Message from the President 04

1.0 About this Report 07

2.0 About the Company 11

3.0 SOCAR’s Contribution to the Sustainable Development Goals 37

4.0 Corporate Governance 43

5.0 Human Resources 63

6.0 Support for Local Social Development 89

7.0 Occupational Health and Safety 97

8.0 Environmental Activities 111

9.0 SOCAR's Performance Indicators 141 Contents

10.0 GRI Content Index and Independent Assurance Statement 167

2 3 Global climate change and the disturbed ecosystem on occupational safety operating at SOCAR and its are among the biggest environmental challenges that affiliated entities undertook a number of inspections MESSAGE FROM humanity is facing, and SOCAR is taking bold actions to during the reporting period and eliminated all discovered address this problem. The company reviews the potential safety violations. impact of actions taken and addresses all factors likely to have an adverse effect on the environment and public SOCAR grows and develops year by year. Our mission THE PRESIDENT health. According to the 2017-2022 Plan to Reduce is to increase SOCAR’s contribution to sustainable Associated Gas Emissions at SOCAR and in Projects development of the country, achieve energy security, Being a driving force of the country’s economy, Involving SOCAR, the Company aims to achieve a and continue our efforts to increase national income as SOCAR has been involved in large-scale operations 64.9% reduction in associated gas emissions by 2022 a global Azerbaijani brand. and contributed significantly to the sustainable compared to the baseline. As part of this plan, for the development of the Republic of Azerbaijan. The first time in 2018, we managed to connect associated key issues prioritized by the Company are to ensure gas extracted from the functioning oil fields of Salyan Oil sustainability of oil and gas production and to achieve Limited to a closed system, which helped the operating a diversified business profile, something the Company company to monitor generated associated gases. continued implementing in 2018 through actions and Based on the outcomes of this project, SOCAR plans initiatives. To prevent a downward trend in oil and gas to launch associated gas management projects at other production and achieve stabilization and an increase operating companies and facilities in the coming years. in production, SOCAR took extensive and targeted geological, technical and organizational measures In 2018, SOCAR successfully continued its with respect to both functioning and idle wells. All the environmental protection cooperation established in measures were implemented in the frame of approved previous years. To achieve a reduction in atmospheric President of SOCAR programs and in alignment with scientific and technical emissions, it is important to properly identify and norms. During the reporting year, 65 new onshore calculate them. As part of the cooperation with Rovnag Abdullayev and offshore wells were drilled, as well as 94 Norway’s Carbon Limits aimed at reducing gas leaks implementation will allow us to produce fuel and nonfunctioning wells were commissioned after over- from SOCAR’s units, the Company has continued other high-quality oil products compliant with Euro-5 hauls. its efforts to calculate gas emissions in its areas of standard in the country, and to meet the demand for operation. SOCAR plays a significant role in strengthening high-quality fuel on the domestic market, while also improving the environmental situation in the country. Azerbaijan’s global image as a reliable energy supplier. The Company has successfully executed its 2020 In recent years, we have secured a place among Climate Change Mitigation Strategy. In addition, we 2018 was remarkable in terms of both the expansion transnational gas exporting companies after proving have started to develop internal targets for structural of the scope of activities of SOCAR and decreased ourselves as a reliable oil exporter in global markets. units and facilities to determine the contribution that reliance on imports. In addition to addressing local The economic value of implementing such significant we will be able to make under the commitments for needs, the newly launched Methanol and Carbamide projects as Shahdeniz-2, the South Caucasus Sustainable Development Goals introduced by the plants will also export its production to foreign markets. Pipeline Expansion, and TANAP, has put the company United Nations and ratified by Azerbaijan. We will The Carbamide Plant is expected to export 70% in the spotlight of the international community, provide our short-term and long-term targets and of its nitrogen, which is the key output of the facility, also helping to strengthen the role of Turkey in gas appropriate plans for each important indicator in the bringing added value worth $160 mln. to the country. supplies and positioning Azerbaijan and SOCAR next Report. as important economic partners. The Company has Moreover, SOCAR Capital LLC, launched during the reporting period, helped SOCAR bonds to become the already completed three out of four segments of the All our achievements became possible thanks to the most actively traded debt securities on the local stock Southern Gas Corridor Project for the transportation efforts and commitment of our employees. At SOCAR, exchange, with secondary trading exceeding the initial of Azerbaijani natural gas to Europe. The TAP project we consider our employees as the foundation of the emission rate by 1,7% by the end of the year. is in the process of completion. On top of that, with Company’s sustainable development, and one of the the launch of the Southern Gas Corridor Project, top priorities at SOCAR is to continuously enhance In 2018, major global auditing and consulting firm Azerbaijan will become a key link in the European employee satisfaction and ensure decent working Ernst & Young reviewed the Company’s corporate energy supply system. conditions. During the reporting year the efficiency governance structure. Following interviews and a of human resources management, effectiveness review of internal documents, the Company’s overall During the reporting period, SOCAR completed the first management, and training and development corporate governance was rated as ''STRONG'' at phase of the Heydar Aliyev Oil Refinery modernization management, as well as recruitment, deployment, and 81% of the maximum result. This rating demonstrated project – a landmark event in the development of the adaptation management were improved under the the effective management system in SOCAR. oil processing industry. The project implementation Human Resources Transformation Program. In order is progressing successfully phase by phase. Its full to minimize production risks, permanent commissions

4 5 On September 20, 1994, The Production Sharing Agreement (PSA) signed in Baku between the Government of Azerbaijan and 11 international oil companies representing six foreign countries for the development of 3 important oil fields in the Azerbaijani Caspian sector – Azeri, Chirag and Guneshli, is considered to be the beginning of a successful oil strategy of Azerbaijan and plays an important role in transforming the country into an important global energy supplier that can change Europe's energy map. Azerbaijan's first Production Sharing Agreement, commonly referred to as the “Contract of the Century”, was signed for a 30-year term, and represents the first significant investment made by Western transnational corporations in any of the former Soviet Union republics. In 1995, after “Chirag-1” was restored in accordance with Western standards and the top module of the main platform was upgraded and equipped with new drilling equipment for large directional wells, initial oil extraction was started in 1997. In 1999, the first oil tanker loaded with Azerbaijani petroleum was released to the world market. Three years later, the foundation of Baku-Tbilisi-Ceyhan was laid, which has global significance and is an important step towards the transformation of Azerbaijan into the energy corridor.

About this 01 Report

6 7 About this Report FIGURE 1. MATERIAL ASPECTS

MATERIAL The current Sustainable Development Report have been included in the structure of the Company (hereinafter, the Report) is the eighth Report of the only at the end of 2018 and their activities have been TY H State Oil Company of the Republic of Azerbaijan limited, they were not included in the scope of this Re- LI IG IA y and equ H (hereinafter, SOCAR). With the publication of R versit al righ M port. TE Di ts A A • T E Sustainable Development Reports, our goal is to inform M • O R M c IA all our stakeholders about our economic, social, and IU rgy consump cu L D Ene tion • R p IT Identification of material topics E • e a Y y l ti environmental performance, as well as our approach M it at o n ocurem • io n u • Pr ent E n a and principles for managing sustainable development Although the Company does not have a formal policy for t m du s l n ractices c w h e m p • a e o E t i a activities throughout the year. The current Report engagement with stakeholders, SOCAR holds regular c c i th m l o o lt s a n n e h e o reflects the results of activities for 2018 on the ongoing meetings with them and shares information through c ive • a m a s o Biod rsit A m n s l • y n d p n a t ic d e i l development of representations of subsidiaries and various mechanisms (see Table 13 for more details). To l - d o h • c a s a t Wate W e y i e f • r o n e a c o a r d v affiliates abroad, along with SOCAR's structural units provide a comprehensive and transparent Report on the c h s r e e f t n ump u e o i e ns tio • t s l s e o n e p o t s g c E o w s a t p y in Azerbaijan. impacts of our activities, the interests of both internal ’ m i c e s o m s s r i i r u s n a n p t s l e and external stakeholders and their comments made e i o i i t s o i n l n l m t e n t p e a a i i s p Applied Standards throughout the year were taken into account during the l k p r r c e e a u a fi t f c R S preparation of this Report. Further, in order to identify a t M E s The 2018 Report of SOCAR has been prepared in • •

• • m

material topics and aspects, we analyzed the highlights

accordance with the “Core” option of the Global Material

•

of SOCAR’s activities in the mass media, sustainability Aspects Reporting Initiative (GRI) Standards. The content of the Reports of five international oil and gas companies, and Report is based on the GRI principles on materiality, held interviews with various stakeholders on various stakeholder inclusiveness, sustainability context, as areas of sustainable development. As a result of the well as principles of balance, comparability, clarity, analysis, material issues associated with SOCAR’s Environmental issues Economic issues Social issues timeliness, transparency, and reliability. The disclosure activities were identified and are illustrated in Figure 1. status of the GRI indices are provided on page 168. Moreover, Table 1 provides information on which TABLE 1. SCOPE OF MATERIAL ASPECTS aspects are most important to SOCAR’s stakeholders. Independent assurance of the Report Scope of the aspects

The Report was independently audited by Ernst & Current and List of material Local Company Employees Society Customers Competitors Young. The Independent Assurance Statement (see aspects population prospective investors page 180) confirms that the Report has been- pre Emissions pared in accordance with the “Core” option of the GRI Standards. Provided the extensive and diversified Waste

portfolio of SOCAR’s operations, special attention is Economic and social required to ensure consistent approach to calculation impacts

of indicators and their scope. If the scope of material Employee relations indicators is modified, relevant notes are provided. Occupational health Current Report covers information on SOCAR's and safety economic, social and environmental impacts, as Education and well as operations of Energy Georgia, SOCAR En- development ergy Ukraine, and SOCAR Energy Switzerland. Con- Anti-corruption

sidering that the Methanol and Carbamide plants Diversity and equal opportunities Procurement experience

Energy consumption

Water consumption

Biodiversity

8 9 About the 02 Company

10 11 About the Company SOCAR in Azerbaijan

With large-scale investments, SOCAR is involved in the In 2018, 28 structural units, including 3 production oil, gas and petrochemical industries at both domestic units, 5 factories, 2 trusts, and one institute operated as Increase of production and global levels. Domestically, SOCAR undertakes corporate entities within SOCAR's business structure. To prevent a downward trend in oil and gas production both functioning and idle wells. All the measures were oil and gas field search, exploration and development, Moreover, the Company is a partner in a Production and achieve stabilization and an increase in production, implemented in the frame of approved programs and in production, refining, and transportation of oil, gas, Sharing Agreement that covers fields in the Azerbaijani SOCAR has taken extensive and targeted geological, alignment with scientific and technical norms. and gas condensate, as well as the sale of oil, gas, sector of the Caspian Sea as well as onshore. technical, and organizational measures with respect to and petrochemical products on both the global and domestic markets. In general, as the largest company in the country with its workforce of 51 125 people (50 424 in 2017), SOCAR plays an important role in the TABLE 2. SOCAR’S OPERATING RESULTS FOR 2016 2018 sustainable development of Azerbaijan.

Operating results 2016 2017 2018 Achievements of SOCAR in 2018 Proven oil reserves,1 thousand tons 71 503,0 70 164,0 71 055,0

Proven natural gas reserves, mln. m 51 978,0 51 485,0 45 692,0

Oil production, thousand tons 7 522,4 7 427,1 7 542,3 7 542,3 6 525,6 Gas production, mln. m 6 266,8 6 089,1 6 525,6 2 417 mln. m3 thousand tons of Oil processing, thousand tons 6 009,4 5 815,5 6 090,5 new employees gas extracted oil extracted Gas processing, mln. m 3 000,7 2 918,3 2 952,2 Oil Production

69% 2 During the reporting year SOCAR produced 7 542,3 thousand tons of oil in the country as well as in Azerbaijani increase in net 92 313 new large sector of the Caspian Sea, of which 6 255,9 thousand tons were extracted from Azneft Production Union's (PU) economic value new gas plants were put fields and 1 286,4 thousand tons were extracted from fields in which the Company holds shares. During the in the last 3 years subscribers into operation reporting year, 65 new production wells and 94 non-functioning wells were commissioned following onshore and offshore repair works.

FIGURE 2. OIL PRODUCTION IN AZERBAIJAN IN 2016 2018, THOUSAND TONS

2016 2017 2018 Our mission, vision and values Total – 41 034,5 Total – 38 688,9 Total – 38 814,3 18% 19% 19% Our mission is to protect the fuel and energy security Our vision is to become a large and vertically-integrated and strategic interests of the Republic of Azerbaijan international company that aligns its operational in the development of the oil, gas and petrochemical efficiency, and social and environmental responsibility 82% 81% 81% industries. It is our objective to support the development with the best international practice. of the scientific, technical, economic, and intellectual potential of Azerbaijan by introducing advanced and SOCAR's "Comprehensive Plan on Strategic environmentally friendly technologies. We aim to Development by 2025" is updated annually to ensure Others - 33 512,1 Others - 31 261,8 Others - 31 272,0 hold a pivotal position in regional and international the effectiveness of our mission as well as sustainable SOCAR - 7 522,4 SOCAR - 7 427,1 SOCAR - 7 542,3 energy projects and maximize profit from the sale of and long-term strategic development. hydrocarbon reserves and refined products in both the domestic, and international markets. 1 Proven oil and gas resources include the resources used in production only.

12 13 Development of the refining sector Heydar Aliyev Baku Oil Refinery It will increase the Refinery’s annual processing capacity to 7,5 mln. tons per year and create a steady supply of In the reporting year, Heydar Aliyev Baku Oil Refinery raw materials to Azerikimya. The reconstructed refinery made significant efforts to develop the refining industry. will fully meet the demand of the domestic market for On December 21, 2018 a new Bitumen Blowing unit high-quality fuels, reduce carbon emissions in Baku, and a liquefied gas filling station were launched as and improve the environmental situation. part of the first phase of the Heydar Aliyev Refinery’s reconstruction and modernization program. The President of the Republic of Azerbaijan, Mr. Ilham Methanol Plant Aliyev, attended the opening ceremony. The first phase The Methanol Plant was included into SOCAR's of the reconstruction and modernization program that structure in October 2018. The annual production was completed with the launch of the Bitumen Blowing capacity of the plant is 650-700 thousand tons. Methyl Unit and Gas Filling Station, consisted of three main alcohol with a purity level of 99,99% is considered projects: an A-class product and is the purest methanol in the Construction of the new Bitumen Blowing Unit world. The quality of internationally standardized and and Gas Filling Station certified methanol is regularly monitored by the plant’s Cleaning work in the areas where 13 new plants laboratory and internationally recognized inspection are planned to be built during the next phases bodies. The plant has storage of over 48 000 metric tons of ready-made products to ensure timely delivery Land surveying works and preparing the area for construction and high-quality customer service.

The new Bitumen Blowing unit will allow an increase With 95% of the products being exported abroad, of up to 60% in annual production capacity, and the Methanol Plant realizes and strengthens the production of high-quality bitumen PEN 40/60 that export potential of the country, while fully meeting will meet domestic demand. The new facility will the growing requirements of the domestic market. save energy and make a significant contribution to environmental protection in Baku. It will also minimize In addition to intermediate products in the gas- the plant's operational costs. The construction of the chemical industry, for the first time in the history of the new Bitumen Blowing Unit was necessary because of industry, the plant has already started manufacturing the reconstruction of the Heydar Aliyev Refinery and end consumer products, including laboratory-grade the phased cleaning of the former Azerneftyag Oil methanol. The purity level of methanol manufactured by Refinery’s territory that will also be used in the White SOCAR is 99,98%. It is worth noting that the produced City project. laboratory-grade methanol is sold with the tag “Made in Azerbaijan” under the SOCAR brand. Along with the In 2016, a detailed engineering, procurement, domestic market, SOCAR is able to supply laboratories construction, and management contract (EPCM) for a in Turkey, Western Europe, and Mediterranean countries new Bitumen Plant was signed with Poerner Gruppe, with laboratory-grade methanol. Austria. Azfen, the construction contractor, began building the facility in April 2017. The construction project, involving 400 local workers and professionals, was completed as scheduled.

The second phase of reconstruction work, to be completed by the end of 2020, will facilitate the production of Euro-5 diesel fuel, while the third phase, scheduled for the beginning of 2021, will enable the production of Euro-5-standard A-92/95/98 gasoline.

14 15 Carbamide Plant Plant and Petrochemical Complex under the SOCAR In 2017, experienced international and local companies GPC Project during the One Belt-One Road forum. were involved in preparation of the engineering, The construction of the Carbamide Plant, on the Carbamide Plant. Using 435 mln. m3 of natural gas This agreement is designed to govern the services to procurement and construction (EPC) contract and territory of Sumgait Chemical Industry Park (SCIP), as the main feedstock for the production of nitrogen be provided by HQC (CNPC’s subsidiary) and Technip contract negotiations. At present, bidders are in the was completed at the end of 2018. The SOCAR fertilizers, the Plant has a capacity to produce 650- Italy for the development of a preliminary detailed process of creating EPC consortiums. The overall Carbamide Plant project was implemented pursuant 660 thousand tons of carbamide per year. 70% of the design for the SOCAR GPC Project. investment for the project is estimated to be $4,2 bln. In to the State Program on Reliable Food Supply for production is planned for export, which will bring $160 terms of the scope, the project will be the third-largest the Population of the Republic of Azerbaijan during mln. per year in added value to the country. (1.32 m3 per in the history of the country. The project costs are The primary purpose of the project is to process 2008-2015 approved by Decree of the President of day). It will produce 1,200 tons of ammonia and 2,000 expected to come from equity (30%) and debt (70%). heavy fractions (C2+) present in gas, and to ensure the Republic of Azerbaijan dated August 25, 2008, tons of urea per day. In the meantime, the urea to be Certain actions have already been taken to finance the the production of high value-added gas and chemical and State Program for the Development of Industry for produced at the Plant is intended to satisfy domestic project. A financing model has been built and initial 2015-2020 approved by Decree of the President of the demand, while surplus product will be exported to products. Up to 5% of the products from the complex negotiations have been held with financial institutions Republic of Azerbaijan dated December 26, 2014. In Turkey by railway and to world markets through the will meet domestic demand and the excess will from Italy (SACE), South Korea (KSURE, Kexim), and 2011, an international open tender was announced to Black Sea ports. be exported (mainly to Turkey, the EU, etc.). The Japan (NEXI, JBIC), who have provided letters of select the Engineering, Procurement and Construction construction works under the project will contribute to intent as a demonstration of their interest in financing (EPC) Contractor for the Project. In 2012, Samsung The launch of this plant will contribute to the creation of approximately 12 000-15 000 new jobs. The the project. As a follow-up to the actions taken, it Engineering Co., Ltd. (South Korea) was announced development of agriculture in Azerbaijan. Urea fertilizer facilities are expected to be commissioned in 2023, was planned to officially kick off work with financial the winner of the bid held with the participation of has the highest nitrogen content and is considered to generating approximately 2,000 permanent jobs. institutions in February 2019. several internationally reputable companies. be a high-quality nitrogen fertilizer.

Reliance on imports of nitrogen fertilizers will be eliminated with the launch of production at the SOCAR

SOCAR Polymer One of the first residents of Sumgayit Chemical During the operation period, the plants are expected Industrial Park (SCIP), SOCAR Polymer was founded to bring $6.6 bln. revenues, 30% of which will be the on July 16, 2013 in order to reinforce the development Company's net profit. SOCAR Polymer is the first of of the chemical industry in the country. The project’s its kind in Azerbaijan in several areas: cost is $816 mln. The company’s production facilities SOCAR Polymer is the first petrochemical built within the territory of SCIP will produce 184 company in Azerbaijan based on a public-private KTA of polypropylene and 120 KTA of high-density partnership polyethylene. The Polypropylene Plant, the first phase of SOCAR Polymer project, was launched at the It is the first company involving shareholder capital without a parent company guarantee opening ceremony held on July 18, 2018 attended by based on project financing principles the President of the Republic of Azerbaijan, Mr. Ilham Aliyev and the president of Italian Reoublic, Mr. Sercio It is the first company in Azerbaijan producing Mattarella. polypropylene and high-density propylene

In addition to meeting domestic demand, products SOCAR's new industrial complex will fully meet manufactured as part of the SOCAR Polymer project the demand of the domestic market and export the remaining 75% of the product to the Turkish will be exported. The Plant has already started and European markets polypropylene exports under contracts signed with Turkish companies. 15000 tons of polypropylene were exported last year. The Company’s products will New Oil and Gas Processing enable businesses to gain better access to feedstock Plant and Petrochemical Complex and provide an additional impetus to strengthening the export potential of the country. According to In addition to discussed projects, SOCAR plans the preliminary estimates, the SOCAR Polymer Complex construction of the Gas Processing and Petrochemical will increase revenues of Azerbaijani from non- Complex (OGPC) in the Garadagh district. On May oil sector by 19% and the GDP of the Absheron 15, 2017, SOCAR and China National Gasolineeum economic region by 15%. 500 permanent workers Corporation (CNPC) signed a Service Agreement on will be employed during the operation of the Plant. the Preliminary Detailed Design for the Gas Processing

16 17 Oil processing FIGURE 3. GAS PRODUCTION IN AZERBAIJAN IN 2016-2018 (MLN. M3)

During the reporting year, 6258,1 thousand tons of raw plan by 105,4%. Compared to the outcomes of 2017, 2016 2017 2018 materials were processed, including 6095,8 thousand oil processing increased by 285,8 tons, or 4,7%, while Total – 29 367,3 Total – 28 597,9 Total – 30 394,0 tons of oil and 162,3 thousand tons of imported raw overall raw materials processing increased by 328.5 materials. SOCAR fulfilled the crude oil processing tons or 5,2% (for more details on the manufactured 21% 21% 21% plan by 103,1% and the overall raw material processing products, see p. 142-143).

79% 79% 79% TABLE 3. HEYDAR ALIYEV OIL REFINERY OUTPUT IN 2018 THOUSAND TONS

Produced Products Amount Others - 23 100,5 Others - 22 508,8 Others - 23 868,4 SOCAR - 6 266,8 SOCAR - 6 089,1 SOCAR - 6 525,6 Gasoline 1 185,64

Primary distilled gasoline fraction (to Azerikimya PU) 204,63

Jet engine fuel 617,04

Diesel fuel 1 921,78 Chemical industry

Light reflux 348,77 During the reporting year, Azerkimya PU processed (see more details on page 143). Key countries 366,41 tons of raw materials. The gasoline, diesel where crude oil and petrochemical products are ex- Heavy reflux 10,55 fuel and other products exported by SOCAR ported are presented on the map below. Stove oil 106,57 in 2018 amounted to 1 532,96 thousand tons

Oil coke 243,95

Liquefied gases 204,02

Treated dry gas (to Azerikimya PU) 53,60

Atmospheric gasoil 35,94

Vacuum gasoil 190,82

Engine fuel 34,11

Bitumen 289,67

Lubricants 50,93

Heavy diesel fraction 42,24

Gas production, processing and sale

During the reporting year, 2 899,97 mln.m3 of treated These settlements were located in 43 administrative gas, 5,29 mln.m3 of technical butane and 0,03 mln.m3 districts of the country. The company paid particular of gasoline were processed from the 2 952,19 mln.m3 attention to gas supply to frontline regions and border of natural gas at the Gas Processing Plant. areas settled by internally displaced persons. Countries where Countries where refined oil Countries where both crude crude oil is exported and petrochemical products oil, refined and petrochemical In 2018, 92 313 new customers were registered, are exported products are exported including 37 046 in Baku and 55 267 in the regions. In 2018, gas was brought to 150 settlements in the regions.

18 19 TABLE 4. PRODUCTS PRODUCED AT AZERKIMYA PU IN 2018 THOUSAND TONS Economic impact and industrial activity

Being one of the largest taxpayers in the country, Produced products Amount SOCAR is the driver of the country’s economic Tax payments increased by 99 198,5 thousand AZN Ethylene 98,95 development and plays a prominent role in contributing in 2018 or 6,57% compared to the previous year. to the state budget. In 2018, the Company’s payments Propylene 56,28 to the budget were 1 608 063,1 thousand AZN Butylene-butadiene fraction 33,12 (excluding income tax).

Pyrolysis resin 69,25

Heavy resin 14,29 FIGURE 4. SOCAR’S CHARTER CAPITAL IN FIGURE 5. BUDGET PAYMENTS OF SOCAR IN 2016-2018 (BLN. AZN) 2016-2018 (BLN. AZN) Propane 0,50

Fuel gas 81,72

Polyethylene 96,03

Pure isopropyl alcohol 7,28 1,802 3,036 4,147 1,394 1,509 1,608 Pure isopropyl ether 0,45

2016 2017 2018 2016 2017 2018 TABLE 5. PRODUCTS EXPORTED BY SOCAR IN 2018 TON

Products exported Amount *In the previous Sustainable Development Report, Paid-in capital was included in Charter capital.

TS 1 fuels for jet engines 29 560,76

Diesel fuel L 62 470 960,35

Vacuum gasoil 126 205,73

Stove oil 237,90

Depressor AKI 426 237,83

High pressure polyethylene 79 666,50

Butylene-butadiene fraction 30 512,57

Propylene 35 002,15

Liquified pyrolysis resin 69 257,67

Pyrolysis resin 0

Pure isopropyl alcohol 7 523,51

Pure diisopropyl ether 260,96

Cylinder oil 11 4 740,23

Auto-tractor oil of Baku AK-15 1 513,74

Low sulphur oil coke KTQ 227 824,03

T-1500 transformer oil 4 394,97

Turbine oil 67,86

И-8А industrial oil 18 993,18

DT20 motor fuel 0

Methanol 63 864,90

Total 1 532 959,95 20 21 TABLE 6. ECONOMIC INDICATORS OF SOCAR FOR 2018, THOUSAND AZN FIGURE 6. SHARE OF SOCAR IN ONSHORE FIELDS

SOCAR Azerbaijan

Economic value generated 5 898 383 Revenues 5 898 383 Economic value distributed (3 500 627) Operating costs (1 102 105) Employee wages, social security and benefits (703 866) Payments to providers of capital (356 869) Payments to government (550 197) Community investments (787 590) Economic value retained 2 397 756

SOCAR Energy Turkey

Economic value generated 5 127 458

Revenues 5 127 458 15% 20% 20% 20% 20% 20% 25% 25% 25% 25% 50% Economic value distributed (4 755 107) Operating costs (3 983 314) Employee wages, social protection and benefits (214 807) Payments to providers of capital (501 617) Payments to government (55 369) Pirshaat oil fields oil Kurovdag

Community investments 0 Surakhani Mishovdag Mishovdag Zig Hovsan and Zardab Zardab and Economic value retained 372 351 Kalamaddin Neftchala and other oil fields oil other other oil fields oil other Bulakhani and West Gobustan West SOCAR Energy Georgia Binagadi and other Muradkhanli, Jafarli Kursangi Garabagli 3rd Block of South- Economic value generated 1 007 693 Revenues 1 007 693 Economic value distributed (951 311) Operating costs (877 481) Employee wages, social protection and benefits (46 121) Payments to providers of capital (27 451) FIGURE 7. SOCAR’S SHARE IN THE FIELDS LOCATED IN AZERBAIJANI SECTOR OF THE CASPIAN SEA Payments to government (258) Community investments 0 Economic value retained 56 382

SOCAR Energy Ukraine

Economic value generated 832 058 Revenues 832 058 Economic value distributed (796 465) Operating costs (769 050) Employee wages, social protection and benefits (22 531) Payments to providers of capital (1 524) Payments to government (3 360) Community investments 0 Economic value retained 35 593

SOCAR Energy Switzerland 10% 20% 25% 50% 50% 50% 50% 50% 80% Economic value generated 2 603 281 Revenues 2 603 281 Economic value distributed (2 484 873)

Operating costs (2 363 227)

Employee wages, social protection and benefits (110 502) ACG Payments to providers of capital (2 278) structure Absheron Absheron peninsula Shahdeniz Bahar and Bahar

Payments to government Gum-Deniz Ashrafi-Dan (8 794) Babek Umid Ulduzu-Aypara Community investments (72) Asiman Shafag

Economic value retained 118 408 D230 prospective

2 Indicators for the last three years are presented on p.144-147.

22 23 SOCAR Bonds Supply chain

SOCAR Capital LLC was established in 2016 to ensure Another area of focus of SOCAR Capital LLC is In 2018, 78% of SOCAR's procurement budget was spent on local suppliers, 31% of which was full integration of SOCAR Group companies with local attracting investors with an interest in other energy allocated to raw material suppliers, while 7% to service providers. and global financial markets and build sustainable segments and other sectors of the economy in relations with the international securities market. Azerbaijan, encouraging them to invest in the country and providing them with necessary information on Due to SOCAR’s wide range of activities, its supply chain is also large and diversified. It includes companies SOCAR Capital LLC completed several remarkable the specifics and potential of various sectors. Several supplying products and raw materials, as well as service providers. It is important that each supplier complies with events in 2018 and continued to trade SOCAR bonds. meetings were held with leading foreign institutional SOCAR’s values and principles, and that the Company reviews the performance of third parties when awarding As a result of its successful strategy, SOCAR bonds and individual investors to discuss perspective plans. and signing contracts. The Company’s relations with counterparties are based on a set of Regulatory Documents became the most actively traded securities in the local on Public Procurement, as well as the Standard on Relations with Counterparties and Third Parties, which is securities market, with secondary trading exceeding the Moreover, SOCAR Capital LLC conducted important included in the Set of SOCAR’s Anti-Corruption Standards. initial emission limit by 1.7 times at the end of the year. research in 2018. The Company’s team responsible for With secondary market transactions worth $170 mln., economic and financial research published academic

SOCAR Bonds accounted for 90% of the local bonds studies entitled Assessment of the Real Exchange Rate FIGURE 8. TYPES OF EXPENSES ALLOCATED TO SUPPLIERS OF RAW AND OTHER MATERIALS market in 2018. The number of SOCAR bond holders of the Azerbaijani Manat, Analysis of the 2018 Public (physical and legal entities combined) increased last Budget and Fiscal Policy of the Republic of Azerbaijan, Purchase and improvement year and rose from 430 to 781. In addition, REPO Impact of the Development of the Financial Markets on Purchase of raw Other costs of investment activity of securities and shares transactions worth $17 mln. carried out with SOCAR Economic Development, and Industrial Revolution 4:0. materials bonds accounted for the entire REPO3 market in the country. As a result of successful cooperation with local Purchase and improvement Purchase and improvement Fuel for internal needs commercial banks, SOCAR bond owners can now of intangible assets of key assets borrow long-term loans by pledging SOCAR bonds.

SOCAR LLC Capital was successful on the global FIGURE 9. TYPES OF EXPENSES ALLOCATED TO SERVICE PROVIDERS market as well and increased its international security Daxili tələbat üçün Qeyri-maddi aktivlərin Əsas vəsaitlərin alınması və investment portfolio by $293 mln. In the future, SOCAR yanacağın alınması alınması və təkmilləşdirilməsi təkmilləşdirilməsi Advertisement, announcement, Capital LLC aims to expand its investment portfolio, Communication services Transport services press and other services of this kind leveraging the opportunities offered by global markets.

Banking services Representation services Talent development services

Current repair services Insurance services Key assets capital repair services

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

SOCAR constantly works to increase both its direct and indirect impacts on the development of the domestic market in the country, prioritising local companies during the purchase of goods, materials, and services necessary for SOCAR’s operations. In the end of 2018, the Company met with a number of third parties and signed a Memorandum of Understanding with the Center for Analysis of Economic Reforms and Communication. According to the Memorandum, SOCAR's needs for raw materials, goods and services that can be potentially produced domestically will be posted on the new web portal. By providing information to perspective local producers SOCAR plans to increase its contribution to the local economy and production development.

3 Repurchase Agreement 24 25 TABLE 7. PROPORTION OF FUNDS SPENT BY TABLE 8. PROPORTION OF FUNDS SPENT BY Azeri - Chirag - Guneshli SOCAR AZERBAIJAN ON LOCAL SUPPLIERS FOREIGN ENTITIES ON LOCAL SUPPLIERS

Total oil production from the Azeri-Chirag-Guneshli (ACG) field in 2018 was 213 mln. barrels. Total procurement budget, thousand AZN 3 988 203,6 SOCAR Energy Turkey

In 2018, operating expenditure on ACG activities was about $505 mln., while capital expenditure was $1 150 mln. Proportion of spendings on local 78% Capital investment-related projects 12% suppliers

Administrative costs 94% In 2018, Azeri-Chirag-Guneshli field continued to deliver stable production safely and reliably. ACG production throughout the year averaged 584 000 barrels per day, or about 213 mln. barrels or 29 mln. tons per year. SOCAR Energy Georgia 65%

SOCAR Energy Ukraine 5%

SOCAR Energy Switzerland 95%

126 154 97 105 thousand thousand 46 57 thousand thousand Business optimization thousand thousand

Having a multi-dimensional organizational structure, SOCAR has undergone regular structural changes to enhance overall performance and optimize business processes. In order to improve the management mechanism and performance, the Company made the following structural changes in 2018:

Chirag West Chirag East Azeri Deepwater Guneshli West Azeri Central Azeri Pursuant to the relevant executive orders of the President of SOCAR, the Methanol Plant and Baku Olympic Stadium were incorporated into the SOCAR's structure Change to Shares in ACG:

In 2018, total accrued salaries and other payments increased by 54 003,86 thousand AZN, and the BP (30,37%), INPEX (9,31%), TPAO (5,73%), average monthly salary by 84,34 AZN. The increase in salary fund and average monthly wages was mainly due to a 10% increase in the salaries of SOCAR employees as of March 1, 2018, as well as SOCAR (25,0%), Equinor (7,27%), ITOCHU (3,65%), improvements made to the SOCAR's payroll system Chevron (9,57%), ExxonMobil (6,79%), ONGC Videsh Limited (OVL) (2,31%)

The Company continued the HR transformation project implemented in several SOCAR structural units and the preparation of documents on Job Management and Standardisation BP Exploration (Caspian Sea) Limited is the operator on behalf of the Contractor Parties to the ACG Production Sharing Agreement.

Expansion into foreign markets South Caucasus Pipeline Each year, SOCAR takes a number of steps to expand its overseas activities and maintain a high quality of Expansion Project goods offered by the Company. The hydrocarbon resources produced in Azerbaijan, a country that has become a powerful energy exporter, are delivered to European and global markets via oil and gas pipelines, terminals, The South Caucasus Pipeline (SCP) was built to export Shahdeniz gas from Azerbaijan to Georgia and Turkey. and railways. Azerbaijan is increasingly integrated into global markets and the country now makes significant The pipeline starts from the Sangachal terminal near Baku. It follows the route of the Baku-Tbilisi-Ceyhan (BTC) contributions to global energy security. In 2018, SOCAR continued to implement large-scale projects in Europe crude oil pipeline through Azerbaijan and Georgia to Turkey, where it is linked to the Turkish gas distribution and Southeast Asia. system.

4 At SOCAR Energy Ukraine, the supply budget is used to purchase fuel provided by major foreign companies. Local suppliers are mainly involved in administrative services, as well as in in the provision of additional products sold at Gasoline stations.

26 27 SCP was constructed jointly with BTC in order to During 2018, delivery of gas from the Shahdeniz field to minimise environmental and social impact and to Azerbaijani (SOCAR), Georgian (GOGC), and Turkish achieve capital and operating cost saving synergies. (BOTAŞ) markets continued successfully. The length of the pipeline is 691 km, with 443 km in Azerbaijan and 248 km in Georgia. Shahdeniz facilities’ production capacity is currently evaluated at a rate higher than 32 mln. m3 per day (10,9 South Caucasus Pipeline Company (SCPC) has been bln. m3 per annum). SCP’s daily average throughput responsible for the construction and operation of the was more than 23 mln. m3 of gas in 2018. In 2018, SCP whole pipeline. Therefore, SCP has a dual operatorship spent about $39 mln. spend in operating expenditure with BP as the technical operator responsible for and about $352 mln. in capital expenditure. construction and operation of the SCP facilities, and SOCAR Midstream Operations Limited, as commercial operator responsible for SCP's business administration.

TANAP-TAP

Implementation of major transnational projects The delivery of the first commercial gas to Turkey such as TANAP and TAP in recent years, as well as began on June 30, 2018 as planned. At the first Azerbaijan’s enhanced role in international energy phase, 2 bln. m3 of gas will be delivered to Turkey via SOCAR Energy Turkey projects and the implementation of the Shahdeniz-2 TANAP. The overall capacity of the pipeline is 16 bln. project, all strengthen the country’s global position as m3 a year. 6 bln. m3 of this volume will be used in Tur- SOCAR has been operating in Turkey since May 2008. SOCAR Energy Turkey aims to become the largest an important economic and energy partner, while at the key and the remaining 10 bln. m3 will be transported to industrial company in Turkey by 2023. same time guaranteeing high returns from the export of Europe. It is planned to increase the initial volume by gas in the future. The opening ceremony of the Trans- 31 bln. m3. TANAP has been financially supported by SOCAR’s projects in Turkey, contribute to the Turkish economy through significant projects such as Petkim Anatolian Natural Gas Pipeline (TANAP) Phase-0 several international financial institutions. The capital Star Oil Refinery and TANAP. SOCAR Energy Turkey has a 7% stake in the TANAP project. SOCAR Energy part of 1 340 km length was held with attendance of costs of the projects are $8 bln. The European Turkey includes Petlim, Petkim wind power station (Petkim RES), SOCAR Distribution and SOCAR Storage. Mr.Ilham Aliyev, President of the Republic of Azerbaijan, Union has granted financial assistance to the TANAP in Eskishehir's Seyidqazi district (Turkey). This project project. In July, the World Bank’s Multilateral Invest- In June 2018, SOCAR Energy Turkey signed a long-term agreement with a Canadian Software company, Coreworx. implies transportation of Azerbaijani gas to Turkey and ment Guarantee Agency (MIGA) issued $1,1 bln According to the agreement, SOCAR bought a license for Coreworx’s management program. The agreement will onwards to Europe. worth of guarantees in support of the TANAP enable SOCAR to manage project contracts and associated risks from planning to close out. pipeline financing. The fifteen-year guarantee is being TANAP is part of the Southern Gas Corridor offered to cover AKA Bank, Citi, Crédit Agricole Petkim, the first petrochemical plant in Turkey, has a production capacity of 3,6 mln. tons of petrochemical Project. The Southern Gas Corridor comprises CIB, ING, LBBW, Santander and Société Générale products per year. Being the first and only oil and gas manufacturer in Turkey, 364 mln. TRY was invested in the following four projects: Shahdeniz-2, South for their loans to Southern Gas Corridor CJSC, a Petkim petrochemical complex in 2018. Caucasus Pipeline Expansion, TANAP and TAP. special purpose vehicle overseeing the Azerbaijani Three of the four projects have been completed, and Government’s interests in the Southern Gas Corridor TAP has been implemented 72%. Once completed, Program, and a key shareholder in TANAP. The second TAP will be Europe's largest infrastructure project. phase of the project covering area from Eskisheher to The pipeline crosses Greece, Albania, and the the Turkish-Greek border, will be completed in 2019. Adriatic Sea before coming ashore in Southern Italy.

1 521 412 tons At present, Petkim meets The construction of a second Currently, SOCAR of products were 20% of Turkey's demand for Petkim petrochemical plant owns 51% of Petkim’s produced at Petkim petrochemical products will start in June 2019 controlling shares

28 29 The foundation of the Star Oil Refinerywas laid down by Further, other SOCAR projects were officially launched the President of Azerbaijan, Mr. Ilham Aliyev, and Turkish in 2018 – Petlim Container Terminal and Petkim Wind President Mr. Recep Tayyip Erdogan on October 25, Power Station. 2011. With total investments of $6,3 bln., the Star Oil Refinery has started processing crude oil in the test The Petlim Container Terminal, with a capacity of 1,5 mode. In August 2018, SOCAR Trading delivered 80 mln. TEU, is one of the 3 largest ports in Turkey. Around thousand tons of Azeri Light oil to Star Refinery. On $400 mln. has been invested in the terminal. September 1, 2018, SOCAR Trading and Rosneft signed an agreement on the obligatory delivery of SOCAR's renewable energy project PETKIM Wind Russian crude oil to Star refinery. The contract implies Power Plant has a capacity of 51 MWT. The investment the supply of 1 mln. tons of Urals oil to the Refinery in this project has totalled €55 mln. The energy plant, starting from December 2018. connected to Turkey's energy network, will significantly contribute to meeting the energy needs of SOCAR in On October 19, 2018, one of the largest investment Aliaga. projects in Turkey, SOCAR’s Star Refinery, held its opening ceremony. Shareholders of the project In December 2018, BP and SOCAR Energy Turkey are SOCAR (60%) and the Ministry of Economy of signed a Heads of Agreement (HoA) to evaluate the Azerbaijan (40%). The Refinery will meet a large portion creation of a joint venture that would build and operate of Turkey’s demand for oil products with an annual oil a world-scale PTA, paraxylene, and aromatics facility. processing capacity of 10 mln. tons of crude oil and 5 The project will facilitate integration with SOCAR’s mln. tons of diesel fuel. facilities, and the infrastructure is expected to reduce project costs significantly. The facility would use Imports of liquefied natural gas (LNG) will drop to BP’s latest highly efficient proprietary technology. 70%. The Refinery will also meet Petkim’s demand The joint institution will be built on BP and SOCAR’s for naphtha, the main crude material for the company, longstanding relationship in the region. which will considerably reduce Turkey's dependence on SOCAR Energy Georgia imports, reduce transport costs, and increase Petkim’s competitiveness in the market. The main focus of SOCAR Georgia Gas is to ensure During the period between 2007 and 2018, the gas supply program in Georgia. SOCAR Georgia SOCAR and its subsidiaries invested over $1 bln. Gas LLC is involved in the supply of natural gas to the in the Georgian economy. Georgian regions and manages the local gas network, providing services to over 670 thousand consumers. SOCAR’s operations in Georgia are carried out through SOCAR Gas Export-Import has been established to SOCAR Georgia Gasolineeum, SOCAR Gas Export- deliver an uninterrupted supply of gas to two consumer Import, SOCAR Georgia Gas, SOCAR Georgia Gas groups: the public and power generating facilities. Distribution, Black Sea Terminal, and other subsidiaries. In 2017, SOCAR exported 1 379,7 mln. m3 of gas to Georgia. In 2018, it constituted 1 399,7 mln. m3 Georgia Gasolineeum LLC sells oil products of (a 1,4% increase). Star Oil Refinery will The total output of Star is The refinery will reduce Turkey’s Azerbaijan and third parties in the Georgian wholesale start operating expected to reduce Turkey's imports by 40% and retail markets. at full capacity in current account deficit by January 2019 $1,5 bln. per year

The refinery employed 1 100 professionals will The Refinery will produce Currently, SOCAR’s SOCAR Georgia Gasolineeum 19 500 workers at permanently work at the 1,6 mln. tons of jet fuel and will subsidiaries in Georgia consists of 114 fuel filling the peak stage of refinery after its launch meet Turkey’s entire demand employ about 4 000 people stations, 16 service centers, construction and 5 oil terminals

30 31 SOCAR Energy Ukraine SOCAR Energy Ukraine, SOCAR’s subsidiary in shopping at filling stations in Ukraine are made using SOCAR Romania Ukraine, continued its efforts to improve the quality the SOCAR mobile application. In autumn, the company of services provided to customers and to introduce launched two more innovative programs. SOCAR Gasolineeum S.A. Romania is SOCAR’s sells four types of nano-fuel. At the filling stations, technological solutions. subsidiary in the Romanian market. The Company clients can pay their bills and utility services. Electric In 2018, SOCAR Energy Ukraine Trade House has is involved in the purchase and sale of Gasolineeum cars can be charged at SOCAR’s most recently 3 As per the end of 2018, SOCAR Energy Ukraine delivered one billionth m of its natural gas. In 2018, products in that country. By the end of 2018, the purchased filling station in Timisoara, Romania. employed over 1 800 people. Ukraine's network of filling stations operating under Company operated 40 filling stations and 2 oil depots. the SOCAR brand was recognized as the best filling The stations have been equipped with state-of-the- station in Success Favorites (Фавориты Успеха-2018) art technology and equipment. In Romania, SOCAR During the reporting year, the Company introduced the rating. first payment solution on the basis of QR-code (Quick Response) technology. Now, payments for fuel and

32 33 employees and is the leading brand in the Austrian state SOCAR Switzerland has more than 170 fuel filling of Styria. SOCAR Energy Austria LLC was established stations, gas filling plants located in Vangen-Olten, with the aim of managing the A1 network and Pronto Oil and jet fuel stations in Geneva and Zurich airports, Mineralölhandels GmbH. that continue to operate under the SOCAR brand. SOCAR’s efforts in 2018 supported both the Company SOCAR Energy Holding has invested part of its and the country in expanding the scope of operations revenues from Switzerland over the past five years in in Azerbaijan and abroad, as well as improving downstream projects and has expanded its investments the Company’s qualitative indicators. To meet the from previous years. The main goal has been to diversify expectations and demands of our stakeholders, sources of income in the future, to benefit from new SOCAR plans to continue the implementation of these markets’ potential, and to generate more revenue for the activities. Azerbaijani economy. In 2017, SOCAR’s subsidiary in Switzerland SOCAR Energy Holding acquired a well- known family business network A1 in the Austrian city of Graz, and Pronto Oil, specializing in the trading of oil lubricants. A1 has 82 gas stations in Austria and 150

SOCAR Trading and SOCAR Energy Switzerland

SOCAR has the largest network of filling stations in The Company was established to increase revenues Switzerland. from the sale of Azerbaijani crude oil in global markets via the Baku-Tbilisi-Ceyhan (BTC) pipeline and to expand the scope of influence of Azerbaijan around FIGURE 10. NUMBER OF FILLING STATIONS OPERATING UNDER THE SOCAR BRAND IN SWITZERLAND the world. SOCAR Trading has been able to establish worldwide ties with all refineries capable of processing Azeri Light and has successfully diverted Azerbaijani oil from the competitive Mediterranean region, rich with low-sulphur crude oil, to Asia, and has achieved an

178 167 increase in the price of Azerbaijani oil.

The assets of Esso Switzerland were transferred under SOCAR's control following an agreement signed between SOCAR and ExxonMobil in 2012. According 2017 2018 to SOCAR Trading statistics, SOCAR has built a positive reputation and enjoys brand recognition among SOCAR Trading, established in Geneva in 2008, sells more than 63% of consumers in Switzerland. oil and other products from Azerbaijan and third parties.

34 35 Continuous investments of SOCAR in Azerbaijan and other countries in the areas such as exploration and production to construct new industrial complexes and to meet domestic demand for fuel and petrochemical products, have all already achieved results. That is to say, SOCAR has built and put into operation a new offshore facility at the Bulla-Deniz field. The construction of an oil field established by the Company's in- house capabilities in 2017 was designed by the Oil and Gas Research and Design Institute, and the construction was carried out by the Oil and Gas Construction Trust. Designed for 1 exploration and 4 operation wells, the facility was installed at a depth of 30 m. Wells to be drilled up to average depth of 6300 m., the project is considered technologically complex. SOCAR has already achieved successful results in similar wells and will use the existing experience here as well. 2,5 mln. m3 of gas and 500 tons of condensate will be exported from the drilling wells of this field on a daily basis. In addition, environmental protection, safety, and fire protection measures were implemented at the highest standards and requirements. SOCAR’s contribution to the Sustainable 03 Development

36 Goals 37 Sustainable Targets prioritized SOCAR’s contribution SOCAR’s contribution to the Development Goals by the Government

Sustainable Development Goals QUALITY 4.4. By 2030, substantially increase In addition to technical and non-technical training provided by EDUCATION the number of youth and adults who SOCAR to employees on a variety of topics, the Baku Higher 4 have relevant skills, including technical Oil School established by the Company is among the Country’s and vocational skills, for employment, top-ranking universities. It has been several years since SOCAR YOXSULLUĞA ACLIĞA YAXŞI SƏHİYYƏ TƏMİZ SU VƏ SƏRFƏLİ VƏ SON SON VƏ RİFAH SANİTARİYA TƏMİZ ENERJİ decent jobs, and entrepreneurship. started to employ graduates of the Higher Oil School, which is an indication of the high-quality education offered by the School. More information is available in the Human Resources section.

CLEAN WATER 6.3. By 2030, improve water quality by The Company keeps control over water consumption in AND SANITATION reducing pollution, eliminating manufacturing facilities and office buildings and promotes 6 dumping, and minimizing release of recycling in water use. In SOCAR’s facilities in Azerbaijan, water hazardous chemicals and materials, consumption per employee decreased by 14,5%, while the halving the proportion of untreated volume of recycled water increased by 2,5%. More information wastewater and substantially is available in the Water Management subsection of increasing recycling and safe reuse Environmental Activities section. globally. In 2015, the United Nations adopted 17 Sustainable however, the responsibility for achieving these goals Development Goals (SDGs) and specific targets for lies not only with governments, but also with the private each Goal. These Goals are set to tackle challenges sector and civil society. To this end, SOCAR tries to faced by the world, aiming to end poverty, strengthen align its activities and initiatives with the Sustainable education and healthcare services, take urgent actions Development Goals to support the government and AFFORDABLE 7.1. By 2030, ensure universal access Given that SOCAR is part of the energy-intensive industry, the to combat climate change, and make the world more make its own contribution. AND CLEAN ENERGY to affordable, reliable, and modern Company has set annual energy consumption targets and 7 energy services. encouraged energy efficiency among facilities and responsible sustainable. 7.b. By 2030, expand infrastructure persons. As a result of these actions, the reporting period saw Considering current capacity and opportunities, existing and upgrade technology for supplying a 4,5% reduction in energy consumption. More information is modern and sustainable energy provided in the Energy Consumption subsection of Azerbaijan joined the UN Sustainable Development capacity, business profile of the Company, and current services for all in developing countries, Environmental Activities section. Goals Program in 2015. One of the targets set by the situation in the markets where SOCAR operates, we in particular least developed countries, small island developing states, and country is to reduce greenhouse gas emissions by 35% have prioritized 11 Sustainable Development Goals and landlocked developing countries, in by 2030 compared to the 1990 baseline. have undertaken a number of initiatives guided by the accordance with their respective programs of support. commitments set by the government for each target. Governments are key actors responsible for the implementation of Sustainable Development Goals;

DECENT WORK AND 8.2. Achieve higher levels of economic Continuous staff training and increased satisfaction and ECONOMIC GROWTH productivity through diversification, productivity among employees are always in the spotlight at 8 technological upgrading, and SOCAR. During the reporting period, 3 521 people were hired innovation, including through a focus and the newly recruited and existing employees received a total DaSustainableyanıqlı İnki şaf DTargetsövlət tprioritizedərəfindən on high-value added and of 226 hours of training. Further, SOCAR's Human Resources SOCAR’sBizim contributiontöhfəmiz Development Goals by the Government labor-intensive sectors. Functions Transformation Program was successfully implemented for the third year. More information is available in the Human Resources section. NO 1.2. By 2030, reduce at least by half As the largest employer in Azerbaijan, SOCAR undertakes a POVERTY the proportion of men, women, and number of social and charity steps aimed at reducing poverty. 1 children of all ages living in poverty in During the reporting period, SOCAR employed young all its dimensions according to national specialists, as well as members of IDP families and other 10.2. By 2030, empower and promote definitions. vulnerable groups. Further, the Company successfully REDUCED For SOCAR, the principles of fairness and equal opportunities the social, economic, and political continued its family support arrangements in 2018. SOCAR INEQUALITIES are of vital importance, and the Company’s decision-making 10 inclusion of all, irrespective of age, offers job placements to members of deceased employees’ process is guided by these principles. The Company takes sex, disability, race, ethnicity, origin, families to help improve their social welfare. SOCAR makes a regular measures to recruit young people and vulnerable religion, or economic or other status. groups. As our industry is male-dominant, the Company pays significant and continuous contribution to this SDG target. special attention to gender equality and takes necessary steps More information on the implemented projects and initiatives is 10.4. Adopt policies, especially fiscal, to avoid discriminatory behavior in the workplace and across the available in the Support of Local Social Development Section. wage, and social protection policies, value chain. More information is available in the Human Rights and progressively achieve greater and Diversity subsections of Corporate Governance section. equality.

3.8. By 2030, ensure universal access SOCAR has been providing health and life insurance and free GOOD HEALTH to sexual and reproductive health-care medical examinations to employees for many years. In addition, 3 AND WELL-BEING services, including for family planning, health and occupational safety procedures and initiatives are information and education, and the regularly reviewed and improved. More information is available integration of reproductive health into in the Human Resources and Health and Occupational Safety national strategies and programs. sections.

38 39

6

7 Sustainable Targets prioritized SOCAR’s contribution Development Goals by the Government

CLIMATE 13.1. Strengthen resilience and SOCAR, as a large energy consumer, continuously monitors adaptive capacity to climate-related energy consumption and GHG emissions and strives to reduce ACTION 13 hazards and natural disasters in all the volume of emissions. The Company has begun the countries. modernization and reconstruction of the Heydar Aliyev Oil 13.2. Integrate climate change Refinery, which will result in a reduction of emissions from motor measures into national policies, vehicles. More information is available in the Mitigation of strategies, and planning. Impacts on Global Climate Change subsection of Environmental Activities section.

PROTECTION 14.4. By 2020, effectŒvely regulate Protection of the Caspian Sea basin is one of the priority issues OF LIFE BELOW harvestŒng and end overfŒshŒng, Œllegal, of SOCAR's environmental policy. SOCAR has been utilizing a 14 unreported and unregulated fŒshŒng, surface water management system for many years to prevent a WATER and destructŒve fŒshŒng practŒces and discharge of produced waters into surrounding areas during the Œmplement scŒence-based production of hydrocarbon products, and to ensure the closed management plans, Œn order to restore utilization of such waters. More information is provided in the fŒsh stocks Œn the shortest tŒme Management of Produced Waters subsection of Environmental feasŒble, at least to levels that can Activities section. produce maxŒmum sustaŒnable yŒeld as determŒned by theŒr bŒologŒcal characterŒstŒcs.

PROTECTION 15.1. By 2020, ensure the SOCAR maintains strict monitoring over potential adverse OF LIFE ON LAND conservation, restoration, and impacts and their prevention in order to maintain biodiversity of 15 sustainable use of terrestrial and inland its areas of oil and gas operations, including the protection of freshwater ecosystems and their flora, fauna, and soil. In addition, the Company drafted an services, in particular forests, environmental and technical document under the Remediation wetlands, mountains, and drylands, in of polluted areas in Absheron Peninsula Project in 2018. The line with obligations under international past three years have seen a 40% reduction in areas polluted agreements. with oil products and produced waters as a result of SOCAR's recovery actions. More information is available in the Environmental Activities section and Restoration of the Disturbed Ecosystem subsection.

PARTNERSHIP 17.9. Enhance international support It is of utmost importance for the Company to collaborate with FOR THE GOALS for implementing effective and more experienced organizations and experts to achieve our 17 targeted capacity-building in goals and targets. SOCAR builds strong relationships through developing countries to support strategic partnerships in areas such as environmental protection national plans to implement all the and education, and contributes to sustainable development. Sustainable Development Goals, More information is available throughout this report. including through North-South, South-South, and triangular cooperation.

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

40 41 Corporate 04 Governance

42 43 Corporate governance SOCAR’s strategic development targets

SOCAR is a company with a specific statutory at SOCAR, to focus on desirable indicators, and to SOCAR’s future development and diversification “The SOCAR's Board that is a highest governance structure. It acts in its own commercial interests in the identify strengths and potential development areas for strategy is based on the following strategic body of the Company consists from SOCAR's market and has a dual relationship with the government each component of corporate governance. development trends involving exploration, development President, vice presidents, and Chairman of the as a Company with 100% of its shares being owned and production (upstream), crude transportation and Azerbaijan Trade Union Republican Committee of Oil by the state. Considering all of these, the Company As a result of the interviews and a review of internal sales (midstream), refining and sales of refined goods and Gas Industry Workers.” must demonstrate professionalism and take preventive documents, it was concluded that SOCAR gives (downstream), and following other strategic directions: measures to avoid possible conflicts of interest. high priority to corporate governance principles. The Top Management company’s overall corporate governance was rated as Development of gas projects SOCAR’s Corporate Governance system aims to ''STRONG'' at 81% score. The top management structure of the Company achieve the following: is depicted on the Figure 11. Top management is Production development and optimization In addition to the to the strong corporate governance appointed and dismissed by the President of the system of the Company, mentioned report highlights Republic of Azerbaijan (or more information, visit the Protect the interests of all stakeholders Increase of hydrocarbons transportation and areas that require improvement. Following these transit potential following link to get view the relevant legal acts: http:// recommendations, the Company has completed socar.az/socar/az/company/regulations/decree- Ensure sustainable growth of the Company Development of the processing sector significant work to develop key performance indicators ofthe-president-of-the-republic-of-azerbaijan- Increase possible impacts of operations and and more than a thousand indicators have been dateddecember-22-2005-no-340). The authority of Expansion of activities to foreign markets remove negative impacts identified and approved. the top management is termless. Implementation of environmental protection Minimize risks The next stage is to coordinate these indicators with projects Top management salaries are paid in accordance strategic targets and appropriate motivation systems, with the Labor Code, based on the “Unified Tariff Protect and strengthen the Company’s reputation and to approve the calculation methodology. Strategic development trends in other areas of Qualification Reference Book of Works and activity Occupations of Workers” prepared by the Collegium Given the importance of corporate governance, SOCAR of the Ministry of Labor and Social Protection, and the In 2018, Ernst & Young, one of the world's leading follows a set of principles of justice, accountability, The company implements a number of development Ministry of Justice, as well as based on Regulations on audit companies, prepared a report with a competency responsibility, and transparency. projects in other areas, such as development of human Labor Compensation and the Standard on Working assessment of corporate governance at SOCAR, resources, occupational health and safety, the creation Categories Management Standard for Compensation where it investigated SOCAR’s internal documents of key and supporting service facilities for oil and gas at SOCAR. and carried out relevant surveys. The project was extraction, development of nano-technologies, and implemented in order to assess the current level of social development. The Company seeks to further competency of the corporate governance system expand these projects in the future.

Management structure

The macro-level decisions are made by the Company's Board of Directors.

Responsibility Transparency Justice Accountability The Company's Board, established by the Order of SOCAR’s President dated January 30, 2008, is a consultative body operating under the President of Ensure that the Company Share accurate, clear and Ensuring equal Protect Company’s acts in accordance comparable information the Company. SOCAR’s President, who is in turn opportunities assets and balance the with laws and with the public rights of shareholders regulations regulations, appointed by the country’s President, chairs the and other stakeholders maximizes social and Board meetings. As 100% of SOCAR’s shares are environmental values while generating value owned by the state, the President of the Company for and investors submits separate reports to State authorities. (note: the profile of top management is available on the following link. http://socar.az/socar/az/company/ management/socar-president).

44 45 FIGURE 11. SOCAR’S TOP MANAGEMENT STRUCTURE IN 2018 Committees and elements of the management system

SOCAR's committees listed in Table 9, function to ensure effective corporate governance in the context of contemporary economic relationships.

Rovnag Abdullayev President of SOCAR

TABLE 9. COMMITTEES AND THEIR FUNCTIONS

Committee Functions

Suleyman Gasimov Elshad Nasirov Audit Committee Determines internal audit policy and strategy Khoshbakht Yusifzade Vice President for Vice President for The First Vice President Approves internal audit plans Economic Issues Investments and Marketing Monitors internal auditing activities Provides recommendations on improvement of control system Submits proposals to improve the risk management system to the relevant governing agencies Identifies financial risks and other high-risks areas at SOCAR and structural Badal Badalov David Mammadov Mikayil Ismayilov divisions Vice President for Vice President for Refining Vice President Social Issues

Risks Sets up a risk management system Management Monitors risk management procedures, and manage Company-related risks Committee effectively Shapes and increases the effectiveness of the internal control system Khalik Mammadov Rahman Gurbanov Rafiga Huseyn-zade Vice President for HR, IT and Vice President for Oil and Gas Vice President for Ecology Regulations Transportation and Gas Facilities Procurement Monitors the compliance of procurement procedures with the regulatory Committee documents Coordinates the procurement process among structural units Approves procurement strategy Involves external consultants and experts to ensure the effectiveness of

Tofig Gahramanov Bahram Huseynov Yashar Latifov procurement procedures, and determines expected value Vice President for Vice President for Vice President for Strategic Development Geology and Geophysics Field Development Information Ensures that appropriate decisions are made on issues related to manage - Security ment of information security Committee Ensures that the development priorities of information security functions are determined to achieve the necessary level of protection of the Company’s assets HIGHEST GOVERNANCE BODY • SOCAR'S BOARD COMPOSITION IN 2018

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

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

46 47 TABLE 10. COMPOSITION OF THE COMMITTEES Risks management Internal audit Risks Management system Name of the committee Composition of the committee The Company has created an internal audit system to The main purpose of the Company’s risk management Procurement Chairperson: ensure the accuracy and effectiveness of the control system is to ensure effectiveness of effectiveness of Committee Vice President for Field Development and Management systems. Each year, the existing audit implemented actions and integrate it into the top-level Deputy Chairperson: system undergoes improvements based on appropriate decision-making process. The Company strives to Vice President for Refining legislation, regulatory acts, and international best manage risks in a balanced way, taking into account Members: 1. Procurement Department practices. The results of risk-oriented audits are the severity of the risk and the cost of its mitigation. 2. Legal Department reflected in audit reports. The Company's current risk management system 3. Capital Investments Department was established in 2008 in accordance with the 4. Economics and Accounting Department The Internal Audit Department reports directly to COSO Enterprise Risk Management concept. Risk 5. Mechanics and Energetics Division SOCAR’s president. Further, the department carries management approach of the Company consists from 6. Manufacturing Process Automation and Metrology Division out instructions from the Internal Audit Committee and initial risk identification and its subsequent evaluation. 7. Advisor to Vice President for Oil and Gas Transportation and Gas Facilities reports to the Committee. 8. Information Technologies Department 9. Department of Control for Transportation

Information Chairperson: Security Vice President for HR, IT, and Regulations FIGURE 12. RISK MANAGEMENT SYSTEM Committee Members: 1. Vice President for Economic Issues 2. Vice President for Oil and Gas Transportation and Gas Facilities 3. Legal Department 4. SOCAR Head Office, Information Technologies Department Risk regulation and Risk acceptance 5. SOCAR Head Office, Secret Regulations and Military Draft Division prevention 6. SOCAR Head Office, Geology and Geophysics Division 7. SOCAR Head Office, Manufacturing Process Automation and Metrology Division 8. Information Technologies and Communication Department 9. Security Department

Chairperson: Human Vice President for HR, IT, and Regulations Resources Risk transfer Members: Risk avoidance Management 1. Vice President for Economic Issues Committee 2. Vice President for Social Affairs 3. Vice President for Oil and Gas Transportation and Gas Facilities 4. Vice President To ensure effectiveness of the risk management system, SOCAR has created risk management divisions at each structural unit and appointed risk managers and responsible employees. Staff of each structural unit and Risk Chairperson: responsible persons regularly monitor potential risks. Risk assessment is carried out based on the following Management Vice President for Economic Issues Committee Members: procedures. 1. Vice President for Oil and Gas Transportation and Gas Facilities 2. Vice President for Refining Review of stakeholders' views Cost monitoring 3. Legal Department Analysis of internally and externally prepared reports Review of strategic development trends Audit Chairperson: Committee Vice President Compiling reports on performance of commercial Review of mass media publications Members: partners 1. Vice President for Economic Issues 2. Legal Department Review of expert opinion

48 49 Based on the obtained results, a Corporate Risk Map is developed for each year, which identifies the risks, their Along with actions taken to address major risks, currency arising from exchange rate fluctuations against probability, impact, and measures to avoid them. the Company continues to manage other risks, the national currency. Actions taken to manage these including economic risks driven by market conditions, risks are included in SOCAR’s quarterly monitoring environmental risks, and risks to social welfare. reports. Economic risks include changes in global oil and gas FIGURE 13. CORPORATE RISKS MAP APPROVAL PROCESS prices and financial risks from transactions in foreign Internal Control System Corporate risk map approval process The Internal Control System introduced by the Company To raise awareness on how to improve the internal aims to ensure a unified approach to internal control, control system, the Company organized training for identify reasons of deficiencies discovered in the relevant Head Office personnel in 2018. In addition, structural units of SOCAR, provide recommendations in the same year, the Company launched monitoring to address these shortages and apply best practices, of the internal control system at SOCAR's structural render operational and methodical support, verify the units. Reports on monitoring were submitted to the Risk Structural units Risks Committee SOCAR's President Monitoring of the risks listed in the Corporate Risk Map Corporate Risk Map accuracy of information oreceived about deficiencies, Management Committee. Corporate Risk Map coordination approval Submission of reports to the and take necessary actions based on the verification Risk Management Committee results.

TABLE 12. INFORMATION ON MONITORING OF THE INTERNAL During the reporting period, new risks, including political risks, were identified and included into the risk categories CONTROL SYSTEM THROUGHOUT 2018 provided in the Table 11.

Date Duration Venue TABLE 11. TYPE OF RISKS IDENTIFIED April 23 – May 04, Azneft Production Union, H. Z. Tagıyev Oil and Gas 10 working days 2018 Extraction Department Risk category Name of the risk May 07 – 21, Azneft Production Union, “Absheronneft” Oil and Gas 10 working days Strategic Lack of strategic development policy 2018 Extraction Department

Geological/Resources Indefinite hydrocarbon resources and inefficient field development July 23 – August 10, Azneft Production Union, “Bibiheybatneft” Oil and 15 working days 2018 Gas Extraction Department Logistics Accidents in transportation, storage, and delivery of gas to the gas depos October 08 – 26, Azneft Production Union, Oil and Gas Extraction 15 working days 2018 Department named af. A.J. Amirov International sanctions imposed on partners in Production Sharing Agreements, Political Joint ventures and Alliances Logistics Accidents likely to happen in gas transportation system Code of Conduct Commercial Failure of contractors to complete commitments in full and within deadlines The Code of Conduct governs issues involving conflict Code of Conduct is an important document guiding Procurement of Inaccurate planning and execution of procurement of goods and materials of interests, health and occupational safety, equal SOCAR's employees, and all violations recorded are goods and materials opportunities and employee relations, as well as investigated by responsible agencies at a corporate level (equipment) (equipment) Company and employee relations. It further lists ethical and, where necessary, by law enforcement agencies principles that are highly valued at the Company. The upon the submission of necessary information. Project Project cost exceeds the budgeted value

Logistics Damage to/loss of transported production

50 51 FIGURE 14. ROLE OF SENIOR MANAGEMENT FIGURE 15. ETHICAL PRINCIPLES

SOCAR’s President and senior executives assume additional duties to fulfil the following ethical norms and values Compliance The Company complies with the applicable laws, as well as takes into account the cultural traditions and business

To ensure that full and accurate information about the Company is disclosed in due time Avoid making as required by laws and To demonstrate decisions that lead to international exemplary conduct in significant and documents implementation of unjustified reduction of Effectiveness ethical norms and employees in the principles determined The Company strives to increase company by the present Code of effectiveness of its operations by Conduct implementing social programs, improving well-being of employees and broader society Ethical Take actions to Perform business in promote an view of social environment of truth, principles responsibility to the integrity, mutual Accuracy and transparency public and community Role of respect, and honesty The Company operates properly, fulfills Senior all its responsibilities and tries to maintain its reputation as a reliable Management partner, as well as ensures transparency of its operations and transactions.

Act honestly with respect to employees To provide workers with and respond promptly safe working conditions that do not threaten and in a timely manner Professionalism and to their suggestions, their life or health ideas, requests, and competency complaints. The Company strives to involve highly qualified candidates, Build Company and increase their qualification by employee relationships Avoid discrimination, investing in training and on the basis of ensure equal rights and development long-term cooperation, opportunities in common goals, respect remuneration and career and mutual interest, progression social partnership Anti-corruption system

SOCAR has developed its own regulatory norms Standards and the most recent Policy Governing the Code of Business Ethics, 2013 and standards to combat corruption and enhance Conflict of Corporate Interests are publicly available transparency in line with national and international documents posted on SOCAR’s corporate website. principles and legislation requirements, given that The standards encourage personnel to consult with corruption poses a threat to the rule of law, reduces the respective structural units, whenever there are any the effectiveness of governance, creates detrimental questions or unclear issues. conditions for investment decisions, and causes less efficient use of budget funds and financial resources. The first three standards included in the Set of SOCAR's 52 53 Top management of SOCAR considers relations Since the introduction of the standards, in- with employees to be the most important element class training programs were organized for the of effective anti-corruption system. management of 15 entities within SOCAR's structure. The principle of intolerance to corruption in the 2013 2013 2017 Company’s Code of Conduct means a complete These trainings were attended by senior managers, i.e. prohibition of corruption and is applicable to all to all heads and deputy heads of the departments, divisons employees, including top management working in and units, as well as site and section managers. In 2018, Azerbaijan and in any other country around the world. the Company organized training for 18 staff members responsible for risk management at SOCAR’s facilities. All employees, including newly hired personnel, are informed on anti-corruption policies and the Code of In total over 500 employees have been trained on Conduct. Held via distance learning or in person, training anti-corruption policies since they were introduced. helps the Company to explain its anti-corruption policy, Along with the above, staff receive answers/comments

Set of anti-corruption and Standard for methodology of Policy governing the conflict procedures and associated commitments. Based on electronically in response to their questions on existing transparency standards anti-corruption system of corporate interests the outcomes, effectiveness, relevance and sufficiency policy. evaluation of regular trainings is assessed and required changes are designed for the upcoming years.

FIGURE 16. KEY ANTI-CORRUPTION PRINCIPLES Corruption risk

Considering wide scope of activities performed assessment and procedure is started over. Thus, in by the Company, SOCAR monitors each business the case of legal succession as well as when acquiring process separately to timely eliminate and mitigate or merging companies, the Company assess risk of corruption risk. Each year, corruption risk is monitored corruption by investigating whether the target company Key in both key and supporting business processes at has internal anti-corruption mechanism, management anti-corruption SOCAR. Monitoring reports are submitted to the Risk of the target company or its employees were involved principles Management Committee on a quarterly basis by each in corruption cases in the past, information on money entity. Further, business procedures likely to lead to laundering and terrorism financing is available, as well corruption risks are identified, and risk scenarios are as by exploring general country risks. developed based on the specifics of each process.

Corruption risk assessment and detection covers all Corruption risk is determined based on the type of business processes of the Company. Once changes business processes and country factors as specified in any operation are introduced, the corruption risk by the Set of Anti-Corruption and Transparency

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

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

54 55 Standards. In addition, the Company ensures accurate Company’s Executive Order dated January 29, 2013 evaluation of the extent to which the relationship with and the standard document "Methodology for Evaluation Stakeholders counterparties may impact the business operations. of the Anti-Corruption System." Report on results of the evaluation, including information on violations and As one of the most powerful companies with high corporate responsibility in the country and region, SOCAR SOCAR's anti-corruption system is regularly re- resistance was presented to the Risk Management emphasizes the maintenance, strengthening, and development of relationships with its stakeholders. In this evaluated to ensure its integrity and effectiveness. Committee. context, the Company seeks to maintain a balance between its open dialogue policy, transparency and commercial Accordingly, the Anti-Corruption System Evaluation interests. Program has been developed pursuant to the

FIGURE 17. SOCAR'S KEY STAKEHOLDERS Regulation of conflict of corporate interests

In 2014, the Company created warning notices for Afterwards, a comprehensive report on the collected personal conflict of interests, commercial conflict of data is submitted to the Risk Management Committee. interests and other conflict of interests with the aim to prevent situations where employees are unable to fulfill It should be noted that an appropriate database was their duties as a result of a conflict of interests between established to ensure anonymity of honest informants them and the Company, or situations or conditions that that submit information on corruption, conflicts of Media Community could influence their objective decision-making, as well interests and misconduct of ethical principles through as to obtain knowledge of potential conflict of interest a hotline. before it happens.

Confidentiality is especially important in the process of data collection, and the Company established a channel to ensure confidential storage of the collected data, and confidentiality of the service letter regarding conflicts of interest that may arise between the employee and Employees Government of the Republic of the Company (with the exception of certain cases). The Azerbaijan and state institutions risk of potential conflicts of interests turning into actual conflicts of interests is also analyzed by the Company.

Business partners Foreign and international organizatons

Competitors Suppliers and contractors

56 57 SOCAR uses media resources to enhance communication with stakeholders and deliver accurate and timely TABLE 13. SUMMARY OF STAKEHOLDERS’ COMMUNICATION MECHANISM information. The Company executives deliver speeches on TV and radio and give interviews to magazines within their areas of responsibility to inform stakeholders and answer questions from journalists. Apart from the traditional Stakeholders Communication channel Communication frequency media, the Company runs an official webpage and social media accounts (Twitter, Facebook, and YouTube) to impart objective information and to ensure that healthy relations are maintained with stakeholders. Government of Reports Quarterly, yearly and in response to the Republic of Public meetings inquiries Azerbaijan and state Site visits institutions Inspections and monitoring TABLE 14. SOCAR'S FOLLOWERS STATISTICS IN SOCIAL MEDIA PLATFORMS IN 2018 Media Year round based on the visiting days of Social projects vice-presidents (http://socar.az/socar/az/ Public Local meetings home/contact-us/visiting-days) Facebook Instagram Youtube Twitter Linkedin Total Hotlines Social media SOCAR 91 735 16 200 1 296 2 685 31 709 122 421 Meetings with vice presidents on scheduled dates

Moreover, SOCAR views its competitors as business partners and aims to achieve a positive change in the Suppliers and Procurement process Year round country via joint projects and industrial partnerships. contractors Supplier performance evaluation The Company holds regular meetings with current and potential investors in the country and abroad and ensures Mass media Special events Year round that complete and transparent information on the Company's performance, investment plans, financial, and macro- Press releases economic situation and development opportunities is provided.

Joint industrial projects Business partners Year round In 2018, the Company held discussions with project investors and partners as per the following announcements: Conferences and events

Performance evaluation, SOCAR Balkan will undertake the Front-End Engineering Design (FEED) of the new pipeline to be built training and development programs Year round Company Individual meetings between the Albanian cities of Fier and Vlora to deliver gas to Albania from the Southern Gas Corridor employees Anonymous surveys Internal communication mechanisms SOCAR held negotiations to establish a new company for project design of the Ionian-Adriatic Pipeline (IAP) that will be integrated into the Southern Gas Corridor (SGC) Competitors Conferences Year round Projects BP and SOCAR signed a new Production Sharing Agreement (PSA) for the joint exploration and Industrial associations development of Block D230 in the North Absheron basin in the Azerbaijani sector of the Caspian Sea

Within the framework of the Shah Deniz-2 project, the rights based on the contract signed with Gas Natural Fenosa (Spain) regarding gas sales were transferred to Edison, Italy's leading energy company As a 100% state-owned company, SOCAR has certain Company has created all the necessary conditions for commitments to the state institutions. It submits relevant inspections held by the Ministry of Taxes and Ministry of SOCAR and Statoil Azerbaijan, part of the SOCAR and Norway's Equinor Group, signed Risk-service reports to the state authorities that are required from Finance and other authorized government authorities. In Agreement (RSA) on the Exploration of the Karabakh field in the Azerbaijani Sector of the Caspian Sea and commercial organizations operating in the country. The addition, the Ministry of Ecology and Natural Resources the Exploration, Development and Production Sharing Agreement (PSA) of the Ashrafi-Dan Ulduzu-Aypara Company’s income and cost estimations for each fiscal regularly monitors compliance with environmental field in the Azerbaijani sector of the Caspian Sea year are approved by the Cabinet of Ministers of the legislation and associated regulatory requirements. All Republic of Azerbaijan upon the consent of the Ministry deficiencies detected during monitoring are addressed of Energy, Ministry of Taxes and Ministry of Finance, by SOCAR’s responsible structures in the shortest and are monitored by the respective authorities. period of time. Moreover, accounting and statistical reports, as well as tax declarations, are drafted pursuant to corresponding As the biggest taxpayer and employer in the country, legislative acts and filed with the Ministry of Taxes, SOCAR makes a positive contribution to society. Ministry of Finance, Ministry of Ecology and Nat Personnel health and rights and the prevention of Resources, and Ministry of Economy, as well as the State industrial accidents are issues addressed by SOCAR Statistical Committee, and other relevant agencies. The within close cooperation with the Trade Union.

58 59 Employee relations

The Company considers human capital to be its most important asset, supporting the long-term development of the Company and each country of operation. SOCAR has been committed to the principle of equal opportunities and zero tolerance to discrimination.

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

Discriminatory behaviour is prohibited, and the Company prohibits conduct that is deemed normal by local cultures and traditions in various countries but contradicts the Company's code of ethics and values

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

Employee competence and accomplishments are determined based on professionalism, qualification and performance without considering the gender, race, nationality, religion, physical capabilities, or political views

60 61 As a result of a successful oil strategy, Azerbaijan has become a major exporter of gas at an international level in recent years. The discovery of the giant Shah Deniz oil field in 1999, with total reserves of 1,2 trl. m3 of gas and 240 mln. tons of condensate, and the successful implementation of the Shah Deniz gas project have positioned Azerbaijan as a major exporter of natural gas to the world. Shah Deniz gas field is still BP's biggest discovery after the Prudhoe Bay oil field in Alaska. The South Caucasus Pipeline (Baku-Tbilisi-Erzurum) was constructed and put into use to export gas produced in this field. It has been operating since 2006 according to Shah Deniz 1 project, in Azerbaijan, Georgia and Turkey. Since the end of 2006, the gas produced from this field, initially processed at the Sangachal Terminal, has been delivered to Azerbaijan, Georgia, and Turkey via the South Caucasus Pipeline, with a total length of 997 km and a flowrate capacity of 20 bln. m3 per year. Following the successful implementation of the Shah Deniz-2 project, trade ties between Azerbaijan and other countries will surpass regional level and provide immediate access to European countries.

Human 05 Resources

62 63 Human resources management policy of SOCAR is governed by the Company’s Personnel Policy approved by Human Resources SOCAR President’s Order No. 57, dated April 22, 2013. The strategic goal of human resources policy at SOCAR is to build a human resources management system meeting international standards. It is SOCAR’s primary goal to provide broad and promising employment opportunities in all Company facilities and overseas offices as well as to develop professionals meeting present-day requirements and to promote working environment enabling employee satisfaction and equal opportunities for all. Human Resources The personnel policy pursued by SOCAR is aimed at maintaining the existing staff, developing them, making effective use of human resource opportunities, while improving management in line with international standards, Transformation Program meeting the changing demands of a market economy and developing SOCAR’s strategy. SOCAR’s Human Resources Transformation Program (HRTP) currently implemented at the Company pursuant to the Agreement signed between SOCAR and international consultant “SAP CIS” in 2015, involves the sub- projects provided in Figure 19.

FIGURE 18. HUMAN RESOURCES MANAGEMENT FUNCTIONS AT SOCAR In 2018, the processes under the HRTP continued within established schedule. The implementation of the “Competency management” part of the HRTP in all Azneft Production Units began in the same year, and has already achieved the results set out in Figure 20.

Training and Testing and Personnel development examination services/ FIGURE 19. SOCAR HR TRANSFORMATION PROGRAM Reports

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

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

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

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

64 65 FIGURE 20. COMPETENCY MANAGEMENT INDICATORS AT AZNEFT PU, 2018 FIGURE 21. EMPLOYEE DYNAMICS

5 994 Senior executives Number of employees Line manager successfully 2792 subjected to >400 tested for behavioral competency evaluation competencies at HR Portal

9 015 Specialists

Line managers involved Important and 715 in theoretical 364 very important positions and practical training 35 260 Manual 856 workers Technical personnel

Number of successors 634 selected for important and very important positions FIGURE 22. NUMBER OF EMPLOYEES AND NEWLY HIRED EMPLOYEES IN 2018

In 2018, SOCAR launched the pilot phase of the strategic goals with the participation of 27 employee

Effectiveness Management project. As part of this members (3 managers and 24 specialists) from the three 1 104 project, the Company identified organizational goals, structural units of the Azneft Gas Depo Operations a relevant team and individual goals by cascading Department. 47 604 3 521

Talent attraction and recruitment 2 417 With an increased scope of operations and changing contracts discontinued quitted for another job, while market conditions, the Company faces growing needs the remaining 155 were transferred to other facilities of for new and professional employees. the Company.

It is among our key targets to attract talents with Moreover, it is worth pointing out that the number of Already working Internal rotation Newly hired Employed from outside high potential. retired employees was 4 779, accounting for 9,35% of total workforce. Of them, 3 579 are retired on Recruitment in SOCAR is based on competitive preferential terms, 205 are retired by age and 995 recruiting process taking into account the respective are retired due to the disablity. EAccording to the Young talents development standards and other regulatory documents of the provisions of the collective agreement, if an employee By employing young and talented professionals, As per the end of 2018, the majority of young Company, in accordance with requirements of the labor is dismissed within one month of reaching retirement SOCAR not only contributes to the development of employees works in Carbamide Plant (32%), Baku legislation of the Republic of Azerbaijan. As of January age, that employee shall be paid five times the salary. young talents but also ensures the sustainable and Higher Oil School (25%), Investments Department 1, 2019, the number of SOCAR employees, including In general, a notice on any potential change in the timely evolution of its operations. 195 out of those (36%), and SOCAR’s Head Office (24%). those of the Company facilities and subsidiaries, was 51 Company’s structure, i.e., abolition of a facility or staff hired by the Company were graduates of SOCAR 125. The increased demand for new employees arose redundancy is mailed to employees at least two months Training and Certification Department, and 14 were the from the launch of new facilities, such as Carbamide ahead. graduates of SOCAR’s Scholarships Program. Within the framework of strategy on turning black gold Plant in Sumgait, Methanol Plant in Garadagh district into human capital as well as taking into account high of Baku, and incorporation of Baku Olympic Stadium dependence of future development of the country on into the structure of SOCAR in 2018. During 2018, young specialists, SOCAR continues to implement a employment contracts with 1 935 employees were number of programs and activities to engage talented dismissed for various reasons. 1 780 of those whose students.

66 67 Young Workers Training Human rights 180 students were admitted to SOCAR’s Training Haydar Aliyev Fund also won the right to participate in Human rights protection is traditionally a priority issue on violation of human rights was recorded during the Center in 2018 to get trained in 11 disciplines. Along with the training at the SOCAR Training Centers. for SOCAR, and the Company has zero tolerance reporting period. the other participants, 6 participants from orphanages for human rights violations. No complaint or incident through the DAN Public Union with the presentation of Diversity Overseas Scholarship Program SOCAR attaches great importance to protection of In view of the nature of operations, the Company During 2017-2018 academic year, SOCAR took a Paristech University, Toronto University, East Anglia the rights of vulnerable groups, particularly women, has determined equal opportunities and career number of measures to train young professionals. University, and London Imperial College. In addition, internally displaced persons, people with disability, development of women as its priority issues. In 2018, 7 students were selected for SOCAR’s 13 graduates of Overseas Scholarship Program were and war veterans. Irrespective of the reason, SOCAR Overseas Scholarship Program. The selected students hired by SOCAR upon the successful graduation from has built stringent position on discrimination, and In 2018, SOCAR employed 8 505 women will study world’s leading universities - Melbourne the university. all complaints filed in this respect are subject to accounting for 16,61% of total employees. University, Harvard University Kennedi School, Mines serious scrutiny and the results are reported to senior management. No discriminatory act was recorded during the reporting period. Internal Scholarship Program

In order to train talented young oil workers and to program and 77 were awarded the scholarship. Winners encourage students to acquire modern scientific and of the Domestic Scholarship Program are provided with practical knowledge in the oil and gas industry, starting jobs at SOCAR if they meet the conditions. During 2018, Employee Assessment from the academic year of 2004/05, SOCAR has the Company hired 3 graduates within the framework of been providing students who demonstrate outstanding SOCAR’s Domestic Scholarship Program. SOCAR launched the Competency Management As part of the HR Transformation project, more than academic performance with monthly payments. In 2018, Project in 2017 as part of the competency assessment 720 executives received training on assessment and 1 894 students from 26 universities applied for the process. The process is run on the basis of a behavior competences, handbooks were prepared and methodology approved by the Company President. administered by HRD to respective structural units. The annual assessment involves senior executives and Unpaid Internship Program engineers and technical staff. The executive-employee Furthermore, the Company organized executive- meetings are arranged by Company to discuss employee meetings in both offshore and onshore SOCAR has been running its Unpaid Summer Internship Internship program during their summer vacation. 1 675 assessment results and individual development plan facilities of Azneft PU to raise awareness on Program for years. Every year, SOCAR has invited students from both the local, and foreign universities which further help SOCAR to identify the training needs competency requirements, evaluation criteria and students studying at universities in both the Republic of attended the Unpaid Summer Internship Program in of each employee. individual development plans. In general, the number of Azerbaijan and foreign countries, who are also citizens 2018. staff members subjected to competency assessment of Azerbaijan, to take part in the Unpaid Summer Having regard to SOCAR’s Regulations on by direct managers was 2792. As a result of these Remuneration approved by the Order - Decision of assessments, the business expert groups identified SOCAR and ATURCOGIW5, October 08, 2007 and and approved 364 "important" and "very important" ASAN Volunteers Internship at SOCAR pursuant to the Regulations of the Commission, the positions. Based on the assessment results and Company reviews on an annual basis the Level of qualification criteria, 634 followers were selected, Within the framework of Master 2 program, SOCAR departments in accordance with their speciality. As Remuneration applied by employees. In 2018, 572 an appropriate individual development plan was and the State Agency for Public Service and Social part of the cooperation, the candidacy of 153 ASAN applications developed, and competencies subject to development Innovations under the President of the Republic of volunteers’ candidacy were received to undertake an were agreed upon. With all these actions, SOCAR Azerbaijan (ASAN) signed a cooperation agreement on internship at appropriate structural units of SOCAR to In 2018, 572 applications for salary increase achieved sustainability of respective positions, along October 21, 2016 regarding internship opportunities undertake an internship in 2018. That year, 39 ASAN were received from employees. 454 of received with motivating the human resources through the for ASAN volunteers in all SOCAR entities and volunteers were selected for internships in 2018. applications were resolved. transformation project.

5 Azerbaijan Trade Union Republican Committee of Oil and Gas Industry Workers

68 69 Over the reporting period, 1935 oil workers and their treatment centers and 3 569 people were provided Stimulations and benefits family members took holidays in recreational zones of with treatment in Hotel Gashalti sanatorium in Naftalan. the country. Oil workers in need of treatment with the SOCAR takes a number of stimulatory actions and President of the Republic of Azerbaijan for outstanding number of 3 069 were sent to resort and sanatorium holds meetings to award those who exerted every effort performance in the oil industry. In addition, 140 to the Company’s development and successes. A employees were awarded the Honorary Award Pins of number of encouraging events and meetings are being the State Oil Company of the Republic of Azerbaijan Employee development held to assess the contributions of the employees who for special contributions to the development of the oil have worked hard in the development and successful industry Talent pool development is under strict control of implemented by the Company to ensure that employee operation of SOCAR. SOCAR’s management. A number of corporate knowledge and skills are continuously updated and Moreover, SOCAR takes care of its employees. A and technical training programs are developed and developed. For Oil Workers' Day, 65 employees were awarded number of benefits are awarded to all categories of various orders, medals, and honorary titles for special employees to ensure employee satisfaction with the contributions to the development of oil industry. Four company they work for. TABLE 15. TYPE AND NUMBER OF TRAININGS veteran oilmen were given personal grants of the Number of training Name of the Training (Education) Center Number of participants Summer camp programs in Germany and Azerbaijan sessions provided

According to the cooperation agreement for the period Likewise, “Summer Camp in Azerbaijan” was organized Employee Development Center 160 4 915 of 2013-2044 signed between SOCAR and German for 20 children of Uniper staff on the dates of July 17 to Uniper, children (20 people) of SOCAR employees were 31, 2018. As part of the program approved by SOCAR, Training Center for the 34 2 667 entitled to take part in the "Germany Summer Camp" children visited the cities of Baku, Guba, Gusar, Safety of Life at Sea program after successfully passing the examination. Shamakhi, Gabala, Sheki, Ganja, Goygol during the During the summer camp, 20 program participants 15-day summer camp. This program made it possible Sumgait Education and Training Center 25 416 visited German cities of Munich, Frankfurt, Düsseldorf, to promote the customs, traditions, history, and tourist Mönchengladbach, Dortmund, Cologne, etc. from June attractions of Azerbaijan. Gala Education and Training Center 6 576 16 to July 1, 2018.

Voluntary medical insurance program Gobustan Regional Training Center 1 13

SOCAR introduces comprehensive approach to employee health and takes comprehensive measures Since 2012, SOCAR has provided all staff with to improve the workplace conditions, to arrange Voluntary Health Insurance Program which is the leisure times, to undertake initial and regular medical most advanced form of social care. examinations, and to improve the quality of inpatient care and treatment. During 2018, 41 233 employees who applied for healthcare facilities underwent 453 690 types of clinical In addition, insurance program covers former employees and medical examinations. who had to leave the Company due to occupational injury. According to the program, the employees are entitled to use the medical services worth up to 75 000 AZN from leading clinics of the country throughout the year.

Health insurance of retired employees

SOCAR has signed a voluntary health insurance treatment for former employees of SOCAR under the agreement with PASHA Insurance OJSC to ensure Voluntary Health Insurance Program. To get registered, that retirement benefits and high-quality medical pensioners apply and submit necessary documents to care are provided to retired employees. According to the PASHA Insurance representative at the Central Oil the agreement, the insurance company undertakes Workers Hospital in order to receive medical services. the provision of ambulance, outpatient, and inpatient

70 71 Human Resources Management Indicators TABLE 16. AVERAGE TRAINING HOURS PER EACH EMPLOYEE IN 2018, BY CATEGORY AND GENDER SOCAR Azerbaijan

DYNAMICS OF THE NUMBER OF SOCAR AZERBAIJAN EMPLOYEES SOCAR Azerbaijan SOCAR Energy Turkey

Senior executives 11,30 Senior executives 686 2016 2017 2018 Specialists 13,50 Specialists 190 Women 8 532 8 421 8 505 Technical personnel 3,50 Technical personnel 229 Manual workers 8,04 Manual workers 83 Men 42 203 42 003 42 620 Women 5,70 Women 112 Men 10,10 Men 142,50 Total 50 735 50 424 51 125

SOCAR Energy Georgia SOCAR Energy Ukraine

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE6 Senior executives 1,19 Senior executives 70,56 Specialists 6,19 Specialists 198,08 2017 2018 Technical personnel 5,92 Technical personnel 131,59 Manual workers 14,25 Manual workers 330,49 Women Men Women Men Women 2,48 Women 361,34 Men 9,91 Men 159,54 Permanent employees 8 334 41 783 8 442 42 233

SOCAR Energy Switzerland Temporary employees 87 220 63 387

Senior executives 8 Specialists 8 2017 2018 Technical personnel 12 and Manual workers Women Men Women Men Women 10,69

Men 11,40 Full-time employees 8 420 42 002 8 504 42 617

Part-time employees 1 1 1 3

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES IN 2018, BY CATEGORY AND GENDER

Women Men

Senior executives 525 5 469

Specialists 2 935 6 080

Technical personnel 633 223

Manual workers 4 412 30 848

⁶ This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard.

72 73 MEMBERS OF THE HIGHEST GOVERNANCE BODY OF SOCAR AZERBAIJAN IN 2018, NUMBER OF SOCAR AZERBAIJAN EMPLOYEES DISMISSED IN 2018, BY BY AGE AND GENDER AGE AND GENDER

Women 1 Women 270

Men 13 Men 1 510

Under 30 years old 0 Under 30 years old 312

30-50 years old 0 30-50 years old 975

Over 50 years old 14 Over 50 years old 493

NUMBER OF EMPLOYEES, BY AGE CATEGORIES EMPLOYEE TURNOVER AT SOCAR AZERBAIJAN, %

2016 2017 2018 2016 3

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old 2017 2

2018 3 4 839 25 326 20 259 4 839 25 326 20 259 4 750 25 103 21 272

PERCENTAGE OF EMPLOYEES COVERED BY COLLECTIVE EMPLOYMENT AGREEMENT, %

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES HIRED AND DISMISSED 2016 2017 2018 2016 2017 2018 Percentage of employees covered by 100 100 100 Collective Employment Agreement Hired personnel 1 920 1 728 2 417

Dismissed personnel 1 350 1 083 1 780 RATIO OF ENTRY-LEVEL WAGE TO THE OFFICIAL MINIMUM WAGE IN THE COUNTRY7

2017 2018

NUMBER OF SOCAR AZERBAIJAN EMPLOYEES HIRED IN 2018, BY AGE AND GENDER Women Men Women Men

Women 349 Employees of SOCAR 1,29 1,29 1,38 1,38

Men 2 068 Individuals serving the Company but 4,84 4,84 4,84 4,84 not registered as official employees of the Company

Under 30 years old 1 274

30-50 years old 731

Over 50 years old 412 ⁷ This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard.

74 75 EMPLOYEES THAT TOOK PARENTAL LEAVE8 2017 2018

2017 2018 Women Men Women Men

Number of employees entitled to parental 783 797 Full-time employees 320 3 180 436 3 676 leave, by age

Number of employees left for parental leave, 315 407 Part-time employees 0 0 0 0 by age

Number of employees returned back from NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES IN 2018, BY AGE CATEGORIES parental leave during the reporting period, 153 160 by age 2016 2017 2018 Total number of employees expected to Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 return back from parental leave during the 315 407 years old years old years old years old years old years old years old years old years old reporting period

Total number of employees returned back 314 1 995 422 776 2 304 420 895 2 801 416 from parental leave and stayed at work 135 141 during 12 months

Level of return to work 48,5 39,3 NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES IN 2018, BY CATEGORY AND GENDER

Level of stay at work 88,2 88,1 Women Men

Senior executives 10 68

SOCAR Energy Turkey Specialists 258 418

DYNAMICS OF THE NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES Technical personnel 124 636

2016 2017 2018 Manual workers 43 2 555

Women 226 320 436 MEMBERS OF THE HIGHEST GOVERNANCE BODY OF SOCAR ENERGY TURKEY IN 2018, BY GENDER9 Men 2 661 3 180 3 676

Women 0 Total 2 887 3 500 4 112

Men 34 NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE

2017 2018 NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES HIRED AND DISMISSED

Women Men Women Men 2016 2017 2018

Hired personnel 255 845 656 Permanent employees 319 3 178 436 3 676

Dismissed personnel 293 239 173 Temporary employees 1 2 0 0

⁸ This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard. ⁹ This index has been provided since 2017.

76 77 RATIO OF ENTRY-LEVEL WAGE PAID TO EMPLOYEES TO THE MINIMUM WAGE NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES HIRED IN 2018, BY AGE AND GENDER IN THE COUNTRY11

Women 122 2017 2018

Men 534 Women Men Women Men

Employees of SOCAR 1,55 1,69 1,48 1,72 Under 30 years old 272

30-50 years old 346 TRAINING ON HUMAN RIGHTS12

Over 50 years old 38 2017 2018

Overall durability of trainings on human rights 13 policies and procedures, hours 1 928 2 772,5 NUMBER OF SOCAR ENERGY TURKEY EMPLOYEES DISMISSED IN 2018, BY AGE AND GENDER Percentage of employees trained on policies and procedures on aspects of human rights, % 30% 31% Women 18

Men 155

SOCAR Energy Georgia Under 30 years old 18

30-50 years old 120 DYNAMICS OF THE NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES

Over 50 years old 35 2016 2017 2018

Women 885 869 888

EMPLOYEE TURNOVER AT SOCAR ENERGY TURKEY FOR 2016-2018, % Men 3 368 3 460 3 617 2016 10 Total 4 253 4 329 4 505 2017 7

2018 4

PERCENTAGE OF EMPLOYEES COVERED BY COLLECTIVE EMPLOYMENT AGREEMENT10, %

2016 2017 2018

Percentage of employees covered by N/A 60 59 Collective Employment Agreement

10 This index has been provided since 2017. 11 This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard. 12 This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard. 13 Since the number of trainings provided last year does not include Petkim and Petlim, the figures have been recalculated and added to this year’s report.

78 79 NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES, BY EMPLOYMENT MEMBERS OF THE HIGHEST GOVERNANCE BODY OF SOCAR ENERGY GEORGIA IN 2018, CONTRACT TYPE BY AGE AND GENDER14

2017 2018 Women 0

Women Men Women Men Men 5

Permanent employees 866 3 455 884 3 610 Under 30 years old 0

Temporary employees 3 5 4 7 30-50 years old 0

Over 50 years old 2017 2018 5

Women Men Women Men NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES HIRED AND DISMISSED

Full-time 868 3 460 887 3 617 2016 2017 2018

Hired personnel 640 777 908 Part-time 1 0 1 0

Dismissed personnel 516 701 732

NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES, BY AGE CATEGORIES NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES HIRED IN 2018, BY AGE AND GENDER15 2016 2017 2018

Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 Women 71 years old years old years old years old years old years old years old years old years old

Men 837 937 2 207 1 109 1 137 2 104 1 088 946 2 168 1 391

Under 30 years old 450

NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES IN 2018, BY CATEGORY AND GENDER 30-50 years old 344

Over 50 years old 114 Women Men

Senior executives 22 166 NUMBER OF SOCAR ENERGY GEORGIA EMPLOYEES DISMISSED IN 2018, BY AGE AND GENDER16

Specialists 373 491 Women 52

Technical personnel 222 1 787 Men 680

Manual workers 271 1 173 Under 30 years old 326

30-50 years old 264

Over 50 years old 142

14 This indicator has been reported since 2017. 15 Due to a change in methodology, 690 men and 87 women were hired in 2017. 16 Due to a change in methodology, 598 men and 103 women were dismissed in 2017. 80 81 EMPLOYEE TURNOVER AT SOCAR ENERGY GEORGIA, %

2017 2018 2016 12 Women Men Women Men 2017 16 14 Bu göstərici üzrə hesabat 2017-ci ildə etibarən verilir. Full-time employees 843 935 902 918 2018 17 Part-time employees 19 20 19 22

RATIO OF ENTRY-LEVEL WAGE OF PAID TO EMPLOYEES TO THE OFFICIAL MINIMUM WAGE IN THE COUNTRY17 NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES, BY AGE CATEGORIES

2017 2018 2016 2017 2018

Women Men Women Men Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old

Employees of SOCAR 11,11 7,44 11,11 7,44 937 2 207 1 109 759 872 186 712 914 235

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES IN 2018, BY AGE AND GENDER SOCAR Energy Ukraine

Women Men

DYNAMICS OF THE NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES Senior executives 65 100

2016 2017 2018 Specialists 425 175 Women 770 862 921

Technical personnel 3 19 Men 967 955 940

Workers 428 646 Total 1 737 1 817 1 861

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES, BY EMPLOYMENT MEMBERS OF THE HIGHEST GOVERNANCE BODY OF SOCAR ENERGY UKRAINE IN 2018, CONTRACT TYPE BY AGE AND GENDER

2017 2018 Women 0 Women Men Women Men Men 5

Permanent employees 862 955 921 940

Under 30 years old 0 Temporary employees 0 0 0 0 30-50 years old 1

Over 50 years old 4

17This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard.

82 83 PERCENTAGE OF EMPLOYEES COVERED BY COLLECTIVE EMPLOYMENT AGREEMENT, %18 NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES HIRED AND DISMISSED Collective employment agreement 2016 2017 2018 2016 2017 2018 Percentage of employees covered by N/A 12,44 12,25 Collective Employment Agreement Hired personnel 1 469 1 306 1030

RATIO OF ENTRY-LEVEL WAGE PAID TO EMPLOYEES TO THE OFFICIAL MINIMUM Dismissed personnel 1 399 1 226 986 WAGE IN THE COUNTRY19

20172017 20182018

Women Men Women Men NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES HIRED IN 2018, BY AGE AND GENDER

Employees of SOCAR 1,00 1,00 1,00 1,00 Women 445

Men 585 SOCAR Energy Switzerland

DYNAMICS OF THE NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES Under 30 years old 560 2016 2017 2018 30-50 years old 393 Women 509 508 510 Over 50 years old 77 Men 309 285 279

NUMBER OF SOCAR ENERGY UKRAINE EMPLOYEES Total 818 793 789 DISMISSED IN 2018, BY AGE AND GENDER

Women 386 NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES, BY EMPLOYMENT CONTRACT TYPE Men 600 2017 2018

Women Men Women Men Under 30 years old 548

30-50 years old 391 Permanent employees 481 254 483 254

Over 50 years old 47 Temporary employees 27 31 27 25

EMPLOYEE TURNOVER AT SOCAR ENERGY UKRAINE, % 2017 2018

2016 81 Women Men Women Men

2017 67 Full-time employees 193 185 191 183

2018 53 Part-time employees 315 100 319 96

18 This indicator has been reported since 2017. 19 This indicator has been reported since 2017 in accordance with the updated requirements of GRI Standard.

84 85 NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES, BY AGE CATEGORIES NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES HIRED IN 2018, BY AGE AND GENDER

2016 2017 2018 Women 194 Under 30 30-50 Over 50 Under 30 30-50 Over 50 Under 30 30-50 Over 50 years old years old years old years old years old years old years old years old years old Men 105

333 335 150 323 319 151 315 164 310 Under 30 years old 184

30-50 years old 16 NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES IN 2018, BY CATEGORY AND GENDER

Over 50 years old 99 Women Men

Senior executives 18 49 NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES DISMISSED IN 2018, BY AGE AND GENDER Specialists 58 42 Women 185

Technical personnel and workers 434 188 Men 112

MEMBERS OF THE HIGHEST GOVERNANCE BODY OF SOCAR ENERGY Under 30 years old 169 SWITZERLAND IN 2018, BY AGE AND GENDER 30-50 years old 24 Women 0 Over 50 years old 104 Men 6

EMPLOYEE TURNOVER AT SOCAR ENERGY SWITZERLAND, % Under 30 years old 0 2016 33 30-50 years old 1 2017 43.7 Over 50 years old 5 2018 37.64

NUMBER OF SOCAR ENERGY SWITZERLAND EMPLOYEES HIRED AND DISMISSED

PERCENTAGE OF EMPLOYEES COVERED BY COLLECTIVE EMPLOYMENT AGREEMENT, % 2016 2017 2018 20 Collective employment agreement 2017 2018 Hired personnel 316 321 299 Percentage of employees covered by N/A 82.60 Collective Employment Agreement Dismissed personnel 272 323 297

20 The collective employment agreements applicable to all staff working in the filling stations of SOCAR in Switzerland are effective as of February 2018.

86 87 In recent years, SOCAR has implemented digital resource planning, a corporate networking system covering the Company's business units, and a single corporate data bank for oil and gas fields. As the next step of this strategy, Caspian Innovation Center company was founded to establish a competitive information technology (IT), business transformation and consulting services in Azerbaijan, the Caspian region and other countries, mainly in the oil and gas industry. This strategic partnership platform will make a significant contribution to the emergence of multi-industry solutions and new competencies in the region, combining IBM's high-performance data computing and digital cognitive intelligence capabilities with SOCAR's industry experience. As a result of creating an analytics and supply center, SOCAR will manage IT processes and operations in a more flexible and efficient manner and analyze data faster and more extensively in manufacturing processes. As a result, the efficiency of exploration works in the oil and gas fields will increase, and new opportunities will be created to reduce the impact on the environment.

Support for local social 06 development

88 89 1933 donors participated in the Thalassemia for Life blood donation campaign as per the plan made by the Support for local social Department for 2018 to help children with thalassemia, organized by Mehriban Aliyeva, President of the Heydar development Aliyev Foundation.

SOCAR fully recognizes its social responsibilities, The Company takes steps toward identifying and and participates in the country’s social initiatives managing social impacts that arise as a result of the Well-being of employees and contributes to all important social and economic Company's interventions, as well as creating positive projects implemented at country level. social change by maintaining an open dialogue with all SOCAR constantly strives to find solutions to social State Oil Company of the Azerbaijan Republic, and interested parties/stakeholders. problems faced by its staff and takes large-scale the Republican Committee of Azerbaijan Oil and Gas measures in this respect. In order to improve the social Industry Employees. Of these items, 91 items are in well-being of its employees, it has adopted a 2016- action, while implementation of 77 items is in progress, 2020 Social Development Program consisting of and realization of other items is still in the process. Charity and sponsorship 352 items approved by the relevant order of the State Committee for Oil and Gas Industry, Employees of the SOCAR carries out various activities to achieve social outcomes with public importance. Table 17 presents payments made in accordance with the standard on Charity, Social and Sponsorship Assistance in 2018.

TABLE 17. PAYMENTS MADE IN ACCORDANCE WITH THE STANDARD ON CHARITY, FIGURE 23. IMPROVED HOUSING CONDITIONS FOR EMPLOYEES SOCIAL AND SPONSORSHIP ASSISTANCE SOCARSS009.2012 IN 2018

Material Social Financial Housing queue Provided with housing assistance Charity expenditure Sponsorship assistance Total, AZN 442 112 311,00 0 245 200,00 4 257 204,00 0 4 614 715,00 80

2 627 189 This includes:

Scope of support AZN Baku city Land plot Sports 527 728,00 Regions Apartment

Financial Associations and Trade Unions 890 902,00

Education 196 700,00 Recently, distribution of land plots for construction of the 172-apartment building in S. Vurgun Street of Sumgait 96-apartment residential building in Surakhani district city for those who are on the waiting list for housing in Art and Culture 2 826 510,00 of Baku and of individual houses on the 22-hectare Azerkimya Production Association. The distribution is area owned by Neftchi Housing and Construction expected to happen soon. Religious institutions 0 Cooperative in the Buzovna settlement of Khazar district is currently underway. Planning and design of The provision of material support to employees under Government authorities and agencies 0 the 656-apartment residential complex in Bibiheybat the Charter on Financial Assistance continued in 2018.

Healthcare 0 has been completed and its distribution will start soon. Social care of families of martyrs and people disabled as a result of war are always a key focus of the Company. Financial aid to individuals 172 875,00 In addition, the Company completed the design estimates documentation to launch construction of 0 Disabled veterans and persons a 100-apartment building in A. Guliyev Street and

Total 4 614 715,00

90 91 TABLE 18. AMOUNT OF MATERIAL ASSISTANCE AND NUMBER OF RECIPIENTS IN 2018 Telemedicine service

For 2018 Starting from 2018, SOCAR has incorporated Considering that the Company employees are unable to Article № Type of assistance Payment ratio Number of recipients Amount of assistance, (AZN) “Telemedicine and International Experts Alternative visit clinics due to working conditions, time constraints Advisory Services” into the Voluntary Medical and distance to health care facilities, this service Assistance to one of the family 4.1.1. 20 137 355 640,00 Insurance Program to enhance the level of health care enables them to constantly be in contact with a doctor members of a deceased employee provided to the Company employees. at 24/7 by using a video-doctor service regardless of

4.1.2. Death of a family member 5 1 303 846 900,00 being at work or at home, get medical advice, and get a supplementary medical report based on the diagnosis issued to them. Children of employees who died in the 4.1.3. Nagorno-Karabakh War or during 19-20 January, 5 1 7 800,00 until they reach 18 years of age (or until the age of 23 if they are full-time students) for each child, monthly Establishing positive relations

Children of a deceased employee until they reach 4.1.4. 18 years of age (or until the age of 23 if they are 2.5 915 3 348 915,00 with the community full-time students) for each child, monthly Social projects in sports, education and culture SOCAR launched the construction of Baku Talents and FIFA attended the groundbreaking ceremony of the 4.2. By the consent of SOCAR’s President 52 4 614 715,00 Education Complex in Bibiheybat settlement of Sabayil stadium. The construction was completed in two years. district in Baku and Demirchi Archaeological Museum in

Total 2 408 9 173 970,00 Shamakhi district pursuant to the respective executive Right after the completion of construction, the stadium orders of the Company. served as the main venue of the opening and closing of the 1st European Games, athletics, and para- Baku Olympic Stadium was included into the SOCAR's athletics tournaments. The IV Islamic Solidarity Games, structure pursuant to order of SOCAR’s President Karabakh FC UEFA Champions League group stage, Support of families of diseased and dated August 25, 2018. President of the Republic of and UEFA Europa League group matches are other injured employees Azerbaijan Mr. Ilham Aliyev and presidents of the UEFA international events hosted by the stadium.

The Company provided financial assistance pursuant as tuition fees of their children were paid by SOCAR, to “SOCAR’s Financial Assistance Regulations” to and financial assistance was provided to their families. SOCAR's foreign subsidiaries address the social issues faced by survivors, and The state of well-being of these families is constantly The Company undertakes a range of measures SOCAR Energy Turkey is involved in corporate social the families of deceased or missing persons of, as a monitored by SOCAR. to address social issues at SOCAR's overseas responsibility projects and provides direct or indirect result of the natural disaster on offshore Platform 10 subsidiaries. support to various activities, particularly in education, at the Gunashli field owned by 28 May OGPP in the In order to improve the social situation of the environment, and sports. Caspian Sea on December 4, 2015; and on platform disadvantaged, as well as of the families of deceased In 2008, SOCAR Energy Georgia committed to investing at least $250 mln. into Georgia's gasification 501 of Oil Rocks OGPU and Oil Storage Facilities employees, one of the family members (spouse or a to cover at least 250 000 new customers. “Our Subject is Entrepreneurship” has been designed of the N. Narimanov Oil Refinery 3 on December 15, child) is provided with an employment at SOCAR with as a two-year project to cover the 2018/19 and 2016. Those who were on the waiting list for housing appropriate employment at SOCAR entities without a 2019/20 academic years. The project aims to train were provided with apartments, while at the same competitive hiring process hiring process, which is an The Company invested $41,9 mln. in gasification high school students in "Entrepreneurship," support time bank debts of injured or missing persons as well exceptional case of Georgia in 2018. development of activities undertaken by National Education Department of Aliaga district, and contribute In addition, the Company provided 50 640 AZN to equal interregional development. It is planned to hold financial assistance, along with the material assistance a contest on business ideas upon the completion of to the rehabilitation of sport stadium in Rustavi, to the training. To make the project more effective, the planting trees in 2 hectares of Borjomi forest after evaluation will consist of all stakeholders, who will heavy wildfire, as well as the Varketili district of Tbilisi determine the best 10 projects, and organize training city as part of "Green Varketili" social campaign. for the participants. Upon completion of the training, the Company will hold the final round and award a grant to 3 winning projects. The total project cost is $220 000.

92 93 The flagship of SOCAR's corporate social responsibility The new building will be equipped with a chemical in Turkey is the school named after Heydar Aliyev, labaratory, electrical and machinery workshops. The with about 6,000 students. SOCAR Energy Turkey’s new building with an estimated value of 2.5mln TRY is reputation continues to grow with the investments in expected to be opened during the year. Next year, the the future of Turkey to implement large-scale social college will mark its first graduation. responsibility projects in 2018. Petkim built seven schools in Izmir city and Kocaeli SOCAR Energy Turkey’s subsidiary Petkim provided provinces and signed a protocol with the Ministry of material and technical assistance to educational National Education of Tukey in 2018 to build the eighth facilities and offered internships to hundreds of school. In addition, SOCAR Energy Turkey cooperates students from various universities in Turkey. with Koch University within the Anatolian Scholarship Program to provide equal educational opportunities to The Company plans to build new premises on the basis all students. Three students were awarded education of Heydar Aliyev Technical College constructed by grants within the program. Petkim in Aliaga city during 2012/13 academic years.

94 95 SOCAR is one of the leading local companies with extensive knowledge and skills that plays an important role in the training of highly qualified human resources. One example of SOCAR's contribution to the sustainable development of the Republic of Azerbaijan is the establishment of the Baku Higher Oil School (BHOS). The Baku Higher Oil School was established by the Decree of the President of the Republic of Azerbaijan Mr. Ilham Aliyev dated November 29, 2011, in the structure of SOCAR as a state higher education institution. One of the main objectives of BHOS is to provide students with theoretical knowledge and practical experience. To this end, BHOS students have the opportunity to take internships at the SOCAR Head Office, Petkim and Star Refinery in Turkey, SOCAR Polymer, SOCAR Umid LLC, Azneft PU, Azerikimya, BP, Halliburton, Maire Tecnimont, and other leading companies in the field.

Occupational health and 07 safety

96 97 Occupational health and safety Application of international management systems One of the most important tasks in SOCAR's regular Health and safety of employees at SOCAR is managed activities is ensuring the health and safety of its on the basis of the following regulatory documents: During the reporting period, the Company received and employees. Integrated management system for labour In 2018, health and safety practices in about reviewed letters from the entities and business units on SOCAR's main goal is to minimize the number of protection in Azerbaijani oil industry 75% of SOCAR's entities were based on alignment of operations with the modern standards OHSAS:18001 international management were received, reviewed and addressed. accidents by timely identifying the factors that can Safety rules in the oil and gas industry lead to them. system. In addition, in 2018, the Company introduced OHSAS: Field requirements considering specifics of Audits and inspections in 18 entities and business units 18001 standard for the first time at the Department Promoting a culture of of health and safety, and the works performed at operational sites of the and units where international management system has of Gas Storage Facilities Exploitation of Azneft PU educating employees are one of the most important Company’s entities and business units and ISO: 39001 “Safe Traffic Management” in the principles and policies of the company. Therefore, already been introduced or is planned to be introduced, Other regulatory documents in occupational Transportation Department. SOCAR aims to provide all employees at production and the existing certificates were renewed due to health and safety effective in the country sites with uniforms, personal and collective protection transition to updated versions of the standards. equipment, and ensure the safety of production equipment and processes. In 2018, 17 complaints on health and safety were filed. The complaints were related to such issues as financial Education of employees The Collective Agreements adopted at the joint assistance, issuance of occupational injuries act, meetings of the members of the Trade Union at support in retirement due to disability, etc. All complaints Building a safety culture across the Company depends Significant work was carried out in 2018 to teach SOCAR's structural units contain the actions that were reviewed in compliance with applicable legislation directly on the employees who support the principles, safe work methods to employees working at offshore the Company needs to take to ensure occupational and written responses to complainants were provided. policies and values of SOCAR. Employee education facilities. health and safety. The status of the actions planned and development cover all employees to ensure positive under Collective Agreements to improve the workplace safety culture throughout SOCAR. The topics of trainings held at the Training Center conditions is regularly discussed at the meetings and for Safety of Life at Sea in 2018 and the number of appropriate decisions are made. In 2018, a number of measures were undertaken at participants are given in Table 19. SOCAR's various facilities to ensure that occupational safety met all the modern requirements. Once entered into force, "Integrated Rules for Safe Diving and Medical Provision of Divers”that was approved in 2017, relevant initiatives and staff training programs were organized to ensure proper implementation of the new rules and guidelines at all Company facilities.

98 99 Reliability of technological devices and equipment, In addition, , throughout the reporting year, SOCAR TABLE 19. INFORMATION ABOUT THE SAFETY TRAININGS FOR OFFSHORE WORKERS IN 2018 oil and gas pipelines, electricity lines was monitored, continued to replace a number of equipment and Training duration and required measures to ensure the safety of offshore technical facilities, which had lower corrosion Training topic Number of participants 21 (hours) facilities that have explosion risk, to prevent accidents resistance and failed to meet safety requirements and Safety introduction, preliminary training and instructions for personnel caused by strong hurricanes and other natural disasters took measures to ensure that they undergo complete 1 404 56 on stationary offshore platforms and floating drilling rigs were implemented. To achieve improved production and overhaul and have increased anti-corrosion protection. economic results, the Company continued to replace Specialist training on rescue boats and rafts, duty boats, and the outdated drilling rigs with modern ZJ drilling rigs. fast rescue boats for the personnel on stationary offshore 262 32 platforms and floating drilling rigs

Basic Offshore Safety Induction and Emergency Training 237 28 (BOSIET) Assessment of hazardous Helicopter Underwater Escape Training (HUET) 38 9 factors at the workplace Further Offshore Emergency Training (FOET) 2 11

Other courses 1 022 5 136 SOCAR undertakes a workplace attestation no 23 086 employees underwent periodical medical less than once a year, subject to the nature of work examination in 2018 in accordance with the Company’s Total 2 965 11 874 and change in conditions, to assess the workplace plan. During the medical examination, no occupational conditions and ensure safe and healthy working disease-related illnesses were detected, while conditions in the Company facilities. Industrial and appropriate measures were taken to treat detected sanitary laboratories functioning at SOCAR carried out general illnesses. Relevant recommendations were Safety measures assessment of the facilities no less than once a year, and given to the staff. where necessary, to check the effectiveness of actions To properly manage the occupational safety, it is a Improvement of technological processes aimed at improving the labor conditions, eliminate 310 patients were sent to various hospitals for treatment prerequisite to identify potential hazards and risks for harmful production factors or adapt to regulatory norms. and 1662 people required sanatorium treatment. each operation at production sites. Installation of collective protective equipment to protect workers from exposure to dangerous During the reporting period, the Company All facilities of SOCAR have occupational safety In order to further improve labor conditions and create and hazardous production factors in functioning undertook certification of 1 856 workplaces in commissions to monitor workplace conditions and a healthy and safe working environment, an Action facilities 10 entities of SOCAR and the industrial-sanitary review other occupational safety issues. Plan was developed by SOCAR’s structural units in laboratories operating at the facilities performed 2018. The plan envisages the following measures in Semi-annual and annual reports on the status of measurement of production factors at 6 557 work accordance with regulatory requirements following the implementation of the Action Plan were prepared places. analysis of accidents and emergency situations that by SOCAR's entities and structural units and were occurred throughout the year: submitted to the First vice president.

Upgrade of technological, lifting and In 2018, majority of production facilities, buildings, transporting and other production equipment, and workplaces were reconfigured in line with the as well as their automatic and remote control modern standards to ensure improved labor conditions, safety of equipment and technological processes in Implementation of automatic surveillance the production sector, and prevent industrial injuries. and alarm systems to report the presence of hazardous and harmful production factors For instance, Experimental Production Enterprise for Maintenance and Rent of Submersible Units operating Installation of emergency shutdown devices within the Azneft PU of SOCAR was equipped with for failure in technological and electro- state-of-the-art facilities and equipment. In addition to technical equipment repair of the building and auxiliary facilities, renovation and complete reconstruction was carried out in the Introduction of special technical devices to protect workers from electric current production enterprise.

Applying safety tags and marking on production safety marking on production equipment

21 One academic hour is 45 minutes long.

100 101 Safety risks management TABLE 20. SAFETY RISKS IDENTIFIED AND CONTROLLED BY SOCAR

The Company seeks to introduce balanced The effectiveness of risk management is determined, Risk Source Preventive measure management of risks by identifying, evaluating, and first of all, by the feasibility assessment of the risk and Chronic and Unfavorable and harmful Undertake regular preventive checks and monitoring in the areas selecting preventive measures that may obstruct the proper identification of the classification system. acute occupational production factors capable to pose a threat to the health of workers Company’s achievements or normal course of This system enables the effective selection of risk diseases (loud noise, business. The main functional principles of the system management techniques by combining categories, chemicals and dust) Reduce the work duration to a minimum and ensure rotation of are the development, implementation, and control of sub-categories, and groups. Detailed information on workers in high-risk areas to prevent workers from exposure to risk mitigation measures. the safety risks identified and controlled by SOCAR is loud noise or high concentrations of chemicals presented in Table 20. Risk management measures or decisions are aimed Physical damage Transportation of Ensure that the transportation and evacuation of workers, raw at ensuring the safety of human life and health and caused by traffic personnel materials and products are carried out in accordance with the the operation of facilities by following the applicable accidents requirements of respective norms and regulations environmental, sanitary, hygienic, fire safety, and other

regulations effective on the territory of the Republic of Keep speed of vehicles under control using a GPS Azerbaijan.

Transportation of raw TABLE 20. SAFETY RISKS IDENTIFIED AND CONTROLLED BY SOCAR materials and products Undertake special checks to prevent drunk driving

Risk Source Preventive measure Electrical Faults in electrical KeepEnsure speed timely of and vehicles preventive under checks control of using electrical a GPS equipment, Fire and explosion Loading and unloading of Training of staff involved in transportation of explosive and emergencies equipment devices and electrical power networks electricity grid, eliminate hazardous substances flammable goods in programs meeting the goods on the failures likely to cause fire and ignition requirements of acts on hazardous loads transportation Undertake special checks to prevent drunk driving

Works that require the Identification, registration of all electrical equipment available in Following necessary instructions on storage and transportation use of specific devices the facility and use of special signs (tags) of hazardous goods in all vehicle types and equipment

Staff non-compliance All operations Training of workers, officers, engineers and technical staff on fire with safety norms and safety rules, regular monitoring of knowledge and behavior Following the norms and requirements on loading and unloading regulations, and poor the oil, oil products, bulks and other explosive and flammable knowledge of safety substances requirements Provide employees with special clothing, special footwear and other personal protective equipment in accordance with the “Free delivery Storage of chemicals flammable and explosive when coming into Storage of hazardous and of special clothing and other personal protective equipment to contact with air, water, combustible substances under special flammable (combustible) employees of the State Oil Company of the Republic of Azerbaijan” conditions that are not exposed to high temperature and substances mechanical damage

Take measures to prevent leakage of chemicals that have SOCAR's health and safety risks are dependent on the dissolving properties when exposed to high temperature In order to minimize production risks, 500 complexity of work in the oil and gas industry, weather inspections were carried out at SOCAR's conditions, technological disruptions, human errors, as production facilities during the reporting period by well as other objective and subjective factors. Failures in equipment Undertake regular planned inspections of equipment located in occupational safety commissions, and the majority the production site and take necessary preventive measures of identified violations were eliminated. The Company carries out quarterly monitoring of measures towards effective management of risks Works with fire- welding Ensure safety of dangerous gas and fire works at workplaces as associated with emergencies, accidents, and specified by fire safety norms and regulations technological disruptions. All actions are incorporated into quarterly monitoring reports of SOCAR’s structural units, as per the monitoring plan. Fall from height Work at height Perform work at height in accordance with the requirements of respective rules and regulations, using appropriate personal protective equipment

102 103 TABLE 24. OHS INDICATORS OF JVS’ AND OPERATING 22 Third-party management TABLE 23. OHS INDICATORS OF SOCAR AZERBAIJAN COMPANIES ­OCS€

It is in the center of attention of the Company to ensure The designated officials of SOCAR undertake Indicators 2018 Indicators 2018 that the performance of third-party contractors align regular monitoring of occupational safety arranged with SOCAR’s principles and values. SOCAR requires by contractors of SOCAR’s joint ventures and all third-parties ensure health, safety and effective risk subsidiaries. Joint Ventures and Operating Companies Total number of accidents, including 11 Total accidents 7 management at their sites. Prior to the commission of submit monthly reports on occupational injuries to the Fatal accidents 3 Including fatal accidents 0 works with contractors, their activities and major risks SOCAR, which are subject to further analysis and Number of days lost due to are reviewed and evaluated by SOCAR. assessment. Total number of injured employees 11 690 occupational injuries Weighted ratio of accidents Number of deceased employees 3 98,6 (number of lost days per accident)

Number of missing people 0 Accidents and injuries Mandatory insurance against loss of Number of occupational diseases 0 ability to work as a result of industrial The recent measures taken by the Company Analysis of accidents at SOCAR in 2018 shows that Number of days lost due to accidents and occupational illness 358 have led to improved safety statistics of SOCAR the main cause of industrial injuries was a failure of staff occupational injuries Azerbaijan’s facilities over the last five years. The to follow protection guidelines and comply with health As the Company prioritising safety of its employees Absence due to occupational illness number of fatalities decreased by 75% while the and occupational safety requirements. 300 937 and improved labor conditions, SOCAR insured all its number of injuries fell by 63%. Average number of employees 50 479 employees pursuant to the “Agreement on mandatory All structural units of the Company discussed the causes insurance against loss of ability to work as a result of However, despite the measures taken by the Company, and consequences of accidents and emergencies Total worked hours 78 003 136 industrial accidents and occupational illness” with there were 11 accidents in 2018, 8 of which resulted in to assess potential risks and take precautionary and OJSC Pasha Life Insurance. Total worked days 9 750 392 injury and 3 in death. mitigation measures to prevent further occurrence

of such accidents and to reduce to a minimum the Lost time injury ratio 0,03 As part of the cooperation with the insurance company, The fatal accidents took place at Gas Export (per 200 000 hours worked) detected hazards and risks. Information on the PASHA Life Insurance made insurance payments in the Department and Transport Department of Azneft PU. Lost days ratio number of accidents by the type of operations is 0,918 amount of 461 082,69 AZN in 2018 for events that had All accidents were investigated by commissions created (per 200 000 hours worked) presented in Table 21. Absence in the workplace ratio occurred in various structural units of SOCAR. by the State Labor Inspectorate Service of the Ministry (per 200 000 hours worked) 6 172,8 of Labor and Social Protection of the Population in No technological emergency, local fire and group Accidents frequency ratio In addition, insurance payments made in 2018 for accordance with the Regulations for Identifying and (number of accidents per 0,22 accident were recorded at SOCAR’s structural units in 1000 employees) events occurred in previous years accounted for Registering Incidents at Work. The circumstances 2018. 1 223 863,25 AZN. and reasons for the occurrence of the accidents were Accidents severity ratio (number of lost days per accident) 44,75 identified and appropriate measures were taken.

During 2018, Pasha Life Insurance paid a total of 1 684 945,94 AZN to the injured employees and their families. TABLE 21. ACCIDENTS IN SOCAR AZERBAIJAN IN TABLE 22. OCCUPATIONAL HEALTH AND SAFETY 2018 BY THE TYPE OF OPERATIONS EXPENDITURES OF SOCAR AZERBAIJAN IN 2018

Thousand Type of operations Number SOCAR Azerbaijan OHS performance of foreign entities AZN SOCAR's overseas subsidiaries also pay much Workplace health and safety at SOCAR Energy Turkey Oil and gas extraction 3 Total expenditures, including 22 877,7 attention to occupational safety to ensure that actions is governed by the following regulatory documents: in this area align with the modern safety requirements. On measures to improve working Oil and gas processing 0 15 831 International Finance Corporation's Healthy and conditions In the reporting year, $1 786 454 was invested in Safety Technology (HST) standards On special clothing, special shoes and occupational health and safety measures. Gas supply and transportation 2 5 690 other protective equipment for personnel Occupational safety and health standards Construction 1 On milk supply 1 198 Effective regulatory documents on HST Geophysics and geology 2 Other expenses 158,7

Transport 2

Drilling 1 22 According to the Company's internal regulations, occupational injuries, lost working days, and absence in the work ratios were calculated based on each 200 000 hours worked. 104 105 The Company continued to organize various courses during the reporting year to increase employee awareness OHS indicators of SOCAR Energy Turkey suppliers and contractors 2018 on health and safety requirements: Number of injured employees 64 Health and Safety Training Matrix in SOCAR OHS techniques considering the location Energy Turkey OHS techniques considering the position Number of deceased employees 3 Introductory training for newly-recruited employees Total hours worked 42 283 534 Visitor safety of visitors

Lost time injury ratio (per 200 000 hours worked) 0,30 In addition, new OHS documents were developed in 2018. These include risk assessment and management, authorization of operations, and power systems management.

TABLE 25. OHS INDICATORS OF SOCAR'S FOREIGN ENTITIES23 SOCAR Energy Ukraine 2018

Number of injured employees 1 SOCAR Energy Turkey 2018

Number of deceased employees 0 Total number of injured employees 42

Number of occupational diseases 0 Total number of deceased employees 0

Number of days lost due to occupational injuries 157 Number of occupational diseases 0

Absence due to illnesses 9 635 Number of days lost due to occupational injuries 381

Number of employees 1 861 Total hours worked 7 011 060

Total hours worked 3 715 626 Total scheduled working hours 2 340 362

Total days worked 410 140 Lost time injury ratio (per 200 000 hours worked) 1,20

Total scheduled working hours 3 984 710 Accidents severity ratio (number of lost days per accident) 9,07

Lost time injury ratio (per 200 000 hours worked) 0,05

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

23 OHS indicators cover Head Office of SOCAR Energy Turkey, PETKIM, STAR and Petlim. SOCAR Energy Georgia has not been included in this report due to immaterial value of indicators. 106 107 SOCAR Energy Switzerland 2018 FIGURE 24. NUMBER OF SANITARY AND HYGIENE INSPECTIONS CARRIED OUT AT SOCAR’S FACILITIES IN AZERBAIJAN IN 2016-2018 Number of injured employees 13

Number of deceased employees 0

Number of occupational diseases 0 2016

4 2 6 5 285 125 572 20 19 10 58 51 200 176 Number of days lost due to occupational injuries 265 435

Absence due to illness 5 767 Industry Utilities Food Public catering

Number of employees 789

Total hours worked 1 259 012

Total days worked 157 377 2017

Total scheduled working hours 1 259 012 2 2 5 3 276 141 828 631 52 20 28 20 72 68 295 198

Total scheduled working hours (per 200 000 hours worked) 2,06

Industry Utilities Food Public catering Lost days ratio (per 200 000 hours worked) 42,1

Absence in the workplace ratio (per 200 000 hours worked) 916,19

Accidents severity ratio (number of lost days per accident) 20,38

2018

2 3 10 3 Hygiene and Epidemiology Services 384 192 940 780 87 25 36 24 94 92 310 237

The Hygiene and Epidemiology Center (HES) of the Ecology Department oversees the protection of the During the inspections, 1299 sanitary and hygiene Industry Utilities Food Public catering working environment at SOCAR entities, prevention deficiencies were identified, of which 80,5% of occupational illness, compliance with sanitary and were eliminated after revitalization measures hygiene requirements in residential areas, prevention (Figure 24). of infectious diseases, and implementation of anti- Medical Laboratory and Faults Faults epidemic measures. examination instrumental discovered remediated As a result of anti-epidemic measures, 21 patients were examination diagnosed with tuberculosis and were hospitalized In 2018, there were 162 units in total under the for treatment. Complementary disinfection measures supervision of HES. were carried out at the patients’ premises and all employees with whom those patients were in contact had undergone a medical examination.

108 109 Environmental 08 activities

110 111 Environmental activities TABLE 26. ENVIRONMENTAL EXPENDITURES, THOUSAND AZN24

Entity25 2016 2017 2018

The Environmental Policy, adopted by SOCAR, has As a result of continuous efforts, SOCAR has SOCAR Azerbaijan 13 798 19 745 24 180 been a key document for the Company’s environmental become an international company meeting leading activities since 2008. The main goal of SOCAR's global industry and environmental standards. 26 27 Environmental Policy is to protect the environment, ensure SOCAR Energy Turkey 2 533,136 3 833,125 11 503,480 environmental safety, and eliminate any environmental SOCAR's environmental strategy aims to achieve impacts during operations on all segments of the SOCAR Energy Ukraine 62,921 53,0628 384,149 sustainable development through strengthening Company’s activities, including upstream, midstream coordination in environmental activities, preservation of and downstream operations. Document is currently natural resources, and introduction of science-based updated to align it with the modern requirements and conceptual principles. best practices. It is expected to be approved in 2019. Application of international and local standards SOCAR implements internationally recognized are renewed, and their validity is extended for the SOCAR's environmental performance is mainly governed by the following documents: standards for environmental management systems at its following year. Table 27 shows the most recent renewal operations. Furthermore, ISO 14001 certification body or issuance dates of ISO 14001 certificates. SOCAR’s Comprehensive Strategic Development Plan by 2025 conducts annual audits, whereby expired certificates Potential Emergency Prevention Plan

Climate Change Mitigation Strategies and Plans

Associated Gas Management Plan

Oil Spill Prevention and Response Plan

Oil-Contaminated Soils Remediation Strategy and Plan of Actions

Strategic Roadmap of the Republic of Azerbaijan on Development of the Oil and Gas Industry

Biodiversity Protection Strategy

Environmental Monitoring Plans

Waste Management Plan

Health and Safety Protection Plans

Other environmental documents

The environmental protection and environmental risk Company's environmental expenditures incurred in management processes at SOCAR’s operations 2017-2018 are shown in Table 26. are managed by the Vice President for Ecology, the 24 Environmental penalties for 2018 are insignificant, and thus are not included in the current report. Environmental Projects Management Department 25 !"#$%&'()*$+,-.,/01#2%.,0%,'1#*03'%4,(5$,$%3'*0%1$%(,'%,6789 The table does not include the funds spent on environmental measures at :SOCAR678;<,(50)+2%&,=>? Energy Georgia and! SOCAR Energy Switzerland as they comprise of the Head Office, the Ecology Department, and an immaterial part of the total expenses. environmental departments of the Company’s structural 26 The expenditures for SOCAR Energy Turkey include the costs incurred by Petkim 27 units. Environmental expenditures of SOCAR Energy Turkey were recalculated in 2017 due to currency fluctuations. 28 Environmental expenditures of SOCAR Energy Ukraine were recalculated in 2017 due to currency fluctuations. In the current report, the average rate is taken as 1USD = 1.7 AZN.

112 113 TABLE 27. LIST OF SOCAR AZERBAIJAN ENTITIES CERTIFIED BY INTERNATIONAL MANAGEMENT STANDARD ISO 14001 Regulatory documents

Issue date, Date of renewal, In 2018, the Ecology Department drafted and approved to the Ministry of Ecology and Natural Resources of Name of the entity year year 66 environmental regulatory documents for SOCAR the Republic of Azerbaijan (see Figure 25). entities and structural units, approved by and submitted Environmental Department 2015 2018

FIGURE 25. ENVIRONMENTAL REGULATORY AND TECHNICAL DOCUMENTS DEVELOPED Oil and Gas Construction Trust 2002 2015 FOR SOCAR ENTITIES IN 2018

Gas Processing Plant 2012 2018

Ecological passport Geophysics and Geology Department 2012 2018 Hazardous waste passport Emission threshold Azerigas PU 2013 2018 Environmental inventory 29 20 7 6 4 66 Discharges threshold

Transportation Department 2012 2015 Total

Diving and Rescue Works Department 2012 2018

2012 2015 Diving Equipment Repair and Rental Experimental Office of Azneft PU Environmental awareness raising Operating Gas Storage Facilities Office of Azneft PU 2013 2016 Stakeholder engagement

28 May OGED of Azneft PU 2013 2016 SOCAR accepts that awareness raising of employees SOCAR participated in a number of events in 2018, is one of the key elements for achieving sustainable as it does every year, to raise awareness about

Gas Export Department 2013 2016 development. In addition, it is integral part of SOCAR’s environmental problems among both the community SOCAR's approach to ensure that employees are and its employees. continuously trained. Training is designed to develop 2014 2017 Baku Higher Oil School an environmental thinking that combines employee “Ecology Month”, “Green School”, “Eco-Presentations” knowledge and occupational behaviour. and other projects were implemented jointly with Integrated Drilling Trust 2016 2016 the SOCAR’s Ecology Department pursuant to SOCAR regularly studies international best practices the Partnership Agreement signed by the Ecology

Azerikimya PU 2016 2017 in calculation of air pollutants, including fugitive Department and Baku City Education Department emissions from key operation sites, and cooperates to raise interest in environmental sciences among with foreign companies in addressing technical issues schoolchildren and develop environmental knowledge and uncertainties. and skills. SOCAR staff delivered presentations, as well as information on SOCAR’s environmental projects for Environmental Impact Assessment On November 2, 2018, SOCAR Tower hosted a students of 140 schools in Baku was provided. workshop on “Methane Emissions Inventory and In 2018, 5 documents on the Environmental Conditions It is SOCAR’s special priority to ensure that our Identifying Emission Mitigation Projects” with the Assessment (ECA) and 12 documents on Environmental suppliers and contractors’ performance aligns with participation of representatives of Norwegian Carbon Impact Assessment (EIA) were drafted and approved. the Company’s values and principles. To this end, Limits and experts of SOCAR’s facilities. These documents cover all projects implemented the Company imposes a number of requirements on by SOCAR and were drawn up in accordance with bidders of SOCAR’s tenders pursuant to SOCAR’s conventions signed by the Government of the Republic Procurement Standard, the General Counterparty of Azerbaijan, as well as with both domestic and Verification Standard, and compliance of the selected international legislation. entities is subject to second party audits.

114 115 The presentations covered primarily the following FIGURE 26. ENVIRONMENTAL MONITORING OF SOCAR'S OFFSHORE AND topics: Environmental ONSHORE FIELDS IN 2016-2018

“Use of alternative and renewable energy” monitoring system

“Healthy Lifestyle” SOCAR monitors the overall physical and chemical “Green approach” properties of the aquatic environment, composition and quantity of biogenic substances and oil products, “What should we do?” sediment content, organic matter, taxonomy of 887 590 297 908 571 337 942 583 359 microorganisms, and plankton mass across all of the 29 52.1 “Biodiversity of Azerbaijan” geographical areas where its operations are carried out. The degree of anthropogenic impact is analyzed “Noise pollution” 2016 2017 2018 to identify the impact on the ecosystem of the Caspian “What is environmental monitoring?” Sea. Overall number of monitoring Onshore Offshore “Waste management” and other topics In 2018, we carried out 942 wide scale initiatives to monitor changes in the environmental quality indicators, These monitoring initiatives include evaluations of the According to the results of the repeated environmental including 583 onshore inspections and 359 inspections In the frame of the Memorandum of Understanding positive and negative impacts on the environment, and sanitary-hygienic monitoring in 2018, the mitigation at offshore facilities29 (see Figure 26 for more details). on environmental awareness signed between the pollution of the marine ecosystems by oil and level of environmental issues at SOCAR's facilities Ministry of Education of the Republic of Azerbaijan Gasolineeum products, the degradation of natural accounted for 81% (see Figure 27). Ecological monitoring was carried out by the and the Ecology Department of SOCAR, employees sedimentation, the density of plankton during water Ecology Department to study the state of wastewater of the Ecology Department made presentations for stratification, marine fauna studies, and environmental management during production processes and to 20 EcoClub members established at schools in 2018 monitoring in spring and summer seasons. and organized tours at the Eco-Park Environmental evaluate the current state of mechanical and biological Research Center Public Union. treatment plants after reconstruction and upgrade project at the Heydar Aliyev Oil Refinery. Environmental violations observed during monitoring were recorded In 2018, to increase awareness on environmental FIGURE 27. ENVIRONMENTAL ISSUES REMEDIATION LEVEL AT FACILITIES OF SOCAR AZERBAIJAN problems and management thereof, awareness-raising and their elimination was monitored. initiatives on the following issues were organized in All environmental monitoring results are entered into the Employees Development Center of the Education, 100% Training and Certification Department: the in the Geographical Information System (GIS) 90%

database administered by the Ecology Department. 80% 83 258 109 106 36 19 80 1046 119 1856

Raising awareness on ISO 14001 international 70% environmental management standard 60% 50% SOCAR’s Environmental Policy 40% Waste management 30% 20%

Environmental requirements to the specialists 10% 110 280 181 115 47 22 91 1299 123 2268 assigned to SOCAR facilities

0 Oil spill response Total Waste Others activities

Information on events organized by SOCAR’s units and problems equipment

subsidiaries jointly with state authorities, international management management contamination contamination Leakage from Leakage from Produced water installations and Well surrounding surrounding Well organizations, environmental NGOs, universities, Sanitary- hygiene Caused by drilling Caused by

schools and other public organizations, as well as tours Caused by treatment Oil sludge in reservoirs to Eco-Park, round tables, open lessons are periodically posted at www.socar.az, the "Iki Sahil" newspaper and Total number of issues Remediated issues other media sources.

29 The increase in the number of environmental monitoring initiatives in 2018 was due to a more stringent environmental control and an increased number of required environmental documents. 116 117 Climate Change Mitigation TABLE 28. GREENHOUSE GAS EMISSIONS AT SOCAR, THOUSAND TONS OF CO EQUIVALENT30

Global climate change is one of the biggest The Action Plan, developed under the Strategy, involves environmental challenges that humanity is facing. the projects and actions primarily in the following four Greenhouse gas emissions 2016 2017 2018 Azerbaijan signed the Paris Agreement adopted in areas: SOCAR Energy Switzerland 0,4 0,4 0,4 2015 2015 within UN Framework Convention on Introduction of a regular measurement, reporting and Climate Change and targeted to reduce greenhouse monitoring system for GHG emissions gas emissions by 35% by 2020 compared to a 1990 Direct emissions 0 0 0 Reduction of fugitive emissions baseline. Integration of energy efficiency programs in technological processes Indirect emissions 0,4 0,4 0,4 SOCAR contributes significantly to the goals defined by the country. The Company plans to produce Use of energy-efficient equipment in lighting systems diesel and gasoline in line with Euro-5 standards by 2021 with the implementation of the modernization and Efficient management of atmospheric emissions is TABLE 29. GREENHOUSE GAS EMISSIONS AT SOCAR AZERBAIJAN, THOUSAND TONS OF CO EQUIVALENT reconstruction projects at Heydar Aliyev Oil Refinery. directly dependent on proper inventory, reporting and This transition is expected to reduce emissions management of emissions. To calculate atmospheric of carbon dioxide (CO ) and nitrogen oxide (NO ) Greenhouse gas emissions 2016 2017 2018 2 x emissions, we use IPCC methodology and the EMEP/ discharged from road transport into the atmosphere. CORINAIR Guidelines. The calculation of the amount Total for SOCAR, 5 989,8 5 893,1 7143,8 of GHG and contaminants emitted into the atmosphere including SOCAR has developed “Climate Change Impacts by SOCAR entities is based on a document prepared Mitigation Strategy by 2020” to contribute to the national From stationary sources, by relevant institutions, which is updated every year. 5 891,1 5 782,2 7036,1 targets. The strategy aims to develop a comprehensive including and systematic approach to GHG management at the Company. Business units 5 624,4 5 539,2 6804,7

JVs and OCs 266,6 243,1 231,4 TABLE 28. GREENHOUSE GAS EMISSIONS AT SOCAR, THOUSAND TONS OF CO EQUIVALENT30

From mobile sources 98,7 110,8 107,7 Greenhouse gas emissions 2016 2017 2018 including

SOCAR Azerbaijan 6 659,0 6 567,7 7 818,5 Transportation Department 79,5 84,3 87,3

Direct emissions 5 989,8 5 893,1 7 143,8 JVs and OCs 19,2 26,5 20,4

Indirect emissions 669,2 674,6 674,7

TABLE 30. INDIRECT EMISSIONS OF SOCAR AZERBAIJAN BASED ON THE ELECTRICITY CONSUMPTION, THOUSAND TONS OF CO EQUIVALENT SOCAR Turkey31 2 235,0 2 393,2 1 634,9

Entity 2016 2017 2018 Direct emissions 2 061,9 2 176,5 1 409,2 Total for SOCAR, 669,2 674,6 674,7 including Indirect emissions 173,1 216,7 225,7

Business units 438,9 447,3 449,5 SOCAR Energy Georgia 4,1 3,8 4,0

JVs and OCs 230,3 227,3 225,2 Direct emissions 0,7 0,7 0,7

Indirect emissions 3,4 3,1 3,3

30 As SOCAR Energy Ukraine’s production is limited, its indicators are not included in the table. Only a small volume of indirect emissions is generated by SOCAR Switzerland due to non-production nature of its activities. 118 31 Direct GHG emissions measurements made by third-party for SOCAR Energy Turkey cover PETKIM only. 119 TABLE 31. THE INTENSITY RATIO OF DIRECT EMISSIONS IN 2016 2018 THOUSAND TONS OF CO EQUIVALENT OF EMISSIONS PER ONE EMPLOYEE32 TABLE 33. ASSOCIATED GAS MANAGEMENT AT AZNEFT PU IN 2016 2018, THOUSAND M

Entity 2016 2017 2018 Indicators 2016 2017 2018

SOCAR Azerbaijan 0,118 0,117 0,140 Total associated gas produced by Azneft PU 1 432 648 1 460 012 1 439 783

SOCAR Energy Turkey 0,714 0,622 0,343 Associated gas reused for internal needs 177 618 183 444 189 626

Associated gas delivered to other 1 536 927 1 544 413 1 493 179 The increase in direct emissions intensity ratio at to prevent gas leakages in the gas transportation entities or returned back to the system SOCAR Azerbaijan compared to 2017 is cause by system are based on the EU Directive. 40% more gas used by Azneft PU due to enhanced Associated gas flared 0 840 840 production. SOCAR plans to continue these measures in the upcoming years. One of such planned measures is SOCAR’s gas management practice has direct impact to ensure that natural greenhouse gases are pumped on GHG emissions. Wells that may cause direct back into the system to prevent their release into the Pollutants emitted into atmosphere by discharges into the atmosphere are connected with a atmosphere. piping system, while pipelines are sealed off in low- SOCAR, JVs and OCs gas wells and the wells are abandoned in accordance with the relevant methodology to prevent oil and gas In accordance with the law of the Republic of draft required environmental documents and reports. leakage. Projects implemented by SOCAR Azerbaijan Azerbaijan, information on pollutants emitted by all To reduce uncertainties in this documents, the reports, entities operating in the energy and industrial sectors relevant methodologies and rules are reviewed and of the country, including all SOCAR entities, JVs, and monitored on an annual basis. The total amount of TABLE 32. GASES EMITTED INTO THE ATMOSPHERE AS A RESULT OF SOCAR AZERBAIJAN’S BUSINESS ACTIVITIES, THOUSAND TONS OCs, is annually submitted to the State Statistical pollutants emitted into the atmosphere is determined Committee. An inventory of pollutants emitted based on the results of this monitoring (Table 34). Gases 2016 2017 2018 into air is carried out by SOCAR, its JVs and OCs to

Methane (CH )33 127,7 126,7 130,9

Carbon (CO) 3 307,6 3 231,2 3 220,3

Management of Associated Gas Starting from 2018, the associated gases from Involving SOCAR. The plan aims to achieve a gradual oil wells operated by Salyan Oil Limited have been reduction of associated gas emissions from newly drilled connected to the closed system. Before this initiative, oil wells. It is expected that associated gas emissions in the production facilities of the Company discharged 2022 will be reduced by 64.9% from the base level. about 90-100 thousand m3 of associated gas into After the approval of the document, the Company took the atmosphere. Currently, associate gas produced the inventory of all open wells in the areas of Azneft by SOCAR entities is completely managed. With the PU, OC and JV, and the facilities identified their own installation of the 4 US-made MKO-HOERBIGER-350 priorities. modern compressor units by Gas Export Administration, Salyan Oil Limited is now able to deliver 65 000 - The current state of associated gas management at 75 000 m3 of associated gas from the Kursangi field to Azneft PU is provided in Table 33. Siyazanneft Oil the Southern Electric Power Station in Shirvan. Refinery has launched flaring of associated gas since 2017. In order to further reduce greenhouse gas emissions, SOCAR has approved the 2017-2022 Plan to Reduce Associated Gas Emissions at SOCAR and in Projects 32 The emission intensity of SOCAR Energy Georgia, SOCAR Energy Ukraine and SOCAR Energy Switzerland is not included in the table as it is not significant. 33 Increase in methane gas production in 2018 is mainly caused by the increase in technological losses at 28 May OGED of Azneft PU. 120 121 TABLE 34. AMOUNT OF AIR POLLUTANTS EMITTED FROM STATIONARY SOURCES, TABLE 35. AMOUNT OF AIR POLLUTANTS EMITTED FROM THOUSAND TONS34 MOBILE SOURCES OF SOCAR, TON

Entity 2016 2017 2018 Indicators 2016 2017 2018

Total for SOCAR Azerbaijan, Total for SOCAR Azerbaijan, 131,55 124,33 127,51 123 127 151 including including

Solid particles 0,23 0,23 0,24 Solid particles 0 0 0

Gaseous and liquid substances, Gaseous and liquid substances36 131,32 124,1 127,27 123 127 151 including including

Sulphur dioxide 0,54 0,17 0,12 Sulphur dioxide 0 0 0

Nitrogen oxide 1,78 1,69 1,33 Nitrogen oxide 21 22 26

Carbon oxide 4,19 4,14 3,48 Carbon oxide 95 97 116

Carbon oxide 115,55 107,83 112,32 Hydrocarbons (excl.VOC) 7 8 9

Volatile organic compounds 8,47 9,42 9,33 Volatile organic compounds 0 0 0

Other gaseous substances 0,79 0,86 0,77 Other gaseous substances 0 0 0

Total for SOCAR Energy Turkey35, 0 9,50 0 including

Sulphur dioxide 0 2,95 0 Environmental monitoring of emissions from

Nitrogen oxide 0 5,96 0 transport and special technical equipment

SOCAR’s Ecology Department has been continuously year once maintenance works are completed. Sixteen Hydrocarbons (excl.VOC) 0 0,56 0 monitoring the harmful gases emitted by vehicles and outdated vehicles were withdrawn from operations and technical equipment from its transport fleet since removed from inventory. Volatile organic compounds 0 0,03 0 2009. Results of these monitorings are presented in the Table 35. In the frame of Sustainable Transportation Program, Total for SOCAR Energy Georgia, 0,54 0,65 0,71 relevant training seminars were held on fuel economy including During 2018, environmental emblems were assigned management and drivers were provided with relevant to 2735 vehicles that met existing standards during training materials to enhance their experience in this. Sulphur dioxide 0,26 0,35 0,42 environmental inspections. In 2018, 497 drivers received trainings on eco- Nitrogen oxide 0,02 0,03 0,02 In 2018, 741 vehicles did not meet the current driving. standards, and the amount of their air emissions Carbon oxide 0,26 0,27 0,27 emitted by them during preliminary and repeated environmental examinations was non-compliant (Table 36). Consequently, these vehicles will be subjected to environmental examinations again next

34 SOCAR Energy Ukraine and SOCAR Energy Switzerland have not been included in the table since their volumes are insignificant. 35 For SOCAR Energy Turkey, the volume of pollutants emitted into air is measured by a third party every two years. 36 The increase in pollutants from mobile sources in 2018 compared to the previous year is mainly due to an increased number of vehicles and increased emissions as the result of fuel consumption.

122 123 TABLE 36. NUMBER OF ENVIRONMENTAL INSPECTIONS OF TABLE 37. ENERGY CONSUMPTION OF SOCAR, THOUSAND KW/HOUR VEHICLES AT SOCAR AZERBAIJAN

Type of vehicle 2016 2017 2018 Entity 2016 2017 2018

Total for SOCAR, Inventory of technical equipment and vehicles 4 646 4 571 4495 2 160 726 2 364 175 2 172 717 including

Number of vehicles gone through preliminary 3 904 3 710 4903 SOCAR Azerbaijan 1 079 993 1 093 796 1 059 426 and recurrent inspections

Number of vehicles not complying with existing standards 339 200 741 SOCAR Energy Turkey37 1 029 450 1 220 040 1 060 534

Number of vehicles withdrawn from operation 92 3 16 SOCAR Energy Georgia 28 536 26 108 27 739

Number of vehicles that underwent complete overhaul 19 36 56 SOCAR Energy Ukraine 9 351 10 831 12 018

Vehicles failing environmental inspections due to other reasons 631 822 899 SOCAR Energy Switzerland 13 396 13 400 13 000

Energy consumption TABLE 38. ENERGY INTENSITY RATIO IN 2016 2018 Energy security and efficiency are among the key Energy efficiency initiatives implemented in 2018 were solutions to climate change. In order to increase energy as follows: Entity 2016 2017 2018 efficiency, the Company’s facilities are equipped with energy-efficient equipment, while production processes SOCAR initiated measures to increase energy SOCAR Azerbaijan 21,3 21,7 20,7 are constantly reviewed. To better evaluate the energy efficiency of the Gas Turbine Thermal Power Plant in Neft Dashlari OGED of Azneft PU efficiency of the Company, the ratio of energy intensity SOCAR Energy Turkey 356,6 348,6 257,9 shown in Table 38 is calculated. SOCAR proposed a project idea aimed at As a result of continuous measures, SOCAR reusing associated gas emissions generated at SOCAR Energy Georgia 6,7 6,0 6,2 reduced its energy consumption by 34 370 000 kWh, Chilov island to the construction of a power or by 4,5% compared to the previous year. generating plant SOCAR Energy Ukraine 5,4 6,0 6,5

SOCAR Energy Switzerland 16,4 16,9 16,5

TABLE 39. FUEL CONSUMPTION AT SOCAR AZERBAIJAN38

Indicators 2016 2017 2018

SOCAR Azerbaijan

Gasoline, tons 5 826,6 5 786,7 6 050,6

Diesel, tons 32 119,1 35 875,7 38 155,9

Natural gas, thousand m3 39 809 218,2 866 054,5 721 706,7

37 Since 2018, SOCAR Energy Turkey has been introducing a new methodology to calculate electricity consumption. This is why the 2017 figures have been recalculated.SOCAR Energy Turkey 124 38 This indicator reflects the amount of fuel used in special machinery and vehicles. 125

Gasoline, tons 0,0 0,0 0,0

Diesel, tons 657,2 646,5 3712,940

Natural gas, thousand m³ 357 814,95 470 859,3 429 440,30

SOCAR Energy Georgia

Gasoline, tons 0,0 0,0 0,0

Diesel, tons 426,0 521,0 475,0

Natural gas, thousand m³ 138,1 110,1 83,4 TABLE 39. FUEL CONSUMPTION AT SOCAR AZERBAIJAN38

Indicators 2016 2017 2018

SOCAR Azerbaijan

Gasoline, tons 5 826,6 5 786,7 6 050,6

Diesel, tons 32 119,1 35 875,7 38 155,9

In the frame of the contract signed between the Ecology Drilling sludge and solid wastes generated during the 3 39 Natural gas, thousand m 809 218,2 866 054,5 721 706,7 Department of SOCAR and tEcon Industries GmbH, production process are delivered to the temporary Germany, two VacuDry vacuum-distillation units storage facility at the Waste Management Center for SOCAR Energy Turkey manufactured in Germany for processing drilling sludge further utilization. As shown in Figure 28, the 2018 were installed at the Waste Management Center. These data show that the volume of drilling sludge increased devices are comprised of complex systems operating by 23% as a result of the increase in the number of Gasoline, tons 0,0 0,0 0,0 on the basis of modern technology, which incorporates drilling wells and drilling operations, and the volume all the necessary components for the processing of drill of oil sludge increased by 32% due to a number of Diesel, tons 657,2 646,5 3712,940 sludge. old oil tanks becoming obsolete. Other waste types such as wood, paper, rubber, etc. that are collected Natural gas, thousand m³ 357 814,95 470 859,3 429 440,30 22143,05 tons of drilling sludge were received from BP at the Center and be recycled, are transferred to other during 2018; the volume of treated drill sludge reached organizations for recycling or reuse. 21521,77 tons. 2357,9 tons of ESCAID synthetic oils SOCAR Energy Georgia recovered after treatment were returned to BP without any charge. Gasoline, tons 0,0 0,0 0,0

TABLE 40. WASTE MANAGEMENT AT SOCAR, THOUSAND TONS42 Diesel, tons 426,0 521,0 475,0

Type of waste 2016 2017 2018 Natural gas, thousand m³ 138,1 110,1 83,4 SOCAR Azerbaijan

Table 39 reflects the amount of fuel used by special machinery and vehicles, as well as amount of natural gas used 43 for internal needs of entities of SOCAR Azerbaijan. Generated waste 60,98 89,88 165,1

Hazardous44 52,82 80,32 156,02

Waste management Non-hazardous 8,16 9,56 9,1

SOCAR, as an international company that focuses In 2018, the waste generated at SOCAR units was Utilized waste 0,91 1,96 2,95 on the protection of the environment and supports received and disposed of at the Waste Management the principle of “zero waste,” manages all of its oil Center of the Ecology Department. In addition, SOCAR and gas and chemical industry waste in a centralized Energy Georgia prepared it own Waste Management Hazardous 0,91 1,79 2,78 manner. SOCAR’s Waste Management Plan (WMP), Plan for 2018-2019. It has developed the Waste which incorporates the basic principles of the waste Management Plan for the upcoming years and Non-hazardous 0 0,17 0,17 management, is applied across all departments and submitted it to the Georgian Ministry of Environmental enterprises. Protection and Natural Resources. Waste transferred to third parties 45,04 65,98 135,7

FIGURE 28 . DRILLING SLUDGE AND OIL SLUDGE GENERATED BY SOCAR AZERBAIJAN IN 2016-2018, THOUSAND TONS41 Hazardous 37,06 62,63 32,2

Non-hazardous 7,98 3,36 18,2

Waste disposed of at the Waste Center 13,71 20,97 19,8 10,06 14,8 18,4 18,87 37,6 52,1

29 Hazardous 13,66 14,68 19,66

Drilling sludge Oil sludge 42 Indicators of SOCAR Energy Georgia and SOCAR Energy Switzerland are not included in the table because they have limited production activity. 2016 2017 2018 43 The sharp increase in emissions in 2018 as compared to 2017 was mainly due to an increase in the ferrous metal wastes generated during the dismantling

39 This indicator covers natural gas used for both internal demands and heating. Approximately 97% of the total consumption was used with heating purposes. operations at non-functioning facilities (3468.96 tons in 2017, 6761,92 tons in 2018). 44 40 The increase in the volume of diesel used by SOCAR Energy Turkey in 2018 is caused by the launch of the STAR Refinery. The reason for increase in 2018 is mainly due to the increase in oil sludge generated during cleaning in the oil tanks at 28 May OGED (the difference is 1278 41 The volume of oil sludge was increased by 30% following the repair and disposal of outdated tanks. tons) and increase in metal wastes not used for years in the production site of Azneft PU (the difference is 44877 tons). 126 127 Type of waste 2016 2017 2018 TABLE 41. WASTEWATER MANAGEMENT AT SOCAR, M3 45

Non-hazardous 0,05 6,29 0,14 Entity 2016 2017 2018

SOCAR Energy Turkey SOCAR Azerbaijan

46 Generated waste 30,69 55,58 38,63 Volume of generated wastewater 7 091 894 7 341 152 8 133 119

Volume of wastewater discharged without 407 009 347 774 316 175 Hazardous 18,52 20,15 12,72 treatment, including

Non-hazardous 12,17 35,43 25,91 On soil 35 356 39 061 30 074

Recycled waste 9,60 7,05 5,42 Into the water 183 848 147 891 148 070

Volume of discharged wastewater after 5 522 131 6 186 406 6 831 955 Hazardous 9,60 7,05 5,42 treatment

Non-hazardous 0,00 0,00 0,00 SOCAR Energy Turkey

Waste transferred to third parties 21,10 48,48 33,25 Volume of generated wastewater 7 438 446 8 051 324 7 709 531

Volume of wastewater discharged 0 0 0 Hazardous 8,90 13,10 7,34 without treatment

Volume of discharged wastewater after 7 438 446 8 051 324 7 709 531 Non-hazardous 12,20 35,38 25,91 treatment

SOCAR Energy Ukraine Large-scale measures are taken to manage household Chilov Island of 28 May OGED, Absheronneft OGED sewage together with produced water in areas where the and N.Narimanov OGED of Azneft PU. The treated Generated waste 2,14 2,16 2,35 Company operates. Biological treatment plants are used wastewaters are used for greenery irrigation and technical to manage household sewage at Neft Dashlari OGED, purposes. Hazardous 0,01 0,01 0,01

FIGURE 29. . BIOLOGICAL TREATMENT UNITS AT SOCAR AZERBAIJAN Non-hazardous 2,13 2,15 2,34

Utilized waste 0,00 0,00 0,00

Hazardous 0,00 0,00 0,00

18 13 5 8 4 4 8 8 4 2 2 Non-hazardous 0,00 0,00 0,00 29 52.1

Waste transferred to third parties 2,14 2,16 2,35 28 May OGED Neft dashlari OGED Absheron OGED N.Narimanov OGED

Total number Functioning Non-functioning Hazardous 0,01 0,01 0,01

Non-hazardous 2,13 2,15 2,34 45 As the activities in SOCAR Energy Georgia, SOCAR Energy Ukraine, and SOCAR Energy Switzerland are limited, their indicators are not covered in the table. 46 Given that the new water-cooling unit and Bitumen Blowing Unit have been commissioned in the Oil Refinery, and the volume of irrigation water used for environmental activities has increased, the volume of water used in 2018 increased as compared to 2017. 128 129 Water consumption management TABLE 43. WATER CONSUMPTION OF SOCAR47, MLN. M3 48 Management of produced water Indicators 2016 2017 2018 The protection of the Caspian Sea water basin is at the forefront of SOCAR’s environmental policy. In order to prevent the discharge of wastewater from the hydrocarbon production facilities to the surrounding areas, produced SOCAR Azerbaijan 48,81 54,02 46,76 water management system has been employed for many years that enables reused of extracted produced water for internal purposes. Groundwater 5,49 5,57 5,62

The Company continuously works on developing and applying advanced technologyfor produced water management. Surface water 37,59 43,05 35,52

Other sources 5,72 5,41 5,62 TABLE 42. WASTEWATER PRODUCED BY SOCAR, MLN. M3 SOCAR Energy Turkey 19,60 18,79 18,73 Entity 2016 2017 2018

Groundwater 0,00 0,00 0,00 Total for SOCAR Azerbaijan, including 25,06 24,66 24,29

Surface water 19,60 18,79 18,73 Azneft PU 5,62 5,43 5,61

SOCAR Energy Georgia 0,17 0,13 0,15 JVs and OCs 19,44 19,23 18,68

Groundwater 0,02 0,00 0,03

FIGURE 30. WATER PRODUCED BY AZNEFT PU IN 2018, THOUSANDS M3 Surface water 0,15 0,13 0,12

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

Groundwater 0,04 0,04 0,05

Surface water 0,09 0,07 0,08 1437.2 627.0 326.8 140.7 871.8 1183.7 736.9 287.0

TABLE 44. WATER INTENSITY RATIO FOR 2016-2018 (THOUSANDS M3 WATER CONSUMPTION PER ONE EMPLOYEE)

28 May Neft Dashlari Absheronneft N.Narimanov H.Z.Tagiyev Bibiheybatovneft A. Amirov Siyazanneft OGED OGED OGED OGED OGED OGED OGED OGED Entity 2016 2017 2018

SOCAR Azerbaijan 0,962 1,071 0,915

Water usage in operations SOCAR Energy Turkey 6,790 5,368 4,555 SOCAR Energy Georgia 0,040 0,030 0,033 To achieve the most efficient water consumption, SOCAR encourages economic usage of water resources and their protection from any contaminants. The Company ensures the application of the most innovative solutions in the field of water preservation for all its new projects. SOCAR Energy Ukraine 0,075 0,059 0,065

47 Water consumption is calculated based on invoices and other documents received for purchased water, as well as on water meter readings. 48 As production activity at SOCAR Energy Switzerland is limited, its indicators are not included in the table.

130 131 In order to meet the demand for water at SOCAR offshore fields, 32 reverse osmosis units were installed by the Indicators 2016 2017 2018 end of 2018 to desalinate seawater, of which 30 units are currently in use (see Figure 31). Information on the amount of water discharged at these facilities between 2016-2018 can be found in Table 4549. 90% of the water SOCAR Energy Turkey used at SOCAR Energy Turkey for production purposes is rainwater which is recycled.

Recycled water 699,74 711,70 602,12 TABLE 45. SEAWATER USAGE AT SOCAR AZERBAIJAN, MLN M³

Desalinated 2016 2017 2018 Purpose seawater Oil spill prevention measures Azneft PU 29,82 35,02 26,95 Desalination in reverse osmosis equipment and responses Gas Processing Production cooling systems and desalination in 0,55 0,56 0,03 Plant (GPP) reverse osmosis equipment As a company operating with hydrocarbon products, there is a high risk of oil and other spillages. Therefore, special attention is given to the prevention of oil and oil byproducts spilling both in the drylands and offshore. Complex Drilling Production cooling systems and desalination in 0,07 0,09 0,07 SOCAR Emergency Situations Commission has established a working group on Oil and Oil Byproduct Spill Works Trust (SDWT) reverse osmosis unit Responses and Liquidation Operations.

Oil Pipelines Technological processes 0,07 0,08 0,02 Department (OPD) (pumped to fire tanks) The Oil Spills Prevention and Response Plan approved by SOCAR’s President in 2014 is the Company’s key document in this area. Initial measures have been undertaken in accordance with approved training programs at Use in production for cooling and firefighting units where there is a risk of oil spills. Awareness raising courses in respect to oil spill responses have been held Oil Refinery (REF) 0,23 0 0 (sea water has not been used since 2017) at SOCAR facilities.

Total for SOCAR 30,73 35,75 27,07 Corrosion and fracture of pipelines are among the main reasons for oil spills. In 2018, pipeline with a total length of 10391,38 m was repaired and oil leakages were prevented under a major repair program to prevent breakdowns in oil pipelines. During the year there have been no large cracks or oil spills except for small leakages in old pipelines. FIGURE 31. NUMBER OF REVERSE OSMOSIS EQUIPMENT AT AZNEFT PU Nevertheless, the monitoring of offshore and onshore operations held by specialists of the Ecology Department pursuant to the order of SOCAR recorded oil spots on the surface of sea 7 times that emerged as the result of small oil spills.

The Company prepared Surveillance Blanks accompanied by photos of the above events, and appropriate information was included in the monthly report on “Environmental and sanitary-hygienic control - results of 22 6 1 4 monitoring of operations.”

Information has been exchanged with oil companies operating in the region (BP Azerbaijan, Karasu, Salyanoil, 28 May Neft Dashlari Absheronneft N.Narimanov OGED OGED OGED OGED and others), which allows them to react promptly to accidents at pipelines and to speed up the removal of pumps.

In addition, the Company has developed Terms of Reference for establishment of "ECOBARPA - Oil Spill Response Center" and its posts at selected sites of SOCAR to alert and mitigate the first and second-level emergency oil spills and placed an order with Oil and Gas Researches and Design Institute. Currently, the design and planning TABLE 46. WATERS USED IN CLOSED SYSTEM DURING PRODUCTION PROCESS AT SOCAR50, MLN. M³ works are underway. As part of this project, SOCAR plans to commence the construction of the Center next year and commission it in 2020. Indicators 2016 2017 2018

SOCAR Azerbaijan Restoration of disturbed ecosystems

Recycled water 268,47 266,15 272,94 The Biodiversity Division of the Ecology Department operates with the goal to maintain and preserve biodiversity, inspect the flora and fauna, and soil stability in SOCAR’s operation areas. The following activities are undertaken to preserve environmental systems and natural complexes, including preservation of rare and endangered Reused water 2,50 2,26 1,44

49 Increased scope of work caused an increase in total water consumption in 2017. 50 The indicators of SOCAR’s facilities in Georgia, Turkey, Ukraine, and Switzerland are not recorded as these facilities do not need recycled and reused waters. 132 133 animals, strengthening of relevant legal framework, assessment of Company’s impact on biodiversity, biodiversity TABLE 48. RESTORATION AND REHABILITATION OF SOCAR’S LAND PLOTS POLLUTED BY OIL, OILY conservation and control: WATER, AND OTHER INDUSTRIAL WASTE53 , HA

Restored polluted land, ha Anthropogenic and other impacts on the environment are evaluated, and Entity recommendations are made in this field 2016 2017 2018

Total for SOCAR, Monitoring, investigation and reporting on biodiversity conservation in dry and marine areas 44,82 69,61 144,247 including: Investigations into changes in biodiversity Azneft PU 19,70 16,28 57,9 Investigations into the rate of soil resistance and soil coverage in the study areas

JVs and OCs 25,12 53,33 86,347 Local and regional studies are conducted on the current situation of the ecosystems

Plants are introduced in the Absheron region The Company gave clarification with respect to the total area of Azneft oil and gas extraction units located in the The species included in the Red Book51 are studied and measures are taken to protect them Absheron Peninsula, of the land areas contaminated with oil and flooded by produced water, and of the restored lands. Necessary actions have been taken to draw the map of the contaminated lands during the reporting year. Awareness raising activities for biodiversity conservation are organized and recommendations are given In addition, Biodiversity Division of SOCAR’s Ecology Department provided 49 425 trees, shrubs, and flowers of The impacts identified to be the result of the research and monitoring are studied in specific EIA documents to different types for planting of vegetation at SOCAR’s units and facilities. develop correspondent mitigation measures.

Another focus of SOCAR’s environmental activities is the rehabilitation of areas contaminated by oil and oil byproducts. An environmental and technical document was drafted in 2018 as part of the "Remediation of the TABLE 49. GREENERY AND VEGETATION MAINTAINED AT SOCAR UNITS BETWEEN 2016 - 2018 contaminated areas in Absheron Peninsula” Project and adopted by the Expert Examination Department of the Ministry of Ecology and Natural Resources. 2016 2017 2018

Number of Number of Area of land Number of SOCAR has adopted an integrated approach to the restoration of the ecosystem and its cultivation. Above all, its Area of land Area of land Entity plants in plants in covered with plants in policy is to restore the areas closest to Baku, then areas of strategic importance, and other polluted areas close covered with covered with the areas the areas vegetation the areas vegetation vegetation to where people live. covered with covered with (ha) covered with (ha) (ha) vegetation vegetation vegetation As a result of SOCAR’s restoration efforts, the total area polluted by oil products and flooded by produced water SOCAR Azerbaijan54 453,6 845 352 451,1 898 914 494 805 372 has been declining every year (See: Table 47).

TABLE 47. CONTAMINATED LAND AND LAND FLOODED BY PRODUCED WATER AT SOCAR’S AZNEFT PU, JVS AND OCS52

Areas of land, by years, ha Cooperation in environmental Reasons for soil contamination 2016 2017 2018 protection

2 193,23 2 115,7 1326.9 Cooperation in fulfilment of commitments under Paris Agreement Total area of land polluted by oil products and flooded by produced water Azerbaijan fulfills its obligations under the UN Framework Convention on Climate Change and the Paris Climate Azneft JVs and Azneft JVs and Azneft JVs and PU OCs PU OCs PU OCs Agreement ratified by the Republic of Azerbaijan in 2016. The Paris Climate Agreement promotes collaboration between private companies and organizations and government agencies to minimize the risks of climate change including: and encourages the search for and implementation of joint solutions in this regard. 971,35 1221,88 949,7 1 166,0 574,57 752,355 As part of the Paris Agreement, SOCAR incorporated its actions and accomplishments into NAMA (Nationally Total area of land polluted by oil and oil 694,47 731,57 676,28 701,88 448,73 449,165 Appropriate Mitigations Actions) of the Republic of Azerbaijan. The Company carries out large-scale projects. products Some examples of these actions are the introduction of new environmentally-friendly technologies in the oil and gas refining industry, including fuel production in line with Euro-5 standards at the Heydar Aliyev Oil Refinery Total area of land flooded by produced water 276,88 490,31 273,42 464,12 125,84 303,19 by 2021.

53 51 During the reporting period, no species of animals or plants included into the Red List of International Union for Conservation of Nature were identified areas SOCAR’s overseas subsidiaries do not report such statistical data. of SOCAR's operations. 54 As of the end of 2018, the Company saw a fall in the total number of plants due to their removal from SOCAR’s balance sheet to transfer to other entities. 134 52 SOCAR’s overseas subsidiaries do not report such statistical data. 135 For a successful implementation of the Paris Agreement, SOCAR cooperates with both domestic, and international organizations and companies, including the Ministry of Ecology and Natural Resources (MENR), Cooperation with Norwegian Carbon Limits the Ministry of Energy (ME), the Azerbaijan National Academy of Sciences (ANAS). Company SOCAR is developing a GHG Emissions Mitigation Strategy for 2020-2030, which will reflect voluntary SOCAR continued cooperation with Norway's Carbon Limits in 2018 to reduce its climate change impact. commitments to be taken by SOCAR by 2030. Pursuant to the Memorandum of Understanding signed with Carbon Limits, SOCAR worked on further clarification of emission factors to calculate the volume of GHG. A number of project proposals have been developed within the Cooperation in natural gas and associated oil gas management framework of the project to reduce and collect leaks. Cooperation in calculation of volatile emission compounds during oil and gas operations is in progress. The Company formed a working group involving specialists from On November 22, 2017, eight companies signed the “Guiding Principles for Mitigation of Methane Emissions” on corresponding structural units for inventory of methane emissions. the initiative of Shell and BP to ensure efficient management of natural gas. These principles were further signed by eight more companies. At present, Beijing Gas, BP, Chevron, Enagas, Eni, Equinor, ExxonMobil, Gazprom, Repsol, On November 2, 2018, SOCAR hosted a workshop on “Methane emissions inventory and identifying emission Qatar Gasolineeum, Snam, Total, TransCanada, Shell, Wintershall, and Woodside are the signatories of these mitigation projects". principles. SOCAR signed the document in January 2019 to launch cooperation with the above listed companies. The signatories of this document will achieve cost-effectiveness of operations ensuring that investments are made The Company took the following actions as part of the cooperation with Carbon Limits: on the basis of the Guiding Principles for Mitigation of Emissions.

Instrumental measurements were taken at the oil and gas processing facilities, as well as in the sources of invisible gas emissions at the A.Amirov OGED of Azneft PU. According to the results of the report, Cooperation in associated gas emissions KL proposed a project to collect and store gases in reservoirs To achieve climate change mitigation goals of the Company, SOCAR has been carrying out the inventory of The Ecology Department of SOCAR has developed “Methods for calculating the greenhouse gas climate change impacts of GHGs since 2008 in all areas of operations. Associated gas is emitted into air during emissions from fuel combustion at stationary sources in the oil and gas industry”, submitted to MENR oil and gas production, key area of SOCAR’s operation. The Company started to collaborate with the World and GGFR experts and received positive feedback Bank's Global Gas Flaring Reduction Partnership (GGFR) initiative and Norwegian Carbon Limits.

By the end of 2020, the Company, in collaboration with KL, will draft project proposals on emission mitigation in the OGED areas of Azneft PU named with Absheronneft, A.Amirov, Neft Dashlari, and N. Collaboration with the World Bank’s Global Gas Flaring Narimanov. Reduction Partnership (GGFR) SOCAR has been a member of the World Bank's Global Gas Flaring Reduction Partnership (GGFR) since 2008. Cooperation with GGFR launched in 2010 is still ongoing. Cooperation with the Global Environment Fa- As part of the World Bank’s cooperation with the GGFR Partnership, SOCAR has joined the World Bank’s cility (GEF) and the United Nations initiative on “reducing the burning of associated gas in the normal production process by 2030” and plans to minimize associated gas emissions in the near future. In this regard, SOCAR has adopted a 2017-2022 Plan to Development Program (UNDP) Reduce Associated Gas Emissions at SOCAR and Projects involving SOCAR. Since 2015, SOCAR has been implementing a project with Nationally Appropriate Mitigation Actions (NAMA) to In addition, the Company expanded the instrumental measurements using the devices provided by GGFR and reduce carbon emissions in the fuel consumption sector of Azerbaijan. Under the NAMA project, developed jointly developed new techniques for calculating gas flows and harmful substances emitted into air. with UNDP, SOCAR continued the works in 2018 on the three project components.

Currently, SOCAR takes the following actions under the Associated Gas Emissions Mitigation Plan:

Liquidated wells at SOCAR are monitored and included into the GIS system

Monthly data are collected from all companies involved in associated gas management, summarized by the Ecology Department for entire company and submitted to SOCAR’s senior management at the end of the year

Environmental Measurement Center of the Ecology Department undertakes measurements of gas volumes of potential wells based on received data and develops priority proposals

136 137 Buildings that will be used for energy efficiency within the Green Buildings Program have been renovated in accordance with the project requirements and insulation work has been completed Cooperation with Azercosmos OJSC

Workshops were held on fuel-efficient vehicle management as part of the Sustainable Transport Program. Drivers were provided with training materials to enhance their knowledge in this area. During 2018, 497 SOCAR also cooperates with the World Bank and other international organizations to restore Absheron’s employees were trained in eco-driving lakes and sustainably manage organic pollutants.

All organizational works for the project’s third component - collection of associated gas to deliver to final consumer, have been completed, and the Company started design and technical installation SOCAR’s Oil Spills Awareness and Liquidation Plan is designed to use satellite services. For this purpose, works. Processing and supply of associated gas collected from 63 wells in the Zagli-Zeyv field of a Memorandum of Understanding and a contract have been signed between SOCAR’s Ecology Department 3 Siyazenneft OGED is underway. A total of 6.8 mln. m of associated gas per year is expected to be and Azercosmos OJSC to deliver cosmic images created by space observations from satellites to SOCAR. accumulated under this project This cooperation includes analysis of the scope of the accident, assessing its consequences at the production facilities, assessing the outcome of various operational decisions, and monitoring from space using the Azersky The NAMA project, implemented by SOCAR together with UNDP, supports energy efficiency and less carbon optical and RADARSAT-2 radar satellite images. emitted technologies in the country. Under the project, 6 wind turbines and 63 kW solar panels were already installed in 2018. Earlier, as part of the contract, Azercosmos organized a training course for GIS Group members of the Ecology Department of SOCAR and the graduates were awarded with certificates. Cooperation with BP According to the contract signed between BP and the Ecology Department, drill sludge generated in BP’s operation areas are delivered to the Waste Center for processing at a VacuDry unit. The Company successfully implemented the drill sludge collection and processing activities in 2018.

During the reporting year, the Ecology Department and BP Azerbaijan continued to collaborate on the Environmental Laboratory Services Project. Samples delivered from the Company’s operation sites were analyzed by the Complex Research Laboratory of the Ecology Department.

SOCAR has established close relationships with BP in production, safe transportation of oil and gas and addressing environmental issues in the zones of operation. “Flaring Gas Reduction in the ACG” project, awarded by GGFR for excellence, is among the large-scale projects initiated under this cooperation. As a result of the joint actions, the volume of gas received from the Chirag-1 platform in the Neft Dashlari reached 1,9 – 2,0 mln. m3 per day from the original 1,5 -1,6 mln. m3 per day. In addition, the volume of burnt gas on the Chirag platform was reduced by a minimum. As a result of the successful cooperation, the Company achieved CO2 emission mitigation by approximately 265 000 tons each year. These measures facilitated the receipt and further transportation of gas to deliver to consumers.

Cooperation with Total E&P Absheron BV Company SOCAR’s Ecology Department, which won a bid for “Drill sludge processing services” announced by Total E&P Absheron BV in 2017, provides drilling waste handling services generated during drilling operations at the Absheron field. The project was successfully implemented in 2018 and drill sludges processes are carried out at the Waste Management Center.

138 139 BHOS is the only higher education institution among universities operating in Azerbaijan that has received certificates of ISO 9001 (Key Management), ISO 14001 (Environmental Management Systems), OHSAS 18001 (OSHAS 18001), and ISO 10002 (Customer Satisfaction Management Guidelines). In addition, in 2017 a Project Management School, a 7-module training program, was implemented by BHOS in partnership with “TwentyEighty Strategy Execution” (STRATEX), BP and its partners, and provides students with a master's degree certificate from George Washington University. The cooperation between BHOS and foreign companies, training of BHOS students, professional lectures by local and foreign companies, organization of lectures, high performance of BHOS students in various social projects, public trust and other achievements attract the highest intellectual youth of Azerbaijan to study here.

SOCAR’s performance 09 indicators

140 141 SOCAR’s business indicators Business Indicators 2016 2017 2018

Atmospheric gasoil 0 83,73 35,94 fraction

Business Indicators 2016 2017 2018 Vacuum gasoil 365,00 0 190,82

Production results Engine fuel 68,41 46,54 34,11 Proven oil reserves, 71 503,0 70 164,0 71 055,0 thousand tons Bitumen 179,13 237,07 289,67 Proven natural gas reserves, mln. m3 51 978,0 51 485,0 45 692,0 Lubricants 9,76 35,02 50,93 Oli production, thousand 7 522,4 7 427,1 7 542,3 tons Heavy diesel fraction 0 0 42,24 Gas production, mln. m3 6 266,8 6 089,1 6 525,6 Products produced at Azeri- 459,61 441,79 457,87 Oil processing, thousand kimya PU, thousand tons 6 009,4 5 815,5 6 090,5 tons Ethylene 103,36 96,01 98,95 Gas processing, mln. m3 3 000,7 2 918,3 2 952,2

Propylene 52,08 48,45 56,28 Payments to budget, bln. AZN 1,394 1,509 1,608 Butylene-butadiene 22,17 31,57 33,12 fraction Charter capital, bln. AZN 1,802 3,036 4,147

Pyrolysis resin 69,99 63,86 69,25 Produced in Oil Refinery, 5 455,01 5 262,31 5 540,26 thousand tons Heavy resin 15,69 13,68 14,29 Gasoline 1 139,58 1 215,21 1 185,64

Propane 0,46 0,47 0,50 Primary distilled gasoline fraction (to Azerikimya PU) 173,58 168,41 204,63 Fuel gas 86,16 82,09 81,72 Jet engine fuel 627,34 587,98 617,04

Polyethylene 100,26 93,20 96,03 Diesel fuel 1 881,90 1 849,15 1 921,78 8,94 11,89 7,28 Pure isopropyl alcohol Light reflux 160,18 302,35 348,77

Pure isopropyl ether 0,50 0,57 0,45 Heavy reflux 0 13,24 10,55 Products exported by 2 019 175,96 1 129 662,43 1 532 959,95 SOCAR, tons Sove Oil 398,62 236,12 106,57

TS-1 fuels for jet engines 176 061,86 47 533,52 29 560,76 Oil coke 206,59 226,86 243,95

Diesel fuel L-62 799 451,15 561 520,95 470 960,35 Liquefied gases 185,62 200,56 204,02

Vacuum gasoil 385 220,73 19 413,63 126 205,73 Treated dry gas (to Azerikimya PU) 59,30 60,07 53,60

142 143 Business Indicators 2016 2017 2018 Business Indicators 2016 2017 2018

Stove oil 2 416,23 355,50 237,90 Percentage of the procurement budget spent by SOCAR Energy Turkey on local suppliers, % Depressor AKI 235 412,10 0 426 237,83

High pressure 84 540,00 74 898,00 79 666,50 polyethylene Administrative costs 0 88% 94%

Butylene-butadiene 23 347,20 30 800,35 30 512,57 Capital investment fraction 0 0 12% related projects

Propylene 40 902,50 39 535,65 35 002,15 Percentage of the procurement budget 0 56% 65% spent by SOCAR Liquified pyrolysis resin 57 577,17 56 786,79 69 257,67 Energy Georgia on local suppliers, %

Pyrolysis resin 0 12 389,18 0 Percentage of the procurement budget Pure isopropyl alcohol 9 932,31 11 682,50 7 523,51 spent by SOCAR Energy 0 5% 5% Ukraine on local suppliers, % 56 Pure isopropyl ether 559,46 621,89 260,96

Percentage of the Cylinder oil 11 379,51 3 555,93 4 740,23 procurement budget spent by SOCAR Energy 0 98% 95% Auto-tractor oil of Baku Switzerland on local AK-15 2 893,46 2 243,28 1 513,74 suppliers, %

Low-sulphur oil coke Economic indicators 171 034,30 255 153,16 227 824,03 2016 2017 2018 KT-Q (thousand AZN)

T-1500 transformer oil 1 655,69 6 157,13 4 394,97 SOCAR Azerbaijan

Economic value 3 846 734 5 816 411 5 898 383 Turbine oil 262,41 858,85 67,86 generated

Revenues 3 846 734 5 816 411 5 898 383 И-8А industrial oil 3 324,68 6 156,12 18 993,18

Economic value (2 426 761) (3 596 185) (3 500 627) DT20 motor fuel 24 205,20 0 0 distributed

Operating costs (877 822) (1 387 533) (1 102 105) Methanole 0 0 63 864,90 Employee wages, social (572 645) (582 625) (703 866) Procurement security, and benefits expenditures, SOCAR 0 2 441,221 3 988,2036 Payments to providers of Azerbaijan, thousand AZN (321 521) (363 899) (356 869) capital

Percentage of the procurement budget Payments to government (437 192) (482 928) (550 197) spent by SOCAR 0 66% 78% Azerbaijan on local Community investments (217 580) (779 200) (787 590) suppliers, %55

56 According to the scope of activities of SOCAR Energy Ukraine, the main part of the procurement budget is spent on fuel purchased by foreign companies. 55 Report of this indicator has been provided since 2017 as specified by the requirements of GRI Standard. Local suppliers are mainly involved in providing administrative services, as well as supply of additional products sold at filling stations.

144 145 Economic indicators Economic indicators 2016 2017 2018 2016 2017 2018 (thousand AZN) (thousand AZN)

Economic value retained 1 419 973 2 220 226 2 397 756 SOCAR Energy Ukraine

SOCAR Energy Economic value 280 485 594 798 832 058 Turkey generated

Economic value 2 989 189 5 068 992 5 127 458 280 485 594 798 832 058 generated Revenues

Economic value 2 989 189 5 068 992 5 127 458 (252 438) (560 816) (796 465) Revenues distributed

Economic value (237 721) (538 895) (769 050) distributed (2 415 585) (4 167 387) (4 755 107) Operating costs

Employee wages, social Operating costs (1 928 326) (3 674 305) (3 983 314) protection and benefits (11 697) (18 354) (22 531)

Employee wages, social (172 505) (215 059) (214 807) Payments to providers (673) (375) (1 524) protection and benefits of capital

Payments to providers of (216 463) (152 125) (501 617) (2 346) (3 192) (3 360) capital Payments to government

Payments to government (98 291) (125 898) (55 369) Community investments 0 0 0

Community investments57 0 0 0 Economic value retained 28 046 33 982 35 593

Economic value retained 573 603 901 605 372 351 SOCAR Energy Switzerland

SOCAR Energy Economic value 1 657 559 1 990 963 2 603 281 Georgia generated

Economic value Revenues generated 858 555 974 806 1 007 693 1 657 559 1 990 963 2 603 281

Economic value Revenues 858 555 974 806 1 007 693 (1 563 718) (1 882 161) (2 484 873) distributed

Economic value (777 670) (904 411) (951 311) Operating costs (1 484 444) (1 781 012) (2 363 227) distributed

Employee wages, social Operating costs (75 597) (95 166) (110 502) (719 910) (841 956) (877 481) protection and benefits

Employee wages, social Payments to providers (34 057) (40 377) (46 121) (646) (1 327) (2 278) protection, and benefits of capital

Payments to providers of Payments to (17 693) (22 078) (27 451) (2 868) (4 552) (8 794) capital government

Payments to government (6 010) 0 (258) Community investments (162) (104) (72)

Community investments 0 0 0 Economic value 93 840 108 802 118 408 retained

Economic value 80 884 70 395 56 382 retained

57 Investments in the community include funds allocated as part of public projects and social infrastructure development. The costs reflected in the Social Activity and Local Development Support section show the total amount allocated to charitable and sponsorship projects. 146 147 Human Resources Human Resources 2016 2017 2018

Total training hours 345 105 473 053 279 958

Human Resources 2016 2017 2018 SOCAR Energy Switzerland

SOCAR Azerbaijan Number of employees, total 818 793 789 Number of employees, 50 735 50 424 51 125 Number of employees total 316 321 299 hired Number of employees 1 920 1 728 2 417 hired Number of employees dismissed 272 323 297 Number of employees 1 350 1 083 1 780 dismissed Total training hours 5 946 7 930 8 800

Total training hours 436 061 336 183 476 778

SOCAR Energy Turkey58 Social activities

Number of employees, 2 887 3 500 4 112 total Social activities 2016 2017 2018

Number of employees Payments by type of 255 845 656 3 921 19 960 4 614,7 hired grant, thousand AZN

Number of employees Material 679,711 699,853 112,311 dismissed 293 239 173

Total training hours 109 25359 355 530 576 606 Charity 115 820,745

SOCAR Energy Georgia Social 562,365 4 597,288 245,2

Number of employees, Sponsorship 1 734,326 13 012,672 4 257,204 total 4 253 4 329 4 505

Number of employees 640 777 908 Financial 829,295 829,301 hired

Number of employees Payments by target of 3 921 19 960 4 614,715 dismissed 516 701 732 grants, thousand AZN

Total training hours 15 579 17 235 Sport 335 10 473,172 527,728

Financial associations SOCAR Energy Ukraine and trade unions 1 019,520 2 508,172 890,902

Number of employees, 1 737 1 817 1 861 Education 282,308 4 292,677 196,7 total

Number of employees 1 469 1 306 1 030 Art and culture 1 820,144 2 104,826 2 826,51 hired

Number of employees 1 399 1 226 986 Government authorities 0 12,252 dismissed

58 SOCAR Energy Turkey data in this report include the SOCAR Energy Turkey Head Office, Petkim, STAR, and Petlim facilities. Healthcare 0 568,929 59 The total training hours for 2016 have been recalculated and now cover all the facilities of SOCAR Energy Turkey. 148 149 Social activities 2016 2017 2018 Occupational safety 2016 2017 2018 Financial aid to individuals 463,723 0 172,875 Geophysics and geology 0 0 2

People with disabilities and veterans 0 0 0 Transportation 1 0 2

Payments by type of grant, thousand AZN 8 079 5 254 9 174 Drilling 1 2 1

In case of death of an employee, to one of the family 394,080 424,920 355,64 OHS expenditures incurred members of the employee by SOCAR Azerbaijan, 22 018 19 903 22 877 thousand AZN Death of a family member 759,170 793,145 846,9 Measures to improve Children of employees working conditions 14 367 15 166 15 831 who died in the Nagorno- Karabakh War and during 58,013 12,038 7,8 Special clothing, special the events of 20th January, shoes, and other protective until they reach 18 years of 6 401 3 537 5 690 equipment for personnel age (or until they reach 23, if they are full time students), for each child, monthly Milk supply 1 042 907,7 1198

Aid to underage children of a deceased employee until they Other expenses 208 292,3 158,7 reach 18 years of age (or until 2 946,643 4 023,806 3 348,915 they reach 23, if they are full time students), for each child, monthly OHS indicators of SOCAR Azerbaijan

At the discretion of the 3 920,696 0 4 614,715 President of SOCAR Total number of accidents, including 11 10 11 60 Occupational health and safety Fatal accidents 5 4 3 Number of injured employees, 23 12 11 Occupational safety 2016 2017 2018 including

Number of deceased Number of participants 14 4 3 in courses on safety of employees 2 489 2 654 1 404 life at sea Absence due to occupational diseases 0 0 0

Number of accidents by 11 10 11 Number of days lost due to the type of operations 2 252 2 071 358 occupational injuries

Oil and gas production 4 4 3

Absence due to illness 182 814 254 064 300 937 Oil and gas processing 1 2 0 Number of employees 50 645 50 248 50 479 Gas supply and 2 0 2 transportation Total worked hours 77 484 840 77 313 080 78 003 136 Construction 2 2 1 Total days worked 9 685 605 9 664 135 9 750 392

60 SOCAR Energy Georgia has not been covered in the current tables due to immateriality of indicators.

150 151 Occupational safety 2016 2017 2018 Occupational safety 2016 2017 2018

Lost time injury ratio Number of days lost due to 0,06 0,03 0,03 (per 200 000 hours worked) occupational injuries 606 534 381

Lost days ratio (per 200 000 5,82 5,36 0,92 hours worked) Total worked hours 4 399 022 5 482 748 7 011 060 Absence rate 3 774,96 5 257,87 6 172,82 Total scheduled working hours (per 200 000 worked) 1,46 0,86 1,20 (per 200 000 hours worked) Accidents frequency ratio (number of accidents per 0,22 0,20 0,22 Accidents severity ratio (number 1 000 employees) of lost days per accident) 18,94 22,25 9,07

Accidents severity ratio SOCAR Energy Turkey’s suppliers (number of lost days per 375,33 345,17 44,75 and contractors accident)

Number of injured 60 13363 64 OHS performance indicators employees of JVs and OCs

Number of deceased employees 1 1 3 Total number of accidents, 16 15 7 including Total hours worked 34 971 230 56 530 769 42 283 534 Fatal accidents 3 3 0 Lost time injury ratio 0,34 0,46 0,30 (per 200 000 hours worked) Number of days lost due to occupational injuries 476 256 690 SOCAR Energy Ukraine’s own employees

Accidents severity ratio (number Number of injured 1 2 1 of lost days per accident) 36,6 21,3 98,6 employees

Number of deceased employees 0 0 0

OHS performance indicators at SOCAR's foreign entities61 Number of occupational diseases 0 0 0

SOCAR Energy Turkey’s own employees62 Number of days lost due to occupational injuries 36 14 157

Number of injured employees 32 24 42 Absence due to illness 8 936 9 285 9 635

Number of deceased employees 0 0 0 Number of employees 1 737 1 817 1 861

Absence due to occupational Total worked hours 3 336 002 3 545 288 3 715 626 0 0 0 illness Total days worked 369 106 395 258 410 140

Total scheduled working hours 3 523 239 3 658 034 3 984 710

61 SOCAR Energy Georgia has not been included in this Report due to not having any material indicators. Only injuries resulting in lost days have been included for all entities. 63 The operational injury rate was also recalculated this year, as the Last year's Report found that the number of injuries suffered by STAR contractors was not 62 Indicators of SOCAR Energy Turkey’s employees include only PETKIM’s activities. Suppliers and contractors are also included but not only of PETKIM, but also of Star Refinery and PETLIM. properly calculated. 152 153 Environmental activities Occupational safety 2016 2017 2018

Lost time injury ratio Environmental activities66 2016 2017 2018 0,058 0,112 0,052 (per 200 000 hours worked) SOCAR Azerbaijan environmental 13 798 19 745 24 180 Lost days ratio expenditures, thousand. AZN, including 19,4 7,0 76,4 (per 200 000 hours worked) SOCAR Turkey 67 2 533,136 3 833,12568 11 503,480 Absence ratio 4 841,96 4 698,18 4 698,38 (per 200 000 hours worked) SOCAR Energy Ukraine 62,921 53,0669 384,149 Accidents severity ratio (number

of lost days per accident) 36 7 157 70 71 Greenhouse gas emissions, thousand tons in CO2 equivalent

SOCAR Azerbaijan 6 659,0 6 567,7 7 818,5 SOCAR Energy Switzerland’s own employees

Direct emissions 5 989,8 5 893,1 7 143,8 Number of injured employees 12 22 13

Indirect emissions 669,2 674,6 674,7 Number of deceased employees 0 0 0

Number of occupational 72 0 064 0 SOCAR Energy Turkey 2 235,0 2 393,2 1 634,9 diseases

Number of days lost due to Direct emissions 2 061,9 2 176,5 1 409,2 occupational injuries 212 18165 265

Indirect emissions 173,1 216,7 225,7 Absence due to illness 6 352 4 206 5 767 SOCAR Energy Georgia 4,1 3,8 4,0 Number of employees 816 793 789

Direct emissions 0,7 0,7 0,7 Total worked hours 1 294 552 1 265 545 1 259 012

Total days worked 161 819 158 193 157 377 Indirect emissions 3,4 3,1 3,3

Total scheduled working hours 1 294 552 1 265 545 1 259 012 SOCAR Energy Switzerland 0,4 0,4 0,4 Lost time injury ratio 1,84 3,48 2.06 (per 200 000 hours worked) Direct emissions 0 0 0 Lost days ratio 32,76 28,60 42,10 (per 200 000 hours worked) 66 Because of the immateriality of environmental penalties for 2018, SOCAR Switzerland and SOCAR Georgia were not included in the current Report. Absence ratio 67 981,34 664,79 916,19 The costs associated with SOCAR Energy Turkey include the costs incurred by Petkim. (per 200 000 hours worked) 68 For 2017, the costs of improving environmental conditions for SOCAR Energy Turkey were recalculated due to currency fluctuations. 69 In 2017, the costs of improving environmental conditions for SOCAR Energy Ukraine were recalculated due to currency fluctuations. The current report Accidents severity ratio (number 17,67 8,23 20,38 takes the average rate as 1USD = 1.7 AZN of lost days per accident) 70 SOCAR Energy Ukraine is not included in the table because of the limited production activity. Only indirect emissions emerged as the result of the limited activities of SOCAR Switzerland. 71 The volume of indirect emissions for energy consumption by SOCAR Energy Georgia and SOCAR Switzerland over the past years has been calculated in the current report based on electricity consumption. 72 Measurements of direct emissions were only done for Petkim by a third-party company of SOCAR Energy Turkey.

64 Last year's report reflected the number of working days lost as a result of all operational injuries. This year, this figure has been recalculated and changed. 65 Due to a methodological mistake in the previous year's report, this year this figure was recalculated and changed. As a result of the changes the respective ratios were also adjusted.

154 155 Environmental activities 2016 2017 2018 Environmental activities 2016 2017 2018

Associated gas at Azneft PU Indirect emissions 0,4 0,4 0,4

Volume of associated gas at Azneft PU, thousand 1 432 648 1 460 012 1 439 783 Greenhouse gas emissions at SOCAR Azerbaijan m3

Associated gas reused for internal needs 177 618 183 444 189 626 Total for SOCAR, thousand tons of СО 2 5 989,8 5 893,1 7143,8 equivalent Associated gas delivered to other entities or 1 536 927 1 544 413 1 493 179 from stationary sources, returned back to the system 5 891,1 5 782,2 7036,1 including Associated gas flared 0 840 840 Business units 5 624,4 5 539,2 6804,7

Amount of air pollutants emitted from stationary sources JVs and OCs 266,6 243,1 231,4 into the atmosphere at SOCAR, thousand tons75

Total for SOCAR Azerbaijan, From mobile sources, 131,55 124,33 127,51 98,7 110,8 107,7 including including:

Solid particles 0,23 0,23 0,24 Transportation Department 79,5 84,3 87,3

Gaseous and liquid substances, including 131,32 124,1 127,27 JVs and OCs 19,2 26,5 20,4

Sulphur dioxide 0,54 0,17 0,12

Direct emissions intensity (thousand tons of CO2 equivalent of emissions per employee)73 Nitrogen oxide 1,78 1,69 1,33

SOCAR Azerbaijan 0,118 0,117 0,140 Carbon oxide 4,19 4,14 3,48

SOCAR Energy Turkey 0,714 0,622 0,343 Hydrocarbons 115,55 107,83 112,32 (excl. VOC)

Indirect emissions, (from energy consumption), thousand Volatile organic compounds 8,47 9,42 9,33 tons of CO2 equivalent

Other gaseous substances 0,79 0,86 0,77 Total for SOCAR 669,2 674,6 674,7 Total for SOCAR Energy Turkey76 0 9,50 0 Business units 438,9 447,3 449,5 including:

Sulphur dioxide 0 2,95 0 JVs and OCs 230,3 227,3 225,2

Nitrogen oxide 0 5,96 0 Emissions into air as the result of SOCAR Azerbaijan’s operation, thousand tons Carbon oxide 0 0,56 0

74 Methane (CH4) 127,7 126,7 130,9 Volatile organic compounds 0 0,03 0

Carbon gases (CO2) 3 307,6 3 231,2 3220,3

73 Due to immateriality, the cost of the emission intensities associated with activities in SOCAR Energy Georgia, SOCAR Energy Ukraine, and SOCAR Energy 75 SOCAR Energy Ukraine and SOCAR Energy Switzerland have not been included in the table since their volumes are immaterial. Switzerland are not reflected in the table. 76 For SOCAR Energy Turkey, the volume of pollutants emitted into air is measured by a third party every two years. 74 The main reason for rise in methane gas production in 2018 is the increase in technological losses at 28 May OGED of Azneft PU.

156 157 Environmental activities 2016 2017 2018 Environmental activities 2016 2017 2018

Number of vehicles that underwent complete Total for SOCAR Energy Georgia77 0,54 0,65 0,71 19 36 56 overhaul

Vehicles failed environmental inspections due to Sulphur dioxide 0,26 0,35 0,42 631 822 899 other reasons

Nitrogen oxide 0,02 0,03 0,02 Electricity consumption at SOCAR, thousands kW/hour

Carbon oxide 0,26 0,27 0,27 Total for SOCAR including 2 160 726 2 364 175 2 172 717

Amount of air pollutants emitted from mobile sources into air at SOCAR Azerbaijan, thousand tons78 SOCAR Azerbaijan 1 079 993 1 093 796 1 059 426

Total for SOCAR Azerbaijan, ton 123 127 151 including: SOCAR Energy Turkey 1 029 450 1 220 040 1 060 534

Solid particles 0 0 0 SOCAR Energy Georgia 28 536 26 108 27 739

Gaseous and liquid substances79, 123 127 151 including: SOCAR Energy Ukraine 9 351 10 831 12 018

Sulphur dioxide 0 0 0 SOCAR Energy Switzerland 13 396 13 400 13 000

Nitrogen oxide 21 22 26 Energy intensity ratio in 2016-2018

Carbon oxide 95 97 116 SOCAR Azerbaijan 21,3 21,7 20,7

Hydrocarbons (excl.VOC) 7 8 9 SOCAR Energy Turkey 356,6 348,6 257,9

Volatile organic compounds 0 0 0 SOCAR Energy Georgia 6,7 6,0 6,2

Other gaseous substances 0 0 0 SOCAR Energy Ukraine 5,4 6,0 6,5

Number of environmental inspections of vehicles at SOCAR Azerbaijan SOCAR Energy Switzerland 16,4 16,9 16,5

Inventory of technical equipment and vehicles 4 646 4 571 4 495 80 included in the balance sheet Fuel consumption at SOCAR Azerbaijan

Number of vehicles gone through preliminary SOCAR Azerbaijan and recurrent inspections 3 904 3 710 4 903

Number of vehicles not complying Gasoline, tons 5 826,57 5 786,70 6 050,6 339 200 741 with existing standards

Diesel, tons 32 119,13 35 875,74 38 155,9 Number of vehicles withdrawn from operation 92 3 16

Natural gas, thousand m3 809 218,24 1 428 867,99 721 706,7

77 Since 2017, SOCAR Energy Georgia has introduced a new methodology to calculate the amount of pollutants emitted into the air. For this reason, the 2016 figures have been recalculated. 78 SOCAR Energy Ukraine and SOCAR Energy Switzerland have not been included in the table since their volumes are immaterial. 79 The increase in pollutants from mobile sources in 2018 compared to the previous year is mainly due to an increased number of vehicles and increased emissions as the result of fuel consumption. 80 This indicator reflects the amount of fuel used in special machinery and vehicles.

158 159 Environmental activities 2016 2017 2018 Environmental activities 2016 2017 2018

SOCAR Energy Turkey Non-hazardous 0,05 6,29 0,14

Gasoline, tons 0,0 0,0 0,0 SOCAR Energy Turkey83

Diesel, tons 657,2 646,5 3712,9 81 Generated waste 30,69 55,58 38,63

Natural gas, thousand m3 357 814,95 470 859,3 429 440,30 Hazardous 18,52 20,15 12,72

SOCAR Energy Georgia Non-hazardous 12,17 35,43 25,91

Gasoline, tons 0,0 0,0 0,0 Recycled waste84 9,60 7,05 5,42

Diesel, tons 426,0 521,0 475,0 Hazardous 9,60 7,05 5,42

Natural gas, thousand m3 138,1 110,1 83,4 Non-hazardous 0,00 0,00 0,00

Waste management, thousand tons82 Waste transferred to the third parties 21,10 48,48 33,25

SOCAR Azerbaijan Hazardous 8,90 13,10 7,34

Generated waste 60,98 89,88 165,1 Non-hazardous 12,20 35,38 25,91

Hazardous 52,82 80,32 156,02 SOCAR Energy Ukraine

Non-hazardous 8,16 9,56 9,1 Generated waste 2,14 2,16 2,35

Utilized waste 0,91 1,96 2,95 Hazardous 0,01 0,01 0,01

Hazardous 0,91 1,79 2,78 Non-hazardous 2,13 2,15 2,34

Non-hazardous 0 0,17 0,17 Utilized waste 0,00 0,00 0,00

Waste transferred to the third parties 45,04 65,98 135,7 Hazardous 0,00 0,00 0,00

Hazardous 37,06 62,63 32,2 Non-hazardous 0,00 0,00 0,00

Non-hazardous 7,98 3,36 18,2 Waste transferred to the third parties 2,14 2,16 2,35

Waste disposed of at the Waste Center 13,71 20,97 19,8 Hazardous 0,01 0,01 0,01

Hazardous 13,66 14,68 19,66

81 The increase in the volume of diesel used by SOCAR Energy Turkey in 2018 is due to the launch of the STAR Refinery. 83 Petlim’s data have been added since 2017. 82 Indicators of SOCAR Energy Georgia and SOCAR Energy Switzerland are not included in the table because they have limited production activity. 84 Recycled waste includes waste incinerated on the territory of Petkim.

160 161 Environmental activities 2016 2017 2018 Environmental activities 2016 2017 2018 0,00 Non-hazardous 2,13 2,15 2,34 SOCAR Energy Turkey 19,60 18,79 18,73

3 Wastewater produced by SOCAR, mln. m 25,06 24,66 24,29 Groundwater 0,00 0,00 0,00

Azneft PU 5,62 5,43 5,61 Surfuce water 19,60 18,79 18,73

JVs and OCs 19,44 19,23 18,68 SOCAR Energy Georgia 0,17 0,13 0,15

Wastewater management at SOCAR, m3 85 Groundwater 0,02 0,00 0,03

SOCAR Azerbaijan Surfuce water 0,15 0,13 0,12

Volume of generated wastewater86 7 091 894 7 341 152 8 133 119 SOCAR Energy Ukraine 0,13 0,11 0,13

Volume of wastewater discharged without 407 009 347 774 316 175 treatment, including Groundwater 0,04 0,04 0,05

On soil 35 356 39 061 30 074 Surfuce water 0,09 0,07 0,08

Into the water 183 848 147 891 148 070 Water intensity ratio for SOCAR (thousands m3 water consumption per one employee) Volume of discharged wastewater after treatment 5 522 131 6 186 406 6 831 955 SOCAR Azerbaijan 0,962 1,071 0,915 SOCAR Energy Turkey SOCAR Energy Turkey 6,790 5,368 4,555 Volume of generated wastewater 7 438 446 8 051 324 7 709 531 SOCAR Energy Georgia 0,040 0,030 0,033 Volume of wastewater discharged without 0 0 0 treatment SOCAR Enerji Ukrayna 0,075 0,059 0,065 Volume of discharged wastewater after 7 438 446 8 051 324 7 709 531 treatment Seawater usage at SOCAR Azerbaijan, 30,73 35,75 27,07 mln. m3 Water consumption of SOCAR, mln. m3 87

Azneft PU 29,82 35,02 26,95 SOCAR Azerbaijan 48,81 54,02 46,76 Gas Processing Plant (GPP) 0,55 0,56 0,03 Groundwater 5,49 5,57 5,62

Complex Drilling Works Trust (SDWT) 0,07 0,09 0,07 Surfuce water 37,59 43,05 35,52

Oil Pipelines Department (OPD) 0,07 0,08 0,02 Other sources 5,72 5,41 5,62

Oil Refinery (REF) 0,23 0 0 85 As the activities in SOCAR Energy Georgia, SOCAR Energy Ukraine and SOCAR Energy Switzerland are limited, their indicators are not covered in the table. 86 Given that the new water-cooling unit and Bitumen Blowing Unit have been commissioned in the Oil Refinery, and the volume of irrigation water used for environmental activities has increased, the volume of water used in 2018 increased as compared to 2017. 87 As production activity at SOCAR Energy Switzerland is limited, its indicators are not included in the table.

162 163 Environmental activities 2016 2017 2018 0,00 Volume of recycled and reused water at SOCAR, mln m3 88

Recycled water 268,47 266,15 272,94

Reused water 2,50 2,26 1,44

Proportion of reused water to the total 0,55% 0,49% 0,58% volume of consumption, %

SOCAR Energy Turkey

Recycled water 699,74 711,70 602,12

Contaminated land and land flooded by produced water at SOCAR’s Azneft PU, JVs, 2 193,23 2 115,7 1326,9 and OCs, ha 89

Total area of land polluted by oil and oil 1 426,04 1 378,16 897,89 products

Azneft PU 694,47 676,28 448,73

JVs and OCs 731,57 701,88 449,16

Total area of land flooded by produced water 767,19 737,54 429,03

Azneft PU 276,88 273,42 125,84

JVs and OCs 490,31 464,12 303,19

Restoration and rehabilitation of SOCAR’s land plots polluted by oil, oily 44,82 69,61 144,247 water, and other industrial waste, ha 90

Azneft PU 19,70 16,28 57,9

JVs and OCs 25,12 53,33 86,347

Greenery and vegetation maintained at SOCAR Azerbaijan

Area of land covered with vegetation (ha) 453,6 451,1 494

Number of plants in the areas covered with 845 352 898 914 805 372 vegetation

88 The indicators of SOCAR’s facilities in Georgia, Turkey, Ukraine, and Switzerland are not recorded as these facilities do not need recycled and reused waters. 89 SOCAR’s overseas subsidiaries do not report such statistical data. 90 SOCAR’s overseas subsidiaries do not report such statistical data.

164 165 GRI Content 10 Index and Independent Assurance Statement 166 167 GRI Content Index Note Report Independent GRI Content Index Note Report Independent GRI 102: ÜMUMİ AÇIQLAMALAR Section/Page assurance GRI 102: ÜMUMİ AÇIQLAMALAR Section/Page assurance

GRI 102: GENERAL DISCLOSURES Governance

Disclosed, Confirmed, Organizational profile 102-18 Governance structure p.45-46 p.180

Disclosed, Disclosed, 102-1 Name of the organization 102-19 Delegating authority p.12 p.46-47

Disclosed, 102-20 Executive-level responsibility for economic, Disclosed, 102-2 Activities, brands, products, and services p.12-24 environmental, and social topics p.46-47

Disclosed, 102-3 Location of headquarters p.184 102-21 Consulting stakeholders on economic, Partially environmental, and social topics disclosed, Disclosed, p. 58 102-4 Location of operations p.19

Disclosed, 102-22 Composition of the highest governance Disclosed, 102-5 Ownership and legal form p.58 body and its committees p.48

Disclosed, 102-6 Markets served SOCAR’s President is both p.26-35 the Chairman of the highest 102-23 Chair of the highest governance body Disclosed governance body and of the Disclosed, Confirmed, 102-7 Scale of the organization executive body. p.142-148 p.180

Disclosed, Confirmed, 102-24 Nominating and selecting the highest Disclosed, 102-8 Information on employees and other workers p.72-87 p.180 governance body p.45

Disclosed, 102-9 Supply chain Disclosed, p.25 102-25 Conflicts of interest p.56

102-10 Significant changes to the organization Disclosed, and its supply chain p.26, 29-35 SOCAR's strategy, goals, and principles, as well as strategic 102-26 Role of the highest governance body in direction regarding economic, social, Disclosed, Disclosed, 102-11 Precautionary principle or approach setting purpose, value, and strategy and environmental issues are reviewed p.48 p.49 and approved by the Company's President and the Top Management. Disclosed, 102-12 External initiatives 102-27 Collective knowledge of highest Not covered p.136-137 governance body

Not 102-28 Evaluating the highest governance body’s The performance of top management Disclosed, 102-13 Membership of associations covered performance is evaluated in annual reports. p.45

102-29 Identifying and managing economic, Partially Strategy disclosed, p.47 environmental, and social impacts

Disclosed, 102-30 Effectiveness of risk management Disclosed, 102-14 Statement from senior decision-maker p.4-5 processes p.49-50

Disclosed, p.21, Monthly, quarterly, and annual reports Disclosed, 102-15 Key impacts, risks, and opportunities 38, 50, 102 102-31 Review of economic, environmental, and on economic, environmental, and throughout the social topics social issues are submitted to the respective vice presidents. report

Ethics and integrity The organization of assurance of the 102-32 Highest governance body’s role in report, as well as its official review Disclosed sustainability reporting and approval is carried out by the top 102-16 Values, principles, standards, and norms Disclosed, management. of behavior p.51, 53-54 102-33 Communicating critical concerns Disclosed, 102-17 Mechanisms for advice and concerns Disclosed, p.47-49 about ethics p.59 168 169 GRI Content Index Note Report Independent GRI Content Index Note Report Independent GRI 102: ÜMUMİ AÇIQLAMALAR Section/Page assurance GRI 102: ÜMUMİ AÇIQLAMALAR Section/Page assurance

102-34 Nature and total number of critical Not covered concerns 102-48 Restatements of information Disclosed, Confirmed, p.8 p.180 Disclosed, 102-35 Remuneration policies p.45

Partially 102-36 Process for determining remuneration disclosed, p.45 The changes in the information on the impact area and the material topics of the report compared to Disclosed Confirmed 102-37 Stakeholders’ involvement in remuneration Not covered 102-49 Changes in reporting the previous reporting period is presented as notes in the relevant 102-38 Annual total compensation ratio Not covered tables.

102-39 Percentage increase in annual total Disclosed, Confirmed, Not covered 102-50 Reporting period compensation ratio p.8 p.180

Disclosed, Confirmed, Stakeholder engagement 102-51 Date of most recent report p.8 p.180

Disclosed, Disclosed, Confirmed, 102-40 List of stakeholder groups 102-52 Reporting cycle p.57 p.8 p.180

102-41 Collective bargaining agreements Disclosed, 102-53 Contact point for questions regarding the Disclosed, p.75-87 report p.184

Disclosed, 102-54 Claims of reporting in accordance with Disclosed, Confirmed, 102-42 Identifying and selecting stakeholders p.57-58 GRI Standards p.8 p.180

Disclosed, Confirmed, 102-55 GRI content index p.168 p.180 Although no specific policy and guidelines on stakeholder Disclosed, Confirmed, engagement are available at 102-56 External assurance p.180 p.180 the Company, all related issues are under the management’s 102-43 Approach to stakeholder engagement Disclosed, strict control and reflected in GRI 103: MANAGEMENT APPROACH p.57-59 various standards and internal regulations, e.g. employee- 103-1 Explanation of the material topic and its Disclosed, Confirmed, management relations, supplier Boundary p.9 p.180 relations etc.

Information on the management Disclosed, 103-2 The management approach and its approach to key issues is throughout the components presented at the beginning of report Partially each relevant section. 102-44 Key topics and concerns raised disclosed, p.98

Partially disclosed, Reporting practice 103-3 Evaluation of the management approach throughout the report

102-45 Entities included in the consolidated Disclosed, Confirmed, GRI 201: ECONOMIC PERFORMANCE financial statements p.18, 22 p.180

Confirmed, 102-46 Defining report content and topic Disclosed, 201-1 Direct economic value generated and Disclosed, p.180 Boundaries p.8 distributed p.22

Disclosed, Confirmed, 201-2 Financial implications and other risks and Not disclosed 102-47 List of material topics p.9 p.180 opportunities due to climate change

201-3 Defined benefit plan obligations and other Partially disclosed, retirement plans p.22 170 171 GRI 201: ECONOMIC PERFORMANCE GRI 301: MATERIALS

Disclosed, No financial support was received 201-4 Financial assistance received from the Disclosed 301-1 Materials used by weight or volume government from the government during the p.18 reporting period. Not 301-2 Recycled input materials used disclosed GRI 202: MARKET PRESENCE

301-3 Reclaimed products and their packaging Disclosed, p. N/A 202-1 Ratios of standard entry level wage by 75, 79, materials gender compared to local minimum wage 82, 85 GRI 302: ENERGY All managers at SOCAR Azerbaijan are Azerbaijani citizens, which constitutes to at Disclosed, Confirmed, least 90% in the total number. This number varies in other 302-1 Energy consumption within the organization p.125 p.180 202-2 Proportion of senior management hired countries depending on the from the local community requirements for the position. Disclosed 302-2 Energy consumption outside of the This indicator is not being Not In any instance, SOCAR is reported. disclosed compliant to the global ethical organization norms in this aspect, e.g. SOCAR Petkim management consists Disclosed, Confirmed, 302-3 Energy intensity of both Turkish and Azerbaijani p.125 p.180 citizens. Disclosed, 302-4 Reduction of energy consumption GRI 203: INDIRECT ECONOMIC IMPACTS p.122

302-5 Reductions in energy requirements of N/A 203-1 Infrastructure investments and services Disclosed, products and services supported p.90

GRI 303: WATER Disclosed, 203-2 Significant indirect economic impacts p.90-94 303-1 Water withdrawal by source Disclosed, GRI 204: PROCUREMENT PRACTICES p.131

303-2 Water sources significantly affected by Some of the water used for Disclosed Disclosed, SOCAR operations comes from Confirmed, p.180 withdrawal of water the Caspian Sea. 204-1 Proportion of spending on local suppliers p.26 Disclosed, 303-3 Water recycled and reused p.132-133 GRI 205: ANTI-CORRUPTION

205-1 Operations assessed for risks related to Disclosed, GRI 304: BIODIVERSITY corruption p.55

205-2 Communication and training about anti- Disclosed, 304-1 Operational sites owned, leased, managed None of SOCAR operational Disclosed corruption policies and procedures p.55-56 in, or adjacent to, protected areas and areas of sites covers the protected areas high biodiversity value outside protected areas or areas of high biodiversity. 205-3 Confirmed incidents of corruption and No incidents of corruption were Disclosed actions taken detected in the reporting period. 304-2 Significant impacts of activities, products, Disclosed, p.134 GRI 206: ANTI-COMPETITIVE BEHAVIOR and services on biodiversity

Disclosed, 304-3 Habitats protected or restored p.135 SOCAR is a public Company executing the country’s oil and gas management within the During the reporting period, no state’s interests. Given the fact species of animals or plants have 206-1 Legal actions for anti-competitive behavior, Disclosed that SOCAR accounts for 19% 304-4 IUCN Red List species and national been identified in the International anti-trust, and monopoly practices of oil and 21% of gas produced Disclosed in the country, anticompetitive conservation list species with habitats in areas Union for the Conservation cases are not relevant for the affected by operations of Nature in the territories of Company; no such cases were SOCAR. detected during the reporting period.

172 173 GRI 305: EMISSIONS GRI 401: EMPLOYMENT

Disclosed, Confirmed, 305-1 Direct (Scope 1) GHG emissions All payments and benefits p.119 p.180 401-2 Benefits provided to full-time employees provided to full-time employees Disclosed, that are not provided to temporary or part-time Disclosed, Confirmed, are also provided to temporary p.70-71 305-2 Energy indirect (Scope 2) GHG emissions employees p.119 p.180 and part-time employees.

The Company does not report on Disclosed, 305-3 Other indirect (Scope 3) GHG emissions N/A 401-3 Parental leave this indicator. p.76

Disclosed, Confirmed, 305-4 GHG emissions intensity GRI 402: LABOR-MANAGEMENT RELATIONS p.120 p.180

Disclosed, 402-1 Minimum notice periods regarding Disclosed, 305-5 Reduction of GHG emissions p.118, 120 operational changes p.66

305-6 Emissions of ozone-depleting substances GRI 403: OCCUPATIONAL HEALTH AND N/A (ODS) SAFETY

305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), Disclosed, Confirmed, p.180 A joint management-and- and other significant air emissions p.122-123 403-1 Workers representation in formal employee Health and Safety joint management- worker health and safety Disclosed Committee operates at SOCAR. committees GRI 306: EFFLUENTS AND WASTE

Disclosed, 306-1 Water discharge by quality and destination 403-2 Types of injury and rates of injury, p.129 occupational illness, lost days, and absenteeism, Disclosed, p. Confirmed, p.180 Disclosed, Confirmed, and number of work-related fatalities 105-108 306-2 Waste by type and disposal method p.127-128 p.180

403-3 Workers with high incidence or high risk of 306-3 Significant spills Disclosed, Disclosed, p. p.133 diseases related to their occupation 101, 108

Disclosed, Confirmed, 306-4 Transport of hazardous waste p.127-128 p.180 403-4 Health and safety topics covered in formal Disclosed, agreements with trade unions p.98 306-5 Water bodies affected by water discharges No cases were detected in the Disclosed and/or runoff reporting period.

GRI 307: ENVIRONMENTAL COMPLIANCE GRI 404: TRAINING AND EDUCATION

In the reporting period, no 404-1 Average hours of training per year per Disclosed, 307-1 Non-compliance with environmental laws significant payments were made and regulations due to environmental violations Disclosed employee p.72 and requirements. 404-2 Programs for upgrading employee skills Disclosed, p. GRI 308: SUPPLIER ENVIRONMENTAL and transition assistance programs 71-72 ASSESSMENT 404-3 Percentage of employees receiving regular Not disclosed 308-1 New suppliers that were screened using Currently, this information is not performance and career development reviews N/A environmental criteria being reported GRI 405: DIVERSITY AND EQUAL Partially 308-2 Negative environmental impacts in the OPPORTUNITY disclosed, supply chain and actions taken p.25, 114 This information was present in Disclosed, p. Confirmed, 405-1 Diversity of governance bodies and relevant tables starting from page GRI 401: EMPLOYMENT employees 72. 69, 72 p.180

The Company salaries and 405-2 Ratio of basic salary and remuneration of Disclosed Disclosed, remuneration are strictly 401-1 New employee hires and employee turnover women to men p.148-149 performance based.

174 175 GRI 406: NON-DISCRIMINATION GRI 412: HUMAN RIGHTS ASSESSMENT

406-1 Incidents of discrimination and corrective No incidents were detected Disclosed All Investment agreements actions taken during the reporting period. 412-3 Significant investment agreements and signed by the Company during contracts that include human rights clauses or Disclosed the reporting period contain GRI 407: FREEDOM OF ASSOCIATION AND that underwent human rights screening COLLECTIVE BARGAINING provisions on human rights.

During the reporting period no GRI 413: LOCAL COMMUNITIES 407-1 Operations and suppliers in which the operations or suppliers were right to freedom of association and collective identified that could put at risk the Disclosed bargaining may be at risk right to freedom of association and collective bargaining. All operations performed by the company require GRI 408: CHILD LABOR an Environmental Impact Assessment (EIA). For example, at the beginning of the reporting period, SOCAR's Ecology During the reporting period no Department demonstrated incidents of child labor were 408-1 Operations and suppliers at significant risk presentations on “EIA process identified at any of SOCAR’s or for incidents of child labor Disclosed and environmental benefits its suppliers’ and contractors’ of the project”, “Preliminary operations. Environmental Impact Assessment in the Project Area”, “Potential Impacts and 413-1 Operations with local community Assessment”. Through these Disclosed GRI 409: FORCED OR COMPULSORY LABOR engagement, impact assessments, and presentations, experts provided development programs information on technical 409-1 Operations and suppliers at significant risk No incidents were detected specifications of the projects, Disclosed for incidents of forced or compulsory labor during the reporting period. initial conditions of the project areas, flora and fauna, potential impacts during construction and GRI 410: SECURITY PRACTICES operation, and their mitigation measures, alternative options, All newly hired employees are including environmental required to go through training monitoring, environmental, waste before starting their employment. and wastewater management 410-1 Security personnel trained in human rights Human rights are included in Disclosed plans, etc. At the end of the policies or procedures the training. Further, human event, a Q&A was held with the rights hold a substantial part in participants. occupational training for safety workers.

GRI 411: RIGHTS OF INDIGENOUS PEOPLES SOCAR's activities result in major impacts associated with the oil and gas industry. Impacts from 411-1 Incidents of violations involving rights of No incidents were detected 413-2 Operations with significant actual and Disclosed drilling, production, processing indigenous peoples during the reporting period. potential negative impacts on local communities and transportation, including air Disclosed GRI 412: HUMAN RIGHTS ASSESSMENT pollution and waste generation, are monitored by SOCAR and discussed throughout the report.

412-1 Operations that have been subject to human No incidents were detected rights reviews or impact assessments during the reporting period. Disclosed GRI 414: SUPPLIER SOCIAL ASSESSMENT

Before establishing partnership with a supplier, they are checked 412-2 Employee training on human rights policies No operations in this field were Disclosed 414-1 New suppliers that were screened using Disclosed or procedures held during the reporting period. social criteria by the general standards for Counterparties

176 177 GRI 414: SUPPLIER SOCIAL ASSESSMENT

Before establishing partnership with a supplier, they are audited by the general standards for Counterparties. No Disclosed 414-2 Negative social impacts in the supply chain significant negative social and actions taken impacts were found in the Company's supply chain during the reporting period.

GRI 415: PUBLIC POLICY

During the reporting period, 415-1 Political contributions no political contributions have Disclosed been made by SOCAR.

GRI 416: CUSTOMER HEALTH AND SAFETY

Environmental monitoring for product and service development is regularly Partially 416-1 Assessment of the health and safety carried out, alongside other disclosed impacts of product and service categories works, but it is not being reported in percentage. This will be covered during the next reporting period.

416-2 Incidents of non-compliance concerning the No incidents were detected Disclosed health and safety impacts of products and services during the reporting period.

GRI 417: MARKETING AND LABELING

417-1 Requirements for product and service N/A information and labeling

417-2 Incidents of non-compliance concerning No incidents were detected Disclosed product and service information and labeling during the reporting period.

417-3 Incidents of non-compliance concerning No incidents were detected Disclosed marketing communications during the reporting period.

GRI 418: CUSTOMER PRIVACY

418-1 Substantiated complaints concerning No incidents were detected breaches of customer privacy and losses of during the reporting period. Disclosed customer data

GRI 419: SOCIOECONOMIC COMPLIANCE

419-1 Non-compliance with laws and regulations No incidents were detected Disclosed in the social and economic area during the reporting period.

178 179 180 181 182 183 We would like to know your comments and suggestions on SOCAR's Annual Report on Sustainable Development. Contact details:

Nijat Hanifayev

The lead economist of the Risk Management Department of SOCAR Head Office State Oil Company of Azerbaijan Republic, Baku, AZ1029 Heydar Aliyev avenue 121 Tel: (+994 12) 521 00 00 Fax: (+994 12) 521 03 83 E-mail: [email protected]

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