports. IVMS Road Safety Management Standard. ment and checkups of the technical state 2015, more than 1,200 Sakhalin Energy monitors driver behaviour, identifies Three Road Safety Monitoring teams of vehicles and transported cargoes;

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9.3. Occupational Health

Sakhalin Energy Occupational Health and Hygiene Standard

Medical examinations Health risk assessment Medical emergency response

OCCUPATIONAL HEALTH Medical requirements for contractors AND HYGIENE STANDARD Control over the prohibition of alcohol and psychoactive substances use at workplaces

Additional programmes of disease Chronic fatigue management prevention, other

• development and introduction of the All company vehicles are equipped with The company uses a systematic approach ing. The company continues to focus on In 2015, all company employees lifting cargo securing and vehicle transpor- monitoring devices that record drive, in protecting the health of its personnel. preventing employee fatigue. To do this, heavy loads or working in harmful and/or tation training course. Sakhalin Energy work and rest times (tachographs) and Sakhalin Energy has developed and additional measures were developed and hazardous conditions underwent manda- operations involve transportation of dashboard cameras. Moreover, in 2015, approved a corporate occupational health introduced to assess the risk. Company tory medical examinations. Over 85% of materials and heavy equipment using all company vehicles were equipped and hygiene standard, including the employees have access to interactive in- the office personnel underwent medical the roads of the island. Improperly with parking radars. following sections: formation on managing risks associated examinations. secured cargoes are one of the main with fatigue. reasons behind a significant number In 2015, more than 1,400 Sakhalin • health risk assessment; Performance indicators are analysed of road traffic accidents. It became ap- Energy and contractor employees Health risks are assessed at all com- on a regular basis in order to improve parent that a training course had to be received defensive driving training. • medical emergency response; pany facilities. A monitoring system for working conditions, prevent illness, and introduced when it was discovered that harmful occupational factors has also promote a healthy lifestyle. non-compliant cargo transportation • medical examinations; been introduced. Cause and effect were had risen under the project and that analysed to compare the production In 2015, an increasing number of con- there are no clear recommendations in • medical requirements for contractors; environment data (air in working zones, tractors applied the company approach the regulations of the Russian Federa- vibration, noise, microclimate, ionising to assessing cardiovascular disease tion on proper securing of cargo. • monitoring the use of alcohol and psy- radiation, etc.) and employee health data. risks and body mass index. This allows choactive substances at workplaces; Risks of harmful factors influencing em- them to effectively monitor the risk of An important objective of the Road ployee health at the production facilities developing acute coronary syndrome. The Safety Programme is to maintain high • chronic fatigue management; etc. are assessed based on the analysis. company uses software that allows only corporate safety standards even in areas employees who are fit in terms of health to outside the liability of the company and The company Occupational Health and Corrective measures are subsequently work at remote facilities. The company ap- its contractors, especially in Sakhalin Hygiene Standard was updated in 2015 in developed to minimise any risks, and proach to risk assessment of cardiovascu- communities where the company operates. accordance with corporate procedures. the Fountain electronic database is used lar disease and body mass index calcula- This objective is being handled by the Moreover, a specification was developed to make sure the measures are put into tion is based on an analysis of mortality for Sakhalin Road Safety Council, which for monitoring ionising radiation at pro- place. In 2015, the rate of reported reasons other than occupational injuries. was established at the initiative of the duction facilities. In accordance with the occupational diseases remained at These programmes were introduced at company back in 2005 (see Section 9.5.3 changes made to the Medical Require- a relatively low level (see the Rate the company remote production facilities Sakhalin Road Safety Council). ments for Occupational Fitness, company of Reported Occupational Diseases in 2010, and as a result the mortality level employees underwent clinical screen- in 2011–2015 table). dropped to virtually zero in 2012–2015.

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9.4. Human Rights

Besides mandatory health programmes, the awareness of the impact alcohol in 2015, the company continued its policy and drugs have on health; of encouraging personnel to keep fit and prevent diseases. • introducing a campaign against smoking. Every year on 31 May, Sakhalin Energy To do this, additional steps were taken, celebrates the World No Tobacco Day such as: when employees meet to discuss the problem of tobacco addiction. Smokers • preventing acute respiratory viral dis- are offered free medical advice and eases and influenza, including health supportive medical treatment. Also, education and vaccination; there is an extensive information campaign during which posters and • implementing a programme promoting leaflets are distributed; a healthy lifestyle and engaging in sports. An initiative group of the • continuing to implement high stand- company developed a schedule of ards for medical emergency response. activities to improve general health In 2015, over 300 employees of Sakhalin and promote fitness and sports. Energy and contractors completed first- According to this schedule, employees aid training. participated in sports and competitions both within their subdivisions and at Company employees and contractors the corporate level as well as in open at remote facilities of the Sakhalin-2 9.4.1. HUMAN RIGHTS: PRINCIPLES AND MANAGEMENT SYSTEM local and regional championships in project as well as company employees on various sports (football, volleyball, foreign business trips are provided with One of Sakhalin Energy key business prin- • stakeholder engagement in connection • Contracting and Procurement Policy; tennis, swimming, hiking, etc.); high-quality medical support guaranteed ciples is to run the business in a socially with human rights issues; by ZAO AEA International (Sakhalin). responsible manner, comply with the laws • Whistle Blowing Procedure / Community • providing access for company Company employees can also receive of the Russian Federation, and respect • efficient grievance mechanism; Grievance Procedure; employees and their families to the medical services at other healthcare fundamental human rights within the legal corporate sports and fitness centre in facilities listed by SOGAZ insurance com- business framework. • training of the company and contractor • Sustainable Development Policy. Yuzhno-Sakhalinsk (gym, swimming pany under the VMI (voluntary medical personnel; pool, football field, and tennis courts). insurance) programme (see Section 9.1.5 The company management provides a safe The Human Rights Policy (available on the Moreover, there are gyms and sports Social Guarantees, Benefits and Com- and confidential setting for employees • human rights monitoring and reporting. company website) sets forth the human fields at the company remote facilities; pensations). and external stakeholders to express any rights commitments and discusses man- concerns, questions, and raise issues The company human rights standards are aging risks associated with potential or • implementing a programme to prevent of human rights violations. The whistle laid out in the following principal documents actual violations of human rights resulting alcohol and drug addiction by raising blowing / grievance procedure (see Section to ensure they are implemented on a day-to- from company activities. 9.4.2 Grievance Mechanisms) is a key day basis: mechanism to implement that. Sakhalin Energy has adopted standards for Rate of Reported Occupational Diseases in 2011–2015 • Statement of General Business Principles; observing human rights in all situations The company integrated approach to human in which there is a potential for violating Total rate of reported 2016 2011 2012 2013 2014 2015 rights has several inseparably linked compo- • Human Rights Policy; these rights, namely: occupational diseases target nents, including: Company alone 0.6 0 0.56 0.61 3.33 5.0 • Code of Conduct; • employee relations; • Human Rights Policy commitment; • Business Management System; • working in communities; Company and contractors 0.6 0.8 0.5 0.39 1.15 5.0 • incorporation of commitments into the With temporary disability company strategy; • Commitments and Policy on Health, Safety, • contracting and procurement; 0 0 0.28 0.36 0.67 – (company alone) Environment, and Social Performance; • human rights risks and impact • asset security. With temporary disability 0.2 0.1 0.07 0.23 0.15 – assessment; • Security Policy; (company and contractors)

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The company holds training courses and The company fully acknowledges the rele- The company handles grievances based • setting target dates and taking con- information sessions on human rights (see vance of the Guiding Principles on Business on several principles (in compliance with certed actions to address grievances; Section 9.4.4 Human Rights Training). and Human Rights (Guiding Principles) the Guiding Principles): Security contractors in particular are approved by the UN Human Rights Council • confidentiality; informed about the company human rights in 2011. • legitimacy, and incorporation into the standards. corporate system; • applicability for both the company and In 2015, upon the invitation of the Russian contractors; Federation Ministry of Foreign Affairs, • accessibility; Sakhalin Energy participated in the 4th UN • using continuous learning, taking pre- Forum on Business and Human Rights in • transparency and openness; ventive measures and proactive steps. Geneva. • stakeholder engagement and ensuring At the Forum, the company annually pre- dialogue during the grievance process; sents its experience and achievements in applying the Guiding Principles. 9.4.3. GRIEVANCE HANDLING IN 2015

In 2015, as part of various corporate and recording hours worked by the In 2015, four grievances were received grievance mechanisms, 54 grievances employees. from company employees. These grie- and appeals were received from company vances concerned labour relations issues THE COMPANY’S HUMAN RIGHTS STANDARDS personnel and external stakeholders, By the end of 2015, eight grievances as well as the application of the employer’s including: out of the 16 received under the Whistle local regulations. All four grievances Blowing Procedure had been resolved. were resolved within the timeframe • 16 grievances under the Whistle In addition, three grievances received stipulated in the procedure. Employee Working Contracting Asset security Blowing Procedure; at the end of 2014 had been resolved. relations in communities and procurement All 11 grievances were resolved within The grievances from communities and • 4 grievances from employees of the the timeframe established in the Terms employees of contractor and subcon- company; of Reference for carrying out investiga- tractor organisations were addressed in The company’s activities tions. By the end of 2015, eight internal compliance with the Community Grievance • 34 grievances from the public and em- investigations based on reviews of the Procedure. They mainly concerned com- 9.4.2. GRIEVANCE MECHANISMS ployees of contractor and subcontractor grievances related to violations of the munity impact (e.g. condition of the roads, organisations. General Business Principles, the Code of impact on the local infrastructure), labour The company stakeholder engagement • Grievance Procedure to address labour dure for addressing grievances related Conduct, or other company procedures relations (contractor and subcontractor strategy is focused on minimising impacts issues of company personnel (violation to the Sakhalin Indigenous Minorities The grievances related to violations of the remained unresolved. These investiga- organisations), disclosure of information, on human rights. It is obvious, however, of employee rights under the laws, Development Plan in 2011 (see Section General Business Principles, the Code of tions will be completed in 2016. and the Sakhalin Indigenous Minorities that it is impossible to eliminate all regulatory legal acts, the company 9.5 Social Investment and Contribution Conduct, or other company procedures Development Plan (see the Categories of adverse impacts of a project as large local regulatory acts; violation of labour to Sustainable Development of the Host were handled under the Whistle Blowing Grievances from company personnel Public Grievances in 2015 table). as Sakhalin-2. This is why the company agreements and terms of labour con- Region). Procedure. These grievances concerned were examined as set forth in the adopted a grievance mechanism right as tracts with employees; other situations tender procedures, conflict of interest, Grievance Procedure. As of the end of 2015, 31 grievances out construction started to effectively address affecting the interests or violating the These mechanisms can help resolve of the 34 received from the public and grievances raised in connection with the labour and personal rights of employ- grievances quickly and efficiently, they employees of contractor and subcon- project. The mechanism includes the ees in the course of their work for the thoroughly document grievances and Categories of Public Grievances in 2015 tractor organisations had been resolved. following: company). corrective measures, and reduce the like- In addition, three grievances received at lihood that similar situations will reoccur, Grievance category % the end of 2014 had been resolved. All • Whistle Blowing Procedure to address • Community Grievance Procedure thereby contributing to building strong, Impact on communities 18 34 grievances were addressed within the violations of the Statement of General targeted to address grievances from long-term relationships with everyone Labour relations 9 timeframe stipulated in the Grievance Business Principles, Code of Conduct, the public and contractor’s / subcontrac- affected by the company. Procedure (less than 45 business days). Information disclosure 14 or other procedures of the company tor’s employees in connection with the By the end of 2015, three grievances (related to conflict of interest, bribery, Sakhalin-2 project. In addition to the SIMDP implementation 41 remained unresolved. The status of these corruption, etc.). Community Grievance Procedure, the Other issues (management of contracts, labour safety, the Code of Conduct) 18 grievances will be presented in the 2016 company established a separate proce- Sustainable Development Report. Total 100

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9.5. Social Investments and Contributions to Sustainable Development of the Host Region

9.4.4. HUMAN RIGHTS TRAINING

A certain level of employee awareness Examples of this training are as follows: Community Grievance Procedure training is required to incorporate human rights is offered for those employees who, due standards into the daily operations of the • general instruction; to the nature of their duties, may receive company and its contractors. Therefore, or resolve grievances from the public (e.g. In 2015, Sakhalin Energy the company offers systematic training • Code of Conduct; subdivision heads, reception desk em- and awareness sessions for the personnel ployees, and company representatives was awarded the third prize of Sakhalin Energy, its contractors, and • health, safety, environmental, and social who directly manage contractor organi- other stakeholders. performance training. sations). in the Russian ranking of the The company requirements in the area of The company conducts dedicated courses In 2015, personnel of the Road Transport human rights are included in a number of for specific personnel that have a higher Department, the Facilities Management Corporate Philanthropy educational instructions and courses that risk of violating human rights. The pro- Department, the Environmental Protection all company employees and contractors cess of identifying the correct training is Department, and employees of the Techni- are required to take. shown in the chart below. cal Directorate received such training. Leaders project.

Identifying the Correct Training

APPROPRIATE TRAINING / RISK RISK GROUPS AWARENESS RAISING ASSESSMENT IDENTIFICATION 9.5.1. SOCIAL INVESTMENTS AND SUSTAINABLE DEVELOPMENT: SAKHALIN ENERGY’S PRINCIPLES AND APPROACHES PROGRAMME Since its establishment in 1994, the In accordance with the company’s Social audit requirements, Sakhalin Energy con- company has paid close attention to Investments Strategy, Sakhalin Energy is duct continuous internal monitoring and a • Contractors • Corporate social responsibility implementation of social programmes on implementing projects that: biannual independent external evaluation Sakhalin Island. Significant and con- of social investment projects. • Asset security • Contract holders • Grievance procedure sistent investments in social sphere, as • result from consultations with the • Hazardous work conditions • Security department personnel • Occupational safety well as a long-term policy focused on public and meet the identified needs The social investment management • Addressing grievances (and respective contractors’ personnel) • Human rights observance • Reception personnel by security contractors addressing the social issues, are the core of the communities impacted by the system used by the company is similar of Sakhalin Energy’s commitment to sus- company’s activity; to its management of other business tainable development principles. Sakhalin activities. It involves prioritisation and Energy pursues a policy of mutual invest- • relate to issues that affect the compa- detailed descriptions of the programme 9.4.5. MONITORING HUMAN RIGHTS ments of resources for the benefit of all ny’s reputation; implementation plans, decision-making stakeholders. processes and social investment manage- Monitoring is important for ensuring hu- and representatives of contractor of CED members, oversees compliance • may not directly relate to the com- ment procedures. man rights are observed. Monitoring and organisations, for receiving feedback; with the established grievance process. In 2015, Sakhalin Energy was among the pany’s activity, while contributing to reporting of human rights are done both winners of the Corporate Philanthropy economic, environmental, and social Sakhalin Energy’s social investment internally and externally. • reviewing contracts to make sure they Conclusions on compliance with human Leaders project, it was awarded the third development of Sakhalin Island; programmes are aligned with the com- contain human rights provisions. rights standards are included in regular prize in the Russian ranking. Corporate pany’s long-term goals in its host region, As a rule, monitoring includes: internal reports for the management and Philanthropy Leaders is a joint project • contribute to sustainable economic, Sakhalin. Internal monitoring is done at the sub- shareholders as well as in the company of the Donors Forum, Pricewater- environmental and social develop- • visiting communities; division level as well as by the Internal annual Sustainable Development Reports. houseCoopers and Vedomosti business ment of Sakhalin and demonstrate the In the area of social investments, Sakha- Monitoring Department. External newspaper and is aimed at supporting, company’s commitment to sustainable lin Energy focuses on implementing • surveys conducting among the personnel monitoring includes regular audits developing, and promoting corporate development to stakeholders. strategic long-term partnership projects of the company and external by lenders, shareholders, and philanthropy. with external stakeholders, and on using stakeholders; independent experts. The Social Investment Strategy is a part various tools and techniques to imple- In 2015, the company invested over of the Social Performance Management ment social programmes, including • meeting with internal and external The Business Integrity Committee, 60 mln roubles in various external social Standard. Pursuant to the Strategy and in competitive funding. stakeholders, including local community, which includes the CEO and a number programmes in the Sakhalin Oblast. accordance with the company’s internal

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The company defined its main priority Over the years of social investment pro- areas for social programmes through gramme development, Sakhalin Energy consultations with the public. These are: has built its own model for managing external social programmes that is based • safety; on company policies and the best inter- national charity practices. The company • education; does not only seek to adapt and use the best international practices, but it has • environmental protection and biodiversity; become an example of corporate philan- thropy. • culture and arts;

• health;

• contributing to the development of the Sakhalin Indigenous Minorities.

Focus on the Implementation of Strategic Long-Term Partnership Projects

Partners: FPIC (free, prior and informed consent). SIMDP case has 9.5.2. CHILDREN’S SAFETY (WHAT TO DO IN EMERGENCY SITUATIONS PROGRAMME) been included into the Stakeholder Engagement Handbook, SAKHALIN INDIGENOUS company, Sakhalin Oblast issued by the International Finance Corporation. MINORITIES Government and Regional The Plan was recommended at the parliamentary hearings Sakhalin Energy is committed to high Anniversary of the Programme “Childhood Tales.” The Film Forum DEVELOPMENT PLAN Council of Authorised Representatives of Sakhalin in the Russian Council of Federation as an example for standards and follows corporate princi- organised by the RF Ministry of Culture, Indigenous Minorities Russian regions ples and values, among which top priority In November 2015, the programme the Russian Embassy in Serbia, and the is given to safety. Due to its geographical celebrated its 10th anniversary. In Russian-Serbian Humanitarian Centre, location and geological features, the total, 35 cartoons on safety issues have included cartoons featuring Senya about Sakhalin Oblast is one of the few regions been released over the project lifetime. safe behaviour in emergencies. Partners: in the Russian Federation where almost Children participated as co-authors of a WHAT TO DO A complex educational programme, targeted IN EMERGENCY company, Sakhalin on schoolchildren and aimed at teaching system any kind of natural disasters may occur. number of them. By now, children have Over 100 schoolchildren participated in SITUATIONS EMERCOM, Sakhalin Ministry development in the sphere of life safety The region frequently deals with earth- learned by heart the motto of all the the Safety Is Important quiz, an open of Education quakes, floods, hurricanes, blizzards, forest cartoons featuring Senya: “Everyone event held on 1 September, to check their fires, etc. Therefore, it is essential that should know for certain—safety is very knowledge of safety rules. In addition, children on Sakhalin and the Kuril Islands important.” The project is popular not several schools in Yuzhno-Sakhalinsk know what to do in case of an emergency. only on Sakhalin but also in the Russian held safety lessons with Senya, and the Initiated by the company in one of the most critical and Since child safety issues are a priority and Far East, St. Petersburg, Arkhangelsk, Cadet School hosted a computer game KORSAKOV SUSTAINABLE Partners: malcontent communities on the island. Now the parthership DEVELOPMENT obviously relevant to the Sakhalin Oblast, and Khakassia. that tested knowledge of safe behaviour of the public, business and authorities contributes a lot to PARTNERSHIP company, Korsakov in 2005 the company initiated a pro- in various dangerous situations. local sustainable development and is moving to a new level COUNCIL Administration, public gramme that is carried out in partnership Two new cartoons about playground of interaction with UNDP expertise with Sakhalin Emercom and the Ministry safety and preventing burns were On the International Day for Disaster of Education of the Sakhalin Oblast. released in 2015. Reduction in October 2015, the Annual Regional Children’s Safety Holiday was Partners: The programme has several directions, Comic books have also been published held on Sakhalin for the sixth time. It company, Sakhalin Oblast The first partnership of such kind established on the one of which is creation of the short based on the Beware of Frost!, Beware was attended by 16 teams of children ROAD SAFETY Government, Department of territory of the Russian Federation with support of Global educational cartoons on safe behaviour in of the Flu!, and Flickers cartoons. aged 11–12 years from 15 districts of PARTNERSHIP the RF Ministry of Internal Road Safety Partnership (2005). Later on this succsessful various situations. the Sakhalin Oblast. The participants Affairs for the Sakhalin example was replicated in other regions On 15–19 September 2015, the Days practised the rules of safe behaviour on Oblast, public of Russian Children’s Films Festival was the water and on a hike, at home, and in held in Nis, Serbia with the theme case of a natural disaster. They learned to

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give first aid to the injured and answered The Children’s Safety Programme initiated Map of the Information Boards Location questions about traffic rules and fire by the company was awarded the first safety regulations. The children were prize in the KonTEKst PR contest. The judged by experts such as rescuers, contest has been held with the support firemen, doctors, and inspectors of the of the Ministry of Energy of the Russian Okha district State Small Vessels Inspectorate and Federation since 2009. The main objec- 6 the State Road Safety Inspectorate. tive of the contest is to identify and sum- marise the best practices in information, In 2015, Senya Warns: Information Boards social, charity, environmental, and other in Tsunami-Hazardous Communities and programmes that benefit the community Avalanche-Hazardous Areas of the and have a positive impact on the image Sakhalin Oblast was successfully com- and reputation of energy companies. pleted. During 2015, information boards were set up in Okha and Alexandrovsk- The Children’s Safety Programme of the Sakhalinsky Districts. company was also included in the “Best Social Projects of Russia” collection, In 2015, a new programme component which comprises materials of the pro- called Senya Teaches was developed. This gramme under the same name created was a workshop aimed at development of to support the Russian Government awareness-raising health and safety cam- policy to strengthen the social policy with Alexandrovsk- Sakhalinsky district paigns for high school students partici- the partnership of the state, society, and pating in the regional School of Safety. At private business. It is supported by the 18 9.5.3. SAKHALIN ROAD SAFETY COUNCIL the end of the workshop, each team gave RF Ministry of Natural Resources and a short presentation and showed a poster Environment, the Agency for Strategic During 2010–2015, Safety is a universal term. Therefore, as victims in road traffic accidents (RTA) on one of the topics related to promoting Initiatives, WWF, FSC, and a number of Smirnykh 196 information boards a socially responsible company, Sakhalin and the number of road traffic accidents. district safe behaviour to the jury. The winners other organisations. Energy is seeking to inspire the general 5 warning of the risk received prizes as well as funding for of a tsunami or avalanche public to adopt its high industrial safety Under the implementation of road implementing the information campaigns In December, the CEO of Sakhalin Energy Poronaysk standards in order to develop a safety infrastructure direction of the programme, district they had designed. The most important received an award from the Sakhalin Uglegorsk were installed in 12 Sakhalin culture in the surrounding communities. the equipment of the pedestrian crossings district results of the project were the willingness Oblast Government during a meeting 6 districts. An important objective of the Road Safety with the latest traffic control was confirmed. and ability that older students demon- held to review civil defence and emer- 21 Programme is to instil corporate safety It helps drivers be aware of road signs and strated to share their knowledge with gency prevention and response initiatives Makarov standards in the areas outside the liability pedestrians in cross walks. The effectiveness younger schoolchildren. It was also the taken by the executive branch of the district limits of the company and its contrac- of this project, which was started in 2013, beginning of Senya’s Volunteer School. Sakhalin Oblast and local governments. 12 tors, especially in the Sakhalin settle- has been confirmed by the statistics of The award was given to the company for ments where the company operates. the Department of the State Road Safety many years of building a culture of safe This is being done by the Sakhalin Road Inspectorate of the RF Ministry of Internal behaviour in the community through the Tomari district Safety Council (Road Safety Partnership) Affairs for the Sakhalin Oblast. The number of implementation of road safety and child 17 established at the initiative of the company accidents at these newly marked pedestrian safety programmes. in 2005. crossings has decreased by several times. Dolinsk district The cartoons and other materials created 16 The Partnership is one of the company’s Regarding education and awareness under the programme are available at Kholmsk district flagship social programmes, and all the direction, a campaign was held to promote www.senya-spasatel.ru. 29 stakeholders actively participate in it. safety at pedestrian crossings. Its main The Sakhalin Oblast Government and the purpose was to educate the public on Korsakov district 10 Department of the RF Ministry of Internal safe behaviour at pedestrian crossings. Affairs for the Sakhalin Oblast partner These issues were promoted on television Aniva district 11 with the company on road safety. commercials and banners, radio contests, Nevelsk district internet publications, and public events 45 The Council develops and implements that took place in Yuzhno-Sakhalinsk, projects aimed to reduce the number of Kholmsk, Korsakov, and Aniva.

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The road safety classes continued its Anniversary of the Programme the traffic rules, made light-reflective 9.5.5. HURRY UP FOR GOOD DEEDS activity in 2015. These classes are held at souvenirs, and showed off their skills six educational institutions in the Sakhalin In June the Road Safety Partnership in giving first aid to victims of traffic Corporate volunteering is one of the of the equipment, and new sports equipment purchase books for children in orphanages Oblast (the House of Children and Youth programme celebrated its’ 10th anniver- accidents. The parents used a computer ways to incorporate corporate social re- were donated). and social rehabilitation centres located far Creativity, secondary comprehensive sary. Sakhalin Energy and its partners, programme to test their own knowledge sponsibility. The opportunity to contribute from the capital of Sakhalin. schools No. 31 and 32 in Yuzhno-Sakhalinsk, the Sakhalin Road Safety Inspectorate, of the road safety rules and found out into solving social issues forms positive The New Year Miracles is an annual secondary comprehensive school No. 1 and the Sakhalin Oblast Government how well they knew the construction of attitude towards the company and pride charity event to raise funds for disabled In November 2015, life safety lessons in Korsakov, secondary comprehensive organised a festive event with the motto mopeds. for self and the company. The company children, lonely elderly people, and children were held in primary schools and school No. 6 in Kholmsk, and secondary “Together for Safety on the Roads.” actively integrates corporate volunteering suffering from hardships. In 2015: kindergartens at the initiative of comprehensive school No. 7 in Okha). The The participants of the event painted Information on the Sakhalin Road in its charitable programmes, providing company staff. Company employees told classrooms are equipped with modern road signs, played a road safety game, Safety Council is available at support to employee initiated volunteer • Employees dressed up as the Russian the children about how to properly set interactive equipment and software so and entered their drawings in the Road www.sakhalinroadsafety.ru. activities. Volunteering immerses traditional New Year characters Father off firecrackers and fireworks and dress that classes and activities can be offered and Us contest. Young participants took employees into a new environment and Frost and Snow Maiden handed out New in winter, explained to them the rules for a variety of age groups. tests to demonstrate their knowledge of enriches their personal experience, Year gifts to children with disabilities of safe behaviour on ice, and much stimulates creative thinking, and inspires from low-income families that the more. The lessons were held in Yuzhno- them to find innovative solutions. The children had asked for in their letters to Sakhalinsk, Korsakov, Dolinsk, Nogliki, Hurry Up for Good Deeds Programme, Father Frost. and Val. which was launched in 2003 to support employee charity initiatives, is an example • On New Year’s Eve, the staff of the Cen- of this. tre of Social Support for the Population of the Sakhalin Oblast handed out 200 9.5.4. ENERGY SOCIAL INITIATIVES FUND In 2015, the programme was carried out in gifts donated by the company employees three main areas: to elderly people living alone. The Energy Social Initiatives Fund is one In 2015, funding was granted to 39 pro- Number of Projects Supported of the Sakhalin Energy charitable pro- jects (out of the 98 applications submit- in 2003-2015, by districts • charity projects; In 2015, employees and their family grammes that demonstrates the com- ted). These are all socially significant pro- members participated in Voluntary prehensive and consistent approach to jects in the field of art, culture, education, • volunteer days (Voluntary Community Community Work Days in August and promoting social transformation in the sports, promoting healthy lifestyles, and 120 Yuzhno-Sakhalinsk Work Days), which involve volunteer- October. Summer volunteering was held host region and commitment to solving environmental protection. 57 Tymovsk ing for one of the social institutions on at Sakhalin Botanical Gardens, and the relevant issues of local communities. Sakhalin; autumn work was done at the Dolinsk 40 Dolinsk Launched in 2003 the grant contest to sup- Since 2003, more than 240 organisations Boarding School for Deaf and Hearing port socially important initiatives allows to and institutions have received financial 34 Kholmsk • fundraising campaigns organised by Impaired Children. identify interesting and effective solutions support, 450 projects have been imple- 33 Poronaysk the company. Employees either make to community issues. The support of such mented in 64 Sakhalin settlements under financial donations or volunteer to help At the initiative of company employees, initiatives at the local level can go a long the Energy Social Initiatives Fund. The 26 Smirnykh organise the campaign. several charity events were held during the way toward solving these problems. More- company has invested 40 mln roubles. 24 Nogliki year. The Department of Adaptive Physical over, it gives socially active citizens con- The Dolinsk Boarding School for Deaf Education of the Sakhalin Children’s and 21 Aniva fidence that they can improve the lives of and Hearing Impaired Children received Youth Alpine Skiing Olympic Reserve people around them and increase capacity 18 Makarov financial support from the corporate cam- Sports school received mountain boards of public organisations. In considering 18 Uglegorsk paigns in 2015. Employees collected under the social initiative of the Company proposals, the company adheres rigorously nearly 1.88 mln roubles within two cam- Healthy Lifestyle Promotion Committee. 17 Nevelsk to the principles of openness and trans- paigns, one of which was timed to the Now, young snowboarders can practise parency. The Expert Council, consisting of 16 Okha company birthday and another one — to year round. The Miracle Island Children’s representatives of the company, NGOs and 12 Alexandrovsk-Sakhalinsky the Oil and Gas Workers Day. This amount Club, which is attended by the children of government, evaluates proposals and se- was matched by the company; thus company employees, organised an autumn lects the winning projects. Information on 8 Korsakov 3.7 mln roubles was used to purchase charity fair. The funds they raised were used the terms and conditions of the contests 6 Tomari new equipment to ease the lives of the to purchase computers and other equip- and the selection criteria is available on boarding school students (a hearing loop, ment for students of the Aniva Centre for the website of the Energy Social Initiatives an infra-red sound intensifier, a new Social Rehabilitation of Children. Another Fund (www.fondenergy.ru). sensory room, sewing and embroidery charity event was initiated by employees to

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9.5.6. KORSAKOV SUSTAINABLE DEVELOPMENT PARTNERSHIP COUNCIL 9.5.8. SAKHALIN INDIGENOUS MINORITIES DEVELOPMENT PLAN

Following one of the basic principles of The programme is managed by the Korsakov In 2015, public consultations were held on 9.5.8.1. Goals and Structure of the SIMDP • the process for informing Sakhalin In- Evaluation Team included G. E. Guldin, an sustainable development—to meet the Sustainable Development Partnership the Korsakov Sustainable Development digenous Minorities of any Sakhalin-2 international expert, Head of Cross-Cul- needs of the present without compro- Council, which consists of nine members, Partnership Council activities in the Sakhalin Energy, the Regional Council of the project expansion; tural Consulting Services; V. E. Valdiu, a mising the ability of future generations to three from each partner: Sakhalin Energy, communities of the Korsakov District. The Authorised Representatives of the Indigenous representative of the indigenous peoples meet their own needs—Sakhalin Energy government authorities, and the community residents were informed about the Kor- Minorities of North of Sakhalin, and the Sakha- • provision of information about the of the Khabarovsk Krai; and A. T. Konkov, initiated a Social Investments and Sus- of the Korsakov District. sakov Partnership Council, its achieve- lin Oblast Government have partnered together mechanism of funds distribution under Chair of the Sociology Department of the tainable Development programme in the ments, completed projects, and plans for since 2006 to implement the Sakhalin Indigenous the SIMDP programmes; Sakhalin State University. The following Korsakov District of the Sakhalin Oblast. In addition to being a stakeholder engagement the future. Minorities Development Plan (SIMDP or the monitoring was done: a sociological The company finances social projects tool and expert council to review social projects, Plan) in the Sakhalin Oblast. The programme • Grievance Procedure. survey of the population in the areas under this programme, including the the Korsakov Council also plays a role in Materials on the Council are available at has been divided into five-year of traditional residence of the Sakhalin Korsakov Initiatives contest. monitoring social development in the district. www.korsakovsovet.ru. phases, with 2011–2015 being SIMDP 2. The representatives of the indigenous mi- Indigenous Minorities; meetings in norities elected from each district to work 12 settlements with Plan participants, The mitigation matrix was developed as a in the SDF Council and TEASP Committee stakeholders, representatives of govern- result of the 2005–2006 multipartite con- were responsible for distributing funds al- ment authorities, and Plan partners; 9.5.7. VICTORY DAY PROJECT sultations. The matrix included potential located for projects. This has become an participation in the meetings of the issues and mitigation measures. It was important distinguishing feature of SIMDP 2. SIMDP management bodies; an analysis To mark the 70th anniversary of the plenum and conference and support the company information centres in the updated as necessary and reviewed at The budget of the Plan was divided of the implementation of the SIMDP Victory in the Great Patriotic War the development of district veterans’ local libraries (see Section 7.4 Local each meeting of the Governing Board of between the two programmes equally projects and programmes; etc. company focused its efforts on taking organisations. Communities Engagement through the SIMDP 2. Under implementation of SIMDP 2, (50/50). In 2015, the TEASP and SDF pro- care of war veterans and home front Company Information Centres). the matrix contained five issues: grammes each received 8.2 mln roubles. The final evaluation of the programme workers. In 2015, the Veterans Project, • Sixty veterans from Yuzhno-Sakhalinsk, can be found on the website of the Plan which was held on Sakhalin, continued. Aniva, and Dolinsk were given an oppor- • Veterans in Yuzhno-Sakhalinsk and • concern of the consequences of oil and The final external evaluation of SIMDP 2 at www.simdp.ru. tunity to see the theatre performance 25 other Sakhalin communities received other substances spill; was held in June 2015. The objectives of • On the eve of Victory Day, the company Vasily Terkin. gifts and greetings from company the final evaluation were to determine if presented a check for 700 thousand employees. • provision of information about the the Plan achieved its goals and to provide roubles to the Sakhalin Regional Coun- • Events were held in the settlements measures aimed at biodiversity con- recommendations on developing SIMDP 3 cil of Veterans to hold the Council’s of the island for veterans and youth at servation; (2016–2020). The Plan Completion

Note: The issue was closed by the decision of the Governing Board on 29 June 2011. 138 139 9. Social Impact Management

9.5.8.2. Traditional Economic Activities 9.5.8.3. Social Development Fund 9.5.8.4. SIMDP 3: Development Support Programme of SIMDP 2 of SIMDP 2 SIMDP 3, like the previous ones, is based The Traditional Economic Activities Funds are distributed in the following on international standards on indigenous Support programme assists in developing areas: peoples and is implemented in com- employment and business opportunities pliance with them. SIMDP 3 takes into for indigenous minorities. • education, health, capacity building account the experience gained over the of the indigenous peoples; past decade. To increase the participation The resources of the programme are of the Sakhalin Indigenous Minorities at distributed through: • culture—Link of Times competitive the district level and to further promote programme. the Plan in the seven districts of traditional • Business Planning; residence of the Sakhalin Indigenous In 2015, the Social Development Fund Minorities, district committees have been • Self-Sufficiency Grants; Council supported 26 projects aimed at added to its management structure. the development of traditional culture, • Microloan Fund. education, health, the preservation and The development of SIMDP 3 was carried study of indigenous languages, and out in accordance with the principle of In total, 72 applications were received capacity building. The projects were free, prior, and informed consent (FPIC) in 2015 in the first two areas. The Pro- developed and selected by representatives contained in the United Nations Declara- gramme committee selected 41 projects of the indigenous people. The partner in tion on the Rights of Indigenous Peoples (support of clan and family enterprises, implementing the SDF long-term projects (2007) and Performance Standard 7 on communities and other associations of was the Kykh-Kykh (Swan) Centre for Indigenous Peoples of the International Long-term strategic planning with the The first round of the consultations was Under development of SIMDP 3, special the Sakhalin Indigenous Minorities, and SIM Traditional Culture Preservation and Finance Corporation (IFC). The objectives concept of sustainable development as held in February 2015 to gather opinions attention was given to discussing the aid for representatives of the Sakhalin Development Okha Local Public Organi- of each five-year phase of the programme an objective will also be emphasised; and proposals and to set priorities for Grievance Procedure (Procedure) with Indigenous Minorities) submitted from sation. Thus, in the area of education, 48 are identified by the indigenous popula- developing programmes and the Plan’s the population. The Procedure regulates the four districts of traditional residence students of secondary vocational educa- tion during consultations. The objectives • independent fund preparation. Assist- management structure. the process of submitting, recording, of the Sakhalin Indigenous Minorities. tion institutions and universities received of SIMDP 3 include: ing Sakhalin Indigenous Minorities to and resolving grievances related to the Outboard motors, fishing gear and net financial support. For details about the prepare for the eventual establishment A survey was conducted to assess the implementation of SIMDP 3. The Proce- materials, snowmobiles, consumables, projects, see the website of the Plan at • capacity building. Enhancing the of an independent Indigenous Minorities results of SIMDP 2 and to make proposals dure was developed in accordance with and certain types of electrical appliances www.simdp.ru. capacity of Sakhalin Indigenous development fund; regarding the preparation of SIMDP 3. the general principles and approaches used for traditional economic activities Minorities to actively participate in the Questionnaires were handed over to of the Grievance Procedure for handling were purchased under the programme. “The Secrets of Promotion,” a project of self-management of their own affairs. • project environmental effects disclo- the local representatives of the SIMDP grievances of the population and the the School of Young Leaders 2015, was Such capacity-building could range sure. Providing timely, objective and governing bodies for further receipt of requirements of Sakhalin Energy in re- The Microloan Programme was designed conducted in Yuzhno-Sakhalinsk. The from leadership training, to technical complete information to the Sakhalin proposals; people were given an oppor- spect of human rights (see Section 9.4.2 to promote the traditional economic purpose of this workshop was to inspire skills enhancing (e.g., for accounting, Indigenous Minorities’ community of the tunity to fill in the questionnaires on the Grievance Mechanisms). In addition, the activities of the Sakhalin Indigenous the youth and to teach organisational report-writing, budget preparation, actual and/or potential impacts of the Plan website. Procedure is in line with the provisions of Minorities and to increase the availability and leadership skills to representatives traditional economic and cultural activ- Sakhalin-2 project on the environment, the Guiding Principles on Business and of funding sources. The partner of the of the indigenous peoples of the Island. ities, business planning), to heightened and the measures taken to prevent During the second round of the consulta- Human Rights. programme was the Batani International Eighteen young people from Okha, Nogliki, cultural and ethnic self-awareness; and/or minimise any potential negative tions, stakeholders were provided with a Development Fund for Indigenous Peoples Tymovsk, and Poronaysk Districts and impacts. draft of the Plan’s selected components, Many of the recommendations obtained in of the North, Siberia, and the Far East of Yuzhno-Sakhalinsk completed the • social, cultural, and economic develop- subcomponents, and the governance the course of the consultations as well as the Russian Federation. Since the pro- “I Am a Leader” training course, aimed ment. Improving the lives and liveli- To ensure that the opinions of the Sakhalin structure; a list of the Plan’s coordinating the results of the final evaluation and the gramme was completed, no applications at teaching leadership skills, competen- hoods of the Indigenous Minorities of Indigenous Minorities are taken into bodies; mitigation matrix; and the grievance public opinion survey were also taken into for issuing credit were received in 2015. cies, and abilities. Sakhalin Oblast through the implemen- account during the preparation of SIMDP 3, procedure for management of grievances account in developing the Plan. Therefore, tation of social and economic develop- two rounds of extensive and open consul- submitted by the local population regard- it underwent significant modifications. ment plans in a culturally appropriate tations were conducted in all the areas of ing implementation of the SIMDP. This manner. Cultural revival, economic their traditional residence and economic second round of the consultations was viability of traditional economic enter- activities. The consultations were held held in October 2015 in the areas of tradi- prises, and improved social conditions in 13 Sakhalin communities and were tional residence and economic activities will be targeted areas for support. attended by more than 500 people. of the SIM.

140 141 2016 Plans and Development Strategy up to 2020

9.5.8.5. SIMDP 3: Free, Prior, In November 2015, a special conference On the basis of the Conference decision and Informed Consent (FPIC) organised by the Regional Council of the statement of consent to the contents the Authorised Representatives of the of SIMDP 3 was signed. During the first round of consultations, Indigenous Minorities of the North of the Working Group established to Sakhalin was held in Yuzhno-Sakhalinsk The Cooperation Agreement to implement prepare SIMDP 3 collected recommenda- to approve and/or amend the Plan. The the five-year Sakhalin Indigenous tions and opinions of the stakeholders. conference was attended by the Sakhalin Minorities Development Plan 3 Indigenous Minorities representatives (2016–2020) was signed by the During the second round of consulta- elected in all the communities of partners on 16 December 2015. tions, the Working Group presented traditional residence of the SIM and dele- a preliminary draft of the selected gated for participation in this event. The components, sub-components, and conference participants agreed that the sections of the Plan. consultations were carried out without compulsion, were held early enough to Taking into account the comments discuss the issues at length, and were received during the consultations of the accompanied by the relevant information Working Group, a draft version of SIMDP 3 regarding SIMDP 2 and SIMDP 3 was drawn up and sent to all the stake- to formulate our own independent holders, including the indigenous peoples assessment of the SIMDP. at large in all the districts of traditional residence of the Sakhalin Indigenous Minorities for review and comments.

142 143 Sakhalin Energy Plans

Sakhalin Energy has set the following • the development of the OPF Compression component of Sakhalin Energy’s successful priorities for 2016: Project and LNG train 3 project. performance. The strategy and plans for engaging the general public for 2016 are • ensure the safety and reliability of In 2016, the company will continue to work included in the Public Consultation and production; with customers to ensure the most favou- Disclosure Plan (published on the company VISION: To be the rable conditions for the sale of oil and gas. website). • improve the efficiency of oil and gas premier energy field development and the production of Robust at $40 corporate programme In its social investment and sustainable hydrocarbons; launched in 2015 will be even more focused development programmes, Sakhalin source for on continuous cost optimisation in 2016. Now Energy will continue to give priority to • optimise costs; it will be implemented as Robust at $35 and partnerships with external stakeholders Asia-Pacific. will have a focus on maximising the optimi- and to long-term social programmes. • develop the project with regard to the sation of production processes, continuous principles of continuous improvement improvement and lean process. Sakhalin Energy will continue to conduct MISSION: Sakhalin and lean processes. its business in compliance with the The continuous improvement programme adopted General Business Principles, Energy is committed In 2016, the company will continue its involves the establishment of a corporate Code of Conduct, Sustainable Development health, safety and environmental (HSE) culture in which everyone feels involved and Policy, and corporate social responsibility to being a premier protection projects. Goal Zero, i.e. work with is aware of own capacity for action and of standards. Sakhalin Energy will endeavour no harm, spills, or damage to production the importance of continuing the search for to make further improvements in sustainable energy supplier, facilities while preserving the environment, more effective methods of work, the result of development. recognised for its remains a top priority for the company. The which will meet the expectations of the end key activities in this area are as follows: user and the needs of the company. operational excel- • increasing the commitment of the HR management strategy for 2016 and lence, reliability, and company’s leadership and employees subsequent years involves: to a positive HSE culture; safety. We conduct • attracting and retaining the best industry • increasing the awareness of HSE within experts; our business in an the company and caring for the health of ethically, socially, the company personnel; • investing in professional and personal training and development of Russian and environmentally • handling transport safety issues and job specialists; hazards; responsible manner. • delivering an attractive and competitive • ensuring the technical integrity of the employee value proposition (EVP); company’s assets and process safety; • delivering simple and clear HR processes; • ensuring compliance with Russian and international requirements and promoting • implementing collaborative work industry best HSE practices. environment (CWE) in the offices and at the company assets. The main production projects for 2016 involve: OPF Compression Project and LNG train 3 project are an integral part of the HR • intensive operations at the three offshore strategy and the HR policy for 2016 and platforms, including drilling optimisation subsequent years. projects and work to maintain coil, gas and LNG production at consistently Regular and meaningful stakeholder high levels; engagement remains an important

144 145 APPENDICES

146 147 Appendix 1

Appendix 1. GRI Guidelines Compliance Table (rev. 4.0)

GENERAL STANDARD DISCLOSURES

Disclosure of Page Disclosure of Page Comments and references Comments and references GRI index Element/indicator the element/ Report section in the GRI index Element/indicator the element/ Report section in the to other sources to other sources indicator report indicator report STRATEGY AND ANALYSIS G4-14 Explanation of whether and how the Full Sakhalin Energy’s CSR System 17–18 precautionary approach or principle is G4-1 Statement from the most senior decision- Full Message from the Chief Executive Sustainable Development Policy 20 addressed by the organisation maker of the organisation Officer 6 Risk Management 46–49 G4-2 Description of key impacts, risks, and Full Message from the Chief Executive Impact Assessment 23 opportunities Officer 6 G4-15 Externally developed economic, Full Performance Standards 19 Risk Management 46–49 environmental and social charters, HSE and Social Performance principles, or other initiatives to which Management 21–23 the organisation subscribes or which it endorses Economic Impact Management 53–55 G4-16 Memberships of associations (such as Full Performance Standards 19 In November 2009, the Environmental Impact industry associations) and national or International and regional 71-72 company joined the UN Global Management 75–96 international advocacy organisations cooperation Compact. Social Impact In 2015, the company is a Management 99–142 member of: 2016 Plans and Development Strategy • Global Compact LEAD; up to 2020 145 • Working Group on Human Rights of the UN Global ORGANISATIONAL PROFILE Compact; G4-3 Name of the organisation Full About the Company 27 • European Business G4-4 Primary brands, products, and/or services Full About the Company 32–33 Congress (EBC) G4-5 Location of organisation’s Full On the outside rear cover IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES headquarters www.sakhalinenergy.com/en/feedback/ G4-17 Entities included in the organisation’s Full About the Report 14 feedback.wbp consolidated financial statements or G4-6 Number of countries where the Full About the Company 27–35 equivalent documents organisation operates, and names of G4-18 Process for defining the report content Full About the Report 10–14 countries where either the organisation and the aspect boundaries. Reporting has significant operations or that are principles for defining report content specifically relevant to the sustainability topics covered in the report G4-19 List of all the material aspects Full About the Report 11–13 identified in the process for defining G4-7 Nature of ownership and legal form Full Corporate Governance 41 report content G4-8 Markets served (including geographic Full About the Company 27, 35 G4-20 Material aspects within the Full About the Report 12–14 breakdown, sectors served, and types of organisation customers and beneficiaries) G4-21 Material aspects outside the Full About the Report 12–14 G4-9 Scale of the reporting organisation Full About the Company 27–34 organisation Economic Impact Management 53–55 G4-22 Restatements of information provided Full About the Report 12–13 Personnel: Management and in previous reports, and the reasons for Development 100 such restatements ECONOMIC IMPACT MANAGEMENT G4-23 Significant changes from previous Full About the Report 12–14 G4-10 Total number of employees by Full General Information 100–101 reporting periods in the scope and employment type gender, employment aspect boundaries contract and region STAKEHOLDER ENGAGEMENT G4-12 Organisation’s supply chain Full Supply Chain Management 56–58 G4-24 List of stakeholder groups engaged by Full About the Report 10 G4-13 Significant changes during the reporting Full No significant changes in 2015 the organisation Stakeholder Engagement period regarding the organisation’s size, Management in 2015 62 structure, ownership, or its supply chain

148 149 Appendix 1

Disclosure of Page Disclosure of Page Comments and references Comments and references GRI index Element/indicator the element/ Report section in the GRI index Element/indicator the element/ Report section in the to other sources to other sources indicator report indicator report G4-25 Basis for identification and selection of Full Stakeholder Engagement 62 G4-39 Whether the chair of the highest Full The chairperson of the stakeholders with whom to engage Management governance body is also an executive highest governance body is officer not an executive officer G4-26 Organisation’s approach to stakeholder Full About the Report 10 engagement, including frequency of Stakeholder Engagement 61–62 engagement by type and by stakeholder Management G4-42 Highest governance body’s and Full Corporate Social Responsibility and group, and an indication of whether any senior executives’ roles in the Sustainable Development 17 of the engagement was undertaken development, approval, and updating Corporate Governance 39–50 specifically as part of the report of the organisation’s purpose, value preparation process or mission statements, strategies, G4-27 Key topics and concerns that have Full About the Report 10–13 policies, and goals related to economic, been raised through stakeholder environmental and social impacts Stakeholder Engagement 62 engagement, and how the Management G4-46 Highest governance body’s role in Full Risk Management 46–47 organisation has responded to those 157–164 reviewing the effectiveness of the key topics and concerns, including Appendix 2 organisation risk management through its reporting. Stakeholder processes for economic, environmental groups that raised each of the key and social topics topics and concerns G4-48 Highest committee or position that Full About the Report 9 REPORT PROFILE formally reviews and approves the organisation’s sustainability report and G4-28 Reporting period (such as fiscal Full About the Report 9 ensures that all material aspects are or calendar year) for information covered provided ETHICS AND INTEGRITY G4-29 Date of most recent previous report April 2015 (if any) G4-56 Organisation’s values, principles, Full Corporate Social Responsibility and standards and norms of behavior such Sustainable Development 19 G4-30 Reporting cycle (such as annual, Full About the Report Annual as codes of conduct and codes of ethics biennial) Corporate Governance 44–45 G4-31 Contact point for questions regarding Full About the Report 9 G4-57 Internal and external mechanisms Full Corporate Governance System and the report or its contents for seeking advice on ethical and Structure 40 Appendices 5–6 169–170 lawful behavior, and matters related Corporate Culture 44 to organisational integrity, such as Stakeholder Engagement 61 G4-32 ‘In accordance’ option the organisation Full About the Report 9 helplines or advice lines Management has chosen. GRI content index. Appendix 1 148–156 Reference to the external assurance G4-58 Internal and external mechanisms for Full Corporate Culture 44 report Appendices 7-8 171–175 reporting concerns about unethical or Human Rights 127–129 unlawful behavior, and matters related G4-33 Organisation’s policy and current Full About the Report 14 to organisational integrity, such as practice with regard to seeking Appendices 7-8 171–175 escalation through line management, external assurance for the report whistleblowing mechanisms or hotlines GOVERNANCE G4-34 Governance structure of the Full Corporate Governance Model 41–43 organisation, including committees of SPECIFIC STANDARD DISCLOSURES the highest governance body Basis of Aspects materiality is given in Section 2 About the Report. G4-36 Executive-level position or positions Full Corporate Governance Model 41–43 Disclosure of Page with responsibility for economic, Comments and references GRI index Element/indicator the element/ Report section in the environmental and social topics to other sources indicator report G4-38 Composition of the highest Full Corporate Governance Model 41–43 CATEGORY: ECONOMIC governance body and its committees G4-DMA Disclosures on management approach Full About the Company 27 Corporate Governance Model 41–43 Economic Impact Management 53–58

150 151 Appendix 1

Disclosure of Page Disclosure of Page Comments and references Comments and references GRI index Element/indicator the element/ Report section in the GRI index Element/indicator the element/ Report section in the to other sources to other sources indicator report indicator report G4-EC1 Direct economic value generated and Full About the Company 27 G4-EN14 Total number of IUCN red list species Full Environmental Monitoring and distributed Economic Impact Management 53–55 and national conservation list species Preserving Biodiversity 82–93 with habitats in areas affected by Remuneration and Bonus System 103 operations Social Investment and Sustainable Development: Sakhalin Energy’s G4-EN15 Direct greenhouse gas (GHG) Partly Greenhouse Gas and Ozone- Principles and Approaches 131 emissions Depleting Substance Emissions 80 G4-EC3 Coverage of the organisation’s defined Full Social Guarantees, Benefits and G4-EN16 Energy indirect greenhouse gas (GHG) Partly Greenhouse Gas and Ozone- benefit plan obligations Compensations 104–105 emissions Depleting Substance Emissions 80 G4-EC4 Financial assistance received from Full The company received no G4-EN20 Emissions of ozone-depleting Full Greenhouse Gas and Ozone- government financial assistance from the substances (ODS) Depleting Substance Emissions 80 government in 2015 G4-EN21 NOX, SOX, and other significant air Full Greenhouse Gas and Ozone- G4-EC5 Ratio of standard entry level wage by Full Remuneration and Bonus System emissions Depleting Substance Emissions 80 gender compared to local minimum 103 G4-EN22 Total water discharge by quality and Partly Impact on Water Bodies 76–77 wage at significant locations of destination operation G4-EN23 Total weight of waste by type and Full Waste Management 77–78 G4-EC6 Proportion of senior management hired Full Personnel Recruitment and disposal method from the local community at significant Adaptation of New Employees 102 locations of operation G4-EN24 Total number and volume of significant Full Oil Spill Prevention and Response spills Preparedness 95 G4-EC7 Development and impact of Full Importance of the Sakhalin-2 project infrastructure investments and for the Russian Federation and the G4-EN29 Monetary value of significant fines Full Environmental Protection Costs and services supported Sakhalin Oblast 53 and total number of non-monetary Payments for the Negative Impact 81 sanctions for non-compliance with Social Investment and Sustainable environmental laws and regulations Development: Sakhalin Energy’s Principles and Approaches 131 G4-EN31 Total environmental protection Full Environmental Protection Costs and expenditures and investments by type Payments for the Negative Impact 81 G4-EC8 Significant indirect economic impacts, Full Economic Impact Management including the extent of impacts 53 G4-EN34 Number of grievances about Full Grievance Handling in 2015 129 environmental impacts filed, G4-EC9 Proportion of spending on local Full Russian Content 55 addressed, and resolved through suppliers at significant locations of formal grievance mechanisms operation CATEGORY: SOCIAL CATEGORY: ENVIRONMENTAL Sub-Category: Labour Practices and Decent Work G4-DMA Disclosures on management approach Full HSE and Social Performance Management System 21–22 G4-DMA Disclosures on management approach Full Approaches to HR Management and Environmental Impact Management 75–96 HR Policy 99 Labour Safety and Protection 117–124 G4-EN3 Energy consumption within the Full Energy 78–79 organisation Occupational Health 125–126 G4-EN5 Energy intensity Full Energy 78–79 G4-LA1 Total number and rates of new Full General Information 100–101 employee hires and employee turnover G4-EN8 Total water withdrawal by source Full Impact on Water Bodies 76–77 by age group, gender and region G4-LA3 Return to work and retention rates Full General Information 100 G4-EN9 Water sources significantly affected by Full Impact on Water Bodies 76–77 No water sources are after parental leave, by gender withdrawal of water materially affected by the company withdrawal of water G4-EN11 Operational sites on, or adjacent to, Full Environmental Monitoring and protected areas and areas of high Preserving Biodiversity 82–93 biodiversity value outside protected areas

152 153 Appendix 1

Disclosure of Page Disclosure of Page Comments and references Comments and references GRI index Element/indicator the element/ Report section in the GRI index Element/indicator the element/ Report section in the to other sources to other sources indicator report indicator report G4-LA4 Minimum notice periods regarding Full In accordance with the G4-HR4 Operations and suppliers identified in Full No operations in which the operational changes, including whether effective Labour Code of the which the right to exercise freedom of right to exercise freedom of these are specified in collective Russian Federation, federal association and collective bargaining association and collective agreements laws, and other regulatory may be violated or at significant risk, bargaining may be at legal acts containing norms and measures taken to support these significant risk of labour law, agreements rights and employment contracts G4-HR5 Operations and suppliers identified as Full No operations risk of G4-LA6 Rates of injury, occupational diseases, Partly Labour Safety and Protection 118 having significant risk for incidents involving child labour lost days, and absenteeism, and total Occupational Health 126 of child labor, and measures taken to number of work-related fatalities, by contribute to the effective abolition of region and by gender child labor G4-LA9 Average hours of training per year per Partly Personnel Training 111 G4-HR6 Operations and suppliers identified as Full No operations risk of employee by gender, and by employee having significant risk for incidents involving compulsory work category of forced or compulsory labor, and measures to contribute to the G4-LA10 Programmes for skills management Partly Staff Learning and Development 108–116 elimination of all forms of forced or and lifelong learning that support the compulsory labor continued employability of employees and assist them in managing career G4-HR7 Percentage of security personnel Full Human Rights: Principles and 100% endings trained in the organisation’s human Management System 128 rights policies or procedures that are G4-LA11 Percentage of employees receiving Partly Individual Performance Review 107 Human Rights Training 130 relevant to operations regular performance and career of the Employees development reviews, by gender and by G4-HR8 Total number of incidents of violations Full No registered cases employee category involving rights of indigenous peoples of violation of rights of and actions taken Indigenous Peoples in 2015 G4-LA12 Composition of governance bodies and Full General Information 101 breakdown of employees per employee G4-HR12 Number of grievances about human Full Grievance Handling in 2015 129 category according to gender, age rights impacts filed, addressed, and group, minority group membership, resolved through formal grievance and other indicators of diversity mechanisms G4-LA13 Ratio of basic salary and remuneration Full Basic salaries of men and Sub-Category: Society of women to men by employee category women of all personnel G4-DMA Disclosures on management approach Full Corporate Social Responsibility and categories do not differ Sustainable Development 17–20 G4-LA16 Number of grievances about labor Full Grievance Handling in 2015 129 Stakeholder Engagement: Strategy, practices filed, addressed, and resolved Principles, Mechanisms and through formal grievance mechanisms Engagement Tools 61 Sub-Category: Human Rights Social Investment and Sustainable Development: Sakhalin Energy’s G4-DMA Disclosures on management approach Full Human Rights: Principles and Principles and Approaches 131–132 Management System 127–128 G4-SO1 Percentage of operations with Full Impact Assessment 23 100% G4-HR2 Total hours of employee training on Partly Human Rights Training 130 implemented local community human rights policies or procedures Stakeholder Engagement: Strategy, engagement, impact assessments, and concerning aspects of human rights Principles, Mechanisms and 61 development programmes that are relevant to operations, Engagement Tools including the percentage of employees Social Investment and Sustainable trained Development: Sakhalin Energy’s 131–132 Principles and Approaches G4-HR3 Total number of incidents of Full No registered cases of discrimination and corrective actions discrimination in 2015 G4-SO2 Operations with significant actual and Full Impact Assessment 23 No such operations in 2015 taken potential negative impacts on local communities G4-SO4 Communication and training on anti- Full Anti-Bribery and Corruption 50 corruption policies and procedures

154 155 Appendix 1 Appendix 2. Comments and Suggestions of Stakeholders on Individual Aspects, Indicators and/or Programmes and Company’s Response and Commitments

Disclosure of Page Comments and references Detailed information on the results of with information on its activities and during the events listed above. If they GRI index Element/indicator the element/ Report section in the to other sources the stakeholder engagement process achievements during the reporting were expressed at the dialogue meet- indicator report that was completed to develop this period. In February 2016, the second ings, the participant’s name, position G4-SO5 Confirmed incidents of corruption and Full No cases of corruption were actions taken registered in 2015 Report, including dialogue meetings, dialogue was held to provide responses and organisation are indicated. In other questionnaire surveys, etc., is available to comments, suggestions and ques- cases, the format of the event in which in the Material Topics to Be Included in tions received during the first dialogue. the stakeholder’s opinion was collected the 2015 Report Based on Stakeholders’ During this meeting, participants made (electronic questionnaires, interview, Opinions and Most Priority Topics to Be additional comments. Apart from the etc.) is specified. Included in the 2015 Report Based on dialogues, the company conducted G4-SO6 Total value of political contributions by Full As per the company Code Stakeholders’ Opinions tables found in electronic questionnaires, personal The right column contains the responses country and recipient / beneficiary of Conduct, Sakhalin Section 2 of this Report. interviews, as well as surveys at various that the company provided either at the Energy does not support any political parties or their events in November and December 2015 events or after a period of time (in case representatives financially Besides identifying material subjects, (see Section 2.2 Defining Material and a question required additional time to and does not participate in stakeholders also made comments Priority Topics to Be Included In the research and/or prepare the answer). political activities and suggestions on individual aspects, Report). G4-S011 Number of grievances about impacts Full Grievance Handling in 2015 129 indicators, and/or the programmes of on society filed, addressed, and the company for inclusion in the 2015 Stakeholders’ comments and sugges- resolved through formal grievance Report. tions, as well as the relevant responses mechanisms and commitments of Sakhalin Energy, Sub-Category: Product Responsibility In November 2015, Sakhalin Energy are listed in the table below. G4-DMA Disclosures on management approach Full About the Company 27 held the first dialogue as part of the Oil and LNG Supply Safety 33–34 2015 Report preparation. At this meeting, The left column contains the questions, Engagement with Customers 69 the company provided stakeholders comments or critical remarks made G4-PR2 Total number of incidents of non- Full No incidents of non- compliance with regulations and compliance with regulations voluntary codes concerning the health and voluntary codes Comment, question, critical remark or suggestion Company’s response and/or commitment and safety impacts of products and concerning the health and services during their life cycle, by type safety impacts of products Dialogue meeting. Open statements of outcomes and services in 2015 A. V. Buryka, Director of the Sakhalin Regional Art Museum: G4-PR4 Total number of incidents of non- Full No incidents of non- I would like to say thank you to Sakhalin Energy for the kind words compliance with regulations and compliance with regulations expressed to us, and to comment on the excellent relationship we voluntary codes concerning product and voluntary codes have with the company. It can be divided into two parts: events and and service information and labeling, concerning product and the financial support. We have held significant events. One of them by type of outcomes service information and was mentioned in the presentation—the 80th anniversary of the well- labelling in 2015 known Nivkh writer Vladimir Sangi. The company appreciates the feedback and looks forward to further For each event supported by Sakhalin Energy, we received the fruitful cooperation necessary technical equipment, and we are grateful to the company for this. For example, thanks to the company, physically challenged residents of Sakhalin now have the opportunity to attend our events. The company supports our exhibitions and helped to repair the Centre of Applied Arts that was transferred to us two years ago. Our cooperation with Sakhalin Energy has continued successfully for several years Е. G. Chernyavskaya, Advisor of the Subdivision of State Registration and Cadastre for Wildlife and Specially Protected Natural Areas, The company has been permanently monitoring geological hazards Department of Hunting and Use of Wildlife, Ministry of Forestry and both during pipeline construction and operation. Now, we are carrying Hunting of the Sakhalin Oblast: out bank protection works in the Makarov district. At the beginning My question is about the pipeline that runs across the Sakhalin Island. of the operations we conducted such works on 20–30 rivers per year. Every year the company conducts a number of geological works Now the situation has stabilised, and such works are required only for in response to dangerous processes along the pipeline, including two or three rivers per year. General information on maintaining right- protecting the banks of the rivers the pipeline crossings. What works of-ways for onshore pipeline is included in Section 8.3 of the Report did the company conduct in this area in 2015?

156 157 Appendix 2

Comment, question, critical remark or suggestion Company’s response and/or commitment Comment, question, critical remark or suggestion Company’s response and/or commitment L. V. Kirillova, Head of the Subdivision for Supervision over Water N. I. Cherkavsky, Vice-President for Continuing Education and and Land Resources, Hunting and Specially Protected Natural The company conducted some bank protection works in winter Affiliates, Sakhalin State University: Areas, Sakhalin Oblast Department of the Federal Service for 2015–2016 where the pipeline system crossed the Duet River and the I would like to tell about our long-term cooperation with Sakhalin Supervision of Natural Resources: Seredka River. General information on maintaining right-of-ways for Energy. Initially, it was limited to one-time events, but in February At which water bodies along the pipeline route did the company onshore pipeline is included in Section 8.3. of the Report 2015, the CEO of the company and the President of the Sakhalin State conduct protection and restoration works in the reporting year? University signed the Joint Action Plan. N. Е. Samarina, Head of Natural Resources Management and I’d like to highlight the key events. First of all, the company helps Environmental Protection Subdivision, Yuzhno-Sakhalinsk Urban us to prepare high-quality professionals. Over 100 graduates from our university work at the Prigorodnoye production complex and District Administration: The information is included in Sections 8.2.1. and 8.3. of the Report other assets. I believe that over the time, due to the fact that we Will the company include any information on industrial monitoring of train personnel at the specialised secondary education and higher The company appreciates the feedback on cooperation with the the land condition in the 2015 Report? education levels, the number of Russian nationals working at leading higher educational institution of the Sakhalin Oblast T. S. Voskoboynikova, Secretary of Stroitel Dacha Cooperative, The environmental impact of the Prigorodnoye production complex is Sakhalin Energy will reach 100%. Prigorodnoye: limited by the size of the sanitary protection zone (SPZ) established We agree with Sakhalin Energy on the competencies to be developed There is still a question in regards to the compensation of the dacha for this facility in compliance with the Russian Federation legislation. for our students. The company provides us with facilities for practical owners for their losses from the operations of the LNG plant. Your Stroitel Cooperative is located outside the SPZ, and therefore the training. When students attend classes and practical training, they production and financial indicators are very impressive. However, we dacha owners have no legal grounds to request resettlement. see new technology; they see a new attitude toward work. address this request to the company once again. Nevertheless, the company, from the very beginning, has respected Moreover, the company provides financial support, in particular, the concerns of dacha owners about the proximity of the Prigorod- grants to university students. noye production complex and proposed an integrated compensation Specialists of Sakhalin Energy take part in scientific and practical programme that the dacha owners and project lenders agreed to. All conferences, while we participate in conferences of young specialists. dacha owners received the compensation. Our collaboration is very close According to the provisions of the standard agreement signed by all dacha owners, these owners: A. V. Lomteva, Head of Science and Education Subdivision, Sakhalin Regional Art Museum: • accepted the compensation under the agreement and recognised it as the full and final reimbursement for any market value loss of I want to say thank you to the company for our long-term cooperation their plots of land; within the framework of the Fund of social initiatives Energy. We The company appreciates the feedback and positive comments have prepared a large number of projects. It is great support for • confirmed that they were acting on their own free will under the on our cooperation our culture, and I look forward to further cooperation and further agreement and waived any claims against the company in relation company contributions to the development of culture and education. It to the agreement. seems to me that without this contribution, our culture would develop The company believes that, having signed these agreements, dacha more slowly and modestly owners recognised the compensation they received was sufficient and waived any claims against the company I. G. Malkova, Deputy Director of the Sakhalin Regional Art Museum: N. P. Sharukhina, Lead Specialist of the Chief Directorate of the I would like to say a few words about the Report. I like it very much. MChS for Sakhalin Oblast: In my opinion, it is one of the most interesting reports. I have been I would like to thank your company for our wonderful project — the attending these events for many years. I do not know whether our The company appreciates the feedback What to Do in Emergency Situations partnership programme — which stickers that we stuck on the stands at the previous meetings had has celebrated its 10th anniversary We did a lot of work, in 2015 we any effect. But it seems to me that the company worked with them, completed two projects: Senya Warns, a series of information boards with our requests and questions. Some figures are surprising—the installed in tsunami - and avalanche-hazardous areas of the Sakhalin company employs a little more than 2,000 people, but generates 70% Oblast, and Senya Teaches, materials provided to teams from of the region’s income. It’s amazing. Thank you. municipalities that participated in the School of Safety competitions. The company appreciates the feedback and looks forward to further These two projects have been implemented with the financial support fruitful cooperation. We would also like to distinguish the Senya A. Ya. Nachetkina, Yuzhno-Sakhalinsk Urban District of the company, and the partners are grateful to Sakhalin Energy. Warns project, a series of information boards installed in tsunami- Administration, Indigenous Minorities Council: In 2015 a tripartite agreement was signed between the partners of and avalanche-hazardous areas of the Sakhalin Oblast, and to say The figures of oil and gas production and sales in our region, as well the What to Do in Emergency Situations programme. This programme that the Sakhalin Oblast is the first region in Russia where a project as the taxes you have paid, are impressive. I really like the section like this has been implemented on social projects, environment protection, and engagement with will be further developed. Earlier, we said that our Senya was still The company appreciates the feedback and positive comments Sakhalin indigenous minorities. As representatives of the Sakhalin small and should grow a little. The year of 2015 shows that the regarding our cooperation within the framework of the Sakhalin indigenous minorities, we get a lot of help and support from the target audience of Senya includes not only preschoolers and younger Indigenous Minorities Development Plan, as well as your comment on SIMDP, and I would like to say many thanks to Sakhalin Energy for students, but also 13–14 year olds, and that Senya is well received the transparency of our company by adults. It’s very good, it is the real result of our work. I wish to that. I would like to see and hear such a transparent report from say thank you to all participants of our programme. I think our other partners as well cooperation will continue for decades.

158 159 Appendix 2

Comment, question, critical remark or suggestion Company’s response and/or commitment Comment, question, critical remark or suggestion Company’s response and/or commitment V. K. Gorokhov, retiree: Other activities (electronic questionnaires, personal interviews, etc.) I have enjoyed well-deserved retirement for eight years, but from Impact assessment of new projects The company performs an impact assessment for planned projects in 1996 to 2005 I was directly involved in the Sakhalin-1 and Sakhalin-2 accordance with the Russian legislation and international standards. projects at Zarubezhneft and Rosneft. That’s why many issues are The company is grateful for the feedback and positive comments An integral part of the company impact assessment is consulting with interesting to me. This is the first time I have attended an event like regarding its safety and environmental protection. As for the stakeholders in order to inform them about planned activities, identify this. Two days ago, I read about this event on Sakh.com and decided utilisation of associated gas, in 2015 it reached 96.1%. This is higher concerns, learn the opinions of stakeholders, and discuss possible to attend it. Safety and the environment protection were number one than the target value required by Russian legislation. The information impact mitigation measures. issues both at Exxon and Sakhalin Energy when I worked. And it was is included in Section 8.1.6 of the Report nice to hear that the indicators are still at the same high level. The information is included in Section 3.5 of the Report. My question: What is the volume of gas flaring at the LNG plant in The impact assessment results are published on the company Prigorodnoye in 2015? Has it been reduced or does it remain at the website same level? Interested in the disclosure of all sections about CSR and sustainable Information on the company activities in CSR and sustainable N. V. Nikitina, Head of the Subdivision of Programme and Estimate development development is included in Section 3 of the Report Documentation Analysis and PSA Implementation, Ministry of More information on the assistance given to promote Sakhalin The information about the assistance the company gives to promote Natural Resources and Environmental Protection of Sakhalin companies Russian enterprises, including Sakhalin companies, is included in Oblast: Section 6 of the Report I want to note that the company has taken our requests into account and added to the 2015 Report some examples of successful Examples of successful cooperation with Sakhalin companies Examples of successful cooperation with Sakhalin companies are cooperation between Sakhalin Energy and Sakhalin companies included in Section 6 of the Report and promotion of their activities. The company has a Russian Sakhalin Energy appreciates the feedback about the company’s Lack of information on the company activities in the media. Maybe Sakhalin Energy has been publishing a regular information bulletin vendor development programme. In 2015, there were about fifteen vendor development programme. More information about it is it would be a good idea to issue a corporate newspaper? since 2007. The bulletin contains information about the company workshops under this programme, nine of which were held in the included in section 6.5 of the Report activities and the implementation of the Sakhalin-2 project. Sakhalin Oblast. Each workshop consists of three units: quality You can find it in the company’s information centres and on the control, occupational health and life safety, and tender participation. company website. The details of other ways of informing and Companies gain experience in these areas at these workshops. This engaging with stakeholders are included in Section 7 of the Report. is a very good initiative, and we expect that these companies will Besides, you can find detailed information in the Public Consultation successfully participate in tenders held by Sakhalin Energy and will and Disclosure Plan and the related report. Both documents are be awarded the contracts. This means higher tax revenues for the updated annually and available on the company website and at the Sakhalin Oblast and more jobs for Sakhalin people. information centres N. S. Koltunovich, Director of the Department of Environmental and The list of permits required for conducting the river bank protection Riverbank protection works are maintained by the company general Water Resources Protection, Ministry of Natural Resources and works contractor responsible for maintaining the pipeline system—OOO Environmental Protection of the Sakhalin Oblast: Gazprom Transgaz Tomsk. All necessary permits and documentation In his speech, Andrey Samatov touched on gasification and reduction have been applied for and obtained by the contractor as required by of emissions in Yuzhno-Sakhalinsk. I didn’t hear the figures. Of the Russian legislation course, we cannot evaluate 2015 because the data is not yet available. Interested in the disclosure of all stated topics associated with All aspects of environmental impact management presented during But according to the results of 2014 compared to 2013, we could environmental impact management the first dialogue are disclosed in Sections 3 and 8 of the Report make our own assessment. I would like to confirm the importance of gasification, especially for the environmental situation in Yuzhno- Production results for each asset The information is included in Section 4.2 of the Report Sakhalinsk. In 2014, pollutant emissions were 7.5% lower than in 2013. Over the entire period of gasification in Yuzhno-Sakhalinsk, Risk management system of the company The information is included in Section 5.8 of the Report emissions have decreased by 27%, with a significant decrease in the Anti-bribery and corruption policies The information is included in Section 5.6 of the Report air pollution index. Although Yuzhno-Sakhalinsk still remains on the list of the most polluted cities, the index has decreased and shifted Results of industrial environmental monitoring of wastewater The company presents a summary of its water use and the impact from very high to high. In 2014, the air pollution index was 14.4%. The company appreciates the feedback collection in the Zima River, the Korsakovka River, as well as on water bodies as required by the G4 Sustainability Reporting In total, during the whole period of gasification, emissions have collection in the sea Guidelines under the Global Reporting Initiative (GRI). This decreased by 87%. Gasification’s contribution to the environmental information is included in Section 8.1 of the Report. situation in Yuzhno-Sakhalinsk and generally in the Sakhalin Oblast Data on the quality of wastewater discharge for individual sources cannot be overestimated. are given by the company in statistical reports that are sent to government control and supervisory agencies. The total amount of wastewater discharged, only 1% was insufficiently treated, 4% of the wastewater was treated to standard quality, and remaining 95% was treated to minimum standards or met minimum standards without treatment

Gray Whale Monitoring Programme—disclose details Information on the Gray Whale Monitoring Programme is included in Section 8.2 of the Report

160 161 Appendix 2

Comment, question, critical remark or suggestion Company’s response and/or commitment Comment, question, critical remark or suggestion Company’s response and/or commitment Continuous improvement of principles and approaches in social Over more than 20 years, the company has been developing principles Protection of wild fish / salmon habitats The company conducts monitoring of the Pacific salmon in the Goluboy investment and sustainable development and approaches that are based on the best practices proven both in Brook. It also monitors the condition of ichthyofauna in sample Russia and abroad. Currently, the basic principles include funding watercourses within the framework of the project. In 2015, the Lazovaya socially significant projects on a competitive basis. Representatives of River was used as a sample watercourse expert communities and stakeholders are involved in decision-making General information about the company: local investments / Russian to ensure the competitive process is objective and transparent. The The information is included in Sections 6 and 9.5 of the Report investments company also considers partnership programmes to be a key approach in social investment. The information on principles and approaches in Corporate social responsibility (CSR) and sustainable development: The information is included in Sections 8 and 9 of the Report social investment and sustainable development is included in Section 9.5 examples of work done in occupational health and social performance of the Report Production and shipping of hydrocarbons in dollars The company is implementing the Sakhalin-2 project within the How is the partnership programme initiated and planned? Can the The partnership programme is a comprehensive programme that Agreement on the Development of Piltun-Astokhskoye and Lunskoye Oil advanced education become one of the programmes? includes a series of projects aimed at tackling socially significant and Gas Fields on the Basis of the Production Sharing Agreement (PSA). problems identified during the public consultations. If it is confirmed According to this agreement, information on the cost of oil and gas sold that the problem is relevant and if the programme idea matches the by the company is strictly confidential and not subject to disclosure. The company's social investment principles, a working group is established. company has to refrain from publication of this information A working group composed of potential partners analyses a problem, determines the most effective ways to solve it and necessary resources. Corporate governance: publication of the company financial results. The key financial results are included in Section 6 of the Report. Presently, there are four long-term partnerships. Advanced education Distribution of profits to shareholders Information on profits distributed to shareholders is strictly confidential institutions can participate in existing partnerships (for example, the and is not subject to disclosure children safety programme), as well as submit their projects for funding Personnel: management and development, assessment of working In 2015, the company assessed working conditions at the workplaces of from the competitive grant programmes of the company (e.g. “Energy” conditions at production assets Sakhalin Energy and contractors Fund of social initiatives) Number of employees in the Sakhalin Oblast, other regions of Russia The information is included in Section 9.1 of the Report The system of additional benefits for the company personnel The information is included in Section 9.1 of the Report and foreign employees Job vacancies at the company The information is included in Section 9.1 of the Report Environmental, health and social impact assessment results The reports on the Environmental, Health and Social Impact Assessment To highlight health and safety issues in more detail (documents, are published on the company website. The information is included in The information is included in Section 9.2 of the Report current activities, etc.) Section 3.5.2 of the Report Environmental impact management: system and results. Local Company’s engagement with indigenous minorities is highly commend- The information on the company’s engagement with Sakhalin indige- The information is included in Section 8 of the Report able nous minorities is included in Sections 7 and 9 of the Report, including monitoring results, amount and results of land restoration activities within the framework of the Sakhalin Indigenous Minorities Handling of company’s personnel grievances: categories and nature of The information is included in Section 9.4 of the Report Development Plan grievances, handling results The results of grievances submitted in 2015 The information is included in Section 9.4 of the Report Engagement with the indigenous peoples The information is included in Section 7.5 of the Report Distribute books on ecology (Steller’s sea eagles, etc.) at the dialogues Books of this series have been released in limited editions. These books Social investment and contribution to sustainable development of the The information is included in Section 9.5.8 of the Report under the preparation of the Report can be found in the company’s information centres and Sakhalin Oblast territory of presence (aimed at supporting SIM) libraries; electronic versions are available on the company website Industrial safety The information is included in Section 9.2 of the Report How is the problem with Stroitel Cooperative located next to the The company has been engaging with Stroitel Cooperative since 2004 Prigorodnoye production complex being resolved? and till present. The information about this engagement can be found in It would be nice to see information on personnel grievances The information is included in Section 9.4 of the Report the Public Consultation and Disclosure Plan and the related report that Industrial safety management at hazardous production assets The information is included in Section 9.2 of the Report are annually published by the company, as well as in the company’s sus- tainable development reports for previous years. The data can be found General information about Sakhalin Energy. Key production on the company website, as well as in its information centres achievements in 2015. Key positions of the company in the sustainable The information is included in Section 3 of the Report Growth projects (LNG train 3) The information is included in Section 4.2.1 of the Report development strategy The structure of exports deliveries The information is included in Section 4.2.3 of the Report Corporate governance: concisely but significantly about business ethics The information is included in Sections 5.4 and 5.5 of the Report Environmental pollution payments The information is included in Section 8.1.7 of the Report Corporate social responsibility (CSR) and sustainable development: a The information is included in Section 3 of the Report few examples illustrating the long-term focus Students, trainees (statistics) The information is included in Section 9.1 of the Report Charity projects The information is included in Section 9.5 of the Report Vendor development programme The information is included in Section 6.5 of the Report Russian Content development strategy The information is included in Section 6.4 of the Report External inspections and audits The information is included in Section 3.5.2 of the Report Inspections and audits: results and achievements The information is included in Section 3.5.2 of the Report Sakhalin-2 project infrastructure The information is included in Section 4 of the Report

162 163 Appendix 2

Appendix 3. The List of Participants of Dialogues with Stakeholders for Preparation of the 2015 Sustainable Development Report

Comment, question, critical remark or suggestion Company’s response and/or commitment Anchor Energy Services V. Tkachuk, Supply Development Coordinator Recommendations of the RUIE Council for Non-Financial Reporting Board concerning the Results of Examination of the 2014 Sustainable Chief Directorate of the MChS for Sakhalin Oblast N. P. Sharukhina, Lead Specialist Development Report of Sakhalin Energy Investment Company Ltd. for the Purpose of Public Endorsement V. V. Goryachev, Vice Mayor, Head of Social Development Department Balance: it is recommended to ensure balanced coverage not only of Both favourable (achievements) and unfavourable (problems to be Korsakov Urban District Administration the achievements but also of the existing problems in Sakhalin Energy solved) aspects of the company’ operations during the reporting period O. I. Manukhin, Deputy Head of Social Development Department operations and approaches to solving them are included in the Report. The degree of attention paid is proportional A. A. Zhuk, Director to the materiality, as well as interests and requests of stakeholders for Literary and Art Museum of Anton Chekhov’s Book The including certain topics and questions in this Report (see Sections 4 and Sakhalin Island Ye. P. Firsova, Deputy Director for Museum Development and 8 of the Report) Scientific Work Consultations: it is recommended to continue work in this area and Lyudi Ykh-Mif Ethnic and Cultural Centre A. V. Bugrei to raise awareness of how material topics are chosen to be disclosed in reports. It is necessary to report not only the opinions of the OOO Stroika Construction Company A. N. Zhukov, CEO The information is included in Section 2 of the Report stakeholders, but also the results of analysing the materiality of these N. S. Dunav, Head of Physically Challenged Children Development Preodoleniye ("Overcoming") Centre opinions and to justify the choice of topics and priorities included in a Subdivision Report. Sakhalin Oblast Department of the Federal Service for L. V. Kirillova, Head of the Subdivision for Supervision over Water and Disclosure of indicators: it is recommended to provide comments on Supervision of Natural Resources Land Resources, Hunting and Specially Protected Natural Areas the data in tables to explain the dynamics of indicators, particularly in The Report includes data in comparison to industry-wide indicators in the case of ongoing significant changes; to expand, where possible, energy efficiency and restoration of biodiversity. O. S. Kutaybergey, Lead Specialist of the Indigenous Minorities comparative data by comparing the company indicators with national, Sakhalin Oblast Government, Governor’s Office Department industry-wide, and international data, particularly on energy efficiency The Report includes indicators of the industry appendix for the oil and the achievements in restoring biodiversity; as well as to use an and gas sector, and an expanded number of indicators in corporate N. V. Mizinin, Head of the Indigenous Minorities Department governance (see Appendix 1 to the Report) industry appendix that includes the respective indicators in reports, and Sakhalin Oblast Government, Ministry of Education of to expand the number of corporate governance Indicators. N. O. Nersesyan, Deputy Minister Sakhalin Oblast Supply chain, engagement with suppliers and contractors: it is recommended to further expand the information about responsibilities Sakhalin Oblast Government, Ministry of Forestry and Ye. G. Chernyavskaya, Advisor of the Subdivision of State Registration in the supply chain and the company experience in responsible Hunting of Sakhalin Oblast and Cadastre for Wildlife and Specially Protected Natural Areas The information is included in Section 6 of the Report engagement with suppliers and contractors, to more fully cover the A. A. Kucherenko, Lead Advisor of Special Medical Care Management environmental and social responsibility requirements expected from Sakhalin Oblast Government, Ministry of Health Care of Subdivision partners, and to show the results achieved. Sakhalin Oblast K. V. Sakharova, Press Secretary Advanced production processes and impact assessment of them: it is recommended to provide information about the use of advanced N. S. Koltunovich, Director of the Department of Environmental and production processes for recovering hydrocarbons that increase When developing any new technology, an impact assessment, including Water Resources Protection operational efficiency, and to add information about the associated the Environmental Impact Assessment, is conducted. The information environmental impacts and measures to prevent / reduce negative about the impact assessment is included in Section 3.5.2 of the Report N. V. Nikitina, Head of the Subdivision of Programme and Estimate Sakhalin Oblast Government, Ministry of Natural Resources Documentation Analysis and PSA Implementation consequences if they occur. This applies in particular to the information and Environmental Protection of Sakhalin Oblast on using the flooding process at the Molikpaq platform O. S. Rozhkova, Advisor of the Environmental Protection Subdivision Analysis of social investment results: it is recommended to give An analysis of the results of social investment is provided in the report of N. V. Starodubtseva, Acting Head of the Environmental Protection a comprehensive assessment of the long-term results of social the final implementation assessment of the second Sakhalin Indigenous Subdivision investment, in particular, in the Sakhalin Indigenous Minorities Minorities Development Plan (2011–2015) and in the third Development Development Plan; it would be useful to analyse the impact of this Plan (2016–2020), which are available on the programme's website Sakhalin Oblast Public Chamber’s Office O. V. Santalova, Director plan on the conditions and quality of life of SIM and to include this www.simdp.ru A. V. Buryka, Director information in the next Report. In the future, it is recommended to more fully cover the effectiveness of the company social investments A. V. Lomteva, Head of Science and Education Subdivision Sakhalin Regional Art Museum I. G. Malkova, Deputy Director Ye. S. Nitkuk, Head of Regional Art Projects Subdivision Z. V. Turmanova, Deputy Director G. A. Samenko, Head of Sakhalin Indigenous Minorities’ Culture Subdivision Sakhalin Regional Centre of Arts and Crafts O. Yu. Khuryun, Lead Specialist of Sakhalin Indigenous Minorities’ Culture Subdivision

Sakhalin Regional Centre of Extracurricular Education S. I. Rudenko, Subdivision Head

164 165 Appendix 3

Appendix 4. Useful links

Sakhalin Regional Council of Veterans of War, Labour, Z. V. Glyogover, Chairperson Military Forces and Law Enforcement Authorities Company public website www.sakhalinenergy.com Sustainable development www.sakhalinenergy.com (section Social Performance) Sakhalin Regional Division of the Russian Union of About the company www.sakhalinenergy.com (section About the Company) Industrialists and Entrepreneurs, and the Regional Contracting with us www.sakhalinenergy.com (section Contracting with Us) I. V. Andreyev, Executive Director Association of Employers Union of Industrialists and Job and Career www.sakhalinenergy.com (section Job and Career) Entrepreneurs of Sakhalin Oblast Media centre Sakhalin Regional Local Lore Museum N. V. Vishnevsky, Director Vesti corporate newspaper www.sakhalinenergy.com (section Media Center) Energy TV programme Sakhalin Regional Universal Scientific Research Library V. A. Malysheva, Director Whistle Blowing Procedure www.sakhalinenergy.com (section About the Company – Our Principles) Sakhalin Research Institute for Fishing and Oceanography D. S. Zavarzin, Senior Researcher COMPANY DOCUMENTS AND MATERIAL REFERRED TO IN THE REPORT N. I. Cherkavsky, Vice-President for Continuing Education and Statement of General Business Principles Sakhalin State University Affiliates Sustainable Development Policy E. N. Lisitsina, Head of the Sustainable Development Chair www.sakhalinenergy.com (section About the Company – Our Principles) Human Rights Policy Stroitel Non-Commercial Garden Cooperative, T. S. Voskoboynikova, Secretary Code of Conduct Prigorodnoye V. V. Kshetskaya Sakhalin Energy Commitment and Policy on Health, Safety, Environment, and Social Performance V. K. Gorokhov, retiree www.sakhalinenergy.com (section Safety and Environment – Health, Safety, Health Safety Environmental and Social Action Plan, Policies and Environment and Social Action Plan) Yuzhno-Sakhalinsk Children (Youth) Creativity Centre Ye. A. Kharlamova, Deputy Director for Instructional Research Standards on Health, Safety, Environment, and Social Performance Yuzhno-Sakhalinsk City Duma Ye. A. Stolyarova, Deputy Chairperson (note: complex of documents) Lenders’ Independent Environmental Consultant Reports N. V. Belyaeva, Category 1 Chief Specialist of Public Relations on Conducted Monitoring www.sakhalinenergy.com (section Safety and Environment – Health, Safety, Subdivision Environment and Social Action Plan) Yuzhno-Sakhalinsk Urban District Administration Company social performance management standard N. Ye. Samarina, Head of Natural Resources Management and Contracting and Procurement Policy www.sakhalinenergy.com (section Contracting with Us) Environmental Protection Subdivision Public Consultations and Information Disclosure Plan www.sakhalinenergy.com (section Social Performance – Community Awareness) (updated annually) Yuzhno-Sakhalinsk Urban District Administration, M. V. Kragina Public Consultations and Disclosure Reports www.sakhalinenergy.com (section Social Performance – Community Awareness) Indigenous Minorities Council A. Ya. Nachetkina www.sakhalinenergy.com (section Media Center – Library – Environmental Biodiversity Action Plan Documents) Statement on application of ISO 26000:2010 Guidance www.sakhalinenergy.com (section Social Performance – Sustainable Development on Social Responsibility Principles)

Sustainable Development Reports www.sakhalinenergy.com (section Media Center)

PROJECTS AND PROGRAMMES WEBSITES Korsakov Partnership Council for Sustainable Development www.korsakovsovet.ru

Sakhalin Indigenous Minority Development Plan www.simdp.ru

‘“What to Do in Emergency Situations” Programme www.senya-spasatel.ru

The Energy Social Initiatives Fund www.fondenergy.ru

The Save the Salmon Together project www.salmon-friend.ru PRINTED MATERIALS

ABC-book of the Uilta language www.sakhalinenergy.com (section Media Center – Library – Published editions)

The Universal Declaration of Human Rights in the Nivkh language

The Universal Declaration of Human Rights in the Uilta language www.simdp.ru (section Multimedia – Other Materials) The Universal Declaration of Human Rights into the Nanai lan- guage Comics www.senya-spasatel.ru

166 167 Appendix 4

Appendix 5. Company Information Centres List

District Locality Organisation Address Rural library, Branch No.7, Sub-division of the Municipal Institution Aniva Municipal Resettlement: Experience of Sakhalin Energy Aniva Troitskoye 13, Sovetskaya St. Centralised Library System

Human Rights: Experience of Sakhalin Energy Rural library, Branch No.6, Sub-division of the Municipal Institution Dolinsk Municipal Vzmorye 22, Pionerskaya St. Centralised Library System Birds of Sakhalin Island (photo album) www.sakhalinenergy.com (section Media Center – Library – Published editions) Rural library, Branch No.10, Sub-division of the Municipal Institution Dolinsk Municipal Sovetskoye 127а, Tsentralnaya St. Centralised Library System EA. Best Practices Book Vol.1 Dolinsk Dolinsk Central City Library, Sub-division of the Municipal Institution Dolinsk Municipal Dolinsk 31, Lenina St. EA. Best Practices Book. Vol.2 Centralised Library System Rural library, Branch No.5, Sub-division of the Municipal Institution Dolinsk Municipal Sokol 14, Shirokay St. A methodic book titled Life Safety Fundamentals www.senya-spasatel.ru Centralised Library System

Central Regional Library named after Yury Nikolayev, Sub-division of the Municipal Gray Whales. The Sakhalin Story Kholmsk Kholmsk 124, Sovetskaya St. Institution of Culture Kholmsk Centralised Library System of Kholmsk Municipality

Liquefied natural gas (collection of interesting facts) Rural library, Branch No.2, Sub-division of the Municipal Institution Makarov Municipal Vostochnoye 8, Privokzalnaya St. Centralised Library System Photo album “the World through a lens” Makarov Central Library, Sub-division of the Municipal Institution Makarov Municipal Makarov Makarov 9a, 50 Let Oktyabrya St. Centralised Library System Poisonous Plants and Fungi Rural library, Branch No.4, Sub-division of the Municipal Institution Makarov Municipal Novoye 11a -7, Tsentralnaya St. Rivers of Sakhalin Island www.sakhalinenergy.com (section Media Center – Library – Published editions) Centralised Library System Poronaysk Central Library, Sub-division of the Municipal Institution of Culture Poro- Poronaysk 45, Gagarina St. Sakhalin Birds (photo album) naysk Municipal Centralised Library System

Rural library, Branch No.4, Sub-division of the Municipal Institution of Culture Poro- Sakhalin-2 Encyclopedia Poronaysk Gastello 42-2, Tsentralnaya St. naysk Municipal Centralised Library System

Steller’s Sea Eagle Rural library, Branch No.13, Sub-division of the Municipal Institution of Culture Poro- Vostok 10a, Gagarina St. naysk Central Library System

Nivkh Myths and Fairy Tales Rural library, Branch No.3, Sub-division of the Municipal Institution of Culture Smirnykh Onor 21, Sovetskaya St. Centralised Library System REFERENCE MATERIAL AND OTHER Pobedino Rural Library-Museum, Branch No.4, Sub-division of the Municipal Institution Pobedino 60, Tsentralnaya St. of Culture Smirnykh Centralised Library System Global Compact LEAD www.unglobalcompact.org (section How to participate – Global Compact LEAD) Smirnykh Central Library, Sub-division of Municipal Institution of Culture Smirnykh Smirnykh Smirnykh 12, Lenina St. Global Initiative Sustainability Reporting Guidelines www.globalreporting.org Centralised Library System

Rural library, Branch No.6, Sub-division of the Municipal Institution of Culture Smirnykh Roschino 4, Komsomolskaya St. UN Global Compact www.unglobalcompact.org Centralised Library System

Rural library, Branch No.7, Sub-division of the Municipal Institution of Culture Smirnykh UN Global Compact in Russia www.undp.ru/index.php?iso=RU&lid=1 Buyukly 1, Kosmonavtov St. Centralised Library System

UNGC Network, Russia. Corporate Social Responsibility Practices www.undp.ru/index.php?iso=RU&lid=1&pid=160 Rural library, Branch No.17, Sub-division of the Municipal Institution of Culture Tymovsk Molodezhnoye 13, Sovetskaya St. Centralised Library System Western Gray Whale Advisory Panel (WGWAP) www.iucn.org/wgwap/wgwap Central District Library, Sub-division of the Municipal Institution of Culture Tymovsk Tymovskoye 68a, Kirovskaya St. Centralised Library System Tymovsk Rural library, Branch No.13, Sub-division of the Municipal Institution of Culture Tymovsk Yasnoye 2, Titova St. Centralised Library System

Rural library, Branch No.8, Sub-division of the Municipal Institution of Culture Tymovsk Kirovskoye 70, Tsentralnaya St. Centralised Library System

Nogliki District Central Library, Sub-division of the Municipal Institution of Culture Nogliki Nogliki 5a, Pogranichnaya St. Nogliki Centralised Library System

Korsakov city Youth Library, Branch No.13, Sub-division of the Municipal Institution of Korsakov Korsakov 7, Molodezhny Per. Culture Korsakov Centralised Library System

168 169 Appendix 6. Feedback Form Appendix 7. Certificate of Public Endorsement DEAR READERS, You have just read 2015 Sakhalin Energy Sustainable Development Report (hereinafter – Report). Your opinion on this Report is very important to us and we would really appreciate if you help us improve the quality of reporting by answering questions stated in this Form. Russian Union of Industrialists and Entrepreneurs (RUIE)

1. After reading Report, do you have a better 5. What Section of the Report was most interest- 11. Which group of parties or persons concerned idea and understanding of Sakhalin Energy ing and valuable to you? do you belong? activities in sustainable development? 1 o 2 o 3 o 4 o 5 o 6 o 7 o 8 o 9 o 10 o o Company’s employee o Yes o Mostly Yes o Equal o Investor o Shareholder o Customer (Buyer) CERTIFICATE Appendices o o Mostly No o Unsure o Partner (Contractor) of Public Assurance of Corporate Non-Financial Report Please provide comments in support of your answer o Representative of authorities 6. What aspects of Sakhalin Energy activity, in o Representative of public organisation ______your opinion, are to be improved in order to o Mass media o Other group of persons concerned (comment) ______enhance its social responsibility? Sustainable Development Report of ______Sakhalin Energy Investment Company Ltd. ______2. What is your impression on information con- ______tained in this Report? has passed public assurance at the RUIE Council for Non-Financial Reporting o Very interesting o Mostly interesting 7. What other information would you like to Please indicate your contact information below: The detailed RUIE Council conclusion regarding public endorsement o Equal have in the next Sakhalin Energy Sustainable Name: of 2015 Sustainable Development Report of Sakhalin Energy Investment Company Ltd. Development Reports? has been provided to the Company, which may publish it without any amendments o Mostly uninteresting ______and use it for in-house purposes as well as in engagements with stakeholders. o Greatly uninteresting ______o Unsure ______Job title: ______3. How do you rate this Report in terms of credi- ______Registration No. 081.01.004.01.15 bility and unbiassness of information provided? Telephone: ______Signed: o Very favourable 8. Please provide general comments on the Organisation: o Mostly favourable Report: RUIE President A. Shokhin, o Equal ______Russian Union of Industrialists and Entrepreneurs o Mostly unfavourable ______Fax: ______o Very unfavourable Moscow, 2016 o Unsure ______Address: Please provide comments in support of your answer ______E-mail: ______9. Are you or your organisation interested in ______participating in dialogues about preparation of 2016 Sustainable Development Report? What type of communication is preferable? o By mail o E-Mail 4. How do you rate the Report in terms of how o Yes (please provide your contact information) easy it to find required information? o No o Very easy Please return the completed Form on the 2015 o Mostly easy Sustainable Development Report to: 35 Dzerzhin- 10. What other organisations in your opinion o Equal skogo Str., Yuzhno-Sakhalinsk, Sakhalin Region, may be invited to take part in subsequent o Mostly uneasy Russian Federation, 693020. You may also send dialogues about preparation of the Sustainable o Very uneasy this Form by e-mail: Development Report? o Unsure [email protected] or leave it at the company’s Information Centre. ______Please provide comments in support of your answer List and addresses of information centres are ______given in Appendix 5 to the Report. ______THANK YOU FOR YOUR FEEDBACK ______

170 171 Appendix 8 Appendix 8. Conclusion on the Review of Sakhalin Energy 2015 Sustainable Development Report by the RUIE Council for Non-Financial Reporting for the Purpose of Public Endorsement The company 2015 report contains material information regarding tions. Special attention is paid to the engagement with local com- the following aspects of responsible business practices. munities of Sakhalin Island, including information on grievance pro- The Non-Financial Reporting Council (the Council) of the RUIE Complete information means that the company report provides cedure. It is stated that the company attaches special importance (Russian Union of Industrialists and Entrepreneurs), established integrated information on all main aspects of the company Economic Freedom and Responsibility: to engagement with Sakhalin indigenous minorities based on the by the Bureau of the Board (Resolution dated 28 June 2007), has activities — the underlying values and strategic goals, development plans agreed with them and consistently implemented. reviewed the 2015 Sustainable Development Report (the report) management systems and structures, stakeholder The report gives an overview of the policies and performance of the The report gives an account of the results of the efforts aimed at at the request of Sakhalin Energy Investment Company Ltd. engagement processes, major achievements and key company in the field of sustainable development, the main financial, engagement with stakeholders as part of the reporting process, as (Sakhalin Energy, or the company). performance and effectiveness indicators. economic and production figures for the business segments and the well as informs about the company response to the proposals and most important production assets. It also highlights the value of the suggestions received during these events. The company asked the RUIE to arrange for a public endorse- The Council notes that progress has been made in this report in Sakhalin-2 project for the economic development of the Far East re- ment process by the Council for Non-Financial Reporting, which terms of information disclosure as compared to the previous one. gion and the whole country, including information on the increase of Human Rights: issues its opinion on the relevance and completeness of informa- Russian content in the project. It briefly characterises the develop- tion provided in company non-financial report on the context of The fact that the company has applied international reporting ment projects aimed at optimising the business processes, The report reflects the company commitment to human rights the Social Charter of Russian Business that promotes responsi- principles is taken into account as part of the public endorse- improving the operational excellence and safety. The principles observance. It covers management system in this area, presents ble business principles. ment process. However, it is outside the scope of this conclu- underlying the activities of the company, the basic elements and the main regulatory documents, including the Human Rights Policy, sion to assess the extent of the compliance with international the organisational structure of the management system are de- as well as the procedures and events ensuring their implemen- During the period from 27 February to 14 March 2016, the reporting principles. scribed in the report. The report also highlights company impact tation. It is stated that the company has implemented the human Council’s members reviewed the company report and prepared management issues: on the economy, society and the environment. rights standards in all areas where there is a risk of human rights this Conclusion based on the Council-approved Rules for Public Sakhalin Energy bears all responsibility for the information and The model of corporate governance is presented in the report. The infringement; relevant employee training is conducted on a regular Endorsement of Non-Financial Reports. The Council members announcements in the report. The authenticity of the factual report contains detailed information on risk management and de- basis. The results of grievances handling are highlighted in the possess the required competencies in areas of corporate respon- data provided in the report is outside the scope of the public scribes anti-corruption procedures. It covers the current corporate report. It is also reported that, in accordance with the UN recom- sibility, sustainable development and non-financial reporting; endorsement process. policies and standards governing the responsible business mendations, the company applies the principle of «free, prior and they abide by ethical requirements for making independent and practices of Sakhalin Energy. informed consent» (FPIC) when working with Sakhalin indigenous objective assessments; and they express their personal opinions This Conclusion is issued for Sakhalin Energy. The company minorities. The report contains information on the company partici- as experts, but not the opinions of their respective organisations. may use this conclusion for internal purposes, as well as for Business Partnership: pation in the promotion of human rights issues in a business setting its engagements with stakeholders, provided the conclusion is at the international level and in the Russian business community. The relevance and completeness of the report were assessed published as is, without any changes. The report addresses the company systematic approach to engage- based on the following criteria: ment with stakeholders. It identifies key stakeholder groups. The Environmental Preservation: strategies, the principles, the tools of engagement, and the practice Information is relevant since it demonstrates the company com- of business partnership are highlighted in the document. The report The report provides detailed description of the environmental pliance with responsible business practices as set forth in the provides comprehensive description of personnel management impact management, which is regarded as part of an integrated Social Charter of Russian Business (www.rspp.ru). system, HR policies, incentives, and social guarantees for employ- sustainable development management system. It characterises the ees. The company indicates in the report that HR management is company integrated health, safety and environment (HSE) management regarded in the context of strengthening the corporate culture, and system which is based on the application of international stand- is based on the developed system of internal communications. The ards ISO 14001 and OHSAS 18001. It is reported that industrial relationships with suppliers, to which the company applies, as is environmental control is conducted regularly taking into account FINAL OPINION reported, the basic requirements of internal corporate documents the company standards for air protection, energy management, for compliance with the rules of business ethics and social respon- water use, and waste management. Environmental impact statis- Based on the report’s review and the public information pub- The 2015 report addresses the RUIE Council’s recommenda- sibility, are considered in the context of responsibility in the supply tics, as well as the company efforts to reduce the adverse effects lished on the company website, and following a discussion of the tions for the 2014 Sakhalin Energy Sustainable Development chain. The report describes the vendor development programme of production activities, including data on oil spills, are presented independent review of the report by the RUIE Council for Non- Report. Information on the sustainable development manage- implemented with a view to ensure vendors’ compliance with these in the report. It is noted that the company maintains accounting Financial Reporting, the Council confirms the following. ment system of the company and the promotion of corporate requirements. It covers the measures taken to ensure the transpar- and control of greenhouse gas emissions. The report discloses responsibility principles in its relations with suppliers and ency of tender procedures and open competition. The report con- energy consumption figures, as well as information confirming The 2015 Sustainable Development Report of Sakhalin Energy contractors has been expanded; more details have been provided tains information on the engagement with oil and gas customers, the high level of energy efficiency of the company assets. It also Investment Company Ltd. contains material information and regarding the procedure for defining material subjects to be based on regard for their interests, exchange of information, and includes information on biodiversity preservation, and the environ- covers key areas of responsible business practices in accord- disclosed in the report and the stakeholder engagement in the security of supplies. Information on engagement with shareholders mental monitoring conducted by the company (soil, river ecosys- ance with the Social Charter of Russian Business. It provides course of its preparation. and investors, in particular on the issues of sustainable develop- tems, vegetation, protected species of animals, etc.). The data sufficiently detailed information on the company activities in ment, has also been included in the report. The report specifies on environmental costs, as well as on the results of independent these areas. main areas and forms of cooperation with government authorities assessment of environmental responsibility of Sakhalin Energy are at various levels, as well as with public and non-profit organisa- specified in the report.

172 173 Appendix 8

Local Community Development: the implementation of these principles in the company activities The company informs that CSR trends and indicators are regu- The focus on the new version of G4 Guidelines in the preparation in all areas of corporate social responsibility. The report provides larly assessed by authorised personnel and senior management of the report is in line with the modern trends in the non-finan- The report contains information on social and economic impact a considerable amount of data on economic, social and environ- within the internal control and audit framework, as well as by cial reporting. Consistently advancing in the mastering of this of Sakhalin Energy, its contribution to sustainable development mental performance of the company, and its impacts on society lenders, their consultants and independent evaluators through new tool, the company should pay particular attention to the of the hosted region and local communities in the areas of and the environment. Particular attention is paid to safety in all external professional assessment. It is recommended that the recommendations regarding the disclosure of information, in production activity in the Sakhalin Oblast. The report gives an key aspects. future non-financial reports disclose information on the key particular, the formulation of the material aspects taking into overview of the company principles and approaches in the field results of the company CSR trends and indicators, and include account the GRI requirements, the indicators reflecting these of social investment. Special attention is given to the specific The report was prepared using the Sustainability Reporting comments on the dynamics of changes in these indicators. aspects, and the completeness of their disclosure. programmes implemented in partnership with the government Guidelines (GRI G4), which ensures the continuity of information authorities and representatives of the communities. These across reporting cycles, as well as comparability with other Although the report contains a considerable amount of environ- The RUIE Non-Financial Reporting Council expresses a posi- include child safety and road safety programmes, the Traditional companies’ reports. Evidence is provided that the material mental indicators, it is recommended that in the future dynamics tive opinion on the report, and, supporting the company in its Economic Activities Support Programme as part of the Sakhalin subjects to be included in the report were defined taking into by the year be shown not only for the absolute, but also for the adherence to the principles of corporate social responsibility Indigenous Minorities Development Plan, the projects of the En- account stakeholders’ opinions. specific values of the environmental performance indicators so and noting the consistency of the reporting process develop- ergy Social Initiatives Fund, the Korsakov Sustainable Develop- as to ensure greater completeness and clarity. ment, confirms that the 2015 Sustainable Development Report ment Partnership Council, and the corporate programme to sup- The 2015 Sustainable Development Report of Sakhalin Energy of Sakhalin Energy Investment Company Ltd. has received public port charity and volunteer initiatives of the company employees. Investment Company Ltd. is its seventh annual report of this It should be noted that the informational value would be higher if endorsement. The report shows evidence of the public recognition the company kind, which demonstrates continuity in the development of the data shown in dynamics were accompanied with comments, received for its activities in this area, and its contribution to the non-financial reporting process and the company adherence to giving a clear picture of the factors that caused the significant development of the hosted region. transparency and openness principles. changes of relevant indicators. This applies, in particular, to report data on cases of occupational diseases (growth), and on Concluding Statements waste generation (reduction). The inclusion of such clarifications will enable a better understanding of the processes taking place Overall, the report of Sakhalin Energy provides sufficient infor- in the company. mation on the business practice of the company which is based on the principles of corporate social responsibility and sustainable development, presents data supporting the integration of these principles into the strategy and management systems at all levels. It contains detailed information on corporate policies, regulations, standards and monitoring procedures that ensure Chairman of the RUIE Council F.T. Prokopov

Deputy Chairman of the RUIE Council E.N. Feoktistova

RECOMMENDATIONS

Recognising the merits of the Sakhalin Energy 2015 Sustainable The report lists the projects that the company is implementing Development Report, the Council would like to bring to the com- in order to promote sustainable development of local commu- pany attention a number of aspects related to the informational nities. It is recommended that the monitoring conducted by the value and completeness of disclosure that are essential for the company and the evaluation of such projects implementation be stakeholders. We recommend the company consider this advice covered in greater detail in the future. in subsequent reporting cycles. The recommendations regarding the company previous non-financial reports remain relevant and It is stated in the report that engagement with personnel is an should also be used in further work. important component of strengthening and development of the company corporate culture. It is recommended to further expand The report contains information on the plans for the coming information on this topic, supplement the list of activities with year and the medium term, which are formulated primarily in information on their results from the standpoint of sustainable descriptive form. It is recommended that in future measurable development. For example, it would be helpful if the information targets for the upcoming planning period be included in reporting, on the availability of a talent pool were illustrated with informa- which will allow the company to better assess the results tion on how it is used, and how exactly the career ladder works. achieved and progress made towards the set goals.

174 175 Appendix 9. Abbreviations

ALARP As Low As Reasonably Practicable MChS Ministry of Emergency Situations / Emercom ANPO Autonomous Non-Profit Organisation MHMS Minimum Health Management Standards APR Asian-Pacific region MNR Ministry of Natural Resources RS Road safety MPC Maximum permissible concentrations BAP Biodiversity Action Plan MPE Maximum permissible emissions BoD Board of Directors NPO Non-profit organisation BS 2 Booster station 2 OET Oil export terminal CED Committee of Executive Directors OPF Onshore processing facility CER Committee for Emergency Response OSR Oil spill response CSR Corporate social responsibility PA-A Molikpaq platform (Piltun-Astokhskoye-A) ESHIA Environmental, Social and Health Impact PA-B Piltun-Astokhskoye-B platform Assessment PERC Pacific Environment and Resources Center FEC Fuel and energy complex PMD Pipeline maintenance depot GRI Global Reporting Initiative for Sustainable Development PSA Production Sharing Agreement HSE Health, safety and environment RAIPON Russian Association of Indigenous Peoples HSE and SP Health, safety, environment and social performance of the North, Siberia and the Far East of the Russian Federation IC Information centre RAS Russian Academy of Sciences IEC&LM Industrial Environmental Control and Local Monitoring System RTA Road traffic accident IFC International Finance Corporation RUIE Russian Union of Industrialists and Entrepreneurs IFRS International Financial Reporting Standards SIM Sakhalin indigenous minorities IMO International Maritime Organisation TEOC TEO (Feasibility Study) of Construction ISO International Organisation for Standardisation TLU Tanker loading unit ISO International Organisation for Standardisation UN United Nations IUCN International Unit for Conservation of Nature UNDP United Nations Development Programme IVMS In-Vehicle monitoring system UNGC United Nations Global Compact LNG Liquefied natural gas WGWAP Western Gray Whale Advisory Panel LUN-A Lunskoye-A platform WWF World Wildlife Fund

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