2017
GROWTH STRATEGY
TATNEFT ANNUAL REPORT
The 2017 PJSC TATNEFT annual report («TATNEFT,» the «Company») presents the financial
and operating results of the Company and its affiliates, which are collectively referred to as
TATNEFT Group (the «Group»). As the parent company of the Group, TATNEFT has prepared
consolidated operating and financial information for key business units and sectors in this
annual report. The report is based on an analysis of consolidated operating data in
accordance with IFRS.
The percentages and sums in the text may contain slight inaccuracies due to rounding. The
data in the report may slightly differ from previously published information due to rounding.
The 2017 TATNEFT annual report has been prepared on a single integrated basis in
compliance with the requirements on annual reports for public companies and with
corporate reporting standards in the area of sustainable development. The integrated annual
report adheres to the guidelines of the Corporate Governance Code adopted in the Russian
Federation and recommended by Letter No. 06-52/2463 of April 10, 2014, issued by the
Bank of Russia.
The information disclosed in this annual report adheres with:
- Federal Law No. 208-FZ dated December 26, 1995, «On Joint-Stock Companies»
- Federal Law No. 39-FZ dated April 22, 1996, «On Securities Markets»
- Bank of Russia Regulation No. 454-P «On Disclosing Information by Securities Issuers»
approved on December 30, 2014, registered with the Ministry of Justice of the Russian
Federation on February 12, 2015
- Bank of Russia Letter No. IN-06-52/8 dated February 17, 2016, «On Disclosure of
Compliance with the Principles and Recommendations of the Code of Corporate
Governance in Annual Reports by Public Joint-Stock Companies»
This annual report complies with the following sustainable development standards:
- G4 Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI)
- AA 1000 Standard for Stakeholder Engagement
- ISO:26000 Standard – Guidance on Social Responsibility
- Social Charter of Russian Business
- International Integrated Reporting Standard (www.theiirc.org/intemational-ir-
framework/).
The 2017 TATNEFT annual report has been preliminary approved by the TATNEFT Board of
Directors.
Protocol No. 5-z dated May 21, 2018
STATEMENTS ABOUT THE FUTURE
In addition to factual data for the past period, this annual report contains some statements regarding the
future. In particular, such statements include data on future business performance, plans or forecasts
regarding future economic and financial indicators, and the Company’s objectives and tasks in terms of
development programs, products, and services.
Statements on the future performance of the Company may also contain information on anticipated
or estimated income, profit/loss, and net profit/loss with regard to stock and dividends and on capital
structure and other financial issues.
The statements are of a forecasting nature and include phrasings such as «it is expected,» «it is supposed,»
«it is planned,» and «it is intended.» The statements on their own are associated with both general and
specific risks and uncertainties. It is conceivable that future actual performance may significantly differ
from the plans, objectives, expectations, estimations, and intentions presented in such statements or may
not be achieved due to various factors.
The Company’s corporate calendar for the year 2017 is presented
in detail on the corporate website tatneft.ru
CONTENTS
Got to
Joint Address of the Chairman of the Board of Directors and the Director General to Shareholders, Investors, and Partners........................................................................... 02
Key Performance Indicators ............................................................................................................................................................................................................ 04
About the company ....................................................................................................................................................................................................................... 06
Financial stability .......................................................................................................................................................................................................................... 08
Sustainable development ............................................................................................................................................................................................................... 10
Investment appeal ......................................................................................................................................................................................................................... 12
Geography of Activity ..................................................................................................................................................................................................................... 14
Business Model of the Company ..................................................................................................................................................................................................... 16
Main Stages of the Company History ............................................................................................................................................................................................... 18
Strategy 2025 ............................................................................................................................................................................................................................. 20
Global challenges ......................................................................................................................................................................................................................... 22
Report of the Board of Directors on Strategic Directions of the Company Development ............................................................................................................................ 26
Macroeconomics .......................................................................................................................................................................................................................... 28
Exploration and Production ............................................................................................................................................................................................................. 32
Oil and Gas Production .................................................................................................................................................................................................................. 38
Sale of Oil .................................................................................................................................................................................................................................... 42
Sale of Oil Products ...................................................................................................................................................................................................................... 43
Oil and Gas Processing .................................................................................................................................................................................................................. 44
Retail Filling Stations Network ......................................................................................................................................................................................................... 50
Petrochemicals ............................................................................................................................................................................................................................. 52
Energy ........................................................................................................................................................................................................................................ 56
Corporate governance ................................................................................................................................................................................................................... 58
Company management system ....................................................................................................................................................................................................... 60
General shareholders’ meeting ....................................................................................................................................................................................................... 62
Board of directors ......................................................................................................................................................................................................................... 64
Committees of the Board of Directors .............................................................................................................................................................................................. 78
Corporate Secretary ...................................................................................................................................................................................................................... 84
General director and the management board..................................................................................................................................................................................... 86
Internal Audit ............................................................................................................................................................................................................................... 98
Risk Management ....................................................................................................................................................................................................................... 100
Information Policy ....................................................................................................................................................................................................................... 106
Interaction with Shareholders ........................................................................................................................................................................................................ 110
Observation of shareholders’ rights to receive dividends ................................................................................................................................................................... 112
Tatneft share capital structure ....................................................................................................................................................................................................... 114
Staff of the company ................................................................................................................................................................................................................... 116
Financial results .......................................................................................................................................................................................................................... 118
Accounting Statements Prepared in Accordance with Russian Accounting Standards ............................................................................................................................. 120
Independent Auditor’s Report ....................................................................................................................................................................................................... 120
Tatneft Financial Statements for 2017 ............................................................................................................................................................................................ 130
Profit and loss statement for 2017 ................................................................................................................................................................................................. 132
Essential aspects of the accounting policy and presentation of information in the financial statements ...................................................................................................... 133
Consolidated Financial Statements in Accordance with International Financial Reporting Standards as of and for the Year Ended December 31, 2017 ..........................................................144
Independent Auditor's Opinion ...............................................................................................................................................................................................................................144
Consolidated Statement of Financial Position ............................................................................................................................................................................................................151
Consolidated Statement of Profit or Loss and Other Comprehensive Income ................................................................................................................................................................153
Consolidated Statement of Changes in Equity ...........................................................................................................................................................................................................155
Consolidated Statement of Cash Flows ....................................................................................................................................................................................................................157
Notes to Consolidated Financial Statements .............................................................................................................................................................................................................159
Social Responsibility and Interaction with Stakeholders ..............................................................................................................................................................................................246
Social Investments ................................................................................................................................................................................................................................................248
Company social programs areas .............................................................................................................................................................................................................................249
Implementation of GRI Principles ............................................................................................................................................................................................................................250
Corporate standards and regulations on interaction with shareholders ........................................................................................................................................................................252
Collective agreement ............................................................................................................................................................................................................................................256
Social programs ...................................................................................................................................................................................................................................................257
Charitable activities ..............................................................................................................................................................................................................................................271
Industrial safety. Environmental policy .....................................................................................................................................................................................................................274
Company policy in the field of industrial safety, labor and environmental protection ......................................................................................................................................................276
Industrial safety and occupational health ..................................................................................................................................................................................................................277
Environmental management system ........................................................................................................................................................................................................................278
Annexes ...............................................................................................................................................................................................................................................................286
Report on Compliance with the Principles and Recommendations of the Corporate Governance Code ............................................................................................................................288
Protection of Insider Information .............................................................................................................................................................................................................................300
Report on transactions concluded by PJSC Tatneft n.a. V.D. Shashin in 2017, which are recognized as transactions with interest ............................................................................. 301
Register of compulsory disclosed information of Tatneft in 2017 ......................................................................................................................................................... 314
Register of Technologies and Innovations ....................................................................................................................................................................................... 315
List of Acronyms ......................................................................................................................................................................................................................... 320
Contact information ..................................................................................................................................................................................................................... 322
B
1
PJSC Tatneft 2017 Annual Report JOINT ADDRESS OF THE CHAIRMAN
OF THE BOARD OF DIRECTORS AND
THE DIRECTOR GENERAL TO SHAREHOLDERS,
INVESTORS, AND PARTNERS
Utilization of oil refining capacity is at 115%. We have
maintained our industry leadership in the refining depth
at the level of 99.24%, with the light oil products output of
87.5%. In the coming years, the Company is planning to
start producing high-quality Euro-5 gasoline and to increase
the production of TANECO diesel and jet fuel. To increase time
between repairs, TANECO conducted a major overhaul during
the reporting year. These repairs have enabled the Company
facilities without significant
to
disruption of the production process.
launch new production
The Company operates 685 retail filling stations under
the corporate brand in the most attractive regions (in terms
of demand volumes and trends) across Russia, Belarus, and
Ukraine. Over the reporting year, average daily sales per
filling station have increased by 6%. Priorities in this business
segment include increasing the chain’s margins, ensuring
the quality of oil products, and developing related services.
The TATNEFT Group’s tire manufacturing business maintains
a significant share of the domestic Russian tire market. In
the reporting year, petrochemical sales revenue increased by
9.4% thanks to the growth in tire sales. Tires are shipped to
domestic and export markets (covering around 50 countries).
Our objectives in this segment include occupying new market
niches due to the high quality and extended range of products
and running efficient marketing programs.
To meet the strategic goal of extending our range of innovative
product lines, the Company is developing a composite cluster
for high-tech manufacturing.
We are increasing the reliability of our generating capacities to
ensure the supply of energy to companies in the Nizhnekamsk
industrial hub. The Company is developing programs to
diversify its sources of raw materials for the Nizhnekamsk
combined heat and power plant, which will help improve its
performance.
Driven by strong results throughout the reporting year,
the TATNEFT Group’s consolidated profit grew by 17.4%,
reaching RUB 681.2 billion at year-end. The net profit of
the Group’s shareholders amounted to RUB 123.1 billion, an
increase of 14.7% from 2016.
In the reporting year, the total value of the consolidated assets
increased to RUB 1,107.5 billion.
The Company follows a progressive dividend policy. In 2017,
TATNEFT shareholders received nine-month dividends in
the amount of 75% of the company’s net profit. Based on
the Company’s 2017 performance, the Board of Directors
recommends the TATNEFT General Shareholders Meeting
to make a resolution on paying common share dividends in
the amount of RUB 39.94 for each preferred and common
share (3,994% on the nominal value of each share) with due
account of the dividends already paid on the nine-month
results.
We take our commitment to sustainable development seriously.
The Company’s goals include maintaining ecological balance,
reducing the burden on the environment as a result of our
production activity, and ensuring safe working conditions.
One of our most important corporate priorities is to support
the development of high-quality social
in
the regions where we operate. In the reporting year, around
RUB 7 billion was targeted to social initiatives in health care,
education, culture, sport, and spiritual heritage.
infrastructure
To perform well, the complex multilevel VIOC structure requires
highly efficient corporate management, talented managers,
and a solid team of professional employees. The Company
is steadily
its management bodies and
operational segments collaborate with one another. We are
paying special attention to developing incentive systems and
performance evaluations.
improving how
The decisions of the Board of Directors are aimed at
the Company's long-term success . While we are systematic
about achieving our strategic goals, we also understand
the challenges involved in our business. Responding to
changes in the global economy, we have consolidated our
domestic reserves and enhanced our competitiveness.
On behalf of the Board of Directors, we would like to express
our gratitude to our shareholders for their trust and present
the Board of Directors' Report on the Company’s performance
in priority business areas in 2017.
DEAR SHAREHOLDERS, INVESTORS, AND PARTNERS:
In 2017, we launched an important stage of our Strategy 2025
that covers all the Company's business units and is aimed at
increasing the Company's value. The key results of the year
included a steady increase in performance indicators along
principal business lines, achievement of current priority target
values and consolidation of the Company's financial stability.
The Company's achievements and outlook were highly rated
by the stock market. Over the course of the year, TATNEFT's
stock price has been among the best performers among
Russian oil and gas companies.
For the year, TATNEFT's capitalization increased by 14%,
amounting to RUB 1.1 trillion by the end of 2017.
Strong performance in production indicates the effectiveness
of
the Company's business model. The Management
has focused on creating new sources for the growth of
earnings, strengthening the assets structure and maximizing
productivity. We are building up our innovative potential and
adopting progressive digital solutions to create a reliable
technological foundation in the Company.
In the reporting year, TATNEFT Group produced 28.9 million
tonnes of oil. To fulfill OPEC+ commitments, the Company
held down the rate of production growth reached in previous
years. Given that its vast hydrocarbon reserves are among the
largest in Russia, TATNEFT has the potential to ramp up oil
production. In addition to increasing oil production in mature
fields, the Company is researching and developing methods to
extract unconventional hard-to-recover resources (including
Domanic productive deposits) from the subsoil. Successful
development of super-viscous oil deposits is continuing.
In the current market, the Company has maintained an
optimal customer balance, enabling the Company to increase
oil sales income in 2017 by 22.5%.
The in-house oil refining unit has been experiencing stable
growth. In December 2017, the fifty millionth tonne of crude
oil was refined at the TANECO Complex. In the reporting year,
the Group produced 8.5 million tonnes of oil products.
R. N. MINNIKHANOV
President of the Republic of Tatarstan,
Chairman of the Board of Directors of TATNEFT
N. YU. MAGANOV
CEO,
Chairman of the Executive Board of TATNEFT
2
3
PJSC Tatneft 2017 Annual Report KEY PERFORMANCE INDICATORS
OPERATING RESULTS
EXPANSION AND REPLENISHMENT
OF THE RESOURCE BASE
Volume
of proved
reserves
866,489MILLION
TONNES
OF OIL
RAMPING UP OF OIL AND
GAS PRODUCTION
CONSOLIDATION
OF IN-HOUSE
OIL AND GAS PROCESSING
EFFECTIVENESS
OF RETAIL
BUSINESS
IN-HOUSE
GENERATING
CAPACITIES
GROWTH OF THE YIELD
OF THE PETROCHEMICAL
UNIT
BALANCED SALE OF OIL AND OIL
PRODUCTS
Total volume
of oil production
Total volume
of gas production
Production
of oil products
TANECO
refinery yield
Retail and
distribution
network
Volume
of sales
Generation
of electricity
Delivery
of thermal
energy
Sale
of tires
Sale of carbon
black
Sale of crude
naphtha
Sale of oil
products
TONNES
CUBIC
METERS
28.9MILLION
945.3MILLION
8.5MILLION
99.24%
TONNES
Production
of gas products 1.1MILLION
87.5%
Light oil
products yield
TONNES
GCAL
KW•H
TONNES
STATIONS
685FILLING
2.7MILLION
1.5BILLION
4.85MILLION
13.06MILLION
133,800TONNES
21.8MILLION
10.5MILLION
TONNES
TONNES
TIRES
2025 STRATEGIC GOALS
Expand and diversify the hydrocarbon resource portfolio outside
the Republic of Tatarstan and the Russian Federation through
access to oil and gas reserves, including by establishing strategic
alliances
Stay on course to move from a stable level of oil production
to growth
Increase the production and sales of highly competitive finished
goods produced at the high-tech TANECO Complex.
Improve the performance and competitiveness of the retail
network in the long run
Ensure the annual replenishment of no less than
100% of proven reserves
Explore possibilities to expand potential production
Increase annual production to 30 million tonnes
up to 35 million tonnes or higher in 2025
Increase the volume of refined oil to 14 million tonnes
with the light oil output of 90%
and the processing depth of at least 97%
Increase sales 2.3 times.
Ensure that more than 50% of
the gasoline and diesel fuel produced by the Company’s refineries
are sold through filling stations and small wholesalers
Enhance the reliability of power supply to TATNEFT Group
companies and increase the volume of power supplied
to companies in the Nizhnekamsk industrial hub
Diversify sources of raw materials for the Nizhnekamsk combined
heat and power station
Develop new market niches by effectively launching marketing
programs, improve the quality of our products, and expand our
product lines.
Retain our leadership positions in the Russian tire market and
increase the sale of tires
to more than 16 million per year
4
5
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report ABOUT THE COMPANY
TATNEFT IS ONE OF THE LEADING RUSSIAN OIL AND GAS PRODUCERS, WITH OVER 70 YEARS
OF EXPERIENCE IN THE FIELD. THE STRATEGY OF VERTICAL INTEGRATION OF THE FULL
INDUSTRIAL CYCLE IS IMPLEMENTED AT THE GROUP LEVEL. THE COMPANY’S MAIN ASSETS
ARE IN THE RUSSIAN FEDERATION AND BUSINESS PROJECTS ARE UNDERWAY IN BOTH
DOMESTIC AND FOREIGN MARKETS.
The TATNEFT Group provides management processes from the issuance of licenses for resource development
to sale of oil, oil and gas refinery products, and petrochemicals on the domestic market and for export, as well
as the production of equipment for oil mining, treatment, and processing of oil and gas, provision of engineering
services, supplies and construction services for oil, gas, and petrochemical projects.
Since October 2016, with the acquisition of a controlling interest in the ZENIT Banking Group, the TATNEFT Group
has also been engaged in banking activities. The banking segment includes PJSC Bank ZENIT and its subsidiaries
(ZENIT Banking Group).*
(For more details on the structure of the TATNEFT Group, subsidiaries of TATNEFT, see the section of the Annual
Report on «Financial Results,» IFRS.)
CORPORATE STRATEGY IS AIMED AT LONG-
TERM SUSTAINABLE DEVELOPMENT OF
THE COMPANY—PROVIDING THE OPTIMAL
BALANCE OF OIL AND GAS PRODUCTION,
OIL REFINING AND ACHIEVING
THE MAXIMUM OPERATING INCOME IN ALL
BUSINESS SEGMENTS
In unstable external conditions, the Company’s
program allows it to ensure profitability of oil
and gas production, maintain a high level of
hydrocarbon resources, effectively develop its
own refining and petrochemical industry, ramp up
the innovative potential, and introduce progressive
digital solutions to create a reliable technological
foundation for the Company.
The TATNEFT Group holds licenses for geological exploration, prospecting, and production of oil and gas in the Russian
Federation. The main resource base of the Company is in the Republic of Tatarstan, including the Romashkinskiy
field, one of the world’s largest fields. The business infrastructure includes geographical proximity to oil production
areas, our own oil refineries and generating capacities, high-quality logistics for the sale of oil and oil products.
* In 2017, the capital of PJSC Bank ZENIT was augmented by RUB 14 billion
due to investments of TATNEFT as the majority shareholder.
To improve the quality of the credit portfolio of the ZENIT Banking Group,
some of its assets were transferred to the nonbanking segment of
the TATNEFT Group. TATNEFT spent RUB 25 billion on these measures.
The transfer of assets contributed to improvement of the Bank’s financial
position (the NPL90+ share in the Group’s portfolio decreased from 7.8%
at the end of 2016 to 4.2% as of December 31, 2017, while the NPL90+
coverage with the reserves increased from 166% to 246%).
(see IFRS, Note 29).
KEY FUNDAMENTALS OF THE GROWTH STRATEGY
Increasing the volume of profitable oil and gas production, enhancing
oil recovery at the producing license fields, and actively developing
new fields, including high-viscosity and difficult-to-recover oil deposits
in the Republic of Tatarstan, while reducing specific operating and
investment costs.
Expanding the geography of activities and the resource base outside
the Republic of Tatarstan and the Russian Federation, including
access to oil and gas reserves with the possibility of forming strategic
alliances and mastering new markets for manufactured products.
Increasing the volumes of production and sale of competitive finished
products with high added value meeting world environmental standards
and prospective market requirements, developing our own oil refining
and petrochemical industry facilities.
Strengthening the technological potential with effective investment in the
development and modernization of the production base, accumulation
of high-tech digital solutions, development of new equipment and
technologies and improvement of the effectiveness of those already in use
as a new generation unified production management platform at all stages
of the value chain.
Ensuring sustainable development based on the high level of corporate
social responsibility, industrial and environmental safety, and balance
of the environment in the course of production and other economic
activities.
6
7
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report GROWTH STRATEGY
FINANCIAL STABILITY
NET INCOME, RUB BILLION (IFRS) *
1
.
0
8
5
7
.
2
5
5
2
.
1
8
6
4
.
6
7
4
0
.
5
5
4
2013
2014
2015
2016
2017
* indicators for nonbanking activities
PROFITABILITY OF SALES, %
5
.
8
1
0
2
8
1
9
.
7
1
NET PROFIT ATTRIBUTABLE TO THE SHAREHOLDERS
OF THE GROUP, RUB. BILLION (AS PER IFRS)
The main factor in the profit increase for 2017 in comparison with 2016 was
the growth of net proceeds from the sale of non-banking activities, partially
offset by the growth of expenses for the mineral extraction tax.
1
.
3
2
1
9
.
8
9
4
.
7
0
1
8
.
0
7
2
.
2
9
2013
2014
2015
2016
2017
EBITDA, RUB. BILLION (AS PER IFRS)
Starting from Q4 2016, the EBITDA calculation includes operating
results of banking activities due to the consolidation of PJSC
Bank ZENIT in the financial statements of the Group.
6
.
5
5
1
7
.
7
2
1
7
.
3
2
1
2
9
3
,
4
7
1
6
.
5
6
1
3
6
0
,
9
9
1
3
.
5
8
1
2015
2016
2017
Adjusted
2013
2014
2015
2016
2017
Adjusted
EFFECTIVENESS
NET PROFIT PER BARREL OF OIL PRODUCED
392
376
3
7
4
,
3
7
8
3
.
7
8
1
8
1
.
8
8
1
2
3
8
,
0
7
333
9
5
.
6
8
1
4
0
1
.
2
6
488
7
2
2
,
2
9
7
9
.
8
8
1
510
526
0
3
9
,
8
9
9
0
.
4
9
1
9
8
3
,
7
0
1
3
3
.
4
0
2
9
3
1
,
3
2
1
597
4
1
.
6
0
2
2011
2012
2013
2014
2015
2016
2017
Net profit, RUB. million
62,104
73,473
70,832
92,227
98,930
107,389
123,139
Production, million barrels
186.59
187.38
188.18
188.97
194.09
204.33
206.14
Unit net profit, RUB./bbl.
333
392
376
488
510
526
597
Comparison with the period since 2005 is substantiated by the launching of the project to develop our own oil refining (TANECO Complex) during that year.
CONSOLIDATED SHARE CAPITAL, RUB. BILLION
2
.
6
4
4
0
.
4
0
5
4
.
5
8
3
7
.
7
5
6
9
.
8
0
7
7
.
8
1
7
2
.
2
8
5
Share capital according to IFRS, RUB million
385,427
446,233
503,982
582,244
657,658
708,904
718,729
2011
2012
2013
2014
2015
2016
2017
CONSOLIDATED ASSETS
VALUE AND STRUCTURE
OF THE CONSOLIDATED ASSETS
OF THE TATNEFT GROUP, RUB. BILLION
33.1%
29+32+21+3+15+a
1,107.5
30.8%
billion RUB
22.7%
34.5%
2011
11%
2.4%
2017
The Company’s asset structure is balanced against the «exploration and
production» segment (31%) and the «refining and sale of oil and petroleum
products» segment (33%), which provides the potential for further revenue
growth due to the added value produced by the refinement of hydrocarbon
resources.
Segments
Exploration and Production
Refining and sale of oil and oil products
Petrochemicals
Banking
Corporate and miscellaneous
Total assets at the end of the year, RUB billion
2011
297.7
216.4
27.2
86.4
627.8
2017
340.5
366.8
26.8
251.4
121.9
1,107.5
47.4%
628
billion RUB
13.8%
4.3%
RATINGS
On February 21, 2017, the international rating agency Moody’s Investors Services changed the credit rating to Corporate credit rating—Ва1. The default probability
rating is Bs1-PD, and the outlook is «stable» (having been changed from «negative» to «stable»).
On January 29, 2018, the credit rating agency Moody’s announced an upgrade of TATNEFT credit rating to Baa3 with a positive outlook. Moody’s decision is
connected with a change in the outlook for the credit rating of the Russian Federation and an increase in the «country ceiling» from Ba1 to Baa3.
The Baa3 credit rating refers to the investment level and reflects the high quality of the Company’s credit.
On October 31, 2017, Fitch Ratings, an international credit rating agency, confirmed the long-term and short-term issuer default ratings of the Company
(IDR) at the level of ВВВ- and F3, respectively. The outlook for long-term IDR is stable.
According to Fitch Ratings, the credit rating confirmation also reflects TATNEFT's strong financial position after the commissioning and further
development of the TANECO refinery, and the creditworthiness of the Company is maintained by the low level of debt with adjusted gross debt in relation
to the cash flow from operating activities at the level of 0.1x at the end of 2015 and 2016, which is the lowest among comparable Russian oil and gas
companies to which the agency assigns a credit rating.
On July 19, 2017, the Joint-Stock Company Rating Agency Expert RA assigned the first-time credit rating to a non-financial company.
The value of the assigned rating is RU AAA according to the national scale for the Russian Federation; the outlook is stable.
8
9
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
GROWTH STRATEGY
SUSTAINABLE DEVELOPMENT
LEVEL OF ASSOCIATED PETROLEUM GAS USAGE
The level of associated petroleum gas usage in
the Company in the reporting year exceeded
96%
LEVEL OF APG USE
2017
2013*
96.16%
95.1%
This is one of the highest indicators in the industry,
with a standard value of 95% set by the government
of the Russian Federation.
The Company plans to bring the level of APG usage
up to 98% by means of targeted measures, making it
possible to reduce discharge of harmful substances
and direct emissions of greenhouse gases
into
the atmosphere.
* Resolution of the Government of the Russian Federation No. 1148 dated November 8, 2012, «On the Specifics of the Calculation of Fees for
Emissions of Pollutants Generated during Flaring and/or Dispersal of Associated Petroleum Gas»
ENERGY SAVING
Consumption of fuel and energy resources
from 2011 to 2017 relative to the base year
was reduced by
38.9%
391
More than
a thousand tonnes of
equivalent fuel was saved.
thousand
tonnes
Savings in the consumption of fuel and energy
resources from
relative to the base year amounted to,
2011 to 2017
9.8%
The most effective areas for saving were: Energy, oil and
gas preparation, transportation, oil and gas production
technology, reservoir pressure maintenance
DYNAMICS OF DECREASE IN THE CONSUMPTION
OF FUEL AND ENERGY RESOURCES
DYNAMICS OF SAVING OF FUEL AND ENERGY
RESOURCES CONSUMED
3.8%
8.6%
13.7% 20.19%
28.7%
34.9% 38.9%
2010
2011
2012
2013
2014
2015
2016
2017
Base period
The indicator of decrease in the consumption
of fuel and energy resources
to the base period
10%
8%
6%
4%
2%
0
9.8%
8.6%
7.4%
5.9%
4.5%
3%
1.5%
2011
2012
2013
2014
2015
2016
2017
USE OF FUEL AND ENERGY RESOURCES BY THE COMPANY
Name
In physical terms
In money terms, RUB million
(excluding VAT)
Thermal energy, total thousand Gcal
including productive
consumption, thousand Gcal
Power, total, million kW•h
including productive
consumption
Gasoline, tonnes
Diesel fuel, tonnes
GAS, tonnes
10
4,855.0
4,811.0
4,251.7
4,160.9
2 720.4
1,862.7
507.6
4,417.2
4,351.1
11,560.0
11,146.4
129.1
80.9
15.4
THE COMPANY’S MOST IMPORTANT PRIORITY IS ENVIRONMENTAL SAFETY AND RESTORATION OF
THE BALANCE OF ECOLOGICAL SYSTEMS IN THE AREA OF ACTIVITY.
IN 2017, THE MAN-INDUCED IMPACT OF THE COMPANY ON THE ENVIRONMENT DID NOT EXCEED
THE SELF-REGENERATION POTENTIAL OF THE ECOSYSTEMS.
IN 2017 THE COMPANY WAS RECOGNIZED AN ECO-LEADER IN THE REPUBLIC OF TATARSTAN.
Within the framework of production control
for environmental protection,
of natural water were conducted in
thousand
chemical analyzes
110
2017
7,000,000trees
were planted, which amounts to4,000
HA
of forests.
In the area of the Company’s activity,
more than 500 springs
were developed.
Investments to ensure environmental
safety in
2017
amounted to7,345.9
RUB
million.
To prevent pollution of rivers
and reservoirs, in
2017,
605
stationary oil-collecting structures, booms,
and lagoons are being maintained.
Within the licensed areas
of the Company,
in 2017
the monitoring of
2,117
observation
points
for surface and subsurface water bodies was carried out.
THE ENVIRONMENTAL MANAGEMENT SYSTEM OF THE COMPANY WAS CERTIFIED ACCORDING
TO ISO 14001: 2004. THE COMPANY USES THE METHODOLOGY OF “SEQUENTIAL PROCEDURES”
IN WHICH SUBSEQUENT ACTIONS ARE FORMED ON THE BASIS OF THE DATA OBTAINED FROM
THE RESULTS OF THE PROCEDURE OF THE PRECEDING LEVEL.
DYNAMIC REDUCTION
OF TECHNOLOGICAL LOSS
OF HYDROCARBON FUELS,
THOUSAND TONNES
2017
2016
2015
2.5
4.2
FUNDS FOR ENVIRONMENTAL PROTECTION,
ENSURING ENVIRONMENTAL SAFETY,
AND RATIONAL USE OF NATURAL RESOURCES,
RUB BILLION
9.6
8
7
6
5
4
3
2
1
4
3
.
7
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
1
0
2
7
1
0
2
11
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
GROWTH STRATEGY
INVESTMENT APPEAL
PUBLIC STATUS OF THE COMPANY
2,326,199,200
of shares
3%
34%
34+3+24+39+a
2017
24%
39%
STRUCTURE OF EQUITY CAPITAL
REPUBLIC OF TATARSTAN**
ADR PROGRAM
TREASURY GROUPS
OTHER SHAREHOLDERS
* Shares in the authorized capital
** Legal entities under the control of the Republic of Tatarstan
SECURITIES OF TATNEFT HAVE BEEN PRESENT ON THE RUSSIAN AND INTERNATIONAL STOCK MARKETS, INCLUDING
THE MOSCOW AND LONDON STOCK EXCHANGES, FOR MORE THAN 20 YEARS. SHAREHOLDERS COME FROM MORE THAN
30 COUNTRIES.
In 2017, about 42,000 shareholders were listed in the Company’s register of shareholders. TATNEFT is one of
the largest public companies in Russia.
The Company’s common (TATN) and preferred (TATNP) shares are included in the highest quotation list of the Moscow
Stock Exchange. At the end of 2017, 25.74% of TATNEFT’s common shares were deposited with BNY Mellon under
the American Depository Receipts (ADR) program. ADR Companies have been listed on the London Stock Exchange
(ATAD) since December 1996 and are among the most liquid issuing companies of Russia.
According to the Moscow Stock Exchange, the total amount of transactions made with the Company’s common
shares during regular trading in 2017 exceeded RUB 144 billion, those with preferred shares reaching RUB 13.9
billion. During 2017, the total volume of transactions with the Company’s ADR on the London Stock Exchange,
considering over-the-counter and negotiated transactions, exceeded USD 3 billion.
The shares of TATNEFT are included in many stock indexes, including those of the Moscow Stock Exchange and MSCI
Russia; the shareholders of the Company include funds managed by the world’s leading investment companies,
sovereign funds of many countries, and private investors.
At the end of 2017, the price of one common share of TATNEFT on the Moscow Stock Exchange was RUB 478.80
(USD 8.31), that of one preferred share making RUB 365 (USD 6.34).
The dividend yield from the calculation of the market value of common shares at the end of 2017 was 4.76%, that of
preferred shares - 6.25%.
VALUE OF PREFERRED AND COMMON SHARES OF TATNEFT FOR 2006–2017 (RUB)
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
COMMON
121.99
148.00
55.25
139.48
145.06
158.16
218.00
208.20
226.55
315.50
427.00
478.80
PREFERRED
77.31
87.00
20.35
76.35
86.65
88.02
105.15
121.70
134.60
198.10
235.00
365
DIVIDEND POLICY
The Company adheres to a progressive dividend policy, acknowledging dividends as one of the key indices
of the Company’s investment appeal to shareholders, and strives to increase the amount of dividends on
the basis of consistent growth in profits. The Board of Directors of the Company, in determining the amount
of dividends recommended to the General Shareholders' Meeting (per share), proceeds from the amount of
the Company's net profit under the Russian Accounting Standards (RAS) or International Financial Reporting
Standards (IFRS), depending on the availability of financial statements published for the relevant period, and
assumes that the target level of the aggregate funds allocated for the payment of dividends should not be
less than 50% of the net profit determined by RAS or IFRS, whichever is bigger.
In 2017, TATNEFT shareholders accrued dividends for the first 9 months of 2017 in the amount of 75%
of net profit. According to the results of 2017, the Board of Directors recommends that the General
Meeting of TATNEFT shareholders adopt a resolution on payment of dividends per each preferred and
common share (3.994% of the par value of each share) with due account for the dividends previously
paid based on 9-month results.
DIVIDENDS PER SHARE, RUB
4
9
.
9
3
4
9
.
9
3
1
8
.
2
2
1
8
.
2
2
5
1
.
0
0
1
.
0
0
6
.
0
0
3
.
0
0
0
.
1
0
1
.
0
0
0
.
1
0
1
.
0
0
0
.
1
0
3
.
0
0
0
.
1
0
9
.
0
0
0
.
1
0
0
.
1
6
.
4
6
.
4
5
6
.
5
5
6
.
5
2
4
.
4
2
4
.
4
6
5
.
6
6
5
.
6
2
0
.
5
2
0
.
5
8
0
.
7
8
0
.
7
0
6
.
8
0
6
.
8
3
2
.
8
3
2
.
8
8
5
.
0
1
8
5
.
0
1
6
9
.
0
1
6
9
.
0
1
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Preferred shares, RUB
Common shares, RUB
CAPITALIZATION OF THE COMPANY
RUB1,097billion
(USD 19.1billion)
as of December 29, 2017
Капитализация Компании, млрд руб.
The Company’s Capitalization, bln rubles
0.8
5.5
18.5
3.6
22.1
22.1
34.1
53.3
70.6
85.9
322.1
299.8
307.6
263.2
344.6
201.7
114.6
1,097.0
+13.7%
965.0
716.6
513.4
471.6
475.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 2012
2013
2014
2015
2016
2017
12
13
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report PROCEEDING FROM A UNIFIED STRATEGY, THE COMPANY INTEGRATES THE POTENTIAL
OF DIVERSIFIED CORE ASSETS IN EXPLORATION AND PRODUCTION, REFINING,
PETROCHEMICALS, SALES OF OIL AND OIL PRODUCTS, AND POWERFUL TECHNOLOGICAL
POTENTIAL, ENSURING THE CREATION OF VALUE AND CONDITIONS FOR LONG-TERM
SUSTAINABLE DEVELOPMENT.
GEOGRAPHY OF ACTIVITY
The Company holds licenses for geological exploration, prospecting and production of oil and gas in the Russian
Federation. The main resource base is located in the Republic of Tatarstan, including Romashkinskiy , one of
the world’s largest oil fields. The business infrastructure includes geographical proximity to oil production areas, our
own oil refineries and generating capacities, high-quality logistics for the sale of oil and oil products.
Geological exploration
Oil and Gas Production
Oil refinery
Retail network
Petrochemicals
Sale of oil
and oil products
Machine building
Equipment
and technology supply
* Due to the political situation on the territory
of the contracting participants of the TATNEFT Company
in Libya and Syria, since 2011 the implementation of the program
of geological exploration has been suspended.
LIBYA
RUSSIA
TATARSTAN
BELARUS
UKRAINE
KAZAKHSTAN
TURKEY
TURKMENISTAN
CHINA
SYRIA
IRAN
MAIN SEGMENT-FORMING ENTERPRISES
OIL AND GAS
PRODUCTION
NGDU Almetyevneft
NGDU Aznakayevskneft
NGDU Bavlyneft
NGDU Jalilneft
NGDU Yelkhovneft
NGDU Leninogorskneft
NGDU Nurlatneft
NGDU Prikamneft
NGDU Yamashneft
SUBSIDIARIES
AND AFFILIATED OIL-
PRODUCING COMPANIES
LLC TATNEFT-Samara
OJSC Kalmneftegaz
CJSC Severgeologia
CJSC Severgaznefteprom
CJSC Kalmtatneft
CJSC Yambuloil
OIL AND GAS PROCESSING
AND SALE OF OIL AND OIL
PRODUCTS
Management of the sale
of oil and oil products
Management of
Tatneftegazpererabotka
Yelkhov OPU
JSC TANECO
LLC Tatneft-AZS Center
LLC Tatneft -AZS-Zapad
LLC Tatneft -AZS-Yug
LLC Tatneft -AZS-Ukraine
LLC Tatneft -Trans
FLLC Tatbelnefteprodukt
LLC Saimen
LLC Kharkov-Capital
LLC Poltava-Capital
LLC Processing Center
LLC TATNEFT-Aviaservice
HEAT POWER ENERGY
LLC Nizhnekamsk TEC
LLC TATNEFT-Energosbyt
JSC Almetyevsk Heating
PETROCHEMICAL
PRODUCTION
LLC UK TATNEFT-Neftekhim PJSC
Nizhnekamskshina
LLC Nizhnekamsk Truck Tire Factory
LLC NZSh TsMK
JSC Nizhnekamsktekhuglerod
JSC Nizhnekamsk Mechanical Plant
LLC TATNEFT-Neftekhimsnab LLC
Trading House KAMA
JSC Yarpolimermash-TATNEFT
TATNEFT IS THE CORPORATE CENTER OF THE GROUP
TATNEFT BOARD
OF DIRECTORS
MANAGEMENT BOARD
Executive Management Committee
MAIN PRODUCTION SUPPORT
Tatneftesnab Department
LLC UPTZh for PPD
Tatar Geological Exploration Department Bugulma
Mechanical Plant Automobile Transportation Enterprise
LLC TATNEFT-URS
LLC Trade-Technical House TATNEFT
LLC TATNEFT-Neftekhimservice
RESEARCH, TECHNOLOGY AND
ORGANIZATIONAL SUPPORT
TatNIPIneft
Engineering Center
Construction Project Delivery Department Business
Service Center
LLC NTC TATNEFT (in Skolkovo)
LLC NPC Oil and Gas Technologies
JSC TatNIIneftemash
LLC TatITneft
BRANCHES
AND REPRESENTATIVE OFFICES
Representative office in Moscow
Representative office in the Republic of Iraq
Representative office in Ukraine
Branch in Libya
Branch in Turkmenistan
AS OF DECEMBER 31, 2017, THE TATNEFT GROUP INCLUDED 147 COMPANIES
14
15
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report BUSINESS MODEL OF THE COMPANY
TATNEFT is
the corporate center
of the TATNEFT Group
CORPORATE GOVERNANCE
l Precise strategy
l Logical organizational structure
l Resource consolidation
l Control over operational efficiency
l Growth point creation
l Decrease in intersegment expenses
l Reinforcement of financial stability
l Risk management
l Setting unified standards
l Interaction with the business environment
RESOURCE BASE
PRODUCTION
OIL AND GAS PROCESSING
SALE OF OIL AND OIL PRODUCTS:
EXPORT AND DOMESTIC MARKET
CREATION
OF VALUE
Geographic proximity of the center of oil production
to the main regions of sales and refining of oil and
oil products means the Company has the lowest
weighted average rate for transporting oil to
European markets among the major vertically
integrated Russian oil companies.
UPSTREAM
Ensuring increase in production and
replenishment of reserves
• Strengthening the resource base
• Geographical extension of mining assets
• Development of hard-to-recover oil deposits,
including super-viscous oil (SVO)
MACHINE BUILDING
DOWNSTREAM
Strengthening the quality
of core assets and increasing
the operating efficiency
of business segments
in the areas of
• Oil processing
• Petrochemicals
• Sale of oil and oil products
• Retail oil distribution network
• Heat power energy
The business model of the Company is formed on the basis of a unified strategy integrating
the potential of diversified core assets in the field of exploration and production,
refining, petrochemicals, sale of oil and oil products, as well as energy, engineering,
and technology, providing value and conditions for long-term sustainable development,
considering external factors and mechanisms for risks mitigation.
Corporate strategy is aimed at long-term sustainable development of the Company—providing an optimal balance of
oil and gas production, oil refining and achieving the maximum operating income in all business segments.
The business structure allows the company to make the most of the resource assets and production facilities on the basis of
project and process management within a unified investment policy.
EXTERNAL
IMPACT FACTORS
• Macroeconomics
• International and domestic prices
for oil and oil products
• Global demand for crude oil
and oil products
• Taxation
and rates policy
• Supply marginality redistribution
• Inflation rate
• Exchange rates
• Transport rates
• Technological
and ecological standards
• Competitive environment
BANK SEGMENT
includes PJSC Bank ZENIT and its subsidiaries
(ZENIT Banking Group). ZENIT Banking Group
is consolidated into the financial statements
of the TATNEFT Group, starting from Q4 2016.
RETAIL DISTRIBUTION NETWORK
PETROCHEMICALS
HEAT ENERGY POWER
16
17
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report MAIN STAGES OF THE COMPANY HISTORY
1943
Beginning of industrial
development of oil fields
in the Republic of Tatarstan.
1948
The Romashkinskiy field, one
of the largest in the world,
is discovered.
1971
The first billion
tonnes
(> 7 billion barrels)
of oil is produced.
1981
The second
billion tonnes
(14.2 billion barrels)
of oil is produced.
December 1996
TATNEFT places
depositary receipts
on the London Stock
Exchange.
2007
The third billion
tonnes of oil is
produced.
2016
Approval of
Strategy 2025.
Implementation
of Strategy 2025.
1 9 4 8
1 9 6 0
1 9 7 1
1 9 8 0
1 9 8 1
1 9 9 0
1 9 9 6
2 0 0 0
2 0 0 7
2 0 1 6
2 0 1 7
1
9
5
0
1
9
7
0
1 9 9 4
1
9
9
5
1
9
9
8
2
2
0
0
1
1
0
1
1950
The TATNEFT
Association
is organized.
1970
TATNEFT’s annual production
is 100 million tonnes of oil
(1.95 million barrels) per day;
the level is maintained till 1976.
1994
TATNEFT’s corporatization;
the Company becomes an
open joint-stock company.
1995
Stabilization
of production.
1998
Start of
the development of
our own network of
filling stations.
2010
Creation of our own heat
power energy unit.
2011
The first stage of the TANECO
Complex is put into industrial
operation.
18
19
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report STRATEGY 2025
CORPORATE STRATEGY IS AIMED AT LONG-
TERM SUSTAINABLE DEVELOPMENT OF
THE COMPANY:
ensuring the optimal balance of oil and gas production,
refining and petrochemicals, sale of oil and petroleum
products on the domestic market and for export,
achieving the maximum operating profitability of all
business segments based on rational use of natural
resources, social and environmental responsibility.
defines the goals and objectives for each business segment
allows effective planning of operational and financial activities
provides for the calculation of investments required to maintain and
increase production, develop human capital, improve management
efficiency, create sustainable development factors, and implement all
social commitments adopted by the Company
CORPORATE GOALS 2025
Growth of the Company's capitalization with the focus on doubling
the value in dollar terms
Financial stability and risk management
High level of dividend yield
Creation of long-term advantages of the business model and key
success factors for business segments
Sustainable development factors ensured considering
environmental and social aspects
The STRATEGY INTEGRATES ALL BUSINESS UNITS OF
The COMPANY TO ACHIEVE DOUBLING OF MARKET
CAPITALIZATION IN DOLLAR TERMS BY 2025.
STRATEGY-2025 WAS APPROVED BY THE BOARD OF DIRECTORS IN 2016.
The strategy maintains continuity with the previous stages of development,
strengthening the Company's potential to create high added value on the capital
invested by shareholders.
GROWTH STRATEGY
The launch of Strategy 2025 has demonstrated its
timeliness and relevance for a confident move forward
and avoidance of critical risks for the Company in
the current period of market volatility.
In the difficult economic conditions of the reporting
year, the Company, keeping in view its strategic
goals, took successful steps to strengthen
the resource base, increase profitable oil and gas
production, develop its own refining facilities and
petrochemical enterprises, while maintaining high
financial stability.
ANNUAL INCREASE IN OIL PRODUCTION
INCREASE IN OIL PROCESSING
INCREASING THE SALE OF OIL
PRODUCTS THROUGH THE NETWORK OF
FILLING STATIONS
STRENGTHENING THE PETROCHEMICALS
BUSINESS SEGMENT
HOLDING LEADING POSITIONS
IN THE RUSSIAN TIRE MARKET
COMPANY PRIORITIES OF THE 2017 REPORTING YEAR
Maintenance of a stable level of oil production in accordance with the restrictions imposed
by the OPEC+ agreement, at the same time ensuring maximum production efficiency
Increased production of SVO
Increase in oil refining and finished production at our own oil refining facilities
Optimization of the filling station network and development of the retail business brand
Development of brands and growth in the sale of the tire production complex
Increase of operational and procurement efficiency.
RESOURCES REQUIRED FOR IMPLEMENTATION OF STRATEGY-2025
In 2017, about 90 billion rubles of investments were allocated for
the implementation of the Strategy’s initiatives.
Strategy-2025 significantly changes and complicates the nature of
the Group’s business; its successful implementation will require, in addition
to material investments, creation of a number of organizational prerequisites.
Among the tools for implementing the Strategy, detailed «road maps» have
been developed that divide the way for accomplishing each task into real
steps.
Issues of adapting the organizational structure of the Corporate Center for both business management
(using the block principle) and key corporate functions are being explored.
In the active phase, there is a project on development and implementation of a KPI system— measuring
strategic goals — for key executives; projects have been launched to improve management business
processes: annual and medium-term planning, adjustment of the management accounting and monitoring
system; managers are faced with the task of developing business and functional strategies — all C-level
managers, pursuing the goals set by the Strategy, must prove their value and contribution to the growth
of the company's value.
20
21
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report GLOBAL CHALLENGES
COMPONENTS OF SUSTAINABLE DEVELOPMENT
Global business challenges
Company's activities
ECONOMIC ASPECT
SOCIAL ASPECT
Volatility of world prices for oil and oil
products
Programs and functional strategies ensure a high level of
the Company's operational efficiency and profitability at all levels of
business, from exploration and production to sales on the oil and oil
products market.
Growth of competition among oil
producers
By achieving target production indicators, the Company strengthens
its financial and economic stability and maintains its leading position
for a number of indicators in the industry, with high competitiveness
in efficiency and quality. It implements high-tech projects, advanced
management solutions, and organizational transformations.
Growth in demand for high-tech
solutions in the oil industry
Despite considerable depletion of reserves, TATNEFT, using advanced
innovative technologies, is increasing oil production while maintaining
cost effectiveness.
Digital transformation (Industry
4.0)—transition to automated digital
production
The growth of innovative potential, introduction of progressive digital
solutions and integrated information platforms mean creation of a
reliable technological basis for the Company. The Company considers
innovative projects an integral condition of business development.
Growing requirements for environmental
and social responsibility
The Company introduces environmentally efficient technologies
that ensure rational use of natural resources, reducing the negative
impact of production processes on the environment, and are aimed at
restoring ecological systems. Renewable energy sources and energy
saving constitute an important aspect of the Company’s activity.
The Company’s most important priority is to promote the development
of the social infrastructure in the territories of its activities.
The Company recognizes its responsibility to shareholders, investors, partners, employees, and society as a whole and strives to
maximize the use of its potential to ensure sustainable development.
• Participation in the development of the national
fuel and energy complex infrastructure
• Job creation
• Added value creation
• Assistance to local economies
• Introduction of innovations
• Ensuring financial and economic stability of
the Group’s enterprises
• Development of own research and production
base integrated with leading industry research
centers
• Legal compliance
• Respect for human rights
• Positive public opinion
• Guaranteed quality of products
• Good working conditions
• Assistance in the socioeconomic development of
the regions of the Company’s activity
• Promotion of education, culture, and sports
• Support for socially vulnerable groups
• Provision of high-quality goods and services
• Continuous increase in product quality
• Strive to follow changing demands of consumers
• Provision of reliable information about
the Company’s products
ECOLOGY ASPECT
• Environment protection
• Use of recyclable materials
• Use of environment-friendly energy sources
• Energy saving
• Recycling
• Ensuring safe working conditions, protecting the health
of the personnel and the population living in the areas of
the Company’s activity
• Decrease in the man-made impact on the environment
• Rational use of natural resources
• Implementation of a set of measures to maintain
the environment in the regions of the Company’s activity
at the standard admissible level corresponding to
the natural ecosystems’ potential for self-recovery
INNOVATIONS
The Company’s strategy is based on the principles of
innovative development.
The work is focused at technologies required to implement
the Strategy and overcome challenges hindering it.
The Company consistently develops and implements most
advanced solutions, many of which are unique in the industry
and in the technology supply market. Interaction with leading
domestic and foreign scientific, technical and technological
centers allows integration of production tasks and wide
experience with innovative scientific potential in all areas of
the Company’s activities.
22
23
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
GLOBAL CHALLENGES
AND NEW OPPORTUNITIES
SUSTAINABLE DEVELOPMENT
Recent years have been characterized by
global challenges for the oil industry. Instability
of external factors forces companies to have
greater operational efficiency and serious
programs for sustainable development in
the conditions of ultra-rapid changes in
the economic and industrial landscape. Today,
the worldwide trend is global transformation of
the technological potential, open opportunities
for transition to fully automated production,
the use of artificial intelligence systems,
progressive digital solutions, and large-scale
information resources. TATNEFT's response
to business challenges is a systemic process
of change management Implementing
the strategy, the Company undertakes well-
considered actions under investment programs
and plans the effectiveness of all business
processes on the basis of the KPI system to
strengthen its competitive advantages and
secure a long-term growth in value.
EFFECTIVENESS
CONSISTENT IMPLEMENTATION OF
STRATEGIC OBJECTIVES BY THE COMPANY
HAS PROVIDED SUSTAINABLE GROWTH OF
PRODUCTION AND POSITIVE DYNAMICS OF
FINANCIAL INDICATORS FOR OVER 20 YEARS.
SUSTAINABILITY
AND STABILITY
POSITIVE RESULTS OF THE COMPANY’S
ACTIVITIES UNDER THE DIFFICULT
MACROECONOMIC CONDITIONS IN 2014–
2017 REFLECT THE HIGH-QUALITY POTENTIAL
OF THE BUSINESS MODEL, ABLE TO HANDLE
THE PRESSURE OF NEGATIVE BRANCH AND
MARKET FACTORS.
RESPONSIBILITY
STRICT COMPLIANCE WITH THE RIGHTS AND
LEGAL INTERESTS OF SHAREHOLDERS AND
ALL PARTIES CONCERNED IS EXPRESSED
IN THE FULFILLMENT OF THE COMPANY’S
OBLIGATIONS REGARDING BASIC ACTIVITIES
AND VOLUNTARY SOCIAL INITIATIVES.
Implementation of the Company’s strategy
provides for sustainable growth and favorable
economic and social conditions for business
development based on the most effective use
of all types of resources, creating value for
stakeholders at each stage of its activity.
ADDED VALUE
The added value produced by TATNEFT in 2017,
the output of oil products taken into account,
amounted to RUB 419.4 billion, which is 27%
higher than the same indicator in 2016 (RUB 329.6
billion). The added value share in the total volume
of production in 2017 made 74.4%.
PRODUCTION ADDED VALUE INCREASE
DYNAMICS, RUB BILLION
The Company considers long-term prospects and
current plans for its core activity to develop its own
resource and production potential and improve its
financial results in direct connection with various
social and environmental aspects. The principles of
social responsibility are integrated into the Company's
business plans.
2017
2016
2015
2014
2005
123.4
419.4
+27%
329.6
308.1
264.2
that
is
understands
long-term
The Company
sustainable business development
inseparable
from social progress and stable development of
the society and makes a significant contribution
to the socioeconomic development of the regions
of its activity and society as a whole. Key decisions
consider social, environmental, and other possible
consequences. The Company implements targeted
social, infrastructural, and environmental programs
its
as voluntary corporate
responsibility to employees, local communities, and
the environment.
initiatives based on
Selection of the 2005 data for comparison is explained by
the launching of the project to develop own oil refining facilities
(TANECO Complex) the same year.
SHARE OF ADDED VALUE
IN THE TOTAL VOLUME
OF PRODUCTION
100% of proven
reserves
74.4%
Development and implementation of programs and
activities for sustainable development are carried
out with the participation of all parties concerned—
employees, authorities, representatives of
local
communities, public organizations—by means of an
open dialog.
2017
Total production
Share of added value
24
25
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report REPORT OF THE BOARD
OF DIRECTORS ON STRATEGIC
DIRECTIONS OF THE COMPANY’S
DEVELOPMENT
26
27
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report MACROECONOMICS
GLOBAL OIL MARKET
In 2017, demand on the world oil market exceeded supply. This was the result of both a steady growth in oil
consumption and measures to limit production adopted by a group of exporting countries.
The consequence of the change for the balance sheet was the rise in oil prices and their relative stability during
the year. In 2018, the factors mentioned above remain in force, allowing to expect that the balance of the oil
market will be maintained.
OIL MARKET STABILIZATION
According to the estimates of the International Energy Agency (IEA), in 2017, the global oil
shortage averaged 0.46 million bbl/day (against an excess of 0.7 million bbl/day in 2016).
At the end of the year, the shortage increased, and oil reserves in the OECD countries were
already declining at a rate of about 1 million bbl/day.
This situation was a consequence of the actions of a group of oil-exporting countries, which at the end of 2016
decided to reduce production by 1.8 million bbl/day. The purpose of the agreement, one of the key participants
in which was Russia, is to reduce oil reserves to an average value within five years. During 2017, the reserve
excess was reduced from 340 to 74 million barrels partly due to an increase in the average OECD reserves in
the preceding five years, against which the excess is determined. The aim of the agreement is expected to be
reached in 2018, which may give its participants an opportunity to reconsider production benchmarks.
Overcoming the surplus in the physical market supported the oil prices and ensured their stability during
the year. From January to the end of December 2017, spot prices for Brent oil rose by about USD 10/bbl, and
the average annual price amounted to USD 54.20/bbl (against USD 43.4 in 2016). In comparison with 2016,
the volatility of oil prices significantly decreased.
GDP DYNAMICS OF KEY ECONOMIES
IN 2013–2017 (%, YEAR ON YEAR)
10
8
6
4
2
0
-2
-4
The acceleration of the Western economies was
partly the result of a soft monetary policy. A low
inflation rate allowed the financial authorities of
the United States and the eurozone to maintain
low-interest rates. This, in turn, provides favorable
conditions for financial markets and reduces the risk
of negative developments in the world economy in
the short term.
2013
2014
2015
2016
2017
Russia
USA
Eurozone
China
India
Sources: Bureau of Economic Analysis, U.S. Department of Commerce; Eurostat;
National Bureau of Statistics of China; Central Statistical Organization, India;
Russian Federal State Statistics Service
Geopolitical factors, which were often ignored by the market when oil was in excess, in 2017 began to impact
prices again. Interruptions in oil supplies from Kurdistan and political events in Saudi Arabia caused a noticeable
reaction of the oil market at the end of 2017. Stability of the proposal again came to the fore in determining
the market conditions.
STABLE DEMAND FOR OIL
As in the previous few years, in 2017, sustainable growth of the world economy ensured a significant increase in
the consumption of oil and other energy resources. According to the International Monetary Fund (IMF), looking
at the results of 2017, the world economy grew by 3.7%; in 2018 and 2019, it expects the rate to rise. In these
conditions, world oil consumption in 2017 maintained high growth rates, which according to the IEA amounted
to 1.6 million bbl/day, after 1.2 million bbl/day in 2016. Asian countries became leaders in the increase in
steel consumption—the growth in demand in the region amounted to 1 million bbl/day, which was fostered by
the continued rapid growth of the economies of China and India.
Meanwhile, the most developed countries significantly contributed to the growth of world demand for oil.
The economy of the eurozone noticeably accelerated in the past year, which affected the consumption of oil
products: the demand for oil in Western Europe rose by 0.3 million bbl/day. The IEA anticipates that world demand
for oil will reach 100 million bbl/day in the first half of 2019.
OECD OIL RESERVES (BILLION BBL)
OIL MARKET BALANCE
IN 2013–2017 (MILLION BBL/DAY)
PRICE FOR BRENT OIL
IN 2013–2018 (USD/BBL)
3.2
3.0
2.8
2.6
2.4
2.2
2.0
2013
2014
2015
2016
2017
12.2017
5 year average, billion bbl
OECD oil reserves, billion bbl
2
1.5
1
0.5
-0.5
-1
100
95
90
2013
2014
2015
2016
2017
Supply
Demand
Source: U.S. Energy Information Administration
Source: IEA
Average per year
109
99
52
43
54
140
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
2018
Source: U.S. Energy Information Administration
DEMAND FOR OIL DYNAMICS
BY COUNTRY/REGION IN 2013–2017
AND RELEVANT IEA EXPECTATIONS
TILL 2040 (BBL/DAY)
Member-states
of the Organization for
Economic Cooperation
and Development (OECD)
Countries outside
the OECD
Forecast
of the IEA
+14.31
112.8
92.2
+0.9
+0.7
-0.4
+1.6
+2.2
+1.39
98.5
2013
USA
Europe
Other
countries
China
Other
Asian
countries
Other
countries
2017
World
2040
28
29
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report RUSSIAN ECONOMY BEGAN TO RECOVER IN 2017.
INFLATION IN 2017 WAS AT THE MINIMUM FOR THE ENTIRE NEW HISTORY
OF RUSSIA—2.5%.
ACCORDING TO THE DATA OF THE RUSSIAN FEDERAL STATE STATISTICS
SERVICE, THE COUNTRY’S GDP INCREASED BY 1.8% IN Q3 2017 AGAINST
THE SAME PERIOD OF THE PRECEDING YEAR.
Low inflation allowed the Central Bank of the Russian Federation (Bank of Russia) to significantly ease its monetary
policy. The key rate of the Bank of Russia was reduced from 10% to 7.75% during the year. In early 2018, the rate
reduction continued.
Stabilization of the macroeconomic picture and improvement of budget indicators enabled to increase
the credit rating of the Russian Federation by leading rating agencies. The grow th of oil and gas revenues
and a decrease in the interest rates are creating the conditions for maintaining the positive dynamics of
the Russian economy. With oil prices above USD 50/bbl, a positive grow th rate of the Russian economy
is anticipated in 2018.
The world economy continued to demonstrate positive dynamics in Q4 2017. Positive rates of economic
growth in the US and the EU are expected at the end of the year. Relatively high rates of economic growth
are maintained in the largest emerging economies, such as India and China. The situation in the global
economy as a whole favors the growth of world demand for oil. The main source of growth in the oil supply
by the end of 2017 within the context of the OPEC+ Agreement was US shale oil.
In the medium term, oil prices may increase due to the deferred effect of a reduction in investment from oil
and gas companies in large, long-term projects, production decline at the old well stock and an increase
in global consumption of liquid hydrocarbons. The growth of world demand for oil will be determined by
the continuing motorization and development of industry in developing countries.
TAX POLICY AND REGULATION
Decisions in tax legislation relating to the oil industry in 2017 continued the logic of the changes
that were made over the past few years. The upward coefficient to the rate of mineral extraction
tax for oil in the amount of RUB 428 per tonne was extended until 2020. The schedule of changes in
excise taxes for oil products was approved, stipulating, in particular, the growth of excise taxes for
motor gasoline and diesel fuel until 2020. In addition, to counter the presence of surrogate fuels in
the market, the notion of «medium distillates» was clarified for the purposes of excise taxation. At
the end of 2017, the Government of the Russian Federation approved and submitted to the Federal
Assembly the bills required for transition to the taxation of the financial result in the form of Excess-
Profits Tax (EPT) for the oil industry. The purpose of the new regime, in particular, is to increase oil
production in the fields that will be included in the pool of EPT pilot projects.
OIL AND CONDENSATE PRODUCTION IN 2017
AMOUNTED TO 546.8 MILLION TONNES, SLIGHTLY
LOWER AS COMPARED TO 2016.
OIL AND CONDENSATE PRODUCTION
546.8 2017
MILLION
TONNES
In 2017, the average price of Urals oil over 2017 was 53.1 USD/bbl, which is 27.3% higher than during
the preceding year. The main factor for the increase in prices was the reduced oil production within
the framework of the Production Restriction Agreement concluded at the end of 2016 between OPEC countries
and large independent oil exporters, including Russia. The prices were supported by the decision to extend
the Agreement to the end of 2018. At the same time, there was a steady increase in demand for oil from
the world’s largest economies. Gradual balancing of the market was fostered by a high degree of coordination
of actions by the countries-parties to the Agreement. By the end of 2017, Urals oil prices rose to a two-and-a-
half-year maximum, exceeding USD 66/bbl. Under the influence of the quoted oil prices, the average annual
rate of the RUB against the USD strengthened by 14.9%, to 58.3 RUB/USD in 2017, affecting the ruble oil
prices, which increased by 10.8% compared to the preceding year.
VOLUME OF OIL PRODUCTION IN RUSSIA
(GAS CONDENSATE INCLUDED), MILLION TONNES
2017
2016
2014
546.8
547.5
534.0
OIL EXPORTS FROM THE RUSSIAN FEDERATION
258
MILLION
TONNES
2017
PRODUCTION AND EXPORT OF MAIN OIL PRODUCTS
IN THE RUSSIAN FEDERATION IN 2010–2017,
MILLION TONNES
2010
2017
2010
2017
2010
2017
33.1
23.3
38.9
11.8
35.1
33.6
2.4
4.1
31.4
43.7
46.4
39.5
Petrol
Diesel
Fuel Oil
Consumption
Export
Source: Ministry of Energy of the Russian Federation
Russia being a party to the Agreement on the restriction of
oil production caused a decline in production in the Russian
Federation. At the same time, the share of oil produced from
hard-to-recover reserves increased.
In 2017, the volume of oil exports from the Russian
Federation did not change significantly. According to
the Ministry of Energy of Russia, the figure was about
258 million tonnes. However, the structure of exports
changed: exports to China continued to grow against
a decrease in the supplies to Europe. The year-end
showed that the Russian Federation had become
the main supplier of oil to China, coming way ahead
Saudi Arabia.
In 2017 the volume of primary oil refining in Russia
was 279.5 million tonnes. Due to the modernization
of oil-refining facilities and changes
in tax and
customs legislation, the structure of the output of
oil products continued to change: the production
of fuel oil dropped drastically, and the production
of aviation kerosene increased. A significant fact in
the development of the Russian oil-refining industry
is an increase in the average depth of processing.
The situation with domestic demand for oil products
corresponded to the heterogeneous dynamics of
economic
indicators. Fuel consumption by road
transport showed moderate growth in the range of
1%–2% at weak dynamics of household incomes and
retail trade. The air transportation market was being
restored more dynamically.
30
31
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report EXPLORATION AND PRODUCTION
SOLVING BUSINESS CHALLENGES TO IMPLEMENT THE STRATEGY ON PRODUCTION
In the reporting year, the Company analyzed and assessed the potential of the current resource
base of oil reserves, having defined the boundaries of business challenges and assessed
the potential for solving them. The tasks have been detailed, additional projects have been
deployed in R&D and Main Engineering Solutions for studying the geological structure and
selection of effective technologies for developing reserves.
Initiated and in progress:
• Project to increase the rate of production to 8% for the Vereiskian deposits
• Project to optimize the system for development of fields confined to the Tula and Bobrikov horizons
• Project on stimulation of production by drilling wells on the Tournaisian and Bashkirian stages
Work has begun on a project for active development of oil reserves in the collector layers of the Kynov horizon with
cutoff values for the porosity and permeability properties.
In 2017 and the next few years, the company’s main strategic objectives in Exploration and
Production are:
• Increase in oil production due to increased oil recovery at the old fields in Tatarstan due to expanded
introduction of new technologies
• Active involvement in the development of a large number of super-viscous oil (SVO) deposits and reaching a
production level of up to 3 million tonnes
• Implementation of a pilot project for the production of shale oil
• Growth of profitable production outside the Republic of Tatarstan (and outside Russia), including new regions
• Reduction of specific operating and investment expenses for oil production
2025 STRATEGIC GOALS
Transition from maintaining a stable level of oil
production to its growth.
Increase in the annual production to 30 million
tonnes. Search for a growth potential of up to 35
million tonnes and higher in 2025.
Indicator
2016
2017
Total oil production,
million tonnes, including:
conventional
Oil
Super-viscous oil
28.7
28.9
27.8
0.8
27.3
1.6
VOLUME OF OIL PRODUCTION
conventional oil
super-viscous oil
researched potential for
increased growth (including
super-viscous oil)
Search for production
increase potential
35.0+
30.0
27.2
0.4
26.8
28.7
0.8
27.8
28.9
1.6
27.3
DESPITE THE SIGNIFICANT DEPLETION OF RESERVES, THE COMPANY, EMPLOYING
ADVANCED, INNOVATIVE TECHNOLOGIES, IS INCREASING ITS OIL PRODUCTION
WHILE MAINTAINING A COMPETITIVE LEVEL OF COSTS.
The Company is ensuring production growth while preserving the resource and increasing the productivity
of the well stock, perfecting approaches and technologies in the field of enhancing oil recovery and well
repair.
The Company’s technological and economic policies support enhanced oil recovery (EOR) and its
increased efficiency. In 2017, due to tertiary EOR reservoirs, the volume of additional production reached
8.7 million tonnes of oil.
The share of oil produced using EOR in 2017 made 30.5% of the Company’s total production.
is developing dual completion
The Company
technologies that
increase the efficiency of field
development. As of the end of 2017, 2,075 of
the Company’s wells operate using this technology.
In 2017, the PDC and P&I DC units were implemented
and operated in 409 wells; since the beginning of
the year the average daily oil growth per well was
5.6 tonnes. The total additional production from
the PDC and P&I DC wells was 14.6 million tonnes
since the commissioning of the units. The average
in the oil production rate per well since
growth
the commissioning of the units made 4.2 tonnes/day.
In 2017, the IDC technology was introduced in 66
wells. As of the end of 2017, the IDC technology was
introduced and operated in 787 of the Company’s
water injection wells. Additional oil production from
development wells amounted to 2.8 million tonnes
since their introduction.
AT THE END OF 2017, A TOTAL OF 2,862 PDC, P&I DC, IDC
UNITS WERE IN OPERATION.
The cumulative additional production since the introduction of the PDC, P&I DC, and IDC has
exceeded 17 million tonnes of oil.
One of the Company’s primary strategic goals is to move from stabilization to sustainable growth in oil
production at the licensed fields in Tatarstan. In 2017, the Group increased oil production in the fields by 0.9%
compared to 2016. In view of the relative depletion of the Company’s main production fields, a significant part
of all oil produced by the Company in Tatarstan was obtained using various enhanced oil recovery technologies.
In 2017, The Group commissioned 895 new production wells in Tatarstan.
2015
2016
2017
2025
In 2017, the Company, to meet its obligations under the OPEC+ Agreement, was forced to intentionally limit the grow th of
oil production achieved in previous years, when TATNEF T steadily entered the list of the leaders in increasing oil production
among Russian oil companies.
32
33
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
RESOURCE BASE
HIGH LEVEL OF HYDROCARBON RE-
SOURCES — ONE OF THE COMPANY’S
KEY STRATEGIC ADVANTAGES
PROVEN RESERVES
RESERVE REPLACEMENT
RATIO
866.5
MILLION
TONNES
OF OIL
176%
900.0
OF HYDROCARBONS,
MILLION TONNES OF
CRUDE OIL EQUIVALENT
Resource potential of the Tatneft Group
Hydrocarbon reserves of the TATNEFT Group
Total
1.303 billion tonnes
Total
1.351 billion tonnes o.e.
866.5 million tonnes
Probable reserves, including
unconventional oil, – 7.3 million tonnes
900.0 million tonnes o.e.
Proven reserves, including unconventional oil, –
17.2 million tonnes o.e.
356.8 million tonnes
Probable reserves, including
unconventional oil, – 74.1 million tonnes
80.0 million tonnes
Probable reserves, including
unconventional oil, – 74.1 million tonnes
370.6 million tonnes o.e
Probable reserves, including unconventional
oil, – 7.45 million tonnes o.e.
80.3 million tonnes o.e.
Probable reserves, including unconventional
oil, – 74.1 million tonnes
Total net contingent resources of the TATNEFT Group
• 1C resources: 795,398,000 barrels (oil and condensate) and 189,902 million cubic feet (gas)
• 2C resources: 1,046,870,000 barrels (oil and condensate) and 272,467 million cubic feet (gas)
• 3C resources: 1,972,670,000 barrels (oil and condensate) and 1,091,410 million cubic feet (gas)
Key priorities:
• Strengthening the resource base
• Replenishment of hydrocarbon production by industrial categories
• Preparation of the raw materials base and effective bringing of reserves into development
• Maintaining production at mature fields through the use of innovative technological solutions and ensuring
planned rates of growth of production with a decrease in specific operational and investment costs
BY THE LEVEL OF HYDROCARBON RESERVES (RATIO OF THE CURRENT ANNUAL
PRODUCTION TO THE SIZE OF THE RESERVES), THE COMPANY HAS A LEADING
POSITION NOT ONLY IN RUSSIA, BUT GLOBALLY. THE COMPANY CONSISTENTLY
MAINTAINS THE LEVEL OF REPLENISHMENT OF PRODUCTION BY THE GROWTH
OF RESERVES.
OUR PLANS EMBRACE CONTINUING EXPANSION AND DIVERSIFICATION OF RESERVES BY
OBTAINING ACCESS — INCLUDING BY THE ESTABLISHMENT OF STRATEGIC ALLIANCES — TO OIL
AND GAS RESERVES OUTSIDE TATARSTAN.
As of December 31, 2017, the volume of proven oil reserves is 6,172 million barrels or 866.5 million tonnes, according
to Miller&Lents, Ltd.
Probable oil reserves are 356.8 million tonnes. The proven reserves of hydrocarbons are 900.0 million tonnes o.e.
The License Fund of the TATNEFT Group at the end of 2017 included 87 licenses granting the right to explore and
produce mineral resources, the right to geological prospecting, including the survey and evaluation of mineral
deposits, exploration and extraction of mineral resources in the Russian Federation.
The potential of hydrocarbon resources includes reserves of bitumen and unconventional oil. Experimental,
research, and methodological work is conducted at the Domanic and Bitum scientific testing sites, from exploration
to development and exploitation of deposits. Prospects for the production of domanic oil are also determined.
The Company considers unconventional reserves as an opportunity to increase production and will develop this
class of resource assets as an important element of its portfolio.
The main resource base of TATNEFT is historically located in the Republic of Tatarstan. Most reserves are conventional.
Search, exploration, and development of licensed hydrocarbon fields are also conducted in the Republic of Kalmykia,
the Orenburg, Samara, and Ulyanovsk Regions, and the Nenets Autonomous District.
The Company’s foreign projects in Libya and Syria are suspended due to the military-political situation in these
countries. The situation is monitored with the goal of resuming work after things stabilize, and the safety of the staff
can be guaranteed.
TECHNOLOGIES FOR PROSPECTING FOR DEPOSITS
To prospect for deposits, a number of new technologies are used in addition to standard ones such
as seismic exploration:
• Forecasting of oil-prospecting targets using artificial intelligence
• Selection of prospective targets using field geophysics and geochemistry with the complex probability
parameter (CPV) of oil prospecting
• Geochemical method of prospecting for oil and gas deposits using passive adsorption of hydrocarbons
• Low-frequency seismic sounding (LFS)
• GTO LS (geological and geophysical technology to optimize the selection of well-drilling locations)
• EMS (electromagnetic sounding)
• Stratimegic, a new software package for 3D seismic data processing
• The method of NMR tomographic probing was first tested for the detection of reservoirs saturated with super-
viscous oils at shallow depths.
34
35
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report GEOLOGICAL EXPLORATION IN THE TERRITORY OF THE REPUBLIC OF TATARSTAN
GEOLOGICAL EXPLORATION OUTSIDE THE REPUBLIC OF TATARSTAN
The License Fund in the Republic of Tatarstan includes 66 licenses, of which 36 are licenses for
exploration and production of mineral resources, 27 are for geological exploration, including
prospecting and evaluation of mineral resources, exploration and extraction of mineral resources,
and 3 are for geological research, including prospecting and evaluation of mineral resources.
The License Fund outside the Republic of Tatarstan has 32 licenses, including:
• 16 licenses for oil and gas production
• 13 licenses for geological exploration and production of oil
• 3 licenses for geological research
The volume of geological exploration work for the licensed areas provided for by licensing agreements is
being fully carried out.
In 2017, geological exploration was carried out by 7 subsidiaries and affiliated companies in the Samara,
Ulyanovsk, and Orenburg Regions, the Nenets Autonomous District, and the Republic of Kalmykia.
In 2017, construction of 9 prospecting and exploration wells was completed, 6 of them being prospecting
wells, and 3 being exploration wells. Productive pools were discovered in 8 out of 9 wells.
The success rate of prospecting
and exploration drilling in the Republic of Tatarstan was 89 %.
The total volume of prospecting and exploration drilling for the reporting year was 16,003 m, with that for prospecting,
6,013 m; for exploration, 9,990 m.
IN 2017, TWO DEPOSITS WERE DISCOVERED IN THE REPUBLIC OF TATARSTAN:
KLENOVOYE AND YUZHNO-FERGANSKOYE.
The Klenovoye deposit was discovered at prospecting
well No. 2259 where oil was obtained from the carbonate
sediments of the Dankovo-Lebedyansky horizon (daily
oil output – 8 m3). C1 + C2 reserves amounted to 134/30
thousand tonnes of the geological/recoverable volumes.
Yuzhno-Ferganskoye deposit was discovered
at prospecting well No. 886. The well is located in
the southwestern part of the Agbyazovskiy licensed
area. Primary C1 reserves amounted to 151/37
thousand tonnes of geological/recoverables.
Efficiency –1,953.3 RUB/tonne
Efficiency – 1,421.6 RUB/tonne
Prospecting and exploration work in the Republic of Tatarstan was conducted within the Cheremshano-
Bastryksk, Tlyanchi-Tamak, and Stepnoozersk exploration areas and at the Agbazovskiy, Yersubayinskiy, and
Sokolkinskiy subsoil areas.
GEOLOGICAL AND EXPLORATION WORK IN THE REPUBLIC OF TATARSTAN
Type of work
Prospecting-exploration drilling
2D seismic exploration
3D seismic exploration
Unit
m
line km
km2
2016
11,930
115
471.7
2017
17,084
677.6
412.2
10 structures with prospective recoverable resources in the D0 category (5,249 million tonnes) have been
prepared for deep drilling.
In the reporting year, geological and exploration costs in the Republic of Tatarstan amounted to more
than RUB 1.5 billion. In 2018, it is planned to invest up to RUB 1,255.3 million in geological exploration in
the Republic of Tatarstan, while drilling 18,000 meters of geological material, to continue seismic exploration
using 2D methods in the amount of 280 line km, 3D in the amount of 558 km 2 in the fields and exploration
zones of the Company.
OUTSIDE THE REPUBLIC OF TATARSTAN, ONE DEPOSIT—VOSTOCHNO-KAROCHAYEVSKOYE—WAS DIS-
COVERED IN 2017
The deposit is open in the Samara Region with C1 + C2 geological reserves in the terrigenous sediments of the Upper
Devonian, with 352,000 tonnes, of which 145,000 tonnes are recoverable.
Efficiency – 1,340.7 RUB/tonne
A LICENSE WAS OBTAINED FOR THE BITUM TESTING SITE AT THE KUZMINOVSK-1 AREA OF SUB -
SOILS.
The site is located in the Samara Region, with 1.76 million tonnes of promising oil resources of the D0 category
and 1.6 million tonnes of forecast oil reserves of the D1L and 11.2 million tonnes of the D1 category.
It is planned to prospect the site for deposits of conventional and hard-to-recover hydrocarbon reserves.
In 2017, seismic exploration work was carried out using the 2D CDP method: 20 line km; 3D CDP method: 75 km2.
The total volume of prospecting and exploration drilling for 2017 was 11,873,000 meters.
In 2018, the Company is planning prospecting and exploration drilling outside the Republic of Tatarstan on
the scale of 9,964,000 tonnes of geological material, performing 74.6 km2 of 3D seismic exploration work.
GEOLOGICAL AND EXPLORATION WORK OUTSIDE THE REPUBLIC OF TATARSTAN
Type of work
Prospecting-exploration drilling
2D CDP METHOD
3D CDP METHOD
Unit
m
line km
km2
2016
27,246
-
177
2017
11,873
20
75
36
37
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report OIL PRODUCTION
28.9
MILLION
TONNES
564.8
THOUSAND
BARRELS
PER DAY
2017
OIL PRODUCTION BY THE LARGEST FIELDS
IN THE REPUBLIC OF TATARSTAN
IN 2017
GEOGRAPHY OF ACTIVITIES IN GEOLOGICAL EXPLORATION
AND PRODUCTION OUTSIDE THE REPUBLIC OF TATARSTAN
IN 2017
M
OIL AND GAS PRODUCTION
OIL PRODUCTION BY THE TATNEFT GROUP,
MILLION TONNES
2017
2016
2015
+0.9%
28.9
28.7
27.2
DAILY AVERAGE OIL PRODUCTION RATE,
THOUSAND BBL PER DAY
2017
2016
2015
564.8
558.3
531.8
GAS PRODUCTION BY THE TATNEFT GROUP,
MILLION M3
2017
2016
2015
945.3
997.8
959.3
CONSTRUCTION OF WELLS
752 production wells have been drilled and
commissioned (including 702 wells of conventional
oil and 50 wells of SVO), with a plan for 747 wells
(including 697 wells of conventional oil and 50 wells of
SVO). 688 wells have been commissioned for drilling
and development, with the oil production rate of 5.3
tonnes/day. In 2017, the Company commissioned 575
small-hole wells (SHW), of which 570 are producing
wells with an average oil production of 3.6 tonnes/day
and cumulative production of 366,800 tonnes. 112
horizontal wells were drilled; their oil production was
130,300 tonnes. 71 wells were drilled with cutting of side
branches and horizontal sidetracking. Wells with SB
cutting and HS commissioned in 2017 produced 94,600
tonnes of oil; the average growth in oil production from
the production wells commissioned in 2017 amounted
to: by SB: 6.7 tonnes/day, by HS: 8.1 tonnes/day
DAILY AVERAGE GAS PRODUCTION RATE,
THOUSAND BBL O.E. PER DAY
COMMISSIONING OF NEW
PRODUCTION WELLS, UNITS
2017
2016
2015
15.2
16.0
15.5
2017
2016
2015
887
515
352
AMOUNT OF DRILLING, THOUSAND M
STOCK OF WELLS AS OF JANUARY 1, 2018
Name
Amount of drilling
Amount of drilling by TATNEFT
Amount of drilling by subsidiaries
Amount of prospecting and exploration
drilling:
Amount of prospecting and exploration
drilling by TATNEFT
Amount of prospecting and exploration
drilling by subsidiaries
Drilling by TATNEFT
Drilling by subsidiaries
2017
958.7
950.5
8.2
28.1
18.2
9.9
968.7
18.1
Purpose of the Stock
Operating production well stock
Non-operating production well stock
Development and expected development
from the production well stock
Running production well stock
Number
of wells
19.043
3.980
9
23.032
In the reporting year the average oil production rate per
well of the operating stock in the Company’s fields was 4.5
tonnes/day. 887 new production wells were commissioned.
The average flow rate of new wells was 8.6 tonnes/day.
By the end of 2017, associated gas production by
the TATNEFT Group amounted to 945.3 million m3.
The production of NGL amounted to 274,700 tonnes.
246
thousand
tonnes
KAZAN
Bondyuzhsky
Pervomaiskoye
NABEREZHNYE CHELNY
319
thousands
tonnes
250
thousands tonnes
Arkhangelskoye
Romashkinskoe
Novo-Elhovskoe
ALMETYEVSK
Sabanchinsky
Bavlinsky
2,827
thousands tonnes
15 ,184
thousands tonnes
570
thousands tonnes
1.255
thousands tonnes
The Group’s oil production amounted to 28.9 million
tonnes, which is 0.9% higher than in 2016. Gas
production in 2017 amounted to 945.3 million m3.
The Company produces its most significant volume
at the traditional fields in the Republic of Tatarstan.
located at 2 unique and 5
the current oil production
The main share of
is
fields:
Romashkinskoye, Novo-Yelkhovskoye, Bavlinskoye,
Sabanchinskoye, Pervomayskoye, Bondyuzhskoye,
Arkhangelskoye.
large
PRODUCTION BY THE LARGEST FIELDS IN 2017,
THOUSAND TONNES
Deposits
Romashkinskiy
Novo-Yelkhovskoye
Bavlinskoye
Bondyuzhskoye
Pervomayskoye
Sabachinskoye
Arkhangelskoye
Oil production
15.184
2.827
1.255
246
319
570
250
CJSC Severgaznefteprom,
Nenets AD
3.3
thousands tonnes
LLC Tatneft-Samara,
Samara Region
340
thousands tonnes
LLC Tatneft-Severny,
Orenburg Region
12
thousands tonnes
Republic of Tatarstan
licensed sites
Outside the Republic of Tatarstan, in the Russian
Federation, the Company owns
in
the Samara, Orenburg, and Ulyanovsk Regions,
the Nenets Autonomous District, and the Republic
of Kalmykia. During 2017, 18 oil fields were exploited
by
the Republic of
Tatarstan, including 15 fields in the Samara Region,
one in the Orenburg Region, and two in the Nenets
Autonomous District (NAD).
the TATNEFT Group outside
In the Samara and Orenburg Regions, at the end of
2017, oil was produced from 122 wells, including 121 in
the Samara Region and one in the Orenburg Region.
Oil production in 2017 amounted to 340,000 tonnes in
the Samara Region and 12,000 tonnes in the Orenburg
Region. In the Samara Region, 7 new production wells
were commissioned after drilling and development.
The average production rate of new wells drilled in 2017
amounts to 5.1 tonnes/day. Two prospecting wells and
one exploration well in the Samara Region and one
prospecting well in the Orenburg Region were also
drilled. Two exploration wells were commissioned for trial
operation in the Nenets Autonomous District: Severo-
Khayakhinskoye (oil production rate -- 123 tonnes/day)
and Vostochno-Khayakhinskoye (oil production rate – 50
tonnes/day), and the development of three exploration
the Tibeyvisskoye, Khosoltinskoye, and
wells
Podveryukskoye fields. Oil production
in
the Severo-Khayakhinskoye field was 2,757 tonnes, in
the Vostochno-Khayakhinskoye field – 736 tonnes.
in 2017
from
38
39
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report PILOT WORKS TO DISCOVER AND DEVELOP OIL
DEPOSITS IN DOMANIC SEDIMENTS
the past
three years,
the Company has
Over
been exploring and developing subsoil resources
containing unconventional hard-to-recover reserves,
which include Domanic productive sediments.
In the reporting year, the works were carried out
in accordance with the approved «MES program
of the TATNEFT Company for 2017 to discover and
develop oil deposits in Domanic sediments.» Pilot
projects were carried out using the technology of
volumetric acid treatments and hydraulic fracturing.
One exploration well was drilled in the Yelaurskiy
subsoil to study and develop bituminous carbonate
reservoirs; the core recovered from the well and
the well logs are currently being studied.
In 2018,
implementation of pilot projects on
the exploited fields continues, and it is also planned
to study and develop the Domanic sediments, and
bituminous collectors at the Domanic and Bitum
testing sites using the allocated source of financing.
DEVELOPMENT OF SUPER-VISCOUS OIL FIELDS
(SHESHMIN HORIZON)
In 2017, the production of SVO was 1.6 million tonnes.
By the end of the year, daily oil production reached 5,022
tonnes. Since the beginning of the pilot development,
the total amount of SVO production made 3.4 million
tonnes.
11 fields of super-viscous oil from the Sheshmin horizon
are in development: 4 deposits of the Ashalchinskoye,
1 deposit of the Languyevskoye, 1 deposit of
the Karmalinskoye, 1 deposit of the Nizhne-Karmalskoye,
1 deposit of the North Karmalinskoye, 1 deposit of
the Melnichnoye, 2 deposits of the Yersubaykinskoye fields.
In the reporting year, 4 SVO fields were commissioned:
(Severo-Karmalinskaya, Melnichnaya, Mikhaylovskaya,
Polyanskaya), one deposit was prepared for steam injection
(Chumachkinskaya), and work has begun for drilling
horizontal wells and location constructing at 6 additional
SVO deposits (Novo-Chegodayskoye, Verkhneye,
Yuzhno-Yekaterinovskoye, Vostochno-Sheshminkinskoye,
Studeno-Klyuchevskoye, Averyanovskoye). Work on drilling
horizontal wells and equipping the SVO fields is underway.
As of January 1, 2018, the running production well stock at
the SVO fields amounts to 651 horizontal wells (including
50 wells drilled in 2017) and 1,964 appraisal wells (including
158 wells drilled in 2017). 284 wells are operating, including
21 steam cyclic and 263 steam-gravity wells. 292 wells are
under injection, including 272 steam injection, 16 steam-
cycle, and 4 new steam wells (primary warming up of
the reservoir).
In 2017, a number of experimental works were
performed:
• introducing repair shanks
• conducting large-scale bottom hole treatment to
create hydrodynamic communication
• carrying out interval bottom hole treatment using
TAM inflatable packers
• carrying out waterproofing works through
the drilled packer
• drilling a multihole well
PRODUCTION OF SVO, THOUSAND TONNES
2017
2016
2015
376
843
1,620
+92.2%
Application of differentiated mineral extraction tax rates and oil customs duty
abatements present a favorable economic condition for the development of
the Company’s fields. The use of reduced rates of export customs duties and a zero rate
of the mineral extraction tax for super-viscous oil horizons (viscosity of 10,000 mPa*s or
more) stimulates the Company’s development of SVO production.
In 2017, the Company applied the zero rate of the mineral extraction tax on super-viscous oil with a viscosity
of 10,000 mPa*s and more (for reservoirs) and regarding the oil produced from Domanic sediment deposits.
Furthermore, differentiated MET rates were applied with a decreasing coefficient for the subsoil with depletion
of more than 80%, for small parts of the subsoil with reserves (IRR) of less than 5 million tonnes and depletion
of less than or equal to 5% (according to the State Balance of Mineral Resources as of January 1, 2011), for
deposits of super-viscous oil with a viscosity in reservoir conditions of more than 200 and less than 10,000
mPa*s, and for the subsoil in the NAD. Oil production from these facilities in 2017 amounted to 24 million tonnes
(including SVO with a viscosity of more than 10,000 mPa*s – 1.6 million tonnes).
THE COMPANY ACHIEVES SAVINGS BY REDUCING THE PRODUCTION TAX RATE
OF SUPER-VISCOUS OIL IN SOME OF ITS FIELDS AND OTHER SPECIFIC TAX INCENTIVES RELEVANT
TO THE PRODUCTION AND SALE OF SUPER-VISCOUS OIL.
Federal Law No. 239-FZ dated December 3, 2012, «On Amendments to the Law of the Russian Federation
‘On the Customs Tariff’» stipulates reduced rates of export customs duties on oil with a viscosity in reservoir
conditions of not less than 10,000 mPa*s.
The development of super-viscous oil reserves is one of the Company’s most capital-intensive projects. To
further expand the project and develop other subsoil areas containing super-viscous oil, the management of
the Company, with the assistance of the Republic of Tatarstan leaders, came up with an initiative to the Russian
Government and was supported with amendments to Article 3.1 of the Law «On the Customs Tariff» on a
specific procedure for calculating the rate of export customs duty for oil with a viscosity in reservoir conditions
of not less than 10,000 mPa*s for a period of 120 consecutive calendar months from the start date of their
application with respect to crude oil produced from a particular reservoir field of a particular hydrocarbon
deposit.
Due to the nature of the raw material base, the Company retains the priority of maintaining incentive
tax regimes for the developed deposits and for the deposits of super-viscous oil.
40
41
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report SALE OF OIL
SALE OF OIL PRODUCTS
is sold
the Company
in
The oil produced by
three areas: oil supply for Russian refineries, for
export to the CIS member-states and to non–CIS
countries. The Company maintains a balance of
supply distribution based on strategic priorities
and economic feasibility. In the reporting year
about 13 million tonnes of oil were supplied to
the domestic market for further processing
,
including 7.3 million
the TANECO
Complex facilities. 4.7 million tonnes of oil was
supplied as raw materials to the TAIF-NK refinery.
tonnes
for
The volume of oil exports to non–CIS countries in
2017 was 14.3 million tonnes.
In 2017,
in addition to the Transneft system,
the resources of oil-producing enterprises with
the participation of TATNEFT in the Orenburg and
Samara Regions and the Nenets Autonomous Area
in the amount of 118,200 tonnes were sold outside
the Republic of Tatarstan.
The Group uses the services of Transneft JSC
(Transneft), a state monopoly and operator of
the Russian oil trunk pipeline system to transport
oil for export.
In 2017, the Group exported approximately 73% of
all the crude oil it sold compared to 61% in 2016.
In 2017, the Company transported about 65% (63%
in 2016) of all its oil for export via the Druzhba
pipeline owned by Transneft (mainly to Poland,
Germany, and Slovakia); 4% (5% in 2016) of the oil
exported was shipped via the Russian ports on
the Black Sea (mainly Novorossiysk), and 31%
(32% in 2016) of the exported oil was shipped
via the Russian ports on the Baltic Sea (mainly
Primorsk).
SALE OF CRUDE OIL
BY THE GROUP, THOUSAND TONNES
2017
2016
2015
21,830
22,117
19,959
-1.3%
SHARES OF CRUDE OIL SALES
BY THE GROUP AND DESTINATION
2017
2016
2015
27.2% 5.6%
39.1% 5.1%
38.9% 6.6%
for the domestic market
to CIS member states
export to foreign countries
REVENUE FROM CRUDE
OIL SALES LESS EXPORT DUTIES,
RUB BILLION
67.2%
55.8%
54.5
2017
2016
2015
365.2
+22.5%
298.1
269.2
SHARE OF REVENUES FROM THE SALE OF CRUDE
OIL LESS EXPORT DUTIES
BY DESTINATION
2017
2016
2015
25.2% 5.7%
33.9%
5.5%
33.1%
7.2%
for the domestic market
to CIS member states
export to foreign countries
69.1%
60.6%
59.7%
The share of sale of diesel fuel produced by TANECO
on the domestic market is about 77% of total sales,
with an average of about 42% for other oil companies.
Thus, with 1.7% of the total volume of diesel fuel
production in Russia, TATNEFT has 3.7% of the total
volume of its sale on the domestic market.
All available modes of transport are used for
the shipment of diesel fuel to customers: railways,
the pipeline system, self-delivery by road from
the refinery and regional oil depots. Motor transport
is more efficient and the Company’s own network is
supplied mainly by direct transport from the refinery
to the filling station.
is the operator of a retail network
The most marginal sale channel of motor gasoline
on the domestic market is the gas station network.
TATNEFT
in
the most attractive regions of Russia in terms of
capacity and dynamics of demand and has a fairly
large regional network. This ensures reliable sale of
most of the motor gasoline of its own production.
In 2018, the Company plans to create its own network
of modern refueling complexes located at airports to
sell the increasing share of jet fuel it produces.
The target markets for the sale of
jet fuel are
the airports of Tatarstan, the Ural Federal District,
and the Central Federal District. The target domestic
airports are those of Kazan, Nizhnekamsk, and
Bugulma. Coordination of the types of fuel for
the Ministry of Defense of the Russian Federation is
also being studied.
In 2017, the Group exported 5,031,000 tonnes of oil
products (including 185,000 tonnes of purchased oil
products) compared with 4,909,000 tonnes in 2016
(including 104,000 tonnes of purchased oil products).
SALES VOLUMES OF OIL PRODUCTS BY THE GROUP,
THOUSAND TONNES
2017
2016
2015
10,523
10,940
-3.8%
11,135
SHARES OF OIL PRODUCTS SALES
BY DESTINATION
2017
2016
2015
52.2% 3.8%
55.1%
2.3%
51.4% 5.9%
44.0%
42.6%
42.7%
for the domestic market
to CIS member states
export to foreign countries
REVENUE FROM THE SALE OF OIL PRODUCTS
LESS EXPORT DUTIES AND EXCISES,
RUB BILLION
2017
2016
2015
241.7
+13.8%
212.3
215.2
SHARES OF REVENUE FROM OIL PRODUCTS
SALES LESS EXPORT DUTIES
AND EXCISE DUTIES BY DESTINATION
2017
2016
2015
52.4% 5.1%
58.3% 3.3%
59.3% 7.2%
42.5%
38.4%
33.5%
for the domestic market
to CIS member states
export to foreign countries
42
43
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report OIL AND GAS PROCESSING
OIL REFINERY
ON DECEMBER 11, 2017 THE 50-MILLIONTH TONNE OF CRUDE OIL WAS
PROCESSED AT THE TANECO COMPLEX
In the reporting year, the Group produced 8.5 million tonnes of oil products. Oil refining
facilities are working at full capacity. We have maintained our industry leadership in
the refining depth at the level of 99.24%, with the light oil products output of 87.5%.
2014: the initial production capacity of the ELOU-AVT-7 unit was brought to 115% of the installed design capacity.
2015: base oils production was launched; production of base oils of Group III was started.
TANECO COMPLEX
The Company’s main oil-refining unit. Located in Nizhnekamsk.
Put into full commercial operation in December 2011.
The processing depth is 99.2%, which is significantly higher than the average Russian level of 82.1%. The output of
light oil products is 87.5%, while the average Russian level is 62.1%.
The target value of the Nelson Index after full commissioning of the TANECO Complex is 12.
In 2017, the oil-refining volume was 7.8 million tonnes. 8.2 million tonnes of oil products were produced.
MAIN PRODUCTS:
• A wide range of light hydrocarbons: 96,500 tonnes
• Natural stable gasoline: 1.6 million tonnes
• Euro-5 diesel fuel: 1.4 million tonnes
• Kerosene for technical purposes: 31,500 tonnes
• Aviation kerosene: 221,500 tonnes
• Domestic furnace fuel: 5,600 tonnes
• Gas condensate distillate medium (sulfur dioxide), type I: 1,273,000 tonnes
• Gas condensate distillate medium (sulfur dioxide), type II: 443,000 tonnes
• Gas condensate distillate medium (sulfur dioxide), type III: 867,000 tonnes
• Diesel technological fraction (DTF): 710,000 tonnes
• Vacuum gas oil/fuel oil hydrotreated/compound lubricating oils: 402,100 tonnes
• Heavy coking gas oil: 90,100 tonnes
• Coking naphtha: 197,800 tonnes
• Coke oil: 571,100 tonnes
• Technical gas granulated sulfur: 81,700 tonnes.
Target development indicators of the TANECO Complex:
• Achievement of the best technological indicators, including depth of oil refining, selection of light oil
products
• Ensuring compliance of manufactured goods with the requirements of Russian and international
quality standards and technical regulations
• Minimization or complete exclusion of the production of semifinished oil products
• Ensuring minimum dependence on the supply of auxiliary raw materials necessary for the production
of high-quality commodity oil products and ensuring optimal energy independence of the enterprise
2016: delayed coking was launched, which made it possible to avoid the production of fuel oil, to
achieve the output of light oil products at a level of more than 87%, and to increase the depth of oil
processing to 99.2%.
2017: a planned overhaul of the technological equipment of the Complex refinery was successfully carried
out from April 15 to May 14, 2017.
Technical reequipment of a railway overpass for filling oil products ensures environmentally safe filling of oil
products in an automated mode with the required capacity. The main construction and installation work has
been completed on a highway overpass for filling oil products and technical reequipment of an overpass for
filling light oil products into tank trucks to increase the productivity of filling tank trucks for diesel fractions.
The work was carried out as part of the necessary changes in the configuration of the automated process
control system, the communication systems for technological installations, including the commissioning of
new facilities and information security of the enterprise as a whole.
Slow coking units and a second hydrogen production unit have been put into commercial operation to provide
hydrotreating processes.
Construction of isomerization and hydrotreating units for naphtha has been completed; construction work on
hydrotreating units for diesel fuel and kerosene is at the final stage.
Landmark events of 2018 include the beginning of commissioning the ELOU-AVT-6 and the beginning
of production of our own Euro-5 class motor gasoline.
With the launch of the ELOU-AVT-6 installation, the design capacity of the TANECO refining complex
will increase to 14 million tonnes a year.
The commissioning of the technological units of the second phase will be carried out in stages, which will bring
in additional cash flow.
The launch of light naphtha isomerization units, catalytic reforming, and a naphtha splitter section will allow to
start the production of Euro-5 class motor gasoline; the launch of diesel fuel and kerosene hydrotreatment units
will increase the production of Euro-5 diesel fuel and jet fuel.
One of our directions will be the creation and implementation in Russia of a new domestic technology for
hydroconversion of heavy petroleum feedstock, which will allow us to achieve a processing depth of at least
95% and to carry out processing of high-viscosity oils in future. A pilot plant is planned for the TANECO
Complex for the hydroconversion of heavy oil residues with a capacity of 50,000 tonnes per year, using
the technology of the Institute of Chemical Technology of the Russian Academy of Sciences. Based on
the results obtained, a decision will be made on whether to build an industrial hydroconversion unit with a
capacity of 2.5 million tonnes per year.
Achievement of target indicators is ensured by the implementation of an investment project
with the allocation of self-sufficient stages, ensuring the receipt of additional cash flow.
44
45
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report TECHNOLOGICAL PROCESSES OF THE TANECO COMPLEX
Technological
process
Primary processing
Viscosity breaking*
Sulfur production
Installation
Commissioning,
reconstruction
Project
capacity
Installed
capacity
Loading
2017
ELOU-
AVT-7
WB
UPES
2011
7,000.0
8,642.0
7,847.8
2011
2011
2,400.0
2,400.0
280.0
139.4
0*
81.7
2011
1,100.0
1,360.0
1,173.1
2014
2,900.0
2,900.0
2,755.8
2014
100.0
100.0
78.7
2017
22.0
5.6
5.6
Naphtha stabilization unit
Hydrocracking of vacuum gas oil
HC VGO
(hydrocracking of vacuum gas oil)
Hydrogen production
Production
HPU
(hydrogen production unit)
HPU
(hydrogen production unit)
Catalytic production of high-index oils
UPB
2015
250.0
250.0
199.7
Delayed coking
Stabilization of naphtha
Hydrofining of naphtha
DCU
(delayed coking unit)
2016
2,000.0
2,000.0
2,012.4
SN
HFN
2016
2017
600.0
600.0
1,100.0
1,182.6
221.4
47.34
* In 2016, the unit was transferred into the «hot standstill» mode in connection with the launch of a delayed coking unit.
In December, at the General Assembly of ATIEL (Brussels, Belgium), TATNEFT was approved
by vote as the 23rd member of the ATIEL association. TATNEFT became the third domestic
company (after Lukoil and Gazprom Neft), which was included in this prestigious European
organization, which includes such world oil majors as Total, BP, Chevron, Shell, Eni, Exxon
Mobil, etc.
Nominations of the TANECO Complex and products released in 2017
• TATNEFT VHVI-4 isoparaffinic base oil and EURO-5 arctic diesel fuel were awarded the title of Laureates
in the nomination of «Products for industrial and technical purposes» of the «Best Goods and Services of
the Republic of Tatarstan» contest.
• TATNEFT HVI-2 isoparaffinic base oil and the RT and JA-1 brands of fuel for jet engines were awarded the title
of Diploma winners of the first degree in the nomination «Products for industrial and technical purposes» of
the «Best Goods and Services of the Republic of Tatarstan» contest.
• TATNEFT VHVI-4 isoparaffinic base oil was one of the 100 best goods of Russia in the nomination «Products for
industrial and technical purposes.»
• RT brand fuel for jet engines and TATNEFT HVI-2 isoparaffinic base oil were Diploma winners of the All-Russian
competition «100 best goods of Russia»
• TS-1 jet engine fuel and TANECO diesel fuel were among the winners of the qualifying round of the International
Competition «Best Goods and Services – GEMMA.»
• The Testing Laboratory of Oil Products and the Laboratory of Industrial Ecological Monitoring of the central
laboratory of the Complex became the winners in the nomination «The Best Tester of the Republic of Tatarstan»
in 2017, as part of the «Best Goods and Services of the Republic of Tatarstan» contest.
• TANECO JSC was among the laureates of the «100 Best Organizations of Russia. Ecology and environmental
management» contest. The enterprise was awarded a Diploma and a Gold Medal.
YELKHOV OPU
The unit was put into operation in 1994 (developer and supplier of Petrofac Incorporated, USA). 2015–2017,
modernization.
Project capacity: 440,000 tonnes of oil per year.
The operating mode is continuous.
In 2017, the volume of oil accepted for processing made 477,000 tonnes.
224.5 tonnes of oil products were produced.
production
Diesel fuel
Gasoline Regular-92
Gasoline Normal-80
Kerosene-gas oil fraction
Sulfur
Solvent, industrial
thousand tonnes
2017
102,600
79,700
2,700
37,900
800
900
The block oil-refining unit consists of complete units:
• Atmospheric and vacuum distillation of crude oil
• Hydrotreating of straight-run gasoline
• Catalytic reforming of gasoline
• Units for the production of a benzene-free component of commercial gasoline
• Hydrotreating diesel fuel
• Amine purification of hydrocarbon gases
• Production of elemental sulfur
• Obtaining road bitumen
The unit is small and is located on an area of 150 x 80 meters.
In addition to the unit, the EOFD includes:
• A commodity park for receiving and storing commercial products consisting of 4 RVS-5000 and 4 tanks with a
volume of 200 m3
• Two units for finished product distribution
• Unit for the production of Regular-92 commercial gasoline
Quality of products: all manufactured products meet the requirements of regulatory documents.
Unleaded gasoline Regular 92 (AI-92-K5) and unleaded gasoline Normal-80 (AI-80-K5) comply with
GOST R 51105, TR TS 013/2011, diesel fuel complies with GOST R 52368, TR TS 013/2011, kerosene-gas oil
fraction, with STO 0215-013-60320171-2013
46
47
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report GAS PROCESSING
The structure of the Company includes a highly technological complex for the preparation, storage, and processing
of associated petroleum gas, a wide fraction of light hydrocarbons, and the shipment of processed products.
The complex for gas-processing production consists of units for hydrogen sulfide removal, compression of oil
and dry stripped gas, a cryogenic unit for deep processing of dry stripped gas, gas cleaning and drying facilities,
low-temperature condensation and rectification, cascade refrigeration unit, gas fractionation units, flare facilities,
a warehouse park for the reception and storage of raw materials and finished products, a loading and unloading
overpass for sending products by rail.
Associated petroleum gas utilization in the Company exceeds 96%.
Associated petroleum gas is a valuable raw material for the production of a wide range of gas-processing products
of the highest quality, which is further used in petrochemicals and power engineering. Products are in demand on
the domestic market, in the CIS member-states and non–CIS countries.
At present, the following range of high-quality products is being produced, including the «A» and «Highest» brands:
1. Natural combustible gas supplied and transported by main gas pipelines (STO Gazprom 089-2010).
2. Hydrocarbon liquefied fuel gas for utility consumption (GOST 20448-90) is produced in three brands:
PT = propane technical, MPBT = mixture of propane and butane technical, BT = butane technical.
Depending on the brand, the content of propane is 75%–40%; the rest is butane. It is used as a fuel for utility
consumption and industrial purposes. It is produced by mixing fractions of propane and butanes in the ratios
established for the respective brands.
3. Hydrocarbon liquefied fuel gases, GOST R 52087-2003 used as fuel for utility consumption, motor
fuel for road transport, and for industrial purposes are produced in five brands: PT = propane
technical, PA = propane automobile, PBA = propane-butane automobile, PBT = propane-butane
technical, BT = butane technical.
It is produced by mixing fractions of propane and butanes in the ratios established for the respective brands.
• Natural combustible gas supplied and transported by main gas pipelines, STO Gazprom 089-2010. It consists
mainly of methane with a small amount of ethane and propane. The lowest heat of combustion must be at least
7,600 kcal/m3, the concentration of hydrogen sulfide is not more than 0.02 g/m3. It is produced from petroleum
gas by the method of stripping (removal of heavy components—liquid hydrocarbons—from petroleum gas).
• Technical sulfur, GOST 127.1-93, is used for the production of sulfuric acid, carbon disulfide, rubber products,
in the pulp and paper, textile industries, and in agriculture. It is produced from hydrogen sulfide during
the purification of petroleum gas by the Klaus method.
• Technical oxygen gas, GOST 5583-78, is used for gas-plasma processing of metals and other technical
purposes. It is produced from atmospheric air by the method of low-temperature rectification after preliminary
cleaning, drying, compression, and cooling of the air.
• Nitrogen gas, GOST 9293-74, is used to create an inert atmosphere for the production, storage, and
transportation of easily oxidized products, for high-temperature metal processing, for the preservation of
closed metal vessels and pipelines, and other purposes (for displacing gases from apparatuses and pipelines).
• It is produced from atmospheric air by deep cooling and separation after preliminary drying, cleaning, and
compression of the air.
Strategic development objectives are improvement and modernization of the technological
capacities of the gas-processing plant to increase the competitiveness of deep processing
of hydrocarbon raw materials, for obtaining products with high added value.
PRODUCTION INDICATORS OF THE TATNEFTEGAZPERERABOTKA DIVISION
Name of indicators
Unit
2015
2016
2017
RECEPTION OF RAW MATERIALS
Petroleum gas
million m3
814,568
853,733
820,07
A wide fraction of light hydrocarbons
with a complex oil treatment unit
RAW MATERIALS PROCESSING
thousand tonnes
285
282.15
274,722
Petroleum gas
million m3
805,872
845,126
808,89
A wide fraction of light hydrocarbons
with a complex oil treatment unit
thousand tonnes
284,939
281,872
274,608
PRODUCTION
Dry stripped gas
Ethane fraction
Liquefied gas, including:
propane fraction
isobutane fraction
normal butane fraction
Fractions C5 and above, including:
isobutane fraction
natural stable gasoline
million m3
thousand tonnes
thousand tonnes
thousand tonnes
thousand tonnes
thousand tonnes
thousand tonnes
thousand tonnes
thousand tonnes
285,182
170,261
439,803
262,702
47,35
129,751
233,355
21,229
212,126
273,347
186,998
462,897
278,432
51,252
133,213
235,419
19,302
216,117
257,284
181,078
441,971
263,543
49,098
129,33
227,778
18,999
208,779
At the end of 2017, the Tatneftegazpererabotka Division was awarded a first degree diploma for the «A» brand
propane fraction and a second-degree diploma for the «A» brand ethane fraction in the «The Best Goods and
Services of the Republic of Tatarstan» contest, in the nomination for «Products for industrial and technical
purposes,» and a Diploma in the prestigious competition of the federal program «100 best goods of Russia»
for the brand «A» ethane and propane fractions.
48
49
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
RETAIL FILLING STATIONS NETWORK
In 2017, the strategy of development of the retail sales network until 2025 was developed and approved.
As part of the approved strategy for the development of the TATNEFT retail and sales network until 2025, the task
was set to ensure the 6.5-fold growth of EBITDA (from RUB 2.8 billion to RUB 18.2 billion). To do this, it will be
necessary to implement a set of measures that will ensure a two-fold increase in the volume
of retail sale of oil products (from 1.5 million tonnes to 3.3 million tonnes) and a 5.5-fold
increase in revenues from non-fuel supply (RUB 1.02 billion to RUB 5.6 billion) and to build
and reconstruct about 380 facilities, using investments in the amount of RUB 39 billion.
ENSURING GROW TH
EBITDA
6.5times
to 2025
MAIN STRATEGIC OBJECTIVES OF THE COMPANY FOR THE «RETAIL BUSINESS» BLOCK
FOR THE NEXT FEW YEARS:
• Modernization of the existing filling stations
• Expansion of the network of filling stations
• Increase in the daily flow of filling stations
• Improvement of the quality of the trade offering at filling stations, including by developing non-fuel sale
items at the filling stations
• Increase in the sale of branded fuel
The retail business development priority is an increase of the network marginality based on the quality of the trade
offering and the development of related services.
In accordance with the «Development of the Retail and Sale Network» investment program for the TATNEFT filling
stations,10 filling stations were built and purchased in 2017 in the Russian Federation, 31 were reformatted, 28 were
reequipped, and 9 land plots were purchased.
In Ukraine, 2 land plots were purchased.
The first stage of the network development plan was implemented (targeted development regions were defined),
new interiors and exteriors of the filling stations were developed, and the «Automation of investment activity» project
was launched.
Reconstruction of filling stations with the introduction of new formats and interiors continues, the range of products
and services offered to customers is expanding, and public catering is being developed at filling stations.
2018 INVESTMENT PROGRAM
Investments are planned for the development of the sale infrastructure in the amount of RUB 4.1 billion (excluding
VAT) in the Russian Federation. Investments will be mainly aimed at the formatting of 71 filling stations and
the construction of 11 filling stations in Russia.
The State Duma's adoption in November 2017 of a Federal Law on additional increase in excises in 2018 (from the be-
ginning of the year by 1,083 RUB/tonne for AB and 865 RUB/tonne for DF, and from the second half of the year by
679 RUB/tonne for AB, and by 593 RUB/tonne for DF) led to an additional increase in wholesale prices in Q4 2017.
Change in the parameters of the Great Tax Maneuver in November 2016: growth of excises against the background
of reduction of duties on exports of oil products. Thus, given the containment of retail prices by state authorities,
retail margins are declining.
VOLUME OF SALE OF OIL PRODUCTS THROUGH THE RETAIL DISTRIBUTION NETWORK OF THE COMPANY
Enterprises of the company’s retail and sale unit are demonstrating high performance and are leaders in many
regional markets of the country.
The volume of sale of oil products through the Company’s retail distribution network in 2017 made 2.7 million
tonnes, which is 4% more than in the preceding year, including retail sale of 5% and positive dynamics of average
daily sale per filling station (+6% in 2017).
In 2017, the volume of corporate sales of oil products through the company’s own retail network significantly
increased (+16.7%), including through work with large transport enterprises, as a result of which contracts were
concluded with such enterprises as Monopoly, Business Lines, and X5 Retail Group. In 2018, sales in this area
are expected to grow to 8.4 million liters per month.
2017
Russia
Ukraine
Belarus
Total
Retail, tonnes
Small wholesale, tonnes
1,503,452
32,682
44,281
1,580,415
1,076,915
17,619
1,751
1,096,286
Total, tonnes
2,580,367
50,301
46,032
2,676,701
The retail network of TATNEFT at the end of 2017 had 685 filling stations, of which 574 were in Russia , 94 – in
Ukraine, and 17 – in Belarus. The competitive advantage of the TATNEFT retail network is its scale and wide
branching, with coverage of almost all the most attractive regions of Russia, primarily the Volga Region and
the Central Federal District, which have high growth prospects and attractive retail margins.
The company is modernizing the retail network to improve the trade offerings, both fuel and non-fuel, to
the customer. The Company’s initiatives on the development of related businesses will, among other things,
help increase the profitability of the retail channel.
RELATED SERVICES
The Company is developing related businesses to improve the quality of services and increase revenue. In
2017, the development of promising areas of roadside service continued, such as the organization of catering at
the Company’s filling stations (by the end of the year, revenue growth in this area was 38% compared to 2016),
and the network of self-service car washing facilities is expanding.
As of the end of 2017, 421 stores (23 more than in 2016) and 259 cafeterias (an increase of 93) were operated
at the Company’s filling stations. Revenues from the sale of related products and services at the Company’s
filling stations increased by 14% compared to 2016 and amounted to RUB 3 billion, including RUB 2.6 billion in
the Russian Federation. The main increase in the revenue was due to the use of modern filling station formats
during construction and reconstruction.
NUMBER OF TATNEFT FILLING STATIONS, UNITS
2017
2016
2015
685
689
692
50
51
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report PETROCHEMICALS
PRODUCTION OF TECHNICAL CARBON
In 2017, the production of technical carbon made 134,000 tonnes, which is 13.5% more than in 2016. The technical
carbon produced is competitive, and the quality meets the requirements of regulatory documentation and satisfies
consumers. In 2017, 133,800 tonnes of technical carbon were sold, which is 12.5% more than in 2016.
SALE OF TECHNICAL CARBON, TONNES
Carbon black sales
TATNEFT's tire business
Other consumers in the RF and the RT
Export
Total sales
2015
2016
2017
63,135
27,084
26,024
63,372
23,803
33,629
68,867
17,116
47,846
116,243
118,804
133,829
TIRE BUSINESS
The volumes of production and sale of the TATNEFT tire complex on the Russian market remained stable—
about 9–10 million units in 2012–2017—that is, TATNEFT’s products currently claim about 20% of the Russian tire
market. Overall, the volume of the Russian tire market declined from a peak of 62.3 million units in 2012 to 51.3 million
units in 2017 as a result of the slowdown in economic growth in the Russian Federation (including the fall in citizens’
real incomes).
After the decline of tire products on the Russian market, which has continued since 2014, by the end of 2017, it grew
by 18% compared to the preceding year and was 51.3 million units in quantitative terms. In 2017 the tire complex of
the Company sold 13.1 million tires. This volume of sales is the largest in the history of the Nizhnekamsk tire complex.
Compared to the previous year, the sales increased by 1.1 million tires, or 9%. Nevertheless, the market share of tire
products of the petrochemical complex on the domestic market by the end of the year slightly decreased (less than
by 1%) to 19.3%. The tire complex of TATNEFT thus remains the key player in the Russian tire market.
The Russian tire market is characterized by a high proportion of imported products. At the same time, due to
the devaluation of the Russian currency, foreign producers are trying to localize their production in the Russian
Federation. As a market leader, the Company’s tire manufacturing complex, intending to retain the positions
it has conquered, plans to modernize and expand the existing production facilities with a focus on promising
market niches: CMK and specialized tires and modern tires of the subpremium segment of the Viatti brand.
THE MAIN FACTORS THAT MAY ADVERSELY AFFECT THE DEVELOPMENT OF THE COMPANY’S TIRE
BUSINESS IN THE NEXT FEW YEARS ARE:
• A sharp rise in the prices for raw materials
• A general decline in demand for tire products in Russia, primarily in the market for original equipment
• A return to the Russian market of truck tires made by Chinese manufacturers due to the strengthening
of the ruble
• The launch of new tire plants in the Russian Federation; expansion and modernization of production
facilities at existing Russian plants of foreign manufacturers (Nokian, Pirelli)
• Natural retirement of the automotive fleet—the target consumer of individual groups of KAMA tires
(passenger and truck combined tires)
52
The tire business of TATNEFT was formed in 2002.
It includes the following companies:
LLC Managing Company TATNEFT-Neftekhim
PJSC Nizhnekamskshina
LLC Nizhnekamsk Truck Tire Factory
Provision of services for the management of
enterprises of the petrochemical complex
Manufacture of tires, rubber products, and related
products
Manufacture of tires, rubber products, and related
products
LLC Nizhnekamsk Tire Plant TsMK
Manufacture of tires, rubber products
JSC Nizhnekamsk Plant of Technical Carbon
Production and sale of technical carbon
JSC Nizhnekamsk Mechanical Plant
Yarpolimermash-TATNEFT JSC
Production of engineering products and capital
repairs of tire production equipment
Manufacture of tire molds, shaper vulcanizers,
equipment for oil- and gas-producing enterprises,
casting production
LLC Trading House Kama
Sale of automobile tires
LLC TATNEFT-Neftekhimsnab
Provision of material and technical resources for
enterprises of the petrochemical complex
LLC Scientific and Technical Center Kama
Scientific research and development
LLC Energoshinservice
Provision of services
BASIC TECHNICAL AND ECONOMIC INDICATORS OF ENTERPRISES OF THE PETROCHEMICAL COMPLEX
Technical carbon production
tonnes
Manufacture of tires, total
including truck tires
light truck tires
car tires
agricultural tires
other
All-steel truck tires
Sales of tires, total
Revenues from sales
Net profit
EBITDA
thousand units
thousand units
thousand units
thousand units
thousand units
thousand units
thousand units
thousand units
RUB million
RUB million
RUB million
117,130
11,991
1,743
1,129
8,042
175
27
875
11,861
38,764
311
2,879
118,033
11,522
1,613
1,517
7,154
176
24
1,039
11,998
41,586
854
3,534
* without reserves for doubtful debts related to the deposit with PJSC TFB
134,383
12,876
1,848
1,408
8,230
178
22
1,191
13,059
48,085
2,391
5,447
53
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report
MAIN TYPES AND VOLUMES OF TIRE PRODUCTS
TIRE PRODUCTS ARE SOLD IN THREE MARKETS:
1. Market of original equipment
2. Secondary replacement market
3. Exports to CIS member-states and non–CIS countries
DYNAMICS OF SALE OF TATNEFT TIRES BY MARKETS, THOUSAND UNITS
Sale market
Secondary market
Equipment
Non–CIS countries
CIS member-states
Total
Without considering the restoration of All-steel tires
2014
7,062
2,385
302
2,335
12,083
2015
7,403
1,761
325
2,331
11,820
2016
7,688
1,181
306
2,780
11,955
2017
9,082
713
688
2,513
12,996
The Russian market is the main market for finished products
and accounts for about 76% of the total sale of the tire
business. In 2017, the tire business confidently increased
its sale volumes in the secondary market of the Russian
Federation, including through attractive incentive programs
and competitive price positioning. The growth of sales in
Russia’s secondary market in 2017 relative to the preceding
year was 19%, which was mainly due to the sale of car and
light truck tires, including tires of the Viatti brand.
The commodity distribution network covers all
the constituent territories of the Russian Federation
and includes more than 400 counterparties. In addition
to wholesale distributors and retail trade and service
networks, tire business products are also supplied to
such large corporate customers as SUE Mosgortrans
and others.
The main consumers of tire products of the tire
business
in the primary market are the largest
domestic and foreign manufacturers of automotive
equipment: KAMAZ, UK GAZ Group, Volkswagen
Group Rus, Ford Sollers Holding, and others. During
2017, tires were shipped to 30 automobile makers.
At the end of 2017, exports went to more than
47 countries, with more than 90 counterparties.
With respect to exports, the high rate of the US
dollar and the euro and the active development of
the markets of new countries made it possible to
increase the sales of the petrochemical complex by
4%. Markets were developed in new countries and
relations with former ones were renewed: Angola,
Bangladesh, Belgium, Bosnia, Cyprus, Somalia,
Uganda, Estonia.
MARKETING SUPPORT
• Non-price programs to stimulate sales in domestic and export markets: program for extended quality
assurance, free tire service.
• Brand communication strategy: advertising in the media, testing of tire products, promotion on
the Viatti tires website and its mobile version, participation in exhibitions and fairs, printing, souvenir
and POSM products.
PRODUCT POSITIONS IN THE RUSSIAN TIRE MARKET
Name
Russian tire market
Unit
thousand units
Sales of the petrochemical complex
thousand units
Market share of the petrochemical complex %
2014
55,716
9,447
17.0
2015
45,052
9,164
20.3
2016
43,709
8,869
20.3
2017
51,266
9,863
19.3
At the end of 2017, the Russian market for tire products
increased by 17% compared to the preceding year and
amounted to 51.3 million units. All tire groups show
different trends.
In the domestic market the market share of tire
products of the tire business at the end of the year
was 19.3%; the decrease in the market share is due to
the decrease by car factories of their initially declared
demand for tire products, the reduction in the share
of equipment due to low prices from competitors,
as well as the increased competition from world
manufacturers of tires with localized production in
Russia (Nokian, Pirelli, Bridgestone, etc.).
IN 2017, THE COMPANY’S TIRE BUSINESS WAS A KEY PLAYER IN ALL MAJOR NICHES OF
THE RUSSIAN TIRE MARKET.
THE DEFINITE COMPETITIVE ADVANTAGES OF THE TATNEFT TIRE BUSINESS IN GENERAL AND
ITS TIRE PRODUCTS IN PARTICULAR, WHICH MAKE IT POSSIBLE TO HOLD THE POSITION OF
THE LARGEST PLAYER IN THE MARKET, INCLUDE:
• Wide popularity and experience, first of all under the KAMA trademark
• Wide representation and availability of tire business products due to the developed commodity distribution
network inside and outside the country
• Modern production equipment and advanced tire production technologies, which became possible thanks
to the investments of the parent company, TATNEFT
• Experience of cooperation with automobile makers, which made it possible to improve the technical
characteristics of products and create a deferred demand for the future
• Development of a range of products in accordance with the trends of the automotive industry and the needs
of the tire market
The growth of the car tire market is connected
with the improvement of the economic situation in
the Russian Federation as a result of many factors:
deferred demand in 2015–2016, growth of new car
sales, growth of car production, etc.
the volumes of
The preservation of
the all-steel
and combined truck tires market in 2017 in relation
to 2016 can be
linked with economic barriers
(the continuing high dollar rate) and administrative
barriers (imposed duties on Chinese-produced tires
(the main competitor of the domestic manufacturers
in the Russian market until the end of 2014)).
in
the petrochemical company
There is a positive trend when analyzing the share
of
the Russian
market for light truck, combined truck and all-
steel tires: growth or preservation of positions.
Positive trends are also predicted for 2018, when
it is planned to increase the sales for all groups
of tires, the bulk of them coming to the Russian
secondary market.
The main expected factor that may have a negative
impact on the Company’s development rate
in
the coming years (in the tire business) is the rise
of raw material prices.
54
55
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report ENERGY
The company’s power-generation enterprises are implementing measures to improve the reliability and
efficiency of heat and electricity generation and to reduce losses and costs of energy resources.
Programs are being developed and implemented to diversify the sources of raw materials (natural gas, fuel
oil, petroleum coke) at the Nizhnekamsk CHP, which will improve the operational efficiency of the station
by choosing the optimal type of fuel depending on the market situation and reduce the risks of failure of
electricity and heat supplies.
The company’s power-generation enterprises are implementing measures to improve the reliability and
efficiency of heat and electricity generation and to reduce losses and costs of energy resources.
The electric power industry will be affected by the principle of equal profitability of natural gas supplies
on the domestic and foreign markets, as stipulated in the updated «Energy Strategy of Russia until 2035.»
The gradual convergence of domestic gas prices with export parity means an accelerated rise of natural gas
prices for Russian consumers, including those for power-generating facilities. The surplus capacity will be
reduced in the coming years by completing the construction of new power plants and the withdrawing of old
facilities.
In 2017, the commissioning of generating capacities under the PSC program (Power Supply Contracts) was
practically completed. In this regard, the government of the Russian Federation is discussing the PSC-2 state
program, which involves large-scale modernization of heat generation facilities after 2020. This is largely
due to the critical overabundance of obsolete capacity in the heat-generation system. However, large-scale
commissioning of new and upgraded generating capacities alongside the low growth in demand for electricity
in the Russian Federation will lead to increased competition in the industry in the medium term.
The total electricity production by the Company’s enterprises in 2017 was 1.45 billion kW•h, and the output
of heat energy was 4.8 million Gcal. After the modernization of Nizhnekamsk CHP was completed, it became
possible to generate some of the electricity in the condensation mode, regardless of the amount of heat
supplied to consumers. This configuration of the station makes it possible to improve the operational efficiency
of Nizhnekamsk CHP in the electricity market.
In the reporting year, the Company continued to develop its own electricity and heat energy complex in
the «Energy» business segment, which included three enterprises:
• LLC Nizhnekamsk CHP (Production of heat and electric energy in the cogeneration mode)
• JSC Almetyevsk Heating Networks (Production of heat energy (in the form of a coolant) and electric energy,
rendering services for operation of the boiler houses of the SVO NGDU Yamashneft)
• LLC TATNEFT-Energosbyt
NIZHNEKAMSK CHP
In 2017, the following measures were implemented:
Annual electricity
generation is
1.5BILLION
KW•H
• The Automated Information and Analytical System for Planning and Monitoring of Operating Modes («AIAS
PMM») and equipment composition of Nizhnekamsk CHP LLC was introduced, and the first year of industrial
operation passed. Operational use of AIAS PMM provided a choice of the optimal equipment composition,
considering the requirements of the wholesale electricity market and the power selected by consumers for
heat energy in the form of steam and hot water, as much as possible in the cogeneration mode. The mode
of trading in the wholesale power market with the purpose of deriving income from the price volatility of
the balancing market of electric energy and power was effectively used in the process of operation of AIAS
PMM.
• The purchase of gas on the exchange continued; the volume of purchase was 245,987,000 m3, making
32% of the total consumption of natural gas. At the same time, the overall effect of gas purchases on
the exchange was RUB 36 million (due to the difference in prices).
Significant strategic projects
• Project
for «Reconstruction of TGME-464
for burning
petroleum coke
in the form of dust from the delayed coking unit of TANECO JSC.»
The goal of the project is to reduce the cost of production of electric and heat energy and to increase
the competitiveness of LLC Nizhnekamsk CHP in the market for electric power and capacity.
installed power boiler units
• Project for «Technical reequipment of the PE-580-185 st. No. 5 feeding pump with the installation
of a drive steam turbine of the P-3.7-3.2/1.5 P type» with an annual effect of RUB 75 million.
The heat-mechanical equipment installed at the station includes nine power-generating boilers of the TGME-464
type (steam output of 500 tonne/hr each and the steam parameters P = 140 ata and T = 5,600C), two peak water-
heating boilers of the PTVM-180 type (heat output of 180 Gcal/hr each), and seven steam turbines.
56
57
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYPJSC Tatneft 2017 Annual Report CORPORATE
GOVERNANCE
58
59
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY COMPANY MANAGEMENT SYSTEM
MANAGEMENT STRUCTURE
GENERAL SHAREHOLDERS’ MEETING
Audit Commission
Independent auditor
Committees of the Board of Directors
Audit Committee
HR and Remuneration Committee
Corporate Governance Committee
BOARD OF DIRECTORS
CHAIRMAN OF THE BOARD OF
DIRECTORS
Internal Audit
Department
Corporate
Secretary
CEO,
CHAIRMAN OF
THE MANAGEMENT BOARD
MANAGEMENT BOARD
Investment Committee
Managing Committee on Personnel matters
Committee on Ethics and Development
of Corporate Culture
The current activities of the Company are provided by the services of the Executive
Office services, structural subdivisions, curators of business segments
and business areas, as well as by authorized representatives
in the management bodies of subsidiaries and affiliates.
LIABILITY INSURANCE OF THE COMPANY’S MANAGEMENT BODIES’ MEMBERS
THE COMPANY INSURES LIABILITY RISKS OF THE COMPANY’S MANAGEMENT BODIES’ MEMBERS, INCLUDING
ABROAD, ON THE TERMS AND CONDITIONS AND IN AMOUNTS CORRESPONDING TO THE INSURANCE MARKET
OF SIMILAR RISKS IN THE RUSSIAN FEDERATION.
The corporate governance system of the Company is aimed at preserving and multiplying
assets, increasing capitalization, maintaining financial stability, profitability and sustainability of
the Company, respecting the rights and interests of shareholders and all other stakeholders.
The expected performance of the multilevel structure of the VIOC requires a highly
effective corporate governance and control system, efficient managers and professional
employees on all levels.
The Company has built a logical organizational structure supporting all levels of
interaction between management and business groups. Information exchange
encompasses all areas of operations of the Company.
The General Shareholders’ Meeting is the supreme management body of the Company, which delegates to the
Board of Directors general management powers over the Company. There are three committees under the Board of
Directors: the Corporate Governance Committee, the Audit Committee, and the HR and Remuneration Committee.
In 2016, the position of Corporate Secretary was introduced.
The Chief Executive Officer of the Company is the General Director of TATNEFT.
The company’s collegial executive body is the Management Board headed by the General Director. The General Director
and the Management Board are accountable to the Board of Directors and the General Shareholders’ Meeting.
Audit Commission exercises general control over financial and economic activities of the Company.
TATNEFT is the corporate center of the Group, which coordinates the activities of enterprises forming the Company’s
business segments.
Responsibility for strategic planning and operational activities of the Company is divided among the Board of
Directors, the General Director, and the Management Board and at the level of specific powers of business segments
managers, with performance monitoring. The business segment management system is based on the KPI.
The company operates in the status of the Group. The management of the TATNEFT Group is organized basing on
unified mission and development priorities of the Company with view to ensuring fair interests of all members of the
Group. To ensure uniform management principles and transparency of operations of subsidiaries, the Company
develops appropriate policies and regulations that form mechanisms of corporate relations. A system of unified
corporate standards has also been created.
PRINCIPAL AREAS OF CORPORATE GOVERNANCE POLICIES
• Ensuring implementation of the strategy and current activities of the Company
• Improving organizational structure and implementing unified corporate standards of the TATNEFT Group
• Developing risk management and internal control system
• Improving the incentive schemes and KPI criteria for the management
• Meaningful interaction with investors, business partners, government authorities, and non-governmental
organizations involved in the activities of the Company
SOGAZ INSURANCE COMPANY WAS AN INSURER OF SIMILAR RISKS OF THE COMPANY DURING 2017.
• Implementation of the principles of information openness and transparency
60
61
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY GENERAL SHAREHOLDERS’ MEETING
The General Meeting is the supreme
management body of TATNEFT and
operates in accordance with the
regulatory legal acts of the Russian
Federation, the Charter, and internal
documents of the Company.
Overall management of the Company is delegated by
the General Shareholders’ Meeting to the Board of
Directors.
The procedures for preparing, convening, conducting,
and summing up the results of the General Shareholders’
Meeting is determined by the Regulation on the General
Shareholders’ Meeting of TATNEFT.
The Company holds the annual General Shareholders’
Meeting once a year, not earlier than two and no
later than six months after the end of the fiscal year.
In addition to the General Shareholders’ Meeting,
extraordinary meetings of shareholders may be
convened. The Company provides shareholders with
information regarding the agenda. The amount of
information and the time of provision are selected
so that they are able make create their reasonable
judgement on the issues to be considered as well as to
decide whether to participate in the meeting and how
exactly are they will be participating in it.
The annual General Meeting necessarily considers
the of issues of electing members of the Board of
Directors and the Audit Commission, approval of the
auditor, approval of the annual report, annual financial
statements; distribution of profits, including payment
(declaration) of dividends, and losses based on the
results of the reporting year; and approval of internal
documents regulating the proceedings of the bodies
of the Company.
Shareholders make decisions regarding the most
important issues regrading business of the Company.
The complete list matters, decided by the General
is made subject to requirements of the
Meeting
Federal Law «On Joint-Stock Companies.» (No. 208-
FZ), December 26, 1995.
Each shareholder is entitled to participate in the
meeting in person or by proxy. Board of Directors
and executive bodies of the Company present at the
General Shareholders’ Meeting, detailed and true
report on the corporate strategy and operations of
the Company. The Board of Directors also prepares
for shareholders reports on each item of the agenda
reflecting its position and any special opinions of the
members of the Board of Directors, if any.
When electing the Board of Directors, the Company
provides shareholders with detailed
information
on the biography, background, and skills of each
candidate and also seeks to ensure the presence of
all candidates in person at the General Shareholders’
Meeting.
the agenda of
Resolutions on
the General
Shareholders’ Meeting shall be made by ballot
voting in accordance with the procedure prescribed
by current legislation and the Company’s Charter.
When formulating the resolutions of the meeting,
type of majority by which the resolution was taken
must always be indicated and any special opinion
must also be taken on record. The Minutes of the
General Meeting shall be signed by the Chairman
and the Secretary of the meeting.
During the preparation and holding of the General
meeting, the shareholders of the Company are
entitled to receive information about the meeting and
materials pertaining to it in without any obstructions
or delays, to ask questions to the Executive bodies
and members of the Board of Directors, and to freely
communicate with each other.
The Company provides the shareholders
with accessible forms of communications,
e.g. a hotline, email, or internet forum
to allow shareholders to express their
opinions and forward questions regarding
the agenda during preparation for the
General Shareholders’ Meeting.
GENERAL SHAREHOLDERS’ MEETINGS HELD IN 2017
Annual General Shareholders’ Meeting on June 23, 2017
RESOLUTIONS ADOPTED BY THE ANNUAL GENERAL SHAREHOLDERS’ MEETING
1. To approve the Company’s annual report for 2016.
2. To approve the annual accounting (financial) statements for 2016.
3. To approve the distribution of profits (including the payment of dividends on shares) based on the fiscal year
performance.
To pay dividends for 2016:
а) For preferred shares of TATNEFT in the amount of 2,281% of the nominal value of the share
б) For ordinary shares of TATNEFT in the amount of 2,281% of the nominal value of the share
To set July 7, 2017, as the date on which the persons entitled to receive dividends are determined.
Dividends shall be paid in cash.
4. To elect the Board of Directors of TATNEFT.
5. To elect the members of the Audit Commission of the Company.
6. To approve JSC PricewaterhouseCoopers Audit (JSC PwC Audit) as the auditor of TATNEFT for the mandatory
audit of the annual financial statements for 2017 prepared in accordance with Russian and international
accounting standards for one year.
7. To approve the new version of the Charter of the Public Joint-Stock Company TATNEFT.
8. To approve the new version of the «Regulations on the General Shareholders’ Meeting of TATNEFT».
9. To approve the new version of the «Regulations on the Board of Directors of TATNEFT».
10. To approve the new version of the «Regulations on the General Director of TATNEFT».
11. To approve the new version of the «Regulation on the Management Board of TATNEFT».
Extraordinary General Shareholders’ Meeting (in the form of absentee voting)
December 12, 2017
RESOLUTIONS ADOPTED BY THE EXTRAORDINARY GENERAL SHAREHOLDERS’ MEETING:
To pay dividends for the first 9 months of 2017:
а) For preferred shares of TATNEFT in the amount of 2,778% of the nominal value of the share
б) For ordinary shares of TATNEFT in the amount of 2,778% of the nominal value of the share
To set December 23, 2017, as the date on which the persons entitled to receive dividends are determined.
Dividends shall be paid in cash.
62
63
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
BOARD OF DIRECTORS
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors sets the long-term
targets for the Company, reviews and
approves its key performance indicators and
principal business goals, its strategy, and
business plans with regard to the Company’s
principal areas of operations.
The Board of Directors of TATNEFT carries out
overall management of the Company’s activities,
determines priority areas and development strategy,
policies, including investment, borrowing and asset
management, basic principles and approaches to the
organization of internal control and risk management
of the Company. It is also responsible for managing
key risks of the Company affecting the achievement
of its strategic goals, makes decisions on key projects
and significant transactions, contributes to timely
disclosure of complete and reliable information about
the Company’s activities.
One of the key functions of the Board of Directors
• Formation of effective executive bodies and ensuring
control over their activities.
• Board of Directors has the authority to nominate the
Executive bodies, terminate their powers, and to
provide incentives for Executive bodies.
• The Board of Directors uses the regular reports of
the Executive bodies regarding the implementation
of the Strategy and business plans to control
the Company’s activities, and also monitors the
improvement of the corporate governance system
and practices within the Company.
the Board of Directors of
The composition of
the Company is based on the balance of the key
knowledge, skills, and experience of the members
of the Board of Directors in strategic management,
corporate governance, finance, risk management,
accounting, audit, and in the Company’s industry areas
sufficient for making judicious and objective decisions
in the interests of the Company and shareholders.
The Board of Directors plays a key role
in ensuring that the Company acts in a
transparent way, that the information is
disclosed in a timely and complete fashion,
and the shareholders can easily access
documents of the Company. In the reporting
year, the the Board of Directors approved
new versions of the internal documents of
TATNEFT: Information Policy and Rules on
Information Provision to shareholders.
Powers exercisable by the Board of Directors are
determined by the Charter and the Regulations on the
Board of Directors and are clearly distinguished from
the powers, exercised by the executive management
bodies of
its daily
operations.
the Company
that manage
Rustam Nurgaliyevich
MINNIKHANOV
Chairman of the Board of Directors
Born in 1957.
In 1978, he graduated from the Kazan Agricultural Institute.
In 1986, he graduated from the Institute of Soviet Trade.
1996 to 1998, Minister of Finance of the Republic of Tatarstan.
From July 1998 to March 2010, led the work of the government of the Republic of Tatarstan.
From March 2010, president of the Republic of Tatarstan.
Nonexecutive Director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
14 Members of the Board of Directors are elected on the
General Shareholders’ Meeting by cumulative voting
(the candidates who obtained the largest number
of votes are elected). One member of the Board of
Directors is appointed according to a special right. The
Company must include the election of members of the
Board of Directors into agenda of the annual General
Shareholders’ Meeting. Shareholders who collectively
own at least two percent of the Company’s voting
shares are entitled to submit proposals for candidates
for election to the Board of Directors. Such proposals
must be submitted to the Company, in accordance with
the Charter of TATNEFT, no later than 55 days after the
end of the reporting year.
The Company ensures transparent election procedures
of the Board of Directors and discloses in advance the
information on the current composition of the Board of
Directors and on candidates for the Board of Directors.
The Board of Directors composed of 15 members
was elected on June 23, 2017, on the annual General
Shareholders’ Meeting. The Board of Directors did not
undergo any changes in 2017.
CHAIRMAN OF THE BOARD OF DIRECTORS
The Chairman of the Board of Directors is elected and
carries out its activities in accordance with the Charter,
the Regulations on the Board of Directors, and the
Code of Corporate Governance.
At the first meeting of the Board of Directors of
TATNEFT of the annual General Shareholders’ Meeting
on June 23, 2017, R. N. Minnikhanov was elected
Chairman of the Board of Directors unanimously by
all members of the Board of Directors, as the most
respected member of the Board of Directors with
highest level of professionalism and knowledge, and
significant background in top-management positions,
and an impeccable business and personal reputation.
The Chairman of the Board of Directors is a
nonexecutive director.
The Chairman of the Board of Directors is not a
member of any committees of the Board of Directors.
Principal responsibilities of the Chairman
of the Board of Directors
• Managing operations of the Board of Directors
• Making proposals on the distribution of tasks among the
members of the Board of Directors and Committees of
the Board of Directors
• Providing an open discussion of the agenda and
ensuring that all positions of the members of the Board
of Directors are taken into consideration
• Identifying the key issues to be considered by the Board
of Directors and selecting the optimal form of meeting to
discuss them
• Representing of the Board of Directors in relations with
shareholders, management, and other stakeholders
The Chairman of the Board of Directors should also create
positive atmosphere of the discussion and meetings in
command, and is also responsible for implementing of
decisions taken by the Board of Directors.
64
65
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
Nail Ulfatovich
MAGANOV
General Director (CEO) of TATNEFT
Member of the Board of Directors of TATNEFT
Chairman of the Executive Board of TATNEFT
Laslo
GERECHE
Member of the Board of Directors of TATNEFT
Member of the Audit Committee of the Board of Directors of TATNEFT
Member of the HR and Remuneration Committee of the Board of Directors of TATNEFT
The chairman of the Corporate Governance Committee of the Board of Directors of TATNEFT
Born in 1953.
Born in 1958.
In 1983, he graduated from the Gubkin Moscow Institute of Petrochemical and Gas Industry.
From July 2000 till November 2013, First Deputy General Director – Head of the Division for Sales
of Oil and Oil Products at OJSC TATNEFT.
Starting from November 2013, General Director of TATNEFT.
Executive Director
% share in the authorized capital of the company: 0.000176
% share of the ordinary shares of the company owned by the person: none
Yuriy Lvovich
LEVIN
Member of the Board of Directors of TATNEFT
Chairman of the Audit Committee of the Board of Directors of TATNEFT
Member of the HR and Remuneration Committee of the Board of Directors of TATNEFT
Born in 1953.
In 1975, he graduated from the Moscow Finance Institute.
In 1979, he graduated from the postgraduate course at the Institute of World Economy and
International Relations.
Starting from 2001 Managing Partner of BVM Capital Partners Ltd.
Independent Director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
In 1977, he graduated from the Gubkin Moscow Institute of Petrochemical and Gas Industry.
In 1995, he graduated from Oxford Business University.
From 2015 to January 1, 2017, Managing Director of MOL Oman Limited, Oman Branch.
Starting from January 1, 2017, Managing Director of G Petroconsulting Ltd
Independent Director.
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
Rene Frederic
STEINER
Member of the Board of Directors of TATNEFT
Member of the Audit Committee of the Board of Directors of TATNEFT
■ Chairman of the HR and Remuneration Committee of the Board of Directors of TATNEFT
Born in 1964.
He has a higher economic education and graduated from the Higher Technical School of Zurich in
1989. Bachelor of Swiss Banking Business – Zurich.
From 2011 to present day, he is co-founder, Head of programs for direct private investment at FIDES
Business Partner AG, Switzerland.
Independent Director
% share in the authorized capital of the company: none
% share of ordinary shares of the company owned by the person: none
66
67
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
Radik Raufovich
GAYZATTULIN
Member of the Board of Directors of TATNEFT
Member of the Audit Committee of the Board of Directors of TATNEFT
Born in 1964.
In 1985, he graduated from Kazan Agricultural Institute.
From June 2002 to present day, he is heading the Ministry of Finance of the Republic of Tatarstan.
Nonexecutive director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
Valeriy Yuryevich
SOROKIN
Member of the Board of Directors of TATNEFT
Born in 1964.
In 1986, he graduated from Kazan State University.
From 2003 to present day, General Director of JSC Svyazinvestneftekhim.
Nonexecutive Director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
Azat Kiyamovich
KHAMAYEV
Member of the Board of Directors of TATNEFT
Born in 1956.
In 1978, he graduated from Kazan Aviation Institute with degree in mechanical engineering.
In 2000, he graduated from the Faculty of Law of Kazan State University.
In December 2008, he was appointed First Deputy Minister of Land and Property Relations of the
Republic of Tatarstan.
From March 2009 to present day, he has headed the Ministry of Land and Property Relations of
the Republic of Tatarstan.
Nonexecutive Director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
Rinat Kasimovich
SABIROV
Member of the Board of Directors of TATNEFT
Member of the Corporate Governance Committee of the Board of Directors of TATNEFT
Member of the HR and Remuneration Committee of the Board of Directors of TATNEFT
Born in 1967.
In 1991, he graduated from Kazan State University.
In 1994, he graduated from a postgraduate course at Kazan State Technological University.
In 1998, he had a training course in the Presidential program for management personnel.
From 2006 to June 2010, Head of the Division of Oil and Gas Chemical Complex of the staff of the
Cabinet of Ministers of the RT.
Starting from June 2010, Assistant to the President of the Republic of Tatarstan.
Nonexecutive Director
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
68
69
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
Rustam Khamisovich
KHALIMOV
Member of the Board of Directors of TATNEFT
First Deputy General Director for Exploration and Production of Oil and Gas of TATNEFT
Born in 1965.
In 1978, he graduated from the Gubkin Moscow Institute of the Petrochemical and Gas Industry.
From 2010 to 2011, Director of the branch of OJSC TATNEFT in Libya.
From 2011 to 2015, Head of Oil and Gas Production Department of Yelkhovneft OJSC TATNEFT.
From 2015 to May 21, 2018, Deputy General Director for Development and Production of Oil and
Gas of TATNEFT.
Starting from May 21, 2018, First Deputy General Director for Exploration and Production of Oil
and Gas of TATNEFT.
Executive director
% share in the authorized capital of the company: 0.000056
% share of the ordinary shares of the company owned by the person: none
Nail Gabdulbariyevich
IBRAGIMOV
Member of the Board of Directors of TATNEFT
First Deputy General Director for Production – Chief Engineer of TATNEFT
Member of the Management Board of TATNEFT
Born in 1955.
In 1977, he graduated from Gubkin Russian State University of Oil and Gas.
From 2000 to present day, First Deputy General Director for Production – Chief Engineer of
TATNEFT
Rais Salikhovich
KHISAMOV
Member of the Board of Directors of TATNEFT
Deputy General Director – Chief Geologist of TATNEFT
Born in 1950.
In 1978, he graduated from the Gubkin Moscow Institute of Petrochemical and Gas Industry.
From October 1997 to present day, Deputy General Director – Chief Geologist of TATNEFT
Executive Director
% share in the authorized capital of the company: 0.01876
% share of the ordinary shares of the company owned by the person: 0.019746
Renat Khaliullovich
MUSLIMOV
Member of the Board of Directors of TATNEFT
Born in 1934.
In 1957, he graduated from Kazan State University.
Starting from June 2007, Consultant to the President of the Republic of Tatarstan on the
development of oil and oil and gas fields, professor of the Department of Geology of Oil and Gas
Geological Faculty of Kazan (Volga) Federal University.
Executive director
Nonexecutive Director
% share in the authorized capital of the company: 0.019831
% share of the ordinary shares of the company owned by the person: 0.020873
% share in the authorized capital of the company: 0.057136
% share of the ordinary shares of the company owned by the person: 0.060445
70
71
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
Shafagat Fakhrazovich
TAKHAUTDINOV
Member of the Board of Directors of TATNEFT
Adviser to the Chairman of the Board of Directors of TATNEFT
Born in 1946.
In 1971, he graduated from the Gubkin Moscow Institute of Petrochemical and Gas Industry.
From 1999 to November 2013, General Director of OJSC TATNEFT.
From November 2013 to present day, Assistant to the President of the Republic of Tatarstan on
the oil industry, Advisor to the Chairman of the Board of Directors of TATNEFT.
Nonexecutive Director
% share in the authorized capital of the company: 0.116503
% share of ordinary shares of the company owned by the person: 0.123914
Rafail Saitovich
NURMUKHAMETOV
Member of the Board of Directors of TATNEFT
Head of Oil and Gas Production Department of Leninogorskneft of TATNEFT
Born in 1949.
He graduated from the Ufa Oil Institute.
From 1989 to present day, Head of Oil and Gas Production Department of Leninogorskneft of
TATNEFT.
Executive Director
% share in the authorized capital of the company: 0.010465
% share of ordinary shares of the company owned by the person: 0.010107
DURATION OF WORK ON THE BOARD OF DIRECTORS
Members of the Board of
Directors
number of
years
year of election
TERM IN THE BOARD OF DIRECTORS
AS OF DECEMBER 31, 2017
Minnikhanov
Rustam Nurgaliyevich
Muslimov
Renat Khaliullovich
Takhautdinov
Shafagat Fakhrazovich
Khisamov
Rais Salikhovich
Ibragimov
Nail Gabdulbariyevich
Maganov
Nail Ulfatovich
Gayzatullin
Radik Raufovich
Sabirov
Rinat Kasimovich
Sorokin
Valeriy Yuryevich
Khamayev
Azat Kiyamovich
Steiner
Rene Frederic
Gereche
Laslo
Levin
Yuriy Lvovich
Khalimov
Rustam Khamisovich
Nurmukhametov
Rafail Saitovich
21
21
21
20
18
17
17
13
13
9
5
3
3
3
2
1997
1997
1997
1998
2000
2001
2001
2005
2005
2009
2013
2015
2015
2015
2016
5 members of the
Board of Directors
10 members of the
Board of Directors
15 members of
the Board of Directors
all
members
of the Board
over
7 years
more than 1
year–up to
7 years
The members of the Board of Directors of TATNEFT have
background in strategic management and competencies
sufficient to make informed and objective decisions in the
interests of the Company and shareholders.
All members of the Board of Directors have
long-term
background in the Company, high professional reputation
and, in exercising of their powers, interact with the top-
management of the Company, its main business departments,
and the registrar, and the auditor.
72
73
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
BALANCED COMPOSITION OF THE BOARD OF DIRECTORS
EVALUATION OF THE PERFORMANCE OF THE BOARD OF DIRECTORS
The composition of the Board of Directors is balanced by the participation of independent, nonexecutive, and
executive directors. The participation of 3 independent directors ensures objectiveness while considering various
matters, and independent judgment of these directors contributes to the effectiveness of the Board of Directors.
Participation of 5 executive directors in the Board of Directors ensures deep integration between the Board of
Directors and executive bodies.
The Board of Directors of TATNEFT is composed of 15 directors.
INDEPENDENT DIRECTORS
NONEXECUTIVE DIRECTORS
EXECUTIVE DIRECTORS
3
7
5
Laslo Gereche
Yu. L. Levin
René Frederic Steiner
R. N. Minnikhanov
R. R. Gayzatullin
R. Kh. Muslimov
R. K. Sabirov
V. Yu. Sorokin
Sh. F. Takhautdinov
А. К. Khamayev
N. U. Maganov
N. G. Ibragimov
R. Kh. Khalimov
R. S. Khisamov
R. S. Nurmukhametov
Participation in the Board of Directors of three independent and seven nonexecutive directors
ensures balance between interests of different groups of shareholders. It contributes to
objectiveness of the decisions, raises confidence in the Company of investors, shareholders, and
other stakeholders.
The Board of Directors makes an assessment of compliance with independence criteria for independent members
of the Board of Directors. Results of a said assessment showed a breach of one criterion of independence by Yu. L.
Levin, member of the Board of Directors. The breach resulted from financial operations representing the short-term
placement of the Company’s funds in PJSC Ak Bars Bank, where Yu. L. Levin is also member of the Board of Directors
(interest in a significant counterparty). Having considered all aspects, the Board of Directors expressed the opinion
that interest of Yu. L. Levin in a significant counterparty (PJSC Ak Bars Bank) is of formal nature; at the same time, Yu.
L. Levin has excellent professional competence and background as well as personal responsibility, all that ensures
objective character of his decisions, free from influence of other persons and fully compliant with the interests of
TATNEFT and its shareholders. Having regard to that the Board of Directors passed unanimous resolution to approve
Yu. L. Levin as independent director in the Board of Directors of TATNEFT for the current corporate year (Resolution
of the Board of Directors of June 23, 2012).
The Company has established practice of evaluating
performance of the Board of Directors as a whole,
members of the Board of Directors and Committees
of
is
the Board of Directors. The evaluation
conducted on a regular basis at least once a year in
the form of a formalized self-assessment procedure.
Evaluation method is a survey of members of the
Board of Directors regarding activities during their
term of office as members of the Board of Directors
of TATNEFT since their election in the corporate
reporting year. The evaluation includes 50 criteria
for 5 key components: competence and authority
of the Board of Directors; composition of the Board
of Directors; committees of the Board of Directors;
procedures of the Board of Directors; annual General
Shareholders’ Meeting.
In 2018, the self-assessment of the work of the
Board of Directors was carried out for the corporate
reporting year from June 2017 to May 2018.
The results of the self-assessment and its analysis
were considered at the internal meeting of the Board
of Directors (Minutes No. 12 as of April 24, 2018).
Based on the results of the self-assessment of the
Board of Directors, the performance of the Board of
Directors in the corporate reporting year was approved.
Overall, it was noted that the Company’s corporate
governance system conforms to the basic principles
of the Code. Regarding some non-binding principles,
the Company also adheres to established practice in
accordance with the interests of the Company and its
shareholders. The Company follows several principles
of the Code according to historically established
practice but without formalizing these principles. Draft
amendments to the internal documents of the Company
to give them formal shape are now in being elaborated
by the Office of the Corporate Secretary in cooperation
with the Corporate Governance Committee. It was
also noted that the Company complies with additional
provisions of international best practices for corporate
governance.
At the same time, during the self-assessment by
members of the Board of Directors, an opinion was
expressed to further improve the procedures of the
Board of Directors and corporate practices. The
summarized comments regarding the activities of the
Board of Directors were submitted to the Corporate
Governance Committee and the HR and Remuneration
Committee.
KEY COMPONENTS OF THE SELF-
ASSESSMENT PROCEDURE OF THE BOARD
OF DIRECTORS
16%
10%
26%
50EVALUATION
16+
CRITERIA
32%
16%
Committees of the Board of
Composition of the Board of
Directors
Annual shareholders'
meeting
Procedures of the Board of
Directors
Directors
Total number of criteria
Competencies and powers
of the Board of Directors
Assessment of the quality of work of the Board of
Directors is aimed at identifying the level of effectiveness
of the Board of Directors, committees and members of the
Board of Directors, ensuring compliance of its functioning
to the requirements of social development, improving
work of the Board of Directors, and identifying areas in
which it can be improved.
THE PREVENTION OF POSSIBLE
CONFLICTS OF INTEREST
Company pays extra attention to preventing or
interest among
minimizing possible conflicts of
the members of the Board of Directors. In order to
prevent potential conflicts of interest, the Company
has established certain safeguards and requirements
for members of the Board of Directors. Thus, in
accordance with the Regulations on the Board of
Directors of TATNEFT, a member of the Board of
Directors should refrain from actions that will or may
lead to a conflict of interest. In the reporting year, there
were no conflicts of interest on the part of members of
the Board of Directors.
74
75
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY10
+
32
+
16
+
26
+
a
ISSUES AND DECISIONS CONSIDERED AND TAKEN BY THE BOARD OF DIRECTORS
During 2017, the Board of Directors was considering issues related to the implementing and updating strategy and
business planning, increasing production efficiency, asset management, corporate governance, internal audit,
and disclosure of information.
Key decisions and issues of the Board of Directors considered in 2017.
CORPORATE GOVERNANCE
Decisions made in preparation for the annual General Shareholders’ Meeting on the results of 2016 and the
extraordinary General Shareholders’ Meeting of December 12, 2017.
Decisions made on the composition of the Committees of the Board of Directors for the 2017 corporate year.
The candidacy for the position of Corporate Secretary of TATNEFT was approved.
New versions of the Corporate Governance Code of the Company, Regulations on Information Policy, and Regulations
on Providing Information to Shareholders were approved.
The report on compliance with the principles of the Corporate Governance Code was considered.
The results of self-assessment of the work of the Board of Directors of TATNEFT were considered.
The work of the internal audit department was considered.
The principal areas of work of the Audit Committee of the Board of Directors of TATNEFT were considered.
Activities of subsidiaries and affiliated companies were considered.
STRATEGY, OPERATONS, FINANCE
The montioring report regarding performance of the key objectives of the Strategy of the TATNEFT Group 2025 was considered.
Issues regarding sale of oil and oil and gas products under unstable prices in world markets were considered.
The results of exploration operation in the licensed fields of the Company, oil production plans and geological and technical
measures for 2018, the Company’s Work Program for 2017 for the Domanik and Bitum testing sites, and matters regarding
implementation of the project for development of the SVO fields were considered.
The Company’s IT strategy and the strategy of the energy complex of the TATNEFT Group were considered.
Issues of the Company’s oil refining and petrochemical unit operations were considered.
Implementation of the investment program for the TATNEFT Group was considered.
The financial and economic performance of TATNEFT for 2016 and the IFRS consolidated financial statements
of the Company for 2016 were considered.
The issues of the distribution of profits and loss of the Company based on the 2016 performance, on the amount of dividends
for 2016 and the procedure for their payment, and the determination of dividends for the first 9 months of 2017 were
considered.
Decision making on transactions in which there is an interest.
Decision making on property assets.
The results of the small business support corporate program were considered.
Issues of the development of the Higher Oil School of the Almetyevsk State Petroleum Institute were considered.
Present
Absent
76
NUMBER OF MEETINGS HELD
13
4
STRUCTURE OF SIGNIFICANT ISSUES CONSID-
ERED BY THE BOARD OF DIRECTORS IN 2017
NUMBER OF ISSUES CONSIDERED
74 8
In-person meetings
Absentee meetings
In 2017, there were 17 meetings of the Board of
Directors, including 13 in-person and 4 absentee
meetings. A total of 82 issues were considered; the
overwhelming number of them at in-person meetings.
Issues considered at in-person meetings related
to corporate governance, the Company’s strategy,
approval of interested-party transactions, decision
making in preparation for the annual and extraordinary
General Shareholders’ Meeting of the Company, and
production issues.
The Company has mechanisms in place to provide the
members of the Board of Directors with information,
the scope and timing allow to make informed and
objective decisions on the agenda issues
17%
NUMBER
OF ISSUES
CONSIDERED
a26%
26+
82
24%
Corporate
6%
Strategy
Related-party transactions
governance
Finance
Operations
Number of issues considered
27%
PARTICIPATION OF THE MEMBERS OF THE BOARD OF DIRECTORS IN THE MEETINGS OF THE BOARD OF DIRECTORS
JAN
26
FEB
22
FEB 27
absentee
voting
MAR
20
APR
27
MAY 17
absentee
voting
MAY 26
absentee
voting
MAY
27
JUN
23
JUN
23
JUL
21
AUG
24
SEP
28
OCT
26
OCT 6
absentee
voting
NOV
30
DEC
22
MEMBERS
OF THE BOARD
OF DIRECTORS
R. N. Minnikhanov
N. U. Maganov
N. G. Ibragimov
Yu. L. Levin
R. R. Gayzatullin
Laslo Gereche
R. Kh. Muslimov
R. K. Sabirov
V. Yu. Sorokin
R. S. Nurmukhametov
Sh. F. Takhautdinov
А. К. Khamayev
R. S. Khisamov
R. Kh. Khalimov
R. F. Shtainer
TOTAL
15/17
14/17
12/17
15/17
15/17
17/17
16/17
16/17
15/17
15/17
13/17
15/17
17/17
17/17
16/17
77
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
6
+
24
+
27
+
17
+
COMMITTEES OF THE BOARD OF DIRECTORS
CORPORATE GOVERNANCE COMMITTEE
In order to increase the effectiveness of decisions taken by the Board of Directors, the Company
established three committees of the Board of Directors that carry out preliminarily review of the most
important issues on the agenda of the meeting of the Board of Directors and prepare appropriate
recommendations within their competence:
• Corporate Governance Committee
• Audit Committee
• HR and Remuneration Committee
The activities of the committees are regulated by the relevant provisions approved by the Board of
Directors of TATNEFT:
• Regulations on the Corporate Governance Committee of the Board of Directors of TATNEFT
• Regulations on the Audit Committee of the Board of Directors of TATNEFT
• Regulations on the HR and Remuneration Committee of the Board of Directors of TATNEFT
Committees are fully accountable to the Board of Directors. The composition of the committees is approved
by the Board of Directors of TATNEFT, with consideration given to the relevant knowledge, qualifications, and
background of each candidate.
The Audit Committee and the HR and Remuneration Committee comprise significant number of independent
directors.
The Audit Committee consists of three independent directors. The Chairman of the Committee Yu. L. Levin
(who is deemed to be independent by special resolution of the Board of Directors) has necessary expertise
in the preparation, analysis, evaluation, and audit of accounting (financial) statements. The members of the
Committee have the necessary knowledge and competence to carry out preliminary consideration of issues
relating to control over the financial and economic operations of the Company. The Board of Directors decided
to increase the number of members of the Committee, by including additional nonexecutive director who
also has expertise in preparation, analysis, evaluation, and audit of accounting (financial) statements (R. R.
Gayzatullin).
The HR and Remuneration Committee of the Board of Directors of TATNEFT includes three independent
directors. The Chairman of the Committee is the independent director René Steiner. Due to the fact that the
Committee also carries out responsibilities of the Remuneration and Nominations Committee (appointments,
personnel), The Board of Directors decided to increase the number of members of the Committee by including
an additional nonexecutive director (R. K. Sabirov). All members of the Committee have the expertise and
background relevant to the tasks of the Committee.
The Corporate Governance Committee is headed by the General Director of TATNEFT (N. U. Maganov). The
members of the Committee have relevant expertise in the field of corporate law and disclosure of information,
the requirements of stock market regulators to issuers, advanced standards of corporate governance and
sustainable development, and qualifications, competencies, and practical experience of corporate practices.
The composition of the committees ensures objective, balanced recommendations within the areas of
competence of the committees. All members of the committees have sufficient expertise and background,
including practical work. Employees of the Company and third parties may attend the meetings of the
committees at the invitation of the Chairman of the committee. However, they do not have voting powers on
the agenda issues.
The Committee is a permanent committee under the Board of Directors since 2004.
The main purpose of the Committee is preliminary consideration and preparation of recommendations to the Board
of Directors regarding development and improvement of the corporate governance system in the Company. The
activities of the Committee conform to the legislation of the Russian Federation, the Charter of the Company, the
Regulations on the Board of Directors, resolutions of the Board of Directors of the Company, this Regulation, other
internal documents of the Company, and the decisions of the Committee.
COMMITTEE MEMBERSHIP
Chairman
Nail Ulfatovich Maganov, member of the Board of Directors, Chairman of the Management Board, General
Director of TATNEFT
Committee members:
R. K. Sabirov, member of the Board of Directors, nonexecutive director, assistant to the president of the
Republic of Tatarstan
N. Z. Syubayev, Deputy General Director for Strategic Development of TATNEFT, Ye. E. A. Tikhturov, Head of the
Finance Department of TATNEFT
N. Ye. Dorpeko, Corporate consultant to the General Director of TATNEFT
V. A. Mozgovoy, assistant to the General Director for Corporate Finance of TATNEFT
V. D. Yershov, Head of the Legal Department of TATNEFT
R. M. Khisamov, corporate secretary of TATNEFT until October 22, 2017
During the corporate year, there were changes in the composition of the corporate governance Committee; as of
October 22, 2017, the powers of a member of the Committee R. M. Khisamov were terminated by his death.
PRINCIPAL FUNCTIONS
The Committee initiates and organizationally ensures the improvement of corporate governance procedures,
the adoption of new and updating of existing corporate documents in accordance with changes in the current
legislation and in general corporate standards.
• Assisting the Board of Directors and the General Director in assessing the quality of corporate relations and the
development of corporate governance in the Company
• Developing recommendations on draft internal documents aimed at improving corporate governance in the
Company
ACTIVITIES OF THE CORPORATE GOVERNANCE COMMITTEE IN THE REPORTING YEAR
In 2017, there were 2 meetings of the Committee (one every six months) under the chairmanship of the General
Director of the Company N. U. Maganov, with the participation of all members of the Committee.
Principal issues considered:
New versions of internal documents of the Company were preliminarily considered: Charter, Regulations on the General
Shareholders’ Meeting, Regulations on the Board of Directors, Regulations on the General Director, Regulations on the
Management Board, Dividend Policy, and a new document—Regulation on Disclosure of Information to Shareholders.
The members of the Committee contribute on a regular basis to the development of corporate practices in the Company,
interact with shareholders, members of the Board of Directors, Committees, and management on issues of corporate law
and administration, and maintain a direct dialog with stock market regulators.
78
79
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY AUDIT COMMITTEE OF THE BOARD
OF DIRECTORS
The Committee is a permanent committee of the Board of Directors of TATNEFT since 2004.
ACTIVITIES OF THE COMMITTEE IN THE REPORTING YEAR
The principal task of the Committee is to assist the Board of Directors to conduct analysis and evaluation of the financial
statements of TATNEFT, to monitor accuracy and completeness of TATNEFT IFRS and RAS accounting statements, to
ensure the independent audit of financial statements, to control the internal audit system, and to ensure compliance
of the Company with the requirements of legislation, regulations, regulatory standards, and requirements in the
preparation of financial statements, audit, and accounting.
The activities of the Committee conform to the legislation of the Russian Federation, the requirements of exchanges
applicable to the Company as an issuer of securities (including outside the Russian Federation), the Company’s Charter,
the Regulations on the Board of Directors, decisions of the Board of Directors, the Regulations on the Committee, and
other internal documents of the Company approved by the General Shareholders’ Meeting of the Company and the
Board of Directors as well as by decisions of the Committee. The Committee acts in the interests of the Company’s
shareholders.
MEMBERS OF THE COMMITTEE
Chairman:
Yuriy Lvovich Levin, member of the Board of Directors, independent director. Managing Partner of BVM Capital
Partners Ltd. Member of the HR and Remuneration Committee of the Board of Directors of TATNEFT
Committee members:
Radik Raufovich Gayzatullin, member of the Board of Directors, Minister of Finance of the Republic of Tatarstan
Laslo Gereche, member of the Board of Directors, independent director. Managing Director of G Petroconsulting
Ltd, member of the HR and Remuneration Committee of the Board of Directors of TATNEFT
René Frederic Steiner, member of the Board of Directors, independent director. The Head of programs on direct
private investments of FIDES Business Partner AG. Chairman of the HR and Remuneration Committee of the Board
of Directors of TATNEFT
There were no changes in the membership of the Audit Committee during the corporate year.
PRINCIPAL FUNCTIONS
• Control over the completeness, accuracy, and reliability of the accounting (financial) statements of TATNEFT,
including the preparation of the consolidated financial statements of the TATNEFT Group with the integration of the
financial statements of Zenit Banking Group
• Coordination of activities of external auditors and the internal audit department and regular review of their reports
• Setting up independent assessment of the internal audit function and submission of proposals on improvement of
the work of the internal audit division
• Verification of the independence of the external auditor
• Revision and analysis of quarterly, semiannual, and annual financial statements of TATNEFT, including the results of
its inspections by the external auditor
• Assessment of candidate auditors and supplying to the Board of Directors recommendations regarding selection of
independent auditors for IFRS and RAS financial statements of TATNEFT review
• Assistance to the Board of Directors in monitoring the functioning of internal control and risk management systems
in TATNEFT
• Preliminary consideration of interested-party transactions, and transactions with parties related to TATNEFT that are
submitted for approval to the Board of Directors of TATNEFT
80
In 2017, there were 7 in-person meetings of the Audit
Committee.
STRUCTURE OF THE SIGNIFICANT ISSUES CON-
SIDERED BY THE AUDIT COMMITTEE IN 2017
41 issues were considered.
Principal issues considered
Issues pertaining to review of consolidated financial
statements with participation of external auditors:
12 issues
Issues pertaining to selection of external auditors
and confirmation of independence of external
auditors: 5 issues
Issues pertaining to activities of the Internal Audit
Division (IAD): 12 issues
Issues pertaining to preliminary consideration of
interested-party transactions and transactions
with parties related to TATNEFT that are submitted
for approval to the Board of Directors of TATNEFT:
4 issues
10%
20%
41ITEMS DISCUSSED
a 29%
35+
29%
12%
IFRS
IAD
External auditors
Other issues: 8 issues
Transactions
Other
Audit committee consisting of independent directors was established in the Company to
carry out preliminary consideration of issues pertaining to control of financial and economic
activities of the Company.
The committee promotes efficient exercise of functions of the Board of Directors pertaining
to control of financial and economic activities of the Company.
Participation of independent members of the Board of Directors in meetings of the Audit Committee
Independent directors
Jan 25
Mar 10
Apr 27
Jun 23
Jul 20
Sep 26
Nov 29
Total
Yu. L. Levin
Laslo Gereche
R. F. Shtainer
7
7
7
81
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY13
+
27
+
7
+
18
+
HR AND REMUNERATION COMMITTEE
The HR and Remuneration Committee is a permanent committee established in 2004 to provide assistance
to the Board of Directors in creating favorable conditions to attract highly qualified experts to the Company
management and establishing appropriate incentives to ensure their effectiveness.
The Committee is a body of the Board of Directors for preliminary consideration of issues that fall under the
Charter of the Company and Regulations on the Board of Directors under responsibility of the Board of Directors
in the area of HR policy and remuneration.
The Committee also provides assistance to the Board of Directors of TATNEFT in improving and strengthening
HR policy of the Company and providing staff and management with appropriate incentives mechanisms.
MEMBERS OF THE COMMITTEE
Chairman:
René Steiner, member of the Board of Directors, independent director. Head of direct private investment
programs at FIDES Business Partner AG, member of the Audit Committee of the Board of Directors of TATNEFT
Committee members:
Laslo Gereche, member of the Board of Directors, independent director. Managing director at G
Petroconsulting Ltd, member of the Audit Committee of the Board of Directors of TATNEFT
Yuriy Lvovich Levin, member of the Board of Directors, independent director. Managing partner at BVM
Capital Partners Ltd, chairman of the Audit Committee of the Board of Directors of TATNEFT
Rinat Kasimovich Sabirov, member of the Board of Directors. Assistant to the president of the Republic of
Tatarstan, member of the Committee for Corporate Governance of the Board of Directors of TATNEFT
There were no changes in the membership of the HR and Remuneration Committee during the corporate year.
PRINCIPAL FUNCTIONS IN TERMS OF REMUNERATION
• To develop and periodically review the Company policy on remuneration for members of the Board of
Directors , executive bodies of the Company, and other key managers, including establishing criteria for the
short-term and long-term incentives program for members of the executive bodies
• To control the implementation and functioning of the Company remuneration policy and incentives programs
• To carry out preliminary assessment of performance of executive bodies of the Company and other key
managers as of at the end of the year and assessment whether the executive bodies achieved the goals set
out in the the incentives program
• To establish criteria for early termination of employment agreements with members of executive bodies of
the Company and other key managers, including all financial obligations of the Company and conditions of
their provision
• To develop recommendations to the Board of Directors regarding setting the amount of remuneration and
criteria for awarding bonus to the Company’s corporate secretary, to carry out preliminary assessment of
the work of the corporate secretary as of the end of the year, and proposals on awarding bonus to him
• To prepare report on implementation of the policy on remuneration for members of the Board of Directors,
members of executive bodies of the Company, and other key managers to be included in the annual report
and other documents of the Company
• To supervise disclosure of information about policies and practices of remuneration and ownership of shares
of the Company by the members of the Board of Directors, members of executive bodies, and other key
managers in the annual report and on the corporate website.
PRINCIPAL FUNCTIONS IN TERMS OF HR (NOMINATIONS)
• To assess composition of the Board of Directors in terms of professional specialization, experience in
independence of its members, their participation in the work
• To determine priority areas for strengthening of the Board of Directors
• To interact with all groups of shareholders during selection of candidates for the Board of Directors and as
regards the election of candidates to the Board of Directors with a view to the fullest possible coverage of
goals of the Company
• To analyse professional qualifications and independence of candidates nominated to the Board of Directors
of the Company
• To develop and notify to the shareholders the recommendations regarding voting on candidates for the
Board of Directors of the Company
• To develop an introductory course for familiarization of newly elected members of the Board of Directors
and its chairman with information on the key assets of the Company, its strategy, business practices, and
organizational structure (including presentation to key managers), and on responsibilities and procedures of
the chairman and members of the Board of Directors
• To arrange annual self-assessment and/or external assessment (at least once every 3 years) of the Board of
Directors, its members, and its committees in terms of the effectiveness of their work in general and in terms
of the individual contribution of each director of the Board of Directors and its committees, to determine
priority areas for strengthening of the Board of Directors
• To participate in the development and approval of a program of training and advanced skill development
for the members of the Board of Directors, taking consideration of areas of responsibility and expertise of
individual members, and to supervise implementation of this program
• To assess professional qualifications and to plan nominations of the members of executive bodies of the
Company and other key managers with a view to ensure development of the Company and safeguarding
continuity among these persons
• To develop recommendations for the Board of Directors regarding candidates for the post of corporate
secretary of the Company
• To develop recommendations for the Board of Directors regarding candidate members of executive bodies
of the Company and other key managers
• To prepare report on the performance of the Committee to be included in the annual report and other
documents of the Company
ACTIVITIES OF HR AND REMUNERATION COMMITTEE IN THE REPORTING YEAR
In 2017, there were 4 meetings of the HR and Remuneration Committee. Principal issues considered:
• Effective tools of the Company staff incentive system
• Staff reserve formation in the Company
• Qualification assessment center of PJSC TATNEFT: first results and development prospects
• Company staff remuneration at year-end of 2017
82
83
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY CORPORATE SECRETARY
Rustam Minnegaziyevich
KHISAMOV
Corporate secretary, Head of the TATNEFT Corporate Secretary’s Office until
October 22, 2017
Born in 1959.
Graduated from Kazan Financial Economic Institute. From 1876 to present day, has been working
at TATNEFT.
As of 1995, Deputy Head of the Securities Department of PJSC TATNEFT.
As of 1998, Head of the Securities Department of TATNEFT.
As of December 12, 2015, Deputy Corporate Secretary – Head of the Corporate Secretary’s
Office.
December 26, 2016–October 22, 2017, Corporate Secretary – Head of the Corporate Secretary’s
Office of TATNEFT
CORPORATE SECRETARY
Since November 6, 2017, Damir Maratovich Gamirov,
Deputy Head of the Corporate Secretary’s Office of
TATNEFT, has been acting corporate secretary.
The corporate secretary enjoys
appropriate level of independence
from the executive bodies of the
Company and has necessary authority
and resources to perform his tasks.
The corporate secretary acts in accordance with the
Charter of the Company and the Regulation on the
Corporate Secretary.
The goals of the corporate secretary are as follows:
• To ensure compliance with the requirements of
corporate legislation, the Charter, and internal
documents of
that guarantee
the Company
implementation and protection of the rights and
interests of shareholders.
• To ensure efficient corporate governance system
interaction of all participants of
and proper
corporate relations,
including subsidiaries and
affiliates, to improve the investment appeal of the
Company and the growth of its capitalization.
• To develop and improve corporate governance in
the best interest of its shareholders
Principal functions of the corporate secretary:
• To provide for efficient realisation by the Company, its
subsidiaries and affiliates of corporate procedures
relating to implementation of rights of shareholders
and other participants of corporate relations of the
Company.
• To provide for the preparation and holding of General
Shareholders' Meetings and meetings of the Board
of Directors, including compilation of materials for
meetings of the Board of Directors in accordance with
internal documents of the Company.
• To provide for functioning of the committees of the
Board of Directors of the Company and coordinating
their activities.
• To provide for interaction between the Company
and exchanges, the registrar, depositories, state
authorities supervising corporate relations and
securities market and with other professional
participants of the securities market within the scope
of authority vested in corporate secretary.
• To ensure compliance with the requirements for
disclosure of information, provision of documents
and information upon shareholders’ requests, control
of the effectiveness of corporate mechanisms for
disclosure of information, and proper storage of
corporate documents of the Company.
• To compile a list of information classified as insider
information, work with insiders, control of insiders’
transactions with securities of the Company.
• To ensure interaction between the Company and its
shareholders and participate in preventing corporate
conflicts.
• To monitor compliance of the Company with the
requirements of corporate
legislation, terms of
internal documents of the Company, and the rights of
shareholders in terms of necessary measures within
the scope of authority of the corporate secretary
to eliminate such violations and minimize
the
consequences of such violations.
Corporate Secretariat
Scope of authority of the corporate secretary’s
office
includes maintaining effective system of
interaction of all participants of corporate relations,
including subsidiaries and affiliates; monitoring
how the Company, subsidiaries, and affiliates follow
corporate procedures relating to implementation of
the rights of shareholders and other participants of
corporate relations; arranging interaction between
the Company and the special registrar, depositories,
and state authorities authorized to regulate corporate
relations and securities market, as well as with other
participants of the securities market.
The corporate secretary’s office secures
the
organization of and monitors compliance with
legislation of public disclosure of
applicable
including during preparation and
information,
in the annual report,
information
disclosure of
quarterly reports of an
facts,
issuer, material
and documents and information associated with
the issuance and circulation of securities on the
organized stock market, provision of documents and
information upon shareholders’ requests, and proper
storage of corporate documents of the Company.
improve effectiveness of corporate
With aim to
the corporate secretary’s office
procedures,
monitors the effectiveness of current procedures of
the Company and is to prepare annual report to the
Board of Directors, regarding the state of corporate
governance in the Company and its prospects for
its development. Report on corporate governance
must be compliant with the Rules of Exchange Trade
and requirements for disclosure of
information
on corporate governance in the Company to all
interested persons.
84
85
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY GENERAL DIRECTOR AND THE MANAGEMENT
BOARD
Responsibilities of executive bodies of the Company - that is, the General Director and
the Management Board, - include efficient realisation of the Strategy, achieving of
the business goal and all matters of day to day operations; except for the matters that
fall into scope of responsibility of the General Shareholders’ Meeting and the Board of
Directors.
GENERAL DIRECTOR
The General Director is appointed by the Board of Directors.
Starting November 2013 and up to present day, Nail Ulfatovich Maganov is the General Director of TATNEFT.
The General Director also is the Chairman of the Management Board of TATNEFT.
Scope of powers of the General Director is set out in the Charter of the Company and Resolutions on the General
Director of TATNEFT.
The General Director is in charge of current operations in accordance with the corporate development strategy of the
Company, defines organizational structure, supervises the rational use of resources, resolves organizational issues
relating to the business process management and social protection for the employees, including:
• Implementation of resolutions taken at the General Shareholders’ Meeting
• Presentation to the Board of Directors of candidates to the Management Board
• Allocation of duties among the Board members
• Management of the Board as chairman at Board meetings
• Approval of internal documents of the Company, unless the approval of such internal documents fall within the
scope of responsibilities of the General Shareholders’ Meeting, the Board of Directors, and the Management
Board according to the Company Charter
• Approval of job descriptions
• Hiring and dismissal of staff, including his own deputies
• Defining the organizational structure of the Company, approving of the organizational chart of the Company,
branches, and representative offices, approval of job descriptions and wages
• Presentation to the Board of Directors of candidates to the post of First Deputy General Director
• Executing employment contracts with employees of the Company
• Managing development, execution, and performance of the Collective Agreement
• Managing and providing for favorable and safe working conditions for Company employees
• Managing accounting and reporting, including approving policies for accounting and taxation
• Managing compliance with legal requirements of the activities of the Company within the limits of his powers
• Solving other issues pertaining to current operations of the Company
MANAGEMENT BOARD
The Management Board is a collegiate executive body responsible for daily management of TATNEFT, as well as
developing and implementing the general development strategy for subsidiaries of the Company. The Chairman
of the Management Board is the General Director of TATNEFT. The activities of the Management Board conform to
current legislation, the Charter of TATNEFT, and the Resolution on the Management Board of TATNEFT.
The composition of the Management Board is determined by the Board of Directors of TATNEFT.
In 2017, the Management Board of the Company consisted of 11 people.
DURATION OF WORK IN THE MANAGEMENT BOARD
DURATION OF WORK IN THE MAN-
AGEMENT BOARD AS OF DECEMBER
31, 2017
8 members of
the Management
Board
3 members of
the Management
Board
11 members of the
Management Board
all members
of the
Management
Board
over
7 years
1–7 years
Full name
Maganov
Nail Ulfatovich
Bakhitov
Anvar Vasikhovich
Voskoboynikov
Vladlen Aleksandrovich
Gorodniy
Viktor Isakovich
Glazkov
Nikolay Mikhaylovich
Yershov
Valeriy Dmitriyevich
Ibragimov
Nail Gabdulbariyevich
Nurmukhametov
Rafail Saitovich
Mukhamadeyev
Rustam Nabiullovich
Tikhturov
Yevgeniy Aleksandrovich
Subayev
Nurislam Zinatulovich
Year of
election
Number of
years
1999
2014
2005
1999
2012
2001
1999
1999
2002
1999
2014
19
4
13
19
6
17
19
19
16
19
4
Powers of the following members of the Management
Board of TATNEFT are terminated starting February 26,
2018: V. I. Gorodniy and A. F. Vakhitov.
86
87
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY MEMBERS OF THE MANAGEMENT BOARD OF
TATNEFT
Nail Ulfatovich
MAGANOV
General Director (CEO) of TATNEFT
Member of the Board of Directors of TATNEFT
Chairman of the Executive Board of TATNEFT
Born in 1958.
In 1983, he graduated from Gubkin Russian State University of Oil and Gas.
From July 2000 to November 2013, First Deputy General Director – Head of the Division for Sales
of Oil and Oil Products at OJSC TATNEFT.
November 2013, appointed to the position of General Director of TATNEFT.
Nail Gabdulbariyevich
IBRAGIMOV
First Deputy General Director of Production – Chief Engineer of TATNEFT
Member of the Board of Directors of TATNEFT
Born in 1955.
In 1977, he graduated from Gubkin Russian State University of Oil and Gas.
From 2000 to the present day, First Deputy General Director of Production – Chief Engineer of
TATNEFT.
% share in the authorized capital of the company: 0.000176
% share in ordinary shares of the company owned by the person: none
% share in the authorized capital of the company: 0.019831
% share of ordinary shares of the company owned by the person: 0.020873
GENERAL DIRECTOR
Sole executive body.
The General Director is appointed by the Board of Directors.
The General Director also is the Chairman of the Management Board of TATNEFT.
PRINCIPAL RESPONSIBILITIES OF THE GENERAL DIRECTOR
• Representing the Company and its interests
• Executing financial documents of the Company
• Making deals on behalf of the Company
• Managing property of the Company to support current operations (within the limits defined in the Charter)
• Approving organizational structure, organizational chart, executing employment contracts with employees of the
Company
• Approving internal documents that regulate matters relating to day to day operations of the Company
• Presenting to the Board of Directors candidates to the Management Board. Managing the Management Board as
chairman of the Management Board
• Solving other issues pertaining to current operations of the Company
Nurislam Zinatulovich
SYUBAYEV
Deputy General Director of Strategic Development of TATNEFT
Member of the Corporate Governance Committee of the Board of Directors of TATNEFT
Born in 1960.
In 1982, he graduated from Plekhanov Russian University of Economics.
From 2002 to the present day, Deputy General Director of Strategic Development of TATNEFT.
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
88
89
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY Nikolay Mikhaylovich
GLAZKOV
Deputy General Director for Capital Construction of TATNEFT
Born in 1960.
In 1988, he graduated from Kazan Engineering and Construction Institute.
From 2008 to 2010, Head of the Division for Capital Construction of OJSC TATNEFT.
From 2010 to present day, Deputy General Director of Capital Construction of TATNEFT.
Viktor Isakovich
GORODNIY
Deputy General Director of TATNEFT
Born in 1952.
In 1978, he graduated from Gubkin Russian State University of Oil and Gas.
From 1995 to present day, Deputy General Director of TATNEFT.
Member of the Management Board until February 26, 2018.
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
% share in the authorized capital of the company: 0.000254
% share of the ordinary shares of the company owned by the person: none
Rustam Nabiullovich
MUKHAMADEYEV
Deputy General Director of General Issues of TATNEFT
Born in 1952.
In 1977, he graduated from Gubkin Russian State University of Oil and Gas.
From 2001 to December 4, 2017, Deputy General Director of TATNEFT for HR and Social
Development.
From December 4, 2017 to present day, Deputy General Director of General Issues of TATNEFT.
Yevgeniy Aleksandrovich
TIKHTUROV
Head of the Financial Division of TATNEFT
Member of the Corporate Governance Committee of the Board of Directors of TATNEFT
Born in 1960.
In 1982, he graduated from the Ordzhonikidze Moscow Management Institute.
From 1995 to present day, Head of the Financial Division of TATNEFT.
% share in the authorized capital of the company: 0.004204
% share of ordinary shares of the company owned by the person: 0.004264
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
90
91
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY Valeriy Dmitriyevich
YERSHOV
Head of the Legal Division of TATNEFT
Member of the Corporate Governance Committee of the Board of Directors of TATNEFT
Born in 1949.
In 1978, he graduated from Ulyanov-Lenin Kazan State University.
From 2002 to present day, Head of the Legal Division of TATNEFT.
Vladlen Aleksandrovich
VOSKOBOYNIKOV
Head of the Division for Consolidated Financial Statements of TATNEFT
Born in 1965.
In 1993, he graduated from Calgary Southern Alberta Institute of Technology.
From 2005 to present day, Head of the Division for Consolidated Financial Statements of TATNEFT.
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
Rafail Saitovich
NURMUKHAMETOV
Head of Oil and Gas Production Department of Leninogorskneft of TATNEFT
Born in 1949.
In 1974, he graduated from Ufa Oil Institute.
From 1989 to present day, Head of the Leninogorskneft Oil and Gas Production Department of
TATNEFT.
Anvar Vasikhovich
VAKHITOV
Head of the Center for Development of the Oil and Gas Complex of TATNEFT Group
Born in 1951.
In 1980, he graduated from the Kazan Institute of Chemical Engineering.
From April 2014 to August 15, 2017, Director of LLC TATNEFT-Neftekhim Managing
Company.
Since September 1, 2017, Head of the Center for Development of the Oil and Gas
Complex of TATNEFT Group.
Member of the Management Board until February 26, 2018.
% share in the authorized capital of the company: 0.010465
% share of ordinary shares of the company owned by the person: 0.010107
% share in the authorized capital of the company: none
% share of the ordinary shares of the company owned by the person: none
92
93
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
ISSUES CONSIDERED AT MEETINGS OF THE MANAGEMENT BOARD IN 2017
• Analysis of HSE indices for 2016 and goals map for 2017.
• Expected results of implementation of strategic goals for TATNEFT Group in 2016.
• Performance of the exploration and production business in 2016 and forecast of economic and production
indices of the business for 2017, especially in view of decisions on temporary suspension of production.
• Overview of the oil and gas industry in 2016 and the main trends and challenges for TATNEFT Group in 2017.
• Business Service Center development program, performance in 2016, and plans for 2017.
• Issues regarding production equipment of drilling crews.
• Development program for KAMA Research and Development Center which is based on the approved «road map»
2025 for the Tire Business.
• Monitoring results of the implementation of the goals and measures of TATNEFT Group’s development strategy
2025: leaders and laggards.
• Results of implementation of the Energy block strategy (as of the end of 2016 and Q1 2017).
• Implementation of the road map for development and implementation of a unified technical strategy in TATNEFT
Group and results of the project for development of the innovative strategy of the Group.
• Fulfillment of TANECO construction plans and efficiency of current refinery capacity utilisation. Goals and tasks
to the end of 2017.
• Results of developing and implementing the marketing strategy for sales of diesel fuel and jet fuel: Reaching end
consumers in the RF and abroad.
• Results of implementation of the project for «Building a Unified Treasury Platform for TATNEFT Group.»
• Top-level strategy for development of the Group’s bank assets and product line transformation.
• Strategies, results, and forecasts for operations under with view to existing restrictions of oil production.
• Modernization process of Investment planning: goals and tasks, management challenges, and the main areas for
improvement, road map, and expected results.
• Goals and key steps of the IT strategy road map for 2017–2018 in the medium and long run.
• Key drivers defining the external environment and TATNEFT Group indices in 2018.
• Audit of petrochemical and tire sector enterprises and JSC TANECO in terms of implementation and application
of ISO-14001 and ONSAS-18001 international standards.
• Acquisition of share in equity of TAPART Experimental Machine-Building Plant LLC.
• Equity participation of TATNEFT in TATNEFT-AZS-Siberia LLC.
• Strategy of PJSC Bank ZENIT for 3 next years.
• Project «Integrated Approach to Business Project Planning by Development Objects.»
• Project «Investment Planning Automation Based on 1С.»
• Managerial training programs for the following business areas: Exploration and production, oil and gas processing,
retail network, tire business, mechanical engineering, power sector, other subsidiaries and affiliates (except for
the energy block) controlled by CC CRB) of business plans for 2018 in view of achievement of the strategic goal
of doubling of the value of the Company.
• Preparation of production programs.
• Preparation of investment program.
• Preparation of forecasts of financial and economic activities and business plans for 2018.
• Initiatives under IT strategy for 2017–2021 by business areas.
• TATNEFT share in authorized capital of Idea-South-East Innovation and Production Technopark LLC.
• Cessation of membership in TATNEFT-Takaral LLC.
NUMBER OF MEETINGS HELD: 6
STRUCTURE OF ISSUES CONSIDERED IN 2017
RESPONSIBILITIES OF THE MANAGEMENT BOARD
The responsibilities of the Management Board
include:
• Participation in development of future and
current plans for the Company
• Implementation of financial and investment
programs of the Company within the limits
of the powers obtained from the Board of
Directors
42%
• Taking decisions regarding establishment
by the Company of other
legal entities,
participation and termination of participation
of the Company in other organizations
• Several powers associated with development
and
implementation of general strategy
regarding development of the Company’s
subsidiaries.
• Other powers in accordance with the Charter
of TATNEFT
19%
NUMBER OF QUES-
TIONS ANSWERED
19+
31
8%
31%
Corporate governance
Production
Budget
Strategy
Participation of Management Board members in meetings of the Management Board
Members of the Management
Board
Feb 21, 2017 May 29, 2017
Jul 3, 2017
Sep 12, 2017 Dec 11, 2017 Dec 18, 2017
N. U. Maganov
V. A. Voskoboynikov
V. I. Gorodniy
N. M. Glazkov
R. N. Mukhamadeyev
Ye. A. Tikhturov
N. Z. Syubayev
V. D. Yershov
N. G. Ibragimov
R. S. Nurmukhametov
A. V. Vakhitov
Present
Absent
94
95
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY31
+
8
+
42
+
a
REMUNERATION FOR MEMBERS OF MANAGEMENT BODIES
REMUNERATION FOR MEMBERS OF
MANAGEMENT BODIES
The Board of Directors defines the Company policy on remuneration and/or
reimbursement of expenses (compensation) for members of the Board of Directors,
executive bodies, and other key managers of the Company.
Remuneration of members of executive bodies and other key managers of the Company is defined so
that to ensure reasonable ratio between fixed and variable part of remuneration, the latter depending on
performance of the Company and individual contribution of the person.
Committee for remunerations consisting of independent directors and headed by an independent director
who is not the chairman of the Board of Directors was established to carry out preliminary assessment of
issues relating to developing efficient and transparent remuneration practices.
While developing the remuneration system and determining the specific remuneration amount for members
of management bodies of the Company, it is assumed that remuneration should be sufficient to attract,
motivate, and retain persons with expertise and qualifications required by the Company.
The remuneration system is based on the rules and recommendations contained in the Corporate Governance
Code in view of the Company’s current practice of calculating remuneration and compensation.
The Company seeks to establish remuneration for members of the Board of Directors depending on their
contribution to the development of the Company. An adequate level of remuneration promotes involvement of
highly qualified candidates and should ensure compensation for their time and efforts spent on preparation
of and participation in meetings of the Board of Directors.
The management remuneration system is being formed with a view to the strategic goals of the Company,
that has set the task to double the value of the Company by 2025.
The incentives for management policy of the Company is aimed at establishing a unified remuneration
system with the variable part tied to key performance indicators reflecting successful achievement of the
strategic goals of the Company.
96
Remuneration for members of the Board of Directors
Remuneration for members of the Board of Directors of TATNEFT is paid in accordance with the «Regulation
on Payment of Financial Remuneration to Members of the Board of Directors and the Revision Committee of
TATNEFT.» Remuneration for members of the Board of Directors consists of a fixed and a variable part. The fixed
part of the remuneration is set out in the Regulation and is subject to indexing along with changes in rates and
wages of TATNEFT employees.
The variable part of the remuneration for members of the Board of Directors depends on the following key
indicators:
• The ratio between the capitalization level of the Company at the year-end as compared to the previous year
• The ratio between dividend expenses and net profits (as compared to the previous year)
• The size of additional profitability as compared to baseline profitability
Amounts of remuneration for members of the Board of Directors are fixed by decision of the General
Shareholders’ Meeting and include, in particular:
• Remuneration for performing duties of a member of the Board of Directors
• Remuneration for performing functions of the Chairman of a committee of the Board of Directors
In 2017, the total amount of remuneration for members of the Board of Directors of the Company was RUB 167,240,111.13,
including remuneration for participation in activities of the Board of Directors, salaries, bonuses, and other types of
remuneration. Compensation for members of the Board of Directors of the Company was RUB 6,962,787.31.
Payments to members of the Board of Directors in 2017
Remuneration for participation in work of a management body
Salary
Bonuses
Commissions
Other types of remuneration
Compensation
RUB
121,801,186.00
16,178,367.65
29,044,554.91
0
216,002.57
6,962,787.31
Remuneration for members of the Management Board
Payments to members of the Management Board are made in accordance with the principal conditions of the
agreements regarding obligations of a member of the Management Board.
In 2017, the total amount of remuneration for members of the Management Board of the Company was RUB
170,252,627.44, including remuneration for participation in the work of the Management Board, salaries, bonuses, and
other types of remuneration. Compensation for members of the Management Board of the Company was RUB 786,635.
Payments to members of the Management Board in 2017
Remuneration for participation in work of a management body
Salary
Bonuses
Commissions
Other types of remuneration
Compensation
RUB
8,663,911.00
80,950,652.20
79,525,100.72
0
1,112,963.52
786,635.00
97
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY "HOT LINE"
The Company has established a special confidential channel, «the hotline», allowing an employee or a
third person to report various violations relating to Company and its activities, including corruption. Calls
are taken by an independent operator. In 2017, 790 calls of various nature were received and handled.
Appropriate measures were taken, including introduction of new corporate standards and regulations aimed
at reducing the risk of violations in production and economic activities and improving labor discipline and
the responsibility of employees. Additional measures were taken to prevent previously detected violations
in the future.
THE HOT LINE INFORMATION SYSTEM
HAS BEEN OPERATIONAL SINCE 2015,
PHONE 8 800 100 4112
Email TN@88001004112.ru
INTERNAL AUDIT
Internal audit procedures constitute an integral part of the corporate governance system and include
purposeful actions of the Board of Directors and management of the Company to improve the risk
management procedures and increase the probability of achievement of goals.
Internal audit is regulated by the Regulation on the Internal Audit Division of TATNEFT. The new edition of the
Regulation was approved by the Board of Directors of TATNEFT, decision No. 3 of January 29, 2016.
Internal audit is carried out within the framework of the annual plan approved by the Board of Directors.
Audit reviews the system of internal control of operational efficiency, compliance with legislation and
integrity of property. Audit is based on a risk-focused approach. The report stating the internal audit
results is sent to the management of the Company and the Audit Committee. The internal audit division
subsequently monitors activities and notifies the Company management and the Audit Committee of the
Board of Directors on actions taken to eliminate the drawbacks revealed.
In 2017, 9 audits were performed. In addition, upon instructions from the Company management, the internal
audit division of the Company took part in 12 unscheduled projects on various financial and economic
issues. The division also conducted monitoring of planned activities following the results of the audits in
2014–2017.
Results of assessment carried out by experts of CJSC Deloitte Touche CIS show that the division generally
complies with the International Professional Standards of Internal Audit and the Code of Ethics of the
Institute of Internal Auditors.
INTERNAL CONTROL
Internal control is aimed to assist the executive bodies in improving effectiveness of the Company management
and business operations. Corporate control is also responsible for providing methodological support to the
Company management regarding compliance with the tax and accounting legislation. This area of responsibility
contributes to ensuring compliance with applicable legislation and helps to mitigate tax and financial risks of the
Company.
INDEPENDENT AUDITOR
In order to obtain an independent assessment of accuracy and completeness of accounting (financial) statements,
the Company annually engages an external auditor to audit both its IFRS and RAS statements. Candidates to the
position of external auditor of the Company undergo preliminary review by the Audit Committee of the Board
of Directors of TATNEFT, following that and basing on that final recommendations are prepared to proceed to
approve the external auditors according to procedures set out in applicable legislation.
JSC PricewaterhouseCoopers Audit was nominated by decision of the General Shareholders’ Meeting to be the
auditor to review Company’s RAS accounting statements for 2017.
JSC PricewaterhouseCoopers Audit was nominated by decision of the General Shareholders’ Meeting to be the
auditor to review Company’s IFRS consolidated statements for 2017.
98
99
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY RISK MANAGEMENT
INTEGRATED CORPORATE RISK MANAGEMENT SYSTEM
TATNEFT Group Management
PONTENTIAL PRINCIPAL RISKS
Country and regional risks
Ensuring Business Process Efficiency
Business Process Quality Control
Management of Corporate Risks
Key Elements of Risk Management
The mechanism of qualitative assessment of all possible factors
that can significantly affect the production and financial operations
of the Group and have direct or indirect impact on the day-to-day
and strategic operations of the Company
The system of uniform corporate standards regulating basic
procedures of industrial, financial, and economic activities of
TATNEFT Company, its structural divisions, and entities of the
Group
Risk detection
Internal schedules
Risk elimination or mitigation
Risk elimination within the framework of schedules
Risk management monitoring
Monitoring compliance with corporate standards and detecting new risks in business processes and implementing new
projects, assessing personal responsibility of corporate officers
Risk management
Corporate governance
Production activities
The Company has an integrated risk management system based on analysis and assessment of possible factors that
can significantly affect production performance and financial and economic activities of TATNEFT and Group entities,
as well as directly or indirectly affect current operations and/or strategic plans of the Company.
Risk management policy of the Company is based on determining and preventing risks, that opens new opportunities
of adjusting business planning and investment activities. Analysis of potential risks includes consideration of both
external and internal factors. External factors include market, industry, social and economic, political, financial, and
other factors that can influence activities of the Company and its subsidiaries and affiliates. Intracorporate factors are
managerial, production-related, HR, social, environmental, and others.
Priority in risk management: development of systematic mechanisms for detection, assessment, and
prevention/minimization of risks associated with activities of the Company
The Company is incorporated and carries out most of its operations in the Russian Federation. Essential production
assets of the Company are located in and principal production operations are performed in the Republic of
Tatarstan, which is a constituent entity of the Russian Federation. The political situation in Russian Federation and in
particular in the Republic of Tatarstan is stable. Estimated risks of possible military conflict, the imposition of state
of emergency or a strike in the principal region of operations of the Company are low. However, the Company has
established procedures to be used in case of emergency to reduce the impact these circumstances on life, health,
and safety of the employees and residents of the regions of its principal operations, as well as on the production of
the Company. The geographical region of the principal operations of the Company has low risk of natural disasters
that could significantly affect normal operations. During planning and implementation of operations aimed at
production, treatment, transportation and storage of oil and gas or oil and gas products, as well as materials used
for production, the Company takes into consideration the geographical particularities of the region, including the
climate. In case of natural disasters such as floods, earthquakes, mudslides, or hurricane winds, the Company has
put in place procedures and policies aimed at prompt elimination of any negative consequences of these disasters
for the operations of the Company. The Company has monitoring procedures employing most current equipment
aimed at preventing negative consequences of natural disasters and warning of the population of the region where
the Company conducts its operations the probability of such consequences. The region of the principal activities
of the Company is not a remote one in terms of transport and other infrastructure.
Financial risks
The main financial risks of the Company’s activities pertain to currency exchange rate fluctuations, inflation, and
the situation on financial markets and the stability of the banking system.
Significant changes in foreign currency exchange rates led to an increase in liabilities of the Company denominated
in foreign currency as well as charges, incurred in servicing these liabilities. All that results in drop of profits and
reduced ability of the Company to service its debts. Significant devaluation of Russian ruble can also lead to situation
where the Issuer will face additional difficulties in performing its obligations. Significant changes in foreign currency
exchange rates can also adversely affect liquidity indicators of the Company. Changes in interest rates may affect
the Company in particular it's ability to attract money. In particular, in case of bank loans with floating interest rate,
any increase in interest rates on the international markets would result in increased interest payments, and that would
negatively affect the financial situation of the Company. Drop of interest rates on the Russian market may, all other
conditions being equal, reduce the efficiency of current borrowings of the Company at a fixed interest rate.
Currency risks
The Company is exposed to risks of adverse change in currency exchange rates, primarily to fluctuation of ruble to US
dollar rate. This is due to the fact that significant share of the Company income is denominated in USD, while most of its
expenses is in rubles. The currency structure of the Company’s debt generally reflects the structure of its income, which
reduces the dependency on currency exchange rate fluctuation.
Impact of inflation
Current level of inflation causes no significant negative impact on the financial situation of the Issuer. It is impossible to predict
the critical level of inflation for the Company, as it is necessary, in addition to the level of consumer prices, to consider changes
in the real purchasing power of the ruble, the situation on the Russian and international oil markets, and the situation on the
materials and services markets for the oil industry, as well as future policy of the state regarding tariffs.
100
101
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
Financial markets
Current development strategy 2025 of the Company prescribes that investments into development should
primarily be made out of operating income (equity capital). In some cases, the Company attracts external
funds, and the ability to do so at acceptable rates and in the necessary amounts depends on the situation on
the financial markets. In particular, changes in interest rates can affect the Company’s ability to borrow and
service its debts: in case of bank loans with floating interest rate, increase in the overall level of interest rates
on the market would result in increased amonts of interest to be paid. When planning its activities and forming
budgets, the Company analyses the current and forecast situation on the financial markets and maintains
access to a wide range of sources of financing to ensure getting optimal conditions when borrowing funds.
The Company may occasionally place some of its own funds in financial instruments the cost of which depends
on situation on the market. These financial instruments can vary in terms of their risk and profitability. The
Company follows balanced strategy in placing available funds and monitors risks associated with such
investments, but is unable to always ensure expected positive outcomes of these investments.
Banking system risks
The funds of the Company are held in bank accounts and deposited in the banks of the Russian Federation.
The Company follows diversified approach to placing its available funds. The Company faced situations where
banks holding its funds had their normal operations suspended or their licences revoked. Company employs
diversification strategy and monitoring of financial situation of the banking institutions in which its funds are
placed, to reduce the risk of their loss.
Being the majority shareholder of ZENIT Banking Group (ZBG), The Company assesses relevant risks. Such
risks include all potential significant factors related to the situation on financial markets and stability of the
banking system in case of drastic negative changes in global macroeconomic environment or the economy
of the Russian Federation, possible international sanctions, higher inflation, significant currency fluctuations,
and negative changes in legislation. The Company forms expert assessment of exposure to each risk, its
probability and measures to mitigate and manage it. Regarding participation of the Company in corporate
governance of the ZBG, its management system is being transformed to to encompass risk-based approach
and an elaborated internal control system, subject to additional audit by an international consultant.
Legal risks
TATNEF T engaged into international business and, among other things, exports oil and oil products,
equipment, and ser vices outside the Russian Federation and invests funds in projects abroad. Thus
any change in legislation of the Russian Federation or other countries where the Company operates, in
the area of foreign exchange regulation and control, customs control or duties may create additional
obstacles in repatriating funds, importing or exporting goods and equipment; it also may impose
additional preliminar y or follow-up procedures relating to currency transactions or customs clearance
that create additional difficulties for the Company and may result in additional expenses. In the
Company’s view, currently the risk of negative changes in foreign exchange regulation and customs
control in the Russian Federation are not significant. Considering the importance of the oil industr y
in the economy of the Russian Federation, tax payments of the Company are significant. Changes in
tax legislation can significantly affect the operations of the Company, its profitability and financial
situation and the value of its shares. The majority of taxes and duties, especially the mineral tax and
customs duty on oil and oil product exports, are charged based on gross volumes (production or export),
regardless of profitability of the Company’s operations. Applicable legislation provides for certain tax
incentives for the Company regarding these taxes and duties due to its oil production at ultra-mature
fields and development of super-viscous oil fields, where profitability largely depends on existence of
oil reser ves. At present, authorities of Russian Federation are defining new taxation mechanisms in
oil industr y, that will introduce, among other things, taxation of surplus income from selling oil and oil
products. New scheme will be tested in some pilot projects. There will also be changes in oil and oil
products export duties (with possible complete cancellation of that duty). These potential changes may
cause positive or negative impact on the financial situation and investment projects of the Company. In
order to conduct its operations the Company must obtain licenses for exploration and production of oil
and gas, operation of hazardous production facilities, and other types of activities set out in applicable
legislation. At present, the Company does not expect any significant changes related to licensing of
exploration and production at oil and gas fields, operation of hazardous production facilities, including
oil and gas treatment plants, that would result in a significant negative impact on operations of TATNEF T
or its subsidiaries. The Company participates as defendant, claimant or third party in numerous court
proceedings that arise in the course of its day to day operations.
Reputational risk
Due to the fact that the principal products sold by the Company (oil, oil and gas products) are
homogeneous and produced in strict compliance with applicable requirements and standards, and the
Company is one of the largest Russian oil companies with a histor y of more than 65 years, perception
of the financial stabilit y and financial situation of the Company by the main counterpar ties (buyers) of
Company products has no significant impact on them making decisions to deal with the Company. At
the same time, perception of consumers of the Company’s products and the qualit y of its products and
ser vices af fect the sales and profitabilit y of this segment. The Company conducts ongoing monitoring
of the qualit y of oil and gas products sold via the filling station net work, continuously expanding the
range of ser vices provided at filling stations, and takes other measures to improve the qualit y of ser vice.
Fur thermore, the Company constantly informs clients and counterpar ties of its activities by way of
publications and press releases on the internet, in the media, as well as via mobile applications. Free
call centers enable clients of the filling station net work to provide feedback and complaints regarding
qualit y of products and ser vices. The Company has adopted and is implementing procedures aimed at
prompt response to complaints and swif t elimination of their causes. In addition to regular disclosure
of information (obligator y and voluntar y), upon request from clients and counterpar ties, and subject
to the requirements of applicable legislation, the Company provides all necessar y information on its
financial situation and sustainabilit y.
Industry risks
Risk of oil and oil product prices
Income, profitability, and future growth largely depend on current prices of oil and oil products. In the past, oil
and oil product prices showed significant volatility due to multiple factors, including:
• International and regional supply and demand fluctuations (as well as expectations of future supply and
demand) for oil and oil products
• Weather
• National and foreign state regulation, including export restrictions and taxes
• Prices and availability of alternative fuels
• Prices and availability of new technologies
102
103
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY • Ability of the members of Organization of Petroleum Exporting Countries (OPEC) and other oil-producing
countries to set and maintain certain levels of production and prices
• Political and economic events in oil-producing regions, in particular the Middle East
• The international and regional economic situation
For many years, prices for crude oil and oil products were relatively high, but in recent years, they have
fallen significantly. Prices for oil and oil products change in opposite directions. Price drop for oil and
oil products negatively impacts performance and financial situation of the Company. Although oil prices
have been more or less stable recently, they still may fall from current levels. That will result in decrease
of the number of profitable oil production projects of the Company, and it will in turn result in reduced
amount of sustainable reserves of the Company and reduce sustainability of prospecting and exploration
programs. It should be mentioned that regardless of the development of alternative sources of energy
and potential increase of the number of electric vehicles, the Company does not expect in the medium
term that these will be able to significantly replace oil and oil products, while the demand for oil and oil
products will continue to grow largely due to the emerging economies. Thus the Company does not expect
any significant negative changes in the industry in terms of the demand structure.
Technical and technological risks
Exploration, development and fitting out of new fields, maintenance of existing wells, drilling of new ones,
as well as preparation, transportation, and processing of oil and gas constitute an extremely complex
and expensive process. Additional expenses are required for reservoir recovery improvement, which is
especially important for the Company. In future, as fields are depleted, special methods for enhanced
oil recovery will become more important. Thus, the economic effectiveness of field exploration and
development will largely depend on the ability of the Company to use the most effective and affordable
technologies. Being one of the innovation leaders in the industry in Russia, the Company pays special
attention to development and application of cutting-edge technologies in exploration, production,
preparation, transportation, and processing of oil and gas. In production, preparation, transportation,
and processing of oil and gas the Company and its subsidiaries and affiliates operate complex process
systems and facilities classified as hazardous production facilities. The Company takes all necessary
measures to ensure safe operation of such production facilities, complies with all applicable provisions
and requirements, takes advantage of the best practices in this area and provides liability insurance for
a number of facilities.
Transportation
As the majority of oil production regions in Russia are located far from the main markets of oil and oil products,
oil companies depend on the maturity of transport infrastructure, as well as its accessibility. The Company
transports the majority of the crude oil that it sells on foreign and domestic markets via the network of major
pipelines under contracts with Transneft and its subsidiary structures providing essential obligations of the
parties, including the right of Transneft to mix or replace oil of the Company with oil of other producers.
Significant part of the oil transported via the pipeline is headed to sea ports for subsequent transportation by
sea. Russian sea terminals have certain limitations associated with geographic location, weather conditions,
and capacity. Oil products inside Russia are transported mainly by rail. The railway infrastructure of the
Russian Federation is owned and controlled by Russian Railways. Transneft and Russian Railways are joint
stock companies with state participation. As the above companies belong to the natural monopolies sector,
their tariff policy is defined by state authorities to ensure a balance of the interests of the state and those of all
parties involved in the transportation process. Tariffs of natural monopolies are set by the Federal Antimonopoly
Service of the Russian Federation (FAS of Russia). Tariff rate depends on the route of transportation, size of
shipment, distance to destination, and some other factors. FAS of Russia reviews tariffs at least once a year.
The Company closely monitors the development and maintenance of transport infrastructure required to
deliver oil and oil products to buyers, as well as the tariff policy, and actively participates in relevant industrial
discussions and initiatives.
Environmental risks
The oil and gas sector of the economy is exposed to a high degree of environmental risk. And in
case of environmental standards violations, there is a risk of fines. Additionally, federal and regional
environmental standards can be revised and become stricter. The Company has a comprehensive
program aimed at mitigating negative situations associated with industrial risks. This includes continuous
monitoring, analysis, and forecasting of oil prices with relevant adjustment of strategic development
plans. The Company continuously implements and introduces new technical and organizational
measures to minimize the impact of technical and environmental risks.
Strategic risk
Operations and financial performance of the Company depend on multiple factors, some of them
pertaining to changes in the situation in energy resources markets, state policy, primarily tax policy,
development of technologies, and the situation on the labor market. Decisions of management bodies
of the Company related to strategic development are prepared based on all available information
relating to possible development scenarios and tend to consider all reasonably predictable potential
changes and assumptions used for such planning. Given the availability of a high-tech oil production
and processing base firmly established over many years, the Company has a reliable platform for
development and adjusts its plans when necessar y. At the same time, since implementation of its main
investment projects usually takes several years, significant negative changes of the conditions that
ser ved the basis for decisions to initiate certain projects can negatively affect the performance and
profitability of the Company.
Risks associated with the Issuer function
No other risks relating to Issuer function beyond those described above were identified by the Company.
104
105
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY
INFORMATION POLICY
The information policy of the Company is aimed to provide efficient information exchange
between the Company and its shareholders, investors, and other stakeholders, building
of long-term, open relations with them based on trust, and general assistance in the
sustainable development of the Company and the improvement of its shareholder value.
The goal of the information policy is to disclose to stakeholders the information that they need to take informed
and reasonable decision regarding any actions that may affect the financial and economic situation of the
Company.
The Company aims to ensure high standards of corporate governance and adheres to a transparent information
policy based on the following principles:
• Regular and consistent disclosure of information regarding its main areas of activity
• Rapid disclosure of relevant information about significant events and facts pertaining to its operations
• Guaranteed accuracy and completeness of disclosed information about the Company and controlled entities
that is important regarding the TATNEFT Group
• Availability of information to stakeholders and equal access to information for similar categories of stakeholders
• Integrity and accuracy of information disclosed through various means and/or in various forms, as well as
comparability of figures disclosed at different times
• Provision of financial and other information free from influence of any persons or groups
The Company discloses significant information about its operations and avoids taking a merely formal
approach to the disclosure of information. The Company does not avoid to disclose negative information
if this information is significant for shareholders, investors, or other stakeholders. The Company tries to
ensure the simultaneous and equal disclosure of significant information in the Russian Federation and
abroad in accordance with the circulation of the Company’s securities on foreign regulated securities
markets, including in the form of foreign depository receipts. Equivalence of disclosure means that in
case the information is disclosed on one regulated market in one country, similar information shall also be
disclosed in other countries in whose organized markets securities of the Company circulate.
Disclosure, dissemination, and provision of information shall be in the amount, according to the procedure,
and within the time limits specified in applicable Russian and foreign legislation regarding information
disclosure by issuers of securities.
Information that must be disclosed under legislation of the Russian Federation shall be disclosed on
the official website of the Company at TATNEFT.ru in Russian and in English, and shall also be placed
in the news feed and on the website of the information agency authorized to disclose information of the
Company, and using other means in accordance with applicable legislation of the Russian Federation.
Information that is subject to mandatory disclosure due to circulation of the Company’s securities outside
the Russian Federation shall be disclosed via an authorized information agency outside of the Russian
Federation. In case any information disclosure is made outside of the Russian Federation, the Company
shall also disclose this information in the Russian Federation, amount, procedures, forms and time limits
of such disclosure shall be set by the Russian regulator of the securities market, including disclosure on
the official website of the Company at TATNEFT.ru.
DISCLOSURE OF STATEMENTS
TATNEFT discloses annual consolidated financial statements along with auditor report and brief consolidated
interim financial statements together with reports on reviews of brief consolidated interim financial
statements. Annual accounting statements along with auditor report and interim accounting statements are
also published.
Transparency of financial statements is one of the key elements of corporate governance. On March 28,2018,
the Company published audited annual RAS accounting statements for 2017, and on March 29, 2018, audited
consolidated annual IFRS financial statements for 2017.
The annual report of the Company reflects the most important information about the performance of
the TATNEFT Group by area of operations and information about corporate governance and corporate
responsibility. The report is drawn up on the basis of data from consolidated IFRS financial statements of the
Group in accordance with the requirements of applicable legislation regarding financial markets and subject to
provisions of the Corporate Governance Code recommended by the Bank of Russia.
INFORMATION TO BE DISCLOSED
• The Charter and internal documents regulating management of the Company
• Lists of affiliated entities
• Emission documents, including issue prospectus
• Annual report
• RAS accounting statements (annual and intermediate)
• Consolidated IFRS financial statements (annual, interim)
• Quarterly reports of the securities issuer
• Notifications, including in the form of significant facts, of disclosure of insider information
• List of major transactions and interested-party transactions made in the reporting year
• Press releases regarding resolutions of management bodies
• Press releases, news of the Company
• Reports on payments to states, etc.
Regulation on the information policy of TATNEFT (new revision) approved by resolution of the
Board of Directors of TATNEFT (Minutes No. 12, resolution No. 3 dated April 27, 2017)
As part of interaction with institutional investors, shareholders, and other stakeholders, in 2017,
TATNEFT held regular presentations of its IFRS financial results. In addition, the Company continuously
improves the transparency of its operations through regular meetings of the management with analysts
of major investment banks, representatives of international investment funds, and recognized rating
agencies. The management of the company during presentations at key events, especially annual
general shareholders' meetings, regularly highlights the importance of close interaction with investors
and shareholders and the protection of their interests.
106
107
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY INTERACTION WITH THE MEDIA IN 2017
Our information
and communication
policy complies
with the Strategy
of the Company,
providing
stakeholders
with timely
and unbiased
information about
the production
and social activity
of TATNEFT
Nuriya Valeyeva,
Head of Press
Relations Service
DONSKOY:
TATNEFT’S PRACTICE AIMED
AT FOREST RECOVERY
NEEDS TO BE INTRODUCED
IN EVERY COMPANY
TATNEFT SHAREHOLDERS
APPROVED PAYMENT
OF INTERMEDIATE
DIVIDENDS
IN 2017, TATNEFT
GAINED PROFITS
OF RUB 9.3
BILLION FROM
INVENTIONS
TATNEFT VIRTUAL
REALITY: COMPANY
FOCUSES ON DIGITAL
TECHNOLOGY
TATNEFT’S
IFRS Q1 NET
PROFITS
DOUBLE
IN 2017, OVER 300 PRESS RELEASES, OVER 5,000 PUBLICATIONS,
AND OVER 250 TV SPOTS ABOUT TATNEFT WERE PREPARED
TATNEFT TO INVEST RUB 600 MILLION IN DEVELOPING
GAS STATION NETWORK IN THE YAROSLAVL REGION
NAIL MAGANOV FIGURED OUT HOW TO MAKE CITIES
OF THE REGION APPEALING TO YOUTH PEOPLE
LONGEVITY CENTERS:
EVEN OLD AGE WILL BE A JOY
TATNEFT – THE COMPANY
BUILDING THE FUTURE
108
109
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY INTERACTION WITH SHAREHOLDERS
Information exchange between the Company and its shareholders is based on mutual
respect, trust, responsibility, respect of the rights of the shareholders, and transparency of
Company activities.
RULES OF INTERACTION WITH SHAREHOLDERS
• Guaranteed equal observation and respect of rights and legal interests of all shareholders of the
Company, regardless of the size of their stock, as stipulated in applicable legislation of the Russian
Federation and requirements and recommendations of regulators of stock markets in which shares of
the Company circulate
• Continuous interaction between management of the Company and all shareholders to provide effective
management of the Company and sustainable and dynamic development
• Continuous improvement of current and development of new mechanisms and forms of interaction with
shareholders to increase its speed and quality with due regard to the new shareholders and the setting
of new goals by shareholders
• Identification and settlement of all possible general and specific issues associated with the realization of
shareholders’ rights
• Taking all measures necessary and possible in case of any conflict between management bodies and
shareholder(s) of the Company, if such conflict affects the Company, in order to fully settle the conflicts,
and to introduce new rules and conditions to avoid such conflicts in future
Interaction is based on the availability of responsible managers and employees of the Company for communication
with shareholders, investors, stock market analysts, and consultants of institutional investors on voting issues.
Interaction in ensured by regular conference calls to discuss operations and performance, group and individual
meetings (including during investment conferences, visits to the Company, and special visits [road shows] to major
international financial centers).
The continuous interaction between the management and shareholders ensures effective administration of
shareholders’ assets and sustainable development of the Company.
Shareholders’ rights to information are observed in accordance with the Federal Law on Joint-Stock Companies,
applicable legislation, the Civil Code of the Russian Federation, regulatory acts of the Bank of Russia applicable
to the Company, the Charter, and internal documents of TATNEFT, in view of recommendations of the Code of
Corporate Governance of the Bank of Russia, as well as the best international corporate practice.
Regulation on disclosure of information to shareholders of TATNEFT, approved by resolution
of the Board of Directors of TATNEFT (Minutes No. 12, resolution No. 3 dated April 27, 2017)
OBSERVING THE
LEGAL RIGHTS OF
SHAREHOLDERS
The Company guarantees equal
observation and respect of
rights and legal interests of all
shareholders, regardless of the
size of their stock and location,
as stipulated in applicable
legislation of the Russian
Federation, requirements and
recommendations of regulators of
the stock markets on which shares
of the Company circulate, and the
Company Charter.
Shareholders participate in activities
of the Company by exercising
their rights and obligations as
well as on the basis of voluntary
initiatives aimed at improving the
management of the Company.
The Company provides
shareholders with access to
documents in accordance with
applicable legislation.
INFORMATION POLICY
DIVIDEND POLICY
Shareholders have the right
to obtain information about
activities of the Company
that is necessary for them to
make informed and reasonable
decisions.
The Company acknowledges
dividends as one of the key
indicators of investment appeal
of the Company and strives to
increase amount of dividends by
way of steady profit growth.
The Board of Directors of the
Company determines the amount
of dividends recommended for the
General Shareholders’ Meeting
on the basis of a financially
sustainable approach to profit
distribution while ensuring balance
between the short-term (profit)
and long-term (development of
the Company) interests of the
shareholders.
The information disclosure
procedure is implemented in
accordance with applicable
legislation, requirements of
the stock market, the Provision
on Information Policy, and the
Provision on the Use of Insider
Information and Procedure
for Notification on Securities
Transactions.
To ensure the highest quality of
interaction with shareholders,
the Company seeks to use the
most reliable means and forms of
communication, including cutting-
edge information technology.
PREVENTION OF
CONFLICTS OF
INTERESTS
The corporate governance system
of the Company has in place steps
and procedures aimed at eliminating
conflicts of interests between
management bodies of the Company
and its shareholders as well as between
shareholders, in case such conflict
affects the Company. They also serve to
identify and settle any potential general
and specific issues associated with the
rights of shareholders.
There also mechanisms in place that
provide for the execution of all and any
measures necessary to completely
settle the conflict, as well as introducing
new rules and condition to avoid such
conflicts in future
The Company provides equal
opportunities for all shareholders
in exercising of their right to
participate in the profits of the
Company in the form of dividends.
This work is carried out in cooperation
between the respective division and
committees of the Board of Directors, the
internal audit unit, and other competent
divisions of the Company.
Office of the Corporate Secretary is responsible for interaction between the Company and
shareholders.
110
111
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY OBSERVATION OF SHAREHOLDERS’ RIGHTS TO RECEIVE DIVIDENDS
HISTORY OF DIVIDEND PAYMENTS FOR THE LAST 5
COMPLETE FISCAL YEARS
DIVIDEND POLICY
The dividend policy of the Company is based on the strict observation of rights and legal interests of
shareholders and corresponds to the mission and strategic goals of the Company aimed to raise
capitalization of the Company and increase dividend yield on invested capital through the effective
management of shareholders’ assets.
THE DIVIDEND POLICY IS BASED ON THE FOLLOWING PRINCIPLES
• The Company acknowledges dividends as one of the key indicators of investment appeal of the Company
and strives to increase amount of dividends by way of steady profit growth.
• The Company creates environment that helps ensure the involvement of the management and shareholders
in improving the Company’s profitability (increase in net profits) and long-term value.
• The Board of Directors of the Company determines the amount of dividends recommended for the General
Shareholders’ Meeting on the basis of financially sustainable approach to profit distribution while ensuring
balance between the short-term (profit) and long-term (development of the Company) interests of the
shareholders.
• The Company provides equal conditions for all shareholders, regardless of the size of their stock and
location, as well as equal treatment by the Company in the exercise of their right to participate in the
Company’s profits in form of dividends.
• The Company provides maximum transparency in its dividend policy.
• Decision regarding the payment of dividends, amount of dividends, and form of their payment shall be
made by the General Shareholders’ Meeting of the Company with reference to recommendations of the
Board of Directors.
Information about decisions made by the General Shareholders’ Meeting of the Company regarding
payment (announcement) of dividends, their amount, and payment procedure shall be published on the
official website of the Company at tatneft.ru in Russian and in English, as well as on the website of the
information agency authorized to disclose information of the Company.
Rules and conditions of adopting resolution regarding the payment (announcement) of dividends,
procedure for determining the amount, and the payment of dividends are set out in the Regulation on the
Dividend Policy of TATNEFT approved by the Board of Directors of the Company (Minutes No. 9, Decision
No. 7 dated January 30, 2018). The Regulation is based on the observation of shareholders’ rights set out
in applicable legislation of the Russian Federation and best practices of corporate governance.
The Company acknowledges dividends as one of the key indicators of investment appeal of the Company and
strives to increase amount of dividends by way of steady profit growth. In determining the size of the dividends
(per share) recommended to the General Shareholders’ Meeting, the Board of Directors of the Company
assesses the net profits and follows the rule that funds assigned for payment of dividends must be at least
50% of net profits as reported under Russian Accounting Standards (RAS) or IFRS, whichever is larger.
year
2012
2013
2014
2015
2016
first 9 months of 2017
Type of shares
Total amount of
dividends (RUB
billion)
% of the
nominal
value
dividend
amount
% of the
nominal
value
dividend
amount
% of the
nominal value
dividend
amount
% of the
nominal value
dividend
amount
% of the
nominal value
dividend
amount
% of the nominal
value
dividend
amount
20.012
19.2
24.6
25.5
53.06
64.6
Ordinary shares
860%
8.60
823%
8.23
1,058%
10.58
1,096%
10.96
2,281%
22.81
2,778%
27.78
Dividends (% of net
profits)
Date of resolution
on payment
of dividends
The date on which
persons that have
(had) the right to
receive dividends
are (were)
determined
Date
of actual
payment
30%
30%
30%
30%
50.6%
75%
Annual General
Shareholders’ Meeting to
review 2012 results, which
took place on June 28, 2013
Minutes No. 20 dated July
2, 2013
Annual General
Shareholders’ Meeting to
review 2013 results, which
took place on June 27, 2014
Minutes No. 21 dated July
2, 2014
Annual General
Shareholders’ Meeting
to review 2014 results,
which took place on June
26, 2015, Minutes No. 22
dated July 30, 2015
Annual General
Shareholders’ Meeting to
review 2015 results, which
took place on June 24,
2016, Minutes No. 23 dated
June 29, 2016
Annual General Shareholders’
Meeting to review 2016
results, which took place on
June 23, 2017, Minutes No.
24 dated June 28, 2017
Extraordinary General
Shareholders’ Meeting to
review results of first 9 months
of 2017, which took place on
December 12
2017, Minutes No. 25 dated
December 14, 2017
May 13, 2013
July 16, 2014
July 15, 2015
July 8, 2016
July 7, 2017
December 23, 2017
August 27, 2012
August 26, 2013
To the nominal holder:
July 29, 2015
To the Shareholders
entered in the register
of shareholders: August
19, 2015
To the nominal holder:
July 22, 2016
To the Shareholders
entered in the register
of shareholders: August
12, 2016
To the nominal holder:
July 21, 2017
To the Shareholders
entered in the register
of shareholders: August
11, 2017
To the nominal holder:
January 15, 2018
To the Shareholders
entered in the register of
shareholders: February
5, 2018
Dividends paid to the shareholders of the company
2016
RUB billion
53.006
In June 2017, the level of dividend payments was approved in the amount of 50% of net profits
(as of the end of 2016), and the level of dividend payments as of the end of the first 9 months of
2017 was 75% of TATNEFT’s net profits under RAS.
For purposes of setting amount of dividends for the first 9 months of 2017, the Board
of Directors assessed the Company’s performance during the term in question, the
implementation of the Strategy of the TATNEFT Group 2025 and forecast net cash flow.
In accordance with the resolutions of the meetings of shareholders, RUB 53 billion was allocated
for payment of dividends as a result of profit distribution for 2016, and RUB 64.6 billion for
the 9 months of 2017.
112
113
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY TATNEFT SHARE CAPITAL STRUCTURE
As of December 31, 2017, there are 41,825 shareholders in the register of TATNEFT shareholders.
The largest shareholders (nominal holders) of the Company are:
INFORMATION ON EACH CATEGORY (TYPE) OF SHARES
Full name of securities (kind and type)
Registered ordinary shares
Registered privileged shares
Form of issuance of the security
Volume of issuance, quantity
Nominal value of one (1) security (in
rubles)
State registration number of securities
issue
Uncertificated
2,178,690,700
1.00
Uncertificated
147,508,500
1.00
1-03-00161-А
2-03-00161-А
Information on state registration
October 26, 2001
October 26, 2001
The company is unaware of any potential obtaining by certain shareholders of a level of control disproportionate
to their participation in the share capital of the Company, including on the basis of shareholders agreements
or on other grounds.
No.
Full name of the legal entity
Type of the registered person
In % of share capital
In % of voting
shares
1.
2.
Central Depository of the
Republic of Tatarstan
Nonbanking Credit
Organization JSC National
Clearing Depository
3.
Svyazinvestneftekhim
4.
The Bank of New York Mellon
Nominal holder
26.139806
27.905221
Central Depository
62.191380
61.304919
Owner; nominal holder is the
Central Depository of the Republic
of Tatarstan
Depositary program account – in
the central depository Nonbanking
Credit Organization JSC National
Clearing Depository
26.139806
27.905221
24.114667
25.747353
The company is not aware of the existence of shareholdings exceeding 5%, except for those disclosed in this table.
TATNEFT SHARE CAPITAL STRUCTURE AS OF DECEMBER 31, 2017
NUMBER OF SHARES
Ordinary shares
Total
Foreign shareholders
Russian shareholders
Privileged shares
Total
Foreign shareholders
Russian shareholders
2,326,199,200
2,178,690,700
25,761,060*
2,152,929,640
147,508,500
89,467*
147,419,033
*without ownership through Russian nominal holders
TATNEFT share capital is RUB 2,326,199,000 that consists of 2,178,690,700 registered ordinary shares and
147,508,500 registered privileged shares of the Company with the nominal value of RUB 1.
114
115
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY STAFF OF THE COMPANY
In 2017, the average number of employees of TATNEFT was 21,124 people. The TATNEFT
Group employed a total of 54,000 people (for enterprises consolidated under IFRS).
Structure of staff of TATNEFT by age in 2015–2017, %
Younger than 30
31–50
50+
Distribution of TATNEFT staff by country in 2015–2017, %
Russian Federation
Turkmenistan
Libya
Ukraine
Balance of men and women in TATNEFT’s management
Men
Women
2015
25.2
51.5
23.3
2015
99.81
0.139
0.046
0.005
2015
82.1
17.9
2016
24.3
52.7
23
2016
99.806
0.146
0.043
0.005
2016
82.1
17.9
2017
23.5
54
22.5
2017
99.817
0.143
0.036
0.004
2017
81.6
18.4
Staff turnover at TATNEFT by age and gender in 2015–2017
year
2015
2016
2017
gender
Fired,
total (%)
men,
(%)
women.
(%)
under
20 (%)
in 2015–2017, %
20–30 (%)
30–40 (%)
40–50 (%)
50–60 (%)
60+ (%)
3.44
3.13
3.72
2.5
2
2.35
0.94
1.13
1.37
0.1
0.25
0.34
1.39
1.2
1.38
0.99
0.88
1.02
0.61
0.5
0.65
0.29
0.24
0.28
0.06
0.06
0.05
Payroll budget for employees of TATNEFT,
RUB million
Average monthly salary of employees
of TATNEFT, RUB
15,665
15,082
13,208
60,138
61,796
53,341
2015
2016
2017
2015
2016
2017
THE HR MANAGEMENT POLICY OF THE COMPANY IS BASED ON THE IMPORTANCE OF
HUMAN RESOURCES, THE INVOLVEMENT OF PROFESSIONAL EMPLOYEES, AND THE
CREATION OF FAVORABLE CONDITIONS FOR THEIR SUSTAINABLE MOTIVATION TO
ACHIEVE MAXIMUM EFFECTIVENESS AND PROFESSIONAL AND PERSONAL GROWTH.
The Company has a comprehensive HR management system aimed at the maintenance of high
professional level of workers and experts involved in all areas of TATNEFT Group operations.
The Company is a responsible employer. The implementation of its HR management policy is reflected in
the standards that define the hiring procedures, possibilities for professional and career growth, a system
of financial incentives and intangible benefits, and social support.
STAFF MOTIVATION
The Company considers salary to be an integral part of the comprehensive system of financial incentives
and intangible bonuses for employees that enables the Company to maintain high competitiveness through
involvement and retention of skilled and motivated employees. The main principles of the Company’s wage
policy are the following: alignment with performance and goal achievement, fairness and transparency,
competitive salaries.
Employees’ basic income consists of salary and a social package. Salary includes a tariff-based (fixed)
part, according to the unified tariff table, and bonuses (variable). The fixed part of the salary is 60% of total
amount, and the variable part is 40%.
The social package provides employees with a corresponding amount of social benefits and guarantees.
Main indicators showin necessity of salary increase: consumer price index (level of inflation), minimum
wages in the country, minimum consumer budget in the region, level of salaries in other companies of the
industry, increased productivity in the Company.
TRAINING AND DEVELOPMENT PROGRAMS. FORMING AN EMPLOYEE RESERVE
The Company is developing a comprehensive system for continuous professional training in cooperation
with relevant universities and educational establishments. The Company develops training centers,
opens specialized departments at educational institutions, and organizes all types of internship for
students.
The Company implements the principle of professional development and training of personnel in
corporate format and improves the system of personnel training, including through work with educational
organizations providing professional education, the TATNEF T training center, and a corporate university.
Students and teachers of the Almetyevsk State Petroleum Institute are invited to participate in the
Company’s projects. New assessment methods for employee competencies are being introduced.
The company participates in creating professional standards and initiated opening of the Regional
Center for Qualification Assessment.
In 2017, upon requests from functional area managers, the Company’s specialists upgraded their skills
through more than 30 corporate programs.
Ever y year, managers and professionals of TATNEF T are sent for training under the Presidential Program.
To increase effectiveness of engaging staff in the achievement of strategic goals and the
implementation of current plans, the Company operates a corporate social network site that
allows to form project teams, ensures prompt information exchange, and organizes professional
communities.
116
117
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY FINANCIAL
RESULTS
118
119
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYSOCIAL RESPONSIBILITY ACCOUNTING STATEMENTS
PREPARED IN ACCORDANCE WITH
RUSSIAN ACCOUNTING STANDARDS
Independent Auditor’s Report
To the Shareholders and Board of Directors of Tatneft:
Opinion
In our opinion, the attached financial statements reflect fairly, in all material respects, the financial
position of Tatneft (the «Company») as of December 31, 2017, as well as its financial results and
cash flows for the year ending on that date, in accordance with the accounting rules established in
the Russian Federation.
Subject of audit
We have audited the Company’s financial statements, which include:
• Balance sheet as of December 31, 2017
• Statement of financial results for the year ending on that date
• Statement of changes in equity for the year ending on that date
• Statement of cash flows for the year ending on that date
• Explanations with respect to the balance sheet and the financial results report
Grounds for expressing the opinion
We conducted our audit in accordance with International Standards on Auditing (ISA). Our
responsibility under these standards is described further in the section «Auditor’s Responsibility
for the Audit of Financial Statements.»
We believe that the audit evidence we have obtained is sufficient and appropriate to provide the
basis for the expression of our opinion.
Independence
We are independent of the Company, in accordance with the Code of Ethics for Professional
Accountants of the International Ethics Standards Board for Accountants (IESBA) and the ethical
requirements of the Code of Professional Ethics of Auditors and the Rules of Independence of
Auditors and Audit Organizations applicable to our audit of accounting in the Russian Federation,
and we have also fulfilled other ethical duties in accordance with these requirements and the Code
of IESBA.
JSC PricewaterhouseCoopers Audit (JSC PwC Audit)
10 Butyrskiy Val St., BC Belaya Ploshchad, Moscow 125047, Russia
Т: +7(495)967-6000, F: +7(495)967-6001, www.pwc.ru
Opinion
Our auditing methodology
Overview
Significance
• Materiality at the level of the Company’s accounting statements
in general: RUB 7.5 billion, which represents 5% of adjusted profit
before tax, excluding one-time effects of the devaluation of financial
investments, the account receivable for loans issued, and changes in
liabilities related to the liquidation of fixed assets and restoration of
natural resources.
Key issues of the
• Estimation of liabilities related to the liquidation of fixed assets and
restoration of natural resources.
audit
• Investment depreciation provision in the Closed Mutual Investment
Fund AK BARS – Gorizont.
• Loans issued impairment provision
Our audit methodology assumes a definition of materiality and an assessment of the risks of
material accounting misstatement. In particular, we analyzed in which areas the management
made subjective judgments, for example, with respect to significant accounting estimates, including
the application of assumptions and consideration of future events, which, due to their nature,
necessarily give rise to uncertainty. We also considered the risk of the management’s circumvention
of internal controls, including, among other things, an assessment of whether there are signs of
management bias that creates the risk of material misstatement due to fraud.
We defined the scope of the audit in such a way that we could perform the work in sufficient volume
to express our opinion on the accounting statements as a whole, taking into account the Company’s
structure, accounting processes, and controls, as well as the specifics of the industry in which the
Company operates.
Materiality
The determination of the scope of our audit was influenced by our application of materiality. The
audit was intended to obtain reasonable assurance that the financial statements do not contain
material misstatements. Misstatements can arise as a result of fraud or mistakes. They are
considered significant if it is reasonable to expect that they will affect, individually or collectively,
the economic decisions of users made on the basis of these financial statements.
Based on our professional judgment, we have established certain quantitative thresholds for
materiality, including for materiality at the level of the Company’s accounting as a whole, as
indicated in the table below. With the help of these values and taking into account qualitative
factors, we determined the scope of our audit, as well as the nature, timing, and scope of our audit
procedures, and assessed the impact of distortions (individually and in aggregate), if any, on the
financial statements as a whole.
120
121
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Materiality at the
level of accounting IN
general
RUB 7.5 billion
How we defined it:
5% of adjusted profit before taxation
Justification for the
level of materiality we
applied:
We decided to use profit before tax as a base indicator to
determine the level of materiality because we believe that this
base indicator is most often considered by users to assess the
Company’s activity and, furthermore, is a generally accepted
benchmark. The use of adjusted profit before taxation
provides a more stable basis to determine the materiality
level, as it reduces the effect of volatility (which may be
significant) caused by one-time factors, such as impairment
losses of financial assets, receivables for loans issued, and
changes in liabilities related to the liquidation of fixed assets
and restoration of natural resources.
We established materiality at 5%, which falls within the range
of acceptable quantitative thresholds of materiality applicable
to profit-driven companies in this industrial sector and
corresponds to the approach used in the previous year.
Key issues of the audit
The key issues of the audit were issues that, according to our professional judgment, were
the most significant for our audit of financial statements for the current period. These issues
were considered in the context of our audit of the financial statements in general and in the
formation of our opinion on these financial statements, and we do not express a separate
opinion on these issues.
Key audit issue
Audit proceduresperformed regarding
the key audit issue
Estimation of liabilities related to the
liquidation of fixed assets and restoration of
natural resources
See Explanation 8 (table section).
Explanations II, IV.S, and IV.I3 (text) of
the balance sheet and the financial results
account.
The Company’s financial statements reflect the
estimated liabilities related to the liquidation
of fixed assets connected to exploration,
development, and production activities after
the end of their operation and restoration of
natural resources («PforDLFA»).
The evaluation of PforDLFA is carried out by
management annually and involves the use
of various estimates and judgments by the
management due to the complexity inherent
in the assessment of future costs. The amount
of the estimated liability is significant for the
Company’s balance sheet; as of December 31,
2017, it amounted to RUB 38,081,000; as of
December 31, 2016, it was RUB 30,406,000
(lines 430 and 1540 of the balance sheet,
«Estimated liabilities»).
We paid considerable attention to the evaluation
of PforDLFA in view of the materiality of
this liability, and especially in connection
with the PforDLFA increase during 2017 by
RUB 7,675,000, which had an impact on the
Company’s financial results for 2017. This
increase was due to several competing factors,
the most significant of which was the revision
of the assumptions used in calculation; in
particular, the discounted rate, the inflation
rate, and the discounted period. Other changes
were generally connected to the establishment
of PforDLFA for newly introduced fixed assets.
We carried out the following procedures
with respect to the calculation models for
estimating PforDLFA:
• Verification of the arithmetic accuracy
of calculations and the completeness of
the data used, such as the list of objects
to be decommissioned, the cost of the
conservation and decommissioning of
wells, the number of wells and other fixed
assets, the cost of reclamation and the area
of land, and the field decommissioning
period (discounted period)
• Analysis of the validity of assumptions
used in the calculation of PforDLFA, such
as the inflation rate and the discounted
rate.
Our procedures for verifying the validity of
the costs of liquidating wells and other fixed
assets and land reclamation that were used by
the management for the PforDLFA estimation
included discussion with the Company’s
technical experts of the list and procedure for
carrying out decommissioning and restoration
work, as well as reconciliation with the
standard estimates of the Company for the
decommissioning of fixed assets.
The most significant effect on the change in the
PforDLFA value during 2017 was the change in
the discounted rate used to estimate the future
cost of liquidating fixed assets. We compared
the discounted rate applied by the Company’s
management with the yield level of government
stocks, the maturity of which is comparable to
the expected deadline for the fulfillment of the
provisions for decommissioning fixed assets
and restoring natural resources.
122
123
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Key audit issue
Expenses in the amount of RUB 2,603,000
from the computation of the discount due to
the growth of the current value of PforDLFA
and in the amount of RUB 3,474,000 as
a result of the revised assumptions are
reflected in the statement of financial results
under lines 2330 «Interest payable» and
2350 «Other income,» respectively.
Audit proceduresperformed regarding
the key audit issue
Also, changes in the inflation rate used to estimate
the future cost of liquidating fixed assets had
a significant effect on the change in value of
PforDLFA in 2017. We compared the inflation rate
applied by the Company’s management with the
forecasts of socioeconomic development prepared
by the Ministry of Economic Development of the
Russian Federation.
Based on the results, we came to the conclusion
that the assessment of the provisions for
decommissioning fixed assets and restoring
natural resources as of December 31, 2017, made
by the Company’s management was appropriate.
Investment depreciation provision in
Closed Mutual Investment Fund AK BARS
– Gorizont.
SEE Explanations JV.3 3 (text) to the balance
sheet and the financial results report.
As a part of long-term financial assets (line
1170 «Financial assets»)
The Company shows a 46% share in the
Closed Mutual Investment Fund AK BARS –
«Fund») at an acquisition
Gorizont (the
cost of RUB 19,784,000.
The Fund owns investments in land plots,
primarily in the Republic of Tatarstan.
The Company’s management estimated
the amount of economic benefits that the
Company expects to receive from financial
investments in the Fund’s equity units, which
are calculated on the basis of the value of its
net assets, which in turn is determined on the
basis of an assessment of the current market
value of the land plots owned by the Fund for
the reporting period. To assess the current
market value of land as of December 31, 2017,
the Company attracted
Our evaluation experts conducted the following
procedures to analyze the appropriate approach
of valuation models performed by an independent
appraiser
• Comparison of assumptions used in
valuation models with market indicators
• Sensitivity analysis on key assumptions (for
example, the dependence of market value on
the category of land plots, market prices and
corrective coefficients)
Based on the results of the procedures we conducted
on the independent appraiser’s calculations, we
came to the conclusion that, although a number
of alternative assumptions can be applied to the
assessment of the current market value of the Fund’s
land plots, the results obtained by the independent
appraiser fall within a range of acceptable values.
In this regard, we believe that the provision amount
for investment depreciation in the Fund equity units
reflected by the Company is appropriate.
Key audit issue
Audit proceduresperformed regarding
the key audit issue
an independent appraiser. Based on the
results of the valuation received in 2017,
the Company recorded the investment
depreciation provision in the Fund’s equity
units in the amount of RUB 6.647 million
(line 2330 «Other expenses» of the financial
results statement).
We paid special attention to this issue due
to the fact that the amount of financial
investments in the Fund is significant
and the management applied significant
judgments in assessing the amount of its
investment depreciation provision in the
Fund.
Loans issued impairment provision
(see Explanations IV.13 and IV.16.4 (text part)
to the balance sheet and the financial results
report.
As of December 31, 2017, as a part of other
accounts receivable, payments are expected
more than 12 months after the reporting date
(line 1234 of the balance sheet) the Company
reflects interest-free loans to other related
parties of the Company in the amount of RUB
28.760 million.
In accordance with the Provision on
Accounting and Reporting in the Russian
Federation approved by Order of the Ministry
of Finance of the Russian Federation No.
34n dated July 29, 1998, the Company
sets up the provision on doubtful debts
should receivables be deemed doubtful with
allocation to the reserve amounts for financial
results. Doubtful accounts receivable are the
Company’s receivables that are not repaid
or are highly likely not be repaid within the
terms established by the contract and are not
secured by appropriate guarantees.
In order to identify doubtful accounts
receivable, the Company analyzes the
information on the
At the same time, we noted that the current
market value of land owned by the Fund, to
a large extent, depends on the transfer of
the land’s zoning category from agricultural
use to industrial use. In case the process of
land plots transfer to another category is not
completed, the current market value of land
plots may significantly decrease, which in turn
may necessitate the Company to establish an
additional investment depreciation provision in
the Fund.
We have evaluated the methodology for calculating
the provision for doubtful debts used by the
Company for its compliance with accounting rules
established in the Russian Federation.
We tested the contracts of interest-free loans
issued by the Company, for which the provision for
doubtful debts was set up on an individual basis. We
performed the following procedures:
• Testing whether the debt was classified as
doubtful
• in a timely manner
• Analyzing critical assumptions used by the
Company’s management when assessing the
current market value of property and the
rights to claim provided as collateral for the
loan agreements
• Verifying the mathematical accuracy of
models for expected discounted cash flows
(when applicable), as well as an analysis of
critical assumptions used by the Company’s
management in these models
124
125
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Key audit issue
Audit proceduresperformed regarding
the key audit issue
To analyze the current market value of property
and claim rights that are pledged for loans
granted, we have engaged our evaluation
experts.
Based on the results of our procedures, we did
not reveal any significant distortions in the
amount of the provision for doubtful debts
recognized by the Company and reflected in the
accompanying financial statements.
requests expert estimates on the market
value of the collateral provided, constructs
(if applicable) models of expected
discounted cash flows, requests additional
information on the basis of which the
estimated probability of eligible debt
delinquency within the contractual time
period.
As a result of the valuation performed as
of December 31, 2017, the Company set up
the doubtful debts provision with respect to
interest-free loans issued to other Related
Entities in the amount of RUB 12.343
million recorded in line 3350 of «Other
expenses» of the financial results statement.
We paid considerable attention to this issue
due to the fact that, as of December 31, 2017,
management made significant judgments
in assessing the amount of the provision for
interest-free loans, which is significant for
the Company’s accounting statements for
2017.
Other Information
MANAGEMENT IS RESPONSIBLE FOR OTHER INFORMATION. OTHER INFORMATION
INCLUDES THE COMPANY’S 2017 ANNUAL REPORT AND THE ISSUER’S QUARTERLY
REPORT FOR Q1 2018 (BUT EXCLUDES FINANCIAL STATEMENTS AND OUR AUDIT
REPORT ON THESE FINANCIAL STATEMENTS), WHICH ARE EXPECTED TO BE
PROVIDED TO US AFTER THE DATE OF THIS AUDIT REPORT.
Our opinion regarding financial statements does not apply to other information, and we
do not and will not provide a conclusion expressing confidence in any form regarding this
information.
In connection with our audit of financial statements, our responsibility is to acquaint ourselves
with the abovementioned other information when it is provided and to consider whether there are
material inconsistencies between other information and financial statements or the knowledge we
obtain during the audit and whether other information contains any possible material distortions.
Responsibility of management and persons responsible for corporate governance and
financial statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with the accounting rules established in the Russian Federation and for the
internal control system that management considers necessary for the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing financial statements, management is responsible for assessing the ability of the
Company to maintain business continuity, for disclosure, when appropriate, of information
relating to business continuity and for reporting on the basis of the assumption of business
continuity, unless the management intends to liquidate the Company, to terminate its activities or
when it lacks any other real alternative, except for the liquidation or termination of activities.
The persons responsible for corporate governance are responsible for the supervision of the
preparation of the Company’s financial statements.
Auditor’s responsibility for auditing financial statements.
Our goal is to obtain reasonable confidence that financial statements do not contain material
misstatements due to fraud or errors and in the issuance of an audit report containing our
opinion. Reasonable confidence is a high degree of certainty, but it is not a guarantee that the
audit conducted in accordance with ISA always reveals material misstatements when they are
present. Misstatements may be the result of fraud or errors and are considered material if it can
reasonably be assumed that individually or in combination they can affect the economic decisions
of users taken on the basis of this accounting.
Within the scope the audit conducted in accordance with ISA, we apply professional judgment
and maintain professional skepticism throughout the audit. In addition, we perform the
following:
• Identify and assess the risks of material misstatement of financial statements due to fraud
or errors; develop and conduct audit procedures in response to these risks; obtain audit
evidence that is sufficient and appropriate to serve as a basis for expressing our opinion.
The risk of not detecting a material misstatement as a result of dishonest actions is
higher than the risk of not detecting a material misstatement as a result of an error, since
dishonest actions may include collusion, fraud, intentional omission, misrepresentation or
circumvention of the internal control system.
126
127
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY • Obtain an understanding of the internal control system that is relevant to the audit to
develop audit procedures appropriate to the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control system.
• Assess the appropriate nature of the accounting policies applied and the reasonableness
of accounting estimates and the corresponding disclosure of information prepared by
management.
• Conclude that management has accepted the assumption of business continuity and, on
the basis of the audit evidence obtained, the conclusion is whether there is significant
uncertainty in connection with events or conditions that may raise significant doubts
about the Company’s ability to continue its business. If we come to the conclusion that
there is significant uncertainty, we must draw attention to the appropriate disclosure in
the financial statements in our audit report, or, if such disclosure is improper, modify our
report. Our conclusions are based on the audit evidence received before the date of our
audit report. However, future events or conditions may lead to the Company losing the
ability to maintain business continuity.
• Assess the presentation of financial statements in general, their structure and content,
including disclosure of information, and also whether the accounting statements present
underlying operations and events in such a way as to ensure their reliable representation.
We share information with persons responsible for corporate governance, bringing to their
attention, among other things, the information about the planned scope and timing of the audit,
as well as significant comments on the audit results, including significant deficiencies in the
internal control system that we identify in the audit process.
We also provide parties responsible for corporate governance with a statement that we have
complied with all relevant ethical requirements for independence and have informed these
individuals of all relationships and other matters that can reasonably be considered influencing
the independence of the auditor and, where necessary, a statement on appropriate precautions.
Among the issues that we bring to the attention of parties responsible for corporate governance,
we identify the issues that were the most significant for the audit of financial statements for
the current period and, therefore, were key audit issues. We describe these issues in our audit
report, except in cases where public disclosure of information about these issues is prohibited by
law or regulation, or when, in very rare cases, we come to the conclusion that information about
an issue should not be reported in our report, as it can reasonably be assumed that the negative
consequences of the communication of such information will exceed the socially significant
benefit from its communication.
Head of the assignment, which resulted in the issuance of this auditor’s report of
an independent auditor, Maksim Timchenko
March 27, 2018
Moscow, Russian Federation
Seal JSC PricewaterhouseCoopers Audit,
OGRN 1027700148431
Maksim Timchenko, Head of the Assignment (Qualification certificate No. 01-000267),
JSC PricewaterhouseCoopers Audit
Auditee:
Tatneft
The certificate of state registration No. 632 was
issued by the Ministry of Finance of the Republic of
Tatarstan on January 21, 1994
The certificate of entry in the Unified State Register
of Legal Entities was issued on July 18, 2002 Under
No. 1021601623702
75 Lenina St., Almetyevsk, Republic of Tatarstan
423450, Russia
Independent Auditor:
JSC PricewaterhouseCoopers Audit
The certificate of state registration No. 008.890
was issued by the Moscow Registration Chamber on
February 28, 1992
The certificate of entry in the Unified State Register
of Legal Entities was issued on August 22, 2002
Under No. 1027700148431
Member of the self-regulated organization of
auditors Russian Union of Auditors (Association)
ORNZ in the register of auditors and audit
organizations 11603050547
128
129
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY TATNEFT FINANCIAL STATEMENTS FOR 2017
Balance Sheet
ASSETS
I. NONCURRENT ASSETS
Intangible assets
Research and development results
Intangible exploration assets
Tangible exploration assets
Fixed assets
including capital work in progress
advance payments given for procurement and construction of fixed
assets
Income-bearing investments in tangible assets
Financial investments
Deferred tax assets
Other noncurrent assets
including assets from liquidated obligations
TOTAL for section I
II. CURRENT ASSETS
Inventories
including raw materials and supplies
production in progress costs
finished products and goods for resale
goods shipped
other supplies and expenses
Value added tax on acquired assets
Accounts receivable
including nondelinquent accounts receivable (due beyond 12 months
after the reporting date)
including buyers and customers
advances paid
other debtors
including nondelinquent accounts receivable (due in the 12 months after
the reporting date)
including buyers and customers
advances paid
other debtors
Financial assets (except for cash equivalents)
Cash and cash equivalents
Other current assets
TOTAL for section II
BALANCE (assets)
130
RUB thousand
Code
Line
As of Decem-
ber 31
As of Decem-
ber 31
As of Decem-
ber 31
1110
1120
1130
1140
1150
1151
1152
1160
1170
1180
1190
1191
882,443
792,2
4,320,885
2,561,503
465,285
632,054
4,288,829
2,376,749
363,181
425,495
4,298,721
1,181,376
233,442,786
207,448,974
183,742,381
100,782,153
87,916,754
79,710,681
4,760,324
4,575,908
8,005,128
4,199,156
4,776,524
2,302,366
92,578,452
253,078,329
234,265,798
–
–
51,612,371
47,200,643
29,818,978
28,996,993
–
37,433,580
29,293,324
1100
390,389,796
520,267,387
464,012,898
1210
1211
1212
1213
1214
1215
1220
1230
1231
1232
1233
1234
1235
1236
1237
1238
1240
1250
1260
48,115,981
37,573,010
26,964,284
7,054,484
971,862
5,135,287
421,525
2,823,894
412,249
27,658,487
25,108,850
20,571,911
7,669,809
4,761,339
3,919,516
2,398,102
4,509,246
3,386,647
2,615,128
541,102
3,708,117
267,690,805
88,128,999
106,472,523
163,426,232
4,686,487
7,261,283
718,656
205,258
436,418
822,812
162,502,318
3,427,257
128,897
1,891,842
5,240,544
104,264,573
83,442,512
99,211,240
61,981,366
64,239,889
5,373,018
36,910,189
28,418,509
10,866,389
6,843,389
12,359,234
55,736,376
21,949,639
56,610,370
27,710,973
14,889,897
28,266,335
8,393,083
1,735,899
1,259,705
1,000,486
1200
360,747,099
208,034,376
174,804,828
1600
751,136,895
728,301,763
638,817,726
Balance Sheet (continued)
III. CAPITAL AND PROVISIONS
Authorized capital (share capital, registered fund, partner contributions)
Repurchased shares
Revaluation of noncurrent assets
Capital surplus (without revaluation)
Reserve capital
Undistributed profit (uncovered loss)
TOTAL for section III
IV. LONG-TERM LIABILITIES
Loan funds
Deferred tax liabilities
Estimated liabilities
Other liabilities
TOTAL for section IV
V. SHORT-TERM LIABILITIES
Loan funds
Accounts payable
including suppliers and contractors
liabilities to state non-budgetary fund
taxes and fees payable
advances received
profit due to shareholders (owners)
other creditors
Deferred revenues
Estimated liabilities
Other liabilities
TOTAL for section V
BALANCE (liabilities)
RUB thousand
2,326,199
2,326,199
2,326,199
(-)
(-)
(-)
11,673,571
11,294,898
10,546,619
318,908
116,31
320,092
1,328,926
441,293
1,364,610
591,617,946
609,147,154
530,650,255
606,052,934
624,417,269
545,328,976
370
10,435,625
38,026,536
370
10,272,462
30,330,233
–
392
1,568,072
8,602,514
33,486,117
–
48,832,161
40,973,087
43,656,703
32,212,379
61,779,884
17,057,659
172,2
4,207,953
56,573,009
21,155,447
545,876
2,396,685
45,497,449
26,585,497
462,037
25,945,577
19,498,095
10,059,307
6,957,711
6,031,506
5,615,231
136,631
2,122,906
–
8,403,106
149,472
6,821,013
55,757
2,074,688
–
2,939,963
133,304
5,317,341
3,568
1,934,345
–
1310
1320
1340
1350
1360
1370
1300
1410
1420
1430
1450
1400
1510
1520
1521
1522
1523
1524
1525
1526
1530
1540
1550
1500
96,251,800
62,911,407
49,832,047
1700
751,136,895
728,301,763
638,817,726
131
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY PROFIT AND LOSS STATEMENT FOR 2017
Revenues
Cost of revenue
Gross profit (loss)
Selling expenses
Administrative expenses
Mineral exploration and evaluation expenses
Profit (loss) on sales
Income from shareholdings
Interest receivable
Interest payable
Other income
Other expenses
Earnings before tax
Current income tax
including permanent tax liabilities (assets)
Changes in deferred tax liabilities
Changes in deferred tax assets
Miscellanea
Adjusted income tax for the consolidated group of taxpayers
2110
2120
2100
2210
2220
2230
2200
2310
2320
2330
2340
2350
2300
2410
2421
2430
2450
2460
2465
581,536,880
(377,291,746)
204,245,134
(42,780,136)
–
-111,085
161,353,913
5,406,388
7,611,763
(2,667,738)
17,001,048
(56,902,170)
131,803,204
(31,728,773)
(5,531,295)
-163,163
28,466
82,482
486,176,316
(312,524,760)
173,651,556
(36,919,888)
–
-127,769
136,603,899
1,593,297
4,857,244
(3,451,408)
64,995,252
(71,033,928)
133,564,356
(27,313,688)
(2,270,765)
(1,669,948)
49,045
194,284
Net profit (loss)
2400
100,022,216
104,824,049
Surplus on revaluation of noncurrent 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 per share
Diluted earnings per share
2510
2520
2500
2900
2910
474,114
-1,184
1,095,374
-121,201
100,495,146
105,798,222
43.73
–
46.57
–
ESSENTIAL ASPECTS
OF THE ACCOUNTING POLICY AND PRESENTATION
OF INFORMATION IN THE FINANCIAL STATEMENTS
MAIN APPROACHES TO PREPARATION
OF THE ANNUAL FINANCIAL STATEMENTS
Financial accounting in the Company is performed in accordance with Russian Federal Law No.402-FZ of December
6, 2011 “On Accounting,” “Provision on Accounting and Reporting in the Russian Federation” approved by Order of
the Ministry of Finance of the Russian Federation No. 34n dated July 29, 1998, current Russian Accounting Standards
(RAS), as well as the accounting policy of the Company. The financial statements of the Company for 2017 were pre-
pared in compliance with the aforementioned law, accounting regulations and policy. The annual financial statements
for 2017 were compiled according to the forms developed and approved by the Company in accordance with the Or-
der of the Ministry of Finance No. 66n dated July 2, 2010, “About the formats for Corporate Accounting Statements.”
The data of the financial statements are presented in thousands of Russian rubles.
ASSETS AND LIABILITIES DENOMINATED
IN FOREIGN CURRENCY
Accounting of assets and liabilities denominated in foreign currencies is carried out in accordance with RAS 3/2006
“Accounting of Assets and Liabilities Denominated in Foreign Currencies” approved by Order of the Finance Ministry
of the Russian Federation No. 154n dated November 27, 2006.
The exchange rate difference is reflected in the accounting and financial statements for the concerned reporting pe-
riod with the due date of payment or which the financial statements were executed for.
The exchange rate difference arising from the conversion of the organization’s assets and liabilities denominated in
foreign currency 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 the financial results of the organization as other income
and expenses. The income and expenditure based on currency exchange rate are recognized in the Profit and Loss
account in lines “Other income” or “Other expenses.”
When accounting for business transactions in foreign currencies, the official exchange rate of the foreign cur-
rency to the ruble valid on the date of transaction was applied. Cash in foreign currency accounts in banks and
on hand, financial assets (except shares), and settlement funds in foreign currencies (except the funds received,
advances paid, and pre-payment or earnest money) are reflected in the financial statements as amounts calcu-
lated on the basis of the currency official exchange rates valid on the reporting date. The currency exchange rates
amounted to RUB 57.6002 to USD 1.00 as of December 31, 2017 (RUB 60.6569 as of December 31, 2016; RUB
72.8827 as of December 31, 2015); RUB 68.8668 to EURO 1.00 (RUB 63.8111 as of December 31, 2016; RUB
79.6972 as of December 31, 2015).
132
133
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY INTANGIBLE ASSETS
Included in intangible assets were computer software programs; databases; inventions; useful models; trademarks
and service marks; licenses for mineral geological exploration and production; licenses for mineral production, ex-
ploration 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 accounting records at historical value in that reporting period when the documents
are received confirming the Company’s exclusive rights to the results of intellectual activity or means of individualiza-
tion irrespective of intangible assets used in production, performance of works or rendering of services, for adminis-
trative purposes.
The cost 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 useful life.
Depreciation is performed through the accumulation of appropriate amounts in a separate account. Depreciation on
intangible assets is reflected in the accounting period which they refer to, and it is charged regardless of the com-
pany’s operating results in the reporting period.
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 de-
fined. The resulting adjustments are reflected in the accounting and financial statements at the beginning of the year
as changes in the estimated values.
Intangible assets of homogeneous groups at fair market value are not revaluated.
EXPENSES FOR RESEARCH & DEVELOPMENT,
DEVELOPMENT AND ENGINEERING WORKS
Expenses for research & development, development and engineering works are accounted for in the amount of actual
expenses incurred during performance of these works.
The expenses for research & development, development, and engineering works that have produced positive results
and started to be implemented are written off as expenses of ordinary activities starting with the month following the
month when the company started the actual application of the mentioned work results in manufacturing (work perfor-
mance, service rendering) or for administrative needs of the company.
The costs of each performed research & development, development, and engineering work for which a positive result
is obtained are written off by straight-line method in even amounts throughout the useful life of the results of R&D
(which should not exceed 5 years).
The expenses for research & development, development, and engineering works that have not produced positive re-
sults are written off as miscellaneous expenses in the reporting period.
EXPLORATION ASSETS
The Company includes the following exploration assets as part of tangible exploration assets:
• Expenses for acquisition and construction of prospecting, exploration and advance producing wells, and other oil
field facilities
• Expenses for acquisition of and rigging equipment for prospecting, exploration, and advance producing opera-
tion wells
The Company includes the following types of exploration costs as a part of intangible exploration assets:
• Acquisition costs of licenses for geological study of subsurface, licenses for geological exploration and produc-
tion of mineral resources
• 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 third parties,
including state authorities, and expenses for drilling key, appraisal and structural wells.
The Company considers the following exploration costs as expenses for regular types of activity: expenses for mainte-
nance of the structural divisions organized solely for performance and coordination of works on exploration, evaluation
and prospecting of mineral resources, as well as expenses for maintenance and repair of tangible exploration assets.
Tangible exploration assets are depreciated by straight-line depreciation method during the period of their useful life.
Depreciation costs for objects of tangible exploratory assets are included in the costs of prospecting, evaluation, and
exploration of mineral resources for relevant licensed subsoil areas.
Intangible exploration assets in the form of licenses for geological subsoil study are depreciated by straight-line meth-
od during the period of their useful application. Depreciation costs for aforementioned objects are included in the
costs of prospecting, evaluation and exploration of mineral resources for relevant subsoil areas.
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 crude oil production is con-
firmed in the relevant licensed subsoil areas of mineral resources and the order on commercial field development is
approved.
The commercial feasibility of crude oil production is considered to be confirmed at the moment of approval of the initial
field development plan in the licensed subsoil 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 licensed subsoil area.
For the purposes of verifying exploration assets for depreciation, the aforementioned assets are categorized by sub-
soil areas of mineral resource indicated in the licenses.
Impairment loss of exploration assets is reflected in the profit and loss statement in the line code “Other expenses.”
Furthermore, the Company applies the reversal of impairment loss to exploration assets.
134
135
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The Company ceases recognition of exploration assets in relation to a certain licensed subsoil area of mineral resourc-
es when confirming commercial feasibility of oil production in the relevant licensed subsoil area or recognizing lack of
prospects of mineral resources production in this area.
When confirming the commercial feasibility of oil production in the licensed subsoil area of mineral resources, the
Company performs reclassification of exploration assets:
• Tangible exploration assets are included in the category of fixed assets at depreciated book value
• Intangible exploration assets are included in the category of intangible assets at depreciated book value
FIXED ASSETS
Land plots, buildings, facilities, machinery, equipment, transport vehicles and other relevant assets of over 12 months
service life and cost over RUB 40,000 are reflected in the fixed assets.
The Company annually revalues fixed assets (industrial-purpose buildings; facilities, such as pipelines, machinery
and equipment (except for data equipment) based on the current value (replacement asset) value at the end of the
reporting 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 determined according to the classification
of fixed assets included in the depreciation groups, approved by the Provision No. 1 of the Government of Russian
Federation dated January 1, 2002.
Depreciation is calculated by the straight-line method.
25–50
10–25
10–15
5–15
8–31
2.5–31
6–14
1–26
Buildings
Facilities, including:
Wells
Machinery and equipment
136
Depreciation is not charged on land plots and land use facilities.
Changing the historical value of fixed assets as they were included to the accounting statements is allowed in cases
of further construction, further equipping, renovation, modernization, partial retirement and revaluation of the fixed
assets objects.
Repair expenses of fixed assets objects are included at actual costs and referred to the reporting period in which they
were done.
The line of “Capital expenditures in progress” includes the costs of construction and installation works, acquisition of
buildings, facilities, equipment and other tangible objects of long-term use, materials for the construction of fixed as-
sets, and other capital works and expenses. This line reflects the cost of capital construction projects before they are
placed into operation, after which these objects are transferred into fixed assets or income-yielding investments into
tangible assets.
In addition to this, the “Capital expenditures 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 “Income-bearing Investments in Tangible Assets.”
OTHER NONCURRENT ASSETS
Objects under construction are included in other noncurrent assets, which the management decided to sell.
FINANCIAL INVESTMENTS
Financial investments are accepted for accounting at original cost.
Financial assets defining the current market value are reflected in the financial statements as of the end of the report-
ing year at current market value by adjusting their evaluation on the previous reporting date.
Financial investments for which the current market value is not defined are reflected in financial statements as of the
reporting date at original cost after deduction of the provision amount formed for their impairment. The investment de-
preciation provision is created based on the amount of the difference between the investment’s book value and their
estimated value if the results of the impairment test confirm a sustained significant decrease in the value of financial
investments.
Financial investments are reflected as part of current assets if the expected duration of their possession is less than 12
months after the reporting date. Other financial investments are included in noncurrent assets.
The accounting unit of financial investments may be a contribution to the charter capital, loan agreement, bank de-
posit agreement, securities issue package, etc., depending on the nature of the financial investments, the procedure
for their acquisition and use.
137
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Upon 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:
• The historical value of the first-time purchased financial assets (FIFO method) upon disposal of shares or bonds
• At historical value of each unit of financial investments accounting upon disposal of promissory notes
Upon 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.
Income and expenditure stemming from the disposal of financial investments are reflected in the profit and loss state-
ment as part of other income and expenses.
GOODS SHIPPED
The balance sheet item “Goods Shipped” reflects shipped products for which the title was not transferred to buyers.
This line also reflects real estate transferred to the buyer by a delivery certificate before state registration of the title
transfer.
OTHER SUPPLIES AND EXPENSES
The line “Other supplies and expenses” includes expenses associated with the extraction of super viscous oil pro-
duced before the start of production. These expenses are written off evenly over the period of oil production at the
relevant development site, but not for more than 2 years, starting from the first day of the month following the month
production starts.
MATERIALS AND SUPPLIES INVENTORIES
ACCOUNTS RECEIVABLE
The “Raw Materials and Supplies” line of the balance sheet reflects raw materials, basic and auxiliary materials, pur-
chased semifinished products and components, fuel, packaging, spare parts, construction, and other materials.
The line of the materials and supplies inventories also reflects assets that meet the conditions necessary for the rec-
ognizing them as fixed assets valued at no more than RUB 40,000 per unit.
The materials and supplies inventories are recognized at the sum of the actual costs of their acquisition with the excep-
tion of VAT and other recoverable taxes (except as provided by the legislation of the Russian Federation). Disposal of
the inventories is carried at the average cost.
The materials and supplies inventories that have run their course, wholly or partially have lost their original quality, or
whose current market value is decreased, are reflected in the balance sheet less the provision for impairment of the
material values.
Raw materials and materials transferred to processing on an as-needed basis continue to be accounted for in raw
materials and materials of the Company separately. Monthly raw materials and materials that have passed through all
processing stages are recognized as part of finished products.
FINISHED PRODUCTS, GOODS, AND SALES EXPENSES
Finished products are reflected in the balance sheet at the full actual production cost (including management ex-
penses).
When shipping oil, petroleum products, and gas products, the valuation is carried out based on the average cost
method for each group of products.
Sales expenses are written off under the Company’s financial and operational activities without differentiating be-
tween sold and unsold products.
Trade receivable (reflected as part of accounts receivable) is determined based on the prices established by contracts
concluded between the Company and buyers (customers) taking into account all discounts (surcharges). Receivables
unable to be collected are written off from the balance if they are proven to be so.
Accounts receivable that are not paid when due or which will most likely not be paid within the time frame stipulated
in contracts and not secured with respective guarantees are shown after deduction of accrued provisions for doubtful
debts. The provision is set up for each doubtful debt (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 quarter.
Income and expenses incurred in the formation and recovery of the doubtful debts provision within one financial year
are reflected in the financial results statement in the lines “Other Income” or “Other Expenses.”
Advance payments issued and received are presented in the balance sheet less the value added tax (from the amount
of advance payments) that is subject to deduction (payment) in accordance with tax legislation.
CASH AND CASH EQUIVALENTS
In accordance with RAS 23/2011 “Statement of Cash Flows” approved by Order No. 11n of the Ministry of Finance of
Russia dated February 2, 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 period of 3 months to the cash equivalents. In the State-
ment of Cash Flows:
138
139
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY • Cash balances and cash equivalent balances in foreign currency at the beginning and at the end of the reporting
period are expressed in rubles for the amount determined in accordance with RAS 3/2006 “Accounting for As-
sets and Liabilities Whose Value is Expressed in Foreign Currency” approved by Order No. 154n of the Ministry of
Finance of Russia dated November 27, 2006. Differences arising due to the conversion of the organization’s cash
flows and cash equivalents in foreign currency exchange rates on different dates are reflected in the statement of
cash flows as the effects of changes in foreign exchange rates against the ruble.
• indirect taxes (VAT and excise duties) as part of the proceeds from buyers and customers, payments to suppli-
ers and contractors and payments to the budget system of the Russian Federation or reimbursement out of it are
reflected as balanced result being part of other income (payments) for the current activity in the line of “Other
Income” (“Other Payments”).
• Proceeds from the sale of products and goods contain customs duties.
• interest-free loans granted to the subsidiaries and affiliated entities are mainly related to the capital investment
financing, and therefore, based on the principle of rationality, the flow of all loans issued to the subsidiaries and
affiliated entities is reflected in the cash flows from investment transactions.
Cash flows are reflected in the statement of cash flows on a net basis in the following cases:
• Cash receipts from certain entities stipulate 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 perfor-
mance realization of these payments in leasing and other similar relationships, etc.)
• Cash flows are characterized by quick return, large amounts and short payback periods (purchase and resale of
financial investments, short-term investments (up to three months) using the proceeds from borrowed funds,
etc.)
• Cash flows on short-term deposits (more than three months but less than one year) that relate to financial invest-
ments Cash flows on deposits are disclosed in Table 3 “Financial Assets” in the Explanation to the balance sheet
and financial results statement.
• Cash flows on loans received by the Company from subsidiaries that participate in the Treasury system. These
loans are characterized by rapid turnover, large amounts, and short terms of return.
AUTHORIZED CAPITAL, SURPLUS CAPITAL AND RESERVE CAPITAL
Authorized capital is reflected in the amount of the nominal value of ordinary and preferred shares.
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 amount of the revaluation less the subsequent markdown of the fixed assets as a result of the revaluation at-
tributed to the additional capital is reflected in the line “Revaluation of noncurrent assets”. Revaluation surplus in case of the
fixed asset item disposal is transferred from the capital surplus to the retained net surplus of the Company.
In accordance with the legislation, the Company established a reserve fund in the amount of 5% of the authorized
capital formed out of the Company’s net profits. The reserve fund is intended to cover the losses of the Company, for
bonds redemption, and repurchase of the Company’s shares in case other funds are unavailable.
In accordance with the Constituent Documents, the Company establishes the Employee Share Ownership Fund which
is formed out of the Company’s net profits. Contributions to this Fund are made in accordance with the method ap-
proved by the “Tatneft Regulations on Bonus Certificates.” The fund was not established in 2017.
ESTIMATED LIABILITIES
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 interest deductions and
the actual salaries expense. The interest deductions under the estimated liability are calculated by the ratio of the an-
nual planned expenditure for remuneration payment based on the results of work for the year to the planned amount
of salaries expenses.
The Company also acknowledges in its accounting the estimated liability from unused vacations by employees.
The estimated liability value of unused vacations is determined based on the total number of days of the unused va-
cation for each employee, of the average daily earnings, and insurance premiums accrued on the specified amount.
The actual amount of the vacation allowance (including the compensation amount for unused vacation) accrued to
the employee in the accounting is prescribed to the unused vacation payment due to the acknowledged amount of
the estimated liability.
An inventory of the estimated liability for unused vacation payment is carried out as of the last day of each quarter. The
results of this 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 Environ-
mental 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 provisions for decommissioning liabilities 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 provisions for decommissioning liabilities
of the fixed assets and restoration of natural resources are calculated by groups of the fields. The value of estimated
liability is recorded at the present value (discounted) cost.
Accrued estimated liabilities at initial recognition, as well as the newly introduced fixed assets are included in the
“Other noncurrent assets.”
Depreciation of assets on decommissioning 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 Divi-
sion based on the amount of oil produced during the current month and the amount of assets on the decommissioning
liabilities attributable to 1 ton of oil reserves on deposits of the group at the end of the previous reporting period.
140
141
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The accrual of discount due to the increased present value as we approach the period of performance estimated li-
ability is recorded in the financial results statement in the “Interest payable” line.
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 (based on the data of the Ministry of Economic Development of
the Russian Federation), discounted rate, discounted period) is recorded in the financial results statement in the line
of “Other income.”
LOANS AND BORROWINGS
In accordance with RAS 15/2008 “Accounting of expenses on loans and borrowings” approved by Order No. 107n of
the Ministry of Finance of Russia dated October 6, 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.
Loan and borrowing indebtedness as well as accrued interest is reflected in the balance sheet line of “Loan funds.”
Loan and borrowing indebtedness as well as accrued interest for accounting is subdivided into short-term indebted-
ness (the repayment period of which does not exceed 12 months under the terms of contract) and long-term indebt-
edness (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 on received loans and borrowing are directly attributable to acquisition and/or construction of the invest-
ment asset are included in the cost of this asset and are repaid through depreciation.
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 an object of fixed asset, intan-
gible asset, or R&D expenses.
REVENUE RECOGNITION
Revenue from sales of goods, products (completing work, rendering services) is recognized during the product title
transfer to the customers (completing work, rendering service). Revenues are reflected in the accounting statements
less value added tax, excise duties, and customs duties.
Other income includes income which is not included in revenue: revenue from the sale of fixed assets, assets under
construction and other assets, foreign currency, income from changes in estimates of liquidated fixed assets and res-
toration of natural resources, exchange differences, and other similar income.
EXPENSES
Administrative expenses include the Executive office expenses. The expenses indicated are allocated on a monthly
basis between the oil-and-gas production divisions in proportion to the planned volume of oil production (in physical
terms).
Administrative expenses in the oil-and-gas production divisions are distributed between the calculation items for pro-
duction 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.
Other expenses include expenses which are not related to the manufacture and sales of products, completion of work,
rendering of services, purchase and sale of goods.
ACCOUNTING FOR TAXES ON PROFIT
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 list of 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, the temporary and permanent differences are determined by the Company based on its revenues and ex-
penses included in the tax base 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 reflected in the
Profit and Loss Statement in 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 contract on CGT establishment in the Profit and Loss Statement,
is reflected in line 2465 “Adjusted tax on profit for the consolidated group of taxpayers” and included in determination
of net income (loss) of the Company without participating in generating 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 par-
ticipant to the budget, is reflected in the Company’s balance sheet in line 1523 of “Taxes and fees payable.”
The overpaid amounts of CGT income tax to the budget is reflected in the balance sheet in line 1238 of “Other debt-
ors.”
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 line 1238 of “Other debtors” and short-term liabilities
in line 1526 of “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 contract on CGT establishment with account 78 of “Settlements with CGT members.”
When preparing financial statements, the balanced (net) amounts of deferred tax asset and deferred tax liability are
reflected in the balance sheet.
CORRECTION OF ERRORS IN ACCOUNTING AND REPORTING
An error identified in accounting and financial statements is recognized to be significant if the ratio of the error to the
numerical indicator of the relevant group of balance sheet items of the Company, or item of the Profit and Loss State-
ment of the Company for the reporting period is a minimum of five percent. Otherwise, the error is insignificant.
142
143
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE
WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2017
Independent Auditor’s Report
To the Shareholders and Board of Directors of PJSC Tatneft:
Our opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of PJSC Tatneft and its subsidiaries (together – the “Group”) as at
31 December 2017, and its consolidated financial performance and its consolidated cash flows for the
year then ended in accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Group’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated statement of financial position as at 31 December 2017;
the consolidated statement of profit or loss and other comprehensive income for the year then
ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical
requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are
relevant to our audit of the consolidated financial statements in the Russian Federation. We have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
AO PricewaterhouseCoopers Audit
White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
Our audit approach
Overview
• Overall group materiality: Russian Roubles (“RUB”) 7,500 million,
which represents 4.2% of profit before tax adjusted for non-
recurring effects from provisions for impairment of financial
assets.
• We conducted our audit work at 4 significant reporting units.
•
The group engagement team visited Group’s operations in
Almetievsk, Nizhnekamsk and Moscow.
• Our audit scope addressed 98% of the Group’s total assets, 94% of
the Group’s revenues and 94% of the Group’s absolute value of
underlying profit before tax.
Key audit matters
•
•
Provision for impairment of investment in Closed Mutual
Investment Rental Fund AK BARS – Gorizont.
Provision for impairment of loans issued.
We designed our audit by determining materiality and assessing the risks of material misstatement in
the consolidated financial statements. In particular, we considered where management made subjective
judgements; for example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. We also addressed the risk of
management override of internal controls, including among other matters consideration of whether
there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion
on the consolidated financial statements as a whole, taking into account the structure of the Group, the
accounting processes and controls, and the industry in which the Group operates.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall group materiality for the consolidated financial statements as a whole as set out in
the table below. These, together with qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, if any, both individually and in aggregate on the financial statements as a whole.
144
145
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
Overall group materiality
RUB 7,500 million
How we determined it
4.2% of profit before tax adjusted for non-recurring effects from
provisions for impairment of financial assets.
We chose profit before tax as the benchmark because, in our view,
it is the benchmark against which the performance of the Group
is most commonly measured by users, and is a generally accepted
benchmark. The use of adjusted profit before tax mitigates the
effect of volatility (that could be material) caused by non-
recurring
impairment of
investments in Investment Rental Fund AK BARS – Gorizont and
loans issued, and provides a more stable basis for determining
materiality.
factors such as provisions
for
We chose 4.2% which is consistent with quantitative materiality
thresholds used for profit-oriented companies in this industry
sector and prior year approach.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the Key audit
matter
Provision for impairment of investment in
Closed Mutual Investment Rental Fund AK
BARS – Gorizont
Refer to Note 9 to the consolidated financial
statements
The Group records its 46% interest in the Closed
Mutual Investment Rental Fund AK BARS –
Gorizont (hereafter – “the Fund”) within
financial assets available for sale. The Fund holds
investments in land located primarily in the
Republic of Tatarstan.
As of the reporting date, the Group has assessed
the future economic benefits, which it expects to
receive from investments in the Fund, calculated
based on the current market value of land plots
held by the Fund. The Group engaged an
independent appraiser to determine the current
market value of land plots as of 31 December
2017.
following procedures
We utilized our valuation experts and performed
the
the
appropriateness of valuation methods used by the
independent appraiser:
to assess
• comparing assumptions used within the
valuation models to market indicators;
• performing sensitivity analysis over key
assumptions (for instance dependence of
market value on land category, market
prices, adjusting coefficients).
We have concluded that while certain alternative
assumptions could be applied to current market
value measurements of land, the resulting values
produced by the independent appraiser fall
within an acceptable range.
Key audit matter
an
loss
impairment
Following the valuation results, the Group
of
recognised
RUB 6,647 million on its investments in the Fund
(Line “Loss on impairments of property, plant
the
and equipment and other assets”
consolidated statement of profit or loss and other
comprehensive income) for the year ended 31
December 2017.
in
investments
We focused on this area because of the materiality
in the Fund and the
of the
significance of judgements made by management
in measuring impairment of its investments in
the Fund.
Provision for impairment of loans issued
Refer to Note 9 to the consolidated financial
statements
At of 31 December 2017, within other long-term
financial assets the Group recognises loans
issued, net of impairment provision.
The Group assesses the impairment provision
using management’s
of
recoverable values.
estimates
best
In estimating recoverable values, the Group
evaluates
information about each debtor's
solvency, obtains experts’ opinions on market
values of collaterals, prepares discounted cash
flow models, and analyses additional relevant
information.
impairment provision charge of
For the year ended 31 December 2017, the Group
recognised
RUB 7,107 million on loans issued (Line “Loss on
impairments of property, plant and equipment
and other assets” in the consolidated statement of
profit or loss and other comprehensive income).
We focused on this matter because of the
materiality of the impairment provision and the
significance of
judgements and estimates
involved in its calculation.
How our audit addressed the Key audit
matter
Based on the work performed, we did not identify
any material misstatements in the amount of
impairment provision recognised by the Group
and disclosed in the accompanying consolidated
financial statements.
At the same time we note that the current market
value of land held by the Fund is sensitive to the
assumption of the Group’s ability to transfer land
from the agricultural category to the category of
industrial land. If the process of land transfer to
another category is not timely finalised, the
current market value of land may significantly
decrease resulting in the need to recognise
additional impairment provisions.
We performed the following procedures to assess
the appropriateness of valuation methods and
methodology used in estimating recoverable
values:
• analysis of key assumptions used by the
Group’s management when estimating the
current market value of property and rights
of claim provided as collateral under loan
agreements;
• review of the mathematical accuracy of
discounted cash flow models (if applicable)
and analysis of key assumptions used by the
Group’s management in these models.
We engaged our valuation experts to review the
valuation of the current market value of property
and rights of claim pledged as collateral with the
Group for the loans issued.
Based on the work performed, we did not identify
any material misstatements in the amount of
impairment provision recognised by the Group
and disclosed in the accompanying consolidated
financial statements.
146
147
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to be able to give an opinion on
the consolidated financial statements as a whole, taking into account the geographic and management
structure of the Group, the accounting processes and controls and the industry in which the Group
operates.
In establishing the overall approach to the group audit, we determined the type of work that needed to
be performed at reporting units by us, as the group engagement team, or component teams operating
under our instruction. Where the work was performed by the component team of Bank ZENIT, we
determined the level of involvement we needed to have in the audit work at those reporting units to be
able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our
opinion on the Group’s consolidated financial statements as a whole.
We identified the following significant reporting units where we performed full-scope audit procedures:
PJSC Tatneft (parent holding company, corporate centre located in Almetievsk), JSC TANECO (oil
refinery subsidiary located Nizhnekamsk), PJSC Nizhnekamskshina (tires producing subsidiary located
in Nizhnekamsk) and Bank ZENIT (banking subsidiary, corporate centre located in Moscow). In
addition, we performed specified audit procedures over selected financial information at a number of
less significant reporting units in order to increase the level of audit comfort.
The audit work performed by the audit teams at all the components and by the corporate team enabled
us to get 98% coverage of the Group’s total assets, 94% coverage of the Group’s revenue and 94%
coverage of the Group’s absolute value of underlying profit before tax.
By performing the procedures above at significant and less significant reporting units, combined with
additional procedures at the Group level, we obtained sufficient and appropriate audit evidence
regarding the financial information of the Group as a whole to provide a basis for our opinion on the
consolidated financial statements.
Other information
Management is responsible for the other information. The other information comprises “Management’s
discussion and analysis of financial condition and results of operations for the three months and the
year ended 31 December 2017” (but does not include the consolidated financial statements and our
auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and PJSC Tatneft
Annual Report 2017 and Quarterly Report of the Equity Securities Issuer for the 1st quarter 2018, which
are expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Group
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
148
149
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
ABOUT THE COMPANY
REPORT OF THE BOARD OF DIRECTORS
CORPORATE GOVERNANCE
FINANCIAL RESULTS
SOCIAL RESPONSIBILITY
INDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
Consolidated Statement
of FINANCIAL POSITION
in millions of Russian Rubles
Assets
Cash and cash equivalents
Banking: Mandatory reserve deposits with CB RF
Restricted cash
Accounts receivable, net
Banking: Loans to customers
Other short-term financial assets
Inventories
Prepaid expenses and other current assets
Prepaid income tax
Non-current assets held for sale
Total current assets
Long-term accounts receivable, net
Banking: Loans to customers
Other 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
Banking: Due to banks and CB RF
Banking: Customer accounts
Taxes payable
Income tax payable
Other short-term liabilities
Total current liabilities
6
7
8
9
10
11
12
7
8
9
13
14
15
16
17
18
19
14
42,797
1,916
-
61,598
44,495
68,925
39,318
23,123
1,027
2,182
77,106
1,988
3
63,900
69,103
57,931
33,271
23,889
1,058
4,247
285,381
332,496
3,439
106,488
52,364
658
651,460
1,502
6,162
1,807
123,923
44,397
639
583,614
2,043
5,678
822,073
762,101
1,107,454
1,094,597
39,916
47,561
27,971
158,436
27,806
3,563
1,043
19,288
45,509
13,935
177,422
23,737
4,511
1,961
306,296
286,363
150
PJSC Tatneft 2017 Annual Report
www.tatneft.ru
151
Consolidated Statement
of FINANCIAL POSITION (CONTINUED)
in millions of Russian Rubles
Note
31 December
2017
31 December
2016
Long-term debt, net of current portion
Banking: Due to banks and CB RF
Banking: Customer accounts
Decommissioning provision, net of current portion
Deferred income tax liability
Other long-term liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity
Preferred shares
(authorized and issued at 31 December 2017 and 2016 – 147,508,500 shares;
nominal value at 31 December 2017 and 2016 – RR1.00)
Common shares
(authorized and issued at 31 December 2017 and 2016 – 2,178,690,700 shares;
nominal value at 31 December 2017 and 2016 – RR1.00)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Less: Common shares held in treasury, at cost (75,483,000 shares and 75,481,000
shares at 31 December 2017 and 2016, respectively)
Total Group shareholders’ equity
Non-controlling interest
Total shareholders’ equity
Total liabilities and equity
16
18
19
13
14
20
21
21
29
6,896
5,669
478
38,017
27,323
4,046
82,429
388,725
34,842
4,415
3,292
30,324
22,600
3,857
99,330
385,693
746
746
11,021
11,021
84,437
1,652
624,254
(10,251)
711,859
6,870
718,729
85,224
1,293
615,477
(10,250)
703,511
5,393
708,904
1,107,454
1,094,597
152
Consolidated Statement
of PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
in millions of Russian Rubles
Sales and other operating revenues on non-banking activities, net
Costs and other deductions on non-banking activities
Operating expenses
Purchased oil and refined products
Exploration
Transportation
Selling, general and administrative
Depreciation, depletion and amortization
Loss on impairments of property, plant and equipment and other assets
Taxes other than income taxes
Maintenance of social infrastructure and transfer of social assets
Note
26
Year ended
31 December 2017
Year ended
31 December 2016
681,159
580,127
(123,517)
(119,480)
13
13
9
14
13
(70,984)
(1,143)
(35,925)
(48,327)
(24,885)
(15,512)
(194,316)
(5,427)
(80,166)
(1,185)
(30,478)
(46,754)
(21,626)
(5,616)
(126,590)
(5,182)
Total costs and other deductions on non-banking activities
(520,036)
(437,077)
Gain on disposals of interests in subsidiaries and associates, net
27,29
Other operating income/(expenses), net
109
1,343
1,951
(917)
Operating profit on non-banking activities
162,575
144,084
Net interest, fee and commission and other operating income/
(expenses) and gains/(losses) on banking activities
Interest, fee and commission income
Interest, fee and commission expense
Provision for loan impairment
Operating expenses
Loss arising from dealing in foreign currencies, net
Other operating expenses, net
Total net interest, fee and commission and other operating expenses and
losses on banking activities
Other income/(expenses)
Foreign exchange loss, net
Interest income on non-banking activities
Interest expense on non-banking activities, net of amounts capitalized
Share of results of associates and joint ventures
Total other income/(expenses)
Profit before income tax
24,25
24,25
8
30
23
23
30,964
(14,342)
(8,685)
(7,498)
(27)
(1,220)
(808)
(1,618)
6,494
(3,095)
(10)
1,771
163,538
7,955
(5,105)
(1,167)
(2,258)
(175)
(230)
(980)
(3,304)
5,430
(3,920)
(339)
(2,133)
140,971
153
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
Consolidated Statement
of PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (CONTINUED)
Consolidated Statement
of CHANGES IN EQUITY
Income tax
Current income tax expense
Deferred income tax expense
Total income tax expense
Profit for the year
Other comprehensive income/(loss), net of income tax:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments
Unrealized holding gains on available-for-sale securities
Items that will not be reclassified to profit or loss:
Actuarial loss on employee benefit plans
Other comprehensive income/(loss)
in millions of Russian Rubles
Note
Year ended
31 December 2017
Year ended
31 December 2016
14
20
(34,227)
(5,419)
(39,646)
123,892
476
133
(250)
359
(29,657)
(5,184)
(34,841)
106,130
(1,050)
1,338
(634)
(346)
Total comprehensive income for the year
124,251
105,784
Profit/(loss) attributable to:
- Group shareholders
- Non-controlling interest
Total comprehensive income/(loss) 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
154
123,139
753
107,389
(1,259)
123,892
106.130
123,498
753
107,043
(1,259)
124,251
105,784
54.73
54.32
2,103
148
47.50
47.48
2,113
148
21
21
in millions of Russian Rubles
Attributable to Group shareholders
Number of shares
(thousands)
Share
capital
Additional paid-
in capital
Treasury
shares
Actuarial loss on
employee benefit plans
Balance at 1 January 2016
2,270,708
11,767
85,170
(3,083)
Profit for the year
Other comprehensive (loss)/income
for the year
Total comprehensive (loss)/income
for the year
Treasury shares
- Acquisitions
- Disposals
Business combinations
Acquisition of non-controlling interest in
subsidiaries
Disposal of non-controlling interest in
subsidiaries
Dividends declared (Note 21)
-
-
-
(19,990)
(20,196)
206
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54
-
-
-
-
-
(7,167)
(7,215)
48
-
-
-
-
(987)
-
(634)
(634)
-
-
-
-
-
-
-
Balance at 31 December 2016
2,250,718
11,767
85,224
(10,250)
(1,621)
Profit for the year
Other comprehensive (loss)/income for
the year
Total comprehensive (loss)/
income for the year
Treasury shares
- Acquisitions
- Disposals
Business combinations
-Acquisition of non-controlling interest in
subsidiaries (Note 29)
Disposal of non-controlling interest in
subsidiaries
Dividends declared (Note 21)
-
-
-
(2)
(92)
90
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(787)
-
-
-
-
-
(1)
(32)
31
-
-
-
-
-
(250)
(250)
-
-
-
-
-
-
-
Balance at 31 December 2017
2,250,716
11,767
84,437
(10,251)
(1,871)
155
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
Consolidated Statement
of CHANGES IN EQUITY (CONTINUED)
in millions of Russian Rubles
Consolidated Statement
of CASH FLOWS
Attributable to Group shareholders
Foreign currency
translation adjustments
Unrealized holding gains on
available-for-sale securities
Retained
earnings
Total shareholders’
equity
Non-controlling
interest
Total
equity
Operating activities
Profit for the year
Adjustments:
in millions of Russian Rubles
Note
Year ended
31 December 2017
Year ended
31 December 2016
123,892
106,130
2,251
-
(1,050)
(1,050)
-
-
-
-
-
-
-
1,201
-
476
476
-
-
-
-
-
-
-
375
532,821
628,314
29,344
657,658
-
107,389
107,389
(1,259)
106,130
1,338
-
(346)
-
(346)
1,338
107,389
107,043
(1,259)
105,784
-
-
-
-
-
-
-
-
-
-
-
-
-
(7,167)
(7,215)
48
-
54
-
-
-
-
7,395
(229)
(7,167)
(7,215)
48
7,395
(175)
(29,855)
(29,855)
(24,733)
(24,733)
(3)
(24,736)
1,713
615,477
703,511
5,393
708,904
-
123,139
-
123,139
359
753
123,892
-
359
133
133
-
-
-
-
-
-
-
123,139
123,498
753
124,251
-
-
-
-
-
-
(1)
(32)
31
-
(787)
-
-
-
-
97
787
(1)
(32)
31
97
-
(145)
(145)
(114,362)
(114,362)
(15)
(114,377)
1,677
1,846
624,254
711,859
6,870
718,729
156
26
14
9
8
Net interest, fee and commission and other operating expenses and losses on bank-
ing activities
Depreciation, depletion and amortization
Income tax expense
Loss on impairments of property, plant and equipment, other assets and disposals of
interest in subsidiaries and associates
Effects of foreign exchange
Equity investments gain net of dividends received
Change in provision for impairment of financial assets
Change in fair value of trading securities
Interest income on non-banking activities
Interest expense on non-banking activities, net of amounts capitalized
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
Other non-current assets
Net cash provided by non-banking operating activities before income tax and
interest
Net interest, fee and commission and other operating expenses and losses on banking
activities
Adjustments:
Provision for loan impairment
Other
Changes in operational working capital on banking activities, excluding cash:
Mandatory reserve deposits with Central Bank of Russian Federation
Due from banks
Banking loans to customers
Due to banks and Central Bank of Russian Federation
Banking customers accounts
Debt securities issued
Financial assets at fair value through profit or loss
Other assets and liabilities
Net cash provided by (used in) banking operating activities before
income tax
Income taxes paid
Interest paid on non-banking activities
Interest received on non-banking activities
Net cash provided by operating activities
808
24,885
39,646
15,403
(504)
10
3,462
(21)
(6,494)
3,095
(538)
1,245
(5,997)
66
(106)
(6,265)
4,071
375
980
21,626
34,841
3,665
(1,774)
339
(226)
(48)
(5,430)
3,920
(3,020)
(5,336)
(1,412)
5,326
(51)
7,417
6,934
(519)
197,033
173,362
(808)
(980)
8,685
(1,842)
72
8,371
15,861
15,181
(18,961)
(1,098)
(534)
(2,620)
22,307
(35,144)
(160)
6,236
190,272
1,167
(1,235)
4
2,770
(8,651)
(506)
1,083
(1,950)
(983)
(30)
(9,311)
(26,888)
(807)
5,015
141,371
157
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
Consolidated Statement
of CASH FLOWS (CONTINUED)
in millions of Russian Rubles
Investing activities
Additions to property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash (outflow)/inflow on acquisition of subsidiaries
Proceeds from disposal of subsidiaries and associates, net of disposed cash
Purchase of available-for-sale financial assets
Purchase of held to maturity investments
Proceeds from disposal of available-for-sale financial assets
Proceeds from redemption of held to maturity investments
Proceeds from sale of non-current assets held for sale
Purchase of investments in associates and joint ventures
Proceeds from redemption of bank deposits
Placement of bank deposits
Proceeds from redemption of loans and notes receivable
Issuance of loans and notes receivable
Dividends received
Change in restricted cash
Net cash used in investing activities
Financing activities
Proceeds from issuance of debt from non-banking activities
Repayment of debt from non-banking activities
Issuance of bonds
Redemption of bonds
Proceeds from subordinated 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
Note
Year ended
31 December 2017
Year ended
31 December 2016
29
27
12
29
30
30
30
30
(84,986)
1,744
(3,300)
-
(32,399)
(59,038)
19,379
13,680
901
(738)
33,399
(994)
1,343
(1,316)
-
3
(95,669)
993
48,534
33,155
(7,566)
(3,037)
5,587
2,174
110
(6,700)
10,032
(40,096)
6,151
(2,940)
1,521
315
(112,322)
(47,436)
25,107
(5,434)
2,365
(25,740)
194
(108,479)
(15)
(32)
31
18
(111,985)
(34,035)
(274)
77,106
42,797
2,129
(6,629)
1,504
(5,081)
-
(24,717)
(3)
(7,215)
48
-
(39,964)
53,971
(1,465)
24,600
77,106
Notes
to THE CONSOLIDA TED 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, refined products as
well as production and marketing of petrochemicals and since October 2016, with acquisition of the controlling
interest in ZENIT Banking Group (Bank ZENIT) the Group is also engaged in banking activities (see Note 29).
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, Bugulmin-
sky 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 2017 and 2016 the government of Tatarstan controls about 36% of the Company’s voting
stock. 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 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 also controls or exercises signifi-
cant influence over a number of the Group’s suppliers and contractors.
The Company is domiciled in the Russian Federation. The address of its registered office is Lenina St., 75, Alm-
etyevsk, Republic of Tatarstan, Russian Federation.
NOTE 2: BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”).
These consolidated financial statements have been prepared on a historical cost basis, except for initial recog-
nition of financial instruments based on fair value, revaluation of available-for-sale financial assets and finan-
cial 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”),
and applicable accounting and reporting standards of countries outside the Russian Federation. A number of
entities of the Group prepare their financial statements in accordance with IFRS. The accompanying consoli-
dated financial statements have been prepared from these accounting records and adjusted as necessary to
comply with IFRS. The principal differences 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 unrecov-
erable assets; (5) consolidation; (6) share based payment; (7) accounting for oil and gas properties; (8) rec-
158
159
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
ognition 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 ac-
counting policies. The areas involving 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.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Functional and presentation currency. The presentation currency of the Group is the Russian Ruble.
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 Ruble because the majority of Group
revenues, costs, property and equipment purchased, debt and trade liabilities are either priced, incurred, pay-
able or otherwise measured in Russian Rubles. Accordingly, transactions and balances not already measured
in Russian Rubles (primarily US Dollars) have been re-measured into Russian Rubles 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 exchange rates
prevailing 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 liabili-
ties that are not denominated in Russian Rubles 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 li-
abilities into Russian Rubles are recorded in a separate component of shareholders’ equity entitled foreign
currency translation adjustments. Revenues, expenses 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 Russian Federation (“CB RF”), of the Rus-
sian Ruble (“RR”) to the US Dollar (“US $”) at 31 December 2017 and 2016 was RR 57.60 and RR 60.66 to US
$, respectively. Average rate of exchange for the years ended 31 December 2017 and 2016 were RR 58.35
and RR 67.03 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 re-
turns, 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. Subsidiaries are fully 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 consider-
ation 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 busi-
ness combination are measured initially at their fair values at the acquisition date. The Group recognizes any
non-controlling interest in the acquiree on an acquisition-by-acquisition basis at the non-controlling inter-
est’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 recog-
nized 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 recognized directly in the profit and loss for the year.
Inter-company transactions, balances and unrealized gains and losses on transactions between Group compa-
nies are eliminated. Unrealized 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 signifi-
cant 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 recognized at cost. Dividends 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 recognized 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 recognized 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 recognized 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 recognize 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 evidence of an impairment of the asset transferred.
The Group reviews equity method investments for impairment on an annual basis, and records impairment
when circumstances indicate that the carrying value exceeds the recoverable amount.
Cash and cash equivalents. Cash represents cash on hand and in bank accounts and CB RF, other than
mandatory reserves deposits with CB RF, 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. Cash and cash equivalents are carried at
amortised cost.
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.
160
161
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Mandatory reserve deposits with the CB RF. Mandatory reserve deposits with the CB RF represent non-
interest bearing funds placed with the CB RF that are not available to finance the Group’s day-to-day op-
erations and, therefore, are not considered part of cash and cash equivalents. The amount to be deposited
with the CB RF is calculated in accordance with the CB RF’s regulation and depends on the volume of funds
attracted by the Group from its customers and banks in the course of banking activities.
Financial assets. All financial assets are initially recognized when an entity becomes a party to the contract,
they are recognized at fair value plus, in the case of investments not at fair value through profit or loss, direct-
ly attributable transaction costs. The Group‘s financial assets include cash and cash equivalents, restricted
cash, mandatory reserve deposits with CB RF, banking customer loans, deposits, due from banks, securities,
derivatives, precious metals, 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; (d) held to maturity investments. The Group
initially recognises loans and receivables on the date that they are originated. All other financial assets are
recognised initially on the trade date, which is the date that the Group becomes a party to the contractual
provisions of the instrument. The classification depends on the nature and purpose of the financial assets
and is determined at the time of initial recognition.
The Group derecognizes financial assets when (a) the assets are redeemed or the rights to cash flows from
the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial
assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks
and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and
rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the
practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restric-
tions on the sale.
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 amortized cost using the effective interest method, less any impairment losses. The accrued
interest is included in the profit and losses for the year. The allowance for impairment of loans and receiv-
ables is established if there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the loans and receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in
payments are considered indicators that the receivable is impaired. The amount of the allowance is the dif-
ference between the carrying amount and the recoverable amount, being the present value of expected cash
flows, discounted at the financial asset’s original effective interest rate at the date of origination of the loan
or receivable. The losses arising from impairment are recognized as selling, general and administrative ex-
penses in the consolidated statement of profit or loss and other comprehensive income.
Due from banks. Amounts due from banks other than those that are part of the Group are recorded when the
Group advances money to counterparty banks with no intention of trading the resulting unquoted non-deriv-
ative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised
cost. Deposits, placed in the course of banking activities in other banks having maturity exceeding one work-
ing day from the balance sheet date are treated as amounts due from banks. Due from banks that mature
within three months or less from the date of placement are included in cash and cash equivalents. Due from
banks are initially recognized at fair value. These balances are subsequently re-measured at amortized cost
at the effective interest method and are carried net of any allowance for impairment.
Loans to customers. Loans issued in the course of banking activities that have fixed or determinable pay-
ments that are not quoted in an active market are classified as loans to customers. Loans to customers are
measured at amortised cost using the effective interest method, less any impairment. Interest income is
recognized by applying the effective interest rate, except for short-term receivables when the recognition of
interest would be immaterial.
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. Fi-
nancial 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. Coupon and interest earned
on financial assets at fair value through profit or loss are reflected as interest, fee and commission income.
Dividends received, all other elements of the changes in the fair value and gains or losses on derecognition
are recorded in other operating income/(expenses) in the consolidated statement of profit or loss and other
comprehensive income in the period in which they arise.
Available-for-sale financial assets. Available-for-sale financial assets are non-derivative financial assets
that are designated as available-for-sale or are not classified in any of the above categories of financial as-
sets. 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 impair-
ment 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. Dividends on available-for-
sale equity instruments are recognized in profit or loss for the year when the Group’s right to receive payment
is established and it is probable that the dividends will be collected. All other elements of changes in the fair
value are recognized in other comprehensive income until the investment is derecognized or impaired, at
which time the cumulative gain or loss is reclassified from other comprehensive income to profit or loss for
the year. Impairment losses are recognized in profit or loss for the year when incurred as a result of one or
more events (“loss events”) that occurred after the initial recognition of investment securities available for
sale.
The Group assesses at each reporting date whether there is objective evidence that a financial asset or a
group of financial assets is impaired. Prolonged decline in the fair value of the security below its cost is con-
sidered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale fi-
nancial 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 compre-
hensive income.
Held to maturity investments. Held to maturity investments are non-derivative financial assets with fixed
or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold
to maturity. Held to maturity investments are measured at amortized cost using the effective interest method
less any impairment.
162
163
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY If the Group were to sell or reclassify more than an insignificant amount of held to maturity investments before
maturity (other than in certain specific circumstances), the entire category would be tainted and would have to
be reclassified as available-for-sale. Furthermore, the Group would be prohibited from classifying any financial
asset as held to maturity during the current financial year and following two financial years.
Impairment of financial assets carried at amortized cost. Impairment losses are recognized in profit
or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recog-
nition of the financial asset and which have an impact on the amount or timing of the estimated future cash
flows of the financial asset or group of financial assets that can be reliably estimated. If the Group deter-
mines that no objective evidence exists that impairment was incurred for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics, and collectively assesses them for impairment. The primary factors that the Group consid-
ers in determining whether a financial asset is impaired are its overdue status and realisability of related
collateral, if any.
Repurchase agreements. Repurchase agreements (“REPO”) are used by the Group as an element of its
treasury management and trading business in a course of its banking activities and are treated as secured
financing transactions.
A REPO is an agreement to transfer a financial asset to another party in exchange for cash or other consid-
eration and a concurrent obligation to reacquire the financial assets at a future date for an amount equal to
the cash or other consideration exchanged plus interest.
Financial assets sold under REPO are included into financial assets at fair value through profit or loss,
available-for-sale financial assets or held to maturity investments and funds received under these agree-
ments are accounted for as amounts due to banks and CB RF and customer accounts as appropriate.
Financial assets purchased under agreements to resell (“reverse repurchase”) are recorded as amounts
due from banks or loans to customers as appropriate. Gain/loss on the sale of the above instruments is
recognized as interest income or expense on banking activities in the consolidated statement of profit or
loss and other comprehensive income based on the difference between the repurchase price accreted to
date using the effective interest method and the sale price when such instruments are sold to third par-
ties. When the reverse REPO/REPO is fulfilled on its original terms, the effective yield/interest between the
sale and repurchase price negotiated under the original contract is recognized using the effective interest
method.
Financial liabilities. All financial liabilities are recognized 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, due to banks and CB RF, banking customer accounts, debt securities and bonds issued,
credit facilities, subordinated debt and other borrowings.
Financial liabilities are recognized initially at fair value. Subsequent to initial recognition, these financial
liabilities are measured at amortized cost using the effective interest method.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or
expired. When an existing 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 modi-
fication 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 recognized in the profit and loss for the year.
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial
position only when there is a legally enforceable right to offset the recognized amounts, and there is an inten-
tion to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
Due to banks and CB RF, customer accounts and subordinated debt. Amounts due to banks and CB RF, cus-
tomer accounts and subordinated debt are initially recognized in accordance with the accounting policy for
financial instruments and subsequently re-measured at amortized cost. Any difference between net proceeds
and the redemption value of these amounts due is recognized in the consolidated statement of profit or loss
and other comprehensive income over the life of related financial liability using the effective interest method.
Debt securities and bonds issued. Debt securities issued include promissory notes and certificates of de-
posit issued by the Group to its customers in the course of its banking activities. Bonds issued represent secu-
rities issued by the Bank that are traded and quoted in the open market. Promissory notes carry a fixed date of
repayment. These may be issued against cash deposits or as a payment instrument, which the customer can
sell at a discount in the over-the-counter market. Debt securities and bonds issued are accounted for accord-
ing to the same principles used for amounts due to banks and CB RF, customer accounts and subordinated
debt. If the Group purchases its own debt, it is removed from the consolidated statement of financial position
and the difference between the carrying amount and the amount paid is recognized as a gain or loss on re-
demption of debt.
Non-current assets held for sale. A non-current asset is classified as held for sale if it is highly probable that
the asset’s carrying amount will be recovered through a sale transaction rather than through continuing use
and the asset (or disposal group) is available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale within one year
from the date of classification of an asset as held for sale.
Non-current assets held for sale are measured at the lower of its carrying amount and fair value less costs of
disposal. If the fair value less costs of disposal of an asset held for sale is lower than its carrying amount, an
impairment loss is recognized in the consolidated statement of profit or loss and other comprehensive income
as other operating income/expense. Any subsequent increase in an asset’s fair value less costs of disposal is
recognized to the extent of the cumulative impairment loss that was previously recognized in relation to that
specific asset.
Precious metals. Assets and liabilities denominated in precious metals are translated at the current rate com-
puted based on the second fixing of the London Metal Exchange rates, using the RR/US $ exchange rate ef-
fective at the date. Changes in the bid prices are recorded in other operating income/expenses from banking
activities.
Inventories. Inventories of crude oil, refined oil products, materials and supplies, finished goods and other
inventories 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 bring-
ing an item or product to its existing condition and location.
Prepaid expenses. Prepaid expenses include advances for purchases of products and services, insurance
fees, prepayments for export duties, VAT and other taxes. Prepayments are carried at cost less provision for
impairment.
164
165
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 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 prepayments are received.
If there is an indication that the assets, goods or services relating to a prepayment will not be received, the car-
rying value of the prepayment is written down accordingly and a corresponding impairment loss is recognized
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 919 and RR 857 per ton in 2017 and 2016, respectively) adjusted depending on
the monthly average market prices of the Urals blend and the RR/US $ average exchange rate for the preced-
ing month, taking into account the features of oil production. MET liabilities are lower for fields whose deple-
tion rate exceeds 80% of their proved reserves as per the Russian classification of reserves and resources, as
a result of using a reduction factor that depends on the level of depletion. The Company saves 3.5% at a field
for each percent of depletion above the 80% threshold. In addition, lower MET is envisaged for small fields via
application of a factor that characterises the volume of reserves. The amount of tax benefits for depleted and
small fields is calculated using the base MET rate of RUB 559 per tonne (in 2016 - RUB 559 per tonne).
Furthermore, the zero MET tax rate is applied the production of highly viscous crude oil (with viscosity of 10,000
Megapascal second in reservoir conditions) and oil produced from Domanic productive sediments. In addition,
another benefit in the form of a lower MET is available for production of highly viscous oil with viscosity in the
range from 200 to 10,000 Megapascal second (in reservoir conditions) and for production of oil in the Nenets
Autonomous Okrug (via application of Kkan ratio that characterises the production area and oil properties. The
saving in these circumstances is calculated usung the base MET tax rate of RUB 559 per tonne (in 2016 - RUB
559 per tonne).
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 pay-
ment 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 and related production facilities are
capitalized.
Other exploration expenses, including geological and geophysical expenses and the costs of carrying and
retaining undeveloped properties, are expensed as incurred. The costs of exploratory wells that find oil and
gas reserves are capitalized as exploration and evaluation assets on a “field by field” basis pending determi-
nation 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 re-
view 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 respec-
tive 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 remaining 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 Con-
struction 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 of disposal 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 production assets, at an entire complex level for refining assets or at a site level for
service stations. Impairment losses are recognized 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 accounted for at the lower of amortized cost or fair value, less costs of disposal. 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
166
167
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY method for each field based upon proved developed oil and gas reserves, except in the case of significant as-
set components whose useful life differs from the lifetime of the field, in which case the straight-line method is
applied.
Capitalisation of borrowing costs on non-banking activities. Borrowing costs directly attributable to the acquisi-
tion, construction or production of assets 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.
Oil and gas licenses for exploration of unproved reserves are capitalised within property, plant and equipment;
they are depreciated 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 carrying amount. Gains and losses are recorded in other income and expenses in the consolidated
statement of profit or loss and other comprehensive income.
The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on quali-
fying 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 obtaining 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 ex-
tent 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 functional currency. The foreign exchange gains and losses eligible for capitalisation are assessed on a cu-
mulative basis.
Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.
Interest income on non-banking activities. Interest income on non-banking activities is recognized on a time-
proportion basis using the effective interest method.
Employee benefits, post-employment and other long-term benefits. Wages, salaries, contributions to the social
insurance 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 manage-
ment. 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 recognized using the projected unit credit method.
The cost of providing pensions is accrued and charged to staff expense within operating expenses in the Consolidated
Statement 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 assump-
tions and from experience adjustments with regard to post employment benefit plans are recognized immediately in
other comprehensive income. Actuarial gains and losses related to other long-term benefits are recognized immedi-
ately in the profit or loss for the year.
Past service costs are recognized 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 tech-
niques, including discounted 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.
168
169
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY In the normal course of business the Group contributes to the Russian Federation State Pension Fund on behalf of its employ-
ees. 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 manage-
ment and directors of the Company. Under the provisions of the Plan, share-based bonus awards (“Awards”) are is-
sued 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 av-
erage daily trading price as reported on the Moscow Exchange 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 original or modified terms of a debt instrument. Such financial guarantee contracts and letters of credit issued are
initially recognized at fair value. Subsequently they are measured at the higher of (a) the amount recognized as a provi-
sion in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” and (b) the amount initially
recognized less, where appropriate, cumulative amortization of initial premium revenue received over the financial
guarantee contracts or letter of credit issued.
Income Taxes. Effective 1 January 2012, the Company has established the Consolidated Taxpayer Group which cur-
rently includes 5 companies of the Group. Income taxes have been provided for in the consolidated financial state-
ments 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 recognized in profit or loss for the year, except if it is recog-
nized in other comprehensive income or directly in equity because it relates to transactions that are also recognized,
in the same or a different period, in other comprehensive income or directly in equity.
The Awards are recognized as expense over the annual service period, net of forfeitures, with a corresponding liability
to accounts payable and accrued liabilities.
Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable prof-
its or losses for the current and prior periods.
The liability at 31 December 2016 is determined based on the final expected bonus payments. For the year ended 31
December 2017 the Company’s Board of Directors did not approve the issuance of Awards.
Decommissioning provisions. The Group recognizes a liability for the fair value of legally required or constructive
decommissioning 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 cer-
tain actions to be taken by the Group in the abandonment of these operations. Such actions include well abandon-
ment activities, equipment dismantlement and other reclamation activities. The Group’s estimates of future abandon-
ment 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 sev-
eral 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 recognized 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 recognized 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 manufac-
turing 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.
Financial guarantee contracts issued and letters of credit. Financial guarantee contracts and letters of credit
issued by the Group in the course of its banking activities are credit insurance that provides for specified payments to
be made to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under
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 recognized for all deductable or taxable temporary differ-
ences, except:
•Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable
profit or loss;
•In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future; and
•Where it is not probable that future taxable profit will be available against which the deductible temporary differ-
ences 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. Deferred tax assets and liabilities are netted only within consolidated taxpayers group and 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
consolidated statement of profit or loss and other comprehensive income and taxes payable in the consolidated state-
ment 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 ac-
crued expenses in the consolidated statement of financial position, respectively.
Share capital. Ordinary shares and non-redeemable preference shares with discretionary dividends are both classi-
fied as equity.
Dividends paid to shareholders are determined by the Board of directors and approved at the annual shareholders’ meet-
ing. Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved.
170
171
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 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
additional 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 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 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 as-
sured. Revenue 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 arrange-
ment and netted against each other in the consolidated statement 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.
Recognition of interest, fee and commission income and expense on banking activities. Interest income and ex-
pense are recognized on an accrual basis calculated using the effective interest method. The effective interest method is
a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or finan-
cial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life
of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Commissions and other fees are recognized when the related transactions are completed. Loan origination fees for loans
issued to customers, are deferred (together with related direct costs) and recognized as an adjustment to the loans ef-
fective yield. Other income and expenses are recognized on an accrual basis.
Once a financial asset or group of similar financial assets has been written down (partly written down) as a result of an
impairment loss, interest income is thereafter recognized using the rate of interest used to discount the future cash flows
for the purpose of measuring the impairment loss.
Loan origination fees are deferred, together with the related direct costs, and recognized as an adjustment to the ef-
fective interest rate of the loan. Where it is probable that a loan commitment will lead to a specific lending arrangement,
the loan commitment fees are deferred, together with the related direct costs, and recognized as an adjustment to the
effective interest rate of the resulting loan. Where it is unlikely that a loan commitment will lead to a specific lending ar-
rangement, the loan commitment fees are recognized in the consolidated statement of profit or loss and other compre-
hensive income over the remaining period of the loan commitment. Where a loan commitment expires without resulting
in a loan, the loan commitment fee is recognized in the consolidated statement of profit or loss and other comprehensive
income on expiry. Loan servicing fees are recognized as revenue as the services are provided. Loan syndication fees are
recognized in the consolidated income statement when the syndication has been completed. All other commissions are
recognized when services are provided.
Transportation expenses. Transportation expenses recognized 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 customers (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.
Fiduciary activities. The Group provides fiduciary services to its customers in the course of its banking activities. The
Group also provides depositary services to its customers which include transactions with securities on their depositary
accounts. Assets and liabilities held by the Group in its own name, but on behalf of third parties, are not reported on the
consolidated statement of financial position. The Group accepts the operational risk on these activities, but its customers
bear the credit and market risks associated with such operations.
NOTE 4: CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN AP-
PLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the amounts recognized in the consolidated financial state-
ments 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 recognized in the
consolidated financial 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 (Note 13);
•Impairment of property, plant and equipment;
•Impairment of loans to customers on banking activities (Note 8);
•Impairment of other loans (Note 9);
•Impairment of available-for-sale equity investments (Note 9);
•Held-to-maturity financial assets (Note 9);
•Accounting of investments in CJSC “National Non-State Pension Fund”;
•Financial instruments fair value estimation.
172
173
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 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 activity, which may take several years to complete and before any related proved re-
serves can be booked.
Proved and proved developed reserves are estimated by reference to available geological and engineering data and
only include volumes for which access to market is assured with reasonable certainty. Estimates of oil and gas re-
serves 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 reser-
voir performance under producing conditions 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 Petroleum Engineers (SPE) for proved reserves.
Changes to the Group’s estimates of proved and proved developed reserves affect prospectively the amounts of de-
preciation, 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,
management believes hydrocarbon production licenses will be extended past their current expiration dates at insig-
nificant 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 obsoles-
cence, residual 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 equipment 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. Man-
agement 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 esti-
mates of future costs and economic lives of the oil and gas assets. Estimating future decommissioning provisions is
complex and requires management to make estimates and judgments with respect to removal obligations that will
occur many years in the future.
Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or dis-
count rates used in valuation.
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 subject 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.
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 manufac-
turing 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 discount rate:
Information about decommissioning provision is presented in Note 13.
Discount rate
Impact on decommissioning provision
Change in
At 31 December 2017
At 31 December 2016
+1%
-1%
(8,457)
11,148
(6,812)
8,954
Impairment of property, plant and equipment. At 31 December 2017 management assessed whether there is any
indication of impairment of long-lived assets. Based on the stable financial performance, absence of significant adverse
changes in economic and market environment and decrease in interest rates the management believes that there is no
indication of impairment as of 31 December 2017.
Impairment of loans to customers on banking activities. The Group regularly reviews its loans to assess for impair-
ment. The Group’s loan impairment provisions are established to recognize incurred impairment losses in its portfolio of
loans and receivables. The Group considers accounting estimates related to allowance for impairment of loans and re-
ceivables a key source of estimation uncertainty because (i) they are highly susceptible to change from period to period
as the assumptions about future default rates and valuation of potential losses relating to impaired loans and receivables
are based on recent performance experience, and (ii) any significant difference between the Group’s estimated losses
and actual losses would require the Group to record provisions which could have a significant impact on its financial
statements in future periods.
The Group uses management’s judgment to estimate the amount of any impairment loss in cases where a borrower
has financial difficulties and there are few available sources of historical data relating to similar borrowers. Similarly, the
Group estimates changes in future cash flows based on past performance, past customer behavior, observable data
indicating an adverse change in the payment status of borrowers in a group, and national or local economic conditions
that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for
assets with credit risk characteristics and objective evidence of impairment similar to those in the group of loans. The
Group uses management’s judgment to adjust observable data for a group of loans to reflect current circumstances not
reflected in historical data.
The allowances for impairment of financial assets in the consolidated financial statements have been determined on the
174
175
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY basis of existing economic and political conditions. The Group is not in a position to predict what changes in conditions
will take place in the Russian Federation and what effect such changes might have on the adequacy of the allowances
for impairment of financial assets in future periods.
Impairment of other loans. The Group also regularly reviews its other loans issued to assess impairment. In determin-
ing whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there
is any observable data indicating that there is a measurable decrease in the estimated future cash flows for borrowers.
To assess future cash flows, management of the Group analyzes the information on the debtor’s solvency, requests
expert estimates regarding the market value of the collateral provided, builds (where possible) models of discounted
expected cash flows, requests additional information to estimate the probability of non-repayment of the relevant debt
in the terms established by the contracts.
Impairment of available-for-sale equity investments. The Group determines that available-for-sale equity invest-
ments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This deter-
mination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among
other factors, the volatility in share price. In addition, impairment may be appropriate when there is evidence of changes
in technology or a deterioration in the financial health of the investee, industry and sector performance, or operational
or financing cash flows.
Held-to-maturity financial assets. Management applies judgement in assessing whether financial assets can be
categorised as held-to-maturity. In making this judgement, the Group evaluates its intention and ability to hold the as-
sets to maturity. If the Group fails to keep these investments to maturity other than in certain specific circumstances
– for example, selling an insignificant amount close to maturity – it will be required to reclassify the entire class as avail-
able-for-sale. The investments would, therefore, be measured at fair value rather than amortised cost. Furthermore,
the Group would not be able to classify any financial assets as held-to-maturity for the following two annual reporting
periods.
Accounting of investments in JSC “National Non-Governmental Pension Fund”. As at 31 December 2017 and
2016 the Group has 74.46% and 69.82% of shares of JSC “National Non-Governmental Pension Fund”. The Group
does not exercises neither control nor significant influence over JSC “National Non-Governmental Pension Fund”.
These investments are presented within available-for-sale financial assets.
Financial instruments fair value estimation. Financial instruments that are classified at fair value through profit or
loss or available-for-sale, and all derivatives are stated at fair value. If a quoted market price is available for an instru-
ment, the fair value is calculated based on the market price. When valuation parameters are not observable in the mar-
ket or cannot be derived from observable market prices, the fair value is derived through analysis of other observable
market data appropriate for each product and pricing models which use a mathematical methodology based on ac-
cepted financial theories. Pricing models take into account the contract terms of the securities as well as market-based
valuation parameters, such as interest rates, volatility, exchange rates and the credit rating of the counterparty. Where
market-based valuation parameters are missed, management will make a judgment as to its best estimate of that pa-
rameter in order to determine a reasonable reflection of how the market would be expected to price the instrument, in
exercising this judgment, a variety of tools are used including proxy observable data, historical data, and extrapolation
techniques. The best evidence of fair value of a financial instrument at initial recognition is the transaction price unless
the instrument is evidenced by comparison with data from observable markets. Any difference between the transaction
price and the value based on a valuation technique is not recognized in the consolidated statement of profit or loss and
other comprehensive income on initial recognition. Subsequent gains or losses are only recognized to the extent that
they arise from a change in a factor that market participants would consider in setting a price.
Information on fair value of financial instruments where estimate is based on assumptions that do not utilize observable
market prices is presented in Note 30.
NOTE 5: ADOPTION OF NEW OR REVISED STANDARDS
AND INTERPRETATIONS
A number of amendments to current IFRS and annual improvements became effective for the periods beginning on or
after 1 January 2017 but did not have any significant impact on the Group’s consolidated financial statements:
•Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued on 19 January 2016 and
effective for annual periods beginning on or after 1 January 2017).
•Disclosure Initiative – Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning
on or after 1 January 2017). The amended IAS 7 require disclosure of a reconciliation of movements in liabilities
arising from financing activities, that enable users of financial statements to evaluate changes in liabilities arising
from financing activities, including both cash and non-cash changes. The Group has provided the required disclo-
sure in these consolidated financial statements in Note 30.
•Annual Improvements to IFRSs 2014-2016 cycle (issued on 8 December 2016 and effective for annual periods be-
ginning on or after 1 January 2017 for amendments to IFRS 12.
Certain new standards, interpretations and amendments to standards have been issued that are mandatory for the
annual periods beginning on or after 1 January 2018 or later, and which the Group has not early adopted.:
IFRS 9, Financial Instruments: Classification and Measurement (amended in July 2014 and effective for
annual periods beginning on or after 1 January 2018). In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial In-
struments: Recognition and Measurement and all previous versions of IFRS 9. Key features of the new standard are:
•Financial assets are required to be classified into three measurement categories: those to be measured subse-
quently at amortised cost, those to be measured subsequently at fair value through other comprehensive income
(FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).
•Classification for debt instruments is driven by the entity’s business model for managing the financial assets and
whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument
is held to collect contractual cash flows, it may be carried at amortized cost if it also meets the SPPI requirement.
Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect as-
sets’ contractual cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash
flows that are SPPI must be measured at FVTPL (for example, derivatives). Embedded derivatives are no longer
separated from financial assets but will be included in assessing the SPPI condition.
•All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading
will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be
made at initial recognition, to recognise unrealised and realised fair value gains and losses through other compre-
hensive income rather than profit or loss. There is no recycling of fair value gains and losses to profit or loss.
•Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit
risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.
176
177
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY •FRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model.
There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recog-
nition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL
on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there
has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL.
The model includes operational simplifications for lease and trade receivables.
•IFRS 9 sets out special rules for measuring the loss allowance and recognising interest revenue in respect of pur-
chased or originated assets that are credit impaired at initial recognition (purchased or originated credit impaired or
“POCI” assets). At initial recognition, POCI assets do not carry an impairment allowance. Instead, lifetime expected
credit losses are incorporated into the calculation of the effective interest rate (EIR). Favourable changes in lifetime
expected credit losses since initial recognition of POCI assets are recognised as an impairment gain, even if the
favourable changes are more than the amount previously recognised in profit or loss as impairment losses. This is a
different presentation from IAS 39, under which reversals of impairment relate only to amounts previously recognised
in profit or loss as impairment losses.
The main changes expected from adoption of IFRS 9 by the Group are the following:
•Current classification of the Group’s financial assets will be changed into three measurement categories: those to be
measured subsequently at fair value (either through profit and loss or other comprehensive income), and at amor-
tised cost. For the debt instruments the decision is to be made depending on (i) the objective of the entity’s business
model and (ii) either the asset’s contractual cash flows represent solely payments of principal and interest.
•Current model for recognition of impairment losses will be changed into the expected credit losses (ECL) model.
•Changes in the fair value of financial liabilities designated at FVTPL that are attributable to changes in the instrument’s
credit risk, which will be presented in other comprehensive income rather than profit or loss.
•The new standard also introduces expanded disclosure requirements and changes in presentation. These are ex-
pected to change the nature and extent of the Group’s disclosures about its financial instruments in the year of the
adoption of the new standard.
Based on the analysis of the Group’s financial assets and financial liabilities as at 31 December 2017 and on the basis
of the facts and circumstances that exist at that date, the impact from the adoption of the new standard on 1 January
2018 on the Group’s consolidated financial statements could be significant primarily due to the effect of the new stan-
dard on the financial instruments held by Bank ZENIT Group. Based on the available information as at 30 September
2017 and the current status of implementation, the management of the Bank ZENIT expects that the effect of the initial
application of IFRS 9 will reduce the amount of equity held by shareholders of Bank ZENIT by no more than RR 9 billion,
primarily due to the application of IFRS 9 impairment requirements of transition from the model of incurred losses to the
model of expected credit losses.
The actual effect of adoption of IFRS 9 effective 1 January 2018 may differ from the above estimates as a result of
changes in the balance sheet position, market conditions and projected economic assumptions.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods be-
ginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be rec-
ognized 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 recognized, and any discounts or rebates on the contract price must gen-
erally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be
recognized 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.
Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for
annual periods beginning on or after 1 January 2018). The amendments do not change the underlying principles
of the Standard but clarify how those principles should be applied. The amendments clarify how to identify a perfor-
mance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine whether a
company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service
to be provided); and how to determine whether the revenue from granting a licence should be recognized at a point in
time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and
complexity for a company when it first applies the new Standard.
In accordance with the transition provisions in IFRS 15 the Group has elected simplified transition method with the ef-
fect of transition to be recognised as at 1 January 2018 in the consolidated financial statements for the year-ending 31
December 2018 which will be the first year when the Group will apply IFRS 15.
The Group plans to apply the practical expedient available for simplified transition method. The Group applies IFRS 15
retrospectively only to contracts that are not completed at the date of initial application (1 January 2018).
Based on the analysis of the Group’s revenue streams for the year ended 31 December 2017, individual contracts’
terms and on the basis of the facts and circumstances that exist at that date, in view of simplified transition method
application, an impact on the Group’s consolidated financial statements from the adoption of the new standard on 1
January 2018 is not significant.
IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 Janu-
ary 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. Accordingly, IFRS 16 eliminates the classification of leases as either oper-
ating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Les-
sees 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
statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessor account-
ing 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.
IFRIC 23, Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual pe-
riods beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax,
but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and
measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should de-
termine whether to consider each uncertain tax treatment separately or together with one or more other uncertain
tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should as-
sume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related
information when making those examinations. If an entity concludes it is not probable that the taxation authority
will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related tax-
able profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely
amount or the expected value, depending on which method the entity expects to better predict the resolution of
178
179
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that
affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples
of changes in facts and circumstances or new information that can result in the reassessment of a judgment or
estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules estab-
lished by a taxation authority or the expiry of a taxation authority’s right to examine or re-examine a tax treatment.
The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely
to constitute a change in facts and circumstances or new information that affects the judgments and estimates
required by the Interpretation.
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 any material impact on the Group when adopted:
•Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS
10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to
be determined by the IASB).
•Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods be-
ginning on or after 1 January 2018).
•Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 (issued on 12
September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January
2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for
entities that choose to apply the overlay approach).
•Annual Improvements to IFRSs 2014-2016 cycle é Amendments to IFRS 1 an IAS 28 (issued on 8 December
2016 and effective for annual periods beginning on or after 1 January 2018).
•IFRIC 22, Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effec-
tive for annual periods beginning on or after 1 January 2018). This interpretation considers how to determine
the date of the transaction when applying the standard on foreign currency transactions, IAS 21. The interpre-
tation applies where an entity either pays or received consideration in advance for foreign currency-denomi-
nated contracts.
•Transfers of Investment Property - Amendments to IAS 40 (issued on 8 December 2016 and effective for an-
nual periods beginning on or after 1 January 2018).
•IFRS 17, Insurance Contracts (issued on 18 May 2017 and effective for annual periods beginning on or after 1
January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for
insurance contracts using existing practices. IFRS 17 is a single principle-based standard to account for all
types of insurance contracts, including reinsurance contracts that an insurer holds.
•Prepayment Features with Negative Compensation - Amendments to IFRS 9 (issued on 12 October 2017 and
effective for annual periods beginning on or after 1 January 2019).
•Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28 (issued on 12 October 2017 and
effective for annual periods beginning on or after 1 January 2019).
180
•Annual Improvements to IFRSs 2015-2017 cycle - Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12
December 2017 and effective for annual periods beginning on or after 1 January 2019).
•Plan Amendment, Curtailment or Settlement - Amendments to IAS 19 (issued on 7 February 2018 and effective
for annual periods beginning on or after 1 January 2019). The amendments specify how to determine pension ex-
penses when changes to a defined benefit pension plan occur.
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
Due from banks
Total cash and cash equivalents
At 31 December 2017
At 31 December 2016
29,219
11,906
1,672
42,797
40,847
22,744
13,515
77,106
Term deposits with original maturity of less than three months represent deposits placed in banks in the course of non-
banking activities. Due from banks represent deposits with original maturities of less than three months placed in the
course of banking activities in banks other than those that are part of the Group. The fair value and credit quality analysis
of cash and cash equivalents is presented in Note 30.
NOTE 7: ACCOUNTS RECEIVABLE
Short-term and long-term accounts receivable comprise the following:
At 31 December 2017
At 31 December 2016
Short-term accounts receivable:
Trade receivables
Other financial receivables
Other non-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
58,696
5,025
191
(2,314)
61,598
2,055
3,165
(1,781)
3,439
65,037
61,295
4,037
202
(1,634)
63,900
1,581
334
(108)
1,807
65,707
181
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Fair value of short-term and long-term accounts receivable is presented in Note 30.
Analysis by credit quality of trade and other receivables is as follows:
Movements in the provision for impairment for trade and other receivables are as follows:
At 31 December 2017
At 31 December 2016
2017
2016
Trade receivables
Other receivables
Trade receivables
Other receivables
Trade receivables
Other receivables
Trade receivables
Other receivables
Neither past due nor impaired
international crude oil and oil products traders
Russian crude oil and oil products traders
Russian refineries
central and eastern Europe refineries
Russian tire dealers and automotive
manufacturers
Russian construction companies
unrated
including related parties
14,188
5,392
12,933
14,383
3,718
625
7,512
2,374
Total neither past due nor impaired
58,751
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
279
45
-
324
-
-
1,676
1,676
(1,676)
59,075
-
-
-
-
-
-
4,678
590
4,678
67
11
26
104
-
-
3,599
3,599
(2,419)
5,962
17,079
7,783
14,054
11,183
2,862
1,172
6,646
1,072
60,779
646
42
-
688
-
-
1,409
1,409
(1,409)
61,467
-
-
-
-
-
-
4,170
527
4,170
24
-
46
70
-
-
333
333
(333)
4,240
Provision for impairment at 1 January
Provision for impairment during the year
Amounts written off during the year as uncollectible
Foreign exchange gain
Change in Group structure
(1,409)
(302)
-
25
10
(333)
(2,371)
-
-
285
(1,517)
(167)
165
103
7
(451)
(140)
251
-
7
Provision for impairment at 31 December
(1,676)
(2,419)
(1,409)
(333)
NOTE 8: BANKING: LOANS TO CUSTOMERS
Loans to legal entities
Loans to individuals
Loans to customers before impairment
Provision for impairment
Total loans to customers
Less: long term loans
Less: provision for long term loans impairment
Total short term loans to customers and current portion of
long term loans to customers
At 31 December 2017
At 31 December 2016
122,699
35,566
158,265
(7,282)
150,983
(112,579)
6,091
44,495
159,176
35,017
194,193
(1,167)
193,026
(125,090)
1,167
69,103
In 2016 additional provision for impairment of loans to customers of RR 1,167 million was accrued since acquisition of
control over Bank ZENIT in October 2016.
As at 31 December 2017 and 2016 the Group granted loans to 17 and 36 customers totalling RR 50,314 million and RR
78,955 million respectively, which individually exceeded 5% of the Bank ZENIT equity.
As at 31 December 2017 and 2016, the total amount of pledged loans to legal entities is RR 3,297 million and RR 7,246
million and loans to individuals is RR 5,985 million and RR 5,435 million respectively. The loans are pledged against the
funds accounted within Due to banks and CB RF (Note 18).
182
183
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The analysis of changes in provision for loan impairment for the year ended 31 December 2017 is presented in the table
below:
Provision for loan impairment at 1 January 2017
Net provision charge for loan impairment during the period
Loans and advances to customers written off during the
period
Cession
Forex translation
Loans to legal entities
Loans to individuals
(1,030)
(8,194)
-
2,336
167
(137)
(491)
41
26
-
Total
(1,167)
(8,685)
41
2,362
167
Provision for loan impairment at 31 December 2017
(6,721)
(561)
(7,282)
Risk concentrations by customer industry within the customer loan portfolio are as follows:
At 31 December 2017
At 31 December 2016
Carrying value
Share in customer
loan portfolio, %
Carrying value
Share in customer
loan portfolio, %
Trade
Manufacturing
Construction
Services
Food
Finance
Agriculture
Oil and gas
Individuals, including:
mortgage loans
consumer loans
car loans
plastic cards overdrafts
other
Other
28,480
24,676
23,996
29,298
3,547
7,907
1,187
1,376
35,566
23,347
10,634
999
585
1
2,232
Total loans to customers before impairment
158,265
Loans to customers’ credit quality analysis is presented in Note 30.
184
18.00%
37,883
19.51%
15.59%
15.16%
18.51%
2.24%
5.00%
0.75%
0.87%
22.47%
14.75%
6.72%
0.63%
0.37%
0.00%
1.41%
100%
34,895
33,733
33,811
4,983
6,765
2,653
1,629
35,017
23,182
10,105
973
638
119
2,824
194,193
17.97%
17.37%
17.41%
2.57%
3.48%
1.37%
0.84%
18.03%
11.94%
5.20%
0.50%
0.33%
0.06%
1.45%
100%
NOTE 9: OTHER FINANCIAL ASSETS
Short-term other financial assets comprise the following:
Loans and receivables:
Notes receivable
Loans (net of provision for impairment of RR 0 million
and RR 5 million as of 31 December 2017 and 2016)
Bank deposits (net of provision for impairment of RR 5,547 million
and RR 5,400 million as of 31 December 2017 and 2016)
Due from banks
REPO with banks
Financial assets at fair value through profit or loss:
held by the Group
pledged under sale and repurchase agreements
Available-for-sale financial assets:
held by the Group
pledged under sale and repurchase agreements
Held to maturity investments:
held by the Group
pledged under sale and repurchase agreements
Total short-term financial assets
At 31 December 2017
At 31 December 2016
1,873
42,976
1
455
2
956
459
8,501
6,006
2,495
10,656
6,680
3,976
47,895
32,362
15,533
68,925
3
1,107
32,206
3,022
6,638
8,190
8,190
-
4,254
4,254
-
2,511
2,511
-
57,931
185
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Other long-term financial assets comprise the following:
Loans and receivables:
Notes receivable (net of provision for impairment of RR 318 million as
of 31 December 2017 and 2016)
Loans to employees (net of provision for impairment of RR 1,420
million and RR 1,476 million as of 31 December 2017 and 2016)
Other loans (net of provision for impairment of RR 7,894 million and
RR 0 million as of 31 December 2017 and 2016)
Bank deposits
Due from banks
Available-for-sale financial assets
held by the Group
pledged under sale and repurchase agreements
Held to maturity investments
held by the Group
pledged under sale and repurchase agreements
Total long-term financial assets
At 31 December 2017
At 31 December 2016
13,406
455
1,558
10,866
300
227
31,049
31,049
-
7,909
7,909
-
52,364
4,484
455
1,018
2,284
500
227
31,864
31,864
-
8,049
8,049
-
44,397
Corporate bonds consist of Russian Ruble, US Dollar and Euro denominated bonds and Eurobonds issued by Russian
banks and companies. These bonds mature from 2018 to 2034. The annual coupon rates on these securities range
from 4.1% to 13.0%, and yields to maturity vary from 2.8% to 10.4%.
Municipal bonds consist of Russian Ruble denominated bonds issued by regional and municipal authorities of the Rus-
sian Federation and mature from 2018 to 2024. The annual coupon rates on these securities range from 7.3% to 11.8%,
and yields to maturity vary from 6.1% to 8.5%.
Federal loan bonds consist of Russian Ruble denominated government securities issued by the Ministry of Finance of
the Russian Federation, which are commonly referred to as “OFZ” and Russian Federation Eurobonds. These bonds
mature from 2019 to 2033. The annual coupon rates on these securities vary from 2.5% to 12.8%, and yield to maturity
vагу from 4.2% to 9.5%.
Corporate shares include quoted shares of Russian companies and banks.
Financial assets at fair value through profit and loss pledged under sale and repurchase agreements are comprised of
the following:
Held-for-trading:
Russian government and municipal debt securities
Corporate debt securities
Total financial assets at fair value through profit and loss
At 31 December 2017
At 31 December 2016
1,022
1,473
2,495
-
-
-
Fair value, credit quality and maturity analysis for financial assets are presented in Note 30.
Due to banks in amount of RR 1,795 million were collaterized by these securities.
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Financial assets at fair value through profit and loss held by the Group comprise the following:
Available for sale financial assets held by the Group comprise of the following:
At 31 December 2017
At 31 December 2016
At 31 December 2017
At 31 December 2016
Held-for-trading:
Russian government and municipal debt securities
Corporate debt securities
Corporate shares
Total financial assets at fair value through profit and loss
1,564
4,265
177
6,006
1,928
5,673
589
8,190
Russian government and municipal debt securities
Corporate debt securities
Corporate shares
Investment fund units
Total available-for-sale financial assets held by the Group
1,723
10,226
12,824
12,956
37,729
186
543
7,822
8,150
19,603
36,118
187
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Corporate bonds consist of Russian Ruble, US Dollar and Euro denominated bonds and Eurobonds issued by Russian
banks and companies. These bonds mature from 2018 to 2032. The annual coupon rates on these securities range
from 0.5% to 15%, and yields to maturity vary from 9.3% to 31.1%.
Municipal bonds consist of Russian Ruble denominated bonds issued by regional and municipal authorities of the Rus-
sian Federation and mature in 2020. The annual coupon rate on these securities is 8.2% and yield to maturity is 8.3%.
Federal loan bonds consist of OFZ and Russian Federation Eurobonds and mature in 2028. The annual coupon rates on
these securities vary from 7.1% to 12.8%, and yield to maturity vагу from 4.2% to 7.9%.
Corporate shares include quoted and unquoted shares of Russian companies and banks. At 31 December 2016 un-
quoted securities included investment in AK BARS Bank ordinary shares (8.6%) in the amount of RR 2,300 million. In
June 2017 the Company acquired of 5 billion of AK BARS Bank’s ordinary shares with par value of RR 1 per share that
were placed via additional share issuance of AK BARS Bank. As a result of this transaction, the Group’s share in AK
BARS Bank increased to 17.24% (RR 7,300 million).
Investment fund units are solely presented with investment in closed mutual investment rental fund AK BARS – Gorizont.
The main assets of this fund are the land plots located in Tatarstan Republic. The Group does not exercise significant
influence over this investment and therefore accounts for it as an available-for-sale investment. For the year ended 31
December 2017 the Group recognized loss on impairment of investment in closed mutual investment rental fund AK
BARS - Gorizont in the amount RR 6,647 million.
Available for sale financial assets pledged under sale and repurchase agreements comprise of the following:
Russian government and municipal debt securities
Corporate debt securities
Total available-for-sale financial assets pledged under sale
and repurchase agreements
At 31 December 2017
At 31 December 2016
1,052
2,924
3,976
-
-
Due to banks in amount of RR 3,387 million were collaterized by these securities.
Held to maturity investments
Held to maturity investments held by the Group comprise of the following:
Municipal debt securities
Corporate debt securities
Total held to maturity securities held by the Group
At 31 December 2017
At 31 December 2016
3,970
36,301
40,271
483
10,077
10,560
188
Municipal bonds consist of Russian Ruble denominated bonds issued by regional and municipal authorities of the Rus-
sian Federation and mature from 2018 to 2025. The annual coupon rates on these securities range from 7.7% to 14.2%,
and yields to maturity vary from 8.6% to 9.7%.
Corporate bonds consist of Russian Ruble, US Dollars and Euro denominated bonds and Eurobonds issued by Russian
banks and companies. These bonds mature from 2018 to 2032. The annual coupon rates on these securities range
from 0.5% to 13.1%, and yields to maturity vary from 2.6% to 10%.
Held to maturity investments pledged under sale and repurchase agreements comprise of the following:
Municipal debt securities
Corporate debt securities
Total held to maturity securities pledged under sale and
repurchase agreements
At 31 December 2017
At 31 December 2016
2,191
13,342
15,533
-
-
Due to banks in amount of RR 14,575 million were collaterized by these securities.
NOTE 10: INVENTORIES
At 31 December 2017
At 31 December 2016
Materials and supplies
Crude oil
Refined oil products
Petrochemical supplies and finished goods
Other
Total inventories
13,692
8,745
12,541
4,340
-
39,318
9,696
9,996
9,087
4,183
309
33,271
189
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY NOTE 13: PROPERTY, PLANT AND EQUIPMENT
Oil and gas
properties
Buildings and
constructions
Machinery and
equipment
Construction in
progress
Cost
As of 31 December 2015
359,901
186,248
147,972
135,723
Additions
Disposals
Changes in Group
structure (Note 29)
Transfers
Changes in
decommissioning provision
19
(497)
(58,426)
36,742
(6,253)
-
(1,358)
(3,257)
15,869
-
1
(524)
(20,776)
4,852
-
92,780
(1,995)
(230)
(57,463)
-
Total
829,844
829,844
92,800
(4,374)
(82,689)
-
(6,253)
NOTE 11: PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are as follows:
At 31 December 2017
At 31 December 2016
Prepaid export duties
VAT recoverable
Advances
Prepaid transportation expenses
Other
Prepaid expenses and other current assets
3,003
6,817
10,534
1,247
1,522
23,123
NOTE 12: BANKING: NON-CURRENT ASSETS HELD FOR SALE
At 1 January
Additions as a result of acquisition of subsidiary
Addition by taking possession of collateral
Impairment
Reclassifications
Disposal as a result of sale
At 31 December
2017
4,247
-
2,231
(1,105)
(2,294)
(897)
2,182
4,490
5,375
11,475
1,679
870
23,889
2016
-
4,347
217
(159)
-
(158)
4,247
As at 31 December 2017 and 2016 non-current assets held for sale include real estate which the Group received in the
course of its banking activities by taking possession of collateral held as security for loans and receiving other prop-
erty. The carrying amount of non-current assets held for sale will be recovered through a sale transaction.
The property in the amount of RR 897 million has been converted into cash during the year ended 31 December 2017
with a gain of RR 4 million.
190
As of 31 December 2016
331,486
197,502
131,525
168,815
829,328
Depreciation, depletion and amortisation
As of 31 December 2015
171,366
32,194
68,506
Depreciation charge
Disposals
Changes in Group structure
(Note 29)
As of 31 December 2016
Net book value
As of 31 December 2015
As of 31 December 2016
Cost
10,723
(370)
(29,214)
152,505
188,535
178,981
4,693
(831)
(2,078)
33,978
154,054
163,524
7,900
(453)
(16,722)
59,231
79,466
72,294
-
-
-
-
-
135,723
168,815
272,066
23,316
(1,654)
(48,014)
245,714
557,778
583,614
As of 31 December 2016
331,486
197,502
131,525
168,815
829,328
Additions
Disposals
Changes in Group structure
Transfers
Changes in
decommissioning provision
-
(697)
-
46,438
5,101
-
(599)
214
(1,045)
-
-
(954)
(647)
15,015
-
88,514
(1,760)
5
(60,408)
-
88,514
(4,010)
(428)
-
5,101
As of 31 December 2017
382,326
196,072
144,939
195,168
918,505
Depreciation, depletion and amortisation
As of 31 December 2016
152,505
33,978
59,231
Depreciation charge
Disposals
Changes in Group structure
Transfers
11,328
(610)
-
5,133
As of 31 December 2017
168,356
4,852
(123)
25
(4,968)
33,764
Net book value
As of 31 December 2016
As of 31 December 2017
178,981
213,970
163,524
162,308
7,440
(924)
(657)
(165)
64,925
72,294
80,014
-
-
-
-
-
-
168,815
195,168
245,714
23,620
(1,657)
(632)
-
267,045
583,614
651,460
Within construction in progress there are advances for construction of RR 10,047 million and RR 7,329 million
at 31 December 2017 and 2016, respectively.
191
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY As stated in Note 3, the Group calculates depreciation, depletion and amortization for oil and gas properties using the
units-of-production 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 exten-
sion 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.
The Group’s oil and gas fields are located principally on the territory of Tatarstan. The Group obtains licenses from
the governmental 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, pro-
vided 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 legislative 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 man-
agement 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 extend 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.
Exploration and evaluation assets included in Oil and Gas assets above, net book value:
At 1 January 2016
Additions
Reclassification (to)/from development assets
Charged to expense
At 31 December 2016
Additions
Reclassification (to)/from development assets
Charged to expense
At 31 December 2017
192
7,045
3,076
6,948
-
17,069
2,091
(640)
-
18,520
For the years ended 31 December 2017 and 2016, operating and investing cash flows used for exploration and evalu-
ation activities amounted to RR 1,143 million and RR 2,091 million and RR 1,185 million and RR 3,076 million, respec-
tively.
Social assets. During the years ended 31 December 2017 and 2016 the Group transferred social assets with a net
book value of RR 9 million and RR 264 million, respectively, to local authorities. At 31 December 2017 and 2016 the
Group held social assets with a net book value of RR 6,025 million and RR 5,954 million, respectively, all of which were
constructed after the privatization date.
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 5,418 million and RR 4,918 million for the years ended 31 December 2017 and
2016, respectively, for maintenance 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 of discount
New obligations
Release of existing obligations
Changes in estimates
Balance, end of period
Less: current portion of decommissioning provisions (Note 17)
Long-term balance, end of period
2017
30,406
2,603
1,905
(31)
3,196
38,081
(64)
38,017
2016
33,417
3,271
770
(29)
(7,023)
30,406
(82)
30,324
In 2017 and 2016 the Group recorded the change in estimate for oil and gas properties decommissioning primarily due
to the change in discount rate and expected long-term inflation rate.
Key assumptions used for evaluation of decommissioning provision were as follows:
At 31 December 2017
At 31 December 2016
Discount rate
Inflation rate
7.70%
4.00%
8.56%
4.30%
193
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Income tax expense comprises the following:
Year ended 31 December 2017
Year ended 31 December 2016
Deferred income taxes are reflected in the consolidated statement of financial position as follows:
Current income tax expense
Deferred income tax expense
Income tax expense for the year
(34,227)
(5,419)
(39,646)
(29,657)
(5,184)
(34,841)
Presented below is reconciliation between the provision for income taxes and taxes determined by applying the statu-
tory tax rate 20% to income before income taxes:
Year ended 31 December 2017
Year ended 31 December 2016
Profit before income taxes
Theoretical income tax expense at statutory rate
Increase due to:
Non-deductible expenses, net
Unrecognized deferred tax assets
Other
Income tax expense
163,538
(32,708)
(7,076)
-
138
(39,646)
140,971
(28,194)
(5,484)
(1,163)
-
(34,841)
At 31 December 2017 no provision has been made for taxable temporary differences on RR 39,570 million (2016: RR
35,385 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 approximately RR 2,363 million (2016: RR 2,191
million) if they were remitted as dividends.
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recog-
nized for financial reporting purposes and such amounts recognized for statutory tax purposes. Deferred tax assets
(liabilities) are comprised of the following:
At 31 December 2017
At 31 December 2016
Tax loss carry forward
Decommissioning provision
Prepaid expenses and other current assets
Long-term investments
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
194
3,517
7,603
166
74
2,001
13,361
(36,681)
(1,914)
(494)
(11)
(82)
(39,182)
(25,821)
3,736
6,065
304
85
886
11,076
(29,145)
(1,896)
(413)
(166)
(13)
(31,633)
(20,557)
Deferred income tax asset
Deferred income tax liability
Net deferred tax liability
At 31 December 2017
At 31 December 2016
1,502
(27,323)
(25,821)
2,043
(22,600)
(20,557)
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 2017, the Group had recognized deferred income tax assets of RR 3,517
million (RR 3,736 million at 31 December 2016) in respect of unused tax loss carry forwards of RR 17,587 million (RR
18,680 million at 31 December 2016). Starting from 1 January 2017 the amendments to the Russian tax legislation
became effective in respect of tax loss carry forwards. The amendments affect tax losses incurred and accumulated
since 2007 that have not been utilised. The ten year expiry period for tax loss carry-forwards no longer applies. The
amendments also set limitation on utilisation of tax loss carry forwards that will apply during the period from 2017 to
2020. The amount of losses that can be utilised each year during that period is limited to 50% of annual taxable profit.
In determining future taxable profits and the amount of tax benefits that are probable in the future 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 differ-
ences.
The Group is subject to a number of taxes other than income taxes, which are detailed as follows:
Year ended 31 December 2017
Year ended 31 December 2016
Mineral extraction tax
Property tax
Penalties and interest
Other
Total taxes other than income taxes
186,585
5,896
123
1,712
194,316
119,393
5,623
-
1,574
126,590
For mineral extraction tax for fields whose depletion rate exceeds a certain threshold the Group received a benefit of
approximately RR 30.4 billion and RR 23.2 billion for the years ended 31 December 2017 and 2016, respectively.
At 31 December 2017 and 2016 taxes payable were as follows:
At 31 December 2017
At 31 December 2016
Mineral extraction tax
Value Added Tax
Export duties
Property tax
Other
Total taxes payable
20,030
2,789
1,344
774
2,869
27,806
14,652
2,707
1,277
1,128
3,973
23,737
195
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY NOTE 15: OTHER LONG-TERM ASSETS
Other long-term assets are as follows:
Prepaid computer programs
Precious metals
Prepaid license agreements
Other long-term assets
Total other long-term assets
NOTE 16: DEBT
Short-term debt
Bonds issued
Debt securities issued
US $2.0 billon 2010 credit facility
US $75 million 2011 credit facility
US $144.5 million 2011 credit facility
EUR 55 million 2013 credit facility
RR 40,000 million 2017 сredit facility
Other debt
Total short-term debt
Current portion of long-term debt
Total short-term debt, including current
portion of long-term debt
Long-term debt
Bonds issued
Subordinated debt
Debt securities issued
Other debt
Total long-term debt
Less: current portion of long-term debt
Total long-term debt, net of current portion
196
At 31 December 2017
At 31 December 2016
1,321
248
7
4,586
6,162
1,721
974
11
2,972
5,678
At 31 December 2017
At 31 December 2016
6,836
3,330
-
1,508
2,917
2,364
20,955
2,006
39,916
-
39,916
906
4,492
98
1,400
6,896
-
6,896
3,903
4,894
830
2,001
3,584
2,925
-
695
18,832
456
19,288
28,795
4,497
-
2,006
35,298
(456)
34,842
Fair value of debt is presented in Note 30. Maturity and currency analysis of debt is presented in Note 30. Debt issued
to related parties is presented in Note 27.
Credit facilities. In June 2010, the Company entered into a triple (3, 5 and 7 year) tranches secured credit fa-
cility 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, Nor-
dea 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 receiv-
ables 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 facility was fully repaid in June 2017.
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 Limited. 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 Corporation 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 consolidated tangible net worth and interest coverage ratios.
In May 2013, TANECO entered into a Euro 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. In accordance with credit facility terms repayment of the debt is
performed in USD. 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 May 2016 this credit facility was
assigned to Citibank Europe plc, UK Branch with credit facility details remaining.
In December 2017 the Company entered into revolving credit facility with differentiated interest rates for up to RR
40,000 million. The credit facililty is arranged by Sberbank and expires in 2020. In December 2017 the Company re-
ceived a loan under this credit facility at rates ranging from 6.91% to 7.44% per annum which matures in 2018.
Bonds issued. At 31 December 2017 and 2016 bonds issued are bonds denominated in Russian Rubles issued by
Bank ZENIT that mature between 2018 and 2025. At 31 December 2017 and 31 December 2016 the annual coupon
rates on these securities range from 8.5% to 10.75% and 8.5% to 12.5% respectively, and yields to maturity vary from
7.9% to 9.69% and from 7.5% to 12.3% respectively. The majority of bonds allow early repurchase at the request of
the bond holder as set in the respective offering documents. In addition, the issuer at any time with the consent of the
bond holder, may purchase / repay the bonds early with the possibility of subsequently placing the bonds in the mar-
ket. Such purchase / repayment of the bonds does not constitute an early redemption.
Subordinated debt. At 31 December 2017 and 2016 subordinated debt is presented with three subordi-
nated loans raised by Bank ZENIT. Subordinated loans bear interest at rates ranging from 6.5% to 8.81% and
mature from 2019 to 2024 at 31 December 2017 and at rates ranging from 6.4% to 7.1% and mature from
2019 to 2024 at 31 December 2016.
197
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY In relation to two of subordinated loans maturing in 2021 and 2024 bearing an interest rate of 8.81% the Group is
obliged to comply with certain financial covenants. At 31 December 2017 the Group was in compliance with these
covenants.
In September 2015 Bank ZENIT received Federal government bonds (OFZ) under the loan agreement with the Deposit
Insurance Agency (DIA) in the amount of RR 9,933 million. Federal government bonds received from the Deposit In-
surance Agency is accounted as off-balance sheet item. The funding increased capital (calculated in accordance with
the requirements of the CBR) and step up lending to companies operating in priority sectors of economy, small and
medium-sized businesses, as well as mortgage lending.
Debt securities issued. At 31 December 2017 debt securities are promissory notes issued by Bank ZENIT at a dis-
count to nominal value and interest bearing promissory notes denominated in Russian Rubles and US Dollars with
effective interest rates from 1.4% to 10.05% and from 1.4% to 2% respectively. Maturity dates of these promissory
notes vary from 2018 to 2028. At 31 December 2016 debt securities are promissory notes issued by Bank ZENIT at a
discount to nominal value and interest bearing promissory notes denominated in Russian Rubles, US Dollars and Euro
with effective interest rates from 3.99% to 10.73%, from 2% to 5.99% and from 1.65% to 2.8% respectively. Maturity
dates of these promissory notes varied from 2017 to 2028.
As at 31 December 2017 and 2016 non-interest-bearing promissory notes of the aggregate nominal value of RR 505
million and RR 915 million respectively were issued by the Group for settlement purposes and mature primarily on
demand.
NOTE 17: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
NOTE 18: BANKING: DUE TO BANKS AND CB RF
At 31 December 2017
At 31 December 2016
Term deposits from other banks
Term deposits from CB RF
REPO
Correspondent accounts and other banks’ overnight deposits
Total due to banks and CB RF
Less: long term due to banks and CB RF
Total short term of due to banks and CB RF
5,994
6,826
19,757
1,063
33,640
(5,669)
27,971
11,810
6,080
-
460
18,350
(4,415)
13,935
Included in amounts due to banks as at 31 December 2017 and 2016 are RR 16,514 million and RR 12,510 million of
correspondent accounts and term deposits from three Russian banks, which individually exceeded 5% of the Bank
ZENIT equity. Term deposits from the CB RF mature from 5 March 2018 to 18 September 2020. The interest rates on
term deposits from CB RF range from 6.5% to 10.75%. As at 31 December 2017 and 2016 term deposits in the amount
of RR 8,157 million and RR 10,974 million are collateralized with loans to customers in the amount of RR 9,282 million
and RR 12,669 million discussed in Note 8.
As at 31 December 2017 RR 19,757 million of due to banks was received under sale and repurchase agreements, fair
value of securities pledged amounts to 22,004 million (Note 9).
NOTE 19: BANKING: CUSTOMER ACCOUNTS
At 31 December 2017
At 31 December 2016
At 31 December 2017
At 31 December 2016
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
22,366
6,032
3,400
31,798
3,374
8,003
64
4,322
15,763
47,561
25,575
149
430
26,154
4,555
10,361
82
4,357
19,355
45,509
The fair value of each class of financial liabilities included in short-term trade and other payables at 31 December 2017
and 2016 is presented in Note 30.
198
State and public organizations
Current / settlement accounts
Term deposits
Other legal entities
Current / settlement accounts
Term deposits
Individuals
Current / settlement accounts
Term deposits
Total customer accounts
Less: long-term customer accounts
Total short-term customer accounts
612
639
19,963
27,390
12,489
97,821
158,914
(478)
158,436
739
4,457
21,022
44,640
11,578
98,278
180,714
(3,292)
177,422
199
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Within customer accounts at 31 December 2017 and 2016 there are RR 8,171 million and RR 31,432 million of current/
settlement accounts and term deposits from 3 and 11 customers respectively, which individually exceeded 5% of the
Bank ZENIT equity.
Risk concentrations by customer industry within customer accounts are as follows:
At 31 December 2017
At 31 December 2016
Carrying value
Share in customer loan
portfolio, %
Carrying value
Share in customer loan
portfolio, %
Individuals
Finance
Oil and gas
Trade
Services
Manufacturing
Construction
Other
110,310
11,709
2,575
6,051
13,165
7,581
5,257
2,266
69.41%
7.37%
1.62%
3.81%
8.28%
4.77%
3.31%
1.43%
109,856
34,953
3,193
7,358
8,368
5,176
6,456
5,354
Total customer accounts
158,914
100%
180,714
NOTE 20: OTHER LONG-TERM LIABILITIES
Other long-term liabilities are as follows:
60.79%
19.34%
1.77%
4.07%
4.63%
2.86%
3.57%
2.97%
100%
Pension liability
Other long-term liabilities
Total other long-term liabilities
Pension liabilities
At 31 December 2017
At 31 December 2016
4,040
6
4,046
3,856
1
3,857
The Group has various pension plans covering substantially all eligible employees and members of management.
The amount of contributions, frequency of benefit payments and other conditions of these plans are regulated by the
“Statement of Organization of Non-Governmental Pension Benefits for OAO Tatneft Employees” and the contracts
concluded between the Company or its subsidiaries, management, and the JSC “National Non-Governmental Pen-
sion Fund” (the 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. Contributions or benefits are generally
200
based upon grade and years until official retirement age (age 60 for men and 55 for women), and in the case of man-
agement 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 2017
At 31 December 2016
7.38%
6.01%
3.0%
30.77%
8.33%
7.23%
3.0%
31.73%
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 consolidated statement of financial position.
Amounts recognized in the consolidated statement of financial position:
At 31 December 2017
At 31 December 2016
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 (gains)/losses:
Actuarial (gains)/losses arising from changes in financial
assumptions
Actuarial losses arising from changes in demographic
assumptions
Actuarial losses/(gains) – Experience
Disposal of subsidiaries (Note 29)
Defined benefit obligation at the end of the year
5,717
(1,677)
4,040
2017
5,442
(11)
119
340
(455)
(77)
295
64
-
5,717
5,442
(1,586)
3,856
2016
5,834
(38)
151
566
(604)
775
11
(95)
(1,158)
5,442
201
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The amounts recognized in profit or loss are as follows:
Service cost
Net interest expense
Remeasurement losses/(gains):
Actuarial (gains)/losses arising from changes in financial
assumptions
Actuarial losses arising from changes in demographic
assumptions
Actuarial gains – Experience
Disposal of subsidiaries (Note 29)
Total included in ‘employee benefits expense’
The amounts recognized in other comprehensive income are as follows:
Remeasurement (gains)/losses:
Actuarial (gains)/losses 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
Disposal of subsidiaries (Note 29)
Plan assets at year end
202
2017
119
208
(20)
54
(29)
-
332
2017
(57)
241
77
(11)
250
2017
1,586
132
136
(193)
16
-
1,677
2016
151
376
141
3
(125)
(711)
(165)
2016
634
8
30
(38)
634
2016
1,963
190
183
(305)
2
(447)
1,586
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.
Plan assets structure:
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 2017
At 31 December 2016
57.99%
17.83%
21.97%
2.11%
0.1%
100%
49.36%
11.86%
27.87%
6.61%
4.3%
100%
Based on Group’s best estimate expected contributions to be paid during the next annual reporting period are RR 668
million.
NOTE 21: SHAREHOLDERS’ EQUITY
Authorized share capital. At 31 December 2017 and 2016 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. All issued shares are fully paid. The nominal value of authorised share capital differs from its carry-
ing value due to effect of the hyperinflation of capital contributions made before 2003.
Golden share. Tatarstan 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 “interested
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 dividend 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.
203
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The decisions listed above can be made only if approved by 75% of preferred shareholders.
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 assets. 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). 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 with distribution
rights are open to legal interpretation. For the years ended 31 December 2017 and 2016, the Company had a statutory
current profit of RR 100,022 million and RR 104,824 million, respectively.
In December 2017 the shareholders of the Company approved the payment of interim dividends for the nine months
ended 30 September 2017 in the amount of RR 27.78 per preference and ordinary share. Dividends were paid in the
fourth quarter of 2017 and first quarter 2018. In June 2017 the shareholders of the Company approved the payment of
dividends for the year ended 31 December 2016 in the amount of RR 22.81 per preference and ordinary share. In June
2016 the shareholders of the Company approved the payment of dividends for the year ended 31 December 2015 in
the amount of RR 10.96 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 attrib-
uted 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 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.
Year ended 31 December 2017
Year ended 31 December2016
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
123,139
(106,900)
(7,462)
8,777
2,103
148
2,251
54.73
54.32
107,389
(23,116)
(1,617)
82,656
2,113
148
2,261
47.50
47.48
Non-controlling interest. Non-controlling interest is adjusted by dividends paid by the Group’s subsidiaries amount-
ing to RR 15 million and RR 3 million at 31 December 2017 and 2016, respectively.
204
NOTE 22: EMPLOYEE BENEFIT EXPENSES
Wages and salaries
Statutory insurance contributions
Share-based Awards granted to directors and employees (Note 3)
Pension costs – defined benefit plans (Note 20)
Other employee benefits
Total employee benefit expense
Year ended 31 December 2017
Year ended 31 December2016
31,135
8,872
-
332
1,390
41,729
29,569
8,656
1,215
(165)
2,043
41,318
Employee benefit expenses are included in operating expenses, selling, general and administrative expenses and
maintenance of social infrastructure and transfer of social assets, other expenses and operating expenses on banking
activities in the consolidated statements of profit or loss and other comprehensive income.
NOTE 23: INTEREST INCOME AND INTEREST EXPENSE
ON NON-BANKING ACTIVITIES
Interest income on non-banking activities comprises the following:
Year ended 31 December 2017
Year ended 31 December2016
Interest income from loans and receivables
Unwinding of the present value discount of long-term financial
assets
Total interest income
6,319
175
6,494
5,084
346
5,430
Interest expense on non-banking activities comprises the following:
Year ended 31 December 2017
Year ended 31 December2016
Bank loans
Unwinding of the present value discount of decommissioning provi-
sion
Unwinding of the present value discount of long-term financial
assets and liabilities
Total interest costs recognized in profit or loss
425
2,603
67
3,095
564
3,271
85
3,920
205
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY NOTE 24: INTEREST INCOME AND EXPENSE ON BANKING ACTIVITY
Year ended
31 December 2017
Year ended
31 December2016
Interest income
Interest income on assets recorded at amortized cost:
Loans to customers
Due from banks
Held to maturity investments
Correspondent accounts
Total interest income on financial assets recorded at amortized cost
Interest income on assets at fair value through profit or loss
Financial assets held-for-trading
Total interest income on assets at fair value through profit or loss
Interest income on assets at fair value through OCI
Available for sale financial assets
Total interest income on assets at fair value through OCI
Total interest income
Interest expense
Interest expense on liabilities recorded at amortized cost:
Term deposits of individuals
Term deposits of legal entities
RUR-denominated bonds issued
Subordinated debt
Term placements of banks
Debt securities issued
Interest expense on liabilities recorded at amortized cost
Total interest expense
Net interest income
206
22,644
1,820
1,209
40
528
528
1,080
1,080
27,321
(5,771)
(2,674)
(2,011)
(921)
(1,736)
(117)
(13,230)
(13,230)
14,091
5,804
645
209
6
147
147
243
243
7,054
(1,988)
(1,430)
(1,032)
(399)
(425)
(105)
(5,379)
(5,379)
1,675
NOTE 25: FEE AND COMMISSION INCOME AND EXPENSE ON BANKING
ACTIVITY
Year ended
31 December 2017
Year ended
31 December2016
Settlement transactions
Cash transactions
Operations with foreign currencies
Guarantees issued
Transactions with securities
Asset management
Other
Total fee and commission income
Settlement transactions
Cash transactions
Transactions with securities
Operations with foreign currencies
Commission on guarantees received
Other
Total fee and commission expense
Net fee and commission income
2,048
607
396
319
24
12
237
3,643
(797)
(124)
(65)
(21)
(8)
(97)
(1,112)
2,531
479
170
100
80
6
4
62
901
(221)
(35)
(19)
(8)
(1)
(20)
(304)
597
207
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY NOTE 26 SEGMENT INFORMATION
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 four main operating segments:
•Exploration and production consists of exploration, development, extraction and sale of own crude oil. Intersegment
sales consist of transfer of crude oil to refinery and other goods and services provided to other operating segments,
•Refining and marketing comprises purchases and sales of crude oil and refined products from third parties, own
refining activities and retailing operations,
•Petrochemical products include production and sales of tires and petrochemical raw materials and refined prod-
ucts, which are used in production of tires,
•Banking segment includes operations of Banking Group ZENIT.
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 petrochemical 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, defined as profit before income taxes and non-controlling interest not including interest income, expense,
and gains from equity investments, 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 2017, revenues of RR 72,733 million or 11% and of RR 71,616 million or 11% of the
Group’s total sales and operating revenues is derived from two external customers.
For the year ended 31 December 2016, revenues of RR 79,257 million or 14% 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 refin-
ing and marketing segment. Management does not believe the Group is dependent on any particular customer.
Segment sales and other operating revenues. Reportable operating segment sales and other operating revenues
are stated in the following table:
Exploration and production
Domestic own crude oil
CIS own crude oil
Non-CIS own crude oil
Other
Intersegment sales
Total exploration and production
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
Banking
Interest income
Fee and commission income
Total banking
Total segment sales
Corporate and other sales
Elimination of intersegment sales
Total sales and other operating revenues
Year ended 31 December 2017
Year ended 31 December 2016
91,781
20,781
244,947
4,131
113,245
474,885
418
126,576
126,994
12,267
12,267
7,289
102,809
110,098
7,670
1,031
258,060
35,655
8,648
2,255
3,091
973
50,622
27,321
3,643
30,964
814,531
12,841
(115,249)
712,123
86,486
16,572
173,371
4,601
94,592
375,622
14,498
123,743
138,241
6,979
6,979
7,165
81,608
88,773
7,008
2,271
243,272
32,861
8,443
1,709
2,250
929
46,192
7,054
901
7,955
673,041
12,833
(97,792)
588,082
208
209
(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.
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Segment earnings.
Segment earnings.
Exploration and production
Refining and marketing
Petrochemicals
Banking
Total segment earnings
Corporate and other
Other income/(expenses)
Profit before income tax
Year ended
31 December 2017
Year ended
31 December 2016
172,731
15,969
2,409
(3,155)
187,954
(26,187)
1,771
163,538
146,618
13,899
1,463
(980)
161,000
(17,896)
(2,133)
140,971
For the year ended 31 December 2017 corporate and other loss includes loss on recognition of impairment of invest-
ment in closed mutual investment rental fund AK BARS - Gorizont (Note 9), impairment of loans issued and allow-
ance for doubtful account accrual. For the year ended 31 December 2016 corporate and other loss includes loss on
deconsolidation of subsidiaries (Note 29), gain on disposal of interest in associate and impairment of bank deposits
(Note 30).
Segment assets.
Assets
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total assets
At 31 December 2017
At 31 December2016
340,525
366,804
26,820
251,444
121,861
300,673
356,191
29,977
298,025
109,731
1,107,454
1,094,597
As of 31 December 2017 and 31 December 2016 corporate and other includes RR 33,496 million and RR 27,471 mil-
lion of property, plant and equipment, RR 23,556 million and RR 25,216 million of available-for-sale investments, RR
23,994 million and RR 0 million of investments held to maturity and RR 12,208 million and RR 50,762 million of bank
deposits, respectively.
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.
Year ended
31 December 2017
Year ended
31 December2016
Depreciation, depletion and amortization
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total segment depreciation, depletion and amortization
Additions to property, plant and equipment
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total additions to property, plant and equipment
13,850
8,434
1,781
244
576
24,885
41,313
39,246
2,428
2,489
8,117
93,593
11,848
7,120
1,852
56
750
21,626
47,694
34,433
1,193
-
3,273
86,593
For the years ended 31 December 2017 and 2016 additions to property, plant and equipment of exploration and pro-
duction segment are shown net of RR (5,101) million and RR 6,253 million, respectively, associated with changes in
the decommissioning provision.
NOTE 27: 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 considering 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. The Group enters into
transactions with related parties based on market or regulated prices.
210
211
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 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:
Liabilities
Revenues and income
Sales of refined products
Other sales
Interest income
Costs and expenses
Other services
Other purchases
Year ended
31 December 2017
Year ended
31 December 2016
11
255
139
896
574
975
1,019
2,113
1,231
5,055
On 17 March 2016 the Group acquired a 25% minus 1 share voting interest in Nizhnekamskneftekhim for total cash
consideration of RR 19,850 million which was paid in December 2015. 26 December 2016 the Group sold its share
in Nizhnekamskneftekhim for RR 32,000 million, received in December 2016. RR 9,800 million gain on sale is pre-
sented within gain on disposals of interests in subsidiaries and associates of consolidated statement of profit or
loss and other comprehensive income. During 2016 the Group received dividends from Nizhnekamskneftekhim in
the amount of RR 1,521 million net of RR 227 million income tax withheld at source. Also in October 2016 the Group
increased its share in PJSC Bank ZENIT and, as a result, obtained control. Starting October 2016 the Group consoli-
dates PJSC Bank ZENIT as subsidiary (Note 29).
At 31 December 2017 and 2016 the outstanding balances with associates, joint ventures and other related parties
were as follows:
At 31 December 2017
At 31 December2016
Assets
Accounts receivable
Loans to customers
Other financial assets
Financial assets at fair value through profit and loss
Other loans receivable
Prepaid expenses and other current assets
Due from related parties short-term
Long-term accounts receivable
Loans to customers
Other financial assets
Available-for-sale
Other loans receivable
Due from related parties long-term
212
534
20
-
-
553
1,107
280
21
3,400
2,443
6,144
675
-
146
361
469
1,651
142
-
3,758
2,022
5,922
Accounts payable and accrued liabilities
Customer accounts
Due to related parties short-term
Customer accounts
Debt
Other debt
Due to related parties long-term
Russian Government bodies and state organizations
At 31 December 2017
At 31 December2016
(169)
(1,711)
(1,880)
(165)
-
(165)
(47)
(812)
(859)
(33)
(33)
At 31 December 2017 and 2016 the outstanding balances with Russian Government bodies and state organizations
were as follows:
At 31 December 2017
At 31 December2016
Assets
Cash and cash equivalents
Banking: Mandatory reserve deposits with CB RF
Accounts receivable
Loans to customers
Other financial assets
Bank deposits
Available-for-sale
Held to maturity
Financial assets at fair value through profit and loss
Other loans receivable
Prepaid expenses and other current assets
Due from related parties short-term
Long-term accounts receivable
Loans to customers
Other financial assets
Available-for-sale
Held to maturity
Other loans receivable
Advances for construction
Due from related parties long-term
12,678
1,916
2,306
2,415
1
8,006
37,795
5,095
120
6,579
76,911
1,086
1,991
10,680
6,781
174
3,510
24,222
19,899
1,988
1,720
2,279
409
1,452
571
3,138
290
9,052
40,798
-
-
-
5,027
3,453
238
-
8,718
213
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY At 31 December 2017
At 31 December2016
Compensation to key management personnel
Liabilities
Accounts payable and accrued liabilities
Banking: Due to banks and CB RF
Banking: Customer accounts
Debt
Other debt
Due to related parties short-term
Debt
Subordinated debt
Other debt
Banking: Due to banks and CB RF
Due to related parties long-term
(873)
(4,771)
(2,418)
(21,580)
(29,642)
(2,141)
(13)
(2,055)
(4,209)
(961)
(4,700)
(4,061)
(3)
(9,725)
(2,140)
-
(9,624)
(11,764)
The amounts of transactions for each period with Government bodies and state organizations are as follows:
Year ended
31 December 2017
Year ended
31 December 2016
Sales of crude oil
Sales of refined products
Other sales
Interest income
Interest expense
Purchases of refined products
Purchases of electricity
Purchases of transportation services
Other services
Other purchases
-
11,093
4,476
4,132
1,484
34,461
14,384
26,729
4,426
1,340
567
10,501
3,994
585
460
21,941
12,897
22,272
3,943
1,735
In April 2016 the Group purchased 20 million treasury shares from the company related to Russian Government bodies
and state organizations in the amount RR 7,168 million.
As of 31 December 2017 and 2016 total remuneration, including pension cost, for key management personnel was RR
903 million and RR 1,677 million, respectively.
For the year ended 31 December 2016, the Company issued 2.1 million Awards to key management personnel, which
were settled at a price of RR 252.81 per Award. The amount of related compensation expense recognized in selling,
general and administrative expenses of the consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2016 was RR 534 million. For the year ended 31 December 2017 the Company’s
Board of Directors did not approve the issuance of Awards to key management personnel.
At 31 December 2017 and 2016 key management personnel customer accounts in Bank ZENIT amounted to RR
26,312 million and RR 21,667 million, respectively.
NOTE 28: 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 contrib-
utes to the challenges faced by companies operating in the Russian Federation.
The Russian economy showed signs of recovery in 2017, after the economic downturn of 2015 and 2016. The Russian
economy is negatively impacted by a fluctuation of 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.
The future economic development of the Russian Federation is dependent upon external factors and internal mea-
sures undertaken by the government to sustain growth, and to change the tax, legal and regulatory environment.
Management believes it is taking all necessary measures to support the sustainability and development of the Group’s
business in the current business and economic environment.
Capital commitments. As of 31 December 2017 and 31 December 2016 the Group has outstanding capital com-
mitments of approximately RR 42,758 million and RR 46,176 million, respectively, mainly for the construction of the
TANECO refinery complex. These commitments are expected to be paid between 2018 and 2020.
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 16).
Management believes the Company has the ability to obtain syndicated loans and other financings as needed to con-
tinue funding the TANECO refinery project, refinance any maturing debts as well as finance business acquisitions and
other transactions that may arise in the future.
214
215
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non-
cancellable operating leases are as follows:
Less than one year
More than one year and less than five years
More than five years
Total operating lease commitments
At 31 December 2017
At 31 December2016
160
97
45
302
481
1,115
21
1,617
Credit related commitments. The credit related commitments comprise loan commitments, letters of credit and
guarantees. The contractual commitments represent the value at risk should the contract be fully drawn upon, the
client defaults, and the value of any existing collateral becomes worthless. In general, certain part of Group’s import
letters of credit are collateralised with cash deposits or collateral pledged to the Group and accordingly the Group
normally assumes minimal risk.
Outstanding credit related commitments are as follows:
At 31 December 2017
At 31 December2016
Loan commitments
Guarantees issued
Import letters of credit
Total credit related commitments before impairment
Less: allowance for credit related commitment impairment
Less: client funds held as security for guarantees issued
Less: client funds held as security for import letter of credit
Total credit related commitments
26,421
14,525
1,676
42,622
(66)
(658)
(250)
41,648
24,885
15,211
1,082
41,178
(988)
(354)
(751)
39,085
Taxation. The Russian tax legislation is subject to varying interpretations and changes which can occur frequently.
Management’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 pos-
sible that transactions and activities that have not been challenged in the past may be challenged.
Tax authorities have completed the tax review of the Company’s consolidated taxpayers group for the 2013 and 2014.
The results of this review did not have a material effect on the Group’s results of operations or cash flows.
Tax authorities are currently reviewing the operations of the Company and its subsidiaries for the years ended 31
December 2013 and 2014. While the results of that review have not been finalized, management expects the ulti-
mate outcome will not have a material effect on the Group’s results of operations or cash flows.
The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles devel-
oped by the Organisation for Economic Cooperation and Development (OECD), with certain specific features. This
legislation allows tax authorities to assess additional taxes for controllable transactions (transactions between relat-
ed parties and certain transactions between unrelated parties) if such transactions are not on an arm’s length basis.
Tax liabilities arising from intercompany transactions are determined using actual transaction prices. It is possible,
with the evolution of the interpretation of the transfer pricing rules, that such prices could be challenged. Manage-
ment 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 appropri-
ate and the Group’s tax position will be sustained.
Environmental contingencies. The Group, through its predecessor entities, has operated in Tatarstan for many
years without 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 oper-
ating results or financial position of the Group.
Legal contingencies. The Group is subject to various lawsuits and claims arising in the ordinary course of busi-
ness. The outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present. In the
case of all known contingencies 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 wel-
fare 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 pe-
riodically determined by the Board of Directors after consultation with governmental authorities and recorded as
expenditures when incurred.
Transportation of crude oil. The Group transports substantially all of the crude oil that it sells in export and local
markets through trunk pipelines in Russia that are controlled by Transneft, the state-owned monopoly owner and
operator of Russia’s trunk crude oil pipelines. The Group’s crude oil is blended in the Transneft pipeline system with
other crude oil of varying qualities to produce an export blend commonly referred to as Urals. There is currently no
equalization scheme for differences in crude oil quality within the Transneft pipeline system and the implementation
of any such scheme or the impact of it on the Group’s business is not currently determinable.
Ukrtatnafta. In May 2008, Tatneft commenced international arbitration against Ukraine on the basis of the agree-
ment between the Government of the Russian Federation and the Cabinet of Ministries of Ukraine on the Encour-
agement and Mutual Protection of Investments of 27 November 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 is-
216
217
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY sued the award holding Ukraine liable for violation of the Russia-Ukraine BIT and required Ukraine to pay Tatneft US$
112 million plus interest. Ukraine filed a request for annulment of the award in the Court of Appeal in Paris, France
(seat of arbitration), which on 29 November 2016 rejected the request for annulment. In March 2017 Ukraine filed
a cassation appeal against the Paris Court of Appeal decision of 29 November 2016 rejecting its request for annul-
ment. Tatneft filed a motion with the Court of Cassation to exclude Ukraine’s cassation appeal from the Cassation
Court docket without prejudice due to Ukraine’s failure to perform the decision of the Court of Appeal requiring
Ukraine to compensate Tatneft’s legal expenses in relation to the appeal and commence performance of the tribu-
nal’s award. On 9 November 2017, Tatneft’s motion was granted.
At this time, it is not clear whether and when the cassation appeal will be heard. Filing of the cassation appeal does
not preclude Tatneft from commencing enforcement of the award. Accordingly, Tatneft has commenced recognition
and enforcement procedures in relation to this arbitration award in the USA, England and the Russian Federation. In
March 2017, Tatneft filed a petition to recognize and enforce the award in the U.S. District Court for the District of
Columbia, which is now pending and is subject to various procedural actions by Tatneft and Ukraine. On 19 March
2018, the U.S. District Court for the District of Columbia denied Ukraine’s challenge to the U.S. court’s jurisdic-
tion, Ukraine’s motion to stay the enforcement proceedings pending the outcome of the French proceedings and
Ukraine’s motion for jurisdictional discovery. The District Court will now consider whether there are any grounds to
refuse enforcement of the arbitration award in the United States.
In April 2017, Tatneft filed an application for recognition of the award and permission to enforce the award in the
High Court of England and Wales. In May 2017, the High Court approved Tatneft’s application to enforce the award,
however the order granting Tatneft’s application and the enforcement procedure are subject to challenge by Ukraine.
Ukraine has challenged the jurisdiction of the English courts to consider Tatneft’s petition for recognition and en-
forcement of the award and a hearing on this threshold issue is scheduled in the High Court of England and Wales for
the end of June 2018.
On 27 June 2017 the Arbitration Court of the City of Moscow terminated the proceedings in relation to Tatneft’s ap-
plication for recognition and enforcement of the award due to Ukraine’s alleged jurisdictional immunity and lack of
effective jurisdiction of the Arbitration Court of the City of Moscow to consider the application. On 22 August 2017,
the Arbitration Court of the Moscow District overturned this ruling. Tatneft’s petition for enforcement of the award was
returned to the Arbitration Court of the City of Moscow for further consideration. Several hearings took place in 2017-
2018. The next hearing at the Arbitration Court of the City of Moscow is scheduled for 24 April 2018.
On 23 March 2016 Tatneft commenced court proceedings in England against Gennady Bogolyubov, Igor Kolomoisky,
Alexander Yaroslavsky and Pavel Ovcharenko. Tatneft alleges that in 2009 those individuals fraudulently diverted to
themselves sums owed to Tatneft for oil it had supplied to Kremenchug refinery (Ukrtatnafta). Tatneft claims damages
of US$ 334.1 million plus interest. On 8 November 2016, the High Court refused the claim. On 23 November 2016, Tat-
neft requested from the Court of Appeals permission to appeal the judgement of 8 November 2016. Tatneft’s appeal
was heard by the Court of Appeals at the end of July 2017. On October 18 the Court of Appeals found that Tatneft’s
claim should not have been dismissed by the High Court and that the case may proceed to trial. The date for the trial
has not yet been established. The application of the defendants to the Supreme Court of the United Kingdom to ap-
peal the decision of the Court of Appeals was denied by the Supreme Court on 13 March 2018.
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 activi-
ties in Libya, including the return of its personnel to a branch in Tripoli and recommencement of some exploration
activities. Due to the deterioration 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, ac-
knowledged by the National Oil Company, which is continuing as of the date of this consolidated financial statements.
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 2017 the Group had approximately RR 5,759 million of assets associated with its Libyan op-
erations of which RR 5,545 million is related to capitalized exploration costs, RR 210 million of inventories and RR
4 million of cash. As of 31 December 2016 the Group had approximately RR 5,752 million of assets associated
with its Libyan operations of which RR 5,532 million is related to capitalized exploration costs, RR 210 million of
inventories and RR 10 million of cash.
NOTE 29: PRINCIPAL SUBSIDIARIES
Set out below are the Group’s principal subsidiaries at 31 December 2017. The subsidiaries as listed below (except
for Nizhnekamskshina) have share capital consisting solely of ordinary shares, which are held directly by the Group
and the proportion of ownership interests held equals to the voting rights held by Group. Nizhnekamskshina has
share capital consisting of ordinary and preference shares. 85% of voting right are held by the Group, and 15% of
voting rights are held by non-controlling interests. 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 Europe AG, which is incorporated in Switzerland.
Name of entity
Principal activity
At 31 December 2017
At 31 December 2016
% 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
Bank ZENIT
Banking operations
71,89
28,11
Tatneft Europe AG
Export oil sales
TANECO
Oil refinery
Nizhnekamskshina
Tires production
Nizhnekamskiy
zavod shin CMK
Tires production
Trade House Kama
Tires sales
Tatneft AZS-Centr
Oil products sales
Tatneft AZS-Zapad
Oil products sales
100
100
82
100
100
100
100
-
-
18
-
-
-
-
50
100
100
82
100
100
100
100
50
-
-
18
-
-
-
-
In June 2016, the Group increased its equity share in Bank ZENIT through a subscription to the bank’s additional share
issuance for a cash consideration of RR 6,700 million. As a result of the transaction the Group increased its share in
Bank ZENIT from 24.56% to 48.79% as of 30 June 2016. The Group continued to exercise significant influence and
applied the equity method of accounting for its investment in Bank ZENIT.
In October 2016, as a result of the mandatory offer procedure in accordance with the Federal Law “On Joint Stock
Companies”, the Group acquired additional 1.64% interest in Bank ZENIT for cash consideration of RR 327 million
increasing its interest to 50.43% and, as a result, obtained control over Bank ZENIT in October 2016.
At 31 December 2016 the Group had finalized purchase price allocation and in accordance with IFRS 3 “Business
Combinations” recognized the acquired assets and liabilities at fair value. The fair values of assets and liabilities ac-
quired are based on discounted cash flow models and market quotes.
218
219
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Purchase consideration of RR 7,605 includes cash for the 1.64% interest in Bank ZENIT acquired in October 2016 in
the amount of RR 327 million and fair value of previously held 48.79% interest accounted for using the equity method
in the amount of RR 7,278. As a result of the Group obtaining control over Bank ZENIT, the Group’s previously held
48.79% interest was remeasured to fair value, resulting in a loss of RR 2,746 recognized in share of results of associ-
ates and joint ventues in the statement of profit or loss and other comprehensive income for year ended 31 December
2016.
In June 2017 the Group acquired an additional issuance of 14 billion ordinary shares of its consolidated subsidiary
PJSC Bank ZENIT with par value of RR 1 per share. The additional shares issuance was placed via closed subscription
in favour of Tatneft. As a result of this transaction, after giving effect to Bank ZENIT new share issuance, the Group’s
share in Bank ZENIT increased from 50.43% to 71.8992%. The difference between fair value of consideration paid and
carrying value of minority interest of RR 787 million has been charged to additional paid-in-capital within shareholders’
equity.
Gain attributable to total non-controlling interest for the year ended 31 December 2017 is RR 753 million, of which RR
577 million is attributed to Bank ZENIT. Loss attributable to total non-controlling interest for the year ended 31 Decem-
ber 2016 is RR 1,259 million, of which RR 790 million is attributed to Bank ZENIT. As of 31 December 2017 and 2016
accumulated non-controlling interest in Bank ZENIT was RR 7,973 million and RR 6,605 million respectively.
On 1 January 2016 several entities of the Group ceased to meet the power criteria for consolidation under IFRS 10
“Consolidated financial statements” and were deconsolidated as of that date. The Group did not have any direct or
indirect ownership in the deconsolidated entities but exercised control over them in prior years. Deconsolidation re-
sulted in one-off loss on disposal in amount of RR 8,745 million recorded within gains/(losses) on disposals of inter-
est in subsidiaries and associates in the consolidated statement of profit or loss and other comprehensive income.
Non-controlling interest in the consolidated statement of financial position as at 31 December 2016 decreased by RR
29,878 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 2017
Bank ZENIT Group
123,503
129,344
211,321
13,148
Nizhnekamskshina PJSC
1,135
4,195
6,789
-
35,414
16,652
1,146
167
Total
124,638
133,539
218,110
13,148
52,066
1,313
Year ended 31 December 2016
Bank ZENIT
Nizhnekamskshina
Total
152,090
145,708
231,257
2,413
3,652
4,034
53,837
3,584
7,955
15,407
(2,086)
(287)
154,503
149,360
235,291
57,421
23,362
(2,373)
NOTE 30: FINANCIAL RISK MANAGEMENT
Financial risk management objectives and policies.
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 unpredictability of financial markets and seeks to minimize potential adverse effects on the Group‘s financial per-
formance. 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) in-
terest 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 respect to the US Dollar and the Euro. Foreign exchange risk arises from assets, liabilities, commercial transac-
tions and financing denominated in foreign currencies.
220
221
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
The table below summarises the Group’s exposure to foreign currency exchange rate risk as of 31 December 2017.
The table below summarises the Group’s exposure to foreign currency exchange rate risk as of 31 December 2016.
Russian Ruble
US Dollar
Other
Total
Russian Ruble
US Dollar
Other
Total
Financial assets
Cash and cash equivalents
Cash on hand and in banks
Term deposits with original maturity of less than three months
Due from banks
Restricted cash
Banking: Mandatory reserves with CB RF
Accounts receivable
Trade receivables
Other financial receivables
Banking: Loans to customers
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Other loans
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Held to maturity investments
Total financial assets
Financial liabilities
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and CB RF
Banking: Customer accounts
Other short-term liabilities
Total financial liabilities
Net balance sheet position
222
21,748
11,906
1,501
-
1,916
34,733
5,751
136,085
302
330
456
1,558
10,769
6,147
37,681
48,831
4,255
-
171
-
-
23,934
14
13 958
-
1285
-
-
552
2,354
3,520
6,974
3,126
-
-
-
-
408
6
940
-
27
-
-
-
503
-
29,219
11,906
1,672
-
1,916
59,075
5,771
150,983
302
1,642
456
1,558
11,321
8,501
41,705
55,805
319,714
57,018
5,100
381,832
21,543
6,032
3,312
7,742
2,161
1,491
20,955
1,556
31,233
352
-
88
-
2,331
1,937
6,789
1,486
1,758
125,344
27 208
256
221,625
98,089
-
41,949
15,069
471
-
-
-
-
-
-
364
649
6 362
-
22,366
6,032
3,400
7,742
4,492
3,428
27,744
3,406
33,640
158,914
256
7,846
271,420
(2,746)
110,412
Financial assets
Cash and cash equivalents
Cash on hand and in banks
Term deposits with original maturity of less than three months
Due from banks
Restricted cash
Banking: Mandatory reserves with CB RF
Accounts receivable
Trade receivables
Other financial receivables
Banking: Loans to customers
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Other loans
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Held to maturity investments
Total financial assets
Financial liabilities
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and CB RF
Banking: Customer accounts
Other short-term liabilities
Total financial liabilities
Net position
21,348
22,744
13,496
3
1,988
32,805
4,240
173,725
32,706
6,758
458
1,018
3,391
6,168
32,596
3,847
13,628
5,871
-
6
-
-
27,214
-
18,568
-
2,621
-
-
-
2,005
3,489
6,713
-
13
-
-
1,448
-
733
-
508
-
-
-
17
33
-
40,847
22,744
13,515
3
1,988
61,467
4,240
193,026
32,706
9,887
458
1,018
3,391
8,190
36,118
10,560
357,291
74,244
8,623
440,158
24,302
149
404
32,698
2,060
2,265
-
1,951
10,989
142,404
1,398
218,620
138,671
941
-
26
-
2,437
2,629
6,415
750
653
29,724
-
43,575
30,669
332
25,575
-
-
-
-
-
2,925
-
6,708
8,586
-
149
430
32,698
4,497
4,894
9,340
2,701
18,350
180,714
1,398
18,551
(9,928)
280,746
159,412
223
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY For the year ended 31 December 2017 the Group recognized RR 10,257 million and RR 11,875 million foreign ex-
change gains and losses respectively in the consolidated statement of profit or loss and other comprehensive income
(for the year ended 31 December 2016: RR 17,170 million and RR 20,474 million, respectively).
The following table presents sensitivities of profit and loss and equity to changes in US Dollar exchange rates applied
at the end of the reporting period relative to Russian Ruble:
Year ended
31 December 2017
Year ended
31 December 2016
Impact on profit
before tax
Impact on equity
Impact on profit
before tax
Impact on equity
1,501
(1,501)
1,200
(1,200)
3,067
(3,067)
2,453
(2,453)
US Dollar strengthening by 10%
US Dollar weakening by 10%
b) Interest rate risk.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in interest rates.
Non-banking operations interest rate risk management
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 financ-
ing on fixed-rate or variable-rate basis would be more beneficial to the Group over the expected period until maturity.
Banking operations interest rate risk management
The majority of the Group’s interest rate sensitive banking financial assets and liabilities are at fixed rates. Therefore,
the Group’s interest rate risk arises primarily from unmatched positions on maturities of assets and liabilities carried
at fixed rates.
Management of interest rate risk is performed through analysis of the structure of assets and liabilities by re- pricing
dates. Interest rates that are contractually fixed on both assets and liabilities may be renegotiated before any new
credit tranche is issued to reflect current market conditions. All new credit products and transactions are assessed in
respect of interest rate risk upfront, prior to starting these transactions.
Additionally, as disclosed in the maturity analysis below, the maturity dates applicable to the majority of the Group’s
assets and liabilities are relatively short-term and that provides the Group with a certain level of flexibility to react to
changing market conditions.
The Group’s overall interest rate risk is monitored by Assets and liabilities committee (“ALCO”) which reviews the struc-
ture of assets and liabilities, current and projected interest rates. Treasury departments are responsible for day-to-day
management of the interest rate mismatch, preliminary approval of interest rates on projected transactions, prepara-
tion and submission for approval suggestions on acceptable interest rate levels by instrument and duration. Risk man-
agement departments review current interest rate gaps and assess resulting effects of interest rate risk on the Group’s
interest margin and economic capital.
The Group’s approach to interest rate risk assessment is based on advisory materials of the Basel Committee on
Banking Supervision, CB RF regulations and IFRS. The methodology is designed based on the current experience of
mathematical simulation models of interest rate sensitive assets and liabilities and dynamics of interest rates using the
series models, which consider major statistical regularities.
An automated procedure of interest rate risk assessment designed in accordance with the above methodology uses
scenario simulation of fluctuations of interest rate sensitive assets and liabilities depending on the model of volume
and term structure of assets and liabilities. The new methodology provides that interest rate risk, with adequacy con-
firmed by results of back-testing, is assessed as Value at Risk (“VaR”) estimation with 99 percent confidence level for
a one-year holding period. The given VaR-estimation of the Group interest rate risk includes the risk of new interest
rate, basis risk, yield curve risk and optional risk.
The quantitative estimation of interest rate risk is carried out using stress-models which quantify the change in net
interest margin due to fluctuations of interest rate sensitive assets and liabilities. For this purpose the Group identifies
interest rate sensitive assets and liabilities and assesses the level of interest rate sensitivity by each asset or liability.
The analysis is made by currencies on an annual horizon and is based on certain assumptions in respect of expected
fluctuations of interest rates and most sensitive stress scenario. The results are used for on-going interest margin
monitoring and regulation and are included in the quarterly report on the Group’s consolidated risks.
Interest rate risk analysis on banking and non-banking operations of the Group
The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts
of the Group’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest
repricing or maturity dates:
Demand
and less
than
1 month
77,018
65,755
From 1 to 6
months
From 6 to
12 months
From 1 to 2
years
From 2 to 5
years
More
than 5
years
Non-
sensitive
Total
34,751
37,788
20,230
53,781
56,817
101,447
381,832
82,390
50,466
6,847
5,512
3,489
56,961
271,420
11,264
(47,639)
(12,678)
13,383
48,269
53,328
44,486
110,412
43,011
33,040
66,740
63,016
73,097
53,797
25,130
11,847
75,899
40,544
125,818
440,158
15,040
32,371
61,554
280,746
9,971
(6,357)
9,219
13,283
60,859
8,173
64,264
159,412
31 December 2017
Total financial assets
Total financial liabilities
Net interest
sensitivity gap
31 December 2016
Total financial assets
Total financial liabilities
Net interest
sensitivity gap
224
225
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The table below summarises the effective average year end interest rates, by major currencies (US Dollars, Russian
Rubles), for financial instruments outstanding as of 31 December 2017 and 2016. The analysis has been prepared on
the basis of weighted average effective interest rates for the various financial instruments using year-end contractual
terms and conditions.
At 31 December 2017
At 31 December 2016
Russian Ruble
US Dollar
Russian Ruble
US Dollar
Financial assets
Cash and cash equivalents
Cash on hand and in banks
Term deposits
Due from banks
Banking: Loans to customers
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Other loans
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Held to maturity investments
Financial liabilities
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and CB RF
Banking: Customer accounts
226
7,31%
7,39%
7,40%
11,71%
13,00%
8,18%
0,10%
3,19%
8,32%
9,31%
8,31%
9,33%
9,90%
7,10%
5,40%
7,17%
1,90%
7,90%
7,40%
0,76%
-
-
6,91%
-
1,14%
-
-
-
6,44%
8,10%
8,92%
-
8,80%
1,90%
3,10%
2,90%
2,50%
1,70%
2,00%
10,34%
10,30%
12,48%
10,83%
12,90%
0,10%
3,19%
3,75%
10,81%
9,84%
6,52%
11,33%
11,90%
8,65%
-
4,77%
10,10%
10,15%
0,13%
-
2,50%
6,64%
6,50%
4,00%
-
-
6,20%
5,62%
6,70%
6,51%
-
7,95%
4,00%
2,93%
2,61%
2,09%
2,62%
The following table presents a sensitivity analysis of interest rate risk on banking and non-banking financial assets and
liabilities:
Increase by 100 basis points
Decrease by 100 basis points
Year ended
31 December 2017
Year ended
31 December 2016
Impact on profit
before tax
Impact on
equity
Impact on profit
before tax
Impact on equity
(659)
659
(527)
527
(951)
951
(761)
761
c) Commodity and financial instruments price risk
Commodity price risk management
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 managed. 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 operational 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.
Financial instruments price risk management
Financial instruments price risk is the risk that movements in market prices resulting from factors associated with an
issuer of financial instruments (specific risk) and general changes in the market prices of financial instruments (gen-
eral risk) will affect the fair value or future cash flows of a financial instrument and, as a result, the Group’s profitability.
Financial instruments price risk for financial instruments held within the Group’s financial assets at fair value through
profit or loss is managed: (a) through maintaining a diversified structure of portfolios; and (b) by setting position limits
(i.e. limits restricting the total amount of an investment or maximum mismatch between respective assets and liabili-
ties) as well as stop-loss and call-level limits, in addition to these, the Group sets limits on a maximum duration of debt
financial instruments. When necessary the Group establishes margin and collateral requirements.
Financial instruments price risk is managed primarily through daily mark-to-market procedures, sensitivity analysis
and control of limits established for various types of financial instruments.
227
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY
VaR estimates in respect of financial assets at fair value through profit or loss and available-for-sale financial assets as
of 31 December 2017 and 2016 are as follows:
Fixed income securities price risk
Total price risk
Credit risk
Year ended 31 December 2017
Year ended 31 December 2016
Impact on profit
before tax
Impact on
equity
Impact on profit
before tax
Impact on equity
105
105
84
84
153
153
122
122
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.
Non-banking activities credit risk management
Credit risk arises from cash and cash equivalents, bank 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 information for calculation of provision for impairment. A significant portion of the Group’s accounts receiv-
able is due from domestic and export trading companies. The Group does not always require collateral to limit the ex-
posure 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.
Banking activities credit risk management
The Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full
when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk ac-
cepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are
monitored on a revolving basis and subject to an annual or more frequent review. Limits on the level of credit risk by
product, borrower, group of borrowers and industry sector are described in the Credit Policies, which are approved by
Management Boards, and are reviewed on a regular basis. The credit risk exposure is monitored on a regular basis to
ensure that the credit limits and credit worthiness guidelines established by the Group’s risk management policy are
not breached.
The Group is generally exposed to credit risk through its financial assets and contingent liabilities. The Group’s maxi-
mum exposure to credit risk, ignoring the fair value of any collateral, is generally reflected in the carrying amounts of
financial assets in the consolidated statement of financial position. The impact of possible netting of assets and liabili-
ties to reduce potential credit exposure is not significant.
In accordance with the Group’s collateral policies and procedures the Group may securitize its loans by multi- col-
lateral, i.e. to take different types of collateral in order to secure the same loan, in these cases the value of collateral
taken by the Group may exceed amounts lent to the customer. Therefore, maximum credit risk exposure on such loans
is limited to the amount of loan balances outstanding at reporting dates.
For risk management purposes, credit risk arising from positions held-for-trading and other financial instruments at
fair value through profit and loss is managed and reported as a market (financial instruments prices) risk.
In order to optimize the decision-making process on taking credit risk the Group established several credit commit-
tees with different levels of responsibilities. Credit committees and their level of responsibility in respect of approval of
maximum exposures on a borrower or group of related borrowers are as follows:
Assets and Liabilities Management Committee
More than RR 600 million
Maximum exposure allowed to be approved
Credit committee
Credit committee on small and medium business borrowers
Credit committee on retail lending
RR 600 million
RR 100 million
RR 14 million
Exposure to credit risk is managed through regular analysis of the ability of borrower and potential borrowers to meet
interest and principal repayment obligations and by changing these lending limits, where appropriate. Exposure to
credit risk is also managed, in part, by obtaining collateral and corporate or personal guarantees. The Group imple-
ments a continuous monitoring system of risk factors on substandard loans.
Internal instructions to assess potential borrowers are developed and applied for each segment of lending activities
including lending to legal entities, individuals, small and medium-size enterprises and certain others.
The decision making process within the Group is designed to ensure a thorough risk assessment is performed be-
fore any credit risk is taken and on all transactions submitted for approval. Therefore, an initiator of the transaction
prepares a resume with a description of the suggested project, ensures (where appropriate) that an independent as-
sessment of the collateral and its quality is performed and forwards all transaction related documentation to the risk
management department, which is responsible for the independent risk assessment of the project itself, the transac-
tion structure and the assessment of the adequacy of limits, terms and conditions associated with the transaction. The
risk management department formulates its own conclusion on the project, which is submitted for approval along with
all other transaction related documents.
The core procedure to assess credit risk associated with corporate lending is the analysis of corporate borrowers’ fi-
nancial statements for the latest available four quarters, their market position, business developments, organizational
228
229
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY and functional structure, business cycle and cash flows, transparency of shareholders (owners) as well as reputational
risks of the borrowers.
Underwriting procedures with respect to individual borrowers are built to minimize internal costs in order to maximize
financial results taking into account potential risks. These procedures are based on certain rating techniques such as
scoring methods that allow the minimization of credit risks both on a separate loan and on a portfolio basis. The rating
accounts for the financial position of an individual borrower as well as the specifics of each credit product. However,
the portion of loans to individuals issued purely using scoring models is still insignificant.
The majority of loans to individuals are approved by specialized credit committees winch include transaction initiators
and representatives of units responsible for risk assessment, control and monitoring. Such underwriting procedures
allow a flexible combination of formalized techniques and non-formalized knowledge of experts which is adequate for
the current retail lending operations and provide a good basis for further development of retail business.
The Group securitizes its credit risk exposure by taking guarantees and collateral.
If a guarantee is taken the Group assesses a guarantor’s financial stability and business profile in a similar manner to
the assessment of a borrower described above.
The assessment of collateral is performed internally by special divisions responsible for collateral assessment and
control. They use several methodologies developed for each type of collateral. Valuations performed by third parties,
including independent appraisal firms authorized by the Group, may serve as additional data for such assessment.
The Group usually requires collateral to be insured by insurance companies authorized by the Group.
Collateral is not generally held over amounts due to banks, except where securities are held as a part of reverse
re-purchase and sale transactions.
The Group measures and monitors credit risk on corporate portfolios by individual corporate exposure and estimates
quantitative parameters of credit risk such as expected and unexpected losses on credit exposures. These calcula-
tions are based on internal ratings of creditworthiness assigned to each corporate borrower. The internal rating system
is regularly updated and developed. The information accumulated over tins period provides a sound ground for as-
sessment of ratings migration and allows the Group to calibrate corresponding parameters of default probability. While
the revision of a recovery number in classes of corporate borrowers is performed the historical data on losses is taken
into consideration. In the final calculations of losses on loans, liquid and reliable collateral is considered.
The Group uses the following rating categories for the analysis of credit quality of loans to customers:
•Rating I - standard quality transaction: low probability of default on the transaction due to stable financial position of
the borrower allowing generation of cash flows sufficient for meeting requirements of analyzed transaction;
•Rating II - stable quality transaction: average probability of default due to acceptable quality of the borrower’s cash
flows, however, the borrower’s financial position and its performance against business plans require closer moni-
toring;
•Rating III - middle and low quality transaction: middle and high probability of default because of non- stable financial
position of the borrower, or the lack of or poor quality of collateral; and
•Rating IV - non-recoverable loans which may be collected through legal procedures, claims to guarantors or realiza-
tion of collateral but expected results of these collection procedures are uncertain.
The Group does not enter into transactions with an initial rating of III or IV.
Procedures on subsequent monitoring of credit risk include:
•analysis of actual exposures versus established limits;
•control over compliance with internal policies, procedures, instructions and orders issued by respective manage-
ment bodies;
•review of corporate borrowers’ quarterly financial statements and, where appropriate. actual performance versus
business plans;
•control over existence and valuation of collateral taken;
•monitoring of business, economic and political events in order to assess whether these events can negatively affect
(a) an industry or a region where the Group’s corporate borrowers operate; (b) the reputation of these corporate
borrowers and of the Group itself;
•monitoring of macroeconomic parameters in order to assess adequacy of risk assessment associated with corpo-
rate lending portfolios and to validate scoring models used for retail lending programs; and
•portfolio analyses showing trends in default rates, concentrations/diversifications by borrowers or groups of bor-
rowers, products, industries, countries, etc.
Attention is paid to improve efficiency of distressed debt collection and to protect the Group against illegal actions.
Distressed debt collection procedures are initiated if loans are overdue by more than 30 days. These procedures in-
clude the Group’s proprietary techniques and the best practices of international and Russian banks in this area such
as debt restructuring, searching for evading debtors and their property, claims to property and earnings and actions
against lending fraud. Debt collection procedures are performed on the basis of current Russian legislation and inter-
national standards in close interaction with legal and law enforcement authorities.
Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of
another party to a financial instrument failing to perform in accordance with the terms of the contract. The Group ap-
plies the same credit policies in making conditional obligations as it does for off-balance sheet financial instruments
through established credit approvals, risk control limits and monitoring procedures.
The Group also uses several types of limits on amounts due from other banks such as maximum credit exposure on
counterparty and on a group of transactions with tins counterparty including lending, purchase and sale of securities,
currency and other financial assets if these transactions may cause a credit risk. In order to establish these limits the
Group uses credit quality assessment procedures similar to the ones applicable to corporate borrowers discussed
above.
For more detailed analyses please refer to https://www.zenit.ru/rus/about_bank/disclosure/financial-statements/
230
231
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Credit risk analysis on banking and non-banking operations of the Group
The following table represents aggregate amounts affecting overall credit risk of the Group as of 31 December 2017:
Maximum
exposure to
credit risk
Offset
Net exposure
after offset
Collateral
pledged
Net exposure
after offset and
collateral
Cash and cash equivalents
Restricted cash
Banking: Mandatory reserves with CB RF
Accounts receivable
Banking: Loans to customers
Other financial assets
Total balance sheet credit risk
Loan commitments
Guarantees issued
Import letters of credit
Total off-balance sheet credit risk
Total credit risk
42,797
-
1,916
64,846
150,983
121,289
381,831
26,421
13,801
1,426
41,648
423,479
-
-
-
-
-
-
-
-
-
-
-
42,797
-
1,916
64,846
150,983
121,289
-
-
-
-
(141,716)
(11,751)
381,831
(153,467)
26,421
13,801
1,426
(1,294)
(2,934)
(551)
41,648
(4,779)
423,479
(158,246)
42,797
-
1,916
64,846
9,267
109,538
228,364
25,127
10,867
875
36,869
265,233
The following table represents aggregate amounts affecting overall credit risk of the Group as of 31 December 2016:
Maximum
exposure to
credit risk
Offset
Net exposure
after offset
Collateral
pledged
Net exposure
after offset and
collateral
Cash and cash equivalents
Restricted cash
Banking: Mandatory reserves with CB RF
Accounts receivable
Banking: Loans to customers
Other financial assets
Total balance sheet credit risk
Loan commitments
Guarantees issued
Import letters of credit
Total off-balance sheet credit risk
Total credit risk
77,106
3
1,988
65,707
193,026
102,328
440,158
24,885
13,869
331
39,085
479,243
-
-
-
-
-
-
-
-
-
-
-
-
77,106
3
1,988
65,707
193,026
102,328
-
-
-
-
(162,258)
(6,639)
77,106
3
1,988
65,707
30,768
95,689
440,158
(168,897)
271,261
24,885
13,869
331
(2,094)
(5,431)
(161)
39,085
(7,686)
479,243
(176,583)
22,791
8,438
170
31,399
302,660
232
The table below shows credit quality by class of loans to customers as of 31 December 2017:
Loans to legal entities
Loans to individuals
Total
Neither past due nor impaired
- rating I
- rating II
- rating III
- rating IV
76,256
6,085
5
-
23,473
10,082
19
15
99,729
16,167
24
15
Total neither past due nor impaired
82,346
33,589
115,935
Past due but not impaired
- less than 30 days overdue
- 30 to 90 days overdue
- 91 to 180 days overdue
- 181 to 360 days overdue
- more than 360 days overdue
Total past due but not impaired
Individually impaired
- not overdue
- less than 30 days overdue
- 30 to 90 days overdue
- 91 to 180 days overdue
- 181 to 360 days overdue
- more than 360 days overdue
Less: provision for impairment
Total loans to customers
9
52
-
-
-
61
38,734
29
48
49
788
645
(6,721)
115,979
49
41
47
52
470
659
-
98
81
94
104
940
(561)
58
93
47
52
470
720
38,734
127
129
143
892
1,585
(7,282)
35,004
150,983
233
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The table below shows credit quality by class of loans to customers as of 31 December 2016:
Loans to legal entities
Loans to individuals
Total
The table below shows credit quality of assets other than loans to customers and accounts receivable as of 31 December 2017:
Neither past due nor impaired
- rating I
- rating II
- rating III
- rating IV
111,316
17,139
-
-
31,615
541
875
272
142,931
17,679
875
272
Total neither past due nor impaired
128,455
33,302
161,757
Past due but not impaired
- less than 30 days overdue
- 30 to 90 days overdue
- 91 to 180 days overdue
- 181 to 360 days overdue
- more than 360 days overdue
Total past due but not impaired
Individually impaired
- not overdue
- less than 30 days overdue
- 30 to 90 days overdue
- 91 to 180 days overdue
- 181 to 360 days overdue
- more than 360 days overdue
Less: provision for impairment
Total loans to customers
285
4
15
2
3
309
27,012
68
233
524
335
2,104
(1,030)
158,009
27
40
93
137
275
572
-
53
81
186
274
686
(137)
35,017
312
44
108
139
278
880
27,012
121
314
710
609
2,790
(1,167)
193,026
The Group uses the following rating categories for the analysis of credit quality of assets other than loans to customers
and accounts receivable:
•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;
•non-investment (speculative) grade ratings classification referred to as Ba1 to C for Moody’s Investment Services,
as BB- to B- for Fitch Rating and as BB- to D for Standard and Poor’s Rating, respectively.
234
Investment
grade rating
Non-investment
grade rating
Unrated
Total
Cash and cash equivalents
Cash on hand and in banks
Term deposits
Due from banks
Restricted cash
Banking: Mandatory reserves with CB RF
Other financial assets
Bank deposits
Due from banks
Notes receivable
Other loans
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Held to maturity investments
Past due but not impaired
Individually impaired
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Other loans
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Held to maturity investments
Less: provision for impairment
3,114
8,012
-
-
-
-
-
-
-
1,952
4,360
21,681
-
-
-
-
-
-
-
-
-
9,188
3,859
1,672
-
-
1
1,613
-
-
3,191
12,509
29,924
-
-
30
-
-
-
318
-
(348)
Total credit risk
39,119
61,957
16,917
35
-
-
1,916
301
-
456
3,260
3,358
11,870
4,200
-
5,547
-
318
2,978
15,955
298
19,602
-
(22,114)
64,897
29,219
11,906
1,672
-
1,916
302
1,613
456
3,260
8,501
28,739
55,805
-
5,547
30
318
2,978
15,955
298
19,920
-
(22,462)
165,973
235
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The table below shows credit quality of assets other than loans to customers and accounts receivable as of 31 De-
cember 2016:
Investment
grade rating
Non-investment
grade rating
Unrated
Total
Cash and cash equivalents
Cash on hand and in banks
Term deposits
Due from banks
Restricted cash
Banking: Mandatory reserves with CB RF
Other financial assets
Bank deposits
Due from banks
Notes receivable
Other loans
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Held to maturity investments
Past due but not impaired
Individually impaired
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Held to maturity investments
Less: provision for impairment
16,014
-
2,066
-
-
-
3,447
-
-
1,900
2,743
3,774
-
-
-
-
-
-
-
-
-
Total credit risk
29,944
948
13,585
-
3
-
32,206
5,000
-
-
3,528
3,208
4,632
-
5,400
-
-
-
-
3,585
602
(7,287)
65,410
23,885
9,159
11,449
-
1,988
500
1,440
458
3,391
2,762
27,876
2,153
-
-
-
318
2,494
23
-
-
(1,827)
86,069
40,847
22,744
13,515
3
1,988
32,706
9,887
458
3,391
8,190
33,827
10,559
-
5,400
-
318
2,494
23
3,585
602
(9,114)
181,423
Within short term bank deposits there are RR 5,400 million of deposits placed with Tatfondbank. Starting from 15 De-
cember 2016 a three-month moratorium on satisfying claims of creditors was imposed on Tatfondbank. DIA has been
authorized to perform duties of a temporary administration for a period of six months. Subsequently, in March 2017,
by the order of CB RF the license to conduct banking operations was withdrawn from Tatfondbank. At 31 December
2017 and 2016 the Group created a provision for impairment of deposits placed with Tatfondbank in the amount of RR
5,400 million.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Non-banking operations liquidity risk management
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, con-
tinuously 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 suf-
ficient 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 available international and domestic markets.
Banking operations liquidity risk management
It is unusual for banks ever to be completely matched on maturities of assets and liabilities since business transacted
is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can
also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost,
interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure
to changes in interest and exchange rates.
The Group’s approach to liquidity management is to ensure, as far as possible, that it will have sufficient liquidity to
meet its liabilities when due under both ordinary and stressed conditions, without incurring unacceptable losses or
damaging the Group’s reputation.
The Group endeavors to maintain a stable and diversified funding base including core corporate and individual cus-
tomer accounts; short-, medium- and long-term loans from other banks; promissory notes and bonds issued. On the
other hand, the Group tends to keep diversified portfolios of liquid and highly liquid assets in order to be able to settle
unforeseen liquidity requirements in an efficient and timely manner.
Key parameters in liquidity risk management such as the structure of assets and liabilities, composition of liquid as-
sets and acceptable liquidity risks are established by ALCO. ALCO sets and reviews limits on liquidity gaps which are
assessed on the basis of liquidity stress-tests in regard to medium- and long-term liquidity. These tests are performed
using the following information:
•current structure of assets and liabilities including any known renewal arrangements as at the date of the respective
test;
•amounts, maturity and liquidity profiles of transactions projected by business units;
236
237
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY •current and projected characteristics of liquid assets which include, apart from cash and cash equivalents, amounts
due from other banks and certain financial assets held-for-trading: and
•relevant external factors.
The resulting models allow for the assessment of future expected cash flows due to projected future business and dif-
ferent crisis scenarios. While managing liquidity risk treasury departments of the Group distinguish liquidity required
within a current business day and term liquidity with a 1-year horizon. For managing current liquidity (with a 1-day
horizon) the following methods are used:
•reallocation of cash between accounts with other banks;
•collection of information from business and other supporting units on large transactions (both proprietary and cus-
tomer based);
•purchase and sale of certain financial assets in liquid portfolios;
•accelerating closure of trade positions;
•estimation of minimum expected cash inflow during a business day; and
•daily control over the balance of cash and estimated liabilities to be settled on demand.
For managing term liquidity treasury departments of the Group use liquidity graphs that reflect volume and time of
liquidity mismatches (surpluses or deficiencies). These liquidity graphs, in essence, present projected cash flows
estimated with due regard for expected maturities of assets and liabilities. The Group sets limits on acceptable accu-
mulated liquidity mismatches which are calculated by using the following instruments:
•discounts to assets are applied to recognize market risk in case of accelerated realization of respective assets;
and
•models showing cash flow fluctuations due to accelerated settlement of liabilities.
In the normal course of business, liquidity reports covering the current and projected structure of assets and liabilities
as well as future expected cash flows are submitted to ALCO once every two weeks. Decisions on liquidity manage-
ment made by ALCO are implemented by treasury departments within their duties and responsibilities, in addition to
this, ALCO reviews and approves model of maturity for the minimum required daily balances of current accounts by
currencies on the basis of analysis of historical dynamics.
Liquidity analysis for banking and non-banking operations of the Group
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undis-
counted payments, including interest payments as of 31 December 2017:
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
Over 5 years
Total
Financial liabilities
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and CB RF
Banking: Customer accounts
Other short-term liabilities
Credit related commitments (Note 28)
22,366
6,032
3,400
8,369
528
3,364
28,349
2,039
29,695
170,337
256
12,924
-
-
-
-
-
-
-
-
-
-
-
-
2,588
2,955
2,102
84
-
15
344
2,600
-
6,381
24
-
1,597
5,575
224
-
6,647
4
-
-
20
-
-
469
22,366
6,032
3,400
8,369
8,173
3,476
28,349
3,651
35,634
173,161
256
26,421
Total
287,659
12,012
17,022
2,595
319,288
238
239
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undis-
counted payments, including interest payments as of 31 December 2016:
Financial liabilities
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and CB RF
Banking: Customer accounts
Other short-term liabilities
Credit related commitments (Note 28)
Total
Fair values
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
Over 5 years
Total
25,575
149
430
9,471
223
4,713
9,781
1,224
5,551
200,234
1,398
26,127
-
-
-
8,734
224
94
-
219
9,369
8,728
-
5,465
-
-
-
13,866
3,940
36
-
1,173
6,240
8,183
-
6,231
-
-
-
23,146
1,552
29
-
625
-
-
-
1,262
25,575
149
430
55,217
5,939
4,872
9,781
3,241
21,160
217,145
1,398
39,085
284,876
32,833
39,669
26,614
383,992
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction be-
tween 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.
Level 1 – Quoted prices in active markets for identical assets or liabilities that Group has the ability to assess at the
measurement 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
assumptions 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 2017
At 31 December 2016
Fair value
Level 1
Level 2
Level 3
Carrying
value
Fair value
Level 1
Level 2
Level 3
Carrying
value
Financial assets at fair value
through profit or loss
8,096
-
405
8,501
7,759
-
431
8,190
Available-for-sale financial assets
16,944
8,998
15,763
41,705
9,509
2,300
24,309
36,118
Investment property
871
871
-
-
877
877
Total
25,040
8,998
17,039
51,077
17,268
2,300
25,617
45,185
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 2017 and 2016:
Fair value hierarchy
Valuation technique and key input data
Quoted prices for similar investments in active
markets, net assets valuation, comparative
(market) approach
Publicly available information, comparable
market prices
Investment property
Level 3
Market data on comparable objects adjusted in
case of differences from similar objects
There were no changes in valuation technique for Level 2 and Level 3 recurring fair value measurements during the
year ended 31 December 2017 (2016: none).
There have been no transfers between Level 1, Level 2 and Level 3 during the period.
The different levels of fair value hierarchy have been defined as follows:
Available-for-sale financial assets
Level 2, Level 3
240
241
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY 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 2017
At 31 December 2016
At 31 December 2017
At 31 December 2016
Fair value
Level 1
Level 2
Level 3
Carrying
value
Fair value
Level 1
Level 2
Level 3
Carrying
value
Fair value
Level 1
Level 2
Level 3
Carrying
value
Fair value
Level 1
Level 2
Level 3
Carrying
value
Assets
Cash and cash equivalents
Cash on hand and in banks
Term deposits
Due from banks
Restricted cash
Banking: Mandatory reserve depos-
its with CB RF
Accounts receivable
Trade receivables
Other financial receivables
Banking: Loans to customers
Other financial assets
Bank deposits
Due from banks
Notes receivable
Loans to employees
Other loans
-
-
-
-
-
-
-
-
-
-
-
-
-
Held to maturity investments
55,805
29,219
11,906
1,672
-
-
-
-
-
302
1,642
-
-
-
-
-
-
-
-
29,219
11,906
1,672
-
1,916
1,916
59,075
59,075
5,771
5,771
150,983
150,983
-
-
456
1,558
302
1,642
456
1,558
11,321
11,321
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55,805
10,560
40,847
22,744
13,515
3
-
-
-
-
32,706
9,887
-
-
-
-
-
-
-
-
40,847
22,744
13,515
3
1,988
1,988
61,467
4,240
61,467
4,240
193,026
193,026
-
-
458
1,018
3,391
32,706
9,887
458
1,018
3,391
-
10,560
Total financial assets
55,805
44,741
231,080
331,626
10,560
119,702
265,588
395,850
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Debt
-
-
-
Bonds issued
7,742
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Due to banks and CB RF
Customer accounts
Other liabilities
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33,640
158,914
22,366
22,366
6,032
3,400
6,032
3,400
-
-
-
-
7,742
32,698
4,492
3,428
27,744
3,406
-
-
4,492
3,428
27,744
3,406
33,640
158,914
-
256
256
-
-
-
-
-
-
-
-
18,350
180,714
25,575
25,575
149
430
149
430
-
32,698
4,497
4,894
9,340
2,701
-
-
4,497
4,894
9,340
2,701
18,350
180,714
-
1,398
1,398
-
-
-
-
-
-
-
Total financial liabilities
7,742
192,554
71,124
271,420
32,698
199,064
48,984
280,746
The carrying amounts of financial assets and liabilities carried at amortized cost approximates their fair values. The fair
values in Level 2 fair value hierarchy were estimated using the discounted contractual cash flows and observable inter-
est rates for identical instruments. The fair values in Level 3 fair value hierarchy were estimated using the discounted
cash flows and observable interest rates for similar instruments with adjustment to credit risk and maturity.
242
243
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Reconciliation of liabilities arising from financing activities of the Group
At 31 December 2016
Cash flow movement, including:
Proceeds from issuance of debt
Repayment of debt
Issuance of bonds
Redemption of bonds
Interest accrued
Interest paid
Financial expenses:
Foreign currency profit
Other non-cash flows
At 31 December 2017
Management of Capital
Liabilities arising as a result of financial activities
Short-term and
long-term debt
Bonds issued
Subordinated debt
12,041
32,698
4,497
25,107
(5,434)
-
-
425
(160)
(504)
(325)
31,150
-
-
2,365
(25,740)
2,011
(2,011)
-
(1,581)
7,742
-
-
-
-
921
(921)
(298)
293
4,492
Total
49,236
25,107
(5,434)
2,365
(25,740)
3,357
(3,092)
(802)
(1,613)
43,384
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and
healthy capital 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 defines capital under management as equity as shown in the consolidated statement of financial position.
The amount of capital that the Group managed as of 31 December 2017 was RR 711,859 million (2016: RR 703,511
million). The Group manages capital for banking and non-banking operations separately.
Non-banking operations capital management
The Group considers equity and debt to be the principal elements of capital management. In order to maintain or ad-
just 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 excluding borrowings of Bank ZENIT:
Credit facilities
Other debt
Notes payable
Consolidated shareholders’ equity
Debt to capital employed ratio, %
(Consolidated total borrowings / Consolidated shareholders’ equity)
Year ended
31 December 2017
Year ended
31 December 2016
31,410
27,744
3,406
260
711,859
4%
12,301
9,340
2,701
260
703,511
2%
Banking operations capital management
The Group’s policy on capital management is to maintain a strong capital base in order to support further business
development of the Group and to satisfy requirements set by regulatory authorities.
The Group has been developing procedures for the economic capital calculation on the basis of best international risk
management practices.
The CB RF establishes and controls capital adequacy requirements.
The Group also monitors capital requirements set by the CB RF for credit institutions. Under the current capital re-
quirements banks have to maintain a ratios of capital to risk-weighted assets (“statutory capital ratios”) above the
prescribed minimum levels. The CB RF sets the following mandatory capital ratios requirements for core capital, Tier
1 and total capital: 4.5%, 6% and 8% respectively. As of 31 December 2017 and during the period from Bank ZENIT
acquisition till 31 December 2017 the Group complied with the statutory requirements related to the capital ratio.
In September 2015 Bank ZENIT received five subordinated loans totalling RR 9,933 million from DIA within the Russian
Federation Government programme for additional capitalisation of Russian banks. Under the terms of these subordi-
nated loan agreements DIA paid these loans by securities (OFZ of five series), that should be returned upon maturity
of the subordinated loans. These subordinated loans mature from January 2025 to November 2034 and bear interest
equal to OFZ coupon rate plus 1%. In accordance with IAS 39 “Financial Instruments: Recognition and Measurement”
if securities are loaned under an agreement to return them to the transferor, they are not derecognized because the
transferor retains substantially all the risks and rewards of ownership. Accordingly, the obligation to return the securi-
ties should not be recognized. Therefore, OFZ and the subordinated loan received from DIA are not recognized within
assets and liabilities in the consolidated statement of financial position. In accordance with the Bank of Russia’s Regu-
lation No. 395-P these subordinated loans accounted for in capital adequacy ratio calculation in accordance with Bank
of Russia’s Regulation No. 395-P.
244
245
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY SOCIAL RESPONSIBILITY
AND INTERACTION
WITH STAKEHOLDERS
246
247
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY GOALS AND PRIORITIES OF TATNEFT’S
SOCIAL POLICY IN OPERATING REGIONS
THE COMPANY DEVELOPS AND IMPLEMENTS ITS SOCIAL PROGRAMS
BASED ON THE FOLLOWING PRINCIPLES
COMPANY SOCIAL PROGRAMS AREAS
Tatneft’s social programs focus on children and young people, war and labor veterans, those in need of medical care and
rehabilitation, foster children, as well as other vulnerable social groups.
IMPACT
Funds spent on
implementing programs
should make a
meaningful impact
in solving problems.
The programs’ results
are subject to regular
assessment and
reporting.
SIGNIFICANT
The Company aspires to
make its social programs
as relevant to society’s
urgent needs as possible
in a timely and targeted
manner.
Developing city and town infrastructures
Supporting healthcare in the Republic of Tatarstan
Promoting education
Supporting cultural initiatives
Promoting faith-based initiatives
Maternity and childhood support program
Targeted civic support
Supporting sports and fitness programs
Supporting hockey initiatives
The main social programs are implemented in regions where the Company operates.
A list of Company social projects is available at tatneft.ru
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 livelihoods. Groups with substantial influence include 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 clients,
business partners, and public authorities. Groups with limited influence include public organizations, investment analyst companies and credit rating
agencies, media organizations, specialized institutions of higher and intermediate vocational education, and local companies. These are stakeholders
whose interests can be partially affected by the Company or which can indirectly influence the Company
STRUCTURE
Social programs
are structured and
systematic.
OPEN
The Company strives to
develop and implement
social programs
based on dialog and
collaboration with
stakeholders.
248
249
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE Ensuring a high level of corporate social responsibility is a strategic initiative and the most
important principle of the Company’s work. It includes transparency and ethical behavior that
contributes to sustainable development and is consistent with legislation and international
regulations.
BASIC PRINCIPLES OF TATNEFT’S CORPORATE
SOCIAL RESPONSIBILITY
Since 2005, the Company has promoted sustainable development and social responsibility, following
the principles of GRI.
Implementation of GRI Principles
INTERACTION WITH
STAKEHOLDERS
The Company makes considerable efforts to engage stakeholders in a discussion of issues related
to preparing the report, such as defining the Report's content, selecting performance indicators, etc.
To do that, the Company is consulting with stakeholder representatives, holding conferences and
seminars, and conducting surveys.
CONTEXT OF SUSTAINABLE
DEVELOPMENT
Information on the Company’s activity results is presented in the Report in close connection with
its contribution to sustainable development. The Report presents all significant issues, indexes
and initiatives related to maintaining economic stability, improving environmental safety, and
enhancing social stability.
SIGNIFICANCE
COMPREHENSIVENESS
We aim to include in the Report only issues, questions and indicators that are important to
stakeholders and are able to influence their decisions. When determining the significance of
issues, factors such as the Company's goals and objectives, risks and opportunities, industry
problems, and a number of other factors are taken into account.
The Company is committed to the fullest disclosure of information in the economic, environmental
and social spheres. The totality of issues reflected in the Report is sufficient to enable users of the
Report to assess the Company's performance in general and its contribution to sustainable social
development.
BALANCED APPROACH
In a quest to remain balanced, the Report reflects both favorable performance results and
challenges facing the Company. The degree of attention paid to various issues is proportional to
their relative importance.
TRACKING RESULTS
ACCURACY
The Report compares performance results from year to year. An explanation is provided for each
significant change concerning the boundaries, scope or reporting period. The indicators included
in the guidelines and technical protocols of GRI were used when preparing the Report to compare
the Company's effectiveness with other companies' results.
We aim to ensure that the information presented in the Report is accurate and sufficiently detailed so
that stakeholders can use it to make decisions with a high degree of confidence. The margin of error
in quantitative data is minimal. Relationships and specific values used in the Report are supplemented
with corresponding absolute values. Data is presented using conventional international units and
calculated using standard coefficients.
TIMELINESS
The Company understands the need to provide timely information in the Report. As such, the
Report is published once a year on the eve of the annual General Shareholders' Meeting.
CLARITY
RELIABILITY
We make efforts to ensure that the information presented in the Report is clear, understandable and
useful for various stakeholders. The Report contains a list of abbreviations explaining scientific and
technical terms and abbreviations.
Information and data of the Report are based on internal documentation, which can be evaluated
by independent parties. Information that cannot be supported by documentation is not included in
the Report.
Ensuring a high level of corporate social responsibility is a strategic initiative and the most important principle of the
Company’s work. It includes transparency and ethical behavior that contributes to sustainable development and is
consistent with legislation and international regulations.
•The Company acts in accordance with the Social Charter of Russian Business and the Universal Declaration of
Human Rights. We presume that everyone should have all the rights and freedoms set forth therein without distinc-
tion of any kind, such as race, color, sex, language, religion, political or other convictions, national or social origin,
property, birth, or other status.
•The Company does not allow any form of harassment or discrimination. The Company respects the rights of each
employee to collective representation, including labor unions, while excluding any possibility of a hostile, humiliat-
ing or insulting atmosphere for human dignity.
•Relations between shareholders, members of the Board of Directors, and the executive directorate of the Company
are built on mutual trust and respect, conscientious fulfillment of duties thereof and realization of rights.
•The Company equally respects equally the rights of its shareholders, regardless of the number of shares owned by
them or where they are located. We maintain an effective dialogue with them, seek to justify their trust by fulfilling
the stated obligations to develop the Company and ensuring the level of dividend payments.
•The Company seeks to maintain a reasonable balance between short-term and long-term financial results of its
operations and ensure a high credit rating and a proper level of liquidity of securities.
•The Company openly informs shareholders, partners, employees, and other interested parties of its activities, en-
suring the exercise of their right to receive full and reliable information in a regular and timely manner and in the
forms established by current legislation and internal documents of the Company.
Company presence in business and public organizations
Chamber of Commerce and Industry of the Russian Federation
All-Russian Association of Employers of the Oil and Gas Industry Russian Union of Industrialists and Entrepreneurs (RSSP)
The Union of Oil and Gas Producers of Russia Moscow International Petroleum Club (MMNK)
Russian Institute of Directors (RID)
National Council on Corporate Governance (NCCG)
Moscow Exchange Share Issuers Committee
Russian National Committee of the World Petroleum Council (RNC WPC).
250
251
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE CORPORATE STANDARDS AND REGULATIONS
ON INTERACTION WITH SHAREHOLDERS
Shareholders
Regulatory documents
All
shareholders
Charter of Tatneft
Corporate Governance Code of Tatneft
Development strategy of the Tatneft Group for the period up to 2025
Regulations on the Information Policy of Tatneft
Operating procedure of the "Hot Line" of Tatneft Company
Policy of the Tatneft Group in the field of industrial safety, labor protection and environment
Anticorruption policy of Tatneft Company
Shareholders
Regulation on the General Shareholders' Meeting of Tatneft
Regulation on the Board of Directors of Tatneft
Regulations on the committees of the Board of Directors of Tatneft
Regulation on the Corporate Secretary
Regulation on the dividend policy of Tatneft
Regulation on provision of information to shareholders of Tatneft
Regulation on the use of insider information and the procedure for informing about transactions with securities
Employees
Tatneft Code of Corporate Culture
Human resources policy
Standard of staff recruitment and transfer to another job
Regulation on mentorship
Standard of work with the personnel reserve
Personnel appraisal standard
Training and development of personnel standard
Labor discipline standard
Employee awarding standard
Standard for providing information on the turnover rate
Internal code of conduct for employees
Regulation for preparing and holding employee conference
Regulation on the insurance of employees against occupational accidents
Regulation on the organization of employee health and resort treatment and recreation
Regulation on the industrial safety management system
Production safety management system
Regulation on industrial control over compliance with industrial safety requirements at hazardous production
facilities
Procedure for organizing preliminary and periodic medical examinations of employees engaged in heavy, harmful work
and work with hazardous and/or dangerous production factors
System of personal responsibility of workers for the safety of work
Regulation on the allocation of loan funds for the construction of individual housing and equity participation in the
housing construction (with other legal entities that carry out housing construction)
Trade union
Collective agreement standard
Veterans and
pensioners
Regulation on the committee (commission) on labor protection
Labor protection agreement
Regulation on the organization of non-state pension provision for employees
Regulation on the organization of health and resort treatment of nonworking pensioners and disabled workers
Corporate project of targeted assistance to pensioners
Shareholders
Regulatory documents
Business
partners
Standard on the procedure for registration of suppliers of goods (works, services)
Regulation of material and technical support of structural subdivisions and subsidiaries
Regulation on the organization of contract work
Regulation on the organization of procurement of goods using an electronic trading platform
Regulation on work in "Tatneft's trading and purchasing platform" system
Corporate standard on the procedure for accreditation of potential suppliers when organizing the purchase of
goods using the electronic trading platform
Regulation on the order of interaction of the Company's subdivisions for the consideration of complaints coming to
Tatneft's trading and purchasing platform hot line
Regulation on the organization, management, and automated recording of claims and lawsuits
Regulation on the organization of procurement of goods from enterprises producing unique (custom-made) goods
(manufacturers-monopolists)
Regulation on organization of safe production of works performed by third parties at the Company's facilities
Standard of the organization "Requirements in the field of ensuring environmental safety to the organizations
involved in the work and provision of services at the Company's facilities"
Standard of interaction of the Company with external service enterprises in providing services
Standard of the Company's investment and technical policy on expansion of the types and improvement of the
quality of oil services
Regulation on the introduction and approval of changes made to the schemes of production facilities that define
the boundaries of the responsibility sections of service companies and structural divisions in providing services to
the Company
Regulation on customer information technology service
Regulation on the bidding process (tender) for placing orders for the supply of goods, performing work, providing
services for the Company's needs
Regulation on precompetitive and postcompetitive work arrangements for the supply of goods, performing works,
providing services for the Company's needs
Regulation on organizing the marketing evaluation of materials and equipment with material and technical support
Consumers
Regulation on "Tatneft" trademark and the rules of its use
Standard "Production control of products and technological processes"
Standard "Final inspection and testing of products"
Procedure for consideration of claims and requests of consumers of tire products
Procedure for collecting and processing information on the customer satisfaction
Charter of customer service at gas stations
Local
communities
and public
organizations
Rules of the Company's trading practices with respect to the sale of diesel fuel in the Russian Federation
Agreements with city and township administrations in regions of operation
Regulation on work with alumni of boarding schools and orphans in specialized education institutions
Corporate project on supporting development of small and medium business of the Republic of
Tatarstan
Regulation on the Company's participation in public organizations
252
253
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE CORPORATE RESPONSIBILITY
•The Company is a responsible partner of the government, business community, citizens, society and in all regions
where it operates.
•As an employer, taxpayer, nature and subsoil user, the Company takes its responsibilities in good faith and rational-
ity. We contribute to the economic and social development of the regions where we operate and create favorable
living conditions.
•The Company cooperates and consults with partners, contractors, civic representatives, communities where we
operate, and all who cooperate with the Company on all socially significant issues related to the Company’s activity.
The Company respects culture and traditions, dignity and human rights in all regions of its operations.
BUSINESS PARTNERS, SUPPLIERS, CONTRACTORS
The Сompany aims to create and maintain long-term and stable relations with business partners, suppliers, counter-
parties, investors and other stakeholders based on mutual trust, full commitment, openness and flexibility, exchange
of experience and mutual support.
The Company undertakes to adhere to these principles of mutual benefit and develop business relations taking into
account the interests of all its partners, counterparties, and stakeholders.
The Company does not enter into relations with persons using illegal and/or unethical methods of doing business.
The Company never hires agents to commit acts contrary to the above principles and requirements.
The Company makes decisions on the acquisition or sale of goods or services, placing orders and contracts by as-
sessing their quality and price, as well as comparing proposals of the competing organizations. To avoid a conflict of
interests, employees of the Company interacting with customers and suppliers are obliged to avoid any participation
in the preparation and adoption of a decision in which they are interested directly or indirectly.
In its activities, the Company is guided by legislation that regulates competition, supports free competition and entre-
preneurship, and pursues a fair open policy with respect to the competing organizations.
EMPLOYEES
A high level of professionalism of employees, their adherence to the corporate interests, responsibility and trustworthiness,
as well as desire and ability to work as a team are the key to successful activity and development of the Company. That is why
the Company strives to create all the necessary conditions for comfortable workplace, while fulfilling the potential of each
employee.
The Company’s objectives with regard to employees are as follows:
•Attraction and consolidation of bright, talented people—the best professionals
•Creating the most favorable conditions for professional growth and creative development of employees, providing
a comfortable work environment based on mutual trust and respect
•Combining the professional skills, abilities and creative potential of the Company’s employees, which will allow the
Company to build a corporate culture based on a solid foundation and stimulating new opportunities for develop-
ment of the highly efficient business
•Developing each employee’s personal sense of responsibility for operational activities and the Company’s reputa-
tion
•Creating an effective system of compensation for employees, which will allow an objective assessment of each
employee’s contribution
The Company lays a great emphasis on the tolerance and formation of an auspicious psychological climate in the workforce.
Trust is built on mutual respect and tolerance, regardless of an employee’s position. Everyone is valued for professionalism,
knowledge, experience, and interest in development and growth.
Employees are entitled to conduct an open and constructive discussion of the quality and effectiveness of their work, the
work of their division, and the Company as a whole. They are also empowered to make proposals aimed at improving the
efficiency of team work At the same time, employees have the right to rely on the reasonable and necessary attention of the
Company to their personal circumstances while performing their official duties.
All employees, regardless of their positions, are obliged to:
•Use the Company’s assets only to strengthen and develop the Company’s business, without seeking self-profit by
abusing their official position.
•Strictly adhere to the requirements of legislation, this Code and other local regulations, which are included in em-
ployment contracts with them.
•Fulfill their official work duties in full, reasonably and conscientiously.
The Company takes care of the well-being and social security of its employees and their families, provides various forms of
insurance, and implements social programs. The Company supports veterans, pensioners, disabled workers, and families of
workers injured while at work.
254
255
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE COLLECTIVE AGREEMENT
MAIN BENEFITS FOR PENSIONERS AND VETERANS
Tatneft takes care of the well-being and social security of its employees and their families. The Company provides
employees with a package of social benefits and guarantees. Obligations for their provision are stated in the Collec-
tive Agreement, annually concluded between Tatneft and the workforce and covering all employees and nonworking
pensioners of the Company.
THE COLLECTIVE AGREEMENT INCLUDES:
• Benefits and guarantees for
• Social protection of young
• Support of veterans and
employees
employees
pensioners
The structure of social benefits and guarantees is defined by the Standard of the Collective Agreement of Tatneft
Group of Companies, which serves as guidelines for all Tatneft enterprises.
IN 2017, THE AMOUNT OF PAYMENTS MADE UNDER THE FOLLOWING ARTICLES WAS AMENDED AND INCREASED:
• Amount of the lump-sum material assistance to each
employee parent for each newborn or adopted child
• Amount of material assistance to disabled children
• Amount of material assistance to single-parent families
• Amount of material assistance for the burial of relatives
• Amount of material assistance for funeral expenses to
employees’ (pensioners’) families
• Amount of material assistance to orphans
• Amount of material assistance to large families
• Settlement rates for lump-sum material assistance for
annual vacation
KEY BENEFITS AND GUARANTEES TO EMPLOYEES:
not receiving alimony
• Settlement rates of the lump-sum material assistance
to employees and pensioners who celebrate milestone
ages
• Amount of material assistance for the first marriage of
an employee
• Material assistance to employees on parental leave for
• Lump-sum payment related to the provision of annual
children under the age of 3
paid leave
• Material assistance for the birth or adoption of a child
under the age of 14
• Provision of up to three working days for paternal while
saving the average monthly salary upon their new-
born’s discharge from the hospital
• Material assistance in case of death of close relatives
of the employee
• Material assistance for funeral expenses to the em-
ployee’s family in the event of their death
• Material assistance to orphans under the age of 18
who lost both parents if one of them was a Tatneft
employee
• Provision of female employees with children under the
age of 16 inclusive (disabled children under the age of
18) at least two free hours a week or one free day per
month
• Material assistance to an orphan child under the age
of 18 whose parents (or one of them) died while on the
job for Tatneft
• Material assistance to single-parent families
• Material assistance to employees related to reaching a
milestone age
• Material assistance upon the birth of twins or triplets in
the family
• Material assistance to large families
• Material assistance to employees who have dependent
• Allocation of funds:
• For the purchase of New Year’s gifts for the children of
children under the age of 18
Tatneft employees
• Material assistance in retirement
• For women on International Women’s Day (March 8)
MAIN BENEFITS FOR YOUNG EMPLOYEES:
• Interest-free loan for the purchase
of furniture and essential goods
• Material assistance to employees
released from work as a result of
being conscripted to the Armed
Forces of the Russian Federation
upon returning to their former job
• Material assistance for an employ-
ee’s first marriage
• Material assistance on Victory Day (May 9) to veterans
of World War II, their widows, and homeland workers
• Quarterly material assistance to nonworking pension-
ers who worked at Tatneft for 10 years or more and
retired before the creation of NNPF
• Providing employees who have been working for 10
years or more at Tatneft the possibility of early retire-
ment at the Company’s expense while preserving the
benefits and guarantees of the Company’s pensioners
• Material assistance in case of death of close relatives
of the pensioner
• Material assistance for funeral expenses to the pen-
sioner’s family in the event of their death
• Material assistance to pensioners related to reaching a
milestone age
• Allocation of funds for the Day of the Elderly; to women
for International Women’s Day (March 8); and, for the
Day of Disabled Persons.
VOLUNTARY HEALTH INSURANCE
Since 1997, Tatneft has been implementing a volun-
tary health insurance program in which the Company’s
employees may receive quality medical services and, if
necessary, take a course of health resort rehabilitation.
In 2017, 21,166 employees were insured and RUB 365.0
million were allocated to the program. Tatneft organizes
and pays for medical and other services under four pro-
grams:
Outpatient care, In-patient care, Rehabilitation treatment,
and Comprehensive medical care.
To reduce infectious diseases, seasonal immunization
(vaccinations against seasonal influenza and tick-borne
encephalitis) was carried out within the program. In ad-
dition, Tatneft employees received a cancer screening to
detect cancer at an early stage.
HOUSING POLICY
Tatneft is an active participant and the main payer of the
social housing mortgage program in the Republic of Ta-
tarstan.
6,013 people have applied to receive housing under the
social mortgage program in the oil region as of January
1, 2018.
In 2017, 678 apartments measuring a combined 51,000
square meters and valued at RUB 1.6 billion were built for
Tatneft employees.
Construction of houses under the social mortgage pro-
gram will be continued in 2018.
Out of the total number of housing units commissioned,
40 individual housing units have been built in the township
of Karabash for workers living in the rural areas. Currently,
all houses are inhabited by the Company’s employees.
Construction will be carried out in nearly all cities of the
south-east of the republic where the Company operates
and employees live, depending on the number of partici-
pants in the social mortgage program and the need for
housing.
In 2017, an initial contribution of RUB 450.4 million was
paid on behalf of Company employees, including RUB
240 million for employees of structural divisions.
According to the housing construction program, 11 multi-
apartment houses (1,065 apartments) are planned for
2018. They will cover a total area of 65,100 square meters
and cost RUB 2,048.6 million.
30% of the commissioned apartments are allocated to
young families. 26 of them also needed to furnish the
apartment. RUB 7.9 million was spent to purchase furni-
ture for these families.
256
257
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE INCLUSION OF WORKERS IN SPORTS AND HEALTHY LIVING
The Company has created an atmosphere where playing
sports is an integral part of the everyday life of oil workers.
Modern indoor ice rinks and sports complexes are built in
each city of the Company’s operational area. In the Re-
public of Tatarstan, 16 indoor ice rinks were constructed,
and 92 youth hockey clubs are paid for by Tatneft. Funds
are allocated annually for the purchase of hockey uni-
forms for youth teams and for the salaries of coaches
and staff units serving these rinks. In general, more than
5,000 teenagers are training in youth clubs and hockey
leagues where they live. Tournaments are held between
domestic hockey teams for prizes provided by Tatneft,
as well as for the prizes from Oil and Life magazine. Ice
hockey competitions among amateur Tatneft teams have
been held since 2011.
In 2017, the 30th corporate Spartakiada Games of Tatneft
took place involving more than 10,000 employees. Com-
petitions were held in 12 sports. RUB 8.03 million was al-
located for Spartakiada Games in 2017.
Sports facilities are provided to oil workers in the cities of
southeast Tatarstan as part of a national plan to promote
healthy living.
In 2017, 25,514 people visited Tatneft’s ski complex.
During the summer, the Company provides employees
with an opportunity to spend an active holiday together
with their families in recreation centers located on the
banks of the Kama River and Karabash Reservoir. In
2017, 12,916 employees and their families enjoy compa-
ny-sponsored rest and relaxation.
ORGANIZATION OF HEALTH RESORT HOLIDAYS FOR EMPLOYEES
Tatneft has 11 health and recreation resorts on the bal-
ance sheet of its structural divisions and subsidiaries. In
2017, 2,855 employees of Tatneft’s structural subdivi-
sions who work with occupational hazards enjoyed the
Company’s health and recreation resorts. At Park Foros
LLC (city of Yalta), 1,919 workers and members of their
families completed health rehabilitation.
doctor’s advice.
As part of the VHI contract, Tatneft structural subdivision
employees engaged in work with occupational hazards
complete rehabilitation treatment in Tatneft’s health and
recreation resorts.
In a number of the Company resorts, treatment is provid-
ed to the protected categories of Russian citizens, chil-
dren, and citizens that need rehabilitation treatment per
Tatneft took part in the 17th All-Russian Forum “Health
Resort-2017” (city of Ufa). In the competition held under
the forum, the Company’s social facilities were awarded
with medals and diplomas.
258
259
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE HIGH-TECH MEDICAL CARE
Thanks to significant financial investments from Tatneft,
the Program for the creation and commissioning of the
regional medical diagnostic center of Tatneft and Alm-
etyevsk Medical Unit for the provision of high-tech medi-
cal care (HTMC) for cardiovascular surgery, traumatology
and orthopedics, ophthalmology and urology to the pop-
ulation of the southeastern region of our Republic. This is
a large and modern multidisciplinary medical and preven-
tive care institution with highly qualified human potential
which is equipped with the latest medical equipment.
In recent years, the clinic has implemented many modern
high-tech methods of diagnosis and treatment, municipal
and regional programs to improve the provision of medi-
cal care to patients with cardiovascular diseases. More-
over, highly qualified specialists have been trained in the
world’s best clinics.
Every year since 2008, state quotas are allocated for the
Medical Unit for high-tech operations to the residents
of 10 districts of the southeast Republic of Tatarstan in
the areas of cardiovascular surgery, traumatology-ortho-
pedics and neurosurgery, which are successfully imple-
mented.
In 2016, Tatneft and Almetyevsk Medical Unit opened the
first innovative hybrid operating theater for high-tech car-
diovascular operations in the Republic of Tatarstan and
the Volga Federal District and a presentation of naviga-
tion systems for neurosurgical interventions and radio-
frequency ablation operations. Main activities: hybrid
cardiosurgery; radiofrequency ablation of cardiac ar-
rhythmias using the CARTO 3 nonfluoroscopic navigation
system; neurosurgery using neuronavigation equipment.
This area features modern and promising medical meth-
ods. Use of minimally invasive surgical technologies and
the availability of modern equipment from the world’s
leading manufacturers allow the specialists of the Cardio-
vascular Surgery Department of the Medical Unit to carry
out complex surgeries for patients with cardiovascular
diseases.
In 2017, a total of RUB 291.7 million was allocated for
implementation of the government order for providing a
high-tech medical care for residents of south-east Re-
public of Tatarstan. Specialists of the Medical Unit fully
implemented the government order.
Since the opening of the Regional Medical Diagnostic
Center, about 2,000 open-heart surgeries, 16,652 coro-
nary angiographies, 5,547 coronary artery stents, 729
pacemakers, 558 radiofrequency ablation surgeries,
more than 440 endoprosthetics of large joints, and about
8,000 microinvasive surgeries in the anterior and pos-
terior segments of the eye have been performed. New
surgical interventions using hybrid technologies are be-
ing introduced and implemented, such as transcatheter
aortic valve replacement and operations on large vessels
and the heart. To date, 66 such surgeries have been per-
formed.
In 2018, financial resources for fulfillment of the govern-
ment order to provide HTMC for residents of the south-
east Republic of Tatarstan are planned at a price of RUB
335.5 million.
CHILDREN’S REST AND RELAXATION
Within the framework of the Maternity and Childhood
Protection Program, the Company annually organizes
rest and relaxation for children of workers in thirteen chil-
dren’s health camps containing 2,736 beds. All camps
have modern comfortable buildings, sports halls, play-
grounds, swimming pools and are equipped with neces-
sary inventory and staffed with qualified personnel.
In accordance with the decision of the Company’s man-
agement, “The Tatneft League of Children Camps” proj-
ect was launched on May 1, 2017. Project objectives:
creating the Company’s own system of training manage-
rial and pedagogical staff for implementation of shifts;
creating a unified methodology for organizing and con-
ducting shifts in various areas (artistic, linguistic, sports,
scientific and technical, military and patriotic) built on the
values of the Tatneft Company, developing communica-
tions between children’s camps, conditions for coop-
eration and exchange of experience, etc. On the whole,
the project implementation made it possible to raise the
quality level of children summer vacations and rest and
relaxation. The project also made it possible to develop
the unified strategy for the development of children’s
rest and relaxation at Tatneft, taking into account modern
requirements for children’s recreation, developing tradi-
tions of the republic and the Company, as well as national
traditions. The project started successfully in 2017, and
its implementation continues in the off-season.
In 2017, similar to prior years, a separate program for
children’s military and patriotic education was created
at Tatneft’s children recreation camps. Events were con-
ducted by the mobile teams of the Sons of the Fatherland
Center for Assistance and Development of Patriotic and
Sports Education of Youth.
Moreover, children are engaged in work. Labor education
is also an area of special focus at children’s camps.
The camps also include ecological classes, lectures from
medical workers, classes on traffic rules and many more
subjects. In general, the health of the children staying in
the Company’s recreation camps improve and they see
great progress.
So, in July 2017, at the Solnechnyy and Friendship chil-
dren’s summer camps, a large educational event was
held—the 4th Republican Open Field Olympiad of Young
Geologists. Understanding the importance of geological
science, Tatneft seeks to get gifted children interested in
this subject and promotes their professional self-deter-
mination. The Company helps popularize this profession,
which is of such importance to the oil industry, by pro-
viding comprehensive support to the Olympiad of Young
Geologists. The Olympiad is to be held at our children’s
camps for the second year.
The recreation program at children’s camps includes
sports events and the Ready for Labor and Defense pro-
gram. At seven of Tatneft children’s camps, modern foot-
ball pitches were built this year in compliance with the re-
quirements for professional sports grounds.
Each camp had its own mini-stable where two ponies
lived, and the children had the opportunity not only to
communicate with animals, but also to look after them
and learn a work ethic. This is part of a large: Project on
the Development of Equestrian Sports and Horse Breed-
ing in the Southeast of Tatarstan. This part of the project
enables children staying at the summer camp to get in-
volved in horse riding.
In addition to children of employees of commercial busi-
nesses, this year children of state workers from the mu-
nicipal regions of the oil region of the republic had the
opportunity to stay at the Company’s children’s camps.
The Company has, as a rule, allocated 340 tickets to them
and also partly financed their cost.
In recent years, the number of children staying at summer
camps has increased thanks to the construction of addi-
tional dormitory blocks at the children’s camps and major
repair work carried out on existing buildings.
In 2017, in accordance with the children’s recreation pro-
gram at the Company’s recreation camps, 11,105 chil-
dren stayed at the camps in four rotations.
260
261
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE YOUTH POLICY
The youth organization at Tatneft Company has more than
26,500 young workers, of which 7,350 are employees of
the structural divisions, 7,050 are employees of the sub-
sidiaries, 12,100 are employees of the oil service industry
plants and organizations, and others.
In 2017, The corporate youth organization implemented
a number of new projects aimed at increasing the effec-
tiveness of work with young people, reducing inefficient
spending, and increasing the involvement of young peo-
ple in scientific, creative and innovatory work.
Two large youth educational forums were organized—Up-
stream and Downstream. During these forums business
leaders and specialists delivered a speech in front of the
young people about the Company’s development strat-
egy; specialists in the field of project management and
lean production from the Corporate University of Tatneft
and Business Technologies Center (city of Saint Peters-
burg). At these forums, young people had the opportunity
to gain new knowledge and skills, to become part of one
team and offer their ideas on road maps for implementing
the business development strategy.
The high level and expediency of the scientific and edu-
cational events in this format have been confirmed by the
results at the all-Russian level. Winners of the Upstream
forum took part in the Youth Day of the Russian Energy
Week. Based on the results of the project session, a team
of young employees of Tatneft took first place out of the
teams of young specialists from industrial energy com-
panies. The winners received their awards from the Dep-
uty Minister of Energy of the Russian Federation Anton
Iniutsyn. Another of our teams took second place in the
Case-in Championship in the league of young specialists
(Moscow).
More than 13,000 innovative proposals were submitted
by young workers in 2017, and 102 patents were granted.
The Company pays particular attention to solving youth
social issues. This year 398 young workers have bought
apartments via the mortgage lending system. More than
1,200 people received interest-free loans to purchase
furniture and essential commodities worth a total of more
than RUB 120 million.
To implement the Tatneft youth program, RUB 37 million
was allocated in 2017.
DEVELOPMENT OF EQUESTRIAN SPORTS
In 2017, Tatneft continued to implement the program:
Development of Equestrian Sports and Horse Breeding
in the Southeast of the Republic of Tatarstan for 2016–
2020. The program’s main objectives are as follows:
• Promotion of horse riding, equestrian sports, increase
in the number of people interested in horses and
equestrian sports
• Threefold increase in the number of children involved
in horse riding and equestrian sports by 2020
• Increase in the number of sportspersons with ranks
and sporting achievements
• Increase in the level of sportsperson training for par-
ticipation in All-Russian and international competitions
• Staging regional, interregional, all-Russian and inter-
national competitions in the southeast of the Republic
of Tajikistan on an annual basis starting in 2017; cre-
ation of the necessary infrastructure for this purpose
in the context of the show jumping, dressage, and
triathlon disciplines
• Organization and development of hippotherapy in
equestrian sport schools
• Development of sport horse breeding, provision of
equestrian sports schools with the necessary number
of high-quality horses
Starting in early June, a pilot project was implemented at
the children’s camps of Tatneft Company in which mini-
stables were built in each summer camp, ponies were
brought in, and activities for children with ponies were or-
ganized aimed at increasing the level of interest among
children in equestrian sport.
A number of events dedicated to ponies, such as In Pur-
suit of Ponies, Best Pony Photo, Best Drawing, a presen-
tation about the history of equestrian sport, and Brain
Ring were included in the grid-plan for changing chil-
dren’s summer camp programs. Also mandatory activi-
ties were included with the existing qualified trainers of
the Tatneft equestrian center. The children enjoyed par-
ticipating in the events.
This project has had a positive effect on the number of
children who wish to take classes at the Tatneft eques-
trian center. The equestrian center management team
has noted that there has been an increase in the number
of children enrolling in the center to take regular classes.
All the ponies have now been transported to the eques-
trian center, and children are taking part in activities and
classes. They are also training to take part in competi-
tions in show jumping, racing, and race sulkies.
In 2017, regular competitions were organized at the Tat-
neft equestrian center according to the calendar plan. In
addition, four two-day Olympic equestrian competitions
were held, including show jumping and dressage, in the
equestrian centers of Almetyevsk, Yelabuga, and Aktyu-
binsk.
In 2017, Tatneft was the general sponsor of the Republic
of Tatarstan Championship in Equestrian Sport and the
Republic of Tatarstan Cup in Show Jumping and Dres-
sage. The Company also provided financial assistance
for the traditional Baiga public holiday in the village of
Verkhny Koran, Leninogorsk District. Races are held of
Tatar horses.
Tatneft has established a production plant in the city of
Bugulma for the Butsefal equestrian center and is recon-
structing the equestrian school with an indoor arena, ring
entrance, stables, administration and amenity block at its
own expense.
In 2017, the Company repurchased the property of the
Nurlatsky stud farm. At the moment repair work is under-
way of the stud farm estate with the aim of improving the
infrastructure to rear young racehorses. In addition, con-
struction of the equestrian sports indoor arena is under-
way, after which an equestrian sports school will be set up
at the stud farm.
So favorable conditions are being created for equestrian
sports in both Bugulma and Nurlat.
Thanks to the implementation of the equestrian sports
and horse breeding development program in the south-
east of the Republic of Tatarstan, interest in this sport has
increased significantly, especially among children.
262
263
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE CORPORATE SOCIAL PROJECTS REGISTER 2017
IN MANY TOWNS AND VILLAGES OF THE SOUTHEAST OF THE REPUBLIC, TATNEFT PLANTS
ARE THE MAIN EMPLOYERS. IN ALMETYEVSK, LENINOGORSK, AZNAKAYEVO, BAVLY, JALIL, YELABUGA, AND
OTHER VILLAGES AND TOWNS, TATNEFT PLANTS PROVIDE TENS OF THOUSANDS OF PEOPLE WITH MODERN
WORKPLACES AND FAIR WAGES AND CONTRIBUTE THE MAJORITY OF THE TAXES TO THE LOCAL BUDGET,
WHICH ENSURES THE FULL AND TIMELY PAYMENT OF PENSIONS TO VETERANS AND WAGES TO PUBLIC SECTOR
EMPLOYEES.
Social
Investments
Direction
Project name
Place of implementation
Major road repair work
Provision of urban amenities to inner yard territories
Almetyevsk, Aznakayevsk, Bugulminsk,
Aktanyshsk, Nurlatsk municipal districts
Almetyevsk, Leninogorsk, Yelabuga, Karabash in
Bugulma District
Installation of 25 children’s playgrounds in the courtyards of the town,
installation of 7 children’s playgrounds in the village of Sarmanovo
Almetyevsk
Aznakayevsk municipal district
Provision of urban amenities
the village of Abdrakhmanovo
Program to facilitate
the development
of town and village
infrastructure
Construction of intra-district water, gas, electricity networks, and
intradistrict thoroughfares in the Alsu housing development
Almetyevsk
Reconstruction of the gas supply system in Staryy Zavod
Almetyevsk municipal district
Repair and provision of urban amenities in the village of Urmanayevo
Aznakayevo
Reconstruction of October Square
Bavly
Repair of the Investigative Committee building
Leninogorsk
Social
Investments
Direction
Large-scale
environmental
program
Project name
Place of implementation
to replace water mains
Installation of filters to purify drinking water
the village of Karashay-Saklovo in the
Sarmanovskiy municipal district, the village of
Staryy Kuvak in the Leninogorsk municipal district,
the village of Abdrakhmanovo in the Almetyevsk
municipal district
the villages of Yelkhovo and Nizhneye Abdulovo in
the Almetyevsk municipal district
Creation of green, water protection zones, parks, and avenues
oil region of the Republic of Tatarstan
Provision of urban amenities (bringing up to standard) of the
Almetyevsk Reservoir
Almetyevsk
provision of clean drinking water
oil region of the Republic of Tatarstan
Acquisition of flowering ornamental trees for planting along central
streets
Reconstruction of the Cascade of Ponds
reconstruction of the lower lake
Construction of the Central Town Park
Reconstruction of two parks
Almetyevsk
Almetyevsk
Leninogorsk
Nizhnekamsk
the village of Sarmanovo
Work to reduce groundwater by cleaning and deepening the flood plain
of the Little Danube River in the village of Kulsharipovo
Almetyevsk municipal district
Refurbishment of the Almetyevsk Central District Hospital (central
district hospital)
Reconstruction of the pediatric department at the Almetyevsk
Children’s Hospital with the perinatal center
Purchase of medical equipment for the Federal Rescue Service of
Tatneft and the Almetyevsk Children’s Outpatient Clinic
Almetyevsk
Almetyevsk
Almetyevsk
Purchase of a radiotherapeutic complex in the oncology dispensary
Almetyevsk
Program to
support
health care
Purchase of medical clothing and surgical underwear for medical
centers
Reconstruction, repair, and improvement of the infrastructure of
educational institutions at all levels (from kindergartens to universities)
oil region of the Republic of Tatarstan
oil region of the Republic of Tatarstan
Refurbishment and equipping of secondary schools, gymnasiums, and
lyceums
Almetyevsk, Sarmanovsk, Cheremshansk
municipal districts
Modernization and equipping of departments, training laboratories,
repair of student hostels and purchase of equipment, inventory for
canteens at the Almetyevsk State Petroleum Institute
Refurbishment and purchase of kitchen equipment for secondary
school No. 21
Almetyevsk
Almetyevsk
Repair of the building at the Rodnichok children’s summer camp
Leninogorsk
Program to
support
program
Refurbishment of Verkhnemaktaminsk secondary school
Almetyevsk municipal district
Asphalting of the school grounds and improvement of the sports
ground, construction of a race track at Almetyevsk secondary school
No. 1
Almetyevsk
Purchase of a mini-tractor for the Bugulma boarding school, multimedia
projector with a screen for school No. 12
Almetyevsk
264
265
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE Social
Investments
Direction
Maternity and
childhood care
program
Project name
Place of implementation
Under the «Help to get ready for school» campaign, backpacks, and
sports suits for large and poor families were purchased
Almetyevsk
Refurbishment of 6 kindergartens, kindergarten Ulybka, kindergarten
Zolotoy Uley, kindergarten Solnyshko
Almetyevsk, Aznakayevo, Bugulma, the village of
Sarmanovo
Allocation of funds for the health resort rehabilitation of nonworking
pensioners of structural divisions and plants of Tatneft Group
Provision of financial assistance to the town associations for disabled
people of the Republic of Tatarstan according to their applications
Payment of public utilities for local societies for disabled people,
various activities for the disabled
Allocation of funds to purchase a minibus converted to transport
disabled people
oil region of the Republic of Tatarstan
oil region of the Republic of Tatarstan
Almetyevsk municipal district
Almetyevsk municipal district
Program to
support
health care
Under the Active Longevity program, Active Longevity Centers have
been established and equipped with adapted fitness machines for the
elderly
Almetyevsk, Leninogorsk, Aznakayevo, Jalil in the
Sarmanovo municipal district
Allocation of funds to set up the production of wax candles for
Almetyevsk Rehabilitation and Production Enterprise Southeast (Society
of the Blind) LLC
Almetyevsk
Provision of financial assistance to the local public organization for
veterans (pensioners)
Provision of material assistance to participants of the Second World
War, widows, homefront workers (pensioners of Tatneft Group plants)
for Victory Day in the Great Patriotic War.
Almetyevsk municipal district
oil region of the Republic of Tatarstan
Construction of bicycle paths (work continued)
Almetyevsk
Construction of multifunctional sports complex with swimming pools
Almetyevsk, Agryz
Reconstruction and repair of the Energetik stadium
Refurbishment of the Shinnik sports complex
Bugulma
Nizhnekamsk
Installation of hockey rinks with changing rooms and lighting
Yutazinsk, Almetyevsk municipal districts
Installation of barrier fences at the Strela Sports School ice rink
Kazan
Repair of the Sports School building
Bugulma, Leninogorsk
Major repair work of the hockey court infrastructure and construction of
multi-field sports fields with artificial grass
the village of Abdrakhmanovo and Nizhneye
Abdulovo in the Almetyevsk municipal district
Purchase of sports equipment for Devon Sports School
N. Maktama
in the Almetyevsk municipal district
Installation of artificial ice in the culture and leisure park
Almetyevsk
Support for children's and youth boxing, wrestling, swimming, volleyball,
karate, figure skating, equestrian sports, chess.
oil region of the Republic of Tatarstan
On five sites prepared in squares and parks, Green Fitness classes
were continued, including dancing exercises, yoga, zumba, callanetics,
and a number of other sports.
Almetyevsk
Program to support
sport and develop
physical culture
Social
Investments
Direction
Program to
support
farming
and agriculture
Project name
Place of implementation
Allocation of funds for the development of agriculture
Almetyevsk, Agryz, Aznakayevsk, Aksubayevsk,
Aktanyshsk, Bavlinsk, Bugulminsk, Yelabuga,
Zainsk, Leninogorsk, Mendeleyevsk, Menzelinsk,
Muslyumovsk, Novosheshminsk, Nurlatsk,
Sarmanovsk, Tukayevsk, Cheremshansk,
Utazinsky
Participation in the implementation of a large-scale project to restore
the ancient town of Bulgar. The construction of a hotel with a bathing
zone (counterpart to the historical White Chamber of Bulgar of the 14th
century) has been continued.
Bulgar
Refurbishment of culture centers
Bavly, Karabash in the Bugulma municipal
district, the village of Staryy Menzelyabash in
the Sarmanovsk municipal district, the village of
Cheremshan, the village of Yersubaykino in the
Almetyevs
Program to
support
culture
Refurbishment of Children Music School No. 1
Provision of financial assistance to maintain the Neftche Culture Center
in Almetyevsk and the Almetyevsk Drama Theater
Almetyevsk
Almetyevsk
Purchase of concert and baby grand pianos for cultural institutions
oil region of the Republic of Tatarstan
Purchase of musical instruments, stage costumes for a drumming
group from the Almetyevsk Music College
Almetyevsk
Purchase of a car for the Almetyevskiy Tatar State Drama Theater
Almetyevsk
Allocation of funds to hold cultural events and celebrate Victory Day
and Sabantuy in the regions of the oil region
oil region of the Republic of Tatarstan
Continuation of the Cultural Environment urban project aimed at the
development of a creative urban environment
Almetyevsk
Allocation of funds for the construction of the second building of the
Saint Guriy of Kazan Orthodox Gymnasium
Allocation of funds to stage the Republican Iftar, for an international
research and training conference devoted to the 160th anniversary of
the birth of the famous Tatar theologian and educator G. Barudi
Kazan
Kazan
Provision of charitable assistance to the Spiritual Administration of the
Muslims
Almetyevsk, Sarmanovsk, Bavlinsk, Bugulminsk
municipal districts
Program to
promote spiritual
revival
Allocation of funds to complete the painting of the Cathedral of the
Kazan Madonna Icon
Almetyevsk
Allocation of funds for the reconstruction of the church in the village of
Novaya Mikhaylovka
Almetyevsk municipal district
Allocation of funds for the improvement of Bigash cemeteries
Almetyevsk municipal district
Allocation of funds for the construction of mosques in the Alsu housing
development
Almetyevsk, Minnibayevo
Allocation of funds to purchase church plate for the Church in the
village of Karabash
Bulguminsk municipal district
Personnel social
guarantees
program
Collective agreement
oil region of the Republic of Tatarstan
Nongovernmental pension provision program
oil region of the Republic of Tatarstan
Occupational safety
and health
Purchase of workwear
oil region of the Republic of Tatarstan
266
267
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE ACTIVITIES OF TRADE UNION ORGANIZATIONS
The conscientious work of the Tatneft personnel, consis-
tent implementation of measures to preserve the financial
and economic sustainability of the company enabled the
obligations of the collective agreement of Tatneft to be
fulfilled in 2017.
Meanwhile, the achieved level of social protection of em-
ployees, including youth, and nonworking pensioners of
the Company was ensured, including voluntary medical
insurance, construction of housing under the mortgage
lending program, organization of summer camps for the
children of employees, the provision of pensions, etc.
of the trade union committee and 376 members of the
audit commissions of primary trade unions, 2,655 trade
union committee members and 2,760 labor protection
commissioners.
The trade union committee carried out work to attract
more members to the trade union of the Interregional
Trade Union Organization of Tatneft. In 2017, trade union
organizations were created which were part of the Inter-
regional Trade Union Organization of Tatneft: LLC Nur-
latsky stud farm, Private Educational Institution Tatneft
– School.
The Tatneft trade union committee, its primary trade
union organizations on the basis of the Federal Law “On
Trade Unions, Their Rights and Guarantees of Activity,”
the Labor Code of the Russian Federation, and the col-
lective agreement ensure:
• Representation and protection of social and labor
rights and the interests of trade union members
• Monitoring of compliance with labor legislation of the
Russian Federation
• Organization of sporting and recreation activities for
the workforce
The administration and trade union committee of Tatneft
organized and staged:
• A conference of the Tatneft workforce, where the col-
lective agreement of the Company was concluded for
2017
• A meeting of the permanent labor safety commissions
of Tatneft and PTC, its structural subdivisions and sub-
sidiaries following the results of work in 2017
The interregional trade union organization of Tatneft has
138,595 trade union members, of whom 88,272 are em-
ployed, 44,886 are unemployed pensioners, 5,437 are
students of Almetyevsk State Petroleum Institute, Alm-
etyevsk Polytechnic College, Leninogorsk Oil Techni-
cal College, and Bugulminsk Engineering College, and
35,701 are young working persons. Primary unified and
primary trade union organizations numbering 163 entities
operate in structural divisions, service management com-
panies, and subsidiaries located in Tatarstan and beyond,
and 4 entities are students of Almetyevsk State Petroleum
Institute, Almetyevsk Polytechnic College, Leninogorsk
Oil Technical College and Bugulminsk Engineering Col-
lege.
The composition of the trade unionists, numbering
12,475 people, is as follows: 167 heads of primary trade
union organizations, 5,266 chairpersons of trade union
committees, 2,651 trade union groups, 1,257 trade union
committee members, 2,083 members of all committees
Admission to the trade union is carried out on a voluntary
basis through the personal application of the employee.
Newly-admitted employees are brought up to speed, the
trade union committee provides information about its ac-
tivities and sections of the collective agreement, and the
level of interest of the employer in social activities, sports,
and other activities is revealed.
Sociological surveys are regularly conducted among
employees to determine the degree of satisfaction with
workplace management and safety, and the quality of
work carried out by trade union committees. Legal con-
sultations are held. There is a “helpline” in the trade union
committee, to where every member of the trade union
can call and explain their problem. In the primary trade
unions, the reception of trade union members to discuss
private matters was organized.
The work of the Tatneft trade union committee, consist-
ing of 51 trade union members, was carried out in accor-
dance with the approved annual plan in full compliance
with the Union’s Statute, the requirements of higher trade
union bodies, the Federal Law On Trade Unions, Their
Rights and Guarantees of Activities, and the Labor Code
of the Russian Federation.
9 commissions of the Tatneft trade union committee carry
out work to monitor the fulfillment of the obligations of the
Collective Agreement.
Trade union employees are routinely involved in conduct-
ing preventive measures related to labor protection and
summarizing the results of tenders:
• “To maintain the aesthetic state of well-maintained
springs and improve the water quality”
• “The best recreational camp of structural divisions and
subsidiaries”
Members of the trade union committee and members of
the commissions of the Tatneft trade union committee
participated in work on planned issues. Resolutions were
adopted on all the issues discussed.
Representatives of the Tatneft trade union took part in the
meetings of the Presidium and Plenums of the Russian
Council of the Oil and Gas Trade Union, seminars of the
International Trade Union Confederation, meetings of the
Federation of Trade Unions of the Republic of Tatarstan,
and meetings at the plants of the Tatneft production
group.
tees annually organize “Health Days,” concert programs
for employees and their families from May to September
in the city park named after the 60th anniversary of Ta-
tarstan oil. The trade union committees organized trips
for plant employees to Tatneft’s health and recreation
resorts and beyond. They held Christmas parties for the
children of plant employees.
In July 2017, at a high organizational level, the adminis-
tration and the Tatneft trade union committee organized a
children’s recreation camps festival which was attended
by more than 1,000 children from Tatneft Company’s 13
children’s recreation camps.
Meetings of the conciliation commission for the develop-
ment of the collective agreement of Tatneft for 2018 were
organized and held, where the proposals of the Compa-
ny’s employees for the purpose of entering into a collec-
tive agreement were examined.
The trade union committee organized cultural, sports and
recreational events during the summer and winter arrivals
at the Tatneft recreation centers. The trade union commit-
The Tatneft interregional trade union organization on the
principles of social partnership takes part in the formation
and implementation of Tatneft’s social strategy.
PROTECTION OF THE RIGHTS OF TRADE UNIONS FOR SAFE WORK
One of the main areas of focus of the work of the Tatneft
trade union organization is the protection of workers’
rights to ensure that they work in conditions that meet
health and safety requirements and public control over
compliance with labor protection legislation.
This joint work is carried out on the basis of collective
agreements, on the principles of social partnership be-
tween the administrations of Tatneft and its subsidiaries
and other plants, on the one hand, and representatives
of employees—the trade union committees of Tatneft
and the plants of the Tatneft Group, the technical labor
inspectorate, and the authorized trade union for labor
protection, on the other hand.
At conferences and meetings of the workforce, on the ba-
sis of the results of work for 2017, the implementation of
collective bargaining agreements, including the obliga-
tions of labor protection agreements, was accepted by
the administrator and the trade union committee.
At the meetings of the Tatneft trade union committee
and its presidium, the issues prepared by the trade union
committee on labor protection were examined.
The chief technical labor inspector of the trade union
conducted 45 inspections of the conditions and work-
place safety at plants, their subdivisions, compliance with
labor protection legislation, implementation of collective
agreements and labor protection agreements at plants
where union members work. Violations found during the
inspections are eliminated.
In accordance with the Labor Code of the Russian Fed-
eration, about 900 commissioners exercise trade union
control in the field of labor protection at the plants of Tat-
neft. The obligatory participation of authorized persons in
administrative and public multistage control is reflected in
the Regulation on Industrial Safety and Labor Protection
Management System in Tatneft. Labor inspectors carried
out inspections of the workplace conditions at the plants.
Any issues that arose were dealt with in a timely manner.
268
269
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE WORK WITH YOUNG TRADE UNION MEMBERS
The trade union committees of primary trade union organizations pay special attention to working with young trade
union members. Commissions on working with young people operate effectively.
The Tatneft trade union committee sends funds from the employer to organize cultural, sports, health, and other col-
lective activities with young workers.
A section dedicated to the young employees of the company is highlighted in the Collective Agreement. All youth lead-
ers are members of the trade union committees of the plants. Representatives of the youth organizations of plants help
draw up the Collective Agreement.
Young trade unionists actively and successfully participate in all competitive and educational events of the Federation
of Trade Unions of the Republic of Tatarstan and Neftegazstroyprofsoyuz of Russia. In September, 2017 in Kazan, the
youth leaders of Tatneft participated in the youth meeting: Youth Policy of Neftegazstroyprofsoyuz of Russia: dreams
and reality organized by NGSP of Russia.
Special attention is paid to military patriotic education. So with the assistance of the trade union committee in 2017,
the Сourage Тrack event was held for the first time at which an exhibition of weapons was held. The competitions were
dynamic, the fights were exciting, and they allowed all participants to test themselves and their team.
The young trade unionists actively and successfully participate in all competitive events of the Federation of Trade
Unions of the Republic of Tatarstan. In 2017, the creative youth of the Company’s plants took part in the V Republican
TV Festival of Creativity of Working Youth: Our Time – Beznen Zaman, at which young members of the trade union won
a number of prizes in various categories.
LEGAL PROTECTION OF TRADE UNION MEMBERS
In 2017, legal work was continued aimed at protecting the rights of union members and providing legal assistance.
According to the annual schedule, a “visiting legal consultation office” was open. Consultations were provided by the
chairman of the Tatneft trade union committee and the general legal adviser. During the reporting period, consulta-
tions were provided in the towns of Bavly, Yelabuga, Leninogorsk, Nurlat, Aznakayevo, Nizhnekamsk, Bugulma, and
the workers’ village of Jalil. Issues addressed by the employees included staff cuts, the transfer of employees, certifi-
cation, the awarding of titles, and others.
In addition to the activities of the legal consultation office, work was carried out with letters and inquiries of trade union
members, explanations and consultations were given to more than 650 trade union members. The trade union com-
mittee has a “hotline” where every trade union member can call and receive consultations or practical assistance on
their issue.
The commission of the trade union committee on legal protection of trade union members verified compliance with
labor legislation in LLC TNG-Group and LLC Tatneftodor in terms of adherence to the working time regime, provision
of annual paid holidays, payment for overtime work, and work on weekends and nonworking holidays. Five inspections
were conducted at NGDU Aznakayevskneft, NGDU Yelkhovneft, NGDU Yamashneft, LLC UK Tatneft Neftekhim, and
JSC Nizhnekamsktekhuglerod. In July 2017, at NGDU Leninogorskneft, a seminar was held for the chairmen of the
primary united, primary trade union organizations on the following subject: “On Law Enforcement Practice for Compli-
ance with the Labor Code of the Russian Federation and Corporate Standards.”
PROFESSIONAL DEVELOPMENT OF TRADE UNIONISTS
One of the important areas of focus is cooperation in this field with the Federation of Trade Unions of the Republic of
Tatarstan and the Russian Council of Neftegazstroyprofsoyuz, regional trade union training centers to whose seminars
dedicated specialists were sent to.
This year particular attention was paid to the training of all full-time trade union workers under the 40-hour labor pro-
tection program.
In primary trade union organizations, work with the active trade unionists was conducted. Overall this year more than
10,000 trade active unionists were involved in all forms of training.
CHARITABLE ACTIVITIES
ODARENNYE DETI (GIFTED CHILDREN) FOUNDATION
THE ODARENNYE DETI (GIFTED CHILDREN) FOUNDATION WAS CREATED IN MARCH
2004. THE FUND’S ACTIVITIES COVER NINE MUNICIPAL AREAS OF THE REPUBLIC
OF TATARSTAN, INCLUDING THE PRODUCTION AREA OF TATNEFT: AZNAKAYEVSK,
ALMETYEVSK, BAVLINSK, BUGULMINSK, NIZHNEKAMSK, LENINOGORSK,
ZAINSK, NURLATSK, SARMANOVSK (WORKERS’ VILLAGE OF JALIL).
In 2017, charitable foundation funds were allocated
to support participants
in various scientific forums:
conferences, subject and inter-subject Olympiads, master
classes in academic subjects.
during the year the following events were held:
• Meeting of BF prize-winners in Nizhnekamsk with the
participation of 200 pupils and 50 mentors.
• Winter school for candidates to enter the All-Russian
Olympiad national teams for 40 pupils from the
southeast of the Republic of Tatarstan
• at the joint venture Zdorovye of Almetyevsk.
Four participants from Almetyevsk, Bugulma,
Nizhnekamsk, and Nurlat were winners and prize-
winners of the republican stage in mathematics and
physics.
• The research and training conference «Pupils for
science in the 21st century» with the participation of
more than 300 participants in the correspondence
round, 119 participants with reports on the on-site
tour in Almetyevsk.
• With the support of the charitable foundation, a team
of young geologists and members of the geological
study group from Almetyevsk took part in the Open
Geological Olympiad in Moscow, the Geosphere
Olympiad in Saint Petersburg, and the autumn
School-Academy of Young Geologists in Gagra,
Abkhazia. They took 2nd place in the Republican
Field Geological Olympiad. Participants joined the
national team at the international competitions in
Kazakhstan. Also, a team of young geologists and
members of the geological group from Nizhnekamsk
received assistance from the charitable foundation in
preparation for the Field Geological Olympiad where
they took 3rd place.
in Novosibirsk, car-modeling
Material assistance was provided to the Young Engineers
Station of Almetyevsk to participate in team competitions
in airplane-modelling
in
Vladimir, and ship-modeling in Arkhangelsk, from where
the participants returned as prize-winners. All-Russian
competitions of young ship modelers were held at
Almetyevsk, for which the charity fund Gifted Children of
Tatneft established special prizes.
Two teams of pupils: Grades 7–8 from Bugulma and
grades 9–11 from Almetyevsk took part in the International
Test-Rating Olympiad Gluon in Protvino, Moscow Region.
Both teams were winners in their age group and received
personal prizes.
the
Team of pupils from the workers’ village Jalil was the
winner of
International Asian Multidisciplinary
Olympiad in Russia, and thanks to the material assistance
of the charitable foundation it was able to take part in the
competition in China.
The charitable foundation was one of the cofounders of the
regional and republican scientific conferences of pupils in
Leninogorsk, Aznakayevo, Sarmanovo, allocating funds to
purchase prizes for the winners. Material assistance was
provided to individual participants of the All-Russian and
Volga region research and training conference of pupils
from the general educational institutions of the southeast of
the Republic of Tatarstan. Also, the foundation supported
gifted students in their preparation for the All-Russian
Olympiad of Pupils: Path to the Olympus held at Moscow
universities in which 67 students took part.
Following the results of the scientific forums, all the
prizewinners at the republican and Russian level and their
mentors received material assistance from the fund at the
spring meetings in the municipal districts of the oil province of
the Republic of Tatarstan. In 2017, the charitable foundation
provided material assistance in the form of a quarterly
scholarship to gifted pupils from low-income families.
270
271
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE MILOSERDIYE (MERCY) CHARITABLE FOUNDATION
THE RUKHIYAT FOUNDATION
THE MERCY CHARITABLE FOUNDATION WAS CREATED IN 1999. OBJECTIVES OF THE
FOUNDATION: SUPPORT FOR EDUCATION, SCIENCE, CULTURE, HEALTH, SPORT, SOCIAL
SUPPORT FOR LOW-INCOME SEGMENTS OF THE POPULATION.
The Mercy Foundation carries out its activities in all
regions of the Republic of Tatarstan and beyond. The
appearance of the villages and towns of the republic is
changing with the support of the Foundation. The fund
provides a great deal of assistance to develop sport,
especially children’s hockey, and to build new hockey
grounds in all areas of the south-east of the republic.
the Republic of Tatarstan. The Foundation pays special
attention to labor veterans of Tatneft.
The Mercy Charitable Foundation allocates significant
funds for the economic support of people who gave their
strength and youth to help establish the oil industry of
the republic.
The Mercy Charitable Foundation supports the work
of the Rukhiyat and Gifted Children Foundations. The
Foundation provides assistance on a permanent basis
to children from low-income families, identifies gifted
children and sends them to various republican, Russian
and international competitions and Olympiads where the
children represent the Republic of Tatarstan.
Particular attention is paid to the preservation and
institutions. Recipients of the
support of religious
charitable help provided by the fund include various
public organizations both and in and outside the Republic
of Tatarstan. The Mercy Charitable Foundation renders
all kinds of assistance to the Ministry of Internal Affairs of
This is the targeted policy of the Company, aimed at
improving the living standards of veterans who worked
in the oil industry. Mercy, together with the Tatneft trade
union, helps organize trips for labor veterans to health
resorts where, apart from high quality leisure activities,
performances of professional and amateur artists and
creative teams are organized for them. Other types of
material assistance are provided to veterans. Annually
considerable funds are allocated to pensioners to celebrate
International Women’s Day and the Day of the Elderly
and to participants of the war, homefront workers, and
widows—on Victory Day. In addition, the Company pays for
expenses borne by veterans related to expensive drugs,
surgery, the purchase of hearing aids, and dental services.
THE RUKHIYAT FOUNDATION FOR SPIRITUAL REVIVAL WAS ESTABLISHED BY TATNEFT IN
1997 TO PROMOTE THE SPIRITUAL REVIVAL AND CULTURAL LIFE OF THE OIL REGION OF THE
REPUBLIC OF TATARSTAN, IDENTIFY AND SUPPORT TALENTED CHILDREN OF THE OIL REGION
OF THE REPUBLIC OF TATARSTAN, ORGANIZE CULTURAL AND EDUCATIONAL WORK, ETC.
The work of the Rukhiyat Foundation is aimed at
promoting the cultural life of the oil region of the
Republic of Tatarstan. The Foundation supports creative
intellectuals, is engaged in publishing, works with writers
and poets, artists, and cultural figures.
In the 21 years since it was established, the Foundation
has issued more than 200 book titles with a total circulation
of more than 350 thousand copies. Since 2006, the
outstanding poets and writers of the Republic of Tatarstan
have been awarded the S. Suleymanova literary prize, and
young scholars have received scholarships.
In these years, about 50 thousand young talents from
7–18 years old have taken part in the Children’s Creativity
Festival: Land of the Singing Nightingale, many of whom
were awarded a scholarship and with the support of the
Company continued their musical education, and some of
them became professional artists and art school teachers.
Since 2016, together with the Vladimir Spivakov International
Charitable Foundation, the cultural and educational project:
The Academy of the Vladimir Spivakov Foundation, Children
for Children. Tatarstan, was implemented, at which master
classes of famous musicians, painters, and choreographers
of the Russian Federation are held.
Based on the project results, talented children and
creative teams of the oil region of the Republic of
Tatarstan are awarded the Vladimir Spivakov Foundation
scholarship and invited to participate in the festival
Moscow Meets Friends.
272
273
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCE INDUSTRIAL
SAFETY.
ENVIRONMENTAL
POLICY
274
275
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report COMPANY POLICY
IN THE FIELD OF INDUSTRIAL SAFETY,
LABOR AND ENVIRONMENTAL PROTECTION
THE COMPANY CARRIES OUT HEALTH, SAFETY, AND ENVIRONMENTAL ACTIVITIES IN
COMPLIANCE WITH THE REQUIREMENTS OF THE APPLICABLE FEDERAL LAWS AND RULES,
TAKING INTO ACCOUNT THE REQUIREMENTS OF INTERNATIONAL DOCUMENTS
The health, safety, and environmental policy of the Company is aimed at ensuring safe working conditions,
protecting the health of workers and people living in the areas of the Company’s operations, and compliance with
the established permissible environmental impact standards, the subsequent reduction of the human impact on
the ecosystem in the area of its operations through the implementation of new technologies, equipment, and
materials, increasing the process control automation level, the rational use of natural resources, and minimizing of
oil and gas losses.
THE FUNDAMENTAL HEALTH, SAFETY, AND ENVIRONMENTAL PRINCIPLES OF THE COMPANY ARE AS FOLLOWS:
• To recognize the constitutional right of people to safe working conditions and a healthy environment
• To save energy and rationally use natural resources during oil production operations
• To adopt managerial and investment decisions based on multioptional scenarios, taking into account industrial
and environmental safety priorities
• To give priority to preventive measures over response actions to eliminate any negative environmental impact
THE COMPANY MAKES THE FOLLOWING COMMITMENTS:
• To ensure safe working conditions, protect the health of personnel and the population living in regions where the
Company operates
• To decrease the human impact on the environment
• the rational use of natural resources.
INDUSTRIAL SAFETY AND OCCUPATIONAL HEALTH
THE COMPANY’S PRIORITIES IN INDUSTRIAL SAFETY ARE TO:
• Identify and assess industrial hazards and risks, work out measures to manage, and mitigate significant
operational risks
• Carry out preventive measures to prevent the possibility of emergency situations, and should it happen, take
measures to mitigate the impact of the emergency situation on the environment
• Carry out measures to prevent injuries and occupational diseases
• Provide health, safety, and environmental training and skill development for the Company’s personnel
• Require that the contractors carrying out work at the Company’s production facilities comply with the health,
safety, and environmental requirements of the Company
• Maintain an open dialogue with all the Company’s stakeholders in respect of health, safety, and the environment
• Maintain and continuously improve the Integrated Health, Safety, and Environment Management System
• Ensure compliance of the Integrated Management System with the international occupational health and safety
standards ISO 45001:2018 and the environmental guidelines ISO 14001:2015
• Report to the public on the Company’s health, safety, and environmental activities
In order to comply with the requirements of the international standard OHSAS 18001, the Company
is implementing a Health, Safety, and Environment Program to prevent injuries, reduce risks
and the accident rate, and contingent losses for 2016 through 2018. The program is aimed at
preserving life and health, improving the working conditions of employees, reducing the accident
rate, significant industrial risks, enhancing the operational safety of equipment, and improving the
fire protection condition of facilities.
In 2017, RUB 2.9 billion was spent by the structural divisions of Tatneft to comply with the requirements of the Program.
More than RUB 600 million was allocated to carry out measures provided for by occupational health agreements in the
structural divisions of Tatneft. The average cost per employee amounted to RUB 29,000.
MINIMUM OCCUPATIONAL
INJURIES IN 2014–2017
2017 2
0,1
2016 3
2015 6
0,14
0,3
Fr. Rate (Frequency Rate) – number of injuries per 1,000 employees.
The data concern TATNEFT
Occupational health expenditure,
RUB
611.7 million
in 2017
occupational health expenditure
per one employee 29 thous.rub.
276
277
In 2015–2017, no fires were registered in structural divisions of Tatneft.
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report ENVIRONMENTAL MANAGEMENT SYSTEM
Certified in 2006, the Tatneft Integrated Health, Safety, and Environment Management System (HSE
MS) successfully passed in 2017 through the recertification audit for compliance with the requirements
of the international standards
ISO 14001:2004
OHSAS 18001:2007
Pursuant to the standard ISO 14001:2004, by which the Tatneft Environmental Management System has
been certified for compliance, the Company uses the methodology of «sequential procedures» that provides
for subsequent actions to be taken based on the data obtained according to the previous level’s result.
INDUSTRIAL ENVIRONMENTAL MONITORING
THE TATNEFT INDUSTRIAL ENVIRONMENTAL MONITORING (IEM) SYSTEM IS IMPLEMENTED IN THE FOLLOWING PRINCIPAL
AREAS:
• Taking measurements and samples related to environment protection
• The maintenance of databases of sources of environmental impact and setting, with processing and analysis of the
obtained data
• Determination of impact source conformity with environmental requirements
• Analysis and forecast of environmental setting in regions of operations
• Development of the IEM system in new operating areas
THE IEM SYSTEM PROVIDES FOR THE FOLLOWING TYPES OF MONITORING:
• The monitoring of sources of environmental impact (emission sand discharges of pollutants and waste waters)
• The monitoring of the condition of environmental components (atmospheric air, surface and underground waters, lands and
soils, geological environment)
• Two-level supervisory control over compliance with the requirements of environmental legislation
The scientific and methodological support of the environmental activity of the Company is provided by the institute TATNIPI-
neft and a number of other scientific and research organizations and higher educational establishments in Tatarstan and
the Russian Federation.
ENVIRONMENTAL SECURITY MEASURES
In 2017, Tatneft continued its dedicated work on a consistent basis to improve the environmental safety of oil production
processes.
The Company is particularly focused on environmental activities to reduce harmful emissions into the atmosphere,
discharges of pollutants into underground and surface water bodies, soil and subsoil and to ensure compliance with
the established 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 activities, such as:
• The implementation of technology to capture light hydrocarbon fractions released from storage tank equipment
(vapor recovery units)
• Reducing flared associated petroleum gas volumes
• Associated petroleum gas cleaning at desulphurization units
• Repair and replacement of tanks and other storage tank equipment and application of anticorrosive coating and
equipping with means of electrochemical protection
• Overhaul and replacement of commercial oil and gas pipelines
• Reconstruction of oil treatment facilities with the optimization of the technological process and product streams
• Construction of storm water drain at industrial facilities for the collection and disposal of wastes
• Mud pit lining and equipping rigs with waterproof circulating systems
• Overhaul and replacement of oil pipelines and their tread and inhibitory protection
• Equipping well-servicing and improvement crews with special equipment to prevent fluid spills
• Monitoring production casings of wells for integrity and behind-casing cross-flows
• Sealing of production casings, bringing top of cement to surface behind the surface and production casings
• Running in additional (intermediate) casings
• ncrease in the lifetime of downhole equipment using protective coatings, packers, tread protection, corrosion
inhibitors, and the cathodic protection of casing wells
278
279
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report ATMOSPHERIC AIR PROTECTION
WATER CONSERVATION AND SUSTAINABLE USE, SUBSURFACE PROTECTION
For the purpose of protecting the gas pipeline from corrosion, works such as the introduction of active
electrochemical protection, the delivery of corrosion inhibitors, the use of corrosion-resistant tubes to
replace gas pipelines as well an overhaul (replacement) of worn-out sectors were performed.
For the sustainable use of associated petroleum gas (APG), compliance with the established standards of
maximum permissible emissions (MPE) of pollutants into the air, the further reduction of pollutant emissions
into the atmosphere, and the reduction of greenhouse gas emissions in 2017:
• An overhaul of 11.9 km of gas pipelines was accomplished.
• The reconstruction of flare units at NGDU facilities was continued to provide soot-free combustion.
• Construction was completed of the gas gathering system of Tatneftegazpererabotka Division
(UTNGP) from the facilities NGDU Yamashneft and NGDU Yelkhovneft of Tatneft.
• Construction continued on the all-factory flare system of the Minnibayevskiy Gas Processing Plant of
UTNGP of Tatneft.
Thanks to the focused efforts made to reduce associated
petroleum gas (APG) flaring at flare facilities, in 2017,
the APG utilization efficiency calculated for Tatneft,
pursuant to RF Governmental Regulation No. 1148
dated November 8, 2012, was 96.16%. This made it
possible to reduce the harmful emissions of pollutants
and greenhouse gases from APG combustion and
dispersion.
Application of
fraction capture
light hydrocarbon
technology (vapor recovery units) helped to reduce
carbon emissions by more than 3.4 times as compared
with emissions in 1991. Currently, Tatneft’s facilities
operate 44 vapor recovery units.
The total emissions of pollutants into the air for 2017
was 86,396 tons, which is 5,121 tons above the indicator
for 2016. This is primarily the result of preventive
maintenance at facilities of the Tatneftegazpererabotka
Division (UTNGP) of Tatneft in 2017.
As a result of the air protection measures implemented
by the Company for the period from 1990 to 2017, the
total emissions of pollutants into the air from stationary
sources were reduced by 2.8 times.
To monitor compliance with the sanitary norms and
regulations for air protection in populated areas as well
as part of the substantiation (defining) of the sizes of
sanitary buffer zones, atmospheric air was monitored
in population areas located within the area of the
Company’s operations and the sanitary buffer zones of
the production facilities.
ingredients
The air basin was analyzed
nitrogen
(hydrocarbons,
dioxide, carbon monoxide, etc.) with simultaneous
meteorological observations through measuring wind
speed and direction, temperature, and relative humidity.
for 33
sulfide,
hydrogen
In 2017, a considerable amount of effort was made to improve the reliability of various-application pipelines and well
designs. To ensure the leak-free operation of oilfield facilities, the Company applies the technology to:
• Protect pipes against corrosion with polyethylene lining and paint coating application
• Manufacture corrosion-resistant pipes
• Construct pipelines with effective internal and external insulation and welding joint protection
To ensure the stable and smooth operation of production facilities while improving their industrial and environmental safety,
in 2017, the Company manufactured 565.5 km of corrosion-resistant pipes (MPT, TPC). Cathodic protection was applied
to 12 well casings, and 365 km of pipelines were furnished with electrochemical protection. Diagnostic tests of over 3,556
km of pipelines were conducted.
To protect the oilfield equipment against corrosion, the Company tested and adapted dozens of chemical reagent brands.
Currently, only high-efficient and technologically sound corrosion inhibitors are used based on recent unification results. In
2017, over 5,706 tons of high-efficient corrosion inhibitors were used.
The inner surfaces of 53 process tanks (vertical stainless steel tanks and horizontal flow setting 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. Diagnostic tests were run in 548 bullet tanks and 115 vertical steel tanks.
To protect the land, surface, and underground waters, 125.5 km of oil pipelines for the oil gathering and treatment system
and 87.8 km of water lines for the reservoir pressure maintenance system were overhauled using corrosion-resistant pipes.
To ensure the conservation and sustainable use of water resources, the Company continued:
• The technical reequipping of the recycling water supply system of 7/8 of the plant UTNGP
• The construction of modular sewage disposal plants for the recycling water supply system of gas processing facilities
of UTNGP
• The overhaul of hydraulic structures and special foundations of NGDU Prikamneft
280
281
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report THE CONSERVATION AND SUSTAINABLE USE OF LAND AND FOREST RESOURCES
The Company addresses the issues of the sustainable use of land resources and soil pollution prevention with
the utmost care.
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 spillage on the land surface and eliminate the
construction of earth pits as well as provide for the reliable protection of fertile lands on well-site areas against
contamination from drilling fluids and formation waters.
To create a favorable environment within its operating area and higher greenhouse gas absorption, beginning
in 2000, Tatneft has realized special activity programs for planting greenery in by-road lanes along highways
and oilfield roads in the oil-producing regions of Tatarstan. TATNEFT’s personnel planted over 488 thousand
seedlings of trees and shrubs including 15,530 seedlings in 2017.
During the reporting year, extensive work was carried out to reduce the agricultural land allotment for the
construction of oil facilities and to restore the fertility of the disturbed land, which became possible due to pad
drilling and well pad construction techniques.
In 2017, Tatneft continued the implementation of
promising technologies of the reservoir pressure
maintenance (RPM) systems aimed at decreasing
increasing production
power consumption and
efficiency.
implementation of the
In 2017, the
«Concept of RPM System Development for the period
from 2016 through 2020» was continued, as was
work for the protection of downhole equipment of
water injection wells from the impact of high pressure
and corrosion failure and the complex optimization of
RPM processes.
For the protection of subsoil and fresh underground
waters, the implementation of highly-reliable packers
and corrosion-resistant oil well tubing
is being
continued. In 2017, 420 highly-reliable packers were
implemented. In total, 7,623 water injection wells are
equipped with various-type packers which constitutes
77.6% of the existing fund of water injection wells.
Tatneft ensures water management in compliance
with the requirements of the Water Code of the
Russian Federation and the Federal Law «On Subsoil.»
In 2017, the use of surface water bodies was carried
out on the basis of 146 water use agreements
concluded with the Ministry of Ecology and Natural
Resources of the Republic of Tatarstan (including 17
agreements concluded in 2017) and 11 resolutions
on assignment for use of surface water bodies
(including 7 resolutions made in 2017). In 2017,
Tatneft performed underground water abstraction
operations on the basis of 41 subsoil use licenses.
There is a network in place of local observation
points to monitor water bodies within Tatneft license
areas. In 2017, the observation system consisted
of 2,117 observation points to monitor surface and
underground water bodies.
During the course of
industrial management of
environmental protection for the whole of 2017, the
Company carried out over 110 thousand analyses of
natural water, including 11,500 chemical analyses
of water samples that were run by LLC UPTZh dlya
PPD’s chemical analysis laboratory.
Industrial environmental monitoring of the condition
of water bodies is carried out by 12 chemical analytical
laboratories of structural divisions of the Company
laboratories of third-party organizations:
and by
LLC UPTZh dlya PPD, the Federal State-Funded
Healthcare Institution Hygienic and Epidemiological
Center in the Republic of Tatarstan, etc. 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, and crude oil and
petroleum products in a dissolved and emulsified
state.
Based on the results of laboratory studies, the water
quality in major rivers within the area of the Company’s
in 2017. The content of
operations was stable
chlorides, crude oil and petroleum products in a
dissolved and emulsified state in major rivers and
in the vast majority of springs did not exceed the
maximum permissible concentrations (MPC) of
harmful substances. Now the concentrations of
these harmful substances are steadily decreasing in
underground waters.
In 2017, for the twenty-second consecutive time
since 1995, Tatneft organized and held the annual
contest «Maintaining the Beauty of Landscaped
Water-Spring Sites and Improving Water Quality.»
Within the territory of the Company’s operations,
over 500 springs were cleared, captured, and
architecturally completed with the resources of the
company’s divisions.
THE IMPORTANT SOCIAL PROJECT OF
RECENT YEARS BECAME THE PROVISION
OF FRESH POTABLE WATER TO RESIDENTS
OF THE REGION.
IN 2017, OVER RUB 133.5 MILLION WAS
ALLOCATED FOR THIS PURPOSE.
282
283
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report PRODUCTION AND CONSUMPTION WASTE HANDLING ACTIVITIES
ENVIRONMENTAL CULTURE PROMOTION AND ENVIRONMENTALISTS TRAINING AND DEVELOPMENT
One of Tatneft’s environmental priorities is the reduction
impact on the environment
of the human-induced
through the selective accumulation, collection, and
disposal of wastes generated during oil production
processes.
The Company established a complex system to collect
and recycle production and consumption wastes,
using them as a raw material for producing marketable
products.
In 2017, Tatneft carried out hazardous waste handling
activities based on the license to carry out activities
for waste detoxification and disposal of I-IV classes
of danger No. 16-00158 dated December 31, 2015,
issued by the Federal Service for the Supervision over
Natural Resources Management (Rosprirodnadzor).
OIL SPILL EMERGENCY PREVENTION AND RESPONSE SYSTEM
In 2017, forty-six (46) employees of Tatneft’s structural divisions were trained in a 112-hour program «Professional Training
of Persons to have a Permit for Hazardous Waste Management» to ensure environmentally sound management of waste
production and consumption. Thirty (30) employees of the Company were trained in the 72-hour program «Ensuring
Environmental Safety for Managers and Specialists of the General Business Management System». One (1) employee
completed the training program «Ensuring Environmental Safety by Managers and Specialists of Environmental Services
and Environmental Control Systems.»
In accordance with Tatneft’s commitment to maintain an open dialog with all stakeholders with regard to the Company’s
environmental activities, the Company interacts with mass media, holds round tables devoted to environmental issues and
press tours at the Company’s facilities. The technological processes are covered in an easy-to-understand form in mass
media, seminars of engineers and ecological events are being held, stakeholders are informed with respect to the audit
and certification of the integrated management system for health, safety and environment; performance assessments by
experts dealing with the environmental risks in the Company are provided.
Contingency accident saving groups with the right to
perform operations for the localization and liquidation of oil
spills and gas hazard operations were established in oil and
gas producing directorates of the Company and certified
by the industry certification commission. These groups are
equipped with trained personnel, machinery, and special
equipment sufficient for the localization and liquidation of
oil spills (skimmer oil collecting units for the collection of
oil and petroleum products from water surface, booms,
special equipment for the chassis of high floatation vehicles,
pump trucks, tank cars, vacuum units, motorized cranes,
freight transport, excavators, bulldozers, and equipment
and materials pursuant to the requirements of statutory
documents).
The system of prevention and response to emergency
situations (ES) due to oil spills and the protection of people and
the environment from their harmful impact is implemented
in Tatneft in two focus areas: a complex of engineering and
organizational measures, which are aimed at enhancing
production equipment reliability, timely oil spill detection, and
minimizing the resulting damages, as well as a set of measures
to immediately respond to this type of emergency.
Pursuant to RF governmental Regulations No. 613 dated
August 21, 2000, «On Urgent Measures to Prevent and
Eliminate Spills of Oil and Petroleum Products» and No.
240 dated April 15, 2002, «On the Procedure for Organizing
Measures to Prevent and Eliminate Spills of Oil and Petroleum
Products in the Russian Federation,» «Oil Spills Prevention
and Response Plans» were developed at Tatneft’s structural
divisions in accordance with the established procedure which
was approved by the Emergency Ministry of the Russian
Federation. The plans include calculations of the number of
personnel and equipment and resources required to eliminate
an oil spill. The contents of the Plans meet the requirements
of regulatory legal documents. Irreducible material stocks
were secured, including for the elimination of oil spills in water
bodies. 1,900 meters of booms, 15 skimmers, and 10 tons of
sorbent are available.
FUNDS COMMITTED TO ENSURE ECOLOGICAL
SAFETY AND ENVIRONMENTAL PROTECTION
The Company’s total investments in environmental safety
activities across all sources of funding
in 2017 amounted to RUB 7,345.881 million, including:
investments allocated to ensure environmental protection
and the sustainable use of natural resources, RUB
1,913.119 million in 2016, this amounted to RUB 7,269.149
million, including:
investments allocated to ensure environmental protection
and the sustainable use of natural resources, RUB
1,196.447 million.
INTERNAL DOCUMENTS OF THE COMPANY AIMED
AT ENSURING INDUSTRIAL AND OCCUPATIONAL
SAFETY
• Regulation on the industrial safety management system
• Regulation on industrial control over compliance with
industrial safety requirements at hazardous production
facilities
These regulations set the uniform procedure for the
management of industrial, fire, electric power, radiation
safety, occupational safety and production control in all
structural divisions and subsidiaries of Tatneft.
284
285
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report ANNEXES
286
287
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report REPORT ON COMPLIANCE WITH THE
PRINCIPLES AND RECOMMENDATIONS OF THE
CORPORATE GOVERNANCE CODE
ON THE RESULTS OF THE REPORTED CALENDAR YEAR OF 2017 AND
THE ENDING REPORTING CORPORATE YEAR OF JUNE 2017 / JUNE 2018
This report on the compliance with the principles and recommendations of the Bank of Russia’s Corporate Governance
Code is submitted for preliminary consideration to the Audit Committee of the Board of Directors of PJSC TATNEFT,
to be considered, taking into account the remarks and comments of the Audit Committee, by the Corporate Manage-
ment Committee of the Board of Directors of PJSC TATNEFT.
The report will be submitted to the Board of Directors of PJSC TATNEFT at a meeting in May 2018 based on the minutes
of the decisions of the Audit Committee and the Corporate Management Committee to confirm that the data in this
report contain complete and reliable information on the Company’s compliance with the principles and recommenda-
tions of the Corporate Governance Code of the Public Joint Stock Company TATNEFT in 2017.
INTRODUCTION:
This Report was formulated in accordance with Chapter 70 of the Bank of Russia Regulation No. 454-P of December
30, 2014 “On Disclosure of Information by the Issuers of Equity Securities” and reflects the Company’s compliance with
the principles and recommendations of the Corporate Governance Code (hereinafter also referred to as the Code) rec-
ommended by the Bank of Russia for use by Joint-Stock Companies having securities admitted to organized trading.
The text of the Corporate Governance Code is posted on the official Internet website of the Bank of Russia: http://www.cbr.
ru/finmarkets/files/common/letters/2014/inf_apr_1014.pdf.
As a methodology for assessing the observance of the Corporate Governance Principles by PJSC TATNEFT, the recom-
mendations were set out in Bank of Russia Letter No. IN-06-52 / 8 of February 17, 2016 “On disclosure of observance of the
principles and recommendations of the Corporate Governance Code in the annual report of a public joint stock company“.
Following the approval of the Board of Directors the report shall be posted on the Company’s official Internet website at www.tatneft.
No.
Corporate Governance Principle
Criteria for Assessing Compliance with the
Principle of Governance
Status of Compli-
ance with the Prin-
ciple of Corporate
Governance
Explanations for Deviations
from the Criteria for Assessing
Compliance with the Corporate
Governance Principle
1
2
3
4
5
The Company shall ensure equal and fair treatment of all shareholders in the exercise of their right to participate in the
management of the Company.
The Company shall create the best
possible conditions for shareholders to
participate in the general meeting and
develop informed positions on issues on
its agenda and to coordinate the Com-
pany’s actions, as well as an opportunity
to express their opinions on the issues
being discussed.
1. The internal document of the Company approved by the General
Meeting of the Shareholders and regulating the procedures for holding
General Meetings, is publicly available.
2. The Joint Stock Company provides an affordable way of communicat-
ing with the Company, such as a hotline, e-mail, allowing the shareholders
to express their opinion and forward questions regarding the agenda for
the General Meeting in preparation. These actions used to be taken by
the Company shortly before each General Meeting that took place in the
reporting period.
þcomplied with
¨partial compliance
¨no compliance
The procedure to notify the sharehold-
ers on a General Meeting to be held and
to provide materials for the coming Gen-
eral Meeting gives the shareholders the
opportunity to properly prepare for
participation in the General Meeting.
1. The Company posted a notice on holding a General Meeting of the
Shareholders on the Internet website at least 30 days before the date of
the relevant General Meeting.
2. The communication on holding the meeting provided information on the
meeting venue and documents required for admission to the premises.
3. The shareholders were provided with access to the information about
the persons proposing the agenda and nominating candidates to the
Board of Directors and the Audit Committee of the Company.
þcomplied with
¨partial compliance
¨no compliance
1.1.
1.1.1.
1.1.2.
288
1
1.1.3.
1.1.4.
1.1.5.
1.1.6.
1.2
1.2.1.
1.2.2.
2
3
4
5
During the preparation and holding of
the General Meeting, the shareholders
had the opportunity to receive informa-
tion about the meeting and materials
to it with no hindrance and in a timely
manner, to pose questions to the execu-
tive bodies and to communicate with
each other.
The exercise of the shareholder’s right
to demand convocation of the General
Meeting, nominate candidates for the
management bodies and carry proposals
for inclusion in the agenda of the Gen-
eral Meeting shall not be accompanied
by unjustified complexities.
1. During the reporting year, the shareholders were
offered the opportunity to pose questions to members
of the Company’s executive bodies and the Company’s Board of Directors
shortly before and during the Annual General Meeting.
2. The Board of Directors’ position on each item of the agenda of the
General Meetings held during the reporting period (including dissenting
opinions incorporated in the Minutes) was included in the materials
prepared for the General Meeting of the Shareholders.
3. The Company enabled access of the shareholders to the list of persons
entitled to participate in the General Meeting from the date of its receipt
by the Company, in all instances of holding General Meetings in the
reporting year.
1. In the reporting period, the shareholders had the opportunity, for
at least 60 days after the end of the relevant calendar year, to submit
proposals for inclusion in the agenda of the annual General Meeting.
2. In the reporting period, the Company did not refuse to accept propos-
als on the agenda or nominees for the bodies of the Company due to mis-
prints or other insignificant shortcomings in the shareholder’s proposal.
þcomplied with
¨partial compliance
¨no compliance
Notes to p. 2: The Board of Direc-
tors actually discusses the items of
the agenda of the general meetings
of the Company shareholders and
approves the agenda of the meet-
ings, in so doing stating the position
of the Board of Directors. During the
reporting period no dissenting opin-
ions of the members of the Board of
Directors were registered.
þcomplied with
¨partial compliance
¨no compliance
The Company proceeds from the
principle of sufficiency of the 55
days term, as defined by the Regu-
lations on the General Meeting of
Shareholders of PJSC TATNEFT
Each shareholder had the opportunity
to freely exercise the right to vote in the
manner simplest and most convenient
for him/her.
1. The Company’s internal documents (internal policy) contain provisions
according to which each participant of the General Meeting can request a
copy of the ballot certified by the counting commission.
þcomplied with
¨partial compliance
Procedures for holding a General Meet-
ing set by the Company shall provide an
equal opportunity for all persons pres-
ent at the general meeting to express
their opinions and ask questions that
might be of interest to them.
1. When holding a General Meeting of the Shareholders in the form of
a meeting (joint attendance of the shareholders) during the reporting
period, sufficient time was provided for the reports on the agenda items
and for discussion of the relevant issues.
2. The candidates for management and control bodies of the Company
were available to answer questions from the shareholders at the meeting
at which the participants voted for or against the nominees to the relevant
positions.
3. In the reporting period the Board of Directors, when making decisions
related to the preparation and conduct of the General Meeting of the
Shareholders, considered the issue of using telecommunication devices
to provide remote access to the shareholders for participation in the
General Meeting.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The shareholders shall be given an equal and fair opportunity to participate in the Company’s profits distribution through receiving dividends
The Company developed and
implemented a transparent and clear
mechanism for determining the amount
of dividends and their payment.
1. The Company developed the dividend policy, had it approved by the
Board of Directors and made it publicly known.
2. If the dividend policy of a company uses the company’s reporting indi-
cators to determine the amount of dividends, then the relevant provisions
of the dividend policy take into account consolidated financial statements
þcomplied with
¨partial compliance
¨no compliance
The Company shall not decide on the
payment of dividends, unless such
decision, formally not violating the
restrictions established by law, is
economically unjustified and can lead
to the formation of a false image of the
Company’s activities.
1. The Company’s dividend policy contains clear indications of financial/
economic circumstances in which the Company should not pay dividends.
þcomplied with
¨partial compliance
¨no compliance
1.2.3.
The Company shall not allow deteriora-
tion of the existing dividend rights of its
shareholders.
1. In the year under review, the Company did not take any actions leading
to a deterioration in the dividend rights of the existing shareholders.
2. The history of dividend payments reflects the Company’s consistency
in ensuring a high level of the dividend yield, while maintaining a balance
of short-term (receiving the income in the form of dividend payments) and
long-term (investing in the development of the Company) profits.
þcomplied with
¨partial compliance
¨no compliance
289
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report
2
3
The Company shall strive to exclude
the shareholders' use of any other
ways of generating profit (income) from
the Company in addition to dividends
and the Company’s liquidation value
distribution.
1. In order to exclude any other ways of the shareholders' generating
profit (income) from the Company in addition to the dividends and the liq-
uidation value distribution, internal documents of the Company establish
control mechanisms that ensure the procedure of timely identification and
approval of transactions with persons affiliated with majority shareholders
having the right to use the votes falling on the voting shares), in cases
where the law does not formally recognize such deals as related party
transactions.
4
5
þcomplied with
¨partial compliance
¨no compliance
The system and practice of the Corporate governance ensure equal terms and conditions for all shareholders owing shares of the same category
(type), including minority (small) and foreign shareholders, and equal treatment of them by the Company.
1
1.2.4.
1.3.
1.3.1.
The Company shall create conditions
for fair treatment of each shareholder
by the Company’s management bodies
and supervisory persons, in particular,
ruling out the possibility of abuse of
any minority shareholders by majority
shareholders.
1. During the reporting period, the procedures for managing potential
conflicts of interest of majority shareholders were effective, and the Board
of Directors paid due attention to all and any conflicts arising between
shareholders, if any.
þcomplied with
¨partial compliance
1.3.2.
The Company shall not perform any
actions, which will or might result in
artificial reallocation of the corporate
control.
1. There were no quasi-treasury shares, nor did they participate in the
voting during the reporting period.
¨no compliance
¨complied with
þpartial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The Company shall not perform any
actions, which will or might result in
artificial reallocation of the corporate
control. The structure of the equity
capital is such that 61% of the voting
shares are in free circulation among
minority shareholders. The aggregate
quasi-treasury block of shares of the
Company makes the minimum 3.19%
of the voting shares, so that voting by
these shares can have no significant
impact on the voting results. The
voting for the candidates to the
management and control bodies is
performed on a proportional basis
for each candidate, which gives no
unfair preference to any of them. The
voluntary nature of this approach is
equal to voluntary waiver of voting by
the quasi-treasury block of shares in
principle. Proceeding from the above,
the Company believes that it fully
abides by the concept of the require-
ment to perform no actions which will
or might result in artificial reallocation
of the corporate control.
The shareholders shall be provided with reliable and effective ways of recording the rights to their shares, as well as the possibility of unhindered and
easy disposal of them.
The shareholders shall be provided with
reliable and effective ways of recording
the rights to their shares, as well as
the possibility of unhindered and easy
disposal of them.
1. The quality and reliability of activities carried out by the Company’s
Registrar in keeping the register of securities’ owners correspond to the
needs of the Company and its shareholders.
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors shall carry out the strategic management of the Company, define major principles and approaches to organizing the Company’s
risk management and internal control system, monitor the activities of the Company’s executive bodies, and also exercise other key functions.
The Board of Directors shall be responsible
for making decisions related to the ap-
pointment and dismissal of members of
the executive bodies, including due to their
improper performance of their duties. The
Board of Directors shall also ensure that
the Company’s executive bodies act in
accordance with the approved develop-
ment strategy and the main lines of the
Company’s business.
1. The Board of Directors has the authority stipulated in the Articles of
Association to appoint, discharge from office and determine the terms of
contracts with respect to the members of the executive bodies.
2. The Board of Directors considered the report of the sole executive
body and members of the collegial executive body on the implementation
of the Company’s strategy.
þcomplied with
¨partial compliance
¨no compliance
1.4.
1.4.1.
2.1
2.1.1
290
1
2.1.2.
2.1.3.
2.1.4.
2.1.5.
2.1.6.
2.1.7.
2
3
4
5
The Board of Directors shall set the
basic long-term targets for the
Company’s activities, and shall assess
and approve its key performance indica-
tors and principal business goals,
as well as its strategy and business
plans with regard to the Company’s
principal areas of operations.
The Board of Directors shall define the
principles and approaches to the or-
ganization of the risk management and
internal control system in the Company.
1. During the reporting period, the Board of Directors considered the
issues related to the implementation and actualization of the strategy,
approval of the Company's financial and economic plan (budget), as well
as considered the criteria and indicators (including interim ones) of the
strategy and business plans implementation.
þcomplied with
¨partial compliance
¨no compliance
1. The Board of Directors defined the principles and approaches to the
organization of the risk management and internal control system in the
Company
2. The Board of Directors performed the assessment of the Company’s
risk management and internal control system during the reporting period.
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors shall define
the Company's policy of remuneration
and (or) reimbursement of expenses
(compensations) to the members of
the Board of Directors, executive
bodies and other key executives of the
Company.
1. The Company developed and implemented a policy (policies) approved
by the Board of Directors for the compensation and reimbursement of
the members of the Board of Directors, executive bodies and other key
executives of the Company.
2. During the reporting period, the meetings of the Board of Directors
considered issues related to this policy (policies).
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors shall play a
key role in preventing, identifying and
resolving internal conflicts among the
Company’s bodies, the shareholders
and employees of the Company.
1. The Board of Directors plays a key role in preventing, identifying and
resolving internal conflicts.
2. The Company has created a system for identifying transactions related
to conflicts of interest and a system of measures aimed at resolving such
conflicts.
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors shall play a key
role in ensuring transparency of the
Company, timeliness and complete-
ness of the Company’s information,
disclosure and easy access of the
shareholders to the documents of the
Company.
The Board of Directors shall exercise
control over the practice of corporate
governance in the Company and shall
play a key role in major corporate events
of the Company.
1. The Board of Directors has approved a Regulation on the information
policy.
2. Persons responsible for the implementation of the information policy
were determined by the Company.
1. During the reporting period, the Board of Directors considered the
issue of corporate governance practices in the Company.
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
2.2.
The Board of Directors shall be accountable to the Company’s shareholders.
2.2.1.
Information on the work of the Board
of Directors shall be disclosed and
provided to the shareholders.
1. The annual report of the Company for the reporting period includes
information on the attendance of the meetings of the Board of Directors
and the Committees by individual directors.
þcomplied with
¨partial compliance
2.2.2.
The Chairman of the Board of Directors
shall be available to communicate with
the shareholders of the Company.
1. There is a transparent procedure implemented in the Company that
provides the shareholders with the opportunity to send questions to the
Chairman of the Board of Directors and express their position.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
2.3.
2.3.1.
The Board of Directors shall be an effective and professional management body of the Company, capable of making objective independent judgments and
decisions that are in the best interests of the Company and its shareholders.
Only persons with an impeccable
business and personal reputation and
possessing the knowledge, skills and
experience necessary to make decisions
within the competence of the Board
of Directors required for the effective
performance of its functions, may be
elected as the Board of Directors’
members.
1. The procedure accepted in the Company for evaluation of the
performance of the Board of Directors includes, among other things,
assessing the professional qualifications of the members of the Board of
Directors.
2. In the reporting period, the Board of Directors (or its nominations
committee) evaluated the candidates to the Board of Directors in terms of
their having the necessary experience, knowledge, business reputation,
lack of conflict of interest, etc.
þcomplied with
¨partial compliance
¨no compliance
291
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 2
3
The members of the Company’s Board
of Directors shall be elected through a
transparent procedure that allows the
shareholders to obtain information about
the candidates sufficient to form an idea
about their personal and professional
qualities.
1. At all General Meetings of the Shareholders held during the reporting
period with an agenda including election of the members of the
Board of Directors, the Company provided the shareholders with
biographical data of all candidates for the membership in the Board of
Directors, results of evaluation of such candidates made by the Board of
Directors (or its nominations committee), as well as information on the
candidates' compliance with independence criteria, in accordance with
recommendations 102 - 107 of the Code, and the written consent of the
candidates to be elected to the Board of Directors.
4
5
þcomplied with
¨partial compliance
¨no compliance
The composition of the Board of Direc-
tors shall be balanced in terms of its
members’ qualifications, their experi-
ence, knowledge and business qualities,
and the Board shall enjoy confidence of
the shareholders.
The quantitative composition of the Board
of Directors shall enable it to organize the
activities of the Board of Directors in the most
efficient manner, including the possibility
of forming committees of the Board of
Directors, and assure that the substantial
minority shareholders of the Company may
elect a candidate to the Board of Directors
who they vote for.
1. As part of the procedure for evaluating the Board of Directors’ work in
the reporting period, the Board of Directors analyzed its own needs in
terms of professional qualifications, experience and business skills.
þcomplied with
¨partial compliance
1. As part of the evaluation procedure for the Board of Directors in the
reporting period, the Board of Directors considered the issue of the
quantitative composition of the Board of Directors in compliance with the
needs of the Company and the interests of the shareholders.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors shall include a sufficient number of independent directors.
1. During the reporting period, all independent members of the Board of
Directors met all the independence criteria specified in recommendations
102-107 of the Code, or were deemed independent by the decision of the
Board of Directors.
þcomplied with
¨partial compliance
¨no compliance
1
2.3.2.
2.3.3.
2.3.4.
2.4.
2.4.1.
2.4.2.
An independent director shall be a person
who has sufficient professional skills,
experience and independence to form
his/her own position, is able to make
objective and conscientious judgments
that are independent of the influence of
the executive bodies of the Company,
certain groups of shareholders or other
parties concerned. However, it should be
noted that, under normal circumstances,
a candidate (elected director) cannot be
regarded as independent if he is con-
nected with the Company, a substantial
shareholder, a material trading partner
or a competitor, or connected with the
Government.
An assessment shall be made of the
compliance of the candidates for the
membership in the Board of Directors
with independence criteria, and a regu-
lar analysis of independence of the in-
dependent Board of Directors members
shall be carried out. In the performance
of such an assessment, the content
should prevail over the form.
2.4.3.
Independent directors shall account for
at least one-third of all directors elected
to the Board.
1. During the reporting period, the Board of Directors (or the committee
on nominations to the Board of Directors) formed an opinion on the
independence of each candidate to the Board of Directors and presented
the relevant conclusion to the shareholders.
2. During the reporting period, the Board of Directors (or its nomination
committee) at least once examined the independence of the current
members of the Board of Directors, whom the Company indicated as
independent directors in its annual report.
3. The Company has developed procedures that determine the necessary
actions of a member of the Board of Directors in the event that he/she
ceases to be independent, including the duty to promptly inform the
Board of Directors thereof.
1. Independent directors account for at least one-third of all directors
elected to the Board.
þcomplied with
¨partial compliance
¨no compliance
¨complied with
þpartial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
There are three independent direc-
tors in the composition of the Board
of Directors. The Company believes
that the composition of the Board
of Directors is optimal for ensuring
the interests of all groups of the
Company’s shareholders.
2.4.4.
Independent directors shall play a key
role in preventing internal conflicts in
the Company and in its performance of
material corporate actions.
1. Independent directors (who have no conflict of interest) preliminarily
assess the material corporate actions associated with a possible conflict
of interests, and the results of such an assessment are submitted to the
Board of Directors
1
2.5.
2.5.1.
2.5.2.
2.5.3
2.6.
2.6.1.
2
3
4
5
The Chairman of the Board of Directors shall contribute to the most efficient implementation of the functions assigned to the Board of Directors.
An independent director shall be elected
to the position of the Chairman of the
Board of Directors, or a senior indepen-
dent director out of the independent di-
rectors shall be appointed to coordinate
the work of independent directors and
interact with the Chairman of the Board
of Directors.
1. The Chairman of the Board of Directors is an independent director, or a
senior independent director is defined among the independent directors.
2. The role, rights and duties of the Chairman of the Board of Directors
(and the senior independent director, if applicable) are duly determined in
the internal documents of the Company.
¨complied with
þpartial compliance
¨no compliance
In the year under review, the Chair-
man of the Board of Directors was a
non-executive
Director, and there was no senior
director determined among the
independent directors.
The Chairman of the Board of Direc-
tors was elected unanimously by all
Members of the Board of Directors,
as the most authoritative member of
the Board of Directors, possess-
ing due professional skills and
knowledge.
The Company assumes that all
members of the Board of Directors
have equal rights, and also takes
into account the fact that the inde-
pendent directors did not determine
the senior independent director.
The Chairman of the Board of Direc-
tors shall provide for a constructive
atmosphere for holding meetings, free
discussion of issues on the agenda of
the meeting, monitoring the implemen-
tation of the decisions taken by the
Board of Directors.
The Chairman of the Board of Directors
shall take the necessary measures
for timely provision to the Board of
Directors of information necessary for
making decisions on the agenda items.
1. The efficiency of the Chairman of the Board of Directors was evaluated
within the framework of the procedure for assessing the effectiveness of
the Board of Directors in the reporting period.
þcomplied with
¨partial compliance
1. The duty of the Chairman of the Board of Directors to take measures
to ensure timely provision of materials to the members of the Board of
Directors related to the agenda of the Board of Directors is fixed in the
documents of the Company.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The members of the Board of Directors shall act in good faith and reasonably in the interests of the Company and its shareholders on the basis of
sufficient
knowledge, with due care and diligence.
The members of the Board of Directors
shall make decisions taking into account
all information available, in the absence
of a conflict of interest, with equal treat-
ment of the Company's shareholders, in
the normal course of business risk.
1. The Company’s internal documents establish that a member of the
Board of Directors must notify the Board of Directors if he/she has a con-
flict of interest with respect to any item on the agenda of the meeting of
the Board of Directors or before the Board of Directors begins discussion
on the corresponding item of the agenda.
þcomplied with
¨partial compliance
¨no compliance
2. The Company’s internal documents provide that a member of the
Board of Directors must refrain from voting on any issue in which he/she
has a conflict of interest.
3. The Company has established a procedure that allows the Board of
Directors to receive professional advice on matters within its competence,
at the expense of the Company.
1. The Company adopted and published an internal document clearly
defining the rights and duties of the members of the Board of Directors.
þcomplied with
¨partial compliance
¨no compliance
2.6.2
The rights and duties of the members of
the Board of Directors shall be clearly
articulated and established in the inter-
nal documents of the Company.
2.6.3
The members of the Board of Directors
shall have enough time to fulfill their
duties.
1. The individual attendance of the meetings of the Board of Directors and
its committees, as well as the time devoted to preparing for participation
in the meetings, was taken into account in the evaluation procedure of the
Board of Directors in the reporting period.
þcomplied with
¨partial compliance
2. In accordance with the internal documents of the Company, members
of the Board of Directors are obliged to notify the Board of Directors of
their intention to become members of the management bodies of other
organizations (other than the controlled and dependent organizations of
the Company), as well as the fact of such an appointment.
1. In accordance with the internal documents of the Company, the
members of the Board of Directors have the right to access documents
and make inquiries concerning the Company and its controlled entities,
and the Company’s executive bodies are obliged to provide the relevant
information and documents.
2. There is a formalized program of familiarization for newly elected
members of the Company
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
2.6.4
All the members of the Board of Direc-
tors shall have equal access to the
Company’s documents and informa-
tion. Sufficient information about the
Company and the work of the Board of
Directors shall be provided to the newly
elected members of the Board of Direc-
tors as soon as possible.
292
293
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 2
3
4
5
The meetings of the Board of Directors, preparation for and participation in them by the members of the Board of Directors ensure effective function-
ing of the Board of Directors.
The meetings of the Board of Directors
shall be held as necessary, taking into
account the scale of activities and the
Company’s tasks in a certain period.
The procedure for preparing and holding
meetings of the Board of Directors shall
be set in the Company's internal docu-
ments, which provide for the members
of the Board of Directors to properly
prepare for the meeting.
The form of the meeting of the Board of
Directors shall be determined taking into
account the importance of the issues on
the agenda. The most important issues
shall be resolved at the meetings in the
form of joint presence.
Decisions on the most important issues
of the Company shall be taken at the
meeting of the Board of Directors by
a qualified majority or a majority of
all elected members of the Board of
Directors.
1. The Board of Directors held at least six meetings in the reporting year. þcomplied with
1. The Company has approved an internal document that defines the
procedure for preparing and holding meetings of the Board of Directors,
which also stipulates that a notice of the meeting should be made, as a
rule, at least 5 days before the date set for holding the meeting.
1. The Company's Articles or internal documents stipulate that the most
important issues (according to the list given in Recommendation 168 of
the Code) should be considered at the meetings of the Board held in the
form of joint presence.
1. The Company's Articles stipulate that decisions on the most important
issues set out in Recommendation 170 of the Code should be taken at a
meeting of the Board of Directors by a qualified majority of not less than
three-quarters of the votes, or by a majority of all elected members of the
Board of Directors.
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
¨complied with
þpartial compliance
¨no compliance
The principle is actually complied
with.
Decisions on the most important
issues of the Company shall be
taken at the meeting of the Board of
Directors by a qualified majority or
a majority of all elected members of
the Board of Directors.
The Board of Directors shall establishes Committees for preliminary consideration of the most important issues of the Company’s business.
1. The Board of Directors established an Audit Committee consisting
entirely of independent directors.
2. The Company’s internal documents define the tasks set out before the
Audit Committee, including the tasks contained in Recommendation 172
of the Code.
3. At least one member of the Audit Committee, who is an independent
director, has sufficient experience and knowledge required for the
preparation, analysis, assessment and audit of the accounting (financial)
statements.
4. During the reporting period meetings of the Audit Committee were held
at least once a quarter.
1. The Board of Directors established the Remuneration Committee
consisting of independent directors only.
2. The Chairman of the Remuneration Committee is an independent
director who is not the Chairman of the Board of Directors.
3. The tasks of the Remuneration Committee are defined in the
internal documents of the Company, including the tasks contained in
Recommendation 186 of the Code.
¨complied with
þpartial compliance
¨no compliance
The presence of three independent
(one recognized
independent) directors and one
non-executive director having
extensive experience and necessary
competencies.
¨complied with
þpartial compliance
¨no compliance
The presence of three independent
(one recognized
independent) directors and one
non-executive director having
extensive experience and necessary
competencies.
1. The Board of Directors established the Nomination Committee (or its
tasks specified in Recommendation 186 of the Code are implemented
within the framework of another Committee) with the majority of its
members being independent directors.
2. The internal documents of the Company define the tasks of the
Nomination Committee (or the corresponding Committee with a
combined functionality).
þcomplied with
¨partial compliance
¨no compliance
1. In the reporting period, the Board of Directors of the Company
considered the issue of the consistency of its Committees with the tasks
of the Board of Directors and the objectives of the Company.
Additional committees were either established, or they were deemed
not necessary.
þcomplied with
¨partial compliance
¨no compliance
It is recommended to establish an Audit
Committee consisting of independent
directors for the preliminary consid-
eration of issues related to the control
over the financial and economic activi-
ties of the Company.
It is recommended to establish a
Remuneration Committee consisting
of independent directors and headed
by an independent director who is not
the Chairman of the Board of Directors
for preliminary consideration of issues
related to the formation of an effective
and transparent remuneration practice.
It is recommended to establish a
Nomination Committee (appointments,
cadres) for preliminary consideration
of issues related to the HR planning
(succession planning), professional
composition and efficiency of work of
the Board of Directors, with the majority
of its members being independent
directors.
Given the scale of the activities and the level
of risk, the Company’s Board of Directors
shall make sure that the composition of its
Committees fully meets the objectives of
the Company. Additional Committees either
were to be established or were not deemed
necessary (Strategy Committee, Corporate
Management Committee, Ethics Committee,
Risk Management Committee, Budget
Committee, Health, Safety and Environment
Committee, etc.).
1
2.7
2.7.1.
2.7.2.
2.7.3.
2.7.4.
2.8.
2.8.1
2.8.2.
2.8.3.
2.8.4
294
1
2.8.5.
2.8.6
2.9
2.9.1
2.9.2
3.1
3.1.1
3.1.2
4.1
4.1.1
2
3
4
5
The Committees‘ composition should
be defined in a way allowing for a
comprehensive preliminary discussion of
the issues to be considered, taking into
account different opinions.
Chairmen of the Committees shall
regularly inform the Board of Directors
and its Chairman about the work of their
Committees.
1. The committees of the Board of Directors are headed by independent
directors.
þcomplied with
2. The Company’s internal documents (policies) include the provisions ac-
cording to which persons not being members of the Audit Committee, the
Nomination Committee or the Remuneration Committee, may attend the
meetings of the Committees upon the invitation of the Chairman only.
1. During the reporting period, Chairmen of the Committees regularly
reported on the work of the Committees to the Board of Directors.
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The Board of Directors provides for the assessment of the work of the Board of Directors, its Committees and their members.
The performance evaluation of the
Board of Directors shall be aimed at
determining the degree of effective-
ness of the Board of Directors, the
Committees and the members of the
Board of Directors, their relevance for
the development needs of the Company,
revitalization of the Board of Directors
and identification of the areas in which
their activities improved.
Evaluation of the work of the Board of
Directors, Committees and members
of the Board of Directors shall be
carried out on a regular basis at least
once a year. An independent external
organization (consultant) shall be invited
for assessing the quality of work of the
Board of Directors at least once every
three years.
1. Self-assessment or external evaluation of the Board of Directors
operation in the reporting period included evaluation of the work of the
Committees, individual members of the Board of Directors and the Board
of Directors as a whole.
2. The results of the self-assessment or external evaluation of the Board
of Directors conducted during the reporting period were considered at
the meeting of the Board of Directors held in the form of joint presence.
þcomplied with
¨partial compliance
¨no compliance
1. The Company invited an independent external organization (consultant)
to evaluate the quality of the work of the Board of Directors at least once
during the last three reporting periods.
¨complied with
þpartial compliance
¨no compliance
Over the past three years,
the Company has not brought
an external organization for
independent evaluation of the work
of the Board of Directors, since
this procedure would have involved
additional costs.
The Company’s Corporate Secretary shall conduct effective current interaction with its shareholders, and coordinate the actions of the Company to
protect the rights and interests of the shareholders, supporting effective operation of the Board of Directors.
The Corporate Secretary shall have the
knowledge, experience and qualifica-
tions that are sufficient to fulfill the
duties assigned to him/her, have an
impeccable reputation and shall enjoy
the confidence of the shareholders.
1. An internal document was adopted and disclosed in the Company:
Regulation on the Corporate Secretary.
2. The biographical information on the Corporate Secretary with the
same level of detail as for the members of the Board of Directors and
the executive management of the Company has been placed on the
Company’s website and in the Company’s Annual Report.
þcomplied with
¨partial compliance
¨no compliance
The Corporate Secretary shall be suf-
ficiently independent from the executive
bodies of the Company and shall have
the necessary powers and resources to
carry out the tasks assigned to him/her.
1. The Board of Directors approves the appointment, removal from office
and additional remuneration of the Corporate Secretary.
þcomplied with
¨partial compliance
¨no compliance
The level of remuneration paid by the Company shall be sufficient to attract, motivate and retain individuals who are qualified and competent for the
Company. The remuneration to the members of the Board of Directors, executive bodies and other key executives of the Company shall be paid in ac-
cordance with the Company’s remuneration policy.
1. The Company has adopted an internal document (policy) for the remu-
neration of the members of the Board of Directors, executive bodies and
other key management personnel, which clearly outlines the approaches
to the remuneration for these individuals.
þcomplied with
¨partial compliance
¨no compliance
The level of remuneration provided by
the Company to the members of the
Board of Directors , executive bodies
and other key executives shall create
sufficient motivation for their effective
work, allowing the Company to attract
and retain competent and qualified
specialists. However, the Company shall
avoid setting the compensation level
any higher than necessary or create
an unjustifiably large gap between the
remuneration levels of these individuals
and the employees of the Company.
295
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 2
3
4
5
The Company’s compensation policy
has been devised by the Remuneration
Committee and approved by the
Company’s Board of Directors. The
Board of Directors, with the support
of the Remuneration Committee,
shall oversee implementation of the
remuneration policy in the Company,
and, if necessary, shall revise and
correct it.
The Company’s remuneration policy
shall contain transparent mechanisms
for determining the remuneration of the
members of the Board of Directors ex-
ecutive bodies and other key executives
of the Company, as well as regulate all
types of payments, benefits and privi-
leges granted to these persons.
The Company shall define a policy of
expenses reimbursement (compensa-
tion), which shall specify the list of
expenses to be reimbursed, and the
level of service that the members
of the Board of Directors, executive
bodies and other key executives of the
Company can claim. Such a policy can
be an integral part of the Company’s
remuneration policy.
1. During the reporting period, the Remuneration Committee reviewed the
remuneration policy (policies) and practices of its (their) implementation
and, if necessary, submitted appropriate recommendations to the Board
of Directors.
þcomplied with
¨partial compliance
¨no compliance
1. The Company's remuneration policy contains transparent mechanisms
for determining the remuneration of the members of the Board of Direc-
tors, executive bodies and other key executives of the Company, and also
regulates all types of payments, benefits and privileges granted to these
persons.
þcomplied with
¨partial compliance
¨no compliance
1. The remuneration policy (policies) or other internal documents of the
Company set the rules for compensating the expenses of the members
of the Board of Directors, executive bodies and other key executives of
the Company.
þcomplied with
¨partial compliance
¨no compliance
The remuneration system for the members of the Board of Directors shall ensure that the financial interests of the directors should be in line with the
long-term financial interests of the shareholders.
The Company shall pay a fixed annual fee
to the members of the Board of Directors.
The Company shall not pay remuneration
for participation in separate meetings of
the Board or committees of the Board of
Directors.
The Company shall not apply forms of
short-term motivation or any additional
material incentives to the members of the
Board of Directors.
Long-term holding of the Company’s
shares shall be the best way conducive
to the convergence of the financial
interests of the members of the Board
of Directors with the long-term interests
of the shareholders. At the same time,
the Company shall not stipulate the
rights to sell shares by achieving certain
performance indicators, and the mem-
bers of the Board of Directors shall not
participate in option programs.
The Company shall not provide for any
additional payments or compensation
in the event of early termination of the
powers of any members of the Board
of Directors in connection with transfer
of control over the Company or due to
other circumstances.
1. The fixed annual remuneration was the only monetary form of remu-
neration for the members of the Board of Directors for their work on the
Board during the reporting period.
þcomplied with
¨partial compliance
¨no compliance
1. If an internal document (documents): such as the Company’s policy
(policies) stipulate provision of the Company’s shares to the members of
the Board of Directors, the rules for holding the shares by the members of
the Board of Directors should be set and disclosed, aimed at encouraging
long-term holding of such shares.
þcomplied with
¨partial compliance
¨no compliance
1. The Company does not provide for any additional payments or
compensation in the event of early termination of the powers of members
of the Board of Directors in connection with the transfer of control over
the Company or other circumstances.
þcomplied with
¨partial compliance
¨no compliance
The remuneration system for the members of the executive bodies and other key executives of the Company shall provide for the dependence of the
reward on the results of the Company’s operation and their personal contribution to achieving this result.
Remuneration of the members of the ex-
ecutive bodies and other key executives
of the Company shall be determined in
such a way as to ensure a reasonable
and justified ratio of the fixed part of
the remuneration and the variable part
of the remuneration depending on the
results of work of the Company and the
personal (individual) contribution of the
employee to the final results.
1. During the reporting period, annual performance indicators approved
by the Board of Directors were used to determine the amount of the vari-
able compensation due to the members of the executive bodies and other
key management personnel of the Company.
2. In the course of the latest evaluation of the remuneration system for the
members of the executive bodies and other key management personnel,
the Company and the Board of Directors ascertained that an effective
ratio of the fixed part of the remuneration and the variable part of the
remuneration are applied in the Company.
3. There is a procedure existing in the Company ensuring the return to
the Company of bonus payments illegally received by the members of the
executive bodies and other key management personnel of the Company.
þcomplied with
¨partial compliance
¨no compliance
1
4.1.2
4.1.3
4.1.4
4.2.
4.2.1.
4.2.2
4.2.3
4.3.
4.3.1
296
1
4.3.2
4.3.3
5.1.
5.1.1
5.1.2
5.1.3
5.1.4
2
3
The Company has implemented a
program of long-term motivation of the
members of the executive bodies and
other key executives of the Company
using the Company’s shares (options or
other derivative financial instruments,
with the Company’s shares as their
underlying assets).
1. The Company introduced a long-term motivation program for members
of the executive bodies and other key executives of the Company using
the shares of the Company (financial instruments based on the shares of
the Company).
2. The program of long-term motivation of the members of executive bod-
ies and other key executives of the Company provides that the right to sell
the shares and other financial instruments used in such a program may be
exercised only after three years from the date of their issue. At the same
time, the right to sell these securities is conditioned by the achievement of
certain performance indicators of the Company.
4
5
þcomplied with
¨partial compliance
¨no compliance
The amount of compensation (“golden
parachute”) paid by the Company in
case of early termination of the powers
given to the members of executive
bodies or key executives on the initiative
of the Company and in the absence of
unfair acts on their part shall not exceed
twice the value of the fixed portion of
their annual remuneration.
1. The amount of compensation (“golden parachute”) paid by the Com-
pany in the event of early termination of the powers given to the members
of the executive bodies or key executives on the initiative of the Company
and in the absence of unfair acts on their part did not exceed twice the
fixed part of their annual remuneration in the reporting period.
þcomplied with
¨partial compliance
¨no compliance
The Company shall establish an efficient risk management and internal control system aimed at ensuring reasonable confidence in achieving the
goals set for the Company.
The Company’s Board of Directors shall
define the principles and approaches to
the organization of the risk manage-
ment and internal control system in the
Company.
1. The functions of various management bodies and divisions of the Com-
pany in the system of risk management and internal control are clearly
defined in the internal documents/corresponding policies of the Company,
approved by the Board of Directors.
þcomplied with
¨partial compliance
The Company’s executive bodies shall
ensure creation and maintenance of an
effective risk management and internal
control system in the Company.
1. The Company’s executive bodies ensured distribution of functions and
authorities with regard to risk management and internal control among
the subordinate managers (heads) of departments and divisions account-
able to them.
1. The Company has adopted a policy on combating corruption.
2. There is an accessible way established in the Company to inform the
Board of Directors or the Audit Committee of the Board of Directors on
violations of law, internal procedures, the Code of Ethics of the Company.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The system of risk management and
internal control in the Company shall en-
sure an objective, fair and clear picture
of the current state and prospects of the
Company, the Company’s integrity and
transparency of its reporting, as well as
the soundness and reasonableness of
the risks accepted by the Company.
The Company’s Board of Directors shall
take the necessary steps to ensure that
the current risk management and internal
control system complies with the Board of
Directors’ principles and approaches to its
organization and functions effectively.
1. During the reporting period, the Board of Directors or the Audit
Committee of the Board of Directors evaluated the effectiveness of the
Company’s risk management and internal control system. Information
on the main results of such evaluation is included in the annual report of
the Company.
þcomplied with
¨partial compliance
¨no compliance
5.2.
The Company shall organize internal audit for regular independent evaluation of the reliability and effectiveness of the risk management and internal
control system, and the Corporate Governance practice.
5.2.1
It is recommended that internal audits
be performed by a separate structural
division (internal audit department) to be
established by the Company or by retaining
an independent outside body. The functional
and administrative accountability of the
internal audit division shall be differentiated.
The internal audit division shall be functionally
accountable to the Board of Directors.
1. A separate structural division for performing internal audit functions has
been established in the Company and is functionally accountable to the
Board of Directors or the Audit Committee, or an independent external
organization with the same principle of accountability has been invited.
þcomplied with
¨partial compliance
¨no compliance
297
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 2
3
4
5
The Internal Audit Division shall evaluate
the effectiveness of the internal control
system, as well as that of the risk
management system, and the corporate
governance system.
The Company shall apply generally
accepted activity standards in the area of
internal audit.
1. The effectiveness of the internal control and risk management system
was assessed during the reporting period within the framework of internal
audit.
2. The Company applies commonly accepted approaches.
þcomplied with
¨partial compliance
¨no compliance
The Company and its activities shall be transparent to the shareholders, investors and other interested parties.
The Company shall develop and
implement an information policy ensuring
efficient exchange of information between
the Company, its shareholders, investors,
and other interested parties.
1. The Board of Directors of the Company has approved the
information policy of the Company developed in accordance with the
recommendations of the Code.
2. The Board of Directors (or one of its Committees) considered issues
related to the Company’s compliance with its information policy at least
once during the reporting period.
The Company shall disclose information
on the corporate governance system
and practice, including detailed
information on the compliance with the
principles and recommendations of the
Code.
1. The Company discloses information on the Company’s corporate
governance system and the general principles of the corporate
governance applied in the Company, including the information disclosed
on the Company’s Internet website.
2. The Company discloses information on the composition of the
executive bodies and the Board of Directors, independence of the
members of the Board and their membership in the Committees of the
Board of Directors (as defined by the Code).
3. In the event that there is a person controlling the Company, Company
publishes a memorandum of supervisory authority regarding the plans of
such a person with respect to corporate governance in the Company.
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The Company shall timely disclose full, up-to-date and reliable information about the Company to ensure the possibility for the Company’s sharehold-
ers and investors to make informed decisions.
The Company shall disclose information
in accordance with the principles of
regularity, consistency and efficiency,
as well as availability, reliability, com-
pleteness and comparability of the data
disclosed.
In disclosing information the Company
shall avoid a formal approach and shall
disclose significant information about
its activities, even if the law does not
provide for the disclosure of the same.
The Company’s annual report, as one
of the most important tools of the
Company’s information exchange with
shareholders and other interested
parties, shall contain information making
it possible to assess the Company’s
performance results for the year.
1. The Company’s information policy identifies the approaches and
criteria for identifying information that can have a significant impact on the
Company’s valuation and the value of its securities and procedures that
ensure timely disclosure of such information.
þcomplied with
¨partial compliance
2. In the event that the Company’s securities are traded in foreign
organized markets, the disclosure of material information in the Russian
Federation and in such markets is carried out synchronously and is the
same during the reporting year.
3. If foreign shareholders own a significant number of the Company’s
shares, then information disclosed during the reporting year shall be not
only in Russian, but also in one of the most common foreign languages.
1. During the reporting period, the Company was disclosing its annual
and semi-annual financial statements prepared in accordance with IFRS.
The annual report of the Company for the reporting period includes
annual financial statements prepared in accordance with IFRS, together
with an audit report.
2. The Company discloses full information on the Company’s capital
structure in accordance with Recommendation 290 of the Code in the
annual report and on the Company’s Internet website.
1. The annual report of the Company contains information on the key
aspects of the Company’s operations and its financial results.
2. The Company’s annual report contains information on the
environmental and social aspects of the Company’s activities.
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
The Company shall provide information and documents at the request of the shareholders in accordance with the principles of equal and unhindered
accessibility.
The Company shall provide informa-
tion and documents at the request of
the shareholders in accordance with
the principles of fairness and ease of
access.
It is recommended that when providing
information to the shareholders the
Company shall maintain a reasonable
balance between the interests of individual
shareholders and the interests of the
Company which is interested in preserving
confidentiality of important commercial
information that may have a significant
impact on the Company’s competitiveness.
1. The Information Policy of the Company defines an easy procedure
for providing the shareholders with access to information, including
information on entities controlled by the Company, at the request of the
shareholders.
þcomplied with
¨partial compliance
¨no compliance
1. During the reporting period, the Company did not refuse to satisfy the
shareholders’ requests for information, or such refusals were justified.
þcomplied with
2. In the instances determined by the Information Policy of the Company,
the shareholders are warned about the confidential nature of the informa-
tion provided and assume responsibility for maintaining its confidentiality.
¨partial compliance
¨no compliance
1
5.2.2
6.1.
6.1.1
6.1.2
6.2
6.2.1
6.2.2
6.2.3
6.3.
6.3.1
6.3.2
298
1
7.1.
7.1.1
7.1.2
7.1.3
7.2.
7.2.1
7.2.2
2
3
4
5
Actions that shall or may materially affect the structure of the Company’s share capital and financial position and, accordingly, the shareholders’
position (material corporate actions) shall be carried out on fair terms ensuring compliance with the rights and interests of the shareholders as well as
other parties concerned.
1. The Company’s Articles determine a list of transactions or other actions
that are material corporate actions and the criteria for their determination.
Decisions on material corporate actions are within the competence of the
Board of Directors. In cases where the implementation of these corporate
actions is directly attributed by law to the competence of the General
Meeting of the Shareholders, the Board of Directors provides appropriate
recommendations to the shareholders.
¨complied with
þpartial compliance
¨no compliance
2. As a minimum, the Company’s Articles consider the following events to
be material corporate actions: reorganization of the Company, acquisition
of 30 percent or more of the Company’s voting shares (takeover),
performance of substantial transactions by the Company, increase
or decrease in the capital of the Company, listing and delisting of the
Company’s shares.
1. The Company provides for a procedure whereby the independent
directors can declare their opinion on any material corporate actions prior
to their approval.
¨complied with
þpartial compliance
¨no compliance
1. The Company’s Articles, taking into account the specifics of its activi-
ties, set the criteria for classifying the Company’s transactions as material
corporate actions at a level below the statutory minimum.
2. During the reporting period, all material corporate actions went through
the approval procedure prior to their implementation.
¨complied with
þpartial compliance
¨no compliance
Material corporate actions shall be
deemed to include reorganization of the
Company, acquisition of 30 per cent or
more of the Company’s voting shares
(takeover), making major transactions,
increasing or reducing the Company’s
share capital, listing and delisting of
the Company’s shares, as well as other
actions, which might result in material
changes in the rights of the shareholders
or infringement of their interests. It
is recommended that the Company’s
Articles of Association shall define a
list (criteria) of transactions or other
actions deemed to be material corporate
actions, and refer the consideration of
such actions to the competence of the
Company’s Board of Directors.
The Board of Directors shall play a key
role in making decisions or recommen-
dations concerning material corporate
actions. The Board of Directors shall
base its position on the opinion of the
Company‘s independent directors.
When taking material corporate ac-
tions, which would affect the rights or
legitimate interests of the shareholders,
it is recommended that equal terms
and conditions be guaranteed for all
shareholders; if the statutory machinery
designed to protect the sharehold-
ers’ rights proves insufficient, then
additional measures shall be introduced
to protect the said rights and legitimate
interests. In such instances, the
Company shall comply with formal
requirements of the law and with the
corporate governance principles set out
in this Code.
Complied with in practice. The list of
material corporate actions is defined
by the Company in chapter 9 of the
Corporate Governance Code approved
by the Board of Directors on 20.03.2017.
The Articles of Association of the
Company refer the decisions on the
issues connected with material corporate
actions to the competence of the
Company’s Board of Directors.
The Company plans to list such
transactions and other actions in its
Articles of Association In 2019, and draw
an Order of major transactions of PJSC
Tatneft and have it approved by the
Board of Directors in 2018.
Complied with in practice. There
were no material corporate actions
during the reporting period.
It is planned to have this procedure
formalized by an internal document
of the Company in 2019.
Actually complied with. Pursuant to
Chapter 9 of the Corporate Gover-
nance Code approved by the Board
of Directors on 20.03.2017, material
corporate actions of the Company
mean the actions that shall or may
materially affect the structure of
the Company’s share capital and
financial position and, accordingly,
the shareholders’ position, and con-
sequently they shall be carried out
on fair terms ensuring compliance
with the rights and interests of the
shareholders as well as other parties
concerned.
There were no material corporate
actions during the reporting period.
It is planned to have this procedure
formalized by an internal document of
the Company in 2019.
The Company shall provide a procedure for taking material corporate actions that enables its shareholders to receive full information about such ac-
tions in due time and influence them, and also guarantee that the shareholder rights are observed and duly protected when such actions are taken.
Information on the performance of
material corporate actions shall be
disclosed with an explanation of the
reasons, conditions and consequences
of committing such actions.
The rules and procedures related to the
Company’s performance of material
corporate actions shall be formulated in
the Company’s internal documents.
1. During the reporting period, the Company disclosed in a timely manner
and in detail the information on any material corporate actions of the
Company, including the grounds and timing of such actions.
þcomplied with
¨partial compliance
¨no compliance
þcomplied with
¨partial compliance
¨no compliance
1. Internal documents of the Company provide for the procedure for
engaging an independent appraiser to determine the value of property
disposed of or acquired by a major transaction or a related party transac-
tion.
2. Internal documents of the Company provide for the procedure for
engaging an independent appraiser to estimate the cost of acquiring and
repurchasing the shares of the Company.
3. The internal documents of the Company provide for an expanded
list of grounds, on which the members of the Board of Directors of the
Company and other persons provided for by the law are recognized to be
interested in the transactions of the Company.
299
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report PROTECTION OF INSIDER INFORMATION
PROCEDURES AND REGULATIONS
Tatneft, the securities of which are traded at organized markets not only in Russia but also abroad, pays special
attention to measures aimed at the prevention and control over the inadmissibility of misuse of insider information.
In its activity, the Company is guided by Federal Law No. 224-FZ dated July 27, 2010, «On Countering the Misuse
of Insider Information and Market Manipulation and on Making Amendments in Particular Legislative Acts of the
Russian Federation,» other legislation of the Russian Federation and Regulation (EU) 596/2014 of the European
Parliament, and the EU Council dated April 16, 2014, «On Abuses in the Market.»
The Company provides all necessary procedures for the protection of insider information with the relevant
internal regulatory documents: Rules for Monitoring Compliance with the Legislation of the Russian Federation
on Countering the Misuse of Insider Information and Market Manipulation, the Regulation on the Procedure for
Access to Insider Information of Tatneft and the Rules for the Protection of Confidentiality Thereof, and the List of
Information Related to Insider Information.
Explanations related to the requirements of the applicable legislation are provided on a permanent basis. The
Company’s employees who have access to insider information are informed through the Company’s corporate
website.
The Board of Directors resolved to appoint an official of Tatneft for control over compliance with the requirements
of the Russian Federation to counter the misuse of insider information and market manipulation: acting Corporate
Secretary, Deputy Head of the Corporate Secretary Office Damir M. Gamirov.
Composition of the Insider Information Protection Committee in 2017
Chairman:
Rustam M. Khisamov, Corporate Secretary, Head of the Corporate Secretary Office, the person responsible for the
exercise of control over compliance with the Law on Countering the Misuse of Insider Information.
Powers terminated on October 22, 2017, in connection with his death.
Committee members:
Aleksey P. Bespalov, Head of the IT Department, Deputy Chief Engineer of Tatneft
Peter A. Glushkov, Head of the International Law Department of the Directorate of Consolidated Financial Satements
of Tatneft
Valeriy D. Yershov, Head of the Legal Department of Tatneft
Ildar A. Rakhmatullin, Head of the Internal Audit Department of Tatneft
Vasiliy A. Mozgovoy, Assistant to the General Director for Corporate Finance of Tatneft
Rifdar R. Khamadyarov, Head of the Personnel Office of Tatneft
REPORT ON TRANSACTIONS CONCLUDED
BY PJSC TATNEFT n.a. V.D. SHASHIN IN 2017,
WHICH ARE RECOGNIZED AS TRANSACTIONS WITH INTEREST
APPROVED by the decision of the Board of Directors of PJSC TATNEFT n.a. V.D. Shashin, Minutes No. 12 of April 04,
2018.
Data reliability has been confirmed by the conclusion of the Audit Commission of PJSC TATNEFT n.a. V.D. Shashin.
The present report lists transactions carried out by PJSC Tatneft named after V.D.Shashin (hereinafter PJSC Tatneft)
in 2017, which are recognised by the Federal Law on Joint-Stock Companies No 208-FZ of 26/12/1995 as non-arm’s
lengths transactions.
Persons listed herein are recognised as interested in the transactions as of the transaction date.
1. Non-arm’s length transactions carried out in 2017
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
31/01/2017
26/08/2016
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: Signing of an additional agreement to the
purchase and sale agreement between PJSC Tatneft named after V.D.Shashin and AO
TANECO.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Increasing the
value of the purchase and sale agreement of commodities, including spare tools and
accessories for the equipment for the Oil Refinery and Petrochemical Complex in
Nizhnekamsk No 430/13.02-06/13 of 23/10/2013.
Transaction parties:
PJSC Tatneft
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as a controller of AO
TANECO
Full Name
PJSC Tatneft named
after V.D. Shashin
N.U. Maganov Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
R.K. Sabirov
Member of the Board of Directors
AO TANECO
Member of the
Board of Directors
(Chair)
Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
N.M. Glazkov
Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
Transaction value: RUB 400,000,000.00 (four hundred million), which is 0.06% of
the book cost of the Company’s assets as of 30/06/2016.
Due dates: 31/12/2019
300
301
FINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYABOUT THE COMPANYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
17/01/2017
20/03/2017
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: Signing of immovable assets purchase and sale
agreement with AO TANECO.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Alienation of im-
movable assets to AO TANECO:
• Immovable asset:
Title 007, Section 1300: Naphtha hydrotreater
Transaction parties:
PJSC Tatneft named after V.D. Shashin and AO TANECO
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as a controller
of AO TANECO
Full Name
PJSC Tatneft named
after V.D. Shashin
N.U. Maganov Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
R.K. Sabirov
Member of the Board of Directors
AO TANECO
Member of the
Board of Directors
(Chair)
Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
N.M. Glazkov
Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
Transaction value: 3RUB 3,412,704,046.8 (three billion, four hundred and twelve
million, seven hundred and four thousand, forty six and 00/100), which is 0.493% of the
book cost of the Company’s assets as of 30/09/2016.
Due dates: 17/12/2017
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
31/03/2017
20/03/2017
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: Signing of a waver letter between AO TANECO
as a Borrower, PJSC Tatneft named after V.D.Shashin as a Guarantor, and CITIBANK
EUROPE PLS UK BRANCH as a Documentation Agent for a framework agreement of
30 May 2013 on establishing a EUR 55,000,000 (in US$ equivalent) credit line for
purchases covered by Hermes export credit agency.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction:
•Amending PJSC Tatneft’s liabilities in parts concerning distribution of assets and
acquisitions. The guarantee provided by PJSC Tatneft named after V.D.Shashin
shall remain in full effect.
•Beneficiary: AO TANECO
Transaction parties: PJSC Tatneft named after V.D. Shashin, AO TANECO,
CITIBANK Europe UK Branch
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as a controller of AO
TANECO
Full Name
PJSC Tatneft named
after V.D. Shashin
N.U. Maganov Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
R.K. Sabirov
Member of the Board of Directors
AO TANECO
Member of the
Board of Directors
(Chair)
Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
N.M. Glazkov
Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
Transaction value: n/a
Due date: Until the parties fully fulfil their obligations.
302
303
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Transaction
date
Transaction
approval date
The corporate body
that approved or
ratified the
transaction
15/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
27/06/2017
26/05/2017
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: зPurchase and sale agreement between PJSC
Tatneft named after V.D.Shashin and PJSC Zenit Bank on the bank’s additional issue
of shares.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Purchase of
PJSC Zenit Bank’s additional issue of shares.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank.
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit Bank
controller.
Full Name
PJSC Tatneft named
after V.D. Shashin
N.U. Maganov Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
PJSC
Zenit Bank
Chairman
of the Board of
Directors
N.Z. Syubayev Member of the collegial executive body Member of the
Sh.F. Takhaut-
dinov
Member of the Board of Directors
Board of Directors
Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
Transaction value: RUB 14,000,000,000 (fourteen million), which is 1.86% of the
book cost of the Company’s assets as of 31/03/2017.
Due date: Until the parties fully fulfil their obligations.
Subject matter of the transaction: Purchase and sale agreement between PJSC
Tatneft named after V.D.Shashin and PJSC Ak Bars Bank on the bank’s additional
issue of shares.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Purchase of
PJSC Ak Bars Bank’s additional issue of shares.
Transaction parties: PJSC Tatneft named after V.D. PJSC Ak Bars Bank
Interested parties:
Full Name
PJSC Tatneft named
after V.D. Shashin
V.Yu.Sorokin
Member of the Board of Directors
PJSC
Ak Bars Bank
Chairman of the
Board of Directors
N.Z. Syubayev Member of the collegial executive body Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
1
2
3
Transaction value: not more than RUB 5,000,000,000 (five billion), which is 0.67%
of the book cost of the Company’s assets as of 31/03/2017.
Due date: Until the parties fully fulfil their obligations.
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
16/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: Signing of an agreement on termination of the
subordinated deposit No 12-002/2008 of 06/03/2008 and repayment of the subordi-
nated deposit.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Termination of
Subordinated Loan Agreement No 12-002/2008 of 06/03/2008 and early repayment of
the subordinated deposit:
• Deposit amount: US$ 14,000,000.00 (fourteen million and 00/100).
• Interest rate: annual 8% of the deposit amount.
• The agreement shall be terminated after the approval of early repayment of the
subordinate deposit by the Bank of Russia.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank.
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit Bank
controller
Full Name
PJSC Tatneft named
after V.D. Shashin
N.U. Maganov Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
PJSC
Zenit Bank
Член совета
директоров
(председатель)
N.Z. Syubayev Member of the collegial executive body Member of the
Sh.F. Takhaut-
dinov
Member of the Board of Directors
Board of Directors
Member of the
Board of Directors
E.A. Tikhturov Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
Transaction value: US$ 14,000,000.00 (fourteen million), which is 0.11% of the book
cost of the Company’s assets as of 31/03/2017.
Due date: After the approval of early repayment of the subordinate deposit by the
Bank of Russia.
304
305
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
16/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: termination of the agreement on subordinated
deposit No 12-001/2008 of 06/03/2008 and repayment of the subordinated deposit.
СSubstance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Termination of
Subordinated Loan Agreement No 12-001/2008 of 06/03/2008 and early repayment of
the subordinated deposit:
• Deposit amount: US$ 20,200,000.00 (twenty million, two hundred thousand and
00/100).
• Interest rate: annual 8 % of the deposit amount.
• The agreement shall be terminated after the approval of early repayment of the
subordinate deposit by the Bank of Russia.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank.
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit Bank
controller
Full Name
1
N.U. Maganov
PJSC Tatneft named
after V.D. Shashin
PJSC Zenit Bank
Member of the Board of Directors,
member of the collegial executive
body (Chair), individual executive
body
Chairman
of the Board of
Directors
2
3
4
N.Z. Syubayev
Member of the collegial executive
body
Member of the
Board of Directors
Sh.F. Takhautdinov Member of the Board of Directors
Member of the
Board of Directors
E.A. Tikhturov
Member of the collegial executive
body
Member of the
Board of Directors
Transaction value: US$ 20,200,000.00 (twenty million and two hundred thousand),
which is 0.16% of the book cost of the Company’s assets as of 31/03/2017.
Due date: after the approval of early repayment of the subordinate deposit by the
Bank of Russia.
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
16/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction:Signing of an agreement on termination of the
subordinated deposit agreement No 12-003/2008 of 08/04/2008 and repayment of the
subordinated deposit.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Termination of
Subordinated Loan Agreement No 12-003/2008 of 08/04/2008 and early repayment of
the subordinated deposit:
• Deposit amount: RUB 406,500,000.00 (four hundred and six million, five hundred
thousand and 00/100).
• Interest rate: annual 9% of the deposit amount.
• The agreement shall be terminated after the approval of early repayment of the
subordinate deposit by the Bank of Russia.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank.
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit Bank
controller
Full Name
1
N.U. Maganov
PJSC Tatneft named
after V.D. Shashin
PJSC Zenit Bank
Member of the Board of Directors,
member of the collegial executive
body (Chair), individual executive
body
Член совета
директоров
(председатель)
2
3
4
N.Z. Syubayev
Member of the collegial executive
body
Member of the
Board of Directors
Sh.F. Takhautdinov Member of the Board of Directors
Member of the
Board of Directors
E.A. Tikhturov
Member of the collegial executive
body
Member of the
Board of Directors
Transaction value: RUB 406,500,000.00 (four hundred and six million, five hundred
thousand and 00/100), which is 0.06% of the book cost of the Company’s assets as of
31/03/2017.
Due date: after the approval of early repayment of the subordinate deposit by the
Bank of Russia.
306
307
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
16/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of an agreement on termination
of the subordinated deposit agreement No 12-001/2013 of 15 January 2013 and
repayment of the subordinated deposit.
Substance of the transaction, including civil rights and obligations
to be established, modified or terminated under the transaction:
Termination of the agreement on subordinated deposit No 12-001/2013 of 15
January 2013 and early repayment of the subordinated deposit.
• Deposit amount: RUB 3,600,000.00(three billion, six hundred million and
00/100).
• Interest rate: annual 15 % of the deposit amount.
• The agreement shall be terminated after the approval of early repayment of
the subordinate deposit by the Bank of Russia.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank.
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit
Bank controller
Full Name
PJSC Tatneft named
after V.D. Shashin
PJSC Zenit Bank
1
N.U. Maganov
Member of the Board of
Directors, member of the
collegial executive body (Chair),
individual executive body
Chairman
of the Board of
Directors
2
3
4
N.Z. Syubayev
Member of the collegial
executive body
Sh.F. Takhautdinov Member of the Board of
E.A. Tikhturov
Directors
Member of the collegial
executive body
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Transaction value: RUB 3,600,000,000.00 (three billion, six hundred million and
00/100), which is 0.51% of the book cost of the Company’s assets as of 31/03/2017.
Due date: after the approval of early repayment of the subordinate deposit by the
Bank of Russia.
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
16/06/2017
17/05/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of an agreement on termination of the
agreement on subordinated deposit No 0002/30/681/12-004/2008 of 08/07/2008 and
repayment of the subordinated deposit.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Termination of
the agreement on subordinated deposit No 0002/30/681/12-004/2008 of 08/07/2008
and early repayment of the subordinated deposit:
• Deposit amount: RUB 1,500,000,000.00 (one billion, five hundred million and
00/100).
• Interest rate: annual 15 % of the deposit amount.
• The agreement shall be terminated after the approval of early repayment of the
subordinate deposit by the Bank of Russia.
Transaction parties: PJSC Tatneft named after V.D. Shashin and PJSC Zenit Bank
Interested parties:
Public Joint Stock Company Tatneft named after V.D. Shashin as the PJSC Zenit Bank
controller
Full Name
1
N.U. Maganov
PJSC Tatneft named
after V.D. Shashin
PJSC Zenit Bank
Member of the Board of Directors,
member of the collegial executive
body (Chair), individual executive
body
Chairman
of the Board of
Directors
2
3
4
N.Z. Syubayev
Member of the collegial executive
body
Member of the
Board of Directors
Sh.F. Takhautdinov Member of the Board of Directors
Member of the
Board of Directors
E.A. Tikhturov
Member of the collegial executive
body
Member of the
Board of Directors
Transaction value: RUB 1,500,000,000,000.00 (one billion, five hundred million and
00/100), which is 0.21% of the book cost of the Company’s assets as of 31/03/2017.
Due date: after the approval of early repayment of the subordinate deposit by the
Bank of Russia.
308
309
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
31/12/2017
24/08/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of immovable assets purchase and sale
agreement between PJSC Tatneft and AO TANECO.
26/12/2017
26/10/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of immovable assets purchase and
sale agreement between PJSC Tatneft and AO TANECO.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Alienation of immov-
able assets to AO TANECO on the following essential terms:
• Immovable asset: Main step-down substation, title 122/3.
Transaction parties: PJSC Tatneft named after V.D. Shashin and AO TANECO.
Interested parties: Public Joint Stock Company Tatneft named after V.D. Shashin as a
controller of AO TANECO .
Full Name
N.U. Maganov
PJSC Tatneft named
after V.D. Shashin
AO TANECO
Member of the Board of Directors,
member of the collegial executive body
(Chair), individual executive body
Member of the
Board of Directors
(Chair)
R.K. Sabirov
Member of the Board of Directors
E.A. Tikhturov
Member of the Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
N.M. Glazkov
Member of the collegial executive body Member of the
Board of Directors
V.D. Ershov
Member of the collegial executive body Member of the
Board of Directors
1
2
3
4
5
Transaction value: RUB 1,150,142,837.16 (one billion, one hundred and fifty million,
one hundred and forty two thousand, eight hundred and thirty seven and 16/100),
which is 0.15% of the book cost of the Company’s assets as of 30/06/2017.
Due date: 31/12/2018
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Alienation of
immovable assets to AO TANECO on the following essential terms:
• Light Naphtha Isomerisation Unit, Title 007, Section 1800.
Transaction parties: PJSC Tatneft named after V.D. Shashin and AO TANECO
Interested parties: Public Joint Stock Company Tatneft named after V.D. Shashin
as a controller of AO TANECO
Transaction value: RUB 6,076,292,284.33 (six billion, seventy six million, two
hundred and ninety two thousand, two hundred and eighty four and 33/100), which is
0.79% of the book cost of the Company’s assets as of 30/06/2017.
Due date: 31/05/2018
26/12/2017
30/11/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: : Signing of immovable assets purchase and
sale agreement between PJSC Tatneft and AO TANECO.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: Alienation of
immovable assets to AO TANECO on the following essential terms:
• Immovable asset: Thermal Clamping Water and Heating Water Station, Title 139/2, Section 7550
Transaction parties: PJSC Tatneft named after V.D. Shashin and AO TANECO
Interested parties: Public Joint Stock Company Tatneft named after V.D. Shashin
as a controller of AO TANECO.
Transaction value: RUB 923,035,010.21 (nine hundred and twenty three million,
thirty five thousand and ten and 21/100) which is 0.12 % of the book cost of the Com-
pany’s assets as of last accounting reporting date 30/09/2017.
Due date: 31/05/2018
31/12/2017
28/09/2017
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of immovable assets purchase and
sale agreement between PJSC Tatneft and AO TANECO.
29/12/2017
30/01/2018
PJSC Tatneft
Board of Directors
Subject matter of the transaction: Signing of a movable and immovable assets
purchase and sale agreement between PJSC Tatneft named after V.D.Shashin and
OOO Alabuga-2.Neftekhimiya (Petrochemicals) Management Company.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: : Alienation of
immovable assets to AO TANECO on the following essential terms:
• Immovable asset:
Pipe Racks with Off-plot Process Piping and Steam Pipelines (Title 070, Section
0903)
Transaction parties: PJSC Tatneft named after V.D. Shashin and AO TANECO.
Interested parties: Public Joint Stock Company Tatneft named after V.D. Shashin as
a controller of AO TANECO.
Transaction value: : RUB 830,648,332.08 (eight hundred and thirty million, six
hundred and forty eight thousand, three hundred and thirty two and 08/100), which is
0.11% of the book cost of the Company’s assets as of 30/06/2017.
Due date: 31/12/2018.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction:
Alienation of movable and immovable assets of OOO Alabuga-2.Neftekhimiya (Petro-
chemicals) Management Company on the following essential terms:
• Immovable asset: Pet Coke Loading Station.
Transaction parties: PJSC Tatneft named after V.D. Shashin and OOO Alabuga-2.
Neftekhimiya (Petrochemicals) Management Company
Interested parties: Public Joint Stock Company Tatneft named after V.D. Shashin as
a controller of OOO Alabuga-2.Neftekhimiya (Petrochemicals) Management Company.
Transaction value: RUB 578,593,031.00 (five hundred and seventy eight million, five
hundred ninety three thousand, thirty one and 00/100) (without VAT), which makes 0.076%
of the book cost of the Company’s assets as of the accounting reporting date 30/09/2017.
Due date: : Until the parties fully fulfil their obligations.
310
311
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
23/08/2017
30/01/2018
PJSC Tatneft
Board of Directors
23/08/2017
30/01/2018
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject matter of the transaction: A non-arm’s length transaction whereby PJSC
Tatneft named after V.D.Shashin (the Company) signs a Waiver Letter of 23 August
2017 for a framework agreement of 30/05/2013 on establishing credit lines of EURO
55,000,000 in US$ equivalent covered by Hermes expert credit agency.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction:modification of
liabilities in the Clauses 29 . 18 (Loans and Credits), 29 . 19 (Disclaimer of guarantees
and compensation), and 29 . 22 (Transactions with own shares) of the Contract of
30/05/2013. The guarantee provided by PJSC Tatneft named after V.D.Shashin shall
remain in full effect.
Transaction parties:TANECO Joint-stock Company as a Borrower, PJSC Tatneft
named after V.D. Shashin as a Guarantor and CITIBANK EUROPE PLS UK BRANCH as
a Documentation Agent
• Beneficiary: AO TANECO.
Interested parties: Public Joint-stock Company Tatneft named after V.D. Shashin
as a controller of AO TANECO.
Transaction value: n/a
Due date: Until the parties fully fulfil their obligations.
Subject matter of the transaction: : A non-arm’s length transaction whereby
PJSC Tatneft named after V.D.Shashin (the Company) signs a Waiver Letter of 23
August 2017 under an agreement on establishing a credit line of USD 75,000,000
covered by EKF expert credit agency on 15 November 2011.
Substance of the transaction, including civil rights and obligations to be
established, modified or terminated under the transaction: modification of
liabilities in the Clauses 26.16 (Loans and Credits), 26.17 (Disclaimer of guarantees
and compensation), and 26.20 (Transactions with own shares) of the Contract of 15
November 2011. The guarantee provided by PJSC Tatneft named after V.D.Shashin
shall remain in full effect.
Transaction parties: TANECO Joint-stock Company as a Borrower, PJSC Tatneft
named after V.D. Shashin as a Guarantor and NORDEA BANK AB (PUBL) as a
Documentation Agent
• Beneficiary: AO TANECO.
Interested parties: Public Joint-stock Company Tatneft named after V.D. Shashin
as a controller of AO TANECO.
Transaction value: n/a
Due date: Until the parties fully fulfil their obligations.
Transaction
date
Transaction
approval
date
The corporate body
that approved or
ratified the
transaction
12/07/2017
30/01/2018
PJSC Tatneft
Board of Directors
Information about the person(s) interested in the transaction,
subject matter of the transaction, and its essential terms
Subject mat ter of the transaction: A non-arm’s length transaction
whereby PJSC Tatneft named after V.D.Shashin (the Company) signs a Waiver
Letter of 12 July 2017 for a framework agreement of 15 November 2011 on
establishing a credit line of USD 144,480,000 covered by SACE expert credit
agency.
Substance of the transaction, including civil rights and obligations
to be established, modified or terminated under the transaction:
modification of liabilities in the Clauses 30.17 (Loans and Credits), 30.18
(Disclaimer of guarantees and compensation), and 30.21 (Transactions with
own shares) of the Contract of 15 November 2011. The guarantee provided by
PJSC Tatneft named after V.D.Shashin shall remain in full effect.
Transaction par ties: TANECO Joint-stock Company as a Borrower, PJSC
Tatneft named after V.D. Shashin as a Guarantor and SOCIE TE GENER ALE as
a Documentation Agent;
• Beneficiar y: AO TANECO
Interested par ties: Public Joint-stock Company Tatneft named after V.D.
Shashin as a controller of AO TANECO.
Transaction value: n/a
Due date: Until the parties fully fulfil their obligations.
2. 2. Extraordinary transactions in the reporting year
No extraordinary transactions carried out in 2017.
The present report is to be published by the Company pursuant to the Articles 52 and 81 of the Federal Law
on Joint-Stock Companies 208-FZ of 26/12/1995.
The report is also to be included in the materials to be distributed among the persons entitled to participate
the Company’s annual general meeting of shareholders for information purposes.
The Board of Directors considered the “Report of Non-arm’s Length Transactions Carried out by PJSC Tat-
neft named after V.D.Shashin in 2017 “ at the meeting on April 24, 2018 and made the following resolution:
To approve the “Report of Non-arm’s Length Transactions Carried out by PJSC Tatneft named after
V.D.Shashin”.
312
313
PJSC Tatneft 2017 Annual Report ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICY REGISTER OF COMPULSORY DISCLOSED INFORMATION OF TATNEFT IN 2017
No. in
sequence
Message content
Disclosure date
TECHNOLOGIES AND INNOVATIONS
REGISTER OF TECHNOLOGIES
Message on the disclosure of the list of affiliates of the joint-stock company on the
internet website
09.01.2017, 03.04.2017, 03.07.2017, 03.10.2017
Information on the essential fact «On Holding the Meeting of the Board of Directors
(Supervisory Board) of the Issuer and the Agenda Thereof»
18.01.2017,15.02.2017, 22.02.2017, 14.03.2017,
20.04.2017, 19.05.2017, 22.05.2017, 14.06.2017,
18.07.2017, 14.08.2017, 18.09.2017, 20.10.2017,
30.10.2017, 22.11.2017, 18.12.2017
Brief description
Business challenge name
Summary on technological efficiency
Summary on economic efficiency,
including in RUB million per unit
facility or other
Implementation
volumes in 2017
1
2
3
4
5
Innovative technologies in oil and gas exploration
Message about the procedure for access to information contained in the quarterly
report
10.02.2017, 12.05.2017, 11.08.2017, 10.11.2017
1. Method of additional study of the structural plan of a hydrocarbon reservoir
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Message about the essential fact «On the Particular Resolutions Adopted by the
Board of Directors (Supervisory Board) of the Issuer»
22.02.2017, 27.02.2017, 20.03.2017, 27.04.2017,
18.05.2017, 29.05.2017, 29.05.2017, 23.06.2017,
23.06.2017, 24.08.2017, 28.09.2017, 26.10.2017,
07.11.2017, 30.11.2017, 22.12.2017
Message about the essential fact «On Convening and Holding a General Meeting of
Members (Shareholders) of the Issuer»
22.02.2017, 07.11.2017
Message about the essential fact «On the Date on Which Persons Having the Right
to Exercise Rights Attributed to Issue-Grade Securities of the Issuer Are to Be
Determined, including the Date on which the List of Persons Having the Right to Take
Part in a General Meeting of the Shareholders of the Issue Is to Be Decided»
22.02.2017, 07.11.2017
Message about the essential fact «Information to Be Sent beyond the Borders of the
Russian Federation for the Disclosure Thereof to Foreign Investors in Connection
with the Placement or Circulation of Issue-Grade Securities of the Issuer beyond the
Borders of the Russian Federation»
22.02.2017, 28.02.2017, 03.04.2017, 27.04.2017,
28.04.2017,15.05.2017, 29.06.2017
Message about disclosure of the annual accounting statements of the joint-stock
company on the website
29.03.2017
Message about the essential fact of disclosure by the issuer of the consolidated
accounting (financial) statements and submission of the audit opinion prepared with
respect to such statements
03.04.2017
Message about disclosure of the intermediary accounting statements of the joint-
stock company on the website
28.04.2017, 28.07.2017, 30.10.2017
Message about disclosure of consolidated financial statements under IFRS (for
three months that ended on March 31, 2017, for three and six months that ended on
June 30, 2017, for three and nine months that ended on September 30, 2017)
08.06.2017, 25.08.2017, 30.11.2017
Message about the occurrence of an organization controlled by the issuer holding
essential value for the issuer
16.06.2017
Message about the receipt by the issuer of the right to dispose of a certain number
of votes falling on voting shares that constitute the authorized capital of a separate
organization
16.06.2017, 27.06.2017
Message about the essential fact «Other Message»
26.06.2017
Message about the essential fact «Information on Resolutions of General Meetings»
28.06.2017, 14.12.2017
Message about the essential fact «On Profits Accrued on Issue-Grade Securities»
28.06.2017, 14.12.2017
Message about the essential fact «On the Date on Which the Persons Holding the Right
to Exercise Rights under Registered Issue-Grade Securities Are to Be Determined»
28.06.2017, 14.12ю2017
Message about the procedure for access to information contained in the annual
report
Message about the essential fact «On the Assignment or Change of the Issuer's
Rating by the Rating Agency under the Concluded Agreement"
28.06.2017
19.07.2017
Message about the essential fact «On Profits Paid on Issue-Grade Securities of the
Issuer»
11.08.2017
Message about the essential fact «On the Failure to Fulfill the Issuer's Obligations
before the Owners of Issue-Grade Securities»
11.08.2017
Message about the essential fact «On Information Having, in the Issuer's Opinion, an
Essential Impact on the Cost of its Issue-Grade Securities»
04.12.2017
UNDER INTERNATIONAL STANDARDS (IN THE FORM OF PRESS RELEASES AND THE PUBLICATION OF FINANCIAL STATEMENTS
PURSUANT TO THE RULES OF THE LONDON STOCK EXCHANGE)
23.
24.
25.
26.
Publication of the annual financial statement under IFRS for 2016
Publication of the consolidated intermediate abbreviated financial statements under
IFRS for three months of 2017 (nonaudited)
03.04.2017
08.07.2017
Publication of the consolidated intermediate abbreviated financial statements under
IFRS for six months of 2017 (nonaudited)
25.08.2017
Publication of the consolidated intermediate abbreviated financial statements under
IFRS for nine months of 2017 (nonaudited)
30.11.2017
During the development of oil slightly proven reservoir,
a drilling-out reservoir is done with wide planned well
spacing, choosing products through recovery wells and
the discharge pumping of a working agent through the
injection wells.
The proposal relates
to the gas and oil producing
industry and can be
used during the involve-
ment of nondraining
reserves of a slightly
proven oil reservoir.
Ensures the possibility for the optimi-
zation of recovery and injection wells,
a decrease in financial costs, and the
exclusion of the drilling of empty and
water wells.
EBITDA growth since the financing
date: RUB 12.061 million
2. Technology of development of particular lenticels and reservoirs at the late phase with wells with a horizontal ending
During the development of an oil reservoir, an essential
part of the oil reserves remains in the reservoir due to the
incomplete coverage of productive strata with the effect
of recovery and injection wells.
The proposal relates to
the gas and oil producing
industry and can be used
during the involvement of
nondraining reserves of a
slightly proven reservoir.
The technology of development of
particular lenticels and reservoirs
at the late phase with a well with a
horizontal ending is complex and
provides for the use of new methods
of oil deposit development based on
the drilling of horizontal wells.
Innovative technologies in the construction of wells
EBITDA growth since the financing
date: RUB 1,611 million
1. Drilling of directional wells with a small diameter for Devonian stratum
In 2017, the project “Decrease in the Cost of Construction
of Directional Wells for Devonian Stratum by Choosing the
Optimal Structure” was launched
Construction of wells
1) Decrease in costs of a drilling
1) Decrease in the cost of a well by
contractor.
2) Increase in mechanical speed.
3) Decrease in metal intensity of well
structure.
4) Optimization of costs for downhole
drilling motor.
5) Optimization of costs for solution
service
18.2% from RUB 41.6 million to RUB
34.0 million
2) Increase in mechanical speed by
55% (Vmech=25.1 m/h with an
average of 11.3 m/h [shortening of
drilling time, 3.6 days {1.16 million
rubles}]).
3) Decrease in metal intensity of well
structure: RUB 1.16 million
4) Optimization of costs for downhole
drilling motor: RUB 0.3 million
5) Optimization of costs for solution
service: RUB 0.227 million
Well no. 329 NGDU
Nurlatneft,
1 well NGDU
Aznakayevskneft,
1 well (No. 52) of
Lubochnoye
deposits
Tatneft-Samara.
Wells Nos. 8441;
8442; 8443; and
8430 NGDU Nur-
latneft.
3 wells (Nos. 20106,
21180, 32415 NGDU
Almetyevneft)
2. Application of rotary steerable systems (RSS) and well logging during drilling
The tools that make it possible to achieve the best results
in the drilling of horizontal wells are rotary steerable
systems accompanied by well logging during drilling
Construction of
wells
1) Speed increase in horizontal shaft.
2) Drilling time optimization due to
the refusal of final well logging
and working-through before shank
running
1) The actual economy was 465
thousand rubles per 1 well.
2) Increase in average mechanical
speed in horizontal shaft was 260%.
3) A Wiper trip was not performed
Well No. 28800
NGDU
Aznakayevskneft
during drilling.
4) Final well logging and shaft working-
through before shank running
Innovative technologies in oil and gas production
1. Reservoir dual completion
Application of dual completion of two and more reservoirs
of the same well.
5% decrease in power con-
sumption by the recovery
well fund for liquid lifting.
Application of plants for dual comple-
tions provides the following benefits:
- Simultaneous operation of several
development facilities (reservoirs)
with different reservoir properties
and oil features
- Increase in profitability of particular
wells due to the involvement of other
development facilities or reservoirs
of the same development facility
with different reservoir properties
In Tatneft, 2,075 wells are operated
pursuant to PDC and P & IDC technol-
ogy. The total additional production for
wells with PDC and P & IDC since the
beginning of plant operation amounted
to 14.5 million tons.
In Tatneft, PDC and
P & IDC technologies
are implemented on
409 wells. The total
additional production
for wells with PDC
and P & IDC for 2017
amounted to 2.095
million tons.
314
315
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 1
2
3
4
5
1
2
3
4
Application of advanced technologies and equipment at production of SVO
1. Vapor flow regulator RRP-100
Vapor flow regulator of RRP-100 type is designated for the
regulation of vapor injection volumes in steam-injection
wells of oil deposits located in regions with a moderate
climate at a free air temperature ranging from
– 40 to + 40 °С pursuant to GOST 16350-80.
Decrease in
operating costs.
The savings from the application of
the consumption regulator under
development are achieved due to
a decrease in working hours for
servicing, a decrease in the number
of inspections of regulator operation,
and a decrease in the costs for
acquisition of expensive spare parts
and materials.
2. Washing well shaft with aerated liquid
The presence of clay mud in a well shaft after drilling and
the generation and depositing of CaCO3 and mechanical
impurities on well shafts during their operation results in
the locking and shut-down of the electrical submersible
pumping (ESP) system.
Decrease in unit costs
(without depreciation) for
SVO production from RUB
13,000 per ton to RUB
6,500 per ton.
To solve this problem, the well shaft
is washed before implementation of
the pumping unit to ensure circulation
and carry-over of impurities and sedi-
ments with aerated liquid.
Due to washing the well shaft with
aerated liquid, unscheduled repairs of
pumping units resulting jams of sedi-
ments of calcium carbonate, clay, and
mechanical impurities are excluded.
The economic effect of the realization
of this idea is RUB 0.620 million.
3. Decrease in the number of running repairs of SVO wells due to the replacement of electrical submersible
Repairs caused by the pump choking with mechanical im-
purities that mainly consist of clay and carbonate particles
account for over 30% of all running repairs performed on
SVO wells. Finely divided particles coming into clearances
of moving elements cause jams in the pump shaft, and
various repair works (direct flushing, rotation direction
change, etc.) are unlikely to provide the required result.
As such, in the event of regular well reconditioning, a
set of expensive and extended measures for cleaning
a well shaft is performed that does not guarantee the
subsequent failure-free operation.
Almost all the recovery of wells operating under UETsN
(ESP System)-125 and 160 with delivery heads of 300
and 400 meters are equipped with ESM with a capacity
of 16 kW
Decrease in unit costs
(without depreciation) for
SVO production from RUB
13,000 per ton to RUB
6,500 per ton
To decrease the number of running
repairs of SVO wells due to pump
choking with mechanical impurities,
we propose to replace ESM with a
capacity of 12 kW and 16 kW with
ESM with a capacity of 22 kW, which
will ensure the reliable operation
of the plant in abnormal operating
conditions
Implementation of this proposal will
make it possible to resolve the issue
of a decrease in the number of repairs
of SVO wells, revisions of immersed
plants by a servicing company, the
number of well reconditioning teams
and the costs of downhole pumping
equipment. The economic effect from
the realization of this idea is RUB 0.498
million per well
One prototype
model of RRP-100
was implemented in
NGDU Nurlatneft
22 wells
78 wells
4. Use of screw pumps metal by metal manufactured by LLC Spetstekhnika-Almetyevsk on vapor cyclic wells.
At the present, vapor cyclic wells are operated on SVO
wells. The main principle of these wells is a regular vapor
injection after a decrease in temperature along the well
shaft. For that, it is necessary to extract downhole pump-
ing equipment and lower tubing down for injection. The
high content of vapor-gas mixture in vapor cyclic wells on
ordinary pumps (ESP) causes frequent pump starvation.
It is also necessary to perform the assembly of the hoist
unit and to raise the downhole pumping equipment,
resulting in additional costs.
Decrease in unit costs
(without depreciation) for
SVO production from RUB
13,000 per ton to RUB
6,500 per ton.
23 wells
To decrease the number of running
repairs of SVO wells due to vapor in-
jection transfer, we propose perform-
ing the implementation of sucker-rod
screw pumping units manufactured
by LLC Spetstekhnika-Almetyevsk on
vapor cyclic wells and performing the
transfer for injection by extraction of
the rotor from the stator with a motor-
ized crane.
Implementation of this proposal will
make it possible to resolve the issue
of a decrease in the number of repairs
of SVP wells due to vapor injection
transfer and a revision of immersed
plants by a servicing company and the
number of well reconditioning teams.
The economic effect from the realiza-
tion of this idea is RUB 0.707 million
per 1 well per year.
Application of advanced technologies and equipment in the automated process control system
1. Movable automatic sampler for recovery wells
The oil and gas production unit determines and
forecasts oil water-cut based on a sample taken from a
product stream on a well collar by a manual sampler with
subsequent analysis in a stationary laboratory. Although
many wells are produced “by portions,” oil water-cut and
content may differ significantly over time. Retaining third-
party organizations, for example, LLC Tatintek, for making
measurements, is quite expensive. The application of
full-fledged measuring units comprising AP is not always
justified for resolution of narrow tasks like determining
product water-cut and taking daily samples. To decrease
operating costs, it is proposed to install in each produc-
tion field a movable automatic sampler pursuant to GOST
2517.
Decrease in
operating costs.
Ensuring reliable information on well
debit.
9 items
Costs for implementation:
RUB 374 thousand
Effect period: 9 years
Net present value: RUB 10.128 million
DPI = 3.692 unit fraction
Recoupment period: 1 year
Decrease in
operating costs.
Ensuring the reliability of power
resource metering.
Costs for implementation:
RUB 15 thousand
Effect period: 8 years
Net present value: RUB 2.379 million
DPI = 4.904 unit fraction
Recoupment period: 0.37 year
2. Ensuring the working capacity of the vapor meter
NGDU Aznakayevskneft consumes vapor from the boiler
system of heat networks for the technological needs of
the oil preparation shop. The commercial heat energy
(vapor) metering station on the basis of vortex meter
EMIS-Vikhr-200 with calculator TEKON-19 has been
installed on the boundary of the connection to networks.
Based on the reading of the energy quantity from the
calculator for a month, daily regular abnormal situations
in operation of the metering station were detected. To
conduct measurements correctly, a single-phase gas
medium (without liquid component) at the place of instal-
lation of the metering station is required. The only method
to resolve this is to ensure a single-phase gas medium at
the points of installation of metering stations. To eliminate
reasons and to ensure a single-phase medium (vapor),
automatic condensate discharge was proposed and
implemented.
5
10 items
27 items
2 items
Costs for implementation:
RUB 6 thousand
Effect period: 5 years
Net present value: RUB 392 thousand
DPI = 1.039 unit fraction
Recoupment period: less than 1 year
Costs for implementation:
RUB 1,040 thousand
Effect period: 5 years
Net present value:
RUB 46,963 thousand
DPI = 1.595 unit fraction
Recoupment period: less than 1 year
3. The liquid chemical reagent feeding system and the method of reagent counting therein
The liquid chemical reagent feeding system and the
method of reagent counting therein.
Decrease in
operating costs.
Decrease in costs for inhibitory
protection of pipelines.
4. Optimization of the oil metering mechanism for VAT differentiation with application of a block-modular measuring system
Decrease in
operating costs.
Optimization of
operating costs.
As strategic initiatives, NGDU Prikamneft proposes to
reconsider the oil metering mechanism for the Azevo-
Salaushskoye, Yelabuzhskoye, Zychebashskoye deposits,
combining them in one common mechanism, the imple-
mentation of which provides for: - Starting June 1, 2016,
the rejection of the complex service provided by contract-
ing entities and the holding of a tender for technical
design assignment only for technical servicing (including
POS) and metrological support of measuring tools and the
automation equipment of flour block-modular measuring
systems - An increase in the number of staff of NGDU
(in aggregate for 3 projects) by 3 persons: engineer-
ing employee, maintenance technician, chemistry lab
technician; organizing the remote access of operators of
four block-modular measuring systems to the automated
workplace for 24x7 monitoring of their work and launch
of an automated sampler by a dispatch operator of the oil
and gas production unit at 0:00 daily; the acquisition of
NIVA vehicle on the balance of NGDU for daily attendance
of four block-modular measuring systems by new person-
nel of NGDU; the acquisition of the second automated
sampler for the block-modular measuring system of the
Yelabuzhskoye deposit. Implementation of this project will
not result in the change of oil mass calculation.
1. Acceleration of the well-control equipment assembly pursuant to the OP-4 and OP-5 scheme
Innovative technologies in supervising
In 2017, the project “Acceleration of the Well-Control
Equipment Assembly Pursuant to the OP-4 and OP-5
Scheme” was implemented by the Supervising Depart-
ment
Construction of wells
1. Based on the project implementa-
tion results, the time needed for the
well-control equipment assembly
pursuant to the OP-4 and OP-5
scheme decreased by 8 hours as
compared to the standard time.
2. The decrease in costs was RUB
160 thousand per well.
2 wells (No. 32260
NGDU Almetyevneft,
No. 1076Р NGDU
Yelkhovneft)
The well-control equipment assembly
process pursuant to the OP-4 and
OP-5 scheme is time consuming.
To accelerate the well-control equip-
ment assembly process pursuant to
the OP-4 and OP-5 scheme, the tech-
nical specifications for manufacturing
the following items were developed:
- Blowout-prevention manifold with a
quick-release connection
- Drill spool adaptor
- Portable holder with concrete
foundation The technical specifica-
tions for the assembly and operating
action plan for assembly personnel
have been developed.
One set of equipment was prepared
pursuant to the technical specifica-
tions. Pilot developments were
performed within the framework of
the project.
316
317
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report 1
2
3
4
5
1
2
3
4
5
innovative technologies in pipeline transportation
innovative technologies in the retail network
- Increase in the service life of
pipelines up to 20 years
Up to RUB 100 thousand per km per
annum.
134.44 km
1. Application of MPT-K tubes
A metal tube with noses from corrosion-resistant steel,
MPT-K is a tube protected from the effect of the trans-
ported medium by an internal polyethylene sheath and
from soil corrosion by external polymeric insulation. The
ends of the polyethylene sheath are fastened with noses
from corrosion-resistant steel. MPT-K are designated
for construction of field and technological pipelines
transporting water-cut oil of the coal-bearing type, waste
and fresh waters.
2. Application of TPS-U tubes
A tube with an internal and external corrosion-resistant
coating protected by a plug and sealing, TPS-U is a steel
tube with external double-layer insulation and internal
corrosion-resistant coating on an epoxide basis. To pro-
tect the internal area of the welded joint from corrosion,
protective plugs with sealing elements were used. TPS-U
are designated for the construction of pipelines with a
reservoir pressure maintenance system and an in-field
flow line system.
Decrease in unit costs
for the construction and
overhaul of water conduits
for the RPM system.
Decrease in costs for
the construction of oil
pipelines.
- Decrease in maintenance costs and
costs for the liquidation of outbursts
and pipeline repairs
- Perfection of environmental condi-
tions in the areas of transportation of
corrosive mediums
- High degree of protection of the
internal area of the welded joint
- Increase in the service life of
pipelines up to 20 years
- Decrease in maintenance costs and
costs for the liquidation of outbursts
and pipeline repairs
- Perfection of environmental condi-
tions in the areas of transportation of
corrosive mediums
Innovative technologies in well stream preparation
Decrease in unit costs for
processing from
~ RUB 100 per ton of oil
by 2%
Based on the results of pilot tests
of the technology in the RVS-1 of
Tikhonovskiy TP NGDU Almetyevneft,
the volume of bottom sediments
decreased twofold, and the additional
volume of the extracted liquid hydro-
carbon phase (oil) was 503 m3.
Based on the calculation of the
feasibility of the implementation of the
technology of processing of bottom
sediments in RVS-1 Tikhonovskiy TP
NGDU Almetyevneft, the net
present value and annual average
economic effect of the project are
RU 4,293.3 thousand. Recoupment
period: 1 year.
RVS-1 Tikhonovskiy
TP NGDU
Almetyevneft
Innovative technologies in oil refining
1. Technology for processing bottom sediments in reservoirs
The technology is designated for processing bottom
sediments in reservoirs for the extraction of an additional
volume of liquid oil for the realization of and decrease in
the quantity of sediments that decreases costs for rec-
lamation of bottom sediments. The technology provides
for mixing bottom sediments with a diluting agent with
the subsequent setting-out for division of the mixture into
liquid body and sediment. The technology can be used in
reservoirs equipped with an agitator.
1. Increase of production of KGF (kerosine-gasoil fraction)
In Yelkhov OPU, during the production of kerosine-
gasoil fraction (KGF), straight-run diesel fuel from
atmospheric tower T-101 and light vacuum gasoil (LVG)
from atmospheric tower T-104, section C-100, are used.
Atmospheric gasoil from tower Т-101 contains up to 30%
of the fraction with a boiling temperature up to 360 °С.
By change of the technological scheme, the atmospheric
gasoil flow was redirected to tower Т-104, which allowed
for an increase in the recovery of LVG and, correspond-
ingly, the recovery of KGF.
Up to RUB 150 thousand per km per
annum.
299.53 km
3. Implementation of online processing of the banking transfer system
Implementation of the system for online servicing of
clients of the banking transfer system of Tatneft’s retail
network on the basis of technologies of LLC Open Way
Service to increase the efficiency of the FFS network.
Increase in the volume of
corporate sales of fuel.
1. Implementation of an automated meter reading and control system
Implementation of an automated power consumption
metering system at FFS of the Company for the purpose
of transfer to another tariff, which will enable a decrease
in costs for electric power by 10%.
Decrease in
Costs
Decrease of the tariff due to the
implementation of the automated
meter reading and control system
Decrease in costs for electric power
payment equal to over RUB 2.2 mil-
lion per year in aggregate for four
branches of FFS of LLC Tatneft-FFS
Center.
151 items of the
automated meter
reading and control
system have been
installed
2. Renovation of external and internal appearance of FFS
The design project of external appearance was developed
and approved (32/13 dated March 13, 2017)
An increase in processing
volumes and profit for the
Company.
Renovated external and internal
appearance of FFS. Raising additional
potential clients of FFS
The efficiency assessment will be
performed after completion of the
promotion phase.
LLC Tatneft-FFS
Center: 19 facilities.
The project is in the phase of personal
account elaboration, to be completed
in 2019. After completion of works, the
projected economic effect beginning
from 2019 will be RUB 70 million.
The whole retail
chain in the Russian
Federation
- Management of clients, limits in
online mode
- Enhancement of reliability due to
control over transactions, notifica-
tion, and feedback in online mode
- Improvement of the quality of
services, the ability of the quick
implementation of new services
- Decrease in statutory periods for
client servicing in the banking
transfer system
- Extension of a range of services
in the banking transfer system,
including SS goods, washing, STO at
facilities of the retail network in CBR
for TK TN
4. Implementation of coffee machines with “live” milk and the ability to exercise remote control over equipment operation
Attracting new clients, enhancement of loyalty toward
the brand, and increase of sales of hot drinks at FFS
through installation of coffee machines with “live” milk
and the ability to exercise remote control over equipment
operation
Development of the unit
“Accompanying
service” for the sphere
“Public catering”
A centralized system of collecting,
sequencing, and providing information
to employees about the operation of
coffee machines. A decrease in the
breakdown and down time of coffee
machines. Elimination of misuses by
FFS personnel.
Increase of the profitability of sales of
coffee at FFS by RUB 25.5 million.
Per 1 coffee machine: RUB 0.3
85 coffee machines
with “live” milk have
been installed at
51 FFS.
Increase in production
output
In 2017, the output of KGF was
14,612 tons higher than the output in
2016 by 13,846 tons, or 157.7% higher
than the scheduled output.
The economic effect was
RUB 58.703 million.
The project was
100% implemented
and completed
5. Implementation of self-service car wash
Self-service car wash
Development of the unit
“Accompanying service” for
the sphere “Services”
Decrease in salary costs through
Wash process automation
Extension of service provision time
within 24 hours.
In total, for 17 stations:
RUB 1.105 million.
For 1 station: RUB 0.065 million.
17 stations.
Innovative Technologies in Gas Refining
1. Replacement of contact devices of the butane recovery column K-3 of gas fractionation unit GFU-2
The producing capacity of the butane recovery column
K-3 of gas fractionation unit GFU-2 is not sufficient for
processing the total volume of hydrocarbon fluid from
UNTKR. Implementation of the project will enable the
increase of the production capacity of column К-3 GFU-2
and accept the total volume of hydrocarbon fluid from
UNTKR for gas fractionation and load GFU-300 with an
additional volume of NGL.
An increase in processing
volumes and profit for the
Company.
The actual
production capacity of column K-3
of GFU-2 increased from 5/5 t/h to
8 t/h. GFU-2 accepts the complete
volume of hydrocarbon fluid, which
allowed an increase in the volume of
NGL being processed at GFU-300 by
approximately 50 tons/day.
The actual profit for Q4 amounted to
RUB 42.3 million.
100%
2. Replacement of contact devices of columns К-101, К-201 of the unit for gas purification from hydrogen sulphide USO-1 and the increase of the diameters of pipeline 1’s flow of APG delivery to the
gas refining plant
An increase in the volumes of associated petroleum
gas (APG) delivered to the gas refining plant lead to
an increase of resistance of the column equipment of
the unit for petroleum gas purification from hydrogene
sulphide USO-1 and, as a result, to the growth of pres-
sure in the system of gas and oil recovery of the oil and
gas field operating divisions (NGDY), the deterioration
of conditions for the separation of oil from gas, and the
impossibility of reclamation of the total volume of APG
from NGDU’s facilities.
An increase of processing
volumes and the profit of
the Company.
The actual difference for the column
with a gas flow of 65 thousand m3/h
is 0.13 kgf/cm2. Pressure during ac-
ceptance at the plant decreased from
1.37 to 0.9 kgf/cm2.
The actual profit for Q4 amounted to
RUB 14.712 million.
100%
318
319
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report LIST OF ACRONYMS
PUBLIC JOINT-STOCK COMPANY TATNEFT THROUGHOUT THE TEXT OF THE REPORT IS REFERRED TO AS
TATNEFT, TATNEFT, COMPANY.
Business Idea Auction
Autogas Fueling Station
Almetyevsk State Petroleum Institute
Anode Bed
Fuel Station
Automated Information System
Joint-Stock Company
Basin Water Management Board
Bugulma Mechanical Plant (Tatneft's structural division)
All-Russian Society of Inventors and Innovators
Group Metering Pump Station
Group Metering Station
State Traffic Safety Inspectorate
State Complex Nature Sanctuary
Horizontal Settler
National State Standard
Hydraulic Fracturing
Fuel & Lubricants
Hydraulic Engineering Installations
Community Center
Booster Pumping Station
Children's Holiday Camp
Children's and Youth Sports School
European Union
United Nations Economic Commission for Europe
Reinforced Concrete Tank
Closed Joint-Stock Company
Information System
Corporate Information System
Pad Pumping Station
Kazan (Volga Region) Federal University
Corporate Social Responsibility
Horse Racing School
Minnibayevo Gas Processing Plant
Moscow Interbank Currency Exchange
Metal-Plastic Pipes
Mean Time Between Repair
Enhanced Oil Recovery
Multiphase Pump
Ministry for Emergency Situations
Oil and Gas Field Operating Division (Tatneft's structural division)
Mineral Resource Recovery Tax
Value Added Tax
Nizhnekamsk Tire Plant CMK
Research and Development
Oil Well Tubing
Intangible assets
BIA
AGFS
ASPI
AB
FS
AIS
JSC
BVMB
BMZ
VOIR
GMPS
GMS
GIBDD
SCNS
HS
GOST
HF
F&L
HEI
CC
BPS
CHC
CYSS
EU
UNECE
RCT
CJSC
IS
CIS
PPS
KFU
CSR
HRS
MGPP
MICEX
MPP
MTBR
EOR
MPP
MES
NGDU
MRRT
VAT
NTP CMK
R&D
Tubing
ITA
320
Oil Refining and Petrochemical Plants
Oil Refinery
Oil Processing Unit
Science and Technology Center
Petrochemical Complex
Limited Liability Company
Nature Conservation Area
Pilot Operations
Production Dual Completion
Production and Injection Dual Completion
Injection Dual Completion
Dual Completion
Special Economic Zone
Maximum Permissible Concentration
Associated Petroleum Gas
Reservoir Pressure Maintenance
Polymer Coated Pipes
Power Substation
Chain Drive
Vertical Stainless Steel Tank
Result of Intellectual Activity
Regional Youth Social Organization
Republic of Tatarstan
Russian Federation
Super Viscous Oil
Cathodic Protection Station
Corporate Governance Standard
Electronic Document Management System
Secondary Education School
Trading House
Trade Technical House
Technical Specifications
Fuel and Energy Complex
Thermal Power Plant
Delayed Coker Unit
Management Company
Light Hydrocarbon Vapor Recovery
High Sulfur Oil Treatment Facility
Oil Treatment Facility
Preliminary Water Discharge Unit
OR & PP
Refinery
OPU
STC
PCC
LLC
NCA
PO
PDC
P & IDC
IDC
DC
SEZ
MPC
APG
RPM
PCP
PS
CD
VSST
RIA
RUSO
RT
RF
SVO
CPS
CGS
EDMS
SES
TH
TTD
TS
FEC
TPP
DCU
MC
LHVR
HSOTF
OTF
PWDU
UPTZh dlya PPD Process Fluid Treatment Facility for Reservoir Pressure Maintenance (Tatneft's subsidiary)
SRU
UTNGP
AS-tires
CDH
PTC
NGL
EIC
ECU
NPV
DPI
Sulphur Recovery Unit
TATNEFTEGAZPERERABOTKA Division (Tatneft's structural division)
All-Steel Tires
Central District Hospital
Personnel Training Center
Natural Gas Liquids
Electrical Insulating Connection
Electronic Corporate University
Net Present Value
Discounted Profitability Index
321
ABOUT THE COMPANYFINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report CONTACT INFORMATION
THE COMPANY WAS ESTABLISHED IN JANUARY 1994 FOR AN INDEFINITE PERIOD.
THE COMPANY WAS REGISTERED BY THE MINISTRY OF FINANCE OF THE REPUBLIC OF TATARSTAN
(REGISTRATION NO. 632 DATED JANUARY 21, 1994).
THE MAJOR GOAL OF THE COMPANY’S ACTIVITY IS THE RECEIPT OF PROFIT.
AUDITOR OF COMPANY’S FINANCIAL
STATEMENTS ACCORDING TO RUSSIAN AND
INTERNATIONALSTANDARDS:
JSC PRICEWATERHOUSECOOPERS AUDIT
Belaya Ploshchad Business Centre
10 Butyrskiy Val St., Moscow
125047, Russian Federation
Tel.: +7 (495) 967-60-00
COMPANY’S REGISTRAR:
LLC EURO-ASIAN REGISTRAR
10 Mira St., Almetyevsk,
Republic of Tatarstan
423450, Russian Federation
Tel.: +7 (855) 322-08-40
Tel.: +7 (855) 330-61-18
PUBLIC JOINT-STOCK COMPANY TATNEFT
HEAD OFFICE:
75 Lenina St., Almetyevsk,
Republic of Tatarstan 423450,
Russian Federation
Tel.: +7 (855) 330-75-68
REPRESENTATIVE OFFICE IN MOSCOW:
17 Tverskoy Boulevard, Moscow
123104, Russian Federation
Tel.: +7 (495) 937-55-78
REPRESENTATIVE OFFICE IN KAZAN:
71 Karla Marksa St.,
Republic of Tatarstan,
Russian Federation
Tel.: +7 (843) 533-83-12.
FOR SHAREHOLDERS:
CORPORATE SECRETARIAT
Tel.: +7 (855) 337-61-01
COMPANY WEBSITE:
HTTP://WWW.TATNEFT.RU
THE MONTH AND THE YEAR OF ISSUE
OF THE REPORT: JUNE 2018
REPORT PREPARATION TEAM
V. A. Voskoboynikov
D. M. Gamirov
N. Ye. Dorpeko
V. A. Karpov
D. V. Kurochkin
T. G. Malakhova
O. M. Matveyev
R. N. Mukhamadeyev
R. A. Salakhov
N. Z. Syubayev
Ye. A. Tikhturov
V. G. Fadeyev
R. Kh. Khalimov
O. A. Sharagina
DESIGN AND PRINTING
LLC PUBLICITY
322
323
FINANCIAL RESULTSSOCIAL RESPONSIBILITYINDUSTRIAL SAFETY AND ENVIRONMENTAL POLICYABOUT THE COMPANYREPORT OF THE BOARD OF DIRECTORSCORPORATE GOVERNANCEPJSC Tatneft 2017 Annual Report