Annual report 2018 Company’s Faces CONTENT
COMPANY STRATEGIC FINANCIAL CORPORATE PROFILE REPORT OVERVIEW GOVERNANCE 4 Transneft Group 22 Situation in the Industry 60 Transneft’s Key Indicators under IFRS 109 Address of the Chairman of the Board 6 Key Results of 2018 25 Strategy 69 Key Financial and Economic Performance of Directors 8 Operational Efficiency 28 Company’s Faces: Pavel Kormilets Indicators of Transneft under RAS 110 Corporate Governance System 10 Business Model 30 Long-Term Development Programme 74 Company’s Faces: Yulia Mironenko 114 Company’s Faces: Aida Sukhanova 12 Company’s Faces: Sergey Kamnev 31 Key Performance Indicators (KPI) System 116 General Meeting of Shareholders 33 Raising the Operational Efficiency 117 Board of Directors 35 Main Investment Projects 127 Executive Governing Bodies 42 Company’s Faces: Oksana Belyakova 134 Company’s Faces: Mikhail Matveyev 136 Risk Management 143 Internal Control and Audit System 147 Authorised Capital and Securities 152 Company’s Faces: Denis Lapitsky OPERATING SUSTAINABLE ADDRESS RESULTS DEVELOPMENT APPENDIXES 16 Address of the Chairman 47 Oil Transportation 78 Sustainable Development Principles 154 1. Major transactions of the Board of Directors of Transneft 48 Petroleum Products Transportation 81 Environment Protection 154 2. Interested-party transactions 18 Address of the President of Transneft 50 Consolidation of the Controlling Stake in NCSP 88 Company’s Faces: Luiza Ismailova 154 3. Information on Transneft’s membership 52 International Cooperation 91 Use of Energy Resources and Energy in business entities and non-profit organisations 53 Innovative Development Conservation 158 4. Dividends received by Transneft in 2018 54 Key 2018 Projects 93 HR Policy 159 5. Transactions with stakes, shares, and equity interests in business partnerships and entities 55 Promotion of Innovations in Foreign Markets 94 Social Policy 159 6. Transneft’s investments with expected annual 56 Company’s Faces: Aleksandr Osinkin 96 Industrial Safety and Occupational Health income in excess of 10% 98 Company’s Faces: Rozalia Isayeva 159 7. Pending legal proceedings 100 Developing Regions of Operation 159 8. Execution of instructions from the President 102 Responsible Procurement and the Government of the Russian Federation 104 Company’s Faces: Sergey Valchenko 169 9. Information on disposal of non-core assets of Transneft and its subsidiaries 170 10. Capital investment financing sources of Transneft 171 11. Corporate Governance Code principles compliance report 198 12. Transneft’s history and plans 200 13. Key events of 2018 201 14. The structure of Transneft Group 202 15. Glossary
The Annual Report of Transneft for 2018 was preliminary approved by the Board of Directors of Transneft on 28 May 2019 (Minutes No. 8 dated 31 May 2019), and approved by the order No. 406-r of the Federal Agency for State Property Management (Rosimushchestvo) dated 30 June 2019 COMPANY PROFILE
4 Transneft Group 6 Key Results of 2018 8 Operational Efficiency 10 Business Model 12 Company’s Faces: Sergey Kamnev Primorsk Ust-Luga Saint Petersburg Kirishi
Usa
Ukhta Zapolyarye Moscow Bryansk Yaroslavl Unecha
Nizhny Novgorod Orel Ryazan Krasnoleninskaya Purpe Nikolskoye Lazarevo Kholmogory Kazan Perm Konda Liski Surgut Kambarka Suhodolnaya Chernushki Kuyumba Almetievsk Samotlor Rodionovskaya Klin Talakan Tobolsk Aldan Novorossiysk Saratov Samara Ufa Chelyabinsk Tyumen Parabel Salavat Yurgamysh Komsomolsk-on-Amur Volgograd Tikhoretsk Igolsko-Talovoye Annual report 2018 Tuapse Orsk Anzhero- Omsk Sudzhensk Skovorodino Petropavlovsk Khabarovsk Sokur Tayshet
Makhachkala Transneft Group Angarsk
Irkutsk is... Kozmino
a natural monopoly the largest oil one of the most transporting oil and petroleum pipeline company efficient pipeline products via trunk pipelines in the world companies
in Russia in the world Read more in the Shareholder and Investor Relations The Russian Federation section on Read more p. 151 Oil pipelines in the Operating Efficiency section on is the main shareholder p. 8 of Transneft. Petroleum products pipelines The Company is included in the list of joint-stock Transneft’s ports Primorsk Ust-Luga companies of strategic importance. Transneft’s Saint Petersburg operational resources Kirishi
Usa
Ukhta Zapolyarye Moscow Bryansk Yaroslavl Unecha
Nizhny Novgorod Orel Ryazan Krasnoleninskaya Purpe Nikolskoye Lazarevo Kholmogory Kazan Perm Konda Liski Surgut Kambarka Suhodolnaya Chernushki Kuyumba Almetievsk Samotlor Rodionovskaya Klin Talakan Tobolsk Aldan Novorossiysk Saratov Samara Ufa Chelyabinsk Tyumen Parabel Salavat Yurgamysh Komsomolsk-on-Amur Volgograd Tikhoretsk Igolsko-Talovoye Tuapse Orsk Anzhero- Omsk Sudzhensk Skovorodino Petropavlovsk Khabarovsk Sokur Tayshet
Makhachkala Angarsk
Irkutsk TRANSPORTATION TRANSPORTATION OVER OVER OVER Kozmino % % 83 30 500 68,000 24 The list of essential Transneft subsidiaries is approved OF OIL PRODUCED OF PETROLEUM PRODUCTS PRODUCED PUMPING STATIONS by the Company’s President, based on the criteria IN RUSSIA IN RUSSIA km mln set by the Board of Directors. The full list of Transneft 3 subsidiaries can be found in Annexes 3 and 14. OF TRUNK PIPELINES M OF STORAGEOil TANKS pipelines p. 201 Petroleum products pipelines
Transneft’s ports
Transneft’s operational resources 4 5 Annual report 2018
Key Results of 2018
FINANCIAL INDICATORS INVESTMENTS IN ACCORDING ENVIRONMENTAL TO INTERNATIONAL PROTECTION, FINANCIAL REPORTING RUB BILLION STANDARDS (IFRS), RUB BILLION 3.4 3.4
2.7 980.0 848.1 884.3 OIL AND PETROLEUM CORE ASSETS, 408.8 408.7 433.4 PRODUCTS THOUSAND KM 232.9 191.8 225.4 TRANSPORTATION, 2016 2017 2018 0 MILLION TONNES 2016 2017 2018
Revenue 483.4 477.5 479.8 A Net profit 52.8 51.5 51.6 In 2018, the Company’s investment in environmental protection increased by 24.9% and amounted to RUB 3.35 In 2018, the Company’s financial indicators rose markedly billion. Most of it was aimed at modernising existing and 16.2 16.9 16.7 33.1 33.1 39.2 as a result of increased revenues from transportation of building new wastewater treatment facilities at Transneft oil and petroleum products, as well as in connection with subsidiaries, as well as reproducing aquatic bioresources. 2016 2017 2018 the acquisition of a controlling stake in NCSP Group in September 2018. The indirect share in NCSP that had 2016 2017 2018 Delivery of oil to consignees Delivery of petroleum products already been owned by the Group was revalued to the Length of oil trunk pipelines, thousand km to consignees fair value at the date of acquisition in connection with the Length of petroleum products trunk acquisition of a controlling stake. pipelines, thousand km
In 2018, the volume of oil transportation did not differ In 2018, the total length of oil trunk pipelines increased from the previous year, having increased by an insignificant slightly. The length of petroleum products trunk 0.5%. At the same time, petroleum products transportation pipelines decreased slightly, by 200 km, as a result of grew significantly, by 18.4%. This was due to the launch decommissioning and dismantling of the disconnected and of the Yug Project for transportation of diesel fuel to unused sections of pipelines at Transneft Urals, Transneft the port of Novorossiysk, an increase in the volume of Western Siberia and Transneft Kama Region, as well as transportation to the port of Primorsk, as well as an after repurposing of the Vtorovo – Yaroslavl petroleum increase in the supply of motor fuels and aviation kerosene products trunk pipeline for pumping oil. to the Moscow area.
6 7 Annual report 2018
Operational
Efficiency 20.67
18.11 6 6 17.50 17.30 5 17.30 IN-KIND LABOR 4 4 4 PRODUCTIVITY, 13.07 12.85 (MILLION TKM / PERSON) 12.52 Transneft 12.31 7.78 Source: KPMG 8.79 6.93 6.48 4.27 4.04 5.45 6.76 is one of the most energy-efficient pipeline 7.63 companies in the world1
Transneft maintains consistently low levels of specific operating In 2017, Transneft’s specific operating expenses on oil 1,50
expenses. In 2017, specific operating expenses related to oil transportation (USD 0.99 per 100 tkm) were 1.5 times lower 0,73 transportation (USD 0.32 per 100 tkm) were lower than the than the median value in the sample (USD 1.53 per 100 tkm).
similar indicator for Enbridge, the biggest foreign company BP among those under review in terms of freight turnover (USD Buckeye Chevron
0.38 per 100 tkm), and 3.9 times lower than the median value Transneft Marathon KazTransOil ExxonMobil in the sample (USD 1.24 per 100 tkm). Enbridge EP TransCanada
2016 2017 Median value in 2017 Transneft’s value in 2017
SPECIFIC OPERATING 10.44 19.52 SPECIFIC OPERATING EXPENSES DURING EXPENSES DURING PETROLEUM PRODUCTS OIL TRANSPORTATION, 8.50 TRANSPORTATION, USD / 100 TKM 6 8.22 6 6 USD / 100 TKM 5 5 4 4 4 4 4 4 Source: KPMG 6.39 Source: KPMG 14.28 5.50 5.32 4.34 3.96 3.57 3.09 3.06 3.04 2.50 2.73 2.77 2.42 2.56 2.50 2.18 2.08 2.10 2.08 2.23 2.13 1.64 1.62 0.82 0.99 1.34 1.44 0.94 0.99 0.94 0.89 0.53 0.39 0.35 1.08 0.90 0.52 0.55 0.48 1.53 1.55 1.55 1.44 1.56 6 1.21 0.61 0.72 0.64 0.62 0.67 0.44 0.44 0.33 0.38 0.32 0.81 0.23 0.27 0.29 0.26 0.88 1.04 1.01 1.24 0.99
0.26 0.32 0.32 BP BP Exel USA Shell Shell West Texas Platte Crude Conoco Genesis Colonial Buckeye Chevron Explorer Chevron Portland Offshore Enbridge Magellan Transneft Magellan Transneft Marathon Marathon NuStar OP Enterprise Mid-Valley Sunoco L.T. Sunoco L.T. Plantatione ExxonMobil ExxonMobil Genesis USA TransCanada Mid-America Enterprise TE ConocoPhillips 2016 2017 Median value in 2017 Transneft’s value in 2017 2016 2017 Median value in 2017 Transneft’s value in 2017
1 According to the updated comparative analysis of the indicators of specific operating expenses of Transneft compared with leading foreign companies in the field of oil and petroleum products transportation for 2016-2017, conducted by the international consulting company KPMG. During the study, the main sources of information were annual reports of companies, reports submitted to the US Securities and Exchange Commission (SEC), industry-specific reports provided to the US Federal Energy
Regulatory Commission10.44 (FERC) and other public sources. The data for 2018 had not yet been published at the time of the research.
8 9 Annual report 2018
Business Model
VALUE CREATION1 VALUE 4 2018 2017 DISTRIBUTION , RUB MLN 2018 2017 Oil turnover, bn tkm 1,217.4 1,211.2 Purchase of goods and services 307,492.8 413,446.0 Revenue from oil transportation services, RUB bn 651.9 631.5 Total taxes paid 193,157.0 181,974.0 2 Volume of oil transported via the oil trunk pipeline system, mln tonnes 479.8 477.5 Dividends paid 54,937.0 58,214.0 Average headcount, thousand employees 115.1 114.3 Interest paid out (debt service) 52,001.0 46,220.0 Revenue from petroleum products transportation services, RUB bn 72.2 66.0 Charity spending 9,905.5 4,943.5 Petroleum products turnover, bn tkm 52.7 49.1 Financing R&D and innovation projects 9,305.7 9,056.2 Volume of petroleum products transported via the petroleum products trunk pipeline system, mln tonnes 39.2 33.1 Investment in environmental protection 3,354.0 2,686.1 Current spending on environmental protection 1,949.6 1,607.8
CHANGES IN RESOURCES3
FINANCIAL OPERATIONAL INTELLECTUAL SOCIAL AND REPUTATIONAL CAPITAL RESOURCES CAPITAL CAPITAL
Equity capital, Length of trunk pipelines, Intangible assets, Number of charity programmes, Electricity consumption, RUB bn thousand km RUB mln pcs thousand kWh +213.9 -0.1 +151.3 > 1,000 +244,671 Loan capital, Number of pumping Specific accident rate at trunk pipelines, RUB bn stations, pcs number of emergencies per 1,000 km of Fuel consumption for own needs, trunk pipelines per year tonnes of oil equivalent -15.9 +3 0.059 -40,446 Volume of tanks, Water intake and receipt, m3 mln thousand m3 +0.1 +487.4
1 In Transneft Group, excluding NCSP and its subsidiaries 2 Save for the fuel for third-party recipients in the amount of 0.2 mln tonnes 3 For Transneft Group exclusive of NCSP and its subsidiaries, except for “Equity Capital”, “Loan Capital” and “Intangible Assets”. 4 In Transneft Group, excluding NCSP and its subsidiaries
10 11 Annual report 2018 Lifetime Vocation
Protection engineers are the elite of power engineering. If hardware is set up wrong, there will be false disconnections that could threaten the entire station Honoured Power Engineer, with a standstill. Protection engineers must have a perfect command of electric Head of the Electric Equipment Repair and Adjustment Department, Honoured equipment and programming, given that Employee of Transneft Urals (Nurlino LODS, Cherkassy OPD) most of the equipment has already been switched to microprocessor technologies.
I’ve been in this trade for 38 years already, but there are only three places of work in my record book. I got my tertiary education only at the age of 50, having gained almost all of my expertise at the first place of work, where I learned more during a week than during the entire course at the training centre where I passed the third category test. By the time I was ready to upgrade my category to the sixth, I could already deliver lectures on relay protection in place of a professor.
Sergey Kamnev
In my free time I go in for sports, skiing being my favourite pastime. I am also a passionate photographer. My first camera, Tchaika 3m, was given to me as a gift in my childhood; I’ve been exploring flora and fauna through the camera lens since then.
“I am also a
passionate photographer“
12 13 ADDRESS
16 Address of the Chairman of the Board of Directors of Transneft 18 Address of the President of Transneft Annual report 2018
ТРАНСНЕФТЬ | ЭВОЛЮЦИЯ
Address of the Chairman of the Board of Directors 15 of Transneft
Dear shareholders, тиями трубопроводного транспор- родного сотрудничества, внесла Within its 25-year experience of providing effective oil andта в рамкахIn 2018, сотрудничества the IFRS financial по performanceсерьезный of Transneft вклад consider в научно-техни- - petroleum products transportation both on the domestic линии Международнойably improved year-on-year. ассоциации The Group’s ческое EBITDA развитие grew by 6.1%; трубопроводного market and on export routes, Transneft plays a strategic role in profits went up by 17.5%, reaching the RUB 225.4 billion mark. Russia’s fuel and energy sector and its ongoing development.транспортировщиков нефти. транспорта. Among the top priorities for the Company’s management set In 2018, Transneft’s performance was characterised by posiПродолжаются- by the Board совершенствование of Directors is the unconditional Задачей preservation на ближайшие годы явля- tive dynamics. Oil transportation volume grew by 0.5% to 479.8механизмов of transported корпоративного oil’s quality управ within -the industryется освоение standards andимеющихся мощ- million tonnes, including by 2.3% to Russian refineries – ленияup to системыthe regulations «Транснефть», specified in ра the- contractualностей, relationship повышение with технической 249.4 million tonnes. consumers, including due to stiffer control of the crude fed to бота по повышению прозрачности вооруженности и производствен- the system and constant monitoring of quality at key points of In 2018, Transneft completed the delivery of several largeи информационно-аналитическомуthe oil pipeline system. ных показателей трубопроводной projects with an eye to increasing transported volumes – inосвещению деятельности Компа- инфраструктуры. particular, to the TANECO Refinery in the Republic of Tatarstan,нии. Транснефть The Board занялаof Directors итоговое supports the management’s effort to in the direction of the port of Primorsk (the Sever project) 3-еand местоfurther в рейтинге increase компанийthe Company’s operationalУверен, efficiency что эффективное and руко- to the Moscow area. The newly commissioned facilities helpedс государственным implement the участием energy saving по and importводство substitution и профессиональный pro- increase crude oil and petroleum products supplies by 39.2 grammes. million tonnes, up 18.4% year-on-year. внедрению приоритетных реко- коллектив Компании обеспечат мендацийTransneft Кодекса continues корпоративного to improve its corporateее активное governance. участие As в реализации The Company continued its effort to increase the capacityуправления. of of today the Company complies with mostдолгосрочных standards of the стратегических инте- the ESPO pipeline to 80 MTPA in the Tayshet – Skovorodino Corporate Governance Code while analysingресов further Российской opportu- Федерации. section and to 50 MTPA in the Skovorodino – Kozmino section.Повышение nities инвестиционнойwith regard to the industry’s special features and the The projects are to be completed in 2019. A lot has been привлекательностиdone shareholding structure. позволило for implementing the technical upgrading and revamping pro- grammes for operating facilities. расширитьAs it круг addresses международных the key strategic objectives, Transneft must re- инвесторовmain –an владельцев effective asset привиле both for -the state and for other share- A milestone event of the reporting year was consolidation гированныхof holders. акций. The Company will keep expanding the dialogue with the majority interest in NCSP that comprises two largest ports all shareholders and investors, while the Board of Directors is of Russia: Novorossiysk and Primorsk. The Company is nowВ целомready в 2017 to годуdiscuss Транснефть constructive initiatives at its level. able to control supplies along these important routes all the успешно выполнила поставленные way until they are loaded on board, addressing the issues of raising the effectiveness of export operations. перед ней задачи. Компания доби- лась хороших результатов в осво- ении перспективных зарубежных ALEXANDER NOVAK рынков отраслевых услугChairman и тех- of the Board of Directors of Transneft, нологий, эффективно участвовалаMinister of EnergyАлександр of the Russian Валентинович Federation Новак в реализации значимых проектов Председатель Совета директоров и инициатив в сфере междуна- ПАО «Транснефть»
16 17 Annual report 2018
We continue working in the following areas.
Upgrading the pipeline system. Efficient development of the Company, upgrade of the infrastructure and implementation of major projects Active implementation of programmes for technical are impossible without high-quality work, without the upgrading and revamping of operating facilities is combined efforts of more than 115,000 employees continued. Based on inspection results, 1,023 km of of Transneft. Their high professional competence, pipeline were replaced. 62 tanks were built or revamped; responsible attitude to their duties, efficient work and well- scheduled large-scale work to replace mechanic and coordinated efforts allowed for expansion of the pipeline process equipment was performed to the full extent, as network in completely new regions for the Russian oil and well as works on power equipment, oil metering and quality gas industry within a very short time frame, despite harsh control systems and automation systems. climate, poor or lacking infrastructure and hindered access to the facilities under construction. Improving energy efficiency. The task of the Company is to organise the work of One of the key areas Transneft’s management is involved its whole team in a clear and effective way to ensure in is energy efficiency improvement at the Company. timely and thorough achievement of the goals, to lay the A detailed energy saving and economic efficiency groundwork for efficient operation and to ensure safe enhancement programme covering the period up to 2023 working conditions. was developed as part of the Company’s Development Strategy. Transneft has already achieved the lowest per- This year, we would like to tell you more about it within the unit energy consumption in the world. The Company is Annual Report, to introduce the Company’s specialists striving to reduce specific consumption of fuel and energy from various business units to you, and to show you the resources by more than 4% versus 2017 by 2023 as a contribution into the performance of the Company made Address of the President result of implementing the programme. by individuals of Transneft Ensuring environmental and industrial safety. Transneft is among the global environmental safety leaders in the field of oil and petroleum products transportation. Dear shareholders, We realize the degree of responsibility vested in us to the full extent, and we pay close attention to these issues According to the 2018 results, Transneft shows an Thus, the Company paid off its foreign currency debt in full and upward trend in its key operational and financial results. reduced its currency risks significantly. A Russian Electric Motors’ plant was commissioned in In 2018, oil transportation turnover achieved 1,217 billion Chelyabinsk, being the second essentially important tkm, up 0.5% year-on-year. Turnover of petroleum products manufacturing facility established in cooperation with Italian OUR PRIORITIES transportation increased significantly, adding 12.7% to the partners in view of the programme for import substitution and level of 2017 and reaching 52.7 billion tkm. setting up key industrial enterprises in the Russian Federation. Broadly speaking, a momentous period of establishing the Transneft will continue developing its dialogue with shareholders The Group’s revenue amounted to RUB 980 billion, having The construction of a drag reducing agents manufacturing oil transport infrastructure in Russia has been accomplished and investors, treating this issue most seriously. In March grown by RUB 95.6 billion, which is equivalent to 10.8%. complex in Alabuga (the Republic of Tatarstan) is close to to date. Our work and our efforts have taken a new 2019, the Investor Relations Division was established at EBITDA grew by 6.1%. The 2018 net profit increased by RUB completion. direction. Development and upgrade of the existing facilities, Transneft, with such key tasks as development of the dialogue 33.6 billion, which is equivalent to 17.5%, and amounted to Relying upon our own manufacturing capacities, as well improvement of the system’s resilience to technological risks, with the investment community, as well as orchestration and RUB 225.4 billion. as upon cooperation with Russian enterprises on the most as well as optimisation and further enhancement of our performance of the work to enhance Transneft’s investment The volume of the Company’s capital investments amounted important types of equipment and systems for pipeline operational efficiency have come to the fore now. appeal and increase its market capitalisation. to RUB 269 billion. At the same time, free cash flow achieved transportation, entails a significant reduction in procurement RUB 79.2 billion. costs and offers guaranteed availability of critical equipment Along with addressing the key operational tasks, our efforts Transneft’s key priorities consist of ensuring a reliable, safe In 2018, significant progress was made in ensuring the and materials. to optimise costs, improve efficiency and enhance corporate and uninterrupted operation of the pipeline system, as well as Company’s financial security due to early repayment of the The import substitution programme, consistently implemented governance ensure effective development of the Company and in achieving high efficiency. loan provided by the China Development Bank and scheduled by Transneft, implies bringing the volume of purchases from provide the basis for ensuring income for shareholders in the repayment of the loan in Eurobonds worth USD 1.05 billion. Russian suppliers to 97% by 2020. coming years. NIKOLAY TOKAREV President of Transneft
18 19 STRATEGIC REPORT
22 Situation in the Industry 25 Strategy 28 Company’s Faces: Pavel Kormilets 30 Long-Term Development Programme 31 Key Performance Indicators (KPI) System 33 Raising the Operational Efficiency 35 Main Investment Projects 42 Company’s Faces: Oksana Belyakova Annual report 2018
Situation in the Industry Employees of Buguruslan RPD, Transneft Volga Region
Transneft’s strategic objective is to develop and upgrade The Company’s share the national trunk pipeline system in order to satisfy oil in the transportation of Russian oil1 MAIN СOMPETITORS OF TRANSNEFT IN PETROLEUM PRODUCTS TRANSPORTATION and petroleum products pipeline transportation demand on both domestic and foreign markets. The development 84.9 84.0 83.1 Railway Transport Motor Vehicle Transport l pro u t on is based on using state-of-the-art technologies ensuring n lu n Transneft mainly competes with railway transport, as regards Motor transport appears to be a competitor to pipelines the high level of reliability, industrial and environmental a on en ate the transportation of petroleum products for export and to when it comes to short distances and mainly intraregional 547.3 546.7 555.8 safety, as well as the optimal level of expenditures both ll on tonne regional markets in Russia. Around 53 % of light petroleum transportation. Door-to-door petroleum products deliveries from for the Company and for its consumers. ran ne t are products is currently transported by rail. Such advantages refineries and oil depots to local consumers is its advantage. n t e as a greater number of spurs as compared to the system tran portat on of petroleum products trunk pipelines (PPTP), as well Pipeline transport has a number of competitive advantages as the widest possible range of transported petroleum products, compared to the above types of transport, such as: given the processing specifics at refineries, play an important ■■ Short petroleum products delivery terms OIL TRANSPORTATION role. The given advantages are the reasons why railway transport ■■ The ability to store petroleum products and create reserves is responsible for transportation of a significant share of light ■■ High level of protection from adverse weather conditions In 2018, oil production in the Russian Federation amounted 2016 2017 2018 petroleum products (especially motor petrol) on the Russian to 555.8 million tonnes. 257.5 million tonnes were exported, market. and 291.4 million tonnes were processed. Water Transport The share of Transneft’s system in the transportation The Company’s share in the total transportation Water transport also competes with Transneft, as regards of Russian oil stood at 83.1% of the total production. of petroleum products manufactured in Russia long-distance transportation of petroleum products. However, (mln tonnes) this type of transport can only compete with petroleum products pipelines during a relatively short navigation season 131.0 PETROLEUM PRODUCTS TRANSPORTATION 126.0 127.0 lasting 5 to 6 months.
In 2018, a total of 131 million tonnes of light petroleum SECTORAL FORECAST UNTIL 20242 102.0 products (diesel fuel, motor petrol, aviation kerosene) 89.0 88.0 was produced by all oil refineries in the Russian Federation, 29.9 Macroeconomic Indicators of the Russian As for the oil market, supply trends will be playing the key role including 102 million tonnes produced by the refineries 26.1 13 Federation in pricing in the coming years. US production of shale oil keeps 26.0 11 connected to the PPTP system. Of these, 39.1 million tonnes Taking into account the moderately tight monetary policy growing, and it should be noted that infrastructural restrictions went to the PPTP system. 39.1 of the Bank of Russia aimed at stabilising the inflation on its transportation will be removed in 2019. The supply 32.7 32.8 and restraining the growth of inflation expectations, a 4.3% on the world oil market will also go up due to the growth The Company’s share of the petroleum products inflation is forecasted at the end of 2019, and a 3.8% inflation in production in Saudi Arabia, Russia, and other OPEC+ transportation market grew by 4% in 2018, achieving 30%, 0 at the end of 2020. Thereafter, the inflation will remain around countries as a result of amendments made to the agreement 2016 2017 2018 which was attributable to the implementation of the Yug the target level of 4%. in June 2018. t petroleu pro u t anu a ture n u a total and Sever investment projects. At the same time, Transneft’s n lu n at re ner e onne te to t e te share in the transportation of light petroleum products At the end of 2019, a 1.3% GDP growth is expected. Taking into In this context, a gradual decline in prices for Urals oil from t e e petroleu pro u t ar e to t e te to the domestic market consumers stood at less than 13%. account the implementation of national projects and the plan USD 69.6 per barrel in 2018 to USD 63.4 in 2019 and USD are o n t e tran portat on o petroleu pro u t anu a ture at u an re ner e to increase the investment activity, gradual acceleration 53.5 by 2024 is expected. At the same time, an increase of the economic growth rate to 2.0% is expected in 2020, in oil prices is possible in the short term under the influence and to more than 3.0% per annum starting from 2021. of reduced supplies from some major oil-producing countries such as Iran and Venezuela. World Raw Materials Market By 2024, the global GDP growth rate is expected to decline Oil Production in the Russian Federation to 3.2%. This will affect the demand trends for raw materials, The forecast for the development of the oil industry relies in particular, the slowdown in the growth of Chinese economy on the assumption of a steady oil production level until will have a negative impact on the basic metals and coal 2024. It is expected to grow by 0.2% to achieve 557 million markets, where China is the largest consumer, in the medium tonnes by 2024. Western Siberia and the Urals-Volga region term. will remain the key production regions where a stable
1 the production volumes are specified in accordance with the data provided by the Ministry of Energy 2 Forecast of Social and Economic Development of the Russian Federation up to 2024, published by the Ministry of Economic Development of the Russian Federation
22 23 Annual report 2018
Strategy
output will be achieved through new drilling and geological Measures implemented by oil companies to introduce a wide The Transneft Strategy (hereinafter referred to as the Strategy) ■■ Application of equipment manufactured in Russia and technical measures at the existing fields. In Eastern range of technologies designed to achieve a higher oil recovery was approved by the Board of Directors of Transneft ■■ Application of state-of-the-art sectoral technologies that Siberia, the development of the Verkhnechonskoye efficiency (ORE) will allow for minimising the risk of decrease on 19 November 2014 (Minutes No. 23). The goal ensure a high level of reliability as well as industrial and Talakanskoye fields already brought into production in oil production. With a 1% increase of ORE, oil production of the Strategy is to develop and upgrade the trunk pipeline and environmental safety will continue. The increase in oil production in this region in Russia will grow by 20 million tonnes per year. transportation system of the Russian Federation to fully satisfy ■■ Ensuring that revenues from oil and petroleum products will allow to level out the effect of production stabilisation the demand for oil and petroleum products transportation both transportation are sufficient to implement the programme and decline in Western Siberia. Still, the achievement of these Production of Petroleum Products in the Russian on the domestic market and on export routes, based on: for development, technical upgrading and revamping oil production levels will depend on the macroeconomic Federation of trunk pipeline facilities conditions, the removal of external technological and financial The depth of crude oil refining in the Russian Federation grew sanctions currently applied to Russian oil and gas companies, to 82.7% in 2018, however, it is still lagging behind the world the efficiency of import substitution and the development level (89-99%). In 2018, motor petrol production stood at of domestic production in related industries. 39.42 million tonnes, diesel fuel production amounted to 78.23 million tonnes, and fuel oil production to 47.98 million Due to the gradual upgrade of refineries and an increase tonnes. INNOVATIONS STRATEGY EFFICIENCY in the depth of refining, supply of oil to the domestic market Using state-of-the-art sectoral technologies Long-Term Development Programme Reducing expenses on pipeline as well as equipment manufactured construction and operation. will grow, while the exports will decrease by 1.4% to 253.9 The following is expected by the end of 2024: in the territory of Russia. Effective use of energy resources. million tonnes by 2024. At the same time, oil export to non-CIS ■■ Stabilisation of motor petrol production at the level of 49.3 Raising the productivity of labour. markets is projected to grow and reach 235.5 million tonnes, million tonnes mainly due to growth of deliveries to Asia and the Pacific. ■■ Growth in diesel fuel production to 90.6 million tonnes Export to the CIS markets will stand at the current level ■■ Stabilisation of aviation kerosene production at the level throughout the entire forecast period. of 17 million tonnes DEVELOPMENT AND UPGRADING ■■ Decrease in the production of fuel oil to 33 million tonnes of the trunk pipeline transport system Starting production at new oilfields on Russian continental shelf is not anticipated during the period considered herein. Changes in the production rates on the shelf will result from 2017 2018 2019
growth in the production and achieving the planned production THE YUG PROJECT Extension of the ESPO PS level at the existing fields. (Stage 1) at the Tayshet IPS – Skovorodino THE SEVER PROJECT PS Section to 80 MTPA (Stage2)
TARIFF FORMATION AT COMPANIES OF INFRASTRUCTURE SECTOR1 THE YUG PROJECT Extension of the ESPO PS (Stage 2, at the Skovorodino PS – Kozmino main facilities) SSOP Section to 50 MTPA It is planned to maintain the tariff policy restricting the growth made to the basis of state regulation of prices and tariffs Increasing petroleum products of regulated tariffs and prices at infrastructure companies, to ensure maintenance and strengthening of the principle transportation to the Moscow region not allowing them to go beyond the anticipated inflation level, of balance of economic interests of infrastructure companies Increasing The ESPO PS – Komsomolsk during the forecast period. In order to provide a legislative and consumers, along with the principle of economic feasibility the Skovorodino – Mohe oil pipeline Refinery pipeline offshoot framework for the approaches and methods of regulation of tariffs, as the fundamental principles of state regulation throughput capacity to 30 MTPA that are being implemented, systemic changes will be of tariffs.
TO FULLY MEET THE DEMANDS IN PIPELINE TRANSPORTATION OUTLOOK crude oil and petroleum products transportation in Russia
Analysis of the key trends contained in the industry forecast ■■ Volumes of oil transported through the oil trunk pipelines allows for the following to be concluded on Transneft’s system will keep at a level equal to or exceeding RELIABILITY ENVIRONMENTAL mid-term position in the field of oil and petroleum products the volumes in 2018 Reducing accident rate at trunk pipelines. PROTECTION transportation: ■■ The share on the light petroleum products transportation Maintaining sulfur content in crude oil. Reducing specific emissions. Developing corporate benefits. Ensuring environmental safety. market will increase Excluding the discharge ■■ Transneft’s revenue from the transportation of oil of insufficiently treated wastewater. and petroleum products through the trunk pipeline system will stand at a level equal to or exceeding the 2018 values
1 Forecast of Social and Economic Development of the Russian Federation up to 2024, published by the Ministry of Economic Development of the Russian Federation
24 25 Annual report 2018
MAIN LINES OF DEVELOPMENT 1 TARGET INDICATORS TILL 2020 AS STIPULATED IN TRANSNEFT STRATEGY
■■ Development, technical upgrading and revamping of the oil ■■ HR management Increasing the throughput capacity of the ESPO-I PS 1. Developing the oil and petroleum products trunk pipeline and petroleum products trunk pipeline system ■■ Anti-terror security of facilities system: ■■ Environmental protection ■■ Reduction of operating expenses ■■ increasing the throughput capacity of the ESPO-I PS ■■ Industrial safety ■■ Reduction of capital costs to 80 MTPA and that of the ESPO-II PS to 50 MTPA; ■■ Innovative development ■■ The Company’s financial and economic performance ■■ connecting the Komsomolsk Refinery to the ESPO-II PS ■■ Import substitution indicators for ensuring the supply of up to 8 MTPA; ■■ Energy saving to ■■ ensuring transportation of petroleum products from 80 newly connected refineries; MTPA ■■ keeping the sulfur content in the crude oil pumped via 2018: MAIN LINES OF DEVELOPMENT the Transneft system within the limits set in the rational routing scheme. 1. Developing the oil and petroleum products trunk pipeline For more detail about the development and upgrading projects see Main Investment Projects on system p. 35 2. Import substitution: ■■ decreasing the use of imported products to 3 %. The following investment projects have been completed Increasing the throughput capacity of the ESPO-II PS 3. Fire safety: The Sever Project (Stage 2). Developing the PPTP system to increase petroleum To 25 million tonnes of diesel fuel a year (the project is completed) ■■ accident rate reduction at trunk pipelines to 0.12 products supplies to the port of Primorsk of emergency situations per 1,000 km of operated Revamping the PPTP system to increase the volume of petroleum products Increasing the volume of light petroleum products transported and expanding pipelines (the updated plans call for accident rate transported to the Moscow area the range of motor petrols (the project is completed) reduction to 0.072 till 2020).
The ongoing investment projects include to 4. Environmental protection and conservation: 50 ■■ no discharge of insufficiently treated wastewater. The ESPO PS – Komsomolsk Refinery oil pipeline offshoot Up to 8 MTPA (the main facilities have been completed) – to be connected in 2019 MTPA 5. Reduction of operating costs and capital expenditure: Expansion of the ESPO PS at the section from the Skovorodino PS to the SSOP Up to 50 MTPA – 2019 Kozmino ■■ reducing expenses on pipeline construction and operation; maintaining the optimal level Expansion of the ESPO PS at the section from the Tayshet IPS to the Skovorodino PS To 80 MTPA – 2019 of expenditure for consumers.
2. Environmental protection 7. Raising the operational efficiency The specific air pollutant emissions during oil and petroleum The Integrated Indicator of Operational Activity Efficiency products transportation via trunk pipelines were reduced stood at 100%: it shows the reduction of operating by 1.05 %. costs and specific electricity consumption for oil transportation over trunk pipelines as well as an increase Revenue in 2018 is Decreasing the use of imported products 3. Industrial safety in the productivity of labour. Low specific accident rate at trunk pipelines has been achieved: not more than 0.059 accidents per 1,000 km 8. Reduction of capital costs of the line. Capital expenditure was cut by RUB 4.2 billion. to % 4. Innovative development 9. Financial and economic performance indicators 980 3 The volume of financing allocated to innovation projects, The revenue increased from RUB 884 billion in 2017 by 2020 including R&D, from own funds as the percentage to RUB 980 billion. RUB bn of Transneft’s revenue from oil transportation services (by RAS) came to 1.41 %. Excluding crude oil sale and purchase transactions, based on contracts with Rosneft and China National United 5. Import substitution Petroleum Corporation, EBITDA grew from RUB 409 billion The Integrated Indicator As part of the Corporate Import Substitution Plan, in 2017 to RUB 433 billion. of Operational Activity Efficiency the Company has mastered domestic manufacture of 24 types of equipment as of the end of 2018. Specific operating costs for oil transportation in comparable prices went down to RUB 18.92 per 100 tkm from stood at Also launched in 2018 was the Russian Electric Motors RUB 19.32 per 100 tkm in 2017. factory (REM, JSC, Chelyabinsk) manufacturing high voltage electric motors. Specific operating costs for petroleum products 100 % transportation in comparable prices went down 6. Anti-terror security of facilities to RUB 751.26 per tonne from RUB 824.23 per tonne No terrorist attacks were reported at trunk pipeline facilities in 2017. in 2018. Commissioned last year were 51 facilities with technical security equipment installed.
1 in accordance with the Strategy and the Long-Term Development Programme of Transneft
26 27 Annual report 2018 Life
I developed a passion in Motion for hillwalking while I was attending Tomsk Polytechnic Institute, where I joined a hillwalking club. Unlike rock climbing, hillwalking means both ascending peaks and hiking, sometimes several hundred kilometres. I once completed a 500 kilometre trek across the Pamir Mountains with my companions. This was followed Mountains are mesmerising. by a very challenging route They make people show their in the Fann Mountains true colours. You have to trust that brought us the title your ropemate 100%. My of the USSR champions experience in trek leading in 1980. came in handy in EMERCOM, where I had worked before joining Transneft. In 1994, I helmed the rescue team that arrived at Iturup Island of the Kuril Islands soon after a powerful earthquake. I was awarded a Medal For Life Saving.
Pavel Kormilets
Deputy Head for Operation,
Krasnoyarsk RPD1
First category, APCS section, Krasnoyarsk RPD, I’ve been working at Transneft Transneft Western Siberia (Krasnoyarsk Territory) for“ “ 23 years I’ve been working at Transneft for 23 years. I often have to make uneasy decisions here, with human safety and health at stake. I like the stiff personnel requirements and, as a consequence, good professional training in this Company. I highly appreciate quality training of our employees, who possess all the requisite knowledge and understand that safety comes first in our business.
1 Regional Oil Pipeline Directorate 1 Районное нефтепроводное управление.
28 29 Annual report 2018
Long-Term Key Performance Development Programme Indicators (KPI) System
The Long-Term Development Programme of Transneft of Transneft, defined in the Strategy, within the set deadlines, The Key Performance Indicators System (hereinafter (hereinafter also referred to as “LDP”) was authorised with indication of the level and sources of their financing. referred to as the KPI System) is used to sum up the results by the resolution of the Board of Directors of Transneft The LDP indicates the current and expected performance of the Company’s business activities3. The planned KPI values in 20141. It specifies the lists of means and specific measures of Transneft till 2023. for 20184 and 20195 have been approved by the Board to ensure the achievement of strategic development goals of Directors
Measures as per LDP Planned KPIs and their Achievement Results
Development and upgrading ▪▪ Increasing the capacity of oil and petroleum products trunk pipelines to provide for transportation of the volume No. KPI System Unit of measurement Plan for 2018 Execution status Plan for 2019 of crude planned to be extracted by oil companies both from fields currently being used and from prospective in 2018 fields. The increased capacity will also ensure transportation of planned volumes of petroleum products from currently operating and new refineries Ensuring reliability, environmental and industrial safety of the trunk pipeline system Innovations ▪▪ Developing innovative operational activities Integrated indicator of trunk pipeline system reliability, 1 % 100 Achieved 100 Efficiency ▪▪ Raising energy efficiency by taking energy saving measures environmental and industrial safety ▪▪ Implementing a programme for cutting pipeline construction and operation costs emergency situations per 1,000 km 1.1 Specific trunk pipelines accident rate 0.086 Achieved 0.072 ▪▪ Ensuring labour productivity at the level of best overseas pipeline companies of trunk pipelines Reliability ▪▪ Ensuring reliability of the operated oil and petroleum products trunk pipelines system by revamping it based Reduction of specific air pollutant emissions during on the results of fixed assets diagnostics and modernisation 1.2 oil and petroleum products transportation via trunk % 1 Achieved 1 ▪▪ Developing benefits for the Company’s employees pipelines Environmental and Industrial Safety ▪▪ Raising the level of environmental and industrial safety at the Company’s operational facilities Raising the operational efficiency in the operation of the trunk pipelines system External and Internal Communications ▪▪ Shaping the corporate identity and promoting the Company’s unified brand ▪▪ Providing advertising support of the Company’s activities in the external environment 2 Integrated operational activity efficiency indicator % 100 Achieved 100 ▪▪ Shaping and developing an intra-corporate communications system 2.1 Reduction of operating expenses; % 2 Achieved 2 Reduction of specific electricity consumption during oil 2.2 transportation over trunk pipelines under comparable % 0.5 Achieved 0.5 AUDIT OF THE TRANSNEFT LONG-TERM DEVELOPMENT PROGRAMME IMPLEMENTATION conditions Raising labour productivity in oil and petroleum 2.3 % 2 Achieved 2 KPMG has performed an audit of Transneft’s LDP respects in compliance with the requirements of the applicable products transportation implementation in 2018, providing its Opinion. Based laws, standards, regulatory methodological instructions Development and upgrading of the trunk pipeline system to fully satisfy the needs of the Russian Federation on the results of auditing procedures, the Auditor believes and recommendations, as well as Transneft’s internal Integrated indicator of investment activities efficiency that the Report on the Long-Term Development Programme regulations, and does not contain any significant deviations. under the Programme of Trunk Pipeline Facilities Achieved with regard for 3 % 100 100 implementation in 2018 has been prepared in all material Development, Technical Upgrading and Revamping normalisation (hereinafter – the Development Program) Execution of the Development Programme Financing 3.1 RUB million 243,336 Achieved 276,626 Plan CHANGES IN THE STRATEGY AND THE LONG-TERM DEVELOPMENT PROGRAMME Execution of the Capital Investments Use Plan 3.2 RUB million 206,231 Achieved 232,356 envisaged in the Development Programme The LDP2 was duly updated in 2018. The following changes ■■ To adjust the Development, Technical Upgrading Execution of the Action Plan for Reduction of Capital 3.3 RUB million 3,826 Achieved 3,804 were made. and Revamping Programme for Transneft Trunk Pipeline Costs within the Development Programme ■■ To prolong the LDP up to 2022 as per the Methodological Facilities, which is in the LDP. Achieved with regard 3.4 Keeping investment project deadlines units 5 4 Recommendations on the Creation of Long-Term ■■ To adjust the indicators of energy consumption, productivity for normalisation Development Projects by Joint-Stock Companies and Federal of labour, anti-terror security and financial and economic Integrated indicator of the volume of work done within 3.5 % 100 Achieved 100 State Unitary Enterprises, as well as by Public Joint-Stock performance. the TUR Programme Companies, Whenever the Aggregate Share of the Russian ■■ To adjust the Transneft Corporate Import Substitution Plan 3.5.1 Execution of the Pipe Replacement Plan (the line part) km 1,018 Achieved 1,001 Federation in the Authorised Capital of Such Companies included in the LDP. Exceeds 50%.
1 Minutes No. 3 as of 19 November 2014. 3 Approved by the Transneft Board of Directors on 30 November 2016 (Minutes No. 23) 2 the corrected LDP was approved by the Transneft Consumer Council and coordinated with the Ministry of Energy and the Ministry for the Development of the Russian 4 Resolution of the Transneft Board of Directors dated 25 December 2017 (Minutes No. 19) Far East and Arctic. It was also approved by the Transneft Board of Directors on 27 December 2018 (Minutes No. 22). 5 Resoltuion of the Transneft Board of Directors dated 27 December 2018 (Minutes No. 22)
30 31 Annual report 2018
No. KPI System Unit of measurement Plan for 2018 Execution status Plan for 2019 in 2018 Execution of the Storage Tank Construction 3.5.2 units 57 Achieved 80 and Revamping Plan Raising 4 Integrated indicator of innovation activities’ efficiency % 100 Achieved 100 Financing of innovative projects, including R&D, from 4.1 own funds, as the percentage of Transneft’s revenue % 1.41 Achieved 1.41 the Operational Efficiency from oil transportation services (by RAS) Number of titles of protection for intellectual property 4.2 obtained during the reporting period and two previous documents 92 Achieved 93 years Integrated effect of in-house commercialisation of innovative projects, including R&D, for the reporting 4.3 period and two previous years in terms of percentage % 1.47 Achieved 1.48 Transneft constantly strives to improve its operational As per the Porgramme, the Company’s operational efficiency of Transneft’s revenue from oil transportation services efficiency. The Company has adopted the Programme for is to be raised along two lines: by RAS Operational Efficiency Improvement and Cost Cutting whose ■■ increasing the quality and quantity of oil and petroleum Quality indicator for the updated Investment Development target indicators are included in the KPI system of Transneft’s products transportation services; 4.4 Programme / IDP (in the year of its update)/IDP execution % 90 Achieved 90 quality indicator (in subsequent years) economic activity. ■■ increasing the efficiency of using the resources available.
Ensuring the Company’s Financial Stability The Operational Efficiency Improvement Programme’s Areas 5 Total debt to EBITDA ratio – ≤2,5 Achieved ≤2,5 No. Area Ways of implementation KPI Ensuring the shareholder control and effective management of business operations 1 Ensuring the reliability Introducing innovative technologies and equipment; The integrated indicator of trunk pipeline system Integrated indicator of achieving additional and fullness of oil Upgrading fixed assets; reliability, environmental and industrial safety KPIs set by executive orders and instructions and petroleum products Ensuring import substitution and setting up Comprises the following indicators: 6 % 100 Achieved 100 of the shareholder, the President and the Government supplies to the home market local manufacture to replace imported products ▪▪ specific trunk pipeline accident rate; of the Russian Federation and for export routes in the Russian Federation; ▪▪ reduction of specific air pollutant emissions during Ensuring anti-terror security of Transneft’s facilities. oil and petroleum products transportation via trunk 6.1 Return on invested capital (ROIC) % ≥7 Achieved ≥7 pipelines. 6.2 Dividends RUB billion 41.44 Achieved 25.91 2 Increasing the efficiency Increasing efficiency: Integrated Operational Activity Efficiency Indicator 6.3 Annual volume of direct purchases from SMEs % 18 Achieved 18 of using the resources ▪▪ managing fixed assets; Comprises the following indicators: available ▪▪ managing the maintenance and repair of equipment, ▪▪ operating expenses reduction percentage; buildings and facilities; ▪▪ reduction of specific electricity consumption during oil ▪▪ managing the energy consumption rate; transportation over trunk pipelines under comparable ▪▪ optimising the remuneration and personnel conditions; motivation system; ▪▪ Raising labour productivity in oil and petroleum ▪▪ managing the working capital. products transportation.
Improvement of the organisational and functional structure. Cutting operating expenses. Using modern technologies and innovations.
In 2018, all KPIs were achieved. The Company’s Board of Directors1 approved the new Programme for Operational Efficiency Improvement and Cost Cutting till 2023.
1 Minutes No. 22 dated 27 December 2018
32 33 Annual report 2018
Key Indicators of the Operational Efficiency Improvement Programme by 2023 Indicator Target for 2023 Main Keeping within the acceptable range of accidents per 1,000 km of the line 0.065 Suppression (prevention) of security incidents at protected facilities 0.99 In-kind productivity of labour 17.1 million tkm / person Investment Standard inventory and stock (the plan for repair and operational needs) Not more than 4 months Projects The Programme’s Key Target Indicators with an annual target
Indicator Target Reduction of specific electricity consumption for the main type of business activity under comparable conditions 0.5% annually Operating expenses reduction percentage At least 2% annually THE EASTERN SIBERIA – PACIFIC OCEAN PIPELINE SYSTEM (ESPO PS) Personnel turnover rate No more than 5% at the end of each year overall
1 1 1 1 1 12 11 18 10 1 8 20 o 21 o oro no 2 a et perat n o l p pel ne un er on tru t on
e perat n
Project Goal Construction of the ESPO-I Ensuring oil transportation from oilfields in Eastern Siberia to Russian Construction of the Eastern Siberia – Pacific Ocean oil trunk pipeline at refineries and for export to markets of Asia and the Pacific via the port the section from the Tayshet initial pumping station to the Skovorodino of Kozmino as well as to China pumping station with the throughput capacity of up to 30 MTPA and the length of the line reaching 2,694 km, with construction of seven pumping stations. Basis for Implementation Construction of an oil port in Kozmino Bay. Directive No. 1737-r of the Russian Government dated 31 December 2004 in the version of Russian Government Directives No. 1246-r dated Status 5 September 2006 and No. 231-r dated 27 February 2008; Instruction In 2009, the construction was completed, and the facility was commissioned. of the President of the Russian Federation No. Pr-1465 dated 10 August 2007; Directive of the Government of the Russian Federation No. 455-r dated Development of the ESPO-I 3 April 2009; the list of instructions from the Chairman of the Government Stepwise development of the throughput capacity to 50 MTPA, with of the Russian Federation following the meeting on Development Prospects construction of five new pumping stations (Phase I), and to 58 MTPA, with for Oil and Petroleum Products Pipeline Transportation that took place on 18 construction of three new pumping stations (Phase II). February 2014. Status Phase I was completed in 2012, Phase II was completed in 2014. Further Development of the ESPO-I As part of the plan to increase the throughput capacity to 80 MTPA, construction of six new PSs and revamping of the existing pumping stations is envisioned, along with construction of a 50,000 m3 tank. Status In 2017, three new pumping stations were commissioned, and two existing pumping stations were revamped, which boosted the oil pipeline’s throughput capacity to 73 MTPA. In 2018, revamping of the Tayshet initial pumping station was completed, with construction of a 50,000 m3 tank, along with works on the construction of three new pumping stations with external power supply facilities. Completion of the project, with the throughput capacity of the oil pipeline at the Tayshet IPS – Skovorodino PS section increasing to 80 MTPA, is scheduled for 2019.
34 35 Annual report 2018
THE ESPO PS – KOMSOMOLSK REFINERY OIL PIPELINE OFFSHOOT
20 o 21 o oro no 2 2 perat n o l p pel ne 2 1 o plete o l p pel ne 80 000 2 o 21 2 perat n o oro no 2 100 000 0 perat n o l p pel ne 2 2 o plete 2 0 2 un er on tru t on u to tran er po nt 8 e a pe un er on tru t on o ne t 8 0 o plete tan 0 perat n a n 1 1 an un er on tru t on e ner a n o no ar ne ter nal e o no ar ne ter nal e
Construction of the ESPO-II Project Goal Construction of the Eastern Siberia – Pacific Ocean oil trunk pipeline at Ensuring transportation of oil to the Komsomolsk Refinery in the amount the Skovorodino PS – Kozmino SSOP section with the throughput capacity of 8 MTPA. of up to 30 MTPA and the length of the line reaching 2,046 km, with construction of seven pumping stations. Basis for Implementation Agreement between Transneft and Rosneft. Status Commissioned in 2012. Description The project anticipates the construction of a pipeline offshoot from the ESPO Further Development of the ESPO-II pipeline system to the Komsomolsk Refinery with the throughput capacity To increase the throughput capacity to 50 MTPA, construction of four new of up to 8 MTPA and the length of 293 km as well as construction of three new pumping stations and revamping of the PS currently operating is anticipated pumping stations and tanks having the total volume of 80,000 m3. along with construction of tanks having the volume of 100,000 m3. Status Status The construction of the facilities is complete; commissioning permits have One pumping station was commissioned in 2017, which enabled to raise been obtained. the oil pipeline’s throughput capacity to 45 MTPA. In view of the fact that Rosneft failed to keep its commitment to connect In 2018, construction of three new pumping stations with external power a technologically interrelated facility to the offshoot pipeline, Transneft had supply facilities and revamping of the existing PSs were carried out. no opportunity to conduct integrated testing of the systems and equipment at Completion of the project, which will increase the throughput capacity the facilities, or to host an acceptance board, which led to the project delivery of the oil pipeline at the Skovorodino PS – Kozmino SSOP section to 50 MTPA, deadline being postponed to 2019. is scheduled for 2019.
36 37 Annual report 2018
DEVELOPMENT OF THE TRUNK PIPELINE SYSTEM TO INCREASE PETROLEUM PRODUCTS DELIVERY REVAMPING THE SYSTEM OF TRUNK PIPELINES TO INCREASE THE VOLUME OF PETROLEUM PRODUCTS TO THE PORT OF PRIMORSK (THE SEVER PROJECT) TRANSPORTED TO THE MOSCOW REGION
r or
a nt eter ur Ar an el e on 100 000 r o orelo o er e on al no perat n petroleu pro u t p pel ne o o aro la l e on
e o perat n o l p pel ne r a o et aro la l 2 epu l o o e on o o aro la l aro la l u lt p pel ne olne no or a a aro la l o o l e ner a orna a toro o perat n la l no 20 000 80 000 ale e 000 ene u lt o o ano o tarol e e o olo ar a a a an tarol e e o e on perat n talno ne a 2 la r e on l no on e a pe 20 000 orot net 1 olo na an an o l ter nal perat n n o ato o 1 ula e on tepan o o o al 1 a an lo o 20 000 e on perat n a lo a 1 l e ner n o oro e on Al et e tarol e e o u an ulo o a an er e a pe ala on a er a o plete tan a an n l e ner lo o n o oro o oro l e ner a o o e a pe tan an un er on tru t on
Project Goal Project Goal Increasing the volume of diesel fuel pumped to the port of Primorsk. Increasing the volume of transported light petroleum products (motor gasoline, diesel fuel, aviation kerosene) and expanding the range of motor petrol types Basis for Implementation for consumers in the Moscow region. The project will enable the supply of more The Energy Strategy of Russia up to 2030, approved by Directive than 14 million tonnes of petroleum products to the Moscow area. of the Government of the Russian Federation No. 1715-r dated 13 November 2009; the General Development Plan for the Russian Oil Sector, approved Basis for Implementation by Order No. 212 of the Ministry of Energy of the Russian Federation on 6 June The General Development Plan for the Russian Oil Sector, approved by Order 2011; the Transneft Strategy up to 2020. No. 212 of the Russian Ministry of Energy on 6 June 2011, the Transneft Strategy up to 2020, Agreement between Transneft and Gazprom Neft Stage 1 on cooperation in joint projects implementation Increasing the volume of diesel fuel pumped to the port of Primorsk from 8.5 MTPA to 15 MTPA. This stage anticipates construction of four new pumping Description stations and revamping of the existing PSs, construction of 15 km of loopings The project anticipates construction of 78 km of pipeline and a new pumping and tanks with the total capacity of 60,000 m3 as well as conversion station, revamping of the existing pumping stations, construction of tanks with of the Yaroslavl – Kirishi-2 and Kirishi – Primorsk trunk pipelines from oil the total capacity of 240,000 m3 and a railway loading rack, and conversion to diesel fuel pumping (805 km). of oil pipelines for pumping petroleum products. Status Status This stage was completed in 2016. In 2018, the goal of the project implementation was achieved – the works are completed and all the main facilities essential to increasing the volume Stage 2 of transported light petroleum products (motor petrol, diesel fuel, aviation Increasing the volume of diesel fuel pumped to the port of Primorsk from kerosene) and expanding the range of motor petrol types for consumers 15 MTPA to 25 MPTA. This stage anticipates construction of new petroleum in the Moscow region, are commissioned. products pipelines and revamping of the existing ones, having the length of 138 km; construction of three new pumping stations and revamping of the existing PSs, as well as conversion of the Gorky – Yaroslavl oil trunk pipeline (320 km) for petroleum products pumping. Status In 2018, the goal of the project delivery was achieved: works were completed, and facilities were commissioned to increase the volume of pumped diesel fuel to 15 MTPA.
38 39 Annual report 2018
EXECUTION OF THE TRANSNEFT DEVELOPMENT PROGRAMME
This programme is part of the Transneft Long-Term With the Investment Programme’s overall targets hit, execution Development Programme1. It includes investment projects for of the financing plan for each investment project of Transneft development of the pipeline system, its technical upgrading within the Investment programme had its own specifics. 259 63.8 and revamping. on a number of projects, the actual volumes of financing exceeded the targets, which was caused, above all, by the fact RUB bn RUB bn In 2018, the actual financing for the Transneft Development that the work had been completed ahead of the contractual Programme of Transport Subsidiaries reached RUB 258,617.4 schedules. On other investment projects, however, the actual the actual financing for the Transneft Development the actual financing of the Transneft Investment million (100% of the planned figure), including: volumes of financing were below the targets. This was caused Programme of Transport Subsidiaries Programme within the Development Programme ■■ Loaned funds: RUB 54,176.9 million by redistribution of financing, the main volumes being ■■ Own funds: RUB 204,440.5 million shifted from Q4 2018 to Q1 2019 in view of scarce sources of financing. The actual financing of the Transneft Investment Programme within the Development Programme, came to RUB 63,795.6 million in 2018 (98.2% of the planned RUB 64,964.7 million), including: ■■ Loaned funds: RUB 54,176.9 million ■■ Own funds: RUB 9,618.7 million
Execution of the Transneft Development Programme in 2018
No. Project Name Target, RUB million2 Actual, RUB million Execution, % No. Project Name Target, RUB million2 Actual, RUB million Execution, % 9 Increasing the throughput capacity of the Usa – Ukhta and Ukhta – Yaroslavl 3,233.1 2,898.8 89.7 Total for the Development Programme, including: 258,582.5 258,617.4 100.0 OTPs own funds 204,420.3 204,440.5 100.0 10 The ESPO PS. The Tayshet IPS – Skovorodino PS section. Oil trunk 81.4 75.1 92.3 loaned funds 54,162.2 54,176.9 100.0 pipeline pressure safety system 11 Increasing the throughput capacity of the Skovorodino – Mohe oil pipeline 3.9 3.9 100.0 Total for investment projects, including: 64,964.7 63,795.6 98.2 to 30 MTPA own funds 10,802.5 9,618.7 89.0 12 Increasing the throughput capacity of the Yaroslavl – Moscow OTP 138.6 150.5 108.6 loaned funds 54,162.2 54,176.9 100.0 13 Revamping the Kuibyshev – Tikhoretsk and the Zhirnovsk – Volgograd 184.1 179.7 97.6 OTPs to ensure supply of 14.5 MTPA of oil to the Volgograd Refinery Total for the Technical Upgrading and Revamping (TUR) 14 Construction of the Zapolyarye – Purpe oil trunk pipeline 829.3 749.6 90.4 Programme, including: 193,617.8 194,821.8 100.6 15 Construction of the Kuyumba – Tayshet oil trunk pipeline 81.0 41.6 51.4 own funds 193,617.8 194,821.8 100.6 16 Revamping of Transneft’s oil trunk pipeline facilities to lower the sulfur 58.4 44.6 76.4 loaned funds – – – content in the crude supplied to the refineries of Central and Volga regions I Oil Trunk Pipeline System Development Investment Projects 52,498.3 53,473.8 101.9 II Petroleum Products Trunk Pipeline System Development Investment 12,466.4 10,321.8 82.8 1 Increasing the throughput capacity of the ESPO PS at the Tayshet IPS – 17,010.2 17,026.8 100.1 Projects Skovorodino PS section to 80 MTPA 1 The YUG Project. Stage 2. Constructing the Volgograd – Tikhoretsk PPTP 2,244.6 1,939.4 86.4 2 Increasing the throughput capacity of the ESPO PS at the Skovorodino PS – 15,157.1 16,656.9 109.9 Kozmino SSOP section to 50 MTPA 2 The YUG Project. Stage 3. 373.9 374.8 100.2 3 Revamping oil trunk pipelines in Western Siberia to increase the volume 9.6 9.7 101.0 3 Developing the trunk oil pipeline system 2,906.8 2,034.7 70.0 of oil transported to Tayshet to increase petroleum products delivery to the port of Primorsk to 25 MTPA (The Sever Project) 4 The ESPO PS – Komsomolsk Refinery oil pipeline offshoot 9,771.9 9,221.2 94.4 4 Revamping the system of trunk pipelines to increase the volume 6,255.6 5,438.5 86.9 5 Revamping oil trunk pipelines for transportation of oil to refineries 2,186.9 2,259.7 103.3 of petroleum products transported to the Moscow region in Krasnodar Territory 5 The YUG Project. Stage 1. Revamping of the Tikhoretsk – Novorossiysk 538.8 418.3 77.6 6 Developing a corporate data communication network to build Transneft’s 3,390.3 3,795.3 111.9 trunk pipelines unified information system (UIS) (the UIS Programme). 6 Construction of the Volgograd Refinery – Tinguta IPS PPTP 132.1 101.5 76.8 7 Increasing the throughput capacity 208.7 161.4 77.3 of Transneft’s OTP system to ensure transportation 7 Developing the trunk pipeline system to increase petroleum products 14.6 14.6 100.0 of 12 MTPA of oil to the RN-Tuapse Refinery delivery to the port of Primorsk to 15 MTPA (the Sever Project) III The Oil Trunk Pipelines TUR Programme 162,680.8 164,664.3 101.2 8 Increasing the throughput capacity of the OTP supplying oil to TANECO’s 153.8 199.0 129.4 refineries to 14 MTPA IV The Petroleum Products Trunk Pipelines TUR Programme 30,937.0 30,157.5 97.5
1The Development, Technical Upgrading and Revamping Programme for Transneft Trunk Pipeline Facilities. 2 Resoltuion of the Transneft Board of Directors dated 27 December 2018 (Minutes No. 22).
40 41 Annual report 2018 Unbending
I tremendously enjoy mastering Disposition something new. And I seek constant improvement in my favourite hobby, badminton. I’ve almost never parted with my racket since the age of 7, when my friend enrolled me in a sports club. I am sure that my unbending disposition is a result of playing this sport.
It’s a pity that less and less time is left for my hobby as years go by. I used to practise 5-6 times a week. Now I can only do so 2-3 times. Nevertheless, I do my best to stay in shape, participating in several competitions a year. I dream of continuing my training and participating in Russian, European and worldwide veteran Oksana Belyakova tournaments. Economist Operations Support Section, Transneft Upper Volga
(Nizhny Novgorod Region) Since“ the age of
I’ve almost never 7parted with my racket I’ve been coordinating the primary paperwork electronic storage system of the Company since “ 2016. What I like most about my work are new untrivial challenges, since they require good knowledge of all business processes. To cope with difficulties, I try to come to my office with a positive disposition and seek quality recreation; that’s why I love sports.
42 43 OPERATING RESULTS
47 Oil Transportation 48 Petroleum Products Transportation 50 Consolidation of the Controlling Stake in NCSP 52 International Cooperation 53 Innovative Development 54 Key 2018 Projects 55 Promotion of Innovations in Foreign Markets 56 Company’s Faces: Aleksandr Osinkin Annual report 2018
Oil
Employees of Transneft Service Transportation at emergency response drills at the port of Kozmino
Transneft Group’s core business activity is rendering Oil turnover2 and specific transportation costs3 services of oil and petroleum products transportation via oil and petroleum products trunk pipelines in the Russian Federation and beyond, including transportation outside 1 219.1 1 211.2 1 217.4 of Russia on the basis of interstate and intergovernmental Oil turnover agreements. Moreover, Transneft and its subsidiaries provide (billion tkm) crude oil storage, compounding1 and sales services. 19.3 19.3 18.9 Operating expenses on oil Apart from its core activity, the Company is engaged transportation in planning and supervision of oil transportation and supply (RUB per 100 tkm) to custody transfer points abroad, along with data collection and compilation. As an agent of Russian shippers transporting oil via the territory of the Republic of Belarus, Ukraine and the Republic of Kazakhstan, Transneft has signed contracts for oil transportation services with Polotsktranspetrol Druzhba, Gomeltransneft Druzhba, Ukrtransnafta and KazTransOil (TON-2). 2016 2017 2018
Sergey Galkin, Deputy Head of Ukhta RPD, Oil transportation (million tonnes) Transneft North
Indicators 2016 2017 2018 Change, 2018 vs 2017, % Acceptance into the Transneft System, total 483.49 477.61 480.40 0.6 During the past year, oil turnover in accordance with executed Breakdown of oil delivery to consignees (%) including: routing orders stood at 1,217.4 billion tkm, up 0.5% year-on-year. oil from Russia 464.53 459.18 462.34 0.7 In 2018, the total volume of oil accepted into Transneft’s oil from Kazakhstan 17.22 16.93 16.75 –1.1 system of oil trunk pipelines achieved 480.4 million tonnes, 3.9 3.9 4.0 To Russian refineries oil from Azerbaijan 1.30 1.50 1.30 –13.43 up 0.6% year-on-year, but down 0.6% as against 2016. Oil Exports to markets oil from Turkmenistan 0.44 0.00 0.00 0.0 produced in Russia accounts for most of this volume (96.2%). beyond the CIS 45.3 45.1 44.1 Exports Oil delivery4, total 483.40 477.52 479.81 0.5 The growth was attributable, among other things, to higher to neighbouring including volumes of Russian oil delivered into the system, while countries the transportation of oil from companies operating in the CIS to refineries in Russia 245.22 243.69 249.33 2.3 countries decreased. transshipment to the CPC-R system 0.39 0.02 0.00 –100.0 50.7 51.0 52.0 to neighbouring countries’ markets, including: 18.65 18.61 19.00 2.1 In 2018, Transneft provided for delivery of 479.8 million oil from Russia 18.00 18.07 18.03 –0.2 tonnes of oil to destinations determined by the existing oil from Kazakhstan 0.65 0.54 0.96 77.8 contracts (except oil supply to cover own needs and fuel to markets beyond the CIS, including: 219.14 215.20 211.48 –1.7 for third party recipients). This is up 0.5% year-on-year. 2016 2017 2018 oil from Russia 200.82 197.19 194.57 –1.3 The growth was mainly registered for deliveries to Russian oil from Kazakhstan 16.63 16.43 15.70 –4.4 refineries, which was attributable to growth in refining and an increased demand for petroleum products oil from Azerbaijan 1.22 1.58 1.21 –23.4 in the domestic market. At the same time, exports of Russian oil from Turkmenistan 0.47 0.00 0.00 0.0 oil have been declining for two years in a row.
1 Compounding is controlled blending of oil streams in a pipeline 2 The actual freight turnover is shown for routing orders accomplished 3 Specific operating expenses for 2016-2017 are discounted to 2018 (inflation only) 4 Except oil supply to cover own needs and fuel for third party recipients
46 47 Annual report 2018
Petroleum Products Transportation
Petroleum products turnover kept growing in 2018, Oil transportation volume although the growth rate somewhat slowed down to 7.3% and specific transportation costs in the reporting year, as against 8.1% in 2017. Exports 33.1 32.8 39.1 of petroleum products remained the main driver, with Transportation the growth rate doubling the rate of growth on the domestic volume2 market (21.7% versus 10.4) in 2018. (million tonnes) The increase in exports of petroleum products is associated Specific operating 854.2 expenses with the launch of the Yug project for diesel fuel transportation 784.9 on petroleum 751.3 towards the port of Novorossiysk and an increase products in the volume of transportation towards the port of Primorsk. transportation (RUB/tonne) Due to the higher-than-anticipated growth, the share of exports in the delivery of petroleum products to the Group’s pipeline network continued to increase in 2018 and achieved 73% against 71% in the preceding year. 2016 2017 2018 Yevgeny Kovalenko, a line pipeliner of the ELMD of PS № 34, Dalnerechensk RPD In order to facilitate further growth of petroleum products Breakdown of petroleum products deliveries turnover, the Company is implementing a number to consignees (%) of investment projects in accordance with the Long-Term Exports 1 Domestic market Development Programme. In 2017, the Yug investment project 28.1 29.0 27.0 The 2018 increase in the Company’s share in the Russian A number of tasks is planned to be addressed in 2019 in order of the Russian Federation was implemented; in 2018, such investment projects were petroleum products transportation market to 30% was to further increase the Company’s share in the petroleum completed as “Reconstruction of trunk pipelines to increase attributable to the following measures implemented: products transportation market, including: the petroleum products transportation volume to the Moscow ■■ expansion of the infrastructure to ensure sufficient technical ■■ acceptance of additional volumes of petroleum products region” and “Development of the trunk pipeline system capability for transportation of the petroleum products from refineries connected to the PPTP system, taking into to increase the supply of petroleum products to the port 71.9 71.0 73.0 volumes declared by shippers; account the increase in production as a result of their of Primorsk up to 25 million tonnes per year (“Sever 25”)”. ■■ formation of tariffs for petroleum products transportation revamping; to ensure competitiveness of the petroleum products ■■ bringing in additional volumes of petroleum products pipelines in the transportation services market; for transportation using combined schemes with both rail ■■ comprehensive revamping of tank vehicle loading stations. and pipeline transport involved. 2016 2017 2018
Petroleum products transportation and turnover in the petroleum products trunk pipeline system Petroleum products transportation via the petroleum products trunk pipeline system
Operation Name 2016 2017 2018 Change, 2018 vs 2017 in 2018-2019 (million tonnes) Petroleum products delivery, total (million tonnes) 33.1 33.1 39.2 +18.4 % Operation Name 2018 (target) 2018 (actual delivery) 2019 (target) including: Petroleum products transportation 37.5 39.2 40.3 for export 23.8 23.5 28.6 +21.7 % including: to the domestic market of the Russian Federation 9.3 9.6 10.6 +10.4 % for export 27.7 28.6 28.6 Turnover (billion tkm) 45.4 49.1 52.7 +7.3 % to the domestic market of the Russian Federation 9.8 10.6 11.7
1 Phase I is the revamping of the Tikhoretsk — Novorossiysk trunk pipeline; Phase II is the construction of the Volgograd — Tikhoretsk petroleum products trunk pipeline (PPTP). 2 The calculation of the transportation volume for 2017-2018 does not include the volume of petroleum products accepted on the territory of the Republic of Belarus by Zapad-Transnefteprodukt PU (Naftan). 3 The calculation for 2017-2018 does not include the costs incurred by Zapad-Transnefteprodukt PU in the Republic of Belarus; the 2016-2017 costs are discounted to 2018 (inflation only).
48 49 Annual report 2018
Consolidation of the Controlling Stake in NCSP
In September 2018, the Group acquired 50% of the authorised According to 2018 results, the market share of NCSP Group NCSP’s Advantages capital of Omirico Limited, which had indirect control over amounted to 17% of the cumulative turnover of all sea ports 50.1% of shares of NCSP (Novorossiysk Commercial Sea Port). in Russia. Transshipment of 80 cargo types in the interests The Baltic Sea Basin The Azov - Black Sea Basin As a result of the acquisition, the Group’s effective share of more than 300 cargo owners took place at NCSP Group’s NCSP Group’s share in 2018 is 22% NCSP Group’s share in 2018 is 31% in NCSP grew from 37.07% to 63.08% (according to IFRS), terminals. The unique geographic footprint allowed for getting ▪▪ Crossing of European transport corridors ▪▪ Crossing of intercontinental trade routes the Group having thus gained control over NCSP and its involved in all the key north-west and south directions ▪▪ Developed infrastructure ▪▪ Year-round navigation ▪▪ Direct access to Central Russia ▪▪ Container cargo export subsidiaries. In January 2019, the controlling stake in NCSP, of Russia’s foreign trade. ▪▪ One of the leaders in the transshipment of liquid bulk cargoes in the region ▪▪ Second largest region of oil and petroleum products export amounting to 50.1%, was transferred to direct ownership Access to markets: Access to markets: of Transneft. NCSP Group maintained leadership in the key stevedoring ▪▪ North-Western Europe ▪▪ Mediterranean countries As NCSP Group has its terminals at the key transit points services’ markets in the Russian port industry, with ▪▪ North America ▪▪ India ▪▪ Southeast Asia for exported and imported cargoes on the Black and the Baltic the following transshipment results: 26% for crude oil, 23% ▪▪ Middle East Sea, it allows for benefitting from the growing demand for cargo for petroleum products, 44% for ferrous metals and cast iron, ▪▪ Africa transshipment to all destinations. In terms of turnover, NCSP 36% for ore and iron ore concentrate, 28% for non-ferrous ▪▪ Central and South America Group’s ports are No. 1 in Russia and No. 3 in Europe, after metals and 23% for grains. Rotterdam and Antwerp. Due to the increased efficiency of the stevedoring business, NCSP Group’s market share in cargo transshipment through sea ports of Russia in 2018 In 2018, NCSP Group’s turnover amounted to 140.2 NCSP Group’s consolidated revenue under IFRS grew by 5.7% million tonnes. Against the background of a decrease in 2018 and achieved USD 951.3 million. NCSP Group’s in transshipment of crude oil by 11.4% due to redistribution EBITDA grew by 2.4% to USD 669.4 million. At year-end, 17 of exports of oil from the West to the East, the Group was able the net debt reduced by 21.5% to USD 230.7 million. 26 23 to increase transshipment of grain (+14.3%) and petroleum products (+9.7%). The freight turnover of ferrous metals At year-end 2018, the net debt to EBITDA ratio went down 44 and cast iron grew by 13% due to the increase in delivery to 1.26 versus 1.64 in 2017. Turnover, Ferrous Crude oil Petroleum total metals products to Europe and Southeast Asia; transshipment of other cargoes increased substantially (+109.6%).
11
Key Indicators of NCSP 23 36 Indicator 2017 2018 Change Turnover, million tonnes 143.5 140.2 –2.3 % Iron Containers Revenue, USD million 899.8 951.3 +5.7 % ore Grain EBITDA, USD million 653.7 669.4 +2.4 % Net debt, USD million 1,074.9 844.2 –21.5 % NCSP Group Net debt / EBITDA 1.6 1.3 Other ports
50 51 Annual report 2018
International Innovative Cooperation Development
Passport of the Transneft Innovation Development Programme Innovative development is one of Transneft’s priority areas. for 2017-2021 CASPIAN PIPELINE CONSORTIUM (CPC) New engineering solutions are being introduced with the view to ensure reliability and safety of the system of oil The CPC pipeline system is one of the largest investment projects and 100% of CPC Investments Company’s shares, were and petroleum products trunk pipelines and uninterrupted in the energy sector with the involvement of foreign capital transferred into the ownership of Transneft, as well as 100% transportation of oil and petroleum products to consumers in the CIS. The length of the Tengiz – Novorossiysk pipeline of the shares of CPC Investments Company, which is the lender in Russia and abroad. The Company’s innovative development connecting oilfields in Western Kazakhstan with the Novorossiysk of CPC-R. is governed by Transneft’s Innovation Development sea terminal is 1,511 km. Programme for 2017-20212. In 2018, CPC shipped 61.1 million tonnes of oil at the marine The initial throughput capacity of the Tengiz – Novorossiysk oil terminal in Novorossiysk, including 54.3 million tonnes of oil The objectives of the Transneft Innovation Development The following list of priority areas for technological pipeline stood at 28.2 MTPA. In 2010, the CPC governing bodies from Kazakhstan shippers and 6.8 million tonnes of oil from Programme are closely related to the objectives stated development was determined in the context of the innovation decided upon investments within the project of expanding Russian shippers. The volume shipped at CPC’s marine terminal in corporate strategic documents, including the Development development goals and as a follow-up on the technological the CPC pipeline throughput capacity to 67 MTPA (hereinafter: in Novorossiysk went up by 11% year-on-year. Strategy and the Transneft Long-Term Development Programme. audit conducted by the Company: the Expansion Project). The Expansion Project was officially They include: ■■ In-line inspection completed in 2018. In 2018, CPC kept repaying its debt to shareholders. In 2018, ■■ Increasing the role of innovations in achieving ■■ Monitoring and geolocation CTP paid a total of USD 207.3 million in favour of the Russian the Company’s strategic goals ■■ Energy efficiency improvement During 2018, Transneft exercised trust management of 24% Federation, and USD 83.4 in favour of CTP Investments ■■ Increasing the efficiency of core business processes ■■ Environmental safety of CPC-R’s and CPC-K’s1 shares being in state ownership Company. The interest revenue tax transferred by CPC and productivity growth ■■ Reduction of hydraulic losses of the Russian Federation. In March 2018, 100% of the shares Investments Company to the budget of the Russian Federation ■■ Lowering the cost of production and reducing specific costs ■■ “one-touch” control of CPC Company, holding 7% of CPC-R’s and CPC-K’s shares amounted to USD 20.9 million. of transportation services provided ■■ Improvement of the construction and operation of storage ■■ Improving the quality of oil and petroleum products tanks for oil and petroleum products transportation services (including reliability and safety) ■■ Nanotechnology THE INTERNATIONAL ASSOCIATION OF OIL TRANSPORTERS ■■ Improving the Company’s energy efficiency ■■ Improving the Company’s sustainability
Transneft is a member of the International Association of Oil Furthermore, the first international research to practice Transporters (IAOT), established in 2013 in the Czech Republic conference “Argus Oil Pipeline Systems 2018: Focus on Sus- to deepen and develop cooperation in the field of pipeline tainability” was held in Prague, the Czech Republic, under Innovation Development Programme’s Results against KPI transportation of oil and petroleum products. the auspices of the IAOT. It attracted more than 100 participants Unit Value Indicator representing European oil transportation infrastructure of measurement In 2018, a comparative analysis of energy efficiency operators, research and production enterprises, energy 2017 actual 2018 target 2018 actual benchmarking results among the IAOT participants institutions and the expert community, and was positively 1. Financing of innovative projects, including R&D, from own funds given covering 2017 and six months of 2018 was performed received. During the event, Transneft introduced innovative as a percentage of Transneft’s revenue from oil transportation services % 1.41 1.41 1.41 in accordance with the Energy Efficiency Benchmarking technical solutions applied by the Company to its partners. They (according to RAS) Method at Pipeline Transport Facilities previously developed were highly appreciated by the professional community. 2. The number of documents of title to intellectual property pcs. 91 92 94 by the Pipeline Transport Institute (the PTI) for the Association, and recommendations for power consumption reduction were developed. Their implementation resulted in a 7.5% reduction in the average specific electricity consumption by member companies of the Association in 2016-2018.
1 The organisations comprising the Caspian Pipeline Consortium and registered in Russia and in Kazakhstan respectively 2 Approved by the resolution of the Board of Directors of Transneft dated 11 November 2016 (Minutes No. 21).
52 53 Annual report 2018
Key 2018 Promotion of Innovations Projects in Foreign Markets
The development and introduction of new technologies 1. Modular boiler house with a capacity of 1-5 MW. A standard- and equipment in 2018 facilitated achievement sized series of liquid and gaseous fuel boiler houses of the Company’s strategic performance indicators. was developed, featuring a capacity from 1 to 6 MW, The following equipment was put into commercial operation an automation system and control from a remote automated within the Development of a Complex of High-Precision In-Line workstation. Boilers with external economisers allowing Inspection Tools for Ensuring Reliability of Trunk Pipeline for higher efficiency and cost-effective heat generation were Facilities project: developed to be parts of the modular boiler houses. ■■ Examination set for detection of peeling of pipeline 2. Thermohydraulic test bench to explore transportation insulation coating using electromagnetic acoustics of heavy and bituminous oils. The test bench enables ■■ Combined inspection tool forecasting of the paraffin deposition process on pipeline ■■ Three ultrasonic inspection tools for various pipeline walls, studying of the efficiency of diluents and paraffin diameters, from 500 to 1,200 mm deposition inhibitors used, simulation of oil heating In the foreground: Denis Solodov, Head ■■ Magnetic inspection tool and cooling processes occurring in the pipeline, and other of the Operation Section of the Construction Directorate No. 3, Transneft PCD ■■ Three multichannel geometry tools with a navigation system research in furtherance of development of measures With papers in hand: Artyom Blinov, Deputy Head for various pipeline diameters, from 1,000 to 1,200 mm. to improve the energy efficiency of heavy oil transportation. of the Construction Directorate No. 3, Transneft PCD 3. Sealing chamber with a landing frame allows for repair The purpose of the project is to create innovative, future- of sections of oil and petroleum products trunk pipelines oriented in-line inspection equipment and to upgrade with a 200-500 mm diameter by cutting out the spool the existing equipment. The project is being implemented in the channel part of the trunk pipeline’s crossings of water Transneft has unique background in construction, operation In pursuance of the memorandum of cooperation between by Transneft Diascan, one of the global leaders in the field barriers at depths down to 15 m. and maintenance of the longest pipeline system in the world Transneft and KazTransOil signed a year earlier, KazTransOil of pipeline inspection services. The examination sets provide and can therefore offer innovative and competitive solutions and TOMZEL entered into an agreement in April 2018 for similar accuracy and resolution as their foreign-made The design provides for systems and equipment ensuring that for oil and gas transportation companies abroad. In 2018, concerning pilot testing of an electric drive and an appliance analogues, and even surpass some of them (as proven the work is performed in a safe manner, such as: the Company worked to expand the geography of exports for dissolving bottom sediments at facilities located by an independent technological audit). The work is aimed at ■■ System for emergency evacuation of personnel from of the services and products supplied by its subsidiaries, in Kazakhstan. According to the results of the pilot tests, improving safety of operation of oil pipelines and petroleum the chamber’s body as well as to increase its share in high-tech exports from the equipment manufactured by TOMZEL is recommended products pipelines. ■■ Supply-exhaust ventilation system, with heated air the Russian Federation. for industrial introduction at KazTransOil’s facilities. At the end supplied to the chamber’s body, a variable frequency drive Key 2018 results: of 2018, an agreement was signed for the supply of the device In 2018, applied R&D topics focused on reliable, safe and microprocessor control ■■ Direct contracts for in-line inspection of oil pipelines for dissolving bottom sediments in the interests of the Kazakh and efficient operation of oil and petroleum products trunk ■■ Continuous gas content monitoring system and comprehensive diagnostics of the lightning protection company. pipeline facilities, substitution of imported equipment ■■ Tilt control system for the chamber’s body and the shaft system were signed between Transneft Diascan, and technology in the field of pipeline transportation, as well ■■ System for pumping out water the Pipeline Transport Institute (the PTI), and Sonatrach, Seeking to promote the approaches and technological solutions as improvement and optimisation of production processes, ■■ System for pumping out leaks the Algerian national oil and gas company used by the Company and its subsidiaries in operation were addressed as part of implementation of the Master Plan ■■ Lighting system ■■ Transneft Diascan performed in-line inspection of pipelines of the pipeline system, they utilised the opportunities provided for R&D, design and experimental and engineering work at ■■ Two-way communication system in Slovakia and Bahrain for the first time. The Company has by international tradeshows to a large extent. Transneft and its Transneft and its subsidiaries. They include the following major ■■ Video surveillance and video recording system operated in 16 different countries since 2013 subsidiaries took part in 17 international and Russian trade developments: ■■ Anchoring system ■■ The Pipeline Transport Institute continued providing fairs in 2018. Furthermore, Transneft Group’s experts attended ■■ Pulling tension control system energy efficiency calculations for member companies 208 international events relevant to the industry (conventions, ■■ Hydraulic system of the International Association of Oil Transporters summits, forums, conferences, specialised programmes etc.), ■■ Emergency firefighting equipment ■■ Transneft Telecom rendered services of provision where they delivered presentations and reports on various of communication channels to foreign companies aspects of the Company’s activities.
54 55 Annual report 2018
Long
Journey Most of my family members also work for Transneft: my wife, two sons, my daughter- in-law and my aunt, my sister and my cousin... Our cumulative working experience exceeds 200 years! a short time ago my older granddaughter Katerina also entered Gubkin Oil and Gas University after leaving school.
My job entails a lot of travelling: Transneft PCD carries out projects in 14 regions of the country. Our staff is young, and I like it. I know many young people who started out as common pipeliners and worked their way up to chief engineers. The youth learn from me and I learn from them. It’s a lifelong process.
Aleksandr Osinkin
Our cumulative
Head of Production Directorate, “working experience
Transneft PCD (Samara Region) exceeds 200“ years! When I was in the ninth grade, my father took me on a journey during my summer break. Together we travelled along the pipeline route from Samara to Ventspils. My father spoke about his work so enthusiastically that I decided to become a pipeliner. I’ve been working in this industry since I graduated from the Kuibyshev Polytechnic Institute, for 32 years already. I was lucky to take part in the grand-scale construction project: Phase I of the Eastern Siberia — Pacific Ocean oil pipeline. This was an exciting albeit difficult experience: huge distances, roadless terrain and severe frosts, which wrecked machinery, but not people.
56 57 FINANCIAL OVERVIEW
60 Transneft’s Key Indicators under IFRS 69 Key Financial and Economic Performance Indicators of Transneft under RAS 74 Company’s Faces: Yulia Mironenko Annual report 2018
Transneft’s Key Indicators 1 Vyacheslav Kuzmin, Senior Researcher, under IFRS Automation Laboratory, the PTI
In general, the Group’s financial results for 2018 increased in comparison with 2017. For INCOMES AND EXPENSES the year ended 31 December 2018, the Group’s revenues increased by 10.8%. EBITDA for 2018 increased by 6.1% compared to 2017, while profit for the year rose by 17.5%. Adjusted for Sales Revenue the China Development Bank. The required amounts of crude factors unrelated to operational activities, the profit decreased by 4.8% in 2018. Transneft Group’s revenue for 2018 compared to 2017 are purchased from Rosneft. increased by 10.8%. This was due to increased revenues from transportation of oil and petroleum products, oil sales for The 42.3% increase in revenue from oil sales for export was export, as well as revenues from the provision of stevedoring mainly due to an increase in the average price per barrel of services, additional port services and fleet services (due to oil in US dollars. The 35.2% decrease in revenue from sale of 2 Transneft Group’s core financial results , RUB million the acquisition of controlling stakes in NCSP Group and NFOT crude oil on the domestic market year-on-year was caused by a in September 2018). Revenue excluding oil sales for export reduction in oil sales. Indicator 2018 2017 Absolute change Change (%) increased by 4.9% compared to 2017 and amounted to 79.6% Revenue 979,958 884,337 95,621 10.8 of the total revenue in the reporting period. The increase in revenue from sales of petroleum products in Operating expenses, depreciation and amortisation exclusive −546,083 −476,062 −70,021 14.7 2018 by 35.1% compared to last year was due to an increase Operating profit, depreciation and amortisation exclusive 433,875 408,275 25,600 6.3 The growth of revenue from oil transportation services was in sales of petroleum products, as well as the inclusion of Depreciation and amortisation −178,610 −152,637 −25,973 17.0 3.2% and was caused by changes in tariffs, transported the corresponding amounts of NCSP Group in the consolidated Operating profit 255,265 255,638 −373 −0.1 volumes of crude and freight flows. The growth of revenue indicators (Transneft Group acquired the controlling stake in Profit before tax 277,711 242,167 35,544 14.7 from petroleum products transportation services was 9.3% NCSP Group in September 2018). Income tax expenses −52,298 −50,362 −1,936 3.8 and was caused by changes in tariffs, transported volumes of petroleum products and freight flows. The 5.7% decrease in revenue from oil compounding services Profit for the reporting year 225,413 191,805 33,608 17.5 in 2018 was caused by a 8.8% decrease in the volume of Other gross expenses/income exclusive of income tax −770 578 −1,348 – Revenue from oil export was influenced by oil supplies to compounded oil to 39,883.6 thousand tonnes. Total comprehensive income exclusive of income tax 224,643 192,383 32,260 16.8 China within an agreement with China National United Oil EBITDA3 433,436 408,694 24 742 6.1 Corporation for crude oil supplies in the amount of 6 MTPA, Total debt / LTM EBITDA4 1.4 1.7 – – signed for 20 years, effective since 1 January 2011. The said agreement was concluded to repay the loan provided by
The influence of NCSP Group on Transneft Group’s financial indicators, RUB million Revenue structure, RUB million
5 Indicator for 2018 NCSP Group Transneft Group and The share of NCSP Group Indicator 2018 Share of the total 2017 Share of the total Absolute Change, % NCSP Group in the indicators revenue, % revenue, % change of Transneft Group, % Revenue from oil transportation services 651,887 66.5 631,459 71.4 20,428 3.2 Revenue 15,878 979,958 1.6 for export 391,459 39.9 374,152 42.3 17,307 4.6 EBITDA 10,545 433,436 2.4 on the domestic market 260,428 26.6 257,307 29.1 3,121 1.2 Net profit 3,366 225,413 1.5 Revenue from petroleum products 72,167 7.4 66,035 7.5 6,132 9.3 Net assets (as of 31 December 2018) 83,343 2,064,667 4.0 transportation services 6 Debt (as of 31 December 2018) 69,743 672,992 10.4 Revenue from the stevedoring services, 14,444 1.5 – 0.0 14,444 – Net cash flow (outflow) −10,043 13,217 – additional port services and fleet services Revenue from compounding services 5,849 0.6 6,201 0.7 −352 −5.7 Revenue from sales of oil on the domestic 6,122 0.6 9,445 1.1 −3,323 −35.2 market Revenue from sales of petroleum products 6,899 0.7 5,108 0.6 1,791 35.1 Other revenue 22,304 2.3 25,352 2.8 −3,048 −12.0 Total revenue (excluding the revenue from 779,672 79.6 743,600 84.1 36,072 4.9 oil export) 1 Accounting (financial) statements for 2018 is published by the Company at: https://www.transneft.ru/investors/323/ 2 Consolidated financial statements include NCSP Group’s indicators from the date of receipt of the controlling stake Revenue from oil export 200,286 20.4 140,737 15.9 59,549 42.3 3 Excluding crude oil sale and purchase transactions between Transneft and Rosneft and China National United Oil Corporation Total revenue 979,958 100.0 884,337 100.0 95,621 10.8 4 EBITDA includes NCSP Group’s figures for the entire 2018 5 From the time of receipt of the controlling stake by the Transneft Group 6 The debt of NCSP Group as of 31 December 2017 is listed excluding debt of Omirico Limited
60 61 Annual report 2018
Other Revenue of goods, freight transportation and other services. The decline in Operating expenses excluding depreciation and amortisation, adjusted for the inflation rate2, RUB million The Other Revenue indicator includes revenues from rendering Other Revenue in 2018 by 12.0% compared to 2017 was due to the following services: storing oil and petroleum products, a decrease in the amount of revenue from the sale of services for Operating expenses 2018 Share of Inflation rate (forecast 2017 (inflated Share in Absolute Change, % the total for 2018 vs 2017), %* to 2018) the total change communications, inspection, construction, technological technological connection to trunk pipelines as a result of applying expenses, % expenses, % connection to trunk pipelines and information services related to the new International Financial Reporting Standard 15 “Revenue Employee remuneration, insurance 163,591 30.0 2.7 153,925 29.2 9,666 6.3 1 oil transportation, as well as revenue from leasing property, resale from Contracts with Customers” (IFRS 15). premiums and social expenses Electricity 44,058 8.1 4.0 43,387 8.2 671 1.5 Materials 33,297 6.1 4.1 35,239 6.7 −1,942 −5.5 Operating Expenses Pipeline network maintenance and 19,175 3.5 4.9 18,662 3.5 513 2.7 Operating expenses, depreciation and amortisation exclusive, RUB million repair services Insurance expenses 6,359 1.2 2.7 6,234 1.2 125 2.0
Operating expenses (costs) 2018 Share in the total 2017 Share in the total Absolute Change, % Taxes (income tax not included) 36,843 6.7 4.1 29,662 5.6 7,181 24.2 expenses, % expenses, % change Pension expenses −9,367 −1.7 2.7 5,558 1.1 −14,925 – Employee remuneration, insurance premiums and social 163,591 30.0 149,878 31.5 13,713 9.1 Cost of commercial oil export 199,847 36.6 25.8 177,574 33.7 22,273 12.5 expenses (including the export customs duty) Electricity 44,058 8.1 41,718 8.8 2,340 5.6 Cost of sales of oil 5,873 1.1 25.8 10,689 2.0 −4,816 −45.1 Materials 33,297 6.1 33,851 7.1 −554 −1.6 on the domestic market Pipeline network maintenance and repair services 19,175 3.5 17,790 3.7 1,385 7.8 Cost of sales of petroleum products 6,350 1.2 22.1 5,664 1.1 686 12.1 Insurance expenses 6,359 1.2 6,070 1.3 289 4.8 Cost of other sold goods for resale 3,902 0.7 4.1 2,615 0.5 1,287 49.2 Taxes (income tax not included) 36,843 6.7 28,494 6.0 8,349 29.3 Other operating expenses 36,155 6.5 4.1 37,523 7.2 −1,368 −3.6 Pension expenses −9,367 −1.7 5,412 1.1 −14,779 - Operating expenses, depreciation 546,083 100.0 – 526,732 100.0 19,351 3.7 and amortisation exclusive Cost of commercial oil export (including the export customs 199,847 36.6 141,156 29.7 58,691 41.6 duty) adjusted for: Cost of oil sales of oil on the domestic market 5,873 1.1 8,497 1.8 −2,624 −30.9 Cost of oil export (including −199,847 −36.6 −25.8 −177,574 −33.7 −22,273 12.5 the export customs duty) Cost of sales of petroleum products 6,350 1.2 4,639 1.0 1,711 36.9 Taxes (income tax not included) −36,843 −6.7 −4.1 −29,662 −5.6 −7,181 24.2 Cost of other sold goods for resale 3,902 0.7 2,512 0.5 1,390 55.3 Operating expenses (excluding 309,393 56.7 – 319,496 60.7 −10,103 −3.2 Other operating expenses 36,155 6.5 36,044 7.5 111 0.3 depreciation and amortisation, oil Operating expenses, depreciation and amortisation exclusive 546,083 100.0 476,062 100.0 70,021 14.7 export and taxes) adjusted for: Cost of oil export (including the export customs duty) −199,847 −36.6 −141,156 −29.7 −58,691 41.6 Taxes (income tax not included) −36,843 −6.7 −28,494 −6.0 −8,349 29.3 Operating expenses (excluding depreciation and 309,393 56.7 306,412 64.3 2,981 1.0 amortisation, oil export and taxes)
Reasons for Changing the Items on the List of The increase in electrical energy (electricity) costs by 5.6% was Operating Expenses (Excluding Inflation) mainly due to the increase in the weighted average price (tariff) In 2018, operating expenses excluding depreciation and In 2018, the insurance, social and safety net expenses The 9.1% growth of expenses on employee remuneration, for electrical energy (electricity) and the commissioning of new amortisation, taxes and oil export increased by an insignificant increased insurance premiums and social expenditures in 2018 was trunk pipeline facilities. The outlay on pipeline network’s repair 1.0% compared to 2017. The growth in operating expenses mainly caused by the growth of insurance premiums paid to non- and maintenance increased by 7.8% because of scheduled excluding depreciation and amortisation can mainly be budgetary state funds in view of an increase in the maximum overhaul. explained by the following factors: amount of their base as well as by indexation of salaries in ■■ Increase in the cost of oil export the second half of 2017, the increase in the average number Cost of oil export includes the cost of sale of oil bought from ■■ Increase in other taxes by % of employees, which is associated with the construction and Rosneft under the RUB 151,586 million agreement signed in ■■ Increase in employee remuneration outlay 9.1 commissioning of new facilities of trunk pipelines. April 2009 and crude oil export customs duties in the amount of RUB 48,261 million. The decrease in the amount of pension expenses for the year ended 31 December 2018 compared to last year was due The 30.9% decrease in the cost of sale of oil on the domestic to changes in legislation made in 2019. In accordance with market was caused by a reduction in oil sales by companies of the changes, the age when a person has the right to a state Transneft Group. The increase in the cost of sales of petroleum pension in the Russian Federation is gradually increasing: products on the domestic market by 36.9% was due to an from 55 to 60 years for women and from 60 to 65 years for increase in the average price of petroleum products, as well men. This led to a one-time recognition of income as of 31 as Transneft Group’s acquisition of a controlling stake in NCSP 1 In accordance with the previous International Financial Reporting Standard 18 “Revenue” (IFRS 18), revenue from services for the transportation of oil and December 2018 for a total of RUB 13,831 million as a result of Group in September 2018. petroleum products at long-term (agreed) tariffs was recognised as part of the revenue from transportation of oil or petroleum products during the period of validity a decrease in obligations under the pension plan. of such tariffs. In accordance with the previous International Financial Reporting Interpretation Committee Standard 18 “Transfer of Assets from Customers” (IFRIC 18), revenue from provision of services of technological connection to the trunk pipeline system was recognised as part of other revenue progressively as the costs of building assets financed under such contracts were recognised. As a result of applying the new International Financial Reporting Standard 15 “Revenue from Contracts with Customers” (IFRS 15), revenues from the provision of services for the transportation of oil and petroleum products at long-term (agreed) tariffs and contracts for the provision of services for technological connection to 2 The used inflation values are based on the Russia’s Socioeconomic Development Forecast for 2018 and for the Planned Period of 2019 and 2020 prepared by trunk pipelines are recognised based on the useful life of facilities built at the expense of funds received under corresponding contracts. the Ministry of Economic Development of the Russian Federation
62 63 Annual report 2018
The amount of other taxes paid by the Group listed in as expenses and revenues resulting from disposal of fixed the operating expenses includes, above all, property tax, land assets and other assets, change in reserves to match expected CASH FLOW ANALYSIS and transport taxes. A 29.3% increase of this item of expenses credit losses on receivables, fines and penalties received and was mainly caused by growing expenditure on property tax. paid, as well as other revenues and expenditures. Cash flow formation, RUB million
Indicator 2018 2017 Absolute change Change, % Other operating expenses include outlay on communication Cash flow from operating activities 347,160 327,101 20,059 6.1 services and rent, transport and secondment expenses, as well Cash flow used for acquisition of fixed assets, net −267,974 −306,199 38,225 −12.5 Free cash flow 79,186 20,902 58,284 3.8 times Cash flow from other investment activities 101,551 32,027 69,524 3.2 times EBITDA Cash flow used in financial activities −167,520 −51,183 −116,337 3.3 times Net cash flow 13,217 1,746 11,471 7.6 times EBITDA Formation, RUB million Change in cash and equivalents, resulting from currency exchange rate fluctuations 12,473 −170 12,643 – Net increase in cash and equivalents 25,690 1,576 24,114 16.3 times Indicator 2018 2017 Change, % Net profit for the period 225,413 191,805 17.5 Adjustments: income tax expenses 52,298 50,362 3.8 Operating Activities • RUB 25,067 million decrease in income from dividends depreciation and amortisation 178,610 152,637 17.0 The main source of the Group’s funds are cash flows generated received and other income from subsidiaries and jointly by operating activities. Cash generated by operating activities for run businesses result from oil sales to China −439 419 – 2018 increased by 6.1% compared to 2017 and amounted to • the use of cash to acquire the share in NCSP (Omirico net financial expenses/(income) 21,304 15,632 36.3 RUB 347,160 million. This was due to: Limited) in the amount of RUB 49,319 million in 2018 share of the profit of subsidiaries and jointly run companies −10,231 −15,847 −35.4 ■■ RUB 112,389 million increase in cash received from listed in the consolidated cash flow statement exclusive other incomes/expenses customers of cash available from NCSP (Omirico Limited) and its including −33,519 13,686 – ■■ RUB 102,341 million increase in payments to suppliers and subsidiaries, as of the acquisition date in the amount of evaluation of the existing share in NCSP (Omirico Limited) to the fair value at the date of acquisition of the controlling stake and income from disposal contractors RUB 32,018 million of subsidiaries −25,371 ■■ RUB 9,301 million increase in the volume of insurance • cash inflow in 2018 as a result of the acquisition EBITDA1 433,436 408,694 6.1 premium refunds, VAT and other taxes from the budget of 100% of the shares of CPC Company and CPC ■■ RUB 8,533 million decrease in the amount of income tax Investments Company in the amount of RUB 5,203 paid million ■■ RUB 6,947 million increase in the amount of interest paid • RUB 1,821 million reduction of the loaned amount (net), Earnings before interest, tax, depreciation and amortisation In 2018, EBITDA growth compared to 2017 was due to compared to 2017 (EBITDA) is an indicator that reveals the efficiency of increased revenues from transportation of oil and petroleum Investment Activities the Group’s activities, including the Group’s ability to products, oil sales for export, as well as the provision of Factors resulting in the decrease in cash used in investment finance capital costs, acquire businesses and make other stevedoring services, additional port services and fleet activities (by 39.3% as compared to 2017) are: investments, as well as its ability to raise and repay loans. services (due to the acquisition of controlling stakes in NCSP ■■ RUB 38,225 million reduction in the funds used for For investors, analysts and rating agencies EBITDA normally Group and NFOT in September 2018). acquisition of fixed assets (net) in 2018 serves as the ground to evaluate and forecast oil and gas ■■ RUB 69,524 million change in cash generated from other businesses’ cost and efficiency. This indicator should not The EBITDA indicator grew investment activities, as a result of the following: be viewed separately, as an alternative to earnings for • RUB 5,003 million increase in the net cash inflow from a given period, earnings from core activity or any other the purchase and sale of equity and debt securities as indicator showing the Group’s efficiency and reflected in well as the placement/closure of deposits (as compared the consolidated financial statement by IFRS. to 2017) by % • RUB 98,155 million decrease in funds invested in 6.1 acquisition of a stake in subsidiaries and jointly run companies in 2018 compared to 2017, mainly caused by the acquisition of 57.41% of shares in the combined The net cash and its equivalents rose closed-end fund Gazprombank Finansovy in the amount of RUB 60,000 million in 2017 and the acquisition of a 25% share in the authorised capitals of Ust- Luga Oil and Sandmark Operations Limited, totalling RUB 38,160 million 16.3 times
1 Excluding crude oil sale and purchase transactions between Transneft and Rosneft and China National United Oil Corporation
64 65 Annual report 2018
Financial Activities Calculating Cash Flow from Operating Activities Calculating Cash Flow from Operating Activities Using the Indirect Method, RUB million The outflow of funds in the amount of RUB 167,520 million from Using the Indirect Method financial activities in 2018 against the outflow of RUB 51,183 In addition to the consolidated statement of cash OPERATING ACTIVITIES 2017 2018 million in 2017 was mainly caused by the following: flows prepared using the direct method and included in Profit before tax 242,167 277,711 ■■ RUB 90,242 million increase in the funds raised, resulting the consolidated financial statement by IFRS for 2018, Adjustments: from the issue of rouble bonds and raising loans totalling RUB calculation of cash flows from operating activities using ▪▪ Depreciation and amortisation 152,637 178,610 287,262 million during 2018 (as compared to RUB 197,020 the indirect method is given below. ▪▪ Loss from disposal of fixed assets 91 601 million in 2017); When the indirect method is used, the net cash flow from ▪▪ Financial income −109,177 −100,930 ■■ RUB 205,183 million increase in the sum used to repay operating activities is calculated by adjusting profit before tax ▪▪ Financial expenses 124,809 122,234 bonds, credits and loans, as a result of the following: for the following values: • during 2018, monthly payments and payments in advance ■■ Changes in inventories as well as receivables and payables ▪▪ Revaluation of the existing share in NCSP (Omirico Limited) to the fair value – −25,371 at the date of acquisition of the controlling stake and income from disposal of were made to repay the loans under an agreement with pertaining to operating activities during the reporting period subsidiaries the China Development Bank for a total amount of USD ■■ Non-monetary transactions, such as depreciation and ▪▪ Gain from disposal of subsidiaries −117 – 4,651.1 million (RUB 276,187 million at the exchange amortisation, outlay on valuation reserves, accrued ▪▪ Share in the profit of subsidiaries and jointly run companies −15,847 −10,231 rate of the Bank of Russia at the dates of transactions) as unrealised foreign exchange gains and losses, interest ▪▪ Other 14,080 −20,710 compared to monthly payments and payments in advance receivable and payable, subsidiaries and jointly run Operating profit before changes in working capital and reserves 408,643 421,914 in the total amount of USD 2,467 million (RUB 144,864 companies’ profit share million at the exchange rate of the Bank of Russia at ■■ Other items generating cash flows from investment and Changes in operating assets and liabilities: the dates of transactions) for 2017 financial activities ▪▪ Changes in inventories 1,266 −3,082 • extinguishment of eurobonds totalling USD 1,050 million ▪▪ VAT changes in receivables pertaining to operating activities and assets 11,885 −3,596 (RUB 66,293 million) ▪▪ Changes in payables and accruals pertaining to operating activities 3,515 10,890 The free cash flow grew ▪▪ Changes in contractual obligations – 17,752 Cash flows from operating activities before paying income tax and interest 425,309 443,878 Income tax payments −52,391 −43,858 times Income tax refund 403 307 3.8 Interest paid −46,220 −53,167 in 2018. Net cash flows from operating activities 327,101 347,160
Liquidity Analysis, RUB million
Indicator 31 December 2018 31 December 2017 Change, % Current assets, including 407 071 457 864 −11,1
▪▪ cash and equivalents 101 852 76 162 33,7
▪▪ short-term deposits and bonds1 179 069 265 306 −32,5
Short-term liabilities 294 753 280 455 5,1
Net working capital 112 318 177 409 −36,7
Current ratio 1,4 1,6 х
Quick ratio2 1,1 1,4 х
Total debt / LTM EBITDA 1,4 1,7 х Debt/equity 0,3 0,4 х
1 Short-term deposits and bonds mainly consist of deposits and bonds issued by lending institutions and companies rated Baa3 – Ba2 based on a classification aligned with Moody’s rating scale. This means, the Company’s short-term deposits and bonds are comprised of financial instruments of highly reliable or reliable lending institutions and companies 2 Quick ratio = (Cash and equivalents + Short-term financial assets + Short-term receivables) / Current liabilities
66 67 Annual report 2018
Key Financial Given below is information on contractual maturity of financial The debt denominated in foreign currency is calculated at liabilities, including interest payments calculated at the rates the exchange rate of the Bank of Russia as of 31 December valid as at 31 December 2018 and 31 December 2017. 2018 and 31 December 2017 respectively. and Economic
Contractual maturity of financial liabilities, RUB million1, as of 31 December 2018 Indicator Cash Flow under Signed Contracts Performance Book Value Total 2019 2020 2021 2022 2023 Over 5 years Loans and credits 672,992 871,741 136,262 87,287 89,861 81,941 88,666 387,724 Indicators of Transneft Trade and other payables 66,018 66,087 64,599 1,118 253 113 – 4 Total 739,010 937,828 200,861 88,405 90,114 82,054 88,666 387,728 under RAS1 Contractual maturity of financial liabilities, RUB million1, as of 31 December 2017 Indicator Cash Flow under Signed Contracts Book Value Total 2018 2019 2020 2021 2022 Over 5 years INCOMES AND EXPENSES ON CORE ACTIVITIES Loans and credits 688,910 891,421 150,491 139,811 102,263 103,022 94,422 301,412 Trade and other payables 60,459 60,630 59,259 1,195 176 – – – Revenues from sale of goods (works, services), RUB million Total 749,369 952,051 209,750 141,006 102,439 103,022 94,422 301,412 Indicator Amount Change
2018 2017 RUB million % The debt structure as at 31 December 2017 by maturity dates In 2018, Transneft attracted loans from large Russian banks in of non-convertible interest-bearing documentary bonds in the amount of RUB 213 billion. Total revenue 937,768 835,937 101,831 12.2 the amount of RUB 12,264 thousand assumes the possible including maturity date at the offer date (2018). oil transportation services 659,813 627,759 32,054 5.1 petroleum products transportation services 66,453 57,164 9 289 16.2 oil export 200,286 140,737 59,549 42.3 Transneft Group’s Debt Structure and Debt Value (Excluding NCSP Group) oil compounding services 5,849 6,201 −352 −5.7% Debt structure by types of borrowings, RUB billion Debt structure by maturity dates, RUB billion Other 5,367 4,076 1,291 31.7 702 689 Rouble bonds 702 689 Under 1 year Eurobonds Changes in revenues from the sale of goods (works, services) of ■■ An increase in revenues from the sale of oil for export 593 1 to 5 years 204 109 110 593 292 301 109 the Company in 2018 as compared to 2017 was mainly due to: under an agreement with the China National United Oil 266 Loans Over 5 years 268 311 110 74 349 169 74 ■■ An increase in revenues from oil and petroleum products Corporation due to an increase in oil prices and the US 66 301 transportation services, that was caused by changes in dollar exchange rate 292 311 169 63 tariffs, transported volumes and freight flows
432 360 301 292 268 349
31.12.2016 31.12.2017 31.12.2018 31.12.2016 31.12.2017 31.12.2018
Debt structure by currency, %
Russian rouble 29 US dollar 51
100 71
49
1 Including interest payments calculated at the rates valid as at 31 December 2018 and 31 December 2017 respectively. The debt denominated in foreign currency is calculated at the exchange rate of the Bank of Russia as of 31 December 2018 and 31 December 2017 respectively 31.12.2016 31.12.2017 31.12.2018 1 The financial statements are published on the Company’s website: https://www.transneft.ru/investors/323/
68 69 Annual report 2018
Expenses on core activities, RUB million RECEIVABLES AND PAYABLES Indicator Amount Change 2018 2017 RUB million % Receivables, RUB million Expenses on core activities, total 880,450 774,371 106,079 13.7 including: Type of debt 31 December 2018 31 December 2017 Change oil transportation services 580,291 546,784 33,507 6.1 Long-term receivables 1,609 4,019 −2,410
petroleum products transportation services 65,662 57,164 8,498 14.9 Trade receivables 33 0 33 oil export (selling expenses included) 200,731 140,799 59,932 42.6 Other advances paid 0 3,424 −3,424 oil compounding services 3,510 3,721 −211 −5.7 Payments for accrued interest on loans issued 1,309 454 855 administrative costs 27,688 24,071 3,617 15.0 Payments for a sold share in a partnership 107 102 5 Other 2,568 1,832 736 40.2 Payments for interest-free loans 11 21 −10 Payments for other transactions 149 18 131 Short-term receivables 91,977 86,489 5,488 Changes in expenses related to core activities in 2018 The change in the negative balance of interest receivable and Trade receivables 17,016 15,474 1,542 compared to 2017 were mainly due to: interest payable in 2018 by RUB 4,768 million as compared Payments for oil transportation services 3,890 3,890 0 ■■ An increase in expenses under contracts with Transneft to 2017 was mainly caused by exceeding the borrowing plan. subsidiaries for provision of oil and petroleum products The change in the negative balance of other revenues in 2018 Provision for doubtful debts –3,890 –3,890 0 services in connection with changes in tariffs, volumes and by RUB –43,590 million as compared to 2017 was caused Payments for oil compounding services 602 585 17 destinations of freight flows by accounting for reserves for the possible depreciation of Agency contract payments 145 154 −9 ■■ An increase in the cost of oil sold for export due to financial investments. Payments for property rental services 83 42 41 the increase in oil prices and the US dollar exchange rate Payments for oil export 15,925 14,433 1,492 Payments for consulting services 90 184 −94 Other 171 76 95 Advances paid 36,950 28,723 8,227 Net profit, RUB million Under contracts for oil and petroleum products transportation 210 10,064 −9,854 Indicator Amount Change Under agency contracts for oil transportation 1,578 1,448 130 2018 2017 RUB million % For the purchase of non-current assets1 33,603 15,974 17,629 Net profit 10,111 58,844 −48,733 −82.8 Other 7,660 5,385 2,275 Changes in net profit in 2018 as compared to 2017 were mainly caused by the accrual of allowances for reserves for the possible VAT on advances paid −6,101 −4,148 −1,953 depreciation of financial investments. Tax and due payments 29,666 26,971 2,695 Сonsolidated taxpayers group (CTG) income tax 2,342 5,397 −3,055 VAT 27,304 21,535 5,769 Net asset value, RUB million Other taxes and charges 20 39 −19 Indicator 31 December 2016 31 December 2017 31 December 2016 Other debtors 29,002 36,072 7,070 Net asset value 180,174 189,974 183,387 Payments for accrued interest on loans issued 4,635 3,716 919 Agency contract payments 2,356 3,039 −683 Payments by CTG members 551 514 37 Other payments 21,460 28,803 −7,343 Provision for doubtful debts −20,657 −20,751 94 Total 93,586 90,508 3,078
1 Line 1110 “Intangible Assets” in the Balance Sheet also includes advances paid in connection with the creation and acquisition of intangible assets as of 31 December 2018 – RUB 56 million (as of 31 December 2017 – RUB 52 million); and Line 1150 “Fixed Assets” includes advances paid in connection with the creation and acquisition of fixed assets as of 31 December 2018 – RUB 33,547 million (as of 31 December 2017 – RUB 15,922 million)
70 71 Annual report 2018
Payables, RUB million TAXES Type of debt 31 December 2018 31 December 2017 Change Long-term payables 1 1 – Taxes and charges incurred during the year, RUB million Settlements with other creditors 1 1 –
Short-term payables 191,635 160,093 31,542 Tax name 2018 2017 Change (+/–) Suppliers and contractors 113,951 76,617 37,334 RUB million % Payments for oil transportation services 86,333 50,543 35,790 Corporate income tax 85 0 85 0 Payments for petroleum products transportation services 8,631 7,205 1,426 Income tax accrued by the responsible CTG member 42,783 48,170 −5,387 −11.2 Payments for the purchase of oil 12,911 13,253 −342 Income tax of controlled foreign companies (CFC) 6 0 6 – Payments for oil compounding services 361 351 10 Value added tax (VAT) −97,426 −80,284 −17,142 −21.4 Payments for construction, revamping, modernisation and acquisition of fixed 1,396 1,706 −310 Property tax 73 103 −30 −29.1 assets and intangible assets Other taxes and charges 3,187 2,798 389 13.9 Other payments 4,319 3,559 760 Total −51,292 −29,213 −22,079 – Tax due 33 13 20 including: Advances received (excluding VAT) 53,286 49,023 4,263 to the federal budget −90,810 −72,889 −17,921 −24.6 Under oil transportation contracts 41,584 36,715 4,869 to regional and local budgets 39,493 43,660 −4,167 −9.5 Under petroleum products transportation contracts 10,395 11,187 −792 to extrabudgetary funds 25 15 10 66.7 Under other contracts 1,307 1,121 186 Agency contract payments 19,821 22,754 −2,933 Payments under agency contracts for oil transportation 1,655 1,442 213 Payments under agency contracts for petroleum products transportation 718 443 275 In 2018, Transneft accrued and paid income tax as Settlements with Transneft Group’s subsidiaries under other agency contracts 16,937 20,502 −3,565 the responsible member of the consolidated taxpayers group Other agency contract payments 511 367 144 (hereinafter referred to as CGT), which included 35 Transneft CTG settlements 3,957 11,320 −7,363 subsidiaries (same as in 2017)1. Settlements with other creditors 587 366 221 Total 191,636 160,094 31,542
FINANCIAL PERFORMANCE INDICATORS UNDER RAS
Estimated financial indicators of Transneft
Indicator 31 December 2018 31 December 2017 Absolute deviation, +/–
Return on equity (excluding oil sales to China) 5.55% 31.08% −25.53 Return on invested capital (by operating profit, excluding sale of oil to China) adjusted for 5.41% 5.34% 0.07 nominal taxation rate (ROIC) Return on sales excluding oil sales to China 7.83% 8.86% −1.03 Receivables turnover ratio 13.94 10.94 3.00 Quick ratio 0.74 0.83 −0.09 Current ratio 0.75 0.83 −0.08
CAPITAL INVESTMENTS
Transneft’s capital investments in 2018 amounted to RUB 10,149 million. Capital investments financing sources are presented in Appendix 10.
1 In accordance with the agreement on the establishment of the CGT No. 175/TNF/12 dated 19 March 2012 (as amended by the Agreements No. 10 dated 6 December 2017 and No. 11 dated 6 March 2017)
72 73 Annual report 2018 Challenging Oneself
I love trying new things; my hobbies include surfing, acrobatics, folk and ballroom dancing. I like competitions and public performances too. I’ve won the Best in Profession contest, both corporate and international; I gave speeches at youth science and technology conferences.
A short time ago I tried my hand in snowboarding competitions at the 4th Transneft Winter Sports Festival in the city of Ufa. I did not win any prizes, but I learned something very important. It appears to novices that the spirit of tough competition reigns supreme here. But this is not true. First and foremost, we are colleagues and friends sharing a common cause. The Sports Festival draws people closer to each other.
Yulia Mironenko
First Category Engineer “I love
Environmental Safety and Rational Nature Management Section, Transneft Western Siberia (Omsk) trying I try to master my trade to perfection, to be updated on all novelties, constantly broadening new“ things my horizons. The most challenging project I’ve ever been involved in is accreditation of our laboratories in the national accreditation system. There were many questions to which even experts could not find a clear answer, so we had to come up with new approaches. When we were expecting a baby, everybody told me that with a Eventually, we created a clear quality management system in all environmental analysis labs. little child on my hands I’d have to forget about traveling or sports. For me this was an extremely important experience of overcoming difficulties. Well, our life is nothing of the kind: we take our little daughter with us everywhere we go. She loves sports and travel as much as my husband and I, and she supports me at all competitions. We’ll start teaching her skiing when she’s a bit older. 74 75 SUSTAINABLE DEVELOPMENT
78 Sustainable Development Principles 81 Environment Protection 88 Company’s Faces: Luiza Ismailova 91 Use of Energy Resources and Energy Conservation 93 HR Policy 94 Social Policy 96 Industrial Safety and Occupational Health 98 Company’s Faces: Rozalia Isayeva 100 Developing Regions of Operation 102 Responsible Procurement 104 Company’s Faces: Sergey Valchenko Annual report 2018
Sustainable Development
Principles Sergey Safonov, automation and process equipment device electrician at the Volodarskaya LODS, Transneft Upper Volga
Since 2017, the Group has been publishing sustainable Stakeholder Group Specific Interests Forms of engagement development reports, governed by international standards Transneft’s employees and trade ▪▪ Salaries ▪▪ Collective agreements of sustainable development, a GRI supplement for the oil unions ▪▪ Social support ▪▪ Personnel incentive system ▪▪ Healthcare and household support ▪▪ Professional education and advanced personnel training and gas industry, and UN recommendations on Sustainable ▪▪ Professional growth opportunities ▪▪ Mandatory medical examinations Development Goals until 2030. The development of such ▪▪ Creation of new jobs ▪▪ Sports and cultural events ▪▪ Social benefits for employees: voluntary health insurance, reporting improves the quality of management at the accident insurance, organization of recreation for Company and facilitates minimisation of risks in the field of employees and their family members, non-state pension sustainable development. schemes Professional associations ▪▪ Receiving information about the Company’s prospective ▪▪ Holding regular meetings development ▪▪ Disclosing information on the corporate website ▪▪ Joint work The Report for 2017 reflects sectoral specifics of Transneft’s In doing so, Transneft is aware of its responsibility to current and Government authorities (the ▪▪ Uninterrupted and accident-free operation of the oil and ▪▪ Engagement with members of the Expert Board under corporate social responsibility, including: future generations. The Company seeks to increase reliability, Government of the Russian petroleum products pipeline network the Russian Government on matters of implementing the ■■ Safe operation of the oil and petroleum products trunk industrial and environmental safety of operations, reduce negative Federation, industry regulatory ▪▪ Operational and financial performance Corporate Governance Code (CGC) at the Company and pipeline transportation system, as well as counter-terrorism environmental impact and ensure social support in the regions of bodies and organizations, ministries ▪▪ Business development strategy amending the Long-Term Development Programme and agencies, regional executive ▪▪ Compliance with regulatory requirements ▪▪ Reviewing reports on execution of the Long-Term protection of operating facilities and information security the Group’s operations. authorities) ▪▪ Investment programmes Development Programme, as regards the improvement of ■■ Environmental protection activities ▪▪ Increasing efficiency corporate governance. ▪▪ Participating in proceedings of the Expert Board on ■■ Industrial safety and occupational health The Group seeks to hold a responsible and open dialogue with Corporate Governance of the Bank of Russia and the ■■ HR management representatives of stakeholder groups, to take their opinions and Moscow Exchange Share Issuer Committee ■■ Stakeholder engagement interests into account in making business decisions and regards ▪▪ Interacting within the framework of the effective regulatory acts constructive collaboration as the most important element of Government supervision and oversight ▪▪ Compliance with the law ▪▪ Regular inspections interaction with groups of stakeholders. bodies ▪▪ Compliance with environmental regulations and ▪▪ Regular meetings and joint work standards ▪▪ Compliance with safety standards and rules Local governance bodies ▪▪ Compliance with environmental regulations and ▪▪ Interacting within the Board of Directors Stakeholders and Their Specific Interests standards ▪▪ Cooperation agreements ▪▪ Compliance with safety standards and rules ▪▪ Social and charitable programmes Stakeholder Group Specific Interests Forms of engagement ▪▪ Taxes ▪▪ Public hearings to assess environmental impact of new ▪▪ Pipeline network development projects Investment community (shareholders, ▪▪ Shareholder value increase ▪▪ Publishing reports on the Company’s website and on the ▪▪ Local infrastructure development investors, analysts, rating agencies) ▪▪ Financial and operational performance Interfax: Centre of Corporate Information Disclosure site ▪▪ Employment ▪▪ Business development strategy ▪▪ Holding General Meetings of Shareholders ▪▪ Investment programmes ▪▪ Holding meetings of the Board of Directors and of the Population in the regions of operation ▪▪ Creating new jobs and level of labour remuneration ▪▪ Social and charitable programmes ▪▪ Dividend policy Committees under the Board (including indigenous minorities, ▪▪ Participation in local infrastructure development ▪▪ Public hearings to assess environmental impact of new ▪▪ M&A deals ▪▪ Communicating with minority shareholders on their rights as well as civil society organisations) ▪▪ Charity projects ▪▪ Debt indicators and structure ▪▪ Placing reference information on the Company’s website ▪▪ Mass media publications ▪▪ Meeting with analysts and investors, publishing Suppliers and contractors ▪▪ Procurement transparency ▪▪ Commission for Dealing with Suppliers and Contractors presentations for investors on the Company’s website ▪▪ Environmental, technical and other regulations and ▪▪ Steering Committee ▪▪ Publishing the Analyst Handbook standards in supplier selection ▪▪ Pursuing the Company’s policy in quality control ▪▪ Reporting to rating agencies ▪▪ SME support in the course of procurement enhancement, development and adoption of standards and Loan providers (lenders, bond holders) ▪▪ Financial and operational performance ▪▪ Holding meetings and negotiations to improve and develop ▪▪ The Company’s anti-corruption policy mechanisms for work performance and control ▪▪ Debt indicators and structure banking services for Transneft and its entities ▪▪ Feedback system ▪▪ Credit ratings ▪▪ Disclosing information about the debt structure and policy ▪▪ Placing information on procurement and other matters for ▪▪ Investment programmes in the Company’s financial statements and annual reports suppliers and contractors on the Company’s website ▪▪ Business development strategy ▪▪ Placing information on bonds (issue prospectuses, coupon ▪▪ Placing information about SME support on the Company’s rates, yield curve, payment schedule) on the Company’s website website Business community (RID, RSPP, ▪▪ Collaboration ▪▪ Public events (forums, conferences, etc.) Russian Gas Society) ▪▪ Receiving information about the Company’s prospective Consumers (vertically integrated oil ▪▪ Connection conditions ▪▪ Participation of the Company’s representatives in the development companies, companies participating ▪▪ Pipeline network development plans Consumer Council’s meetings to discuss matters of Social and charity organisations ▪▪ Social responsibility ▪▪ Interacting in social projects in stock trading of petroleum products, ▪▪ Tariffs Transneft’s operational activity. ▪▪ The Company’s effectiveness and development ▪▪ Cooperation agreements companies storing petroleum products ▪▪ Placing information on contracts signed on the Company’s prospects at loading depots) website ▪▪ Placing tariff information on the Company’s website Public environmental organisations ▪▪ Compliance with environmental regulations and ▪▪ Certification of all divisions of the Group’s companies in ▪▪ Feedback system standards accordance with the Environmental Management System ▪▪ Environmental protection programmes and activities (EMS) ▪▪ Energy efficiency improvement ▪▪ Holding environmental audits and publishing environmental ▪▪ Investments and current expenses on environmental reports protection ▪▪ Public hearings to assess environmental impact of new projects
78 79 Annual report 2018
Environment Protection
Stakeholder Group Specific Interests Forms of engagement Educational institutions ▪▪ Targeted personnel training ▪▪ Collaboration in research and development (universities etc.) ▪▪ Sectoral science development ▪▪ Personnel training, retraining and refresher courses ▪▪ Developing innovative technologies, including those ▪▪ Requests for R&D mitigating negative environmental impact Research community (research ▪▪ Facilitating the development of sectoral science ▪▪ Engaging with scientific organisations and placement institutes, hi-tech companies, startups ▪▪ Using innovative technologies of requests for R&D etc.) ▪▪ Publishing the Passport of Transneft’s Innovation Development Programme for 2017-2021 on the corporate website ▪▪ Publishing an innovation proposal submittal form on the website of the PTI
Mass Media ▪▪ Transparency of business processes ▪▪ Holding events for the media (briefings, press conferences etc.) ▪▪ Ensuring prompt access to information about the ▪▪ Quick distribution of news Company’s operations ▪▪ Handling mass media requests
The Code of Ethics and Conduct for Employees of Transneft Read more: and Transneft Subsidiaries is in place. The Regulations The Regulations on Transneft’s on the Procedure of Investments in Fixed Assets Allocated to Environmental In 2018, following the publication of the Sustainable Information Policy Providing Information Environmental protection and a high level of environmental and Documents Protection, RUB million Development Report for 2017, the Company proved one of the to Transneft’s safety at Transneft’s operating facilities are the Company’s leaders in the field of sustainable development, based on the Shareholders highest and unswerving priorities. In keeping with the Transneft 3,400 Responsibility and Transparency and Sustainable Development Integrated Policy in Occupational Safety, Energy Efficiency, 3,354 Vector indexes of RSPP for 2018. In addition, Transneft climbed For more detail about Industrial and Environmental Safety, the Company’s key 2,686 th th stakeholder engagement 25 positions up and ranked 34 (59 in 2017) in the National see the Transneft principles are: Corporate Transparency Rating of largest Russian companies Sustainable Development ■■ Prevention and reduction of negative environmental impact Reports by the Russian Regional Integrated Reporting Network. As as well as the rational use of natural resources per this rating, the Company’s transparency rose to Level II ■■ Involvement of personnel at all levels in the improvement (42.8 points). Transneft received the Breakthrough of the Year of the Environmental Management System (hereinafter award, as it scored a maximum increase in the number of referred to as the EMS) points, compared to the previous year, and moved to a higher ■■ Disclosure of relevant information on environmental 2016 2017 2018 transparency level in the rating. activities For more detail about the Code of Ethics and Conduct for Employees of Transneft and Transneft Read more: Subsidiaries see Section 7 of the present report стр. 146 The EMS has been developed and implemented at all Transneft The Transneft Integrated Policy subsidiaries to pursue the Policy in accordance with the ISO 14001 in Occupational Safety, Energy Efficiency, Industrial and international standard. The EMS is continuously improved. In Environmental Safety 2018, the Company switched to a new version of ISO 14001:2015. The EMS were audited for compliance with the requirements of the new standard at Transneft and all of its subsidiaries. The audits revealed that the Company’s EMS meets the ISO 14001:2015 Environmental and analytical monitoring is carried out in requirements. accordance with the schedules approved by regulatory authorities. In 2018, more than 711,000 environmental tests were performed. An effective system for monitoring air, water and soil quality is The analyses did not reveal any violation of permissible limits in in place at all operating facilities of Transneft. 54 environmental 2018. analysis laboratories staffed with highly skilled specialists and outfitted with up-to-date analytical equipment ensure the system In 2018, current expenditure on environmental protection works. All the laboratories are certified by the Federal Accreditation amounted to RUB 1,949.6 million, whereas investments in fixed Service (RusAccreditation). assets used to protect the environment totalled RUB 3,354 million (+24.9% year-on-year).
80 81 Annual report 2018
ATMOSPHERIC AIR PROTECTION
In accordance with federal laws On Environmental Protection Specific atmospheric emissions and On Protection of Atmospheric Air, the UN Framework at Transneft facilities, kg/t Convention on Climate Change and the Transneft Long-Term Development Programme up to 2023, the Company aims to 0.156 0.153 0.151 reduce its negative environmental impact by cutting down specific air pollutant emissions by 1% in 2018.
Specific air pollutant emissions went down by 0.0016 kg/t (1.05%) in 2018 and stood at 0.1514 kg/t. The plan for specific air pollutant emissions reduction in 2018 was completely fulfilled.
2016 2017 2018 Specific air pollutant emissions went down by
Gross emission of air pollutants at Transneft facilities, thousand tonnes 1.05 % 80.75 78.18 78.63 in 2018
Overall, the Company caught and decontaminated 11,000 tonnes of harmful pollutants during the year under report, including 10,850 tonnes of pollutants via JAOVRU (jet absorption oil vapour recovery unit) of Transneft Volga Region and RU (recovery unit) of Transneft Kozmino Port. PROTECTION OF WATER RESOURCES 2016 2017 2018 The main volume of greenhouse gas emitted from Transneft’s Water consumption and disposal at Transneft’s Water consumption in 2018 amounted to 11.8 million m3 operating facilities comes from stationary fuel combustion 3 Gross emission of greenhouse gases (+4.4% year-on-year), wastewater disposal – to 9.2 million m3 facilities, million m in boiler houses to generate thermal energy for own needs. at Transneft facilities, thousand tonnes (+0.1%). The boiler equipment installed at the Company’s facilities 11.80 Water consumption is manufactured by Transneftemash, a Transneft Upper 11.30 Commissioned in 2018 were 12 wastewater treatment Water disposal Volga’s factory. The equipment harnesses state-of-the-art 566.1 3 9.55 stations, with the total capacity standing at 27,000 m / 9.20 9.19 9.20 technical solutions, ensuring minimum fuel consumption and 453.3 day (including six newly built stations and six stations that high efficiency leading to minimum CO2 emissions. In 2018, 444.1 underwent technical upgrading, were revamped or overhauled). greenhouse gas emissions amounted to 453,300 tonnes. Three out of the 12 stations were manufactured, assembled and upgraded to reach the design performance through the effort of the Tyumen MRP of Transneft Siberia. The Company caught and decontaminated Water protection measures taken in 2018 resulted in the reduction of insufficiently treated wastewater dumped to water 2016 2017 2018 bodies by 3% year-on-year which reached 110,234 m3. 2016 2017 2018 The year 2019 will see the revamping of mixed wastewater treatment facilities at the Sokur LODS of Transneft Western 11,000 tonnes of harmful pollutants during the year under Siberia, which will enable the reduction of polluted wastewater discharged into surface water bodies by 3% and totally report eliminate the discharge of insufficiently treated wastewater by 2020.
82 83 Annual report 2018
CONSERVATION OF ECOSYSTEMS AND BIODIVERSITY
In 2018, Transneft delivered the following key projects for conservation of ecosystems and biodiversity.
1. Reproduction of Aquatic Fauna 4. Biological Monitoring of Kozmino Bay 5. Stork nests in Aistiny Nature Reserve 7. Support of the European Bison Population Restoration In accordance with Federal Law No. 166-FZ On Fishing Additional monitoring was organised in Kozmino Bay in the In Aistiny Reserve of regional importance (Khabarovsk Programme in Meshchera National Park and Preservation of Water Biological Resources, every Sea of Japan, 250 m east of the berths at Kozmino Port. Territory), established to conserve and restore the Transneft Upper Volga has been collaborating with year Transneft takes measures for artificial reproduction of According to the results of comprehensive monitoring of the population of the Far East Stork, 10 stork nests were set up Meshchera National Park (Vladimir Region) since 2014, aquatic biological resources. environmental condition of aquatic organisms (Japanese with the Company’s involvement. In 2018, two artificial nest providing financial support for fauna and flora conservation scallop, Pacific mussel, laminaria and trepang), it was supports were additionally installed. In May 2018, Transneft and restoration programmes. In particular, the Company This maintains the balance of the ecosystem in the areas established that the operations of Transneft Kozmino Port Far East provided a helicopter for joint examination of the assists the project of restoring the population of European where oil trunk pipelines run. In 2018, 6 million juvenile fish do not have any negative human impact on the adjacent area inhabited by storks with the Zapovednoye Priamurye bison, an endangered species listed in the Red List of were released into rivers. waters. state budgetary institution as well as for inspection flights the Russian Federation, in the territory of Meshchera over both man-made and natural nests in the territory of the National Park and Murom Reserve. Due to the project 2. Preservation of the Amur Tiger Population A farm for breeding aquatic animals and plants was reserve. implementation, the bison population in Murom Reserve At present, Transneft partners with the Amur Tiger Centre created on the area of 7 hectares. It contributes to both increased from 47 animals in 2014 to 86 animals in 2018. non-profit organisation established in 2013 by the Russian biodiversity in the Bay and reproduction of valuable fauna 6. Biotechnical Measures to Restore the Populations of Geographical Society at the initiative of Russia President species through creation of favourable conditions for living Rare Owls and Other Birds of Prey 8. Replanting of Endangered Species Vladimir Putin. In 2018, the Company allocated RUB 10 and spawning as well as for maintaining the spawning In August and September 2018, professional ornithologists In 2018, employees of Transneft Far East planted out 32 million, a special-purpose charitable donation, to deliver population of valuable commercial species. from Ecologichesky Tsentr Dront (Dodo Ecology Centre), seedlings of the endangered orchid Pogonia japonica. The environmental protection projects and relevant education aided by Transneft Upper Volga, installed 87 artificial orchid seedlings were grown using the in vitro technology. projects. To enhance the biodiversity of Nakhodka Bay in the Sea nesting spots in order to improve nesting conditions, restore This is the first time such a project has been implemented of Japan, in 2018 employees of Transneft Kozmino Port destroyed nesting areas and increase the headcount of rare in Russia. 3. Clean-Up of the Arctic released 10,000 juvenile species of Japanese scallop into bird species in Nizhny Novgorod Region. For several years Transneft has been backing the Arctic the sea, in pursuance of the approved Plan for Artificial Compensatory measures were taken to clear the area of cleaning project. In 2018, charitable aid was allocated to the Reproduction of Marine Biological Resources in Water The nesting spots were fixed on trees of appropriate size endangered plant species for the sake of delivering the tune of RUB 1.5 million for a research and environmental Bodies Used for Commercial Fishing in Primorsky Region. and location for such birds of prey as fish hawks as well Extension of the ESPO PS at the Skovorodino PS – Kozmino expedition to Bely Island in the Kara Sea. In 2018, Vilkitsky as rare owl species such as the great grey owl, the boreal SSOP Section up to 50 MTPA; Construction of PS-32 Island in the Kara Sea was the focus of volunteer effort. Biomonitoring and creating aquaculture farms are also owl, the Ural owl and the tawny owl. These birds return to investment project. The plants were replanted outside The expedition resulted in volunteers cleaning up the area carried out in the Gulf of Finland of the Baltic Sea in the same nesting spot year after year, using one nest over of the construction site in Smidovichi District of Jewish of the polar meteorological station. Air-borne survey, waste the impact zone of Transneft Primorsk Port as well as many years. The installed nesting areas will be monitored in Autonomous Region. inventory, soil and flora analyses, radioecological and hydro- in Tsemes Bay of the Black Sea, where operating facilities 2019. ecological investigations were performed. RUB 1.5 million of Chernomortransneft are located. were allocated for this project in 2018.
84 85 Annual report 2018
THE COMPANY’S ENVIRONMENTAL PROTECTION INNOVATIVE PROJECTS
Transneft has been a member of the Non-Commercial Read more: Partnership Technological Platform Technologies for Sustainable Ecological Development since 2011. For more detail about ecology and resources see the Transneft Sustainable Development In 2018, Transneft took part in the members’ meeting of Non- Reports Commercial Partnership Technological Platform Technologies for Sustainable Ecological Development.
1. Research “Reviewing the Operation of Wastewater 3. Technical Work “Developing the Technology of Using The given development is complete; an application was 7. Technical Work “Developing the Technology of Treatment Facilities at Transneft’s Operating Facilities. Aquatic Organisms for Environmental Monitoring of submitted to the Federal Institute for Industrial Property for Remediating Boggy Soils Contaminated with Oil Using Recommendation Development” the Water Area in Tsemes Bay of the Black Sea near awarding a patent. Land Reclamation Plants” Field inspections of 47 treatment facilities as well as off- Chernomortransneft’s Operating Facilities” The technology of remediating oil-contaminated boggy site inspections of 222 treatment facilities operated by As part of the TW, hydrological, hydrochemical and 5. Development “Developing Documents for the soils using land reclamation plants was developed and Transneft subsidiaries were carried out in 2018, as part hydrobiological exploration was carried out in the water Manufacture of Flotation Plants for Wastewater successfully tested in field conditions. of the R&D work. Based on the results of the inspections, area of Tsemes Bay of the Black Sea in the area where an Treatment at the Facilities of Oil and Petroleum Products recommendations on raising the quality of wastewater aquaculture farm is to be built, and the site for the farm was Trunk Pipelines” An amendment to the Reclamation of Lands Contaminated treatment, retrofitting of wastewater treatment process determined. A workflow for building the farm was developed In 2018, the optimal characteristics were determined for in the Course of Emergency Repairs and Overhauls. The flows, including the revamping of treatment facilities, were and the specifications for its construction were approved. flotation plants to be used within industrial waste- and Requirements for Organisation and Execution of Works suggested. storm water treatment facilities of set standard sizes. regulation was developed and approved. The amendment During the preparation of the materials for the state covers the technology of boggy soil remediation. 2. Technical Work “Developing the Technology of Using environmental appraisal, public hearings were held to assess A comparative cost analysis showed that organising the Aquatic Organisms for Environmental Monitoring of the impact of the planned activities upon the environment. manufacture of flotation plants at the Tyumen MRP of the Water Area in the Gulf of Finland of the Baltic Sea Transneft Siberia was economically reasonable. Transneft is implementing the Development and Creation to Detect the Potential Footprint of Transneft Primorsk 4. Research “The Research of Modern Technologies of Petroleum Vapour Regeneration Plants and Their Port’s Operating Facilities” Ensuring Efficient Consumption of Energy, Raw Materials 6. Research “Analysing the Efficiency and Developing Adaptation at Transneft Subsidiaries innovative project. In 2018, three stages were completed, with the and Energy Carriers: Analyzing the Potential of Recycling Recommendations on the Introduction of Membrane specifications for building an aquaculture farm in the water Spent Lube Oil and Oil Sludge at the Facilities of Bioreactors in Technological Layouts of Utility Water As part of this project, standards for technological design area of the Björkösund Strait (the Gulf of Finland) near Transneft Subsidiaries” Treatment at the Operating Facilities of Transneft of vapour recuperation plants for oil and petroleum Transneft Primorsk Port’s operating facilities developed and As part of this work, the most effective and promising Subsidiaries” products loading facilities used by Transneft subsidiaries approved. methods of recycling spent petroleum products (spent oils, As part of introducing the wastewater treatment are developed. some oil sludges and oil-containing waste) were determined. technologies based on using membrane bioreactors, The state environmental appraisal of materials was expert evaluation of design and engineering The operational efficiency of the jet absorption oil performed, to justify the monitoring of the water area using Transneft’s PTI developed proposals for the use of documentation was conducted in 2018 for the revamping vapour recovery unit has been monitored at the facilities aquatic organisms in the internal seawaters of the Russian equipment and outlines of implementing the possible of treatment facilities at the Krasnoarmeyskaya of Transneft Volga Region as well as the efficiency of Federation. A positive opinion of the state environmental methods of recycling spent oils and oil sludge for LODS as well as of the current data to develop design JAOVRU at the facilities of Transneft Kozmino Port, and appraisal for the project delivery was obtained, followed by the facilities of Transneft subsidiaries as well as documentation for the revamping of treatment facilities at optimal equipment operation modes have been chosen. the approval from the Federal Agency for Fishery. recommendations on fuel preparation for combustion with the Yefimovka LODS of Transneft Volga Region. regard for negative environmental impact reduction. The methods for selecting the means of monitoring the An application for the permission to create, operate and use atmospheric emissions of oil and petroleum products artificial constructions and units in the internal seawaters A novel burner unit was successfully tested at Transneft vapours have been developed. of the Russian Federation was prepared and submitted to Primorsk Port, to find that the quality of its emissions the Federal Supervisory Nature Resources Management complies with the strict requirements of national and world Service. standards.
86 87 Annual report 2018 Joy of Creating
“I like acting“ on stage
I like acting on stage. It all began in 2012, when my colleagues and I decided to stage a festival by ourselves. Since then we’ve been performing every year, dancing, singing or telling fairytales. It’s not that important what role one plays, but Luiza Ismailova it’s important to put one’s soul into it.
Sometimes we invite our colleagues to plant trees or clean lake and river banks together Environmental Engineer with our families. On some occasions there is so much litter that we need an entire KamAZ truck Transneft Far East to remove it. It’s not easy, but you know for sure that you did not work in vain.
The nature is unique in the Russian Far East, and our main challenge is not to do any harm. We do not only try to protect rare flora and fauna species, but also to increase their numbers. For example, there is an exotic orchid in the taiga called “Pogonia japonica”. In 2018, together with scientists from the Vladivostok Botanic Garden Institute at FEB RAS, we planted its seedlings in the vicinity of the ESPO oil pipeline. In wild nature, orchid seeds germinate with the help of microscopic fungi, while in the lab we first let them shoot up in a test tube. When the first leaves emerged, we delivered the sprouts to their new place of habitation by plane. From then on, we’ll look after them here.
88 89 Annual report 2018
Use of Energy Resources and Energy
Igor Kruglov, fourth-category electrical equipment repair and maintenance fitter, route HVL and ECP operation group, power equipment servicing site Conservation (PE SS) at Selgon PS, Transneft Far East
ENERGY CONSUMPTION Consumption of Energy Resources by Transneft Group in 2018
Metering the consumption of fuel and energy resources is ■■ Creating automated systems and databases to monitor the Energy Resource Unit of Measurement Amount Including for oil and petroleum products organised by the Company in accordance with the relevant dynamics of electric power consumption by months and transportation standards, regulations and specifications in electric power years and its correspondence with the dynamics of oil and Electricity (purchased) (taking into account the cost of power) thousand kWh 14,564,110 14,441,552 engineering, heat and gas supply. The fiscal metering of power petroleum products turnover; RUB thousand 45,201,947 44,790,530 consumption in Transneft subsidiaries is performed using ■■ Reducing the level of commercial and technical energy losses (excluding VAT) the automated measuring and information system of energy due to their expedite detection and localisation; Thermal energy (purchased) Gcal 202,448 160,780 monitoring and metering (AMIS EMM). Furthermore, the ■■ Accepting the metering devices of Transneft subsidiaries and RUB thousand 314,900 239,245 Company uses the data provided by the automated system of their inclusion in AMIS EMM while simultaneously retrofitting Fuel for the Company’s own needs, including toe 343,055 310,279 electric power technical metering (ASEPTM). supply points with reference metering devices. RUB thousand 5,631,692 4,888,138 Key areas of improving the electrical energy metering system Transneft has developed and is implementing the Energy Oil for heat generation tonnes 79,608 72,408 at the Company: Saving and Energy Efficiency Enhancement Programme RUB thousand 1,260,035 1,120,943 ■■ Forming a multilevel energy metering system with centralised for 2018-2023 to save energy resources. As part of the Energy Oil for electricity generation tonnes 9,222 9,222 data processing; Saving Programme, organisational and technical measures are RUB thousand 1,349 1,349 ■■ Ensuring that the electric power consumption data collected being taken. Energy inspections (audits) are performed along Natural gas for heat generation thousand m3 78,987 74,368 at each interval are as complete as possible; with introduction of the energy management system and the RUB thousand 380,304 351,424 ■■ Increasing the information transparency of the electric power development of key performance indicators (KPI). Diesel fuel for heat generation tonnes 2,730 2,550 market due to the formation of complete energy balances; ■■ Calculating and analysing actual and acceptable electric RUB thousand 98,670 92,529 power imbalance for electric plants of Transneft subsidiaries; Diesel fuel for electricity generation (at emergency DPPs) tonnes 428 114 RUB thousand 17,177 4,455 Motor fuel for motor transport and special-purpose vehicles tonnes 84,124 72,632 TECHNICAL MEASURES OF THE ENERGY SAVING PROGRAMME RUB thousand 3,874,157 3,317,438 Volume of water purchased for own needs thousand m3 54,224 788 RUB thousand 41,527 21,986 ■■ Oil pumping process modes optimisation ■■ Revamping of storage tanks (floating roof installation) Total toe 2,160,959 2,107,175 ■■ Pipelines’ inner surface and mud trap filters cleaning ■■ Optimising the operation regimes of oil heating stations ■■ Replacement and repair of pumping equipment, including ■■ Installation of heat pumps RUB thousand 51,148,539 49,917,913 rotor replacement ■■ Conversion of the boiler house from petroleum to gas ■■ Use of pump variable frequency drives ■■ Introduction of automated burners ■■ Replacing the packaged transformer substation and ■■ Thermal insulation repair and replacement The targets of the Energy Saving and Energy Efficiency ■■ Reduction in the consumption of energy resources (gas, transformers ■■ Installation of reflector panels behind heating radiators Enhancement Programme of Transneft for 2018-2023 for thermal and electrical energy, fuels and lubricants) ■■ Electric motor replacement and repair ■■ Setup of automated control systems to adjust the the Company’s business units engaged in oil and petroleum used for internal consumption and process needs when ■■ Introduction of digital excitation systems for synchronous temperature mode, as well as of thermostatic radiator products transshipment to other types of transport are: providing services related to oil and petroleum products electric motors equipped with digital motor field regulators valves; using the “standby” heating mode ■■ Decrease in the power consumption rate for oil and transportation over trunk pipelines under comparable ■■ Introduction of LED lamps, including with motion and light ■■ Regular mode adjustment and cleaning the inner surfaces petroleum products transportation, transshipment, conditions. sensors of heating grids and boilers acceptance, discharge, loading and delivery (thousand ■■ Optimisation of the operational algorithm of heat recovery ■■ Overhaul of heated and lighted buildings kWt/h / million t/km) under comparable conditions ventilation ■■ Setup of thermal and electrical energy metering devices ■■ Revamping of electrochemical protection systems ■■ Installation of energy-efficient and heat-saving window sets ■■ Installation of infrared heaters ■■ Upgrading the fleet of motor and special-purpose vehicles ■■ Provision of water metering devices
90 91 Annual report 2018
Performance against the Targets in 2018 and the Plan for 2019
Target Units of Measurement Actual 2017 Planned 2018 Actual 2018 Planned 2019 Specific electricity consumption under comparable thousand kWh / HR Policy conditions, oil transportation million tkm 10.97 10.93 10.92 10.88 Specific electricity consumption under comparable thousand kWh / conditions, petroleum products transportation million tkm 14.24 14.21 14.09 14.14 Reduction of specific electricity consumption under comparable conditions, oil transportation % 0.68 0.7 0.75 0.5 Reduction of specific electricity consumption under comparable conditions, petroleum products transportation % 0.80 0.8 1.6 0.5 MAIN PROVISIONS OF THE HR POLICY
Transneft’s top priorities are the life and health of its Average headcount at Transneft subsidiaries, The year 2018 was declared by Transneft as the Year of Energy employees, as well as staffing of Transneft subsidiaries with thousand employees Saving. The Company continued taking technical measures the required number of highly-qualified workers planning to
to reduce energy consumption, including the erection of a maintain long-term labour relationships. Workers 114.3 115.1 solar park at the Russian Electric Motors enterprise under Managers, construction in the city of Chelyabinsk, installation of a boiler In 2018, staff headcount at Transneft subsidiaries1 amounted specialists and office staff house prototype with enhanced efficiency parameters at the 18,595 to 115.1 thousand employees, showing a 0.6% growth 52.1 52.5 Perm RPD and creating a solar park at Transneft Volga Region. compared to 2017. The growth is attributable to staffing newly toe created jobs that emerged as part of implementation of The Year of Energy Saving 2018’s Results: Transneft’s investment projects, including ESPO facilities, the have been saved to the tune of ■■ 18,595 toe have been saved to the tune of RUB 438.7 Sever Project and the Yug Project. 62.6 million, including 111,764 thousand kWt/h of electrical 62.2 energy, worth RUB 376,524 million Main objectives of Transneft in personnel management: ■■ Reduction of electricity consumption by 0.8% ■■ Staffing Transneft subsidiaries with qualified staff, taking ■■ Reduction of overall electric power consumption by 0.9%. into account long-term and mid-term trunk pipeline system 2017 2018 development plans and maintaining their stability The 2019 plan calls for the saving of 11,873 toe of energy 438.7 ■■ Increasing flexibility of financial and non-financial incentive resources in 2019, including 77,113 kWt/h of electrical systems considering regional factors and the place of energy. The total consumption of electrical energy is to go RUB mln certain groups of professionals on the labour market, Average number of employees at Transneft subsidiaries, down by 0.5%. ensuring a competitive remuneration system breakdown by regions, thousand people ■■ Improving and increasing the quality of personnel training, retraining and refresher courses in accordance with the Reduction of electricity consumption by 20.0 19.9 Central FD laws of the Russian Federation and the directions of the Northwestern FD Company’s strategic and innovative development Southern FD 9.6 9.7 North Caucasian FD 10.2 10.2 Privolzhsky FD 1.4 1.3 Ural FD % 30.7 0.8 30.3 Siberian FD in 2018 Far Eastern FD Other countries
18.8 18.7 Reduction of overall electric power consumption by 14.7 14.9
8.3 8.8 1.0 0.9 0.9 % 2017 2018 in 2018
1 In Transneft Group, excluding NCSP and its subsidiaries
92 93 Annual report 2018
Social Policy
Social policy aimed at attracting, retaining and motivating employees of Transneft subsidiaries forms an Managers and Specialists Workers important part of Transneft’s HR Policy. As part of the social policy, a range of measures is implemented to improve the standard of living and personnel efficiency, support employees, their families and corporate Higher education Professional training Vocational training retirees. Within the policy, conditions are created for personnel treatment, health and recreation; healthy lifestyle is promoted, and corporate culture is developed. Vocational training Targeted training courses Professional training
Professional retraining Special law MEDICAL CARE FOR EMPLOYEES Seminars A voluntary health insurance (VHI) system is in place to ensure Irkutsk and Amur Regions, the northern districts of Krasnoyarsk Ukhta the Company’s personnel is provided with the necessary Territory and the Republic of Sakha (Yakutia). A team of 12 Moscow Base healthcare. All Transneft subsidiaries’ employees that have doctors examined more than 2,900 people; thus, 2,923 department passed probationary period are entitled to VHI. The personnel employees of the Company had their health checked as part of Kanash Ufa Corporate are additionally insured against accidents and illnesses, which the mandatory regular medical examination, and 2,395 were Samara educational Belogorsk enables reimbursement of the employee’s losses related to screened for cancer. Tyumen institutions temporary or permanent disability, should an insured event Vladivostok State vocational occur. Tomsk training institutions Apart from that, better affordability of medical services to employees of Transneft subsidiaries is ensured through State institutions of higher education operation of health stations at Transneft subsidiaries’ facilities and medical examinations carried out by mobile teams of medical specialists. In 2018, health checks at mobile medical units were available to the personnel of Transneft East’s operating facilities in Training of Transneft Group’s employees, courses taken 2017 2018 Apart from that, every year industrial contests are held that Managers 18 221 17 621 PERSONNEL TRAINING AND REFRESHER COURSES are aimed at developing a creative attitude towards labour and Specialists 42 517 41 261 nurturing the feeling of pride for one’s profession. A lot of attention is given to personnel training and further ■■ Operation of power equipment installed at petroleum Workers and Office Staff 48 904 47 760 professional development. Employees of Transneft subsidiaries products pumping stations Total 109 642 106 642 regularly improve their professional skills under specially- ■■ Operation of mechanical process equipment tailored (with due regard to contemporary trends) training ■■ Operation of the facilities of oil and petroleum products programmes at the leading dedicated higher and secondary pipeline transportation vocational education institutions of the Russian Federation. ■■ Automated process control systems LABOUR PRODUCTIVITY AND MEASURES TO INCREASE IT In 2018, programmes for centralised advanced training of engineering and technical personnel of Transneft subsidiaries Staff is mostly trained by corporate and state educational In 2018, the international consulting company KPMG the median value (according to 2017 performance). It stood at were further developed. A procedure was developed and the institutions that have made agreements with the Company and conducted a comparative analysis of performance of Transneft 17.3 million tkm per person in 2017 against the median value participation of managers and specialists from Transneft are providing training to more than 65% of the total number of and 57 peer companies. The study showed that Transneft’s of 7.8 million tkm per person. and its subsidiaries in examination commissions of higher employees involved in training and professional development in-kind labour productivity was more than two-fold higher than The required level of labour productivity is achieved through education institutions and corporate educational institutions programmes. implementation of the measures set forth in Transneft’s Long- was provided for the purpose of quality control over Read more: Term Development Programme in the following key areas: implementation of training programmes in the key areas of the ■■ Optimisation of the organisational and staff structures and For more details on the industry, including: HR policy see Transneft’s the headcount at Transneft subsidiaries Sustainable Development ■■ Optimisation of operational assets and technological Reports processes, as well as automation of business processes.
94 95 Annual report 2018
Industrial Safety and Occupational Health
OCCUPATIONAL SAFETY
Transneft Group sees the protection of human life and health, ■■ To provide continuous training in safe methods and techniques Interaction in Emergencies Transneft subsidiaries have established and certified 39 as well as safe working conditions, as its top priority. Transneft of ensuring occupational safety and to regularly test Transneft Group’s Emergency Prevention and Response emergency rescue teams at central maintenance divisions Group has implemented the occupational health management employees’ knowledge of occupational safety requirements System has been put in place and is functioning (hereinafter (CMD), emergency line maintenance divisions (ELMD), system conforming to the BS OHSAS 18001:2007 international ■■ To allocate organisational, material and financial resources to referred to as the Transneft Emergency System). The Transneft emergency maintenance divisions (EMD) and specialised standard. Compliance with this standard has been confirmed by ensure functioning of the occupational health management Emergency System is an integral part of the functional directorates for emergency prevention and response (SDEPR), an international body for management system certification. system and implementation of occupational safety measures subsystem of the Russian Ministry of Energy’s unified state including: ■■ To ensure personal responsibility of managers and employees system of emergency prevention and response (USSEPR) in ■■ 16 professional emergency rescue teams (PERT) The key principles of Transneft Group in the sphere of for compliance with the occupational safety requirements. fuel and energy companies. It is meant to prevent and respond ■■ 23 non-regular emergency rescue teams (NERTs). occupational health are: to emergencies, as well as to ensure fire safety at the facilities ■■ Priority of employees’ life and health over the result of Personnel Industrial Safety Training of Transneft Group. These are the main forces of the Transneft Emergency System. industrial activities There are 659 hazardous operating facilities of Transneft In 2016, Transneft and EMERCOM (the Emergencies Ministry) The total number of rescuers in all teams stands at 2,944 ■■ Personal responsibility of each employee for their own safety, subsidiaries registered in the State Register; their operation of Russia entered into an Agreement that governs the employees. the right of each employee to suspend the works and their requires special training and certification of the Company’s procedure and forms of their interaction in certain areas, duty to refuse to carry out the work which does not meet safety managers and specialists in the following areas: including organisation and maintaining of civil defense, To improve the practical skills of interaction between requirements ■■ Industrial safety fundamentals prevention and response to oil and petroleum products coordinating bodies in the Transneft Emergency System, ■■ Involvement of all employees in the reduction of occupational ■■ Oil and petroleum products trunk pipeline facilities spills, while accomplishing the tasks related to prediction of/ Transneft Urals and Transneft Central Siberia held tabletop injuries and diseases ■■ Operation of gas distribution and consumption networks response to man-caused emergencies at FES facilities of drills in 2018, with representatives of EMERCOM of Russia’s ■■ Leading role of managers at all levels in ensuring safe working ■■ Operation of hazardous operating facilities at crude oil and Transneft. regional directorates participating in the event. Interaction conditions petroleum products depots Work Plans were also signed as part of the Cooperation ■■ Transparency of significant information on occupational safety ■■ Industrial safety requirements for equipment under gauge All Transneft subsidiaries constantly work on Agreement between Transneft and Rostekhnadzor (the and health measures. pressure ■■ Improving the performance of the Transneft Emergency Federal Service for Environmental, Technological and Nuclear ■■ Industrial safety requirements in operation of hoisting System’s coordinating bodies Supervision) in 2017 and 2018, stipulating joint effort for To comply with the above-mentioned principles, Transneft sets equipment ■■ Improving the interaction with day-to-day management improving the safe operation of trunk pipeline transport the following goals and objectives: ■■ Industrial safety requirements in transportation of bodies of functional and regional subsystems of the facilities. ■■ To ensure employees’ occupational health and safe working hazardous substances USSEPR and the instant readiness forces of the USSEPR, conditions when using buildings, structures and equipment, as ■■ Requirements for operating thermal power plants and when they perform their emergency response tasks Read more: well as proceeding with technological processes heating networks. and tackle issues related to coordination of forces of ■■ To plan and carry out activities to provide employees with the Transneft Emergency System in the event of various For more detail about personal protective equipment meeting state-of-the-art emergencies (accidents) interaction in emergencies see the Transneft sustainable standards of occupational health ■■ Improving the regulatory framework concerning the development reports ■■ To carry out special assessment of working conditions and protection of Transneft Group’s employees and territories assessment of occupational hazard levels from natural and man-caused emergencies ■■ To provide employees with mandatory sanitary maintenance and healthcare to meet the occupational safety requirements; to conduct mandatory preliminary and periodic medical examinations of employees ■■ To provide information on occupational safety and workplace environment, on the existing health risks and on measures of protection against harmful and hazardous workplace factors
16professional emergency rescue teams (PERT) have been formed and certified
96 97 Annual report 2018
Happy I’ve been going in for sports since my childhood. I’ve always felt the spirit of competition and wanted to be the best. I Person performed both at talent shows and contests. Now I am a candidate for master of sports, having won a multitude of medals at corporate swimming and skiing events.
I have recently become a grandma. I like being a reliable supporter for my loved ones, bringing them joy and arranging festive events. I like cooking, my signature dish is balish, a traditional Tatar pie stuffed with meat and potatoes.
I’ve always felt the spirit “of competition and Rozalia Isayeva wanted Commodity Loading Operator, to be
Bavly CTP1 the best
Buguruslan RPD, Transneft Volga Region (Orenburg Region) I joined the Company in 2004, having no special education, but I have completed a training “ course and am able to cope with my tasks. I am in charge of oil custody transfer, quality control and sampling. It was not easy in the beginning, since I had to study a lot of things thoroughly. But thanks to assistance from Trasneft and my own persistence, nothing is too difficult for me now. A person doing what she loves is a happy person!
1 Custody transfer point
98 99 Annual report 2018
Developing Regions of Operation
Transneft is one of Russia’s largest infrastructure companies, Transneft subsidiaries enter into cooperation and social partnership Among the most significant projects supported by Transneft in people, children and adults struggling with diseases and families with operating in various regions including remote Arctic, Siberian agreements with the constituent entities of the Russian Federation 2018 were: low income that find themselves in predicament. and Far East areas inhabited by indigenous minorities. that stipulate targeted charitable donations to municipalities of those ■■ Continued implementation of the three-year Corporate The Company recognises the unique and important role of entities aimed at developing their economy, improving investment School Programme; repair of physics, chemistry and Results of volunteer projects in 2018: indigenous peoples, as well as its duty to consult with these climate and tackling the main social issues in the regions. Under mathematics classrooms in 24 regions of Russia as well as ■■ More than 40,000 employees of the Group signed up for ethnic groups on the matters that concern them. The Group’s these agreements, charitable support is provided to foundations and equipping 46 schools with laboratory and demonstration volunteer projects management holds meetings with representatives of local nongovernmental organisations that render assistance to indigenous equipment. The financing stood at RUB 262.65 million ■■ Over 850 projects implemented communities, developing measures aimed at improving the minorities of the North, Siberia and the Far East. Moreover, Transneft ■■ Continued integrated restoration of the Assumption ■■ Over RUB 20 million of personal volunteer funds used for socioeconomic standing of the local population. subsidiaries pay compensations for possible harm from their Cathedral of the Moscow Kremlin and renovation of the charity purposes operations in the areas where indigenous peoples reside. Tretyakov Art Gallery’s buildings ■■ More than 54,000 people aided by volunteers ■■ Completion of the construction of the Church of All Saints in ■■ Charitable campaigns conducted in 135 cities and towns in Strasbourg, France all federal districts of the Russian Federation
th Read more: Transneft sponsored the Arkhip Kuindzhi: 175 Anniversary exhibition in the Tretyakov Art Gallery. For the Company’s 25th For more detail about anniversary, the Map of Russia: Milestones of History exhibition of engagement with the Company see the Transneft sustainable the Moscow Kremlin Museums was held in the city of Vladivostok development reports as well as the Arsenal of Russian Tsars: XVII-XIX Centuries exhibition in the city of Ufa; Transneft sponsored the Isaac Levitan and Cinéma d’Auteur exhibition held in the Jewish Museum and Tolerance Centre from October 2018 to January 2019.
CHARITY AND VOLUNTEER EFFORT Moreover, in 2018 Transneft traditionally supported the Russian Folk Arts and Crafts Association, the Russian Menzbier Society of Bird Charity is a crucial component in the social policy of Transneft. projects aimed at new technology, education and science Preservation and Studies, the Spasskaya Tower international military The Group adheres to the following priorities in its charity development) music festival. activities: ■■ Sponsoring campaigns contributing to the development of ■■ Financing social infrastructure facilities in regions of culture, preservation and redounding of spiritual values In 2018, the Company developed and successfully implemented operation of Transneft and its subsidiaries (construction, of the many peoples of Russia (implementing projects on the Corporate Volunteer Programme. Socially active employees in renovation, overhaul and routine repair of schools, nursery restoring and reviving historical monuments, providing all Transneft subsidiaries personally assist orphans, lonely elderly schools, outpatient clinics and other social institutions) financial aid to theatres, museums, libraries, cultural and ■■ Supporting grassroots sports (financing sport schools and educational institutions) extracurriculars, measures to improve the fitness and sports ■■ Collaborating with religious organisations (financing the equipment in educational institutions and residential areas, construction, renovation, overhaul and routine repair of along with other projects facilitating the development of monasteries, convents; assisting publishing activity as In 2018, the charity outlay of Transneft, grassroots sports) well as other projects contributing to spiritual and moral its entities and subsidiaries amounted to ■■ Supporting environmental programmes targeting ennobling of people as well as preservation of traditional environment conservation and fauna protection (partnership arts and crafts of the many peoples of Russia) with scientific institutions and nongovernmental ■■ Providing social support and protection for citizens, environmental watchdogs on issues related to adoption of including the improvement of financial standing of people Read more: green technologies; sustainable use of natural resources; with low income, social rehabilitation of the unemployed soil, water and air pollution control) and persons with disabilities “25 Good Deeds” For more detail about ■■ Facilitating the development of science and higher ■■ Contributing to the enhancement of a higher prestige and project social projects see the RUB Transneft Sustainable professional education (improving the infrastructure of profile of the family in society, protecting maternity, assisting 9.9 Development Reports higher educational institutions, increasing scholarships for social rehabilitation of orphans, homeless children as well talented students, involving students and post-graduates in as children left without parental care or in predicament billion R&D, financing departments and labs researching relevant ■■ Implementing joint targeted programmes with charities problems faced by the pipeline industry, implementing other
100 101 Annual report 2018
Responsible Procurement
In the procurement of goods, works and services Transneft is Dynamics of Group’s Procurement in 2017-2018 guided by the Civil Code of the Russian Federation, Federal Law No. 223-FZ On the Procurement of Goods, Works and Indicator 2017 2018 Services by Certain Legal Entities (Procurement Act) dated Number of acquisitions by the Company and its subsidiaries 43,517 47,027 18 July 2011, other national laws and regulatory acts of Initial lot price (the maximum starting price), RUB billion, VAT included 431.6 326.3 the Russian Federation as well as the Regulations on the Cost of contracts signed, RUB billion, VAT included 413.4 307.5 Procurement of Goods, Works and Services of Transneft Share of e-commerce procurement1 42% 60% approved by the Company’s Board of Directors. Information Share of bidding procedures in total procurement (from the maximum starting price) 73% 88% about the procurement activities of Transneft must be both Share of acquisitions from a single supplier in total procurement (from the maximum starting price) 27% 12% placed in the procurement section of the unified information 2 system and uploaded onto the official website of Transneft. Share of acquisitions from SME in total procurement 49% 65%
Information on procurement includes: On the basis of Article 3 of the Law on Procurement, The standard contract for the procurement of works, included ■■ Transneft’s Regulations on the Procurement of Goods, ■■ The regulation on procurement and amendments thereto Resolution of the Government of the Russian Federation in the procurement documentation, contains a clause that Works and Services, based on the results of legal expert ■■ The plan for procurement of goods, works, services No. 616 On Approving the List of Goods, Works and Services to all works at the client’s facilities shall be performed by the evaluation, including the expert opinion about the ■■ The plan for procurement of innovative and high-tech products be Procured in Electronic Form dated 21 June 2012 stipulates contractor in compliance with all standards and requirements presence/absence of corruptogenic factors provided by as well as pharmaceuticals the list of goods, works and services to be purchased online. for occupational health, industrial, fire and electric safety the Institute of Legislation and Comparative Law under the ■■ Procurement information, including a notification of any in accordance with statutes and regulations of the Russian Government of the Russian Federation, does not contradict specific procurement, excluding the quotation inquiry, draft Transneft also conducts online procurement of goods, works Federation as well as the client’s regulations. the Federal Law and does not contain any corruptogenic agreement, etc. and services which are not included in this list; thus the share factors. of Transneft’s online purchases is even greater. The anticorruption measures are also included in local acts Transneft is guided by the following principles in the regulating the procurement activities of Transneft: To enhance procurement transparency, Transneft checks the procurement of goods, works and services: Confidentiality of the information provided by procurement ■■ Transneft’s Regulations on the Procurement of Goods, information provided by counterparties in contract execution ■■ Information transparency participants is one of the principles of online procurement. Works and Services regarding the entire chain of owners and beneficiaries. ■■ Equality, fairness, no discrimination or unreasonable In practice, online procurement is organised by operators of ■■ The procedure of organising and holding tenders for restrictions of competition in relation to procurement parties online platforms who transfer documents and information the sale of property owned by Transneft entities and ■■ Targeted and economically efficient procurement of goods, between procurement participants and the purchaser in a subsidiaries, etc. works and services (if necessary, the cost of the life cycle of timely manner, in full, ensuring the confidentiality of submitted the products purchased is taken into account) and initiatives bids. aimed at reduction of the purchaser’s expenditures ■■ Unlimited access to participation in procurement activities due The operators of e-commerce resources are independent to absence of immeasurable requirements for participants from Transneft. The whole process promotes conscientious competition, publicity and transparency of procurement policies, preventing corruption and other abuses.
1 As per Resolution No. 616 dated 21 June 2012, procurement from a single supplier is not accounted for in our calculations. 2 In estimating the share of acquisitions from small and medium-sized enterprises (SMEs), the procurement of air patrol services, supplies of large-diameter pipes and other procurement types were deducted from the total value of contracts signed on the basis of procurement in the reporting period, in accordance with Clause 7 of the Russian Government Resolution No. 1352 On Specifics of SME Participation in the Procurement of Goods, Works and Services by Certain Types of Legal Entities dated 11 December 2014.
102 103 Annual report 2018 Discovery of Beauty “I dedicated
35 years
of my life to diving and I am now 55 “
I dedicated 35 years of my life to diving and I am now 55. I’ve climbed all steps of the career ladder from a river worker to an expert in underwater operations. I’ll keep working as long as I can pass the essential medical tests. Especially because I have my hands full. Business trips take up most of my time. Not a single deep dive happens without our division participating. Our mission is to provide divers with everything necessary to make their work safe. We are a safeguard against accidents, so to say. I test new diving equipment myself before allowing others to use it.
Fishing is one of my main hobbies. I dare say that there are few rivers this side of the Ural Mountains I have not been to. During my business trips I sometimes have Sergey Valchenko to stay on a motor boat, and to me this is better than a luxury hotel. You step onto the deck in the morning and see sun-glade and flecks on the mirror-like water surface. That’s amazing! Head of Diver Division Transneft UW Service (Nizhny Novgorod Region)
Diving and working at Transneft run in our family. My father worked in the expedition detachment of underwater operations under Glavtransneft. He frequently took me on his business trips, but did not let me dive. Once, had to urgently leave, leaving me with divers. They saw my eagerness, dressed me in a light diving suit with fins and a scuba and let me dive. I’ll never forget this first experience.
104 105 CORPORATE GOVERNANCE
109 Address of the Chairman of the Board of Directors 110 Corporate Governance System 114 Company’s Faces: Aida Sukhanova 116 General Meeting of Shareholders 117 Board of Directors 127 Executive Governing Bodies 134 Company’s Faces: Mikhail Matveyev 136 Risk Management 143 Internal Control and Audit System 147 Authorised Capital and Securities 152 Company’s Faces: Denis Lapitsky Annual report 2018
Address of the Chairman of the Board of Directors
Dear shareholders, investors and partners!
Transneft is constantly improving its corporate governance In 2019, we will further improve Transneft’s corporate practices, both at the level of the Company itself and at governance system. In particular, we will conduct an external Transneft subsidiaries. In 2018, we not only followed assessment of the quality of the internal audit. Internal anti- the principles of transparency and openness, but also corruption documents will also be updated. further expanded the opportunities of shareholders to obtain information about the Company and also resumed regular In addition, the Company will improve its approaches meetings with investors. to working with shareholders and investors. We have already established a special business unit to help shareholders In 2018, we also paid close attention to countering corruption, and investors as efficiently as possible and provide them with fraud and dishonest behavior of the Company's employees. complete, relevant and transparent information about all The Code of Ethics and Conduct for Employees of Transneft aspects of the Company's activity to make sound investment and Transneft Subsidiaries was approved, and all employees and management decisions. are required to familiarise themselves with it. We also approved a clear and unequivocal procedure for notifying the Company of attempts to bribe employees and the procedure for handling complaints received by Transneft’s anti-corruption hotline. Anti-corruption measures in the Company are under constant supervision of the Board of Directors.
ALEXANDER NOVAK Chairman of the Board of Directors of Transneft, Minister of Energy of the Russian Federation
108 109 Annual report 2018
Corporate
Employees of the Construction Planning Directorate, Investment Projects Governance System Department of Transneft Left to right: Aleksey Pchelintsev, Aleksandr Kolomiets, Evgeny Shilin
PRINCIPLES AND INFORMATION ON FOLLOWING THE RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE DEVELOPMENT OF THE CORPORATE GOVERNANCE SYSTEM AND PRACTICES
The Company’s corporate governance system respects Russian Estimating the Company’s compliance with the corporate The main activities aimed at improving Improving the systems of risk management, internal laws, the Listing Rules of the Moscow Exchange, principles and governance principles stipulated in the CGC was done the efficiency of corporate governance in 2018 control and internal audit recommendations of the Corporate Governance Code (CGC)1, in accordance with Recommendations on Drawing a Report The following documents were approved: as well as commonly accepted rules of corporate conduct on Adherence to the CGC Principles and Recommendations3. Improving the process of disclosing information ■■ Methods for conducting self-assessment and business ethic, openness and transparency principles. Essential aspects of the Company’s corporate governance model and working with shareholders of the effectiveness of the risk management system. and practice have not changed since 2017. Transneft has resumed meetings with its investors. In October ■■ Key parameters of Transneft’s risk management system To further improve and structure corporate governance, 2018, an open webinar was held with the participation for 2018-2019 the Company has approved and implements Transneft The Company continues to implement the recommendations of Gazprombank as a professional consultant and organiser. ■■ The Regulations on the Procedure of Access to Insider Action Plan (Road Map) for Implementation of the Corporate of the Corporate Governance Code. So, in 2018, the Company Information of Transneft, rules for protecting its Governance Code2. Since 2017, the Company's Board additionally introduced 6 CGC principles that relate to evaluating The new edition of the Regulations on Provision of Information confidentiality and controlling the observation of Directors has been reviewing information on corporate the performance of the Board of Directors and its Committees, and Documents to Shareholders of the Company was of the redrafted laws on insider information governance practices at Transneft in order to comply with one as well as one principle in the field of information disclosure. As approved. The Regulations were brought into line with ■■ The Code of Ethics and Conduct for Employees of Transneft of the key principles of the CGC, which is the responsibility a result of the implementation of these principles, the Company the Federal Law On Joint-Stock Companies in terms of the rules and Transneft Subsidiaries of the Board of Directors to oversee corporate governance fully complied with 51 of the 79 CGC principles (64.6%) governing information rights of shareholders. In addition, ■■ The Procedure for Notifying the Employer of Attempts practices. by the end of 2018. At the same time, 4 CGC principles (5%) in order to implement the recommendations of the CGC, to Bribe Transneft Employees are not applicable to the Company and cannot be fully observed the Regulations establish the right of a shareholder owning ■■ The Procedure for Handling Incoming Anti-Corruption Hotline due to the fact that all voting shares (100%) belong to the sole 25% or more of the Company's voting shares to receive Calls at Transneft You can find the Corporate Governance Code Principles Compliance Report shareholder represented by the Russian Federation. information and documents of Transneft subsidiaries. in Appendix 11 p. 171 Amendments to Transneft’s Regulations on Internal Audit The annual report and the report on sustainable development have been initiated, a series of methodological documents were highly appreciated by the expert community. have been approved, the procedures for resolving conflicts of Compliance with the CGC principles in 2016-2018 interest among employees of the internal audit unit have been 2016 2017 2018 streamlined.
Read more in the Shareholder and Investor Relations section p. 151
Read more in the Risk Management subsection p. 136
Corporate governance principles Principles Recommended in the CGC compliance Full Partial compliance No compliance compliance Full Partial compliance No compliance compliance Full Partial compliance No compliance
Shareholder rights and equal treatment of all shareholders 13 9 2 2 10 2 1 9 2 2 Improving the management of Transneft subsidiaries Board of Directors 36 15 17 4 19 15 2 25 9 2 ■■ 8 companies were reorganised and liquidated/sold ■■ Transneft subsidiaries together with JS Company Corporate secretary 2 – – 2 1 – 1 1 – 1 "R.O.S.T. Registrar" introduced an electronic voting service, The Company’s Board of Directors and executive management which allows the Company to optimise the procedure remuneration system 10 7 1 2 7 1 2 7 1 2 for holding general meetings of shareholders/participants Risk management and internal of Transneft subsidiaries control and audit 6 3 3 – 3 3 – 2 4 – Information disclosure 7 3 4 – 5 2 – 6 1 – Material corporate actions 5 3 1 1 3 1 1 1 3 1 79 40 28 11 48 24 7 51 20 8 Total score 50.6% 35.4% 13.9% 60.8% 30.4% 8.9% 64.6% 25.3% 10.1%
1 Approved by the Board of Directors of the Bank of Russia on 21 March 2014 2 Approved by the resolution of the Board of Directors of Transneft dated 18 September 2015 (Minutes No. 23) 3 Attachment to Letter from the Bank of Russia No. IN-06-52/8 dated 17 February 2016
110 111 Annual report 2018
Further improvement of corporate governance ■■ Updating documents related to the misuse of insider Structure of Governing and Control Bodies practices information in connection with the adoption of Federal Law Transneft continues to move towards best practices No. 514-FZ dated 27 December 2018 On Amendments Fundamental competences Regulatory documents Meeting frequency in corporate governance. The Company's plans for 2019 to the Federal Law On Securities Market and to Certain General Meeting of Shareholders include: Legislative Acts of the Russian Federation in terms Transneft’s supreme governing body. Competences, timeframes, preparation The Annual General Meeting ■■ Approval of the Corporate Governance Code of Transneft, of Improving the Legal Regulation of the Issue of Securities Its competences include the most important issues of the Company’s and holding procedures for the General of Shareholders is held once a year. whose provisions define the principles and general rules ■■ Conducting an external quality assessment of internal audit management, including: Meeting of Shareholders are In 2018, an Extraordinary General for managing the Company and Transneft subsidiaries at the Company by KPMG2 ▪▪ To approve the Company’s annual report and annual accounting (financial) determined by the Federal Law Meeting of Shareholders was held statements On Joint-Stock Companies, the Articles once ■■ Approval of the Regulations on Information Preparation ■■ Updating Transneft’s Regulations on Internal Audit ▪▪ To elect members of the Board of Directors and the Revision Commission of Association, and the Regulations and Disclosure ▪▪ To pass resolutions on paying dividends on the General Meeting ■■ Establishment of a dedicated business unit for interaction ▪▪ To select external auditors of Shareholders of Transneft with investors and shareholders to increase1 the investment appeal of the Company and implement the Listing Rules Board of Directors of the Moscow Exchange The Board of Directors of the Company is in charge of the overall management The procedure for forming the Board On average, the Board of Directors ■■ Updating of internal documents in the field of countering of the Company’s business. of Directors, its status, membership, holds 4-6 in-person meetings per year. It is the competence of the Board of Directors: functions, goals and objectives, its In 2018, 22 meetings were held, and preventing corruption ▪▪ To protect and ensure the rights of shareholders competences, the procedure for its including 5 in-person meetings and 17 ▪▪ To monitor the development and approval of the Company's strategy, long-term work and cooperation with other meetings in absentia plans and basic programmes regulating the Company's activities, as well as governing bodies of Transneft are to consider reports on their implementation stipulated in the Company’s Articles ▪▪ To participate in the establishment of effective mechanisms for internal of Association and the Regulations Scheme of Corporate Governance Bodies monitoring of the Company's financial and operational activities, as well as on the Board of Directors the risk management system ▪▪ To approve the Company’s budget ▪▪ To determine the KPIs for the Company, its President and Board members Minority shareholders The Russian Federation ▪▪ To facilitate timely disclosure of complete and accurate information (21.4485% of authorised capital; (78.5515% of authorised capital, on the Company's activities 99.9%3 of preferred shares) 100% of ordinary shares) ▪▪ To pass resolutions on the key projects and major transactions Committees under the Board of Directors
External Independent Auditor Committees under the Board of Directors are advisory bodies which provide The Regulations on the Strategy, The frequency and the format Including shares owned preliminary examination of issues and prepare recommendations to the Board Investments and Innovations of meetings of Committees under by Transneft subsidiaries General Meeting of Directors Committee under the Board the Board of Directors depend of Directors of the Public Joint-Stock on the specifics of each Committee. (0.0215% of authorised capital; of Shareholders 3 Company Transneft, the Regulations In total, 34 meetings of Committees 0.1% of preferred shares) on the Audit Committee under under the Board of Directors were held Revision Commission the Board of Directors of the Public in 2018 Joint-Stock Company Transneft and the Regulations on the Human Resources and Remuneration Committee under the Board Audit Committee Strategy, Investments of Directors of the Public Joint-Stock and Innovations Committee Chairman of the Board of Directors Company Transneft were approved by resolution of the Board of Directors Board of Directors of Transneft on 19 January 2017 Human Resources (Minutes No. 1) and Remuneration Committee Department of Internal Audit and Analysis of Core Business Activities President President is the sole executive body who manages day-to-day operations President acts in accordance with and reports to the Board of Directors and the General Meeting of Shareholders. the current legislation, the Articles President is appointed by the General Meeting of Shareholders for 5 years of Association and the Regulations Department President Risk Management Board and serves as the Chairman of the Management Board. on the President of Transneft of Corporate Governance Nikolay Tokarev has been the President of Transneft since 2007 Management Board Risk Assessment Section
Management Board
Administrative subordination Functional connections The Management Board of the Company is a collective executive body responsible The Management Board is guided Meetings of the Management Board for day-to-day management of Transneft. by the current legislation, the Articles are held according to the approved The Management Board is chaired by the President of Transneft of Association, and the Regulations plan (at least once a month). on the Management Board In 2018, the Management Board held of Transneft 51 meetings
Revision Commission The Revision Commission is a permanent elective body controlling financial The Revision Commission’s activities An inspection of financial and operational activities of Transneft are regulated by the Articles and operational activities of Transneft of Association and the Regulations was performed in 2018 1 At the time of publication of the report, the business unit had been established and begun its work. on the Revision Commission 2 At the time of publication of the report, KPMG had completed the external assessment of the quality of internal audit. Based on the assessment results, it was of Transneft concluded that, as of April 2019, the structure and activities of Transneft’s internal audit unit generally comply with the International Standards for the Professional Practice on Internal Auditing (Standards) and the Code of Ethics developed by the Institute of Internal Auditors. “Generally Complies” is the highest rating, which means that the internal audit business unit has the Regulations on Internal Audit, as well as corresponding policies and procedures, and that their performance and results comply with the International Standards for the Professional Practice on Internal Auditing (Standards). 3 Estimates.
112 113 Annual report 2018
Road of Changes
My work at Transneft has allowed me to realise that everything keeps changing in this world, and that your life can also change; you only need to want it. You should not fear changes, but learn every day and never lose heart. That’s why I decided to come back to sports despite my problems and to take part in veteran events.
Nobody pays you for such competitions, you have to find sponsors on your own. My Company helps me, financing all my trips. In 2012, I won a silver medal at the Veteran World
Cup in Finland. It’s important for me that thanks to my job “I decided at Transneft, I can take part in European and world events,
glorifying my country. to come back“ to sports
Aida Sukhanova
Boiler House Operator Tuimazy OPD, Transneft Urals (the Republic of Bashkortostan) Now, I run 6-10 km twice a week. I do not like asphalt and prefer running in the forest. I want to continue participating in competitions as long as my health lets me do so. When I see I spent most of my life in sports. In 2001, I became a national marathon champion. Everything people much older than me at championships, I want to emulate changed after an injury. I had to give up my sport career and master a new trade. I joined them, never rest on laurels and always stay in shape. Transneft in 2008, first working at the Security Division and later becoming a boiler house operator. I like the fact that this work requires independence. It’s important to be focused, self- disciplined and composed, always doing right things. The qualities I developed in sports came in handy here, since they help me cope with any hardships.
114 115 Annual report 2018
General Meeting Board of Shareholders of Directors
All resolutions on the issues within the competence MEMBERS OF THE BOARD OF DIRECTORS of the General Meeting of Shareholders are formalised The Board of Directors is responsible for strategic business According to Transneft’s Articles of Association, the Board by orders of the Federal Agency for State Property management of Transneft. The competences of the Board of Directors consists of nine persons. According Management, since the Russian Federation holds 100% of Directors include resolving significant issues related to the Company, the composition of the Board of Directors is of the voting shares of the Company. to the Company's activities1. The formation procedure, functions optimal for achieving current and strategic goals and objectives and powers of the Board of Directors, as well as the procedure of the Company, and also meets the applicable requirements Annual General Meeting of Shareholders of Transneft dated The Annual General Meeting of Shareholders approved the: of its operation are determined by the Articles of Association of the legislation of the Russian Federation and the Listing 30 June 2018. ▪▪ Annual Report for 2017 and the annual accounting (financial) statements ▪▪ Distribution of profits for 2017 and the Regulations on the Board of Directors. Rules of the Moscow Exchange. Order of the Federal Agency for State Property Management No. 498-r ▪▪ Auditor for 2018 dated 30 July 2018 Resolutions were also passed to elect members of the Board of Directors and the Revision Commission, to pay dividends on shares based on the results Read more: Read more: of 2017, to pay remuneration to members of the Board of Directors and the Revision Commission Transneft’s Articles The Regulations Information on recognising members Extraordinary General Meeting of Shareholders of Transneft dated The Extraordinary General Meeting of Shareholders decided to approve of Association on the Board of the Board of Directors as independent 21 September 2018 Transneft’s participation in the National Association for Technology Transfer and changes thereto of Directors non-profit organisation of Transneft Order of the Federal Agency for State Property Management No. 655-r dated 21 September 2018
Members of the Board of Directors as of 2018 Composition of the Board of Directors4 (persons)
Prior to 30 June 20182 ▪▪ M. Warnig (Non-Executive Director) 3 3 ▪▪ D. Vasilevskaya (Non-Executive Director) 1 3 ▪▪ K. Dmitriev (Non-Executive Director) 3 3 3 ▪▪ I. Klebanov (Independent Director) ▪▪ A. Korsik (Independent Director) ▪▪ A. Novak (Chairman, Non-Executive Director) 6 6 6 5 ▪▪ N. Tokarev (Executive Director) 4 4 4 ▪▪ V. Shantsev (Non-Executive Director) ▪▪ G. Shmal (Independent Director) Since 30 June 20183 2012– 2013– 2014– 2015– 2016– 2017– 2018– ▪▪ M. Warnig (Non-Executive Director) 2013 2014 2015 2016 2017 2018 2019 ▪▪ K. Dmitriev (Non-Executive Director) n epen ent re tor ▪▪ I. Klebanov (Independent Director) epre entat e o t e a n are ol er ▪▪ A. Korsik (Independent Director) n lu n one e e ut e re tor ▪▪ A. Novak (Chairman, Non-Executive Director) ▪▪ M. Sokolov (Non-Executive Director) ▪▪ N. Tokarev (Executive Director) Natalya Kozhevnikova (External Projects Directorate) ▪▪ V. Shantsev (Non-Executive Director) and Evgeny Preobrazhensky (Investment Projects Department, Transneft) ▪▪ G. Shmal (Independent Director)
INDEPENDENT DIRECTORS
Independent directors play an important role in the effective of the Company’s Board of Directors was verified work of the Board of Directors. They provide an independent in accordance with the Listing Rules of the Moscow Exchange review of the issues discussed, based on their knowledge, and the provisions of the Corporate Governance Code experience and qualifications. They play an especially important (CGC). According to the results of this validation approved role when matters of protecting the interests of minority by resolutions of the Company’s Board of Directors6, shareholders and investors are being considered. Such directors I. Klebanov and G. Shmal were recognised as independent, provide independent judgments and constructive criticism despite the presence of formal criteria of affinity. at meetings of the Board of Directors, which contributes 1 In accordance with the competence determined by the Federal Law On Joint-Stock Companies and the Articles of Association of the Company 2 Members were elected by the AGMS and approved by Order No. 1013-r of the Federal Agency for State Property Management dated 29 June 2017. to the development of corporate governance in the Company. 3 Members were elected by the AGMS and approved by Order No. 498-r of the Federal Agency for State Property Management dated 30 June 2018. 4 As of the end of the calendar year. During 2018, the following independent directors were 5 They were nominated as independent directors on the basis of Directive No. 2947-r of the Government of the Russian Federation dated 26 December 2017 independent directors are on the Board and Directive No. 327-r of the Government of the Russian Federation dated 27 February 2018. on the Company’s Board of Directors: I. Klebanov, 6 9 February 2018 (Minutes No. 1), 1 August 2018 (Minutes No. 13). A. Korsik, G. Schmal5. The independence of the members 3 of Directors as of 31 December 2018 116 117 Annual report 2018
INFORMATION ON THE MEMBERS OF THE BOARD OF DIRECTORS1
ALEXANDER VALENTINOVICH NIKOLAY PETROVICH MATTHIAS WARNIG KIRILL ALEKSANDROVICH ALEXANDER LEONIDOVICH NOVAK TOKAREV Member of the Board of Directors DMITRIEV KORSIK Chairman of the Board of Directors Member of the Board of Directors (Representative of the interests Member of the Board of Directors Member of the Board of Directors (Representative of the interests (Representative of the interests of the Russian of the Russian Federation) (Representative of the interests of Transneft (Independent Director) of the Russian Federation) Federation) of the Russian Federation) President, Chairman of the Management Board
■■ Born in 1971. ■■ Born in 1950. ■■ Born in 1955. ■■ Born in 1975. ■■ Born in 1956. ■■ Graduated from the Norilsk Industrial ■■ Graduated from the Karaganda ■■ Graduated from Bruno Leuschner ■■ Graduated from Stanford University in 1996, ■■ Graduated from Bauman Moscow Higher Institute in 1993, majoring in Economics Polytechnic Institute in 1973, majoring Higher School of Economics, in 1981, Bachelor of Arts in Economics. Technical School in 1979, majoring in and Management in Metallurgy. in Electrification and Automation majoring in National Economy. ■■ Graduated from Harvard University in 2000, Automated Control Systems. ■■ Graduated from Lomonosov Moscow of Mining. Master of Business Administration. State University, majoring in Management Positions held in the last 5 years: Positions held in the last 5 years and (Master's programme). Positions held in the last 5 years: ■■ 2006-2016 — Managing Director of Nord Positions held in the last 5 years: participation in governing bodies of other ■■ 2007 to the present day — President, Stream AG; ■■ 2011 to present — Director General of RDIF legal entities: Positions held in the last 5 years: Chairman of the Management Board ■■ 2008 to the present day — Director MC JSC. ■■ 2009 to 2016 – member of the Board of ■■ 2012 to the present day — Minister of Transneft. of Interatis AG (Switzerland); Directors of Bashneft, PJSOC; of Energy of the Russian Federation. ■■ 2015 to the present day — Executive Participation in governing bodies of other legal ■■ 2011 to 2016 – President, Chairman of Participation in governing bodies of other Director of Nord Stream 2 AG entities: the Board of Bashneft, PJSOC. Participation in governing bodies of other legal entities: (Switzerland). ■■ 2012 to the present day — member legal entities: ■■ 2013 to the present day — member of the Board of Directors of MD Medical Group First elected to Company’s Board of Directors ■■ 2012 to the present day — member of the Management Board of the Russian Participation in governing bodies of other Investment plc; of the Supervisory Board of the State Union of Industrialists and Entrepreneurs legal entities: ■■ 2012 to the present day — member on 30 June 2017. Atomic Energy Corporation Rosatom; non-governmental organisation (RSPP); ■■ 2007 to the present day — member of the Management Board of the Russian Union Duration of service on the Board of Directors: ■■ 2015 to the present day — member ■■ 2013 to the present day — member of the Supervisory Council of VTB Bank, of Industrialists and Entrepreneurs all-Russia 1.5 years of the Board of Directors of Rosneft Oil of the Management Board of the Russian PJSC; employers' association; Company, PJSC; Union of Industrialists and Entrepreneurs ■■ 2011 to the present day — Chairman ■■ 2013 to the present day — member ■■ 2015 to the present day — Chairman all-Russia employers' association; of the Administrative Council of GAZPROM of the Board of Directors of RCIF Asset of the Board of Directors of Rosseti, PJSC; ■■ 2015 to the present day — member Schweiz AG; Management Limited; ■■ 2015 to the present day — member of the Board of the International ■■ 2011 to the present day — member ■■ 2013 to the present day — member of the Board of Directors of Gazprom, Association of Oil Transporters; of the Board of Directors of Rosneft Oil of the Board of Trustees of Lomonosov Moscow PJSC. ■■ 2015 to the present day — member Company, PJSC; State University; of the Supervisory Board of the MGIMO ■■ 2014 to the present day — Deputy ■■ 2013 to the present day — representative First elected to Company’s Board of Directors University of the MFA of Russia. Chairman of the Board of Directors of the Russian Federation in the BRICS on 30 June 2015. of Rosneft Oil Company, PJSC; Business Council; ■■ 2013 to the present day — Chairman ■■ 2014 to the present day — member Duration of service on the Board of Directors: First elected to Company’s Board of Directors of the Supervisory Board of Gas Project of the Board of Directors of Bank GPB (JSC); 3.5 years on 6 March 2008. Development Central Asia AG (G.P.D.) ■■ 2014 to the present day — member Duration of service on the Board of Directors: (Switzerland); of the Board of Directors of Rostelecom, PJSC; 10 years 9 months ■■ 2013 to the present day — Chairman of the Administrative Council of Interatis ■■ 2016 to the present day — member Engineering AG (Switzerland); of the Board of Directors of Russian Railways, ■■ 2013 to the present day — Chairman OJSC; of the Administrative Council of Interatis ■■ 2016 to the present day — representative Consulting AG (Switzerland). of the Russian Federation in the APEC Business Advisory Council; ■■ 2017 to the present day — member First elected to Company’s Board of Directors of the Supervisory Board of ALROSA, PJSC. on 30 June 2011. Duration of service on the Board of Directors: First elected to the Board of Directors on 30 June 7.5 years 2017. Duration of service on the Board of Directors: 1.5 1 As of 31 December 2018 years
118 119 Annual report 2018
INFORMATION ON THE MEMBERS OF THE BOARD OF DIRECTORS1
In 2018, the members of the Board of Directors did not have stakes in Transneft’s authorised capital, did not own ordinary shares of the Company and did not make transactions on the acquisition and/or alienation of shares. No loans (credits) were issued to members of the Company’s Board ILYA IOSIFOVICH MAXIM YURYEVICH GENADII IOSIFOVICH VALERY PAVLINOVICH of Directors in 2018. KLEBANOV SOKOLOV SHMAL SHANTSEV Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors of Transneft (Independent Director) (Representative of the interests of Transneft (Independent Director) (Representative of the interests According to the information of the Russian Federation) of the Russian Federation) available to the Company, there are no conflicts of interest among members of the Board of Directors, including those ■■ Born in 1951. ■■ Born in 1968. ■■ Born in 1937. ■■ Born in 1947. related to the participation ■■ Graduated from Kalinin Leningrad ■■ Graduated from the St. Petersburg State ■■ Graduated from the Urals Polytechnic ■■ Graduated from Godovikov Moscow Polytechnic Institute in 1974, majoring University in 1991, majoring in Political Institute in 1959, majoring in Engineering Aviation Engineering College in 1966, of these persons in governing in Electrophysics. Economics. and Metallurgy. majoring in Mechanical Engineering. bodies of Transneft’s ■■ Received a PhD in Economics from the ■■ Graduated from the Academy ■■ Graduated from the Moscow Institute competitors. Members Participation in governing bodies of other St. Petersburg State University in 1993. of National Economy under the USSR of Radio Engineering, Electronics of the Board of Directors are legal entities: Council of Ministers in 1983, majoring and Automation in 1975, majoring not members of professional ■■ 2011 to the present day — Chairman Positions held in the last 5 years: in Economics. in Radio Engineering. of the Board of Directors of Sovcomflot, ■■ 2012 to 2018 — Minister of Transport associations of corporate PJSC; of the Russian Federation; Positions held in the last 5 years Positions held in the last 5 years: directors (managers). ■■ 2013 to the present day — Chairman ■■ 2018 to the present day — Director and participation in governing bodies ■■ 2005 to 2017 — Governor of Nizhny of the Board of Directors of Shvabe, JSC. General of LSR Group, PJSC. of other legal entities: Novgorod Region, Chairman ■■ 1992 to the present day — member of the Government of Nizhny Novgorod Participation in governing bodies of other First elected to the Board of Directors on 30 June of the Board of Directors of RITEK, JSC; Region; legal entities: ■■ 2002 to the present day — President ■■ 2017 to 2018 — Deputy Director 2015. ■■ 2018 to the present day — member of the Union of Oil and Gas Producers General and Deputy Chief Design Officer Duration of service on the Board of Directors: of the Board of Directors, Chairman of Russia; of CONCERN MORINFORMSYSTEM — AGAT, 3.5 years of the Board of LSR Group, PJSC; ■■ 2013 to the present day — member JSC; ■■ 2018 to the present day — member of the Board of Directors of Yamal- ■■ 2018 to the present day — Director of the Board of Directors of Zarubezhneft, Povolzhye, PJSC. General of HC Dynamo-Moscow, LLC. JSC; ■■ 2016 to the present day — Chairman ■■ 2018 to the present day — member of the Board of the West Siberian Participation in governing bodies of other of the Board of Directors of Aeroflot, PJSC. Community Regional Non-Profit legal entities: Organisation. ■■ 2012 to the present day — member of the Board of Directors of All-Russia First elected to Company’s Board of Directors Nizhegorodskaya Yarmarka, CJSC; on 30 June 2018. First elected to the Board of Directors on 30 June ■■ 2012 to the present day — member Duration of service on the Board of Directors: 2017. of the Board of Directors of Nizhny Novgorod International Airport, JSC; 0.5 years Duration of service on the Board of Directors: ■■ 2012 to the present day — member 1.5 years of the Board of Directors of GAZ, PJSC; ■■ 2017 to the present day — member of the Board of Directors of HC Dynamo- Moscow, LLC.
First elected to the Board of Directors on 29 December 2017. Duration of service on the Board of Directors: 1 year
1 As of 31 December 2018
120 121 Annual report 2018
REPORT ON THE RESULTS OF THE BOARD OF DIRECTORS’ OPERATION Key issues reviewed by the Board of Directors and decisions made
Sphere Results for 2018 In 2018, the Board of Directors held 22 meetings1 Issues reviewed by the Board of Directors (%) Strategy Results of implementation of the following were considered: and considered a total of 96 issues. ▪▪ Long-Term Development Programme: for 2017, for Q1 2018, for 1H 2018 and for 9 months of 2018 ▪▪ Transneft Innovation Development Programme for 2017 12 n t e el o uper on The specifications for auditing the implementation of the Transneft Long-Term Development Programme for 2018 was o t e nan al an operat onal approved. a t t e o t e o pan 10 n appro al a u t ent Financial and operational The following questions were addressed: Total number of meetings of the Board of Directors an ple entat on o t e o pan activities ▪▪ Quarterly reports on procurement results 44 a or pro ra e ▪▪ Quarterly reports of the executive body on the financial and economic performance of Transneft and Transneft Group n per on 4 9 ▪▪ Quarterly reports on the implementation of the Programme for Disposal of Transneft Group Enterprises’ Non-Core Assets n a ent a n relat on to e e ut e or er ▪▪ Implementation of executive orders of the Government of the Russian Federation o t e o ern ent ot n ▪▪ Charitable activities of the Company o t e u an e erat on 5 8 ▪▪ Approval of transactions 5 Appro al o t e appo nt ent The following issues were considered and approved: 7 o o e ent al ran ne t ▪▪ Adjusted Transneft Long-Term Development Programme 3 7 u ar e ▪▪ The method of calculating the reduction in Transneft’s operating expenses 23 n t e el o nternal au t ▪▪ Transneft’s budget for 2019 an r ana e ent ▪▪ Consolidated budget of revenues and expenses of Transneft Group for 2019 16 17 o on tor t e ple entat on ▪▪ Consolidated cash flow budget of Transneft Group for 2019 o e on o t e oar ▪▪ Projected values of key performance indicators of operational activities for 2019 o re tor o t e o pan ▪▪ Transneft’s Programme for Operational Efficiency Improvement and Cost Cutting up to 2023 Appro al o t e o pan Corporate governance The following documents in the field of corporate governance were considered and approved: nternal o u ent ▪▪ The Regulations on the Procedure of Access to Insider Information of Transneft, rules for protecting its confidentiality 2016 2017 2018 t er atter and controlling the observation of the redrafted laws on insider information ▪▪ The new edition of the Regulations on the Procedure of Providing Information and Documents to Transneft’s Shareholders The following documents in the field of counteracting corruption were considered and approved: ▪▪ Transneft’s Action Plan for Preventing and Countering Corruption for 2018 ▪▪ Report on the effectiveness of Transneft’s activities aimed at preventing and combating corruption in 2017 ▪▪ The new edition of Transneft’s Anti-Corruption Policy Participation in meetings of the Board of Directors and the Committees under the Board of Directors in 2018 The following documents in the field of risk management were considered and approved: ▪▪ Key parameters of the Risk Management System ▪▪ Transneft’s risk management report for 2017 Members In-person meetings (5) In-absentia meetings (17) Strategy, Investments Audit Committee Human Resources ▪▪ Transneft’s report on managing currency and interest rate risks for 2017 of the Board and Innovations (13 meetings) and Remuneration ▪▪ List of critical risks for 2019 of Directors Committee (11 meetings) Committee The following documents in the field of internal control were considered and approved: (10 meetings) ▪▪ Revised version of the Regulations on the Procurement of Goods, Works and Services A. Novak 5 17 – – – ▪▪ Revised standards for the procurement of certain types of goods, works and services 4 (including 3 written M. Warnig opinions) 15 11 – – D. Vasilevskaya2 3 9 6 – – In addition to the Company’s strategy, financial and operational In the reporting year, resolutions of the Board of Directors 5 (including 3 written activities and corporate governance, in the reporting year on the most significant issues were disclosed by the Company K. Dmitriev opinions) 17 11 – – the Board of Directors considered procedural issues related in the form of press releases and notifications on material 5 (including 1 written to the organisation of its activities and the activities of the of facts in accordance with the legislation and the Regulations I. Klebanov opinion) 17 5 13 10 the Committees under the Board of Directors, as well as other on Transneft’s Information Policy. A. Korsik 5 17 – 13 10 issues that fall within the Board of Directors’ competence. M. Sokolov 2 8 – – – In 2018, members of the Board of Directors did not provide any N. Tokarev 5 17 11 – – dissenting opinions on the issues considered at the meetings. V. Shantsev 5 17 11 – – G. Shmal 5 17 11 13 10 EVALUATION OF THE BOARD OF DIRECTORS’ PERFORMANCE
In order to ensure more efficient operation, the Board considered at the meeting of the Company’s Board of Directors of Directors approved the Regulations on Evaluation on 17 May 2019 (Minutes No. 7). of Transneft’s Board of Directors’ Performance. The evaluation confirmed the high level of management In March 2019, an internal performance evaluation and effectiveness of activities of the Board of Directors and its of the Company's Board of Directors (self-evaluation) was Committees. carried out using a questionnaire, including: ■■ Evaluation of the performance of the Board of Directors as Just like in 2018, members of the Board of Directors the Company’s governing body highly appreciated the effectiveness of interaction with ■■ Evaluation of activities of the Board of Directors / Chairman the Company's management and the work of the Chairman of the Board of Directors of the Board of Directors. ■■ Evaluation of activities of the Committees under the Board of Directors It was recommended to increase the number of in-person 1 The following are dates of the meetings of the Board of Directors and numbers of the corresponding minutes: 9 February 2018 No. 1; 19 March 2018 No. 2; 21 March 2018 No. 3; 2 April 2018 No. 4; 23 April 2018 No. 5; 24 April 2018 No. 6; 4 May 2018 No. 7; 16 May 2018 No. 8; 22 May 2018 No. 9; 31 May 2018 No. 10; 22 meetings of the Board of Directors in order to improve June 2018 No. 11; 28 June 2018 No. 12; 1 August 2018 No. 13; 30 August 2018 No. 14; 25 September 2018 No. 15; 8 October 2018 No. 16; 15 October 2018 No. The evaluation assessed the work of the Board of Directors the efficiency of the work of the Board of Directors. 17; 30 November 2018 No. 18; 11 December 2018 No. 19; 24 December 2018 No. 20; 25 December 2018 No. 21; 27 December 2018 No. 22. for the period since 30 June 2018. The results were 2 Member of the Board of Directors up to 30 June 2018.
122 123 Annual report 2018
The most important issues regarding external and internal audit that were considered COMMITTEES UNDER THE BOARD OF DIRECTORS External Audit To ensure preliminary consideration of key issues and prepare Issues considered by the Committees in 2018 ▪▪ The Regulations on Holding an Open Tender to Select an Auditor for the Mandatory Annual Audit of Transneft for 2018 and Reviewing the Interim Consolidated Financial Statements for Q1 of 2019 relevant recommendations for the Board of Directors, there ▪▪ Composition of the tender commission to select an auditor for the mandatory annual audit of Transneft were three Committees in 2018: otal nu er ▪▪ Scope and plans for the audit of the annual reports for 2018 by the external auditor ■■ Audit Committee (AC) o ue on ere ▪▪ Transneft’s Report on the Remarks of the Auditor for 9 Months of 2017 and Remedial Actions o ttee n 2018 ▪▪ On the offered initial (maximum) price for the open tender for the auditor selection for the mandatory annual audit of Transneft for 2019 and reviewing the interim ■■ Human Resources and Remuneration Committee (HRRC) consolidated financial statements for Q1 2020 ■■ Strategy, Investments and Innovations Committee (SIIC) n lu n ▪▪ On the conclusion of Transneft's auditor on the results of the audit of Transneft's financial and operational activities for 2017 and the assessment of the auditor's re o en at on report, that is to be provided to persons entitled to participate in the annual general meeting of Transneft shareholders to t e oar o re tor 26 The Committees contribute to the effectiveness 25 23 Internal Audit of the decisions taken by the Board of Directors. A Committee’s 17 20 ▪▪ Consideration of the report on the results of the activities of Transneft's internal audit unit for 2017, including the independence and objectivity of the internal chairman has the right to invite employees of the Company, audit function, as well as its effectiveness experts and third parties to participate in the meetings 13 ▪▪ Consideration of the general areas (planning) for internal audit in Transneft for 2019 of the Committee without the right to vote. In 2018, the Committees held 34 meetings to consider various issues and prepare detailed recommendations and proposals SIIC AC HRRC The audit report on the financial statements of Transneft In 2018, the Human Resources and Remuneration Committee for the Board of Directors. for 2017 was provided by KPMG. The report was reviewed held 10 meetings (there were 3 in-person meetings and 7 by the Audit Committee and recognised as complying with in-absentia meetings). Key issues on which recommendations the requirements established by the International auditing were prepared9: Meetings of the Committees in 2016–2018 standards in force in the Russian Federation. ■■ On approval of the new edition of the remuneration system based on the performance of Transneft and Transneft 201 Human Resources and Remuneration Committee subsidiaries' managers and employees for the year 201 % 2018 The Human Resources and Remuneration Committee provides ■■ On the concurrence of positions in governing bodies of other 73 preliminary study of issues and prepares recommendations organisations by the President of Transneft and members of the directors in the Committees under to the Board of Directors on issues of human resources of the Transneft Management Board 1 the Board of Directors were independent and social policies as well as remuneration policy. ■■ On recommendations for the payment of remuneration The Committee’s operations are governed by the Regulations to members of the Board of Directors of Transneft 12 13 Audit Committee 11 11 10 10 on the Human resources and Remuneration Committee under ■■ On recommendations for the payment of remuneration 8 9 6 The Audit Committee provides the Board of Directors 7 the Board of Directors . to the sole executive body with preliminary study of matters related to supervising ■■ On the payment of remuneration to managers the Company’s financial and operational activities and on other The composition of the Human resources and Remuneration and employees of Transneft and Transneft subsidiaries, as matters delegated to the Committee by the Board of Directors. Committee did not change during the reporting period7. As well as members of the Revision Commission The Committee’s activities are governed by the Regulations SIIC AC HRRC of the end of 2018, it was composed entirely of independent ■■ On the adjustment of the Plan for Introduction on the Audit Committee under the Board of Directors2. directors. The Committee was composed of8: of Professional Standards in Transneft and Transneft ■■ A. Korsik (Chairman of the Committee, Independent Subsidiaries in 2016-2020 The composition of the Audit Committee did not change Director) ■■ On the implementation of the Plan for Introduction during the reporting period3. As of the end of 2018, it was ■■ On the amount, form and procedure of payment of annual ■■ I. Klebanov (Independent Director) of Professional Standards in Transneft and Transneft composed entirely of independent directors. The Committee dividends for all types of Transneft’s shares ■■ G. Shmal (Independent Director) Subsidiaries in 2016-2020 was composed of4: ■■ On the report on currency and interest rate risk ■■ On the proposed candidates for Transneft’s Board
■■ I. Klebanov (Chairman of the Committee, Independent management in Transneft for 2017 Read more: of Directors and Revision Commission for 2019-2020 Director) ■■ On quarterly reports of Transneft’s executive body ■■ On evaluation of the performance of Transneft’s Board ■■ A. Korsik (Independent Director) on the financial and economic performance of Transneft The Regulations on the Human resources and Remuneration Committee of Directors ■■ G. Shmal (Independent Director). and Transneft Group for Q1 2018, 1H 2018 and 9 months under the Board of Directors of Transneft ■■ On the basic principles of remuneration for members of 2018 of collective management bodies and employees In 2018, the Audit Committee held 13 meetings (there were ■■ On the expected implementation of the budget of Transneft of Transneft 5 in-person meetings and 8 in-absentia meetings). Key issues and the consolidated budget of Transneft Group for 2018 ■■ On approval of the Regulations on the Long-Term Incentive on which recommendations were prepared5: ■■ On the budget of Transneft and the consolidated budget Programme of Transneft. ■■ On Transneft’s Risk Management Report in 2017 of Transneft Group for 2019 ■■ On approval of the key parameters of Transneft’s Risk ■■ On reviewing the Annual Report of Transneft for 2017 Management System ■■ On approval of the list of critical risks of Transneft for 2019 1 ■■ On the preliminary approval of Transneft’s annual ■■ On approval of the Regulations on the Procedure of Access As of 31 December 2018. 2Approved by Board of Directors of Transneft on 19 January 2017 (Minutes No. 1). accounting (financial) statements, inclusive of the financial to Insider Information of Transneft, Rules for Protecting 3 According to Order of the Federal Agency for State Property Management No. 1013-r dated 29 December 2017, the powers of the members of the Board of Directors results statement its Confidentiality and Controlling the Observation were prematurely terminated, and a new Board of Directors was elected. Thus, new members of the Committees were not elected as of 9 February 2018. 4 ■■ On the auditor of Transneft for 2018 of the Redrafted Laws on Insider Information Elected in accordance with decisions of the Board of Directors, see Minutes No. 1 dated 9 February 2018, Minutes No. 13 dated 1 August 2018. 5 Dates of the Audit Committee’s meetings and numbers of the corresponding minutes: 13 February 2018 No. 1; 5 April 2018 No. 2; 12 April 2018 No. 3; 8 May 2018 ■■ On preliminary distribution of Transneft’s profits for 2017 No. 4; 28 May 2018 No. 5; 20 June 2018 No. 6; 13 August 2018 No. 7; 13 September 2018 No. 8; 13 November 2018 No. 9; 26 November 2018 No. 10; 7 December 2018 No. 11; 12 December 2018 No. 12; 21 December 2018 No. 13. Read more: 6 Approved by the Transneft Board of Directors on 19 January 2017 (Minutes No. 1). 7 According to Order of the Federal Agency for State Property Management No. 1013-r dated 29 December 2017, the powers of the members of the Board of Directors The Regulations on the Audit Committee under the Board of Directors were prematurely terminated, and a new Board of Directors was elected. Thus, new members of the Committees were not elected as of 9 February 2018. of Transneft 8 Elected in accordance with decisions of the Board of Directors, see Minutes No. 1 dated 9 February 2018, Minutes No. 13 dated 1 August 2018. 9 Dates of the Human Resources and Remuneration Committee’s meetings and numbers of the minutes: 30 March 2018 No. 1; 5 April 2018 No. 2; 13 April 2018 No. 3; 21 May 2018 No. 4; 22 June 2018 No. 5; 13 August 2018 No. 6, 10 September 2018 No. 7; 3 October 2018 No. 8, 14 November 2018 No. 9; 21 December 2018 No. 10.
124 125 Annual report 2018
Read more: Strategy, Investments and Innovations Committee
The Strategy, Investments and Innovations Committee provides The Regulations on the Strategy, Investments and Innovations Committee the Board of Directors with preliminary study of issues under the Board of Directors of Transneft Executive regarding the development of the Company’s long-term strategy and its investment, innovation and dividend policy as well as improving Transneft’s performance. The Committee’s Governing Bodies operations are governed by the Regulations on the Strategy, Investments and Innovations Committee under the Board of Directors1. The President7 and the Management Board8 of Transneft bear the responsibility for managing the Company’s day-to-day operations and ensuring that the Company’s objectives and development strategy are effectively implemented. The area 2018 saw two lists of memebrs included in the Strategy, Investments and Innovations Committee2 of competence of the executive bodies does not include issues falling within the competence of the General Meeting of Shareholders and the Board of Directors. Members approved by the Board of Directors on 9 February 20183 Members approved by the Board of Directors on 1 August 20184 К. Dmitriev (Chairman of the Committee); K. Dmitriev (Chairman of the Committee); PRESIDENT D. Vasilevskaya; M. Warnig; M. Warnig; M. Sokolov; N. Tokarev; N. Tokarev; The President of Transneft is responsible for day-to- the implementation of decisions of the Management Board V. Shantsev; V. Shantsev; day management of the Company and is the Chairman ■■ To carry out day-to-day management of the Company’s G. Shmal (Independent Director, Representative of the Transneft Consumer G. Shmal (Independent Director, Representative of the Transneft Consumer Council) Council) of the Management Board. Nikolay Tokarev has been operations in accordance with the resolutions the President of Transneft since the first election9 in 2007. of the General Meeting of Shareholders and the Board In 2015, powers of Nikolay Tokarev were extended for a period of Directors of five years10. ■■ To submit proposals to the Board of Directors The composition of the Strategy, Investments and Innovations Corporate Secretary regarding the appointment or dismissal of members Committee changed once during the reporting period5: The functions of Transneft’s Corporate Secretary are It is the competence of the President (Chairman of the Management Board ■■ Report on implementation of Transneft’s Programme carried out by a special business unit — the Corporate of the Management Board): ■■ To arrange for and convene meetings of the Management for Operational Efficiency Improvement and Cost Cutting up Governance Department (CGD). As stipulated by the CGC ■■ To make all and any transactions on behalf of the Company Board to 2022 recommendations, the Board of Directors approved including those subject to approval by the General ■■ To approve the list of essential Transneft subsidiaries based ■■ On the implementation of key performance indicators the Regulations on the Corporate Governance Department Meeting of Shareholders, the Board of Directors and/or on the criteria established by the Board of Directors of Transneft’s operational activities for 2017 and agreed on the head of this business unit6. the Management Board in accordance with laws and/or ■■ To determine the Company’s position with regard to issues ■■ On the auditor’s opinion regarding the implementation the Company’s Articles of Association concerning specific Transneft subsidiaries of the Transneft Long-Term Development Programme ■■ To organise the work of the Management Board, ■■ To make decisions on any issues other than those within for 2017 convene meetings and act as the chairman, monitor the competence of the General Meeting of Shareholders, ■■ On the implementation of the Transneft Innovation the Board of Directors and the Management Board. Development Programme in 2017 ■■ On consideration of the Terms of Reference for comparison of the level of technological development and current MANAGEMENT BOARD key performance indicators of Transneft’s innovations Statistics of Board meetings and issues addressed with the level of development and indicators of leading It is the competence of the Management Board comparable foreign companies u er o ana e ent oar eet n ■■ On consideration of Transneft’s procurement report form ▪▪ To approve the Company’s transactions worth between RUB 50 billion ■■ On adjustment of Transneft’s LDP (exclusive) and RUB 100 billion (inclusive), unless a different transaction u er o ue approval procedure is established by the Articles of Association a re e ■■ On the specifications for auditing Transneft’s LDP for 2018 ▪▪ To draft proposals on the Company’s priority business areas for the Board ■■ On consideration of Transneft’s Programme for Operational of Directors 249 ▪▪ To draft proposals on change and expansion of the Company’s operations Efficiency Improvement and Cost Cutting up to 2023 227 for the Board of Directors 191 ■■ On the target key performance indicators of Transneft’s ▪▪ To make decisions about the Company’s participation and termination operational activities for 2019 of participation in other entities, except when such a decision is to be taken by the General Meeting of Shareholders or the Board of Directors ■■ On approval of the Comprehensive Programme to Increase ▪▪ To approve key performance indicators for the Company’s subsidiaries 58 Transneft’s Capitalisation and Investment Appeal. and perform follow-up analysis 58 52 51 ▪▪ To determine the Company’s position on issues concerning Transneft subsidiaries. 2016 2017 2018
1 Approved by the Board of Directors of Transneft on 19 January 2017 (Minutes No. 1). 2 On 13 February 2019, Vladimir Rushailo was dismissed from According to Order of the Federal Agency for State Property Management No. 1013-r dated 29 December 2017, the powers of the members of the Board of Directors Members of the Management Board as of 31 December 2018 were prematurely terminated, and a new Board of Directors was elected. Thus, new members of the Committees were not elected as of 9 February 2018. the position of a member of Transneft’s Management Board 3 Minutes No. 1 dated 9 February 2018. This Strategy, Investments and Innovations Committee operated until 30 June 2018. ▪▪ Nikolay Tokarev (President, Chairman of the Board) in accordance with the decision of the Board of Directors 4 Minutes No. 13 dated 1 August 2018. ▪▪ Maksim Grishanin (First Vice President) 5 of Transneft (Minutes No. 1). Dates of the Strategy, Investments and Innovations Committee’s meetings and numbers of the minutes: 10 April 2018 No. 1; 20 April 2018 No. 2; 30 May 2018 ▪▪ Sergey Andronov (Vice President) No. 3; 22 June 2018 No. 4, 10 August 2018 No. 5; 19 September 2018 No.6, 19 October 2018 No. 7, 6 November 2018 No. 8; 5 December 2018 No. 9, ▪▪ Larisa Kalanda (Vice President) 7 December 2018 No. 10; 21 December 2018 No. 11. ▪▪ Boris Korol (Vice President) On 5 April 2019, Vyacheslav Skvortsov was appointed 6 Minutes No. 1 dated 19 January 2017. ▪▪ Mikhail Margelov (Vice President) 7 to Transneft’s Management Board in accordance with The Company’s sole executive body. ▪▪ Pavel Revel-Muroz (Vice President) 8 The Company’s collective executive body. ▪▪ Vladimir Rushailo (Vice President) the decision of Transneft’s Board of Directors (Minutes No. 5). 9 By resolution of the Extraordinary General Meeting of Shareholders (formalised by Order of the Federal Agency for State Property Management No. 3264-r dated ▪▪ Aleksey Sapsay (Vice President) 12 October 2007). ▪▪ Rashid Sharipov (Vice President) 10 By resolution of the Extraordinary General Meeting of Shareholders of Transneft (formalised by Order of the Federal Agency for State Property In 2018, the Management Board of the Company held 51 Management No. 264-r dated 24 April 2015). meetings and considered 227 issues.
126 127 Annual report 2018
INFORMATION ABOUT PRESIDENT AND MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2018
NIKOLAY PETROVICH SERGEY ALEKSANDROVICH MAKSIM SERGEYEVICH LARISA VYACHESLAVOVNA BORIS MIKHAILOVICH TOKAREV ANDRONOV GRISHANIN KALANDA KOROL President, Chairman of the Management Member of the Management Board, Member of the Management Board, Member of the Management Board, Member of the Management Board, Board Vice President First Vice President Vice President Vice President Member of the Board of Directors
■■ Born in 1950. ■■ Born in 1969. ■■ Born in 1968. ■■ Born in 1964. ■■ Born in 1955. ■■ Graduated from the Karaganda ■■ Graduated from Lesgaft National State ■■ Graduated from Christian-Albrechts- ■■ Graduated from Sverdlovsk R. A. Rudenko ■■ Graduated from the Military Institute Polytechnic Institute in 1973, majoring University of Physical Education, Sport University of Kiel (Germany) in 1995, Law Institute in 1985, majoring in Legal of Foreign Languages in 1981, majoring in Electrification and Automation and Health in 1991, qualified as a coach- majoring in Economics. Studies. Completed the post-graduate in Legal Sciences. of Mining. instructor. Graduated from Lobachevsky course at the Institute of Philosophy State University of Nizhny Novgorod and Law under the National Academy in 1997, qualified as an economist- of Sciences of Belarus in 1994. manager.
Positions held in the last 5 years: Positions held in the last 5 years Positions held in the last 5 years: Positions held in the last 5 years: Positions held in the last 5 years: ■■ 2011 to the present day — Vice President ■■ 2006 to 2016 — Official Secretary ■■ 2010 to the present day — Vice President ■■ 2007 to the present day — President, ■■ 2012 to 2014 — Assistant to the President and First Vice President of Transneft. and Vice President of Rosneft Oil of Transneft. Chairman of the Management Board of Rosneft Oil Company, PJSC; Company, PJSC (prior to 2012 — Vice of Transneft. ■■ 2014 to the present day — Vice President Participation in governing bodies of other President); Participation in governing bodies of other of Transneft. legal entities: ■■ 2016 to the present day — Vice President legal entities: Participation in governing bodies of other ■■ 2012 to the present day — member of Transneft. ■■ 2011 to the present day — member legal entities: Participation in governing bodies of other of the Board of Directors of NCSP, PJSC of the Board of Directors of KHL, LLC; ■■ 2013 to the present day — member legal entities: (Chairman of the Board of Directors ■■ 2018 to the present day — Chairman of the Management Board of the Russian ■■ 2015 to the present day — member of NCSP, PJSC from 19 April 2013 to 18 of the Presidium of the NKhL Foundation; Union of Industrialists and Entrepreneurs of the Board of Directors of NCSP, PJSC; May 2017). ■■ 2018 to the present day — member non-governmental organisation (RSPP);; ■■ 2016 to the present day — Member of the Board of Directors of HC Dynamo- ■■ 2013 to the present day — member of the Board of Directors of CPC-R, JSC; Moscow, LLC. of the Management Board of the Russian ■■ 2017 to the present day — Member Union of Industrialists and Entrepreneurs of the Board of Directors of CPC-K, JSC; all-Russia employers' association (RSPP);; ■■ 2018 to the present day — Member ■■ 2015 to the present day — member of the Board of Directors of Ust-Luga Oil, of the Board of the International JSC. Association of Oil Transporters; ■■ 2015 to the present day — member of the Supervisory Board of the MGIMO University of the MFA of Russia.
128 129 Annual report 2018
INFORMATION ABOUT PRESIDENT AND MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2018
In 2018, the members of the Management Board did not have stakes in Transneft, did not own ordinary shares of the Company, and did not make transactions on the acquisition and/or alienation of the shares. No loans (credits) were issued to members of the Company’s Management Board in 2018.
According to the information available to the Company, there MIKHAIL VITALIEVICH PAVEL ALEKSANDROVICH VLADIMIR BORISOVICH ALEKSEY NIKOLAEVICH RASHID RAVELEVICH are no conflicts of interest among MARGELOV REVEL-MUROZ RUSHAILO SAPSAY SHARIPOV members of the Management Member of the Management Board, Member of the Management Board, Member of the Management Board, Member of the Management Board, Member of the Management Board, Vice President Vice President Vice President Vice President Vice President Board, including those related to the participation of these persons in governing bodies of Transneft’s competitors.
■■ Born in 1964. ■■ Born in 1974. ■■ Born in 1953. ■■ Born in 1972. ■■ Born in 1968. ■■ Graduated from Lomonosov Moscow ■■ Graduated from the Chelyabinsk State ■■ Graduated from the Omsk Higher ■■ Graduated from the Ufa State Petroleum ■■ Graduated from the Moscow State State University (Institute of Asian and University of Agroengineering in 1996, School of Police in 1976, USSR Ministry Technological University in 2001, majoring Institute of International Relations under African Countries) in 1986, majoring in majoring in Mechanisation of Agriculture. of Internal Affairs, majoring in Law. in Design, Construction and Operation the Ministry of Foreign Affairs of the USSR History with the qualification of a historian ■■ Graduated from the Ufa State Petroleum of Gas and Oil Pipelines and Oil and Gas in 1991, majoring in International specialising in Oriental studies, Arabic Technological University in 2000, majoring Storage Facilities. Relations. language interpreter. in Design, Construction and Operation of Gas and Oil Pipelines and Oil and Gas Positions held in the last 5 years: Storage Facilities. ■■ 2014 to the present day — Vice President of Transneft. Positions held in the last 5 years: Positions held in the last 5 years: Positions held in the last 5 years: Positions held in the last 5 years: ■■ 2008 to the present day — Vice President ■■ 2013 to the present day1 — Vice President ■■ 2009 to the present day — Deputy Vice ■■ 2013 to 2015 — Vice President, Head Participation in governing bodies of other of Transneft. of Transneft. President and Vice President of Transneft. of the Executive Office of the President legal entities: of Rosneft Oil Company, PJSC; ■■ 2015 to the present day — member of the Participation in governing bodies of other Participation in governing bodies of other ■■ 2016 to the present day — Deputy Vice Board of Directors of CPC-R, JSC; legal entities: legal entities: President and Vice President of Transneft. ■■ 2015 to the present day — Chairman of ■■ 2012 to the present day — Chairman ■■ 2008 to the present day — Chairman the Board of Directors of PC-BA, LLC. of the Board of Directors of Nevskaya of the Supervisory Board of Griboedov Participation in governing bodies of other Pipeline Company, LLC; Institute of International Law legal entities: ■■ 2017 to the present day — Chairman and Economics. ■■ 2016 to the present day — member of the Board of Directors of Transneft Oil of the Board of Directors of NCSP, PJSC Pumps, JSC; (from 18 May 2017 to 13 April 2018 ■■ 2017 to the present day — member — Chairman of the Board of Directors of the Board of Directors of CPC-R, JSC. of NCSP, PJSC; from 16 November 2018 to the present day); ■■ 2016 to the present day — member of the Board of Directors of CPC-R, JSC; ■■ 2017 to the present day — member of the Board of Directors of CPC-K, JSC; ■■ 2018 to the present day — member of the Board of Directors of Ust-Luga Oil, JSC.
1 On 6 February 2019, he ceased his career in the Company due to retirement.
130 131 Annual report 2018
REMUNERATION SYSTEM FOR KEY MANAGEMENT
The key managers include members of the Board of Directors Members of the Board of Directors receive remuneration Remuneration for Members of Executive Bodies ■■ Annual performance-based remuneration payable and the Management Board of Transneft (including the sole for participation in the operations of the governing body. and Directors General of Transneft Subsidiaries to other Management Board members and to directors executive body of the Company) as well as directors general Remuneration of the members of the Board of Directors is Members of the Management Board of Transneft are paid general of Transneft subsidiaries in accordance with of significant Transneft subsidiaries. approved at the Annual General Meeting of Shareholders. remuneration as employees of the Company, including monthly the System for Annual Performance-Based Remuneration According to the Regulations on Remuneration to Members salaries and other payments determined by their employment to the Managers and the Employees of Transneft Remuneration for the key management is governed of the Board of Directors, the remuneration consists agreements: and Transneft Subsidiaries, and with2 the Regulations by the regulatory documents adopted by Transneft. Control of the following parts: ■■ Performance-based remuneration payable to the sole on Annual Performance-Based Remuneration over the introduction and implementation of the Company's ■■ Fixed part (payable for exercising the powers of a member executive body of the Company in accordance with to the Managers and the Employees of Transneft remuneration policy (including the payment) is exercised of the Board of Directors) the Regulations on Remuneration to the Sole Executive and Transneft Subsidiaries3. in accordance with the Systems and Regulations adopted ■■ Variable part (payable for achieving the key performance Body of Transneft by Transneft: indicators established by the Regulations) In 2018, the key managers’ remuneration policy was not ■■ Regarding members of the Board of Directors, through ■■ Allowances for additional duties (payable to members subject to any significant changes. resolutions of the Federal Agency for State Property of the Board of Directors for performing additional Management (Rosimushchestvo) duties related to exercising the powers of the Chairman The total remuneration, benefits and compensation paid to the Management Board members of Transneft4 in 2018 ■■ Regarding members of the Management Board (including of the Board of Directors and work in the specialised (RUB thousand) the Sole Management Body of the Company) and directors Committees under the Board of Directors). general of significant Transneft subsidiaries, through Types of Remuneration Amount respective resolutions of the Board of Directors The remuneration paid to members of the Board of Directors Remuneration for Participation in the Governing Body in 2018 amounted to RUB 52,727 thousand. Salary 537,224.2 Remuneration for Members of the Board Bonuses 783,284.7 of Directors Commission Fees Remuneration is governed by the Regulations on Remuneration Read more: Benefits 128,452.9 to Members of the Board of Directors of Transneft adopted Compensation of Expenses 22,587.9 by the Annual General Meeting of Shareholders (Order The Regulations on Remuneration to Members of the Board of Directors of the Federal Agency for State Property Management of Transneft Other Types of Remuneration No. 541-r dated 30 June 2015). No amendments were made Total 1,471,549.7 to the said Regulations in 2018.
Individual Remuneration to Members of the Board of Directors in 2018 (RUB thousand) No separate remuneration is payable for the performance The remuneration paid to members of the Management of the duties of members of the Management Board, additional Board over time (RUB million) costs are not reimbursed. No remuneration on the basis Allowances for Participation Year 2016 2017 2018 Member of the Board of Directors in the Committees under of shares was paid at Transneft in 2018. / Full Name Fixed Part Variable Part the Board of Directors Total Total 902.3 1,035.1 1,471.5 Matthias Warnig 1,080.4 5,646.2 672.7 7,399.3 The total payments to directors general of significant Transneft Kirill Aleksandrovich Dmitriev 1,080.4 5,646.2 1,345.3 8,071.9 subsidiaries reached RUB 511,667 thousand in 2018. Nikolay Petrovich Tokarev 1,080.4 5,646.2 672.7 7,399.3 Valery Pavlinovich Shantsev 540.2 2,823.1 259.6 3,622.9 Genadii Iosifovich Shmal 1,080.4 5,646.2 2,017.9 8,744.5 Ilya Iosifovich Klebanov 1,080.4 5,646.2 2,017.9 8,744.5 Alexander Leonidovich Korsik 1,080.4 5,646.2 2,017.9 8,744.5 52,727.0
No separate remuneration was payable for the costs The remuneration paid to members of the Board associated with the performance of the duties of members of Directors over time (RUB million) of the Board of Directors. Remuneration was not paid to the members of the Board of Directors who were subject Year 2016 2017 2018 to restriction or prohibition on receiving remuneration from Total 43.8 50.5 52.7 commercial organisations (A. Novak and D. Vasilevskaya are public employees).
1 Approved by resolution of the Board of Directors of Transneft on 23 April 2018, Minutes No. 5. 2 Approved by the Board of Directors of Transneft on 15 December 2011, Minutes No. 18, as amended. 3 Approved by the Management Board of Transneft on 29 December 2011, Minutes No. 45, as amended. 4 Including the sole executive body. 5 The following companies are regarded as Essential Transneft subsidiaries: Transneft Siberia, JSC; Transneft Druzhba, JSC; Transneft Volga Region, JSC; Transneft Urals, JSC; Transneft Baltic, LLC; Transneft Upper Volga, JSC; Svyaztransneft, JSC; Transneft Kama Region, JSC; Chernomortransneft, JSC; Transneft East, LLC; Transneft Far East, LLC; Transneft Western Siberia, JSC; Transneft Finance, LLC; Transneft Security Services, LLC.
132 133 Annual report 2018 Thrill of Competition I’ve been doing sports since my childhood, having tried acrobatics, tennis and skiing. I am one of the top 10 amateur skiers in the city of Krasnoyarsk. My First Category other passions are snowboarding and snowmobiles. My friends and I Programmer Engineer like off-piste skiing. I just love extreme sports. I try APCS1 Section, Krasnoyarsk RPD, Transneft Western Siberia to stay in shape; this lets me do (Krasnoyarsk Territory) everything fast at work. Sports help me in my work. After mountain
skiing was included in Transneft’s I joined the Company in 2009, right after graduating from the university. Now my duties include Winter Sports Festivals, I’ve been
maintenance of the server room and ensuring proper operation of a dispatch control room. a regular participant. I have won I like the fact that our systems are constantly upgraded so that you have to master new regional events and participated modifications, expanding your knowledge. There are certain difficulties because it’s necessary in three sports festivals at the level I“ just“ love to engage with employees from different time zones. I learned many valuable skills at of Transneft. I have won a silver the Company: e.g. leading the team, planning and managing my time and delegating tasks. medal and hope to win gold one day. extreme sports
Mikhail Matveyev
1 An automated process control system
134 135 Annual report 2018
Risk Management
RISK MANAGEMENT SYSTEM Key Principles and Objectives of the RMS
The Company has the Regulations on the Risk Management The RMS ensures that Transneft’s strategic goals and LDP’s Objectives Principles System in place1, developed in accordance with main goals are reached. Special emphasis is placed on: ▪▪ Forming a methodological basis for functioning ▪▪ Uniformity of risk management approaches and standards across the Company’s corporate governance of the RMS system the Methodological Instructions for Preparation of the ■■ Ensuring that Transneft’s and its subsidiaries’ operations are ▪▪ Distributing powers and responsibility for risk ▪▪ Comprehensive and continuous risk management in all lines of the Company’s business and across all Regulations on Risk Management Systems developed safe and uninterrupted as well as meeting the Company’s management at all corporate management levels business processes by the Ministry of Economic Development of the Russian contractual obligations in respect to crude oil and petroleum ▪▪ Identifying, analysing and assessing risks ▪▪ Ensuring the risk level is kept within the acceptable limit as to provide for the most efficient ▪▪ Developing and implementing risk management implementation of the Company’s goals and objectives Federation. The following documents were referred products transportation in full measures ▪▪ Providing RMS subjects with the authority and resources (including information) essential and sufficient to for the purpose of the development of the Regulations ■■ Keeping the Company’s property intact and unlocking ▪▪ Monitoring risk status and managing risks for managing risks ▪▪ Reporting on risk management ▪▪ Timeliness of impact upon the risk, mainly through preventive procedures and measures as well as on the Risk Management System: the potential of Transneft and its subsidiaries availability of plans of action, should any risk materialise ■■ GOST R ISO 31000-2010. Risk management. Principles ■■ Increasing the resilience of Transneft and its subsidiaries ▪▪ Priority of taking essential and sufficient measures for managing critical risks and guidelines in the fast changing external and internal environment ▪▪ Regulation of risk management processes in accordance with the distribution of functional obligations of RMS subjects ■■ GOST R 51897-2011. ISO guide 73:2009: Risk ■■ Ensuring resources and opportunities are used rationally ▪▪ RMS’s adaptivity to changes and constant improvement management. Terms and definitions and efficiently. ■■ Russian versions of the applicable international ISO standards The risk assessment section under the Directorate of Financial Support and Risk Assessment of the Department of Economy The Regulations on the Risk Management System set of Transneft is the business unit ensuring the RMS functions Interaction between all Subjects of the Transneft Risk Management System the general principles for building the Risk Management at Transneft. The main objectives and functions of the given System (hereinafter referred to as the RMS), its goals business unit include: ▪▪ Approval of principles and approaches to the RMS organisation ▪▪ Approval of key RMS parameters The Board of Directors and objectives, general approaches to setting it up as well as ■■ Coordinating risk management processes, including risk ▪▪ Approval of the list of critical risks of Transneft to distribution of functions and responsibility between the RMS management process monitoring, across the Company ▪▪ Approval of the annual risk management report, including monitoring the RMS’s reliability and efficiency as well as subjects and the nature of their interaction. ■■ Developing and amending the essential methodological analysing and assessing execution of the Regulations on the Risk Management System and regulatory risk management documents Preliminary review and preparation of recommendations for the Board of Directors on the principles of and approaches to RMS organisation: Based on the general requirements to setting up the RMS ■■ Developing RMS parameters The Audit Committee under ▪▪ Key RMS parameters contained in the Regulations on the Risk Management ■■ Training the Company’s personnel to work with the RMS the Board of Directors of Transneft ▪▪ Critical risks System, the Company developed the Risk Management Rules ■■ Supporting risk identification procedures carried out ▪▪ Annual risk management report, including monitoring the RMS’s reliability and efficiency as well as analysis and assessment of execution of the Regulations on the Risk Management System of Procedure2, defining the procedures of interaction between by the Company’s business units, including through ▪▪ Approving the Risk Management Rules of Procedure business units within the RMS. In addition to that, the key using the results of monitoring procedures conducted The Management Board ▪▪ Approving the key RMS parameters RMS parameters3 were adopted, including the preferred by the internal audit unit of Transneft ▪▪ Reviewing and approving the annual risk management report, including monitoring the RMS’s reliability and efficiency as and admissible risk levels, as well as risk assessment scales ■■ Developing and updating the Company’s register of risks as well as analysing and assessing execution of the Regulations on the Risk Management System and the matrix for classifying risks as critical. well as coordinating other business units’ access thereto ▪▪ Prioritising risks to identify critical risks ▪▪ Deciding on critical risks’ owners The Risk ■■ Gathering information and preparing materials on the RMS ▪▪ Analysing the risk portfolio, response strategy and redistribution of resources in relation to risk management Management Council The Risk Management Council was established in 2018 matters, including all types of risk reporting ▪▪ Monitoring the risk management process, risk owners and the Company’s business units to provide general coordination of RMS operations within ■■ Providing advisory and methodological support of risk ▪▪ Reviewing and approving periodic critical risk monitoring reports the Company4. The Council includes: assessment and analysis processes jointly with ▪▪ Coordinating risk management processes, including risk management process monitoring, across the Company ■■ Nikolay Tokarev (President of Transneft and Chairman the Company’s business units ▪▪ Developing and amending the essential methodological and regulatory risk management documents ▪▪ Developing the parameters of the Risk Management System of the Risk Management Council) ■■ Participating in quantitative estimation of critical risks ▪▪ Training the Company’s personnel to work with the RMS ■■ Maksim Grishanin (First Vice President of Transneft) ▪▪ Supporting risk identification procedures by the Company’s business units, including through using the results of monitoring Risk Assessment procedures conducted by the internal audit unit ■■ Vladimir Rushailo (Vice President of Transneft) The Department of Internal Audit and Analysis of Core Business Section ▪▪ Compiling and updating of the Company’s risk registers as well as approving access thereto by the Company’s business ■■ Pavel Revel-Muroz (Vice President of Transneft) Activities has assessed the performance of Transneft’s risk units ■■ Rashid Sharipov (Vice President of Transneft) management system in 2018. According to the evaluation, ▪▪ Consolidating information and preparation of materials on RMS matters, including all types of risk reporting ▪▪ Providing advisory and methodological support of risk assessment and analysis processes and the Company’s business the RMS efficiency can be regonised satisfactory. units 1 In pursuance of paragraph 2 of the list of Instructions from the President ▪▪ Participating in quantitative estimation of critical risks of the Russian Federation based on the results of the meeting on the issue In 2019-2020, an upgrade of the RMS will take place, with of raising efficiency of companies partially or fully owned by the state No. Pr-3013 dated 27 December 2014 and Executive Order of the Government due account of the amended Risk management — Guidelines of the Russian Federation No. 3984p-P13 dated 24 June 2015 (Letter ISO 31000:2018 standard, after its official Russian version is Risk Owners Business Units Authorised to Manage the Risks All Business Units of the Company of the Federal Agency for State Property Management (Rosimushchestvo) adopted within the GOST system. ▪▪ Determining the business units to assume ▪▪ Analysing and assessing critical risks ▪▪ Identifying risks No. 11/27343 dated 7 July 2015). Approved by the resolution of the Board the function of managing the identified critical ▪▪ Developing risk management measures ▪▪ Conducting primary analysis of the identified risks of Directors of Transneft dated 16 November 2015, Minutes No. 28. risks ▪▪ Monitoring risk management measures ▪▪ Impacting the Company’s risks (excluding 2 Approved by the resolution of the Management Board of Transneft on 1 April ▪▪ Approving key risk indicators ▪▪ Monitoring critical risks the critical ones) 2016 (Minutes No. 13). ▪▪ Approving the sets of measures to be taken ▪▪ Preparing periodic reporting on the critical risks 3 Approved by resolution of the Board of Directors of Transneft on 21 March to manage critical risks monitoring 2018 (Minutes No. 3). ▪▪ Approving periodic and annual reporting on critical 4 The Transneft Regulations on the Risk Management Council were approved risks monitoring by the resolution of the Management Board of Transneft on 1 April 2016 (Minutes No. 13). The list of members was approved by the Resolution of the Management Board of Transneft dated 12 May 2016 (Minutes No. 21).
136 137 Annual report 2018
CRITICAL RISKS
The key parameters of the Risk Management System 10 October 2018 (Minutes No. 6). The list of critical risks Measures taken to reduce risk materialisation probability and mitigate Actual materialisation of risks Possible consequences the consequences of materialised risks in 2018 annually approved by the Board of Directors of the Company for 2019 was approved by the resolution of Board of Directors serve as the basis for classifying a risk as critical. During of Transneft dated 11 December 2018 (Minutes No. 19). 3. Fiscal risks the prioritisation, each risk is assessed according to two Changes to tax, customs, social security, and pension insurance laws and regulations scales, the damage assessment scale and the risk probability Appointed for each of the Transneft critical risks is a risk owner Unbudgeted costs, claims by tax ▪▪ Determining the level of tax burden on revenue The partial risk materialisation assessment scale. Damage assessment implies that a risk is who determines and authorises a business unit to manage authorities ▪▪ Tracking changes in the tax law, studying bills submitted to the State Duma in 2018 did not substantially evaluated by its possible financial consequences and by its the given risk, decides on the key risk indicators to monitor ▪▪ Monitoring of specialised press and other information resources affect the Company’s financial ▪▪ Monitoring the legislation and arbitration practices performance potential industrial safety impact, with the worst-case scenario the risk dynamics and approves an action plan to manage ▪▪ Adjusting budget items, based on changes to the law, taxation, customs taken as the risk impact score. The resulting estimates are the critical risk developed by the authorised business unit. regulations, social and pension insurance then compared with the matrix for classifying risks as critical. The register of risks is revised annually, with special reporting ▪▪ Analysing certain aspects of operational activities and projects for taking tax risks into account on critical risks being generated. ▪▪ Adjusting the accounting policy and other methodological documents The 2018 list of critical risks was approved by the Board ▪▪ Collecting information on the number of tax disputes and the sum in dispute of Directors of Transneft1. In 2018, the register of risks was updated for further prioritisation and adoption of the list 4. Unlawful interference including terrorist attacks or attempts of critical risks for 2019. The risks were prioritised Wrongful action (inaction) threatening safe operation of a fuel and energy sector (FES) facility. Threat of attack (or actual attack) on the line facilities of Transneft by the resolution of the Risk Management Council dated and its subsidiaries. Threatening calls (“telephone terrorism”) and other acts that may entail significant disruption of the operation of the Company's security facilities. Illegal tapping into oil trunk pipelines and petroleum products pipelines. (Except cybersecurity issues related to risk 2017-24) Disruption of oil and petroleum products ▪▪ Making a list of TPs’ facilities protected by departmental security The partial materialisation pipeline transportation facilities ▪▪ Organising and controlling the process of classification of Transneft subsidiaries’ of the risk had no impact Amendments to the List of Critical Risks and power supply, control, automation facilities in need of protection and drafting security certificates for fuel and energy on implementing the plan and communications systems sector facilities in the field of oil / petroleum Critical Risks in 2018 Critical Risks in 2019 ▪▪ Organising control over security units of Transneft subsidiaries and Transneft products pumping Security Services to address the challenges of assuring security at TP facilities ▪▪ Currency exchange and interest rate risks ▪▪ State regulation of oil and petroleum products transportation tariffs ▪▪ Assessing the state of technical security equipment and the degree of antiterrorist ▪▪ State regulation of oil and petroleum products transportation tariffs ▪▪ Fiscal risks protection at the facilities belonging to Transneft subsidiaries ▪▪ Fiscal risks ▪▪ Unlawful interference including terrorist attacks or attempts ▪▪ Ensuring the involvement of Transneft subsidiaries’ security units and Transneft ▪▪ Unlawful interference including terrorist attacks or attempts ▪▪ International sanctions Security Services in the Neft-GSM investigative and preventive measures taken ▪▪ Shutdown of external power supply to Transneft’s facilities ▪▪ Credit risk concerning partner banks by the Ministry of the Internal Affairs of the Russian Federation ▪▪ The risk of changes in regulatory documents and legal acts setting ▪▪ Shutdown of external power supply to Transneft’s facilities ▪▪ Monitoring the implementation of the plans for additional measures to ensure and regulating technical requirements ▪▪ The risk of changes in regulatory documents and legal acts setting antiterrorist protection of facilities and personnel of Transneft subsidiaries ▪▪ The risk of a partner bank’s license being revoked and regulating technical requirements developed by Transneft subsidiaries to match the terror threat levels established ▪▪ International sanctions by Russian laws ▪▪ Executing Presidential Decree No. 202 of 9 May 2017 “On the Specifics of the Use of Enhanced Security Measures during the 2018 FIFA World Cup in the Russian Federation and the 2017 FIFA Confederations Cup” ▪▪ Executing the resolution adopted at the meeting of the task force for counterterrorism at FES facilities under the Ministry of Energy of Russia Critical Risks Management at Transneft in 2018 (Minenergo) convened on 22 May 2018 to discuss the issue of Implementation of Mandatory Requirements and Tightened Security, Including Counterterrorism Measures taken to reduce risk materialisation probability and mitigate Actual materialisation of risks Measures, to Ensure Safety at Fuel and Energy Facilities in the Regions where Possible consequences the consequences of materialised risks in 2018 FIFA World Cup 2018 will take place (Minutes No. 13-477 of 22 May 2018, Section 4, Clause 3) 1. Currency exchange and interest rate risks ▪▪ Organising meetings of the Anti-Terror Security Commission of Transneft and its subsidiaries Changes in interest rates on loaned funds and changes in currency exchange rates ▪▪ Complying with decisions of the Anti-Terror Security Commission of Transneft Unbudgeted costs related to foreign ▪▪ Analysis and evaluation of currency exchange and interest rate risks The partial risk materialisation and its subsidiaries currency loan services ▪▪ Monitoring and review of currency exchange and interest rate risks in 2018 did not substantially ▪▪ Implementing the resolutions of the Government Commission on Electricity ▪▪ Use of currency exchange and interest rate risk management tools affect the Company’s financial Supply Security (Federal Headquarters) (Minutes No. 10-2017 of 27 December ▪▪ Monitoring of the efficiency of currency exchange and interest rate risks performance. 2017) in terms of security and antiterrorist protection of fuel and energy facilities management Full early repayment of the debt ▪▪ Implementing the resolutions of the interagency task force for counterterrorism at on the Loan provided by the China FES facilities under Minenergo (Minutes No. ChA-55rg of 7 November 2018) Development Bank (CDB) ▪▪ Improving the regulatory framework in the field of security and antiterrorist and timely repayment of Eurobonds protection of fuel and energy facilities in 2018 resulted in a significant ▪▪ Implementing measures to increase the protection level at TP facilities in case reduction in currency exchange of aggravation of the situation, as well as on weekends and public holidays and interest rate risks ▪▪ Arranging drills and trainings at Transneft’s and Transneft subsidiaries’ facilities protected by departmental security services ▪▪ Detecting and identifying persons from among the staff of Transneft subsidiaries and contractor (subcontractor) organisations intending and / or attempting 2. State regulation of oil and petroleum products transportation tariffs to commit a terrorist act for the purpose of unlawful interference in the operations of the Company's TP facilities and the facilities belonging to Transneft Restrictions on oil and petroleum products transportation tariffs below the level required for the development of the Transneft system or below the level required subsidiaries. to ensure reliable operation of the Transneft system in the long term. Dependence of petroleum products transportation tariffs upon the Russian Railways tariffs and the changes in them for the same transportation routes, which, in its turn, affects the tariff-based revenue of the Company Project schedule slips. Reduced ▪▪ Interaction with the Federal Antimonopoly Service (FAS) of Russia on the matters The risk partially materialised efficiency on certain transportation of scheduled (or, where necessary, unscheduled) review of oil and petroleum in 2018: pumping tariffs were routes. Insufficient revenue to cover products transportation tariffs as well as in setting and abolishment of oil set below the expected level. the costs required for maintenance and petroleum products transportation tariffs. The impact on the revenue of the reliability of the Transneft system ▪▪ Interaction with the FAS of Russia in setting (review, abolishment) of approved oil of the Company does not exceed and petroleum products transportation tariffs the preferred risk level ▪▪ Interaction with federal executive authorities on deregulation of prices for petroleum products transportation
1 Approved by the resolution of the Board of Directors of Transneft dated 27 December 2017 (Minutes No. 20).
138 139 Annual report 2018
Measures taken to reduce risk materialisation probability and mitigate Actual materialisation of risks Management Approach Countering Cyber Threats Possible consequences the consequences of materialised risks in 2018 Transneft Group implements the Information Security Policy, Transneft’s information technology resources are target of an 5. Shutdown of external power supply to Transneft’s facilities which defines the key objectives in the field of information increasing number of hacker attacks. In 2018, about 7 million Interruption of external power supply to the Company’s facilities through no fault of “in-house” reasons security, including: emails with inappropriate content allowing for malicious Pipeline downtime. Unbudgeted costs. ▪▪ Transneft subsidiaries coordinating requests for changing the operational The partial materialisation ■■ Protecting Transneft’s and Transneft subsidiaries’ personnel software installation were processed. During the reporting year, Emergency condition of electrical equipment in keeping with ОR-03.100.50-KTN-170-15, of the risk in 2018 had no from pain, suffering and loss of amenity and other damages there was an increase of the share of emails labeled as “virus” based on the analysis of the operation mode of the adjacent grid impact on implementing the plan resulting from unlawful use of information relating to them, in the mail traffic. This fact partially testifies to the growing ▪▪ Updating Transneft subsidiaries on the decreased reliability of power supply, in the field of oil / petroleum based on the analysis of monthly maintenance and repair schedules for 220-500 products pumping including personal data phishing activity recorded in the world. The number kV class power supply equipment ■■ Protecting and maintaining Transneft’s and Transneft of attempted computer attacks on Transneft’s data processing ▪▪ Cooperating with Rosseti to inspect overhead transmission lines (OTL) providing subsidiaries’ positive image and business reputation external power supply to Transneft subsidiaries’ facilities centre also increased. ■■ Ensuring continuity of technological and business processes 6. The risk of changes in regulatory documents and legal acts setting and regulating technical requirements ■■ Supporting innovation-based and boosted development In 2018, measures were taken under the Programme Changes in the statutory and regulatory requirements in the field of technical regulation (including environmental requirements and requirements to operation of information security and information technologies for Combating Threats to Information Technology Resources of hazardous operating facilities) ■■ Minimising possible damage from realised information of Transneft (hereinafter, the Programme) and the IT resources security threats. Unbudgeted costs. Suspension ▪▪ Monitoring of bills and other draft laws and regulations (LAR) published The risk did not materialise in 2018 of Transneft subsidiaries, aimed at: of operations. Project schedule slips on the Federal LAR portal and establishing (governing) technical requirements ■■ Providing for and supporting of the activities affecting the Company's operations Documents of the Computer Security Centre ■■ Federal Law No. 98-FZ dated 29 July 2004 On Commercial ■■ Providing for interaction with the Russian State System 7. The risk of a partner bank’s license being revoked Secrets for Detection, Prevention, and Mitigation of Computer Suspension of operations or revocation of a partner bank’s license ■■ Federal Law No. 149-FZ dated 27 July 2006 On Information, Attacks (GosSOPKA) Financial and reputational losses, ▪▪ Emergence of limits to transactions with partner banks The risk did not materialise in 2018 Information Technologies, and Information Protection ■■ Establishing a centralised system for monitoring delayed contract settlements ▪▪ Monitoring of compliance with the set limits ■■ Federal Law No. 187-FZ dated 26 July 2017 On the Security and controlling information security events, allowing ▪▪ Monitoring of partner banks’ creditworthiness of the Critical Information Infrastructure of the Russian for taking stock of IT resources, collection and correlation 8. International sanctions Federation and regulations thereunder of information security events and response to information Foreign economic restrictions, embargoes, freezing of accounts and settlements, US extraterritorial sanctions ■■ Decree of the President of the Russian Federation dated security incidents 15 January 2013 No. 31s On Establishing of a State System ■■ Providing for interaction with consumers of oil Ban on the import of necessary ▪▪ Participation in the development of a comprehensive response to restrictive In 2018, there were no changes equipment into the Russian measures at the state level (including through intergovernmental committees / to the sanctions regime with for Detection, Prevention, and Response to Computer and petroleum products transportation services for mutual Federation. Disruptions in supply combined intergovernmental committees, business councils and field-specific respect to Transneft Attacks on Information Resources of the Russian Federation informing about computer attacks of imported components; Restrictions panels and committees) ■■ Decree of the President of the Russian Federation dated ■■ Conducting R&D activities in the field of cybersecurity on settlements with foreign ▪▪ The process of finding, establishing, and developing contacts with relevant counterparties; Restrictions on access influencer agencies abroad and identifying opportunities for to circumvent 5 December 2016 No. 646 On Adoption of the Information to international markets restrictions Security Doctrine of the Russian Federation A regulatory and methodological framework for classification ▪▪ Development of proposals for gaining access to services and technologies through neutral or friendly jurisdictions, or alternative suppliers ■■ Transneft’s Information Security Policy approved of CII facilities was developed at Transneft in order to comply ▪▪ Monitoring and analysis of draft laws and regulations and laws that have been by the Board of Directors, Minutes No. 21 dated with the requirements of Russian laws governing the security passed as well as official press releases of US and EU departments in charge 28 December 2017 of CII facilities, and relevant events were implemented. of sanctions ■■ Programme for Combating Threats to Information Technology Resources (implementation period: 2017 Plans for 2019 to 2020) In 2019-2020, implementation of the Programme will be focused on ensuring secure interaction between Transneft’s According to the results of prioritisation, the prospects Specific Risks. Cybersecurity Risks and Transneft subsidiaries’ corporate computer network for 2019 have not changed for most of 2018 critical risks, Cybersecurity is one of the priorities of Transneft’s and the Internet, and on raising the information security except the Currency Exchange and Interest Rate Risks. Its and Transneft subsidiaries’ activities. Transneft is awareness of the personnel. estimated damage decreased substantially, which led to its guided by a long-term Programme for Combating Threats removal from the 2019 Critical Risks List. Such a change is to Information Technology Resources. The programme Completion of measures for classification of CII facilities, attributable, first of all, to a reduced foreign currency exposure provides for improvement of detection, prevention identification of significant CII facilities, and ensuring of the Company, due to early repayment of the debt on the loan and mitigation of computer attacks including those aimed at the implementation of the procedures required for their provided by the China Development Bank, among other things. facilities belonging to the critical information infrastructure protection. This also resulted in mitigated impact of floating interest rates and response to information security incidents, as well as pegged to LIBOR on the Company. for the introduction of a package of cybersecurity solutions.
According to Russian laws, Transneft Group companies are critical information infrastructure (CII) subjects.
One of the priorities at Transneft Group is to ensure safe and uninterrupted operation of the information infrastructure and the information technologies used in the automation of technological and business processes, protection of trade secrets and other confidential information.
140 141 Annual report 2018
Internal Control and Audit System
In 2018, prioritisation of corruption risks was carried out dedicated to combating corruption. RISK INSURANCE and the sufficiency of the applied internal control procedures in the field of combating corruption in view of preventing In order to study the international experience in the field The Company uses the system of property risk insurance quite All types of immovable and movable assets (with the exception the realisation of corruption risks was assessed in order of combating corruption, representatives of Transneft took effectively on a par with the risk management tools introduced of land) insured against the loss (demise) or damage caused to determine which of Transneft’s areas of activity have part in the seventh Eurasian anti-corruption forum “Conflict within the RMS framework. Insurance is an instrument by fire, explosion, lightning stroke, flood, natural disaster, a higher corruption risk. of Interests: Law and Ethics”, an international research- of managing risks, allowing to fully or partially transfer financial third-party wrongdoing etc., are subject to property insurance to-practice conference held by the Institute of Legislation losses from materialisation of risks to insurance companies contracts. Transneft subsidiaries also buy damage liability Pursuant to the Action Plan, the Code of Ethics and Conduct and Comparative Law under the Government of the Russian and thus indemnify for losses. insurance policies. for Employees of Transneft and Transneft Subsidiaries, Federation. outlining the general principles of professional ethics The main principles of building the property risk insurance Transneft subsidiaries also buy freight and construction and the basic rules of conduct for employees of Transneft In 2018, Transneft passed the procedure for confirming system, as well as insurance application and insurance types and assembly risk insurance policies as and when necessary. and Transneft subsidiaries, was updated in 2018. (declaring) compliance with the provisions of the Anti- used for trunk pipeline transportation of crude oil and petroleum Corruption Charter of the Russian Business. Registration of products are set out in the Regulations on Property Risk The Regulations on Travel and Representation Expenses Transneft’s participation in the Anti-Corruption Charter is Insurance of Transneft and its subsidiaries. Associated with Hosting and Servicing Representatives extended until 2020. of Other Organisations and Individuals were updated to ensure proper execution and submittal of documents proving the arrangement of business entertainment events INTERNAL CONTROL SYSTEM by Transneft and the expenses related thereto.
The Transneft internal control policy is stipulated by the Russian Government and additional measures The Procedure for Handling Incoming Anti-Corruption Hotline in the Regulations on Internal Control Procedures. As per to enhance the efficiency of combating corruption at Transneft Calls at Transneft was developed and approved in order the Regulations, internal control is exercised by authorised in line with the guidelines resulting from the comprehensive to promptly respond to messages containing information units of Transneft to execute the following tasks: assessment of the efficiency of anti-corruption activities on possible corruption violations in the activities of employees ■■ To ensure investors trust Transneft and its management performed in 2017. of Transneft and its subsidiaries. bodies, to protect capital investments of shareholders and Transneft’s assets Coordination of measures to prevent and combat corruption In 2018, Transneft ensured that the employees holding ■■ To maintain the high level of Transneft’s business reputation at Transneft is the responsibility of Transneft’s Commission the positions of the President, the First Vice President and Vice ■■ To ensure fullness and accuracy of Transneft’s financial for Countering Corruption established in 2017. The functions Presidents of Transneft, as well as candidates to fill these and managerial reports of the Commission include reviewing notifications concerning positions submitted information on their income, expenses, ■■ To ensure compliance with Russian regulatory acts, conflicts of interest received from employees and deciding assets, and liabilities to the Government of the Russian decisions of management bodies and local regulatory acts on the method of resolving such conflicts of interest. Federation1. of Transneft ■■ To ensure safety of Transneft’s assets and efficient use Continuous work is conducted at Transneft to identify In pursuance of the National Anti-Corruption Plan for 2018- of its resources and resolve employees’ conflicts of interest. 2020, the Group organised advanced training for employees ■■ To ensure execution of Transneft’s financial and business involved in implementation of anti-corruption measures. plans In 2018, additional anti-corruption measures were introduced Development of a standard programme for training employees as part of the efforts to enhance the efficiency of preventing of the Group holding the positions included in the corruption The Company does not have a special business unit for internal and resolving conflicts of interest in the activities of Transneft’s risk prevention lists was launched. control. and Transneft subsidiaries’ employees. These measures included submitting annual declarations on conflicts To keep the staff informed, a Memo on the Basics of Anti- Countering Corruption of interest. Corruption Behaviour was developed. It contains information Transneft’s activities to prevent and combat corruption on the requirements of Transneft’s local regulations governing in 2018 were performed in accordance with Federal Law The procedure for submitting the declarations on conflicts the issues of preventing and combating corruption, including No. 273-FZ On Combating Corruption dated 25 December of interest and the list of positions subject thereto are prohibitions, duties and guarantees established for employees. 2008, the National Anti-Corruption Plan for 2018-2020 determined by a Transneft order. The list includes positions The Memo was communicated to all the personnel and is Read more: and Transneft’s Action Plan for Preventing and Countering implying a higher corruption risk due to organisational, currently available on the internal corporate portal. Transneft’s Corruption for 2018 approved by a resolution of the Board administrative, audit and control duties as well as positions employees are familiarised with the Memo on an annual basis. Countering Corruption of Directors of Transneft. The 2018 Action Plan included within the key business units involved in contractual continuous measures to prevent and combat corruption, arrangements. As part of the transparency policy, the information activities to ensure execution of instructions issued on anticorruption measures taken by Transneft is posted on Transneft’s official website in a specialised section
142 143 Annual report 2018
INTERNAL AUDIT SYSTEM The Company’s Board of Directors approved the report and Analysis of Core Business Activities2; on the internal audit unit’s performance results for 2018. ■■ The Internal Auditors’ Code of Ethics3; The Transneft internal audit policy is stipulated ■■ Fixed assets and inventories ■■ The Internal Audit Quality Assessment and Improvement in the Regulations on Internal Audit. As per the given ■■ Operations with crude oil and petroleum products List of internal documents governing the internal audit Programme4; document, internal audit is the activity performed in order ■■ Financial management and budgeting functions, the RMS and internal control issues: ■■ The Regulations on Planning Internal Audits and Analysing to assist managing bodies of the Company and its subsidiaries ■■ Forming the financial results and the use of revenue ■■ The Regulations on Internal Audit1; the Core Business Activities of Transneft and its in raising the efficiency of governance of the Transneft ■■ Information systems ■■ The Regulations on Transneft’s Department of Internal Audit subsidiaries5. system, the Company and Transneft subsidiaries, to improve ■■ Comprehensive assessment of the internal control and risk their financial and operational activities through consistent management systems and systemic approach to analysis and assessment of the risk REVISION COMMISSION management system, internal control system and the corporate Such audits result in recommendations on improvement governance of the Transneft system, the Company and its of the business processes, elimination of the existing The Revision Commission is a permanent elective body that in the Company’s authorised capital and do not own its subsidiaries. shortcomings and remarks, followed by checking whether controls the financial and operational activities of Transneft. ordinary shares. the recommendations are executed. Its activities are governed by the Regulations on the Revision Internal audit within the Company and its subsidiaries is Commission of Transneft6. In 2018, the Revision Commission’s agenda included performed by the Department of Internal Audit and Analysis The Audit Committee under the Board of Directors the following items: of Core Business Activities of the Company annually assesses the efficiency of the internal The Revision Commission is composed of three persons. ■■ Audit of Transneft’s financial and operational activities audit function, considers the matters of essential limitations Composition of the Revision Commission of Transneft in 2018: ■■ Checking the correctness of calculation, accrual In 2018, Transneft’s Department of Internal Audit and Analysis and threats to the independence in performing internal audit. ■■ Alexander Gladkov (Chairman) and transfer of dividends for 2017 of Core Business Activities operated in accordance with The Company’s Board of Directors annually approves a report ■■ Dmitry Vladimirov ■■ Analysis of Transneft’s internal regulations governing Transneft’s General Guidelines (Plan) for Internal Audit on the performance results of the internal Audit Unit. ■■ Pavel Shumov the Revision Commission’s activities for 2018 approved by the Board of Directors of the Company ■■ Audit of the purchases made by Transneft in 2018 on 20 December 2017. In pursuance of this plan, 132 audits Based on the 2018 performance, the Audit Committee under Members of Transneft’s Revision Commission are ■■ Monitoring execution of instructions from the President were conducted in relation to the Company and its subsidiaries the Company’s Board of Directors recognised: remunerated in accordance with the Regulations and the Government of the Russian Federation in the following spheres: ■■ The internal audit function as efficiently executed at on Remuneration and Compensation for Members ■■ Monitoring disposal of Transneft’s non-core assets in 2018 ■■ Execution of certain provisions of the Long-Term the Company and its subsidiaries of the Revision Commission (Order of the Federal Agency ■■ The procedure for revision and update of the Transneft Development Programme ■■ Absence of substantial restrictions and threats for State Property Management No. 734-r dated 6 October Long-Term Development Programme ■■ Organisation and conduct of procurement and contract to independence of internal audit, as well as 2015). Members of the Revision Commission did not execution procedures to the credibility of the internal auditors at the Company receive remuneration or compensation for expenses Following the audit of the Company’s financial ■■ Capital investments in fixed assets and at Transneft subsidiaries in 2018 related to the performance of the functions of the members and operational activities from 1 January 2018 to 31 of the Company’s Revision Commission in 2018. December 2018, the Revision Commission issued an opinion on the validity of the data contained in the Company’s Key Spheres of Internal Audit The members of the Revision Commission have no shares financial statements and annual report.
Sphere Measures Internal Control System ▪▪ Analysing conformity of aims of business processes, projects, business units in the Company and its subsidiaries Information on the Members of the Revision Commission Efficiency Assessment to the goals of Transneft Group, the Company and its subsidiaries; checking the efficiency, reliability and integrity of business processes (operations) and information systems, including the reliability of procedures for countering illegal Member of the Revision Commission as of 31 December 2018 Position held actions, abuse and corruption Alexander Gladkov 2013 to the present day — Director of the Oil and Gas Extraction ▪▪ Checking the accuracy of accounting (financial), statistical, managerial and other reports; determining to what extent Chairman of the Revision Commission and Transportation Department of the Ministry of Energy of the Russian the results of business processes and activities of the Company’s business units and subsidiaries achieve the set goals Federation ▪▪ Determining the adequacy of criteria established for analysing the degree of achievement of the set goals ▪▪ Detecting flaws of the internal control system which barred the Transneft system, the Company and its subsidiaries Dmitry Vladimirov 2013 to the present day — Deputy Head of Directorate at the Federal Agency from reaching the set targets for State Property Management ▪▪ Assessing the results of implementing the measures tailored to eliminate violations and flaws while improving Pavel Shumov 2010 to the present day — Councilor, Deputy Head of a division within the internal control system taken by the Company and its subsidiaries on all corporate governance levels the Department for Competition Development, Head of the Department of State ▪▪ Checking the efficiency and expediency of using resources of the Company and its subsidiaries Regulation of Tariffs and Infrastructural Reforms of the Ministry of Economic ▪▪ Checking the safety of assets owned by the Company and its subsidiaries Development of the Russian Federation ▪▪ Checking compliance with the law, the Articles of Association and other regulatory documents of the Company and its subsidiaries Assessing the RMS Efficiency ▪▪ Checking the sufficiency and maturity of the Risk Management System’s elements possessed by the Transneft system, the Company and its subsidiaries for efficient risk management, such as goals and objectives, infrastructure, including corporate structure, automation tools and such, arrangement of processes, regulatory and methodological framework, interaction of business units within the risk management system and reporting ▪▪ Checking whether the risks are fully exposed and correctly assessed by the management of the Company and its subsidiaries on all corporate governance levels ▪▪ Checking the efficiency of monitoring procedures and other risk management measures, including the efficiency of use of the resources allocated for these purposes ▪▪ Analysing information about the materialised risks (including faults detected during inspections, underperformance to target, lawsuits and other cases) Assessing Corporate ▪▪ Checking adherence to business ethic principles and corporate values of the Transneft system, the Company and its Governance subsidiaries ▪▪ Checking the order of goal-setting by the Transneft system, the Company and its subsidiaries, as well as monitoring their implementation ▪▪ Checking the level of regulatory support and information exchange procedures (including regarding risk management 1 Approved by the resolution of the Board of Directors of Transneft on 16 November 2015, Minutes No. 28 and internal control) at all corporate governance levels of the Transneft system, the Company and its subsidiaries, 2 No. 08-03/001 dated 8 December 2015 including engagement with stakeholders 3 Approved by Transneft Order No. 87 dated 21 April 2016 ▪▪ Checking whether the shareholders’ rights are respected, including subsidiaries’ shareholders, as well as whether 4 Approved by Transneft Order No. 136 dated 14 July 2016 interaction with stakeholders is efficient 5 Approved by the Transneft President on 24 November 2016. ▪▪ Checking the procedures of disclosing information about the activities of the Transneft system, the Company and its 6 Approved by the resolution of the Extraordinary General Meeting of Shareholders of Transneft (Order of the Federal Agency for State Property Management No. 734-r subsidiaries dated 6 October 2015)
144 145 Annual report 2018
EXTERNAL AUDIT Authorised Capital Pursuant to Clause 4 of Article 5 of Federal Law No. 307-FZ The initial (maximum) price of the agreement for holding an On Auditing dated 30 December 2018, a contract open tender to select an audit organisation is set by the Board for mandatory audit of financial statements of a company of Directors of the Company. and Securities where the government owns at least a 25% stake in the authorised (joint) capital shall be signed with an audit Based on the open tender results, the Board of Directors company or an individual auditor winning an open tender of the Company nominates the winner of the tender to be held at least once in five years as per the procedure for the General Meeting of Shareholders to approve2. stipulated in Federal Law No. 44-FZ On the Contractual System AUTHORISED CAPITAL of the Federal and Municipal Procurement of Goods, Works KPMG’s remuneration for auditing services is determined after and Services dated 5 April 2013. conducting an open tender; as per the contract for auditing As at 31 December 2018, the authorised capital of the total number of shares placed (issued) by CPC Company, the statements of Transneft for 2018, it amounted to RUB 19.5 of the Company amounted to RUB 7,249,343 (seven million and 10,000 ordinary shares of CPC Investments Company The auditor selection tender for 2018 was conducted million excluding VAT. two hundred and forty-nine thousand three hundred and forty- (registered in the Cayman Islands’ Company Registrar), which in accordance with the Regulations on Open Auditor Selection three roubles) and was split into 7,249,343 shares, including: is 100% of the total number of shares placed (issued) by CPC Tender for Mandatory Annual Audit of Transneft in 2018 Results of Audit’s Efficiency Assessment ■■ 5,694,468 ordinary shares at par value of 1 rouble each Investments Company. Gazprombank, JSC acted as a broker and a Review of Interim Consolidated Financial Statements by the Audit Committee ■■ 1,554,875 preferred shares at par value of 1 rouble each in the agreement for and on behalf of the Issuer. by IFRS for Q1 2019, approved by Transneft Order No. 28 dated 14 February 20181: The Audit Committee under the Transneft Board of Directors The Russian Federation represented by the Federal Agency Re-registration of the shares of the above-mentioned foreign evaluates the auditor’s opinion’s conformity to Federal Law for State Property Management owns 100% of Transneft’s companies into the ownership of Transneft was carried out Bidding Terms and Conditions: No. 307-FZ On Auditing dated 30 December 2008, as well as ordinary voting shares. Preferred shares of the Company on 14 March 2018. The additionally issued shares were written ■■ The open tender notice is posted by the customer on its its compliance to the effective auditing standards. are non-voting and entitle their owners only to receive fixed off from the issuing account and credited to the current account corporate website and on Transneft’s website at least dividends based on the Company’s performance during of the Federal Agency for State Property Management on 30 20 days before the day when the envelopes containing The audit report on the financial statements of Transneft the year. March 2018. The placement results report was registered the applications are opened for 2018 was provided by KPMG on 28 March 2019. The report by the Bank of Russia on 26 April 2018, and changes ■■ Evaluation and comparison of the applications is to be was reviewed by the Audit Committee and recognised On 27 February 2018, as part of the issue of ordinary shares in the Charter in terms of the size of the authorised capital were completed no later than twenty days after the opening as complying with the requirements established in 2017–2018 in the form of a closed subscription in favor registered by the Federal Tax Service of Russia on 22 May 2018. ■■ Evaluation and comparison of the applications is carried out by the International auditing Standards in force in the Russian of the Russian Federation, the Company and the Federal by scoring the technical and financial proposals contained Federation. Agency for State Property Management entered into As a result of the issue, the Company received the right therein an agreement to acquire ordinary registered book-entry shares to indirect ownership of CPC-R and CPC-K shares (7%), ■■ The minutes of evaluation and comparison of the additional issue subject to a payment in kind in the form whose balance sheets include the assets of Caspian Pipeline of the applications is posted on the corporate website of 10,000 ordinary shares of CPC Company (registered Consortium (PCP) intended for the transportation of oil through and on Transneft’s website on the day following in the Cayman Islands’ Company Registrar), which is 100% the territory of two countries — Russia and Kazakhstan. the aforementioned minutes signing day
Information about the Company’s securities as of 31 December 2018
Par value of all Type of shares Total number shares, RUB State registration number of the issue and date of state registration Ordinary shares3 No. 1-01-00206-A 5,546,847 5,546,847 dated 20 December 2007 No. 1-01-00206-А-002D 21,901 21,901 dated 17 November 20164 No. 1-01-00206-А-003D 125,720 125,720 dated 11 January 20185 Preferred shares No. 2-01-00206-A 1,554,875 1,554,875 dated 20 December 2007
Shareholders of the Company whose share in the authorised capital of Transneft is more than 2 %6
1 The Regulations were developed in accordance with the Civil Code of the Russian Federation, Federal Law No. 307-FZ On Auditing dated 30 December 2008, Federal Share in the authorised Share for ordinary Share for preferred Law No. 44-FZ On the Contractual System of the Federal and Municipal Procurement of Goods, Works and Services dated 5 April 2013 and the Rules for Assessment Name Entity type Location capital shares shares of Participants’ Bids and Final Proposals on State and Municipal Procurement of Goods, Works and Services, approved by Resolution of the Government The Russian Federation represented Ultimate beneficiary 9 Nikolsky Per., 78.5515% 100% None of the Russian Federation No. 1085 dated 28 November 2013. by the Federal Agency for State 103685, Moscow 2 KPMG was selected as the Company’s auditor in 2018. Property Management 3 March 2018 saw placement of 125,720 additionally issued shares, state registration number 1-01-00206-А-003D dated 11 January 2018. The placement report was registered on 26 April 2018. National Settlement Depository Nominee, legal entity 12 Spartakovskaya 20.8415% None 97.1700% 4 Additionally issued shared were placed on 2 February 2017, the placement report was registered on 20 March 2017. (nominee) Ul., 105066, Moscow 5 Additionally issued shared were placed on 30 March 2018, the placement report was registered on 26 April 2018. Legal entities controlled Legal entities, – 0.0215% None 0.1004% 6 The information is presented based on the list of persons registered in the shareholder register of Transneft as at 31 December 2018. If the Company’s shares by Transneft holders of quasi- (1,561 preferred shares) amounting to two or more percent of the authorised capital or ordinary shares are registered in the shareholder register of the Company in the name of a nominee, treasury shares this fact is specified. Pursuant to the Federal Law On Securities Market, the list of holders of the Company’s securities can be provided if it is needed to perform the obligations stipulated by federal laws. Others – 0.5855% None 2.7296% As at 31 December 2018, the Company had no obligations stipulated by federal laws, performance of which required the list of securities’ holders to be compiled and obtained.
146 147 Annual report 2018
The Company’s authorised capital structure DIVIDEND POLICY AND PROFIT DISTRIBUTION According to Paragraph 4 of Article 20 of the Federal as of 31 December 2018 (%) Read more: Law On Securities Market and on the basis On 12 December 2016, Transneft’s Board of Directors 0.0215 of statements by the Issuer, the Bank of Russia retains 0.5855 e u an e erat on approved (Minutes No. 25) the Dividend Policy of the Company Dividend Policy and Dividend History individual numbers (codes) of the second and third on the Company’s Website 20.8415 repre ente t e e eral (hereinafter referred to as the Dividend Policy). Subject additional share issues after three months from A en or tate ropert to the Dividend Policy, the following principles shall be the date of state registration of reports on the results ana e ent o t e u an observed when determining the amount of dividends paid out of the additional issue of equity securities. e erat on at onal ettle ent for shares of all categories (kinds): epo tor no nee ■■ Transparency of dividend amount determining procedure t er ■■ Unconditional accomplishment of the Company’s primary According to Directive of the Federal Agency for State Property are o ne ran ne t objectives stipulated in the Articles of Association Management No. 498-r dated 30 June 2018 and No. 625-r u ar e The Russian Federation enjoys no special right to participate 78.5515 ■■ Focus on enhancing the Company’s investment appeal dated 30 August 2017, the total dividends in the amount in the management of the Company (the golden share). ■■ Ensuring financial stability and minimising eventual possible of RUB 82,544,974,829.57 were paid (27,607,496,252.96 negative effects on the Company’s credit ratings for the first half of 2017, and 54,937,478,576.61 for 2017), As at 31 December 2018, the following were registered ■■ Taking the amount of dividends on shares of all categories including: in the shareholder register: (kinds) into account when calculating tariffs for oil trunk ■■ RUB 3,875.49 per one ordinary share (5,568,748 shares), ■■ 2,620 natural persons pipeline transportation services set by the Federal amounting to RUB 21,581,601,039.76 in total ■■ 27 legal entities, including 1 nominee Antimonopoly Service’s rates ■■ RUB 7,578.27 per one ordinary share (5,694,468 shares), ■■ Sufficiency of the funds available to the Company amounting to RUB 43,154,216,010.36 in total and obtained from its core business activity to finance ■■ RUB 3,875.49 per one preferred share (1,554,875 shares), operational, investment and financial activities amounting to RUB 6,025,895,213.20 in total STOCK EXCHANGE INFORMATION ON TRADING THE COMPANY’S SHARES ■■ RUB 7,578.27 per one preferred share (1,554,875 shares), Pursuant to the approved Policy, the base level of dividend amounting to RUB 11,783,262,566.25 in total Preferred shares of the Company are included in the Level One listing of the Moscow Exchange, they are among the key indexes payments amounts to 25% of the consolidated net profit of the Exchange, and make a component of the MSCI Russia (Morgan Stanley Capital International) index. for the reporting year calculated under IFRS and normalised The dividends resulting from the 2017 performance were paid taking into account the share of profit in subsidiaries in full and within the time limit prescribed by the applicable and jointly controlled companies; income gained from Russian laws. General information on the preferred shares Weight of Transneft’s preferred shares revaluation of financial investments; exchange rate positive of Transneft in the stock indexes of the Moscow Exchange, balance and other irregular (non-recurring) nonmonetary The amount of dividends for 2017 amounted to 50%
Preferred registered book-entry as at 31 December 2018 components of the net profit. of Transneft's normalised net profits under IFRS. Share category share Par value RUB 1 Index name Weight, % According to the Articles of Association of Transneft, As of 31 December 2018, Transneft has no dividend debt due Moscow Exchange ticker symbol TRNFP Broad Market Index 0.71 the dividend paid on one preferred share can not be less than to the federal budget. the dividend paid on one ordinary share. ISIN code RU0009091573 MOEX Index 0.83 Bloomberg Code TRNFP RX Oil & Gas sectoral index 4.77 Transneft’s dividend history 2017 (interim, based on 1H Trading results for preferred shares of the Company Name 2017 (for 2016) 2017 results) 2018 (for 2017) Share category (RUB per share) ordinary 4,296.48 3,875.49 7,578.27 Indicator 2016 2017 2018 preferred, type A 4,296.48 3,875.49 7,578.27 Trading volume (RUB billion) 103.9 131.7 62.5 Total number of shares, pcs 7,123,623 7,123,623 7,249,343 Minimum price 132,600 156,000 142,500 Total amount of dividends, RUB 30,606,503,747.04 27,607,496,252.96 54,937,478,576.61 Maximum price 235,700 222,500 185,000 Dividend payout ratio from net profit under RAS 100% 100% 140% Year-end price 197,950 179,900 163,450 Resolution on dividend payment AGMS dated 30 June 2017 EGMS dated 30 August 2017 AGMS dated 30 June 2018
Read more: Market capitalisation of Transneft’s preferred shares1
Share listings on the Company's website (RUB billion) Dividends paid (RUB million) 307.8 301.6 2018 279.7 2016 2017 254.1 Dividends paid 12,801.4 58,214 54,937,5
195.9
2014 2015 2016 2017 2018
1 As of the end of each year. As reported by the Moscow Exchange
148 149 Annual report 2018
Information on profit distribution Shareholder and Investor Relations ■■ A corporate broker contract was concluded with The Company seeks most efficient interaction with Gazprombank, JSC to provide corporate communications the shareholders, investors and other stakeholders, ensuring with the investment community, including to ensure regular Name 2016 (for 2015) 2017 (for 2016) 2018 (for 2017) regular, prompt, accessible, complete and unbiased disclosure meetings with analysts and investors Retained profit (loss) in the reporting period, including: 12 801,4 30 606,5 58 843,6 of information, with emphasis on concurrently providing ■■ Work with shareholders from among individuals is Dividends paid (RUB million) 12 801,4 30 606,5 58 843,5 material information to various categories of stakeholders. carried out on an ongoing basis in relation to changes Reserve fund replenishment (RUB million) – – 0,02 in the information of their personal accounts, to transfer Kept at Transneft’s disposition (RUB million) – – 0,06 The Company mandatorily discloses information on its of dividends, and to registration of inheritance rights (there activities: were 30 applications in 2018) ■■ On its official website https://en.transneft.ru/ ■■ The subscription fee for the Company's registrar services ■■ On the issuer’s webpage http://www.e-disclosure.ru/portal/ was reduced by 25%, the price list for additional services BONDS company.aspx?id=636 was changed (free placement of additional shares in favor of the Federal Agency for State Property Management, free Rouble Bonds In accordance with the Regulations on the Information Policy, transfer of ownership of shares as a result of inheritance the Company implements a number of activities for voluntary with a market value of inherited shares of up to RUB 10 Issues of corporate bonds in circulation disclosure of information, including: million for shareholders from among individuals). ■■ Publishing (placing) information on the Company’s website Maturity Date / Coupon rate ■■ Managing corporate social media accounts Series Date of placement date of Offer Nominal volume (RUB) (current, % per annum) ■■ Disclosing information during direct interaction 03 30 September 2009 18 September 2019/ – 65,000,000,000 12.05 of the Company with shareholders, investors, mass media and other stakeholders Issues of exchange bonds in circulation ■■ Issuing corporate publications ■■ Providing comments to questions asked by mass media, Maturity Date / date Coupon rate securities’ market professionals and other stakeholders, Series Date of placement of Offer Nominal volume (RUB) (current, % per annum) verbally or in writing Exchange bonds, series BO-05 21 April 2016 9 April 2026 / 17,000,000,000 10.10 15 April 2021 ■■ Preparing and disclosing the Company's Sustainable Development Report compiled in accordance with Transneft’s annual report entered the short-list (12 out Exchange bonds, series BO-06 6 September 2016 25 August 2026 / 17,000,000,000 9.30 30 August 2022 international GRI standards of 23 companies) of the main category “The best annual Exchange bonds, series BO-07 26 April 2017 17 April 2024 17,000,000,000 8.75 report of a company with market capitalisation of more The Company maintains a high level of interaction with than RUB 200 billion” of the 21st Annual Competition Exchange bonds, series BO-001R-01 10 June 2016 2 June 2023 20,000,000,000 9.90 investors and shareholders. The following measures were of Annual Reports organised by the Moscow Exchange. Exchange bonds, series BO-001R-02 8 July 2016 30 June 2023 10,000,000,000 9.65 implemented in 2018: Exchange bonds, series BO-001R-03 11 August 2016 3 August 2023 15,000,000,000 9.45 ■■ The new edition of the Regulations on Provision According to the experts of the Moscow Exchange’s Exchange bonds, series BO-001R-04 6 October 2016 29 September 2022 15,000,000,000 9.30 of Information and Documents to Shareholders competition, the annual report of Transneft was Exchange bonds, series BO-001R-05 3 February 2017 26 January 2024 15,000,000,000 9.25 of the Company was approved. The Regulations were performed at a high professional level, it meets Exchange bonds, series BO-001R-06 29 March 2017 24 March 2021 20,000,000,000 9.00 brought into line with the amendments to the Federal the requirements of the competition and largely Exchange bonds, series BO-001R-07 3 May 2017 28 October 2020 30,000,000,000 8.75 Law On Joint-Stock Companies that have come into corresponds to the best practice in disclosing Exchange bonds, series BO-001R-08 19 October 2017 09 October 2025 25,000,000,000 7.90 force in terms of the rules governing the information information. At the end of 2018, Transneft retained rights of shareholders. In addition, in order to implement the status of one of the leaders among Russian Exchange bonds, series BO-001R-09 26 February 2018 21 February 2022 15,000,000,000 7.15 the recommendations of the CGC, the Regulations companies in terms of the Sustainable Development Exchange bonds, series BO-001R-10 13 April 2018 8 October 2021 15,000,000,000 7.00 establish the right of a shareholder owning 25% or more Vector/ Responsibility and Transparency indexes Read more: of the Company's voting shares to receive information assigned by the Russian Union of Industrialists and documents of Transneft subsidiaries and Entrepreneurs (RSPP) in 20171. Information on the bonds on the corporate website ■■ The Company's website was updated; and the list of voluntarily disclosed information was significantly expanded. The Information for Shareholders section contains frequently asked questions, the dividend history and contact information for communication with investors and shareholders, as well as hotline numbers for all CREDIT RATINGS questions related to receiving dividends ■■ Meetings and consultations with representatives In March 2019, the Investor Relations Division was Information on credit ratings In February 2019, Moody’s upgraded Transneft’s rating of the analytical and investment community were established, with such key tasks as development as of 31 December 2018 to Baa2 with a stable outlook due to the increase held, including with the participation of the Company's of the dialogue with the investment community and in the sovereign rating of the Russian Federation by one management. In October, an open webinar was held orchestration and performance of the work to upgrade Rating agency Rating tier 31 December 2018 level (to Baa3). with the participation of Gazprombank as a professional Transneft’s investment appeal, as well as to increase its In foreign currency: consultant and organiser market capitalisation. ВВB— (stable outlook) Standard & Poor’s In national currency: ВВВ (stable outlook) Investor Relations Division Moody’s Ваa3 (positive outlook) Tel +7 (495) 950-84-54 Expert RA RuAAA (stable outlook) E-mail [email protected] Website: https://en.transneft.ru/investors/contacts/ 1 URL: http://rspp.ru/simplepage/858
150 151 Annual report 2018
Being Part “ of History I began“ writing while still studying at the history department of the Bashkir State University
I began writing while still studying at the history department of the Bashkir State University. I first published a collection of stories titled Syn Volchyego Solntsa (“Son of the Wolves' Sun”). In 2016, I co-authored Teni Shattenburga (“Shadows of Schattenburg”). This fantasy thriller was born out of a literary game on an Internet forum. The scene is laid in a small town of medieval Germany. There is a multitude of plotlines intertwined in this novel, with a lot of characters involved: citizens frightened by mysterious disappearance of children, an Inquisitor priest, a local baron...
Denis Lapitsky I work on my books in the evenings and on weekends. I do not consider myself a real writer, although I’ve been a member of the Writers’ Union since 2010. This is my passion and it’s Specialist, always pleasant to hold my book in my hands. Knowing that people read my work and enjoy it is a very strong incentive. My only regret is that it’s not possible to add a couple more Public and Media hours to the day, or, better yet, a dozen. Relations Division Transneft Urals (the Republic of Bashkortostan)
I joined Transneft in 2012, having a vague idea of its operations. But after I gained some insights, I was struck by the grandeur and scale of the Company’s mission and its importance for the country. That’s why it’s so important for me to tell outsiders, the readership and the audience about the Company and its employees. There are many enthusiasts among them, sincerely dedicated to their professions; each one is a role model in terms of their attitude towards their work, discipline and decision-making prowess.
152 153 Annual report 2018
Appendixes
No. Share of participation, Company name Area of business 1. MAJOR TRANSACTIONS including via subsidiaries, % In 2018, Transneft did not make transactions that are considered major in accordance with Article 78 of Federal Law No. 208-FZ 19 Limited Liability Company Transneft Primorsk Port (Transneft Primorsk Other cargo handling 100 On Joint-Stock Companies dated 26 December 1995. Port, LLC) 20 Limited Liability Company Transneft Kozmino Port (Transneft Kozmino Oil transportation 100 2. INTERESTED-PARTY TRANSACTIONS (THE REPORT ON INTERESTED-PARTY TRANSACTIONS CONCLUDED Port, LLC) BY THE COMPANY IN THE REPORTING YEAR COMPILED IN ACCORDANCE WITH PARAGRAPH 1.1 OF ARTICLE 81 21 Joint-Stock Company Transneft UW Service (Transneft UW Service, JSC) Inspection and repair of underwater crossings 100 OF FEDERAL LAW NO. 208-FZ ON JOINT-STOCK COMPANIES DATED 26 DECEMBER 1995) 22 Joint-Stock Company Giprotruboprovod Institute for Trunk Pipeline Design Preparing design and estimate documentation 100 (Giprotruboprovod, JSC) Information about the interested-party transactions concluded by Transneft in 2018 is not disclosed (provided) on the basis 23 Joint-Stock Company Oil Transportation and Product Telecommunications Providing technological communication for oil trunk 100 of Resolution of the Government of the Russian Federation No. 400 dated 4 April 2019 On the Specifics of Disclosure (Svyaztransneft, JSC) pipelines’ facilities and Provision of Information Subject to Disclosure and Provision in Accordance with the Requirements of the Federal Law On 24 Joint-Stock Company Transneft Diascan (Transneft Diascan, JSC) Inspection of pipelines’ line portion 100 Joint-Stock Companies and the Federal Law On Securities Market. A corresponding notification was sent to the Bank of Russia 25 Joint-Stock Company Transneft Metrology (Transneft Metrology, JSC) Metrological support of oil transportation 100 (Paragraph 6 of Article 30.1 of Federal Law No. 39-FZ On Securities Market dated 22 April 1996). 26 Limited Liability Company Eastern Siberia – Pacific Ocean Project Performing the functions of property owner 100 Management Centre (PMC ESPO, LLC) and developer 3. INFORMATION ON TRANSNEFT’S MEMBERSHIP IN BUSINESS ENTITIES AND NON-PROFIT ORGANISATIONS 27 Limited Liability Company Transneft – Pipeline Construction Directorate General construction works 100 (Transneft PCD, LLC) Information on Transneft’s Membership in Business Entities as of 31 December 2018 28 Joint-Stock Company Transneft Non-Governmental Pension Fund (Transneft Non-governmental pension schemes 100 NPF, JSC) No. Share 29 Limited Liability Company Transneft Invest Management Company (TN Invest Trust management of the non-governmental pension 100 of participation, Company name Area of business MC, LLC) fund’s assets including via subsidiaries, % 30 Limited Liability Company Transneft Media (Transneft Media, LLC) Publishing 100 Information about businesses where the Company holds from 50% +1 share to 100% of the authorised capital 31 Limited Liability Company Transneft Finance (Transneft Finance, LLC) Accounting, tax and management accounting services 100 1 Joint-Stock Company Transneft Siberia (Transneft Siberia, JSC) Oil and petroleum products transportation 100 32 Limited Liability Company Transneft Energy (Transneft Energy, LLC) Sale of electricity 100
2 Joint-Stock Company Transneft Druzhba (Transneft Druzhba, JSC) Oil and petroleum products transportation 100 33 Limited Liability Company The Pipeline Transport Institute (the PTI, LLC) Research and development 100 3 Joint-Stock Company Transneft Volga Region (Transneft Volga Region, JSC) Oil and petroleum products transportation 100 34 Limited Liability Company Transneftstroy (Transneftstroy, LLC) Construction of buildings and structures 100 4 Joint-Stock Company Transneft Kama Region (Transneft Kama Region, JSC) Oil and petroleum products transportation 100 35 Limited Liability Company Transneft Service (Transneft Service, LLC) Safety in emergency situations 100 5 Joint-Stock Company Transneft Western Siberia (Transneft Western Oil and petroleum products transportation 100 Siberia, JSC) 36 Joint-Stock Company Transneft-Terminal (TNT, JSC) Oil and petroleum products transportation services 100
6 Joint-Stock Company Transneft Urals (Transneft Urals, JSC) Oil and petroleum products transportation 100 37 Joint-Stock Company Transneft Service (Transneft Service, JSC) Fuel wholesale 100
7 Joint-Stock Company Transneft Upper Volga (Transneft Upper Volga, JSC) Oil and petroleum products transportation 100 38 Limited Liability Company Transneft Ust-Luga Port (Transneft Ust-Luga Other cargo handling 100 8 Joint-Stock Company Transneft Central Siberia (Transneft Central Oil transportation 100 Port, LLC) Siberia, JSC) 39 Limited Liability Company Transneft Security Services (Transneft Security Departmental security 100 9 Joint-Stock Company Transneft North (Transneft North, JSC) Oil transportation 100 Services, LLC) 40 Limited Liability Company Transneft-Logistics (Transneft-Logistics, LLC) Organising freight transportation 100 10 Joint-Stock Company Chernomorskiye Magistralnye Nefteprovody Oil and petroleum products transportation 100 (Chernomortransneft, JSC) 41 Limited Liability Company Institute of Problems of Transport of Energy Research and development in the field of natural 100 11 Limited Liability Company Transneft Baltic (Transneft Baltic, LLC) Oil and petroleum products transportation 100 Resources (IPTER, LLC) and technical sciences 42 Limited Liability Company Gruzovaya (Gruzovaya, LLC) Railway transport 100 12 Limited Liability Company Transneft East (Transneft East, LLC) Oil transportation 100 43 Joint-Stock Company Tomsk Plant of Electric Drives (TOMZEL, JSC) Precision engineering 100 13 Limited Liability Company Transneft Far East (Transneft Far East, LLC) Oil transportation 100 44 Limited Liability Company Transneft Electric Network Service (Transneft Providing electricity transmission services 100 14 Joint-Stock Company Transnefteproduct (Transnefteproduct, JSC) Fuel wholesale 100 Electric Network Service, LLC) 15 CPC Company Any type of business activity which is not prohibited 100 45 Limited Liability Company Transneft Technologies (Transneft Maintenance of means of automation, telemetry 100 by law Technologies, LLC) systems, as well as automated process control 16 CPC Investments Company Any type of business activity which is not prohibited 100 systems by law 46 Limited Liability Company Executive Company Evolution (Executive Company Renting and management of own or leased non- 100 17 Srednevolga Joint-Stock Company of Petroleum Products Pipeline Petroleum products transportation 100 Evolution, LLC) residential real estate Transportation (Srednevolga Transnefteproduct, JSC) 47 Limited Liability Company Transneft Supervision (Transneft Supervision, LLC) Technical and construction supervision & monitoring 100
18 Joint-Stock Company Transnefteproduct West (Transnefteproduct West, JSC) Providing other financial services, apart from insurance 100 48 Limited Liability Company Transneft Ust-Luga (Transneft Ust-Luga, LLC) Investments in securities 100 and pension coverage services
154 155 Annual report 2018
No. Share No. Share of participation, of participation, Company name Area of business Company name Area of business including via including via subsidiaries, % subsidiaries, % 49 Limited Liability Company Transneft Telecom (Transneft Telecom, LLC) Telecommunications 100 72 Limited Liability Company Novorossiysk Grain Terminal (NGT, LLC) Organising freight transportation; transshipment 100 of grains and oilseed crops through the terminal 50 Joint-Stock Company PROMSFERA (PROMSFERA, JSC) Immovable property leasing 100 complex; storage of grain and products of its processing 51 Limited Liability Company Tikhoretsk-Nafta (Tikhoretsk-Nafta, LLC) Other cargo handling 100 77 HENFORD LOGISTICS LIMITED Any type of business activity which is not prohibited 100 52 Unitary Production Enterprise Zapad-Telecomnefteproduct (Zapad- Providing communications services 100 by law Telecomnefteproduct Unitary Enterprise) 73 Limited Liability Company IPP (IPP, LLC) Cargo handling services (loading & unloading, 99.99 53 Unitary Production Enterprise Zapad-Transnefteproduct (Zapad- Petroleum products transportation 100 transshipment including stevedore services) Transnefteproduct Unitary Enterprise) and storage (including intra-warehousing operations) 54 Joint-Stock Company Prometheus Health Resort (Prometheus Health Recreation and health resort services 100 74 Limited Liability Company Port Petrovsk Auxiliary activities related to water transport 99 Resort, JSC) 75 Joint-Stock Company Novorossiysk Shiprepair Yard (NSRY, JSC) Cargo handling services (loading & unloading, 98.26 55 Omirico Limited Any type of business activity which is not prohibited 100 transshipment including stevedore services) by law and storage (including intra-warehousing operations), ship repair 56 Festina Alliance Ltd Any type of business activity which is not prohibited 100 by law 76 Public Joint-Stock Company Fleet of Novorossiysk Commercial Sea Port (Fleet Provision of port and auxiliary fleet services 95.19 NCSP, PJSC) 57 Swelton Investments Ltd Any type of business activity which is not prohibited 100 by law 78 Limited Liability Company Nochnaya Khokeinaya Liga (NKhL, LLC) Activities in the field of sport 95
58 Fenti Development Ltd. Any type of business activity which is not prohibited 100 79 Joint-Stock Company Novoroslesexport (NLE, JSC) Cargo handling, loading and unloading of cargo 91.38 by law regardless of transport type (railway, sea transport), 59 Mcgraw Limited Any type of business activity which is not prohibited 100 including loading and unloading activities for sea by law transport 60 Wemor Limited Any type of business activity which is not prohibited 100 80 Joint-Stock Company Transneft Oil Pumps (Transneft Oil Pumps, JSC) Development, production and sale of pumping 51 by law equipment for trunk pipeline transportation facilities 61 Novoport Holding Ltd Any type of business activity which is not prohibited 100 81 Joint-Stock Company RUSSIAN ELECTRIC MOTORS (REM, JSC) Manufacture of electric motors for oil and petroleum 51 by law products trunk pipeline transportation facilities 64 Limited Liability Company Novorossiysk Fuel Oil Terminal (NFOT, LLC) Cargo handling services (loading & unloading, 100 82 Limited Liability Company Transneft Synthesis (Transneft Synthesis, LLC) Production of petroleum products 51 transshipment including stevedore services) 83 Joint-Stock Company Transneft Energy Terminal (Transneft Energy Oil loading into railway tank cars at Skovorodino oil 50.04 and storage (including intra-warehousing operations) Terminal, JSC) loading station 62 Limited Liability Company Ceramic Materials Plant (Ceramic Materials Production of brick, roof tiles and other building 99.9977 Plant, LLC) materials Information about businesses where the Company holds from 20% to 50% of the authorised capital 63 Limited Liability Company Sibnefteprovod On-site Catering (Sibnefteprovod Providing catering and retail services 99.9 84 Limited Liability Company Nefte-Shipping Agency (Nefte-Shipping Ancillary marine transportation services 50 OC, LLC) Agency, LLC) 65 Public Joint-Stock Company Novorossiysk Commercial Sea Port (NCSP, PJSC) Cargo handling services (loading & unloading, 62 85 Gynura Trading Limited Any type of business activity which is not prohibited 50 transshipment including stevedore services) by law and storage (including intra-warehousing operations) 86 Joint-Stock Company OMEGA (OMEGA, JSC) Manufacture of pipeline monitoring systems 49.99997 66 Limited Liability Company Primorsk Commercial Port (Primorsk Commercial Cargo handling services (loading & unloading, 100 87 Limited Liability Company LatRosTrans (LatRosTrans, LLC) Petroleum products transportation 34 Port, LLC) transshipment including stevedore services) and storage (including intra-warehousing operations) 88 Limited Liability Company Burgas – Alexandroupolis Pipeline Consortium Design and construction of the Burgas – 33.34 67 Joint-Stock Company SoyuzFlot Port (SFP, JSC)1 Ancillary marine transportation services 100 (PC-BA, LLC) Alexandroupolis oil pipeline 89 Limited Liability Company Nevskaya Pipeline Company (Nevskaya Pipeline Other cargo handling 26 68 Closed Joint-Stock Company Importpishcheprom-Transservice Conclusion of any types of transactions in accordance 100 Company, LLC) (Importpishcheprom-Transservice, CJSC) with the current legislation of the Russian Federation and the legislation of the partner countries; provision 90 Sandmark Operations Limited Any type of business activity which is not prohibited 25.1 of freight forwarding services by law 69 Limited Liability Company Baltic Stevedore Company (Baltic Stevedore Freight forwarding services 100 91 Joint-Stock Company Ust-Luga Oil (Ust-Luga Oil, JSC) Cargo handling 25.000052 Company, LLC) 92 Limited Liability Company RUSENERGORESOURCE Sale of electricity 25 70 Open Joint-Stock Company Novorossiysk Port Complex Zarubezhneft (NPK General construction works 100 (RUSENERGORESOURCE, LLC) Zarubezhneft, OJSC)2 71 Limited Liability Company NMTP-Kapital (NMTP-Kapital, LLC) Activities of investment funds and similar financial 100 organisations
1 Transformed to SFP, LLC on 1 April 2019 2 In January 2019, the name was changed to NMTP-Resurs, JSC
156 157 Annual report 2018
5. TRANSACTIONS WITH STAKES, SHARES, AND EQUITY INTERESTS IN BUSINESS PARTNERSHIPS AND ENTITIES
No. Share No. Parties Business to be transacted and other material terms Price, RUB of participation, Company name Area of business 1 Federal Agency for State Property Management Transfer of 125,720 ordinary registered book-entry shares of Transneft (Issuer) 35,048,221,600 including via Transneft with a par value of RUB 1 in the ownership of the Russian Federation represented subsidiaries, % by the Federal Property Management Agency (Acquirer). State registration number Information about businesses where the Company holds from 2% to 20% of the authorised capital of securities: 1-01-00206-A-003D. Shares of Transneft were subject to a payment in kind in the form of 10,000 93 Joint-Stock Company St. Petersburg International Mercantile Exchange Control and monitoring stock, mercantile, commodity 20 ordinary shares of CPC Company (registered in the Cayman Islands’ Company (SPIMEX, JSC) and foreign exchange markets Registrar, registration number 72319), which is 100% of the total number of shares 94 Limited Liability Company Kontinental Hockey League (KHL, LLC) Sports events services 11.7647 placed (issued) by CPC Company, and 10,000 ordinary shares of CPC Investments Company (registered in the Cayman Islands’ Company Registrar, registration number 97 Joint-Stock Company Mortsenrt-TEK (Mortsenrt-TEK, JSC) Freight forwarding services for cargoes of legal entities 7.5 72320), which is 100% of the total number of shares placed (issued) by CPC and individuals Investments Company 95 Joint-Stock Company Caspian Pipeline Consortium-R (CPC-R, JSC) Oil transportation 7
96 Joint-Stock Company Caspian Pipeline Consortium-K (CPC-K, JSC) Oil transportation 7
6. TRANSNEFT’S INVESTMENTS WITH EXPECTED ANNUAL INCOME IN EXCESS OF 10%
Information on Transneft’s Membership in Non-profit Organisations as of 31 December 2018 During the reporting year, Transneft made no investments with expected annual income of more than 10%.
No. Organisation name Duration of participation Role (place) in the organisation
1 National Association for Technology Transfer (NATT) Since 2018 NATT member 7. PENDING LEGAL PROCEEDINGS 2 The Forum-Dialog Non-Profit Partnership (Forum-Dialog NPP) Since 2017 Forum-Dialog NPP member 3 The U.S.-Russia Business Council (USRBC) Since 2017 USRBC member As of 31 December 2018, there is no pending litigation involving Transneft as the defendant or the plaintiff in any debt recovery 4 Russian International Affairs Council (RIAC) Since 2015 RIAC member claims that may have had substantial impact on its financial and operating performance. 5 The International Association of Oil Transporters (IAOT) Since 2015 IAOT member The Russian Union of Industrialists and Entrepreneurs all-Russia employers’ 6 association (RSPP) Since 2014 RSPP member Non-Profit Partnership Technological platform “Technologies for Sustainable 8. EXECUTION OF INSTRUCTIONS FROM THE PRESIDENT AND THE GOVERNMENT Ecological Development” (NPP TP Technologies for Sustainable Ecological TP Technologies for Sustainable Ecological OF THE RUSSIAN FEDERATION 7 Development) Since 2013 Development member Non-Profit Partnership “Russian National Committee of the World Petroleum 8.1. Formation of Ad-Hoc Committees under the Company’s 8.2. On Implementation of the Company’s Energy Saving Council for Organising and Holding International Petroleum Congresses” 8 (RNC WPC) Since 1998 RNC WPC founder Board of Directors, under Instruction of the Government of the and Energy Efficiency Strategy (Paragraph 8, Instruction Russian Federation No. VZ-P13-6294 Dated 23 July 2009 No. ISh-P9-3772 of the Government of the Russian Federation Since 2008, the following Committees have been functioning Dated 18 June 2008 on Implementation of Decree under the Board of Directors of Transneft: of the President of the Russian Federation No. 889 On Measures 4. DIVIDENDS RECEIVED BY TRANSNEFT IN 2018 ■■ The Strategy, Investments and Innovations Committee to Improve Energy and Environmental Efficiency of the Russian ■■ The Audit Committee Economy Dated 4 June 2008, Rosimushchestvo’s Letters No. GN- No. Company name Amount, RUB Governing body that made the resolution ■■ The Human Resources and Remuneration Committee 13/28934 dated 27 November 2008, No. GN-15/2957 dated 6 The shareholder’s resolution (Transneft) dated 26 March 2018 February 2012) 1 Transnefteproduct, JSC 26,322 (Resolution No. 3) For the purposes of bringing the regulations on Committees Transneft has developed and is implementing the Energy Saving The shareholder’s resolution (Transneft) dated 26 October 2018 in line with the new version of the Company’s Articles and Energy Efficiency Enhancement Programme for 2018–2023, 2 Transnefteproduct, JSC 6,813 (Resolution No. 9) of Association (approved in 2016), the requirements imposed which is an integral part of the Transneft Long-Term Development A resolution of the General Meeting of Shareholders dated 5 February 2018 3 Giprotruboprovod, JSC 2,323 (Minutes No. 3 dated 5 February 2018) by the Bank of Russia and the Listing Rules of the Moscow Programme. The programme was approved by the Board Exchange, the regulations on Committees were updated of Directors of Transneft on 27 December 2018 (Minutes No. 22). The shareholder’s resolution (Transneft) dated 29 June 2018 4 Transneft Central Siberia, JSC 908 (Resolution No. 13) by the Resolution of the Transneft Board of Directors dated A resolution of the General Meeting of Shareholders dated 7 June 2018 19 January 2017 (Minutes No. 1). In pursuance of Rosimushchestvo’s Letter No. GN-15/2957 5 SPIMEX, JSC 11 (Minutes No. 25 dated 7 June 2018) dated 06 February 2012, data on the Company’s performance Burgas – Alexandroupolis Pipeline Consortium, Minutes of the General Meeting of Shareholders dated 20 April 2018 The KPI system was approved for the Company in the field of energy saving is published on Rosimushchestvo’s 6 LLC 6 (Minutes No. 1 dated 20 April 2018) by the Resolution of the Board of Directors of Transneft dated intradepartmental portal. For information on Transneft’s 2018 5 September 2011 (Minutes No. 14). The aforementioned performance results in the sphere of energy saving see the Other system was amended and supplemented on several occasions Documents section of the Transneft personal account. for the purpose of its improvement. For information on availability of the approved KPI system in the Company see the According to the 2018 results, the Energy Saving Programme Key Performance Indicators (KPI) System subsection. was carried out in full.
158 159 Annual report 2018
8.3. On Disposal of Non-Core Assets, Pursuant to Decree The Environmental Management System (hereinafter referred In 2018, Transneft subsidiaries introduced the unified Federation No. 1346p-P13 dated 5 March 2015) of the President of the Russian Federation No. 596 dated to as the EMS) has been developed, implemented and is Information System for Managing Intellectual Property Transneft is constantly working to reduce the dependence 7 May 2012 (Rosimushchestvo’s Letters No. GN-13/1359 continuously improved at Transneft and all its subsidiaries of Transneft and its Subsidiaries Database (ISMIP DB), of the Russian fuel and energy sector upon imports dated 24 January 2011, No. GN-15/10587 dated 9 April to pursue the Policy in accordance with the ISO 14001:2015 developed in 2017, in order to provide data support of equipment, technical devices and components, as well as 2012, No. ЕА-15/48093 dated 25 October 2012), Including international standard. to the intellectual property (IP) rights management process at works and services of foreign companies and use of foreign Information on Consideration by the Board of Directors Transneft and its Subsidiaries at all stages of IP lifecycle. Three software. Meetings of Disposal of Non-Core Assets of Both the Parent The EMS was developed with the structure of the Company’s documents of title have been obtained by Transneft for ISMIP Company and Associate Companies, and Approval administrative management in mind. Transneft has developed DB (including the software and the database). The implementation of import substitution at the Company is of Programmes on the Disposal of Those Assets a Responsibility Assignment Matrix to meet environmental regulated by Transneft’s Corporate Import Substitution Plan. law requirements in accordance with the ISO 14001:2015 In 2018, the second research-to-practice workshop on The information is available in Appendix 9 to the Annual Report. international standard. Transneft’s intellectual property, as well as ten online Local manufacturing of 26 types of products for trunk pipeline p. 159 workshops on intellectual property rights management were transportation of oil and petroleum products was provided 8.4. On Approval of the Innovation Development Programme The 2018 audits revealed that the EMS complied with all ISO held for the personnel of Transneft and its subsidiaries, with in pursuance of the instruction to increase local manufacturing Developed (Corrected) on the Basis of Methodological 14001:2015 requirements. highly qualified specialists in the field of intellectual property in the key economy sectors of Russia in order to ensure their Instructions Approved by Instruction No. DM-P36-7563 dated involved. invulnerability against external factors. 7 November 2015 (Executive Orders of the Government In 2018, in pursuance of Executive Order of the Government of the Russian Federation No. 1471p-P13 dated 3 March of the Russian Federation No. 1710p-P13 dated 30 March Five targeted audits of IP rights management were conducted More than 25 domestic companies were engaged to set up 2016) 2012, and the Resolution of Transneft’s Board of Directors in 2018 in order to monitor the implementation of Transneft’s manufacture of the imported products to be substituted: Pursuant to instruction of the Government of the Russian dated 21 March 2014 (Minutes No. 3) on mandatory annual unified intellectual property policy at Transneft subsidiaries. Gazkholodtekhnika, Gusar, Konar, Institut Organicheskogo Federation No. DM-P36-7563 dated 7 November 2015 non-financial reporting, Transneft published the non-financial Sinteza Imeni I. Ya. Postovskogo (the Postovsky Institute and Executive Orders of the Government of the Russian Sustainable Development Report, that included information on 8.7. On Development and Approval of the Long-Term of Organic Synthesis) and Nauchno-Issledovatelsky Institut Federation No. 1471p-P13 dated 3 March 2016 on the basis environmental responsibility, on its official website. Development Programme in Pursuance of Subparagraphs Sinteticheskogo Kauchuka (the R&D Institute of Synthetic of methodological instructions approved by Instruction 33 and 34 of Paragraph 1 of Instruction of the President Rubber), TOMZEL, YENKHA, Penztyazhpromarmatura (PTPA), of the Government of the Russian Federation No. DM-P36-7563 8.6. On Expediency of Applying Recommendations on of the Russian Federation No. Pr-3086 dated 12 Nefteavtomatika, Impuls-Avia, VMP Holding, AZP, ROCOR R&D dated 7 November 2015, the Transneft Innovation Management of Intellectual Property Rights, as Prescribed December 2013 (Executive Orders of the Government and Production Company, UralPOZHTEKHNIKA, Morozovsky Development Programme for 2017–2021 was developed. by Instructions of the Government of the Russian Federation of the Russian Federation No. 4955p-P13 dated 17 July Khimichesky Zavod (Morozovsky Chemical Plant) and other No. ISh-P8-800 dated 4 February 2014 2014, Rosimushchestvo’s Letter No. PF-11/35222 dated Russian companies. The Transneft Innovation Development Programme for In pursuance of Instructions of the Government of the Russian 15 August 2014) 2017–2021 was coordinated with the Ministry of Energy, Federation No. ISh-P8-5594 dated 25 August 2017 on As part of pursuing subparagraphs 33 and 34 of paragraph 1 To date, manufacture of 24 equipment types has been fully set the Ministry of Education and Science and the Ministry implementation of recommendations on management of Instruction of the President of the Russian Federation No. up in Russia: of Economic Development of the Russian Federation; it was of intellectual property rights at Transneft and its subsidiaries, Pr-3086 dated 27 December 2013 (Executive Orders of the ■■ Mechanical process equipment (mainline and booster approved at the meeting of the Interagency Commission for 2018 saw implementation of a set of measures to implement Government of the Russian Federation No. 4955p-P13 dated pumps, four-way valve, sliding gate valves, MPU cooling Technological Development at the Presidium of the Council for the recommendations on management of intellectual property 17 July 2014, Rosimushchestvo’s Letter No. PF-11/35222 system fans, pressure and flow regulators (disc, Economic Modernisation and Innovative Development under rights at Transneft subsidiaries. dated 15 August 2014), Transneft developed the Transneft axisymmetrical and ball types) the President of the Russian Federation (Minutes No. 10- Long-Term Development Programme, approved ■■ Equipment and instruments for metering oil and petroleum D01 dated 7 October 2017 ) and then approved by the Board For the purpose of shaping a uniform policy of Transneft by the Resolution of Transneft’s Board of Directors (Minutes products quantity and quality (LACT, flow, density of Directors of Transneft on 11 November 2016 (Minutes and its subsidiaries and enhancing the intellectual No. 23 dated 19 November 2014). and viscosity transducers, mechanical displacement No. 21). property management efficiency, a collegial advisory body, provers, spherical piston for MDPs) the Intellectual Property Commission of Transneft, has been 8.8. On Technological and Pricing Audit of Investment ■■ Drag reducing agents (Nika PetroTech, Yekaterinburg). 8.5. On Proposals and Recommendations Encouraging functioning at Transneft since 2017. In 2018, the Intellectual Projects. In Pursuance of Executive Orders of the Government A DRA manufacturing enterprise in the Alabuga Special the Development of Environmental Responsibility Property Commission held three meetings dedicated of the Russian Federation No. 2988p-P13 dated 30 May 2013 Economic Zone in the Republic of Tatarstan is being Mechanisms That Rely on International Standards, Including to various issues of legal protection, use, and keeping records In 2018, Transneft had no investment projects which required constructed jointly with Nika PetroTech. The product output Such as Non-Financial Reporting and Voluntary Certification of intellectual deliverables at Transneft and its subsidiaries. technological and pricing audits. shall be 3,000 tonnes per year, expandable to 10,000 and Marking Systems That are Subject to Independent tonnes. Completion of the plant’s construction is scheduled Audit and Assurance (Subparagraph l, Paragraph 1, of List In 2018, the Regulations on Patent and Licensing Activities 8.9. On Development of a Set of Measures (List of Measures) for the first quarter of 2019 of Instructions from the President of the Russian Federation were developed and adopted at Transneft and its subsidiaries, for Scheduled and Stage-Wise Replacement of Imported ■■ Power equipment (high-voltage electric motors). On No. Pr-1640 dated 6 June 2010, Rosimushchestvo’s Letter that governs the patent and licensing activities at Transneft Products (Works, Services) with Procurement of Russian 8 October 2015, Transneft Urals and Konar Invest No. GN-13/37524 dated 5 December 2011) and its subsidiaries. Products (Works, Services) Having Equivalent Technical established the RUSSIAN ELECTRIC MOTORS joint-stock Transneft’s voluntary environmental responsibility mechanism Features and Consumer Properties and Used in Implementing company (hereinafter referred to as REM) in Chelyabinsk, consists in the system of additional obligations assumed In 2018, a comprehensive patent analytics system was Investment Projects and in Day-To-Day Operations, Based and in October 2018, REM’s electric motor manufacturing by the Company to maintain the scientifically substantiated introduced at Transneft, for the Company and its subsidiaries on Economic Viability and Technological Feasibility plant was commissioned balance between environmental and economic interests to further apply the obtained results in their business; Principles; Inclusion of the List of Measures and Values and the socioeconomic needs of society that promote thus, a preliminary patent research required for including of Implementation Indicators for Those Measures into Construction of the plant began in April 2016, and the main sustainable development of the Russian Federation. the announced R&D subjects in the annual R&D Master Plan the Company’s Long-Term Development Programme, construction work was completed as early as in 2017. In 2018, for Transneft and its subsidiaries was conducted, patent Taking into Account the Provisions of the Methodological the process equipment was installed and set up at the plant. studies were carried out at the R&D stage, and patent Recommendations on Creation of Long-Term Development Today, it is a state-of-the-art high-tech manufacturing facility landscapes were built for three priority technology areas. Projects (Executive Orders of the Government of the Russian capable of producing products competitive on the global
160 161 Annual report 2018
market. The plant has more than 200 pieces of process 8.11. On Increased Labour Productivity, Creating In the context of the above activity areas, the Company has Chapter 19, Reduction of Operating Expenses, of Transneft’s equipment installed, 83 of which being unique high-precision and Upgrading of High-Performance Jobs. In Pursuance developed respective OPEX reduction measures: Long-Term Development Programme determines the key equipment. of Subparagraphs 6.2, 6.3 and 6.4, Paragraph 6, Section 2 goals, areas, and anticipated results of the operating of the Action Plan Approved by Directive of the Government Reduction in the cost of power resources is achieved through: expenses reduction and the procedures for implementation The annual output of the new enterprise (REM) will achieve of the Russian Federation No. 1250-r dated 9 July 2014 ■■ Optimisation of trunk pipelines’ process modes of Transneft’s plan for reduction of operating expenses 300 high-voltage electric motors with a capacity of up (Executive Orders of the Government of the Russian ■■ Optimisation of operational capacities at trunk pipelines’ and the control of its implementation. to 14 MW, the product range being extensible to 45 MW. Federation No. 7389p-P13 dated 31 October 2014, operational facilities Rosimushchestvo’s Letter No. 11/47056 dated 5 November ■■ Increase in the efficiency of energy-intensive equipment The employment contract with the sole executive body External and internal corrosion-resistant coatings: 2014) of the Company (President of Transneft) implies carrying ■■ PS automation systems (measuring sets for LACT, radar A list of Transneft’s measures ensuring a rise in labour Procurement optimisation is achieved through: out activities aimed at achieving the targets and indicators level gauges, programmable controllers for PSs, water level productivity was included in the Transneft Long-Term ■■ Substituting imported products with domestically established by the Transneft Long-Term Development and temperature measurement systems for tank farms) Development Programme, approved by the Resolution manufactured products, provided that the quality Programme. ■■ Heavy offshore booms (ECO-service-NEFTEGAZ, based of the Transneft Board of Directors on 27 December 2018 and reliability of the supplied equipment and components in Zhukovsky) (Chapter 11, Personnel Management). are equal to those of the imported ones 8.13. On Inclusion of the Integrated Key Performance Indicator ■■ Firefighting foam towers (UralPOZHTEKHNIKA, based ■■ Specifying a bid price of an item, given that the prior year’s Of Innovative Activities Developed in Accordance with in Miass) The KPI System of Transneft was expanded to include prices must not be exceeded the Guidelines Approved by Instruction of the Government ■■ Electronic components for inspection equipment (Transneft the Increase in Labour Productivity indicator, whose target ■■ Lower fuel consumption is achieved through: of the Russian Federation No. DM-P36-7563 dated Diascan and GEATEKH (based in Zelenograd)) values are annually approved by the Transneft Board ■■ Introduction of GLONASS and monitoring of the movement 7 November, 2015, since 2016 (Executive Orders of Directors. of vehicles and special-purpose machinery along the of the Government of the Russian Federation No. 1472p-P13 By their specifications, the prototypes obtained meet their established routes dated 3 March 2016; Rosimushchestvo’s letter No. AT-2424/02 foreign peers and Transneft’s requirements. 8.12. On Development of the Set of Measures (List of Actions) ■■ Installation of up-to-date automated and highly efficient dated 11 March 2016). to Achieve the Operating Expenses (Costs) Reduction by at Least equipment in boiler houses, reduction of thermal energy Following the recommendations of the Ministry of Economic In 2019–2020, production of two equipment types for oil 2-3% Annually (Hereinafter Referred To as the OPEX Reduction loss in heating networks due to the use of modern thermal Development of the Russian Federation approved by Instruction and petroleum products trunk pipeline transportation will be Indicator); Inclusion of the List of Actions, Target Values insulation materials of the Government of the Russian Federation No. DM-P36-7563 set up: of the Actions’ Accomplishment Indicator and OPEX Reduction dated 7 November 2015, and in pursuance of Executive Orders ■■ Linear electric drive for stop and control valves (production Indicator Values, Starting From Its Value for 2015, into the Long- Lower spending on maintenance services is achieved through: of the Government of the Russian Federation No. 1472p-P13 to be set up in Q1 2019) Term Development Programme; Inclusion of the OPEX Reduction ■■ Optimisation of maintenance services’ providers’ operations dated 3 March 2016 (Rosimushchestvo’s letter No. AT-2424/02 ■■ Activated carbon for recovery (production to be set up in Q4 Indicator Target Values into the List of Key Performance ■■ Installation of modern equipment at maintenance dated 11 March 2016), a comprehensive audit of performance 2020) Indicators for the Management Activities, and Aligning subsidiaries’divisions indicators of 87 foreign companies leading in the global oil Achievement of the OPEX Reduction Indicator Values with ■■ Adoption of efficient technologies and petroleum products transportation, was carried out involving 8.10. On Improving the Company’s System of Key the Remuneration Rates of the Company’s Management; the independent international consulting company KPMG. The Performance Indicators in Pursuance of Paragraph 4 Amendment of the Employment Contract with the Sole In pursuance of paragraph 5 of the list of instructions from obtained results were used by Transneft as a basis to develop its of the List of Instructions from the President of the Russian Executive Body of the Company to the Extent of Inclusion into the President of the Russian Federation No. Pr-2821 dated Integrated Key Performance Indicator of Transneft’s Innovative Federation No. Pr-1474 dated 5 July 2013 (Executive Order It of an Obligation to Achieve the OPEX Reduction Indicator 5 December 2014, issued for the purpose of implementation Activities. of the Government of the Russian Federation No. 2579p-P13 Value Determined in the Company’s Long-Term Development of the Presidential Address to the Federal Assembly dated 25 April 2014) Programme (Executive Orders No. 2303p-P13 of the Government of the Russian Federation of 4 December 2014, Transneft Transneft’s integrated key performance indicator of innovative In pursuance of paragraph 4 of the list of instructions from of the Russian Federation dated 16 April 2015). has developed a new Methodology to Calculate the Operating activities was agreed upon by the Ministry of Economic the President of the Russian Federation No. Pr-1474 dated For 2018-2023, the target values for the indicator Expenses Reduction Indicator approved by the Resolution Development and the Ministry of Energy of the Russian 5 July 2013 (Executive Orders of the Government of the of the Transneft OPEX Reduction Action Plan achievement of the Board of Directors of Transneft dated 27 December Federation, approved by Deputy Chairman of the Government Russian Federation No. 2579p-P13 dated 25 April 2014) were approved by the Company’s Board of Directors on 27 2018 (Minutes No. 22) for evaluation of the achievement of the Russian Federation Arkady Dvorkovich (Minutes and other instructions received in 2016 from the federal December 2018 (Minutes No. 22), as part of Transneft’s of the Operating Expenses Reduction Percentage KPI, No. AD-P36-247pr dated 17 December 2015), and included authorities of the Russian Federation, the Company developed Programme for Operational Efficiency Improvement and Cost in accordance with the Methodological Instructions on in the Transneft Long-Term Development Programme the improved Key Performance Indicators System for business Cutting. Calculation of Costs Reduction by Joint-Stock Companies with (Resolution of the Board of Directors of Transneft dated 28 operations of Transneft and the Methods to Evaluate the State’s Equity Stake Exceeding 50%, approved by Order October 2015, Minutes No. 26) and in the Key Performance Achievement of Transneft’s Key Performance Indicators. The key activity areas to ensure OPEX reduction at Transneft of Rosimushchestvo No. 90 dated 10 March 2016. Indicators System for Transneft’s business operations (the The above documents were approved by the Resolution include: Resolution of the Board of Directors of Transneft dated 23 of the Transneft Board of Directors on 30 November 2016 ■■ Cutting down electricity costs In the end of 2017, the Board of Directors of Transneft December 2015, Minutes No. 32, regarding the KPI for 2016, (Minutes No. 23). ■■ Optimising procurement approved the KPI for 2018, including the OPEX Reduction and the Resolution of the Board of Directors of Transneft ■■ Cutting down fuel consumption Percentage KPI, with a target value of 2% for 2018 dated 30 November 2016, Minutes No. 23, regarding For details on the KPI system adopted by the Company see p. 31 of the present Annual Report. ■■ Cutting down spending on maintenance services and the actual reduction of 2.1%. the KPI for 2017).
162 163 Annual report 2018
The Integrated key performance indicator of innovative No. 23). For a detailed report on the introduction of the CGC 8.19. On Expanding the Use of Factoring in the Execution stipulated in the contracts signed on the basis of procurement activities of Transneft with target values for the period from into the activities of the Company and on compliance with of Contracts for the Delivery of Goods (Performing results. 2016 to 2021 was also included in the Transneft Long- the CGC throughout the reporting year, please see Annex 11, Works, Rendering Services) in Pursuance of Instruction Term Development Programme and Transneft’s Innovation page 171. of the Government of the Russian Federation No. DM- 8.21. On Introducing Professional Standards in the Activities Development Programme for 2017-2021. P13-1100 dated 1 March 2016 (Executive Orders of a Joint-Stock Company, in Pursuance of Paragraph 3, 8.16. On Establishing Unified Boards of Treasury of the Parent, of the Government of the Russian Federation No. 7704p-P13 Section I of the Meeting of the Government of the Russian 8.14. On Development, in Accordance with the Methodological Subsidiary, and Affiliated Joint-Stock Companies. In dated 11 October 2016) Federation No. 9 dated 24 March 2016 (Executive Orders Instructions Approved by the Government of the Russian Pursuance of Paragraph 1 of Instructions from the President As per Executive Orders of the Government of the Russian of the Government of the Russian Federation No. 5119p-P13 Federation within Implementing Instruction No. Pr-3013, of the Russian Federation No. Pr-1032 dated 7 May 2014 Federation No. 7704p-P13 dated 11 October 2016, dated 14 July 2016) and Further Approval and Implementation of the Following (Executive Orders of the Government of the Russian the Transneft Board of Directors made a decision dated In accordance with Executive Orders of the Government Internal Documents of the Company: the Rules of Procedure Federation No. 5110p-P13 dated 8 August 2014) 9 November 2016 (Minutes No. 20) to make amendments of the Russian Federation No. 5119p-P13 dated 14 July 2016, for Improvement of the Investment and Operational In pursuance of Executive Orders of the Government to the Transneft Regulations on the Procurement of Goods, in 2018, two meetings of the Transneft Board of Directors were Performance and Cost Reduction; the Regulations on of the Russian Federation No. 1796p-P13 dated 26 March Works and Services, as regards the procedure for using initiated. Internal Audit; the Regulations on the Risk Management 2015, updated information on the analysis of the results factoring (the assignment of claim) in the execution System; the Regulations on the Quality Management of having a unified board of treasury established at Transneft of contracts for supplying goods (performing works, rendering During the first meeting, adjustments to the Plan for System; the Regulations on the Development Procedures has been submitted to the Ministry of Finance of Russia and to services), signed by the Company with SMEs, based on Introduction Professional Standards at Transneft and its and Implementation of Long-Term Development Programmes Rosfinmonitoring (the Federal Financial Monitoring Service). the results of procurement using the methods specified Subsidiaries in 2016-2020 was considered. (Executive Orders of the Government of the Russian in the Regulations, save for auction sales pursuant to the civil Federation No. 3984p-P13 dated 24 June 2015, 8.17. On Purchase of Competitive Domestically Manufactured laws of the Russian Federation. Based on the results of monitoring of professional standards, Rosimushchestvo’s Letter No. 11/27343 dated 7 July 2015) Software Required for the Activities of a Joint-Stock Company, the Board of Directors approved the revised Plan for In pursuance of Executive Orders of the Government in Pursuance of Instruction of the Government of the Russian 8.20. On Development and Adoption of Local Regulatory Introduction of Professional Standards at Transneft and its of the Russian Federation No. 3984p-P13 dated 24 June Federation No. ISh-P13-1872 dated 1 April 2016 (Executive Acts by Transneft, Regulating the Procurement Standards Subsidiaries in 2016-2020, which was supplemented with 14 2015, by virtue of the Resolution of the Board of Directors Orders of the Government of the Russian Federation of Certain Goods, Works and Services; On Publication additional professional standards to be introduced in 2019. of Transneft dated 16 November 2015 (Minutes No. 28), No. 4972p-P13 dated 11 July 2016) of Procurement Standards on the Official Websites the following internal documents of the Company were In 2018, Transneft spent RUB 103.2 million on purchase of Transneft in the Internet; On Mandatory Use of Procurement During the second meeting, the report on the introduction approved: of domestically produced software, acting in pursuance Standards in Planning and Conduct of Transneft’s Operational of professional standards at Transneft and its subsidiaries ■■ The Transneft Rules of Procedure for Improvement of the instruction from the Government of the Russian Activities in Pursuance of Paragraph 2 of Instruction in 2016-2018 was reviewed. of the Investment and Operational Performance and Cost Federation on preferred use of domestic software. The of the Russian Government No. DM-P9-8413 dated 12 Reduction purchased software includes ERP and EAM systems, as well as December 2015 (Executive Orders of the Government As part of implementation of the Plan for Introduction ■■ The Transneft Regulations on Internal Audit information security systems. of the Russian Federation No. 2793p-P13 dated 19 April of Professional Standards at Transneft and its Subsidiaries ■■ The Transneft Regulations on the Quality Management 2016) in 2016-2020, the introduction procedure was completed for System 8.18. On Changing the Procurement Policy of Transneft, as In accordance with Executive Orders of the Government 70 professional standards in 2016-2018, covering about 38 ■■ The Transneft Regulations on the Risk Management System Regards the Innovative Building Materials, in Pursuance of the Russian Federation No. 2793p-P13 dated 19 April 2016, thousand employees and 247 job titles / professions. ■■ The Regulations on the Development and Implementation of Paragraph 7 of Minutes of the Meeting of the Chairman the Transneft Board of Directors approved the Procurement of the Innovation Development Programme of Transneft of the Russian Government No. DM-P9-38pр dated 14 June Standards for Certain Types of Goods, Works and Services 8.22. On Approving the Accounting Procedure for Investment 2016 (Executive Orders No. 6558p-P13 dated 5 September (hereinafter referred to as the Procurement Standards) on Projects Included in the List of Investment Projects The aforementioned documents have been developed 2016) 28 July 2016 (Minutes No. 14). in Pursuance of Paragraph 6 of Resolution of the Government in line with the Methodological Instructions approved In line with Executive Orders of the Government of the Russian of the Russian Federation No. 1516 dated 30 December by the Government of the Russian Federation. Federation No. 6558p-P13 dated 5 September 2016, In accordance with Paragraph 3.5 of the Procurement 2015 (Executive Orders of the Government of the Russian the Transneft Board of Directors made a decision (Minutes Standards, the Standards were adjusted (updated) Federation No. 1659p-P13 dated 15 March 2016) 8.15. On Implementation of the Corporate Governance Code No. 20), dated 9 November 2016, to amend the Regulations on and approved by the Transneft Board of Directors (Minutes In pursuance of Executive Orders of the Government in Line with Instruction of the Government of the Russian the Procurement of Good, Works and Services in the following: No. 14 dated 30 August 2018). of the Russian Federation, Transneft has developed sectoral Federation No. ISH-SHZ-5859 dated 31 July 2014, Paragraph ■■ Prioritising the procurement of Russian innovative building rules of procedure OR-03.100.50-KTN-107-16, “Investment 4, Section I of Minutes No. 5 of the Meeting of the Government materials The approved Procurement Standards are published on Projects of Transneft. Procedure of Keeping the List of the Russian Federation dated 13 February 2014 (Executive ■■ The possibility of signing long-term contracts with Russian the official Transneft website (www.transneft.ru). of Projects”, approved by the Management Board of Transneft Orders of the Government of the Russian Federation producers of building materials, with guaranteed supplies on 15 June 2016 (Minutes No. 25). No. 5667p-P13 dated 2 September 2014) of innovative building materials in the future, as well as with The Procurement Standards are used by Transneft The Board of Directors of Transneft approved the Transneft manufacturers who have formalised special investment in procurement planning and procurement documentation The rules of procedure determine the procedure for keeping Action Plan (Road Map) for Implementation of the Corporate contracts for production of these materials in accordance preparation, as well as for the control of prices included the list of Transneft’s investment projects, for selecting Governance Code (CGC) on 18 September 2015 (Minutes with the established procedure in the Procurement Standards of Goods, Works and Services investment projects and including them in the register
164 165 Annual report 2018
of investment projects, maintained by federal executive in accordance with the instructions of the Government ■■ The Transneft Intellectual Property Committee was In compliance with Executive Order of the Government authorities (hereinafter referred to as the FEA) as per of the Russian Federation, as part of the annual LDP established as a collegial advisory body and has been of the Russian Federation No. 9177-P13 dated 12 December Resolution of the Government of the Russian Federation adjustment for 2017, in the section on the development functioning routinely, governed by the Regulations on 2017 and in pursuance of Instruction No. ISH-P8-5594, No. 1516 dated 30 December 2015. of Russia’s Far Eastern Federal District. In preceding years, Transneft’s Intellectual Property Committee adopted the Board of Directors of Transneft resolved that the intellectual the target values were established for the FEFD as a whole. by Transneft property management recommendations be implemented at The list of investment projects delivered by Transneft ■■ Ten sectoral rules of procedure related to intellectual Transneft (Minutes No. 1 dated 9 February 2019). within its Long-Term Development Programme in 2018 In 2018, as per the Methodological Recommendations on property were developed and approved at Transneft, lacked projects complying with the criteria for selection the Creation of Long-Term Development Projects by Joint-Stock including the Fundamental Provisions for Intellectual In pursuance of Instructions of the Government of the Russian and inclusion in the register of investment projects which are Companies and Federal State Unitary Enterprises, as well as Property Rights Management at Transneft and its Federation No. ISh-P8-5594 dated 25 August 2017 on the responsibility of FEA. by Public Joint-Stock Companies, Whenever the Aggregate Subsidiaries, the Regulations on Commercialisation implementation of recommendations on management Share of the Russian Federation in the Authorised Capital of Transneft’s Intellectual Property, the Regulations on of intellectual property rights at Transneft and its subsidiaries, Information about the absence of projects for inclusion of Such Companies Exceeds 50%, the Transneft Long-Term Identification, Legal Protection, and Keeping Records 2018 saw implementation of a set of measures to implement in the FEA register was forwarded to the Ministry of Economic Development Programme (including Chapter 24, Transneft’s of Transneft’s Trade Secrets (Know-How), Taking Stock the recommendations on management of intellectual property Development of the Russian Federation by Transneft in letter Activities in the Far Eastern Federal District) was adjusted as of Intellectual Property Rights, and other sectoral rules rights at Transneft subsidiaries. No. AK-07.3-01-10/1181 dated 15 January 2018 and to scheduled, and its term was extended until 2023. of procedure the Ministry of Industry and Trade of the Russian Federation ■■ Standard contract forms for deals implying involvement For the purpose of shaping a uniform policy of Transneft in letter No. AK-07.3-01-10/8383 dated 15 February 2018. 8.24. On the Procedure for Identification and Disposal of Non- of IP rights in civil-law business (alienation agreements and its subsidiaries and enhancing the intellectual property Core Asets, in Pursuance of Instruction of the President concerning exclusive rights to IP; licensing agreements on management efficiency, a collegial advisory body, the Intellectual On 16 August 2018, the Government of the Russian Federation of the Russian Federation No. Pr-348 dated 22 February the use of rights to IP) were developed Property Commission of Transneft, has been functioning issued Resolution No. 949 to approve exclusion of clause 2016 (Executive Orders of the Government of the Russian ■■ Targeted inspections are carried out at Transneft at Transneft since 2017. In 2018, the Intellectual Property 6 from Resolution of the Russian Government No. 1516 Federation No. 4863p-P13 dated 7 July 2016) subsidiaries in order to ensure that Transneft controls Commission held three meetings dedicated to various issues dated 30 December 2015, which required that companies Based on Executive Orders of the Government of the Russian the implementation of IP rights management measures of legal protection, use, and keeping records of intellectual with state participation formed a list of investment projects Federation No. 4863p-P13 dated 7 July 2016, the Transneft ■■ Annual measures are taken with regard to IP deliverables at Transneft and its subsidiaries. meeting the criteria specified in the Resolution and sent it Board of Directors approved the Programme for Disposal identification and legal protection, including development to the Ministry of Industry and Trade of the Russian Federation. of Transneft Group Enterprises’ Non-Core Assets, as well as and approval of the annual Plan for Legal Protection In 2018, the Regulations on Patent and Licensing Activities were The list of investment projects is formed solely by executive the Non-Core Assets Register. (Security) of the Intellectual Property of Transneft and its developed and adopted at Transneft and its subsidiaries, that bodies of the government authorised to consider applications subsidiaries, expert examination of reporting documents govern the patent and licensing activities at Transneft and its from initiators of investment projects for state support, and by On the basis of Executive Orders of the Government and deliverables at all R&D stages in order to identify subsidiaries. the Vnesheconombank State Corporation, and is further of the Russian Federation No. 6604p-P13 dated and keep records of potentially copyrightable IP submitted to the competent authority in charge of maintaining 18 September 2017, and in accordance with Methodological and prepare recommendations for their legal protection; In 2018, a comprehensive patent analytics system was the register of investment projects, while participation Recommendations of the Government of the Russian patent research at various R&D stages, along with introduced at Transneft, for the Company and its subsidiaries of the investment project’s initiator is not required. Relevant Federation on Non-Core Assets Identification and Disposal construction of patent landscapes; interaction with to further apply the obtained results in their business; amendments are planned to be made to the sectoral rules No. 894-r dated 10 May 2017, the Transneft Board of Directors third parties on the issues of acquisition/alienation of IP thus, a preliminary patent research required for including of procedure OR-03.100.50-KTN-107-16. approved a new version of the Programme for Disposal rights, entering into licensing agreements on IP usage, the announced R&D subjects in the annual R&D Master Plan of Transneft Group’s Non-Core Assets (including the Transneft supervision of notification of authors from respective for Transneft and its subsidiaries was conducted, patent studies 8.23. On Amending Development Plans, Including Long- Group Non-Core Assets Register) on 27 December 2017. business units on creation of potentially copyrightable IP, were carried out at the R&D stage, and patent landscapes were Term Development Programmes, the Company’s Strategies including initiative-based IP, etc. built for three priority technology areas. and Investment Programmes, as Regards the Introduction 8.25. On Introduction of Recommendations on Intellectual ■■ A unified Intellectual Property Management Information of Separate Sections (Special Measures) Prioritising Property Rights Management. Instruction from the Government System Database (ISMIP DB) designated to render In 2018, Transneft subsidiaries introduced the unified the Financing of Socioeconomic Development of Russia’s of the Russian Federation No. ISh-P8-5594 dated 25 August data support to the IP rights management process at Information System for Managing Intellectual Property Far East (Development of Such Measures, if Needed), 2017 (Executive Orders of the Government of the Russian Transneft and its Subsidiaries at all stages of IP lifecycle of Transneft and its Subsidiaries Database (ISMIP DB), in Pursuance of Subparagraph B of Paragraph 6 of Instruction Federation No. 9177-P13 dated 12 December 2017) was developed and introduced developed in 2017, in order to provide data support of the Government of the Russian Federation No. DM-P16-6658 In 2014-2017, Transneft introduced the Recommendations on ■■ A system of continuous training of the employees to the intellectual property (IP) rights management process at dated 30 September 2015 (Executive Orders of the Government Management of Intellectual Property Rights in Subsidiaries, of Transneft and its subsidiaries in the field of intellectual Transneft and its Subsidiaries at all stages of IP lifecycle. Three of the Russian Federation No. 4531p-P13 dated 28 June 2016) as prescribed by Instruction of the Government of the Russian property, including retraining and advanced training documents of title have been obtained by Transneft for ISMIP DB As part of execution of subparagraph b, paragraph 6 Federation No. ISH-P8-800 dated 4 February 2014. programmes and courses, is provided for, as well as (including the software and the database). of Instruction of the Government of the Russian Federation the annual research to practice workshop on Transneft’s No. DM-P16-6658 dated 30 September 2015 (Executive Orders During that period, Transneft and its subsidiaries implemented intellectual property involving highly qualified specialists In 2018, the second research-to-practice workshop on of the Government of the Russian Federation No. 4531p-P13 the recommended measures for intellectual property (IP) rights in the field of intellectual property Transneft’s intellectual property, as well as ten online workshops dated 28 June 2016), a section on the development of Russia’s management, particularly: ■■ Monitoring of the efficiency of the IP rights management on intellectual property rights management were held for Far East was included in the Transneft Long-Term Development ■■ An Intellectual Property Management Section in charge system is performed annually the personnel of Transneft and its subsidiaries, with highly Programme (chapter 24, Transneft’s Activities in the Territory of IP rights management was established under Transneft’s qualified specialists in the field of intellectual property involved. of the Far Eastern Federal District). The amended LDP Innovative Development and R&D Directorate Since 2017, Transneft has been implementing was approved by the Board of Directors of Transneft on 30 ■■ A full-time position of a Senior Expert in Intellectual Property the Recommendations adopted by Instruction Five targeted audits of IP rights management were conducted December 2016 (Minutes No. 27). All planned parameters’ Management was introduced in the technical section of the Government of the Russian Federation in 2018 in order to monitor the implementation of Transneft’s values are given for each constituent entity included of Transneft subsidiaries (science and technology support No. ISh-P8-5594 dated 25 August 2017. unified intellectual property policy at Transneft subsidiaries. in the FEFD (Far Eastern Federal District) separately, and information section at the subsidiaries)
166 167 Annual report 2018
8.26. On Transition to Prioritised Use of Domestic Software. was selected for newly created corporate information of certain imported components of geographic information transportation activities Item 4 of Section II of the Minutes of the Meeting of and analytical systems. The following corporate systems platforms and solutions for Transneft (GIS Aksioma, GIS ■■ Kaspersky Laboratory antivirus solution the Government Commission on the Use of Information of Transneft were developed on the basis of this platform Tsiklon, NextGIS, Scanex GeoMixer, etc.). Testing of selected ■■ Infowatch software Technologies to Improve the Quality of Life and the Business in 2018: and available GIS software is scheduled for 2019, along ■■ MaxPatrol software Conditions, No. 1 dated 9 February 2018 (Executive Orders ■■ PM CIS (Programmes Management) with elicitation of requirements for its adjustment to match ■■ CryptoPro software of the Government of the Russian Federation No. 10068p- ■■ PR OA CIS (Planning and Reporting on Operational Transneft’s needs. ■■ the Kontinent VPN hardware and software solutions, etc. P13 dated 6 December 2018) Activities) Transneft has been taking measures to substitute imported ■■ APCS PPM CIS (Programme and Plan Management APCS) Three domestic integration buses were selected from In pursuance of Executive Orders of the Government software with domestic software since 2016, when a decision among the software products listed in the Register, in order of the Russian Federation No. 10068p-P13 dated 6 December was made to change the strategic course of use and to choose Transition from Prognoz Platform version 8 to an upgraded to assess possible import substitution for IBM products-based 2018, a meeting of the Board of Directors of Transneft was basic platforms and application software of domestic origin version 9 is being tested in the context of corporate systems Enterprise Information Systems Integration System (EISIS) held to discuss Transneft’s transition to prioritised use instead of their foreign analogues for the corporate integrated development activities. and Enterprise data delivery systems (EDDS). In 2019, testing of domestic software. The following decisions were reached as information management system utilised by Transneft and its of the selected software products and the Apache Kafka a result of the meeting: subsidiaries. The WebTutor system by the Russian developer WebSoft and Mule ESB free software is planned to develop domestic ■■ To develop an action plan for 2019-2021 regarding Development was introduced in the field of online learning industry-specific software on their basis for application Transneft’s transition to prioritised use of domestic In April 2017, the Management Board of Transneft approved and testing instead of the product line by SAP. integration and data delivery. software the decision to use Galaktika ERP platform as part ■■ To include measures implying transition of the Company of the standard solution for business asset and resource In terms of IT infrastructure, a testing schedule was As for management platforms for information resources, to prioritised use of domestic software into the Transneft management systems, as well as for financial and operational developed and approved in September 2018 for Alt Server core data and content (IBM FileNet and OpenText EMC Long-Term Development Programme as part of the import activities instead of SAP products of German origin. In and Alt Rabochaya Stantsiya, domestic operating system Documentum), utilised as part of electronic archives substitution measures view of implementation of this solution, Galaktika TPR with the participation of its developer, Bazalt SPO, and for and workflow systems (electronic data storage CIS, electronic 2.0 Corporate Information System (CIS) was developed Postgres Pro domestic database management system with data archive CIS, electronic document management system 8.27. On Inclusion of the Main Parameters of the Need for in 2017-2018, which was upgraded to Galaktika TPR 3.0 CIS the participation of its developer, PPG. In terms of office EDMS CIS, etc.), pilot development and migration of this Labour Resources, including Engineering and Technical in 2018-2019. The system also includes a work and service software, comprehensive testing of the MyOffice domestically functionality to a single software platform based on Transneft’s Specialties, into the Company’s Long-Term Development management (WaSM) subsystem based on Galaktika EAM developed office software was conducted from December existing and future developments is planned in 2019-2021. Programme in Accordance with Subclause b, Clause 2 platform. Along with that, the corporate information system for 2017 to December 2018 with the participation of its of the List of Instructions from the President of the Russian certification and technical condition control (CIS CaTCC) was developer, New Cloud Technologies. Thus, Transneft is already using the following domestically Federation No. Pr-1627 dated 01 July 2014 developed. Adoption of Galaktika TPR 3.0 CIS and CaTCC CIS developed products (or in-house products not listed The information on the personnel needed by Transneft at Transneft subsidiaries is scheduled for 2019-2025. In terms of geographic information systems (GIS), a few key in the Register): subsidiaries, inter alia in engineering occupations (Chapter 11, software products were selected from among more than 50 ■■ Galaktika and 1C software solutions Personnel Management), was included into the Transneft Long- Prognoz Platform, a business analytics platform developed products listed in the Domestic Software Register (hereinafter ■■ PROGNOZ Platform software solution Term Development Programme (approved by resolution of the and maintained by Foresight, a Russian company, referred to as the Register) to assess possible substitution ■■ information systems for automation of commodity Board of Directors of Transneft on 27 December 2018).
9. INFORMATION ON DISPOSAL OF NON-CORE ASSETS OF TRANSNEFT AND ITS SUBSIDIARIES
Programme for Disposal of Non-Core Assets by Instruction of the Government of the Russian Federation Based on the Programme of Disposal of Transneft Group’s No. ISh-P13-4065 dated 7 July 2016. Non-Core Assets from 2011 to 2015, approved by the Board of Directors on 01 April 2011 (Minutes No. 7), Transneft In 2017, following Executive Orders of the Government disposed of 253 non-core assets (hereinafter: NCA). of the Russian Federation No. 6604p-P13 dated 18 September 2017 and the Methodological Recommendations on The Transneft Board of Directors made the decision to close the Identification and Disposal of Non-Core Assets, approved the Programme on 22 June 2016 (Minutes No. 12). by Directive of the Government of the Russian Federation No. 894-r, dated 10 May 2017, Transneft updated the NCA Based on Executive Orders of the Government of the Russian Programme and the non-core assets Register of Transneft Federation No. 4863p-P13 dated 7 July 2016, the Board Group. of Directors of Transneft passed a resolution (dated 14 October 2016, Minutes No. 17) to prepare and approve a new The Board of Directors of Transneft made the decision on 27 Programme for Disposal of Transneft Group’s Non-Core Assets December 2017 to approve a NCA Disposal Programme for and a new Non-Core Assets Register. Transneft Group (including the Transneft NCA Register). The Programme and the Register are available on the Company’s The Programme and the Register were prepared according website. to the Methodological Instructions of the Federal Agency for State Property Management (Rosimushchestvo) on In 2018, two non-core assets were disposed under Identification and Disposal of Non-Core Assets approved the aforementioned Programme.
168 169 Annual report 2018
Disposal of Non-Core Assets in 2018 11. CORPORATE GOVERNANCE CODE PRINCIPLES COMPLIANCE REPORT
The Transneft Board of Directors confirms that the data cited contain complete and accurate information about the Company’s compliance with the principles and recommendations set out in the Corporate Governance Code approved by the Bank of Russia’s Board of Directors on 21 March 2014 and recommended by the Bank of Russia for use by joint-stock companies whose securities are admitted for organized trading.
The CGC principles and recommendations compliance data and explanations of the key reasons, factors and (or) circumstances that barred the Company from (full) compliance with the corporate governance principles, as well as the planned measures and deadlines concerning compliance with the principles are stated in the table below. Name of the Non-Core Asset Number (if applicable) Inventory Balance sheet line where the recorded at the asset was reporting preceding the asset date disposal date accounts (including Book-keeping analytics) reflecting the revenue on the asset from and expenditure disposal (91.1XX/91.2XX) thousand RUB Asset book value, cost of disposal, RUB Actual thousand of the asset’s actual Deviation from its book value, disposal value thousand RUB of the the deviation The reason for from asset’s actual disposal value its book value
Commercial Seaport “Primorsk”, – 1,170 91.02 1,925 0 –1,925 The Company was dissolved Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing OJSC (649 shares) Other upon resolution of the governance principle of compliance compliance with a corporate governance principle with a corporate expenses Arbitration Court for St. governance Petersburg and Leningrad principle Region in the case No. A56- 1.1. The Company must ensure an equitable and just attitude to all shareholders who would like to use their right to participation in the Company’s governance. 25504/2014 dated 11 1.1.1. The Company ensures 1. Available to all stakeholders is the Company’s internal Observed December 2017, in the that the shareholders enjoy document adopted by the General Meeting of Shareholders context of completion of the most favourable conditions and regulating the procedure of holding the General bidding proceedings. for participating in the General Meetings. Dissolution entry in Meeting, the best conditions 2. The Company provides accessible methods USRLE (Unified State for working out a reasonable position of communication with the Company, including “hotlines”, Register of Legal Entities) on the agenda of the General email or online forum, which enable shareholders to speak Meeting, for coordinating out and send queries on the agenda while preparing No. 2184704060210 dated 6 their actions and that they for the respective General Meeting. The above actions were February 2018 have an opportunity to speak undertaken by the Company on the eve of each General Yugtransneft, LLC – 1,170 91.02.1 99 0 –99 The company was out and voice their opinions Meeting held in the reporting period. on the issues under discussion. Other dissolved upon resolution expenses of the Arbitration Court for 1.1.2. Procedure of reporting 1. A message about the General Meeting of Shareholders Partially observed Not observed, as regards p. 1 and p. 2 on the General Meeting shall be published on the official website at least 30 days A short description of the context, circumstances Krasnodar Territory in the and providing materials before the date of the General Meeting. case No. A-32-5228/2017 in of the Company’s activities and (or) the background for the General Meeting gives 2. Any notice about the meeting shall indicate a place that reveals why the Company does not follow the context of completion of shareholders a chance to duly of a meeting, as well as the documents needed for access the recommended practice. prepare for participation therein. to the premises. bidding proceedings. In view of the Company’s joint-stock capital specifics (100% 3. Shareholders were given access to the information Dissolution entry in USRLE of the voting shares belong to the Russian Federation), about who suggested the agenda’s issues and who No. 6182375418330 dated the abovementioned standards are not applicable by law: nominated the candidates to the Board of Directors in the period when all the voting shares of the Company are 27 July 2018 and to the Company’s Revision Commission. owned by one shareholder, decisions on all matters lying within Total (in round numbers) – – – 2,024 0 –2,024 – the competence of the General Meeting of Shareholders are made by the shareholder, which is the Russian Federation represented by Rosimushchestvo, solely and in writing. Explaining the specific reasons for nonobservance 10. CAPITAL INVESTMENT FINANCING SOURCES OF TRANSNEFT of the respective provision (element) of the Code and justifying the decision made by the Company: Not applicable by law. No. Name Amount, RUB million Description of the Company’s measures taken to mitigate additional risks. 1 Total capital investments 10,149 The Company believes that the established practice does not bear 1.1 Telecommunications facilities included into the plan for developing a corporate data 3,339 any extra risks by virtue of the fact that the Company is constantly in touch with the shareholder who owns all the voting shares communication network to build Transneft’s unified information system (UIS) (the UIS of the Company, ensuring, among other things, their access Programme) in 2018 to information. 1.2 Transneft’s information and computing infrastructure 987 Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company 1.3 Information systems 3,111 intends to comply with the respective element of the Code in the future. 1.4 Expences on the upgrade of the office building 1,350 Nonconformity to the provision of the Code is limited in time: 1.5 R&D (research and development) 70 until the Company’s joint-stock capital structure changes. The Forecast Plan (Programme) of Federal Property Privatisation 1.6 Other capital investments 1,292 and the Guidelines of Federal Property Privatisation for 2017– 2019 approved by Directive of the Government of the Russian 2 Capital investment financing sources 10,149 Federation No. 227-r dated 8 February 2017 do not envisage alienation of state-owned shares of Transneft. If the joint-stock 2.1 Own funds 3,675 capital structure changes in the future, the Company intends to observe the given elements of the Code. Depreciation 2,160 Profit 0 Other own sources (cost of retired (disposed, written off) capital investments) 1,515 2.2 Loans 6,474
170 171 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 1.1.3. In the course of preparation 1. During the reporting period, shareholders were granted Partially observed Not observed as regards p. 1 and p. 3. 1.1.6. The procedure of holding 1. When holding general meetings of shareholders during Not observed A short description of the context, circumstances for and conduct of the General the opportunity to address their questions to the members A short description of the context, circumstances the General Meeting established the reporting period in the form of a meeting (joint presence of the Company’s activities and (or) the background Meeting, the shareholders had of the Company’s executive bodies and the Board of Directors of the Company’s activities and (or) the background by the Company provides equal of shareholders), adequate time was planned for reports that reveals why the Company does not follow unrestricted and timely access before and during the annual General Meeting. that reveals why the Company does not follow opportunity for all persons on agenda issues, as well as for their discussion. the recommended practice. to all information about the meeting 2.The stance of the Board of Directors (including the recommended practice. in attendance to express their 2. Candidates for the Company’s managing and control In view of the Company’s joint-stock capital specifics (100% and materials thereto, address special opinions included in the minutes) on every opinion and ask questions. bodies were open for answering the questions In view of the Company’s joint-stock capital specifics (100% of the voting shares belong to the Russian Federation), questions to the Company’s issue of the general meetings’ agenda was included of shareholders at the meeting where their candidatures of the voting shares belong to the Russian Federation), the abovementioned standards are not applicable by law: executive bodies and members in the materials for the General Meeting of Shareholders. were put up for voting. the abovementioned standards are not applicable by law: in the period when all the voting shares of the Company are of the Board of Directors, as well as 3.The Company gave the shareholders entitled to this 3. When making decisions related to the preparation in the period when all the voting shares of the Company are owned by one shareholder, decisions on all matters lying within to interact with each other. information access to the list of persons having the right and conduct of general meetings of shareholders, the Board owned by one shareholder, decisions on all matters lying within the competence of the General Meeting of Shareholders are made to participate in the General Meeting since the date of its of Directors contemplated the use of telecommunications the competence of the General Meeting of Shareholders are made by the shareholder, which is the Russian Federation represented receipt by the Company in all cases of holding general to provide the shareholders with remote access by the shareholder, which is the Russian Federation represented by Rosimushchestvo, solely and in writing. meetings during. for participation in general meetings during the reporting by Rosimushchestvo, solely and in writing. Explaining the specific reasons for nonobservance period. Explaining the specific reasons for nonobservance of the respective provision (element) of the Code of the respective provision (element) of the Code and justifying the decision made by the Company. and justifying the decision made by the Company: Not applicable by law. Not applicable by law. Description of the Company’s measures taken to mitigate Description of the Company’s measures taken to mitigate additional risks. additional risks. The Company believes that the established practice does not bear The Company believes that the established practice does not bear any extra risks since the General Meeting is not held in view any extra risks by virtue of the fact that the General Meeting is not of the Company’s joint-stock capital specifics. held in view of the Company’s joint-stock capital specifics. Indication to whether the nonconformity to the provision Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code intends to comply with the respective element of the Code in the future in the future. Nonconformity to the provision of the Code is limited in time: Nonconformity to the provision of the Code is limited in time: until the Company’s joint-stock capital structure changes. until the Company’s joint-stock capital structure changes. The Forecast Plan (Programme) of Federal Property Privatisation The Forecast Plan (Programme) of Federal Property Privatisation and the Guidelines of Federal Property Privatisation for 2017- and the Guidelines of Federal Property Privatisation for 2017- 2019 approved by Directive of the Government of the Russian 2019 approved by Directive of the Government of the Russian Federation No. 227-r dated 8 February 2017 do not envisage Federation No. 227-r dated 8 February 2017 do not envisage alienation of state-owned shares of Transneft. If the joint-stock alienation of state-owned shares of Transneft. If the joint-stock capital structure changes in the future, the Company intends capital structure changes in the future, the Company intends to observe the given elements of the Code. to observe the given elements of the Code. 1.2. The shareholders are given equal and fair opportunity to participate in the Company’s profits by way of receiving dividends. 1.1.4. The right of shareholders 1. In the reporting period, the shareholders had Not observed A short description of the context, circumstances 1.2.1. The Company developed 1. The dividend policy is developed at the Company, adopted Observed to demand the calling of the General the opportunity to suggest items to be included in the agenda of the Company’s activities and (or) the background and implemented a transparent by the Board of Directors and disclosed. Meeting, put forward nominees of the Annual General Meeting for the period of at least that reveals why the Company does not follow and understandable mechanism 2. If the Company’s dividend policy makes use to the management bodies 60 days after the end of the respective calendar year. the recommended practice. of determining the amount of the Company’s reporting data to determine the amount and suggest items to be included 2. In the reporting period, the Company did not reject In view of the Company’s joint-stock capital specifics (100% of dividends and the procedure of dividends, the respective provisions of the dividend policy in the agenda of the General suggested agenda items or nominees to the management of the voting shares belong to the Russian Federation), of distribution thereof. take account of the consolidated financial reporting data. Meeting could be exercised without bodies because of misprints or other minor defects the abovementioned standards are not applicable by law. 1.2.2. The Company does not make 1. The Company’s dividend policy contains clear reference Observed any unjustified complications. in a shareholder’s proposal. Explaining the specific reasons for nonobservance the decision on paying dividends, to the financial/economic circumstances, under which of the respective provision (element) of the Code if such decision, while avoiding the Company shall refrain from paying dividends. and justifying the decision made by the Company. any breach of the limitations Not applicable by law. stipulated by the law, is economically unjustified and can result in a false Description of the Company’s measures taken to mitigate conception of the Company’s additional risks. activities. The Company believes that the established practice does not bear any extra risks since the General Meeting is not held in view 1.2.3. The Company does not allow 1. In the reporting period the Company avoided any actions Observed of the Company’s joint-stock capital specifics. deterioration of the dividend rights that could result in the deterioration of the dividend rights of the existing shareholders. of the existing shareholders. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company 1.2.4. The Company seeks to ensure 1. In order to ensure that the shareholders do not receive Observed intends to comply with the respective element of the Code that the shareholders do not receive profit at the Company’s expense by any way other than in the future. profit at the Company’s expense dividends and liquidation cost, the Company’s internal Nonconformity to the provision of the Code is limited in time: by any way other than dividends documents stipulate control mechanisms which provide until the Company’s joint-stock capital structure changes. and liquidation cost. for timely discovery and necessitate the procedure The Forecast Plan (Programme) of Federal Property Privatisation of approval of deals with persons affiliated with (related and the Guidelines of Federal Property Privatisation for 2017– to) major shareholders (those who are entitled to control 2019 approved by Directive of the Government of the Russian the votes assigned to the voting shares) in the instances Federation No. 227-r dated 8 February 2017 do not envisage where the law does not recognise such transactions as alienation of state-owned shares of Transneft. If the joint-stock related party transactions. capital structure changes in the future, the Company intends 1.3. The corporate governance system and practice provide equal conditions for all shareholders of the same category (kind), including minority shareholders and foreign shareholders, to observe the given elements of the Code. and equal treatment of those on the part of the Company. 1.1.5. Each shareholder had 1. The Company’s internal document (internal policy) contains Observed 1.3.1. The Company created 1. In the reporting period, the management of potential Observed the opportunity to exercise their provisions ensuring that before the end of the respective conditions for fair treatment of each conflicts of interest of major shareholders was effective voting right in the simplest and most General Meeting each participant of the General Meeting shareholder by of the Company’s and the conflicts between shareholders, if any, were duly convenient manner without any can demand a copy of the ballot completed by them management bodies and controlling addressed by the Board of Directors. obstruction. and authenticated by the ballot commission. persons, including the conditions which make it inadmissible for major shareholders to abuse minority shareholders. 1.3.2. The Company refrains 1. No quasi-treasury shares existed or participated in voting Observed from any actions which lead during the reporting period. or may lead to artificial redistribution of corporate control.
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Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 1.4. The shareholders are provided with reliable and effective methods of recording the rights to shares, as well as the opportunity of free and unhindered alienation of the shares held by them. 2.1.3. The Board of Directors 1. The Board of Directors determined the principles Partially observed Not observed as regards p. 2 (relative to the internal control determines the principles of of and approaches to organising the Company’s risk system). 1.4.1. The shareholders are 1. The quality and reliability of the activities of the Company’s Observed and approaches to organising management and internal control system. A short description of the context, circumstances provided with reliable and effective registrar in maintaining the shareholder register are aligned the Company’s risk management 2. The Board of Directors assessed the internal control methods of recording the rights with the needs of the Company and its shareholders. of the Company’s activities and (or) the background and internal control system. and risk management system in the Company during that reveals why the Company does not follow to shares, as well as the opportunity the reporting period. of free and unhindered alienation the recommended practice. of the shares held by them. The goals, objectives, procedures and methods of internal control are stipulated in the Regulations on Internal Control Procedures 2.1. The Board of Directors carries out strategic management of the Company, determines the main principles of and approaches to organising the Company’s risk management and internal (approved by the Company’s Board of Directors, Minutes No. 12 control system, inspects the Company’s executive bodies and performs other key functions. dated 10 September 2009, with changes approved by the Board 2.1.1. The Board of Directors is 1. The Articles of Association empower the Board of Directors Partially observed Not observed as regards p. 1 (appointment of the Company’s of Directors, Minutes No. 10 dated 5 September 2017). Pursuant in charge of making decisions to appoint to and dismiss a person from any position, President). to the given Regulations, the Audit Committee must assess related to the appointment as well as to determine the terms of contracts signed A short description of the context, circumstances the Company’s internal control system. Internal control is effected to and dismissal of personnel by members of executive bodies. of the Company’s activities and (or) the background by various authorised business units of Transneft. No separate from their positions in executive 2.The Board of Directors reviewed a report (reports) that reveals why the Company does not follow business unit for internal control in the Company was created, and bodies, including on account of the sole executive body and members of the collegial the recommended practice. therefore, this assessment was not performed in the reporting of undue performance of their executive body on execution of the Company’s strategy. period. In keeping with the Articles of Association approved duties. The Board of Directors by the only shareholder who owns all the voting shares, it is Explaining the specific reasons for nonobservance also makes sure the Company’s the General Meeting of Shareholders that makes appointment of the respective provision (element) of the Code executive bodies act in accordance to the President’s position. Yet forming the Management Board is and justifying the decision made by the Company. with the approved development the Board of Directors’ responsibility. At present, the Company considers it inexpedient to set up strategy and the key areas a special unit in charge of internal control. However, internal of the Company’s business activities. Explaining the specific reasons for nonobservance of the respective provision (element) of the Code control procedures are carried out at the Company. and justifying the decision made by the Company. Description of the Company’s measures taken to mitigate Not observed by virtue of the decision made by the sole additional risks. shareholder that owns all the voting shares at the time when Transneft’s authorised business units exercise internal control the Articles of Association were being approved. in accordance with their competences. Description of the Company’s measures taken to mitigate In 2017, changes were made to the Transneft Regulations on additional risks. Internal Control Procedures (approved by the Transneft Board of Directors, Minutes No 10, dated 05 September 2017), in the part The Company believes that the established practice does not bear regarding preventing and countering corruption. any extra risks by virtue of the fact that Transneft is a Company Further improvement of the internal control system is planned of strategic importance and any decision by the Board of Directors by the Company. regarding the President’s election would have been based on executive orders of the Government of the Russian Federation Indication to whether the nonconformity to the provision as well. of the Code is limited in time, and whether the Company Indication to whether the nonconformity to the Code’s intends to comply with the respective element of the Code provision is limited in time, and whether the Company in the future intends to comply with the respective element of the Code Nonconformity to the Code’s provision is limited in time: until in the future. the Ministry of Economic Development of the Russian Federation releases recommendations on building the internal control system. Nonconformity to the Code’s provision is limited in time: until the shareholder (shareholders) approves respective changes 2.1.4. The Board of Directors 1. The Company developed and implemented the policy(ies) Observed to the Company’s Articles of Association. determines the Company’s policy of remuneration and reimbursement for the members with regard to remuneration and (or) of the Board of Directors, as approved by the Board 2.1.2. The Board of Directors sets 1. In the reporting period, the meetings of the Board Observed reimbursement of the members of Directors. the main guidelines for the Company of Directors were concerned with the issues related of the Board of Directors, executive 2. In the reporting period, the meetings of the Board long-term activities, evaluates to the fulfillment and updating of the strategy, adoption bodies and other key managers of Directors dealt with issues related to the said policy(ies). and adopts the key performance of the financial and operational plan (budget) of the Company of the Company. indicators and the principal and review of the criteria and indicators (including business goals of the Company, intermediate ones) of implementation of the Company’s 2.1.5. The Board of Directors plays 1. The Board of Directors plays the key role in preventing, Observed evaluates and approves the strategy strategy and business plans. the key role in preventing, unveiling unveiling and settling internal conflicts. and business plans for the main and settling internal conflicts 2. The Company created a system of identifying transactions activities of the Company. between the Company’s bodies, related to conflict of interests and a system of measures shareholders and employees. to resolve such conflicts. 2.1.6. The Board of Directors 1. The Board of Directors adopted the Regulations on Observed plays the key role in making Information Policy. the Company’s activities 2. The Company appointed the officials responsible transparent, ensuring timely for the implementation of its information policy. and complete information disclosure by the Company, unhindered access of the shareholders to the Company’s documents. 2.1.7. The Board of Directors controls 1. In the reporting period, the Board of Directors considered Observed the practice of corporate governance issues of corporate governance practice. in the Company and plays the key role in major corporate events.
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Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 2.2. The Board of Directors is accountable to the Company’s shareholders. 2.3.2. Members of the Company’s 1. In all the cases of holding the General Meetings Partially observed Not fully observed, as information about all the candidates 2.2.1. Information on the work 1. The Company’s annual report includes information Observed Board of Directors are elected via of Shareholders during the reporting period, whose was not provided (in particular, the information and documents of the Board of Directors is disclosed on directors’ attendance of the meetings of the Board a transparent procedure allowing agenda included the Board election issues, the Company on the candidate M. Y. Sokolov were not provided). The Company and provided to the shareholders. of Directors and its Committees. the shareholders to receive provided the shareholders with bios of all the candidates; sends respective information and documents/submits them 2. The Annual Report contains information on the results adequate information about the results of those candidates’ assessment conducted via the Interagency Resource for State Property Management of assessment of the Board’s performance in the reporting the candidates for them to have by the Board of Directors (or its Committee for Nominations), in relation to the candidates nominated by the Company period. an idea about their personal as well as information about the candidates’ for the Board of Directors. and professional qualities. compliance with independence criteria, in keeping A short description of the context, circumstances 2.2.2. The Chairman 1. A transparent procedure was introduced, enabling Observed with recommendations 102-107 of the Code and a written of the Board of Directors is shareholders to forward their questions and their stance of the Company’s activities and (or) the background consent of the candidates to being elected as directors that reveals why the Company does not follow available for communication to Chairman of the Board of Directors. on the Board. with the Company’s shareholders. the recommended practice. In view of the Company’s joint-stock capital specifics (100% 2.3. The Board of Directors is an efficient and professional managing body of the Company, capable of making unbiased independent judgments, as well as decisions in the best interests of the voting shares belong to the Russian Federation), of the Company and its shareholders. the composition of the Company’s Board of Directors is 2.3.1. Only people having 1. The procedure of assessing the performance of the Board Observed determined by the decision of the sole shareholder who owns all untarnished business and personal of Directors used in the Company also allows to assess voting shares. reputation, as well as the knowledge, the qualification possessed by members of the Board As per clause 3 of Resolution of the Government of the Russian skills and experience necessary of Directors. Federation No. 851 On Entering Changes to Certain Acts for making competent decisions 2. During the reporting period the Board of Directors of the Government of the Russian Federation dated 19 July 2017, needed for the Board to perform its (or its Committee for Nominations) estimated candidates the Ministry of Economic Development of the Russian Federation functions are elected as members to the Board of Directors in terms of the necessary approves the criteria for candidate election to the boards of the Board of Directors. experience, knowledge, business reputation, the lack of directors of joint-stock companies whose shares are owned of conflict of interests, etc. by the Russian Federation. The list of candidates to be elected as representatives of the Russian Federation or independent directors in the Company’s Board of Directors is approved by a decision (directive) of the Government of the Russian Federation. Decisions of the General Meeting of Shareholders about the composition of the Board of Directors are formalised via Rosimushchestvo’s directives. Explaining the specific reasons for nonobservance of the respective provision (element) of the Code and justifying the decision made by the Company. In view of the Company’s joint-stock capital specifics (100% of the voting shares are owned by the Russian Federation). Description of the Company’s measures taken to mitigate additional risks. The Company provided the shareholder with bios of all the candidates to the Board of Directors, the results of assessment of such candidates made by the Human Resources and Remuneration Committee under the Board of Directors, as well as the information about the candidate’s compliance with independence criteria, except for the candidate M. Y. Sokolov nominated to the Board of Directors according to Directive of the Government of the Russian Federation No. 327-r dated of 27 February 2018 (as amended on 30 June 2018). Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. Nonconformity to the provision of the Code is limited in time: until the Company’s joint-stock capital structure changes. The Forecast Plan (Programme) of Federal Property Privatisation and the Guidelines of Federal Property Privatisation for 2017– 2019 approved by Directive of the Government of the Russian Federation No. 227-r dated 8 February 2017 do not envisage alienation of state-owned shares of Transneft. If the joint-stock capital structure changes in the future, the Company intends to observe the given elements of the Code. 2.3.3. The Board of Directors 1. As part of the procedure to assess the performance Observed is balanced, including in terms of the Board of Directors, conducted during the reporting of the level of skills possessed period, the Board of Directors analysed its own need by its members, their experience, for professional and business skills, as well as experience. knowledge and business qualities, enjoying shareholders’ trust. 2.3.4. Numerical composition 1. As part of the Board of Directors’ evaluation procedure Observed of the Company’s Board of Directors conducted during the reporting period, the Board of Directors makes it possible to organise considered conformity of the Board’s numerical composition the Board’s activities most to the Company’s needs and best interests of shareholders. efficiently, including the formation of the Board’s Committees, also granting substantial minority shareholders a chance to elect the candidate they vote for to the Company’s Board of Directors.
176 177 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 2.4. The Board of Directors includes a sufficient number of independent directors. Independent directors play a key 1. Independent directors (having no conflict of interests) Not observed A short description of the context, circumstances 2.4.1. An independent director 1. In the reporting period, all independent members Observed role in preventing internal conflicts preliminarily assess material corporate actions, of the Company’s activities and (or) the background is a person possessing sufficient of the Board of Directors complied with all criteria and in the Company and performing with a possible conflict of interests involved, whereas that reveals why the Company does not follow professional knowledge, experience of independence stated in recommendations 102-107 material corporate action the results of such assessment are submitted to the Board the recommended practice. and self-reliance to form their of the Code or were recognised to be independent by the Company. of Directors. Independent Directors assess major corporate actions own stance, capable of exercising by the decision of the Board of Directors. fraught with possible conflict of interest within the framework non-biased and honest judgements of consideration of the agenda of the meetings of the Board independent of the influence Committees and analysing materials forwarded to the members of the Company’s executive bodies, of the Board of Directors. groups of shareholders or other According to the regulations on the Committees under interested parties. That said, the Board of Directors, the most important questions account should be taken of the fact of competence of the Board are directed to preliminary that under normal conditions, consideration at meetings of the Committees, two of which a nominee (elected member were fully composed of independent directors and one of which of the Board of Directors) cannot be had one independent director in 2018. considered independent if he/she Explaining the specific reasons for nonobservance is related to the Company, a major of the respective provision (element) of the Code shareholder, a major counterpart and justifying the decision made by the Company. or competitor of the Company or is The Company lacks an internal document regulating connected to the state. the procedures of preliminary assessment of major corporate 2.4.2. The compliance of candidates 1. In the reporting period, the Board of Directors Partially observed Not observed, as regards p. 1. actions by independent directors. for the Board of Directors (or its Committee for Nominations) formed an opinion A short description of the context, circumstances Description of the Company’s measures taken to mitigate with the independence criteria is on independence of each candidate for the Board of Directors of the Company’s activities and (or) the background additional risks. assessed, followed up with a regular and presented its respective opinion to shareholders. that reveals why the Company does not follow The Company believes that the established practice does not pose analysis of the independent 2. During the reporting period, the Board of Directors (or its the recommended practice. any extra risks since independent directors make this Board members’ compliance Committee for Nominations) reviewed the independence The list of candidates to be elected as representatives assessment within the framework of consideration of the agenda with the independence criteria. of incumbent Board members indicated by the Company in its of the Russian Federation or independent directors of the meetings of the Board’s Committees and analysing Content or substance shall prevail annual report as independent directors at least once. in the Company’s Board of Directors is approved by a decision materials sent to the members of the Board of Directors. over form in such assessment 3. The Company has developed procedures detailing (directive) of the Government of the Russian Federation. Indication to whether the nonconformity to the provision the necessary actions to be taken by a member of the Board As per clause 3 of Resolution of the Government of the Russian of the Code is limited in time, and whether the Company of Directors if the latter ceases being independent, including Federation No. 851 On Entering Changes to Certain Acts intends to comply with the respective element of the Code the commitment to make the Board of Directors aware of this of the Government of the Russian Federation dated 19 July 2017, in the future. change in their status. the Government of the Russian Federation approves the criteria Nonconformity to the provision of the Code is limited in time: for candidate election to the boards of directors of joint-stock this principle is planned to be implemented in the Company’s companies whose shares are owned by the Russian Federation. Corporate Governance Code whose adoption is planned for 2019. Explaining the specific reasons for nonobservance of the respective provision (element) of the Code and justifying the decision made by the Company. In view of the Company’s joint-stock capital specifics (100% of the voting shares are owned by the Russian Federation). Description of the Company’s measures taken to mitigate additional risks. The Company believes that the established practice does not bear any extra risks by virtue of the fact that the Company makes sure the independence of the Board members elected by the sole shareholder, the owner of all voting shares, is reviewed by the Board of Directors. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. Nonconformity to the provision of the Code is limited in time: until the Company’s joint-stock capital structure changes. The Forecast Plan (Programme) of Federal Property Privatisation and the Guidelines of Federal Property Privatisation for 2017– 2019 approved by Directive of the Government of the Russian Federation No. 227-r dated 8 February 2017 do not envisage alienation of state-owned shares of Transneft. If the joint-stock capital structure changes in the future, the Company intends to observe the given elements of the Code. 2.4.3. Independent Directors 1. Independent Directors account for at least one third Observed account for at least one third of the Board of Directors. of the elected Board of Directors.
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Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 2.5. The Chairman of the Board of Directors contributes to most efficient performance of the functions laid upon the Board of Directors. 2.6. Members of the Board of Directors conscientiously and reasonably promote the best interests of the Company and its shareholders being sufficiently informed, with due care and prudence. 2.5.1. An independent director 1. The Chairman of the Board of Directors is an independent Partially observed Not observed as regards p. 1. 2.6.1. Members of the Board 1. The Company’s internal documents prescribe that Partially observed Not observed as regards p. 3. is elected as the Chairman director, or a senior independent director is appointed A short description of the context, circumstances of Directors make decisions taking a member of the Board of Directors is bound to notify A short description of the context, circumstances of the Board of Directors, or a senior from among the independent directors. of the Company’s activities and (or) the background into account all the information the Board of Directors in case a conflict of interests arises of the Company’s activities and (or) the background independent director coordinating 2. The role, rights and obligations of the Chairman that reveals why the Company does not follow available, when no conflict relative to any issue of the agenda at a meeting of the Board that reveals why the Company does not follow the work of independent directors of the Board of Directors (and, if applicable, of the senior the recommended practice of interests is present, with an equal of Directors or a meeting of a Board’s Committee, prior the recommended practice. and interacting with the Board’s independent director) are duly defined in the Company’s attitude towards the Company’s to discussing the respective issue of the agenda. In view of the Company’s joint-stock capital specifics (100% The Company’s internal documents do not regulate the procedure Chairman is appointed from among internal documents. shareholders within the usual 2. The Company’s internal documents prescribe that of the voting shares are owned by the Russian Federation), of the Board of Directors receiving advice at the Company’s the elect independent directors. entrepreneurial risk. a member of the Board of Directors shall abstain from voting as well as the fact that the Company is on the list of companies expense on any matter where a conflict of interests is present. of strategic importance, the Board of Directors is chaired 3. The Company has established a procedure for the Board Explaining the specific reasons for nonobservance by a professional fiduciary – a representative of interests of Directors to receive professional advice on matters within of the respective provision (element) of the Code of the Russian Federation. Furthermore, the Company believes its competence at the Company’s expense. and justifying the decision made by the Company. that the current structure (the ratio of professional fiduciaries The regulations on the Board of Directors, approved by Directive of to independent directors) and system of the Board of Directors’ Rosimushchestvo No. 392-r dated 30 June 2017, do not specify operations is effective without establishing the position of a senior respective provisions. independent director. Description of the Company’s measures taken to mitigate Explaining the specific reasons for nonobservance additional risks. of the respective provision (element) of the Code The Company believes that the established practice does not bear and justifying the decision made by the Company. any extra risks by virtue of the fact that members of the Board Given the structure of the joint-stock capital, election of Directors may receive professional advice at the Company’s of the Chairman of the Company’s Board of Directors is stipulated expense, even though this is not stipulated in regulatory by executive orders of the Government of the Russian Federation. documents. According to the decision of the Company’s Board of Directors dated 1 August 2018, based on the Executive Order Indication to whether the nonconformity to the provision of the Government of the Russian Federation, the professional of the Code is limited in time, and whether the Company fiduciary representing the interests of the Russian Federation, intends to comply with the respective element of the Code Alexander Novak, was voted to be the Chairman of the Board in the future. of Directors. Nonconformity to the provision of the Code is limited in time: The Board of Directors made no decisions to appoint a senior formalising of introduction of this principle is planned to be independent director. implemented within the Company’s Corporate Governance Code, whose approval is planned for 2019. Description of the Company’s measures taken to mitigate additional risks 2.6.2. The rights and duties 1. The Company adopted and published an internal document Observed Regulations on the Company’s Board of Directors, approved of the members of the Board clearly defining the rights and duties of the members by Directive of Rosimushchestvo No. 392-r dated 30 June 2017, of Directors are clearly formulated of the Board of Directors. provide for the opportunity for the Board of Directors to appoint and stipulated in the Company’s a senior independent director. internal documents. Indication to whether the nonconformity to the provision 2.6.3. Members of the Board 1. Individual attendance of meetings of the Board of Directors Observed of the Code is limited in time, and whether the Company of Directors have enough time and Committees, as well as the time spent on preparation intends to comply with the respective element of the Code to perform their duties. for meetings were taken into account within the procedure in the future. of evaluation of the Board of Directors during the reporting The requirement of par. 1 of the Report concerning election period. of an independent director to be the Chairman of the Board 2. In keeping with the Company’s internal documents, of Directors cannot be met because the election of the Chairman members of the Board of Directors are obliged to notify of the Board of Directors of the Company is stipulated by executive the Board of their intention to enter managing bodies of other orders of the Government of the Russian Federation. organisations (other than the Company’s subsidiaries Nonconformity to the provision of the Code is limited in time: and controlled entities), as well as of the fact of their until the Company’s joint-stock capital structure changes. appointment. The Forecast Plan (Programme) of Federal Property Privatisation and the Guidelines of Federal Property Privatisation for 2017– 2019 approved by Directive of the Government of the Russian Federation No. 227-r dated 8 February 2017 do not envisage alienation of state-owned shares of Transneft. If the joint-stock capital structure changes in the future, the Company intends to observe the given elements of the Code. 2.5.2. The Chairman of the Board 1. The performance of the Chairman of the Board of Directors Observed of Directors makes provision was assessed within the the procedure of performance for constructive meetings, free appraisal of the Board of Directors in the reporting period. discussion of the issues included in the agenda and oversight of implementation of the decisions made by the Board of Directors. 2.5.3. The Chairman of the Board 1. The duty of the Chairman of the Board of Directors to take Observed of Directors takes measures measures for timely provision of the members of the Board required for timely provision of Directors with the materials on the agenda of the meeting of the members of the Board of the Board of Directors is stipulated by the Company’s of Directors with the information internal documents. necessary for making decisions on the agenda items.
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Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 2.6.4. All the members of the Board 1. In keeping with the Company’s internal documents, Partially observed Not observed, as regards p. 1 (documents are provided only within The form of holding meetings 1. The Company’s Articles of Association or internal Partially observed Not observed as regards formal inclusion in the internal of Directors have equal access members of the Board of Directors have the right to get the agenda of meetings) and p. 2. of the Board of Directors is documents specify that most important items (pursuant documents (Articles of Association) of the provision to the effect to the Company’s documents access to documents and file queries regarding the Company A short description of the context, circumstances chosen with regard for importance to the list given in Recommendation No. 168 of the Code) that the most important matters are to be considered at in-person and information. Newly elected and subordinate entities, whereas the Company’s executive of the Company’s activities and (or) the background of the items on the agenda. shall be addressed at in-person meetings of the Board. meetings of the Board of Directors. members of the Board of Directors bodies are obliged to provide respective information that reveals why the Company does not follow The most important issues are A short description of the context, circumstances are provided with ample information and documents. the recommended practice. resolved at in-person meetings. of the Company’s activities and (or) the background about the Company and the Board 2. A formal programme of introductory events for newly A formal programme of introductory events for newly elected that reveals why the Company does not follow of Directors’ work at the shortest elected members of the Board of Directors is in place members of the Board of Directors is not approved. In accordance the recommended practice. possible notice. at the Company. with the Regulations on the Company’s Board of Directors, The Company’s Articles of Association determine the range members of the Board of Directors have the right to access of issues addressed and resolved by the Board of Directors at its documents and make inquiries regarding the Company and meetings held mainly in person. its subsidiaries necessary for the members of the Board Explaining the specific reasons for nonobservance to fulfill their duties regarding discussing items on the agenda of the respective provision (element) of the Code of meetings. However, information and documents in relation and justifying the decision made by the Company. to the activities of subsidiaries are submitted to the same extent Not observed by virtue of the decision made by the sole to which the Company has access to corresponding information shareholder which owned all the voting shares at the time when and documents. the Articles of Association and the Regulations on the Board Explaining the specific reasons for nonobservance of Directors of the Company were being approved. of the respective provision (element) of the Code Description of the Company’s measures taken to mitigate and justifying the decision made by the Company: additional risks. Despite the absence of a formalised procedure in the Company’s The Regulations on the Board of Directors stipulate that internal documents, in practice newly elected members of the the Chairman of the Board of Directors determines the form Board of Directors are provided with ample information about of the meeting to be held, with in-person meetings being the Company and the Board of Directors’s work at the shortest preferable for addressing major issues. possible notice. In 2018, the following issues were considered at in-person Description of the Company’s measures taken to mitigate meetings of the Board of Directors: additional risks. 1) Report on internal assessment of the performance Newly elected members of the Board of Directors get acquainted of the Company’s Board of Directors; with internal corporate documents and procedures, as well as 2) on paying remuneration to the Company’s executive bodies key information about the Company’s activities, by being provided and other key managers based on the results of 2017; with the respective documents during introductory meetings 3) on achieving key operational activities performance indicators with the Company’s management. As per the Regulations for 2017; on the Board of Directors, each of the newly elected 4) on approval of significant transactions; members of the Board of Directors are provided with copies 5) on expanding Transneft Group’s activities in Novorossiysk of the Company’s Articles of Association, as well as internal commercial seaport; documents of the Company regulating the procedure of the Board 6) on preliminary approval of the Company’s Annual Report, of Directors’ activities. annual accounting (financial) statements; Indication to whether the nonconformity to the provision 7) on appropriation of the Company’s profits for 2017, including of the Code is limited in time, and whether the Company the amount, form and procedure of payment of annual dividends intends to comply with the respective element of the Code on the Company’s shares; in the future. 8) Report of the executive body on the Company’s and the Group’s financial and economic performance for the reporting period Nonconformity to the provision of the Code is limited in time: (quarter, year); this principle is planned to be implemented in the Company’s 9) on consolidated budget of the Group and the Company’s Corporate Governance Code whose adoption is planned for 2019. budget. 2.7. Meetings of the Board of Directors, preparations for them and participation therein of the members of the Board of Directors assure efficient operations of the Board of Directors. Indication to whether the nonconformity to the provision 2.7.1. Meetings of the Board 1. The Board of Directors held at least six meetings Observed of the Code is limited in time, and whether the Company of Directors are held as and when in the reporting year. intends to comply with the respective element of the Code required, taking account of the scale in the future. of activities and the challenges Nonconformity to the Code’s provision is limited in time: until facing the Company in a certain the shareholder (shareholders) approves respective changes period. to the Company’s Articles of Association. 2.7.2. The Company’s internal 1. The Company adopted an internal document stipulating Observed 2.7.4. Decisions on the critical issues 1. The Articles of Association stipulate that decisions Observed documents formalise the procedure the procedure for preparing and holding meetings of the Company’s activities are on critical issues, as stated in recommendation 170 of preparing and holding meetings of the Board of Directors, including the provision stating passed at the meetings of the Board of the Code, shall be adopted at the meeting of the Board of the Board of Directors, which that notifications of the meeting shall be provided, as a rule, of Directors by a qualified majority of Directors by a qualified three-quarter majority vote or more, ensures that the members at least 5 days before the date of the meeting. or a majority vote of all elected or by a majority vote of all elected members of the Board of the Board of Directors have members of the Board of Directors. of Directors. an opportunity to get ready for the meeting in a proper way. 2.8. The Board of Directors establishes Committees to carry out preliminary consideration of the most important issues related to the Company’s activities. 2.8.1. For preliminary review 1. The Board of Directors set up the Audit Committee entirely Observed of issues related to monitoring composed of independent directors. the Company’s financial 2. The Company’s internal documents stipulate and operational activities, the responsibilities of the the Audit Committee, including the Audit Committee, composed those mentioned in recommendation 172 of the Code. of independent directors, was 3. At least one member of the Audit Committee, who is established. an independent director, has experience and expertise in the field of preparation, analysis, assessment and auditing of accounting (financial) statements. 4. The meetings of the Audit Committee were held at least once a quarter in the reporting period. 2.8.2. For preliminary 1. The Board of Directors set up the Remuneration Observed review of the issues related Committee entirely composed of independent directors. to establishment, efficient 2. The Remuneration Committee is chaired and transparent practice by an independent director other than the chairman of remuneration, the Remuneration of the Board of Directors. Committee composed 3. The Company’s internal documents stipulate of independent directors and headed the responsibilities of the Remuneration Committee, by an independent director other including those mentioned in recommendation 180 than the chairman of the Board of the Code. of Directors was set up.
182 183 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 2.8.3. For preliminary review 1. The Board of Directors set up the Committee Observed 2.9. The Board of Directors ensures assessment of performance of the Board of Directors, its Committees and members of the Board of Directors. of issues related to human for Nominations (otherwise its responsibilities stated 2.9.1. Evaluation of performance 1. Self-evaluation or external evaluation of the performance Observed resource planning (business in recommendation 186 of the Code are fulfilled by another of the Border of Directors is aimed of the Board of Directors carried out during the reporting continuity planning), professional committee) mainly composed of independent directors. at identifying the level of efficiency period included evaluating the performance composition and efficiency 2. The Company’s internal documents stipulate of the Board of Directors, its of the Committees, individual members of the Board, of the work of the Board of Directors, the responsibilities of the Committee for Nominations Committees and the members and the Board of Directors as a whole. a committee for nominations (or the committee with respective functions), including those of the Board of Directors, as well as 2. The results of self-evaluation or external evaluation (staffing, appointment) was set mentioned in recommendation 186 of the Code. how their performance complies of the performance of the Board of Directors carried during up, which is mainly composed with the development needs the reporting period were considered at an in-person meeting on independent directors. of the Company; it is also aimed of the Board of Directors. 2.8.4. Taking into account the scope 1. During the reporting period, the Company’s Board Observed at intensifying the activities of activities and the risk level, of Directors considered whether the composition of its of the Board of Directors the Company’s Board of Directors Committees was in line with the tasks of the Board and detecting the areas of activities made sure that the composition of Directors and the Company’s goals. Additional committees allowing for improvement. of its Committees is in full accord were either established or not deemed necessary. 2.9.2. Performance of the Border 1. An independent evaluation of the performance Not observed A short description of the context, circumstances with the goals of the Company. of Directors, its Committees, of the Board of Directors was conducted at least once during of the Company’s activities and (or) the background Additional committees were and members of the Board the last three reporting periods, with an external organisation that reveals why the Company does not follow either established or not deemed of Directors is evaluated (analyst) engaged by the Company for this purpose. the recommended practice. necessary (the Strategy Committee, on a regular basis, at least once Assessment of the efficiency of the Board of Directors the Corporate Governance a year. An independent evaluation in the Company is made for the period from the date of the Annual Committee, the Ethics Committee, of the performance of the Board General Meeting of Shareholders when they were voted into the Risk Management Committee, of Directors is conducted at least the Board till the date of the following Annual General Meeting the Budget Committee, the Health, once in three years by an external (a corporate year) starting from 2018. Safety, and Environment Committee, organisation (analyst). For the last three years, the Company did not engage any third etc.). party to carry out independent assessment of the efficiency 2.8.5. The composition 1. The Committees under the Board of Directors are chaired Partially observed Not fully observed as regards p. 1. of the Board of Directors. of the Committees was determined by independent directors. A short description of the context, circumstances Explaining the specific reasons for nonobservance in a way allowing for comprehensive 2. The internal documents (policies) of the Company contain of the Company’s activities and (or) the background of the respective provision (element) of the Code discussion of the issues requiring provisions determining that individuals who are not members that reveals why the Company does not follow and justifying the decision made by the Company. preliminary consideration, so that of the Audit Committee, the Committee for Nominations the recommended practice. The document regulating the procedure of the Board of Directors various opinions would be taken into and Remuneration may attend committee meetings strictly Two of the three Committees under the Board of Directors evaluating its performance, specifically the Regulations account. at the invitation of the chairman of the respective committee. are headed by independent directors (the Audit Committee on Assessment of Transneft Board of Directors’ Performance, was and the Human Resources and Remuneration Committee). approved by the Board of Directors on 19 October 2017. By the decision of the Company’s Board of Directors dated Description of the Company’s measures taken to mitigate 1 August 2018, the Strategy, Investments and Innovations additional risks. Committee is headed by the professional fiduciary Kirill Dmitriev. The Board of Directors has conducted assessment of its Explaining the specific reasons for nonobservance performance since 2018. of the respective provision (element) of the Code Indication to whether the nonconformity to the provision and justifying the decision made by the Company. of the Code is limited in time, and whether the Company According to the decision of the Board of Directors, intends to comply with the respective element of the Code the Strategy, Investments and Innovations Committee is chaired in the future. by the professional fiduciary K. Dmitriev, who, in the view By the decision of the Board of Directors dated of the members of the Board of Directors, has the necessary 20 December 2017, it was deemed expedient to conduct external experience and expertise to carry out the respective duties evaluation in 2020. and responsibilities. 3.1. The Company’s Corporate Secretary is in charge of efficient current interaction with shareholders, coordination of the Company’s activities protecting shareholders’ rights and interests, Description of the Company’s measures taken to mitigate and support of efficient performance of the Board of Directors. additional risks. The Company believes that the established practice does not pose 3.1.1. The Corporate Secretary 1. An internal document, the Regulations on the Corporate Not observed A short description of the context, circumstances any extra risks since the Company’s Board of Directors includes has the knowledge, expertise, Secretary was adopted and implemented by the Company. of the Company’s activities and (or) the background sufficient number of independent directors. Independent directors and qualification sufficient 2. Biographical information on the Corporate Secretary is that reveals why the Company does not follow actively discuss and take part in the decision making on agenda for performing their duties available on the Company’s website and in the annual report; the recommended practice. items at meetings of the Board of Directors, including major and enjoys an impeccable it has the same level of detail as the equivalent information The functions of the Corporate Secretary are carried out decisions that can affect the interests of shareholders, including reputation, as well as shareholders’ on the members of the Board of Directors and the Company’s by a dedicated business unit (the Corporate Governance interests of the Company’s preferred shareholders. trust. executive management. Department). The candidate to be appointed as the head of the business unit acting as the Company’s Corporate Secretary Indication to whether the nonconformity to the provision was approved by the Board of Directors in January 2017. of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code Explaining the specific reasons for nonobservance in the future. of the respective provision (element) of the Code The issue of new personal composition of the Committees will be and justifying the decision made by the Company. addressed by the Board of Directors after the election of the Board Such information cannot be provided for the reason that of Directors at the Annual General Meeting of the Company’s the Corporate Secretary’s functions are carried out by a dedicated Shareholders. business unit (the Corporate Governance Department). The information contained in the Regulation on the Corporate 2.8.6. Chairpersons 1. In the reporting period, the chairpersons Observed Governance Department is confidential. of the Committees regularly inform of the Committees regularly reported on the work of their the Board of Directors and its Committees to the Board of Directors. Description of the Company’s measures taken to mitigate chairperson about the work of their additional risks. Committees. The Company believes that the established practice does not bear any extra risks by virtue of the fact that the Corporate Secretary’s functions are carried out not by a person but by a dedicated business unit (in the field of Corporate Governance), whose employees have knowledge, expertise, and qualification sufficient for performing their duties. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. Nonconformity to the Code’s provision is limited in time: until a Corporate Secretary is elected as an individual official of the Company and the Regulations on the Corporate Secretary are approved.
184 185 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 3.1.2. The Corporate Secretary 1. The Board of Directors approves appointment, removal Observed 4.2. The system of remuneration for members of the Board of Directors ensures bringing the Directors’ financial interests closer to shareholders’ long-term financial interests. is reasonably independent from office and additional remuneration for the Corporate 4.2.1. The Company pays a fixed 1. The fixed annual remuneration was the only monetary Partially observed Not observed as regards the variable part (the non-fixed part of the Company’s executive bodies Secretary. annual remuneration to members reward paid to the members of the Board of Directors for their depending on the actual deliverables and achievements and has the necessary authority of the Board of Directors. activities as Board members during the reporting period. according to the KPI system) and to the remuneration based and resources to perform the tasks The Company does not pay on the performance for a period under three years. at hand. remuneration for participation A short description of the context, circumstances 4.1. The level of remuneration paid by the Company is sufficient to employ, motivate and retain persons having the competence and qualification required by the Company. Payment in individual Board meetings of the Company’s activities and (or) the background of remuneration to the members of the Board of Directors, executive bodies and other key managers of the Company is made in accordance with the remuneration policy adopted or meetings of Committees under that reveals why the Company does not follow by the Company. the Board of Directors. The Company the recommended practice. offers no short-term incentives 4.1.1. The level of remuneration paid 1. The Company adopted an internal document(s), i.e. Observed The annual remuneration paid to members of the Board or additional material incentives for by the Company to the members remuneration policy(ies), for the members of the Board of Directors consists of two parts: the base (fixed) amount members of the Board of Directors. of the Board of Directors, executive of Directors, executive bodies and other key managers, which and the variable (non-fixed part depending on the actual bodies and other key managers clearly define the approach to rewarding those persons. deliverables and achievements according to the KPI system) provides sufficient motivation amount. The amount of the remuneration is differentiated for their effective performance, in accordance with the scope of liabilities assigned to each enabling the Company to employ member of the Company’s Board of Directors. and retain competent and qualified Explaining the specific reasons for nonobservance experts. Meanwhile, the Company of the respective provision (element) of the Code avoids paying remuneration and justifying the decision made by the Company. in excess of the necessary level In view of the Company’s joint-stock capital specifics (100% and allowing an unjustifiably of the voting shares belong to the Russian Federation), big gap between the levels the Regulations on Remuneration to Members of the Board of remuneration of the said persons of Directors are approved by the shareholder who determines and the Company’s employees. the policy as regards the system of remuneration for the members 4.1.2. The Company’s 1. In the reporting period, the Remuneration Committee Observed of the Board of Directors at their discretion. remuneration policy is developed considered the remuneration policy(ies) and the practice Description of the Company’s measures taken to mitigate by the Remuneration Committee of their implementation and, where necessary, submitted additional risks. and adopted by the Company’s respective recommendations to the Board of Directors. The Company believes that the established practice does not Board of Directors. The Board bear any extra risks since the Regulations on Remuneration of Directors, supported to Members of the Board of Directors at the Company are in line by the Remuneration Committee, with its strategic objectives. ensures control of introduction Since most of the members of the Board of Directors represent and implementation interests of the Russian Federation and vote in accordance of the remuneration policy with executive orders of the Government of the Russian in the Company, and, as necessity Federation, their financial motivation is not definitive arises, revises and amends it. in making decisions that may affect the long-term prospects 4.1.3. The Company’s remuneration 1. The Company’s remuneration policy(ies) lays down Observed of the Company’s development. policy lays down transparent transparent mechanisms of determining the amount Indication to whether the nonconformity to the provision mechanisms of determining of remuneration of the members of the Board of Directors, of the Code is limited in time, and whether the Company the amount of remuneration executive bodies and other key officials of the Company intends to comply with the respective element of the Code for the members of the Board and regulates all kinds of payments and privileges provided in the future. of Directors, executive bodies to the said persons. Nonconformity to the Code’s provision is limited in time: until and other key managers the shareholder, which is the Russian Federation represented of the Company, and regulates all by Rosimushchestvo, alters their opinion on this issue. kinds of payments and privileges provided to the said persons. 4.2.2. Long-term ownership 1. If an internal document(s) such as a corporate Not observed A short description of the context, circumstances of the Company’s shares contributes remuneration policy(ies) implies provision of the Company’s 4.1.4. The Company determines 1. The remuneration policy(ies) or other internal documents Observed of the Company’s activities and (or) the background the most towards bringing the Board shares to members of its board of directors, clear rules the policy of reimbursing expenses of the Company stipulate the rules of reimbursing expenses that reveals why the Company does not follow member’s financial interests governing ownership of shares by board members promoting (compensation) specifying of the members of the Board of Directors, executive bodies the recommended practice. closer to shareholders’ long-term long-term ownership of such shares must be introduced the list of expenses which can and other key managers of the Company. Pursuant to the Regulations on Remuneration to Members of the financial interests. At the same and communicated. be reimbursed and the service Board of Directors approved by the decision made by the sole time, the Company does not level that members of the Board shareholder that owns all the voting shares as at 30 June 2015, condition the right to disposition of Directors, executive bodies remuneration for the members of the Board of Directors does not of shares upon achievement and other key managers can claim. include granting the Company’s shares to them. of certain performance indicators, Such policy can be included into Explaining the specific reasons for nonobservance and members of the Board the Company’s remuneration policy. of the respective provision (element) of the Code of Directors are not granted stock and justifying the decision made by the Company. options. In view of the Company’s joint-stock-capital specifics (100% of the voting shares are owned by the Russian Federation). Description of the Company’s measures taken to mitigate additional risks. The Company believes that the established practice does not bear any extra risks since the Regulations on Remuneration to Members of the Board of Directors implemented at the Company are in line with its strategic objectives. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. The Board of Directors will consider during the year 2018 whether introduction of long-term incentives for members of the Company’s Board of Directors using the Company’s shares is expedient. It is planned to include this issue in the Board of Directors’s agenda for the 2019-2020 corporate year after the Annual General Meeting of Shareholders of the Company 4.2.3. The Company does not 1. The Company does not provide for any extra payment or Observed provide for any extra payment or compensation in case of early termination of the powers compensation in case of early of the members of the Board of Directors due to change termination of the powers of control over the Company or otherwise. of the members of the Board of Directors due to change of control over the Company or otherwise. 4.3. The system of remuneration of the Company’s executive bodies’ members and other key managers implies that the remuneration depends on the Company’s performance and on their personal contribution thereto
186 187 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 4.3.1. Remuneration of the executive 1. In the reporting period, the annual performance indicators Observed 5.1.1. The Board of Directors 1. The functions exercised by various management Partially observed Not observed as regards internal control. bodies and other key managers approved by the Board of Directors were used in determining determined the principles of bodies and business units of the Company within the risk A short description of the context, circumstances of the Company is determined so as the amount of the variable part of remuneration and approaches to organising management and internal control system are clearly defined of the Company’s activities and (or) the background to provide reasonable and well- of the members of the executive bodies and other key the Company’s risk management in internal documents/respective policy of the Company that reveals why the Company does not follow grounded ratio of the fixed part managers of the Company. and internal control system. approved by the Board of Directors. the recommended practice. of the remuneration and the variable 2. In the course of the latest assessment of the remuneration The Company formalised internal control procedures only part contingent on the Company’s system of members of executive bodies and other with respect to countering corruption. The Transneft Regulations performance and the manager’s key managers of the Company, the Board of Directors on Internal Control Procedures, approved by the Resolution personal (individual) contribution (the Remuneration Committee) ascertained the fact of the Board of Directors of Transneft on 10 September 2009, to the result. that the Company used an effective ratio of the fixed establish that internal control is exercised, among others, and the variable part of remuneration. by authorised business units of the Company, without naming 3. The Company has a procedure in place which ensures specific titles, functions, rights and responsibilities of such that any bonuses received by members of executive bodies business units. and other key managers in a wrongful way shall be returned At the time of approval of the Regulations on Transneft’s Internal to the Company. Control Procedures in 2009, no regulatory requirements or 4.3.2. The Company has introduced 1. The Company has introduced a long-term share incentive Not observed A short description of the context, circumstances methodical recommendations with regard to the contents a long-term share incentive plan plan for members of its executive bodies and other key of the Company’s activities and (or) the background of the internal document stipulating the principles and approaches for members of its executive bodies managers (financial derivatives based on the Company’s that reveals why the Company does not follow to the organisation of the Company’s internal control existed. and other key managers (stock shares). the recommended practice. Explaining the specific reasons for nonobservance options or other financial derivatives, 2. The Company’s long-term share incentive plan for The incentive scheme for members of executive bodies and other of the respective provision (element) of the Code with the Company’s shares being members of its executive bodies and other key managers key managers of the Company does not imply using the Company’s and justifying the decision made by the Company. the underlying). implies that the right to dispose of the shares and other shares. The Board of Directors approved the Report on the Performance financial derivatives used in such a programme comes into In view of the Company’s joint-stock capital specifics (100% of Transneft’s Internal Audit Unit for 2018 by its resolution of effect no earlier than in three years after their provision. of the voting shares are owned by the Russian Federation), 24 May 2019 whereby the risk management, internal control and The said right depends on the achievement of certain implementation of the long-term motivation programme corporate governance system of the Company and its subsidiaries performance indicators by the Company. for members of the Company’s executive bodies and other key was recognised as generally efficient. managers is only possible with the use of the Company’s preferred shares. According to the privatisation master plan, the Company’s Description of the Company’s measures taken to mitigate preferred shares were gratuitously distributed among additional risks. the Company’s employees and equal-status persons in 1996. The Company believes that the established practice does not pose The Company’s preferred shares have been listed in the stock any extra risks since internal control procedures are carried out exchange since 2008. at the Company. Explaining the specific reasons for nonobservance Indication to whether the nonconformity to the provision of the respective provision (element) of the Code of the Code is limited in time, and whether the Company and justifying the decision made by the Company. intends to comply with the respective element of the Code Until October 2018, the Company’s Board of Directors did not in the future. consider the issue of introducing the Long-Term Share Incentive Nonconformity to the Code’s provision is limited in time: until Plan for members of executive bodies and other key managers the Ministry of Economic Development of the Russian Federation of the Company (derivative financial instruments based releases recommendations on building the internal control system. on the Company’s shares). Description of the Company’s measures taken to mitigate additional risks. The Company believes that the established practice does not bear any extra risks since the Incentive Plan is in place for the Company’s executive officers and key managers based on the actual performance of the Company against its strategic goals. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. On 8 October 2018, the Board of Directors considered a plan for increasing the Company’s market capitalisation and instructed the management to develop a comprehensive programme for boosting the Company’s market capitalisation and investment appeal, which, among other measures, would envisage buyback of the Company’s shares and implementation of the Long-Term Motivation Programme for the key managers of the Company. On 21 December 2018, the Strategy, Investments and Innovations Committee of the Board of Directors gave positive appraisal of the programme, issued recommendations to the Board of Directors and bid the Board of Directors to finalise the Long- Term Motivation Programme of Transneft. 4.3.3. The amount of compensation 1. The amount of compensation (golden parachute) paid Observed (golden parachute) paid by the Company in case of early termination of the powers by the Company in case of early of members of the executive bodies or key managers termination of the powers at the initiative of the Company and in the absence of any of members of the executive bodies unethical practices on their part did not exceed twice or key managers at the initiative the amount of the fixed part of their annual remuneration of the Company and in the absence in the reporting period. of any unethical practices on their part shall not exceed twice the amount of the fixed part of the annual remuneration. 5.1. An efficient risk management and internal control system is in place at the Company, which provides reasonable assurance in that the Company will achieve its goals.
188 189 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 5.1.2. The Company’s executive 1. The executive bodies of the Company ensured that risk Partially observed Not observed as regards internal control. 5.1.3. The Company’s risk 1. The Company adopted an anti-corruption policy. Partially observed Not observed as regards p. 2. bodies provide for creation management and internal control functions and authorities A short description of the context, circumstances management and internal control 2. The Company organised an accessible method A short description of the context, circumstances and maintenance of an efficient risk are distributed among subordinate managers (heads) of the Company’s activities and (or) the background systems ensure non-biased, of notifying the Board of Directors or its Audit Committee of the Company’s activities and (or) the background management and internal control of business units and sections. that reveals why the Company does not follow fair and clear understanding of law infringement, breaches of the internal procedures or that reveals why the Company does not follow system with the Company. the recommended practice. of the Company’s standing the Company’s code of ethics. the recommended practice. and prospects, integrity Local regulatory documents (provisions on business units) The Company formalised internal control procedures only and transparency of the Company’s of the Company lack clear distribution of internal control functions with respect to countering corruption. The Transneft Regulations reporting, soundness and authorities. on Internal Control Procedures, approved by the Resolution and acceptability of the risks taken At the time of approval of the Regulations on Transneft’s Internal of the Board of Directors of Transneft on 10 September by the Company. Control Procedures in 2009, no regulatory requirements or 2009 (Minutes No. 12), as amended on 5 September 2017 methodical recommendations with regard to the contents (Minutes No. 10), establish that internal control is exercised, of the internal document stipulating the principles and approaches among others, by authorised business units of the Company, to the organisation of the Company’s internal control existed. without naming specific titles, functions, rights and responsibilities Explaining the specific reasons for nonobservance of such business units (except for the business unit for countering of the respective provision (element) of the Code corruption). and justifying the decision made by the Company. Explaining the specific reasons for nonobservance The Board of Directors approved the Report on the Performance of the respective provision (element) of the Code of Transneft’s Internal Audit Unit for 2018 by its resolution and justifying the decision made by the Company. of 24 May 2019 whereby the risk management, internal control Creation of a hotline to inform the Board of Directors or its and corporate governance system of the Company and its Audit Committee of law infringement, breaches of the internal subsidiaries was recognised as generally efficient. procedures or the Company’s code of ethics is not envisaged Description of the Company’s measures taken to mitigate by the Company’s Anti-corruption Policy. additional risks. Description of the Company’s measures taken to mitigate The Company believes that the established practice does not pose additional risks. any extra risks since internal control procedures are carried out The Company believes that the established practice does not at the Company. Besides, the Company has an efficient system pose any extra risks since the Company has created an anti- of risk management in place and has provided for internal audit corruption hotline (https://www.transneft.ru/protivodeistvie- by creating separate business units (risk assessment section korrypcii/goryachaya-liniya/) for the purpose of prompt response of the financial support directorate and risk assessment section of the employer represented by President of Transneft to appeals of the department of economics; internal audit department). of employees, citizens and legal entities regarding possible Indication to whether the nonconformity to the provision corruption of employees at Transneft and its subsidiaries. of the Code is limited in time, and whether the Company The competence of the Audit Committee includes oversight intends to comply with the respective element of the Code of implementation of anti-corruption practice and investigation in the future. into fraudulent activities of the Company’s employees. Coordination of measures to prevent and combat corruption Nonconformity to the Code’s provision is limited in time: until at Transneft is vested in Transneft’s Commission for Countering the Ministry of Economic Development of the Russian Federation Corruption. According to the Anti-corruption Policy, the Commission releases recommendations on building the internal control system. reports to the Board of Directors on the measures taken by Transneft for preventing and combatting corruption at least once a year. Thus, both the Board of Directors and the Audit Committee obtain information on breaches of law, violation of Anti-corruption Policy and fraudulent activities of employees. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. In 2019–2020 it is planned to create a hotline to inform the Board of Directors or its Audit Committee of law infringement, breaches of the internal procedures or the Company’s code of ethics within the improvement of anti-corruption procedures and updating internal documents on counteracting unauthorised use of the Company’s insider information.
190 191 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 5.1.4. The Company’s Board 1. During the reporting period, the Board of Directors Partially observed Not observed as regards the internal control system. 6.1. The Company and its activities are transparent to shareholders, investors, and other stakeholders. of Directors is taking the necessary or the Audit Committee under the Board of Directors A short description of the context, circumstances 6.1.1. The Company developed 1. The Board of Directors adopted the Company’s information Partially observed Not observed as regards p. 2. measures to ensure that the risk assessed the efficiency of the Company’s risk management of the Company’s activities and (or) the background and implemented the information policy with account taken of the recommendations A short description of the context, circumstances management and internal control and internal control system. The key results of this that reveals why the Company does not follow policy that ensures effective of the Code. of the Company’s activities and (or) the background system implemented at the Company assessment are included in the Company’s annual report. the recommended practice. information exchange between 2. The Board of Directors (or one of its Committees) that reveals why the Company does not follow complies with the principles of The goals, objectives, procedures and methods of internal control the Company, shareholders, discussed compliance of the Company with its information the recommended practice. and approaches to organising it investors and other stakeholders. policy at least once in the reporting period. are stipulated in the Regulations on Internal Control Procedures Was not included as a separate item in the Agenda of the Board established by the Board of Directors (approved by the Company’s Board of Directors, Minutes No. 12 of Directors for the 2017-2018 corporate year. and operates efficiently. dated 10 September 2009, with changes approved by the Board Explaining the specific reasons for nonobservance of Directors, Minutes No. 10 dated 5 September 2017). Pursuant of the respective provision (element) of the Code to the given Regulations, the Audit Committee must assess and justifying the decision made by the Company. the Company’s internal control system. Internal control is effected Was not considered as a separate agenda item at the meetings by various authorised business units of Transneft. During of the Board of Directors in 2018. the reporting period, neither the Board of Directors nor the Audit Committee under the Board of Directors made assessment Description of the Company’s measures taken to mitigate of the efficiency of the Company’s internal control system. additional risks. Compliance with the information policy was considered Explaining the specific reasons for nonobservance by the Board of Directors within the discussion of corporate of the respective provision (element) of the Code governance practice for 2018 (Minutes No. 22 dated and justifying the decision made by the Company. 27 December 2018). At present, the Company considers it inexpedient to set up a special unit in charge of internal control. However, internal Indication to whether the nonconformity to the provision control procedures are carried out at the Company. of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code Description of the Company’s measures taken to mitigate in the future. additional risks. Compliance with the information policy will be considered Transneft’s authorised business units exercise internal control by the Board of Directors as a separate agenda item in 2019. in accordance with their competences. Besides, the Company has an efficient system of risk management 6.1.2. The Company discloses 1. The Company discloses information on its corporate Observed in place and has provided for internal audit by creating separate information on its corporate governance system and the general corporate governance business units (risk assessment section of the financial support governance system and practices, principles applied at the Company, also making it available directorate and risk assessment section of the department including detailed information on its corporate website. of economics; internal audit department). on compliance with the principles 2.The Company discloses information on membership Further improvement of the internal control system is planned and recommendations of the Code. in its executive bodies and the Board of Directors, by the Company. the independence of the Board’s members, and their membership in Committees under the Board of Directors (as Indication to whether the nonconformity to the provision determined by the Code). of the Code is limited in time, and whether the Company 3. If the Company is controlled by any entity, the Company intends to comply with the respective element of the Code publishes a memorandum of the controlling entity in the future. containing the entity’s corporate governance plans regarding Nonconformity to the Code’s provision is limited in time: until the Company. the Ministry of Economic Development of the Russian Federation releases recommendations on building the internal control system. 6.2. The Company discloses full, up-to-date and true information about the Company on a timely basis so that its shareholders and investors are in a position to make well-grounded decisions. 5.2. In order to perform regular independent assessment of the reliability and efficiency of the risk management and internal control systems and the corporate governance practice, 6.2.1. The Company discloses 1. The Company’s information policy defines the approaches Observed the Company carries out internal audit. information observing and criteria of identifying information which can materially the principles of regularity, affect the Company’s evaluation and the cost of its securities, 5.2.1. In order to conduct 1. In order to conduct internal audit, the Company set up Observed consistency and immediacy along as well as the procedures providing for timely disclosure internal audit, the Company a special internal audit business unit that is functionally with accessibility, trustworthiness, of such information. set up a special business unit accountable to the Board of Directors or the Audit completeness and comparability 2. If the Company’s securities are traded in foreign stock or engaged an independent external Committee or engages an independent external organisation of the data disclosed. markets, disclosure of material information in the Russian organisation. with the same principle of accountability. Federation and in such markets is made simultaneously The functional and administrative and equally during the reporting year. reporting relationships 3. If foreign shareholders own significant quantities of the internal control unit are of the Company’s shares, the disclosure of information during differentiated. The internal audit the reporting year was not only made in the Russian language unit is functionally accountable but also in one of the most common foreign languages. to the Board of Directors. 6.2.2. The Company avoids being 1. In the reporting period the Company disclosed its annual Observed 5.2.2. The internal audit 1. In the reporting period, the internal audit was used Observed formal in disclosing the information and semi-annual financial statements drawn up according unit assesses the efficiency to provide assessment of the efficiency of the internal control and discloses material information the IFRS. The Company’s annual report for the reporting of the internal control, risk and risk management system. on its activities even if such period includes the annual financial statements drawn up management and corporate 2. The Company applies the generally accepted approaches disclosure is not stipulated by law. according to the IFRS rules along with the auditor’s opinion. governance system. to internal control and risk management. 2. The Company discloses complete information on its capital The Company applies the generally structure in its annual report and on the Company’s website accepted auditing standards when following recommendation 290 of the Code. conducting internal audit. 6.2.3. The Annual Report, 1. The Company’s Annual Report contains information Observed being a critical instrument on the key aspects of the Company’s operating activities of communication with shareholders and financial performance. and other stakeholders, contains 2. The Company’s Annual Report contains information information that helps to assess on environmental and social aspects of the Company’s the Company’s performance activities. for the year.
192 193 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing with a corporate governance principle of compliance compliance with a corporate governance principle governance with a corporate principle governance 6.3. The Company provides information and documents upon shareholders’ request, adhering to the principles of equal and unhindered access. principle 1 6.3.1. Information and documents 1. The Company’s information policy determines Observed In concluding major corporate 1. The Company, in view of the specifics of its activities, Partially observed Not observed as regards p. 2 . are provided by the Company upon the procedure of shareholders’ unhindered access actions touching upon the rights has established in its Articles of Association lower A short description of the context, circumstances shareholders’ request in compliance to information, including information on legal entities and lawful interests of shareholders, minimum criteria of referring the Company’s transactions of the Company’s activities and (or) the background with the principles of equal controlled by the Company, upon shareholders’ request. equal conditions are provided to major corporate transactions than those stipulated that reveals why the Company does not follow and unhindered access. for all Company’s shareholders, by the legislation. the recommended practice. and if the mechanisms stipulated 2. In the reporting period, all major corporate actions The profit of the Company and Transneft subsidiaries is based 6.3.2. When providing information 1. In the reporting period, the Company did not reject Observed by the legislation to protect underwent the procedure of approval prior to their on their core activities, i.e., transportation of oil and petroleum to shareholders, the Company shareholders’ requests for information, or else, such refusals the rights of shareholders are implementation. products via trunk pipelines. Being a natural monopoly, ensures reasonable tradeoff were well grounded. insufficient, there are additional the Company is obliged to conclude contracts for transportation between the interests of individual 2. In the cases defined by the Company’s information measures in place which protect with oil producers within the timeframe stipulated by law, shareholders and the interests policy shareholders are warned of confidential character the rights and lawful interests as well as contracts with Transneft subsidiaries, thus distributing of the Company itself being of the information and assume obligation to maintain of the Company’s shareholders. commodity flows. The Company manages oil transportation, concerned about confidentiality confidentiality. In doing that, the Company is guided depending, inter alia, on the necessity of funding certain of important commercial information not only by formal requirements investment projects. that can materially affect its of the law, but also by the principles competitiveness. of corporate governance laid down Explaining the specific reasons for nonobservance 7.1. Activities which affect or may affect the structure of the Company’s joint-stock capital and financial standings and, consequently, shareholders’ situation (material corporate actions), are in the Code. of the respective provision (element) of the Code carried out on fair terms providing for observance of shareholders’ and other stakeholders’ rights and interests. and justifying the decision made by the Company. Amendments in investment programme and increase in financing 7.1.1. Major corporate actions 1. The Company’s Articles of Association define the list Observed of investment projects realised by a Transneft subsidiary shortly include the Company’s of transactions or other actions that are considered to be before the expiry of the timeframe for concluding oil transportation reorganisation, acquisition major corporate actions and state the criteria for their contracts stipulated by law. of 30 percent or more identification. Making decisions on major corporate of the Company’s voting shares actions is within the competence of the Board of Directors. Description of the Company’s measures taken to mitigate (takeover), entering into significant In cases where the law puts such corporate actions within additional risks. transactions, increase or decrease the competence of the General Meeting of Shareholders, The Company believes that the established practice does not pose of the Company’s authorised the Board of Directors provides shareholders with respective any extra risks since the transaction approved after its realisation capital, listing and delisting recommendations. refers to the kind of transactions conducted in the normal of the Company’s shares, as well as 2. According to the Company’s Articles of Association, course of the Company’s business, with the Company having other actions that may lead major corporate actions include, but are not limited to, repeatedly entered into similar transactions under similar to material change in the rights reorganisation of the Company, acquisition of 30 percent terms and conditions for a long period of time, whereas of the shareholders or violate their or more of the Company’s voting shares (takeover), the transactions are not interested-party transactions. Besides, interests. The Company’s Articles entering into significant transactions, increase or decrease contracts with oil producers are transactions which are obligatory of Association define the list (criteria) of the Company’s authorised capital, listing and delisting for the Company according to the federal laws and (or) other of transactions or other actions of the Company’s shares. legal acts of the Russian Federation, where settlements are that are considered to be major made at the prices quoted according to the procedure stipulated corporate actions, with such actions by the Government of the Russian Federation or at the prices being referred to the competence and rates stipulated by the federal executive body authorised of the Board of Directors by the Government of the Russian Federation. of the Company. Indication to whether the nonconformity to the provision 7.1.2. The Board of Directors plays 1. A procedure is in place at the Company Not observed A short description of the context, circumstances of the Code is limited in time, and whether the Company the key role in making decisions for the independent directors to declare their opinion of the Company’s activities and (or) the background intends to comply with the respective element of the Code or developing recommendations on material corporate actions before their approval. that reveals why the Company does not follow in the future. regarding material corporate actions, the recommended practice. Instances of approval of significant transactions after their and for this purpose the Board Based on the experience of the Board of Directors, independent completion will be eliminated by way of improving the system of Directors relies on the opinions directors consider the matters of major corporate actions that of annual planning. of the Company’s independent are within the competence of the Board of Directors, within directors. the scope of the materials presented to the meetings of the Board of Directors and Committees under the Board of Directors, and express their opinions in person at the meetings of the Board of Directors or by submitting written opinions, as well as by voting in person or by written ballot. The key issues regarding major corporate actions are discussed at meetings of the Audit Committee and the HR and Remuneration Committee, both consisting of independent directors only. Explaining the specific reasons for nonobservance of the respective provision (element) of the Code and justifying the decision made by the Company. This procedure is not provided for in the current version of the Regulations on the Company’s Board of Directors approved by the resolution of its sole shareholder who owns all the voting shares. Description of the Company’s measures taken to mitigate additional risks. The Company believes that the established practice does not pose any extra risks since any independent director can express their opinion regarding major corporate actions before a meeting of the Board of Directors takes place, while working within a committee under the Board of Directors. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company intends to comply with the respective element of the Code in the future. Implementation of the principle will be formalised in the Company’s Corporate Governance Code to be adopted in 2019.
1 During 2018, only one major transaction for oil transportation worth over RUB 100 billion (the contract between the Company and Transneft Volga Region) was approved after its completion
194 195 Annual report 2018
Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing Corporate governance principles Criteria of assessing compliance with a corporate Status Explanation of the deviation from the criteria of assessing governance principle of compliance compliance with a corporate governance principle governance principle of compliance compliance with a corporate governance principle with a corporate with a corporate governance governance principle principle 7.2. The Company ensures that the material corporate actions are taken in a way allowing shareholders to timely obtain full information on such actions and to influence such actions, ensuring 7.2.2. The rules and procedures 1. The Company’s internal documents provide for a procedure Partially observed Not observed, as regards p. 1 and p. 3. that their rights are duly observed and protected when such actions take place. related to the material corporate for engaging an independent assessor to determine the cost A short description of the context, circumstances 7.2.1. Information on performing 1. In the reporting period, the Company disclosed information Partially observed Not observed as regards disclosure of information on concluded actions carried out by the Company of property alienated or purchased under a major transaction of the Company’s activities and (or) the background major corporate actions is disclosed on major corporate actions on a timely basis and in sufficient major contracts with legal entities subject to suppressive are formalised in the Company’s or a related party transaction. that reveals why the Company does not follow along with the explanation detail, including the grounds for and time limits of such measures imposed by foreign countries, state associations internal documents. 2.The Company’s internal documents provide for a procedure the recommended practice. of engaging an independent assessor to determine the cost of the causes, circumstances actions. and (or) unions, and (or) state (interstate) establishments No internal document providing for a procedure of engaging of acquisition and redemption of the Company’s shares. and consequences of such actions. of foreign countries or state associations and (or) unions. an independent assessor to determine the cost of property 3.The Company’s internal documents provide an extended alienated or purchased under a major transaction, or a related A short description of the context, circumstances list of grounds to recognise members of the Company’s Board party transaction was adopted; no internal document setting of the Company’s activities and (or) the background of Directors and other persons required by law as related out an extended list of grounds to recognise members that reveals why the Company does not follow parties. the recommended practice. of the Company’s Board of Directors and other persons required 100 percent of the Company’s voting shares are owned by law as interested parties was adopted either. by the Russian Federation. The Company is included in the list The Company engages an independent assessor in the cases of strategic joint-stock companies owned by the federal stipulated by law and is also guided by the law when qualifying government, where the participation of the Russian Federation a related party transaction. in managing such companies secures strategic interests, defense Explaining the specific reasons for nonobservance capabilities and security of the state, protection of ethical values, of the respective provision (element) of the Code health, rights and lawful interests of the citizens of the Russian and justifying the decision made by the Company. Federation (Decree of President of the Russian Federation Since 2017, significant amendments have been made No. 1009 dated 4 August 2004). to the Federal Law On Joint-Stock Companies, including those Explaining the specific reasons for nonobservance in regard to related party transactions (both the subject matter of the respective provision (element) of the Code and the grounds to classify a transaction as a related party and justifying the decision made by the Company. transaction have been revised). Moreover, the legislative body has The information was disclosed by the Company to a limited extent, excluded the regulation for the articles of association of joint-stock in accordance with Resolution of the Government of the Russian companies to set out additional grounds for classifying someone Federation No. 10 dated 15 January 2018 On Defining as a related party (Federal Law No. 343-FZ dated 3 July 2016). the Instances of Relieving a Joint-Stock Company and a Limited Description of the Company’s measures taken to mitigate Liability Company of the Duty to Disclose and (or) Provide additional risks. Information on Major Transactions and (or) Related Party The Company engages an independent assessor when required Transactions. by law. Description of the Company’s measures taken to mitigate The Company has the procedure for targeted and economically additional risks. efficient procurement of goods, works and services (with the cost The Company believes that the established practice does not of the life cycle of products taken into account when necessary); pose any extra risks since it was not the Company that disclosed cost reduction measures are implemented as well. information in accordance with the legislation in force. When qualifying a related party transaction, the Company is guided by the law. Indication to whether the nonconformity to the provision of the Code is limited in time, and whether the Company Indication to whether the nonconformity to the provision intends to comply with the respective element of the Code of the Code is limited in time, and whether the Company in the future. intends to comply with the respective element of the Code The Company reserves the right not to disclose or disclose in the future. information to a limited extent until the moment sanctions are Implementation of the principle will be formalised lifted. in the Company’s Corporate Governance Code to be adopted in 2019. .
196 197 Annual report 2018
12. TRANSNEFT’S HISTORY AND PLANS
Years Development Stages Years Development Stages Prior to 1993 In 1970, Chief Directorate for Oil Transportation and Supply (Glavtransneft) was established with an eye on transporting crude oil from 2012 The first batch of Russian oil transported via the BPS-2 oil pipeline was shipped from the port of Ust-Luga. oilfields to domestic and foreign consumers. By 1987, 94,000 km of oil and petroleum products trunk pipelines were built across the country. Construction of the Zapolyarye – Purpe oil pipeline began to ensure crude oil intake into the system of trunk pipelines from new oilfields After the dissolution of the USSR, only about 44,500 km of trunk pipelines were left in the territory of Russia, along with 316 pumping in Yamal-Nenets Autonomous Area and the north of Krasnoyarsk Territory. stations and tank farms with the total volume of 13,200,000 m3. Facilities of Phase II of the ESPO pipeline system were commissioned, which allowed to transport oil from Skovorodino to Kozmino via the 1993 The Council of Ministers (the Russian Government) issued a resolution on the incorporation of the joint-stock oil transportation company trunk pipeline. Transneft. 2013 The first joint on the Kuyumba – Tayshet trunk pipeline is welded for oil intake from the Yurubchen – Tokhoma and Kuyumba oil and gas 2000 An oil pipeline bypassing the territory of the Chechen Republic was commissioned increasing the reliability of Azerbaijani oil transit via fields to be fed there. the Baku – Tikhoretsk – Novorossiysk route. 2014 Implementation of the Sever-15 project anticipating development of a trunk pipeline system to build up export supplies of diesel via the Construction of the Baltic Pipeline System (BPS) began, which was the first route for transportation of Russian oil in the north-western port of Primorsk to 15 MTPA started. direction, independent of transit through the neighbouring states. 2016 The Sever-15 project was completed. Construction of the Sukhodolnaya – Rodionovskaya oil pipeline was completed, allowing to transport Russian oil in the direction of the 2001 Implementation of the Sever-25 project began to increase export supplies of diesel fuel via the port of Primorsk to 25 MTPA. port of Novorossiysk bypassing the territory of Ukraine. The Zapolyarye – Purpe and Kuyumba – Tayshet oil pipelines were commissioned. The first phase of the BPS with the capacity of 12 million tonnes that connected oilfields in the Timan-Pechora Oil and Gas Basin, Western Siberia, the Urals and Volga region to the oil terminal in the port of Primorsk, was commissioned. 2017 Throughput capacity of the Skovorodino – Mohe pipeline was expanded to 30 MTPA. 2003 The BPS’s throughput capacity was gradually increased to 18 million tonnes and then to 30 million tonnes a year. The Yug-1 Project and the first stage of the Yug-2 project were completed, ensuring diesel fuel supplies to the domestic market along with export to Europe via the port of Novorossiysk in the amount of up to 6 MTPA. 2004 Thanks to the construction of extra PSs and an increase in the volume of the tank farm in the port of Primorsk, the BPS’s throughput capacity was brought to 42 MTPA and then to 50 MTPA. 2018 A plant of Russian Electric Motors was commissioned in Chelyabinsk. 2006 Construction of Phase I of the Eastern Siberia – Pacific Ocean pipeline system (ESPO PS) began, opening a new export oil transportation Construction of the complex for production of drag reducing agents in the Alabuga Special Economic Zone (the Republic of Tatarstan) route and enabling national oil companies to enter markets in Asia and the Pacific. was completed. The BPS’s throughput capacity reached 74 MTPA. Construction, installation and commissioning work at the ESPO PS – Komsomolsk Refinery pipeline offshoot was completed. 2007 Integration of the petroleum products trunk pipelines operator Transnefteproduct into the Transneft Group system began. Throughput capacity of the Usa – Ukhta and the Ukhta – Yaroslavl oil trunk pipelines was expanded. Welding of the first thousand kilometers of the ESPO oil pipeline was celebrated with an official ceremony. The system of trunk pipelines was revamped to increase the volume of petroleum products transported to the Moscow area. 2009 The first joint on the Skovorodino – Mohe oil pipeline was welded, enabling supply of Russian oil to China. The trunk pipeline system was developed in order to increase petroleum products delivery to the port of Primorsk up to 25 MTPA (the Construction of Phase II of the Baltic Pipeline System (BPS-2) began, which was intended for export of Russian oil via the port of Ust- Sever-25 project). Luga. The Volgograd – Tikhoretsk PPTP was constructed (a railroad loading rack at Tinguta IPS under the Yug project, Phase II). Phase I of the ESPO was commissioned. The first 100,000 tonnes of Russian oil were loaded onto the Moskovsky Universitet (Moscow University) tanker in the port of Kozmino. The oil pipeline’s throughput capacity was extended to increase supply of oil to TANECO’s refineries up to 14 MTPA. 2010 Construction of Phase II of the ESPO pipeline system began. 2019 Throughput capacity of the ESPO-1 pipeline system increasing up to 80 MTPA. The Skovorodino – PRC border oil pipeline was commissioned. Throughput capacity of the ESPO-2 pipeline system increasing up to 50 MTPA. Construction of the Purpe – Samotlor oil pipeline began, which is part of the Zapolyarye – Purpe – Samotlor pipeline system, the Completion of the ESPO PS – Komsomolsky Refinery pipeline offshoot construction project. northernmost oil trunk pipeline in Russia. Revamping oil trunk pipelines for transportation of 4.5 MTPA of oil to refineries in Krasnodar Territory. 2011 The Purpe – Samotlor oil pipeline was commissioned, which linked the western and eastern parts of the Russian oil pipeline system.
For more information: History of Pipeline Transportation in Russia
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13. KEY EVENTS OF 2018 14. STRUCTURE OF TRANSNEFT GROUP
February Standard & Poor’s upgraded the long-term foreign currency credit rating of Transneft with respect to obligation in foreign currency to “stable”.
Credit rating Current rating / outlook Previous rating / outlook Essential Transneft Subsidiaries Other Transneft Subsidiaries With respect to obligations in foreign currency BBB–/Stable BB+/Positive With respect to obligations in national currency BBB/Stable BBB–/Positive
March 100 percent of CPC Investments Company’s shares and 100 percent of CPC Company’s shares were removed from trust management and transferred to the ownership of Transneft. ▪▪ Transneft Upper Volga, JSC ▪▪ Transneft North, JSC Direct contracts for in-line inspection were signed by Transneft Diascan, the Pipeline Transport Institute and the Algerian government-owned ▪▪ Transneft Druzhba, JSC ▪▪ Transneft Central Siberia, JSC oil and gas company Sonatrach. ▪▪ Transneft Volga Region, JSC ▪▪ Transneft Primorsk Port, LLC ▪▪ Transneft Kama Region, JSC ▪▪ Transneft Kozmino Port, LLC April Implementation of Transneft’s Long-Term Development Programme for 2017 was audited. An independent auditor’s opinion was received, ▪▪ Transneft Siberia, JSC ▪▪ LatRosTrans, LLC which confirmed the fairness of the Report on Implementation of Transneft’s Long-Term Development Programme for 2017. Oil and Petroleum ▪▪ Transneft Urals, JSC Under the memorandum on cooperation between Transneft and KazTransOil, an agreement was signed between KazTransOil and TOMZEL on Products ▪▪ Chernomortransneft, JSC pilot testing of an electric drive and a device for dissolving bottom sediments at facilities in Kazakhstan. Transportation ▪▪ Transneft Baltic, LLC ▪▪ Transneft East, LLC May Amendments to Transneft’s Articles of Association were registered due to the increase of the Company’s authorised capital owing to the ▪▪ Transneft Far East, LLC contribution put up by the Russian Federation in the form of 100 percent of shares of CPC Company and CPC Investments Company, owned by ▪▪ Transneft Western Siberia, JSC the federal government. July The USD loan issued by the China Development Bank was repaid in full. Decision was made to pay out the record-breaking dividends in the amount of RUB 82.5 billion according to Directive of Rosimushchestvo No. 498-r dated 30 June 2018.
August Scheduled Eurobond extinguishment in the amount of USD 1.05 billion was completed. ▪▪ Svyaztransneft, JSC (providing ▪▪ NCSP, PJSC ▪▪ Transneft Media, LLC Thus, Transneft paid off its foreign currency debt in 2018, thereby reducing its currency exposure and interest risks. technological communications for ▪▪ Giprotruboprovod, JSC ▪▪ Transneft Supervision, LLC September The troughput capacity of the oil trunk pipelines for delivering oil to TANECO’s refinery was increased to 14 MTPA. trunk oil pipeline facilities) ▪▪ Transneft NPF, JSC ▪▪ Transneft Service, LLC The equity stake held by Transneft in the capital of NCSP Group was increased to 62 percent. The deal was closed by acquiring 100 percent of ▪▪ Transneft Security Services, LLC ▪▪ Transneft Oil Pumps, JSC ▪▪ Transneft Telecom, LLC shares in the Novoport Holding joint venture, that controlled 50.1 percent of NCSP and was owned by Transneft on a par with Summa Group. (departmental security) ▪▪ REM, JSC ▪▪ Transneft PCD, LLC ▪▪ Transneft Finance (providing ▪▪ TOMZEL, JSC ▪▪ Transneft Energy, LLC October A factory manufacturing high-voltage electric motors belonging to Russian Electric Motors was launched. The factory was built in cooperation accounting, tax and management ▪▪ Transnefteproduct, JSC ▪▪ Transneft Electric Network Service, with the Italian partner Nidec in the area of the Stankomash industrial park. That is the second entity of Transneft in Chelyabinsk that was Auxiliary Services accounting services) ▪▪ Transneft Diascan, JSC LLC established in response to the instructions for setting up local manufacture of major production facilities in the territory of Russia in order to and Business ▪▪ Transneft UW Service, JSC ▪▪ TN Invest MC, LLC ensure self-sufficiency and independence of the industries critical orf the national economy. Activities ▪▪ Transneft Metrology, JSC ▪▪ PMC ESPO, LLC The railroad loading rack at the Tinguta IPS was commissioned as part of Phase 2 of the Yug project. It provided the opportunity to receive ▪▪ Transneft Service, JSC ▪▪ Ust-Luga Oil, JSC diesel fuel into the pipeline system from rail transport for further transfer thereof to the port of Novorossiysk. ▪▪ Transneft-Terminal, JSC ▪▪ Executive Company Evolution, LLC An agreement between Transneft and Gazprom was signed, which envisages coordinated efforts for setting up and developing gas fuelling ▪▪ Transneft Energy Terminal, JSC ▪▪ Transneft Technologies, LLC infrastructure in the points of high priority for Transneft, where motor and special-purpose vehicles using compressed natural gas operate, ▪▪ The PTI, LLC ▪▪ Transneft Ust-Luga Port, LLC along with improvement of economic benefits of its use. ▪▪ Transneft-Logistics, LLC ▪▪ and others An agreement between Transneft and Chevron was signed, which not only envisages continued exchange of experience but also launches a dialogue at the level of expert boards and roundtable discussions devoted to the matters of current interest for the industry and cooperation of the R&D units of the companies. November Transneft shipped the billionth tonne of liquid hydrocarbons (oil and diesel fuel) for export via Transneft Primorsk Port from the date of loading the first tanker in 2001. The billionth tonne of oil was loaded onto the Mastera tanker, heading for the port of Porvoo (Finland), on 23 November 2018. The list of essential Transneft subsidiaries is approved by the Company’s President, based on the criteria set by the Board of Directors. As of 23 November 2018, the amount of oil shipped out of the port of Primorsk (since it was put in service) reached 901.2 million tonnes (9,099 tankers handled). 98.8 million tonnes of diesel fuel were shipped (with 3,361 tankers handled). A total of 12,460 tankers were handled, with 1 billion tonnes of oil and petroleum products shipped. Transneft’s delegation, headed by President of the Company Nikolay Tokarev, took part in the tenth meeting of the Governing Board of the International Association of Oil Transporters. The meeting was held on 27 November 2018 in Beijing (the People’s Republic of China) under the chairmanship of Mr. Ling Xiao, Vice President of PetroChina Company Ltd. During the meeting, the results of the Association’s work in 2018 were summed up and the plan of activities for 2019 was updated. December A project for developing the trunk pipeline system was implemented in order to increase the supply of petroleum products to the port of Primorsk up to 25 MTPA (the Sever project). 2018 saw commissioning of the Vtorovo – Filino PPTP, the Vorotynets-1 BPS, revamped facilities of the Ryazan LODS, the Starolikeyevo IPS and the Vtorovo BPS. The Revamping of the System of Trunk Pipelines for Increasing Petroleum Products Transportation to the Moscow area project was completed. That enabled the Company to increase the transit capacity for motor petrol, diesel fuel and aviation kerosene. Within the project, 2018 saw completion of a comprehensive revamping of the Volodarskaya LODS, the Nagornaya LS and the Solnechnogorsk LS, as well as construction of the Shilovo-3 – Ryazan petroleum products pipeline and the Shilovo-3 initial pumping station, whose railroad loading rack can receive aviation fuel for further pumping towards the Moscow Aviation Hub. Transneft’s amended Long-Term Development Programme was adopted to be the main planning document for Transneft’s operations and designed to determine the main measures aimed at achieving the strategic goals set for the period until 2023. The station for loading oil into tank vehicles at the Nevskaya oil pumping station (Leningrad Region) was commissioned.
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15. GLOSSARY
AC Authorized capital NP RID The Russian Institute of Directors non-commercial partnership ACS Automated Control System NERT Non-regular emergency rescue team AGMS Annual General Meeting of Shareholders OC Oil company AMIS EMM Automated measuring and information system of energy monitoring and metering OEICC Transneft’s Programme for Operational Efficiency Improvement and Cost Cutting APAC Asia-Pacific OPEX Operating expenses ASEPTM Automated system of electric power technical metering OPU Oil pumping unit BD Board of Directors OR (Oil) refinery BPS The Baltic Pipeline System ORE Oil recovery efficiency CGC Corporate Governance Code, recommended by the Bank of Russia OTP Oil trunk pipeline CIS Corporate Information System PERT Professional emergency rescue team CIS The Commonwealth of Independent States PJSC Public Joint-Stock Company CMD Central Maintenance Division PPTP Petroleum products trunk pipeline CPC Caspian Pipeline Consortium PS Oil pumping station DMFR Digital motor field regulators (devices for regulating the operation of synchronous motors) R Research DW Development Work R&D Research and Development EBITDA Earnings before interest, depreciation, taxes and amortization RAS The Russian Accounting Standards EF Efficiency RI Research institute EGSM Extraordinary General Meeting of Shareholders RMS Risk management system ELMD Emergency line maintenance division ROIC Return on invested capital EMERCOM The Ministry of the Russian Federation for Civil Defense, Emergencies and Elimination of Consequences of Natural Disasters RSPP Russian Union of Industrialists and Entrepreneurs EMS Environmental Management System RUERS Russian Unified Emergency Rescue Service ERD Emergency repair division SDEPR Specialised Directorate for Emergency Prevention and Response ESPO Eastern Siberia – Pacific Ocean SME Small and medium-sized enterprises FAS Federal Antimonopoly Service SPIMEX St. Petersburg International Mercantile Exchange FD Federal district SSOP Specialized sea oil port FEA Federal executive authorities tkm tonne-kilometer (unit of measurement combining the number of tonnes of cargo and the distance in kilometers) FES Fuel and energy sector TOD FT Transregional Operations Department of the Federal Treasury GDP Gross Domestic Product toe Tonne of oil equivalent (unit for integrated accounting of different fuels) GMS General Meeting of Shareholders TP Trunk pipelines GosSOPKA Russian State System for Detection, Prevention, and Mitigation of Computer Attacks Transneft ES Transneft’s Emergency Prevention and Response System GRI Guidelines for sustainability reporting under the Global Reporting Initiative TS Transneft subsidiaries IAOT The International Association of Oil Transporters TS Transportation system IDP Transneft Innovation Development Programme TSE Technical security equipment IFC International financial center TUR&OH Technical upgrading, revamping and overhaul IFRS The International Financial Reporting Standards VHI Voluntary Health Insurance ILI In-line inspection VRU Vapor Recovery Unit IP Intellectual Property ISO The International Organization for Standardization JAOVRU Jet Absorption Oil Vapor Recovery Unit JSC Joint-Stock Company KPI Key performance indicator L/Line Line LACT Oil and petroleum products’ lease automatic custody transfer units LIBOR London Interbank Offered Rate (average interest rate at which banks operating on the London interbank market lend to one another) LLC Limited Liability Company LODS Line operation dispatcher station LDP The Long-Term Development Programme of Transneft LTM Last twelve months MPU Mainline pump unit MRP Machinery and Repair Plant NCP Non-Commercial Partnership NCSP Novorossiysk Commercial Sea Port
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General Information
Full corporate name: публичное акционерное общество Registered in the Russian Federation in the federal city of «Транснефть». Moscow. Location: Russia, Moscow.
Abbreviated corporate name: ПАО «Транснефть». Address: 4 bldg. 2, Presnenskaya Embankment, Moscow, 123112, Russia. Full corporate name in English: Public Joint-Stock Company «Transneft». Phone: +7 (495) 950-81-78.
Abbreviated corporate name in English: Transneft. Fax: +7 (495) 950-89-00.
Transneft was registered by Moscow Registration Chamber Website: http://www.transneft.ru on 26 August 1993 under the No. 026.800 (state registration certificate series LA No. 009851). Information on the state Email: [email protected] registration of Transneft was entered into the Unified State Register of Legal Entities by the Moscow Directorate of the As of 31 December 2018, Transneft had 1,322 employees on Ministry for Taxes and Levies of the Russian Federation on 24 the payroll. July 2002 under the primary state registration number (OGRN) 1027700049486 (certificate of making an entry in the Unified Name of the Company’s Auditor: Joint-Stock Company KPMG State Register of Legal Entities on the legal entity registered (KPMG, JSC) 10 block C floor 31, Presnenskaya Embankment, before 1 July 2002, Series 77 No. 007893052). Moscow.
Phone: +7 (495) 937-44-77, fax: +7 (495) 937-44-99.
Full name and address of the registrar: R.O.S.T. Registrar, Joint-Stock Company, 18 bldg. 13, Stromynka Ul., Moscow, 107996.