Gazprom Annual Report 2019

Plain-text annual report

PJSC Gazprom Annual Report 2019 Going beyond the Arctic Circle Yamal offers vast hydrocarbon reserves. In the challenging Arctic conditions, Gazprom has built from scratch a strong production complex, transportation infrastructure, and a full life-support system. Specifically, Obskaya–Bovanenkovo– Karskaya rail line with the world’s longest bridge beyond the Arctic Circle and the first new airport in modern Russia’s history were built. Less Metal for Improved Efficiency The gas produced in the Yamal Peninsula is delivered to the Unified Gas Supply System (UGSS) of Russia via the Bovanenkovo–Ukhta and Bovanenkovo–Ukhta 2 next- generation trunk gas pipelines operating at a record-high onshore pipeline pressure of 120 atm. This was achieved primarily by using domestic heavy-duty steel pipe commissioned by PJSC Gazprom to significantly reduce the metal intensity of the project and improve gas transportation efficiency. Gazprom actively develops a new gas production hub in the Yamal Peninsula, which will become the key contributor to the Russian gas industry development in the 21st century. The peninsula’s gas reserves are equivalent to over 100 years of production by Gazprom. Automation Gazprom uses advanced technical solutions and highly reliable equipment to tap Yamal gas. All production sites across the Bovanenkovskoye field — a core of the Yamal hub — are equipped with advanced automation systems and minimally manned technologies. A particular emphasis is made on ensuring a high level of industrial safety and caring for the Arctic environment. Environment-friendly Advanced Technologies When constructing various facilities, Gazprom is primarily concerned with preserving Yamal’s unique natural environment. The Company seeks to limit its facilities to a minimum area and uses two-phase thermal piles and insulated pipe for wells to considerably alleviate impacts on the permafrost. Zero-discharge water systems prevent water reservoir and soil pollution. Power of Siberia is the largest gas transportation system in eastern Russia designed to supply gas from the Irkutsk and Yakutia gas production hubs to Russian consumers in the Far East and to China. A New Dimension of Cooperation On 2 December 2019, an official ceremony was held to celebrate the start of the first-ever Russian pipeline gas supplies to China, the world’s most promising gas market. Gazprom will supply over 1 tcm of gas over the next 30 years to the People’s Republic of China via Power of Siberia, which is also a key element of a gas supply system for Russia’s eastern regions and their gas infrastructure. Advanced Technologies The Power of Siberia gas pipeline was constructed using domestically-produced steel pipe with internal flow coating to reduce pipe roughness and, accordingly, friction, thus making gas transmission less energy-consuming. External insulation coating is made of innovative domestic nanocomposite materials, which ensures high corrosion resistance of the gas pipeline. Unique pipes with enhanced deformation properties to cross active tectonic faults were commissioned by PJSC Gazprom from domestic manufacturers. Optimised Solutions The Chayandinskoye field in Yakutia, which was the first to supply gas to Power of Siberia, is operated using minimally manned technologies. Equipment control and operations management are carried out in an automatic mode. The field spans a large area and in order to reduce costs for the construction of power lines at remote gas well pads, independent energy sources (based on renewables) were introduced. Efficient Use of Resources Natural gas from eastern fields is rich in valuable components: ethane, propane, butane and helium, used in gas-to-chemicals and other industries. To separate these components from the gas supplied via Power of Siberia, Gazprom is constructing the Amur Gas Processing Plant (GPP), which will become one the largest GPPs globally in terms of production capacity (42 bcm per year) and an absolute leader in terms of helium output (up to 60 mmcm). Gazprom operates the only helium production facility in Russia, and the launch of the Amur GPP will result in a 13 times increase in helium output for Gazprom, which amounts to a third of the world’s current demand for the sun gas. TurkStream is a new export gas pipeline stretching from Russia to Turkey across the Black Sea. The first of the pipeline’s two strings is intended for Turkish consumers, while the second one carries gas to southern and southeastern Europe. The project has an annual design throughput capacity of 31.5 bcm. Commercial supplies via the gas pipeline commenced in January 2020. Unique Technology TurkStream is the first offshore gas pipeline with a pipe diameter of 813 mm installed at a depth of 2,200 m. The pipeline uses 12 m long concrete- and polypropylene-coated pipes designed specifically for the project. TurkStream was installed at a rate of over 6 km per day (less than three minutes per pipe) — a world record for offshore gas pipelines. Monitoring and Maintenance Special equipment is used to monitor the pipeline’s condition, including inline inspection and cleaning tools, travelling through the pipeline from the Russian to the Turkish coast. High standards of safety, including environmental safety, are observed with continuous environmental monitoring. Energy Security According to some experts, the Balkans is Europe’s most vulnerable region in terms of energy supply. TurkStream will significantly improve the reliability of gas supplies, which means enhanced energy security for the Balkans and the entire Southern and Southeastern Europe. Energy Flow The starting point for feeding gas into TurkStream is the Russkaya compressor station, which maintains the pressure required for transmitting gas over a distance of more than 900 km. In order to successfully resolve this challenge, hi-tech Russian equipment, such as the Ladoga gas pumping units and Iceberg aerial coolers, was installed at the station. Gazprom is the leader in electricity and heat generation among domestic heat-producing companies. In 2019, the Group completed an ambitious capex programme to build new generating capacity under capacity supply agreements (CSAs). Energy for Growth The total installed capacity of the Unified Energy System of Russia was over 243.2 GW in 2019 with the share of TPPs at 67.66%. Gazprom energoholding operates over 80 thermal power plants (mostly gas-fired and some coal-fired) with 39 GW and 71.2 Gcal/h of installed electrical and heat capacity, respectively. TPPs are major consumers of energy resources, primarily natural gas. These assets generate an additional economic benefit for Gazprom, with the volume of gas supplies to one large TPP comparable to the volumes supplied to countries such as Slovakia, the Netherlands or Hungary. New Capacity By completing the long-term CSA programme, Gazprom has expanded its generating capacities in Russia by 9 GW and improved their efficiency. The introduction of combined cycle gas turbines and circulating fluidised bed technology has helped Gazprom to considerably reduce specific fuel and energy consumption across its heat and electricity generation assets. A Forward-looking Strategy Gazprom energoholding will continue evolving as Russia’s largest power generation holding with reliable power supplies to consumers, financial stability, steady profit growth and the use of Russian equipment its highest priorities. Gazprom Energoholding’s First Project in Europe In 2019, the construction of Serbia’s first CCGT power plant commenced — Gazprom energoholding’s first project outside Russia. CCGT units offer significant economic and environmental benefits, specifically when compared to brown coal-fired plants historically operated in Serbia. CCGT units do not generate huge volumes of waste (coal ash), and there are no particulate matter or sulphur oxide emissions. A New Business Model The project is an example of the practical implementation of Gazprom’s new business model for monetisation of hydrocarbon reserves. Consolidation of liquefied natural gas (LNG) and ethane production into a single site significantly improves the project’s economics, including unit economics, and helps to significantly reduce resource and price risks. The gas remaining after processing and liquefaction will be supplied to the gas transmission system (GTS) of PJSC Gazprom. Gas-to-Plastic The ethane-rich natural gas produced by Gazprom from the Nadym-Pur-Taz region in Western Siberia will be used as a feedstock for the facility. Ethane fraction separated at the complex will then go to further processing. The gas chemical plant will produce multiple polyethylene grades which are in demand in other industries. LNG The new plant near the seaport of Ust-Luga will be the largest in Northwestern Europe in terms of LNG output: 13 mm tonnes per year. PJSC Gazprom and AO RusGazDobycha finalised the configuration of a project to construct an integrated complex for gas processing and liquefaction near the seaport of Ust-Luga (Leningrad Region). Taking into account AO RusGazDobycha’s gas chemical enterprise technologically interconnected with the complex, the project will create a major modern industrial cluster in northwestern Russia. The commissioning of the facilities has been synchronised. Environment-friendly and Profitable Product Natural gas-powered vehicles offer significantly improved environmental performance vs vehicles powered by traditional Euro 5 compliant fuels. Natural gas is also 2.5 times cheaper than AI-95 gasoline. Natural gas sales at Gazprom’s filling facilities continued to grow, demonstrating a 30% increase in 2019. Country-wide Filling Network Gazprom’s methane filling network in Russia currently comprises over 300 facilities and grows every year, with a focus on constructing refuelling infrastructure for cars, buses and trucks on federal highways, such as M-1 Belarus, M-4 Don, M-5 Ural, M-7 Volga, M-10 Russia, M-11 Neva and the Central Ring Road. Accelerated Development The Company is also running a number of pilot projects for accelerated development of the NGV infrastructure jointly with the administrations of Russian constituent entities, namely in the Belgorod, Kaliningrad, Leningrad and Rostov Regions and the city of Saint Petersburg. In addition to building new gas filling stations, the projects provide for the expansion of NGV fleets and the creation of new service centers for the retrofitting and maintenance of such vehicles. Operational Needs Between 2014 and 2019, Gazprom has increased its corporate NGV fleet by 2.7 times to 12.3 thousand, representing more than 50% of Gazprom vehicle fleet suitable for conversion to natural gas. Production and sales of natural gas (methane) as a motor fuel is a strategic priority for PJSC Gazprom. OOO Gazprom gazomotornoe toplivo is a specialist company established to ensure consistent development of the NGV fuel market. Gazprom has traditionally supported various social initiatives in culture, science, education and promotion of a healthy lifestyle. Oh Football, You are Peace! In partnership with the Union of European Football Associations (UEFA), Gazprom runs the Football for Friendship International Children’s Social Programme. In 2019, the programme culminated in the events held in Madrid as part of the UEFA Champions League Final official closing events. Over 800 children and adults from Europe, Asia, Africa, South and North America took part in the programme events. Young athletes of Football for Friendship from different countries took part in the most diverse football lesson on the planet and set the Guinness World Record. The International Football for Friendship Coaches Academy, a unique free online platform offering a set of practical exercises, was also launched as part of the project in 2019. The course was developed by training managers and coaches from various football club academies and experts from FIFA’s humanitarian activities. Preserving the Cultural Heritage Gazprom helps preserve Russia’s cultural heritage by restoring the historical look and feel of our cities, returning lost artifacts and sacred objects, restoring pieces and works of art. Gazprom helped complete the restoration of the Imperial Court Church of the Resurrection and the Lyons Hall in the Tsarskoe Selo State Museum and Heritage Site’s Catherine Palace. PJSC Gazprom also supported the complete restoration of the Holy Rus by Mikhail Nesterov, which returned to the permanent display of the State Russian Museum. The Company continued a large-scale programme to finance the beautification of Saint Petersburg in 2019. PJSC Gazprom was also an official partner of the 14th Stars on Baikal International Music Festival and a general partner of the Blue Bird Open National Young Talent Competition held by State Television Company Rossiya Channel. The Company also supports cultural and educational programmes of the Russian Orthodox Church. Flames of Victory Gazprom Group helps preserve the historical memory of the Great Patriotic War. In 2019, the Company made donations for maintaining 62 Eternal Flame memorials in Russia’s Hero Cities and Cities of Military Glory. Over the same period, Gazprom’s subsidiaries performed maintenance, repairs and renovation of gas equipment and prepared gas infrastructure at 1,331 Eternal Flame memorials for the Victory Day. In some regions, the memorials were connected to the gas grid. Helping People around Us PJSC Gazprom finances costly treatment for people with disabilities and severely ill children and provides charitable support in acquiring specialist medical devices (rehabilitation machines, prosthetics, wheelchairs, electric lifts and required accessories). In December 2019, Gazprom sponsored New Year charity events held in Moscow and Saint Petersburg for children from vulnerable groups. Conventions used in the Annual Report External factors Results Goals and plans Resources and capital Human capital Governing bodies Documents Information Additional information sources This Annual Report has been prepared based on Resolution No. 1 of PJC Gazprom’s Management Committee On Organising Activities Related to Holding PJSC Gazprom’s Annual General Shareholders Meeting dated 23 January 2020. The terms “PJSC Gazprom” and the “Company” used in this Annual Report refer to the parent company of Gazprom Group, i.e. to Public Joint Stock Company Gazprom (Open Joint Stock Company Gazprom, JSC Gazprom, before 17 July 2015). The terms “Gazprom Group”, the “Group” or “Gazprom” mean an aggregate of entities which includes PJSC Gazprom and its subsidiaries and entities. For the purposes of this Annual Report, the lists of Gazprom Group subsidiaries and entities, associates and joint ventures, as well as entities in which Gazprom has investments classified as joint operations, were prepared based on the principles used in the preparation of PJSC Gazprom’s IFRS consolidated financial statements. Similarly, the terms “Gazprom Neft Group” and “Gazprom Neft” refer to PAO Gazprom Neft and its subsidiaries and entities; “Gazprom energoholding” refers to OOO Gazprom energoholding and its subsidiaries; and “Gazprom neftekhim Salavat” refers to OOO Gazprom neftekhim Salavat and its subsidiaries. This Annual Report determines some operating and economic metrics in accordance with the IFRS principles for Gazprom Group companies included in the IFRS consolidated financial statements of PJSC Gazprom for the year ended 31 December 2019. Therefore, they may differ from similar metrics used in reports of PJSC Gazprom, which are prepared under Russian statutory requirements. Moreover, some operating metrics of PJSC Gazprom, its subsidiaries, entities, associates, and joint ventures are determined in accordance with the principles underlying management reporting. Metrics calculated using these methods might be not comparable between each other due to differences in the methodologies used for preparing consolidated financial statements and for management reporting. Analysis of financial results should be read in conjunction with the audited consolidated financial statements of PJSC Gazprom for the year ended 31 December 2019, prepared in accordance with IFRS. Among other things, the Annual Report discloses information on the future production and economic activities of Gazprom Group, based on Gazprom management’s forecasts and estimates considering the current situation. Actual results may differ from the said forecasts and estimates due to the effect of various objective factors. 14 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019 15 PJSC Gazprom Annual Report 2019Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors and the Chairman of PJSC Gazprom’s Management Committee Dear Shareholders, In many respects, 2019 was a hallmark year for Gazprom, as the Company implemented strategic projects to diversify its business, strengthen its position in the global energy industry and develop the Russian economy. In 2019, Gazprom launched the first-ever Russian pipeline gas supplies to China, one of the world’s most promising gas markets. Having been commissioned by the Company, the Power of Siberia gas pipeline became the mainstay of a new powerful system of gas exports and gas supply to Russia’s eastern regions. Gazprom finished the construction of TurkStream, a new, high-tech pipeline for exporting gas to Europe, with January 2020 seeing the launch of commercial gas supplies across the Black Sea. The Company also continued the construction of the Nord Stream 2 gas pipeline linking Russia and Germany via the Baltic Sea. Green energy supplies taking low carbon footprint routes are fully in line with the interests of our customers. In 2019, Gazprom’s gas exports to Europe, Turkey and China were 199.3 bcm — one of the best results in the Company’s history. The Company continued to live up to its reputation as a responsible supplier by flexibly responding to market demand and offering a wide choice of contract terms to its customers. The extension of contracts for gas transportation across Belarus and Ukraine negotiated in 2019 was also an important factor in this context. In 2019, Gazprom Group produced over 500 bcm of gas, the highest level for the last eight years starting from 2012. The Bovanenkovskoye field is becoming an increasingly significant contributor to produc- tion, serving as a core asset for the Yamal gas production hub. The Company has already started field infrastructure construction at the Kharasaveyskoye field, another core asset of the Yamal megaproject. The Yamal Peninsula is a giant gas-bearing basin which will supply Russian and inter- national consumers for more than 100 years. During the year, the Company continued to actively ramp up the capacity of the Northern Gas Transmission Corridor to the Baltics, in order to supply Yamal gas to Europe, while for the eastern route, the Power of Siberia 2 gas pipeline entered the pre-investment phase in 2020. Further streams of revenue for the Group in the coming years will include projects for processing and recovering valuable components from natural gas produced in Eastern and Western Siberia. Overall project completion for the Amur Gas Processing Plant (GPP) stood at 55.2% at end-2019, with the first trains to be commissioned as early as 2021, while the Ust-Luga complex is already in early stages of construction. Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors and the Chairman of PJSC Gazprom’s Management Committee In 2019, as in previous years, Gazprom fully supplied the domestic demand, as Russia is a priority market for the Company. Gazprom will continue to secure domestic gas supplies in the future, enhancing supply reliability and creating new options. For example, since January 2019, the Kaliningrad Region has been able to draw supplies from an offshore gas receiving terminal and the Marshal Vasilevskiy fl oating storage and regasifi cation unit. The creation of this alternative supply option has fundamentally improved the energy security of the region. The Company has historically placed a special focus on the expansion of gas infrastructure. This socially signifi cant project covered 66 Russian regions in 2019, focused primarily on rural areas. In total, gas network grew by 1,880 km over the year to cover 305 new locations. As at 1 January 2020, the gas penetration rate in Russia reached 70.1%. The expansion of gas infrastructure is fi rst and foremost focused on creating the necessary environment to improve the country’s quality of life and boost its industrial output. With the support of Russian regional authorities, Gazprom has started work on new gas infrastructure expansion programmes for the fi ve-year term up to 2026. Another highlight of 2019 is the successful completion of Gazprom Group’s large-scale power generation capex programme. Since 2007, Gazprom energoholding companies have built close to 9 GW of advanced generating capacities, including Unit 2 at the Grozny TPP commissioned in summer 2019. Additionally, Gazprom energoholding has commenced the construction of its fi rst international power plant in Pančevo, Serbia. PAO Gazprom Neft has continued improving its operational performance, consistently ramping up its annual production to the 100 million tonnes of oil equivalent target. The subsidiary will reach this target, among other factors, through further integration with Gazprom Group’s operations. Gazprom has decided to use Gazprom Neft’s broad experience and expertise to develop complex hydrocarbon deposits. Dear Shareholders, The Company continues to steadily grow while maintaining a consider- able safety margin, improving its effi ciency across all business lines and achieving excellence in corporate governance. The headwinds faced by the global economy in 2020 will not prevent PJSC Gazprom from making progress towards its long-term strategic goals. Viktor Zubkov Chairman of PJSC Gazprom’s Board of Directors Alexey Miller Chairman of PJSC Gazprom’s Management Committee Contents 1 2 3 4 5 6 18 PJSC Gazprom Annual Report 2019Company Information 20 Strategy 52 Performance Results 80 Environmental and Social Responsibility 138 Corporate Governance 162 Appendices 218 19 PJSC Gazprom Annual Report 2019Company Information 20 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019n o i t a m r o f n I y n a p m o C Gazprom Group Today 22 Gazprom Group’s Position in the Global and Russian Energy Industry 27 Natural Gas 27 Oil and Gas Condensate 30 Electricity and Heat Generation 31 Operations and Marketing Geography 32 Business Model 36 PJSC Gazprom’s Board of Directors 41 PJSC Gazprom’s Management Committee 44 The Company’s History 48 2019 in the Company’s History 50 21 PJSC Gazprom Annual Report 2019 Gazprom Group Today Gazprom is one of the world’s largest oil and gas companies in terms of reserves, production, and market capitalisation. Key Figures for 2019 Gazprom Group’s net sales revenue RUB 7,659.6 bn Natural gas reserves in Russia as at 31 December 2019* 34,899.0 bcm Gazprom Group’s net sales revenue breakdown, RUB bn Net revenue from gas sales 3,800.7 Natural and associated gas production in Russia** Net revenue from sales of refined products Net revenue from sales of crude oil and gas condensate Net revenue from sales of electricity and heat Net revenue from sales of gas transportation services Other revenues 2,111.2 752.8 518.4 215.3 261.2 Capital expenditures RUB 1,818.7bn Profit for the year attributable to the owners of PJSC Gazprom RUB 1,202.9 bn 501.2 bcm Total headcount as at 31 December 2019 473.8 thousand people Cost of debt as at 31 December 2019 4.8 % * Russian classification of reserves. A+B1+C1 gas reserves, including reserves of entities in which Gazprom has investments classified as joint operations. ** Including the Group’s share in the production volumes of entities in which Gazprom has investments classified as joint operations. 22 PJSC Gazprom Annual Report 2019Gazprom Group Today n o i t a m r o f n I y n a p m o C Mission Strategic Goal Reliable, efficient and balanced supply of natural gas, other energy resources and their derivatives to consumers. Strengthening its leadership among global energy companies by diversifying sales markets, maintaining energy security and sustainability, driving operational efficiencies and leveraging R&D capabilities. The Company’s Ranking Positions and Certification of PJSC Gazprom’s Management Systems to Internationally Recognised Standards International and National Sustainability Initiatives PJSC Gazprom has Committed to — According to the CDP’s international rating, Gazprom has been a top player in the energy sector of the Russian investment partnership rating for eight years — a strong position reflecting the effectiveness of the corporate climate policy — In 2019, PJSC Gazprom became a leader in the Russian Union of Industrialists and Entrepreneurs’ Transparency and Responsibility, and Sustainable Development Vector sustainability indices — PJSC Gazprom is No. 1 in the 2019 Ranking of Russia’s Most Attractive Employers according to University Students majoring in Business, Engineering / Natural Science, Healthcare / Medicine, compiled by Universum — OHSAS 18001:2007 — certificate of compliance for PJSC Gazprom’s Unified Occupational Health and Safety Management System (UOHSMS), also covering 58 of its subsidiaries and entities — The Universal Declaration of Human Rights (UDHR), adopted by the UN General Assembly on 10 December 1948 — The Declaration on Fundamental Principles and Rights at Work, adopted by the International Labour Organization (ILO) on 18 June 1998 — UN Global Compact Principles — Transforming Our World: the 2030 Agenda for Sustainable Development, the Resolution adopted by the UN General Assembly on 25 September 2015 — Russian Standard GOST R ISO 26000:2012 — Guidance on Social Responsibility — Presidential Decree No. 204 On National Goals and Strategic Objectives of the Russian Federation through to 2024, dated 7 May 2018 ISO 9001:2015 — certificate of compliance for PJSC Gazprom’s Quality Management System, also covering 64 of its subsidiaries and entities — Public Non-Financial Reporting Development Concept and the Concept Implementation Plan approved by Russian Government Decree No. 876-r dated 5 May 2017 ISO 14001:2015 — certificate of compliance for PJSC Gazprom’s Environmental Management System (EMS) covering 34 of its wholly-owned subsidiaries and entities — Corporate Governance Code approved by the Board of Directors of the Bank of Russia on 21 March 2014 — Anti-Corruption Charter of Russian Business — Social Charter of Russian Business — — 2323 PJSC Gazprom Annual Report 2019 6,546.1 8,224.2 7,659.6 1,467.7 2,599.3 1,859.7 1,504.6 1,795.9 1,818.7 −218.8 −22.1 −66.5 1.6 1.2 1.7 Note. Calculated as the ratio of net debt to adjusted EBITDA denominated in Russian roubles. Gazprom Group Today Operating Highlights Financial Highlights Natural and associated gas production in Russia, bcm* Net sales revenue, RUB bn 2017 2018 2019 Oil production in Russia, mm tonnes* 2017 2018 2019 472.1 498.7 501.2 48.6 48.3 48.0 2017 2018 2019 Adjusted EBITDA, RUB bn 2017 2018 2019 Gas condensate production in Russia, mm tonnes* Capital expenditures, RUB bn 2017 2018 2019 15.9 15.9 16.7 2017 2018 2019 Total hydrocarbon production in Russia, mm boe* Free cash flow, RUB bn 2017 2018 2019 3,550.2 3,720.7 3,741.2 2017 2018 2019 Liquid hydrocarbon processing, mm tonnes** Net debt / adjusted EBITDA 2017 2018 2019 Electricity generation, bn kWh 2017 2018 2019 64.1 67.4 67.1 156.5 153.2 149.0 2017 2018 2019 * Including the Group’s share in the production volumes of entities in which Gazprom has investments classified as joint operations. ** Excluding tolling arrangements. 24 PJSC Gazprom Annual Report 2019n o i t a m r o f n I y n a p m o C Share Capital Shares are listed on: the Moscow Exchange — ordinary shares the London Stock Exchange (LSE) — ADRs Tickers: GAZP, OGZD Industry: Integrated Oil and Gas PJSC Gazprom’s shareholding structure as at 31 December 2019, % The Russian Federation represented by the Federal Agency for State Property Management AO ROSNEFTEGAZ* AO Rosgazifikatsiya* ADR holders** Other registered holders Dividends 38.37 10.97 0.89 19.70 30.07 3,266.5 3,863.8 3,863.9 2,397.5 3,014.4 3,167.8 869.0 849.4 696.1 PJSC Gazprom’s balanced dividend policy reflects the Company’s commitment to achieve long-term growth targets while protecting the rights of shareholders and increasing shareholder returns. PJSC Gazprom’s dividend history and dividend yields, 2015–2019 2015 2016 2017 2018 2019 Dividend per share***, RUB PJSC Gazprom’s dividend yield****, % 7.89 8.0397 8.04 16.61 15.24 5.8 5.2 6.2 10.8 5.9 Gazprom Group Today Debt Capital Total debt, RUB bn 2017 2018 2019 Net debt, RUB bn 2017 2018 2019 Cash and cash equivalents, RUB bn 2017 2018 2019 Debt maturities as at 31 December 2019, % Less than 1 year (inclusive) 1–2 years (inclusive) 2–5 years (inclusive) Over 5 years 20 12 42 26 Credit ratings of PJSC Gazprom Rating agency Standard & Poor’s Fitch Ratings Moody’s Dagong ACRA Long-term foreign currency rating Rating date BBB− (stable outlook) BBB (stable outlook) Baa2 (stable outlook) AAA (stable outlook) AAA (stable outlook) 27 February 2018 15 August 2019 12 February 2019 30 October 2018 2 February 2018 * The cumulative share in PJSC Gazprom controlled directly or indirectly by the Russian Federation and calculated by direct addition totals 50.23% and is owned through the full ownership of AO ROSNEFTEGAZ, which also holds a 74.55% stake in AO Rosgazifikatsiya. ** The Bank of New York Mellon issued ADRs on PJSC Gazprom shares. *** Recommended dividend shown for 2019. **** Dividend yield for the relevant period is calculated as a ratio of total dividend paid per share for the relevant year to the share price as at 31 December. 2525 PJSC Gazprom Annual Report 2019 275 259 −6% 4,179 3,242 −22% 4,831 3,337 −31% Gazprom Group Today Environmental and Social Responsibility With a relentless focus on sustainable development, PJSC Gazprom is guided by Russian laws and internationally recognised sustainability initiatives. The Company has published its GRI-compliant sustain- ability reports since 2008. Gazprom improved its MSCI ESG rating in 2019. Relative greenhouse gas emissions from Gazprom Group’s gas operations vs the 2014 baseline, kg of CO2 equivalent per toe of products sold 2014 2019 Change 2019/2014 Gazprom Group’s wastewater discharge into surface water bodies vs the 2014 baseline, mmcm 2014 2019 Change 2019/2014 Gazprom Group’s waste generation vs the 2014 baseline, thousand tonnes 2014 2019 Change 2019/2014 Gazprom Group’s environmental protection costs in Russia in 2019, RUB bn Current environmental protection costs Capital expenditures for environmental protection and sustainable use of natural resources Negative environmental impact charges Total 32.18 20.42 0.62 53.22 0.11 0.17 0.09 1.17 0.57 1.35 MSCI ESG rating in 2019 Company Shell Gazprom NOVATEK Chevron LUKOIL Rosneft Rating A BBB BBB BBB BBB B Lost-time injury frequency rate (LTIFR) across entities covered by the UOHSMS 2017 2018 2019 Fatal accident rate (FAR) across entities covered by the UOHSMS 2017 2018 2019 26 PJSC Gazprom Annual Report 2019Gazprom Group’s Position in the Global and Russian Energy Industry (in  or as at  December ) n o i t a m r o f n I y n a p m o C Natural Gas Gazprom is the global leader by natural gas reserves and gas production, ahead of national oil and gas companies, as well as major global public oil and gas companies. PJSC Gazprom is the biggest supplier of natural gas to European far abroad countries. Gazprom Group is the absolute leader by sales in the Russian market. Exploration Reserves Largest hydrocarbon discoveries globally No.  globally by natural gas reserves Major ﬁ eld discoveries in , bboe Proved natural gas reserves of major public oil and gas companies, tcm Dinkov ﬁ eld (Gazprom)* Nyarmeyskoye ﬁ eld (Gazprom)* Eram (NIOC) Glaucus (ExxonMobil) Namavaran (NIOC) Orca (BP) . . . . . Range of estimates Gazprom** NOVATEK Rosneft ExxonMobil PetroChina Sources: PJSC Gazprom, Bloomberg, companies’ reports       % Sources: PJSC Gazprom, data of leading world analytical agencies available as at the time of writing this Annual Report of global natural gas reserves*** % of Russia’s natural gas reserves*** * C+C reserves under the Russian classiﬁ cation. ** Gazprom Group’s proved natural gas reserves under PRMS, including the share in the reserves of entities in which Gazprom has investments classiﬁ ed as joint operations and excluding the share in the reserves of associates and joint ventures. .% of Gazprom Group’s A+B+C reserves (as per the Russian Classiﬁ cation of Reserves and Resources) were estimated under PRMS standards as totalling . tcm. Data on other major public oil and gas companies includes share in the reserves of associates and joint ventures. *** Including the Group’s share in the reserves volumes of entities in which Gazprom has investments classiﬁ ed as joint operations.  PJSC Gazprom Annual Report 2019 Gazprom Group’s Position in the Global and Russian Energy Industry Natural Gas Production Transportation No. 1 globally by gas production Gas production by major public oil and gas companies, bcm Gazprom* BP ExxonMobil PetroChina Shell Sources: PJSC Gazprom, Bloomberg, companies’ reports 100 200 300 400 500 12 % of global natural gas production** 68 % of Russia’s natural gas production** No. 1 globally by total length of gas transportation system (GTS) 175.2 thousand km total length of GTS in Russia Processing No. 1 in Russia by gas processing volumes More than 50 % of Russia’s total gas processing volumes * Natural and associated gas production of Gazprom Group in Russia including the share in the production volumes of entities in which Gazprom has investments classifi ed as joint operations, and including the share in the production volumes of associates and joint ventures for data comparability with major public oil and gas companies. ** Including the Group’s share in the production volumes of entities in which Gazprom has investments classifi ed as joint operations. 28 PJSC Gazprom Annual Report 2019 Gazprom Group’s Position in the Global and Russian Energy Industry Natural Gas n o i t a m r o f n I y n a p m o C Marketing Carbon Footprint The lowest products’ carbon footprint among the world’s largest oil and gas companies Relative greenhouse gas emissions, kg of CO2 equivalent per boe of products sold Gazprom BP Chevron ConocoPhilips Eni Equinor ExxonMobil Petrobras Shell Total Source: CDP 65 130 195 260 325 No. 1 globally by gas exports Gas sales by Russia’s major gas suppliers, bcm Gazprom NOVATEK Rosneft Source: PJSC Gazprom’s IFRS consolidated fi nancial statements 40 80 120 160 200 Gas sales by major gas suppliers to European far abroad countries, bcm Gazprom* Equinor** Qatar Petroleum*** Sonatrach*** 40 80 120 160 200 Note. PJSC Gazprom, companies’ reports and website data available as at the time of writing this Annual Report. Volumes of natural gas are given according to the Russian standard conditions (calorifi c value of 8,850 kcal per cu m at 20°C). 35.5 % share of PJSC Gazprom’s gas sales under OOO Gazprom export’s contracts in the total gas consumption in European far abroad countries**** * IFRS consolidated fi nancial statements. ** Excluding volumes of gas sold from the SDFI portfolio. *** Sales volumes of joint ventures are taken into account proportionally to share of participation. **** Including commodity (gas) repo agreements. 2929 PJSC Gazprom Annual Report 2019 Gazprom Group’s Position in the Global and Russian Energy Industry Oil and Gas Condensate Gazprom Neft is one of Russia’s leading oil companies in terms of production and reﬁ ning of liquid hydrocarbons. Production Processing No.  in Russia by oil and gas condensate production Liquid hydrocarbon production in Russia by largest Russian oil and gas companies, mm tonnes Gazprom* Including Gazprom Neft* LUKOIL** Rosneft** Surgutneftegas      Sources: PJSC Gazprom, companies’ reports and website data available as at the time of writing this Annual Report  % of Russia’s oil and gas condensate production*** No.  in Russia by oil and stable gas condensate reﬁ ning volumes Oil and stable gas condensate reﬁ ning in Russia by largest Russian oil and gas companies, mm tonnes Gazprom Including Gazprom Neft LUKOIL Rosneft Surgutneftegas      Sources: PJSC Gazprom, companies’ reports and website data available as at the time of writing this Annual Report  % of Russia’s total oil and stable gas condensate reﬁ ning volumes * For data comparability with Russian oil and gas majors, Gazprom Group ﬁ gures include the share in the liquid hydrocarbon production volumes of associates and joint ventures. ** Including the share in the production volumes of associates and joint ventures. *** Including the Group’s share in the reserves and production volumes of entities in which Gazprom has investments classiﬁ ed as joint operations.  PJSC Gazprom Annual Report 2019 Gazprom Group’s Position in the Global and Russian Energy Industry Electricity and Heat Generation n o i t a m r o f n I y n a p m o C Gazprom Group includes one of Russia’s largest power generation holding companies, a market leader by installed capacity in heat generation. Electricity Generation Heat Generation No.  in Russia by heat generation Heat generation of largest Russian generating companies, mm Gcal Gazprom*** Inter RAO** Siberian Generating Company** T Plus      Sources: PJSC Gazprom, companies’ reports and website data available as at the time of writing this Annual Report No.  in Russia by installed electrical capacity and electricity output in heat generation Installed electrical capacity of largest Russian generating companies, GW Gazprom* EuroSibEnergo** Inter RAO** Rosenergoatom** RusHydro**      Sources: PJSC Gazprom, companies’ reports and website data available as at the time of writing this Annual Report  % of Russia’s total electricity generation * Installed electrical capacity of Gazprom energoholding and other generating assets of Gazprom Group in Russia and abroad. ** Including subsidiaries. *** Heat generation by Gazprom energoholding and other generating assets of Gazprom Group.  PJSC Gazprom Annual Report 2019 Operations and Marketing Geography (in 2019 or as at 31 December 2019) Gazprom operates in more than 20 countries, and its products are supplied to more than 100 markets around the world. Gazprom Group’s Operating Geography Activity Russia FSU countries Europe Africa Near and Middle East Asia-Pacific Central and South America Hydrocarbons prospecting and exploration Gas and gas condensate production Oil production Gas transportation Gas underground storage Gas distribution Gas processing Oil refining Production of oil and gas chemical products Electricity and heat generation 32 PJSC Gazprom Annual Report 2019Operations and Marketing Geography Gazprom Group’s Marketing Geography n o i t a m r o f n I y n a p m o C Russia FSU countries Europe Africa Near and Middle East Asia-Pacific North America Central and South America Activity Trunk pipeline gas sales Gas sales to end consumers Oil and gas condensate sales Refined hydrocarbon products sales Large scale LNG sales Small scale LNG and CNG sales Oil products retail sales Electricity and heat sales For more details on Gazprom’s Operations and Marketing Geography see Gazprom in Figures 2014–2018 Factbook 3333 PJSC Gazprom Annual Report 2019 Operations and Marketing Geography Gazprom Group’s Major Production Assets and Projects in Russia, FSU and European Far Abroad Countries Dublin London Oslo Murmansk Apatity Paris Brussels Amsterdam Stockholm Copenhagen Helsinki Tallinn Vyborg St.-Petersburg Petrozavodsk Berlin Prague Riga Volkhov Kaliningrad Pskov Warsaw Vilnius Torzhok Minsk 1 2 Ukhta Sosnogorsk Salekhard Novyi Urengoy Cherepovets Gryazovets Yaroslavl Peregrebnoye Bern Rome Vienna Ljubljana Zagreb Bratislava Budapest Sarajevo Belgrade Podgorica Tirana Scopje Bucharest Sofia Chisinau Athens Ankara Cairo Beirut Damascus Amman Vyazma Moscow Ryazan Nizhniy Novgorod Serov Surgut Khanty- Mansiysk А Kiev Pochinki Ekaterinburg Tyumen Petrovsk Pisarevka Salavat Troitsk Omsk Novocherkassk Volgograd Alexandrov Gay Novorossiysk Dzhugba Sochi Stavropol 6 Astrakhan Orenburg 5 Nur-Sultan Grozny Tbilisi Yerevan B Baku Baghdad Tehran Ashgabat Dushanbe Tashkent Bishkek Alma-Ata C Tomsk Krasnoyarsk Kemerovo Novosibirsk Barnaul Biysk Gorno-Altaysk Zhigalovo Irkutsk Ulan Bator 4 Sobolevo Petropavlovsk-Kamchatsky 7 Lensk Aldan 8 Magistralny Skovorodino Svobodny Blagoveschensk Komsomolsk-on-Amur Yuzhno-Sakhalinsk 3 Okha Khabarovsk to China n a p a J o t Vladivostok n gio s e c R a ore ntrie uth K u o ciﬁ er c a P - o to S d oth n a sia e A of th Tokyo to China Beijing Pyongyang Seoul Largest fields Gas production centres in operation Underground gas storage facilities Gas and gas condensate fields Yamal Peninsula Existing UGSFs Oil fields Nadym-Pur-Taz region Oil and gas, oil and gas condensate fields Sakhalin Major trunk gas pipelines Gazprom Group’s existing gas pipelines Other existing gas pipelines Gas pipelines under construction and projected gas pipelines Projected supply destinations Kamchatka Orenburg Astrakhan Yakutsk Projected gas production centres Irkutsk Other Existing oil production centres Existing UGSFs co-invested by Gazprom Group UGSFs under construction and projected UGSFs Power generation facilities Existing power generation facilities Power generation facilities under construction and projected power generation facilities 34 PJSC Gazprom Annual Report 2019 Operations and Marketing Geography 1 2 Ukhta Sosnogorsk Salekhard Novyi Urengoy Peregrebnoye Vyazma Moscow Ryazan Nizhniy Novgorod Serov Surgut Khanty- Mansiysk А Kiev Pochinki Ekaterinburg Tyumen Petrovsk Pisarevka Salavat Troitsk Omsk 7 Lensk Aldan 8 Magistralny Skovorodino Tomsk Krasnoyarsk Kemerovo Novosibirsk Barnaul Biysk Gorno-Altaysk Nur-Sultan Zhigalovo Irkutsk Ulan Bator Oslo Murmansk Apatity Helsinki Tallinn Vyborg Petrozavodsk St.-Petersburg Riga Volkhov Kaliningrad Pskov Warsaw Vilnius Torzhok Minsk Cherepovets Gryazovets Yaroslavl Dublin London Paris Brussels Amsterdam Stockholm Copenhagen Berlin Prague Vienna Ljubljana Zagreb Bratislava Budapest Bern Rome Sarajevo Belgrade Podgorica Tirana Scopje Bucharest Sofia Chisinau Athens Novorossiysk Dzhugba Sochi Stavropol Ankara Novocherkassk Volgograd Alexandrov Gay Orenburg 5 6 Astrakhan Grozny Tbilisi Yerevan B Baku Cairo Beirut Damascus Amman Baghdad Tehran Ashgabat Dushanbe Tashkent Bishkek Alma-Ata C to China Beijing Pyongyang Seoul Svobodny Blagoveschensk Khabarovsk to China Vladivostok 4 Sobolevo Petropavlovsk-Kamchatsky 3 Okha Komsomolsk-on-Amur Yuzhno-Sakhalinsk n a p a J o t Tokyo s a n gio ntrie e ore c R u uth K o ciﬁ er c a P d oth - to S sia e A of th n a o n o i t a m r o f n I y n a p m o C A B C Vilnius Minsk Kiev Yerevan Alma-Ata Bishkek Tashkent Existing refining/processing and petrochemical assets GPPs Refineries Petrochemical and gas chemical production Gazprom Group’s access to the GPP’s capacity Gazprom Group’s access to the refinery’s capacity Projects in refining/processing, oil and gas chemistry Integrated complex for gas processing and liquefaction near the seaport of Ust-Luga Novourengoysky Gas Chemical Complex Amur GPP 3535 LNG production and regasification assets Key gas export routes Kaliningrad regasification terminal Nord Stream gas pipeline LNG plant, Sakhalin LNG production, storage and shipping complex near Portovaya compressor station Phase 3 of LNG plant, Sakhalin LNG supply routes Existing LNG supply routes Projected LNG supply routes Yamal–Europe gas pipeline TurkStream gas pipeline Urengoy–Uzhgorod gas pipeline Blue Stream gas pipeline Power of Siberia gas pipeline Gas transportation projects Nord Stream 2 gas pipeline Expansion of UGSS’ gas transportation capacity at the Gryazovets–Slavyanskaya CS section in the North-West region Ukhta–Torzhok 2 and Ukhta–Torzhok 3 gas pipelines Bovanenkovo–Ukhta 2 and Bovanenkovo–Ukhta 3 gas pipelines Power of Siberia 2 gas pipeline PJSC Gazprom Annual Report 2019 Business Model (in 2019 or as at 31 December 2019) Gazprom Group encompasses all types of activities required to ensure uninterrupted supply of energy to consumers. Its comprehensive vertically integrated business model is Consumers are the focus of the Group’s business. Stable, trust-based relationships with our consumers are the founda- tion for building long-term business value. aligned with Gazprom’s strategic goal, driving operational effi ciencies, improving reliability of supplies, and leveraging the existing production and R&D capabilities. All elements of Gazprom Group’s business complement one another. At the same time, each element represents a complex system, an aggregate of tangible assets, human resources, and accumulated experience and knowledge in relevant areas. Gazprom Group is a major global energy company whose performance results infl uence a great number of stakeholders. These stakeholders include shareholders and investors, federal and local authorities of the Russian Federation, EU regulators and other gas market participants, local communities, business partners, mass media, NGOs, and employees. Production and Marketing of Gazprom Group Geological exploration Oil production Crude oil transportation Pipeline oil sales Gas and condensate production Gas Gas transportation transportation Oil storage Oil products sales Underground gas storage Oil reﬁning and petrochemical production 36 PJSC Gazprom Annual Report 2019 Gas processing and gas chemical production Electric power and heat energy production Gas products sales Electric power and heat energy sales LNG sales Gas distribution and supply Pipeline gas sales Business Model n o i t a m r o f n I y n a p m o C Competitive Advantages — The Company’s Extensive Resource Base and Robust Production Infrastructure — An Established Portfolio of Long-term Contracts for Gas Supplies to European and Asian Consumers — Unique Unifi ed Gas Supply System (UGSS) of Russia — Vertical Integration of the Company — Favourable Geographical Position between Europe and Asia — Track Record of Cooperation with Foreign Partners and a Strong Reputation as a Reliable Supplier — Access to International Capital Markets on Terms acceptable to the Company — Extensive Production, Research and Design Capabilities — Social Policy that makes the Company an Attractive Employer for Highly Skilled Professionals Gas processing and gas chemical production Electric power and heat energy production Gas products sales Electric power and heat energy sales LNG sales Gas distribution and supply Pipeline gas sales 3737 PJSC Gazprom Annual Report 2019 Geological exploration Oil production Crude oil transportation Pipeline oil sales Gas and condensate production Gas transportation Oil storage Oil products sales Underground gas storage Oil reﬁning and petrochemical production Business Model Exploration and Production Gas Transportation and Underground Storage Processing/ Refining Resources and capital Resources and capital Resources and capital 34,899.0 bcm of natural gas reserves in Russia*,** 3,575.3 mm tonnes of oil and gas condensate reserves in Russia*,** 7,438 active gas production wells in Russia 7,752 active oil production wells in Russia 175.2 thousand km total length of trunk gas pipelines in Russia 75.01 bcm of aggregate working gas capacity across 27 underground gas storage facilities in Russia 8.5 bcm of working gas capacity across OOO Gazprom export’s underground storage facilities (UGSFs) by the start of the autumn and winter period 2019/2020*** 3 gas processing plants, a helium plant, condensate pretransportation preparation plant, and condensate stabilisation plant in Russia 3 refineries in Russia and 2 refineries abroad Gas chemical and petrochemical plants Performance highlights 679.0 bcm of gas transported via Gazprom’s GTS in Russia, including 132.1 bcm of gas supplied by companies outside the Group Performance highlights 501.2 bcm of natural and associated gas production in Russia** 64.7mm tonnes of oil and gas condensate production in Russia** 1.11 natural gas reserves replacement ratio** Performance highlights 31.5 bcm natural and associated gas processing volumes**** 67.1 mm tonnes oil and gas condensate processing volumes**** 50.9 mm tonnes output of oil products**** 4.7mmcm helium production**** 3.7mm tonnes LPG production**** For more details see the Exploration and Production section For more details see the Gas Transportation and Storage section For more details see the Hydrocarbon Processing and Petrochemicals section * A+B1+C1 reserves under the Russian classification. ** Including the Group’s share in the reserves and production volumes of entities in which Gazprom has investments classified as joint operations. *** The additional commercial gas storage contracts valid until 31 March 2021 secured another 3.01 bcm of gas storage capacity at UGSFs in Austria, Hungary and Slovakia. **** Excluding tolling arrangements. 38 PJSC Gazprom Annual Report 2019Business Model n o i t a m r o f n I y n a p m o C Power Generation Marketing Other Important Aspects of Activities Resources and capital Resources and capital Resources and capital 40.1 GW total installed electrical capacity of generating assets in Russia and abroad An established portfolio of long-term contracts for gas supplies to European and Asian consumers Reputation as a reliable supplier Vertical integration of the Company Access to international capital markets on terms acceptable to the Company Human capital Integrated corporate R&D capabilities Performance highlights 149.0 billion kWh total electricity generation in Russia and abroad 122.4 mm Gcal total heat generation Performance highlights 506.9 bcm of gas sales 27.3 mm tonnes of oil and gas condensate sales 70.2 mm tonnes of refined products sales For more details see the Power Generation section For more details see the Gas Distribution, Gas Infrastructure Expansion and NGV Fuel Markets section and the Marketing section 3939 Performance highlights Significant contribution to the energy security of the Russian Federation Ensuring reliable and stable supplies of gas and other high-quality products and services to consumers in Russia and abroad Gas infrastructure expansion across Russian regions, and developing their social and economic potential, paying taxes, and contributing to investment activity and improved business environment; job creation Ensuring demand for Russian products; supporting SMEs Providing safe working environment for employees Staff training and social programmes Involvement in the efforts to improve tax, land, natural resources, and environmental protection laws Sustainable use of natural resources, improved energy efficiency of operations, and better environment in Russian regions through extending gas infrastructure to communities and energy and transport facilities Support for vulnerable groups; constructing and developing sports and social and economic infrastructure Cooperation with indigenous small-numbered peoples of the North Support for education, science, culture, arts, and sports For more details see the sections: Gas Distribution, Gas Infrastructure Expansion, and Development of NGV Fuel Markets; Marketing; Financial Performance; Innovations and Import Substitution; Environmental and Social Responsibility; Procurement Performance; and Share Capital and Securities Market PJSC Gazprom Annual Report 2019 Business Model Supply Chain Inventory Procurement Procurement of Work and Services — Gas, energy and liquid hydrocarbons — Construction and installation — Large-diameter pipes — Overhauls — Processing equipment — Gas pumping units and components — Electrical equipment — Valves and ﬁttings — — Well construction (production drilling and associated operations) Gas and liquid hydrocarbon transportation and storage — Maintenance and repair — Exploration — FEED services — Transportation and logistics services — Lease — Insurance Gazprom Group Products and Services — Natural gas — Crude oil and gas condensate — Reﬁned products — Electricity and heat generation — Gas transportation and underground storage services The Quality Assurance Policy of PJSC Gazprom is available on PJSC Gazprom’s website www.gazprom.com 40 PJSC Gazprom Annual Report 2019PJSC Gazprom’s Board of Directors (as at 31 December 2019) Viktor Alekseevich Zubkov Chairman of the Board of Directors Chairman of the Board of Directors’ Commission on Strengthening Financial Discipline for Domestic Gas Supplies of PJSC Gazprom Non-executive director Born in 1941. Graduate of Leningrad Agricultural Institute. Doctor of Economics. 2007–2008: Prime Minister of the Russian Federation. 2008–2012: First Deputy Prime Minister of the Russian Federation. Since 2012 — Russia’s Special Presidential Representative for Cooperation with the Gas Exporting Countries Forum. 2012–2014: member of the Board of Directors, Director General, Chairman of the Management Committee of OOO Gazprom gazomotornoe toplivo. 2014–2019: Deputy Chairman of the Board of Directors of OOO Gazprom gazomotornoe toplivo. Since 2019 — Chairman of the Board of Directors of OOO Gazprom gazomotornoe toplivo. Chairman of the Board of Directors of OOO Gazprom LNG Technologies Chairman of the Company’s Board of Directors since 2008. n o i t a m r o f n I y n a p m o C Andrey Igorevich Akimov Non-executive director Born in 1953. Graduate of Moscow Finance Academy. Since 2002 — Chairman of the Management Board of Joint Stock Bank of Gas Industry Gazprombank (Closed Joint Stock Company), since 2007 — Gazprombank (Open Joint Stock Company), since 2014 — Gazprombank (Joint Stock Company). Member of the Company’s Board of Directors since 2011. Alexey Borisovich Miller Timur Askarovich Kulibaev Deputy Chairman of the Board of Directors Independent director Executive director Born in 1962. Born in 1966. Graduate of N.A. Voznesensky Leningrad Finance and Economics Institute. Candidate of Economics. Since 2001 — Chairman of the Company’s Management Committee. Deputy Chairman of the Company’s Board of Directors since 2002. Graduate of M.V. Lomonosov Moscow State University. Candidate of Economics. Since 2005 — Head of the Association of Legal Entities the Kazenergy Kazakh Association of Oil, Gas and Energy Companies. Since 2013 — Chairman of the Presidium of the Atameken National Chamber of Entrepreneurs of the Republic of Kazakhstan. Member of the Company’s Board of Directors since 2011. 4141 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Board of Directors Denis Valentinovich Manturov Non-executive director Viktor Georgievich Martynov Independent director Chairman of the Board of Directors’ Audit Committee, member of the Board of Directors’ Nomination and Remuneration Committee Born in 1969. Born in 1953. Graduate of M.V. Lomonosov Moscow State University. Candidate of Economics. Since 2012 — Minister of Industry and Trade of the Russian Federation. Member of the Company’s Board of Directors since 2017. Graduate of the I.M. Gubkin Moscow Institute of the Petrochemical and Gas Industry. Candidate of Geology and Mineralogy, Doctor of Economics. Since 2008 — Rector of I.M. Gubkin Russian State Oil and Gas University (a federal budget-funded educational institution of higher professional education, national research university). Member of the Company’s Board of Directors since 2013. Vitaly Anatolievich Markelov Executive director Vladimir Alexandrovich Mau Independent director Member of the Board of Directors’ Audit Committee, member of the Board of Directors’ Nomination and Remuneration Committee Born in 1963. Born in 1959. Graduate of S.P. Korolev Kuibyshev Aviation Institute. Candidate of Technical Sciences. 2003–2011: Director General of OOO Tomsktransgaz (since 2008 — OOO Gazprom transgaz Tomsk). In 2011 — Director General of OOO Gazprom transgaz Tomsk and Director General of OOO Gazprom invest Vostok. Since 2011 — Deputy Chairman of the Company’s Management Committee. Member of the Company’s Board of Directors since 2012. Graduate of the G.V. Plekhanov Moscow Institute of National Economy. Doctor of Economics. 2002–2010: Rector of the State Educational Institution of Higher Professional Education, the Academy of National Economy under the Government of the Russian Federation. Since 2010 — Rector of the Russian Presidential Academy of National Economy and Public Administration under the President of the Russian Federation (Federal State Budgetary Educational Institution of Higher Education). Member of the Company’s Board of Directors since 2011. 42 PJSC Gazprom Annual Report 2019PJSC Gazprom’s Board of Directors n o i t a m r o f n I y n a p m o C Alexander Valentinovich Novak Non-executive director Mikhail Leonidovich Sereda Executive director Member of the Board of Directors’ Audit Committee, Chairman of the Board of Directors’ Nomination and Remuneration Committee Born in 1971. Graduate of Norilsk Industrial Institute. 2010–2012: Deputy Minister of Finance of the Russian Federation. Since 2012 — Minister of Energy of the Russian Federation. Member of the Company’s Board of Directors since 2015. Born in 1970. Graduate of the Saint Petersburg State University of Economics and Finance. Since 2004 — Deputy Chairman of the Management Committee, Head of the Management Committee Administration of the Company. Member of the Company’s Board of Directors since 2002. Dmitry Nikolaevich Patrushev Non-executive director There were no Changes to the Board of Directors in 2019 Note. The independent status of members of the Board of Directors is determined in compliance with criteria for assessing independence of members of the board of directors (candidates to the board of directors) set forth in Appendix 4 to the Listing Rules of the Moscow Exchange. Born in 1977. Graduate of the State University of Management, and of the Diplomatic Academy of the Russian Ministry of Foreign Affairs. Doctor of Economics. 2007–2010: Senior Vice-President of OAO Vneshtorgbank. 2010–2018: member of the Supervisory Board of AO Russian Agricultural Bank, Chairman of the Management Board of AO Russian Agricultural Bank. Since 2018 — Minister of Agriculture of the Russian Federation. Member of the Company’s Board of Directors since 2016. 4343 The biographical details of the members of PJSC Gazprom’s Board of Directors are also available on PJSC Gazprom’s website www.gazprom.com PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Management Committee (as at 31 December 2019) Alexey Borisovich Miller Chairman of the Management Committee Elena Viktorovna Burmistrova Deputy Chairwoman of PJSC Gazprom’s Management Committee, Director General of OOO Gazprom export Born in 1962. Born in 1971. Graduate of N.A. Voznesensky Leningrad Finance and Economics Institute. Candidate of Economics. Chairman of the Company’s Management Committee since 2001. Graduate of Moscow State Linguistic University. Member of the Company’s Management Committee since 2019. Oversees international business. Oleg Evgenievich Aksyutin Deputy Chairman of the Management Committee — Head of Department (prospective development) Elena Alexandrovna Vasilieva Deputy Chairwoman of PJSC Gazprom’s Management Committee — Chief Accountant of PJSC Gazprom Born in 1967. Born in 1959. Graduate of S.P. Korolev Kuibyshev Aviation Institute. Doctor of Technical Sciences. Graduate of N.A. Voznesensky Leningrad Finance and Economics Institute. Member of the Company’s Management Committee since 2008. Member of the Company’s Management Committee since 2001. Oversees strategic development, long-term planning, design, development and implementation of the Investment Programme, procurement operations. 44 PJSC Gazprom Annual Report 2019PJSC Gazprom’s Management Committee n o i t a m r o f n I y n a p m o C Vitaly Anatolievich Markelov Famil Kamil ogly Sadygov Deputy Chairman of PJSC Gazprom’s Management Committee Deputy Chairman of PJSC Gazprom’s Management Committee Born in 1963. Born in 1968. Graduate of S.P. Korolev Kuibyshev Aviation Institute. Candidate of Technical Sciences. Graduate of the S. Ordzhonikidze State Academy of Management. Candidate of Economics. Member of the Company’s Management Committee since 2012. Member of the Company’s Management Committee since 2019. Oversees Operations, including hydrocarbon exploration and production, gas transportation and underground storage, hydrocarbon processing, sales of hydrocarbons and refined products in the domestic market; power generation and government relations. Oversees Economics. Mikhail Evgenievich Putin Deputy Chairman of PJSC Gazprom’s Management Committee Sergey Fyodorovich Khomyakov Deputy Chairman of PJSC Gazprom’s Management Committee, Director General of PJSC Gazprom’s Corporate Security Service Born in 1967. Born in 1953. Graduate of A.S. Bubnov Ivanovo State Medical Institute and the S. Ordzhonikidze State Academy of Management. Candidate of Medical Sciences. Member of the Company’s Management Committee since 2018. Oversees administrative assistance, inventory and logistics management and healthcare benefits. Graduate of V.I. Ulyanov (Lenin) Leningrad Electrotechnical Institute. Candidate of Economics. Member of the Company’s Management Committee since 2007. Oversees HR management and corporate security. 4545 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Management Committee Sergey Ivanovich Kuznets Head of Department (legal support) Sergey Nikolaevich Menshikov Head of Department (hydrocarbon exploration and production) Born in 1970. Born in 1968. Graduate of M.V. Lomonosov Moscow State University. Member of the Company’s Management Committee since 2019. Graduate of M.D. Millionshchikov Grozny Petroleum Institute. Candidate of Economics. Member of the Company’s Management Committee since 2019. Vladimir Konstantinovich Markov Head of Department (government relations) Elena Vladimirovna Mikhailova Head of Department (asset management and corporate relations) Born in 1955. Born in 1977. Graduate of Ryazan Radio Engineering Institute, the Academy of Social Sciences attached to the Central Committee of the Communist Party of the Soviet Union, the Moscow Academy of Economics and Law. Candidate of Law, Candidate of Economics. Member of the Company’s Management Committee since 2012. Graduate of Moscow State Industrial University. Member of the Company’s Management Committee since 2012. 46 PJSC Gazprom Annual Report 2019PJSC Gazprom’s Management Committee Vyacheslav Alexandrovich Mikhalenko Head of Department (gas transportation and underground storage) Born in 1965. Graduate of Bryansk Transport Machine-Building Institute. Candidate of Technical Sciences. Member of the Company’s Management Committee since 2015. Gennady Nikolaevich Sukhov Head of Department (hydrocarbon processing, sales of hydrocarbons and refined products in the domestic market, power generation) Born in 1961. Graduate of Saratov Polytechnic Institute. Member of the Company’s Management Committee since 2019. n o i t a m r o f n I y n a p m o C Changes in the Management Committee in 2019 Members of the Management Committee elected by the Board of Directors in 2019 Name Sergey N. Menshikov Elena V. Burmistrova Sergey I. Kuznets Famil K. Sadygov Gennady N. Sukhov Number and date of the Board of Directors resolution No. 3234 dated 20 March 2019 No. 3237 dated 2 April 2019 No. 3240 dated 2 April 2019 No. 3247 dated 10 April 2019 No. 3255 dated 16 April 2019 Date of election to the Management Committee 2 April 2019 1 April 2019 2 April 2019 15 April 2019 15 April 2019 Members of the Management Committee whose powers were terminated by the Board of Directors in 2019 Name Valery A. Golubev Alexander I. Medvedev Vsevolod V. Cherepanov Sergey F. Prozorov Igor Y. Fyodorov Andrey V. Kruglov Kirill G. Seleznev Number and date of the Board of Directors resolution Date of termination of powers of the Management Committee member No. 3223 dated 26 February 2019 No. 3224 dated 26 February 2019 No. 3225 dated 26 February 2019 No. 3238 dated 2 April 2019 No. 3239 dated 2 April 2019 No. 3241 dated 2 April 2019 No. 3254 dated 16 April 2019 26 February 2019 26 February 2019 26 February 2019 1 April 2019 1 April 2019 1 April 2019 12 April 2019 The biographical details of the members of PJSC Gazprom’s Management Committee are also available on PJSC Gazprom’s website www.gazprom.com 4747 PJSC Gazprom Annual Report 2019 The Company’s History Over the 25 years since it was founded in 1993, the Company has grown into one of the global energy market leaders. Gazprom has successfully diversified its core business. In addition to its gas business, the Group has been suc- cessfully operating in the oil and power markets, ranking among Russia’s top oil companies and number one in Russia by installed heat generation capacity. Gazprom has significantly expanded the geography of its operations: it entered the high-potential Asia Pacific market, launched operations in the Central Asia, Africa, and Latin America, and is a player in the global LNG trade. Gazprom pioneered the development of the Russian Arctic shelf, launched a fundamentally new gas production hub in the Yamal Peninsula, and is building large-scale gas infra- structure in eastern Russia. Gazprom was the first in Russia to introduce underwater production technology enabling gas extraction without above-water structures, and teamed up with its foreign partners to launch Russia’s first large-scale LNG plant. This success is underpinned by the Company’s long-term strategy, tight vertical integration, and sound governance providing a firm foundation for Gazprom’s continued success in competing on equal footing against global majors, imple- menting ambitious projects, and achieving impressive results. Milestones 1990s 1993–1998 According to the Russian Government’s Resolution dated 17 February 1993, and pursuant to the Presidential Decree, Gazprom State Gas Concern was reorganised into Gazprom Russian Joint Stock Company (RAO Gazprom). Privatisation of the Company started in April 1994, with the First annual General Shareholders Meeting held on 31 May 1995. On 26 June 1998, pursuant to the resolution of the General Shareholders Meeting, RAO Gazprom was reorganised into Gazprom Open Joint Stock Company. 1999 November Gas supply started via the Yamal — Europe gas pipeline, running across four countries: Russia, Belarus, Poland and Germany. 2000s 2001 2006 30 May Alexey Miller was elected Chairman of the Company’s Management Committee. 18 August Gazprom’s first LNG shipment to an Asian market, purchased by Japan. 31 October Gas production started at the Zapolyarnoye field, one of the largest in the world. 2007 25 April The Board of Directors approved JSC Gazprom’s Power Generation Strategy, the implementation of which transformed the Company into one of Russia’s largest electricity producers. 18 December The Yuzhno-Russkoye field came on stream, Russia’s first international gas production project based on asset swap. 2009 18 February Russia’s first large-scale LNG plant was put into operation in Sakhalin. 2003 20 February Commercial gas supplies started via Blue Stream, Russia’s first gas offshore pipeline and one of the world’s deepest undersea pipelines. 2005 2 September Gazprom’s first LNG shipment; the gas tanker arrived at a US LNG regasification terminal. 21 October Gazprom Group took control of 75.679% of OAO Sibneft, which provided a platform for further development of Gazprom’s oil business. December The law prohibited the State from holding less than 50% plus one share in the Company. Restrictions were lifted on the acquisition of shares in the Company by foreign investors. 48 PJSC Gazprom Annual Report 2019n o i t a m r o f n I y n a p m o C 2013 2018 5 September Work started to install the deep-water section of the Nord Stream 2 gas pipeline. 5 December The third and final gas production site was commissioned at the core Bovanenkovskoye field. Gazprom commenced the construction of the Ukhta — Torzhok 2 trunk gas pipeline within the Northern Gas Transmission Corridor of Russia’s UGSS to supply additional gas to northwestern Russia, expand the gas infrastructure to domestic consumers, and support export supplies via Nord Stream 2. 2019 8 January A commissioning ceremony was held in the Kaliningrad Region for an offshore gas receiving terminal and a floating storage and regasification unit, Marshal Vasilevskiy. The alternative, independent offshore route for gas supplies brought the region’s energy security to a fundamentally new level. 20 March The Group commenced the full-scale development of the Kharasaveyskoye field, Gazprom’s second core asset in the Yamal Peninsula. 29 March Gazprom made a decision to participate in the construction of a large integrated complex for gas processing and liquefaction near the seaport of Ust-Luga. 2 December An official ceremony was held to celebrate the start of the first-ever Russian pipeline gas supplies to China via the Power of Siberia gas pipeline. 23 October Gazprom was the first in Russia to produce gas by using an underwater production system without recurring to above-water structures on the Kirinskoye field in the Sea of Okhotsk. 20 December Oil production started at the Prirazlomnoye field in the Pechora Sea. It is Russia’s first ever Arctic shelf project. 2014 21 May The Company and China’s CNPC signed a contract for gas supplies — the 30-year gas supply contract for over 1 tcm is the largest of its kind in the entire history of the Russian gas industry. 2015 14 October The Company launched the construction of the (laid the foundation stone) of the Amur GPP, Russia’s largest gas processing facility, which will be an essential part of the process chain of natural gas supply to China via the Power of Siberia gas pipeline. 2016 25 May The Arctic Gate (“Vorota Arktiki”), a unique oil loading terminal, was commissioned enabling, for the first time ever, year-round oil shipments from the Yamal Peninsula by sea. 16 September With Gazprom’s involvement, commercial production was launched at the Incahuasi field, one of the largest GCFs in Bolivia. 2017 18 January Launch events were held for the commissioning of the Bovanenkovo — Ukhta 2 gas pipeline increasing the supplies of gas from the Yamal Peninsula to Russia’s UGSS. The Company’s History 2010s 2010 12 February Russia’s first coal bed methane project was launched in the Kemerovo Region. 29 September The Sobolevo — Petropavlovsk-Kamchatsky trunk gas pipeline was put into operation, bringing first natural gas supplies to the capital of the Kamchatka Territory. 2011 6 June The Dzhubga — Lazarevskoye — Sochi, Russia’s first offshore gas pipeline, was commissioned. 8 September First section of the Sakhalin — Khabarovsk — Vladivostok gas transmission system, the Far East’s first interregional GTS, was inaugurated. 8 November Commercial gas supplies started via the first string of the Nord Stream pipeline, a fundamentally new Russian gas export supply route to Europe through the Baltic Sea. 25 November The Company closed the deal to acquire 100% of OAO Beltransgaz, becoming the owner of Belarus GTS. 2012 23 March An 800 MW CCGT plant was launched at the Kirishskaya GRES. It was the largest heat generation plant commissioned i n 30 years, and Russia’s most powerful combined cycle gas turbine unit at the time. 23 October A new major gas production hub was launched in Russia, in the Yamal Peninsula. The Bovanenkovskoye field and the Bovanenkovo — Ukhta trunk gas pipeline came on stream. The transmission corridor was expanded with the new Ukhta — Torzhok gas pipeline. 4949 PJSC Gazprom Annual Report 2019 The Company’s History 2019 in the Company’s History Gazprom launched Russian pipeline gas supplies to China Gazprom launched a new, reliable route for Russian pipeline gas supplies across the Black Sea Gazprom continued developing the Yamal gas production hub In December 2019, an official ceremony was held to celebrate the start of the first-ever Russian pipeline gas supplies to China via the eastern route — the Power of Siberia trunk gas pipeline, one of the largest investment projects in the global gas industry. As part of the project, a gas production hub was established in Yakutia, about 2,200 km of gas pipeline were laid, and a cross-border section with a two-line underwater crossing of the Amur River was built jointly with CNPC. Overall project completion for the Amur Gas Processing Plant (GPP) stood at 55.2% at end-2019. The plant is an essential part of the process chain of gas supplies via the Power of Siberia pipeline, and in the reporting year, Gazprom raised an unprecedented EUR 11.4 bn in project financing for the plant construction. In 2019, the Group completed the construction of the TurkStream trunk gas pipeline’s offshore section linking Russia and Turkey via the Black Sea, and the onshore transit section of the TurkStream pipeline running across Turkey to its border with Bulgaria. Pipeline gas supplies via the new route commenced in January 2020, contributing to the energy and environmental security of Turkey and European countries. In March 2019, the Group commenced the full-scale development of the Kharasaveyskoye GCF, Gazprom’s second core asset in the Yamal Peninsula, with explored gas reserves totalling 1.9 tcm (C1+C2 categories). The Group’s extensive track-record and expertise enable it to implement this complex project within a short timeframe — production start-up is scheduled for 2023. The resource base of the Yamal gas production hub has also grown. In the reporting year, significant discoveries were made on the Kara Sea continental shelf — the Dinkov and Nyarmeyskoye fields. In addition, significant growth in gas reserves was achieved through exploration at the Kruzenshternskoye gas condensate field (GCF), located on the Kara Sea continental shelf and in adjacent onshore areas. Gazprom completed a large-scale investment programme in Russia’s power generation In accordance with capacity supply agreements, the final facility under the CSA programme, Unit 2 at the Grozny TPP, came on stream in 2019 with a capacity of 184 MW. On the whole, since Gazprom entered the power generation business in 2007 as a result of the CSA programme, the Group has put 9 GW of advanced generating capacities into operation in Russia. A new record high was achieved for potential deliverability across UGSFs in Russia By November 2019, the potential maximum daily deliverability at Gazprom’s UGSFs had been increased to 843.3 mmcm of gas — a record level for the Russian gas industry. 50 PJSC Gazprom Annual Report 2019The Company’s History 2019 in the Company’s History n o i t a m r o f n I y n a p m o C An alternative, independent gas supply route was launched for the Kaliningrad Region A commissioning ceremony was held in the Kaliningrad Region in January 2019 for an offshore gas receiving terminal and a floating storage and regasification unit, Marshal Vasilevskiy. The option of receiving LNG seaborne shipments helps improve the energy security of the region. The construction of Nord Stream 2 and the expansion of the Northern Gas Transmission Corridor were continued The implementation of the project for construction of a large complex for gas processing and liquefaction near the seaport of Ust-Luga was launched Gazprom commenced the construction of a cutting-edge civil satellite manufacturer In the Baltic Sea, the installation of the Nord Stream 2 gas pipeline sections was completed on schedule in the territorial waters of Finland, Sweden and Russia. As at 31 December 2019, over 2,300 km of pipe were laid under the Baltic Sea across all sections (94% of the route’s total length). The construction of onshore sections in Germany and Russia is nearing completion. As part of the UGSS expansion project in the North-West region, welding of the 880 km linear section of the pipeline between Gryazovets and Slavyanskaya CS was completed, the starting point of the Nord Stream 2 gas pipeline. In March 2019, PJSC Gazprom and AO RusGazDobycha finalised the configuration of their joint project — an integrated complex for gas processing and liquefaction near the seaport of Ust-Luga (Leningrad Region). The complex will have an annual capacity to process 45.0 bcm of ethane-containing natural gas from Gazprom fields in the Nadym-Pur-Taz region, which will be delivered via dedicated gas pipelines. LNG production is expected to total approximately 13 mm tonnes per year. Marketable products will include dry stripped gas, LPG, ethane and pentane-hexane fractions. The complex will be operated by OOO RusKhimAlyans, a joint venture established on a parity basis between a PJSC Gazprom subsidiary and AO RusGazDobycha. Phase 1 of the complex is scheduled to be commis- sioned in late 2023, Phase 2 — in late 2024. In November 2019, Gazprom teamed up with State Space Corporation ROSCOSMOS to launch the construction of the first fully integrated enterprise in the history of modern Russia for spacecraft assembly and testing. To meet the needs of Gazprom Group and other customers, the facility launched in Shchelkovo (Moscow Region) will be able to manufacture up to four large and mid-sized communications and remote sensing devices or 100 small batch-produced satellites per year. The facility is scheduled to be commissioned as early as in 2022. 5151 PJSC Gazprom Annual Report 2019 Strategy 52 52 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019Trends and Developments in Global Energy Markets 54 Strategic Priorities 62 Gas Business 62 Oil Business 68 Power Generation Business 71 Capex Programmes 73 Long-Term Development Programme and Key Indicators 76 y g e t a r t S 53 53 PJSC Gazprom Annual Report 2019Trends and Developments in Global Energy Markets The projected increase in demand for gas and its growing competitive advantage compared to other fuels create the conditions for strengthening Gazprom’s leadership as the largest gas exporter in the global energy market. Long-Term Outlook for the Global Energy Market The multi-dimensionality and heterogeneity of modern global energy markets’ development make any mid- and long-term outlooks an increasingly difficult task. A global consensus forecast suggests a steady growth of demand for energy around the world and a pivotal role for gas in the global energy mix. Long-term fuel and energy sector development trends to 2040 — Growing population in some economies, primarily in Asia Pacific — Shifting energy consumption from developed to developing countries — Growing attention to environmental matters and climate change — Development of energy saving technologies — Development of long-distance transportation and storage of energy Global economy growth stimulates energy consumption. already produced Global primary energy consumption is estimated to have grown by 2.5% to over 14.5 bn toe in 2019. According to base case forecasts, global energy consumption is expected to grow steadily and may increase by 20% by 2040 from 2019. Two thirds of this growth will come from Asia. The biggest driver of long-term global energy consump- tion growth will be the rise of developing Asian economies and the resulting steady energy demand increase. However, this growth could be held back by energy efficiency mea- sures adopted mostly by developed countries in Europe and North America. This strong energy demand will make Asia the world’s largest energy importer: by 2040 the region’s import of oil could increase by a third, coal — by more than 50%, natural gas — by 2.5 times from 2019. By 2040, Asia will be the world’s biggest natural gas consumer — Gradual depletion of conventional oil and gas fields, transition to development of hard-to-recover resources in unconventional collectors and deepwater — Further development of renewable energy technologies Factors of uncertainty in global economy development — Economic growth rates of some countries (especially developing ones) — Growing energy efficiency of the world economy — The amount of subsidies for developing power generation technologies (in particular, based on renewable energy sources and hydrogen) — Political decisions to restrict or ban energy exports from particular countries — The policies of some countries with regard to nuclear and coal-fired generation — Restrictions being introduced on and permit prices for greenhouse gas emissions — The levels of capex to develop new fields — Development of new technologies in energy production, transportation and consumption that could be disruptive for the global energy industry 54 PJSC Gazprom Annual Report 2019Trends and Developments in Global Energy Markets A defining trend in the world’s energy industry in recent years has been the growing role of natural gas in the global energy mix. Natural gas is the cleanest of fossil fuels. As a clean burning, cost-efficient fuel, natural gas is increasing its presence in the global market as a solid competitor to other fossil fuels — oil and coal. An important factor that shapes the global energy mix is the growing importance of environmental matters. Natural gas and renewables consumption will experience the fastest growth to 2040, accounting for over 80% of the world’s total energy consumption growth. 25 % Expected share of natural gas in the global energy mix by 2040 y g e t a r t S Key drivers of gas consumption growth Whereas in 2019 oil accounted for almost a third of global — Global population growth, leading to higher gas consumption energy consumption, with gas being number three (with approximately 23%), by 2040 the share of gas in the global energy mix is expected to increase to 25% and it will become a number two energy carrier, overtaking coal. Until 2040, gas will account for the largest share of the incremental global energy consumption in absolute terms. Global consumption is forecast to exceed 5.5 tcm by 2040. in the industry, utilities and power generation sectors — The relative environmental benefits of natural gas compared to other fossil fuels — Natural gas-fired power plants are dispatchable and can flexibly adjust their load to efficiently balance the grid, especially with the growing share of intermittent renewables in power generation — Greater focus on transport decarbonisation and incentives to use natural gas as motor fuel Energy consumption growth forecast to 2040, mm toe 19 18 17 16 15 14 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Consensus forecast Range of forecasts Source: data from leading international and Russian research organisations and institutes Global natural gas consumption forecast to 2040, bcm 6 000 5 500 5 000 4 500 4 000 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Consensus forecast Range of forecasts Source: data from leading international and Russian research organisations and institutes 55 PJSC Gazprom Annual Report 2019 Trends and Developments in Global Energy Markets China’s natural gas consumption is expected to grow steadily throughout the projection horizon to 2040. An important gas demand growth driver for China will be the government policy towards a cleaner environment. Most of the growth is expected to come from the more developed and denser populated provinces. China’s domestic gas production growth will not be sufficient to satisfy the growing demand for gas. It is therefore expected that China will increase gas imports in the long-term, both by pipeline and as LNG. Europe is expected to demonstrate milder growth of gas consumption. However, the programmes by a number of European countries to decommission coal-fired and nuclear power plants, and the need to meet emissions reduction targets for the period to 2040 will support the interest to using natural gas in various industries. Despite the weak demand growth, Europe is expected to remain one of the key natural gas import regions due to own production decline. There will be a gradual increase in LNG in the import mix, but pipeline gas will continue to dominate in the European market. China’s natural gas consumption growth outlook to 2040, bcm 800 700 600 500 400 300 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Consensus forecast Range of forecasts Source: data from leading international and Russian research organisations and institutes Europe’s natural gas consumption outlook to 2040, bcm 700 650 600 550 500 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Consensus forecast Range of forecasts Source: data from leading international and Russian research organisations and instit Global Economy and Gas Market Development in 2019 Economic Slowdown and Energy Price Decline Global economic growth (real GDP on a PPP basis) deceler- ated to 2.9% in 2019 according to OECD (compared to 3.5% in 2018). The growth was negatively affected by the US–China trade disputes, uncertainty around Brexit and general geo- political tensions. The biggest contribution to global growth in 2019 came from China and India with 6.1% and 4.9% growth rates respectively. 56 Inflation slowed down and stabilised at low levels in developed countries in 2019. Central banks took measures to support economies by lowering interest rates and resuming quantita- tive easing programmes. On the back of the economic slowdown, the average Brent price was down by more than 10% year-on-year to average USD 64.2 per barrel, which had a negative impact on Gazprom Group’s revenue and profit. Coal price declined significantly, by 20.9% year-on-year to average USD 67.1 per tonne for 2019. PJSC Gazprom Annual Report 2019 Trends and Developments in Global Energy Markets The spread of the coronavirus from late 2019 and other geopolitical and economic tensions created significant risks in the energy market. Brent crude oil price in 2019 to early 2020, USD per barrel 70 60 50 40 30 20 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 2019 2020 Source: Bloomberg Natural Gas Production Decline and Growing Imports in Europe Gas consumption, domestic production and imports in European far abroad countries, 2015–2019, bcm 600 500 400 300 200 506.6 258.9 264.1 541.7 568.7 548.9 560.0 287.7 260.4 311.5 264.1 325.9 360.7 252.7 236.5 2015 2016 2017 2018 2019 Consumption Production Imports Note. Calculated based on statistical data, with natural gas volumes converted to Russian standards (calorific value of 8,850 kcal/cu m at 20°C). Figures for 2018 and previous years may differ from the data in Annual Report 2018 since international statistics may have been subsequently updated. Sources: Eurostat, national statistical offices, IHS Markit and other sources The natural gas production decline in Europe continued in 2019. Natural gas consumption in European far abroad coun- tries increased by 11.1 bcm, or 2.0% year-on-year, to 560.0 bcm in 2019. Weather had a significant negative impact on con- sumption, with the European weather index (cooling and heating degree days) lower than normal and lower than the previous year (92.6% compared to 97.1% in Q1–Q4 2018) due to warm weather in February–March and October–December 2019. Gas consumption in power generation went up by 6.7 bcm, or 4.0%, with higher consumption in the industrial sector (+1.3 bcm, or +0.9%) and the household sector (+1.9 bcm, or +0.9%). The main contribution to increased natural gas consumption was from reduced nuclear, coal-fired and hydro power generation. The share of power generation in the gas consumption structure increased by 0.6 p. p. from 30.6% in 2018 to 31.2% in 2019. The economics of gas-fired generation was influenced by high carbon permit prices and low gas hub prices, sup- porting its competitiveness compared to the coal-fired generation in 2019. y g e t a r t S Carbon permit prices in Europe remain high After a sharp increase in 2018, the EU ETS carbon permit prices stabilised at the level of EUR 22–26 per tonne of CO2 equivalent in 2019. The carbon permit price stabilisation at this level is an important factor reinforcing gas competitiveness in the European power sector. Higher permit prices make coal-fired generation less attractive, which, in turn, leads to increased utilisation of gas-fired capacity. Carbon permit prices in Europe, 2015–2019, EUR per tonne of CO2 equivalent 25 20 15 10 5 2015 2016 2017 2018 2019 Lower economic activity in Europe did not have a negative impact on the demand for gas, offset by a favourable price environment. An important supply and demand balancing factor was growing gas imports (+34.8 bcm, or +10.7%), primarily as LNG imports (+47.3 bcm, or +69.6%), while pipeline supply was down (–12.5 bcm, or –4.8%). Own production in Europe was down by 16.2 bcm, or 6.4%, with over 45% of the decline coming from Norway and almost 30% from the Netherlands. PJSC Gazprom’s gas sales under OOO Gazprom export’s contracts to European far abroad countries were 191.4 bcm in 2019. In addition, the Company had commodity (gas) repo agreements* for 7.6 bcm of gas put in European underground storage facilities (UGSFs). Thus, total supplies to European far abroad countries under OOO Gazprom export’s contracts were 199.0 bcm in 2019. The largest European producers cut down their supplies. With the low spot price environment, Norway undertook lengthy repairs and cut its 2019 supplies by 6.9 bcm, or 5.3% year-on-year. * The transactions are disclosed in PJSC Gazprom’s accounting (financial) statements as borrowings secured by inventories. 57 PJSC Gazprom Annual Report 2019 Trends and Developments in Global Energy Markets Great Britain and the Netherlands also continued their production cuts. Due to more frequent earthquakes, the Dutch government repeatedly capped production at the Groningen field. According to recent reports, continuous production there will be halted by as early as mid-2022. The field will be kept operational until 2026 in order to meet high demand for gas in exceptionally cold winter period. This decision will have a significant effect on the European gas balance, with declining production to be substituted by imports. Pipeline and LNG gas supplies from Algeria demonstrated two opposing trends: while there was an overall reduction by 9.6 bcm, or 19.8%, LNG supplies to Europe increased (+3.2 bcm, or +24.6%). Qatar also ramped up LNG supplies to Europe (+8.8 bcm, or +37.8%) while cutting supplies to other regions (–7.4 bcm, or –8.8%). LNG imports to Europe increased by 47.3 bcm, or 69.6%, primarily through additional US volumes (+14.6 bcm), new volumes from Russian projects (+13.9 bcm), Qatar (+8.8 bcm) and other sources (+10.0 bcm). Gas volumes in European far abroad countries’ UGSFs were higher than in 2018 (+21.1 bcm) and higher than the 2013– 2018 average (+23.7 bcm). European UGSF stock level, bcm 120 100 80 60 40 20 01 02 03 04 05 06 07 08 09 10 11 12 2018 2019 Average UGSF stock level, 2013–2018 UGSF stock level range, 2013–2018 Source: IHS Markit Breakdown of gas supplies to European far abroad countries by suppliers, 2015–2019, bcm 2015 2016 2017 2018 2019 Supplies by major gas exporters PJSC Gazprom Algeria (incl. LNG) Qatar Other Russian producers (LNG supplies from Russian projects) United States Nigeria Iran Supplies by major European producers Norway (incl. LNG) United Kingdom Netherlands Other supplies (excluding re-export) Total * Including commodity (gas) repo agreements. 2015 2016 2017 2018 2019 159.4 179.3 194.4 201.9 * 199.0 38.1 28.6 – – 8.0 8.1 124.5 44.6 48.9 46.4 51.2 23.7 – 0.5 9.8 8.0 124.1 44.9 45.5 54.7 49.4 24.1 0.1 2.6 12.6 9.6 48.5 23.3 6.8 3.7 13.0 8.1 38.9 32.1 20.7 18.3 16.0 8.0 134.7 130.9 124.0 45.0 39.5 56.7 43.6 35.0 34.1 43.3 30.3 29.4 506.6 541.7 568.7 548.9 560.0 Note. Calculated based on statistical data, with natural gas volumes converted to Russian standards (calorific value of 8,850 kcal/cu m at 20°C). Figures for 2018 and previous years may differ from the data in Annual Report 2018 since international statistics may have been subsequently updated. Sources: Eurostat, national statistical offices, IHS Markit and other sources 58 PJSC Gazprom Annual Report 2019 Trends and Developments in Global Energy Markets Breakdown of gas supplies to European far abroad countries by distribution method in 2019 Month-ahead gas prices on TTF and NCG, 2017–2019, USD per mcm Pipeline supplies LNG supplies Pipeline supplies PJSC Gazprom Norway (incl. LNG) United Kingdom the Netherlands Algeria Iran Other import pipeline supplies LNG supplies Qatar Other Russian producers (LNG supplies from Russian projects) United States Algeria Nigeria Other LNG supplies For more details on Gazprom Group’s gas sales to European far abroad countries in 2019 see the Marketing section The decrease in prices for competing energy sources was echoed by lower prices at Europe’s trading hubs. The average TTF month-ahead contract price was down from USD 269.7 per mcm in 2018 to USD 168.1 per mcm in 2019 (–37.7%). The average NCG month-ahead contract price was down from USD 271.9 per mcm in 2018 to USD 172.8 per mcm in 2019 (–36.4%). One of the main reasons of this decline was excess non-contracted LNG supply on the spot market. The downward trend at the main trading hubs continued in January 2020. 59 350 300 250 200 150 y g e t a r t S 2017 2018 2019 TTF month ahead NCG month ahead Source: Bloomberg Global LNG Trade Growth Global net LNG imports continued to rise in 2019, reaching 359 mm tonnes, up 41 mm tonnes, or 12.9% year-on-year. European countries accounted for approximately 90% of the growth, with the UK, France, Spain, the Netherlands and Italy leading the growth. Europe’s share in global LNG imports increased year- on-year from 16% to 24%, while the share of Asia Pacific shrank from 76% to 69%. A significant share of incremental European LNG imports was met by Yamal LNG and US supplies. Global LNG trade volume, 2015–2019, mm tonnes 2015 2016 2017 2018 2019 248 262 292 318 359 Note. Data for actual LNG deliveries (including boil-off gas), less any re-exports. Source: IHS Markit LNG supplies to Europe had an explosive growth from Q4 2018 as a result of large-scale liquefaction facility launches in the US, Australia and Russia, the return of Japan and South Korea to nuclear power generation, and China’s economic slowdown in recent years. The Asia Pacific and Atlantic regions witnessed a decline in spot LNG prices on the back of new liquefaction facilities being brought on stream and the ramp-up to design capacity of previously commissioned projects such as Yamal LNG Trains 2 and 3. An additional negative impact on 2019 LNG imports in Japan, China, South Korea and Taiwan came from the relatively warm weather conditions in the region. PJSC Gazprom Annual Report 2019 Trends and Developments in Global Energy Markets On the back of lower growth in Asia Pacific and new liquefaction facility additions, LNG spot prices in the region were down year-on-year by 44.2% to USD 5.46 per mm BTU, while in North-West Europe they were down by 41.4% to USD 4.67 per mm BTU. The “Asian premium” (difference between spot prices in Asia and Europe) was only USD 0.7 per mm BTU in 2019 compared to USD 2.1 per mm BTU the year before, which was negative for the attractiveness of Asia Pacific as a premium LNG destination. According to IHS Markit, active liquefaction capacity additions were 36.0 mm tonnes of LNG per year, of which 14.3 mm tonnes of LNG per year came from expansion of existing facilities and 21.7 mm tonnes of LNG per year — from new plants. This is comparable with the liquefaction capacity additions seen in 2018. Further commissioning of facilities for a total of 22.8 mm tonnes of LNG per year is expected in 2020. Growing Gas Consumption and Imports in China Lower Gas Consumption in Russia and Domestic Market Development Initiatives Russia’s 2019 total gas consumption was 481.0 bcm, down 2.5% year-on-year. Natural gas share in Russia’s energy mix was approxi- mately 54% in 2019, remaining virtually flat over the past few years. Russia’s domestic gas consumption, 2015–2019, bcm 2015 2016 2017 2018 2019 444.3 456.7 468.0 493.2 481.0 China is one of the world’s fastest growing gas markets. Responding to growing gas consumption, Chinese companies both actively ramp-up own production and increase gas imports. The largest consumers of natural gas in Russia include electricity and heat generation companies (35%), household consumers (11%), the oil industry (9%), the housing and utilities sector (8%) and the metals industry (6%). According to China’s official data, the country’s gas consumption was 307 bcm in 2019, up 9.4% (almost 27 bcm) year-on-year. The significant increase in 2019 gas consump- tion was attributable to higher demand from the industry, power generation and utilities, as well as to the national gov- ernment’s continued policy of growing the share of natural gas in the country’s energy mix. Over133 bcm Natural gas imports to China in 2019 Imports play an important role in meeting China’s gas demand. According to preliminary estimates, China imported over 133 bcm in 2019, up 8 bcm year-on-year. LNG is an important part of China’s gas imports. It is expected, however, that as Russian gas exports through the Power of Siberia pipeline ramp up after it started supplying gas at the end of 2019, the share of pipeline imports in China’s market will grow. In Russia, gas is sold and purchased using two different pricing approaches for suppliers, which results in the exis- tence of two gas sales sectors, one with prices fixed by the Government, the other with unregulated prices. Gas produced by PJSC Gazprom’s subsidiaries is sold mostly at prices fixed by the Government. In accordance with applicable Russian laws, wholesale prices of gas produced by PJSC Gazprom and its affiliates are subject to regulation. These prices are differentiated between consumer groups (households vs industrial consumers), as well as by price zone, based on the relative distance from the gas production region to the consumer. As per the Forecast of Russia’s Socio-Economic Develop- ment drafted by the Russian Ministry of Economic Development and approved by the Government in September 2019, a 3% annual increase in regulated domestic wholesale gas prices is expected in 2020–2024 for all consumer categories, with prices indexed annually on 1 July. PJSC Gazprom is actively involved in the Russian gas market development, focusing on the areas approved by its Board of Directors in 2017. Gazprom’s contribution to covering domestic gas consumption in Russia, 2015–2019, bcm Domestic gas consumption in Russia Supplies to Russian consumers via Gazprom’s GTS* 2015 2016 2017 2018 2019 444.3 456.7 468.0 493.2 481.0 339.4 348.8 351.3 361.7 353.9 incl. Gazprom Group via the GTS (with purchases from independents) 222.0 226.9 231.3 244.1 240.0 Supplies to Russian consumers via Gazprom’s GTS from Gazprom Groups’s production 211.2 210.2 216.3 224.9 221.2 * Excluding GTS process needs 60 PJSC Gazprom Annual Report 2019Trends and Developments in Global Energy Markets To promote market-driven pricing principles, PJSC Gazprom participates in exchange-based gas trade at Saint Peters- burg International Mercantile Exchange (AO SPIMEX). PJSC Gazprom’s gas volumes sold through the exchange totalled 10.5 bcm in 2019. The key destination areas for PJSC Gazprom’s gas supplies are those with predominantly industrial consumers and those located near gas producing regions. The natural gas purchased through exchange-based trading channel was supplied to 36 Russian regions in 2019. Factoring in the costs of purchasing exchange-traded natural gas and the gas transportation costs, the average ratio of exchange-traded gas price to the regulated regional whole- sale price remained flat at 99.3% in 2019. PJSC Gazprom continues to be actively involved in promoting exchange trade in the Russian market, including improvements to trading arrangements for month-ahead and day-ahead gas contracts. 63 % The share of gas produced by Gazprom Group in total gas supplies to Russian consumers via Gazprom’s GTS y g e t a r t S PJSC Gazprom’s role in the Russian gas market development in 2019 Area of development Initiatives Improvement of the gas transportation services system Proposals submitted to the federal authorities on the trunk pipeline gas transportation service tariff calculation methodology, with fixed “entry area — exit area” tariffs Developing market-based gas pricing approaches PJSC Gazprom submitted a memorandum to the Russian Government presenting its views on the procedure and timing of abandoning domestic market gas price regulation Proposals submitted to the Russian Federal Anti-Monopoly Service on improving the principles of setting gas distribution entity tariffs and distribution fees to address the existing imbalance and prepare to operating in a competitive market environment PJSC Gazprom provided active expert input to Resolution of the Government of the Russian Federation No. 1063 dated 17 August 2019 which authorised Gazprom to sell up to 25 bcm of gas through exchange-based trading channel and cancelled the requirement of parity between Gazprom and independent companies in exchange- based gas trading Developing a common gas market of the Eurasian Economic Union (EAEU) An initiative is ongoing, jointly with the Russian Ministry of Energy, to study the possibility of applying a two-sector tariff model in the common EAEU market, with separate tariffs for gas transportation to the domestic market and to the common EAEU market, to be reflected in the Common EAEU Gas Market Treaty being developed under coordination of the Russian Ministry of Energy 61 PJSC Gazprom Annual Report 2019Strategic Priorities Gas Business The strategic goal of Gazprom Group in the gas business is to maintain its leadership among global oil and gas companies by diversifying natural gas and refined products sales markets and forms of distribution, ensuring reliable gas supplies to consumers, driving efficiency and scale of operations, and developing the Company’s potential in R&D, technology and human resources. No significant adjustments were made to PJSC Gazprom’s strategy in the reporting year. The time of commissioning of some fields and the timelines of major projects were adjusted to reflect current market environment outlook. PJSC Gazprom and AO RusGazDobycha made a decision to undertake a joint project — an integrated complex for gas processing and liquefaction near the seaport of Ust Luga. Gas Exploration and Production Risks affecting the achievement of PJSC Gazprom’s strategic goals — Risks related to the global economy slowdown — Political risk — Risks related to changes in government regulation of the gas industry — Unconventional gas development risks — Risks related to the development of renewable energy sources — Market risks Information on promising projects of Gazprom Group is presented in the Gazprom in Figures 2015–2019 Factbook Strategic Priorities Activities to support the strategic priorities in 2019 — Building gas production hubs in eastern Russia — Bringing into development the Yamal Peninsula’s unique and large fields — Bringing into development new fields in the Nadym-Pur-Taz region — Further exploration of the deposits in deep-lying Achimov and Jurassic sediments and above the Cenomanian sediments in the fields under development in the Yamal-Nenets Autonomous Area — Bringing into development continental shelf fields in Russian northern seas Field Development Commercial development started at the Chayandinskoye field Full-scale development commenced at the Kharasaveyskoye field Development of the Cenomanian-Aptian deposits continued at the Bovanenkovskoye field Construction of production wells to the cap of the production interval continued at the Yuzhno-Kirinskoye field Field construction to develop Blocks 1, 2, 4 and 5 of the Achimov deposits at the Urengoyskoye field continued Preparations continued to move the Kovyktinskoye gas and condensate field from pilot development to commercial production phase Revamps and retrofits of gas production facilities carried out at the Yamburgskoye, Urengoyskoye, Medvezhye, Bovanenkovskoye, Yubileynoye, Yamsoveiskoye, Zapadno-Tarkosalinskoye, Komsomolskoye, Vyngayakhinskoye, Orenburgskoye and Astrakhanskoye fields. Resource base development Exploration-based gas reserve growth achieved at the levels exceeding production volumes Further exploration of the Achimov and Jurassic sediments performed at the Urengoyskoye, Yamburgskoye and other fields in the Yamal-Nenets Autonomous Area Feasibility studies of developing deposits above the Cenomanian sediments carried out at the Yuzhno-Russkoye, Medvezhye, Yamburgskoye, Zapolyarnoye, Vyngapurovskoye and other fields in the Yamal-Nenets Autonomous Area 62 PJSC Gazprom Annual Report 2019Strategic Priorities Gas Business 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Cenomanian-Aptian deposits of the Bovanenkovskoye field Cenomanian-Aptian deposits of the Kharasaveyskoye field Chayandinskoye field Kovyktinskoye field Expansion of booster compressor capacity and well commissioning Expansion of booster compressor capacity and well commissioning BCS and well commissioning Well commissioning Well commissioning y g e t a r t S Start of commercial development Well commissioning CGTU expansion, PGTU and well commissioning Well commissioning Booster compressor capacity and well commissioning PGTU and well commissioning Ramp-up to design capacity Start of commercial development CGTU 3, BCS at CGTU 2, and well commissioning CGTU 1 and well commissioning Achimov deposits of the Urengoyskoye field (Block 1) Achimov deposits of the Urengoyskoye field (Block 2) Ramp-up to full capacity CGTU and well commissioning Achimov deposits of the Urengoyskoye field (Blocks 4 and 5) Yuzhno-Kirinskoye field Start of commercial development Kirinskoye field Well commissioning Well commissioning Well commissioning Well commissioning, ramp-up to full capacity Well commissioning Well commissioning Well commissioning Well commissioning Well commissioning Start of commercial development Well commissioning Completion of field infrastructure expansion to achieve design gas production capacity, commissioning of the onshore processing facility Phase 1 revamped unit Ensuring increased reserves replacement rates Further building of new gas production hubs in Russia Revamps and retrofits of existing gas production facilities to maintain target gas production levels Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 63 PJSC Gazprom Annual Report 2019 Strategic Priorities Gas Business Expansion of Gas Transportation Capacity Strategic Priorities Activities to support the strategic priorities in 2019 — Comprehensive expansion of gas production, transportation and storage capacity, aligned with export projects and new consumer readiness to receive the gas — Diversification of gas export routes — Construction of new gas transportation capacity — Revamps and retrofits of existing gas transportation facilities The Power of Siberia gas pipeline commissioned from the Chayandinskoye field to the Chinese border in the Amur region The TurkStream gas pipeline commissioned GASTRANS d.o.o. Novi Sad, Russian–Serbian joint venture, continued to expand Serbia’s gas transmission capacity to transport TurkStream’s gas Construction of the Ukhta–Torzhok 2 and the Bovanenkovo– Ukhta 2 gas pipelines continued Work continued on the Nord Stream 2 project and Russian GTS expansion to ensure supply into Nord Stream 2, including the North-West region’s GTS transportation capacity expansion at the Gryazovets–Slavyanskaya CS section Revamps of gas transportation infrastructure carried out Decommissioning of excess gas transportation capacity continued, 74 km of trunk gas pipeline and four compressor plants with a total capacity of 367.5 MW dismantled 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Start of phased commissioning Power of Siberia gas pipeline (Kovyktinskoye field– Chayandinskoye field section Sakhalin–Khabarovsk– Vladivostok gas pipeline Nord Stream 2 gas pipeline Ukhta–Torzhok 2 gas pipeline Bovanenkovo–Ukhta 2 gas pipeline Bovanenkovo–Ukhta 3, Ukhta–Torzhok 3 gas pipelines Commissioning* Ramp-up to full capacity Looping of the linear section Ramp-up to full capacity Start of phased commissioning Construction of gas transportation capacity to ensure diversification of gas export routes (including continued phased commissioning of the Power of Siberia trunk gas pipeline) Construction of new gas transportation capacity in Russia to ensure gas supplies to the domestic market and meet obligations under export contracts, including gas transportation capacity intended to carry gas from the Yamal fields to the Nord Stream 2 gas pipeline (including GTS expansion at the Gryazovets–Slavyanskaya CS section) Implementation of comprehensive programmes for revamping and retrofitting existing gas transportation facilities Decommissioning of excess capacity of the Central Gas Transmission Corridor * Data as at 31 December 2019. Various alternative options are being explored to complete the construction of the pipeline and put it into operation. Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 64 PJSC Gazprom Annual Report 2019 Strategic Priorities Gas Business Gas Underground Storage Strategic Priorities Activities to support the strategic priorities in 2019 — Maintaining UGSF capacity through revamps and replacement of worn-out and obsolete fixed assets, as well as debottlenecking of UGSFs and the GTS — Improving the flexibility of Russia’s UGSF system by constructing small peak-shaving gas storage facilities in salt caverns to maintain deliverability rates during increased gas withdrawal periods through to 1 February — Increasing daily deliverability and operating gas reserves of active UGSFs to satisfy current and projected gas demand Carried out facility revamps at the Peschano-Umetskoye, Elshano- Kurdyumskoye, Stepnovskoye, Sovkhoznoye, Kasimovskoye, Shchelkovskoye, Severo-Stavropolskoye and Pungiskoye UGSFs, and Kanchurinsko-Musinsky UGS complex Performed washing out of underground reservoirs and construction of facilities to expand the Kaliningradskoye UGSF compressor station, washing out and initial filling of the Volgogradskoye UGSF y g e t a r t S Increased maximum daily capacity by 30.8 mmcm through facility construction and well switching at the Punginskoye UGSF, construction of 13 wells at the Sovkhoznoye, Kaliningradskoye and Severo-Stavropolskoye UGSFs and connection of 6 wells at the Sovkhoznoye UGSF, construction of interconnecting jumpers at the compressor plant of the Kanchurinsko-Musinsky UGS complex, and revamping of 42 producing wells at UGSFs in Russia — Expansion of Gazprom Group’s UGSF capacity outside Russia Accumulated approximately 8.5 bcm of deliverable gas in OOO Gazprom export’s own UGSFs in Europe by the start of autumn and winter 2019/2020. 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Volgogradskoye UGSF Kaliningradskoye UGSF Udmurtia Reserving Complex Shatrovskoye UGSF Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Start of phased commissioning Capacity commissioning, working gas capacity expansion Capacity commissioning Start of phased commissioning Capacity commissioning, working gas capacity expansion Capacity commissioning, working gas capacity expansion Revamps and replacement of worn-out and obsolete fixed assets at existing UGSFs Construction and expansion of the peak-shaving Kaliningradskoye, Volgogradskoye and Shatrovskoye UGSFs, as well as the Udmurtia Reserving Complex Providing UGSF capacity to regions where such capacity is in short supply. The prospective areas for the construction of new UGSFs are Russia’s Northwestern, Siberian and Far Eastern Federal Districts Improving the flexibility of Russia’s UGSF system by constructing small peak-shaving gas storage facilities in salt caverns to maintain deliverability rates during increased gas withdrawal periods through to 1 February. Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 65 PJSC Gazprom Annual Report 2019 Strategic Priorities Gas Business Expansion of Gas and Condensate Processing, and Gas Chemical Production Strategic Priorities Activities to support the strategic priorities in 2019 — Construction of new gas processing facilities to support hydrocarbon developments in Eastern Siberia and the Far East Construction of the Amur GPP continued Projects continued to enable liquid hydrocarbon transportation from — Processing and transportation of projected volumes of liquid the Nadym-Pur-Taz region hydrocarbons produced at fields in Western Siberia, the Yamal Peninsula and the adjacent continental shelf of the Kara Sea — Processing of ethane-containing gas from fields in Western Siberia Started working on a Pre-investment Feasibility Ftudy for Field Construction to Develop Neocomian-Jurassic Deposits of the Kharasaveyskoye and Bovanenkovskoye fields, Transportation and Processing of Liquid Hydrocarbons Produced at Fields in the Yamal Peninsula and the Adjacent Continental Shelf of the Kara Sea PJSC Gazprom and AO RusGazDobycha finalised the configuration of their joint project — an integrated complex for gas processing and liquefaction near the seaport of Ust Luga. Funding of the project began 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Commissioning Projects to enable liquid hydrocarbon transportation from the Nadym-Pur-Taz region Amur GPP Integrated complex for gas processing and liquefaction near the seaport of Ust Luga* Commissioning of the first start-up complex Commissioning of the second start-up complex Commissioning of the third start-up complex Commissioning of the fourth start-up complex Commissioning of Phase 1 Commissioning of Phase 2 Construction of new gas processing facilities to support hydrocarbon developments in Eastern Siberia and the Far East as well as processing of the projected volumes of liquid hydrocarbons produced at fields in Western Siberia Revamps of existing facilities * A project with PJSC Gazprom’s participation. Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 66 PJSC Gazprom Annual Report 2019 Strategic Priorities Gas Business Expansion of LNG Production and Trading Strategic Priorities Activities to support the strategic priorities in 2019 — Expansion of LNG production capacity PJSC Gazprom and AO RusGazDobycha finalised the configuration of their joint project — an integrated complex for gas processing and liquefaction near the seaport of Ust Luga. Funding of the project began Further construction of an LNG production, storage and shipping complex continued near the Portovaya compressor station in the Leningrad Region Continued working on a Pre-investment Feasibility Study for an LNG Plant near Vladivostok with an annual capacity of 1.5 mm tonnes of LNG y g e t a r t S 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Commissioning LNG production, storage and shipping complex near the Portovaya compressor station Integrated complex for gas processing and liquefaction near the seaport of Ust Luga* Implementation of LNG projects in Russia * A project with PJSC Gazprom’s participation. Commissioning of Phase 1 Commissioning of Phase 2 Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment 67 PJSC Gazprom Annual Report 2019 Strategic Priorities Oil Business The strategic goal of Gazprom Group in the gas business is to maintain its status as one of the largest international global oil and gas companies by effective asset portfolio manage- ment throughout the value chain and using cutting edge technology, a company that aims to maximise its financial performance while staying committed to high social and environmental responsibility standards. According to its Development Strategy 2030, PAO Gazprom Neft’s key objective is to evolve into a next- generation business and set a benchmark for other global industry players in efficiency, technology and safety. PAO Gazprom Neft’s strategic goals to 2030: — Maintain liquid hydrocarbon production growth at least in line with the market — Maximise value creation for each barrel through the effective management of the entire value chain — Demonstrate leadership in returns on capital employed through effective management of project/asset portfolio with a focus on profit maximisation — Demonstrate leadership in efficiency, technology and safety setting a benchmark for other global industry players. Oil Exploration and Production Strategic Priorities Activities to support the strategic priorities in 2019 — Efficient development of mature assets — Developing the resource base of the Yamal Peninsula — Bringing into development and monetising the uniquely vast liquid hydrocarbon reserves in the Nadym-Pur-Taz region Total Gazprom Neft’s hydrocarbon production was 96.1 mm toe* Development of the Prirazlomnoye oil field and the Novoportovskoye OGCF continued. Implemented year-round oil shipment and transportation from the Novoportovskoye field — Building a hydrocarbon production hub on the continental shelf of Surface facilities construction started at the Tazovskoye and the Sea of Okhotsk — Developing technology for cost-effective development of the Bazhenov formation, Domanic and Paleozoic deposits Severo-Samburgskoye fields Development of new oil and gas areas on the Sea of Okhotsk continental shelf continued — Bringing into development the remaining recoverable reserves that are currently economically unrecoverable, through deployment of new technologies Work to bring into development oil rims, Achimov and Neocomian- Jurassic deposits of Gazprom Group fields continued under long- term risk-based operatorship agreements — Building up the resource base to support production beyond 2025 Continued developing technology for cost-effective development of hard-to-recover hydrocarbon reserves As part of the national project to create technology for the Bazhenov formation development, the effectiveness of the multistage fracturing technology in horizontal wells was confirmed, and study of Domanic deposits in the Orenburg region, development of technology to trace hydrocarbons in pre-Jurassic intervals, and study of the Achimov formations continued * Including share in the production volumes of entities in which Gazprom has investments classified as joint operations, as well as associates and joint ventures, and in international projects. 68 PJSC Gazprom Annual Report 2019Strategic Priorities Oil Business 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Ramp-up to design capacity Ramp-up to design capacity Start of commercial development Ramp-up to design capacity Start of commercial development Start of commercial development Novoportovskoye field Vostochno- Messoyakhskoye field Oil rims in the Nadym-Pur-Taz region’s fields (Yen-Yakhinskoye, Zapadno- Tarkosalinskoye, Pestsovoye) Tazovskoye field Alexander Zhagrin field The Chonsky cluster (Tympuchikansky, Ignyalinsky and Vakunaysky licence areas) y g e t a r t S Start of commercial development Driving mature asset performance and implementing enhanced oil recovery programme Further exploration of blocks on the Sea of Okhotsk continental shelf Bringing into development previously untapped reserves within oil-rim deposits, and Achimov and Neocomian-Jurassic deposits at Gazprom Group fields Developing technology for cost-effective development of hard-to-recover hydrocarbon reserves Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 69 PJSC Gazprom Annual Report 2019 Strategic Priorities Oil Business Logistics, Refining and Marketing Strategic Priorities Activities to support the strategic priorities in 2019 Increasing refining depth and light product yields — — Enhancing the efficiency of processing/refining and marketing — Improving conventional business sustainability through developing petrochemical businesses Russian and international refinery upgrade programme continued: — Main equipment installation for the catalytic reformer unit and a gas purification unit for catalytic cracking regeneration gases at Omsk Refinery completed — Maintaining leadership and growing market shares in existing and — An automated fuel loading system at Moscow Refinery new markets for Gazprom’s products commissioned, with preparations under way for the Euro+ combined refining unit commissioning — Construction of a new delayed coking unit at Pančevo Refinery in Serbia continued — Upgrade programme continued at PAO Slavneft-YANOS (with Gazprom Neft’s involvement) Product mix was expanded and marketing infrastructure is being further built up Ownership interest in Poliom Omsk Polypropylene Plant was increased to 50% as part of the petrochemical sector development Construction of a high-tech catalyst plant is under way 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Operational availability Start-up and testing completion Start-up and testing completion Operational availability Operational availability Operational availability New units at Moscow Refinery (Euro+ combined refining unit) New units at Moscow Refinery (advanced oil refining facility) New delayed coking unit at Pančevo refinery in Serbia New units at Omsk Refinery (primary refining unit) New units at Omsk Refinery (advanced oil refining facility) New units at Omsk Refinery (delayed coking unit) Catalyst production business in Omsk LNG bunkering vessel Commissioning Commissioning Continued refinery upgrade programmes and capacity development Further expansion of the product mix and marketing infrastructure development Catalyst plant construction Note. Data as at 31 December 2019. Timelines for commissioning and ramp-up may be adjusted subject to the energy market environment. 70 PJSC Gazprom Annual Report 2019 Strategic Priorities Power Generation Business y g e t a r t S The strategic goal of Gazprom Group in the power generation business is to maintain its leadership in electrical and heat capacity installed in Russia by remaining a reliable supplier of heat and electricity for consumers and delivering sustainable profit growth, while staying committed to high social and environmental responsibility standards. According to its Power Generation Strategy 2018–2027, Gazprom energoholding is to become: — Russia’s largest power generation holding company, present in related and global markets — a customer-oriented company ensuring reliable power supply to consumers — a financially stable company demonstrating steady profit growth and debt reduction — a company supporting the priority of the import substitution policy and the use of Russian equipment. Strategic Priorities Activities to support the strategic priorities in 2019 — Optimising the generation capacity mix — Driving operational excellence and cost optimisation — Constructing new and upgrading existing generating capacity, and decommissioning low-performing facilities — Driving technological advances — Diversifying the power business by entering promising markets in Russia and abroad Commissioned Unit 2 at the Grozny TPP Continued construction of the Svobodnenskaya TPP for power supply of the Amur GPP, as well as a CHPP in Pančevo, Serbia for heat supply of an oil refinery operated by NIS (part of Gazprom Neft Group) and electricity sales in the open market Participated in tenders for upgrading generating facilities at thermal power plants, with capacity supplies to commence in 2022–2025. The selected projects included facilities of Gazprom Group with a capacity of 1.92 GW, or 14% of the first price zone quota Implemented measures to improve operational efficiency and optimise costs Decommissioned low-performing generating capacity, 0.03 GW in total Optimised generating equipment operation modes Acquired AO REP Holding to tap into the power engineering market as part of business diversification 71 PJSC Gazprom Annual Report 2019 Strategic Priorities Power Generation Business 2020 and mid-term objectives in the context of strategic priorities Project 2020 2021 2022 2023 2024 Svobodnenskaya TPP for power supply of the Amur GPP CHP plant in Pančevo, Serbia Projects PAO TGC-1 (Verkhne-Tulomskaya HPP-12 upgrade) Projects PAO TGC-1 (Avtovskaya CHPP-15 revamp) Projects PAO TGC-1 (Centralnaya CHPP’s Power Plant No. 2 revamp) PAO OGK-2 projects (Kirishskaya GRES upgrade) PAO Mosenergo projects (CHPP-22 revamp) PAO Mosenergo projects (CHPP-23 revamp) OOO Novo- Salavatskaya CHPP projects (Novo-Salavatskaya CHPP upgrade) Commissioning Commissioning Hydroelectric unit commissioning Hydroelectric unit commissioning Hydroelectric unit commissioning Hydroelectric unit commissioning Turbine unit commissioning* Turbine unit commissioning* Water boiler plant commissioning Steam turbine commissioning* Equipment commissioning Steam turbine commissioning* Equipment commissioning* Turbine unit commissioning* Turbine unit commissioning* Turbine unit commissioning* Turbine unit commissioning* Generating fleet upgrades: 15 facilities of PAO TGC-1, PAO OGK-2, PAO Mosenergo and OOO Novo-Salavatskaya CHPP are scheduled for upgrades during the period until 2025, including 9 facilities — until 2024 Decommissioning of over 2.2 GW of low-performing capacity by 2024 Implementation of operational efficiency and cost optimisation initiatives *The facility has been selected through tenders for upgrading generating facilities at thermal power plants. Note. Data as at 31 December 2019. Timelines for commissioning may be adjusted subject to the energy market environment. Strategic cooperation with foreign partners PJSC Gazprom’s strategic cooperation with foreign partners takes the form of joint steering committees that focus on priority goals. As at 31 December 2019, there were 17 such committees, including with partners from Germany, the Netherlands, Japan, China, the Republic of Korea, Uzbekistan and other countries. Joint steering committees’ agenda includes review of key cooperation areas, ensuring agreement on objectives and jointly exploring optimal solutions, discussion of topical issues of partner companies’ development in the current gas, oil and power market environment, developing plans for the future and monitoring implementation. This form of cooperation offers a comprehensive view of various joint effort areas, maximising opportunities for synergy and flexibility in tackling a shared agenda. 72 PJSC Gazprom Annual Report 2019 Capex Programmes y g e t a r t S Gazprom Group channels significant funds to investment programmes to develop and maintain its production assets. Gazprom Group’s capital expenditures, RUB bn Production drilling for gas in Russia, thousand m 2017 2018 2019 2020* 1,504.6 1,795.9 1,818.7 1,610.0 2017 2018 2019 Change 2019/2018 240.8 304.4 400.8 31.7% 2,559.5 2,202.6 2,811.7 27.7% Production drilling for oil in Russia, thousand m 2017 2018 2019 Change 2019/2018 In gas transportation: — The North-West region’s UGSS transportation capacity expansion at the Gryazovets–Slavyanskaya CS section — Construction of the Power of Siberia, Nord Stream 2 and TurkStream trunk gas pipelines — Construction of loopings at the Gryazovets–Vyborg gas pipeline to connect the second string at the Gryazovets– Volkhov section. * Total actual expenditure under the Group’s 2020 capex programme (covering gas, oil, electricity, heat generating and other assets) and similar plans of the Group. Gazprom Group’s 2019 capital expenditures were directed mostly towards a number of projects across our business segments, as detailed below. In gas production: — Field construction to develop Chayandinskoye field — Production drilling and field construction to develop the Cenomanian-Aptian deposits at the Bovanenkovskoye field — Field construction to develop the second pilot block of the Achimov deposits at the Urengoyskoye field In oil and gas condensate production: — Field construction to develop the oil rim in the Botuobinsky — horizon of the Chayandinskoye field Implementation of Gazprom Neft’s projects, including field construction and production drilling at the Novopor- tovskoye and the Prirazlomnoye fields, participation in auctions for subsoil licences, as well as capex projects for conventional assets 73 PJSC Gazprom Annual Report 2019Capex Programmes Progress on the Nord Stream 2 gas pipeline project UGS complex In gas storage: — Expansion and revamp of the Kanchurinsko–Musinsky Installation of gas pipeline sections was completed on schedule in the territorial waters of Finland, Sweden and Russia, including three above- water tie-ins. On 30 October 2019, approval was obtained for the Nord Stream 2 gas pipeline route to run in Denmark’s exclusive economic zone south-east of the island of Bornholm. As at 31 December 2019, over 2,300 km of pipe was laid under the Baltic Sea across all sections (94% of the route’s total length). The construction of onshore sections in Germany and Russia is nearing completion. Following the signing of the National Defense Authorization Act for Fiscal Year 2020 by U.S. President Donald Trump on 20 December 2019, Allseas vessels left the pipe-laying area on the same day, as the bill contains sanctions against companies involved in the implementation of the Nord Stream 2 and TurkStream projects and laying pipeline at depths of over 100 feet. The offshore pipe-laying operations for the gas pipeline have been suspended, and various alternative options are being explored to complete the construction of the pipeline and put it into operation. In hydrocarbon processing/refining: — Construction of the Amur GPP — Implementation of projects to enable liquid hydrocarbon transportation from the Nadym-Pur-Taz region — Revamp of the Astrakhan GPP — Construction and upgrade of Gazprom neftekhim Salavat’s refining and petrochemical facilities (construction of a catalytic cracking complex, a technical sulphur production unit and a hydrogen production unit) — Construction and upgrades of production facilities at Moscow Refinery (construction of a Euro+ combined refining unit and an elemental sulphur production unit) — Construction and upgrades of production facilities at Omsk Refinery (construction of a primary refining unit, advanced oil refining facility, delayed coking unit, diesel fuel hydrotreating/dewaxing unit and biological waste- water treatment facilities) — Construction of a delayed coking unit and revamp of a catalytic cracking unit at Pančevo Refinery in Serbia — Construction of a catalyst plant in Omsk Gazprom Group’s capex breakdown, RUB bn 2017 2018 2019 74 Gas transportation Gas production Oil and gas condensate production Processing/refining Electricity and heat generation and sales Gas distribution Gas storage Other business segments Total — Revamps of existing and construction of new facilities at the Kaliningradskoye UGSF — Expansion of the Punginskoye UGSF — Revamps of UGSF operating wells in Russia 55.2 % Overall project completion of the Amur GPP construction by the end of 2019 In gas sales: — Construction of a 1.5 mm tonnes per year LNG production, storage and shipping complex continued near the Portovaya compressor station in the Leningrad Region — Expansion of gas infrastructure in Russian regions In electricity and heat generation and sales: — Completed construction of Unit 2 at the Grozny TPP — Construction of the Svobodnenskaya TPP and Pančevo CHPP (Serbia) — Retrofitting and revamping of generating facilities, main- taining operational reliability and efficiency of equipment, ensuring safety of generating facilities and replacement of worn-out power generating equipment 2017 498.6 225.2 216.5 330.4 58.1 51.7 37.7 86.4 2018 640.1 309.4 308.0 257.9 72.9 39.1 19.4 149.1 2019 Change 2019/2018 464.2 437.8 360.2 316.0 79.0 25.8 14.3 121.4 −27.5% 41.5% 16.9% 22.5% 8.4% −34.0% −26.3% −18.6% 1.3% 1,504.6 1,795.9 1,818.7 PJSC Gazprom Annual Report 2019Capex Programmes Capacity commissioned by Gazprom Group in 2019 Segment Gas production Facilities commissioned A 12.5 bcm per year CGTU at the Chayandinskoye OGCF Three BCS at the Chayandinskoye and Bovanenkovskoye fields, and at Pestsovaya structure of the Urengoyskoye field, with a combined capacity of 244 MW 1.8 bcm per year capacity added to the CGTU at the second block of the Achimov deposits at the Urengoyskoye OGCF y g e t a r t S 151 new gas production wells in Russia Oil and gas condensate production Phase 2 facilities of the TL-4 compressor station at the Orenburgskoye OGCF’s Eastern block A BCS and a gas pipeline at the Urmanskoye field A 131 thousand tonnes per year oil treatment unit, installed as part of the investment project for the field construction to develop the oil rim in the Botuobinsky horizon of the Chayandinskoye OGCF 640 new oil production wells in Russia Gas transportation One 128 MW compressor station at the Power of Siberia trunk gas pipeline 2,279.3 km of new trunk gas pipelines and connections in Russia, including 2,250.9 km of the Power of Siberia trunk gas pipeline 1,876 km of the two strings of the TurkStream trunk gas pipeline’s offshore section and a receiving terminal for the pipeline’s offshore section in Turkey 2 revamped gas pumping units with a combined capacity of 32 MW in Russia Gas storage 6 new operating wells at the Sovkhoznoye UGSF 42 operating wells, following revamps at the Stepnovskoye, Kasimovskoye, Shchelkovskoye, Peschano- Umetskoye and Elshano-Kurdyumskoye UGSFs in Russia Hydrocarbon processing/refining A propane fraction methanol removal unit with a marketable product drying module at the Surgut Condensate Stabilisation Plant (designed to remove methanol from the propane fraction feedstock) A gas purification unit for catalytic cracking regeneration gases at Omsk Refinery A revamped diesel fuel hydrotreating unit at Omsk Refinery An automated fuel loading system at Moscow Refinery Unit 2 at the Grozny TPP with an installed capacity of 184 MW Electricity and heat generation and sales — — — In hydrocarbon processing/refining — the Amur GPP construction, implementation of projects to enable liquid hydrocarbon transportation from the Nadym-Pur-Taz region (the Urengoy oil pumping station, the Urengoy–Purpe oil and condensate pipeline), Astrakhan GPP revamp, construction of a catalytic cracking complex and a technical sulphur production unit at Gazprom neftekhim Salavat, and projects to boost refining depth at Omsk and Moscow refineries. In gas sales — gas infrastructure expansion in Russia and construction of an LNG production, storage and shipping complex near the Portovaya compressor station In electricity and heat generation and sales — completing construction of Svobodnenskaya TPP and Pančevo CHPP (Serbia), upgrade of the existing generating equipment, and implementation of a series of projects to ensure the reliability and safety of generating facilities and maintain the heat network infrastructure Investment priorities for 2020 — — — — In gas production — production drilling and field construction at the Chayandinskoye and Kovyktinskoye fields, production drilling and field construction at the Kharasaveyskoye field, plus construction of a connection to the gas transport system, production drilling and field construction at the second pilot block of the Achimov deposits at the Urengoyskoye fields, field infrastructure expansion the Kirinskoye field, production drilling at the Yuzhno-Kirinskoye fields, and construction of an ice-resistant fixed platform at the Kamennomysskoye-Sea gas field In oil and gas condensate production — development of the Novoportovskoye and Prirazlomnoye fields In gas transportation — continued construction of the Power of Siberia trunk gas pipeline, UGSS transportation capacity expansion at the Gryazovets–Slavyanskaya CS section, construction of the Sakhalin–Khabarovsk–Vladivostok, Ukhta–Torzhok 2 and Bovanenkovo–Ukhta 2 trunk gas pipelines In gas storage — expansion of the Kanchurinsko-Musinsky UGS complex, revamp of gas production assets at the Elshano- Kurdyumskoye, Peschano-Umetskoye and Stepnovskoye UGSFs, revamp of existing and construction of new facilities at the Kaliningradskoye UGSF For more details on Gazprom Group’s key projects see Gazprom in Figures 2015–2019 Factbook 75 PJSC Gazprom Annual Report 2019Long-Term Development Programme and Key Indicators Interfaces between SPT-based long-, mid- and short-term planning frameworks Material changes in PJSC Gazprom’s internal and external operating environment Strategic (long-term) planning Tier-1 SPTs Tier-2 SPTs Mid-term planning Short-term planning PJSC Gazprom’s Long-Term Development Programme for 10 years Feedback List of priority projects Programme indicators Monitoring and control 3-Year Investment Programme 1-Year Investment Programme Corporate KPIs 3-Year Budget 1-Year Budget Actual data Strategic Performance Targets PJSC Gazprom’s long-term strategic planning is based on a framework of strategic performance targets (SPTs) that are well-balanced across all lines of business and quantify the targets aimed at achieving PJSC Gazprom’s strategic goals. Strategic planning identifies growth areas and management decisions, which are detailed at the mid-term and short-term planning levels. Results of the planning process are used as inputs for PJSC Gazprom’s budgeting and Investment Programme for the coming year and a three-year period. Tier-1 SPTs (SPTs1) are set by the Company’s Board of Directors for the end of a ten-year planning period and provide a basis for developing PJSC Gazprom’s Long-Term Development Programme. Tier-2 SPTs (SPTs2) flesh out SPTs1 for specific lines of business, providing more details on the targets in production, marketing, economic performance, internal corporate processes, innovation and HR management. PJSC Gazprom’s revised Investment Programme for 2019 was approved by its Board of Directors, Resolution No. 3331 dated 22 October 2019 (Minutes of the Board of Directors’ meeting No. 1277 dated 22 October 2019). For more details on the goals and main projects, key areas and timelines see the Strategic Priorities and Capex Programmes sections 76 PJSC Gazprom Annual Report 2019 Long-Term Development Programme and Key Indicators SPTs1 values for the end of a ten-year period (approved by Resolution of PJSC Gazprom’s Board of Directors No. 1528 dated 29 December 2009) Metrics Economic profit growth Return on capital (return on capital employed) Debt/equity ratio (ratio between debt and equity) Gas production and sales volumes Gross production of natural gas Sales of natural gas Total gas reserves Reserves replacement ratio Target value Positive At least 6% Not more than 40% Not less than 550 bcm Not less than 490 bcm Not less than 29 tcm of natural gas Not less than 100% Long-Term Development Programme PJSC Gazprom’s Long-Term Development Programme is a key tool for the Company’s longer-term planning. Its purpose is to provide a comprehensive integrated plan ensuring the Company’s balanced and successful growth, achievement of SPTs, and maximisation of systemic economic benefits based on risk and opportunity analysis. The key objectives of the Long-Term Development Programme of PJSC Gazprom include: — identifying priority growth areas for the Company based on insights into trends in the global and Russian energy markets and competition analysis — defining development options and prioritising projects for PJSC Gazprom — financial and economic evaluation of the Company’s development options — qualitative and quantitative assessment of PJSC Gazprom’s strategic risks — preparing recommendations and developing action plans to achieve the Company’s SPTs and support its sustainable growth. The Long-Term Development Programme is developed annually in accordance with the Company’s Planning Proce- dures Based on the Strategic Performance Targets (SPTs) approved by a resolution of the Company’s Management Committee in June 2006, and incorporating the Guidelines on Long-Term Development Programmes for Strategic Open Joint Stock Companies and Federal State Unitary Enterprises, and Open Joint Stock Companies in which the Aggregate Share of the Russian Federation Exceeds 50% (Instruction of the Government of the Russian Federation No. ISh-P13-2583 dated 15 April 2014). Once pre-approved by PJSC Gazprom’s Management Committee, the Programme is submitted for approval to the Company’s Board of Directors. 77 y g e t a r t S PJSC Gazprom’s Long-Term Development Programme (2020–2029) was approved by its Board of Directors, Resolution No. 3317 dated 24 September 2019 (Minutes of the Board of Directors’ meeting No. 1272 dated 24 September 2019). Changes in PJSC Gazprom’s Long-Term Development Programme in 2019 In 2019, PJSC Gazprom’s Long-Term Development Programme was developed with the use of actual performance metrics for 2018, updated forecast of operating, economic and financial performance targets for the Company, and projections made by the Russian Ministry of Economic Development about the country’s long-term socio-economic development. Within the efforts to create a mechanism for rolling out the SPT- based long-term planning framework across international operations, and the oil and power generation businesses, PJSC Gazprom’s Long-Term Development Programme (2020–2029) was supplemented with Gazprom Group’s Oil Business Development and Gazprom Group’s Power Generation Business Development sections. Russian Government Directives No. 4955p-P13 dated 17 July 2014 provide for audits covering the progress on the Long- Term Development Programme. In 2019, a progress audit of PJSC Gazprom’s Long-Term Development Programme (for 2018–2027, covering the gas business) for 2018 was conducted by OOO FBK. The audit was performed in accordance with the Standard for Conducting a Progress Audit of PJSC Gazprom’s Long-Term Development Programme and the Terms of Reference for Conducting a Progress Audit of PJSC Gazprom’s Long-Term Development Programme (approved by Resolution of the Board of Directors of PJSC Gazprom No. 3196 dated 25 December 2018). Based on the results of the audit procedures and the audit evidence obtained, the auditor produced a report on the progress audit of PJSC Gazprom’s Long-Term Development Programme (for 2018–2027, covering the gas business) for 2018 (No. 4200 dated 27 December 2019) confirming that the actual values achieved against the targets set out in the Programme were fair and that the targets set in PJSC Gazprom’s Long-Term Development Programme (for 2018–2027, covering the gas business) were on the whole achieved in 2018. In line with the Standard for Conducting a Progress Audit of PJSC Gazprom’s Long-Term Development Programme, proposals for implementing the auditor’s recommendations are submitted for approval to PJSC Gazprom’s Board of Directors. Information on the implementation of the auditor’s recommendations is included in the Programme as part of its annual update. Proposals for implementing the auditor’s recommendations produced following the progress audit of PJSC Gazprom’s Long-Term Development Programme for 2018 were approved by Resolution of PJSC Gazprom’s Board of Directors No. 3409 dated 29 April 2020. For more details on the 2019 activities aimed at implementing the Long-Term Development Programme and their timelines see the Strategic Priorities and Capex Programmes section PJSC Gazprom Annual Report 2019Long-Term Development Programme and Key Indicators Key Performance Indicators The medium and short term investment, financial and opera- tional planning at PJSC Gazprom is consolidated within the budget planning framework. KPI targets for 2019 were set by resolutions of the Board of Directors based on PJSC Gazprom’s 2019 budget (financial plan) and Investment Programme, with some of the KPIs subsequently adjusted as per the new version of the 2019 budget (financial plan) and Investment Programme. Targets for corporate key performance indicators (KPIs) The adjustments were mainly driven by consolidation of PJSC Gazprom’s refining assets, cost reallocation in Production, lower forecast on gas supply to European countries, higher forecast on gas supply to FSU countries and Russian consumers, and lower revenue forecast. are calculated based on PJSC Gazprom’s annual budget (financial plan) and Investment Programme. The KPIs incorpo- rate the Company’s most important short-term efficiency and effectiveness metrics and are subject to approval by the Board of Directors. The Company’s KPI framework was approved by Resolu- tion of the Board of Directors of JSC Gazprom No. 2435 dated 21 October 2014 (Minutes of the Board of Directors’ meeting No. 972 dated 21 October 2014) as part of the Regulations on JSC Gazprom’s Key Performance Indicators. Subsequently, the KPI framework was amended by PJSC Gazprom’s Board of Directors to incorporate the instructions issued by govern- ment authorities. Target and actual values of corporate KPIs for 2019 Target value KPI metric Initial* Adjusted** Actual value*** , KPI achievement % of the target Explanation of variance between the target and actual KPI values Financial and economic KPIs Per unit costs in Production, RUB/t c. e. Per unit costs in Transportation, RUB per unit of transportation (mcm/100 km) Reduction of operating costs (expenses), % Total shareholder return Return on equity, % Labour productivity, RUB thousand/ man-hour Industry-specific KPIs Gas sales by volume, bcm Commissioning of priority production facilities Integrated innovation key performance indicator, % 926.5 869.27 873.24 99.5% Lower gas production actual vs plan by 0.2% Lower actual costs of gas transportation subsidiaries Lower controllable operating costs 101% 139% 69.32 68.12 67.43 2 0.10 6 No adjustments No adjustments No adjustments 2.78 8.78 81.42 73.16 75.66 0.783 783% PJSC Gazprom’s market capitalisation growth 146% 103% Higher FX gains included in finance income Gas purchase expenses lower by 8.3% 453.288 450.031 453.361 101% Increased demand for gas and, consequently, higher supplies to the far abroad and FSU countries (except the Baltic states) and Russian consumers compared to the target Weather and lead times of components required for works at gas transportation facilities 7 70% 111.45 117% Systematic work on implementation of PJSC Gazprom’s Innovative Development Programme and well-organised innovation 10 (list of production facilities adjusted) No adjustments 10 95 * Resolution of PJSC Gazprom’s Board of Directors No. 3249 dated 16 April 2019. ** Resolution of PJSC Gazprom’s Board of Directors No. 3369 dated 26 December 2019. *** To be submitted for review by PJSC Gazprom’s Board of Directors in Q2 2020. 78 PJSC Gazprom Annual Report 2019 y g e t a r t S Long-Term Development Programme and Key Indicators Target corporate KPIs for 2020 KPI metric Target value* Financial and economic KPIs Per unit costs in Production, RUB/t c. e. 924.31 Per unit costs in Transportation, RUB per unit of transportation (mcm/100 km) Reduction of operating costs (expenses), % Total shareholder return Return on equity, % Labour productivity, RUB thousand/man-hour Industry-specific KPIs Gas sales by volume, bcm Commissioning of priority production facilities Integrated innovation key performance indicator, % 71.62 2 0.10 6 75.19 460.321 5 95 * To be submitted for review by PJSC Gazprom’s Board of Directors in Q2 2020. KPI values were calculated in accordance with PJSC Gazprom’s annual budget (financial plan) and Investment Programme for 2020 approved by the Board of Directors, and may be adjusted following the established procedures if the Board of Directors resolves to approve new versions of these documents. Description of the KPIs is provided in the Remuneration of Members of Governing and Supervisory Bodies section 79 PJSC Gazprom Annual Report 2019 Performance Results 80 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019Operations and Marketing 82 Exploration and Production 82 Gas Transportation and Storage 92 Gas Distribution, Gas Infrastructure Expansion, and NGV Fuel Markets 98 Hydrocarbon Processing and Petrochemicals 102 Power Generation 108 Marketing 112 Innovations and Import Substitution 122 Innovations 122 Import Substitution 127 Financial Performance 130 s t l u s e R e c n a m r o f r e P 81 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production Gazprom has the world’s largest reserves of natural gas and is the world’s leading gas producer. The Group successfully implements production projects in Russia and beyond. In 2019, Gazprom significantly increased the resource base of the Yamal gas production hub, driven by new discoveries, and started developing the Kharasaveyskoye field, another large field on this peninsula. In eastern Russia, Yakutia gas production hub commenced production from its Chayandinskoye anchor field. PJSC Gazprom maintains its leadership in gas reserves and production among Russian and global public companies of the fuel and energy sector. In order to replenish its mineral resource base and maintain production of hydrocarbons to match consumer demand, Gazprom Group conducts successful geological and geophysical (G&G) surveys of fields and prospects in Russia and beyond. Over the last 15 years, the reserves replacement ratio has been maintained above 100%. According to DeGolyer and MacNaughton, Gazprom Group’s proved and probable PRMS reserves as at 31 Decem- ber 2019 were 24,395.5 bcm of natural gas, 1,063.2 mm tonnes of gas condensate and 1,374.8 mm tonnes of oil, including share in the reserves of entities in which Gazprom has invest- ments classified as joint operations (21.2 bcm of natural gas and 153.9 mm tonnes of oil). Proved and probable PRMS hydrocarbon reserves of Gazprom Group (including share in the reserves of entities in which Gazprom has investments classified as joint operations) As at 31 December 2018 As at 31 December 2019 Natural gas, bcm including proved reserves Gas condensate, mm tonnes including proved reserves Oil, mm tonnes including proved reserves Total, bn boe* including proved reserves 24,255.1 17,890.4 1,090.2 759.7 1,335.4 712.3 176.1 127.5 24,395.5 17,715.1 1,063.2 730.2 1,374.8 707.5 177.1 126.1 * For management accounting purposes, Gazprom Group measures hydrocarbon reserves and production in metric units. In this Annual Report, gas reserves are converted from metric units to barrels of oil equivalent at a ratio of 1,000 cu m to 6.49 boe. The relevant conversion ratios are provided in the Glossary section 82 PJSC Gazprom Annual Report 2019Operations and Marketing Exploration and Production 71% Gazprom Group’s share of total Russian explored reserves of natural gas Subsoil licence portfolio as at 31 December 2019 Gazprom Group 302 573.2 thousand square km licences for geological surveying, exploration and production of hydrocarbons total area of licence blocks Entities in which Gazprom has investments classified as joint operations 37 licences for geological surveying, exploration and production of hydrocarbons 23.9 thousand square km total area of licence blocks s t l u s e R e c n a m r o f r e P For more details on Gazprom Group’s licences for major hydrocarbon fields and licensing activities see Gazprom in Figures 2015–2019 Factbook Most of Gazprom Group’s projects have been audited, total- ling 92.8% of gas reserves, 95.0% of condensate reserves and 95.7% of oil reserves in A+B1+C1 reserve categories. In addition to the annual production from the fields operated by Gazprom, the key factors behind the changes in reserve estimates under international standards included: bringing more reserves into the audit scope (Kazanskoye, Severo-Vasyuganskoye, Ostaninskoye, Tas-Yuryakhskoye, Malo-Yamalskoye and Blizhnenovoportovskoye fields); reclassification of Turonian deposit at the Yuzhno-Russkoye field to higher-level reserve categories based on actual information from production; and changes in economic factors the Yuzhno-Russkoye field; adjustments of development plan parameters for the Kharasaveyskoye field; further accelera- tion of the Tazovskoye field development and successful exploration at the Alexander Zhagrin field. Operations in Russia Mineral Resource Base As at 31 December 2019, Gazprom Group’s A+B1+C1 hydrocar- bon reserves in Russia were 34,899.00 bcm of natural gas, 1,569.66 mm tonnes of gas condensate and 2,005.67 mm tonnes of oil, including the share in the reserves of entities in which Gazprom Group has investments classified as joint operations — 23.07 bcm of gas, 2.73 mm tonnes of gas condensate and 192.42 mm tonnes of oil. Gazprom Group’s A+B1+C1 hydrocarbon reserves total 254.04 bboe. Factors behind the changes in A+B1+C1 natural gas reserves in 2019, bcm Natural gas reserves as at 31 December 2018 Exploration-based additions to reserves Re-estimation Acquisition of assets Production (including losses)* Other factors Natural gas reserves as at 31 December 2019 * Excluding dissolved gas. Factors behind the changes in A+B1+C1 gas condensate reserves in 2019, mm tonnes Gas condensate reserves as at 31 December 2018 Exploration-based additions to reserves Re-estimation Acquisition of assets Production (including losses)* Other factors Gas condensate reserves as at 31 December 2019 * Any production-driven changes in gas condensate reserves are recognised following conversion into stable gas condensate (C5+). In 2019, Gazprom Group produced 16.71 mm tonnes of unstable gas condensate. 83 35,195.27 +556.69 −455.40 +100.60 −499.66 +1.50 34,899.00 1,604.41 +11.72 −39.41 +6.32 −13.35 −0.03 1,569.66 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production Factors behind the changes in A+B1+C1 oil reserves in 2019, mm tonnes Oil reserves as at 31 December 2018 Exploration-based additions to reserves Production (including losses) Other factors Oil reserves as at 31 December 2019 Gazprom Group’s fields in Russia with the largest reserves of natural gas and oil 2,015.71 +28.98 −47.50 +8.48 2,005.67                       The largest fields by natural gas reserves The largest fields by oil reserves 1 2 3 4 5 6 7 8 9 10 11 Urengoyskoye Shtokman Bovanenkovskoye Astrakhanskoye Yamburgskoye Zapolyarnoye Tambeyskoye Kovyktinskoye Kruzenshternskoye Kharasaveyskoye Chayandinskoye 1 2 3 4 5 6 7 8 9 10 11 Priobskoye Novoportovskoye Eastern block of the Orenburgskoye OGCF Vyngapurovskoye Sutorminskoye Orenburgskoye Vyngayakhinskoye Prirazlomnoye Ety-Purovskoye Novogodneye Yamburgskoye Note. The map shows Gazprom Group’s hydrocarbon fields (excluding entities in which Gazprom has investments classified as joint operations) with combined A+B1+C1 reserves accounting for over 70% of natural gas and over 55% of oil reserves as at 31 December 2019. 84 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production A distinguishing feature of Gazprom Group’s mineral resource base is a high concentration of reserves: about 60% of reserves are located in Western Siberia. The region will remain the leading petroleum province until 2025 and beyond. The Group’s share in A+B1+C1 hydrocarbon reserves of associates and joint ventures (including share in the reserves of OOO RusGazAlyans, a joint venture between OOO Gazprom dobycha Yamburg and AO RusGazDobycha) as at 31 Decem- ber 2019 was 1,063.97 bcm of gas, 111.09 mm tonnes of gas condensate and 588.64 mm tonnes of oil, which totals 12.13 bboe. In 2019, the Company completed seismic surveys in Russia: 2D — 15.0 thousand km, 3D — 7.9 thousand square km. Exploration drilling totalled 201.7 thousand m of solid rock, and 41 oil and gas wells were completed, with 39 wells producing flow when tested. During the year, the Company also used sidetrack drilling for further exploration. Drilling meterage totalled 12.5 thousand m, with two production wells completed. The Company allocated RUB 116.9 bn for its exploration programmes (inclusive of VAT). s t l u s e R e c n a m r o f r e P Most of PJSC Gazprom’s annual reserve additions in Russia come from exploration In addition, for entities in which Gazprom has investments classified as joint operations, exploration drilling stood at 74.7 thousand m, with 18 exploration wells completed (14 flowing), and 3D seismic was acquired on 0.9 thousand square km. Further exploration using sidetrack drilling totalled 5.7 thousand m, with two production wells completed. Total meterage of exploration drilling for gas and oil across Gazprom Group increased by 28% in 2019 Gazprom made four new field discoveries during 2019: the Dinkov gas condensate field and the Nyarmeyskoye gas field on the Kara Sea continental shelf, the Yagodnoye and Roshchinskoye oil fields in the Orenburg Region, and 25 new deposits within previously discovered fields in the Yamal- Nenets Autonomous Area, Khanty-Mansi Autonomous Area — Yugra, on the Kara Sea continental shelf, in the Tomsk and Orenburg Regions, and the Republic of Sakha (Yakutia). In addition, entities in which Gazprom has investments classified as joint operations discovered the Chikishev field in the Tomsk Region and two deposits in the Khanty-Mansi Autonomous Area — Yugra. According to Westwood Global Energy consultancy, the Dinkov and Nyarmeyskoye fields are the largest discoveries of the first half of 2019 globally In 2019, exploration-driven additions to A+B1+C1 hydrocarbon reserves in Russia totalled 556.69 bcm of natural gas, 11.72 mm tonnes of gas condensate and 28.98 mm tonnes of oil. Including additions to the reserves of companies in which Gazprom has investments classified as joint operations — 1.95 mm tonnes of oil. Breakdown of Gazprom Group’s explored gas reserves, % Reserves in offshore fields Reserves in remote fields with poor infrastructure Reserves in the fields securing stable production rates in areas covered by the existing UGSS Reserves in the fields with declining production rates Reserves in deep-lying complex deposits Reserves in the Astrakhanskoye field (with environmental restrictions on gas production depth) 25.6 24.1 18.3 13.1 10.7 8.2 Exploration In the reporting year, Gazprom Group conducted exploration activities in almost all oil and gas regions of the Russian Federation to ensure commercial reserves replacement for hydrocarbons and prepare the reserve base. Gas exploration was carried out in the UGSS area to maintain production levels at existing fields, on the continental shelf of the Kara and Barents Seas, and the Sea of Okhotsk to ensure reserves growth and formation of strategic reserves, and in Eastern Siberia and the Far East to maintain the existing and create new gas production hubs. Oil exploration activities were mostly concentrated on the Yamal Peninsula, in Eastern and Western Siberia, and the Orenburg Region. Exploration drilling for gas and oil across Gazprom Group, thousand m 85.9 157.6 201.7 28% 2017 2018 2019 Change 2019/2018 85 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production Unique track record of exploration on the Russian continental shelf Gazprom Group has firmly established itself as the exploration leader on the Russian continental shelf, including the Arctic seas. The Group has gained unique experience in 3D seismic surveys on the continental shelf in various climatic zones. By leveraging advanced technologies and equipment, the Group has reduced exploration risks and can now complete the construction of prospecting, appraisal and exploration wells within one summer navigation season, reducing the time to prepare commercial C1 reserves by half. Exploration on the Russian continental shelf was the key driver of the high reserves replacement levels shown by Gazprom Group in 2018 and 2019. Results of exploration on the Russian continental shelf Exploration drilling for gas and oil across Gazprom Group, thousand m 2017 2018 2019 2017 2018 2019 2017 2018 2019 3D seismic, thousand square km 7.8 7.5 7.1 13.3 3.5 2.4 Exploration-based additions to A+B1+C1 natural gas reserves, bcm 48.9 768.3 408.4 * * Excluding the onshore part of the Kruzenshternskoye GCF. Significant growth in gas reserves was achieved at the Kruzenshternskoye field, located on the Kara Sea continental shelf and in adjacent onshore areas (+262.9 bcm), the Dinkov and Nyarmeyskoye fields on the Kara Sea continental shelf (+135.9 bcm and +67.9 bcm, respectively), and the Ludlovskoye field on the Barents Sea continental shelf (+48.9 bcm). The exploration success rate in 2019 was 19.4 thousand boe per metre drilled (excluding entities in which Gazprom has investments classified as joint operations). 1.11 Gazprom Group’s gas reserves replacement ratio Re-estimation Gazprom Group continued revising gas recovery factors (GRFs) under the Russian Classification of Reserves and Resources of Oil and Flammable Gases. Recoverable gas reserves decreased by 516.33 bcm as a result of gas recovery factor (GRF) revision in 2019, with the largest drop in the Yuzhno-Kirinskoye, Zapadno-Tarkosalinskoye, Kharasaveys- koye, Severo-Kamennomysskoye and Rusanovskoye fields. As at 31 December 2019, Gazprom completed the GRF estimation for the fields containing 29% of Gazprom Group’s total A+B1+C1 reserves. Revision of GRFs for Gazprom Group’s other fields in the coming years will continue have a significant impact on the size of its recoverable gas reserves. Acquisition of Assets Upon the completion of AO Arcticgas’ reorganisation, PAO Gazprom Neft remained the only participant in OOO NOVATEK-Yarsaleneftegaz (which in February 2020 was renamed to OOO Gazpromneft-Yarsale), which holds a subsoil licence for the Malo-Yamalsky licence area, while PAO NOVATEK became the only participant in OOO North- Chaselskoye and OOO Yevo-Yakhinskoye, which hold subsoil licences for the North-Chaselskiy licence area and the Yevo-Yakhinskiy licence area, respectively. Following the reorganisation, PAO Gazprom Neft and PAO NOVATEK continued to jointly control AO Arcticgas. Deal-driven A+B1+C1 hydrocarbon reserves growth for Gazprom Group totalled 100.60 bcm of natural gas and 6.32 mm tonnes of gas condensate. Field Developments Gazprom Group has unique capabilities to accomplish priority tasks as required for further increase in gas production and fulfilment of its obligations to supply gas to consumers in Russia and abroad. 86 PJSC Gazprom Annual Report 2019Operations and Marketing Exploration and Production Gazprom Group’s fields in Russia with the largest production of natural gas and oil 3 2 2 4 1 5 3 7 6 8 4 6 1 7 5 8 s t l u s e R e c n a m r o f r e P The largest fields by natural gas production The largest fields by oil production 1 2 3 4 5 6 7 8 Zapolyarnoye Bovanenkovskoye Urengoyskoye Yamburgskoye Yuzhno-Russkoye Yamsoveiskoye Astrakhanskoye Orenburgskoye 1 2 3 4 5 6 7 8 Priobskoye Novoportovskoye Prirazlomnoye Vyngapurovskoye Eastern block of the Orenburgskoye OGCF Sutorminskoye Zapadno-Chatylkinskoye Vyngayakhinskoye Note. The map shows Gazprom Group’s hydrocarbon fields (excluding entities in which Gazprom has investments classified as joint operations) with combined production accounting for 70% or more of total natural gas and oil production in 2019. Gazprom Group’s hydrocarbon production assets in Russia as at 31 December 2019 Gazprom Group 144 7,438 7,752 fields in commercial development gas producing wells active oil production wells Entities in which Gazprom has investments classified as joint operations 39 fields in commercial development In 2019, Gazprom Group produced 501.22 bcm of natural and associated gas. Maximum daily production of gas in the autumn and winter of 2018/2019 reached 1,538.6 mmcm. Maximum daily gas production in the autumn and winter seasons, mmcm 2016/2017 1,535.6 2017/2018 1,512.6 2018/2019 1,538.6 87 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production Gazprom Group’s natural and associated gas production in the Russian Federation, bcm Gazprom Group, including the share in production volumes of entities in which Gazprom has investments classified as joint operations 2017 2018 2019 The increase in associated gas production was driven by Gazprom Neft (mostly from the Novoportovskoye OGCF and the Eastern Block of the Orenburgskoye OGCF) following the commissioning of facilities in 2019 and previous years under the APG Efficient Utilisation Programme (providing for investment projects to build gas infrastructure) as well as organisational and technical improvements at sites with well- developed gas infrastructure. 2019 saw the commissioning of gas infrastructure facilities which increased APG utilisation rate at the Urmanskoye and Shinginskoye fields in the Tomsk Region to 95%, as well as Phase 2 of TL-4 compressor station with a gas pipeline on the Eastern Block of the Orenburgskoye field. 472.05 1.07 498.68 1.08 501.22 1.08 Total Gazprom Group’s share in the production volumes of entities in which Gazprom has investments classified as joint operations Change 2019/2018 0.5% Information about the commissioning of hydrocarbon production capacities in the reporting year is presented in the Capex Programmes section APG utilisation level across Gazprom Neft Group in Russia (excluding entities in which the Group has investments classi- fied as joint operations) increased to 89.0% (2018: 78.4%). PJSC Gazprom’s major gas production subsidiaries achieved APG utilisation rates of almost 100% In 2019, APG utilisation across Gazprom Group’s assets in Russia (including share in the production volumes of entities in which the Group has investments classified as joint opera- tions) reached 90.1% (2018: 81.8%). Revamps and retrofits of gas production facilities carried out under comprehensive programmes ensure reliable, safe and cost-efficient operation of Gazprom Group’s gas production assets to maintain target gas production levels, including fields in the declining production phase. Activities under such programmes in 2019 covered the Yamburgskoye, Urengoyskoye, Medvezhye, Bovanenkovskoye, Yubileynoye, Yamsoveiskoye, Zapadno-Tarkosalinskoye, Komsomolskoye and Orenburgskoye OGCFs, as well as the Astrakhanskoye GCF and Vyngayakhinskoye gas field. The Group allocated over RUB 13.0 bn (inclusive of VAT) to fund these programmes. Gazprom Group produced 47.96 mm tonnes of oil, including 46.29 mm tonnes produced by Gazprom Neft Group in 2019. Production volumes were reduced for a number of Gazprom Neft’s fields to meet quotas defined by the Ministry of Energy of the Russian Federation for Gazprom Group under the OPEC+ production cut deal. Gazprom Group’s equity share of production from associates and joint ventures 2017 2018 2019 Change 2019/2018 27.04 26.92 26.86 −0.2% The growth in gas production was due to increased natural gas production from the Bovanenkovskoye OGCF, which was further ramped up in the reporting year, the start-up of natural gas production at the Chayandinskoye OGCF to support export supplies to China via the Power of Siberia gas pipeline (natural gas production totalled 0.84 bcm), as well as an increase in APG production. Gas production from the Bovanenkovskoye OGCF, bcm 2017 2018 2019 Change 2019/2018 82.84 87.45 96.28 10.1% APG production of Gazprom Group, including share in the production volumes of entities in which the Group has investments classified as joint operations, bcm 11.42 13.94 17.55 25.9% 2017 2018 2019 Change 2019/2018 88 PJSC Gazprom Annual Report 2019Operations and Marketing Exploration and Production Bringing into development the previously untapped reserves within the oil-rim deposits, and Valanginian, Achimov and Neocomian-Jurassic deposits at Gazprom Group fields Gazprom Neft Group gained access to the following nine fields covered by subsoil licences granted to PJSC Gazprom and its gas production subsidiaries under long-term risk-based operatorship contracts: the Pestsovoye, Yen-Yakhinskoye, Zapadno-Tarkosalynskoye, Chayandinskoye, Yamburgskoye, Orenburgskoye, Urengoyskoye, Kharasaveyskoye and Bovanenkovskoye fields. Given Gazprom Neft’s extensive expertise, vast experience, and availability of technologies to produce hard-to-recover reserves, this decision will allow Gazprom Group to start targeted development of oil rims and Achimov and Neocomian-Jurassic gas condensate deposits and prepare the fields for full-scale production start-up by the scheduled dates. Under long-term risk-based operatorship contracts, Gazprom Neft will invest own funds in the asset developments and accept all associated risks, which will consolidate reserves, production and financial results of the projects. A total of 0.23 mm tonnes of oil was produced under long-term risk-based operatorship contracts in 2019. Annual production of liquid hydrocarbons can potentially reach 10 mm tonnes of oil equivalent. For more details on Gazprom Group’s priority field developments in the Russian Federation see the Strategy section and Gazprom in Figures 2015–2019 Factbook Gazprom Group produced 16.71 mm tonnes of gas conden- sate in the reporting year. Gas condensate production by Gazprom Group in Russia, mm tonnes Gazprom Group, including the share in production volumes of entities in which Gazprom has investments classified as joint operations 2017 2018 2019 Total Gazprom Group’s share in the production volumes of entities in which Gazprom has investments classified as joint operations 15.94 – 15.93 – 16.71 – s t l u s e R e c n a m r o f r e P Oil production by Gazprom Group in Russia, mm tonnes Change 2019/2018 Gazprom Group, including the share in production volumes of entities in which Gazprom has investments classified as joint operations Gazprom Group’s equity share of production from associates and joint ventures 4.9% 4.96 4.87 4.74 −2.7% 2017 2018 2019 Change 2019/2018 Higher gas condensate production by Gazprom Group was mainly due to an increase in production from Block 1 of the Achimov deposits at the Urengoyskoye OGCF following the signing of a framework agreement between PJSC Gazprom and Wintershall Dea. In the reporting year, the production drilling programme was completed at the Block. AO Achimgaz (a joint venture between OOO Gazprom dobycha Urengoy and Wintershall Dea) has operatorship of the project, while OOO Gazprom dobycha Urengoy is the subsoil user. The Group continued to ramp up liquid hydrocarbon production from the Novoportovskoye OGCF under the field development project. Logistical arrangements were completed in 2019 to enable year-round oil shipments from the field. The final stage of the project included the deployment of Andrey Vilkitsky icebreaker in the Gulf of Ob for icebreaking support and the launch of Kapitan, the world’s first digital Arctic logistics management system. 2017 2018 2019 48.63 7.65 48.28 7.37 47.96 7.18 Total Gazprom Group’s share in the production volumes of entities in which Gazprom has investments classified as joint operations Change 2019/2018 Gazprom Group’s equity share of production from associates and joint ventures 2017 2018 2019 Change 2019/2018 −0.7% 10.91 11.22 11.77 4.9% The increase in the oil production volumes of associates and joint ventures was driven by higher production from the Vostochno-Messoyakhskoye field, operated by AO Mes- soyakhaneftegaz (a joint venture between PAO Gazprom Neft and PAO Rosneft), and from the fields operated by AO Arcticgas (a joint venture between PAO Gazprom Neft and PAO NOVATEK). 89 PJSC Gazprom Annual Report 2019 Operations and Marketing Exploration and Production Oil and gas condensate production from the Novoportovskoye OGCF, mm tonnes 2017 2018 2019 Change 2019/2018 5.95 7.16 7.73 8.0% For more details on the application of new development technologies see the Innovations and Import Substitution section Operations Outside Russia Outside Russia, Gazprom Group carries out oil and gas exploration and development activities, and provides oilfield services related to well construction. In 2019, Gazprom Group continued exploration activities in Algeria (the El Assel project ), Bolivia (the Azero project) and Vietnam (Block 112; Blocks 129–132), as well as in Serbia and Romania (NIS projects). Exploration campaigns conducted by Gazprom Group on the Group-operated projects were mostly concen- trated in Serbia and Romania. Exploration drilling totalled 18.6 thousand m, with seven exploration wells completed (all of them flowing), and 3D seismic was acquired on 0.7 thousand square km. As a result of Gazprom Group’s exploration campaigns, two new deposits were discovered in Serbia. Under the Agreement of Strategic Cooperation between PJSC Gazprom and AO Uzbekneftegaz, exploration activities were continued on six investment blocks in the Republic of Uzbekistan. Gazprom Group spent RUB 5.4 bn in 2019 on exploration projects outside Russia (inclusive of VAT). Gazprom Group also has stakes in a number of oil and gas projects at the production stage. In terms of natural gas and gas condensate production, the largest of them include the projects to develop the Moc Tinh and Hai Thach fields in the South China Sea offshore Vietnam (Gazprom Group interest 49%), and the Incahuasi field within the Ipati and Aquio blocks in Bolivia (Gazprom Group interest 20%). The Badra field development project in Iraq (Gazprom Group interest 30%) and the Sarqala field located within the Garmian block in Iraq (Kurdistan) are the largest by production of oil and APG. In the reporting year, the projects to develop the Incahuasi and Sarqala fields were at the ramp-up stage. Natural gas production from the Incahuasi field in Bolivia, bcm 2017 2018 2019 Change 2019/2018 2.52 2.58 2.61 1.2% Note. Total production figures are given for the project, without separating the share attributable to Gazprom Group. Natural gas production from the Moc Tinh and Hai Thach fields in Vietnam, bcm 2017 2018 2019 Change 2019/2018 2.10 2.35 2.19 −6.8% Note. Total production figures are given for the project, without separating the share attributable to Gazprom Group. Oil production from the Badra field in Iraq, mm tonnes 2017 2018 2019 Change 2019/2018 3.79 3.98 2.90 −27.1% Note. Total production figures are given for the project, without separating the share attributable to Gazprom Group. Oil production from the Sarqala field in Iraq (Kurdistan), mm tonnes 2017 2018 2019 Change 2019/2018 0.37 0.93 1.45 55.9% Note. Total production figures are given for the project, without separating the share attributable to Gazprom Group. 90 PJSC Gazprom Annual Report 2019Operations and Marketing Exploration and Production The construction of production facilities (production platform, gas pipeline and production well) was completed at the cross-border Sillimanite field in the British and Dutch sectors of the North Sea (Gazprom Group direct interest 19.9%) in 2019, enabling the field commissioning in 2020. Under a PSA for the Djel gas condensate field signed in 2018, a subsoil licence with applicable permits for the area covered by the PSA was obtained in 2019, and Djel Field Development Plan was approved in accordance with the PSA provisions. NIS, a Serbian subsidiary of Gazprom Neft, produced 0.89 mm tonnes of oil and gas condensate and 0.46 bcm of natural and associated gas in 2019 (2018: 0.92 mm tonnes of oil and gas condensate and 0.49 bcm of natural and associated gas). Production was mostly concentrated in Serbia, as well as in Angola, Bosnia and Herzegovina and Romania. In the British, Danish and Dutch sectors of the North Sea, Wintershall Noordzee B.V. joint venture (Gazprom Group interest 50%) produced 0.535 bcm of natural gas and 0.06 mm tonnes of oil and gas condensate (2018: 0.712 bcm of natural gas and 0.06 mm tonnes of oil and gas condensate). The Group’s associate Wintershall AG (Gazprom Group interest 49%) still faces challenges due to the ongoing political crisis in Libya, which resulted in limited oil production and exports. In the reporting year, 2.39 mm tonnes of oil and 0.42 bcm of associated gas were produced (2018: 2.15 mm tonnes of oil and 0.31 bcm of associated gas). For more details on Gazprom Group’s prospecting and exploration projects and on performance of associates and joint ventures outside Russia see Gazprom in Figures 2015–2019 Factbook In 2019, the Group continued to focus on exploring opportuni- ties for participation in new oil and gas projects. Under the Agreement of Strategic Cooperation with YPFB, PJSC Gazprom is focusing on possible participation in the development of the Vitiacua block in Bolivia. Acquiring interests in Argentina’s oil and gas projects is also being considered. In oil business, Gazprom’s targeted regions include the Balkan Peninsula (Serbia, Romania, Bosnia and Herzegovina) and the Middle East. Detailed feasibility studies were completed for several assets in the MENA (Middle East and North Africa) region in 2019. 91 s t l u s e R e c n a m r o f r e P PJSC Gazprom Annual Report 2019 Operations and Marketing Gas Transportation and Storage Gazprom relies on the globally unique Unified Gas Supply System (UGSS) of Russia and the Power of Siberia gas pipeline in transporting gas for export and to supply the needs of Russian consumers. To secure reliable gas supplies Gazprom Group is focused on the continuous development of the GTS — building new, hi-tech gas pipelines and renovating, upgrading and retrofitting the existing pipeline capacity, as well as implementing a programme to decommission excess gas transportation capacity. The highlights of 2019 and early 2020 include the launches of the Power of Siberia and TurkStream gas pipelines. Gas Transportation in Russia The UGSS of Russia is a centrally operated system of natural gas production, processing, treatment, transportation and storage. The UGSS incorporates the world’s longest network of high-pressure trunk pipelines covering European Russia and Western Siberia. In addition, the Group owns trunk gas pipelines in the Russian Far East: the Power of Siberia, Sakhalin–Khabarovsk–Vladivostok and Sobolevo–Petropav- lovsk-Kamchatsky pipelines. Gazprom’s GTS, which is unique in its size and quality parameters, ensures highly reliable and flexible gas supplies for consumers in Russia and abroad. During 2019, a total 678.96 bcm of gas were supplied into Gazprom’s GTS in Russia. The decrease from the previous year was driven by the natural gas demand dynamics in Russia and globally. The combined length of trunk gas pipelines and connections operated by the Group’s gas transportation subsidiaries in Russia as at 31 December, thousand km 2017 2018 2019 Change 2019/2018 172.1 172.6 175.2 1.5% In December 2019, Gazprom started Russian pipeline gas supplies to China via the Power of Siberia trunk gas pipeline. The pipeline is operated by OOO Gazprom transgaz Tomsk, a subsidiary of PJSC Gazprom. A total of 0.33 bcm of natural gas was supplied via the pipeline in 2019. The Power of Siberia is a strong enabler for gas infrastructure expansion and economic development in Eastern Siberia and the Far East of Russia 92 PJSC Gazprom Annual Report 2019Operations and Marketing Gas Transportation and Storage Gas supplies into the Gazprom’s GTS in Russia, bcm 2017 2018 2019 Change 2019/2018 Gas consumption for own operational needs of the GTS, bcm 2017 2018 2019 Change 2019/2018 672.09 693.07 678.96 −2.0% 37.48 40.14 37.99 −5.4% As the owner of the Russian section of the GTS, PJSC Gazprom leases out free gas pipeline capacity (subject to its availability) to independent companies provided they have documents confirming their ownership of gas supplies or the existence of contractual obligations to buy (sell) gas, and a proof of the customer’s readiness to accept the stated gas supplies within the gas delivery period. Independent companies using PJSC Gazprom’s GTS are also required to ensure treatment of gas to the applicable standards and technical regulations prior to its transportation, and accounting for gas supplies at custody transfer stations. The reduced access to the GTS capacity was due to the overall declines in gas production by companies outside Gazprom Group, as well as lower gas supplies to Russian consumers in general. Gas transportation services to non-Group companies via Gazprom’s GTS in Russia Gas transported, bcm including Russian gas Companies serviced 2017 137.91 130.37 24 2018 136.42 128.27 25 2019 132.12 124.33 22 Activities ensuring the reliability and safety of linear sections of trunk gas pipelines (overhauls and scheduled maintenance) are planned and carried out depending on the technical condition and operating risks of the respective facilities. Inline inspections to diagnose the GTS in Russia, thousand km GTS overhauls in Russia, km 2017 2018 2019 Change 2019/2018 2017 2018 2019 Change 2019/2018 22.1 25.1 28.9 15.1% Accident rates for linear sections of trunk gas pipelines have decreased by more than half over the last 10 years. The GTS Operability and Integrity Management System is in place at PJSC Gazprom to ensure the reliable and safe operation of GTS facilities. For more details on the diagnostics and overhauls of trunk gas pipelines in Russia and on the number of GTS accidents and technical faults see Gazprom in Figures 2015–2019 Factbook Automation of GTS operability and integrity management processes Gazprom’s Gas and Gas Condensate Transportation Management and Information System (Phase 2) went live in 2019. The project included the automation of collection, processing, storage, and provision of data required for managing the operability and integrity of PJSC Gazprom’s gas transportation system facilities. A plan for the overhaul of linear sections of trunk gas pipelines for 2020 and a Programme for the Overhaul of Linear Sections of Trunk Gas Pipelines of PJSC Gazprom for 2020–2022 were produced using the nameplate, operating and geospatial data loaded into the system. 93 s t l u s e R e c n a m r o f r e P Change 2019/2018 −3.2% −3.1% −12.0% 810.1 771.3 782.1 1.4% PJSC Gazprom Annual Report 2019 Operations and Marketing Gas Transportation and Storage Gas Transportation Outside Russia Gazprom Group companies own the gas transportation systems in Belarus (OAO Gazprom transgaz Belarus), Armenia (ZAO Gazprom Armenia) and Kyrgyzstan (OsOO Gazprom Kyrgyzstan), ensuring supplies of natural gas to consumers in these countries. The trunk gas pipelines owned and operated by OAO Gazprom transgaz Belarus, the Group’s core gas trans- portation asset outside Russia, also carry transit supplies of Russian natural gas to European countries and Russia’s Kaliningrad Region. Daily requests by PJSC Gazprom to transport Russian natural gas through Belarus were satisfied in full during 2019. Gas injected into Belarus’ GTS, bcm 2017 2018 2019 Total Including gas in transit Change 2019/2018 61.2 42.2 62.6 42.3 60.8 40.5 −2.9% To ensure the reliability and safety of gas transportation, foreign gas transportation subsidiaries of the Group run inline inspections, corrosion diagnostics and overhauls. Nord Stream (operated by joint venture Nord Stream AG) and Blue Stream (operated by Blue Stream Pipeline Com- pany B.V., which is included in the list of entities in which Gazprom has investments classified as joint operations), offshore cross-border pipeline systems constructed with Gazprom’s involvement, secure gas supplies to consumers in Northwest and Central Europe, as well as in Turkey. For details on key gas export routes of PJSC Gazprom see the Company Information section Gas transported through the Nord Stream gas pipeline, bcm Gas transported through the Blue Stream gas pipeline, bcm 2017 2018 2019 Change 2019/2018 15.9 13.3 11.1 −16.5% Note. Gas injection into the pipeline at the Beregovaya compressor station. The key drivers of gas pipeline capacity utilisation include demand from European consumers and regulatory restrictions by supervisory authorities on access to pipeline capacity for transit supplies. EU Gas Directive extension to cross-border offshore gas pipelines to and from third countries The Directive includes provisions for ownership unbundling, third-party access, and application of tariffs to gas pipelines to and from third countries. On 23 May 2019, amendments to the EU Gas Directive took effect, in particular, extending the Directive requirements to cover gas pipelines to and from third countries in the territorial seas of the EU member states. The member state where the first interconnection point with the Member States’ gas network is located is responsible for the application of the EU Gas Directive to offshore pipelines from third countries. In particular, such EU member state may now grant derogations from certain provisions of the EU Gas Directive for a period of up to 20 years (with possible extension). As regards the Nord Stream and Nord Stream 2 gas pipelines, the amendments apply to their sections with length of about 50 km and 54 km respectively in Germany’s territorial sea and onshore sections in the areas of responsibility of Nord Stream AG and Nord Stream 2 AG. The EU Gas Directive amendments are effectively applicable to the pipeline operation as from 12 December 2019 when relevant amendments were made to the national laws of Germany. As permitted by the applicable laws of Germany, Nord Stream AG and Nord Stream 2 AG filed applications, in due time, for the pipeline derogation from the key provisions of the EU Gas Directive for a period of up to 20 years. As at 31 December 2019, both strings of the TurkStream trunk gas pipeline’s offshore section were filled with gas and ready to start supplies. South Stream Transport B.V., a Gazprom Group subsidiary, is the owner and operator of the trunk gas pipeline’s offshore section, as well as the owner of the offshore section’s receiving terminal in Turkey. 2017 2018 2019 Change 2019/2018 Note. Gas injection into the pipeline at the Portovaya compressor station. 51.0 58.7 58.5 −0.3% For more details on profiles of Gazprom Group’s gas transportation infrastructure outside Russia see Gazprom in Figures 2015–2019 Factbook Under the relevant agreements, gas transportation companies of neighbouring countries provide gas transportation services to PJSC Gazprom. 94 PJSC Gazprom Annual Report 2019Operations and Marketing Gas Transportation and Storage Gas transportation services provided to PJSC Gazprom in neighbouring countries, bcm Sweden Poland . . . Finland* . . . Estonia . . . Latvia . . . . Russia Lithuania . . Belarus Slovakia Hungary . . . Moldova Ukraine Romania Bulgaria 2017 2018 2019 * Through Imatra gas metering station (for supply to Finland). 95 Russia s t l u s e R e c n a m r o f r e P . . . Kazakhstan PJSC Gazprom Annual Report 2019 Operations and Marketing Gas Transportation and Storage By the start of the 2019/2020 withdrawal season, the potential maximum daily deliverability of Russian UGSFs grew by the amount comparable to wintertime daily gas consumption of the Nizhny Novgorod or Rostov Region As at 31 December 2019, the Group’s UGSFs in Russia had an aggregate total gas storage capacity of 75.01 bcm. By the start of the withdrawal season, the potential maximum daily deliverability was increased by 30.8 mmcm from 2018 and totalled 843.3 mmcm of gas. The improved performance was due to the commissioning of the Volgogradskoye UGSF, and the expansion and revamps of the existing gas storage facilities — the Kasimovskoye UGSF and the Punginskoye UGSF. Potential maximum daily deliverability of Russian UGSFs at the start of the withdrawal season, mmcm 2017/2018 2018/2019 2019/2020 Change 805.3 812.5 843.3 3.8% As at the start of the 2019/2020 withdrawal season, operating gas reserves in Russian UGSFs amounted to 72.232 bcm. Gas withdrawn from UGSFs in Russia, bcm 2017 2018 2019 Change 2019/2018 Gas injected into UGSFs in Russia, bcm 2017 2018 2019 Change 2019/2018 * Including 0.03 bcm of cushion gas injected in the Volgogradskoye UGSF. 45.48 51.99 40.54 −22.0% 44.18 49.49 * 45.04 −9.0% In the reporting year, documents and agreements were signed to provide for continued gas transit through Ukraine beyond 31 December 2019. Agreements and documents signed to continue Russian gas transit through Ukraine beyond 31 December 2019 — On 28 December 2019, Gazprom and Ukraine signed an irrevocable amicable agreement to cancel all of Ukraine’s ongoing and potential future claims against PJSC Gazprom arising from the 22 January 2016 resolution of the Antimonopoly Committee of Ukraine to impose a fine on PJSC Gazprom — On 30 December 2019, the following documents were signed: — Irrevocable agreement between PJSC Gazprom and NAK Naftogaz Ukraine on the settlement of current gas disputes and key terms and conditions for future natural gas transportation. The document stipulates that all outstanding arbitration and judicial claims between the parties be dropped and that in the future the parties renounce any and all possible claims under the supply and transit contracts dated 19 January 2009. Pursuant to the agreement, seizures and injunctions approved in England and Wales, Luxembourg, the Netherlands and Switzerland for PJSC Gazprom assets as requested of NAK Naftogaz of Ukraine, have been lifted. The court proceedings under the claims of NAK Naftogaz of Ukraine seeking recognition and enforcement of the Stockholm Arbitration Court arbitration award dated 28 February 2018 in the gas transit contract dispute have been terminated in England and Wales, Latvia, Luxembourg and the Netherlands. — An agreement between PJSC Gazprom and NAK Naftogaz Ukraine on services to arrange for natural gas transportation through Ukrainian territory. Pursuant to the agreement, NAK Naftogaz Ukraine will act as the transit organiser and assume the associated risks. The transit organiser has the obligation to book gas transportation capacities in Ukraine for a five-year period to transmit a total of 225 bcm of gas, including 65 bcm in 2020 and 40 bcm per year in 2021–2024. — Agreement between PJSC Gazprom and OOO Gas Transmission System Operator of Ukraine on physical connection points between the gas transportation systems of Ukraine and the Russian Federation. Underground Gas Storage in Russia The network of underground gas storage facilities (UGSFs) is an integral part of Russia’s UGSS. Gas storage facilities level off seasonal, weekly and daily fluctuations in gas demand, accounting for 20% to 40% of Gazprom’s total gas supplies during the heating season. Peak and base load gas storage facilities improve the reliability of the UGSS infrastructure and optimise technical parameters and capital intensity of gas transportation systems. Gazprom Group’s UGSFs are used to manage seasonal fluctuations in gas consumption, support extra gas supplies in the event of cold snaps or technical faults within the UGSS, and ensure reliability of gas exports and long-term reservation. In Russia, Gazprom Group operates 23 UGSFs in 27 geo- logical structures: 17 in depleted gas reservoirs, 8 in aquifers, and 2 in salt caverns. 96 PJSC Gazprom Annual Report 2019Operations and Marketing Gas Transportation and Storage In 2019, a total of 8.2 bcm of PJSC Gazprom’s gas were injected into UGSFs in far abroad European countries under OOO Gazprom export contracts (2018: 6.6 bcm). Gas with- drawal totalled 2.2 bcm (2018: 7.2 bcm). This has allowed PJSC Gazprom to meet its obligations to counterparties during repairs at the GTS and avoid penalties for short supplies, as well as earn extra revenue from gas sales. The decrease in gas withdrawal in 2019 as compared to 2018 was due to weather conditions. At the same time, PJSC Gazprom executed transactions to monetise natural gas reserves kept in under- ground storage at UGSFs in European far abroad countries — the total amount of gas sold under repo agreements was approximately 7.6 bcm. s t l u s e R e c n a m r o f r e P Gas consumption for own operational needs of UGSFs bcm 2017 2018 2019 Change 2019/2018 0.50 0.56 0.54 −3.6% Underground Gas Storage outside Russia Given the export transit risks, the Group’s gas storage facilities are indispensable for building strategic reserves of natural gas. To ensure reliable gas supplies, Gazprom makes extensive use of gas storage facilities located in FSU and far abroad countries. In the FSU countries, Gazprom operates UGSFs in Belarus (Pribugskoye, Osipovichskoye and Mozyrskoye), in Armenia (the Abovyanskaya underground gas storage station), and employs capacities of the Inčukalns UGSF in Latvia during repairs and emergencies. By the start of the 2019/2020 withdrawal season, the operating gas reserves in FSU-based UGSFs totalled 1.18 bcm. No operating gas reserves were built at the Inčukalns UGSF for the 2019/2020 withdrawal season. A range of measures are being implemented in Belarus to expand the Mozyrskoye UGSF, which will increase the volume of operating gas reserves at the facility from 0.50 bcm at start of the 2019/2020 withdrawal season to 0.65 bcm. Gazprom Group’s operating gas reserves in FSU-based UGSFs at the start of the withdrawal season, bcm 2017/2018 2018/2019 2019/2020 Change 3.0 1.57 1.18 −24.8% In 2019, Gazprom Group injected 0.96 bcm of gas into FSU- based UGSFs, and withdrew a total of 1.09 bcm. Gazprom makes extensive use of gas storage facilities located in European far abroad countries: in Austria (Haidach), Germany (Jemgum, Rehden, Katharina and Etzel), Serbia (Banatski Dvor) and the Czech Republic (Dambořice). By the start of the 2019/2020 withdrawal season, Gazprom’s storage capacity contracted by OOO Gazprom export in far abroad European countries totalled approximately 8.5 bcm of working gas. The additional commercial gas storage contracts valid until 31 March 2021 secured another 3.01 bcm of gas storage capacity at UGSFs in Austria, Hungary and Slovakia. As at 31 December 2019, the total volume of operating gas reserves at European UGSFs was 11.7 bcm. 97 PJSC Gazprom Annual Report 2019 Operations and Marketing Gas Distribution, Gas Infrastructure Expansion and NGV Fuel Markets Gazprom’s ambitious efforts to expand gas infrastructure in Russian regions contributes to their social and economic development and improves living standards. The average natural gas penetration rate in Russia increased 1.3 times to 70.1% from 2005, with the penetration rate in rural areas growing 1.8 times to 61.8%. Use of natural gas in the transport sector (road, rail and waterborne) is a very promising area. Gazprom Group operates its network in a safe and reliable way while providing corporate control over compliance with industrial safety requirements for the operation of gas distribution systems in Russia. The Group’s gas distribution networks are operated by AO Gazprom gazoraspredelenie, its subsidiaries and associates, and OOO Gazprom transgaz Kazan. In 2019, consolidation of gas distribution assets on the books of AO Gazprom gazoraspredelenie continued in Russia through acquiring economically viable gas distribution facilities in strict compliance with the applicable laws. The Group’s activities ensure reliable and safe operation of Russia’s gas distribution systems and maintain their operability to ensure safe, incident-free and uninterrupted gas supply to consumers. As at 31 December 2019, the Group’s gas distribution subsidiaries and associates owned and operated a total of 802.8 thousand km of gas distribution networks in Russia. ~82% of all gas distribution networks in Russian regions are owned and maintained by the Group gas distribution subsidiaries and associates In 2019, Gazprom Group’s gas distribution subsidiaries and associates transported 232.6 bcm of natural gas via their gas distribution networks. Natural gas was supplied to: — 28.0 million apartments and private households — 32.8 thousand industrial facilities — 9.1 thousand agricultural facilities — 344.0 thousand utility facilities Additionally, the Group’s subsidiaries and entities provide gas distribution services in Armenia (ZAO Gazprom Armenia) and Kyrgyzstan (OsOO Gazprom Kyrgyzstan). In 2019, the Group exited from WIROM GAS S.A., a subsidiary focused on gas distribution in Romania. For more details on Gazprom Group’s gas distribution business see Gazprom in Figures 2015–2019 Factbook 98 PJSC Gazprom Annual Report 2019Operations and Marketing Gas Distribution, Gas Infrastructure Expansion and NGV Fuel Markets s t l u s e R e c n a m r o f r e P Expansion of Gas Infrastructure in Russian Regions Gazprom Group implements an important national objective of expanding gas infrastructure across Russia: every year tens of thousands of consumers are connected to the gas network. 70.1% Overall gas penetration rate in Russia in 2019 The Programme for Expansion of Gas Infrastructure in Russian Regions approved for 2019 covered 66 Russian regions, with RUB 34.30 bn allocated to finance capex under the programme. Funds channelled by PJSC Gazprom into expanding gas infrastructure across Russian regions (inclusive of VAT), RUB bn 2017 2018 2019 Change 2019/2018 29.45 36.70 34.30 −6.5% Note. In accordance with gas infrastructure expansion programmes for each year. In 2019, the Group completed the construction of 124 gas supply facilities with a total length of 1,880 km. The Company extended gas infrastructure to connect 68.31 thousand households and apartments and 179 boiler houses across 305 locations. Procedure for PJSC Gazprom’s involvement in gas infrastructure expansion programmes in Russian regions Gas supply expansion agreement Provides a framework for interactions between PJSC Gazprom and the region’s government bodies during the implementation of a gas infrastructure expansion programme in the region Master plans Determine key focus areas in gas supply expansion, including use of local resources and an energy saving programme Proposals from regional administrations Define the potential coverage of residential gas supply services and identify investment projects in need of gas supply 5-year gas supply expansion programmes Define the gas infrastructure expansion parameters agreed with regional administrations (timeframe, pipeline lengths, number of consumer connections), investments to be made and financing procedure Annual synchronisation schedules Synchronise PJSC Gazprom’s construction with consumer preparations to receive gas Annual gas infrastructure expansion programmes Specify annual financing requirements which are subject to consumers meeting their gas connection preparation obligations and dynamics in the outstanding debt for delivered natural gas In 2019, the gas penetration rate grew by 1.5 p.p. year-on-year and, as at 31 December 2019, reached 70.1% in Russia, 73.0% in urban and 61.8% in rural areas. Capex projects in off-mains solutions employing natural gas liquefaction technology continued in the Tomsk Region in 2019. Since 2016, the Company has designed six facilities: Kargala, a small-scale LNG production facility (7 tonnes of LNG per hour), and five receiving, storage and regasification stations. The Programme for Expansion of Gas Infrastructure in Russian Regions for 2020 covers 66 regions, with investments to be made by PJSC Gazprom totalling RUB 39.26 bn. In 2019, the Group commenced the development of gas supply and infrastructure expansion programmes for Russian regions for 2021–2025. Forward-looking plans for gas infrastructure expansion in Russian regions in 2021–2025 — Preparation and implementation of balanced gas supply and infrastructure expansion programmes, aligned as much as possible with the regional capabilities for consumer connections preparation — Bringing gas penetration rates to the maximum socially and economically feasible level (full penetration) in 23 regions of the Russian Federation located in the Central (9 regions), Northwestern (1 region), Southern (6 regions), North Caucasian (3 regions), and Volga (4 regions) Federal Districts — Providing gas connections under social security programmes, — primarily in the Far East and North-West regions Improving gas infrastructure expansion efficiency through better utilisation of the existing and new gas supply capacity — Using comprehensive approaches to gas infrastructure expansion, i.e. construction of both pipeline and LNG infrastructure 99 PJSC Gazprom Annual Report 2019 Operations and Marketing Gas Distribution, Gas Infrastructure Expansion and NGV Fuel Markets CNG sales through CNG filling stations of the Group and OOO Gazprom gazomotornoe toplivo in Russia, mmcm 2017 2018 2019 Change 2019/2018 525.9 598.2 779.2 30.3% CNG sales growth was driven by successful marketing programmes promoting natural gas as motor fuel, incentive programmes to convert vehicles to natural gas, comprehensive efforts to encourage Russian manufacturers to produce NGVs and expand NGV product ranges, as well as NGV infrastructure expansion. In 2019, the Group promoted the use of NGV fuel with a focus on following key areas: development of gas-filling infrastructure, interaction with Russian automakers and carri- ers, interaction with state authorities of the Russian Federation. NGV Infrastructure Expansion In 2019, Gazprom Group completed the construction of 28 new NGV infrastructure facilities, including one cryogenic filling station (LNG filling and CNG filling points), three areas for refilling mobile NGV-refuelling stations and 23 CNG filling stations (including 11 CNG filling stations built under a pilot project in the Belgorod Region). A total of 17 new CNG filling stations have been commissioned. Another two CNG filling stations were acquired from outside Gazprom Group. Also in 2019, the Group purchased 1,218 NGVs and 10 vehicles for mobile NGV refuelling. As a federal NGV retail infrastructure is built out, customers will be able to save on fuel while enjoying the same level of comfort as with conventional filling stations. Convenient locations and adequate capacity of filling stations will further stimulate growth of NGV fleet. In cooperation with the Federal Road Agency (Rosavto- dor), the Group developed the Master Plan for Developing NGV Infrastructure along the Federal Roads providing for constructing a core network of 181 facilities and setting up so-called transit NGV corridors by 2030 at the existing and projected key highways of Russia. In 2019, Gazpromneft Marine Bunker continued Russia’s first project to procure an LNG bunkering vessel which will supply gas from the LNG production, storage and shipping complex near the Portovaya compressor station (CS). The vessel commissioning is scheduled for 2021. Use of small-scale LNG to supply consumers located far from trunk gas pipelines is seen as a key focus area in improving gas infrastructure expansion efficiency. Under this approach, LNG is delivered from an LNG plant to a shared storage and regasification system with subsequent gas supply to consumers through local gas distribution networks. Small- scale LNG based gas supply can be a feasible alternative to pipeline network supply where annual gas consumption is under 100 mmcm and the distances between consumers and sources of gas supply are not greater than 400 km. Small-scale LNG plans for 2020–2025 target primarily the following regions: the Sakhalin, Tomsk, Sverdlovsk, Arkhangelsk, and Amur Regions, Kamchatka Territory, Primorye Territory, and the Republic of Tatarstan. LNG will be primarily used to supply gas to residential consumers and as motor fuel for road, rail and waterborne transport. Large-scale LNG can also be used to supply gas to regions of the Russian Federation, and the Group is exploring this option to supply gas to Murmansk heat generating facilities through large-scale LNG shipments. Gas supply and infrastructure expansion programmes for Russian regions for 2021–2025 are expected to be approved with the regions by end-2020. NGV Fuel Markets Development of the NGV Fuel Market in Russia Promoting the use of natural gas as motor fuel in Russia is one of Gazprom Group’s priorities. The Group is promoting the NGV fuel market (including sales of gas as motor fuel) through OOO Gazprom gazo- motornoe toplivo, owned on a parity basis by a subsidiary of PJSC Gazprom and a company of Gazprombank Group. As at 31 December 2019, there were a total 447 NGV facilities across 67 regions of the Russian Federation. Gazprom Group subsidiaries and OOO Gazprom gazomotornoe toplivo own 299 operating (i.e. commercial gas sales) CNG filling stations with a total capacity of over 2.2 bcm per year, including 239 stations operated by OOO Gazprom gazomotornoe toplivo and 60 by PJSC Gazprom subsidiaries engaged in the Group’s core activities. Operating CNG filling stations on the books of Gazprom Group and OOO Gazprom gazomotornoe toplivo in Russia as at 31 December, units 2017 2018 2019 Change 2019/2018 271 293 * 299 2.0% * CNG filling stations classified as operating as at 31 December 2018 included 13 stations selling natural gas at the start-up or pilot operation stages (commissioned in 2019). 100 PJSC Gazprom Annual Report 2019Operations and Marketing Gas Distribution, Gas Infrastructure Expansion and NGV Fuel Markets In the former Soviet Union (FSU) countries, Gazprom Group subsidiaries own 39 CNG filling stations, which are operated by OsOO Gazprom Kyrgyzstan (4 stations), ZAO Gazprom Armenia (7 stations), and OAO Gazprom transgaz Belarus (28 stations). CNG sales totalled 55.4 mmcm in 2019. In 2019, the Group continued cooperation with foreign partners from Hungary, Vietnam, Germany, Kazakhstan, China, and South Korea on NGV fuel market development across the following focus areas: — — — promotion of natural gas as motor fuel — sharing with partners best practices in NGV fuel use in regulatory framework development and harmonisation joint projects outside Russia particular modes of transport, as well as NGV infrastruc- ture development and operation. 2019 saw continued implementation of projects to establish NGV infrastructure in Vietnam. The Group also worked with CNPC to harmonise the Russian regulatory framework for NGV fuel market development with foreign laws to create favourable conditions for fuelling infrastructure development on the international transport route between Europe and China. More than 20 cars, trucks and buses powered by natural gas took part in the Blue Corridor — Gas into Engines 2019 Rally organised jointly with Uniper. Various events were held along the rally’s route to promote natural gas as motor fuel, including 10 round tables attended by more than 600 political and business leaders, and members of the media. s t l u s e R e c n a m r o f r e P Cooperation with Russian Automotive Manufacturers and Carriers PJSC Gazprom cooperates with automotive manufacturers and shipbuilders under agreements and memorandums on the use of natural gas as motor fuel and expansion of product ranges of vehicles and craft of various categories using natural gas as motor fuel. In 2019, PJSC Gazprom signed cooperation agreements with UMG, Hyundai Motor Manufacturing Rus, and Alexeev Central Hydrofoil Design Bureau. Government Relations To promote the use of natural gas as motor fuel and synchro- nise NGV infrastructure development on federal highways, PJSC Gazprom maintains interactions with the Executive Office of the Government of the Russian Federation and federal authorities of the Russian Federation. Proposals were drafted on improving the laws to encourage the use of NGV fuels. In 2019, joint efforts of Gazprom Group and the Russian Ministry of Energy lead to the allocation of RUB 3.5 bn from the Reserve Fund of the Government of the Russian Federation to subsidise NGV infrastructure development in 17 regions. Pilot projects for NGV fuel market development in the Belgorod and Rostov Regions and Saint Petersburg have emerged as a key focus area with the main goal to drive accelerated building of NGV fuel infrastructure. Presence in the International NGV Fuel Market Gazprom Group is also active in the European NGV fuel mar- ket, operating through its wholly-owned subsidiary Gazprom NGV Europe, which, as at 31 December 2019, owned NGV fuel infrastructure in Germany and the Czech Republic (64 CNG filling stations) and Poland (1 CNG filling station). CNG is also sold by NIS, a Gazprom Neft Group company, on the Serbian market through its own three CNG filling stations (as at 31 December 2019). In 2019, Gazprom Group sold 13.8 mmcm of NGV fuel through its own filling stations in Germany, the Czech Republic, Serbia and Poland. Gazprom NGV Europe stopped selling CNG in Poland as from 1 January 2020 due to the divestment of its NGV infrastructure facilities in the country. NGV fuel sales by Gazprom Group through own filling stations in far abroad countries, mmcm 2017 2018 2019 Change 2019/2018 101 12.3 12.9 13.8 7.0% PJSC Gazprom Annual Report 2019 Operations and Marketing Hydrocarbon Processing and Petrochemicals Gazprom has significant reserves of multicomponent gas. Its production and subsequent processing enable the Group to expand its product portfolio. Two gas processing megaprojects are currently in progress — the construction of the Amur GPP in eastern Russia and an integrated complex in the seaport of Ust-Luga in the western part of the country. These projects are the examples of the practical implementation of Gazprom’s economic model for comprehensive monetisation of hydrocarbon reserves to diversify revenue sources. In 2019, Gazprom Group processed 31.47 bcm of natural and associated gas, excluding tolling arrangements, up 1.3% year-on-year. The increase was due to higher natural gas processing volumes at the Astrakhan GPP owned by OOO Gazprom pererabotka. Gazprom Group’s processing of liquid hydrocarbon feedstocks (crude oil, gas condensate and fuel oil) was almost flat year-on-year at 67.13 mm tonnes. The decrease in oil and stable gas condensate processing volumes at Gazprom Neft refineries due to scheduled repairs was offset by increased processing volumes of unstable gas condensate at the Urengoy Condensate Pre-Transportation Preparation Plant and of oil and gas condensate mixture at the Surgut Condensate Stabilisation Plant (CSP) owned by OOO Gazprom pererabotka. The Group produced 3.66 mm tonnes of liquefied petroleum gas (LPG) and 4.73 mmcm of helium in 2019. A decline in total oil product output by Gazprom Group to 50.85 mm tonnes, combined with an increase in production of fuel oil and some other oil products was caused by maintenance at Gazprom Neft refineries and market conditions. The monomer and polymer production decrease was due to a turnaround at Gazprom neftekhim Salavat’s Monomer plant in accordance with its two-year turnaround cycle. Butyl acrylate production increased primarily because of higher demand from the construction industry. 102 PJSC Gazprom Annual Report 2019Operations and Marketing Hydrocarbon Processing and Petrochemicals Gazprom Group’s natural and associated gas processing, bcm Gazprom Group’s liquid hydrocarbon processing, mm tonnes 2017 2018 2019 Change 2019/2018 Note. Excluding tolling arrangements. Gazprom Group’s output of oil products, mm tonnes 30.82 31.06 31.47 1.3% 2017 2018 2019 Total Including Russia Change 2019/2018 Note. Excluding tolling arrangements. 2017 2018 2019 Diesel fuel Motor gasolines Fuel oil Aviation fuel Bitumens Marine fuel Lubricants Other oil products Total 2017 14.32 11.71 6.59 3.15 2.66 3.37 0.48 6.62 48.90 2018 15.66 12.05 6.88 3.55 3.12 2.95 0.49 6.70 51.40 2019 15.51 11.70 7.17 3.43 2.96 2.80 0.54 6.74 50.85 Gazprom Group’s monomer and polymer production, thousand tonnes Butyl acrylate production, thousand tonnes 2017 2018 2019 419.2 521.4 464.9 2017 2018 2019 Change 2019/2018 −10.8% Change 2019/2018 s t l u s e R e c n a m r o f r e P 64.06 60.64 67.40 63.85 67.13 63.99 −0.4% Change 2019/2018 −1.0% −2.9% 4.2% −3.4% −5.1% −5.1% 10.2% 0.6% −1.1% 68.7 73.5 83.4 13.5% Gazprom Group’s production of mineral fertilisers and relevant feedstocks, thousand tonnes For more details on Gazprom Group’s hydrocarbon processing/refining capacities and output of key products see Gazprom in Figures 2015–2019 Factbook 913.2 836.4 799.7 −4.4% 2017 2018 2019 Change 2019/2018 103 PJSC Gazprom Annual Report 2019 Operations and Marketing Hydrocarbon Processing and Petrochemicals Gazprom Group’s hydrocarbon processing, and gas chemical and petrochemical capacity as at 31 December 2019 6 4 5 6 2 5 3 4 3 2 1 1 Gas processing plants (GPPs) with installed throughput capacity Refineries with installed throughput capacity 1 2 3 4 5 6 Astrakhan Astrakhan GPP Sosnogorsk Sosnogorsk GPP Orenburg Orenburg GPP Orenburg Helium Plant Khanty-Mansiysk Yuzhno-Priobskiy GPP* Surgut Novy Urengoy Condensate stabilisation plant** Condensate pre-transportation preparation plant 12.0 7.3 2.5 3.0 2.5 37.5 6.3 15.0 0.5 4.0 13.7 1 Serbia Novi Sad Refinery*** Belarus Moscow Pančevo Refinery Mozyr Refinery**** Moscow Refinery Yaroslavl Slavneft-YANOS* Salavat Omsk Refinery Omsk Refinery 2 3 4 5 6 4.6 14.0 12.8 7.5 10.0 22.2 Installed natural and associated gas processing capacity, bcm Installed oil refining capacity, mm tonnes Installed unstable gas condensate processing capacity, mm tonnes Installed oil and stable gas condensate processing capacity, mm tonnes * ** *** **** Gazprom Group has access to 50% of capacity. The plant’s deethanised gas condensate production capacity is 12.05 mm tonnes. Suspended as at 31 December 2019. Up to 50% of oil supplied by the Group to the refinery. The actual processing volume at the refinery depends on cost-efficiency. In 2019, the Group did not run refining operations under tolling arrangements at the Mozyr Refinery. 104 PJSC Gazprom Annual Report 2019Operations and Marketing Hydrocarbon Processing and Petrochemicals Gas and Condensate Processing by Gazprom’s Gas Processing and Gas Production Subsidiaries In 2019, PJSC Gazprom’s gas processing and gas production subsidiaries processed 30.60 bcm of natural and associated gas and refined 18.82 mm tonnes of unstable gas condensate and crude oil, excluding tolling arrangements. A joint project was launched to build a large gas processing and liquefaction complex in Russia In March 2019, PJSC Gazprom and AO RusGazDobycha finalised the configuration of their joint project to build a large complex for ethane-rich gas processing and LNG production near the seaport of Ust-Luga (Leningrad Region). The project will process 45 bcm of gas to produce 13 mm tonnes LNG per year. Ethane-rich natural gas produced by Gazprom from the Achimov and Valanginian deposits in the Nadym-Pur-Taz region will be used as feedstock. Marketable products will include dry stripped gas, LPG, ethane and pentane-hexane fractions. Dry stripped gas (about 20 bcm) will be transported by PJSC Gazprom’s GTS. Phase 1 of the complex is scheduled to be commissioned in late 2023; Phase 2, in late 2024. The complex will be operated by OOO RusKhimAlyans, a joint venture established on a parity basis between a PJSC Gazprom subsidiary and AO RusGazDobycha. Natural and associated gas processing by gas processing and gas production subsidiaries, bcm 2017 2018 2019 Change 2019/2018 Note. Excluding tolling arrangements. 29.94 30.14 30.60 1.5% Gas processing increased due to more efficient utilisation of the Astrakhan GPP (Gas Processing Plant) capacity driven by longer turnaround intervals. Separated gas processing volumes at the Astrakhan GPP in 2019 were the highest since 2013 In 2019, the Orenburg GPP processed 9.11 bcm of gas from the Karachaganakskoye field (Kazakhstan) under tolling arrangements (2018: 9.49 bcm). Unstable gas condensate processing and crude oil refining by Gazprom’s gas processing and gas production subsidiaries, mm tonnes 2017 2018 2019 Change 2019/2018 Note. Excluding tolling arrangements. 17.47 17.75 18.82 6.0% Stable gas condensate processing (crude oil refining) by Gazprom’s gas processing and gas production subsidiaries, mm tonnes 2017 2018 2019 Change 2019/2018 Note. Excluding tolling arrangements. 6.49 6.21 6.65 7.1% s t l u s e R e c n a m r o f r e P Liquid hydrocarbon processing increased to all-time high in 2019 at the Urengoy Condensate Pre-Transportation Preparation Plant and Surgut Condensate Stabilisation Plant A significant increase in unstable gas condensate processing by the Urengoy Condensate Pre-Transportation Preparation Plant and oil and gas condensate mixture by the Surgut Condensate Stabilisation Plant (CSP) came on the back of higher liquid hydrocarbon production from Block 1A of the Achimov deposits at the Urengoyskoye oil and gas condensate field (OGCF). For more details on the project see the Exploration and Production section The increase in the primary processing of stable condensate and crude oil was due to shorter downtime in preventive maintenance at the Astrakhan GPP facilities as the plant’s diesel fuel hydrotreating unit was revamped in 2018. 105 PJSC Gazprom Annual Report 2019 Operations and Marketing Hydrocarbon Processing and Petrochemicals Oil Refining, Petrochemicals and Mineral Fertiliser Production at Gazprom Neftekhim Salavat’s Facilities In 2019, Gazprom neftekhim Salavat’s production facilities refined 6.83 mm tonnes of liquid hydrocarbon feedstocks (including 1.29 mm tonnes of crude oil, 5.41 mm tonnes of stable gas condensate and 0.13 mm tonnes of fuel oil) and processed 0.44 bcm of natural gas. Stable gas condensate processing and crude oil refining by Gazprom neftekhim Salavat’s facilities, mm tonnes 2017 2018 2019 Change 2019/2018 6.48 6.74 6.83 1.3% In 2019, liquid hydrocarbon processing depth at primary and advanced refining units stood at 89.6% (2018: 89.4%). Refining depth growth was supported by increased process- ing of gas condensate feedstock provided by Gazprom Group and other suppliers. Fuel yield and losses in 2019 remained flat year-on-year with increased refining volumes. A substantial increase in light product yield from liquid hydrocarbon processing to 75.1% in 2019 (2018: 72.8%) was due to higher share of gas condensate in the petroleum feedstock and the feedstock mix optimisation. Gazprom neftekhim Salavat exports its products to more than 30 FSU and far abroad countries Due to the optimised operating modes of gasoline stream units along with a wide use of optimisation systems, commer- cial motor gasoline yield has hit all-time high while use of an expensive octane improver — methyl tert-butyl ether (MTBE) — was reduced 2.5 times. Recognition of superior product quality — Butyl acrylate (acrylic acid butyl ester) produced by Gazprom neftekhim Salavat’s Acrylic Acid Plant was awarded a gold quality mark of the All-Russian Brand (3rd Millennium). Quality Label of the 21st Century competition. Butyl acrylate is used to produce acrylic emulsions utilised as feedstock in the production of paints, varnishes, inks, glues, synthetic latexes, as well as plastic and lubricant additives — A certificate of conformity and permission to use the Made in Russia mark were granted to unleaded gasoline AI-92-K5 under the Made in Russia voluntary certification system. The manufacturer was included in the Register of Bona Fide Exporters — Bitumen feedstock and viscous road oil bitumens were registered under REACH In 2019, Gazprom neftekhim Salavat refinery started producing new products: BND 50/70 viscous road oil bitumen in accor- dance with GOST 33133-2014 and heating oil with a sulphur content of 0.50%, low ash content, and pour point of 25°C in accordance with GOST 10585-2013. In 2019, 11 sections of the Monomer plant and 12 process units of the refinery were in turnaround which included diag- nostics, inspections, and examination of process equipment and pipelines. The project scope also included measures to improve productivity and efficiency. In 2019, the Gas Chemical Plant, which produces mineral fertilisers, was also in scheduled turnaround which included completion of the first stage of ammonia production facility revamp. Activities of Gazprom neftekhim Salavat’s R&D Centre Gazprom neftekhim Salavat has its own Research and Development Centre comprising five specialised laboratories — oil refining, petrochemistry, wastewater, polymer physics, and problem-solving research labs — as well as pilot and test production shop and corrosion inhibitor production shop. The specialised laboratories are involved in a broad range of activities: pilot runs at production facilities of Gazprom neftekhim Salavat; selection and incoming inspection of analogues for materials; water circulation system corrosion monitoring and corrosion protection; inspection of process units in turnaround; recommendations on optimising chemical and process protection and process modes. The pilot production shop includes corrosion inhibitor, demulsifier and other agent production facilities and a set of pilot units. The products are used by Gazprom neftekhim Salavat as well as the Astrakhan GPP, Orenburg GPP, and Orenburg Helium Plant. 106 PJSC Gazprom Annual Report 2019Operations and Marketing Hydrocarbon Processing and Petrochemicals Oil Refining and Petrochemicals Production at Gazprom Neft Group’s Facilities In 2019, Gazprom Neft Group refined 41.48 mm tonnes of oil and stable gas condensate (a 3.3% decrease year-on-year), and 0.43 bcm of APG supplied to the Yuzhno-Priobskiy GPP as Gazprom Neft Group’s equity share of production (2018: 0.43 bcm of APG). Crude oil and stable gas condensate processing by Gazprom Neft Group’s refineries, mm tonnes 2017 2018 2019 Change 2019/2018 40.11 42.91 41.48 −3.3% Oil refining decreased in 2019 due to scheduled turnarounds at all refineries fully or partially owned by Gazprom Neft. The turnarounds will ensure trouble-free operation and improve performance of the assets in the near future. Motor gasoline and diesel fuel output decreased due to lower refining volumes and existing demand and price levels. The turnarounds, lower bitumen output, and existing pricing environment in the domestic and international markets resulted in a higher fuel oil output. Vacuum gasoil output was also increased during the scheduled turnaround, which was a key driver behind the growth in other oil product output. Key focus areas of Gazprom Neft’s refineries in improving product quality in 2019 — Development, production start-up and sale of new products with improved quality and environmental performance — Commercial product standardisation and certification to Russian and international standards — Quality control automation and implementation of new product control methods and business processes. In 2019, process monitoring system Smotr was deployed across all production facilities of Omsk and Moscow Refineries to automatically monitor deviations of 12.2 thousand process parameters and 5.8 thousand quality parameters from their standard values — Upgrade and development of laboratory facilities and maintaining the reliability of testing equipment and measuring instruments Slavneft-YANOS increased production of base oils. In 2019, it started producing a new line of special-purpose low-viscosity base oils for drilling fluids. s t l u s e R e c n a m r o f r e P Larger stake in OOO Poliom In order to consolidate Gazprom Neft’s position in petrochemical markets, a deal increasing the interest of AO Sibgazpolymer (a joint venture between PAO Gazprom Neft and PAO SIBUR Holding) in OOO Poliom (Omsk) from 50% to 100% was closed in July 2019. Poliom, a modern plant producing a broad range of polypropylenes, was commissioned in 2013. The plant can produce and ship up to 218.4 thousand tonnes of polypropylene of up to 80 different grades. The plant is integrated into the processes of AO Gazpromneft-ONPZ production site. Gazprom Neft’s refineries carried on the active implementation of major investment projects as part of the second stage of technological and environmental upgrade as well as initiatives to improve product quality. For more details on Gazprom Neft’s refinery upgrade programme see the Strategic Priorities and Capex Programmes sections New products launched by Gazprom Neft’s refineries in 2019 Plant Moscow Refinery Omsk Refinery PAO Slavneft- YANOS Products Light distillates of catalytic processes in accordance with a STO standard developed by Gazprom Neft Liquefied petroleum gases for use in the utilities sector in accordance with GOST 20448-2018 Liquefied petroleum gases for use in road transport in accordance with GOST 27578-2018 MTBE in accordance with a corporate standard developed by Gazprom Neft Low-viscosity marine fuel in accordance with TSU-80 (RMD-80) and TSU-180 (RME-180) (complying with the new MARPOL 2020 requirements) Liquefied petroleum gases of the following fuel grades: PT commercial propane, PA autogas (propane), PBA autogas (propane/butane), PBT commercial propane- butane mixture in accordance with GOST R 52087-2018 Premium petroleum-derived paraffin wax for matches in accordance with a corporate standard For more details on the use of new hydrocarbon processing/refining technologies, see the Innovations and Import Substitution section 107 PJSC Gazprom Annual Report 2019 Operations and Marketing Power Generation In 2019, the Group completed a large-scale power generation programme. In 2007–2019, 9 GW of advanced generating capacities were commissioned. Gazprom is an established leader in electricity generation at heat generation facilities and in heat generation in Russia. Gazprom Group has established one of the largest vertically integrated power generation holdings in Russia, which has consolidated electricity and heat generating assets, heat transmission and distribution assets, as well as assets in related segments. Gazprom Group’s generating assets are consolidated within its 100% subsidiary, OOO Gazprom energoholding, managing PAO TGC-1, PAO Mosenergo, PAO OGK-2 and PAO MIPC. Launch of thermal power plant upgrade programme in the Russian electricity market Resolution of the Government of the Russian Federation No. 43 dated 25 January 2019 On the Selection of Projects to Upgrade the Generating Facilities of Thermal Power Plants set off a major upgrade programme. The programme seeks to upgrade up to 41 GW of obsolete and deteriorated heat generation capacity (about 25% of total). Upgrade projects will be selected every year from 2019 to 2025. The benchmark rate of return under the new upgrade programme will be 14%, with 16-year supply periods under contracts concluded with winners. The first competitive selection of projects to upgrade TPP generating facilities took place in 2019. The selected projects included facilities of Gazprom Group (15 facilities of PAO TGC-1, PAO OGK-2, PAO Mosenergo and OOO Novo-Salavatskaya CHPP) with a capacity of 1.92 GW, or 14% of the first price zone quota, with capacity supplies to commence in 2022–2025. For more details on Gazprom Group’s projects in power generation see the Strategic Priorities section AO Gazprom energosbyt, a Gazprom Group company, is a leader in the Russian electricity market, active in both wholesale and retail segments and providing over 95% of electricity needs of Gazprom Group’s subsidiaries. Outside Russia, Gazprom Group owns Unit 5 at the Hrazdan TPP through its subsidiary ZAO Gazprom Armenia. 16% Gazprom Group’s share in the installed electrical capacity of Russia’s Unified Energy System (UES) Gazprom Group’s generating capacity as at 31 December 2019 Gazprom energoholding Other generating assets in Russia Total in Russia Generating assets abroad Total in Russia and abroad Installed electrical , capacity GW Installed heat capacity , thousand Gcal/h 38.75 0.90 39.65 0.48 40.13 67.32 2.92 70.24 0.03 70.27 108 PJSC Gazprom Annual Report 2019Operations and Marketing Power Generation The year-on-year change in the installed electrical and heat capacity in 2019 was due to the retirement of obsolete and underperforming generating assets and installed capacity upgrades as well as the launch of Unit 2 at the Grozny TPP. In December 2019, PAO OGK-2 and AO Yeniseiskaya TGC (TGC-13) entered into an agreement for the sale of the Krasnoyarskaya GRES-2. PAO OGK-2 will continue operating the GRES during the transitional period. Gazprom Group’s generating capacity as at 31 December 2019 6 7 5 8 9 10 4 1 2 3 12 13 11 1 2 3 4 5 6 Adler Stavropol Grozny Novocherkassk Pskov Saint Petersburg, Republic of Karelia, the Leningrad and Murmansk Regions 7 Kirishi Adler TPP PAO OGK-2 Stavropolskaya GRES PAO OGK-2 Grozny TPP PAO OGK-2 Novocherkasskaya GRES PAO OGK-2 Pskovskaya GRES PAO OGK-2 52 power stations of PAO TGC-1 and its subsidiaries Kirishskaya GRES PAO OGK-2 Other generating assets in Russia Installed electric capacity, MW Installed heat capacity, Gcal/h 367 63 2,423 145 360 2,258 60 440 117 6,918 13,487 2,595 1,234 896 2,918 s t l u s e R e c n a m r o f r e P 1,080 39 12,825 43,211 6,661 3,130 213 1,315 210 451 3,333 903 1,260 976 480 28 14 8 9 Cherepovets Cherepovetskaya GRES PAO OGK-2 Moscow and the Moscow Region 15 power stations of PAO Mosenergo 10 Ryazan Troitsk Serov Surgut 11 12 13 14 PAO MIPC and subsidiaries Ryazanskaya GRES PAO OGK-2 Troitskaya GRES PAO OGK-2 Serovskaya GRES PAO OGK-2 Surgutskaya GRES-1 PAO OGK-2 Krasnoyarsk Krasnoyarskaya GRES-2* PAO OGK-2 Generating assets abroad * GRES is operated by PAO OGK-2 until the end of the transition period when it will be turned over for operation to AO Yeniseiskaya TGC (TGC-13). For more details on capacity commissioned in the power generation segment in 2019 see the Capex Programmes section 109 PJSC Gazprom Annual Report 2019 Operations and Marketing Power Generation 14 % Gazprom’s share in electricity generation in Russia For more details on Gazprom Group’s generating capacity and output of power and heat see Gazprom in Figures 2015–2019 Factbook Electricity and Heat Generation According to the UES System Operator, power consumption within the Unified Energy System (UES) of Russia totalled 1,059 billion kWh in 2019 while electricity generation was 1,081 billion kWh, an increase over 2018. During 2019, the Group generated 148.0 billion kWh of electricity and 122.38 mm Gcal of heat at its generating assets in Russia. The decline in electricity production was due to the equipment load assigned by AO System Operator of the United Power System and the streamlining of the load for inefficient generating capacities. Heat supply decreased due to higher average temperatures during the heating season. Outside Russia, Gazprom Group generated 1.02 billion kWh of electricity. The year-on-year decrease at Unit 5 of the Hrazdan TPP in 2019 reflected the actual operation modes of Armenia’s national power grid. Electricity generation by Gazprom Group, billion kWh Gazprom energoholding PAO Mosenergo PAO MIPC and its subsidiaries PAO OGK-2 PAO TGC-1 and its subsidiaries Other generating assets in Russia Total in Russia Generating assets abroad Total in Russia and abroad Note. The table shows power generation, i.e. the amount of electricity generated by power stations. Heat generation by Gazprom Group, mm Gcal Gazprom energoholding PAO Mosenergo PAO MIPC and its subsidiaries PAO OGK-2 PAO TGC-1 and its subsidiaries Other generating assets in Russia Total in Russia Generating assets abroad Total in Russia and abroad 2017 150.81 57.87 – 63.43 29.51 4.65 155.46 1.09 156.55 2017 120.77 79.45 9.85 6.76 24.71 6.57 127.34 – 127.34 2018 146.56 58.31 – 58.92 29.33 4.94 151.50 1.69 153.19 2018 124.36 82.29 10.17 7.01 24.89 6.89 131.25 – 131.25 2019 143.07 60.11 – 54.69 28.27 4.93 148.00 1.02 149.02 2019 115.26 75.37 9.07 6.65 24.17 7.12 122.38 – 122.38 Change 2019/2018 −2.4% 3.1% – −7.2% −3.6% −0.2% −2.3% −39.6% −2.7% Change 2019/2018 −7.3% −8.4% −10.8% −5.1% −2.9% 3.3% −6.8% – −6.8% * Heat generation figures include PAO MIPC’s subsidiaries OOO TSK Novaya Moskva (merged into PAO MIPC in 2019) and OOO TSK Mosenergo. Note. The table shows heat supply from TPPs, i.e. the amount of heat supplied by a power station to consumers at the asset ownership/interface boundary points. 110 PJSC Gazprom Annual Report 2019Operations and Marketing Power Generation Gazprom energoholding companies also provide power plant resources (electricity, heat and water supply to consumers) and infrastructure (unoccupied floor space and land, ware- house facilities and equipment, including for laboratory water tests) to drive SME growth. Projects in renewable energy are also under consideration. International expansion opportunities for the power generation business are also explored to boost sales of the Group’s natural gas (in particular, pipeline gas, LNG from Russian projects and from Gazprom Group’s trading portfolio, as well as gas from Gazprom’s international projects). Gazprom Group’s coal assets Given a significant share of coal in Gazprom energoholding’s fuel mix, Gazprom acquired Angrensor Group in 2016 to diversify the risk of fuel supply shortfalls and optimise its pricing policy in the coal market. The coal company is engaged in mining, processing and marketing of coal from the Ekibastuzsky open pit in the Pavlodar Region of Kazakhstan. Coal production in 2019 was 1.8 mm tonnes. Gazprom energoholding accounts for approximately a third of total coal supplies by the group. s t l u s e R e c n a m r o f r e P Natural gas dominates the fuel mix of Gazprom energoholding. Lower fuel consumption in 2019 was mostly due to reduced electricity and heat generation. Higher consumption of fuel oil was due to a fuel oil replacement programme implemented at CHPPs of PAO Mosenergo. Volume-based fuel mix of Gazprom energoholding Gas, bcm 2017 2018 2019 Total Including Gazprom Group’s gas Change 2019/2018 Coal, mm tonnes 2017 2018 2019 Change 2019/2018 Fuel oil and other fuels, mm tonnes 2017 2018 2019 Change 2019/2018 40.8 27.6 41.0 28.3 39.7 27.0 −3.2% 11.5 9.4 7.9 −16.0% 0.33 0.34 0.35 2.9% Diversification of Power Generation Business Gazprom energoholding is diversifying its power generation business. Towards the end of 2019, it entered the power engineering market by acquired AO REP Holding. Acquisition of REP Holding In December 2019, Gazprom energoholding acquired AO REP Holding. As a result, Gazprom energoholding became a major player in the power engineering market. The holding will develop production of equipment for both GTSs, including those of PJSC Gazprom, and power generation companies. Leveraging of Nevsky Zavod’s potential will enable localisation of power generating equipment, including high-power gas turbines. 111 PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing In 2019, PJSC Gazprom reaffirmed its status as the largest gas supplier to global markets. In 2019, the Company began pumping Russian gas to China, a market with huge potential for gas consumption growth. Far Abroad Gas Markets Far abroad countries, including Europe, are Gazprom’s traditional export market offering high profit margins for the Group. In 2019, Gazprom Group sold 232.4 bcm of natural gas to far abroad countries. Net sales revenue (net of excise tax and customs duties) was RUB 2,940.4 bn. The decrease in sales revenue was mostly due to lower average rouble prices (including excise tax and customs duties) and the declines in volumes of gas sold. The decrease in sales was due to weather conditions and higher LNG supplies, as well as the economic situation in certain countries (primarily Turkey). Gazprom Group’s sales of natural gas to far abroad countries Sales volumes, bcm 2017 2018 2019 Change 2019/2018 Average selling price (including excise tax and customs duties), USD per mcm* 2017 2018 2019 Change 2019/2018 Average selling price (including excise tax and customs duties), RUB per mcm 2017 2018 2019 Change 2019/2018 Net sales revenue (net of excise tax and customs duties), RUB bn 2017 2018 2019 Change 2019/2018 * Calculated based on the year-average RUB/USD exchange rate. 242.0 243.3 232.4 −4.5% 200.2 246.4 210.6 −14.5% 11,670.5 15,499.5 13,613.0 −12.2% 2,221.2 2,951.2 2,490.4 −15.6% 112 PJSC Gazprom Annual Report 2019Operations and Marketing Marketing Gazprom Group’s gas sales to far abroad countries, 2018–2019, bcm 59.0 5.5 4.2 Other countries 34.2 0.3 0.1 Ireland 65.7 21.4 16.3 1.7 1.7 Denmark 44.9 United Kingdom Norway Sweden 2.6 2.5 Finland Estonia the Netherlands 2.8 1.3 Belgium Latvia Russia Russia Lithuania 13.3 13.0 France Germany 9.9 9.7 2.6 2.2 Poland 0.6 0.3 Switzerland 9.0 9.1 Czech Republic 5.0 6.5 0.1 0.5 Spain Russia Mongolia 0.8 1.5* China Japan India Natural gas sales in 2018 Natural gas sales in 2019 22.6 22.0 Italy Austria 0.5 0.3 Slovenia 2.8 2.8 Croatia Slovakia 10.5 7.3 Hungary 0.2 0.2 Bosnia and Herzegovina Montenegro Albania 2.2 2.2 Serbia 0.2 0.2 North Macedonia 3.3 2.5 Greece Moldova 1.5 1.1 Romania 3.2 2.4 Bulgaria 24.0 15.4 Turkey * Including 0.3 bcm via the Power of Siberia trunk gas pipeline. Note. Gazprom Group’s sales to other countries include LNG sales and sales of gas from international hydrocarbon exploration and production projects in which the Group has equity stakes. 113 s t l u s e R e c n a m r o f r e P Belarus Ukraine PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing Large-scale LNG Sales One of the priorities of Gazprom Group’s gas business is staged implementation of its strategy for LNG production, waterborne transportation and marketing. In 2019, the Group supplied LNG mostly to Asia-Pacific (69% of total supplies). In 2019, China became the key destination for Gazprom Group’s LNG supplies: this market accounted for 23% of total supplies (1.16 bcm). Sakhalin Energy, an associate in which the Group holds 50% plus one share, operates Sakhalin-2 project, producing LNG on Sakhalin Island and selling it to Asia-Pacific. Gazprom Group receives up to 1 mm tonnes of LNG per year from the project under a contract with Sakhalin Energy effective until 2028. The supply portfolio is supplemented with LNG procured from third parties including from the Yamal LNG project under a sale and purchase agreement with Yamal Trade providing for a supply of 2.9 mm tonnes of LNG per year for 20 years and from the floating LNG (FLNG) platform of the Cameroon LNG project under a sale and purchase agreement with Perenco Cameroon whereby Gazprom Group receives all LNG produced by the FLNG project (1.2 mm tonnes per year). 69% Share of Asia Pacific markets in total LNG supplied from Gazprom Group’s trading portfolio in 2019 Large-scale LNG sales from Gazprom Group’s trading portfolio to foreign markets totalled 3.78 mm tonnes, or 5.04 bcm, in 2019. For more details on LNG market trends see the Trends and Developments in Global Energy Markets section Large-scale LNG sales by Gazprom Group in foreign countries tn BTU including LNG from Sakhalin-2 mm tonnes bcm 2017 159.2 72.9 3.34 4.46 2018 185.0 70.1 3.88 5.18 2019 180.1 60.1 3.78 5.04 Notes: 1. Calculated in accordance with the principles underlying management reporting. Metrics calculated using these methods might be not comparable between each other due to differences in the methodologies used for preparing consolidated financial statements and for management reporting. 2. Calculated using a conversion ratio of 1 BTU = 0.028 mcm of LNG = 0.021 tonnes of LNG. Gazprom Group is a key supplier of natural gas to European far abroad countries. In the reporting year, the Group’s gas exports were mostly sold to the UK, Germany, Italy, the Netherlands and Turkey. The bulk of the natural gas sold in far abroad countries is exported from Russia via OOO Gazprom export. In response to changes in the European market, OOO Gazprom export is gradually expanding its business in the short-term gas market, including in gas trading, as well as investing in joint ventures active in European countries, including in end-user markets. Proprietary electronic sales platform In August 2018, OOO Gazprom export launched its Electronic Sales Platform (ESP) to sell natural gas both on standard market terms and on its own terms. Contracts for gas supply at any delivery point (both at trading platforms or facilities with slow-moving inventories located close to the borders) with delivery periods starting from one day can be offered via the ESP. OOO Gazprom export holds daily trading sessions and offers contracts for the supply of natural gas to various delivery points to pre-qualified companies registered on the ESP. In 2019, creation of own index, ESPGazEx, marked a new stage in the ESP development. As at 31 December 2019, 65 companies from Austria, Croatia, the Czech Republic, Denmark, France, Germany, Hungary, Italy, North Macedonia, Romania, Singapore, Slovakia, Slovenia, Switzerland, and the UK were registered with the ESP. In 2019, sales through the ESP reached 15.1 bcm, or 8% of total sales of OOO Gazprom export. Plans are in place for the further development of the ESP in 2020 by introducing new trading instruments, a limit system, and new types of reporting, developing trading mechanisms and the business processes of trading sessions, integrating with third-party information systems, and implementing electronic digital signatures. ESPGazEx in 2019, euro/MWh 30 25 20 15 10 5 01 02 03 04 05 06 07 08 09 10 11 12 Note. Monthly ESPGazEx values are calculated as the weighted average price of all deals with delivery in this month closed before the index publication date. In 2019, Gazprom Group’s subsidiaries sold 22.9 bcm of gas directly to end consumers in European far abroad countries. Gazprom launched Russian pipeline gas supplies to China in 2019. For more details on gas sales volumes to end consumers in far abroad countries see Gazprom in Figures 2015–2019 Factbook 114 PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing Large-scale LNG sales in foreign markets in 2019, tn BTU Gas sales by Gazprom Group in Russia China India United Kingdom South Korea Japan Spain Taiwan (China) FOB LNG supplies Total 41.4 39.9 21.4 20.2 19.6 10.9 3.3 23.5 180.1 Notes: 1. Calculated in accordance with the principles underlying management reporting. Metrics calculated using these methods might be not comparable between each other due to differences in the methodologies used for preparing consolidated financial statements and for management reporting. 2. Due to rounding, some totals may not correspond with the sum of the separate figures. Sales volumes, bcm 2017 2018 2019 Change 2019/2018 Average selling price (net of VAT), RUB per mcm 2017 2018 2019 Change 2019/2018 Net sales revenue (net of VAT), RUB bn 2017 2018 2019 Change 2019/2018 229.9 239.7 235.8 −1.6% 3,808.3 3,981.3 4,118.2 3.4% 875.7 954.5 970.9 1.7% s t l u s e R e c n a m r o f r e P For more details on Gazprom Group’s LNG sales to different countries see Gazprom in Figures 2015–2019 Factbook Russian Gas Market For more details on Russian gas market trends see the Trends and Developments in Global Energy Markets section In accordance with applicable Russian laws, end consumers buy gas at regulated prices which are differentiated between consumer groups (households vs industrial consumers), as well as by price zone, based on the relative distance from the gas production region to the consumer. Gazprom is the largest natural gas supplier on the Russian market. In 2019, Gazprom Group sold 235.8 bcm of gas to consumers in the Russian Federation. Net sales revenue (net of VAT) was RUB 970.9 bn. The increase in net sales revenue was mostly due to higher average rouble prices (excluding VAT), which was partially offset by the declines in volumes of gas sold. The reduction in gas sales volume was a consequence of warmer weather conditions in Q1 and Q4 2019 and was mainly observed for those groups of consumers, whose gas use is of a pronounced seasonal nature: generators, housing and utilities, and households. During 2019, Gazprom took steps to retain existing consumers and win back lost major consumers by offering them more attractive gas payment terms, as well as capitalise on the opportunities to purchase gas through exchange- based gas trades at Saint Petersburg International Mercantile Exchange (AO SPIMEX) for resale to consumers. 115 PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing Weighted average wholesale regulated prices (net of VAT) of PJSC Gazprom’s gas for industrial and household consumers, RUB per mcm Weighted average annual price for industrial and household consumers* 2017 2018 2019 Change 2019/2018 Weighted average annual price for industrial consumers** 2017 2018 2019 Change 2019/2018 Weighted average annual price for subsequent resale to households** 2017 2018 2019 Change 2019/2018 3,988.5 4,117.2 4,224.8 2.6% 4,202.3 4,316.4 4,423.7 2.5% 3,512.9 3,640.0 3,734.4 2.6% * Calculated as the combined weighted average prices for industrial and household consumers for the year indicated. Weighting is based on actual volumes delivered to each price zone for household and industrial consumers, respectively (exclusive of gas volumes supplied pursuant to Resolution of the Government of the Russian Federation No. 333 dated 28 May 2007 On Improvement of State Gas Price Regulation). ** Weighting is based on actual volumes delivered to each price zone for each group of consumers separately, household and industrial consumers, respectively (exclusive of gas volumes supplied pursuant to Resolution of the Government of the Russian Federation No. 333 dated 28 May 2007 On Improvement of State Gas Price Regulation). FSU Gas Markets Gazprom Group covers a significant portion of natural gas demand in FSU countries. In 2019, the Group sold 38.7 bcm of natural gas to FSU countries, with net sales revenue (net of customs duties) totalling RUB 356.1 bn. The increase in net sales revenue was mostly due to higher volumes of gas sales. In the reporting year, agreements were reached to deliver additional commercial gas supplies to Kazakhstan in July– December 2019. During the repair period at the Armenian NPP, gas withdrawals increased in Armenia to replace the corresponding generating capacity. In 2019, efforts to resume Russian gas supply to Georgia resulted in a new natural gas supply contract signed for 2019–2020 with AO Georgian Oil and Gas Corporation, providing for a sale of up to 0.2 bcm of gas per year. Gazprom Group buys natural gas in Turkmenistan, Kazakhstan and Uzbekistan under contracts with local counter- parties. In 2019, the weighted average purchase price for Central Asian gas increased marginally year-on-year. Gazprom Group’s gas sales to FSU countries Sales volumes, bcm 2017 2018 2019 Change 2019/2018 Average selling price (including customs duties), USD per mcm 2017 2018 2019 Change 2019/2018 Average selling price (including customs duties), RUB per mcm 2017 2018 2019 Change 2019/2018 Net sales revenue (net of customs duties), RUB bn 2017 2018 2019 Change 2019/2018 * Calculated based on the year-average RUB/USD exchange rate. 35.0 38.1 38.7 1.6% 158.4 162.6 157.4 −3.2% 9,237.0 10,225.9 10,175.9 −0.5% 292.8 348.6 356.1 2.2% 116 PJSC Gazprom Annual Report 2019Operations and Marketing Marketing Gazprom Group’s gas sales in FSU countries, bcm 20.0 19.9 Lithuania Belarus Russia 2.7 2.8 Ukraine 3.0 2.9 Moldova 6.2 7.7 Kazakhstan 1.4 0.9 Lithuania Russia 0.4 0.3 Estonia 1.3 1.7 Latvia Russia Belarus 0.3 0.3 Kyrgyzstan s t l u s e R e c n a m r o f r e P 0.0* 0.0* 0.0* 0.2 Georgia South Ossetia 1.8 2.0 Armenia 1.0 – Azerbaijan Uzbekistan Turkmenistan Tajikistan Turkey Natural gas sales in 2018 Natural gas sales in 2019 * Less than 0.05. Gazprom Group’s purchases of gas in Central Asia, bcm For subsequent supplies to far abroad countries Turkmenistan Uzbekistan Kazakhstan Weighted average purchase price on the border of supplying countries, USD per mcm For subsequent supplies to Southern Kazakhstan Uzbekistan For subsequent supplies to Kyrgyzstan Uzbekistan Kazakhstan * Less than 0.05. 117 2017 – 5.5 13.8 121.6 1.7 0.0* 0.3 2018 – 3.8 12.3 133.1 2.9 0.0* 0.3 2019 4.0 4.9 11.3 136.3 Change 2019/2018 X 28.9% −8.1% 2.4% 2.7 −6.9% 0.0* 0.3 – – PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing Oil and Gas Condensate Sales In 2019, Gazprom Group sold 27.27 mm tonnes of crude oil and stable gas condensate. Net sales revenue (net of VAT and customs duties) reached RUB 752.8 bn, an increase over 2018 driven mostly by higher crude oil sales volumes. Sales were up year-on-year mostly due to Gazprom Neft ramping up production and exports from the Novoportovskoye and Vostochno-Messoyakhskoye fields, and lower refining volumes at Gazprom Neft’s refineries. Crude oil and gas condensate sales volumes, mm tonnes Total 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Net revenue from sales of crude oil and gas condensate (net of VAT and customs duties), RUB bn Change 2019/2018 Russia 539.9 734.9 752.8 2.4% 71.4 64.6 62.2 −3.7% 438.7 631.6 648.7 2.7% 29.8 38.7 41.9 8.3% 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 Far abroad countries 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 FSU countries 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 Note. Excluding intra-group sales. Total 2017 2018 2019 Change 2019/2018 Russia 2017 2018 2019 Change 2019/2018 Far abroad countries 2017 2018 2019 Change 2019/2018 FSU countries 2017 2018 2019 Change 2019/2018 118 27.59 23.72 25.55 21.10 27.27 23.21 6.7% 4.26 2.76 2.66 1.15 2.62 1.19 −1.5% 21.61 19.25 21.15 18.30 22.94 20.31 8.5% 1.71 1.71 1.74 1.65 1.71 1.71 −1.7% PJSC Gazprom Annual Report 2019Operations and Marketing Marketing Sales of Refined Products In 2019, Gazprom Group’s sales of refined oil and gas products increased to 70.18 mm tonnes due to increased sales to far abroad countries. Net sales revenue amounted to RUB 2,111.2 bn (net of excise tax, VAT, and customs duties). The decrease in net sales revenue was mainly due to lower average selling prices for refined products sold by Gazprom Neft in far abroad countries, as well as lower sales in Russia and FSU countries. Sales volumes of refined oil and gas products, mm tonnes Total 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Net revenue from sales of refined products (net of excise tax, VAT, and customs duties), RUB bn Change 2019/2018 Russia s t l u s e R e c n a m r o f r e P 65.96 43.34 68.86 45.81 70.18 45.32 1.9% 40.83 27.82 43.18 29.57 43.12 28.51 −0.1% 20.85 12.39 21.31 13.22 23.51 13.93 10.3% 4.28 3.13 4.37 3.02 3.55 2.88 1,687.1 2,179.8 2,111.2 −3.1% 1,115.1 1,394.1 1,355.1 −2.8% 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 Far abroad countries 2017 454.3 2018 641.0 629.8 −1.7% 117.7 144.7 126.3 −12.7% 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 FSU countries 2017 2018 2019 Gazprom Group Including Gazprom Neft Group Change 2019/2018 −18.8% Note. Excluding intra-group sales and sales of helium. Total 2017 2018 2019 Change 2019/2018 Russia 2017 2018 2019 Change 2019/2018 Far abroad countries 2017 2018 2019 Change 2019/2018 FSU countries 2017 2018 2019 Change 2019/2018 119 PJSC Gazprom Annual Report 2019 Operations and Marketing Marketing Sales of refined products by Gazprom Group, mm tonnes Diesel fuel Motor gasoline Fuel oil Sulphur LPG Aviation fuel Mineral fertilisers Lubricants Polymers Other refined, petrochemical and gas chemical products Note. Excluding intra-group sales and sales of helium. Sales of helium by Gazprom Group Gaseous helium, mmcm 2017 2018 2019 Change 2019/2018 Liquid helium, tonnes 2017 2018 2019 Change 2019/2018 Note. Excluding intra-group sales. 3.32 3.42 3.63 6.1% 289.6 260.1 214.6 −17.5% The increase in Gazprom Group’s sales of refined products to far abroad countries in 2019 was mainly due to higher sales of sulphur, motor gasolines and fuel oil as this geographical segment offers higher sales margins compared to sales in the domestic market and the FSU countries. The decrease in total helium sales was due to lower production and processing volumes of helium-rich gas at the Orenburgskoye OGCF. The increased share of gaseous helium in the total supplies of marketable helium was due to higher demand for the gaseous product in the domestic market. OOO Gazprom pererabotka’s liquid helium production capacity at the Orenburg Helium Plant was fully utilised, and the output of marketable liquid helium did not decrease. In turn, liquid helium filling and regasification capacities were utilised to match consumer demand for liquid and gaseous products. 2017 15.89 13.39 5.78 5.31 3.70 3.60 0.89 0.41 0.11 16.88 2018 17.20 13.64 6.46 5.24 4.10 3.94 0.86 0.48 0.11 16.83 2019 Change 2019/2018 17.36 13.53 7.00 6.46 4.25 3.98 0.81 0.48 0.10 16.21 0.9% −0.8% 8.4% 23.3% 3.7% 1.0% −5.8% – −9.1% −3.7% Electricity and Heat Sales In 2019, Gazprom Group’s net electricity and heat sales (net of VAT) were flat year-on-year at RUB 518.4 bn. Lower production and sales of heat and electricity in Russia and other FSU countries were offset by increased capacity sales and higher competitive (unregulated) electricity prices in Russia. In particular, the weighted average selling price of electricity produced by Gazprom energoholding’s generating companies in the first price zone of the wholesale market increased at the day-ahead market by 4.0% year-on-year. Russian wholesale electricity and capacity market is one of the world’s largest Electricity produced by the Group’s Russian generating companies is mainly traded competitively within price zones of the Russian wholesale market, with a small portion exported to Norway and Finland. Gazprom Group’s net revenue from electricity and heat sales (net of VAT), RUB bn 2017 2018 2019 Change 2019/2018 503.8 522.1 518.4 −0.7% 120 PJSC Gazprom Annual Report 2019Operations and Marketing Marketing Sales of Gas Transportation Services In 2019, Gazprom Group’s net revenue from sales of gas transportation services (net of VAT) amounted to RUB 215.3 bn. The year-on-year decline was due a reduction in services provided. In 2019, the average regulated tariffs charged to indepen- dent companies for services related to gas transportation via PJSC Gazprom’s trunk pipelines comprising the UGSS amounted to RUB 65.20 per mcm/100 km. The tariff rate was set by the FTS of Russia back in 2015 and, despite the repeated annual requests by PJSC Gazprom to the FAS of Russia to change the gas transportation rates, setting economically sound tariffs, the FAS of Russia has been reluctant to adjust them. Gazprom Group’s net revenue from sales of gas transportation services (net of VAT), RUB bn 2017 2018 2019 Change 2019/2018 235.1 225.7 215.3 −4.6% s t l u s e R e c n a m r o f r e P 121 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Innovations Gazprom aims for technology leadership in the industry. The Group is applying primarily domestic hi-tech equipment meeting the best world standards and invests in research and development. Engaging Russia-based R&D organisations is a significant part of this process. In its evolution as a global energy company and a reliable energy supplier, Gazprom focuses on research and application of new knowledge and technology, as well as on continuous improvement of its innovation capabilities and acceleration of innovation to address a number of strategic, technological, and economic challenges that such leadership involves. PJSC Gazprom’s Innovation Engine PJSC Gazprom’s Innovative Development Programme until 2025 approved by Resolution of PJSC Gazprom’s Board of Directors No. 3099 dated 17 April 2018 (Minutes No. 1196 dated 17 April 2018) is a fundamental instrument for longterm planning and management of innovations embedded into Gazprom’s strategic development planning. The Programme covers gas, oil and power generation businesses of the Company. PJSC Gazprom, PAO Gazprom Neft, OOO Gazprom energo- holding, and other subsidiaries and associates implement R&D programmes (plans) to achieve the technology and organisational priorities set out in the Programme. Gazprom has in place an extensive innovation manage- ment framework. The R&D Committee of PJSC Gazprom serves as a platform to discuss all matters related to R&D performance at PJSC Gazprom and its subsidiaries through comprehensive review and collective decision making driven by the principles of openness, fairness, and independence while balancing the interests of Operations, Economics, and Prospective Development. In order to enable the imple- mentation of R&D products, as well as innovations developed by third parties, a standing Commission for Innovative Product Implementation and a single-window system have been set up and are operating successfully at PJSC Gazprom. As part of its Corporate Framework for Management of Innovations at Subsidiaries of PJSC Gazprom, PJSC Gazprom focuses on further use (roll-out) and commercialisation of R&D results and protected intellectual property that deliver a positive and meaningful impact for PJSC Gazprom as well as on reviewing and following up compliance of its subsidiaries’ innovation efforts with Russian laws and internal documents of PJSC Gazprom. Intellectual Property Management PJSC Gazprom has designed and successfully maintains an intellectual property management framework, which is essentially intended to determine company-wide principles governing the creation, legal protection, registration, commer- cialisation, and monitoring of the use of intellectual property across Gazprom Group, as well as to provide incentive schemes encouraging employees of Gazprom Group entities to create intellectual property. In 2019, PJSC Gazprom approved its Patent Strategy until 2025, an instrument regulating decision making on the best patenting method for developed technical and/or technology solutions based on their development grounds, R&D capabili- ties and geography. In 2019, PJSC Gazprom and its subsidiaries filed more than 300 patent applications. A total of 260 patents were granted for previously filed applications, including 4 foreign patents (patent protection in Japan, Canada, Australia and Turkmenistan). Russian Federation Patent No. 2691724 (patent owner: OOO Gazprom dobycha Yamburg) for Foam Agent for Fire Extinguishing in Arctic Conditions was included by Rospatent (Federal Service for Intellectual Property) into the top 10 most interesting utility patents in 2019. 122 PJSC Gazprom Annual Report 2019Innovations and Import Substitution Innovations RUB 33 bn Economic effect from the use of patented items in operations in 2017–2019 Gas Science and Innovations booth at the InGAS Stream 2019 — Innovations in the Gas Industry exhibition In 2019, Gazprom set up the Gas Science and Innovations booth at the InGAS Stream 2019 — Innovations in the Gas Industry specialist exhibition held as part of the 9th St Petersburg International Gas Forum. The booth showcased the capabilities and achievements of corporate science of PJSC Gazprom as a global energy company focused on the search for, development, and implementation of innovations. Number of patents held by PJSC Gazprom and its subsidiaries and their use in operations Total number of patents as at 31 December PJSC Gazprom collaborates with 13 anchor universities across seven Russian regions to implement targeted R&D and talent training programmes for Gazprom Group. 2017 2018 2019 2017 2018 2019 Total Including those used in operations Economic effect from the use of patented items in operations, RUB bn 2,365 427 2,555 441 2,674 459 8.0 10.3 14.5 Innovation Performance The Group allocates significant amounts for its annual R&D budgets, and R&D results are applied in its priority projects. The Group’s R&D efforts aim to develop and implement high-tech equipment and sophisticated engineering complexes unrivalled in the world, as well as to create advanced R&D solutions. s t l u s e R e c n a m r o f r e P Total spending on R&D projects commissioned by Gazprom Group (net of VAT), RUB bn Cooperation in Science and Technology Cooperation with Russian and global companies, external institutions, research centres and anchor universities is vital for stronger and better innovation at PJSC Gazprom. Russian research partners of PJSC Gazprom include RUSNANO, Rosatom, the Skolkovo Foundation, leading research organisations of the Russian Academy of Sciences, Russia’s largest pipe manufacturers and innovative SMEs. Foreign partners, including Wintershall Dea, OMV, Uniper, VNG, and Gasunie, participate in joint projects with PJSC Gazprom and work together with the Company under science and technology cooperation programmes. These projects include an international R&D project carried out jointly with German and Austrian companies to test the possibility of safe storage of methane and hydrogen mixtures in UGSFs. 2017 2018 2019 Actual economic effect from the use of R&D results in the Group entities, RUB bn 2017 2018 2019 8.2 9.0 12.1 12.3 12.3 10.5 123 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Innovations Gas Business Technology priorities in the gas business — Hydrocarbon field exploration and appraisal, including development of unconventional resources — Brownfield enhancement — Hydrocarbon development on the continental shelf — Greenfield development — Efficiency enhancement of trunk gas pipelines, and diversification of gas distribution methods — Enhancement of gas storage — Enhancement of gas and gas condensate processing — LNG production — Gas marketing and utilisation Hydrocarbon exploration and production yielded the best R&D results in 2019. The ongoing deployment of Russian software solutions was continued under a roadmap to reduce reliance on foreign software in hydrocarbon exploration and production. In 2019, part of the new software was tested and piloted, with proposals prepared on its deployment for applications in field exploration and development. Gas transportation technologies and equipment are also improved. In particular, knowledge-intensive technologies were widely used in 2019 in the construction of the Power of Siberia trunk gas pipeline, the Company’s strategic project. A silica gel adsorbent system with unique performance was developed and deployed to prepare natural gas for transport by the TurkStream trunk gas pipeline. The system is capable of simultaneous dehydration and NGL removal to ensure the high quality of pumped gas. Selected brownfield enhancement solutions developed in 2019 Field Innovative R&D project outcomes Legal protection Yamburgskoye and Zapolyarnoye OGCFs Urengoyskoye OGCF A range of innovative solutions were developed and implemented to minimise the risks associated with man-made, environmental and geoenvironmental incidents by using management information systems at PJSC Gazprom’s gas production facilities in the Extreme North environment Russia’s first high-tech complex was commissioned to produce and refine heavy hydrocarbon feedstock from low-permeability reservoirs of the Achimov deposits using advanced R&D, technology and energy-saving solutions The developed technical solutions are protected by 19 Russian patents The developed technical solutions are protected by 10 Russian patents State-of-the-art knowledge-intensive technologies and equipment used in the construction of the Power of Siberia trunk gas pipeline Project specifics requiring advanced knowledge-intensive technologies and equipment Technologies and equipment — The pipeline route passes through swampy, mountainous, seismically active, permafrost, and rocky areas with extreme environmental conditions — The absolute lowest air temperatures along the Power of Siberia route range from −62°C in the Republic of Sakha (Yakutia) to −41°C in the Amur Region Domestically-produced steel pipe with internal flow coating, including pipe with enhanced deformation properties External insulation coating is made of innovative domestic nanocomposite materials, which ensures high corrosion resistance of the gas pipeline Pipes crossing active tectonic faults can withstand high seismic activity and ground displacements Special engineering solutions for pipe installation Unattended cycloidal electric actuators with backup batteries for use with shutoff and control valves on trunk gas pipelines. Over 100 actuators were supplied for the Power of Siberia gas pipeline project in 2019 124 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Innovations Oil Business Technology priorities in the oil business — Driving mature asset performance — Development of multiphase fields — Production from low-permeability reservoirs — Effective and safe shelf operations in ice conditions — Development and production of catalysts for refining processes Innovative development in the oil business includes the E&P and refining segments and aims to overcome the technological challenges preventing the achievement of strategic objectives. Developments in the E&P segment of the oil business target problems associated with production declines at mature fields and higher share of new (more difficult to develop) types of fields in the production portfolio. The construction of high-tech catalytic facilities in Omsk entered an active phase, with contracts awarded for main and auxiliary equipment. The project seeks to develop and subsequently launch production of catalytic cracking, hydro- treatment, and hydrocracking catalysts. A next-generation FCC catalyst AV-Neo was produced in 2019 with subsequent commercial loading into two units of Omsk Refinery. A diesel fuel hydrotreatment catalyst was developed with loading scheduled for the first half of 2020. Catalytic cracking gasoline hydrotreatment catalyst production technology was tested. Selected innovations in E&P developed in 2019 Project Development results Implementation of a package of technologies to improve well productivity Two horizontal wells were drilled with multistage fracking at the Yamburgskoye field in 2019 to optimise well design A self-learning computer programme was developed jointly with IBM and the Skolkovo Institute of Science and Technology to keep a wellbore within a productive reservoir by adjusting the well path A new digital machine-learning tool was developed for real-time analysis of drilling parameters: vibration, rate of penetration, RPM, and weight on bit, which vary depending on the formation properties. Real-time identification of rock composition is enabled by analysing these parameters. As the programme is self-learning, prediction of changes in rock composition is done more accurately with each metre drilled. A prediction accuracy of 70% has been achieved, with plans to bring it up to 90% Development of surfactant-polymer flooding technology Various formulations were tested on core samples to identify cheaper alternatives to Shell’s expensive agents used in a pilot project at the Zapadno-Salymskoye field. Two promising surfactant-polymer formulations produced by PAO SIBUR Holding were selected for single- Development of unconventional oil production technologies well testing at the Kholmogorskoye field. Also in 2019, a conceptual model for piloting at the above field was developed and design work was commenced The surfactant-polymer flooding technology testing project was underway at the Sutorminskoye field. Gazprom Neft Science and Technology Centre’s partner in the project is China’s Daqing Oil, a subsidiary of CNPC The Bazhenov Technology Centre (a subsidiary of PAO Gazprom Neft) completed a 19-stage fracturing of the Bazhenov formation in a well with a horizontal wellbore length of 1.5 thousand m. This is the project’s most technically complex well. All wells commissioned within the projects produced commercial amounts of oil. For commercial deployment of the range of technologies to develop the Bazhenov formation, well drilling costs need to be reduced to RUB 8.5 thousand per tonne of oil produced. In 2019, well drilling costs were reduced by 32% to RUB 12.1 thousand per tonne of oil produced. s t l u s e R e c n a m r o f r e P 125 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Innovations Power Generation Business Technology priorities in the power generation business Increasing efficiency in power generation — — Reducing the environmental footprint of operations Implementing advanced engineering solutions — Gazprom energoholding designs and implements innovative technologies for electricity and heat generation at power stations. In 2019, the construction of Unit 2 at the Grozny TPP was completed. The plant’s total installed electrical capacity is now 360 MW. The new Unit 2 with a capacity of about 184 MW comprises a gas turbine and generator by Siemens. The Grozny TPP units were built with extensive use of domestically- produced systems and equipment: automation, protective relaying, mechanical-draft dry cooling towers, emission monitoring system, gas conditioning and water treatment system components, and electrical switchgear equipment. For more details on PJSC Gazprom’s innovation engine and innovations see Gazprom Group’s Sustainability Reports published on an annual basis 126 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Import Substitution Growing the share of Russian products used in Gazprom Group’s operations and encouraging the development of Russian alternatives to critical imported products are some of the key initiatives being taken to address the risk associated with using foreign equipment and technologies in the context of economic and technology sanctions. s t l u s e R e c n a m r o f r e P An action plan has been implemented since 2015 to address the challenges of import substitution and identify the Company’s needs for import substituting equipment and technologies. The economic effect from the deployment of import substituting equipment and technologies is estimated annually. PJSC Gazprom Corporate Import Substitution Plan was developed and approved in 2018. The plan was updated in 2019. RUB 35 bn Economic effect from import substitution initiatives in 2016–2019 Economic effect from deploying import substituting equipment and technologies at PJSC Gazprom’s facilities in 2016–2019 Segment Economic effect, RUB bn Initiatives with the largest economic effect Hydrocarbon production Gas transportation Other 16.4 14.0 4.6 Using Russian-made hydrogen sulphide-resistant downhole equipment for operation at a pressure of 70.0 MPa (production launched in 2017) Development of drive repair technology for foreign-made gas pumping units by a Russian company using domestically made components (the technology was implemented in 2018) Purchasing Russian materials and components to replace foreign alternatives 127 PJSC Gazprom Annual Report 2019 Innovations and Import Substitution Import Substitution Summary of PJSC Gazprom’s updated Corporate Import Substitution Plan — The corporate plan spans the period until 2025 with due consideration for the key technology focus areas outlined in the industry’s Import Substitution Plan* updated in 2019 — The plan covers the gas, oil, and power generation businesses — The plan details measures for planned and phased substitution of foreign products with competitive Russian counterparts in the operations of Gazprom Group companies as well as for the creation of favourable environment for the development of national manufacturing base and domestic supply networks * Import Substitution Plan for Mechanical Engineering in the Petroleum Industry approved by Order of the Ministry of Industry and Trade (Minpromtorg) of Russia No. 1229 dated 16 April 2019. In 2019, PJSC Gazprom’s import substitution strategy was focused on prioritising Russian equipment and components in PJSC Gazprom’s procurement. A total of 28 audits of Russian companies were conducted to check their readiness to pro- duce import substituting products, and 9 testing laboratories and centres were audited to evaluate their capabilities for product certification testing. A total of 310 such audits were completed between 2015 and 2019. Launching Production of New High-tech (Including Import Substituting) Products by Russian Businesses Gazprom engages Russian industrial companies and research institutions to manufacture high-tech and import substituting products and materials including through collaboration with Russian regional governments under respective roadmaps. The purpose of these roadmaps is to launch production of products listed in PJSC Gazprom’s Corporate Import Substitution Plan and the List of Priority Products for Import Substitution and Production Localisation to Promote the Technological Development of PJSC Gazprom. A total of 20 roadmaps were being implemented across 25 Russian regions in 2019 Since 2017, the Company has been using a tripartite coopera- tion arrangement (PJSC Gazprom, the Russian Ministry of Industry and Trade, and regional governments) whereas roadmaps are signed with regional industrial complexes. As at 31 December 2019, these roadmaps were signed with the governments of five Russian regions. The benefits of tripartite roadmaps as a new cooperation mechanism to engage regional industrial complexes — A series of consistent initiatives aimed at developing high-tech (including import substituting) products, as well as state support for participating businesses from the Russian Ministry of Industry and Trade — No binding agreements and no investments in the initiatives from PJSC Gazprom — The participants may receive subsidies from the Russian Ministry of Industry and Trade and PJSC Gazprom may consider entering into long-term contracts for the supply of developed products PJSC Gazprom cooperates with more than 50 businesses from adjacent industries under these roadmaps. Many of these companies are certified suppliers for the petroleum industry and supply equipment to PJSC Gazprom. High-tech (including import substituting) products produced by Russian businesses are primarily used in gas production and trans- portation, including at the Chayandinskoye field and the Power of Siberia trunk gas pipeline. Long-term Contracts as a Framework for Import Substitution Projects In 2019, the Company continued to sign long-term contracts with Russian manufacturers for mass production, supply, maintenance, service and repair of import-substituting prod- ucts against guaranteed future supplies. The signed contracts include a contract to supply radio relay communication equipment that can substitute foreign radio relay stations used by PJSC Gazprom’s networks and a long-term contract for the manufacture, supply, maintenance, service and repair of equipment and other components of subsea production systems. 128 PJSC Gazprom Annual Report 2019Innovations and Import Substitution Import Substitution Import substituting products produced and supplied under long-term contracts with Russian industrial companies as at 31 December 2019 — Casing and tubing pipes for hostile environments — Special-purpose ball valves — Axial-flow anti-surge and control valves — Complete modular TAKAT compressor packages — Microporous silica gel adsorbent and moisture-resistant microporous silica gel adsorbent to prepare natural gas for trunk gas pipeline transportation — Longitudinally welded steel pipes and connections for subsea and onshore gathering pipelines — LNG-powered shunting locomotives — Equipment and other components of subsea production systems (subsea casing head systems, Christmas trees, 20” and 30” connection systems, and tubing hangers) — Radio relay communication complexes Development of High-tech Import Substituting Products for Subsea Production Systems Used in Hydrocarbon Development In 2019, Russian companies implemented new manufacturing technologies and produced prototypes of equipment for offshore field development with subsea production systems as a result of R&D under the State Programme of the Russian Federation for the Development of Shipbuilding and Equip- ment for Offshore Upstream Operations for 2013–2030. The Subsea Production Complexes expert group of the Science and Technology Council for Petroleum Equipment Development under the Ministry of Industry and Trade (Minpromtorg) is led by a representative of PJSC Gazprom In 2019, PJSC Gazprom’s import substituting product procure- ment regulations were amended, in some cases by concluding long-term contracts, to incorporate lessons learned. The research and coordination committee implementing the state programme approved seven R&D project to be put out to tender by Minpromtorg in 2020. Key amendments to the Regulations on the Procurement of Goods, Works and Services by PJSC Gazprom and Gazprom Group companies related to import substituting product procurement, including procurement under long-term contracts (Resolution of PJSC Gazprom’s Board of Directors No. 3337 dated 19 November 2019) — Amendments and clarifications to the general procedure for signing long-term contracts with Russian suppliers of import substituting products without competitive bidding based on a resolution of the Steering Committee for Import Substitution, Manufacturing Localisation and Inventory Management — Maximum term of long-term contracts extended to 10 years — Clarification that in situations where several potential suppliers were preliminarily evaluated for readiness to manufacture products for PJSC Gazprom, the contract shall be awarded to the supplier with the highest readiness index The Company will continue signing long-term contracts with Russian suppliers: launching another seven types of import substituting products using this mechanism was considered in 2019. The city of Saint Petersburg and PJSC Gazprom continued implementing a cooperation agreement signed in 2017 on the establishment of an industrial cluster focused on high-tech solutions to develop the World Ocean’s resources. Under this agreement, the Cluster for High-tech Solutions to Develop the World Ocean’s and Arctic Resources (established with PJSC Gazprom’s participation) and the Committee for Power and Utilities of Saint Petersburg developed a programme for 2020–2024 providing for the establishment of related infrastructure, training of skilled personnel and launching production of competitive products not inferior to foreign counterparts. Also in 2019, a subsidiary of PJSC Gazprom signed a long-term contract with AO Almaz–Antey Air and Space Defence Corporation for the mass production of subsea production equipment. Pursuant to the contract, required advance payments have been made and one of the corpora- tion’s plants was equipped to launch the production of the equipment. The plant was retrofitted, and the construction of an advanced assembly and testing facility is underway. For more details on PJSC Gazprom’s import substitution initiatives see Gazprom Group’s Sustainability Reports published on an annual basis s t l u s e R e c n a m r o f r e P 129 PJSC Gazprom Annual Report 2019 Financial Performance The Company demonstrated a solid financial position and maintained leverage at a comfortable level in 2019. This was achieved despite the negative impact of external environment factors, including through consistent operational and capital expenditures optimisation and exploring additional revenue sources. PJSC Gazprom’s mid-term financial policy priorities Positive free cash flow generation The Company’s main growth drivers are strategic projects to be launched in 2020–2024, with the capex for these projects spread evenly throughout this period. This approach will ensure the Group’s financial stability even in an adverse commodity and financial market environment. Dividend payments out of free cash flow To meet its new Dividend Policy, the Company intends to expand its free cash flow generation potential by both operational performance enhancement and opex and capex optimisation. The Company has a clear investment project prioritisation system based on strategic importance and performance measures. Key strategic projects and projects securing gas balance in peak periods have the highest financing priority. Financing of other projects is subject to budget constraints. A restructuring of the investment and construction business unit was undertaken in 2019, creating conditions for a transition to a central contractor-based model and wider use of EPC contracts. More efficient project implementation is also driven by broader use of project financing. 130 PJSC Gazprom Annual Report 2019 Financial Performance PJSC Gazprom’s mid-term financial policy priorities (continued) Increasing performance efficiency PJSC Gazprom’s annual budgeting process establishes strict spending limits for the Company and its subsidiaries, while cost optimisation opportunities are explored on an ongoing basis at implementation stage. At the same time, PJSC Gazprom keeps improving the budgeting process of Group companies and strengthening spending control. KPI system implementation in subsidiaries helped discover excess liquidity reserves, cost reduction and net profit increase opportunities. Starting from 2020, the Group has plans to begin reviewing and approving consolidated budgets of its gas and power business sub-holdings, i.e. Gazprom mezhregiongaz Group, Gazprom energoholding Group, Gazprom export Group. The new approach will improve sub-holdings’ business process transparency and operational and investment performance control. A significant positive effect in cost savings is achieved through PJSC Gazprom and Group companies’ annual operational efficiency improvement and cost reduction programmes. Plans for 2020 include optimisation of design- stage project cost estimates, driving cost reduction in procurement, and energy saving and energy efficiency initiatives. Group companies widely use banking support of procurement contract execution, which drives spending efficiency. The Company accumulates sufficient cash, cash equivalents and bank deposits on its balance sheet to guarantee that Gazprom Group fulfils its obligations at all times. A key source of liquidity is centralised cash management across Gazprom Group. PJSC Gazprom continues to develop a centralised real cash pooling system that allows for optimal intra-group liquidity redistribution, reducing external borrowing requirements of Group companies and providing additional income from depositing idle cash. As at 31 December 2019, the cash pooling system had 481 participants, including 41 overseas entities. Intra- group liquidity consolidated in PJSC Gazprom’s master accounts increased by 1.8 times, from RUB 289.7 bn as at 31 December 2018 to RUB 509.7 bn as at 31 December 2019, intra-group loans issued by Gazprom Group entities were RUB 9.9 bn as at 31 December 2019. s t l u s e R e c n a m r o f r e P The Company pursues a conservative debt management policy and intends to maintain the Net debt (including bank deposits)/EBITDA ratio in the comfortable range of 1 to 2, as well as maintain a balanced debt portfolio structure with predominantly long-term debt. Broader use of project financing helps diversify financing sources, maintain a lighter balance sheet and drive investment programme efficiency. The Company is engaged in a systematic effort to optimise the debt portfolio structure, manage repayment schedules and reduce borrowing costs, including through refinancing. Liquidity management Debt management Improving tax administration Gazprom is one of Russia’s major taxpayers. The Company implements a tax monitoring mechanism aimed at increasing transparency of operations of Gazprom Group entities, reducing fiscal load, and managing operational risks and costs. Building a stronger investment case, driving capitalisation The Company aims to further develop investor and shareholder engagement, enable their direct dialog with management, and increase transparency, including through better disclosure and better financial and non-financial reporting. PJSC Gazprom IFRS Consolidated Financial Statements is available on PJSC Gazprom’s website www.gazprom.com 131 PJSC Gazprom Annual Report 2019 Financial Performance Revenue Gazprom Group’s sales revenue (net of VAT, excise tax, and customs duties) amounted to RUB 7,659.6 bn in 2019. It was down year-on-year, primarily driven by lower net sales of gas. A significant part of the Group’s sales revenue is denominated in foreign currencies (mostly in US dollars and euros). RUB 7,659.6 bn PJSC Gazprom’s revenue in 2019 Net sales revenue, RUB bn 2017 2018 2019 Net revenue from gas sales Net revenue from sales of refined products Net revenue from sales of crude oil and gas condensate Net revenue from sales of electricity and heat Net revenue from sales of gas transportation services Other revenues Total Variation analysis of net sales revenue in 2019, RUB bn Net sales revenue in 2018 Change in net revenue from sales of natural gas to far abroad countries Change in net revenue from sales of natural gas to FSU countries Change in net revenue from sales of natural gas in the Russian Federation Retroactive gas price adjustments Change in net revenue from sales of crude oil and gas condensate to far abroad countries Change in net revenue from sales of crude oil and gas condensate to FSU countries Change in net revenue from sales of crude oil and gas condensate in the Russian Federation Change in net revenue from sales of refined products to far abroad countries Change in net revenue from sales of refined products to FSU countries Change in net revenue from sales of refined products in the Russian Federation Change in net revenue from sales of electricity and heat Change in net revenue from sales of gas transportation services Change in other revenues Net sales revenue in 2019 132 2019 Change 2019/2018 2017 3,340.6 1,687.1 539.9 503.8 235.1 239.6 2018 4,303.7 2,179.8 734.9 522.1 225.7 258.0 3,800.7 2,111.2 752.8 518.4 215.3 261.2 6,546.1 8,224.2 7,659.6 −11.7% −3.1% 2.4% −0.7% −4.6% 1.2% −6.9% 8,224.2 −460.8 +7.5 +16.4 −66.1 +17.1 +3.2 −2.4 −11.2 −18.4 −39.0 −3.7 −10.4 +3.2 7,659.6 PJSC Gazprom Annual Report 2019Financial Performance Operating Expenses Gazprom Group’s operating expenses amounted to RUB 6,387.1 bn in 2019. They were up year-on-year, driven by higher staff costs, foreign exchange differences on operating items and depreciation. The change in staff costs was mainly due to the recognition of income from a change in provision for post-employment benefits in 2018 caused by the retirement age increase under the Russian law. The Group’s operating expenses as a percentage of sales increased from 75% in 2018 to 83% in 2019. Gazprom is one of Russia’s major taxpayers. Taxes pay- able by the Group (net of income tax), totalled RUB 1,409.2 bn in 2019, down RUB 89.1 bn year-on-year. They were down year-on-year, predominantly driven by a decrease in the KGP coefficient value in the MET formula for gas and oil price decline. Operating expenses breakdown, RUB bn 2017 2018 2019 Taxes other than income tax Purchased gas and oil Staff costs Depreciation Transit of gas, oil and refined products Foreign exchange rate differences on operating items Other Total Breakdown of taxes other than on income, RUB bn MET Property tax Other taxes Total 2017 2018 2019 133 RUB 6,387.1bn PJSC Gazprom’s operating expenses in 2019 s t l u s e R e c n a m r o f r e P 2017 1,246.1 1,236.2 682.1 613.2 593.3 −14.5 1,340.7 5,697.1 2017 915.2 154.6 176.3 1,246.1 2018 1,498.3 1,468.9 600.8 648.0 650.8 −28.0 1,342.4 6 181.2 2018 1,163.9 162.9 171.5 1,498.3 2019 Change 2019/2018 1,409.2 1,403.6 749.7 715.2 665.6 78.3 1,365.5 6 387.1 −5.9% −4.4% 24.8% 10.4% 2.3% X 1.7% 3.3% 2019 Change 2019/2018 1,115.0 148.6 145.6 1,409.2 −4.2% −8.8% −15.1% −5.9% PJSC Gazprom Annual Report 2019 Financial Performance Profit In 2019, Gazprom Group’s operating profit amounted to RUB 1,119.9 bn, adjusted EBITDA was RUB 1,859.7 bn. Both of them were down year-on-year, primarily due to lower global oil and gas prices, as well as lower gas sales to European far abroad countries. Gazprom Group’s adjusted EBITDA margin went down to 24% in 2019. Income tax in the reporting year was RUB 357.5 bn. RUB 1,859.7bn PJSC Gazprom’s adjusted EBITDA for 2019 Effective tax rate increased to 22.0% (2018: 17.5%). Profit, RUB bn The Group’s profit attributable to the owners of PJSC Gazprom totalled RUB 1,202.9 bn in 2019. It was down year-on-year, mostly due to lower operating profit, partly offset by foreign exchange gains due to the strengthening of the rouble in 2019. The profit margin attributable to the owners of PJSC Gazprom was 16% in 2019. 2017 2018 2019 Operating profit Profit margin, % Adjusted EBITDA margin 2017 2018 2019 2017 2018 2019 Margin on the profit for the year attributable to the owners of PJSC Gazprom 22 32 24 11 18 16 Change 2019/2018 Adjusted EBITDA 2017 2018 2019 Change 2019/2018 2017 2018 2019 Change 2019/2018 Profit for the year attributable to the owners of PJSC Gazprom Variation analysis of profit attributable to the owners of PJSC Gazprom in 2019, RUB bn Profit for 2018 attributable to the owners of PJSC Gazprom Change in sales revenue Change in operating expenses Net gain (loss) from commodity trading activity at high-liquidity European trading hubs Change in net financial income (expense) Change in share of profit of associates and joint ventures Change in income tax Other factors Profit for 2019 attributable to the owners of PJSC Gazprom 134 871.4 1,930.0 1,119.9 −42.0% 1,467.7 2,599.3 1,859.7 −28.5% 714.3 1,456.3 1,202.9 −17.4% 1,456.3 −564.6 −205.9 −43.0 +610.0 −25.4 −33.9 +9.4 1,202.9 PJSC Gazprom Annual Report 2019Financial Performance Capital Expenditures Gazprom Group’s capital expenditures amounted to RUB 1,818.7 bn in 2019. Transportation, Gas Production and Refining segments account for the bulk of the Group’s capital expenditures. The high share of the Transportation segment in the total capital expenditures is due to the concurrent implementation of a number of major gas transportation projects. With Gazprom’s capex mostly denominated in Russian roubles, its investment activities are less exposed to external factors. Total actual expenditure under the Group’s Investment Programme for 2020 (covering gas, oil, electricity generating, heat generating, and other assets) and similar plans of the Group was RUB 1,610.0 bn. RUB 1,818.7bn Gazprom Group’s capital expenditures in 2019 For more details on Gazprom Group’s key capital expenditures in 2019 and investment priorities for 2020 see the Capex Programmes section Capital expenditures, RUB bn 2017 2018 2019 Gas transportation Processing/refining Gas production Oil and gas condensate production Electricity and heat generation and sales Gas distribution Gas storage Other segments Total s t l u s e R e c n a m r o f r e P 2019 Change 2019/2018 464.2 437.8 360.2 316.0 79.0 25.8 14.3 121.4 −27.5% 41.5% 16.9% 22.5% 8.4% −34.0% −26.3% −18.6% 1.3% 2017 498.6 225.2 216.5 330.4 58.1 51.7 37.7 86.4 2018 640.1 309.4 308.0 257.9 72.9 39.1 19.4 149.1 1,504.6 1,795.9 1,818.7 Note. Capital expenditures are shown as reported in the segment information of PJSC Gazprom’s IFRS consolidated financial statements. 135 PJSC Gazprom Annual Report 2019 Financial Performance Cash and Free Cash Flow Debt Management According to Gazprom Group’s financial policy, capital expen- ditures are covered by the operating cash flow. Net cash from operating activities totalled RUB 1,709.4 bn As at 31 December 2019, Gazprom Group’s total debt was RUB 3,863.9 bn, while its net debt amounted to RUB 3,167.8 bn. The weighted average interest rate decreased to 4.8% as in 2019. It was up year-on-year, mostly driven by higher cash driven by decrease in short-term deposits in working capital. Net cash from operating activities remained lower than at 31 December 2019 (5.1% as at 31 December 2018). As at 31 December 2019, 80% of debt matured in one year or later. In 2019, the Group’s Net debt (adjusted)/adjusted cash capital expenditures in 2019 as the Company was passing the peak of its investment cycle. PJSC Gazprom is developing the Group’s centralised cash flow and liquidity management system. 481 participants in Gazprom Group’s real cash pooling system as at 31 December 2019 EBITDA ratio stood at a comfortable level of 1.3. 1.3 Net debt (adjusted)/adjusted EBITDA in 2019 PJSC Gazprom has investment-grade credit ratings from Standard & Poor’s, Fitch Ratings and Moody’s credit rating agencies. The credit rating from Moody’s is one notch above the sovereign rating of the Russian Federation. These ratings are a credible external recognition of the Group’s high credit- worthiness and financial stability. Gazprom Group companies are reliable borrowers in the domestic and international capital markets, able to raise funds on favourable terms. 1,187.0 1,617.4 1,709.4 Leverage as at 31 December 5.7% Net debt/adjusted EBITDA 2017 2018 2019 2017 2018 2019 Net debt (adjusted)/adjusted EBITDA 1.6 1.2 1.7 1.4 0.9 1.3 Note. Calculated with net debt and adjusted EBITDA denominated in Russian roubles. 1,405.8 1,639.5 1,775.9 8.3% −218.8 −22.1 −66.5 Cash and free cash flow, RUB bn Net cash from operating activities 2017 2018 2019 Change 2019/2018 Cash capital expenditures 2017 2018 2019 Change 2019/2018 Free cash flow 2017 2018 2019 136 PJSC Gazprom Annual Report 2019Financial Performance Total debt as at 31 December, RUB bn 2017 2018 2019 Net debt Cash and cash equivalents Total Net debt as at 31 December, RUB bn 2017 2018 2019 2017 2,397.5 869.0 3,266.5 2018 3,014.4 849.4 3,863.8 2019 Change 2019/2018 3,167.8 696.1 3,863.9 5.1% −18.0% 0.0% Net debt (adjusted)* Deposits within current and non-current assets Total 2017 2,068.0 329.5 2,397.5 2018 2,216.8 797.6 3,014.4 2019 Change 2019/2018 2,491.4 676.4 3,167.8 12.4% −15.2% 5.1% * Defined in the Dividend Policy of PJSC Gazprom approved by PJSC Gazprom’s Board of Directors in 2019 (Resolution No. 3363 dated 24 December 2019) as the sum total of the funds borrowed less cash and cash equivalents (including deposits within other current and non-current assets). Gazprom successfully raises capital on international debt markets, making informed decisions when selecting its sources of financing and prudently using the borrowed funds. The Group borrows mainly in foreign currency: ca. 21% of its debt is denominated in US dollars and 48% in euros. This is due to a number of factors including lower interest rates on overseas markets and their larger capacity as compared to rouble-denominated instruments. Considering the gradual increase of interest rates in US dollars in 2019 and persisting negative interest rates in euros, the share of euro-denomi- nated borrowings in the Group’s debt portfolio has been rising. On top of that, Gazprom Group’s debt currency profile reflects its prevailing foreign currency revenues, creating a natural hedge for debt servicing: if the Russian rouble depreciates against the US dollar/euro, higher payments on external debt in the rouble equivalent will be offset by the growing rouble equivalent of foreign currency revenues. Gazprom Group’s cost of debt, % Weighted average fixed interest rate Weighted average floating interest rate Weighted average interest rate 2017 2018 2019 6.3 3.6 5.6 6.0 2.9 5.1 5.8 3.3 4.8 Rouble-denominated borrowings in the debt portfolios of Gazprom Group’s subsidiaries account for nearly 24% of the Group’s total debt. The Group’s debt portfolio is well-balanced in terms of maturity, with borrowings maturing in more than five years account for over a quarter of the portfolio. For details on bond issues outstanding as at 31 December 2019 see the Share Capital and Securities Market section Debt maturities as at 31 December 2019, % 2017 2018 2019 137 Less than 1 year (inclusive) 1–2 years (inclusive) 2–5 years (inclusive) Over 5 years 2017 2018 2019 27 15 33 25 15 16 43 26 20 12 42 26 s t l u s e R e c n a m r o f r e P PJSC Gazprom Annual Report 2019 Environmental and Social Responsibility 138 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019Personnel 140 Occupational Safety 145 Environmental Protection 150 Energy Saving and Energy Efficiency 155 Social Projects 158 139 y t i l i i b s n o p s e R PJSC Gazprom Annual Report 2019Personnel The most important strategic tool of Gazprom is its personnel — a professional workforce aiming for the highest performance. The key drivers of the Company’s consistently high profile as an employer include its responsible social policy, ample opportunities for fulfilling potential and upgrading skills. PJSC Gazprom strictly complies with the requirements of Russian labour laws. The Company’s local regulations are aligned with Conventions of the International Labour Organisation and international standards regulating employee pay, hours, working conditions, remuneration for work, social security, and holidays with pay. Personnel Structure As at 31 December 2019, the total headcount of the Group was 473.8 thousand employees, including 26.8 thousand employees in entities registered abroad. Higher headcount at Gazprom Group in 2019 was due to the implementation of strategic gas production and trans- portation projects and the growth of the Group’s operations in oil and power generation businesses. Total headcount of Gazprom Group as at 31 December, thousand people 2017 2018 2019 Change 2019/2018 469.6 466.1 473.8 1.7% Note. Excluding entities in which Gazprom has investments classified as joint operations. 0.65 % the share of Gazprom Group personnel in the total number of employed Russian citizens 140 PJSC Gazprom Annual Report 2019Personnel Gazprom Group’s workforce in Russia breakdown, as at 31 December 2019, thousand people .* . . . . . . . . * Employees involved in projects to develop hydrocarbon deposits on the Russian continental shelf. Gazprom Group’s workforce by category as at 31 December 2019, thousand people Gender balance of Gazprom Group’s workforce as at 31 December 2019, thousand people Blue collar White collar Managers Total Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. Gazprom Group’s workforce by entity as at 31 December 2019, thousand people PJSC Gazprom (including branches and representative offi ces) Major subsidiaries of Gazprom Group engaged in gas production, transportation, underground storage and processing Gazprom neftekhim Salavat Gazprom Neft Gazprom energoholding Other subsidiaries Total Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. 249.4 156.4 68.0 473.8 27.1 234.9 14.7 72.7 45.7 78.7 473.8 Men Women Total Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. Age balance of Gazprom Group’s workforce as at 31 December 2019, thousand people Under 30 years 30 to 40 years 40 to 50 years 50 years and older Total Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. 337.1 136.7 473.8 63.5 152.9 141.5 115.9 473.8 For more details on Gazprom Group’s personnel see Gazprom in Figures 2015–2019 Factbook 141 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Personnel Employee turnover rate across Gazprom Group entities, % Collaboration with educational organisations in 2019 2017 2018 2019 4.7 1.3 5.6 2.1 5.8 2.4 Gazprom Group including major subsidiaries of Gazprom Group engaged in gas production, transportation, underground storage and processing Notes: 1. The following grounds for resignation are taken into account in calculating the employee turnover rate: clauses 3, 6, 7, 9, Article 77 of the Labour Code of the Russian Federation. Only clause 3, Article 77 of the Labour Code of the Russian Federation was taken into account in calculating the employee turnover rate before 2018. 2. Excluding entities in which Gazprom has investments classified as joint operations. — 24 schools, located in 5 federal districts of the Russian Federation, — participated in the Gazprom Classes project* 13 anchor universities cooperated with PJSC Gazprom and its subsidiaries* — 24 anchor departments of PJSC Gazprom and its subsidiaries were — running in universities* 10,081 students of higher education institutions has internships at Gazprom subsidiaries — 2,051 target students of PJSC Gazprom and its subsidiaries studied at universities* 15 job fairs were held in educational organisations — — PJSC Gazprom’s Day was held at Gubkin Russian State Oil and Gas University * As at 31 December 2019. Gazprom Group’s workforce profile as at 31 December 2019 Employees with a higher education degree, % Graduates hired by Gazprom Group entities University and vocational school graduates hired by Gazprom Group companies, people 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 Candidates of Sciences Doctors of Sciences Mean age, years 2017 2018 2019 2017 2018 2019 Share in the total number of employees hired by Gazprom Group companies, % 3,238 2,931 2,896 6.0 5.0 5.0 In order to reduce the induction period for young talent and enhance their skills in line with chosen career paths, subsidiaries run dedicated development programmes, and PJSC Gazprom runs a three-stage post-graduate training programme, the Young Specialist Training School. 49.4 51.1 52.0 2,654 2,531 2,522 141 172 159 41.6 41.3 41.4 Note. Excluding entities in which Gazprom has investments classified as joint operations. Young talent management in 2019 Young Talent Management To develop a promising talent pool of the most capable stu- dents motivated to fulfill their professional potential, Gazprom Group companies consistently collaborate with schools and universities. The Group actively engages with educational organisations in targeted training of specialists. In order to build a quality educational process Gazprom Group companies organise onsite practice for research and teaching staff, assist educational organisations in developing and aligning educational programmes, enhancing laboratory and training facilities, organising internships for students and engaging Gazprom Group specialists in teaching activities. — 194 people were trained at Gazprom’s Young Specialist Training School workshops — More than 200 employees from 51 subsidiaries of PJSC Gazprom, as well as students from PJSC Gazprom’s partner universities attended the 13th All-Russian Conference of Young Scientists, Specialists and Students New Technologies in the Gas Industry (gas, oil, energy) hosted by Gubkin Russian State Oil and Gas University — Employees representing 36 subsidiaries of PJSC Gazprom took part in PJSC Gazprom’s Best Young Employee contest In order to involve young people in solving the industry’s R&D challenges, subsidiaries run regular workshops and conferences for young scientists and specialists. 142 PJSC Gazprom Annual Report 2019Personnel Employee Training and Development To facilitate the upgrading of professional skills, the Company has in place PJSC Gazprom’s Continuous Vocational Education and Training System, which ensures that Gazprom’s employees are trained throughout their professional life under corporate training programmes. The Continuous Vocational Education and Training System includes mandatory (for admission to perform works at hazardous production facilities of PJSC Gazprom), special- purpose (proactive) and regular (skill upgrading) trainings. Training is conducted by the Company’s educational organisations, PJSC Gazprom subsidiaries’ work-study centres, as well as at leading Russian universities. Training is also organised at production facilities and training centres of foreign companies partnering with PJSC Gazprom. Number of Gazprom Group employees trained under career enhancement and retraining programmes, thousand people 2017 2018 2019 Change 2019/2018 342.9 381.1 456.2 19.7% A considerable increase in the number of employees who were trained under career enhancement and retraining programmes was driven by active development and implementation of distance learning solutions. The use of these platforms helps ensure prompt delivery of relevant information to employees, conduct on-the-job training and streamline training costs. Over180 thousand employees were trained in 2019 using distance learning solutions Gazprom runs targeted employee training programmes tailored for specifi c activities, such as development of hydrocarbon fi elds on the continental shelf, GTS dispatch control, LNG production, use of innovative process equipment, and a wide range of talent pool building programmes. Targeted training programmes for Gazprom Group employees developed in 2019 — Professional Risk Management in the Oil and Gas Business — Effective Management Methods, a career enhancement programme — A set of career enhancement programmes on compliance with the Code of Corporate Ethics of PJSC Gazprom, including Corporate Ethics at PJSC Gazprom, an online training course — Gazprom MBA — Management of Innovative Development Programmes and Projects, a retraining programme — Career enhancement programmes on preventing and combating corruption In 2019, for the fi rst time ever, the Company implemented an Oil and Gas Trading full-year eight-module retraining programme, a unique joint programme run by Gubkin Russian State Oil and Gas University and Gazprom Corporate Institute (piloted 24 graduates). Under the new Professional Risk Management in the Oil and Gas Business — Effective Manage- ment Methods programme, two workshops were conducted in 2019, attended by 26 employees of Gazprom Group entities. Remuneration and Social Security The Company has in place the Remuneration Management Policy for Employees of PJSC Gazprom Entities, which sets out uniform corporate remuneration standards for Gazprom Group employees. Its purpose is to provide a framework for attracting and retaining people with required skills, and motivate employees to perform as expected. Key objectives of the Remuneration Management Policy for Employees of PJSC Gazprom Entities — Adopting unifi ed corporate employee remuneration standards — Maintaining real pay levels refl ecting the consumer price index growth — Ensuring competitive pay levels for employees of PJSC Gazprom entities based on market wage rate assessment — Establishing an average monthly pay level for employees of Gazprom Group entities based on uniform corporate remuneration standards — Monitoring application of remuneration systems based on the uniform corporate reporting on HR costs Current remuneration schemes link fi xed salaries and pay rates to qualifi cations and business skills, and also provide for monthly performance bonuses, premiums and additional allowances for work scope and conditions, as well as ad-hoc and annual bonuses. 143 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Personnel Staff costs of Gazprom Group, RUB bn 2017 2018 2019 Change 2019/2018 682.1 600.8 749.7 24.8% To maintain the real value of pay in accordance with the General Collective Bargaining Agreement of PJSC Gazprom and its subsidiaries, the salaries and wages of employees at entities included in the budgeting system of PJSC Gazprom and located in Russia were increased by 4.6% on 1 January 2019. Increase of employee fixed salaries and pay rates in PJSC Gazprom and its budgeted subsidiaries and entities in Russia, % From 1 January 2017 From 1 January 2018 From 1 January 2019 5.0 3.7 4.6 Moreover, the pay rates of workers whose pay is based on the Unified Wage Scale were increased by 15% on 1 October 2019 to maintain competitive salaries at PJSC Gazprom sub- sidiaries. The interests of Gazprom Group employees are repre- sented by Gazprom’s Interregional Trade Union, which is part of the Russian Oil, Gas and Construction Workers’ Union. The Company’s social policy provides it with a competitive advantage in the employment market, seeks to additionally motivate employees for strong and sustainable performance, and aims to form stable professional teams. The mechanism of social partnership in the form of a dialogue between employees and employers on social and labour relations is central to implementing our social policy, with its key aspects set out in the General Collective Bargaining Agreement of PJSC Gazprom and its entities and in the collective bargaining agreements of its subsidiaries. Gazprom’s social policy is implemented mainly through long-term programmes which facilitate attracting and retaining of duly qualified and experienced employees. To better incentivise and drive improvements in employee development, promote transfer of skills and knowledge, and cultural exchanges, Gazprom holds regular vocational skills competitions. Starting from 2018, vocational skills competitions are held as part of Labour (vocational skills) Festivals in even-numbered years. Gazprom Group’s social expenses, RUB bn 2017 2018 2019 Change 2019/2018 34.5 42.8 45.1 5.4% For more details on employee training, the incentive scheme and social benefits see Gazprom Group’s Sustainability Reports published on an annual basis Key aspects of employees’ social security Social benefits Social benefits provide for necessary social security of both all the Company employees and certain employee groups (employees of subsidiaries located in regions of the Far North and equated localities, young talent, families with many children, employees supporting dependant children with disabilities, etc.) Voluntary medical insurance Voluntary medical insurance programmes provide for comprehensive medical services for employees, retirees and their families (including rehabilitation treatment) by leading healthcare providers, including medical and preventive treatment facilities of Gazprom Group Housing programme Private pension plans The Company has in place a corporate housing programme funded by both employees and the employer through bank mortgage lending facilities (using a co-financing approach). Operational needs based participation in the programme allows the Company to retain key employees for longer periods In accordance with the Long-Term Development Strategy of the Pension System in the Russian Federation, the Company provides a private pension arrangement, which is part of the employee long-term incentive scheme and provides for post-employment social benefits. The arrangement is run through Non-State Pension Fund GAZFOND 144 PJSC Gazprom Annual Report 2019Occupational Safety Gazprom puts the health and safety of its employees at the top of its agenda by consistently improving its safety management system and monitoring risks and challenges to its stable operations. In its activities, the Company is guided by its Occupational Health, Industrial, Fire and Traffi c Safety Policy. Unifi ed Occupational Health and Safety Management System Objectives relating to occupational health, industrial, fi re and traffi c safety are to: — create safe working conditions and protect the health and safety — — of employees reduce the risks of accidents and incidents at hazardous industrial facilities reduce the risks of traffi c accidents resulting from operating activities — ensure fi re safety For more details on commitments relating to occupational health, industrial, fi re and traffi c safety set out in PJSC Gazprom’s Occupational Health, Industrial, Fire and Traffi c Safety Policy see PJSC Gazprom’s website www.gazprom.com The Company has in place a Unifi ed Occupational Health and Safety Management System (UOHSMS). It is a part of PJSC Gazprom’s integrated management system developed and introduced to manage OHS risks and meet the Company’s objectives and commitments under its Occupational Health, Industrial, Fire and Traffi c Safety Policy. In 2019, the list of the Company’s industrial safety goals was supplemented with efforts to reduce the risk of traffi c accidents resulting from operating activities The scope of the UOHSMS covers PJSC Gazprom, its major gas exploration, production, processing, transportation, underground storage and energy subsidiaries, as well as subsidiaries supporting the operation of the Russian UGSS, with a total headcount of around 319 thousand employees. 145 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Occupational Safety UOHSMS improvements in 2019 — Road traffic safety obligations were revised and included into PJSC Gazprom’s Occupational Health, Industrial, Fire and Traffic Safety Policy — Procedure of occupational safety risk assessment integrated into the risk management and internal control system of PJSC Gazprom (STO Gazprom 18000.1-002-2020 “Unified Occupational Health and Safety Management System. Hazard Identification and Risk Management for Occupational Safety”) was developed — Procedure for setting goals, developing programmes and activity plans in occupational safety, and monitoring their implementation (STO Gazprom 18000.1-003-2020 “Unified Occupational Health and Safety Management System. Setting Goals, Developing Programmes and Monitoring Programme Implementation”), was updated — Procedure for organising and conducting audits of the Unified Occupational Health and Safety Management System in PJSC Gazprom was updated (STO Gazprom 18000.3-004-2020 “Unified Occupational Health and Safety Management System. Organisation and Conduct of Audits”) was updated — Procedure for identification of the root causes of occupational safety incidents and their analysis in order to develop and implement measures to prevent such incidents (STO Gazprom 18000.4-008-2019 “Unified Occupational Health and Safety Management System. Root Cause Analysis. Procedure for Incident Identification and Development of Preventive Measures”) was developed — Occupational safety leadership workshops were organised for the executive management of PJSC Gazprom and its subsidiaries — Corporate requirements for behavioural safety audits (R Gazprom 18000.3-009-2019 ‘Unified Occupational Health and Safety Management System. Behavioural Audit. Guidelines”) were established — Operational control over compliance with industrial safety requirements when operating gas and gas condensate processing facilities, gas distribution and consumer networks, oil production, transportation and processing facilities, as well as over compliance with requirements when operating power generation facilities was enhanced In 2014, the UOHSMS was certified to OHSAS 18001:2007 and is annually audited for compliance with this international standard by relevant organisations while also being expanded to cover more subsidiaries of PJSC Gazprom. The UOHSMS is planned for certification to ISO 45001:2018 in 2020 Number of PJSC Gazprom’s UOHSMS certified subsidiaries as at 31 December 2017 2018 2019 Change 2019/2018 Average headcount of PJSC Gazprom’s UOHSMS certified subsidiaries, thousand people 2017 2018 2019 Change 2019/2018 51 56 58 3.6% 266.4 275.3 275.3 – In the reporting year, corporate requirements to the UOHSMS were reviewed to comply with ISO 45001:2018. The UOHSMS is planned for certification to ISO 45001:2018 in 2020. Outcomes of OHS Activities Gazprom makes consistent efforts to prevent injuries, occu- pational diseases, accidents, incidents and fires. Based on the identified critical and material risks, PJSC Gazprom develops and approves its industrial safety targets for the year, and develops programmes to achieve the annual targets while all its subsidiaries and entities develop programmes to improve labour conditions and action plans to ensure occupational safety at hazardous industrial facilities. Pre-FEED and design documents are reviewed by internal experts for compliance with statutory regulations and PJSC Gazprom’s requirements to occupational safety. Compliance with the Company’s OHS standards and regulations by suppliers and contractors operating at the facilities of PJSC Gazprom and its subsidiaries is an essential requirement of occupational safety. In its activities, the Company engages suppliers and contractors who share the principles set out in PJSC Gazprom’s Occupational Health, Industrial, Fire and Traffic Safety Policy. 146 PJSC Gazprom Annual Report 2019 Occupational Safety Industrial safety incidents at hazardous production facilities of entities covered by the UOHSMS Number of injuries and fatalities resulting from accidents and injury rates in entities covered by the UOHSMS 2017 2018 2019 Change 2019/2018 Injuries 26 16 10 −37.5% 2017 2018 2019 Fires at facilities of entities covered by the UOHSMS 2017 2018 2019 Change 2019/2018 Accidents across entities covered by the UOHSMS 2017 2018 2019 Change 2019/2018 4 3 2 −33.3% 49 63 37 −41.3% 2019 saw a signifi cant reduction in the number of injuries caused by accidents and the number of man-made incidents and fi res, as compared to previous years. However, the number of accidents with fatalities increased to six (three in 2018) with seven employee deaths, including four employees at gas and condensate processing facilities. OOO Gazprom pererabotka conducted a number of investigations to identify the root causes, followed by the development of technical, organisational, and HR improvement measures. For more details on the Unifi ed Occupational Health and Safety Management System see PJSC Gazprom’s website www.gazprom.com Change 2019/2018 Fatalities 2017 2018 2019 Change 2019/2018 Lost time injury frequency rate (LTIFR)* 2017 2018 2019 Change 2019/2018 Fatal accident rate (FAR)** 2017 2018 2019 Change 2019/2018 61 89 47 −47.2% 6 3 7 133.3% 0.11 0.17 0.09 −47.1% 1.17 0.57 1.35 136.8% y t i l i i b s n o p s e R * Lost time injuries/total hours worked by all employees × 1,000,000. ** Fatalities/total hours worked by all employees × 100,000,000. A plan that included organisational and technical measures to ensure fi re safety was implemented in the reporting period. The plan consisted of 53 measures and resulted from a root cause analysis of, and contributing factors to, fi res that happened in the previous periods. The Company continuously improves the performance of professional emergency response services and fi re safety units that maintain and protect PJSC Gazprom’s facilities. Occupational Health and Safety at Gazprom Group Entities Outside the UOHSMS Gazprom Group has in place the Occupational Health and Safety Management System across its oil, power generation and petrochemical businesses. 147 PJSC Gazprom Annual Report 2019 Occupational Safety Accidents across Gazprom Group entities outside the UOHSMS Gazprom Neft Lost time injury frequency rate (LTIFR) across Gazprom Group entities outside the UOHSMS Gazprom Neft 0.33 0.26 0.26 – 0.25 0.28 0.12 −57.1% 0.14 – 0.13 0.92 0.89 1.56 75.3% 1.57 – – 6.97 – – 2017 2018 2019 36 * 29 33 2017 2018 2019 Change 2019/2018 Gazprom energoholding 13.8% Change 2019/2018 Gazprom energoholding 2017 2018 2019 16 18 8 2017 2018 2019 Change 2019/2018 −55.6% Change 2019/2018 Gazprom neftekhim Salavat Gazprom neftekhim Salavat 2017 2018 2019 2 – 2 2017 2018 2019 * Number of people injured in accidents across Gazprom Neft in 2018 has been adjusted from the number published in the 2018 Annual Report due to the fact that 6 accidents were found not to be production-related as a result of their investigation. Note. Lost time injuries/total hours worked by all employees × 1,000,000. Number of people injured in accidents across Gazprom Group entities outside the UOHSMS Fatal accident rate (FAR) across Gazprom Group entities outside the UOHSMS Gazprom Neft Gazprom Neft 2017 2018 2019 36 29 34 2017 2018 2019 Change 2019/2018 Gazprom energoholding 17.2% Change 2019/2018 Gazprom energoholding 16 18 8 −55.6% 2 – 2 2017 2018 2019 2017 2018 2019 Gazprom neftekhim Salavat Note. Fatalities/total hours worked by all employees × 100,000,000. 2017 2018 2019 Change 2019/2018 Gazprom neftekhim Salavat 2017 2018 2019 148 PJSC Gazprom Annual Report 2019Occupational Safety Occupational health and safety management structure at Gazprom Group entities outside the UOHSMS Subsidiary Occupational health and safety management Governance bodies and responsibilities Gazprom Neft Vertically integrated industrial and environmental safety, occupational safety, and civil protection management system — Occupational Safety Department (coordinates activities at the corporate centre level) — Expert Council on Occupational Safety (engages production functions in occupational safety issues) Certifi cation ISO 14001 Gazprom energoholding Occupational health and safety management in line with the requirements of Russian laws and applicable statutory regulations Gazprom neftekhim Salavat Occupational Health and Safety Management System — Managing directors of Gazprom – energoholding Group companies (coordinate activities) — Chief engineers of Gazprom energoholding Group companies and their branches, structural subdivisions (responsible for occupational safety) — Deputy General Director — Chief Engineer, Environmental, Health and Safety Department (coordinates activities) — Division managers (responsible for occupational safety) OHSAS 18001:2007 / ISO 45001:2018, GOST 12.0.230-2007 For more details on industrial safety across Gazprom Group see Gazprom Group’s Sustainability Reports published on an annual basis 149 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Environmental Protection Gazprom sets a good example as environmentally conscious company efficiently using green technologies throughout the process chain. While steadily developing, the Group has the lowest carbon footprint across the world’s largest oil and gas companies. Gazprom’s Environmental Policy is based on the aspiration to maintain favorable environment for the benefit of present and future generations. Environmental responsibility is a key element in Gazprom Group’s sustainable development strategy, based on the corporate Environmental Policy (approved by Resolution of the Company’s Management Committee No. 21 dated 21 May 2015) and effective environmental management system. Environmental Policy The Environmental Policy of PJSC Gazprom reflects current trends in environmental protection, energy efficiency and climate impact mitigation. It defines obligations and mechanisms of following these trends, such as: ensuring environmental security, including the development of hydro- carbon fields on the continental shelf and in the Arctic zone of the Russian Federation; mitigating environmental risks, including the impact on particularly vulnerable natural sites and areas of high conservation value. PJSC Gazprom’s Environmental Policy was recommended by the Board of Directors for adoption across Gazprom Group entities. To reduce its environmental impact and maintain its competi- tive edge in the global market, Gazprom pursues a targeted policy of reducing greenhouse gas (GHG) emissions. The Company implements the Programme for Expansion of Gas Infrastructure in Russian Regions and consistently works on developing NGV fuel markets, as well as on reducing its carbon footprint. The Environmental Policy is available on PJSC Gazprom’s website www.gazprom.com 150 PJSC Gazprom Annual Report 2019Environmental Protection Gazprom Group’s efforts to reduce its carbon footprint — The Corporate GHG Emissions Management System has been Recognition of Gazprom Group’s environmental performance by stakeholders implemented — Pipeline gas supplies via new routes (Nord Stream, TurkStream) have the lowest carbon footprint among the existing routes of natural gas supplies to Europe — Since the trend towards low-carbon energy sources has strengthened the role of hydrogen in the energy sector, PJSC Gazprom is running hydrogen projects to demonstrate how natural gas can be used in low-carbon power generation, such as production and use of methane-hydrogen mixtures for own energy needs and development of innovative technologies using natural gas to produce CO2-free hydrogen — Gazprom Group supports the use of alternative energy sources in fi nancially and technically challenging circumstances, particularly in remote or isolated areas with poor access to technology. Gazprom Group uses renewable energy sources and secondary energy resources to generate power. In 2019 Gazprom Group facilities used 2,358 generating units based on renewables and secondary energy resources, such as hydro power turbines, turboexpanders, thermal power generators, solar modules and panels, wind and solar generators. The total electricity produced by the generating units was 11.7 billion kWh — Gazprom continued conversion of own equipment to natural gas. By the end of 2019, the number of NGVs in the Gazprom Group vehicle fl eet suitable for conversion to natural gas reached 55% PJSC Gazprom’s climate policy and strategy on management of GHG emissions and reduction of man-made impact on the environment meets the requirements of the Russian Federation for energy effi ciency, energy saving and environ- mental protection. PJSC Gazprom participates in international environ- mental initiatives and ratings, living up to its environmental commitment to the international community. In particular, PJSC Gazprom has been a voluntary partner within the Guiding Principles on Reducing Methane Emissions across the Natural Gas Value Chain since 2018. Along with PJSC Gazprom, the project has found support of 21 major international energy companies. Since 2018, PJSC Gazprom has been conducting independent annual audits (certifi cations) of corporate reporting on GHG emissions Participation of PJSC Gazprom in the international Carbon Disclosure Project (CDP) on GHG emissions disclosure is an important part the Company’s efforts to improve transparency of its activities and a factor driving its investment case. — According to the CDP’s international rating, PJSC Gazprom has been a top player in the energy sector of the Russian investment partnership rating for eight years — a strong position refl ecting the effectiveness of the corporate climate policy In 2019, PJSC Gazprom became a leader in the Russian Union of Industrialists and Entrepreneurs’ Transparency and Responsibility, and Sustainable Development Vector sustainability indices — Rating results are used by the Company to improve its public reporting, corporate responsibility and sustainability. For more details on the Corporate Climate Policy, methane emissions and the carbon footprint of natural gas supplies see Gazprom Group’s Sustainability Reports and PJSC Gazprom’s Environmental Reports published on an annual basis Environmental Management System The Environmental Management System (EMS) is a key tool to implement the Company’s Environmental Policy. The EMS covers PJSC Gazprom’s business units, the Environmental Inspection Service, and 34 wholly-owned subsidiaries engaged in core activities: gas and condensate exploration, production, transportation, storage, and processing, or capital project management. In 2019, PJSC Gazprom’s EMS underwent an independent recertifi cation audit, receiving a certifi cate of compliance with ISO 14001:2015, valid until December 2020 Corporate Environmental Targets are set and environmental activities are grouped into focused programmes within PJSC Gazprom’s EMS and based on an annually updated list of signifi cant environmental aspects. The Company’s Corporate Environmental Targets are set for three-year periods. In 2019, PJSC Gazprom met all its Corporate Environmental Targets for 2017–2019. 151 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Environmental Protection Achievement of PJSC Gazprom’s corporate environmental targets in 2019 № Corporate Environmental Target 1 2 3 4 5 6 Reduction of methane emissions (when making gas transportation system repairs) Reduction of specific emissions of nitrogen oxides Reduction of waste and effluent water discharge into surface water bodies Reduction of landfill share Reduction of above-limit impact charges as an integrated negative environmental impact indicator Reduction of specific fuel & energy consumption for own operational needs Progress against the target (vs the 2014 baseline) Down 13.1% Down 5.0% Down 28.2% Down 52.9% Down 7.5% Down 0.4% In order to further improve performance, PJSC Gazprom’s Corporate Environmental Targets for 2020–2022 were approved in 2019, with the 2018 indicators adopted as a new baseline. PJSC Gazprom’s Integrated Environmental Programme for 2020–2024 was developed and approved in the reporting year in order to implement measures aimed at achieving the Corporate Environmental Targets. The decrease in wastewater discharge into surface water bodies across Gazprom Group is attributed to the transfer of treatment facilities by the Troitskaya GRES, a branch of PAO OGK-2, to the books of the Troitsk Administration. The share of clean and treated as per standards wastewater in the total volume discharged into surface water bodies was 97.3%. The Gazprom Group companies not covered by PJSC Gazprom’s EMS also have in place their own effective, business-specific environmental management systems. The decrease in waste generation was due to lower Class 5 (mostly bottom ash) waste levels at Gazprom energo- holding’s facilities due to the fuel mix shift to natural gas. 100 % of Gazprom Group subsidiaries and entities covered by environmental reporting have adopted the greenhouse gas stocktaking system The area of land disturbed by construction was smaller in the reporting year due to the completion of construction by OOO Gazprom dobycha Urengoy and by OOO Gazprom dobycha Nadym. At the same time the area of rehabilitated land increased year-on-year. Supported by rehabilitation plans, these activities will continue into 2020. For more details on the environmental management systems in the Group companies see PJSC Gazprom’s Environmental Report or information on the companies’ official websites Environmental Performance and Environmental Protection Costs The highest reduction of air pollutant emissions was registered for sulphur dioxide due to replacement of coal and fuel oil with natural gas in the fuel mix of Gazprom energoholding. Reduction of specific GHG emissions in the gas business Implementation of the Roadmap for the GHG Management System at Gazprom Group Companies until 2020 and Looking Forward to 2030 helped reduce specific GHG emissions in the gas business according to plan: from 0.275 tonnes of CO2 equivalent per toe of products sold in 2014 to 0.259 tonnes of CO2 equivalent per toe of products sold in 2019. Key Roadmap activities included reduction of fuel gas consumption, prevention of gas venting when making trunk gas pipeline repairs, and reduction of methane emissions in production processes. 152 PJSC Gazprom Annual Report 2019Environmental Protection Gazprom Group’s environmental performance in Russia Air pollutant emissions, thousand tonnes carbon oxide nitrogen oxides sulphur dioxide hydrocarbons (including methane) GHG emissions, mm tonnes of CO2 equivalent Wastewater discharge into surface water bodies, mmcm including clean and treated as per standards Waste generation, thousand tonnes Area of land disturbed in the reporting year, thousand ha Area of land rehabilitated during the year, thousand ha Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. Lower current environmental protection costs in the Russian Federation in 2019 mainly resulted from changes in recording current operating costs within environmental protection at OOO Gazprom neftekhim Salavat and, overall, had no negative impact on environmental protection efforts. The decline in capital expenditures on environmental protection was due to the completion by Gazprom Neft of a number of capital-intensive hydrocarbon exploration and production projects in 2018. Gazprom Group’s environmental protection costs in Russia, RUB bn 2017 2018 2019 2017 2,795.9 529.9 313.6 262.7 1,495.7 233.8 3,905.3 3,781.7 4,130.3 42.2 19.6 2018 2,894.0 594.1 328.6 276.2 1,497.8 240.0 3,658.4 3,579.5 3,555.1 25.8 15.8 2019 Change 2019/2018 2,862.7 596.4 307.7 221.5 1,542.6 236.5 3,241.8 3,152.7 3,337.1 22.9 17.7 −1.1% 0.4% −6.4% −19.8% 3.0% −1.5% −11.4% −11.9% −6.1% −11.2% 12.0% For more details on the capacities commissioned during the reporting year to increase APG use see the Exploration and Production section Current environmental protection costs Capital expenditures for environmental protection and sustainable use of natural resources Negative environmental impact charges Total Note. Excluding entities in which Gazprom has investments classifi ed as joint operations. 2017 34.47 35.58 0.77 70.82 2018 39.15 29.19 0.62 68.96 2019 Change 2019/2018 32.18 −17.8% 20.42 0.62 53.22 −30.0% – −22.8% 153 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Environmental Protection Penalties and compensation for environmental damage in Russia by Gazprom Group, RUB mm Penalties 2017 2018 2019 Change 2019/2018 Compensation for environmental damage 2017 2018 2019 Total including for previous years Change 2019/2018 11 17 15 −11.8% 91 90 189 177 119 90 −37.0% In the FSU countries, PJSC Gazprom operates through its subsidiaries — OAO Gazprom transgaz Belarus, ZAO Gazprom Armenia, and OsOO Gazprom Kyrgyzstan. From the date their assets were acquired by PJSC Gazprom, these companies have been putting much focus on upgrading production facil- ities and enhancing environmental management systems in line with PJSC Gazprom’s corporate standards and ISO 14001. In the reporting year, OAO Gazprom transgaz Belarus con- ducted a number of activities to reduce air pollutant emissions, including the replacement of less sophisticated boilers at the Syanno gas distribution station, the replacement of boiler combustion equipment with adjustments to off-gas fume collection piping at the Minskaya CS, reduction of gas venting when conducting repairs or maintenance of pipeline valves at the Orsha CS and the Orshanskaya CS. In addition to these activities, the subsidiary optimised its production waste management practices to reduce landfill waste. In 2019, operations of PJSC Gazprom’s subsidiaries outside Russia did not have a significant environmental impact. Note. Excluding entities in which Gazprom has investments classified as joint operations. For more details on Gazprom Group’s environmental performance and environmental protection costs see PJSC Gazprom’s Environmental Report Gazprom Group’s subsidiaries operating abroad are also committed to minimising their environmental footprint in strict compliance with both local regulations and PJSC Gazprom’s Environmental Policy. Gazprom EP International B.V., a single operator of PJSC Gazprom’s projects focused on prospecting, exploration and development of hydrocarbon fields outside the Russian Federation, is using innovative technology and research specifically aimed at minimising the environmental footprint. 154 PJSC Gazprom Annual Report 2019Energy Saving and Energy Effi ciency Saving and making the most of fuel and energy is an important element of Gazprom’s sustainability and a tool for streamlining its operations. In addition to economic, these efforts have a tangible environmental effect. Gazprom works consistently to save energy and improve its energy effi ciency in accordance with the Energy Effi ciency and Energy Saving Policy approved in 2018. Commitments to continuously improve energy effi ciency, save natural energy resources and further reduce GHG emissions at its production facilities are met by the Company in full and considered a top priority. For more details on PJSC Gazprom’s energy saving efforts see PJSC Gazprom’s website www.gazprom.com The Energy Effi ciency and Energy Saving Policy of PJSC Gazprom is available on PJSC Gazprom’s website www.gazprom.com Key commitments in PJSC Gazprom’s Energy Effi ciency and Energy Saving Policy — Consistently improve energy effi ciency — Save natural energy resources — Further reduce GHG emissions from production facilities PJSC Gazprom achieves its energy saving and energy effi ciency improvement objectives through energy saving initiatives run across all subsidiaries engaged in natural gas transportation, production, processing, underground storage and distribution, as well as in OOO Gazprom energo. 155 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Energy Saving and Energy Efficiency Fuel and energy consumption, mm t c.e. Fuel and energy savings, mm t c.e 2017 2018 2019 60.86 65.03 63.13 2017 2018 2019 Change 2019/2018 −2.9% Change 2019/2018 3.63 3.56 3.94 10.7% Note. Fuel and energy consumption rates have been converted to t c.e. using the following ratios: 1 mcm of gas = 1.155 t c.e.; 1 thousand kWh = 0.325 t c.e.; 1 thousand Gcal = 0.143 t c.e. Note. Fuel and energy saving rates have been converted to t c.e. using the following ratios: 1 mcm of gas = 1.155 t c.e.; 1 thousand kWh = 0.325 t c.e.; 1 thousand Gcal = 0.143 t c.e. Fuel and energy consumption by type Fuel and energy savings by type Natural gas, mmcm Natural gas, mmcm 2017 2018 2019 Change 2019/2018 Electricity, million kWh 2017 2018 2019 Change 2019/2018 Heat, thousand Gcal 2017 2018 2019 46,416 49,870 48,272 −3.2% 12,497 12,958 12,887 −0.5% 22,312 22,565 22,642 2017 2018 2019 Change 2019/2018 Electricity, million kWh 2017 2018 2019 Change 2019/2018 Heat, thousand Gcal 2017 2018 2019 Change 2019/2018 0.3% Change 2019/2018 6.2 % fuel and energy savings in 2019 RUB13.5 bn value of PJSC Gazprom’s fuel and energy savings under the Energy Saving Programme in 2019 For more details on fuel and energy consumption and savings across all segments by the subsidiaries covered by PJSC Gazprom’s energy saving programmes see the Environmental Report and Gazprom Group’s Sustainability Reports published on an annual basis 9.3 bcm natural gas savings under the energy saving programmes in 2017–2019 Value of fuel and energy savings, RUB bn 2017 2018 2019 Change 2019/2018 Note. Calculations are based on the actual energy prices in respective period. 3,014 2,952 3,287 11.3% 331 364 330 −9.3% 268 236 253 7.2% 11.6 12.0 13.5 12.5% 156 PJSC Gazprom Annual Report 2019Energy Saving and Energy Efﬁ ciency As natural gas consumed by trunk gas pipelines accounts for the largest share of the fuel and energy consumption mix of the subsidiaries covered by PJSC Gazprom’s energy saving programmes, key energy saving and energy efﬁ ciency improvement initiatives, such as deploying energy efﬁ cient equipment, are focused on natural gas. In , Gazprom energoholding’s energy efﬁ ciency programme helped to save . mm t c.e. of fuel and energy worth RUB . bn. The economic effect from Gazprom Neft’s energy saving programme was RUB . bn worth of fuel and energy. For more details on energy saving programmes run by Gazprom Neft, Gazprom energoholding and Gazprom neftekhim Salavat see their respective websites, PJSC Gazprom’s Environmental Report, or Gazprom Group’s Sustainability Reports published on an annual basis Key energy saving and energy efﬁ ciency improvement initiatives under PJSC Gazprom’s energy saving programmes in  — Optimising operation modes for power generating equipment at operating facilities — Upgrading smart lighting, heating, and ventilation systems — Replacing and upgrading gas pumping units to improve efﬁ ciency — Reducing fuel gas consumption by replacing the ﬂ ow channels at centrifugal gas compressors — Reducing gas losses during well surveys and repairs on linear sections of trunk gas pipelines During the reporting year, PJSC Gazprom implemented an extensive set of initiatives to improve its energy management system: internal audits, continuous training of PJSC Gazprom specialists in energy efﬁ ciency and energy saving. In , PJSC Gazprom also certiﬁ ed its corporate Energy Management System for compliance with ISO :. For more details on the Corporate Climate Policy see Gazprom Group’s sustainability reports and environmental reports published on an annual basis Gazprom Neft, Gazprom energoholding and Gazprom neftekhim Salavat are not covered by PJSC Gazprom’s energy saving programmes, as they have their own energy saving and energy efﬁ ciency programmes compliant with federal laws and corporate requirements of Gazprom Group. 2.1 bcm gas savings planned for  under the Energy Efﬁ ciency Programme  PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Social Projects Supporting culture, art, education, healthcare and promoting sports is an integral part of Gazprom’s operations. The Group supports a large number of respective projects every year. In order to promote social and economic development, Gazprom Group undertakes a significant number of charity and sponsorship initiatives. While most of the Group’s social investments are in Russia, the geography of its operations enables it to support certain social, cultural and sports initiatives abroad. For more details on the social initiatives of PJSC Gazprom and its subsidiaries and entities see Gazprom Group’s Sustainability Reports published on an annual basis or the Social Responsibility section of PJSC Gazprom’s website www.gazprom.com Charitable Activities Gazprom Group’s charitable activities are aimed at supporting the social and economic development of Russian regions, strengthening its business image and improving partnership relations in the regions of operation. Over 3,000 charitable projects and initiatives financed by Gazprom Group companies in 2019 PJSC Gazprom’s charitable expenditures, RUB bn 2017 2018 2019 27.3 35.0 27.7 Note. In accordance with the annual accounting (financial) statements of PJSC Gazprom. PJSC Gazprom and its subsidiaries consistently provide significant support to science, art, environmental, healthcare, physical education and sports initiatives. A significant amount of investments is allocated for construction and renovation of sports and social infrastructure facilities, participation in restoration projects aimed at preserving the historical and cultural heritage and implementation of programmes to support indigenous minorities of the Russian North. A special emphasis is placed on preserving the historical memory of the Great Patriotic War. In 2019 PJSC Gazprom supported the launch of Russia — My History historical parks in Surgut and Chelyabinsk 158 PJSC Gazprom Annual Report 2019Social Projects Key charity efforts of PJSC Gazprom and its subsidiaries and entities in 2019 The Gazprom for Children Programme Support for beautifi cation and restoration of War Memorials in Russia and FSU countries Donations for maintaining Eternal Flame memorials in Russia’s Hero Cities and Cities of Military Glory Maintaining a gas infrastructure for Eternal Flame memorials, including connecting both existing and new Eternal Flame memorials to the gas grid instead of using gas cylinders Support for beautifi cation of War Memorials Restoring and renovating memorials and war grave sites Supporting healthcare Supporting construction and renovations of medical facilities Supporting vulnerable groups Financing charity events for children from foster, low-income, and large families, and children from care institutions Supporting medical projects run by Dmitry Rogachev National Research Centre of Paediatric Haematology, Oncology, and Immunology Assistance in holding charity events for elderly people Financing treatment courses for people with disabilities and severely ill children Financing of projects aimed at providing comprehensive support to people with disabilities, including those related to creating the environment for their social and cultural rehabilitation and unlocking their creative potential Charitable support in acquisition of pharmaceuticals and medical devices Support for victims of natural disasters and environmental catastrophes Support for preserving cultural and historical heritage and reviving cultural and spiritual values Participation in fi nancing the Russia — My History initiative (an initiative for designing historical parks illustrating the history of the country and its individual regions in a multimedia format using state-of-the-art technology) Supporting church construction and renovation and restoration of religious sites and church complexes Support for exhibition projects aimed at the preservation of cultural and historical heritage Supporting the cultural education programmes run by the Russian Orthodox Church Supporting research expeditions as well as expeditions dedicated to memorable dates in the history of Russia Supporting culture and the arts Assisting restoration projects in the Tsarskoye Selo State Museum-Preserve and the Chinese Palace in Oranienbaum, part of the Peterhof State Museum-Reserve Financial support for theatres, museums and musical groups Support musical education and artistic projects for children Supporting indigenous minorities of the Russian North Supporting education Running the Gazprom Classes project Financial support for educational institutions with a particular focus on schools (renovation projects, provision of equipment and specialised classrooms) Support for awareness-raising projects Supporting city science festivals for schoolchildren Supporting sports Supporting the athletes’ training programmes Supporting organisations whose projects focus on environmental protection and population growth of rare animal species Supporting sports events and competitions, including children’s and youth competitions Supporting veteran organisations 159 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Social Projects 34 locations across 21Russian regions were covered by the Gazprom for Children Programme in 2019 Gazprom for Children Programme The Programme aims to contribute a positive effect in the intellectual, cultural and physical development of children and teenagers and involve as many of them as possible in sports. PJSC Gazprom is the only Russian company with such an ambitious social project. Since the start of the Programme in 2007, 1,821 various facilities have been built in Russia. In 2019, the Group completed the construction of 164 sports facilities under the Programme: — 10 capital construction projects, including a large public indoor fitness and health facility (Avangard Hockey Academy), two fitness and health facilities with swimming pools in the Khabarovsk Territory and one in Voronezh 154 outdoor sports fields, including 13 school stadiums and 141 multi- courts In 2019, 37 infrastructure projects were under construction. — PJSC Gazprom supported the complete restoration of the Holy Rus painting by the outstanding artist Mikhail Nesterov from the permanent exposition of the State Russian Museum Restoration projects implemented in 2019 in the Tsarskoe Selo State Museum and Heritage Site, which were financed by PJSC Gazprom — The Imperial Court Church of the Resurrection in the Catherine Palace opened to visitors. The Company has provided financial support for the restoration of the church since 2015 — The restoration of the Lyons Hall in the Catherine Palace was completed. The ornate plafond, lapis-lazuli mosaic panels, braided trims and silk walls and curtains have been restored. The project was implemented with financial support from PJSC Gazprom and the ENGIE Foundation of France — A large-scale restoration project titled The Private Space of Catherine II was launched to revive eight interiors in the Zubov Wing of the Catherine Palace Over100 artifacts from the Beijing Palace Museum (Gugong) (China) collection were presented at an exhibition in the Moscow Kremlin Museums supported by PJSC Gazprom 160 Employees from across Gazprom Group entities are actively involved in charitable activities. Employees join voluntary service, directly participate in repair and restoration, provide targeted assistance, implement environmental initiatives and revive arts patronage traditions. Gazprom Group’s gas distribution entities cleaned up and prepared for the Victory Day in 2019 1,331 Eternal Flame memorials Football for Friendship International Children’s Social Programme The Programme aims is to support children’s and youth sports, promote a healthy and active lifestyle and build respect among the younger generation for national and cultural diversity. The reporting year saw the eighth season of the Programme. From 20 May to 2 June, Viktor Zubkov, Chairman of PJSC Gazprom’s Board of Directors, attended the UEFA Champions League Final official closing events in Madrid. Over 800 children and adults from Europe, Asia, Africa, South and North America took part in the events. On the eve of the finals, young athletes of Football for Friendship from different countries took part in the most diverse football lesson on the planet and set the Guinness World Record. The International Football for Friendship Coaches Academy was also launched as part of the project in June 2019. The Academy is a unique free online platform offering a set of practical exercises aimed at improving the skills of coaches from youth teams, physical education teachers and football club coaches. The training course was developed by the authors of sports and humanitarian educational programmes of the Football for Friendship project — training managers and coaches of football clubs’ academies of different countries and experts from FIFA’s humanitarian programmes. By the end of 2019, the Academy had trained more than 4,000 people. Sponsorships PJSC Gazprom, its subsidiaries and entities sponsor sports federations, clubs and professional tournaments, act as partners in many significant cultural, social and business events held both in Russia and abroad. Sponsorship projects help Gazprom Group entities effectively inform the public about their production activities, efforts to support a large number of initiatives in education, culture, sports, promotion of a healthy lifestyle and responsible attitude towards the environment. Sponsored business events (forums and congresses) are held with the participation of top state officials and attract participants from many countries. Over180 projects and events sponsored by Gazprom Group companies in 2019 PJSC Gazprom Annual Report 2019Social Projects Key sponsorship efforts of PJSC Gazprom and its subsidiaries and entities in 2019 Supporting sports Partnerships with UEFA Sponsoring the Russian Olympic Committee and Russian national teams in competition preparation and participation Sponsoring sports federations and sports clubs Sponsoring competitions and sports events Sponsoring the Energy of Victories national sports journalism festival contest Supporting cultural and art projects Sponsoring Children’s Radio Sponsoring exhibition projects Sponsoring business events Sponsoring the Sound of a Beautiful Past. Russian Porcelain from the Hermitage exhibition in the Vietnam National Museum of History in Hanoi Expanding the geography of international cultural cooperation, Gazprom EP International, a subsidiary of the Group, supported the Sounds of a Beautiful Past exhibition of Russian porcelain in the Vietnam National Museum of History in 2019, organised by the State Hermitage, the Vietnam National Museum of History, the Imperial Porcelain Factory (Russia) and the G�m Chu Đ�u Porcelain Factory (Vietnam). The project was one of the key cultural events of Russia–Vietnam bilateral year 2019/2020. The concept of the exhibition is remarkable in that it combines historical heritage and contemporary art, conveying their deep relationship. Contemporary art forms and aesthetics symbolise progress and innovation, values that Gazprom Group fully shares. Major business forums supported by PJSC Gazprom and its subsidiaries and entities in 2019 — 9th St Petersburg International Gas Forum — Sochi International Investment Forum — 23rd St Petersburg International Economic Forum — 5th Eastern Economic Forum in Vladivostok — — Russian Energy Week International Forum 2019 — Global Manufacturing and Industrialisation Summit held 10th Gaidar Forum, Russia and the World: Values and Virtues in Yekaterinburg — 5th International Arctic Forum Arctic: Territory of Dialogue Sponsoring sports federations and sports clubs, as well as competitions and sporting events in 2019 Sport Football Ice hockey Volleyball Basketball Sponsorship recipient Zenit, Tom, Volgar and Orenburg clubs SKA, Avangard and Vityaz clubs Volleyball Federation of Russia and the Zenit-Kazan, Zenit-Saint Petersburg, Fakel and Gazprom-Yugra clubs Zenit and Khimki clubs Rhythmic Gymnastics Rhythmic Gymnastics Federation of Russia Swimming Biathlon Russian Swimming Federation Russian Biathlon Union Kayaking and canoeing Russian Canoe Federation Billiards Tennis Table tennis Auto racing Sailing sports Aeronautics Handball Federation of Billiard Sports of Russia St. Petersburg Ladies Trophy WTA women’s tournament, St. Petersburg Open ATP men’s tournament Fakel-Gazprom club Silk Way International Rally Nord Stream Race — an offshore regatta for the Baltic region champion teams; Bronenosec Sailing Team, Saint Petersburg Yacht Club 24th International Balloon Meet, which involves the Russian Hot Air Balloon Championship (Russia, Velikiye Luki) SEHA Gazprom League, a handball association in Southeast Europe 161 PJSC Gazprom Annual Report 2019 y t i l i i b s n o p s e R Corporate Governance 162 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors 164 PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code 165 PJSC Gazprom’s Corporate Governance Model 169 Board of Directors’ Report on PJSC Gazprom’s Development in Priority Business Areas 177 Remuneration of Members of Governing and Supervisory Bodies 180 Liability Insurance of Directors, Officers and the Company 185 Shareholdings of Members of the Board of Directors and Management Committee and Transactions with PJSC Gazprom Shares 186 Internal Audit 188 External Audit 190 Risk Management and Internal Control 191 Procurement Performance 197 Ensuring Compliance of Operations with Legal Requirements 201 Share Capital and Securities Market 207 163 e c n a n r e v o G e t a r o p r o C PJSC Gazprom Annual Report 2019 Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors Dear Shareholders, In 2019, PJSC Gazprom maintained its course on strategic priorities and posted strong opera- tional and fi nancial performance while also focusing on corporate governance. Gazprom continued its efforts to develop corporate ethics policies and implement the Code of Corporate Ethics of PJSC Gazprom across over 300 controlled entities at the second and subsequent levels of ownership. In 2019, the Company made a number of important corporate governance decisions aligned with the interests of its shareholders and longer-range growth targets. First and foremost, these decisions were aimed at structural shifts and staff changes. Over the course of the year, Gazprom signifi cantly modifi ed the organisation of PJSC Gazprom’s Administration, announcing a number of new appointments to some key positions. These large-scale changes are intended to enhance the overall effi ciency of the Company and eliminate overlapping functions across business units. In December, the Board of Directors approved the new Dividend Policy of PJSC Gazprom, which places the utmost focus on dividend accrual simplicity and transparency. The new formula is based on the Group’s IFRS net profi t adjusted for fi ve non-cash items. The Company expects to increase its dividend payout ratio to 50% of adjusted IFRS net profi t within a three- year period. Investors have positively responded to the steps taken by the Company: PJSC Gazprom fi nished the year as Russia’s largest company by market capitalisation. In 2020, the Company is planning to further increase its transparency, maintain a dialogue with the investment community and enhance corporate governance practices across its controlled entities. The Company is also developing a long-term top management incentive programme tied to PJSC Gazprom’s share performance. Dear Shareholders, the Board of Directors will continue to be actively involved in the life of the Company. Gazprom will use a prudent, responsible and ethical approach to address its business objectives in the best interests of its shareholders and society at large. Viktor Zubkov Chairman of PJSC Gazprom’s Board of Directors 164 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code Key documents of PJSC Gazprom ensuring protection of shareholder rights — Articles of Association of Public Joint Stock Company Gazprom (amended in 2019) — Code of Corporate Governance of PJSC Gazprom — Code of Corporate Ethics of PJSC Gazprom (amended in 2019) — Dividend Policy of Public Joint Stock Company Gazprom (approved in 2019) — Regulations on the General Shareholders Meeting of PJSC Gazprom (amended in 2019) — Regulations on the Board of Directors of PJSC Gazprom (amended — in 2019) Induction Programme for First-Time Elected Members of the Board of Directors of PJSC Gazprom (approved in 2019) — Regulations on the Audit Committee of JSC Gazprom’s Board of Directors (amended in 2019) — Regulations on the Nomination and Remuneration Committee of PJSC Gazprom’s Board of Directors (amended in 2019) — Regulations on the Management Committee of PJSC Gazprom (amended in 2019) — Regulations on the Chairman of the Management Committee of PJSC Gazprom — Regulations on the Audit Commission of JSC Gazprom, new version — Procedure for Documenting Shareholder Proposals and Requests Related to the Convocation of the General Shareholders Meeting of PJSC Gazprom — Procedure for Providing Information about PJSC Gazprom to Shareholders — Regulations on Information Disclosure by PJSC Gazprom — Regulations on Monitoring Compliance with Laws on Countering the Illegal Use of Insider Information and Market Manipulation at PJSC Gazprom (approved in 2019) — Anti-Corruption Policy of PJSC Gazprom — Regulations on the Hotline for Fighting Fraud, Corruption and Embezzlement at Gazprom Group PJSC Gazprom’s Articles of Association and other internal documents are available on PJSC Gazprom’s website www.gazprom.com PJSC Gazprom’s activities are based on key generally accepted principles of corporate governance, which meet, inter alia: — key recommendations of the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on 21 March 2014 and recommended by the Bank of Russia as a guidance for all publicly traded joint stock companies (the “Russian Corporate Governance Code” or the “Code”) listing rules of Russian stock exchanges — — corporate governance guidance of the federal executive authorities of the Russian Federation — Russian and international best practices. PJSC Gazprom’s Board of Directors believes that compliance with the principles and recommendations set out in the Russian Corporate Governance Code, is key to the Company’s long-term growth and stronger investment case. In accordance with the requirements of paragraph 70.4. of the Regulations on Disclosing Information by the Issuers of Issue-Grade Securities No. 454-P approved by the Bank of Russia on 30 December 2014, key principles and recommen- dations of the Russian Corporate Governance Code not fully complied or not complied with at PJSC Gazprom are listed below, along with the description of corporate governance mechanisms and tools used by PJSC Gazprom instead of those recommended by the Russian Corporate Governance Code. PJSC Gazprom includes in the key provisions of the Code principles and recommendations that correspond to the mandatory requirements of Russian stock exchanges (PAO Moscow Exchange and PAO Saint Petersburg Exchange) applicable to issuers’ corporate governance for the purposes of inclusion of their shares in the first (top) level quotation list, which are mandatory for PJSC Gazprom to maintain its top listing on these exchanges. e c n a n r e v o G e t a r o p r o C 165165 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code 1 The Code recommends that independent directors 2 To preview matters of supervision over the constitute at least one third of the elected members of the board of directors (paragraph 2.4.3 of the Code) In 2019, the Company did not comply with this principle of the Code. The Board of Directors of PJSC Gazprom (11 mem- bers) was elected by the Annual General Shareholders Meeting on 28 June 2019 from among the nominees proposed by shareholders. The Board of Directors included three independent directors, who were determined to be independent by Resolution of the Board of Directors of PJSC Gazprom No. 3287 dated 25 June 2019, as part of the procedures set forth in the listing rules of Russian stock exchanges and the Russian Corporate Governance Code. As part of discussing the matter of Determining certain nominees to PJSC Gazprom’s Board of Directors as independent nominees to PJSC Gazprom’s Board of Directors, PJSC Gazprom’s Board of Directors passed a resolution determining Timur Kulibaev, Viktor Martynov and Vladimir Mau to be independent nominees to PJSC Gazprom’s Board of Directors although Timur Kulibaev and Vladimir Mau met the formal criteria of being related to PJSC Gazprom, Vladimir Mau and Viktor Martynov met the formal criteria of being related to the state, and Viktor Martynov met the formal criteria of being related to PJSC Gazprom’s significant counterparty, as it does not affect their ability to make impartial and independent judgements in good faith considering their professional experience, knowledge and business reputation. company’s financial and business performance, the Code recommends to set up an audit committee comprised of independent directors (paragraph 2.8.1, Recommendation 173 of the Code) To preview matters of adopting an effective and transparent remuneration scheme, the Code recommends to set up a remuneration committee comprised of independent directors and headed by an independent director who is not the chairman of the board of directors (paragraph 2.8.2, Recommendation 179 of the Code) To preview matters of talent management (succession planning), professional composition and efficiency of the board of directors, the Code recommends to set up a nomination (appointments and HR) committee, predominantly comprised of independent directors (paragraph 2.8.3 of the Code) Where setting up a separate nomination committee is not practicable, its functions may be assigned to any other committee of the board of directors, i.e. a corporate governance committee or a remuneration committee (Recommendation 185 of the Code) In 2019, PJSC Gazprom partially complied with these principles of the Code due in part to objective reasons related to an insufficient number of independent directors on the Board of Directors. At the same time, independent directors Viktor Martynov and Vladimir Mau represent the majority in the composition of the Board of Directors’ Audit Committee and the Board of Directors’ Nomination and Remuneration Committee formed by the Board of Directors of PJSC Gazprom in the reporting year, and Mikhail Sereda who sits on both Committees, is not a member of the Management Committee of PJSC Gazprom. An independent director, Viktor Martynov, serves as Chairman of the Audit Committee of the Board of Directors. This approach complies with the Moscow Exchange Listing Rules, according to which, if for objective reasons it is impossible for all committee members to have the status of independent director, independent directors must be a majority of committee members, and the remaining committee members may be members of the Board of Directors who are not the sole executive body and/or members of the issuer’s collective executive body. 166 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code PAO Moscow Exchange and PAO Saint Petersburg Exchange confirm the compliance of PJSC Gazprom’s corporate governance with the listing rules of stock exchanges, as required to maintain the shares on the first (top) level quotation list. PJSC Gazprom continuously improves its corporate governance system. When shaping approaches to enhance- ment of its corporate governance, PJSC Gazprom primarily refers to its role in the national and global economy as a leader in the global energy market and the national capital market. In 2018, following a scheduled independent audit of the corporate governance, PJSC Gazprom developed a Further Corporate Governance Enhancement Plan of PJSC Gazprom for 2018–2019. All scheduled and a number of unscheduled corporate governance enhancement activities have been completed by PJSC Gazprom in the reporting year. The Company continues to enhance its corporate gover- nance standards in line with recommendations of independent experts who conduct scheduled independent audits of PJSC Gazprom’s corporate governance practice. PJSC Gazprom heavily relies on the Russian Corporate Governance Code in enhancing its corporate governance system Enhancement of PJSC Gazprom’s corporate governance standards Focus area Progress in 2019 Plans for 2020 PJSC Gazprom’s Long-Term Development Programme approved by the resolution of PJSC Gazprom’s Board of Directors in 2019, expanded to the oil and power generation businesses of Gazprom Group. PJSC Gazprom’s Articles of Association and the Regulations on the General Shareholders Meeting of PJSC Gazprom stipulate procedures for electronic voting at the General Shareholders Meeting. Launch electronic voting at the General Shareholders Meeting. Strategic planning Shareholder rights Governing bodies A new version of the Dividend Policy of PJSC Gazprom was approved. PJSC Gazprom’s quasi-treasury shares were sold (2.93% and 3.59% of the authorised capital of PJSC Gazprom). The Regulations on the Board of Directors of PJSC Gazprom were supplemented by provisions on identifying and preventing conflicts of interest of Board members. Performance of PJSC Gazprom’s Board of Directors, the Audit Committee, and the Nomination and Remuneration Committee was duly assessed by means of a written survey (questionnaires) covering their composition and profile, activities, and key functions (the performance assessment was recommended by the Russian Corporate Governance Code). The Induction Programme for First-Time Elected Members of the Board of Directors of PJSC Gazprom was approved. Corporate ethics The Code of Corporate Ethics of PJSC Gazprom was amended in order to extend its provisions to members of PJSC Gazprom’s Board of Directors. The Code compliance clause for the Company’s contracts with counterparties was drafted. The standards of corporate ethics were extended to members of boards of directors at entities controlled by PJSC Gazprom. Employees of such entities started taking ethical awareness tests on a regular basis. Under the Further Corporate Governance Enhancement Plan of PJSC Gazprom for 2018–2019. 167167 Obtain the National Rating of Corporate Governance. Continue with the National Anti-Corruption Plan for 2018–2020, including annual retraining for eligible employee categories. Enhance corporate ethics standards at controlled entities, including the extension of restrictions to members of their boards of directors, as well as regular training of their employees followed by final knowledge tests. e c n a n r e v o G e t a r o p r o C PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code Enhancement of PJSC Gazprom’s corporate governance standards (continued) Focus area Progress in 2019 Insider information protection A new version of the Regulations On Monitoring Compliance with Laws on Countering the Illegal Use of Insider Information and Market Manipulation at PJSC Gazprom was approved. The new version sets forth a general monitoring profile for monitoring compliance of PJSC Gazprom with the requirements of Federal Law No. 224-FZ On Countering the Misuse of Insider Information and Market Manipulation and Amending Certain Laws of the Russian Federation dated 27 July 2010 and with relevant regulations adopted thereunder. Information disclosure Plans for 2020 Further improvement of safeguards to protect insider information, including: — drafting a new version of the Regulations on Access to Insider Information of Joint Stock Company Gazprom and Maintaining its Confidentiality — development of internal controls to identify and prevent misuse of insider information and/or market manipulation. Hold public hearings on the draft Gazprom Group’s Sustainability Report 2019. Shareholder and investor relations The practice of interfacing with the investment community and shareholders was continued at conferences, meetings in the offices of Company, in a conference call format, as well as during the Investor Day. Conduct a survey of ADR holders on possible corporate governance enhancement measures. Targeted meetings of independent directors (Vladimir Mau and Viktor Martynov) with investors were held, including meetings on matters pertaining to the environment, environmental protection, and corporate governance. Dedicated foreign roadshows on corporate governance were conducted. Continue meetings of independent directors with investors and management on the environment, environmental protection and corporate governance. 168 PJSC Gazprom Annual Report 2019PJSC Gazprom’s Corporate Governance Model The corporate governance model in place at PJSC Gazprom relies on Russian laws, the requirements of Russian stock exchanges applicable to issuers whose shares have been included in the first (top) level quotation list. The Company’s Corporate Governance Model ensures robust corporate governance while protecting the interests of shareholders and maintaining the highest standards of disclosure. This model also implies the establishment and continuous operation of an effective risk management and internal control system and provides for a clear division of roles and responsibilities and a performance assessment framework for each governing body of PJSC Gazprom. In addition, PJSC Gazprom’s corporate governance model and practice reflect particularly high levels of transparency and commit- ment to shareholder interests. Significant aspects of the Company’s corporate governance model and practices Priority of shareholder rights and interests Informational transparency Strategic decisions at PJSC Gazprom are made with due consideration of their impact on all shareholders Strategic governance of the Company by the Board of Directors Effective supervision over the executive bodies by the Board of Directors; accountability of governing bodies to shareholders The Company consistently keeps its investors and shareholders informed of all key events and intentions. PJSC Gazprom fosters an ongoing dialogue with shareholders, diverse investor groups and analysts Balanced and efﬁcient internal audit and risk management Division of roles and responsibilities in Company management e c n a n r e v o G e t a r o p r o C 169169 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model PJSC Gazprom’s Corporate Governance Structure External Auditor approves General Shareholders Meeting Audit Commission reports to elects Audit Committee Department responsible for internal audit Coordinating Committee for Shareholder and Investor Relations Coordinating Committee for Responsible Use of Natural Resources s t c e e l o t s t r o p e r develops recommendations elects Board of Directors reports to resolves on appointments (dismissals) of executives s t c e e l p u s t e s o t s t r o p e r o t s t r o p e r Business units with Corporate Secretary roles Nomination and Remuneration Committee Commission on Strengthening Financial Discipline for Domestic Gas Supplies approves appointments (dismissals) of executives report to elects develops recommendations establishes develops recommendations r e p o r t s t o reports to Chairman of the Management Committee determines Business unit responsible for insider information leads Management sets up sets up reports to s d a e l o t s t r o p e r Management Committee The basic principles of the Company’s corporate governance are set forth in the Code of Corporate Governance of PJSC Gazprom, the new version of which was approved by the General Shareholders Meeting of PJSC Gazprom on 30 June 2017. PJSC Gazprom’s corporate governance pillars include governing and supervisory bodies: the General Shareholders Meeting, the Board of Directors, the Management Committee, the Chairman of the Management Committee and the Audit Commission. The Audit Committee of PJSC Gazprom’s Board of Directors and the Nomination and Remuneration Committee of PJSC Gazprom’s Board of Directors have been established under PJSC Gazprom’s Board of Directors. Their purpose is to preview the most important matters of PJSC Gazprom’s business reserved to the Board of Directors. Financial and business operations of the Company are reviewed by an independent external auditor. The Department of the Management Committee Administration is responsible for internal audit, performs an impartial assessment of internal controls and develops improvement recommendations. In order to maintain a transparent and constructive dialogue with the investment community, PJSC Gazprom has in place the Coordinating Committee for Shareholder and Investor Relations (set up by JSC Gazprom’s Order No. 292 dated 17 November 2008). Relations with the investment community are governed by the annual plan of the Coordi- nating Committee. 170 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model PJSC Gazprom has in place the role of Corporate Secretary (Resolution of the Board of Directors No. 2817 dated 30 Sep- tember 2016). The functionality of the Corporate Secretary is distributed, to the extent recommended by the Russian Corporate Governance Code, among several business units of the Company, in line with the regulations governing their functions as approved by the Board of Directors. PJSC Gazprom also has in place the Coordinating Committee for Responsible Use of Natural Resources. The Company’s environmental management system covers different levels of management, from the Board of Directors to branches and production facilities of its subsidiaries. To ensure an integrated approach and coordinate the environ- mental management activities of PJSC Gazprom’s business units, PJSC Gazprom has in place a permanent Working Group for EMS Enhancement. General Shareholders Meeting General Shareholders Meeting is the supreme governing body of PJSC Gazprom and is held on an annual basis. Any General Shareholders Meeting other than the Annual General Shareholders Meeting shall be deemed extraordinary. Annual General Shareholders Meeting held on 28 June 2019 — Held in person (in the form of joint attendance of shareholders to discuss agenda items and pass resolutions on matters put to vote) — Location — Saint Petersburg — The quorum required to pass resolutions on all the agenda items was present — Resolutions were passed on the following agenda items The Meeting approved PJSC Gazprom’s Annual Report, the Company’s annual accounting (financial) statements, dividend amount (RUB 16.61 per share), the dividend record date — 18 July 2019, deadline to receive dividends for the nominee shareholders and trustees who are professional security traders recorded in the Register of Shareholders — 01 August 2019, and for the rest of the registered shareholders — 22 August 2019. Limited Liability Company Financial and Accounting Consultants was approved as PJSC Gazprom’s auditor. Amendments to PJSC Gazprom’s Articles of Association, the Regulations on the General Shareholders Meeting of PJSC Gazprom, the Regulations on the Board of Directors of PJSC Gazprom, the Regulations on the Management Committee of PJSC Gazprom were also approved. The Meeting resolved to distribute PJSC Gazprom’s profit for 2018 and pay remuneration to members of PJSC Gazprom’s Board of Directors and Audit Commission holding no public office in the amount stipulated by the Company’s internal documents. The Meeting elected a new Board of Directors and Audit Commission of PJSC Gazprom, and also resolved on invalidation PJSC Gazprom’s Dividend Payout Procedure. The voting power at General Shareholders Meetings is attributed to holders of the Company ordinary shares. Any shareholder may participate in a General Shareholders Meeting in person or by proxy. A General Shareholders Meeting is duly constituted if attended by the shareholders holding in aggregate more than a half of voting shares. The responsibilities of the General Shareholders Meeting include, inter alia, amending PJSC Gazprom’s Articles of Association, approving annual reports and the Company’s auditor, distributing profit, electing members to the Board of Directors and the Audit Commission, making decisions on reorganisation or liquidation of PJSC Gazprom and on increase or decrease of the Company’s charter capital. In 2019, PJSC Gazprom held its Annual General Share- holders Meeting on 28 June. PJSC Gazprom held no extraordinary General Sharehold- ers Meetings in 2019. PJSC Gazprom’s Board of Directors The Board of Directors is responsible for the general manage- ment of PJSC Gazprom’s operations, excluding matters reserved to the General Shareholders Meeting. The Company’s Board of Directors is elected by the General Shareholders Meeting until the next Annual General Shareholders Meeting. The Board of Directors determines the Company’s business priorities, approves the annual budget and invest- ment programmes, makes decisions on convening General Shareholders Meetings and setting up executive bodies of PJSC Gazprom, develops recommendations on per share dividend payouts, and resolves other matters reserved to the Board of Directors by PJSC Gazprom’s Articles of Association. Performance assessment of PJSC Gazprom’s Board of Directors and its committees As recommended by the Russian Corporate Governance Code, the performance of PJSC Gazprom’s Board of Directors, Audit Committee, and Nomination and Remuneration Committee has been assessed in-house on an annual basis since 2018. The assessment is carried out through a written survey (question- naires) covering the following key areas: — composition and profile — activities — key functions. The assessment results are reviewed at the Board of Directors’ meeting. Based on the 2019 self-assessment, the Board of Directors and its committees were highly praised with no comments made to challenge their activities e c n a n r e v o G e t a r o p r o C 171171 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model The Board of Directors of PJSC Gazprom has a well-balanced composition to ensure the performance of their tasks for the benefit of all shareholders and the Company as a whole. Composition of the Board of Directors by status, % Executive director Non-executive director Independent director 27 46 27 The activities of PJSC Gazprom’s Board of Directors are governed by the duly approved six-month activity plans. In 2019, the Board of Directors held a total of 55 meetings, including 13 meetings held in person and 42 meetings held in absentia. At these meetings, the Board of Directors passed 166 resolutions, including 48 resolutions in person and 118 resolutions in absentia. In 2019, the share of items related to enhancing the corporate governance on the Board’s agenda was higher than in 2018. During the reporting year, members of the Board of Directors were actively involved in its activities — the overall attendance rate for both in-person and in-absentia meetings was 99%. Matters reviewed by PJSC Gazprom’s Board of Directors in 2019, by line of business, % Strategic development Enhancing corporate governance Financial and business activity, investment activity HR policy Audit 28 25 25 18 4 The full list of agenda items reviewed by PJSC Gazprom’s Board of Directors in 2019 is available on PJSC Gazprom’s website www.gazprom.com PJSC Gazprom has in place internal controls to monitor the execution of instructions given by PJSC Gazprom’s Board of Directors Approval of the Induction Programme for First-Time Elected Members of the Board of Directors of PJSC Gazprom (Resolution of the Board of Directors No. 3304 dated 7 August 2019) Key provisions Meaning The Programme describes the induction of first-time elected members of PJSC Gazprom’s Board of Directors and the procedure for providing information on PJSC Gazprom’s activities, including documents and materials required to resolve matters reserved to PJSC Gazprom’s Board of Directors. The Bank of Russia recommends that companies develop such programmes and deems them a pre-condition for a fair self-assessment of a board of directors’ performance. The concept of an induction programme (an orientation process) for new directors complies with the G20/OECD international corporate governance principles. Since shareholders participate in governing PJSC Gazprom indirectly, through their elected members of the Board of Directors, the adoption of the document is also aimed at exercising shareholder rights. Committees of the Board of Directors Audit Committee of the Board of Directors The committees’ priorities are to conduct holistic previews of selected matters reserved to the Board of Directors of PJSC Gazprom and develop recommendations on resolutions for the Board of Directors. In 2019, the Audit Committee of PJSC Gazprom’s Board of Directors continued its work. The Committee reports to the Board of Directors and operates as set forth in the Regulations on the Audit Committee of JSC Gazprom’s Board of Directors approved by Resolution of the Board of Directors of the Company No. 2314 dated 25 February 2014 (with subsequent amendments approved by Resolution No. 3333 of the Board of Directors of PJSC Gazprom dated 29 October 2019). 172 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model Committee is primarily responsible for: reviewing the Company’s financial statements for completeness, accuracy and reliability; reviewing the reliability and effectiveness of the risk management and internal control system; assurance of independence and fairness of the internal and external audit; assessment of proposed Company’s auditors and reviewing the auditor’s opinion. Composition of the Board of Directors’ Audit Committee in 2019 — Committee Chairman: Viktor Martynov (independent director) — Committee members: Mikhail Sereda, Vladimir Mau (independent director) The Audit Committee of PJSC Gazprom’s Board of Directors addressed the specific planned activities, meeting at least on a quarterly basis. In 2019, the Committee held 9 meetings, including 2 meetings held in person. In 2019, the Committee reviewed the information of OOO FBK on the most important audit matters pertaining to PJSC Gazprom and its subsidiaries, the external auditor’s reports on ensuring an independent and robust external audit, as well as on the corporate risk management system of PJSC Gazprom, risk assessments and regular updates. The key relevant recommendations made by the Com- mittee to the Board of Directors concerned compliance and alignment with provisions of the Russian Corporate Gover- nance Code. External and internal audits were determined to have been duly conducted, with no comments made. The full list of matters reviewed by the Audit Committee of PJSC Gazprom’s Board of Directors in 2019 makes part of the Additional Information for the Annual Report available on PJSC Gazprom’s website www.gazprom.com Nomination and Remuneration Committee of the Board of Directors In 2019, the Nomination and Remuneration Committee of PJSC Gazprom’s Board of Directors continued its work. The Committee reports to the Board of Directors and operates as set forth in the Regulations on the Nomination and Remu- neration Committee of JSC Gazprom’s Board of Directors approved by Resolution of the Board of Directors of the Company No. 2819 dated 30 September 2016 (with subsequent amendments approved by Resolution of the Board of Directors of PJSC Gazprom No. 3329 dated 17 October 2019). Composition of the Board of Directors’ Nomination and Remuneration Committee in 2019 — Committee Chairman: Mikhail Sereda — Committee members: Vladimir Mau (independent director), Viktor Martynov (independent director) In 2019, the Committee held 16 meetings, including 2 meetings held in person. The Committee reviewed the following matters: election of members of PJSC Gazprom’s Management Committee; approval of the Company’s actual 2018 KPI values for the purposes of the Annual Bonus Scheme for the Management of PJSC Gazprom, as well as target (planned), threshold, and maximum KPI values for 2019; remuneration of members of PJSC Gazprom’s Board of Directors and Audit Commission; assessment of the Board of Directors’ and its committees’ performance, etc. The full list of matters reviewed by the Nomination and Remuneration Committee of PJSC Gazprom’s Board of Directors in 2019 makes part of the Additional Information for the Annual Report available on PJSC Gazprom’s website www.gazprom.com The Audit Committee maintained close contact with the external auditor OOO FBK, the Audit Commission, and PJSC Gazprom’s Internal Audit Department, as well as PJSC Gazprom’s department charged with risk management and internal control. e c n a n r e v o G e t a r o p r o C 173173 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model Commission on Strengthening Financial Discipline for Domestic Gas Supplies Corporate Secretary PJSC Gazprom’s Board of Directors pays particular attention to strengthening financial discipline for gas supplies in the domestic market and measures taken to ensure repayment of overdue debt owed by consumers. For additional coordination of efforts undertaken by PJSC Gazprom to improve the situation with regard to pay- ments for gas deliveries, the Commission on Strengthening Financial Discipline for Domestic Gas Supplies operates on a permanent basis at PJSC Gazprom’s Board of Directors. The Commission develops recommendations to the Board of Directors on PJSC Gazprom’s policy on strengthening financial discipline for domestic gas supplies, improving coordination between the Company and the federal and regional executive authorities to increase financial discipline for domestic gas supplies, monitoring the debt owed by consumers in Russian regions and developing measures to reduce this debt, and improving the laws on consumer payments for supplied natural gas. The Commission has 5 members. Commission Chairman: Viktor Zubkov, Chairman of PJSC Gazprom’s Board of Directors; Commission Secretary: Nikolai Kruglikov, Head of the Secretariat of PJSC Gazprom’s Management Committee Administration. In 2019, the functionality of the Corporate Secretary was distributed, to the extent recommended by the Russian Corporate Governance Code, among the following business units of PJSC Gazprom: — Directorate at the Department of PJSC Gazprom’s Management Committee Administration (Dmitry Pichugin) — Secretariat of PJSC Gazprom’s Management Committee Administration (Nikolai Kruglikov) — Department Directorate of PJSC Gazprom (Alexey Finikov) — Department Directorate Division of PJSC Gazprom (Maksim Babich) For more details on the functions of the Corporate Secretary at PJSC Gazprom see PJSC Gazprom’s website www.gazprom.com Key functions of the Corporate Secretary The Commission operates on a permanent basis. In 2019, — Ensuring the Company’s communication with regulators, stock the Commission held three meetings which discussed the most pressing matters of strengthening financial discipline for domestic gas supplies and specifically supplies to certain regions of the Russian Federation. The Commission’s activities will continue into 2020. Scheduled agenda items are to include handling of the current arrears for natural gas supplied by PJSC Gazprom to regions of the Russian Federation and in the industry context, as well as improving legislation to strengthen financial discipline for natural gas supplies to consumers. exchanges, the registrar, and other professional security traders on matters related, inter alia, to the security market development, share capital monitoring, depositary receipt programme support and development, and security issuance in new stock markets Involvement in the organisation of the General Shareholders Meeting — — Ensuring operation of the Board of Directors and its committees Involvement in the implementation of the information disclosure — policy Involvement in corporate governance enhancement — Shareholder and investor relations — — Ensuring safekeeping of corporate documents — Ensuring and monitoring the execution of procedures aimed at exercising shareholder rights — Notifying the Board of Directors about detected violations of the law and internal documents when the Corporate Secretary is responsible for ensuring relevant compliance For more details on distribution of the Corporate Secretary functionality across the Company’s business units see PJSC Gazprom’s website (information is available in Russian only) www.gazprom.ru 174 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model Heads of business units of PJSC Gazprom having the Corporate Secretary functionality report on relevant performance to the Company’s Board of Directors. They are appointed and removed from office by the Chairman of PJSC Gazprom’s Management Committee upon approval of PJSC Gazprom’s Board of Directors. Business units of PJSC Gazprom having the Corporate Secretary functionality are guided by applicable Russian laws, the Regulations on the Board of Directors of PJSC Gazprom, regulations on business units concerning corporate secretary functions, approved by PJSC Gazprom’s Board of Directors (Resolution No. 2817 dated 30 September 2016, Resolution No. 3339 dated 19 November 2019). In 2019, the Corporate Secretary functions were performed in full. In particular, the business units of PJSC Gazprom having the Corporate Secretary functionality were directly involved in the implementation of decisions of the Annual General Shareholders Meeting, including the on dividend payouts, in preparation of proposals to enhance information disclosure processes, as well as in the development of corporate governance standards. No violations of the law and internal documents when the Corporate Secretary is responsible for ensuring relevant compliance were detected. For more details on enhancement of the Company’s corporate governance standards see PJSC Gazprom’s Corporate Governance Compliance Report, including Statement of Compliance with the Corporate Governance Principles Set Out in the Russian Corporate Governance Code Executive Bodies Day-to-day operations of PJSC Gazprom are managed by the Chairman of the Management Committee (sole executive body) and the Management Committee (collective executive body). They are responsible for implementing resolutions passed by PJSC Gazprom’s General Shareholders Meeting and the Board of Directors and are accountable to them. The Chairman and members of the Management Commit- tee are elected by the Board of Directors for a five-year term. The matters reserved by PJSC Gazprom’s Articles of Associa- tion to the Management Committee include drafting of the annual budget, investment programmes, future and current activity plans, preparing reports, gas flow management, and monitoring Russia’s Unified Gas Supply System. 175175 Composition of the Management Committee by tenure of its members in the governing body as at 31 December 2019, % 1 year or less 1–7 years (inclusive) Over 7 years 42 29 29 Note. Distributed according to the number of full years of service as a member of the Management Committee as at 31 December 2019. In 2019, the Management Committee of PJSC Gazprom was refreshed by more than 30% In 2019, the Management Committee held a total of 22 meetings (11 meetings held in person and 11 meetings held in absentia). At these meetings, the Management Committee passed 49 resolutions, including 36 resolutions passed in person and 13 resolutions passed in absentia. Matters reviewed by PJSC Gazprom’s Management Committee in 2019, by line of business, % Corporate governance Preview of business priorities, strategy and budget of PJSC Gazprom Reliable operation of the UGSS and consumer gas supplies Forward-looking plans and key business activity programmes of PJSC Gazprom PJSC Gazprom’s internal regulations on matters reserved to the Management Committee Other matters reserved to the Management Committee 43 19 14 12 8 4 e c n a n r e v o G e t a r o p r o C PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Corporate Governance Model Audit Commission The Audit Commission’s authority is set forth in the Federal Law On Joint-Stock Companies and PJSC Gazprom’s Articles of Association. The Audit Commission operates under the Regulations on the Audit Commission of JSC Gazprom approved by the Resolution of JSC Gazprom’s Annual General Shareholders Meeting (Minutes No. 1 dated 28 June 2013). Key roles of the Audit Commission: — Monitor the fairness of presentation of PJSC Gazprom’s financial and accounting statements and other informa- tion on PJSC Gazprom’s financial and business operations and condition of its assets — Supervise statutory compliance of PJSC Gazprom’s accounting practices and of submission of its financial statements and information to relevant authorities and shareholders — Prepare proposals on enhancing the Company’s asset management and other financial and business operations of PJSC Gazprom, mitigate financial and operational risks, and improve internal controls The Audit Commission is accountable to the General Share- holders Meeting and coordinates its activities with the Audit Committee of the Board of Directors. Following an audit of PJSC Gazprom’s financial and business operations, the Audit Commission presented its opinion confirming the fairness of data in the Company’s statements and other financial documents. The Audit Commission of nine members is elected by the General Shareholders Meeting. Members of the Audit Commission elected by the General Shareholders Meeting on 28 June 2019 Year of birth Position as at 31 December 2019 1980 1957 1969 1964 1963 1974 1966 1985 1961 Director of Department, the Ministry of Economic Development of the Russian Federation Deputy Department Head — Head of Directorate at Department of the Management Committee Administration, Secretary of the Audit Commission of PJSC Gazprom Department Director, the Russian Ministry of Energy First Deputy Head of the Management Committee Administration — Department Head of the Management Committee Administration, Chairwoman of the Audit Commission of PJSC Gazprom Member of the Audit Commission of PJSC Gazprom Department Head, PJSC Gazprom Deputy Department Director, the Russian Ministry of Finance Director of Department, the Ministry of Transport of the Russian Federation Department Director, the Russian Ministry of Energy Name Ivan Bezmenov Vadim Bikulov Alexander Gladkov Margarita Mironova Yury Nosov Karen Oganyan Sergey Platonov Evgeny Stolyarov Tatiana Fisenko 176 PJSC Gazprom Annual Report 2019 Board of Directors’ Report on PJSC Gazprom’s Development in Priority Business Areas In 2019, the activities of PJSC Gazprom’s Board of Directors were aimed at creating the environment to maintain consistent performance and development of PJSC Gazprom as a global energy company, increasing PJSC Gazprom’s capitalisation and improving its investment appeal, ensuring efficient control over asset management, investment and financial and busi- ness operations, improving the performance and transparency of internal governance mechanisms, enhancing internal controls and accountability of the Company’s management bodies, and protecting shareholder rights. Strategic Development Most PJSC Gazprom’s strategic documents and development programmes on priority business areas had been adopted by its Board of Directors in prior periods. That is why the members of PJSC Gazprom’s Board of Directors primarily focused on matters related to implementation and annual adjustment of previously adopted strategies and programmes during the Board meetings held in 2019. Key strategic development matters reviewed by the Board of Directors in 2019 Agenda items Material discussion points Updated PJSC Gazprom’s Long-Term Development Programme and Gazprom Group’s strategic planning framework — PJSC Gazprom’s existing planning system provides an optimal combination of modern Russian and international best practice in strategic planning — The planning system is continuously improved taking into account Instructions and approved documents PJSC Gazprom’s Long-Term Development Programme (2020–2029) was approved Amendment of PJSC Gazprom’s Investment Programme and budget (financial plan) for 2019 worldwide best practice and methodologies — To ensure optimal development of PJSC Gazprom in the context of internal and external changes, the Long-Term Development Programme is updated and approved by the Board of Directors on an annual basis — In accordance with the new version of the Investment Programme for 2019, total actual expenditure was RUB 1,322.58 bn (down by RUB 3.142 bn from the level approved in December 2018), including: — RUB 962.23 bn — capital construction plan — RUB 179.86 bn — long-term investment plan — RUB 180.49 bn — non-current asset acquisition plan — Total funding of the new version of PJSC Gazprom’s Investment Programme for 2019 is RUB 1,339.25 bn — Adjustment of the parameters for the Investment Programme for 2019 was due to investment project portfolio optimisation — The new version of the budget (financial plan) for 2019 has no budget deficit and will ensure that all PJSC Gazprom’s liabilities are covered in full The new versions of PJSC Gazprom’s Investment Programme and budget (financial plan) for 2019 were approved e c n a n r e v o G e t a r o p r o C 177177 PJSC Gazprom Annual Report 2019 Board of Directors’ Report on PJSC Gazprom’s Development in Priority Business Areas Key strategic development matters reviewed by the Board of Directors in 2019 (continued) Agenda items Material discussion points Instructions and approved documents Efficient use of funds allocated for R&D, progress in the implementation of PJSC Gazprom’s Innovative Development Programme until 2025, and approval of the 2018 report on PJSC Gazprom’s updated Innovative Development Programme until 2025 Approval of the integrated innovation key performance indicator for 2019 — The annually developed PJSC Gazprom’s R&D Programme includes initiatives aimed at implementation of technological and organisational priorities of the Company’s innovative development set forth in PJSC Gazprom’s Innovative Development Programme until 2025 — The programme of R&D projects carried out for PJSC Gazprom by research institutes of the Russian Academy of Sciences is under way — R&D cooperation with Russian research institutes and universities (on four R&D programmes), companies from related industries and international partners is in progress in 2018, Gazprom Group implemented 279 R&D-generated solutions (excluding the oil and power generation businesses), with a total expected economic effect of over RUB 204 bn — The 2018 progress report on PJSC Gazprom’s Innovative Development Programme until 2025 was approved The integrated innovation key performance indicator for 2019 was approved — Consistent expansion of gas infrastructure in Russian regions is one of Gazprom’s priorities in the domestic market — — The average gas penetration in Russia is steadily growing and reached 68.6% as at 1 January 2019 (an increase of 15.3 p.p. compared to 2005) In 2019, the Gas Infrastructure Expansion Program covered 66 constituent entities of the Russian Federation, with plans to complete construction of approximately 1,700 kilometers of gas pipelines Issues related to extending gas grid coverage in the Krasnoyarsk Territory were also considered — The Management Committee was instructed to: continue implementing the gas infrastructure expansion programs in the constituent entities of the Russian Federation ensure that the programs for gas supply and gas infrastructure expansion in Russian regions for 2021–2025 are drawn up on the basis of outlooks for gas consumption and plans for preparing consumers to receive gas as confirmed by regional administrations. — PJSC Gazprom’s corporate import substitution plan is being implemented successfully, with import substitution effect growth rate higher in 2018 than in 2017 (47.9% vs 16.3%) — The corporate import substitution plan now includes an integrated The 2018 progress report on the Corporate Import Substitution Plan of PJSC Gazprom performance indicator to assess the outcomes of action items of that plan — Measures to stimulate the introduction of Russian-made equipment and technologies in Gazprom Group’s operations have been proposed Progress on PJSC Gazprom’s programmes for expansion of gas infrastructure in the constituent entities of the Russian Federation, including its economic model, alignment with regional programmes for converting the housing and utilities sectors to gas, as well as extension of gas grid coverage in the Krasnoyarsk Territory Progress of import substitution initiatives in 2018, approval of 2018 progress report on PJSC Gazprom’s corporate import substitution plan, inclusion into that plan of an integrated performance indicator to assess the outcomes of action items of that plan, and measures to incentivise the use of Russian-made equipment and technology in Gazprom Group’s operations 178 PJSC Gazprom Annual Report 2019 Board of Directors’ Report on PJSC Gazprom’s Development in Priority Business Areas Key strategic development matters reviewed by the Board of Directors in 2019 (continued) Agenda items Material discussion points Approval of the Dividend Policy of PJSC Gazprom — — According to the new Dividend Policy, dividends will be calculated on the basis of adjusted profit for the period attributable to the owners of PJSC Gazprom in accordance with the IFRS financial statements, with adjustments for a number of non-cash items Including a complete list of adjustments into the document increases transparency of dividend calculation and makes payouts to the shareholders and investors more predictable, in line with existing best practice It is planned to reach the target payout level within three years, with dividends of not less than 30% based on the results for 2019, not less than 40% for 2020, and not less than 50% for 2021 and subsequent years — Instructions and approved documents The new Dividend Policy of PJSC Gazprom was approved — Approval of the proposed version of the Dividend Policy will meet the requirements of the Russian Government and reinforce PJSC Gazprom’s investment case Also in 2019, the Board of Directors continued to monitor implementation of the Company’s major investment projects, paid due attention to strategically important areas of PJSC Gazprom’s activities (promoting natural gas (methane) as a vehicle fuel, shareholder and investor relations, risk management and internal control), the prospects, opportuni- ties and threats for the Company related to shale gas and LNG industry development, and assessment of the impact of 2019 events on the long-term outlook for the global energy market. Financial and Business Activity, Investment Activity, Audit Throughout 2019, PJSC Gazprom’s Board of Directors exercised control over financial and business activities as well as investment activities of Gazprom Group, including review of reports on the results of procurement activities (on a quarterly basis), and made decisions related to transaction approval and the management of the property and other assets of PJSC Gazprom and its subsidiaries. Reflecting the changes in the legislation and the Com- pany’s internal documents, the Board of Directors approved amendments to the documents governing the internal audit function, i.e. the Regulations on the Board of Directors’ Audit Committee, Regulations on Internal Audit of PJSC Gazprom, and the Internal Auditors’ Code of Ethics. Corporate Governance Improvement and HR Policy Throughout 2019, the Board of Directors paid close attention to the HR policy and initiatives aimed at enhancing the effectiveness of corporate governance. In addition to the matters reviewed on an annual basis, such as analysis of the Company’s HR policy and incentive scheme efficiency, the progress in KPI achievement by top managers, introduction of professional standards, assessment of the Board of Directors’ and its committees’ performance, in 2019 the Board of Directors also discussed the matter of PJSC Gazprom’s transition to predominantly using Russian-made software. Following the meeting, the Management Committee was instructed to present for approval by the Board of Directors a 2018–2021 action plan for PJSC Gazprom’s transition to predominantly using Russian-made software, to incorporate relevant initiatives in PJSC Gazprom’s Long-Term Development Programme, and to ensure the adoption of this approach by the subsidiaries directly and/or indirectly controlled by the Company by more than 50% in total. e c n a n r e v o G e t a r o p r o C 179179 PJSC Gazprom Annual Report 2019 Remuneration of Members of Governing and Supervisory Bodies Documents defining remuneration of members of PJSC Gazprom’s governing and supervisory bodies — Regulations on the Guidelines on Remuneration of the Board of Directors of JSC Gazprom (approved by Resolution of the Board of Directors No. 2523 dated 15 April 2015) — Regulations on Remuneration of the Audit Commission of PJSC Gazprom (approved by Resolution of the Board of Directors No. 2641 dated 9 December 2015, as amended) — Regulations on the Annual Bonus Scheme for the Management of PJSC Gazprom (approved by Resolution of JSC Gazprom’s Board of Directors No. 927 dated 19 December 2006, as amended) — Regulations on PJSC Gazprom’s Key Performance Indicators (approved by Resolution of JSC Gazprom’s Board of Directors No. 2435 dated 21 October 2014, as amended) Remuneration Scheme for Members of the Management Committee and Other Executives of PJSC Gazprom Remuneration of PJSC Gazprom’s Management Committee members (including the Chairman of the Management Committee) and other executives of the Company (including the remuneration of PJSC Gazprom’s executives who are also members of the Company’s Board of Directors, which is not related to their service on the Board of Directors) is determined by their employment agreements and is short- term. Members of the Management Committee are not remunerated for their service on PJSC Gazprom’s Manage- ment Committee. Remuneration paid by PJSC Gazprom to its executives creates sufficient incentives for them to work effectively. The Annual Bonus Scheme for the Management of PJSC Gazprom is an important component of the remuneration system for PJSC Gazprom’s executives, including members of the Management Committee. The Annual Bonus Scheme covers executives of PJSC Gazprom and its key gas production, transportation, underground storage, processing and sales subsidiaries. The annual bonus payable to members of PJSC Gazprom’s Management Committee (excluding the Chairman of the Management Committee) comprises two components — corporate (80%) and individual (20%). The corporate component is linked to PJSC Gazprom’s performance, while the individual component is determined based on the achievement of individual targets. The annual bonus payable to the Chairman of the Management Committee only comprises the corporate component. Amendments to the Regulations on the Annual Bonus Scheme for the Management of PJSC Gazprom (Resolution of PJSC Gazprom’s Board of Directors No. 3370 dated 26 December 2019) — Coordination of the composition, calculation methods and target value of the integrated innovation key performance indicator with federal executive authorities was introduced — The list of positions included in the Company’s Annual Bonus Scheme (due to organisational and staff changes in PJSC Gazprom) and key performance indicators of subsidiaries (due to consolidation of processing assets) was updated As per the Annual Bonus Scheme, remuneration is linked to the achievement of corporate KPIs. Planned and actual values of corporate KPIs are approved by PJSC Gazprom’s Board of Directors on an annual basis. To determine the amount of actual payments, a corporate correction factor reflecting the actual KPI achievement level is applied to the corporate and individual components of the annual bonus. If the KPIs are not achieved, the amount of the annual bonus is reduced, which establishes a link between the KPIs and the amount of remunerations, as well as execu- tives’ personal motivation to achieve the KPIs. There are no plans to change the terms of executives’ eligibility for the Annual Bonus Scheme and approaches to calculating the bonus in 2020. Executives’ annual bonus is linked to PJSC Gazprom’s performance (achievement of corporate KPIs and personal contribution of executives — achievement of individual targets). In 2019, PJSC Gazprom paid the annual bonus for 2018 taking into account the corporate correction factor of 123.75%. 180 PJSC Gazprom Annual Report 2019 Remuneration of Members of Governing and Supervisory Bodies Corporate KPIs for 2019 to be used in the Annual Bonus Scheme KPI Description Financial and economic KPIs Per unit costs in Production Total costs of gas production subsidiaries divided by the total volume of gas, unstable gas condensate and oil production Per unit costs in Transportation Total costs of gas transportation subsidiaries divided by the total transportation volume Reduction of operating costs (expenses) Reduction of operating costs (expenses) in the reporting year Total shareholder return Estimated shareholder’s income for the reporting year from share price growth and dividend received Return on equity Ratio of net income to average annual shareholders’ equity Labour productivity Industry-specific KPIs Gas sales by volume Total revenue from sales of products, proceeds from work done and services provided, revenue from sales of goods purchased for resale less expenses on such purchased goods, divided by total man-hours worked by full-time employees and external part-time employees PJSC Gazprom’s gas sales by volume, including both its own gas and purchased gas, excluding sales to PJSC Gazprom’s subsidiaries for own operational needs, as well as the volumes purchased and sold in far abroad countries Commissioning of priority production facilities Completion of activities related to commissioning of priority production facilities (as per the approved list) Integrated innovation key performance indicator Sum of scores reflecting the achievement of KPI targets, with application of weights allocated to each of the KPIs: — Patents obtained in the reporting year — Reduction of relative rates of GHG emissions expressed as CO2 equivalent — Share of R&D costs in revenue — Assessment of the quality of design/annual implementation of the Innovative Development Programme KPIs established in pursuance of Russian Government directives Weight in the reporting period bonus 70% 15% 15% 5% 10% 20% 5% 30% 10% 10% 10% e c n a n r e v o G e t a r o p r o C 181181 PJSC Gazprom Annual Report 2019 Remuneration of Members of Governing and Supervisory Bodies For more details on calculating the progress against corporate KPIs in 2018, as well as the explanation of variance between target and actual KPI values see PJSC Gazprom’s Annual Report 2018 www.gazprom.com Members of PJSC Gazprom’s governing bodies and other executives of the Company are also eligible for long-term post-employment payments. These payments comply with the applicable laws, PJSC Gazprom’s local regulations, and the procedure which is applicable to all employees of the Company, and comprise private pension plans provided by Non-State Pension Fund GAZFOND, and one-off payments upon retirement made by PJSC Gazprom. The Company also provides voluntary medical insurance. Remuneration for Service on a Governing Body Pursuant to the Regulations on the Board of Directors of PJSC Gazprom approved by the Annual General Share- holders Meeting (Minutes No. 1 dated 30 June 2016, as amended) and PJSC Gazprom’s Articles of Association, the General Shareholders Meeting may resolve to remunerate and/or reimburse members of the Board of Directors during the period of their service for expenses incurred by them as members of the Board of Directors. The amount of remuneration and/or reimbursement is determined by the General Shareholders Meeting. Members of the Board of Directors holding public or civil office in the Russian Federation receive no remuneration from PJSC Gazprom. Approaches to determining the amount of remuneration to members of the Board of Directors are set forth by the Regulations on the Guidelines on Remuneration of the Board of Directors of JSC Gazprom (approved by Resolution of the Board of Directors of JSC Gazprom No. 2523 dated 15 April 2015). Remuneration of members of PJSC Gazprom’s Board of Directors — Fixed base remuneration for service on the Board of Directors — Additional remuneration for additional responsibilities such as acting as Chairman of the Board of Directors, Deputy Chairman of the Board of Directors, or serving on committees of the Board of Directors — Bonus component for achieving corporate key performance indicators (KPIs) The Regulations also stipulate that the Board of Directors may recommend the General Shareholders Meeting not to pay remuneration to members of the Board of Directors or pay a lower remuneration calculated under the Regulations. Remuneration of Members of the Board of Directors and Members of the Management Committee Remuneration of members of PJSC Gazprom’s Board of Directors, RUB thousand Remuneration of members of PJSC Gazprom’s Board of Directors paid by PJSC Gazprom* 370,339 346,971 367,684 2017 2018 2019 Including by type of remuneration: Remuneration for service on a governing body Salary Bonuses 245,486 210,708 227,258 64,775 71,986 76,225 49,594 53,897 53,821 Commission fees – – – Other remuneration 10,484 10,380 10,380 Insurance premiums paid by PJSC Gazprom** Total 56,581 50,178 52,727 426,920 397,149 420,411 * The amounts are inclusive of personal income tax. ** In line with Russian laws, PJSC Gazprom pays insurance premiums under mandatory pension insurance, mandatory social insurance in case of temporary disability or a maternity leave, mandatory medical insurance, and industrial accident and occupational disease insurance, which the Company calculates based on the amount of remuneration and other payments. 182 PJSC Gazprom Annual Report 2019 Remuneration of Members of Governing and Supervisory Bodies Remuneration of members of the Board of Directors for service on a governing body paid in 2019 (in accordance with Resolution of the Annual General Shareholders Meeting dated 28 June 2019, Minutes No. 1) Name Viktor Zubkov Alexey Miller Andrey Akimov Timur Kulibaev Denis Manturov Vitaly Markelov Viktor Martynov Vladimir Mau Alexander Novak Dmitry Patrushev Mikhail Sereda Position Holding public or civil office Chairman of the Board of Directors Holds no such office Deputy Chairman of the Board of Directors Holds no such office Member of the Board of Directors Holds no such office Member of the Board of Directors Holds no such office Member of the Board of Directors Holds an office Member of the Board of Directors Holds no such office Remuneration paid, RUB Including additional remuneration for additional responsibilities while serving on the Board of Directors, or serving on committees of the Board of Directors 5,926,500 4,938,750 – – – – Total 32,234,760 31,247,010 26,308,260 26,308,260 – 26,308,260 Member of the Board of Directors, Chairman of the Board of Directors’ Audit Committee, member of the Board of Directors’ Nomination and Remuneration Committee Member of the Board of Directors, member of the Board of Directors’ Nomination and Remuneration Committee, member of the Board of Directors’ Audit Committee Holds no such office 28,613,010 2,304,750 Holds no such office 27,625,260 1,317,000 Member of the Board of Directors Holds an office Member of the Board of Directors Holds an office – – – – Member of the Board of Directors, Chairman of the Board of Directors’ Nomination and Remuneration Committee, member of the Board of Directors’ Audit Committee Holds no such office 28,613,010 2,304,750 Total Note. The amounts are inclusive of personal income tax. 227,257,830 16,791,750 Minutes No. 1 of the Annual General Shareholders Meeting dated 28 June 2019 are available on PJSC Gazprom’s website (information is available in Russian only) www.gazprom.ru e c n a n r e v o G e t a r o p r o C 183183 PJSC Gazprom Annual Report 2019 Remuneration of Members of Governing and Supervisory Bodies Remuneration of members of PJSC Gazprom’s Management Committee, RUB thousand 2017 2018 2019 Remuneration of members of PJSC Gazprom’s Management Committee paid by PJSC Gazprom*,** Including by type of remuneration: Remuneration for service on a governing body 2,445,656 2,551,450 1,331,825 – – – Salary 861,443 1,035,748 821,064 Bonuses (including the annual bonus) 1,532,323 1,475,344 479,583 Commission fees – – – Other remuneration (including short-term benefits related to healthcare) Insurance premiums paid by PJSC Gazprom*** Total 51,890 40,358 31,178 396,416 413,804 204,504 2,842,072 2,965,254 1,536,329 * The amounts are inclusive of personal income tax. ** Income received by members of PJSC Gazprom’s Board of Directors who are also members of PJSC Gazprom’s Management Committee and full-time employees of the Company for service on the Board of Directors was accounted for in the income received by members of the Board of Directors. Other types of remuneration paid to such members of the Board of Directors and/or reimbursement for their expenses are included in the total remuneration and/or reimbursement for expenses of PJSC Gazprom’s Management Committee. *** In line with Russian laws, PJSC Gazprom pays insurance premiums under mandatory pension insurance, mandatory social insurance in case of temporary disability or a maternity leave, mandatory medical insurance, and industrial accident and occupational disease insurance, which the Company calculates based on the amount of remuneration and other payments. PJSC Gazprom’s voluntary medical insurance premiums paid for members of the Management Committee and executives who are also members of the Company’s Board of Directors, RUB thousand 2017 12,781 2018 12,420 2019 10,632 From 2017 to 2019, PJSC Gazprom paid no reimbursement to members of the Board of Directors or members of the Management Committee for expenses incurred while serving on a Company’s governing body. From 2017 to 2019, the Company did not provide any loans to members of PJSC Gazprom’s Board of Directors or members of its Management Committee. Remuneration of Members of the Audit Commission To calculate the remuneration of a member of the Audit Commission, the Company uses, inter alia, a personal contri- bution factor which reflects the member’s attendance at the meetings of the Audit Commission and additional responsibil- ities as Chairman of the Audit Commission. Members of the Audit Commission holding public or civil office receive no remuneration. Remuneration of members of PJSC Gazprom’s Audit Commission for serving on a financial and business performance supervisory body paid in 2019 (in accordance with Resolution of the Annual General Shareholders Meeting dated 28 June 2019, Minutes No. 1) Name Position Holding public or civil office* Remuneration paid, RUB Margarita Mironova Chairwoman of the Commission Holds no such office Alexander Gladkov Member of the Commission Holds an office Yury Nosov Karen Oganyan Alexandra Petrova Sergey Platonov Member of the Commission Holds no such office Member of the Commission Holds no such office Member of the Commission Holds an office Member of the Commission Holds an office Oksana Tarasenko Member of the Commission Holds an office Tatiana Fisenko Vadim Bikulov Total Member of the Commission Holds an office Member of the Commission (Secretary) Holds no such office * As at the date of payment. Note. The amounts are inclusive of personal income tax. 5,289,204 – 4,068,618 4,068,618 – – – – 4,068,618 17,495,058 184 PJSC Gazprom Annual Report 2019 Liability Insurance of Directors, Officers and the Company The insurance coverage under the current liability insurance policy is in line with PJSC Gazprom’s needs and international insurance standards in terms of risk coverage and indemnity limits. PJSC Gazprom has insured the liability of its directors (excluding directors holding public office), officers and the Company since 2008. Under the liability insurance contract, shareholders, creditors or other third parties are compensated for damages incurred as a result of in-scope errors (omissions) by PJSC Gazprom’s key executives. The importance of the liability insurance programme for directors, officers and the Company is driven by the integration of PJSC Gazprom’s activities into the global economy, the implementation of the external financial borrowing programme and the need to cover risks for the Company’s property interests. The policy terms in 2019 remained the same as in 2018. Liability insurance programme for directors, officers and the Company in 2019 Insurance coverage USD 100 mm Insurance premium USD 900 thousand Persons insured Members of the Company’s Board of Directors (excluding directors who hold public office) and Management Committee, as well as heads of PJSC Gazprom’s Departments who are not members of the Company’s Management Committee Risks insured — Risk of third-party claims against the insured for losses arising from unintentional errors made by the insured in their management roles — Risk of third-party claims against PJSC Gazprom for losses arising from unintentional errors made by the insured in their management roles: claims related to PJSC Gazprom securities; claims initially made against the insured e c n a n r e v o G e t a r o p r o C 185185 PJSC Gazprom Annual Report 2019 Shareholdings of Members of the Board of Directors and Management Committee and Transactions with PJSC Gazprom Shares As at 31 December 2019, members of the Board of Directors, members of the Management Committee and the Chairman of the Management Committee had a 0.010577% stake in PJSC Gazprom (direct ownership). The Employee Equity Sharing Plan for the Management of PJSC Gazprom aims to provide an extra financial incentive for PJSC Gazprom’s executives to support PJSC Gazprom share performance. PJSC Gazprom’s executives holding positions of depart- ment heads or higher, and the management of subsidiaries engaged in core activities are eligible to participate in the Programme. As at 31 December 2019, 68 executives were eligible for the Programme. Terms of the Employee Equity Sharing Plan for the Management of PJSC Gazprom (set out in the Regulations on the Employee Equity Sharing Plan for the Management of PJSC Gazprom approved by Resolution of JSC Gazprom’s Board of Directors No. 2105 dated 26 December 2012, as amended) — Executives hold Company shares — Executives can acquire shares at their own cost or with loans granted by AO Gazprombank as part of the Programme — AO Gazprombank also provides depositary and broker services under the Programme Direct ownership of PJSC Gazprom shares by members of the Board of Directors, members of the Management Committee and the Chairman of the Management Committee as at 31 December 2019 Name Position Members of the Board of Directors Shareholding in PJSC Gazprom, % Chairman of the Board of Directors Deputy Chairman of the Board of Directors, Chairman of the Management Committee Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors – 0.000958 – – – Member of the Board of Directors, member of the Management Committee 0.006203 Member of the Board of Directors, Chairman of the Board of Directors’ Audit Committee, member of the Board of Directors’ Nomination and Remuneration Committee Member of the Board of Directors, member of the Board of Directors’ Audit Committee, member of the Board of Directors’ Nomination and Remuneration Committee Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors, Chairman of the Board of Directors’ Nomination and Remuneration Committee, member of the Board of Directors’ Audit Committee – – – 0.001013 0.000232 Viktor Zubkov Alexey Miller Andrey Akimov Timur Kulibaev Denis Manturov Vitaly Markelov Viktor Martynov Vladimir Mau Alexander Novak Dmitry Patrushev Mikhail Sereda 186 PJSC Gazprom Annual Report 2019 Shareholdings of Members of the Board of Directors and Management Committee and Transactions with PJSC Gazprom Shares Direct ownership of PJSC Gazprom shares by members of the Board of Directors, members of the Management Committee and the Chairman of the Management Committee as at 31 December 2019 (continued) Name Position Shareholding in PJSC Gazprom, % Members of the Management Committee* Oleg Aksyutin Deputy Chairman of the Management Committee — Head of Department Elena Burmistrova Deputy Chairwoman of the Management Committee Elena Vasilieva Mikhail Putin Famil Sadygov Deputy Chairwoman of the Management Committee — Chief Accountant Deputy Chairman of the Management Committee Deputy Chairman of the Management Committee Sergey Khomyakov Deputy Chairman of the Management Committee Sergey Kuznets Vladimir Markov Member of the Management Committee, Head of Department Member of the Management Committee, Head of Department Sergey Menshikov Member of the Management Committee, Head of Department Elena Mikhailova Member of the Management Committee, Head of Department Vyacheslav Mikhalenko Member of the Management Committee, Head of Department Gennady Sukhov Member of the Management Committee, Head of Department * For shareholdings of executive directors see the Members of the Board of Directors section of this table. 0.000218 – 0.000281 0.000313 – 0.000232 – 0.000148 0.000169 0.000217 0.000424 0.000169 Transactions with PJSC Gazprom shares by members of PJSC Gazprom’s Board of Directors and Management Committee in 2019 Name Andrey Akimov Transaction date Transaction type Number of ordinary registered shares of PJSC Gazprom involved in the transaction 04 April 2019 05 April 2019 08 April 2019 Purchase Purchase Disposal 2,043,220 2,138,950 4,182,170 e c n a n r e v o G e t a r o p r o C 187187 PJSC Gazprom Annual Report 2019 Internal Audit Internal audit assists in achieving PJSC Gazprom’s goals through applying a holistic consistent approach to assessment and improvement of risk management, control and corporate governance processes. Pursuant to the Regulations, the internal audit at PJSC Gazprom is organised by the relevant Department, a business unit of PJSC Gazprom, and by internal audit units — at PJSC Gazprom subsidiaries and entities. To improve the internal audit function and in accordance The key priority of the Department is to provide the with Directive of the Russian Government for persons repre- senting interests of the Russian Federation No. 3984p-P13 dated 24 June 2015, PJSC Gazprom developed and approved the Regulations on Internal Audit of PJSC Gazprom in 2015 (Resolution of the Board of Directors No. 2621 dated 6 November 2015, amended versions No. 3212 dated 1 February 2019 and No. 3335 dated 29 October 2019). These Regulations determine the goals, objectives, status, powers and liability of the Internal Audit Department of PJSC Gazprom, as well as the scope of internal audit. Board of Directors (through the Audit Committee of the Board of Directors) and management of PJSC Gazprom with independent and unbiased assurances and advice as to the improvement of the Company’s operations. The Department has administrative subordination to the Chairman of PJSC Gazprom’s Management Committee within the Management Committee Administration and functionally reports to the Board of Directors (through the Board of Directors’ Audit Committee). The Head of Depart- ment is appointed and dismissed by the Chairman of the Management Committee of PJSC Gazprom. The Audit Committee of the Board of Directors is responsible for preliminary approval of candidates for the position of the Head of Department, extension of their term and their dismissal. Internal audit system of PJSC Gazprom Board of Directors Audit Committee of the Board of Directors Chairman of the Management Committee Functional accountability Administrative accountability Department charged with internal audit Subsidiaries Functional accountability Administrative accountability Internal audit functions of subsidiaries Subordination Accountability 188 PJSC Gazprom Annual Report 2019 Internal Audit In 2019, the documents of PJSC Gazprom regulating the internal audit function were updated The Department’s organisation is coordinated with the Audit Committee and approved by the Chairman of the Management Committee. The Department consists of three Directorates. Activities of the Department are governed by the Regulations on Internal Audit of PJSC Gazprom, the Internal Auditors’ Code of Ethics (approved by Resolution of the Board of Directors No. 1956 dated 14 March 2012, as amended by Resolution No. 3334 dated 29 October 2019), JSC Gazprom’s Internal Audit Development Concept (approved by the Board of Directors’ Audit Committee on 25 June 2015), Regulations on the Department (approved by the Board of Directors’ Audit Committee and PJSC Gazprom’s Order No. 419 dated 23 June 2016, as amended by Order of PJSC Gazprom No. 163 dated 22 March 2017), International Standards for the Professional Practice of Internal Auditing, and internal audit guidelines of the Federal Agency for State Property Management. PJSC Gazprom’s internal audit meets the corporate governance principles set out in the Russian Corporate Governance Code (Recommendations 263–273). The Department is responsible for organising and conducting internal audits at business units, subsidiaries and entities of PJSC Gazprom in accordance with the established procedure and Russian and international best practices for internal audit. The Department conducted its 2019 audits to identify risks and assess the performance for the Company’s signifi- cant business segments and processes based on: — achievement by the auditees of their objectives — efficiency and effectiveness of operations — protection of assets — compliance of operations with the terms and conditions of contracts, legal requirements and local regulations. Results of internal audits conducted by the Department are used to develop and submit proposals to PJSC Gazprom’s management on elimination of violations, irregularities and root causes. Based on the proposals made by the Depart- ment, the Chairman of the Management Committee gives instructions to business units, subsidiaries and entities of PJSC Gazprom, aimed at improving PJSC Gazprom’s per- formance. The Department monitors the execution of such instructions. Amendments to PJSC Gazprom’s internal audit regulations made in 2019 Document Amendments Internal Auditors’ Code of Ethics Provisions ensuring that PJSC Gazprom’s internal auditors are independent and unbiased were updated. Regulations on Internal Audit of PJSC Gazprom Definitions of the mission and basic principles of internal audit were introduced, sections on ensuring that the internal auditors are independent and unbiased and local regulations for PJSC Gazprom’s internal auditors were updated. Regulations on the Audit Committee of PJSC Gazprom’s Board of Directors Sections regulating the Committee’s activities within the risk management and internal control system of PJSC Gazprom were updated. In December 2015, an external assessment was carried out and the opinion was issued on the compliance of PJSC Gazprom’s internal audit function with the Definition of Internal Auditing, Code of Ethics, and International Standards for the Professional Practice of Internal Auditing. — Report on the performance of PJSC Gazprom’s Depart- ment of the Management Committee Administration in 2018 — Amending the Regulations on Internal Audit of PJSC Gazprom The Department also has in place and implements an — Amending the Internal Auditors’ Code of Ethics of Internal Audit Quality Programme covering all aspects of internal audit. PJSC Gazprom — Amending the Regulations on the Audit Committee of The internal audit function conducts annual performance PJSC Gazprom’s Board of Directors assessments (self-assessments) with results reported to the Audit Committee of the Board of Directors. In 2019, the following internal audit matters were reviewed at the meetings of the Board of Directors’ Audit Committee: — Drafting the 2020 Activity Plan of PJSC Gazprom’s Department of the Management Committee Administration The 2020 Internal Audit Plan was approved by the Order e c n a n r e v o G e t a r o p r o C of PJSC Gazprom. 189189 PJSC Gazprom Annual Report 2019 External Audit The External Audit Policy for PJSC Gazprom, its subsidiaries and entities approved by PJSC Gazprom’s Board of Directors (Resolution of the Board of Directors of PJSC Gazprom No. 2847 dated 15 November 2016) sets forth key principles of organising and conducting external audits of PJSC Gazprom and its subsidiaries and entities, the auditor selection proce- dure and criteria, as well as approaches to ensuring the auditor’s compliance with the principles of independence and absence of a conflict of interest. PJSC Gazprom, its subsidiaries and entities provide the auditor with all assistance necessary for conducting a timely and full audit PJSC Gazprom selects its auditor annually by a public tender in accordance with applicable Russian laws. Assessment of potential auditors is one of the main duties of the Audit Committee of PJSC Gazprom’s Board of Directors. Bid assessment criteria for entering into an audit service contract — Price criterion: — Contract price — Non-price criteria: — Quality profile of the service to be procured — Bidder qualification, including the track record in auditing accounting (financial) statements, consolidated accounting statements, and consolidated IFRS financial statements, as well as availability of the bidder’s personnel with a certain qualification level OOO FBK won the public tender for the service contract to audit PJSC Gazprom’s accounting (financial) statements, Gazprom Group’s consolidated accounting statements, and Gazprom Group’s consolidated IFRS financial statements for 2019 and 2020. The contract price for auditing PJSC Gazprom’s accounting (financial) statements, Gazprom Group’s consolidated accounting statements, and Gazprom Group’s consolidated IFRS financial statements for 2019 offered by the winner was RUB 210,000,000 (exclusive of VAT) and was approved by Resolution of the Board of Directors No. 3274 dated 21 May 2019. By resolution of PJSC Gazprom’s Annual General Shareholders Meeting held on 28 June 2019, OOO FBK became an approved auditor responsible for auditing PJSC Gazprom’s accounting (financial) statements, Gazprom Group’s consolidated accounting statements, and Gazprom Group’s consolidated financial statements for 2019. OOO FBK also provided audit services to the Company in 2017 and 2018. OOO FBK provided other audit-related services to PJSC Gazprom outside the audit contract in 2017–2019. The contract price for auditing accounting (financial) statements, approved by the Board of Directors (exclusive of VAT), RUB thousand 2017 2018 2019 The fee paid by the Company to the auditor for other audit-related services outside the audit contract (inclusive of VAT), RUB thousand 2017 2018 2019 208,000 195,000 210,000 20,917 44,284 3,661 190 PJSC Gazprom Annual Report 2019 Risk Management and Internal Control Gazprom has in place an effective risk management and internal control system which helps achieve corporate goals and optimise business process management to ensure the Group’s sustainable development. Principles of RMICS organisation and operation — Consistency (integration) — Comprehensiveness — Alignment (with goals) — Reasonable assurance — Agility and development — Relevance and availability of resources — Continuity (of operation) — — Accountability — Separation of duties — Assessment of results — Streamlined structure and promptness — Single regulatory framework — Economic feasibility — Three lines of defence Interaction and collective decision-making e c n a n r e v o G e t a r o p r o C PJSC Gazprom has developed an effective risk management and internal control system (RMICS) which helps promptly identify, evaluate and respond to potential events, circum- stances, and internal and external factors that may influence the achievement of its goals. Risk Management and Internal Control System The Company acknowledges that its operations are exposed to uncertainties such as risks, and implements measures to provide adequate assurance that the goals set for PJSC Gazprom by its governing bodies are achieved. The RMICS is an integral part of PJSC Gazprom’s corpo- rate governance and is embedded into the planning and project management systems, and occupational health and safety management programmes. The RMICS covers all operations of PJSC Gazprom and Gazprom Group entities, as well as all management levels, business segments and risks across PJSC Gazprom and Gazprom Group entities. 191191 PJSC Gazprom Annual Report 2019 Risk Management and Internal Control Implementation of the three lines of defence principle in PJSC Gazprom’s RMICS First line of defence Risk management and internal control at the business process level Second line of defence Development of a unified risk management and internal control policy, providing its implementation guidelines, and coordination of risk management and internal control activities at business units of PJSC Gazprom (Gazprom Group entities) Third line of defence Internal assessment of the RMICS performance Implemented by business process owners in business units of PJSC Gazprom (Gazprom Group entities) Implemented by the risk management and internal control unit and risk management and internal control centres Performed by a business unit of PJSC Gazprom (Gazprom Group entities) responsible for duly organising and conducting internal audits Key RMICS participants and their key risk management and internal control functions PJSC Gazprom’s Board of Directors — Approves the internal documents of PJSC Gazprom, which define the policy of PJSC Gazprom in setting up risk management and internal control processes — Establishes upper tolerable and threshold limits of risks for PJSC Gazprom and Gazprom Group — Reviews matters pertaining to RMICS organisation, functioning and effectiveness Risk management and internal control unit — Ensures implementation of the uniform risk management and internal control policy of PJSC Gazprom and Gazprom Group entities, provides implementation guidelines — Coordinates risk management and internal control activities at business units of PJSC Gazprom (Gazprom Group entities) — Develops, approves and ensures updating of PJSC Gazprom’s local regulations and guidelines on risk management and internal control — Defines guides to handling risk management processes and internal control procedures Owners and co-owners of risks Implement risk management stages — — Provide risk reports — Select risk response options and develop and implement risk management measures — Ensure the implementation of risk management measures Owners and co-owners of internal control procedures — Ensure the implementation, execution and continuous monitoring of the effectiveness of internal controls — Provide reporting on internal controls PJSC Gazprom’s RMICS is aligned with the principles of the Russian Corporate Governance Code Risk management and internal control activities provide for continuous functioning of the system’s components. 192 PJSC Gazprom Annual Report 2019 Risk Management and Internal Control RMICS structure Reporting and information sharing as part of the RMICS, relevant IT support RMICS performance assessment and monitoring Creating the internal control environment Goal-setting Risk identiﬁcation Risk assessment Risk response Development and implementation of risk management initiatives Internal control procedures Monitoring risks and risk management initiatives Risk response options (management methods) used by Gazprom Group entities Chain of RMICS internal regulations — Evasion (avoidance) of risk, abandonment of measures/activities causing risk, abandonment of possible sources of risk — Risk mitigation (reduction) — implementation of measures and activities aimed at reducing the level of risk — Redistribution (transfer) of risk — sharing the risk with the other party or parties, insurance — Risk adoption (retention) — absence of actions commonly taken within other risk response options, self-insurance, hedging In 2019, PJSC Gazprom, its subsidiaries and entities imple- mented risk management and internal controls in key focus areas, continued to improve the legal framework and guidelines and develop RMICS local regulations. They also organised and coordinated activities aimed at introducing and enhancing risk management systems at subsidiaries and entities of PJSC Gazprom, improved and formalised the processes of gathering and consolidating information on risks and the processes of preparing and submitting regular risk reports. To achieve the targets, PJSC Gazprom has in place an operating Department responsible for implementa- tion of the uniform risk management and internal control policy of PJSC Gazprom and Gazprom Group entities. In addition, risk management automation was continued and employees were retrained in risk management and internal controls in 2019. Risk Management and Internal Control Policy of PJSC Gazprom Risk index of PJSC Gazprom, its subsidiaries and entities Provisions defining approaches to managing individual risk groups — Regulations on Credit Risk Management at PJSC Gazprom and its Subsidiaries and Entities — Regulations on Foreign Exchange Risk Management at Gazprom Group — Regulations on Interest Risk Management at Gazprom Group — Regulations on Liquidity Risk Management at Gazprom Group — Regulations on Operational Risk Management at Gazprom Group Risk management guidelines Key Risk Factors In 2019, the key risk factors identified for the Company remained largely unchanged. PJSC Gazprom conducts assessments of the possible impact of short- and medium- term consequences of the COVID-19 outbreak on its operations, including financial and market risk ratios, as well as risks associated with PJSC Gazprom’s operations. e c n a n r e v o G e t a r o p r o C 193193 PJSC Gazprom Annual Report 2019 Risk Management and Internal Control Strategic and country risks Risk Description Risk management/mitigation Risks related to the global economy An unfavourable economic environment can lead to a slowdown in energy demand and drive the cost of borrowed capital European gas market risks Political risk Natural gas transit risks Russian regulatory risks for the gas industry Unconventional gas development risks The EU pursues a policy of diversifying its gas supply sources and increasing the share of natural gas exchange trade, which affects PJSC Gazprom as one of the main suppliers of natural gas to the EU countries Starting from 2014, Russia is under sanctions imposed by the EU, the United States and other countries Gas transmission via third countries is associated with the risks of the counterparties defaulting on their transit obligations, as well as uncertainty about the future conditions of transit contracts, which exposes Gazprom Group to the risk of improper performance of its obligations under gas supply contracts PJSC Gazprom’s operations are regulated by Federal Law No. 147-FZ On Natural Monopolies dated 17 August 1995 Shale gas appeals mostly to countries with limited conventional gas reserves and resources; however, the risk that these countries will reduce gas imports in the mid-term is assessed as insignificant Risks related to the development of renewable energy sources Renewable energy output can be expected to grow in some countries, which may squeeze gas consumption in these markets To ensure growth of energy sales, PJSC Gazprom considers numerous markets and distribution channels and expands the uses of natural gas. To maintain its financial stability, PJSC Gazprom optimises its leverage To mitigate the risk of lower supply levels, a set of initiatives continues to be implemented to both build new infrastructure and bolster demand for natural gas, as well as strengthen PJSC Gazprom’s position in the sectors with a potential for extra gas supplies PJSC Gazprom pursues a policy of ensuring technology independence A number of measures are taken such as diversification of export routes, expanding access to UGSFs abroad, and development of LNG trade PJSC Gazprom is engaged in intensive dialogue with government authorities to improve the pricing and tariff policy; objective supporting cases are prepared to inform decision making by PJSC Gazprom’s Board of Directors PJSC Gazprom continuously monitors the evolution of the shale gas industry and developments in other unconventional hydrocarbons industries around the world. The monitoring results, including the economics of unconventional gas production and its potential as a competition to PJSC Gazprom in its existing or prospective markets, are reviewed by the Company’s governing bodies on a regular basis, which enables PJSC Gazprom to efficiently implement its marketing policy in respective regions taking into account various gas sales channels The use of natural gas, inter alia, for electricity generation offers consumers economic, technological, and environmental benefits, which, PJSC Gazprom believes, will support natural gas as common energy source. In most cases, renewable electricity generation supplements other sources and may entail certain risks for the natural gas market if subsidising renewable energy is maintained at national and/or supranational levels 194 PJSC Gazprom Annual Report 2019Risk Management and Internal Control Customs, currency and tax regulation risks Risk Description Risk management/mitigation Risk of changes in the Russian currency regulation and tax legislation Currency regulation and tax legislation risks persist, along with the risk of a heavier tax burden on companies operating in the fuel and energy sector. Changes in the Russian currency regulation and tax legislation, as well as tax legislation changes in the countries in which Gazprom Group has a presence may affect the operations of PJSC Gazprom and Gazprom Group entities Changes in currency and tax laws are consistently monitored. PJSC Gazprom liaises with government authorities to ensure timely adjustment of its operations in line with changes in Russian and international laws Risks related to changes in Russian rules on customs control and duties Customs authorities may introduce additional customs requirements if the rules of customs control and export duty payment are amended PJSC Gazprom complies with the requirements of customs laws and communicates with government authorities Financial risks Risk Foreign exchange and inflation rate risks Description Risk management/mitigation Potential cash flow reduction due to adverse change in foreign exchange rates. High exchange rate volatility coupled with income and expenses denominated in different currencies affect PJSC Gazprom’s performance. The current inflation rate has no significant influence on PJSC Gazprom’s financial position PJSC Gazprom ensures the optimal ratio of assets and liabilities denominated in foreign currency, calculates earnings considering the foreign exchange risk, and forecasts exchange rates to develop a forecast balance. To minimise losses from exchange rate volatility, PJSC Gazprom hedges its foreign exchange and interest rate risks Credit and liquidity risks Delayed or incomplete discharge of contractual obligations by some counterparties entails risks for PJSC Gazprom’s operations Relations with credit institutions are subject to credit risk limits revised on a regular basis and reflecting, inter alia, the calculated credit rating. Performance of contractual obligations is monitored and credit quality of counterparties is assessed with the adoption of measures to reduce risks in case of low creditworthiness Market risks Risk Market price and size risks Description Risk management/mitigation If oil prices and gas exchange quotations drop and/or maintain at current levels for a long time, resulting risks may lead to a decline in revenues. There are also volume risks associated with a certain flexibility that buyers have in terms of gas withdrawal These risks are managed by adjusting contract terms and conditions or entering into new contracts, determining approved types of transactions and financial instruments and counterparties to enter into such transactions e c n a n r e v o G e t a r o p r o C 195195 PJSC Gazprom Annual Report 2019 Risk Management and Internal Control PJSC Gazprom’s operating risks Risk Description Risk management/mitigation Risks of early termination and suspension of subsoil licences Risks of failure to reach the peak gas withdrawal capacity at UGSFs Risk of power outages at UGSS facilities Non-compliance with licence agreements exposes PJSC Gazprom to risks of early termination or suspension of subsoil licences for survey, exploration and production of hydrocarbons Failure to reach necessary gas supply volumes in the context of a steep increase in gas consumption Internal and external factors may lead to power outages at UGSS facilities Risks related to occupational health, industrial and fire safety PJSC Gazprom’s performance depends on its occupational health, industrial and fire safety practices Regular monitoring, control of compliance with licence requirements, and timely amendment of licence agreements minimise the likelihood of licence revocation and suspension UGSFs are tested to confirm their maximum daily deliverability PJSC Gazprom implements comprehensive programmes to enhance reliability of power supply facilities, insure equipment and create reserves to cover potential losses PJSC Gazprom has in place and operates the UOHSMS integrated into its management system to manage OHS risks and meet the objectives and commitments relating to occupational health, industrial and fire safety Cost risks Facilities risks Increased prices for equipment, technical devices, components, as well as works and services, which form the actual cost of capital construction projects, constitute an investment risk Entering into contracts for performance of works (provision of services, supply of inventory) with a fixed price, and relevant monitoring during the execution of contracts help reduce the cost risks of investment activities The key operations, including hydrocarbon production, transportation, processing/refining, and storage, carry process and engineering, natural and climatic risks, as well as risks of adverse actions by personnel or third parties The Unified Gas Supply System (UGSS) ensures reliable gas supplies. Stable operation of the system is achieved by implementing advanced and innovative diagnostic methods, carrying out timely turnaround and maintenance, revamping and upgrading existing facilities. Insurance coverage is provided to protect Gazprom Group entities’ property interests, which includes property insurance (including offshore facilities), business interruption insurance, and liability insurance for construction, repair and operation of production facilities Reserve estimation procedures have been developed and are implemented, including in accordance with international standards. Gazprom’s reserves estimated under Russian reserves classification standards are recorded in its books after the annual review and approval by the State Reserves Commission of the Russian Ministry of Natural Resources Hydrocarbon reserve estimation risks PJSC Gazprom’s strategic and financial goals depend on hydrocarbon reserves. Thus, inaccurate reserve estimation bears potential risks for PJSC Gazprom’s operations Environmental risks Climate risks Risk Climate change risk 196 The key operations, including hydrocarbon production, transportation, processing/refining, and storage, carry environmental risks (risks of environmental pollution, non-compliance with environmental regulations) that may lead to legal, financial and reputational implications PJSC Gazprom implements a uniform Environmental Policy, programmes and initiatives to reduce its environmental footprint, takes out voluntary environmental liability insurance, introduces best available innovative technology for mitigating the environmental impact. PJSC Gazprom has developed and operates an efficient EMS integrating environmental controls of both PJSC Gazprom and Gazprom Group entities. Efforts taken by PJSC Gazprom help maintain high levels of environmental risk manageability Description Risk management/mitigation Identification and assessment of climate risks are central to PJSC Gazprom’s commitment to adapting to climate change PJSC Gazprom’s risk mitigation measures include expanding gas infrastructure across Russian regions to reduce GHG emissions, implementing energy saving and carbon footprint reduction initiatives, and adapting to possible climate changes PJSC Gazprom Annual Report 2019Procurement Performance Procurement principles followed by Gazprom Group Creating conditions for timely and full supply to Gazprom Group of goods, works and services, and identification of a supplier (contractor, service provider) who is able to both meet the customer’s needs in due time and show strong performance and comply with price, quality and reliability requirements Ensuring safe operation of hazardous UGSS facilities Procurement transparency Equality, fairness, non-discrimination, no unreasonable and restrictive business prac- tices towards bidders Targeted and cost-efficient spending, and implementation of measures to reduce the customer’s costs No restriction of access to bidding Fostering competition between bidders Ensuring the balance of costs related to organising and conducting competitive procurement and expected economic benefits Documents regulating procurement procedures at PJSC Gazprom and its subsidiaries — Federal Law No. 223-FZ On Procurement of Goods, Works and Services by Certain Types of Legal Entities, dated 18 July 2011 (the “Federal Law On Procurement”) — A new version of the Regulations on the Procurement of Goods, Works and Services by PJSC Gazprom and Gazprom Group Companies (approved by Resolution of PJSC Gazprom’s Board of Directors No. 3168 dated 19 October 2018, as amended) Gazprom Group runs an effective vertically integrated procurement system. The role of PJSC Gazprom’s Central Procurement Office is assigned to its Department established to implement the uniform procurement policy of Gazprom Group in accordance with the principles set forth in the Regulations on Procurement. Procurement activities include cost optimisation through the use of procurement procedures ensuring the selection of counterparties on a competitive basis, evaluation of initial (highest) prices of goods, works and services, as well as prices of contracts concluded with sole suppliers (contractors, service providers). Procurement by PJSC Gazprom and its subsidiaries is public, transparent, standardised, and straightforward to the maximum possible extent In line with the Federal Law On Procurement, information on procurement, including procurement plans, notices and competitive procurement documentation, minutes, informa- tion on signed contracts and their execution, information on the number and total price of contracts signed as a result of procurement procedures are published in the Unified Information System of public procurement of goods, works and services for state and municipal needs (UIS, www.zakupki.gov.ru). Except for the information access to which is legally restricted, the above mentioned information is available to the general public. e c n a n r e v o G e t a r o p r o C 197197 PJSC Gazprom Annual Report 2019 Procurement Performance Procurement methods used by Gazprom Group I Competitive procurement — Bidding — tender, auction, request for proposal, request for quotation — Competitive selection other than bidding II Non-competitive procurement — Marketing research — Procurement through the Trading Portal — Non-alternative procurement — Procurement through participation in bidding — Procurement from a sole supplier (contractor, service provider) The share of online procurement in the total value of competitive procurement by PJSC Gazprom and its subsidiaries, % 2017 2018 2019 98.7 99.3 99.8 Total price of contracts awarded by PJSC Gazprom and its subsidiaries through a competitive procurement process, RUB bn 2017 2018 2019 427.9 (more than 15 thousand contracts) 584.1 (more than 18 thousand contracts) 520.1 (more than 16.9 thousand contracts) ~ RUB20 bn of annual savings of PJSC Gazprom and its subsidiaries come from competitive procurement To maintain procurement business processes, Gazprom Group uses PJSC Gazprom’s Automated Electronic Procure- ment System (AEPS, https://zakupki.gazprom.ru) covering the entire procurement cycle from planning to signing and executing a contract. Gazprom Group’s online procurement is arranged through the Electronic Trading Platform of Gazprombank (ETP-GPB) (the Gazprom Group Procurement section at https://etpgpb.ru/pao_gazprom/) integrated with the UIS and the AEPS. ETP-GPB is included in the list of electronic platform operators complying with the requirements set out in the Federal Law On Procurement, including requirements to procurements accessible to small and medium-sized enterprises (SMEs). In 2019, the Company complied with the targets for the share of procurement from SMEs set by the Russian Government The Regulations on Procurement provide for PJSC Gazprom’s pre-qualification process to compile a Register of Gazprom Group’s potential bidders. Savings by PJSC Gazprom and its subsidiaries following a competitive procurement process, RUB bn 2017 2018 2019 Entities within the pre-qualification system and entities included in the Register of Gazprom Group’s potential bidders 20.3 22.1 19.6 Total including SMEs As at 1 February 2018 As at 1 February 2019 As at 1 February 2020 451 179 530 292 668 461 Note. Savings are defined as the difference between the initial (highest) and final contract prices including the cost of the procurement process, as well as evaluation of initial (highest) prices of goods, works and services. 198 PJSC Gazprom Annual Report 2019Procurement Performance As part of the pre-qualification process, Gazprom Group’s Central Procurement Office monitors participating entities on a quarterly basis, in particular, to assess instances of deadline violation, change of price, lower quality of work, negative references. 69 % the share of SMEs among entities included in the Register of Gazprom Group’s potential bidders as at 1 February 2020 In the course of their procurement activities PJSC Gazprom and its subsidiaries use all available levers not conflicting with Russian laws to optimise the initial price of procured goods (works, services). Methods and tools used by PJSC Gazprom and its subsidiaries to optimise the initial price of procured goods (works, services) Before the tender is announced One or more methods used: — comparable market prices — per unit rates — cost method — rate method — design estimates — R&D estimates — price calculation based on external factors — price calculation for long lead engineering goods During the tender — Extension of deadlines to attract more bidders — Submission of new business and price offers In case of procurement from a sole supplier, prior to signing a contract, Gazprom Group’s Central Procurement Office and PJSC Gazprom’s Budget Committee review the price rationale of contracts and supplementary agreements and typically identify an opportunity to reduce the price by 10%–20%. Enhancing access for small and medium-sized enterprises (SMEs) to PJSC Gazprom’s procurement opportunities Pursuant to resolutions issued by the Russian Government, PJSC Gazprom implements a number of activities to enhance SMEs’ access to the procurement process of PJSC Gazprom. — A List of Goods, Works and Services to be procured by PJSC Gazprom from SMEs was developed, approved and published in the UIS — PJSC Gazprom’s Procurement Plan designates procurement opportunities accessible exclusively to SMEs — Draft plans for procurement by PJSC Gazprom and individual Gazprom Group companies of goods, works and services (including innovative and high-tech products) set forth by Russian Government Decree No. 2258-r dated 6 November 2015 are duly agreed with Russian Small and Medium Business Corporation to ensure compliance with the applicable Russian laws providing for involvement of SMEs in procurement, including allocation of the SME quota in the procurement plan — PJSC Gazprom involves innovative SMEs under its Innovative Development Programme until 2025 To roll out innovative SME products and review innovative proposals coming from individuals and legal entities, the Company operates a One-Stop System (www.oknogazprom.ru), managing the whole process of submitting innovative proposals to be used in PJSC Gazprom’s operations, from submission to the final decision. Workshops are held on PJSC Gazprom’s relations with innovative SME providers. In 2019, PJSC Gazprom’s procurements from SMEs determined pursuant to Resolution of the Russian Government No. 1352 On Specifics of Participation of Small and Medium-Sized Enterprises in the Procurement of Goods, Works and Services by Certain Types of Legal Entities, dated 11 December 2014 (including the amounts paid) accounted for 38.8% of the aggregate annual contract values, including 24.8% from procurements accessible exclusively to SMEs. PJSC Gazprom complies with the targets for the share of procurement from SMEs set by the Russian Government. In 2019, the aggregate value of contracts signed by Gazprom Group with SMEs included in the Unified Register of Small and Medium-Sized Enterprises (https://ofd.nalog.ru) amounted over RUB 380 bn, including 5.5 thousand contracts worth over RUB 122 bn through competitive procurements accessible exclusively to SMEs. SMEs accounted for more than half (59%, or 13.6 thousand) of the total number of Gazprom Group’s suppliers of goods, works and services contracted in 2019. e c n a n r e v o G e t a r o p r o C 199199 PJSC Gazprom Annual Report 2019 Procurement Performance PJSC Gazprom’s 2019 annual report on procurement of goods, works and services by certain types of legal entities from SMEs has been duly published in the Unified Information System (information is available in Russian only) www.zakupki.gov.ru and on PJSC Gazprom’s website (information is available in Russian only) www.gazprom.ru The list of goods, works and services procured by PJSC Gazprom from SMEs has been published in the UIS (information is available in Russian only) www.zakupki.gov.ru For more details on the One-Stop System see PJSC Gazprom’s website (information is available in Russian only) www.gazprom.ru For more details on the procurement system at PJSC Gazprom and its subsidiaries see Gazprom Group’s Sustainability Report published on an annual basis 200 PJSC Gazprom Annual Report 2019Ensuring Compliance of Operations with Legal Requirements Legal support of PJSC Gazprom’s operations is inextricably linked to relevant legal regulation and is focused on the Company’s objectives: — Achieving efficient financial and business performance — Ensuring the completeness, timeliness and fairness of all types of accounting and reporting at PJSC Gazprom, as well as other information to be disclosed under applicable laws — Complying with applicable laws; — Preventing and countering corruption — Protecting PJSC Gazprom’s assets (including data assets) Legal regulation is exercised in accordance with the Consti- tution of the Russian Federation, Federal Law No. 69-FZ On Gas Supply in the Russian Federation, dated 31 March 1999; Federal Law No. 116-FZ On Industrial Safety of Hazardous Production Facilities, dated 21 July 1997; Federal Law No. 7-FZ On Environmental Protection, dated 10 January 2002; Federal Law No. 174-FZ On Ecological Expertise, dated 23 November 1995; Federal Law No. 256-FZ On Safety of the Fuel and Energy Complex, dated 21 July 2011, and other federal laws and regulations of the Russian Federation, as well as international laws, treaties and agreements. Anti-Corruption Efforts PJSC Gazprom has developed and adheres to the anti- corruption framework while effective local regulations adopted as part of anti-corruption measures help foster negative sentiment towards corrupt conduct, prevent or resolve conflicts of interest, and prevent unlawful behaviour. Key legal efforts of PJSC Gazprom and its subsidiaries and entities — Protection of rights and legitimate interests in administrative and judicial proceedings — Contract work and legal protection of PJSC Gazprom’s trademarks in the Russian Federation and abroad, accounting and disclosure of information about the Company affiliates — Legal support of international business — — Legal support of the activities of PJSC Gazprom’s governing bodies Improvement of the legislative and regulatory framework and of interaction between PJSC Gazprom and its subsidiaries and other entities in respect of which the Company has proprietary and corporate rights — Legal support of dedicated projects to protect interests and reputation during mergers and acquisitions, restore and strengthen corporate control over property investments, as well as in interactions with law enforcement agencies e c n a n r e v o G e t a r o p r o C 201201 PJSC Gazprom Annual Report 2019 Ensuring Compliance of Operations with Legal Requirements Russian anti-corruption statutory regulations guiding PJSC Gazprom — Federal Law No. 273-FZ On Combating Corruption, dated 25 December 2008 (the new version dated 16 December 2019) — Federal Law No. 79-FZ On Prohibiting Certain Categories of Persons from Opening and Keeping Bank Accounts (Deposits), Keeping Cash and Securities with Foreign Banks Outside the Russian Federation, and Possessing and/or Using Foreign Financial Instruments, dated 7 May 2013 (the version dated 1 May 2019) — Federal Law No. 230-FZ On Control over Expenditures of Public Officials and Other Persons to Match Their Income, dated 3 December 2012 (the version dated 3 August 2018) — Federal Law No. 432-FZ On Amending Certain Laws of the Russian Federation to Improve Russian Anti-Corruption Law dated 16 December 2019 — Presidential Decree No. 557 On Approving the List of Positions within the Federal Public Service Requiring Disclosure by Federal Public Servants of Information on Their Income, Property and Property Liabilities, as well as on Income, Property and Property Liabilities of Their Spouses and Underage Children, dated 18 May 2009 (the version dated 31 December 2019) — Presidential Decree No. 378 On the National Plan to Combat Corruption for 2018–2020, dated 29 June 2018 International anti-corruption regulations PJSC Gazprom has committed to — United Nations Convention against Corruption (ratified by Federal Law No. 40-FZ dated 8 March 2006) — United Nations Convention against Transnational Organized Crime (ratified by Federal Law No. 26-FZ dated 26 April 2004) — Criminal Law Convention on Corruption of the Council of Europe and non-member states (ratified by Federal Law No. 125-FZ dated 25 July 2006) PJSC Gazprom’s anti-corruption practices comply with the main international and Russian regulations. Set of PJSC Gazprom’s anti-corruption documents Documents approved by PJSC Gazprom’s Board of Directors — Anti-Corruption Policy of PJSC Gazprom — PJSC Gazprom’s primary anti-corruption document — Code of Corporate Ethics of PJSC Gazprom — Risk Management and Internal Control Policy of PJSC Gazprom Documents approved by instructions and orders of PJSC Gazprom — Regulations on the Corporate Ethics Commission of PJSC Gazprom — Regulations on the Hotline for Fighting Fraud, Corruption and Embezzlement at Gazprom Group — Procedure for a Conflict of Interest Disclosure and Conflict of Interest Resolution — Procedure for reporting offences with signs of corruption committed by employees, counterparties or third parties, which have become known to an employee, and for dealing with allegations of corruption — Procedure for reporting cases when an employee is incited to commit offences, and for reviewing such reports — Procedure for protecting whistle blowers who have reported offences relevant to the Company’s operations The Board of Directors and executive bodies of PJSC Gazprom are involved in preventing and combating corruption. The process of preventing and revealing corrupt practices at Gazprom Group is being improved. The Company imple- ments the Anti-Corruption Plan for 2018–2020 approved by PJSC Gazprom’s Board of Directors (Resolution of the Board of Directors No. 3194 dated 18 December 2018). Anti-corruption is a constant focus for PJSC Gazprom’s management Responsibilities of PJSC Gazprom’s governing bodies in preventing and combating corruption PJSC Gazprom’s Board of Directors — Organises and is responsible for the general supervision of PJSC Gazprom’s activities in preventing and combating corruption — Regularly reviews reports from the Company’s executive bodies on corruption prevention and combating activities Chairman of the Management Committee — Allocates powers, responsibilities and accountability for preventing and combating corruption between Deputy Chairmen of the Management Committee and the Company’s business units — Ensures measures aimed at implementing the principles and requirements of the Anti-Corruption Policy, including appointments of persons responsible for the development, implementation and supervision of anti-corruption procedures — Prepares proposals on enhancing anti-corruption internal controls at PJSC Gazprom Audit Committee of the Board of Directors 202 PJSC Gazprom Annual Report 2019 Ensuring Compliance of Operations with Legal Requirements Compliance with Corporate Ethics PJSC Gazprom has adopted its Code of Corporate Ethics developed with due account for Russian and international corporate governance best practices. The document details PJSC Gazprom’s corporate values and determines the fundamental rules of business conduct stemming from such values, which rule out any conflicts of interest or corrupt practices and, in particular, impose restrictions on nepotism, employee engagement with PJSC Gazprom’s competitors, their serving on elected government bodies, acceptance of gifts. The Code specifies the procedure to be followed by employees in the event of a conflict of interest, declares zero tolerance for corrupt conduct, and establishes the obligation of managers and employees to notify the employer of any corrupt offers made to them. The Code also affirms environmental responsibility and non-discriminatory principles, and establishes implementation and supervision practices on compliance with corporate ethics standards. Employee penalties for non-compliance with the Code of Corporate Ethics of PJSC Gazprom — Social condemnation — Public censure — Forfeiture of bonuses (in line with internal documents) — Disciplinary sanctions (if there are signs of a disciplinary offence) The Code provisions are mandatory for PJSC Gazprom’s employees and legal entities under its control and optional for employees of PJSC Gazprom affiliates which are not under its control, and for PJSC Gazprom’s counterparties. In 2019, the Code was amended to cover members of PJSC Gazprom’s Board of Directors in order to promote the enhancement of corporate governance and introduce the best practices of the Russian financial market. The Regulations on the Board of Directors of PJSC Gazprom were supplemented by provisions on identifying and preventing conflicts of interest of Board members (Clause 5.5, Article 5 of the Regulation). The amendments to the Regulations were approved by the Resolution of PJSC Gazprom’s Annual General Shareholders Meeting dated 28 June 2019 (Minutes No.1). In addition, the standards of corporate ethics were extended to members of boards of directors at entities controlled by PJSC Gazprom. 203203 The Code compliance clause for the PJSC Gazprom’s contracts with counterparties was drafted In the reporting year, measures were taken to implement codes of corporate ethics in controlled entities of the second and subsequent levels of ownership (through controlled companies of the first level of ownership). According to the reporting data from subsidiaries, codes of corporate ethics have been introduced in their subordinate investees. In 2019, over 300 companies were involved in introducing codes of corporate ethics across PJSC Gazprom controlled entities PJSC Gazprom and its subsidiaries organise regular aware- ness days to communicate to their employees the effective rules of business, including anti-corruption corporate ethics. In 2019, employees of PJSC Gazprom’s Administration were enrolled in the Corporate Ethics at PJSC Gazprom online training course followed by final knowledge tests. The standing Corporate Ethics Commission of PJSC Gazprom, which also considers cases of employee conflicts of interest, is responsible for the implementation of the Code of Corporate Ethics, which is one of the Company’s anti-corruption standards. e c n a n r e v o G e t a r o p r o C PJSC Gazprom Annual Report 2019 Ensuring Compliance of Operations with Legal Requirements Corporate Ethics Commission’s performance in 2019 Focus areas Performance highlights Reviewing reports on an ongoing basis as required by the applicable Russian laws with the involvement of dedicated business units and subsidiaries, if required Revealing the signs of a conflict of interest in sole executive bodies of entities controlled by PJSC Gazprom, and making recommendations on preventing and/or mitigating possible negative effects of identified conflicts of interest Arranging annual activities to ensure that the Company’s management, including employees who are members of PJSC Gazprom’s Board of Directors and Management Committee, sign written commitments to comply with the Code provisions in the prescribed form During the reporting period the Commission held 7 meetings and reviewed 18 matters, including those related to queries made by employees of PJSC Gazprom and its subsidiaries. The Commission’s performance is reported to the Chairman of PJSC Gazprom’s Management Committee on an annual basis. The Chairman of PJSC Gazprom’s Management Committee may impose sanctions stipulated by the Code at his own initiative or at the Commission’s suggestion, or at the initiative of the violator’s immediate superior. In 2019, no conflicts of interest were identified for members of the Board of Directors, Management Committee or the Chairman of the Management Committee of PJSC Gazprom Updates regarding the Code and the Commission are promptly posted on PJSC Gazprom’s intranet server. All the reports received by the Commission were reviewed at meetings held in the reporting year New heads of 40 companies controlled by PJSC Gazprom were asked to fill in a conflict of interest questionnaire. The survey results were reviewed at a Commission meeting The Commission identified one nepotism-related conflict of interest with the head of an entity controlled by PJSC Gazprom. The conflict of interest situation was resolved All relevant managers of PJSC Gazprom have signed and submitted to the Commission for safekeeping written commitments to comply with the Code Preventing and Revealing Corrupt Practices PJSC Gazprom’s Corporate Security Service and corporate security departments of PJSC Gazprom’s subsidiaries prevent and reveal corrupt practices at Gazprom Group as prescribed by Russian laws and regulations of PJSC Gazprom. This work relies on an ongoing cooperation with departments responsible for internal audit, procurement, asset management and corporate relations, PJSC Gazprom’s risk management and internal control unit and with law enforcement agencies of the Russian Federation. Since November 2014, PJSC Gazprom has operated a Hotline to report incidents of perceived fraud, corruption and embezzlement in Gazprom Group. Similar arrangements are in place at several PJSC Gazprom’s key subsidiaries. Employees of PJSC Gazprom’s Corporate Security Service and corporate security departments of subsidiaries review the received information (via digital communication channels, telephone or post, as well as reports made in person), including anonymous, to reveal preconditions for, and instances of, corruption at Gazprom Group. 204 PJSC Gazprom Annual Report 2019 Ensuring Compliance of Operations with Legal Requirements Performance of the Corporate Security Service’s Hotline in 2019 — More than 900 reports were received (mainly via e-mail), of which most reports were not directly related to the purpose and objectives of the Hotline and only 81 reports concerned possible violations of Russian laws at Gazprom Group — The majority of reports concerned possible violations of procurement rules; complaints related to gas sales to end consumers (primarily, households); possible fraudulent activities by third parties and other violations — Following the investigation of these reports the Service did not identified any instances of corruption (as defined by Article 1 of Federal Law No. 273-FZ On Combating Corruption, dated 25 December 2008, as amended and supplemented) Investigation results were communicated to relevant business units of PJSC Gazprom, the Company’s subsidiaries and entities — Contact details of the Hotline for fighting fraud, corruption and embezzlement at Gazprom Group are available on PJSC Gazprom’s website www.gazprom.com PJSC Gazprom adheres to the key principles of combating corruption, fraud and elimination of conflicts of interest in procurement, and takes measures to prevent relevant violations. As part of enhancing the uniform procurement system PJSC Gazprom approved the Programme to Improve the Procurement Management in 2019, the implementation of which provides, inter alia, for ongoing review of members of tender committees for their affiliation with bidders and possible private gain from certain tender results, including at the stage of compiling a list of possible committee members. Anti-corruption framework for preventing and avoiding bad procurement practices — Anti-corruption clauses of procurement contracts provide for disclosing counterparties’ ultimate beneficiaries — The annual procurement plan is publicly available — A dedicated collective body, the Tender Committee, is established to summarise the competitive bidding and marketing research results. Gazprom Group closely monitors the membership of the Tender Committee to avoid any conflict of interest. Members of the Tender Committee who have vested interests in the procurement process results or are bidders’ employees or management shall withdraw (with a corresponding entry made in the minutes) and abstain from voting on the matter. Votes of the interested Tender Committee members are not taken into account when counting the votes following the procurement procedure. The Tender Committee’s decisions on the winning supplier (contractor, service provider) are guided by the principles of fair, equal and objective treatment of the bidders based on the bid assessment and comparison criteria set out in the tender documentation (a request for quotation notice) — Corporate entities and officers engaged in arranging and conducting procurements bear administrative liability for violating the procedure for procuring goods, works and services, as prescribed by Article 7.32.3 of the Russian Federation Code of Administrative Offences In order to protect the rights of bidders to challenge the actions of the customer (organiser) pursuant to the Federal Law On Procurement, the Provisions on Procurement provide for a 10-day period during which no contract may be awarded following a tender — — Bidders have the right and opportunity to propose to PJSC Gazprom (including anonymously) improvements to bidding procedures, comments and complaints regarding actions/omission of customers, organisers and/or their officers, inform about unreasonable requirements to procurement items, suppliers (service providers), deadlines and terms of delivery of goods (performing work, rendering services) in the tender documentation, as well as about other unreasonable restrictions of competition during the procurement process. The feedback form for potential bidders is available in the Tenders section of PJSC Gazprom’s official website Subsidiaries gather and consolidate information on measures taken to comply with the requirements and restrictions established by codes of corporate ethics regarding the amount of entertainment expenses, business gift expenses, charity and other activities involving corporate risk exposure. e c n a n r e v o G e t a r o p r o C 205205 PJSC Gazprom Annual Report 2019 PJSC Gazprom’s Board of Directors approved a new version of the Regulations on Monitoring Compliance with Laws on Countering the Illegal Use of Insider Information and Market Manipulation at PJSC Gazprom in 2019 (Resolution No. 3338 dated 19 November 2019). The document provides for the duty of the responsible unit to monitor compliance with laws on countering the illegal use of insider information and market manipulation. In 2019, no violations of insider information laws involving the Company or its employees were identified Development of insider information protection safeguards will continue into 2020. Plans for 2020 to improve safeguards protecting insider information — Draft and approve a new version of the Regulations on Access to Insider Information of Joint Stock Company Gazprom and Maintaining its Confidentiality, incorporating instructions and recommendations of the Bank of Russia — Develop and approve internal controls to identify and prevent illegal use of insider information and/or market manipulation in pursuance of Russian laws All information required to perform the duties of preventing illegal use of insider information and market manipulation, as well as information on the legal consequences of illegal use of PJSC Gazprom’s insider information by an insider and/ or market manipulation is available on PJSC Gazprom’s website www.gazprom.com Ensuring Compliance of Operations with Legal Requirements Corporate security departments of subsidiaries send quarterly reports on anti-corruption efforts and any revealed cases with indirect signs of corruption to PJSC Gazprom’s Corporate Security Service and inform the Service of decisions made following the investigation of such cases. The Anti-Corruption Policy of PJSC Gazprom is available on PJSC Gazprom’s website www.gazprom.com Countering the Illegal Use of Insider Information and Market Manipulation Under Russian statutory requirements, PJSC Gazprom counters the illegal use of insider information, has the rules regulating access to its insider information and protection of confidentiality of such information, and determines the framework of monitoring compliance with the relevant laws. PJSC Gazprom has a business unit responsible for com- pliance with insider laws and regulations. Duties of the business unit responsible for insider information — Monitors changes in the laws on countering the illegal use of insider information and market manipulation — Updates the Company’s local regulations — Updates relevant sections of PJSC Gazprom’s website — Updates insider lists — Communicates with the Bank of Russia as regulator and with stock exchanges; sends updated insider lists to market operators as requested — Notifies individuals of their inclusion in and removal from the — Company’s insider list Informs insiders, including PJSC Gazprom’s employees, of the applicable legal requirements on a regular basis; sends Information for Insiders, which is updated in line with changes in legislation and/or PJSC Gazprom’s local regulations, to the individuals included in PJSC Gazprom’s insider list — Monitors compliance with the laws on countering the illegal use of insider information 206 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market The steps taken in 2019 to enhance corporate governance and dividend policy were recognised by the investment community. At year-end, the US dollar-denominated price of the Company shares increased by 87% and PJSC Gazprom became the No. 1 company in the Russian stock market in terms of capitalisation. Creating conditions for capitalisation increase, strengthening and developing a constructive dialogue with shareholders and investors are our top near-term priorities. Shareholding Structure PJSC Gazprom’s charter capital is RUB 118,367,564,500 divided into 23,673,512,900 ordinary registered shares with a par value of RUB 5 each. State registration number of the issue is 1-02-00028-A. The state registration date is 30 December 1998. The Company has no preferred shares. As the major shareholder of PJSC Gazprom, the Russian Federation holds a more than 50% controlling stake (including direct and indirect ownership). The Russian Federation does not have a special right to manage PJSC Gazprom’s affairs (a “golden share”). PJSC Gazprom’s shareholding structure, % As at 31 December 2018 As at 31 December 2019 The Russian Federation represented by the Federal Agency for State Property Management AO ROSNEFTEGAZ* AO Rosgazifikatsiya* ADR holders** Other registered holders 38.37 10.97 0.89 24.13 25.64 38.37 10.97 0.89 19.70 30.07 * As at 31 December 2018 and 31 December 2019, the cumulative share in PJSC Gazprom directly or indirectly controlled by the Russian Federation totals 50.23% and is owned through the full ownership of AO ROSNEFTEGAZ which also holds a 74.55% stake in AO Rosgazifikatsiya. ** The Bank of New York Mellon issued ADRs on PJSC Gazprom shares. e c n a n r e v o G e t a r o p r o C 207207 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market The Memorandum of Intent of the Russian Federation as the Major Shareholder of PJSC Gazprom regarding PJSC Gazprom shares is available on PJSC Gazprom’s website www.gazprom.com According to the Memorandum of Intent of the Russian Federation as the Major Shareholder of PJSC Gazprom, the Planned Forecast (Programme) for the Privatisation of Federal Property and the 2020–2022 Federal Property Privatisation Guidelines (approved by Decree of the Russian Government No. 3260-r dated 31 December 2019), there are no plans to dispose of any PJSC Gazprom shares owned by the federal government. In 2019, the Company received no information on any special agreements between PJSC Gazprom’s shareholders. 472,162 shareholders included in the list of persons entitled to participate in PJSC Gazprom’s Annual General Shareholders Meeting in 2019 As at 31 December 2019, there were no PJSC Gazprom shares the title to which was transferred to the Company. At the same time, as at the said date, PJSC Gazprom subsidiaries held 29 million ordinary shares in the Company representing 0.1% of the total number of ordinary shares of PJSC Gazprom. The key reason behind the reduction of the ADR holders’ stake in PJSC Gazprom in 2019 was the conversion of ADRs into ordinary shares through the sale of the Company quasi- treasury shares in November 2019. Moreover, the reduction of the ADR stake was influenced by the increasing appetite of global investors for shares in Russian companies, largely driven by infrastructure improvements in the Russian securities market and by most international funds buying shares of public Russian companies having obtained direct access to trading on the Moscow Exchange. Sale of PJSC Gazprom quasi-treasury shares in 2019 In July and November 2019, PJSC Gazprom subsidiaries divested 2.93% and 3.59% of their shares in PJSC Gazprom (in the form of ordinary shares and ADRs) through the Moscow Exchange trading platform, for total amounts of RUB 139 bn and RUB 188 bn, respectively. The chosen transaction profiles made it possible to avoid share price correction, which is typical for a standard secondary offering. For example, the deviation of the offering price from the weighted average bookbuilding price when a block of shares was sold in November 2019 was only 1.8%, which is a strong showing. While Gazprom share prices continued to grow in 2019, both transactions were carried out in view of increasing the Company’s capitalisation. As a result of the offering, the free float of the Company shares increased, which is confirmed by the valuation of the Moscow Exchange and is a positive signal for the market. The sale of 3.59% of PJSC Gazprom shares in November 2019 became the largest secondary offering in the Russian market since 2007 Stock Market and Capitalisation PJSC Gazprom shares are included in the first (top) level quotation list of the Moscow Exchange and the Saint Petersburg Exchange. 50 % PJSC Gazprom shares in free float as at 6 February 2020 (according to the Moscow Exchange) In October 1996, the Company listed depositary receipts on the London Stock Exchange (LSE). The ADRs certifying the rights to PJSC Gazprom ordinary shares under foreign law were issued by The Bank of New York Mellon as depositary bank. An ADR stands for two PJSC Gazprom shares. ADRs on PJSC Gazprom shares are traded on the London, Berlin and Frankfurt exchanges, the Moscow Exchange, the US OTC market, and on the Singapore OTC market among qualified institutional buyers (QIBs). The London Stock Exchange accounts for the bulk of trade in PJSC Gazprom ADRs. PJSC Gazprom explores opportunities to expand on Asia Pacific exchanges. 208 PJSC Gazprom Annual Report 2019Share Capital and Securities Market PJSC Gazprom’s market capitalisation in 2019 increased significantly to RUB 6.1 tn as at 31 December 2019, or USD 98 bn (RUB 3.6 tn or USD 52.3 bn as at 31 December 2018). 2019 saw a notable increase in the average daily trading in PJSC Gazprom ordinary shares on the Moscow Exchange and in ADRs on PJSC Gazprom ordinary shares on the London Stock Exchange. PJSC Gazprom’s capitalisation dynamics and the volume of trading in shares and ADRs on the Company shares were largely driven by increased dividend payouts and the announcement of a new Dividend Policy being drafted to provide for the payout ratio of 50% of the adjusted IFRS net profit of Gazprom Group. In addition, investors followed other events related to the Company’s operations, including progress in the construction of export gas pipelines and the sale of two blocks of shares in PJSC Gazprom owned by its subsidiaries. PJSC Gazprom share price growth in 2019 largely outperformed the MOEX Russia Index over the same period PJSC Gazprom’s market capitalisation in 2019, RUB tn Main indices of Russian exchanges which include the stock of PJSC Gazprom Index MSCI Russia MSCI Emerging Markets FTSE Russia IOB MOEX Russia Index (IMOEX) MOEX Blue Chip Index (MOEXBC) MOEX Broad Market Index (MOEXBMI) MOEX Oil and Gas Index (MOEXOG) RTS Index (RTSI) RTS Oil and Gas Index (RTSOG) MOEX — RSPP Responsibility and Transparency Index MOEX — RSPP Sustainability Vector Index PJSC Gazprom’s share and DR index weight as at 31 December 2019 18.04% 0.71% 19.57% 14.37% 17.69% 14.38% 14.54% 14.37% 14.54% 15.00% 4.90% 7.0 6.0 5.0 4.0 3.0 01 02 03 04 05 06 07 08 09 10 11 12 Note. Market capitalisation is calculated as the daily rouble-denominated closing share price on the Moscow Exchange multiplied by the total number of PJSC Gazprom shares issued. The total shareholder return was 0.783 in 2019, due to an increase in the market value of the Company shares. PJSC Gazprom shares are on the list of underlying securities for stock indices, including the MSCI Russia, MSCI Emerging Markets, FTSE Russia IOB, STOXX All Europe 100, as well as indices of leading Russian stock exchanges. PJSC Gazprom ordinary share price performance and daily trading volumes on the Moscow Exchange in 2019 250 225 200 175 150 01 02 03 04 05 06 07 08 09 10 11 12 Share price, RUB Trading volume, mm shares PJSC Gazprom ADR price performance and daily trading volumes on the LSE in 2019 8 7 6 5 4 250 200 150 100 50 50 40 30 20 10 e c n a n r e v o G e t a r o p r o C 01 02 03 04 05 06 07 08 09 10 11 12 ADR price, USD Trading volume, mm shares 209209 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market Dividend Policy In 2019 PJSC Gazprom’s Board of Directors approved a new Dividend Policy of PJSC Gazprom (Resolution of the Board of Directors No. 3363 dated 24 December 2019). The document harmonises the interests of the Company’s major shareholder, the Government of the Russian Federation, minority share- holders, and the Company’s development priorities. One of its key principles is a transparent dividend calculation method, with the new formula based on the Group’s IFRS net profit adjusted for five non-cash items. The approval of the PJSC Gazprom’s new Dividend Policy is one of the most significant corporate events of 2019 The new Dividend Policy provides for a gradual increase of the lowest dividend payout ratio from 30% to 50% within a three- year period. In addition, a leverage threshold has been set, which, if reached, may trigger a decision by the Company’s Board of Directors to reduce dividends. This threshold, which is introduced to maintain financial stability, is 2.5x of the Adjusted Net Debt/Adjusted EBITDA ratio. Items adjusting the IFRS profit for the year attributable to shareholders of PJSC Gazprom, used in determining the basis for dividend calculation (Clause 3.1 of PJSC Gazprom’s Dividend Policy) — Foreign exchange gain (loss) included in finance income and expenses — Foreign exchange rate differences on operating items — Impairment loss (reversal of impairment loss) on fixed assets and construction in progress Impairment loss (reversal of impairment loss) on investments in associates and joint ventures — — The difference between the share in profits of associates and joint ventures and proceeds from associates and joint ventures 50 % of the adjusted IFRS net profit will be paid to shareholders for 2021 PJSC Gazprom’s dividend history in 2015–2019 Dividend per share*, RUB Dividend payout ratio, share of PJSC Gazprom’s net profit under RAS (parent company), % Dividend payout ratio, share of Gazprom Group’s IFRS profit attributable to the owners of PJSC Gazprom, % PJSC Gazprom’s dividend yield**, % 2015 2016 7.89 8.0397 46 24 5.8 46 20 5.2 2017 8.04 190 27 6.2 2018 16.61 42 27 10.8 2019 15.24 55 30 5.9 * Recommended dividend shown for 2019. ** Dividend yield for the relevant period is calculated as a ratio of total dividend paid per share for the relevant year to the share price as at 31 December. For 2019, PJSC Gazprom’s Board of Directors recommended to distribute dividends of RUB 15.24 per share. Dividend payouts will total RUB 360.8 bn. Therefore, dividends on PJSC Gazprom shares recom- mended for distribution for 2019 will amount to 30% of Gazprom Group’s IFRS profit for the year attributable to the owners of PJSC Gazprom. Due to the negative impact on the dividend calculation basis of adjustments for non-cash items provided for by the new Dividend Policy, it was decided not to take them into account in calculating the 2019 dividends. The Company’s full dividend history is available on PJSC Gazprom’s website www.gazprom.com 210 PJSC Gazprom Annual Report 2019Share Capital and Securities Market PJSC Gazprom’s dividends paid in 2019 for 2018 as at 31 December 2019 Total including dividends on shares: Accrued, RUB thousand Paid, RUB thousand Unpaid, RUB thousand* Unpaid to accrued, % 393,217,049 392,565,849 651,200 0.17 held by the Russian Federation represented by the Federal Agency for State Property Management held by individuals and corporate entities whose rights to shares are accounted for in the register held by individuals and corporate entities whose rights to shares are accounted for by the depositary maintaining a nominee holder account in the issuer’s register** held by unidentified persons 150,890,965 150,890,965 – 55,982,946 55,612,794 370,152 186,342,826 186,062,090 280,736 312 – 312 – 0.66 0.15 100.00 * No dividend payouts were made to individuals or corporate entities who had failed to provide clear payout details as per clauses 8 and 9 of Article 42 of Federal Law No. 208-FZ On Joint Stock Companies dated 26 December 1995. Dividends accrued on shares held by unidentified persons are paid out as soon as the title to securities is established. ** PJSC Gazprom paid out RUB 186,342,826 thousand in dividends to nominee holders on 1 August 2019 in execution of the Annual General Shareholders Meeting’s resolutions on dividend payouts based on PJSC Gazprom’s 2018 results, which was held on 28 June 2019. As at 31 December 2019, the amount of dividends nominee holders failed to transfer as prescribed by the securities laws of the Russian Federation for reasons beyond their control (clauses 8 and 9 of Article 42 of Federal Law No. 208-FZ dated 26 December 1995) totalled RUB 280,736 thousand. PJSC Gazprom’s dividends paid in 2019 for 2015–2017, RUB thousand Shareholder category Corporate entities* Individuals* Nominee holders** Holders unidentified as at the time of accrual*** Unpaid as at 1 January 2019 Paid in 2019 Reinstated in 2019 as retained earnings upon expiry of the limitation period Unpaid as at 31 December 2019 4,803 531,429 343,645 418 61 20,063 58,908 – 1,457 166,007 86,209 119 3,285 345,359 198,528 299 547,471 Total 880,295 79,032 253,792 * No dividend payouts were made to individuals or corporate entities who had failed to provide clear payout details as per Federal Law No. 208-FZ On Joint Stock Companies dated 26 December 1995. ** The nominee holders who failed to transfer dividends as prescribed by the securities laws of the Russian Federation for reasons beyond their control (clauses 8 and 9 of Article 42 of Federal Law No. 208-FZ dated 26 December 1995). *** Dividends accrued on shares held by unidentified persons are paid out as soon as the title to securities is established. e c n a n r e v o G e t a r o p r o C 211211 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market Credit Ratings Credit ratings assigned to PJSC Gazprom by Standard & Poor’s and Fitch, are comparable with sovereign foreign currency ratings of the Russian Federation, while Moody’s rating is one notch above the sovereign rating. The Company provides rating agencies with access to all information necessary for a comprehensive and reliable evaluation of Gazprom Group’s creditworthiness and possible risks. In 2019, Moody’s and Fitch upgraded their credit ratings for PJSC Gazprom, while the rating assigned by Standard & Poor’s remained unchanged. Gazprom Group companies are reliable borrowers in the domestic and international capital markets, able to raise funds on favourable terms. PJSC Gazprom has investment grade ratings from three international agencies — Standard & Poor’s, Moody’s and Fitch For more details on PJSC Gazprom’s credit ratings see PJSC Gazprom’s website www.gazprom.com Credit ratings of PJSC Gazprom Rating agency Standard & Poor’s Fitch Ratings Moody’s Dagong ACRA Borrowing on International and Russian Capital Markets Long-term foreign currency rating Rating date BBB− (stable outlook) BBB (stable outlook) Baa2 (stable outlook) AAA (stable outlook) AAA (stable outlook) 27 February 2018 15 August 2019 12 February 2019 30 October 2018 2 February 2018 The borrowing market capacity driven by international and Russian capital markets can meet PJSC Gazprom’s needs in debt financing, which are aligned with the Investment Programme developed to incorporate major strategic projects. In December 2019, Gazprom Group project financing for construction of the Amur GPP in the total amount of EUR 11.4 bn. The EMTN Programme is a revolving multi-currency credit line for up to USD 40 bn (the maximum outstanding principal amount). As at 31 December 2019, there were 21 Eurobond issues outstanding for the total amount of USD 9.05 bn, EUR 5.75 bn, CHF 1.75 bn and GBP 1.35 bn. The issuer is Gaz Capital S.A. (Luxembourg), a special-purpose vehicle. The JBIC-guaran- teed JPY 65 bn bond issue was made in 2018, has a maturity of 10 years and a 1.01% coupon rate. The issuer was GazAsia Capital S.A. (Luxembourg), a special-purpose vehicle. PJSC Gazprom raises funds in the international capital PJSC Gazprom foreign currency-denominated bonds markets through the EMTN (Euro Medium Term Note) Programme. Additionally, the Company places rouble bonds. are historically purchased by a wide range of investors with different country and institutional backgrounds. 212 PJSC Gazprom Annual Report 2019Share Capital and Securities Market Major loans raised by PJSC Gazprom in 2019 Type Loan Club loan Loan Transaction date Amount Interest rate or coupon Maturity date 27.12.2018* 21.02.2019 03.07.2019 EUR 500 mm EUR 500 mm EUR 1,500 mm EURIBOR+1.6% EURIBOR+1.65% EURIBOR+2.1% 27.12.2023 21.02.2024 30.06.2024 * Withdrawal made in January 2019. PJSC Gazprom’s outstanding Eurobond issues placed under the EMTN Programme as at 31 December 2019 Amount USD 1.2 bn USD 1.3 bn USD 1.25 bn USD 0.6 bn USD 1.0 bn USD 0.8 bn USD 0.9 bn EUR 1.0 bn EUR 0.5 bn GBP 0.5 bn EUR 0.75 bn EUR 1.0 bn CHF 0.5 bn USD 0.75 bn GBP 0.85 bn CHF 0.5 bn EUR 0.75 bn CHF 0.75 bn EUR 0.75 bn EUR 1.0 bn USD 1.25 bn Placement date 28.04.2004 07.03.2007 16.08.2007 23.11.2011 19.07.2012 06.02.2013 06.02.2013 21.03.2013 21.03.2013 25.09.2013 26.02.2014 17.11.2016 30.11.2016 23.03.2017 06.04.2017 19.07.2017 22.11.2017 06.03.2018 21.03.2018 16.11.2018 11.02.2019 Maturity date 28.04.2034 07.03.2022 16.08.2037 23.01.2021 19.07.2022 06.02.2020 06.02.2028 20.03.2020 21.03.2025 25.09.2020 26.02.2021 17.11.2023 30.11.2021 23.03.2027 06.04.2024 19.07.2022 22.11.2024 06.03.2023 21.03.2026 24.01.2024 11.02.2026 Coupon, % ISIN 8.625 6.51 7.288 5.999 4.95 3.85 4.95 3.389 4.364 5.338 3.6 3.125 2.75 4.95 4.25 2.25 2.25 1.45 2.5 2.949 5.15 XS0191754729 XS0290580595 XS0316524130 XS0708813810 XS0805570354 XS0885733153 XS0885736925 XS0906946008 XS0906949523 XS0974126186 XS1038646078 XS1521039054 CH0346828400 XS1585190389 XS1592279522 CH0374882816 XS1721463500 CH0404311711 XS1795409082 XS1911645049 XS1951084471 PJSC Gazprom’s outstanding Eurobond issues placed outside the EMTN Programme as at 31 December 2019 Amount JPY 65 bn Placement date 18.02.2018 Maturity date 18.02.2028 Coupon, % 1.01 ISIN JP90B0049BP6 e c n a n r e v o G e t a r o p r o C 213213 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market PJSC Gazprom rouble bonds outstanding as at 31 December 2019 Size, RUB bn Placement date Maturity date Callability Coupon, % Registration number Issuer 15.0 15.0 15.0 15.0 5.0 5.0 10.0 10.0 10.0 15.0 15.0 15.0 15.0 27.11.2013 21.10.2043 27.11.2013 21.10.2043 If the coupon rate reaches or exceeds 10% If the coupon rate reaches or exceeds 10% Calculated by issuer with formula* Calculated by issuer with formula* 4B02-19-00028-A PJSC Gazprom 4B02-20-00028-A PJSC Gazprom 15.02.2017 03.02.2027 07.02.2024 15.02.2017 03.02.2027 07.02.2024 27.02.2018 15.02.2028 18.02.2025 27.02.2018 15.02.2028 18.02.2025 27.02.2018 15.02.2028 18.02.2025 27.02.2018 15.02.2028 18.02.2025 8.9 8.9 7.15 7.15 7.15 7.15 4B02-05-36400-R 4B02-06-36400-R 4B02-01-36400-R 4B02-02-36400-R 4B02-03-36400-R 4B02-04-36400-R OOO Gazprom capital** OOO Gazprom capital** OOO Gazprom capital** OOO Gazprom capital** OOO Gazprom capital** OOO Gazprom capital** 31.07.2018 31.07.2018 31.07.2018 06.06.2019 12.07.2033 23.06.2048 23.06.2048 02.06.2022 18.07.2019 11.07.2024 22.07.2025 22.07.2025 8.10*** 8.10*** 4B02-07-00028-A PJSC Gazprom 4B02-22-00028-A PJSC Gazprom 22.07.2025 8.10*** 4B02-23-00028-A PJSC Gazprom – – 7.99 7.80 4B02-01-36400-R- 001P OOO Gazprom capital** 4B02-02-36400-R- 001P OOO Gazprom capital** * Ki = (CPI − 100%) + 1%, where: Ki means the interest rate for the ith coupon period, but not less than 0.01% per annum CPI means the consumer price index calculated for the Russian Federation and expressed as percentage year-on-year ** Special-purpose subsidiary for raising funds in the Russian financial market. *** The interest rate is for the 1st to 14th coupon period. Starting from the 15th coupon period, the interest rate is determined according to paragraph 9.3 of the Resolution on Securities Issue. For more details on PJSC Gazprom’s bond issues see PJSC Gazprom’s website www.gazprom.com 214 PJSC Gazprom Annual Report 2019Share Capital and Securities Market Shareholder and Investor Relations PJSC Gazprom securities are among the most liquid financial instruments in the Russian market. The Company’s investor base comprises several thousand institutional investors, including major foreign investors, such as investment funds, pension funds, banks, and insurance companies, as well as private investors. Investors based in the United States, the UK, and mainland Europe remain the largest minority holders of PJSC Gazprom shares and ADRs. PJSC Gazprom uses numerous tools to maintain its shareholder and investor relations. This is a systematic effort balanced by event format, accessibility for a wide range of investors and geographic diversification. Largest Russian and foreign investment banks publish regular analyst reports on PJSC Gazprom shares. As at the end of 2019, all analysts recommended to “buy” (“over-weight”) or “hold” (“neutral”). PJSC Gazprom intends to further streamline its relations with existing and potential investors and shareholders to develop a meaningful dialogue with the investment commu- nity, increase the Company’s capitalisation, and reduce the cost of new borrowings. Geography of institutional investors in PJSC Gazprom shares and ADRs as at December 2019, % . . . . . . e c n a n r e v o G e t a r o p r o C Source: Investor Update 215215 PJSC Gazprom Annual Report 2019 Share Capital and Securities Market Measures aimed at maintaining relations with the investment community — Gazprom Investor Day, the largest annual event for investors — Conference calls dedicated to the publication of Gazprom Group’s IFRS consolidated financial statements involving the Company’s management (based on the publication of quarterly and annual IFRS statements) — Meetings of Gazprom’s management and authorised representatives with investors and shareholders in the Company’s offices in Moscow and Saint Petersburg — Daily interfaces with investment bank analysts, shareholders and investors to keep them informed about the most important provisions of the development strategy adopted by PJSC Gazprom and its major subsidiaries and the situation and performance in key markets, as well as to provide information and answers to their questions Investment community visits to Gazprom Group’s production facilities — — Participation of the Company’s representatives in international — Round tables attended by representatives of Gazprom Group, investor conferences held in Russia and abroad and organised by leading investment banks (according to the annual Investor and Shareholder Relations Plan approved by the Chairman of PJSC Gazprom’s Management Committee) — Targeted investor meetings (roadshows) in the regions with the highest concentration of existing and potential investors — holders of PJSC Gazprom ADRs and shares, and investors in debt instruments (held on a regular basis and timed to coincide with major Company events) independent international experts and analysts as well as investors — Meetings of independent members of Gazprom’s Board of Directors with the Company’s major shareholders in Russia and abroad — Targeted meetings and conference calls with investors on environmental protection, industrial safety and corporate governance — Annual final meeting of the Company’s management with investment analysts to summarise the preliminary results for the reporting year 2019 highlights in shareholder and investor relations Event Investor Day in Hong Kong (26 February) and Singapore (28 February) Publication of PJSC Gazprom’s 2018 RAS Financial Statements Publication of the 2018 Annual Financial Report under FSA requirements, including the 2018 IFRS Financial Statements, a conference call with investors Publication of PJSC Gazprom’s Q1 2019 IFRS Financial Statements, a conference call with investors Press briefings of PJSC Gazprom’s top management on the 2018 results Publication of PJSC Gazprom Annual Report 2018 PJSC Gazprom’s Annual General Shareholders Meeting Investor and analyst visits to TurkStream facilities in Anapa (Russia) and Kiyikoy settlement (Turkey), a roundtable discussion on the European gas market Publication of PJSC Gazprom’s Q2 2019 IFRS Financial Statements, a conference call with investors Publication of Gazprom Group’s Sustainability Report 2018 Publication of PJSC Gazprom’s Q3 2019 IFRS Financial Statements, a conference call with investors Meeting of the Coordinating Committee for Shareholder and Investor Relations Meeting of PJSC Gazprom’s management with investment analysts to summarise the 2019 preliminary results Date February 1 April 29 April 30 May May–June 6 June 28 June July 29 August 26 September 29 November 17 December 20 December 216 PJSC Gazprom Annual Report 2019Share Capital and Securities Market Guidance for PJSC Gazprom shares in 2019 Company Alfa-Bank ATON BCS Veles Capital VTB Capital Gazprombank Uralsib Bank of America Merrill Lynch Deutsche Bank Citigroup Goldman Sachs HSBC JP Morgan Morgan Stanley Raiffeisenbank Renaissance Capital Sberbank CIB SOVA Capital UBS Wood & Company Guidance, end of 2018 Guidance, end of 2019 – Buy Buy Hold Buy Buy Buy Hold Buy Buy Buy Buy Hold Buy Buy Buy Buy Buy Hold Buy Buy Buy Hold Buy Hold Hold Buy Buy Termination of coverage Buy Buy Hold Buy Buy Hold Buy Hold Hold Hold Buy Contact details of investment analysts regularly covering PJSC Gazprom are available on PJSC Gazprom’s website www.gazprom.com Change – No adjustments Downgrade Upgrade Downgrade Downgrade No adjustments Upgrade – No adjustments No adjustments Downgrade Upgrade No adjustments Downgrade No adjustments Downgrade Downgrade No adjustments No adjustments e c n a n r e v o G e t a r o p r o C 217217 PJSC Gazprom Annual Report 2019 Appendices 218 PJSC Gazprom Annual Report 2019 PJSC Gazprom Annual Report 2019Major and Interested Party Transactions 220 Disposal of Non-core Assets by PJSC Gazprom and Subsidiaries 221 Implementation of Presidential and Governmental Directives and Instructions 222 Energy Consumption by PJSC Gazprom and its Actual Cost 228 Additional Information for the Annual Report available on PJSC Gazprom’s Corporate Website 229 Glossary 230 Contacts 234 219 219 i s e c d n e p p A PJSC Gazprom Annual Report 2019Major and Interested Party Transactions In 2019, PJSC Gazprom closed no transactions treated as major transactions under the applicable laws of the Russian Federation. For details of transactions closed by PJSC Gazprom in the reporting year and treated as interested party transactions under the applicable laws of the Russian Federation see the Report on PJSC Gazprom’s Interested Party Transactions in 2019 approved by Resolution of PJSC Gazprom’s Board of Directors No. 3435 dated 21 May 2020 and available on the web pages used by PJSC Gazprom for information disclosure: www.gazprom.com and www.e-disclosure.ru. The Report on PJSC Gazprom’s Interested Party Transactions in 2019 is available on PJSC Gazprom’s website www.gazprom.com The Report on PJSC Gazprom’s Interested Party Transactions in 2019 is available on PJSC Gazprom’s page on the website of Interfax — Centre for Corporate Information Disclosure (information is available in Russian only) www.e-disclosure.ru 220 PJSC Gazprom Annual Report 2019Disposal of Non-core Assets by PJSC Gazprom, its Subsidiaries and Entities Actual proceeds from non-core asset disposal by PJSC Gazprom, its subsidiaries and entities in 2019 totalled RUB 336.61 bn, including VAT (excluding intra-group transactions — RUB 333.47 bn), including: — those owned by PJSC Gazprom — RUB 5.59 bn (excluding intra-group transactions — RUB 3.61 bn) those owned by PJSC Gazprom’s subsidiaries and entities — RUB 331.02 bn (excluding intra-group transactions — RUB 329.86 bn). — 221 i s e c d n e p p A PJSC Gazprom Annual Report 2019Implementation of Presidential and Governmental Directives and Instructions On Submitting Information on Holding Assets Located in the Russian Federation Through Foreign Legal Entities by Joint Stock Companies to the Russian Ministry of Economic Development (Russian Government Directives No. 5945p-P13 dated 25 August 2017) Pursuant to the Directives and the letter by the Russian Ministry of Economic Development, information was provided to the Ministry regarding PJSC Gazprom’s holding of assets located in the Russian Federation through foreign legal entities as at 31 December 2018. On Creating Unified Treasury Offices of Parent Companies, Subsidiaries and Associates (Russian Government Directives No. 1796p-P13 dated 26 March 2015) Letters were sent to the Russian Ministry of Finance and Federal Service for Financial Monitoring containing the findings of a review towards creating unified treasury offices of PJSC Gazprom, its subsidiaries and associates. Disclosure of Information on Ownership Structures, including Beneficiaries, by Counterparties under Existing Contracts (Instruction of Prime Minister of the Russian Federation Vladimir Putin No. VP-P13-9308 dated 28 December 2011, Instruction of Deputy Prime Minister of the Russian Federation Igor Sechin No. IS-P13-80 dated 12 January 2012) From 1 January 2019 to 31 December 2019, PJSC Gazprom informed the Russian Ministry of Energy, Federal Tax Service and Federal Service for Financial Monitoring (Rosinfomoni- toring) of: — 59,546 existing contracts (with 3,695 contracts signed by PJSC Gazprom and 55,851 contracts signed by subsidiaries or associates directly and/or indirectly controlled by PJSC Gazprom by more than 50% in total) — changes in the ownership structure and/or executive bodies of PJSC Gazprom’s counterparties — changes in the ownership structure and/or executive bodies of the counterparties of subsidiaries and associ- ates directly and/or indirectly controlled by PJSC Gazprom by more than 50% in total. On Developing (Updating) Internal Documents that Govern KPI Setting and Remuneration for PJSC Gazprom’s Management (Russian Government Directives No. 9054p-P13 dated 2 October 2019) PJSC Gazprom’s Board of Directors passed Resolution No. 3358 dated 24 December 2019. The employment agree- ment with the Chairman of PJSC Gazprom’s Management Committee was amended to include provisions on personal accountability for untimely or inaccurate disclosure of infor- mation on the implementation of the Russian Government Directives. 222 PJSC Gazprom Annual Report 2019Implementation of Presidential and Governmental Directives and Instructions On Developing the Rules of Non-discriminatory Access to Gas Transportation Services and Rules of Connection to Trunk Gas Pipelines (Instructions of the Government of the Russian Federation No. P9-29283 dated 29 May 2019, No. P9-41395 dated 25 July 2019) Pursuant to the Instructions, comments and proposals were submitted in due time to the Federal Antimonopoly Service and the Department of Industry and Infrastructure of the Government of the Russian Federation on draft Resolution of the Russian Government On Approval of the Rules of Non- Discriminatory Access to Trunk Pipeline Gas Transportation Services, Rules of Non-Discriminatory Access to Under- ground Gas Storage Services, Rules of Connection (Techno- logical Tie-In) to Trunk Gas Pipelines, and on Repealing Some Acts of the Government of the Russian Federation. The draft rules of access to trunk gas pipelines developed by PJSC Gazprom were also updated. On Establishing Engineering Units and R&D Centres on Russky Island (Vladivostok) (List of Instructions of President of the Russian Federation Vladimir Putin No. Pr-1849 dated 10 October 2018 issued following the Eastern Economic Forum held on 11–13 September 2018) A lease contract was signed between OOO Gazprom 335 and the Far Eastern Federal University for the premises located at 10 Ajax Bay, bld. P, Russky Island, Vladivostok, the Primorye Territory, to accommodate the engineering centre. Charitable Funds and Sponsorship Support (Instruction of President of the Russian Federation Vladimir Putin No. Pr-250 dated 9 February 2018 on providing RUB 150 mm financial support to build a block of apartments for rehousing families from ramshackle homes in the Elshanka village, Saratov Region) Pursuant to the Instruction, PJSC Gazprom channelled RUB 75 mm in 2018 and a further RUB 75 mm in 2019 under a donation agreement to build a block of apartments with integrated and attached premises located at 2 Moskovskoye Shosse, Saratov, Saratov Region, for rehousing families from ramshackle homes in the Elshanka village in Saratov’s Leninsky District. 223 (Instruction of Deputy Prime Minister of the Russian Federation Vitaly Mutko No. VM-P9-70pr dated 3 August 2019 (minutes of the meeting in Tulun, Irkutsk Region) On Assisting in Restoration of Areas Affected by the Flood in the Irkutsk Region in 2019) PJSC Gazprom provided charitable support in the amount of RUB 20 mm to purchase training equipment and laboratory training equipment for teaching STEM subjects for ungraded municipal schools affected by floods in the Irkutsk Region in 2019.The funds were channelled under a donation agreement to the Irkutsk regional branch of the All-Russia Non-Govern- ment Organization “Russian Red Cross”. At the meeting in Irkutsk on 6 September 2019, the Government of the Irkutsk Region approved the construction of a fitness and health facility with an ice rink and a multi- purpose sports hall in Tulun instead of the sports facility with a swimming pool in Nizhneudinsk mentioned in the minutes of the meeting dated 3 August 2019. A report was sent to Deputy Prime Minister of the Russian Federation Vitaly Mutko (No. 01-677 dated 10 October 2019) on the readiness to construct the facility (estimated commissioning time — Q3 2021), with funding to be provided by PAO Gazprom Neft. (Instruction of Prime Minister of the Russian Federation Dmitry Medvedev No. DM-P8-7713 dated 10 September 2019 on financial assistance to Turkmen-Russian general education school named after Alexander Pushkin in Ashgabat) To assess the possibility of assistance, PJSC Gazprom sent a request to the school administration dated 24 September 2019 to obtain a cost estimate for the major remodelling, information on the amount and prices of computer equipment to be purchased and the cost of subsequent scheduled refurbishment. The requested information had not been pro- vided to PJSC Gazprom in 2019, and this was communicated in a report dated 7 October 2019 sent to Prime Minister of the Russian Federation Dmitry Medvedev. The charitable support will be provided to the school in 2020. i s e c d n e p p A PJSC Gazprom Annual Report 2019Implementation of Presidential and Governmental Directives and Instructions (Instruction of President of the Russian Federation Vladimir Putin No. Pr-438 dated 13 March 2019 as regards the construction of a fitness and health facility in the village of Tissi-Akhitli, Tsumadinsky District, Republic of Daghestan) A report dated 10 October 2019 was sent to Minister of Sports of the Russian Federation Pavel Kolobkov on PJSC Gazprom’s readiness to construct in 2020 a (larger) multifunctional sports facility according to the design agreed with the administration of the Tsumadinsky District, Republic of Daghestan. The Russian Ministry of Sports supported PJSC Gazprom’s decision in its letter dated 22 October 2019. In accordance with the letter of the Executive Office of the Government of the Russian Federation dated 11 March 2020, PJSC Gazprom will report to the Russian Government on the implementation of the Instruction by 23 November 2020. Procurement (Russian Government Directives No. 584p-P13 (DSP) dated 26 January 2019) PJSC Gazprom’s Board of Directors passed Resolution No. 3262 dated 14 May 2019 On Updating the Corporate Import Substitution Plans With Respect to Radiation, Chemical and Biological Protective Equipment, pursuant to paragraph 1 of which PJSC Gazprom’s Board of Directors in its Resolution No. 3337 dated 19 November 2019 approved respective amendments to the Regulations on the Procurement of Goods, Works and Services by PJSC Gazprom and Gazprom Group Companies. (Russian Government Directives No. 4111p-P13 dated 08 May 2019) PJSC Gazprom’s Board of Directors passed Resolution No. 3300 dated 7 August 2019 On Expanding the Use of Factoring in the Performance of Contracts for the Supply of Goods (Performance of Works, Provision of Services), pursuant to which PJSC Gazprom’s Board of Directors in its Resolution No. 3337 dated 19 November 2019 approved respective amendments to the Regulations on the Procure- ment of Goods, Works and Services by PJSC Gazprom and Gazprom Group Companies. (Russian Government Directives No. 1519p-P13 dated 20 February 2019) PJSC Gazprom’s Board of Directors passed Resolution No. 3257 dated 14 May 2019 On Developing Programmes to Improve the Procurement Management, pursuant to which: — PJSC Gazprom’s Programme to Improve the Procure- ment Management was approved — Communication of the Directives to PJSC Gazprom’s subsidiaries was undertaken — PJSC Gazprom’s subsidiaries approved their Pro- grammes to Improve the Procurement Management. On Signing a Concession Agreement for Financing, Construction and Operation of Obskaya–Salekhard– Nadym Common Access Railway Transport Infrastructure (Sub-paragraph v, paragraph 4 of Russian Government Decree No. 1663-r dated 8 August 2018) PJSC Gazprom signed a coordination agreement with the Federal Agency for Rail Transport. Gas Infrastructure Expansion and Gas Supply to Regions (Paragraph 3 of Instruction of President of the Russian Federation Vladimir Putin No. Pr-2579 dated 29 December 2016 on taking measures to supply the required amount of PJSC Gazprom’s natural gas to the Far Eastern Petrochemical Complex) PJSC Gazprom approved a List of Activities to align the commissioning of production, transportation and distribution capacity of the Sakhalin gas production hub. As part of its implementation work is ongoing to carry out the Sakhalin– Khabarovsk–Vladivostok Trunk Gas Pipeline project (Phase 1) with construction to be completed in 2021. 224 PJSC Gazprom Annual Report 2019 Implementation of Presidential and Governmental Directives and Instructions (Instruction of President of the Russian Federation Vladimir Putin No. Pr-94 dated 20 January 2014 on including revamps of the Dedilovskaya, Novotulskaya, Yasnogorsk and Severo-Zadonskaya gas distribution stations (GDS) into PJSC Gazprom’s GDS Revamp and Retrofit Programme for 2014–2017 and construction of two new GDS in the Uzlovsky and Zaoksky districts of the Tula Region starting in 2014) Work to revamp the Novotulskaya, Severo-Zadonskaya and Yasnogorsk GDS and construct two new GDS in the Uzlovsky and Zaoksky districts of the Tula Region has been arranged. The 2020 capital construction plan has the following capital expenditures limits by facilities: — Yasnogorsk GDS — RUB 464.88 mm for start of con- struction — Severo-Zadonskaya GDS — RUB 550.64 mm for partial commissioning. Construction of the Novotulskaya GDS Phase 1 has been completed, start-up and testing is under way. The Dedilovskaya GDS revamp is not feasible, as gas supply to the Uzlovaya industrial park is to be provided through construction of a gas pipeline from the Novomoskovskaya-1 GDS according to the general plan of gas supply in the Tula Region developed based on proposals from the region’s administration. Construction of two new GDS in the Uzlovsky and Zaoksky districts of the Tula Region is carried out under OOO Gazprom mezhregiongaz’s Investment Programme. (Instruction of President of the Russian Federation Vladimir Putin No. Pr-2609 dated 5 November 2011 on including the Connection Pipeline and GDS in Balakovo project into PJSC Gazprom’s Investment Programme) The Connection Pipeline and GDS in Balakovo (Saratov Region) project was included into PJSC Gazprom’s Invest- ment Programme for 2020 with planned commissioning in 2022. (Paragraph 3 of the List of Instructions of President of the Russian Federation Vladimir Putin No. Pr-2281 dated 2 November 2015 on including the construction and commissioning of the Connection Pipeline and Uglegorsk GDS project into PJSC Gazprom’s Investment Programme for 2017) Implementation of the Connection Pipeline and Uglegorsk GDS project is under way since 2019, with works to be completed by Q3 2020 according to the project plan. 225 Pricing in the Russian Gas Market (Instruction of Deputy Prime Minister of the Russian Federation Dmitry Kozak No. DK-P9-218pr dated 14 November 2019) As part of implementation of the Instruction, the Company continued with efforts aimed at maintaining the status quo in the regulation of PJSC Gazprom’s business, resisting regulation of the Company’s investment activities (draft law On Amending the Federal Law On Natural Monopolies and Article 29 of the Federal Law On Power Generation), and excluding from the draft Federal Law On the Framework of Government Regulation of Prices (Tariffs) the provisions that would have a negative regulatory effect on the Company’s business. (Instruction of Deputy Prime Minister of the Russian Federation Dmitry Kozak No. DK-P9-6882 dated 11 October 2018 on the government regulation of tariffs for gas transportation by trunk pipelines (connection pipelines)) Work continued with the federal authorities to amend paragraphs 4 and 7 of the Framework of Gas Pricing and Government Regulation of Gas Prices, Gas Transportation Service Tariffs and Fees for Technological Connection of Gas Equipment to the Gas Distribution Networks in Russian Federation, approved by Resolution of the Russian Govern- ment No. 1021 dated 29 December 2000, to eliminate the ambiguity of tariff setting approaches for regulated entities with regard to trunk pipeline gas transportation services. i s e c d n e p p A PJSC Gazprom Annual Report 2019Implementation of Presidential and Governmental Directives and Instructions Implementation of the Programme to Dispose of PJSC Gazprom’s Non-core Assets (Sub-paragraph v, paragraph 2 of Decree of President of the Russian Federation Vladimir Putin No. 596 dated 7 May 2012) Pursuant to sub-paragraph v, paragraph 2 of Decree of President of the Russian Federation Vladimir Putin No. 596 dated 7 May 2012, PJSC Gazprom has an ongoing initiative of non-core asset optimisation and disposal. Pursuant to Russian Government Directives No 4863p-P13 dated 7 July 2016 and No. 6604p-P13 dated 18 September 2017, and Russian Government Decree No. 894-r dated 10 May 2017, as well as to improve non-core asset disposal, PJSC Gazprom adopted the Programme to dispose of PJSC Gazprom’s Non-core Assets (Resolution of the Board of Directors No. 2810 dated 27 September 2016, Minutes of the Board of Directors’ meeting No. 1098 dated 27 September 2018, and Resolution of the Board of Directors No. 3066 dated 16 January 2018, Minutes of the Board of Directors’ meeting No. 1180 dated 16 January 2018). In 2019, PJSC Gazprom was disposing of non-core assets as part of this Programme, Action Plan for the Disposal of PJSC Gazprom’s Non-Core Assets for 2019 (versions approved by resolutions of the Board of Directors No. 3204 dated 28 December 2018 and No. 3367 dated 26 December 2019) as well as the Register of PJSC Gazprom’s Non-Core Assets (versions approved by resolutions of the Board of Directors No. 3204 dated 28 December 2018 and No. 3367 dated 26 December 2019). The Register of PJSC Gazprom’s Non-Core Assets has a List of PJSC Gazprom’s Non-Core Assets Subject to Disposal section and three subsections: Long-Term Financial Investments, Real Property, and Movable Property (Motor Transport, Special Vehicles, Equipment, etc.). The information on PJSC Gazprom’s non-core assets subject to disposal and included in the Register of PJSC Gazprom’s Non-Core Assets contains, among other things: the asset list, quantity; information on each non-core asset — asset description, type of activity associated with the asset, its book (depreciated) value, initial selling price (equal to its market value as assessed by an independent valuator), method of sale (primarily an auction), and encumbrances. Implementation of the Programme, Action Plan, and Register of PJSC Gazprom’s Non-Core Assets in 2019 No. Asset Inventory number (if applicable) Balance sheet item containing the asset as at the reporting date prior to the asset disposal Balance sheet item (analytics included), containing asset disposal income and expense (91.1xxx/91.2xxx) 1 99.9918% of shares in OAO Centrgaz – 1170 911902/914702 807,067.01 1,906,000.00 1,098,932.99 The asset disposed through an auction with a starting price Facilities of a gas pressure and flow control station (10 inventory items), located at Block 196, Nogliki Forestry Area, Nogliki Municipal District, Sakhalin Region 10 inventory items 1150 911110/914101 107,275.84 198,305.08 91,029.24 The asset disposed through an auction with a starting price 1150 1150 1150 1150 1210 911110/914101 911110/914101 911110/914101 911110/914101 901910/903910 77,991.43 24,000.00 −53,991.43 The asset disposed after several rounds of a competitive Book value of asset , RUB thousand RUB thousand (inclusive of VAT) Actual realised value , Actual realised value vs book value , RUB thousand Reason for difference between the actual realised value and book value 12,715.85 49,999.20 37,283.35 Result of pre-sale preparation and disposal of assets 105,906.78 122,877.62 16,970.84 Each asset disposed through a competitive process with 629,113.33 115,000.00 −514,113.33 The asset disposed after several rounds of a competitive 5,841.00 6,450.00 609.00 The asset disposed through a competitive process with not less than its market value as assessed by an independent not less than its market value as assessed by an independent valuator valuator a starting price not less than its market value as assessed by an independent valuator process with a starting price not less than its market value as assessed by an independent valuator a starting price not less than its market value as assessed by an independent valuator process with a starting price not less than its market value as assessed by an independent valuator no less than their market value as assessed by an independent valuator 1,746,659.60 2,455,094.95 708,435.35 149 items of movable property (motor transport and special vehicles) Total for 2019 149 inventory items 1150 911110/914101 748.36 32,463.05 31,714.69 The assets disposed through an auction with a starting price Premises, located at 2 Polyustrovsky avenue, bld. A, Saint Petersburg 005652 19 apartments of PJSC Gazprom (18 in Moscow and 1 in Velsk, Arkhangelsk Region) 19 inventory items 5 Gazpromshelf replenishment tanker 351789 550958 5-bedroom detached house, plot No. 127a, without a garage, for maintenance staff in an accommodation camp Assets under construction — 64 residential houses and utility infrastructure located at Saratovskaya rural locality, Goryachy Klyuch town, Krasnodarsky Region – 2 3 4 6 7 8 226 PJSC Gazprom Annual Report 2019Implementation of Presidential and Governmental Directives and Instructions The approval of the Programme, Register, and Plan was disclosed by PJSC Gazprom in the manner prescribed by the law by publishing appropriate open access information on its website. The current Programme and Register are also available on a dedicated website for Gazprom Group’s non- core asset disposal, www.gazpromnoncoreassets.ru, the link to which is available on PJSC Gazprom’s website in the Asset Disposal section. Pursuant to the Russian Government Directives and under the Programme to dispose of PJSC Gazprom’s Non-core Assets, the Board of Directors reviewed and took into account quarterly reports on the disposal of PJSC Gazprom’s non-core assets in 2019 (resolutions of the Board of Directors No. 3256 dated 14 May 2019, No. 3285 dated 18 June 2019, No. 3311 dated 21 August 2019, and No. 3345 dated 29 November 2019). The actual realised value of PJSC Gazprom’s non-core assets disposed of in 2019 under the Programme, Action Plan for the Disposal of PJSC Gazprom’s Non-Core Assets, and Register of PJSC Gazprom’s Non-Core Assets was RUB 2,455,094.95 thousand (inclusive of VAT). Pre-sale preparation and disposal of non-core assets resulted in the actual realised value exceeding the book value by RUB 708,435.35 thousand. Implementation of the Programme, Action Plan, and Register of PJSC Gazprom’s Non-Core Assets in 2019 No. Asset 1 99.9918% of shares in OAO Centrgaz – Inventory number (if applicable) Balance sheet item containing Balance sheet item (analytics the asset as at the reporting included), containing asset date prior to the asset disposal income and expense disposal 1170 (91.1xxx/91.2xxx) 911902/914702 , Book value of asset RUB thousand Actual realised value , RUB thousand (inclusive of VAT) Actual realised value , vs book value RUB thousand 807,067.01 1,906,000.00 1,098,932.99 2 Facilities of a gas pressure and flow control station 10 inventory items 1150 911110/914101 107,275.84 198,305.08 91,029.24 Reason for difference between the actual realised value and book value The asset disposed through an auction with a starting price not less than its market value as assessed by an independent valuator The asset disposed through an auction with a starting price not less than its market value as assessed by an independent valuator 12,715.85 49,999.20 37,283.35 Result of pre-sale preparation and disposal of assets 5 Gazpromshelf replenishment tanker 351789 629,113.33 115,000.00 −514,113.33 105,906.78 122,877.62 16,970.84 8 149 items of movable property (motor transport 149 inventory items 1150 911110/914101 748.36 32,463.05 31,714.69 901910/903910 77,991.43 24,000.00 −53,991.43 5,841.00 6,450.00 609.00 1,746,659.60 2,455,094.95 708,435.35 227 Each asset disposed through a competitive process with a starting price not less than its market value as assessed by an independent valuator The asset disposed after several rounds of a competitive process with a starting price not less than its market value as assessed by an independent valuator The asset disposed through a competitive process with a starting price not less than its market value as assessed by an independent valuator The asset disposed after several rounds of a competitive process with a starting price not less than its market value as assessed by an independent valuator The assets disposed through an auction with a starting price no less than their market value as assessed by an independent valuator i s e c d n e p p A (10 inventory items), located at Block 196, Nogliki Forestry Area, Nogliki Municipal District, Sakhalin Region Premises, located at 2 Polyustrovsky avenue, bld. A, 005652 Saint Petersburg 19 apartments of PJSC Gazprom (18 in Moscow 19 inventory items and 1 in Velsk, Arkhangelsk Region) 3 4 6 5-bedroom detached house, plot No. 127a, without 550958 a garage, for maintenance staff in an accommodation camp 7 Assets under construction — 64 residential houses and – utility infrastructure located at Saratovskaya rural locality, Goryachy Klyuch town, Krasnodarsky Region and special vehicles) Total for 2019 911110/914101 911110/914101 911110/914101 911110/914101 1150 1150 1150 1150 1210 PJSC Gazprom Annual Report 2019Energy Consumption by PJSC Gazprom and its Actual Cost Energy resource Natural gas mmcm RUB mm (inclusive of VAT) Electricity thousand MWh RUB mm (inclusive of VAT) Heat thousand Gcal RUB mm (inclusive of VAT) Motor gasoline mm litres RUB mm (inclusive of VAT) Diesel fuel mm litres RUB mm (inclusive of VAT) 2017 2018 2019 5.8 37.4 6.5 8.2 43.5 55.4 58.8 64.1 77.6 315.0 357.9 447.5 78.3 77.5 69.4 143.8 158.8 148.9 0.9 1.4 1.3 33.9 56.4 57.9 0.6 1.1 1.1 20.4 43.2 50.7 Note. The reported data are for facilities managed by PJSC Gazprom. Power consumption by facilities placed under third parties’ management is not taken into consideration. PJSC Gazprom consumes no other energy resources in significant quantities. 228 PJSC Gazprom Annual Report 2019Additional Information for the Annual Report available on PJSC Gazprom’s Corporate Website — Meetings of PJSC Gazprom’s Board of Directors in 2019 — Meetings of the Audit Committee of PJSC Gazprom’s Board of Directors in 2019 — Meetings of the Nomination and Remuneration Committee of PJSC Gazprom’s Board of Directors in 2019 — Debt Recovery Litigations Pending as at 31 December 2019 — List of Entities in which PJSC Gazprom Holds Shares (Interest) as at 31 December 2019 The information is provided on PJSC Gazprom’s corporate website www.gazprom.com 229 i s e c d n e p p A PJSC Gazprom Annual Report 2019Glossary Name Definition A ADR of PJSC Gazprom American Depositary Receipt issued for PJSC Gazprom shares AEPS AI-92-K5 APG Asia Pacific B BCS Brent C CCGT plant Central Asia CGTU CHPP CNG CS CSA E EAEU EBITDA EMS ETP-GPB EU Automated Electronic Procurement System Grade of gasoline Associated petroleum gas The Asia-Pacific region, which includes countries of mainland Asia, America and Pacific Ocean Area Booster compressor station Benchmark grade of crude oil produced in the North Sea Combined cycle gas turbine plant Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan Comprehensive gas treatment unit Combined heat and power plant Compressed natural gas Compressor station Capacity supply agreement Eurasian Economic Union The sum of operating profit, depreciation, impairment loss or reversal of impairment loss on financial assets and non-financial assets, less changes of allowance for expected credit losses on accounts receivable and impairment allowance on advances paid and prepayments Environmental Management System Electronic Trading Platform of Gazprombank European Union European far abroad countries 25 EU countries (excluding Latvia, Lithuania, and Estonia), such non-EU countries as Turkey, Norway, and Switzerland, and the Balkan states of Albania, Bosnia and Herzegovina, North Macedonia, and Serbia F FCC FAR Far abroad countries FAS of Russia FSU countries FTS of Russia G GAZP GCF GHG GOST R ISO 26000:2012 (Russian standard) GPP GRES GRF 230 Fluid catalytic cracking Fatal accident rate Foreign countries other than FSU countries, comprising the geographic segment Europe and other countries as defined in PJSC Gazprom’s IFRS consolidated financial statements The Federal Antimonopoly Service of Russia Former Soviet Union republics, except for the Russian Federation The Federal Customs Service of Russia Gazprom ticker, the Moscow Exchange Gas condensate field Greenhouse gases Social responsibility standard Gas and/or condensate processing plant State district power station Gas recovery factor PJSC Gazprom Annual Report 2019Glossary Name G H GTS Hydrocarbon reserves (categories A+B1+C1) Definition Gas transportation system Explored reserves under Russian classification of reserves with a high degree of geological exploration, which correspond to the previously accepted categories A+B+C1 (for oil, gas and gas condensate reserves there is a recovery factor calculated on the basis of geological and technological factors) I IFRS International Financial Reporting Standards ISO 14001 ISO 26000 ISO 45001 ISO 50001 ISO 9001 K L KPIs LNG LPG LSE International Organisation for Standardisation, the international environmental management standard International Organisation for Standardisation, the international standard providing guidelines for social responsibility International Organisation for Standardisation, the international standard for management systems of occupational health and safety International Organisation for Standardisation, the international standard for Energy Management Systems International Organisation for Standardisation, the international quality management standard Key Performance Indicators Liquefied natural gas Liquefied petroleum gas London Stock Exchange M MARPOL The International Convention for the Prevention of Pollution from Ships MENA MET NGV fuel OGCF OGZD N O Middle East and North Africa region Mineral extraction tax Natural gas vehicle fuel Oil and gas condensate field Gazprom ticker, the London Stock Exchange OHSAS 18001:2007 Occupational Health and Safety Management Systems, the international standard for occupational health and safety management systems P PRMS PSA R R&D RAS REACH S SME SPIMEX SPTs Petroleum Resources Management System, an international standard for hydrocarbon reserve classification and reporting Production sharing agreement Research and Development Russian Accounting Standards EU regulation Registration, Evaluation, Authorisation and Restriction of Chemicals Small and medium enterprises Saint Petersburg International Mercantile Exchange Strategic Performance Targets T The Eastern Gas Programme The programme of building an integrated gas production, transportation, and supply system in Eastern Siberia and the Far East, taking into account potential gas exports to China and other Asia- Pacific countries, approved by Order of the Ministry of Economic Development of the Russian Federation No. 340 dated 3 September 2007 toe TPP U UES UGSF UGSS UIS UOHSMS USD V VAT 231 Tonne of oil equivalent Thermal power plant Unified Energy System Underground gas storage facility Unified Gas Supply System of Russia Unified Information System of public procurement of goods, works and services for state and municipal needs Unified Occupational Health and Safety Management System United States (US) dollars Value added tax i s e c d n e p p A PJSC Gazprom Annual Report 2019Name cu m of gas BTU tonne of oil Definition Conversion ratios A cubic metre of natural gas measured at 1 Pa pressure and 20°C, with a calorific value of 8,850 kcal per cu m 1,000 cu m of gas = 6.49 barrels of oil equivalent = 0.885 tonnes of oil equivalent British thermal unit Tonne of oil Glossary Units of Measurement and Conversion Table tonne of gas condensate Tonne of gas condensate Conventions Sign – 0.0 Meaning Not observed Value less than 0.05 List of Foreign Companies Mentioned in the Report Full name ZAO Gazprom Armenia OsOO Gazprom Kyrgyzstan OAO Gazprom transgaz Belarus OOO Gas Transmission System Operator of Ukraine AO Uzbekneftegaz Allseas Group S.A. Bank of America Merrill Lynch Bloomberg L.P. Blue Stream Pipeline Company B.V. BP p.l.c. China National Petroleum Corporation Chevron Corporation Citigroup Inc. ConocoPhillips Short name – – – – – Allseas – Bloomberg – BP CNPC Chevron Citigroup – Dagong Global Credit Rating Company Limited Dagong Daqing Oil DeGolyer and MacNaughton – – Deutsche Bank AG Deutsche Bank ENGIE S.A. Eni SpA Equinor ASA ENGIE Eni Equinor Exxon Mobil Corporation ExxonMobil Fitch Ratings GASTRANS d.o.o. Novi Sad N.V. Nederlandse Gasunie GazAsia Capital S.A. 232 – – Gasunie – 1 mm BTU = 0.028 mcm of LNG = 0.021 tonnes of LNG = 7.33 barrels of oil = 7.33 barrels of oil equivalent = 1 tonne of oil equivalent = 8.18 barrels of gas condensate = 8.18 barrels of oil equivalent = 1 tonne of oil equivalent Country Armenia Kyrgyzstan Belarus Ukraine Uzbekistan Switzerland USA USA The Netherlands United Kingdom China USA USA USA China China USA Germany France Italy Norway USA USA Serbia The Netherlands Luxembourg PJSC Gazprom Annual Report 2019Glossary Full name Gaz Capital S.A. Gazprom EP International B.V. Short name – – Gazprom NGV Europe GmbH Gazprom NGV Europe HSBC Holdings plc HSBC International Business Machines Corporation IBM IHS Markit Ltd. Investor Update Limited IHS Markit Investor Update Japanese Bank for International Cooperation JBIC JP Morgan Chase & Co Moody’s Investors Service JP Morgan Moody’s Morgan Stanley International Limited Morgan Stanley MSCI Inc. Naftna Industrija Srbije a.d. National Iranian Oil Company Nord Stream AG Nord Stream 2 AG OMV Aktiengesellschaft MSCI NIS NIOC – – OMV Perenco Cameroon S.A. Perenco Cameroon PetroChina Company Limited Petróleo Brasileiro S.A. Qatar Petroleum PetroChina Pertobras – Raiffeisen Bank International AG Raiffeisen Bank Renaissance Capital Limited Renaissance Capital Royal Dutch Shell plc. Shell Sakhalin Energy Investment Company Ltd. Sakhalin Energy Siemens AG Sonatrach Group South Stream Transport B.V. SOVA Capital Limited Standard & Poor’s The Bank of New York Mellon Siemens Sonatrach – SOVA Capital – – The Goldman Sachs Group, Inc. Goldman Sachs TOTAL S.A. UBS Group AG Uniper SE Verbundnetz Gas Total UBS Uniper VNG Country Luxembourg The Netherlands Germany United Kingdom USA United Kingdom United Kingdom Japan USA USA USA USA Serbia Iran Switzerland Switzerland Austria Cameroon China Brazil Qatar Austria United Kingdom United Kingdom Bermuda Germany Algeria The Netherlands United Kingdom USA USA USA France Switzerland Germany Germany Westwood Global Energy Limited Westwood Global Energy United Kingdom Wintershall AG – Wintershall Dea GmbH Wintershall Dea Wintershall Noordzee B.V. Wintershall Noordzee WIROM GAS S.A. – Wood & Company Financial Services, a.s. Wood & Company Yacimientos Petroliferos Fiscales Bolivianos YPFB Yamal Trade Pte. Ltd. Yamal Trade 233 Germany Germany The Netherlands Romania Czech Republic Bolivia Singapore i s e c d n e p p A PJSC Gazprom Annual Report 2019Contacts Full Name Contact for Shareholders Phone: +7 812 609 7657 (for shareholders of PJSC Gazprom) Contact for Investors Phone: +7 812 609 4129 Fax: +7 812 609 4334 E-mail: ir@gazprom.ru Auditor Limited Liability Company Financial and Accounting Consultants (OOO FBK) OOO FBK is a member of the self-regulated organisation of auditors Auditor Association Sodruzhestvo. Location: 44/1 Myasnitskaya St., Bld. 2 AB, Moscow, 101990, Russian Federation Phone: +7 495 737 5353 Website: www.fbk.ru Registrar Joint Stock Company Specialised Registrar — Register Keeper for Gas Industry Shareholders (AO DRAGa) Location and postal address: 71/32 Novocheryomushkinskaya St., Moscow, 117420, Russian Federation Phone: +7 495 719 4044 Website: www.draga.ru Public Joint Stock Company Gazprom Abbreviated Name PJSC Gazprom Location Moscow, Russian Federation Address 16 Nametkina St., GSP-7, Moscow, 117997, Russian Federation Postal address: BOX 1255, Saint Petersburg, 190900, Russia Delivery address: 156 Moskovsky Av., Bld. A, Saint Petersburg, 196105, Russian Federation Phone: +7 495 719 3001 Fax: +7 495 719 8333, +7 812 413 7333 Website www.gazprom.com E-mail gazprom@gazprom.ru Certificate of entry into the Unified State Register of Legal Entities by the Moscow Department of the Ministry of Taxation dated 2 August 2002 OGRN 1027700070518 Taxpayer Personal Identification Number (INN) 7736050003 234 PJSC Gazprom Annual Report 2019This Annual Report is approved by PJSC Gazprom’s annual General Shareholders Meeting (Minutes No.  dated  June ), pre-approved by Resolution of PJSC Gazprom’s Board of Directors No.  dated  May  (Minutes No.  dated  May ). Chairman of PJSC Gazprom’s Management Committee A.B. Miller Chief Accountant of PJSC Gazprom M.N. Rosseev  PJSC Gazprom Annual Report 2019 www.gazprom.com

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