Building competitive advantage

Integrated Report 2019 SUEK1 is one of the world’s leading energy companies

All of our activities are aligned behind our corporate purpose: striving to meet the energy needs of communities across the world by producing heat, electricity and coal safely and sustainably.

Andrey Melnichenko, SUEK’s main beneficiary

The global energy markets are transforming, as both developed and developing markets adapt and evolve to support the move to a more sustainable planet. Those countries with the resources and infrastructure $7.5 bn to transform their energy supply systems are developing renewable energy sources. our revenue in 2019 In developing countries across the world, where communities are still dependent on affordable and reliable coal-fired energy, new HELE coal-fired power plants are being built to address growing electricity demand while reducing environmental impact.

SUEK has a vital role to play within the evolution of this energy balance. Our high-CV coal and co-generation plants are critical to guaranteeing reliable and affordable heat and electricity supply to millions of people, $ bn many of whom live in extreme environments, and our commitment to these communities remains absolute. 2.1 our EBITDA in 2019 Alongside this, we maintain a focus on operational excellence, which includes ensuring the highest standards of industrial safety across all of our businesses, supported by the introduction of new technologies and trainings as well as the increasing automation and digitalisation of processes.

The synergies and increased operating efficiencies we have achieved over the year have further strengthened our model to deliver a strong performance through the lows of the industry cycle and we are well-positioned for growth opportunities.

WHAT’S INSIDE

Strategic report 60 Business review Financial statements Additional information 76 Our approach to sustainability 04 SUEK at a glance 122 Independent Auditor’s Report 158 GRI tables 80 Health & safety 06 Where we operate 124 Consolidated statement of profit 170 Coal reserves report 86 Environment or loss 08 Chairman’s statement 171 Glossary 95 Our people and corporate culture 125 Consolidated statement 10 CEO’s statement 173 Information on the company 100 Communities of comprehensive income 12 Business model 126 Consolidated statement 173 Contacts 16 Market fundamentals and SUEK of financial position 22 Strategy Corporate governance 127 Consolidated statement of cash flows 34 Risk management 104 Chairman’s introduction 128 Consolidated statement 44 Materiality 106 Corporate governance overview of changes in shareholders’equity 48 Stakeholder engagement 108 Board of Directors’ report 129 Notes to the consolidated 50 Market review 117 Management Board report financial statements 56 Group financial review

1. In this Report, each of the terms ‘SUEK’, ‘SUEK Group’, ‘the Group’, ‘the company’, ‘we’ refer to all companies consolidated in the IFRS financial statements of JSC SUEK (Russia), including, inter alia, SUEK LTD, SUEK AG, Siberian Generating Company (SGC) and their subsidiaries. From October 2019, our operational and financial performance includes the results of acquired Reftinskaya GRES.

This Integrated Report is also available online as an interactive document at ar2019.suek.com/en ~ / Year highlights

Through vertical …we maintain leading …and deliver ...underpinned integration positions in premium robust EBITDA, by a culture and cost coal and resilient stable margins focused efficiency… energy markets… and cash flows... on sustainability

106.2 Mt 113.7 Mt $2,115m 9 Mt coal mined coal sold EBITDA CO2 saved annually by our co-generation of heat and electricity 14.7 GW 55.2 TWh 28% power capacity electricity sold EBITDA margin -2% emissions CO, NOx, SO2 in Energy segment 53,350 35.3 mGcal railcars of heat sold $2,059m $26m operating cash flow invested in social programmes 3 ports ~ / SUEK at a glance

Advanced coal and energy company

Integration and control of the entire cycle, from production Vertically Our coal producing Global cash cost curve FOB basis for 2019 to customer delivery: integrated and assets are positioned $/t Quartile 1 Quartile 2 Quartile 3 Quartile 4 at the lower end cost-efficient 140 32% 96% of the global cost curve Buryatia Kuzbass Kuzbass Khakassia For more details, due to economies 100 Khabarovsk (Atlantic (Pacific see Business model of coal consumed of heat produced of scale, highly efficient region (Urgal) market) market) FOB NEWC = 78 $/t (2019 average) on pages 12–13. API 2=61 $/t (2019 average) by our own power plants in the co-generation cycle production and a RUB 60 denominated cost base. >80% 80% 20 100 200 300 400 500 600 700 800 900 Mt of coal delivered of coal transhipped SUEK Other exportes by managed railcars through our own ports

Maintaining Mt No. 1 coal producer in Russia A top-10 electricity and heat producer Strategic Report 2019 Glencore 93.5 in Russia leading positions BHP Billiton 66.8 4% 4% in premium coal Anglo American 62.0 24% SUEK UGMK 5% 23% Rosenergoatom Gazprom Energoholding SUEK 53.8 6% and resilient SDS-Ugol Evraz Group RusHydro Inter RAO 52.7 6% Bumi 48% energy market Sibanthracite Other EN+ T Plus Adaro 46.0 A top- 11% 9% 16% For more details, see Market 5 SUEK Unipro Yancoal 35.6 fundamentals and SUEK coal supplier 6% Kuzbassrazrezugol 31.3 13% on pages 16–21. to the international 5% 6% 14% Fortum Enel Russia Banpu 27.1 coal market Source: Company data. Source: Company data. Kideco 24.5 Source: Company data. SUEK Integrated Report Delivering Increased share of low-volatile revenue, $m Synergy between coal, energy and logistics Сredit ratings businesses ensures stability in market cycle robust EBITDA, Export revenue from sales of coal stable margins Revenue from sales of coal and services in Russia and cash flows 5,352 Energy segment revenue 4,526 For more details, 4,471 40% 36% see Financial review 2,933 2,972 Logistic segment revenue (external) of revenue of revenue on pages 56–59. 679 614 generated generated 2,130 2,189 1,142 956 1,123 Intragroup logistic segment revenue 57 74 99 135 218 from domestic from sales ‘15 ‘16 ‘17 ‘18 ‘19 FOB NEWC, $/t sales with high to growing Ba2 BB ruAA- 1,176 1,260 1,657 1,875 1,903 price stability Asian market stable stable stable Source: Thomson Reuters Eikon. API2, $/t

Underpinned Compliance with international environmental One of the lowest LTIFR in Russian Efficient corporate governance system: by a culture and health and safety standards and global coal mining1 KPI-based remuneration focused on Peer 1 1.04 system taking into sustainability account CSR results Peer 2 1.35 For more details, see Sustainability Peer 3 5.12 Certified and Corporate governance compliance on pages 76–121. Peer 4 2.04 1. Peer group includes system Evraz (coal), Glencore (coal), 50% SUEK 0.72 Rio Tinto, Severstal (coal). Independent Directors 4 5 ~ / Where we operate

ISO 19600:2014 compliance Our worldwide reach ISO 37001:2016 anti-corruption1 The International Compliance Association (ICA) confirmed that Expansion SUEK’s management systems of higher-capacity and distribution comply with ISO compliance and anti-corruption requirements. railcar fleet 3 Our co-generation power plants ensure For more details, see page 116. reliable supplies of heat and electricity Reftinskaya to millions of consumers in Russia. GRES Our own logistics and trading networks acquisition bring our high-CV coal to power 2 plants around the world. SUEK acquired over 16,000 additional higher-capacity railcars. SUEK is now able to meet over 80% of its railcar needs and has become one of the largest operators of higher-capacity UAB SUEK Baltic Branch railcars in Russia. United Kingdom

For more details, see page 27. Murmansk In October 2019, the acquisition of the Reftinskaya GRES was region completed. The acquisition of this SUEK AG power plant has enabled SUEK Strategic Report Switzerland 2019 SUEK Polska Ltd to expand the supply westwards Poland into the Urals and consolidate its position as one of the top power Barter Coal Sp. z o.o. UAB SUEK Baltic Poland Lithuania generators in Russia. For more details, see page 29. SUEK’s Head office Transformation SUEK Logistics of Rubtsovsk Russia Sverdlovsk heating system4 region

SUEK LTD Cyprus SUEK Integrated Report Novosibirsk Kemerovo region region Khakassia Krasnoyarsk region Altai region

SUEK invested around $30m in Tyva Buryatia the upgrade of Rubtsovsk heating system, reducing its failure rate by 32%.

For more details, see page 33. Zabaikalye Supplying

SUEK Shanghai Trading Co. Ltd Khabarovsk region 48 30 >5m 3 SUEK Harbin Branch China countries trade offices heat consumers ports Beijing Korea Ltd Branch South Korea China on 5 continents globally SUEK AG Primorye Vietnam Shanghai Branch SUEK US LLC SUEK AG China Taiwan USA SUEK Japan Corporation Japan SUEK AG Miami Office USA PT SUEK Trading Indonesia Indonesia SUEK's assets

Sales destinations 6 Coal Power Railcars Scientific International Machine 7 assets and heat and ports research sales buidling assets and design network and service institute facilities ~ / Chairman’s Statement

Building competitive $7,547 m advantage revenue $2,115 m EBITDA

$834 m investments in 2020-2025 Alexander Landia, to improve the environmental Chairman of the Board of Directors situation in Krasnoyarsk

SUEK began 2019 as a diversified company with consolidated coal, logistics and energy assets, credit rating at Ba2, and Fitch at BB, are the cornerstone of our culture, is the wellbeing of our colleagues, an extensive distribution network and strong positions in energy markets. The consolidation of the energy with a stable outlook. so these occurrences were deeply partners and our customers. We business has ensured we are able to guarantee reliable and affordable supplies of electricity distressing. Full investigations have continue to follow all appropriate Strategic Report 2019 and heat to millions of people in Siberia, one of Russia’s major industrial regions. Operating responsibly taken place into each of these recommendations issued incidents, and we remain committed by the Government of Russia Faced with the challenging situation in the volatile coal markets, intense competition with natural gas In 2019, Russia ratified the Paris to maximum investment in health and the regional health authorities. producers and the backdrop of the international climate agenda, in 2019 the Board of Directors evolved Agreement. As a responsible and safety measures and training We have already taken actions the company's consolidated strategy to ensure SUEK remains on track to strengthen its market position company, we support this step. to ensure the well-being of every to protect our colleagues and continue in its core coal, energy and logistics segments and maximise the synergies available. Underpinning employee is maintained. to prioritise their safety. At this time the strategy is SUEK’s focus on maintaining its strong margins and robust balance sheet through the cycle The Russian power industry has the long-term full impact of COVID-19 whilst operating in a wholly responsible and ever increasingly sustainable manner for all stakeholders. one of the lowest emissions levels We recognise that it is only by operating is difficult to assess. Our resilient in the world. Most electricity responsibly and in the interest of all vertically integrated business model in the country is generated stakeholders that we will continue and market leading positions ensure Calibrating the strategy environmental standards which In the Energy Segment, the Board from nuclear, gas and hydro sources. to build a successful, sustainable that SUEK manages the volatility are demanded by consumers. We will approved deals to acquire assets business. First of all, this means looking caused by this global health crisis.

SUEK Integrated Report The updated macro forecast to 2028, intensify the development of high- in strategic regions. Following At the same time, across large parts after our employees by supporting reviewed by the Board, indicated quality coal deposits, building the acquisition of the Reftinskaya GRES, of Russia, where remoteness makes their professional development Looking to the future an opportunity in the Asia-Pacific washing and logistics capacities the installed power capacity of the Group it too challenging to lay gas pipelines, and improving working with confidence region for exporters of high quality to service high-potential export has reached almost 15 GW making coal generation continues to play and living conditions. Striking examples coal, reflecting reduced supplies destinations. it of significant social and economic a critical role, especially in supplying are the construction of a new Improving SUEK’s competitive from Indonesia and other traditional importance in several industrial regions. local people with heat. administrative complex at Taldinskaya- advantage and strengthening its regions, along with growing demand In line with the approved plans, Zapadnaya 1 and a swimming pool business model through diversification for coal in the Middle East and Africa. in 2019 the company invested Consistent results In those territories we are focused in Leninsk-Kuznetsky. and integration have given Meanwhile, it suggested stagnation in the development of infrastructure on maximising the cogeneration us the confidence to be optimistic and eventual decline in European and coal mining in the Khabarovsk Electricity and capacity sales of heat and electricity from the same As an energy and mining for the long-term future, despite coal market, though this would region, favourably located relative as well as heat became an important amount of fuel. SUEK replaces company, we also understand that a challenging market environment remain an important market to priority export markets. New stabilising factor, improving old boiler houses with the heat our operations have an impact amidst the gas market in surplus for Russian exporters of quality washing facilities in Buryatia have our revenues while coal supplies from higher-efficiency CHPPs. on the natural environment and can and COVID-19 crisis. The sustainability products in the next decade. also brought us closer to our goal to the Group's power plants Cogeneration plants have a capacity affect communities around us. In 2019, of our business is underpinned of washing all coal exported by SUEK. helped balance domestic demand. utilisation ratio up to 85%, helping we continued to introduce the latest by our responsible approach

In view of this, the Board of Directors As a result, the impact of coal us cut about 9 Mt of CO2 emissions technologies to ensure highest and the significant role the business adopted a new consolidated In our logistics business, the company market volatility on SUEK’s financial a year, which is almost double industrial safety standards and minimise plays in the regions where we operate. 2023 Strategy, setting operational increased its fleet of gondola cars performance was not as significant the impact of the renewable projects our impact on the environment, The skills of our dedicated teams drive strategies and goals for the coal, to over 53,000 units, enabling as for others in the sector. planned in Russia. We will continue and we invested considerably our performance as we unlock value energy and logistics segments. us to cover almost all of SUEK’s our efforts in this area. in social programmes that address from our high-quality assets. We look In addition, we approved key transportation needs, better control In 2019, the Group’s total revenue the issues that our stakeholders tell forward to capitalising on the growing development projects, prioritising transportation costs and delivery exceeded $7.5 billion, the EBITDA Focus on health and safety us are important to them. demand for high-quality Russian those projects with a clear payback times. We also invested significantly margin was 28% and net profit coal in Asia and domestic economic period and high margins. in our port facilities, primarily totalled $706m. The company’s We were deeply saddened COVID-19 activity in Russia. in the east of the country. Once consistent financial performance that eight fatalities occurred Enhancing competitive advantage Russian Railways has completed and its highly efficient business at our operations during the year. We At the time of publication of this expansion of the Eastern Polygon, model were recognised once again have a stringent focus on ensuring Report, the COVID-19 outbreak In the Coal Segment, we focused Vanino Bulk Terminal will target by international rating agencies, a zero-harm workplace, and health, continues to evolve quickly. 8 on projects for the production a capacity of 40 Mt. with Moody’s confirming SUEK’s safety and employee well-being As always, our first concern 9 of high-CV coals that meet the latest ~ / CEO’s Statement

Driving operational +35% excellence power capacity for sustainable $994 m growth CAPEX

$161 m investments in environment, Vladimir Rashevsky, industrial safety and social Chief Executive Officer development

In 2019, as part of SUEK’s strategy to further strengthen its competitive advantages, we continued the consolidation of our coal and energy businesses, initiated in 2018. Our objective is to ensure coal production, the construction technology such as autonomous development of the company the combined company benefits from the inherent synergies and strongest competencies of both SUEK of new water treatment facilities mining and driverless dump trucks is an effective social policy that for the Kirov mine. and predictive analytics repair aims to improve living conditions Strategic Report

2019 and SGC, through exchanging best practices between the businesses. Today, the consolidation is either complete or at the final stage across all functions. This has enabled us to reduce operating costs within technologies utilising big data. in the regions where SUEK operates the Group and optimise the debt portfolio and our investment process. Our logistics facilities play a key role We also use digital platforms and establish a stable labour in ensuring the stability of SUEK’s to improve the transparency market. Our priority is sustainable supplies. After acquiring more of communications with customers development projects that aim than 16,000 high-capacity gondola and suppliers. to enhance and develop local Enhancing heat and electricity will also open up opportunities contractors, equipment suppliers cars and bringing our railcar fleet infrastructure, education, sports, supplies for the Group to grow in a more and builders. I should emphasise that to over 53,000 units, we are now In 2019 we launched our Remote healthcare and the environment. predictable regulatory environment. our modernisation projects are subject almost completely self-sufficient Industrial Safety Control platform Following the acquisition to environmental review by experts in terms of railway transportation. in Kuzbass based on our centralised In 2019 the Group invested of the Reftinskaya GRES, a key asset The Krasnoyarskaya CHPP 1, and the local communities. Control and Analysis Centre $161m in ecology, industrial safety strategically located in higher price 2 and 3 modernisation projects In November, port workers at SUEK’s which is unparalleled globally. and social development. Zone 1 in the Urals, the company’s have been selected for inclusion Improving coal supplies Vanino Bulk Terminal set a new record The system gives SUEK full control

SUEK Integrated Report installed power capacity increased in the competitive capacity take-off for coal unloading: over 2 Mt a month. over the entire coal mining process ***** by 35%, to almost 15 GW. This drove programme under DPM-2, allowing Within SUEK’s Coal Segment, The ongoing expansion of access enabling us to predict and prevent growth of 10% in SUEK’s electricity us to launch a comprehensive we have solved various issues roads and the development of the port process failures and safety hazards. In 2020, we will focus on further sales in 2019, which had a positive modernisation of the Krasnoyarsk relating to equipment wear. Our is expected to double these volumes improving operational efficiency impact on revenue. In 2020, another power and heat systems. investments in the development again. The progress of our work Responsible approach to maintain the sustainable long- 1.3 GW will be added to our power The substitution of inefficient units of the Nikolsky mine here is directly linked to the Russian term growth of the company, capacity through the acquisition with modern ones, the installation in Buryatia and Pravoberezhny Railways investment programme Our unremitting focus on industrial whilst strengthening our position of the Krasnoyarskaya GRES-2. of new treatment facilities mine in the Khabarovsk region to develop the Eastern Polygon. safety led to an improved LTIFR in the high-CV coal and energy and the transfer from environmentally enabled us to more than double of 0.72 in the Coal Segment markets. Meanwhile, we continue The consolidation of SUEK’s mining damaging boilers to the heat supplied production in these open-pit All of this helped us increase coal in 2019, and 0.24 in the Energy to make timely investments and energy assets has secured reliable by co-generation power plants mines in 2019. A large-scale supplies to Asia by 4% in 2019. Segment, which is one of the best in industrial safety, and affordable electricity and heat will make a significant contribution update of the equipment took performances in the world. and environmental and social supply to industrial and residential to improving the environmental place at the Kharanorsky open-pit Digitalisation and operational development projects to support customers in a region with projected situation in the city. Power-related mine in Zabaikalye region, which efficiency However, we were deeply the welfare of our employees economic growth, whilst also emissions in Krasnoyarsk will drop celebrates its 50th anniversary saddened by eight fatal and local residents in the regions enhancing the vertical integration by 37% compared to 2018. in 2020. Digitalising the mining industry accidents that occurred where we operate. of the Group – ensuring guaranteed from pit to port can have in the company during the year. demand and supply of SUEK’s In 2020, the city of Barnaul will As well as large-scale investment a significant impact on operational We have thoroughly investigated products between our divisions. switch to the ‘alternative boiler’ tariff. for improving the efficiency of open- efficiency. SUEK is embracing each accident and identified This allows us to invest substantial pit mining, we invested significantly the digital revolution and actively the human factor as having been The consolidation of energy funds in a comprehensive upgrade in equipment for our underground investing in innovation, digitalisation the cause for the majority of these, assets has also made it easier of the city’s heat supply system. mines which also contributes and process automation, and are reviewing personnel to raise finances to upgrade energy For consumers, the tariff will remain to industrial and environmental introducing advanced technologies information and our control system facilities and, accordingly, improve broadly the same, but the service safety. This included the upgrade at all stages of production to ensure these kinds of accidents the environmental impact. Investment quality will be improved significantly. of roadway development machines and marketing to further enhance are prevented in the future. in the new stage of the DPM Our activity will also create and the development of a promising our competitive advantage. programme and the transition to long- new jobs and opportunities site in the Ruban mine, which will The company’s divisions have We also realise that crucial term tariff setting in the heat market in the region, as we will work with local enable us to increase our high-CV already piloted state-of-the-art to the successful long-term 10 11 ~ / Business model Metallurgical coal Factors determining our ability Thermal Creating coal to deliver long-term growth

Develop Logistics Sales value and mine Washing Sized coal $706m Focus on health, safety and net profit environment throughout Rehabilitate See more on pages 80–94.

Heat Revenue the cycle 5% 2% Electricity 8% Our multi-product, vertically integrated Generation model ensures stable cash flows at all Quality improvement and product development stages of the market cycle, enhanced $7,547m Well-invested See more on pages 66, 69. revenues as a result of operational Our 57% assets and vast Our 28% synergies, and the ability to control reserves operating both costs and environmental • Global sales network products and industrial safety performance • Scientific research institute chain International Sales of heat, Domestic • Service facilities coal sales electricity coal sales throughout the chain. and and capacity Better operational efficiency to cut rising Logistics Sales of petroleum coke (external revenue) and other products 2019 production costs Our main differentiators: 7.6 Bt 25 output coal reserves TPPs See more on pages 26–27. with >30 years Our products meet the In-demand high-calorific coals with low life of mine growing need and evolving 1 sulphur and nitrogen content able 53,350 requirements of consumers railcars in both developing and to sell premium coal 27 under $2.1bn Proactive risk developed countries. Major mines management total economic contribution consumers include: management to local communities See more on pages 34–43. 2Co-generation of heat and electricity 10 3 • Public utility companies fuelled by local coal high energy coal WPs ports (paid in taxes, to employees • Fuel and energy sector and local suppliers, and invested • Metallurgy SUEK Integrated Report and cost efficiency in local communities) • Chemical production Skills and experience Our • Cement industry 3Economies of scale and operational Commitment to advanced efficiency competitive advantage >66,000 14 value corporate governance employees training centres standards in cost and knowhow management Our See more on pages 104–121. Regular investment inputs 4Excellent logistical infrastructure Consumers Employees supporting assets and end markets $3.5bn capital expenditure • Coal shipments • >66,000 jobs Established corporate maximum control of route to market over 5 years to 48 countries • $1,030m paid >5 million • Status of single heat in wages and salaries culture of responsibility and supply organisation • 35% employees received engagement 5Owned fleet of high-capacity railcars Stakeholder engagement heat consumers in 86% territories professional training and courses in 6 Russian regions See more on pages 48–49, 78–79. and high-tech port infrastructure of operation • 9% of CAPEX invested in health • Equipment suppliers from 10 countries and safety cost and environmentally efficient route • Partnership with federal and regional to market authorities and NGOs Our products help support economic Continuous professional Local suppliers Government and communities 2,600 growth and improve living standards for training 6One of the largest coal sales networks coal customers millions of people. We are constantly • $577m spent • $541m paid in taxes in Russia See more on pages 98–99. with direct shipments to customers improving to be a responsible company on utilities, goods • >65 cities and towns supported through social always able to find the regional market and an excellent employer. We also aim and services investment to minimise our environmental footprint • Joint R&D projects • $26m invested in social infrastructure 12 that offers the highest net-back price at every stage of the operating chain. to enhance • 5% reduction in water consumption efficiency • 2% reduction in CO, NOx, SO2 emissions ~ / Automation and digitalisation

Transportation Accounting Using automation For over a decade, 4 Electricity and heat5 6 SUEK has been Dispatch control generation The data from our production and digitalisation to unlock value introducing the most Technology enhancing of the entire logistics cycle sites and sales offices around advanced global enables us to optimise Dispatch control of CHPP the world is promptly uploaded digital technologies transportation and logistics processes makes it possible to the ERP system for quick and the latest to optimise power plant operations adjustments to production plans, our business across EFFECT innovations from Russian and efficiently and quickly schedule shipment routes and volumes • Meeting delivery deadlines repair works in order to meet consumer scientists across • Coal quality control during requirements our facilities. transportation EFFECT Cost-efficient Equipment use Failure and accident the value chain EFFECT Digital technology • Improved heat supplies to the local use of resources optimisation forecasting population • Faster decision making is currently enhancing • Enhanced customer engagement The automation and digitalisation technologies • Improved cost control • Integrated mining and • Process automation • Predictive repairs all key areas • Optimisation of employee work operational data • Dispatch control of all • Remote monitoring of the company’s • Enhanced industrial safety we are deploying at key operations enable • Drilling and blasting operational processes of industrial safety • Improving environmental control operations. Labour us to make on-time production and marketing optimisation • Spare parts accounting productivity has decisions using data analytics, improve operational grown almost twofold since 2009 largely efficiency and industrial safety, and control driven by digital

and reduce costs and the environmental impact. Dispatch control of Live railcar Environmental Automated loading Optimisation innovation. machinery condition georeferencing monitoring of railcars, ships, of ship loading warehouses (Vanino) plans Vladimir Rashevsky, CEO of SUEK End-to-end coal quality assurance Strategic Report 2019 Development1 Coal mining2 Coal washing3 The integration of advanced Dispatch control of the entire Automatic exploration systems and 3D mining process makes systems control modelling enable us to develop it possible to quickly eliminate the washing process and promptly adjust cost- bottlenecks and potential and product quality CONTINUOUS efficient mining plans emergencies at our washing plants IMPROVEMENT and processing facilities, 99% EFFECT EFFECT and are able to quickly of the Group’s • Shorter preparation period • Productivity increase make adjustments when revenue is registered • Lower risk of modelling errors • Enhanced industrial safety necessary or industrial safety violations in the ERP • Minimising impact on EFFECT local communities and the

SUEK Integrated Report • Plant throughput environment increase Digital future: SUEK’s • Higher quality of pilot projects finished products 24/7 monitoring Data collection of industrial safety and interconnectivity Timely accounting for all operations in the ERP system Drilling and blasting 3D modelling Remote Dispatch control in mines optimisation: integration of open-pit monitoring of the entire See more on pages 36–37. of the field model, and underground of industrial safety washing cycle data on drilled wells mines, washing 'Actual versus planned’ monitoring Adjusting the budget and the investment and the geo-data plants, CHPP units Analytics programme in line with production needs regularly supplied Equipment Machine and the market environment Remote control and forecasting by drones in a single performance quality control Dispatching of the worked-out programme sensors of finished See more on page 84. 24/7 control area by drones of movement products environmental and condition Independent of equipment regulation Internet monitoring in ports of air-gas Dispatch control of things control and of machinery See more on page 31. ventilation movement Live systems and condition Mobile and web geolocation Standardisation and in mines applications for heat of equipment optimisation of plant Process inspectors from and personnel walkdowns and the heat supply robotisation equipment inspections companies See more on page 65. Improved Decision Enhanced Cost operational making industrial optimisation Applications for sequence efficiency Video monitoring of the quick identification safety employees working of risks to the life and with high voltages health of workers Digitised requests for connecting new Monitoring stack Dispatch control facilities to the heat environmental indicators of CHPP operation supply system 15 ~ / Market fundamentals and SUEK

Coal remains one of the key electricity sources, TWh Global trends Stable prospects The global power industry is facing serious challenges. While the global for SUEK’s community has promised full access to electricity for all, 850 million people still live without this basic ‘18 ‘30 ‘40 necessity. Population growth, high-CV products urbanisation, industrialisation and a gradual transition Coal Natural gas Hydrogeneration Oil Nuclear fuel Renewable energy sources from gasoline to electric vehicles Demand for SUEK’s coal is driven Source: will drive growth in electricity International demand of 2% annually. To meet by growing electricity consumption Energy Agency, World Energy this growing demand, affordable, in Asia and the necessity to provide Outlook 2019. versatile and reliable energy sources are needed. At the same time, heat to millions of people in Russia. a heightened focus on climate change and environmental issues are forcing producers to operate responsibly and minimise their environmental footprint.

Demand Mid-term Long-term Developing economies will account for the greatest • The commissioning of new Energy sources by 2030, Mtoe • Electricity consumption • The share of HELE power proportion of electricity demand

coal-fired energy facilities rise globally plants will increase to almost Strategic Report Europe Asia Pacific growth (3% per year), especially 2019 in Asia, the Middle East CAGR +2.1% 1 in Asia, where higher industrial and Africa will offset 472 2,061 172 +58% 80% output and household incomes, the decline in demand 210 182 by 2040 by 2040 and the development of the services in Europe. 7 due to growing 303 sector, will demand more electricity. population, urbanisation • Global carbon regulation • Excess supply 63 China will account for around and industrialisation will be tightened in the natural gas market, 172 401 one third of the global increase primarily in Europe, will in accordance with the Paris in electricity demand. India 215 34 • Higher efficiency of power restrain gas and coal prices Agreement. and Southeast Asia will account plants stimulates demand until the balance in the gas Coal imports in 2030 Coal imports in 2030 for approximately another third. Europe, Middle East, Africa Asia for high-CV coal. market is restored. As a result, Asia’s electricity –23 Mt +38 Mt consumption will grow by 7 p. p., • By 2022, India will overtake to 54% of global consumption

SUEK Integrated Report China as the leading coal Coal Oil Natural gas in 2040. importer. China may limit Nuclear fuel Hydrogeneration Renewable energy sources 1. coal imports and support Not including co-generation (heat and electricity) plants. In advanced economies demand domestic producers. Source: International Energy Agency, growth will be only 0.7% per year, World Energy Outlook 2019. with efficiency improvements restraining the growth of electricity consumption to support ongoing digitisation and electrification. Mid-term Long-term Supply The biggest driver of the demand • Decline in exports • Rising costs • Deliveries • Deliveries increase will be a transition of licensing, building to heating using electric heat pumps –63 Mt and maintaining –166 Mt +79 Mt rather than gas heating. by 2030 from new facilities in by 2040 from by 2040 from When it comes to supply, Australia USA Indonesia USA Russia Australia the largest area of growth will come Indonesia from solar and wind generation, Colombia Colombia South Africa the share of which will grow from 7% to 24% by 20402, according to the International Energy SUEK’s Mid-term Long-term Association. Nevertheless, coal response will remain the largest source • Strict cost control +20 Mt The development of high-CV deposits, washing facilities of electricity with a share of 25%, of washing capacity and owned ports, along with the railway infrastructure • Capacity with its consumption remaining expansion towards the East, will support increased development stable. supplies to target high netback markets. • Business +20 Mt of transshipment to Asian markets diversification through own ports 2. Source: International Energy Agency, World Energy Outlook 2019. 16 17 ~ / Market fundamentals and SUEK / continued

Coal industry developments

The main trends in coal-fired Currently, supply and demand supplies due to rising domestic will develop at a faster pace (CAGR generation include: India +26 Mt tend to converge and remain consumption. 2018-2040 1.7% versus 0.1% for coal in a fundamental balance. The surplus generation). Despite this, the share • Improving power plant efficiency India, which became the world’s coal imports will continue to grow of coal capacities makes up only 3% In 2017, China introduced a regulation of gas power generation will remain consuming coal with higher second largest coal consumer by 1.2% a year, increasing by 26 of the global market (approximately scheme for domestic spot prices, at approximately the current level specific calorific value (high-CV in 2018, will be the main driver Mt, to reach 205 Mt, in 10 years. 30 Mt). If we compare this to similar a ‘corridor mechanism’, to reduce of 22–23% until 2040. The availability coal) of growth in global coal demand. High-CV coal will be especially basic industries, the capacity price volatility and ensure sustainable of large, inexpensive gas resources Whilst India is planning to increase demanded by the Indian cement utilisation rate in the coal industry relationships between coal and power in the United States has a significant • Tighter restrictions on SOx and NOx emissions the share of renewable energy industry. As electrification of mobility is around 97%, while the utilisation companies. This mechanism impact on the global markets. generated, strong demand increases, demand for electricity will rate in other sectors such stipulated a cap of 600 CNY/t In addition, gas generation produces • Consumption growth in India for electricity is expected to boost increase and currently underutilised as non-ferrous metallurgy, fertiliser (equivalent to $86.5/t1 FOB NEWC) lower CO emissions compared to other and Southeast Asia to offset 2 coal generation by 38% by 2030. coal-fired power stations (current or steel production does not exceed for domestic contractual prices, fossil fuels, making it more attractive lower demand in Europe, the USA Although the country has set average utilisation rate around 61%) 80%. with higher prices triggering regulatory to consumers as a basic energy source and potentially China ambitious goals for growing its are the cheapest means to produce intervention. Similarly, the floor figure given stricter carbon regulation. domestic coal production, thermal more electricity. Given excess capacity, today’s is 470 CNY/t ($68/t1 FOB NEWC), In addition to the power industry, low prices could lead to eventual the breaching of which can also In general, over the next 20 years, other sectors will increase decline for those producers that trigger regulatory action. Most market coal generation will remain the main their consumption of coal. By 2040, Southeast Asia +90 Mt have high production costs. Even so, players believe that the scheme will source of reliable, affordable the use of coal in the metallurgical, global capacities that are currently remain in effect and will continue energy for rapidly developing cement and chemical industries will Southeast Asia, i.e. countries development and intense planned for commissioning are likely to influence the global coal market. countries, where people urgently increase by 225 Mt. such as Vietnam, Malaysia industrialisation. Total imports to be positioned on the right side need uninterrupted access to safe and the Philippines, will be active to Southeast Asia are expected of the global cost curve, mainly due Another factor that is beginning electricity. In other parts of the world, Coal will remain the primary fuel drivers of coal demand growth to increase by 90 Mt, to 220 Mt, to greater production challenges to exert an increasing influence on coal the future of coal generation will in Asia’s energy system, where in Asia in the coming decade in 2030. (stripping ratios and transportation prices, especially in Europe, is gas depend on producers’ ability to adapt Strategic Report 2019 demand will grow by an average due to their energy generation distances). prices. Natural gas generation, which cost-effectively to increasingly flexible of 0.4% annually over the next is one of the primary alternatives energy systems and to more stringent 10 years. Indonesia, currently the largest coal to coal generation in the regions environmental and climate regulations. Japan –11 Mt exporter, will decrease international with the appropriate gas infrastructure,

In July 2018, the Japanese by 26% compared with 2013 levels government approved the 5th Strategic due to the development of renewable Energy Plan, which focuses on energy energy. Thus, coal consumption Demand for thermal coal2, Mt security, safety and better economic volumes are expected to decrease efficiency. Under the plan, by 2030 by 11 Mt to 114 Mt in 2030.

CO2 emissions will be reduced

SUEK Integrated Report More efficient technologies change coal demand, Mtce South Korea –7 Mt 472 182 In accordance with the 8th Basic Plan (>30 years) will stop from March 303 POWER issued in December 2017, 7.3 GW to June to reduce air pollution. South of new coal-fired power capacities Korea’s imports of thermal coal 1,478 622 428 972 401 ‘18 will be built by 2022. In addition, are expected to decline to 100 Mt 34 544 1,206 778 778 89 by 2022 7 old coal-fired power plants by 2030 from 107 Mt in 2019, due ‘40 will be shut down. However, after to government policies to decarbonize 2022, the country does not plan and combat air pollution, replace old Subcritical Supercritical to launch new coal stations. Also, capacities with new ones with more several stations with a total capacity efficient ones, and reduce coal Ultra-supercritical CHP and heat of 2.1 GW will be transferred from coal consumption by industry. % to gas. At the same time, old facilities 43 ‘17 ‘18 ‘19 ‘20 ‘21 ‘22 ‘23 ‘24 ‘25 ‘26 ‘27 ‘28 ‘29 ‘30 IDCC and CCUS of thermal coal trade Japan South Korea Taiwan China India Pacific: others Europe Atlantic: others is high-CV coal INDUSTRY China –76 Mt Source: Wood Mackenzie, SUEK estimations. 820 194 233 433 ‘18 China remains one of the largest generation, will result in demand 815 233 194 661 importers of coal. Electricity generation for imported coal falling by 76 Mt ‘40 in China will gradually shift from coal to 144 Mt in 2030. As a result, India to gas, nuclear and renewable energy will replace China as the No. 1 Iron and steel Chemicals sources. The Chinese government has coal importer. However, the current already taken steps to reduce excess average utilisation rate of coal-fired Cement Other coal-fired capacities and optimise power plants of around 50% is low Sources: International Energy Agency, the construction of new facilities. and as demand for electricity will World Energy Outlook 2019. The combination of the Chinese increase also through e-mobility, coal- authorities’ attempts to limit coal fired power plant utilisation could 1. At Central bank of Russia CBR rate average for 2019. 18 imports, with slower growth in coal increase. 2. Sea deliveries. 19 ~ / Market fundamentals and SUEK / continued

Russian coal and energy market

Coal is one of Russia’s most important energy resources. Annual Russian consumption of thermal coal has remained stable at an average of 155 Mt for the past five years.

In 2014, the Russian government launched its coal industry development programme to 2030, focused on: 45% • A responsible approach of electricity in Siberia to developing resources both is generated from coal at currently operating and new deposits

• Stimulating the development of state-of-the-art technology for coal mining, processing and washing, to increase

the value of products, Strategic Report 2019 and consequently improve business profitability and create new jobs

• Investment in personnel development and R&D to meet the best international standards % (in quality and health & safety) 95 of heat in Siberia • Removing infrastructure is generated from coal restrictions on the development of the coal industry and, above all, reducing bottlenecks In addition, thermal coal SUEK Integrated Report at railways and ports is used in the metallurgical, cement and other industries in Russia. See https://www.rosugol.ru/ programme/index_1.php

Coal-fired power plants generate Coal-fired power generation of hydropower-generation expansion The major driver of heat supplied by SUEK, Rubtsovsk has 17% of all electricity in Russia. is the most efficient projects. consumption is rising urbanisation. been the first to trial a transfer ‘Alternative boiler’ tariff This share rises to 45% in Siberia, source of energy in Siberia According to a state programme, to the ‘alternative boiler’ method. is a method introduced where most of SUEK’s energy as it consumes local coals In 2007–2016, Russia ran a state the construction of new houses will in Russia in 2017 to calculate assets are located, a major industrial and can combine electricity programme to support the upgrade increase to 120 million m2 by 2025. Major suppliers of thermal coal heating prices, when only region with a relatively small number generation with heat generation. and construction of new power to the Russian market include the maximum long-term level of people who delay utilities payments capacities under capacity delivery On the supply side, capacity SUEK, EN+ Group, Russian Coal, is set. It is calculated based and close to the main coal producing The aluminium industry is the major agreements (DPM-1). In 2019, development is restricted Kuzbassrazrezugol and Luchegorsky on the cost of constructing regions. consumer of electricity in Siberia, the Russian government adopted by the current tariff system open pit. Products supplied by these and operating a new alternative accounting for 30% of demand. a new state support programme based on actual costs, which five companies cover approximately boiler house. The final heating Coal demand in Siberia Changes in aluminium output (DPM-2), which will enable power makes long-term investment 57% of the total demand for thermal price is determined by agreement and the Far East, and capacity therefore significantly influence producers to upgrade 40 GW planning impossible. The planned coal in Russia. 15% of Russian of the parties. utilisation at coal-fired thermal the energy balance of the region. of capacity by 2030. transition to the ‘alternative thermal coal demand is also covered power plants in those regions, New aluminium capacities planned boiler’ method will enable by imports, mainly from Kazakhstan. is influenced by hydroelectric output, for launch by 2025 (Boguchansky Depending on the weather, the government to increase tariffs which accounts for approximately and Taishet aluminium approximately 16% of coal above the rate of inflation to justify 50% of electricity generation. In low- smelters) may increase Siberian consumption is used to heat homes the costs of capacity upgrades water years, hydropower plants electricity demand by 9%. There and social and industrial facilities. and favour the co-generation produce less electricity, which has are a number of other industrial Coal generation accounts for 95% of heat and power. Therefore, to be compensated for by coal-fired and infrastructure projects that of heat production in Siberia. the transfer to this tariff allows long- generation, while in years with high may increase the demand for coal- term investment for the upgrade 20 water levels, the opposite is true. fired power, given the absence of heat networks. Of the cities 21 ~ / Strategy

Delivering Vision Already the largest coal producer in Russia and one of the key heat and electricity suppliers, our aim is to be one of the world’s leading energy high-quality companies. We will achieve this by expanding our existing mining, processing and power generating assets, investing in new technologies and continuing energy to develop our logistics and distribution systems. We also aim to reduce our environmental impact and enhance our positive contribution to the social and economic development of the regions where we operate.

SUEK’s SWOT analysis

Focusing on 2023 targets Strengths Weaknesses

efficient growth • Position in the lower end of the global coal cost • Sensitivity of earnings to global coal prices curve due to vertical integration and large-scale and RUB exchange rate 70% >65% 100% Strategic Report

2019 of total of hard coal heat from investments • Cap on electricity generation output at several production to be to be washed co-generating • Diversified coal portfolio for all key markets, assets due to restricted power grids in several hard coal power plants including high-CV coals regions

• 30+ years of high-quality low-sulphur coal • Energy CAPEX dependence on state regulations Improving 2023 targets reserves, efficient mining and washing capacities operational Improving • One of the largest global coal sales networks efficiency and labour >80% >80% • Efficient co-generation heat and power productivity productivity coverage of own transhipment of own transportation coal exports through generating facilities fuelled by local coal needs SUEK’s ports • Access to funding and prudent financial policy SUEK Integrated Report ensuring financial stability Maintaining 2023 targets • Effective and transparent ESG programmes a robust balance Net debt / EBITDA ratio sheet at an average of 2.5x Opportunities Threats throughout the market cycle • Stable demand for high-CV coals • International coal price volatility

• New coal applications • Decrease in output or suspension of energy- Achieving high 2023 targets intensive industries due to macroeconomic factors safety standards • Development of railways to Eastern ports Progressive • More stringent CO2 regulations for power Zero Zero decline • New housing and energy-intensive industrial stations industrial fatalities in LTIFR aiming facilities in the regions where we operate accidents to reach zero • More stringent ESG requirements • Transfer to the ‘alternative boiler’ tariff from the financial community

• New financing opportunities • Russian railway infrastructure restrictions (project and equipment supplier (export) finance) Committed 2023 targets to sustainable development 24/7 0% control of CHPP of water outflow emissions to be untreated

22 23 ~ / Strategy / continued

Increasing output of high-CV products Focusing at Tugnuisky Goals

on efficient At the Tugnuisky and Nikolsky open-pit • Increase the total mines, we mine coal with a low nitrogen capacity of Tugnuisky growth and sulphur content, which makes and Nikolsky it especially attractive for Japanese to 15.5 Mt by 2023 Strengthening our presence in resilient, high- buyers, given the growing demand • Double the supply for high-CV coal in this premium market. margin international coal markets will help ensure of coal from Buryatia the long-term sustainability of our business. In 2019 we started the trial operation to Japan by 2021 In Russia, we are focused on unlocking synergies of a second Tugnuisky WP. New between our coal and energy businesses wastewater treatment plants are being and the co-generation of heat and electricity built for the mine and the washing plant. in order to remain a cost-efficient and responsible energy producer.

Increasing production of high-quality Strengthening our presence in premium coal Consolidating our position in the Russian Consolidating our position in the Russian and high-demand coal products markets thermal coal market heat and electricity markets

Expanding mines in Buryatia, Khakassia Strengthening our market presence in Japan, South Korea Increasing coal production at Borodinsky Consolidating our share in the Siberian heat and the Khabarovsk region. and Southeast Asia’s premium markets. in the Krasnoyarsk region to meet growing demand and electricity market through capacity upgrade from our power plants. and potential M&As. Building a new washing plant at Tugnuisky, increasing Growth in the share of direct sales by developing

2019 plans the throughput of the Chegdomyn WP. distribution networks in key sales countries. Strategic Report 2019

Coal Share of washed Total international Coal sales Heat generation, Electricity KPIs production, Mt hard coal and high- sales, Mt to Russian market, Mt million Gcal generation, TWh calorific coals in exports

62% 66.7 ‘19 33.7 26.2 ‘19 106.2 83% ‘19 55.1 62% ‘19 59.9 ‘19 43.5 39% ‘19 51.5 25% 59% 72.1 ‘18 30.2 28.2 ‘18 110.4 84% ‘18 57.2 59% ‘18 58.4 ‘18 46.0 40% ‘18 46.2 23%

58% 72.2 ‘17 24.8 28.6 ‘17 107.8 77% ‘17 56.4 59% ‘17 53.4 ‘17 27.0 24% ‘17 36.0 18% SUEK Integrated Report

Hard coal production Washed High-calorific Share of sales to premium Own Other Share in Siberian heat Share in Siberian electricity hard coal coals in exports markets generation customers generation generation

We continued to develop our assets in Khakassia Sales Southeast Asia increased by 4%, driven mainly Domestic coal sales grew by 3% thanks to growth SUEK acquired Reftinskaya GRES and agreed (Chernogorsky), Buryatia (Tugnuisky and Nikolsky), by growing exports to Vietnam and Hong Kong. in supplies to SGC’s plants. on the purchase of the Krasnoyarskaya GRES-2. This will Khabarovsk region (Pravoberezhny), which led to a 5% boost SUEK’s total power generating capacity by 46% year-on-year increase in production at these open- SUEK stepped up sales to other premium markets, To meet this rising demand from our CHPPs, to 16 GW, which makes us No. 5 electricity producer pit mines. Meanwhile, we used the market downturn including 1.2 Mt supplied to Mexico. we increased production at Borodinsky by 4% to 22.3 Mt. in Russia. 2019 results 2019 results to upgrade underground mining equipment, which In the Atlantic, despite a general market decline, shipments led to a decrease in underground production, leading The transition of Barnaul to the ‘alternative boiler’ tariff to the countries of the Mediterranean basin increased was implemented. to a total 7% hard coal production decrease year-on-year. by 1% to 6.5 Mt, mainly due to an increase in shipments SUEK launched a second washing plant at Tugnuisky, to Morocco. bringing the share of washed hard coal to 62%.

Increasing hard coal to Raising the share Supplying more coal to Japan and South Korea through Increasing Maximising the share Consolidating Reftinskaya GRES and Krasnoyarskaya of washed hard coal to the promotion of products with a low ash content Russian of SUEK’s coal supply GRES-2. 70% and higher calorific value. sales to to our plants >65% Switching to the ‘alternative boiler’ tariff in and other 2023 plans of total production Increasing deliveries to core markets (Taiwan, Malaysia, cities. Hong Kong, Mexico). >65 Mt

Bringing hard coal production to Increasing supplies to new Increasing sales markets (Vietnam, Thailand, to Mediterranean countries >90 Mt Pakistan, the Philippines, from 45% to Sri Lanka and others) to by developing Pravoberezhny, Chernogorsky, Nikolsky, of sales improving mine efficiency in Kuzbass 55% 10% of Asian sales in the Atlantic region 24 25 ~ / Strategy / continued

Developing SUEK’s railcar fleet This increased SUEK’s fleet Improving under management to 53,350 In April 2019, SUEK acquired units. Higher-capacity operational efficiency railcars make up 65% and productivity of our managed railcar fleet. 16,025 As a result, SUEK has ensured We always strive to improve that more than 80% of its operational efficiency and productivity higher-capacity railcars railcar needs are covered by its own fleet. The company in order to remain competitive in any • 5 years old or younger macroeconomic environment. can minimise its use of third- • 32-year service life and a capacity party railcars and improve of up to 77 t the reliability of on-time deliveries to key Asian • Lower environmental impact per tonne markets, as well as optimising compared to conventional railcars transportation costs.

Improving the operational efficiency Improving the operational efficiency Developing our railcar fleet Expanding our transhipment capacities of our coal assets of our energy assets

Continuing to introduce advanced underground Optimising the operation of power plants to achieve Maintaining the share of railcars under management Further developing Vanino Terminal. mine layouts, increasing the length of longwalls growth in output and save on investment costs. to cover our needs by 80% or more. to 350-400 metres. Developing Murmansk Commercial Seaport to meet Increasing the share of co-generation of heat Cooperating with Russian Railways to accelerate our coal transhipment target of 15.5 Mt and attract third-

2019 plans Optimising the combined operation of excavators and electricity to optimise the use of production the turnover of cars on SUEK routes and increase party cargo, including for the development of the Arctic.

and dump trucks to ensure growth in production volumes capacities and fuel consumption. investment in priority coal transportation areas. Strategic Report Completing the upgrade of Maly Port to boost its

2019 and investment cost savings. capacity to 4 Mt a year.

Productivity Energy Specific fuel Share Railcar fleet under management, units, Transhipment through dedicated ports, Mt KPIs of mining unit consumption per consumption, per unit of heat output and coverage of transportation needs and share of volume production coal production, of energy in co-generation personnel, kWh/m3 of rock cycle of the total t per man-month mass heat output

337 ‘19 161 ‘19 508 ‘19 2.79 ‘19 96% ‘19 53,350 90% ‘19 40.9 82% 336 ‘18 163 ‘18 540 ‘18 2.90 ‘18 96% ‘18 42,900 80% ‘18 38.8 80% SUEK Integrated Report 338 ‘17 ‘17 535 ‘17 2.96 162 ‘17 95% ‘17 34,300 70% ‘17 37.0 77%

Electricity, Heat, Railcar fleet Transportation needs coverage Transhipment volume Share of total volume gram of equivalent kg of equivalent fuel / kWh fuel / Gcal

Productivity of mining personnel decreased in line We continued the replacement of inefficient old boiler SUEK purchased more than 16,000 high-capacity railcars SUEK increased coal transhipment through its own ports with lower production. But we upgraded equipment houses and simultaneous reconstruction of 114 km bringing the fleet under management to 53,350 units to 82%, thereby minimising the use of third-party ports. to improve efficiency in future. At the Kirov mine, of heat networks in Krasnoyarsk, Kemerovo, Barnaul and covering over 80% of the company’s transportation we commissioned a 350 metres longwall, while another and Novosibirsk. needs. Coal shipment through the Vanino Bulk Terminal reached one will be launched in 2020. At the Yalevsky mine, a record 20.5 Mt, benefiting from the completed upgrade 2019 results 2019 results we launched a second longwall 400 metres long. Projects to upgrade the Tom-Usinskaya GRES, Biyskaya of the port. CHPP and Krasnoyarskaya CHPPs 1, 2 and 3 were After optimising loads for our excavator and truck units, included in the state DPM-2 programme. This will enable Murmansk Commercial Seaport transshipped 16.3 Mt we reduced the per 1 m3 energy consumption by 4%. us to replace inefficient boiler houses, increase the share of coal and 1.3 Mt of non-coal products. of heat generated in co-generation mode and reduce In Maly Port to increase transhipment capacity up to 4 Mt SUEK was recertified for its compliance with the ISO fuel consumption per unit of energy, as well as supply 50001 Energy Management Systems standards. of coal a year, we completed dredging of the operational new customers. waters and approach canal and restored railways.

Improving labour productivity by refining Improving the efficiency of thermal power plants through Covering Covering our incentivisation and training systems, introducing more capacity upgrades. productive equipment and digital technologies. over 80% over 80% of our own transportation needs using railcars transhipment of our coal 2023 plans 100% under management exports with own ports of heat from co-generation through further replacement of outdated boiler houses in Belovo, Chernogorsk, Krasnoyarsk, Novosibirsk

26 27 ~ / Strategy / continued

Maintaining a robust Project financing development Reftinskaya GRES consolidation In June 2019, SUEK signed an agreement In October 2019, SUEK acquired from ENEL balance sheet with the Japan Bank for International one of the largest power plants in Russia, Cooperation (JBIC) to open an export Reftinskaya GRES, located in the Sverdlovsk SUEK’s goal is to maintain profitability credit line for the purchase of Japanese Region (Urals). by controlling costs, diversifying cash flows mining equipment. A loan of up to $50m and focusing on premium markets. has been financed by JBIC and commercial banks. The Japanese state export credit • Installed capacity of 3.8 GW agency, NEXI, provides credit insurance to the extent financed by commercial banks. • 40% of the total electricity supply Project financing enables SUEK to diversify to the Sverdlovsk region borrowed capital sources and cut rates • Equipped with modern filters that capture across the Group’s loan portfolio. 99.9% of ash emissions and an online emissions monitoring system

• 330-metre chimney No. 4 is one of the tallest stacks in the world

– Audited compliance with ISO 14001:2015 Sustaining profits despite the cyclical Maintaining a conservative financial policy Optimising borrowing costs Environmental Management Systems nature of the business – ISO 9001:2015 Quality Management Systems Maintaining profitability through cost control and a focus Keeping an optimal Net debt / bank EBITDA ratio within Developing a portfolio of financial instruments. on premium markets. the approved KPI. – OHSAS 18001:2007 Health and Safety Management Systems 2019 plans Strategic Report 2019

Revenue, $m EBITDA, $m Net debt / EBITDA, Operational cash Credit ratings KPIs ratio flow / cash CAPEX, ratio 5,140 2,189 218 ‘19 7,547 ‘19 2,115 28% ‘19 3.1x ‘19 2.1x

6,031 2,130 136 ‘18 8,296 ‘18 2,541 31% ‘18 1.6x ‘18 2.1x

5,145 1,695 99 ‘17 6,939 ‘17 2,066 30% ‘17 2.0x ‘17 1.6x Ba2 BB ruAA-

SUEK Integrated Report Coal Energy Logistics EBITDA margin

Thanks to the contribution from the energy business, A year-on-year decrease in EBITDA and a temporary We continued to diversify our loan portfolio, in particular SUEK was able to partially offset the impact increase in debt as a result of major strategic acquisitions involving a large number of international banks of a significant decrease in global coal prices in the non-coal mining sectors (rail cars, power stations) in our syndicated loan, enabling us to optimise the rate on the Group’s revenue. pushed the Net debt / EBITDA ratio up to 3.1x. on this instrument.

2019 results 2019 results Cost control and the synergistic effect following The investments planned for 2019 were limited to key In light of the favourable domestic market environment, the consolidation of the coal and energy businesses projects and the maintenance of our capacities. SUEK’s SUEK placed rouble-denominated bonds and reduced helped the company maintain EBITDA at over $2 billion operating cash flow grew by 7% thanks to our focus the average funding rate of our overall portfolio. and EBITDA margin at 28%. on working capital management, which enabled us to maintain our operating cash flow to CAPEX ratio We also expanded our project financing, and in particular at 2.1x. entered into transactions with Japanese state export agencies to finance the acquisition of Japanese mining equipment. Our credit ratings were confirmed with a stable outlook.

Ensuring a stable positive cash flow. Maintaining Net debt / EBITDA Optimal finance costs ratio at an average of

throughout the cycle

2023 plans 2.5x

28 29 ~ / Strategy / continued

Digital technology enhances industrial safety

Achieving high In the reporting year, SUEK carried out pilot Committed tests of a number of digital safety control safety standards solutions at its mining, energy and logistics to sustainable facilities facilities. All of SUEK’s facilities comply development with advanced international health and industrial safety standards. ‘Smart helmet’ Our goal is to contribute Our main goals are to reduce injuries to global energy security through and prevent fatalities. the safe production of coal, heat and electricity, for the benefit of all stakeholders.

Equipping a worker’s helmet with digital tools to analyse the location of equipment and people relative to each other, prevent collisions through warning signals, and to urgently call the dispatcher. Preventing accidents and fatalities Reducing occupational injuries ‘Smart bracelet’ Better supplies of heat to the regions Promoting a culture of health and safety, including zero Progressive development of monitoring and safety tolerance for accidents at all of SUEK’s assets. systems at particularly hazardous facilities. where we operate Investing in the development of monitoring and warning Implementing training programmes for personnel Reducing accidents and minimising interruptions in case of emergencies on heat networks, connecting

2019 plans systems. to reduce occupational injuries. new facilities to the company’s heat supply system. Strategic Report 2019 plans

2019 With similar functions also monitors human LTIFR, ratio health status and vital signs. KPIs 0 collective fatalities 0.72 ‘19 KPIs New facilities Accident rate across 0.24 ‘Video analytics’ connected heat networks 0.75 ‘18 0.29 to SUEK’s heat networks, units 1.00 ‘17 0.57

‘19 506 ‘19 1.0% Coal Energy At our power plants we have launched video ‘18 572 ‘18 1.0% control systems for employees working SUEK Integrated Report There were no collective fatalities in 2019. However, We continued the development of monitoring and warning with high voltage, which allow both remote ‘17 172 ‘17 1.0% despite our efforts, eight individual fatalities occurred systems at our facilities, in particular, designed a remote monitoring of employees' actions and advice in the company. control system for ensuring industrial safety at open-pit from a supervisor. This allows to reduces mines and washing plants for subsequent integration the possibility of emergency situations. Based on a detailed analysis of each case, with systems in use at our underground mines. 2019 results 2019 results we identified the root causes of these accidents related In 2019, we to the organisation of work processes, the adequacy We began the transition of our coal, logistics and energy reconstructed and built of the protective equipment and locks. assets to the new international ISO 45000 Occupational ‘Georeferencing’ Health and Safety standard. The company developed comprehensive measures aimed 114 km 55 km

at preventing similar cases in the future. The Industrial Safety Committee under SUEK’s Management 2019 results of heat networks of new pipelines Board, as part of the upgrade of the company’s training in the cities of operation

A complex of operational remote monitoring and control base, approved: of the safety of production processes was launched, in which information from all subsystems is consolidated • The upgrade of our training centre at Urgal and analyzed using special mathematical algorithms Helps determine the location and control In Novosibirsk, where 506 residential, industrial in real time. • Further development of the Virtual Mine, with computer simulation of the mining process and equipment of employees in mines. In 2019, this system was the heat networks were and social facilities were introduced in the logistics segment, which helps especially outdated, connected to our heat determine the location of trackwalkers in remote our investment networks, increasing in the upgrade of heat our heat consumers areas, control their route, call the dispatcher networks rose by number by in case of emergency. Progressive decline in LTIFR aiming for 2.1times 2% 0 0 industrial fatalities 0 injuries accidents 2023 plans The progressive replacement and upgrade of heat networks and ensuring their trouble-free operation.

2023 plans 30 31

~ / Strategy / continued

Transformation of Rubtsovsk Committed heating system Results

to sustainable Following the transition of the town • Secure heat supply of Rubtsovsk to the ‘alternative to >140,000 people development boiler’ method, SUEK invested about • 32% fewer breakdowns (continued) of heating systems • Over 9 km of pipelines $30m upgraded in upgrading local heating system.

Reducing adverse Ensuring the sustainability of communities Improving corporate procedures environmental impacts in the regions where we operate

Implementing environmental programmes, including Replacing inefficient boiler facilities with CHPPs. Guaranteeing the development and well-being Introducing best practices in the corporate culture. projects to reduce air and water pollution and enhance of our employees. waste recycling. Dust reduction in ports. Delivering a long-term programme for social infrastructure Increasing the share of washed coal to minimise

2019 plans Constructing taller stacks and installing filters to reduce development and support for local communities. emissions during transportation, transhipment and use

emissions at power plants. Strategic Report of coal. Cooperating with regional and municipal authorities 2019 on projects to develop social infrastructure and support educational institutions. Air emissions from power Suspended and dissolved Used and recycled waste Growth points1 Employee turnover International certificates KPIs facilities (CO, NOX, SO2 ), kg/kWh solids in wastewater, kg per of total generated waste tonne of coal

‘19 84 ‘19 14% ‘19 0.008 ‘19 0.18 ‘19 67% 37% 13% ‘18 80 ‘18 0.008 ‘18 0.18 ‘18 73% ‘18 14% 19% 19% ‘17 ‘17 ‘17 78 0.008 0.21 ‘17 79% ‘17 14% 11% 12% SUEK Integrated Report ISO 37001 ISO 19600

Coal Energy Coal Energy

A new 275-metre-tall stack construction was We continue to process organic waste, rubber products, The company implemented over 250 social and charitable The compliance of our corporate practices completed at Krasnoyarskaya CHPP-1. In 2020, polymers, rubbers, oil sludge, bitumen, roofing materials, programmes, with investment amounting to $26m. with international standards was confirmed we plan to reconnect boilers to it and demolish another electronic equipment, used oils, medical, wood and other by the following certificates received: chimney, which will improve the environmental situation carbon-containing waste. They resulted in 84 growth points in regions where SUEK in Krasnoyarsk. operates. • ISO 19600:2014 Compliance Management 2019 results 2019 results At the Murmansk Commercial Seaport, SUEK completed • ISO 37001:2016 Anti-Corruption Management Our CHPPs replaced 3 inefficient old boiler houses. the introduction of a state-of-the art stationary spraying We were able to keep staff turnover at 14% in the Coal system and installed Phase 2 dust shields. Besides, Segment and decrease it by 6 p.p. in the Energy Vladimir Hlavinka and Michael Baumgärtner joined In the Coal Segment we used less overburden the port launched an environmental dispatcher’s office. Segment, due to the implementation of an effective the Board of Directors, after which the share for backfilling in 2019 due to smaller worked out areas personnel strategy. of independent directors reached 50%. for reclamation. Our Novosibirskaya CHPP-1 passed all necessary examinations to use ash and slag materials 50 employees in the Kuzbass region improved for the restoration of disturbed land. We expect positive their housing thanks to SUEK’s housing assistance outcome for similar requests from Novosibirsk CHPP-2 programme. and CHPP-3, as well as Biyskaya CHPP in 2020. As part of the company’s staff development, 34% employees received training / retraining / professional development.

Qualitative growth of the social component, taking into Further introduction of best practices to SUEK’s 100% 24/7 0% account the created growth points in regions where corporate system share of co-generation monitoring of CHPP untreated water outflow we operate. in heat production emissions

2023 plans Providing sufficient qualified personnel to implement strategic goals.

1. Growth points are organisations set up as a result of social projects aimed at enhancing living standards in a particular district or town (maternity support centre, music workshop, mini-cinema etc.). 32 33 ~ / Risk management Proactive Risk management organisational structure

risk management Nomination and Effective risk management is essential Audit Committee Compensation Committee • Assessing the effectiveness Supervising the sustainable to achieving our strategic goals of the company’s internal control development areas and relevant risks and risk management systems KPIs: and sustainable development. • Supervising the preparation of financial statements and audit • Health and safety We are committed to continually improving performance • Environmental performance our risk management system in order • Supervising the operation • Effectiveness of the company’s to identify external and internal risks of the Internal Audit social policy and develop effective mitigation processes.

Board of Directors

How does integrated risk management help • Overseeing the company’s risk management system Q: Strategic Report SUEK to achieve cost-efficiency? and its continued development 2019

A:As part of our risk management process, we review the cost-efficiency of our business decisions and investment opportunities, while taking into account the regulatory environment, the availability of necessary resources and the liquidity of assets. This approach ensures the sustainability of our growth, increases the efficiency of resource use and prevents or minimises the risks of financial losses. SUEK Integrated Report Strategy Committee

• Analysing relevant risks when developing and implementing the Internal Audit Service company’s overall Management Board What changes to risks in 2019 will have strategy, strategic Q: • Assessing the risk • Introducing processes to the most impact on the company’s strategy? plans, operational and management system improve the company’s risk investment goals • Assessing the risks impacting management and internal strategic and operational goals control systems • Evaluating the corporate • Identifying risks, assessing governance system them in a timely fashion, and • Assessing compliance with external taking measures to mitigate and internal regulatory requirements them • Assessing the reliability • Promoting a company A:In 2019, we saw a significant change in the coal market environment and rising of the company’s external culture of risk awareness pressure from the gas market. In connection with Europe’s planned transition and internal reporting to renewable energy sources and a decrease in coal demand in the Atlantic region, we focused on mitigating market risks. To minimise the impact of declining coal demand in Europe and relative higher price pressure, SUEK’s management updated the consolidated strategic model taking into account new macro parameters by summarising the target parameters of the strategies for divisions, business Business units – risk owners Risk Management Committee of the Management Board segments and supporting functions. In particular, we reviewed and adjusted • Operational control, monitoring the strategic goals for the next five years in sales and logistics. and risk management during all • Reviewing the company’s risks day-to-day operations and evaluating the final risk matrix • Monitoring the risk management Valery Dmitriev, and mitigation process Director for taxes, risk management and insurance

34 35 ~ / Risk management / continued

Our approach Risk management process Results

SUEK has a corporate risk management and shapes a risk At the beginning of 2019, management system, which management reporting system, which Identification the Risk Management Committee is continually enhanced through is reviewed by the Risk Management Risk identification analysed the 2018 risk matrix the development of new Committee of the Management A comprehensive risk and submitted a report on the risk measures to minimise risks across Board. identification process is run once management structure and process, the company. Risk management a year. Responsible division for consideration by the Audit issues and processes are closely The Risk Management Committee employees indicate the sources Committee of the Board of Directors. related to strategic planning holds meetings at least once of risks and the potential measures The Audit Committee took and influence operational decisions. a quarter, in which it considers any to minimise them. Based note of the report on the Risk The company’s management is fully changes within the area of controlled on expert assessment, a risk register Risk monitoring, Assessment Management Committee’s work informed on all significant risks risks. Where appropriate, adjustments for the future period is compiled. control and trend Reporting of damage and risk in 2018 and approved crucial and approves all key parameters are made to the risk management analysis probability activities for 2019. for the risk management system. action plan and the risk management Assessment system. The Risk Management The key area of work during Management and control Committee also ensures cross- In order to achieve independence the reporting year was functional interaction between senior and compliance with SUEK’s the introduction of risk management Our Management Board, including managers and internal operational approved strategy, a comprehensive in a wider range of risk-based the Risk Management Committee, experts. Employees responsible risk assessment takes place once decisions to support SUEK’s controls and monitors the company’s for managing certain types of risks a year by assigning categories Risk response activities. Special care was given risk management system, working devise appropriate responses to risks. For each risk identified, to integrating the risk management closely with the Board of Directors’ to emerging issues, and inform the probability of its materialising process and culture into the energy Audit Committee. SUEK also has the Risk Management Committee and potential impact is rated. business. One of the main outputs Strategic Report 2019 an Internal Audit Service, which of all measures taken to mitigate The adequacy of action plans has been the updated risk map provides independent assessment the risks in question. to address any remaining Monitoring and control for Taxes, Risk Management including risks of our acquired energy and prepares recommendations control gaps is then assessed. and Insurance. After that, business. for improving the risk management Methodology The existing approach to maintaining In order to ensure we are prepared the Directorate considers the initiated system. a risk register allows us to analyse to respond quickly to any adverse risk for inclusion in the year’s risk The process of risk management identified risks and determine developments, we continuously register in compliance with the overall Risk management relies is carried out in accordance the most significant risks in each area monitor and analyse trends in key risk identification procedure. on a common architecture that with the procedure developed of the company’s operations. markets and related industries. combines all aspects of SUEK’s and approved by SUEK’s Risk We also monitor the macroeconomic Reporting businesses. Risk monitoring Management Committee. Response environment, both in Russia is exercised as part of the daily It factors in both the specifics and in countries that import SUEK’s A summary report prepared work routine of the company’s risk of the Group and recommendations Responsibility for managing specific products. Based upon this analysis, by the Directorate for Taxes,

SUEK Integrated Report owning and monitoring units that of Russian and international risk risks, including for taking actions we can further adjust the company’s Risk Management and Insurance are owners and/or co-owners of risks. management standards and best to mitigate them, is delegated production, sales and financial is considered by the Risk The Directorate for Taxes, Risk practice. This procedure includes to the employees of relevant policies. Management Committee and then Management and Insurance in charge the main objectives and principles departments. The Directorate by the Audit Committee. It covers of the corporate risk management of risk management, and methods for Taxes, Risk Management Also, during the year, heads a final risk register, information system coordinates the activities for identifying, assessing and Insurance supports and updates of business segments nominated on the actions taken to mitigate risks of various divisions in terms of risk and mitigating the risks we face. the plans of these actions as risk owners, when identifying new and the materialisation of risks during with their current status. risks, report them to the Directorate the year.

Q: How does SUEK control reporting units already work in SAP ERP, by promptly receiving the most Q: How do SUEK’s units benefit and optimisation of role distribution with the growing scale of operations? therefore, over the past two years, detailed information from the system, from the unified ERP system? in the company. Moreover, the use we have adopted the system as well as to develop acomplete of automated algorithms A: We aim to implement unified extensively in our foreign divisions. distribution chain to the final A: Automation and unification and a common set of group system procedures and principles As of 31 December 2019, 99% customer and assess the end-to-end of processes in a corporate ERP requirements allows for faster data of recording commercial of the group’s revenue was recorded transaction economics. system reduce the risk of potential consolidation and preparation and logistic operations in the target in the ERP system (or 98% of foreign errors, improve the overall working of financial statements. corporate system across all companies’ revenue). This enables By the end of the next year, we plan environment through broader companies of the group, regardless SUEK to improve the quality to complete the implementation of involvement of employees in business Ekaterina Paramonova of their location. Almost all Russian of control and management decisions the ERP in all group companies. processes, sharing their expertise ERP methodology integration project manager 36 37 ~ / Risk management / continued

Review of key risks REGULATORY AND LEGAL RISKS

Below we set out a list of the major The following changes have been • Combining coal demand potential risks to SUEK’s operational made to the risk map posted and price risks because they have 1. Risk of changes in current legislation and financial performance in the current Annual Report: interrelated reasons and similar and activities. Whilst this report dynamics The company follows statutory regulations in the jurisdictions where it produces Changes over the year • Excluding anti-monopoly risk, since highlights the key risks, there are other and sells its products. We also abide by the regulations of the countries and regions SUEK has built a strong system • Combining production less major inherent risks, not listed from which the Group imports goods and services. of compliance procedures, which and emergency risks because they below, that may have an adverse In Russia, changes in legislation can relate to tax, customs and foreign exchange reduces the probability of this risk have interrelated reasons impact on SUEK’s performance. regulations, securities market law, anti-monopoly and corporate law, licensing and mineral Actions to mitigate the risk to the minimum resources law, heat and power industry law and judicial practices. Changes can also arise We constantly monitor proposed projects through the tightening of environmental protection requirements. SUEK’s business can to amend legislation in Russia and other countries be significantly affected by decisions made by Russian governmental agencies to impose of operation, and review law enforcement Risk map in 2019 tariffs, quotas, trade restrictions, restrictions on the ownership rights of non-residents, practices, taking into consideration the company’s subsidies, licensing and anti-monopoly policies, and refinancing rates. activities. This enables us to quickly adapt our business processes and organisational In foreign jurisdictions, changes can involve additional controls on selling and using coal. structure to any changes in the legislative Changes can also result in special conditions for importing goods and services to Russia. environment, and to operate in full compliance 12 11 1 International sanctions against Russian individuals and legal entities, as well as industry with the current regulatory and legal framework. sanctions, can also restrict certain sectors of the Russian economy. SUEK’s senior managers and experts are actively 2 The sanctions currently in place do not directly target Russia’s coal and energy industry involved in governmental policy panels for the coal, power and other related industries.

Extra large (>$50m) (>$50m) Extra large or SUEK. However, a number of economic limitations do currently affect our business and necessitate special control in the selection of counterparties. They also affect SUEK’s compliance system allows us to quickly the availability of financial resources across the Russian market in general, and make detect and mitigate any compliance risks it difficult for companies operating in Russia to import certain types of equipment. in the field of corporate ethics, environmental Strategic Report 15 16 13 management, anti-monopoly regulation 2019 STRATEGIC PRIORITIES MATERIAL MATTERS1 16 and licensing. 17 4 4 M1 M6 We monitor the situation related Large ($11m–$50m) Large 6 to international sanctions in force and make sure 3 our counterparties are not under sanctions. 7 14 8

Risk impact 7 2. Regulatory risk

5 Our operations are governed by numerous laws and regulations, covering natural Changes over the year resource management, mineral exploration and mining, healthcare, industrial safety Medium ($1m–$10m) and the power industry. Coal-mining licences can be suspended, terminated ahead 10 9 of schedule or left unrenewed upon expiry. These risks are mostly dependent on the decisions made by regulating and supervisory agencies (Rosnedra, Actions to mitigate the risk

SUEK Integrated Report Rosprirodnadzor) holding scheduled and ad hoc inspections at the Group’s sites. We make every effort to comply with current Changes in national environmental and labour regulations may also influence coal-fired legislation and minimise the risk of operations power generation. at our production units being suspended. We Small (<$1m) rigorously monitor any changes in the legislative environment. Low (0 to 30%) Medium (31 to 60%) High (61 to 100%) STRATEGIC PRIORITIES MATERIAL MATTERS Risk probability SUEK’s companies have procedures in place M1 M5 to ensure compliance with licence requirements Regulatory Market Financial Operational Sustainability for timely renewal or new applications. If any discrepancies with licence requirements and legal risks risks risks risks risks are detected, we strive to complete the instructions from the regulator as quickly as possible. 1 4 7 11 15 Risk of changes Risk of reduction Foreign exchange Production risk Health and safety in current legislation in coal demand and interest rate risks (mining) risk 3. Risk of changes in electricity tariffs for residential customers and heat tariffs and prices 2 8 12 16 The company’s operations may be affected by heat and power tariffs set below Changes over the year our production costs and by non-fulfilment of obligations to raise heat tariffs as part Regulatory risk 5 Inflation risk Production risk Environmental risk of the ‘alternative boiler’ model. New Risk of reduction (energy generation) 3 in power plant load 9 17 STRATEGIC PRIORITIES MATERIAL MATTER Actions to mitigate the risk Risk of changes and electricity prices Credit risk 13 Human resource risk We monitor the situation and cooperate in electricity tariffs in the wholesale market Risk of restricted M1 with regulators regarding changes in tariff for residential 10 infrastructure setting methods, with switching to long-term customers and heat 6 Liquidity risk availability tariffs as top priority. tariffs Risk of reduction in demand and prices 14 in the capacity market Cyber risk

Company ability No Partial Significant Change in 2019 1. Please see definitions of material matters in Materiality section on p. 45. to influence the risk: influence influence influence vs 2018 38 39 ~ / Risk management / continued

MARKET RISKS FINANCIAL RISKS

4. Risk of reduction in coal demand and prices 7. Foreign exchange and interest rate risks

The company’s business may be affected by a decline Changes over the year Changes in market indicators, such as currency exchange Changes over the year in demand for coal and a reduction in coal prices in the export and interest rates, can have an adverse effect on the SUEK’s market due to oversupply or a rise in demand for other types financial performance. They can also impact our debt burden of fuel. and the value of the financial instruments on the company’s Tighter international environmental standards on coal quality Risk increased due to lower coal prices in major markets because balance sheet. Currency and interest rate risks need to be During the year, the LIBOR rate decreased by 0.7 p. p., which had a positive and production conditions could also result in reduced demand of weather conditions, and coal substitution with other fuels such as gas managed to mitigate unfavourable effects in these areas effect on the floating rate on PXF lines with a share of approximately 40% for the coal we produce. and renewables. caused by currency fluctuations and rising interest rates. in our loan portfolio. Interest rates on RUB-denominated financing also went down, following a decrease in the key rate (from 7.75% to 6.25%). Risk materialised in 2019. STRATEGIC PRIORITIES MATERIAL MATTERS STRATEGIC PRIORITIES MATERIAL MATTER Actions to mitigate the risk Actions to mitigate the risk SUEK analyses the risks relating to changes in currency exchange M1 M3 M4 We continuously monitor and forecast the price behaviour of commodities M1 and interest rates on a regular basis. We strive to keep these risks within

in general and coal in particular. When necessary, we also adjust acceptable limits, and to achieve optimal profitability where possible. trade policies relating to long-term contracts. We constantly analyse We also make use of ‘natural hedging’ as a significant part of the company’s For more details, see Market review on pages 50–55. the correlation between demand trends, coal mine closure, opening For more details, see Financial review on pages 56–59, revenue, and the majority of our loans are denominated in US Dollars and expansion and the postponement of development projects. and notes to the Consolidated financial statements or hedged. on pages 129–161. We hedge risks using forward exchange transaction instruments as well. Coal washing and our own logistics make it possible to consistently supply high-quality, demanded products to the international market. We regularly analyse the state of production in the industry and the situation in export 8. Inflation risk markets and, accordingly, update production and marketing strategies.

We also expand our presence in coal emerging markets and participate In Russia, growing inflation leads to higher costs related Changes over the year Strategic Report

2019 in projects to develop new technologies for coal-fired power generation. to procurement and payment to personnel, which can impact negatively EBITDA, as the company’s revenue is nominated in US dollars. 5. Risk of reduction in power plant load and electricity prices in the wholesale electricity market Actions to mitigate the risk STRATEGIC PRIORITIES MATERIAL MATTER We mitigate inflation risks by developing a balanced procurement strategy, SUEK’s operations may be affected by a decrease in the load Changes over the year using derivatives and investing available cash in a stable foreign currency. of thermal power plants and a drop in electricity prices M1 in the wholesale market due to market (lower demand, excess New Most export contracts for coal are concluded in US Dollars, which largely supply), natural (high water level, average annual temperature) compensates for the effect of inflation in Russia on the Group’s EBITDA. and regulatory factors. Actions to mitigate the risk SUEK takes measures to raise the efficiency of participation STRATEGIC PRIORITIES MATERIAL MATTER 9. Credit risk in the electricity market by improving methods and technologies of operational planning and forecasting, and by increasing the loading Increase in overdue receivables under domestic coal, heat Changes over the year M1 efficiency of power plants. and power supply contracts, and the transition of overdue SUEK Integrated Report We also cooperate with infrastructure organisations of the wholesale receivables to problematic or collectible accounts, can result For more details, see Market review on pages 50–55. electricity and capacity market regarding changes in the regulatory in direct losses for the company and restricted access to debt documents affecting pricing and plant loading procedures. capital markets. Actions to mitigate the risk We focus on liaising with the financial departments of regional governments STRATEGIC PRIORITIES MATERIAL MATTER where we supply coal. The aim here is to improve or establish a mechanism 6. Risk of reduction in demand and prices in the capacity market which ensures timely payments by housing and public utility companies, M1 as well as upfront payment clauses in supply contracts. SUEK’s activities may be affected by lower than expected Changes over the year growth rates in capacity demand due to the failed In each company’s branch, there is a department that monitors heat payment commissioning of large industrial facilities in Siberia, alongside New For more details, see Financial review on pages 56–59. arrears and provides information support to heat buyers. SUEK’s priority regulatory changest. is pre-judicial recovery, the company always negotiates with its customers, enquires about the reasons for debt, offers options for milestone or instalment Actions to mitigate the risk payments if some consumers are going through hard times. STRATEGIC PRIORITIES MATERIAL MATTERS The company monitors market demand, interacts with infrastructure organisations in the wholesale electricity market in terms of improving M1 M3 M4 regulatory documents that affect the volume and cost parameters 10. Liquidity risk of the capacity market. SUEK fulfils all obligations to supply available and new capacity to the market, minimising the risk of being Liquidity risk is directly related to cash turnover. It arises Changes over the year penalised for a failure to comply. if the company cannot fulfil its payment obligations on time. It is often linked to the effects of inflation, foreign exchange and interest rate risk. The effective management of liquidity risk requires maintaining an adequate level of cash and cash Actions to mitigate the risk equivalents while ensuring the prompt raising of funds using We continuously monitor loan covenants and use a comprehensive available lines of credit. forecasting system to ensure we comply with them. At present, the amount of credit lines provided to SUEK fully covers its financing needs. STRATEGIC PRIORITIES MATERIAL MATTER The adoption by European banks of coal policies reduces the amount M1 of available borrowing in the pre-export lending market. At the same time, SUEK diversifies its funding sources. In particular, the company increased the share of financing from Asia-Pacific region banks and in 2019 implemented a large-scale borrowing program in the Russian bond market, thereby offsetting the indicated trend. 40 41 ~ / Risk management / continued

OPERATIONAL RISKS SUSTAINABILITY RISKS

11. Production risk (mining) 15. Health and safety risk

Various internal (downtime, adverse geology, low coal quality) Changes over the year SUEK’s operations are associated with an elevated risk Changes over the year or external factors (higher prices of materials and services, of accidents and emergencies, which can occur due the failure of suppliers and contractors to fulfil their obligations, to geological factors, technical conditions and the action natural and other factors) can affect our activities. They can hinder or inaction of individuals. the achievement of our production targets, which may require The risk materialised in 2019. Actions to mitigate the risk additional expenses, resulting in an increase in production costs, Major accidents can lead to investigations from state At our coal production units, we use Life of Mine (LoM) deposit Actions to mitigate the risk and cause accidents and emergencies at our production facilities. watchdogs resulting in suspension of production, development models. They enable each production unit to check as well as a possible increase in reputational risk, Every meeting of the Board of Directors and the Nomination and Compensation its annual budgeted and actual expenses with LoM on a regular the discontinuation of business partnerships or claims Committee starts with a review of health and safety issues. Our Industrial STRATEGIC PRIORITIES MATERIAL MATTERS basis. As part of this process, we pay special attention to operational from the company’s lenders for early loan repayments. Safety Committee of the Management Board analyses every injury sustained efficiency projects. Moreover, we use monthly KPIs allowing at our sites by our employees or contractors and proposes actions to prevent M1 M2 M4 management to assess the performance regularly and, if necessary, STRATEGIC PRIORITIES MATERIAL MATTERS similar accidents in the future. adjust the plans in time and ERP system as well. As owners of dangerous industrial equipment, all the Group’s facilities As for emergencies, we continuously monitor hazardous situations M1 M3 M4 maintain general liability insurance against possible damage to life, health at all stages of our operations, caring about compliance with safety and the property of third parties. In addition, we insure our coal segment requirements at our production sites and geological characteristics employees against permanent or temporary disability. at all mining facilities. All emergencies and off-normal situations For more details, see Health & safety section are thoroughly investigated with the involvement of sectoral experts on pages 80–85. We also provide constant training for our personnel and regularly monitor making part of dedicated commissions. the knowledge of our employees in industrial safety and protection.

12. Production risk (energy generation) 16. Environmental risk Strategic Report 2019

The main factors affecting the generation and sales of electricity Changes over the year The environmental risks related to coal mining, washing, Changes over the year and heat are the physical wear and obsolescence of equipment, processing and coal-fired power generation supposes including heat networks, its downtime, underestimation New environmental damage including, contamination of soil of the impact of possible failures, the absence of the required and water, land disturbance by mining activities. The probability of risk has increased due to planned legislative changes, amount of primary materials, non-fulfilment by suppliers Actions to mitigate the risk In the event of its occurrence, possible claims introducing additional and changing current environmental requirements and contractors of their obligations, etc. We use a maintenance strategy and develop a programme from supervisory bodies, may affect the operational regarding greenhouse gas emissions, obtaining permissions, and others. for prioritising repairs and managing production risks. In addition, and financial performance of the company. STRATEGIC PRIORITIES MATERIAL MATTERS we employ a monthly reporting procedure based on KPIs, and ERP Actions to mitigate the risk system, allowing management to promptly assess the performance STRATEGIC PRIORITIES MATERIAL MATTERS SUEK carefully monitors compliance with all environmental norms and standards M1 M2 M4 of SUEK and its subsidiaries. set by law in the countries where we operate and sell our products. M1 M5 We take every effort to reduce environmental and ecosystem impacts and pollutant emissions, and to ensure the efficient disposal and recycling of waste. We install electrostatic precipitators with 99.6% efficiency and tall stacks SUEK Integrated Report 13. Risk of restricted infrastructure availability For more details, see Environmental section at our power plants, ensure safe ash and slag disposal, utilise mine methane on pages 86–94. and rehabilitate disturbed lands, employ state-of-the-art anti-dust measures Reduced access to railway and port infrastructure, electricity networks Changes over the year at ports, and build closed water circulation systems at production facilities. and water facilities can result in higher operational costs, and losses because of downtime at our production units. Certain infrastructure We also increase coal washing to reduce the environmental impact is operated by state-owned monopolies and is subject to tariff of our products during their transportation and use. regulation, which can affect the availability and quality of their services. Actions to mitigate the risk A number of SUEK’s facilities operate in regions where extreme We actively create long-term relations with infrastructure providers. weather can influence power supply and transportation. Availability 17. Human resource risk When executing contracts, we pay special attention to the technical of infrastructure is also dependent, to a significant degree, on whether conditions and servicing of railway tracks at connecting stations, our service providers meet their obligations. Refusal to provide Failure to recruit and retain qualified personnel can Changes over the year railway and port-loading facilities, electrical substations, power services can result in forced suspension of production and negatively result in missed production targets and increased costs. and heat networks. impact our financial performance. A decline in birth rates and underdeveloped housing We also invest heavily in developing our own infrastructure that infrastructure in the regions where we operate, plus STRATEGIC PRIORITIES MATERIAL MATTERS is critical to our business, such as Vanino Bulk Terminal, Murmansk a shortage of vocational training institutions and low Actions to mitigate the risk Commercial Seaport, railcar fleet. levels of professional skills among graduates, complicate SUEK has a system of employee training and professional development. recruitment. M1 M4 For more details, see logistics review on pages 71–75. We also work to improve motivation initiatives and enhance remuneration. In terms of recruitment, we actively seek out and support talented vocational STRATEGIC PRIORITIES MATERIAL MATTERS college and university students, providing them with employment opportunities at SUEK’s facilities. 14. Cyber risk M2 M4 We also implement projects aimed at social development, including improving housing conditions in the regions where we operate. Effective management of risks related to cyber-attacks Changes over the year and employee errors helps us minimise and avoid the leakage For more details, see Our people and сorporate culture of confidential information, network security breaches, problem section on pages 95–99. notification costs, system recovery costs, cyber extortions, and protection costs associated with regulatory requirements. Actions to mitigate the risk We carefully monitor our compliance with IT security standards. SUEK STRATEGIC PRIORITY MATERIAL MATTERS is developing a system designed to limit access to IT systems, whilst upgrading its IT infrastructure, bringing it in line with best practice. M4 M6

42 43 ~ / Materiality Focusing To define materiality Materiality matrix 2019 on the issues in 2019, we:

1Surveyed our top managers HIGHER that matter to understand which of the matters defined in 2018 they considered a priority M2 M1 In defining our strategic priorities for the year 2019, and which and the content of our corporate other matters they considered reports, we analyse the matters that should be added. M4 M3 are most important to the company, our value-creation processes M5 and our stakeholders. 2Surveyed external stakeholders regarding M7 M6 the importance and priority By continuously monitoring of these matters, and added other matters they considered our operational, financial and social significant. M11 M10 M9 M8 Strategic Report

2019 activities, and working to identify any interrelated and significant Importance for key stakeholders material matters, we are able to better M14 M13 M12 understand the impact that our business 3Updated our Materiality Matrix based on these internal has on the world around us, and of how and external surveys. our future value creation may be impacted by our stakeholders.

Prioritised material matters. LOWER 4 LOWER HIGHER Importance for SUEK’s value creation SUEK Integrated Report

We define ‘material matters’ as those Key material matters Other important matters which could have a significant impact on the company’s value M1 M6 M11 creation potential, and those Financial stability Corporate Contribution which are important to our key and development governance and risk to urban stakeholders. prospects management infrastructure development In preparing our 2019 Annual M2 M7 Report and our Sustainable Industrial safety Mutual adherence M12 Development Report for 2018-2019, and emergency to business ethics Development we conducted a thorough analysis preparedness of local of the external and internal M8 communities environment and identified M3 Fair remuneration relevant matters which we believe Product quality and social support M13 are important for the growth, success and high-value for employees Clear specifications and sustainability of our business, products and requirements such as reputation, financial M9 for suppliers performance, and the delivery M4 Human resources and support of our strategy in the reporting Operational policy and labour for local suppliers period. efficiency relationships M14 The updated Materiality Matrix was M5 M10 Company’s role used to set the company’s long-term Environmental impact Staff training, in regional social goals and strategic priorities, of the company’s including training and economic as well as for the development operations for new jobs development 44 of this Report. 45 ~ / Materiality / continued

Potential impact Potential impact Material issue Context 2019 on our value creation How we responded Material issue Context 2019 on our value creation How we responded In 2019, the global coal market A significant reduction in coal Consolidation of the energy In the coal segment, Inefficient production processes Due to the high operational M1 saw a significant decrease prices and limited financing business in 2018 diversified with prices falling to a level close can increase costs and decrease efficiency achieved through Financial stability in key coal price indices available for core activities could SUEK’s cash flow, decreasing M4 to the margin of profitability product quality, consequently continuous improvements and development under the pressure of lower gas adversely affect the company’s EBITDA dependence on volatile Operational in a number of key markets, diminishing the company’s in operational processes prospects prices, still Asian high-CV coal financial stability and operations. global coal prices, and ensured efficiency operational efficiency was competitive advantages. and timely investments market demand remained steady predictable and stable financial critical to optimising costs in equipment and staff training, due to limited supply of premium Limited diversification results amidst falling market prices, and maintaining profitability SUEK continues to achieve quality coal. of our international debt portfolio enabling the Group to maintain its and competitiveness. a strong financial performance and the necessity to attract higher- credit rating. during lows in the market cycle. Continued restrictions cost financing from Russian banks on the financing of coal projects, instead of coal-exiting European In the coal segment, operational We also focused imposed by a number of banks banks could impact SUEK’s efficiency and flexibility on the development following the Paris Climate financial results. of our investment programme of our logistics business, Change Agreement. helped keep costs down which represents one and maintain profitability. our key cost factors. We expanded our fleet of high- In 2019, in addition to traditional capacity railcars and optimised financing instruments such our routes, enabling us to contain as pre-export syndicated loans the growth of rail transportation and loans related to the purchase costs and ensure that we can of imported mining equipment meet our own railcar needs backed by export agencies, by more than 80%. SUEK took advantage of the local bond market, which became The consolidation of the coal

available due to a significant and energy businesses has made Strategic Report

2019 reduction in the Russian Central it possible to optimise utilisation Bank key rate, and placed two rates at mining facilities and fuel offers of Russian bonds totalling supplies to generating companies RUB 41 bn ($633m). and refine administrative functions within the consolidated company. Coal mining is associated Industrial accidents We thoroughly investigated M2 with high production and emergencies could potentially all accidents and incidents, Environmental and climate In the event of environmental In 2019, SUEK continued Industrial safety risks related to natural result in a number of tragic took actions to prevent M5 issues are becoming increasingly damage or degradation, there to implement its Environmental and emergency and man-made hazards, mining and adverse consequences: their re-occurrence in the future, Environmental important to SUEK’s product could be claims from supervisory Policy 2023 and closely monitored preparedness and geological factors, regularly loss of life, direct property and reiterated our commitment impact consumers, financial institutions bodies, financial institutions national carbon regulation changing working conditions or environmental damage, to zero tolerance for accidents of the company’s and residents of local or potential investors. developments. and the human factor. Work temporary suspension and breaches of safety communities. operations These claims could, We are updating our energy at power plants and heat of operations and, consequently, requirements. Ratification of the Paris Agreement in turn, influence the company’s strategy to take into account networks is also associated losses and fines, social unrest,

SUEK Integrated Report by Russia in 2019 drew increased production and financial our long-term sustainable with high risks to human life or damage to business reputation. In early 2019, we started the transition public attention to carbon performance; negatively affecting development goals and health. They could encourage partners to the new ISO 45001:2018 Standard regulation and the responsibility our ability to raise funds through and the needs of society. to discontinue business across the Group. of business to protect the debt market. Thus, we are implementing Despite all our efforts, in 2019 relationships or lenders to demand LTIFR dropped to 0.72 for our coal the environment. a Comprehensive Emission there were eight fatal accidents early loan repayments. at the company’s coal and energy and to 0.24 for our energy facilities. Reduction Plan in the cities facilities. These figures are among the lowest of Krasnoyarsk and Novokuznetsk, for the coal and energy industries including the construction of taller in Russia and abroad. chimneys and the installation of new filters and substitution In 2019, despite international Stricter requirements We invest in the development of inefficient standalone boilers coal price volatility, the demand from new coal-fired power of high-grade coal deposits M3 with co-generation power plant for high-CV coal remained stations and tighter domestic and continuously expand heat. Product quality at a consistently high level due and international environmental our washing capacities. and high-value to the growing number of new, coal quality standards could In 2019, SUEK increased its share We also utilise mine methane, products high-efficiency coal-fired power lead to lower demand for lower- of washed hard coal to 62%. waste oil and other carbon- plants consuming premium- grade coal. This trend could containing waste for heat quality coal, and reflecting tighter influence the company’s financial In June 2019, a second washing generation and use solar panels environmental standards. and operational performance. plant was piloted at Tugnuisky. for local power generation Additional equipment was also at coal production sites and social In Russia, the issue of heat Incidents on heat networks installed at the first plant to boost facilities. energy supply quality is becoming and restrictions to heat supplies the efficiency of coal processing. increasingly important reduce customer satisfaction In 2019, SUEK received approval to consumers. The progressive with the quality of services. In the Energy Segment SUEK has from the authorities for its projects deterioration of local heat developed, and proposed to local on utilisation of ash and sludge networks is increasing the risk authorities, investment projects waste from power generation of supply disruptions. to modernise the heat supply as materials for land reclamation systems in the cities where SUEK and construction. operates, which would significantly improve the quality of heat supply.

46 47 ~ / Stakeholder engagement Active Our stakeholder relationships are built with them and observing ethical In 2019, SUEK expanded its hotline on open dialogue and mutual trust. business conduct. for internal and external stakeholders, This enables us to accommodate enabling individual employees engagement their needs when making strategic We have a comprehensive and external partners to raise and operational decisions. communications system issues or propose ideas, regarding in place for sharing information the following areas: We determine our key stakeholders with our stakeholders. This helps ensure • Personnel management by assessing the impact that the completeness, timeliness, reliability and observance of the Code different groups have, or might and consistency of information, of Corporate Ethics have, on our performance, as well and its availability to all. In addition, as the impact that the company we involve stakeholders in the process • Industrial Health and Safety has on their well-being. When of improving the business processes • Potential breaches of anti- building stakeholder relationships such as improving working conditions corruption and anti-fraud policies we are committed to transparency for our employees, expanding of information, consideration the territory of our operations for the interests of all stakeholders, and developing the regions where receiving feedback, active cooperation we operate.

Main communication Engaging employees in the Involving consumers and feedback channels improvement of work and in improving the quality leisure conditions of heat supply services Strategic Report

2019 • Corporate website, mass media and social networks In 2019, SUEK ran an SUEK ran a survey of • Conferences and exhibitions employee satisfaction survey heat customers in its key of 4,000 employees in seven OBJECTIVE consuming regions to • General Meeting regions. The objective was evaluate their satisfaction of Shareholders to gain direct, anonymous with the quality of heat supply • Corporate reporting feedback on employee services as well as the heat Key policies • Code of Corporate Ethics • Information Policy conditions. business’ environmental • Meetings with banks and performance. governing • Compliance Policy • Environmental Policy potential investors • Coal Quality Policy • Heat Consumer Relations Policy The results showed that SUEK is Based on over 2500 our stakeholder • Meetings with employees, recognised by the vast majority respondents the results RESULTS relationships • Corporate Social Policy • Energy Policy customers, suppliers and of its employees as a prestigious showed high satisfaction with

SUEK Integrated Report • Occupational and Industrial Safety Policy contractors and responsible employer. the quality of heat supply Approximately 80% of employees and increased awareness of • Stakeholders opinion surveys For more details, see our website http://www.suek.com said they were satisfied with the SUEK’s environment-focused • Customer claims resolution level of occupational safety and modernisation programmes, and accounting systems social benefits, with the majority of in particular in Krasnoyarsk. respondents noting that over the past Whilst no major issues were • Personal account two years, working conditions have identified by the survey, SUEK on the company’s website improved. The respondents voiced recognises the importance and mobile application some concerns about the lack of of constantly increasing Financial stakeholders proper social infrastructure in some direct communications with Shareholders and potential investors for heating customers cities and towns, including clean customers to improve sales • Centres for heating and tidy streets and courtyards, and efficiency and enhance Professionalism customers limited playground areas for children. customer service. and cooperation • Hotline for heat supply issues Achieving personal The results were reported The results were reported Expert organisations success as part • Agreements with trade unions to the Nomination to the Management Board. REPORTING and NGOs of a team Employees and collective arrangements and Compensation Committee of the Board • Hotline for compliance issues of Directors. Stability and Safety and • Participation in Russian and development international professional VALUES efficiency Stability as Undivided unions and organisations a result of Local communities focus on safety • Participation in committees, in the regions continuous Suppliers Additional social investment Management have now where we operate development and business partners working groups, round tables projects were included in the decided to create a Unified and public hearings 2020 budget. New plans were OUTCOME Consumer Portal for launch Social responsibility approved for the development in 2020 – a system of digital • Site visits for local community of squares and parks in communication services A shared responsibility representatives to the the cities where SUEK’s between the company and its for society and the world company’s mining, washing operations are located. customers, including online State around us and generating facilities contract management and authorities Customers renewal, online utilities. 48 49 ~ / Market review

Volatile International coal market 2019 was a year of significant volatility in the seaborne coal market. However, overall volumes remained broadly international the same year on year, growing by less than 1%, to 975 Mt. The Atlantic market declined by approximately 30 Mt, mainly reflecting consumers switching from coal to gas markets and stable and mild weather. Meanwhile, demand in the Pacific market rose by approximately 38 Mt driven by China, Vietnam and Indian imports. European coal prices touched lows that caused significant increases in flows from typically western domestic demand supplies towards the East. Rising demand for coal in the Pacific region Asia Pacific Market changed during the second half of South Korea’s oldest coal offset the decline in demand in Europe. of the year as electricity demand capacity is earmarked for closure Meanwhile, Russian power market remained In 2019, demand from the Asia dropped by 3% year on year. during winter while all other coal- Pacific market for thermal coal On top of this, the prolonged fired plants will be capped at 80% stable. imports rose 5% year-on-year, Indian monsoon during Q3 utilisation, this follows restrictions to 836 Mt. increased hydro generation, which, enforced during spring and the April coupled with slowing power 2019 tax reforms, which raised China increased thermal (and lignite) demand, meant that coal-based the import duty on coal by 27% coal imports by 5%, or 11 Mt, electricity generation declined and reduced it on LNG by 74%. to 218 Mt, despite the impact in the second half of the year. If blackouts are avoided at peak Strategic Report 2019 of the US – ​China trade war Electricity generation from thermal demand, seasonal coal curtailments on the Chinese economy. 2018 coal, which increased by 4% in H1, may become a permanent feature. import backlogs led to weak had declined by 7% by the end Meanwhile, by 2024 South Korea imports at the beginning of the year. of H2. Market commentators believe plans to add a net total of 4.7 GW However, stricter domestic mining that in the absence of structural to its coal-fired power capacity. safety controls in Q2 tightened reforms India will continue In Taiwan, despite coal imports supply and boosted the import to underperform its economic being relatively stable during 2019, market. At the same time, reforms potential and struggle to achieve the government has also triggered to the supply-side, which have GDP growth of 6% in the year policies to counter air pollution that driven the market since 2016, ending March 2020, a drop from last may translate in potentially lower ended, and domestic output started year’s 6.8%. If correct, this will demand in 2020 – by​ 2 Mt compared to increase rapidly by the middle impact Indian industry and power to 2019. In Japan, thermal power

SUEK Integrated Report of the year. With market data demand. However, in the mid-term, generation fell by 5% as a result signalling the coal import ceiling if reforms are achieved, the potential of weaker demand, a sharp recovery was set to breach, importers of the Indian market is significant. in nuclear generation during H1 increased their intake during Q3, and steady growth in renewable anticipating a potential import ban Vietnam almost doubled its thermal output, this represented a 3% from the government. This ban coal imports to 31 Mt. A combination decrease (4 Mt) to 125 Mt in coal ‘unofficially’ materialised at the end of factors drove this increase, imports during 2019. For 2020 lower of the year. It should be noted that including the commissioning nuclear generation is expected Chinese import control measures of two new coal-fired power plants as some plants are expected targeting Australian coal as a result and a double-digit drop in hydro to shutdown, thus, imports of geopolitical issues boosted generation, also uncompetitive are expected to increase. demand for Indonesian coal. domestic coal production was constrained, all at a time of increased On the supply side, despite the drop Indian imports increased by 12 Mt industrial demand. in US exports to the Pacific by 30% to 169 Mt during the year, reflecting from 27 to 19 Mt, another 14 Mt subdued domestic production, Imports from North-East Asia was diverted from western ports with the uplift occurring largely (Japan, South Korea and Taiwan) towards Asia (9 Mt from Colombia in the first half of the year. reduced by 4% (or 11 Mt) to 282 Mt, and 5 Mt from Russia) that follows Coal imports started the year with the biggest drop coming the increased exports from Far East strong as electricity generation from South Korea (down by 7 Mt) Russian ports, Australia, Indonesia grew by 5.5% during H1. which has started a campaign against and South Africa. However, the market dynamics fine dust pollution. About a quarter

50 51 ~ / Market review / continued

Russian coal market

Atlantic Market On the supply side, Colombia trends, the decline should continue In 2019, domestic deliveries of Russian and the USA reduced exports during 2020. US coal producers thermal coal decreased, while In 2019, demand for imported coal to the Atlantic market by 8 and 7 Mt operate with very challenging high-quality Russian coal remained in the Atlantic market dropped respectively. South African supply market dynamics. The domestic competitive and exports to key markets by 30 Mt (down 18% year to the Atlantic contracted by 7.5 Mt, market is witnessing significant coal increased. on year) to 137 Mt. However, all and its exports to Europe are now displacement due to an abundance of this reduction reflected lower minimal. of low-cost gas and a depressed European imports, with demand international gas market. from North African and American The US has reduced thermal coal Russian thermal coal supplies countries remaining roughly stable. exports by 15 Mt and, given current Production Export supplies to the international market, Mt

European coal demand declined In 2019, Russian thermal coal In 2019, Russian companies ramped 99 91 by 32% to 66 Mt. The long- production remained stable up thermal coal exports by 2% ‘19 190 awaited LNG supply excess Thermal coal price indices, $ per tonne at 342.5 Mt 1. The share of hard to 190 Mt. An increase in shipments 103 83 became a reality and the Asian thermal coal amounted to 76% to the East by 8 Mt to 91 Mt offset ‘18 186 LNG demand, historically present, (260.3 Mt) of total production the drop in shipments to the West 96 77 was not there to absorb supply. volumes. A large proportion of high- by 4 Mt2. ‘17 173 European LNG demand slowed quality Russian coal is supplied due to a combination of weather, to the international market. The key driver behind the decline Westbound deliveries Eastbound deliveries the economy and increasing supplies in thermal coal exports to the West was of other energy sources including 400,038 Brown coal production increased weaker Polish demand for coal due nuclear. In the absence of significant by 1% compared to 2018, to 82 Mt. to warm weather; therefore, shipments growth in gas demand to support Brown coal is mainly supplied through rail border crossings fell Thermal coal supplies supply, LNG vessels flooded a e ar pr a g Sep ct o ec a e ar pr a g Sep ct o ec to the Russian market, in particular by 5 Mt to 20 Mt. At the same time, to the Russian market, Mt Strategic Report 2019 Europe, which was already coping 2018 2019 to power plants and public utilities. deliveries to western seaports grew with record-high volumes of gas by 1 Mt, reaching 79 Mt. In 2019, globalCOAL NEWC – API 2 – Northwest Europe, API 8 – China, 84 21 22 piped from Russia and Norway. Australia, FOB Newcastle CIF Rotterdam CFR south ports the main destinations for Russian ‘19 127 In addition, carbon emissions pricing Russian market supplies seaborne thermal coal exports 86 23 24 trended upwards during the first half to the Atlantic market were ‘18 133 of the year, stabilising at around 25/t In 2019, thermal coal supplies the Netherlands, Turkey, Germany, € Thermal coal seaborne exports, Mt 88 20 22 during the second half of the year. to the domestic market fell Morocco and Italy. In addition, ‘17 130 419 212 135 75 72 33 29 by 5% to 127 Mt. Power generating coal shipments from western ports ‘19 975 All in all, very low gas prices and high companies received 84 Mt to Asian markets, to India, South Power generating Public Other 402 209 129 80 77 49 25 companies utilities customers emissions prices created the perfect ‘18 971 of coal, including 54 Mt of brown Korea, Malaysia and Vietnam, almost storm for aggressive coal-to-gas coal and 30 Mt of hard coal, doubled. 369 200 121 83 77 37 33 switching. Prolonged mild and windy ‘17 920 a 2% below 2019. Demand for coal Sources: Statistical data from Russian SUEK Integrated Report winters, which play well to renewable from generating companies was Eastbound deliveries government agencies, SUEK estimates. 366 200 107 88 74 16 54 power generation, could see ‘16 905 impacted due to record electricity in 2019 were again hindered a prolonged and accelerated shift generation at Siberian hydroelectric by railway infrastructure constraints 339 202 103 80 77 24 48 away from thermal power generation. ‘15 873 power plants, relating to high river and intensive development

Spain, Portugal and Germany 388 201 98 75 74 29 55 water levels. Thermal coal supplies of the Eastern Polygon. Nevertheless, have made aggressive moves ‘14 920 to public utilities fell by 6% year-on- shipments of thermal coal to ports to advance their switch from coal year, to 21 Mt, reflecting the relatively in the East of the country increased to gas power. Furthermore, UK Indonesia Australia Russia Columbia South Africa USA Other warm 2018–2019 winter and the late by 7 Mt to 82 Mt, which boosted coal imports continue to decrease, start to the 2019–2020 heating seaborne exports of Russian coal with current demand restricted purely season. to China, Vietnam, India and Japan. to industrial use. Thermal coal seaborne imports, Mt Supplies of thermal coal to China Thermal coal imports decreased through rail border crossings 282 219 169 166 66 49 22 by 4% compared to 2018, to 23 Mt, increased significantly, by 1 Mt ‘19 973 due to lower demand from Russian to 9.4 Mt. 295 207 156 145 102 47 12 ‘18 964 thermal power plants and public utilities. Kazakhstan remained 290 188 141 118 113 43 23 ‘17 916 the largest supplier of thermal coal to Russia. 276 174 138 111 75 66 31 ‘16 871

282 142 159 100 85 73 32 ‘15 873

279 196 168 82 98 63 30 ‘14 916

1. Sources: Statistical data from Russian government agencies, SUEK estimates. Japan, South Korea, China India Other Pacific North-Western Mediterranean Other Atlantic 2. Taiwan countries Europe countries countries Including PCI coal.

Source: SUEK estimates. 52 53 ~ / Market review / continued

Russian energy market

Electricity market Power capacity market

According to the System Operator plants were minimal in 1H 2019 a cut in the cross-border tariff duty In 2019, power capacity sales Installed capacity structure by plant types in Siberia, MW of Russia’s Unified Energy System, due to a light spring flood by the Finnish electricity transmission in Siberia rose 0.5% year-on-year,

in 2019 electricity generation in the Krasnoyarsk region and a lack operator, Fingrid, and growth in CO2 to 42.9 GW. The competitive Power plants 2019 2018 in Russia increased by 0.9% year- of precipitation, but recovered emission quota prices) price for capacity sales in Siberia Thermal 26,578 26,521 on-year to 1,080 TWh. This was due to average multi-year levels by mid- • Rising prices in suppliers’ orders in the reporting period was Hydro 25,301 25,291 to higher electricity consumption July. Despite the decline in power in connection with a higher 213,705 roubles/MW/month, which Nuclear – – in some months, with lower generation by hydropower plants minimum level of wholesale gas is 7% higher than in 2018. This was temperatures compared to 2018, in 1H 2019, these factors increased tariffs (+3.4%) year-on-year driven by: Renewables 225 55 and increased export of electricity their load for the full year. • Higher demand for capacity in 2019 Total 52,104 51,867 from Russia. • A decrease in hydrogeneration year-on-year during the competitive The market price on electricity (day- following a decline in reserves Sources: Statistical data from Russian government agencies, SUEK estimates. capacity take-off (CCT) In Siberia’s Consolidated Energy ahead market, DAM) in Siberia of the Volga-Kama region. System (Price Zone 2), demand remained flat year-on-year. This • Factoring indexing the price based for electricity rose by 0.5% was because a price increase In turn, changes in the planned on CCT outcome from the previous year, to 211.0 TWh, in the European part of Russia output of nuclear power plants due to more intense electricity and the Urals compensated in January-August 2019, which In 2019, power capacity sales Installed capacity structure by plant types consumption by aluminium smelters for a drop in price due to higher exceeded 2018 values, including due in the European part of Russia in the European part of Russia and the Urals, MW and lower air temperatures in some hydrogeneration, especially during to commissioning of a new power and the Urals amounted to 146 GW, months. In the European part network restriction periods. unit at the Rostov NPP, limited further a 1.7% increase year-on-year. Power plants 2019 2018 of Russia and the Urals (Price price growth. The competitive price for capacity Zone 1) energy consumption The DAM electricity price sales in the reporting year increased Thermal 131,535 132,091 decreased by 0.5% year-on-year in the European part of Russia by 4% to 124,048 roubles/MW/month. Hydro 19,960 19,555 Strategic Report 2019 to 807.6 TWh due to a cool summer and the Urals increased by 3% Nuclear 30,313 29,132 and warm start of winter. year-on-year. The key factors that Renewables 1,321 963 influenced the change included: Total 183,129 181,741 Electricity generation by Siberian 211 TWh In 2019, projects were selected • An increase in electricity thermal power plants decreased to modernise the generating Sources: Statistical data from Russian government agencies, SUEK estimates. exports from the European electricity consumption by 3% year-on-year, to 100.4 TWh, facilities of thermal power part and the Urals (by more than mainly in view of higher electricity in Siberia in 2019 plants in 2022-2025 (‘DPM-2’). twice, or on average by 1 GWh) generation at Siberian hydroelectric in the first five months of 2019, power plants (up 6.3% from 2018). The programme, launched mainly to the energy systems In the Irkutsk region, high river by the Russian government +7% of the Baltic countries (Estonia, water levels led to record levels in February 2019 Lithuania, Latvia), Ukraine, Belarus the competitive price in the reservoirs of the Angarsk 45% as a continuation of DPM-1 and to Finland’s energy system SUEK Integrated Report hydroelectric power plants. programme, guarantees for power capacity sales (because of a significant reduction of electricity in Siberia Water reserves in the reservoirs a return on investment in Siberia compared to 2018 in Scandinavian water resources, of the Yenisei hydroelectric power is generated from coal in heat and power capacity development for participating projects up until 2030. Russian electricity market prices 2019/2018, Siberia’s electricity generation RUB/MWh by plant and fuel types ‘DPM-2’ is part of increased investment to modernise obsolete capital equipment 1.90% 0.04% at power plant generating facilities, to extend the life of the upgraded power plants by 15-20 years.

52.57% About 40 GW of old heat capacities will be upgraded 45.49% in the upcoming 10 years, a e ar pr a g Sep ct o ec including a number of SUEK’s generating facilities. Europe 2019 Siberia 2019 Europe 2018 Siberia 2018 HPP TPP Coal TPP Gas SPP

Sources: Statistical data from Russian government agencies, SUEK estimates.

54 55 ~ / Group financial review Investing Deeper vertical integration Financial highlights with our resilient energy in the future business and the logistics chain $m 2019 2018 Change helps us reduce fluctuations Revenue 7,547 8,296 (9%) in our revenue triggered Cost of sales (3,481) (3,483) 0% and delivering by volatility in global coal prices. Transportation costs (1,719) (2,005) (14%) Administrative and other expenses (232) (267) (13%) While consistently implementing EBITDA 2,115 2,541 (17%) our strategy, we continue to deliver EBITDA margin, % 28% 31% (3 p. p.) our investment programme. In 2019, consistent results Net profit 706 1,164 (39%) SUEK’s total capital expenditure Net margin, % 9% 14% (5 p. p.) reached another record level 1 The consolidated SUEK Group has once of $994m, with our main investments Capital expenditure 994 903 10% focused on expanding our production Net debt 6,562 4,187 57% again demonstrated its ability to generate of high-CV coal, improving Net debt / bank EBITDA ratio2 3.1х 1.6х 1.5х stable cash flow, supporting our annual environmental and industrial Bank EBITDA/interest expense ratio 5.5х 9.1х 3.6х safety, upgrading the efficiency large-scale capacity development and environmental performance and health, safety and environmental of our energy facilities and securing programme whilst enabling us to finance self-sufficiency in logistics. From EBITDA to net profit A number of strategic acquisitions

strategic acquisitions and confidently $m 2019 2018 Change Strategic Report in 2019 led to a temporary increase 2019 service our debt. in net debt, and the net debt EBITDA 2,115 2,541 (17%) to bank EBITDA ratio rising to 3.1x Depreciation (1,053) (669) 57% at the year-end. However, we reaffirm Income tax (134) (314) (57%) our goal of maintaining this indicator Financial expenses (422) (311) 36% at an average level of 2.5x Foreign exchange profit / loss 200 (83) 341% throughout the market cycle. Net profit 706 1,164 (39%)

The Group’s revenue decreased by 9% year-on-year due to a decline in coal export revenue, reflecting a significant drop in global coal From EBITDA to operating cash flow prices and a slight decrease in sales.

SUEK Integrated Report At the same time, this impact was $m 2019 2018 Change partially offset by growth in revenue from electricity and capacity sales. EBITDA 2,115 2,541 (17%) Changes in working capital 111 (373) (130%) EBITDA in 2019 fell by 17% Income tax paid (178) (288) (38%) to $2,115m following a decrease Other 11 21 (48%) in coal revenue, which was partially Operating cash flow 2,059 1,901 8% offset by lower transportation expenses.

The Group’s net profit decreased Mergers, acquisitions and capital In October 2019, the Group by $458m year-on-year to $706m expenditure purchased the Reftinskaya GRES due to reduced EBITDA by $426m. for $345m. The expansion SUEK's CAPEX reached $994m. of the Energy Segment reduces the dependence of the Group’s SUEK’s total CAPEX reached In addition, in April 2019, the Group financial performance on volatile acquired 16,025 higher-capacity global coal prices. a record level of railcars for $327m to improve the efficiency of logistics for priority routes to the east. $994m1

1. Excluding the purchase of 16,025 railcars and Reftinskaya GRES. 2. Calculated in accordance with SUEK loan agreements.

56 57 ~ / Group financial review / continued

Net debt Higher share of low-volatility revenue, $m As at 31 December 2019, the net debt amounted to $6,562m.

As at 31 December 2019, most of our debt is denominated in US Dollars (71%), 26% is denominated in roubles and the remaining part in Euros. 5,352

The effective cost of borrowing, 4,526 normalised to the rate in US Dollars, was 4.5%. The company’s main debt instrument remains dollar-nominated 4,471 pre-export financing secured 2,933 by international sales revenue. 2,972 Additionally, in 2019 SUEK arranged 679 614 a significant rouble bond programme

raising RUB 41bn ($633m). 2,130 2,189 1,123 1,142 956 57 74 99 135 218 ‘15 ‘16 ‘17 ‘18 ‘19 Strategic Report

2019 1,176 1,260 1,657 1,875 1,903

Export revenue from sales of coal Logistic segment revenue (external)

Revenue from sales of coal and services Intragroup logistic segment revenue in Russia

Energy segment revenue FOB NEWC, $/t API2, $/t SUEK Integrated Report

Credit ratings Loan maturity, Currency debt structure, Instrument debt structure, $m 31 December 2019 31 December 2019 In 2019, SUEK’s credit ratings were confirmed by rating agencies, with a ‘stable’ outlook: Moody’s confirmed its rating at Ba2, Fitch Ratings After ‘23 137 3% 3% Ba2 12% at BB and Expert RA at ruAA-. ‘23 1,028 26% The company remains We view SUEK as a fundamentally 44% competitive thanks FCF‑positive business with high single- ‘22 1,916 to economies of scale, vast digit FCF margin through the cycle, ‘21 1,914 BB coal reserves, operational as seen historically. The company has 71% diversification and low not paid dividends since 2011 and has ‘20 1,773 production costs, along demonstrated capex flexibility during 41% with an integrated business coal market downturns. …Hence, model that includes we expect that SUEK will continue thermal coal production generating positive FCF over the rating USD RUB1 EUR Bilaterial PXF Bonds ECA loan ruAA- and electricity generation horizon, allowing it to deleverage … businesses. by 2021 and 2022 from the 2019 peak.

1. 100% of RUB debt has been hedged. Moody’s Fitch

58 59 ~ / Business review

Coal Energy Logistics Procurement Focusing on operational excellence SUEK is constantly adopting and implementing best-in-class technologies across all of its operations. These ensure optimum operational efficiency,

a high level of industrial and environmental Strategic Report

2019 safety and help generate strong cash flow and stable EBITDA, enabling SUEK to constantly reinvest in its business and the communities in which it operates.

Enhancing washing efficiency in Kuzbass SUEK Integrated Report See more on page 67.

Robotising drilling See more on page 65. >80% of export is high-CV coal

Mobile heat inspector

See more on page 70. +72 ‘000 heat customers

24/7 environmental control at >80% Murmansk Commercial Seaport self-sufficiency in railcars See more on page 73. and ports

60 61 ~ / Business review / continued

Coal

Strategic priorities Products With 7.6 billion tonnes of coal reserves, Our brown coal assets equipment, reducing our dependence SUEK currently has over 30 years’ in the Krasnoyarsk region, on third-party suppliers. worth of high-quality raw materials Zabaikalye and Primorye, are located Deposits Sales markets for development. close to coal-consuming energy Through our well-developed

Asian companies, including those that distribution network, we supply coal Safe and efficient markets production Our coal is low in nitrogen are part of the SUEK Group. to consumers in 48 countries. Khabarovsk region and low in sulphur, and by washing

Atlantic it we significantly reduce the ash We also produce metallurgical In the Russian market, the Group markets content and increase the calorific value coal at the Kirov WP in Kuzbass delivers coal to large industrial Russia High-CV Buryatia and reduce the environmental impact and the Apsatsky open-pit mine and energy companies, as well Kuzbass Increase in high-CV coal coal of our products. This ensures they in Zabaikalye. Chernogorsky WP as medium-sized consumers, production meet the most stringent requirements in Khakassia produces sized coal, through its sales unit. of our consumers, in particular used in households in Poland, Turkey Strategic priority: from Japan, South Korea and Taiwan. and other countries. SUEK AG sells coal Increased production in the international markets via and exports with a focus The close proximity of our hard By using our own logistics a network of representative offices Expanded presence in Asian on premium markets coal assets in Kuzbass, Khakassia channels, including our own railcars and subsidiaries in countries markets and Buryatia to the railways and ports, we can ensure we deliver of strategic importance for the Group, and also to ports in the west and east our products to consumers efficiently including Poland, China, Taiwan,

Japan of Russia allows us to easily adjust and on-time. South Korea, Indonesia, Lithuania, South Korea China our supply schedule depending Vietnam, Japan, Switzerland, the UK on demand and maintain our position Our largest service facilities Sib- and the USA. This way SUEK can as Russia’s largest coal exporter. Damel in Kuzbass, Borodinsky repair take payment for its products in local France Strategic Report Spain and mechanical plant in Krasnoyarsk currencies and offer additional

2019 Zabaikalye Metallurgical Russia Apsatsky mine Our hard coal assets and Chernogorsky repair services to local customers. coal Kuzbass in the Khabarovsk region and mechanical plant in Khakassia Kirov WP and Primorye have a competitive provide a full range of services advantage, due to their location for the repair and production Strategic priority: close to ports that give them access of mechanisms for mining Increased production to the Asian markets. and presence in all key markets with a focus on Asia and Russia Operational highlights

Mt 2019 2018 Change China Mining 106.2 110.4 (4%) SUEK Integrated Report By product type Poland hard coal 66.7 72.1 (7%) Baltic states Bulgaria Khakassia Russia brown coal 39.5 38.3 3% Sized Chernogorsky WP Kuzbass coal By mining method open-pit 81.1 77.9 4% Strategic priority: underground 25.1 32.5 (23%) Washing 41.3 42.2 (2%) $ m Sales growth Turkey 5,140 Sales 115.1 115.6 0% in traditional European revenue International sales 55.2 57.2 (3%) and new markets Asia-Pacific market 34.3 33.1 4% 106,2 Mt Atlantic market 20.9 24.1 (13%) coal mined 1 China India Including: other Asian markets third-party coal 14.5 11.5 44% petroleum coke and other sales 1.4 1.8 (24%) 0.72 Khabarovsk region Domestic sales 59.9 58.4 3% LTIFR To own generating facilities 33.7 30.2 12% 113,7 Mt Russia Buryatia Low-CV To other consumers 26.2 28.2 (7%) coal sold fines $818 m Strategic priority: CAPEX Increase processing

1. Calculated together with logistics. 62 63 ~ / Business review / continued

Sales Average price of coal sold on international markets1, FOB basis, $ per tonne In 2019 our sales volumes were fell by 24%, to 1.4 Mt, amidst and sluggish demand in other Pacific 115.1 Mt, remaining almost a general decline in the production markets triggered a decline in prices ‘19 71 unchanged compared to 2018. of petroleum coke in Russia. in the Pacific. The average annual FOB NEWC index fell by 28% year- ‘18 88 Our international sales volumes Export revenue from coal sales on-year to $77 per tonne. decreased by 3% to 55.2 Mt decreased by 11% to $4,295m, (including 1.4 Mt of petroleum primarily due to a lower average Russian market revenue remained Average price of coal sold in Russia coke and other products sales) due selling price amidst a general decline unchanged at $1,224m (including to lower supplies to the Atlantic in coal market prices in Europe intragroup revenue). The decrease $ per tonne RUB per tonne region, the effect of which was and Asia, and weaker coal sales. in coal sales to third parties reflected partially offset by an increase growing supply to the Group’s Energy ‘19 20 ‘19 1,289 in shipments to Asian markets. The average annual coal price index Segment. Our main international sales in the Atlantic region in 2019 was ‘18 21 ‘18 1,322 destinations in 2019 were China, 34% lower year-on-year and reached In US Dollar terms, the unit cost South Korea, Japan, the Netherlands, $61 per tonne. A drop in gas prices of the Group’s coal sold rose Germany, Vietnam, Morocco, Taiwan, at the beginning of the year, along by 7% compared to 2018 following Cash cost of coal sold Poland and India. with a warmer winter, put significant a decrease in underground coal pressure on the coal price. Prices mining to accommodate scheduled $ per tonne RUB per tonne SUEK’s supplies to the Asia- rose slightly in the second half longwall face moves in a number Pacific region accounted for 60% of the year but did not reach the level of Kuzbass mines. ‘19 15 ‘19 989 of the company’s international sales of 2018. Restrictions on the purchase and grew by 1.2 Mt to 34.3 Mt due of Australian coal in China ‘18 14 ‘18 858 Strategic Report 2019 to increased exports to Vietnam, China, India and Hong Kong. International sales structure Domestic coal sales structure Deliveries to the Atlantic region in 2019 by markets, Mt in 2019 Revenue decreased by 3.2 Mt to 20.9 Mt, reflecting more significant 6% 8.4 $m 2019 2018 Change decreases in supplies to the UK, 10.0 12% Spain and Turkey. At the same International 4,526 5,352 (15%) International coal sales 4,295 5,051 (15%) time, we increased our supplies 2.9 7.2 to Germany, Morocco, Croatia Pacific coal sales 2,599 2,894 (10%) and the Netherlands. 3.2 Atlantic coal sales 1,696 2,157 (21%) 56% Petroleum coke sales 153 250 (39%) Sized coal sales, including through 4.8 6.9 Other 78 51 53%

SUEK Integrated Report 26% our own distribution networks Domestic 614 679 (10%) in Russia, Poland, the Baltic states 11.8 Domestic coal sales 582 655 (11%) and Turkey, contracted by 13% to 4 Mt Other 32 24 33% due to weather conditions, which Atlantic Pacific SGC Other power plants Inter-segment sales 664 568 17% resulted in lower coal consumption 20.9 Mt 34.3 Mt in the public utilities sector, Public utility companies Other 1. and a difficult economic situation Germany China The price is adjusted to the FOB basis for Vanino, Maly Port and the eastern borders of China for shipments to Asia, and FOB Murmansk in Turkey. Metallurgical coal sales fell for sales to Europe. For shipments on other terms, we exclude the costs of freight, railway transit and cross-charged warehousing costs Netherlands South Korea in foreign ports. to 3 Mt, mainly reflecting a decrease in domestic deliveries due to excess Morocco Japan Coal sales revenue by market supply of highly volatile semi-coking Other Other coal in the Russian market. 22% Autonomous drilling rig

SUEK’s coal deliveries to our own In 2019, we began the process • Drilling boreholes power plants grew by 12% to 33.7 Mt of automating blast hole drilling. in accordance with the design as we replaced coal from third- The first autonomous robot- • Measuring parameters of drilled party producers with our own coal. assisted drilling rig was tested 47% wells Sales to other Russian consumers at the Tugnuisky open-pit mine. decreased slightly, as we increased • Ceasing movement when supplies to our own power plants. 31% It is equipped with onboard encountering obstacles. independent control equipment Our sales of petroleum coke enabling key operations Process automation will Asia-Pacific Atlantic Russian replace human involvement and other non-coal products in 2019 market market market to be performed without operator assistance or via remote control: in potentially hazardous areas and will improve the speed • Moving between holes and accuracy of work. The review in accordance with the drilling of the results of the pilot project design and further decisions 64 • Levelling the machine platform are scheduled for summer 2020. 65 ~ / Business review / continued

Mining Coal washing and product quality Investment projects Our priorities for 2020

SUEK produced 106.2 Mt of coal The main way to improve the quality in accordance with the ISO 9001:2008 In 2019, due to a decrease in the capacity of Chegdomyn WP up We intend to increase sales in 2019, representing a 4% decline of coal is to increase the volume International Standards in international coal prices, to 9–10 Mt. Actual production in 2019 of high-CV thermal coal on the previous year and leading and depth of its processing. In line and the ISO 55001:2014 Asset we focused our coal capacity amounted to 2 Mt. with a calorific value of more to a decline in productivity of mining with our strategic priority to expand Management Standard. development programme than 5,800 kcal/kg. Increasing personnel. We increased our open- the production of high-quality coal, on improving competitiveness Enhancing work safety coal washing at the Chegdomyn pit coal production by 4% to 81.1 Mt the following projects were delivered and operational efficiency, and Chernogorsky WPs and further driven by Nikolsky, Pravoberezhny, in 2019: while postponing a number In 2019, at SUEK’s Kuzbass developing our coal quality Chernogorsky, Zarechny, • Commissioning a new washing of expansion projects that were assets acquired a multifunctional management systems at Tugnuisky Borodinsky, and Abakansky plant at Tugnuisky for washing not critical to the company. slant drilling rig PRAKLA RB-T135 and Kuzbass will help us achieve expansion. Our underground mining 0–25 mm coal, with an output The rest of the investment programme able to drill wells with an initial the product quality required decreased by 23% to 25.1 Mt due of 6 Mt a year was aimed at maintenance diameter of up to 2 metres, as well by our demanding customers. to large-scale scheduled upgrades and environmental and safety projects. as equipment to support early in Kuzbass, at the Kirov, Yalevsky • Completing the reconstruction degassing of coal seams. We aim to keep our level of domestic and Polysaevskaya mines, and partly of the Chernogorsky WP Building a second washing plant deliveries stable. in Urgal, at the Severnaya mine. with an increase in its production at Tugnuisky Raising mine development capacity up to 9 Mt a year efficiency Improving production safety Hard coal production, almost half In mid‑2019, six months ahead will remain our priority. We will of which was mined in Kuzbass, In 2019, washed coal as a share of schedule, SUEK put into In 2019, we further raised the continue our absolute focus decreased by 7% for the following of hard coal produced, rose by 3 p. p., pilot operation a new fine-size efficiency of mine development on eliminating accidents and fatalities reasons: despite the 2% decrease in the volume coal washing plant at Tugnuisky by the introduction of bolter miner and reducing occupational injuries. of coal washed to 41.3 Mt due to lower with a capacity of 6 Mt per year. machines to replace old-style We will continue the deployment

• Difficult geological conditions Strategic Report volumes of hard coal mined. The washed volume in 2019 roadheaders in order to ensure of the geolocation system 2019 for preparing reserves and mining exceeded 1 Mt. the timely preparation of longwall for workers in our mines. coal at the Kuzbass and Urgal As a reliable supplier, we strive to meet faces at our mines. mines the requirements of consumers Productivity of mining unit Completing a flotation unit We plan to continue • Unfavourable market environment for the quality of our products production personnel, at the Kirov WP and a filter press Construction of the November 7th the development of our mining and limited and ensure strict compliance tonnes per man-month unit at the Polysaevskaya WP Novaya mine 1 assets, including Pravoberezhny with contractual obligations. and Nekkovy in the Russian Far East, • Limited capacity of the Krasnoyarsk We constantly improve our quality In 2019, we completed In 2019, SUEK continued and the Magistralny site at Ruban and West Siberian railways control system and introduce new the construction of a flotation unit its active investment phase mine in Kuzbass. At Tugnuisky ‘19 508 • Lower demand for coal methods to determine the ash at the Kirov WP and a filter press unit related to the construction we plan to further to optimise content in coal, the moisture content at the Polysaevskaya WP. The flotation of the November 7th Novaya mine blasting technology that will increase from Kamyshansky due ‘18 540 to unfavourable market conditions in our extracted, produced unit will increase the concentrate yield at the Sychevsky site to boost the efficiency of the blasting process and shipped products, and improved by 2–3% due to deeper 0–0.35 mm underground mining from thick as well as decrease its environmental ‘17 535 SUEK Integrated Report Brown coal production, the bulk mechanised methods of selecting slimes processing, while the filter seams). In 2019, we purchased impact. of which is mined at open-pit mines and preparing product samples. press unit at the Polysaevskaya WP the Aleksievsky site reserves (the in the Krasnoyarsk region, grew will close the process water circuit, deeper seams of the Sychevsky by 3% to meet robust coal demand The company has a Quality Policy thereby reducing the environmental site) with an estimated extractable from SUEK’s own generating plants. and runs a quality management system load after eliminating slurry discharge volume of 190 Mt (in addition into external sumps. to the extractable reserves of the previously licensed Capacity increase upper seams exceeding 50 Mt). at Pravoberezhny The acquisition of these reserves in underlying seams will prolong In 2016, we began the development the life of the infrastructure currently Production by mining method, Production by type of coal, Washed coal, Mt, of the Pravoberezhny open-pit under construction. The decision Mt Mt and washed coal share mine with a design capacity of 3 Mt to slow down the construction by 2021. The key advantages of the mine was made in 2020 of this asset are high-CV, low-nitrogen due to the deteriorating market 81.1 25.1 66.7 39.5 ‘19 106.2 ‘19 106.2 ‘19 41.3 62% and low-sulphur coal, its close conditions, the launch of the mine proximity to the Vanino Bulk Terminal will be postponed until a later date, 77.9 32.5 72.1 38.3 ‘18 110.4 ‘18 110.4 ‘18 42.2 59% (less than 1,000 km) and a relatively when the market conditions recover. low overburden ratio. In 2019, 73.3 34.5 72.2 35.6 ‘17 107.8 ‘17 107.8 ‘17 41.9 58% a decision was made to further expand the mine capacity to 6 Mt by 2024 with a simultaneous increase Open-pit Underground Hard coal Brown coal Coal washed Washed coal share of hard coal production

1. Project to replace an old mine that was closed.

66 67 ~ / Business review / continued

Energy

Strategic priorities SUEK is one of the largest producers of electricity and heat in Siberia, with a share of 25% of the electricity market. The company supplies heat and electricity to more than 5 million people in the Altai, Krasnoyarsk, Kemerovo, Novosibirsk and Sverdlovsk regions, Khakassia and Tyva. ELECTRICITY HEAT

CAPACITY Expanding our geography, The group includes five TPPs, one Sales Generation improving the state of heat GTPP and 19 CHPPs. In 2019, Expanding our presence, pipelines, reducing losses, SUEK acquired the Reftinskaya SGC’s total electricity sales in 2019 Electricity generation in 2019 improving the efficiency increasing co-generation GRES located in the Sverdlovsk amounted to 55.2 TWh, representing amounted to 51.5 TWh, an 11% and safety of power plants, volumes region, which is temporarily operated a 10% increase on the prior year. year-on-year increase, following increasing co-generation by Enel Russia during the transitional Capacity sales totalled 10 GW, which the acquisition of the Reftinskaya volumes period. Including this new plant, is 9% higher than in 2018. This growth GRES in October 2019. the company’s total electrical mainly reflected new sales to the Ural capacity is 14.7 GW and its heat region. Heat sales decreased by 5% Heat supply from all plants and boiler capacity is 24.9 thousand Gcal/h. to 35.3 million Gcal because of higher houses in 2019 decreased by 5% outdoor temperatures in the winter to 43.5 million Gcal. Kemerovo At the end 2019, SUEK also and spring, the early end of the heating Novokuznetsk agreed on the purchase season in May and the late start We maintained the same Krasnoyarsk of the Krasnoyarskaya GRES‑2 of the heating season in September. level of co-generation, which Belovo Kansk from Gazpromenergoholding In 2019, the company expanded its enables us to optimise fuel Myski in 2020, to be operated by the seller activities in Khakassia, Novosibirsk consumption and emissions per Nazarovo for the transition period. and Barnaul, where new consumers unit of energy. Today, 96% of heat were connected after outdated and 38% of electricity are generated Most of the company’s plants and polluting boiler houses were in a combined cycle. Strategic Report 2019 Novosibirsk Abakan are co-generation, i.e. generating replaced by heat produced Kuibyshev Minusinsk heat and electricity at the same at our combined heat and power We continued to expand time, and they consume coal mined plants from Novosibirsk and Barnaul. our operations, with 246,000 Gcal from nearby deposits. This partially compensated added due to new customers Barnaul for the decrease in heat sales due in Chernogorsk, Podsinee, Barnaul, Kyzyl Our own ELSIB plant produces a full to weather conditions. and through co-generation Biysk cycle of work on the development, (the replacement of boiler Rubtsovsk manufacture, commissioning The Energy Segment expanded houses in Barnaul, Novosibirsk, of generators, electric motors its geographic footprint and Krasnoyarsk) allowing for power plants. with the acquisition of Reftinskaya us to reduce fuel consumption GRES, giving it access to the more and emissions per unit of energy. Other operational elements attractive Price Zone 1 (European

SUEK Integrated Report at the company’s assets include various Russia and the Urals). advanced solutions such as dispatch Service quality control of CHPP operations, digitised Capacity sales revenue rose Yekaterinburg requests for connecting new facilities by $12m following the consolidation In 2019, we increased investments to the heat supply system, mobile of Reftinskaya GRES. in the upgrade and repair of heat and web applications for heat networks by 56% year-on-year inspectors from heat supply companies Electricity sales revenue increased to reduce heat losses and improve and heat consumers, and video by 18% as the expansion of assets the reliability of heat supply. monitoring of employees dealing led to higher sales, the effect In Novosibirsk, investments with high voltage. Heat networks of which was partially offset in the upgrade and repair are monitored using drones. by the weaker rouble. of heat networks rose by 2.1 times. We introduced mobile applications Heat sales revenue fell by 4% for heat consumers in order compared to 2018, as warmer to remotely transmit meter readings, weather in the regions of operations obtain information on verification +35% led to lower heat sales. deadlines, register consumer installed capacity complaints and view bills. Cash cost of energy sold totalled Electricity Capacity Heat $1,462m, in line with 2018. In 2019, the Russian Government Revenue decided to transfer Barnaul to the ‘alternative boiler’ heat tariff starting from 2020, which $m 2019 2018 Change enables SUEK to make long-term $ m $ m Capacity sales 732 720 2% investments in the modernisation 2,189 0.24 107 Heat sales 707 734 (4%) 1 and development of the city’s heat revenue LTIFR CAPEX Electricity sales 693 588 18% supply systems. Other 57 88 (35%)

68 1. Excluding the purchase of Reftinskaya GRES. 69 ~ / Business review / continued

Logistics

Investment projects • Upgrading power unit No. 7 • Upgrades to capital equipment, of the Tom-Usinskaya GRES including as part of the DPM-2 In 2019, the company delivered (under the DPM‑2 programme) programme the following main investment • Technical re-equipment • Consolidation of new assets projects aimed at increasing of the boiler plant (Reftinskaya GRES, the share of co-generation at the Nazarovskaya GRES Krasnoyarskaya GRES‑2) and improving its environmental performance: • Completing the reconstruction of the Southern Thermal Plant Vanino Bulk Terminal, Maly Port, • Replacing outdated standalone in Rubtsovsk to increase Electricity generation, Murmansk Commercial Seaport boiler houses in Kemerovo the installed heat capacity TWh and Krasnoyarsk with heat by 50–70 Gcal/h. produced at our CHPPs, including Strategic priorities: the upgrade and construction ‘19 51.5 • The shortest route to end Vanino Bulk of heat pipelines users Terminal Our priorities for 2020 ‘18 46.2 • The construction of a new stack • Fast shipments to end users Maly port at the Krasnoyarskaya CHPP‑1 The Energy Segment will focus ‘17 36.0 on the following targets and projects: Murmansk Commercial Seaport 3 • Uninterrupted and high-quality power 1 2 supply to consumers of electricity Mobile heat inspector Heat generation, and heat in the company’s area of responsibility million Gcal 53,350 In 2019, SUEK introduced electronic

railcars under Strategic Report tablets to replace paper reports, • Decreasing pollutant emissions 2019 ‘19 43.5 management and this has helped the company’s by upgrading the equipment,

inspectors to make heat supply and further increasing the share ‘18 46.0 adjustments more quickly. of combined electricity and heat Railcars generation, as the most climate- ‘17 27.0 An eight-inch tablet friendly method to supply Strategic priority: Loading and transportation units with an impressive range our customers with electricity and heat Increased railcar turnover in Kemerovo in Khakassia in Buryatia Shipment destinations of functions is connected 1 2 3 to the internet and the server, • Expanding presence in heat markets: Installed power capacity replacing outdated and polluting which hosts all the information utilisation rate that inspectors enter into boiler houses in Krasnoyarsk, their devices. Novosibirsk and taking technical and organisational actions to enter ‘19 46%

SUEK Integrated Report After inspectors register testing the Chernogorsk and Belovo heat results with special devices, markets ‘18 49% the software automatically analyses • Coordination with authorities ‘17 these figures, compares them 50% and implementation of large- with the standards set out in the heat scale modernisation programmes Thanks to access to key transport infrastructure, SUEK is able supplier contracts and generates for heat supply in the cities to make coal deliveries to the largest international markets, a report in the form of an electronic of SUEK’s presence, using long- certificate. All relevant consumer to our power plants and Russian customers, efficiently and on-time, term investment mechanisms data is stored on the server where $218 m while also utilising the logistic assets for third-party bulk commodity provided for by the ‘alternative % it can be used at any time. +11 external revenue transport, including back-haul where possible. boiler’ pricing method electricity generation The innovation has brought the following improvements: SUEK is the fourth largest to optimise empty mileage Operational highlights 1 operator of gondola cars in Russia and smooth out fluctuations • Optimisation of travel routes in terms of fleet size (53,350) units in our ability to supply the required for inspectors as of the end of 2019. This fleet railcars for SUEK’s coal. 2019 2018 % 0.72 covers over 80% of the company’s • Increasing the rate Generation transportation needs. Given 65% of our railcar fleet were of inspections LTIFR Electricity, TWh 51.5 46.2 11% the uneven traffic and demand designed to meet SUEK’s • Better control of heat Heat, million Gcal 43.5 46.0 (5%) for railcars in specific parts of the rail specifications: higher-capacity cars consumption Sales network and during specific times with 75- and 77-tonne capacity of the year, maintaining agreements and a useful life of up to 32 years. • Timely adjustment of heat Electricity, TWh 55.2 50.0 10% with railcar operators, and also In 2019, SUEK enhanced its fleet supply Competitive market 45.2 40.9 11% $69 m with third-party railcar consumers, with the acquisition of a further Regulated market 10.0 9.1 10% As a result of the 2019 pilot, CAPEX2 is essential. This makes it possible 16,025 high-capacity railcars. Capacity, GW 10.0 9.2 9% our ‘Mobile heat inspector’ Competitive market 8.0 7.5 7% project was awarded at the ‘New Regulated market 2.0 1.7 18% 1. Idea’ competition organised Including transhipment of third-party coals and non-coal products (1.3 Mt in 2019 and 0.8 Mt in 2018). by the Russian Ministry of Energy. Heat, million Gcal 35.3 37.2 (5%) 70 71 ~ / Business review / continued

These high-capacity railcars decrease – Rail transportation Port transhipment all else being equal – the specific transport cost and also the specific In 2019, SUEK transported 85.7 Mt with the BAM. These programmes In 2019, we transhipped 49.1 Mt of coal In 2019, Murmansk Commercial costs at third-party ports. Compared diesel consumption per tonne, of its coal via the Russian Railways will increase the volume of coal that and other loads, with our own ports Seaport transhipped 16.3 Mt to 2018, our port costs did not change. thus generating economic benefit network, which represented 17.4% is transported towards Far Eastern covering over 80% of our exported of coal and 1.3 Mt of other goods, and reducing environmental footprint. of total coal tonnage transported ports to 195 Mt. coal transhipment needs. representing a 9% year-on-year on the network during the year. increase. SUEK’s own railway infrastructure By eliminating infrastructural We increased our coal transhipments Ports costs (international gives us one of the best loading As part of our programme to optimise constraints along our cargo to Asia-Pacific customers via By increasing the capacity of our own market), $ per tonne and unloading speeds in Russia. empty mileage, SUEK also transportation routes, we will be able Vanino Bulk Terminal by 2.6%, ports we were able to reduce

This infrastructure includes 746 km transported 21.1 Mt of third-party to increase our coal export shipments, to a record 20.5 Mt, as we benefited our transhipment volumes through ‘19 5 of railway track, 16 internal loading loads during the year. including those that pass through from completed upgrades to the port. third-party ports by 13%. stations and approximately Vanino Bulk Terminal, to 40 Mt. We shipped 2.8 Mt through Maly ‘18 5 190 locomotives, providing access We are running joint projects Port, located in the Russian Far East, Port costs include the maintenance to the national railway network. with Russian Railways Specific coal transportation costs primarily to Japan and South Korea. costs of our own ports and stevedore We continue to work on increasing to increase the capacity in roubles rose amidst the continued the throughput of our loading stations and efficiency of the railways growth in operator rates, which was and tracks in order to support and railcars. Of particular importance due to a shortage of railcars caused our developing mining units to the company is the completion by operational issues in the Russian in Kuzbass, Khakassia and Buryatia. of the first stage of the Eastern railway system and railway Polygon by 2020 and the start restrictions towards the east. SUEK supplies coal of the design and construction to the international market through of the second stage, which its own, modern Vanino Bulk is scheduled for completion by 2025. Strategic Report 2019 Terminal in the east and Murmansk The key activities of the second stage Commercial Seaport in the west, include electrifying the Volochaevka- in addition to Maly Port, in which Komsomolsk-Vanino section, the company is one of the main laying the second continuous track shareholders. and constructing new junctions

Operational highlights

Mt 2019 2018 Change Rail shipments on public tracks 85.7 87.3 (2%)

SUEK Integrated Report Shipment by sea 49.1 48.1 2% Vanino Bulk Terminal 20.5 20.0 3% Murmansk Commercial Seaport1 17.6 16.2 9% 24/7 comprehensive environmental control at Murmansk Commercial Seaport Maly Port 2.8 2.5 12% Other ports 8.2 9.4 (13%) In 2019, SUEK opened an advanced The system records the following to predict meteorological conditions environmental dispatcher office parameters: three days ahead. at the Murmansk Commercial • Dust concentration Seaport. The dispatcher Overall, the port is investing room includes an integrated • Concentration of gaseous about $50m in a large-scale Rail costs (Russian market) hardware and software complex pollutants environmental programme. for monitoring the environmental At the end of 2019, • Air temperature and humidity $ per tonne RUB per tonne situation in the port’s territory the Murmansk Port passed and the boundaries of its sanitary • Surface humidity of bulk cargo an inspection for compliance ‘19 8 46% ‘19 501 protection zone. piles with the requirements of the international environmental ‘18 8 49% ‘18 492 The system enables a single • Noise level standard and confirmed its dispatcher to carry out • Wind speed and direction compliance with international comprehensive and continuous environmental certificate Rail costs (international market) monitoring of the environmental Depending on the wind and dust ISO 14001:2015. Following an audit situation, in real time, in order conditions the dispatcher can activate by experts from the ‘Clean Seas’ $ per tonne RUB per tonne to manage environmental risks the necessary dust suppression International Environmental and improve the efficiency equipment, such as stationary Foundation, the port received ‘19 22 ‘19 1,574 of environmental activities. and mobile fog-generating units, the Platinum Certificate Using the spatial structure vacuum cleaners, road spraying, of Compliance with the ‘Clean Port’ ‘18 24 ‘18 1,404 of the information and measuring and organisational and technical environmental standard. system, all data is automatically activities. displayed on the interactive port map. The dispersion area With the dispatcher’s office up 1. and running, the port is now able 72 Including transhipment of third-party coals and non-coal products (1.3 Mt in 2019 and 0.8 Mt in 2018). of pollutants is broadcast online. 73 ~ / Business review / continued

Investment projects Our priorities for 2020

Railway infrastructure development Capacity increase at Murmansk • Soil cementation (soil The main priority for 2020 of dust shields, which will reduce coal 50,000 units and involve high-capacity and capacity increase at Vanino Commercial Seaport consolidation under berth is the first stage of the capacity dusting in nearby areas. cars in the regular turnover Bulk Terminal foundations) increase at Vanino Bulk Terminal according to a cost-efficient scheme. SUEK is running a large-scale • Concreting make-fast blocks to 40 Mt (the development of railway At Maly Port the company plans One of our priorities continues In August 2018, the Commission environmental programme, at berths 34 and 35 infrastructure, a new triple car to remove railway infrastructure to be the development of technology on the Fuel and Energy Sector constructing shields to minimise dumper with a defrosting station constraints as part of the final to accelerate the turnover of railcars Development Strategy the negative impact of coal dust. • Restoring crane and railway tracks for gondola cars, a conveyor system, measures to reach capacity of 4 Mt along SUEK’s routes and a routing and Environmental Safety, chaired a fifth stacker reclaimer, etc.). per year. programme in all directions, together by the President of Russia Vladimir In 2018–2019: After launching the facilities into with Russian Railways. operation in 2020, Maly Port Putin, approved the outline • The introduction of an advanced At the Murmansk and Maly Ports, We intend to maintain a railcar will be able to accommodate of the second project stage up until stationary spraying system was we will continue the construction fleet under management of around vessels with a carrying capacity 2025 (ensuring the transportation completed. This spraying system of up to 40,000 tonnes (it currently of 195 Mt of coal a year towards consists of 14 spraying units handles vessels up to 17,000– Far Eastern ports, including 85 Mt in the first and second cargo 24,000 tonnes). In addition, a year at Vanino) and confirmed districts. the importance of maintaining the ongoing dredging operations Procurement a long-term tariff system according • The company opened (from 8.5 to 11.1 metres) will make to the ‘inflation less than 0.1%’ an environmental dispatcher's it possible to receive Panamax principle. office ships with a deadweight of up Inventory management In 2019-2020, a similar Automation of procurement to 80,000 tonnes, with their additional The port has completed pre-design inventory management project processes is developing in two Following these decisions, loading at Vostochny port. Further In 2019, the procurement unit will be implemented at SUEK's directions. For purchases at SGC’s

work for the development of railway Strategic Report in March 2019 the Russian prospects for increasing the capacity accelerated inventory turnover service companies. This will help units that are not subject to 223-

2019 infrastructure at the Murmansk government adopted the Long-Term of Maly Port to 6 Mt will depend station to construct a railcar against the backdrop of an overall us cover all structural divisions FZ law “On Procurement of Goods, Russian Railways Development on the initiatives by Russian Railways unloading station. SUEK has increase in inventory due to higher with a single inventory optimisation Works, Services by Certain Types Programme to 2025, which to expand infrastructure towards proved the possibility of increasing purchase volumes and rising prices. methodology to further increase of Legal Entities” dated 18 July 2011 involves increasing the target Nakhodka. the Murmansk station’s capacity the cumulative economic effect. (Law on Procurement), the processes throughput of the infrastructure to 16 Mt, subject to completing To achieve the acceleration are automated on the basis at the Komsomolsk-Vanino section a set of reconstruction activities. of turnover, the company introduced of a single SUEK's SRM trading from 43–44 Mt in 2021 1 to at least Work is currently underway to obtain material procurement planning Consolidation of SUEK’s platform. For procurement activities 85 Mt with complete electrification technical specifications from Russian in ERP and SRM systems, taking into and SGC’s procurement at SUEK and SGC under 223-FZ, of the Volochaevka-Vanino section Railways. account the actual need for materials, we developed a project that involves by 2025. This creates an opportunity their stock balance and emergency functions a new functionality and integration for SUEK to increase its long-term We also completed delivery (reserve) stock, delivery time, transit with external resources, target of raising transhipment of gantry cranes and started design rate and seasonality. In March 2019, we developed with consideration for the regulatory SUEK Integrated Report volumes through Vanino from 24 a dedicated complex for coal a programme to consolidate framework requirements. This law to 40 Mt or more. transhipment in the second cargo In 2019, the amount the procurement processes at SUEK applies to SGC, as it covers various district and for the reconstruction of materials purchased through and SGC. The programme consists activities in the field of electricity In 2019, following the decision of berths. automatic planning was 72% of a number of areas: and heat supply. by its Board of Directors, SUEK of the total procurement volume. • SUEK and SGC jointly develop began the design, preparatory work Capacity increase at Maly Port We accelerated the turnover In 2020, the company plans 27 categorical strategies and supplier selection for capital thanks to more efficient inventory to continue all previous initiatives equipment. In 2020, we plan for materials and services In 2019, the following main activities management. As a result, the need and reap the first economic benefits to complete the design work, obtain accounting for approximately 80% were carried out to increase for third-party purchases decreased from the above innovations. a permit and begin construction, of the procurement volume transhipment capacity to 4 Mt a year: by 13.4%. the progress of which will be linked • SGC began the unification to the actual Baikal-Amur Mainline • Dredging the operational waters Together with automation, of the structure and functionality development progress. and approach canal we developed and introduced of its procurement service a unified inventory management • The companies created a single methodology. We also created reference book of materials a technique for calculating reserve and services stock. Besides, SUEK developed and introduced an incentivisation • We updated regulatory documents system for key employees on procurement activities in terms of the company’s units based of bringing to the unified (SUEK’s) on the inventory turnover indicator. standards and rules governing Currently, the customer services, procurement procedures the financial and economic unit and supply services are responsible for meeting the company’s turnover 1. Today, only 34 Mt per year, reaching 43–44 Mt after finishing the construction work targets. in the Trans-Siberian Railway – ​BAM project.

74 75 ~ / Our approach to sustainability

Our people Health & safety Environment and corporate culture Communities Focusing on sustainable development We aim to promote the sustainable, social and economic development of the regions where

we operate, and to satisfy Strategic Report

2019 the demand for electricity and heat in a responsible way.

Rollout of our remote safety analysis and warning programme See more on page 84.

SUEK Integrated Report $2.1bn contribution to local Advanced environmental communities in 2019 protection in Krasnoyarsk (paid in taxes, to employees and local See more on pages 90–91. suppliers, and invested in local communities)

Operating our modern Staff Training and Development Centre in Leninsk-Kuznetsk 0.50 LTIFR for SUEK Group See more on page 95.

–14% Programme run by SUEK reduction

to promote career in engineering in NOx and SO2 emissions to children in the Altai region due to the replacement of old See more on page 100. electrostatic precipitators with new models in 2019 76 77 ~ / Our approach to sustainability / continued

Sustainability is our absolute priority

Sustainability management SUEK strives to contribute In 2017–18, Russia stood below 70% of the 1991 level in terms to the sustainable social of greenhouse gas emissions, and at 50% of the 1991 level, and economic development if we take into account the absorbent function of forests. of the regions where we operate, satisfying the growing demand Moody’s SUSTAINABILITY for electricity and heat PRINCIPLES in a responsible manner.

People are at the heart By 2019 the Russian coal industry SUEK are systematically Corporate strategy of our business. We are committed and coal-fired generation had audited for compliance with Driving sustainability principles across all business processes to creating excellent living reduced their GHG emissions the following international and working conditions by 50% compared to 1990, standards: Safety Professionalism for our employees and the local and we are confident the industry will and efficiency and cooperation residents in the regions where continue to reduce this further. Occupational we operate, and also to bringing Health warmth and light into people’s SUEK’s Corporate Social Policy and Safety homes. SUEK’s sustainable commits to international principles VALUES Management development strategy is continuously and standards, including: Stability Social System evolved to reflect the needs of all and development responsibility • the United Nations Global of the company’s stakeholders,

Compact OHSAS 18001 Strategic Report with whom we maintain open 2019 and constructive communications. • the Social Charter of Russian Environmental Business Management Code of Corporate Ethics As an energy and mining • ISO 26000 (Guidance on Social System company, we acknowledge that Responsibility) our operations can have an impact on the environment. In particular, coal • GRI Standards mining and coal-fired generation use ISO 14001 water resources and release emissions We also work towards the United Sustainable development principles The Board of Directors oversees into the atmosphere. Therefore, Nations Sustainable Development Integrated into our business and GROUP'S and regularly receives reports Quality an important part of our responsible Goals (SDGs), aimed at protecting guide us on the standards that we SUSTAINABILITY on the company’s performance Management approach is carefully controlling the environment and improving are introducing and follow them when STRATEGY against its sustainability strategy System and minimising this impact as well the well-being of everyone without making decisions

SUEK Integrated Report as running proactive conservation exception. Within the framework programmes to ensure we preserve of the UN SDGs, a number Health and Industrial Environmental Our people and Community the natural environment for present of benchmarks are particularly ISO 9001 well-being safety protection human rights activities and future generations. important for us, since they are most relevant to the strategy Taking care Ensuring the safety Minimising the negative Ensuring favourable Contributing Energy We also believe that global and direction of the company, of the health of work processes impact of our activities and safe working to improving Management sustainability issues need to be as well as the interests of SUEK’s and well- by eliminating on the environment conditions the standards System addressed through an integrated stakeholders. being of our fatalities and injuries and applying and respecting of living and well-

scientific approach, supported employees the precautionary principle human rights being of people when making operational and equal career in the regions by cross-border partnerships. The Board of Directors decisions opportunities where we operate The sustainable development and the company’s management ISO 50001 of the planet requires solutions pay special attention to sustainable to support continued economic development issues, which they Asset development, improve the lives regularly discuss at Board meetings. Management of billions of people in developing System countries, conserve natural OPERATIONAL Data reporting, environments and combat climate GROUP'S POLICIES risk management change. The ratification of the Paris POLICIES and compliance Agreement on climate change Developed for ISO 55001 individual assets procedures by Russia in 2019 was another or processes positive step in the right direction.

In 2019, we updated our anti- GRI corruption policy, following which • Environmental policy Material aspects the company received international • Coal quality policy • Internal and external materiality assessment Detailed information in accordance Detailed information • Corporate social policy to identify material topics ISO 37001 certification with GRI Standards is presented about the company’s • Information policy • Material topics are the focus of our sustainable on pages 158–168. contribution to the achievement and SUEK’s compliance system • Compliance policy development strategy and reporting of the SDGs is given in the Sustainable received ISO 19600 ‘Compliance • Energy policy • Operating activities are aimed at solving 78 Development Report for 2018-2019. Management System’ certification. and elaborating on material topics 79 ~ / Health & safety Delivering Our approach our strategy, At SUEK, our goal is to create Health and safety management a completely safe production structure environment and reduce injuries to zero. The company strives focusing on safety to promote a safety culture among all its employees. The LTIFR KPI, as well as the target of zero fatal group BOARD accidents, are bonus modifiers for top OF DIRECTORS The sustainability and continued Nomination managers and other employees. and Сompensation success of our business is underpinned Our priorities Committee by our continuous work to enhance SUEK’s system for managing health • Continually improve equipment and safety across the company employee safety. and production management is regulated by our Occupational to ensure workplace safety Health and Safety Policy, is aligned • Overall control of strategic health and safety goals • Ensure our production sites with OHSAS 18001 and conforms have the latest safety systems to the best international standards. and monitoring In 2019, SUEK began certification according to the new ISO 45001 • Address safety issues related standard. Our coal-producing to air quality and washing facilities in Kuzbass, MANAGEMENT Krasnoyarsk and Khakassia undergo BOARD

• Introduce remote monitoring Strategic Report regular external audits to confirm Industrial Safety

2019 systems for industrial safety Committee parameters their compliance with the requirements of OHSAS 18001. • Guarantee the safety of all power plants equipment from fire In 2018, our coal facilities were evaluated and explosion for compliance with the requirements • Monitoring progress against the safety programmes of the Code Bettercoal. In 2019, In 2018, there were several • Improve the skills Q: we continued to adhere to best • Coordinating safety activities employee injuries relating and capabilities of safety practices noted by BetterCoal experts to moving machinery. What professionals • Studying the causes of accidents on our assets, we continued to equip measures have you taken and evaluating reactive and preventive • Reduce the negative impacts our assets with modern security to ensure similar incidents measures of coal dust on employee health systems and continued to implement are prevented in the future? comprehensive programs aimed • Develop a single health SUEK Integrated Report at reducing injuries. and safety information system • Implement preventative medical In our efforts to ensure production programmes safety, we adhere to the following DIRECTORATES for industrial and main principles: occupational safety If any injuries happen at our operations, our first and environmental A: • Zero tolerance to injuries protection Our regulatory response is to double-check process safety and further and accidents enhance our employee training. We are constantly framework We treat any injury and accident bringing in new technology to further reduce ‘human as an emergency and make sure • Our occupational and Industrial risk’ factors. we get to the bottom of any • Coordination and management Safety policy underlying problems. of safety programmes For example, at Murmansk Commercial Seaport we have equipped loaders with thermographic cameras • OHSAS 18001 standards • Safety priority to monitor any blind spots behind the loaders, in any • ISO 45001 standards If the production task compromises weather or light conditions. A processor unit processes safety, it should be reviewed the video stream and displays the image on the screen, • Bettercoal Code or cancelled. framing any human figure and giving a sound alert. • UN Global Compact • Professionalism and competence PRODUCTION The unit is currently operating in test mode on Volvo • UN SDG’s We do not ask employees to carry out FACILITIES and Liebherr loaders. In 2020, two more Liebherr any tasks for which they do not have loaders will be equipped with this recognition system. the necessary knowledge and skills. • Zero tolerance to dishonesty and concealment Sergey Boyko, Concealment of any information • Compliance with standards Head of the Health and Safety Directorate, Logistics relating to occupational health and procedures in industrial safety and labour protection and safety is unacceptable.

80 81 ~ / Health & safety / continued

Health and safety management, risk management and reporting system Our safety performance Maintaining atmospheric safety at coal mines

A distinctive feature of SUEK is the rapid adoption of managerial In 2019, the Group’s LTIFR decreased The nature of the coal industry Mine gas drainage and ventilation decisions: all of our recommendations regarding additional from 0.55 to 0.50 year-on-year, carries with it the risk of accidents security measures began to be implemented literally the next day. while the Coal Segment’s LTIFR fell and emergencies, due to natural To reduce the risk of explosive I believe that the main goal of protecting the labor rights of workers from 0.75 to 0.72, and from 0.29 factors and mining processes, concentrations of methane and improving the conditions in SUEK has been achieved. to 0.24 in the Energy Segment. which involve the regular movement forming in our mines, we carry of working and development faces out comprehensive gas drainage Occupational injuries remained in underground and open-pit mines. where methane content exceeds Ivan Mokhnachuk at the same level as last year. 10 m3/tonne of coal. We remove Chairman of the Russian independent coal industry workers union Of 57 accidents, 45 occurred The main risks in underground coal methane from these mining areas ‘Rosugleprof’ at the coal production, processing, mining are from potentially explosive via a system of gas-drainage wells service and logistics operations, concentrations of methane, drilled from both underground while 12 employees were injured and the accumulation of fine, explosive and the surface. The total drilling at our energy facilities. coal dust deposits in working areas. of degassing wells in 2019 amounted Risks associated with personnel, processes, working conditions Coal processing and washing, to 432 km. and equipment are regularly assessed at all levels of management. No collective group accidents transportation and transshipment This assessment is the basis for further strategic and operational with our employee were registered of coal in ports are also potentially We started to replicate an effective 1 steps to improve industrial and labour safety. at SUEK’s facilities in 2019 . dangerous and require close attention technology first adopted at the Kirov However, despite all our efforts, eight to ensure safety. The company mine, which is based on hydraulic individuals suffered fatal accidents is therefore particularly focused fracturing of the coal seam. SUEK has a comprehensive industrial with the rules of occupational safety Contractors health and safety across the Group. Four of these on management, monitoring This will now be introduced safety management system, and health with the participation assessment happened at our energy facilities: and safe extraction of methane gas at the Yalevsky mine in Kuzbass. which ensures the methodology, of the regional technical inspector in Kemerovo (two), Novosibirsk and preventing the possibility of dust- This method reduces the gas content Strategic Report 2019 and control at all levels of Group of labor from Rosugleprof. During SUEK’s internal industrial and Kyzyl. Four fatalities occurred explosions, by stone-dusting using of the longwall panel in the fractured management is centralised. the audit, experts checked and labour safety standards also in the Coal Segment: two in Kuzbass inert dust. area by 30%. SUEK’s Industrial Safety the documentation and equipment apply to employees of contracting and one each at a Khabarovsk Committee, chaired by the CEO, and interviewed all groups organisations working at the Group’s underground mine, and in a Primorye Monitoring air and gas underground We also drill gas-drainage wells is the major body responsible of employees, from workers assets. All contractors must meet open-pit mine. and ensure surface vacuum pump for monitoring the implementation to management personnel. our internal corporate requirements: All of our mines are equipped units have the most advanced of the Group’s health and safety Representatives of Rosugleprof Dedicated panels thoroughly with a multifunctional safety equipment, and provide drilling • Contractors are required to have policy. The Committee’s ability commended the work of SUEK investigated all of the accidents, system. Information flows rigs manufactured by international permits to perform the work to successfully address safety in creating conditions for the safe which were also analysed from the mines are consolidated, producers. The latest Prakla assigned to them issues relies on setting strategic work of collectives. by the Industrial Safety Committee, monitored and analysed at all levels RB-T 135 drilling rig (Germany) objectives, goals and areas • Contractors must be staffed overseen by SUEK’s Management of company management: has been put into operation of focus, and addressing material In 2018, the decision was made with the required number Board. The root causes of these • At SUEK’s head office, our Control in Kuzbass. It is capable of drilling SUEK Integrated Report issues in industrial safety, labour to consolidate SUEK’s energy units of qualified and trained personnel accidents were found to be related Centre monitors industrial safety wells up to 600 metres deep safety and the environment. Each into the Group’s overall health to employee training and discipline, and up to 0.8 metres in diameter. • Contractors must have parameters remotely, in real time meeting of SUEK’s Management and safety management system. the organisation of work processes, At the mining allotment of the Kirova the necessary management Board and its Nomination In 2019, SGC’s CEO became and the adequacy of the protective • Our centralised Control and Analysis mine in 2019, work began on drilling structures and employees dealing and Compensation Committee a member of the Group’s Industrial equipment and interlocks. The company Centre in Kuzbass receives the first well with this machine. with industrial safety begins with a discussion Safety Committee. An advisory body, has since developed comprehensive information on the atmospheric In the same place, a new main on production safety issues. the Production Safety Committee, • Contractor personnel must measures to address these causes conditions and gas levels ventilation unit of the CFT production was created at our energy facilities be provided with the certified and prevent similar incidents and production process safety (Germany) was put into operation, Workers unions are also involved to set up an efficient production personal protective equipment, in the future. parameters in underground which will allow for further in the process of assessing labour safety management system, address work clothing and safety shoes and open-pit mines. development of mining operations protection and industrial safety significant issues, and coordinate in accordance with SUEK’s In 2019, $87.1m was spent in accordance with the requirements conditions; on a regular basis, and control activities in this area. corporate requirements on occupational health and safety In 2019, the company began of air and gas control in coal mines. trade union representatives visit (9% of SUEK’s total CAPEX), $60.6m to develop a similar centre for SUEK’s SUEK assets and assess working Identifying employees who • Contractor personnel must be of which was committed to the Coal open-pit mines in Khakassia. All mines must be well-ventilated. conditions in the field of labor are prone to excessive risk-taking equipped with a sufficient number and Logistics Segments and $26.5m In 2019, we commissioned a new protection and industrial safety. of fault-free, certified, verified/ to the Energy Segment. LTIFR, ratio main ventilation and drainage fan The elimination of any violations We test all candidates applying tested tools and accessories unit produced by CFT (Germany) 0.72 discovered during these inspections for job vacancies and engineering ‘19 0.24 at the Kirov mine to make more is mandatory. positions on their risk appetite efficient drainage at the mine. 0.75 ‘18 and their ability to learn and follow GRI 0.29 In 2019, SUEKs assets rules. We do not hire those who See detailed health and safety indicators 1.00 in Krasnoyarsk region underwent prove prone to excessive risk-taking. ‘17 $87.1m in our Sustainable Development Report 0.57 an unscheduled audit of compliance invested in occupational for 2018-2019 and in the GRI tables on pages 158–168. health and safety in 2019 Coal Energy

1. In August 2019, during the reconstruction of Pumping Station No. 2 of the Novosibirsk Heat Network Company, as a result of the collapse of a wall section, three contractor workers were killed and one sustained minor injuries. 82 83 ~ / Health & safety / continued

Stone-dusting Ensuring air quality • We use aspiration and dust removal Health and safety training • An ‘Occupational Safety Culture’ and specific risks. It identifies at above-ground operations systems, vacuum collection, training course for chief engineers early-stage symptoms of occupational To reduce the risk of coal dust transportation and discharge of fine We work hard to ensure all employees and directors, occupational safety diseases, prevents disease explosion, we apply inert dust We also strive to reduce dust coal dust have the necessary knowledge and production control divisions and provides medical services. to the roof and sides of our underground at open-pit mines, washing plants to carry out their responsibilities and a number of line managers • We equip production areas, roadways. In 2019 SUEK used and ports to ensure favourable air safely and responsibly. The company of plants and a service contractor In 2019, we implemented warehouses, ports and adjacent over 350 mechanical stone-dusting conditions for our workers: has established personnel health the following occupational health territories adjacent with fog- units at its operations, a third of which and safety training from directors projects: generation units and foam generators were manufactured at our mechanical to workers. Modern work clothes • Launched 76 automated pre-shift and repair plants. and personal protective medical check-up units Health and safety At our coal mining and processing facilities before work begins, equipment • Set up mobile aid Rollout of our remote safety analysis and warning programme at power facilities each employee’s occupational posts at Vostochny and industrial safety knowledge The company has standard and Vostochno-Beisky In our Komsomolets mine (Kuzbass), • Assess current and forecast There are several key risks associated is tested in a pre-shift examination via requirements for personal • Upgraded equipment we completed the development future risk levels with producing and transmitting computer terminals. protective equipment that cover at medical facilities in Kuzbass and introduction of a pilot project electric power and heat its protective properties, comfort, • Take preventive measures and Krasnoyarsk region for Remote Industrial Safety and with repairing and installing In 2019, we opened a new training ease of use and durability. In 2019, to avoid incidents and accidents and recreation facilities Control (RISC). This analytical equipment at power facilities: centre at Tugnuisky, with classrooms the company’s energy assets were for our employees in Khakassia programme, based on information In 2020, this pilot project that include multimedia interactive added to the Group’s ERP system • The possibility of generating from the multifunctional safety will be replicated across all simulators of our large operating in terms of accounting for, planning, • Re-equipped the medical check-up a potentially explosive pulverised system, analyses and assesses risks of SUEK’s mines. We also plan machines, such as excavators, standardisation and the distribution department in Kuzbass coal mixture in CHPP units and the likelihood of an incident, to develop RISC pilot projects bulldozers or trucks. of personal protective equipment. • Purchased a diagnostic Strategic Report predicts the potential timing for open-pit mining units • Depressurising of equipment 2019 and treatment unit for Kharanorsky of an incident and sends the data and washing plants in Buryatia. operating under significant At Murmansk port, Vanino Bulk Based on the results of a successful and an ambulance car for Apsatsky to coordinators and site supervisors. overpressure Terminal, the Kuzbass transport pilot for the automatic distribution in Zabaikalye Management decisions are made The Russian regulatory authorities department and energy facilities, of PPE, implemented in 2018, • Electric shocks on the basis of this analysis have recognised our achievements managers received leadership training in 2019, we rolled this technology out • Provided fitness equipment and forecasting. and RISC performance. • Falling from height during repairs for health safety and behavioural at other facilities, making it possible to corporate sports grounds The approaches and technical safety auditing. to move away from paper forms The system makes it possible to: solutions we have proposed as a result We focused on improving fire safety and instead keep a digital record • Fitted canteens, office and amenity will become the basis of the state buildings with updated equipment • Recognise hazardous situations at our plants: In addition to regular training, of all personal protective equipment industrial safety monitoring system our energy facilities in 2019 ran issued. In the next two years, we plan to meet new recommendations early • Upgrading fire alarms and fire for the coal industry. special health and safety events: to purchase 60 vending machines from hygienists fighting systems for our production units. • Regional ‘Safety First’ conferences • Installing additional fire protection From 2012 to 2019, SUEK’s for young professionals SUEK Integrated Report systems for personnel personnel health statistics improved Process of safety analysis • ‘Safety Culture Basics’ Healthcare more than two times. In 2019, • Applying fire-retardant coatings and ‘Analysis and Causes time lost through sick leave across on electrical power cables of Injuries’ training modules SUEK has a corporate ‘Healthcare’ the company fell to 7.1 days per DATA COLLECTION • Installing flame arrestors in boiler introduced into professional programme focused on maintaining employee per year, while the share A large network of our sensors at underground and improving production employees of people suffering from recurring mines continuously monitors potential hazard levels coal pulverisation units development courses for operating and control performance, and transmits the data personnel at thermal power plants health, looking at overall production or long-term illnesses was 4.32%. We are careful to ensure the correct procedures are followed when carrying out power installations RISC DASHBOARD AND ANALYSIS and attending to repairs (installation, In real time, the system collects data to predict potential incidents commissioning) of equipment and their timing, as well as long-term trends and send signals at power facilities. 71% of SUEK employees were retrained in health in safety in 2019

ACTION AND REVIEW

• Supervisors take action to protect employees from potential hazards and risks • Management uses data to inform risk-management decisions 84 85 ~ / Environment Advancing Our approach technology, Our strategic environmental Environmental management priorities are closely linked structure to the UN SDGs and focus on the sustainable development enhancing of the regions where we operate. BOARD OF DIRECTORS Nomination The importance of environmental and compensation environmental safety safety is enshrined in SUEK’s Committee Environmental Policy developed in accordance with Russian and international environmental laws and the precautionary principle. • Monitoring the implementation Furthermore, our environmental of the environmental safety Our priorities and environmental protection strategy management strategy is set out • Improving the environmental in the company’s Compliance safety of our production Regulation of licensed activities operations and environmental and environmental management, management system and Compliance Policy. MANAGEMENT • Engaging employees Our corporate environmental safety BOARD in environmental risk mitigation, system covers all operational Industrial Safety Strategic Report

2019 Committee enhancing our environmental cycle stages, from coal mining management system to shipment in ports, along with heat and environmental performance and electricity generation.

• Pursuing a transparent • Monitoring environmental safety plans environmental policy, disclosing environmental reporting, See SUEK’s environmental measures • Coordinating the development on our website http://www.suek.com of environmental protection measures Q:How does SUEK engaging communities and local involve stakeholders governments in the preparation, SUEK’s coal mining and port facilities in its environmental decisions adoption and implementation in the Republic of Khakassia, for production facilities? of environmental protection initiatives Krasnoyarsk and Primorye, Kemerovo and Murmansk DIRECTORATES SUEK Integrated Report regions run environmental for industrial and Our regulatory management systems that meet occupational safety the requirements of the ISO 14001 and environmental framework protection international standards, which A:We arrange public hearings to present new technology • Russian environmental laws is regularly confirmed by external we plan to introduce at any of our production facilities audits. In the future, we plan • Our environmental policy that are subject to state environmental review. to certify the company’s remaining • Strategic planning We keep our stakeholders informed about any planned • Our energy policy production assets for compliance • Development of corporate-wide projects and the possible impact they might have with ISO 14001. • Our compliance policy policies and standards on the environment. Any suggestions received during public hearings are analysed and, if appropriate, • Our coal quality policy • Improvement of the environmental the relevant project documents are adjusted management system • ISO 14001 standards accordingly. • Operational management • ISO 50001 standards In 2019, we held public hearings on a project for the utilisation of ash and slag, generated • Bettercoal Code $48.2 m when processing waste from our power plants, • UN Global Compact for construction and land rehabilitation purposes. invested in environmental During the hearing, the local community and municipal • UN SDG’s protection in 2019 REGIONAL authorities had no objections to use these types ENVIRONMENTAL of materials in construction and land reclamation. SERVICES

Konstantin Kushnir, All our policies can be found Deputy Technical Director for Environmental Protection, on the company’s website Energy http://www.suek.com • Operational activities

86 87 ~ / Environment / continued

Key areas of SUEK’s environmental Supplier environmental In the reporting year, we reconstruct heat distribution Suppressing dust • Dust control system consisting activities: assessment we replaced electrostatic precipitator networks to reduce heat loss. of stationary and mobile units at the Biyskaya CHPP. We also work to reduce dust with a ‘winter package’ • Development of an integrated Compliance with environmental We are also taking additional measures emissions across the whole environmental management system • Vacuum units requirements is included Thanks to our efforts, emissions to improve the environmental situation production and transportation cycle, and an energy management system as a prerequisite in contracts from SUEK’s generating facilities in the city. In 2019, we completed both to improve working conditions • Automatic spraying of intra-port in accordance with the ISO 14001 with organisations that operate are not increasing and are overall construction of the body for our employees and protect roads and ISO 50001 standards, at our facilities. We monitor significantly lower than the legal for a new stack 275 metres tall the surrounding areas from dust. respectively • Telescopic enclosures on conveyor their compliance throughout maximum limits. at the Krasnoyarskaya CHPP‑1. Stack discharge points • Implementation of programmes the entire period of their engagement, No. 2 is scheduled for demolition At our open-pit mines, to improve environmental safety, with non-compliance leading In coal mining, SUEK’s emissions in 2020, after which all boilers washing and power plants, We have continued a project

including projects for: to contract termination. SUEK of CO, NOx and SO2 are insignificant will be connected to the new stack. we use special equipment to construct dust and wind shields is currently developing standard and well below the limits set Along with the modernisation to reduce the concentration of dust at all of our ports. We made – The responsible use of natural regulation of contractor by Russian law. In 2019, specific of outdated equipment, the installation in atmospheric emissions: progress on the necessary design resources environmental protection standards, pollutant emissions per tonne of coal of new high-performance electrostatic and research work at Vanino Bulk • Cleaning machines in Khakassia – Lower atmospheric pollution which will be included in all increased due to a cut in production, precipitators, the reconstruction Terminal in the reporting year, while and Buryatia – Wastewater treatment contracts. while gross emissions decreased. of city heat networks, the replacement at Maly Port we installed about 100 m and responsible water of boiler houses and the use • Sprinkling and spraying equipment of protective shields. The majority consumption Reducing greenhouse gas emissions of smokeless briquettes by private and fog-generating units of the shields at Murmansk – More efficient recycling Air protection households, this will reduce emissions at our open-pit mines Commercial Seaport were fully of waste and secondary raw SUEK recognises the need to address in Krasnoyarsk by 37%. installed in 2019 and the whole project • Advanced automated fog- materials Minimising emissions of SO , NO climate change and supports global is scheduled for completion in 2020. 2 x generating equipment turning – Land rehabilitation and other pollutants programmes to reduce greenhouse Coal mining releases methane,

water into thick fog, which Strategic Report gas emissions into the atmosphere. which is pumped out At the Murmansk and Maly 2019 envelops finest dust particles within Our environmental safety strategy In coal-fired power generation, The co-generation of heat of mines to ensure they are safe Ports, we replaced the reloading a range of 50 metres, preventing and initiatives are directly controlling the level SO , and electricity at our plants helps for mine workers. As part of measures grapples grapples with bigger 2 the spread of dust clouds. In 2019, overseen by SUEK’s Board NO and of solid emissions us to markedly reduce CO emissions to reduce our environmental impact models, to reduce dust in the areas x 2 this equipment was commissioned of Directors and Industrial Safety is the main priority when it comes per unit of generated energy due and contribute to the Paris Agreement, where coal is handled. At Vanino in the Zabaikalye and Krasnoyarsk Committee of the Management to environmental protection. to the higher efficiency of the plants. we work to maximise the utilisation Bulk Terminal, two shiploaders open-pit mines Board. In 2019, we unified Therefore, one of our main initiatives of mine methane, and thereby and a stacker-reclaimer were our approach to environmental To improve the environmental to reduce GHG emissions minimise our total emissions. Our • Telescopic pipes of CHPPs which equipped with dust suppression issues across all of our businesses. situation in the cities where is replacing standalone boiler houses Kirov and Komsomolets mines enclose coal discharged from belt and spraying systems. To improve the control and quality we operate, we use: with combined heat and power plants. are equipped with methane recovery conveyors to the stockpiles located of our environmental programme, systems and gas engine plants that below In 2019 we also commissioned • Advanced dust-collecting in every segment we have Replacing boiler houses capture gas and use it to generate heat the Environmental Dispatching equipment (electrostatic a dedicated department focused with co-generated heat enables and electricity. In 2019, the company All of SUEK’s units carefully monitor Office at our Murmansk Commercial precipitators, cyclone collectors), SUEK Integrated Report on refining the environmental SUEK to: utilised 4 million m3 of methane the air quality in the sanitary zone Seaport, with environmental which allow us to catch up management system and supporting captured from mined-out areas. using our own environmental forecasting functions. We plan over 99% of fly ash and other • Reduce specific fuel consumption operating activities. laboratories or by engaging third- to introduce a similar system based solids for heat generation by 32% We also plant trees and shrubs party accredited laboratories. on the existing local monitoring Management are given environmental to offset CO emissions. In 2019, system at Vanino Bulk Terminal. • CHPPs equipped with the above • Reduce CO2 emissions 2 KPIs. The implementation filters, instead of old boiler houses, by about 9 Mt a year compared we landscaped the sanitary protection At our ports, we have introduced of environmental programmes is also for supplying heat to local people to separate generation of heat zone around our industrial sites the world’s foremost technologies included in the KPIs for the technical and electricity in Chernogorsk and planted trees to minimise SUEK’s environmental Read more about Environmental • Upgraded equipment directors of our ports. in its parks and public gardens impact when handling dusty Dispatching Office on page 73. and advanced coal burning One of the most ambitious and also in the cities of Zabaikalye, goods. As part of our large-scale technologies boiler replacement programmes and the Krasnoyarsk and Kemerovo environmental programme, we have See more about SUEK’s environmental • Tall exhaust stacks is now underway in Krasnoyarsk. regions. installed: KPIs in the Strategy section on pages 32. (over 120 metres on average) By 2024, we plan to replace at least 35 boiler houses. At the same time,

In 2018, our mining units were • Increasing of utilisation of waste Pollutant emissions per unit Pollutant emissions per tonne GHG emissions per revenue, assessed for compliance in economic activities of electricity (CO, NOx, SO2), of coal (CO, NOx, SO2), kg/t kg CO2e/$ with the Bettercoal Code. In 2019, kg/kWh • Land reclamation we continued to roll out the best practices recognised by Bettercoal We also continued to progress ‘19 0.008 ‘19 0.17 ‘19 8.0 experts across our facilities: GRI SUEK’s comprehensive energy efficiency programme aimed ‘18 0.008 ‘18 0.14 ‘18 7.5 • Installation of advanced modular See detailed environmental indicators at reducing energy consumption. in our Sustainable Development Report water treatment systems ‘17 0.008 ‘17 0.12 ‘17 9.2 for 2018-2019 and in the GRI tables • Installation of closed water on pages 158–168. circulation systems 88 89 ~ / Environment / continued

The phased transformation Solution2 of the heat and electricity supply system in Krasnoyarsk Solution3 SUEK’s power plants have higher than average exhaust stacks. That is why gases from our plants are released above CASE STUDY CASE Solution We will build a new unit the cloud level. 1 for the Krasnoyarskaya We plan a complete We are dismantle the cogeneration CHPP-3 replace the heat Krasnoyarskaya cogeneration to replace retiring facilities, 275 distribution network metres CHPP-1’s old exhaust stacks, close 35 old small boilers, to reduce heat loss. and building new ones with a reducing emissions height of more than 200 metres. Target and supplying the heat needed to meet growing We will also introduce Efficient and clean heat supply local demand. electrostatic precipitators that catch over 99% of ash. to >1 million people 9 months a year We equipped 0.7 km2 of new housing and other facilities with central heating in 2019 and plan to increase it by Investments 0.6 km2 in 2020. $834m (2020–2025) Strategic Report 180 2019 Expected effect metres –37% emissions compared to 2018

120 metres

Russia

SUEK Integrated Report Krasnoyarsk

THE PROBLEM:

~100 metres cloud ceiling in winter (from the Yenisei River that is ice-free due to a hydropower plant)

Vapours from the Yenisey River form a cushion above the city which Solution4 accumulates emissions from: We suggest transferring private houses to the • Old municipal standalone boilers central heating system. • Private houses • Small factories and large businesses • Cars

90 91 ~ / Environment / continued

Energy efficiency Water management

We highly appreciated SUEK’s impressive efforts and achievements The company does not use The Vanino Bulk Terminal uses We regularly reconstruct treatment in improving energy efficiency. The results of our audit water from vulnerable or state- a closed water circulation system. plants in our ports. In 2019, this work of SUEK’s energy management system, which we conducted protected sources, or from those In 2019, the Murmansk Commercial was started at Vanino Bulk Terminal. to verify compliance with the international ISO 50001 standard, of particular importance to local Seaport launched a storm water We conducted an environmental demonstrated the company’s responsible, systematic communities or for biodiversity. treatment system at full capacity. review of a similar project at Maly and purposeful approach to optimising energy consumption As the water withdrawn is used The system of local treatment Port which is scheduled for 2020. and protecting the environment. to cool the turbines and does facilities treats all the contaminated not contact the contaminated storm water generated circuit, the activities of SUEK do on the industrial site to almost TÜV AUSTRIA, international certification organisation not affect the water balance in water potable quality. Effluents go through bodies. We also use modern four stages of treatment, including treatment facilities to ensure we do ultraviolet disinfection. After that, SUEK’s energy efficiency programme In 2019, SUEK’s electricity Energy consumption per coal not influence water quality. the water is not discharged into water Water consumption per unit offers an economic benefit whilst consumption per unit of coal output production, kWh/m3 of rock mass bodies but is supplied to the dust of electricity, m3/kWh helping us minimise our impact reduced by 4% across the Group Optimising water consumption suppression and spraying systems.

on the environment. year-on-year. ‘19 2.79 The main use of water resources Wastewater treatment ‘19 0.047 In 2019, SUEK’s Coal Segment In the Energy Segment the major ‘18 2.90 in the energy sector is related was recertified for compliance contributor to energy saving to cooling TPP equipment. Our production sites use various ‘18 0.048 with the requirements of the ISO 50001 is our co-generation of electricity ‘17 2.96 At some of our plants, water treated methods for treating industrial international standards (updated and heat, which helps us to save at local treatment facilities is reused (including from underground mines ‘17 0.050 edition of late 2018). 32% fuel compared to separate in a closed hydraulic ash removal and open-pit mines) and household Strategic Report 2019 generation. The power plants also system. wastewater. As part of SUEK’s The main focus areas of our energy have other energy saving and energy Fuel consumption per unit Environmental policy, the company efficiency programme in SUEK’s Coal efficiency programmes. Their main of energy production Water is used during the production builds and renovates modern Suspended and dissolved Segment include: areas are: and transportation of coal wastewater treatment facilities solids in wastewater, for washing and dust suppression. for cleaning mine/quarry water to meet • The regular development • Improving the efficiency 337 kg per tonne of coal ‘19 The majority of SUEK’s washing stringent regulatory requirements and introduction of energy and reliability of equipment 161 plants and ports use a closed water for discharge into a water body. 336 efficiency goals and action plans ‘18 • Reducing heat losses 163 cycle, thereby minimising water ‘19 0.18 • Control procedures at various levels intake from external sources. In 2019, SUEK: • Reducing electricity consumption 338 ‘17 ‘18 0.18 • Introducing innovations and best for the business’ own needs 162 • Launched treatment pilot operation Most of the water consumed available technologies related of facilities for mine waters • Saving fuel and energy resources and discharged by the company ‘17 0.21 Electricity, gram of equivalent Heat, kg of equivalent of Vostochno-Beisky SUEK Integrated Report to energy efficiency fuel / kWh fuel / Gcal is natural water (with characteristics In order to increase the energy typical of local groundwater) that • Commissioned new local In 2019, we delivered the following efficiency of our logistics assets, is pumped out of mining areas during treatment of household wastewater key projects: we have developed operations. facilities to replace the old ones and are implementing the Energy at Kharanorsky • Upgrading a dragline at Tugnuisky % Saving and Energy Efficiency Part of the treated water is used –80 using our own switched reluctance • Commissioned treatment facilities Programme until 2025. The main for internal production process. reduction in specific electric motors, which brought at the Taldinskaya-Zapadnaya 1, focuses are: Approximately 60% of the treated discharge of pollutants into specific energy consumption down Ruban and Kirov mines quarry water at the Tugnuisky by 46% • Improving energy efficiency the water in recent 8 years of the merchant fleet tugs, –4% and Nikolsky mines is planned Our power plants are equipped due to the reconstruction • Modernising the dragline to be used for dust suppression with treatment facilities for industrial heat generation facilities, of treatment facilities control system at Chernogorsky buildings and structures, special electricity consumption and for production at the Tugnuisky and storm discharges. by installing a modern and energy- and automotive equipment, per tonne of coal washing plant. efficient digital control system technological processes compared to 2018 for electric drives and infrastructure • Revamping the main conveyor line • Using of energy-efficient lighting, at Berezovsky to reduce specific optimization of lighting systems energy consumption by 17% • Improving train control technology In 2019, we also focused • Optimising power consumption on enhancing our employees’ during planned peak load hours • Improving locomotive indicators understanding of and ability at Izykhsky and Vostochny and technical condition of track to improve the energy efficiency by regulating the operation facilities of their individual activities. of drainage pumps

92 93 ~ / Environment / continued ~ / Our people and corporate culture Attracting talent Production waste recycling Land rehabilitation and biodiversity Production operations inevitably granules for road surfacing. Adding and empowering generate waste. rubber granules to asphalt coatings None of SUEK’s production increases the grip and makes sites are located in protected At our power facilities, the majority the road surface more resistant or nature reserve areas, including of waste produced during coal to temperature changes. territories protected by UNESCO progress burning is ash and slag, which and the Ramsar Convention, are not hazardous. In 2019, SUEK Ash dump safety and no rare or endangered species actively developed projects to utilise of animals, plants or fungi have been waste for production purposes. The technology used by SUEK identified at our operational sites. Ash and slag from our plants for storing ash and slag waste in ash in Krasnoyarsk, Novosibirsk, Kuzbass dumps is completely safe. The sites We run extensive reclamation are used for the rehabilitation are far removed from people’s homes projects on land disturbed by SUEK’s of disturbed lands and the construction and do not pose any threat to human mining projects. Overburden resulting of roads in Khakassia and Novosibirsk. life. from coal mining is used for filling In 2019, all of the ash and slag sinkholes, backfilling and reclaiming materials produced from the waste An ash dump is a hydraulic structure land disturbed by mining operations. from the Krasnoyarskaya CHPP‑1 was operated in strict compliance This is in accordance with approved used for the rehabilitation of a worked- with Russian legal requirements. We programmes for the use of mineral out open-pit mine in the Berezovsky regularly monitor the safety of these resources, including projects district. SUEK is planning three facilities, including the water level to restore the topography further large-scale land reclamation in ash dump beds and piezometric and soil, landscaping and gardening projects with ash and slag wells, through regular depth programmes. In partnership Strategic Report 2019 materials in Krasnoyarsk, Nazarovo measurements and other checks. with the Khakassia Research Institute and Kemerovo. At least once every five years, of Agrarian Problems, we have been we engage specialised independent running a unique long-term land There is potential to utilise 3.2 Mt organisations to analyse the safety reclamation project with the goal of ash and slag for this purpose of SUEK’s hydraulic structures. of preparing recommendations every year (90% of total ash and slag In addition, Rostekhnadzor monitors on forest reclamation. waste). the state of our ash dumps How does SUEK use modern and ensures their compliance In total for 2019, 552 ha Q: technologies to improve its Around 99% of the waste we produce with operational safety requirements of disturbed lands were reclaimed employee training programmes? in coal mining is not hazardous during scheduled and unscheduled and rehabilitated to a condition (overburden, etc.). This waste inspections. Inspection-based suitable for further use in production is used in production processes corrective actions have top priority. processes.

SUEK Integrated Report or for reclamation purposes. In 2019, the amount of overburden used For each facility, financial and material We also take part in projects for reclamation decreased due to less reserves have been created to assess the state of water worked-out areas. The remaining to eliminate possible accidents, resources and minimise the human 1% waste requires special treatment with civil liability insurance contracts impact on biodiversity. In order A:SUEK operates an advanced Staff Training and Development Centre and is transferred to dedicated covering our hydraulic structures. to maintain aquatic biological in Leninsk-Kuznetsk. There we use interactive video courses and VR organisations for neutralisation. The personnel involved in operating resources, the company also technologies such as a Virtual Mine training simulator, an interactive ash dumps have all of the necessary regularly releases various fish electronic simulator for roof mounted monorail mine suspension In order to reduce waste sent qualifications and certifications. species into local water bodies. locomotives, etc. With software modeling we are able to simulate for disposal, our Zabaikalye facilities In 2019, SUEK released around certain process conditions and potential hazards that can occur process organic waste, industrial 800,000 juvenile common underground, in order to develop a behavioural algorithm. This helps rubber articles, polymers, rubbers, Used and recycled waste carp, peled, Siberian sturgeon, with developing our employees’ professional skills and reducing oil sludge, bitumen, roofing felt, of total generated waste grass carp and silver carp the number of incidents. electronic equipment, waste oils, in the Primorye, Zabaikalye, medical, wood and other carbon- ‘19 67% Krasnoyarsk and Kemerovo In Buryatia and Zabaikalye we use simulators for training drivers containing waste. 37% regions. The Kemerovskaya of dump trucks, truck cranes, hydraulic excavators, bulldozers, ‘18 73% GRES, Kemerovskaya CHPP increasing employee qualifications and ensuring mine equipment In Khakassia, we operate a tyre- 19% and Kuznetskaya CHPP also is operated reliably, efficiently and safely. recycling plant. Worn dump-truck ‘17 79% constructed fish protection facilities. tyres are converted into new 11% In 2020, we plan to purchase a BelAZ simulator, install a multifunctional products, such as tiles for injury- training complex for auxiliary mine rescue teams and develop an automated computer-based training system called ‘Roadheader’ free sports coatings and rubber Coal Energy for the Centre in Leninsk-Kuznetsk.

Dmitry Syromyatnikov, Human Resources and Administration Director

94 95 ~ / Our people and corporate culture / continued

Our approach Overview Staff remuneration Average headcount and staff and incentivisation turnover rate2 A workforce of talented SUEK’s Nomination SUEK is one of the largest employers and committed employees and Compensation Committee in the Russian coal and energy One of our main priorities is ensuring ‘19 66,245 14% 13% who believe in SUEK’s mission, of the Board of Directors oversees sectors. In 2019, our average we maintain an effective staff share our values, and prioritise the implementation of the company’s headcount was 66,245 people. remuneration system that enables ‘18 63,838 14% 19% safe, professional and honest HR strategy and controls Despite the headwinds such us to recruit and retain qualified staff. incentives and Management Board as challenging local labour ‘17 33,583 14% work, is the solid foundation appointments. market dynamics and the current SUEK regularly monitors trends for achieving our strategic goals. demographic composition in the Russian labour market, Average total Staff turnover Staff turnover of Russia, we maintained a stable analyses best practices in staff number of people rate, coal rate, energy Our HR strategies are outlined For our stance on human rights, see staff turnover rate in the coal remuneration and incentives, as well in the company’s Social Policy http://www.suek.com business segment. We also reduced as the provision of guarantees and aimed at further developing turnover at our energy segment and other benefits. We frequently Composition of employees2 our corporate culture and a safe, year-on-year with the completion take part in salary surveys all-inclusive work environment. of the restructuring process. for companies in the mining, Our priorities For our Social Policy and Code BY PERSONNEL CATEGORIES Ensuring that we have a highly skilled of Corporate Ethics, please visit The sufficiency of qualified personnel coal, energy and logistics sectors and engaged workforce is crucial our website http://www.suek.com in 2019 was 99% in the Coal to help us further understand • Motivate and empower 31% employees to contribute to the success of our business, Segment and 96% in the Energy industry trends. Regular analysis to achieving the company’s therefore we deploy a wide range Segment. of market data enables us to remain strategic goals of tools to identify and recruit confident that we are offering the best candidates and support Promoting diversity employees competitive working 69% • Continuously increase industrial their ongoing development. We conditions, to plan and adapt our HR safety standards and labour encourage creative and innovative The socio-demographic management policy accordingly Strategic Report 2019 productivity at all operations thinking to support continuous HR management structure characteristics of our workforce to reflect external economic • Improve working conditions improvements in the business. remained consistent. Whilst influences. for employees and enhance we remain focused on increasing • Monitoring Production workers Managers and specialists living standards We act in strict compliance the implementation female representation within SUEK’s financial incentive with the labour laws of the countries BOARD of the HR strategy our company, the number system includes a constant part OF DIRECTORS • Improve employee retention rate where we operate and our Code • Control of men continues to significantly and a conditionally variable part fixed BY GENDER Nomination of Corporate Ethics, whilst maintaining of nominations, exceed the number of women in collective agreements. The fixed • Attract and retain highly and compensation motivation, social promising and skilled personnel, international best practices. Committee policy, occupational in our workforce. This is largely part is paid for the performance 26% provide ongoing training health and safety due to the nature of our production of professional duties 1 and talent development SUEK is fully committed to fair processes and Russian legislation at the required level. The variable opportunities treatment and working conditions which deters and sometimes limits part is an incentive to improve for all employees and categorically women’s opportunities to work working efficiency and includes SUEK Integrated Report • Nurture the company’s does not use or condone child • Implementation in hazardous working conditions. economic and production targets 74% succession pool and promote labour, or any form of forced labour MANAGEMENT and efficiency as well as ESG‑linked KPIs, such the industry to attract young or modern slavery. We are an equal BOARD assessment of Despite the challenges, as the contribution to certain talent opportunity employer and guarantee SUEK’s HR policy we are working hard to encourage environmental and social aspects, • Further develop our corporate the absence of discrimination women to join our company. along with industrial safety Men Women culture based on nationality, gender, Our efforts are directed at (and performance. origin, age, educational or socio- • HR management not limited to): ensuring suitable methodology BY AGE economic background, religious, • Strategic facilities in the workplace, creating With our continued focus 6% political or other beliefs, etc. conditions that allow women to thrive on increasing employee engagement 16% planning and 19% Our regulatory The company recognises the lawful at all levels of the organisation and retaining qualified employees, HR control: corporate framework right of workers to form voluntary DIVISIONS regulations, and targeted leadership development we have also developed a special associations to protect their rights incentivisation programmes. bonus system for those employees • International and Russian and interests and is fully supportive management, participating in long-term Employment Law of our employees’ freedom labour relations strategic projects and operational of association. and headcount improvement programmes. This • Sectoral and regional 1. In accordance with the Russian Government incentivises employees to meet 32% agreements with trade unions Decree No. 162 of 25 February 2000 Our HR strategy is also strongly Coordination to approve the list of arduous jobs the set targets, and improves 27% • Collective bargaining aligned to the SDG’s to uphold and operational and jobs with harmful or dangerous working cross-functional interaction conditions forbidden to women, women agreements the UN’s global efforts to ensure management: and expertise exchange. In 2019, • Planning payroll are not allowed to occupy a significant 18–30 years 31–40 years healthy lives and promote well-being number of underground roles. over 500 employees participated • Our Corporate Social Policy and social 2. for all at all ages, ensure inclusive All data excluding Reftinskaya GRES. in this incentive programme. 41–50 years 51–60 years Over 60 years HR payments and equitable quality education • Our Code of Corporate Ethics FUNCTION AT • Implementation and promote lifelong learning SUBSIDIARIES • UN Global Compact of HR and social opportunities for all, achieve gender policy taking into • UN SDG’s equality and full and productive account regional employment and decent work for all. specifics

96 97 ~ / Our people and corporate culture / continued

Social support Cooperation with trade Professional training • Created a uniform model Corporate culture and internal communications unions of assessing and developing Our relationships with employees SUEK’s Corporate University our employees’ managerial SUEK’s corporate culture is based • Upgrade of the company’s intranet are largely governed by the principles At SUEK, we fully recognise is an analytical, methodological competencies on long-standing labour traditions portal of social partnership. SUEK’s our workers’ freedom of association and advisory centre committed • Completed the recruitment and the Code of Corporate • Promoting the Code of Corporate employee benefits package and therefore we regard trade unions to knowledge management and training of the mobile Ethics. Internal communications Ethics through creative is developed based on applicable as key partners in our business. and the development of human managerial succession pool are key to promoting the values competitions law and overseen by industry The Russian Independent Trade resources. The University’s of the procurement unit of our corporate culture. We use agreements with trade unions Union of Coal Industry Workers programmes are modular a number of communications • Developing a feedback system and collective bargaining (Rosugleprof) and the Independent in nature and focused on teaching Training and development of young channels: to maintain an open dialogue agreements. Approximately 92% Trade Union of Russian Miners the principles of lean manufacturing professionals with employees and ensure two- • Meetings between employees of our employees are covered (NPG), in which around 64% and calculating cost-effectiveness. way communications, including and managers by collective bargaining agreements. of SUEK’s employees are involved, In 2019, more than 450 employees To attract young, talented updating the telephone hotline are active at the company’s facilities. completed training at the University. professionals into our business, SUEK • Corporate media system, including • Training sessions for ethics SUEK employees are offered In the Energy Segment, employees participates in youth forums, holds intranet portal coordinators on best practices the following social benefits: are involved with a sectoral All- SUEK also runs a regional network professional skills contests, job fairs, • Information stands, plasma panels, and communications skills, as well Russia Electric Trade Union. of occupational training facilities and provides vocational guidance • Voluntary medical insurance, brochures in corporate transport, as skills for influencing change for our employees. This includes for pupils and applicants. We run including rehabilitation treatment and electronic newsletters At a local level, trade unions 14 training centres and workshops, educational classes on the energy It is important that we receive regular for occupational illness, which are consulted during the negotiation which have been licensed industry for high school students • Employee surveys feedback from our employees covers all employees at our coal of collective bargaining agreements by Russian state education in the cities of Abakan, Minusinsk, and continually identify areas facilities and 80% in the energy as well as on matters such authorities. Their primary functions Nazarovo and on the coal industry • Hotline for improvement. In 2019, we carried business as issuing regulatory acts relating comprise empowering employees in Borodino, Nazarovo and Sharypovo. • ‘Alarm Sheet’ feedback system out an employee survey to measure • Сombined insurance for industrial to social and labour relations, with new sets of skills as well We cooperate actively with Russia’s perceptions of SUEK in seven regions Strategic Report 2019 accidents labour protection and remuneration. as further developing their existing leading and vocation-oriented • Sustainable Development reports where we operate. The survey Union representatives also have qualifications. In the reporting year, mining universities. Over 50 students included questions around SUEK • Financial aid for pensioners, regular interaction with managers more than 39,000 people were trained currently participate in SUEK’s as an employer, criteria for choosing parental leave and premium at our operations. Following at our own educational institutions. targeted education programmes. For our corporate values, see a place of work and reasons medical treatment, or financial consultation with trade union As our priority is to create a workplace We also attract students to internships Stakeholder Engagement on page 48. for changing the previous place support for the funerals representatives, SUEK develops work free of occupational hazards, we gave at our facilities every year. of work, involvement in the company’s of company employees schedules and terms of employment, special attention to labour and industrial Ethics and integrity are built into work, perceptions of the staff turnover • Financial compensation during and approves vacation schedules safety training programmes. To develop the potential of young our corporate culture. The Company issue, satisfaction with their quality children’s summer holidays and employee incentive systems. employees, the company offers has an effective system in place of life, etc. The vast majority of SUEK and for medical treatment In 2020, the company will participate a mentoring system. We have to enforce compliance with the Code employees said they were satisfied in the ‘Older generation’ federal created a new, interactive induction of Corporate Ethics. Its highest with their working conditions • Financial assistance and welfare Employee training project in the Kemerovo region, which course and we have adopted tailored collegial body is the Ethics and consider it prestigious to work SUEK Integrated Report payments to former employees and development is dedicated to training employees induction regulations at key units. Commission, which addresses at SUEK. close to retirement age. The main In addition, experienced coaches the complex employee ethical issues. SUEK’s staff training system focus of the project will be developing are allocated as mentors for young In 2019, over 150 requests were For information about additional social is designed to create conditions participants’ mentoring skills and lean employees with high potential. submitted and reviewed through For the survey results, see benefits offered to our employees, see that promote the professional technologies skills. various feedback channels included Stakeholder Engagement on page 49 our Sustainable Development Report fulfilment of employees and ensure in SUEK’s Code Compliance System. and the Sustainable Development for 2018-2019. the systematic development Succession pool Report for 2018-2019. of their professional and managerial The majority of issues are resolved competencies, thereby establishing We use a step-by-step training system at the level of ethics coordinators A key focus in 2020 SUEK’s talent and succession pool. to develop the company’s succession appointed at each unit, while the rest will be the development of our face- pool: from site engineers and mine 39 hours are referred to the Ethics Commission. to-face communication system. The key areas of staff development supervisors to the CEO’s deputies. of training per employee Most of the issues discussed We will also integrate the Reftinskaya are: This not only provides in-house on average in 2019 at the Ethics Commission meetings GRES and Krasnoyarskaya GRES‑2 career opportunities but also enables in 2019 were related to social into SUEK’s structure, introducing • Professional training including us to develop a pool of highly qualified conditions and employees’ personal our corporate rules and standards, retraining, qualification candidates to fill managerial vacancies. issues. while maintaining and continuously advancement, advanced improving the best practices that and cross-functional training In 2019, we: As part of the programme to enhance are currently in place at the plant. • Developing a talent pool for key SUEK’s corporate culture and internal • Formalised the requirements management positions >150 communications system, in 2019, ~92% for various positions, we continued work on the following • Training young professionals and correspondingly updated of employees are covered requests areas: by collective bargaining (targeted education, practical our talent pool composition were processed through agreements training, internships, mentorship and developed candidates our feedback channels in 2019 programmes) for succession

98 99 ~ / Communities Developing Our approach local communities Our social activities are aimed We proactively participate in global at improving the living standards sustainability initiatives, such and well-being of our employees, as supporting the UN SDGs through their families and the communities the work we conduct to resolve social and human capital in which we operate. Through challenges that local communities our work in the regions face. Most of our social projects and a proactive approach both are focused on solving various inside and outside the company, sustainable development problems, we focus on making positive, long- such as improving immunisation, lasting contributions to the economic, providing electricity, computers as well as the social prosperity and other equipment for schools, of local residents. and supporting young mothers in developing their careers. These Our priorities We supply heat to more than long-term projects are trialled in one 5 million people living in regions where region before being replicated across the temperature remains below 0 °C all of the territories where we operate. In our ongoing commitment for more than 6 months of the year. to being a good corporate citizen We are also one of largest electricity SUEK does not operate in the areas and a supportive and reliable suppliers, employers and taxpayers of residence of indigenous peoples. partner for local communities, in our regions of presence. In the framework of the current we have the following priorities: legislation of the Russian Federation, • Improve housing conditions Meanwhile, SUEK’s social the boundaries of license areas cannot Strategic Report 2019 and promote the development strategy aims to promote regional include territories inhabited by them. of education, sport, healthcare development through creating and culture opportunities for local residents. Our social programmes help stimulate • Bolster sustainable economic economic development and improve Please visit SUEK’s website growth and the development for our Corporate Social Policy living standards for local people of diverse and thriving and Code of Corporate Ethics: by involving them in our projects communities by providing http://www.suek.com Q:How does SUEK promote and ensuring they benefit directly support to the next generations careers in engineering from them. By developing to children? • Improve the efficiency infrastructure and fostering education, Corporate Social Policy of our community investments we enable communities to solve management structure by introducing innovation into their own problems and attract SUEK Integrated Report social projects and coordinating the resources they need. • Monitoring activities with regional the effectiveness administrations and NGOs Our investment approach to supporting BOARD of the Corporate local communities is underpinned OF Social Policy • Raise awareness amongst DIRECTORS • Approving Four scientific creativity centres for children have by our Corporate Social Policy, A: young people about the career strategic social which was developed in line been opened in the Kemerovo region with support programmes prospects offered by the energy with best-in-class global standards, from SUEK. In 2019, the recently launched UnikUm sector centre benefitted from new, modern laboratories the UN Global Compact, the UN SDGs, the Social Charter of Russian and workshops for intelligent electrical engineering, • General Business and the ISO 26000 Social robotics and distance learning. MANAGEMENT management Our regulatory Responsibility Standard. Furthermore, BOARD of SUEK’s The aim of the centre is to develop intellectual framework SUEK’s relations with local social policy and practical professional skills, and foster creative communities are governed by the Code potential in pupils in grade five to eleven who show • ISO 26000 Social Responsibility of Corporate Ethics, which outlines an interest in natural sciences. This unique educational standard the corporate values and culture. platform gives children the opportunity to participate • Our Corporate Social Policy • Strategic in scientific projects and have a go at solving We develop and run social planning issues that affect their region, the whole country • Our Code of Corporate Ethics programmes in close cooperation COMMUNICATIONS DEPARTMENT and oversight and the entire planet. In 2019, SUEK invested $0.55m with stakeholders: regional and city of community in this important initiative. • Social Charter of Russian administrations, non-governmental activities Business organisations and local residents. • UN Global Compact These partnerships are based on a shared desire to encourage Sergey Grigoriev, • UN SDG’s regional social development REGIONAL • Delivery Public Relations and Communications Director, President and are aligned with SUEK’s strategic of the ‘Suek to the Regions’ fund PUBLIC of social goals. RELATIONS and charitable UNITS projects

100 101 ~ / Communities / continued

Overview Planning and assessment of social programmes SUEK’s key activities

We implement ongoing social We run and finance our social policy an IT platform. This improves Urban areas and infrastructure in health centres of the Department Local community development and charitable programmes in all through the ‘SUEK to the Regions’ strategic planning and makes development for Presidential Affairs our regions of presence. In 2019, and ‘SGC – ​Warming Hearts’ funds. it easier to adjust local development of the Russian Federation Goal we successfully ran over 250 projects programmes involving local Goal Developing business and leadership • Training in outpatient work in 11 regions of Russia, with a total We carefully monitor the social communities, regional authorities Joint projects with local skills, personal guidance for doctors from the cities where financial investment of $26m. environment in our communities and our units in the Kemerovo, administrations to create and improving competencies we operate to help better shape our community Krasnoyarsk and Khabarovsk regions, a comfortable urban environment SUEK seeks to address urgent programmes. Both independent in Buryatia and Khakassia. • ‘Dream Ski’ and ‘Dream Ski. Roller Key projects: community issues in the regions and in-house experts regularly assess Key projects: ski’ for children with cerebral palsy • ‘School of Social Entrepreneurship’ where we operate. We contribute our ongoing progress and outcomes. Quantitative parameters: • Joint preparation and delivery and other health restrictions. for the advancement of education, to the creation of a favourable We measure the efficiency • Events held, number of participants of master plans in Chegdomyn, • ‘Special Parent School’ medicine, sports, culture, leisure, social climate, the improvement of our social investments Chernogorsk, Borodino, Kemerovo in Nazarovo to train parents consumer services in the mining of housing conditions for residents through continuous monitoring • Beneficiaries1 and Barnaul for modernising and social services counsellors regions of mining towns and villages, of our projects using integrated urban and social infrastructure, • Funds raised for the company’s in home rehabilitation for disabled • ‘Success Training’ for adolescents, and the development of education, social research, evaluating individual developing cultural facilities community development children including from social welfare sports, health care and culture. initiatives and the final results and stimulating environmental programmes facilities The ultimate goal is to increase of our programmes. This analysis development the attractiveness of the territories enables us to ensure the impact • Partners involved Leisure, culture • Summer employment for high of SUEK’s presence for young of our social investments is closely • Improving public areas, nurseries 2 school students in landscaping, people, attract young people in line with our strategic and tactical • Growth points created as a result and playgrounds Goal of the company’s community assistance to veterans to the mining and energy industry, goals. Moreover, by carrying out Developing a culture of creativity and the disabled and ensure the stable development continuous analysis we can quickly involvement Education and inclusiveness Strategic Report 2019 of these territories for years to come. respond to changes and identify • Media coverage results areas for potential improvement. Goal Key projects: Charity Qualitative parameters: Developing innovative and business • Public lectures on art, workshops Assessment tools include: thinking, fostering initiative Goal • The increased efficiency of public- and meetings with artists and leadership qualities in children Helping disadvantaged groups • Task meetings of project expert private partnerships, closer in Barnaul and teenagers, vocational guidance and protecting children panels interaction between commercial for occupations in engineering • ‘Street Art Week’ festival and non-profit sector companies • Focus groups with representatives in Novokuznetsk and a street Key projects: in solving social problems sports festival in Kemerovo of local and regional administrations, Key projects: • Cooperation with Rusfond public associations and non- • Sustainability of previously • ‘Digital Technology School’ • ‘Believe in Yourself’ musical and the Gift of Life charitable $26m governmental organisations implemented social projects TV Project in Altai foundation in providing children • Professional ‘Classes by SUEK’ invested in local communities th with Hi-Tech treatment SUEK Integrated Report • Expert surveys • Favourable conditions • Support for the VIII Zabaikalye • Smart urban agriculture workshops in 2019 for interaction with state authorities International Film Festival • Purchasing rehabilitation • Analysis of participant surveys for high school students and the public and medical equipment • Discussion of programme results • Enhancement of SUEK’s Environment for the automatic administration at public events with stakeholders reputation as a socially responsible Sports and healthy lifestyle of insulin for disabled children and sustainable company Goal with severe diabetes In 2019, in order to improve Goal Promoting a culture of environmental • ‘Road to a Fairy Tale’ theatre $541m the efficiency of gathering feedback Promoting a healthy lifestyle among awareness in the regions where project for children with disabilities paid in taxes in Russia in 2019 from residents, SUEK introduced employees and local communities we operate and students from low-income families Key projects: Key projects: 2 • ‘Gift of Santa Claus’ for pupils Growth points and beneficiaries Assessment of the effectiveness of our community investment • ‘Chess to Mining Regions’ • ‘Water of Russia’: attracting public from low-income families attention to the need to conserve • Constructing sports facilities ‘19 70,100 84 water bodies, engaging young • Arranging a training apartment 2017 2018 2019 and holding competitions Number of beneficiaries3 of our social 1,300+ 1,350+ 1,500+ people in environmental protection, in Krasnoyarsk, where children ‘18 54,000 80 programmes and improving popular recreational with mental development disorders Medical care Total number of beneficiaries 52,700 54,000 70,100 areas in mining regions learn self-care skills ‘17 52,700 78 2 Growth points created 78 80 84 Goal • The ‘Zubochistka’ environmental • Support for children with cancer Total number Growth points Providing cutting-edge medical care marathon: picking up rubbish left of beneficiaries created to employees, their families and local by tourists 1. Beneficiaries are residents of the territories that benefit from the results of our community, entrepreneurial and social-entrepreneurial projects. communities • ‘SUEK’s Green Squad’: tree 2. Growth points are organisations set up as a result of social projects aimed at enhancing planting, litter picking, and waste For more information living standards in a particular district or town (maternity support centre, music workshop, Key projects: paper and waste battery collection mini-cinema etc.). about our projects in 2019, see 3. Direct participants in activities (workshops, training courses, work placement) offered • Treating and rehabilitating children for recycling, environmental SUEK’s Sustainable Development by ‘SUEK to the Regions’ and ‘SGC – ​Warming Hearts’ funds, along with the recipients and coal industry veterans awareness campaigns Report for 2018-2019. of grants and donations.

102 103 ~ / Chairman’s introduction Addressing the challenges, enhancing sustainability Corporate Governance 2019

Alexander Landia, Chairman of the Board of Directors

In light of the challenging macro conditions, in 2019 we concentrated on improving operational efficiency we required transparent and detailed to further enhance the company’s as members of the Nomination and enhancing the performance of our business segments to offset the impact of volatility in the global reporting at all levels for issues social engagement. and Compensation Committee energy markets, and ensure the sustainable development of the company. such as such as corporate culture, and the Audit Committee.

SUEK Integrated Report labour safety, environmental Although SUEK is not a publicly Natalia Izosimova and Tom Cairns protection and stakeholder listed company, we are guided left the Board of Directors in August. engagement. In particular, Klaus- by the best principles of public We thank them for their contribution The Board reviewed the latest In logistics, the Board approved work will be completed in the first Dieter Beck, a member of the Board disclosure for the benefit of all to the Board’s work and wish them macroeconomic forecasts until a major transaction for the purchase quarter of 2020 in accordance of Directors and the Nomination of our stakeholders. The Board success in their future endeavours. 2028 and approved SUEK’s of railcars to increase our self- with the plan approved by the Board and Compensation Committee, of Directors ensures that the company The updated composition consolidated strategy to 2023. sufficiency in this area, which will of Directors. visited the Kuzbass mines several adheres to the best international of the Board of Directors Accordingly, we adjusted the targets give us more control over costs times during the year to assess corporate governance practices. is consistent with the profile for our main functional strategies and delivery times. In order to ensure smooth strategy the status of industrial safety, as well We are proud that in 2019, SUEK and growing scale of the company. in sales, logistics and the regional implementation, at our Board as production and mine development received international certificates strategies for our coal and energy We continued to closely control of Directors meetings we regularly efficiency. The remaining Board for compliance and anti-corruption In 2020, we will focus on ensuring units, and approved key investment the consolidation of the energy reviewed the motivation system members were able to discuss issues management. that the company’s management projects. business. In 2018 we had determined for top and line management. of industrial and environmental successfully implements the chosen that by exchanging best practices Thus, we continued safety, incentivisation of production In 2019, two new independent strategy and has all necessary In the Coal Segment, we focused between the two segments we would to improve the incentive system personnel, development of youth Directors, Vladimir Hlavinka, resources and motivation instruments particularly on projects aimed ensure the combined company for senior management, with a focus and the region in general during who has diverse experience to benefit all stakeholders. at boosting the company’s would benefit from the strongest on the needs of stakeholders. a visit to the Kuzbass region in the power industry including production of higher margin competencies of both. Therefore, The 2020 targets we set for top in September. We also reviewed nuclear, and the transformation and competitive products that meet in 2019 we carefully monitored management include sustainable the results of an employee and development of energy to the demands of our customers. the progress of this approach. Today, development KPIs. satisfaction survey SUEK businesses, and Michael Baumgärtner, In the Energy Segment, we approved the consolidation process is either ran in 7 regions of presence who has significant experience deals to expand our presence completed or is at its final stage Given the focus on sustainability and approved certain initiatives in finance and asset management, in strategically important regions. across all functions. The remaining and growing scale of our operations, proposed by the management joined the Board of Directors

104 105 ~ / Corporate Governance overview

Corporate governance structure Board of Directors

General Meeting of Shareholders The procedure for preparing, The Board of Directors is a key element Selection and nomination convening and holding the General of SUEK’s corporate governance policy • Decisions made on the most important issues relating to our business, including the increase Meeting of Shareholders is also system. The legislation of the Russian or decrease of authorised capital, the distribution of profit, the selection of members governed by relevant regulations. Federation and internal documents The Nomination and Compensation of the Board of Directors and our external auditors of the company vest the Board Committee oversees the selection Сorporate documents can be with the authority to ensure the efficient and nomination of new Board management of the company. members and ensures that it is well Board of Directors found on the company’s website www.suek.com balanced and that the competences • Strategic planning of the company’s and management’s activities, general The Board of Directors runs three of Directors will support supervision and efficiency improvement In developing our corporate Committees: the achievement of the company’s • Ensuring the successful performance of the company in the long term with respect governance system, we are guided strategic objectives. • Strategy Committee for the interests of all stakeholders by the provisions of the Corporate • Ensuring the effectiveness of the corporate governance system and regular Governance Code recommended • Audit Committee Candidates for the Board reporting on its functioning by the Bank of Russia, as well are Directors who have knowledge • Nomination and Compensation as by the best international practices. of the coal-mining sector, the electric Committee The company has adopted power and the heat generation a set of recognised international industries; they should also be highly • Analysis of management initiatives, CEO approaches, namely: The activities of all Committees proficient in finance, investment are aimed at improving the efficiency and risk management. risk assessment and preparation • The positions of Board Chairman of recommendations to the Board • Management of the company and quality of decisions made and CEO are separate STRATEGY of Directors in priority areas • Implementation of the company’s by the Board of Directors. The criteria that Independent

COMMITTEE • Analysis and review of strategies strategy and policy • The Board includes the Strategy Directors must satisfy are defined Corporate Governance and strategic plans Committee, the Audit Committee in SUEK’s Corporate Governance • Task setting related to investments and the Nomination Composition of the Board Code and comply with the Corporate 2019 and the company’s sales strategy Management Board and Compensation Committee, of Directors Governance Code recommended by the Bank of Russia. Board • Ensuring the development of production, all of which include Independent commercial and other operational plans and Non-Executive Directors To ensure the Board of Directors members are elected for the period with relevant experience is efficient, its highly qualified up until the next Annual General • Preparation of recommendations • Optimisation programmes and their supervision members take individual Meeting, with the possibility NOMINATION to the Board of Directors on HR strategy, • When making decisions, Board • Coordinating the implementation responsibility and overall of re-election. The Nomination AND appointments and remuneration, corporate members avoid potential conflicts of decisions made by the company’s accountability for all decisions made and Compensation Committee COMPENSATION governance and social policy of interest COMMITTEE • Issues related to compliance with industrial management bodies by the Board. The composition evaluates the compliance and environmental safety standards • The status of Independent Director of the Board of Directors is balanced of prospective Board members and the number of such Directors and complies with all applicable with the independence criteria. Executive Management are monitored and confirmed requirements from the shareholders by the Board of Directors and best international practices. SUEK Integrated Report • Supervising the preparation of financial • Management of production, operational The directors’ experience in mining, Induction and statements and management reports and commercial activities • The Board’s work is reviewed energy and finance contributes • Performance of tasks assigned by top familirisation procedure AUDIT • Monitoring the implementation of budget on an annual basis management, preparation of reports to quality strategic management COMMITTEE policy and planning and helps address the challenges • Evaluation of independent audit, internal SUEK’s governing bodies faced by the company. The company has developed control and risk management systems are the General Meeting an induction programme for newly • Industrial Safety Committee of Shareholders, the Board SUEK regularly rotates its Board elected Board members, which • Risk Management Committee of Directors, the Management Board of Directors. In August 2019, Tom aims to familiarise Non-Executive Internal Audit Service • Investment Committee and the CEO. Cairns and Natalia Izosimova left Directors with the business, • Procurement Committee • Budget Committee the company. At the same time, Vladimir the activities of its subsidiaries • Internal checks and audits Hlavinka, a power industry expert, and the rules and practices adopted • Preparation of reports for the Audit Committee • Project Committee • Sales Policy Committee and Michael Baumgärtner, experienced by the management bodies. in finance, joined the Board. General Meeting Upon election, Directors are granted Four Directors are Independent: full access to materials and minutes of Shareholders Michael Baumgärtner, Klaus-Dieter from all previous Board of Director SUEK’s corporate governance • Ensuring the efficiency • Providing a decent, safe Beck, Vladimir Hlavinka and Iain and Committee meetings. system is designed to ensure of our strategic and operational and healthy working environment In 2019, the Annual General Meeting Macdonald (their independence the business operates in an effective management and internal control for our employees of Shareholders elected the members is confirmed by the Board’s Control over the induction procedure and responsible way that creates and audit mechanisms of the Board of Directors, approved decision). Seven Board members is exercised by the Corporate value for all stakeholders. The key internal documents the 2018 Annual Report and financial are Non-Executive Directors: Michael Secretary. • Ensuring the company’s relating to corporate governance statements and re-appointed Baumgärtner, Klaus-Dieter Beck, informational and financial Our corporate governance system at SUEK are our Charter, Regulation KPMG as SUEK’s external auditor Vladimir Hlavinka, Stefan Judisch, transparency by providing is underpinned by the following on the Board of Directors, for 2019. It also made a resolution Alexander Landia, Iain Macdonald stakeholders with accurate principles: Regulation on the Management on the сompany’s participation and Andrey Melnichenko. The Board information in convenient formats Board, Corporate Governance Code in a non-governmental organisation also includes SUEK’s CEO, Vladimir • Treating all shareholders equally, • Adhering to rigorous ethical and SUEK’s Code of Corporate (Transportation Security Association). Rashevsky. Alexander Landia serves recognising and protecting standards in business Ethics. as the Chairman of the Board. their rights 106 107 ~ / Board of Directors’ report

25% 25% Length Board International operations 0–3 years Board of Directors of service experience Mining 4–6 years as at 31 December 2019 as Board Energy members 7–9 years SUEK’s Board of Directors is experienced and provides leadership to the company Finance for its long-term success with respect for the interests of all stakeholders. 25% 25% Over 9 years Investment Risk management

N S S N CHAIRMAN INDEPENDENT ALEXANDER LANDIA, 57 NON-EXECUTIVE DIRECTOR KLAUS-DIETER BECK, 65 NON-EXECUTIVE DIRECTOR Education and qualifications Director of Accenture Russia and was of the Board of Directors of Siberian Education and qualifications and between 1996 and 1998 was General 2007 and 2012, during which period Alexander graduated from Tbilisi subsequently appointed Global Gas Lead Generating Company (Russia). Klaus-Dieter holds a PhD and an MSc Manager of Friedrich/Rheinland mine. he was also an Executive Director of NWR State University with honours and has Partner. In 2006, Alexander joined SUEK’s in Mining Engineering from Rheinisch- He then joined RAG’s Riverton Coal NV. He was a Non-Executive Director a Candidate’s Degree (PhD) in Mathematics Board of Directors, which he chaired Alexander is Chairman of The Mobility Westfalische Technische Hochschule subsidiary in the US, and between 2004 of NWR until March 2013, and has served from the Institute of Mathematics between 2006 and 2010. In October House AG (Switzerland), and a member in Aachen, Germany. and 2007 served as Senior Vice President, as a member of the Supervisory Board of the National Academy of Sciences 2016, he was reappointed Chairman of the Board of Lambert Energy Advisory Planning, Engineering & General of TUEV Nord/Hannover in Germany since Career of Belarus (Minsk, Belarus). of the Board. Ltd (UK). Equipment Management, at Foundation 2008. Klaus-Dieter joined RAG (Germany) Coal Holdings (formerly RAG’s American Career From 2013 to 2015, Alexander was Appointment to the Board in 1981 and worked in a variety coal business). Appointment to the Board Alexander has extensive management a Board member of JSC EuroChem. December 2006 of technical and operational roles. He June 2012 experience, leading and advising various From April 2015 to December 2019, became Chief Engineer of the company’s Klaus-Dieter was Chairman and CEO organisations. Between 1993 and 2001, he was Chairman of the Board subsidiary RAG Niederrhein in Germany, of the Czech coal producer OKD between he worked at Dresdner Bank in Frankfurt and a member of the Strategy Committee as First Vice President, Oil & Gas Global of EuroChem Group AG. Up until Debt. Until 2004, he was General September 2018, he was Chairman N INDEPENDENT S VLADIMÍR HLAVINKA, 53 NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Education and qualifications From 2000 to 2006, Vladimir was In 2014 - 2015, he served as Deputy Board Vladimir holds a Master`s degree a member of the ALTA Board of Directors Chairman at PSG International, a.s. (Czech ANDREY MELNICHENKO, 48 in Mechanical engineering, in charge of M&A, legal affairs, nuclear Republic) and, in 2015, acted as Managing Corporate Governance thermal and nuclear power plant material and fuel assemblies transport Director and Vice President of Innovation, Education and qualifications by SUEK) – which are among the largest of EuroChem Group AG and SUEK. design from Technical University and trading. In 2006, he was employed Uranium One Holding NV (Netherlands). Andrey studied Physics at the Lomonosov companies globally within their industries. He chairs EuroChem’s Nomination

2019 Brno and Master’s degree in Law by CEZ, a.s., where he worked as Director In 2017, Vladimir was elected to the Board Moscow State University and graduated In the early 1990s, Andrey co-founded and Remuneration Committee and SUEK’s from Masaryks University Brno. of the Nuclear Power Plant Temelin, of Directors of Uranium One Ink (Canada) from the Plekhanov Russian Academy MDM Bank, which under his leadership Strategy Committee. He sits on the Board Executive Director for Power Generation and was appointed Managing Director of Economics, with a degree in Finance. became one of Russia’s most successful of the Russian Union of Industrialists Career and Member of Board of Director of CEZ. of U1 Trading (Switzerland). Since 2018, and largest private banks. In the 2000s, and Entrepreneurs, where he chairs its Vladimir has diverse experience Career he has also been on the Board of Directors he exited MDM Bank, while investing Mining Commission. in the power industry including nuclear From 2007 to 2013, Vladimir led Andrey Melnichenko is a self-made at ORGREZ, a.s., where he is a majority in already privatised industries – fertilisers, industry, including the transformation the supervisory boards of some Russian industrialist. Over the past Appointment to the Board shareholder. coal and steel pipes (which he exited and development of the energy subsidiaries of CEZ with connection 20 years, he co-founded a number March 2004 in 2006 through an IPO). business. He began his career in 1989 to power generation as Nuclear Research Appointment to the Board of multi-billion-dollar businesses as a research fellow at the Research Institut e , a.s., EZ Energo, s.r.o., August 2019 including fertiliser producer EuroChem, Andrey holds main beneficiary interest Ř ž Č Institute of the Nuclear Power Plant EZ Energetick produkty, s.r.o., EZ coal producer SUEK, and power in EuroChem Group AG and SUEK. He Č é Č Trnava, and then he worked for nine years Teplarensk , EZ Energetick slu by generator SGC (now directly owned is the member of the Board of Directors á Č é ž at the Nuclear Power Plant Dukovany. and ČEZ Energoservis, SRO.

S S A

SUEK Integrated Report CHIEF EXECUTIVE OFFICER NON-EXECUTIVE DIRECTOR VLADIMIR RASHEVSKY, 46 STEFAN JUDISCH, 61 Education and qualifications Career In 2004, Vladimir became President Education and qualifications non-ferrous metal trading and brokerage From June 2018 until October 2018 Vladimir graduated from the Finance Vladimir began his career in 1992, holding of SUEK, and was appointed CEO Stefan holds a degree in Business subsidiary. In 1992, he was hired and since July 2019 he was and is also Academy under the Government various positions in banking, including of the company at the end of that year. Administration from Frankfurt. by the Swiss bank UBS to develop a non-executive Director of EuroChem of the Russian Federation, majoring Vice-Chairman of the Management Board their commodity trading business. Group AG (EC). From November 2018 in Global Economics. He holds of Avtobank. In 2000, he joined MDM Vladimir is a member of the Board Career until June 2019, he was Chief Commercial a Candidate’s Degree in Economic Bank, where he was appointed Deputy of Directors of Interregional Distribution Throughout his professional life, Stefan Following the deregulation of Germany’s Director and deputy CEO, since Science. Chairman of the Management Board Grid Company of Siberia. has been involved in commodity electricity market in 1999, he moved September 2019 he chairs the Strategy and then, in December 2001, Chairman trading and risk management activities, to German utility RWE. He helped to build Committee of EC’s Board of Directors Appointment to the Board of the Management Board. predominantly focused on energy-related RWE’s global energy and commodity- and is Director of AIM-Capital. June 2011 commodities and non-ferrous metals. trading and wholesale-supply business over a period of 16 years. He retired Appointment to the Board Stefan began his career in 1981 as the company’s CEO in February 2015. June 2015 at Metallgesellschaft’s central controlling department in Frankfurt (Germany). Stefan is a Non-Executive Director A While with Metallgesellschaft, he worked of Trimet Aluminium SE, the largest in London, New York and Hamburg where aluminium producer in Germany, and its INDEPENDENT he served as CEO of the company’s holding company. MICHAEL BAUMGÄRTNER, 55 NON-EXECUTIVE DIRECTOR Education and qualifications and then moved to EnBW Energie Baden- and Chairman of the Advisory Board Michael holds a degree in Business Württemberg in 2004 as Head of Asset from the Business School, University A Administration from University Pforzheim. Management. From 2009 to 2012, he was Pforzheim (Germany). on the Board of Management in EnBW INDEPENDENT Career Kraftwerke. Michael is CFO of STEAG Appointment to the Board IAIN MACDONALD, 62 NON-EXECUTIVE DIRECTOR Michael started his career in 1993 and a member of its Management Board August 2019 as an auditor with KPMG in Stuttgart. since 2013. Education and qualifications moving into finance management during remained in charge of finance at Fairfield He began working in the energy sector Iain holds a BSc (Eng) from University his last ten years with the company. He until the end of 2014. in the finance and accounting department Michael is also Vice Chairman of the Board College London. He also attended was Head of Planning for the Group, then of Energie-Versorgung Schwaben in 1996, of Directors of Iskenderun Enerji (Turkey) the Programme for Management Group Controller, finally becoming Deputy Iain is currently a Non-Executive Development at Harvard Business School. Group Chief Financial Officer in charge Director of Premier Oil plc, where of the integrated finance function. He he is the Audit and Risk Committee Career was a member of the Board of TNK-BP, Chairman, and a Non-Executive Director Iain joined BP in 1979 as a chemical and a BP Pension Trustee. and Chair of the Finance Committee engineer. of the Workforce Development Trust Ltd. Iain retired from BP in 2010 and took Over a 30-year career there, up a position as Chief Financial Officer Appointment to the Board he progressed through a variety of Fairfield Energy Ltd, an independent April 2015 Key to Committee of technical, operational, marketing North Sea oil and gas producer. He Strategy Nomination and Compensation Audit Committee’s and business management roles before 108 membership S Committee N Committee A Committee Chairman 109 ~ / Board of Directors’ report / continued

Board meetings Board members regularly the state of our assets, communicate During the year, the Board focused of the SGC workforce. This focuses Board remuneration communicate with the company’s with regional managers and assess on the following issues: on the key areas of headcount The Board’s schedule and work plan management teams. Between our corporate culture and safety and cost management, productivity The remuneration paid • Maintaining business stability. are approved for the following year, meetings, Non-Executive Directors systems at first hand. growth, staff development to Board members is based The measures supported with adjustments every six months. receive monthly management reports, and improvement of safety systems. on how they perform their general by the Board included notifications about significant events Members of the Board have access duties and their membership further operational efficiency • Approving internal The Corporate Secretary supports and overviews of the coal-mining to information on the activities of all and chairmanship of the Board improvements, in both the Coal documents of the company. the work of the Directors and Board industry. Members of the Board also Board Committees and may attend Committees. They also receive and Energy Segments (including In line with changing statutory Committees. The Corporate Secretary regularly consult industry experts any Committee meeting. reimbursement of all reasonable increasing the efficiency of heat requirements, we updated a number and CEO make every effort to provide and visit the company’s production expenses they incur in relation supply), the further development of internal documents, including Board members with the materials and logistic sites. During these visits, The Board held 17 meetings to their work as Directors. of the company’s logistics facilities the Compliance Policy and the Anti- for meetings in advance. Directors can personally evaluate in 2019 (six scheduled in-person and sales networks and expansion Corruption Policy. The company also meetings, ten in-absentia meetings of the resource base. outlined the principles of internal and one unscheduled conference call audit, corresponding to the target Liability insurance Directors’ participation in Board meetings in 20191 meeting). Most in-person meetings • The strategic development model of the internal control system. for Board members were fully attended. of SUEK and its individual Director Number Audit Nomination Strategy business segments. Updating of Board Committee and Compensation Committee In addition to regular issues such SUEK’s consolidated strategic Priority issues to consider Since 2006, the company has been meetings Committee as the revision of strategy, budget model. Evaluating and adjusting in 2020 adhering to the policy of liability Total number and investment planning, setting the targets of our main strategies. insurance for members of the Board of meetings 172 8 5 8 objectives for top managers Approving a number of key • Maintaining the sustainability of Directors and key executives

Klaus-Dieter Beck 17 – 5 8 and assessing their performance, investment development projects. of the business and focusing (D&O). For the period from April Corporate Governance 3 4 at its meetings in 2019, the Board on the company’s strategic 2019 to April 2020, JSC SOGAZ was Michael Baumgärtner 4 1 – – • SGC’s integration into SUEK. 5 6 reviewed a number of strategic development selected as the insurance service 2019 Natalia Izosimova 8 – 2 – The Board considered issues initiatives, approved major provider. Tom Cairns 87 48 – – related to the strategic development transactions and analysed • Updating the company’s health of the consolidated company Alexander Landia 17 – 5 8 the short- and long-term financing and safety and environment The amount of cover for all and ensuring efficient control Iain Macdonald 17 8 – – of the business, along with other programme to reflect our strategy Board members, in accordance over financial and economic Andrey Melnichenko 17 – – 8 issues requiring Board’s approval to enhance industrial safety with the Insurance Policy (liability activities of the Energy Segment. in the Energy Segment companies Vladimir Rashevsky 17 – – 8 according to the Regulation. limit), is $25m. The additional Vladimir Hlavinka 69 – 3 – • Industrial safety. The Board • Further increasing the operational insurance cover for Non-Executive Stefan Judisch 17 8 – 8 approved initiatives to improve efficiency of the Group, including Independent Directors is $1m the labour and industrial safety by digital analytical, reporting for each and $8m for all. system at SGC units, some and planning tools of which were then included in the HR strategy. The Board • Monitoring the consolidation Board effectiveness

SUEK Integrated Report of energy assets acquired in 2019 developed the principles and format and evaluation for the Board and Committees’ work • Further revision of the management relating to industrial safety issues incentivisation system in 2020. The Board’s effectiveness is assessed on a regular basis. As usual, • Equipment upgrades at our power in 2019 the annual assessment 1. plants. The Board approved These are the attendances of the board was overseen by the Nomination members in their nominated board submitting our projects for DPM‑2 Issues considered at Board and Compensation Committee committee roles. Many board members programme. based on a questionnaire, refined have attended other committee meetings meetings in 2019 in expert roles and/or to participate • Personnel matters, including to meet the changing business in discussions. priorities and objectives of the Board. 2. an assessment of the company’s Including six in-person meetings, ten human resources function Each Director assessed various in-absentia meetings and one conference 19% call meeting. and issues affecting the continuity 26% aspects of the Board’s activities 3. Michael Baumgärtner joined the Board of senior management. In particular, and Chairman’s work. Board investigates into industrial safety and operational efficiency on 09.08.19; he did not participate the Board evaluated the progress in Board meetings on 09–10.09.19 While the Directors expressed and 16.12.19. of senior managers towards 4. A member of the Board, Klaus- the pace and technology Michael Baumgärtner did not attend personal goals set in 2018, set goals their general approval of the Board’s 4% 18% Dieter Beck, visited the Kuzbass of roadway development, as well the Audit Committee meeting on 16.12.19. effectiveness, they also recommended 5. for 2020. mines several times during as the application and correct Natalia Izosimova did not attend the Board 5% specific improvements. meetings on 21.06.19, 23.07.19 • Improving the incentive the year to assess the applicable functioning of industrial safety and retired from the Board on 09.08.19. 6. system for SUEK’s senior 12% industrial safety standards. He also systems. Natalia Izosimova did not attend 16% analysed the production process the Nomination and Compensation management and supervised Committee meeting on 21.06.19. the annual assessment as to develop solutions aimed After the visits, Klaus-Dieter 7. Tom Cairns did not attend the Board of the Board’s performance. Personnel and incentivisation Strategy at improving operational efficiency, formulated a report for the Board, meetings on 21.06.19, 23.07.19 with particular attention to roadway based on the results of which, and retired from the Board on 09.08.19. In the context of the consolidation Transactions Target corporate structure 8. and reorganisation development operations. adjustments were made to the 2020 Tom Cairns did not attend the Audit of SGC, the Board approved budget. Committee meetings on 20.06.19 a strategy for the management and 09.07.19. Industrial safety Finance Others Directly at coal mines, Klaus- 9. Vladimir Hlavinka joined the Board 110 Dieter Beck drew attention on 09.08.19. 111 ~ / Board of Directors’ report / continued

Board Committees

Strategy Committee Audit Committee

In 2019, the Strategy Barnaul and other Siberian towns. As Chairman of the Audit of legislative acts of the Russian Committee’s work was focused Committee members reviewed Committee, I worked closely Federation and provisions on the development prospects management reports relating with my colleagues to ensure of international standards. of the segments and the Group to prospective energy-intensive the efficient work of the Committee. as a whole. consumption projects in the domestic In 2019, we focused on planned The Committee reviewed market. matters as well as issues related reports of the Internal Audit Looking at the trends of the global to the consolidation of the Energy Service on a quarterly basis. coal market, the domestic electricity As part of improving operational Segment. It approved internal audit plans market and analysis efficiency, the Committee and the Internal Audit Service budget of the external environment factors evaluated the intermediate results In 2019, we monitored various areas and held regular meetings with the head that are significant for SUEK, of programmes to increase of SGC’s integration into SUEK: of IAS without management being we updated the company’s the efficiency of open-pit mining information and documentation, present. Under the supervision strategic model by summarising and advance our drilling and blasting IT strategy, compliance system, of the Committee, as part of SGC the strategic targets for the divisions, operations, and supported a plan and the Internal Audit Service. consolidation, a unified consolidated business segments and supporting to increase the operational efficiency Internal Audit Service was established functions. In particular, we reviewed of SGC’s processes. During the year, the Committee based on common methodology. We and adjusted the strategic goals regularly monitored the functioning prepared and issued recommendations for the next five years in sales In the Energy Segment, we reviewed of the company’s compliance on the content and structure Members of the Committee and logistics. the results of DPM‑1 projects Members of the Committee system, paying particular attention of the Regulation on the Internal Audit

as at 31 December 2019 and approved key approaches as at 31 December 2019 to our policy of compliance Service and SUEK’s Internal Audit Corporate Governance Recognising our responsibility to identifying priority modernisation with applicable sanctions. In general, Policy. ANDREY MELNICHENKO (Chairman) as a business to look after the natural projects under the DPM‑2 IAIN MACDONALD (Chairman) we believe that the compliance 2019 Klaus-Dieter Beck environment and communities programme. Michael Baumgärtner culture and compliance control In addition to considering the regular in which we operate, we carefully in the company are at a high level. issue of preparing the company’s Stefan Judisch assessed any potential social During the year, the Committee Stefan Judisch The Committee supervised a project Annual Report, the Committee Alexander Landia or environmental impact traditionally monitored the processes to extend the common standards monitored the preparation status of our strategic decisions. of budgeting, accounting of the compliance system to SGC of the Sustainable Development Vladimir Rashevsky and reporting, and the delivery Areas of responsibility: units, as part of the integration Report for 2018–2019, which We evaluated our management’s of investment projects. In view • Ensuring the completeness process. is focused on environmental strategic initiatives to develop of the market conditions and forecasts and accuracy of the published protection and ecology, Areas of responsibility: resource base with consideration from the banking sector and industry financial statements An important achievement environmental performance, for long-term market growth analysts, the Committee supervised of the compliance system in 2019 efficiency, and industrial and labour The Strategy Committee forecasts, and analysed the refinement of macroeconomic • Guiding the development was the certification of SUEK’s safety. is responsible for reviewing the sustainability of SUEK’s parameters and operating of management reporting unified compliance management

SUEK Integrated Report management’s proposals, assessing mining assets in the context performance targets for strategic with regular reviews system with ISO 19600:2014 The Committee reviewed associated risks and developing of changes in external parameters. and budget planning. of performance reports and the anti-corruption management planned reporting matters (IFRS) recommendations to support The Committee reviewed • Overseeing the implementation system with ISO 37001:2016 and considered regular issues relating the Board’s decision-making the updated key strategic priorities Andrey Melnichenko, of budget and planning policies standards of the International to the evaluation of the external in the following key areas for the coal, energy and logistics Chairman of the Strategy Committee and evaluating the effectiveness Compliance Association (ICA). We auditor’s effectiveness, remuneration assets in Kuzbass, Krasnoyarsk, reviewed and closely evaluated and independence. • Defining the operating priorities of budgeting systems the changes made to the company’s of the company • Evaluating the performance Anti-Corruption and Compliance Iain Macdonald, of the external auditor • Developing the company’s Policies. The new versions of these Chairman of the Audit Committee overall strategy, strategic and the effectiveness policies reflect changes in a number plans for business segments of the external audit process and strategies by functional area • Assessing the effectiveness • Developing the company’s of the internal control and risk strategies and goals in target management processes markets • Supervising the work of the Internal • Implementing major investment Audit Service, including quarterly projects 5 3 analysis of audit findings 5 3 and annual analysis of audit • Defining the company’s operating in-person meetings in-absentia meetings effectiveness and follow-ups in-person meetings conference calls priorities and evaluating in 2019 in 2019 in 2019 the operational efficiency of management • Carrying out investment planning, project management and capital management • Improving key business processes 112 113 ~ / Board of Directors’ report / continued

Internal audit

Nomination and Compensation Committee

As Chairman of the Nomination with a methodology for calculating The independence of the Service the consolidation of SUEK’s and Compensation Committee, the parameters of incentivisation is ensured by its functional and SGC’s internal audit services, I focused the Committee’s activities systems for individual functions, subordination to the Audit Committee. in particular, unifying risk assessment on the improvement of labour, and we preliminarily reviewed The Committee reviews the Service’s processes and procedures industrial and environmental safety. the top managers’ progress towards reports on a quarterly basis, approves for planning and conducting audits One of the key issues for us was their personal goals for 2019 and set internal audit plans and the Service’s in the Coal and Energy Segments the revision of the Group’s HR target KPIs for 2020. budget, holds regular meetings • Creating a single platform strategy to support the new Group with the head of the Service to discuss for scheduling, accounting strategy implementation. We also focused on monitoring current issues. for resources used and managing the labour and industrial safety internal audit projects The Committee set the task system at our mining and generating When planning its work, the Service for top managers to further improve units. At our Committee applies a risk-based approach, taking the business process meetings we carefully analysed into account the external environment The Service implemented its of personnel management the circumstances surrounding and performance of the company, own development software, while integrating HR functions. any fatal or severe occupational focus areas of the Board of Directors for the automation of the following We gave recommendations accidents. and executives, risk assessment results. elements: regarding the expanded list • Scheduling of and accounting of key positions in respect We worked on recruiting In 2019, particular focus was given for actual hours worked in terms of which the Board of Directors for the Board of Directors. In 2019, Areas of responsibility: to the following issues: Corporate Governance Members of the Committee of employees and projects as at 31 December 2019 approves recruitment, dismissal two highly qualified professionals, • Helping improve the efficiency • Industrial and labour safety and remuneration. We also assessed Michael Baumgärtner and Vladimir • Monitoring the deadlines 2019 ALEXANDER LANDIA (Chairman) and effectiveness of the company’s the current state of the talent pool Hlavinka, joined the Board activities by providing independent • Environmental protection and planned labour intensity and took actions aimed at supporting of Directors. Vladimir Hlavinka of projects by stages Klaus-Dieter Beck assessment and advice • Automation of business processes the succession of senior managers. also joined the Nomination on internal control, corporate • Approval procedures Vladimir Hlavinka On the Committee’s initiative, and Compensation Committee. • Production planning governance, risk management, for initiating, modifying, completing the company began the development the compliance of the distribution and assessing the quality of a single model of managerial The Committee approved • Asset management, equipment of roles and responsibilities in risk maintenance and repairs of conducted audits Areas of responsibility: competencies across the Group. the company’s updated management and internal control • Making recommendations Communications Strategy with international best practices. • Implementing keys investment • Support for the employee competency to the Board of Directors regarding We also developed and approved and defined areas for coordination projects model and the Service as a whole • Facilitating the timely identification HR strategy, nominations an updated the reporting between SUEK’s and SGC’s PR of risks and the development and compensation, corporate format for operating indicators services, taking into consideration Based on the recommendations Further work continues of risk mitigation actions governance and social policy of the generating units, based the specifics of each segment. of the Service, managers develop on the automation of the internal SUEK Integrated Report on our guidelines. As part of our activities, by evaluating the efficiency and take corrective actions audit function. In particular, based • Ensuring the continuity the Committee oversees a regular of operations, compliance aimed at improving the efficiency on the results of analytical work of senior management, We improved the top management opinion survey of representatives with regulatory requirements, of the internal control system, carried out in 2019, a project developing a succession pool incentivisation system, including of target stakeholders in the regions the reliability of the company’s business processes and operations. was initiated to automate audit and talent pipeline and designing a review of the approach to its where the company operates. We external and internal reporting. The Service monitors and analyses procedures for a ‘continuous audit’ and assessing programmes long-term component. New incentive reviewed an employee satisfaction • Providing management, the efficiency of such actions. of business processes based for developing managers tools are now under development. survey and offered recommendations the Audit Committee on the automated continuous • Ensuring compliance with industrial During the year, we proposed to the management on the inclusion and the Board of Directors During the year, the Service analysis of accounting systems data. and environmental safety and approved a remuneration of additional social projects with timely and complete implemented the internal audit standards at our enterprises; programme for achieving mine in the 2020 plan. and high-quality information function’s development strategy The key focus areas for 2020 monitoring our system of key development targets, which for making decisions and gaining for 2018–2020, including • Evaluating the compliance performance indicators in this area is currently one of SUEK’s key The Committee supervised reasonable confidence in assessing the following areas: of the internal control system tasks. Work continues on testing the annual assessment the degree to which the company • Assessing the principles of building for business processes • Assessing the compliance and adjusting the business’ of the Board’s performance, has achieved its goals. the internal control system with the classic ‘Three Defence Lines’ of our industrial safety system main indicator of economic identifying areas that require further in the context of the ‘Three model with regulatory and corporate efficiency, which is used attention, reviewed opportunities • Contributing to the company’s Defence Lines’ concept according requirements; assessing for incentivisation purposes, along for the professional development value enhancement by participating • Project management risk to the Board’s recommendations the efficiency of controls of Directors. It confirmed the status in the processes of setting assessment, including when on the compliance in this area of the company’s Independent and assessing the achievement delivering projects of the DPM‑2 of strategic goals. of the company’s internal control programme and purchasing new • Analysing the causes Directors. system with best practices assets and consequences of accidents • Being a model in following and developing recommendations 5 Alexander Landia, the principles of corporate • Increasing the automation • Automation of business processes on their future prevention Chairman of the Nomination culture and behaviour, ethics of internal audit processes in-person meetings • Wage pool budgeting and Compensation Committee and professionalism. • Unifying the audit methodology in 2019 and developing the expertise • Implementing the development function, taking into consideration strategy for maintenance and repair processes 114 115 ~ / Management Board report

Complianсe management system Management Board as at 31 December 2019

SUEK’s management includes long-serving professionals with wide experience in mining, energy and their respective areas.

In connection with the consolidation • Code of Corporate Ethics of the energy business, compliance • Anti-corruption compliance CHIEF EXECUTIVE OFFICER procedures are being introduced VLADIMIR RASHEVSKY, 46 CHAIRMAN OF THE MANAGEMENT BOARD in phases at SGC. Key roadmap • Anti-monopoly compliance Education and qualifications Career In 2004, Vladimir became President activities were completed • Sanction compliance Vladimir graduated from the Finance Vladimir began his career in 1992, holding of SUEK, and was appointed CEO by mid‑2019, and the synergistic Academy under the Government various positions in banking, including of the company at the end of that year. of the Russian Federation, majoring Vice-Chairman of the Management Board effect of synchronising compliance • Compliance in licensed activities in Global Economics. He holds of Avtobank. In 2000, he joined MDM Vladimir is a member of the Board across SUEK’s Coal and Energy and natural resource management a Candidate’s Degree in Economic Bank, where he was appointed Deputy of Directors of Interregional Distribution Grid Company of Siberia. Segments’ management systems Science. Chairman of the Management Board • Compliance in covenants/limits and then, in December 2001, Chairman is already visible. Our own experience of the Management Board. gained in consistently implementing • Tax compliance of our business compliance systems means we are able partners to move towards achieving compliance goals ahead of standard deadlines. • Compliance in land and property CHIEF OPERATIONS OFFICER matters VLADIMIR ARTEMIEV, 54 MEMBER OF THE MANAGEMENT BOARD In 2019, SUEK’s compliance • Counterparties’ compliance Education and qualifications Director of Gukovugol, a position In 2006, Vladimir became Chief Operations Vladimir graduated from Novocherkassk which he held for four years. He was Officer of SUEK. In January 2007, he was management system successfully Polytechnic Institute as a Mining Engineer appointed Head of the Coal Industry appointed to the company’s Management passed an independent audit • Health and safety compliance and has a PhD in Engineering Science. Department at the Russian Ministry Board. He has been awarded the Order and gained recognition at a global of Energy in 2002, and Head of the Mines of Courage for a mine rescue operation, By ingraining values Career Inspectorate for the Federal Administration and holds all three degrees of the Miner’s of compliance in SUEK’s level. Experts from the International The continuous improvement Vladimir worked for Gukovugol of Environmental, Technological Glory medal. Corporate Governance Compliance Association visited SUEK’s to our compliance system is intended Industrial Association for over 15 years, and Nuclear Supervision (Rostekhnadzor) corporate culture beginning his career as an Overman in 2004. In 2016, Vladimir was awarded the Order office in Moscow and production to provide reasonable assurance at the Zapadnaya underground mine. of Friendship state award. 2019 and affecting a gradual In 1998, he was appointed General change in the mind-sets assets in the Krasnoyarsk region. that the company’s efficiency, of our employees, we can Our certification audit at all levels, the achievement of its targets, achieve greater business from the Board of Directors preservation of assets, reliability CHIEF COMMERCIAL OFFICER sustainability, confident to production sites, included and timeliness of reporting IGOR GRIBANOVSKY, 47 MEMBER OF THE MANAGEMENT BOARD 55 interviews and resulted in more are achieved in compliance of avoiding the negative Education and qualifications Career In 2005, Igor was appointed Managing consequences associated than 230 documentary proofs with applicable standards. Igor graduated from the Moscow State Between 1996 and 2001, Igor worked Director of SUEK AG, and has been Institute of Steel and Alloys, where at the Moscow office of the Japanese SUEK’s Chief Commercial Officer since with potential compliance of how the company actually followed compliance policies. Based he studied Metal Forming. He did Nichimen Corporation in its Department 2007. breaches. his postgraduate studies at the Faculty of Coal and Metals. From 2001 on the audit results, in December of Economics of Lomonosov Moscow to 2005, he headed the export divisions In 2017, he received a state award Digitisation of compliance for his great personal contribution 2019, SUEK received certification State University, where he majored of Vostsibugol, Rosuglesbyt and SUEK. management in Public Sector Economics. to the development of the national fuel Dmitry Kanterov, for ISO 19600:2014 (Compliance and energy sector. Chief Compliance Officer Management) and ISO 37001:2016 SUEK Integrated Report (Anti-Corruption Management). In 2019, a pilot project was launched to optimise the process of analysing violations, identifying CHIEF FINANCIAL OFFICER SUEK has introduced a compliance systemic and repeated violations. NIKOLAY PILIPENKO1, 54 MEMBER OF THE MANAGEMENT BOARD system and approved a Compliance The following modules were developed on the basis Education and qualifications of the Board of Directors, Audit Committee In 2012–2018, Nikolay was a member Policy designed to ensure Nikolay graduated from Moscow State and Nomination and Remuneration of the Board of Directors of Siberian of the existing IT system: University in 1989, where he studied Committee of JSC EuroChem. Generating Company, where he chaired the company’s activities remain Political Economy. He also holds a PhD From 2015 to 2016, he was a member the Audit Committee. He was appointed in compliance with the requirements Module 1 – ​systematisation in Economics. of the Board of Directors, Audit Committee Chief Financial Officer of SUEK of applicable law, internal norms and Nomination and Remuneration in October 2016. of data on cases of administrative Career Committee of EuroChem Group AG. From 2006 to 2008, Nikolay was Chief and rules, compliance principles offenses in relation to enterprises Before joining EuroChem, he held several and standards. Financial Officer of JSC EuroChem. management positions at ABB Group and officials Between 2009 and 2015, he was a member in Russia, Spain and Switzerland.

Within the framework Module 2 – ​the development of the compliance management and implementation of action system, applicable standards CHIEF INFORMATION OFFICER plans (‘road maps’) to eliminate ANDREI VANYUSHIN2, 42 are monitored, explained inconsistencies associated and communicated to performers; with the preparation of permits Education and qualifications Career to the Deputy Chief Financial Officer. Since In 1999, Andrei graduated with honours Andrei started his career in 1998 2017, he has served as Chief Financial compliance with mandatory for construction. from the Finance Academy affiliated as auditor at PWC. From 2003, he worked Officer of SGC. From March 2019 to March requirements is monitored to the Government of the Russian in the financial service of TNK-BP 2020, Andrei also was Chief Information across all units; non-compliance Digitalisation reduces dependence Federation with a degree in Finance Management. Officer at SUEK. and Credit. In 2004, he received a PhD risks are prevented, identified on the ‘human factor’, expands in Economics from the Finance Academy. From 2005 to 2017, Andrei progressed and corrected. the potential for analytics In 2011, Andrei graduated from INSEAD in SUEK’s Financial Service, holding Executive MBA programme. positions from the Department Head and forecasting and significantly Therefore, SUEK’s management reduces the complexity systems have now been confirmed of standard processes, Compliance Policy can be found for compliance with international which allows the company on the company’s website standards across all ten areas (risk to best prioritize and provide http://www.suek.com areas) of the company’s compliance the necessary resources 1. Nikolay left the position of Chief Financial Officer on 12 March 2020. 116 programme: to the most relevant areas. 2. Andrei was appointed Chief Financial Officer of SUEK on 12 March 2020 and became a member of Management Board on 17 March 2020. 117 ~ / Management Board report / continued

Executives

CHIEF AUDIT EXECUTIVE SGC CHIEF EXECUTIVE OFFICER ALEXANDER DOLGOPOLOV, 40 STEPAN SOLZHENITSYN, 47 Education and qualifications Career In 2005, he joined SUEK as Head of Audit Education and qualifications Career generation, network development Alexander is a graduate of the Moscow From 2000 to 2005, Alexander worked Unit and was subsequently appointed Stepan graduated from the Massachusetts Since 2004, he worked at the Russian and operation, sales activities. State Institute of International Relations as Assistant Manager in the Energy Head of Internal Control and Audit Service Institute of Technology and Harvard office of McKinsey and was in charge (MGIMO), where he studied International and Mining Department at PwC. in May 2011. University. He specialized in regulatory of the electric power industry and heat He joined SUEK Group in October 2018, Economic Relations. He is also a member and environmental aspects of the power supply in Russia and the CIS. Stepan and has been Chief Executive Officer of the Institute of Internal Auditors (IIA, US). industry. supervised projects in the field of power of SGC since November 2018.

PUBLIC RELATIONS AND COMMUNICATIONS DIRECTOR DIRECTOR OF HR AND ADMINISTRATION SERGEI GRIGORIEV, 63 DMITRY SYROMYATNIKOV, 53 Education and qualifications Office. He was later a political consultant In 2014, he was elected to the Civic Education and qualifications of Regional Manager, Training Manager From April 2008 to February 2012, Dmitry Sergei is a graduate of the Institute and commentator. His roles also included Chamber of the Russian Federation. Dmitry is a graduate of Saint Petersburg and Sales Efficiency Manager. was Director of HR and Administration of Asian and African Countries adviser to the Chairman of the All- He was also appointed Chairman State Paediatric Medical University. at SUEK, a role he returned at Lomonosov Moscow State University. Russian State Television and Broadcasting of the Commission on Development In 2005, he attended a Human Resources In 2004, Dmitry joined the Russian to in September 2014. He holds a Master of Public Administration Company and, in 2001, Chief of Staff of the Real Sector of the Economy Management course at the Management Aluminium and Magnesium Institute degree from Harvard’s John F. Kennedy of the Department of Presidential Affairs of the Civic Chamber of the Russian Centre Europe (MCE) in Belgium. as HR Director. In 2005, he transferred In 2017, he was awarded the Labour Glory School of Government. of the Russian Federation. Federation. to the RUSAL Management Company, state third degree award by the Ministry Career where he worked in a number of Energy of the Russian Federation Career Between 2004 and 2006, Sergei was In 2017, he received a state award In his early career, Dmitry spent more than of roles including Head of Recruitment in recognition of his great personal Sergei’s early career was spent Vice President of the National Reserve from the Ministry of Energy of the Russian six years working as a doctor. Between and Director of Compensations. contribution to the development of the fuel with the Soviet Union Association Bank. He was then appointed Deputy Federation for his great personal 1997 and 2004, he worked for Bristol- and energy sector. of Friendship Societies. From 1984 General Director of the National Reserve contribution to the development Myers Squibb, a US pharmaceutical From 2007 to 2008 and 2012 to 2014, he was HR and PR Director at Kirovsky to 1990, he worked for the International Corporation. Sergei was appointed Public of the national fuel and energy sector. company, where he started as a Medical Corporate Governance Department of the Central Committee Relations and Communications Director Representative and then held the positions Zavod. of the Communist Party, subsequently at SUEK in February 2007. joining the USSR President’s Press 2019 CHIEF STRATEGY OFFICER VLADIMIR TUZOV, 43 DIRECTOR OF LOGISTICS Education and qualifications for Pechiney, an aluminium company to financial institutions, heavy industry, DENIS ILATOVSKY, 48 Vladimir graduated from Bauman in France. Over the following five mining, automotive and processing Moscow State Technical University, years, he held various managerial roles companies. Education and qualifications Metalware factory. In 2002, he was In 2017, he was thanked by the Ministry majoring in Biomedical Engineering. in production, marketing and supply chain Denis graduated from the Moscow appointed Vice President of the Group, of Energy of the Russian Federation He holds a Master’s degree in Industrial management for non-ferrous and ferrous From 2013 until 2015, Vladimir worked State Institute of Steel and Alloys where he was responsible for investments, for his great personal contribution Management from Ecole Centrale Paris metallurgical companies in France, Russia, at pulp and paper company Ilim Group in 1994. He also obtained an Executive IT and logistics. to the development of the national fuel and an MBA from Wharton Business Guinea and Ukraine. as Deputy CEO for Strategy and Product MBA from Antwerp Management and energy sector. School (University of Pennsylvania). Management, and served on the Board School, Belgium, and from the Institute From 2008, he worked for United Between 2007 and 2013, Vladimir of Directors of Ilim Gofra. of Business Studies in 2011. Metallurgical Company (OMK), where In December 2018, in accordance Career worked for The Boston Consulting Group he was simultaneously Director of Logistics with the Order of the Russian Ministry Vladimir began his career in 2001 (BCG) in Russia and the US. At BCG, Vladimir has been SUEK’s Chief Strategy Career and General Director of the Baltic of Natural Resources, he received as a Production Planning Engineer he provided consultancy services Officer since August 2015. In 1994, Denis began working Metallurgical Terminal (Ust-Luga). an award for his great contribution for the MAIR Industrial Group and in 1996 to environmental protection, resources

SUEK Integrated Report was appointed Export Director. In 2000, In 2012, Denis joined SUEK as Director conservation and environmental safety. he worked as General Director of Saratov of Logistics. STRATEGY AND CORPORATE POLICY DIRECTOR SERGEY TVERDOKHLEB, 46 Education and qualifications of the following commercial banks: SBS- In 2017, he was thanked by the Ministry Sergey graduated from the History Agro, Avtobank and MDM Bank. of Energy of the Russian Federation GENERAL AFFAIRS DIRECTOR Department of the Lomonosov Moscow for his great personal contribution ANDREY MIRONOV, 54 State University and the Finance In 2004, he began his tenure with OJSC to the development of the national fuel and Credit Department of the Finance SUEK as an adviser to the CEO. and energy sector. Education and qualifications Career He joined SUEK in 2011 as General Affairs Academy under the Government In 2009, Sergey was appointed Director Andrey is a graduate of the Leningrad Andrey spent the early part of his career Deputy Director, and was promoted of Russia. of the Corporate Policy and Special In 2019, by the Russian President’s Higher Military Commanders’ Training in the Federal Security Service. In 2007, to General Affairs Director in July 2012. Projects Department at SUEK. Since Decree, he was awarded the medal School, the Academy of Federal Security he began working in the oil industry Career 2019, he has been Director of Strategy of the Order of Merit for the Motherland, Service and the Academy of National as a Security Director. From 1995 to 2004, he worked and Corporate Policy. II degree, for his many years of dedicated Economy. in the analytical and economic divisions work in the coal industry.

GENERAL COUNSEL AND COMPLIANCE OFFICER PROCUREMENT DIRECTOR ALEXANDER REDKIN, 58 IRINA ZAYTSEVA, 43 Education and qualifications SIDANCO - TNK-BP Management, where In 2017, he received a state award Education and qualifications Career She was appointed Procurement Director Alexander graduated from the Saratov he held several positions including General from the Ministry of Energy of the Russian Irina graduated from Perm State Between 2002 and 2011, Irina worked at SUEK in May 2011. Law Institute in 1986. Counsel of SIDANCO’s branch in Saratov Federation for his great personal University, Faculty of Law in 1998, at Uralkali, a potash mining company, and Head of Legal Department. contribution to the development and from the National Research University where she held a number of senior In 2017, Irina was thanked by the Ministry Career of the national fuel and energy sector. Higher School of Economics, Moscow, positions including Director of Inventory of Energy of the Russian Federation Between 1986 and 2001, Alexander Alexander joined SUEK in 2005, initially in 2001. and Logistics. for her great personal contribution worked in the Public Prosecution as Deputy General Counsel, and was then to the development of the national fuel Department. He subsequently joined appointed General Counsel in January 2008. and energy sector.

118 119 ~ / Management Board report / continued

Management Board report

SUEK’s activities are managed Composition coal asset strategy for Kuzbass Some items relating to operational sustainable development activity based on their performance during by executive bodies – the Chief of the Management Board and Khakassia, consolidated management were reviewed (ensuring the required level the year1, was $10.1m. Executive Officer and the Management sales strategy, heat supply at meetings of specialist committees of industrial and environmental Board. The CEO is elected strategy, development programme established in line with the company’s safety, social security of employees, for an indefinite period. Vladimir As of 31 December 2019, for drilling and blasting operations, Charter and functioning according contribution to the development 2020 priorities Rashevsky has been the CEO the Management Board was IT strategy, strategy for power to the approved work plans: of the regions where SUEK operates). of SUEK since 2004 and Chairman comprised of the following four companies in the Altai region) In accordance with decisions taken • Industrial Safety Committee of the Management Board since 2005. members: • Ensuring the effective In particular, ensuring the proper by the Board of Directors, in 2020 • Risk Committee level of industrial safety is one the Management Board’s activities • Vladimir Rashevsky, Chief implementation of major investment The Management Board reports of the fundamentals of the incentive will be aimed at strengthening Executive Officer projects and improving the quality • Investment Committee to the Board of Directors of how they are monitored system for the CEO, members the competitive advantages and the General Meeting • Vladimir Artemiev, Chief Operations • Procurement Committee of the Management Board and top of the company. The main of Shareholders. The primary Officer • The implementation and efficiency managers of SUEK. LTIFR is a crucial emphasis is expected to be given responsibilities of the Management assessment of the company’s HR • Budget Committee indicator affecting remuneration. to the following areas: • Igor Gribanovsky, Chief Board are the development policies (including the provision • Project Committee In addition to the general indicator Commercial Officer • Further development and implementation of the company’s of Kuzbass and Urgal mines (both for the company as a whole • Sales Policy Committee and implementation production, commercial and other • Nikolay Pilipenko, Chief Financial with key staff), Information Policy and by regions), managers may also of the development strategy operational plans and improvement Officer (including a survey in the regions be subject to additional restrictive for the Reftinskaya GRES programmes. It is also responsible of operations in partnership In 2019, seven special-purpose conditions for accidents/industrial and increasing its operational for the timely and effective During the year, 11 senior with the Public Opinion Foundation committees under the Management injuries, depending on the area efficiency coordination of the resolutions managers who are not members Institute, a social research into Board held 91 meetings. of responsibility. If these conditions

of the company’s executive bodies. of the Management Board regularly customer’s attitude to SGC), Social are not met, the annual variable • Developing the updated Corporate Governance attended Management Board Policy (translation of the Code As part of the energy business payments are significantly reduced: Environmental Strategy of SGC In order to achieve its meetings in-person. of Corporate Ethics to employees), consolidation, the Board approved by 50% or more, down to zero. 2019 • Reorganising the internal control targets, under the Regulation Environmental Policy (analysis a new version of the Regulation system for business processes on the Management Board, SUEK of environmental protection on the Industrial Safety Committee, Environmental indicators are included according to the ‘Three Defence established Management Board Meetings measures at SUEK’s port coal which covers the company's in the KPI map for managers, whose Lines’ model committees and panels that of the Management Board terminals) Energy Segment. Considering area of responsibility includes enable key managers and experts • The monthly monitoring the increasing focus given the implementation of programmes • Enhanced monitoring of industrial from different functions to interact of our performance in meeting to environmental issues by state adopted in the field of environmental and labour safety issues on the main issues affecting There were 18 meetings of SUEK’s approved budgets and production bodies, their social dimension protection. the company’s operations, including Management Board in 2019: targets in volatile market conditions and importance for SUEK’s business consultations on economic, 12 in-person and six in-absentia. Four reputation, aspects of ensuring The weight of general corporate environmental and social matters. meetings were held in an expanded • Systematic monitoring of actions the environmental safety at Group’s indicators varies from 20 to 50% format with the participation of heads aimed at managing key risks units were added to the Regulation. of the bonus map, depending of regional coal production units. in 2019, including the risk on the functional area. Individual

SUEK Integrated Report of coal use restrictions following indicators for evaluating The main areas of the Management the decisions of international Management Board the performance of managers Board’s activities in 2019 were: and national regulators remuneration account for, respectively, 50–80% of the weight of the bonus map. • The timely and effective • Ensuring safe working conditions, implementation of resolutions minimising the risks associated SUEK’s remuneration system ensures Annual targets and performance taken at the General Meeting with coal mining and electricity there is a direct relationship between indicators are set for each member of Shareholders generation, and developing payments to the CEO, members of the Management Board and by the company’s Board a strong safety culture of the Management Board and senior and the CEO. They are regularly of Directors; preparation • Optimising production executives and the achievement discussed with SUEK’s Nomination of consolidated financial and business processes as part of KPIs and goals for the reporting and Compensation Committee statements, the Group’s budget of developing SUEK’s management period. and approved by SUEK’s Board including the Energy Segment, system, with a focus on labour of Directors. The actual amount along with other issues related productivity improvement The indicators used for annual of remuneration is also determined to the resolution of the Board assessment and calculation by the Board of Directors’ resolution. of Directors on SGC consolidation • Further improving our compliance system, including obtaining of remuneration include both • The implementation of SUEK’s certificates for SUEK’s compliance the economic performance The total remuneration paid out joint and segmented strategies management system according of the company and indicators to the members of the Management and functional strategies (including to international standards of achieving the company’s Board and the CEO of SUEK in 2019,

1. In 2019, SUEK made remuneration for top management for several large-scale projects, the outcomes of which significantly exceeded expectations.

120 121 ~ / Financial Statements

Independent Auditors’ Report to the Shareholders of JSC SUEK

a material uncertainty exists, Opinion Responsibilities when it exists. Misstatements we are required to draw attention We communicate with those charged of Management can arise from fraud or error in our auditors’ report to the related with governance regarding, among We have audited the consolidated and Those Charged and are considered material if, disclosures in the consolidated other matters, the planned scope financial statements of JSC SUEK individually or in the aggregate, financial statements or, if such and timing of the audit and significant (the ‘Company’) and its with Governance they could reasonably be expected audit findings, including any for the Consolidated disclosures are inadequate, subsidiaries (the ‘Group’), which to influence the economic decisions to modify our opinion. Our significant deficiencies in internal comprise the consolidated Financial Statements of users taken on the basis of these conclusions are based on the audit control that we identify during statement of financial position consolidated financial statements. evidence obtained up to the date our audit. as at 31 December 2019, Management is responsible of our auditors’ report. However, the consolidated statements for the preparation and fair As part of an audit in accordance future events or conditions The engagement partner on the audit of profit or loss, comprehensive presentation of the consolidated with ISAs, we exercise professional may cause the Group to cease resulting in this independent auditors’ income, changes in shareholders’ financial statements in accordance judgment and maintain professional to continue as a going concern. report is Andrey A. Kim. equity and cash flows for the year with IFRS, and for such internal scepticism throughout the audit. We JSC ‘KPMG’ then ended, and notes, comprising control as management also: • Evaluate the overall presentation, Moscow, Russia significant accounting policies determines is necessary to enable structure and content • Identify and assess and other explanatory information. the preparation of consolidated of the consolidated financial 29 January 2020 the risks of material misstatement financial statements that are free statements, including of the consolidated financial In our opinion, the accompanying from material misstatement, whether the disclosures, and whether statements, whether due to fraud consolidated financial statements due to fraud or error. the consolidated financial or error, design and perform audit Financial Statements present fairly, in all material respects, statements represent procedures responsive to those the consolidated financial position In preparing the consolidated the underlying transactions 2019 risks, and obtain audit evidence of the Group as at 31 December financial statements, management and events in a manner that that is sufficient and appropriate 2019, and its consolidated financial is responsible for assessing achieves fair presentation. to provide a basis for our opinion. performance and its consolidated the Group’s ability to continue The risk of not detecting a material • Obtain sufficient appropriate audit cash flows for the year then ended as a going concern, disclosing, misstatement resulting from fraud evidence regarding the financial in accordance with International as applicable, matters related is higher than for one resulting information of the entities Financial Reporting Standards (IFRS). to going concern and using the going from error, as fraud may involve or business activities within concern basis of accounting collusion, forgery, intentional the Group to express an opinion unless management either intends omissions, misrepresentations, on the consolidated financial Basis for Opinion to liquidate the Group or to cease or the override of internal control. statements. We are responsible operations, or has no realistic for the direction, supervision We conducted our audit alternative but to do so. • Obtain an understanding and performance of the group in accordance with International of internal control relevant audit. We remain solely responsible SUEK Integrated Report Standards on Auditing (ISAs). Those charged with governance to the audit in order to design audit for our audit opinion. Our responsibilities under those are responsible for overseeing procedures that are appropriate standards are further described the Group’s financial reporting in the circumstances, in the Auditors’ Responsibilities process. but not for the purpose for the Audit of the Consolidated of expressing an opinion Financial Statements section on the effectiveness of the Group’s of our report. We are independent Auditors’ Responsibilities internal control. of the Group in accordance for the Audit • Evaluate the appropriateness with the independence of accounting policies used Audited entity: JSC SUEK Independent auditor: JSC ‘KPMG’, requirements that are relevant of the Consolidated and the reasonableness a company incorporated under the Laws to our audit of the consolidated Financial Statements of accounting estimates of the Russian Federation, a member firm financial statements in the Russian of the KPMG network of independent and related disclosures made Federation and with the International Our objectives are to obtain member firms affiliated with KPMG by management. Ethics Standards Board reasonable assurance about whether International Cooperative (‘KPMG for Accountants’ Code of Ethics the consolidated financial statements • Conclude on the appropriateness International’), a Swiss entity. for Professional Accountants (IESBA as a whole are free from material of management’s use of the going Registration No. in the Unified State Registration No. in the Unified Code), and we have fulfilled our other misstatement, whether due to fraud concern basis of accounting Register of Legal Entities 1027700151380. State Register of Legal Entities ethical responsibilities in accordance or error, and to issue an auditors’ and, based on the audit evidence 1027700125628. with the requirements in the Russian report that includes our opinion. obtained, whether a material Federation and the IESBA Code. Reasonable assurance is a high level uncertainty exists related to events Moscow, Russia Member of the Self-regulated We believe that the audit evidence of assurance, but is not a guarantee organization of auditors ‘Russian Union or conditions that may cast of auditors’ (Association). The Principal we have obtained is sufficient that an audit conducted significant doubt on the Group’s Registration Number of the Entry and appropriate to provide a basis in accordance with ISAs will always ability to continue as a going in the Register of Auditors and Audit for our opinion. detect a material misstatement concern. If we conclude that Organisations: No. 11603053203.

122 123 ~ / Financial Statements / continued

Consolidated statement of profit or loss Consolidated statement of comprehensive for the year ended 31 December 2019 income for the year ended 31 December 2019

Millions of US Dollars Millions of US Dollars Notes 2019 2018 Notes 2019 2018

Revenue 6 7,547 8,296 Net profit for the year 706 1,164 Cost of sales 7 (4,275) (4,110) Other comprehensive income Distribution costs 8 (1,978) (2,047) Items which may be reclassified to profit or loss in the future: General and administrative expenses 9 (229) (239) Translation difference 141 (460) Other expenses, net (3) (28) Revaluation of intra-group debt denominated in foreign currency 3.2 (1) (1) Operating profit 1,062 1,872 Transfer of changes in fair value of cash flow hedges to profit or loss, net of deferred tax 16 (220) 104 Finance costs, net 10 (422) (311) Effective portion of changes in fair value of cash flow hedges, net of deferred tax 16 311 (16) Foreign exchange gain/(loss) 200 (83) Total items which may be reclassified to profit or loss in the future 231 (373) Profit before tax 840 1,478 Items which may not be reclassified to profit or loss in the future: Income tax expense 27 (134) (314) Revaluation (deficit)/surplus 4 (810) 1,322 Net profit for the year 706 1,164 Tax effect of revaluation 4 162 (264) Net profit attributable to: Actuarial (losses)/gains (7) 10 Ordinary shareholders of the parent 699 1,144 Total items which may not be reclassified to profit or loss in the future (655) 1,068 Non-controlling interests 7 20 Total other comprehensive (loss)/income for the year (424) 695 Net profit for the year 706 1,164 Total other comprehensive (loss)/income attributable to: Basic and diluted earnings per share (in US Dollars) 20 2.96 4.88 Ordinary shareholders of the parent (414) 718 Financial Statements The accompanying notes on pages 129 to 157 are an integral part of these consolidated financial statements. Non-controlling interests (10) (23)

2019 Total other comprehensive (loss)/income for the year (424) 695 Total comprehensive income attributable to: Vladimir Rashevsky Nikolay Pilipenko Ordinary shareholders of the parent 280 1,858 Chief Executive Officer Chief Financial Officer Non-controlling interests 2 1 Total comprehensive income for the year 282 1,859 29 January 2020 The accompanying notes on pages 129 to 157 are an integral part of these consolidated financial statements. SUEK Integrated Report

124 125 ~ / Financial Statements / continued

Consolidated statement of financial Consolidated statement of cash flows position as at 31 December 2019 for the year ended 31 December 2019

Millions of US Dollars Millions of US Dollars Notes 2019 2018 Notes 2019 2018 ASSETS Profit before tax 840 1,478 Non-current assets 14,165 12,044 Adjustments to profit before tax: Property, plant and equipment 11 12,226 11,724 Depreciation and amortisation 7, 8 1,053 669 Right-of-use assets 12 1,631 — Bad debt expense 7 30 Deferred tax assets 27 132 136 Finance costs, net 10 422 311 Goodwill 78 78 Foreign exchange (gain)/loss (200) 83 Other assets 13 98 106 Other, net 4 (9) Current assets 2,306 1,995 Changes in working capital items: Trade accounts and other receivables 14 957 882 Increase in trade accounts and other receivables (36) (61) Inventories 15 766 735 Decrease/(increase) in inventories 3 (144) Prepaid and recoverable taxes 17 265 175 Increase in prepaid and recoverable taxes (other than income tax) (60) (25) Derivative financial assets 16 142 37 Increase/(decrease) in trade accounts and other payables 232 (156) Cash and cash equivalents 18 176 166 (Decrease)/increase in taxes payable (other than income tax) (28) 13 Total assets 16,471 14,039 Net cash inflow from operations 2,237 2,189 EQUITY AND LIABILITIES Income tax paid (178) (288) Equity 5,501 5,235 Net cash inflow from operating activities 2,059 1,901 Financial Statements Share capital 19 — — Investing activities Share premium 104 104 Purchase of property, plant and equipment 11, 12 (1,321) (903) 2019 Revaluation reserve 4,866 5,665 Payments for the acquisition of SGC group 33 (1,941) — Hedging reserve 117 26 Business combination 33 (259) (496) Translation reserve (1,684) (1,812) Loans issued, net (8) 37 Retained earnings 1,923 1,063 Interest received 11 28 Attributable to ordinary shareholders of the parent 5,326 5,046 Other non-current investments, net (12) 3 Non-controlling interests 175 189 Net cash outflow used in investing activities (3,530) (1,331) Non-current liabilities 7,770 7,083 Financing activities Long-term borrowings 21 4,939 3,272 Proceeds from long-term borrowings 3,424 2,402 Long-term lease liabilities 22 984 — Repayments of long-term borrowings (1,295) (2,641) Deferred tax liabilities 27 1,476 1,663 Proceeds from/(repayments of) short-term borrowings, net 5 (134) Other liabilities 24 371 2,148 Payments of lease liabilities 22 (311) — SUEK Integrated Report Current liabilities 3,200 1,721 Interest and commissions paid (301) (313) Short-term borrowings 21 1,799 1,081 Acquisition of non-controlling interests (17) (164) Short-term lease liabilities 22 225 — Dividends paid to non-controlling interests (12) (8) Trade accounts and other payables 25 998 506 Settlement of cross-currency interest rate swap — (30) Derivative financial liabilities 16 12 4 Net cash inflow from/(outflow used in) financing activities 23 1,493 (888) Taxes payable 26 166 130 Foreign exchange effect on cash and cash equivalents (12) 8 Total shareholders’ equity and liabilities 16,471 14,039 Net increase/(decrease) in cash and cash equivalents 10 (310) Cash and cash equivalents at the beginning of the year 18 166 476 The accompanying notes on pages 129 to 157 are an integral part of these consolidated financial statements. Cash and cash equivalents at the end of the year 18 176 166

The accompanying notes on pages 129 to 157 are an integral part of these consolidated financial statements.

126 127 ~ / Financial Statements / continued

Consolidated statement of changes in shareholders’ Notes to the consolidated financial statements equity for the year ended 31 December 2019 for the year ended 31 December 2019

Millions of US Dollars, unless otherwise stated Millions of US Dollars Attributable to ordinary Non- 1. General information Share Share Reva-luation Hedging Trans-lation Retained shareholders controlling capital premium reserve reserve reserve earnings of the parent interests Total Organisation and principal activities. Balance Joint Stock Company (‘JSC’) ‘Siberian Coal Energy Company’ (‘SUEK’ or the ‘Company’) was founded at 1 January 2018 — — 4,774 (62) (1,402) 1,704 5,014 201 5,215 on 1 December 1999. The Company and its subsidiaries are collectively referred to as the Group. The address Net profit for the year — — — — — 1,144 1,144 20 1,164 of registered office is Dubininskaya st. 53, bld. 7, Moscow, Russian Federation. The principal activities of the Group Other comprehensive are the extraction and sales of coal and generation and sales of electricity, heat and capacity. income — — 1,030 88 (410) 10 718 (23) 695 Transfer to retained AIM Capital SE, registered in the Republic of Cyprus, is the immediate parent company of SUEK with 92.2% interest earnings — — (139) — — 135 (4) 4 — in the Company’s share capital. Total comprehensive income for the year — — 891 88 (410) 1,289 1,858 1 1,859 A company that holds business interests beneficially for Mr. Andrey Melnichenko indirectly owns 100% of AIM Capital SE. Transactions with owners: Issue of shares — 104 — — — — 104 — 104 Acquisition of SGC 2. Basis of presentation group — — — — — (1,916) (1,916) — (1,916) Business combination — — — — — — — 145 145 These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Acquisition of non-­ Financial Statements controlling interests — — — — — (14) (14) (150) (164) Dividends The consolidated financial statements of the Group have been prepared on the historical cost basis, except for: 2019 to non-controlling interests — — — — — — — (8) (8) • mining assets carried at fair value; and Total transactions • derivative financial instruments which are stated at fair value. with owners — 104 — — — (1,930) (1,826) (13) (1,839) Balance at 31 December Functional currency. 2018 — 104 5,665 26 (1,812) 1,063 5,046 189 5,235 The functional currency of subsidiaries of the Group is the currency of the primary economic environment where Balance these entities operate. The functional currency of foreign trading subsidiaries and predominantly export-oriented at 1 January 2019 — 104 5,665 26 (1,812) 1,063 5,046 189 5,235 Russian subsidiaries is US Dollar (‘USD’). The functional currency of the Company and Russian subsidiaries that Net profit for the year — — — — — 699 699 7 706 are not predominantly export-oriented is the Russian Rouble (‘RUB’). Other comprehensive loss — — (626) 91 128 (7) (414) (10) (424) Transfer to retained Presentation currency. earnings — — (173) — — 168 (5) 5 — The presentation currency is the USD. The translation of the consolidated financial statements into the presentation

SUEK Integrated Report Total comprehensive currency was performed in accordance with the requirements of IAS 21 ‘The Effects of Changes in Foreign Exchange income for the year — — (799) 91 128 860 280 2 282 Rates’. Business combination — — — — — — — 13 13 Acquisition of non-con- The following RUB/USD exchange rates were applied at 31 December and during the years then ended: trolling interests — — — — — — — (17) (17) Dividends to non-con- 2019 2018 trolling interests — — — — — — — (12) (12) Year end 61.91 69.47 Total transactions Average rate 64.74 62.71 with owners — — — — — — — (16) (16) Balance at 31 December 2019 — 104 4,866 117 (1,684) 1,923 5,326 175 5,501 Adoption of a new standard The Group has applied IFRS 16 ‘Leases’ from 1 January 2019 using the modified retrospective approach The accompanying notes on pages 129 to 157 are an integral part of these consolidated financial statements. as of 1 January 2019 and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4.

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any repayments of lease made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives

128 129 ~ / Financial Statements / continued

of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of- 3.1. Basis of consolidation use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. Subsidiaries. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights The lease liability is initially measured at the present value of the payments of lease discounted using the interest rate to, variable returns from its involvement with the entity and has the ability to affect those returns through its power implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, over the entity. The financial statements of subsidiaries are included in the consolidated financial statements the Group uses its incremental borrowing rate as the discount rate. The weighted-average rate applied is 8.03%. from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Lease payments included in the measurement of the lease liability comprise the following: The acquisition of subsidiaries from third parties is accounted for using the purchase method of accounting. • fixed payments, including in-substance fixed payments; The identifiable assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values as at the date • variable lease payments that depend on an index or a rate, initially measured using the index or rate of acquisition. Non-controlling (minority) interest is measured at its proportionate interest in the identifiable assets as at the commencement date; and liabilities of the acquiree. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non- controlling interests even if doing so causes the non-controlling interests to have a deficit balance. • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Group is reasonably certain to exercise, payments of lease Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early in preparing the consolidated financial statements. termination of a lease unless the Group is reasonably certain not to terminate early. Changes in ownership interests by the Group in a subsidiary, while maintaining control, are recognised as an equity The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there transaction. is a change in future payments of lease arising from a change in an index or rate. If there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its Upon a loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests assessment of whether it will exercise a purchase, extension or termination option. and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been or as an available-for-sale financial asset depending on the level of influence retained. Financial Statements reduced to zero. Business combination under common control. 2019 If the terms of the asset’s lease agreement provide for a purchase option and the Group is reasonably certain that Business combinations arising from transfers of interests in entities that are under the control of the shareholder that it exercises this option, the Group depreciates the right-of-use asset from the commencement date till the end controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative of the useful life of the underlying asset. Depreciation will be calculated based on the useful life of assets under lease. period presented or, if later, at the date that common control was established; for this purpose comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts recorded previously The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of assets that have in the predecessor’s consolidated financial statements. The components of equity of the acquired entities are added a lease term of 12 months or less and leases of low-value assets (with a value of USD 5,000 or less upon purchase). to the same components within Group equity except that any share capital of the acquired entities is recognised as part The Group recognises the payments of lease associated with these leases as an expense on a straight-line basis of additional paid-in capital. Difference between the purchase consideration and carrying value of net assets acquired over the lease term. is recognised directly in equity.

A number of other new standards and amendments to the existing standards are effective from 1 January 2019 but they 3.2. Foreign currency transactions do not have a material effect on the Group’s financial statements, except for those described above. Transactions in foreign currencies are recorded at the exchange rate at the date of the transaction. Monetary assets

SUEK Integrated Report A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application and liabilities denominated in foreign currencies are converted to the respective functional currency at the exchange is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated rate ruling at the balance sheet date. Exchange differences arising from changes in exchange rates are recognised financial statements. in profit or loss, except that exchange differences arising from the revaluation of the intra-group debt accounted for as a part of net investments in foreign entities are recognised in other comprehensive income in the consolidated The following amended standards and interpretations are not expected to have a significant impact on the Group’s financial statements. consolidated financial statements: The translation of the financial statements from functional currency into presentation currency is performed • amendments to references to conceptual framework in IFRS standards; in accordance with the requirements of IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ as follows: • definition of a business (amendments to IFRS 3); • all assets and liabilities, both monetary and non-monetary, are translated at closing exchange rates at the dates • definition of material (amendments to IAS 1 and IAS 8); and of each consolidated statement of financial position presented; • IFRS 17 ‘Insurance Contracts’. • all income and expenses in the consolidated statement of profit or loss are translated at the average exchange rates for the years presented; 3. Significant accounting policies • resulting exchange differences are included in equity and presented separately; and • in the consolidated statement of cash flows, cash balances at the beginning and end of each year presented The accounting policies and judgements applied by the Group are consistent with those disclosed in the audited are translated at exchange rates at the respective dates. All cash flows are translated at the annual average exchange consolidated financial statements for the year ended 31 December 2018, except for the adoption of IFRS 16 ‘Leases’ rates for the years presented. Resulting exchange differences are presented as foreign exchange effect on cash described above. and cash equivalents.

130 131 ~ / Financial Statements / continued

3.3. Property, plant and equipment The estimated useful lives of property, plant and equipment, including mining assets, are as follows: • mining assets average of 64 years Basis of carrying value of property, plant and equipment. Mining assets. • generating assets 4 – 53 years Mining assets include mineral rights with capitalised mine development costs and certain types of operating equipment, • machinery, equipment, transport and other 2 – 37 years such as equipment which represents an integral part of a particular mine or a particular open-pit, or such items of mining equipment whose use on an alternative mine or open-pit is impracticable or not economically feasible. • buildings, structures and utilities 6 – 60 years The remaining part of tangible fixed assets besides listed above is defined as operating tangible fixed assets. • railcars 7 – 32 years Mining assets are carried at fair value since the date of the creation of this new class of property, plant and equipment. Mineral rights were classified as property, plant and equipment and carried at fair value starting from 1 January 2013. 3.4. Capital construction-in-progress

The fair value is determined by discounting future cash flows which can be obtained from operations of the mines Capital construction-in-progress comprises costs directly related to mine development, construction of buildings, based on the life-of-mine plans and deducting the fair value of the operating tangible fixed assets. infrastructure, processing plant, machinery and equipment. Amortisation or depreciation of these assets commences when the assets are put in the location and condition necessary for them to be capable of operating in the manner intended Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the mining by management. Capital construction-in-progress is reviewed regularly to determine whether its carrying value is recoverable. assets and the net amount is restated to the revalued amount of the asset. Revaluations are performed on an annual basis. 3.5. Impairment

A revaluation increase is recognised in other comprehensive income and accumulated in equity except to the extent The Group reviews the carrying amounts of its tangible and intangible assets regularly to determine whether there it reverses a previous revaluation decrease recognised in profit or loss, in which case it is recognised in profit or loss. A are indicators of impairment. If any such indicators exist, the recoverable amount of the asset is estimated in order revaluation decrease is recognised in profit or loss except to the extent that it reverses a revaluation increase to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount recognised directly in equity, in which case it is recognised directly in equity. of an individual asset, the Group estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs. At the year end a portion of the revaluation reserve, which is equal to the difference between depreciation based on the revalued carrying amount of the mining assets and depreciation based on the asset’s historical cost, A recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated Financial Statements is transferred from the revaluation reserve to retained earnings. future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 2019 The mineral rights of new greenfields are carried at historical value until detailed technical and financial plans for the assets are finalised. If the recoverable amount of an asset or CGU is estimated to be less than the carrying amount, the carrying amount is reduced to the recoverable amount and the impairment losses are recognised in profit or loss for the year. Impairment Property, plant and equipment, other than mining assets. losses are allocated first to reduce the carrying amount of any goodwill allocated to CGU, and then to reduce the carrying Property, plant and equipment, other than mining assets, is stated at cost less accumulated depreciation and impairment amounts of the other assets in CGU on a pro-rata basis. losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads, and the corresponding capitalised borrowing costs. Where an item of property, plant An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent and equipment, other than mining assets, comprises major components having different useful lives, they are accounted that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation for as separate items of property, plant and equipment. or amortisation, if no impairment loss had been recognised.

Starting from 2019 railcars wheel pairs are also accounted for as separate items of property, plant and equipment. 3.6. Research and exploration expenditure

SUEK Integrated Report Expenditure incurred to replace a component of an item of property, plant and equipment, other than mining assets, Pre-exploration costs are recognised in profit or loss as incurred. that is accounted for separately, is capitalised to the carrying amount of the component that has been replaced being written off. Subsequent expenditure is capitalised if future economic benefits arise from the expenditure. All other Exploration and evaluation costs (including geophysical, topographical, geological and similar types of expenditure) expenditure, including repairs and maintenance, is recognised in profit or loss as an expense as incurred. are capitalised as exploration and evaluation assets on a project-by-project basis pending determination of the technical feasibility and commercial viability of the project. The technical feasibility and commercial viability of extracting coal Generating assets and railcars. is considered to be determinable when proven coal reserves are determined to exist. Expenditure deemed to be unsuccessful In 2019, the Group has changed its accounting policy and established two new categories of property, plant is recognised immediately in profit or loss. and equipment – Generating assets and Railcars. Generating assets include buildings, machinery, equipment and utilities which are used in generation of energy. Management believes that the new accounting policy presents 3.7. Inventories more fairly the consolidated financial position of the Group by recognising the whole value of the energy resource base, which is the Energy segment’s core asset in its consolidated statement of financial position. Coal. Coal is measured at the lower of production cost or net realisable value. Net realisable value is the estimated selling price Depreciation. in the ordinary course of business, less the estimated selling expenses. Production costs include on-mine and processing Mining assets are depreciated using the unit-of-production method, based on the estimated proven and probable costs, as well as transportation costs to the point of sale. coal reserves to which they relate, or are written off if the mine is abandoned or where there is an impairment in value. The impairment loss is recognised in profit or loss for the year to the extent it exceeds the previous revaluation surplus Consumable stores and materials. in equity. Estimated proven and probable coal reserves determined in accordance with internationally recognised The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring standards for reporting coal reserves reflect the economically recoverable coal reserves which can be legally recovered the inventories and bringing them to their existing location and condition. in the future from coal deposits. 3.8. Financial instruments Tangible assets, other than mining assets, are depreciated using the straight-line method based on estimated useful lives. For each item the estimated useful life has due regard to both its own physical life limitations and, if applicable, Non-derivative financial instruments. the present assessment of the economically recoverable reserves of the mine property at which the item is located, Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and to possible future variations in those assessments. Estimates of remaining useful lives are made on a regular basis and cash equivalents, loans and borrowings, and trade and other payables. for all tangible assets, with annual reassessments for major items.

132 133 ~ / Financial Statements / continued

The Group recognises a financial asset or a financial liability in its statement of financial position when it becomes party life of a financial instrument, whereas 12-month ECLs are the portion of ECLs that result from default events that to the contractual provisions of the instrument. At initial recognition, the Group measures a financial asset or a financial are possible within the 12 months after the reporting date.The Group measures loss allowances at an amount equal liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through profit or loss, to lifetime ECLs, except in the following cases, for which the amount recognised will be 12-month ECLs: transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability. • debt securities that are determined to have low credit risk at the reporting date; Financial assets at amortised cost. • other financial instruments (other than lease receivables) for which credit risk has not increased significantly since Financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair initial recognition. value through profit or loss (‘FVTPL’): For loans, the Group measures ECL on an individual basis, or on a collective basis for portfolios that share similar • the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; economic risk characteristics. and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments An impairment loss in respect of the financial assets is calculated as present value of the difference between of principal and interest on the principal amount outstanding. the contractual cash flows that are due to the Group under the contract, and the cash flows that the Group expects to receive. For trade receivables, the Group applies a simplified approach permitted by the standard, which requires The financial assets are measured at amortised cost using the effective interest method, less any impairment losses. expected lifetime losses to be recognised from initial recognition of the receivables. To measure the expected credit Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss losses, trade receivables and contract assets are grouped based on shared credit risk characteristics and the days past on derecognition is recognised in profit or loss. due. In assessing the impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred. When determining whether the credit risk of a financial asset has increased Financial assets at fair value through other comprehensive income (‘FVOCI’). significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable Financial assets are classified and measured at fair value through other comprehensive income if they meet both information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative of the following conditions and are not designated as at FVTPL: information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. • they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount • their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest of the assets. For debt securities at FVOCI, the loss allowance is recognised in other comprehensive income, instead on the principal amount outstanding. of reducing the carrying amount of the asset. Impairment losses on financial assets are presented under ‘other Financial Statements expenses’ in the operating profit or loss, similar to the presentation under IAS 39, and not presented separately These assets are subsequently measured at fair value. Interest income calculated using the effective interest in the statement of profit or loss and other comprehensive income due to materiality considerations. 2019 method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other Derivative financial instruments. comprehensive income are reclassified to profit or loss. The Group may enter into a variety of derivative financial instruments to manage its exposure to commodity price risk, foreign currency risk, interest rate risk and risk of changes in the price of freight. Financial assets at fair value through profit or loss. Any financial assets that are not held in one of the two business models mentioned above are measured at fair value Derivatives are initially recognised at fair value; any directly attributable transaction costs are recognised in profit through profit or loss. This includes all derivative financial assets. or loss as they are incurred. The subsequent changes are recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, depends on the nature of the hedge relationship. are recognised in profit or loss. The Group designates certain derivatives as hedges of a highly probable forecast transaction (cash flow hedge). If the Group changes its business model for managing financial assets it must reclassify all affected financial assets. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value

SUEK Integrated Report of the derivative is recognised in other comprehensive income. Any ineffective portion of changes in the fair value The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, of the derivative is recognised immediately in profit or loss. The amount accumulated in equity is retained in other or it transfers the rights to receive the contractual cash flows on the financial asset, or it retains the contractual rights comprehensive income and reclassified to profit or loss (to revenue or foreign exchange gain/loss depending to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one on a hedged item) in the same period in which the hedged item affects profit or loss. or more recipients in an arrangement. When a hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, or the designation Cash and cash equivalents. is revoked, then hedge accounting is discontinued prospectively. When a forecast transaction is no longer expected Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. to occur, the cumulative gain or loss that was recognised in equity is reclassified to profit or loss. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 3.9. Provisions

Financial liabilities. Provisions are recognised when the Group has legal or constructive obligations, as a result of a past event, All financial liabilities are measured at amortised cost, except for financial liabilities at fair value through profit or loss. for which it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount Such liabilities include derivatives (other than derivatives that are financial guarantee contracts or are designated of the obligation can be reliably estimated. and effective hedging instruments), other liabilities held for trading, and liabilities that the Group designates to be measured at fair value through profit or loss. After initial recognition, the Group cannot reclassify any financial liability. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. If the effect The Group derecognises a financial liability (or a part of a financial liability) when the obligation specified in the contract is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects is discharged or cancelled or expires. current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Impairment of financial assets. 3.10. Employee benefit obligations The Group assesses on a forward looking basis the expected credit losses (‘ECL’) associated with its financial assets carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been Remuneration to employees in respect of services rendered during a reporting year is recognised as an expense in that a significant increase in credit risk. This will require considerable judgement over how changes in economic factors reporting year. affect ECLs, which will be determined on a probability-weighted basis. The impairment model applies to the financial instruments that are not measured at FVTPL.Loss allowance is recognised at an amount equal to either 12-month ECLs or lifetime ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected

134 135 ~ / Financial Statements / continued

Defined contribution plan. 3.13. Dividends declared The Group contributes to the Pension Fund of the Russian Federation, a defined contribution pension plan. The only obligation of the Group is to make the specified contributions in the year in which they arise and these contributions Dividends and related taxation thereon are recognised as a liability in the year in which they have been declared are expensed as incurred. and become legally payable.

Defined benefit plans. Retained earnings legally distributable by the Group are based on the amounts available for distribution in accordance In accordance with current legislation and internal documentation the Group operates defined benefit plans whereby with the applicable legislation and as reflected in the statutory financial statements of the individual Group entities. field workers of its coal-producing subsidiaries are entitled to a lump sum payment. The amount of benefits depends These amounts may differ significantly from the amounts recognised in the Group’s consolidated IFRS financial on age, years of service, compensation and other factors. statements.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value 3.14. Development expenditure of the defined benefit obligation at the balance sheet date. Actuarial gains and losses are recognised directly in other comprehensive income. Development costs are capitalised when shaft sinking is done to prepare a certain part of a deposit for mining and used throughout the life of a mine. Development costs are expensed in case longwalls are being prepared for extraction. The defined benefit obligation is calculated annually by the Group. The Projected Unit Credit Method is used to determine the present value of defined benefit obligations and the related current service cost. The present value 3.15. Overburden removal expenditure of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have terms In open-pit coal mining operations, it is necessary to remove the overburden and other waste in order to access to maturity approximating the terms of the related pension liability. the economically recoverable coal.

3.11. Income tax Stripping costs incurred during the pre-production phase of the open-pit mine are capitalised as the cost of the development of the mining property and amortised over the life of the mine. Income tax expense comprises current and deferred taxation. Due to the specifics of the geology of the Group’s mining assets, the period required to gain access to a coal seam Current tax is the tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, is short, and the stripping ratio (volume of overburden removed over the volume of coal extracted) is relatively constant and includes any adjustment to tax payable in respect of previous years. over the periods. Therefore, stripping costs incurred during the production phase of the open-pit mine are recognised Financial Statements in the profit or loss as incurred. Deferred tax is recognised in respect of temporary differences between the carrying amounts of the assets and liabilities 2019 for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised 3.16. Environmental obligation for the temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. In addition, deferred tax is not recognised Environmental obligation includes provision for decommissioning and site restoration costs. for temporary differences arising on the initial recognition of goodwill and temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the timing of the reversal Environmental provision is recognised when the Group has a present legal or constructive obligation as a result of past of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. events that existed at the balance sheet date: • to dismantle and remove its items of property, plant and equipment (decommissioning); and Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. • to restore site damage after the commencement of coal production to bring the land into a condition suitable for its further use (site restoration). The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred Estimated future costs are provided for at the present value of estimated future expenditures expected to be incurred

SUEK Integrated Report tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, to settle the obligation, using estimated cash flows, based on current prices adjusted for the inflation. and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised The increase in the provision through unwinding of the obligation, due to the passage of time, is recognised as a finance simultaneously. cost in profit or loss.

In accordance with the tax legislation of the Russian Federation, tax losses and current tax assets of a company Changes in the obligation, reassessed regularly, related to new circumstances or changes in law or technology, in the Group may not be set off against taxable profits and current tax liabilities of other Group companies. In addition, or in the estimated amount of the obligation, or in the pre-tax discount rates, are recognised as an increase or decrease the tax base is determined separately for each of the Group’s main activities and, therefore, tax losses and taxable of the cost of the relevant asset to the extent of the carrying amount of the asset; the excess is recognised immediately profits related to different activities cannot be offset. in profit or loss.

3.12. Revenue recognition Gains from the expected disposal of mining assets at the end of the life of the mine are not taken into account when determining the provision. Revenue comprises the sales value of coal, energy and other goods and services supplied to customers during the period, excluding value-added tax. The sales of goods are recognised when control of the products has transferred 3.17. Borrowing costs to the customer. Revenue from providing services is recognised in the accounting period in which the services are rendered. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those Energy sales are carried out on both regulated and unregulated energy markets. Regulated market revenue is based assets, until the assets are substantially ready for their intended use. All other borrowing costs are recognised in profit on the application of authorised tariffs as approved by the Federal Antimonopoly Service and Regional Energy or loss for the year in which they are incurred. Commission of Russian Federation. Revenue is recognised on a monthly basis upon the delivery of the electricity and heat. 3.18. Goodwill

The amounts of revenue and expenses of self-produced and consumed electricity volume are shown net Goodwill arises on acquisitions and is recognised as an asset initially measured at cost, being the excess of the cost for presentation purposes based on selling prices on a day-ahead market. Management believes that such presentation of the business combination over the Group’s share of the net fair value of acquiree’s identifiable assets, liabilities provides more relevant and meaningful information about the operation of the Group.

136 137 ~ / Financial Statements / continued

and contingent liabilities recognised at the date of acquisition. If the Group’s share of the net fair value of the acquiree’s and consensus forecast of investment banks, forecast after 2023 is estimated to be in line with long-term USD identifiable assets, liabilities and contingent liabilities, after reassessment, exceeds the cost of the business inflation; combination, the excess is recognised immediately in profit or loss. • domestic coal sales volumes were estimated to grow at an average of 1% for the foreseeable forecasted period 2020-2030; Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment. Transaction costs incurred • domestic coal prices were estimated to grow at an average of 5% in 2020 and to grow in line with RUB inflation in a business combination are expensed. thereafter; • regulated railroad tariffs for 2020 were estimated to grow at an average of 3.5% and to grow in line with RUB inflation The Group elected not to restate past business combinations at the date of adoption of IFRS. less than 0.1% thereafter; • the RUB/USD exchange rate was estimated in 2020 at the level of 65.5 RUB/USD. For 2020-2021 the estimate was 4. Critical accounting judgements and estimates based on the RUB/USD forward rate and a consensus forecast of investment banks and was indexed by the ratio between the expected RUB inflation of the corresponding year and the long-term USD inflation thereafter; In the process of applying the Group’s accounting policies management has made the following principal judgements • cash flow forecasts were discounted to their present value at the nominal weighted average cost of capital of 12.5% and estimates that have a significant effect on the amounts recognised in the consolidated financial statements. Actual in RUB for brown coal mining units and at the nominal weighted average cost of capital of 9.5% in USD for hard coal results may differ from these estimates. mining units.

Coal reserve estimates. At 31 December 2019 the total effect of the revaluation of the mining assets was a decrease of 810 million USD Coal reserve estimates are used as the basis for future cash flows, which enter into the valuation of mining rights, (31 December 2018 – an increase of 1,322 million USD); the after-tax effect on equity was a decrease of 648 million the determination of provision for environmental obligations, calculations of amortisation and depreciation of mining USD (31 December 2018 – an increase of 1,058 million USD). assets, the unwinding of discount on environmental obligations and the related deferred taxes. Example changes in key assumptions applied to the first forecasted year would have the following effect on the fair The coal reserve estimates represent the quantity of coal expected to be mined, processed and sold at prices value of the mining assets: at least sufficient to recover the estimated total costs, the carrying value of the investment and anticipated additional expenditures (‘proven and probable coal reserves’ in international mining terminology). The estimates are based (Decrease)/increase on several assumptions about the physical existence of coal reserves, future mining and recovery factors, production of the fair value Financial Statements costs and coal prices and have been calculated using the assessment of available exploration and other data. Increase in weighted average cost of capital by 1 percentage point (954) The Group undertakes revisions of the coal reserve estimates, which are confirmed by independent consulting mining Increase in export coal prices of 1% 400 2019 engineers, as appropriate. Increase in RUB/USD exchange rate of 1% 255 Increase in export coal sales volumes of 1% 157 Although management’s long-term mine plans exceed the remaining useful life of some of the mining licenses Increase in regulated railroad tariffs growth of 1% (186) of the Group, the Group has a legal right to apply for the extension of the licenses for its existing mining resources Increase in domestic coal prices of 1% 134 and therefore management is confident that the licenses will be extended provided that it is the same coal resource within the original mining license and that certain other conditions are met. Extensions to new seams or adjacent areas Increase in domestic coal sales volumes of 1% 62 are often subject to open auctions. Delay or failure in securing relevant government approvals or licences, as well Determination of recoverable amount of property, plant and equipment of the Coal segment (other than mining assets). as any adverse change in government policies, may cause a significant adjustment to development and acquisition plans, which may have a material adverse effect on the Group’s financial position and performance. The recoverable amount of the property, plant and equipment of the coal segment (other than mining assets) as at 31 December 2019 was determined either based on market prices for similar items of machinery and equipment Valuation of mining assets. recently acquired by the Group or, if no such purchases ocсured, by applying a price index for the relevant year of acquisition Mining assets for coal extraction are stated at their fair value based on reports prepared by internal specialists for mining equipment to the residual value of items. As a result of the testing no impairment loss was recognised.

SUEK Integrated Report of the Group at each year end.

Since there is no active market for mining assets, the fair value is determined by discounting future cash flows, 5. Segmental information which can be obtained from the operations of the mines based on the life-of-mine plans, and deducting the fair value of the operating tangible fixed assets. The Group did not identify any material intangible assets which should be The Group evaluates performance and makes investment and strategic decisions based on a review of the profitability deducted in arriving at the fair value of the mining assets. of the Group as a whole, and based on operating segments. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses and whose operating results Since the operating tangible fixed assets are carried at historical cost, for the purposes of regular revaluation of mining are regularly reviewed by management. assets their fair value is determined either based on market prices for similar items of tangible fixed assets recently acquired or constructed by the Group or, in absence of such items, by applying a price index for the relevant year Starting from 1 January 2019 operating segments identified by management are coal, logistics, energy and corporate of acquisition of mining equipment to the residual value of items. segments. The coal segment includes coal extraction, coal washing, sales and distribution in the Russian Federation and abroad; the logistics segment includes railroad transportation and transshipment in ports; the energy segment At 31 December 2019 the fair value of mining assets was determined based on the following key assumptions: includes generation and sales of electricity, heat and capacity and the corporate segment includes operations of holding companies. • the cash flows were projected based on actual operating results and life-of-mine models constructed for each cash- generating mining unit and based on an assessment of proven and probable reserves using projected volumes of coal Management believes that the new disclosure structure presents more fairly the operating segment information. and the available capacity of the transport infrastructure in the foreseeable period and thereafter; Changes were caused by evolutionary approach resulting from acquisition and development of business other than • in 2019 the Group performed appraisal of proven and probable reserves as at 1 January 2019. The appraisal was coal. The comparative information for the year ended and as at 31 December 2018 has been restated for the effect performed by external professional consultants; of these changes. • export coal sales volumes were estimated to grow at an average of 2% for the foreseeable forecasted period 2020-2030; • export coal prices for Asian markets are estimated to fall by 7% in 2020 in comparison to 2019 and to grow at an average of 3% for 2021-2023. Export coal prices for European markets are estimated to stay in 2020 at the level of 2019 and to grow at an average of 6% for 2021-2023. Forecast for 2020-2023 is based on the forward rates

138 139 ~ / Financial Statements / continued

Operating segment information for the Group at 31 December 2019 and for the year then ended is as follows: 7. Cost of sales

Inter- 2019 2018 segment Coal and petroleum coke purchased from third parties 1,090 1,155 Coal Logistics Energy Corporate elimination Total Labour 846 784 Segment revenue and profitability Depreciation and amortisation 794 627 Segment external revenues 5,140 218 2,189 — — 7,547 Consumables and spares 454 373 Russian Federation 614 218 2,189 — — 3,021 Purchased fuel 279 256 Pacific region 2,712 — — — — 2,712 Purchased energy 197 223 Atlantic region 1,814 — — — — 1,814 Repairs and maintenance services 164 137 Inter-segment revenues 664 1,903 8 53 (2,628) — Transportation services 58 51 Segment expenses (5,650) (1,632) (1,720) (111) 2,628 (6,485) Property and other taxes 54 72 Operating profit/(loss) 154 489 477 (58) — 1,062 Drilling and blasting services 22 44 Depreciation and amortisation (597) (265) (184) (7) — (1,053) Tax on mining 41 40 Interest expense and interest on lease (157) (94) (121) (239) 206 (405) Personnel transportation services 37 33 Interest income 5 7 4 210 (206) 20 Fire and rescue brigade expenses 36 32 (Loss)/profit before tax (88) 444 357 127 — 840 Transfer of heat 28 27 Income tax benefit/(expense) 51 (89) (71) (25) — (134) Special equipment services 15 16 Net (loss)/profit for the year (37) 355 286 102 — 706 Land rent 6 17 Capital expenditures incurred during the year 972 89 158 12 — 1,231 Other 154 223 Additions of right-of-use assets 13 932 4 — — 949 Total 4,275 4,110 Segment assets and liabilities Total segment assets 13,271 2,601 3,682 1,210 (4,293) 16,471 Total segment liabilities 5,013 1,409 2,493 6,348 (4,293) 10,970 Proceeds from the sale of electricity and purchased energy are presented after deduction of cost of electricity Financial Statements generated by the Group and consumed for own process needs in the amount of 96 million USD for the year ended Operating segment information for the Group at 31 December 2018 and for the year then ended is as follows: 31 December 2019 (for the year ended 31 December 2018 – 87 million USD). 2019

Inter- segment 8. Distribution costs Coal Logistics Energy Corporate elimination Total Segment revenue and profitability 2019 2018 Segment external revenues 6,031 135 2,130 — — 8,296 Railway services 1,172 1,234 Russian Federation 679 135 2,130 — — 2,944 Freight 289 282 Pacific region 3,054 — — — — 3,054 Depreciation and amortisation 259 42 Atlantic region 2,298 — — — — 2,298 Stevedoring from third parties 138 139 Inter-segment revenues 568 1,875 7 54 (2,504) — Repair and maintenance services 44 50 Segment expenses (5,406) (1,687) (1,746) (89) 2,504 (6,424) Labour 44 47 SUEK Integrated Report Operating profit/(loss) 1,193 323 391 (35) — 1,872 Consumables and spares 9 20 Depreciation and amortisation (438) (50) (177) (4) — (669) Customs expenses and export duties 8 18 Interest expense (141) (14) (135) (180) 178 (292) Property and other taxes 2 3 Interest income 7 16 7 171 (178) 23 Rent of rail cars — 193 Profit/(loss) before tax 1,032 294 259 (107) — 1,478 Other 13 19 Income tax (expense)/benefit (224) (59) (52) 21 — (314) Total 1,978 2,047 Net profit/(loss) for the year 808 235 207 (86) — 1,164 Capital expenditures incurred during the year 802 80 101 7 — 990 Segment assets and liabilities 9. General and administrative expenses Total segment assets 12,727 952 2,786 834 (3,260) 14,039 Total segment liabilities 4,244 288 1,976 5,556 (3,260) 8,804 2019 2018 Salaries 140 131 Consulting, legal, audit and other professional services 38 38 6. Revenue Charitable donations 26 38 Office rent — 8

2019 2018 Other 25 24 Total 229 239 Coal 4,877 5,706 Capacity 732 720 Heat 707 734 Electricity 693 588 Petroleum coke 153 250 Other 385 298 Total 7,547 8,296

140 141 ~ / Financial Statements / continued

10. Finance Costs, NET If mining assets had been carried at the historical cost, the net book value of property, plant and equipment at 31 December 2019 would have been 6,776 million USD (31 December 2018 – 5,372 million USD). 2019 2018 Interest expense 317 292 12. Right-of-use assets Interest on lease 88 — Machinery, Bank commissions and charges 24 32 Buildings, equipment, Unwinding of discount on provisions 13 10 Generating structures transport Interest income (20) (23) assets and utilities and other Railcars Total Total 422 311 Cost Balance at 1 January 2019 79 85 28 591 783 Additions 4 11 2 932 949 11. Property, plant and equipment Modifications (5) 13 (1) (1) 6 Disposals — — — (38) (38) Machinery, Translation difference 10 13 1 111 135 equipment, Buildings, Balance at 31 December 2019 88 122 30 1,595 1,835 Generating transport structures Construction- Mining assets assets and other and utilities Railcars in-progress Total Accumulated depreciation Cost Balance at 1 January 2019 — — 4 — 4 Balance Depreciation 10 10 8 192 220 at 1 January 2018 6,636 2,162 2,422 1,680 314 349 13,563 Modifications — — — (4) (4) Revaluation of mining Disposals — — — (25) (25) assets 1,322 — — — — — 1,322 Translation difference 1 — — 8 9 Business combination — 644 6 161 — 33 844 Balance at 31 December 2019 11 10 12 171 204 Additions 40 19 5 15 — 911 990 Net book value at 1 January 2019 79 85 24 591 779

Transfers 351 20 443 (209) 34 (639) — Net book value at 31 December 2019 77 112 18 1,424 1,631 Financial Statements Disposals — (4) (60) (4) — (9) (77) In the first half of 2019, the Group acquired a company which owned railcars in lease for a consideration of 425 million USD 2019 Translation difference (358) (485) (140) (130) (32) (38) (1,183) from a third party. The Group treated this transaction as an acquisition of assets and recognised railcars in the form of a right- Balance of-use assets of 832 million USD. Lease liabilities related to these railcars are disclosed in note 22. The consideration paid at 31 December 2018 7,991 2,356 2,676 1,513 316 607 15,459 is included in the Property, plant and equipment line in the consolidated statement of cash flows in accordance with its Revaluation of mining substance. assets (810) — — — — — (810) Business combination (see note 33) 28 314 15 36 — 40 433 13. Other assets Additions 55 — 4 55 — 1,117 1,231 Transfers 108 52 599 138 41 (938) — 2019 2018 Disposals (5) (8) (74) (15) — (13) (115) Contract assets under concession agreements 49 24 Translation difference 207 305 108 76 23 29 748 Other assets 49 82 Balance Total 98 106 SUEK Integrated Report at 31 December 2019 7,574 3,019 3,328 1,803 380 842 16,946 Accumulated depreciation and amortisation 14. Trade accounts and other receivables Balance at 1 January 2018 722 623 1,399 658 19 — 3,421 2019 2018 Depreciation Trade accounts receivable 985 859 and amortisation (including transfers) 368 125 238 (67) 14 — 678 Advances issued 115 127 Disposals — (3) (58) (3) — — (64) Other receivables 55 67 Translation difference (65) (118) (66) (46) (5) — (300) Subtotal 1,155 1,053 Balance Less: Allowance for doubtful debts 198 171 at 31 December 2018 1,025 627 1,513 542 28 — 3,735 Total 957 882 Depreciation and amortisation 305 114 295 82 38 — 834 Disposals (5) — (45) (2) — — (52) Translation difference 44 81 54 22 2 — 203 Balance at 31 December 2019 1,369 822 1,817 644 68 — 4,720 Net book value at 31 December 2018 6,966 1,729 1,163 971 288 607 11,724 Net book value at 31 December 2019 6,205 2,197 1,511 1,159 312 842 12,226

Group assets include advances issued for capital expenditures of 64 million USD (31 December 2018 – 100 million USD).

142 143 ~ / Financial Statements / continued

15. Inventories Coal contracts. The Group uses coal forwards to hedge the coal price index used in index price coal sales and purchase contracts. 2019 2018 Details of the coal forwards designated as cash flow hedges were as follows: Coal stock 356 416 2019 2018 Consumable stores and materials 455 350 Volume, Volume, Less: Allowance for obsolescence 45 31 ‘000 tonne Derivative ‘000 tonne Derivative Net consumable stores and materials 410 319 Derivative assets Total 766 735 0 – 3 months 1,014 9 2,623 12 3 – 6 months 738 11 2,043 9 16. Derivative financial instruments 6 – 9 months 738 9 1,923 9 9 – 12 months 828 8 1,743 7 Total 3,318 37 8,332 37 2019 2018 Derivative liabilities Derivative Derivative Derivative Derivative assets liabilities assets liabilities 0 – 3 months 192 2 210 2 Cross-currency swaps – cash flow hedges 104 5 — — 3 – 6 months 112 2 150 1 Coal contracts – cash flow hedges 37 7 35 4 6 – 9 months 125 2 30 1 Other derivatives 1 — 2 — 9 – 12 months 105 1 30 — Total 142 12 37 4 Total 534 7 420 4

Derivative financial instruments were valued using observable inputs, which correspond to Level 2 of the hierarchy At 31 December 2019 the average coal sales price under the hedge coal forward contracts was 70 USD per ton of the fair value measurements (see note 31). Details of the effective portion of changes in fair value of cash flow hedges (31 December 2018 – 92 USD per ton) and the average coal puchase price under the coal forward contracts was were as follows: 69 USD per ton (31 December 2018 – 94 USD per ton). Financial Statements 2019 2018 17. Prepaid and recoverable taxes 2019 Gain Gain recycled Loss Loss recycled recognised from comprehensive recognised from comprehensive 2019 2018 in comprehensive income to the profit in comprehensive income to the profit income or loss income or loss Value-added tax recoverable 195 122 Effective portion of changes Income tax receivable 65 51 in fair value of cash flow hedges 344 (241) (17) 114 Prepaid other taxes 5 2 Deferred tax (33) 21 1 (10) Total 265 175 Total 311 (220) (16) 104

Cross-currency swaps. In the second half of 2019 the Group entered into cross-currency swap contracts to manage 18. Cash and cash equivalents exposure of fluctuations in foreign currency exchange rates. 2019 2018 SUEK Integrated Report At 31 December 2019 the outstanding principle amount of hedge is 1,908 million USD. Details of the cross-currency Current accounts — RUB 83 62 swaps designated as cash flow hedges were as follows: — foreign currency 56 61

2019 2018 Deposits — RUB 24 19 — foreign currency 9 9 Volume, Volume, million USD Derivative million USD Derivative Other cash equivalents — foreign currency 4 15 Derivative assets Total 176 166 2021 177 17 — — 2022 676 62 — — 19. Share capital and reserves 2023 392 25 — — Total 1,245 104 — — Number of shares, Derivative liabilities in thousands 2023 662 5 — — 2019 2018 Total 662 5 — — Authorised share capital Ordinary shares 236,060 236,060 Issued share capital Ordinary shares 236,060 236,060

Ordinary shares of the Company have a par value of 0.005 RUB. All issued shares were fully paid.

144 145 ~ / Financial Statements / continued

20. Earnings per share 23. Changes in liabilities arising from financial activities

Basic earnings per share are calculated based on the weighted average number of ordinary shares outstanding during The table below provides information of changes in liabilities arising from financing activities, including changes arising the year. Basic and diluted earnings per share are the same, as there is no dilution effect. from cash flows and non-cash changes:

2019 2018 Long-term Short-term Lease Acquisition Profit for the year attributable to ordinary shareholders of the parent 699 1,144 borrowings borrowings liabilities of NCI Other Total Weighted average number of ordinary shares in issue (in thousands) 236,060 234,393 Balance as at 1 January 2018 4,650 177 — — — 4,827 Basic and diluted earnings per share (in USD) 2.96 4.88 Cash flows (550) (136) — (164) (38) (888) Foreign exchange (gain)/loss (297) (28) — — 1 (324) Interest expenses 289 3 — — — 292 21. Borrowings Business combination 167 46 — — — 213 Bank commissions 32 — — — — 32 Effective interest rate 2019 2018 Other payables — — — 164 37 201 Long-term borrowings Balance as at 31 December 2018 4,291 62 — — — 4,353 Variable rate borrowings 2,952 3,050 Balance as at 1 January 2019 4,291 62 799 — — 5,152 Unsecured USD-denominated borrowings 6M LIBOR + 0.9% to 1M LIBOR + 3% 2,780 2,692 Cash flows 1,828 5 (311) (17) (12) 1,493 6M EURIBOR + 0.38% to 6M EURIBOR Unsecured EUR-denominated borrowings + 2.25% 172 141 Foreign exchange loss 144 67 117 — — 328 Unsecured RUB-denominated borrowings — 217 Interest expenses and interest on lease 296 21 88 — — 405 Fixed rate borrowings 3,631 1,241 Change in lease obligations — — 516 — — 516 Unsecured USD-denominated borrowings 3.2% to 5.1% 1,814 — Bank commissions 24 — — — — 24 Unsecured RUB-denominated borrowings 0.05% to 8.03% 977 970 Other payables — — — 17 12 29 Unsecured RUB-denominated bonds 7.4% to 8.3% 840 271 Balance as at 31 December 2019 6,583 155 1,209 — — 7,947

Subtotal 6,583 4,291 Financial Statements Less: Current portion of long-term borrowings 1,644 1,019

2019 Total long-term borrowings 4,939 3,272 24. Other long-term liabilities Short-term borrowings Fixed rate borrowings 155 62 2019 2018 Unsecured USD-denominated borrowings 2.25% to 2.3% 150 — Provision for environmental obligation 175 79 Undecured RUB-denominated borrowings 7.6% to 7.75% — 60 Provision for defined benefit obligation 64 49 Other borrowings 5 2 Payables for the acquisition of SGC group — 1,916 Subtotal 155 62 Other long-term liabilities 132 104 Current portion of long-term borrowings 1,644 1,019 Total 371 2,148 Total short-term borrowings 1,799 1,081 The Group’s long-term borrowings have restrictive covenants including, but not limited to, the requirement to maintain Provision for environmental obligation. minimum ratios associated with: The extent and cost of future site restoration programmes are inherently difficult to estimate and depend on the estimated

SUEK Integrated Report lives of the assets, the scale of any possible disturbance and contamination as well as the timing and extent of corrective • consolidated net indebtedness to earnings before interest, tax, depreciation and amortisation (‘EBITDA’); and actions. The following is a summary of the key assumptions on which the discounted carrying amounts of the obligations • EBITDA to consolidated interest expense. are based:

The covenants are calculated based on the IFRS financial statements of the Group on a semi-annual basis. 2019 2018 As at 31 December 2019 the Group was in compliance with all such covenants. Discount rate 7% 9% Inflation rate 4% 5%

22. Lease liabilities Provision for defined benefit obligation. Actuarial assumptions used for the calculation of the defined benefit obligation were as follows: 2019 2018 2019 2018 Recognition at the beginning of the period 799 — Discount rate 7% 9% Additions 521 — Inflation rate 4% 5% Modifications 11 Future increases in salaries 4% 5% Interest on lease 88 — Payments of lease liabilities (311) — Disposals (16) — Translation difference 117 — Closing balance 1,209 —

Closing balance of a lease liability of 399 million USD relates to railcars in lease disclosed in Note 12.

146 147 ~ / Financial Statements / continued

25. Trade accounts and other payables The tax effects of temporary differences that give rise to deferred taxation are presented below:

2019 2018 Effect Recognised of translation Trade accounts payable and accruals 518 302 Opening Effect Recognised in profit to presentation Closing Advances from customers 198 57 balance of IFRS 16 in equity or loss currency balance Accrual for vacation payments 72 56 2019 Wages and salaries 66 57 Deferred tax assets 247 156 9 80 35 527 Payables for the acquisition of Reftinskaya GRES (see note 33) 65 — Lease liabilities — 156 — 62 10 228 Other creditors 79 34 Tax losses carried forward 193 — 6 (24) 16 191 Total 998 506 Prepaid expenses and accruals 13 — 2 — (1) 14 Environmental and other provisions 19 — 1 17 2 39 26. Taxes payable Employee benefit obligations 14 — — 2 1 17 Trade accounts and other receivables 8 — — 2 1 11 Inventory — — — — 5 5 2019 2018 Other — — — 21 1 22 Value-added tax 72 80 Deferred tax liabilities (1,774) (156) 149 (5) (85) (1,871) Income tax 46 9 Property, plant and equipment (1,757) — 161 39 (63) (1,620) Social security contributions 28 18 Right-of-use — (156) — (62) (10) (228) Other 20 23 Derivative financial assets (3) — (12) — — (15) Total 166 130 Inventory (7) — — 10 (3) — Other (7) — — 8 (9) (8) 27. Taxation Net deferred tax liabilities (1,527) — 158 75 (50) (1,344) Financial Statements 2019 2018 Effect Recognised of translation

2019 Current income tax expense 209 243 Opening Recognised in profit to presentation Closing Deferred income tax (benefit)/expense (75) 71 balance in equity or loss currency balance Income tax expense 134 314 2018 The reconciliation of theoretical income tax, calculated at the rate effective in the Russian Federation, where Deferred tax assets 302 — (17) (38) 247 the Company is domiciled, to the amount of actual income tax expense recorded in the consolidated statement of profit Tax losses carried forward 242 — (18) (31) 193 or loss and other comprehensive income is as follows: Environmental and other provisions 17 2 2 (2) 19 Employee benefit obligations 15 1 (1) (1) 14 2019 2018 Prepaid expenses and accruals 10 1 4 (2) 13 Profit before tax 840 1,478 Trade accounts and other receivables 13 1 (4) (2) 8 Theoretical income tax expense at 20% 168 296 Derivative financial liabilities 5 (5) — — — Impact of specific tax rates in Switzerland (38) (20) Deferred tax liabilities (1,437) (395) (54) 112 (1,774) Impact of tax rate change in Switzerland (22) — SUEK Integrated Report Property, plant and equipment (1,424) (392) (53) 112 (1,757) Impact of specific tax rates in Russian Federation (2) (3) Inventory (4) — (1) (2) (7) Tax effect of non-deductible expenses 28 41 Derivative financial assets — (3) — — (3) Total income tax expense 134 314 Other (9) — — 2 (7) Net deferred tax liabilities (1,135) (395) (71) 74 (1,527)

In 2018 net effect of business combination, included in recognised in equity column above, amounted to 121 million USD.

Unrecognised temporary differences, related to investments in subsidiaries where the Group is able to control the timing of the reversal and distribution of dividends, including distribution on a tax-free basis when certain conditions are met, and it is probable that the temporary difference will not be reversed in the foreseeable future, amounted to 3,229 million USD (31 December 2018 – 4,032 million USD).

Management believes that sufficient taxable profits will be available, against which the unused tax losses can be utilised by the Group in the unlimited future period.

148 149 ~ / Financial Statements / continued

For disclosure purposes certain deferred tax assets and liabilities are offset in accordance with the accounting policy. Litigation. The Group has a number of small claims and litigations relating to regular business activities and small fiscal claims. 2019 2018 Management believes that none of these claims, individually or in aggregate, will have a material adverse impact Deferred tax assets 132 136 on the Group. Deferred tax liabilities (1,476) (1,663) Net deferred tax liabilities (1,344) (1,527) Taxation contingencies in the Russian Federation. Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activities of the Group may be challenged 28. Related party transactions by the relevant regional and federal authorities. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation of the legislation and assessments and, as a result, it is possible Related parties are considered to include the ultimate beneficiary, affiliates and entities under common ownership that transactions and activities that have not been challenged in the past may be challenged. It is therefore possible that and control of the same principal ultimate beneficiary. The Company and its subsidiaries, in the ordinary course significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities of their business, enter into various sales, purchases and service transactions with related parties. in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. Transactions with related parties not dealt with elsewhere in the consolidated financial statements are as follows: Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has 2019 2018 accrued tax liabilities based on management’s best estimate of the probable outflow of resources embodying economic Coal sales to DEC group, an associate of a company with the same benefits which will be required to settle such liabilities. principal ultimate beneficiary 134 136 Other energy sales 61 58 Management believes that it has provided adequately for all tax liabilities based on its interpretation of the tax Other revenue from EuroChem group 25 7 legislation. However, the relevant authorities may have differing interpretations, and the effect could be significant. Other coal sales — 36 Other expenses 31 64 Environmental matters. The Group is subject to extensive federal, state and local environmental controls and regulations in the regions Interest expense 1 2 in which it operates. The Group’s operations involve disturbance of land, discharge of materials and contaminants into Remuneration of the Board of Directors and the Management members 16 18 the environment and other environmental concerns. Financial Statements The outstanding balances with related parties are as follows: The Group’s management believes that it is in compliance with all current existing health, safety and environmental 2019 2019 2018 laws and regulations in the regions in which it operates. However, changes in environmental regulations are currently Trade accounts and other receivables from DEC group 14 14 under consideration in the Russian Federation. The Group is continually evaluating its obligations relating to new Payables for the acquisition of SGC group to a related company — 1,916 and changing legislation. The Group is unable to predict the timing or extent to which environmental laws and regulations may change. Such change, if it occurs, may require the Group to modernise technology and incur future Other receivables — 30 additional material costs to meet more stringent standards.

29. Commitments Russian Federation risk. The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is exposed Capital commitments. to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The following key capital expenditures were approved: The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating 2019 2018 in the Russian Federation.

SUEK Integrated Report Contracted 1,025 559 Not yet contracted 284 117 Starting in 2014, the United States of America, the European Union and some other countries have imposed Total 1,309 676 and expanded economic sanctions against a number of Russian individuals and legal entities. The imposition of the sanctions has led to increased economic uncertainty, including more volatile equity markets, a depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant tightening 30. Contingencies in the availability of credit. This change in the environment did not have a significant effect on the Group’s operations, however, the longer-term effects of the imposed and possible additional sanctions are difficult to determine. The Group Insurance. implemented relevant compliance policy, continuously monitors economic sanctions and analyses their effect The insurance industry in the Russian Federation is in the process of development, and some forms of insurance on the Group’s financial position and operation results. protection common in developed markets are not yet generally available at commercially acceptable terms. The Group has limited coverage for its mining, processing, transportation and energy generating facilities for business interruption The consolidated financial statements reflect management’s assessment of the impact of the Russian business or for third-party liabilities in respect of property or environmental damage arising from accidents on the Group’s environment on the operations and the financial position of the Group. The future business environment may differ property or relating to the Group’s operations. Management understands that until the Group obtains adequate from management’s assessment. insurance coverage there is a risk that the loss or destruction of certain operating assets could have a material adverse effect on the Group’s operations and financial position.

150 151 ~ / Financial Statements / continued

31. Fair value measurement A significant portion of the Group’s revenues are denominated in USD, whereas the majority of the Group’s expenditures are denominated in RUB. Accordingly, operating profits may be adversely impacted by the appreciation of the RUB The fair value of assets and liabilities is determined with reference to various market information and other valuation against the USD. The risk of negative fluctuations in the USD/RUB exchange rate for future revenue streams is naturally methods as considered appropriate. Fair values are categorised into different levels in a fair value hierarchy based hedged by the USD borrowings. on the inputs used in valuation techniques, as follows: The Group had the following monetary assets and liabilities denominated in currencies other than the functional Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. currency of the respective Group entity:

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either 2019 2018 directly (that is, as prices) or indirectly (that is, derived from prices). RUB USD EUR Total RUB USD EUR Total Balances with third and related Level 3: Inputs for the asset or liability that are not based on observable market data. parties (203) (1,787) (312) (2,302) (108) (1,918) (225) (2,251) Prepaid and recoverable taxes 137 — — 137 93 — — 93 Financial instruments carried at amortised cost. Cash and cash equivalents 49 7 — 56 30 1 — 31 Trade accounts receivable 45 — 1 46 38 — 1 39 At 31 December 2019, the fair values of financial instruments carried at amortised cost, which are mainly loans Other receivables 23 — — 23 3 — — 3 and receivables, did not materially differ from the carrying values. Borrowings — (1,772) (185) (1,957) — — (141) (141) Financial instruments carried at fair value. Other long-term liabilities (245) — (6) (251) (97) — (14) (111) Trade accounts payable and Fair values of derivative financial assets and liabilities were determined using inputs from observable market data, which accruals (142) (22) (76) (240) (114) (3) (49) (166) correspond to Level 2 of the hierarchy of fair values. Other creditors (1) — (46) (47) (7) — (22) (29) Taxes payable (25) — — (25) (17) — — (17) Mining assets carried at fair value. Accrual for vacation payments (24) — — (24) (19) — — (19) Wages and salaries (20) — — (20) (18) — — (18) The fair value of mining assets was determined using discounted cash flow method corresponding to Level 3 Payables for acquisition of SGC — — — — — (1,916) — (1,916) Financial Statements of the hierarchy of fair values (see note 4). Intra-group balances (696) (202) 4 (894) (467) (164) 1 (630)

2019 Intra-group receivables 254 12 160 426 204 38 146 388 32. Financial risk management Intra-group borrowings (450) (206) (156) (812) (344) (202) (144) (690) Intra-group payables (500) (8) — (508) (327) — (1) (328) In the normal course of its operations, the Group is exposed to market (including foreign currency and interest rate), Total net liabilities (899) (1,989) (308) (3,196) (575) (2,082) (224) (2,881) credit and liquidity risks. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses A 10% devaluation of functional currencies against foreign currencies at the reporting date would have the following derivative financial instruments to hedge certain risk exposures. effect on the equity and profit or loss for the year:

Risk management is carried out through regular meetings of a risk management committee of operational management 2019 and by the central treasury department. The Board of Directors approves principles for overall risk management. RUB USD Other Total In addition, operational management have developed policies covering specific areas, such as foreign currency risk, (Increase)/decrease in equity (41) 145 15 119 interest rate risk and the use of derivative and non-derivative financial instruments. (Increase)/decrease in profit or loss for the year (74) 130 15 71 SUEK Integrated Report 32.1. Market risk 32.2. Credit risk Market risk is the risk that changes in market prices, such as coal prices, foreign exchange rates and interest rates will negatively impact the Group’s results or the value of its holdings of financial instruments. The objective of market risk Credit risk is the risk that a counterparty may default or not meet its obligations to the Group on a timely basis, leading management is to manage and control market risk exposures within acceptable parameters, while optimising the return to a financial loss to the Group. The Group minimises its exposure to this risk by ensuring that credit risk is spread on risk. Market risk management includes the analysis of foreign currency and interest rate risks. across a number of counterparties. Trade receivables comprise international companies and large Russian companies, and credit is only extended to these customers after rigid credit approval procedures. The maximum exposure to credit Interest rate risk risk is represented by the carrying amount of each financial asset in the balance sheet. Interest rate risk is the risk that changes in interest rates will adversely impact the financial results of the Group. The total net unhedged liability which exposes the Group to interest rate risk amounts to 2,952 million USD (31 At 31 December 2019 8% of total trade receivables were due from the Group’s largest customer and 26% of the total December 2018 – 3,050 million USD). trade receivables were due from the Group’s next 19 largest customers (31 December 2018 – 3% and 26%, respectively). The Group’s interest rate risk arises primarily from long-term borrowings. The Group’s borrowings at variable interest rates are primarily denominated in USD. Borrowings at variable interest rates expose the Group to a cash flow interest rate risk. The Group monitors the risk and, if necessary, manages its exposure by entering into variable-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from variable interest rates to fixed interest rates.

An increase or decrease in the floating interest rate by 1 percentage point, provided that the amount of outstanding balance remained constant for the whole year, would have decreased or increased profit for the year by 30 million USD (2018 – 31 million USD).

Foreign currency risk Foreign currency risk is the risk that the financial results of the Group will be adversely impacted by changes in exchange rates to which the Group is exposed.

152 153 ~ / Financial Statements / continued

The table below analyses the Group’s trade receivables into relevant groupings based on ageing. The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the contractual undiscounted cash flows to maturity, including interest payments. 2019 2018 Allowance Allowance Carrying Contractual Due in Due in the Due Gross for doubtful debts Gross for doubtful debts amount cash flows the first year second year thereafter Not past due 708 — 625 — Balance at 31 December 2019 Past due for less than 12 months 153 61 107 41 Long-term borrowings 4,939 5,303 259 2,087 2,957 Past due for more than one year 124 124 127 127 Short-term borrowings 1,799 1,799 1,799 — — Total 985 185 859 168 Lease liabilities 1,209 1,793 282 273 1,238 Trade accounts payable and accruals 518 518 518 — — Payables for the acquisition of Reftinskaya GRES (see note 33) 65 65 65 — — The movement in the allowance for doubtful debts in respect of trade receivables during the year was as follows: Net-settled derivative liabilities 12 12 12 — — 2019 2018 Other creditors 79 79 79 — — Opening balance 168 151 Total 8,621 9,569 3,014 2,360 4,195 Additional doubtful debts 99 94 Balance at 31 December 2018 Bad debt recovered (95) (70) Long-term borrowings 3,272 3,820 246 1,409 2,165 Bad debt written-off (impairment loss recognised) (7) (11) Short-term borrowings 1,081 1,081 1,081 — — Effect of translation to presentation currency 20 (9) Payables for the acquisition of SGC group 1,916 1,997 — 1,997 — Adjustment of expected credit losses under IFRS 9 — 13 Trade accounts payable and accruals 302 302 302 — — Closing balance 185 168 Net-settled derivative liabilities 4 4 4 — — Other creditors 34 34 34 — — Analysis of credit quality of cash and cash equivalents, including bank deposits, based on credit ratings of independent Total 6,609 7,238 1,667 3,406 2,165 agencies ‘Standard & Poor’s’, ‘Fitch Ratings’ and others is listed in the table below: 32.4. Capital risk management Financial Statements 2019 2018 From A- to AAA 48 36 The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern 2019 From BBB- to BBB+ 85 42 in order to provide returns to equity holders and benefits for other stakeholders. From BB- to BB+ 30 60 The Group defines capital as shareholders’ equity. In order to maintain or adjust the capital structure, the Group may Other 13 28 adjust the amount of dividends paid to equity holders, return capital to equity holders or issue new shares. This strategy Total 176 166 remains unchanged from prior years.

32.3. Liquidity risk

Liquidity risk is the risk that the Group will not be able to settle all liabilities as they fall due.

Recently global and Russian capital markets have experienced significant volatility, including a lack of available sources of financing and significant fluctuation of the Russian Rouble against the USD and the Euro. Despite stabilisation

SUEK Integrated Report measures undertaken by various governments, markets remain volatile.

Prudent liquidity risk management includes maintaining sufficient cash, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. The Group expects that cash generated from operations will be the major source of the Group’s liquidity in 2020 and will be sufficient to cover the capital expenditures programme of the Group. In addition, management believes that the Company will be able to attract additional sources of financing in order to refinance existing short-term facilities.

The central treasury department of the Group maintains flexibility in funding by ensuring the availability of credit line facilities. The unused portion of these lines at 31 December 2019 totalled 2,889 million USD (31 December 2018 – 3,427 million USD).

154 155 ~ / Financial Statements / continued

33. Investments in significant subsidiaries of the acquired assets on the consolidated statement of profit or loss for the year ended 31 December 2019 is 22 million USD. Subsidiaries by country of incorporation Principal activity 2019 2018 Russian Federation Acquisition of Krasnoyarskaya GRES-2. In December 2019 the Group signed an agreement with a third party for the acquisition of generating and other assets Murmansk of Krasnoyarskaya GRES-2 for 157 million USD. The transfer of ownership and payments will take place in the first half JSC ‘Murmanskiy Morskoi Torgovyi Port’ Port facilities 100% 100% of 2020. Kemerovo JSC ‘SUEK-Kuzbass’ Hard coal extraction 100% 100% Acquisition of SGC group. JSC ‘Kuzbassenergo’ Energy generation 99.9% 99.9% In August 2018 the Group acquired from a parent company 99.9% of LLC ‘SGC’ for 1,916 million USD. In 2019 JSC ‘Kemerovo Generation’ Energy generation 100% 100% the consideration of 1,916 million USD and interest accrued for deferred payment of 25 million USD were fully paid. JSC ‘Novo-Kemerovskaya CHPP’ Energy generation 100% 100% JSC ‘Kuznetskaya CHPP’ Energy generation 100% 100% Non-controlling interests. Information of LLC ‘Vostochno-Beyskiy razrez’ that has significant non-controlling interests is as follows: Krasnoyarsk JSC ‘SUEK-Krasnoyarsk’ Brown coal extraction 100% 100% 2019 2018 JSC ‘Razrez Berezovskiy’ Brown coal extraction 100% 100% Non-current assets 285 311 JSC ‘Razrez Nazarovskiy’ Brown coal extraction 100% 100% Current assets 55 56 JSC ‘Yenisei Territorial Generating Company (TGC-13)’ Energy generation 99.9% 99.9% Non-current liabilities (55) (60) JSC ‘Nazarovo GRES’ Energy generation 100% 100% Current liabilities (15) (14) JSC ‘Krasnoyarsk CHPP-1’ Energy generation 100% 100% Net assets 270 293 JSC ‘Krasnoyarsk Heat Transportation Company’ Transfer of heat 100% 100% Accumulated non-controlling interests 135 147 Khakasia Revenue 139 155 LLC ‘SUEK-Khakasia’ Hard coal extraction 100% 100% Net (loss)/profit for the year (2) 33 LLC ‘Vostochno-Beyskiy razrez’ Hard coal extraction 50% 50% (Loss)/profit allocated to non-controlling interests (1) 17 Financial Statements JSC ‘Razrez Izykhskiy’ Hard coal extraction 100% 100% Revaluation of mining assets (22) 28 Buryatia

2019 Cash flows from operating activities 11 26 JSC ‘Razrez Tugnuiskiy’ Hard coal extraction 100% 100% Cash flows used in investment activities (11) (20) Zabaikalye Cash flows used in financing activities (13) (8) JSC ‘Razrez Kharanorskiy’ Brown coal extraction 100% 100% Dividends to non-controlling interests 6 4 LLC ‘Chitaugol’ Brown coal extraction 100% 100% Altai JSC ‘Barnaul CHPP-3’ Energy generation 100% 100% 34. Events subsequent to the balance sheet date JSC ‘Barnaul Generation’ Energy generation 100% 100% JSC ‘Byiskenergo’ Energy generation 100% 97.1% In January 2020 the Group issued 10-years rouble-denominated bonds with the nominal value of 477 million USD JSC ‘Barnaul Heat Network Company’ Transfer of heat 100% 100% and a coupon rate of 6.9% p.a. Novosibirsk JSC ‘SIBECO’ Energy generation 100% 97.1% In January 2020 the Group paid 81 million USD net of VAT to a third party for the acquisition of generating and other SUEK Integrated Report assets of Krasnoyarskaya GRES-2. Khabarovsk JSC ‘Urgalugol’ Hard coal extraction 100% 100% JSC ‘Daltransugol’ Port facilities 100% 100% Primorye LLC ‘Primorskugol’ Brown coal extraction 100% 100% Switzerland SUEK AG Export sales of coal 100% 100% Republiс of Cyprus SUEK LTD Debt holding company 100% 100% Business combination. In October 2019 the Group acquired generating and other assets of Reftinskaya GRES for 345 million USD, including a contingent consideration described below, from a third party. The core activity of the acquired business is generation and sales of energy. Along with the acquired assets the Group obtained control over all processes of generation and sales, acquired rights and obligations under key contracts were transferred to the Group. The Group recognizes the acquisition of the assets of Reftinskaya GRES as a business combination since assets represent a unified complex for generation of electricity and the Group also acquired all key processes, altogether representing the attributes of the business. Before the Group completes the process of obtaining permits and licenses required to operate Reftinskaya GRES, the acquired assets are leased back to the seller. Under the terms of the lease, the Group has control over business processes and financial results, thus, at the time of the transitional period, the Group consolidates Reftinskaya GRES. At 31 December 2019 the Group did not finalise purchase price allocation for this business combination, therefore, the carrying amounts of the acquired assets and assumed liabilities at the date of acquisition were estimated on a provisional basis at 353 million USD and 8 million USD, respectively.

By 31 December 2019 the Group paid 259 million USD for the acquisition. The Group also recognised a contingent consideration at fair value of 24 million USD and allocated it to the generating assets. The effect of the consolidation

156 157 ~ / Additional information

GRI Standards Indicator and General standard disclosures

GRI Standards Indicator and General SUEK’s response in 2019 GRI Standards Indicator and General SUEK’s response in 2019 standard disclosures standard disclosures GENERAL DISCLOSURE 102-14 Statement from senior decision-maker SUEK’s main beneficiary’s statement, title page ORGANISATIONAL PROFILE Chairman’s statement, pages 8–9 CEO’s statement, pages 10–11 102-1 Name of the organisation JSC SUEK (JSC Siberian Coal Energy Company) 102-15 Key impacts, risks and opportunities What impacts SUEK’s ability to create value, its sustainability and its 102-2 Activities, brands, products, Year highlights, pages 2–3 stakeholders, is presented in the following sections: and services SUEK at a glance, pages 4–5 Chairman’s and CEO’s statements, pages 8–11 Where we operate, pages 6–7 Market fundamentals and SUEK, pages 16–21 Business model, pages 12–13 Strategy, pages 22–33 222Information on the company, page 173 Risk management, pages 34–43 102-3 Location of headquarters Contacts, page 173 Materiality, pages 44–47 102-4 Location of operations None of SUEK’s production sites are situated in protected or natural reserve areas including ETHICS AND INTEGRITY the protected territories. 102-16 Values, principles, standards, Strategy, pages 22–33 Where we operate, pages 6–7 and norms of behavior Our approach to sustainability, pages 78–79 102-5 Ownership and legal form Information on the company, page 173 Our people and corporate culture, pages 95–99 102-6 Markets served Where we operate, pages 6–7 Corporate governance, pages 104–121 Business review, pages 60–75 Our Code of Ethics is available on our corporate website: www.suek.com/about–us/ corporate–governance/by–laws/ 102-7 Scale of the organisation SUEK at a glance, pages 4–5 Where we operate, pages 6–7 102-17 Mechanisms for advice and concerns Our people and corporate culture, page 99 Additional Information Business review, pages 60–75 about ethics Complianсe management system, page 116 Group financial review, pages 56–59 GOVERNANCE Financial statements, page 156 2019 102-18 Governance structure Corporate governance, page 106 102-8 Information on employees and other Business model, pages 12–13 102-19 Delegating authority Corporate governance, pages 104–121 workers Our people and corporate culture, pages 95–99 For more information, see section 15 and 16 of the Charter of JSC SUEK on our corporate 102-9 Supply chain Business model, pages 12–13 website: www.suek.com/about–us/corporate–governance/by–laws/ Business review, page 75 102-20 Executive-level responsibility Corporate governance, pages 104–121 See also our Sustainable Development Report for 2018–2019 on the website: for economic, environmental and social topics Our approach to sustainability, page 79 http://www.suek.com/investors/reporting/#year_19 102-21 Consulting stakeholders on economic, Materiality, pages 44–45 102-10 Significant changes to the organisation Where we operate, pages 6–7 environmental, and social topics Stakeholder engagement, pages 48–49 and its supply chain CEO’s statement, pages 10–11 Environment, page 86 Strategy, page 29 Communities, page 102 Financial statements, pages 156–157 102-22 Composition of the highest corporate Board of Directors’ report, pages 108–111 102-11 Precautionary principle or approach SUEK subscribes to the precautionary approach particularly as regards our control of occu- body and its Committees pational health and safety, and our impact on the environment. This is implemented through our risk management process. 102-23 Chair of the highest governance body The Chairman of the Board of Directors, the highest governance body, is not an executive

SUEK Integrated Report Risk management, pages 34–43 officer. Health & safety, pages 80–85 Board of Directors’ report, pages 108–111 Environment, pages 86–94 102-24 Nomination and selection processes Board of Directors’ report, pages 108–111 Additional information on our Policies is available on our corporate website: for the highest governance body www.suek.com/about–us/corporate–governance/by–laws/ 102-25 Conflicts of interests Corporate governance, pages 104–121 102-12 External initiatives SUEK at a glance, pages 4–5 The related–party transactions are reported in Financial statements, page 150 Our approach to sustainability, pages 78–79 102-26 The role of the highest governance The Board has final approval of SUEK’s strategy and goals for environmental and social Health & safety, page 81 body and senior executives in setting purpose, development. Environment, page 87 values and strategy Corporate governance, pages 104–121 Our people and corporate culture, page 96 Communities, page 101 102-27 Highest governance body’s collective Corporate governance, pages 104–121 See also our Sustainable Development Report for 2018–2019 on the website: knowledge http://www.suek.com/investors/reporting/#year_19 102-28 Evaluation of the activities Corporate governance, pages 104–121 102-13 Membership of associations SUEK’s key memberships include: of the highest body of governance • Russian Union of Industrialists and Entrepreneurs 102-29 Identification and management Corporate governance, pages 104–121 • RAND corporation of economic, environmental and social impacts • Clean Coal Association 102-30 Risk management Risk management, pages 34–43 • All–Russia Industrial Association of Employers of the Coal Industry • The Russian Managers Association 102-31 Review of economic, environmental Corporate governance, pages 104–121 • German–Russia Chamber of Сommerce and social topics Risk management, pages 34–43 • World Coal Association Materiality, pages 44–47 • Bettercoal Environment, page 86 • Vision Zero 102-32 Highest governance body’s role in sus- The Report is approved by the Audit Committee of the Board of Directors. • World energy council tainability report About this Report, page 173 • Anti-corruption Charter of Russian Business • AD HOC COUNCIL (the European Government Business Relations Council) STRATEGY

158 159 ~ / Additional information

GRI Standards Indicator and General SUEK’s response in 2019 GRI Standards Indicator and General SUEK’s response in 2019 standard disclosures standard disclosures 102-33 Communicating critical concerns Risk management, pages 34–43 103-3 Evaluation of the management approach Group financial review, pages 56–59 Materiality, pages 44–47 Corporate governance, page 113 Stakeholder engagement, page 49 201-1 Direct economic value generated Year highlights, pages 2–3 Corporate governance, pages 104–121 and distributed Business model, pages 12–13 102-34 The nature and the total number Risk management, pages 34–43 Group financial review, pages 56–59 of critical concerns Materiality, pages 44–47 Financial Statements, pages 122–157 Stakeholder engagement, page 49 201-2 Financial implications and other risks Risk management, pages 34–43 Our people and corporate culture, page 99 and opportunities due to climate change Environment, pages 87–89 Corporate governance, pages 104–121 SUEK’s position on climate change is available on our corporate website: 102-35 Remuneration policies Board of Directors’ report, pages 108–111 www.suek.com/en/sustainability/environment/ Management Board report, pages 120–121 201-3 Defined benefit plan obligations Our people and corporate culture, pages 95–99 102-36 Process for determining remuneration Board of Directors’ report, pages 108–111 and other retirement Financial Statements, pages 122–157 Management Board report, pages 120–121 201-4 Financial assistance received During the reporting period the company did not receive any subsidies from 102-37 Stakeholders’ involvement Stakeholder engagement, page 49 from government the government. However, some infrastructural and social projects implemented in remuneration by the company can be subsidised by the government. STAKEHOLDER ENGAGEMENT Strategy, pages 22–33 102-40 List of stakeholder group(s) Stakeholder engagement, pages 48–49 203 INDIRECT ECONOMIC IMPACTS 102-41 Collective bargaining agreements Our people and corporate culture, page 98 103-1 Explanation of the material topic and its Materiality, pages 44–47 Boundary 102-42 Identifying and selecting stakeholders Stakeholder engagement, pages 48–49 103-2 The management approach and its Communities, pages 100–103 102-43 Approach to stakeholder engagement Stakeholder engagement, pages 48–49 components 102-44 Key topics and concerns raised Chairman’s statement, pages 8–9 103-3 Evaluation of the management approach Communities, pages 100–103 CEO’s statement, pages 10–11 Materiality, pages 44–47 203-1 Infrastructure investments and services Business model, pages 12–13 Stakeholder engagement, pages 48–49 supported Communities, pages 100–103

Chairman’s introduction, pages 104–105 203-2 Significant indirect economic impacts Business model, pages 12–13 Additional Information Board of Directors’ report, pages 110–111 Communities, pages 100–103 REPORTING PRACTICE (REPORT PROFILE) 204 PROCUREMENT PRACTICES 2019 102-45 Entities included in the consolidated Consolidated financial statements, page 156 103-1 Explanation of the material topic and its Materiality, pages 44–47 financial statements Boundary 102-46 Defining report content and topic Materiality, pages 44–47 103-2 The management approach and its Business review, page 75 Boundaries About this Report, page 173 components 102-47 List of material topics Materiality, pages 44–47 103-3 Evaluation of the management approach Business review, page 75 102-48 Restatements of information There were no restatements of information in this Report. 204-1 Proportion of spending on local In 2019, the Company attracted more than 10 thousand suppliers: 6,816 in the coal seg- 102-49 Changes in reporting Materiality, pages 44–47 suppliers ment, 3,235 in the energy segment. 99% of organisations are located in the Russian Federation. 102-50 Reporting period Financial year from 1 January 2019 to 31 December 2019 See also our Sustainable Development Report for 2018–2019 on the website: 102-51 Date of most recent report March 2019 http://www.suek.com/investors/reporting/#year_19 102-52 Reporting cycle Annual 205 ANTI-CORRUPTION 102-53 Contact point for questions regarding Olga Ilina, Head of Investor Relations 103-1 Explanation of the material topic and its Materiality, pages 44–47 the report E–mail: [email protected] Boundary SUEK Integrated Report 102-54 Claims of reporting in accordance This report has been prepared in accordance with the GRI Standards: Core option. 103-2 The management approach and its Complianсe management system, page 116 with the GRI Standards components 102-55 GRI content index 158 103-3 Evaluation of the management approach Complianсe management system, page 116 102-56 External assurance The Report was prepared under the supervision of SUEK’s Chief Financial Officer, 205-1 Operations assessed for risks related SUEK has a corporate risk management system that covers all divisions and businesses with the Audit Committee of the Board of Directors also collectively contributing to its prepa- to corruption of the company. Risk assessment is carried out on a regular basis. ration and ensuring its overall integrity. Risk management, pages 34–43 The consolidated financial statements included in this Report were audited and the text 205-2 Communication and training of the report was reviewed by JSC ‘KPMG’. about anti-corruption policies and procedures Complianсe management system, page 116 SPECIFIC DISCLOSURE 205-3 Confirmed incidents of corruption During the reporting period, no cases of corruption were detected. ECONOMIC and actions taken 201 ECONOMIC PERFOMANCE 206 ANTI-COMPETITIVE BEHAVIOR 103-1 Explanation of the material topic and its Materiality, pages 44–47 103-1 Explanation of the material topic and its Materiality, pages 44–47 Boundary Boundary 103-2 The management approach and its Chairman’s statement, pages 8–9 103-2 The management approach and its Complianсe management system, page 116 components Strategy, pages 22–33 components Group financial review, pages 56–59 103-3 Evaluation of the management approach Complianсe management system, page 116 Business model, pages 12–13 206-1 Legal actions for anti-competitive In 2019 the antimonopoly authorities did not apply any legal actions against SUEK regarding behavior, anti-trust, and monopoly practices violation of the antimonopoly legislation.

160 161 ~ / Additional information

GRI Standards Indicator and General SUEK’s response in 2019 GRI Standards Indicator and General SUEK’s response in 2019 standard disclosures standard disclosures 207 TAX 303-2 Management of water discharge-related Environment, page 93 103-1 Explanation of the material topic and its Risk management, pages 34–43 impacts Boundary 303-3 Water withdrawal The company does not use water from vulnerable or state protected sources, or from those 103-2 The management approach and its SUEK has internal compliance tax policy. of particular importance to local communities or for biodiversity. As the water withdrawn components is used to cool the turbines and does not contact the contaminated circuit, the activities of SUEK do not affect the water balance in water bodies. We also use modern treatment 207-1 Approach to tax SUEK has internal compliance tax policy. facilities to ensure we do not influence water quality. 207-2 Tax governance, control, and risk Risk management, pages 34–43 Environment, page 93 management 207-4 Country-by-country reporting Financial Statements, pages 122–157 2015 2016 2017 2018 2019 ENVIROMENTAL Coal 301 MATERIALS groundwater Not applicable 16.0 103-1 Explanation of the material topic and its Materiality, pages 44–47 Total volume of water withdrawn from sources, including under- Boundary ground reservoirs, surface reservoirs and wastewater from other companies, million m3 120.1 137.2 135.8 154.8 146.6 103-2 The management approach and its Strategy, page 32 components Environment, page 94 surface water 103-3 Evaluation of the management approach Strategy, page 32 third-party water Not applicable Environment, page 94 Transferred to other consumers (without usage), million m3 106.6 121.9 122.6 138.3 132.0 301-1 Materials used by weight or volume Environment, pages 92–94 Energy 301-2 Recycled input materials used Environment, pages 92–94 groundwater – – 12.6 12.4 16.0 301-3 Reclaimed products and their packaging Strategy, page 32 Total volume of water withdrawn from sources, including under- materials Environment, page 94 ground reservoirs, surface reservoirs and wastewater from other 3 302 ENERGY companies, million m – – 2,460.4 2,231.4 2,119.8 103-1 Explanation of the material topic and its Materiality, pages 44–47 surface water – – 2,209.1 2,009.6 1,860.1 Additional Information Boundary third-party water – – 238,764.1 209,462.8 243,686.5 103-2 The management approach and its Strategy, page 26 Transferred to other consumers (without usage), million m3 – – 227.8 202.4 238.0

2019 components Environment, page 92 103-3 Evaluation of the management approach Strategy, page 26 303-4 Water discharge Environment, page 93 Environment, page 92 2015 2016 2017 2018 2019 302-1 Energy consumption within Strategy, page 26 the organisation Environment, page 92 Coal 3 302-2 Energy consumption outside Accounting is not conducted due to the lack of legislative requirements. Wastewater discharged, milllion m 106.2 123.0 121.3 145.6 135.8 of the organisation including contaminated without cleaning 42.5 43.5 34.2 29.2 25.9 302-3 Energy intensity Environment, page 92 insufficiently cleaned 50.2 63.2 70.8 70.4 59.0 302-4 Reduction of energy consumption Strategy, page 26 regulatory clean 3.8 3.9 3.8 5.9 0 Environment, page 92 cleaned 0.7 2.8 3.3 26.1 40.0 302-5 Reductions in energy requirements Not applicable to сompany’s products. transferred to other consumers (after use) 1.2 1.2 1.2 1.1 1.05 of products and services Energy 303 WATER AND EFFLUENTS SUEK Integrated Report Wastewater discharged, milllion m3 – – 2,083.2 1,850.5 1,914.3 103-1 Explanation of the material topic and its Materiality, pages 44–47 Boundary including contaminated without cleaning – – 11.7 2.5 2.5 103-2 The management approach and its Strategy, page 32 insufficiently cleaned – – 53.1 27.9 34.4 components Environment, pages 87, 93 regulatory clean – – 1,826.2 1,805.5 1,862.2 103-3 Evaluation of the management approach Strategy, page 32 cleaned – – 186.9 10.7 8.4 Environment, pages 87, 93 transferred to other consumers (after use) – – 5.3 3.9 12.1 303-1 Interactions with water as a shared Strategy, page 32 resource Environment, page 93 303-5 Water consumption Environment, page 93

162 163 ~ / Additional information

304 BIODIVERSITY 2015 2016 2017 2018 2019 103-1 Explanation of the material topic and its Coal Boundary Materiality, pages 44–47 Emissions, thousand tonnes: 103-2 The management approach and its Solid substance 7.7 8.5 5.9 8.1 8.5 components Environment, pages 87, 94 SO 1.6 1.6 1.7 1.9 2.0 103-3 Evaluation of the management approach Environment, pages 87–88 2 CO 7.6 7.5 7.5 9.0 8.9 304-1 Operational sites owned, leased, man- NO 4.6 4.0 3.8 5.1 6.9 aged in, or adjacent to, protected areas x and areas of high biodiversity value outside Volatile organic compounds 1.4 1.4 1.9 2.1 2.4 protected areas On the sites of production assets, as well as adjacent territories, there are no specially pro- Energy 304-2 Significant impacts of activities, prod- tected natural territories of federal and regional significance. Rare, endangered species Emissions, thousand tonnes: ucts, and services on biodiversity of animals, plants and fungi have not been identified. Solid substance – – 84.5 82.1 79.3 304-3 Habitats protected or restored Environment, page 94 SO – – 158.4 150.7 146.9 304-4 IUCN Red List species and national con- At SUEK’s production assets, as well as adjacent areas, rare, endangered species of ani- 2 servation list species with habitats in areas mals, plants and fungi have not been identified. CO – – 17.9 15.5 15.7 affected by operations Environment, page 94 NOx – – 114.2 107.7 106.5 Volatile organic compounds – – 0.19 0.18 1.58 2015 2016 2017 2018 2019 Coal 306 EFFLUENTS AND WASTE Lands disturbed, ha 103-1 Explanation of the material topic and its at the beginning of year 17,522 18,112 18,667 19,645 20,427 Boundary Materiality, pages 44–47 at the end of year 18,112 18,622 19,261 22,246 21,430 103-2 The management approach and its components Environment, pages 92–99 Disturbed during the year, ha 805.0 907 938 2,813 1,742 Environment, pages 87–88 Recultivated during the year, ha 215.0 397 385 212 552 103-3 Evaluation of the management approach Strategy, page 32 Energy 306-1 Water discharge by quality Lands disturbed, ha and destination Environment, page 93 Additional Information at the beginning of year – – 2,668 2,568 2,525 SUEK does not transport, import, export or process waste that is hazardous

2019 at the end of year – – 2,564 2,556 2,525 306-2 Waste by type and disposal method in accordance with Annexes I, II, III and VIII to the Basel Convention. Disturbed during the year, ha – – 0 0 0 Recultivated during the year, ha – – 104 12 0 2015 2016 2017 2018 2019 Coal 305 EMISSIONS Waste generation, thousand tonnes 457,626.1 480,465.4 491,154.3 592 350,0 649 230,7 103-1 Explanation of the material topic and its Including I class hazard 0.005 0.005 0.006 0 0 Boundary Materiality, pages 44–47 II class hazard 0.038 0.024 0.023 0 0 103-2 The management approach and its components Environment, pages 88–91 III class hazard 1.8 1.3 1.7 2,3 3,4 103-3 Evaluation of the management approach Environment, pages 87–88 IV class hazard 7.2 7.9 7.6 10,5 13,0 305-1 Direct (Scope 1) GHG emissions Environment, pages 88–91 V class hazard 457,617.0 480,456.2 491,145.0 592 337,0 649 214,2 Collection of waste from other organisations, thousand tonnes 5,454.8 4,836.5 4,856.1 4,170.5 4,163.1 2015 2016 2017 2018 2019 Use of waste, thousand tonnes 341,747.2 391,712.6 387,477.6 431 314,0 437 407,8 SUEK Integrated Report Coal Including I class hazard 0 0 0 0 0 Gross emissions, thousand tonnes of СО -equivalent 3,669 3,793 4 868 5,563 5,149 2 II class hazard 0.023 0.013 0.011 0,041 0,025 Energy III class hazard 1.4 0.9 0.9 1,4 2,0 Gross emissions, thousand tonnes of СО -equivalent – – 58,846 56,951 55,409 2 IV class hazard 2.0 1.4 2.7 2,5 4,9 305-2 Energy indirect (Scope 2) GHG There are no mandatory legislative requirements for the regular preparation of these V class hazard 337,894.1 391,710.4 387,474.1 431 310,0 437 401,5 emissions indicators and transfer to the authorized state bodies of information on it. Neutralisation, thousand tonnes 0.8 1.0 0.7 10,2 0,7 305-3 Other indirect (Scope 3) GHG There are no mandatory legislative requirements for the regular preparation of these Including I class hazard 0.005 0.0046 0.005 0 0 emissions indicators and transfer to the authorized state bodies of information on it. II class hazard 0.011 0.0192 0.003 0 0 305-4 GHG emissions intensity Environment, pages 88–91 III class hazard 0.4 0.4 0.5 0,9 1,2 305-5 Reduction of GHG emissions Environment, pages 88–91 IV class hazard 0.2 0.6 0.2 3,7 2,2 305-7 Nitrogen oxides (NO ), sulfur oxides X V class hazard 0.010 0.0064 0.003 5,6 5,8 (SO ), and other significant air emissions Environment, pages 88–91 X Available waste at the year-end, thousand tonnes 999,365.75 1,169,865.4 1,107,011.7 1 258 264,0 1 130 840,4 Including I class hazard 0.0002 0.0005 0 0,0004 0 II class hazard 0.010 0.001109 0.005 0,005 0,009 III class hazard 0.1 0.2 0.4 0,3 0,3 IV class hazard 2.8 3.1 0.7 1,4 1,6 V class hazard 999,362.78 1,169,862.1 1,107,010.6 1 258 262,3 1 130 838,5

2015 2016 2017 2018 2019

164 165 ~ / Additional information

Energy 308 SUPPLIER ENVIRONMENTAL ASSESSMENT Waste generation, thousand tonnes – – 3,580.41 3,259.28 3,063.60 103-1 Explanation of the material topic and its Including I class hazard – – 0.02 0.02 0.07 Boundary Materiality, pages 44–47 II class hazard – – 0 0.01 0 103-2 The management approach and its components Environment, page 88 III class hazard – – 0.54 0.59 0.55 103-3 Evaluation of the management approach Environment, pages 87–88 IV class hazard – – 21.80 21.05 14.26 308-1 New suppliers that were screened using V class hazard – – 3,558.05 3,237.60 3,048.71 environmental criteria Environment, page 88 Collection of waste from other organisations, thousand tonnes – – 0.03 0.07 0 308-2 Negative environmental impacts Use of waste, thousand tonnes – – 342.66 607.61 1,026.66 in the supply chain and actions taken No negative environmental impact was identified in the SUEK supply chain. Including I class hazard – – 0 0 0 SOCIAL II class hazard – – 0.01 0.01 0 401 EMPLOYMENT III class hazard – – 0.32 4.75 0.30 103-1 Explanation of the material topic and its Boundary Materiality, pages 44–47 IV class hazard – – 1.37 39.72 0.30 Strategy, page 33 V class hazard – – 340.96 563.13 1,026.44 103-2 The management approach and its Our approach to sustainability, pages 78–79 Neutralisation, thousand tonnes – – 512.98 90.09 228.66 components Our people and corporate culture, pages 100–105 Including I class hazard – – 0.01 0.02 0.03 Strategy, page 33 II class hazard – – 0 0 0 103-3 Evaluation of the management approach Our people and corporate culture, pages 100–105 III class hazard – – 0.25 0.13 0.24 401-1 New employee hires and employee Strategy, page 33 turnover Our people and corporate culture, page 97 IV class hazard – – 19.68 20.28 9.59 401-2 Benefits provided to full-time employees Our people and corporate culture, page 98 V class hazard – – 493.03 69.66 218.91 that are not provided to temporary or part-time See also our Sustainable Development Report for 2018–2019 on the Available waste at the year-end, thousand tonnes – – 127,502.46 126,461.42 133,555.68 employees website: http://www.suek.com/investors/reporting/#year_19 Including I class hazard – – 0 0 0 402 LABOUR / MANAGEMENT RELATIONS II class hazard – – 0 0 0 103-1 Explanation of the material topic and its Additional Information III class hazard – – 0.03 0.14 0.09 Boundary Materiality, pages 44–47 IV class hazard – – 4,318.18 23.19 25.66 103-2 The management approach and its

2019 components Our people and corporate culture, pages 100–105 V class hazard – – 123,184.25 126,526.74 133,529.93 Stakeholder engagement, page 49 The Company does not transport, import, export or process waste that is hazardous 103-3 Evaluation of the management approach Our people and corporate culture, page 99 306-4 Transport of hazardous waste under Annexes I, II, III and VIII to the Basel Convention. The company follows the Labour Code of the Russian Federation, which defines the mini- 306-5 mum notice period regarding significant changes in the activities of the company (no later Water bodies affected by water discharges than two months before the start of the relevant activities, and in the case of a decision and/or runoff 402-1 Minimum notice periods regarding to reduce the number of workers or staff, that may lead to mass layoffs – no later than three The company does not significantly affect water bodies and associated habitats. operational changes months before the start of the relevant activities). 307 ENVIRONMENTAL COMPLIANCE 403 OCCUPATIONAL HEALTH AND SAFETY 103-1 Explanation of the material topic and its 103-1 Explanation of the material topic and its Boundary Materiality, pages 44–47 Boundary Materiality, pages 44–47 103-2 The management approach and its Strategy, page 30 components Environment, pages 86–87 Our approach to sustainability, pages 78–79

SUEK Integrated Report 103-2 The management approach and its Health & safety, pages 80–85 Environment, pages 87–88 components Our people and corporate culture, pages 100–105 103-3 Evaluation of the management approach Compliance management system, page 116 Strategy, page 30 307-1 Non-compliance with environmental laws and regulations 103-3 Evaluation of the management approach Health & safety, pages 80–85 2015 2016 2017 2018 2019 403-1 Occupational health and safety management system Health & safety, page 81 Coal 403-2 Hazard identification, risk assessment, Charges for violation of environmental legislation. including and incident investigation Health & safety, pages 80–85 the elimination of damages. $ thousand 26.9 32.5 36.3 14.0 11.2 403-3 Occupational health services Health & safety, pages 81–84 Energy 403-4 Worker participation, consultation, Charges for violation of environmental legislation. including and communication on occupational health Stakeholder engagement, pages 48–49 the elimination of damages. $ thousand – – 17.4 2.0 8.5 and safety Our people and corporate culture, pages 100–105 403-5 Worker training on occupational health Health & safety, page 85 and safety Our people and corporate culture, page 98 Our people and corporate culture, page 98 Health & safety, page 85 See also our Sustainable Development Report for 2018–2019 on the website: 403-6 Promotion of worker health http://www.suek.com/investors/reporting/#year_19 403-7 Prevention and mitigation of occupa- tional health and safety impacts directly linked by business relationships Health & safety, pages 80–85 403-8 Workers covered by an occupational health and safety management system Work of all our employees is covered by our health & safety system. Health & safety, pages 80–85 403-9 Work-related injuries Causes of fatal accidents and measures taken are discribed in the table:

166 167 ~ / Additional information

Work performed Causes Our measures 404 TRAINING AND EDUCATION Coal 103-1 Explanation of the material topic and its Cutter loader operator while • Unauthorised presence • Assessing the condition of the mine transport facilities at all Boundary Materiality, pages 44-47 cuttering loader operation in the hazardous area near mine working faces to verify the necessary protection systems 103-2 The management approach and its in the mine the moving parts of a mine scraper and interlocks are in place and working effectively components Our people and corporate culture, pages 95, 98–99 conveyor 103-3 Evaluation of the management approach Our people and corporate culture, pages 98–99 Coal sizing operator while • Violating the Labour Safety • Checking compliance with industrial safety requirements servicing a feeding bin belt Instructions: unauthorised and ensuring the protection systems and interlocks at surface 404-1 Average hours of training per year per conveyor at the surface coal presence in the hazardous area facilities at the coal washing plants and coal-sizing facilities employee Our people and corporate culture, pages 98–99 sizing unit next to moving and rotating parts are working properly 404-2 Programs of upgrading employee skills of a sizing unit • Installing safety guards to prevent access to moving parts and transition assistance programs Our people and corporate culture, pages 98–99 • The absence of interlocked fences of the belt conveyor, interlocked with the equipment to prevent 405 DIVERSITY AND EQUAL OPPORTUNITY that prevent access to the moving start-up and rotating parts of the feeding bin 103-1 Explanation of the material topic and its belt conveyor Boundary Our people and corporate culture, pages 96–97 Underground worker while • Malfunctioning protection, interlock • A targeted inspection to check the condition of belt conveyors, 103-2 The management approach and its belting conveyor maintenance and alarm systems, the absence as well as the availability, condition and performance components Our people and corporate culture, pages 96–97 and repair of fences of alarm systems, electrical and mechanical protection 103-3 Evaluation of the management approach Our people and corporate culture, pages 96–97 • Unauthorised presence tools and interlocks at all of SUEK’s units. For the period in the hazardous area of a non- of the targeted inspection, the operation of all belt conveyors 405-1 Diversity of governance bodies Our people and corporate culture, pages 97 interlocked belt conveyor was suspended and employees Corporate governance, pages 104–121 Assistant section supervisor • Unauthorised presence • Targeted inspection to ensure the availability, condition 405-2 Ratio of basic salary and renumeration while monitoring the operation in the hazardous area of a BelAZ and performance of the standard sound alarm systems of women to men SUEK has set the same base salary for men and women. of loaders and dump trucks dump truck and additional sound alarm systems when disabling the parking 406 NON-DISCRIMINATION in the open-pit mine • No audible signal on the dump truck brake and moving mining vehicles 103-1 Explanation of the material topic and its when it started moving • Installing equipment to pilot test SUEK’s own technical solutions Boundary Our people and corporate culture, page 96 to ensure timely audible alerts are given to both drivers and employees present in the hazardous area, as well as using 103-2 The management approach and its smart bands to monitor the location of employees components Our people and corporate culture, page 96 Additional Information 103-3 Evaluation of the management approach Our people and corporate culture, pages 95–99 Energy 406-1 Incidents of discriminarion

2019 Fuel supply operator while • Violating safety requirements: being • Equipping conveyor belts with interlock and alarm systems and corrective actions taken Incidents of discrimination have not been identified during the reporting year. servicing a fuel supply belt present in the hazardous area • Installing video surveillance cameras in hazardous areas 407 FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING conveyor of an operating convey of the fuel supply line 103-1 Explanation of the material topic and its Process pipeline fitter when • Not wearing fall arrest personal • Verifying the condition of all safety decks, platforms and safety Boundary Materiality, page 45 installing work at height protective equipment systems to ensure safe work at height 103-2 The management approach and its Electrical fitter repairing power • Poor control of work safety during • Checking compliance with labour safety requirements relating components Our people and corporate culture, pages 96, 98 plant equipment while working electrical installations to electrical installations at power facilities in high-voltage electrical • Working on electrical installations 103-3 Evaluation of the management approach Our people and corporate culture, page 98 installations without switching off the electricity 407-1 Operations and suppliers supply in which the right to freedom of association Equipment repairman when • Violating labour safety requirements • Verifying the practical skills of employees related to the use and collective bargaining may be at risk During the reporting period it was not revealed. installing and doing repair when voluntarily leaving a safe of safety platforms and fall arrest systems when working 408 CHILD LABOR work at a height working area where there were no at a height risks of falling from height 103-1 Explanation of the material topic and its SUEK Integrated Report Boundary Our people and corporate culture, page 96 Overall measures 103-2 The management approach and its 1. Alerting SUEK’s production personnel to the causes of the accidents and developing plans to address them in working groups; posting components Our people and corporate culture, page 96 information sheets on HSE stands 2. Briefings for SUEK’s dedicated safety staff on specific methods of preventing different kinds of accidents 103-3 Evaluation of the management approach Our approach to sustainability, page 78 3. Labour safety training and testing employees’ understanding of how to operate safely, in specific the scenarios where the accidents 408-1 Operations and suppliers identified have occurred as having significant risk for incidents of child SUEK is against the practice of child labour, and no such incidents were identified during 4. Updating the test questions in training terminals to reflect findings following the accidents labour the reporting year. 5. Making videos that reflect issues raised during investigations into the causes of the accidents, demonstrating safety measures should be 411 RIGHTS OF INDIGENOUS PEOPLES applied in similar situations SUEK does not operate in the areas of residence of small and indigenous peoples. 6. Exceptional industrial safety certification for engineers and technical workers and heads of units where the accidents have taken place 103-2 The management approach and its In the framework of the current legislation of the Russian Federation, the boundaries 7. Updating internal documents that regulate safe working methods and techniques to ensure these include actions to eliminate the causes components of license areas cannot include territories inhabited by them. of the accidents 8. Considering the circumstances and causes of any accident, ensuring comprehensive measures have been taken to prevent similar 411-1 Incidents of violations involving rights of indigenous peoples Incidents of violations involving rights of indigenous peoples have not been identified. occurrences and individuals are held personally accountable by SUEK’s Industrial Safety Committee overseen by the Management Board 413 LOCAL COMMUNITIES 103-1 Explanation of the material topic and its Boundary Materiality, pages 44–47 103-2 The management approach and its Strategy, page 33 components Communities, pages 100–103 SUEK’s social programmes are assessed in numerous Russian ESG ratings and competitions. For details, see our Sustainable Development Report for 2018–2019 103-3 Evaluation of the management approach on the website: http://www.suek.com/investors/reporting/#year_19. 413-1 Operations with local community engagement, impact assessment, Stakeholder engagement, pages 38–40 and development programmes Communities, pages 106–110 413-2 Operations with significant actual and potential negative impacts on local communities Environment, pages 92–99

168 169 Coal Reserves Report Glossary

SUEK’s coal reserves were audited Reserve, Mt Terms and definitions by SRK Consulting (UK) Limited Region/Site 31.12.2019 as of January 1, 2019. Kemerovo Region (Kuzbass) – hard coal 2,125 Ash dump A place for collecting ash and slag generated ESG Environmental, social and governance criteria Kamyshansky open-pit 127 during the combustion of solid fuel-solid fuels at thermal are a set of standards for a company’s operations that Although the statement on resources Kirov underground mine 592 and reserves is dated January power plants. socially conscious investors use to screen potential Komsomolets underground mine 125 investments. 1, 2019, SRK took into account Polysaevskaya underground mine 26 the information provided ‘Alternative boiler’ tariff A method introduced in Russia Ruban underground mine (Krasnoyarskaya incl Magistralny 2011) 144 by the company during the asset in 2017. It is used for calculating heating prices, when FOB ‘Free On Board’ means that the seller delivers th visits and discussions during November 7 Novaya underground mine 249 only the maximum long-term level is set. It is calculated the goods on board the vessel nominated by the buyer 2019, as well as the permissions Taldinskaya-Zapadnaya 1 underground mine 145 based on the cost of constructing and operating at the named port of shipment or procures the goods received or filed during 2019. Taldinskaya-Zapadnaya 2 underground mine 157 a new alternative boiler house. The final heating price already so delivered. The risk of loss of or damage Taking into account the release date Yalevsky underground mine 437 is determined by agreement of the parties. to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that of the Annual Report and the date Zarechny open-pit 123 of the audit, the data are presented API 2 Index The CIF (cost, insurance and freight) price moment onwards. Krasnoyarsk region – brown coal 3,967 of coal at the ports of ARA (Amsterdam, Rotterdam taking into account the production Berezovsky open-pit 3,369 of assets for 2019. and Antwerp) with coal calorific value of 6,000 kcal/kg. globalCOAL NEWC Index based on the Free On Board Borodinsky open-pit 528 (FOB) delivery of thermal coal at the Port of Newcastle The reporting of SUEK’s Coal Nazarovsky open-pit 70 API 8 Index The CFR (cost and freight) price of coal in Australia with coal calorific value of 6,000 kcal/kg NAR. Resources and Reserves, Zabaikalye 539 delivered to south China with coal calorific value SRK has used the guidelines Apsatsky open-pit – coking coal 70 of 5,500 kcal/kg. HELE High-efficiency, low-emissions coal-fired power

of the 2012 Australasian Code Kharanorsky brown coal 315 plants with supercritical and ultra-supercritical steam Additional Information for Reporting of Exploration Vostochny brown coal 154 Bettercoal Global non-profit organisation promoting cycles. continuous improvement in corporate social responsibility Results, Mineral Resources Buryatiya – hard coal 317 2019 related to coal supply systems, including for social, High-CV coals are coals with a calorific value of 5,600+ and Ore Reserves as published Nikolsky open-pit 262 by the Joint Ore Reserves Committee environmental and ethical practices. kcal per kg. Calorific Value is the most important Tugnuisky open-pit 55 of the Australasian Institute of Mining parameter that determines the economics of the power and Metallurgy, Australian Institute Khakassia – hard coal 342 Calorific value The amount of potential energy in coal plant. It indicates the amount of heat that is released of Geoscientists and Minerals Abakansky open-pit 39 that can be converted into actual heat. when the coal is burned. Council of Australia (the JORC Chernogorsky open-pit 142 Code). Izykhsky open-pit 38 Coking coal Coal suitable for carbonisation in coke Installed capacity The amount of energy that a power Vostochno-Beisky open-pit 123 ovens. This must have good coking properties to produce station is able to produce All coal reserves are indicated Primorye 108 strong coke for steel making, with low sulphur by rock mass (RoM) and are within and phosphorus content. LoM Life-of-mine model is specifically designed for each Nekkovy open-pit – hard coal 3 the areas of existing licenses coal production unit based on 3D geology, using special Pavlovsky open-pit – brown coal 106 or territories where SUEK plans Day-Ahead Market (abbr. as DAM) Competitive mining software, and covering the production process

SUEK Integrated Report to obtain licenses and has provided Khabarovsk region – hard coal 222 selection of price and price-taking applications for both brownfield and greenfield operations for the total funding for this. Bureinsky open-pit 22 of suppliers and buyers a day before the actual supply duration of mining. Pravoberezhny open-pit 114 of electricity with the determination of prices and supply Severnaya underground mine 86 volumes for each hour of the day. Metallurgical coal Generic term referring to coking coal and its different qualities as well as Pulverised coal Total 7,621 DPM (or DPM-1) The programme of capacity supply injection coal (PCI). contracts initiated by Russian energy market regulators Hard coal 3,006 lasted from 2010 until the end of 2018 and was designed Sized coal Coal which has passed through a screening Brown coal 4,545 to stimulate investment into the construction of new process and is grouped into ranges according to size Coking coal 70 power generating capacity. Under the programme, of particles. It is used mainly by households for heating investors committed to building a certain generation purposes. capacity within the specified period. In return, they received a guarantee on the return of invested funds System Operator of Unified Energy System supported by an increase to sold capacity prices during An organisation that carries out centralised operational the subsequent 10 years. Any investor that did not meet dispatch control in the Unified Energy System of Russia. their commitments under this programme would be subject to strict penalties. SRK SRK Consulting is an independent, international consulting practice that provides advice and solutions DPM-2 The programme, launched by the Russian mainly to the metals and mining sector . government in February 2019 as a continuation of DPM- 1 programme, guarantees a return on investment in heat and power capacity development for participating projects up until 2030.

170 171 ~ / Additional information

Abbreviations and acronyms About this report

This Integrated Report presents its strategy and management In our disclosure of non-financial BAM Baikal–Amur Mainline LIBOR London Interbank Offer rate the results of SUEK Group’s1 methods to stakeholder information, we adhere to GRI operations in 2019. requirements, including an increasing Standards. bn Billion LNG Liquefied natural gas focus to environmental, industrial We use the term ‘Coal Segment’ safety and societal issues, This Integrated Report should be Bt Billion tonnes LTIFR Lost time injury frequency rate to describe our coal production and also develops its coal, energy read alongside our 2019 audited and sale operations, while the term and logistics businesses. financial statements, prepared CAPEX capital expenditure M&A Mergers and acquisitions ‘Energy Segment’ is used to describe in accordance with International our activities related to the generation The Report presents SUEK’s updated Financial Reporting Standards CHPP Cogeneration or combined heat and power plant m3 Cubic metre of electricity and heat. The term goals and risks for the medium term (IFRS). The Report was prepared ‘Logistics Segment’ covers SUEK’s in line with its Strategy to 2023 (see under the supervision of SUEK’s Chief CNY Chinese Yuan mm Millimetre rail transportation and coal pages 22–33). Financial Officer and with the Audit transhipment operations at ports. Committee of the Board of Directors CSR Corporate social responsibility Mtce Million tonnes of coal equivalent For the fourth consecutive year, also collectively contributing to its One of the key objectives we have aligned our 2019 Report preparation and ensuring its overall of this Report is to demonstrate how with the principles of integrated integrity. The draft of the Report was EBITDA Earnings before interest, tax, depreciation Mtoe Million tonnes of oil equivalent SUEK responds to macroeconomic reporting, as set out in the International approved by the Board of Directors and amortisation and market challenges, enhances Integrated Reporting Council’s (IIRC) in March 2020 and is subject Mt Million tonnes its competitiveness and improves Framework. We also take into account to approval at the General Meeting ERP Enterprise Resource Planning efficiency across all stages, adapts Russian legislative requirements. of Shareholders. MW Megawatt CAGR Compound annual growth rate MWh Megawatt-hour Gcal Gigacalorie Information on the company NGO Non-governmental organisation Contacts GCHPP Gas combined heat and power plant The key assets of JSC SUEK (one million, one hundred and eighty

2019 JSC SUEK OHSAS Occupational Health & Safety Assessment Series are coal-mining and generating thousand, three hundred Russian 53/7, Dubininskaya str, GTPP Gas turbine power plant assets, processing facilities, port, Roubles) divided into 236,060,000 Moscow, Russia, 115054 PCI Pulverized coal injection transport and service facilities (two hundred and thirty-six million Tel.: +7 (495) 795 25 38 GDP Gross Domestic Product in 12 regions of Russia, as well and sixty thousand) ordinary Fax: +7 (495) 795 25 42 PPE Personal protective equipment as the international trader SUEK registered shares with a face value E-mail: [email protected] GHG Greenhouse gas AG and its trading network. SUEK of RUB 0.005 (zero point double zero www.suek.ru PR Public Relations LTD is responsible for the Group’s five Russian Roubles) each. The main GRES State District Power Plant fundraising. The share capital of JSC beneficiary of SUEK is Andrey SUEK AG R&D Research & Development SUEK amounts to RUB 1,180,300 Melnichenko. 7 Wassergasse, GW Gigawatt (one billion watts) St. Gallen, 9000, Switzerland RUB Russian Rouble Tel.: +41 71 22 68500 ha Hectare Fax: +41 71 22 68503 SUEK Integrated Report SPP Solar Power Plant Forward-looking E-mail: [email protected] HPP Hydro Power Plant www.suekag.com SRM Supplier relationship management information and statements SUEK LTD HR Human resources on competitive position 3, Georgiou Katsounotou, ths Thousand Kitallides Building, HSE Health, Safety and Environment 3rd Floor, Office 3A 3036, This Annual Report contains certain not assume the obligation TPP Thermal Power Plant Limassol, Cyprus forward-looking statements. All to update any forward-looking ISO International Organisation for Standardisation Tel.: +357 25 50 9110 statements, other than those statements. Any statements referring TWh Terawatt hours Fax: +357 25 50 9001 of historical fact, are forward- to the Group’s competitive position kcal Kilocalorie E-mail: [email protected] looking statements that involve risks are based on our understanding UN United Nations www.suek.com kcal/kg Kilocalories per kilogramme and uncertainties. There can be no of the prevailing market environment. WP Washing plant assurances that such statements Auditors kg Kilogramme will prove accurate, and actual This derives from a range JSC KPMG $ US Dollar results and future events could differ of sources including investment Naberezhnaya Tower Complex, km Kilometre materially from those anticipated. analysts’ reports, independent Block C, 10 Presnenskaya $m Million US Dollars market studies and SUEK’s own Naberezhnaya, KPI Key performance indicator The information contained assessments of market share, Moscow, Russia, 123112 herein represents management’s based on the publicly available Tel.: +7 (495) 937 44 77 € Euro best judgement as at the date information regarding the financial Fax: +7 (495) 937 44 99 kW Kilowatt of the Report, based on information results and performance of market E-mail: [email protected] currently available. SUEK does participants. kWh Kilowatt-hour

1. In this Report, each of the terms ‘SUEK’, ‘SUEK Group’, ‘the Group’, ‘the company’, ‘we’ refer to all companies consolidated in the IFRS financial statements of JSC SUEK (Russia), including, inter alia, SUEK LTD, SUEK AG, Siberian Generating Company (SGC) and their subsidiaries. From October 2019, our operational and financial performance includes the results of acquired Reftinskaya GRES.

172