2016 Sustainability Report
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SUSTAINABILITY 2016 REPORT CONTENTS EXTERNAL SOCIAL POLICY Letter from the Chief Executive Officer 3 53 REPORT AND REPORTING PROCESS 7 7.1. Cooperation with Russian Regions 54 6 7.2. Support of indigenous peoples and minorities of the North 55 1 1.1. Evolution of PAO NOVATEK’s Sustainability Reporting 6 7.3. Educational Programs 55 1.2. Principles for Defining Report Content 6 7.4 Preserving Cultural Heritage 56 1.3. Report Boundary 8 7.5 Promotion of sports 57 1.4. NOVATEK Group’s Structure Changes 8 7.6. Volunteering 58 COMPANY PROFILE 7.7. NOVATEK-Veteran Program 58 9 EMPLOYMENT PRACTICES 2 2.1. The Company’s Scope and Key Lines of Business 10 59 2.2. Geography of Operations 10 8 8.1. Personnel 60 2.3. The Company’s structure as at 31 December 2016 13 8.2. Corporate Technical Competency Assessment System 63 2.4. Our Business Model 14 8.3. Personnel Training and Development 63 2.5. Share Capital 16 8.4. Trade Union Relations 65 2.6. Membership of Trade Associations 17 8.5. Social Policy 65 2.7. Awards 17 PROCUREMENT PRACTICES 2.8. Key Performance Indicators 17 69 SUSTAINABILITY STRATEGY 9 9.1. Key Approaches 69 3 18 9.2. Supply Chain Management 70 STAKEHOLDER ENGAGEMENT 9.3. Import Substitution Policy 70 20 OCCUPATIONAL HEALTH AND SAFETY 4 4.1. Basics of Stakeholder Engagement 20 71 4.2 Stakeholder Engagement Matrix 22 10 10.1. Occupational Health and Safety Goals and Objectives 72 CORPORATE GOVERNANCE 10.2. Operational Control 72 33 10.3. Fire Safety, Civil Defence and Emergencies 72 5 5.1. Corporate Governance Principles 33 10.4. Accidents and Incidents 73 5.2. Corporate Governance Structure 33 10.5. Workplace Injury Rate 73 5.3. Remuneration of Members of the Board of Directors 10.6. Contractor Engagement 73 and the Management Board 38 10.7. OHS Training 73 5.4. Internal Control and Audit 39 ENVIRONMENTAL PROTECTION 5.5. Risk Management 40 74 5.6. Ethics and Integrity 42 11 11.1. Environmental Vision 74 ECONOMIC PERFORMANCE AND SUSTAINABILITY 11.2. Environmental Monitoring and Industrial Control 75 44 11.3. Environmental Protection – Government Control 76 6 6.1. Economic Performance 45 11.4. Emissions and Waste 76 6.2. Exploration, Development and Production 47 11.5. Water Use and Disposal 79 6.3. Hydrocarbon processing 50 11.6. Energy Consumption and Efficiency Improvement 80 6.4. Marketing and Sales 51 11.7. Biodiversity Preservation 80 6.5. Dividend Policy 52 11.8. Disturbed Area Reclamation 82 11.9. Environmental Protection Training 82 11.10. Environmental spending 83 GRI G4 CONTENT INDEX 84 ABBREVIATIONS 92 CONTACT DETAILS 93 3 Sustainability Report 2016 Letter from the Chief Executive Officer DEAR STAKEHOLDERS, I would like to present to you NOVATEK’s Tenth Anniversary Sustainability Report. Over the past ten years, we have adopted and refined our business processes in accordance with sustainable business principles, and we strived to retain the best of the accumulated experience in all areas of sustainable development. Two thousand and sixteen was Our flagship Yamal LNG project introduced our Anti-Corruption Pol- a difficult year for the global oil and remains a priority for NOVATEK. icy and the results of the anti-corrup- gas industry but NOVATEK's eco- In 2016, we achieved a major tion work over the reporting period nomic indicators in the reporting milestone for the project by closing and the Action Plan to implement year showed that we chose the right the external financing package in the regulations of the NOVATEK strategy and can deliver growth and April as well as progressed with Anti-Corruption Policy for 2016-2017 create shareholder value even in the the construction of the first of three were considered and approved by conditions of tough macroeconomic LNG trains. At year-end, we were the Company's Audit Committee. environment, global hydrocarbons approximately 88% with the first We also implemented a practice price and foreign exchange rates LNG train and approximately 75% to disclose information on conflict of volatility. NOVATEK's revenues from complete on the whole construction interests. This practice will regulate sales grew by 13.1% and amounted project. The first LNG train will be the actions of Company employees to RR 537 billion, and normalized ready for start up in 2017. More than to avoid risks of conflict of interests EBITDA (including of the shares in 95% of the plant's output is already and to ensure an unbiased deci- the EBITDA of joint ventures) grew contracted on a long-term basis. sion-making process. by 13.2% reaching its historic maxi- In 2016, the Board of Directors mum of RR 242 billion. We are very optimistic about the approved the NOVATEK Internal Total hydrocarbon production future direction of our business. The Audit Policy. grew by 3% in 2016 – aggregat- first stage of NOVATEK`s transfor- The Company pursues external ing 537 million boe – thanks to the mation has successfully concluded: social policies consistent with best increase in our liquid hydrocarbons we evolved from a pure domestic practices and with due regard for production by 37%. Our Yarud- gas business to production, process- the business specifics and the eyskoye oil field reached its full ing and global marketing of liquid needs of local communities in the production capacity in the report- hydrocarbons. The Company’s next regions where NOVATEK operates. ing year resulting in a threefold transformation goal is to become a Moreover, we pay close attention to increase in crude oil production, key player in the global LNG market. supporting the indigenous peoples whereas our total natural gas pro- NOVATEK consistently improves of the North. During the past year, duction decreased by 2.7% due to its corporate management system the Company allocated more than a natural decline in the output from and strives for compliance with best RR 1 billion for delivering various mature fields. international practices. In 2016, we events aimed to improve the living 4 Sustainability Report 2016 Letter from the Chief Executive Officer and ongoing personnel training. In 2016, NOVATEK spent RR 693 million for these purposes. The level of high performance over the past years could not be achieved without the dedication and commitment of our professional employees. We are proud of them and allocate resources to develop and incentivize our staff. The Com- pany provides its employees with a variety of opportunities for profes- sional training and development, promotes social programs for the personnel and their families, orga- nizes cultural events, supports trade unions and takes care of industry execution, where it is very important veterans. In 2016, NOVATEK spent OUR PROLIFIC HYDROCARBON RESOURCE BASE, THE SUCCESSFUL to comprehensively monitor biodiver- RR 1.3 billion on dedicated social IMPLEMENTATION OF THE YAMAL LNG PROJECT AND OUR sity at early work stages, which task programs for the personnel. EXPERIENCE IN NAVIGATING THE NORTHERN SEA ROUTE CREATE we pursued in the reporting year and I hope that our Tenth Anniversary will pursue in future. 2016 Sustainable Development A GREAT PLATFORM FOR DEVELOPING MUTUALLY BENEFICIAL Following Russia's Presidential Report provides all of our stakehold- COOPERATION IN LNG PROJECTS. Decree, 2017 was declared the ers with the required information “Year of Environment” in Russia. to assess the Company’s commit- We joined this important event and ment to sustainable development. standards of the peoples of the practices for future generations is incorporated this theme throughout We pursue full transparency and are North. We allocated RR 1.9 billion based on conscious and continuous the company. always open to dialogue. in total towards implementing our environment protection efforts, Responsibility in business is external social policy. The Company environmental risk assessment at all impossible without complying with is continuously and systematically project execution stages, including the strictest standards in occu- implementing and supporting educa- environmental monitoring. In 2016, pational health and safety. In this tional, sports and cultural programs we spent RR 1.2 billion on environ- area, NOVATEK has been applying a and charitable projects. mental protection and sustainable systematic approach with one major Environmental awareness is an management. I would like to speci- goal: to prevent potential incidents, important aspect of our business fically highlight the Company's emergencies, fire and other hazards. Leonid Mikhelson decision-making process. The efforts to protect biodiversity in the The Company has strong operational Chief Executive Officer, focus on responsible business region of the Yamal LNG Project controls in place, with regular checks PAO NOVATEK 5 Sustainability Report 2016 Report and Reporting Process COMPLETION RATE OF THE FIRST 88% LNG TRAIN AS OF YEAR-END 2016 CONTENTS 6 Sustainability Report 2016 Report and Reporting Process REPORT AND REPORTING PROCESS PRINCIPLES FOR ENSURING evolution of pao novatek’s principles for defining REPORT QUALITY sustainability reporting report content Balance NOVATEK annually discloses NOVATEK’s 2016 Sustainabili- In order to prepare this Sustain- — Comparability information on its sustainability per- ty Report was drafted as per G4 ability Report and identify the most — Accuracy formance based on the principles Sustainability Reporting Guidelines material topics for our reporting in — of transparency and openness and of the Global Reporting Initiative. 2016, the Company formed a ded- — Clarity seeking to cover the main issues