HIGH ACHIEVEMENTS HIGH RESPONSIBILITY

SUSTAINABILITY REPORT 2014 4 SUSTAINABILITY REPORT 2014

KEY RESULTS OF THE YEAR

million 38 hours 22% over 800 roubles AVERAGE NUMBER REDUCTION IN THE LOST EXPENDITURE ON OF TRAINING HOURS PER TIME INJURY FREQUENCY OCCUPATIONAL SAFETY EMPLOYEE RATE (LTIFR)

HIGHLIGHTS OF THE YEAR

Р. 69 Р. 72 Р. 81 Р. 86 Р. 111 Implementation of a set Implementation Reduction of harmful Start of construction Outcome of implementa- of measures to prevent of a Programme to Attract atmospheric emissions of an integrated complex tion of social programmes cardiovascular diseases Young Professionals due to refinery upgrades of biological treatment under agreements with facilities at the Group’s our operating regions refineries

HEADCOUNT, AVERAGE SALARY, TOTAL AMOUNT OF TAX THOUSAND EMPLOYEES THOUSAND ROUBLES PAYMENTS, BILLION ROUBLES

35.0 80 320 33.3 67 Average salary 297 level in the 56 Republic of 290 Bashkortostan 30.0 40 Average salary 27.9 25 256 level across 22 260 Bashneft Group

25.0 0 230 2013 2014 2013 2014 2013 2014

In 2014 the number of Bashneft’s We maintain a high salary level, We paid 297 billion roubles in tax to employees increased by 20% as petro- which is higher than the average level budgets of all levels. chemical assets were included in the across the Republic of Bashkortostan, scope of the Group again. in order to attract and retain the best professionals. HIGH ACHIEVEMENTS HIGH RESPONSIBILITY 5

OUR STRATEGIC PRIORITY IN THE SPHERE OF HEALTH, SAFETY AND ENVIRONMENT IS TO BECOME A LEADER AMONG RUSSIAN OIL 85.6 % +20 % COMPANIES IN THE SPHERE OF SHARE OF EURO 5 INCREASE IN OIL HSE AND TO MEET INTERNATIONAL GASOLINE IN THE TOTAL SLUDGE PROCESSING STANDARDS. OUTPUT

WE ARE COMMITTED TO AN OPEN DIALOGUE AND RESPONSIBLE COOPERATION WITH ALL STAKEHOLDERS: SHAREHOLDERS AND INVESTORS, EMPLOYEES, CONSUMERS, SUPPLIERS, LOCAL COMMUNITIES AND REGULATORY BODIES

Bashneft’s activities in the sphere of Compact Blueprint for Corporate Sus- sustainable development are based tainability Leadership. on the ISO 26000:2010 International Standard (Guidance on Social Respon- Bashneft is a member of the Interna- sibility), the GOST R ISO 26000-2012 tional Petroleum Industry Environmen- standard (Guidance on Social. Respon- tal Conservation Association (IPIECA) sibility) and guidelines on human rights, employment relations, environ- Bashneft is a member of the Interna- mental protection and anti-corruption tional Association of Oil & Gas Produc- measures set out in the UN Global ers (OGP).

RENOVATION AND MAJOR REPAIRS OIL SLUDGE PROCESSING, EXPENDITURE ON OF FLOWLINES, KILOMETRES THOUSAND TONNES ENVIRONMENTAL PROTECTION BY AREA

78.4 80 405 10% 400 65.1 58% 60 296 32% 300

40 Water bodies 200 BILLION 9.3 ROUBLES 20 Land 100 Atmosphere 0 0 2013 2014 2013 2014

In 2014 we expanded the scope of our In 2014 the volume of oil sludge pro- In 2014 expenditure on environmental programme of renovation and major cessing grew by 20%. protection measures totalled repairs of flowlines. 9.3 billion roubles. 6 SUSTAINABILITY REPORT 2014

CONTENTS

KEY RESULTS AND HIGHLIGHTS OF THE YEAR 4 STAKEHOLDERS 48

ADDRESS BY THE CHAIRMAN OF THE Stakeholder map 50 BOARD OF DIRECTORS AND THE PRESIDENT OF JSOC BASHNEFT 8 Shareholder and investor engagement 51

ABOUT THE REPORT 10 Employees 53

General provisions 10 Consumers 54

Definition of material aspects and Suppliers and business partners 55 their boundaries 11 Regulatory bodies 57 Differences from the Sustainability Report for 2013 11 Local communities and non-profit organizations 58

SUSTAINABLE DEVELOPMENT 12 Key areas of stakeholder engagement 59

Aims and values in the sphere of sustainable PERSONNEL AND SOCIAL POLICY 60 development and the Group’s mission 14 Principles and key areas of our HR policy 61 Goals and tasks in the sphere of sustainable development 15 Our employees 64

Charters and membership of associations 17 Incentives and remuneration 66

The Group’s key events in the sphere The Group’s social policy 68 of sustainable development 18 ENVIRONMENTAL PROTECTION 78 Achievements in the sphere of sustainable development in 2014 20 Protection of the atmosphere 81

ABOUT THE GROUP 22 Protection of water resources 84

History of our Group 23 Land conservation 87

Structure of the Group and share Biodiversity 90 capital structure 25 Energy efficiency 91 Business model and geographical footprint 27 OCCUPATIONAL HEALTH AND SAFETY 94 Position in the industry 31 Occupational safety 97 Strategy and operating results 32 Protecting employees in emergency situations 103 Corporate governance 38 Industrial safety 104 7

CHARITABLE PROGRAMMES AND DISCLAIMER PARTICIPATION IN THE DEVELOPMENT OF OPERATING REGIONS 106 Information provided in the Sustainability Report Principles of sustainable development includes projections or other forward-looking state- of operating regions and charity work 108 ments concerning future events within the Group or its future financial performance. These statements Economic impacts on operating regions 109 are only forecasts, and actual events or performance may differ from those stated. Forward-looking Target programmes and charity work 110 information is disclosed before the beginning of the reporting period. The actual performance may differ Improvement of the Group’s system materially from what is declared in our assumptions for charitable funding 115 and forecasts due to a large number of factors. Such factors may include general economic conditions; APPENDICES 116 competitive environment; risks related to operat- ing in Russia and abroad; technological and market Appendix 1. GRI Content Index 117 changes in the oil and gas sector, as well as other factors related to the Group’s operations. Appendix 2. Material aspects of Bashneft’s business 126 The Report may include certain interim results and projections about future periods. Statements Appendix 3. Certificate of public endorsement 128 concerning processes beyond the reporting period cannot be considered assertions, and the relevant Appendix 4. Glossary 129 data should be considered only interim but not final results. CONTACT DETAILS 130 The total amount presented in tables and diagrams in the Report may differ from the sum of component parts due to rounding.

 Further up-to-date information on the Group’s operations is available on the website at http://www.bashneft.com 8 SUSTAINABILITY REPORT 2014

ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE PRESIDENT OF JSOC BASHNEFT G4-1

DEAR COLLEAGUES of retail sales in the total volume AND PARTNERS, of domestic sales of engine fuel increased to 24%, while Bashneft’s We are glad to present the Sustain- retail network was expanded to 582 ability Report of JSOC Bashneft for own filling stations and 220 partner 2014. The Report examines our efforts filling stations. in the sphere of cooperation with all parties involved in the Group’s opera- We consistently improve the corpo- tions, charity work, health, safety and rate governance system: in 2014 we environment. enhanced the role of the Company’s Board of Directors in making key In 2014 the global energy market decisions and completed a large-scale was highly volatile: as supply exceed- reorganization of the Group: we con- ed demand, the end of the year saw siderably simplified its organizational a sharp fall in crude oil prices. and shareholder structures and elimi- ALEXEY TEKSLER nated cross-holdings. Chairman of the Board of Directors Despite unfavourable external con- of JSOC Bashneft ditions, Bashneft proceeded with its We expect that further development strategic plans. We continued to focus of the Group in the coming years on improving business efficiency while will involve a number of measures maintaining a high level of corporate to achieve our strategic priorities. social responsibility. We managed We plan to continue to boost produc- to achieve impressive results both tion at brownfields and develop new in terms of financial and operational oil-producing regions, and at the performance and in the sphere of sus- same time to implement a large-scale tainable development. geological exploration programme. We will continue the refinery upgrade We considerably expanded our programme aimed at increasing the resource base (by the end of the year share of light products, improving the reserve replacement ratio totalled energy efficiency and ceasing produc- 179%) and achieved the strongest oil tion of heavy petroleum products. In production growth among Russian the sphere of sales and marketing, we companies once again: +10.8% year aim to achieve a further increase in on year. sales of high-margin petroleum prod- ucts through integrated development Completion of major refinery upgrades of guaranteed marketing channels, in 2014 made it technically feasible expansion of direct access to con- to ensure that 100% of engine fuels sumers and development of sales of produced by Bashneft are environ- niche products. In addition, we aim mentally friendly and meet the Euro to continue to improve our corporate ALEXANDER KORSIK 5 standard, while the Group’s Nelson governance system. President of JSOC Bashneft Index reached 8.93, which is the best result in the industry. Work in the sphere of sustainable development remains our priority We successfully continue our work and one of our strategic objectives. aimed at expanding channels provid- We created an efficient HSE manage- ing access to consumers. The share ment system. The British Standards ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND 9 THE PRESIDENT OF JSOC BASHNEFT

Institution (BSI) acknowledged that budgets of all levels reached 297 bil- Bashneft’s integrated HSE Man- lion roubles. agement System complies with the thousand OHSAS 18001 standard and that its In the medium term, our tasks in the Environmental Management System sphere of sustainable development 33 employees complies with the ISO 14001 standard. include further improvement of HSE HEADCOUNT management and HSE performance: We seek to create a safe and favour- protecting the life and health of our able working environment for our employees, ensuring industrial safety employees. In 2014 we implement- at hazardous production facilities, ed an integrated set of measures creating an environmentally friendly aimed at ensuring the safety of our company. employees, which resulted in a 22% billion reduction in the occupational injury All our efforts are aimed at achiev- rate by the end of the year. The Group ing our strategic goal in the sphere 297 roubles attaches great importance to health of sustainable development, which TAXES PAID care, prevention of diseases and pro- is to make Bashneft a leader among viding employees and their families Russian energy companies and to with opportunities for high-quality ensure compliance with internation- recreation. ally recognized standards in environ- mental protection, corporate gover- Bashneft invests in the development nance and sustainable development. of its own employees: in 2014 the billion average number of training hours Ongoing fruitful dialogue with all 1.4 roubles per employee reached 38 hours. The stakeholders enables us to look to the Group has in place a Collective Agree- future with confidence and to work EXPENDITURE ON CHARITY ment, which stipulates an extended towards our strategic goals regardless WORK AND DEVELOPMENT package of social benefits and guaran- of external circumstances. OF OUR OPERATING REGIONS tees for our employees.

We made significant progress in the sphere of environmental protection. The key achievements included a reduction in direct and indirect atmo- spheric emissions. We are making +10.8 % considerable efforts in the sphere of OIL PRODUCTION land conservation: the volume of oil sludge processing grew by 20%; the Group is implementing a programme to improve the reliability of pipelines.

We attach great importance to social development of our operating regions and provision of support to local com- munities. In 2014 we allocated 1.4 billion roubles for social investments, while the amount of tax payments to 10 SUSTAINABILITY REPORT 2014

ABOUT THE REPORT

GENERAL PROVISIONS In particular, the Report includes data and events contains references to information on: corresponding sections of the Annual In this Sustainability Report the terms Report. Besides, the Report includes Bashneft, we, Bashneft Group and / the Group’s parent compa- selected pieces of information on the Group in various forms refer to ny, JSOC Bashneft, including its events after the reporting date which JSOC Bashneft, its branches, sub- branches: took place in 2015. Such information sidiaries and structured entities. The / the Bashneft-UNPZ Branch, does not provide a complete descrip- terms JSOC Bashneft and the Compa- / the Bashneft-Novoil Branch, tion of the events which took place ny refer to JSOC Bashneft. / the Bashneft-Ufaneftekhim in 2015 before the publication of the Branch, Report; it was used only for represent- When referring to the period before / the Bashneft-Regional Sales ing the development of processes and the reorganization conducted in 2012, Branch; trends continuing since 2014. ‘Ufimsky Refinery Plant’, ‘Novoil’, ‘Ufaneftekhim’, ‘Bashkirnefteprodukt’ / material subsidiaries: When preparing this Report, we used and ‘Orenburgnefteprodukt’ mean / LLC Bashneft-Dobycha (a 100% the fourth generation of the Sustain- JSOC Bashneft’s subsidiaries consoli- stake), ability Reporting Guidelines of the dated with the Company, namely OJSC / LLC Bashneft-Retail Sales (a Global Reporting Initiative (GRI 4.0) Ufimsky Refinery Plant, OJSC Novoil 100% stake; previously LLC supplemented by a set of indus- (OJSC Novo-Ufimsky Refinery), OJSC Bashneft-Udmurtia), try-specific non-financial performance Ufaneftekhim, OJSC Bashkirneftepro- / LLC Bashneft-Polyus (a 74.9% indicators recommended for oil and dukt and OJSC Orenburgnefteprodukt stake; indicators are consolidated gas companies (Oil and Gas Sector respectively; after the reorganization, starting from May 2014), Disclosures). these are respective branches of JSOC / LLC Burneftegaz (a 100% stake; Bashneft. indicators are consolidated start- When preparing this Report, we ing from March 2014); used the Core option of disclosure. JSOC Bashneft publishes the Sustain- A table containing a complete list of ability Report on an annual basis. This / other subsidiaries and affiliates: aspects covered by the Report and Report covers data within the reporting / JSC UPC, the numbers of the relevant pages is period from January 1 to December 31, / other subsidiaries and affiliates presented in Appendix 1 ‘GRI Content 2014 compared to the results and data of the Group. G4-17 Index’. G4-32 for previous periods disclosed by the Group in the Report for 2013, including The Report also contains information In the future, we plan to gradually significant events and changes that on joint ventures; non-financial indi- expand the scope of information dis- may affect the results in the reporting cators of such ventures are included closures as part of a transition to the period. The previous Report covered in the Report based on consolidation Comprehensive option; therefore, in the same period in 2013 and was pub- principles applied when preparing this Report we seek to disclose more lished in June 2014. G4-28,G4-29,G4-30 IFRS financial statements. information on a number of aspects than what is necessary for meeting The Report includes data by reporting In this Report we mainly analyse and the minimum requirements. segments which form the basis for use the same data as in the Annual accounting when preparing financial Report for 2014. During the prepara- The Sustainability Report for 2014 statements for 2014 under RAS and tion of this Report we used various has not been externally assured by Consolidated IFRS Financial State- methods for analysing information professional auditors. Nevertheless, ments for the twelve months ended and data similar to those used in the Group recognizes the importance December 31, 2014, as well as data the Group’s Annual Report for 2014. of professional external assurance calculated using a different basis We also used the same sources of procedures for improving confidence for calculation, which is additionally information as in the Annual Report. in non-financial reports and plans to specified. Consequently, the analysis of certain seek external assurance in the future. ABOUT THE REPORT 11

At the same time, we have received greatest importance for stakeholders. Khanty-Mansi Autonomous District, public endorsement for our Report In the course of discussion with senior and JSC UPC, a company within which from the RSPP Council on Non-Finan- executives of various divisions and the Group’s petrochemical assets have cial Reporting and have used the GRI business units of the Group, a working been consolidated. Materiality Disclosures Service proce- group identifies a set of aspects that dure. G4-33 meet the materiality criteria; this set The Report contains certain data on is ranked in terms of relevance for the considerable changes compared to  For details on the Group’s structure, Group’s sustainable development. At previous periods; practically all of scope of consolidation, interests and the same time, we seek to maintain them are mentioned and explained subsidiaries, see the Annual Report continuity and consistency with the in the text. In particular, the differ- of JSOC Bashneft and Consolidated Financial Statements for the year ended topics, aspects and indicators dis- ences may involve changes in the December 31, 2014 closed in previous years. scope of consolidation and method- ology for calculation of certain indi- DEFINITION OF MATERIAL A specific list of material aspects cators. G4-22, G4-23 ASPECTS AND THEIR is compiled by Bashneft’s supreme BOUNDARIES governing body taking into account a comprehensive vision of the current Our approach to defining the content situation and the strategic course of of the Sustainability Report for 2014 future development. was based on monitoring and iden- tifying key topics considered in the The issues and aspects that we have course of stakeholder engagement. identified play an important role in The Report covers events and issues the business of all divisions, business whose disclosure was of crucial units and material subsidiaries. importance both for stakeholders and for the Group itself in the reporting Appendix 2 ‘Material aspects of year. G4-18 business’ contains a list of material aspects analysed and considered in We summarize the number and con- this Report, specifying the degree of tent of requests received through their materiality based on their impor- various communication channels. We tance for various stakeholder groups not only consider the outcomes of and Bashneft’s sustainable develop- stakeholder engagement but also hold ment. G4-19, G4-20, G4-21 consultations with the management of business units and subsidiaries Information on management responsible for the aspects present- approaches to material aspects ed in the Report. Furthermore, we of the Group’s business is disclosed analyse performance indicators for throughout the Report in the relevant the reporting year and key events that sections. took place in that year. In addition, we  For details on the acquisition of take into account an analysis of best DIFFERENCES FROM THE LLC Burneftegaz and the consolidation practices used by Russian and foreign SUSTAINABILITY REPORT of petrochemical assets, see the Annual oil and gas companies for defining the FOR 2013 Report of JSOC Bashneft for 2014 content of non-financial reports. The scope of consolidation of data  The Sustainability Report of JSOC Bashneft for 2013 is available on the Based on the analysis of information for 2014 includes LLC Burneft- Group’s website at that we have gathered, we compile a egaz, a large oil producer whose http://www.bashneft.com/files/ provisional list of issues that are of the main assets are located in the iblock/540/OUR_2013_ENG.pdf 12 SUSTAINABILITY REPORT 2014 HIGH STANDARDS IN DEVELOPMENT

THE GROUP’S SUSTAINABLE DEVELOPMENT IS A CRUCIAL ELEMENT OF BASHNEFT’S STRATEGY WHICH PROMOTES LONG-TERM GROWTH AND MAKES IT POSSIBLE TO CREATE ADDED VALUE TAKING INTO ACCOUNT THE INTERESTS OF ALL STAKEHOLDERS. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 13 POLICY AND SAFETY OF OPERATING REGIONS

SUSTAINABLE DEVELOPMENT

‘FOR US, SUSTAINABLE DEVELOPMENT IS NOT CONFINED TO SOCIAL WORK OF THE BUSINESS AND ENVIRONMENTAL PROTECTION. THIS IS AN APPROACH TO MANAGING THE COMPANY, ITS BEHAVIOUR IN THE MARKET, INTERACTION WITH THE GOVERNMENT AND SOCIETY. THIS IS A FOUNDATION FOR OUR LONG-TERM SUCCESS AND OUR CONTRIBUTION TO PROMOTING THE DEVELOPMENT OF OUR COUNTRY’S ECONOMIC POTENTIAL AND ENSURING ITS SOCIAL STABILITY.’

Alexey Teksler, Chairman of the Board of Directors of JSOC Bashneft

Sustainable development is an Bashneft is a vertically integrated / creating the best possible working essential prerequisite for our long- oil company; in this context, applica- conditions in the refining segment; term growth. Our commitment to tion of the sustainability approaches the principles of sustainable devel- and the principles of corporate social / producing and selling fuel of the opment is a considerable competi- responsibility involves improving our highest quality to minimize atmo- tive advantage enabling to add value performance and minimizing potential spheric emissions. in the course of our business tak- negative impacts at all stages of the ing into account the opinion of all Group’s operations: In the course of our business we are stakeholders. guided by sustainability principles, and / paying the closest possible attention we are convinced that this is the only We are fully aware of our great to environmental aspects of drill- possible approach that will ensure responsibility towards our share- ing and operation in the course of impressive achievements in the long holders, employees and local com- production; term. munities: we have commitments on environmental protection. We make / protecting biodiversity and support- managerial decisions on the basis of ing local communities; the principles of alignment and bal- ance of interests of all stakeholders. / deriving the maximum value from raw materials; 14 SUSTAINABILITY REPORT 2014

AIMS AND VALUES IN THE SPHERE OF SUSTAINABLE DEVELOPMENT AND THE GROUP’S MISSION G4-56

THE FACT THAT BASHNEFT GIVES PRIORITY TO THE VALUES AND PRINCIPLES OF SUSTAINABLE DEVELOPMENT IS REFLECTED IN ITS MISSION: ‘TO CREATE ENERGY FOR OUR STAKEHOLDERS, WITH MAXIMUM EFFICIENCY, SOCIAL RESPONSIBILITY AND CARE FOR THE ENVIRONMENT’.

Our understanding of sustainable international standards and commit- Commitment to sustainable devel- development and social responsibili- ment to best practices in the course of opment principles allows us to ty is embodied in our values: quality, our business have made a substantial contribute substantially to increas- efficiency, safety, professionalism and positive economic and social impact ing the competitiveness of the team spirit. Our values help to devel- both in our operating regions and in Russian economy, to support social op a common approach to achieve- the country as a whole. We contribute and economic development of our ment of strategic goals and unite all to making Russia’s economy more operating regions, to be a reliable of Bashneft’s employees, from the competitive and pay proper regard to partner of the government and all parties who are interested in cre- Group’s senior managers to ordinary environmental protection and devel- ating a stable and favourable social workers. We apply sustainability prin- opment of environmental awareness, environment. ciples in order to enhance the Group’s including among our partners. long-term development potential and to increase the positive impact We aim to become a leader among made by the Group on its operating Russian oil companies in this sphere regions in the course of its business. and to adhere to internationally recog- We have noticed that compliance with nized norms and standards.

Principles underlying our work in the sphere of sustainable development and corporate responsibility

/ respect for human rights, includ- / respect for the interests and opin- / comprehensive development of ing the right for safe working ion of absolutely all stakeholders the Group’s potential both through conditions; on the basis of an open dialogue expansion of production capacities with them; and talent development; maintain- / strict compliance with the letter ing a high business reputation. and spirit of the law; / ethical and honest behaviour con- forming to established business / environmental protection that norms accepted in the Russian is not confined to our operating market and international practice; regions; SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 15 POLICY AND SAFETY OF OPERATING REGIONS

GOALS AND TASKS IN THE SPHERE OF SUSTAINABLE DEVELOPMENT

Our goals and tasks forming part of the sustainable development policy include the following:

Area of sustainable Main goals Main tasks development

The Group’s To improve the corporate • To further develop the corporate governance system in accordance with international economics governance system best practices in corporate governance and governance standards adopted by state- owned companies • To integrate recommendations given in the Code of Corporate Governance into the corporate governance system

• To continue to safeguard the rights and legitimate interests of shareholders and investors • To fully integrate the goals and tasks of the new owner into the Group’s operations Investor and shareholder • To make the Group still more attractive to investors and further improve the engagement transparency of its business • To achieve a further improvement in the quality and quantity of non-financial information disclosed by the Group • To seek external assurance of the Group’s public non-financial reports

To improve economic • To boost oil production at brownfields in the Republic of Bashkortostan by introducing efficiency and stability new technologies and improving the efficiency of the existing ones • To develop new oil-producing regions in Timan-Pechora and Western Siberia • To continue the geological exploration programme in all of the Group’s key operating regions • To study and develop gas projects and unconventional hydrocarbon resources

• To completely switch over to production of Euro 5 fuels in accordance with the Technical Regulations • To continue the refinery upgrade programme aimed at increasing the output of light products, improving the energy efficiency of refineries and ceasing to produce fuel oil and VGO

• To achieve a further increase in the sales of high-margin products through integrated development of guaranteed marketing channels and expanding direct access to consumers • To develop sales of niche products: jet fuel, bunker fuel, bitumen and lubricants

To follow the policy • To further improve the systems and procedures for preventing corruption of zero tolerance to • To integrate the procurement system in accordance with the standards set for state- corruption owned companies

HSE measures • To reduce the number • To conduct a comprehensive analysis of causes of occupational injuries and to take of occupational injuries measures for preventing injuries and responding to incidents • To protect the health of • To adopt a zero tolerance approach to violations in the sphere of occupational safety employees • To create favourable working conditions • To reduce the number of workplaces characterized by harmful working conditions • To provide personnel training and conduct certification in occupational safety • To implement programmes aimed at protecting employees’ health 16 SUSTAINABILITY REPORT 2014

Area of sustainable Main goals Main tasks development

HSE measures • To reduce the negative • To continue to improve the system for controlling and monitoring harmful emissions impact on the • To reduce direct emissions of pollutants, including by increasing associated gas atmosphere utilization • To protect water • To reduce indirect air pollution by switching over to production of engine fuels meeting resources in the higher environmental standards Group’s operating regions • To reduce water consumption, to improve the efficiency of the use of water resources • To process and treat • To increase the share of recycled water waste, including oil • To improve wastewater treatment, including by completing the renovation of wastewater sludge treatment facilities at the refineries in Ufa • To improve reliability • To construct and repair water supply systems of pipelines and • To improve and develop mechanisms for oil sludge processing, to eliminate sludge pits equipment • To ensure the safety of pipelines and prevent accidents • To reclaim land and to build sites for processing of solid domestic waste

Social work • To develop stakeholder • To use new stakeholder engagement mechanisms engagement • To develop the methods and forms of dialogue with stakeholders currently in use, including an increase in frequency of communication and expansion of the geographical scope

• To develop operating • To efficiently develop social and economic infrastructure and improve the quality of life regions and do charity in the Group’s operating regions work • To support local communities and indigenous peoples in the operating regions • To increase public confidence in the Group and build up its reputation • To implement an efficient GR policy in regions when dealing with social issues

• To communicate with • To develop the best competencies in the industry employees, to develop • To improve the system of incentives, including non-financial incentives and social social guarantees and benefits and guarantees the corporate culture • To develop social partnership within the Group: to cooperate with employee councils, trade unions, retirees, veterans • To continue to form a modern corporate culture

We believe that it is necessary to align integral part of an overall corporate time. In doing so, we follow best efforts in all areas of sustainable strategy. practices in sustainable development, development, and we attach consid- which helps to make the Group more erable importance to all elements We believe that it is necessary not competitive and to improve its per- of corporate social responsibility. only to meet operational and financial formance. Thus, we improve energy Furthermore, our efforts in the sphere targets, but also to tackle environ- security on the regional and national of sustainable development form an mental and social tasks at the same levels. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 17 POLICY AND SAFETY OF OPERATING REGIONS

CHARTERS AND MEMBERSHIP OF ASSOCIATIONS

Our activities in the sphere of sustain- Bashneft subscribes to principal Non-Commercial Organization Rus- able development are based on the provisions of the precautionary prin- sian-Arab Business Council; in 2014 ISO 26000:2010 International Standard ciple (Principle 15 of the Rio Decla- Bashneft’s President Alexander Korsik (Guidance on Social Responsibility), ration on Environment and Devel- chaired the Russian-Iraqi Business the GOST R ISO 26000-2012 standard opment of the UN, 1992). We take Council. (Guidance on Social Responsibili- into account potential environmental ty) and guidelines on human rights, implications when making decisions In addition to the above associations employment relations, environmental on long-term projects. In the course and organizations, Bashneft has been protection and anti-corruption mea- of preparation for project implemen- a member of the Chamber of Com- sures set out in the UN Global Com- tation we carry out an environmental merce and Industry of the Republic pact Blueprint for Corporate Sustain- impact assessment. G4-14 of Bashkortostan since 2000. This ability Leadership. membership enables the Group to Bashneft is a member of the Inter- lobby for the Company’s interests in Bashneft subscribes to the princi- national Petroleum Industry Envi- the industry and maintain its business ples and main provisions of the Social ronmental Conservation Association reputation, provides GR support and Charter of Russian Business of the (IPIECA). The Group has also joined the additional opportunities for building Russian Union of Industrialists and International Association of Oil & Gas up business contacts. Entrepreneurs. We also took them into Producers (OGP). Membership of these account when defining the content associations formed part of Bashneft’s In addition, JSOC Bashneft and some of this Report in terms of following ongoing efforts to improve its corpo- of its subsidiaries are members or a responsible business practice. rate governance and approaches to participants of a number of special- social responsibility, health, safety ized industrial self-regulated organi- The Group’s non-financial disclosures and environment. G4-16 zations and non-profit partnerships, in this Report are based on the Global which enables us to obtain permission Reporting Initiative 4.0 methodology In addition, Bashneft is a member of for certain types of work. for information disclosure, which is the Russian National Committee of integrated into its own methods for the World Petroleum Council in order preparing and gathering information. to strengthen the Group’s position Overall, the Group has been preparing in the global oil industry. The Group sustainability reports since 2009. is also a member of Autonomous 18 SUSTAINABILITY REPORT 2014

THE GROUP’S KEY EVENTS IN THE SPHERE OF SUSTAINABLE DEVELOPMENT G4-13

An Extraordinary General Meeting of Shareholders of Bashneft approved the decision on reorganization through In accordance with the decision of the Bashneft completed the acquisition of a consolidation of CJSC Bashneft-Invest Federal Subsoil Resources Manage- network of filling stations operating under with JSOC Bashneft. The Meeting also ment Agency (Rosnedra), the Company the OPTAN brand name and comprising resolved to reduce JSOC Bashneft’s transferred the licence for the R. Trebs 91 filling stations and 11 land plots in 12 authorized share capital approved and a and A. Titov fields to its subsidiary, regions of the Russian Federation. new version of the Company’s Charter. LLC Bashneft-Polyus.

FEBRUARY AUGUST

MARCH MAY JUNE

Bashneft acquired LLC Burneftegaz, JSOC Bashneft and LLC Lukoil-Komi The Annual General Meeting of Share- an exploration and production company established a new joint venture, holders of Bashneft made a decision based in the Khanty-Mansi Autonomous LLC Vostok NAO Oil Company, to con- to pay dividends for 2013 amounting to District. The Group gained the right duct geological exploration and pros- 211 roubles per share in addition to div- to develop the Sorovskoye and Torta- pecting and produce hydrocarbons at idends of 199 roubles per share for the sinskoye fields and licences for geolog- licence areas in the Nenets Autonomous said period that had been paid earlier. ical exploration of the Severo-Ityakhs- District. kiy 3 and Vostochno-Unlorskiy subsoil Bashneft started pilot operation of a cat- blocks. JSOC Bashneft launched a reorgani- alytic cracking gasoline hydrotreater. The zation of its system for retail sales of project is aimed at ensuring compliance petroleum products. The reorganization with the requirements of the Technical involves consolidation of the Group’s Regulations for fuel quality. The launch subsidiaries and branches specializing of the hydrotreater will enable the Group in retail sales into a single legal entity, to completely switch over to producing LLC Bashneft-Retail Sales. Euro 5 gasoline.

The Group conducted its first-ever Inves- tor Day in London attended by Bashneft’s senior managers

Bashneft acquired LLC Promenergore- surs, a leading operator on the retail engine fuel market in Magnitogorsk in the Chelyabinsk Region.

An award from the President of Bashneft for achievements in the sphere of health, safety and environment was handed out for the first time. The Award is given annually for outstanding achievements in this area. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 19 POLICY AND SAFETY OF OPERATING REGIONS

The Board of Directors approved a new Code of Corporate Governance of JSOC Bashneft. The Code incorporates the requirements of Russian legislation, international best practices and princi- ples of business ethics and established Bashneft started pilot operation of a new approaches to corporate governance hydrogen production unit, which will developed by the Group. The document enable Bashneft to ensure that all of its incorporates the provisions of the Code gasoline and diesel fuel output meets of Corporate Governance approved by the Euro 5 emission standard. the Bank of Russia. EVENTS AFTER THE OCTOBER NOVEMBER REPORTING DATE

SEPTEMBER DECEMBER MARCH 2015

At an auction for the right to conduct Bashneft completed the acquisition of An Extraordinary General Meeting of geological exploration, prospecting and a 100% stake in LLC AZS AKTAN, which Shareholders of JSOC Bashneft decid- production of hydrocarbons, Bashneft owns a network comprising 17 filling ed to reduce the Company’s autho- won the rights to the Leonovskiy subsoil stations in the Samara Region. rized share capital by cancelling area in the Republic of Bashkortostan. 2,724,173 ordinary shares with a par In accordance with the judgement by value of one rouble each, which were Bashneft gained control over 98% of the Moscow Commercial Court dated recorded as treasury shares bought shares of JSC United Petrochemical October 30, 2014, 122,971,934 ordinary back from shareholders as of Decem- Company (UPC) through termination shares and 6,192,245 preferred shares ber 31, 2014. of the agreement on the sale of these of JSOC Bashneft comprising a 71.62% shares to OJSC JSFC Sistema concluded stake in the Company’s authorized share in September 2013. capital and previously owned by OJSC JSFC Sistema and CJSC Sistema-Invest were transferred to the Federal Agency for State Property Management. As a result, effective control over Bashneft’s operations was transferred from OJSC JSFC Sistema to the Russian Federation.

On December 29, 2014, subject to the judgement by the Moscow Commercial Court dated November 7, 2014 (case No. A40-155494/2014) and on the basis of the request by the Federal Agency for State Property Management, CJSC Sistema-In- vest transferred ownership of 4,107,996 ordinary and 87,831 preferred shares of JSOC Bashneft (together comprising 2.3% of the authorized share capital) to the Russian Federation. As a result, the Russian Federation became the owner of 84.40% of the total number of ordinary shares and 21.08% of the total number of preferred shares of the Company, togeth- er comprising 73.94% of the authorized share capital of JSOC Bashneft 20 SUSTAINABILITY REPORT 2014

ACHIEVEMENTS IN THE SPHERE OF SUSTAINABLE DEVELOPMENT IN 2014 G4-2

Area Key achievements in 2014 of sustainable development

The Group’s Exploration and production economics • The reserve replacement ratio totalled 179% • Bashneft and OJSC Lukoil established a joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration and prospecting and produce hydrocarbons at licence areas in the Nenets Autonomous District • Bashneft won a competition for a subsoil area in the west of the Republic of Bashkortostan • The Group continues to adopt and introduce new promising technologies for oil production, which help to increase the efficiency of production and are more environmentally friendly. Annual oil production increased by 10.8% to 17.8 million tonnes • For a fifth year in a row, production at brownfields continues to grow. A significant increase in production (+3.4%) was achieved due to geological and engineering operations • The millionth tonne of oil was produced at the R. Trebs and A. Titov fields • Bashneft acquired LLC Burneftegaz, whose resources are concentrated in the Khanty-Mansi Autonomous District. Thus, Bashneft gained access to a new region of production: 665 thousand tonnes of oil were produced at the newly developed Sorovskoye field

Refining • New oil refining units were put into operation, which will enable us to completely switch over to producing Euro 5 engine fuels • Bashneft achieved an increase in refining depth and in the share of light products to 84.8% and 61.1% respectively • The Nelson Index of Bashneft’s refining complex increased to 8.93 • The share of Euro 5 gasoline in the total gasoline output amounted to 85.6%

Marketing • Bashneft’s own retail network was expanded to 582 filling stations • In 2014 retail sales of high-margin petroleum products increased to 1.5 million tonnes • Bashneft continued to implement its large-scale rebranding programme

Investor and shareholder engagement • In late 2014 the controlling shareholder was replaced. As a result, 73.94% of the Company’s authorized share capital is now owned by the Russian Federation represented by the Federal Agency for State Property Management • JSOC Bashneft’s shares were included in the top tier quotation list of the Moscow Exchange • Bashneft paid dividends for 2013 amounting to 410 roubles per share • Bashneft held a large number of events for investors, including the Group’s first-ever Investor Day in London attended by Bashneft’s President and senior management; the Group’s management held meetings with investors from the Asia- Pacific region for the first time, and Bashneft’s senior executives participated in major investment conferences in Russia and abroad

Corporate governance • The Group continued to further improve the corporate governance system in accordance with best international practices • Bashneft was one of the first Russian companies to have developed and approved a new version of the internal Code of Corporate Governance under a resolution of the Board of Directors; the Code complies with the provisions of the document recommended by the Bank of Russia • Bashneft started to integrate governance practices used in state-owned companies into its corporate governance system following a change of the Company’s controlling shareholder

Improvement of the corporate structure • We completed the last stage of a large-scale reorganization of Bashneft Group: cross-holdings in the Company were eliminated through consolidation of CJSC Bashneft-Invest with Bashneft • Bashneft launched a programme to consolidate regional networks of filling stations within LLC Bashneft-Retail Sales SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 21 POLICY AND SAFETY OF OPERATING REGIONS

Area Key achievements in 2014 of sustainable development

HSE measures Environment • Direct harmful atmospheric emissions were reduced by 2.4 thousand tonnes • Indirect atmospheric pollution was reduced due to an increase in the output of engine fuel meeting stricter emission standards, which was made possible as a result of refinery upgrades in Ufa • The associated gas utilization rate increased to 74.8% across the Group and to 82.1% at brownfields • Bashneft continued to upgrade biological treatment facilities of its Integrated Refining Complex • The pipeline failure rate decreased to 0.084 spills per kilometre • Oil sludge processing increased to 78.4 thousand tonnes • Over 400 kilometres of pipelines were upgraded and repaired, which is almost 37% more than in 2013 • The Group continued to implement measures to repair the damage to aquatic fauna: over 30 thousand young whitefishes were released into the Pechora River

Occupational safety • The lost time injury frequency rate (LTIFR) declined by 22% to 0.35 • The number of workplace accidents decreased by 34% • We continued implementing administrative and engineering measures aimed at improving safety in the workplaces in the Group

Process safety • The Group continued to implement programmes to ensure compliance of hazardous production facilities with the requirements of process safety rules

Emergency preparedness • 216 exercises and trainings in emergency response were conducted. The exercises and trainings were attended by almost eight thousand employees

Energy efficiency • The economic effect from measures aimed at improving energy efficiency totalled 139.8 million roubles • The Group increased the volume of electricity purchased in the wholesale market and continued certification of commercial energy meters in accordance with the requirements of the wholesale market • Bashneft developed new programmes to improve energy efficiency and updated the programmes currently in place at its enterprises

Social work Employees • The Group continues to maintain the average salary level significantly above the average level in the Republic of Bashkortostan • Bashneft launched a Programme to Attract Young Specialists. The programme is aimed at making Bashneft as an employer more attractive to university graduates and young professionals • The Group continues to implement a programme aimed at protecting employees’ health; priority is given to measures for preventing cardiovascular diseases • The Group continued to implement corporate social programmes aimed at forming corporate culture: sports competitions, celebrations and other events • We are actively developing a volunteering programme: the volunteer movement already comprises over 600 people

Development of operating regions and charity • The Economic Agreement between the Administration of the Nizhnevartovsky District of the Khanty-Mansi Autonomous District and JSOC Bashneft was renewed until mid-2015 • Charitable funding for social development of the Republic of Bashkortostan totalled 1.1 billion roubles • Bashneft provided 250 million roubles as financial assistance to help to respond to the natural disaster that happened in Bashkortostan in summer • Bashneft continued to implement the programme aimed at providing the districts of the Republic of Bashkortostan with high-quality drinking water 22 SUSTAINABILITY REPORT 2014 IMPRESSIVE RESULTS +97

85.6% OWN FILLING STATIONS

MLN +10.8% SHARE OF EURO 5 BAR- GASOLINE +407.8 RELS OIL PRODUCTION GROWTH

OF 3P RESERVES SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 23 POLICY AND SAFETY OF OPERATING REGIONS

ABOUT THE GROUP

‘LAST YEAR WE ACHIEVED OUTSTANDING OPERATIONAL AND FINANCIAL RESULTS ONCE AGAIN. THE GROUP PERFORMS EXCELLENTLY, AND WE ARE READY TO MOVE FORWARD.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

HISTORY OF OUR GROUP

1932 saw the discovery of the Ishimbayskoye oilfield. This marked the start of oil 1932 production in Bashkortostan.

In 1935, in order to enable commercial oil production at the Ishimbayskoye 1935 oilfield, the Bashneft trust was set up. In 1936 the first trunk oil pipeline in the Urals and Volga Region between Ishimbayevo and Ufa was constructed. In 1938 the Ufimsky Refinery Plant (UNPZ) was put into operation.

Key milestones in the history of the development of the Group’s resource base 1937 include: the discovery of the Tuimazinskoye field (1937), where Russia’s first high-yield Devonian oil deposits were discovered in 1944; subsequent discov- eries of the Shkapovskoye, Chekmagushevskoye and Mancharovskoye fields (between 1950 and 1954) and the vast Arlanskoye field, the largest oilfield in the region (1955).

As oil production volumes increased, Bashneft’s oil refining complex expanded: 1951 in 1951 the Novo-Ufimsky Refinery (Novoil) was put into operation; in 1957 con- struction of the third refinery forming part of the Ufa group, Ufaneftekhim, was completed; it specializes in manufacturing fuel and petrochemicals.

In 1967 Bashneft Production Association achieved the highest level of annual oil 1967 production at the fields in Bashkortostan: it totalled 67 million tonnes. 1995 On January 13, 1995, Joint-Stock Oil Company (JSOC) Bashneft was established. 24 SUSTAINABILITY REPORT 2014

In March 2009 OJSC JSFC Sistema became the principal owner of six fuel and 2009 energy enterprises in the Republic of Bashkortostan, including JSOC Bash- neft. In 2010 JSOC Bashneft bought controlling interests in OJSC Ufaneftekh- im, OJSC Novoil, OJSC Ufimsky Refinery Plant, OJSC Ufaorgsintez and OJSC Bashkirnefte produkt from OJSC JSFC Sistema and became the parent company for the new oil holding.

In February 2011 Bashneft entered the Timan-Pechora oil province after obtain- 2011 ing a licence for the development of a federal subsoil area including the Trebs and Titov fields in the Nenets Autonomous District. In December 2011 the Group signed an agreement with OJSC Lukoil on joint implementation of the project.

2013 saw the completion of formation of a federal-scale vertically integrated oil 2013 company (VIC). JSOC Bashneft completed its reorganization through the consol- idation of its five subsidiaries (OJSC Ufimsky Refinery Plant, OJSC Novoil, OJSC Ufaneftekhim, OJSC Bashkirnefteprodukt and OJSC Orenburgnefteprodukt) with the Company. This marked the first step in implementing a comprehensive strategy aimed at simplifying the corporate structure.

In 2012 and 2013 Bashneft joined international upstream projects in Iraq and Myanmar as an operator.

In 2013 LLC Bashneft-Polyus, a joint venture of JSOC Bashneft and OJSC Lukoil, started oil production at the R. Trebs and A. Titov fields in the Nenets Autono- mous District.

In the autumn of 2013, as part of integration of Bashneft’s refining complex in Ufa, management of the three production facilities was centralized on the basis of the Bashneft-Ufaneftekhim Branch.

In the spring of 2014 consolidation of CJSC Bashneft-Invest with Bashneft 2014 marked a successful completion of the final stage of the Group’s reorganization aimed at streamlining the corporate structure and eliminating cross-holdings in JSOC Bashneft.

In March 2014 Bashneft achieved a major expansion into the West-Siberian oil and gas province through the acquisition of LLC Burneftegaz, an upstream com- pany developing the Sorovskoye field.

In May 2014 JSOC Bashneft and OJSC Lukoil established a new joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration at licence areas in a promising region in the north-east of the Nenets Autonomous District.

In 2014 the Group consolidated its subsidiaries specializing in retail sales into LLC Bashneft-Retail Sales and centralized the management of a network com- prising 582 filling stations in 16 regions of Russia.

In December 2014 in accordance with the court ruling OJSC JSFC Sistema transferred a controlling stake in JSOC Bashneft to the Russian Federation rep- resented by the Federal Agency for State Property Management. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 25 POLICY AND SAFETY OF OPERATING REGIONS

STRUCTURE OF THE GROUP AND SHARE CAPITAL STRUCTURE

‘TODAY, BASHNEFT’S CORPORATE STRUCTURE IS CLEAR, TRANSPARENT AND CONVENIENT FOR ALL EXISTING SHAREHOLDERS AND POTENTIAL INVESTORS.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

STRUCTURE OF THE GROUP / Switchover to standardized shares. aimed at consolidation and spin- In order to reform a historical- off of non-core assets in order to At present, Bashneft is a vertically ly complex corporate structure, improve the performance of its integrated oil company with a trans- in 2012 JSOC Bashneft conduct- core business. The Group divested parent shareholder structure. ed reorganization through con- oilfield service and transportation solidation of its five subsidiaries assets. During the period from 2012 through (OJSC Ufimsky Refinery Plant, 2014 we implemented a large-scale OJSC Novoil, OJSC Ufaneftekhim, / Elimination of cross-holdings. reorganization of the Group’s corpo- OJSC Bashkirnefteprodukt and The reorganization of JSOC Bash- rate structure in order to promote OJSC Orenburgnefteprodukt) with neft through consolidation of CJSC long-term growth of our share value the Company. This transformation Bashneft-Invest with the Company and protect the interests of minority resulted in a switchover to standard- in late 2013 and early 2014 made it shareholders. The range of measures ized shares. possible to eliminate cross-holdings aimed at improving our corporate in Bashneft. The final stage of reor- structure included three key stages: / Spin-off of non-core assets. ganization of Bashneft enabled the switchover to standardized shares; After the VIC was formed and the Group to develop its operations and spin-off of non-core assets; elimina- corporate structure was simplified, to achieve a considerable increase tion of cross-holdings. G4-13 in 2012 and 2013 Bashneft imple- in its shareholder value. mented a number of measures

The Group’s structure (as of December 31, 2014)

* Figures represent interest in the authorized Minority shareholders Russian Federation represented by the Federal share capital; figures in brackets represent Agency for State Property Management** interest in ordinary shares (%).

** In December 2014, OJSC JSFC Sistema and CJSC Sistema-Invest transferred ownership 19.95% (11.51%)* 73.94% (84.40%) of ordinary and preferred shares of JSOC Bashneft (together comprising 73.94% of JSOC Bashneft Shares on the balance the authorized share capital) to the Federal Agency for State Property Management. For 74.9% 6.11% sheets of the more details, see: ‘Investor & Shareholder LLC Bashneft-Polyus • Production (4.09%) Group and its subsidiaries Information – Shareholder structure.’ 100% LLC Burneftegaz • Refining 100% JSC UPC • Marketing 26 SUSTAINABILITY REPORT 2014

Share capital structure as of The main achievement consisted in a Shares of JSOC Bashneft are traded December 31, 2014 transition to a transparent structure on the Moscow Exchange; in mid-2014 of a vertically integrated company. the Company’s ordinary shares were Measures to improve the structure by included in the First (Top) Tier quota- 4.6% switching over to standardized shares, tion list of the Moscow Exchange. As of 6.11% eliminating cross-holdings in Bash- December 31, 2014, JSOC Bashneft’s

15.35% 73.94% neft and divesting non-core busi- market capitalization totalled US$ 3.55 nesses were implemented within an billion (about 216 billion roubles). unprecedentedly short time frame of three years. As a result, we achieved As of the end of 2014 the Russian Fed- a considerable improvement in the eration was the controlling sharehold- transparency of business process- er owning 127,079,930 ordinary shares es and the Group’s performance and and 6,280,076 preferred shares of reduced administrative costs. JSOC Bashneft (73.94% of its autho-

The Russian Federation represented by the rized share capital). Federal Agency for State Property Management AUTHORIZED SHARE

Other legal entities (including nominees) CAPITAL AND SHAREHOLDER STRUCTURE Shares on the balance sheets of JSOC Bashneft and subsidiaries As of December 31, 2014, the Compa- Individuals ny’s authorized share capital totalled 180,358,674 roubles and comprised the same number of shares of two types: ordinary (about 83% of the authorized share capital) and class A preferred shares (about 17%) with a  For more details, see the Annual Report of JSOC Bashneft for 2014 par value of one rouble each. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 27 POLICY AND SAFETY OF OPERATING REGIONS

BUSINESS MODEL G4-2

Crude oil Crude oil Crude oil exports Countries outside production sales the Customs Union

Domestic sales Customs Union of crude oil

Liquid Refining Wholesale hydrocarbons and petrochemical production

Domestic sales of petroleum Retail sales products and petrochemicals

Petroleum products and petrochemicals

Countries outside the Customs Union

Purchased crude oil, Purchased Export of gas condensate petroleum petroleum and NGLs products products and petrochemicals Customs Union 28 SUSTAINABILITY REPORT 2014

GEOGRAPHICAL FOOTPRINT G4-6, G4-8

Kaliningrad Region

THE GROUP OPERATES PRIMARILY IN THE RUSSIAN FEDERATION.

Leningrad IN ADDITION, THE GROUP Region PARTICIPATES IN JOINT OVERSEAS GEOLOGICAL Arkhangelsk Region EXPLORATION PROJECTS IN IRAQ Tver Region AND MYANMAR AS AN OPERATOR. 4 Vologda Region Smolensk THESE PROJECTS ARE IN THE Region EARLY STAGES OF DEVELOPMENT 1 AND ARE MINOR COMPARED Moscow Region TO THE GROUP’S OPERATIONS 5 5 Kostroma Region G4-6, G4-8 19 IN RUSSIA. Tula Region 1 Vladimir Region G4-6, G4-8 11 Lipetsk 2 Region Nizhny Novgorod Belgorod Kirov Region Region Region 1 1 14 Tambov Mari El 8 7 Republic Voronezh Region Republic Chuvash Region of Mordovia Republic Penza 46 Region Republic 3 25 of Udmurtia Ulyanovsk Perm Territory Region Republic 9 of Tatarstan 30 1 Rostov Region Saratov Region 26 24 20 41 34 Krasnodar Volgograd Region Samara Region Territory Sverdlovsk Republic Region of Bashkortostan

Chelyabinsk Stavropol 98 Region Territory Orenburg 292 Region 26 20 26 Kurgan Region

Republic of Dagestan 2

LEGEND:

Exploration OF OIL OF OIL Production PRODUCED PROCESSED Refineries IN 2014 IN 2014 Own filling stations 802 Total number Partner filling stations of filling stations Regional sales offices 17.8 21.7 Distant sales offices million tonnes million tonnes SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 29 POLICY AND SAFETY OF OPERATING REGIONS

ASSETS WITH POTENTIAL FOR FURTHER DEVELOPMENT

NENETS AUTONOMOUS DISTRICT 828 THOUSAND TONNES Nenets Autonomous District OF OIL PRODUCED IN 2014

8 LICENCE AREAS The subsoil area including Yamal-Nenets the R. Trebs and Autonomous District A. Titov oilfields Nyarioyakhskiy area Verkhneyangareyskiy area Severo- Yareyaginskiy area Savatinskiy area Yangareyskiy area Vostochno- Padimeyskiy area Khanty-Mansi Autonomous District Sibriyaginskiy area

KHANTY-MANSI AUTONOMOUS DISTRICT Tyumen Region 665 THOUSAND TONNES OF OIL PRODUCED IN 2014

Novosibirsk Region 4 LICENCE AREAS Vostochno-Unlorskiy area

Severo-Ityakhskiy 3 area Tortasinskiy area

Vostochno-Vuemskiy area 30 SUSTAINABILITY REPORT 2014

‘WE HAVE CONCLUDED LONG-TERM CONTRACTS FOR OIL SUPPLY WITH SHELL AND LUKOIL. THESE CONTRACTS ALLOW US TO BE CONFIDENT THAT OUR REFINERIES WILL BE REGULARLY SUPPLIED WITH FEEDSTOCK.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

SUPPLY CHAIN G4-12 / in the Khanty-Mansi Autonomous tonnes). In 2014 the cost of purchased District, oil is produced by LLC crude oil, gas and petroleum prod- Bashneft’s core operations include Burneftegaz, a company acquired ucts totalled 139.8 billion roubles, up oil production and refining, and sales in 2014 which owns the rights to by 10.6% year on year. In the supply of crude oil, petroleum products and exploration and development of the chain, a large share of crude oil is pur- petrochemicals. Sorovskoye field via its wholly owned chased from Lukoil and Shell Trading subsidiaries; Russia B.V. G4-EN1 Bashneft produces oil in the Repub- lic of Bashkortostan, the Republic of / in the Nenets Autonomous Dis- In addition, we purchase other feed- Tatarstan, the Orenburg Region, the trict, oil is produced by LLC Bash- stock that is less important for the Khanty-Mansi Autonomous District neft-Polyus, a joint venture of JSOC Group’s operations, goods, materials, and the Nenets Autonomous District. Bashneft (74.9%) and OJSC Lukoil work and services. We seek to diversi- (25.1%) which conducts exploration fy our suppliers and organize procure- Oil is produced by upstream compa- and produces oil at the R. Trebs and ment through competitive tendering. nies forming part of the Group: A. Titov fields.

/ LLC Bashneft-Dobycha produc- To ensure the optimal throughput of es oil at oilfields in the Republic its refineries and optimize its product of Bashkortostan and the Republic mix, Bashneft uses its own oil (10.6  For details on procurement, see of Tatarstan and in the Orenburg million tonnes) and purchases West ‘Stakeholders – Suppliers and business Region; Siberian oil and gas condensate from partners – Organization of the procure- third-party suppliers (10.9 million ment process’ SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 31 POLICY AND SAFETY OF OPERATING REGIONS

POSITION IN THE INDUSTRY

In 2014 oil production in Russia the reporting year, Bashneft ranked  For more details, see the Annual Report increased by 0.7% to 526.7 million fourth among Russian companies in of JSOC Bashneft for 2014 tonnes, while oil refining in Russia terms of crude oil refining; it refined added 6% and totalled 288.9 million 21.7 million tonnes of hydrocarbons. tonnes. Bashneft’s refining depth remains one of the highest in the industry and Bashneft reports the strongest totals 84.8%. Bashneft is also one of growth among Russian oil companies the industry leaders in terms of the and ranks sixth in terms of annu- share of light products in the total al oil production. As of the end of output. G4-2, G4-9

Change, 2014/2013 Oil production by the largest Russian oil companies, million tonnes

518.0 523.3 526.7

192.6 190.1 Rosneft* –1.3% 200 LUKOIL –0.1% Surgutneftegas –0.1% 150 Gazprom Neft 4.5% 117.5 86.7 86.6 85.8 Tatneft 0.5% 100 84.6 77.0 82.2 Bashneft 10.8% 61.4 61.5 61.4

Slavneft –3.7% 50 31.6 32.2 33.6 26.3 26.5 17.9 26.4 16.8 15.4 13.9 16.1 17.8 16.2 RussNeft –2.8% 8.8 8.6 Other 4.4% 0 2012 2013 2014 Source: CDU TEK, company data

Change, 2014/2013 Oil refining by the largest Russian oil companies, million tonnes

265.9 272.5 288.9

75.8 77.0 80 Rosneft 1.6% 70.1

LUKOIL 0.0% 56.3 60 Gazprom Neft 2.4% 50.6 52.4 44.3 45.1 45.1 Bashneft 1.2% 40 Surgutneftegas –2.7% 31.6 31.3 32.1 21.4 21.7 Slavneft 0.0% 20.8 20.6 19.8 19.3 20 15.3 15.3 15.3 Tatneft (TANECO) 12.1% 7.0 7.6 8.5 Other 24.4% 0 2012 2013 2014 * Starting from 2013 the figure includes oil production by TNK-BP Source: CDU TEK, company data 32 SUSTAINABILITY REPORT 2014

STRATEGY AND OPERATING RESULTS

We do business in accordance with the Successful implementation of the achievement of the goals and manageri- strategy adopted in the Group. This strategy from 2010 through 2014 helped al decision-making based on an analysis approach enables us to set medi- to make the Group one of the industry of findings of the monitoring. um- and long-term goals which we leaders and to form a vertically integrat- think it necessary to achieve in order ed oil company characterized by grow- The KPI system includes financial and to promote the Group’s sustainable ing production, use of advanced refining economic performance indicators, development. It usually takes several technologies, reliable marketing chan- operational performance indicators years to achieve our strategic goals nels and strong financial performance. and project-related indicators. Targets and objectives. We use a system of key are set for each indicator. To incen- performance indicators (KPIs), which Amid changes in macroeconomic fac- tivize its employees and managers to is closely linked with a system of tors in 2014 and 2015, including a fall in attain strategic goals and objectives in incentives for employees, as a tool for prices for oil and petroleum products, an efficient manner, the Group applies setting short-term goals and tracking the tax manoeuvre, depreciation of the a principle of cascading of strategic the achievement of targets. rouble, tighter logistic and financial indicators depending on management restrictions, the Group began making levels in accordance with the Company’s STRATEGY AND KPIS adjustments to the current strategy, organizational structure and functions which involve development of strategic of various executives. Our development is aimed at establish- initiatives aimed at improving opera- ing a highly efficient and fast-growing tional and financial performance, cost Our KPI system is closely linked with vertically integrated oil company; this optimization, fostering import substi- a system of incentives for the Group’s goal was set as early as in 2010. tution, as well as integrating the goals senior managers and employees. and objectives of the new owner into the Achievement of the set KPIs is one of We adjust our plans taking into account Group’s operations. the main conditions for bonus payments objective external factors affecting the to Bashneft’s managers and employ- industry as a whole, such as changes in To ensure that the Group efficiently ees. Thus, the Group incentivizes its top the situation on the market for oil and achieves its strategic goals, a system management and other employees to petroleum products, macroeconomic of KPIs was introduced in 2009 and is achieve strategic goals and objectives conditions, the tax burden, as well as functioning. set out in the business plan. specific features of the Group’s devel- opment, and we focus on improving The KPI system helps to express goals its performance and making it more and objectives in the form of a set of  For more information on our strategy, competitive. specific quantifiable indicators. This see the Annual Report of JSOC Bashneft enables continuous monitoring of for 2014 SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 33 POLICY AND SAFETY OF OPERATING REGIONS

BRIEF OVERVIEW OF 182 out of our 194 fields are locat- Reserve replacement ratio OPERATING RESULTS ed in the Republic of Bashkortostan, IN 2014 G4-13 including the four largest ones: the 179% Arlanskoye, Tuimazinskoye, Yugoma- 180% shevskoye and Chetyrmanskoye fields. LICENSING, GEOLOGICAL These fields account for about 40% EXPLORATION AND RESERVES of Bashneft’s total proved reserves according to the PRMS classification. 134% Expansion of the resource base and 130% long-term production growth are In addition, we own development 123% among the Group’s key objectives. In licences for four gas condensate fields. accordance with the adopted strate- As of December 31, 2014 possible gy we increase the number of devel- reserves at the fields forming part of 80% opment licences in the Group’s key the Saratovsko-Berkutovskoye group 2012 2013 2014 regions. At the same time, we give located in the south of Bashkortostan up licences for areas where further amounted to 24.8 billion cubic metres. development and operations are Breakdown of the Group’s reserves, unprofitable. million tonnes

OVERSEAS PROJECTS 600 As of the end of 2014, the number of the Group’s licences of all categories The Group participates in joint geo- related to exploration and production of logical exploration projects in Iraq and 118.6 92.2 93.0 hydrocarbons totalled 237. Myanmar as an operator. 91.6 74.1 74.2 300 The duration of our licences is con- The project in Iraq involves geological venient for us and enables us to plan exploration at Block 12. The obligatory long-term projects with confidence. five-year geological exploration pro- We do not expect any difficulties in gramme at Block 12 can be extended 281.5 286.9 300.9 renewing licences for hydrocarbon twice for a two-year period. In 2012 0 production. a consortium comprised of Bash- 2012 2013 2014 neft and Premier Oil was awarded an Geological exploration is conducted exploration, development and produc- Possible reserves primarily in Bashkortostan, the Nenets tion service contract for Block 12. At Probable reserves Autonomous District and the Khan- the end of 2012 Bashneft International Proved reserves ty-Mansi Autonomous District. The B.V. (JSOC Bashneft’s wholly owned Group’s priority in geological explo- subsidiary) was established to imple- ration is to use mineral resources ment the project. In 2014, under the efficiently while strictly complying with terms of the licences, seismic sur- environmental safety standards and veys totalled 192 kilometres (2D) and OUR ACHIEVEMENTS widely using modern technology. 702 sq. km (3D). In the reporting year, at an auction for In 2014 the reserve replacement The project in Myanmar involves con- the right to conduct geological explo- ratio amounted to 179%, while the ducting geological studies at Block ration, prospecting and production of reserves-to-production ratio totalled EP-4. In 2014 Bashneft International hydrocarbons, Bashneft won the rights to the Leonovskiy subsoil area. 17 years. B.V. signed the PSC for Block EP-4 with Myanmar Oil and Gas Enter- As of December 31, 2014, the Group prise (MOGE) in Naypyidaw. Under the had 194 fields, including 175 fields in PSC for Block EP-4, the partners will commercial operation. In the reporting implement a three-year geological year the Group’s proved reserves added exploration programme (which may be 4.9% and totalled 300.9 million tonnes. extended for another three years) that  For more information on geological All of the Group’s ABC1 reserves are includes seismic surveys and drilling exploration, licensing and reserves, covered by an annual audit. G4-OG1 of two prospecting wells. see the Annual Report of JSOC Bashneft for 2014 34 SUSTAINABILITY REPORT 2014

Oil production, million tonnes ‘BURNEFTEGAZ IS AN EXCELLENT ACQUISITION. THERE IS NO DOUBT THAT OIL PRODUCTION 17.8 18 AT BURNEFTEGAZ WILL GROW.’ 15.4 16.1

Mikhail Stavskiy, First Vice President for Upstream and Geology

9

PRODUCTION the Group with flexibility in terms of feedstock supplied to refineries and A comprehensive set of measures to their product mix. 0 2012 2013 2014 maintain production at brownfields, successful development of new prom- Bashneft’s integrated refining complex ising fields and acquisition of assets consists of three refineries: Ufanefte- support sustainable growth of annual khim, Ufimsky Refinery Plant (UNPZ) production. In 2014 the Group boosted and Novoil, whose crude oil distillation oil production by 10.8% to 17.8 million capacity totals 24.1 million tonnes. tonnes. The refineries are adjacent to each OUR ACHIEVEMENTS other and closely cooperate as a sin- We seek to diversify our oil-producing gle processing complex. In 2014 Bashneft acquired LLC regions. In 2014 the share of oil pro- Burneftegaz, whose main resources are duction in the Republic of Bashkortos- Feedstock for the refining com- located in the Khanty-Mansi Autono- tan in total production decreased from plex consists of oil produced by the mous District. As of December 31, 2014 94% to 88%, while the share of pro- Group itself and oil purchased from an audit firm Miller and Lents estimated duction in the Khanty-Mansi Auton- third-party suppliers to ensure full proved oil reserves of the company’s key asset, the Sorovskoye field, at the cur- omous District, the Nenets Auton- capacity utilization. rent stage of development at 5.1 million omous District, Tatarstan and the tonnes. Orenburg Region increased to 12%. Our product mix is made up primar- ily of diesel fuel (38%) and gasoline In 2014 the amount of production (25%). OUR RESPONSIBILITY drilling (including the results of LLC Bashneft-Polyus and LLC Burnefte- In 2014, as part of refinery upgrades, The Group’s priority in geological explo- gaz) more than doubled year on year two new units were put into operation: ration is to use mineral resources to 272 thousand metres. In 2014 the a hydrogen production unit and a cat- efficiently while strictly complying with Group commissioned 93 new wells, alytic cracking gasoline hydrotreater. environmental safety standards and including 82 newly drilled wells. As a This helped the Group to ensure that widely using modern technology. result of commissioning of new wells 100% of fuel it produces meets the and acquisition of LLC Burneftegaz, Euro 5 standard in accordance with the average production rate of existing the Technical Regulations. In 2014 the wells across Bashneft increased to 3.4 share of Euro 5 gasoline in the total tonnes per day. gasoline output reached 85.6%, while the share of Euro 5 diesel fuel in the total output of diesel fuel totalled REFINING 36%. To compare, in 2013 these figures stood at 67.2% and 28.5% We have a unique refining complex, respectively. which is technologically advanced and manufactures high-quality products. Starting from 2013 the Group no lon-  For details on oil production, see the Annual Report of JSOC Bashneft Close cooperation between our refin- ger produces engine fuels of grades for 2014 eries and their integration provides that are lower than Euro 3. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 35 POLICY AND SAFETY OF OPERATING REGIONS

Product mix of Bashneft’s refineries ‘BY 2019 WE WILL HAVE CEASED TO PRODUCE in 2014 CHEAP HEAVY PETROLEUM PRODUCTS.’ 14% Maxim Andriasov, First Vice President for Refining and Commerce 8%

38%

Key characteristics of Bashneft’s integrated refining complex as of the end of 2014 15%

Crude oil distillation capacity, million tonnes per year 24.1

Oil refining per year, million tonnes 21.7 25% Diesel fuel Capacity utilization rate, % 90.0% Gasoline (including SNG) Total refinery output, million tonnes 19.9 Refining depth, % 84.8% Fuel oil Share of light products, % 61.1% Vacuum gas oil

Nelson Index 8.93 Other

OUR RESPONSIBILITY

Output of engine fuels of various grades In 2011 the Federal Antimonopoly Ser- vice (FAS) of Russia, the Federal Service Grade Gasoline Diesel fuel for Environmental, Technological and Nuclear Supervision (Rostekhnadzor), 2012 2013 2014 2012 2013 2014 the Federal Agency for Technical Regu- Other lation and Metrology (Rosstandart) and gasoline for 4.3% 4% 5.7% --- twelve Russian oil companies (including petrochemical Bashneft) signed four-party agree- production ments aimed at preventing violations Lower than of antitrust laws, upgrading production 2.9% 0% 0% 76.4% 0% 0% Euro 3 capacities and improving the quality Euro 3 19.9% 8.3% 8.4% 0.0% 68.4% 64.0% of petroleum products supplied to the domestic market. Under these agree- Euro 4 52.8% 20.5% 0.3% 10.5% 3.1% 0.0% ments, we have assumed an obligation Euro 5 20.1% 67.2% 85.6% 13.1% 28.5% 36.0% to upgrade our refineries to switch over to production of fuel of higher quality, and to ensure that a sufficient amount of engine fuel is produced and supplied to the domestic market in accordance with the Technical Regulations. We fulfil all In the future, the Group plans to and a bisphenol A production complex. our obligations on schedule. complete projects which will allow In addition, our petrochemical assets it to cease production of fuel oil and also include the aromatic hydrocar- vacuum gas oil. Implementation of bon production facility of the Bash- this programme will enable Bashneft neft-Ufaneftekhim Branch. to completely cease to produce heavy petroleum products. We produce a wide range of petro- chemicals, including liquefied petro- Bashneft’s production capacities leum gas, polypropylene, paraxylene, include assets producing petrochem- polyethylene, benzene, phenol, orthox- icals: OJSC Ufaorgsintez, LLC Tuim- ylene, acetone, bisphenol A (dipheny-  For details on refining and petrochem- azinskoye Gas Processing Plant, LLC lolpropane) and ethylene. ical production, see the Annual Report Shkapovskoye Gas Processing Plant, of JSOC Bashneft for 2014 36 SUSTAINABILITY REPORT 2014

Breakdown of sales of petroleum MARKETING G4-4 addition, we are developing small- products and petrochemicals, scale wholesale distribution of petro- million tonnes We sell crude oil, petroleum products leum products on the domestic market. and petrochemicals on the domestic 0.6 1.5 market and export them. Domestic sales of petroleum products

Oil sales In 2014 domestic sales totalled 10.4 million tonnes, with high-octane gaso- We use about 60% of the oil we produce line and diesel fuel accounting for the

8.9 as feedstock for the Group’s refining biggest share of sales (40% and 21% complex. The remaining volumes are respectively). We pay special atten- 8.9 sold in the domestic market and export- tion to the development of sales of ed. In 2014 export sales of oil totalled high-quality niche products, includ-

Wholesale in Russia (small-scale and 5.8 million tonnes. Like in the previous ing both light products such as jet large-scale wholesale distribution) year, main destinations of oil exports fuel, bunker fuel, liquefied petroleum

Exports to countries outside the Customs Union included the port in Novorossiysk gases, and heavy products including (35%) and Hungary (23%). a wide range of lubricants, bitumen, Domestic sales via the network of filling stations petroleum coke, as well as sulphur. Bashneft increased domestic sales of JSOC Bashneft is a major player in the Exports to the Customs Union oil to 1.3 million tonnes, as additional Russian market for bulk delivery of volumes of oil became available for lubricants; its market share totals 8%. sale due to consolidation of production Breakdown of domestic sales of LLC Burneftegaz. Retail sales of petroleum products and petrochemicals Sales of petroleum products and Bashneft actively develops its marketing petrochemicals channels to gain access to consumers. In 2014 high-margin sales of petroleum 24% 40% Petroleum products and petrochemi- products through Bashneft’s own retail cals are sold on the domestic market network totalled 1.5 million tonnes. and exported. On the domestic mar- 2% ket, petroleum products are sold both Bashneft sells only Euro 5 fuel via its wholesale and retail via a network of own retail network. Moreover, in 2013 12% own and partner filling stations. In the Group developed ATUM premium

21% The Group’s marketing channels High-octane Petrochemicals gasoline Other Oil refining Oil production Oil sales Diesel fuel

Fuel oil

Retail network of filling stations Domestic sales of petroleum Export of petroleum Oil Domestic products and petrochemicals products and petrochemicals exports sales of oil 800

220 600 259 279 Retail sales Small-scale wholesale Wholesale distribution 400 of petroleum products distribution of petroleum of petroleum products products and petrochemicals 200 473 485 582

0 2012 2013 2014

Number of partner filling stations Sales via the Group’s Sales via partner filling own network of filling stations Number of own filling stations stations SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 37 POLICY AND SAFETY OF OPERATING REGIONS

fuel in cooperation with BASF and The small-scale wholesale business is roubles. In 2014 we increased the started selling it; this fuel is more envi- conducted via the Bashneft-Regional amount of capital expenditure in the ronmentally friendly and helps to keep Sales Branch (previously LLC Bash- Upstream Unit to implement a large- the fuel system and the engine clean. neft-Region, a marketing subsidiary). scale programme of development of The enterprise manages a network of the Trebs and Titov oilfields. In addi- In 2014 the retail network expanded regional sales companies supplying tion, the growth of capital investment from 764 to 802 filling stations, 582 of petroleum products from the refin- was driven by the Group’s acquisition which are owned by the Group. ing complex in Ufa to more than 30 of a strategic asset: LLC Burneftegaz. regions of Russia. In late 2012 Bashneft launched a pro- Net cash flow from operating activities gramme to rebrand its filling stations. It Export sales of petroleum products continued to grow: in 2014 it added was aimed at increasing customer loy- 28% and reached 106.1 billion roubles. alty and improving brand recognition. In 2014 exports of petroleum products totalled 9.5 million tonnes, with diesel In 2013 and 2014, 163 of Bashneft’s fuel accounting for the biggest share own filling stations were rebranded. of export sales (54%).

Wholesale Geographically, more than 90% of exports are destined for countries outside the In 2014 the amount of petroleum prod- Customs Union, mainly Northern Europe. ucts and petrochemicals sold whole- sale totalled 8.9 million tonnes. FINANCIAL RESULTS G4-9 In accordance with the requirements of the Ministry of Energy and the FAS In 2014 Bashneft’s revenue increased of Russia and in order to improve the by 13.1% compared to 2013 and transparency of information on sales, totalled 637.3 billion roubles. EBIT- Bashneft has considerably increased DA (earnings before interest, taxes, sales of petroleum products via the depreciation and amortization) under St. Petersburg International Mercan- IFRS remained at the level reached in tile Exchange. In 2014 the Group sold the previous year and totalled 100.8 a total of 1.3 million tonnes of petro- billion roubles, despite unfavourable leum products on the exchange. macroeconomic conditions, including a reduction in global oil prices. In 2014 Bashneft became a full- fledged member of the St. Petersburg Capital investment increased by 59% International Mercantile Exchange. year on year and exceeded 48 billion

Breakdown of exports of petroleum products and petrochemicals in 2014 Key financial indicators of Bashneft, million roubles G4-EC1 1% 3% 2013 * 2014 6% Revenue 563,296 637,271 54% 19% Operating expenses 480,938 560,274 Labour costs 34,085 29,886 Retained earnings Income for the year 46,399 43,021 17% Retained earnings at year-end 199,131 130,494 Payments to suppliers of capital Diesel fuel High-octane gasoline Interest accrued on borrowings 8,652 12,356 VGO Petrochemicals Dividends accrued 42,548 35,730 Fuel oil Other * Certain comparative information has been reclassified to ensure its consistency with the method of  For more details, see the Annual Report presentation used in financial statements in 2014 of JSOC Bashneft for 2014 38 SUSTAINABILITY REPORT 2014

CORPORATE GOVERNANCE

‘ADOPTION OF BEST PRACTICES IN CORPORATE GOVERNANCE AND COMMITMENT TO MEETING THE HIGHEST STANDARDS IN THIS SPHERE ENABLES THE GROUP TO ENSURE THAT ITS DEVELOPMENT IS WELL-BALANCED AND DYNAMIC AND THAT IT MEETS THE NEEDS OF ALL STAKEHOLDERS.’

Kirill Andreychenko, Vice President for Corporate Governance and Legal Issues

We actively adopt best practices in cor- the Group’s value and improving the / combating corruption; porate governance as we seek to meet perception of its business. the highest international standards. / compliance with the norms of busi- We believe that this approach enables Fundamental principles of corpo- ness ethics; us to ensure that our development is rate governance to which we adhere well-balanced and dynamic and that it include the following: / corporate social responsibility of our meets the needs of all stakeholders. business. We are convinced that an efficient cor- / respecting and safeguarding the porate governance process will help us rights and legitimate interests of The Group’s corporate governance bring our operational performance to a participants of corporate relations; system is based on the requirements new level and to improve our perfor- of Russian legislation, listing rules mance in the sphere of CSR and HSE. / ensuring information and financial of the Moscow Exchange, recommen- transparency; dations from the Russian Code of Improvement of our corporate gov- Corporate Governance, international ernance system is aimed at ensuring / an active and professional Board of standards in corporate conduct and unconditional respect for the interests Directors; business ethics, and the principles of shareholders and investors and of openness and transparency. safeguarding their rights, increasing / consistent and collective decision-making; SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 39 POLICY AND SAFETY OF OPERATING REGIONS

CORPORATE GOVERNANCE STRUCTURE G4-34 The Group’s corporate governance structure as of December 31, 2014

General Meeting Committees of the Finance, Budget Project Assurance of Shareholders Board of Directors and Risk Committee Committee

Chairman of the Board Strategy Nominating and HSE&SR Committee Corporate Secretary of Directors Committee Compensation Committee Office of the Board of Directors Corporate Conduct Audit Corporate Conduct Committee Committee Committee

Chief Auditor Committees of the President / Management Board Disciplinary Risk Committee Committee President Committee on IT, Investment Management Board Telecommunications Committee and Metrology

Upstream Oil refining Marketing Other units Dotted lines stand for functional relation; full lines stand for administrative subordination.

 For details on the structure and composition of Bashneft’s governance bodies, see the Annual Report of JSOC Bashneft for 2014

STRUCTURE AND POWERS OF THE GROUP’S GOVERNANCE BODIES RESPONSIBLE FOR DECISION-MAKING ON ECONOMIC, ENVIRONMENTAL AND SOCIAL ISSUES

Health, Safety and Administrative President Board of directors Environment Department Department

Operations Finance Unit and Risk Management Board Management Units Management Unit

Committees of the Board of Directors HR Unit

Decision-making functions with economic, environmental and social Regulations on the Board of Direc- regard to economic, environmen- impacts, and for supervising its imple- tors, which stipulate the procedure for tal and social issues are distributed mentation. The Board of Directors forming the Board of Directors, its sta- among the Group’s governing bodies determines the main budget param- tus, membership, functions, aims and and divisions within the scope of their eters and supervises its implementa- objectives, its powers, the procedure powers and competences stipulated tion, ensures timely and complete dis- for its work and cooperation with oth- in Bashneft’s internal documents and closure of comprehensive and reliable er governing bodies of the Company. applicable legislation. information on the Group’s operations, The current version of the Regulations makes decisions on core projects and was approved by the General Meeting As of December 31, 2014, the Group major transactions within the scope of Shareholders on June 27, 2013. had the following corporate gov- of its powers. In addition, the Board of ernance structure in the sphere of Directors is responsible for establish- The Regulations on the Board of health, safety, environment and social ing effective internal control over the Directors contain recommenda- responsibility. Group’s financial and business opera- tions concerning education, age and tions and creating a risk management experience of candidates elected to system. the Board of Directors by the General BOARD OF DIRECTORS G4-42, G4-45 Meeting of Shareholders. G4-40 As the Company’s supreme gov- The Board of Directors is respon- erning body, the General Meeting of Information about candidates nom- sible for developing and analysing Shareholders elects members of the inated to the Board of Directors is the Group’s strategy concerning Board of Directors and approves the posted in the Russian and English 40 SUSTAINABILITY REPORT 2014

Age distribution of members of the status updates on key measures in The Committee is tasked with produc- Board of Directorst G4-38, G4-LA12 these areas and an analysis of indi- ing recommendations for the Compa- cators related to economic, envi- ny’s Board of Directors on the follow- 10% ronmental and social impacts. The ing matters: 40% Board of Directors has created the 20% Health, Safety, Environment and Social / the Company’s environmental pol- Responsibility Committee tasked with icy and environmental protection preliminary consideration of the rel- measures; evant issues. The Board of Directors also reviews and approves the Sus- / efficient use of natural resources 30% tainability Report of JSOC Bashneft. and electricity;

30-39 50-59 Independent directors play an import- / prevention of industrial accidents; 40-49 > 59 ant role in defining the Group’s strat- egy, policy and objectives with regard / industrial safety; to economic, environmental and social impacts. They participate in annual / occupational safety; strategic sessions, which centre on a languages on the Group’s website discussion of updates to the Group’s / social responsibility. together with other materials for the strategy on finance, environment, General Meeting of Shareholders social responsibility, personnel man- The Committee considers data on where the Board of Directors is to agement and security. Results of a injuries and industrial safety in the be elected. A transparent procedure strategic session are submitted to the Group on a monthly basis. The Com- of election to the Board of Directors Board of Directors for review. mittee is actively involved in devel- enables shareholders to obtain infor- oping HSE leadership and develops mation about the candidates’ personal The Board of Directors has approved recommendations for performance and professional qualities, the initiator the Regulations on Risk Manage- improvement in the sphere of environ- of nomination, and information as ment, which outline the Group’s key mental protection and social respon- to whether the candidate owns the approaches to risk management, sibility. The Committee is responsi- Company’s shares and as to whether the overall organization of the risk ble for preliminary consideration of the candidate serves on the governing management process, the allocation quarterly HSE reports to be approved bodies of other companies. of roles and responsibility for risk at a meeting of the Group’s Board of management. Issues related to inter- Directors. As of the end of 2014, the As of December 31, 2014, the Board nal control and risk management are Committee comprised three indepen- of Directors of JSOC Bashneft com- regularly considered at meetings of dent directors. G4-47 prised the Chairman (a non-executive the Board of Directors. The Board of director), one executive director (the Directors has created two committees In 2014 the Committee held five meet- Group’s President), five non-execu- tasked with preliminary consideration ings, during which it considered issues tive directors and three independent of such issues: the Finance, Budget related to the Group’s HSE strategy, directors (including citizens of the UK, and Risk Committee and the Audit HSE KPIs for employees, findings of Austria and France). All members of Committee. investigations of workplace accidents, the Board of Directors are men. projects and measures, including Matters related to health, safety, envi- measures for reducing the number of Members of the Board of Director ronment and social responsibility fall occupational injuries and measures have profound professional knowl- within the competence of the relevant related to HSE training provided to the edge and expertise in areas that are of Committee. Group’s employees. In addition, the the greatest importance to the Group Committee considered the findings (strategic planning skills, indus- of an audit of the Group in the sphere try-specific skills, expertise in finance HEALTH, SAFETY, ENVIRONMENT of HSE conducted by an independent and management). AND SOCIAL RESPONSIBILITY company. (HSE) COMMITTEE OF THE BOARD The Board of Directors considers OF DIRECTORS SELF-ASSESSMENT OF THE quarterly reports on the Group’s BOARD OF DIRECTORS AND ITS development in various areas of its The Committee monitors the imple- COMMITTEES G4-44 operations, including in the sphere mentation of the Group’s strategy and of health, safety, environment and achievement of its objectives in the The Group conducts internal per- social responsibility. Reports include sphere of HSE. formance evaluation of the Board SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 41 POLICY AND SAFETY OF OPERATING REGIONS

of Directors in the form of a survey for forming the Management Board, its Age distribution of members of among the Board members using a aims and objectives and the powers of the Management Board questionnaire; the survey is conducted members of the Management Board on conditions of anonymity. are governed by the Regulations on the 18% Management Board. The internal evaluation process is coordinated by the Corporate Secre- As of December 31, 2014, the Manage- tary of JSOC Bashneft. The results ment Board comprised 11 persons, 55% of the evaluation are used in order to including the Chairman of the Man- 27% improve the practice of organizing the agement Board. All members of the work of the Board of Directors and the Management Board are men. Board Committees. PRESIDENT 30-39 The results of performance evaluation 40-49 of the Board of Directors in gener- The President is a permanent sole 50-59 al and its members are taken into executive body of the JSOC Bashneft account when: and chairs the Company’s collec- tive executive body (the Management / assigning duties and business areas Board). to be supervised among the Board OUR RESPONSIBILITY members; The President manages the Com- pany’s day-to-day operations and is The President must act in the interests / forming the Board committees; responsible for implementing resolu- of shareholders, ensure the Compa- tions of the General Meeting of Share- ny’s profitability and competitiveness, safeguard the rights of shareholders / nominating candidates to be elected holders and the Board of Directors and provide the Group’s employees with to the new Board at the General and for facilitating efficient work of the social guarantees. Meeting of Shareholders. Management Board.

MANAGEMENT BOARD The area of competence of the Pres- ident includes matters related to the The Management Board of JSOC implementation of the Group’s strate- Bashneft facilitates the achievement gy on health, safety, environment and of the Group’s strategic goals by social responsibility and the Group’s implementing business plans, invest- compliance with environmental ment programmes and programmes requirements. in the sphere of health, safety, envi- ronment and social responsibility. The President must act in the inter- ests of shareholders, ensure the The Management Board is responsible Company’s profitability and com- for preliminary consideration of issues petitiveness, safeguard the rights of to be discussed at the meetings of the shareholders and provide the Group’s Board of Directors and its committees employees with social guarantees. and for preparing proposals to the Board of Directors concerning approv- The President reports on his work to al of JSOC Bashneft’s budget and its the Board of Directors. financial and business plan. REMUNERATION AND The Management Board reports to the COMPENSATIONS G4-51, G4-52 Board of Directors on a wide range of economic, environmental and social The procedure for determining remu- issues specified in the Charter and neration and compensations for mem- internal documents of JSOC Bashneft. bers of the Board of Directors and the procedure for paying remuneration The number and the list of members of and compensations are stipulated in  For information on the results of the Management Board are approved the Regulations on Rewards and Com- performance evaluation of the Board of by the Board of Directors at the sug- pensation to Members of the Board of Directors in 2014, see the Annual Report gestion of the President. The procedure Directors of JSOC Bashneft. of JSOC Bashneft for 2014 42 SUSTAINABILITY REPORT 2014

In accordance with the Regulations for 2014 was 1,724,559 thousand rou- The results of the audit are commu- on Rewards and Compensation to bles. Reimbursement for expenses nicated to members of the Board of Members of the Board of Directors of incurred by members of the Manage- Directors. JSOC Bashneft, the following types of ment Board amounted to 4,725 thou- remuneration are paid for serving on sand roubles. In 2014 we conducted an indepen- the Board of Directors: dent analysis of corporate governance INTERNAL AUDIT practice on the basis of the Guidelines / base pay; for Self-Assessment of Corporate The Group has in place the Internal Governance Quality in State-Owned / remuneration for participating in Audit Unit, which is responsible for Companies. Preliminary findings of meetings of the Board committees; appropriate assessment of its internal the self-assessment indicate that the control, risk management and corpo- level of corporate governance in the / performance-based remuneration rate governance system. Group is high. for the corporate year. The Internal Audit Unit assists the The Group also engaged an external The Group’s system of remuneration Board of Directors and executive auditor to conduct external assess- for the Board of Directors allows it to bodies of the Group in improving the ment of corporate governance quality. engage highly professional directors efficiency of the Group’s manage- The external audit revealed a number who have a considerable experience ment, improving its financial and of improvements in the organization of working in the relevant areas of operational performance, advises the of the work of the governing bodies, business. Group’s management on managing information disclosure and safeguard- economic, environmental and social ing of shareholder rights compared to The total amount of remuneration1 risks and conducts special checks the previous year. accrued and paid to members of the at the request of the Group’s senior Board of Directors for 2014 was 43,996 management. thousand roubles. Reimbursement for expenses incurred by members of the Internal audit tasks and functions for Board of Directors totalled 6,815 thou- the year are approved by the Board sand roubles. of Directors. In addition, the Inter- nal Audit Unit may carry out certain The key principle underlying the instructions of the Board of Directors, Group’s system of remuneration for the Audit Committee of the Board of  The Regulations on Rewards and members of the Management Board Directors and the President of JSOC Compensation to Members of the Board consists in a balance between the Bashneft. of Directors of JSOC Bashneft are avail- interests of the management and able on our website at those of the shareholders. In 2014 The work of the Internal Audit Unit is http://www.bashneft.com/sharehold- ers_and_investors/charter/ remuneration of members of the governed by the Regulations on Inter-  Group’s Management Board com- nal Audit. For details on the components of remu- prised the following components: neration paid to members of the Board CORPORATE GOVERNANCE of Directors, see the Annual Report of / salary; QUALITY AUDIT JSOC Bashneft for 2014  For details on the system of remunera- / bonuses forming part of the short- The Group annually conducts an inde- tion and incentives for senior managers, term incentive programme (annual pendent corporate governance quality see the Annual Report of JSOC Bashneft bonuses); audit (self-assessment), which covers for 2014 the following three components: For details on the functioning of the / bonuses forming part of long-term  Internal Audit Unit, see the ‘Corporate / incentive programmes (a long-term shareholders’ rights and relations Governance’ section of the Annual incentive programme for senior with other stakeholders; Report of JSOC Bashneft for 2014 executives). / the membership and performance The total amount of remuneration1 of governing and supervisory bodies; 1. Information on the amount of remuneration paid accrued and paid to members of the in 2014 is taken from JSOC Bashneft’s financial Management Board of JSOC Bashneft / information disclosure. statements under RAS. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 43 POLICY AND SAFETY OF OPERATING REGIONS

PREVENTION OF CONFLICTS when preparing and holding General The Group regularly monitors the effi- OF INTEREST G4-41 Meetings of Shareholders. Minori- ciency and supervises the implemen- ty shareholders can communicate tation of anti-corruption standards Internal regulations of the Group with the management, members of and procedures that it has adopted. establish supervisory and monitoring the Board of Directors and the Audit When assessing the reliability of part- mechanisms for preventing actions Commission. ners and counterparties, the Group which could indicate a conflict of takes into account the extent of their interest. The Nominating and Com- In case of a potential conflict of inter- opposition to corruption in the course pensation Committee carries out ests of a member of the Board of of business. Furthermore, compli- preliminary consideration of reports Directors, including cases when the ance with anti-corruption principles on compliance with the Code of Cor- Board member is an interested party is viewed as an important prereq- porate Governance, the Code of Ethics, with regard to a transaction to be uisite for establishing contractual and the Anti-Corruption Policy adopt- made by the Company, such mem- relationships. ed in the Group; the reports are then ber of the Board of Directors should brought to the attention of the Board notify the Company’s Board of Direc- On the corporate level, we inform our of Directors. tors, giving priority to the Company’s employees and conduct training in interests over his/her own interests. anti-corruption procedures. The Com- The Group has in place a system for Such director should refrain from pany’s employees sign a statement notifying members of the Board of making decisions on issues in rela- of compliance with anti-corruption Directors and executives of the Group tion to which they have a conflict of legislation. The Group runs a Hotline about the necessity of compliance interest or refrain from attending the ‘Employees Raise Concerns’ with applicable requirements of the Board meeting when such issues are legislation and internal corporate discussed. RISK MANAGEMENT SYSTEM documents. AND INTERNAL CONTROL G4-46 COMBATING CORRUPTION We use efficient tools to mitigate the When working to achieve its goals, risk of conflicts among shareholders. The Group takes measures aimed at the Group faces internal and exter- For instance, special procedures have forming elements of corporate cul- nal operational risks. One of JSOC been established for voting on relat- ture, rules and procedures prevent- Bashneft’s main tasks is to moni- ed-party transactions (which stip- ing corruption. We seek to comply tor and forecast risks inherent in its ulate that interested shareholders strictly with the norms of Russian, business operations. We regularly must abstain from voting); recognized international and applicable foreign monitor potential risk events and take independent appraisers are engaged anti-corruption laws. Anti-corrup- measures to prevent them. When for valuation of assets in related-par- tion procedures are incorporated these events are inevitable, we take all ty transactions; maximum trans- into a number of the Group’s internal necessary measures to reduce their parency and openness is ensured documents. negative impact.

Basic documents Procedures and instructions

• Anti-Corruption Policy • Procedure for Selection and Recruitment • Policy on Business Gifts of Employees • Code of Ethics • Procedure for Conducting Official The Group has adopted and complies Inspections  • Code of Corporate Governance with the Code of Corporate Governance • Procedure for Conducting Investigations • Anti-Fraud Policy and the Regulations on Insider Informa- • Procedure for Conducting Due Diligence tion. These documents are available on • Policy on Procurement • Procedure for Approving and Concluding the corporate website at • Regulations on Contractual Work Contracts http://www.bashneft.com/sharehold- • Regulations on the Whistleblower • Procedure for Organizing Procurement of ers_and_investors/charter/ Programme ‘Employees Raise Concerns’ Goods, Works, Services at JSOC Bashneft • Regulations on Monitoring IT Security • Guidelines on Actions of a Security  For details on prevention of conflicts Events Officer in Case of Irregularities in the of interest, see the ‘Corporate Gover- • Regulations on Overall Security Procurement Process nance’ section of the Annual Report ofJSOC Bashneft for 2014 44 SUSTAINABILITY REPORT 2014

The Risk Management System (RMS) prepared by the Company’s internal of production facilities if there is a was developed and implemented in department responsible for analys- possibility of a negative environmental 2010 in cooperation with one of the ing, systematizing and assessing the impact. In addition, the tightening of ‘Big Four’ consulting firms, based on Group’s risks and for developing mea- regulations on environmental pollu- common conceptual risk management sures for risk mitigation and preven- tion and the need to respond to poten- models developed by the Committee tion. The Board of Directors annually tial industrial accidents could have a of Sponsoring Organizations of the considers an action plan aimed at material adverse impact on the Group. Treadway Commission (COSO ERM developing the risk management func- Enterprise Risk Management – Inte- tion. In addition, the Company has in To mitigate environmental risks, grated Framework). place the Finance, Budget and Risk Bashneft continuously monitors and Committee of the Board of Directors. analyses the negative impact on We use a systematic approach to man- the atmosphere, water bodies and agement of all types of risks inherent in Key risks that are constantly moni- land; it also monitors the quality the Group’s business across its entire tored include country and regional of groundwater. organizational structure and operating risks, industry-specific, financial, legal regions. This process is based on the and operational risks. From the per- We invest heavily in environmental Group’s strategic goals and the aims spective of sustainable development, measures, including modernization of specific processes. An important operational risks are the most import- of production facilities and introduc- principle underlying the operation of ant ones. G4-2 tion of cutting-edge technologies in the risk management system consists order to reduce the negative environ- in ensuring cost efficiency and feasibili- mental impact. Bashneft also takes ty of risk management measures. ENVIRONMENTAL RISKS measures in the sphere of environ- mental protection, including refinery The Company’s Board of Directors Environmental risks arise in the upgrades and introduction of advanced considers a semi-annual risk report course of construction and operation environmentally friendly technologies. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 45 POLICY AND SAFETY OF OPERATING REGIONS

We implement a programme aimed at In addition, Bashneft has imple- Directors and monitoring implementa- improving the reliability of pipelines in mented a comprehensive insurance tion of measures in the field of HSE in order to minimize the number of rup- programme, including property order to help implement the functional tures and the risk of a negative impact insurance, civil liability insurance and strategy and accomplish the Group’s on land resources. voluntary insurance of operating per- tasks in this area. On a lower level, the sonnel against accidents. HSE management structure compris- The Group has created and constantly es the Group’s departments respon- analyses an environmental risk map. sible for implementation of adopted The international ISO 14001 stan- INTERNAL CONTROL resolutions within the scope of their dard in environmental management functions and powers. has been introduced. The Group’s Internal control in Bashneft is aimed enterprises arrange public liabili- at ensuring: In 2013 the British Standards Institu- ty insurance for owners of hazard- tion (BSI) acknowledged the Group’s ous production facilities for damage / efficiency and effectiveness of the HSE Management System to be effi- resulting from an accident at the haz- Group’s business on the level of cient and issued Bashneft with certifi- ardous facility; they also arrange civil individual operations; cates confirming conformity of its HSE liability insurance, including insur- Management System with the OHSAS ance against liability for environmen- / reliability and accuracy of financial 18001 standard and conformity of the tal damage. statements and other reports; Environmental Management System with the ISO 14001 standard. Thus, / compliance and conformity with Bashneft has successfully complet- OCCUPATIONAL HEALTH laws and established rules, includ- ed a project to create an integrated AND SAFETY RISKS ing in the course of business and corporate management system in the accounting. sphere of health, safety and environ- Bashneft’s operations involve the use ment and ensure its conformity with of technologically complex industrial We seek to introduce internal con- internationally accepted standards. equipment. Risks associated with the trol elements in accordance with the failure of industrial equipment may COSO Internal Control – Integrated The following aspects were highlight- result in a shutdown of production Framework into each stage of the ed in the course of certification: an facilities and lead to failure to meet Group’s management and at the same integrated nature of the HSE man- operating and financial targets, cause time to ensure that procedures and agement system; the fact that the damage to assets and human health methods applied in all areas of the Group has in place the HSE Policy and and result in liability to third parties. Group’s business remain neutral and uniform HSE standards; additional transparent. training provided to employees; estab- To reduce the likelihood of this risk, lishment of an internal audit institute; the Group has in place a health and MANAGEMENT IN THE development of corporate and stan- safety system which involves con- SPHERE OF HEALTH, SAFETY dardized risk registers and operation- stant monitoring of the condition of AND ENVIRONMENT al hazard maps; and monitoring of key process units, an equipment upgrade indicators. The scope of certification programme, measures for preventing We use a holistic approach to orga- included all core enterprises of the industrial accidents and incidents, and nizing management in the sphere of Group. development of a health and safety Health, Safety and Environment (HSE); culture. The Group has implemented this approach is based on uniform a system for assessing risks in this principles and an integrated corpo- sphere. rate functional strategy and covers all key business processes: contractor Bashneft’s integrated HSE manage- management, procurement manage- ment system was issued with certifi- ment, HR management and logistic cates confirming its compliance with management. the OHSAS 18001 standard in 2013. Following the first compliance audit, The Group has in place the Commit-  For information on the organizational Bashneft Group’s HSE management tee on Health, Safety, Environment structure of the Group’s risk manage- system has been assessed as efficient, and Social Responsibility of the Board ment system, see the Annual Report of and it has been recommended that of Directors, which functions as part JSOC Bashneft for 2014 certificates of compliance with the of the Group’s supreme governing  For details on all risks that we consider international ISO 14001 and OHSAS body and is responsible for develop- as significant, see the Annual Report of 18001 standards be renewed. ing recommendations for the Board of JSOC Bashneft for 2014 46 SUSTAINABILITY REPORT 2014

In 2014 Bashneft successfully passed technical research and development / R&D project management system. the first compliance audit of its HSE of application-oriented industry-spe- management system; certification was cific technologies. In 2014 the Group updated its Uni- subsequently confirmed. fied R&D Programme – a List of the Free access to scientific and tech- Group’s R&D Priorities for the period The Group continuously improves nological achievements of leading from 2014 through 2020. In accor- its HSE management processes and companies in the industry is facilitat- dance with this List, in the near future the HSE management system and ed by the fact that in 2013 the Group the Group will continue to actively continues to adopt the best practic- joined the International Association develop the following areas of activity: es and standards in the course of its of Oil and Gas Producers (OGP) and exploration and production; refining operations. the International Petroleum Industry and commerce; administration and Environmental Conservation Associa- management; social responsibility INNOVATION tion (IPIECA). MANAGEMENT OUR OBLIGATIONS TO IMPROVE The Group uses an R&D management CORPORATE GOVERNANCE The Group’s research and techno- system consisting of three manage- logical potential is one of our com- ment levels: In 2014 the Group assumed a number petitive advantages. We have made of obligations to improve its corporate considerable progress in establishing / strategic management (a system governance quality. a research and development centre of for determining the key areas of regional importance on the basis of innovative development, issues and As JSOC Bashneft’s shares have been our corporate research and develop- technologies); included in the First (Top) Tier quota- ment institute, LLC BashNIPIneft. The tion list of the Moscow Exchange, our Group invests heavily in this process / a system for R&D project portfolio plans for the period from 2014 through and is forming a facility for efficient management; 2016 include ensuring compliance of SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 47 POLICY AND SAFETY OF OPERATING REGIONS

the Group’s corporate governance sys- Additional corporate governance development measures: tem with the requirements of the Mos- cow Exchange for issuers and trading / analysis of the Code of Corporate developed by federal executive participants. Governance of the Central Bank of agencies; Russia and development of a road Besides, due to the transfer of title to map for its implementation; / updating the Group’s dividend 84% of the Company’s voting shares to policy; the Russian Federation, starting from / taking into account the require- December 2014 a number of addition- ments of federal executive agen- / change in the approach to infor- al corporate governance development cies for the Group’s strategic plan- mation disclosure, given special measures have become applicable to ning and business planning cycle features typical of state-owned the Group. and the relevant changes in the companies; corporate governance cycle; We also seek to further develop and / use of IT resources (first and improve the corporate governance / application of methodological foremost, the Interdepartmental system by following best practices, guidelines on the work of the Portal) developed to optimize gov- improving the performance of the Board of Directors, the commit- ernance processes in state-owned Group’s governing bodies and optimiz- tees and the Corporate Secretary companies. ing the management of subsidiaries. 48 SUSTAINABILITY REPORT 2014 HIGH LEVEL OF COMMUNICATION

AN OPEN AND TRANSPARENT DIALOGUE WITH ALL STAKEHOLDERS IS A FUNDAMENTAL PRINCIPLE UNDERLYING BASHNEFT’S OPERATIONS. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 49 POLICY AND SAFETY OF OPERATING REGIONS

STAKEHOLDERS

‘IN RECENT YEARS, DIRECT AND OPEN DIALOGUE WITH ALL CATEGORIES OF STAKEHOLDERS HAS BEEN INCREASINGLY IMPORTANT: COMPANIES SHOULD BOTH SPEAK TO EXPRESS THEIR POSITION AND LISTEN TO RECEIVE FEEDBACK. WE LIVE IN AN INCREASINGLY INTERCONNECTED WORLD WHERE COMMUNICATION IS BECOMING A KEY ELEMENT OF DEVELOPMENT. WE ARE AWARE OF THESE CHANGES, AND THE GROUP IS CHANGING ACCORDINGLY.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

We are aware of the great responsi- and ethical behaviour of a large mar- include the following: shared interests bility that the Group is bearing in the ket player. Our goals include further and expectations about the Group; course of stakeholder engagement. development of the dialogue with the nature of their influence on the As our business is based on respect stakeholders, on the one hand, and achievement of strategic goals; stake- for the interests of absolutely all achievement of synergy from coop- holder engagement tools that we use stakeholder groups, we seek to follow eration both for the Group and for to communicate with them. G4-25 a responsible approach to stakehold- stakeholder representatives, on the er engagement. An open dialogue other hand. We engage stakeholders with stakeholders makes it possi- in the discussion of corporate respon- ble to improve business efficiency, sibility issues through various means provides opportunities for achiev- of communication. The Group cooper- ing impressive results and helps ates with its stakeholders on a regular to strengthen the Group’s brand. Reg- basis. ular cooperation enables us to align and focus our efforts to achieve com- We divide representatives of stake- mon goals in the sphere of sustainable holders that are most closely connect- development. ed with the Group’s operations into six groups. We believe that these groups As a large and efficient company, of people can be influenced consid- Bashneft seeks to lead and initiate erably by the Group’s operations and positive changes. We realize that products and that, in their turn, they our efforts in the sphere of sustain- can make an impact on the Group’s able development extend beyond the ability to attain its strategic goals. The company or our supply chain, and we basic principles that we have applied set an example of socially responsible when identifying stakeholder groups 50 SUSTAINABILITY REPORT 2014

‘WE WOULD LIKE TO OFFER YOU A CONTINUOUS DIALOGUE, EXCHANGE OF INFORMATION AND COMMUNICATION. IT IS IMPORTANT FOR US TO UNDERSTAND THE PROBLEMS AND CHALLENGES THAT YOU ARE FACING, TO HELP YOU AND TO BE ABLE TO EXPECT YOUR SUPPORT IN RETURN. BESIDES, WE WOULD LIKE TO KNOW YOUR OPINION ON OUR SHORTCOMINGS AND ASPECTS THAT YOU THINK REQUIRE IMPROVEMENT. WE ARE WILLING TO COOPERATE.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

 We invite you to enter into dialogue, Stakeholder engagement is governed During the preparation of this Report and we would like you to fill in the feed- by corporate social responsibility we did not take any special additional back form at the end of the report principles which are based on the stakeholder engagement measures. or to send your comments to [email protected] Policy on Corporate Social Responsi- In the course of stakeholder engage- bility adopted in 2010. Specific forms ment we are guided by the principle of engagement of individual stake- of continuity and regularity; therefore, holder groups are developed on the we continuously implement all stake- basis of the relevant policies and reg- holder engagement measures that we ulations of the Group. G4-26 believe to be relevant and effective.

STAKEHOLDER MAP G4-24

Regulatory bodies

5 Shareholders, $ investors

4 Consumers

3 Employees

2 Suppliers and business partners INFLUENCE ON THE GROUP INFLUENCE Local communities 12345 and non-profit organizations THE GROUP’S POWER SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 51 POLICY AND SAFETY OF OPERATING REGIONS

SHAREHOLDER AND INVESTOR ENGAGEMENT

Shareholders and investors are / for the first time, the Group’s man- OUR ACHIEVEMENTS a stakeholder group that has the agement held meetings with inves- strongest impact on the Group. There- tors from the Asia-Pacific Region in Bashneft has been included in the list fore, we build our relationship with Beijing, Singapore and Abu Dhabi, of the 50 most successful and dynamic them on the basis of the principles as well as meetings with major private-sector companies in the BRICS of openness, information transpar- investors as part of six road shows countries and other emerging markets, according to 2014 BCG Local Dynamos, ency and protection of the rights and in the US, the UK and Continental a report prepared by the Boston Con- legitimate interests of this stakeholder Europe. sulting Group (BCG), a leading global group. We strictly adhere to the norms management consulting firm. of business ethics and seek to use SHAREHOLDER INFLUENCE international best practice as part ON THE DECISION-MAKING  For more information on sharehold- of investor and shareholder engage- PROCESS er and investor engagement, see the ment. In addition, functioning of the Annual Report of JSOC Bashneft (the corporate governance system incor- Late 2014 saw a change of controlling sections ‘Investor & Shareholder Infor- porates the principles outlined in the shareholder of JSOC Bashneft. Start- mation’ and ‘Corporate Governance’) Code of Corporate Governance. ing from December of the reporting year, the Company’s largest share- We seek to maximize the Group’s val- holder is the Russian Federation. ue by maintaining a high level of div- Minority shareholders include over idend yield and improving business 35 thousand individuals and legal performance. Our efforts to ensure entities. financial sustainability and business efficiency are appreciated by experts Our principal goal in the field of share- and investment community. holder engagement is to create all conditions for the efficient deci- Bashneft holds a close dialogue with sion-making by the shareholders. shareholders and investors and uses all available opportunities. The main instrument of sharehold- er influence on the decision-making We maintain regular contact with process is the participation in General the investment community, regular- Meetings of Shareholders. The Com- ly hold meetings with investors and pany provides shareholders with com- road shows, promptly communicate plete information on all agenda items information and analytical findings, in a timely manner in the materials for participate in investment conferences, General Meetings. Each shareholder and arrange on-site visits and other of the Group has the right and oppor- corporate events for investors. tunity to choose between attending the General Meeting in person and partic- Key measures in the sphere of inves- ipating by absentee voting and enjoys tor engagement in 2014: equal voting rights in either case. At shareholders’ requests, we provide / JSOC Bashneft held its first-ever them with copies of documents in Investor Day in London attended by accordance with the requirements the Group’s President and senior of the Federal Law on Joint-Stock management; as part of the event, Companies. the Company disclosed its medi- um-term development strategy. The The Group arranges and holds Gen- event was highly acclaimed by the eral Meetings of Shareholders so as investment community; to provide easy access to them for 52 SUSTAINABILITY REPORT 2014

Forms of engagement and communication

/ Annual General Meeting of Share- / Publication of IFRS financial / Meetings with major Eurobond holders (in 2014 one meeting was statements (quarterly and interim investors as part of road shows in held) financial statements) the U.S. and Europe

/ Extraordinary General Meetings / Regular meetings between the / Ongoing efforts to maintain and of Shareholders (in 2014 three Group’s management and rep- expand contact with investment meetings were held) resentatives of investors and banks shareholders / Scheduled meetings with share- holders and investors / Non-deal road shows for leading investment funds

OUR ACHIEVEMENTS all shareholders. Special attention is http://www.bashneft.com) is one of the given to facilitating the participation key means of information disclosure. Over the last three years, Bashneft’s of private shareholders, who mainly It contains information on the Group’s Annual Reports and Sustainability comprise employees of the Group or financial and business operations, Reports have become winners or nom- of its subsidiaries and affiliates. sustainable development and corpo- inees in the relevant Russian competi- rate responsibility. Bashneft posts the tions 11 times. This proves that experts The mechanism for appointing mem- latest press releases and news, annu- recognize the high quality of prepa- ration or reports and information bers of the Board of Directors is al reports and sustainability reports disclosure. a crucial aspect of the shareholders’ on its website. It also publishes quar- influence on the Group’s operations. terly financial statements and obliga- Selection of candidates and forma- tory information disclosures required tion of the Board of Directors falls under the legislation of the Russian within the competence of the Gen- Federation. eral Meeting of Shareholders. This enables the shareholders to make an Major sources of information on the indirect impact on the Group’s strate- Group’s operations include the Annual gy and to gain additional control over Report and the Sustainability Report. the actions of the Group’s executive The high quality of information dis- bodies. closure is confirmed by awards won by Bashneft in Russian competitions INFORMATION of annual reports. TRANSPARENCY High standards of investor and share- We have a responsible approach holder engagement are maintained to maintaining a high level of infor- by the Investor Relations Department mation transparency for investors and the Corporate Relations Depart- to enable them to make the right ment. The Corporate Secretary also investment decisions. We seek to fol- plays an important role in ensuring low international best practices in this that relevant bodies and executives field and to comply with all legislative of the Group comply with proce- requirements in all cases. dural requirements which protect the rights and legitimate interests The Group’s corporate web- of shareholders. site (http://www.bashneft.ru, SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 53 POLICY AND SAFETY OF OPERATING REGIONS

EMPLOYEES

WE VIEW THE GROUP’S EMPLOYEES AS A STAKEHOLDER GROUP THAT DEPENDS TO THE GREATEST EXTENT ON OUR ACTIONS. THIS MEANS THAT WE HAVE TO BEAR ADDITIONAL RESPONSIBILITY WHEN DEALING WITH THE GROUP’S EMPLOYEES AS ONE OF OUR STAKEHOLDERS.

Bashneft has in place the Code of Eth- Bashneft is constantly engaged in an ics. Provisions of the Code stipulate open and constructive dialogue with that the Group’s governing bodies and its employees focused on the adher- employees must avoid any discrimi- ence to codes and standards adopted natory behaviour. The Code of Eth- by the Group, and holds public meet- ics also ensures that all employees ings between senior management have equal rights and opportunities in and staff. Strong emphasis is given terms of salaries and promotion. The to informal meetings at which employ- Group never uses child labour, forced ees can put questions directly to the or compulsory labour or any other managers. In addition, the Group non-standard forms of employment has in place another tool for receiv- which reduce, directly or indirectly, the ing feedback: a hotline ‘Employees level of social protection of employees. Raise Concerns’, which enables senior management to receive information We seek to be an employer that is on any violations or wrongdoings from most attractive to our employees. employees. Bashneft offers stable employment and long-term career planning opportunities. Salaries in the Group are significantly above the regional level. In addition, the Group provides its employees with a large package of social benefits and securities and ample opportunities for professional training and development. The Group has concluded a Collective Agreement with all of its employees. The Agree- ment was signed in 2013 and is valid until 2015.

Forms of engagement and communication

/ Cooperation with the United / Cooperation with Employee Coun- / Anonymous hotlines Employee Representative Body in cils of Bashneft and trade unions the process of negotiating the Col- representing the majority of the / Corporate portal (Intranet) lective Agreement Group’s employees in the normal and media course of business / Interaction with the Youth Council / Professional training and develop- of the Group / Meetings between senior manage- ment programmes ment and staff 54 SUSTAINABILITY REPORT 2014

CONSUMERS

Our business model involves con- We recognize our responsibility OUR ACHIEVEMENTS trolling the entire value chain, from towards our customers and seek oil production to sales of crude oil to build up an excellent reputation. Bashneft’s filling stations sell a new and petroleum products. Therefore, To achieve this, we constantly improve generation fuel under the ATUM brand we pay considerable attention to our our product quality assurance pro- name; it is more environmentally customers and consumers of our cess. Complete information on prod- friendly, and fuel performance has been improved. AI-92 ATUM gasoline meeting products. Our key objective in this field uct characteristics is available on the Euro 5 standard helps to improve is to attain the highest level of ser- our corporate website, in advertising engine performance and, consequently, vice and perfect quality of products materials and other public sources. reduce fuel consumption and atmo- supplied to consumers. While tackling Products manufactured at Bashneft’s spheric emissions. The fuel is environ- this task, the Group attaches consid- facilities undergo certification in strict mentally friendly and resistant to cold and ensures a high level of protection erable importance to convenience accordance with legal requirements. of the key engine components against and seeks to ensure that partnership corrosion. with the Group is not only profitable To improve the quality of our products but also comfortable for consumers. and services, the Group runs a Hotline We develop a wide range of market- for customer complaints. Consum- ing channels, from wholesale sup- ers can post their feedback about ply of crude oil via pipelines to small our products and related services on wholesale business and retail sales our website. In addition, we conduct via our own network of filling stations. regular customer surveys to evaluate the level of consumer satisfaction with Product quality is another aspect that product quality. Findings of the sur- is important to consumers. To meet veys are used in the product improve- their requirements in this sphere, the ment system. Group produces sophisticated modern products meeting the latest stan- In 2014 there were no incidents dards and requirements. Continuous of non-compliance of product quality upgrades of Bashneft’s refining com- with regulations and voluntary codes plex help it to meet the most require- concerning product and service infor- ments of the demanding customers. mation and labelling.

Forms of engagement and communication

/ Hotlines for consumer complaints / The Mystery Consumer pro- / Publication of information on the about product and service quality gramme aimed at monitoring the Group’s operations on the corpo- quality of customer service at the rate website / Receiving and processing com- filling stations plaints and suggestions concern- / Ongoing implementation of the ing Bashneft’s filling stations on / Preparation of reports on the programme to improve product the Group’s website Group’s quality assurance quality through further refinery at www.bashneft-azs.ru initiatives upgrades

/ Regular customer surveys to eval- / Customer service and support, / Use of a standardized corporate uate the level of consumer satis- settlement of claims and disputes style of Bashneft at the Group’s faction with product quality full-service filling stations / Customer data protection and to increase customer loyalty and confidentiality improve brand recognition SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 55 POLICY AND SAFETY OF OPERATING REGIONS

SUPPLIERS AND BUSINESS PARTNERS

We use a responsible approach to the methods to create equal conditions for OUR RESPONSIBILITY selection of suppliers and contractors. all suppliers, contractors and business Bashneft’s business partners greatly partners. Since 2011 we have been The Group follows the practice of includ- appreciate the Group’s reputation as successfully following the Anti-Cor- ing clauses on compliance with require- a customer due to our commitment ruption Policy of JSOC Bashneft. ments for occupational, industrial, fire to established standards of ethical and road safety and environmental pro- tection into its contracts with suppliers. business conduct. ORGANIZATION OF THE PROCUREMENT We focus on ensuring the selection PROCESS of the best possible suppliers and / information transparency, use terms of supply of goods, performance Bashneft is a major customer and of modern information technologies of work and provision of services in consumer of materials, work, goods (automation, e-commerce, electron- order to satisfy the needs of pro- and services. Therefore, we seek ic document management tools); duction and functional units prop- to ensure that the procurement erly and on time. Our top priorities process is transparent and efficient / mutual responsibility in the course in the sphere of cooperation with and to prevent any potential inci- of procurement on the part of both suppliers are to promote competi- dents of corruption when selecting the employees of the organizer tion and to standardize counterparty counterparties. of the procurement process and its relationships. participants. Organization of procurement in the Suppliers are selected primarily Company, its branches, subsidiar- Process transparency is supported through public tenders and compet- ies and affiliates is standardized and by the use of advanced information itive bidding with guaranteed access based on the following principles: technologies, e-commerce tools, of a broad range of participants. We electronic document management make efforts to create equal condi- / equal rights, fair treatment, no systems, and automation of key stages tions for participation in the procure- discrimination or restrictions of procurement procedures. ment procedures and to minimize the of competition; role and impact of subjective factors on awarding procurement contracts: / the winner is selected by means objective criteria are applied for of an open tender on the basis of the admitting potential bidders and for best price/quality ratio, delivery and assessing bids. payment terms;

We adhere to the principle of zero / the winner is selected on the basis tolerance to corruption and use a wide of objective criteria for admission range of anticorruption tools and and assessment;

Forms of engagement and communication

/ Publication of information on the / Public tenders at the official / Minimization of corruption risks by Group’s operations on the corpo- procurement and sales website checking potential counterparties rate website of JSOC Bashneft (www.zakupki. in terms of a number of formal bashneft.ru) and/or the В2В-Bash- characteristics before making / Regular participation in neft electronic marketplace transactions (Due diligence) various special exhibitions and conferences / Signing of cooperation agreements 56 SUSTAINABILITY REPORT 2014

JSOC Bashneft, its branches, sub- Over 11% of all procurement is con- conduct prequalification audits of con- sidiaries and affiliates have in place ducted through bidding on an inde- tractors to check if they comply with the Central Procurement Commis- pendent electronic marketplace, www. requirements in the field of health, sion and local procurement commis- b2b-bashneft.ru, which has been safety and environment. sions to improve the efficiency of the developed based on the B2В-center procurement process. The Central platform. In addition, Bashneft ranks suppliers Procurement Commission of JSOC and contractors on the basis of HSE Bashneft supervises major purchases. In addition to the independent elec- criteria. A number of measures in the The work of procurement commis- tronic marketplace, В2В-Bashneft, the sphere of road traffic safety apply both sions of the branches, subsidiaries Group has developed and is upgrad- to Bashneft’s departments and to our and affiliates is supervised by the Ten- ing its own electronic marketplace partners. dering Department. in order to switch over to a simpler method of electronic procurement The Group has developed and adopt- (for transactions whose value is less ed regulations on the management than 250 thousand roubles net of VAT) of major purchases to improve the and sell Bashneft’s unclaimed and efficiency of procurement opera- non-liquid property. tions and maintain the transparency of costs through market research and In late 2014 the controlling stake in the analysis of price changes, contract the Company passed into the own- performance quality and inventories. ership of the Russian Federation. As The regulations improve the transpar- a result, organization of procurement ency and quality of procurement oper- in the Group was changed to meet ations, including through obligatory the requirements of Federal Law No. Savings from procurement procedures prequalification of suppliers. We seek 223-FZ on Procurement of Goods, (including VAT), billion roubles to formalize most tendering require- Works and Services by Certain Types ments in order to minimize the impact of Legal Entities dated July 18, 2011. 2012 2013 2014 of subjective factors on the selection Starting from March 2015 procure- Volume of pro- of partners. ment operations are conducted in 87.9 79.9 107.4 curement strict accordance with these regulato- The main method of procurement is the ry requirements. including elec- public tender, which involves publishing tronic procure- 12.91 10.2 11.4 ment an invitation to tender notice on JSOC We make efforts to ensure that our Bashneft’s official procurement and suppliers and contractors have Total budget savings from 7.6 10.3 7.4 sales website (www.zakupki.bashneft. a responsible attitude to occupation- procurement ru) and/or the В2В-bashneft elec- al, industrial, fire and road traffic procedures tronic marketplace. Electronic bidding safety and environmental protection. guarantees that access is provided To achieve this, the Group includes to a broad range of suppliers for certain relevant clauses in contracts and  For more details on environmental re- procurement categories and reduces demands that its partners comply with quirements for counterparties, see the the impact of subjective factors. HSE regulations. Where necessary, we section ‘Environmental Protection’

‘WE ARE SWITCHING OVER FROM ONE-TIME TRANSACTIONS BETWEEN A SELLER AND A BUYER TO A PARTNERSHIP. AND THIS INVOLVES THE READINESS OF A SUPPLIER TO CONSIDER OUR NEEDS IN DETAIL, THE WILLINGNESS TO COOPERATE WITH OUR TECHNICAL EXPERTS, WHICH IS OF CRUCIAL IMPORTANCE. OUR GOAL IS TO COOPERATE DIRECTLY WITH PRODUCERS, WITHOUT ANY KIND OF INTERMEDIARIES.’

Dmitry Ryabchenko, Vice President for Capital Construction and Logistic Support SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 57 POLICY AND SAFETY OF OPERATING REGIONS

REGULATORY BODIES

The Group’s management regularly bodies to ensure compliance with all Commission for Strategic Develop- interacts with representatives of vari- procedural requirements set out in ment of the Fuel and Energy Sector ous regulatory bodies at all levels. Our laws and assist in addressing social and Environmental Security and the cooperation with regional authorities issues within the scope of its compe- Government Commission on the Fuel is based on agreements on social and tence. The Group’s efforts in this area and Energy Sector and Improving the economic development of the regions are governed by the Policy on Govern- Economy’s Energy Efficiency. and environmental cooperation agree- ment Relations. G4-37 ments. In addition, we are beginning The Group’s representatives take part in a very important dialogue with federal Active participation of the Group’s rep- specialized meetings convened by region- government agencies as represen- resentatives in the work of joint com- al governments and in working groups tatives of the new controlling share- mittees and commissions provides of the Russian Ministry of Energy, namely: holder; the dialogue is focused on regulatory bodies with professional outlining areas of the Group’s devel- expert assessments and recommen- opment, forming its governing bodies, dations on industry legislation. determining the amount of dividend payments and dealing with other key The Group’s representatives partic- issues related to its business. ipate in working groups and expert  For more information on the devel- councils affiliated with regulatory opment of our operating regions and The Group seeks to engage in con- bodies. Bashneft’s President Alex- cooperation with regional governments, structive dialogue with regulatory ander Korsik sits on the Presidential see the section ‘Charity Work’

Forms of engagement and communication

/ Publication of information on the / Participation in meetings and ses- / Publication of reports on the Group’s operations on the corpo- sions of committees and commis- Group’s operations rate website sions of legislative bodies and local authorities / Consultation with representa- / Participation in working groups tives of the federal government on affiliated with regulatory bodies / Regional executive bodies act as issues related to the Group’s devel- intermediaries hearing complaints opment and management / Expert and advisory participa- from residents about environmen- tion in the drafting of laws and tal issues regulations 58 SUSTAINABILITY REPORT 2014

/ The working group of the Ministry / The Advisory Council of the State Duma received by the Group from the gov- of Energy on efficient associated gas Committee on Budget and Taxes; ernment totalled 24.9 million roubles; utilization; given the scope of our operations, this / The Advisory Council of the State amount is negligible. G4-EC4 / The working group on the develop- Duma Committee on Energy; ment of the Federal Target Pro- On the other hand, we do not gramme on Elimination of Accu- / The Issuers Committee of the Mos- finance political parties, institutions mulated Environmental Damage in cow Exchange, or movements to gain commercial 2014 – 2025; advantage for specific projects of the as well as other working groups and Company, its subsidiaries and affili- / The working group of the Ministry advisory councils. Several experts rep- ates; we do not make political dona- of Energy on the formulation of pro- resenting the Group act as deputies tions either. G4-SO6 posals for designing tax, tariffs, and to the Government Assembly (Kurul- customs policy guidelines for the oil tay) of the Republic of Bashkortostan. industry; Although the Group closely cooper- / The Advisory Council on anti-trust ates with government agencies, in legislation, pricing and tariff policy fact we do not receive or use financial of the State Duma Committee on assistance from the government. In Economic Policy, Innovative Devel- 2014 benefits and financial assistance opment and Business; LOCAL COMMUNITIES AND NON-PROFIT ORGANIZATIONS

In the course of its operations the social infrastructure of the Group’s correspondence and conference calls Group seeks to respect the interests operating regions. It also provides tar- with competent officers to promptly of local communities, as we are aware geted support for low-income orga- address any issues and identify prom- that this form of partnership is mutu- nizations and individuals. Bashneft’s ising areas of cooperation. ally beneficial for both parties. Bash- employees take an active part in the neft gives proper consideration to the development of volunteerism. In addi- Whenever possible, the Group takes needs of local communities, takes tion, in case of natural disasters we are part in community life and provides an active part in the economic and ready to provide assistance to regional direct assistance (including financial cultural development of its operating governments and local communities. aid) to communities. One of the fre- regions and assists in the develop- In 2014 the Group assisted the Repub- quently used formats of basic partner- ment of infrastructure, education, cul- lic of Bashkortostan in responding ship between the Group and local com- ture and sports. The Group operates to natural disasters by providing finan- munities is the lease of land in areas in a number of regions of Russia and cial aid totalling 250 million roubles. where Bashneft operates, and com- seeks to preserve the environment in pensation for losses resulting from each region for future generations. The Group maintains close and utilization of natural sites and envi- mutually beneficial cooperation with ronmental damage to them. In 2014 The Group implements large-scale representatives of local communi- the Group had no conflicts with local programmes that involve investing in ties, including regular meetings, communities or indigenous peoples.

Forms of engagement and communication

/ Meetings and consultations with / Support for social initiatives / Providing information on the local authorities Group’s operations on the corpo- / Charity work rate website / Signing of agreements on coop- eration in the sphere of the social / Preparation of presentations and economic development of the regions / Meetings and consultations SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 59 POLICY AND SAFETY OF OPERATING REGIONS

KEY AREAS OF STAKEHOLDER ENGAGEMENT

KEY ISSUES DISCUSSED AS PART OF STAKEHOLDER ENGAGEMENT G4-27

Unit Issues Strategy and Development • Strategic targets and their achievement • External and internal factors behind Strategy adjustment • Bashneft’s updated Strategy • The Group’s measures for attaining strategic goals • Bashneft’s value Investor and Shareholder • Engagement in the preparation • Start of a dialogue with the new controlling Engagement for the planned SPO shareholder • Amount of dividend payments Corporate Governance • Implementation of best corporate governance • Reorganization results practices Geology and Development / • Production level • Further development of the R. Trebs Upstream and A. Titov fields • Expansion of the resource base Oil Refining • Implementation of best practices in the sphere of • Measures to increase refining depth technology • Refinery upgrades • Improving operating performance of refineries Marketing and Logistics • Export volumes • Development of niche product sales • Domestic sales volumes • Development of retail sales Economy and Finance • Revenue • Level of tax expense • Changes in financial performance under the updat- • Comprehensive approach to cost cutting ed Strategy • Long-term financial model • Cost control • Debt level • Dividends Human Resources • Talent pool development • Medical insurance • Stable employment • KPIs • Remuneration • Social investments • Competitive salaries • Opportunities for professional and career devel- opment of employees • Social benefits Health, Safety • Reduction in the number of injuries; development of • Waste management and Environment (HSE) the occupational safety culture • Key HSE initiatives • Reduction of harmful emissions • HSE costs • Energy efficiency • Minimization of environmental impact • Efficient use of water resources • Associated gas utilization • Transparent disclosure of data on HSE perfor- mance Social and Charity Work • Infrastructure development in operating regions • Expenditure on social and charity work • Areas of social and charity work • Assistance to the regions in responding to natural disasters Capital Construction and Logis- • Investment volumes • Capital expenditure volumes (growth) tic Support Introduction of Innovations and • Key areas of innovative development in the Up- • The use of advanced information technologies in Information Technologies stream, Refining and Marketing Units key areas of the Group’s operations

The topics discussed as part of stakeholder engagement and the issues identified in the course of their discussion have been taken into account during the preparation of this Report. 60 SUSTAINABILITY REPORT 2014 HIGH PROFESSIONALISM

38 HOURS

AVERAGE NUMBER OF TRAINING HOURS PER EMPLOYEE

THOUSAND 33.3 EMPLOYEES

AVERAGE HEADCOUNT AS OF THE END OF 2014

THOUSAND 67 ROUBLES

AVERAGE SALARY LEVEL IN THE GROUP SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 61 POLICY AND SAFETY OF OPERATING REGIONS

PERSONNEL AND SOCIAL POLICY

‘IMPRESSIVE RESULTS THAT WE HAVE ACHIEVED OVER THE LAST FEW YEARS ARE DUE FIRST AND FOREMOST TO OUR TEAM. WE HAVE CONFIDENCE IN OUR TEAM AND SEEK TO REMAIN THE MOST ATTRACTIVE EMPLOYER IN OUR OPERATING REGIONS. I AM CONVINCED THAT TOGETHER, WE WILL MAKE OUR COMPANY BETTER.’

Vladislav Pozdyshev, Vice President for Human Resources

Bashneft’s employees are our most professional fulfilment and to create level of Bashneft’s responsibility valuable asset. A highly qualified a team spirit and a corporate cul- towards its employees. Our invest- close-knit team is a prerequisite ture in Bashneft. Employees view the ment in human capital is a foundation for the Group’s high achievements. Group as one of the most attractive for the Group’s sustainable develop- We seek to create safe working employers in our operating regions, ment in the future. conditions, offer opportunities for and our social policy reflects a high

PRINCIPLES AND KEY AREAS OF OUR HR POLICY

We respect the right of our employees work and on offering opportunities Principles of personnel to safe working conditions and fair and for the development of skills and management: decent wages. We provide job guaran- competencies. tees and encourage self-improvement / strict compliance with the of our employees through training and The Group’s internal documents for- norms of Russian and interna- development. malize these principles and are aimed tional law;

at preventing unethical behaviour, / respect for human rights; Our approach to personnel manage- discrimination, corruption, infringe- ment is based on creating conditions ment of rights and opportunities. The / mutual respect and proper necessary to enable our employees Group’s ethical principles and values regard for the views of the par- to make high professional achieve- are an integral part of our strategy ties on all matters. ments, on creating a comfortable and form the basis of Bashneft’s cor- atmosphere conducive to effective porate culture.

 Bashneft’s internal corporate docu- ments, including the Code of Ethics and the Anti-Corruption Policy, are available on our website at http://www.bashneft.com/sharehold- ers_and_investors/charter/ 62 SUSTAINABILITY REPORT 2014

Priority tasks in HR management by business segment

UPSTREAM DOWNSTREAM GROUP-WIDE TASKS

• Developing geological and • Developing competencies • Forming a modern corporate engineering competencies for operating new units, cost culture (training/recruitment) management (at refineries), • Introducing an optimal organi- service quality control (at filling • Creating Project Offices: inter- zational and staffing structure stations), trading (training/ national operations, uncon- in the Corporate Centre, sub- recruitment) ventional resources, new sidiaries and affiliates technologies • Developing a system of incen- • Bringing the system of grades tives in the subsidiaries and • Developing a system of incen- and salary levels up to date affiliates (including non-finan- tives in the subsidiaries and with the market cial incentives, job rotation, affiliates (including non-finan- career) • Incentivizing project-related cial incentives, job rotation, activities career) • Standardizing the structure of operating personnel • Creating a system for pro- • Introducing a continuous fessional development improvement system of employees • Developing a system for head- hunting / internal recruiting of employees • Forming an internal and exter- nal talent pool • Automation of processes and systems • Keeping down the level of staff turnover

Our strategic objectives in the area / to introduce transparent and sys- competency management and head- of personnel management include the tematic HR processes and control count management. following: over them while implementing the Group’s business strategy; We constantly improve the system / to provide the Group with qualified of employee incentives in order personnel, to plan and develop the / to create centralized personnel to maintain a high salary level, pre- Group’s personnel; management processes using vent discrimination and ensure that an integrated automatic control remuneration is linked to an employ- / to develop the best competencies in system; ee’s personal contribution to the the industry; achievement of the Group-wide / to develop the Group’s social part- goals both in the sphere of opera- / to create a strong corporate culture; nership: interaction with employee tions and in terms of sustainable councils, trade unions, retirees, development. / to improve the organizational and veterans. staffing structure; Bashneft offers an extended package Our priority tasks in personnel of social benefits and guarantees in / to implement internation- management include primar- order to help its employees main- al standards in the area of HR ily performance management, tain an optimal work-life balance and management; SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 63 POLICY AND SAFETY OF OPERATING REGIONS

to maintain the health and wellbe- / development of the management’s OUR ACHIEVEMENTS ing of employees and their families; competencies; the Group also supports its retired The 2014 employee engagement survey employees. This helps to increase the / reduction of the turnover of skilled revealed that Bashneft ranks among top level of employee engagement and employees; performers or even outperforms them. to improve performance. Moreover, the Group’s performance improved compared to 2013. / development and implementation We prioritize development and of a new policy in the area of remu- promotion of our own employees. neration and long-term incentives, To create the conditions for profes- which is result-oriented and focused Employee engagement sional development and unlock the on cross-functional cooperation; indicators: potential of employees, we contin- uously implement personnel train- / improvement of efficiency of key HR / 84% of employees believe that ing and development programmes. management processes in the Com- there is a link between their Bashneft has in place programmes pany, its subsidiaries and affiliates. work and the Group’s goals and aimed at attracting and retaining strategy; both young specialists and experi- Since 2010 we regularly conduct / 83% of employees aim to man- enced workers. employee engagement surveys. ufacture high-quality products Findings of the surveys are taken into and services; In the sphere of social policy special account when developing the Group’s attention is given to improvement functional strategies, which helps / 81% of employees said that the of our corporate culture, which is to set the goals and objectives to be management relied on their defined as a common system of moral achieved in the most efficient way. ideas and opinions in their work; and spiritual values shared by our / 81% of employees highlight- employees. Bashneft’s corporate The survey conducted in coopera- ed close cooperation between culture is based on mutual respect tion with Hay Group helps to identi- various working groups and among employees, encouragement fy strengths and weaknesses of the divisions. of teamwork and mutual support, joint organization and key areas for orga- efforts to achieve the goals and strong nizational development. We pro- performance. vide employees with an opportunity to share their opinions about Bashneft The Group actively cooperates with as an employer. The survey makes it trade unions and organizations rep- possible to benchmark our results resenting the interests of employ- against data on the most successful ees, the largest of which is Bashneft Russian and foreign companies partic- Group’s Employee Councils. ipating in the survey conducted by Hay Group. Bashneft is implementing an updated functional strategy for HR manage- In 2014 Bashneft’s survey covered ment for 2013-2015, which includes almost 6 thousand people, which the following measures: amounts to 77% of the total num- ber of the Group’s employees invited / development of the Group’s corpo- to participate in the survey. rate culture and introduction of the Group’s values; We make continuous efforts to improve the level of employee

/ improvement of the organization- engagement and find ways to provide  For more details, see ‘Our employees – al and staffing structure with due employees with additional opportuni- Social benefits and guarantees’ regard to the Group’s business ties for self-fulfilment. strategy; For more details, see ‘Our employees – Employee training and development’

/ development of a system for strate- For more details, see ‘Our employees – gic planning and personnel training; Development of the corporate culture’ 64 SUSTAINABILITY REPORT 2014

OUR EMPLOYEES

Employee age distribution PERSONNEL SIZE AND production (21%) and marketing (18%). STRUCTURE G4-10 The holding company still accounts for only about 4% of the personnel. 41.6 As of December 2014 the average 40.5 39.2 headcount of Bashneft Group exceed- PERSONNEL STRUCTURE 1% 1% 1% ed 33 thousand employees compared 100% to almost 28 thousand employees Age distribution of Bashneft’s per- 25% 24% 27% a year earlier. sonnel is relatively even. The most 75% productive employees aged between 28% 26% 30% In 2014 the key driver of the growth 30 and 50 comprise 54% of the total 50% of headcount consisted in an increase number of employees. The share 28% in the number of employees in the of young employees is gradually 24% 26% 25% refining and petrochemical segment. growing: in 2014 it reached 21%. The

18% 20% 21% In 2014 petrochemical enterprises, number of employees aged over 60 is 0% including OJSC Ufaorgsintez and two about 1%, or about 200 people. 2012 2013 2014 gas processing plants, were included in the scope of consolidation again. As of the end of 2014 the average age Over 60 Another factor behind the increase of the Group’s employees amounted 50–59 in headcount consisted in a growing to 39.2 years compared to 40.5 years 40–49 number of assets in the Upstream unit in 2013. 30–39 (acquisition of LLC Burneftegaz) and Under 30 the Downstream unit (new marketing In 2014 women accounted for 36% Average employee age assets included in LLC Bashneft-Re- of the Group’s total headcount and as of December 31, years tail Sales). 36% of JSOC Bashneft’s headcount (including 21% of JSOC Bashneft’s Changes in the headcount in 2012 and management1). 2013 were related to the restructuring Staff turnover, % of the Group: in 2012 oilfield service STAFF TURNOVER companies were included in the scope 12.0% of the Group’s business; they were Our efforts to create a favourable 10.8% later spun off in 2013. In addition, in working environment and to increase 2013 the Group divested petrochemi- the level of employee engagement are cal assets. reflected in a low average level of staff turnover. In 2014 this figure stood at 6.0% 4.5% 4.3% In functional terms, in 2014 the largest 4.3%, which is roughly comparable number of employees was engaged to the level reached in the previous in oil refining (29%), oil and gas year. A high turnover rate in 2012 was

0% 2012 2013 2014 Average headcount by business type, employees

2012 2013 2014 Holding company 1,134 1,118 1,173 Well drilling 1,946 – – Oil and gas production 6,305 6,448 6,976 Oil refining and petrochemicals 9,119 5,453 9,689 Marketing and logistics 6,042 6,023 6,124 Research 920 920 920 Other 31,863 7,936 8,438 Total 57,329 27,898 33,320 1. Senior and middle managers SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 65 POLICY AND SAFETY OF OPERATING REGIONS

related to the fact that at the time the Despite the success of Bashneft’s HR OUR ACHIEVEMENTS Group’s scope of consolidation includ- policy in this area, in a number of seg- ed oilfield service subsidiaries and ments the turnover rate remains rath- Our efforts to create a favourable work- affiliates. G4-LA1 er high: in the Retail segment staff ing environment and to increase the turnover amounted to 7.3 %, while level of employee engagement help the In the Refining segment, staff turnover other assets reported a level of 7.6%. Group to keep down the level of staff turnover: in 2014 it stood at 4.3%. reached 1.4%, while in the Upstream We continue to make efforts to reduce segment the figure totalled 2.1%. staff turnover.

‘WE SEEK TO ENSURE THAT BASHNEFT FOLLOWS AN HR POLICY AIMED AT RETAINING AND FURTHER DEVELOPING OUR EMPLOYEES. PROFESSIONALISM, EXPANDED CAPABILITIES, TEAM SPIRIT AND INVOLVEMENT IN DELIVERY OF IMPRESSIVE RESULTS: THESE ARE DISTINGUISHING CHARACTERISTICS OF OUR EMPLOYEES. WE APPRECIATE AND RESPECT OUR PERSONNEL, AND OUR EMPLOYEES VIEW BASHNEFT AS ONE OF THE BEST EMPLOYERS IN THE REGION.’

Vladislav Pozdyshev, Vice President for Human Resources 66 SUSTAINABILITY REPORT 2014

INCENTIVES AND REMUNERATION

Average salary, We are aware of the importance / fixed part (salary, additional pay- thousand roubles of employee incentives for the ments for health risks and a region- achievement of the Group’s goals and al coefficient); 66.9 objectives and strong performance; 70 therefore, we pay special atten- / variable part (bonuses). 55.9 tion to the system of remuneration for employees. We are committed The ratio between the fixed part of an 39.6 to paying fair and decent wages to our employee’s remuneration and the 35 employees. We adhere to the prin- bonus depends on the employee’s 24.7 20.3 22.4 ciple of transparency of calculation position and can range from 85/15 for of salaries and safeguard the rights entry-level employees to 50/50 for of employees by concluding individual executives.

0 employment agreements and collec- 2012 2013 2014 tive agreements with them.

Average salary level across Bashneft Group FIXED PART OF REMUNERATION Temporary and part-time employees Average salary level in the Republic of Bashkortostan are offered the same package of social Bashneft is one of the most attractive benefits and guarantees as full-time employers in the Republic of Bashkor- Source: Federal State Statistics Service (Rosstat), employees, regardless of the operat- tostan, first and foremost due to a high official web portal of the Republic of Bashkortostan, the Group’s data ing region. G4-LA2 level of remuneration offered by the Group. REMUNERATION SYSTEM When setting salary ranges, the OUR ACHIEVEMENTS Group focuses primarily on trends in We seek to attract and retain the the labour market in the oil and gas In 2014 the average salary in the Group most experienced and highly qualified sector. In addition, we also take into reached nearly 67 thousand roubles, employees in the labour market. One account other indicators such as the which is 2.7 times higher than the aver- age level in our core operating region, of the key tools of this policy consists inflation rate and the growth rate the Republic of Bashkortostan. in competitive salaries. of minimum wages.

The average salary in the Group’s core We constantly monitor salary levels in operating region, the Republic of Bas- the oil and gas sector in order to track hkortostan, amounts to 66.9 thousand the actual trends in remuneration roubles compared to the regional levels in real time. In addition, we average of 24.7 thousand roubles. monitor the latest trends in personnel management policies. In the course As salaries in the Group are growing of our work we are guided by reports at a faster rate than in the region as prepared by international consultan- a whole, the salary level in Bashneft is cies such as Ernst and Young and Hay now 2.7 times higher than the regional Group, which have the most represen- average, excluding industry-specific tative data and an impeccable reputa- features. G4-EC5 tion. Thus, based on the data obtained in 2014, salary levels in Bashneft We pay two-part remuneration to our Group were revised. employees as we think that this approach makes it possible to pro- Remuneration of Bashneft’s employ- tect employees and at the same time ees is based on a modern system incentivize them in the most efficient of grades, which reflects differenc- way. Employee remuneration consists es between employees’ positions of two components: depending on their contribution to the business, the level of responsibility SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 67 POLICY AND SAFETY OF OPERATING REGIONS

and other factors, and makes it pos- and forming the Group’s talent pool. Categories of employees that sible to properly assess each employ- The results of performance evaluation have undergone a performance ee’s contribution to achievement are also used for preparing proposals evaluation of the Group’s objectives. The system for revision of salaries and for making of grades is applied to executives, other organizational decisions. 23% professionals and employees of the Group, i.e. to managers, engineers 2% and technicians. VARIABLE PART OF REMUNERATION 75% Bashneft uses a uniform wage scale for workers based on qualifications. The bonus-related part of remunera- This makes it possible to provide equal tion is calculated on the basis of KPI Junior management remuneration for workers of the same delivery/achievement for the month/ qualification, as well as to provide quarter/year and serves as one of the Middle management opportunities for increasing workers’ components of employee performance Other categories wages by benchmarking them against evaluation. the market level of remuneration. In order to provide additional incen- Starting from 2010 the Group con- tives, the best employees are paid The variable part of employee remu- ducts annual employee performance an additional bonus that does not neration meets the requirements of the evaluation. In 2014 the evaluation exceed the employee’s double salary. SMART system. All indicators must be covered about 10 thousand employees In addition, a bonus is paid for actions Specific, Measurable, Achievable, Rele- vant and Timely. from Bashneft’s branches and subsid- that make a substantial positive iaries. This approach yields compa- impact within or beyond the Group, rable results that are based on the such as accident prevention, emer- same scale of measurement for the gency response activities at produc- entire Group, which makes it possible tion facilities and participation in new to implement systematic personnel projects that are vitally important for development projects. G4-LA11 the Group.

The evaluation is based on the ‘Com- petency Model’ standard containing five company-wide and five manage- ment competencies. At the main stage of the process, the competencies are assessed and individual devel- opment plans are devised. Findings of performance evaluation form the basis for making the most important decisions on personnel development

STARTING FROM 2010 THE GROUP CONDUCTS ANNUAL EMPLOYEE PERFORMANCE EVALUATION. IN 2014 THE EVALUATION COVERED ABOUT 10 THOUSAND EMPLOYEES FROM BASHNEFT’S  For details on the KPI system, see BRANCHES AND SUBSIDIARIES. the Annual Report of JSOC Bashneft for 2014 68 SUSTAINABILITY REPORT 2014

THE GROUP’S SOCIAL POLICY

Expenditures on social policy, We are aware of the high importance of remuneration (a difference between million roubles of a responsible social policy. Our the daily wage of an employee and the efforts in this sphere are aimed at amount of sick pay). The practice has providing employees with social ben- been adopted in emulation of the best 1000 665.4 823.6 875 efits and guarantees, enhancing the social policies of major companies and 800 potential of our employees through is consistent with best practice in the 212.9 252.9 training and development and forming sphere of HR. Employees may receive 600 and developing the corporate culture. additional payment for five days per 211.9 196.0 We view these measures forming part calendar year. 236.0 400 140.0 of our social policy not only as a form 220.8 of non-financial remuneration for our 175.1 187.7 200 employees but also as an efficient tool VOLUNTARY HEALTH INSURANCE 245.3 138.3 147.1 for forming a close-knit team, a single 0 community comprising the Group’s We arrange voluntary health insur- 2014 2012* 2013 employees. ance in order to maintain and improve Social and corporate programmes the health of our employees.

Expenditures on personnel training/develop- SOCIAL BENEFITS ment AND GUARANTEES Voluntary health insurance contracts

Health resort treatment and recreation for em- have been signed with major Russian ployees, their children and retired employees Bashneft offers its employees an insurers: Insurance Open Joint-Stock

Voluntary health insurance extended package of social benefits Company VSK, LLC Rosgosstrakh, and guarantees in addition to those OJSC IC Allianz and OJSC Ingosstrakh * As the scope of consolidation and the methodology stipulated by legislation. Insurance Company. In addition, some for calculating individual indicators used in 2012 companies forming part of Bash- differed from those used in this Report, the amount of expenditure on social policy disclosed at the time Additional obligations of the employer neft Group have concluded accident was different: 983 million roubles. are stipulated in the Collective Agree- insurance contracts for their employ- ment and include, among other things, ees with SOGAZ Insurance Group, one voluntary medical insurance and of Russia’s largest universal insurers. insurance against accidents at work. Social expenditure per employee, In addition, we provide employees thousand roubles with an opportunity of health resort HEALTH RESORT TREATMENT treatment and recreation. The Group 29.5 regularly implements measures for Under the Collective Agreement, 30 26.3 preventing and treating occupational Bashneft covers part of the costs diseases and protecting the employ- of holidays at children’s summer ees’ health. camps, health resorts and recre- 20 ation centres incurred by the Group’s We respect family commitments of our employees. 11.6 employees. To help employees main- 10 tain a work-life balance, the Group The cost of health resort treatment grants them additional paid leave in for employees listed in the final report

0 case of registration of marriage and following a medical examination is 2012 2013 2014 birth of a child. In addition, we give covered by the Group in full. additional leave to women with many children and additional pre-maternity Resort and recreation facilities avail- OUR RESPONSIBILITY leave to pregnant women. able to employees and their family members include two children’s sum- The Group covers from 50% to 85% The Group has made a decision mer camps and four health resorts of the actual cost of employees’ health to introduce additional payments owned by the Group. In addition, resort treatment and recreation and to employees who are on sick leave health resort treatment and recreation 90% of the actual cost of holidays starting from 2015. Such additional is provided to employees working in at summer recreation camps for employees’ children. payments will help to compensate remote areas in third-party health for a potential reduction in the level resorts. As far as resort treatment and SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 69 POLICY AND SAFETY OF OPERATING REGIONS

‘WE CAN OFFER AMPLE OPPORTUNITIES FOR GROWTH: HORIZONTAL AND VERTICAL MOBILITY, RELOCATION TO A DIFFERENT REGION OR TRAINING IN RELATED PROFESSIONS.’

Vladislav Pozdyshev, Vice President for Human Resources

recreation for children is concerned, diseases and introduced the posi- EMPLOYEE TRAINING a list of additional camps is approved tions of primary care physicians on AND DEVELOPMENT annually to ensure that employees’ the shop floor. We also made con- needs are satisfied in full. siderable efforts to promote healthy Priorities of the Group’s social lifestyle; for instance, we conduct- policy include offering employees Bashneft provides various types ed five Health Days: the Donor’s ample opportunities for training and of financial support to its retired Day, the No Smoking Day, the Acute development. employees. For instance, the Group Respiratory Disease and Influenza provides retirees with subsidies Prevention Day, the Good Eyesight We are aware of the need to develop for resort treatment. If necessary, Day and the Stress Prevention Day. a knowledge management system the Group covers part of the cost Over 5,300 employees were vaccinat- that will enable us to retain, spread of medical treatment for its retired ed against influenza, pneumonia and and develop the knowledge and skills employees. tick-borne encephalitis. In addition, of our employees, which is an essen- we designed brochures on healthy tial prerequisite for efficient develop- eating, prevention of tick-borne ment of the Group and for unlocking HEALTH CARE encephalitis, prevention of work-re- its competitive advantages. lated stress, and on harmful effects We pay great attention to preventive of nicotine. Furthermore, training and develop- and treatment measures, as well as ment help to attract and retain spe- to health care activities. Efforts in this In 2015 Bashneft plans to take preven- cialists, who often view opportunities area include measures to minimize tive measures and measures aimed at for professional development as an hazards in the workplace, measures promoting healthy lifestyle among all extremely important factor. to prevent occupational diseases, employees, which involve: medical examinations and, if neces- We provide two types of training: sary, hospital treatment. / organizing and holding Health Days focused on prevention of tuberculo- / training aimed at developing the To prevent accidents caused by cardio- sis, giving up smoking, etc. employees’ potential, skills and vascular diseases and to prevent such competencies; diseases, the Group implemented / identifying risks of diseases when a corporate programme for preventing holding sporting and public events; / training and certification of employ- cardiovascular diseases and approved ees in occupational, industrial and a Standard titled ‘Prevention of Car- / maximum engagement and partici- fire safety carried out in accordance diovascular Diseases’. pation of employees in the corporate with legislative requirements. programme for preventing cardio- To provide emergency and scheduled vascular diseases; In 2014 we allocated a total of 196 medical care at the Company’s pro- million roubles for all types of employ- duction facilities in case of an accident / working with people facing the risk ee training and development pro- or an acute disease, the Group has of cardiovascular diseases; grammes (including occupational approved the Standard in Organization safety training programmes). of Emergency and Scheduled Medical / organizing the work of new primary Care for Employees. care physicians on the shop floor; In 2014 the total number of cours- es provided to employees across In 2014, under voluntary health / measures aimed at developing Bashneft Group exceeded 70 thou- insurance contracts, some com- immunity against influenza, pneu- sand person-courses compared panies forming part of Bashneft monia and tick-borne encephalitis. to 102 thousand person-courses in Group implemented a programme 2013, including 51.9 thousand per- aimed at preventing cardiovascular son-courses in occupational and 70 SUSTAINABILITY REPORT 2014

 For information on training and certi- industrial safety compared to 32.8 to employees, the Group carried out fication of employees in occupational, thousand person-courses a year ear- training activities aimed at developing industrial and fire safety, see ‘Health, lier. The reduction in the total num- professional and management skills. Safety and Environment – Occupational safety – Training in occupational and ber of person-courses was related Special attention was given to cor- industrial safety’ to development of distance learning porate training programmes as this and self-tuition, including wider use is one of the most effective training of the self-tuition portal. G4-LA9 forms.

Senior managers and specialists OUR ACHIEVEMENTS TRAINING AIMED AT DEVELOPING of the Group participated in the EMPLOYEES’ POTENTIAL Effective Communication and Situa- In 2014 the average number of training tional Management and Delegation hours per employee in Bashneft Group To develop professional competence, corporate training programmes. reached 38 hours compared to an aver- age of 30 hours per employee in 2013. we provide our personnel with addi- These were aimed at developing the tional training as part of the Group’s relevant competencies. As part of the Functional Strategy on HR Manage- Basics of Oil and Gas Industry train- ment. G4-LA10 ing programme, employees of the Financing of training and Corporate Centre visited oil and gas development programmes across Areas in which additional training is production, refining and transporta- the Group*, million roubles provided: tion facilities.

236 / professional training in an open Over 200 employees of the Corporate 250 format (professional develop- Centre learned the English language 196 200 ment courses, workshops, train- as part of the relevant programme. ings, conferences, exhibitions for Managers are trained as part of mod- 140 150 groups of participants from various ular programmes for managers (the organizations in accordance with School of General Directors). 100 the schedule and the programme

50 announced in advance); At the end of 2014 the HR Develop- ment Department launched a Training

0 / corporate professional training and Development Portal enabling the 2012* 2013 2014 (strategic sessions, roundtable dis- employees to do the following: cussions, comprehensive training * Aggregate data are provided on JSOC Bashneft / within the scope of consolidation, including occu- programmes only for the Group’s undergo distance learning and test- pational safety training programmes. employees; the programmes are ing using training courses in elec- tailored to the Group’s needs and tronic form; objectives to the largest possible degree); / receive information on the Group’s HR policy (news, articles and / training aimed at developing general documents); competencies and management skills; / obtain up-to-date information on all forms of corporate training; / business games and simulations; / actively communicate with col- / language courses. leagues using professional forums and blogs; A set of training forms is aimed at creating optimal conditions for the / participate in surveys and complete development of employees’ potential questionnaires; and includes short-term (up to 72 academic hours), medium-term (from / work with the Group’s electronic 72 to 500 hours) and long-term train- library and knowledge base. ing and e-learning All employees of the Corporate Cen- In 2014, in order to provide pro- tre, branches, subsidiaries and affili- fessional training and retraining ates have access to the Portal. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 71 POLICY AND SAFETY OF OPERATING REGIONS

VIC BUSINESS GAME

Since 2011 JSOC Bashneft’s young profes- Prior to the game the employees of the sionals have been successfully participat- Corporate Centre participated in the work- ing in the VIC business game. The game is shop ‘Finance for Young Professionals’ a computer model of the economic environ- (’Finance for Non-Financial Managers’), ment in which vertically integrated oil and which was aimed at discussing the econom- gas companies operate. ic basis of a large company’s operations.

In 2014 five games took place. 27 teams The Noir Desire team, which won one of the representing the Corporate Centre, branch- try-outs, achieved a score of 6.89, which is es, subsidiaries and affiliates participated the best result among all Russian oil com- in four try-outs. Participants of the final panies that participated in the VIC business game included 13 Bashneft’s teams, as well game in 2014. as two teams of students from the petro- leum and aviation universities. Overall, in 2014 over 200 people participated in the VIC business game.

‘SECURITY CAPSULE’ SCHOOL OF GENERAL DIRECTORS

In April 2013 the Group implemented • To improve the key management and Leading experts and practitioners had been a development programme for Bashneft’s industry-specific competencies of Bash- engaged to develop the programme on the key executives called the ‘Security Capsule’ neft’s key managers; basis of international best practices. School of General Directors. A year later, in April 2014, participants presented their • To develop and implement uniform stan- Students of the school immersed them- projects, and the programme was closed. dards in the area of business processes, selves in exploring the special characteris- management and production procedures; tics of all of the Group’s business process- Objectives of the programme: es and were given an opportunity to gain • To form a strong corporate culture in a better knowledge of their colleagues and • To develop advanced technologies Bashneft Group. their powers and duties, which promoted of company management; the development of the team spirit. The programme provided participants • To introduce the philosophy of safe and with practical knowledge which may be lean manufacturing; used directly in the production process.

THE KNOWLEDGE LABORATORY PROJECT

In 2014 Bashneft continued its project In 2014 the HR Development Department We believe that the Group should always launched in 2013, the Knowledge Labo- received 263 applications for the transfer keep up with state-of-the-art technologies ratory. Any employee participating in the of knowledge from the Group’s employees, and best practices. Such roundtable discus- project may apply for and receive informa- and 10 roundtable discussions attended sions enable employees not only to share tion materials from trainings or participate by 152 participants were held. All employ- the knowledge gained in the course in a roundtable discussion, which will be ees who filed applications for the transfer of training but also to tackle the issues held by an employee who has completed of knowledge received training materials in faced by departments together. a course that is interesting and useful for electronic form. the Group. 72 SUSTAINABILITY REPORT 2014

OUR RESPONSIBILITY RECRUITMENT OF YOUNG in the form of an open dialogue, as PROFESSIONALS well as students’ visits to the refiner- In 2014 the Group started to implement ies and enterprises of Bashneft-Doby- the Programme to Attract Young Pro- We understand how important suc- cha. USPTU students take part in fessionals. This programme is aimed at cession is for HR policy. Apart from a research and engineering confer- making Bashneft’s more attractive as an experienced specialists we aim ence for the Group’s young profession- employer for university graduates and young professionals. to attract promising young people and als. The VIC business game is con- help them start out on their career ducted every year for Bashneft’s young in a large oil corporation. We sup- specialists and the team of students port training of the best students in of USPTU and USATU (Ufa State Avia- Expenditures on corporate social relevant fields and attract promising tion Technical University). programmes, million roubles graduates to the Group. In 2014 Bashneft employed 35% Starting from 2010 the best students of students who did an internship of the Ufa State Petroleum Techno- in the Group in the reporting year, 212.0 252.9 212.9 logical University (USPTU) are given 11% of placement students and 70% 300 scholarship. In the 2013/2014 aca- of scholarship students participating demic year the size of the scholarship in the Programme. 250 was increased by 60% and totalled 4 thousand to 5 thousand roubles per DEVELOPMENT OF THE 200 112.0 89.5 59.7 month depending on the year. In the CORPORATE CULTURE 150 reporting year 2.3 million roubles was 33.9 53.4 24.2 spent on this programme. We attach great importance to form- 100 1.0 2.4 2.3 ing the corporate culture aimed at 50 University students are given the improving employees’ performance, 97.3 104.6 97.5 opportunity to do an internship, during developing a sense of responsibility 0 2012 2013 2014 which they will receive a salary. Bash- and team spirit. Expenditures on the collective agreement, fi- neft organizes internship for best per- nancial support, corporate events in the Group’s forming final year university students. We aim to form a system of moral and branches, subsidiaries and affiliates Internships allow the students to gain spiritual values shared by employees, Sports and recreational activities work experience in a large oil company create a friendly and welcoming atmo-

Scholarship Programme of the Ufa State Petro- and subsequently obtain employment. sphere, a favourable emotional climate leum Technological University which is conducive to efficient work

Other expenditures After scholarship students and and achievement of the Group’s goals. interns receive their certificates, they are given priority when the Group is While forming the corporate culture, recruiting new employees. The Group we take into account the existing fea- covers the costs incurred by young tures of the Group: professionals when leasing accommo- dation in the districts of the Republic / geographical footprint: a differ- of Bashkortostan. ence in mentalities, traditions and cultures of employees, the fact that We organize meetings for students the Group’s divisions are located in with the Group’s senior management geographically remote areas;

‘IMPLEMENTATION OF THE PROGRAMME WILL PROVIDE US WITH AN EFFECTIVE TOOL FOR ATTRACTING AND SELECTING TALENTED YOUNG PEOPLE AND WILL MAKE IT POSSIBLE FOR YOUNG SPECIALISTS TO TAKE ADVANTAGE OF THEIR CAREER OPPORTUNITIES. WE EXPECT THAT AS A RESULT, INVOLVED AND PREPARED YOUNG SPECIALISTS WHO CAN USE THEIR ABILITIES EFFECTIVELY AT BASHNEFT WILL JOIN THE GROUP.’

Vladislav Pozdyshev, Vice President for Human Resources SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 73 POLICY AND SAFETY OF OPERATING REGIONS

Key corporate values of JSOC Bashneft

Quality Efficiency Safety Professionalism Team spirit

/ remoteness of the Corporate Centre Social programmes are managed by has a wide range of functions, includ- from the main operating regions; the HR Unit, including the Corporate ing work with documents, use of ref- Communications Department forming erence books, conducting opinion / industry-specific characteristics part of the Unit, and the Administra- surveys and providing employees of oil production and refining. tive Department. with training, posting news, informa- tion on competitions and volunteer To enable new employees to adapt In 2014 the budget of corporate social campaigns. quickly in the Group, Bashneft has in programmes amounted to 212.9 mil- place the institute of leadership and lion roubles. In 2014 information flows were mentoring. We use the principles distributed: we began to send out of information transparency and a con- more email newsletters enabling us sistent strategy and develop a system CORPORATE WEBSITE to communicate urgent information of internal communications. In addi- to employees immediately. At the tion, we strive to ensure that the corpo- Bashneft has a single corporate same time, the quality of informa- rate culture is consistent with the prin- website for all employees. The tion in the news feed was improved: ciples of the Group’s core operations. intranet resource is an important requirements for the style of infor- means of communication and helps mation presentation, the way of its Bashneft’s culture is based on mutu- to unite employees and organize their communication and its significance for al respect of employees regardless collaboration. employees became stricter. of their positions, gender, religion, and other individual characteristics and The corporate intranet portal, which attitudes. was considerably upgraded in 2013,

BASHNEFT’S DAY AT USPTU

Bashneft’s Day has been conducted at USPTU for the fifth consecutive year and is very popular among students.

In 2014 the event included an offi- cial award ceremony for scholarship students. After this Bashneft’s senior managers made a presentation on the Group and told the students about opportunities for professional develop- ment and social support provided to its employees.

The event promotes long-term coop- eration with USPTU, and potential employees receive up-to-date informa- tion on the Group and are encouraged to seek employment. 74 SUSTAINABILITY REPORT 2014

OUR ACHIEVEMENTS CORPORATE NEWSPAPER competition is aimed at identifying and rewarding Bashneft’s best divisions In 2014 four meetings between employ- The Group started to issue a corpo- and best employees for outstanding ees and management were held in rate newspaper, Bashkirskaya Neft, accomplishments and contributions various operating regions of the Group; in 2010. Our own corporate newspaper to the Group’s development. they were attended by over 400 employ- enables us to support a single infor- ees of Bashneft. Detailed answers were mation space and communicate news This is the Group’s highest award given to each question asked by employ- ees, and relevant instructions were giv- offline. designed to form a single set of val- en concerning the issues raised during ues, improve the corporate culture, the meeting. Topics covered by the newspaper are encourage employees to develop, selected based on the need of our promote solidarity, the corporate employees for information and include spirit and a sense that each member Coverage of the Group’s activities issues related to sustainable devel- of the team contributes to the Group’s opment, occupational safety and success. Number of publications health. The newspaper also covers on the corporate portal employees’ professional and other As part of the competition the Award achievements, including reports on is given to winners in seven catego- 149 282 174 sporting and business competitions. ries, including the Best Oil Production 300 Considerable attention is paid to the Division, the Best Oil Refining and description of the Group’s strategy Petrochemical Division and the Best 250 and employees’ contribution to the Filling Station.

200 achievement of corporate goals. 179 The Best Project of the Year award is 150 The newspaper is published twice given for the most promising develop- 88 114 100 a month and distributed in all of the ments in quality assurance, and the 55 56 Group’s branches and subsidiaries. President’s Award is given for out- 50 standing actions of individual employ- 28 7 48 30 ees of the Group. 0 2012 2013 2014 MEETINGS OF THE GROUP’S MANAGEMENT WITH EMPLOYEES The best young professionals are HSE awarded in the Discovery of the Year Sport Bashneft holds regular meetings category. Veterans are given the Leg- Other between its top management and end of Bashneft award for their long- employees. Meetings and discus- term contribution. sions make it possible to establish Number of email a dialogue within the Group, develop newsletters openness and involvement of employ- SPORTING EVENTS ees in settling the key issues related 84 196 245 300 to Bashneft’s operations. An important goal of our social policy is to support sports and pro- 250 Meetings in a Q&A format increase the mote a healthy lifestyle. We conduct effectiveness of such events and pro- a large number of sporting events and 200 vide executives with a very important corporate tournaments in a variety 150 way to receive feedback. Besides, it is of sports: football, volleyball, hockey, 148 189 an opportunity to receive up-to-date table tennis, paintball, billiards, etc. 100 and non-formalized information on

50 71 certain aspects of the Group’s oper- Sporting events not only help make 27 25 ations directly from employees at the employees fitter, but also develop 13 21 31 0 local level. features which are consistent with 2012 2013 2014 Bashneft’s corporate culture: team- HSE work skills, solidarity and mutual Sport JSOC BASHNEFT’S support. CORPORATE AWARD Other Various sports teams of Bashneft Since 2010 an annual competition, regularly participate in and win Ufa- Bashneft’s Corporate Award, is held based and republic-wide competitions. to mark the Oil Workers’ Day. The 2014 saw yet another series of the SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 75 POLICY AND SAFETY OF OPERATING REGIONS

Group’s sporting victories. Bashneft’s In 2014 the Group allocated 53.4 In the summer of 2014 a futsal tourna- team won the Summer and Winter million roubles for organizing and ment of the Russian Ministry of Energy Corporate Games in Ufa, the 2014 Ski conducting sporting events compared took place in Moscow. Apart from Bash- Track of Russia ski race, as well as the to 33.9 million roubles a year earlier. neft, other participants of the compe- tition included 15 teams of employees futsal championship of the Ministry from Russian energy companies. Bash- of Energy. neft’s team won the tournament, having VOLUNTEERING defeated 15 rival teams. A champions’ In 2014 the Group held annual com- cup became yet another of Bashneft’s petitions for volleyball, futsal, table We actively support the volunteer honorary awards. Although our team participated in this tournament for the tennis and hockey cups. movement and encourage employees’ first time, its performance was bril- charitable initiatives. liant, as in the final round it defeated The support and development of chil- Gazprom Neft’s team, a regular winner. dren’s sports is an important part The volunteer movement is not of our social policy. The annual futsal confined to one-time campaigns; tournament among children’s and it is a continuous effort. Bashneft’s youth sports schools in Bashkortostan employees organize a wide variety has already become a tradition; it took of events on their own initiative. place again in the reporting year.

‘SPORTING EVENTS ARE EXTREMELY IMPORTANT FOR EVERYONE, AS PARTICIPATION IN THEM MAKES PEOPLE HEALTHIER, ENABLES THEM TO ENJOY THEMSELVES, PROVIDES THEM WITH VIVID IMPRESSIONS, AND ENCOURAGES MORE PEOPLE TO DO SPORTS!’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

million rubles 53.4ALLOCATED FOR ORGANIZING AND HOLDING SPORTING EVENTS AND RECREATIONAL ACTIVITIES IN 2014 76 SUSTAINABILITY REPORT 2014

OUR ACHIEVEMENTS events (clean-ups), as well as in fes- traditional holidays that are popu- tivals and official congratulations. For lar among employees. Such events Our volunteer movement, Kind Hearts, instance, they assisted in conducting involve not only Bashneft’s current was launched in the Group in July 2012. an event to congratulate former Bash- employees, but also their families and It comprises over 600 participants. neft’s employees who are veterans the Group’s veterans. This contributes It has united all concerned and active of the Great Patriotic War. to the image of a socially responsible employees in an effort to help those Group in the view of both employees who need it. These events make it possible not and society. only to achieve practical and socially important results, but also to create Employees are happy to participate in an atmosphere of unity, team spirit photo contests and amateur perfor- One of the key areas is help to orphans and commitment to joint achievement mances. In addition, they can display from children’s institutions support- of goals. Year by year the movement is their professional skills in the ‘Best ed by the Group. Volunteers collect developing, and its geographical foot- in Profession’ competition. The Group necessary things and presents for print is expanding. also organizes creativity contests for children, organize dancing, singing children. and cooking lessons, contests and children’s sporting events. Children OTHER CORPORATE EVENTS We actively develop a tradition of the attend corporate sporting events corporate KVN (Club of the Cheerful and voluntary clean-ups in an orga- We think it necessary to pay proper and Sharp-Witted) games. They are nized way. The programme covering attention to organizing celebrations, not only an impressive show, but also 20 orphanages in various districts talent contests and team-building a great way to unite employees and of Bashkortostan is aimed at provid- trainings which involve employees and discover new talents. ing assistance to children who are in their families. These events form an a difficult situation and children with integral part of the Group’s corporate health problems, as well as helping culture. them socialize and preparing them for adulthood. The Oil Workers’ Day, the Defender of the Fatherland Day, the Victory Day, In the reporting year volunteers International Women’s Day, Children’s actively participated in environmental Day and the New Year are major SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 77 POLICY AND SAFETY OF OPERATING REGIONS

‘KIND HEARTS – A GIFT KVN YOUTH FORUM FROM FATHER CHRISTMAS’

In 2014 the Group conducted anoth- Since 2011 the Group has traditionally In the summer of 2014 the second er volunteers’ charitable event: ‘Kind conducted the KVN: Merry Oil Workers’ Youth Forum of JSOC Bashneft was Hearts – A Gift from Father Christmas’. Club corporate game. held in the Nurimanovsky District The event comprised 20 programmes of the Republic of Bashkortostan. It was to congratulate children from social Based on KVN games conducted in attended by about 200 young special- welfare institutions, rehabilitation the previous years, it can be said with ists and activists from various divisions centres and orphanages. Gifts were confidence that the Group’s employ- of the Group. collected by employees, and volun- ees are not only highly professional teers formed groups to congratulate in their field, but also really talented, Key aims of the event included involve- children. cheerful and sharp-witted people who ment of young specialists in the Group’s are always ready to show team spirit corporate culture, exchange of exper- An important achievement of the and a great sense of humour. The KVN tise in development of corporate campaign consisted in the fact that game unlocks their creative potential communications, promotion of CSR and new employees of subsidiaries and and creates a ‘situation of success’. HSE projects and development of the affiliates participated in the volunteer Over the past four years the game has volunteer movement. movement. become a good tradition uniting active employees of the Group. The youth forum has become a really open platform for communication In 2014 there were five qualification between employees of various divisions games in which 25 teams took part. enabling them to discuss various chal- lenges and their experience in tackling them. 78 SUSTAINABILITY REPORT 2014 HIGH LEVEL OF ENVIRONMENTAL RESPONSIBILITY

BILLION +20% 405 KILOMETRES 9.3 ROUBLES

INCREASE IN THE RENOVATION AND MAJOR EXPENDITURE ON VOLUME OF OIL SLUDGE REPAIRS OF FLOWLINES ENVIRONMENTAL PROCESSING PROTECTION SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 79 POLICY AND SAFETY OF OPERATING REGIONS

ENVIRONMENTAL PROTECTION

‘WE HAVE TAKEN A RESPONSIBLE ATTITUDE TO THE NATURAL ENVIRONMENT. WE USE THE LATEST TECHNOLOGIES, TAKE NECESSARY MEASURES AND INVEST SUBSTANTIALLY IN ENVIRONMENTAL PROTECTION. OUR AIM IS TO BE THE LEADER IN REDUCING NEGATIVE ENVIRONMENTAL IMPACT COMPARED TO OTHER RUSSIAN OIL COMPANIES.’

Charles Watson, independent director, Chairman of the Health, Safety, Environment and Social Responsibility Committee of the Board of Directors

Being engaged in oil production and At the oil production stage, our goal is Expenditure on environmental refining, we assume the highest level to eliminate the risk of oil spills and protection by area, million roubles of responsibility for environmental minimize damage to the life of local protection. communities and environment in the 12,000 process of oil extraction. At the refin- 2,405 10,212 9,342 We understand the need for a rational ing stage, we seek to maximize the 10,000

and careful approach to the extraction output of high value added products, 8,000 of natural resources and are com- reduce energy consumption and curb 7,213 5,423 mitted to maximizing their economic the negative environmental impact. 6,000

potential. We evaluate and control the At the marketing stage, our target is 4,000 environmental impact of our oper- to sell high-quality, high-grade envi- 946 632 602 ations at all stages of our business, ronmentally friendly engine fuel with 2,000 1,325 2 396 2,972 from an oil well to a petrol tank. optimized performance. 0 448

2012 2013 2014

Protection of the atmosphere Our environmental protection efforts are based on the following principles: Protection of water bodies Land conservation and protection of subsoil resources / recognizing constitutional / compliance with government reg- human rights for a favourable ulations and international environ- environment; mental standards;

/ minimizing the negative environ- / continuous improvement of the mental impact and maintaining environmental management environmental controls in all seg- system; ments of business, from explora- / transparency and availability tion to sales; of information. 80 SUSTAINABILITY REPORT 2014

Bashneft has implemented an effi- We have adopted the Policy of JSOC The Group has implemented a Stan- cient mechanism for processing Bashneft on Health, Safety and Envi- dard on Cooperation with Contractors environmental complaints. The Group ronment and are implementing the in the Sphere of Health, Safety and maintains several channels for receiv- Functional Strategy of JSOC Bashneft Environment. Compliance of poten- ing complaints from population and on Health, Safety and Environment. tial contractors with environmental employees and has a response mecha- nism in place. These documents reflect the Com- requirements set out in the Standard pany’s desire to become a leading is a necessary prerequisite for enter- Public complaints are filed with munic- Russian oil and gas company in terms ing into contracts with them. These ipal administrations, the Ministry of reducing the negative environmen- requirements include, but are not lim- of Emergency Situations and the Minis- tal impact. ited to, the following: try of Natural Resources and Environ- ment of the Republic of Bashkortostan and forwarded to the central control We are using a comprehensive / organization of waste collection, unit of the integrated refining complex. approach to minimizing direct and storage and accumulation sites and Complaints from Bashneft’s employees indirect negative impact on environ- the transfer of waste for recycling; are received via the Group’s Hotline. ment, which addresses all aspects Each complaint is investigated and, if / it is confirmed, appropriate corrective of potential impact, including: making payments for negative envi- measures are taken. G4-EN34 ronmental impact; / protection of the atmosphere; / relevant environmental training / protection of water resources; of service personnel; OUR RESPONSIBILITY

/ land conservation and waste / compliance of water consumption Bashneft applies HSE standards to potential suppliers and contractors processing; and discharge processes with envi- as early as at the tendering stage. ronmental legislation. / protection of biodiversity; Prior to the start of any work, the / energy efficiency and efficient use Company runs contractor reviews of resources. to check whether the contractor has all necessary permits, whether the In 2014 the Group spent a total of 9.3 contractor’s equipment complies with billion roubles on environmental pro- technical requirements and wheth- tection measures. Overall, from 2014 er the personnel have been prop- through 2018 Bashneft plans to allo- erly trained. In the process of work, cate more than 46.7 billion roubles for we monitor contractors’ operations this purpose. G4-EN31 to analyse their environmental effi- ciency. Based on our analysis, we rate RESPONSIBLE APPROACH our contractors and use such ratings TO SUPPLIER AND as a basis for terminating or renewing CONTRACTOR SELECTION their contracts.

We are very careful in selecting our business partners and estimating our impact throughout the supply chain.

Eligibility criteria include environmen- tal protection issues such as whether a contractor has the necessary per- mits and licences, proper equipment and qualified personnel, as well as other requirements for specific types of work. If necessary, technical audits of bidders are initiated, and bidders failing to meet the requirements are excluded from a tender. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 81 POLICY AND SAFETY OF OPERATING REGIONS

PROTECTION OF THE ATMOSPHERE

Our efforts in the sphere of atmo- 10.8%, while the output of petroleum OUR ACHIEVEMENTS sphere protection focus on keeping products grew by 1.5% year on year. the air clean in oil-producing and Measures taken in the reporting year refining regions and in the country as Due to the nature of production pro- resulted in a reduction in pollutant a whole. cesses in the oil industry the Company emissions by a total of 2.4 thousand does not emit any ozone-depleting tonnes. Measures taken by the Group to pro- substances. G4-EN20 tect the atmosphere: CONTROL AND MONITORING / Upgrading production facilities OF ATMOSPHERIC EMISSIONS Effect of emission reduction to reduce direct and indirect air measures, thousand tonnes pollution; Main sources of atmospheric emis- sions at Bashneft’s production facili- 187.5 187.2 / Improving associated gas utilization; ties are equipped with automated air 190 8 pollution sensors. The list of facilities

/ Producing high grade environmen- where automated sensors are to be 6 tally friendly engine fuel; installed was compiled in cooperation 180 4.3 with the Ministry of Natural Resourc- 3.2 4 / Controlling and monitoring hazard- es and Environment of Bashkortostan 2.4 169.5 ous atmospheric emissions. and is an integral part of the above 170 Agreement. In 2014 Bashneft complet- 2 In March 2013 Bashneft and the Gov- ed testing and adjustments of a sys- ernment of the Republic of Bash- tem for real-time data transmission 160 0 kortostan signed an Agreement on from the sensors. 2012 2013 2014 protecting the atmosphere. Under Total volume of emissions, thousand tonnes the Agreement, the Company has In 2014 Bashneft built two automatic Effect of emission reduction measures, assumed an obligation to implement air pollution monitoring stations in thousand tonnes a series of additional measures, the residential area in the northern enhance control and monitoring of air part of Ufa affected by the Northern pollutant emissions and upgrade its Industrial Hub in order to facilitate production facilities in order to reduce a prompt detection of, and response Emissions per tonne of oil produced the negative environmental impact. to, excessive air pollution levels. The Group also put into operation a mobile 12,6 In 2014 Bashneft spent 4.5 billion environmental unit. 11.6 11 roubles on measures stipulated in the 10.5 Agreement compared to 5.6 billion In addition, Bashneft monitors air roubles in 2013. quality on the boundaries of the san- itary protection area round the clock. The main environmental impact In adverse weather conditions the of refinery upgrades is a reduction in monitoring includes sample collection indirect air pollution, i.e. in harmful at night and in the morning, on week- emissions from motor vehicles using ends and holidays. 0 engine fuels produced by Bashneft. 2012 2013 2014 UPGRADING In 2014, despite a large-scale emis- PRODUCTION FACILITIES sion reduction programme, the decrease in the total volume of air pol- We are implementing a comprehen- lutant emissions was insignificant due sive programme to upgrade produc- to a considerable growth in production tion facilities, which is aimed at reduc- during the reporting year. The Compa- ing direct and indirect negative impact ny increased crude oil production by on the atmosphere. 82 SUSTAINABILITY REPORT 2014

The programme is implemented in / The launch of a new hydrogen Upgrade projects completed by Bash- accordance with the Plan of Upgrading production unit ensuring that that neft have made a direct impact on the Production Facilities and Introduc- 100% of the Group’s gasoline and quality and environmental friendliness ing Modern Technologies to Reduce diesel fuel are produced in accor- of fuels produced by the Group and Negative Impact on the Atmosphere, dance with the Euro 5 standard. The have resulted in a shift in the product which has been adopted in accordance unit with the capacity of 420 tonnes mix towards higher-grade, more envi- with the Agreement between Bashneft per day is one of the largest hydro- ronmentally friendly fuels. and the Government of the Republic gen production units in Europe; of Bashkortostan. The transition towards production / The Company started pilot operation of high grade environmentally friendly Currently, measures for upgrading of a new catalytic cracking gasoline fuel has a direct effect on the environ- Bashneft’s refineries fall into two hydrotreater, which has enabled mental impact of our products. For groups. The first initiative focuses on it to produce fuel with extra-low example, a switchover from Euro 3 the improvement of engine fuel quality, sulphur content of less than 10 ppm to Euro 5 gasoline can help to reduce which will enable a complete transition (0.001%). emission of carbon monoxide, nitrogen to the production of high grade, envi- oxides and sulphur dioxide by a factor ronmentally-friendly fuels. The second Bashneft’s refineries produce a broad of 2.3, 2.5 and 15 respectively, and one is aimed at increasing refining range of petroleum products, with cut down emission of volatile organic depth and the output of high mar- gasoline and diesel fuel being the compounds and particulate matter. gin light petroleum products in order most important of the Company’s For diesel fuel, an upgrade from Euro to optimize the product mix while miti- products sold in the consumer mar- 3 to Euro 5 can reduce emission of CO gating negative environmental impact. ket. In 2014 Bashneft boosted pro- by 28% and emission of NOx, sulphur duction of fuel that is environmentally dioxide, HC+NOx and particulate mat- Key 2014 projects with the highest friendly and characterized by high ter by a factor of 2.7, 35, 2.4 and 10 environmental impact include the performance. respectively. G4-EN27, G4-OG8 following:

OUR ACHIEVEMENTS Engine fuel production by grade, %

We are committed to producing high- er-grade, more environmentally friendly Gasoline Diesel fuel fuels. The share of Euro 5 gasoline in 2012 2013 2014 2012 2013 2014 the total output grew to 85.6% com- pared to 70% in 2013, while the share Other gasoline for petro- 4.3% 4% 5.7% – – – of Euro 5 diesel fuel increased from chemical production 29% to 36%. Lower than Euro 3 2.9% 0% 0% 76.4% 0% 0%

Euro 3 19.9% 8.3% 8.4% 0.0% 68.4% 64.0%

Euro 4 52.8% 20.5% 0.3% 10.5% 3.1% 0.0%

Euro 5 20.1% 67.2% 85.6% 13.1% 28.5% 36.0%

Emission standards for engine fuel (for passenger vehicles)

Euro 2 Euro 3 Euro 4 Euro 5

Emission standards for gasoline

Maximum percentage by volume of benzene, % 5.0 1.0 1.0 1.0

Maximum sulphur mass fraction, mg/kg 500 150 50 10

Emission standards for diesel fuel

Maximum sulphur mass fraction, mg/kg 500 350 50 10

Maximum percentage by weight of aromatic polycyclic hydrocarbons, % No 8.0 8.0 8.0 standard SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 83 POLICY AND SAFETY OF OPERATING REGIONS

ASSOCIATED / processing at the Shkapovskoye We also commissioned several facili- GAS UTILIZATION and Tuimazinskoye gas processing ties using associated gas for internal plants; needs and put into operation a 2 MW Associated gas utilization is one multiple-unit gas-fuelled power plant. of the key measures for protecting / development of in-house pow- Construction of a 3 MW power plant is the atmosphere. To ensure compli- er generation facilities at several nearing completion. ance with applicable Russian legis- oilfields; lation, the Group has developed and The implementation of the above implements the Target Gas Pro- / injection of associated gas into for- projects will increase the associated gramme (TGP) for 2012-2015 with mations to maintain reservoir pres- gas utilization rate while reducing the a budget of over 4 billion roubles. The sure at oilfields. Group’s electricity costs. main objective of the Programme is to improve the associated gas utiliza- In accordance with the Programme, in In 2014 expenditure on the implemen- tion rate. 2014 the Company put into operation tation of the Target Gas Programme several gas pipelines, which make it totalled 1.3 billion roubles compared Despite significant growth of the possible to significantly increase the to 0.9 billion roubles in the previous Group’s oil production and the con- supply of gas to Ufa CHPP-4 and Kar- year, reflecting the Group’s commit- sequent increase in the production manovo District Power Station operat- ment to attain acceptable associat- of associated gas, in 2014 measures ed by LLC Bashkir Power Generation ed gas utilization rates as soon as implemented by the Group enabled it Company. possible. to increase its associated gas uti- lization rate to 74.8% across the Associated gas utilization Group and from 75.4% to 82.1% at brownfields. 2012 2013 2014 In the reporting year, associated gas Associated gas produced, million cubic metres 500.6 605.0 662.1 was utilized as follows: Beneficial use, incl.:

Gas injected into formation, million cubic metres 98.5 97.7 98.2 / supply of gas to LLC Bashkir Power Generation Company, LLC Gaz- Internal operational needs, million cubic metres 96.4 130.7 114.5 prom Mezhregiongaz Ufa and other Associated gas flaring, million cubic metres 124.2 165.0 176.0 consumers; Associated gas utilization rate, % 75.2% 72.7%* 74.8%

/ internal needs (process furnaces, * Data presented for 2013 have been adjusted to include oilfields that are not covered by the TGP. boiler houses, etc.); 84 SUSTAINABILITY REPORT 2014

PROTECTION OF WATER RESOURCES

OUR RESPONSIBILITY The Group’s achievements in oil pro- In the Refining and Commerce Unit, duction and refining entail the highest the share of reused water amounts Modern drilling methods used by Bash- level of responsibility for the condi- to 38%. G4-EN10 neft prevent contamination of aqui- tion of surface water and groundwa- fers with brine or wastewater, which ter, encouraging us to reduce water The most important areas of reuse may contain chemicals used in well withdrawal and reuse water in our include supply of wastewater to third construction. production processes. We believe that parties, for instance to combined heat efficient and safe production is the and power plants for steam generation, basis for the environmentally respon- and pumping of water into formations sible use of water resources. to maintain reservoir pressure (each accounting for approximately 30%). WATER WITHDRAWAL AND DISCHARGE In 2014 the total volume of water dis- charge across the Group amounted Water withdrawal and discharge In 2014 Bashneft’s water withdraw- to 22.0 million cubic metres. More than volumes at Bashneft, million cubic al totalled 49.8 million cubic meters. half of the above amount of wastewa- metres Main sources of water withdrawal are ter was discharged into surface water surface (53%) and underground (36%) bodies, and more than one third was 49.8 50 bodies of water. The Upstream Unit discharged into formations, including 44.1 40.9 accounts for 57% of the Group’s total disposal wells. G4-EN22 water withdrawal, while the Refining and Commerce Unit represents 43% The volume of formation water pro- 22.0 of total water consumption. G4-EN8 duced in the course of oil production 25 totalled 135.3 million cubic meters. 15.4 16.0 In 2014 water consumption totalled As a rule, after separation and treat- 61.5 million cubic meters. The differ- ment in accordance with applicable ence between the amount of water standards, treated formation water is 0 2012 2013 2014 withdrawal and consumption is relat- pumped back into producing formations ed to the wide use of recycled water. to maintain reservoir pressure. G4-OG5 Water with- Water dis- drawal charge

Bashneft’s water withdrawal Volumes and areas of water Total water discharge by Bashneft, in 2014, million cubic metres utilization by Bashneft, million cubic million cubic metres metres 49.828.621.2 61.5 27.5 34 22.0 11.0 11.1 50 70 25 6.3 60 40 17.8 20 2.4 18.1 50

30 40 15 5.2 12.8 8.7 30 0.1 20 1.1 10 12.8 12.8 17.8 2.3 26.3 18.1 20 20 18.9 7.7 11 11 10 5.1 5 10 8.7 6.2 5.4 13.5 0 0 0 Across Refining and Across Refining and Across Refining and the Group Upstream Commerce the Group Upstream Commerce the Group Upstream Commerce

From municipal networks or third-party Pumped to maintain formation pressure Via third-party organizations water supply networks Reused (after treatment) Into formations From underground water reservoirs Used in production processes Into surface water bodies From surface water bodies (other than recycled water)

Supplied to third-party users SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 85 POLICY AND SAFETY OF OPERATING REGIONS

38 % SHARE OF REUSED WATER IN THE REFINING AND COMMERCE UNIT 86 SUSTAINABILITY REPORT 2014

Withdrawal of water by the Group To reduce environmental hazards Contamination of industrial seriously affects the Belaya River, of industrial wastewater, the Group’s wastewater with petroleum a tributary of the Kama River, which refineries use specialized treatment products, mg/l is located in the Republic of Bash- facilities, which are undergoing radical 0.20 kortostan and classified as a Grade upgrades to ensure that the quality 0.17 0.17 1 fishery. The river has a basin area of treated wastewater complies with 0.16 of 142 thousand sq. km and is 1,430 standards for fisheries. Moreover, we 0.13 kilometres long. Long-term average are actively reusing water to reduce 0.12 water discharge in the water protec- discharge into natural water bodies. 0.8 tion zone amounts to 850 cubic meters per second. The river is a habitat for The level of contamination of indus- 0.4 the following fish species: perch, com- trial wastewater generated by the mon roach, pike, chub, bleak, catfish, Group’s refineries with petroleum 0 burbot, ruffe, bream, silver bream, products amounts to 0.17 mg/l. 2012 2013 2014 sterlet, gudgeon, pike-perch, trout (in upper reaches), asp, ide, grayling, We use biological treatment facili- dace, sabre fish, nase, blue bream, ties (BTF) of OJSC Ufaneftekhim for Number of monitoring wells rudd, white-eye bream, Amur sleeper, biological treatment of industrial and Prussian carp. The taimen popu- wastewater generated by the integrat- 1,269 1,391 1,407 1,600 lation in the Belaya River is threatened ed refining complex. The BTF have with extinction. G4-EN9 been upgraded several times and 1,200 have been equipped with new gener- 376 507 482 WATER CONSERVATION ation aeration systems. Nevertheless, to improve the quality of wastewater 800

To reduce water consumption, water treatment, the Group has launched 787 1,015 900 reuse and recycling systems are a BTF upgrade project. 400 increasingly used in the Upstream

Unit. Bashneft disposes of industrial The Group pays particular attention 0 wastewater by pumping it into produc- to environmental monitoring of nat- 2012 2013 2014 ing formations or thief zones. If neces- ural water bodies. The water quality Surface water monitoring sary, water is treated with antiseptics monitoring network comprises 1.4 before pumping it into formations; this thousand monitoring wells, nearly Groundwater monitoring is done in order to prevent its contam- 64% of which are used for monitor- ination with sulphate-reducing bacte- ing surface water, while the remain- ria which produce hydrogen sulphide ing wells are used for groundwater in oil and water. monitoring.

UPGRADING INTEGRATED BIOLOGICAL TREATMENT FACILITIES G4-EN22

The upgrade of integrated BTF of the Ufa of treatment plants and minimize water • supplies of GE equipment and equipment group of refineries is our largest water withdrawal through reuse of treated water for disposal wells are in progress (the protection project. The upgrade of the in production processes. Group signed contracts for 58% of the treatment facilities based on the best total amount of equipment; 75% of GE wastewater treatment technologies will As part of the biological treatment facilities equipment and 100% of equipment for help to ensure that the quality of wastewa- upgrade project, in 2014 the Group devel- disposal wells were delivered to our ter treatment complies with environmental oped three packages of engineering doc- warehouses); legislation. The budget of the project totals uments, which were approved by the Main • building permits were obtained; 6.4 billion roubles, and the project is sched- State Expert Review Board. • the BTF site was transferred to a con- uled to be completed in 2015. Our technolo- tractor for dismantling; dismantling work gy partner in the project is General Electric. Project implementation progress in 2014: is in progress; • preparation of a pad for disposal well Implementation of the upgrade project will • the Group signed an agreement with drilling was completed; installation prevent discharges of pollutants in excess General Electric on the supply of core of drilling equipment is in progress. of permitted levels, reduce the surface area process equipment; SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 87 POLICY AND SAFETY OF OPERATING REGIONS

LAND CONSERVATION

Our land conservation efforts are Oil sludge is the main type of waste OUR ACHIEVEMENTS focused on the preservation of envi- generated in the course of oil pro- ronmental assets in our operating duction and refining, which makes up In 2014 the total volume of processed areas. a large portion of the total amount sludge grew by 20% to 78 thousand of waste. Our strategic goal set in tonnes from 65 thousand tonnes in the We seek to minimize the negative the Functional HSE Strategy of JSOC previous year. environmental impact by managing Bashneft is to reduce the volume waste generated in the course of oil of sludge. Measures to reduce sludge production and refining, in particular contamination include the introduction OUR RESPONSIBILITY oil sludge, and are engaged in land of advanced sludge treatment tech- reclamation at abandoned production nologies, elimination of oil sludge pits In 2014 expenditure on subsoil and land sites of the Group. We also improve and construction of sites for biological conservation totalled 2.9 billion roubles. the safety of our pipeline systems and treatment of oil sludge. The Group oilfield equipment to prevent pipeline processes approximately 30% of gen- failures. erated oil sludge.

In 2014 expenditure on subsoil and In 2014 we continued our focused land conservation totalled 2.9 billion effort aimed at sludge processing and roubles as against 2.4 billion roubles elimination of sludge pits. in 2013. Like in 2013, the main cost item was the funding of measures As part of this activity, in the Upstream to reduce the flowline failure rate. Unit the Alfa Laval sludge processing unit was widely used to treat the bulk WASTE PROCESSING of sludge from oil production oper- ations. In 2014 the unit processed In 2014 the total volume of processed over 19 thousand cubic meters of oil waste grew 9% year on year to 161 sludge. Overall, since 2001 the Alfa thousand tonnes. The ratio of pro- Laval unit processed over 200 thou- cessed waste to the total weight sand cubic meters of sludge and of waste generated in 2014 amounted generated 91.5 thousand cubic meters to 32%. of processed products.

Pipeline failure rate Waste processing G4-EN23 Oil sludge processing G4-OG7 (number of spills per kilometre of pipelines) G4-EN24 900 34% 500 31% 32% 32% 30% 0.100 31% 32% 29% 30% 0.088 400 0.084 30% 0.079 0.075 0.071 30% 0.075 600 280 275 284 28% 0.067 501.8 300 445.6 468.3 28% 26% 0.050 26% 200 300 24% 24% 160.6 78.4 0.025 131.6 147.3 100 65.1 22% 22% 54.7

0 0 20% 0 20% 2013 20142015 2016 2017 2018 201220132014 2012 2013 2014

Total annual volume of waste, Accumulated oil sludge, thousand tonnes thousand tonnes Volume of processed oil sludge, thousand Volume of processed and decontaminated tonnes waste, thousand tonnes Share of processed oil sludge, % Share of processed waste, % 88 SUSTAINABILITY REPORT 2014

405 kilometres LENGTH OF FLOWLINES THAT WERE UPGRADED AND UNDERWENT MAJOR REPAIRS IN 2014 SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 89 POLICY AND SAFETY OF OPERATING REGIONS

A new UZG 1M unit put into operation IMPROVING THE SAFETY OUR ACHIEVEMENTS by the Tuimazaneft OGPD processed OF PIPELINES 1,680 cubic meters of sludge using In 2014 we completed the upgrade and a thermal process. An important focus of Bashneft’s major repairs of more than 405 kilo- efforts to improve process safety is the metres of flowlines and an industrial 180 tonnes of oil-contaminated soil programme of improving the safety safety inspection covering 3.1 thousand kilometres of pipelines. were treated using the bioremediation of pipelines aimed at land and soil process at the Mancharovo biological conservation. Another objective of the treatment site of the Chekmagushneft programme is to minimize prod- oil and gas production department. uct losses by reducing the number As part of development of the A. Titov of equipment failures and the pipeline field, the Group initiated the construc- accident rate. tion of a solid waste landfill. Bashneft continuously monitors the In the Refining Unit, over 4 thousand condition of pipelines, repairs and cubic meters of liquid sludge were replaces deteriorated pipelines as part processed in the delayed coker oper- of its Programme to Improve Pipeline ated by the Bashneft-Ufaneftekhim Safety for 2013–2018 with a total bud- Branch. In addition, all of the Group’s get of 23.1 billion roubles. In 2014 the refineries applied centrifugal dewa- cost of measures to improve the safety tering to reduce the volume of sludge of pipelines as part of the Programme produced. totalled 2.8 billion roubles.

In the Refining Unit, the Group is In 2014, as part of the Programme, building a plant for thermal process- over 405 kilometres of flowlines ing (dewatering) of oil sludge at the were upgraded and underwent major Bashneft-Ufaneftekhim Branch. The repairs (compared to 296 kilometres in plant will use a thermal desorption 2013), with expenditures totalling 2.6 technology meeting the highest envi- billion roubles as against 1.4 billion ronmental standards. roubles in the previous year. G4-OG13

In 2014 the following steps were taken In addition, the Company spent 131.3 to implement the project: million roubles on inhibitors to prevent pipeline corrosion. / sampling and analysis of oil sludge; In 2014 the Group conducted an / approval of the plant’s capacity (75 industrial safety inspection covering thousand tonnes per year); 3.1 thousand kilometres of pipelines to obtain an independent assessment / preparation of technical specifica- of the potential for extending the safe tions for the design and procure- operation of pipelines. The budget ment of core equipment; tenders of the initiative amounted to approxi- to select the contractor and core mately 55.7 million roubles. equipment supplier for the project.

Planned capital investments into the project will approximate 3 billion rou- bles. The plant is scheduled for com- missioning in 2017.

We do not transport, import, export or treat any waste deemed hazardous under the terms of the Basel Conven- tion. G4-EN25 90 SUSTAINABILITY REPORT 2014

BIODIVERSITY

We take a responsible attitude to pro- Several rare animal species, main- tecting biodiversity across our operat- ly birds, included in the Red Books ing regions. In terms of geographical of Russia and of the Nenets Autono- footprint, our strongest environmen- mous District occur at the Trebs and tal impact on biodiversity is concen- Titov fields. G4-EN14 trated in the oil-producing regions of the Arctic, mainly the Trebs and In several instances our operat- Titov fields in the Nenets Autonomous ing areas border nature conserva- District. tion zones. We pay close attention to potential environmental impacts In 2014 we completed a comprehen- and take steps to prevent any effect sive fauna assessment of the area of our operations on the flora and fau- covered by the two fields. Our survey na of protected territories. identified key wildlife habitats in the assessed areas and provided insights We monitor population fluctuations and diversity of animal, bird and fish into the current size and density species with habitats in our operating of animal population within the oil- regions. G4-EN13 field territory and information on rare Young whitefish released, animal and bird species listed in the in thousands In the Nenets Autonomous District, LLC Red Book of Threatened Species of the 114.6 120 Bashneft-Polyus, which operates the Nenets Autonomous District. Trebs and Titov fields, takes measures 100 to restore damage to aquatic wildlife by releasing young whitefish into the basin The areas of the two fields are pop- 80 of the Pechora River. ulated by approximately 110 terres- 60 trial vertebrate species, including 27 34.3 40 Such compensatory measures help mammal species, 86 bird species, 16.2 to restore the population of whitefish 20 and the existing wildlife balance. 2 amphibian species and 1 reptile species. 0 2013 2014 2015 (plan)

Rare bird species which occur in the operating areas

Species Population Red Book categories* density, per sq. km Russia Nenets Autono- mous District

Lesser white-fronted goose (Anser erythropus) 0.1 2 2

Bewick's swan (Cygnus bewickii) 2.0 5 5

Golden eagle (Aquila chrysaetos) 0.02 3 1

White-tailed eagle (Haliaeetus albicilla) 0.03 3 3

Gyrfalcon (Falco rusticolus) 0.1 2 2

Peregrine falcon (Falco peregrinus) 0.8 2 3

Eurasian oystercatcher (Haematopus ostralegus) n/a n/a 3

Great snipe (Gallinago media) 2.5 n/a 4

Bar-tailed godwit (Limosa lapponica) n/a n/a 4

* Note to Red Book categories: 1 – Endangered; 2 – Decreasing number; 3 – Rare; 4 – Uncertain status; 5 – Rehabilitated and rehabilitating. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 91 POLICY AND SAFETY OF OPERATING REGIONS

ENERGY EFFICIENCY

Ongoing measures to increase ener- ENERGY CONSUMPTION RAO Group. Under the agreement, gy efficiency are an integral part WITHIN THE GROUP G4-EN3 the Group is also obliged to supply of Bashneft’s efforts to protect the its associated gas to power plants in environment and enhance operation- The Group consumes electricity, heat, Bashkortostan in 2015 and 2016 (with al efficiency. The Russian economy is natural gas and associated gas in the an option of renewing the agreement characterized by high energy con- course of its operations. It may use until 2022). The agreement is expected sumption rates; therefore, the analysis boiler and furnace fuel, which is less to improve Bashneft’s associated gas and implementation of new technolo- environmentally friendly, as a backup; utilization rate. gies and practices sets an example for however, it did not use this kind of fuel other market participants and com- in 2014 or in previous years. panies along the supply chain, while facilitating further development of the Key drivers of the increase in fuel and Group’s business. energy consumption across the Group in 2014 included geographical expan- Key priorities of the Group’s energy sion of its business, the use of more strategy include the upgrade of pro- energy-intensive refining processes duction equipment, implementa- and expansion of the sales network. tion of energy efficient technologies, optimization of heat generation and In 2014 the Group’s electricity costs consumption, and development of own totalled 13.0 billion roubles, while heat power sources, including the use costs totalled 4.1 billion roubles. OUR ACHIEVEMENTS of associated gas. We have concluded an agreement The Group does not generate renew- on the supply of heat to the Group’s In the reporting year, economic benefits able energy or invest in renewable refineries and petrochemical plants from implementation of energy efficien- cy projects across the Group totalled energy generation. with LLC Bashkir Power Generation 139.8 million roubles. Company, which forms part of Inter

Fuel and energy consumption by Bashneft Group

2012 2013 2014 Electricity, thousand kWh 5,780,168 5,331,579 5,452,887 Heat, Gcal 7,677,737 5,938,540 6,070,018 Natural gas, thousand cubic metres 284,685 227,236 202,616 Associated gas, thousand cubic metres 65,283 41,818 54,100

Energy savings

2013 2014 Heat, Gcal 36,996.50 38,879.8 • upstream segment 2,144.2 271.5 • refining and petrochemical segment 34,852.3 38,608.3 Electricity, thousand kWh 33,002.30 41,215.5 • upstream segment 32,721.9 40,971.0 • refining and petrochemical segment 280.4 244.5 92 SUSTAINABILITY REPORT 2014

Electricity consumption rate per MEASURES TO IMPROVE Based on the analysis of econom- tonne of production fluid, kWh/t ENERGY EFFICIENCY ic efficiency of boiler houses in the Upstream unit, we have developed the

16.75 The Group is implementing a num- Programme to Renovate and Upgrade 16.7 ber of initiatives aimed at improving the Centralized Heat Supply System in 16.65 its energy efficiency, including the the Upstream Unit until 2018. ongoing energy audit of production 16.55 processes, analysis of equipment In 2014 the Company updated its pool 16.5 operation modes focused on identify- of energy efficiency measures for 15.45 16.4 ing opportunities to optimize energy JSOC Bashneft’s branches to reflect consumption, and the introduction the current economic situation and 16.35 of energy efficient technologies. developed the Programme to Increase

16.25 Energy Efficiency of Production Facil- 2012 2013 2014 In 2014 Bashneft further increased ities at JSOC Bashneft’s Branches wholesale purchases of electricity for 2014-2017. Our energy efficiency and continued the certification of its efforts involved nine initiatives com- commercial electricity metering sta- pleted in 2014; five of them required Electricity consumption rate per tions to meet the requirements of the major capital investments. G4-EN6 tonne of processed oil, kWh/t wholesale electricity market. ENERGY EFFICIENCY 106.2 106.3 107 We completed the modelling of power IN THE UPSTREAM SEGMENT and heat consumption by process units in the refining segment and used In 2014 energy consumption in the the models to update standard con- upstream segment increased by 7.3%; sumption rates and ensure that they the growth was driven by the growing 102 reflect capacity utilization levels and number of oil-producing assets of LLC 100.2 seasonal fluctuations in utilization. Bashneft-Polyus, the acquisition This helped to increase the accuracy of LLC Burneftegaz and the increased of planning of energy consumption output of fluid. The economic bene- in the refinery production scheduling fit from energy efficiency measures 97 2012 2013 2014 system (Aspen PIMS) and to provide amounted to 100.6 million roubles. inputs for the project aimed at moni- toring energy consumption.

Energy consumption in the upstream segment

2013 2014 Change, 2014/2013

Electricity consumption, thousand kWh 2,924,600 3,139,438 +7.3%

Electricity costs, million roubles 6,483.7 7,624.4 +17.6%

Heat consumption, Gcal 190,973 205,682 +7.7%

Heat costs, million roubles 376.4 388.3 +3.2%

Energy efficiency in the refining segment

2013 2014 Change, 2014/2013

Electricity consumption, thousand kWh 2,373,742 2,276,112 –4.1%

Electricity costs, million roubles 5,068.7 5,208.8 +2.8%

Heat consumption, Gcal 5,739,090 5,856,091 +2.0%

Heat costs, million roubles 3,173.5 3,691.9 +16.3% SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 93 POLICY AND SAFETY OF OPERATING REGIONS

-4.1% REDUCTION IN ELECTRICITY CONSUMPTION IN THE REFINING SEGMENT

The same factors combined with ENERGY EFFICIENCY ENERGY EFFICIENCY a colder weather in 2014 resulted in IN THE REFINING IN THE MARKETING a 7.7% year-on-year increase in heat SEGMENT SEGMENT consumption. In 2014 electricity consumption in the Electricity consumption in the mar- In 2014 electricity consumption refining segment declined by 4.1% keting segment increased by 12.3% rate per tonne of production flu- year on year. in volume terms following the expan- id amounted to 16.5 kWh/t, which is sion of the network of filling stations. largely in line with historical levels. Replacement of existing pipelines and Heat costs also went up, being driven G4-EN5, G4-EN7 ongoing upgrades of boiler and pump- by growing heat prices charged by ing equipment resulted in heat cost suppliers. One of the key priorities in the area savings of 38.8 million roubles. of safety and energy efficiency improvement in the Upstream unit is In 2014 electricity consumption rate to develop small-scale power gen- per tonne of processed oil amounted eration and construct power plants to 100.2 kWh/t, down by 6% compared fuelled with associated gas. to 2012 and 2013. G4-EN5, G4-EN7

Energy efficiency in the Group’s sales offices

2013 2014 Change, 2014/2013

Electricity consumption, thousand kWh 33,237 37,337 +12.3%

Electricity costs, million roubles 102.1 124.9 +22.3%

Heat consumption, Gcal 8,477 8,245 –2.7%

Heat costs, million roubles 7.1 9.3 +30.6% 94 SUSTAINABILITY REPORT 2014 HIGH STANDARDS IN SAFETY

–22%

REDUCTION IN THE LOST TIME INJURY FREQUENCY RATE (LTIFR)

BILLION 2.3 ROUBLES

FUNDING FOR OCCUPATIONAL HEALTH AND SAFETY PROGRAMMES

> THOUSAND 28 PERSON-COURSES

TRAINING IN OCCUPATIONAL HEALTH AND SAFETY SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 95 POLICY AND SAFETY OF OPERATING REGIONS

OCCUPATIONAL HEALTH AND SAFETY

‘PEOPLE HAVE BEGUN TO TREAT OCCUPATIONAL SAFETY NOT AS A SECONDARY ISSUE, BUT AS ONE OF THE MOST IMPORTANT TASKS. THESE CHANGES WERE NOT INSTANTANEOUS. THEY HAVE REQUIRED CERTAIN EFFORTS, MEASURES, INVESTMENTS, INVOLVEMENT OF TOP MANAGEMENT. ALL THIS HAS RESULTED IN A SIGNIFICANT DECREASE OF THE NUMBER OF INJURIES AND ACCIDENTS IN THE GROUP. THIS IS THE MOST IMPORTANT ACHIEVEMENT.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

Bashneft is one of Russia’s largest The Group has always given priori- OUR RESPONSIBILITY oil companies and one of the largest ty to those aspects of its operations employers in the Republic of Bash- that are related to health and safety. Our efforts in the field of occupational kortostan. We are aware of a high Throughout the history of its oper- health and safety are aimed at fulfilling responsibility related to conducting ation, the Group has accumulated the most important tasks: to reduce technologically sophisticated business a wealth of experience in responsible the number of injuries and minimize the negative impact on the health that is potentially dangerous to our conduct of business, and it has imple- of employees. employees and the population of the mented appropriate procedures and regions where we operate. At the practices. Nevertheless, we constant- same time, we are a reliable partner ly analyse the best practices in this for our suppliers and customers, and area and incorporate them in our daily we maintain an uninterrupted produc- operations. tion process. We strive to eliminate risks of technological accidents and We strive to become a leader in this failures in our operations, minimize field among Russian oil companies the harmful impacts of production on and adhere to the best internationally the employees and the population, accepted rules and standards. This to reduce the number of workplace focus is embodied in the following val- injuries to zero. Given the scope of our ues of the Group: operations, we aim to ensure a high level of culture and to maximize the / safety and reliability, efficiency of our operations. / protecting the people, / professionalism and innovations. 96 SUSTAINABILITY REPORT 2014

Financing of HSE measures Our activities in the sphere of occupa- activities is to involve our employees and programmes, billion roubles tional health and safety are based on and contractors and incentivize them the following principles: to comply with safety requirements, as well as to train and inform the 2.2 2.33 / recognizing constitutional human employees about safe working meth- 2.5 rights for safe working conditions; ods. We make great efforts to pro- 0.03 mote a culture based on responsible 0.08 2 / complying with the main require- behaviour in the field of occupation- 0.3 0.9 ments and areas of state policy in al, industrial, fire and traffic safety 1.5 the sphere of occupational health among our employees, suppliers and and safety; contractors. To maximize the positive 1 impact, we engage stakeholders in an 1.8 1.4 / adhering to international standards open dialogue. 0.5 in this area; Bashneft has developed and adopted 0 / 2013 2014 ensuring industrial and envi- a set of internal documents regulating ronmental control over all kinds its activities in the field of HSE. Civil defence and emergency measures of operations; Occupational safety We consider funding of programmes / giving priority to preventive mea- in the field of occupational health and Industrial safety sures aimed at reducing the number safety as an investments in the health of injuries and the industrial acci- and well-being of our employees rath- dent rate; er than as expenditure. In 2014 expen- diture in these areas, including civil / continuous improvement of the inte- defence and emergency measures, grated HSE management system; totalled 2.3 billion roubles compared to 2.2 billion roubles a year earlier. / improving the safety culture;

/ transparency and availability of information.

In the course of day-to-day operations, we regularly conduct risk assess- ment and audits and take measures to improve the HSE (Health, Safety and Environment) management system. An important task forming part of our

Documents regulating various aspects of occupational and industrial safety:

/ The Functional Strategy of JSOC / The Policy of JSOC Bashneft on occupational safety: the organiza- Bashneft on Health, Safety and Health, Safety and Environment, tional structure, planning of mea- Environment. It is aimed at main- which is aimed at minimizing the sures, responsibility, resources for taining the Group’s leadership number of occupational injuries, achieving the goals and procedures among oil and gas companies and providing employees involved in the for evaluating and improving the meeting international standards production process with additional performance of the management in these areas. In addition, the protection and reducing the risk system; Functional Strategy stipulates that of emergencies and incidents in the Group must comply at all times the course of operation of produc- / Standards and regulations reflect- with key regulatory requirements tion facilities; ing requirements of the interna- of the government’s HSE policy and tional OHSAS 18001 and ISO 14001 minimize the number of incidents, / The Regulations on the HSE standards. They are aimed at form- emergencies and accidents; Management System, which ing an effective system for manag- define the main areas of work on ing HSE processes at Bashneft. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 97 POLICY AND SAFETY OF OPERATING REGIONS

OCCUPATIONAL SAFETY

We are keenly aware of our respon- The contracts provide for standard Occupational safety inspections sibility towards our employees for insurance cover against a variety in 2014 creating a safe and favourable working of risks, including risks of death, environment. Protection of life and disability, temporary disability caused 16,000 15,132 health of our employees is one of our by an accident and disability result- 15,039 corporate values. ing from occupational disease; the 14,250 insurance applies 24 hours a day We constantly develop an OHS man- worldwide. agement system in order to comply 12,500 with international standards and EXPENDITURE ON 10,834 10,525 achieve our strategic goal of reduc- OCCUPATIONAL HEALTH 10,750 ing the number of workplace injuries AND SAFETY to zero. Measures to ensure safety in 9,000 the workplace form part of the single In 2014 we gave high priority to fur- Upstream Refining and Functional HSE Strategy. ther improving safety and health marketing of employees. Actual HSE costs Violations identified For this purpose we supervise work- amounted to 808 million roubles, com- Violations eliminated ing conditions in the workplace. pared to 226 million roubles a year We conduct regular audits, analyse earlier. and eliminate system-related caus- es of industrial accidents. In order The costs increased due to expansion Areas for implementation of the to develop employees’ competenc- of incentive programmes, purchase Functional HSE Strategy: es, we provide them with training in of personal protective equipment occupational safety and introduce and technical measures based on / reducing the number of occupa- methods of assessing the employees’ the results of the analysis of past tional injuries; knowledge and skills. The Group has incidents (these were mainly mea- / developed and implemented a proce- sures aimed at ensuring that work- ensuring the right to safe and dure for incident investigation, which places and facilities meet safety healthy working conditions; involves investigating each incident requirements). / protecting employees’ health; and devising a plan of further actions aimed at eliminating the causes and We are planning to significantly / creating an atmosphere of zero preventing further incidents. increase our expenditure on HSE in tolerance for violations in the 2015. The amount of funding for HSE area of occupational safety and In 2014 Bashneft implemented pro- will reach 1.5 billion roubles. In 2015 health; grammes aimed at incentivizing HSE priorities will include implementation performance, leadership training in of pilot initiatives, including the follow- / training and certification the sphere of occupational and pro- ing measures: of employees in occupational cess safety and uniform corporate safety. requirements matching the highest / development and implementa- international standards. These mea- tion of a standard in handling OUR RESPONSIBILITY sures not only have a direct positive of chemicals; impact on occupational safety perfor- mance but also help to form a corpo- / implementation of a system In 2014 expenditure on occupational rate culture which prioritizes safety. for three-dimensional simula- safety and health of Bashneft’s person- nel amounted to 35.1 thousand roubles tion of manufacturing process per employee. In addition, to mitigate employ- management; ee risks, Bashneft has concluded accident insurance contracts for its / expansion and re-equipment of the employees with SOGAZ Insurance Saklovo chemical storage facility Group, one of the largest universal and the Tuimazinskiy area; insurers in Russia. Under the con- tracts, insurance covers almost 15 / implementation of a multi-purpose thousand employees of the Company. programmes to reduce HSE risks 98 SUSTAINABILITY REPORT 2014

‘WHEN WE ARE TALKING ABOUT OCCUPATIONAL SAFETY AND REDUCTION OF THE NUMBER OF INDUSTRIAL INJURIES, WE MEAN HUMAN HEALTH AND LIVES. WE ARE CREATING A COMPANY WHERE WORKPLACES ARE FIRST AND FOREMOST SAFE. THAT IS THE REASON WHY WE CONSIDER OUR EFFORTS TO IMPROVE SAFETY AND PROVIDE GREATER PROTECTION TO EMPLOYEES AS A DEFAULT PRIORITY.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

Causes of injuries during the implementation of major Bashneft has adopted and is imple- construction investment projects; menting a long-term plan aimed at reducing the number of occupation- 22% / implementation of the project al injuries; the plan covers all of the 30% ‘Elimination of the Risk of Injury Group’s business units. Measures tak- to Operators of Filling Stations from en during the reporting year enabled a Fall from a Height When Accept- us to reduce the number of workplace 19% ing Petroleum Products at Filling accidents by 34%. 9% Stations’; The Group has been continuously 10% 10% / implementation of the compre- analysing the main causes of indus- hensive programme ‘Monitoring trial injuries. After the causes are Falling, stumbling of Operations’; identified, response measures are Impact of moving, rotating implemented to address them. Thus, or scattering items and pieces / implementation of the standard in 2014 the main causes of accidents Injuries resulting from wrongful ‘Safety in the Office’. included falling and stumbling, as well actions of others as the impact of moving, rotating or Becoming wedged REDUCTION IN THE NUMBER scattering items and pieces.

Traffic accidents OF OCCUPATIONAL INJURIES G4-LA6 In accordance with an action plan Other causes to ensure occupational safety and Bashneft continues to make focused reduce the number of occupational efforts to reduce the lost time inju- injuries, in 2014 we continued imple- ry frequency rate (LTIFR), one of key menting administrative and engineer- performance indicators in the field ing measures aimed at improving of occupational safety. safety in the workplaces.

Targeted funding for HSE, million roubles

2013 2014 Achievement of Targets targets for 2014 for 2015 HSE training programme 37.0 20.5 100% 18.3 Programme to incentivize HSE performance 5.4 9.9 24% 211.6 Development and implementation of a plan to raise awareness in the field of HSE 9.5 22.1 100% 31.2 Pilot initiatives 46.5 10.3 100% 262.3 Implementation of measures based on the results of the analysis of past incidents 66.1 201.6 104% 307.2 Health protection 1.3 50.1 100% 81.9 Personal protective equipment 60.5 493.4 100% 634.9 Target programmes in the sphere of occupational safety and health 226.3 807.9 1,547.4 SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 99 POLICY AND SAFETY OF OPERATING REGIONS

For instance, we continued minimize the number of employees’ OUR ACHIEVEMENTS a programme to inform employees injuries caused by traffic accidents of potential hazards in their work- and reduce the total number of traffic In 2014 LTIFR declined by 22% to 0.35. places by installing regulatory signs, accidents in the Group and among issuing newsletters, setting up post- contractors. ers and distributing leaflets. We have made sure hazardous areas are visu- REDUCING THE NUMBER OUR RESPONSIBILITY alized, interactive briefings are held OF WORKPLACES and corrective measures are imple- CHARACTERIZED BY HARMFUL In 2014 traffic accidents accounted for mented following industrial accident WORKING CONDITIONS G4-LA7 only 9% of the total number of inju- investigations. ries; this reduction was due largely The Group is working to reduce the to implementation of an ambitious pro- gramme to reduce the number of traffic Engineering measures are imple- number of workplaces character- accidents. mented to make sure the workplaces ized by harmful working conditions. at a height, as well as loading and To assess the impact of hazardous and unloading areas and gas hazardous harmful factors at specific production areas comply with safety require- facilities, we conduct a special assess- ments, and that filling stations are ment of workplaces. Based on the Industrial accidents properly secured. results of such assessment, the Group

develops and implements Action Plans 70 0.80 Employee incentive programmes to Improve Working Conditions. We 0.73 60 entitled the Programme to Incentiv- conduct a systematic analysis of the 59 49 0.60 ize HSE Performance of Operating causes of occupational injuries and 45 32 Personnel and the Incentive to Safety implement measures to eliminate 0.45 0.40 30 Programme are implemented in the them or reduce the probability of such 0.35 0.20 Group’s branches, subsidiaries and risks. 15 affiliates. All of the Group’s employees are pro- 0 0 2012 2013 2014 In 2014 the Group paid special atten- vided with up-to-date personal pro- tion to traffic safety and fostering tective equipment based on specific Number of injured persons a culture of safe driving. To coordinate working conditions in each workplace. Lost Time Injury Frequency (LTIF) efforts in this area, the Group imple- ments a comprehensive programme In 2014 the percentage of workplac- to improve traffic safety. Bashneft has es characterized by harmful working adopted a uniform corporate standard conditions across the Group totalled Share of workplaces characterized entitled ‘Safety in Motor Vehicles’ and 16.3%. The increase was related by harmful working conditions, % a Traffic Safety Policy and has provid- to acquisition of new assets by the ed training to more than one thousand Group. 20.0 17.3 employees as part of the ‘Defensive 16.3 Driving’ programme; in addition, the In 2014, to estimate the actual values 15.4 Group has developed an interactive of hazardous and harmful industrial 15.0 training course, ‘Passenger Safety in factors and the extent of their negative Vehicles’. impact on employees, we conducted 10.0 the relevant measurements as part Bashneft has developed a plan for the of a special assessment of working 5.0 period up to 2016 aimed at further conditions and a programme of indus- reduction of the number of traffic trial monitoring of compliance with 0.0 accidents. The plan includes a wide sanitary, hygienic and disease preven- 2012 2013 2014 range of measures that will help tion standards. Their results form the

‘WE SHALL MAKE CONTINUOUS EFFORTS TO IMPROVE WORKING CONDITIONS.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board 100 SUSTAINABILITY REPORT 2014

OUR RESPONSIBILITY basis of the occupational risk man- Health protection action plan: agement system. First aid stations have been created at / Implementation of the cardiovascu- remote production facilities with a total After the measurements had been lar disease prevention programme; headcount of 150 employees or more and at refineries and the R. Trebs and A. completed, we developed lists of mea- Titov oilfields. sures to improve the working condi- / Promotion of healthy lifestyle; tions. The main objective is to ensure compliance of working conditions with / Provision of emergency and sched-

The Group uses the ‘Stop Work’ proce- the statutory occupational safety rules uled medical care to employees; dure, under which any employee may applicable to specific workplaces at stop working if there is a danger to the each of Bashneft’s organizations. / Improvement of first aid skills for life and health of employees. accidents on the basis of interna- PROTECTION OF EMPLOYEES’ tional standards; HEALTH OUR ACHIEVEMENTS / Arranging and conducting pre- Protection of health of our employees liminary and regular medical Overall, in 2014 the number or employ- is one of Bashneft’s top priorities. examinations; ees attending health protection courses and lectures increased fivefold. The Our efforts in the sphere of health / Corporate programme of vaccina- number of employees vaccinated protection are focused on high-pri- tion against influenza, tick-borne against influenza tripled, and the num- ority areas that are identified encephalitis, pneumonia and ber of those vaccinated against pneu- monia increased fourfold. through a detailed analysis of causes hepatitis; of diseases. / Health education (brochures, lec- Thus, in 2014 monitoring revealed tures, workshops, training schools). Frequency of fatalities caused that cardiovascular diseases were the by diseases cause of most instances of disease In 2014 we audited eight first aid sta- and death, which is generally consis- tions and developed corrective mea- 2014 tent with the overall situation in the sures. An emergency physician was Number of fatalities country. To respond to this problem, employed to work at the first aid sta- caused by diseases 6 Bashneft has developed a set of mea- tion at the R. Trebs field and provided at the Company’s sures specifically aimed at preven- with up-to-date medical equipment. facilities tion and treatment of cardiovascular Total man-hours 91.7 million diseases. In addition, under voluntary The Group has developed and put into Frequency of fatalities 0.06 health insurance contracts, some practice standards such as Prevention caused by diseases * companies forming part of Bashneft of Cardiovascular Diseases, Organi-

* Work-related fatalities caused by diseases Group implemented a programme zation of Emergency and Scheduled × 1,000,000 hours / number of man-hours aimed at preventing cardiovascular Medical Care for Employees and per year diseases and engaged primary care the HSE Policy Aimed at Protection physicians to provide medical care on of Employees’ Health and Prevention the shop floor. of Work-Related Fatalities. The Group has also developed and implemented The health protection action plan Emergency Medical Response Plans was included into the Functional HSE at all of its production facilities; in Strategy for 2013–2019. 2014 over 100 trainings involving all

Health protection initiatives for 2015:

/ Maximum engagement and partici- / Developing collective immunity / Identifying risks of diseases when pation of employees in the corpo- against influenza, pneumonia and holding sporting and public events; rate programme for preventing tick-borne encephalitis; / Organizing the work of new pri- cardiovascular diseases; / Organizing and holding Health mary care physicians on the shop / Working with people facing the risk Days focused on prevention floor. of cardiovascular diseases; of tuberculosis, giving up smoking, etc.; SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 101 POLICY AND SAFETY OF OPERATING REGIONS

‘WE ARE WELL AWARE OF THE IMPORTANCE OF THE COMPANY’S MANAGERS’ INVOLVEMENT AND THE EXAMPLE THAT THEY SET TO THEIR SUBORDINATES FOR THE DEVELOPMENT OF THE CORPORATE CULTURE. WE SEEK TO INVOLVE ABSOLUTELY ALL EMPLOYEES IN THE CREATION OF THE SYSTEM.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

relevant departments were conducted of senior management to the princi- The main elements of the pro- to exercise practical skills. Employ- ples of occupational safety and their gramme to enhance the safety ees are provided with first-aid train- implementation in practice. Guided culture are as follows: ing in accordance with international by this understanding, the manage- practices. ment of Bashneft is fully involved in / leadership development: senior the process of promoting occupation- management’s commitment To maintain and improve the employ- al safety practices: senior managers to the principles of occupational ees’ health, Health Days have been undergo training, conduct behavioural safety and their implementation introduced, including the Donor’s safety audit at production facilities in practice; Day, the Good Eyesight Day, the Acute and hold meetings with employees / more active involvement Respiratory Disease and Influenza over occupational safety. Measures of employees: changing their Prevention Day, the No Smoking Day taken by the management in this area mentality and overcoming their and the Work-Related Stress Preven- are controlled and monitored on the inertial reluctance to change; tion Day. basis of individual development plans / for senior management in the sphere motivation: development All employees undergo annual training of HSE. of employee incentive pro- in first aid in case of an accident in the grammes, including those based workplace under a revised training Since 2013 the Group has in place on non-financial incentives. programme based on international a standard entitled ‘HSE Leadership’ practices. Videos showing how to give and implements a comprehensive plan first aid have been made and will be to develop the safety culture. used for video briefings for the Com- pany’s employees and contractors. The Group uses the ‘Stop Work’ proce- dure, under which any employee may In 2015 the Group will take preventive stop working if there is a danger to the measures and measures aimed at life and health of employees. promoting healthy lifestyle among all employees. Great importance is attached to explaining and promoting the val- DEVELOPING THE CORPORATE ues of commitment to occupational CULTURE IN THE AREA safety: we create training materials OF OCCUPATIONAL SAFETY and provide training. The Group has implemented employee incentive Experience suggests that incidents programmes aimed at promoting often happen because of human the value of safe behaviour in the error. Therefore, the Group attaches workplace. great importance to the development of a safety culture. We are creat- Our approaches in the field of occu- ing conditions for building a culture pational safety have been formed on of zero tolerance towards violations in the basis of an understanding that it the area of occupational and industrial is necessary to involve employees in safety at all levels within the Group. the process of creating a safe working environment and to move away from A key prerequisite for forming a good purely supervisory functions. corporate culture is the commitment 102 SUSTAINABILITY REPORT 2014

TRAINING IN OCCUPATIONAL training required by law. The pro- exceeded 28 thousand person-cours- AND INDUSTRIAL SAFETY gramme was designed for mass train- es. The total number of people who ing for employees in 2013 and 2014 completed one of the most import- In order to develop employees’ com- and was aimed at developing the com- ant courses on occupational safety, petencies in occupational health and petencies of employees in accordance ‘Use of PPE’, totalled 19.5 thousand safety, we organize the relevant train- with international standards and best person-courses, including 17.5 thou- ing and assessment. practices in HSE management system sand person-courses delivered by the development. Group’s experts acting as in-house In 2013, under a resolution of the HSE trainers. Committee of the Board of Directors, In 2014 the total number of people a training programme was adopted; it who completed major courses (mea- is based on special corporate courses sured as the number of courses mul- supplementing the mandatory HSE tiplied by the number of recipients)

Corporate training programme in occupational and industrial safety, person-courses

2013 2014 Rules of Keeping Alive 25,092 4,144 Accident Investigation 2,172 346 Managers' Leadership and Behavioural Audit 1,340 1,508 Defensive Driving 812 1,038 Risk Assessment 1,801 1,119 Use of Personal Protective Equipment 1,168 19,582 OGP Reporting 37 26 Integrated Management Systems 0 172 Training of Trainers for HSE Divisions 0 59 Process Safety (HAZOP) 011 Total 32,422 28,005 SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 103 POLICY AND SAFETY OF OPERATING REGIONS

PROTECTING EMPLOYEES IN EMERGENCY SITUATIONS

Measures aimed at protecting employ- In 2012 and 2013 we made consid- OUR RESPONSIBILITY ees in emergency situations form an erable efforts to provide emergency integral part of our comprehensive response teams with the necessary To conduct rescue operations and approach to ensuring occupational equipment and install emergency pre- other emergency response activities, safety and protecting the health of our vention systems as part of our target the Group has formed three emergen- employees. programmes. In 2014 the Group spent cy response teams comprising a total of 150 employees. These teams are 27 million roubles on emergency in constant readiness. There are also Bashneft has in place an emergency prevention measures; the bulk of this volunteer emergency response teams prevention and response system. In amount was allocated for keeping civil totalling 2.4 thousand persons, who are 2014, in order to maintain this system defence and emergency teams and provided with special equipment and in constant readiness, we conducted resources prepared. vehicles. 216 exercises and trainings in oil spill response, firefighting operations and In addition, as part of our efforts accident containment. The exercises to provide a higher degree of protec- and trainings were attended by 7,725 tion, we implement two programmes: of shelters were carried out chiefly in employees, which is 6% more than in 2012 and 2013. In 2014 the Group took 2013. / maintaining shelters in constant measures to maintain the shelters in readiness; constant readiness. The Central Administration of EMER- COM of Russia in the Republic / integrating 3D modelling of poten- 3D models of potentially hazardous of Bash kortostan constantly monitors tially hazardous facilities into man- facilities are developed primarily in the state of fire safety systems and the agement procedures. order to make real-time manage- readiness of the Group’s employees ment decisions on the safe operation to respond to emergencies. Inspec- Bashneft maintains 100% of civil of facilities and accident containment. tions are carried out, and the Group’s defence shelters in constant readiness. The project was to be implement- employees and equipment are involved ed within several years. In 2014 the in republic-wide command and staff In 2014 the Group spent 3.8 million Group completed the development training. The teams of the Group’s roubles on maintaining its shel- of 3D models of potentially hazard- companies participate in repub- ters compared to 9.3 million roubles ous facilities located in the Republic lic-wide competitions and win prizes. in the previous year. Major repairs of Bashkortostan.

Expenditures on civil defence Expenditures on maintaining Expenditures on developing 3D and emergency measures, civil defence shelters, models of potentially hazardous million roubles million roubles facilities, million roubles

62.677.8 32.9 10.49.3 3.8 8.76.9 2.0 90 12 10

0.7 0.7 0.9 7.9 43.5 61.6 0.5 1.4 45 6 5 7.9 4.1 27.0 9.0 0.2 8.7 6.9 2.0 3.6 10.4 9.3 3.8 0.7 1.4 2.0 0 0 0 2012 2013 2014 2012 2013 2014 2012 2013 2014

Current expenditures on emergency prevention Retail sales and marketing Retail sales and marketing

Integrating 3D modelling of potentially hazard- Refining Refining ous facilities into management procedures Production Production Maintaining shelters in constant readiness 104 SUSTAINABILITY REPORT 2014

INDUSTRIAL SAFETY

‘WE SEEK TO ENSURE THAT OUR OPERATIONS MEET THE STRICTEST INDUSTRIAL SAFETY STANDARDS, AND OUR TOP PRIORITY IS TO SAFEGUARD OUR EMPLOYEES’ RIGHT TO SAFE WORKING CONDITIONS. WE AIM TO BECOME A LEADER AMONG RUSSIAN OIL COMPANIES IN TERMS OF HSE PERFORMANCE.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

Bashneft pays special attention / full compliance with industrial safe- control at hazardous production facil- to industrial safety. Operations in the ty requirements imposed by federal ities as one of the key mechanisms sphere of oil production and refining laws and regulations. to ensure process safety. The main involve the management of techni- objectives of the system include risk cally complex processes that require To ensure process safety at hazard- management, accident prevention and professionalism and responsibility. ous production facilities, the Company compliance with all process safety In the course of more than 70 years and its subsidiaries and affiliates take rules. of its operations, Bashneft has gained measures in several areas. In 2014 the the necessary competence and exten- Group spent 1.4 billion roubles on the In 2014 industrial control departments sive experience in ensuring process full range of measures to ensure pro- of the Company’s branches, subsid- safety at its oil-producing and refining cess safety (excluding expenditure on iaries and affiliates carried out 6.7 facilities. measures for improving the reliability thousand inspections, including 2.7 of pipelines). thousand inspections of contractors. The following actions are carried out The inspections revealed 39.2 thou- at all hazardous production facilities: As part of the measures in the field sand violations, 99.3% of which have of process safety, we give priority been remedied, while the rest are / systematic supervision to ensure to the implementation of programmes being remedied. that necessary tests and examina- to ensure compliance of hazardous tions of equipment are conducted on production facilities with process time; safety rules. In 2014 funding for these programmes totalled 1.1 billion rou- / timely repairs and tests of control bles, compared with 1.2 billion roubles measuring devices; a year earlier.

/ strict observance of technological Bashneft has developed and uses discipline; a multi-level system of industrial

Expenditure on process safety by area, million roubles

2012 2013 2014 Implementation of measures to ensure compliance of hazardous production facilities with process 963.0 1,214.9 1,142.4 safety rules Compulsory public liability insurance for owners of hazardous production facilities 34.0 32.1 26.2 Developing declarations of industrial safety for hazardous production facilities (including process 7.7 15.7 4.4 safety inspection) Process safety inspection aimed at extending the duration of safe operation of equipment 94.4 135.3 Expenditures on inspection, testing and maintenance of equipment and technical devices by 115.2 645.4 329.9 third-party organizations Developing an emergency response plan (including a process safety inspection) 14.1 7.6 0.3 Expenditures under contracts with professional emergency response teams 25.5 71.4 70.3 Total 1,313.0 1,806.9 1,341.1 SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 105 POLICY AND SAFETY OF OPERATING REGIONS

billion roubles 1.4INVESTMENT IN INDUSTRIAL SAFETY IN 2014 106 SUSTAINABILITY REPORT 2014 HIGH ASPIRATIONS

BILLION 1.4 ROUBLES

EXPENDITURE ON CHARITY WORK AND DEVELOPMENT OF SOCIAL INFRASTRUCTURE IN THE GROUP’S OPERATING REGIONS

BILLION 297 ROUBLES

TAX PAYMENTS TO BUDGETS OF VARIOUS LEVELS IN 2014

SOCIAL AND INFRASTRUCTURE 86 PROJECTS

FUNDED IN THE REPUBLIC OF BASHKORTOSTAN SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 107 POLICY AND SAFETY OF OPERATING REGIONS

CHARITABLE PROGRAMMES AND PARTICIPATION IN THE DEVELOPMENT OF OPERATING REGIONS

‘BASHNEFT IS THE FACE OF THE REPUBLIC. THIS IS A COMPANY THAT OPERATES BOTH IN THE RUSSIAN FEDERATION AND ABROAD. ULTIMATELY, WE SHOULD MAINTAIN A HIGH REPUTATION OF BASHNEFT AS A CORE COMPANY, AS THE LARGEST INDUSTRIAL ENTERPRISE OF OUR REPUBLIC. BASHNEFT RENDERS GREAT ASSISTANCE IN A LARGE NUMBER OF AREAS. IT TOTALS ABOUT A BILLION ROUBLES PER YEAR. THIS WONDERFUL COOPERATION HAS BEEN GOING ON FOR SEVERAL YEARS. I BELIEVE THAT THE FIGURES WILL NOT DECREASE BUT WILL GROW…’

Rustem Khamitov, President of the Republic of Bashkortostan

We see active involvement in chari- performance. We see the implemen- / Charitable support of population and table programmes in our operating tation of long-term programmes as local communities; regions as an important element an integral component of our efforts of the Group’s sustainable devel- to establish our business reputation, / Developing educational potential opment. Regional and local infra- while social significance of our efforts of the regions, promoting sports and structure development, voluntary is an important driver of the Compa- a healthy lifestyle. assistance to regions in emergency ny’s shareholder value. situations, implementation of long- term programmes to support edu- When implementing charitable proj- cation and sports, participation in ects, we focus on the following: community life: all these areas of our activity reflect the Group’s social / Identifying the needs and respect- OUR RESPONSIBILITY responsibility towards the population ing the interests of all stakeholders, of our operating regions. promoting open cooperation with The Group’s commitment to operating them; smoothly and sustainably and creating We strictly adhere to international- a suitable environment for new markets and for the life of future generations is ly recognized norms and standards / Targeted investments in the social the basis of our efforts in the sphere according to which charity and social sphere and infrastructure devel- of development of operating regions and responsibility are just as import- opment, as approved by local charity work. ant for the Group as its economic authorities; 108 SUSTAINABILITY REPORT 2014

PRINCIPLES OF SUSTAINABLE DEVELOPMENT OF OPERATING REGIONS AND CHARITY WORK

SUSTAINABLE DEVELOPMENT OF OPERATING REGIONS AND CHARITY WORK

PRINCIPLES TASKS

• The Group’s activities shall build a foundation for future well- • To improve the quality of life in the operating regions; being of society; • To create a favourable social environment for the achievement of strate- • The Company shall focus on the long-term prospect and invest gic business objectives and an increase in the Group’s capitalization; in socially significant projects; • To identify social priorities to be addressed through close cooperation • Introduction of effective mechanisms for allocation of funds for with administrations of the operating regions; charitable projects is the basis for promoting best practices; • To enhance public confidence in the Group and strengthen its public • Charity work shall be transparent and public as a prerequi- reputation; site for promoting the most advanced and effective forms of • To develop a harmonious dialogue and cooperation between the Group philanthropic work; and the main stakeholders representing local communities; • Social charitable projects involving the Company’s employees • To implement environmental projects aimed at improving the environ- are an additional instrument of our HR policy. ment.

We divide our projects in the sphere We do not participate in the projects / Code of Ethics of JSOC Bashneft; of charity work and sustainable devel- which may impact decision-making opment of operating regions into two by public authorities and local gov- / Policy on Corporate Social Respon- notional groups: ernments with regard to the Group’s sibility of JSOC Bashneft; operations, or make political donations. / Participation in charitable proj- We exercise mandatory control over the / Anti-Corruption policy of JSOC ects and programmes which make use of funds allocated for implemen- Bashneft; a tangible impact on achievement tation of charitable projects in order of socially significant goals and to ensure that they are used appropri- / Procedure for Organizing Charity positively influence the Company’s ately. G4 SO6 Work of JSOC Bashneft; business reputation as a socially responsible corporate citizen; The Group’s charity work is regulated / Regulations on the Charity Commis- by a number of internal documents sion of JSOC Bashneft; / Participation in educational, complying with the requirements research, innovative projects and of Russian and applicable internation- / Agreements with regional and local programmes aimed at replenishing al legislation: administrations on Group’s partici- the talent pool and strengthening pation in social and economic devel- the Company’s reputation of the / Charter of JSOC Bashneft; opment of the regions. most attractive employer. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 109 POLICY AND SAFETY OF OPERATING REGIONS

ECONOMIC IMPACTS ON OPERATING REGIONS G4-EC7

We aim to use a systematic approach As a responsible subsoil user, employ- Forms of economic impact, million to cooperation with regions taking into er and corporate citizen, the Group roubles account long-term priorities of the closely cooperates with representa- 1,441 1,441 Group and strategies for regional tives of local communities. We render development. The Group plays a con- immediate assistance to them, includ- 1,182 Expenditure on siderable part in the development ing financial support. The Group pro- participation in the of its operating regions as it is a major tects and preserves indigenous peoples life of communities, development of social employer and taxpayer and invests living in the areas of its operations. In infrastructure in heavily in infrastructure development, 2014 no violations of the rights of indig- operating regions and charity work maintenance and repairs, moderniza- enous minorities were reported. Simi- tion of its facilities and professional larly, there were no significant conflicts 2012 2013 2014 development of its employees. with local communities or indigenous 296,937 minorities in the reporting year. 255,844 The Group’s main operating region is 239,406 the Republic of Bashkortostan. JSOC We define an indigenous people as Bashneft is the largest taxpayer in a people whose ethnic identity has the Republic of Bashkortostan: tax developed historically in a given terri- Tax payments to budgets payments of the oil business account tory. The Group receives the relevant of various levels* for over a half of the budget of Ufa information from regional authorities and constitute a considerable part and local administrations. We practise 2012 2013 2014 of the Republic’s budget. Although a specially designed format of mutu- * Including all tax payments stipulated by tax the Group is expanding its business ally beneficial relations with repre- legislation, as well as export customs duties and regular charges for subsoil use. The amounts rep- into new regions, Bashneft’s manage- sentatives of indigenous minorities resent taxes paid by all companies forming part of ment intends to continue following in the Nenets Autonomous District Bashneft Group in the relevant reporting periods. a focused policy aimed at maintain- (the operating region of LLC Bash- ing the current level of tax payments neft-Polyus) and the Khanty-Mansi to the region. Autonomous District (the operating region of LLC Bashneft-Dobycha). In PARTICIPATION IN THE LIFE the Nenets Autonomous District, the Budget revenues of the Republic OF LOCAL COMMUNITIES Group holds regular public consulta- of Bashkortostan and tax payments tions with representatives of indig- made by JSOC Bashneft to the Bashneft addresses the needs of local enous peoples on the development budget of the Republic communities by actively participating of the R. Trebs and A. Titov fields. All in the economic and cultural develop- issues related to the Group’s opera- ment of its operating regions and pro- tions are regularly discussed at work- 132.6 140 25% tecting the environment for the benefit ing meetings and conferences with 121.7 116.8 of future generations. The Group puts representatives of local administra- 20% this concept into practice by achieving tions. G4-HR8, G4-OG10 its strategic objectives with due regard 15% 14% 15% 70 for the interests of local communities Frequently used forms of partnership 12% 10% and a commitment to meet their rea- between the Group and local commu- sonable expectations. nities include leasing land plots in the 17.2 17.5 16.3 5% areas where Bashneft carries out con- Basic principles, areas and priorities struction and operations. When doing 0 0% 2012 2013 2014 of management of the Group’s coop- so, Bashneft compensates for losses eration with stakeholders whose level from the use of natural resources and Budget revenues of the Republic, billion and quality of life are influenced by its environmental damage. Contracts roubles operations are defined in the Policy for reimbursement (compensation) Bashneft’s tax payments to the budget of the Republic, billion roubles on Corporate Social Responsibility of losses have been signed with local Share of Bashneft’s tax payments in the budget of JSOC Bashneft. national communities when allocating revenues of the Republic 110 SUSTAINABILITY REPORT 2014

land for the Group’s operations. Over- ‘Rhythms of the Arctic’ for the Cup Agreements with indigenous minorities all, in 2014 the Group allocated about of the Governor of the Nenets Autono- in the Nizhnevartovsky District of the 24 million roubles for these purposes mous District, etc.). G4-OG12 Khanty-Mansi Autonomous District in the Nenets Autonomous District. We have concluded six agreements on At the same time, we did not perform The Group sponsors the preserva- the use of land for mining purposes in any operations leading to resettlement tion of traditional crafts, education the traditional hunting grounds of indig- of private households. G4-OG9 and social support of population and enous Arctic minorities with holders indigenous Arctic minorities, as well of the right to traditional land use in the We regularly and actively participate as major repairs of housing and social Khanty-Mansi Autonomous District. The territory covered by the Group’s opera- in national celebrations and cultur- facilities. tions in the Nizhnevartovsk municipality al events in the Group’s operating includes six communal family areas. regions on an annual basis (these The Group has entered into separate include the Plough Day – Sabantuy in OUR RESPONSIBILITY agreements with each family, drafted the Republic of Bashkortostan and in to reflect their specific needs. These the Khanty-Mansi Autonomous Dis- Bashneft’s operations have a very strong economic agreements cover a total of 23 persons (family members). In 2014 the trict, Buran-Dey and the Day of Deer impact on regional economy, account- ing for more than 60% of gross regional Group paid 958 thousand roubles to the in the Nenets Autonomous District, an product. owners of communal family lands. annual ballroom dancing competition

TARGET PROGRAMMES AND CHARITY WORK

’MONEY IS ALLOCATED FOR SPECIFIC PROJECTS FROM AN APPROVED LIST. CERTAINLY, THERE ARE TANGIBLE RESULTS: COMPLETED SCHOOLS, HOSPITALS, SPORTS FACILITIES AND SO ON.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

As part of its policy on corporate social terms of the financial and legal form by the Charity Commission of JSOC responsibility, Bashneft implements of partnership: Bashneft; a wide range of social programmes in the field of education, supports / Implementation of agreements on / Programmes in the field of develop- regional infrastructure and social social and economic cooperation ment of education, arts and sports projects, and provides assistance in with administrations of the Group’s implemented by the Corporate Cen- the form of private donations. operating regions; tre of the Group. This group of pro- grammes is aimed at supporting In the course of its work in these / Provision of targeted social assis- talented children and young people areas, Bashneft cooperates with tance by the Group and its subsid- and improving the Group’s social recipients of charitable support iaries and affiliates. The decision on image. in a number of ways that differ in participation in the projects is made SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 111 POLICY AND SAFETY OF OPERATING REGIONS

Besides, the Group supports and Charitable funding for projects in OUR RESPONSIBILITY promotes charity work as part of the Bashkortostan is provided under ‘Kind Hearts’ volunteer movement. a donation agreement between the Overall, between 2009 and 2014 chari- Group and the Fund of Targeted table funding for social facilities in the Republic of Bashkortostan exceeded GEOGRAPHICAL FOOTPRINT Social Programmes of the Republic 7.5 billion roubles. During those years, OF THE GROUP’S CHARITY of Bashkortostan. Bashneft’s charitable programmes WORK covered 13 towns and 47 districts In 2014 the Group allocated 1.1 million representing 83% of Bashkortostan’s roubles to support social development population. REPUBLIC OF BASHKORTOSTAN in the Republic of Bashkortostan. In the reporting year, we made a major Bashneft provides charitable fund- effort to compile a list of facilities that  For details on volunteering, see the ing for construction, renovation and require funding with assistance from section ‘Personnel Development and repairs of social facilities in Bash- senior management of the Group’s the Group’s Social Policy’ kortostan on an annual basis. The subsidiaries in our operating areas lists of such facilities are compiled by and heads of local administrations. the Company in cooperation with its The resulting List included 86 facili- operational units and local authorities ties. In 2014 the scope of charitable and are approved by the Government funding covered 29 districts and 13 cit- of Bashkortostan. ies in the Republic of Bashkortostan.

Charitable funding for social development of the Republic of Bashkortostan by functional area, million roubles

Area of funding 2012 2013 2014 Share in 2014 0.2% Health care 65 25 208 15.4% 10.7% Sports 510 611 145 10.7% 26% Education 325 221 237 17.5% 11.5% Infrastructure 158 154 352 26.0% Religion 74 – – 0.0%

Culture 49 84 155 11.5% 15.4% Other 22 5.0 3 0.2% 18.5% Assistance in responding to natural disasters – – 250 18.5% Total 1,203 1,100 1,350 100% 17.5%

Charitable funding for major projects in the Republic of Bashkortostan in 2014, million roubles

Project Expenditure Major repairs of the main building of the Central District Hospital in the village of Bakaly 50 Design and construction of a multifunctional cultural centre in Birsk 50 Design and construction of the 2nd stage of Tuimazy Arena, a Multifunctional Ice Sports Complex in Tuimazy 25 Major repairs of a primary school building for the secondary general school in the village of Yazykovo, including prepara- 25 tion of design specifications and cost estimates Design and construction of an indoor skating rink in Kumertau 40 Construction of cultural, sports and recreational facilities in Ufa 36 Construction of a gym extension to the main building of High School No. 39 in Ufa 21.2 Major repairs of Secondary General School No. 5 in Dyurtyuli 40 Design and construction of a sports and recreation complex with a swimming pool in the village of Yermekeyevo 50 Renovation of the heat supply system and major repairs of the heat supply network in the village of Verkhneyarkeyevo 65 Renovation of water intake facilities and the Sosnovka-Krasnokholmsky water pipeline 40 Major repairs of a community centre in the village of Isimovo 37.4 Major repairs of a secondary general school building in Novokhvalynsky 30.3 Construction of a landfill site for solid household waste in Tuimazy (2nd stage) 38.5 Completion of a water pipeline between Teperishevo, Albeyevo and Chukrakly 21.5 Major repairs of a school building (Secondary General School named after Gareev) and the expansion of the school gym 44.8 in Yanaul 112 SUSTAINABILITY REPORT 2014

OUR RESPONSIBILITY Republic of Bashkortostan with of the existing site, and it will be built high-quality drinking water. in accordance with advanced stan- Supply of high-quality water to people dards to reduce environmental risks. is the foundation of public health. We The programme involves financing upgrade water treatment facilities, of the following projects: water intake facilities and pump sta- NENETS AUTONOMOUS DISTRICT tions, restore springs, build and repair / development of design specifica- water supply systems. tions and cost estimates; In 2012 a Cooperation Agreement was signed between the Administration / complete reconstruction and major of the Nenets Autonomous District OUR ACHIEVEMENTS repairs of the existing water intake and LLC Bashneft-Polyus, JSOC Bash- facilities; neft’s subsidiary. As part of the programme, from 2011 through 2014 Bashneft provid- / construction of new water intake The agreement reflects mutual com- ed financial assistance for the resto- facilities, pipelines and water supply mitment of the Group and the Admin- ration of dozens of springs in areas of Bashkortostan facing problems with networks; istration of the Nenets Autonomous water supply, as well as for construction District to maintaining a stable social of many kilometres of water pipelines, / drilling and construction of water and economic situation in the District, repairs of water supply networks and wells; creating a favourable investment cli- other projects. mate and promoting the welfare of all / construction of water towers. its residents.

In 2014 the Company allocated over The agreement is valid until the end In 2014 the Group provided the full 147 million roubles to finance proj- of 2016 and stipulates that the Group amount of charitable funding in accor- ects forming part of the programme. should invest in the following areas: dance with the above List. Overall, in The largest projects forming part the reporting year it allocated 1.35 of the water programme financed by / Development of social and economic billion roubles, including 1.1 billion Bashneft in 2014 as part of its char- infrastructure of the Nenets Autono- roubles in accordance with the List ity work were implemented in the mous District; of Social Facilities in the Republic Krasnokamsky District (major repairs of Bashkortostan, and 250 million rou- of the Urazayevo pump station and / Creation of new jobs in the District; bles in financial aid for the recovery the Sabanchi-Redkino water main), after a natural disaster which struck the Kaltasinsky District (renova- / Implementation of charitable the north-west of Bashkortostan on tion of water intake facilities and the projects. August 29, 2014. Sosnovka-Krasnokholmsky water pipeline), and the Chishminsky Dis- Charitable projects are financed Parameters of the charitable pro- trict (completion of a water pipe- through direct targeted charitable gramme for 2015 are being discussed. line between Teperishevo, Albeye- contributions. In the reporting year the We plan to maintain the level of fund- vo and Chukrakly) of the Republic volume of the Group’s charitable pro- ing for high-priority programmes of Bashkortostan. grammes in the Nenets Autonomous (education, health care, and environ- District totalled 43 million roubles as ment) comparable with 2014. Between 2011 and 2014 the Group compared to 30.3 million roubles in allocated over 527 million roubles for the previous year. Environmental projects the financing of the environmental water programme. In 2014 the Group provided charitable Oil has been produced in the Repub- funding in the Nenets Autonomous lic of Bashkortostan for many years, The Group plans to continue District for the following areas: which creates a high environmen- the implementation of projects tal impact. To minimize the negative to restore and improve the water / Education (buying equipment for impact of its operations, the Group supply system across the Republic educational institutions of the pays special attention to implemen- of Bashkortostan. District); tation of environmental projects in Bashkortostan. Apart from the water programme, we / Environment (beautification of the allocated nearly 50 million roubles for village of Iskateley); In 2014 JSOC Bashneft contin- the construction of a landfill site for ued implementing the programme solid household waste in Tuimazy. The / Projects in the field of sports, cul- aimed at providing the districts of the new landfill with be a timely extension ture, education, social assistance. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 113 POLICY AND SAFETY OF OPERATING REGIONS

‘BASHNEFT-POLYUS WILL CONTINUE TO IMPLEMENT TARGETED SOCIAL PROJECTS IN COOPERATION WITH THE GOVERNMENT OF THE NENETS AUTONOMOUS DISTRICT FOR THE BENEFIT OF ALL RESIDENTS OF THE REGION.’

Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board

ORENBURG REGION The scope of financing and its intend- in the town of Marksovsky and the Lei- ed use are specified annually in pro- sure Centre in the village of Dmitrievka In March 2013 the Administration tocols to the Agreement. In 2014, 20 in the Alexandrovsky District; reno- of the Orenburg Region signed the million roubles were spent to support vation of the Skazka nursery school, Agreement on Participation of JSOC social development of the region as the Repinskaya and Arkhangelskaya Bashneft in Social and Economic planned, including 3 million roubles schools in the Orenburgsky District; Development of the Orenburg Region; to each of the following districts: Alex- construction of the Walk of Fame in the Agreement is valid until 2016. Its androvsky, Oktyabrsky, Perevolotsky the Oktyabrsky District and hockey aim is to create favourable conditions and Orenburgsky, where the Group pitches in the Perevolotsky District, for economic and social develop- produces oil. In addition, we allocat- and the purchase of equipment for ment of the region. Bashneft plans ed 8 million roubles for the financing regional health care institutions. to increase the scope of its core oper- of regional programmes. ations in the region and to continue In addition, in 2014 we provided finan- participating in projects focused on Charitable projects implemented in the cial assistance amounting to 1 million sustainable social development of the Orenburg Region in 2014 include ren- roubles at the Governor’s request Orenburg Region. ovation of a secondary school building to repair the damage from a fire.

million roubles 43SCOPE OF CHARITABLE PROGRAMMES IN THE NENETS AUTONOMOUS DISTRICT 114 SUSTAINABILITY REPORT 2014

KHANTY-MANSI AUTONOMOUS / Uniform criteria for analysing appli- DISTRICT cations and making decisions;

In July 2013 the Administration of the / Subsidiaries obtain preliminary Nizhnevartovsky District of the Khan- approval for charity work from the ty-Mansi Autonomous District and Charity Commission; JSOC Bashneft signed an Economic Agreement; it provides for social and / Development of effective GR com- economic cooperation of the parties. munications as part of implemen- Under a Supplementary Agreement tation of independent charitable signed in 2014, the Economic Agree- projects. ment was renewed till July 2015. Under the agreement, the amount In 2014 the Group’s expenditure on Emotional, proactive and enthusiastic: of charitable funding to be provided by this area of charity work totalled 18.5 these are the qualities which charac- the Group will total 2 million roubles, million roubles. terize the participants of the ‘Lift to the which will be allocated for tackling the Future’ project. The 2014 programme involved numerous employees of the following primary tasks: Although the scale of charitable sup- BashNIPIneft Institute, who conducted port is rather small, measures of this guided tours, gave lectures, presented / Development of social infrastructure kind remain an important channel for business cases to solve and answered in the Nizhnevartovsky District; providing social support to individual questions. The Summer School in representatives of local communities. Bashkortostan was definitely a great / success: its participants tested their Preservation of traditional crafts skills by participating in challenging of indigenous peoples of the Arctic, projects, visited Bashneft’s production including fur farming; DEVELOPMENT OF EDUCATION, facilities and worked alongside the ARTS AND SPORTS AND Company’s professionals to accom- / Construction and major repairs OTHER SOCIAL PROGRAMMES plish their tasks. While in the past the of housing and social facilities; IMPLEMENTED BY THE GROUP’S programme had focused on individual creativity, this year we have shifted our CORPORATE CENTRE focus to team research and exploration / Social support of population. and have obtained outstanding results. We sponsor a number of charitable projects aimed at promoting educa- TARGETED CHARITABLE PROJECTS tion, arts and sports targeted at chil- OUR RESPONSIBILITY OF THE GROUP, ITS SUBSIDIARIES dren and young people as part of the AND AFFILIATES external social policy of the Group We provided financial assistance to dis- focused on stimulating the inter- trict administrations of the Yutazinsky The Company actively implements est of children and young people in and Bavlinsky Districts of the Republic an independent programme aimed at self-development. We support young of Tatarstan (8.2 million roubles), the providing targeted charitable sup- talents and see such projects as an Oktyabrsky DOSAAF Sports Club (0.3 port. As a rule, these are small direct efficient and effective instrument for million roubles) and the Association of Geological Organizations (0.3 mil- one-time donations to individuals and investing in the future of the younger lion roubles), as well as to individuals non-profit organizations. A thor- generation. In addition to the above (a total of more than 1 million roubles). ough comprehensive analysis of their objectives, these projects enhance the applications is carried out; following social image of the Group. the analysis, a special collective body of the Group, the Charity Commis- Measures forming part of this group sion, makes a decision on providing of charitable projects are planned, charitable support on a case-by-case budgeted and implemented by the basis. HR Unit, the Corporate Communica- tions Department and the Govern- Work of the Charity Commission is ment Relations Department. They based on the following principles: are financed from the budget of the departments and under agreements / Analysis of absolutely all appli- on participation of JSOC Bashneft in cations of individuals and social and economic development organizations; of its operating regions. SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 115 POLICY AND SAFETY OF OPERATING REGIONS

In 2014 Bashneft held a number totalled 2.3 million roubles, and the of events and continued to implement size of scholarships was increased by programmes aimed at promoting arts, 60% as compared to the previous aca- sports and education. We held the demic year. In the reporting year, the annual tournament among children’s scholarship programme was incor- teams of the Republic of Bashkorto- porated into the Group’s Programme stan for JSOC Bashneft’s Cup, which to Attract Young Professionals. has already become a tradition, and the ‘I Choose Sports!’ Arts Contest for We never forget World War II veter- children of the Group’s employees, ans who used to work in our produc- which attracted over 500 participants. tion units. Each year, volunteers help to organize the Victory Day celebra- We continued our innovative educa- tions. We hold celebrations to mark tional project launched in 2010, ‘I Want the Defender of the Motherland Day to Become an Oilman!’ The pro- and local concerts for veterans. Apart OUR RESPONSIBILITY gramme includes annual multi-dis- from congratulatory events, we spon- cipline academic competitions for sor treatment in corporate health The scholarship programme is aimed at schoolchildren of all ages. This year, resorts for veterans who need expert developing higher education, stimulat- our programme was highlighted by medical care. ing the interest of students in scientific research, enhancing the prestige of pro- the steering committee of the XXI fessions in the fuel and energy industry World Oil Congress as a noteworthy In 2014 the Group allocated a total and attracting talented young people CSR project. of 8.7 million roubles for projects in to Bashneft. this area of charity work. We also continued to sponsor JSOC  For more details, see ‘Personnel – Bashneft’s scholarship programme Social Policy – Recruitment of young for students of Ufa State Petroleum professionals’ Technological University (USPTU). In 2014 expenditure on the programme

IMPROVEMENT OF THE GROUP’S SYSTEM FOR CHARITABLE FUNDING

The Group continues to improve the / The Procedure for Organizing / The Company introduced anti-cor- system for managing and providing Charity Work of JSOC Bashneft ruption standards applicable to the charitable funding in order to allocate was introduced; it defines the key process of making decisions to pro- funds more efficiently. areas and principles of charity vide charitable support, select- work of the Company, the proce- ing recipients, areas and formats In the reporting year, the Company dure for consideration of requests of charitable support, and receiving analysed the outcome of its charity for charitable support submitted reports from the recipients on the projects in 2013 and made a number to Bashneft and criteria for mak- intended use of donations; of improvements to enhance the effi- ing decisions on them, the proce- ciency of its system of charity work on dure for implementing decisions / It was decided to focus on chari- the basis of the findings. The resulting on providing charitable support table projects fully financed by the changes included the following: (sponsorship); Company. 116 SUSTAINABILITY REPORT 2014 HIGH ACCURACY IN DETAILS SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 117 POLICY AND SAFETY OF OPERATING REGIONS

APPENDICES

APPENDIX 1. GRI CONTENT INDEX

GENERAL STANDARD DISCLOSURES

Indicator Section (or disclosure made in the table) Page External assur- ance STRATEGY AND ANALYSIS

G4-1 A statement from the most senior decision-maker Yes Address by the Chairman of the Board of Directors and 8-9 No of the organization the President of JSOC Bashneft

G4-2 Description of key impacts, risks, and opportunities Yes Corporate governance – Risk management system and 44 No internal control Sustainable Development – Achievements in the sphere 20-21 of sustainable development About the Group – Business model and geographical 27 footprint About the Group – Position in the industry 31

ORGANIZATIONAL PROFILE

G4-3 The name of the organization Yes Contact details 130 No

G4-4 The primary brands, products, and services Yes About the Group – Strategy and operating results 32-37 No Main types of liquid petroleum products sold via Bash- neft’s network of filling stations are listed at http://www.bashneft-azs.ru/production/quality/ Main types of engine lubricants produced by Bashneft are listed at http://www.bashneft-azs.ru/production/oil/ Main types of petrochemical products are listed in the Annual Report of JSOC Bashneft for 2014

G4-5 The location of the organization’s headquarters Yes Contact details 130 No

G4-6 The number of countries where the organiza- Yes About the Group – Business model and geographical 28-29 No tion operates, and names of countries where either footprint the organization has significant operations or that are specifically relevant to the sustainability topics covered in the report

G4-7 The nature of ownership and legal form Yes The nature of ownership: shared ownership. -No Legal form: open joint-stock company

G4-8 The markets served Yes About the Group – Business model and geographical 28-29 No footprint

G4-9 The scale of the organization Yes About the Group – Position in the industry 31 No

Strategy and operating results 37

G4-10 Total number of employees (broken down by Yes Personnel and Social Policy – Our employees 64 No various aspects)

G4-11 The percentage of total employees covered by Yes All of the Group’s employees are covered by a collective -No collective bargaining agreements agreement 118 SUSTAINABILITY REPORT 2014

Indicator Section (or disclosure made in the table) Page External assur- ance G4-12 Supply chain of the organization Yes About the Group – Business model and geographical 30 No footprint

G4-13 Significant changes during the reporting period Yes Sustainable Development – Key events 18-19 No About the Group – Structure of the Group 25 About the Group – Strategy and operating results 33

G4-14 Report whether and how the precautionary Yes Sustainable Development – Charters and membership of 17 No approach or principle is addressed by the organization associations (Principle 15 of the Rio Declaration on Environment and Development of the UN, 1992)

G4-15 Externally developed economic, environmental Yes Sustainable Development – Charters and membership of 17 No and social charters, principles, or other initiatives to associations which the organization subscribes or which it endorses

G4-16 Memberships of associations Yes Sustainable Development – Charters and membership of 17 No associations

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES

G4-17 List all entities included in the organization’s con- Yes About the Report – General provisions 10 No solidated financial statements or equivalent documents. Report whether any entity included in the organization’s consolidated financial statements or equivalent docu- ments is not covered by the report

G4-18 Process for defining the report content Yes About the Report – Definition of material aspects and 11 No their boundaries

G4-19 List of all the material Aspects identified in the Yes About the Report – Definition of material aspects and 11 No process for defining report content their boundaries Appendix 2 ‘Material aspects of Bashneft’s business’

G4-20 Aspect Boundary within the organization for each Yes About the Report – Definition of material aspects and 11 No material Aspect their boundaries

G4-21 Aspect Boundary outside the organization for Yes About the Report – Definition of material aspects and 11 No each material Aspect their boundaries

G4-22 The effect of any restatements of information Yes About the Report – Differences from the Sustainability 11 No provided in previous reports, and the reasons for such Report for 2013 restatements

G4-23 Significant changes from previous reporting peri- Yes About the Report – Differences from the Sustainability 11 No ods in the Scope and Aspect Boundaries Report for 2013

STAKEHOLDER ENGAGEMENT

G4-24 A list of stakeholder groups engaged by the Yes Stakeholders 50 No organization

G4-25 The basis for identification and selection of stake- Yes Stakeholders 49 No holders with whom to engage

G4-26 The organization’s approach to stakeholder Yes Stakeholders 50 No engagement, including frequency of engagement by type and by stakeholder group, and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process

G4-27 Key topics and concerns that have been raised Yes Stakeholders – Key areas of stakeholder engagement 59 No through stakeholder engagement, and how the organi- zation has responded to those key topics and concerns

REPORT PROFILE

G4-28 Reporting period for information provided Yes About the Report – General provisions 10 No

G4-29 Date of most recent previous Yes About the Report – General provisions 10 No sustainability report (if any)

G4-30 Reporting cycle Yes About the Report – General provisions 10 No SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 119 POLICY AND SAFETY OF OPERATING REGIONS

Indicator Section (or disclosure made in the table) Page External assur- ance G4-31 The contact point for questions regarding the Yes Contact details 130 No report or its contents

G4-32 The ‘in accordance’ option the organization has Yes About the Report – General provisions 10 No chosen. The GRI Content Index for the chosen option. The reference to the External Assurance Report, if the report has been externally assured

G4-33 The organization’s policy and current practice Yes About the Report – General provisions 11 No with regard to seeking external assurance for the report

GOVERNANCE

G4-34 The governance structure of the organization, Yes Corporate governance – Corporate governance structure 39 No including committees of the highest governance body and committees responsible for decision-making on economic, environmental and social impacts of the organization

G4-35 The process for delegating authority for econom- No No ic, environmental and social topics from the highest gov- ernance body to senior executives and other employees

G4-36 Report whether the organization has appointed Yes The Group has not appointed a position of this kind com- -No an executive-level position or positions with respon- bining the powers and bearing responsibility for all these sibility for economic, environmental and social topics, matters and whether post holders report directly to the highest governance body

G4-37 Processes for consultation between stakeholders Yes Stakeholders – Regulatory bodies 57 No and the highest governance body on economic, environ- LLC Bashneft-Polyus, a subsidiary of JSOC Bashneft, mental and social topics holds regular public consultations on the implementation of the project to develop the R. Trebs and A. Titov fields. Participants of the consultations include representatives of the Group’s management. In addition, the Group’s management regularly cooperates with government representatives at all levels.

G4-38 The composition of the highest governance body Yes Corporate governance – Structure and powers of the 40 No and its committees Group’s governance bodies Details on the composition of the Board of Directors and the Board committees are provided in the Annual Report of JSOC Bashneft for 2014

G4-39 Report whether the Chair of the highest gover- Yes The Chairman of the Board of Directors of JSOC Bashneft -No nance body is also an executive officer is not an executive officer of the Company

G4-40 The nomination and selection processes for the Yes Corporate governance – Structure and powers of the 39 No highest governance body and its committees Group’s governance bodies

G4-41 Processes for the highest governance body to Yes Corporate governance – Prevention of conflicts of interest 43 No ensure conflicts of interest are avoided and managed

G4-42 The highest governance body’s and senior execu- Yes Corporate governance – Structure and powers of the 39-40 No tives’ roles in the development, approval, and updating of Group’s governance bodies the organization’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental and social impacts

G4-43 The measures taken to develop and enhance No No the highest governance body’s collective knowledge of economic, environmental and social topics

G4-44 The processes for evaluation of the highest gover- Yes Corporate governance – Self-assessment of the Board 40-41 No nance body’s performance with respect to governance of of Directors and its Committees economic, environmental and social topics and actions taken in response to evaluation of the highest gover- nance body’s performance with respect to governance of economic, environmental and social topics 120 SUSTAINABILITY REPORT 2014

Indicator Section (or disclosure made in the table) Page External assur- ance G4-45 The highest governance body’s role in the identi- Yes Corporate governance – Structure and powers of the 39-40 No fication and management of economic, environmental Group’s governance bodies and social impacts, risks, and opportunities

G4-46 The highest governance body’s role in reviewing Yes Corporate governance – Risk management system and 43-45 No the effectiveness of the organization’s risk management internal control processes for economic, environmental and social topics

G4-47 The frequency of the highest governance body’s Yes Corporate governance – Structure and powers of the 40 No review of economic, environmental and social impacts, Group’s governance bodies risks, and opportunities

G4-48 The highest committee or position that formally Yes The Sustainability Report is approved by the Board of -No reviews and approves the organization’s sustainability Directors of JSOC Bashneft report

G4-49 The process for communicating critical concerns Yes During weekly meetings, senior executives provide the -No to the highest governance body Group’s president with information, including information on all major concerns. In addition, the Group has in place a Hotline enabling anyone wishing to communicate critical concerns to the Group’s management to do so via a phone call, by email, by filling in a feedback form on the Group’s website or by sending a letter by mail

G4-50 The nature and total number of critical concerns No No that were communicated to the highest governance body and the mechanisms used to address and resolve them

G4-51 The remuneration policies for the highest gov- Yes Corporate governance – Remuneration and compensa- 41-42 No ernance body and senior executives and performance tions criteria Annual Report of JSOC Bashneft for 2014

G4-52 The process for determining remuneration Yes Corporate governance – Remuneration and compensa- 41-42 No tions

G4-53 Report how stakeholders’ views are sought and No No taken into account regarding remuneration

G4-54 The ratio of the annual total compensation for No No the organization’s highest-paid individual to the median annual total compensation for all employees

G4-55 The ratio of percentage increase in annual total No No compensation for the organization’s highest-paid indi- vidual to the median percentage increase in annual total compensation for all employees

ETHICS AND INTEGRITY

G4-56 The organization’s values, principles, standards Yes Sustainable Development – Aims and values in the sphere 14 No and norms of behaviour such as codes of conduct and of sustainable development and the Group’s mission codes of ethics

G4-57 The internal and external mechanisms for seek- Yes The Group has in place a compliance function, whose -No ing advice on ethical and lawful behaviour, and matters work is aimed at maintaining high standards in corporate related to organizational integrity governance and transparency of operations. Bashneft’s employees can receive advice on issues of ethical and lawful behaviour and compliance of their actions with Bashneft’s Code of Ethics from the Compliance Officer (the Chief Auditor)

G4-58 The internal and external mechanisms for report- Yes The Group runs a hotline, ‘Employees Raise Concerns’ - No ing concerns about unethical or unlawful behaviour, and matters related to organizational integrity SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 121 POLICY AND SAFETY OF OPERATING REGIONS

SPECIFIC STANDARD DISCLOSURES

Indicator Section (or disclosure made in the table) Page External assurance CATEGORY: ECONOMIC

ASPECT: ECONOMIC PERFORMANCE

G4-EC1 Direct economic value generated and distrib- Yes About the Group – Strategy and operating results 37 No uted

G4-EC2 Financial implications and other risks and No No opportunities for the organization’s activities due to climate change

G4-EC3 Coverage of the organization’s defined benefit Yes The Group’s pension scheme forms part of the statutory -No plan obligations pension insurance system

G4-EC4 Financial assistance received from govern- Yes Stakeholders – Regulatory bodies 58 No ment

ASPECT: MARKET PRESENCE

G4-EC5 Ratios of standard entry level wage compared Yes Personnel and Social Policy – Incentives and remuneration 66 No to local minimum wage at significant locations of operation

G4-EC6 Proportion of senior management hired from No No the local community at significant locations of opera- tion

ASPECT: INDIRECT ECONOMIC IMPACTS

G4-EC7 Development and impact of infrastructure Yes Charitable Programmes and Participation in the Devel- 109 No investments and services supported opment of Operating Regions – Economic impacts on operating regions

G4-EC8 Significant indirect economic impacts, includ- No No ing the extent of impacts

ASPECT: RESERVES

G4-OG1 Volume and type of estimated proved reserves Yes About the Group – Strategy and operating results 33 No and production

CATEGORY: ENVIRONMENTAL

ASPECT: MATERIALS

G4-EN1 Materials used by weight or volume Yes About the Group – Business model and geographical 30 No footprint

G4-EN2 Percentage of materials used that are recycled No No input materials

ASPECT: ENERGY

G4-EN3 Energy consumption within the organization Yes Environmental Protection – Energy efficiency 91-93 No

G4-EN4 Energy consumption outside of the organiza- No No tion

G4-EN5 Energy intensity Yes Environmental Protection – Energy efficiency 93 No

G4-EN6 Reduction of energy consumption Yes Environmental Protection – Energy efficiency 92 No

G4-EN7 Reduction in energy requirements of products Yes Environmental Protection – Energy efficiency 93 No and services

G4-OG2 Total amount invested in renewable energy Yes The Group does not invest in renewable energy - No

G4-OG3 Total amount of renewable energy generated Yes The Group does not generate renewable energy - No by source 122 SUSTAINABILITY REPORT 2014

Indicator Section (or disclosure made in the table) Page External assurance ASPECT: WATER

G4-EN8 Total water withdrawal by source Yes Environmental Protection – Protection of water resources 84 No

G4-EN9 Water sources significantly affected by with- Yes Environmental Protection – Protection of water resources 86 No drawal of water

G4-EN10 Percentage and total volume of water recy- Yes Environmental Protection – Protection of water resources 84 No cled and reused

ASPECT: ECOSYSTEM SERVICES INCLUDING BIODIVERSITY

G4-EN11 Operational sites owned, leased, managed No No in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas

G4-EN12 Description of significant impacts of activi- No No ties, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas

G4-EN13 Habitats protected or restored Yes Environmental Protection – Biodiversity 90 No

G4-EN14 Total number of IUCN Red List Species and Yes Environmental Protection – Biodiversity 90 No national conservation list species with habitats in areas affected by operations, by level of extinction risk

G4-OG4 Number and percentage of significant operat- No No ing sites in which biodiversity risk has been assessed and monitored

ASPECT: EMISSIONS

G4-EN15 Direct greenhouse gas emissions (Scope 1) No No

G4-EN16 Energy indirect greenhouse gas emissions No No (Scope 2)

G4-EN17 Other indirect greenhouse gas emissions No No (Scope 3)

G4-EN18 Greenhouse gas emissions intensity No No

G4-EN19 Reduction of greenhouse gas emissions No No

G4-EN20 Emissions of ozone-depleting substances Yes Environmental Protection – Protection of the atmosphere 81 No (ODS) Bashneft does not emit any ozone-depleting substances

G4-EN21 NOX, SOX, and other significant air emissions No No

ASPECT: EFFLUENTS AND WASTE

G4-EN22 Total water discharge by quality and desti- Yes Environmental Protection – Protection of water resources 84-86 No nation

G4-EN23 Total weight of waste by type and disposal Yes Environmental Protection – Land conservation 87 No method

G4-EN24 Total number and volume of significant spills No No

G4-EN25 Weight of transported, imported, exported, or Yes Environmental Protection – Land conservation 89 No treated waste deemed hazardous under the terms of Bashneft does not transport, import or export waste the Basel Convention Annex I, II, III, and VIII, and per- deemed hazardous under the terms of the Basel Conven- centage of transported waste shipped internationally tion Annex I, II, III, and VIII

G4-EN26 Identity, size, protected status, and biodi- No No versity value of water bodies and related habitats significantly affected by the organization’s discharges of water and runoff

G4-OG5 Volume and disposal of formation or produced Yes Environmental Protection – Protection of water resources 84 No water

G4-OG6 Volume of flared and vented hydrocarbon No No SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 123 POLICY AND SAFETY OF OPERATING REGIONS

Indicator Section (or disclosure made in the table) Page External assurance G4-OG7 Amount of drilling waste (drill mud and cut- Yes Environmental Protection – Land conservation 87 No tings) and strategies for treatment and disposal

ASPECT: PRODUCTS AND SERVICES

G4-EN27 Extent of impact mitigation of environmental Yes Environmental Protection – Protection of the atmosphere 82-83 No impacts of products and services

G4-EN28 Percentage of products sold and their pack- Yes Most products manufactured by the Group (crude oil, -No aging materials that are reclaimed by category petroleum products) are sold without packaging by means of transportation via pipelines, by rail and other types of transport

G4-OG8 Benzene, lead and sulphur content in fuels Yes Environmental Protection – Protection of the atmosphere 82-83 No

ASPECT: COMPLIANCE

G4-EN29 Monetary value of significant fines and total Yes There were no significant fines or non-monetary sanctions -No number of non-monetary sanctions for non-compli- for non-compliance with environmental laws and regula- ance with environmental laws and regulations tions during the reporting year

ASPECT: OVERALL

G4-EN31 Total environmental protection expenditures Yes Environmental Protection 80 No and investments by type

ASPECT: ENVIRONMENTAL GRIEVANCE MECHANISMS

G4-EN34 Number of grievances about environmental Yes Environmental Protection 80 No impacts filed, addressed, and resolved through formal grievance mechanisms

CATEGORY: SOCIAL

SUB-CATEGORY: LABOUR PRACTICES AND DECENT WORK

ASPECT: EMPLOYMENT

G4-LA1 Total number and rates of new employee hires Yes Personnel and Social Policy – Our employees 64-65 No and employee turnover by age group, gender and region

G4-LA2 Benefits provided to full-time employees that Yes Personnel and Social Policy – Incentives and remuneration 66 No are not provided to temporary or part-time employees, by significant locations of operation

G4-LA3 Return to work and retention rates after pa- No No rental leave, by gender

ASPECT: OCCUPATIONAL HEALTH AND SAFETY

G4-LA5 Percentage of total workforce represented in No No formal joint management–worker health and safety committees that help monitor and advise on occupa- tional health and safety programmes

G4-LA6 Type of injury and rates of injury, occupational Yes Occupational Health and Safety – Occupational safety 98-99 No diseases, lost days, and absenteeism, and total num- ber of work-related fatalities, by region and by gender

G4-LA7 Workers with high incidence or high risk of Yes Occupational Health and Safety – Occupational safety 99-100 No diseases related to their occupation

G4-LA8 Health and safety topics covered in formal Yes Trade unions and employee councils took part in the draft- -No agreements with trade unions ing of the Collective Agreement. Health and safety topics were covered in the Collective Agreement

ASPECT: TRAINING AND EDUCATION

G4-LA9 Average hours of training per year per employ- Yes Personnel and Social Policy – The Group’s social policy 70 No ee by gender and by employee category 124 SUSTAINABILITY REPORT 2014

Indicator Section (or disclosure made in the table) Page External assurance G4-LA10 Programmes for skills management and life- Yes Personnel and Social Policy – The Group’s social policy 70 No long learning that support the continued employability of employees and assist them in managing career endings

G4-LA11 Percentage of employees receiving regular No No performance and career development reviews, by gender and by employee category

SUB-CATEGORY: HUMAN RIGHTS

ASPECT: INDIGENOUS RIGHTS

G4-HR8 Total number of incidents of violations involv- Yes Charitable Programmes and Participation in the Devel- 109 No ing rights of indigenous peoples, and actions taken opment of Operating Regions – Economic impacts on operating regions

G4-OG9 Operations where Indigenous communities Yes Charitable Programmes and Participation in the Devel- 110 No are present or affected by activities and where specific opment of Operating Regions – Economic impacts on engagement strategies are in place operating regions Bashneft defines an indigenous people as a people whose ethnic identity has developed historically in a given ter- ritory. The Group receives the relevant information from regional authorities and local administrations

SUB-CATEGORY: SOCIETY

ASPECT: LOCAL COMMUNITIES

G4-SO1 Percentage of operations with implemented No No local community engagement, impact assessments, and development programmes

G4-SO2 Operations with significant actual and poten- No No tial negative impacts on local communities

G4-OG10 Number and description of significant dis- Yes No disputes with local communities or indigenous peoples 109 No putes with local communities and indigenous peoples were identified during the reporting period

G4-OG11 Number of sites that have been decom- No missioned and sites that are in the process of being decommissioned

ASPECT: ANTI-CORRUPTION

G4-SO3 Total number and percentage of operations No assessed for risks related to corruption and the signifi- cant risks identified

G4-SO4 Communication and training on anti-corrup- Yes 100% of employees underwent training in anti-corruption -No tion policies and procedures policies and procedures. About the Group – Corporate governance

G4-SO5 Confirmed incidents of corruption and actions Yes No incidents of corruption were identified during the -No taken reporting period

G4-SO7 Total number of legal actions for anti-compet- Yes During the reporting period, there were five legal actions -No itive behaviour, anti-trust, and monopoly practices and for anti-competitive behaviour, anti-trust, and monopoly their outcomes practices. Out of them: – the hearing of two cases was postponed until 2015 – two cases were dropped as there were no violations of anti-trust legislation – in one case the complaint against the actions of JSOC Bashneft was declared to be substantiated

ASPECT: EMERGENCY PREPAREDNESS

Yes Occupational Health and Safety – Protecting employees in 103 No emergency situations SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 125 POLICY AND SAFETY OF OPERATING REGIONS

Indicator Section (or disclosure made in the table) Page External assurance ASPECT: INVOLUNTARY RESETTLEMENT

G4-OG12 Operations where involuntary resettlement Yes Charitable Programmes and Participation in the Devel- 110 No took place, the number of households resettled in each opment of Operating Regions – Economic impacts on case, and how their livelihoods were affected in the operating regions process

ASPECT: COMPLIANCE

G4-SO8 Monetary value of significant fines and total Yes In 2014 significant fines imposed for non-compliance with -No number of non-monetary sanctions for non-compli- laws and regulations totalled 13.7 million roubles ance with laws and regulations In 2014 no instances of imposition of non-monetary sanc- tions for non-compliance with laws and regulations were identified

ASPECT: ASSET INTEGRITY AND PROCESS SAFETY

G4-OG13 Number of process safety events, by business Yes Environmental Protection – Land conservation 89 No activity

SUB-CATEGORY: PRODUCT RESPONSIBILITY

ASPECT: CUSTOMER HEALTH AND SAFETY

G4-PR1 Percentage of significant product and service No No categories for which health and safety impacts are assessed for improvement

G4-PR2 Total number of incidents of non-compliance Yes No incidents of non-compliance with regulations and vol- -No with regulations and voluntary codes concerning untary codes concerning health and safety impacts of prod- health and safety impacts of products and services ucts and services were recorded in the reporting period during their life cycle, by type of outcomes 126 SUSTAINABILITY REPORT 2014

APPENDIX 2. MATERIAL ASPECTS OF BASHNEFT’S BUSINESS

CATEGORY: ECONOMIC

The Economic Category illustrates the flow of capital among different stakeholders, and the main economic impacts of the organization throughout society.

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regulatory Consumers Suppli- Local Employees Group’s sustain- ers and bodies ers and communities able development investors contractors

Economic Performance ++ ++ –++++High

Market Presence ++ + ++ + + – High

Indirect Economic ++ ++ + + ++ + Low Impacts

Reserves ++ + + ++ + – Medium

CATEGORY: ENVIRONMENTAL

The Environmental Category covers impacts related to inputs (such as energy and water) and outputs (such as emissions, effluents and waste). In addition, it covers biodiversity, and product and service-related impacts, as well as environmental compliance and expenditures.

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regulato- Consumers Suppli- Local Employees Group’s sustain- ers and ry bodies ers and communities able development investors contractors

Materials – + – ++ + – High

Energy – + + ++ + – Medium

Water – + – ++ ++ – High

Ecosystem Services includ- –+++–+++Low ing Biodiversity

Emissions + ++ ++ + ++ + High

Effluents and Waste + ++ ++ + ++ + High

Products and Services + + ++ + + + High

Compliance + ++ ++ + + – High

Overall++++++Medium

Environmental Grievance – ++ ++ + ++ + Medium Mechanisms SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 127 POLICY AND SAFETY OF OPERATING REGIONS

CATEGORY: SOCIAL

The social dimension of sustainability concerns the impacts the organization has on the social systems within which it operates. The Social Category includes the following sub-Categories:

/ Labour Practices and Decent Work; / Human Rights; / Society; / Product Responsibility.

SUB-CATEGORY: LABOUR PRACTICES AND DECENT WORK

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regulatory Consumers Suppli- Local Employees Group’s sustain- ers and bodies ers and communities able development investors contractors

Employment – ++ – – ++ ++ Medium

Occupational Health and +++–++++High Safety

Training and Education + + –++++Medium

SUB-CATEGORY: HUMAN RIGHTS

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regulatory Consumers Suppli- Local Employees Group’s sustain- ers and bodies ers and communities able development investors contractors

Indigenous Rights + ++ – – ++ – Medium

SUB-CATEGORY: SOCIETY

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regu- Consumers Suppli- Local Employees Group’s sustain- ers and latory ers and communities able development investors bodies contractors

Local Communities + ++ – – ++ + High

Anti-corruption ++ ++ ++ ++ + + High

Emergency Preparedness + ++ + + ++ ++ High

Asset Integrity and Process ++ ++ + + ++ ++ High Safety

SUB-CATEGORY: PRODUCT RESPONSIBILITY

Aspects Materiality for stakeholders Assessed impact of the aspect on the Sharehold- Regulatory Consumers Suppli- Local Employees Group’s sustain- ers and bodies ers and communities able development investors contractors

Customer Health + ++ ++ – + – High and Safety 128 SUSTAINABILITY REPORT 2014

APPENDIX 3. CERTIFICATE OF PUBLIC ENDORSEMENT SUSTAINABLE ABOUT STAKEHOLDERS PERSONNEL ENVIRONMENTAL OCCUPATIONAL CHARITABLE PROGRAMMES AND APPENDICES DEVELOPMENT THE GROUP AND SOCIAL PROTECTION HEALTH PARTICIPATION IN THE DEVELOPMENT 129 POLICY AND SAFETY OF OPERATING REGIONS

APPENDIX 4. GLOSSARY

BTF Biological treatment facilities

CSR Corporate social responsibility

DSC Drilling Support Centre

EBITDA Earnings before Interest, Taxes, Depreciation and Amortization (earnings before interest and income tax adjusted for non-operating income and expenses, depreciation and amortization)

FAS Federal Antimonopoly Service of the Russian Federation

GPP Gas processing plant

GR Government Relations

HR Human Resources

HSE Health, Safety and Environment

IFRS International Financial Reporting Standards

IT Information technologies

KPI Key performance indicator

Nelson Index A measure of the complexity of technological processes at an oil refinery

OGPD Oil and gas production department

Oil sludge Complex physical and chemical mixtures that consist of petroleum products, mechanical admixtures (such as clay, metal oxides and sand) and water

PRMS Petroleum Resources Management System

R&D Research and development

RAS Russian Accounting Standards

Rosstandart Federal Agency for Technical Regulation and Metrology of the Russian Federation

Rostekhnadzor Federal Service for Environmental, Technological and Nuclear Supervision of the Russian Federation

TGP Target Gas Programme

USPTU Ufa State Petroleum Technological University

VAT Value added tax

VIC Vertically integrated oil company 130 SUSTAINABILITY REPORT 2014

CONTACT DETAILS

FULL COMPANY NAME G4-3 Joint-Stock Oil Company Bashneft

SHORT NAME JSOC Bashneft

LOCATION G4-5 30 bld. 1, Karl Marx Street, Ufa, Republic of Bashkortostan, 450077, Russian Federation

INFORMATION SERVICE OF THE GROUP Т: +7 (347) 261-61-61 Т: +7 (495) 228-22-00

CONTACTS IN MOSCOW G4-31 T: +7 (495) 228-22-00 F: +7 (495) 228-15-97

Address: 5, 1st Tverskaya-Yamskaya Street, Moscow, 125047, Russian Federation

THE COMPANY’S WEBSITE www.bashneft.com

E-MAIL [email protected]

MONTH AND YEAR OF PUBLICATION OF THE REPORT June 2015