PJSC Tatneft Annual Report 2015

Plain-text annual report

LOOKING INTO THE FUTURE ANNUAL REPORT OF THE TATNEFT COMPANY ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT 2015 year-end Annual Report has been prepared on a uniform integrated basis incorporating the requirements applicable to annual reports of public companies and the corporate accounting standards applicable to sustainable development. The Integrated Annual Report considers the principles of the Corporate Governance Code recommended for use by the Letter of Bank of Russia No. 06-52/2463 dated 10 April 2014. The Annual Report of the Company on the information disclosure corresponds to the requirements of the following documents: − Federal Law No. 208-FZ «On Joint Stock Companies» dated 26 December 1995. − Federal Law No. 39-FZ «On the Securities Market» dated 22 April 1996. − Regulations of the Central Bank of the Russian Federation No. 454-P «On the Disclosure of Information by Issuers of Securities» approved 30 December 2014, registered by the Ministry of Justice of the Russian Federation on 12 February 2015. - Letter of Information of Bank of Russia No. IN-06-52/8 «On Disclosure of Report on Observance of the Principles and Recommendations of the Corporate Governance Code in the Annual Report of Public Joint Stock Company» dated 17 February 2016 As related to the sustainable development aspects the integrated Company is focused on compliance with the following standards: − Global Reporting Initiative (G4) Guidelines for annual reports on sustainable development; − AA 1000 Stakeholder Engagement Standard; − ISO 26000 Guidance on Social Responsibility Standard; − Social Charter of Russian business; − International Standard of Integrated Reporting (www.theiirc.org/international-ir- framework/). The Annual Report of Public Joint Stock Company «TATNEFT» for 2015 has been preliminarily approved by the Board of Directors of PJSC TATNEFT. Minutes No.13 dated 25 May 2016. FORWARD-LOOKING STATEMENTS This annual report, in addition to the actual data of the previous period, contains some forward-looking statements. These statements, in particular, include statements about future operational results, plans and/or forward-looking statements with respect to future economic and financial performance, goals and objectives of the Company regarding the development plans, including those relating to products and services. The forward-looking statements may include the information concerning anticipated or expected revenue, profit (loss), net profit (loss) in respect of shares, dividends, capital structure and other financial matters. The content of these statements is forward-looking and is accompanied by the words «expects», «anticipates», «plans», «intends», etc. Due to their specific nature, the forward-looking statements are subject to inherent risk and uncertainties, both general and specific. There is a risk that the future actual results may materially differ from those plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, or may not be implemented due to a number of different factors. CONTENTS ABOUT THE COMPANY 01 Joint Address to Shareholders, Investors and Partners .......................................................................................................... 02 The Company’s Mission ....................................................................................................................................................... 04 Equity Holding Structure of PJSC TATNEFT ........................................................................................................................... 06 Development and Continuity of the Company’s Strategic Initiatives.......................................................................................... 09 Business Model ................................................................................................................................................................... 10 Finanical Position and Strengthening the Assets Structure ...................................................................................................... 12 Major Industrial Factors Affecting the Company’s Activity in 2015 ............................................................................................ 18 Model of Sustainable Development of the Company ............................................................................................................... 20 OPERATIONS 22 Upstream ............................................................................................................................................................................ 24 Downstream........................................................................................................................................................................ 30 Petrochemicals ................................................................................................................................................................... 36 Heat & Power Energy ........................................................................................................................................................... 38 CORPORATE MANAGEMENT 40 Management of the Company ............................................................................................................................................... 42 PJSC TATNEFT’s General Shareholders’ Meeting .................................................................................................................. 44 Board of Directors of PJSC TATNEFT .................................................................................................................................... 46 Composition of the PJSC TATNEFT’s Board of Directors ......................................................................................................... 48 Committees of the Board of Directors ................................................................................................................................... 54 Executive Bodies ................................................................................................................................................................. 58 Composition of the PJSC TATNEFT’s Management Board ...................................................................................................... 60 Corporate Practice .............................................................................................................................................................. 64 Corporate Management Practices Report .............................................................................................................................. 66 Personnel Management ....................................................................................................................................................... 72 Control Bodies .................................................................................................................................................................... 76 Integrated Risk Management System .................................................................................................................................... 78 Information Disclosure ......................................................................................................................................................... 82 Awards and Nominations ...................................................................................................................................................... 88 FINANCIAL RESULTS 90 Accounting Statements Prepared in Accordance with Russian Accounting Standards. Auditor’s Opinion ................................................................................................................................................................. 92 Accounting Reports of PJSC TATNEFT, FY 2015 ..................................................................................................................... 94 Essential Aspects of the Accounting Policy and Presentation of the Accounting Statements for 2015 FY ................................................................................................................................. 97 Consolidated Financial Statements in Accordance with International Financial Reporting Standards as of and for the Year Ended December 31, 2015. Independent Auditor’s Report ............................................................................................................................................. 106 Consolidated Statements of Financial Position ..................................................................................................................... 108 Consolidated Statements of Profit or Loss and Other Comprehensive Income ........................................................................ 109 Consolidated Statements of Changes in Equity .................................................................................................................... 111 Consolidaed Statements of Cash Flows ............................................................................................................................... 112 Notes to the Consolidated Financial Statements ................................................................................................................... 114 SOCIAL RESPONSIBILITY 164 Social Investment .............................................................................................................................................................. 166 Inofrming on the Activity Related to Sustainable Development and Corporate Social Responsibility .................................................................................................................................... 167 Social Reponsibility of the Company Towards Its Employees ................................................................................................. 168 Social Infrastructure Development ...................................................................................................................................... 174 Charitable Activities ........................................................................................................................................................... 175 Registry of Corporate Social Projects .................................................................................................................................. 176 Interaction with the Stakeholders ........................................................................................................................................ 178 The Company’s Responsibility towards the Stakeholders ...................................................................................................... 179 Corporate Standards and Regulations for Interaction with Concerned Parties ......................................................................... 180 Declaration of the TATNEFT Company on Interaction with Customers .................................................................................... 182 Delcaration of the TATNEFT Company on Human Rights Observance .................................................................................... 183 INDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 184 Ensuring Industrial and Environmental Security, Occupational Health and Nature Conservation ............................................... 186 GRI GR Table..................................................................................................................................................................... 200 List of Abbreviations ........................................................................................................................................................... 204 Contact Details .................................................................................................................................................................. 206 02 01 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY JOINT ADDRESS TO SHAREHOLDERS, INVESTORS AND PARTNERS Dear Shareholders, Investors and Partners! TATNEFT Company successfully accomplished all of the planned programs in 2015. In the difficult macroeconomic environment the Company implemented a set of production and economic compensatory measures to maintain the Company’s status in the group of the leaders of the Russian fuel and energy complex. In order to ensure a sustainable economic and financial situation and improve operational profitability within the framework of the formation of the Company’s Development Strategy until 2025 the work was continued on improving the corporate business model and organizational structure of the TATNEFT Group of Companies. The volume of crude oil production of the TATNEFT Group amounted to 27.2 mln tonnes in the reporting year. The Company is developing deposits of high-viscosity oil as one of the strategic resource assets. The accumulated oil production volume from Ashalchinskoye field exceeded 930 thousand tonnes of HVO since the beginning of the development. Continuous improvement of technologies and introduction of new equipment contribute to maintaining the volume of commercial production at conventional oil fields, as well as to successful development of hard-to-recover oil reserves. The Company controls replacement of hydrocarbon reserves by implementing appropriate comprehensive programs. The Company’s proved reserves amount to 869.8 mln tonnes. As part of accomplishing the strategic objective to increase the volumes of production and sales of new types of high value- added products the TANECO Refining and Petrochemical Plants Complex produced 1.4 mln tonnes of diesel fuel complying with the ecological «Euro-5» standard in 2015. The total volume of crude oil processed during the reporting year amounted to 8.6 mln tonnes, while the light products yield accounted for more than 70%. The construction of the second stage of the Complex is underway in order to increase the volume of oil refining up to 14 million tonnes of crude oil per year. Expansion of the modern high-quality products output is also underway at the enterprises of the Petrochemical Complex. The products of «Nizhnekamsktekhuglerod» Factory correspond to high-quality analogs of foreign manufacturers and are popular in the domestic market. They are supplied to 28 importing countries. The tire factories of the Company manufactured 12 million tires in the reporting year with 23% of them sold on the external market. The export deliveries geography of our tire products covers 47 countries. The production capacity of the Nizhnekamsk solid steel cord tire factory was brought to the full design level last year with the total number of the tires manufactured since the factory was put into operation amounting to 3 million pieces. The factory provides 72% of the total volume of solid steel cord tires produced in Russia. The reporting year witnessed modernization of Nizhnekamsk CHP in order to improve the efficiency and reliability of power supply to the refining and petrochemical facilities of the Company’s Nizhnekamsk industrial hub, which essentially increased the CHP plant’s capacity. The Company continues developing its retail sales network. High quality of fuel, including the Company’s own production, modernization of the filling stations and introduction of additional services enhance its competitiveness and strengthen the Company’s position in this business segment. By the end of 2015 the network of the TATNEFT’s filling stations increased to 692 stations with the sales volumes of oil and gas products through its own network of filling stations accounting for 18.3% increase versus 2014. The implemented investment policy provides for a qualitative improvement in the structure of the TATNEFT Group’s assets. The share of proceeds from the operating segment «processing and sale of petroleum and petroleum products” is growing. The Company was holding down the rate of operating expenses growth, which allowed reducing the expenses per ruble of marketable products. The Company’s net profit amounted to 85 billion rubles in 2015. The Company’s level of capitalization increased by 40% versus 2014. The Company maintains a high level of the PJSC TATNEFT’s shares dividend yield. Following the socially responsible business principles the Company complies with the high requirements of the corporate environmental and social standards. The Company implements large-scale environmental measures and programs for support of health, education, cultural and sports, which contribute to the development of the social infrastructure in the regions of the Company’s activities. The achieved status of the Company is the result of full-scale efforts of all the Company’s enterprises. We express gratitude to the workforce of the TATNEFT Group of Companies for their professionalism and hard work aimed at achieving maximum results. The Company’s management appreciates the trust of the shareholders and constructive interaction with investors and partners. In future we shall strictly adhere to the accepted commitments and plans. We consider the unstable situation in the economy related to geopolitical problems, the fall in the global price of oil, volatility of the national currency exchange rate, external constraints for Russian business to be a challenge and a stimulus to the development and search for reserves. We are sure, that the accumulated production potential, further improvement of the corporate management system and high competence of the staff are the basis for the stable operation of the Company in the future, maintenance of its position in the industry, international recognition and successful implementation of strategic initiatives! R.N. Minnikhanov President of the Republic of Tatarstan, Chairman of the Board of Directors of PJSC TATNEFT N.U. Maganov General Director, Chairman of the Management Board of PJSC TATNEFT 02 03 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY OUR MISSION CONSISTS IN ENSURING THE PROGRESSIVE DEVELOPMENT OF THE COMPANY AS ONE OF THE LARGEST RUSSIAN VERTICALLY INTEGRATED COMPANIES PRODUCING OIL AND GAS, REFINED PRODUCTS, PETROCHEMICALS BASED ON THE EFFICIENT ASSET MANAGEMENT OF THE SHAREHOLDERS, MANAGEMENT OF NATURAL RESOURCES AND CORPORATE SOCIAL RESPONSIBILITY. The principal business assets are located in the territory of the Russian Federation, the business projects are carried out in the domestic and foreign markets. PJSC TATNEFT is a corporate centre of the TATNEFT Group, which consolidates management of investment, financial and production processes of all business-segments in order to achieve the maximum operating performance within the Company’s development strategy. Coordination of the activity of the companies constituing the part of the Group is aimed at ensuring high efficiency of the subsidiaries’ activity, transparency of decision-making and risk management. The key function of the Group’s corporate centre is to increase the shareholder value and investment attractiveness of the Company. The Company represents the interests of about 44 thousand Russian and foreign shareholders. Stable financial position and positive financial performance provide a high level of dividend yield of the TATNEFT shares. The dividend policy is based on the strict observance of the legitimate rights and interests of the shareholders in accordance with the mission and strategic goals aimed to increase the Company’s capitalization and the level of dividend yield on invested capital as a result of efficient asset management of the shareholders. TOTAL CONSOLIDATED ASSETS OF THE TATNEFT GROUP NET ASSETS OF PJSC TATNEFT NET PROFITS OF PJSC TATNEFT 04 05 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY EQUITY HOLDING STRUCTURE OF PJSC TATNEFT Shares of PJSC TATNEFT are traded in the Russian and international stock markets for over 20 years and they are considered to be the most representative instruments in the securities market. The stock owners of the Company are shareholders from over 30 countries. The ordinary and preferred shares of the Company are listed in the 1st level MICEX Quote List - Moscow Stock Exchange. The highest level of quotation of shares of PJSC «Tatneft» on the Moscow Stock Exchange reflects the Company’s compliance with all conditions and whether the listing rules, following the best practices of corporate governance, financial transparency and compliance with the liquidity requirements. PJSC TATNEFT shares are included in the MICEX basic index calculation base, which is the main indicator of the Russian stock market. 28.5 % of the share capital are converted into the global American Depositary Receipts (ADRs). Listing of depositary receipts on the London Stock Exchange are classified as the «standard» status (ATAD symbol). The depositary receipts are traded in the Xetra system of Deutsche Bourse Group. Since 2009 the ADRs have been traded on the US over-the- counter (OTC) market organized by OTC Markets Group – Pink Sheets. The Company’ equity capital is equal to 2 326 199 thousand rubles, including 2 326 199 200 preferred and ordinary shares 2 326 199 200. Nominated value of each share is amounted to RUB 1. DIVIDEND POLICY OF THE COMPANY IS BASED ON THE ECONOMICALLY SOUND APPROACH TO PROFIT DISTRIBUTION TO PROPERLY BALANCE THE SHORT-TERM INTERESTS (PROFIT-MAKING) AND LONG TERM INTERESTS (COMPANY DEVELOPMENT) OF SHAREHOLDERS. Information on each class (type) of shares Securities (sort and type) As of December 31, 2015 there were 44 471 shareholders registered in the Register of PJSC TATNEFT shareholders. Among them the largest owners (nominal holders) of the Company’s shares were as follows: • Non-banking Credit Organization, Closed Joint Stock Company National Settlement Depository owns 59.6013% of shares, • Joint Stock Company “Central Depository of the Republic of Tatarstan” owns 30.4483% of shares. PJSC TATNEFT Equity Holding Structure as of December 31, 2015 TOTAL NUMBER OF SHARES INCLUDING: Ordinary shares PJSC TATNEFT Foreign shareholders Russian shareholders Preferred shares PJSC TATNEFT Foreign shareholders Russian shareholders 2 326 199 200 2 178 690 700 504 860* 2 178 185 840 147 508 500 93 467* 147 415 033 *without ownership through the Russian nominee holders As of the end of 2015 the value of one ordinary share of PJSC TATNEFT amounted to RUB 315.5 (US$ 4.35) on the Moscow Stock Exchange, one preferred share - RUB 198.1 (US$ 2.73). THE COMPANY ENSURES EQUALITY OF CONDITIONS FOR ALL SHAREHOLDERS REGARDLESS OF THE NUMBER OF SHARES THEY OWN AND LOCATION OF SHAREHOLDERS, AND TREAT THEM EQUALLY IN REALIZING THEIR POSSIBILITIES TO PARTICIPATE IN THE PROFITS OF THE COMPANY BY RECEIVING DIVIDENDS. preferred registered uncertified shares ordinary registered uncertified shares Form of issuance of securities registered uncertified registered uncertified State registration number of the securities issuance Date of statutory registration of the securities issuance Nominal value of the securities Currency of nominal value of the securities Number of securities in the issuance Total number of shares issued 2-03-00161-A 26.10.2001 1 RUB 147 508 500 pcs. 147 508 500 1-03-00161-A 26.10.2001 1 RUB 2 178 690 700 pcs. 2 178 690 700 06 Dividend Policy The Company recognizes dividends as one of the key indicators of investment attractiveness of the Company and is committed to raising its dividends on the basis of consistent earnings growth. The Board of Directors while developing the recommendations on the dividend amount to the General Meeting of shareholders (per share) is based on the amount of net profits of the Company and proceeds from the premise that the amount paid out in dividends shall be at least 30% of net profits determined according to the Russian Accounting Standards (RAS). The principles and conditions of decision-making on the payment (declaration) of dividends, the procedure for determining the dividend amount and payment are defined in the Regulations on the Dividend Policy of PJSC TATNEFT approved by the Board of Directors of the Company. The Regulations are based on observance of the shareholders’ rights, stipulated by the legislation of the Russian Federation and best practices of corporate governance. The Company ensures maximum transparency of the dividend policy. The amount of dividends on the ordinary and preferred shares of PJSC TATNEFT recommended by the Board of Directors to the General Meeting of Shareholders on the results of operations in 2015 will amount to RUB 10.96 (1096% of the nominal value of shares). Dividend decision indicating payment itself, its amount and form is taken by the General Meeting of the Company’s Shareholders based on the recommendations of the Board of directors. The recommendations of the Board of directors indicating amount of the dividends according to the results of reporting period, payment order, as well as record date are presented to the shareholders in accordance with the effective legislation for taking final decision on the General Meeting of the Company’s Shareholders. Information about the decision taken by the General Meeting of the Company’s Shareholders regarding dividends payment, its amount and payment order is published on the official web-site of the Company (www. tatneft.ru) in Russian and English, as well as on the web- site of the news agency authorized for carrying out activities related to disclosure of the Company’s information. History of the dividend payments for the last five completed fiscal years Type of Shares % of the face value Dividend amount, RUB % of the face value Dividend amount, RUB % of the face value Dividend amount, RUB % of the face value Dividend amount, RUB % of the face value Dividend amount, RUB 2010 2011 2012 2013 2014 Total amount of dividends (RUB BLN) Net proceeds share (according to RAS) allocated at dividends payment 11.7 30% 16.5 30% 20.0 30% 19.2 30% 24.6 30% Ordinary shares Preferred shares 502% 502% 5.02 5.02 708% 708% 7.08 7.08 860% 860% 8.60 8.60 823% 823% 8.23 8.23 1058% 10.58 1058% 10.58 Date of decision on dividends payment Annual General Meeting of Shareholders at year-end 2010 held June 23, 2011. Minutes No. 18 dd. 28.06.2011 Annual General Meeting of Shareholders at year-end 2011 held June 29, 2012. Minutes No. 19 dd. 03.07.2012 Annual General Meeting of Shareholders at year-end 2012 held June 28, 2013. Minutes No. 20 dd. 02.07.2013 Annual General Meeting of Shareholders at year-end 2013 held June 27, 2014. Minutes No. 21 dd. 02.07.2014 Annual General Meeting of Shareholders at year-end 2014 held June 26, 2014. Minutes No. 22 dd. 30.07.2015 Date of payment August 21, 2011 August 27, 2012 August 26, 2013 July 29, 2014 (payment to the nominee shareholder). August 19, 2014 (payments to the registered shareholders). July 29, 2015 (payment to the nominee shareholder). August 19, 2015 (payments to the registered shareholders). 07 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY EFFICIENCY THE CONSISTENT IMPLEMENTATION OF THE COMPANY’S STRATEGIC OBJECTIVES PROVIDES SUSTAINABLE OUTPUT GROWTH AND POSITIVE FINANCIAL PERFORMANCE FOR MORE THAN 20 YEARS. SUSTAINABILITY AND STABILITY THE POSITIVE PERFORMANCE RESULTS OF THE COMPANY IN DIFFICULT MACROECONOMIC CONDITIONS OF THE LAST PERIOD OF 2014-2015 REFLECT THE QUALITY POTENTIAL OF ITS BUSINESS MODEL ABLE TO WITHSTAND IMPACT OF THE NEGATIVE SECTORAL AND MARKET FACTORS. RESPONSIBILITY STRICT OBSERVANCE OF THE RIGHTS AND LEGAL INTERESTS OF SHAREHOLDERS AND ALL THE STAKEHOLDERS IS EXPRESSED IN THE FULFILLMENT OF THE COMPANY UNDERTAKEN OBLIGATIONS IN THE PRINCIPAL ACTIVITY AND VOLUNTARY SOCIAL INITIATIVES. The capitalization of PJSC TATNEFT at the 2015 year- end amounted to RUB 716.6 billion, which represents 39.6 % growth as compared to 2014. 716.6 DEVELOPMENT AND CONTINUITY OF THE COMPANY’S STRATEGIC INITIATIVES STRATEGIC INITIATIVES Icons АКТУАЛИЗАЦИЯ СТРАТЕГИЧЕСКИХ ИНИЦИАТИВ В 2015 ГОДУ Ensure the financial sustainability and economic stability Increasing the long-term shareholder value of the Company and ensuring high operating return on the investment of the business segments on the basis of effective corporate management of natural resources, industrial, intellectual and professional assets Stabilize the volumes of profitable oil & gas production on the developed license fields and development of new fields including high viscosity oil fields and hard-to-recover oil fields in the territory of the Republic of Tatarstan Increase the commercial oil & gas production of oil & gas fields, oil recovery enhancement on the developed license fields and development of new fields including high viscosity oil fields and hard-to- recover oil fields in the territory of the Republic of Tatarstan while cutting the operating unit costs and investment expenditures Expand the hydrocarbon resource portfolio outside the Republic of Tatarstan and the Russian Federation Expand the hydrocarbon resource portfolio outside the Republic of Tatarstan and the Russian Federation Increase the production volumes and sales of highly competitive finished products through development of refineries and petrochemical plants Increase the production volumes and sales of highly competitive finished products - high value- added goods according to the international environmental standards and long-term market requirements, develop in-house refinery and petrochemical production capacities. 322.1 299.8 307.6 344.6 263.2 201.7 114.6 513.4 475.0 471.6 Formulate and implement the innovative engineering policy Strengthen the technological capacity of the Company through effective investments in the development and modernization of the production capacities, advanced technology development and enhancement of efficient use of facilities and technologies, improvement of efficiency of resource saving programs. Ensure a high level of the corporate social responsibility and environmental responsibility Ensure a high level of the corporate social responsibility and support environmental balance during carrying out production and commercial activities of the Company. 0.5 5.5 18.5 3.6 22.1 22.1 34.1 85.9 70.6 53.3 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The compliance of indicators to the strategic initiatives is indicated by appropriate marking in the report text 08 09 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY BUSINESS MODEL PJSC TATNEFT GROUP STRUCTURE PROVIDES THE OPERATIONAL PROCESSES FROM OBTAINING PRODUCTION LICENSES TO SALES OF PETROLEUM AND PETROCHEMICAL PRODUCTS IN THE DOMESTIC MARKET AND FOR EXPORT. THE COMPANY ASSETS ARE ALLOCATED AMONG THE BUSINESS SEGMENTS OF UPSTREAM AND DOWNSTREAM. In 2015, the Company successfully achieved its objectives to strengthen the quality and profitability of the corporate assets, ensure the production level growth and replenishment of reserves, improve the added value through the production of high quality refined products and the efficient allocation of resource and production potential, development of in-house refinery capacity, enhancement of returns on the investments made in the tyre production. The result of the year was the achievement of all the planned production volumes and positive financial performance. PJSC TATNEFT is a corporate centre of the TATNEFT Group Management processes Business Structure Business structure of the Company provides for maximum efficient utilization of resource assets and production facilities based on project and process management as a part of uniform investment policy: l consolidation of the technological and intellectual potential; UPSTREAM Ensuring the production gain and replenishment of reserves l Strengthening the resource base l Geographical expansion of production assets l Development of hard-to recover reserves, especially high viscosity oil fields l control of effectiveness and quality of all the processes; DOWNSTREAM l creating of business growth points and operating earnings; l intersegmental costs cutting; l strengthening the financial sustainability; l risk management; l formation of the uniform production corporate standards; l coordination of cooperation with the external business environment. Qualitative strengthening of the core assets structure and enhancement of operating efficiency of business segments in the following activity areas: l Petroleum refining l Petrochemical production l Sales of crude oil and petroleum products l Retail network of petroleum products l Heat-and-Power generation Support of the core activity Creating conditions for sustainable development of the Company l Development of own innovative and technological capacity in all business segments l Environmental activity l Social activity THE COMPANY’S STRATEGIC GOAL IS TO DOUBLE ITS VALUE UP TO 2025: • INCREASE ANNUAL OIL PRODUCTION VOLUME OUT TO 30 MLN TONNES • INCREASE PETROLEUM REFINING VOLUME UP TO 14 MLN TONNES UP TO 2018 • INCREASE VOLUME OF PETROLEUM PRODUCTS SALES THROUGH THE RETAIL NETWORK OF FILLING STATIONS BY 1,5 TIMES • STRENGTHEN PETROCHEMICALS BUSINESS SEGMENT THE BUSINESS MODEL BASED ON THE UNIFIED STRATEGY INTEGRATES THE POTENTIAL OF CORE DIVERSIFIED ASSETS IN THE EXPLORATION AND PRODUCTION, PETROLEUM REFINING, PETROCHEMICAL PRODUCTION, SALES OF CRUDE OIL AND PETROLEUM PRODUCTS, ENSURING THE VALUE CREATION AND PROVIDING CONDITIONS OF LONG-TERM SUSTAINABLE DEVELOPMENT TAKING INTO ACCOUNT EXTERNAL INFLUENCING FACTORS. • X C H A N G E R A T E S T RANSPORT RATES • TECHNOLOGICAL A In-house refined products meeting the international standards N D E N VIR E • E T A N R Geographical proximity of the crude oil production centre to the trade channels of crude oil and petroleum products Own retail network of filling stations for retail sales of petroleum products Own logistics and marketing center for sales of tyre products O N M E N T A L S T A N D A R D S • C O M P E S MARGINALITY • IN F L A TI O L E S A P The proximity to the supply source of synthetic rubber, availability of the own carbon black production High-technology products production lines of tyre products Geographical proximity to large clusters of car assembly plants Potential to increase the market share of solid metal cord tyres and passenger car tyres S L A C I M E H C O R T E P E S O F CRUDE OIL AN T R O L E UM PRODUC T D S P E T R O L E U M R E F ININ G High technological level of in-house refinery with capacity of high yield of light fractions of petroleum products Potential production of high- added value products and products with high share of added value Vicinity of the refining facilities near traditional production areas in the territory of the Republic of Tatarstan VALUE CREATION , EXPLORAT I O N , OIL PRODUC T I O N T I T I V E E N V I R O N M E N T • Y C I L O P E T A R D N N A TIO A X A LIE P P U F S N O TIO A C O L L A E R • C R U D E O I L A N D P E T R O L E U M P R O D U C T S P R I C E S A T T H E W O Strengthening the resource base, replenishment of the produced hydrocarbons with the commercial reserves Preparation of the feedstock base, efficient reserves put into development Maintaining the planned production growth rates and oil recovery efficiency in the mature field and in development of new oil fields while cutting the operating unit costs and investment expenditure through application of innovative technological solutions R L D A N D D O M N A M E S D T C U D O R ESTIC MARKETS • PETROLEUM FEEDSTOC K A N D P E T R O L E U M P EXTERNAL IMPACT FACTORS T • T E K R D A T T H E W ORLD MA 10 11 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY FINANCIAL POSITION AND STRENGTHENING THE ASSETS STRUCTURE Priorities of the corporate financial policy comprise the provision of reliable funding sources at minimum cost with maximum efficient utilization of the circulating capital. The financial and economic potential of the Company ensured timely investment in the priority projects and funding of all expenses and payments, including capital expenditures, repayment of long-term loans and dividends. The total amount of investment in the Company amounted to 97.2 billion rubles in 2015. Revenue of the TATNEFT Group amounted to 552.7 billion rubles in 2015. Net profit and EBITDA of the Group amounted to 105.8 billion rubles and 155.6 billion rubles, respectively in 2015. Revenue of PJSC TATNEFT (net of VAT, excise duties and export duties) amounted to 463 billion rubles in 2015, which is up by 18% as compared to the level of 2014. The increase of revenues in 2015 as compared to 2014 year was due to production increase, as well as growth of light petroleum products sales share in the whole sales structure. Profit before income tax in 2015 increased by 7.2% as compared to the corresponding period of the previous year and amounted to 111.5 billion rubles. The key profit increase driver in 2015 as compared to 2014 was the growth of the revenue from sales in the reporting period. In 2015 PJSC TATNEFT gained 85 billion rubles of net profit, up 3.6% as compared to 2014 index (according to RAS). The total amount of accrued taxes and payments of PJSC TATNEFT in 2015 amounted to 263 billion rubles.. The Company’s balanced policy provides for gradual reduction of the level of funding raised by the parent company TATNEFT. The loan balance on foreign currency credits as of 31.12.2015 decreased to USD 204.6 million to USD 49.3 mln, in the complete absence of ruble loans. ASSETS STRUCTURE OF THE TATNEFT GROUP (BASED ON IFRS) REVENUE STRUCTURE OF THE TATNEFT GROUP (BASED ON IFRS) 37.3% 42.4% 45% 45% 2015 798.7 bln rubles 16.4% 3.9% 2015 год 552.7 bln rubles 3% 7% Upstream Downstream Petrochemicals Corporate and others FINANCIAL PERFORMANCE OF THE COMPANY PROCEEDS OF THE GROUP (BASED ON IFRS, RUB BLN) EBITDA (BASED ON IFRS, RUB BLN) NET PROCEEDS OF THE GROUP (BASED ON IFRS, RUB BLN) NET PROCEEDS OF PJSC TATNEFT (ПО РСБУ, МЛРД РУБ) NET PROFIT OF PJSC TATNEFT (ПО РСБУ, МЛРД РУБ) 476.4 455.0 552.7 155.6 127.7 123.7 105.8 97.7 78.3 392.4 363.5 463.0 82.1 85.0 63.9 I N O T A T N E M E L P M I Y G E T A R T S I N O T A T N E M E L P M I Y G E T A R T S THE COMPANY CONSISTENTLY STRENGTHENS THE STRUCTURE OF ITS CORE ASSETS AS PART OF THE VERTICAL INTEGRATION STRATEGY IN ORDER TO ACHIEVE AN OPTIMAL BALANCE OF THE CORE OPERATIONAL SEGMETNS: UPSTREAM AND DOWNSTREAM. INVESTMENT POLICY IMPLEMENTED BY THE COMPANY ENSURED POTENTIAL OF THE FURTHER DOWNSTREAM PROCEEDS GROWTH DUE TO ADDED VALUE, PRODUCED ON THE BASIS OF DOWNSTREAM PROCESSING OF HYDROCARBON RESOURCES The period since 2005 until 2015 saw quality changes of the Company’s investment policy related to formation of own downstream block. Share of investment allocated to downstream development increased by 22 percentage points from 5% in 2005 to 27% in 2015, while maintaining level of investment into upstream among the total investment amount. This allowed to increase value of consolidated assets of the Company by 2.8 times from 282.1 bln rubles in 2005 to 798.7 bln rubles at 2015 year-end with simultaneous growth of both segments. Currently share of upstream segment in the assets structure of the TATNEFT Group is amounted to 37%, while share of downstream segment is amounted to 42%. Strengthening of the assets structure has allowed the Company to approach optimal balance of these business segments in the terms of proceeds, reached 45%/45% ratio in 2015 with significant increase of total amount of consolidated proceeds (552.7 bln rubles at 2015 year-end). I N O T A T N E M E L P M I Y G E T A R T S VOLUME OF INVESTMENTS OF THE TATNEFT GROUP ASSETS STRUCTURE OF THE TATNEFT GROUP (BASED ON GAAP USA (2005) AND IFRS (2015)) REVENUE STRUCTURE OF THE TATNEFT GROUP (BASED ON GAAP USA (2005) AND IFRS (2015)) Total 798.7 bln rubles 37% 21% 42% Всего 300.4 bln rubles 64% 10% 26% Total 552.7 bln rubles 45% 10% 45% Total 282.1 bln rubles Total 18.7 bln rubles 76% 5% Total 97.2 bln rubles 61% 34% 5% 62% 27% 2005 2015 2005 2015 2005 2015 +22%п +29.3 bln rubles +37%п +19%п +325.6 bln rubles +169.0* bln rubles Change of proportion and amount of investment into downstream Change of proportion and value of downstream assets Change of proportion and amount of downstream revenue *Without consideration of standards differences 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 Upstream Downstream Other segments 12 13 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Upstream Historically, the main resource base of the Company is located within the Republic of Tatarstan, where in 2015 the Company had reached a record high oil production across PJSC TATNEFT over the last two decades in the amount of 26.9 mln tonnes that was up 704 ths tonnes as compared with 2014. Overall, the total oil production across the Group amounted 27.2 mln tonnes. Even though most of the oil fields the Company owns are mature, for the time being TATNEFT has been the only oil producing company in Russia ensuring since 2000 a sustainable production growth with ongoing improved oil production and enhanced oil recovery techniques. At year-end 2015, in terms of oil production addition, the Company ranked second (+2.7%) only to Bashneft (+11%) among the Russian vertically integrated oil companies. In spite of the challenging economic situation and plunging oil prices the Company continued realization one of its activities of strategic importance i.e. ultra-viscous oil (UVO) development project at the Ashalchinsky field: in 2015, production amounted 376.4 ths tonnes and was up 60% versus last year; overall, since the beginning of pilot commercial development at year-end 2015 the ultra- viscous oil produced totaled as high as 930 ths tonnes. For 2016, the UVO production is targeted at the level not less than 531 ths tonnes. The proved oil reserves were estimated by Miller & Lents Ltd. in the quantity of 869.8 mln tonnes. In 2015, the proved oil reserve replacement ratio showed 166%. Outside the Republic of Tatarstan within the Russian Federation, the licensed areas held by the Company produced 322 ths tonnes of oil with 4.9 % growth. The key element of TATNEFT’s operations is improvement and development of new oil recovery techniques. Development of advanced and science intensive technologies as well as expansion of scope and range of production services rendered consolidate innovation capacity of the Company and ensure one of the significant competitive advantages of PJSC TATNEFT in the industry. Large-scale implementation of tertiary EOR techniques, high level of operating management culture as well as improved service contractor management model position the Company as a leader among the largest vertically integrated oil companies. The Company has the lowest weighted average tariff for oil transportation to European markets among other Russia’s large vertically integrated oil companies. For 2016 and the coming years the Company’s top strategic priorities in this business segment are as follows: • boost oil production and enhance oil recovery efficiency at conventional oil fields in Tatarstan through extensive implementation of novel equipment and technologies; attain production level up to 2 mln of tonnes; • develop UVO deposits at the Ashalchinsky field and • realize a pilot operation program for the Domanikovian • provide cost-effective oil production growth with lowering specific operating and investment costs. oil production; Downstream The Company continues implementing its business diversification strategy. In 2015, the overall refinery feedstock across the Group totaled 9.4 mln tonnes, of which 9.2 mln tonnes of petroleum feedstock were processed at the TANECO Complex including 8.6 mln tonnes of crude oil. The primary processing capacity utilization of the refinery was 115%. TANECO ranks first among Russia’s oil refineries as regards this performance parameter (the industry average performance is about 89 %). In 2015, 18 off-site facilities were commissioned, and the lube base stock plant, which is unique by the Russian standards, increased its output. The tests run prove that TATNEFT’s lube base stocks have good cold flow properties, volatility and color properties and high viscosity index. Based on the results of the All-Russian Competition «Russia’s Top 100 Products 2015» the TANECO product such as Euro-5 diesel fuel was listed among the best commodities. The high-quality of the diesel fuel was proved by the results of the independent tests run by the KAMAZ Research and Development Center at the central laboratory of fuels and lube oils. The Chevron Lummus Global (US) Licensor acknowledged the output quality as well, indicating that it meets all up-to-date world requirements. In the year under report, installation of new processing units as well as start-up operations of the commissioned processing units were going on at the Refinery Complex. In 2016, it is planned that the work will continue as regards to competitive growth: finish construction and installation operations and begin integrated testing operation of the process units such as naphtha hydrotreatment, delayed coking with coke shipping yard, isomerization, naphtha splitter, first stage of aromatics production complex. Currently, the second phase of TANECO is being constructed that is another crude oil distillation unit CDU- VDU-6. Plans for 2016 provide for starting up the catalytic reforming and light naphtha isomerization units and launching the production of Regular-92 and Premium-95 motor gasolines of the Euro-5 emission standard. It is very important for the Company’s downstream business efficiency to have an access to the Sever product pipeline that will make it possible to significantly cut down the costs for diesel fuel transportation to the foreign markets. TATNEFT GROUP OIL PRODUCTION (MLN TONNES) Thanks to advanced and innovative EOR implementation the Company has been incrementing its oil production over the years in spite of the high reserve depletion rate while maintaining competitive expenditure level. Creating the long-term high-quality producing asset portfolio the Company produces the historical oil fields within the Republic of Tatarstan and expands its geographic reach prospecting and exploring for oil beyond Tatarstan. 26.5 + 2.7 % 27.2 25.3 2005 2014 2015 I N O T A T N E M E L P M I Y G E T A R T S TANECO’S PORTION IN PRIMARY CRUDE OIL PROCESSING IN THE RUSSIAN FEDERATION ACCOUNTED FOR 3%. As at the beginning of 2016, the petroleum feedstock conversion rate was 74.4% (average for Russian refineries – 73.9%), light product cut was 71.87% (average for Russian refineries – 58.1%). Petroleum product output across the TATNEFT Group made up 9.3 mln tonnes. Over 2010 through 2015 petroleum product output to crude oil production ratio increased from 0,8% to 34,1%. 14 THE COMPANY SETS OUT THE FOLLOWING PRIORITIES FOR THE UPCOMING YEARS IN THE DOWNSTREAM BUSINESS: • full completion of the first phase of TANECO and • reaching of conversion depth as high as 97.0% beginning of its second phase construction; after full commissioning of the Complex, while having Nelson complexity index not less than 12; • full conversion to light petroleum products • development of high margin marketing channels production in the future; for TANECO’s new high quality products in the Russian regions and abroad. I N O T A T N E M E L P M I Y G E T A R T S 15 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Retail Business (retail network of filling stations ) Tire Industrial Complex Heat and Power Generation PJSC TATNEFT retail network of filling stations is the fourthlargest retailer ranked after Lukoil, Rosneft and Gazpromneft. The competitive advantage of the Company’s retail network is the large-scale and broad covering of almost all the most attractive regions of Russia, especially the Volga region and Central Federal District with high growth prospects and attractive retail margins. An additional competitive advantage is availability of its own high-quality and highly competitive product - TANECO diesel fuel, which has no analogues in Russia and in many ways superior to the Euro-5 fuel standard. After completion of the motor gasoline production block at TANECO the retail network of the Company will be fully provided with its own high-quality products and that will allow to significantly strengthen its competitive position. The main strategic objectives of the Company in the Retail Business segment are as follows in the coming years: • modernization of filling stations; • expansion of the retail network of filling stations; • increase of daily output of filling stations; • quality improvement of sales proposition at the filling stations, including through the development of non-fuel offer at the filling stations. The 2015 year proved to be difficult in general for the tire production complex of the TATNEFT Group. The main negative factor was the reduction of the tire market due to the crisis developments in the economics. There was a growing trend of shift in demand towards cheaper tires of B and C segments in the Russian tire market due to the decline in personal income. The long-term prospects of the tire market remain encouraging, and the competition among the tire manufacturers in the market of the Customs Union will increase. At the same time, the devaluation of the national currency creates certain advantages for the domestic tire manufacturers in the local market as related to the price competition with imported products, as well as new opportunities to increase exports. The anti-dumping duties were introduced for import of truck tires into the countries of Eurasian Economic Union in December of 2015, which can potentially reduce the import of cheap low-quality tires from Asia. Despite the industry-wide negative factors, the tire production rose in 2015 due to increased demand for the Company’s products, which resulted in improved financial and economic performance of the petrochemical segment. This increase was especially noticeable in demand for modern solid metal cord truck tires – Kama brand. KAMA Scientific & Technical Center, which is a part of the TATNEFT Group’s Tire Industrial Complex developed and put into production over 40 models of new tires of various sizes and purposes in 2015. The Company has its own generating assets enabling to improve energy supply sustainability of the production divisions and TANECO as well as boosting competitive edges of the Group in general. The utilities realizes activities to improve reliability and efficiency of heat and power generation as well as reduce energy resource loss and consumption. In 2015, the Nizhnekamsk CHP completed the project to increase its power capacity from 380 to 730 mW. Commissioning of the turbine units will demothball the long-term forcedly suspended generating facilities of the Nizhnekamsk CHP, which in the future will increase power energy supply and enhance the plant operating flexibility to the market fluctuations. Modernization of the Nizhnekamsk CHP allows to generate some part of the power energy in a condensing mode in other words no matter how much heat is supplied to heat consumers. In 2015, the Almetyevsk Heat Networks Company put into service three small CHPs with overall power capacity of 24 mW. Small CHP’s produces heat and power energy cogeneration with high combustion efficiency. SALES OF OIL AND GAS PRODUCTS THROUGH RETAIL FILLING STATIONS (MLN TONNES) 2.06 + 1 8.2 % 2.43 The competitive advantages include in-house production of petroleum products, including TANECO diesel fuel superior to Euro-5 standard in many aspects. Construction and modernization of filling stations are conducted with high level of technical equipment. I N O T A T N E M E L P M I Y G E T A R T S PRODUCTION OF TIRE PRODUCTS (MLN PCS) 11.6 + 3 % 12.0 Production of the competitive products allowed to raise tire production by 3% as compared to 2014 and to retain market share, despite negative dynamics of the market in general, and to ensure the positive dynamics of financial indicators. 2014 2015 2014 2015 I N O T A T N E M E L P M I Y G E T A R T S IN 2015, NIZHNEKAMSK CHP GENERATED POWER ENERGY 1.28 BLN KWH The Company is implementing feedstock source diversification programs (natural gas, oil fuel, oil coke) for the Nizhnekamsk CHP which will make it possible to improve operating efficiency of the plant through optimum fuel type selection according to the market situation as well as reduce power and heat delivery disruption risks. I N O T A T N E M E L P M I Y G E T A R T S I N O T A T N E M E L P M I Y G E T A R T S ADDED VALUE OVER THE PERIOD BEGINNING FROM 2005 IN THE COURSE OF THE COMPANY’S VERTICAL INTEGRATION CONSOLIDATION THE ADDED VALUE OUTPUT HAS GROWN 2.5 TIMES AS MUCH. In 2015, the added value production including petroleum product output amounted to 308.1 bln rubles that was up 16.6 % against 264.2 bln rubles in 2014. In 2015, the added value portion in overall commodity output accounted for 73.2% versus 71.9% in 2014. ADDED VALUE OUTPUT GROWTH, BLN RUBLES. 264.2 + 1 6.6 % 308.1 123.4 300 200 100 0 2005 2014 2015 ADDED VALUE PORTION IN OVERALL COMMODITY OUTPUT 100% 73.2% 2015 Overall commodity output Added value portion 16 17 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY MAJOR INDUSTRIAL FACTORS AFFECTING THE COMPANY’S ACTIVITY IN 2015 TATNEFT COMPANY IS A MAJOR SUBSURFACE USER, OPERATOR AND SUPPLIER OF OIL AND GAS RESOURCES, MANUFACTURER OF PETROCHEMICAL PRODUCTS. THE COMPANY’S REVENUES DIRECTLY DEPEND ON THE GLOBAL MARKET ENVIRONMENT, PRIMARILY, ON DEMAND FOR RAW MATERIALS AND GLOBAL CRUDE OIL PRICES ON THE INTERNATIONAL MARKET. OTHER DETERMINANTS OF THE CORPORATE FINANCIAL AND ECONOMIC PERFORMANCE INCLUDE TRANSPORTATION COSTS, MARKET CONDITIONS, REFINING COSTS, TAX BURDEN, CURRENCY FLUCTUATIONS ETC. The Tatneft Company is a registered taxpayer and conducts most of its activities in the Russian Federation, including the Republic of Tatarstan, federal subject of the Russian Federation. The Company considers all macroeconomic and industry factors when planning and carrying production, treatment, transportation and storage of oil & gas, oil & gas products, as well as materials used in production. Proceeds, profitability and growth of the Company significantly depends on crude oil and petroleum products prices. World oil prices are historically exposed to significant changes caused by many factors, including supply and demand at the world and regional markets, reflecting expectations regarding future supply and demand for crude oil and petroleum products, world and regional economic situation, possibilities and wishes of Organization of Petroleum Exporting Countries (OPEC) members and other oil producing countries to set and maintain defined production and pricing level, national and foreign government regulation, prices and availability of alternative fuels, prices and availability of new technologies, political and economic events in the oil producing regions, especially in the Far East and in the North Africa, regulations and actions of the country governments and international organizations, including export restrictions, taxes and sanctions. The general situation in the industry during the reporting period was determined by global macroeconomic factors conditioned by the sharp drop in oil prices in the world market. In 2015, the average price for Urals oil was USD 51.2/bbl versus USD 97.3/bbl of the previous year. By the end of 2015, world oil prices reached minimum value (in dollar terms) over the last 10 years. Meanwhile the oversupply of oil in the world market reached record high. The general political situation and the economic sanctions had a negative impact on the domestic economy, which led to the devaluation of the national currency. Industrial production index was 96.6% in 2015 as compared to 2014. Meanwhile the index of fossil fuels extraction made 100.3% 18 versus the 2014 year. The foreign policy did not significantly change in 2015: the sanctions imposed by Western countries against some Russian companies and sectors are still binding. There are still difficulties with the Russian companies’ access to external financing. Protracted drop in oil prices led to a partial reduction of the investment programs of the Russian oil producing companies and refineries, which had a negative impact on the equipment manufacturers for oil and gas industries. At the same time, the Russian crude oil production reached another historical peak owing to development of new deposits and enhanced oil recovery of brownfields. The oil production volume increased to 534 million tonnes in the Russian Federation (including gas condensate) in 2015 (101.4% as compared to 2014). Most of the vertically integrated oil companies maintained the positive dynamics of the crude oil production. Increase in production was provided in new regions of the Eastern Siberia, the North of Krasnoyarsk territory, Far East and stabilization of production in the brownfields. According to the data from the Central Control Administration of the Fuel and Energy Complex of the Russian Ministry of Energy the production drilling meterage increased by 11.7 % in 2015, and the exploration drilling meterage decreased by 17.7%. At the same time the capital investments in this period increased by 9.6 % on current basis. January 1, 2015 saw the entry of fundamental changes of the tax system, the so-called “big tax maneuver”, provided for by Federal Law No. 366-FZ of November 24, 2014 “On Amendments to Part Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation”. It implies the gradual significant reduction of export duties on crude oil and light oil products with a simultaneous increase in the export duty on dark oil products and the mineral extraction tax rate (MET) on oil and gas condensate. These changes will lead to greater profitability of high-technology oil refining in Russia and partial shutdown of outdated refineries. At the end of 2015 the Stated Duma on the proposal of the Government of the Main trends observed in the Russian retail market of petroleum products include continuing consolidation of retail networks by the vertically integrated oil companies (VIOC), construction of new filling stations and the purchase of existing independent operators, development of fuel and non-fuel offers, continued strengthening the role of the State, improved quality environmental requirements to petroleum products. Despite the trends towards import substitution, the share of imported tire products in Russia is still high, particularly high proportion of Asian manufacturers, particularly China. It is important to note that the decline in rubber prices continued in 2015 both in dollars and in rubles (despite of the national currency devaluation), which allowed manufacturers to avoid a profit slump due to sales slowdown. In 2015, the growth rates of energy demand in the Russian Federation (+ 0.2%) were lower than rates planned by the Government (+1.1% forecast of the Ministry of Energy 2014). Large-scale introduction of new and retrofit power generating capacities, as well as insufficient disposal rates of outdated capacities (installed capacity of power plants in Russia increased by 1.3% or 3.1 GW in 2015) against the background of the general economic slowdown in the Russian Federation and the Republic of Tatarstan have led to increased competition in the industry. Russian Federation decided to freeze the export duty for 2016 at the rate of 42% on the level of 2015, instead of planned reduction to 36% (Federal Law No. 324 FZ dated November 28, 2015, Russian Federation Government Regulation No. 1290 dated November 30, 2015), in this respect the changes will not affect 2017, required legal export duty will be 30%. This fact mitigated the impact of the tax maneuver on refining margins, however, ha a negative impact on profitability of crude oil production. The primary crude oil processing in the Russian Federation amounted to 282 million tonnes in 2015 (down 2% as compared to 2014). Reduction of the processing was connected with the increased tax burden on exports of black oil products, which takes place in the framework of the «big tax maneuver». The Russian oil companies continued the large-scale modernization of the refineries aimed at improving the processing depth, increasing yield of motor gasoline components and improving the fuel environmental standards. Over the past year, within the framework of the so-called quadripartite agreement concluded between the Federal Antimonopoly Service of Russia (FAS), Federal Service for Ecological, Technological and Nuclear Supervision, Federal Agency for Technical Regulation and Metrology and the oil companies the Company put into operation and completed the reconstruction of 11 facilities. The commissioning periods of 16 facilities were postponed by the Ministry of Energy of Russia from 2015 to 2016-2020. Motor gasoline production amounted to 39.8 million tonnes in 2015, up 4% as compared to 2014. Production of Euro-5 gasoline amounted to 33.1 million tonnes, which is up 17% as compared to the previous year. The production volume of diesel fuel production totalled 76.1 million tonnes, decreased by 1.6%, of which compliant with Euro-5 – 55.7 million tonnes (23% more compared to the previous year). Production of jet fuel amounted to 9.7 million tonnes in 2015, which is 11% lower than the volume of its production in 2014. Due to the negative macroeconomic factors and fall in oil prices, the Company has formed a bailout program of anti-crisis measures including priority projects ranking subject to maintaining full-scale production plans, measures to optimize general and administrative expenses, reduce production costs, increases in labor productivity, strengthen control to prevent vendor-prices growth and improve the tender procedures. The Company has identified the imported equipment substitution as the most important priority to reduce costs, which was also connected with introduction of economic sanctions in 2014. 19 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY MODEL OF SUSTAINABLE DEVELOPMENT OF THE COMPANY THE TATNEFT COMPANY BUILDS ITS BUSINESS IN ONE OF THE MOST CAPITAL- INTENSIVE INDUSTRIES OF THE SUBSOIL MANAGEMENT AND REPRODUCTION OF ENERGY RESOURCES REQUIRING ENHANCED CORPORATE RESPONSIBILITY IN ALL THE SEGMENTS OF PRODUCTION AND ECONOMIC ACTIVITIES, FINANCIAL, SOCIAL, ENVIRONMENTAL ACTIVITY. THE COMPANY CONSISTENTLY DEVELOPS ITS CORPORATE PRACTICES. THE COMPANY IS AWARE THAT THE LONG-TERM SUSTAINABLE BUSINESS DEVELOPMENT IS INSEPARABLE FROM SOCIAL PROGRESS AND SUSTAINABLE DEVELOPMENT OF THE WHOLE SOCIETY, AND CONTRIBUTES SIGNIFICANTLY TO THE SOCIAL AND ECONOMIC DEVELOPMENT OF THE BUSINESS ACTIVITY REGIONS AND THE COMMUNITY AS A WHOLE. TATNEFT MAKES DECISIONS TAKING INTO ACCOUNT SOCIAL, ENVIRONMENTAL AND OTHER POTENTIAL IMPACTS. The oil & gas sector in the structure of the national economy determines the overall dynamics of its development, including the formation of financial resources and stable social sphere. This imposes additional responsibility on the Company, which is implemented in the targeted programs and voluntary corporate social initiatives. In the context of the world energy market transformation the Company recognizes its responsibility to shareholders, investors, partners, employees and society as a whole and is committed to maximize the use of its capacity for sustainable development. The Company considers the long-term prospects and short-term plans for core business operations – development of in- house resource and production potential and improvement of the financial results in direct interrelation with the social and environmental aspects. Society Economics Environment S O C I AL SPHERE Law compliance Respect for human rights Planning the Company’s activities is including the social aspects: • support of social and economic development of the regions of the business activity; • support development of healthcare, education, culture and sports; and services; segments of the population; • support of socially vulnerable • provision of high quality products • continuous quality improvement • commitment to follow changing • provision of reliable information requirements of the Customers; of the products; about the Company’s products. The Company’s activities provide for: Key priorities of the Company: Positive public opinion Product assurance Good working conditions • participation in infrastructure development of domestic Fuel & Energy complex; • value added chain; • support of local economies; • innovation; • ensuring financial stability and economic resilience for the TATNEFT Group’s enterprises; • development of own R&D base, integrated with the leading industry scientific centers. • ensure safe working conditions, health protection of the personnel and communities living in the regions of the Company’s business activity; • reduce the technological • rational use of natural resources. environmental impact; The Company performs a package of measures aimed at maintaining the environmental conditions in the regions within the normative allowable level, corresponding to self-recovery potential of natural ecosystems. Creation of working places SUSTAINABLE DEVELOPMENT Environment protection Value added chain Support of local economies E C O N O Use of recycled materials Use of clean energy resources CORPORATE SOCIAL RESPONSIBILITY IS A CRUCIAL PART OF THE COMPANY’S STRATEGY. PRINCIPLES OF THE SOCIAL RESPONSIBILITY ARE INTEGRATED INTO THE COMPANY’S ACTIVITIES AND IMPLEMENTED IN ITS RELATIONS WITH THE STAKEHOLDERS. SOCIAL RESPONSIBILITY POLICY IS IMPLEMENTED IN ACCORDANCE WITH IS0 26000 STANDARD. M I C S P H E R E Innovation Infrastructure development Energy saving Waste processing V I R N E O N M E E R E H P L S A T N 20 21 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY OPERATIONS PROVED RESERVE REPLACEMENT RATIO INCREMENTAL OIL PRODUCTION ACROSS TATNEFT GROUP PETROLEUM PRODUCT OUTPUT TO CRUDE OIL PRODUCTION RATIO ACROSS TATNEFT GROUP PETROLEUM PRODUCT SALES INCREASE THROUGH OWN FILLING STATION NETWORK PETROCHEMICAL COMPLEX’S COMMODITY OUTPUT GROWTH 22 23 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY UPSTREAM As at the beginning of 2016, the Company’s proved hydro- carbon reserves stood at 869.8 mln tonnes according to the independent evaluation made by Miller and Lents as per the Petroleum Resources Management System of the Society of Petroleum Engineers (SPE-PRMS) standards. The proved reserves to the current oil production ratio amounted to 30 years that is a secured potential for long- term and sustainable development. In 2015, proved reserve replacement ratio accounted for 166%. The Company has been implementing the programs target- ed at a rapid building up its producing assets and their di- versification including exploration activities using advanced oil prospecting techniques as well as ensuring increased efficiency and improved practices to develop producing fields with cost control. The primary goals are strengthening the resource base, re- placing hydrocarbon production with commercial reserves, creating a raw material base and efficient bringing reserves into development, sustaining production at mature fields through application of innovative technology solutions and ensuring planned rates of production growth while reducing specific operating and capital expenditures. UPSTREAM BUSINESS SEGMENT KEY COMPETITIVE ADVANTAGES HIGH RESERVES-TO-PRODUCTION RATIO. ADVANCED OIL PRODUCTION TECHNIQUES AND INNOVATIVE ENGINEERING TOOLS AND EQUIPMENT IMPLEMENTATION INCLUDING THOSE TO DEVELOP ULTRA-VISCOUS OIL FIELDS. GEOGRAPHIC PROXIMITY OF UPSTREAM CENTER TO KEY DOWNSTREAM REGIONS. IMPROVED ECONOMIC EFFICIENCY PROGRAMS. LOWER SPECIFIC OPERATING AND INVESTMENT EXPENDITURES. 24 Creating the long-term high-quality producing asset portfolio, the Company, concurrently with producing the historical oil fields within the Republic of Tatarstan as well as developing the ultra-viscous oil reservoirs, has been expanding its geographic reach carrying out its oil search and exploration operations within the licensed areas in the Republic of Kalmykia, Orenburg, Samara and Ulyanovsk Regions, Nenets Autonomous District and beyond the Rus- sian Federation. The activities are underway to determine the Domanikovian oil production prospects. Reserves Growth Dynamics Key Indicators Proved Oil Reserves (pursuant to evaluation by Miller & Lents), mln. tonnes 2013 847.3 2014 851.5 2015 869.8 The Company’s total investment in hydrocarbon explora- tion, development and production amounted to 60.6 bln rubles in the year under report. In 2015, the Company together with its eight (8) subsidiar- ies held 98 licenses within the Russian Federation. In 2015, the oil production across PJSC TATNEFT totaled 27.2 mln tonnes and was 2.7% higher against previous year’s output level. The oil output has reached its peak over the last twenty-three years. PJSC TATNEFT produced 26.9 mln tonnes of oil in 2015. The oil production at the Company’s licensed areas within the Russian Federation outside the Republic of Tatarstan amounted to 322 ths tonnes (307 ths tonnes in 2014). The meterage covered by development drilling at PJSC TATNEFT fields totaled 738.5 ths m in the year under report. 352 new producing wells were brought into operation. The average production rate of new wells was 10 tonnes per day. 347 wells were completed as water injectors. The Company yearly gains the additional production thanks to highly efficient well intervention programs implemented at the oil fields, improved operational efficiency using the state-of-the-art technologies and production profitability control. COMPANY PURSUES ITS TARGETED PROGRAMS TO BOOST COST-EFFECTIVE OIL AND GAS PRODUCTION, IMPROVED OIL RECOVERY AT ITS PRODUCING LICENSED OIL FIELDS AND ROBUST DEVELOPMENT OF NEW OIL FIELDS INCLUDING ULTRA-VISCOUS AND HARD-TO-RECOVER OIL WITHIN REPUBLIC OF TATARSTAN Oil Production over 2013 through 2015 Key Indicators TATNEFT Group Oil Production, mln tonnes PJSC TATNEFT Oil Production, mln tonnes 2013 26.4 26.1 2014 26.5 26.2 2015 27.2 26.9 PJSC TATNEFT Well Stock as at 1.01.2016 Well Category Operating Producing Wells, including: Active producing wells Inactive producing wells Producing well testing & completion and waiting on testing & completion Well Count 22258 20191 2058 9 PJSC TATNEFT Exploration and Production Segment Key Performance Indicators over 2013 through 2015 Indicators 2013 2014 2015 Average Daily Oil Production, t/d 71526 71843 73773 Active Producers’ Average Daily Oil Production Rate, t/d 3.8 3.8 3.9 Operating Injecting Wells 10369 10399 10692 Active Injecting Wells Total Drilling, ths m Development Drilling, ths m 9501 9558 9871 450.2 430.4 757.3 430.5 410.2 738.5 Sustaining Production within Republic of Tatarstan In the year under report, the Company invested 27.7 bln ru- bles in primary resource base, which is historically located within the Republic of Tatarstan. In Tatarstan the Company owns five (5) exploration licenses for geological prospecting and subsequent development of discovered oil fields on the western and northern slopes of the South Tatar Arch, in the northeast of the Republic of Tatarstan and on the slopes of the South Tatar Arch, in the north-eastern part of the Republic of Tatarstan, on the south-eastern slope of the North Tatar Arch, on the east- ern flank of the Melekessky Depression. One (1) license is granted for the Apastovsky area located in the west of the Republic of Tatarstan for geological prospecting, explo- ration and production of hydrocarbons. In addition, the Company holds one (1) geological prospecting license to explore for and appraise hydrocarbons within the Agbya- zovsky area located in the northeast of Tatarstan. In the year under report, six (6) structures were brought into deep drilling and 11 structures were prepared for deep drilling. LARGE OIL FIELDS WITHIN REPUBLIC OF TATARSTAN Oil Production by PJSC TATNEFT’s Largest Oil Fields within Tatarstan in 2015 Oil Fields Oil Production, ths t Romashkinskoye Novo-Yelkhovskoye Bavlinskoye Bonduzhskoye Pervomaiskoye Sabanchinskoye 15513 2646 1152 264 363 534 RUSSIA KAZAN Bondyuzhskoye Pervomaiskoye NABEREZHNYE CHELNY Romashkinskoye Novo-Elkhovkskoye ALMETYEVSK Sabanchinskoye Bavlinskoye I N O T A T N E M E L P M I Y G E T A R T S 25 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CREATING LONG-TERM HIGH-QUALITY PRODUCING ASSET PORTFOLIO, COMPANY OPERATES HISTORICAL OIL FIELDS AS WELL AS CARRIES OUT ITS OIL PROSPECTING AND EXPLORATION ACTIVITIES WITHIN LICENSED AREAS OUTSIDE REPUBLIC OF TATARSTAN AND RUSSIAN FEDERATION Ultra-Viscous Oil Field Development (Sheshminski Horizon) Sustaining oil production within Russian Federation outside Republic of Tatarstan Oil and Gas Production outside Russian Federation The Company invested over 30 bln rubles in ultra-viscous oil development during the year under report. Five (5) ultra-viscous oil deposits of the Sheshminsky horizon are under development (4 deposits of the Ashalchinskoye field and 1 deposit of the Langujevskoye field). A great deal of appraisal and development drilling was accomplished in 2015 along with oilfield surface facilities construction operations. As at January 1, 2016, 441 producing wells were completed by drilling at the ultra-viscous oil fields (including 332 wells in 2015), 1 596 appraisal wells were drilled (including 976 wells in 2015). Bitumen drilling operations are performed by 15 crews. Overall, since the beginning of the pilot development, in 2015, cumulative ultra-viscous oil production totaled 930 ths tonnes, including as many as 376.4 ths tonnes produced in 2015. The average daily oil production in December 2015 was 1 177 tonnes. The investments in oil production in the Russian Federation outside the Republic of Tatarstan amounted to 2.3 billion ru- bles, of which 20% invested in development and exploratory drilling, 64% in capital construction of infrastructure facilities and completion of Gas Treatment Plant installation at the Irgizskoye oil field, 7.5% in seismic survey techniques and exploration issue-related activities, 5% in well intervention programs. The Company has its operations in the Samara, Orenburg, Ulyanovsk Regions, the Nenets Autonomous Dis- trict and the Republic of Kalmykia. During 2015, 24 oil fields were operated, including two (2) fields, which were placed into test production (North Hayahi- nskoe and Podveryuskoe fields) in the Nenets Autonomous Okrug. Oil was produced from 122 wells, including 118 wells and 4 wells operated in the Samara and Orenburg Regions, respectively. The Company made a lot of efforts for drill- ing and completion of new wells in the Samara Region. One structure was placed into deep drilling and three structures were prepared for deep drilling. Four new wells were put on-stream. The average production rate of new wells was 14.4 tonnes per day. Contract blocks in Libya and Syria PJSC TATNEFT had to suspend the exploration program within its contract blocks in Libya and Syria since 2011 to date due to the unstable political situation. Force majeure has been in place for all contract blocks in Libya since 18.08.2014. Based on the previously performed 3D seismic survey (350.2 km² of 547 km²) processing and interpretation of obtained field data was performed. The final report was made for 3D seismic data interpretation results. Based on the results three prospects were projected for drilling. Plans for 2016 call for keeping monitoring the unfolding situa- tion closely in these countries in order to resume operations once the situation turns for the better and the safety has been secured for the field operating staff. Contract between PJSC TATNEFT and Turkmenoil State Concern Since the beginning of the production program realization under the service contract for IOR and oil production at the Goterdepe oil field being effective from 2010, as at Janu- ary 1, 2016, the oil production had totaled 123.1 tonnes (against the target of 94.7 thousand tonnes). Altogether, 63 workovers were performed in 40 wells, including primarily inactive wells and those waiting on abandonment. Downhole pumping units were run and set in 32 wells, of which 26 operating wells yield additional daily production of 104 tonnes per day. All wells were completed with surface facilities and automa- tion equipment using the PJSC TATNEFT affiliated com- pany’s manpower. Teleautomation and dispatching control with displaying the real-time data in the central control station was implemented. The area with reservoir mainte- nance system was placed into operation in the periodic duty consisting of two (2) injecting wells and two (2) bore pits on five (5) responding wells. ULTRA-VISCOUS OIL PRODUCTION GROWTH 376.4 236.9 145.6 400 300 200 100 0 73.3 41.5 2011 2012 2013 2014 2015 2016 ULTRA VISCOUS OIL PRODUCTION TARGET IS 531 THOUSAND TONNES I N O T A T N E M E L P M I Y G E T A R T S BENEFITS GRANTED BY GOVERNMENT OF RUSSIAN FEDERATION ARE SIGNIFICANT INCENTIVES FOR COMPANY TO SET UP PROGRAMS TO PRODUCE ULTRA-VISCOUS OIL AS PRODUCING FEEDSTOCK ASSET RESERVE In 2015, preferential tax rates with a reduction factor were enjoyed for 80 % or higher depleted fields, small fields with the reserves (Initial Recoverable Reserves) being less than 5 million tonnes and the depletion of less than or equal to 5%, fields with in-situ oil viscosity of more than 200 and less than 10 000mPa*s, as well as zero mineral recovery tax rates applied for the crude oil with a viscosity of more 10 000mPa*s for the Domanikovian deposits and oil fields in the Nenets Autonomous District. The oil production for such fields totaled 20 890.5 thousand tonnes, including ultra-viscous oil with over 10000mPa*s viscosity produced in the amount of 376.425 thousand tonnes. 26 IN CONTEXT OF COMPANY’S STRATEGY DEVELOPMENT UP TO 2025, QUANTITATIVE TARGETS ARE CURRENTLY BEING SET UP FOR OIL PRODUCTION AT FIELDS UNDER EXPLORATION AND IN NEW HYDROCARBON PROMISING AREAS OUTSIDE REPUBLIC OF TATARSTAN. PJSC TATNEFT GEOGRAPHIC REACH IN EXPLORATION AND PRODUCTION OUTSIDE REPUBLIC OF TATARSTAN Nenets AD Ulyanovsk Region Samara Region Republic of Kalmykia Syria Libya Republic of Tatarstan Orenburg Region I N O T A T N E M E L P M I Y G E T A R T S 27 M PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMPANY’S OPERATIONAL POLICY IS FOCUSED ON IMPLEMENTING HIGHLY EFFICIENT AND ECONOMICALLY JUSTIFIED WELL INTERVENTION PROGRAMS AND ENSURING IMPROVED OIL RECOVERY EFFICIENCY IMPROVED OIL AND GAS PRODUCTION EFFICIENCY Oil Field Exploration and Development Well Drilling Oil and Gas Production Ultra-Viscous Oil Treatment The hydrocarbon prospects are predicted using the artificial intelligence techniques and the leads are defined by field seismic and geochemical methods using a complex prob- ability parameter (CPP) for hydrocarbon potential. Geochemical survey to search for oil and gas utilizes passive hydrocarbon adsorption, low-frequency seismic sounding (LSS), geological-geophysical technology to optimize selection of well drilling locations (GTO LS), elec- tromagnetic sounding (EMS), “Stratimegic” new software package for 3D seismic data processing. NMR tomographic logging tool is used to identify shallow reservoirs saturated with ultra-viscous oil. Silicate baths are placed within productive intervals as well as G-grade cement and stage-cementing collars are used to improve well cementing quality. Horizontal and multilateral wells are used to sustain and boost oil production from oil fields that predominantly contain hard-to-recover reserves. Horizontal completions help to reduce the projected well stock and recover more oil reserves as well as improve reservoir sweep efficiency and implement selective flooding across the section when used as injection wells. In 2015, 129 horizontals (including 32 slim holes) and 4 multilaterals were brought into operation. The primary method to identify residual oil reserves for mature fields is the reservoir characterization, modeling and simulations based on updated estimate of remaining reserves, which enable to analyze and predict areas with unlocked reserves and calculate efficiency rate of planned activities with the highest degree of accuracy. Lightweight cement slurry technology is applied for well casing cementing using a lightweight foamglass made from the P-D Tatneft-Alabuga Fiberglass, LLC product with the quality being highly competitive with its import analogues. In 2015, the lightweight foam glass was used in construction of six (6) wells. COMPANY’S OPERATIONS ARE FOCUSED ON ATTAINING MAXIMUM EFFICIENCY OF ALL TECHNOLOGICAL PROCESSES TATNEFT MAINTAINS ONE OF BEST MEAN TIME BETWEEN REPAIRS (MBTR) PERFORMANCE FOR WELL OPERATIONS AMONG LARGE COMPANIES IN RUSSIA’S OIL INDUSTY. 2015 MTBR PERFORMANCE SHOWED 1 074 DAYS ACROSS PJSC TATNEFT. This high performance was attained thanks to imple- menting highly efficient and innovative technologies as well as high-quality and timely maintenance of oilfield equipment. Well Workover Formation hydraulic fracturing technology makes it possible to stimulate oil producing well operation and improve well injection capacity. Total of 3 901 fracs had been performed since the beginning of hydrofracing technique implementation. In 2015, 649 frac jobs were done with 62 new wells fractured immediately after drilling. As a result of fracturing the flow rate increased by 4.5 tonnes per day. The additional oil production amounted to more than 11.1 mln tonnes. APRS-40N Workover Rigs are designed to perform workover jobs on ultra-viscous oil wells: running tubing for steam injection (1 and 2 lifting string assemblies), installation of downhole pumps (ESP and PCP units), changing-over of CSS wells for production/steam injection, well servicing (ESP replacement, preparing for well logging).These workover rigs were purchased as a part of import substitution program (as substitute for Canadian workover rigs К-54). Totally, these workover rigs performed 405 workover jobs in 2015.. PJSC TATNEFT has been vigorously developing dual completions technologies to produce multiple reservoirs using one well to improve oil field development efficiency. Dual completion to produce two and multiple reservoirs with one well allows to simultaneously produce zones with variable reservoir properties and parameters and improve economic efficiency of individual wells and reduce amount of drilling operations. As at January 1, 2016, dual completion production technology was used to operate 1 641 wells. Since the beginning of dual completion operation the cumulative additional production for dual completion producing wells totaled 10 442 thousand tonnes of oil. Since the beginning of dual completion operation the average oil production rate increased by 3.1 tonnes per day per well. In 2015, dual completions were installed in 222 wells. Dual completion injection improves economic viability of individual wells by bringing other development targets or different property zones of same reservoir in production and reduces the amount of drilling operations due to using a single wellbore. Dual completion injection technology was implemented in 716 injection wells, including 76 wells in 2015. Additional oil produced by responding producing wells since the beginning of implementation had amounted to 1 966.2 thousand tonnes. More than 2 thousand dual completion installations for both production and injection are currently in operation with the cumulative additional oil production exceeding 12 mln tonnes of oil. Chain drive for sucker-rod down-hole pumps PC 60 (with 3m stroke length) is effective to reduce hydrodynamic drag forces in a downhole section of a sucker-rod pumping unit by 1,7 times, ensure continuous operation of marginal wells, lower specific energy consumption to lift 1 m3 oil production by 10-20 %, extend the service life of downhole equipment, minimize well repairs. PC 80 (with 6m stroke length) allows sucker rod pumping operation of high flow rate wells (up to 100 m3/d), including high viscosity oil with high salt content and asphalt, resin, and paraffin materials, wells with additional small-size production casings without compromising the productivity, lowering the dynamic loads, extending the service life of downhole equipment during prolific well operations reducing specific energy consumption to lift 1 m3 oil production by 50% and more as compared with ESP unit. By the end 2015, the chain drive count made 2 027 units. Ultra-viscous oil is treated by the Company to the marketable condition using a process of «hard» thermochemical heat dehydration at the temperature of 90°C using coalescers and electrical dehydrators, which makes it possible to upgrade ultra-viscous oil to the 1-st quality group and lower capital costs for sedimentation equipment. Reservoir Pressure Maintenance Corrosion-resistant tubing extends tubing service life by 2-2.5 times in injection wells. The corrosion-resistant tubing strings were installed in 6 979 wastewater and produced water wells (90% of the total well stock), including 294 injection wells in 2015. M1-X Packer is designed to protect production casings from a high pressure and corrosion damage. The packer allows to lower work time expenditures for workovers and well service operations, downhole logging and injection well tests. The M1-X packers were installed in 4 904 injection wells, including 440 injection wells in 2015. Altogether, a variety of packer designs ensures a trouble-free operation of 69.2% of the injection well stock. IN OIL FIELD EXPLORATION AND DEVELOPMENT ALONG WITH CONVENTIONAL TECHNOLOGIES, NEW TECHNOLOGIES ARE APPLIED TO IMPROVE PRODUCTIVITY AND ECONOMIC EFFICIENCY OF ALL OIL AND GAS PRODUCTION PROCESSES. ACCORDING TO THOMSON REUTERS BASED ON RESULTS 2015 TATNEFT WAS LISTED AMONG TOP TEN GLOBAL LEADERS AS REGARDS TO OIL EXPLORATION AND PRODUCTION INVENTION QUANTITY. MOREOVER, COMPANY WAS RECOGNIZED AS ABSOLUTE LEADER IN REGION ENCOMPASSING EUROPE AND MIDDLE EAST 28 29 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY DOWNSTREAM COMPANY’S STRATEGIC GOAL IS GROWTH OF OUTPUT AND SALES OF HIGHLY COMPETITIVE COMMODITY PRODUCTS WITH HIGH ADDED VALUE IN COMPLIANCE WITH GLOBAL ENVIRONMENTAL STANDARDS AND LONG-TERM MARKET REQUIREMENTS The Company has been developing its Downstream Business Segment committed to achieve the maximum vertical integra- tion synergy i.e. balance of crude oil production and refining, optimum crude oil placement on domestic and foreign mar- kets in highly competitive environment to gain the maximum operating profit margin. In 2015, the total investments in the downstream business amounted to 30.2 billion rubles that is more than 30% of Group’s total investments. The downstream business por- tion in the TATNEFT Group’s consolidated revenue in the year under report accounted for 45%, which corresponds to 45% of the upstream segment revenue portion. Crude oil deliveries In 2015, the crude oil produced by the TATNEFT Group was delivered on the domestic market including oil refining with full utilization of its oil refining capacities as well as was exported to the far and near abroad countries. Ongoing monitoring of key drivers and trends of global and domestic markets including crude oil and oil product prices, taxation and rate policy of the state, foreign exchange rates, ability to optimize transportation costs enable the Company to determine marginality of delivery destinations in uncertain market conditions. Over the past years, the downstream business segment has been consolidated leading to increase in the total value of the Group’s assets. Currently, it contributes 42 % of the total value of the Group’s assets. The downstream assets make up a block of oil refining and gas processing capacities, crude oil and petroleum product sales resources, Company’s own chain of filling stations. One of the key priorities to ensure the long-term sustainable development of the Company is manufacturing and marketing highly competitive commodity products with high added value. Overall, in 2015, 9.1 mln tonnes of the total crude oil pro- duced by the Group were supplied to be converted into oil and gas refined products. In 2015, the TATNEFT Group produced the petroleum prod- ucts in amount of 9.3 million tonnes. Over the period of 2010 through 2015, the petroleum products to crude oil production ratio across the Group increased from 0.8% to 34.1%. COMPANY’S PLANS TO INCREASE OUTPUT OF LIGHT OIL PRODUCTS RESPOND TO RUSSIAN LEGISLATION IMPROVEMENT ENCOURAGING PRODUCTION OF PREMIUM CLEAN FUELS. A traditional delivery route remains to be crude oil export to far abroad countries. In 2015, crude oil was delivered in the amount of 10.4 tonnes. The near abroad deliveries totaled 1.3 mln tonnes of crude oil. In 2015, The Company supplied 6.6 mln tonnes of crude oil to the Russian oil refineries with the major volume (6.2 mln tonnes) delivered to supply a feedstock to TAIF-NK’s Refinery. Since the beginning of TANECO Complex commissioning in 2011 crude oil supplies have been structurally redistrib- uted. Currently, more than 30% of the total crude oil sales is delivered to be converted into oil and gas derivatives at the Company’s own oil refining facilities Apart from its own resources TATNEFT provides marketing and sales operations for independent oil companies’ crude oil. Thus, in 2015, crude oil sales totaled 2.1 mln tonnes of including: • export (far abroad and near abroad) – 0.4 mln tonnes; • domestic market (Russian Refineries) – 1.7 mln tonnes. TATNEFT Group Crude Oil Suрply Distribution over period of 2013 through 2015 (ths. tonnes) Наименование Crude oil supplies for oil and gas refined product output, including числе: JSC TANECO Far Abroad Export Near Abroad Export Domestic supplies (Russian refineries), including: 2013 2014 2015 8 643 9 449 9 079 7 675 8 395 8 623 11 397 8 480 10 398 558 698 1 311 5 905 7 386 6 600 PJSC TAIF-NK 5 367 6 196 6 241 IT IS IMPORTANT FOR COMPANY’S CRUDE REFINING EFFICIENCY TO HAVE AN ACCESS TO “SEVER” PETROLEUM PRODUCTS PIPELINE THAT WILL MAKE IT POSSIBLE TO CUT DOWN SIGNIFICANTLY TRANSPORTATION COSTS TO DELIVER DIESEL FUEL TO FOREIGN MARKETS. DELIVERY DESTINATIONS FOR CRUDE OIL PRODUCED BY COMPANY OVER 2010 THROUGH 2015 0.6 (2%) 8.6 (33%) 16.4 (63%) 9.1 (33%) 10.4 (38%) 2010 2015 I N O T A T N E M E L P M I Y G E T A R T S 0.5 (2%) 6.6 (24%) 1.3 (5%) CRUDE OIL AND PETROLEUM PRODUCT SALES (IFRS), MLN TONNES 26.9 30 28.1 26.2 19.6 18.5 18.0 20.0 9.4 10.3 11.1 11.1 3.1 2.9 4.5 20 10 0 Far Abroad Export Near Abroad Export Domestic Market Deliveries Feedstock Supplies for Oil and Gas Refined Products 2009 2010 2011 2012 2013 2014 2015 Crude oil Petroleum products 30 I N O T A T N E M E L P M I Y G E T A R T S 31 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMPANY IS MAKING FOCUSED EFFORTS TO CONTINUE CONSTRUCTION OF TANECO COMPLEX IN LINE WITH CUTTING EDGE AND MOST ADVANCED TECHNOLOGIES AND PETROLEUM REFINING ENVIRONMENTAL COMPLIANCE. TANECO COMPLEX CONSTRUCTION MILESTONES 2005-2018 Decision on Project Implementa- tion Complex Construction & Installa- tion Start Operation Start Hydrocracking Unit Operation Start-up Lube Base Stock Plant Commer- cial Operation Start Commissioning of delayed coking unit (vacuum tower bottoms con- version), naphtha hydrotreatment, naphtha splitter, heavy coker gas oil hydrotreatment, isomeriza- tion, catalytic reforming, catalytic cracking Primary refining to be increased up to 14 mln tonnes per year 2005 2007 2011 2014 2015 Beginning from 2016 (by stages) 2018 32 Oil Refining TANECO Complex Current Operation Gas Processing Main refining runs at the TANECO Complex and Elkhovsky Crude Oil Refining Plant facilities operating at full capaci- ties. In 2015, the total petroleum feedstock refining volume across the Group amounted to 9.4 million tonnes, of which 9.2 million tonnes of petroleum feedstock, including 8.6 million tonnes of crude oil, were processed at the TANECO Complex. In 2015, the investments in its own refining capac- ity development amounted to more than 26 billion rubles with the most spent to continue the TANECO Complex construction while ensuring a stable operation of the exist- ing facilities. TANECO Complex Petroleum Feedstock Processing over period of 2014 through 2015 (ths tonnes) Year Processing feedstock Crude oil Gas condensate Vacuum gasoil Other 2014 2015 8 908 8 511 10 184 204 9 157 8 650 9 238 260 Feedstock Processing over 2014 through 2015 (ths tonnes) Product Processing feedstock Crude oil Other 2014 2015 197 165 33 197 168 29 TANECO REFINERY COMPLEX KEY COMPETITIVE ADVANTAGES HIGH TECHNOLOGY LEVEL OF ITS OWN TANECO OIL REFINING COMPLEX BUILT BASED ON STATE-OF- THE-ART WORLD PROVEN TECHNOLOGIES. SETTING UP CRUDE OIL REFINING BUSINESS CLOSE TO TRADITIONAL OIL PRODUCTION OPERATIONS WITHIN REPUBLIC OF TATARSTAN. PRODUCTION CAPACITY FOR HIGH ADDED VALUE OUTPUT ACCORDING TO WORLD ENVIRONMENTAL REGULATIONS AND LONG TERM MARKET REQUIREMENTS. TANECO Complex Process Unit Rated Capacities Unit CDU-VDU-7 Naphtha Stabilization Unit Visbreaker Unit Elemental Sulphur Recovery Unit Hydrocracking Unit Hydrogen Production Unit Lube Base Stock Plant Rated capacity, ths per year 7 000.0 1 100.0 2 400.0 279.0 2 900.0 100.0 250.0 In 2015, the TANECO Complex commercialized the fol- lowing new petroleum product output such as lubricating compounds, hydrotreated oil fuel, winter and Arctic diesel fuel, ТС-1, PT, Jet-A aviation fuels. The Lube Base Stock Plant was commissioned into commercial operation, which is unique for Russia. As at the beginning of 2016, crude oil conversion rate was 74.4%, light oil product cut was 71.87%. The main objective of the Company for the coming years in the refining business segment is construction of the 2nd phase of TANECO with crude oil conversion rate to be achieved as high as 94% and Nelson Index to be not less than 12 (after bringing all refining capacities into operation to full extent). PETROLEUM PRODUCT OUTPUT TO CRUDE OIL PRODUCTION RATIO GROWTH ACROSS GROUP, MLN TONNES 30 25 20 15 10 5 0 26.1 27.2 9.3 (34.1%) 0.2 (0.8%) 2010 2015 Crude Oil Production across Group Petroleum Product Output across Group In 2015, associated petroleum gas (APG) was gathered in amount of 899.5 mln. m3 that was 15.9 mln m3 higher than in 2014. In addition, 16.4 mln m3 of associated petroleum gas was procured from independent oil companies. In 2015, the associated petroleum gas was delivered to the Gas Pro- cessing Plant as much as 814.6 mln m3 that was 19.6 mln m3 higher than in 2014. The Company utilized 66.5 mln m3 for own needs and delivered 28.8 mln 3 m to external com- panies. The associated petroleum gas utilization rate was 95.17%. Along with APG Natural Gas Liquids (LNGs) are delivered from the Integrated Oil Treatment Facility (IOTF) to the Gas Processing Plant. In 2015, the LNG volume processed was 284.9 ths tonnes that was 8.4 ths tonnes higher than in 2014. In 2015, the sour gas processed was up with 196.2 mln. m3 of sour gas delivered for processing (12.6 mln. m3 higher than in 2014). In 2015, the Company invested 0.53 bln rubles in reconstruction and upgrading of its own gas processing facilities. TATNEFTEGASPERERABOTKA Division’s Feedstock Processing over 2014 through 2015 (ths.tonnes) Product Processing feedstock Associated petroleum gas IOTF LNGs 2014 2015 1 242 1 276 966 276 991 285 I N O T A T N E M E L P M I Y G E T A R T S ASSOCIATED PETROLEUM GAS UTILIZATION RATE EXCEEDS 95% IN TATNEFT. THIS IS ONE OF THE HIGHEST RATES IN INDUSTRY. The Company continues to develop an integrated utilization program for associated petroleum gas (APG), which in 2015 outstripped the standard value set out by the Russian Government. The company plans to bring this value up to 98% through activities implemented under the NGDU Yamashneft and Elkhovneft Gas Gathering Network. Associated petroleum gas is a valuable hydrocarbon component for production of a wide range of premium-quality gas products in petrochemical and energy sectors. 33 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMPANY PLANS TO STRENGTHEN ITS POSITONS IN PETROLEUM PRODUCT RETAIL SALES THROUGH HIGH QUALITY OF FUELS INCLUDING ITS OWN PRODUCED ONES, FILLING STATION UPGRADING, BETTER SUPPORT SERVICE AND FILLING STATION CHAIN GEOGRAPHICAL EXPANSION Petroleum product sales through retail filling station chain The Tatneft-branded filling station chain encompasses 692 facilities including 567 stations in 24 regions within the Rus- sian Federation, 110 stations within Ukraine and 15 stations in the Republic of Belarus. In 2015, 28 new filling stations were placed into service including 6 autogas fueling sta- tions and 15 autogas fueling terminals at the operating filling stations in the Russian Federation as well as 2 filling stations in the Republic of Belarus. Petroleum Product Sales Indicators Russian Federation, including : Oil Products Gas Products Ukraine,including: Oil Products Gas Products Belarus, including: Oil Products Gas Products Total * including taxes 2015. tonnes ths rubles* 2 355 903 2 166 743 189 160 61 613 52 415 9 198 17 319 15 465 1 854 2 434 835 83 930 438 79 750 875 4 179 563 3 797 106 3 390 068 407 038 872 845 802 272 70 573 88 600 389 Over the year, as part of the TATNEFT’s investment program for distribution infrastructure development, the Company spent 4.2 mln. rubles, including 3.78 mln. rubles invested in the Russian Federation, 405.6 mln. rubles in the Republic of Belarus and 11 mln. rubles in Ukraine. GROWTH OF PETROLEUM PRODUCT SALES THROUGH TATNEFT RETAIL FILLING STATION CHAIN (THS TONNES) 2434.8 2500 2058.8 1664.5 2000 1500 1000 500 61.8 0 1978.6 2355.9 1590.4 12.4 64.7 15.6 61.6 17.3 2013 2014 2015 Within Russia Within Belarus Within Ukraine 34 Petroleum product quality Energy and resource efficiency Customer support service TATNEFT-branded filling station chain is one of the most reliable supplier of warranted quality fuel on the domestic market. There is an effective quality control system for petroleum products put in place in its retail sales network using high-end technologies and equipment. The leading positions and competitive advantages of the TATNEFT fuel filling stations assure and consolidate its own petroleum product business existence. The TANECO diesel fuel distributed at the retail terminals has no ana- logues in Russia and exceeds the Euro-5 standard by many parameters. As a result of the All-Russian contest the fuel was listed in the “100 Best Goods of Russia 2015”. The fuel passed through bench tests and running trials including those run by the central laboratory of fuels and oils at the “KAMAZ” Research and Development Center. The engine, which ran on the TANECO diesel fuel, as compared with its rivals showed higher net engine power and torque as well as lower fuel consumption. Moreover, the harmful content of the engine exhaust pollutants such as nitrogen oxides and total hydrocarbon was well below that of diesel fuel from other manufacturers. The sulfur content in the TANECO diesel fuel is below 3 ppm against 10 ppm permis- sible by GOST standard. The optimum cetane value of the diesel fuel is up to 60 (with no additives) as compared with the commonly accepted value of at least 51, which reduces specific fuel rate and increase engine efficiency. I N O T A T N E M E L P M I Y G E T A R T S TATNEFT FILLING STATION CHAIN KEY COMPETITIVE ADVANTAGES PRESENCE ALMOST IN ALL MOST LUCRATIVE REGIONS IN RUSSIA, INCLUDING VOLGA REGION AND CENTRAL FEDERAL DISTRICT. BENEFICIAL IN GENERAL LOGISTIC LOCATION OF FILLING STATIONS IN URBAN INFRASTRUCTURE AND ALONG MAIN HIGHWAYS. AVAILABILITY OF ITS OWN HIGHLY COMPETITIVE COMMODITY SUCH AS TANECO EURO-5 DIESEL FUEL. SUPPORT SERVICE EXPANSION Vapour recovery units (VRU) are installed at the filling stations and tank farms to reduce the loss of petroleum products and significantly improve the environmental situation around filling stations and tank farms.Over 40 % of filling stations in Russia are accommodated with pellet heating systems. Conventional filling stations were shifted to automatic operation mode and new automatic stations were constructed. Support service In 2015, the revenues from sales of related products and support services in the filling stations was up 44% and amounted to over 1.8 billion rubles including 1.7 bln. rubles in Russia. The sales revenues increased thanks to construc- tion and reconstruction of 26 filling stations where new up-to- date design of operating buildings with 60 to 250 m2 trading spaces. These filling stations accommodate fast food outlets (23 pcs.) where one can buy hot drinks and national bakery food, and 3 filling stations have got full café services. In ad- dition, there is a new service introduced at the filling station facilities such as a self-service car wash. The Company plans to develop the associated services extending its marketing offers of additional services to improve service quality of and increase sales revenue. The retail filling station network ensures high standards of the range of fuel commodities, associated services and customer support. The customer portal fzs.tatneft.ru contains complete information on the retail sales network activities. The mobile application allows to get information about the nearest gas stations, fuel prices and additional services. Automated call control system enhances service quality control at fuel filling stations and allows to immediately respond to requests and get feedback and preferences of customers. There is an active system of discount cards in place with a variety of customer loyalty programs: • accumulation discount allowing to accumulate bonuses depending on amount of fuel purchased and at the same time get a liquid motor fuel discount up to 4% and autogas fuel discount up to 8%; • 3% and 6% fixed discounts for any purchased amounts of liquid motor and autogas fuels, respectively. In 2015, together with Devon-Credit Bank the Company was realizing a program, where customers received 4 % dis- count if they paid for petroleum products by the bankcards. RETAIL SALES CHAIN PRESENCE IN REGIONS OF RUSSIA AND BEOYND BELARUS 15 FILLING STATIONS UKRAINE 110 FILLING STATIONS St. Petersburg and Leningrad Region Arkhangelsk Region Tver Region Moscow and Moscow Region Yaroslav Region Vladimir Region Nizhny Novgorod Region RUSSIA 567 FILLING STATIONS Brest Region Vitebsk Region Minsk Region Gomel Region Poltava Region Kharkov Region Voronezh Region Penza Region Republic of Mariy-El Chuvash Republic Udmurt Republic Ulyanovsk Region Republic of Tatarstan Sverdlovsk Region Volgograd область Samara Region Republic of Bashkortostan Chelyabinsk Region TOTAL OF 692 FILLING STATIONS Krasnodar Territory Stavropol Territory I N O T A T N E M E L P M I Y G E T A R T S Kemerovo Region 35 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PETROCEMICALS IN ORDER TO CREATE NEW COMPETITIVE ADVANTAGES FOR TIRE BUSINESS COMPANY WILL CONTINUE TO STREAMLINE ITS PRODUCTION AND WIDEN RANGE OF INNOVATIVE TIRE COMMODITIES WITH HIGH QUALITY PERFORMANCE AS WELL AS STRENGTHEN ITS MARKETING SYSTEM AND IMPLEMENT PRODUCT BRAND MANAGEMENT PROGRAMS The petrochemical assets are consolidated in the Tatneft- Neftekhim Complex including carbon black and tire busi- nesses historically incorporated in the Company’s business- structure, as well as enterprises to provide a supply chain of product sale on domestic and export markets. The basic infrastructure of the petrochemical complex incorporates the following manufacturing facilities: Nizh- nekamskshina, Nizhnekamsk Truck Tire Factory, Nizh- nekamsk Solid Steel Cord (SSC) Tire Factory, which reached its design capacity in the year under report. The Complex includes Research & Development Center developing manufactured product line and technological solutions. The Complex’s marketing and logistic center is KAMA Trading House. The petrochemical assets are managed in accordance with a unified corporate strategy of the Company focused on in- creased production and sales of finished products with high added value. The target priorities and values are defined in the Tire Complex Product Portfolio and Marketing Strategy up to 2017 approved by PJSC TATNEFT’s Board of Directors. Currently, the work is underway to update the Strategy for 2017 through 2025. In 2015, the commodity output manufactured by the Pet- rochemical Complex enterprises totaled 43.1billion rubles, which was 14.5% higher as compared with 2014. The sales revenue amounted to 38.8 billion rubles in 2015 with 11.2% increase over the actual of 2014. As part of the compensato- ry measures taken by the Company during 2014-2015 due to the negative economic and market factors, the actions were realized to optimize costs, phase out imported products, and improve efficiency of organizational structure. At year-end 2015, the Russian tire market shrank by 19% overall as compared with the year 2014 for all groups of tires. At the same time, the market share of tires produced at the tire plants of the Company increased to a record in 2014 and accounted for 20%. A significant share of the Russian solid steel cord tire market is supplied by the Nizhnekamsk SSC Tire Factory. In 2015, the tire manufacturer’s output reached three million tires in total for the entire period of its operation. In 2015, the Company invested 0.5 billion rubles to develop the Petrochemical Complex. The investment portfolio 2016 will amount to 0.73 billion rubles that is in the line with its plans to increase commodity output and sales. Key technical and economic performance In the year under report, the petrochemical business-seg- ment expanded its output of competitive products, con- ducted marketing activities that helped to keep the market share in spite of its negative trends in general and to ensure the positive financial results. Performance Indicators Tire output, mln pcs. Tire sales, total, mln pcs Carbon black output, ths tonnes 2015. 11.99 11.86 117.1 PETROCHEMICAL COMPLEX COMMODITY OUTPUT GROWTH, BILLION RUBLES 43.1 37.6 % + 1 4.5 PETROCHEMICAL COMPLEX SALES REVENUE GROWTH, BILLION RUBLES 38.8 34.8 % + 1 1.2 I N O T A T N E M E L P M I Y G E T A R T S I N O T A T N E M E L P M I Y G E T A R T S 2014 2015 2014 2015 36 Carbon black production Tire business In 2015, Nizhnekamsktekhuglerod produced 117.1 ths tonnes of carbon black. At reporting year-end, the commodity output totaled about 4 bln rubles. Sales revenue increased by 7.9% as compared with 2014 and amounted to 3.96 bln rubles. The product range includes 14 carbon black grades with 6 grades being the largest production output. The Nizhnekamsktekhuglerod plant’s products are of a high quality and competitive with the same products of foreign manufacturers and exported to 28 countries including Tur- key, Poland, Bulgaria and other countries. Carbon black is sold on both domestic and foreign markets. At year-end 2015, domestic supplies accounted for 78% that was 90.2 ths. tonnes in absolute terms. The carbon black output export accounted for 22% that was 26.0 ths tonnes. The Company’s tire manufacturing complex occupies a sig- nificant share in the Russian tire production business sup- plying its tires to the domestic automakers such KAMAZ, GAZ, AVTOVAZ as well as to the vehicle assembling plants of Volkswagen, Fiat and other foreign carmakers. Every fifth car owner in Russia chooses the tires of KAMA or KAMA EURO brands. In 2015, the tire works of the Complex manufactured 12 million tires, including 875 thousand highly demanded solid steel cord tires (SSC-tires). 76% of total tire sales was sup- plied to the domestic market. The export geography spans 47 countries. A new business line to restore SSC truck tires was set up jointly with the foreign partners. Total tire sales made 11.9 mln pieces. 2015 Tire Sales Across End Markets (ths.psc) End Market Russian primary market (automakers) Russian after-market Export 2015 1.761 7.447 2.656 TIRE COMPLEX KEY COMPETITIVE ADVANTAGES PROXIMITY TO THE SYNTHETIC RUBBER SUPPLY SOURCE. ITS OWN ESTABLISHED CARBON BLACK PRODUCTION. HIGH TECHNOLOGY LINES. ITS OWN RESEARCH AND DEVELOPMENT CENTER. GEOGRAPHIC PROXIMITY TO LARGE CLUSTERS OF AUTO ASSEMBLY PLANTS. SSC TRUCK AND CAR TIRE MARKET SHARE GAIN. SERVICE CENTER DEVELOPMENT. 2015 TIRE MARKET SUPPLIES 78% Domestic supplies Export geography covers 47 near and far abroad countries 22% Far and Near Abroad Export I N O T A T N E M E L P M I Y G E T A R T S 37 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IMPROVING ENERGY EFFICIENCY IS A STRATEGIC PRIORITY FOR COMPANY TO REDUCE ITS OPERATING EXPENDITURES AND END PRODUCT COST REFLECTING ITS COMMITMENT TO SUSTAIN BALANCED ECOSYSTEM. HEAT & POWER ENERGY Nizhnekamsk combined heat and power plant (CHP) During the year under report, the Company continued to develop its heat–and-power energy sector, which includes the following enterprises: Tatneft-Energosbyt Management Company, Nizhnekamsk CHP and Almetyevsk Heating Net- works, by implementing the generating capacities modernization program using effective and innovative technologies and advanced equip- ment and facilities. The first phase of the CHP modernization project was accomplished with the new 350 MW power unit commis- sioned in Nizhnekamsk CHP. After that, it is planned to shift partially to a new fuel type such as petroleum coke that will start to be produced at TANECO Complex in 2016. The modernization made it possible to supply sufficient energy to the main production facilities at the Nizhnekamsk indus- trial hub. In parallel, the Company has been developing the Almetyevsk heating networks to supply heat to the regional infrastructure facilities. The long-term sector development provides for power and heat generating for the TANECO Refinery Complex, Nizhnekamskshina, NZSH SSC plants as well as oil produc- tion and other industrial facilities and utilities. With the heat and power energy generation, including minor energy, the Company will be able to ensure the secured and uninter- rupted heat and power energy supply to its own produc- tion facilities as well as external customers while reducing significantly heat and electricity procurement costs. In 2015, the electric power was generated in the quantity of 1 275.2 mln kWh. Company’s own electric power consump- tion amounted to 161.2 mln kWh with 1 114 mln kWh sent to the grid. In 2015, the heat energy delivered amounted to 3 293.4 thousand Gcal. In 2015, per unit results were as follows: • specific fuel consumption for net output power energy • specific fuel consumption for net output heat energy was 325.1 g/kW h; was 142.8 kg/Gcal. In 2015, Nizhnekamsk CHP Plant delivered 1 392.3 ths Gcal to PJSC Nizhnekamskneftekhim and 1 107.9 ths Gcal to JSC TANECO. 38 Nizhnekamsk CHP basic specifications Energy efficiency Design Capacity electric power heat power Main fuel Back-up fuel Installed capacity as at 1.04.2016 electric power heat power 510 mW 1945 Gcal-hr natural gas mazut (М-100) 730 mW 1580 Gcal-hr CHP Performance Key Indicators Power generation Specific fuel consumption for net output power energy Unit mln kWh g/kW h 2015 1275.2 325.1 Specific fuel consumption for net output heat energy kg/Gcal 142.8 Almetyevsk heating networks The heat generation amounted to 737.4 thousand Gcal at year-end 2015. The thermal energy sold amounted to 623.3 thousand Gcal. The proportions in the heat sales structure accounted for 72.2% for population, 14.5% for budgetary organizations and 13.3% for industry. In 2015, the economic effect as a result of the energy sav- ing and energy improved efficiency program amounted to 4 401.7 thousand rubles. TANECO REFINERY COMPLEX KEY COMPETITIVE ADVANGTAGES ITS OWN AVAILABLE POWER GENERATING ASSETS MAKE IT POSSIBLE TO ENHANCE ENERGY SUPPLY RELIABILTY FOR OIL REFINING AND PETROCHEMICAL CAPACITIES OF COMPANY AS WELL AS MAIN PRODUCTION FACILITIES OF NIZHNEKAMSK INDUSTRIAL HUB. PJSC TATNEFT Energy and Resource Efficiency Program up to 2020. In the situation where natural monopolies keep on rais- ing their tariffs for energy resources and transportation services and where hydrocarbon lifting cost is up due to tightening of the subsoil use regulations, the Company makes every effort to accumulate maximum reserves for saving in all business activities including energy saving. The Company makes its focus on initiatives to implement energy efficient technologies and use renewable sources energy. The PJSC TATNEFT’s corporate program of energy and resource efficiency for the period up to 2020 provides for the committed activities to accumulate maximum reserves for savings in all business lines including energy saving. The program envisages a step-by-step reduction of the overall fuel and energy consumption of through two- phased implementation of the program activities. By 2020, the fuel and energy consumption is planned to be lowered by 13.5% compared with 2007 (the program beginning year). To date, the energy resource savings for first five years of the program implementation have accounted for 28.7% against the base consumption. In 2015, the savings gained from the measures focused on lower consumption and rational use of material and natural resources amounted to 7.5 bln. rubles. The funds were used to offset the additional costs associated with sustain- ing the cost-effective oil production of the Company in the context of high depletion rates of the oil fields. Fuel and energy consumption Description Thermal energy, total including industrial consumption Boiler and furnace fuel, total including industrial consumption Unit 2015 Gcal 1 682 278 Gcal 1 637 185 TOE TOE 329 654 329 023 Electric energy, total mln. kWh 3 908.3 including industrial consumption mln. kWh 3 888.8 Motor gasoline Fuel diesel GAS tonnes 2 843.2 tonnes 1 887.4 tonnes 80.3 COMPANY HAS BEEN REALIZING INTEGRATED RESOURCE CONSERVATION PROGRAM. MEASURES IMPLEMENTED DURING 2011 THROUGH 2015 RESULTED IN SAVING OVER 311 THS TONNES OF FUEL OIL EQUIVALENT THAT MADE IT POSSIBLE FOR COMPANY TO BRING ITS FUEL AND ENERGY REQUIREMENT DOWN 4.8%. The program involves 25 entities of the TATNEFT Group as well as service companies. The Company saved 60 ths tonnes of fuel oil equivalent of energy resources in the year under report. 928 ac- tion items were accomplished under the program with 411 measures performed to save energy. ENERGY AND RESOURCE EFFICIENCY PROGRAM RESULTS OVER 2014 THROUGH 2015 Power energy saving measures 646 Measures 270 6.1 bln rubles saved through efficient use of inventories 928 Measures 411 7.5 bln rubles saved through efficient use of inventories 2014 2015 I N O T A T N E M E L P M I Y G E T A R T S 39 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CORPORATE MANAGEMENT CAPITALIZATION GROWTH BY 2014 CAPITALIZATION AMOUNT PJSC TATNEFT’S SHAREHOLDERS 40 41 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY MANAGEMENT OF THE COMPANY Management Bodies Structure Management Bodies Corporate Management System GENERAL SHAREHOLDERS’ MEETING Supreme Management Body of PJSC TATNEFT General Shareholders’ Meeting shall delegate overall management of Company’s activities to the Company’s Board of Directors Audit Commission Independent Auditor BOARD OF DIRECTORS Performs overall management of the Joint Stock Company’s operations. GENERAL DIRECTOR Sole Executive Body. Reports to the Board of Directors and to General Shareholders’ Meeting. He is Chairman of the Management Board. MANAGEMENT BOARD Collegial Executive Body Executive Office Management of the Company’s ongoing activities is provided by the Executive Office, structural divisions, business segment coordinators, as well as by authorized representatives in the management bodied of subsidiaries and affiliates. Corporate Management Committee HR & Remuneration Committee Information Disclosure Committee Audit Committee Internal Audit Department Secretary of the Board of Directors Corporate Secretary Office KEY POLICY AREAS OF THE CORPORATE MANAGEMENT • Ensuring implementation of the strategy and • Improving the organizational structure and ongoing activities of the Company introducing uniform corporate standards of the TATNEFT Group • Improving the motivation system and KPI of the • Constructive interaction with investors, Company’s management. business partners, public authorities and non- governmental organizations interested in the activities of Company • Implementation of the openness and transparency principles A General Shareholders’ Meeting is a supreme managing body of the Company. The General Shareholders’ Meeting delegates overall management of the Company’s activities to the Company’s Board of Directors. General Director of PJSC TATNEFT is the Company’s Chief Executive Officer. The collegial executive body of the Company is the Management Board, headed by the General Director. General Director and Management Board are accountable to the Board of Directors and to the General Shareholders’ Meeting. Areas of responsibility are distributed among members of the Board of Directors and the Management Board, including the Deputies of the General Director. The motivation system is applied at the Company for top executives to ensure effective management. There is a system of the Company officials’ powers and responsibilities distribution by the areas of the Company’s activities established to ensure the efficiency business segment management. The overall control over financial and economic activities of the Company is carried out by the Audit Commission. According to information available to the Company there is no conflict of interests for members of the Board of Directors and the Executive Bodies. The corporate management is in line with the strategic priorities of the Company, and is aimed at achieving quality results in the production and business activities, ensuring fiscal sustainability and economic growth, increasing investment attractiveness and the Company’s shareholder value in the long-term. There is an Investment Committee established in the Company, chaired by the General Director of PJSC TATNEFT. The Committee considers promising projects and the efficiency of current investments. All projects undergo the procedure of examination and evaluation. PJSC TATNEFT is a corporate Group center for the operation of enterprises, which form business segments of the Company. The TATNEFT Group status, forms of management and relations pattern of the parent Company and the Group members are regulated by the Provision on the TATNEFT Group, approved by the PJSC TATNEFT’s Board of Directors. The organization of the TATNEFT Group management is based on a single mission and development priorities while respecting fair interests of all members of the Group. There are relevant policies and regulations, which form the mechanisms of corporate relations worked out in the Company for ensuring uniform principles of management and transparency of the Company’s subsidiaries and affiliates. INTERNAL DOCUMENTS DEFINING THE CORPORATE MANAGEMENT SYSTEM • Articles • Provision on the General Shareholders’ Meeting • Provision on the Board of Directors • Provisions on Committees of the Board of Directors • Provision on the General Director • Provision on the Management Board • Provision on the Audit Commission • Provision on the Corporate Secretary • Provision on the Internal Audit Department • Corporate Management Code • Internal documents, defining the distribution of powers and responsibilities of the Executive Office senior management and employees by the activity areas INTERNAL DOCUMENTS REGULATING THE CORPORATE MANAGEMENT PRACTICE AND PROCEDURE of the Board of Directors by the Company’s management • Internal documents, defining distribution of powers • Provision on dividend policy • Provision on payment of remuneration to members • Provision on payment of remuneration to members • Provision on information policy • Provision on the procedure of access to insider • Register of uniform corporate standards of the Audit Commission of PJSC TATNEFT information 42 43 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT’S GENERAL SHAREHOLDERS’ MEETING INTERACTION WITH SHAREHOLDERS Supreme management body of PJSC TATNEFT. The General Shareholders’ Meeting was held on June 26, 2015 in the reporting year. CONTINUOUS INTERACTION OF THE MANAGEMENT WITH SHAREHOLDERS ENSURES EFFECTIVE SHAREHOLDERS’ ASSETS MANAGEMENT AND SUSTAINABLE DEVELOPMENT OF THE COMPANY. The procedure for holding the General Shareholders’ Meeting fully provides for respecting the rights of the shareholders. The procedure for preparation, convening, holding and summarizing the General Shareholders’ Meeting of the Joint Stock Company is determined by the Provision on the General Shareholders’ Meeting of PJSC TATNEFT. The Joint Stock Company holds Annual General Meetings of Shareholders once a year, not earlier than two months and not later than six months after the fiscal year end. In addition to the Annual General Meeting there may be an extraordinary meeting of shareholders convened. The Company provides shareholders with information on the agenda of the General Shareholders’ Meeting in the amount and in time for them to choose a reasonable stance on the issues, and to take a decision on participation in the meeting and the manner of such participation. Each shareholder is entitled to attend the meeting in person or by proxy. The shareholders will receive from the Board of Directors and executive bodies of the Company the detailed and reliable report on the ongoing corporate policy and production and business activities of the Company at the General Shareholders’ Meeting. The Company’s Board of Directors will prepare a report to shareholders for each agenda item of the day reflecting the Board’s position, as well as individual opinions of the Board of Directors members, if any. Shareholders shall decide on the most important issues of the Company’s activities. Such issues as election of members of the Board of Directors, Audit Commission members, approval of the Company’s auditor, approval of the annual report and annual accounting (financial) statements, including the report on the financial results of the Company’s operations, distribution of profits, payment of dividends for the financial year shall be mandatory addresses issues. In case of election the Company’s Board of Directors shall provide the shareholders with detailed information about the biography, experience and skills of each candidate, and shall also strive to ensure personal presence of the candidates. Decisions Taken by the General Meeting of Shareholders: 1. The Joint Stock Company’s annual report for 2014 was approved. 2. The meeting approved annual financial statements including profit and loss statements (profit and loss accounts) of the Joint Stock Company for 2014. 3. The meeting approved distribution of profits for the financial year. 4. Decision was taken to make payment of dividends for 2014 as follows: a) for preferred shares of PJSC TATNEFT in the amount of 1058% of the shares’ face value; b) for ordinary shares of PJSC TATNEFT in the amount of 1058% of the shares’ face value. July 15, 2015 was set as the date for defining persons entitled to receive dividends. The term of the dividends payment was specified in accordance with the current legislation. The dividends payment had to be made in cash. 5. The PJSC TATNEFT’s Board of Directors was elected. 6. Members of the Joint Stock Company’s Audit Commission were elected. 7. ZAO «PricewaterhouseCoopers Audit” was approved as the PJSC TATNEFT’s Auditor for the year to perform the statutory audit of the annual financial statements for 2015 prepared in accordance with Russian accounting rules. 8. The General Meeting approved an updated version of the PJSC TATNEFT’s Articles. 9. The General Meeting approved an updated version of the Provision on holding the General Meeting of Shareholders of PJSC TATNEFT. 10. The General Meeting approved an updated version of the Provision on the Board of Directors of PJSC TATNEFT. 11. Introduction of a change in the Provision on the General Director of PJSC TATNEFT. 12. Introduction of a change in the Provision on the PJSC TATNEFT’s Management Board. 13. Introduction of a change in the Provision on the on the Audit Commission of PJSC TATNEFT. The adoption of decisions on the agenda items of the General Shareholders’ Meeting was carried out by voting ballots in the manner prescribed by the law and the Joint Stock Company’s Articles. The formulations of the meeting’s decisions necessarily specified the majority vote and dissenting opinions on the decisions taken. The reliability of the protocol was certified by signatures of the meeting’s Chairman and the Secretary. IMPROVEMENT OF MECHANISMS AND FORMS OF INTERACTION WITH SHAREHOLDERS IN THE LIGHT OF NEW SHAREHOLDERS EMERGENCE AND FORMULATION OF FURTHER GOALS BY THE SHAREHOLDERS ENHANCE THE CORPORATE MANAGEMENT QUALITY. Ensuring Legal Rights of Shareholders Information Policy Dividend Policy Interest Conflict Avoidance The Company guarantees compliance with and observance of legal rights and interests of all the Company’s shareholders regardless of the number of shares they own, as set out by applicable laws of the Russian Federation, requirements and recommendations of stock markets regulators, where the shares of the Company circulate, and the Company’s Articles. The Shareholders participate in the Company’s Activities, exercising their rights and responsibilities and on the basis of their voluntary initiatives aimed at improving the management of the Company’s operations. The Company provides shareholders with access to documents in accordance with the applicable law. . The shareholders are entitled to receive information about the Company’s activities to the extent necessary for them to take well-considered and sound decisions. The procedure for the information disclosure is provided in accordance with the applicable law, requirements of the stock market and the Provision on the Information Policy and the Provision on the use of Insider Information and the procedure of informing on the securities’ transactions. The Company strives to ensure the most reliable and effective methods and forms of communication, including advanced information technologies application for reaching the highest possible quality of interaction with the shareholders. The Joint Stock Company recognizes dividends as one of the key indicators of the Company’s investment attractiveness and is committed to increase the value of dividends on the basis of the consistent earnings growth. The Board of Directors of the Joint Stock Company determines the amount of dividends recommended to the General Shareholders’ Meeting based on the economically sound approach to the distribution of profits and respect to the balance of short-term (revenue generation) and long- term (development of the Company) interests of the shareholders. The Joint Stock Company provides equal conditions for all shareholders in exercising their rights for participation in the Company‘s profits through receiving dividends. The Company’s corporate management system includes a set of rules and procedures to avoid conflicts of interest between the Company’s management bodies and its shareholders, as well as between shareholders, if the conflict affects the interests of the Company, detection and resolution of all possible general and specific problems relating to the rights of the shareholders. In case of a conflict arising there are mechanisms provided to take all necessary and possible measures to complete the conflict settlement, as well as the create the conditions excluding the conflict in future. This work is carried out by the authorized division interacting with the Board of Directors committees, Internal Audit Department and other relevant divisions of the Company. 44 45 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY BOARD OF DIRECTORS OF PJSC TATNEFT ACTIVITIES OF THE PJSC TATNEFT’S BOARD OF DIRECTORS IN 2015 Remuneration of the Board of Directors’ Members A list of Main Issues Discussed at the Board of Directors Meetings in 2015 The Board of Directors performs general management of PJSC TATNEFT, develops general corporate strategy and oversees its implementation, participates in the creation of effective internal control mechanisms over financial and economic activities of the Company, as well as the risk control system, defines basic parameters of the budget and the control of its implementation, helps ensuring the timely disclosure of full and accurate information on the Company’s activities, and takes decisions on key projects and significant transactions. The procedure of formation, status, composition, functions, goals and objectives, powers of the Board of Directors, the procedure for its work and cooperation with other Company’s management bodies are identified by the Articles and the Provision on the Board of Directors. There are 15 members in the composition of the Board of Directors, including three independent directors*, 7 non- executive and 5 executive directors. Remuneration to members of the Board of Directors of PJSC TATNEFT is paid on the basis of the “Provision on payment of remuneration to members of the Board of Directors and the Audit Commission of PJSC TATNEFT. The remuneration of the Board of Directors is formed of fixed and variable portions. The fixed remuneration portion It is defined by the Provision and it is indexed simultaneously with the change of tariffs and salaries of the PJSC TATNEFT’s employees. The variable part of the remuneration of the Board of Directors members is formed according to the following key performance indicators: year compared with the previous year; • the ratio of the Company’s capitalization level for the • the ratio of the cost of dividends to net profit (compared • the additional profitability amount versus the baseline with the previous year); profitability. Participation of independent and non-executive Directors in the work of the Board of Directors provides for maintaining a balance between interests of different groups of the shareholders, which contributes to the objectivity of the decisions taken, and the strengthening the confidence in the Company on the part of investors and shareholders. The remuneration amount of the Board of Directors members is set by the decision of the General Shareholders’ Meeting and includes remuneration for the performance the Board of Directors member’s duties and remuneration for the performance of duties of the Board of Directors’ Committee Chairman. There were changes made in the composition of the Board of Directors in the June 2015: the retired members of the Board M.L. Voskresenskaya, Gosh Sushovan and V.P. Lavushchenko were replaced by newly elected members Yu.L. Levin, L. Gerech and A.D. Khalimov. In 2015, the total remuneration sum paid to the Joint Stock Company’s members of the Board of Directors amounted to RUB 138,798,909.95, including remuneration for participation in the work of the Board of Directors, salaries of Executive Directors, bonuses and other forms of remuneration. There were 13 full-time and one in absentia meeting of the Board of Directors held during the reporting year Compensations to members of the Joint Stock Company’s Board of Directors amounted to RUB 4,373, 432.09. Upon the recommendation of the Executive Body the Board of Directors considers main results of the Company’s financial and business activities, determines the list of transactions that may affect the Company’s performance and supervises them, ensures development and approval of the comprehensive risk management system and the system of monitoring compliance with internal procedures, defines the Company’s control system over subsidiaries and affiliates and supervises the information disclosure on the Company’s activities. independence criteria have been defined by the Listing Rules of JSC MICEX 46 COMPOSITION OF THE BOARD OF DIRECTORS 5 3 7 Independent Directors Executive Directors Non-Executive Directors 1. 2. On the Annual General Meeting of the PJSC TATNEFT’s Shareholders on the results of 2014. About candidates to the Board of Directors, Audit Commission of PJSC TATNEFT and proposals on the agenda items of the Annual General Meeting of shareholders on the results of operation for 2014. 3. On measures to ensure the financial stability of the Company in the conditions of declining world oil prices. 4. On the results of the Internal Audit Department operations in 2014 and approval of the Department’s work management plan for 2015. 8. 5. On the performance, efficiency and strategy of further development of the «Tatneft-Neftekhim» Management Company 6. On the Results of financial and economic activities of PJSC TATNEFT in 2014. 7. On the Program of supporting research activities the in the area of crude oil production and refining in collaboration with leading research and educational institutions located in the territory of the Republic of Tatarstan. On the expanding the scope of works with unconventional hydrocarbons in the framework of scientific «Domanik» and «Bitumen» testing grounds and the plans for oil production and geological and technical activities at PJSC TATNEFT for 2016-2017. On establishment of Committees under the Board of Directors of PJSC TATNEFT. 9. 10. On the progress of implementing the environmental program of PJSC TATNEFT for the period 2000 - 2015. 11. The program implementation progress to improve the production system efficiency, improve the management methods and structure at PJSC TATNEFT 12. On the plans of crude oil production and geological and technical activities at PJSC TATNEFT for 2016. 13. On the state of the PJSC TATNEFT’s resource base to maintain crude oil production in the Republic of Tatarstan. 14. On the results of financial and economic activities of subsidiaries and affiliates of the TATNEFT Group of Companies. 15. On the results of implementing measures to improve the financial sustainability of the PJSC TATNEFT’s divisions. 16. On the implementation of PJSC TATNEFT’s investment program for crude oil in 2015 and the draft investment program for 2016. 17. On the performance and strategies of the «Tatneft-Neftekhim» Management Company with regard to further development of the tire manufacturing complex enterprises. Participation of the Board of Directors members at the Board meetings 28.01. 2015 27.02. 2015 26.03. 2015 27.04. 2015 22.05. 2015 26.06. 2015 (2BDM) 28.07. 2015 26.08. 2015 29.09. 2015 21.10. 2015 27.11. 2015 Total 29.12. 2015 (2BDM)* Full Name R.N. Minnikhanov N.U. Maganov. N.G. Ibragimov Yu.L. Levin (since June 26, 2015) R.R. Gayzatullin L. Gerech (since June 26, 2015) R.Kh. Muslimov. R.R. Sabirov Yu.V. Sorokin. M.Z. Taziyev Sh.F.Takhautdinov A.K. Khamaev. R.S. Khisamov R.Kh, Khalimov (since June 26, 2015) R.F. Steiner M.L. Voskresenskaya (till June 26, 2015) Soushovan Ghosh (till June 26, 2015) V.P . Lavushchenko. ( till June 26, 2015) A.T. Yukhimets l l l l l l l l l l l l l l l l l l l l l l l l l l – l l l l l l l – l l l l l l – l l l – l l l l – l l l l l l l l l l l – l l l l l l l l l l l l l – l l l l l l l l l l l – – l l l l l l l l l l l l l l l l l l l l l l – l l l l l l l l l – l – l l l l l l – l l l l l l l l l l l l l l l l l – l l l l l l l l l l l l l l l l – l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l – – l l l l – – l l l l l l l l l *One meeting on Dec. 29, 2015 was conducted in absentia 14 14 11/3 9 12/2 9 13/1 14 14 13/1 14 10/4 12/2 9 11/3 4/1 4/1 4/1 14 47 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMPOSITION OF THE PJSC TATNEFT’S BOARD OF DIRECTORS Rustam N. MINNIKHANOV Nail U. MAGANOV Nail G. IBRAGIMOV Mariya L. VOSKRESENSKAYA Radik R. GAIZATULLIN Laszlo GERECH Chairman of the Board of Directors of PJSC TATNEFT General Director of PJSC TATNEFT PJSC TATNEFT’s Board of Directors’ Member Chairman of the PJSC TATNEFT’s Management Board Member of PJSC TATNEFT’s Board of Directors First Deputy General Director for Production – Chief Engineer of PJSC TATNEFT. PJSC TATNEFT’s Management Board Member. Independent member of the JSC TATNEFT’s Board of Directors Audit Committee Member of JSC TATNEFT’s Board of Directors *till June 26, 2015 PJSC TATNEFT’s Board of Directors’ Member Audit Committee Member of the PJSC TATNEFT’s Board of Directors. Independent member of the PJSCTATNEFT’s Board of Directors Member of the PJSC TATNEFT’s Board of Directors Audit Committee Member of the PJSC TATNEFT’s Board of Directors HR and Remuneration Committee *Since June 26, 2015 Born in 1957. 1978 – graduated from Kazan Agricultural Institute, specializing as a mechanical engineer. 1986 – Institute of Soviet Trade. 1996-1998 – Minister of Finance of the Republic of Tatarstan. From July 1998 till March 2010 headed the Government of the Republic of Tatarstan. President of the Republic of Tatarstan since March 2010. Born in 1958. Born in 1955. Born in 1955. Born in 1964. Born in 1953. 1983 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. From July 2000 to November 2013 – First Deputy General Director – Head of Crude Oil and Petroleum Products Sales Department of PJSC TATNEFT. He was appointed General Director of PJSC TATNEFT in November 2013. 1977 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. First Deputy General Director for Production – Chief Engineer of PJSC TATNEFT since 2000. Graduated from Moscow Financial Academy in1977. She has A US CPA Certificate and she is a certified Russian Auditor. Director of Brentcross Ltd. since 2004. 1985 – graduated from Kazan Agricultural Institute specializing in «Accounting and business analysis in agriculture”. Head of the Ministry of Finance of the Republic of Tatarstan since June 2002. 1977 – graduated from the Moscow Institute of Petrochemical and Gas Industry named after Academician I.M. Gubkin specializing in Development and Complex Mechanization of oil fields. 1995 – graduated from the Oxford Business University. Since 2015 – Managing Director of MOL Oman, Oman Branch Office in Muscat. COMPOSITION OF THE PJSC TATNEFT’S BOARD OF DIRECTORS ENSURES THE OPTIMAL BALANCE OF THE BOARD OF DIRECTORS MEMBERS’ COMPETENCE REQUIRED FOR IMPLEMENTATION OF STRATEGIC OBJECTIVES AND ONGOING TASKS OF THE COMPANY. 48 Non-executive director Executive Director Executive Director Independent Director Independent Director Независимый директор % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – 0.000176. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital– 0.019749. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.020806. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. 49 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Sushovan GOSH Vladimir P. LAVUSHCHENKO Yuri L. LEVIN Renat Kh. MUSLIMOV Rinat K. SABIROV Valery Yu. SOROKIN Mirgaziyan Z. TAZIYEV Shafagat F. TAKHAUTDINOV Independent Member of the PJSC TATNEFT’s Board of Directors Chairman of the Audit Committee of the PJSC TATNEFT’s Board of Directors Member of the HR and Remuneration Committee of PJSC TATNEFT *till June 26, 2015 Member of JSC TATNEFT’s Board of Directors Deputy General Director in Economics of PJSC TATNEFT Chairman of the JSC TATNEFT’s Board of Directors Information Disclosure Committee *till June 26, 2015 Independent member of the Board of Directors Chairman of the PJSC TATNEFT’s Board of Directors Audit Committee Member of the PJSC TATNEFT’s Board of Directors HR and Remuneration Committee *Since June 26, 2015 Member of PJSC TATNEFT’s Board of Directors’ Born in 1957. Born in 1949. Born in 1953. Born in 1934. Graduated from the college of Queen Maria, London University of Electric and Electronic Developments and Institute of Accountants- Experts in England and Wales. Managing Director of SGI Group Ltd. since. 1972 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 1984 – graduated from the post-graduate course of VNIIOENG. Deputy General Director for Economics and Finance of PJSC TATNEFT since 1997. 1975 – graduated from the Moscow Finance Institute В 1957 – graduated from Kazan State University. 1979 – post-graduate studies at the Institute of World Economy and International Relations. Managing Partner of BVM Capital Partners Ltd since 2001. State Consultant to President of the Republic of Tatarstan on development of crude oil and gas fields since June 2007, Professor of the Crude Oil and Gas Geology Chair of Kazan (Volga)State University. Independent Director Executive Director Independent Director Non-executive Director % share in the Joint Stock Company’s authorized capital- none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – 0.045465. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.048194. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none % share in the Joint Stock Company’s authorized capital– 0.057136. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.060445. Member of PJSC TATNEFT’s Board of Directors. Member of the PJSC TATNEFT’s Board of Directors Corporate Management Committee. Member of the PJSC TATNEFT’s Board of Directors HR and Remuneration Committee. Member of the PJSC TATNEFT’s Board of Directors Information Disclosure Committee Born in 1967. 1991- graduated from the physics faculty of Kazan State University. 1994 – graduated from the post-graduate course of the Kazan State Technological University. 1998 – had a training course under the President’s program for managerial staff. 2006 till June 2010 headed the Division of Oil and Gas Complex of the Cabinet of Ministers of the Republic of Tatarstan. In June 2010 he was appointed Assistant to the President of the Republic of Tatarstan. Non-executive Director Member of the PJSC TATNEFT’s Board of Directors Member of the PJSC TATNEFT’s Board of Directors Member of the PJSC TATNEFT’s Board of Directors Advisor to Chairman of the PJSC TATNEFT’s Board of Directors Born in 1964. Born in 1947. Born in1946. 1986 – graduated from the Kazan State University. General Director of JSC Svyazinvestneftekhim since 2003 1972 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin 1971 – graduated fromMoscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. Head of NGDU «Almetyevneft” of PJSC TATNEFT since January 2005. 1999 till November 2013 – General Director of PJSC TATNEFT. Starting November 2013 – Assistant to President of the Republic of Tatarstan on the oil industry issues, Advisor to Chairman of PJSC TATNEFT’s Board of Directors. Non-Executive Director Executive Director Non-Executive Director % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – 0.006448. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.006541. % share in the Joint Stock Company’s authorized capital – 0.116503. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.123914. 50 51 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Rustam Kh. KHALIMOV Azat K. KHAMAEV Rais S. KHISAMOV René STEINER Member of PJSC TATNEFT’s Board of Directors Deputy General Director of PJSC TATNEFT for Development and Production of Oil and Gas *since June 26, 2015 PJSC TATNEFT’s Board of Directors’ Member Member of the PJSC TATNEFT’s Board of Directors Deputy General Director – Chief Geologist of PJSC TATNEFT Independent Member of the PJSC TATNEFT’s Board of Directors. Chairman of the PJSC TATNEFT’s Board of Directors HR and Remuneration Committee Audit Committee Member of the PJSC TATNEFT’s Board of Directors Born in 1965. Born in 1956. Born in 1950. Born in 1964. 1987 – graduated Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 2010 to 2011 – Director of PJSC TATNEFT’s Branch in Libya. 2011 – 2015 – Head of NGDU “Elkhovneft” of PJSC TATNEFT. 1978 – graduated from Kazan Aviation Institute, specialty – mechanical engineer. 2000 – graduated from the Law Faculty of Kazan State University. Appointed the First Deputy Minister of Land and Property Relations of the Republic of Tatarstan in December 2008. Deputy General Director of PJSC TATNEFT for Development and Production of Oil and Gas since 2015. Appointed Head of the Ministry of Land and Property Relations of the Republic of Tatarstan in March 2009. 1978 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. Deputy General Director – Chief Geologist of PJSC TATNEFT since October 1997. . He has a degree in economics and graduated from Technical High School in Zurich in 1989. Bachelor of Swiss Banking – Zurich, 1992. Since 2011, co-founder, Program Director of the Private Equity FIDES Business Partner AG, Switzerland. Executive Director Non-Executive Director Executive Director Independent Director % share in the Joint Stock Company’s authorized capital – 0,000056 % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share in the Joint Stock Company’s authorized capital – 0.01876. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.019746. % share in the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. Secretary of the Board of Directors and the PJSC TATNEFT’s Corporate Secretary Office The Secretary of the Board of Directors and the Company’s Corporate Secretary’s Office provide in the Joint Stock Company for the orderly preparation and holding of the General Shareholders’ Meeting, activities of the Board of Directors and Committees of the Board of Directors, the Joint Stock Company compliance with requirements of the applicable law, Articles and internal documents of the Joint Stock Company, which guarantee the rights and legitimate interests of shareholders,. Rustam M. Khisamov, who previously was in the position of the PJSC TATNEFT’s Securities Office Head, was appointed Head of the Corporate Secretary Office on 7 December 2015, The competence of the Corporate Secretary Office includes maintaining an effective system of interaction among all participants of corporate relations, including subsidiaries and affiliates of the Joint Stock Company, and monitoring the abidance of the Joint Stock Company’s subsidiaries and affiliates to the corporate procedures related to the implementation of the of shareholders and other participants of corporate relations rights ensuring interaction of the Joint Stock Company with a specialized registrar, depositories, with public administration bodies authorized to carry out regulation of corporate relations and with the securities market, as well as with other securities market participants. The Corporate Secretary Office provides for the organization and follow-up of the legal requirements with regard to public disclosure of information, including the preparation and disclosure of information in the form of the annual report, quarterly issuer’s reports, essential facts, as well as documents and information related to the issuance and circulation of securities on a stock exchange, provision of documents and information at the request of shareholders, proper storage of the Joint Stock Company’s corporate documents. In order to improve the corporate practice efficiency, the Corporate Secretary Office performs monitoring the Company‘s existing procedures efficiency and prepares the annual report of the Board of Directors on the state of the Joint Stock Company’s corporate management and prospects for its development. The reports on the corporate management are formed in accordance with the Rules of exchange trading and disclosure requirements on the corporate management in the Company to all interested parties. Alexander T. YUKHIMETS Secretary of the PJSC TATNEFT’s Board of Directors. Maintenance of the PJSC TATNEFT’s Board of Directors activities. Based on proposals the Board of Directors’ Members and the Management Board Members the Secretary the Board of Directors prepares and submits for the Board’s approval work plans of the Board of Directors and performs organizational functions for preparation of the Board meetings. The competence of the Secretary of the Board of Directors includes preparation of the Board meetings, formation, preliminary examination and systematization of materials on the agenda of the meetings, as well as preparation of draft decisions. The Secretary of the Board of Directors provides to the Board members the information necessary for making decisions on the agenda issues. 52 53 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMMITTEES OF THE BOARD OF DIRECTOR CORPORATE MANAGEMENT COMMITTEE Committee Composition Chairman Viktor I. Gorodny – member of the Management Board of PJSC TATNEFT, Deputy General Director – Head of Property Department of PJSC TATNEFT. Members of the Committee: Natalia E. Dorpeko – Consultant of PJSC TATNEFT’s General Director. Valery D. Ershov – member of the Management Board, Head of PJSC TATNEFT’s Legal Department. Vasiliy A. Mozgovoy – Assistant to General Director of PJSC TATNEFT, Corporate Finances. Rinat K. Sabirov – member of the Board of Directors of PJSC TATNEFT, Assistant to President of the Republic of Tatarstan, Member of the Corporate Management Committee, Member of the HR and Remuneration Committee. Nurislam Z. Syubaev – ember of the Board of Directors, Head of PJSC TATNEFT’s Strategic Planning Department – Advisor to General Director on external economic activity and financial/banking issues. Rais S. Khisamov – member of the Board of Directors of PJSC TATNEFT, Deputy General Director – Chief Geologist of PJSC TATNEFT (till June 26, 2015). Rustam M. Khisamov – Head of Securities Office of the Property Department of PJSC TATNEFT (till June 26, 2015). Denis V. Tsovma – Deputy Head of Securities Office of the Property Department, PJSC TATNEFT (till June 26, 2015). Basic Functions and Work Areas of the Committee in 2015 The main objective of the Committee was preliminary review and preparation of recommendations to the Board Directors on the development and improvement of the corporate management system in the Joint Stock Company (regulation of relations between the shareholders, the Board of Directors and the Joint Stock Company’s management, as well as interaction with the subsidiaries of the Joint Stock Company and other stakeholders). The Committee initiated and provided for organizational support in improving the corporate management procedures, as well as adoption of new and updating of existing corporate documents in accordance with changes in the applicable legislation and general corporate standards. • Working out recommendations on implementing provisions of the Corporate Management Code and ensuring the requirements of the Listing Rules approved by the Bank of Russia and the Russian Government. • Provision of advice and preliminary consideration of the materials for the corporate restructuring in the Joint Stock Company, affecting interests of the shareholders. • Monitoring the Joint Stock Company’s compliance with legislation on joint stock companies, regulations, regulatory acts, as well as legal rights and interests of the shareholders. • Assistance to the Board of Directors and General Director in assessing the quality of corporate relations and the corporate management system development in the Joint Stock Company (regulation of the relationship between the shareholders, Board of Directors and the Joint Stock Company’s management, as well as interaction with the subsidiaries of the Joint Stock Company and other interested parties). • Making recommendations on the preparation and • Making recommendations on amendments to the holding of the Annual General Shareholders’ Meeting. Articles and other internal documents of the Joint Stock Company, which approval is within the competence of the General Shareholders’ Meeting and the Board of Directors. • Development of recommendations on the draft internal documents aimed at improving the corporate management in the Joint Stock Company. AUDIT COMMITTEE Committee Composition Chairman Yuri L. Levin, Member of the PJSC TATNEFT’s Board of Directors, Independent, Director Managing Partner of BVM Capital Partners Ltd (since June 26, 2015). Sushovan Ghosh, member of the Board of Directors of PJSC TATNEFT, Independent Director. Managing Director of SGI GROUP LTD. Member of the HR and Remuneration Committee of PJSC TATNEFT (till June 26, 2015). Committee Members Mariya L. Voskresenskaya, member of the Board of Directors of PJSC TATNEFT, Independent Director. Director of Brentcross Ltd (till June 26, 2015). Radik R. Gayzatullin, member of the Board of Directors, Minister of Finance of the Republic of Tatarstan. Laszlo Gerech, member of the Board of Directors of PJSC TATNEFT, Independent Director. Managing Director of “MOL West Oman B.V. Oman Branch”. Member of the HR and Remuneration Committee (since June 26, 2015 ). René Frederic STEINER, Member of the PJSC TATNEFT’s Board of Directors, Independent Director, Program Director of the Private Equity FIDES Business Partner AG, Switzerland, Chairman of the HR and Remuneration Committee. Basic Functions and Work Areas of the Committee in 2015 The Committee assisted the Board of Directors in exercising control over the reliability of financial statements of PJSC TATNEFT, compliance with laws and regulations, selection of independent auditors, the work of the independent auditors and the internal audit system, control of financial and economic activities, as well as other duties within the Committee’s competence. • Coordination of the external auditors and the Internal Audit Department activities, as well as review of their reports on a regular basis. the Internal Audit Department operations. • Introduction of proposals to improve the efficiency of • Review and analysis of quarterly financial statements. • Review and implementation of the independent auditors reports on the state of internal control systems of PJSC TATNEFT and development of recommendations for their improvement. • Discussions with independent auditors and the Internal Audit Department about the scope, focus areas and the timing of their audits. • External auditors’ independence validation. • Providing the advice to the Board of Directors on the selection of independent auditors for PJSC TATNEFT (both by IFRS and by RAS). • Preliminary review of the interested parties’ transactions and transactions with parties related with PJSC TATNEFT to be submitted for approval by the Board of Directors of PJSC TATNEFT. Committees of the PJSC TATNEFT’s Board of Directors have been established in order to assist the Board of Directors on key issues of the corporate practice and improve the mechanisms of the Company’s interaction with shareholders and investors. The Committees operate on the basis of the applicable legislation, the Joint Stock Company’s Articles, Provision on the Board of Directors and Provisions on the Committees approved by the Board of Directors. The membership of the Committees is determined by the Board of Directors. The Company provides to the Board of Directors detailed information about the biography, experience and skills of each candidate for membership in the Committee. 54 55 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY HR & REMUNERATION COMMITTEE INFORMATION DISCLOSURE COMMITTEE Committee Composition Chairman René Frederic STEINER, Member of the PJSC TATNEFT’s Board of Directors, Independent Director, Program Director of the Private Equity FIDES Business Partner AG, Switzerland Members of the Committee Laszlo Gerech, Member of the PJSC TATNEFT’s Board of Directors, Independent Director. Managing Director of “MOL West Oman B.V. Oman Branch”, Member of the Audit Committee of PJSC TATNEFT’s Board of Directors (since June 26, 2015) Sushovan Ghosh, member of the Board of Directors of PJSC TATNEFT, Managing Director of SGI Group LTD (till June 26, 2015). Yuri L. Levin, Member of the PJSC TATNEFT’s Board of Directors, Independent Director Managing Partner of BVM Capital Partners Ltd, Chairman of the PJSC TATNEFT‘s Board of Directors Audit Committee (since June 26, 2015). Rinat K. Sabirov, member of the Board of Directors of PJSC TATNEFT, Assistant to President of the Republic of Tatarstan, Member of the Corporate Management Committee, Member of the HR and Remuneration Committee. Basic Functions and Work Areas of the Committee in 2015 The Committee assisted the Board of Directors of PJSC TATNEFT in improving personnel policies and strengthening of mechanisms for motivating employees and managers of the Company. The Committee’s area of work was to improve the quality of the Board of Directors operation through the preliminary review and preparation of recommendations on the issues of creating conditions for attraction of qualified professionals to the Joint Stock Company’s Management and the necessary incentives for their efficient operation. • Development of a methodology for evaluating performance of the Board of Directors as a whole, Committees of the Board of Directors, Chairman of the Board of Directors and individual performance of the Board of Directors members for the purpose of working out the principles and criteria for determining their remuneration. • Development of a methodology for assessing performance of the Joint Stock Company’s Management Board members and heads of structural divisions of the Joint Stock Company for the purpose of developing the principles and criteria for determining their remuneration. • Criteria determination for selection and a preliminary assessment of candidates: to members of the Board of Directors, members of the Management Board, to the position of General Director, to the position of the heads of the PJSC TATNEFT structural divisions. • Working out suggestions on defining essential terms of contracts with members of the Board of Directors, General Director and the PJSC TATNEFT’s Management Board members. • Regular monitoring of legislation and the latest standards in the field of personnel management, development of recommendations for changes in the internal documents of PJSC TATNEFT within the Committee’s competence and submitting them to the Board of Directors. • Working out recommendations on the PJSC TATNEFT’s personnel policy, including those regarding the system of the Company’s employees’ motivation, and submitting them to the Board of Directors. The Committees carry out their activities in close cooperation with the Board of Directors, Management Board, Executive Directorate, Internal Audit Department, Corporate Control Department and other departments and divisions of the Company. Committee Composition Chairman Basic Functions and Work Areas of the Committee in 2015 Iskandar G. Garifullin, Management Board member, Chief Accountant – Head of Accounting and Reporting Department of PJSC TATNEFT (since June 26, 2015). The Committee coordinated and monitored procedures to ensure the rights of shareholders and other stakeholders in a timely and necessary manner to fully provide information on the activities of the Company. Vladimir P. Lavushchenko, member of the Board of Directors, member of the Management Board, Deputy General Director of PJSC TATNEFT for Economics (till June 26, 2015) The main Committee’s objective is improving the information disclosure procedure on the Company’s activities Deputy Chairman Viktor I. Gorodny, member of the Management Board, Deputy General Director, Head of the Property Department of PJSC TATNEFT, Head of the Corporate Management Committee (till June 26, 2015). Committee Members: Nuriya Z. Valeyeva, Head of Technical and Economic Information and Advanced Experience Extension Office, PJSC TATNEFT. Vladlen A. Voskoboynikov, member of the Management Board, Head of Consolidated Financial Reporting Department of PJSC TATNEFT. Vasiliy A. Mozgovoy, Assistant to General Director of PJSC TATNEFT, Corporate Finances. Rinat K. Sabirov, member of the Board of Directors of PJSC TATNEFT, Assistant to President of the Republic of Tatarstan, Member of the Corporate Management Committee, Member of the HR and Remuneration Committee. Evgeny A. Tikhturov, Member of the Management Board, Head of PJSC TATNEFT’s Financial Department. Denis V. Tsovma, Securities Office Deputy Head, Property Department of PJSC TATNEFT (till June 26, 2015) Aleksander T. Yukhimets, member of the Management Board, Secretary of the Board of Directors of PJSC TATNEFT (till June 26, 2015) In the frame of the obligatory information disclosure and information disclosure on a voluntary basis, as well as assisting the subsidiaries in establishing the procedure of the information disclosure and submitting. • Ensuring compliance of the corporate information disclosure policy with applicable laws and requirements of stock exchanges which the Company’s shares are presented at. • Supporting execution of the internal regulation «Mechanisms for disclosure control and disclosure procedures». The Information Disclosure Committee carries out mid-term evaluations and provides for monitoring current Company’s disclosure procedures. • Working out recommendations on amendments to the «Mechanisms for disclosure control and disclosure procedures». • Coordination of annual reports and other documents preparation to the disclosure of information, study and making recommendations regarding the annual Company’s annual reports to shareholders, current reports, press releases on earnings and other documents disclosing essential information on the Company’s activities. • Working out preliminary recommendations on the voluntarily disclosed information ensuring full and comprehensive understanding of the Company’s activities by all stakeholders. • Analysis of the current voluntarily information disclosure practices and submitting its recommendations to responsible officials for discussion. • Monitoring of the best international and Russian practices of the information disclosure procedures to improve corporate disclosure mechanisms of the obligatory information disclosure and information disclosure on a voluntary basis • Monitoring the timely disclosure procedures. 56 57 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY EXECUTIVE BODIES ACTIVITIES OF THE PJSC TATNEFT’S MANAGEMENT BOARD IN 2015 GENERAL DIRECTOR MANAGEMENT BOARD Sole executive body. Collegial executive body of the Company. General Director is appointed by the Board of Directors. N.U. Maganov has been General Director of PJSC TATNEFT since November 2013 till present time. General Director is Chairman of the Management Board of PJSC TATNEFT. Powers of the General Director are determined by the Joint Stock Company’s Articles and the “Provision on General Director of PJSC TATNEFT”. General Director manages the ongoing activities in accordance with the corporate Company Development strategy. General Director determines the organizational structure of the Company oversees the rational use of resources, solves organizational issues of the Company’s business structure management and social guarantees to personnel provision, including, without limitation: Meeting decisions; members to the Board of Directors; • ensuring execution of the General Shareholders’ • presentation of candidates for the Management Board • allocation of responsibilities among the Management • organization of the Management Board work, as • approval of the Joint Stock Company’ internal Chairman of the Management Board meetings, Board members; documents, except for internal documents, which approval is referred by the Joint Stock Company’s Articles to the competence of the General Shareholders’ Meeting, the Board of Directors and the Management Board; • determination of the of the Joint Stock Company’s organizational structure, approval of the Joint Stock Company’s manning table, branches and representative offices, approval of job descriptions and salaries; position of the First Deputy General Director; • introduction to the Board of Directors candidates for the • conclusion of employment contracts with employees of • ensuring the drafting, conclusion and execution of the the Joint Stock Company; Collective Agreement. The Management Board is formed by the Board of Directors and is composed of the Chairman and members of the Management Board. Quantitative composition of the Management Board is determined by the Board of Directors. The procedure of formation, status, composition, functions, goals and objectives, the Management Board powers, the procedure of its work and interaction with other Company’s management bodies are defined by the Provision on the Management Board. The Management Board meetings are held in accordance with the Management Board plan of operation. The core competences of the Board: • participate in the development of prospective and current plans of the Joint Stock Company’s activity, representation of on their fulfillment; • Plans to the Board of Directors, preparation of reports • Joint Stock Company’s participation in commercial and • implementation of the Joint Stock Company’s programs non-profit organizations; of financial and investment activity within the powers received from the Board of Directors; • coordination of production programs of subsidiaries; • regular reporting to the Board of Directors on the financial condition of the Joint Stock Company, and transactions as well as • decisions that can have a significant impact on the Joint Stock Company‘s condition. Remuneration of the Management Board Members Payments to members of the Management Board are made in accordance with basic conditions of the contracts concluded for the performance of duties of the Management Board members, including implementation of decisions of the General Shareholders’ Meeting, the Board of Directors, and participation in working out the Joint Stock Company’s development plans, as well as enhancing the effectiveness of the of Company and its subsidiaries work plans. In 2015, the total remuneration of the Joint Stock Company’s members of the Management Board amounted to 44,765,829.47, rubles including remuneration for participation in the work of the Management Board, salary, bonuses and other forms of remuneration. Compensation to the members of the Joint Stock Company’s Management Board members of amounted to 739,640 rubles. List of Issues Reviewed at the Meetings of the Management Board in 2015 1. On the interest in the «TATNEFT-Tsentroresurs» Limited Liability Company. 2. On the interest in the «Zelenaya Roshcha» Limited Liability Company. 3. On the establishment of a limited liability company with the main activity to provide airports with fuel and lubricants. 4. On the interest in the limited liability company «TATNEFT-Neftekhimservis». 5. Execution of the consolidated budget. Results of declaration of the structural divisions and subsidiaries. Relevant information on the status of mutual settlements that depend on the structural divisions. Details of the mutual settlements with the budget at all levels. Information characterizing the financial and economic condition of the Company. 6. On the amount of voluntary contributions to the public housing under the program of the social mortgage housing construction in 2015. 7. Involvement in the establishment of the «TATNEFT-Resource Nefteproduct” Limited Liability Company. 8. «Environmental Program of PJSC TATNEFT for the period 2016 – 2020». Participation of Board members in the Management Board meetings in 2015 Full Name N.U .Maganov N.G. Ibragimov V.P. Lavushchenko V.I. Gorodny N.M/ Glazkov F.L. Schelkov R.N. Mukhamadeyev I.G. Garifullin E.A. Tikhturov N.Z. Syubaev V.D. Ershov V.A. Voskoboynikov R.S. Nurmukhametov A.V. Vakhitov A.T. Yukhimets 02.02.2015 02.03.2015 06.04.2015 01.06.2015 06.07.2015 05.10.2015 04.12.2015 Total l l l l l l l l l l l l – l l l l l l l – l l l l – – l l l l l l l l l l l l l – – l l l l l l l l l l l l l l – l l l l l l l l l l l l l l – l l l l l l l l l – l l l l l – l l l l l l l – l l l l l – l l l 7 7 7 7 7 5/2 6/1 7 7 7 5/2 2/5 5/2 7 7 58 59 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY COMPOSITION OF THE PJSC TATNEFT’S MANAGEMENT BOARD Nail U. MAGANOV Nail G. IBRAGIMOV Anvar V. VAKHITOV Chairman of the PJSC TATNEFT’s Management Board General Director PJSC TATNEFT PJSC TATNEFT’s Board of Directors Member First Deputy General Director for Production – Chief Engineer of PJSC TATNEFT since 2000. PJSC TATNEFT’s Board of Directors Member. Director of OOO «TATNEFT- Neftekhim» Management Company. Vladlen A. VOSKOBOINIKOV Head of PJSC TATNEFT’s Consolidated Financial Statements Department. Member of the PJSC TATNEFT’s Board of Directors Information Disclosure Committee Iskandar G. GARIFULLIN Nikolay M. GLAZKOV Victor I. GORODNY Valery D. YERSHOV Chief Accountant – Head of Accounting and Reporting Department of PJSC TATNEFT Chairman of the PJSC TATNEFT’s Board of Directors Committee for Information Disclosure * till February 01, 2016 Deputy General Director for Capital Construction of PJSC TATNEFT Deputy General Director – Head of Property Department of PJSC TATNEFT Chairman of the PJSC TATNEFT’s Board of Directors Management Committee Head of PJSC TATNEFT’s Legal Department. Born in 1958. Born in 1955. Born in 1951. Born in 1965. Born in 1960. Born in 1960. Born in 1952. Born in 1949. 1983 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. July 2000 to November 2013 – First Deputy General Director – Head of Crude Oil and Petroleum Products Sales Department of PJSC TATNEFT. Appointed General Director of PJSC TATNEFT in November 2013. 1977 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 2000 till present time – First Deputy General Director for Production – Chief Engineer of PJSC TATNEFT. 1980 – graduated from Kazan Institute of Chemical Technology. 1993 – graduated from the Southern Alberta Institute of Technology in Calgary. April 2014 till present time – Director of «TATNEFT- Neftekhim” Management Company. 2005 till present time Head of PJSC TATNEFT’s Consolidated Financial Statements Department 1981 – graduated from Kazan Finance and Economics Institute named after V.V. Kuibyshev. 1997 till February 01, 2016 – Chief Accountant – Head of Accounting and Reporting Department of PJSC TATNEFT. 1988 – graduated from Kazan Construction Engineering Institute. 2008-2010 – Head of Construction Department of PJSC TATNEFT. 2010 till present time – Deputy General Director for Capital Construction of PJSC TATNEFT. 1978 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 1995 till present time – Deputy General Director – Head of PJSC TATNEFT’s Property Department since. 1978 – graduated from Kazan State University named after V.I. Ulyanov-Lenin. 2002 till present time – Head of Legal Department of PJSC TATNEFT. % share in the Joint Stock Company’s authorized capital – 0.000176. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – 0.019749. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.020806. % share the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – 0.014105. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.014986. % share the Joint Stock Company’s authorized capital- none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – 0.000254. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. 60 61 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Vladimir P. LAVUSHCHENKO Rustam N. MUKHAMADEEV Rafael S. NURMUKHAMETOV Nurislam Z. SYUBAEV Evgeny A. TIKHTUROV Fyodor L. SHCHELKOV Alexander T. YUKHIMETS PJSC TATNEFT’s General Director Deputy for Economics and Finance, PJSC TATNEFT’s Board of Directors’ Member PJSC TATNEFT’s General Director Deputy for HR & Social Development Head of NGDU «Leninogorskneft» of PJSC TATNEFT. Head of PJSC TATNEFT’s Strategic Planning Department – Advisor to General Director on external economic activity and financial/banking issues. Member of the Corporate Management Committee of the Board of Directors since December 25, 2014 Head of the PJSC TATNEFT’s Finance Department Member of the PJSC TATNEFT’s Board of Directors Information Disclosure Committee 1996 till February 25, 2016 -Deputy General Director of PJSC TATNEFT for General Issues Secretary of the PJSC TATNEFT’s Board of Directors Member of the PJSC TATNEFT’s Board of Directors Information Disclosure Committee Born in 1949. Born in 1952 Born in 1949. Born in 1960. Born in 1960. Born in 1948. Born in 1948. 1972 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 1977 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. Academician I.M. Gubkin. 1984 – graduated from post-graduate course of VNIIOENG. 2001 till present time – Deputy General Director for HR & Social Devrlopment. 1974 – graduated from the Ufa Oil Institute. 1989 till present time – Head of the NGDU «Leninogorskneft» of PJSC TATNEFT. 1982 – graduated from Moscow Institute of National Economy n.a..V. Plekhanov 2002 till present time – Head of Strategic Planning Department of PJSC TATNEFT – Advisor to General Director on external economic activity and Financial/banking issues В 1982 – graduated from Moscow Institute of Management named after S. Ordzhonikidze. 1972 – graduated from Moscow Institute of Petrochemical and Gas Industry n. a. I.M. Gubkin. 1972 – graduated from Moscow Institute of Petrochemical and Gas Industry n.a. I.M. Gubkin. 1999 – till present time Head of PJSC TATNEFT’s Department of Finance since. Deputy General Director of PJSC TATNEFT for General Issues since1996 until present time. 1995 till present time – Secretary of the PJSC TATNEFT’s Board of Directors. Doctor of Economics. 1997 till present time – Deputy General Director for economics of PJSC TATNEFT. % share the Joint Stock Company’s authorized capital – 0.045465. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.048194. 62 % share the Joint Stock Company’s authorized capital – 0,004204. % share of the Joint Stock Company’s ordinary shares owned by the person – 0,004264. % share the Joint Stock Company’s authorized capital – 0.010465. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.010107. % share the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – none. % share of the Joint Stock Company’s ordinary shares owned by the person – none. % share the Joint Stock Company’s authorized capital – 0.029929. % share of the Joint Stock Company’s ordinary shares owned by the person – 0.031524. % share the Joint Stock Company’s authorized capital – 0.000284. % share of the Joint Stock Company’s ordinary shares owned by the person – none. 63 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CORPORATE PRACTICE THE COMPANY’S CORPORATE PRACTICE IS BUILT ON THE RESPONSIBLE ATTITUDE TOWARDS THE SHAREHOLDERS AND IS BASED ON THE UNDERSTANDING THAT THE LONG-TERM INVESTORS MUST HAVE A CLEAR UNDERSTANDING OF THE STRATEGIC OBJECTIVES AND PROSPECTS FOR THE COMPANY’S DEVELOPMENT, AS WELL AS DEEP INSIGHT THAT THEIR RIGHTS WILL NOT BE VIOLATED. The Company’ corporate management system is based on strict compliance with requirements of the Russian legislation, listing requirements, recommendations of the Russian Corporate Management Code, international standards of corporate behavior and business ethics and the principles of openness and transparency. LEGISLATION LISTING RULES CODES / PRINCIPLES Federal laws: Listing Rules: “On Joint Stock Companies”, “On Securities Market”, “On Central Depository” CBR Regulations “On information Disclosure” CBR Regulations “On the securities admission to organized trading” CJSC “MICEX Stock Exchange” (Moscow Exchange Holding) London Stock Exchange Deutsche Borse (Xetra) CBR Corporate Management Code approved by the Russian Government Corporate Management Code of PJSC TATNEFT Corporate Policy and Regulations BEST PRACTICE GUIDELINES Principles of the European Bank for Reconstruction and Development (EBRD) Principles of the Organization of Economic Cooperation and Development (OECD ) Recommendations of the Russian Institute of Directors and National Council of Corporate Management GRI Corporate Management Priorities The Company develops the corporate management system on the integration of key priorities that form a single platform for the management of the Company’s shareholder value and enhancement of the assets structure quality. Increase of investment attractiveness and shareholder value of the Joint Stock Company on the basis of long- term fiscal sustainability and economic growth with maintenance of a high level of social responsibility Constructive interaction of shareholders and investors with the Board of Directors and executive bodies for the joint development of objectives and effective decision-making Arrangement of the strategic and investment planning process effectiveness and implementation of the production and business activities plans Professional and ethical responsibility of the Board of Directors members, Executive Management, officers and employees of Company A comprehensive system ensuring a high level of competence and effective staff motivation mechanisms Preservation and improvement of the assets structure quality through improving the ownership and organizational structures of the Company’ vertical integration Maintaining a high business reputation of the Company and the corporate social responsibility Formation of mechanisms for the prevention and settlement of corporate disputes Ensuring transparency of the Company ‘s activities Integrated risk- management system The Company’s corporate management is a system of relations between the shareholders, Board of Directors, management and all stakeholders. TATNEFT Company strictly complies with all legal requirements, the Listing Rules and it has been consistently introducing into the Company’s corporate practice all newly formulated rules and recommendations on the corporate management and business ethics since its incorporation, following the development of the international and national corporate law. The Company is aware that the use of advanced corporate management standards improves the trust of the shareholders and investors, enhances the Company’s potential for intra-defining factors of the investment attractiveness and the Company’s value growth. PJSC TATNEFT is in the top quotation list (first level) of the Moscow Stock Exchange (JSC MICEX Listing Rules), which defines the relevant requirements to the Company’s level of corporate management by the regulators of the securities market of the Russian Federation. The Company is guided by the principles of the national corporate management, set out in the Corporate Management Code, approved by the Bank of Russia and the Russian Federation Government in 2014. The Corporate Management Code of PJSC TATNEFT reflects compliance of the corporate management principles and practices implemented by Company with the principles and provisions set out in the National Code. The Code has been formed in accordance with the Civil Code of the Russian Federation, the Federal Law «On Joint Stock Companies» and other regulatory legal acts of the Russian Federation and the Articles of PJSC TATNEFT. The Company was one of the first in Russia to adopt the Code, which name already in the first edition of 2004 had included the “corporate management” concept, reflecting the Company’s understanding of the future development trends of the procedural issues in corporate relations. The Company Code was updated in 2010 in the second edition. The Company’s principles of corporate management are fundamental for the TATNEFT Group and they are implemented through corporate policies in key areas of the corporate practice, standards and regulations. The reporting year was the year of shaping the third edition of the PJSC TATNEFT’s Corporate Management Code. The new version includes a more detailed description of procedures to ensure compliance with the shareholders’ rights, work arrangements of the Board of Directors, the procedure for the election and operation of independent directors and activities of the Board of Directors’ Committees, Corporate Secretary Office, risk management mechanisms, prevention and resolution of corporate conflicts and conflicts of interest, developed and formalized in the corporate reporting year. Great importance is paid in the Code to the description of the Joint Stock Company’s dividend policy. In general, the new edition of the Company’s Code accumulates the vast Company’s previous years experience in corporate practices and approaches oriented to advanced national and international standards. The plans provide for the approval of the new PJSC TATNEFT’s Corporate Management Code version at the meeting of the Board of Directors in its new composition to be elected at the Annual General Shareholders’ Meeting of the Joint Stock Company for the next corporate year. In the conditions of developing and improving the national corporate practice the Company interacts with committees of the Moscow Stock Exchange, Russian Institute of Directors, National Council on Corporate Management, RSPP Corporate Relations Committee, monitors domestic and international corporate procedures implemented both on a mandatory and voluntary basis. The Company participated in public consultations on the report of the Bank of Russia «On the improvement of corporate management in public joint stock companies», which took place from December 2015 to March 2016, which resulted in the joint meeting of the Working Group on examination and improvement of the corporate law held by the National Council on the corporate management and the RSPP Corporate Relations Committee. In terms of the international corporate standards the Company adheres to the principles of the Organization for Economic Cooperation and Development (OECD) adopted in the third version of G20/OECD as one of the fundamental standards of the financial systems stability. Comment of the Central Bank of the Russian Federation: “The corporate management is a key issue in creating an efficient market economy based on the rule of law. Therefore, the corporate management problems go up to the state level. Having equal production, financial and other basic metrics companies, with a good reputation in the field of corporate management are much more expensive”. 64 65 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CORPORATE MANAGEMENT PRACTICES REPORT COMPLIANCE WITH PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE MANAGEMENT CODE, RECOMMENDED BY THE BANK OF RUSSIA AND THE GOVERNMENT OF THE RUSSIAN FEDERATION Interaction with Shareholders Board of Directors The basis of the Joint Stock Company’s corporate system is ensuring fair and equitable treatment of all shareholders in exercising of the right to participate in the management of the Joint Stock Company. The procedures in effect at PJSC TATNEFT ensure equality of conditions for all shareholders - owners of shares of the same category, including minority and foreign shareholders, and their equal treatment by the Joint Stock Company. The internal document defining basic procedures for the preparation, convening and holding the General Shareholders’ Meeting is the Provision on the shareholders’ meeting of PJSC TATNEFT. The Joint Stock Company undertakes to inform the shareholders of the General Shareholders’ Meeting at least 30 days prior to the date of holding the General Shareholders’ Meeting, and provide access to the information not less than 20 days prior to the date of the General Shareholders’ Meeting. Appropriate materials for the shareholders shall be posted on the Internet sites of TATNEFT and the news agency the at: http://www.tatneft.ru, http://disclosure.skrin.ru/disclosure/1644003838. In order to secure more complete understanding of the Company’s activities by the shareholders and the possible adoption of the most informed decision the Joint Stock Company provides additional information in the sections of the Annual Report, in the form of reports to the General Shareholders’ Meeting and by posting materials on the site of the Joint Stock Company in all areas of Company’s activities. Moreover, additional information shall be published in the media. The procedure of delivering the fullest possible information to shareholders is defined by internal documents, including the Company’s Information policy. In the course of preparation and holding the General Shareholders’ Meeting the Joint Stock Company offers the shareholders the opportunity to pose questions on the Company’s activities to the members of the Board of Directors, General Director, members of the Audit Commission and the control bodies, the members of the Board of Directors’ committees: Audit, Corporate Management, HR & Remuneration, Information Disclosure, Chief Accountant of the Joint Stock Company, as well as to candidates for the Joint Stock Company’s controls Bodies. The Joint Stock Company takes responsible attitude to the inadmissibility principle of actions that lead to an artificial redistribution of corporate control (making a decision on payment of dividends on preferred shares in the situation of a limited financial capacity, a decision on non-payment dividends of the stipulated by Joint Stock Company’s Articles on the preferred shares if there are sufficient resources for their payment), as entrenched in the Articles and the internal documents of the Joint Stock Company. The Joint Stock Company shall ensure equality of conditions for all shareholders and equal treatment in the exercise of their right to participate in profits of the Joint Stock Company through the receipt of dividends, regardless of the stake, and location of shareholders. Dividend Policy The dividend policy of PJSC TATNEFT is based on strict observance of the legitimate rights and interests of the shareholders and is aimed at ensuring a high level of dividend yield on the capital invested by the shareholders on the basis of the efficient shareholders’ assets management. The Joint Stock Company assumes in its dividend policy that the amount of funds available for dividends, is at least 30% of the net income determined in accordance with Russian Accounting Standards (RAS). The history of dividend payments reflects the Company consistency in maintaining a high level of the dividend yield while maintaining a balance of short-term (receiving income in the form of dividend payments) and long term (investments in the development of the Company) shareholders’ interests. In the reporting corporate year, the Board of Directors approved the Provision on the dividend policy of PJSC TATNEFT, formalizing the principles and conditions for making a decision on payment (announcement) of the dividends, as well as the procedure for determining the amount and payment of the dividends. The Provision on the dividend policy has been posted on the website of the Joint Stock Company. The Board of Directors of PJSC TATNEFT implements strategic management the of Joint Stock Company, determining the long-term key priorities and strategic objectives of the Company and its subsidiaries, which form then TATNEFT Group of Companies, key performance metrics of the Company’s activities, as well as principles and approaches to organizational management structure. The Board of Directors supervises the activities of executive bodies of the Joint Stock Company, determines the Joint Stock Company’s policy on remuneration of the Board of Directors’ and executive bodies’ members. One of the key mechanisms for ensuring sustainable Company’s development is a system of risk and internal control management. The procedure for election, competence and powers of the Board of Directors is determined by the PJSC TATNEFT’s Articles and the Provision on the Company’s Board of Directors. According to the above-mentioned documents, the most important issues are addressed at the meetings of Board of Directors held in person. The list of such issues is as recommended by the Corporate Management Code of the Bank of Russia. The Board of Directors consists of 15 members. In the corporate reporting year, there were five executive, seven non- executive and three independent directors in the composition of the Board of Directors. Independent directors In the corporate reporting year, there were changes in the composition of independent directors. As of the date of holding the General Annual Meeting of Shareholders on the results for 2014 there were the following independent directors in the composition of the Board of Directors: Mariya L. Voskresenskaya, Ghosh Sushovan, and Rene Frederick Steiner. In 2014, the total term of Mariya L. Voskresenskaya and Ghosh Sushovan as members of the Board of Directors exceeded seven years. In accordance with independence criteria defined by the Corporate Management Code, a person holding the office of the Issuer’s Board of Directors member in the aggregate more than 7 years can not be recognized as an independent Director, and there were nominated and elected new candidates of independent directors: Gerech Laszlo and Yuri Levin to the Board of Directors for 2015 corporate year. In accordance with the accepted in the Company corporate practice, a preliminary assessment of the candidates’ compliance with the criteria of independence for members of the Board of Directors was carried out by the Corporate Management Committee in conjunction with the HR & Remuneration Committee. Regarding the number of independent directors in the Joint Stock Company, the Provision of the Corporate Management Code of the Bank of Russia recommends no less than one-third of independent directors in the Board of Directors and it is not in full agreement with the Listing Rules of the Moscow Stock Exchange, which state that the number of independent directors should be at least one fifth of the Board of Directors composition. As of the current period the Company considers that the quantitative composition of the Board of Directors and distribution of executive, non-executive and independent directors’ portions optimally corresponds to the balance of competencies of the Board of Directors’ members to work out and implement strategic decisions and control execution of current tasks. Committees of the Board of Directors According to the Provision on the Board of Directors PJSC TATNEFT, determining the right to the Board of Directors for preliminary consideration of the most important issues of the Joint Stock Company to create committees, there are four committees of the Board of Directors established: Audit Committee, Corporate Management Committee, HR & Remuneration Committee, and Information Disclosure Committee. The procedure of establishment, powers and competencies of the committees are defined by Provisions on committees. The Provisions comply with recommendations of the Corporate Management Code, recommended by the Bank of Russia. The Committees have been operating in the Joint Stock Company since 2004. The Audit Committee was established to assist the Board of Directors in monitoring the reliability of the Company’s financial reporting, compliance with requirements of laws and regulations, selection of independent auditors, checking of independence, independent auditors work and the Company’s internal audit system. Including the chairman, there are three independent directors in the structure of the Committee, and one non-executive director. 66 67 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY The HR & Remuneration Committee was established with the purpose of preliminary consideration and preparation of recommendations to the Board of Directors to make decisions on matters within the competence of the Board of Directors in the area of formulating priority directions of the Joint Stock Company’s activities on personnel policies and remuneration of the Joint Stock Company’s control bodies. Including the chairman, there are three independent directors in the structure of the Committee, and one non-executive director. The Corporate Management Committee was established for the purpose of preliminary consideration and preparation of recommendations to the Board of Directors to make decisions on the development and improvement of the Joint Stock Company’s corporate management system (regulation of the relationship between shareholders, the Board of Directors and the Joint Stock Company’s management, as well as interaction with subsidiaries of the Joint Stock Company and other stakeholders). The Committee’s competence includes assessing the quality of corporate management. The Information Disclosure Committee is an advisory body of the Board of Directors and it is intended for objective and independent assistance to the Board of Directors and the Executive Management to ensure fulfillment of the Company’s information disclosure obligations. The main objective of the Committee is to improve the information disclosure procedure on the Company’s activities in the framework of both information obligatory disclosure and information disclosure on a voluntary basis, as well as assisting the subsidiaries in arranging the procedure of disclosing and submitting the information. Self-Assessment of the Board of Directors The Board of Directors on a regular basis assesses the results of all key decisions taken at the meetings of the Board of Directors of and their role in achieving the strategic objectives, including intermediate steps in response to changing external factors influencing the Company’s activities and, if necessary, takes appropriate measures, which is a reflection of the Board of Directors operation effectiveness. The Company’s Board of Directors pays close attention to the effectiveness of the corporate management mechanisms in order to achieve the maximum financial and operating results based on the qualitative interaction between the shareholders, the Board of Directors and management team. Internal Evaluation of the Corporate Management In order to improve corporate management practices the company performs an internal assessment of the corporate management system compliance with requirements of the securities market regulators and the effectively proven corporate practice taking international standards into account. The assessment is based on the key quality indicators of the corporate management: shareholders’ rights and relations with other stakeholders, composition and work effectiveness of the management and control bodies and information disclosure. When assessing the Company assumes that the practice of the corporate management and the Joint Stock Company functioning must be transparent for the shareholders, investors and other interested parties. In 2015, the assessment of the Company’s corporate management practices was performed by the Corporate Management Committee of the Board of Directors of PJSC TATNEFT with participation of the Company’s corporate adviser. The assessment results and proposals for improvement of the corporate management practice were presented to members of the Board of Directors and the Company’ Director General, which was the basis for drawing and approving the schedule of activities to ensure to the fullest possible to the fullest possible extent compliance with new Moscow Stock Exchange Listing Rules, in the conditions of the transient period, as well as the Provisions of the Corporate Management Code, recommended by the Bank of Russia. Appropriate modifications of the PJSC TATNEFT’s internal documents for approval by the General Meeting of Shareholders of PJSC TATNEFT in June 2016 were prepared in accordance with changes in the current legislation and the Civil Code of the Russian Federation. Corporate Secretary Office Effective interaction with shareholders, coordination of the Joint Stock Company’s activities for the protection of rights and interests of the Shareholders, support of the Board of Directors effective work is provided by the Secretary of the Board of Directors and the Corporate Secretary’s Office of PJSC TATNEFT. The unit was formed in 2015 and Rustam M. Khisamov, who previously held the position of the Company’s Head of Securities Office, was appointed as Chief of Staff of the Corporate Secretary Office. In February 2016 the Board of Directors of PJSC TATNEFT approved the Provision on the Corporate Secretary. Remuneration Policy of the Company The Company’s remuneration policy is based on the priorities of attracting, motivating and retaining individuals possessing competences and qualifications necessary for solution of the Company’s strategic and operational tasks. Remuneration to the members of the Board of Directors, executive bodies and other key management employees of the Joint Stock Company is made in accordance with the remuneration policy adopted by the Company. The procedure for remuneration payment, including salaries of the Joint Stock Company’s management bodies members, who are the Company’s employees, bonuses, remuneration for participation in the work of the managing bodies: Board of Directors, Management Board, compensations granted to members of the Board of Directors, executive bodies and key management employees of the Joint Stock Company are regulated by relevant internal documents. The system of remuneration of the executive bodies and other key executives of TATNEFT Company adopted in Joint Stock Company provides for remuneration dependence on the results of the Company’s operation and the personal contribution to the achievement of goals and objectives, including the ones on the basis of a long-term incentive approach. Risk Management System In order to minimize possible risks and consequences associated with the industry, macroeconomic, country exposure, political, technological, social and other risks there is an integrated risk management system operating in the Company, which includes internal control procedures. Principles and mechanisms of the corporate risk management are based on international approaches in this field and ensure compliance with internal regulations and the standards applicable, which also embrace subsidiaries of the Joint Stock Company. The integrated approach includes the management of external and internal risks, and allows identifying and monitoring potential and actual risk factors at all stages of business planning to provide for reasonable confidence in achieving strategic and operational goals Company. The responsibility for quality control of organizing the risk management and internal control systems in accordance with the Provision on Internal Audit of PJSC TATNEFT, approved by the Joint Stock Company’s Board of Directors, has been impose on the Company’s Internal Audit Department. The Head of the Internal Audit Department, accountable to the PJSC TATNEFT’s Board of Directors, is appointed and removed from office by the decision of the Joint Stock Company’s Board of Directors. There is anti-corruption policy in operation in the Company, formalized by the internal document defining a set of policies and procedures designed to prevent corruption. 68 69 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Information policy Statements Disclosure The Company implements the principle of openness and transparency. The information policy principles and mechanisms are defined by the Provision on Information Policy, approved by the PJSC TATNEFT’s Board of Directors. The Company provides for disclosing information about the activities of PJSC TATNEFT and its subsidiaries, which form the Group. TATNEFT Company disclose the annual consolidated financial statements together with the auditor’s report, and the consolidated interim condensed financial statements together with the assessment review of the consolidated interim condensed financial statements. The internal procedure «Control mechanisms for information disclosure and procedures the information disclosure» establishes procedures to ensure coordination of all Company’s services and divisions, related to the disclosure of information or which activities may lead to the disclosure of information. The information disclosure, as defined by law, is provided by the Corporate Secretary Office of PJSC TATNEFT. The Company’s information in general provided on the current activities is provided bt the Company’s Press Service. The control over proper disclosure and compliance with the information policy is carried out by the PJSC TATNEFT’s Board of Directors. The Information Disclosure Committee of the Board of Directors carries out interim assessments and monitors disclosure procedures operating in the Company. The Company promptly discloses full, timely and accurate information to enable informed decision making by shareholders and investors. Meetings of the General Director and members of the Company’s executive bodies with investment and industry analysts on the activities and plan of the Company’s strategic development are held on a regular basis. Publication of accounting (financial) statements of the Joint Stock Company is accompanied by presentations with the participation of the management bodies’ members and key executives of the Company. The TATNEFT Company’s Official Internet Site works in Russian and English versions. All relevant information, including the notice of the General Shareholders’ Meeting, the annual report of the Joint Stock Company, the annual report on the Company’s activities, the IFRS and the essential facts are disclosed in the Russian and English languages. TATNEFT COMPANY - PRINCIPLES OF DISCLOSURE RELIABILITY OF INFORMATION The Joint Stock Company provides information in accordance with the principles of fair and unhindered access. THE COMPANY’S OPENNNESS COMPLETENESS OF INFORMATION COMPLIANCE WITH DISCLOSURE DEADLINES The Joint Stock Company provides for disclosure of biographical data of the Board of Directors members, including information on whether or not they are independent directors, as well as prompt information disclosure about the loss of an Independent Director status by a member of the Board of Directors. The Joint Stock Company discloses information on the capital structure in accordance with the Corporate Management Code recommendations. The Joint Stock Company’s Annual Report provides additional information recommended by the corporate management Code: controlled entities during the past year; absentia) meetings, participation of each member of The Board of Directors in the meetings, • overview of the most significant transactions, including related transactions made by the Joint Stock Company and its • report on the work of the Board of Directors for the year, containing, inter alia, information on the number of full-time (in • report on the work of the Committees of the Board of Directors, including the main areas of the committees’ work; • information about direct or indirect possession of the Joint Stock Company Joint Stock Company’s shares by members of • information on any conflict of interests of the members of the Board of Directors and other executive bodies (including the Board of Directors and other executive bodies; those associated with participation of the mentioned persons in the competitors’ managing bodies of the Joint Stock Company); • description of the remuneration system of the Board of Directors members, including the total remuneration amount of the managing bodies - the Board of Directors and the Management Board for the year. Significant Corporate Actions The PJSC TATNEFT’s Articles define a list (criteria) of significant corporate actions, which consideration is referred to within the competence of the Joint Stock Company’s Board of Directors. The procedure of making significant corporate actions, defined by internal documents of the Company, allows shareholders to promptly receive full information about such actions providing them with an opportunity to influence them committing such actions, and ensuring compliance and the adequate level of protecting their rights in the commission of such actions. THE JOINT STOCK COMPANY SHALL PROVIDE INFORMATION AND DOCUMENTS REQUESTED BY THE SHAREHOLDERS IN ACCORDANCE WITH THE PRINCIPLES OF FAIR AND UNHINDERED ACCESS. ACTIONS, WHICH MATERIALLY AFFECT MATERIALLY BOTH THE SHARE CAPITAL STRUCTURE AND THE FINANCIAL POSITION OF THE JOINT STOCK COMPANY AND, ACCORDINGLY, IN THE POSITION OF SHAREHOLDERS (MAJOR CORPORATE ACTIONS), THE COMPANY SHALL CARRY OUT ON FAIR TERMS, ENSURINGJBSERVANCE OF THE RIGHTS AND INTERESTS OF THE SHAREHOLDERS, AS WELL AS OF THE OTHER STAKEHOLDERS. 70 71 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PERSONNEL MANAGEMENT There is an integrated HR management system in effect at the Company aimed at maintaining a high professional level of workers and specialists involved in all aspects of the Company’s activities. Key priorities of the personnel management policy: • maximizing the involvement of human resources; • training of employees on a continuous basis; • strengthening motivation of each employee and the • ensuring decent living standards for every employee. whole team of the Company; The Company’s personnel management policy is aimed at maintaining the status of a highly responsible employer for workers with the skills and motivation to bring the maximum benefit for the Company. The basic principles of human resource management are: • focusing on efficiency and quality of the work; • priority to internal promotion; • opportunities for learning and improvement; • decent working conditions and benefits; • professionalism; • professional excellence and continuity; • complexity and consistency; • support of talents; • responsibility; • cooperation. The principles and objectives in the field of human resource management, as well as corporate values with respect to employees are identified in the Human Resources Management Policy of TATNEFT Company. Implementation of the personnel management policy is reflected in the relevant standards, defining the procedure of hiring employees, opportunities for professional and career development of the employees, material and non- material stimulation system, social support. There is a Code of Ethical Principles in effect in the Company, which defines the norms of the intra-business culture. Number of staff Personnel Motivation Personnel Certification In 2015, the average number of employees at PJSC TATNEFT was 20,635 persons. The total personnel number of the Group amounted to 73 thousand persons (for the enterprises consolidated under IFRS). There were 2,092 employees hired for the job in Company in 2015, accounting for 10.1% of the average number of employees. During the year, the personnel turnover at PJSC TATNEFT amounted to 3.5%, which was less than the industry average. There is a unified procedure for the recruitment of staffset5 up at the Company. The priority right for vacancies have employees of the Company, who by its characteristics meet the requirements to the candidates. When hiring the staff, preference is given to local residents, who have appropriate qualifications and practical experience in the area of the Company’s activity. The share of the senior managers from the local population in the main regions of the Company’s operations is nearly 100%. The Company and its main subsidiaries, constituting TATNEFT Group of companies, carry out activities at the place of legal registration in the Russian Federation. Accordingly, the major part of the Company’s personnel operates in the Russian Federation. The Company considers remuneration of labor as part of an integrated material and non-material incentive system for the staff, allowing the Company to maintain a competitive edge, attracting and retaining qualified and motivated employees. The basic principles in the Company’s remuneration policy are: the relationship of the work results and achievement of objectives, fairness and transparency, ensuring wage competitiveness. The remuneration system is focused on the motivation of employees to quality and efficient work and is determined by the importance and complexity of the problems solved by the employee, the results of the structural division and the Company as a whole, individual results of the employee work, level of professional qualification and certification results of the employee. The main income of the personnel is formed by the salary and the benefits package. The salary consists of the tariff (permanent) portion, according to the single tariff scale, and the bonus (variable) portion. The share of the permanent part in the salary is 60 %, while 40 % fall on the variable portion. The social benefits package provides to the employees an appropriate volume of social benefits and guarantees. Income Structure of the PJSC TATNEFT Employees for 2015 Indicator Salary, incl Permanent Portion Variable Portion of Social payments Values 89 % 60 % 40 % 11 % Certification of the personnel is an integral part of the human resource management system, aimed at the implementation of the corporate strategy, and it is made in accordance with the Labor Code and the relevant regulations. The aim of the personnel certification is to identify compliance of the employees’ competence with their qualification requirements and assessment of the possibilities for their further career development. The aspects of the Company’s personnel certification are regulated by the «Standard of Personnel Certification at PJSC TATNEFT”. The standard establishes a uniform procedure for certification of personnel in all divisions of the Company and it is recommended for application in subsidiaries and affiliated companies constituting the TATNEFT Group of Companies. Percentage of employees subject to periodic assessment of performance and career development accounts for about 1/3 of the total number people working at PJSC TATNEFT. TO IMPROVE THE INVOLVIMENT EFFICIENCY OF THE STAFF IN THE ACHIEVEMENT OF STRATEGIC OBJECTIVES AND IMPLEMENTATION OF CURRENT PLANS THERE IS A CORPORATE SOCIAL NETWORK RESOURCE IN EFFECT AT THE COMPANY THAT ALLOWS SHAPING PROJECT TEAMS, PROVIDING FOR RAPID EXCHANGE OF INFORMATION AND ORGANIZING PROFESSIONAL COMMUNITIES. DISTRIBUTION OF STAFF BY COUNTRIES 99.8% EMPLOYEES PAYROLL BUDGET (RUB BLN) AVERAGE MOTHLY SALARY (RUB ‘000) 0.01% 0.19% Russian Federation Turkmenistan Other 11.7 10.5 13.2 15 10 5 0 47.7 42.3 53.3 60 40 20 0 2013 2014 2015 2013 2014 2015 72 73 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Personnel Training and Development The Company is focused on the establishment of an integrated continuous education system aimed at continuous improvement and development of the staff in line with strategic objectives, including training and retraining of workers, professionals, senior and middle level managers. Training of workers is carried out at the corporate personnel training center and its eight branches under the programs of the employees professional training – 273 persons, programs of the workers’ additional training of – 148 persons, further training programs managers and specialists – 73 persons. The professionals training and skills development are carried out in specialized educational institutions of the region and the Russian Federation. The Company’s professionals participate in the Management Staff Training Program for national economy organizations of the Russian Federation («Presidential Program»). Over 150 persons got training in the frame of this program during 1998-2015 period. Creation of the Company’s continuous professional education system was supported by the Government of Tatarstan and in close cooperation with the relevant institutions. In the current period, there are more than 300 students in the areas of training relevant to the Company’s operations areas enrolled in the Kazan (Volga) Federal University, Almetyevsk State Petroleum Institute, the Kazan National Research University of Technology and other educational institutions. Funds from the federal and republican budgets are used every year to organize together with leading universities in the Republic of Tatarstan special contract training of professionals in order to attract young professionals to PJSC TATNEFT. 278 graduates from specialized educational institutions of higher and secondary vocational education were recruited by the structural divisions of PJSC TATNEFT in 2015. Every year the Company establishes scholarships to encourage students who have distinguished themselves in their studies and the scientific work. 111 students used to receive special scholarships of PJSC TATNEFT in 2015. Prospective employees of the TATNEFT Group enterprises every year get training under the «Oil and Gas Business» program. There were several large-scale educational programs implemented in collaboration with the Oil and Gas Business Institute In 2015. 74 professionals took a training course under the international modular program «Oil and Gas Production Shop Manager». The program objective is improving the professional skills and competence of the oil and gas production shops managers and their assistants, project managers, as well as engineers and technicians on the basis of an integrated, multi-disciplinary approach with the involvement of leading domestic and foreign experts from the USA, Norway, Germany, Great Britain, etc. Training sessions were conducted in the Russian and English languages. The trainees defended diploma works in June 2015. The best works were presented and assessed by the Company’s management. 75 Professionals of the Geological Service began training at the Oil and Gas Business Institute under a six-module program «Geo-technologies of oil and gas production». During the reporting period, five training modules were completed in 2015 and the final Module No. 6 will be completed in March 2016. The program «Young Leader of the Oil & Gas Company” as formed for young professionals – winners of the TATNEFT Company’s scientific conference. The organized program included visits to the production facilities of TATNEFT Company (Ashalchinskoe Field, TANECO Refining and Petrochemical Plants Complex, SSC Tire Factory, OOO Tatneft-Neftekhim Management Company) and PJSC LUKOIL (Bayandyskoye field, Yaregskoye field, OPU-5 NSHU «Yareganeft”, «PechorNIPIneft» Institute and others). When visiting MODULAR PROGRAM “OIL AND GAS PRODUCTION SHOP MANAGER” MODULAR PROGRAM «YOUNG LEADERS OF THE OIL & GAS COMPANY” Module 1. Modern oil and gas business and its technological components. Resources and reserves of oil and gas and methods of geological studies. Geology. Analysis of sedimentary basins and petroleum systems. Petrophysics. Geology. Analysis of sedimentary basins and petroleum systems. Petrophysics. Comprehensive analysis of reservoirs. Module 2. Engineering design of oil and gas fields development. Best practices of reservoir hydrodynamic modeling. The oil and gas business development. Module 3. Modern technologies of drilling, exploration and exploitation wells. Integrated approach to well design today. Modern methods of analysis of the well test data. Performance and efficiency of water flooding in the development of oil fields. Module 4. Oil and gas fields infrastructure development and production of hydrocarbons. Development of enhanced oil recovery methods. Analysis of the complex fields development and their operation. Module 5. The valuation of fossils containing subsoil areas. Economic efficiency calculation of exploration and field development projects. Economic appraisal of projects in exploration, drilling and production. Decision making and risk analysis. Value and cost of information. Module 6. Management of complex integrated projects in the oil and gas industry. Integrated research and development of oil and gas fields. Strategy, leadership and changes in the oil and gas Companies. Module 1. «The strategy, leadership and control of changes in oil and gas Companies»: The strategic management systems in oil and gas Company. Creation of the strategic objectives system. The companies’ strategic alliances, examples of the largest alliances in the oil and gas business, technological and financial aspects of strategic alliances. Technology case: «Modern technologies of field development at a later stage. Innovations and high-viscosity oil. Service works organization». Technology Case «Modern technologies of oil refining and petrochemistry. Related businesses development». The global oil and gas industry: leadership, innovations and increase in labor productivity Module 2. «Oil and gas business development»: integrated project management and risk management system. Project management practice on the example of developing the Bovanenkovo gas condensate field. Modern technologies of oil refining and petrochemistry. Related business development. Oil and gas business development (competition for access to finite resources). Technology Case: Process control in the development of high-viscosity oil fields in the Komi Republic.Development of innovations’ system in the Norwegian oil industry. Module 3. «The knowledge economics and the oil and gas business in Norway. Project management, advanced oil and gas technologies»: Government control. The oil and gas industry and the knowledge economics in Norway. Modern approaches to the organization of production and management of large oil and gas projects. Design, construction, maintenance and development of oil fields. Business case «Decision making and risk analysis in the exploration, drilling and production». the production facilities the young professionals shared their experiences and discussed the problem of the high-viscosity oil production, equipment applied for the construction of wells, workover, thermal mining method of oil extraction and its applicability to Ashalchinskoye field, thermal reservoir drainage method and others. Testing of the course participants was arranged at the end of the first two modules. The program included training of the professionals in Norway - Oslo, Stavanger. The educational program participants visited Aker Solutions Company, Norwegian Oil Museum, Norwegian Petroleum Directorate, IOR Norway 2015 Conference on the enhanced oil recovery methods. The participants also discussed topics related to decision- making and risk analysis in the exploration, drilling and production. The final stage of the third training module was defending of the qualification thesis by each the participants in the program. One of the educational projects opened in 2015 was the Company’s professionals training under the program “MBA of mining industries» at the MBA Graduate School of the Kazan (Volga) Federal University. For two years, the professionals will attend the course of 14 training modules in MBA Post-Graduate School of the Kazan University and St. Petersburg International Institute of Management and at one of the mining industries’ enterprises. The Institute of Petroleum Technologies of the Kazan Federal University together with the Center for Continuing Education, Management, Quality and Marketing have arranged training under the professional skills improvement program of «Metrological measurement assurance of oil and oil product amounts at the oil producing companies. Reliable accounting organization». ALL IN ALL, THERE WERE 18,713 COMPANY’S EMPLOYEES, WHO RECEIVED TRAINING AND ATTENDED PROFESSIONAL DEVELOPMENT PROGRAMS DURING THE PAST YEAR, INCLUDING: • • • WORKERS – 10,825, MANAGERS – 4,364 PROFESSIONALS AND EMPLOYEES – 3,524. THE COMPANY ALLOCATED ABOUT RUB 160 MILLION FOR TRAINING AND RETRAINING OF WORKERS, PTOFESSIONALS AND MANAGERS 74 75 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CONTROL BODIES Audit Commission Internal Audit Internal Control Independent Auditor The Audit Commission is a standing elected body of the Joint Stock Company, exercising control over financial and economic activities of the Company. The In-house audit is carried out in the framework of the annual plan approved by the Board of Directors. The Commission shall be elected by the General Meeting of Shareholders and is accountable to it. Members of the Audit Commission can not simultaneously be members of the Joint Stock Company’s Board of Directors, or hold other positions in the Joint Stock Company’s management bodies. The competence of the Audit Commission provides for carrying out in-house auditing of the financial and economic activity of the Joint Stock Company for the year, as well as the one based on the decision of the General Shareholders’ Meeting, the Joint Stock Company’s Board of Directors, on its own initiative or at the request of a shareholder (shareholders) of the Joint Stock Company, holding in the aggregate at least 10 percent of the Joint Stock Company’s voting shares. The Audit Commission shall present its opinion on the results of the annual audit in accordance with the rules and procedures of conducting financial reporting and accounting to the Board of Directors not later than forty days prior to the annual meeting. The General Meeting of PJSC TATNEFT’s shareholders elected the Audit Commission in the following composition for the corporate reporting year: Audit Commission Chairwoman Ranilya R. Gizatova Members of the Audit Commission Yusupov Saria Kashibulhakovna Ksenia G.Borzunova Oleg M. Matveev Venera G. Kuzmina Nikolay K. Lapin Liliya R. Rahimzyanova Nazilya R. Farkhutdinova Tatiana V. Tsyganova The audit considers the in-house control system over the operating process efficiency, compliance with the law and the property safe-keeping and integrity. The audit is carried out on the basis of the risk-oriented approach. Report on the results of the internal audit is sent to the Company’s management bodies and to the Audit Committee. Subsequently, the Internal Audit Department monitors the implementation of measures and steps and informs the Company’s management and the Audit Committee during the rectification of identified deficiencies. There were 11 audits conducted in 2015. In addition, the Department participated in 30 unplanned projects on various aspects of financial - economic activity following the instructions of Company’s management. 2015 witnessed monitoring the implementation of action plans on the basis of 2009-2015 audits. The information on all cases of non-fulfillment of the action plans was initially submitted to relevant departments management, and then – to the General Director. Internal audit procedures are an integral part of the corporate management system and they include targeted actions of the Board of Directors and the Company’s management bodies, aimed at improving the risk management process and increasing the likelihood of achieving preset goals. There were amendments introduced in the Provision on the Internal Audit Department of PJSC TATNEFT in the corporate reporting year to improve the corporate management practices. A new version of the Provision was approved by the Board of Directors in March 2016. The Internal Control Service is involved in audits of structural divisions and subsidiaries of the TATNEFT Group of Companies. The corporate control function provides for methodological support of the administrative staff, structural divisions of the TATNEFT Group of Companies in terms of compliance with tax laws and accounting regulations. This feature contributes to ensuring compliance with legislative standards and reduction of the tax and financial risks in the Company. In 2015, there were planned routine monitoring operations carried out to assess compliance with the legislation on oil accounting, as part of the internal corporate controls, as well as on the organization of separate accounting of oil for MET differentiation purposes in the oil and gas producing divisions of the Joint Stock Company. The legal and tax documents expertize was carried out on a continuous basis. The Joint Stock Company every year invites an external auditor for the purpose of an independent assessment of the reliability of the accounting (financial) statements of the Joint Stock Company’s reports prepared in accordance with IFRS and RAS. The candidates for the position of the Joint Stock Company’s external auditors are preliminarily considered by the Audit Committee of the PJSC TATNEFT’s Board of Directors, which recommendations are the basis for further approval of the external auditor in accordance with the applicable legislation. The decision of the General Shareholders’ Meeting approved ZAO «PricewaterhouseCoopers Audit» as the Joint Stock Company’ external auditor of the RAS financial statements for the 2015. ZAO «PricewaterhouseCoopers Audit» was also approved by the Board of Directors decision, as the auditor of the consolidated Joint Stock Company’s statements under IFRS for 2015. There is a «Hotline» in operation at the Company, which is an available information channel for communication with the Company’s management, which enables to respond quickly to the information received and take necessary corrective actions. The system is configured in such a way that none of the requests will be left without attention. The scope of persons entitled to apply through the «hot line» is not limited. Minority shareholders have the opportunity to appeal to the management, members of the Board of Directors and the Audit Commission. Using the «hot line», the shareholders have the opportunity to inform the General Director and members of the Board of Directors of the existing background for conflicts or other issues arising, which consideration can contribute to better management. The Company relies on applications of its own employees, employees of subsidiaries and contractors, consumers of products and services, residents of the Company’s operations regions. If requested, the applicant does not have to give the name and contact details. There are no restrictions on the applications’ subjects, but the main purpose of the «hot line» is to collect information about problems, abuses and deficiencies, make adjustments and improve performance. The «hot line» applications acceptance is made in two ways: a free Federal phone number 8-800-100-4-112. From 8.00 to a.m. to 10.00 p.m.: conversation with the operator and the answering machine is working during the rest of the day; and Email tn@88001004112.ru, on which you can send not only text messages, but also attach files with additional materials, photographs, and so on. Messages receiving and processing functions have been transferred to an independent operator. After a preliminary evaluation of the information received it is distributed to the heads of «specialized» areas corresponding to the application category. Further on the information is checked, resulting in making a decision. The information about the messages received and the actions taken shall be brought up to the Company’s General Director. 76 77 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY INTEGRATED RISK MANAGEMENT SYSTEM THE COMPANY CONSIDERS ALL RISK FACTORS, WHICH AFFECT THE COMPANY’S PRODUCTION AND BUSINESS ACTIVITIES AND TAKES ALL POSSIBLE STEPS TO REDUCE THE IMPACT OF RISKS ON THE COMPANY’S OPERATIONS BASED ON THE INTEGRATED RISK MANAGEMENT SYSTEM. The operation and the Company’s operation financial results depend on many factors, including changing oil prices, market conditions, macroeconomic and domestic economic policy of the State, primarily the tax volatility of the national currency and the dollar rate, inflation, technology development, environmental aspects, labor market dynamics and other factors. Decisions of the Company’s control bodies associated with the strategy and the current industrial and economic activities of Company are prepared taking into account all available information relating to the possible development scenarios and all reasonably foreseeable options of changes and the assumptions used in this planning. Given the presence of the formed over many years high-tech base of crude oil production and processing, the Company has a stable platform for the Company’s development and it can adjust the plans, as required. At the same time, since the implementation of major investment projects in the Company usually takes several years, any significant adverse prerequisite assumptions inherent in making decisions on the implementation of a project may have a negative impact on the operations and profitability results of the Company. In the process of planning and reaching goals set monitoring of real and potential external and internal risks is carried out and the measures are taken to prevent them. In the event of any risk detection at the Company there are mechanisms to minimize them and to minimize their negative effects. The corporate risk management system includes procedures for internal analysis and the risks identification control at all stages of investment projects and operational processes. All risk categories are described in the TATNEFT Company’s quarterly reports. Measures taken by the Company to register and manage the risks are described in the internal documents of the Company. The Company is implementing a comprehensive program of measures to overcome adverse situations related to industry risks, including continuous monitoring, analysis and forecasting the dynamics of oil and other Company’s products prices with appropriate adjustment of the Company’s business plans and its strategic development. There are technical and organizational measures worked out and implemented at the Company, which minimize the impact of technical and environmental risks. The financial position of the Company and the possibility to adapt to different market situations allow for the Company’s prompt responding to market changes and making adjustments to the Company’s plans. Responsible services of the Company carry out constant monitoring and analysis of financial markets, allowing to assess the Company’s ability of attracting the necessary financing on acceptable terms, which is taken into account in the formation of the investment program. The Company has shaped a comprehensive program of measures to overcome adverse situations related to industry risks, including continuous monitoring, analysis and forecasting the dynamics of oil and other Company’s products prices with appropriate adjustment of the Company’s business plans and its strategic development. There are technical and organizational measures worked out and implemented at the Company, which minimize the impact of technical and environmental risks. Corporate Integrated System of Risks Management TATNEFT Group Management Ensuring Business Process Efficiency Business Process Quality Control Corporate Risks Control Key Elements of Risk Management The mechanism of quality assessment of all possible factors, which can significantly affect the performance of production and financial activities of the Group and have a direct or in indirect impact on the current operations and strategic plans of the Company The system of uniform corporate standards, regulating basic processes of industrial, financial and economic activities of TATNEFT Company, its structural divisions and entities of the Group Identification of Risks Ensuring the regulations of the production financial and business process activities Avoidance or Minimization of Risks Prevention of risks in the framework of regulations Monitoring of Risk Management quality control of corporate standards performance identification of emerging risks in the course of business processes and implementation of new projects assessment of personal responsibility of officials The analysis of risk factors considers all aspects of the market, industry, socio - economic, political, financial, market competition and other conditions of the Company, its subsidiaries and affiliates operation. At the same time taken into account are all intra-corporate factors: management, production, HR, social, environmental. Currently such procedures are provided for basic production and corporate blocks. Risks Control Production Activity Corporate Management 78 79 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY INDUSTRY RISKS Risk of Oil and Refined Products Prices Environmental Risks Revenues, profitability and the Company’s growth are largely dependent on the price of oil and oil products. The world oil prices have historically been subject to significant changes over a wide range under the influence of a variety of factors, which include: petroleum products; • international and regional supply and demand (reflecting, inter alia, expectations of future supply and demand) for oil and • global and regional economic situation; • macroeconomic policies; • weather conditions; • domestic and foreign government regulation; • prices and availability of alternative fuels; • price and availability of new technologies; • ability and willingness of members of the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing • political and economic events in oil-producing regions, in particular, in the Middle East and North Africa; • regulations and actions of the governments of Russia and other countries and international organizations, including countries to establish and maintain certain levels of production and prices; export restrictions, taxes and penalties. World oil prices continued their decline during 2015, reaching minimum values by the end of the year (in dollar terms) over the past 10 years. There was also devaluation of the ruble against the US dollar. The main costs incurred by the Company, related to production activities and capital expenditures are denominated in rubles. The Company’s financial position and the ability to adapt to different market situations allow for the Company’s prompt response to changes in the market and making corrections in the Company’s plans. Technical Risks Exploration, development and equipping of new oil fields, maintenance of the existing wells in operating condition, drilling of new wells, as well as transportation of oil and oil products are by nature very complicated and capital-intensive processes. Enhanced oil recovery requires additional investments, while the role of these methods increases with the deposits depletion. Accordingly, the cost of the deposits development basic infrastructure is increasing. The Company’s capabilities to maintain and increase oil production at the licensed areas are dependent on the access to the oil recovery and enhanced oil recovery technologies, as well as success in their application. The oil and gas sector is subject to a high degree of environmental risks. Despite the extensive environmental protection measures the Company, given the specificity of the activities, there is a risk of penalties for violation of environmental regulations. In addition, there exists possibility of revision of the international, federal and regional environmental regulations in terms of their further tightening. The Company implements a wide range of environmental measures aimed at minimizing the impact of industrial activity on the environment, and it is one of the recognized leaders in Russia in this area. The Company constantly monitors developments in the area of environmental control and adheres to the best practices in this area, regardless of the legal requirements. Risks Associated with Products Quality The opinion about the Company among the consumers of the Company‘s products, sold through the retail network, is based on assessing the quality of products and services sold, which impacts the sales’ volumes and profitability of this segment. The Company continuously monitors the quality of oil and gas products sold through a network of filling stations, expanding the range of services offered to clients at the filling stations and taking other steps to improve the quality of service. In addition, the Company continuously informs its customers and the Company’s counterparties on its activities through publication of materials and press releases on the Internet, dissemination through the mass media, as well as through mobile applications. There are free telephone lines in operation for the purpose of receiving feedback and complaints on the quality of products and services rendered to customers operating network stations. The Company has adopted and applies procedures for the prompt response to the complaints and claims of the customers with the aim of eliminating their causes. In addition to the regular information disclosure (mandatory and voluntary), the Company provides all the necessary information on the Company’s financial position and stability, if requested by the customers and counterparties, taking into account the legislation requirements. Due to the fact that the core products sold by the Company (crude oil, oil and gas products) are homogeneous and are produced in strict compliance with the requirements and standards in effect, and the Company is one of the largest Russian oil companies with more than 65-year history, the concept of fiscal sustainability or financial position of the Company among the main counterparties (buyers) of the Company’s products has no significant impact on their taking a decision on cooperation with the Company. 80 81 Description of financial risks is presented in the «Financial Results» Section of the annual report. All risk categories are disclosed in the TATNEFT Company’s quarterly reports. PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY INFORMATION DISCLOSURE The Company complies with all applicable legal requirements in relation to information disclosure by public companies. Following the principle of maximum transparency of the business, we provide for regular, efficient, affordable, reliable and meaningful disclosure. An important channel of information disclosure is the Company’s official website. Presented on the website pages there are data for all major activity areas, the sustainable Company’s development, as well as the information for shareholders and investors, press releases and news, annual reports. An important source of information disclosure are quarterly reports and Annual Reports, which the Company annually issues in preparation for the Annual General Meeting of Shareholders. Information subject to mandatory disclosure under the Russian standards (in the form of essential fact messages or information on the data, which could have a significant impact on the value of the Company’s securities). Ser. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Message Content Notice of the date of compiling the list of the Issuer’s of registered securities or documentary Issuer's securities holders subject to mandatory centralized custody for the purposes of implementation (realization) of rights vested by such equity securities Message on the procedure of access to information contained in a quarterly report. Message about disclosure of the Company’s affiliated entities list on the Internet page. Notice of holding the meeting of the Board of Directors (Supervisory Board) and its agenda. On convening and holding the general meeting of members (shareholders) of the Issuer, as well as about the decisions taken by the general meeting of members (shareholders) of the Issuer. Messages about accrued and/or paid income on the Issuer's securities. Message of the Issuer’s default to the holders of the securities issued Disclosure of Annual (interim) accounting (financial) statements of the Company. Message on certain decisions adopted by the Board of Directors (Supervisory Board) of the Joint Stock Company Report on the decisions taken by the General Meeting of members (shareholders) of the Issuer. Report on the procedure of access to information contained in the Annual Report 2014. Date of disclosure 27.02.2015 13.02.2015, 15.05.2015, 13.08.2015, 16.11.2015 12.01.2015, 01.04.2015, 01.07.2015, 01.10.2015 Monthly 27.02.2015 29.07.2015,19.08.2015 19.08.2015 30.03.2015 Annual Statements, 28.04.2015, 29.07.2015, 29.10.2015 28.01.2015, 27.02.2015, 27.03.2015, 27.04.2015, 26.06.2015, 26.06.2015, 21.10.2015, 29.12.2015 30.06.2015 01.07.2015 12. Message about rating assignment to equity securities and (or) to the Issuer or about a change of the rating 23.01.2015, 23.01.2015 agency on the basis of the agreement concluded with the Issuer 13. 14. 15. 16. Message on data of recognizing the release of the Issuer’s securities as failed or invalid. 17.02.2015 (9 messages) Message on the person’s acquisition of the right to have control over a certain number of votes assigned to the voting shares (stakes) that constitute the authorized capital of the Issuer. 22.05.2015 Notice of the date of defining the persons entitled to exercise rights under the registered equity securities. 30.06.2015 Message on accrued income on equity securities. 30.06.2015 According to international standards (in the form of press releases and publication of reports in accordance with the rules of the London Stock Exchange) Publication of the annual consolidated financial statements under IFRS for 2014 Publication of the consolidated interim condensed financial statements under IFRS for the 1st quarter of 2015 (unaudited). Publication of the consolidated interim condensed financial statements under IFRS for the six months of 2015 (unaudited). 02.04.2015 15.06.2015 27.08.2015 Publication of the consolidated interim condensed financial statements under IFRS for the first nine months of 2015 (unaudited). 27.11.2015 17. 18. 19. 20. 82 Information on Major Transactions Executed by the Company in the Year Reported PJSC TATNEFT PJSC TATNEFT did not make any major transactions in 2015 Information on the Related Party Transactions made by the Company in the year Reported Transaction Execution Date Transaction Approval Date Company’s Body approving the transaction Information about the person(s) interested in the transaction, subject of the transaction and its essential terms 1 2 3 4 02.03.2015 27.02.2015. JSC TATNEFT’s Board of Directors Type and subject of the transaction: Supplementary Agreement to Contract No. 430/13.02-06/13 dated October 23, 2013 The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: Increasing the amount of Sale and Purchase Contract of inventory items including spare tools and accessories (spare parts) to the equipment for the facilities of the Refinery and Petrochemical Plants Complex in Nizhnekamsk. Party to the transaction: JSC TANECO Amount дополнительного соглашения: RUR 300 000 000.00 (three hundred million). The monetary valuation of the property under the transaction amounts to RUR 300 000 000 accounting for 0.052% of the Company’s assets book value as of September 30, 2014. 13.05.2015 28.01.2015 JSC TATNEFT’s Board of Directors Type and subject of the transaction: Supplementary Agreement No. 2 to Guarantee Contract No. 85130007/1 dated September 30, 2013. 05.08.2014 27.02.2015 JSC TATNEFT’s Board of Directors The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: Provision of guarantee between JSC TATNEFT n.a. V.D. Shashin and OJSC «Sberbank of Russia» to ensure the fulfillment of obligations of JSC TANECO under the Agreement on granting of bank guarantees with the limit of RUR 10 000 000 000 (ten billion) concluded between JSC TANECO and OJSC «Sberbank of Russia» in the person of «Bank of Tatarstan” branch No. 8610. Date of obligations performance under the transaction, parties and beneficiaries under the transaction, the transaction amount in money terms and in percentage of the issuer’s assets: Beneficiary: JSC TANECO Bank: OJSC «Sberbank of Russia». Signing date: May 13, 2015/ Validity period: three years from the date of the contract conclusion. Amount: RUR 11 250 000 000.00 (eleven billion two hundred fifty million): the aggregate liability limit of JSC TATNEFT for the provision of guarantees.The monetary valuation of the property under the transaction amounts to RUR 11 250 000 000.00 accounting for 1.97% of the Company’s assets book value as of September 30, 2014. Type and subject of the transaction: Agreement on lodging the guarantee facility for the debt ceiling No. 0802/5/2014/1175. The agreement on the lodging of the guarantee line for the debt ceiling (hereinafter referred to as the Agreement) between JSC TATNEFT n.a. V.D. Shashin (hereinafter referred to as the Principal) and OJSC «AK BARS» Bank (hereinafter referred to as the Guarantor). The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: The Agreement on lodging the guarantee line for the debt ceiling (hereinafter referred to as the Agreement) between JSC TATNEFT n.a. V.D. Shashin (hereinafter referred to as the Principal) and OJSC «AK BARS» Bank (hereinafter referred to as the Guarantor). • the maximum limit, which may be provided by the bank guarantee at the same time (hereinafter referred to as “guarantee line”, «debt ceiling”): RUR 1.6 billion (One billion six hundred million); 83 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY 1 2 3 4 1 2 3 4 • validity of each bank guarantee: according to the Tax Code of the Russian Federation, • Agreement shall enter into force upon its signing and shall remain valid until August 4, but not more than fifteen (15 ) months; 2017, inclusive. Date of obligations performance under the transaction, parties and beneficiaries under the transaction, the transaction amount in money terms and in percentage of the issuer’s assets: Principal: JSC TATNEFT n.a. V.D. Shashin Bank: JSC «AK BARS» Bank. Signing date: August 05, 2014 Contract validity period: August 04, 2017 Transaction amount: RUR 1 624 000.00 (one billion, six hundred twenty-four million). The monetary valuation of the property under the transaction amounts to RUR 1 624 000.00 (one billion, six hundred twenty-four million) accounting for 0.28% of the Company’s assets book value as of September 30, 2014 26.06.2015 26.06.2015 JSC TATNEFT’s Board of Directors Type and subject of the transaction: Supplementary Agreement No. 1 to Guarantee Contract No. 01/47/TNHS-TN/PR-R. The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: • Supplementary Agreement to Guarantee Contract No. 01/47/TNHS-TN/PR-R with PJSC ZENIT Bank (hereinafter referred to as the «Issuing Bank») on the following material terms and conditions specified in the attached Agreement: • the Guarantor shall undertake to the Issuing Bank to be jointly liable with OOO «Tatneft- Neftekhimsnab” (hereinafter referred to as the Client) for the full implementation of the last of its obligations under Contract No.01/47/TNHS-R on the terms of lodging letters of credit (hereinafter referred to as the Contract) between the Issuing Bank and the Client on the following conditions: • the Issuing Bank shall open irrevocable uncovered documentary letters of credit (hereinafter referred to as Letter of Credit/Letters of Credit) in favor of foreign suppliers (hereinafter referred to as Beneficiary/Beneficiaries) honored by the Issuing Bank (hereinafter referred to as the Paying Bank) by the payment/deferred (for the period specified in the Letter of Credit terms) payment against presentation of documents corresponding to the letter of credit terms, and carries out the letter of credit maintenance operations. In this case the letter of credit is advised by the bank specified in the Client’s credit application (hereinafter referred to as the advising bank); • Contract validity period: till October 02, 2015. The obligations under the Contract during the period of its validity, shall be executable irrespective the expiry of the Contract; • Total liabilities shall not exceed USD 14 000 000.00 (fourteen million and 00/100) US • the validity of each Letters of Credit opened under this Contract (the period within which the documents specified in the Letter of Credit shall be submitted to the Paying Bank) shall not exceed 180 (one hundred eighty) calendar days from the date of opening of each of the Letters of Credit; • the grace period shall not be more than 180 (one hundred eighty) calendar days from the • the Client shall be obliged to pay a fee for the use of the Letter of Credit to the Issuing Bank (herein and hereinafter a «Letter of Credit» shall mean each of the letters of credit opened in accordance with the transaction concluded in the framework of the Contract) in the amount of 2% (two per cent) per annum on the Letter of Credit amount less the amount paid by the Issuing Bank in favor of the Beneficiary; • payment of the compensation amount shall be made by the Client on a monthly basis on the last business day of each calendar month for the previous billing period. The commission for the first accrual period shall be paid not later than the opening date of the letter of credit; date of the letter of credit documents; • in case of non-performance or improper performance of the above obligations by the Client, the latter shall pay a penalty to the Issuing Bank at the rate of 0.1% (zero point one percent) of the amount of unsettled obligations for each day of delay. dollars; • Guarantee Contract validity period: till October 31, 2015; • The maximum Guarantor’s amount of liability under the Guarantee Contract shall not exceed USD 14 000 000.00 (fourteen million and 00/100) US dollars. Date of obligations performance under the transaction, parties and beneficiaries under the transaction, the transaction amount in money terms and in percentage of the issuer’s assets: Beneficiaries: OOO «Tatneft - Neftekhimsnab «. Bank: OJSC “ZENIT Bank”. Signing date: June 26, 2015 Contract validity: October 31, 2015 Transaction amount: USD 14 000 000.00 (fourteen million and 00/100) US dollars. The monetary valuation of the property under the transaction: USD 14 000 000.00 (fourteen million and 00/100) US dollars accounting for 0.13% of the Company’s assets book value as of March 31, 2015. 26.06.2015 26.06.2015 JSC TATNEFT’s Board of Directors Type and subject of the transaction: Supplementary Agreement No. 1 to Guarantee Contract No. 02/47/TNHS-TN/PR-R. The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: • the Guarantor shall undertake to the Issuing Bank to be jointly liable with OOO «Tatneft- Neftekhimsnab” (hereinafter referred to as the Client) for the full implementation of the last of its obligations under Contract No.01/47/TNHS-R on the terms of lodging letters of credit (hereinafter referred to as the Contract) between the Issuing Bank and the Client on the following conditions: • the Issuing Bank shall open irrevocable uncovered documentary letters of credit (hereinafter referred to as Letter of Credit/Letters of Credit) in favor of foreign suppliers (hereinafter referred to as - Beneficiary/Beneficiaries) honored by the Issuing Bank (hereinafter referred to as the Paying Bank) by the payment/deferred (for the period specified in the Letter of Credit terms) payment against presentation of documents corresponding to the letter of credit terms, and carries out the letter of credit maintenance operations. In this case the letter of credit is advised by the bank specified in the Client’s credit application (hereinafter referred to as the advising bank); • Contract validity period: till October 02, 2015. The obligations under the Contract during the period of its validity, shall be executable irrespective the expiry of the Contract; • Total liabilities shall not exceed USD 9 600 000.00 (nine million six hundred thousand • the validity of each Letters of Credit opened under this Contract (the period within which the documents specified in the Letter of Credit shall be submitted to the Paying Bank) shall not exceed 180 (one hundred eighty) calendar days from the date of opening of each of the Letters of Credit; • the grace period shall not be more than 180 (one hundred eighty) calendar days from • the Client shall be obliged to pay a fee for the use of the Letter of Credit to the Issuing Bank (herein and hereinafter a «Letter of Credit» shall mean each of the letters of credit opened in accordance with the transaction concluded in the framework of the Contract) in the amount of 2% (two per cent) per annum on the amount of the Letter of Credit less the amount paid of payments by the Issuing Bank in favor of the Beneficiary; the date of the letter of credit documents; and 00/100); • payment of compensation shall be made by the Client on a monthly basis on the last business day of each calendar month for the previous billing period. The commission for the first accrual period shall be paid not later than the opening date of the letter of credit; • in case of non-performance or improper performance of the above obligations by the Client, the latter shall pay a penalty to the Issuing Bank at the rate of 0.1% (zero point one percent) of the amount of unsettled obligations for each day of delay. • Guarantee Contract validity period: till October 31, 2015; • The maximum Guarantor’s amount of liability under the Guarantee Contract shall not exceed USD 9 600 000.00 (nine million six hundred thousand and 00/100). 84 85 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY 1 2 3 4 1 2 3 4 Date of obligations performance under the transaction, parties and beneficiaries under the transaction, the transaction amount in money terms and in percentage of the issuer’s assets: Beneficiaries: OOO «Tatneft - Neftekhimsnab «. Bank: OJSC “ZENIT Bank”. Signing date: June 26, 2015 Contract validity: October 31, 2015 Transaction amount: USD 9 600 000.00 (nine million six hundred thousand and 00/100). The monetary valuation of the property under the transaction: USD 9 600 000.00 (nine million six hundred thousand and 00/100) accounting for 0.09% of the Company’s assets book value as of March 31, 2015. 23.10.2015 26.06.2015 JSC TATNEFT’s Board of Directors Type and subject of the transaction: Guarantee Contract No. 03/47/TNHS-TN/PR-R. The transaction content including civil rights and responsibilities, which establishment, modification or termination the transaction pursues: • the Guarantor shall undertake to the Issuing Bank to be jointly liable with OOO «Tatneft- Neftekhimsnab” (hereinafter referred to as the Client) for the full implementation of the last of its obligations under Contract No.01/47/TNHS-R on the terms of lodging letters of credit (hereinafter referred to as the Contract) between the Issuing Bank and the Client on the following conditions: • the Issuing Bank shall open irrevocable uncovered documentary letters of credit (hereinafter referred to as Letter of Credit/Letters of Credit) in favor of foreign suppliers (hereinafter referred to as - Beneficiary/Beneficiaries) honored by the Issuing Bank (hereinafter referred to as the Paying Bank) by the payment/deferred (for the period specified in the Letter of Credit terms) payment against presentation of documents corresponding to the letter of credit terms, and carries out the letter of credit maintenance operations. In this case the letter of credit is advised by the bank specified in the Client’s credit application (hereinafter referred to as the advising bank); • Contract validity period: till July 1, 2018. The obligations under the Contract during the period of its validity, shall be executable irrespective the expiry of the Contract; • Total liabilities shall not exceed USD 30 000 000.00 (thirty million and 00/100); • the validity of each Letters of Credit opened under this Contract (the period within which the documents specified in the Letter of Credit shall be submitted to the Paying Bank) shall not exceed 180 (one hundred eighty) calendar days from the date of opening of each of the Letters of Credit; • the grace period shall not be more than 180 (one hundred eighty) calendar days from • the Client shall be obliged to pay a fee for the use of the Letter of Credit to the Issuing Bank (herein and hereinafter a «Letter of Credit» shall mean each of the letters of credit opened in accordance with the transaction concluded in the framework of the Contract) in the amount of 1,75% (one point seventy five per cent) per annum on the amount of the Letter of Credit less the amount paid of payments by the Issuing Bank in favor of the Beneficiary; the date of the letter of credit documents; • payment of compensation shall be made by the Client on a monthly basis on the last business day of each calendar month for the previous billing period. The commission for the first accrual period shall be paid not later than the opening date of the letter of credit; • in case of non-performance or improper performance of the above obligations by the Client, the latter shall pay a penalty to the Issuing Bank at the rate of 0.1% (zero point one percent) of the amount of unsettled obligations for each day of delay. • Guarantee Contract validity period: till December 31, 2018; • The maximum Guarantor’s amount of liability under the Guarantee Contract shall not exceed USD USD 30 000 000.00 (thirty million and 00/100). 26.10.2015 21.10.2015 PJSC TATNEFT’s Board of Directors 26.10.2015 21.10.2015 PJSC TATNEFT’s Board of Directors Date of obligations performance under the transaction, parties and beneficiaries under the transaction, the transaction amount in money terms and in percentage of the issuer’s assets: Beneficiaries: OOO «Tatneft - Neftekhimsnab «. Bank: OJSC “ZENIT Bank”. Signing date: June 23, 2015 Contract validity: December 31, 2015 Transaction amount: USD 9 600 000.00 (nine million six hundred thousand and 00/100). The monetary valuation of the property under the transaction: USD 30 000 000.00 (thirty million and 00/100). The monetary valuation of the property under accounting for 0.09% of the Company’s assets book value as of March 31, 2015. Type and subject of the transaction: Supplementary Agreement No. 3 to Subordinated Loan Agreement No. 0002/30/681/12-004/2008. Content of the transaction, including civil rights and responsibilities for the establishment, modification or termination of which the transaction pursues: • Deposit term: without a maturity date; • Deposit amount: RUR 3 600 000 000.00 (three billion six hundred million and 00/100); • The Bank shall pay to the depositor interest in the amount of 15.00 (fifteen) percent per • Other conditions: in accordance with requirements of the Central Bank of the Russian Federation’s Provision «On the method of determining the value of own funds (capital) of credit institutions (« Basel III“)” No. 395-P, which entered into force on 01.01.2014. annum of the deposit amount. Party to the transaction: PJSC TATNEFT. Bank: JSC «Bank ZENIT». Signing date: October 26, 2015. Supplementary Agreement amount: RUR 1 500 000 000.00 (one billion five hundred million and 00/100). Monetary valuation of the property under the transaction: RUR 1 500 000 000.00 (one billion five hundred million and 00/100) accounting for 0.24% of the Company’s assets book value as of the last reporting date of June 30, 2015; Type and subject of the transaction: Supplementary Agreement No. 2 to Subordinated Loan Agreement No. 12-001/2013. Content of the transaction, including civil rights and responsibilities for the establishment, modification or termination of which the transaction pursues: • Deposit term: without a maturity date; • Deposit amount: RUR 3 600 000 000.00 (three billion six hundred million and 00/100); • The bank shall pay to the depositor interest in the amount of 15.00 (fifteen) percent per • Other conditions: in accordance with requirements of the Central Bank of the Russian Federation’s Provision «On the method of determining the value of own funds (capital) of credit institutions (« Basel III“)” No. 395-P, which entered into force on 01.01.2014. annum of the deposit amount. Party to the transaction: PJSC TATNEFT. Bank: JSC «Bank ZENIT». Signing date: October 26, 2015. Supplementary Agreement amount: RUR 3 600 000 000.00 (three billion six hundred million and 00/100). Monetary valuation of the property under the transaction: RUR 3 600 000 000.00 (three billion six hundred million and 00/100) accounting for 0.58% of the Company’s assets book value as of the last reporting date of June 30, 2015. As part of the voluntary information disclosure, the Company published detailed information on the ongoing production, corporate and social activities of PJSC TATNEFT and the Group of Companies in 2015 on a systematic and regular basis. The information was provided in the format of publications in corporate, industry and public republican and Russian mass media. 86 87 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY AWARDS AND NOMINATIONS PUBLIC ASSESSMENT OF THE COMPANY’S OPERATIONS IN 2015 International and All-Russian Awards/Nominations 1 Contest/Rating 2 Organizers 3 Republican Awards/Nominations 1 International Exhibition "Energy. Resource Efficiency" Government of the Republic of Tatarstan Nail U. MAGANOV, General Director of PJSC TATNEFT, was awarded the title «Honored chemist of the Republic of Tatarstan”. Winner Diploma in the nomination “New Products”: liquid strainer for protection of brazed plate heat exchangers with improved performance; Winner Diploma in the nomination «Energy Efficient Products»: submersible electric motor with a high power factor; Winner Diploma in the nomination «Best news service E-»Oil Newspaper» for coverage of energy and resource saving issues. Winner Diploma Nail U. MAGANOV, General Director of PJSC TATNEFT was awarded a commemorative medal «XXVIIth World Summer Universidade 2013 in Kazan" Rustam Kh. KHALIMOV, Head of NGDU "Elkhovneft", was awarded the "Honorary Oilman" title. Vyacheslav M. CHICHKOV, Director of OOO “Tatneft-AZS Center, was awarded the "Honorary Oilman" title. Alexander N. EVSEYEV, Chief Power Engineer - Energy Department Head of PJSC TATNEFT was awarded the honorary title of "Honored Power Engineer of Russia". Nationwide campaign "Patron of the Year " Ministry of Culture of the Russian Federation & the Council under the President of the Russian Federation on Culture and Art Ministry of Energy of the Russian Federation Ministry of Energy of the Russian Federation Ministry of Energy of the Russian Federation Ministry of Energy of the Russian Federation Bugulma Mechanical Plant was awarded a diploma and a gold medal in the nomination “Energy and Resource Saving Technologies". International Specialized Exhibition "Gas. Oil. New Technologies to the Far North" Ministry of Energy of the Russian Federation 9 experts of the Company awarded titles of the contest winners in the nomination “Professional Engineers” (based on the IInd round results) XV All-Russian contest «Engineer of the Year 2014» 5 Company’s professionals were awarded the title «Professional Engineer of Russia» (according to the I round results); 2 professionals of the Company were awarded the contest winners title the in the nomination “Engineering Art of the Young». The Electronic Oil Newspaper and the «Oil and the Life were named among “TOP” 10 best corporate newspapers and magazines. All-Russian Union of Scientific and Engineering Public Organizations, International Union of Scientific and Engineering Associations, Academy of Engineering Sciences n. a. A.M. Prokhorov, Interregional Public Fund to promote scientific and technical progress Independent rating of the industrial companies’ corporate publications. Business on Portal «Production Management». Contest/Rating 2 Organizers 3 Republican contest «Manager of the year tin he Republic of Tatarstan” Government of the Republic of Tatarstan, Ministry of Economy of the Republic of Tatarstan The following persons were the winners: Leonid S. ALYOKHIN, General Director of JSC TANECO in the nomination “For the environmental safety of production»; Malik S. KAYUMOV, Head NGDU “Jalilneft» in the nomination “For the formation of safe and healthy working conditions»; Renat A. NUGAYBEKOV, Director of OOO “TMS Group” Management Company in the nomination “For the implementation of the «Lean Production» methodology: Rinat G. KARISOV, General Director of OOO “TNG-Group” in the nomination “For active investment activity». TATNEFT Company was recognized as «The best enterprise on invention and rationalization in the Republic of Tatarstan» receiving a large cup and a diploma of the National Society of Inventors and Innovators. 9 professionals of the Company were awarded the first prize for a number of engineering inventions: «Method of welding large size metal shells”, “Method of manufacturing an eccentric pipe adaptor», « Method of bending a metal pipe»; “Best Invention of Tatarstan" Contest. 12 professionals of the Company were awarded the second prize for the invention «Method of isolation and management of reserves development drained by a horizontal well and a device for the process implementation»; 8 professionals of the Company were awarded the third prize for a group of inventions: «Method for identification of oil-saturated formations», «Method of the oil deposit development» and «Method of the oil deposits development with application of thermal flooding». OOO “Tatspetstransport” Division: Contest Winner; NOU «CPC - Tatneft» Contest Diploma Winner “Quality in 2014” Contest Regular 92 gasoline (AI-92-K5) produced at the Elkhovskaya refining plant of NGDU “Elkhovneft" ranked among the best products. Independent laboratory tests. OOO "Nizhnekamsk Truck Tire Factory": Contest Diploma Winner OOO “Elkhovtransservis»: review contest winner OOO “Tatneft- TransServis Aznakaevo”: runner-up in the nomination “Best organization in the area of occupational safety and health among enterprises of utility vehicles» Independent laboratory tests. Review contest for the best organization in the field of occupational safety and health among national enterprises of the transport complex. Academy of Sciences of the Republic of Tatarstan, Ministry of Education of the Republic of Tatarstan and the Society of Inventors and Innovators of the Republic of Tatarstan. Government of the Republic of Tatarstan Kazan Institute of Organic and Physical Chemistry n.a. A.E. Arbuzov Kazan Institute of Organic and Physical Chemistry n.a. A.E. Arbuzov Ministry of Transport and Roads of the Republic of Tatarstan. PJSC TATNEFT: Nominee of the contest The team of PJSC TATNEFT n.a. V.D. Shashin was awarded a Letter of Commendation for conscientious and fruitful work for the benefit of the Republic of Tatarstan. Republican contest "Philanthropist of the Year" Government of the Republic of Tatarstan Ministry of Industry and Trade of the Republic of Tatarstan. 88 89 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 FINANCIAL RESULTS 90 91 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 ACCOUNTING STATEMENTS PREPARED IN ACCORDANCE WITH RUSSIAN ACCOUNTING STANDARDS AUDITOR’S OPINION To the Shareholders and Board of Directo rs of Public Joint Stock Company TATNEFT n.a. V.D. Shashin Company’s responsibility for the Accounting Statements Audited Entity Public Joint Stock Company “TATNEFT” named after V.D. Shashin (PJSC TATNEFT n.a. V.D. Shashin) The Company’s management is responsible for preparation and fair presentation of the said of the said Accounting Statements in compliance with the rules on preparing accounting statements set out in the Russian Federation and for the internal control system necessary to prepare the accounting statements that are free from material misstatements whether due to fraud or error. State Registration Certificate No. 632 issued by the Ministry of Finance of Tatarstan Republic on January 21, 1994. Auditor’s Responsibility Certificate of Entry in the Unified State Register of Legal Entities registered before July 1, 2002, Registration No. 1021601623702 dated July 18, 2002 issued by the Interdistrict Inspectorate of the Ministry for Taxes and Duties of the Russian Federation No. 16 for Republic of Tatarstan. Principal place of business: 75 Lenin Street, Almetyevsk 423450, Republic of Tatarstan, Russian Federation Auditor Joint Stock Company “PriceWaterhouseCoopers Audit” (JSC PwC Audit) having its place of business at: 10 Butyrsky Val, Mos- cow 125047, Russian Federation. Certificate of State Registration of Joint-Stock Company No. 008.890 issued by the Moscow Registration Chamber on Febru- ary 28, 1992. Our responsibility is to express an opinion on the fair presentation of the accounting statements based on our audit. We con- ducted our audit in accordance with the Federal Auditing Standards and International Standards on Auditing. These standards require the compliance with the applicable ethical rules as well as audit planning and carrying out in such a manner that gives sufficient confidence that the accounting statements are free of material misstatements. The audit included auditing procedures aimed at obtaining the audit evidence that prove the numeric values in the accounting statements and disclose of the information contained therein. The choice of the auditing procedures is the subject matter of our judgment which is based on assessment of the risk of material misstatements, whether due to fraud or error. During the assess- ment of the risk we considered the internal control system procuring preparation and accuracy of the accounting statements in order to select appropriate auditing procedures but not to express the opinion if the internal control system is efficient. The audit also included the assessment of the proper nature of the applied accounting policy and soundness of the estimates obtained by the management of the Company as well as the evaluation of the overall presentation of the accounting statements. We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of the accounting statements. Certificate of Entry in the Unified State Register of Legal Entities registered before July 1, 2002, Registration No. 1027700148431 dated August 22, 2002 issued by the Moscow Interdistrict Inspectorate of the Ministry for Taxes and Duties of the Russian Fed- eration No. 39. Opinion Member of the Non-commercial Partnership “Audit Chamber of Russia” (NP APR), which is a self-regulating organization of auditors – Registration number 870 in the Register of NP APR members. Basic State Registration Number in the register of auditors and auditor organizations - 10201003683 We have audited the enclosed accounting statements of PJSC TATNEFT n.a. V.D. Shashin (hereinafter referred to as the Com- pany) which comprise the Balance Sheet as at December 31, 2015, Profit and Loss Account, Statement of Capital Changes, Cash Flow Statement for 2015, Notes to the Balance Sheet and Profit & Loss Account (hereinafter jointly referred to as the “Accounting Statements”). In our opinion, the accounting statements present fairly in all material respects the financial standing of the Company as at December 31, 2015, and the results of its financial and economic activities and cash flows for 2015 in conformity with the rules on preparing the accounting statements set out in the Russian Federation. March 28, 2016 Moscow, Russian Federation M.E. Timchenko, Director JSC PriceWaterhouseCoopers Audit 92 93 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 ACCOUNTING REPORTS OF JSC TATNEFT, FY 2015 Balance Sheet Indicator Description ASSETS I. FIXED ASSETS Intangible assets Research and development results Intangible exploration assets Tangible exploration assets Fixed assets incl. incomplete capital investments advance payments given for procurement and construction of fixed assets Income-bearing investments in tangible assets Financial investments Deferred tax assets Other fixed assets assets retirement obligations TOTAL for section I II.CURRENT ASSETS Reserves incl. raw materials and supplies Work in progress costs Finished products and goods for resale Goods shipped Other reserves and expenses Value added tax on acquired assets Accounts receivable incl. noncurrent nondelinquent accounts receivable (that are due beyond 12 months after the reporting date) incl. buyers and customers Advances paid Other debtors incl. current nondelinquent accounts receivable (that are due in the next 12 months after the reporting date) incl. buyers and customers Advances paid Other debtors Financial investments (except for cash equivalents) Cash and cash equivalents Other current assets TOTAL for section II BALANCE 94 Line Code As of December 31, 2015 As of December 31, 2014 As of December 31, 2013 Indicator Description Line Code As of December 31, 2015 As of December 31, 2014 As of December 31, 2013 thousand RUB Balance Sheet (continued) thousand RUB 1110 1120 1130 1140 1150 1151 1152 1160 1170 1180 1190 1191 1100 1210 1211 1212 1213 1214 1215 1220 1230 1231 1232 1233 1234 1235 1236 1237 1238 1240 1250 1260 1200 1600 363 181 425 495 4 298 721 1 181 376 307 582 325 099 4 256 953 1 133 728 214 621 232 576 4 254 890 872 660 185 402 361 121 288 999 118 676 649 79 479 182 27 392 755 26 918 477 9 896 607 8 688 542 10 224 252 2 302 366 1 888 783 2 353 517 234 265 798 213 205 328 181 387 339 - - - 37 433 580 40 578 570 58 476 393 29 293 324 29 232 592 29 507 230 465 672 878 382 985 042 366 468 645 27 195 783 26 948 648 18 037 804 2 581 938 412 249 1 994 190 225 794 1 828 258 203 094 21 045 366 17 399 856 12 503 140 2 615 128 6 700 323 2 783 281 541 102 628 485 720 031 3 708 117 4 308 690 4 209 301 107 136 545 82 279 954 78 004 349 6 348 987 6 656 414 5 103 757 128 897 582 784 1 535 471 363 188 - 6 219 727 6 073 442 3 568 286 100 787 558 75 623 540 72 900 592 56 610 370 47 652 992 51 062 327 27 710 973 18 816 538 13 148 509 16 466 215 9 154 010 8 689 756 28 266 335 45 942 537 43 638 757 8 393 083 34 916 922 20 649 731 19 634 17 200 25 194 174 719 497 194 413 951 164 565 136 640 392 375 577 398 993 531 033 781 LIABILITIES III. CAPITAL AND RESERVES Authorized capital (share capital, registered fund, contributions of partners) 1310 Repurchased shares Revaluation of noncurrent assets Capital surplus (without revaluation) Reserve capital Undistributed profit (uncovered loss) TOTAL for Section III IV. LONG-TERM LIABILITIES Borrowings Deferred tax liabilities Estimated liabilities Other liabilities TOTAL for Section IV V. SHORT-TERM LIABILITIES Borrowings Accounts payable incl. suppliers and contractors Liabilities to the state non-budgetary fund Taxes and dues payable Advances received Dividends payable Other creditors Deferred revenues Estimated liabilities Other liabilities TOTAL for Section V BALANCE 1320 1340 1350 1360 1370 1300 1410 1420 1430 1450 1400 1510 1520 1521 1522 1523 1524 1525 1526 1530 1540 1550 1500 1700 2 326 199 2 326 199 2 326 199 ( - ) ( - ) ( - ) 10 546 619 9 799 512 8 753 243 441 293 252 710 30 813 1 364 610 1 341 864 1 144 326 530 650 255 471 369 384 409 441 456 545 328 976 485 089 669 421 696 037 1 568 072 3 144 387 8 602 514 10 372 405 7 067 728 7 808 535 33 486 117 29 975 977 29 554 090 - - - 43 656 703 43 492 769 44 430 353 2 396 685 8 739 722 29 855 108 47 072 098 38 349 893 33 552 337 26 585 497 19 086 327 11 027 550 462 037 337 717 294 098 10 059 307 8 982 193 11 295 169 2 939 963 6 432 831 3 045 001 133 304 117 215 102 707 6 891 990 3 393 610 7 787 812 3 568 4 478 5 389 1 934 345 1 722 462 1 494 557 - - - 51 406 696 48 816 555 64 907 391 640 392 375 577 398 993 531 033 781 95 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 Profit and Loss Statement FY 2015 Indicator Description Line Code FY 2015 FY 2014 thousand RUB ESSENTIAL ASPECTS OF THE ACCOUNTING POLICY AND PRESENTATION OF THE ACCOUNTING STATEMENTS FOR 2015 FY Revenues Cost of goods sold Gross profit (loss) Selling expenses Administrative expenses Mineral exploration and evaluation expenses Profit (loss) on sales Participation capital Interest receivable Interest payable Other income Other expenses Profit (loss) before taxation Current income tax incl. permanent tax liabilities (assets) Changes in deferred tax liabilities Changes in deferred tax assets Miscellaneous Adjusted tax on the profit for the consolidated group of taxpayers Net profit (loss) INFORMATIONAL Surplus on revaluation of fixed assets not included in the net income (loss) for the period Result from other operations not included in the net income (loss) for the period Total profit/loss for the period Basic earnings (loss) per share Diluted earnings (loss) per share 2110 2120 2100 2210 2220 2230 2200 2310 2320 2330 2340 2350 2300 2410 2421 2430 2450 2460 2465 2400 2510 2520 2500 2900 2910 462 962 074 392 357 674 (306 851 332) (273 175 758) 156 110 742 119 181 916 (36 617 097) (27 499 377) - - (72 494) (2 199) 119 421 151 91 680 340 707 955 9 845 751 2 477 770 6 462 835 (3 801 044) (3 307 602) 19 168 972 75 906 110 (33 833 924) (69 161 023) 111 508 861 104 058 430 (28 308 902) (20 643 017) (4 237 239) (2 395 201) 1 769 891 (2 563 870) - 45 445 (6 557) - (611) 1 210 130 85 008 738 82 061 062 826 602 1 241 831 188 583 221 897 86 023 923 83 524 790 38.28 - 36.95 - Main Approaches to Preparation of the Annual Accounting Statements Financial accounting in the Company is performed in accordance with Federal Law No.402-FZ of December 06, 2011 “On Accounting”, Provision on Accounting and Reporting in the Russian Federation approved by Order of the Russian Federation Ministry of Finance No.34n dated July 29, 1998, current accounting regulations (RAS), as well as the accounting policy of the Company. The accounting statements of the Company for 2015 were prepared in compliance with the mentioned Accounting Law, accounting regulations and policy. The annual accounting statements for 2015 were compiled according to the forms developed and approved by the Company in accordance with the Order of the Ministry of Finance No. 66n of July 02, 2010 “About formats for corporate accounting statements”. The data of the accounting statements are presented in thousands of Russian rubles. Assets and Liabilities Denominated in Foreign Currency Accounting for assets and liabilities denominated in foreign currencies is carried out in accordance with RAS 3/2006 “Account- ing of Assets and Liabilities Denominated in Foreign Currencies”, and approved by Order No. 154n of November 27, 2006 of the Finance Ministry of the Russian Federation. The exchange rate difference is reflected in the accounting and financial statements for the concerned reporting period with the due date of payment or which the financial statements were executed for. The exchange rate difference arising from conversion of the organization’s assets and liabilities denominated in foreign cur- rency used for performing activities outside the Russian Federation into rubles is credited to the company’s capital surplus. The exchange rate difference on other activities is credited to financial results of the organization as other income and ex- penses. The currency exchange rate gains and losses are recognized in the Profit and Loss account in the “Other income” or “Other expenses”. For accounting business transactions in foreign currencies there was the official exchange rate applied of the foreign currency to the ruble valid on the date of transaction. Cash on foreign currency accounts in banks and on hand, financial investments (except shares), and settlement funds in foreign currencies (except the funds received and paid advances and pre-payment or earnest money) are reflected in the financial statements as amounts calculated on the basis of the currency official exchange rates valid on the reporting date. The currency exchange rates amounted to RUB 72.8827 to USD 1.00 as of December 31, 2015 (RUB 56.2584 as of December 31, 2014; RUB 32.7292 as of December 31, 2013); RUB 79.6972 to EURO 1.00 (RUB 68.3427 as of December 31, 2014; RUB 44.9699 as of December 31, 2013). Intangible Assets As a part of intangible assets there are software programs for computers reflected; inventions; useful models; production secrets (know-how); trademarks and service marks, licenses for mineral geological exploration and production, licenses for mineral production, exploration and evaluation expenditures of mineral resources (transferred from the intangible exploration assets after confirmation of the commercial viability of oil production in the field). Intangible assets are reflected in the accounting records at historic cost in that reporting period when received the documents confirming the Company’s exclusive rights to the results of intellectual activity or means of individualization irrespective of in- tangible assets used in production, performance of works or rendering of services, for administrative purposes. 96 97 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 The value of intangible assets shall be repaid by the straight-line depreciation method at the rates specified on the basis of the due date of the useful life. Depreciation is not charged for intangible assets with an indefinite period of the useful life. Tangible exploration assets are depreciated by straight-line depreciation method during the period of their useful life. Depreciation costs for targets of tangible exploratory assets are included in the costs of prospecting, evaluation and explora- tion of mineral resources for relevant license blocks. Depreciation charging is performed through accumulation of appropriate amounts in a separate account. Depreciation on in- tangible assets is reflected in the accounting period, which they refer to and is charged regardless of the company’s operating results in the reporting period. Intangible exploration assets as licenses for geological subsurface study are depreciated by straight-line method during the period of their useful application. Depreciation costs for aforementioned targets are included in the costs of prospecting, evaluation and exploration of mineral resources for relevant subsurface areas. The useful life of intangible assets is annually verified for the purpose of clarification. In case of substantial change of the period duration (by more than twenty percent) within which the asset is intended to be used, its useful life is defined. The resulting ad- justments are reflected in the accounting and financial reporting at the beginning of the year as changes in the estimated values. Acquisition costs incurred for exploration and mining licenses, as well as the costs of prospecting, evaluation and exploration of mineral resources are not depreciated until the commercial feasibility of oil production is confirmed in the relevant license block of mineral resources and approval of the order of commercial field development. Value adjustment of intangible assets of homogeneous groups at fair market value is not performed. Expenses for Research & Development, Development and Engineering Works Expenses for the research & development, development and engineering works are accounted in the amount of actual ex- penses incurred during performance of these works. The expenses for the research & development, development and engineering works which have produced positive results and started to be used in the work are expensed written off as expenses of ordinary activities starting with the month following the month when the company started the actual application of the mentioned works results in the production manufacturing (work performance, service rendering) or for administrative needs of the company. Writing off the costs of each performed research & development, development and engineering work which have produced positive results is made during the useful life of R & D results (which should not exceed 5 years). The commercial feasibility of oil production is considered to be confirmed at the moment of approval of the reservoir manage- ment plan in the license area of mineral resources. The Company performs annual verification of exploration assets depreciation as of December 31 of the calendar year, as well as in the case of cessation of their recognition when confirming commercial feasibility of oil production in the relevant license block. For the purposes of verifying exploration assets for depreciation the aforementioned assets are categorized by mineral re- source blocks indicated in the licenses. Impairment loss of exploration assets is reflected in the profit-and-loss statement in line code “Other expenses”. Furthermore, the Company applies the reversal of impairment loss to exploration assets. The Company ceases recognition of exploration assets in relation to a certain licensed block of mineral resources when con- firming commercial feasibility of oil production in the relevant licensed block or recognizing lack of prospects of mineral re- sources production in this area. The expenses for the research & development, development and engineering works which have not produced positive results are written off to the financial result as miscellaneous expenses in the reporting period. When confirming the commercial feasibility of oil production in the licensed block of mineral resources the Company performs reclassification of exploration assets: Exploration assets The Company considers the following to be exploration assets as a part of tangible exploration assets: facilities; • expenses for acquisition and construction of prospecting, exploration and advance producing wells, as well as other oilfield • expenses for acquisition and rig-up of the equipment for prospecting, exploration and advance producing operation wells. • According to the Company the intangible exploration assets include the following types of exploration costs: • acquisition costs of licenses for geological study of subsurface, licenses for geological exploration and production of min- • costs of prospecting, evaluation and exploration of mineral resources: expenses for geological, geochemical, geophysical works, as well as expenses for acquiring geological information on the subsurface from the third parties, including state authorities, and expenses for drilling key, appraisal and structural wells. eral resources; The Company considers the following exploration costs as expenses for regular types of activity: expenses for maintenance of the structural divisions organized solely for or performance and coordination of works on exploration, evaluation and prospect- ing of mineral resources, as well as expenses for maintenance and repair of tangible exploration assets. • tangible exploration assets are included in the category of fixed assets at residual value; • intangible exploration assets are included in the category of intangible assets at residual value. The Company writes off the exploration assets to other expenses, if they are not able to provide economic benefits in the future. Fixed Assets Land plots, buildings, facilities, machinery, equipment, transport vehicles and other relevant assets of over 12 months asset life and cost over 40 000 rubles are reflected in the fixed assets. The Company annually revaluates fixed assets based on the current value (replacement asset value) at the end of the report- ing period. The fixed assets put into operation before January 1, 2002 are depreciated at uniform depreciation rates approved by Decree No.1072 of the USSR Council of Ministers dated October 22, 1990 “On Uniform Depreciation Rates of Full Cost Recovery of Fixed Assets of the USSR National Economy”; and those assets put into operation from January 1, 2002 are depreciated at the rates calculated on the basis of useful life. The classification of fixed assets included in depreciation groups approved by the Order No. 1 of the Government of Russian Federation dated January 01, 2002 is used as one of the information sources about the useful life periods. For this purpose the following useful life periods are specified for fixed assets put into operation starting from January 1, 2002 by depreciation groups. 98 99 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 The straight line depreciation method is used for depreciation calculations. Inventories Fixed asset group Buildings Facilities, including: Wells Machinery and equipment Useful life of items of fixed assets (number of years) Before 01.01.2002 After 01.01.2002 25-50 10-25 10-15 5-15 8 -31 4 -31 6 -11 1,5-21 Depreciation is not charged on land plots and natural resources sites. Changing the original value of fixed assets as they were included for accounting purposes is allowed in cases of completion, retrofit, renovation, modernization, partial liquidation and revaluation of the fixed assets. The “Raw Materials and Supplies” line of the balance sheet reflects raw materials, basic and auxiliary materials, purchased semi-finished products and components, fuel, packaging, spare parts, construction and other materials. The line of the inventories also reflects the assets, which meet the conditions necessary for the recognizing them as fixed as- sets of the cost no more than 40 000 rubles per unit. The inventories are recorded at the actual cost of their acquisition with the exception of VAT and other recoverable taxes (ex- cept as provided by the legislation of the Russian Federation). Disposal of the inventories is carried at the average cost. The inventories, which are obsolete, wholly or partially have lost their original quality, or which current market value is de- creased, are reflected in the balance sheet less the reserve provision for impairment of the material values. Repair expenses of fixed assets items are included at actual costs and referred to the reporting period in which they were done. Finished Products, Goods and Sales Expenses The line of “Construction in progress” includes the costs of construction and erection works, acquisition of buildings, facilities, equipment and other tangible objects of long-term use, other capital works and expenses. This line reflects the cost of capital construction projects before their putting into operation, after which the structures are transferred into fixed assets. In addition to this, the “Construction in progress” line reflects the costs associated with the lease of land for construction of future wells. Leased fixed assets are reflected in the line of “Income-bearing Investments in Tangible Assets”. Financial Investments Financial investments are accepted for accounting at original cost. Financial investments defining the fair market value are reflected in the financial statements as of the end of the reporting year at current market value by adjusting their evaluation on the previous reporting date. Finished products are reflected in the balance-sheet at the full actual production cost (including management expenses). In shipment of oil, petroleum products and gas products assessment is carried out by the average cost method for each group of products. Sales expenditures are written off to the results of the Company’s financial and economic activities without differentiating be- tween the sold and unsold products. Goods Shipped The accounting item “Goods Shipped” reflects shipped products, the title for which was not transferred to buyers. This line also reflects the real estate property transferred to the buyer by the delivery-acceptance act before the moment of state registration of the transfer ownership. Financial investments for which there is no definition of the fair market value are reflected in financial statements as of the re- porting date at original cost after deduction of the reserve amount formed for their depreciation. Accounts receivables Financial investments are reflected as part of the current assets if the expected duration of their possession is less than 12 months after the reporting date. Other financial investments are included in fixed assets. On disposal of financial investments for which the current market value cannot be determined, their value is formed on the basis of the assessment determined by: • on disposal of shares or bonds - at original cost of the first-time financial investments acquisition (FIFO method); • on disposal of bills - at original cost of each unit of financial investments accounting. On disposal of financial investments, for which the current market value is not determined, their value is determined by the organization on the basis of the last assessment. Gains and losses of financial investments disposal are reflected in the profit and loss statement as part of other income and expenses. Indebtedness of buyers and customers is determined on the ground of prices established by contracts concluded between the Company and buyers (customers) taking into account all discounts (extra charges). Indebtedness unrealistic to be recovered is written off from the balance if it is proved to be such. The indebtedness not paid within the time limits stipulated in contracts and not secured with respective guarantees is shown after deduction of accrued reserves for bad debts. These reserves constitute a conservative assessment carried out by the Company with regard to the part of debts which is likely not to be paid. The reserve is created for each doubtful debt outstand- ing (depending on the financial condition (solvency) of the debtor and an estimated probability of debt repayment in whole or in part) on the basis of the receivables inventory, made for the last day of the reporting month. Income and expenses generated in the creation and recovery of allowance for doubtful debts in one financial year are reflected in the profit and loss statement in the lines “Other Income” or “Other Expenses”. 100 101 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 Cash and Cash Equivalents Estimated Liabilities In accordance with the RAS 23/2011 “Report of Cash Flows” approved by Order No. 11n of the Ministry of Finance of Russia dated February 02, 2011 the cash equivalents include highly liquid investments that can easily be converted into the known in advance amount of cash and are subject to an insignificant risk of value change. The Company refers the bank deposits placed for maximum 3 months period to the cash equivalents. In the Statement of Cash Flows: • cash balances and cash equivalent balances in a foreign currency at the beginning and at the end of the reporting period are reflected in the rubles amount, which is determined in accordance with RAS 3/2006. Differences arising in connection with the conversion of the organization’s cash flows and cash equivalents in foreign currency exchange rates on different dates are reflected in the cash flows statement as the impact of foreign currency exchange rate changes against the ruble. • indirect taxes (VAT and excise duties) as part of the proceeds from buyers and customers, payments to suppliers and con- tractors and payments to the budget system of the Russian Federation or reimbursement of out of it are reflected as bal- anced result in the line of “Other Income” (“Other Payments”). The cash flows are reflected in the statement of cash flows on a net basis in the following cases: • cash receipts from certain entities stipulate the relevant payments to other entities (cash flows of the commission buyer or agent in connection with the performance of commission or agency services (except for payment for services themselves); income from the counterparty against the reimbursement of utility payments and performance realization of these pay- ments in leasing and other similar relationships et c.); • cash flows differ in quick return, large sums and short payback periods (purchase and resale of financial investments, short- • cash flows on short-term deposits (more than three months but less than one year), which relate to financial investments. term investments (up to three months) using the proceeds from borrowings et c. Cash flows on deposits are disclosed in Tabular Format 3 “Investments” in the Notes to the Balance Sheet and Profit & Loss statement. The Company acknowledges its estimated liability for remuneration payment based on the results of the year. The amount of monthly payments under the estimated liability is determined based on the monthly deduction payments and the actual expenses amount of the labor costs. Percentage of contributions under the estimated liability is calculated by the ratio of the annual planned expenditure for the labor payment to the planned total labor costs. Further, based on the Provision “Estimated Liabilities, Contingent Liabilities and Contingent Assets (RAS 8/2010)” approved by the Order of the Russian Ministry of Finance No. 167n of December 13, 2010, the Company recognizes estimated liabilities on unused vacations by the employees. The estimated liability value of unused vacations is determined based on the total number of days of the unused vacation for each employee of the average daily earnings and insurance premiums accrued on the specified reserve. The actual amount of the vacation allowance (including the compensation amount for unused vacation) accrued to the employ- ee in the accounting is ascribed due to the acknowledged amount of the estimated liability to the unused vacation payment. An inventory of the estimated liability for unused vacation payment is carried out as of the last day of each quarter, which results are reflected by the estimated liability adjustments. In accordance with the requirements of the regulations (Federal Law No. 2395-1 “On Subsoil”, No. 7-FZ “On Environmental Protection” etc.), the terms of license agreements for the right to use the subsoil the Company recognizes in the accounting records and financial statements the estimated liabilities on liquidation of fixed assets, as well as commitments for remediation of lands in the fields after completion of the oil and gas production. Estimated liabilities are formed for all real estate oil & gas assets. Estimated liabilities on fixed assets retirement and restora- tion of natural resources are calculated by groups of the fields. The value of estimated liability is recorded at the present value (discounted cost). Authorized Capital, Surplus Capital and Reserve Funds Accrued estimated liabilities at initial recognition, as well as the newly introduced fixed assets are included in the “Other fixed assets”. The authorized capital is reflected in the amount of the face value of ordinary and preferred shares purchased by the shareholders. The surplus capital of the Company includes exchange differences arising from the conversion of the organization’s assets and liabilities value expressed in foreign currency used to perform activities outside the Russian Federation into rubles. In addition, the revaluation surplus of fixed assets resulting from revaluation classified in the additional capital is reflected in the “Revalua- tion of Fixed Assets” line. Revaluation surplus in case of the fixed asset item disposal is transferred from the capital surplus to the undistributed profit of the Company. Depreciation of assets on liquidation liabilities is accrued on a monthly basis in proportion to the oil production volume. The amount of monthly depreciation is determined for each group of the fields and Oil & Gas Production Division based on the amount of oil produced during the current month and the amount of assets on liquidation liabilities attributable to 1 tonne of oil reserves on deposits of the group at the end of the previous reporting period. Accrual of interest due to the increased present value as we approach the period of performance estimated liability is recorded in the profit and loss statement in the line of “Interest payable”. In accordance with the legislation the Company established a reserve fund in the amount to 5% of the authorized capital formed out of net profits of the Company. The reserve fund is intended to cover the losses of the Company for bonds redemp- tion and repurchase of the Company’s shares if other funds are unavailable. Adjustment of estimated liabilities on the fixed assets retirement and restoration of natural resources due to the review of core indicators of calculation (forecast inflation rate, discount rate, discount period) is recorded in the profit and loss statement in the line of “Other income”. In accordance with the constituent documents the Company establishes the Employee share ownership fund which is formed out of net profits of the Company. Contributions to this fund are made in accordance with the methodology approved by the “Regulations on Bonus Certificates of PJSC TATNEFT. Loans and Borrowings In accordance with RAS 15/2008 “Accounting of expenses on loans and borrowings” approved by Order No.107n of the Minis- try of Finance of Russia dated October 06, 2008 the principal amount of the loan (credit) received from the lender is accounted in accordance with the terms of the loan agreement (credit agreement) in the amount of actually received monetary assets or in cost estimate of other items stipulated by the contract. 102 103 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 Indebtedness under received loans and borrowings as well as accrued interest is reflected in the balance sheet line of “Bor- rowings”. Indebtedness under the received loans and borrowings as well as accrued interest for accounting is subdivided into short-term indebtedness (which repayment period does not exceed 12 months under the terms of contract) and long-term indebtedness (the repayment period of which is over 12 months under the terms of contract). The long-term indebtedness is transferred to short-term indebtedness at the moment when there are 365 days left before repayment of the principal amount. Interest on received loans and borrowings is recognized as other expenses of that period in which they were made, except for the part to be included in the value of the investment asset. Expenses of received loans and credits are directly attributable to acquisition and/or creation of the investment asset are included in the cost of the asset and are repaid through depreciation except where charging of the asset depreciation is not provided by the accounting rules. Inclusion of expenses on received loans and borrowings in the original value of the investment asset is terminated on the first day of the month following the month of accepting the asset for accounting as a fixed asset, intangible asset or R & D expenses. Sales Revenue Recognition Revenue from sales of goods, products and (execution of works, service rendering) is recognized as and when the ownership of the products is transferred to the customers (as works are executed, services are rendered to the customers). Revenues are reflected in the accounting statements less value added tax, excise duties, customs duties. The item “Other income” include the income which is not included in the revenue: revenue from the sale of fixed assets, con- struction in progress and other assets, foreign currency sale, income from changes in estimates on fixed assets liquidation and restoration of natural resources, foreign exchange differences and other similar income. Expenses The administrative expenses include the maintenance expenditures of the Executive Office. The mentioned expenses are al- located on a monthly basis between the oil-and-gas production divisions in proportion to the planned volume of oil production (in natural terms). Administrative expenses in the oil-and-gas production divisions are distributed between the calculation items for production of oil, associated petroleum gas, production of other products (works, services) on a pro rata basis to their total production expenses less the deductions, taxes and other obligatory payments. The item “Other expenses” include expenses which are not related to the manufacture and sales of products, execution of works, rendering of services, purchase and sale of goods . Accounting of Profit Tax Calculations The Company has been a responsible member of the consolidated group of taxpayers (hereinafter referred to as CGT) from January 1, 2012. In 2015, the CGT included four members. Since 2016, the composition of the participants has been expanded to five members. The Company independently forms the accounting information on income tax in accordance with RAS 18/02. In this regard, temporary and permanent differences are determined by the Company based on its revenues and expenses included in the consolidated tax base of the CGT in accordance with the norms of the Tax Code of the Russian Federation. The amount of the current income tax is determined on the basis of the Company’s accounting information and recognized in the profit-and loss statement in the line 2410 “Current income tax”. The difference between the amount of the current income tax calculated by the Company for inclusion in the consolidated tax base of the CGT and the amount of funds due and payable by the Company based on the terms of the agreement on CGT establishment in the profit-and loss statement, is reflected in the line 2465 “Adjusted tax on the profit for the consolidated group of taxpayers” and included in determination of net income (loss) of the Company without participating in generation of the profit (loss) before taxation. The outstanding amount of CGT income tax on CGT as a whole, to be paid by the Company as a responsible CTG participant to the budget, is reflected in the Company’s balance sheet in the line 1523 “Taxes and dues payable”. The overpaid amounts of CGT income tax to the budget is reflected in the balance sheet in the line 1238 “Other debtors”. The outstanding amount upon settlements with the CGT members on CGT income tax (interim payment) is reflected in the balance sheet separately in the items of the current assets in the line 1238 “Other debtors” and short-term liabilities in the line 1526 “Other creditors” of the balance sheet, respectively. The Company as a responsible CGT member reflects the income tax assessment and payments to the participants in the framework of the agreement on CGT establishment with account 78 “Settlements with the CGT members”. In preparation of the accounting statements the balanced (net) amounts of deferred tax asset and deferred tax liability are reflected in the balance sheet. Correction of errors in the accounting and reporting An error identified in the accounting and financial statements is recognized to be essential if the ratio of the error to the nu- merical indicator of the relevant group of balance sheet items of the Company, or item of the profit-and-loss statement of the Company for the reporting period is minimum five percent. Otherwise, the error is insignificant. 104 105 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT, ANNUAL REPORT 2015 CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2015 106 107 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES ASSETS Cash and cash equivalents Restricted cash Accounts receivable, net Short-term financial assets Inventories Prepaid expenses and other current assets Prepaid income tax Total current assets Long-term accounts receivable, net Long-term financial assets Investments in associates and joint ventures Property, plant and equipment, net Deferred income tax assets Other long-term assets Total non-current assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term debt and current portion of long-term debt Accounts payable and accrued liabilities Taxes payable Income tax payable Total current liabilities Long-term debt, net of current portion Other long-term liabilities Decommissioning provision, net of current portion Deferred income tax liability Total non-current liabilities Total liabilities Shareholders’ equity Preferred shares (authorized and issued at 31 December 2015 and 2014 – 147,508,500 shares; nominal value at 31 December 2015 and 2014 – RR1.00) Common shares (authorized and issued at 31 December 2015 and 2014 – 2,178,690,700 shares; nominal value at 31 December 2015 and 2014 – RR1.00) Additional paid-in capital Accumulated other comprehensive income Retained earnings Less: Common shares held in treasury, at cost (55,491,000 shares and 55,514,000 shares at 31 December 2015 and 2014, respectively) Total Group shareholders’ equity Non-controlling interest Total shareholders’ equity Total liabilities and equity 108 Note 31 December 2015 31 December 2014 Note Year ended 31 December 2015 Year ended 31 December 2014 Sales and other operating revenues, net 552,712 476,360 6 7 8 9 10 7 11 12 13 18 14 15 16 18 15 17 13 18 19 19 19 24,600 318 60,151 13,055 32,042 48,033 1,030 41,548 1,635 46,059 25,323 32,462 31,157 2,418 179,229 180,602 2,248 48,469 5,632 1,364 29,893 7,212 557,778 507,586 2,535 2,800 619,462 798,691 5,281 43,488 18,202 1,940 68,911 12,880 4,119 33,352 21,771 72,122 141,033 2,982 3,295 552,332 732,934 15,859 37,999 14,440 166 68,464 12,888 2,960 44,779 21,599 82,226 150,690 746 746 11,021 11,021 85,170 1,639 532,821 (3,083) 628,314 29,344 657,658 798,691 87,482 1,888 457,915 (3,087) 555,965 26,279 582,244 732,934 COSTS AND OTHER DEDUCTIONS Operating Purchased oil and refined products Exploration Transportation Selling, general and administrative Depreciation, depletion and amortization Loss on disposals of property, plant and equipment, investments and impairments Taxes other than income taxes Maintenance of social infrastructure and transfer of social assets Total costs and other deductions OTHER INCOME/(EXPENSES) Foreign exchange gain, net Interest income Interest expense, net of amounts capitalized Loss from equity investments Other income, net Total other income Profit before income tax INCOME TAX Current income tax expense Deferred income tax expense Total income tax expense Profit for the year OTHER COMPREHENSIVE INCOME/(EXPENSES): Items that may be reclassified subsequently to profit or loss: Foreign currency translation adjustments Unrealized holding gains/(losses) on available-for-sale securities Items that will not be reclassified to profit or loss: Actuarial (losses)/gains on employee benefit plans Other comprehensive (loss)/income Total comprehensive income for the year 20 13 20 13 18 13 21 21 12 (108,294) (102,614) (59,913) (1,856) (30,149) (48,871) (25,052) (6,031) (54,478) (2,100) (23,209) (43,355) (21,121) (1,799) (137,380) (117,060) (4,665) (4,091) (422,211) (369,827) 2,283 11,023 (7,691) (2,172) 3,684 7,127 14,876 6,944 (5,482) (313) 1,415 17,440 137,628 123,973 (30,954) (902) (21,376) (4,920) 18 (31,856) (26,296) 105,772 97,677 318 222 (789) (249) 649 (270) 620 999 105,523 98,676 109 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (CONTINUED) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Note Year ended 31 December 2015 Year ended 31 December 2014 Attributable to Group shareholders PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES y t i u q e ’ s r e d o h e r a h s l l a t o T t s e r e t n i g n i l l o r t - n o c - n o N y t i u q e l a t o T - r o f - e b a l l i a v a n o ) s e s s o l ( s e i t i r u c e s e a s l i s g n n r a e d e n a t e R i i / s n a g g n d o h d e z l i i l a e r n U s e r a h s f o r e b m u N ) s d n a s u o h t ( l a t i p a c e r a h S l a t i p a c n i - d a p i l a n o i t i d d A i s n a g / ) s e s s o l ( l a i r a u t c A t fi e n e b e e y o p m e n o l s n a p l y c n e r r u c n g e r o F i s e r a h s y r u s a e r T j s t n e m t s u d a n o i t a s n a r t l PROFIT ATTRIBUTABLE TO: - Group shareholders - Non-controlling interest TOTAL COMPREHENSIVE INCOME IS ATTRIBUTABLE TO: - Group shareholders - Non-controlling interest BASIC AND DILUTED EARNINGS PER SHARE (RR) Common Preferred WEIGHTED AVERAGE SHARES OUTSTANDING (MILLIONS OF SHARES) Common Preferred 19 19 98,930 6,842 105,772 98,681 6,842 105,523 43.56 43.53 2,123 148 92,227 5,450 97,677 93,226 5,450 98,676 40.61 40.58 2,123 148 Balance at 1 January 2014 Profit for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Treasury shares - Acquisitions - Disposals Disposal of non- controlling interest in subsidiaries Dividends declared Balance at 31 December 2014 Profit for the year Other comprehensive (loss)/income for the year Total comprehensive (loss)/income for the year Treasury shares - Acquisitions - Disposals Acquisition of non- controlling interest in subsidiaries Disposal of non- controlling interest in subsidiaries Dividends declared Balance at 31 December 2015 2,270,607 11,767 87,482 (3,102) (818) 1,284 423 384,376 481,412 22,570 503,982 - - - 78 (302) 380 - - - - - - - - - - - - - - - - - - - - - 15 (63) 78 - - - - - 92,227 92,227 5,450 97,677 620 649 (270) - 999 - 999 620 649 (270) 92,227 93,226 5,450 98,676 - - - - - - - - - - - - - - - - - - 15 (63) 78 - - - - 78 15 (63) 78 78 - (18,688) (18,688) (1,819) (20,507) 2,270,685 11,767 87,482 (3,087) (198) 1,933 153 457,915 555,965 26,279 582,244 - - - 23 (21) 44 - - - - - - - - - - - - - - - - - (2,312) - - - - - 4 (5) 9 - - - - (789) - 318 - 98,930 98,930 6,842 105,772 222 - (249) - (249) (789) 318 222 98,930 98,681 6,842 105,523 - - - - - - - - - - - - - - - - - - - - - - 4 (5) 9 - - - 4 (5) 9 (2,312) 1,220 (1,092) - (2,963) (2,963) - (24,024) (24,024) (2,034) (26,058) 2,270,708 11,767 85,170 (3,083) (987) 2,251 375 532,821 628,314 29,344 657,658 110 111 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) Note Year ended 31 December 2015 Year ended 31 December 2014 Note Year ended 31 December 2015 Year ended 31 December 2014 OPERATING ACTIVITIES Profit for the year Adjustments: Depreciation, depletion and amortization Income tax expense Loss on disposals of property, plant and equipment, investments and impairments Effects of foreign exchange Equity investments loss/(gain) net of dividends received Change in provision for impairment of financial assets Change in fair value of trading securities Interest income Interest expense Other Changes in operational working capital, excluding cash: Accounts receivable Inventories Prepaid expenses and other current assets Trading securities Accounts payable and accrued liabilities Taxes payable Notes payable Other non-current assets Net cash provided by operating activities before income tax and interest Income taxes paid Interest paid Interest received Net cash provided by operating activities 105,772 97,677 25,052 31,856 6,031 1,501 2,172 1,862 (30) (11,023) 7,691 (4,912) (16,608) (776) 2,771 1,303 885 3,999 (1) 333 157,878 (27,792) (1,032) 11,462 140,516 21,121 26,296 1,799 10,036 313 (165) (283) (6,944) 5,482 32 7,456 (4,054) (9,206) 1,294 6,423 (2,094) (2) 205 155,386 (24,012) (1,378) 6,487 136,483 INVESTING ACTIVITIES Additions to property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of investments Purchase of investments Proceeds from/(purchase of) certificates of deposit, net Issuance of loans and notes receivable, net Change in restricted cash Net cash used in investing activities FINANCING ACTIVITIES Proceeds from issuance of debt Repayment of debt Dividends paid to shareholders Dividends paid to non-controlling shareholders Purchase of treasury shares Proceeds from sale of treasury shares Proceeds from issuance of shares by subsidiaries Net cash used in financing activities Net change in cash and cash equivalents Effect of foreign exchange on cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 26,27 8,11 8,11 (92,872) (62,574) 895 - (42,072) 13,517 (543) 1,317 1,248 77 (117) (7,598) (2,176) (718) (119,758) (71,858) 12,072 (24,914) (24,008) (2,034) (5) 9 57 16,742 (50,501) (18,674) (1,819) (37) 37 60 (38,823) (54,192) (18,065) 1,117 41,548 24,600 10,433 1,580 29,535 41,548 112 113 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1: Organisation PJSC Tatneft (the “Company”) and its subsidiaries (jointly referred to as “the Group”) are engaged in crude oil exploration, development and production principally in the Republic of Tatarstan (“Tatarstan”), a republic within the Russian Federation. The Group also engages in refining and marketing of crude oil and refined products as well as production and marketing of petrochemicals (see Note 22). The Company was incorporated as an open joint stock company effective 1 January 1994 (the “privatization date”) pursuant to the approval of the State Property Management Committee of the Republic of Tatarstan (the “Government”). All assets and liabilities previously managed by the production association Tatneft, Bugulminsky Mechanical Plant, Menzelinsky Exploratory Drilling Department and Bavlinsky Drilling Department were transferred to the Company at their book value at the privatization date in accordance with Decree No. 1403 on Privatization and Restructuring of Enterprises and Corporations into Joint-Stock Companies. Such transfers were considered transfers between entities under common control at the privatization date, and were recorded at book value. The Group does not have an ultimate controlling party. As of 31 December 2015 and 31 December 2014 the government of Tatarstan, including through its wholly owned company JSC Svyazinvestnefteknim, controls approximately 36% of the Company’s voting stock. These shares were contributed to JSC Svy- azinvestneftekhim by the Ministry of Land and Property Relations of Tatarstan in 2003. Tatarstan also holds a “Golden Share”, a special governmental right, in the Company. The exercise of its powers under the Golden Share enables the Tatarstan govern- ment to appoint one representative to the Board of Directors and one representative to the Revision Committee of the Company as well as to veto certain major decisions, including those relating to changes in the share capital, amendments to the Charter, liquidation or reorganization of the Company and “major” and “interested party” transactions as defined under Russian law. The Golden Share currently has an indefinite term. The Tatarstan government, including through JSC Svyazinvestneftekhim, also controls or exercises significant influence over a number of the Company’s suppliers and contractors. The Company is domiciled in the Russian Federation. The address of its registered office is Lenina St., 75, Almet’evsk, Tatarstan Republic, Russian Federation. Note 2: Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Group first adopted IFRS for the fiscal year ended 31 December 2012, with a date of transition to IFRS on 1 January 2011. These consolidated financial statements have been prepared on a historical cost basis, except for initial recognition of financial instruments based on fair value, revaluation of available-for-sale financial assets and financial instruments categorized at fair value through profit or loss. The entities of the Group maintain their accounting records and prepare their statutory financial statements principally in accordance with the Regulations on Accounting and Reporting of the Russian Federation (“RAR”). The accompanying consolidated financial statements have been prepared from these accounting records and adjusted as necessary to comply with IFRS. The principal differ- ences between RAR and IFRS relate to: (1) valuation (including indexation for the effect of hyperinflation in the Russian Federation through 2002) and depreciation of property, plant and equipment; (2) foreign currency translation; (3) deferred income taxes; (4) valuation allowances for unrecoverable assets; (5) consolidation; (6) share based payment; (7) accounting for oil and gas properties; (8) recognition and disclosure of guarantees, contingencies and commitments; (9) accounting for decommissioning provision; (10) pensions and other post retirement benefits and (11) business combinations and goodwill. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involv- PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES ing a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. Reclassifications. Certain reclassifications have been made to previously reported balances to conform to the current year presentation; such reclassifications had no effect on net income profit for the year, shareholders’ equity or cash flows. Note 3: Summary of Significant Accounting Policies Functional and Presentation Currency. The presentation currency of the Group is the Russian rouble. Management has determined the functional currency for each consolidated subsidiary of the Group, except for subsidiaries located outside of the Russian Federation, is the Russian Rouble because the majority of their revenues, costs, property and equipment purchased, debt and trade liabilities are either priced, incurred, payable or otherwise measured in Russian Roubles. Accordingly, transactions and balances not already measured in Russian Roubles (primarily US Dollars) have been re-measured into Russian Roubles in accordance with the relevant provisions of IAS 21 The Effects of Changes in Foreign Exchange Rates. Under IAS 21 revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates pre- vailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the reporting date. Exchange gains and losses arising from re-measurement of monetary assets and liabilities that are not denominated in Russian Roubles are recognized in the profit or loss for the year. For operations of major subsidiaries located outside of the Russian Federation, that primarily use US Dollar as the functional currency, adjustments resulting from translating foreign functional currency assets and liabilities into Russian Roubles are recorded in a separate component of shareholders’ equity entitled foreign currency translation adjustments. Revenues, ex- penses and cash flows are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). The official rate of exchange, as published by the Central Bank of Russia (“CBR”), of the Russian Rouble (“RR”) to the US Dollar (“US $”) at 31 December 2015 and 2014 was RR 72.88 and RR 56.26 to US $, respectively. Average rate of exchange for the years ended 31 December 2015 and 2014 were RR 60.96 and RR 38.42 per US $, respectively. Consolidation. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group has the power to direct relevant activities of the investee that significantly affect their returns, exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidi- aries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition – related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis at the non-controlling interest’s proportionate share of the acquiree’s net assets or at fair value. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recog- nised directly in the profit and loss for the year. 114 115 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unre- alised losses are also eliminated unless the cost cannot be recovered. Associates and joint ventures. Associates and joint ventures are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. Divi- dends received from associates and joint ventures reduce the carrying value of the investment in associates and joint ventures. Other post-acquisition changes in Group’s share of net assets of an associate and joint ventures are recognised as follows: (i) the Group’s share of profits or losses of associates or joint ventures is recorded in the consolidated profit or loss for the year as share of result of associates or joint ventures, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii); all other changes in the Group’s share of the carrying value of net assets of associates or joint ventures are recognised in profit or loss within the share of result of associates or joint ventures. However, when the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures; unrealised losses are also eliminated unless the transaction provides evi- dence of an impairment of the asset transferred. The Group reviews equity method investments for impairment on an annual basis, and records impairment when circumstanc- es indicate that the carrying value exceeds the recoverable amount. Current/Non-current presentation. Group presents current and non-current assets, and current and non-current liabilities, as separate classifications in its Consolidated Statement of Financial Position. Group discloses for each asset and liability line item that combines amounts expected to be recovered or settled in period no more than 12 months after the reporting period are disclosed as current; and more than 12 months after the reporting period as non-current. Cash and cash equivalents. Cash represents cash on hand and in bank accounts, which can be effectively withdrawn at any time without prior notice. Cash equivalents include highly liquid short-term investments that can be converted to a certain cash amount and mature within three months or less from the date of purchase. They are recognized based on the cost of acquisition which approximates fair value. Restricted cash. Restricted cash represents cash deposited under letter of credit arrangements, which are restricted under various contractual agreements. Letters of credit are used to pay contractors for materials, equipment and services provided. Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statements of financial position and of the consolidated statement of cash flows and disclosed separately. Financial assets. All financial assets are initially recognised when an entity becomes a party to the contract, they recognised at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group‘s financial assets include cash and cash equivalents, deposits, securities, trade and other receivables, loans issued. Financial assets have the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets at fair value through profit or loss. Loans and receivables. Loans and receivables is a category of financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. The accrued interest is included in the profit and losses for the year. Allowances are provided for estimated losses and for doubtful debts based on estimates of uncollectible amounts. These esti- mates require the exercise of judgment and the use of assumptions. The losses arising from impairment are recognized as selling, general and administrative expenses in the consolidated state- ments of profit or loss and other comprehensive income. Financial assets at fair value through profit or loss. A financial asset is classified at fair value through profit or loss category if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit and loss for the year. Available-for-sale financial assets. Available-for-sale financial assets are non-derivative financial assets that are desig- nated as available-for-sale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets include investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and presented within equity. Unquoted equity instruments whose fair value cannot be measured reliably are carried at cost less any impairment losses. When an investment is derecognized the cumulative gain or loss in equity is also reclassified to profit and loss for the year. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial as- sets is impaired. Prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the other comprehensive income) is recognized in the profit and loss for the year as a reclassification adjustment from other comprehensive income. Financial liabilities. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings. Financial liabilities are recognised initially at fair value. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. When an exist- ing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the profit and loss for the year. The Group does not use derivative financial instruments. The Group does not offset assets and liabilities unless required or permitted to by an IFRS. Inventories. Inventories of crude oil, refined oil products, materials and supplies, and finished goods are valued at the lower of cost or net realizable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. The Group uses the weighted-average-cost method. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location. Prepaid expenses. Prepaid expenses include advances for purchases of products and services, insurance fees, prepay- ments for export duties, VAT and other taxes. Prepayments are carried at cost less provision for impairment. 116 117 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Prepayments for services such as insurance, transportation and others are written off to profit or loss when the goods or services relating to the prepay- ments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in the profit or loss for the year. Mineral extraction tax. Mineral extraction tax (MET) on crude oil is defined monthly as an amount of volume produced per fixed tax rate (RR 766 and RR 493 per ton in 2015 and 2014, respectively) adjusted depending on the monthly average market prices of the Urals blend and the RR/US $ exchange rate for the preceding month. The base tax rate formula for MET is modi- fied by benefit for fields whose depletion rate exceeds 80% of proved reserves as determined under Russian resource clas- sification. The Company receives a benefit of 3.5% per field for each percent of depletion in excess of the 80% threshold. Tax benefit is calculated using tax rate of RR 530 per ton (в 2014: RR 493 per ton). The ultimate amount of the MET on crude oil depends also on geographic location of the oil field (for certain regions zero tax rate may be applied depending on the volume of crude oil produced and period of field development). Also a zero MET tax rate applies to the production of highly viscous crude oil with viscosity of more than 10,000 Megapascal second in reservoir condi- tions. MET for production of highly viscous crude oil with viscosity between 200 and 10,000 Megapascal second is eligible to tax benefit calculated using tax rate of RR 530 per ton (2014: RR 493 per ton). MET is recorded within Taxes other than income tax in the Consolidated Statements of Profit or Loss and Other Comprehensive Income. Value added tax. Value added tax (VAT) at a standard rate of 18% is payable on the difference between output VAT on sales of goods and services and recoverable input VAT charged by suppliers. Output VAT is charged on the earliest of the dates: either the date of the shipment of goods (works, services) or the date of advance payment by the buyer. Input VAT can be recovered when purchased goods (works, services) are accounted for and other necessary requirements provided by the tax legislation are met. Export of goods and rendering certain services related to exported goods are subject to 0% VAT rate upon the submission of confirmation documents to the tax authorities. VAT related to sales and purchases is recognized in the Consolidated Statements of Financial Position on a gross basis and disclosed separately as Prepaid expenses and other current assets and Taxes payable. Oil and gas exploration and development cost. Oil and gas exploration and development activities are accounted for using the successful efforts method whereby costs of acquiring unproved and proved oil and gas property as well as costs of drilling and equipping productive wells, including development dry holes, and related production facilities are capitalized. Other exploration expenses, including geological and geophysical expenses and the costs of carrying and retaining undevel- oped properties, are expensed as incurred. The costs of exploratory wells that find oil and gas reserves are capitalized as ex- ploration and evaluation assets on a “field by field” basis pending determination of whether proved reserves have been found. In an area requiring a major capital expenditure before production can begin, exploratory well remains capitalized if additional exploration drilling is underway or firmly planned. Exploration costs not meeting these criteria are charged to expense. Exploration and evaluation costs are subject to technical, commercial and management review as well as review for impairment at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When indicators of impairment are present, resulting impairment loss is measured. If subsequently commercial reserves are discovered, the carrying value, less losses from impairment of respective exploration and evaluation assets, is classified as development assets. However, if no commercial reserves are discovered, such costs are expensed after exploration and evaluation activities have been completed. Property, plant and equipment. Property, plant and equipment are carried at historical cost of acquisition or construction less accumulated depreciation, depletion, amortization and impairment. Proved oil and gas properties include the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. The cost of maintenance, repairs and replacement of minor items of property are expensed when incurred within operating expenses; renewals and improvements of assets are capitalised and depreciated during the remain- ing useful life. Cost of replacing major parts or components of property, plant and equipment items are capitalised and the replaced part is retired. Advances made on property, plant and equipment and construction in progress are accounted for within Construction in progress. Long-lived assets, including proved oil and gas properties at a field level, are assessed for possible impairment in accordance with IAS 36 Impairment of assets, which requires long-lived assets with recorded values that are not expected to be recovered through future cash flows to be written down to their recoverable amount which is the higher of fair value less costs to sell and value-in-use. Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets - generally on a field-by-field basis for exploration and produc- tion assets, at an entire complex level for refining assets or at a site level for service stations. Impairment losses are recognised in the profit or loss for the year. Impairments are reversed as applicable to the extent that the events or circumstances that triggered the original impairment have changed. The reversal of impairment would be limited to the original carrying value less depreciation which would have been otherwise charged had the impairment not been recorded. Long-lived assets committed by management for disposal within one year, and meet the other criteria for held for sale, are ac- counted for at the lower of amortized cost or fair value, less cost to sell. Costs of unproved oil and gas properties are evaluated periodically and any impairment assessed is charged to expense. The Group calculates depreciation expense for oil and gas proved properties using the units-of-production method for each field based upon proved developed oil and gas reserves, except in the case of significant asset components whose useful life differs from the lifetime of the field, in which case the straight-line method is applied. Oil and gas licenses for exploration of unproved reserves are capitalised within property, plant and equipment; they are depre- ciated on straight-line basis over the period of each license validity. Depreciation of all other property, plant and equipment is determined on the straight-line method based on estimated useful lives which are as follows: Buildings and constructions Machinery and equipment Years 30-50 10-35 Gains and losses on disposals of property, plant and equipment are determined by comparing proceeds, if any, with the car- rying amount. Gains and losses are recorded in Gain/(loss) on disposals of property, plant and equipment, investments and impairments in the Consolidated Statements of Profit or Loss and Other Comprehensive Income. Capitalisation of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of as- sets that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets. 118 119 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of ob- taining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised. Capitalisation of borrowing costs includes capitalising foreign exchange differences relating to borrowings to the extent that they are regarded as an adjustment to interest costs. The gains and losses that are an adjustment to interest costs include the interest rate differential between borrowing costs that would be incurred if the entity borrowed funds in its functional currency, and borrowing costs actually incurred on foreign currency borrowings. The portion of the foreign exchange movements is estimated based on interest rates on similar borrowing in the Group’s func- tional currency. The foreign exchange gains and losses eligible for capitalisation are assessed on a cumulative basis. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. Employee benefits, post-employment and other long-term benefits. Wages, salaries, contributions to the social insur- ance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health services and kindergarten services) are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has various pension plans covering substantially all eligible employees and members of management. The pension liabilities are measured at the present value of the estimated future cash outflows using interest rates of government securities, which have the same currency and terms to maturity approximating the terms of the related liability. Pension costs are recognised using the projected unit credit method. The cost of providing pensions is accrued and charged to staff expense within operating expenses in the Consolidated State- ments of Profit or Loss and Other Comprehensive Income reflecting the cost of benefits as they are earned over the service lives of employees. Remeasurements of the net defined benefit liability arose as the actuarial gains or losses from changes in assumptions and from experience adjustments with regard to post employment benefit plans are recognised immediately in other comprehen- sive income. Actuarial gains and losses related to other long-term benefits are recognised immediately in the profit or loss for the year. Past service costs are recognised as an expense immediately. Plan assets are measured at fair value and are subject to certain limitations. Fair value of plan assets is based on market prices. When no market price is available the fair value of plan assets is estimated by different valuation techniques, including dis- counted expected future cash flow using a discount rate that reflects both the risk associated with the plan assets and maturity or expected disposal date of these assets. In the normal course of business the Group contributes to the Russian Federation State Pension Fund on behalf of its em- ployees. Mandatory contributions to the Fund are expensed when incurred and are included within staff costs in operating expenses. Stock-based compensation. The Company has a share-based compensation plan (the “Plan”) for senior management and directors of the Company. Under the provisions of the Plan, share-based bonus awards (“Awards”) are issued on an annual basis to the Company’s directors and senior management as approved by the Board of Directors. Each Award provides a cash payment at the settlement date equal to one of the Company’s common shares multiplied by the difference between the lowest share price for the preceding three years as of the grant date and the highest share price for the preceding three years as of each year-end. Share prices are measured based on the weighted average daily trading price as reported on the Moscow Ex- change MICEX-RTS (MOEX). Awards are subject to individual annual performance conditions and are generally settled within 90 days after the Company’s Management Committee approval. The liability at 31 December 2015 and 2014 is determined based on the final expected bonus payments. The Awards are rec- ognized as expense over the annual service period, net of forfeitures, with a corresponding liability to accounts payable and accrued liabilities. Decommissioning provisions. The Group recognizes a liability for the fair value of legally required or constructive decommis- sioning provisions associated with long-lived assets in the period in which the retirement obligations are incurred. The Group has numerous asset removal obligations that it is required to perform under law or contract once an asset is permanently taken out of service. The Group’s field exploration, development, and production activities include assets related to: well bores and related equipment and operating sites, gathering and oil processing systems, oil storage facilities and gathering pipelines. Generally, the Group’s licenses and other operating permits require certain actions to be taken by the Group in the abandon- ment of these operations. Such actions include well abandonment activities, equipment dismantlement and other reclamation activities. The Group’s estimates of future abandonment costs consider present regulatory or license requirements, as well as actual dismantling and other related costs. These liabilities are measured by the Group using the present value of the estimated future costs of decommissioning of these assets. The discount rate is reviewed at each reporting date and reflects current market assessments of the time value of money and the risks specific to the liability. Most of these costs are not expected to be incurred until several years, or decades, in the future and will be funded from general Group resources at the time of removal. The Group capitalizes the associated decommissioning costs as part of the carrying amount of the long-lived assets. Changes in obligation, reassessed regularly, related to new circumstances or changes in law or technology, or in the estimated amount of the obligation, or in the pre-tax discount rates, are recognised as an increase or decrease of the cost of the relevant asset to the extent of the carrying amount of the asset; the excess is recognised immediately in profit and loss. The Group’s petrochemical, refining and marketing and distribution operations are carried out at large manufacturing facilities. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manufacturing facilities or of retail fuel outlets. Management therefore believes that there are no legal or contractual obligations related to decommissioning or other disposal of these assets. Income taxes. Effective 1 January 2012, the Company has established the Consolidated Taxpayer Group which currently in- cludes 4 companies of the Group. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other compre- hensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are recognised for all deductable or taxable temporary differences, except: • Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that • In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foresee- able future; and • Where it is not probable that future taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. 120 121 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Deferred tax assets and liabilities are netted only within the individual companies of the Group. Income tax penalties expense and income tax penalties payable are included in Taxes other than income tax in the Consoli- dated Statements of Profit or Loss and Other Comprehensive Income and Taxes payable in the Consolidated Statement of Financial Position, respectively. Income tax interest expense and payable are included in Interest expense in the Consolidated Statements of Profit or Loss and Other Comprehensive Income and other accounts payable and accrued expenses in the Con- solidated Statement of Financial Position, respectively. Share capital. Ordinary shares and non-redeemable preference shares with discretionary dividends are both classified as equity. Dividends paid to shareholders are determined by the Board of directors and approved at the annual shareholders’ meeting. Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Treasury shares. Common shares of the Company owned by the Group at the reporting date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited to ad- ditional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings. Earnings per share. Preference shares are not redeemable and are considered to be participating shares. Basic and diluted earnings per share are calculated by dividing profit or loss attributable to ordinary and preference share holders by the weighted average number of ordinary and preferred shares outstanding during the period. Profit or loss attributed to equity hold- ers is reduced by the amount of dividends declared in the current period for each class of shares. The remaining profit or loss is allo- cated to common and preferred shares to the extent that each class may share in earnings if all the earnings for the period had been distributed. Treasury shares are excluded from calculations. The total earnings allocated to each class of shares are determined by adding together the amount allocated for dividends and the amount allocated for a participation feature. Revenue recognition. Revenues from the production and sale of crude oil, petroleum and petrochemical products and other products are recognized when risks and rewards of ownership are transferred and collectability is reasonably assured. Rev- enue is measured at the fair value of the consideration received or receivable taking into account the amount of any discounts and other incentives. Purchases and sales of inventory which are of a similar nature and value with the same counterparty that are entered into in contemplation of one another are combined, considered as a single arrangement and netted against each other in the Consolidated Statements of Profit or Loss and Other Comprehensive Income. Revenue includes only economic benefits which flow to the Group. Taxes and duties arising on the sale of goods to third parties do not form part of revenue. Transportation expenses. Transportation expenses recognised in the consolidated statements of profit or loss and other comprehensive income represent all expenses incurred by the Group to transport crude oil and other products to end custom- ers (they may include pipeline tariffs and any additional railroad costs, handling costs, port fees, sea freight and other costs). Compounding fees are included in Selling, General and administrative expenses. Interest income. Interest income is recognised on a time-proportion basis using the effective interest method. Note 4: Critical accounting estimates and judgements in applying accounting policies The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management of the Group also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated fi- nancial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: • Estimation of oil and gas reserves; • Useful life of property, plant and equipment; • Decommissioning provisions; • Impairment of long-lived assets; • Consolidation. Estimation of oil and gas reserves. Oil and gas development and production assets are depreciated on a unit-of-production (UOP) basis for each field or group of fields with similar characteristics at a rate calculated by reference to proved or proved developed reserves. Estimates of proved reserves are also used in the determination of whether impairments have arisen or should be reversed. Also, exploration drilling costs are capitalized pending the results of further exploration or appraisal activ- ity, which may take several years to complete and before any related proved reserves can be booked. Proved and proved developed reserves are estimated by reference to available geological and engineering data and only in- clude volumes for which access to market is assured with reasonable certainty. Estimates of oil and gas reserves are inherently imprecise, require the application of judgment and are subject to regular revision, either upward or downward, based on new information such as from the drilling of additional wells, observation of long-term reservoir performance under producing con- ditions and changes in economic factors, including product prices, contract terms or development plans. The Group estimates its oil and gas reserves in accordance with rules promulgated by the Oil and Gas Reserves Committee of the Society of Petro- leum Engineers (SPE) for proved reserves. Changes to the Group’s estimates of proved and proved developed reserves affect prospectively the amounts of depreciation, depletion and amortization charged and, consequently, the carrying amounts of oil and gas properties. It is expected, however, that in the normal course of business the diversity of the Group’s portfolio will limit the effect of such revisions. The outcome of, or assessment of plans for, exploration or appraisal activity may result in the related capitalized exploration drilling costs being written off in the profit and loss for the year. Useful life of property, plant and equipment. Based on the terms included in the licenses and past experience, manage- ment believes hydrocarbon production licenses will be extended past their current expiration dates at insignificant additional costs. As a result of the anticipated license extensions, the assets are depreciated over their useful lives beyond the end of the current license term. Management assesses the useful life of an asset by considering the expected usage, estimated technical obsolescence, re- sidual value, physical wear and tear and the operating environment in which the asset is located. Differences between such estimates and actual results may have a material impact on the amount of the carrying values of the property, plant and equip- ment and may result in adjustments to future depreciation rates and expenses for the period. Other property, plant and equipment are depreciated on a straight-line basis over their useful economic lives. Management periodically, at the end of each reporting period, reviews the appropriateness of the assets useful economic lives and residual values. The review is based on the current condition of the assets, the estimated period during which they will continue to bring economic benefit to the Group and the estimated residual value. Decommissioning provisions. Management makes provision for the future costs of decommissioning oil and gas production facilities, wells, pipelines, and related support equipment and for site restoration based on the best estimates of future costs and economic lives of the oil and gas assets. Estimating future decommissioning provisions is complex and requires manage- ment to make estimates and judgments with respect to removal obligations that will occur many years in the future. 122 123 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation. Certain new standards, amendments to standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2016 or later, and which the Group has not early adopted: The amount recognized as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on current legislation in each jurisdiction where the Group‘s operating assets are located, and is also sub- ject to change because of revisions and changes in laws and regulations and their interpretation. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of such costs. IFRS 9, Financial Instruments: Classification and Measurement (amended in July 2014 and effective for annual periods be- ginning on or after 1 January 2018). The standard reflects all phases of the financial instruments project and replaces all previous of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group. The Group’s petrochemical, refining and marketing and distribution operations are carried out at large manufacturing facilities. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manufacturing facilities or of retail fuel outlets. Management therefore believes that there are no legal or contractual obligations related to decommissioning or other disposal of these assets. Sensitivity analysis for changes in rates, and other estimates: Discount rate Impact on decommissioning provision Change in At 31 December 2015 At 31 December 2014 +1% -1% (7,892) 10,534 (9,890) 13,103 Information about decommissioning provision is presented in Note 13. Impairment of long-lived assets. The recoverable amounts of cash-generating units and individual assets have been deter- mined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions, including future oil prices, expected production volumes and refining margins appropriate to the local circumstances and environment. It is reasonably possible that these assumptions may change and may then require a material adjustment to the carrying value of the Group’s assets. At 31 December 2015 management assessed whether there is any indication of impairment of long-lived assets. Management believes that there is no any impairment loss that should be recognized at 31 December 2015. Consolidation. The Company made significant judgements related to significant subsidiaries which are controlled by the Group, even though the Group holds less than half of the voting rights of these subsidiaries. The Company considers that the Group has control over several entities even though it has less than 50% of the voting rights. This is because the Company has power over the investee, has rights to variable returns of the investee, and has the power to affect variable returns. Additional information is disclosed in Note 25. Note 5: Adoption of new or revised standards and interpretations A number of amendments to current IFRS and annual improvements also approved for application in Russia Federation became ef- fective for the periods beginning on or after 1 January 2015 and but did not have any significant impact on the Group’s consolidated financial statements: periods beginning 1 July 2014). • Defined Benefit Plans: Employee Contributions - Amendments to IAS 19 (issued in November 2013 and effective for annual • Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014. • Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or af- ter 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. IFRS 16, Leases (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accord- ingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is currently assessing the impact of new standards on its consolidated financial statements. The following other new pronouncements are not expected to have material impact on the Group when adopted: January 2016). beginning 1 January 2016). nual periods beginning 1 January 2016). for the periods beginning on or after 1 January 2016). May 2014 and effective for the periods beginning on or after 1 January 2016). • IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 • Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective • Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 • Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods • Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for an- • Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after • Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January • Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 • Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued in January 2016 and effective for • Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). 2014 and effective for annual periods on or after 1 January 2016). annual periods beginning on or after 1 January 2017). 1 January 2016). 2016). after 1 January 2017). All above new standards, amendments to standards and interpretations are approved for application in Russian Federation except for Amendments to IFRS 10 and IAS 28 and those of them issued in 2016. 124 125 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Note 6: Cash and cash equivalents Cash and cash equivalents comprise the following: Cash on hand and in banks Term deposits with original maturity of less than three months Total cash and cash equivalents At 31 December 2015 At 31 December 2014 12,273 12,327 24,600 8,077 33,471 41,548 As of 31 December 2015 the majority of cash and cash equivalents are held in Bank Zenit and its subsidiaries, Sberbank, Svyaz-bank and The Ural Bank for Reconstruction and Development. As of 31 December 2014 the majority of cash and cash equivalents are held in Bank Zenit and its subsidiaries, Sberbank, Raiffeisenbank, VTB and Ak Bars Bank. Bank deposits rep- resent deposits with original maturities of less than three months. The fair value of cash and term deposits approximates their carrying value. The credit quality of cash and cash equivalents balances may be summarised as follows: Investment grade rating Non-investment grade rating No external rating Total At 31 December 2015 At 31 December 2014 Cash on hand and in banks Term deposits Cash on hand and in banks Term deposits 1,758 9,053 1,462 - 4,758 7,569 12,273 12,327 287 6,486 1,304 8,077 - 33,264 207 33,471 Investment grade ratings classification referred to as Aaa to Baa3 for Moody’s Investment Services, as AAA to BBB- for Fitch Rating and as AAA to BBB for Standard and Poor’s Rating, respectively. The estimated fair value of short-term and long-term accounts receivable approximates their carrying value. Analysis by credit quality of trade and other receivables is as follows: Not over due and not impaired 56,896 4,059 40,784 4,803 At 31 December 2015 At 31 December 2014 Trade receivables Other financial receivables Trade receivables Other financial receivables Past due but not impaired - less than 90 days overdue - 91 to 180 days overdue - over 180 days overdue Total past due but not impaired Individually determined to be impaired (gross) - less than 90 days overdue - 91 to 180 days overdue - over 180 days overdue Total individually impaired Less provision for impairment Total 852 417 - 1,269 - - 1,517 1,517 (1,517) 58,165 60 59 56 175 - - 451 451 (451) 4,234 1,333 246 - 1,579 - - 19,880 19,880 (19,880) 42,363 134 40 83 257 - - 447 447 (447) 5,060 Movements in the provision for impairment for trade and other receivables are as follows: Provision for impairment at 1 January (Provision for impairment)/recovery during the year Amounts written off during the year as uncollectible Foreign exchange gain/(loss) Change in Group structure 2015 2014 Trade receivables Other financial receivables Trade receivables Other financial receivables (19,880) (498) 18,111 750 - (447) (4) - - - (12,110) (4) 9 (7,813) 38 (517) 58 6 - 6 Note 7: Accounts receivable Short-term and long-term accounts receivable comprise the following: Short-term accounts receivable: Trade receivables Other financial receivables Less provision for impairment Total short-term accounts receivable Long-term accounts receivable: Trade receivables Other financial receivables Less provision for impairment Total long-term accounts receivable Total financial assets within trade and other receivables At 31 December 2015 At 31 December 2014 Provision for impairment at 31 December (1,517) (451) (19,880) (447) As of 31 December 2014 the Group had receivables from ChMPKP Avto of US $334 million, relating to the sale of crude oil to Ukraine (Kremenchug refinery), which had been fully provided for (Note 24). During the year ended 31 December 2015 the receivables were written off against the provision due to bankruptcy and subsequent liquidation of the debtor (intermediary in the crude oil sales transaction). 58,170 3,891 (1,910) 60,151 1,512 794 (58) 2,248 62,399 61,591 4,748 (20,280) 46,059 650 761 (47) 1,364 47,423 126 127 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Note 8: Short-term financial assets Short-term financial assets comprise the following: Loans and receivables: Notes receivable Other loans (net of provision for impairment of RR 23 million and RR 50 million as of 31 December 2015 and 2014) Certificates of deposit Financial assets at fair value through profit or loss: Held-for-trading Total short-term financial assets At 31 December 2015 At 31 December 2014 5,596 3,617 2,594 1,248 13,055 3,536 3,156 16,111 2,520 25,323 During the year ended 31 December 2015 purchases of certificates of deposit and cash proceeds from certificates of deposit were RR 91,851 million and RR 112,368 million, respectively. During the year ended 31 December 2014 purchases of certificates of deposit and cash proceeds from certificates of deposit were RR 78,425 million and RR 71,287 million, respectively. During the year ended 31 December 2015 cash issuance of notes receivable and other loans and cash proceeds from notes receivable and other loans were RR 4,149 million and RR 7,190 million, respectively. During the year ended 31 December 2014 cash issuance of notes receivable and other loans and cash proceeds from notes receivable and other loans were RR 5,185 million and RR 6,485 million, respectively. The estimated fair value of loans and receivables approximates their carrying value. Financial assets at fair value through profit and loss comprise the following: Held-for-trading: Russian government debt securities Corporate debt securities Equity securities Total financial assets at fair value through profit and loss At 31 December 2015 At 31 December 2014 85 562 601 1,248 152 1,705 663 2,520 Information on trading securities issued by related parties is disclosed in Note 23. 128 Note 9: Inventories Materials and supplies Crude oil Refined oil products Petrochemical supplies and finished goods Total inventories Note 10: Prepaid expenses and other current assets Prepaid expenses and other current assets are as follows: Prepaid export duties VAT recoverable Advances (Note 27) Prepaid transportation expenses Other Prepaid expenses and other current assets Note 11: Long-term financial assets Long-term financial assets comprise the following: At 31 December 2015 At 31 December 2014 11,861 6,436 7,586 6,159 32,042 10,924 8,799 7,634 5,105 32,462 At 31 December 2015 At 31 December 2014 6,678 9,473 28,985 1,192 1,705 48,033 14,177 5,788 7,289 1,621 2,282 31,157 At 31 December 2015 At 31 December 2014 Loans and receivables: Notes receivable (net of provision for impairment of RR 318 million as of 31 December 2015 and 2014) Loans to employees (net of provision for impairment of RR 1,414 million as of 31 December 2015) Other loans Certificates of deposit Available-for-sale investments (Note 26) Total long-term financial assets 4,181 1,262 1,963 17,774 23,289 48,469 3,571 2,636 2,353 16,581 4,752 29,893 129 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The fair value of long-term financial assets is estimated by discounting the future contractual cash inflows at the market inter- est rate available to the Group at the end of the reporting period. The carrying amounts and fair values of long-term financial assets are as follows: Notes receivable Loans to employees Other loans Certificates of deposit Total long-term financial assets Carrying amounts Fair values At 31 December 2015 At 31 December 2014 At 31 December 2015 At 31 December 2014 4,181 1,262 1,963 17,774 25,180 3,571 2,636 2,353 16,581 25,141 3,872 1,262 1,545 17,567 24,246 3,292 2,636 1,852 11,578 19,358 During the year ended 31 December 2015 purchases of long-term certificates of deposit were RR 7,000 million. During the year ended 31 December 2014 purchases of long-term certificates of deposit were RR 460 million. During the year ended 31 December 2015 cash issuance of long-term notes receivable and other loans and cash proceeds from long-term notes receivable and other loans were RR 4,142 million and RR 558 million, respectively. During the year ended 31 December 2014 cash issuance of long-term notes receivable and other loans and cash proceeds from long-term notes receivable and other loans were RR 5,235 million and RR 1,759 million, respectively. Note 12: Investments in associates and joint ventures Investments in associates and joint ventures comprise the following: Name of an investee Associates and joint ventures: Bank Zenit Other Total Ownership percentage at 31 December Net book value as 31 December Group’s share of profit/(loss) for 2015 2014 2015 2014 2015 2014 25 20-75 25 20-75 5,246 386 5,632 7,131 81 7,212 (2,111) (61) (2,172) 402 (715) (313) The country of incorporation or registration is also their principal place of business. For all major associates and joint ventures the country of incorporation is the Russian Federation. The table below summarises the movements in the carrying amount of the Group’s investment in associates and joint ventures: Net book value at 1 January Share of result of associates and joint ventures Share of other comprehensive income/(loss) of associates and joint ventures Reclassification on loss of control/disposal of associates (reclassification on obtaining control) Others Net book value at 31 December 130 2015 7,212 (2,172) 222 - 370 5,632 2014 7,778 (313) (270) (14) 31 7,212 The condensed financial information of the Group’s equity basis investments is as follows: Sales/interest income Net (loss)/income Other comprehensive income/(loss) Total comprehensive (loss)/income Total assets Total liabilities Note 13: Property, plant and equipment Year ended 31 December 2015 Year ended 31 December 2014 Bank Zenit 32,318 (9,498) 902 (8,596) 314,817 293,771 Other 3,496 (139) - (139) 6,502 6,138 Bank Zenit 26,617 1,636 (1,098) 538 335,097 305,447 Other 6,513 (722) - (722) 6,406 6,074 Oil and gas properties Buildings and constructions Machinery and equipment Construc-tion in progress Total Cost As of 31 December 2013 340,725 153,770 118,514 106,809 Additions Disposals Changes in Group structure Transfers Changes in decommissioning provision As of 31 December 2014 38 (3,199) - 23,882 (12,988) 348,458 - (1,723) (6) 27,525 - 825 (1,355) (2) 26,615 - 64,912 (3,313) (7) (78,022) - 179,566 144,597 90,379 Depreciation, depletion and amortisation As of 31 December 2013 Depreciation charge Disposals Changes in Group structure As of 31 December 2014 Net book value As of 31 December 2013 As of 31 December 2014 Cost 158,527 23,659 8,928 (2,975) - 4,570 (309) (2) 55,749 8,394 (1,127) - 164,480 27,918 63,016 - - - - - 182,198 183,978 130,111 151,648 62,765 81,581 106,809 90,379 481,883 507,586 As of 31 December 2014 348,458 179,566 144,597 Additions Disposals Changes in Group structure Transfers Changes in decommissioning provision As of 31 December 2015 41 (2,912) - 31,945 (17,631) 359,901 - (467) (345) 7,494 - 1 (1,166) (8,007) 12,547 - 90,379 101,884 (4,553) (1) (51,986) - 186,248 147,972 135,723 719,818 65,775 (9,590) (15) - (12,988) 763,000 237,935 21,892 (4,411) (2) 255,414 763,000 101,926 (9,098) (8,353) - (17,631) 829,844 131 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Depreciation, depletion and amortisation As of 31 December 2014 Depreciation charge Disposals Changes in Group structure As of 31 December 2015 Net book value As of 31 December 2014 As of 31 December 2015 Exploration and evaluation assets included in Oil and Gas assets above, net book value: 164,480 9,589 (2,703) - 27,918 4,744 (310) (158) 171,366 32,194 63,016 10,734 (692) (4,552) 68,506 - - - - - 255,414 25,067 (3,705) (4,710) 272,066 183,978 188,535 151,648 154,054 81,581 79,466 90,379 135,723 507,586 557,778 At 1 January 2014 Additions Reclassification to development assets Charged to expense At 31 December 2014 Additions Reclassification to development assets Charged to expense At 31 December 2015 12,230 904 (823) (988) 11,323 430 (150) (4,558) 7,045 Advances for construction of RR 12,326 million and RR 11,841 million at 31 December 2015 and 2014, respectively are included within construction in progress. For the years ended 31 December 2015 and 2014, operating and investing cash flows used for exploration and evaluation activi- ties amounted to RR 1,856 million and RR 430 million and RR 2,100 million and RR 904 million, respectively. As stated in Note 3, the Group calculates depreciation, depletion and amortization for oil and gas properties using the units-of-pro- duction method over proved or proved developed oil and gas reserves depending on the nature of the costs involved. The proved or proved developed reserves used in the units-of-production method assume the extension of the Group’s production license beyond their current expiration dates until the end of the economic lives of the fields as discussed below in further detail. Social assets. During the years ended 31 December 2015 and 2014 the Group transferred social assets with a net book value of RR 22 million and RR 1 million, respectively, to local authorities. At 31 December 2015 and 2014 the Group held social assets with a net book value of RR 5,459 million and RR 5,442 million, respectively, all of which were constructed after the privatiza- tion date. The Group’s oil and gas fields are located principally on the territory of Tatarstan. The Group obtains licenses from the govern- mental authorities to explore and produce oil and gas from these fields. The Group’s existing production licenses for its major fields expire, after their recent extension, between 2026 and 2038, with other production licenses expiring between 2018 and 2044. The economic lives of many of the Group’s licensed fields extend beyond these dates. Under Russian law, the Group is entitled to renew the licenses to the end of the economic lives of the fields, provided certain conditions are met. Article 10 of the Subsoil Law provides that a license to use a field “shall be” extended at its scheduled termination at the initiative of the subsoil user if necessary to finish production in the field, provided that there are no violations of the conditions of the license. The legis- lative history of Article 10 indicates that the term “shall” replaced the term “may” in August 2004, clarifying that the subsoil user has the right to extend the license term so long as it has not violated the conditions of the license. In August 2006, the term of the Group’s license to produce oil and gas from the Group’s largest field, Romashkinskoye, was extended through 2038. And the license to produce oil and gas from the Group’s second largest field, Novo-Elkhovskoe, was extended through 2026. The Group’s right to extend licenses is, however, dependent on the Group continuing to comply with the terms of the licenses, and management has the ability and intent to do so. Management plans to request the extension of the licenses that have not yet been extended. The Group’s current production plans are based on the assumption, which management considers to be reasonably certain, that the Group will be able to ex- tend all existing licenses. These plans have been designed on the basis that the Group will be producing crude oil through the economic lives of the fields and not with a view to exploiting the Group’s reserves to maximum effect only through the license expiration dates. Management is reasonably certain that the Group will be allowed to produce oil from the Group’s reserves after the expiration of existing production licenses and until the end of the economic lives of the fields. “Reasonable certainty” is the applicable standard for defining proved reserves under the SEC’s Regulation S-X, Rule 4-10. The social assets comprise mainly dormitories, hotels, gyms and other facilities. The Group may transfer some of these social assets to local authorities in the future, but does not expect these to be significant. The Group incurred social infrastructure expenses of RR 4,643 million and RR 4,090 million for the years ended 31 December 2015 and 2014, respectively, for mainte- nance that mainly relates to housing, schools and cultural buildings. Decommissioning provisions. The following tables summarize the Group’s decommissioning provisions and decommissioning costs activities: Balance, beginning of period Unwinding discount New obligations Release of existing obligations Changes in estimates Balance, end of period Less: current portion of decommissioning provisions (Note 16) Long-term balance, end of period 2015 2014 45,738 55,037 5,337 502 (27) (18,133) 33,417 (65) 4,397 328 (708) (13,316) 45,738 (959) 33,352 44,779 In 2015 the Group recorded the change in estimate for oil and gas properties decommissioning due to the change in discount rate, estimated cost per well and expected long-term inflation rate Key assumptions used for evaluation of decommissioning provision were as follows: Discount rate Inflation rate At 31 December 2015 At 31 December 2014 9.75% 5.85% 11.67% 7.75% 132 133 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Note 14: Other long-term assets Other long-term assets are as follows: Prepaid computer programs Prepaid license agreements Other long-term assets Total other long-term assets Note 15: Debt Short-term debt Foreign currency denominated debt Current portion of long-term debt Other foreign currency denominated debt Rouble denominated debt Current portion of long-term debt Other rouble denominated debt Total short-term debt Long-term debt Foreign currency denominated debt US $2.0 bln 2010 credit facility US $75 mln 2011 credit facility US $144.5 mln 2011 credit facility EUR 55 mln 2013 credit facility Other foreign currency denominated debt Rouble denominated debt Other rouble denominated debt Total long-term debt Less: current portion of long-term debt Total long-term debt, net of current portion Foreign currency debts are primarily denominated in US Dollars. At 31 December 2015 At 31 December 2014 1,521 59 1,220 2,800 1,985 90 1,220 3,295 At 31 December 2015 At 31 December 2014 3,937 299 31 1,014 5,281 3,144 2,952 4,921 4,038 1,069 724 16,848 (3,968) 12,880 11,887 382 75 3,515 15,859 10,779 2,573 4,273 3,521 2,830 874 24,850 (11,962) 12,888 Long-term debt had the following maturity profile (based on the discounted contractual cash flows): Due for repayment: Between one and two years Between two and five years After five years Total long-term debt, net of current portion At 31 December 2015 At 31 December 2014 2,665 6,714 3,501 12,880 2,848 5,021 5,019 12,888 The Group does not apply hedge accounting and has not entered into any hedging arrangements in respect of its foreign cur- rency obligations or interest rate exposures. Short-term Russian Rouble denominated debt. Russian Rouble denominated short-term debt is primarily comprised of loans with Russian banks. Short-term Rouble denominated loans of RR 1,014 million and RR 3,515 million bear contractual interest rates of 12.5% to 13.7% per annum as of 31 December 2015 and 8% to 14.85% per annum as of 31 December 2014. Long-term foreign currency denominated debt. In June 2010, the Company entered into a triple (3, 5 and 7 year) tranches secured credit facility for up to US $2 billion arranged by Barclays Bank PLC, BNP Paribas (Suisse) SA, Bank of Moscow, Bank of Tokyo-Mitsubishi UFJ LTD, Citibank N.A., Commerzbank Aktiengesellschaft, ING Bank N.V., Natixis SA, Nordea Bank, The Royal Bank of Scotland N.V., Sberbank, Société Générale, Sumitomo Mitsui Finance Dublin LTD, Unicredit Bank AG, VTB Bank and WestLB AG. The loan is collateralized with the contractual rights and receivables under an export contract between Tatneft and Tatneft Europe AG under which Tatneft supplies no less than 750,000 metric tons of oil in a calendar quarter. The loan agreement requires compliance with certain financial covenants including, but not limited to, minimum levels of consolidated tangible net worth and interest coverage ratios. The 7-year tranche bears the interest of LIBOR plus 5%. The 3-year and 5-year tranches were fully repaid. In November 2011, TANECO entered into a US $75 million credit facility with equal semi-annual repayments during ten years. The loan was arranged by Nordea Bank AB (Publ), Société Générale and Sumitomo Mitsui Banking Corporation Europe Lim- ited. The loan bears interest at LIBOR plus 1.1% per annum. The loan agreement requires compliance with certain financial covenants including, but not limited to, minimum levels of consolidated tangible net worth and interest coverage ratios. In November 2011, TANECO entered into a US $144.5 million credit facility with equal semi-annual repayments during ten years with the first repayment date on 15 May, 2014. The loan was arranged by Société Générale, Sumitomo Mitsui Banking Corpora- tion Europe Limited and the Bank of Tokyo-Mitsubishi UFJ LTD. The loan bears interest at LIBOR plus 1.25% per annum. The loan agreement requires compliance with certain financial covenants including, but not limited to, minimum levels of consoli- dated tangible net worth and interest coverage ratios. In May 2013, TANECO entered into a EUR 55 million credit facility with equal semi-annual repayment during ten years. The loan was arranged by The Royal Bank of Scotland plc and Sumitomo Mitsui Banking Corporation Europe Limited. The loan bears interest at LIBOR plus 1.5% per annum. The loan agreement requires compliance with certain financial covenants including, but not limited to, minimum levels of consolidated tangible net worth and interest coverage ratios. Management believes that for the year ended 31 December 2015 and 2014 the Group was in compliance with all covenants required by the above loan agreements. 134 135 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The carrying amounts and fair-values of long-term debt are as follows: US$ denominated fixed rate US$ denominated floating rate EUR denominated floating rate RR denominated fixed rate Total long-term debt Carrying amounts Fair values At 31 December 2015 At 31 December 2014 At 31 December 2015 At 31 December 2014 1,069 11,017 4,038 724 2,830 17,625 3,521 874 16,848 24,850 1,069 10,383 3,361 724 15,537 2,830 13,910 2,015 874 19,629 The fair value of long-term debts was determined based on future cash flows discounted at the market interest rate available to the Group at the end of the reporting period. Note 16: Accounts payable and accrued liabilities Trade payables Dividends payable Other payables Total financial liabilities within trade and other payables Salaries and wages payable Advances received from customers Current portion of decommissioning provisions (Note 13) Other accounts payable and accrued liabilities Total non-financial liabilities Accounts payable and accrued liabilities At 31 December 2015 At 31 December 2014 27,816 133 580 28,529 4,746 2,847 65 7,301 14,959 43,488 17,269 117 1,347 18,733 4,187 6,883 959 7,237 19,266 37,999 The fair value of each class of financial liabilities included in short-term trade and other payables at 31 December 2015 and 2014 approximates their carrying value. Note 17: Other long-term liabilities Other long-term liabilities are as follows: Pension liability Other long-term liabilities Total other long-term liabilities Pension liabilities At 31 December 2015 At 31 December 2014 3,871 248 4,119 2,749 211 2,960 The Group has various pension plans covering substantially all eligible employees and members of management. The amount of con- tributions, frequency of benefit payments and other conditions of these plans are regulated by the “Statement of Organization of Non- Governmental Pension Benefits for PJSC Tatneft Employees” and the contracts concluded between the Company or its subsidiaries, management, and the non-profit organization “National Non-Governmental Pension Fund”. In accordance with these contracts the Group is committed to make certain contributions on behalf of all employees and guarantees a minimum benefit upon retirement. Con- tributions or benefits are generally based upon grade and years until official retirement age (age 60 for men and 55 for women), and in the case of management are based upon years of service. In accordance with the provisions of collective agreements concluded on an annual basis between the Company or its subsidiaries and their employees, the Group is obligated to pay certain post-employment benefits, the amounts of which are generally based on salary grade and years of service at the time of retirement. Principal actuarial assumptions are as follows: Discount rate Rate of increase in salary levels Actuarial rate of NPF Statutory insurance contributions rate At 31 December 2015 At 31 December 2014 9.7% 6.27% 3.0% 30.69% 12.75% 7.5% 3.0% 30.47% Management has assessed that reasonable changes in the principal significant actuarial assumptions will not have a significant impact on the consolidated statements of profit of loss and other comprehensive income or the liability recognized in the con- solidated statement of financial position. Amounts recognized in the consolidated statement of financial position: At 31 December 2015 At 31 December 2014 Present value of defined benefit obligation Less: Fair value of plan assets Net defined benefit liability Change in the defined benefit obligation amount: Defined benefit obligation at beginning year Effect of exchange rate changes Current service cost Interest cost Benefits paid Remeasurement losses/(gains): Actuarial losses/(gains) arising from changes in financial assumptions Actuarial losses arising from changes in demographic assumptions Actuarial losses - Experience Past service cost Other 5,834 (1,963) 3,871 2015 4,379 48 140 558 (677) 643 38 640 65 - 4,379 (1,630) 2,749 2014 5,598 50 189 448 (531) (1,510) 30 56 101 (52) Defined benefit obligation at the end of the year 5,834 4,379 136 137 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The amounts recognized in profit or loss are as follows: Plan assets structure: Service cost Net interest expense Remeasurement losses/(gains): Actuarial losses/(gain) arising from changes in financial assumptions Actuarial losses arising from changes in demographic assumptions Actuarial losses/(gains) – Experience Other Total included in ‘employee benefits expense’ The amounts recognized in other comprehensive income are as follows: Remeasurement losses/(gains): Actuarial losses/(gains) arising from changes in financial assumptions Actuarial losses arising from changes in demographic assumptions Actuarial losses – Experience Effect of exchange rate changes Total included in other comprehensive income Reconciliation of the opening and closing balances of plan assets’ fair value: Plan assets at beginning of year Interest income Contributions Benefits paid Actuarial gain/(loss) Other Plan assets at year end 2015 205 350 143 13 153 - 864 2015 229 25 487 48 789 2015 1,630 208 193 (340) 272 - 1,963 2014 272 301 (323) 10 (100) (52) 108 2014 (845) 20 155 50 (620) 2014 1,830 146 229 (232) (342) (1) 1,630 Russian corporate bonds and equity securities of Russian issuers Russian government and regions bonds Bank deposits Foreign government securities Other Total plan assets At 31 December 2015 At 31 December 2014 32.61% 11.6% 33.86% 6.9% 15.03% 100% 34.61% 8.51% 33.84% 10.11% 12.93% 100% Expected contributions to be paid during the next annual reporting period are RR 625 million. Note 18: Taxes Income tax expense comprises the following: Current income tax expense Deferred income tax expense Income tax expense for the year Year ended 31 December 2015 Year ended 31 December 2014 (30,954) (902) (31,856) (21,376) (4,920) (26,296) Presented below is reconciliation between the provision for income taxes and taxes determined by applying the statutory tax rate 20% (for the year ended 31 December 2014: 20%) to income before income taxes: Profit before income taxes and non-controlling interest Theoretical income tax expense at statutory rate Increase due to: Non-deductible expenses, net Other Income tax expense Year ended 31 December 2015 Year ended 31 December 2014 137,628 (27,526) (3,150) (1,180) 123,973 (24,795) (2,545) 1,044 (31,856) (26,296) The annual contributions made by the Group are managed by the Fund. The primary investment objectives of the Fund are to achieve the highest rate of total return within prudent levels of risk and liquidity, to diversify and mitigate potential downside risk associated with the investments, and to provide adequate liquidity for benefit payments and portfolio management. No provision has been made for additional income taxes on RR 31,159 million of undistributed earnings of certain subsidiaries. These earnings have been and will continue to be reinvested. These earnings could become subject to additional tax of ap- proximately RR 1,964 million if they were remitted as dividends. 138 139 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for statutory tax purposes. Deferred tax assets (liabilities) are comprised of the following: For mineral extraction tax for fields whose depletion rate exceeds a certain threshold the Group received a benefit of approxi- mately RR 22.1 billion and RR 29.7 billion for the years ended 31 December 2015 and 2014, respectively. At 31 December 2015 and 2014 taxes payable were as follows: Tax loss carry forward Decommissioning provision Other Deferred income tax assets Property, plant and equipment Inventories Accounts receivable Long-term investments Other liabilities Deferred income tax liabilities Net deferred tax liability At 31 December 2015 At 31 December 2014 4,220 6,670 814 11,704 (29,449) (980) (57) 217 (671) (30,940) (19,236) 4,508 8,956 778 14,242 (27,458) (2,370) (319) (94) (2,618) (32,859) (18,617) Mineral extraction tax Value Added Tax on goods sold Export duties Property tax Other Total taxes payable Note 19: Shareholders’ equity At 31 December 2015 At 31 December 2014 7,401 3,909 2,534 1,360 2,998 7,300 2,694 596 1,419 2,431 18,202 14,440 Deferred income taxes are reflected in the consolidated statement of financial position as follows: Deferred income tax asset Deferred income tax liability Net deferred tax liability At 31 December 2015 At 31 December 2014 2,535 (21,771) (19,236) 2,982 (21,599) (18,617) Deferred tax assets are recognized for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which the unused tax losses/credits can be utilized. Tax losses carry forward. At 31 December 2015, the Group had recognized deferred income tax assets of RR 4,220 million (RR 4,508 million at 31 December 2014) in respect of unused tax loss carry forwards of RR 21,102 million (RR 22,541 million at 31 December 2014). Tax losses can be carried forward for relief against taxable profits for 10 years after they are incurred, subject to certain limitations. In determining future taxable profits and the amount of tax benefits that are probable in the fu- ture management makes judgments including expectations regarding the Group’s ability to generate sufficient future taxable income and the projected time period over which deferred tax benefits will be realized. The Group doesn’t have any unrecognised potential deferred tax assets in respect of deductible temporary differences. Authorized share capital. At 31 December 2015 the authorized share capital consists of 2,178,690,700 voting common shares and 147,508,500 non-voting preferred shares; both classes of shares have a nominal value of RR 1.00 per share. The nominal value of au- thorised share capital differs from its carrying value due to effect of the hyperinflation of capital contributions made before 2003. Golden share. JSC Svyazinvestneftekhim, a company wholly owned by the government of Tatarstan, as of 31 December 2015 and 2014 holds approximately 33.59% of the Company’s capital stock (approximately 36% of voting stock). These shares were contributed to Svyazinvestneftekhim by the Ministry of Land and Property Relations of Tatarstan in 2003. Tatarstan also holds a “Golden Share” – a special governmental right – in the Company. The exercise of its powers under the Golden Share enables the Tatarstan government to appoint one representative to the Board of Directors and Revision Commission of the Company and to veto certain major decisions, including those relating to changes in the share capital, amendments to the Charter, liquidation or reorganization and “major” and “in- terested party” transactions as defined under Russian law. The Golden Share currently has an indefinite term. The Tatarstan government also controls or exercises significant influence over a number of the Company’s suppliers, contractors and customers (see also Note 1). Rights attributable to preferred shares. Unless a different amount is approved at the annual shareholders meeting, preferred shares earn dividends equal to their nominal value. The amount of a dividend for a preferred share may not be less than the amount of a divi- dend for a common share. Preferred shareholders may vote at meetings only on the following decisions: • the amendment of the dividends payable per preferred share; • the issuance of additional shares with rights greater than the current rights of preferred shareholders; and • the liquidation or reorganization of the Company. The Group is subject to a number of taxes other than income taxes, which are detailed as follows: The decisions listed above can be made only if approved by 75% of preferred shareholders. Mineral extraction tax Property tax Penalties and interest Other Total taxes other than income taxes 140 Year ended 31 December 2015 Year ended 31 December 2014 129,608 5,888 86 1,798 137,380 110,416 5,161 53 1,430 117,060 Holders of preferred shares acquire the same voting rights as holders of common shares in the event that dividends are either not declared, or declared but not paid, on preferred shares. On liquidation, the shareholders are entitled to receive a distribution of net as- sets. Under Russian Joint Stock Companies Law and the Company’s charter in case of liquidation, preferred shareholders have priority over shareholders holding common shares to be paid declared but unpaid dividends on preferred shares and the liquidation value of preferred shares, if any. Amounts available for distribution to shareholders. Amounts available for distribution to shareholders are based on the Company’s non-consolidated statutory accounts prepared in accordance with RAR, which differ significantly from IFRS (see Note 2). The statu- tory accounts are the basis for profit distribution and other appropriations. Russian legislation identifies the basis of distribution as the current period net profit calculated in accordance with RAR. However, this legislation and other statutory laws and regulations dealing 141 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES with distribution rights are open to legal interpretation. For the years ended 31 December 2015 and 2014, the Company had a statutory current profit of RR 85,009 million and RR 82,061 million, respectively. In June 2015 the shareholders of the Company approved the payment of dividends for the year ended 31 December 2014 in amount of RR 10.58 per preference and ordinary share. In June 2014 the shareholders of the Company approved the payment of dividends for the year ended 31 December 2013 in amount of RR 8.23 per preference and ordinary share. Earnings per share. Preference shares are not redeemable and are considered to be participating shares. Basic and diluted earnings per share are calculated by dividing profit or loss attributable to ordinary and preference shareholders by the weighted average number of ordinary and preferred shares outstanding during the period. Profit or loss attributed to equity holders is reduced by the amount of dividends declared in the current period for each class of shares. The remaining profit or loss is allocated to common and preferred shares to the extent that each class may share in earnings if all the earnings for the period had been distributed. Treasury shares are ex- cluded from calculations. The total earnings allocated to each class of shares are determined by adding together the amount allocated for dividends and the amount allocated for a participation feature. Profit attributable to Group shareholders Common share dividends Preferred share dividends Income available to common and preferred shareholders, net of dividends Basic and diluted: Weighted average number of shares outstanding (millions of shares): Common Preferred Combined weighted average number of common and preferred shares outstanding Basic and diluted earnings per share (RR) Common Preferred Year ended 31 December 2015 Year ended 31 December2014 98,930 (22,463) (1,561) 74,906 2,123 148 2,271 43.56 43.53 92,227 (17,474) (1,214) 73,539 2,123 148 2,271 40.61 40.58 Non-controlling interest. Non-controlling interest is adjusted by dividends paid by the Group’s subsidiaries amounting to RR 2,034 million and RR 1,819 million at 31 December 2015 and 2014, respectively. Note 20: Employee benefit expenses Wages and salaries Statutory insurance contributions Bonus certificates granted to directors and employees Pension costs – defined benefit plans (Note 17) Other employee benefits Total employee benefit expense Year ended 31 December 2015 Year ended 31 December 2014 39,018 11,438 1,257 864 2,055 54,632 35,144 10,197 1,235 108 2,467 49,151 Employee benefit expenses are included in operating expenses, selling, general and administrative expenses and Mainte- nance of social infrastructure and transfer of social assets and other expenses in the Consolidated Statements of Profit or Loss and Other Comprehensive Income. Note 21: Interest income and interest expense Interest income comprises the following: Interest income from loans and receivables Unwinding of the present value discount of long-term financial assets Total interest income Interest expense comprises the following: Bank loans Unwinding of the present value discount of decommissioning provision Unwinding of the present value discount of long-term financial assets and liabilities Total interest expense Less capitalised interest costs Total interest costs recognised in profit or loss Note 22: Segment information Year ended 31 December 2015 Year ended 31 December 2014 10,873 150 11,023 6,852 92 6,944 Year ended 31 December 2015 Year ended 31 December 2014 1,082 5,337 1,272 7,691 - 7,691 1,660 4,123 45 5,828 (346) 5,482 Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the Board of Directors and the Management Committee and for which discrete financial information is available. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. The Group’s business activities are conducted predominantly through three main operating segments: consist of transfer of crude oil to refinery and other goods and services provided to other operating segments, • Exploration and production consists of exploration, development, extraction and sale of own crude oil. Intersegment sales • Refining and marketing comprises purchases and sales of crude oil and refined products from third parties, own refining • Petrochemical products include production and sales of tires and petrochemical raw materials and refined products, which activities and retailing operations, are used in production of tires. Other sales include revenues from ancillary services provided by the specialized subdivisions and subsidiaries of the Group, such as sales of oilfield equipment and drilling services provided to other companies in Tatarstan, revenues from the sale of auxiliary petro- chemical related services and materials as well as other business activities, which do not constitute reportable business segments. The Group evaluates performance of its reportable operating segments and allocates resources based on segment earnings, de- fined as profit before income taxes and non-controlling interest not including interest income, expense, and gains from equity in- vestments, other income (expenses) and foreign exchange loss or gain. Intersegment sales are at prices that approximate market. Group financing (including interest expense and interest income) and income taxes are managed on a Group basis and are not allocated to operating segments. For the year ended 31 December 2015, revenues of RR 68,833 million or 12% of the Group’s total sales and operating revenues is derived from one external customer. 142 143 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES For the year ended 31 December 2014, revenues of RR 61,719 million or 13% of the Group’s total sales and operating revenues is derived from one external customer. These revenues represent sales of crude oil and are attributable to the exploration and production segment and refining and market- ing segment. Management does not believe the Group is dependent on any particular customer. Corporate and other sales Elimination of intersegment sales Total sales and other operating revenues Year ended 31 December 2015 Year ended 31 December 2014 17,763 (121,535) 552,712 17,585 (113,547) 476,360 (1) - CIS is an abbreviation for Commonwealth of Independent States (excluding the Russian Federation). (2) - Non-CIS sales of crude oil and refined products are mainly made to Germany, Switzerland, Netherlands and United Kingdom based traders and Poland based refineries. Segment sales and other operating revenues. Reportable operating segment sales and other operating revenues are stated in the following table: Segment earnings. Exploration and production Domestic own crude oil CIS own crude oil Non-CIS own crude oil Other Intersegment sales Year ended 31 December 2015 Year ended 31 December 2014 73,486 19,328 150,295 5,864 117,088 75,601 8,825 105,411 4,263 109,215 Total exploration and production 366,061 303,315 Refining and marketing Domestic sales Crude oil purchased for resale Refined products Total Domestic sales CIS sales Refined products Total CIS sales(1) Non-CIS sales Crude oil purchased for resale Refined products Total non-CIS sales(2) Other Intersegment sales Total refining and marketing Petrochemicals Tires – domestic sales Tires – CIS sales Tires – non-CIS sales Petrochemical products and other Intersegment sales Total petrochemicals Total segment sales 144 15,735 127,592 143,327 15,411 15,411 10,374 72,155 82,529 5,882 3,305 12,218 126,967 139,185 12,087 12,087 10,083 62,329 72,412 5,105 3,399 250,454 232,188 27,641 25,027 6,802 1,999 2,385 1,142 39,969 656,484 6,579 1,486 2,794 933 36,819 572,322 Segment earnings Exploration and production Refining and marketing Petrochemicals Total segment earnings Corporate and other Other income Profit before income tax Segment assets. Assets Exploration and production Refining and marketing Petrochemicals Corporate and other Total assets Year ended 31 December 2015 Year ended 31 December 2014 122,657 16,617 1,482 140,756 (10,255) 7,127 137,628 94,932 16,892 320 112,144 (5,611) 17,440 123,973 At 31 December 2015 At 31 December 2014 297,517 338,852 31,674 130,648 798,691 280,081 294,658 30,094 128,101 732,934 As of 31 December 2015 and 2014 corporate and other segment comprised RR 5,632 million and RR 7,212 million, respectively, investments in associates and joint ventures. The Group’s assets and operations are primarily located and conducted in the Russian Federation. Segment depreciation, depletion and amortisation and additions to property, plant and equipment. Depreciation, depletion and amortization Exploration and production Refining and marketing Petrochemicals Corporate and other Total segment depreciation, depletion and amortization Year ended 31 December 2015 Year ended 31 December 2014 13,340 7,137 1,995 2,580 25,052 11,633 5,516 1,741 2,231 21,121 145 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Additions to property, plant and equipment Exploration and production Refining and marketing Petrochemicals Corporate and other Total additions to property, plant and equipment Year ended 31 December 2015 Year ended 31 December 2014 19,809 58,163 1,027 5,531 84,530 12,186 32,633 1,254 6,714 52,787 For the years ended 31 December 2015 and 2014 additions to property, plant and equipment of exploration and production segment are shown net of RR 17,631 million and RR 12,988 million, respectively, associated with changes in the decommissioning provision. Note 23: Related party transactions Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In con- sidering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Transactions are entered into in the normal course of business with associates, joint ventures, government related companies, key management personnel and other related parties. These transactions include sales and purchases of refined products, purchases of electricity, transportation services and banking transactions. Associates, joint ventures and other related parties The amounts of transactions for each period with associates, joint ventures and other related parties are as follows: Revenues and income Sales of refined products Other sales Interest income Costs and expenses Purchases of crude oil Other services Other purchases Year ended 31 December 2015 Year ended 31 December 2014 15 294 3,622 103 1,575 597 15 324 2,530 148 527 1,644 For the years ended 31 December 2015 and 2014, the Group sold crude oil on a commission basis from related parties for RR 103 million and RR 148 million, respectively. At 31 December 2015 and 2014 the outstanding balances with associates, joint ventures and other related parties were as follows: At 31 December 2015 At 31 December 2014 Assets Cash and cash equivalents Restricted cash Accounts receivable Notes receivable Short-term certificates of deposit Trading securities Loans receivable Prepaid expenses and other current assets Due from related parties short-term Long-term accounts receivable Long-term certificates of deposit Long-term notes receivable Long-term loans receivable Due from related parties long-term Liabilities Accounts payable and accrued liabilities Short-term debt Due to related parties short-term 9,392 211 373 5,085 - 7 428 325 6,258 1,554 421 3,459 4,394 176 515 189 15,821 16,966 14 17,199 4,156 1,715 23,084 (42) (814) (856) 6 16,006 3,360 1,614 20,986 (45) (1,744) (1,789) As of 31 December 2015 and 2014, the Group had RR 10,142 million and RR 7,719 million, respectively, in loans and notes re- ceivable due from Bank Zenit or its wholly-owned subsidiary Bank Devon Credit. These loans and notes mature between 2016 and 2022, bearing interest between 2.23% and 9.99%. As of 31 December 2015 and 2014, the Group has short and long-term certificates of deposit of RR 17,199 million and RR 20,400 million, respectively, held with Bank Zenit or its wholly-owned sub- sidiary Bank Devon Credit. In March 2009 the Group placed a long-term deposit with Bank Zenit for RR 2,140 million payable in 10 years bearing interest 10.85%. In February 2014 an additional agreement was signed, as result of which this deposit will be payable in 15 years with a new interest rate of 9.35% per annum. The Group entered into a subordinated deposit agreement with Bank Zenit in January 2013 in the amount of RR 3,600 million bearing interest of 9% per annum. In October 2015 interest rate was increased to 15% per annum. 146 147 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Russian Government bodies and state organizations The amounts of transactions for each period with Government bodies and state organizations are as follows: sary measures to support the sustainability and development of the Group’s business in the current business and economic environment. Year ended 31 December 2015 Year ended 31 December 2014 Capital commitments. As of 31 December 2015 and 31 December 2014 the Group has outstanding capital commitments of approximately RR 59,294 million and RR 36,977 million, respectively, mainly for the construction of the TANECO refinery com- plex. These commitments are expected to be paid between 2016 and 2018. Sales of crude oil Sales of refined products Other sales Interest income Purchases of crude oil Purchases of refined products Purchases of electricity Purchases of transportation services Other services Other purchases - 11,439 1,841 2,865 841 19,141 11,507 20,005 3,867 7,750 1,292 2,841 330 1,653 - 18,821 11,037 15,061 3,287 204 Compensation to key management personnel As of 31 December 2015 and 2014 total remuneration, including pension cost, for key management personnel was RR 1,797 million and RR 1,582 million, respectively. For the year ended 31 December 2015, the Company issued 6,261,500 Awards to senior management and directors, all of which are expected to be settled at a price of RR 200.76 per Award. Final settlement is subject to approval at the Compa- ny’s Management Committee meeting in July-September 2016. For the year ended 31 December 2014, the Company issued 9,264,850 Awards to senior management and directors, all of which are expected to be settled at a price of RR 133.28 per Award. The amount of related compensation expense recognized in Selling, General and administrative expenses of the Con- solidated Statements of Profit or Loss and Other Comprehensive Income for the years ended 31 December 2015 and 2014 was RR 1,257 million and RR 1,235 million, respectively. Note 24: Contingencies and commitments Operating Environment of the Group The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. Tax, currency and customs legislation is sometimes subject to varying interpretations and contributes to the chal- lenges faced by companies operating in the Russian Federation. During 2015 the Russian economy was negatively impacted by a decline in oil prices and ongoing political tensions. The ongoing uncertainty and volatility of the financial markets and other risks could have significant negative effects on the Russian financial and corporate sectors. Management determined provisions for impairment by considering the economic situation and outlook at the end of the reporting period. These events may have a further significant impact on the Group’s future operations and financial position, the effect of which is difficult to predict. Management believes the Group’s current and long-term capital expenditures program can be funded through cash flows generated from existing operations as well as lines of credit available to the Company. The TANECO refinery project has been funded from the Company’s cash flow with the support of the bank facilities (Note 15). Management believes the Company has the ability to obtain syndicated loans and other financings as needed to continue funding the TANECO refinery project, refinance any maturing debts as well as finance business acquisitions and other transac- tions that may arise in the future. Taxation. The Russian tax legislation is subject to varying interpretations and changes which can occur frequently. Manage- ment’s interpretation of the legislation, as applied to the transactions and activities, may be challenged by the tax authorities. The tax authorities may take a different position in their interpretation of the legislation, and it is possible that transactions and activities that have not been challenged in the past may be challenged. New transfer pricing rules were incorporated in the Russian tax legislation as of 1 January 2012. These transfer pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD), as compared to rules applied earlier. The current legislation allows the Russian Federal Tax Service (hereinafter FTS) to impose additional taxes in respect of controllable transactions (transactions with related parties and certain transactions with unrelated parties), provided that the transaction price is not arm’s length. Given that the practice of implementation of the new Russian transfer pricing rules has not yet developed, the outcome of any disputes with FTS over applied prices cannot be estimated reliably. Management believes that its pricing policy is arm’s length and it has implemented internal processes to be in compliance with the new transfer pricing legislation. The Group believes that its interpretation of the new legislation is appropriate and the Group’s tax position will be sustained. Environmental contingencies. The Group, through its predecessor entities, has operated in Tatarstan for many years with- out developed environmental laws, regulations and the Group’s policies. Environmental regulations and their enforcement are currently being considered in the Russian Federation and the Group is monitoring its potential obligations related thereto. The outcome of environmental liabilities under proposed or any future environmental legislation cannot reasonably be estimated at present, but could be material. Under existing legislation, however, management believes that there are no probable liabilities, which would have a material adverse effect on the operating results or financial position of the Group. Legal contingencies. The Group is subject to various lawsuits and claims arising in the ordinary course of business. The outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present. In the case of all known con- tingencies the Group accrues a liability when the loss is probable and the amount is reasonably estimable. Based on currently available information, management believes that it is remote that future costs related to known contingent liability exposures would have a material adverse impact on the Group’s consolidated financial statements. Social commitments. The Group contributes significantly to the maintenance of local infrastructure and the welfare of its employees within Tatarstan, which includes contributions towards the construction, development and maintenance of housing, hospitals and transport services, recreation and other social needs. Such funding is periodically determined by the Board of Directors after consultation with governmental authorities and recorded as expenditures when incurred. The future economic development of the Russian Federation is dependent upon external factors and internal measures un- dertaken by the government to change the tax, legal and regulatory environment. Management believes it is taking all neces- Guarantees. The Group has no outstanding guarantees at 31 December 2015 and 2014. 148 149 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES Transportation of crude oil. The Group benefits from the blending of its crude oil in the Transneft pipeline system since the Group’s crude oil production is generally of a lower quality than that produced by some other regions of the Russian Federation (mainly Western Siberia) which supply through the same pipeline system. There is currently no equalization scheme for differ- ences in crude oil quality within the Transneft pipeline system and the implementation of any such scheme is not determinable at present. However, if this practice were to change, the Group’s business could be materially and adversely affected. Ukrtatnafta. In May 2008, Tatneft commenced international arbitration against Ukraine on the basis of the agreement be- tween the Government of the Russian Federation and the Cabinet of Ministries of Ukraine on the Encouragement and Mutual Protection of Investments of November 27, 1998 (“Russia-Ukraine BIT”) in connection with the forcible takeover of Ukrtatnafta and seizure of shares of the Group in Ukrtatnafta. In July 2014 the arbitral tribunal issued the award holding Ukraine liable for violation of the Russia-Ukraine BIT and required Ukraine to pay Tatneft US$ 112 million plus interest. Libya. As a result of the political situation in Libya, in February 2011 the Group had to entirely suspend its operations in that country and evacuate all its personnel. In February 2013 the Group started the process of resuming its activities in Libya, includ- ing the return of its personnel to a branch in Tripoli and recommencement of some exploration activities. Due to the deteriora- tion of security situation in Libya in the second half of 2014 the Group had to suspend all of its operations and announced a force-majeure under the Exploration and Production Sharing Agreements, acknowledged by the National Oil Company, which is continuing as of the date of this report. The Group is constantly monitoring the security and political situation in Libya, and plans to resume its operations once the conditions permit to do so. As of 31 December 2015 the Group had approximately RR 5,745 million of assets associated with its Libyan operations of which RR 5,524 million is related to capitalized exploration costs, RR 210 million of inventories and RR 11 million of cash. As of 31 De- cember 2014 the Group had approximately RR 5,731 million of assets associated with its Libyan operations of which RR 5,503 million is related to capitalized exploration costs, RR 210 million of inventories and RR 18 million of cash. Note 25: Principal subsidiaries Set out below are the Group’s principal subsidiaries at 31 December 2015. Unless otherwise stated, the subsidiaries as listed below have share capital consisting solely of ordinary shares, which are held directly by the Group and the proportion of owner- ship interests held equals to the voting rights held by Group. The country of incorporation or registration is also their principal place of business. For all principal subsidiaries the country of incorporation is the Russian Federation, except for Tatneft Eu- rope AG, which is incorporated in Switzerland. Name of entity Principal activity At 31 December 2015 At 31 December 2014 Tatneft Europe AG Taneco JSC TMS group OOO Burenie OOO Nizhnekamskshina PJSC Export oil sales Oil refinery Oil lifting services Drilling services Tires production Nizhnekamskiy zavod shin CMK OOO Tires production Trade House Kama OOO Tires sales Tatneft AZS-Centr OOO Tatneft AZS-Zapad OOO Oil products sales Oil products sales % of ownership Interest held by the Group % of ownership Interest held by the NCI % of ownership Interest held by the Group % of ownership Interest held by the NCI 100 91 - - 73 100 100 100 100 - 9 100 - 27 - - - - 100 91 - - 58 100 100 100 100 - 9 100 100 42 - - - - The total non-controlling interest for the year ended 31 December 2015 is RR 6,842 million, of which RR 2,677 million is attrib- uted to TMS group OOO and Burenie OOO. The total non-controlling interest for the year ended 31 December 2014 is RR 5,450 150 million, of which RR 1,560 million is attributed to TMS group OOO and Burenie OOO. As of 31 December 2015 accumulated non-controlling interest in TMS group OOO was RR 8,699 million and as of 31 December 2014 accumulated non-controlling interest in TMS group OOO and Burenie OOO was RR 9,527 million. The summarised financial information relating to the subsidiaries with material non-controlling interest was as follows: Current assets Non-current assets Current liabilities Non-current liabilities Revenue Profit/(Loss) Year ended 31 December 2015 Taneco JSC TMS group OOO Nizhnekamskshina PJSC Burenie OOO Total Year ended 31 December 2014 Taneco JSC TMS group OOO Nizhnekamskshina PJSC Burenie OOO Total 10,690 1,278 2,411 - 181,959 30,147 3,004 - 25,622 585 3,709 - 155,253 4,751 2,972 - 38,508 33,435 15,344 11,182 6,520 1,977 199 797 14,379 215,110 29,916 162,976 98,469 9,493 14,628 1,380 963 456 183,403 29,344 3,276 970 179,424 1,450 4,935 1,426 13,352 4,902 504 - 37,488 26,866 13,596 14,472 6,786 2,012 (131) (113) 17,427 216,993 187,235 18,758 92,422 8,554 Note 26: Financial risk management Financial risk management objectives and policies. The accounting policies for financial instruments, as described in Note 3, have been applied to the financial statements line items below: Note At 31 December 2015 At 31 December 2014 Financial assets Current Cash and cash equivalents Restricted cash Accounts receivable Short-term financial assets Non-current Long-term accounts receivable Long-term financial assets Total financial assets Financial liabilities Current Trade and other payable Short-term debt and current portion of long-term debt Non-current Long-term debt, net of current portion Total financial liabilities 6 7 8 7 11 16 15 15 24,600 318 60,151 13,055 2,248 48,469 41,548 1,635 46,059 25,323 1,364 29,893 148,841 145,822 (28,529) (5,281) (12,880) (18,733) (15,859) (12,888) (47,480) 151 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The Group‘s activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Group‘s overall risk management program focuses on the unpredict- ability of financial markets and seeks to minimize potential adverse effects on the Group‘s financial performance. The Group has introduced a risk management system and developed a number of procedures to measure, assess and monitor risks and select the relevant risk management techniques. Market risk Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of a business. The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest rate risk and (c) commodity price risk. a) Currency risk The Group operates internationally and is exposed to currency risk arising from various currency exposures primarily with re- spect to the US dollar and the Euro. Foreign exchange risk arises from assets, liabilities, commercial transactions and financing denominated in foreign currencies. The table below summarises the Group’s exposure to foreign currency exchange rate risk at the end of the reporting period: At 31 December 2015 Financial assets Current Cash and cash equivalents Restricted cash Accounts receivable Short-term financial assets Non-current Long-term accounts receivable Long-term financial assets Total financial assets Financial liabilities Current Trade and other payable Short-term debt and current portion of long-term debt Non-current Long-term debt, net of current portion Total financial liabilities Russian Rouble US dollar Other Total 14,721 122 37,990 8,288 2,248 41,566 104,935 9,761 56 20,487 4,767 - 6,903 41,974 118 140 1,674 - - - 24,600 318 60,151 13,055 2,248 48,469 1,932 148,841 (24,988) (1,045) (1,341) (3,713) (2,200) (523) (28,529) (5,281) (693) (8,672) (3,515) (12,880) (26,726) (13,726) (6,238) (46,690) At 31 December 2014 Financial assets Current Cash and cash equivalents Restricted cash Accounts receivable Short-term financial assets Non-current Long-term accounts receivable Long-term financial assets Total financial assets Financial liabilities Current Trade and other payable Short-term debt and current portion of long-term debt Non-current Long-term debt, net of current portion Total financial liabilities Effect on pre-tax profit US $/RR loss US $/RR gain b) Interest rate risk Russian Rouble US dollar Other Total 37,686 - 34,974 22,184 1,364 24,381 120,589 3,778 127 10,242 3,139 - 5,512 22,798 84 1,508 843 - - - 41,548 1,635 46,059 25,323 1,364 29,893 2,435 145,822 (15,964) (3,590) (1,661) (11,484) (1,108) (785) (18,733) (15,859) (799) (8,971) (20,353) (22,116) (3,118) (5,011) (12,888) (47,480) Increase/decrease in exchange rate Year ended 31 December 2015 Year ended 31 December 2014 +10% -10% (2,825) 2,825 (68) 68 The majority of the Group’s borrowings is at variable interest rates (linked to the LIBOR rate). To mitigate the risk of significant changes in the LIBOR rate, the Group’s treasury function performs periodic analysis of the interest rate environment. The Group does not have a formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, the Group performs periodic analysis of the current interest rate environment and depending on that analysis at the time of raising new debts management makes decisions whether to obtain financing on fixed-rate or variable-rate basis would be more beneficial to the Group over the expected period until maturity. Effect on pre-tax profit Increase by 100 basis points Decrease by 100 basis points* * - floating rate decrease capped at zero. Year ended 31 December 2015 Year ended 31 December 2014 (188) 70 (264) 50 The sensitivity analysis is limited only to variable rate loans and borrowings and is conducted with all other variables held constant. The analysis is prepared assuming the amount of variable rate liability outstanding at the reporting date was outstanding for the whole year. Interest rate on variable rate loans and borrowings will effectively change throughout the year in response to fluctuations in market interest rates. The impact measured through the sensitivity analysis does not take into account other potential changes in economic conditions, which may accompany the relevant changes in market interest rates. 152 153 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES c) Commodity price risk Commodity price risk is the risk or uncertainty arising from possible movements in prices for crude oil and related products, and their impact on the Group’s future performance and results of the Group’s operations. A decline in the prices could result in a decrease in net income and cash flows. The Group’s overall strategy in production and sales of crude oil and related products is centrally man- aged. Substantially all the Group’s crude oil export sales to Europe are sold under long-term contracts. The Group assesses on a regular basis potential scenarios for future fluctuation in commodity prices and their impacts on opera- tional and investment decisions. However, in the current environment management estimates may materially differ from actual future impact on the Group’s financial position. Actual results, and the impact on the Group’s operations and financial position, may differ from management’s estimates of potential scenarios. Credit risk Credit risk refers to the risk exposure that a potential financial loss to the Group may occur if a counterparty defaults on its contractual obligations. The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognized in the Consolidated Statement of Financial Position. Credit risk arises from cash and cash equivalents, certificates of deposits, loans and notes receivables, as well as credit expo- sures to customers including outstanding trade and other receivables. Credit risks related to accounts receivable are systematically monitored taking into account the customer’s financial position, past experience and other factors. Management systematically reviews ageing analysis of receivables and uses this informa- tion for calculation of provision for impairment. A significant portion of the Group’s accounts receivable is due from domestic and export trading companies. The Group does not always require collateral to limit the exposure to loss; however, in most cases letters of credit and prepayments are used, especially with respect to accounts receivables from non-CIS sales of crude oil. The Group operates with various customers and a substantial part of its sales relate to major customers. Although collection of accounts receivable could be influenced by economic factors affecting these customers, management believes there is no significant risk of loss to the Group beyond the provisions already recorded. The Company performs an ongoing assessment and monitoring of the risk of default. In addition, as part of its cash management and credit risk function, the Company regularly evaluates the creditworthiness of financial and banking institutions where it deposits cash. The Group deposits available cash mostly with financial institutions in the Russian Federation. To manage this credit risk, the Group allocates its available cash to a variety of Russian banks. Management periodically reviews the credit worthiness of the banks in which it deposits cash. As of 31 December 2015 and 2014 the majority of loans and receivables (Note 8, Note 11) are held in Bank Zenit which is related party to the Group (Note 23) and other non-investment grade entities with credit rating not less than BB- according to Standard and Poor’s. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group‘s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and debt facilities, continuously monitors forecast and actual cash flows and matches the maturity profiles of financial assets and liabilities. The Group prepares various financial plans (monthly, quarterly and annually) which ensures that the Group has 154 sufficient cash on demand to meet expected operational expenses, financial obligations and investing activities for a period of 30 days or more. To fund cash requirements of a more permanent nature, the Group will normally raise long-term debt in avail- able international and domestic markets. All of the Group’s financial liabilities represent non-derivative financial instruments. The following tables summarise the maturity profile of the Group‘s financial liabilities based on contractual undiscounted pay- ments, including interest payments: At 31 December 2015 Short-term debt, current portion of long-term and long- term debt Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total 6,005 3,134 7,513 3,876 20,528 Trade and other payable 28,529 - - - 28,529 At 31 December 2014 Short-term debt, current portion of long-term and long- term debt Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total 16,662 3,465 5,869 5,496 31,492 Trade and other payable 18,733 - - - 18,733 As the amounts included in the table are contractual undiscounted cash flows which include future interest payments, these amounts will not reconcile to the amounts disclosed in the consolidated statement of financial position for borrowings. Fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. The estimated fair values of financial instruments are determined with reference to various market information and other valuation techniques as considered appropriate. The different levels of fair value hierarchy have been defined as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities that Group has the ability to assess at the measure- ment date. For the Group, Level 1 inputs include held-for-trading financial assets that are actively traded on markets. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For the Group, Level 2 inputs include observable market value measures applied to available for sale securities. Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Group‘s own assumptions about the assump- tions a market participant would use in pricing the asset or liability. Recurring fair value measurements The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows: At 31 December 2015 At 31 December 2014 Level 1 Level 2 Level 3 Total carrying value Level 1 Level 2 Level 3 Held-for-trading investments Available-for-sale investments Total 803 - 803 - 445 1,248 1,160 - 1,360 3,504 19,785 23,289 - 3,504 20,230 24,537 1,160 4,752 4,752 - 1,360 Total carrying value 2,520 4,752 7,272 155 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY IN MILLIONS OF RUSSIAN ROUBLES PJSC TATNEFT, ANNUAL REPORT 2015 IN MILLIONS OF RUSSIAN ROUBLES The description of valuation technique and description of inputs used in the fair value measurement for Level 2 and Level 3 measurements at 31 December 2015 and 2014: Management of Capital The primary objective of the Group‘s capital management is to ensure that it maintains a strong credit rating and healthy capi- tal ratios in order to support its business and increase shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. The Group considers equity and debt to be the principal elements of capital management. In order to maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, revise its investment program, attract new or settle existing debt or sell certain non-core businesses. The Group monitors capital on the basis of its gearing ratio. Consolidated total borrowings: – Short-term debt and current portion of long-term debt – Long-term debt, net of current portion – Notes payable Consolidated shareholders’ equity Debt to capital employed ratio, % (Consolidated total borrowings / Consolidated shareholders’ equity) At 31 December 2015 At 31 December 2014 18,421 5,281 12,880 260 628,314 3% 29,006 15,859 12,888 259 555,965 5% Note 27: Subsequent events In March 2016 the Company completed the acquisition of 24.99% ordinary shares of PJSC Nizhnekamskneftekhim and 9% ordi- nary shares of AO TANECO amounting to RR 20,000 million from a government related entity. As of 31 December 2015 cash paid was recognized in prepaid expenses and other current assets. At 31 December 2015 At 31 December 2014 Valuation technique Inputs used Available-for-sale investments 23,289 4,752 Quoted prices for similar investments in active markets, net assets valuation, comparative (market) approach Publicly available information, comparable market prices Total 23,289 4,752 Available-for-sale financial assets as of 31 December 2015 and 2014 are comprised of RR 2,300 million and RR 3,585 million, respectively (8.6% and 11.7%, respectively) of investments in AK Bars Bank shares which are not quoted in any Stock Ex- change and the fair value of which are measured on AK Bars Bank Group level per IFRS Financial Statements (Net assets value) and other publicly available information. Available-for-sale financial assets as at 31 December 2015 also include RR 19,785 million in Closed Mutual Investment Fund AK-BARS - Gorizont which holds investments in land. The Group does not exercise significant influence over this investment and therefore accounts for it as an available-for-sale investment. There were no changes in valuation technique for Level 2 and Level 3 recurring fair value measurements during the year ended 31 December 2015 (2014: none). There have been no transfers between Level 1, Level 2 and Level 3 during the period. Assets and liabilities not measured at fair value but for which fair value is disclosed Fair values analysed by level in the fair value hierarchy and carrying value of assets and liabilities not measured at fair value are as follows: At 31 December 2015 At 31 December 2014 Level 1 Level 2 Level 3 Total carrying value Level 1 Level 2 Level 3 Total carrying value Assets Cash and cash equivalents Restricted cash Accounts receivable Financial assets Total assets Liabilities Debt Trade and other payable Total liabilities 24,600 318 - - 24,918 - - - - - - - - - - - - - 62,399 36,103 24,600 318 62,399 36,987 41,548 1,635 - - 98,502 124,304 43,183 (16,850) (18,161) (28,529) (28,529) (45,379) (46,690) - - - - - - - - - - - - - 47,423 42,162 41,548 1,635 47,423 47,944 89,585 138,550 (23,526) (28,747) (18,733) (18,733) (42,259) (47,480) The fair values in Level 3 of fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of unquoted fixed and floating interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. 156 157 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY SOCIAL RESPONSIBILITY STANDARD OF THE COMPANY’S INTERACTION WITH CONCERNED PARTIES GUIDANCE ON SOCIAL RESPONSIBILITY SOCIAL INVESTMENT 158 159 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY SOCIAL INVESTMENT INFORMING ON THE ACTIVITY RELATED TO SUSTAINABLE DEVELOPMENT AND CORPORATE SOCIAL RESPONSIBILITY Goals and Priorities of the Social Policy in the Activity Regions The Company develops and implements social programs relying on the following principles: Openness The Company strives for development and imple- mentation of social pro- grams based on dialog and collaboration with the concerned parties. Consistency Social programs are of regular and systematic character. Significance The Company aspires to make social programs targeted as much as possible, timely and corresponding to vital demands of the society. Efficiency Funds spent on imple- mentation of the programs must sensibly help in solving problems. Results of the programs are liable to regular assessment and record. The Company aspires to make its social programs targeted as much as possible and corresponding to vital demands of the society. Target groups of the social programs developed by PJSC TATNEFT are children and young people, war and labor veterans, those in need of medical care and rehabilitation, orphaned children, as well as other socially vulnerable population groups. The Company builds business relationships and interacts with the partners and other concerned parties based on the corporate social responsibility. Target Audiences of the Company’s Social Programs Program on infrastructure development in cities and settlements Program on health care support in the southeast of the Republic of Tatarstan Program on development of popular sports and physical culture in the oil region of the Republic of Tatarstan Program on hockey development in the southeast of the Republic of Tatarstan Program on social (targeted) support for population of districts of the Republic of Tatarstan Program on education support Program on culture support Program on spiritual revival Program on agricultural development Program on workplace creation Residents of the activity regions The Company’s employees Children Adults Coaches The Company’s employees Orphaned children Handicapped people Veterans Other socially vulnerable population groups Schoolchildren Students Teachers, professors Theaters Museums Libraries Cultural establishments Mosques Churches Residents of the activity regions Residents of rural areas Unemployed people Graduates of higher and other educational establishments Program on maternity and childhood support Program on development of large-scale ecological programs Children Population TATNEFT Company has been elaborating annual reports on the sustainable development and social responsibility since 2005. Since 2014, disclosure of information on the activity related to the corporate social responsibility is carried out as a part of preparation of the TATNEFT Company’s Annual Report. This chapter of the Report was elaborated based on the Guidelines on Reporting in the Field of Sustainable Development of Global Reporting Initiative (GRI), Standard of Interaction with Concerned Parties AA 1000, International Standard ISO 26000 “Guideline on the Social Responsibility” and Social Articles of the Russian Business Community. The Report for 2015 con- tains standard elements of GRI Guideline version G4 reporting. In addition to the Guideline, GRI Oil and Gas Sector Supple- ment was applied during the Report elaboration. Implementation of the GRI Principles GRI Principle Our actions Coverage of concerned parties Context of sustainable development Information significance Information completeness Principle of balance Information compatibility Information accuracy Timeliness Clarity Reliability The Company makes considerable efforts in order to involve the concerned parties into discussion of issues related to elaboration of the report, such as determination of the Report content, selection of performance indicators, etc. To do that, consultations with representatives of the concerned parties, conferences and seminars are held, questioning is carried out. The information on the Company’s activity results is presented in the Report in close connection with its contribution to the sustainable development. The Report shows all key points, indexes and initiatives related to economic stability maintenance, environmental safety improvement and strengthening of the social stability. We strive to include in the report only those issues and indicators that are significant to the concerned parties and are capable of influencing their decisions. While we determine significance of the issues, we take into account such factors as goals and objectives of the Company, risks and capabilities, industry-specific problems, etc. The Company strives to achieve full disclosure of information in economic, environmental and social spheres of the activity. The bulk of issues reviewed in the report is enough for the readers to assess the Company’s performance and its contribution to sustainable development of the society. In the framework of the principle of balance, the report covers both favorable results of the Company’s activity and problems that the Company faces. Amount of attention given to various issues corresponds to their relevance. The report ensures comparability of the activity results from year to year. Each significant change related to boundary, coverage or reporting period is explained. To ensure comparability of the Company’s performance with the results achieved by the other companies, indicators included in the GRI guidelines and technical protocols were used in elaboration of the report. We strive to make information provided in the report accurate and detailed enough for the concerned parties to use it in decision-making with a high level of reliability. Error of quantitative data is minimized. Proportions and specific values used in the report are complimented with respective absolute values. Data are provided using common international units and are calculated with standard coefficients. The Company is aware of the necessity to present timely information in the report that is why the report is issued with equal periodicity once a year prior to the annual meeting of shareholders. We make efforts to make information provided in the report clear, understandable and useful for different concerned parties. The report contains a glossary and a list of abbreviations, which make science and technology terms and abbreviations clear. Information and data provided in the report are based on internal documentation, which can be assessed by independent parties. Data that can not be supported by documents are not included in the report. 160 161 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY SOCIAL RESPONSIBILITY OF THE COMPANY TOWARDS ITS EMPLOYEES Collective Agreement, Social Benefits and Guarantees Social Benefits under the Collective Agreement PJSC TATNEFT takes care of well-being and social security of its employees and their families. The Company provides its employees with a package of social benefits and guarantees. Obligations on their fulfillment are stipulated in the Collective Agreement annually concluded between PJSC TATNEFT and the staff, including all employees and non-working pensioners of the Company. The Collective Agreement stipulates: • employees’ benefits and guarantees; • social protection of young employees; • support for veterans and pensioners. Structure of the social benefits and guarantees is stipulated by the Collective Agreement Standard of the TATNEFT Group, which is advisory for all enterprises of the Group. In 2015, the Company made amendments and changed size of payments for the following: • financial aid for retiring employees; • one-time payment in connection with annual leave; • estimated payment for every employee in connection with birth or adoption of a child; • estimated amount of one-time financial aid for employees and pensioners in connection with their jubilee; • financial aid for families of late employees (pensioners) to cover funeral-related expenditures; • financial aid for employees having parental leave and caring for children aged 1,5-3. In accordance with the Collective Agreement of PJSC TATNEFT and on the basis of the general director’s resolution, PJSC TATNEFT in connection with the celebration of 70th anniversary of 9th May Victory Day provided financial aid at the rate of RUB 50 thousand for the participants of the Great Patriotic War, RUB 20 thousand for the widows of the Great Patriotic World participants and RUB 5 thousand for the home front workers. Employees’ benefits and guarantees Financial aid for female employees having parental leave and caring for children aged under 3 years Financial aid at child birth or adoption of a child under 14 Granting a three-day paid vacation to an employee (father) at the release of a baby from the maternity hospital with retention of his average monthly income Financial aid in the event of death of an employee’s close relatives Financial aid for the family of a late employee to cover funeral-related expenditures Financial aid for orphaned children under 18 who lost both parents, if one of them was employed in PJSC TATNEFT Financial aid for multi-child families Financial aid for an employee having dependent disabled children under 18 Financial aid upon retirement One-time payment in connection with the provision of annual paid leave Granting at least two hours off weekly or one day off monthly to female employees having children under 16 (disabled children under 18) Financial aid for an orphaned child under 18 whose parents (or one of them) died in the line of duty at PJSC TATNEFT Financial aid for single-parent families Financial aid for employees in connection with anniversary celebration Funds allocation: – for buying New Year presents for children of the PJSC TATNEFT’s employees – for women on the International Women’s Day Financial aid for family having twins or triples Benefits for young employees Interest-free loan for furniture and essential goods acquisition Financial aid for an employee dismissed for military service in the Armed Forces of the Russian Federation after their return to the same workplace Financial aid for the first marriage Benefits for pensioners and veterans Financial aid on the Victory Day for the Great Patriotic War participants, widows and home front workers Quarterly financial aid for non-working pensioners who used to work in the system of PJSC TATNEFT for at least 10 years and retired before the foundation of the National Private Pension Fund Providing employees who worked in PJSC TATNEFT for at least 10 years with an opportunity of early retirement at the Company’s expense with retention of the Company's benefits and guarantees for pensioners Financial aid in the event of death of a pensioner’s close relatives Financial aid for the family of a late pensioner to cover funeral-related expenditures Financial aid for pensioners in connection with anniversary celebration Funds allocation: – on the Elderly People’s Day – for women on the International Women’s Day – on the International Disabled People’s Day 162 163 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Cooperation with the Trade Union Voluntary Medical Insurance for Employees Since 1997, PJSC TATNEFT has been implementing the voluntary medical insurance program, which gives employees an op- portunity for high-quality medical services and therapeutic-resort treatment, if needed. In 2015, the total number of insured employees made up 21 048 people, RUB 228.7 million was allocated for the program implementation. The TATNEFT Compa- ny maintains arrangement and payment for the medical and other services under four programs, such as “Outpatient Care”, “Hospital Service”, “Rehabilitation Treatment” and “Complex Medical Care” programs. In order to reduce the rate of infec- tious diseases, seasonal immunoprophylaxis was held within the framework of the program (vaccination against seasonal flu and tick-borne encephalitis). Arrangement of Health-Improving Activities for Children Within the bounds of maternity and childhood protection program, the Company annually arranges health-improving activi- ties for employees’ children at thirteen recreation camps with the capacity of 2 556 beds. All recreation camps offer cozy and modern blocks, gyms, playgrounds, swimming pools, proper equipment and assistance of well-trained staff. During 2015, the recreation camps were visited by 10 964 children of employees. PJSC TATNEFT annually provides recreation opportunities for children whose parents are employed by state-budgeted organizations and compensates half of the recreation pack- age price. 300 children whose parents are employed by state-budgeted organizations had this opportunity in 2015. Due to the continuous growth of demand for tours to the recreation camps, at the end of 2013 the Company decided to build new bedroom blocks at the children recreation camps of Almetyevneft, Elkhovneft and Aznakaevskneft Oil and Gas Production Boards. Therefore, blocks of the Company’s children recreation camps, which were built and repaired in 2 years, allowed to invite 1804 more children in 2015 than before the construction. The interregional trade union of PJSC TATNEFT unites 158 primary trade unions, 664 shop trade unions and 2 774 profes- sional groups. 99,8% of the Company’s employees are members of the trade union. One of the primary approaches to the regulation of labor agreements is cooperation of the trade union with the Company’s administration on implementation of coordinated policy in the sphere of labor relations based on the principle of social partnership. The Collective Agreement, annually concluded to embrace all employees of the Company, serves as the basis for such cooperation. Each employee has the right and the opportunity to participate in formation of the Collective Agreement by sending proposals to the trade union organization. A conciliation commission including representatives of the management of PJSC TATNEFT and the trade union committee reviews each proposal. The trade union representatives participate in reviewing of all social-and-labor issues relevant to employees, from restructur- ing to changes in the field of wages and working hours. 9 commissions were created for goal-oriented control over fulfillment of the liabilities stipulated in the Collective Agreement: • commission for social and economic protection of the trade union members; • legal protection commission; • workplace protection commission; • mass organization commission; • young people’s affairs commission; • commission for labor and the Great Patriotic War veterans; • culture, sports and health commission; • housing and public services commission; • public catering control commission. In 2015, the trade union committee held 12 sessions, where committee members reviewed different issues related to protec- tion of interests of the trade union members, such as control on maintaining safe working environment for personnel, main- taining social protection level for employees and pensioners, strengthening of labor discipline, arrangement and carrying out of culture and recreative sports events, etc. The trade union committee in cooperation with the Company’s representa- tives participates in elaboration, discussion and implementation of proposals aimed at reduction of occupational injuries and disease rates. In order to ensure public control in the field of workplace protection, more than 2 900 workplace protection agents work in primary trade unions of structural subdivisions of PJSC TATNEFT, and they carried out more than 140 thousand inspections of workplace environment. In 2015, the trade union’s personnel actively participated in meetings and seminars organized by the Trade Union Federation of the Republic of Tatarstan, The Federation of Independent Trade Unions of Russia, Russian Council of Oil, Gas and Construction Workers’ Union and International Confederation of Trade Unions. The Company has a “mobile legal advice office” providing consultations and support for employees on legal issues. In 2015, 144 people received legal assistance. Apart from the legal advice office’s activity, work with letters and addresses from the trade union members was continued. Over 100 members of the trade union obtained explanations and consultations in 2015. The trade union committee has trust line, which received more than 500 calls from the employees and non-working pension- ers in 2015, and practical assistance was provided. Information on cooperation of the administration and the trade union committee of PJSC TATNEFT is regularly reported to personnel at meetings and conferences, covered in federal, republican, regional and corporate mass media. “Tribuna” is an information bulletin issued by the trade union monthly. The Committee on legal protection of the Trade Union members conducted inspections on labor legislation compliance by the Company’s subdivisions in the reporting year. In 2015, there were no claims or cases known to the public arising from violation of human rights or discrimination of the Company’s employees. 164 165 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Housing Policy Outreach of Young People Providing employees with support in housing improvement is one of important lines of social policy in PJSC TATNEFT. Nine residential houses were commissioned for the employees of TATNEFT Company under the social mortgage program in 2015. The Company’s employees were provided with 1 118 apartments with total area of 79.1 thousand m2 amounted to RUB 2 162.7 million. In 2016, the Company will continue building houses under the social mortgage program in almost all cities of the southeast of the republic, where the Company conducts its activities. According to the project on housing construction program, it is planned to commission 10 houses (1 094 apartments) with total area of 68.8 thousand m2 in 2016. For the purpose of social support for young people, 30% of apartments commissioned under the mortgage program are allocated to young families. RUB 74.3 million were allocated to these families for furnishing. The Company provides non-recurrent loans for the first mortgage installment for the employees participating in the mortgage program. There is an option of repaying employee’s loan out of the Company’s profit providing that the person would still stay PJSC TATNEFT’s employee. As of from 2005 to 2015, total size of loan granted to the employees of TATNEFT Company was amounted to RUB 3 977.8 million. Non-governmental Pension Provision For the purpose of the social support for retiring employees, the Company has been implementing a non-governmental pen- sion provision program since 1997. The program provides employees with an opportunity to form their pension capital on a parity basis securing respectable level of living at the advanced age. Provisions “On non-governmental pension provision” stipulate rules, criteria and procedures for non-governmental pension granting, as well as three main pension schemes. In 2015, the number of the PJSC TATNEFT employees that joined the non-governmental pension provision program amount- ed to 8 802 people. 9 178 retired people receive additional non-governmental pension. In the reporting year, Company allocated RUB 195 million for the non-governmental pension provision. In 2015, the non-governmental pension payments for PJSC TATNEFT’s pensioners through the National Non-governmental Pension Fund were amounted to RUB 177 million thousand. The Company performs regular communication and explanatory work on terms of the corporate pension program as well as on the rules of involvement. Information is published at the Internet portal of the TATNEFT Group. Main partner of PJSC TATNEFT for the implementation of the corporate pension program is the National Non-Governmental Pension Fund (NNPF). Non-working pensioners, who worked in PJSC TATNEFT for at least 10 years and retired before the foundation of the National Non-Governmental Pension Fund, are quarterly supported by the Company with extra financial aid to their govern- ment pensions. There are veteran committees established in the subdivisions of PJSC TATNEFT that continuously support pensioners together with the administration and the trade union committee. When it is necessary, the Company covers pen- sioners’ medical and surgery bills, provides aid for housing renovation and replacement of household appliances. In 2015, RUB 11.9 million was allocated to health improvement of non-working pensioners in health-resorts, while RUB 5.04 million was allocated within the PJSC TATNEFT’s program of support for veterans. The Company provides financial aid on holidays and anniversaries. Work with young people in PJSC TATNEFT is carried out along several main lines: professional and labor fulfilment, scientific and production, social protection, creative fulfilment, popular culture, sports, cooperation in the informational field, develop- ment of tolerance and civil position of the Company’s young employees. 29.8 thousand young employees work in the Com- pany, which makes 32% of total staff. The activity of the Central Council of Young Specialists acts to raise level of production and creative activity of the Company’s young experts. In order to involve young employees in the Company’s innovative activ- ity, the Central Council of Young Specialists annually holds conferences and seminars on innovation and invention. In 2015, young employees made 16 700 rationalization proposals and obtained 80 patents, while economic potential of the implemen- tation was amounted to more than one billion rubles. In 2015, employees of PJSC TATNEFT successfully represented the Company at the 3rd National Professional Skills Champi- onship held in accordance with the WorldSkills standards, and at the 2nd National Championship of Comprehensive Working Professions in High-Tech Industries WorldSkills Hi-Tech-2015. The Company holds sports events, tourist festivals on a regular basis. In 2015, young employees of the Company successfully climbed the Mount Elbrus, the highest point in Europe. PJSC TATNEFT put together its own KVN team, which with support from the Company’s management took part in the games of TV Premier-league in 2015. Young employees of the Company take an active part in the youth clean-up events on the designated areas and charity events for the children from orphanages and needy families, carry out active patronage over designated orphaned children. INTERACTION Corporate e-University Research and practice seminars and conferences Professional skills competition Production management school Contests and festival of young people’s creativity Methods for Communication and Cooperation with the Young People KVN Sports competitions COMMUNICATION Corporate mass media Website of PJSC TATNEFT Website of PJSC TATNEFT for the corporate users Annual report and election conference FEEDBACK Corporate social network Annual poll Meetings of the trade union committee Meetings with the management Focus groups For more information, please see the Company’s website tatneft.ru For more information, please see the Company’s website tatneft.ru 166 167 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY SOCIAL INFRASTRUCTURE DEVELOPMENT CHARITABLE ACTIVITIES THE COMPANY RESPONSIBLY PARTICIPATES IN CREATING CONDITIONS FOR IMPROVING QUALITY OF LIFE OF ITS EMPLOYEES AND LOCAL POPULATION, IMPLEMENTING TARGETED INFRASTRUCTURE PROGRAMS ALONGSIDE WITH INTERNAL SOCIAL PROGRAMS. KEY LINES OF CORPORATE SOCIAL POLICY, WHICH IS GENERALLY FOCUSED ON GETTING MAXIMUM OUTCOME OF THE COMPANY’S MAIN ACTIVITY, ARE ASSISTANCE IN DEVELOPMENT OF EDUCATION, HEALTHCARE AND SPORTS, AS WELL AS REDEVOPMENT OF COMMUNITIES AND CITIES. SPECIAL IMPORTANCE IS GIVEN TO PHYSICAL AND CREATIVE DEVELOPMENT OF CHILDREN. High-Tech Medical Care The Company implements integrated programs aimed at support and promotion for the health of employees and local popu- lation, especially by participating in construction and renovation of health care facilities. The Company gives special impor- tance to the support of maternity and childhood. The TATNEFT Company with its significant financial investments in short time implemented program on establishing and put- ting into service regional medical-diagnostic center under the Medical Sanitary Station of PJSC TATNEFT and Almetyevsk for delivering high-tech medical care (HMC) on cardiovascular surgery, traumatology and orthopedics, ophthalmology and urology for the population of the southeast region of our Republic. The center is large and modern multifaceted medical and preventive establishment having high-skilled talent pool and equipped with the state-of-the-art medical equipment. Over the past few years, the hospital was equipped with the modern high-tech equipment for the diagnosis and treatment. Public and republic programs on improving delivery of health care for the people having heart diseases were implemented, high-skilled experts passed their training in the best clinics of the world. Medical equipment was purchased for the Central District Hospital of Novosheshminsk and the Hospital No. 3 of Almetyevsk (State Autonomous Heath Care Institution “Republic Clinical Oncological Dispensary of the Ministry of Healthcare of the Republic of Tatarstan”). It’s planned to allocate RUB 250 million for the implementation of public contract on the delivery of high-tech medical care for the population of the southeast of the Republic of Tatarstan in 2016. Involvement of Employees in Sports and Healthy Lifestyle Targeted programs on development of adult and kids popular sports include the Company’s participation in construction of new sport facilities and renovation of those, which are in operation. The Company acts as the organizer of fitness and health recreation events, sports competitions and hockey tournaments for PJSC TATNEFT prizes. Attention is given to equipping hockey teams and coaches with kits. Due to the favorable conditions created in the Company, sport has become an inherent part of oilmen’s everyday life. Modern ice palaces and sports complexes were built in every city of the oil region. 16 Ice Palac- es were built in the Republic of Tatarstan with the Company’s participation. Over 200 hockey complexes with warm dressing rooms were renovated and built, 91 teenage hockey clubs were taken under control by efforts of the Company in the period from 2000 to 2015. Funds for purchase of hockey kits for the teenage clubs’ teams and remuneration for coaches and staff maintaining the hockey rinks are allocated annually. Over 17 thousand people spent their vacations at summer camps located on banks of the Kama River and Karabash Reser- voir in 2015. About 24 thousand people had their rest at the camps and strengthened their health there in the wintertime. In 2015, the PJSC TATNEFT held XXVIII Corporate Spartakiad, over 10 thousand employees participated in it. During the year, competitions in 12 different sports, such as table tennis, alpine skiing, cross-country skiing, volleyball (for women and men), futsal, swimming, kurash wrestling, rope pulling and triathlon, etc. were held. RUB 8.03 million was allocated for the arrange- ment of the Spartakiad in 2015. CHARITY IS THE KEY ELEMENT OF CORPORATE SOCIAL POLICY. THE COMPANY SUPPORTS THREE CHARITY FOUNDATIONS: “GIFTED CHILDREN”, “RUKHIYAT” AND “MERCY”. “Gifted Children” Foundation Since 2004, the TATNEFT Company has implemented the program on gifted children support through the “Gifted Children” foundation. The foundation provides multifaceted assistance and help to the participants of republic, all-Russian and interna- tional conferences, scientific-and-artistic and technical competitions. Every year the “Gifted Children” foundation holds the meeting of its awardees, where the foundation honors the most successful participants of the intellectual forums and their coaches, and that shows meaning of education as one of the crucial components for personal development and improve- ment, as well as targeting graduates to the higher-priority professions. Foundation for Spiritual Revival “Rukhiyat” Support for talented children in the field of culture is carried out by foundation for spiritual revival “Rukhiyat” founded in 1997. Activity of the foundation includes arrangement of children creativity festivals, holding literature and art competitions, iden- tification of young talents and assistance for their artistic development, books publication, etc. Since 1998, the “Rukhiyat” foundation holds the “Land of Singing Nightingales” children creativity festival, which provides talented children from remote regions of the republic with opportunity to unlock their creativity and perform on the stage in front of wide audience. “Mercy” Charity Foundation TATNEFT has been always supporting people in harsh life conditions. In order to provide charity support, the Company established the “Mercy” charity foundation, through which the Company over years has been providing targeted support to organizations of veterans and handicapped people, needy families, pupils of orphanages and orphaned students for their treatment and rehabilitation. In 2015, PJSC TATNEFT switched its charitable activities to a grant basis. The Company made this decision in order to raise economic efficiency of its social investment, ensure transparency and publicity of charitable activities. In the framework of the Grant system implementation, PJSC TATNEFT prepared the Provision and formed the Grant commit- tee and the expert council. Projects are assessed based on their compliance to the strategic social and environmental goals and objectives of the TATNEFT Company, timeliness of the problem being solved and importance of the project for the region of the Company’s activity. Provision and other information about the PJSC TATNEFT’s Grant system are published on the official website of the Company at tatneft.ru in the Social Policy section. Main nominations of the Grant system are as follows: project; tectural and historical heritage; • Education and science: support for gifted children and creative young people, as well as socially important scientific • Social sphere: redevelopment of cities and settlements, renovation and reconditioning of the monuments of archi- • Environment: population health protection, protection and securing of favorable environment, environmental educa- • Culture and arts: implementation of new cultural and educational projects; support for gifted people and creative • Civic and public spirit: search activities, museums, educational programs; • Sports: support for amateur sports teams, support and development of kids sports and tourism. teams in the area of culture and arts, assistance to literature development; tion for the population; 168 169 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY REGISTRY OF CORPORATE SOCIAL PROJECTS FOR 2015 SUBDIVISONS OF THE TATNEFT COMPANY ARE CITY-FORMING FOR MANY CITIES AND VILLAGES IN THE SOUTHEAST OF THE REPUBLIC. THE COMPANY PROVIDES DOZENS OF THOUSANDS OF PEOPLE WITH MODERN WORKPLACES AND RESPECTABLE WAGES, SETS MAIN PART OF LOCAL BUDGETS. Lines of Social Investments Program on infrastructure development in cities and settlements Projects Wedding Palace construction Reconstruction of the ‘Yunost’ stadium and the Ice Palace Overhaul of the ‘Yunost’ sports center and the Culture House Overhaul of housefronts Repaif of urban streets and roads Parks and squares improvement Opening of the museum at the site of the Shugurovsky petroleum bituminous factory Reconstruction of the Victory monument Improvement of the Chernaya river bank Overhaul of the water supply and disposal system Construction of terrainkur in forest area near the ‘Ivolga’ health and recreation resort Improvement of inner areas adjacent to houses Holding of the PJSC TATNEFT Spartakiad Places of implementation Leninogorsk Leninogorsk Leninogorsk Leninogorsk, Bavly Almetyevsk, Leninogorsk, Bavly Leninogorsk, Bavly Leninogorsk Aznakaevo Aznakaevo Bavly Bavly Almetyevsk, Leninogorsk, Elabuga, Karabash urban-type settlement (Bugulma district) oil region of the Republic of Tatarstan Organization and holding of physical education and recreational events oil region of the Republic of Tatarstan Sports center construction Stadiums reconstruction Nizhnyaya Maktama urban-type settlement (Alnetyesvsk) Chistopol, Aznakaevo Reconstruction of the ‘Jubileyny’ Sports Palace Construction of multipurpose sports hall Almetyevsk Aznakaevo Construction of sports ground for the school No. 1 Karmasakly village (Leninogorsk district) Repair of near rink area and chilling machinery in the ‘Lachyn’ ice palace, ‘Iman’ sports center Works for the construction of sports hall for the ‘Ivolga’ health and recreation resort were started Establishment of the Bicycle School Support for kids and youth boxing Wrestling and karate support Development of volleyball, swimming and figure skating Equestrian sport support Aktanysh village Bavly Karabash urban-type settlement (Bugulma district) oil region of the Republic of Tatarstan Almetyevsk Almetyevsk Almetyevsk Program on development of popular sports and physical culture in oil region of the Republic of Tatarstan Program on hockey development in the southeast of the republic Purchase of hockey kits for the teenage club’s teams oil region of the Republic of Tatarstan Purchase of sports kits, sports equipment and hockey equipment for schools oil region of the Republic of Tatarstan 91 hockey rinks fitted with warm dressing rooms were reconstructed, built up and taken under maintenance Installation of hockey complexes fitted with dressing rooms and lights Remuneration for coaches oil region of the Republic of Tatarstan Kaybitsy, Rybnaya Sloboda, Baltasi, Almetyevsk and Aznakaevo districts oil region of the Republic of Tatarstan Participation in a republican social mortgage program oil region of the Republic of Tatarstan Furnishing of apartments acquired by social mortgage oil region of the Republic of Tatarstan Provision of loans for employees to cover the first installment under the social mortgage program Training and skill improvement of the personnel oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Science and practice conference for young employees Almetyevsk Work with the candidate pool Work with target groups Young people’s policy Personnel certification oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Program on housing improvement Program on skill improvement and development of the Company’s personnel 170 Program on culture support Holding of festive events Holding of events for young people Holding of cultural events oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Purchase of music equipment for cultural establishments Aznakaevo, Aktyuba urban-type settlement Overhaul of the Culture Houses Program on spiritual revival Financial aid for the repair of entrance lobby at Our Lady of Kazan Church Collective agreement Leninogorsk, Cheremshan village, Yutazy village Almetyevsk oil region of the Republic of Tatarstan Program on the social guarantees provided for the personnel Program on support for veterans and handicapped people Program on social insurance of PJSC TATNEFT’s employees Program on health care support in the southeast of the republic Program on maternity and childhood welfare Program on non-governmental pension provision oil region of the Republic of Tatarstan Purchase of equipment for handicapped people Almetyevsk Payment for the utility services for the local communities of handicapped people Almetyevsk Repair of facilities and improvement of the area owned by the Nursing home Targeted support for retired people Therapeutic-resort recreation Dzhalil urban-type settlement (Sarmanovo district) oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Financial aid for veterans, widows, home front workers oil region of the Republic of Tatarstan Holding of festive events dedicated to the Victory Day oil region of the Republic of Tatarstan Voluntary medical insurance oil region of the Republic of Tatarstan Financial aid for carrying out stenting and coronarography surgeries in the Regional medical-diagnostic center of Medical Sanitary Station of PJSC TATNEFT and Almetyevsk Overhaul of the Central District Hospital Purchase of medical equipment oil region of the Republic of Tatarstan Almetyevsk Medical Sanitary Station of PJSC TATNEFT and Almetyevsk, the Central District Hospital of Novosheshminsk, Clinic No. 3 of Almetyevsk, Drug dependence clinic of Almetyevsk Purchase of medical equipment and operating room drapes for health care facilities Arrangement of recreation for children in children’s recreation camps oil region of the Republic of Tatarstan Recreation for the children, whose parents are employed by state-budgeted organizations, in recreation camps Organization of therapeutic-resort recreation for employees and their children (“Mother and child”) Overhaul of six kindergartens Program on education support Overhaul of secondary schools, gymnasiums and lyceums Program on occupational safety Large-scale ecological program Almetyevsk State Oil Institute modernization and re-equipment Overhaul of the professional college No. 65 Fully equipped schoolbags and sports suits for multi-child families were bought as a part of the “Help to prepare for the school” campaign Provision of employees with workwear Workplaces assessment Safe drinking water supply Creation of green spaces, parks and squares Planting of more than 11 thousand trees of different species Park improvement in the ‘Yashlek’ neighborhood, square improvement on the Aminov St. Parks and squares improvement Central park overhaul Installation of whirligig in playground Park construction For more information, please see the Company’s website tatneft.ru oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Almetyevsk Almetyevsk, Sarmanovo, Leninogorsk, Aznakaevo, Cheremshan districts Almetyevsk Almetyevsk Almetyevsk oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan oil region of the Republic of Tatarstan Almetyevsk Almetyevsk Nurlat Bavly Aznakaevo Novosheshminsk village, Bavly 171 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY INTERACTION WITH THE STAKEHOLDERS THE COMPANY’S RESPONSIBILITY TOWARDS STAKEHOLDERS THE COMPANY PERMANENTLY INTERACTS WITH A WIDE RANGE OF STAKEHOLDERS, CONSIDER- ING THE MUTUALLY BENEFICIAL RELATIONS WITH THEM AS A CRUCIAL ASSET FOR SUSTAINABLE DEVELOPMENT. AS PER AA 1000 STANDARD DEFININTION CRITERIA, THE STAKEHOLDERS ARE ORGANIZATIONS, INDIVIDUALS OR GROUPS WHOSE INTERESTS COULD BE AFFECTED BY THE COMPANY’S ACTIVITIES. Ensuring a high level of the corporate social responsibility is a strategic initiative and a major principle of the Company’s activity, which implies the transparency and ethical conduct that contributes to sustainable development and is consist- ent with the law and international standards. Fundamentals of the stakeholder engagement: Identification of the stakeholders; clients, business partners, and public authorities. A group of limited influence includes public organizations, invest- ment analytical companies and credit rating agencies, mass media communications, specialized institutions of higher and intermediate vocational education and local compa- nies, i.e. the stakeholders whose interests can be partially affected by the Company or which can indirectly influence the Company. regarding the Company’s activities; • analysis of the stakeholders’ needs and expectations • identification and implementation of communication and • definition of the Company’s responsibility areas to the feedback forms for each stakeholder; key stakeholders. Guiding principles of the Company’s social responsibility are as follows: ers and other stakeholders on its activity; • to act in accordance with the legislation; • to be a responsible partner of the government; • to protect rights of the shareholders; • to appreciate and respect its employees; • to openly inform its shareholders, employees, consum- • to act in accordance with the highest ethical standards; • to be intolerant to corruption and bribery; • to use its resources with the maximum efficiency; • to use up-to-date technological achievements; • to ensure environmental protection; • to cooperate with public organizations; • to strive to make each employee feel proud of the Com- pany they work for. The Company’s representation in the business and public organizations The Chamber of Commerce and Industry of the Russian Federation All-Russian Association of Oil and Gas Employers Russian Union of Industrialists and Entrepreneurs (RSPP) “Miners of Russia” Non-Profit Partnership Union of Oil and Gas Producers of Russia Moscow International Petroleum Club (MMNK) “Russian Institute of Directors” (RID) Non-Profit Partnership The National Council on Corporate Governance (NSKU) Share Issuers Committee of Moscow Exchange Russian National Committee of the World Petroleum Council (RNK MNS) Key stakeholders are divided into two groups according to their degree of influence on the activity of the TATNEFT Group and the degree of the Company’s influence on their vital activity. A group of substantial influence includes stakeholders which can substantially influence the activity of the TATNEFT Group or whose interests are substantially affected by the Company’s activity. These are internal stakeholders, shareholders and investors, consumers and Corporate Calendar of the Company’s events for 2015 is detailed on the corporate website tatneft.ru SHAREHOLDERS AND INVESTORS • Dynamic growth of shareholder value and development of the Com- pany in accordance with the strategic initiatives • Operating and financial efficiency • Maintaining business reputation • Ensuring status of reliable Company • Ensuring compliance with Moscow Exchange listing rules and Corpo- rate Governance Code recommended by the Bank of Russia. EMPLOYEES BUSINESS PARTNERS CONSUMERS • Workplace safety • Provision of opportunities for individual and professional development • Provision of social guarantees • Ensuring the decent standard of living • Following the ethical principles of the Company • Fair competition • Timely and precise fulfillment of contractual commitments • Mutually beneficial cooperation • Provision of high quality products and services • Continuous improvement of the product quality • Commitment to follow changing requirements of the consumers • Provision of reliable information about the Company’s products LOCAL COMMUNITITES AND PUBLIC ORGANIZATIONS • Support of social and economic development of the regions of the business activity • Support of development of healthcare, education, culture and sports • Intelligent and efficient environmental management and protection • Support of socially vulnerable segments of the population 172 173 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY CORPORATE STANDARDS AND REGULATIONS FOR INTERACTION WITH CONCERNED PARTIES Concerned Parties Regulatory Documents All Stakeholders Corporate management code of PJSC TATNEFT Articles of Association of PJSC TATNEFT Provisions on the information policy of PJSC TATNEFT The TATNEFT Company’s hotline work order Policy of the TATNEFT Group in the field of industrial safety, labor and environmental protection Integrated risk management system Corporate standard “Anti-Corruption Policy of the TATNEFT Company” Shareholders Provisions on the General Meeting of Shareholders of PJSC TATNEFT Provisions on the Board of Directors of PJSC TATNEFT Provisions on the committees under the Board of Directors of PJSC TATNEFT Business Partners Provisions on the procedure for registration of suppliers of goods/works/services in the TATNEFT Company Regulation on the logistics of structural subdivisions and affiliates of the TATNEFT Company Provisions on the organization of contractual work in the TATNEFT Company Provisions on the organization of goods purchasing using electronic trading platform Regulation on work in the “Trading Procurement Platform” system of the TATNEFT Company Corporate standard on the accreditation order for prospective suppliers when organizing goods purchasing using electronic trading platform Provisions on the order of the Company’s subdivisions interaction on handling of complaints received by the Hotline of the TATNEFT Company’s trading procurement platform Provisions on the organization, execution, and automated record keeping of claim-related work in the TATNEFT Company Regulation on the organization of goods purchasing from the companies manufacturing unique (custom-made) goods (monopolist manufacturers) Provisions on the use of insider information and on the procedure for distribution of information on security transactions Provisions on the safe execution of works performed by third parties at the TATNEFT Company facilities Provisions on the TATNEFT Group. Employees Corporate culture code of the TATNEFT Company HR management policy Standard for the Collective Agreement Standard for personnel hiring and transfer to another job Standard for personnel dismissal Standard for personnel adaptation Provisions on coaching Standard for working with the candidate pool Standard for personnel certification Standard for personnel training and development Standard for labor discipline Standard for personnel rewarding Standard for business trips of employees Standard for the provision of information on candidates (internal and external) for vacant positions Rules of internal work order for employees Regulation on the preparation and holding of the employees conference Provisions on the insurance of employees against industrial accidents Provisions on the arrangement of therapeutic-resort activities for employees Provisions on the system of industrial safety management System for the assurance of industrial safety Provisions on production control over compliance with industrial safety requirements at the hazardous production facilities Procedure for the arrangement of pre-employment and routine medical examinations of employees involved in heavy and harmful works, as well as works with harmful and/or hazardous production factors System of the employees’ personal responsibility for occupational safety Provisions on non-recurrent loans provided for the employees to cover initial installments for housing bought through the social mortgage system of the Republic of Tatarstan Provisions on the allocation of loans for private housing construction or participation in joint housing construction (with other entities involved in housing construction) Trade Union Standard for the Collective Agreement Provisions on the workplace protection committee (commission) Workplace protection agreement Veterans and Pensioners Provisions on the arrangement of non-governmental pension provision for employees Provisions on the arrangement of therapeutic-resort activities for non-working pensioners and disabled workers at the expense Corporate project of targeted support for pensioners Corporate standard “Requirements on environmental safety for the organizations involved in providing works and services at the TATNEFT Company’s facilities” Standard for the interaction of TATNEFT Company with external service providers during service rendering Standard for the investment and technical policy of the TATNEFT Company for diversification and quality enhancement of oil services Regulation on the introduction of changes and approving of changes introduced in the layout of production facilities, defining limits of liability sharing between service providers and structural subdivisions under the process of service providing for the TATNEFT Company Provisions on service for ordering of information technologies at the TATNEFT Company Provisions on tenders for the submission of goods supply, work performance, and service rendering orders according to the needs of TATNEFT Company Regulation on pre-tender and post-tender activities concerning goods supply, work performance, and service rendering according to the needs of the TATNEFT Company Provisions on the marketing assessment of materials and equipment with regard to the TATNEFT Company logistics Consumers Provisions on the TATNEFT trademark and its use Standard for production control over products and manufacturing processes Standard for final inspection and products testing Procedure for reviewing of claims and requests submitted by tire products consumers Procedure for the collection and processing of information on consumers satisfaction Rules for service rendering at filling stations Local Com- munities and Public Organi- zations Rules of the TATNEFT Company’s trade practice in respect of diesel fuel realization in the Russian Federation Agreements with municipal administrations of the cities and settlements in activity regions Provisions on work with boarding schools graduates and orphaned students of specialized education establishments Specialized corporate project of the TATNEFT Company aimed at the support for small and medium-sized business development in the Republic of Tatarstan Provisions on the participation of the TATNEFT Company in public organizations 174 175 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY DECLARATION OF THE TATNEFT COMPANY ON INTERACTION WITH CUSTOMERS DECLARATION OF THE TATNEFT COMPANY ON HUMAN RIGHTS OBSERVANCE THE ACTIVITY OF PJSC TATNEFT IS BASED ON THE RECOGNITION AND OBSERVANCE OF HUMAN RIGHTS. THE COMPANY OBSERVES ALL LABOR RIGHTS OF ITS EMPLOYEES STIPULATED BY THE INTERNATIONAL LABOR ORGANIZATION (ILO) AND RUSSIAN LEGISLATION. THE COMPAY RESPECTS EMPLOYEES’ RIGHT TO FORM UNIONS AND RIGHT TO HOLD COLLECTIVE BARGAINING. IN PJSC TATNEFT, THESE RIGHTS ARE EXERCISED BY PARTICIPATION OF EMPLOYEES IN THE TRADE UNION ORGANIZATION’S ACTIVITY AND FORMATION OF THE COLLECTIVE AGREEEMENT. The Company does not exploit forced or compulsory labor. Moreover, the Collective Agreement of PJSC TATNEFT stipulates the employee’s right to refuse unsafe work, in case of faulty equipment or conditions, which can cause emergencies, with reten- tion of the employee’s position and average monthly income. The Company provides equal opportunities to all employees regardless of gender, age, ethnicity or religion. Employee’s personal qualities determined by knowledge, experience and skills matter the most for making decisions on employment, position agreement, training and employment termination. The Company enforces the principle of equal remuneration for men and women for the work of equal value. The principle is exercised by use of a unified wages tariff schedule for all employee categories regardless of gender. The Company respects family obligations of its employees and establishes working hours in strict compliance with employment legislation of the Russian Federation, provides parental leaves, social leaves in case of marriage registration, childbirth and other benefits and protection assisting achievement of the balance between work and private life. The Company observes requirements of the Labor Code of the Russian Federation and the ILO Convention, which prohibit ex- ploitation of juvenile labor at works with harmful and/or hazardous conditions. Moreover, PJSC TATNEFT does not carry out any activities exploiting child labor. Inspection on observance of employees’ rights are conducted on a regular basis, measures are implemented on prevention of violation of rights. ENHANCEMENT OF INTERACTION QUALITY AND ESTABLISHMENT OF LONG-TERM RELATIONSHIPS WITH CONSUMERS ARE TOP PRIORITY TASKS IN THE CREATION OF THE COMPANY’S COMPETITIVE ADVANTAGE FORMED ON THE BASIS OF PRODUCT QUALITY CONTROL SYSTEM, HIGH LEVEL OF SERVICE AND RAISING OF THE CONSUMERS’ AWARENESS. IN THE PROCESS OF COMMUNICATION WITH PRODUCT AND SERVICE CONSUMERS, THE COMPANY ADHERES TO THE UNITED NATIONS GUIDELINES FOR CONSUMER PROTECTION AND INTERNATIONAL COVENANT ON ECONOMIC, SOCIAL AND CULTURAL RIGHTS. Main principles of interaction with customers are as follows: Safety. Protection of customer’s health and safety implies provision of such products and services, which are safe and do not pose any unacceptable risks of damage while using or consuming them. PJSC TATNEFT strictly controls observance of all regulatory requirements governing product and service quality. The Company assesses the impact of offered products and services on customer’s health and safety in order to identify possible lines for improvement on all stages of their life cycle. No cases of non-compliance with regulatory requirements relating to the impact of products and services on health and safety were fixed in 2015. Information acquisition. The Company ensures consumers’ access to full, accurate and understandable information, which facilitates information-based decision-making according to their individual preferences. Concluded product supply contracts are written in clear, straightforward and understandable language, does not contain unfair contractual liabilities, provide straightforward and comprehensive information on product price, peculiarities and on contractual terms and conditions. No cases of non-compliance with regulatory requirements relating to the customers informing of the products and services’ features were fixed in 2015. Opportunity to choose. Consumers of the Company’s products and services have an opportunity to choose from a range of products and services offered at competitive prices and with guaranteed satisfactory quality. Reparation of damages. The Company has precise mechanisms for settlement of claims and disputes with consumers, as well as measures for their prevention. All instances of providing consumers with products or services of inappropriate quality are recorded, reasons for inappropriate quality are analyzed, measures for their elimination are developed. Consumer’s dam- ages are repaired in compliance with the effective legislation. Favorable environment. PJSC TATNEFT takes a wide range of measures to minimize any negative impact of offered prod- ucts and services on the environment. Right to privacy. The Company ensures compliance with this principle by using reliable systems for consumers’ data collec- tion and protection. Consumers’ data are collected without violation of any effective legislation. Collection of personal data of the Company’s product and service consumers is limited with information necessary for providing products or services and communicated with consumers’ consent on a voluntary basis. Protection of collected personal data is performed with the help of efficient safety means. No claims related to violation of privacy or loss of consumers’ data were reported in 2015. Honest and responsible marketing policy. The Company exercises only fair marketing practices and protects its consum- ers against unfair or deceiving advertising and marking. The Company’s activity in the field of product and service promotion, advertising and marketing complies with legislation of the Russian Federation. No cases of non-compliance of the Compa- ny’s activity with the legislation on products and services promotion, advertisement and marketing were reported in 2015. No penalties for violation of the legislation or regulations related to products provision and usage were charged in respect of the Company in the reporting year. For more information, please see the Company’s website tatneft.ru For more information, please see the Company’s website tatneft.ru 176 177 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY INDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY COMPANY ENVIRONMENTAL COMPLIANCE COMPANY OCCUPATIONAL HEALTH AND SAFETY COMPLIANCE INVESTED IN FIXED CAPITAL TO PROTECT ATMOSPHERIC AIR 178 179 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY ENSURING INDUSTRIAL AND ENVIRONMENTAL SECURITY, OCCUPATIONAL HEALTH AND NATURE CONSERVATION COMPANY HAS BEEN IMPLEMENTING ITS TARGETED PROGRAMS TO ENSURE SAFE WORKING ENVIRONMENT, PROTECT HEALTH OF ITS PERSONNEL AND PEOPLE LIVING WITHIN COMPANY’S OPERATING AREAS, MITIGATE MANMADE IMPACT ON ENVIRONMENT AND MAINTAIN SUSTAINABLE USE OF NATURAL RESOURCES. Industrial safety management system The Company carries out its health, safety and environment activities in compliance with the international environmental standards ISO 14001:2004 and occupational health and safety OHSAS 18001:2007 in the context of the integrated health, safety and environment management system. In order to comply with the requirements of the international standard OHSAS 18001 the Company developed the Health, Safety and Environment Program to prevent injuries, reduce risks and ac- cidents, and contingent losses for 2013 through 2015. Main activities of Health, Safety and Environment Pro- gram to prevent injuries, reduce risks and accidents, and contingent losses for 2013 through 2015. Item No. 1. 2. 3. 4. 5. 6. 7. 8. Activities Decommissioning, renewal, reconstruction, modernization of facilities, technological equipment, technical devices and alarm warning and protection facilities Diagnostics, service and preventive maintenance Advanced and safe technology application Construction and expansion of amenities and other utility facilities Furnishing workers with personal protective equipment Training and skills development Industrial safety and health activity improvement Hazard and risk management, prevention of injuries, reduction of accidents, risks and contingent losses 2015 amount, ths rubles 1 665 805.9 487 872.3 35 479.1 17 022.4 82 862.1 78 133.8 801.1 10 467.3 This year, 165 mln rubles are to be spent to implement the Company’s Fire Safety Activities for 2011 through 2015. In 2015, there was no fire in the Company. The PJSC TATNEFT industrial safety system is organized in accordance with the Federal Law “On industrial safety of hazardous industrial facilities”, “Rules on the organization and implementation of industrial control for compliance with requirements of industrial safety at hazardous industrial facili- ties” and other industrial safety regulations of the Russian Federation. The key element of the integrated health, safety and environment management system is the industrial control to prevent accidents and incidents and to ensure prepared- ness of the Company’s divisions to respond to emergencies and eliminate consequences of accidents and incidents at hazardous industrial facilities through implementation of com- plex of organizational and technical measures. There is the Health, Safety and Environment Department including the Industrial Safety and Occupational Health Group functioning in the Company. The Regulation on industrial control over compliance with industrial safety at TATNEFT’s hazardous production facilities is in effect providing for the key specialists and employees from the production and technical services and departments to be involved in preventive meas- ure arrangements. Occupational health and safety spending over time including per employee Year 2011 2012 2013 2014 2015 Occupational health and safety spending, ths rubles Occupational health and safety spending per employee, rubles 265 780.4 319 827.3 329 659.0 365 824.6 478 135.8 12 635 15 122 15 863 17 851 23 171 Employees’ Health Care Occupational Safety and Health Committee The employees’ health care is ensured through integrated system of health care delivery, prevention of occupational accidents and diseases, as well as support healthy lifestyles among employees, including: dence of; • accounting and analysis of employees’ disease inci- • monitoring of working conditions and rest; • regular medical examinations; • mplementation of disease prevention programs, includ- • control of conditions of dining-rooms and personnel • recreational activities; • encouraging healthy lifestyles. ing vaccination and health resort treatment; facilities conditions; A great deal of attention is paid to the sanitary and amenity conditions. The permanent committees of the operating divi- sions according to approved schedules check sanitary and amenity facilities as regards to their technical condition, furni- ture availability and esthetic look. Upon entering employment preliminary and subsequently regular medical examinations of the personnel engaged in hard labour, harmful and hazardous jobs, and in transport play an important role to reduce inci- dence of disease. In 2015, not a single case of occupational disease was recorded among the employees of the Company. Since 1997, the Occupational Safety and Health Commit- tee has been in place and effect in PJSC TATNEFT, including on a parity basis the representatives of the employer and the trade union committee. The committee consists of 10 people. The main tasks of the Committee is monitoring the state of conditions and safety and health in the workplaces, providing workers with personal protective equipment, compensation for work in harmful and (or) hazardous work- ing conditions, assessment of risks to workers’ health and development of measures to prevent occupational accidents and diseases. The PJSC TATNEFT Occupational Safety and Health Committee holds its meetings quarterly. In order to provide support to the authorized occupational safety and health representatives the Guidelines for exercis- ing the public oversight of occupational safety and health” were developed Regulations on the PJSC TATNEFT trade union authorized occupational safety and health repre- sentatives were adopted, the PJSC TATNEFT Trade Union Authorized Occupational Safety and Health Representative distinguishing badge was designed and made. Every year, the Company holds a competition “Best Authorized Occupa- tional Safety and Health Representative of the PJSC TAT- NEFT”. The winners successfully represent PJSC TATNEFT in competitions of the Republic and industry levels. Providing with personal protective equipment Occupational Safety and Health Agreement The personnel who work in hazardous or dangerous work- ing conditions or in special temperature and pollution-related environment are given certified special protective outfit, shoes and other personal protective equipment, washing agents and detergents as established by standard norms. In 2015, the Com- pany’s spending to provide employees with personal protective equipment made 82 862.1 thousand rubles. In accordance with the Labor Code of the Russian Federation and the Occupational safety and health activities planning guidelines (Annex to the Resolution of the Russian Federa- tion Ministry of Labor dated 02.27.95 No. 11) every year in the structural units of PJSC TATNEFT the occupational Safety and Health Agreements are signed between the employer and the trade union organization, which is the Annex to the Collective Agreement of PJSC TATNEFT. They specify labor protection measures, timing of their implementation, cost of work, responsible people for implementation of measures, the person as well as the number of employees, whom the working conditions are improved for, and the number of workers released from physically demanding jobs. The company assesses the workplaces with regard to working conditions followed by the health and safety compliance certification. To date, the health and safety compliance certificates have been granted to 12 structural divisions of the Company. The headcount working at the certified workplaces made 4 601 people in 2015, including 1 644 women. The employees with a high occupational disease risk, i.e. those, who are busy in workplaces of 3.1, 3.2, 3.3, 3.4 hazard classes based on dangerous and harmful factors of production environment and working process, are provided with all guarantees and compensations as stipulated by the Labour Code of the Russian Federation. 180 181 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Pursuant to the standard ISO 14001:2004 the PJSC TAT- NEFT’s Environmental Management System has been cer- tified for compliance with, the Company uses a methodolo- gy of “sequential procedures” that provides for subsequent actions to be taken based on the data obtained according to the previous level results. In 2015, in the course of fulfillment of the extended third Environmental program anticipated for a period from 2000 through 2015, PJSC TATNEFT continued its goal-oriented and consistent work to improve environmental security and technological processes of oil production. PJSC TATNEFT sets the following goals: • ensuring safe working conditions, protecting health of workers and people living in the areas of the Company’s operations; • reduction of man-made impact on the environment • rational use of natural resources Realizing the health, safety and environment goals provides for the Company to accomplish the following objectives: • improving industrial and environmental safety of hazard- • reduction of negative impacts on the environment by ous production facilities; implementing new advanced technologies, equipment, materials as well as improving process control quality; • prevention of making of unjustified wastes in technologi- cal processes of oil production and related operations with environmentally safe handling of wastes and their maximum use as a secondary raw material; • rational use of natural resources and minimization of oil and gas losses Environmental management system The PJSC TATNEFT environmental safety activities are car- ried out in accordance with the federal law requirements and in compliance with all applicable environmental rules and regulations, taking into account the international, fed- eral and regional regulation requirements, internal regula- tory documentation and the PJSC TATNEFT Health, Safety and Environment Policy. As the third JSC TATNEFT Environmental Program for 2000 through 2015 was completely over and in order to provide further compliance with the norms and requirements of the Federal laws as regards to environment conservation, ISO 14001:2004 international standard, as well as achieve environmental goals and fulfil commitments to protect the environment as determined by the Heath, Safety and En- vironment Policy of PJSC TATNEFT, the corporate program documents were developed and approved in 2015: • PJSC TATNEFT Ecological Strategy up to 2020; • PJSC TATNEFT Ecological Strategy for 2016 through 2020. The Fundamental Principles of the PJSC TATNEFT Health, Safety and Environment Policy are as follows: working conditions and healthy environment; • recognizing the constitutional right of people to safe • industrial and environmental safety priority as an inte- • energy saving and rational use of natural resources dur- • managerial and investment decision-making based on ing oil production operations; gral part of national security; multi-optional scenarios, taking into account the indus- trial and environmental safety priorities; • giving priority to preventive measures over response ac- tions to eliminate negative environmental impacts. Certified in 2006, the PJSC TATNEFT Integrated Health, Safety and Environment Management System (hereinaf- ter – ISM HSE OS) successfully passed in 2015 through the re-certification audit for compliance with the international standards ISO 14001:2004 and OHSAS 18001:2007. The audit was carried out by the specialists of JSC Bureau Veritas Certification Russia. The Company is committed to: • ensure compliance with current legislation, industrial, corporate and local regulations governing the Com- pany’s health, safety and environment activities as well as other related external requirements the Company has committed to be met; • identify and assess industrial hazards and risks, work out measures to manage and mitigate significant op- erational risks; Industrial Environmental Monitoring The PJSC TATNEFT industrial environmental monitoring system is implemented in the following areas: • taking measurements and samples related to the envi- • maintenance of databases of sources of environmen- ronment protection; tal impact and environmental setting, processing and analysis of data obtained; places during its operations; • identify and eliminate occupational hazards at work- • take all possible measures to prevent the environment • carry out a set of preventive measures to prevent a pollutions; possibility of emergency situations, and should it hap- pen take measures to mitigate the emergency situation impact on the environment; pational diseases; • carry out a set of measures to prevent injuries and occu- • provide health, safety and environment training and skill • require that the contractors carrying out work at produc- development of the Company’s personnel; tion facilities of the Company comply with the health, safety and environment requirements existing in PJSC TATNEFT; holders in health, safety and environment activities; • maintain an open dialogue with all the Company’s stake- • attain and continuously improve the Company’s health, • maintain and continuously improve the Integrated safety and environment performance; Management System related to the health, safety and environment; • ensure compliance with the Integrated Management System to international occupational health and safety standards OHSAS 18001: 2007 and the environmental guidelines ISO 14001:2004; • report to the public on the Company’s health, safety and environment activities. mental requirements; • determination of impact source conformity with environ- • analysis and forecast of the environment conditions in • development of the industrial environmental monitoring the region; system in new operating areas. The industrial environmental monitoring system provides the following types of monitoring: • monitoring of sources of environmental impact (emis- • monitoring of condition of the environment components sions and discharges of pollutants and waste waters); (air, surface and underground waters, lands and soils, geological environment); • two-level supervisory control of compliance with envi- ronmental legislation. The basic system-wide documents for the PJSC TATNEFT industrial environmental monitoring are the following stand- ards: • Regulation on industrial control for environmental pro- tection (industrial environmental monitoring) in PJSC TATNEFT (STO TN 128-2014); • Procedure for industrial control for air protection in • Regulation on water use compliance in PJSC TATNEFT PJSC TATNEFT (STO TN 129-2014); (STO TN 132-2015). The scientific and methodological support for the Com- pany’s environmental activities is provided by TatNIPIneft Institute along with a number of other research institutions and universities of Tatarstan and the Russian Federation. 182 183 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Environmental security measures Oilfield Equipment Reliability Improvement Atmospheric Air Protection and Monitoring PJSC TATNEFT is particularly focused on the environmental activities to reduce harmful emissions into the atmosphere, discharges of pollutants into groundwater and surface water, soil and subsoil as well as to ensure compliance with the es- tablished norms of permissible impact on the environment. Primarily, all these are ensured by maintaining the technical condition of the oil-field equipment at the appropriate level and implementing advanced and innovative environmental technologies as well as through the activities, such as: • Implementation of the technology to capture light hy- drocarbon fractions released from storage tank equip- ment (vapor recovery units); unit; • Reducing flared associated gas volumes; • Associated petroleum gas cleaning at desulphurization • Repair and replacement of tanks and other storage tank equipment and anti-corrosive coating application and equipping with electrochemical protection means; pipelines; lating systems; for collection and disposal of wastes; zation of technological process and product streams; • Overhaul and replacement of commercial oil and gas • Reconstruction of oil treatment facilities with the optimi- • Construction of storm water drain at industrial facilities • Mud pit lining and equipping rigs with waterproof circu- • Overhaul and replacement of oil pipelines and their • Equipping well servicing and workover crews with spe- • Monitoring production casings of wells for integrity and • Sealing of production casings, bringing top of cement to • Running in additional (intermediate) casings; • Increase lifetime of downhole equipment using protec- surface behind surface and production casings; cial equipment to prevent fluid spills; sacrificial and inhibitory protection; behind-casing cross-flows; tive coatings, M1-X packers, sacrificial protection, cor- rosion inhibitors and cathodic protection of casing wells. In 2015, to ensure stable and trouble-free operation of the production facilities while improving their industrial and environmental safety the Company manufactured 848.529 km of corrosion-resistant pipes (polymer coated steel pipe). Cathodic protection was applied to 1 007 well cas- ings; 559.452 km of pipelines were furnished with electro- chemical protection. The diagnostic examination was done in the amount of 2 439.353 km of pipelines. In order to protect the oilfield equipment and pipelines against corrosion the Company tested and adapted dozens of chemical reagent brands. The high-efficient cor- rosion inhibitors in the quantity of 5 470.997 tonnes were used in 2015. The domestic corrosion inhibitor SNPH- 6201A was commercially tested as part of the import substitution program. The inner surfaces of 195 process tanks (vertical stain- less steel tanks and horizontal flow settling tanks) were lined with anticorrosion coating at the crude oil gathering and treatment facilities of the oil and gas field operating divisions. 45 vertical steel tanks were repaired. 360 bul- let tanks and 119 vertical steel tanks were gone through diagnostic tests. In order to protect the land, surface and underground waters 138.38 km of oil pipelines for the oil gathering and treatment system and 96.93 km of water lines for the reser- voir pressure maintenance system were overhauled using corrosion-resistant pipes. In 2015, a good deal of work was accomplished with regard to active electrochemical protection, delivery of corrosion inhibitors, use of corrosion-resistant tubular to replace gas pipelines as well as major repair (replacement) of worn out sections. In 2015, in order to comply with the established limits of maximum permissible emission of pollutants into the air and further reduce the emissions: • major repairs were accomplished for 16.51 km of gas pipelines. The total costs amounted to 132.635 mln rubles; • reconstruction of the NGDU Jalilneft’s flare facilities of the booster pump station DNS-32 was completed that will provide soot-free combustion. The investments totaled 9.695 mln rubles; • reconstruction (replacement) of the vapor recovery units at the Aktashskoe Tank Farm of NGDU Elkhovneft completed. The investments amounted to 33.857 mln rubles. The vapor recovery units are scheduled to be brought into operation for 2016; • oil heating furnaces with waste-heat exchangers were installed at the Kama-Ismagilovky Sour Crude Oil Treat- ment Facility of NGDU Leninogorskneft. The invest- ments amounted to 65.607 mln rubles including 8.651 mln rubles in 2015. The furnaces are scheduled to be brought into operation for 2016; • separation and pumping unit of associated petroleum gas of the 2nd stage separation was under construc- tion along with reconstruction of the NGDU Yamash- neft’s booster pump station DNS-210. The investments amounted to 69.707 mln rubles including 59.374 mln rubles in 2015; • Tatneftegazpererabotka Division’s Minnibaevo associ- ated petroleum gas desulfurization facility reconstruc- tion continued. The investment totaled 111.972 mln rubles in 2015; tion facility started at • reconstruction of associated petroleum gas desulfuriza- • the Minnibaevo Gas Processing Plant of the Tatneft- • The investments amounted to 10.802 mln rubles in 2015; • reconstruction of the plant-wide flare system started egazpererabotka Division. at the Minnibaevo Gas Processing Plant of the Tatneft- egazpererabotka Division. The total investment amount- ed to 83.557 mln rubles in 2015. To ensure compliance with the requirements for establish- ing the maximum permissible emission limits and meeting the requirements for granting the emission permits, the re- construction of the booster pumping station DNS-2 “Vish- nevaia Poliana” and the Sour Crude Oil Treatment Facility UPVSN-2 “Kutema” began in NGDU Nurlatneft in 2015. The amount of investments totaled 14.856 mln rubles in 2015. The newly constructed gas gathering network will be as long as 122 km and the 1st and 2nd stages gas pipelines construction cost is estimated to amount to more than 1.8 bln rubles. The gross pollutant emissions into the atmos- phere in 2015 amounted to 83 868. 674 tonnes, which was 8 434.16 less than that of 2014. In 2015, the specific emis- sions per tonne of oil production made up 3.115 kg. As a result of implementation of air protection measures across the Company for the last 20 years the total emissions of pollutants into the air from stationary sources had de- creased by 1.2 times. Application of light hydrocarbon frac- tion capture technology (vapour recovery units) decreased the carbon emissions by more than 3.5 times as compared with the emissions in 1991. Currently, the PJSC TATNEFT’s facilities operate 44 vapor recovery units. All pollutant emis- sions into the air from the Company’s stationary sources are within the established standards of maximum permis- sible emissions. In 2015, PJSC TATNEFT produced 946 941 ths m3 of APG, gathered and utilized 899 538 ths m3, flared 47 403 ths m3. For the purpose of fulfilling the schedules to monitor the established standards of maximum permissible emissions of pollutants into the air PJSC TATNEFT carried out the instrumental measurements on 346 stationary emission sources and ran 3 701 analyses in 2015. In order to monitor compliance with the sanitary norms and regulations for air protection in the populated areas, as well as part of substantiation (defining) of the sanitary buffer zone sizes the atmospheric air was monitored in the human settlements located within the area of the Company’s op- erations and sanitary buffer zones of the production facili- ties. There were 338 monitoring points. During the activities 15 173 analyses were performed to determine the current state of the atmospheric air. The air basin was analyzed for 33 ingredients (hydrocar- bons, hydrogen sulfide, nitrogen dioxide, carbon monoxide, etc.) with simultaneous meteorological observations by measuring a wind speed and direction, temperature and relative humidity. 184 185 PJSC TATNEFT, ANNUAL REPORT 2015ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Water conservation and sustainable use In 2015, a considerable amount of efforts was made to improve reliability of various-application pipelines and well designs. To ensure a leak-free operation of oilfield facilities the Company applies the technologies to: ing and paint coating application; • protect the pipes against corrosion by polyethylene lin- • manufacture pipes in corrosion-resistant versions; • construct pipelines with effective internal and external insulation and welding joint protection. To ensure water resources conservation and their rational management: • the reconstruction of modular sewage treatment units for the circulation water supply system of gas process- ing facilities continued at the Tatneftegaspererabotka Division. In 2015, the investments amounted to 34. 811 mln rubles; • reconstruction of the car wash facility with circulating water supply and three-stage wastewater treatment was finished at the central base of the Automobile Transport Enterprise (ATE) of PJSC TATNEFT. The total estimated cost of the reconstruction amounted to 24.460 mln rubles including 1.690 mln rubles in 2015. The highly reliable packers and corrosion-resistant tubings were continued to be installed to ensure conservation of subsoil and fresh groundwater resources. In 2015, pack- ers were run and set in 524 injection wells and corrosion- resistant tubing was used in 294 injectors. Totally, since the beginning of installation, the operating injection well stock equipped with packers of various designs and corrosion- resistant tubings had accounted for over 69% and 90%, respectively. In 2015, the stormwater sewer systems were installed at 250 oilfield facilities of NGDUs. The amount of investments totaled more than 50. 9 mln rubles. PJSC TATNEFT ensures water management in compliance with the Water Code of the Russian Federation and the Federal Law “On Subsoil”. In 2015, the use of surface water bodies was carried out on the basis of 63 water use agree- ments concluded with the Ministry of Ecology and Natu- ral Resources of the Republic of Tatarstan (including 48 agreements made in 2015) and 7 resolutions on assignment for use of surface water bodies. In 2015, PJSC TATNEFT performed the underground water abstraction operations on the basis of 51 subsoil use licenses. Thanks to implementing a variety of EORs and water sus- tainable use technologies, the quarterly amount of fresh water intake for reservoir pressure maintenance (RPM) for the period from 2000 to 2015 had decreased by 18.4 mln m3 (1.6 times). Moreover, 100% produced water during oil production and oil treatment operations was re-injected back into reservoir. The volume of water utilized in 2015 for PJSC TATNEFT’s own needs amounted to 29.081 mln m3, including fresh water in quantity of 28.565 mln m3. The specific amount of fresh water consumption per tonne of crude oil pro- duction amounted to 1.061 m3 (1.077 m3 in 2013 and 1.078 m3 в 2014). In 2015, the specific amount of polluted waste water dis- charged into surface water bodies per tonne of oil produc- tion amounted to less than 0.0035 m3 (less than 0.005 m3 in 2013 and less than 0.004 m3 in 2014). Industrial environmental monitoring of water bodies is car- ried out by 12 chemical analytical laboratories owned by the structural units of the Company, as well as the laboratories of other organizations: OOO UPTZH dlya PPD, the Federal State-Funded Healthcare Institution “Hygienic and Epide- miological Center in the Republic of Tatarstan”, the Federal Budgetary Institution branches of the Centre of Laboratory Analysis and Technical Metrology for the Volga Federal District. Water analysis is conducted to check the following parameters that are typically influenced by oil production: chloride ion, sulfate ion, total hardness, hydrocarbonates, pH, calcium, anionic surfactants (surfactant), and crude oil and petroleum products in dissolved and emulsified state. In the course of industrial control of environmental protec- tion, totally in 2015, the Company carried out 110 thousand analyses of natural water, including 10.554 chemical analy- ses of water samples that were run by the OOO UPTZH dlya PPD’s chemical-analytical laboratory. Based on the results of laboratory studies, in 2015, within the area of the Company’s operations the water quality in major rivers was stable. The content of chlorides, crude oil and oil products in dissolved and emulsified state in the major rivers and in the vast majority of the springs did not exceed maximum permissible concentrations (MPC) of harmful substances. Now the concentrations of these harmful substances are steadily lowering in the groundwater. In 2015, 49.9 mln rubles were spent to provide the residents with clean drinking water in the region. Conservation and Sustainable Use of Land and Forest Resources The land protection measures provide for using modular build rigs equipped with tank circulation systems with three- stage mud cleaning systems. This helps prevent liquid spill- age on the land surface and eliminate construction of earth pits as well as provides reliable protection of fertile lands on well-site area against contamination from drilling fluids and formation waters. During the year under report, the extensive work was carried out to reduce the agricultural land allotment for construction of oil facilities and restore the fertility of the disturbed land, which became possible due to pad drilling and well pad construction techniques. In 2015, 1 498 hectares of land were reclaimed during the construction of pipelines and other oil facilities. In order to create a favourable environment within its oper- ating area and higher greenhouse gas absorption, start- ing from 2000, PJSC TATNEFT has been realizing special activity programs for planting of greenery in by-road lanes along highways and oilfield roads in the oil producing re- gions of Tatarstan. TO MAINTAIN SUSTAINABLE USE OF WATER RESOURCES THERE ARE 62 WATER METERING UNITS OPERATING AT WATER INTAKE STRUCTURES (SURFACE AND GROUNDWATER) INCLUDING FIVE (5) WATER METERING UNITS INSTALLED DURING YEAR UNDER REPORT. ALL SEWAGE TREATMENT UNITS (TATNEFTEGAZPERERABOTKA DIVISION, NGDU ELKHOVNEFT) ARE EQUIPPED WITH DISCHARGED WASTEWATER METERING DEVICES. THERE IS A NETWORK OF LOCAL OBSERVATION POINTS TO MONITOR WATER BODIES IN PLACE WITHIN PJSC TATNEFT LICENSE AREAS. CURRENT OBSERVATION SYSTEM CONSISTS OF 1 910 SAMPLING POINTS. THIS INCLUDES 491 OBSERVATION POINTS TO MONITOR SURFACE WATER BODIES (RIVERS, WATER RESERVOIRS) AND 1 419 OBSERVATION POINTS FOR UNDERGROUND WATER BODIES. IN 2015, FOR TWENTIETH CONSECUTIVE TIME SINCE 1995 PJSC TATNEFT HAD ORGANIZED AND HELD ANNUAL CONTEST «MAINTAINING BEAUTY OF LANDSCAPED SPRING SITES AND IMPROVING WATER QUALITY». COMPANY WITH EFFORTS OF ITS DIVISIONS CLEARED, CAPTURED AND ARCHITECTURALLY REFURBISHED MORE THAN 500 SPRING SITES WITHIN ITS OPERATING AREA. SIGNIFICANT SOCIAL PROJECT OF RECENT YEARS HAS BEEN PROVIDING LOCAL COMMUNITY WITH CLEAN DRINKING WATER. TATNEFT’S PERSONNEL HAD TRANSPLANTED OVER 442 THOUSAND SEEDLINGS OF TREES AND SHRUBS INCLUDING 15 194 SEEDLINGS IN 2015. IN 2015, YEAR OF PARKS AND SQUARE GARDENS IN TATARSTAN, COMPANY LAUNCHED ANOTHER LARGE-SCALE PROJECT TO CREATE GREEN AREAS, PARKS AND ALLEYS WITHIN MAIN OPERATING AREA. AS PART OF PROJECT, MORE THAN 11 THOUSAND TREES WERE PLANTED IN ALMETYEVSK MUNICIPAL DISTRICT. 186 187 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY Production and consumption waste handling activities Oil Spill Emergency Prevention and Response System Environmental culture fostering and environmentalists training and development Funds committed to ensure ecological safety and environmental protection One of the PJSC TATNEFT environmental priority is to re- duce the man-induced impact on the environment through selective accumulation, collection and disposal of wastes generated in oil production processes. The Company established a complex system to collect and recycle production and consumption wastes. Moreover, the wastes are used as a raw material for producing marketable products. In 2015, PJSC TATNEFT carried out the hazardous waste handling activities based on the license to carry out activi- ties for waste detoxification and disposal of I-IV classes of danger No. 16-00125 dated 27.06.2014a issued by the Federal Service for Supervision over Natural Resources Management (Rosprirodnadzor). In order to comply with the new requirements of the Federal Law “On Production and Consumption Waste” entering into force on 01.07.2016, PJSC TATNEFT was granted the license No. RPN 16-00158 dated 31.12.2015a to carry out activities related to collection, transporta- tion, processing, recycling, disposal and disposal of I - IV classes of danger waste. In order to ensure more complete collection of household solid waste (HSW) generated from daily living activities of the residents of the settlements within the PJSC TATNEFT’s operating area, the Company financed the purchase of spe- cial MSW containers totaling 5.014 mln rubles in 2015. The total production and consumption wastes generated 2015 amounted to 61 205.8 tonnes (75 327.4 tonnes in 2014). The specific waste volume generated in 2015 per tonne of crude oil was 2.273 kg (2,873 kg in 2014). The system of prevention and response to emergency situ- ations (ES) due to oil spills and protection of people and the environment from their harmful impact is implemented in PJSC TATNEFT in two focus areas: complex of engineering and organizational measures, which are aimed at enhancing production equipment reliability, timely oil spill detection and minimizing resulting damages as well as a set of measures to immediately respond to this type of emergency. Pursuant to the RF Government Regulations No. 613 from 21.08.2000 “On urgent measures to prevent and eliminate of oil spills and petroleum products” and No. 240 dated 15.04.2002 “On procedure for organizing measures to prevent and eliminate oil and petroleum products spills in the Russian Federation”, the “Oil spills prevention and response plans” were developed at the PJSC TATNEFT’s structural units in accordance with the established procedure, which were approved by the Emer- gency Ministry of the Russian Federation. Volunteer emergency rescue teams were formed in the oil and gas field operating divisions of PJSC TATNEFT with the right to perform oil spills localization and elimination and gas hazard- ous works, which were attested by the departmental certifica- tion commission. The teams are staffed by trained personnel, equipment and special facilities sufficient for localization and elimination of oil spills (skimmers to collect oil and petroleum products from water surfaces, booms, special equipment mounted on all-terrain vehicles, pumps, tank trucks, vacuum units, cranes, trucks, excavators, bulldozers, as well as equip- ment and materials as required by the regulations). The irreducible material stocks were secured including for elimination of oil spills in water bodies, there were available 1900 meters of booms, 15 skimmers and 10 tonnes of sorb- ent. Over 600 stationary oil recovery facilities, booms and bio-ponds were maintained to prevent oil pollution of surface water bodies (rivers) and water basins (reservoirs) in the work- ing condition. 188 In accordance with PJSC TATNEFT’s commitment to main- tain an open dialogue with all stakeholders with regard to the Company’s environmental activities the bulk informa- tion is made available to the public by wide media cover- age including print and electronic media of topical articles, stories, press releases and other materials. PJSC TATNEFT’s total investments in environmental safety activities by all sources of funding (Opex and Capex) in 2015 amounted to 6 641.725 mln rubles including the investments assigned for environmental protection and rational use of natural resources in the amount of 937.946 million rubles. PJSC TATNEFT makes a lot of efforts for education and awareness-building of the younger generation. Since 2008, a contest of children’s drawings under the theme “As long as the Nature is alive and so am I!” has been held for chil- dren in southeastern part of Tatarstan. Since 2010, environ- mental special project of animated films “The Adventures of Neftyashi and her friends” has been realizing to raise environmental responsibility, promote kindness and foster love of country at a very young age. In 2015, 137 employees of PJSC TATNEFT’s structural sub- divisions were trained in a 112-hour program “Professional training of persons to have permit for hazardous waste management” to ensure environmentally sound manage- ment of waste production and consumption. In addition, 22 employees of the Company were trained in 72-hour program “Ensuring environmental safety by managers and specialists of general business management systems”. The total training spending amounted to more than 1 mln rubles. The specific amount of funds allocated by the Company to ensure ecological security and environmental protection per tonne of crude oil production amounted to 246 rubles (208 rubles in 2011, 230 rubles in 2012, 246 rubles in 2013, 238 rubles in 2014). RESULTS OF LARGE-SCALE ENVIRONMENTAL MEASURES SHOWED THAT IN 2015 MAN- INDUCED IMPACT ON ENVIRONMENT IN PJSC TATNEFT’S OPERATING AREA DID NOT EXCEED SELF-REGENERATION POTENTIAL OF ECOSYSTEMS. THAT WAS EVIDENCED BY LOWER CONCENTRATION OF POLLUTANTS IN AIR AND UNDERGROUND AND SURFACE WATER SOURCES. ENVIRONMENTAL INITIATIVES OF TATNEFT COMPANY ARE HOT TOPICS AT PANEL DISCUSSIONS WITH PARTICIPATION OF PARTNERS, EXPERTS, LOCAL COMMUNITIES AND MASS MEDIA. ACTIVE INFORMATION SUPPORT FOR ENVIRONMENTAL PROJECTS IS PROVIDED THROUGH PRINT MEDIA, INTERNET RESOURCES AND TV. SPENDING FOR ENVIRONMENTAL, SAFETY AND SUSTAINABLE USE OF NATURAL RESOURCES, MLN ROUBLES 7000 6000 5000 4000 3000 2000 1000 0 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 I N O T A T N E M E L P M I Y G E T A R T S 189 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PUBLIC RECOGNITION In 2015, the results were summarized with regard to PJSC TATNEFT’s participation in the federal and republican contests where the Company successfully positioned its achievements in ensuring environmental safety at its oil production facilities: • As part of celebration of the June 5th Day of Environmentalist, the Non-governmental Environmental Fund named after V.I. Vernadsky awarded PJSC TATNEFT with a diploma “For active participation in All-Russian Ecological Saturday Work “Green Spring-2015” for outstanding contribution to the environment improvement and environmental education” as well as commemorative prize “Green Spring-2015”. • For the 12th time in a row, PJSC TATNEFT was recognized as the absolute “ECOleader” in the Republic of Tatarstan. 190 PJSC TATNEFT HISTORY OF POLLUTANT EMISSIONS INTO THE ATMOSPHERE FROM STATIONARY SOURCES (THS TONNES) PJSC TATNEFT HISTORY OF FRESH WATER CONSUMPTION FOR PRODUCTION NEEDS AND RESERVOIR PRESSURE MAINTENANCE 600 500 400 300 200 100 0 0 8 9 1 5 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 500 400 300 200 100 0 0,2 0,1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 total harmful (polutant) emissions, ths tonnes including hydrocarbon emissions, ths tonnes fresh water consumption for own needs, mln m3 specific consumtion of fresh water per tonne oil, m3 DISSOLVED AND EMULSIFIED CONTENT OF CRUDE OIL AND PETROLEUM PRODUCTS BY YEAR (ANNUAL AVERAGE VALUES, MG/L) CONTENT OF CHLORIDE IONS IN MAJOR RIVERS WITHIN PJSC TATNEFT OPERATING AREA (MG/L) 0,12 0,09 0,06 0,03 0 1200 1000 800 600 400 200 0 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 7 9 1 0 8 9 1 5 8 9 1 6 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 MPC=0.05 mg/l St.Zai River Kichui River Mellia River Ik River Sheshma River MPC=300 mg/l St.Zai River Kichui River Mellia River Ik River Sheshma Rive PJSC TATNEFT WASTE GENERATION AND MANAGEMENT 150 PJSC TATNEFT ASSOCIATED PETROLEUM GAS (APG) UTILIZATION 1000 100% 120 90 60 30 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Waste generated from its own production Given to external enterprises Processed by its own production Received from external enterprises 800 600 400 200 0 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 90% APG production, mln m3 APG utilization, mln m3 APG utilization index, % 191 PJSC TATNEFT, ANNUAL REPORT 2015 ABOUT THE COMPANY OPERATIONS CORPORATE MANAGEMENT FINANCIAL RESULTS SOCIAL RESPONSIBILITY INDUSTRIAL SAFETY & ENVIRONMENTAL POLICY PJSC TATNEFT Environmental, Safety and Sustainable Nature Management Performance for 2014-2015 No. Performance Indicators 1 Gross harmful emissions, total including: solid substances gases and liquids of which: sulphur dioxide carbon oxide 2 3 4 5 6 7 8 9 10 11 12 nitrogen oxide (on conversion to NO2) hydrocarbons (without volatile organic compounds) Associated petroleum gas production Associated petroleum gas utilization Associated petroleum gas utilization rate Associated petroleum gas flared Including due to scheduled maintenance of lifting equipment withdrawal and production of clean water for Company’s own needs, total Including from: surface sources subsurface sources other sources Waste water received from third parties Clean water consumption, total including for: household and drinking needs production needs other (injection for reservoir pressure maintenance) Waste water used for reservoir pressure maintenance Recycled water volume Sequentially reused water volume Existing wastes at year beginning, total year end, total 13 Wastes generated during year including oil sludges (III class of hazard) 14 Wastes use, total including oil sludges (III class of hazard) 15 Detoxification of wastes on enterprise site, total including oil sludges (III class of hazard) 16 Wastes given to third parties, total including oil sludges (III class of hazard) Unit of Measure Report 2014 2015 tonnes 92 302.838 83 868.674 tonnes tonnes tonnes tonnes tonnes tonnes mln m3 mln m3 % mln m3 mln m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 ths m3 tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes tonnes 2 813.945 1 246.623 89 488.893 82 622.051 10 251.946 9 474.642 24 289.704 12 749.562 1 359.606 1 407.619 11 298.310 10 258.428 931.430 883.636 95.17 47.793 2.778 946.941 899.538 95.17 47.403 1.651 28 273.52 28 565.03 1 192.22 844.56 1 541.1 974.71 26 236.74 26 058.87 590.28 515.6 28 273.52 28 565.03 780.69 5 294.45 22 198.38 590.28 881.58 7 867.95 19 815.5 515.6 91 179.18 91 180.28 118 964.29 143 491.33 1.8 0.8 75 327.4 32 154.5 17 445.8 1 388.0 490.1 88.6 99 960.6 30 677.9 0.8 0.8 61 205.8 35 274.8 61 76.4 2 607.8 148.5 146.1 78 505.7 34 488.9 17 Disturbed land area: at year beginning at year end 18 19 Remediated land area during year Process loss of hydrocarbons: oil natural gas 20 Charges for negative impact on the environment, total including: pollutant emissions: normative Excess pollution discharges into water bodies: normative Excess waste disposal: normative Excess ha ha ha tonnes m3 ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub 317 261 1 643 9 304 0 97 437 4 514 4 514 0 83 627 83 585 42 9 296 9 288 8 462 261 325 1 498 9 603.9 0 198 235 102 929 4 752 98177 86 381 86 370 11 8 925 8 920 5 1 433 21 22 23 Amounts (suits) and fines charged to indemnify for damages caused by non-compliance with environmental legislation, total Charges for use of water bodies (water use charge) based on water use contracts ths rub 407.516 517.045 Fixed capital expenditures committed to environment protection and sustainable natural resources management: actual, total including: water bodies conservation air protection protection of lands from production and consumption wastes land reclamation 24 Current (operating) expenditures for environment conservation and expenditures for major repairs of fixed production assets related to environment conservation, total: including: air protection and climate change control waste water collection and treatment waste handling conservation and remediation of lands, surface and subsurface waters environment protection from noise, vibration and other types of physical effects biodiversity preservation and natural areas conservation environmental radiation protection research and development activities to mitigate human impact on the environment Other environmental activities ths rub 429 261.9 937 945.9 ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub ths rub 69 786.4 34 811.6 241 684.8 828 305.9 0.0 117 790.7 5810772 0.0 74 828.5 5703779 394 173 116 997 148 063 370 168 133 486 157 045 5 070 179 4 937 652 0 24 174 970 54 238 1 979 0 27 924 1 143 74 516 1 845 192 193 PJSC TATNEFT, ANNUAL REPORT 2015GRI G4 TABLE GRI G4 Indicator Strategy and Analysis G4-1 G4-2 General Director’s address Description of key impacts, risks and opportunities Organizational Profile Name of the organization Primary brands, products and/or services Location of the organization’s headquarters Pgs., comments 2-3 18-19, 22-39, 69, 48-81 Cover 30-38 206 G4-3 G4-4 G4-5 G4-6 G4-7 G4-8 G4-9 G4-10 G4-11 G4-14 G4-15 Number of countries where the organization operates, and names of countries where either the organization has significant operations or that are specifically relevant to the sustainability topics covered in the report. 27, 34-35, 37 Nature of ownership and legal form 4 Markets served (including geographic breakdown, sectors served, and types of customers and beneficiaries) 30-38 Scale of the organization, including: Total number of employees, Total number of operations, Net sales, Total capitalization, Quantity of products or services provided Total workforce by region Percentage of total employees covered by the Collective Agreement Explanation whether and how the precautionary principle is addressed by the organization 6, 8, 16-17, 30-34, 36-38, 72, 94-96, 108-113 72 163 81 Externally developed economic, environmental and social charters, principles, or other initiatives to which the organization subscribes or which it endorses 64-65, 165, 167, 182-183, 185 G4-16 Membership in associations and national or international advocacy organizations 65, 178 Identified Material Aspects and Boundaries G4-17 G4-18 G4-19 G4-22 G4-23 Report boundaries Process for defining the report content and the Aspect Boundaries Aspects identified in the process for defining report content 71, 167 71, 167 71, 167 Description of effect of any restatements of information provided in previous reports, and the reasons for such restatements There were no restatements Significant changes from previous reporting periods in the Scope, Aspect Boundaries and methods of measurement used in the report There were no changes Stakeholder Engagement G4-24 G4-25 G4-26 G4-27 List of stakeholder groups engaged by the organization Principles for identification and selection of stakeholders with whom to engage 166, 179 178 Approach to stakeholder engagement including frequency of engagement by type and by stakeholder group 66, 166, 178-181 Key topics and concerns that have been raised through stakeholder engagement 66, 166, 178-181 Report Profile G4-28 G4-29 G4-30 G4-31 G4-32 G4-33 Reporting period for information provided Date of most recent previous report Reporting cycle Contact point for questions regarding the report or its contents Table showing places of the standard elements in the report cover June 2015 Annual 206 200-203 Policy and current practice with regard to seeking external assurance for the report 92-93, 100-107, 167 Corporate Governance G4-34 G4-35 G4-36 G4-38 G4-39 G4-40 G4-41 G4-42 G4-44 G4-45 G4-46 G4-47 G4-49 G4-50 G4-51 G4-52 Governance structure of the organization, including committees of the highest governance body responsible for the specific problems 42-44, 46, 48-58, 60-63, 67 Process for delegating authority for economic, environmental and social topics from the highest governance body to senior executives and other employees 43 Report whether the organization has appointed an executive-level position or positions with responsibility for economic, environmental and social topics, and whether post holders report directly to the highest governance body 50, 42, 62 Composition of the highest governance body and its committees Report whether the Chair of the Board of Directors is also an executive officer Nomination and selection processes for the highest governance body and its committees Processes for the highest governance body to ensure conflicts of interest are avoided Highest governance body’s and senior executives’ roles in the development, approval, and updating of the organization’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental and social impacts Processes for evaluation of the highest governance body’s performance with respect to governance of economic, environmental and social topics Highest governance body’s role in the identification and management of economic, environmental and social impacts, risks, and opportunities 48-57 He is not, p. 48 46,67 45 46, 58, 67 68 46, 67 Highest governance body’s role in reviewing the effectiveness of the organization’s risk management processes for economic, environmental and social topics 68 Report the frequency of the highest governance body’s review of economic, environmental and social impacts, risks, and opportunities Process for communicating critical concerns to the highest governance body Nature and total number of critical concerns that were communicated to the highest governance body and the mechanism(s) used to address and resolve them Remuneration policies for the highest governance body and senior executives Process for determining remuneration for the highest governance body members and senior executives 68,47 46-47 47 46-58 46-58 194 195 PJSC TATNEFT, ANNUAL REPORT 2015Ethics and Integrity G4-56 Organization’s values, principles, standards and norms of behavior G4-57 G4-58 Internal and external mechanisms for seeking advice on ethical and lawful behavior, and matters related to organizational integrity Internal and external mechanisms for reporting concerns about unethical or unlawful behavior, and matters related to organizational integrity 43, 64-65, 178, 182-183 170 170 Economic Indicators ЕС1 ЕС3 ЕС4 ЕС6 ЕС7 ЕС8 Direct economic value generated and distributed, including revenues, operating costs, employee wages, donations and other community investments, undistributed profits, payments to providers of capital and government 5, 7-8, 12, 96, 108- 163 Coverage of the organization’s liabilities related to pensions plan and defined benefits Financial assistance received from government Percentage of senior management that are hired from the local community Development and impact of infrastructure investments and services supported Understanding and description of significant indirect economic impacts, including the extent of impacts 172 72 174-177 174-177 174-177 Environmental Indicators ЕN2 ЕN3 ЕN6 ЕN8 EN10 ЕN20 ЕN21 ЕN22 ЕN23 ЕN24 ЕN27 ЕN29 Percentage of materials used that are recycled input materials Energy consumption within the organization Reduction of energy consumption Total water withdrawal by source Percentage and total volume of water recycled and reused Emissions of ozone-depleting substances NOx, SOx and other significant air emissions Total water discharge by quality and destination Total weight of waste by type and disposal method Total number and volume of significant spills Extent of impact mitigation of environmental impacts of products and services Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations ЕN31 Total environmental expenditures and investments 194, 197-198 39 192, 197-198 192, 198 192, 198 PJSC TATNEFT does not produce or use ozone-depleting substances in its operations 198 194, 197-198 194, 197-198 There were no spills 188-195 199 195, 199 ПАО «ТАТНЕФТЬ». ГОДОВОЙ ОТЧЕТ 2015 Social Indicators LA1 LA2 LA4 LA5 LA6 LA7 LA8 LA10 LA11 LA12 LA13 HR3 HR4 HR5 HR6 Total number of new employee hires and employee turnover Benefits provided to full-time employees that are not provided to temporary or part-time employees, by significant locations of operation Minimum notice period regarding operational changes, including whether these are specified in the Collective Agreement Percentage of total workforce represented in in formal joint management-worker health and safety committees that help monitor and advice on occupational health and safety programs Rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities Workers with high incidence of high risk of diseases related to their occupation Health and safety topics covered in formal agreements with trade unions 72 73, 168-169 In accordance with the Labor Code of the Russian Federa- tion (Article 180) 187 187 187 187 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings 74-75 Percentage of employees receiving regular performance and career development reviews Composition of governance bodies and breakdown of employees according to gender and age group Rate of basic salary and remuneration of women to men by employee category Total number of incidents of discrimination and corrective actions taken Operations and suppliers identified in which the right to exercise freedom of association and collective bargaining may be violated or at significant risk, and measures taken to support these rights Operations and suppliers identified as having significant risk for incidents of child labor, and measures taken to contribute the effective abolition of child labor Operations and suppliers identified as having significant risk for incidents of forced or compulsory labor and measures taken to contribute to the elimination of all forms forced or compulsory labor 73 183 183 183 183 183 183 HR8 Total number of incidents of violations involving rights of indigenous peoples and actions taken There were no incidents HR12 Number of grievances about human rights impacts filed, addressed and resolved through formal grievance mechanisms 170 SO5 Confirmed incidents of corruption and actions taken SO7 SO8 SO11 PR1 PR2 PR3 PR4 PR7 PR8 PR9 Total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcomes Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations There were no fines and sanctions Number of grievance about impacts on society filed, addressed, and resolved through formal grievance mechanisms There were no grievances Percentage of significant product and service categories for which health and safety impact are assessed for improvement Total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services, by type of outcomes Type of product and service information required by the organization’s procedures, and percentage of significant product and service categories subject to such information requirements Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of outcomes 182 182 182 182 182 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data 182 Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services There were no fines There were no incidents There were no incidents 196 197 LIST OF ABBREVIATIONS Auction of business ideas Autogas filling station Almetyevsk State Oil Institute Anodic grounding electrode Filling station Automated Information System Joint-Stock Corporation Basin Water Administration Bugulma mechanical plant (structural subdivision of JSC TATNEFT) All-Russian Society of Inventors and Innovators Pump-measuring group unit Measuring group unit Main Directorate for Road Traffic Safety State Complex Nature Zakaznik Horizontal Settler State Standards Hydraulic Fracturing Fuels and lubricants Hydraulic structures Booster pump station Children’s holiday camp European Union United Nations Economic Commission for Europe Reinforced concrete tank Closed Joint-Stock Company Information system Corporate Information System Cluster pump station Kazan (Privolzhsk) Federal University Corporate social responsibility Minnibaevo Gas Processing Plant Moscow Interbank Currency Exchange Metal-reinforced plastic pipes Overhaul time Oil recovery enhancement methods Ministry of Emergency Situations Oil and Gas Production Administration (structural division of JSC TATNEFT) Mineral extraction tax Value added tax Nizhnekamsk All Steel Tires Plant Research and experimental works Oil-well tubing Intangible assets Oil refining and petrochemical complex Oil refinery Oil refining installation ABI AGZS AGNI AZ AZS AIS AO BVU BMZ VOIR GZNU GZU GIBDD GKPZ GO GOST GRP GSM GTS DNS DOL YeS YeEK OON JBR ZAO IS KIS KNS K(P)FU KSO MGPZ MMVB MPT MRP MUN MchS NGDU NDPI NDS NZSh TsMK NIOKR NKT NMA NP i NKhZ NPZ NPU 198 NTTs NKhK PJSC TATNEFT OOO OOPT OPR ORD ORDiZ ORZ ORE OEZ PDK PNG PPD PPT PS PTs RVS RID RMOO RT RF SVN SKZ SKU SED TD TTD TU TEK TETs UZK UK ULF UPVSN UPN UPS UPTZh for PPD USO UTNGP TsMK tires TsPK ShFLU EIS EKU Scientific and Educational Center Petrochemical Complex Public Joint Stock Company TATNEFT named after V.D.Shashin Limited Liability Company Protected area Industrial experiment works Dual Production Dual Production and Injection Dual Injection Dual Completion Special Economic Zone Maximum Permissible Emission Associated Petroleum Gas Formation pressure maintenance Polymer coated pipes Substation Chain drive Steel vertical tank Russian Institute of Directors Regional Yong People’s Social Organization Republic of Tatarstan Russian Federation Extraviscous oil Cathodic protection station Corporate Management Standard Electronic Document Management System Trading House Trading and Technical House Technical Specifications Fuel and energy complex Heat Power Plant Delayed coking unit Administration Company Light hydrocarbon fraction recovery High-Sulfur Oil Treatment Installation Oil Treatment Installation Preliminary Water Removal Installation Administration of Process Fluid Preparation for Formation Pressure Maintenance (structural subdivision of JSC TATNEFT) Sulfur Removal Installation TATNEFTegazpererabotka Administration (structural subdivision of JSC TATNEFT) All-steel tires Personnel Training Center Broad light hydrocarbon fraction Electroinsulating connections Corporate e-University 199 PJSC TATNEFT, ANNUAL REPORT 2015CONTACT DETAILS PUBLIC JOINT STOCK COMPANY TATNEFT ABBREVIATED NAME: PJSC “TATNEFT” HEADQUARTERS: 75, Lenin St., Almetyevsk 423450 Republic of Tatarstan Russian Federation Tel.: +7 (8553) 30-75-68 MOSCOW OFFICE: 17, Tverskoy Boulevard, Moscow 123104 Russian Federation Tel.: +7 (495) 937-55-78 KAZAN OFFICE: 71, K.Marx St., Kazan 420111 Republic of Tatarstan, Russian Federation Tel.: +7 (843) 533-83-12. FOR SHAREHOLDERS: Office of the Corporate Secretary Tel.: +7 (8553) 31-97-41 THE COMPANY’S AUDITOR FOR REPORTING BASED ON RUSSIAN AND INTERNATIONAL STANDARDS: Joint Stock Company “PriceWaterhouseCoopers Audit” White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047 Tel.: +7 (495) 967-60-00 THE COMPANY’S REGISTRATOR OOO “Euroaziatsky registrator” 10, Mir St., Almetyevsk 423450 Republic of Tatarsta, Russian Federation Tel.: +7 (8553) 22-10-88 THE COMPANY’S WEBSITE: tatneft.ru MONTH AND YEAR OF THE REPORT PUBLICATION: June 2016 200 REPORT CONCEPT V.P.Lavuschchenko A.T.Yukhimets N.E.Dorpeko WORKING GROUP FOR REPORT ELABORATION R.N.Mukhamadeev V.A.Karpov R.M.Khisamov E.A.Tikhturov V.A.Voskoboinikov Т.I.Zakharova V.D.Ershov R.A.Salakhov O.A.Sharagina R.R.Gayfullina V.G.Fadeev D.V.Kurochkin R.I.Khaziev R.B.Rafikov R.Sh.Dinmukhamedov U.M.Piyanzina DESIGN AND PRINTING Design To Business | Brand Assistance tatneft.ru

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