YEARS OF SUSTAINABLE DEVELOPMENT
AS A PUBLIC COMPANY
2019
ANNUAL REPORT
1
Contents
ABOUT COMPANY
Company mission and values
Production assets and operating areas
Business-Model
TATNEFT Group Main Business Divisions and Enterprises
BOD REPORT
Joint Address to the Shareholders, Investors and Partners
Company Capitalization
Financial Performance
Creating value for stakeholders
Resource capacity
2019 Key operating performance
Investment policy
Growth Strategy
System of key performance indicators
Climate change
Upstream
Downstream
Retail business
Tire business
Machinery
Tatneft-Presscomposite
Energy
Energy and resource efficiency
Macroeconomics and Competitive Environment
Company’s membership in Industry Associations and Unions
Support for International and National Economic,
Environmental and Social Initiatives
4
6
8
10
12
14
16
20
22
26
28
30
40
48
50
52
54
62
68
72
76
77
78
80
82
102
103
The 2019 Annual Report of PJSC Tatneft n.a. V.D Shashin was approved
by the Annual General Meeting of Shareholders on June 17, 2020, Protocol No.32.
CORPORATE GOVERNANCE
Corporate governance system
Company management structure
General Meeting of Shareholders
Board of Directors
Sole Executive Body
Management Board
Corporate Secretary
Internal Audit
Independent auditor
Revision Commission
Risk management and internal control
Protection of insider information procedures and regulations
Information policy
Prevention and Regulation of potential Conflicts of Interest
Anti-corruption policy
Procurement and Logistics
Anti-monopoly policy
Hotline information system
Corporate cyber security policy
INTERACTION WITH SHAREHOLDERS AND INVESTORS
Shareholders’ equity
Protection and ensurance of shareholders’ rights
Interaction with shareholders
SUSTAINABLE DEVELOPMENT
Management system in the field of sustainable development
Human rights
Responsibility to stakeholders
Industrial safety, labor protection and environment taking
into account climate changes
Personnel
ANNEX
IFRS Consolidated Financial Statements and Independent Auditor’s Report
Notes to the Consolidated Financial Statements
Financial Statements under the Russian Accounting Standards
Report on Non-Arm’s Length Transactions Made
by PJSC Tatneft n.a. V. D. Shashin in 2019
Report on Compliance of PJSC Tatneft N. A. V. D. Shashin with the Corporate
Governance Code Guidelines of the Bank of Russia
Principal risks
Register of the mandatorily dislosed information
by PJSC Tatneft in 2019
On the Annual Report and the underlying regulatory documents
constituting the framework for this annual report
104
106
112
114
116
140
141
150
152
153
156
158
164
165
168
170
173
174
174
175
176
178
184
186
188
190
192
193
194
200
208
210
226
292
312
316
334
340
340
344
2
3
2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT25 About Company
TATNEFT is one of the leading Russian oil and gas producers with more than 75
years of industry experience, including 25 years as a public company listed on the
international stock market.
In 2019, TATNEFT was recognized as the
leader in corporate transparency, which
was a milestone event for the Company
in the year of the 5th anniversary of
entering the international stock market
as a public company and joining the UN
Global Compact.
The geography of shareholders spans over 30 countries.
The securities of PJSC TATNEFT listed at the top-tier quotation
level of the Moscow Exchange and at other leading international
stock exchanges are the most sought-after and profitable
investment instruments as well as capital accumulation forms.
The Company makes a particular focus on maintaining a
favorable environment and mitigating the climate change impacts
while placing a high priority on the social aspects in its activities.
The fundamental principles for the Company are corporate
responsibility and security.
The corporate business model is built in compliance with the
long-term sustainable development strategy and provides a value
chain based on the vertical integration of the full production cycle
of the Group’s enterprises with an optimal distribution of the
balance in oil and gas production, oil refining and petrochemicals
to achieve maximum operation profitability.
The landmark guidance for the Company is the UN Action
Program “Transforming our World: The 2030 Agenda for
Sustainable Development”. Being a party to the UN Global
Compact, TATNEFT integrates 10 principles and 17 Sustainable
Development Goals into its business model.
20 824
PUBLICATIONS WITH A REFERENCE
TO TATNEFT WERE RELEASED
IN FEDERAL MASS MEDIA IN 2019
By SCAN Interfax data
OVER
YEARS
OF EXPERIENCE IN THE INDUSTRY
YEARS
OF OPERATION AS
A PUBLIC COMPANY LISTED
AT THE INTERNATIONAL
STOCK MARKET
4
5
2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Company mission
and values
2030 Strategy
The implementation of the Company’s Strategy involves sustainable growth
aspects and ensuring favorable economic and social conditions for business
development based on the most efficient use of all types of resources and creating
value for stakeholders at each stage of activity
• Highly effective
organizational structure
• Best practice in governance
forms and organization of
business processes
• Highly qualified and
competent personnel
• High-quality asset
structure
ATE G O
R
O
P
R
O
C
A N C E
N
R
E
V
BU
SIN
E
S
S
P
L
A
N
N
I
N
G
STEADY GROWTH
OF COMPANY VALUE
HIGH DIVIDEND YIELD
S
U
S
T
AIN
A
BLE DEV
• Building strong
technological basis
• Digital integration in
all production and
management processes
• Proprietary research and
engineering complex
P
I
H
S
R
E
D
A
E
L
Y
G
O
TECHNOL
EL
O
PMENT
• Strategic planning
• Efficient investment
project management
• High operating
effectiveness
• Gaining higher margin
ratio in the value chain
• Commitment to
•
the 17 UN Sustainable
Development Goals
• Corporate social
responsibility
• Keen sense of
environmental responsibility
• Human life and health
priority
The Company’s mission is to ensure
continuing development in the status of
one of the largest vertically integrated
Russian producers of crude oil and gas,
petroleum products and petrochemicals
based on effective management of
shareholders’ assets, rational use of
natural resources and corporate social
responsibility.
The key objective of the Company is to
ensure the most efficient monetization
of reserves and direct earned profit to
create new lucrative points of value
growth, diversify business, which would
help sustain a strong position and
profitability of the Company beyond the
2030 horizon.
Our priority is propelling growth of shareholder
value of the Company through increased free
cash flows and distributions to shareholders
STRONG COMPETITIVE
EDGE IN THE INDUSTRY
WELL-DIRECTED
INVESTMENT POLICY
Scenario planning with built-in
protection from sharp oil price
fluctuations and macroeconomic
volatility.
Business growth and free cash flow
planning with scenario planning
variability
STRONG FINANCIAL
RESILIENCE — FOCUS ON
PROFIT MARGIN GROWTH
HIGH CORPORATE
GOVERNANCE AND
BUSINESS PLANNING
STANDARDS
GUARANTEED
PROGRESSIVE
DIVIDEND POLICY
PROVISION OF
INVESTMENT
PROGRAMS IN LINE WITH
DEVELOPMENT STRATEGY
CAPITAL DISTRIBUTION
POTENTIAL WITH OIL
PRICE HIKES
The Company is fully aware of its responsibility to its
shareholders, investors, partners, employees and the publicas
a whole, and recognizes its equal liability for operating
performance, health, safety and environmental compliance and
takes all measures to ensure long-term sustainable development.
The Company’s stance pursues that only balancing between
these aspects, abiding by high ethical principles, and developing
social partnership can ensure harmonious and effective business
development.
Consistent program actions of the Company make it possible
to ensure profitable oil and gas production, sustain a high level
of hydrocarbon resource life, effectively develop our own oil
refining and petrochemicals, as well as build-up our innovative
potential and deploy advanced digital solutions to create a
reliable technological basis for the Company.
6
7
ABOUT COMPANY252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Production assets
and operating areas
The Company provides management processes from obtaining
resources development licenses to oil sale, oil and gas refining
products and petrochemicals in the domestic market and for
their export, as well as the manufacturing of equipment for
oil production, oil and gas treatment and processing, and for
providing engineering, supply and construction services for oil,
gas and petrochemical projects. The structure of Tatneft Group
also includes the banking segment - Banking Group Zenit.
The resource base of the Company includes one of the world
largest Romashkinskoye oil field. Major fields of the Company
also include Novo-Elkhovskoye, Bavlinskoye, Bondyuzhskoye,
Pervomaiskoye, Sabanchinskoye, Arkhangelskoye, and
Ashalchinskoye oilfields. Outside Tatarstan, the exploration and
production operations are conducted in the following areas:
Nenets Autonomous District, Ulyanovsk Region, Samara Region,
Orenburg Region, and Republic of Kalmykia.
Our global reach
LARGEST OIL FIELDS AND THE CORE OPERATIONS
WITHIN THE REPUBLIC OF TATARSTAN
TATNEFT Group encompasses the staff of nearly 60 thousand
employees working at 105 enterprises in the Russian Federation
and abroad. The key assets of the Company are located on
the territory of the Russian Federation with the main focus
in Tatarstan. The main subsidiaries operate in the Russian
Federation, with the exception of Tatneft-Europe AG, operating
in Switzerland.
Business projects are implemented both in the domestic and
foreign markets. The business infrastructure is formed by the
geographical proximity of production facilities and efficiently built
logistics.
The headquarters of the Company is located in the city of
Almetyevsk. The company has representation offices in Moscow,
Kazan, the Republic of Ukraine, the Republic of Iraq, the Republic
of Uzbekistan, as well as branches in Libya and Turkmenistan.
The largest capacities, such as the TANECO refining complex
and the KAMA TYRES production are located in Nizhnekamsk.
EXPLORATION AND OIL PRODUCTION
OUTSIDE THE RT
The Company is currently developing a petrochemical complex
in close proximity to these facilities.
The retail chain for the sale of petroleum products includes more
than 800 filling stations operating in Russia, as well as in Belarus,
Uzbekistan and Ukraine.
Tatneft supplies engineering, technology and equipment to
Armenia, Kazakhstan, Libya, Turkmenistan, Turkey, Uzbekistan,
and Estonia.
Details on the structure of Tatneft Group, subsidiaries of
PJSC Tatneft are provided further in the Annual Report,
Financial Performance Section, IFRS.
TATNEFT FILLING STATIONS
REGIONAL PRESENCE
Oil field development
Oil and gas refining
Tire business
Distribution network
Power Generation
Machine building
Equipment and technology
supply, engineering
Banking segment
COMPANY EXPORTED
By 2019 year-end data
Bondyuzhskoye
Pervomaiskoye
NIZHNEKAMSK
Arkhangelskoye
Novo-
Yelkhovskoye
ALMETYEVSK
Romashkinskoye
Ashalchinskoye
Sabanchinskoye
Bavlinskoye
RUSSIA
KAZAKHSTAN
UZBEKISTAN
TURKMENISTAN
Nenets AO
Republic
of Kalmykia
Ulyanovsk Region
K
Samara Region
K
Orenburg Region
ESTONIA
BELARUS
ARMENIA
TURKEY
LIBYA
BELARUS
RUSSIA
UKRAINE
UZBEKISTAN
ENTERPRISES
INCORPORATED IN
TATNEFT GROUP AS OF 31.12.2019
COUNTRIES
GLOBAL REACH OF
COMPANY OPERATIONS
60%
CRUDE OIL SOLD
43%
PETROLEUM
PRODUCT SOLD
40%
TIRE PRODUCTS
50 COUNTRIES
GLOBAL SUPPLY
COVERAGE
8
9
ABOUT COMPANY252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Business-Model
We keep developing our production and
manufacturing capacities on an ongoing basis
to make it possible to convert the hydrocarbon
reserves into high value added products.
Capital
Capital
(results)
(results)
Capital
Capital
(resources)
(resources)
Financial
Financial
1,24
1,24
TRLN
TRLN
RUB
RUB
CONSOLIDATED
CONSOLIDATED
ASSET
ASSET
VALUE
VALUE
129,6
129,6
INVESTMENTS
INVESTMENTS
BLN
BLN
RUB
RUB
99,9
99,9
CAPEX
CAPEX
BLN
BLN
RUB
RUB
Social and Reputational
Social and Reputational
10
10
COUNTRIES
COUNTRIES
COMPANY’S GLOBAL REACH
COMPANY’S GLOBAL REACH
JOINING THE UN GLOBAL
JOINING THE UN GLOBAL
COMPACT AND SOCIAL
COMPACT AND SOCIAL
DEVELOPMENT GOALS
DEVELOPMENT GOALS
Human
Human
60
60
THOUSAND
THOUSAND
EMPLOYEES
EMPLOYEES
HIGHLY QUALIFIED
HIGHLY QUALIFIED
STAFF
STAFF
Intellectual
Intellectual
2,5
2,5
BLN
BLN
RUB
RUB
INVESTMENTS IN R&D
INVESTMENTS IN R&D
AND PILOT TESTS
AND PILOT TESTS
Environmental
Environmental
12,3
12,3
MLN
MLN
RUB
RUB
INVESTMENTS IN ENVIRONMENTAL
INVESTMENTS IN ENVIRONMENTAL
ACTIVITIES
ACTIVITIES
Operational
Operational
105
105
ENTERPRISES
ENTERPRISES
DIVERSIFIED STRUCTURE
DIVERSIFIED STRUCTURE
OF FULL CYCLE ASSETS
OF FULL CYCLE ASSETS
Determination and list of capitals is provided under the International Integrated
Reporting Standard published by the International Integrated Reporting Council
(IIRC).
10
MACHINE BUILDING
MACHINE BUILDING
5,6
5,6
BLN
BLN
RUB
RUB
PRODUCT
PRODUCT
OUTPUT
OUTPUT
RESOURCE BASE
RESOURCE BASE
UPSTREAM
UPSTREAM
DOWNSTREAM
DOWNSTREAM
1,38
1,38
BLN
BLN
TONNES
TONNES
HYDROCARBON
HYDROCARBON
RESERVES
RESERVES
29,8
29,8
MLN
MLN
TONNES
TONNES
OIL
OIL
PRODUCTION
PRODUCTION
206,7
206,7
THOUS BBLS
THOUS BBLS
PER DAY
PER DAY
AVERAGE DAILY REFINING
AVERAGE DAILY REFINING
OF CRUDE OIL
OF CRUDE OIL
CRUDE OIL AND PETROLEUM PRODUCT SALES:
CRUDE OIL AND PETROLEUM PRODUCT SALES:
EXPORT AND DOMESTIC MARKET
EXPORT AND DOMESTIC MARKET
21
21
MLN
MLN
TONNES
TONNES
OF CRUDE OIL SOLD
OF CRUDE OIL SOLD
12
12
MLN
MLN
TONNES
TONNES
OF PETROLEUM PRODUCT SOLD
OF PETROLEUM PRODUCT SOLD
RETAIL NETWORK
RETAIL NETWORK
4 142
4 142
THOUS.
THOUS.
TONNES
TONNES
RETAIL FUEL SALES
RETAIL FUEL SALES
VALUE
VALUE
CREATION
CREATION
1,76
1,76
CAPITALIZATION
CAPITALIZATION
TLN
TLN
RUB
RUB
Upstream
Upstream
Oil production growth and reserve replacement
Oil production growth and reserve replacement
• strengthening the resource base
• strengthening the resource base
• geographical expansion of producing assets
• geographical expansion of producing assets
• hard-to-recover oil field development including
• hard-to-recover oil field development including
super-viscous oil fields
super-viscous oil fields
Downstream
Downstream
Production highly demanded and competitive
Production highly demanded and competitive
refined oil products and petrochemicals through
refined oil products and petrochemicals through
qualitative strengthening of asset structure and
qualitative strengthening of asset structure and
improved operating performance of business
improved operating performance of business
streams:
streams:
• Sales of crude and petroleum products,
• Sales of crude and petroleum products,
including export and domestic market
including export and domestic market
• Oil refining
• Oil refining
• Oil and gas production chemicals
• Oil and gas production chemicals
• Tire business
• Tire business
• Heat and power generation
• Heat and power generation
• Machine building
• Machine building
• Engineering
• Engineering
TIRE BUSINESS
TIRE BUSINESS
BANKING
BANKING
10,3
10,3
MLN
MLN
PCS
PCS
TIRE OUTPUT
TIRE OUTPUT
2,3
2,3
BLN
BLN
RUB
RUB
NET PROFIT FROM
NET PROFIT FROM
BANKING OPERATIONS
BANKING OPERATIONS
OIL & GAS CHEMICALS
OIL & GAS CHEMICALS
LUCRATIVE PRODUCTION
LUCRATIVE PRODUCTION
PROPELLING NEW GROWTH
PROPELLING NEW GROWTH
POINTS
POINTS
Building an effective banking structure with
Building an effective banking structure with
a high reputation in the financial community
a high reputation in the financial community
in key systems such as corporate,
in key systems such as corporate,
investment and private banking, including
investment and private banking, including
ZENIT Bank and its subsidiaries (ZENIT
ZENIT Bank and its subsidiaries (ZENIT
Banking Group).
Banking Group).
The ZENIT Banking Group has been
The ZENIT Banking Group has been
consolidated in the financial statements of
consolidated in the financial statements of
the TATNEFT Group since Q4 2016.
the TATNEFT Group since Q4 2016.
The business model of the Company is built on the full vertical
integration principle on the basis of high discipline in the capital
management, ensuring the most efficient monetization of
reserves and directing profit to create new promising points of
growth in value that would increase the Company’s profitability
under the 2030 Strategy and beyond the horizon of 2030
taking into account all sustainable development aspects.
HEAT & POWER GENERATION
HEAT & POWER GENERATION
bank/disclosure/annual-reports/
bank/disclosure/annual-reports/
1,5
1,5
BLN KW*H
BLN KW*H
PER YEAR
PER YEAR
ELECTRICITY
ELECTRICITY
GENERATION
GENERATION
Financial
Financial
328,4
328,4
ADJUSTED
ADJUSTED
EBIDTA
EBIDTA
BLN
BLN
RUB
RUB
192
192
BLN
BLN
RUB
RUB
PROFIT ATTRIBUTABLE
PROFIT ATTRIBUTABLE
TO SHAREHOLDERS
TO SHAREHOLDERS
24,8%
24,8%
ROAСE
ROAСE
152,8
152,8
BLN
BLN
RUB
RUB
FREE CASH FLOW
FREE CASH FLOW
Social and Reputational
Social and Reputational
24
24
BLN
BLN
RUB
RUB
SOCIAL
SOCIAL
INVESTMENTS
INVESTMENTS
509,6
509,6
BLN
BLN
RUB
RUB
ACCRUED TAXES,
ACCRUED TAXES,
CHARGES AND FEES
CHARGES AND FEES
132,5
132,5
BLN
BLN
RUB
RUB
TATNEFT BRAND VALUE
TATNEFT BRAND VALUE
Human
Human
23
23
THOUS
THOUS
EMPLOYEES
EMPLOYEES
TRAINED
TRAINED
30
30
CORPORATE
CORPORATE
TRAINING
TRAINING
PROGRAMS
PROGRAMS
Intellectual
Intellectual
5 444
5 444
INTELLECTUAL
INTELLECTUAL
PROPERTIES
PROPERTIES
Environmental
Environmental
REDUCING ENVIRONMENTAL IMPACTS
REDUCING ENVIRONMENTAL IMPACTS
TO ENSURE SELF-RESTORING CAPACITY
TO ENSURE SELF-RESTORING CAPACITY
OF ECOSYSTEMS
OF ECOSYSTEMS
Operational
Operational
+0,9%
+0,9%
PRODUCTION
PRODUCTION
GROWTH
GROWTH
15,5%
15,5%
CRUDE OIL REFINING
CRUDE OIL REFINING
GROWTH
GROWTH
11
ABOUT COMPANY252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT TATNEFT Group Main Business Divisions
and Enterprises
Upstream
Tatneft-Production
NGDU Almetievneft
NGDU Aznakaevskneft
NGDU Bavlyneft
NGDU Jalilneft
NGDU Yelhovneft
NGDU Leninogorskneft
NGDU Nurlatneft
NGDU Prikamneft
NGDU Yamashneft
Oil producing subsidiaries
and affiliates
Tatneft-Samara LLC
PJSC Kalmneftegas
Tatneft – NAO LLC
JSC KalmTatneft *
CJSC Yambuloil *
New Oil Production
Technologies LLC *
Oil and gas refining and sales
of crude oil and oil products
Crude Oil and Petroleum Products
Sales Department
Tatneft Oil Gas Processing Division
Yelkhov Oil Refinery
JSC TANECO
JSC Nizhnekamsktekhuglerod
Tatneft-AZS Center LLC
Tatneft-AZS -Zapad LLC
Tatneft-AZS-Ukraine LLC
Tatneft- AZS - Tashkent LLC
Tatneft-AZS –Severo-Zapad LLC
Tatneft-Trans LLC
Tatbelnefteprodukt ILLC
JV LLC TATNEFT-UNG*
PJSC TATNEFT
Group Corporate Center
PJSC TATNEFT
BOARD OF DIRECTORS
MANAGMENT BOARD
Executive Office
Petrochemical production
Electric Grid Management Center
Social sector
Social Asset Management
Tatneft Charity Fund
MC Tatneft-Neftekhim LLC
PJSC Nizhnekamskshina
Nizhnekamsk All-Steel Tire Factory LLC
JSC Nizhnekamsk Mechanical Plant
Trading House KAMA LLC
JSC Yarpolimermash-Tatneft
Tatneft-Prescomposite LLC
JSC Tolyattisintez
Tolyattikauchuk LLC
Nizhnekamsk HPP LLC
Tatneft-Energosbyt LLC
JSC Almetyevsk Heating Networks
Banking sector
Bank ZENIT (PJSC)
and its subsidiaries
Support for core operations
Tatneftesnab Business Unit
Tatar Geological Exploration Division
Well Service Business Unit
Construction Projects Implementation
Department
Bugulma Mechanical Plant
UPTZH for PPD LLC
Trade and Technical House of Tatneft
LLC
Tatneft-Neftekhimservis LLC
Tatneft-URS LLC
Information, research and technology,
and organizational support
Branches and representative
offices
TatNIPIneft
Technological Development Center
Modeling Center
Business Service Center
STC Tatneft LLC (in Skolkovo)
SPC Oil and Gas Technologies
JSC Neftekhimproekt
JSC TatNIIneftemash
TatITneft LLC
Processing Center LLC
PEI CPE PTC-TATNEFT
Representative Office in
Moscow, Russian Federation
Representation in the
Republic of Iraq, Baghdad
Representation in Ukraine,
Kiev
Representation in the
Republic of Uzbekistan
Branch in Libya
Branch in Turkmenistan,
Balkanabad
* Enterprises based on partnership with other companies
12
PJSC TATNEFT is the corporate center of the Group,
coordinating the activities of enterprises that form the business
segments of the Company. The management is organized based
on a single mission and development priorities, while respecting
fair interests of all stakeholders of the Group.
The main industry peers are all Russian oil majors, including
Rosneft, PJSC LUKOIL, PJSC Surgutneftegas, PJSC Gazprom
Neft and PJSC ANK Bashneft, as well as international oil
companies. The company competes with oil companies for the
right to supply crude oil and petroleum products, as well as tire
products, technologies, equipment and engineering services,
to Russia and the international market. In the domestic market,
the Company is a supplier of heat and power energy, composite
materials, etc.
13
ABOUT COMPANY252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Board of
Directors Report
on Company’s
Development
Performance by
Core Business
Streams
+78,7 BLN
RUB
VS 2018
OPERATING AND BUSINESS PERFORMANCE
PUBICATIONS IN FEDERAL MASS MEDIA IN 2019
6 850
1 224
5 287
COMPANY RATINGS’ PUBLICATIONS
IN FEDERAL MEDIA IN 2019
PUBLICATIONS ABOUT COMPANY’S POSITION
IN THE INDUSTRY IN THE FEDERAL MEDIA IN 2019
DATA FROM “SKAN Interfax” SYSTEM
TRILLION
RUBLES
COMPANY’S CAPITALIZATION
YEAR-END 2019
14
15
2019 ANNUAL REPORT Joint Address
to the Shareholders,
Investors and Partners
of the President of the Republic
of Tatarstan Rustam N. Minnikhanov
and Chief Executive Officer, Chairperson
of the Management Board Nail U. Maganov
DEAR SHAREHOLDERS, INVESTORS AND PARTNERS!
The reporting year 2019 was the year of the 25th anniversary
of the Company’s status as a public joint stock company.
Geography
of our shareholders covers more than 30 countries. Securities of
PJSC TATNEFT, presented at the highest quotation level of the
Moscow Exchange and at leading international stock exchanges,
are among the most popular and profitable investment
instruments that increase the invested capital. This is evidence
of effective corporate governance of the assets entrusted to us.
Throughout its history, the Company has repeatedly overcome
difficulties, always maintaining confident stability.
Summing up the results of 2019, Tatneft shows good
performance, despite the economic difficulties in the form
of a decrease in global oil consumption and restrictions on
production under the OPEC + Agreement, unstable oil and gas
prices during the year, and a slowdown in global growth, and the
national economy, and decrease in international trade.
Tatneft was ranked the Top 10 of the rating “100 most expensive
by capitalization of public Russian companies” and the Top 10 of
the world leaders in the oil and gas industry by added value in
shareholder value (BCG Rating).
In 2019, we ensured a free cash flow of 152.8 billion rubles. This
made it possible to pay interim dividends for the results of 6 and
9 months of 2019 in the amount of 149 billion 970 million rubles.
In total, according to the results of 2019, taking into account
previously accrued interim dividends, it is proposed to allocate
150 billion 118 million rubles to pay dividends.
The value of consolidated assets of the Company by the results
of 2019 increased by 3.1% and amounted to 1,238.6 billion
rubles. The drivers for strengthening the structure and growth
in the value of assets are the “Exploration and Production” and
“Refining and Sale of Oil and Petroleum Products” segments. In
the reporting year, assets were acquired in the retail business of
-75 Neste filling stations located in the North-West of Russia and
a terminal in St. Petersburg. Also, as part of strengthening the
tire segment and implementing the Company’s petrochemical
strategy, assets for the production of various types of synthetic
rubber in Togliatti were acquired.
The Tatneft Group year-end consolidated revenue amounted
to 932.3 billion rubles, 2.4% growth to 2018. Net profit of
the Group’s shareholders amounted to 192.3 billion rubles.
The Company has consistently demonstrated a high level of
profitability and a low level of debt burden. Adjusted EBITDA
grew by 4.3% amounting to 328.4 billion rubles. Return on capital
employed (ROACE) 24.8%%.
The Company successfully implements the Strategy-2030
approved by the Board of Directors. In 2019, the Company
consistently implemented planned production goals and reached
a new level of performance, while maintaining leadership
positions among Russian vertically integrated oil companies on
a number of indicators. The total oil production across the Group
in the reporting year amounted to 29.8 million tonnes with the
average daily production of 581.5 thousand barrels a day. The
company maintains one of the highest recovery factors in the
industry at 44%. Due to the development of our own capacities,
we increased the average daily processing to 206.7 thousand
barrels with a total increase in oil refining by 15.5% compared
to the previous year. 10.3 million tonnes of oil products and 1.2
million tonnes of gas products have been produced for the year.
At the TANECO Complex, one of the best indicators in the
industry was achieved in terms of refining depth - 98.98%
and light oil products - 80.87%. In 2019, TANECO began
comprehensive testing of the second distillation unit and vacuum
distillation of crude oil CDU VDU-6 which allowed to increase the
rated capacity of the oil refining complex to 15.3 million tonnes a
year. Prior to the completion and launch of the additional deep
processing unit, it is planned to use the expanded oil refining
capacities at a level that ensures the maximum economic
efficiency of the Complex.
We are improving the structure and quality characteristics of the
petroleum product basket. All products of the TANECO fuel line
including gasoline grades AI-92, AI-95, AI-98, AI-100 and diesel
fuel meets EURO-6 environmental standard and is one of our
hallmarks. The petrol formulations according to this standard,
selected and controlled by TANECO online, allow the production
of gasolines with optimal operational and environmental
characteristics. High-quality products of the TANECO fuel line
have become the hallmark of the Tatneft petrol station network.
Our generating capacities generate electricity of more than 1.5
billion kWh per year for industrial facilities and the community.
We invest resources to modernize equipment to increase its
reliability and diversify sources of raw materials.
As new growth points, we are developing a petrochemical
industry with large long-term potential.
The Company maintains a high level of hydrocarbon resource
availability, which allows it to confidently increase production.
In early 2020, the hydrocarbon reserves of the Tatneft Group,
according to an independent estimate by Miller & Lents, were
1,381.4 million tonnes of oil equivalent, including 998.3 million
tonnes of oil equivalent - proved reserves.
In the context of growing competition with developing shale oil
production, the Company maximizes the existing potential of
oil deposits by widely applying its accumulated technological
experience and competencies to strengthen its positions both in
the Russian and global energy markets.
The Company’s tire business operating under the brand name
«KAMA TYRES» holds one of the leading positions in Russia.
In 2019, 10.3 million tires were produced on 400 product lines.
We are expanding international distribution channels, Tires are
shipped to 50 countries. At the same time, 64% of production
goes to the domestic market.
By selling the oil produced, the Company ensures an optimal
balance of oil shipment distribution in order to increase operating
profitability under the market conditions. In 2019, Tatneft Group
exported to the near and far abroad about 60% of all crude oil
sold. With that, the Company fully provides raw materials for
loading its own refining capacity.
16
17
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT In order to improve profitability, the Company develops premium
distribution routes and provides optimization for oil products
logistics. Oil products, gas products and petrochemicals
produced by the Company are sold in bulk both abroad and in
the domestic market, and also delivered to the Company’s sales
subsidiaries to be further sold in Russia.
Significant for the Company is the consistency of corporate
interests with the UN Global Compact Agenda, which Tatneft
became a party to in 2019. We see a high potential in combining
our common efforts - integrating experience, scientific and
technical developments and concrete actions into achieving the
Sustainable Development Goals.
In the reporting year, sales of petroleum products through the
Company’s retail network increased by 19.9%, consisting of
802 filling stations, and 111 filling stations outside the Russian
Federation.
We pay close attention to strengthening the technological base
of the Company and digital solutions, moving to innovative
patterns of management and organization of business processes.
The value chain is constantly being improved and the margin of
the business is increased due to the efficient building of business
processes, a high share of added value, quality and safety
standards. We carry out strict control of financial discipline, the
level of costs and returns on existing assets.
The Company implements a well-balanced investment policy that
takes into account the interests of shareholders and the goals
of future development of Tatneft Group. In 2019, the volume
of investments amounted to 129.6 billion rubles, of which 99.9
billion rubles were capital investments.
The activity of the Company, as one of the largest taxpayers
in the main region of its presence, plays an important role in
ensuring the revenues to the federal and regional budgets,
which contributes to the stable socio-economic development of
the territories where our enterprises are located. At the same
time, as part of target corporate programs, the Company annually
allocates over 20 billion rubles to the development of healthcare,
science and education, the cultural environment, preservation of
the spiritual heritage, and support of sports. The Tatneft Charity
Fund plays a major role in this process.
When making business decisions, we take into account the
objectives of socio-economic growth, expanding innovative
opportunities and improving the quality of life in our territories
based on an open dialogue with stakeholders, including local
communities. This increases the targeting of the Company’s
initiatives and the transparency of decisions.
Tatneft Group provides about 60 thousand jobs at 105
enterprises in the Russian Federation and abroad. Currently in
order to ensure effective implementation of the personnel policy,
the HR strategy of Tatneft Group is being formed. In the context
of the development of operational activities, we focus on the
tasks of training and enhancing staff competencies, improving
the motivation system, and creating a talent pool. We pay great
attention to corporate culture and youth policy.
An important aspect of our work is our commitment to
fundamental principles of human rights, including the right to a
safe environment.
Ensuring safety, protecting human life and health, and
maintaining a favorable environment are among the key priorities
of the Company. In 2019, the Board of Directors approved a
new version of the Company’s Policy in industrial safety, labor
protection and the environment with considerations to climate
change, based on international best practice and a risk-based
approach. Guidelines of the Company in this area are recognition
of the priority of life and health of people to production activities;
high level of industrial safety, ensuring the level for ecosystem
restoration potential, reducing carbon footprint. Now we are
successfully completing the implementation of the Environmental
Program designed for the period of 2016–2020, and are setting
ambitious goals for the future.
In 2019, 12.3 billion rubles were allocated for environmental
safety and environmental protection. At the same time, we are
constantly increasing investments in the environment. Over the
past years, the annual growth of investments in environment
protection reached over one billion rubles. Behind these
numbers are concrete actions and results.
The Company clearly sees its contribution to a sustainable
energy future in the context of the transition of global economy
to a low-carbon path of development associated with the
climate change and ensuring global economic growth. We
are implementing a number of projects focused on the task of
reducing the carbon footprint and integrating this task into the
business processes of the Company. To this end, advanced
international platforms and standards on climate initiatives are
applied. High environmental characteristics of our products,
energy efficiency indicators of production processes and a
model of rational consumption of resources contribute to the
continued reduction of specific greenhouse gas emissions into
the air.
In 2019, a detailed inventory of emission sources was started
and a lot of work was done to analyze and select advanced
techniques for reducing emissions, capturing and processing
carbon dioxide. Renewable energy is indisputable for cleaner
low-carbon energy generation, and we pay special attention to
this development as part of our strategy.
Compensation measures are equally important in combating the
climate change. In order to create a favorable environment in the
area of its activity and increase the absorption of greenhouse
gases, Tatneft Group, since 2000, has been implementing a
greening program. During this period, over 10 million seedlings
of trees and shrubs have been planted.
The area of continuous attention of the Company’s management
is occupational safety and health. First, these are the programs
for the prevention of industrial injuries, staff training, and a set of
long-term and preventive measures. Over one billion rubles are
allocated annually to labor protection measures.
The beginning of 2020 was a turbulent challenge for all of us
caused by spread of Covid-19 pandemic. This problem has
affected people all over the world and has become an extreme
test for sustainability and, most importantly, for our readiness for
sustainable development of our society as a whole and business
in particular. Tatneft did everything possible to stop the spread
and consequences of the pandemic wherever we work. We
aim to protect our employees, clients and the local population;
we provide serious support to healthcare institutions and social
assistance to vulnerable groups. At this stage, our goal, as a
diversified energy company, was to ensure the sustainability and
continuity of our production processes, including supply of fuel
and energy resources to our consumers - industrial enterprises,
social institutions and the population.
We assess all current macroeconomic and industry risks and
adjust our actions to move forward. We greatly appreciate your
confidence and assure that we will continue to implement our
strategic plans for further growth of shareholder value and
sustainable development of the Company!
We thank the shareholders, investors, partners, employees of
Tatneft Group enterprises for their joint activities and we feel
optimistic about the future!
R.N. MINNIHANOV
N.U. MAGANOV
The President of the Republic of
Tatarstan. Chairperson of the Board of
Directors, PJSC Tatneft
Chief Executive Officer,
Chairperson of the Management Board,
PJCS Tatneft
18
19
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Company
Capitalization
Consolidated Assets
of the Group
At the end of 2019, the total market capitalization (market value of ordinary
and preferred shares) of PJSC TATNEFT named after V.D. Shashin increased
by 78.7 billion rubles (4.7%), versus the end of 2018, and amounted to 1.76 trillion
rubles ($ 28.4 billion USD). In dollar terms, total market capitalization grew
by 17.4% to $ 28.4 billion USD.
CAPITALIZATION TREND,
BLN RUB.
bln
rub
+37,3
1,24 TRILLION
RUB
vs 2018
COST OF CONSOLIDATED
ASSETS
1 684,7
1 763,4
ASSETS OF TATNEFT GROUP
BY SEGMENTS, RUB BLN
299,8
307,6
344,6
475,0
471,6
513,4
1 097,0
965,0
716,6
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Capitalization is calculated according to the methodology used by
the Moscow Exchange at the close of trading in the reporting year
TATNEFT ranks among Top-10 of
“100 most expensive public Russian
companies by capitalization”
(RIA Rating)
+36,2%
132,5 BLN
RUB
vs 2018
COST OF TATNEFT BRAND
IN 2019
TATNEFT ranks among top 10 of the
global oil and gas industry leaders
by shareholding value growth
(BCG rating)
TATNEFT ranks among top 10 rating
of “50 most expensive brands
of Russia”. (Evaluation by Brand
Finance)
20
1 238
1 201
138
232
34
450
140
253
33
406
122
251
27
367
1 094
1 107
121
799
286
131
32
30
339
356
297
301
340
369
384
2015
2016
2017
2018
2019
Exploration & production
Petrochemistry
Refining/sale of oil
and oil products
Banking
Corporate and other
DEVELOPMENT OF TATNEFT GROUP
CONSOLIDATED ASSETS STRUCTURE, %
11,1 %
31,0%
18,7 %
2,8 %
2019
36,4 %
13,8 %
4,3%
34,5 %
2011
47,4%
TATNEFT GROUP CONSOLIDATED ASSETS
VALUE, BLN. RUB.
138
384
2019
1 238
232
34
450
86
27
217
2011
298
628
Comparison for the period from 2011 is justified by the stage
of development of proprietary oil refining capacity
at TANECO complex
21
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Financial Performance
FREE CASH FLOW,
BILLION RUB
147,7
152,8
105,3
47,6
45,7
2015
2016
2017
2018
2019
5,1 BLN
RUB
INCREASE OF FREE
CASH FLOW
24,8%
RETURN ON AVERAGE
CAPITAL EMPLOYED (ROACE)
BLN
RUB
BLN
RUB
FREE CASH FLOW IN 2019
PROFIT ATTRIBUTABLE
TO TATNEFT GROUP SHAREHOLDERS
IN 2019
Added Value
ADDED VALUE INCREASE,
BLN RUB
662
679
436
SHARE OF ADDED VALUE
IN TOTAL OUTPUT, %
2019
2017
2018
2019
77% share of value added of the total output
The Company has provided a steady
increase in the value added amounted
to RUB 243 bln in 3 years with the
increased production up to RUB 883 bln.
679 BLN
RUB
ADDED VALUE OF TATNEFT
GROUP IN 2019
77%
SHARE OF ADDED VALUE
Taxes on TATNEFT Group,
Rub bln
62
2
7
284
60
2
7
299
16,2 %
0,5 %
2%
2019
81,3%
Mineral extraction tax (MET)
Others
Corporate property tax
Profit tax expense
40
2
6
187
32
2
6
130
35
2
6
119
22
23
For more information on financial results and comments please
refer to the consolidated financial report — further in the Annual
Report — page 210
2015
2016
2017
2018
2019
Excluding export duties, excise duties and insurance
premiums
Taxes included in non-bank transaction costs
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Consolidated Proceeds & EBITDA
Revenue distribution by segment
NET CONSOLIDATED PROCEEDS FROM
NON-BANKING ACTIVITIES,
BLN RUB
910,5
932,3
552,7
580,1
681,2
2,4%
REVENUE GROWTH
AS COMPARED TO 2018
2015
2016
2017
2018
2019
ADJUSTED EBITDA,
BLN RUB
314, 8
328,4
155,6
174,4
200, 8
4,3%
INCREASE IN ADJUSTED
EBITDA AS COMPARED TO 2018
2015
2016
2017
2018
2019
BLN
RUB
CONSOLIDATED
PROCEEDS IN 2019
24
PROCEEDS BY SEGMENT
(LESS INTER-SEGMENT PROCEEDS),
BLN RUB
712
13
31
50
257
361
13
8
45
241
281
588
553
18
39
247
249
934
955
16
23
52
371
24
23
48
399
2,5 %
2,37 %
5,1 %
41,8 %
472
461
2015
2016
2017
2018
2019
Exploration & production
Refining and Sales of crude oil & petroleum products
Petrochemicals
Corporate and others
Banking Activities
PROCEEDS BY PRODUCT,
BLN RUB
681
25
49
242
365
553
580
30
38
215
25
45
212
270
298
910
932
30
51
39
48
355
378
4,2 %
5,1 %
40,6 %
474
467
2015
2016
2017
2018
2019
Crude Oil
Petrochemicals
Petroleum Products
Others
48,3 %
50,1 %
25
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Creating value
for stakeholders
Shareholders and Investors
The Company provides one of the
highest rates of dividend yield
DIVIDEND YIELDS ON SHARES, %
(PREFERRED, ORDINARY)
17,68
The Company pursues the progressive dividend policy
recognizing dividends as one of the key indicators of investment
attractiveness for shareholders and strives to maximize the
dividends through steady growth of business profit margins. The
funds appropriated for dividends account for at least 50 % of the
net profit defined under RAS or IFRS depending upon which one
is the highest.
6,59
6,97
3,61
14,84
12,34
12,43
10,3
In 2019, we generated 152, 8 bln RUB of free cash flow. This
made us possible to pay out the 2019 six and nine months’
interim dividends in the amount of 149 bln 970 mln rubles.
Altogether, the 2019 dividends including the interim dividends
previously earned are proposed to be distributed in the amount
of 150 bln 118 mln rubles.
Detailed dividend policy can be found on pages 180–181
96,2%
NET PROFIT PER RAS FOR 2019 WILL BE
2019 DIVIDEND AMOUNT
2015
2016
2017
2018
DIVIDENDS PER SHARE, RUB
84,91
84,91
39,94
39,94
22,81
22,81
10,96
10,96
2015
Preferred
2016
2017
2018
Ordinary
BLN
RUB
SHAREHOLDERS’ CAPITAL
IN 2019
26
Context of Activities – Sustainable Development
We are highly committed to maximize the shareholding value while keeping balance
of interests of all stakeholders and create shared value.
Strict compliance with the laws and
the industry standards related to the
Company operations. Adherence
to the code of ethics, including
dedication to support diversity and
inclusive culture in the corporate
environment.
STAKEHOLDERS
• Shareholders and investors
• Business partners and clients
• Employees
• Contractors
• Local communities
• State
• Regulators
We are propelling the progress in
sustainable development together
with our communities taking into
consideration of the standpoint of
the stakeholders with regard to all
aspects of the corporate, operating
and social activities of the Company
509,6 BLN
TOTAL ACCRUED TAXES,
CHARGES AND FEES
RUB
24 BLN
SOCIAL INVESTMENTS
RUB
JOBS
60 THOUS
0,26
LOST TIME INJURY
FREQUENCY RATE (LTIFR)
1,3 BLN
SPENT FOR
OCCUPATIONAL
HEALTH AND SAFETY
RUB
12,3 BLN
SPENT TO PROTECT
THE ENVIRONMENT
RUB
12%
GROWTH
IN ENVORONMENTAL
SPENDING VS. 2018
The activities of the Company as one of the major taxpayer
in the region the Company operates in, play an important
role in providing revenues to federal and regional budgets
that promote the stable social and economic development of
the regions, create quality jobs, improve living standards and
welfare of the population, build social infrastructure, increase
added value and develop related industries.
TATNEFT GROUP ENVIRONMENTAL SPENDING
FROM 2017 TO 2019,
MLN RUB
12 325
11 002
10 275
Basic principles of the Company: recognizing that human life
and health takes priority over production activities; high level of
industrial safety; ensuring self-restoring capacity of ecosystems,
mitigating negative impacts on the environment and carbon
footprint for sustainable energy future. The Company reduces a
man-induced burden on the environment across all its business
streams.
2017
2018
2019
TOTAL RECYCLED AND REUSED
WATER SUPPLY,
MLN M3
DISTURBED LANDS, YOY
HECTARES
GROSS AIR POLLUTANT
EMISSIONS
THOUS. TONNES
EFFECTIVE APG UTILIZATION
RATE, %
1056,8
1683
1588
107,6
103,3
96,2
96,4
610,8
+73%
-6%
-4%
+0,2%
2017
2019
2017
2019
2017
2019
2017
2019
27
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Resource capacity
The Company sustains high level of hydrocarbon resource life. Propelling
improved reserve replacement performance is a key driver for the 2030
Strategy. The Company intends to replace its reserves at the rate of more than
100%.
Current reserves replacement
ratios (%)
As of 31.12.2019 per Miller&Lents,
Ltd. reserves estimates
151,82%
OIL 1Р
152,19%
OIL 2Р
154,96%
OIL 3Р
MLN
TOE
MLN
TOE
HYDROCARBON RESERVES
FOR TATNEFT GROUP
INCLDUING
PROVED RESERVES
28
TATNEFT GROUP
RESOURCE CAPACITY
• proved reserves 940,329 mln tonnes, including
unconventional oil reserves 33,254 mln tonnes;
• probable reserves 328,180 mln tonnes, including
unconventional oil reserves 43,379 mln tonnes;
possible reserves 36,428 mln tonnes, including
unconventional oil reserves 32,595 mln tonnes;
•
TATNEFT GROUP
HYDROCARBON RESERVES
• proved reserves - 998,294 mln toe, including unconventional
oil reserves - 33,522 mln toe;
• probable reserves - 346,446 mln toe, including
unconventional oil reserves - 43,608 mln toe;
• possible reserves - 36,672 mln toe, including
• unconventional oil reserves - 32,596 mln toe;
Total 1,305 bln tonnes, including unconventional oil reserves
of 109,228 mln tonnes.
Total 1,381 bln toe, including unconventional oil reserves
of 109,726 mln toe.
TATNEFT GROUP TOTAL NET CONTINGENT
RESOURCES
•
1C resources: 74 980 thous. tonnes (oil and condensate)
and 7 396 mln m3 (gas);
• 2С resources: 113 926 тыс. т (oil and condensate)
and 12 531 mln m3 (gas);
• 3С resources: 245 701 тыс. т (oil and condensate)
and 60 760 mln m3 (gas);
RESERVES REPLACEMENT RATIO (RRR)
• TATNEFT Group 1Р Oil RRR - 151,82%.
• TATNEFT Group 2Р Oil RRR - 152,19%.
• TATNEFT Group 3Р Oil RRR - 154,96%.
Hydrocarbon reserve additions are provided based on
rational use of natural resources and strict compliance with
environmental and industrial safety with application of cutting
edge technologies and techniques to prospect and explore
hydrocarbon fields.
Exploration management processes are aimed to efficiently
accomplish mineral resources base replacement program of
the Company, accelerate and improve oil field development
operations for further commercial production while integrating
intellectual and high-tech capabilities.
PROVED RESERVES LIFE (YEARS)
Rosneft
Lukoil
Gasprom Neft
Тatneft
Source: Data from companies
20
19
15
30
45,15 MLN
TONNES
2019 TOTAL INCREMENTAL OIL RESERVES
FOR TATNEFT GROUP
29
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT 2019 Key operating
performance
Oil and gas production
Refining and product output
OIL PRODUCTION
GAS PRODUCTION
OIL REFINING
PETROLEUM PRODUCT OUTPUT
GAS PRODUCT OUTPUT
Kbpd
600
500
400
300
200
100
0
30
558,3
28,7
564,8
28,9
576,4
29,5
581,5
29,8
531,8
27,2
15,5
959,3
16,0
997,8
15,2
945,3
14,9
925,3
Mln
tonnes
Kbpd
30
25
20
15
10
5
0
20
15
10
5
0
mln m3
1200
16,3
1009,6
1000
800
600
400
200
0
Kbpd
250
200
150
100
50
0
178,7
179,3
179,0
163,3
206,7
Mln
tonnes
9,1
9,3
8,5
8,9
10,3
12
10
8
6
4
2
0
Mln
tonnes
1,2
1,0
0,8
0,6
0,4
0,2
0
1,2
1,2
1,2
1,1
1,1
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
581,5 KBPD
AVERAGE DAILY
OIL PRODUCTION
16,3 KBOE
AVERAGE DAILY
GAS PRODUCTION
206,7 KBPM
AVERAGE DAILY
OIL REFINING
15%
PETROLEUM PRODUCT
OUTPUT GROWTH
0%
FUEL OIL
PRODUCTION
1,2 MLN
TONNES
GAS PRODUCT
OUTPUT
MLN
TONNES
OIL PRODUCTION
OUTPUT
MLN
TONNES
PETROLEUM PRODUCT
OUTPUT
31
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Trading and logistics
The Company ensures the optimum balance of distribution
of oil supplies to increase operating profitability in the market
environment.
In 2019, TATNEFT Group exported 59,6% of all its crude oil
sold to both the CIS and non-CIS countries (as compared to
62% in 2018), which was down 2.4% from 2018, with the oil sales
revenue overall lowered by nearly 1,6%.
The key driver for the lowered sales revenue was the plunge in
global oil prices, thus, the average URALS quotes dropped by 10%.
Meanwhile, the Company supplies its own refineries with the
feedstock to load their capacities in full.
The Company uses the JSC Transneft services, a state monopoly
and the operator of the Russian system of main oil pipelines to
transport its crude oil for export.
In 2019, the total petroleum product sales for the Group overall
amounted to 12,03 mln tonnes. In 2019, the revenue from
petroleum product sales for the TATNEFT Group amounted
to 378.5 billion rubles, which is up 6.6% from 2018. In 2019,
nearly 77% of crude oil export was transported via the Druzhba
pipeline (to Poland, the Czech Republic, Hungary, Slovakia,
and Germany), 5% was shipped through the Russian ports of
the Black Sea (Novorossiysk), and 18% was shipped through
the Russian ports of the Baltic Sea (Primorsk, Ust-Luga).
Oil products, gas products and petrochemical products
produced by the Company are sold in bulk abroad and in
the domestic market, as well as supplied to the marketing
subsidiaries of the Company for subsequent sale in Russia.
6,6%
PETROLEUM PRODUCT SALES
REVENUE GROWTH
Crude oil sales
Petroleum product sales
CRUDE OIL SALES,
MLN TONNES
CRUDE OIL SALES REVENUE,
BLN RUB
PETROLEUM PRODUCT SOLD,
MLN TONNES
PETROLEUM PRODUCT SALES
REVENUE, BLN RUB
19,96
20,3
20,1
22,1
21,8
474,3
466,7
365,2
11,1
10,9
10,5
11,3
12,0
241,7
355,0
378,5
2015
2016
2017
2018
2019
2017
2018
2019
2015
2016
2017
2018
2019
2017
2018
2019
CRUDE OIL SALES SHARES
BY SUPPLY DIRECTIONS
CRUDE OIL SALES REVENUE SHARES
EXCLUDING EXPORT DUTIES BY SUPPLY DESTINATIONS
PETROLEUM PRODUCT SALES SHARES
BY SUPPLY DIRECTIONS
PETROLEUM PRODUCT SALES REVENUE SHARES УЧЕТА
EXCLUDING EXPORT DUTIES AND EXCISE TAXES BY SUPPLY
DIRECTIONS
67,2 %
27,2 %
56,0 %
38,0 %
53,88 %
40,41%
69,1 %
25,2 %
59,0 %
35,0 %
56,67 %
37,58 %
44,0 %
52,2%
45,0 %
49,8%
39,4 %
57,4 %
42,5 %
52,4 %
42,5 %
51,7 %
36,6 %
59,5 %
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
5,6 %
6,0 %
5,71%
5,7%
6,0%
5,75%
3,8 %
5,2 %
3,2%
5,1 %
5,8%
3,9%
Domestic market
CIS-countries
Non-CIS countries export
Domestic market
CIS-countries
Non-CIS countries export
32
33
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Tire business
Proprietary research and development solutions, cutting edge
technologies and production capacities
Over 45 years in the
market. Full business
cycle of production.
TIRE MARKET SHARES IN RUSSIA
4%
9%
400
COMMODITIES
100
CONTRACTORS
IN WORLD
17
CERTIFIED TRADE AND
SERVICES CENTERS IN
THE WORLD «T&S»
3300
CONTRACTORS
IN RUSSIA
23%
53%
Passenger car tires
Combined truck tires
Other tires
Light truck tires
All steel truck tires
Key supply regions
50 COUNTRIES
SUPPLY DESTINATIONS
Saint-Petersburg
and Leningrad Region
RUSSIAN
FEDERATION
Kaluga Region
Moscow
and Moscow Region
Nizhni Novgorod Region
Perm Krai
20%
Voronezh Region
Rostov Region
Udmurtia
Tatarstan
Nizhnekamsk
Sverdlovsk Region
Krasnoyarsk Krai
Krasnodar Krai
Stavropol Krai
Ulyanovsk Region
Volgograd Region
Samara Region
Novosibirsk Region
Chelyabinsk Region
Irkutsk Region
Omsk Region
SOUTH
AMERICA
NEAR
ABROAD
Belarus
Kazakhstan
Brazil
Armenia
Azerbaijan
Uzbekistan
EUROPE
Belgium
Italy
Lithuania
Poland
Czechia
Romania
Serbia
Bulgaria
Greece
Sales market
24 %
31 %
36 %
MLN
TIRES
2017
2018
2019
76 %
69 %
64 %
MANUFACTURED IN 2019 г.
Russian market
Export market
34
35
14
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Fuel Filling Station Network
Petroleum product sales
RETAIL PETROLEUM PRODUCT SALES,
KTONNES
AVERAGE DAILY SALES PER FILLING STATION1, TPD
4 142
7,6
8,0
3 455
7,0
9,9
9,1
2 435
2 575
2 677
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
19,9%
RETAIL PETROLEUM PRODUCT
SALES GROWTH
1 без учета ТАУ, ТАТ
8,8%
GROWTH IN AVERAGE DAILY
SALES PER STATION
TATNEFT Fuel Filling Station
Network Locations
Saint Petersburg
and Leningrad Region
Pskov region
Arkhangelsk Region
Smolensk Region
Tver Region
Vologda Region
Yaroslav Region
Kaluga Region
Moscow
and Moscow Region
Tula Region
Vladimir Region
Voronezh Region
Nizhny Novgorod Region
Chuvash Republic
Mariy El Republic
Penza Region
Udmurtian Republic
Ulyanovsk Region
Tatarstan
Rostov Region
Krasnodar Krai
Volgograd Region
Samara Region
Sverdlovsk Region
Stavropol Krai
Bashkortostan
Chelyabinsk Region
INCLUDING
OUTSIDE RUSSIA
STATOINS
STATOINS
RETAIL BUSINESS NETWORK
36
NEAR
ABROAD
Belarus
Ukraine
Uzbekistan
Kemerovo Region
Priorities for our fuel filling
station network development
are focused on continual
improvement of environmental-
friendly properties of products
and operating processes of
filling station complexes, rational
consumption of resources
and reduction of greenhouse
emissions.
37
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Heat and power energy
Heat and power
generation
The installed electric capacity of
generating power is integrated into
the business model of the Company
and provides a full cycle of generation,
transmission and sale of thermal and
electric energy. The generated energy
is supplied to the Company’s facilities
(providing generation), external
consumers (commercial generation)
and the households.
1,53 BLN KW•H
PER YEAR
ELECTRIC POWER SOLD IN 2019
4,2 MLN
GCAL
2019HEAT ENERGY SALE
ELECTRIC POWER GENERATION,
BLN KW•H PER YEAR
1,45
1,2
1,53
2017
2018
2019
The energy capacities existing in
the Group’s asset portfolio make
it possible to increase the level of
vertical integration through reducing
the dependence of own energy needs
on external market conditions and
optimizing electricity costs at production
facilities while developing commercial
generation (supplies to external
consumers) and new growth points,
including clean energy.
3 418 876 GCAL
ОБЪЕМЫ ОТПУСКА ТЕПЛОЭНЕРГИИ
ООО «НИЖНЕКАМСКАЯ ТЭЦ»
22,3%
Heat energy with hot water
delivered to the city of
Nizhnekamsk
13,9%
PJSC Nizhnekamskneftekhim
63,8%
JSC TANECO
ELECTRIC POWER GENERATED
BY NIZHNEKAMSKAYA HPP LLC
THOUS
KW • H
38
39
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Investment policy
The contribution to sustainable growth of the Company’s value is attained
through investments in economically viable and highly competitive projects
yielding high profit margin, as well as development and implementation of
cutting-edge technologies.
The Company’s investment program
is focused on achieving strategic
goals, including improved profitability
of business operations, hydrocarbon
production growth, additions to
reserves, development of its own oil
and gas processing and petrochemicals
segment, tire business, fuel filling
station network, and getting new
projects launched on time and on
budget. The key priority of investment
activities is to increase investment
and operational efficiency, providing
technological solutions aimed at
minimizing the negative impact on the
environment and assessing the social
impacts of the Company’s investment
projects.
2019 Investment Program
Implementation
In 2019, the Company invested 129,6 billion rubles, including
99,9 billion rubles of capital expenditure in nature. The year on
year growth of the investment program in 2019 amounted to 31,8
billion rubles (+32.5%). The key driver in the investment growth is
the investments in the construction of the TANECO Complex of
Oil Refineries and Petrochemical Plants in Nizhnekamsk, as well
as acquisition of new assets in retail sales of petroleum products
and in production of synthetic rubber for the tire business.
Most of the Company’s investments is concentrated in Russia
and is aimed at growing of the production within the traditional
areas of the Company’s operations. The international projects
account for about 3% of the investments made in the lucrative
projects in the segments of Exploration and Production and
Retail Sales Network of Fuel Filling Stations».
COMPANY’S INVESTMENT AMOUNTS
CAPEX FINANCING
BLN RUB
BLN RUB
129.6
89,4
97,8
82,3
91,2
99.9
150
120
90
60
2017
2018
2019
2017
2018
2019
150
120
90
60
40
Investment Portfolio
In the structure of the 2019 investment program, the main
investments are allocated to the Exploration and Production
segment at the rate of 40% of total investments including the
operations within the Russian Federation (34 billion rubles) and
at the super-viscous oil fields (14,6 billion rubles), and to the
Oil and Gas Refining and Petrochemicals at 43% of the total
investments (55,6 billion rubles), accordingly.
The Company keeps a balance of investments in strategic
projects in the core business segments, which corresponds
to the achievement of strategic and current operational and
business goals.
40%
INVESTMENTS IN OIL
EXPLORATION AND
PRODUCTION PROJECTS
31%
GAINS IN INVESTMENT
PROJECT EFFICIENCY
FOR CONVENTIONAL OIL
PRODUCTION PROJECTS
43%
INVESTMENTS IN PROJECTS TO
DEVELOP ITS OWN OIL AND GAS
PROCESSING AND PETROCHEMI-
CALS WITH HIGH RESULTS TO BE
ACHIEVED
73%
INVESTMENTS TO EXPAND THE
RESOURCE BASE AND OIL PRODUC-
TION OUTSIDE OF THE REPUBLIC OF
TATARSTAN ARE DIRECTED TO DRILL-
ING OF PRODUCTION AND EXPLORA-
TION WELLS
2019 INVESTMENT PORTFOLIO
STRUCTURE
2,5 %
14,6 %
40 %
42,9 %
Exploration and production of oil and gas in the oil
fields of the Republic of Tatarstan (including super-vis-
cous oil fields), outside the Republic of Tatarstan and
Russia
Oil and gas refining and petrochemicals
Development of power generation, tire, retail busi-
nesses, mechanical engineering and service
subsidiaries
Social projects, corporate projects
RUB
2019 CAPEX
100 BLN
BLN
RUB
TOTAL INVESTMENTS
TATNEFT GROUP OVERALL IN 2019
41
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Investment projects in 2019
Exploration and production
Oil and gas refining
PROGRAM FOR CONVENTIONAL OIL
EXPLORATION AND PRODUCTION WITHIN
THE REPUBLIC OF TATARSTAN
The Company has been a success in delivering the investment
projects on well interventions and workover programs in the
PJSC TATNEFT’s licensed areas. According to the results of
2019, the planned oil production target was outperformed by
9%, the efficiency of investment projects rose by 31%, with the
planned target of 1 468 tonnes per million rubles of investment,
the actual performance was achieved as high as 1 929 tonnes
per million rubles.
OIL REFINERIES AND PETROCHEMICAL
PLANTS COMPLEX
In 2019, as part of the JSC TANECO’s project to build the Oil
Refineries and Petrochemical Plants Complex, the investments
were spent in the total amount of 42,3 billion rubles. During
2019, the «gasoline scheme» facilities were put into commercial
operation, such as: naphtha hydrotreatment unit, catalytic
reforming, xylene fractionation, and off-site facilities; the project
was implemented to increase the capacity of the hydrocracking
unit up to 110%; the base oil plant capacity was ramped up to 120
%.
The commissioning of the CDU-VDU-6 unit made it possible to
bring the design oil refining capacity of the TANECO Complex
up to 15,3 million tonnes per year. Moreover, with commissioning
of the vacuum distillation unit of the visbreaker the refining oil
capacity can reach 11,4 million tonnes per year with zero fuel oil
produced.
In the first half of 2019, the turnaround planned maintenance
of the process equipment of the delayed coking unit was
successfully completed. In October 2019, the kerosene
hydrotreating and diesel fuel hydrotreating plants were put
into commercial operation. The integrated testing of the
automated gasoline blending system was initialized. The start-
up and commissioning works began at the heavy coker gasoil
hydrotreating plant in November 2019. In December 2019, the
vacuum distillation unit of the visbreaker was brought onstream.
TATNEFTGASPROCESSING BUSINESS UNIT
AND ELKHOVSKY OIL REFINERY
In 2019, investment spending for the business unit amounted to
0,714 billion rubles, including as follows: 0,67 billion rubles for
the gas-processing plant’s projects; 0,045 billion rubles for the
Elkhovsky Oil Refinery projects.
The construction and installation operations were carried
out as follows: reconstruction of the raw gas compressor
unit; construction of the plant-wide flare system; retrofitting
and upgrading of safety systems; tie-in of a pilot lab solvent
deasphaltization unit (SDA); retrofitting and upgrading, re-
equipping at the Elkhovsky Oil Refinery and others.
The project to improve the Middle and Lower Carboniferous
reservoir management efficiency is moving ahead through infill
drilling. Since the start of the project in 2016, 1 297 wells were
drilled and 1 965 thousand tonnes of oil were produced. The
performance of wells drilled in 2019 showed better results than
targeted, in particular: oil production – 192 thousand tonnes
(126% of the production target), net present value (forecast for
effect duration period ) – RUB 14,6 bln (114% of the target) and
profitability index of the discounted costs – of 1,56 (111% of the
target).
DEVELOPMENT OF SUPER-VISCOUS OIL
FIELDS
In 2019, 14,6 billion rubles were invested in the development of
super-viscous oil fields, of which 4,9 billion rubles were invested
in drilling and 9 billion rubles in the surface facilities. Additionally,
three (3) domes were brought into the development. Altogether,
twenty (20) domes were in production. The surface facilities
were about to be completed on four domes with the oil
production expected to commence in 2020. Over 12 months, the
super-viscous oil was actually produced in the amount of 2,735
million tonnes.
The best opportunities and priorities for the project development
are infill drilling and bringing new domes into production. The
investment program worth of 13,3 billion rubles was shaped with
consideration to prospective dome drilling.
OIL EXPLORATION AND PRODUCTION
PROGRAM OUTSIDE THE REPUBLIC OF
TATARSTAN AND WITHIN THE RUSSIAN
FEDERATION
Strategically, the Company is focused on expanding its resource
base and oil production outside of the Republic of Tatarstan. In
2019, 3,5 billion rubles were invested in the project. Of these,
73% accounted for drilling production and exploration wells,
about 3% for seismic exploration and thematic exploration work,
9% for well interventions. In 2019, nine (9) production wells and
six (6) exploration wells were drilled, and 329 thousand tonnes
of oil were produced.
Retail sales network of fuel filling
stations
Tire business
The most significant existing investment projects:
•
•
Increasing the all steel cord tire output by 300 thousand
pieces per year. The 1st stage (assembling, blanking and
curing) equipment were commissioned, serial production
of outputs was commenced; as far as the 2-nd phase of
the project ( pre-production reconstruction) is concerned,
civil engineering construction works are underway, and the
equipment is expected to be delivered. The project is worth
4,6 billion rubles.
Increase in the Viatti tire output by 1,2 million tires per
year (up to 6,2 million pieces per year by 2021). The goal
of the project is to meet the market demand for modern
high-quality passenger and light-duty tires. To date,
the engineering design work is being completed, the
production sites are getting prepared for the equipment
installation, and the delivery of the process equipment
is also expected. The investments are estimated in the
amount of 1,6 billion rubles.
•
• Acquisition of an assembly complex to upgrade the facilities
for manufacturing of passenger car tires and light-truck
tires.
Increase in the all steel cord tire output by 1,2 million pieces
per year to bring the total all steel cord tire output to 2,8
million pieces per year. The estimated forward looking cost
of the project is expected to amount 19,3 billion rubles.
• Setting up of production of large-size tires and combined
tires (from 25 to 35 inches). The project is estimated to cost
3,5 billion rubles.
The assets (100%) of SIBUR Tolyatti LLC (later renamed
Toliatikauchuk LLC), Tolyatti, were acquired which include
production of various types of synthetic rubber used for the
production of high-quality tires. As part of the projects to
increase the output of all steel cord tires and set up the large-
sized tire production, a loan was raised from ZENIT Bank, using
the mechanism of subsidizing the interest rates in accordance
with the Decree of the Government of the Russian Federation
dated 23.02.2019 No.191 «On the state support for industrial
enterprises implementing corporate programs to increase
competitiveness».
The investment program for the retail business of petroleum
products sales is focused on the construction, purchase of new
facilities, reconstruction, retrofitting and upgrading of existing
retail sales network facilities in order to increase the margin
profitability and competitive qualities of the retail network,
including increasing motor fuel sales, as well as expanding the
potential of related services. In 2019, 12,9 billion rubles were
spent for those endeavours, including for the development
of the retail network outside the Russian Federation (i.e.
Uzbekistan) - 0,3 billion rubles. In 2019, the Company acquired
a Neste retail network of 75 fuel filling stations located in the
North-Western District of the Russian Federation and in Saint
Petersburg.
Power and heat generation
In 2019, the power generation segment spending amounted to
3,7 billion rubles. The investment program seeks to develop,
revamp and sustain the existing capacities of LLC Nizhnekamsk
HPP and the Almetyevsk Heating Networks (JSC APTC). The
most significant existing investment projects:
• Reconstruction of the installed TGME-464 power boilers
of the Nizhnekamskaya HPP for the petroleum coke
combustion in the form of dust from the DCU of JSC
TANECO.
• Process pipeline rack for heat supply to households in the
form of steam and hot water. In 2020, the investments are
expected to be spent in the amount of 3,3 billion rubles.
Composite materials
In 2019, the composite materials business spending totaled
0,797 billion rubles. The investments are focused on
implementing the projects to increase outputs and expand
production operations. The Alabuga Fiberglass projects:
modernization of glass furnace with 30% increased production
capacity; expanded product portfolio; upscaling of fiberglass
production to the full production cycle with 33% reduction in the
production cost of fiberglass meshes). The implementation of the
KAMATEK LLC project titled «Setting-up manufacturing of the
exterior parts of the KAMAZ cabin» in December 2019 resulted in
the output of the initial batch of finished products. The project is
intended to increase the production of automotive components
for automotive equipment by 70%. In 2019, the investment
projects were implemented at the Tatneft-Presscomposite
production facilities to enhance productivity and expand the
range of product output, as well as automate management
reporting.
42
43
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Investment process organization
The Company shapes a high-quality investment portfolio based
on the ranking of target investment priorities and the selection
of high-performance, least risky and forward-looking projects
in accordance with internal established criteria in all business
activities. As part of the implementation of the Sustainable
Development Goals, the key environmental, climate and social
impacts are factored into the investment planning.
COMPANY’S INVESTMENT PORTFOLIO
RANKING AND RATING CRITERIA
•
•
•
•
•
•
•
Alignment with the Strategy;
Economic efficiency;
Level of risk;
Project readiness for implementation;
A realistic timeline for project delivery
Environmental, climate and social impacts;
Best possible net present value..
PROJECT PORTFOLIO
MANAGEMENT PROCESS
The Company’s investment management process is integrated
with planning for achieving strategic goals at the corporate level,
business planning, budgeting, reporting and financial control,
project management and corporate governance.
INVESTMENT RISK MANAGEMENT
In order to improve the efficiency of investments, there is an
ongoing process in place to identify, analyze and evaluate risks,
as well as develop measures to minimize them, so that the
project could achieve a sustainable financial result.
Currently, the work is moving ahead to improve the requirements
for investment project passports with consideration made to the
assessment of the impact of investment projects on greenhouse
gas emissions.
Multi-factor risk assessment is based on expert and statistical
assessment of the most significant risks. Risk assessment and
multivariate modeling of the investment project performance is
carried out taking into account the correlation factors of inputs.
INVESTMENT COMMITTEE
In order to ensure the effective planning of the investment
program and oversee putting it into practice as well as monitor
risks the Company operates the Investment Committee.
The process of preparing investment projects has a two-tier
investment program reviewing system: the first corporate
tier Investment Committee and the second-tier Investment
committees by business streams such as «Exploration and
Production», «Refining and Marketing», «Other structural divisions
and subsidiaries». The Company’s standards for investment
activities define the goals, tasks, scope of duties and powers
of the investment committees, and introduce the requirements
for the format of preparation, justification and defense of the
materials on the investment programs and projects.
The Investment committees approved business investment
programs that meet the strategic development goals of
the TATNEFT Group until 2030. During 2019, the First-Tier
Investment Committee reviewed 27 projects, including three
(3) projects for the acquisition of new assets, while the Second-
Tier Investment Committees made decisions on more than 580
issues and projects.
KEY PRINCIPLES FOR SOUND AND
EFFECTIVE INVESTMENT DECISION-MAKING
• Shaping of best and highly profitable project programs in
alignment of the Company’s development goals, search
(creation) and implementation of cutting edge technologies,
and minimization of investment risks;
• Substantiation and reasonable sufficiency in determining
investment needs;
Using of the state support instruments;
Improving the level of performance discipline in the
preparation and implementation of projects,
Improving the skills and competence of personnel involved
in the investment management process;
Ensuring the Company’s accountability in environmental
and industrial safety, ensuring safe working conditions,
health protection, improving the quality of life of employees
and their families, contributing to the economic and social
development of the regions of operation and creating
favorable living conditions therein;
Management of changes including analysis of deviations
which enables to maximize the managerial influence
capabilities;
Monitoring of the investment phase and post-investment
monitoring is monitoring of performance indicators of
investment projects, programs in the investment phase and
during the operation of the investment targets up to the
break-even point.
Analysis of the results, which are used as the input data for
the continuous improvement process.
•
•
•
•
•
•
•
44
UNIFIED CORPORATE BANK FOR
INVESTMENT PROJECTS
The Company’s investment project bank consolidates current
investment initiatives and investment projects in all business
streams, enabling to provide comprehensive ranking of projects
and predict net present value for future periods with the change
modeling capability. Transparency and historical preservation
of expert opinions on the current projects make it possible to
improve the quality of decisions to be made in the future.
In 2020, the Company would invest in the development of its
projects, taking into account the risk assessment of external
drivers influencing upon the oil market situation and the
previously unpredictable consequences of the COVID-19 spread,
while maintaining the main volume of investments in strategically
important projects to ensure that the 2030 Strategy goals are
fulfilled.
Fund raising.
Debt portfolio
The Company takes a conservative approach to lending
structuring with the focus on minimizing risks and benefiting from
favourable financial leverage. The main criteria for selecting long-
term credit facilities are as follows: the expected credit amount,
its length, and target orientation.
Raising long-term loans to finance the investment program
assures that the loan terms meet the main investment
parameters of a particular project. A high priority is given to the
possibility of structuring loans with the repayments to be made
out of additional cash flows generated from the implementation
of new investment projects.
The credit limits are open and maintained in nine (9) major
Russian banks. The Company regularly monitors the main drivers
affecting the lending market and, as appropriate, strives to take
measures to manage market risks, including those related to
interest rate changes.
To date, the TATNEFT Group has the experience in structuring
long-term debt financing:
• Under the project financing concept (in particular, under the
•
•
•
TANECO Project Construction Loan);
Raising debt funds against guarantees of Export Credit
Agencies (in particular, Sache, EKF and Hermes);
Raising debt funds from syndicates of international banks;
Placement of classic and exchange-traded bonds, both in
ruble and Eurobonds as well.
In 2019, the Group’s debt portfolio (excluding ZENIT Banking
Group) consisted mainly of loans secured by Export credit
agencies (ECAS) that were raised by JSC TANECO during the
construction of the Oil Refining Complex. The remaining debt as
of 31.12.2019 was $US75,45 million.
As matter of fact, the Group has not been borrowing a large
amount of capital (apart from the ongoing efforts with the short-
term debt) since 2011 operating all these years amid paying off
the earlier raised funds. In December 2019, TATNEFT returned to
the public debt market by placing exchange-traded bonds in the
amount of RUB 15 billion for a period of 3 years. This transaction
was the first placement for the Company since 2010 and the
fifth in the Company’s history on the local market. The Company
successfully placed the issue at the level of initial offerings of
other first-tier issuers in the oil and gas sector in 2019.
45
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Credit ratings
CREDIT RATINGS AS OF 31.12.2019
Rating
agency
Fitch
Level of long-term
credit rating
Long-Term Credit Rating “BBB-”
Short-Term Credit Rating “F3”
Moody’s
Long-Term Credit Rating “Baa2”
“RAEX (Expert RA)
Credit rating -ruAAA per national scale for
the Russian Federation
Outlook on
credit rating
Stable
Stable
Stable
Date of change
(confirmation)
21.05.2019
13.02.2019
26.04.2019
2019
2020
Fitch Ratings has affirmed the long-term Issuer Default Rating
(IDR) of PJSC TATNEFT n.a.V.D. Shashin at the level of «BBB–»,
the rating outlook is «stable».
The Moody’s Investors Service rating agency (Moody’s)
upgraded the long-term credit rating of the Issuer of PJSC
TATNEFT n.a.V.D. Shashin to Baa2, changing the rating outlook
to «stable». The Moody’s decision is related to the Agency’s
upgrade of the sovereign rating of the Russian Federation to
Baa3 and the credit rating of the Republic of Tatarstan to Ba1.
The Expert RA rating agency affirmed the credit rating of PJSC
TATNEFT n.a.V.D. Shashin at ruAAA with a «stable» outlook.
In May 2020, Fitch Ratings affirmed Tatneft’s BBB- credit rating
with a stable outlook. According to Fitch Ratings, confirmation
of the credit rating reflects, inter alia, the Company’s low
debt level, significant oil production, as well as large proved
reserves.
The Fitch Ratings press-release confirming Tatneft’s credit
rating (in English) is available at fitchratings.com/research/
corporate-finance/ fitch-affirms-pjsc-tatneft-at-bbb-outlook-
stable-08-05-2020
In April 2020, the Expert RA rating agency affirmed the Tatneft
credit rating at ruAAA. The rating outlook is stable. The current
debt burden of the Tatneft Group is at a minimum level that
is assessed as a positive impact on the Company’s ability to
withstand the current stressful economic conditions. Foreign
exchange risks arising from the presence of revenue in foreign
currencies with predominantly ruble costs are assessed as
acceptable thanks to natural hedge existence as a result of the
specific taxation of companies in the industry. In the corporate
risks, the agency continues to note a high level of information
transparency of the Group and strategic support. The Expert RA
press-release on the Tatneft rating confirmation is available at:
raexpert.ru/ releases/2020/apr15a
Ratings and nominations in sustainable
development agenda in 2019
FTSE4GOOD Emerging Index
TATNEFT is included in the authoritative international stock
exchange index - FTSE4GOOD Emerging Index of companies
that are benchmarks of efficiency and transparency in
environmental, social and management (ESG) practices.
The index is compiled by the analytical division of the London
Stock Exchange - FTSE Russell - the leader in stock market
indices, which calculates indices for more than 80 countries
and for all asset classes, covering 98% of the global invested
markets. The professional investment funds with a total asset
management volume of about $16 trillion use the FTSE Russell
indices as a standard for making investment decisions.
Status of leader and top ranking
among private companies according
to corporate transparency survey
results of largest Russian companies
(Survey of the Russian integrated reporting network and the
Da-Strategy Corporate Development Agency)
The sampling included companies from the Expert-600
rating, as well as those listed on Moscow and leading foreign
exchanges (LSE, NYSE, NASDAQ HKEX, Euronext NV,
Deutsche Börse Group), system-forming organizations of the
Russian Federation, state corporations and their controlled
companies with at least three billion ruble revenue.
First place and status of most socially
effective oil and gas company in
Russia in social efficiency rating of
largest Russian companies among oil
and gas industry enterprises
(AK&M Rating)
The criteria for evaluating this category include disclosure
of information on socially significant measures of merit, such
as the payroll size and social benefits fund, the amount of
tax payments, expenditures on social programs, financing
of social development of regions and charity, environmental
protection costs, as well as the volume of purchases from
small and medium-sized businesses, to name but a few.
PJSC TATNEFT is listed among
leaders of RSPP’s sustainable
development index
The Russian Union of Industrialists and entrepreneurs
ranked TATNEFT among the 30 leaders of the Sustainable
Development Vector index.
In ESG — rating — RAEX rating,
TATNEFT is named in top leaders’
group, ranking second position
among largest Russian companies
99,9% transparency of Company’s
environmental performance
disclosure
(Interfax-Era Rating)
Openness Rating Diploma for oil
and gas companies of the Russian
Federation in environmental
responsibility for most dynamic
promotion in the rating
(World Wildlife Fund (WWF) rating)
46
47
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Growth Strategy
TATNEFT is implementing its
Strategy-2030 based on a stable
financial structure and effective
investment portfolio pursuing
the goal of maximizing free cash flows
and continuously improving
operational results and asset
performance.
1
Expanding the geographical reach and the
resource¬ base outside the Republic of Tatarstan
and the Russian Federation, including gaining the
access to oil and gas reserves with the possibility¬
of forming strategic alliances, as well as developing
new markets for selling¬ product outputs.
3
Strengthening the technological capacities and
capabilities with effective investment in the
development and modernization of the production
operating base through the accumulation of digital
high-tech solutions, development of new and novel
tools and techniques and improving the efficiency
of used equipment and technologies, as a single
platform for managing the production operations of a
new generation at all stages of the value chain.
2
Ramping up the output of profitable oil and gas
production shifting from production stabilization to
sustainable organic growth, enhanced oil recovery
at licensed fields under development, and extensive
development of new fields, including super-viscous oil
and hard-to-recover oil, in the Republic of Tatarstan,
while cutting down operating and investment costs per
unit.
• Asset life >30 years
•
•
Reserve replacement rate >100 %
Oil production growth up to 38,4 mln tonnes per
year
7
Ensuring sustainable development based on
a high level of corporate social responsibility,
industrial and environmental safety and the
environmental balance in the course of the
production and business operations.
6
Keeping up with a leading position in the Russian
tire market and developing new market niches
through effective implementation of marketing
programs, improving the quality and expanding
the product slate.
• Production output and sales growth
according to market conditions in the 2030
horizon
5
Improving the efficiency of the retail network
for the sale of petroleum products, ensuring the
sale of more than 50 % of gasoline and diesel
fuel produced at the Company’s refineries,
through fuel filling stations and small wholesale;
updating the brand concept and unique trading
offer with increasing service standards and the
development of accompanying services.
4
Boosting the output and sales of competitive finished
products with high added value that meet the
world environmental standards and future market
requirements, development of Company’s own
refining and petrochemical capacities.
• Ramp-up of crude refining capacities
• up to 15,7 mln tonnes per year
• Oil conversion ratio 99%
Light product yield 89%
•
Premium product output growth
•
Optimized sales logistics
•
Optimum balance of crude and petroleum
•
product sales
48
49
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT System of key performance
indicators
The success of our strategic ambitions depends on the quality and timely
assessment of the competitive environment, economic, political, social and
environmental factors, trends and uncertainties, as well as the assessment
of compliance with our business model. We develop competitive projects by
constantly reviewing and monitoring our investment portfolio, while generating
higher cash flows from operations and cutting down costs.
The Company uses scenario planning, taking into account the
multi-factor nature of forecast data. Our business plans are
focused on creating and maintaining a competitive edge.
We continuously develop our risk management and internal
control system, which makes it possible to identify risk drivers
and respond promptly to them.
The Company’s management remuneration is aligned with
evaluating the achievement of strategy goals based on the
performance indicators that meet the expectations and serves
the best interests of shareholders.
System of key performance
indicators and their achievement
assessment
Организация системы КПЭ в Группе Татнефть и основ-
ные Setting up of the KPI system across the TATNEFT Group
and the main principles of the long-term incentive program for
key employees of the TATNEFT Group were approved by the
Company’s Board of Directors (Decision No. 3 of 26.09.2018).
The assessment of achievement of annual target levels,
individual contribution and quality of management decision-
making helps motivate employees to implement the 2030
Strategy goals on a step-by-step basis.
The targets of the long-term development strategy take the form
of specific performance indicators annually, which are reflected
in the individual KPI maps of the management team as part of the
cascading and top-down decomposition procedures.
The library of current key performance indicators is fixed in
the corresponding matrices across all business and functional
streams of the TATNEFT Group, which provide for the procedure
and methodology of calculation and are approved on an annual
basis at the level of the Company’s top management.
The number of participants in the program as at the reporting
year-end is about 550 people.
The list and target values of performance indicators for 2019 for
each top manager of the Company were developed on the basis
of a consolidated business plan approved by the Management
Board in December 2018, which are divided into two (2) groups
i.e. collective and individual ones.
The collective indicators include top-tier financial and economic
metrics, production objectives of the consolidated business plan
and forecasts for the development of business streams. In 2019,
as part of the improvement and development of the cash flow
planning and controlling system and the quality of investment
activities, an additional indicator such as free cash flow was
introduced, which has been applied in the corporate incentive
system since 2018. The individual KPIs are developed based on
business initiatives, projected performance indicators, medium-
term objectives and strategic goals set for a specific manager.
The KPI system development service (with selective involvement
of specialists from the internal audit department and functional
experts) carry out an audit of the performance quality, focusing
on the examination procedure in relation to those areas that may
contain distortions.¬¬¬ The assessment results are submitted
annually for review to and accepted by the decision of the
members of the PJSC TATNEFT Management Board for annual
remuneration payment at the reporting year-end. Factors that
are not related to the scope of management of the company’s
managers (geopolitics, growth in world oil prices, currency
exchange rates) are subject to the KPI normalization procedure.
The factor analysis, which reveals the controlled and
uncontrolled impact zones, helps determine the objective
zone of influence of the manager on the results of the
activities.¬ Normalization is performed under the Regulation
on normalization of performance indicators in the review and
assessment of the Company’s management performance, which
is an Annex to the Methodology for setting and assessing the
fulfilment of key performance indicators «(approved By order of
PJSC TATNEFT No. 09 of January 16, 2019).
The use of the KPI system in the Company shows a
significant contribution to the achievement of the strategic
goals, demonstrating growth in both operating and financial
performance indicators, and annually increasing the income of
the Company’s shareholders.
As at the end of 2019, the planned performance indicators, given
normalization, had been fulfilled.
50
51
BOD REPORT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Climate change
Under the Paris Agreement humanity must keep to global average temperature
rise within 1.5–2 C from the pre-industrial level.
The Company clearly sees its
contribution to sustainable energy
future in the context of transition
of the global economy to a low-carbon
development path associated with
climate change and ensuring global
economic growth.
The Company shares the global climate change concern and
the Caring for Climate Strategic Global Partnership initiative of
the UN Global Compact and the secretariat of the Framework
Convention on Climate Change (UNFCCC), embodied in the Paris
Agreement.
Given that energy companies generate significant greenhouse
gas emissions during their production activities that can affect
the climate and create climate risks, as well as an increase in
energy demand to achieve and maintain a good quality of life,
the Company seeks to contribute to sustainable development
and building of innovative energy infrastructure..
László Gerecs
Member of the Board of
Directors of PJSC TATNEFT,
independent director authorized
by the Board of Directors on
climate policy of the Company.
From his report made at the
II Science and Innovation
International Forum, Almetyevsk,
October 2019
«The Company shapes a clear-cut stance in planning its contribution
to reducing carbon footprint. We set our goals, monitor and control
greenhouse gas emissions on the basis of the international standards,
best practice in the industry and ongoing progress. The human factor
is crucial as we need to convince our communities that we are in the
group of enterprises that will go forward on climate change agenda,
because it is a serious responsibility to the public and the future.»
COMPANY’S GREENHOUSE
GAS EMISSIONS ACCOUNTING
SINCE 2015.
COMPANY PREVENTS AIR
EMISSIONS OF NEARLY 3 MLN
TONNES OF CO2-EQUIVALENT
GREENHOUSE GASES PER
YEAR THANKS TO HIGH APG
UTILIZATION RATE.
5%
LOWER GREENHOUSE GAS
EMISSIONS FROM 2016
96,4%
EFFECTIVE APG
UTILIZATION RATE
STRATEGIC GUIDELINES
GOVERNANCE
BUSINESS OPERATIONS
GREEN TATNEFT BRANDS
The Company recognizes the importance of meeting the needs and
demand of the public for moving towards cleaner energy and takes
into account the fundamental trend of rebalancing of energy mixes
towards less carbon-intensive fuels, development of new energy
sources to reduce greenhouse gas emissions, as well as a variety
of possible long-term scenarios for global energy system transition
to decarbonization. Although, the social and economic growth and
better quality of life involve higher energy consumption. Being aware
that there are a lot of uncertainties in the energy transition consumers
are expected to continue using oil and gas for a long time to come.
Not all types of economic activity can be easily, quickly, or cost-
effectively electrified. We see a permanent role of oil and gas in the
future along with renewable energy, hydrogen and new technologies.
The key task in this direction is to develop our business model,
which seeks to minimize and subsequently to zero emissions. These
ambitions will be determined by specific goals for the long term with
intermediate target values.
Climate change issues are addressed at the strategic level of the
Company's management. In September 2019, the Board of Directors
adopted a new version of the Climate Change Environmental Policy.
At the same time, the Board of Directors appointed a member of
the Board of Directors, Independent Director László Gerecs to be
responsible for overseeing the Company's climate change activities.
In March 2020, the Board of Directors considered the Environmental
Program Roadmap with considerations to the climate change to
formulate target values for reducing greenhouse gas emissions.
The topics of reducing the environmental impact and climate
aspects are regularly reviewed by the Board of Directors and the
Management Board. The Corporate Governance Committee of the
Board of Directors under the leadership of the Chairman of the
Committee - General Director of PJSC TATNEFT Nail U. Maganov
routinely coordinates shaping of program actions with regard
to the TATNEFT Group’s climate change policy and sustainable
development.
CONSUMERS AND PARTNERS
INTERNATIONAL AND NATIONAL INITIATIVES
A significant part of emissions associated with the Company activities
are emissions from consumers of our products. We will work with
our partners, contractors and customers so that they should also
take steps to reduce their emissions to achieve the common goal of
coming to zero emissions.
The Company is committed to the international initiatives aimed at
preventing climate change in accordance with SDG 13 of the UN
Global Compact on Climate and related international and national
programs.
The IPIECA industry standard is being integrated into the Company's
activities to improve the sustainable development practice in
the oil and gas industry. It is planned to join the Company to the
Science Based Targets Project (setting scientifically based goals to
reduce greenhouse gas emissions) and a number of other effective
platforms.
The tasks to reduce greenhouse gas emissions are consistently
integrated into business processes. We plan to assess the impact on
the environment, including an anthropogenic one, throughout the
entire value chain, including logistics and supply.
IN 2019, WE LAUNCHED TWO SPECIAL
TASK PROJECTS:
•
Implementation of initiatives and actions of the Company on
climate aspects. Greenhouse gas management and accounting
processes.
• Analysis and selection of effective methods for reducing
emissions, capturing and processing of carbon dioxide.
We carry out a detailed inventory of emission sources, analysis and
selection of promising methods for reducing emissions, carbon
dioxide capture and processing. The Company intends to develop a
product line with lower carbon emissions and to develop renewable
energy (clean low-carbon energy generation) and biofuels. In order to
improve the climate management system effectiveness, it is planned
to integrate the standards, such as ISO14064–1: 2018; ISO 14064–2:
2019; ISO14064-3: 2019.
INFORMATION DISCLOSURES
The Company discloses financial climate-related information TCFD
(Task Force on Climate-related Financial Disclosures) and intends to
become one of the CO2 disclosure leaders of the Carbon Disclosure
Project (CDP).
REPORTING
Climate information is disclosed in the Annual Reportand
Sustainability Report. In 2020, an independent verification of
greenhouse gas emissions is planned to be done by international
standards.
High environmental properties of the Company's products, energy
efficiency and performance of the production processes and its
model of rational consumption of resources that contribute to the
continuous reduction of specific greenhouse gas emissions into the
atmosphere form a single “green” brand of the Company.
All products of the TANECO fuel line such as gasoline of grades
AI-92, AI-95, AI-98, AI-100 and diesel fuel comply with the EURO-6
environmental standard and represent a “green” calling card of the
Company.
In order to create a favorable environment and increase the
absorption of greenhouse gases TATNEFT has been implementing a
landscaping program since 2000 with more than 10 million seedlings
of trees and shrubs planted over this period.
SCIENCE
In order to reduce the negative impact on the environment and
climate, increase the sustainability of ecosystems, the Company uses
the best available technologies and solutions that have proved their
effectiveness. At the same time, innovative methods are being sought.
The development of new technologies is provided by the research
and development unit of the TATNEFT Group, which interacts with the
leading experts and specialists based on TatNIPIneft.
SCIENCE AND INNOVATION INTERNATIONAL
FORUM OF THE COMPANY
In October 2019, TATNEFT organized the 2nd Science and
Innovation International Forum in Almetyevsk, bringing together
distinguished Russian and international experts, representatives of
government agencies, and leading industry experts. Opening the
plenary session of the Forum, the General Director of TATNEFT
Nail U. Maganov noted the importance of contribution of industrial
companies and joint efforts in solving the global agenda of reducing
the carbon footprint. A panel discussion on Global Decarbonization
and Green Technologies was held during the forum.
52
53
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Upstream
Exploration
Exploration operations within
the Republic of Tatarstan
Within the Republic of Tatarstan, the Company holds 67 licenses,
of these, 36 mineral exploration and extraction licenses, 27
geological study licenses, including mineral prospecting and
appraisal, mineral exploration and extraction, 4 geological study
licenses, including mineral prospecting and appraisal. The
exploration operations provided for in the license agreements
for the Company's license areas are fully performed. In 2019, the
exploration activities were carried out within the Cheremshano-
Bastryksky, Tlyanchy-Tamaksky, Stepnoozersky exploration
zones, and the Agbyazovsky, Yersubaikinsky, Sokolinsky subsoil
areas located in the Republic of Tatarstan.
The exploratory drilling carried out in Tatarstan in 2019 amounted
to 41,0 thousand meters, including exploration drilling – 10,3
thousand meters, prospecting drilling – 30,7 thousand meters.
The construction of 25 exploration wells was completed, of which
21 wells were proved productive. Based on the results of seismic
surveys, one (1) new Adeyevskaya structure (the North-Eastern
Dome) with prospective resources for the Do category (original
oil in-place/recoverable) – 816/294 Ktonnes was prepared for
deep drilling.
In 2019, within Tatarstan, the quantity of 36,679 million tonnes of
oil was added to the recoverable oil reserves for all categories
(A+B1+C1+B2+C2), including the incremental reserves through
exploration that amounted to 30,439 million tonnes.
84%
SUCCESS RATIO
OF EXPLORATORY DRILLING
IN TATARSTAN
41,0 THOUS.
M
EXPLORATORY DRILLING
METERAGE IN TATRSTAN
IN 2019
IN 2019, THREE OIL FIELDS WERE DISCOVERED WITHIN
THE REPUBLIC OF TATARSTAN, NAMELY: KANEVSKOYE,
USINSKOYE AND MYUDOVSKOYE. THE TOTAL
ADDITIONS TO THE RECOVERABLE OIL RESERVES FOR
THE C1+C2 CATEGORY AMOUNTED TO 0,696 MILLION
TONNES.
KANEVSKOYE OIL FIELD
The Kanevskoye oil field (Zainsky District) was discovered within
subsoil license TAT 02263 NE Cheremshano-Bastrykskaya area
by prospecting well No. 11927, that tapped the oil accumulations
within Lower Carboniferous carbonate deposits of the Vereiskian
horizon and the Bashkirian stage, as well as carbonate deposits
of the Famennian stage, the Dankovo-Lebedyansky and Yeletsky
horizons, with the water-free oil tested at flow rates of 2,7 and
21,6 tonnes. For the field, the C1+C2 category reserves totaled
779/216 thousand tonnes (OOIP/recoverable).
USINSKOYE OIL FIELD
The Usinskoye oi field (The Muslyumovsky District) was
discovered in the southern part of the Agbyazovsky licensed
area of the subsoil based on the results of drilling and testing
of prospecting well No. 944, which tapped a 2,2 m thick net oil
pay zone within in the sediments of the Upper Devonian Pashian
horizon. The well tested oil with the flow rate of 12,5 tonnes per
day. The initial reserves for the C1category were estimated at
579/272 Ktonnes (OOIP/recoverable).
MYUDOVSKOYE OIL FIELD
The Myudovskoye field (Nurlatsky, Aksubaevsky Districts) was
discovered by prospecting well No. 1369, where the terrigenous
Bobrikovsky horizon produced oil with a flow rate at 2,5 tonnes
per day. The C1+C2 category reserves amounted to 934/208
thousand tons (OOIP/recoverable).
Exploration operations outside
the Republic of Tatarstan
Outside the Republic of Tatarstan, the Company holds 35
licenses, of these, 16 mineral exploration and extraction licenses,
16 geological study licenses, including mineral prospecting and
appraisal, mineral exploration and extraction, 3 geological study
licenses, including mineral prospecting and appraisal.
In 2019, the exploration operations were carried out by five
(5) subsidiaries and affiliated companies within the Ulyanovsk,
Orenburg, Samara regions, the Nenets Autonomous District and
the Republic of Kalmykia.
In 2019, the prospecting and exploratory drilling meterage
outside Tatarstan was delivered in the amount of 23,2 thousand
meters.
The construction of two (2) prospecting wells and two (2)
exploration wells was completed. The operations were carried
out within the Samara, Orenburg Regions and the Nenets
Autonomous District.
Over 2019, the additions to the recoverable oil reserves for
all categories (A+B1+C1+B2+C2) in the Nenets Autonomous
District amounted to 2,997 million tonnes, all reserves were
added through exploration efforts; in the Samara Region for all
categories (A+B1+C1+B2+C2) - 3,667 million tonnes, including
the reserves additions through exploration totaled 1,679 million
tonnes; reserves additions for all categories (A+B1+C1+B2+C2) in
the Orenburg region amounted to 1,807 million tonnes, including
the reserves increment through exploration that amounted to
0,099 million tonnes.
100%
SUCCESS RATIO
OF EXPLORATORY DRILLING
OUTSIDE TATARSTAN
23,2 THOUS.
M
EXPLORATORY DRILLING
METERAGE OUTSIDE TATARSTAN
IN 2019
SAMARA REGION
In the reporting year , LLC Tatneft-Samara prepared five
structures in the Samara Region for deep drilling with the
D0-category prospective oil resources (original oil in-place/
recoverable) standing at 2631/1278 thousand tonnes based on
the results of 3D CDP seismic surveys.
LLC Tatneft-Samara purchased the Nugaykinsky area (based
on the auction results), which contains 10 structures with in
the D0 category prospective oil resources (OOIP/recoverable)
– 12176/3450 thousand tonnes, and the D1-category inferred
oil resources in the amount of 1,9 million tonnes, and the
Otradnensky area with the inferred oil resources for the DL-
category – 0,5 million tonnes, D1 cat. – 1,2 million tonnes. Five
structures with prospective oil resources for the D0 category
(OOIP/recoverable) – 23211/4350 thousand tonnes in the
Ulyanovsk Region within the Popovkinsky area were transferred
to be put on the books of Tatneft-Samara LLC.
NENETS AUTONOMOUS DISTRICT
In the Nenets Autonomous district, LLC Tatneft-NAO acquired the
Jabotinsky area (at auction) where there are two (2) structures
with the D0-category prospective oil resources (recoverable) –
1,184 million tonnes, inferred resources for DL – 1,8 million tonnes,
D1 – 17,0 million tonnes and the license (flanks) of the Tibeivissky
oil field the additions to the oil reserves for C2-category
amounted to 1730/640 thousand tonnes.
In 2020, the Company intends to drill 22 exploratory wells with a total meterage
delivery of 28,1 thousand meters of rocks in its oil fields and exploration zones
for the purpose of reserves replacement in Tatarstan, and to run 2D and 3D CDP
seismic surveys with the delivery of 280 km and 558 km2, accordingly.
In 2020, the Company intends to drill 22 exploratory wells with a total meterage
delivery of 28,1 thousand meters of rocks in its oil fields and exploration zones
for the purpose of reserves replacement in Tatarstan, and to run 2D and 3D CDP
seismic surveys with the delivery of 280 km and 558 km2, accordingly.
54
55
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Geological prospecting
technologies
The Company assiduously applies and implements new effective
methods of exploration and study of reservoir properties, modern
analytical equipment, and uses best practices of leading Russian
and foreign companies.
In 2019, new equipment with a thermal desorption unit was
introduced to perform prospecting and exploration geochemical
studies using the technology of passive adsorption of hydrocarbon
components, which significantly improved productivity and led to
the less amount of subcontracting work.
In 2020, with the patented geochemical technology (patents of the
Russian Federation No.2478944 2499285) the surveys are being
completed at the Zapadno-Alexandrovsky, Irgizsky, Izyumovsky,
Rubezhinsky licensed areas of Tatneft-Samara LLC. The obtained
geochemical data will make it possible to evaluate the oil content
and prioritize the most oil-prospective reservoir targets.
At the end of 2019, a pyrolytic plant was introduced that allows
performing a pyrolytic method to analyze core samples taken
from unconventional reservoirs to assess the productivity of hard
to recover reserves. This will help a lot in dealing with studying
hydrocarbon generating properties of kerogen and substantiating
the conditions of the Domanic reservoirs for estimating and
updating oil field reserves.
From 2014 to 2020, the Neuroseism Research and Production
Center of TGRU (Tatar Geological Prospecting Division), which
is part of PJSC TATNEFT, developed new software tools and
methodological techniques to adapt and optimize the patented
Neuroseism technology (Russian patents No.2094828 and
No.2158939) - a special modification of the Neuroseism-
Foreground. This modification is intended for predicting the
oil content of the Domanic deposits within the Franco-Famen
carbonate play. This neurocomputer prediction method was tested
in 2015.
In the period of 2017 through 2019, according to the Neuroseism-
Foreground modification, the work was accomplished to study the
Domanic deposits in the area of the Vostochno-Makarovsky field.
Based on the results of the work performed in this area, the
paperwork was prepared for patenting the software suite "The
Domanic hydrocarbon probability determination method"
(Proposal for patenting No. A-659 in KAS Edison). The prepared
paperwork was filed to a federal government budgetary institution
- the Federal Institute for Industrial Property.
In parallel with the development of Neuroses-Foreground
methodology, currently, the staff of the Neuroseism Scientific
And Production Center of TGRU (Tatar Geological Prospecting
Division), which is part of PJSC TATNEFT, has developed a new
Wavelet-Selector software suite and methodological techniques
that allow the adaptation and optimization the Wavelet analysis
technology for seismic data to predict parameters of reservoir
properties of productive deposits.
From 2017 to 2019, this technology was applied to build a
geological model of an oil field for the Tula horizon deposits of the
Gareysky and Tatsuksinsky oil fields. Based on the results of the
work performed in this area, the software patenting paperwork
is also being prepared as follows: "The technique to determine
porosity and permeability properties of rocks based on seismic
survey data" (Proposal for patenting No. A-580 in KAS "Edison").
The technique of geo-radar electromagnetic pulse sensing for
mapping structural highs and super-viscous oil accumulations
within the upper part of the sedimentary cover (patent of
the Russian Federation No. 2551261 of April 16, 2015) was
implemented in 2019.
The electromagnetic georadar pulse sounding surveys
were accomplished within the Karamyshevsky high of the
Cheremshano-Bastryksky zone. In the course of the project, the
geological setting was studied using the borehole-to-borehole
measurements and the outline of the bitumen reservoir was
updated for the Karamyshevskaya high structure, that is confined
to the terrigenous reservoirs of the Sheshminsky horizon of the
Ufimian stage. The geo-radar and geochemical studies have
improved the reservoir fluid saturation projections, while a
comprehensive approach to exploration has reduced well drilling
risks.
Adoption of the innovative technique helps evaluate the capacity
of the super-viscous resources and make estimates of average net
oil pay thicknesses and oil saturation capacities.
Technologies and solutions in oil
field development
FORMATION HYDRAULIC FRACTURING
Hydraulic fracturing is the basic well stimulation technique in the
Company. The Company has a great deal in hydraulic fracturing
operations. Over the past few years, hydraulic fracturing
operations have tripled in terms of their amount. At the year-end
2019, 859 frac jobs were completed (including 809 wells of the
operating stock and 50 newly drilled wells), and more than 900
wells are planned to be fractured in the current year 2020.
At the same time, along with the frac job amount growth, there
are average daily oil rate gains on hydraulic fracturing, reaching
its historical high of 5,3 tonnes per day. The incremental
production using hydraulic fracturing in 2019, taking into account
converted wells, reached 2,1 million tonnes of oil. Altogether, the
Company performed more than seven (7) thousand hydraulic
fracturing jobs (Fig.2) with cumulative additional oil production of
19,2 million tonnes.
The dynamic growth of efficiency achieved through an integrated
approach including: correct selection of technology tools for a
specific reservoir treatments with the existing restrictions; the
development of modern frac fluid and acid compositions for specific
producing reservoir targets; modern analytical tools involved in
hydraulic fracturing design implemented within hydraulic fracturing
software simulators; assessment and consideration of the interwell
space influence during frac operations.
TECHNOLOGY TO BUILD LONG SMALL-
SIZE LATERALS WITH SUBSEQUENT WELL
STIMULATION (TAMYR)
TATNEFT carries out drilling operations for small-size horizontal
laterals with subsequent well stimulation using the TAMYR
technology. A high priority for the Company is to deploy this
technology in oil saturated reservoirs with nearby aquifers
where the application of other technologies (such as multistage
fracturing and selective large-volume acidizing) is highly risky
and fraught with potential water production.
The technology uses of downhole tools (whipstock and
downhole motor assembled on a coil tubing) to sequentially
make small-size side channels in the open hole of a horizontal
well following with an acid treatment of the created channel.
As a result of the implemented works, we managed to raise the
incremental production from 1,6 to 3,8 tonnes per day thanks to
the constant improvement of the technology.
In 2020, the works will continue with the aim of reaching the
technological limit of this technology. This year's program
provides for improving the technology through the use of rotary
steerable tools for drilling, the selective acid treatment of new
channels and the use of new formulations of acid compositions.
TECHNOLOGY OF DYNAMIC MATRIX ACID
TREATMENT OF WELLS
The Company continues to improve acid formulations to expand the
applicability scope of well stimulation techniques for various mining
and geological setting.
In 2019, the Company developed and introduced its proprietary
technology of dynamic matrix acid treatment of wells.
A range of the research and practice works on matrix acid treatments
in a dynamic mode was implemented in 53 wells. The oil flow rate
of the wells treated using this technology increased by 106% of the
similar wells that were not acidized. Be the project results it was
decided to replicate this technology in wells after drilling.
TECHNOLOGY OF APPLICATION OF
HYDROPHOBIC (INVERT) EMULSION SYSTEMS
FOR IMPROVED OIL RECOVERY FROM WATER-
FLOODED HETEROGENEOUS RESERVOIRS
(MGES-M)
By the year-end 2019, the Company performed 701 EOR treatments
(of these, 616 treatments were done in injection wells, and 85 - in the
producing wells).¬ The incremental EOR production totaled 2,89 million
tonnes of oil, including converted wells, the additional production from
wells was 290 thousand tonnes in 2019 . The improved efficiency is
achieved through a comprehensive approach, including introduction
of new technologies, replacement of chemical components in the EOR
technologies with better performing ones.
The Company has developed and applied a technology for using
hydrophobic (invert) emulsion systems to increase oil recovery from
water-flooded heterogeneous reservoirs (MGES-M).
The MGES-M technology is designed to manage the development of
oil fields or their areas where the reservoirs have different permeability
and water flooding was used for a long time with the technique of
selective isolation of water-saturated interlayers.
The technological process is implemented by pumping a two-
component emulsion system developed at the TatNIPIneft Institute,
based on an emulsifier and mineralized water with a step-by-step
increase of water content.
The mechanism of the MGES-M technology is based on in-situ creating
of the emulsion with a high hydrophobic capability, resistant to erosion,
increasing filtration resistance of the watered (most permeable)
reservoir intervals, which leads to better conformance control and,
consequently, improved.
The MGES-M technology is implemented in injection wells that
are under injection of both mineralized and fresh water. The target
reservoirs are watered terrigenous reservoirs of pore and fracture-pore
type, which have heterogeneous permeability in the cross-section or
in the formation structure. As a result of the application of the MGES-M
technology at 209 injection wells, the total current technological effect
yielded 305,6 thousand tonnes (1462,5 tonnes per well job).
56
57
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Oil and gas production
One of the Company's primary strategic goals is to shift
oil production from stabilization to sustainable growth at
its licensed fields in Tatarstan.
The upstream business comprises the Company's oil and gas
production divisions and subsidiaries. Most of the oil and gas
exploration and production activities are concentrated within the
Company and are centrally managed by the Tatneft-Upstream
Division.
The Company aims to change the structure of oil production in
favor of high-margin products, improving the structure of the
investment program in the direction of activities with the highest
net present value for the duration of the effect and optimizing
operating costs through the implementation of the IDP program,
the improved IT projects complex efficiency, and implementation
of innovative technologies. The Company maintains the
production efficiency, including in terms of unit operating costs
despite the industrial producer price inflation rate (2.9 %).
EXTENDING ECONOMIC LIFE OF OIL FIELD
DEVELOPMENT
A favorable economic condition for the development of
the Company's oil fields is the use of differentiated mineral
extraction tax rates and benefits on the customs duty on
oil. The application of lower MET rates and lower export
customs duty rates for oil is a good incentive for the
development of the Company's oil fields.
In the subsoil areas in the NAO, the tax on excess profits
from hydrocarbon production was applied.
In 2019, oil production of these fields was more than 25
million tonnes (including the SVO with viscosity of more than
10,000 MPa*s - more than 2.7 million tonnes).
Improved efficiency, oil and gas
production profitability control
The Company strives to unlock the maximum potential of oil
accumulations, efficiently utilize the amassed knowledge and
experience and to strengthen the Company's industry position
with maintaining the balance of the ecosystem.
As part of measures to improve the efficiency of oil and gas
production, the high-margin production has increased by 4.5%
over the past three years
In 2019, the optimization of operating costs amounted to 1,7
billion rubles with a 14% over-fulfillment of the plan thanks to
implementation of regulatory measures, optimization of the
SAGD development process, and comprehensive optimization of
workover processes.
In 2019, The Group increased the oil production at its fields by
0,9 % as compared to 2018.¬ The total oil output for the Group
was 29,8 million tonnes with an average daily production of
581,5 thousand barrels per day. The Company was abiding
by the terms of oil output curbs under the current OPEC+
agreement, which hindered its production growth capabilities.¬
At the same time, the Company retains its potential to boost oil
production after demand and prices have stabilized on the crude
oil market.
In order to ensure maximum efficiency of field development,
digital modeling (digital twins) of producing assets is run, which
enables to reliably determine their hydrocarbon potential and
manage the oil field development with maximum efficiency.
A digital twin of an oil field is a virtual analogue of a real
development target, which reflects all main parameters and
processing of oil field operation online using digital platform of
3D-visualization technology. This makes it possible to remotely
manage the production facilities according to their specific
features and peculiarities of the landscape.
The Company uses advanced EOR techniques and intelligent
production management methods.
In 2019, the Company applied lowering MET rates:
•
•
•
•
for subsoil areas with over 80% depletion rates,
for super-viscous oil with viscosity of 10 000mPa*a and
more (in situ conditions), for oil,
for oil produced from the Domanic deposits, for small
subsoil areas with reserves (STOOIP) less than 5 mln
tonnes and depletion of less or equal to 5%,
for SVO fields with in-situ viscosity of more than 200 and
less than 10 000 mPa*s.
In 2019, highly successful well interventions resulted in higher
net present value per ruble of investment by 33% against actual
performance of 2018.
44% RF
THE COMPANY KEEPS
DELIVERING ONE
OF THE HIGHEST
RECOVERY FACTOR (RF)
IN THE INDUSTRY
TATNEFT GROUP AVERAGE DAILY OIL PRODUCTION
mln tonnes
thous. bpd
In the reporting year, the planned targets were fulfilled by
100,6%, including 100,6% for conventional oil production, 100,2%
for super viscous oil, and 102,8% outside the main production
areas (outside of Tatarstan).
30,0
29,5
29,0
28,5
28,0
27,5
27,0
26,5
26,0
22,5
531,8
27,2
581,5
29,8
576,4
29,5
564,8
28,9
558,3
28,7
580,0
570,0
560,0
550,0
540,0
530,0
520,0
510,0
500,0
TATNEFT GROUP TARGET VS ACTUAL OIL PRODUCTION
PERFORMANCE, THOUS. TONNES
target
26 562
2 730
320
29 612
+172
+5
+9
actual
26 734
2 735
329
29 798
2015
2016
2017
2018
2019
thous.t
24000 25000 26000 27000 28000 29000 30000
Oil production, mln tonnes
Average daily oil production),
Conventional Oil
SVO
Subsidiaries
thous. bpd
Production of associated petroleum gas for the Group in 2019
totaled 1 009,6 million m3 with the average daily gas production
in oil equivalent at 16,3 thousand barrels of oil per day.
TATNEFT GROUP WELL STOCK AS OF 01.01.2020
TATNEFT GROUP ASSOCIATED PETROLEUM GAS PRODUCTION,
MLN. M3 2019
Operating producing wells
Active producing wells
Inactive producing wells
Associated Petroleum Gas Production
2019 г.
1 009,6
Testing and waiting-on-testing producing wells
Operating injectors
Active injectors
AVERAGE DAILY GAS PRODUCTION RATE, THOUS. BOE PER DAY
Well Count
24 212
21 521
2 644
47
11 459
10 689
Average Daily Gas Production Rate
PRODUCTION OF NGL*, KTONNES
NGL Production
2017 TO 2019 DRILLING, THOUS. M
Production drilling:
PJSC TATNEFT
Exploratory drilling:
PJSC TATNEFT
Subsidiaries
Total Drilling:
PJSC TATNEFT
Subsidiaries
2019 г.
16,3
2019 г.
321,136
* excl. NGL of TANECO
2017 г.
2018 г.
2019 г.
942,6
750,7
835,9
934,4
738,3
801,2
20,2
11,5
8,7
28,6
20,3
8,3
25,0
15,3
9,7
945,9
758,6
835,9
16,9
20,6
25,0
TATNEFT GROUP AVERAGE DAILY OIL PRODUCTION RATE OF
ACTIVE PRODUCING WELLS VS NEW WELLS, TONNES PER DAY
tpd
12
10
8
6
4
2
0
11,5
10,2
8,6
4,5
4,5
4,2
2017
2018
2019
Average daily oil production rate
Average daily oil production rate
of active producers, tpd
of new well, tpd
In 2019, the TATNEFT Group fields' daily oil production per
operating well averaged 4,5 tonnes per day, and per new well
10,2 tonnes per day
58
59
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Oil production in the Republic
of Tatarstan
The Company produces most of its oil output from conventional
oil fields located within the Republic of Tatarstan. Currently,
the major oil production comes from two unique and six
largest oil fields, namely: Romashkinskoye, Novo-Elkhovskoye,
Ashalchinskoye, Bavlinskoye, Bondyuzhskoye, Pervomayskoye,
Sabanchinskoye, and Arkhangelskoye.
Bondyuzhskoe
231 Ktonnes
Pervomaiskoye
315 Ktonnes
Romashkinskoe
14 789 Ktonnes
Arkhangelskoye
262 Ktonnes
OIL PRODUCTION BY MAJOR OIL FIELDS,
KTONNES
KAZAN
NABEREZHNYE CHELNY
Romashkinskoe
Novo-Elkhovskoye
Ashalchinskoye
Bavlinskoye
Bondyuzhskoe
Pervomaiskoye
Sabanchinskoye
Arkhangelskoye
2017
2018
2019
15 184
15 494
14 789
2 827
2 780
2 938
1 234
1 071
1 205
1 255
1 207
1 163
246
319
570
250
239
310
537
237
231
315
558
262
Super-viscous oil field development
The Company produces super-viscous oil at the Ashalchinsky
field in the Republic of Tatarstan, using simultaneous injection of
steam into production and injection wells.
In 2019, super-viscous oil production totaled 2 735,09 thousand
tonnes at Ashalchinsky and other fields (with an oil viscosity of
more than 10,000 MPa*s).
At the year-end, the daily oil production reached 8 492 tonnes.¬
In general, since the beginning of development, the total
production of super-viscous oil has amounted to 8,309 million
tonnes.
Twenty four (24) super-viscous oil accumulations deposited
within the Sheshminsky horizon are under development
and in production.¬ In 2019, five (5) super-viscous oil (SVO)
accumulations were brought into production (such as, Novo-
Chagodaiskaya, Verkhnyaya, Karmalinskaya, Averianovskaya,
South Ekaterinovskaya), six (6) SVO deposits were brought into
steam injection (Arkhangelskaya, Gradinskaya, Moroznaya,
Dimnaya, Podlesnaya, South Rodnikovskaya), drilling of infill
horizontal wells and installation of surface facilities were
commenced on two (2) SVO deposits (Ashalchinskoye,
Melnichnaya).
As at 01.01.2020, at the SVO fields the operating well stock
comprised 938 horizontal wells (including 125 wells drilled in
2019), 2532 appraisal wells were drilled (including 270 wells
drilled in 2019).¬ The operating producing well count consists
of 362 wells, including 334 paired wells and 28 cyclic steam
stimulation wells. The operating injection well count consists of
452 wells, including 434 paired, 18 cyclic steam stimulation wells.
Ashalchinskoye
1 205 Ktonnes
Novo-Elkhovskoye
2 938 Ktonnes
Sabanchinskoye
558 Ktonnes
Bavlinskoye
1 163 Ktonnes
WELL COUNT
Operating wells
Active producers
Injectors
ALMETYEVSK
2017
2018
2019.
588
221
292
803
258
396
938
362
452
НThe work is proceeding at the super-viscous oil field facilities to
deploy the existing technologies and seek new solutions focused
on the improved super-viscous oil reservoir management.¬
Currently, the efficient technologies have been developed to
bring wells to delivering the projected flow rate: thermogel
compositions; reservoir acid treatment with a complex acid
composition; pre-treatment with a solvent.
Another promising area is technologies for increasing
development efficiency. Currently, the areal injection of solvents,
the use of catalysts are being tested, and the injection of foam
systems is expected to be pilot tested.
An important area of work to produce the reserves from less
than 10 meter thickness and complex geology reservoirs is the
development of technologies such as steam and gas injection,
cold production and thermoshaft method of super-viscous oil
recovery.
It is planned to further develop the super-viscous oil project
through a completion of the SVN-3200 project, as well as
drilling, testing and completion of in-fill wells on existing super-
viscous oil accumulations (Melnichnoye, South-Ashalchinskoye,
Averyanovskoye, South-Ekaterinovskoye).
Oil production outside
the Republic of Tatarstan
The TATNEFT Group operated nineteen (19) oil fields outside of
Tatarstan, including sixteen (16) fields in the Samara Region, two
(2) fields in the Orenburg Region, and one (1) field in the Nenets
Autonomous District..
In the Samara region, the oil production comes from 133 wells and
amounted to 329 thousand tonnes. In the Samara region, 8 new
production wells were brought into operation after drilling and
testing with the average flow rate of new wells drilled in 2019 at
15,2 tonnes per day.
Within the Nenets Autonomous District, the pilot production was
tested at the Severo-Khayakhinskoye field with the oil output of
390,2 tonnes in the reporting year.
TURKMENISTAN
As part of cooperation with the State Concern Turkmennebit,
in 2019 the work was underway to implement the production
program under the Additional Agreement No. 8 to the Contract
No. T5-8-370 with the Turkmennebit Company.
Nine (9) workover crews were organized to accelerate advancing
the production program to boost oil production. At the year-end
2019, 12 crews of the PJSC TATNEFT Branch in Turkmenistan
completed workovers in 60 wells, including running and setting
downhole pumps in 53 wells, recovered 23 273 tonnes of
incremental oil, and the average daily production of incremental oil
reached the rate of 179 tonne per day.
Pilot test operations to identify
and develop oil accumulations
in the Domanic deposits
In the reporting year 2019, the study and development of
subsurface resources containing unconventional hard-to-recover
reserves were performed under the program for additional
exploration of oil reservoirs in the Domanic deposits.
The operations were carried out in the wells of the NGDUs
Prikamneft, Jalilneft and Leninogorskneft. Based on the results of
the work performed, the target efficiency was achieved.
Within the Kuzminovsky area (the Bitumen testing site ), after
evaluating and predicting the prospects for oil-bearing structural
highs in the Permian play by geophysical and geochemical
methods, five prospecting and appraisal wells were drilled on
the Permian deposits with core sampling. At the end of 2019, a
deep prospecting well were spudded (with a total depth of 1 955
m). The well drilling program will include logging and testing of
both conventional reservoirs and the Domanic low-permeable
deposits as well. Drilling and completion of the well will continue
in the first quarter of 2020.
UZBEKISTAN
As part of implementation of the Cooperation Agreement with
JSC Uzkimesanoat and the Memorandum of cooperation with JSC
Uzbekneftegaz, the work has been organized to put in practice
the decisions stipulated in the Minutes of meetings between PJSC
TATNEFT, JSC Uzbekneftegaz and JSC Uzkimesanoat.¬¬ The
projects are being implemented on the various activities.
LIBYA
Since 2014, the project in Libya has been under force majeure
amid the political situation in the country.¬ At the moment, the
main 3D seismic operations have been completed in the 82/4
area, and the seismic data are being processed and interpreted.
SYRIA
The Company, through its branch of TEPI AG, has contractual
obligations for the Block 27 exploration and development in
Syria.¬ Oil production has been suspended since 26.04.2011. For
the time being contacts and consultations with the Ministry of
energy of Russia and the Syrian side on the terms of resuming the
project are continuing.¬¬ The Company does not plan to resume
any production activities in the Syrian Arab Republic until the
cessation of hostilities and stabilization of the political situation,
There are no Russian personnel in Syria.
The activities titled “The development of research and
engineering solutions to develop unconventional reservoirs (the
Domanic deposits) and hard-to-recover oil reserves (tar sands oil)
on the basis of experimental researches” were carried out under
the Federal target program (FTP) of the Ministry of education of
the Russian Federation. The technologies developed during the
project were tested in oil field conditions and positive results
were obtained. These works have been accomplished by
Almetyevsk Petroleum Institute.
The development of hard-to-recover reserves from the low-
permeable Domanic deposits is progressing as planned. In 2020,
the oil prospective reservoirs are expected to be tested in the
drilled wells at the producing fields to put oil reserves (hard to
recover reserves) on the state balance sheet.
60
61
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Downstream
The downstream business segment incorporates the production facilities of
JSC TANECO (main oil refining output), TATNEFTEGAZPERERABOTKA Division
(including the Elkhovsky Refinery), and JSC Nizhnekamsktehuglerod.
The downstream operations are organized at four production sites in the
immediate logistical proximity to the oil production operations in the Nizhnekamsk
and Almetyevsk regions of the Republic of Tatarstan.
TATNEFT GROUP CRUDE REFINING VOLUME,
THOUSAND BARRELS PER DAY
Oil refining volume
2017
2018
2019.
163,3
179,0
206,7
In 2019, oil refining growth
showed 15,5%.
83,1%
98,98%
97%
95%
2019 TANECO Complex
Main Product Slate
stable natural gasoline
•
• unleaded gasoline
• aviation kerosene
• Diesel fuel EURO
• DTfG (Diesel Oil Cut Hydrotreated)
• hydrotreated fuel oil/base oil compound
TANECO REFINERY CRUDE REFINING AND MAIN PRODUCT OUTUT
industrial gas granulated sulphur
•
• anode grade petroleum coke
• TATNEFT isoparaffin base oil HVI-2 (TANECO base 2)
• TATNEFT isoparaffin base oil VHVI-4 (TANECO base 4)
•
• other middle distillates
lubricants
7,1
7,6
0,0
2,1
0,0
5,0
8,5
0,0
1,9
1,0
5,6
0,0
1,9
0,0
5,7
8,7
8,7
0,0
2,2
1,4
5,1
0,0
1,3
1,6
5,9
7,8
0,0
1,4
8,6
0,08
2,3
6,4
6,2
10,1
1,13
3,66
5,3
mln tonnes
11
9
7
5
3
1
0
2012
2013
2014
2015
2016
2017
2018
2019
TANECO oil conversion ratio
Oil conversion ratio in the Russian Federation
Oil conversion ratio in the USA
Oil conversion ratio in Europe
TANECO Complex
Main processing facilities
1. Crude oil distillation plant;
2. Hydrocracking and base oil plant;
3. Petroleum product hydrotreatment and sulphur recovery
plant;
4. Heavy residue processing plant;
5. Aromatics plant;
6. Feedstock and product facility;
7. Processing waste water treatment, electric power and water
supply, and sewerage utilities
In 2019, more than 10,1 million tonnes of crude oil were
processed at the TANECO Complex's facilities, the output of
petroleum products amounted to 10,6 million tonnes. In addition,
during the year, the vacuum gasoil was delivered from third
parties in the amount of 0,230 million tonnes to operate the
hydrocracking unit at higher process utilization rate.
In 2019, the TANECO Complex oil refining capacity growth
showed 15,5%.
* data from the Record of Petroleum Refiners Association
TANECO AI gasoline production
TANECO Mazut Production
TANECO diesel fuel production
Other product output
Oil product output
TANECO COMPLEX
OIL CONVERSION RATIO, %
Oil conversion ratio
LIGHT PRODUCT CUT, %
2017
2018
2019
99,27
99,05
98,98
Выход светлых нефтепродуктов
87,50
83,64
80,87
2017
2018
2019
TANECO COMPLEX REFINING OUTPUT, KTONNES
Petroleum product output
8 190,8
8 703,5 10 053,5
2017
2018
2019
The TANECO fuel output slate
including gasoline of grades AI-92, AI-
95, AI-98, AI-100 and diesel fuel meets
the EURO-6 environmental standards.
New product launch
The AI-100 premium gasoline as per STO 78689379-32-2018
was launched in February 2019. The video-conference with
the President of the Russian Federation Vladimir Putin and the
Tatarstan Republic President Rustam Minnikhanov was held to
officiate the ceremony of launching the commercial output of
motor gasolines of the following grades: AI-92, AI-95, AI-98, AI-
100 Euro-5 that meet the Euro-6 engine specifications.
In December 2019, the pilot field tests of TANECO Premium Ultra
Eco Synth engine oil (made on the basis of TANECO base's own
base oils) and TANECO diesel fuel were successfully completed
on a Volkswagen Transporter Multivan car with an EA 288
(CXFA) Euro-6 diesel engine as part of a joint project of Tatneft
and Volkswagen group Rus "FOR THE CLEAN TODAY. FOR THE
HEALTHY TOMORROW."
Based on the Tatneft HVI-2 lube basestock (TANECO base
2), the production of TANECO transformer oil as per STO
78689379-18-2018 was launched, which meets the requirements
of the national standard GOST R 54331 and the International
Electrotechnical Commission IEC 60296. In July 2019, based on
the lube basestock Tatneft HVI-2 (TANECO base 2) and Tatneft
VHVI-4 (TANECO base 4), all-season hydraulic oils of the VMGZ
type (VMGZ-45, VMGZ-55, VMGZ-60), synthetic and semi-
synthetic motor oils for gasoline and diesel engines of cars and
trucks, as well as transmission oil for mechanical transmissions
were brought onstream. The approval was received from
Siemens for the TANECO Turbine 32 turbine oil, developed by
the specialists of JSC TANECO, for use in Siemens turbine units.
The KAMAZ-Motorsport non-commercial partnership completed
bench tests of TANECO Premium Ultra Race Synth engine oil (made
on the basis of TANECO base). The recommendations were made
to continue the base oil tests in the truck at the races in real life.
62
63
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Key business projects and events
in 2019
In February, the following facilities of the "gasoline scheme"
were brought into commercial operation: naphtha hydrotreating,
catalytic reforming, xylene fractionation and off-site facilities.
In March, a project was implemented to boost the productivity of
the hydrocracking unit to 110 %.
In October 2019, the kerosene hydrotreating and diesel fuel
hydrotreating plants were put into commercial operation.
The integrated reliability tests of the automated gasoline
mixing system and commissioning of the heavy coker gasoil
hydrotreating unit are underway. The vacuum distillation unit of
the visbreaker came onstream in December.
Elkhovsky Oil Refinery
of Tatneftgasprocessing Division
Main processing facilities
The new hydrotreatment unit for heavy coking gas oil is capable
to produce modern ecological fuel that complies with the
requirements of the international convention for prevention
of pollution from MARPOL-2020 ships and provide feedstock
for motor fuel production for cars with Euro-6 engines. The
commissioning of this facility will allow to reduce emissions of
sulfur oxides into the atmosphere through exhaust gases by 47
000 tonnes per year.
In December 2019, the vacuum unit of the visbreaking plant was
put into commercial operation.
In April, the capacity of the base oil production unit was
increased to 120 %.
In the first half of 2019, the turnaround planned maintenance
of the process equipment of the delayed coking unit was
successfully completed.
The commissioning of the CDU-VDU-6 unit made it possible to
bring the design oil refining capacity of the TANECO Complex
up to 15,3 million tonnes per year. Moreover, with commissioning
of the vacuum distillation unit of the visbreaker the refining oil
capacity can reach 11,4 million tonnes per year with zero fuel oil
produced.
The sulfolane extractive distillation unit was put to the integrated
testing, which made it possible to boost the Euro-5 gasoline
outputs that meet the Euro-6 engine specifications.
The Complex development outlook
The positive dynamics of the TANECO Сomplex development
is steadily progressing through the improved efficiency of the
current operations and timely new production launches, making
it possible to expand the output and slate of refined products,
enhance the oil conversion ratios as well as increase light
product yield.
PLANNED START-UPS AND PROCESS UNIT
CAPACITIES:
• Heavy coker gasoil hydrotreating unit - 850 Ktonnes per year
• Catalytic cracking unit – 1 100 Ktonnes per year
• Pilot tar hydroconversion unit - 50 Ktonnes per year
• Middle distillate hydrotreating unit - 3 700 Ktonnes per year
• Diesel fuel isodewaxing unit - 1 300 Ktonnes per year
• Hydrogen production unit-3 – 100 Ktonnes per year
• Gas fractionating unit - 350 Ktonnes per year
• Hydrocracking unit-2 – 1 200 Ktonnes per year
• Delayed coker unit-2 - 2 000 Ktonnes per year
• Lube stock plant – 40 Ktonnes per year
The design throughput capacity is 480 000 tonnes of crude
oil per year. As of the end of 2019, the Elkhovsky Oil Refinery
included the following main production facilities:
The design capacity is 480 000 tonnes of crude per year.
The Elkhovsky Oil Refinery is located on the site of the Kichuisky
stock tank farm of NGDU Elkhovneft.
straight-run gasoline hydrotreating;
• atmospheric and vacuum distillation of crude oil;
•
• gasoline catalytic reforming;
• benzene-free component unit for commercial gasoline
production;
• diesel fuel hydrotreating;
• amine scrubbing of hydrocarbon gases;
• elemental sulphur recovery;
•
road construction bitumen production
The feedstock and product facility includes the following sites:
•
•
•
the refinery tank battery for commodity acceptance and
storage consists of four (4) vertical steel tanks RVS-5000 and
four (4) 200m3 - capacity tanks;
commercial Regular-92 gasoline unit;
two finished product release outlets.
In 2019, the Elkhovsky Oil Refinery accepted 444 244 tonnes
of crude oil for processing, including 439 245 tonnes from
NGDU Elkhovneft and 4,999 tonnes from Tatneft-Samara LLC
(Irgizskoye oil field), which resulted in the refining output of 198
197 tonnes of finished products.
The targeted output of 192 755 tonnes of petroleum products
was outperformed attaining 102.8%.
The Tatneftegazpererabotka's gas collection system received
gas in the amount of 1,823 mln m3.
2019 product slate
2019 key business projects
• diesel fuel
• Regular-92 gasoline
•
light vacuum gasoil
• elemental sulphur
straight-run gasoline
•
•
industrial solvent
• hydrocarbon solvent
• benzene-containing fraction
Over the reporting year, the projects were accomplished to raise
diesel fuel output including winter-grade ones.
According to the turnaround maintenance program, planned
preventive repairs of the equipment of the oil-refining unit and
the stock tank fleet were carried out with the technical inspection
of the equipment diagnostics.
64
65
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Tatneftgasprocessing Division
Nizhnekamsktekhuglerod
Main processing facilities
Product slate
• Four (4) NGL pumping stations with a system of product
pipelines;
• The Minnibaevsky sour gas-sweeting plant with elemental
sulphur recovery;
• Bavlinsky sour gas-sweeting plant with elemental sulphur
recovery;
• Gas desulfurization unit with the capacity of 1 billion m3
per year (the unit includes a pilot plant for the sour gases
utilization to produce elemental sulphfur);
• Raw gas compressor unit 7/8 of the plant with K-380 type
centrifugal compressors;
• Gas dehydration and sweetening unit to remove moisture
and carbon dioxide;
• Low-temperature condensation and rectification plant;
• Ccascade refrigeration unit;
• Cryogenic plant for deep processing of dry topped gas;
Tatneftgasprocessing Division (UTNGP) is engaged in
processing of associated petroleum gas and wide fraction of
light hydrocarbons (APG and NGL) extracted together with crude
oil from the Company's oil fields ensuring the gas utilization at
the rate of 95 % in accordance with the requirements of the
legislation of the Russian Federation. The Tatneftgasprocessing
Division is a single technological complex that provides the APG
and NGL treatment, storage and processing operations as well
as the shipment of processed products.
The Tatneftgasprocessing Devision's existing capacities enable
to provide the entire complex of gas processing operations:
gas purification from hydrogen sulfide and carbon dioxide;
dehydration; gas separation into individual fractions – ethane,
propane, isobutane, isopentane, pentane-isopentane fractions,
and fractions of normal butane and stable natural gasoline, as
well as dry topped gas and gas sulfur.
As part of implementing the Company's strategic goals
and increasing oil production, UTNGP plans to revamp and
upgrade its gas treatment and processing infrastructure to
accommodate additional hydrocarbon feedstock volumes,
including the reconstruction of the Minnibaevskaya and
Bavlinskaya desulphurization plants and the construction of a
new gas-fractionation plant. The ongoing upgrading efforts will
enhance the reliability and resilience of the entire production
process chain. In addition, to reduce the air pollutant emissions
and mitigate the environmental impact the cryogenic plant
reconstruction project was in a full swing.
flammable natural gas
•
• hydrocarbon liquefied fuel gases
• ethane fraction
• propane fraction
•
isobutane fraction
• normal butane fraction
iso-pentane fraction
•
stable natural gasoline
•
technical-grade sulfur
•
technical-grade oxygen gas
•
technical-grade nitrogen gas
•
The Company's products of high quality, including the "A" and
"Highest" grades, comply with GOST and international standards.
The products are delivered to the domestic and foreign markets.
In 2019, the supply of oil gas to the GPP amounted to 862,4
million m3 of gas, that is 16,8 million m3 more than in 2018. The
integrated oil processing unit processed NGL in the quantity of
322,8 thousand tonnes, that is 3,6 thousand tonnes more than
in 2018.
The increased feedstock processing was driven by the
organization of the GPP operation without its full stop at the
scheduled preventive maintenance, as well as higher oil
production as a result of the removal of OPEC curbs. In 2019, the
sour gas was sent for treatment in the volume of 271,6 million
m3, which is 8,0 million m3 more than in the same period of the
previous year. The established standards for selecting target
components from raw materials are met monthly. The quality of
products meets the requirements of the standards.
Processing of associated petroleum
gas makes it possible to address
important environmental challenges
and reduce man-made impacts on
the environment
96,4%
EFFECTIVE APG UTILIZATION RATE
66
The Company's carbon black production capacity is one of the
largest among the Russian industrial enterprises. The produced
carbon black is highly competitive with its foreign counterparts,
as a component in rubber manufacture and is used as a filler
for plastic goods. The quality of the products corresponds to
the world-class level. A wide range of carbon black grades
contributes to the extensive geography of product sales both
within the country and for export. The line of carbon black grades
produced by the Company includes more than 14 commodity
items. The plant produces the following carbon black grades:
N-550, N-220, N-234, N-330, N-326, N-339, N-650, N-375,
N-660, N-121, P-324, P-514, P-245, P-234. The finished product
is delivered to consumers in special hopper-carbon black cars
(42-47 tonnes each), packaged in plastic or paper bags (22-25
kg each) or in big-bags. The consumers of carbon black products
are the enterprises that produce industrial rubber goods.
Nizhnekamsktekhuglerod almost completely provides its
production capacities with its own electric energy. Launched in
2018, the power plant works using recyclable resources. The
transition to the self-generated power supply has significantly
reduced the cost of production and helps to improve the
environmental situation in the region.
At the year-end 2019, the carbon black production amounted
to 112,0 thousand tonnes. Total sales stood at 113,1 thousand
tonnes, that is 100,7 % of the planned target.
In 2019, the carbon black importers were more than 10 countries.
The main deliveries were made to Belarus, Germany, Poland,
the United Arab Emirates, Turkey, as well as to Bulgaria, China,
Lithuania, Ukraine, the United States, Uzbekistan, and others.
MAIN CARBON BLACK SUPPLY DESTINATIONS IN 2019
54%
32%
14%
TATNEFT Group tire business
Domestic market
Export
In 2019, a technical audit was
accomplished with the participation
of Doright Company, one of the
leaders in the carbon black industry.
The design and engineering
solutions were developed improve
technological process efficiency.
CARBON BLACK PRODUCTION, KTONNES
Carbon black production
2019 CARBON BLACK SALES, KTONNES
Sales destination
TATNEFT Group Tire Business
Domestic Market
Export Market
2017
133,7
2018
134,4
2019
112,0
61,3
16,0
35,8
67
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Retail business
By the year-end 2019, the Company's retail sales network
incorporated 802 fuel filling stations located in Russia, Ukraine,
Uzbekistan and the Republic of Belarus, in particular: 23 regions
of the Russian Federation - 691 fuel filling stations, the Republic
of Belarus -18 stations, Ukraine - 91 stations, Uzbekistan - 2
stations.
The Company considers its fuel filling station network as the
main channel for selling gasoline and diesel fuel of its own
production.
In September 2019, The Company's Board of Directors approved
the Retail Business Development Program that provides for
expanding the fuel filling station network given the market
conditions. As part of the Program, the Company acquired
75 Neste filling stations located in the North-West of Russia
and a terminal in Saint Petersburg at the end of 2019. Under
the separate agreement between TATNEFT and Neste, the
Company is to continue to use the Neste brand at the acquired
filling stations for five (5) years.
With the asset acquisitions, the Company's retail network
expanded its presence in the North-West of Russia and took the
third position by the count of fuel filling stations among retail
operators being one of the best in the region.
The new assets will help increase the sales of fuel produced by
the Company in the domestic market.
In 2020, the Company looks to further expand the network of
the TATNEFT fuel stations, including in Uzbekistan.
The rapid development of the TATNEFT fuel stations is facilitated
and supported by ongoing upgrading and modernization of
the fuel filling station along with expansion of accompanying
services. Additional control measures for petroleum products are
being putting in place, such as the pilot operation of a new type
of petroleum product measurement systems in the fuel storage
tanks at the stations with use of lasers.
The Company continues to build infrastructure to support electric
vehicles by installing of the ABB and Electrociti Express electric
charging stations.
With the expert approaches to upgrading the concept of the fuel
station formats, the projects were carried out for the construction
of three flagship stations with a unique design, a wide range of
services and premium solutions.
FUEL FILLING STATIONS COUNT
Total,
including
Russian Federation
Ukraine
Republic of Belarus
Republic of Uzbekistan
2017
2018
2019
685
711
802
574
602
691
94
17
-
91
18
-
91
18
2
8,8%
FILLING STATION AVERAGE
DAILY SALES GROWTH
19,9%
COMPANY’S RETAIL PETROLEUM
PRODUCT SALES GROWTH
RETAIL PETROLEUM PRODUCT SALES, KTONNES
Sales of petroleum
products through retail
network
2015
2016
2017
2018
2019
2 435
2 575
2 677
3 455
4 142
AVERAGE DAILY SALES AT OPERATING FILLING STATIONS,
TPD PER STATION
Average daily sales at operating filling
stations
2017
2018
2019
8,0
9,1
9,9
The output produced at the TANECO Complex such as diesel fuel and a
slate of gasolines, which are delivered directly from the Refinery, is one
of the signature lines of the TATNEFT Company. The assured quality and
environmental characteristics meet high standards of petroleum products.
The quality level of petroleum products at the TATNEFT fuel filling stations is
ensured by strict compliance with technological discipline and passes through
ten (10) stages of quality control, as well as compliance with the requirements
of regulatory documents when accepting, storing, transporting and selling
petroleum products.
2017
2018
2019
2017
2018
2019
1 580
904
599
44
33
1 858
1 106
653
68
31
Small Wholesale
1 096
1 597
2 006
690
387
2
18
849
719
5
24
898
1 083
4
21
Retail
2 075
1 221
749
76
28
0,3
FUEL SALES THROUGH TATNEFT
FILLING STATION NETWORK, KTONNES
Indicators
Sales:
Retail sales network
Tatneft-AZS-Centre
Tatneft-AZS-Zapad
Tatbelnefteproduct
Tatneft-AZS-Ukraine
Tatneft-AZS-Tashkent
Accompanying services
In the strategic concept for the development of the fuel
filling station network of the Company, one of the ways to
improve efficiency and competitiveness is the development of
accompanying services. During the reconstruction of existing
facilities and construction of new ones, novel formats are
implemented in the gas station complexes with the retail space
areas of 60, 90 and 150 m2, including cafe zones, drive-
throughs, convenience stores, as well as new forms of additional
service rendering.
In 2019, the first robotic carwash in Russia started operating at
the Tatneft filling station.
As a highly promising direction, the Company develops digital
gas station services: the concept of "smart home"; telehealthcare
services, pickup points where one collect parcels bought on-line.
There are also a number of other services that are convenient for
customers.
In 2019, to improve customer service throughout the network, a
system of uniform standards is in place, with regular employee
training and control checks.
68
69
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
The Environment
ISO standards compliance and fuel
filling station certification
Informing consumers of goods and
services
In order to control environmental indicators and reduce the impact
on the environment, the Company implements comprehensive
measures covering the entire fuel station network. In particular,
the measures are aimed at reducing emissions to the atmosphere
through the capturing and processing of hydrocarbon vapors. The
first stage of the project is to equip fuel stations with a system for
recirculating hydrocarbon vapors (vapors are gathered while loading
petroleum products into tank trucks and stock tank farms, then
the vapors are captured in the light hydrocarbon vapor recovery
unit). The second stage is equipping oil depots and refineries with
installations for collecting and processing vapor-air mixture. Then
all fuel-filling pumps at gas stations will be equipped with gas return
systems.
The effectiveness of the vapor recirculation system was proved by
researches conducted by the specialists of the A.E. Arbuzov Kazan
Institute of Organic and Physical Chemistry. When analyzing air
samples at gas stations before and during tank truck discharges
using a vapor recirculation system and without using it, the
saturated hydrocarbons are recorded to lower from 1,09 and 2,86 to
less than 1 mg per m3 at various gas stations.
In order to optimize energy consumption, pellet boilers are installed
at gas stations that operate on wood wastes.
All products sold within the fuel filling station network have the
necessary certificates and permits. Over the past year, non-
conformities were not found. Currently, the Company is working
on the action item plan for shifting to environmentally friendly
packaging and labels.
Currently, the retail chain enterprises are taking measures
to ensure compliance with ISO standards - Environmental
Management Systems (ISO 14001:2015) and Occupational Safety
and Health Management Systems (ISO 45001:2018).
The priority direction for the fuel
station network development
is to constantly improve the
environmental characteristics of
products and processes of fuel
station complexes, taking into
account the corporate model of
responsible resource consumption
and reducing the negative impact
on the environment.
The customers buying our goods and services at our fuel stations
are fully informed through the quality certificates for petroleum
products and goods being sold, proactive information plates
and signage, promotional or publicity material (printed materials,
models on the video monitors, audio and video advertising)
that are easily available at our fuel stations and describe the
composition and properties of the products being sold, the
procedures for the safe use and disposal, the impacts on the
environment, etc.
There are ten prompt feedback
channels in place throughout
the Company to ensure the quality
control and quality assurance of our
fuel filling station network operation
Feedback
During the reporting period, there was no discrepancy between
the quality of products sold and the impact of products and
services on health and safety.
In order to ensure quality control of the filling station network
operation, the feedback mechanisms are set up and maintained
in a fast track manner (reception, processing and response):
Customer satisfaction surveys
Regular surveys to assess customer satisfaction and brand
health indicators (knowledge-consumption-loyalty) are performed
once a quarter using a statistical database of media studies and
monitoring of advertising and mass media.
Personal data of customers
The Company strictly oversees the mechanisms for ensuring the
principle of consumer privacy right and protection of personal
data of our customers in our fuel filling stations and is guided
by the Constitution and Federal Laws of the Russian Federation
regulating these activities.¬¬ The customer information base
is formed as part of the loyalty program to notify customers
of marketing promotions and inform them on the network
operation.¬ The information database comprises the persons
who have given their consent to the personal data processing
and subsequent receipt of notifications from the fuel filling
station network.
• Customer feedback book that is available in all our gas
stations.
• 24/7 hotline of the TATNEFT retail sales network –
8-800-5555-911
• 24/7 PJSC TATNEFT hotline – 8-800-100-4-112
Feedback form on the retail sales network website azs.
tatneft.ru
• Email – tn@88001004112.ru
• Official accounts of the retail sales network in social media
(vk.com/azs.tatneft, facebook.com/azs.tatneft, twitter.
com/AZS_TATNEFT, ok.ru/azs.tatneft, instagram.com/azs.
tatneft)
• PJSC TATNEFT home page in social media.
•
•
Corporate social network (CSN) – https://kss.tatneft.ru/
Collecting reviews from third-party platforms (maps,
navigators, and response sites)
• Polls of customers
All motivated inquiries are registered in the Terrasoft system with
further breaking down into one of 4 types (comment, request,
complaint, claim) and classification by one of 15 parameters
(payment calculations for fuel, related service, service culture,
promotions, serviceability of equipment, fuel filling accuracy,
etc.). The customer is provided with our feedback via the
received information channel (phone call, email, etc.) within 6
business days. The response time in social media for requests
and inquires that do not require registration and subsequent
official verification may take from a few hours to 2-3 calendar
days.
A full review of the correctness of providing feedback is
performed monthly with a random check of customer satisfaction
with the response.
70
71
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Tire business
The Company's tire business operates under the single KAMA TYRES production
brand and combines a range of tire brands.
The tire production complex incorporates the tire manufacturing
plants, such as PJSC Nizhnekamskshina, Nizhnekamsk All-Steel
Tire Plant LLC (LLC "NZSH CMK"), Nizhnekamsk All-Steel Tire
Plant LLC (LLC "NZGSH")1, LLC Kamaretred. The tire service
enterprises include LLC UK Tatneft-Neftekhim, JSC "NMZ", JSC
Yarpolimermash-Tatneft, LLC STC Kama, LLC Energoshinservice.
The KAMA Trading House LLC (LLC TH KAMA) with separate
regional divisions and a subsidiary provide procurement and
supply of feedstock and materials, and tire sales as well.
Moreover, in 2019, the tire complex included social enterprises
- LLC SBO Shinnik, LLC KP Shinnik2, ChUSK Shinnik3 and the
carbon black plant - JSC Nizhnekamsktekhuglerod4.
Production capacities
PJSC NIZHNEKAMSKSHINA:
• passenger car and light truck tires;
• agricultural and industrial tires.
NIZHNEKAMSK ALL-STEEL TIRE PLANT LLC:
• all-steel truck tires;
•
• agricultural tires.
combined truck tires;
The compact location of tire plants makes it possible to provide
semi-finished products to the KAMA TYRES enterprises
(production of rubber compounds, textile wing belts, etc.),
ensuring the smooth operation of the KAMA TYRES group of
enterprises.
In the reporting year, the Nizhnekamsk All-Steel Tire Plant
accomplished the first stage of the project to increase all-steel
tire output: 18 curing molds were put into operation in stages
from January to May 2019, which allowed to add the production
capacities for manufacturing 300 thousand pieces of all steel
tires per year.
In early 2019, the functions of the sole executive body of JSC
Nizhnekamsktekhuglerod were transferred from LLC Tatneft-
Neftekhim to the oil and gas processing segment of JSC
TANECO for improved specialization profile of the Tatneft
Group's business streams.¬¬¬ The LLC Nizhnekamsk Truck
Tire Plant was merged in the Nizhnekamsk All-Steel Tire Plant
LLC to improve the management efficiency; the functions of the
sole executive body of LLC Macbar were transferred to LLC
MC Tatneft-Neftekhim to improve the production management
efficiency and the management processes of production
of components and spare parts; the functions of the sole
executive body of LLC SBO Shinnik were passed to LLC MC
Tatneft-Neftekhim to improve the management efficiency and
effectiveness.
In the reporting year, 100% of shares of SIBUR Togliatti LLC
(later renamed Tolyattikauchuk LLC) and 100% of shares of
JSC Tolyattisintez were purchased from a third party of PJSC
SIBUR Holding¬. The enterprises are located in Tolyatti, including
the production of various types of synthetic rubber used for the
The competitive edge of the KAMATYRES Manufacturing
Complex is secured through proprietary research and
engineering solutions, advanced technologies and
production capacities, high quality standards and control
throughout all production phases, as well as a high level of
after-sale service.
production of high-quality tires by leading Russian and world
manufacturers, the production of MTBE, butadiene, isoprene and
other intermediate products, as well as the infrastructure of the
Industrial Park, where a number of technological companies of
chemical and other specialization profiles carry out their business
operations.¬¬¬ The acquisition of these assets will ensure vertical
integration of the KAMA TYRES tire business, which is part of the
TATNEFT Group. The company intends to continue developing
its acquired assets as part of its petro-gas-chemical strategy.
On November 26, 2019, TATNEFT and UZKIMESANOAT JSC
signed an agreement to establish a joint venture on the basis of
Birinchi Rezinotexnika Zavodi LLC (Republic of Uzbekistan) with
the following ownership interests: PJSC TATNEFT – 51%, JSC
UZKIMESANOAT – 49%.¬¬ The setting up of this joint venture
gives TATNEFT the opportunities to diversify and expand its
production and sales of tire products in the lucrative markets in
Central Asia.
The 2020 Tire Complex Development Plans call for
accomplishment of three major investment projects: expanding
the output capacities of all-steel and Viatti tires, large-size tire
production launch; removing the KAMA EURO brand from the
portfolio; developing a new brand of KAMA PRO all-steel tires;
improving the sales system through the development of retail
and direct small-wholesale sales, including deployment of its
own on-line sales channel.
1 Termination of the legal entity by reorganization in the form of merger into the Nizhnekamsk All-Steel Tire Plant LLC on 30.05.2019.
2 Liquidation of the legal entity 25.12.2019.
3 Termination of participation in the legal entity due to the change of the legal entity's owner on 29.10.2019.
4 Termination of the sole executive body's authorities on 21.02.2019.
Main types of tire
commodities
TIRE SUPPLY DIRECTIONS, MLN PCS.
Sales market
After market
Parts assemblage
Export
Total sales
2017
2018
2019
9,2
0,7
3,2
13,1
8,8
0,6
4,2
5,8
0,6
3,6
13,6
10,0
Tire deliveries for parts
assemblage
The tires are supplied for parts assemblage to the automobile
assembly plants. The main consumers are KAMAZ, UAZ, GAZ
Automobile plant, URAL Automobile Plant, Volkswagen Group
Rus, and FS Elabuga. In 2019, the parts assemblage supply
route increased due to growth in deliveries to the automobile
assembly plants of the GAZ Group, LLC Volkswagen Group Rus,
LLC FS Elabuga.
MAJOR CONSUMERS OF PARTS ASSEMBLAGE MARKET
TIRE MARKET SHARES IN RUSSIA
4%
9%
23%
20%
25%
6%
7%
23%
20%
7%
12%
PJSC KAMAZ
VOLKSWAGEN Group Rus
UAZ LLC
LLC Automobile plant GAZ
JSC AZ URAL
LLC FS Elabuga
Others
53%
Passenger car tires
Light truck tires
Combine truck tires
All-steel truck tires
Others
Export
After market
The near-abroad market share is 69%. The far-abroad market
share is 31%. The global reach of the KAMA TYRES deliveries
covers about 50 countries, including near and far abroad.
The main tire sales are carried out through the wholesale
channel and the separate divisions of the Kama Trading House
LLC as well.
In 2019, 4 new export markets were captured such as Jordan,
Spain, Lebanon, and Finland. In the Republic of Kazakhstan,
there is a subsidiary of the Kama Trading House LLC, which sells
KAMA TYRES products.
72
73
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Quality assurance
of tire goods
Tire quality control system
The product quality management system being in place at the
Tire Complex's enterprises assures the sale of tire goods that
meet the needs of consumers and comply with the requirements
of the current legislation.
The quality control of tire goods is carried out at all stages of the
product life cycle (from input control of raw materials to output
control of finished products and its testing) in accordance with
the internal regulatory documents.
The system of product management and quality control is
specified in the production management plans developed based
on the results of risk analysis of products and manufacturing
processes in accordance with the FMEA methodology (analysis
of the types and consequences of potential failures).
The quality of tire products is assured by the quality certificates
and the certificates of compliance with the requirements of
technical regulations of the Customs Union.
Tire compliance with the established requirements is verified by
the results of the annual audit of finished products, including by
consumers.
All products manufactured by the KAMA TYRES enterprises
meet the requirements of regulatory documents (GOST, TU), as
well as the requirements of UN Regulations No.30, 54, 106 and
117 (international standards), TR CU 018/2011 On the safety of
wheeled vehicles, TR CU 031/2012 On the safety of agricultural
and forestry tractors and their trailers.
A safety data sheet is developed for each component in the tire.
Tests of the feedstock, materials and finished products are
carried out in the laboratories of the Testing Center of LLC STC
Kama.
No information or claims regarding the product adverse impacts
on human health, as well as corresponding fines and warnings
were received in 2019.
Mandatory input control of raw materials is carried out in
accordance with the approved plan, which sets controlled
parameters and check-up frequency. The procedure for
input quality control of raw materials and their release
into production is regulated by a special standard of the
enterprise.
Customer awareness
Customer complaint
responding system
The Company gives the information to its consumers regarding
product composition, safe use and disposal procedure, and
product impacts on the environment
Our tire consumers are informed through the official websites
of the Tire Complex and the TATNEFT Company and various
publicity and advertising channels.
User's guidance and operational instructions for automobile tires,
their correct installation and dismantling on the rim are posted on
the corporate website www.td-kama.com/ru/, in the "Useful links"
section.
There are no cases of non-compliance with regulatory
requirements and voluntary codes concerning information on
the properties of products and services at the KAMA TYRES
enterprises.
Customer satisfaction assessment
Monitoring of information related to consumers' perception of tire
goods, the fulfillment of their requirements and expectations is
carried out routinely through:
•
receiving inquiries from consumers through the customer
feedback system on the websites and bidding site of LLC
KAMA Trading House;
• getting information from social media;
•
•
•
•
surveys of consumers of goods and services
in the Tyre&Service trade and service centers;
surveys of retailers and members of the Viatti on-line club;
target-focused survey of consumers (parts assemblage,
secondary market, export) at least once every six months in
accordance with the requirements of IATF 16949: 2016 and
specific requirements of consumers.
All consumer complaints regarding products during the
warranty period are subject to review in accordance with the
procedure established in the regulatory documents, which
provide for: registration of information; examination of claimed
products at the manufacturer or directly at the consumer's
place with resolving the matter based on the results of analysis
corresponding to the consequences (or potential consequences)
of non-compliance; determining the causes of non-compliance;
initiating corrective actions, if necessary.
The tire manufacturers together with LLC Kama Trading House
and LLC STC Kama, examine consumer's complaints and
operational failures, including any returned parts, and initiate
problem solving and corrective actions to prevent recurrence.
The 8D method is used to solve problems with configuration
claims. The 8D reports are brought to the consumer and the
relevant departments of the KAMA TYRES enterprises.
When making communications with tire consumers, the KAMA
TYRES enterprises follow the feedback practice according to all
the rules and regulations of the Advertising Law. There were no
complaints with regard to advertising campaigns, and there was
no such practice.
In the reporting year, no fines were imposed for non-compliance
with legislation and regulatory requirements related to the
provision and use of tire products.
Enterprises are fully complaint with the tire waste disposal
standards.
74
75
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Machinery
The development strategy of the TATNEFT
Group's machine-building business is focused
on providing the Company's enterprises with
the specialized equipment.
The Bugulma Mechanical Plant (BMZ) manufactures the
mechanical goods for oil and gas production, petrochemicals,
power energy generation and other industries. The
manufactured equipment include air cooling units, heat
exchangers, oilfield equipment, anti-corrosion coatings, pressure
vessels, process operating units for the gas and oil industry. The
goods (equipment) are supplied to the Company's production
sites, as well as to the domestic market and for export.
In 2019, the Bugulma Mechanical Plant produced goods, works
and services worth 5,6 billion rubles. This is up 15,7% from
2018. The plant provided maintenance and repair services for
826 million rubles. The plant launched an electric-welded pipe
manufacturing line and developed the manufacture of the dual
completion equipment. Altogether, 818 dual completion units
have been manufactured in Bugulma thus far.
The main tasks of BMZ for 2020
include digitalization of production,
modernization of the plant,
expansion of the range of services,
and use of innovative educational
tools of TATNEFT.
The creation of a single information space for BMZ and
JSC TatNIIneftemash (Kazan) made it possible to master
the production of flare systems. Together, 51 projects were
implemented for the production of tanks and vessels, and
packaged modular equipment.
A robotic complex for welding tube bundles was launched at the
Bugulma Mechanical Plant. Also, the installation for cutting holes
in pipes was launched in the commercial operation. A horizontal
boring-and-turning mill with higher power capacity was put into
service. The laser marking technology for the equipment was
mastered. At the same time, labor productivity grew by 17% in
2019.
In 2020, the BMZ Plant intends to modernize the pipe production
with improved pipe coating productivity twice as much, master
the application of new types of coatings and the manufacture of
new types of heat exchangers and tanks. New robotic welding
systems are being deployed.
Currently, the plant is manufacturing the second Delayed Coker
Unit for the TANECO Refinery Complex. The first DCU was
manufactured in 2013-2014.
5,6 BILLION
RUB
2019 PRODUCT
OUTPUT
17%
2019 IMPROVED
PRODUCTIVITY
Tatneft-Presscomposite
In order to increase the added value in the product supply chain,
the Company develops a high-tech production of composite
materials at its Tatneft-Prescomposite facilities located in the
Alabuga Special Economic Zone. The production uses fiberglass
manufactured by P-D Tatneft Alabuga-Fiberglass.
The composite materials have a variety of advantages such
as strength, corrosion resistance, light weight, durability, low
electrical and thermal conductivity, do not interfere with the
propagation of electromagnetic fields and radio frequency waves,
etc.
The Company selects the technologies and product range to gain
the maximum synergistic effect and import substitution of foreign
analogues in the Russian market. The Company uses its output
products (such as pipes, cable systems) in
the development of oil fields, construction of the TANECO Oil
Refinery plants and units, and building of infrastructure facilities.
The production planning takes into account the current demand
for composite materials on the domestic market with the medium
term goal set to increase the sales to third-party customers
up to 70% of the total production capacity and become the
market leader in Russia and the CIS in the represented product
segments.
The key sales markets are oil and gas and petrochemical industry,
infrastructure projects implemented in the sea climate and the
Far North conditions, automobile, train-car building, and electrical
industries.
FIBERGLASS PIPE MARKET VS. TNPC SHARE IN RUSSIAN OIL
AND GAS INDUSTRY, MLN RUBLES AND %
mln rub
1200
900
600
300
100
69%
90
90
180
836
59%
90
162
180
678
54%
54
180
162
517
50%
42%
48%
45%
36
216
126
354
180
90
278
180
54
277
180
90
293
2019 2020 2021 2022 2023 2024 2025
Tatneft-Presscomposite
Tatneft-Presscomposite
market share, %
Fiber Glass Rus
Fiberglass Pipes Plant
Others
Output products
SMC COMPOUNDS (GLASS FIBER FILLED PRESS
MATERIALS)
The design capacity of the equipment is a single (1) line with
a capacity of 8000 tonnes per year. SMC is used primarily
in production of low-profile products with high mechanical
strength requirements (elements of cabins and bodies of
automobiles, interior elements of passenger transport,
electrical cabinets, seats, lamp cases and parts of products
for electrical engineering, medical and household appliances).
Tatneft-Presscomposite participates in the program for the
modernization of the KAMAZ truck model range, since the SMC
material is used in the manufacturing of the main elements of the
K5 cabin exterior of KAMAZ trucks.
FIBERGLASS PULTRUSION PROFILES
The design capacity of the equipment is five (5) lines with a total
capacity of 1000 tonnes per year. The enterprise makes various
fiberglass structures using fiberglass profiles.
FIBERGLASS PUMP AND COMPRESSOR,
CASING, LINEAR PIPES AND FITTINGS
The design capacity of the equipment is a single (1) line with
a capacity of 300 km per year. Fiberglass pipes and fittings
are designed for the petrochemical industry and are used as
downhole tubular (pump-compressor and casing), injection,
production, for disposal of chemical waste and observation
wells; as part of oilfield pipelines (linear), for transportation of oil
emulsions, gas-saturated oil, gas condensate, including those
with a high content of H2S and CO2; as well as for chemical
production pipelines for transportation of salts, acids and other
chemicals.
In 2018–2019, 30 % improved equipment productivity measures
yielded 20 % product unit cost reduction.
Fiberglass products have become highly competitive compared
to their metal counterparts in anti-corrosion performance not only
due to the cost of ownership and durability but also in the course
of construction phase.
The most significant benefit of composite materials is
their environmental friendly properties and low carbon
footprint. Carbon dioxide emissions from the composite
material use are several times less as compared to the
steel use. CO2 emissions from construction of fiberglass
pipelines an average of 6.5 times lower than emissions
from construction of steel pipelines, taking into account
production of pipes and construction and installation
works.
76
77
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Energy
The utilities are integrated into the business model of the
Company and provide a full cycle of generation, transmission
and sale of heat and electric energy. The power and heat energy
is supplied to provide its own facilities (supplying generation),
external consumers (commercial generation) and households.
The development of the Company's electric grid capacities
is aimed at increasing the network equipment loads through
connecting third-party consumers to the Company's networks;
improving the reliability of the external power supply scheme
and power supply of internal networks of the businesses of the
TATNEFT Group.
The main generating facilities of the Group are located in
the south-east of Tatarstan and include the capacities of the
Nizhnekamsk HPP and the Almetyevsk Heating Networks.
The installed electric power capacity at the beginning of 2019
was 748 MW, and heat capacity was 2 272,51 Gcal per hour.
The power energy capacities operated by the Tatneft Power Grid
Management Center consists of 17 694 substations, including
313 substations with 35–110 kV voltage, 17 381 transformer
substations with 6 (10) kV voltage. At 35–110 kV substations,
power transformers with a total capacity of 2 858,6 MVA are in
operation.
The total length of 6–220 kV overhead (aerial-cable) lines is 16
823,.0 km.
In 2019, the total power generation amounted to 1,53 billion
kW*hour, including 1,41 billion kW*hour supplied to Nizhnekamsk
HPP, and 0,124 billion kW*hour to the Almetyevsk Heating
Networks.
In 2019, the heat energy was generated in the amount of 4 199
785 Gcal. 4% less of thermal energy supply was caused by 1,3°C
higher average annual outdoor temperature from 2018 and
reduced power take-off of PJSC Nizhnekamskneftekhim.
In 2019, the internal transformation of the electric power
equipment operation enterprise was completed. The Power
Grid Management Center business unit was formed within the
Company’s organizational structure. The power generating
facilities including 110/35/6 (10) kV substations and 220–6 (10) kV
overhead power transmission lines are concentrated within one
business unit.
The existing energy capacities in the
Group’s asset portfolio make it possible
to increase the vertical integration
level and to reduce the dependence
of its own energy needs on external
market conditions and optimize power
energy costs at the production facilities
with the simultaneous development of
commercial power generation (power
energy supplies to external consumers)
and new growth points, including clean
energy.
INSTALLED ELECTRIC POWER AND HEAT CAPACITIES
Enterprise
Installed Capacity
At the power generation facilities, the work was underway
to increase the energy conservation efficiency and perform
retrofitting and upgrading of existing capacities. The programs
were aimed at improving the technical and economic
performance of the main and auxiliary equipment, increasing
reliability and ensuring competitive edge in the electric power
market.
Dispatch control was provided on the basis of an automated
system of a single digital platform, which made it possible to
control the functions of reliable and economical supply of electric
and thermal energy of the required quality to all its consumers,
taking into account the potential for load growth and compliance
with regulatory requirements to the quality of electricity in a
normal grid scheme and during repair schemes.
The intelligent Smart Grid technologies were used, combining
management, control and monitoring tools, information
technologies and communication tools that simultaneously
provide the flow of electricity and information from power source
to consumers. These included a predetermined level of reliability
and quality of power supply to consumers, reduction of electricity
losses in the power grid elements, minimum operating costs,
creating conditions for consumers to optimize their electricity use
costs.
At the Nizhnekamsk HPP, programs were being implemented
to diversify sources of raw materials to increase the operational
efficiency of the plant and reduce its dependence on the market
conditions for raw materials.
One of the directions for deployment of intelligent
generation support platforms is the Digital Substation
creation, which allows creating automated substations
where control, relay protection, automation, measurement
and metering functions are provided in digital format,
including power and switching equipment control devices,
as well as self-diagnostics of their technical conditions.
The heat management system uses the “Smart Heat”
integrated supervisory control system, the purpose of
which is to provide the necessary parameters for heat
supply to consumers, optimize the load between sources,
and monitor and deal with accidents. As a result, this will
help curb rising tariffs for households.
NIZHNEKAMSK HPP HEAT AND POWER OUTPUTS
Fuel and Energy Resource Type
Unit of measure
2017
2018
2019
Electric power generated
Heat energy output incl.:
Nizhnekamskneftekhim incl. by parameters:
– steam 15 atmabs
– steam 30 atmabs
TANECO Complex incl. by parameters:
– steam 45 atmabs
– steam 15 atmabs
– steam 30 atmabs
thous.kW*h
Gcal
Gcal
Gcal
Gcal
1 361 216
3 364 611
1 428 214
1 428 214
0
1 186 784
562 008
624 776
0
1 167 444
3 590 659
973 486
973 486
0
1 768 848
939 495
739 618
89 735
1 407 573
3 418 876
473 870
436 826
37 044
2 182 774
586 770
872 004
724 000
749 613
848 325
762 232
Electric power, MW
Heat, Gcal per hour
– output of thermal energy with hot water
in Nizhnekamsk
Nizhnekamsk HPP LLC, including
Nizhnekamsk HPP (PTK-2)
Almetyevsk Heating Networks (JSC APTS) incl.
Super-viscous oil production
724
724
24
-
TATNEFT GROUP POWER AND HEAT SALES
Fuel and Energy Resource
Unit of measure
Electric power sales
Heat sales
bln kWh
mln Gcal
2017
1,45
4,8
2018
1,23
4,4
1 580,0
1 580,0
692,5
142,1
2019
1,5
4,2
HEAT AND POWER ENERGY GENERATED BY THE ALMETYEVSK HEATING NETWORKS
No.
Parameters
а)
b)
Heat energy generation
(heat carrier – hot water)
Power energy generation
(MV1 and HV voltage level )
Unit of measure
Gcal
2017
768 173
2018
791 151
2019
780 909
thous.kW*h
123 504
87 939
124 171
78
79
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Energy and resource
efficiency
Improved Energy Efficiency and
Energy Saving Policy
Renewable energy
TATNEFT Group Fuel and Energy
Consumption
The Company's strategy gives
weight to the renewable energy
sources (RES) and recognizes their
significance for bringing a cleaner,
low-carbon energy future. The
development of renewable energy,
such as solar and wind power, is of
undisputed importance.
TATNEFT intends to develop these activities and is considering
best opportunities and lucrative projects. As part of the
Company's innovation activities, the scientific research project
with Kazan State Energy University is planned for 2020 to
determine the wind and solar potential at the Company's facilities
for renewable energy investment opportunities.
Currently, the main share (93,2%) of RES energy production in
the TATNEFT Group is accounted for heat generation from pellet
boilers, 6,7% - electricity generation from small hydroelectric
power plants at the Karabash water-storage basin, and 0,05%
- from solar power plants in the company's retail and sales
network. In 2019, the total energy produced from RES was 1
282,9 tonnes of oil equivalent or 0,18 % of the Tatneft Group's
total energy production.
The company is implementing the target-focused resource
saving program 2010-2020, which includes the energy saving
program. The program goal is to curb the costs for fuel and
energy resources through their rational use and improved
energy efficiency of the production operations. As a result of the
program activities implemented during the period from 2017 to
2019, the Company's demand for energy resources (in tonnes
of oil equivalent) decreased by an average of 1% per year or 2
billion rubles of the accumulated effect.
As a result of the implementation of the Energy Saving Program
for 2019, the TATNEFT Group's enterprises saved more than
40,7 thousand tonnes of oil equivalent, which amounted to
561 million rubles. The best saving performance showed the
following areas of activity: oil and gas treatment and processing,
transportation, oil and gas production technology, and reservoir
pressure maintenance. In 2019, the Company approved and
put into effect a unified policy to improve energy efficiency and
energy saving, the Standard of Energy Efficiency and Energy
Saving in the TATNEFT Group, and also adopted the Program
to improve energy efficiency and energy saving for 2020-2022.
The documents are aimed at achieving the Company's strategic
goals, establish general requirements for the system of energy
efficiency and energy saving, and formalizes uniform principles
and approaches in this area.
The main goals in this area are as follows: continuous
improvement of energy efficiency, improvement of energy
efficiency and energy saving management processes in all types
of production activities; cost reduction through the deployment
of advanced innovative energy-efficient technologies and
rational use of energy resources; development, implementation,
operation and continuous improvement of the Energy
Management System that meets the requirements of GOST R
ISO 50001 and ISO 50001.
The 2020 Improved Energy Efficiency and Energy Saving
Program is targeted to attain not less 1.5% of the baseline of 2019
(in tonnes of oil equivalent), which amounts to 620 million rubles.
Fuel and Energy
Resource Type
Unit of
measure
2017
2018
2019
Consumption
in kind
Costs,
mln Rub
Consumption
in kind
Costs,
mln Rub
Consumption
in kind
Costs,
mln Rub
Electric power, incl.
hous kWh
4 251 700
Industrial consumption
hous kWh
4 160 900
Heat energy*, incl.
Industrial consumption
Natural gas, incl.
Industrial consumption
Gasoline (total) including:
АI-80
АI-92
АI-95
АI-98
Diesel fuel
GAS
Gcal
Gcal
thous m3
thous m3
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
tonnes
2 854 742
2 807 674
1 859 051
1 858 600
3 957,0
254,0
2 227,5
1 458,0
17,46
3 858,74
590,3
* thermal energy for super-viscous oil production is included in the natural gas purchases
11 560, 000
2 550,897
7 768, 476
155,749
9,242
85,666
60, 028
0,813
136,610
14,043
6 027 682
5 990 446
3 468 154
3 421 156
1 990 178
1 989 696
3 917,0
217,3
2 386,4
1 308,8
4,52
4 170,32
757,5
16 833, 077
3 314,468
8 732,258
168,398
8, 574
99,844
59,741
0,239
170,713
21,226
6 267 991
6 126 577
3 722 179
3 683 207
2 126 429
2 126 023
3 868,4
102,0
2 632,7
1 120,5
13,25
4 811,08
971,8
18 775, 841
3 739,357
9 649, 622
168,339
4,294
112,170
51, 154
0,721
201,585
26,337
In order to improve rational energy
consumption of the Company advances
its energy efficiency and energy saving
management processes in all production
activities through advanced innovative energy-
efficient technologies and rational use of
energy resources.
>2 BLN
RUB
CUMULATIVE EFFECT FROM
ENERGY SAVING PROGRAM
>40,7 KTONNES
OIL EQUIVALENT
SAVED IN 2019
80
81
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Macroeconomics
and Competitive Environment
Company’s leadership indicators
Refining
Up to 2030, the Company will
maintain the highest rates of
refining depth and light oil product
yield
In 2019, the oil refining depth in Russia reached 83.1%, slightly
decreasing by the end of 2018 (83.6%). The yield of light oil
products also decreased slightly from 61.9% in 2018 to 61.7% in
2019. In oil refining, the Company has one of the best indicators
in the industry: the refining depth, yield of light oil products, while
there is no production of heating oil.
Resources
RESERVES LIFE (YEARS)
20
19
15
30
The Company has the highest
indicator on proves reserves life
amongst Russia vertically integrated
oil companies – (for the period of 30
years)
The company maintains one of the
highest ORF among Russia vertically
integrated oil companies — at the
level of 44%
Rosneft
Lukoil
Gasprom Neft
Tatneft 2030
Source: Data from companies
ORF
45 %
40 %
35%
30%
20 %
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Lukoil
Surgutneftegas
Rosneft
Tatneft
Gaspromneft
Bashneft
Neftegasholding
Average across the country
Slavneft
Russneft
Source: REA calculations at oil price of 40 USD/barrel
82
FUEL OIL PRODUCTION TRENDS IN THE RUSSIAN FEDERATION
AND PJSC TATNEFT, REFINING DEPTH TRENDS
STRATEGIC PLANS FOR REFINING: YIELD OF LIGHT
OIL PRODUCTS AND DEPTH OF
99 %
99 %
99 %
%
%
mln tonnes
21
2,1
70
90
80
70
60
50
40
30
71 %
20
70 %
10
0
1,9
73
71 %
71 %
1,9
71
78 %
72 %
2,2
69
74 %
88 %
50
1,3
85 %
54
78 %
100 %
95 %
90 %
84 %
83 %
85 %
80 %
46
46
75 %
70 %
65 %
60 %
2012
2013
2014
2015
2015
2017
2018
2019
Production commercial fuel oil in
Refining depth total in RF (right
the RF, mln tonnes
scale) %
Production of fuel oil TANECO,
Refining depth at Tatneft (right
mln tonnes
scale) %
95 %
80 %
99 %
89 %
75 %
86 %
58 %
76 %
100
90
80
70
60
50
40
30
20
10
0
Роснефть 2022
Лукойл 2027
Газпром Нефть 2025 Татнефть 2030
Depth of refining, %
Yield of light oil products, %
Source: Ministry of Energy. Data from com-panies
One of the fundamental external factors affect-ing the long-term
price of oil is global oil consumption. Despite the current crisis
in the global economy, it is expected that demand for oil will
continue to grow until the end of the 2030s. During this period,
monetization of oil reserves is expected to bring maximum
returns to oil companies.
The promotion of the oil and gas industry includes the goals to
increase long-term sta-bility, ensure effectiveness fpr activities
and goals of reducing the carbon footprint, the search for
new environmentally friendly ener-gy solutions. Solving these
problems requires investments that will provide new ways for
economic growth.
According to the baseline scenario, the peak of global oil
demand will be reached by the mid-30s, after which a long
period of stabili-zation of global oil consumption is projected.
Prospects for the development of the oil and gas industry in
Russia will be based on inter-national prices, tax payments,
volumes of domestic consumption, promotion of the transport
sector, technological solutions in the research of new oilfields.
The global cost of hydrocarbon resources will depend on the
degree of development of the international economy and the
activity of introducing other sources of energy.
The Company’s Strategy 2030 is primarily aimed at solving these
priority tasks:
• Focus and intensification of production on the territory of
Russia;
• Acceleration of reserves involvement in de-velopment,
increase in ORF (Tatneft has one of the highest ORF level of
35%, across Rus-sia 27%);
100% replacement of proved reserves
•
• Ensuring safe operations;
• Reducing the negative impact on environ-ment and
greenhouse gas emissions;
• Reducing costs and losses at all stages of processes;
• High-quality oil refining;
• Petrochemicals development
83
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Main challenges and
assessment of their impact on
the Company’s development
While setting ambitious goals, the Company evaluates a complex of external challenges:
• high volatility in oil prices
• escalation of competition between producers in the markets as a result of technology development (including those in shale
•
•
oil and gas produc-tion);
tightening of non-competitive meth-ods of economic struggle, including US sanctions and its allies
slowing the growth and changing the structure of global energy demand, including the gradual replacement of
hydrocarbons with other types of en-ergy
• direct or indirect discrimination of Russian FEC companies in foreign markets by changing regulations, in-cluding under the
pretext of climate and environmental policies, as well as politically motivated diversification of energy imports
The most significant global business chal-lenges are the decline in
global oil consump-tion, which is not comparable to previous crises
– a decline in demand in 2020 is pro-jected to reach 22 million
barrels/day in the 2nd quarter and up to 10 million barrels/day at the
year-end as a result of the pandemic coronavirus and crisis factors
in the global economy.
• oil production cut by 10 million barrels/day as part of the
historic new OPEC+ Agree-ment, which covers the period from
May 1, 2020 to May 1, 2022. In total, production is expected to
be reduced by the OPEC+ Agreement participants and some of
the G20 producers by 20 million barrels/day;
the greatest volatility in oil prices in recent years and price
uncertainty until 2025 amid an unstable market;
•
• uncertainty with the timing of recovery from the global economic
crisis and restoration of pre-crisis levels of hydrocarbon
consumption;
• drop in oil production margins;
•
tightening non-competitive methods of economic struggle,
including sanctions of the USA and its allies;
increasing the importance of the global cli-mate agenda;
•
• escalating competition of producers in the markets as a result of
•
technology develop-ment (including in the field of shale oil and
gas production);
slowing the growth and changing the struc-ture of global energy
demand, including the gradual replacement of hydrocarbons
with other types of energy;
• decline in the conventional crude oil quali-ty, field depletion,
the need to involve in the development unconventional/hard-to-
recover oil reserves;
introduction of restrictions on sulphur in marine fuels of
International Maritime Organ-ization (IMO);
•
• direct or indirect discrimination of Russian FEC companies
in foreign markets by chang-ing regulations, including under
the pretext of climate and environmental policies, as well as
politically motivated diversification of en-ergy imports.
The key influence on the Company’s opera-tions in 2020 and
the next few years will be exerted by new OPEC + agreement. A
de-crease in demand for oil and oil products is pushing refiners to
reduce the load on their refineries. Many oil companies in Russia
have scheduled major repairs at their refiner-ies.
Main challenges and risks for the domestic oil market are:
•
•
•
reduction of oil production in Russia (ex-cluding condensate) by
2.5 million bar-rels/day from May 1, 2020;
reduction of oil refining by up to 26% as a result of drop in
demand in the key market-European, and falling demand in the
domes-tic market (reduction of supplies to export and domestic
markets will total ~ 24.6 mil-lion tons);
increase in tax burden on the oil industry in the Russian
Federation, revision of tax bene-fits;
• deterioration of the FEC mineral resource base as existing fields
•
•
are becoming depleted,
increased costs, including transport and cap-ital ones, as well as
risks of mining projects due to the need to develop remote oil
and gas provinces with undeveloped infrastruc-ture,
increased demand for highly qualified per-sonnel that meet the
current and future level of technological development in the FEC
sector;
introduction of the Oil Quality Bank in RF;
introduction of new sanctions against the RF.
•
•
To a varying degree, all of the above chal-lenges and threats can
have an impact on the Company’s financial and economic perfor-
mance.
Most experts believe that after the market passes the bottom in
2020, recovery will begin in 2021 and by 2023, demand level will
return to the level of 2018-2019. De-mand growth will slow down
and consump-tion will peak in the late 2030s.
The development of technologies also changes the power balance,
for example, the USA turns from net importer into exporter; the
situation with the supply of oil in the oil market has changed
dramatically with the beginning of rapid development of shale oil
production in the USA – if the US share in world oil production was
only 6% in 2010, then the share was 13% in 2019, which al-lowed the
USA to become a leader of world oil production amid of declining
production by OPEC+ Agreement countries and, while maintaining
the current economic «model» by the end of 2019, the United States
had every chance to become the main source of oil supply growth in
the world market in the next decade (according to experts, with oil
prices at not lower than 60USD/barrel, the USA are able to grow to
5.5 million bar-rels/day to2025).
GROWTH IN GLOBAL CONSUMP-TION BYS TYPES OF PETROLEUM PRODUCTS
Million barrels/day for corresponding period
Key drivers
MOTOR TRANSPORT
PETROCHEMICALS
5,9
0,4
1,4
0,7
1,6
0,6
0,8
4,6
2,3
1,2
0,4
1,5
0,5
-1,4
3,5
0,4
0,6
0,4
1,2
0,5
1,6
0,3
1,1
0,4
2012-2020
2020-2025
2025-2030
2030-2035
Diesel fuel
Gasoline
Jet kerosene
LPG
Naphtha
Fuel oil
Others
0,2
0,9
0,3
0,4
0,8
-0,2
2035-2040
Among the key expected events in the global liquid hydrocarbon
market in 2020, which can significantly affect the balance of
supply and demand, should include, first of all, de-velopment of
the situation with the corona-virus pandemic, the rate of recovery
of eco-nomic activity of countries in the world and the restoration
of demand for liquid hydro-carbons, stabilization of oil production
under the new OPEC + agreement.
On the horizon to 2035, consumption will grow by 15% (15 million
barrels per day) ver-sus 2019, but the demand growth drivers
for LH * will change - leadership in maintaining the growth in
demand will shift from motor fuels to petrochemicals (naphtha
and LHG), while vehicles will re-main a key consumer of liquid
hydrocarbons
The refining market is expected to recover after the oil market
by 2023, but at this time additional refining capacity will be
intro-duced in the world, with an excess of 7 mil-lion barrels/day.
This will increase competi-tion in the world market of petroleum
prod-ucts and between regions, create prerequisites for reducing
the margin of refiners and the need to modernize/repurpose
capacities in the future.
Also in the medium term, the hydrocarbon feedstock market
will be influenced by the introduction of restrictions on sulphur
content in marine fuels (IMO).
* Liquid Hydrocarbon
New consumer preferences,
technological progress and a new
energy policy will in-creasingly
influence the global energy land-
scape and the oil market. These
global factors are changing the
architecture of the economy,
increasing competition, and
increasing price volatility.
Environmental and climatic
factors, due to the goals of the
Paris Agreement and the goals to
reduce the negative impact on the
environment, will have a significant
impact on the development of the
oil industry.
84
85
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT IMO
Climate aspects
TOTAL GREENHOUSE GAS EMISSIONS PER THOUSAND TONS OF O. E.
IN HY-DROCARBON PRODUCTION
In 2005, IMO requirements for reducing harmful emissions
from ships came into force in accordance with Annex VI of the
International Convention for the Prevention of Pollution from
Ships (MARPOL Convention). Since then, restrictions on marine
emissions have been gradually tightened. One of the main
pollutants that are subject to restrictions is sulfur oxide (SOx).
The last significant tightening of restrictions on its content in
marine fuel began in 2015 – its content was limited to 0.1 % in
the emission control areas (Emission Control Areas, ECA – the
Baltic and North Seas, certain coastal areas of the United States
and Canada, the Caribbean Sea area (around Puerto Rico and
the Virgin Islands)). For shipping activities outside the ECA zone,
the sulfur content of marine fuel was allowed to be up to 3.5%,
but new requirements from January 1, 2020 limited it to 0.5%.
This change affects temporarily the economy of production of all
types of petroleum products.
Global demand for marine fuel at the beginning of 2020 is on
average about 15.6 million tons per month. It is estimated that
almost 2.5 million tons of high-sulfur fuel oil (HSFO) will be
consumed by vessels equipped with scrubbers, the number
of which may exceed 4,000 by the end of 2020. The increase
in freight rates in October 2019, caused by the US sanctions
against the largest Chinese shipping company Cosco, led to the
fact that ship owners postponed temporarily the installation of
scrubbers. The rest of the demand should be provided by very-
low sulphur fuel oil (VLSFO) or marine gas oil (MGO). In the long
term, LNG bunkering can become an alternative to traditional
fuel. As a result of the introduction of IMO restrictions on the
sulfur content in marine fuel in the range of 0.5%, the global
market in 2020-2022 was expected to increase the spreads on
average distillates to oil. At the same time, it should be noted
that the consequences of the impact of the COVID-19 global
pandemic on the global market, including the oil refining market,
are currently difficult to predict.
The role of the Paris Agreement and the measures taken by
its participants in reducing the impact on climate and reducing
green-house gas emissions is significantly increas-ing.
The Paris Agreement* aims to prevent the global average annual
temperature on the planet from exceeding by more than 2°C
from pre-industrial levels by 2100 and to do everything possible
to keep warming within 1.5°C (currently the average temperature
is 0.75°C higher than the average annual rates in 1850-1900).
The commitment adopted by RF under the Agreement is to
ensure that greenhouse gas emissions should not exceed 75%
by 2020 versus the emissions in 1990, and 70% by 2030.
The largest air pollutants according to the World Bank (WB data)
are China, the USA, India and Russia.
* The Russian Federation ratified the Paris Agreement. The Paris Climate Agreement was
adopted on December 12, 2015, following the 21st conference of the UN Framework
Convention on Climate Change (UNFCCC) in Paris. The document was signed by 175 countries,
including Russia.
September 23, 2019 - Prime Minister Dmitry Medvedev signed a Government Decree on
adoption of the Paris Climate Agreement. The Agreement will come into force in 2021, but
even since 2020 it obliges all public compa-nies and investment funds to disclose their carbon
footprint and measures to reduce it, as well as plans to enter a low-carbon future.
TOP 10 GREENHOUSE GAS EMIT-TERS IN 2018
% of global
emissions
27,8 %
15,2 %
China
USA
India
Russia
Japan
Germany
South Korea
Iran
Saudi Arabia
Canada
7,3 %
4,6 %
3,4 %
2,1 %
2,1 %
1,9 %
1,7 %
1,6 %
Source: Ministry of Energy, the Company data
GREENHOUSE GAS EMISSION TRENDS IN 1990-2018
mln t CO2-equivalent
2020:
25 %
of 1990 level
2030:
20 %
of 1990 level
2018:
69.,4 %
of 1990 level
0
9
9
1
2
9
9
1
4
9
9
1
6
9
9
1
8
9
9
1
0
0
0
2
2
0
0
2
4
0
0
2
6
0
0
2
8
0
0
2
0
1
0
2
2
1
0
2
4
1
0
2
6
1
0
1
8
1
0
1
t
e
g
r
a
T
0
2
0
2
2
2
0
2
4
2
0
2
6
2
0
2
8
2
0
2
t
e
g
r
a
T
0
3
0
2
2500
2000
1500
1000
500
0
86
т СО2
1000
900
800
700
600
500
400
300
200
100
0
2014
Rosneft
Eni
2015
Gazprom Neft
Sunsor Energy
Tatneft
Shell
2016
Lukoil
Source: REA calculations at the oil price of 40 USD/barrel
CARBON PRICE IN EXISTING MECH-ANISMS OF CHARGING
FOR GREENHOUSE GAS EMISSIONS, USD PER TONS OF CO2-EQ
36
29
27
25
23
21
21
16
15
Sweden
Switzerland, Liechtenstein
Finland
Norway (maximum)
France
Iceland
Denmark (fossil fuels)
British Columbia (Canada)
Great Britain, Spain, Ireland, Denmark
Alberta (Canada)
South Korea
Slovenia
EU
New Zealand, California (USA); Ontario, Quebec
(Canada)
Beijing (China)
Switzerland
Portugal
Shenzhen (China)
Colombia, Latvia
Shanghai (China), Saitama, Tokyo (Japan)
Chile
Norway (minimum)
Mexico (maximum), Japan
Estonia
Tianjin (China)
Mexico (minimum), Poland, Ukraine
9
8
8
7
6
6
5
4
3
2
1
< 1
Carbon tax
Emissions trading scheme
2017
2018
101
77
64
55
139
According to the World Bank, in 2019, there were 50
mechanisms of carbon emission fees, which covered 15% of the
world’s green-house gas emissions.
Carbon fees are charged at both the national and regional levels.
In this case, mechanisms for the introduction of a carbon tax
or an emissions trading scheme can be used. The maximum
emission fee for 1 ton of CO2 is charged in Sweden and is USD
139, while the average global carbon fee is estimated by the IMF
to be USD 2 per ton of CO2-eq.
Russia has not yet introduced a mechanism of carbon emission
fees. With the introduc-tion of a carbon fee, the main losses
for com-panies will not be related to the emission tax, but to a
decrease in demand for products with a high carbon footprint
and for shares of companies that produce such products/
As a result of environmental requirements global oil producers
are adjusting their strate-gies.
87
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Oil Market
In recent years the global oil market has undergone significant
changes: the boom of shale production in the United States,
consumption growth in the Asia-Pacific Region, the development
of a trade war between the major oil consumers, the USA and
China, the conclusion of OPEC+ Agreement, the depletion of
resources in conventional plays in Europe, the tense military
situation in the Middle East and Africa – Libya, Nigeria and Syria,
the aggravation of political confrontation between Iran and
the United States, the introduction of US sanctions against the
largest oil producers – Russia and Iran.
The period of high oil prices contributed to a significant
increase in production in a number of countries with expensive
production in various geographies – North and South America,
the North Sea, Africa and a number of countries in the Middle
East began to increase production. In total, these factors led to
overproduction of oil.
To balance the market at the end of 2016, the OPEC member
countries (14 countries), as well as 11 non-cartel countries that
joined the agreement, including Russia, signed the OPEC+
Agreement and agreed to reduce production by 1.8 million
barrels per day compared to the level of October 2016. The
agreement showed its effectiveness and the OPEC+ member
countries reviewed the volume of cuts periodically.
The OPEC+ Agreement, as well as production cuts in Iran and
Venezuela, helped stabilize the global oil market, eliminate
excess reserves, and maintain a balance between supply and
demand, which in turn helped keep Brent price in the range of
60-70 dollars/barrel in 2019. At the same time, the parties to the
agreement lost gradually their share in the world oil production
to countries outside the agreement, primarily to the United
States.
The main source of oil supply growth was shale oil – the United
States is one of the few countries in the world where liquid
hydrocarbon production had a stable and distinct growth trend
during 2016-2019, the country overtook its main competitors
– Russia and Saudi Arabia in production volumes, reaching
the level of 12.97 million barrels/day at the end of 2019. The
increase in oil production in the United States was facilitated by
the expansion of pipeline capacity and increased demand for
low-sulfur feedstock in Europe due to the transition of refineries
to the production of marine fuel with a sulfur content of no
more than 0.5% due to the entry of new requirements of the
International Maritime Organization (IMO*) from January 2020.
According to forecasts (actual for January 2020), production
in 2020 at American fields was expected to reach 13.2 million
barrels/day. To balance oil and keep the price of Brent oil at
least of 60 USD /barrel, it was decided at a meeting in Vienna
on December 6, 2019 to extend the OPEC+ Agreement to
reduce oil production until the end of March 2020. The volume
of production cuts compared to October 2018 was 1.7 million
barrels/day, which corresponded to approximately 1.7% of global
oil demand.
Geopolitical factors came to the fore again in 2019 in determining
the market conditions and economic development of countries
and regions – the trade conflict between the United States and
China was a key reason for reducing Chinese exports in the past
year and contributed to the slowdown in the global economy and
reduced demand for oil.
In 2019, there was a turning point in the positive dynamics of
world trade, which began in 2016. In the first half of the year,
many countries recorded a negative increase in exports year on
year. This was particularly true in the United States, Germany,
Brazil, China, Japan, and Russia. According to experts, the
decline in exports occurred as a result of import-limiting duties
and weakening global demand.
In 2019, several events occurred that could potentially become a
«Black Swan»**, i.e. significantly shift the supply-demand balance
on the world market and affect the price of oil. These events
include increased sanctions against Iran and Venezuela, drone
attacks on oil fields in Saudi Arabia, potential threat of closing
the Strait of Hormuz, contamination of the Druzhba oil pipeline, a
tropical storm in the Gulf of Mexico that brought a significant part
of oil production platforms to a standstill, and so on. However,
these events did not have a significant impact – price fluctuations
were quickly smoothed out, and there was no significant deficit/
surplus of oil on the market due to the response of OPEC+
member countries
Early in 2020, the global economy was experiencing a crisis,
which was characterized simultaneously by interruptions in the
work of manufacturers and suppliers in China, the mass closure
of factories led to a disruption in the supply of automotive parts,
components for electronic devices and clothing. The introduction
of a mass quarantine regime led to a decrease in consumer
demand for oil products. The emergence of a huge supply
surplus on the market (according to experts, in the second
quarter, the excess supply of liquid hydrocarbon can reach up
to 22-30 million barrels/day) in the near future will be limited by
the existing infrastructure for storage and transportation of oil (oil
storage facilities around the world are rapidly filling up due to a
significant excess of supply over demand).
In total, the impact of the coronavirus on energy markets and
the global economy will be highly uncertain until the pandemic
recedes.
With this instability, a stronger global recession is expected in
2020 than in 2009.
* The International Maritime Organization (IMO) is a specialized agency in the UN sys-tem in the
field of maritime safety and protec-tion of the marine environment. In accord-ance with the
IMO-approved 0.5% limit on sulphur emissions for all vessels, which will come into force from
2020, the shipping in-dustry has started to equip its vessels with either exhaust gas cleaning
systems (scrub-bers) or switching to low-sulphur bunker fuels.
** «Black Swan» is an unlikely event (force majeure), which is impossible to predict, but which
often entails large-scale consequences.
BALANCE OF OIL MARKET IN 2010-2019 WITH A FORECAST UNTIL 2021
million barrels/day
5,0
4,0
3,0
2,0
1,0
0,0
0,0
87,35
-1,0
-2,0
100,75
99,83
98,45
-3,9
95,50
96,94
95,87
90,33
0,1
89,10
-0,6
93,88
0,3
92,31
-1,0
1,1
0,5
0,8
-0,4
-0,2
101,95
-1,8
103,0
101,0
99,0
97,0
95,0
93,0
91,0
89,0
87,0
85,0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Balance of world supply and demand
Global demand for liquid hydrocarbon
Global supply of liquid hydrocarbon
Source: Energy information administration of the US Department of Energy as of 07.04.2020
OIL RESERVES OF THE OECD COUNTRIES
Mln bbl
3,62
3,4
3,2
3,0
2,8
2,6
2,4
2,2
2,0
112
64
81
69
67
48
47
45
46
31
57
55
32
33
USD/bbl
120
100
80
60
40
20
0
48
2014
2015
2016
2017
2018
2019
2020
2021
Commercial oil and oil products reserves of OECD countries, bln bbl
Brent, USD/bbl (right hand scale)
5-year average of oil and oil products com-mercial reserves of OECD
Brent forecast since April 2019 – futures, USD/bbl (right habd scale)
countries, bln bbl
Source: Energy information administration of the US Department of Energy
DYNAMICS OF OIL DEMAND BY COUNTRY/REGION IN 2014-2019
AND IEA FORECAST UNTIL 2040, MILLION TONNES
Million tonnes
98,45
0,38
0,04
1,15
0,75
0,04
5,65
106,40
-0,01
120
100
80
60
40
20
0
2017
USA
Europe
Other countries
OECD
China
the Rest
of Asia
Other countries
World
2019
2040
World oil
Source: Energy information administration of the US Department of Energy
88
89
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Dynamics of world oil prices
(Brent, Urals).
Over the past five years, the dynamics of oil prices have been
highly volatile. In 2019, the oil price was moderately volatile in the
range of 53-75 dollars per barrel.
The average price of Urals crude in 2019 de-creased by 8.4%
compared to the previous year and amounted to 64 dollars per
barrel.
Quotes growth in the first half of the year from 53 dollars per
barrel up to a maximum of 75 dollars per barrel was due to
a reduction in supply amid implementation of the OPEC +
agreement and increased geopolitical risks.
The net price of Urals crude oil (after deduc-tion of the mineral
extraction tax (MET) and export duty) decreased to a lesser
extent (about 6%) due to the positive effect of the time lag and a
progressive scale of MET and export duties calculation.
BRENT AND URALS OIL PRICE
USD/bbl
108,9
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
78,9
71,4
63,5
57,8
46,9
45,9
January
2014
July
2014
January
2015
July
2015
January
2016
July
2016
January
2017
July
2017
January
2018
July
2018
January
2019
July
2019
January
2020
Brent, долл./барр
Urals, долл./барр
Source: Refinitiv
Dynamics of RUB/USD
and RUB/EUR exchange rate
In 2019, the average annual exchange rate of the ruble against
the US dollar increased by 3.2%, to 64.7 rubles/dollar, which
positively affected the dynamics of the price of Urals oil in ruble
terms, which decreased by 5.4% compared to 2018 year. Net
price in ruble terms decreased by 2.8%.
The steps of the Bank of Russia on the for-eign exchange market
in February-March 2020 consisted of curbing volatility risks by
canceling purchases of foreign currency by the Bank of Russia
under the budget rule and then selling it.
DYNAMICS OF RUB/USD AND RUB/EUR EXCHANGE RATE
Despite the fact that according to the budget rule, the sale of
foreign currency had to be carried out with a time lag (after the
average oil price fell beyond the base level at the end of the
reporting month), the Bank of Russia began conducting these
operations in ad-vance (from March 10, 2020), so that they were
proactive.
Rubles
100
80
60
40
20
2014
2015
2016
2017
2018
2019
2020
The dynamics of the US dollar to Ruble
The dynamics of the Euro to Ruble
Source: Central Bank of Russia
USD/barrel
120
100
80
60
40
20
111,8
34,4
65,2
47,8
4
1
y
a
M
4
1
r
p
A
4
1
l
y
u
J
4
1
t
c
O
5
1
n
a
J
5
1
r
p
A
5
1
l
y
u
J
5
1
t
c
O
Brent
Ruble to US dollar rate
77,9
30,7
6
1
n
a
J
65,8
64,3
57,9
46,7
44,7
46,4
81,0
67,3
65,9
65,1
57,4
73,7
31,8
6
1
r
p
A
6
1
l
y
u
J
6
1
t
c
O
7
1
n
a
J
7
1
r
p
A
7
1
l
y
u
J
7
1
t
c
O
8
1
n
a
J
8
1
r
p
A
8
1
l
y
u
J
8
1
t
c
O
9
1
n
a
J
9
1
r
p
A
9
1
l
y
u
J
9
1
t
c
O
0
2
n
a
J
Source: RUB exchange rate – Central Bank of the Russian Federation, Brent quotes – Thomson Reuters
29,0
20,8
DYNAMICS OF RUB EXCHANGE RATE IN COM-PARISON WITH THE DYNAMICS OF OIL PRICE
90
91
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
GDP Dynamics
of Key Economies
Global GDP growth in 2019 was 2.9%, down from 3.7% in 2018.
The IMF at the end of 2019 projected global GDP in 2020 at
3.4%. However, as a result of the shock caused by the spread
of the COVID-19 pandemic in the 1st half of 2020, the world
economy will face a serious sharp decline, the extent of which is
to be assessed.
According to preliminary estimates, the de-cline in global GDP in
2020 from the forecast level will be 6.4 p.p. and will reach -3%,
which is much more than the decline during the financial crisis
of 2008-2009. It is ex-pected that the economies will begin to
re-cover in 2021.
DYNAMICS OF GDP GROWTH RATE
The decline in GDP at the end of the year in the Euro Zone
is projected at -7.65%, the United States -5.9%, Russia -5.5%,
China’s GDP growth will fall to 1.2%, India - to 1.9%. In 2019, the
GDP of Russia in real terms decreased to 1.3% from the level of
1.7% of the previous year. The slowdown in gross output was due
to a decrease in exports (-2.1%), and was also accompanied by
a de-crease in the growth rate of household final consumption
expenditure (+2.3% in 2019 after +3.3% in 2018).
%
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Russia
USA
Eurozone
China
India
Sources: Refinitiv, IMF, IHS
Dynamics of consumer price growth
in key economies
Core inflation, which is a key indicator for the Central Bank and
allows it to identify better inflationary risks, has reduced below
targets in the developed countries, and it is below the historical
average of core inflation in many developing countries and in
emerg-ing markets.
In 2019, the growth rate of consumer prices in Russia reduced
from 4.3% in 2018 to 3.0% in 2019 (December to December).
Food inflation reduced to 2.6% from 4.7% in the previous year
(December to December).
The main factors for reducing inflation in 2019 were a decrease
in external demand for Russian export goods in the context of a
slowing global economy, restraining inflation in Russia’s trading
partner countries, as well as weak consumer demand.
Since the slowdown in inflation in 2019 was faster than it was
forecasted, the Central Bank of the Russian Federation reduced
its key rate five times during the period from May to De-cember
2019.
DYNAMICS OF CONSUMER PRICE GROWTH IN KEY ECONOMIES
month to the corresponding
month of last year
According to the survey data conducted in the first decade of
March 2020 by the Central Bank of the Russian Federation, the
popula-tion’s inflation expectations for the year ahead have not
changed in comparison with Febru-ary. The forecast of inflation
for 2020 by pro-fessional analysts also remained virtually un-
changed (in February 2020, the range of in-flation forecasts
for 2020 made by profession-al analysts - Interfax, Bloomberg,
Refinitiv - continued to decline and amounted to 3.5%).
According to the Bank of Russia, the weak-ening of the ruble
in February-March, due to the changes in external conditions,
will lead to a temporary acceleration of annual infla-tion in the
coming months. Inflation expecta-tions of the population and
business may also temporarily increase. However, the slowdown
in domestic demand growth is a significant deflationary factor. It
will have a restraining effect on inflation. Under these conditions,
taking into account the current monetary pol-icy, annual inflation
will return to 4% in 2021. Expectations of inflation in 2020 and
in the three-year term have not changed much compared to
previous months. The Bank of Russia maintains a target inflation
rate of 4% following the results of 2020.
Inflation expectations of the population and price expectations
of enterprises in general remained stable, on February 7, 2020
the Bank of Russia decided to reduce the key rate by 25 b.p., to
6.00% per annum, on April 24, 2020 it decided to reduce the key
rate by 50 b.p. to 5.50% per annum
18
16
14
12
10
8
6
4
2
0
-2
92
93
2014
2015
2016
2017
2018
2019
2020
Russia
USA
Eurozone
China (including Hong Kong)
India
Sources: Refinitiv
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Oil and Condensate
Production in Russia
In 2019, the Russian Federation achieved historic figures for
oil and gas production and electricity generation, and set new
national records. Oil production following the results of the
year was about 560 million tons, gas – 737 billion cubic meters.
Production growth was 0.8% or 4, (in 2018 - 555.9 million tons).
The growth was achieved, among other things, due to the
production at new fields (green fields): Verkhnechonskoye (PJSC
Rosneft Oil Company) and Talakanskoye (PJSC Surgutneftegas)
fields in Eastern Sibe-ria, as well as due to the start of
commercial oil production at the Suzunskoye and Tagulskoye
(PJSC Rosneft Oil Company) fields. In addition, PJSC LUKOIL
increases oil production at the V. Filanovsky field, and PJSC
Gazprom Neft - at the Prirazlomnoye and Novoportovskoye
fields.
The largest increase in production was achieved in Western
Siberia + 2.5 million tons (+0.8%) and amounted to 319.5 million
tons or 56.9% of the total level for the coun-try. The growth
was due to the increase in production by Kondaneft at the
new Kon-dinskoye field (+1.2 million tons compared to the
previous year), Gazprom Dobycha Urengoy (+1.1 million tons),
RN-Nyaganneftegaz (+1.0 million tons) and at certain fields of
KhMAD: Novoportovskoye (+0.6 million tons, Gazprom Neft),
Zapadno-Chatylkinskoye (+0.5 million tons, Gazprom Neft),
Russkoye (+0.5 million tons, Rosneft).
In 2019, Rosneft reversed the trend of falling production at
the Samotlorskoye field, which declined by an average of 5%
annually until 2018. Due to the investment incentives, pro-duction
was reduced to 1.2%, reaching the level of 18.4 million tons
at the end of the year. Production growth in 2019 occurred in
almost all vertically integrated oil companies with the exception
of PJSC Gazprom Neft (minus 0.9% or 0.34 million tons), whose
production decreased, though slightly, but for the first time in
recent years, as well as PJSC Bashneft, which has a decrease
for the third consecutive year – minus 1.5% compared to the
previous year (in 2019, decrease to the level of 2018 was 8.1%).
According to the year results of the vertically integrated oil
companies, Rosneft (+0.9 million tonnes or 0.5%) and Tatneft
(+0.3 million tonnes or 0.9%) became the production growth
leaders.
In the European part of the country, oil pro-duction with gas
condensate increased by 1.4 million tons (+0.8%) to 165.7
million tons compared to 2018. The main growth was due to the
development of offshore fields named after V. Fili, named after
Yu. Korchagin (+0.5 million tons, LUKOIL) and the development
of old fields of Samaraneftegaz in the Samara region (+0.5 million
tons), LUKOIL-Komi - in the Komi Republic (+0.3 million tons).
In the Orenburg region, Sladkovsko-Zarechnoye and
Koshinskoye (total +0.7 mil-lion tons, Sladkovsko-Zarechnoye)
fields also helped to compensate for the decline in other districts
of the region.
In the Eastern Siberia and Far East region, production
increased by 1.3 million tons (+1.7% compared to 2018). In
2019, 76.0 million tons of oil were produced, which was due
to the increase in production at the Kuyumbinskoye field (+0.5
million tons, Slavneftkrasnoyarskneftegaz) in Eastern Sibe-
ria and the Far East: Srednebotuobinskoye (+1.1 million tons,
TAAS-Yuryakh-Neftegazdobycha), the Eastern blocks of the
Srednebotuobinskoye field (+0.7 million tons, Rostneftegaz) and
Exxon NL (Sakhalin-1) Arktun-Dagi and Odoptu offshore fields
(total +2.2 million tons).
At the end of April 2019, the Belarusian company Belneftekhim
reported the deliver-ies of low-quality oil from Russia via the
Druzhba pipeline with a high content of or-ganic chlorides in
naphtha (a fraction that boils to a temperature of 204 °C) – about
20 ppm (according to market participants), which exceeds
the maximum threshold stipu-lated by GOST of the Russian
Federation by 2 times - 10 ppm. Oil exports via the North-ern
route of the pipeline to Poland and Ger-many were stopped for
45 days. Cleaning of contaminated oil volumes continued until
the end of the year.
The situation with oil contamination caused the need to revise
GOST for oil – to reduce the maximum content of organic
chlorides in the oil fraction, which boils to a temperature of
204°C (nafta), from the current 10 ppm to 6 ppm. The new level
corresponds to the technical regulation of the Eurasian Econom-
ic Union on oil safety, which was adopted in December 2017
TATNEFT GROUP’S SHARE OF OIL AND
CONDENSATE PRODUC-TION IN RUSSIA OVER
THE PAST 3 YEARS HAS BEEN STABLE AT 5.3%
TATNEFT GROUP’S SHARE OF OIL AND CONDENSATE
PRODUCTION IN RUSSIA
Tatneft Group oil and condensate production,
million tons
Conventional oil, mln tonnes
Share of Tatneft Group oil production
in the all-Russian oil and condensate production
2012
26,3
2013
26,4
2014
26,5
26,2
26,3
26,3
5,08%
5,05%
5,04%
2015
27,2
26,9
5,10%
2016
28,7
2017
28,9
27,8
27,3
5,24%
5,29%
2018
29,5
27,6
5,31%
2019
29,8
27,1
5,32%
94
RUSSIA’S OIL MARKET BALANCE
million tonnes
600
526,7
500
400
300
292,1
200
100
240,9
2014
534,0
289,1
261,6
2015
547,5
546,7
555,9
560,3
286,3
254,2
2016
286,6
257,0
2017
291,4
257,7
2018
290,1
266,2
2019
Oil and condensate production, mln tonnes
Export from the Russian Federation
Deliveries to the domestic market of RF
Sources: CCA for FEC
COMPANIES’S PRODUCTION SHARE
5,1
%
100
80
60
40
20
0
21,0
11,9
6,1
16,3
36,7
5,3
2012
2013
2014
2015
2016
2017
2018
2019
Rosneft
Lukoil
Gazprom Neft
Surgut NG
Tatneft
Bashneft
Other
Sources: CCA for FEC
OIL PRODUCTION GROWTH (YEAR-TO-YEAR)
%
35,0
30,0
25,0
20,0
15,0
10,0
5,0
0,0
-5,0
-10,0
-15,0
1
0,4
0,3
4,1
1,7
0,4
1,4
5,3
5,7
11,0
2,1
0,7
11,6
4,5
2,7
0,7
2,5
7,8
7,3
1,7
10,0
0,9
2,1
1,3
4,6
-3,6
0,8
0,9
3,0
-0,9
-1,5
3,1
0,0
-8,1
2013
2014
2015
2016
-0,1
2017
2018
2019
Rosneft
Tatneft
Lukoil
Bashneft
Gazprom Neft
Other
Surgut NG
Russia total (right scale)
Sources: CCA for FEC
24,0
10,8
7,0
14,7
34,8
3,0
2,5
2,0
1,5
1,0
0,5
0,0
-0,5
95
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Oil export from the Russian
Federation and deliveries
to the domestic market
Despite the restrictions imposed on the indus-try by the OPEC+
Agreement, oil exports from Russia in 2019 increased by 3.3%
or 8.5 million tons. US sanctions against ex-porters of medium-
heavy oil from Iran and Venezuela have caused an increase in
interest in Urals in many regions over the past year. Demand
began to decline only towards the end of the year, when many
refiners chose to increase purchases of low-sulfur feedstock
due to the introduction of restrictions on the content of sulfur in
marine fuel.
The trend of increasing deliveries outside the pipeline system
of PJSC Transneft continued - the growth was 3.2% or 1.5
STRUCTURE OF OIL EXPORT FROM RF
Mln tonnes
254,2*
18,1
34,88
257,0*
18,1
41,72
257,7*
18
45,12
266,2*
17,6
46,6
201,2
197,2
194,6
202,0
2016
2017
2018
2019
Far Abroad via pipeline
Near Abroad via non-pipe
Near Abroad
* Export from Russia total
Sources: CCA for FEC
SHARE OF OIL EXPORT FROM RF (MLN T)
million tons, although the increase significantly decreased in
comparison with 2018 – 8.2% or 3.4 mil-lion tons. The main
increase came from shipments from the port of De Castries (1 mil-
lion tons) and deliveries to CPC (0.6 million tons).
The trend of increasing shipments of feed-stock in the Eastern
direction via main pipe-lines continued – the growth amounted
to 4.5 million tonnes or 6.6% and reached 73.2 million tonnes.
Exports to the West via the pipeline also increased by 3 million
tons or 2.4% and reached 128.8 million tons (in 2018, the
decline in pipeline exports to the West was 12.9 million tons or
-9.3%). The growth of shipments in the Western direction was
not stopped even by the situation with chlorinated organics.
A decrease in the vol-ume of shipments to the near abroad
(Belarus) contributes to an increase in deliveries to the far
abroad.
Last year, the export of Urals marine ship-ments significantly
increased by (9.2 million tonnes) versus 2018, to (97.7 million
tonnes), which was facilitated by the suspension of export
through the Druzhba pipeline in the second quarter due
to organic contamination of oil with organic chlorides and
accumula-tion of excess oil volumes in the Transneft system.
Shipments approached the indicator of 2017, when they
amounted to about 101 million tonnes.
In addition, the volume of rail-road transpor-tation increased. The
increase in “wheeled” exports was the result of several factors:
the need for redistribution of flows due to oil con-tamination in
the Druzhba pipeline, and an increase in delivery of Rosneft’s
crude oil to the Caspian Pipeline Consortium system due to a
protracted repair at the Tuapse refinery, and oil shipment to
Belarus PJSC ‘NK‘ RussNeft ’.
According to the results of 2019, Tatneft’s crude oil export
decreased by 5.4% or 0.7 million tonnes, the share in the volume
of crude oil export from Russia by the end of 2019 decreased
to 4.4% (in 2018 - 4.8%), while shipments for processing on the
domes-tic market increased by 11% or 1.7 million tonnes, a larger
share of growth was account-ed for by Taneko our own refinery -
ship-ments increased by 1.2 million tonnes or 3,2 %
Total exports from RF
Far abroad countries resources of the RF
Far Abroad via pipeline
Far Abroad off pipeline
Pipeline transit resources to far abroad
Near Abroad
- through pipeline
- off pipeline
2012
262,5
234,3
189,6
21,83
21,2
28,2
27,8
0,4
2013
256,6
228,5
184,1
22,71
21,7
28,1
26,4
1,6
2014
240,9
218,4
176,3
22,8
19,3
22,5
21,5
1,0
TATNEFT GROUP SHARE IN THE VOLUME OF OIL EXPORT FROM THE RF
TATNEFT Group oil export from
the Russian Feder-ation, million tonnes
Far abroad export
Near abroad export
Share of Tatneft Group oil export to the share of total
export from the Russian Federation
2012
12,5
11,9
0,62
4,8%
2013
12,5
11,4
1,05
4,9%
2014
9,7
8,4
1,3
4,0%
2015
261,6
239,0
192,1
28,19
18,7
22,6
22,0
0
2015
11,6
10,3
1,3
4,4%
2016
254,2
236,1
201,2
34,88
19,9
18,1
18,1
0
2016
13,0
11,9
1,1
5,1%
2017
257,0
238,9
197,2
41,72
19,6
18,1
18,1
0
2017
15,5
14,2
1,2
6,0%
2018
257,7
239,7
194,6
45,12
18,6
18,0
18,1
0
2018
12,4
11,2
1,2
2019
266,2
248,6
202,0
46,6
19,9
17,6
17,6
0
2019
11,7
10,5
1,2
4,8%
4,40%
RATIO OF TATNEFT GROUP OIL SUPPLIES TO DOMESTIC/ EXPORT MARKET
TO OWN PRODUCTION
%
100
50
0
47,5
47,1
36,4
42,6
45,4
53,4
41,9
39,3
52,1
51,9
58,8
55,0
50,9
44,7
55,8
61,1
2012
2013
2014
2015
2016
2017
2018
2019
Export share to own production
The share of oil supplies to domestic market (to own production)
SHARE OF EXPORT AND OIL SUP-PLIES OF TATNEFT GROUP TO THE DOMESTIC MARKET
%
6,0
5,0
4,0
5,1
4,8
6,0
4,5
5,7
4,8
6,3
4,4
5,0
4,9
5,3
4,0
5,2
4,4
5,1
5,1
2012
2013
2014
2015
2016
2017
2018
2019
The share of Tatneft Group’s oil exports to the share of total exports from the Russian Feder-ation
Share of Tatneft Group’s oil supply to the to-tal supply to the domestic market of the Rus-sian Federation
SHARE OF TATNEFT GROUP IN OIL SHIP-MENT TO THE
DOMESTIC MARKET OF THE RUSSIAN FEDERATION
Tatneft Group Oil supplies to domestic market of the
Russian Federation (to be refined)
TAIF-NK OJSC
TANECO JSC
Other refineries, including Kichui refinery
Share of Tatneft Group oil supply to the to-talsupply
to the domestic market of the R ussian Federation
2012
13,7
2013
13,7
2014
15,6
2015
15,0
2016
14,6
5,8
7,5
0,4
5,4
7,7
0,7
6,2
8,4
1,0
6,2
8,6
0,1
6,9
7,4
0,3
2017
12,9
4,7
7,3
0,9
2018
16,5
4,9
8,6
3,0
2019
18,2
4,8
9,8
3,6
5,1%
5,0%
5,3%
5,2%
5,1%
4,5%
5,7%
6,3%
96
97
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Fuel consumption and vehicle fleet
GLOBAL PRIMARY CONSUMPTION OF ENERGY RESOURCES BY TYPES OF ENERGY
TREND OF NEW CAR SALES IN THE RUSSIAN FEDERATION
Billion toness of oil equivalent per year
pcs.
6
5
4
3
2
1
0
36 %
26 %
19 %
10,5 %
6 %
Oil
Gas
2 %
0,5 %
32 %
26 %
23 %
9 %
5 %
3 %
2 %
27 %
27 %
18%
12%
9%
5%
3%
1995
2000
2005
2010
2015
1020
2025
2030
2035
2040
2045
2050
Coal
Hydro
Nuclear
RES
Biot
Sources: IHS Markit
GASOLINE CONSUMPTION
Mln bbl/d
25,7
26,5
27,0
27,6
28,1
28,6
29,0
29,5
29,8
30,1
30,3
30,5
30,7
30,8
30,8
30,7
30,6
30,4
30,1
35
30
25
20
15
10
5
0
+11
7
8
7
2
98
+32
5
1
5
2
+26
1
1
9
1
66
73
+30
0
3
8
1
80
-50
7
0
4
1
63
+11
5
2
8
2
-5
4
7
6
2
+39
9
4
5
2
-10
8
9
3
2
111
109
100
110
-36
7
3
5
1
54
+12
0
2
5
1
-12
7
5
3
1
47
55
+13
4
2
7
1
73
-8
2
8
5
1
63
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
8
1
0
2
9
1
0
2
+18
0
2
5
1
55
5
0
0
2
+17
4
8
2
1
38
4
0
0
2
+15
0
0
1
1
29
3
0
0
2
-3
4
1
9
29
0
0
0
2
+12
2
2
0
1
24
1
0
0
2
-6
8
5
9
25
2
0
0
2
7
4
9
18
9
9
9
1
Growth dynamics
Car sales
Oil
Sources: ASM-Holding OJSC, Avtostat LLC, Help Portal “Calculator”
NEW CARS SALES STRUCTURE BY TYPES OF ENGINES IN THE WORLD
1%
15%
83%
%
100
90
80
70
60
50
40
30
20
10
0
6%
12%
11%
71%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
2018
2019
2020
2021
2022
2023
2024
2025
2030
2035
USA
Europe
China
Other
Sources: REA
DIESEL CONSUMPTION
Mln bbl/d
25
20
15
10
5
0
17,5
18,0
18,2
18,4
18,5
18,7
18,9
18,8
19,0
18,9
18,7
18,5
18,3
18,0
17,7
17,4
17,1
16,8
16,4
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
USA
Europe
China
Other
Sources: REA
98
All gasoline auto sales
Total sales EV
Total sales of diesel cars
Total sales PHEV
Sources: REA
DYNAMICS OF THE CAR FLEET DY-NAMIC BY TYPES OF CONSUMPTED OIL PRODUCTS
amount
+ 24%
50 328
5 535
55 472
6 048
59 463
6 432
62 315
6 739
+ 10%
329 639
329 628
- 20%
159 525
160 443
309 860
153 216
44 793
49 424
53 031
55 576
170 114
169 185
156 644
0%
263 848
132 625
131 223
2018
2025
2030
2035
2018
2025
2030
2035
Diesel
Petrol
Sources: REA
RF
Europe
99
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Oil Products production and supply
in Russian Federation
OIL REFINING AND PRODUCTION OF BASELINE PRODUCTS IN RF
Mln tonnes
265,4
272,5
71,9
69,4
38,2
74,5
72,0
38,7
300
250
200
250
150
100
50
0
289,0
76,3
77,3
38,3
282,9
280,6
279,9
287,0
285,2
71,1
76,1
39,2
54,9
76,3
40,0
49,8
76,9
39,2
46,4
77,5
39,5
45,8
78,4
40,2
2012
2013
2014
2015
2016
2017
2018
2019
Oil refining in Russia in total, mln tonnes
Production of commercial Fuel oil in RF, Mln tonnes
Production of diesel fuel in the RF, Mln tonnes
Gasoline production in the RF, Mln tonnes
In 2019, the volume of primary oil refining decreased by 0.6% or
1.8 million tons com-pared to 285.2 million tons in 2018.
In oil refining, the trend of reducing the share of dark oil
products in the production struc-ture of Russian refineries
remained as a result of modernizing production capacities and
improving the quality of the product basket. Production of fuel
oil in 2019 decreased by 0.6 million tons or 1.3% compared to
the corresponding period in 2018 and reached a record low of
45.8 million tons. The decline in the rate of production of fuel
oil is due to the IMO, at the same time, low prices and vessels
equipped with scrubbers increased the demand for high-sulfur
fuel oil. The drop in prices arouse interest to high-sulfur fuel oil
as feedstock for refining at complex refineries, especially in the
United States.
PRODUCTION AND EXPORT OF OIL PRODUCTS
Petrol production (hereinafter RON) increased by 1.9% or
0.8 million tonnes and reached 40.2 million tons due to the
commissioning of large oil refining units at the end of 2018 at the
Antipinsky oil refinery and the TAN-ECO plant and the growth of
gasoline pro-duction at the Gazprom Neftekhim Salavat plant.
Production of diesel fuel (hereinafter DF) in 2019 reached the
level of 78.4 mln tonnes, an increase was 1.2% or 0.9 mln tonnes.
In 2019, the regulation of domestic gasoline prices legislated,
which led to a drop in do-mestic fuel prices below export parity.
The introduced damper only partially compen-sated for the
decline below the level of export parity
GASOLINES
Gasoline production in the RF, mln t
Gasoline export from the RF
Gasoline deliveries to the domestic market in the RF
2012
2013
38,2
3,6
34,3
38,7
4,3
34,1
2014
38,3
4,3
33,1
2015
2016
39,2
4,7
34,6
40,0
4,9
34,9
2017
39,2
4,1
35,2
2018
2019
39,5
3,8
35,6
40,2
5,2
35,0
DIESEL FUEL
2012
2013
2014
2015
2016
2017
2018
2019
DF production in the RF, mln tonnes
DF export from the RF, mln tonnes
DF supplies to the domestic market in the RF, mln
tonnes
69,4
34,9
32,5
72,0
37,5
32,3
77,3
44,1
31,5
76,1
45,1
31,3
76,3
43,7
32,5
76,9
43,7
32,8
77,5
42,0
35,7
78,4
39,4
38,9
FUEL OIL
2012
2013
2014
2015
2016
2017
2018
2019
Fuel oil production in the RF, mln tonnes
Fuel oil export from the RF, mln tonnes
Fuel oil supplies to the domestic market in the RF,
mln tonnes
JET KEROSENE
Jet kerosene production in RF, mln tonnes
Export of jet kerosene from the RF, mln tonnes
Supplies of jet kerosene to the domestic mar-ket of
the RF, mln tonnes
71,9
56,9
11,4
2012
10,0
2,7
7,3
74,5
57,3
12,8
76,3
53,5
19,8
71,1
53,8
15,3
54,9
42,0
12,8
49,8
39,4
10,3
46,4
32,8
12,3
45,8
33,0
12,9
2013
2014
2015
2016
2017
2018
2019
10,3
1,5
8,9
10,9
0,8
10,0
9,7
1,1
8,6
9,6
1,1
8,5
11,1
1,0
10,1
12,7
1,3
11,4
12,5
0,9
11,6
Key factors of oil industry
growth in 2019
• Prolongation of OPEC+ Agreement until the end of 2019;
• Approval of the program for the formation of common EEU oil and petroleum product markets;
Introduction of tax on additional income from hydrocarbon production from January 1, 2019;
•
In order to complete the «tax maneuver», a step-by-step reduction of export duties has been initiated over 6 years, and excise
•
rates have been set for excisable goods
(No. 305-FZ and No. 301-FZ);
•
• Development of the largest fields in Eastern Siberia, the Yamal-Nenets Autonomous area, and the Arctic continued;
• Falling production in Western Siberia poses a challenge to develop incentive measures;
• Contamination of export volumes of oil with organochlorine compounds in the Dru-zhba pipeline;
•
In accordance with the four-way agreement, work was completed at 5 Russian refineries in 2018, including the commissioning of a
1.6 million-ton diesel hydrotreatment unit at JSC TANECO, as well as the completion of a 0.7 million-ton catalytic reforming unit;
• The project to develop a pipeline system to increase the supply of diesel fuel to Primorsk to 25 million tons has been completed
•
(the «Sever» project);
In November, the State Duma adopted the law on extraction of hard-to-recover minerals in the third reading. In early December,
the President of the Russian Federation approved a document that allowed removing adminis-trative barriers in the development
of tech-nologies for involving such reserves in com-mercial development. The law applies primar-ily to HTR reserves in the Abalak,
Khadum and Bazhenov strata in Western Siberia and the Urals
Key factors of industry
development in 2020
• Reduction of oil production under the OPEC+ Agreement;
• Encouragement of oil production in West-ern Siberia;
• The Artic development (the Northern Sea route) is almost half as long as the traditional routes for exporting hydrocarbons to the
at-tractive APR market, and its development has been declared one of the key tasks of the Arc-tic development. According to the
May De-cree of the President, the cargo flow through the NSR should grow to 80 million tons per year by 2024);
• Monitoring of the implementation of the «big tax maneuver» completion and the in-troduction of tax on additional income;
• Stabilization of oil quality in the system of main oil pipelines in order not to worsen the quality of supplies to domestic refineries;
• Meeting the growing requirements for re-ducing the carbon footprint and preserving the environment;
• Adapting to new IMO requirements.
In mid-2020, a legislative package providing a set of tax incentives for investors in the Arc-tic zone should come into force. One of
the main projects that the upcoming changes in legislation are largely focused on is Vostok Oil. It includes the fields of Rosneft, in
par-ticular the actively developed Vankorsky cluster, and Neftegazholding in the North of the Krasnoyarsk Territory. The project is
de-signed to help solve the tasks declared strate-gic for the country – the development of the Arctic and the Northern Sea route.
Technical difficulties and high cost of work can be compensated by tax incentives, as well as by the synergy of complex development
of new territories.
This year, condensate exports may increase due to the expectation of commissioning of new large gas fields, despite the fact that
con-densate is not subject to restrictions under the new OPEC+ Agreement.
100
101
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Company’s membership
in Industry Associations
and Unions
The Company is involved in the activity of certain industry associations and
unions with the aim of constructive interaction with other industry participants
and position development on key issues of the fuel and energy sector.
•
The Company is a member of the Union of Oil and Gas Producers
of Russia (SNP), the General Director of the Company is a
member of the Council of the Union Board. The SNP Union Board
makes proposals to the State Duma and the Government of the
Russian Federation on reforming the industry, strengthening state
regulation in the fuel and energy sector, amending the legislation
and preparing the government decisions.
• Since 1998, the Company has been a member of the Russian
National Committee of the World Petroleum Council on
organizing and holding World Petroleum Congresses (WPC RNC).
In particular, two World Petroleum Congresses were organized
with the participation of PJSC TATNEFT representatives - the 21st
Congress in 2014 in Moscow and the 22nd Congress in 2016 in
Istanbul.
• On June 24-26, 2019, the 6th Future Leaders Forum of the World
Petroleum Council was held in Saint-Petersburg, where the
Company’s delegation of young specialists took an active part.
• Currently, preparations are underway for the 23rd World Petroleum
Congress scheduled for December 2020, to be held in Houston, in
which the TATNEFT delegation is planning to participate.
• Since 2003, PJSC TATNEFT has been cooperating with the
Russian Union of Industrialists and Entrepreneurs (RSPP). The
General Director of PJSC TATNEFT is a member of the Board of the
Russian Union of Industrialists and Entrepreneurs, representatives
of the Company are included in the RSPP Committees: Energy
Policy and Energy Efficiency Committee; Labor Market and Social
Partnership Committee; Industrial Safety Committee.
•
The Company cooperates with the NP Miners of Russia. The
General Director of PJSC TATNEFT is a member of the Supreme
Mining Council
• Since 2008, A.F. Yagafarov, Deputy General Director of PJSC
TATNEFT has been a member of the Board of Directors of JSC
Saint- Petersburg International Mercantile Exchange (SPIMEX),
which allows the Company to promptly obtain information about the
activities of the SPIMEX Exchange and make relevant proposals.
The Company in collaboration with the Trade Union Organization,
cooperates with the All-Russian Industrial Association of Oil and
Gas Industry Employers. (PJSC TATNEFT is not a member of the
Association.) On December 11, the Industrial Agreement on the oil
& gas industry organizations for 2020-2022 was solemnly signed
with the participation of A.V. Novak, Minister of Energy of the
Russian Federation in Ministry of Energy of the Russian Federation.
In 2011, the Company signed the quadripartite agreement with
the Federal Antimonopoly Service of Russia, Federal Service for
Environmental, Technological and Nuclear Oversight of Russia and
Federal Agency on Technical Regulation and Metrology with the
aim of quality improvement of petroleum products supplied to the
Russian commodity markets and efficient refinery modernization.
The Company fulfills its obligations under the agreement ahead of
schedule.
•
•
102
• Since 2011, the Company’s representatives have been in the
Working Group of the Ministry of Energy of the Russian
Federation on monitoring the situation related to the production
and consumption of petroleum products in the Russian
Federation with the goal of preventing an uncontrolled increase in
the price of petroleum products and ensuring stable and uniform
supply of petroleum products to the domestic market of the Russian
Federation.
• Since 2011, the Company has been cooperating with the Chamber
of Commerce and Industry of the Russian Federation.
• Since 2014, the Company has been an active participant of the
Consumers Council work on the activities of natural monopolies
in the crude oil and petroleum products transportation via trunk
pipelines, which functions as a communications platform of PJSC
TRANSNEFT and its services consumers. As part of the work of
this organization, issues of tariff formation of PJSC TRANSNEFT,
its investment program, and financial results are discussed. The
Company makes relevant proposals and is considering initiatives
discussed at the Consumer Council
• Since 2015, the representatives of the Company have been in
the Working Group established under the Ministry of Energy
of the Russian Federation for monitoring the crude oil quality
transported through the oil trunk pipeline system, created to
stabilize the crude oil quality in the oil trunk pipeline system
and to prevent deterioration of the crude oil quality supplied to
domestic refineries. The active position of PJSC TATNEFT in the
Working Group work helped to deliver several positive results,
including increased limit values of sulfur content in the export
lines within the regular traffic scheme. In 2019, the Ministry of
Energy of Russia and TANECO JSC entered into an Agreement
on modernization of oil refinery facilities for oil re-refining in the
amount of RUB 106.5 billion investments, and later (in the same
year) they signed an additional agreement to amend the current
agreement on modernization of oil refinery facilities with TANECO
JSC regarding the timing of the commissioning of several facilities
and corresponding scope of funding.
•
•
•
In 2019, the Company joined the Working Group on transition of
oil and gas companies to the Goods Labeling and Traceability
System in the Russian Federation.
The Company’s specialists participate in the work of the Eurasian
Union of Subsoil Use Experts (ESOEN) to enable the full use of
existing competencies to ensure fair and high-quality appraisal of
mineral reserves.
The Company joined the All-Russian Industrial Association of Oil
and Gas Industry Employers of the Russian Federation in order
to improve the regulation of social and labor relations between
employers and employees. On December 11, 2019, the Industrial
Agreement on the oil & gas industry organizations for 2020-
2022 was signed between the Trade Unions and the All-Russian
Industrial Association of Oil & Gas Industry Employers of the
Russian Federation.
Support for International and National
Economic, Environmental and Social
Initiatives
UNITED NATIONS GLOBAL COMPACT
In 2019, the Company joined the Global Compact UN as a
participant, having accepted the obligations to implement 10
principles and 17 Sustainable Development Goals.
We are aware that the enterprises of the fuel and energy
complex play one of the key roles in ensuring sustainable
development. First of all, this is the production of energy,
which is necessary to ensure the livelihoods of mankind,
improve the quality of life and socio-economic growth in
general. Given the specific nature of activities related to
natural resources and environmental impact, the Company
focuses its efforts on environmental goals. Our fundamental
priority is to reduce our environmental footprint and ensuring
ecosystem self-healing potential.
One of our key tgoals is 13 SDG “Taking action to combat
climate change and its impacts”. We started the action on
this goal several years ago, taking into account the content
of the UN Framework Convention on Climate Change (Paris
Agreement), which regulates measures to reduce carbon
dioxide in the atmosphere since 2020. Accessible and
clean energy, clean water, good health and well-being,
rational consumption and production, decent work and
economic growth, quality education, industrialization and the
development of social infrastructure are inextricably linked
in achieving sustainable development. We comprehensively
consider these goals when making our business decisions
and implementing targeted corporate programs.
HUMAN RIGHTS AND LABOUR RELATIONS
ENVIRONMENT AND CLIMATE
The Company adheres to and shares the principles of
fundamental international declarations and conventions in
the field of human rights and labour relations, including:
The Company takes into account a number of fundamental
initiatives and standards in its activities and supports for
the environment and climate safety:
• UN Universal Declaration of Human Rights;
• UN Environment and Development Declarations;
• OECD Guidelines for Multinational Enterprises;
• Declarations of Fundamental Labour Rights and
Principles of the International Labour Organization
(ILO);
ILO Convention No.87 on Freedom of Association and
Protection of the Right to Organise Convention;
ILO Convention No. 98 concerning the application of
the principles of the right to organise and to bargain
collectively;
ILO Convention No.111 on Discrimination in Employment
and Occupation.
•
•
•
• Global Oil and Gas Industry Standard for Improving
Environmental and Social Performance (IPIECA)
• Oil and Gas industry Climate Initiative (OGCI);
• TCFD Recommendations for companies to disclose
information on financial risks arising from global climate
change;
• Setting Science Based Targets to reduce greenhouse
gas emissions;
• CDP - global climate rating;
• The Greenhouse Gas Protocol of the World Business
Council for Sustainable Development (WBCSD) and the
World Resources Institute (WRI).
ANTI-CORRUPTION ACTIVITIES
SOCIAL CHARTER OF RUSSIAN BUSINESS
The Company adheres to the principles and norms
contained in the following documents:
• The United Nations Convention against Corruption,
(adopted by the UN General Assembly Resolution in
New York on 31 October 2003);
• The Convention of the Economic Cooperation and
Development Organization on Combating Bribery
of Foreign Public Officials in International Business
Transactions, adopted in Istanbul, on November 21,
1997);
• Criminal Law Convention on Corruption (concluded in
Strasbourg on January 27, 1999 ETS No. 173);
• Anti-corruption Charter of Russian Business community.
The Company adheres to the responsible business
principles defined by the Social Charter, covering aspects
of economic and financial sustainability, product quality,
respect for human rights, business ethics and relationships
with partners, consumers, employees, environmental
safety, participation in the development of the local
community.
103
25BOD REPORT2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Corporate
Governance
2 977
PUBLICATIONS ON THE COMPANY’S
CORPORATE ACTIONS
IN THE FEDERAL MEDIA IN 2019
4 191
PUBLICATIONS ON THE COMPANY’S
TRANSACTIONS,PROJECTS,
INVESTMENTS COMPANIES
IN THE FEDERAL MEDIA IN 2019
according to the SCAN Interfax system
TRILLION
RUB
VALUE OF CONSOLIDATED ASSETS
AS OF 31.12.2019
104
105
2019 ANNUAL REPORT Corporate governance
system
In 2019, the TATNEFT’s status of a publicly traded company with the listing on
the international stock market had marked its 25-th anniversary. Over this period,
the Company has continuously demonstrated sustainability and high corporate
governance performance ensuring trust and confidence for its shareholders.
The corporate governance model of the Company is built
upon on the strong engagement of its shareholders, the Board
of Directors, top managers, executive bodies, employees,
business partners and local communities in the areas of
which the Company operates, in order to make strategically
aligned decisions, ensure effective asset management,
and high operational and financial performance, increase
investment attractiveness and gain competitive edge for long-
term continuous creation of economic value and sustainable
development.
The corporate governance system complies with the legislation
of the Russian Federation and meets the requirements for the
issuers of the securities whose shares are included in the top-tier
quotation list of the Moscow Exchange, and the rules of other
stock exchanges, where the Company’s securities are traded,
as well as observes the legal rights of its shareholders and
maintains a high level of information disclosure.
The Company maintains a clear division of powers and
delineation of responsibilities of the governance bodies,
assessment of the performance of their functions and duties,
effective risk management and internal control mechanisms,
prevention of corporate conflicts, counteraction of corruption and
corporate fraud, and respect for the fundamental principles of
human rights and ethical standards.
The Company maintains best corporate practices following
the guidance of the Bank of Russia’s Corporate Governance
Code and the G20/OECD principles of corporate governance,
and takes into account the international and national standards
and regulatory documents relevant to various aspects of good
governance.
In December 2019, TATNEFT was
granted the official status of the UN
Global Compact participant.
Historically, TATNEFT has been strongly committed to
the principles of high corporate responsibility providing
the alignment of the corporate interests with the UN
Global Compact Agenda for sustainable development.
This means that business decision-making abides by
the fundamental ethical principles and human rights, the
objectives of preserving a favorable environment, reducing
the carbon footprint, improving social infrastructure,
expanding innovation opportunities, ensuring economic
growth and improving the quality of life in the regions and
the areas the TATNEFT Group enterprises carry out their
operations. The goal-oriented programs are implemented
on the basis of an open dialogue with the local community
and stakeholders, which improves the targeting of the
Company’s initiatives and decision-making transparency.
The Company sees a lot of potential for combining
the efforts of all participants in the Global Compact to
integrate corporate experience and actions in achieving
the sustainable development goals, which increases the
effectiveness of corporate practice in general.
The management of the sustainable development pillars is based upon the
consistency of the Company’s actions with the UN fundamental principles and
sustainable development goals, global trends in sustainable development and
priorities for national and regional development.
CORPORATE GOVERNANCE PRINCIPLES
1
2
3
4
Serving the legitimate
interests of shareholders and
pari passu in exercising their
rights in the management of
the Company.
A highly professional and
efficient Board of Directors
that is accountable to the
shareholders with the
sufficient membership of
independent directors.
Progressive and transparent
dividend policy.
Disclosure of information
on all material facts and the
most significant aspects of
the Company’s activities
for the shareholders and all
interested parties.
5
6
7
8
Effective risk management
and internal control.
Oversight of major corporate
actions, including those in the
controlled organizations.
Leadership and innovative
development.
Decision-making based on
consistency and collegiality.
9
10
11
12
Commitment to the
fundamental human rights
principles and high ethical
business principles.
Counteracting corruption and
corporate fraud.
Implementation of sustainable
development Goals,
development of ESG practices
and socially responsible
investment.
Decision-making through
engagement with
stakeholders.
STRATEGIC PRIORITIES OF CORPORATE GOVERNANCE
1
2
3
4
Improving the Company’s
investment attractiveness and
shareholder value through
the long-term sustainable
development with integration
of the 17 Sustainable
Development Goals of the
UN Global Compact and ESG
factors.
Constructive engagement of
shareholders and investors
with the Board of Directors
and executive bodies for joint
task-setting and effective
decision-making.
Building an efficient process
of strategic and investment
planning, implementation of
production and business plans
and operational performance.
Professional and ethical
responsibility of members
of the Board of Directors
and executive management,
officers and employees of the
Company.
5
6
7
8
An integrated system to
ensure a high level of staff
competence, effective
incentive mechanisms and KPI
system.
Safeguarding and improving
the quality and structure
of assets by improving the
ownership and organizational
structure.
Development of an integrated
risk management and internal
control system.
Integration of social aspects,
industrial and environmental
safety issues into the
Company’s Strategy and its
current operations.
9
10
11
12
Maintaining a high business
reputation of the Company.
Prevention and resolution of
corporate conflicts.
Providing high quality
products and services.
Ensuring transparency of
the Company’s activities and
information openness.
106
107
CORPORATE GOVERNANCE252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Main Internal documents
In 2019, in accordance with changes in the Russian law and
recommendations of the Bank of Russia’s Corporate Governance
Code the Management Board made changes to the following
Internal documents: Articles of Association, Regulations on the
General Meeting of Shareholders, Regulations on the Board
of Directors, Regulations on the Director General, Regulations
on the Management Board, Regulations on the Revision
Commission.
Also, as part of the improvement of the corporate governance
mechanisms, the new internal documents have been formed and
approved.
Articles of Association
of PJSC TATNEFT
Regulations on the General
Meeting of Shareholders of
PJSC TATNEFT
Regulations on the Board of
Directors of PJSC TATNEFT
Corporate Governance
Code of PJSC TATNEFT
Regulations on the Corporate
Governance Committee of the
Board of Directors of PJSC
TATNEFT
Regulations on the Audit
Committee of the Board of
Directors of PJSC TATNEFT
Regulations on the HR
and Remuneration Committee
of the Board of Directors of
PJSC TATNEFT
Regulations on the Revision
Commission of the Board of
Directors of PJSC TATNEFT
Regulations on the General
Director of PJSC TATNEFT
Regulations on the
Management Board
of PJSC TATNEFT
Regulations on the Internal
Audit Management of PJSC
TATNEFT
Regulations on the Corporate
Secretary of PJSC TATNEFT
Regulations on the Dividend
Policy of PJSC TATNEFT
Regulations on the Information
Policy of PJSC TATNEFT
Regulations on Information
Disclosure to Shareholders of
PJSC TATNEFT
Health, Safety and
Environmental Policy with the
consideration to the climate
change of PJSC TATNEFT
Improving corporate governance
practices in 2019
In the reporting year, a great deal of efforts was made to improve
the internal corporate procedures and practices, as well as to
develop the sustainable development practices.
Within 3 years, the Company has
raised its compliance with the
Corporate Governance Code by 7%.
In 2019, pursuant to the Bank of Russia’s Corporate Governance
Code guidance, the Company’s Articles of Association were
amended by the decision of the General PJSC TATNEFT
shareholders’ meeting in 2018 as follows:
•
the time frame within which the stockholders can propose
items to be included in the agenda of the Annual general
shareholders’ meeting after the end of the fiscal year was
extended from 55 to 60 days;
• decisions with regards to the most important items specified
in the recommendation 170 of the Code shall be taken at
a meeting of the Board of Directors via open ballot by a
qualified majority of not less than three-quarters of the votes
of all members of the Board of Directors, with the votes of the
retired members of the Board of Directors of the Company
not to be counted.
The corporate governance of
the Company is 94% of the full
compliance with the provisions of
the Corporate Governance Code
recommended by the Bank of
Russia. The partial compliance of
the Company is 6% of the Code
guidance.
For more details on the assessment of the compliance with
the guidance of the Bank of Russia’s Corporate Governance
Code, please refer to 330-349 pages.
As far as the partial compliance with the Code guidance is
concerned, the Company sticks to the principle of «explanation»
and provides a detailed commentary on the current practices.
COMPLIANCE WITH THE COMPANY’S CORPORATE PRACTICES
WITH THE BANK OF RUSSIA’S CORPORATE GOVERNANCE CODE GUIDANCE
13%
87%
9%
91%
6%
94%
2017
2018
2019
Full compliance
Partial compliance
108
109
CORPORATE GOVERNANCE252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Key Focus Items for Corporate Practice
Development of the Company in 2019
TATNEFT Group
Development
Strategy
The Board of Directors comprehensively
reviews the Company’s planning and the
performance of the current operating and
financial activities of the Company as part
of the Strategy 2030 implementation.
The analysis of the influence of
macroeconomic factors, conditions for
limiting oil production under the OPEC +
Agreement, market price fluctuations and
other factors associated with the analysis
of long-term trends in the hydrocarbon
market and their impact on the
development of the Company is carried
out. The focus is on issues related to
programs to increase efficiency, increase
margins in the value chain and optimize
costs. The issues of human resources
management, motivation system and KPI
are considered. Close attention is paid
to ensuring industrial and environmental
safety, labor protection. The Company
expands the strategic planning taking
into account aspects of sustainable
development. The Company did succeed
in meeting the targets set for as well as in
achieving the key goals in the reporting
year, despite external constraints.
For more information to the
issues reviewed by the Board of
Directors please refer to pages
128–113
Assessment of
Corporate Practice
Efficiency
For more information on the
Corporate Practice Efficiency, please
refer to Page 132
Sustainable
development in
compliance with the
UN 17 Sustainable
Development Goals
and ESG practice
The topics of the Sustainable Development
Goals are included in the Company’s
Corporate Policy priorities. In 2019,
the efforts were made to enhance the
integration of the SDGs and ESG aspects
into business planning and the KPI system.
The development of a number of internal
procedures and regulations was initiated,
including liaising with stakeholders,
contractors and suppliers. In December
2019, the Company was officially granted
the status of a participant in the UN Global
Compact.
The Company’s position and actions in implementation of the Sustainable
Development Goals and ESG aspects are further described in the Sustainable
Development Section and the Company’s Sustainability Report for 2019
KPI system
development
For more information on the KPI
System, please refer to Pages
50-51.
The key performance indicators system
The Company seeks to maximize the
assessment efficiency of the corporate
practice quality and the work of the Board
of Directors and its committees, individual
members of the Board of Directors and the
management to determine the efficiency
of the overall corporate practice and the
work of the Board of Directors, the members
of the Board and the management and
their consistency with the Company’s
development needs and identify the areas
to improve the corporate governance. In
2019, the Company regularly interacted with
its shareholders, investors, analysts and
other stakeholders on the corporate practice
issues, taking into account their expectations
for improving the corporate governance
system and ESG. The Company constantly
analyzes the development of the corporate
The key performance indicators system
development is intended to transform the
Company’s Strategy and Planning into
the specific operational management
performance indicators with the assessment
of the current state of their achievement and
to provide a systematic approach for making
effective management decisions. This
approach provides for building the process
for the Company’s employees motivation
to bring the Company’s strategic goals to
realization on a step-by step basis. In 2019,
the coverage of duty positions in the main
business areas and business blocks was
expanded to include ESG aspects.
legislation and international standards.
These factors are taken into account in
the internal assessment of the corporate
governance in order to further improve the
system and mechanisms of the corporate
governance. The internal regular assessment
of the corporate practices falls within the
competence of the Corporate Governance
Committee of the Board of Directors and
the Corporate Secretary’s Office. The
performance of the Board of Directors, its
committees, and members of the Board is
evaluated annually in the self-assessment
form.
Health, Safety &
Environmental Policy
with considerations
to the climate change
For more information on the
Company’s position and actions
related to the HSE Policy with
considerations to the climate
change, please refer to the
Sustainable Development Section
and the Company’s Sustainable
Development Report for 2019.
Governance
of subsidiaries
For more information on the
Corporate Governance Structure
please refer to Pages 112–113
Development of Risk
Management &
Internal Control
System
For more information on the Risk
Management and Internal Control
System please refer to Pages
158-163
Ensuring the safety, protecting the lives
and health of people, and preserving a
favourable environment are among the
Company’s key priorities. In 2019, the
Board of Directors approved the restated
version of the Company’s HSE Policy
with the considerations to the climate
change, based on the international best
practices and a risk-based approach.
The Policy takes into account the risks
and opportunities associated with the
impact on the environment and the
climate change, and determines the
Company’s comprehensive position in
this domain. The Company integrates
the international standards covering the
environmental and climate management.
The Company develops the mechanisms for
interaction of the controlled companies as
the participants in the corporate environment
of the TATNEFT Group, as significant
strategic management tools, including the
oversight of significant corporate actions in
the controlled organizations. In 2020, the
internal regulations for engagement with
subsidiaries and affiliates were updated
such as the Regulation on the procedure for
the PJSC TATNEFT corporate engagement
with controlled and related organizations
(approved by the Board of Directors in
January 2020). Currently, the Company
develops a unified corporate information
platform for managing the controlled
companies and expanding the integration
of the unified corporate standards
for the organizations of the TATNEFT
The Company develops the Risk
Management and Internal Control System
(RMS and IC) in order to provide reasonable
confidence in achieving the goals set for the
Company. The principles and approaches
to the setting up of the risk management
and internal control system are based on
the Bank of Russia’s Corporate Governance
Code guidance with taking into account
generally accepted concepts and practices
in risk management and internal control:
«Integrated concept for an internal control
framework» COSO ERM, The Enterprise
Risk Management Concept (COSO).
Integrated Model», Committee of Sponsoring
Organizations of The Treadway Commission;
ISO31000 International standards «Risk
Management. Principles and guidelines»,
ISO31010 «Risk Management. Risk
Currently, the organizational structure
of industrial and environmental safety
management is being reformed taking
into account climatic factors.
Group, including in the ESG practice and
consolidation of actions for implementation
of the Sustainable Development Goals.
Assessment Techniques», corresponding
GOST standards et al. In 2019, the efforts
were made to improve the effectiveness of
integrating risk management processes into
investment and operational activities, as well
as drafting the internal documents on the
integrated risk management and internal
control system (pending approval by the
Company’s Board of Directors in 2020).
110
111
CORPORATE GOVERNANCE252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Company management
structure
The Company operates a two-tier
model of the governance bodies,
which contemplates dividing
management functions between the
Board of Directors and executive
bodies.
The Board of Directors of PJSC TATNEFT performs the key
functions for strategic management of the joint-stock company
and oversight of the executive bodies, and plays a key role in the
process of improving the system and practice of the corporate
governance based on the principle of continuity and advanced
international standards.
The chief executive officer of the Company is the General
Director of PJSC TATNEFT. The collegial executive body of the
Company is the Management Board headed by the General
Director. The General Director and the Management Board
report to the Board of Directors and the General Meeting
of Shareholders. The general oversight of the financial and
economic activities of the Company is carried out by the Revision
Commission.
the management system and transparency of the controlled
companies, the Company operates appropriate mechanisms and
a system of uniform corporate standards.
Planning of financial and operational targets is integrated
into a unified corporate governance system of the Group in
accordance with the Development Strategy and key decisions
made by the Board of Directors with considerations to
sustainable development aspects. The authority to implement
the production plans, economic, environmental and social goals
and objectives is delegated to the management of the Company
with overseeing at the level of the Board of Directors and its
Committees, the Management Board, and the General Director.
The Company operates as a Group. PJSC TATNEFT is the
corporate center of the Group, with the organizational structure
that ensures all levels of interaction between the members
of the Group’s corporate environment. In order to ensure
Insurance of liability risks of
members of governance bodies
The Company insures liability risks of members of the Company’s
governance bodies, including abroad, under the terms and in the
amounts that are consistent with the insurance market for such
risks in the Russian Federation. During 2019, JSC SOGAZ was
the insurer of such risks for the Company.
REVISION COMMITTEE
INDEPENDENT AUDITOR
GENERAL MEETING OF SHAREHOLDERS
BOARD OF DIRECTORS
CHAIRMAN OF BOARD OF DIRECTORS
CORPORATE SECRETARY
INTERNAL AUDIT MANAGEMENT
GENERAL DIRECTOR
MANAGEMENT BOARD CHAIRMAN
MANAGEMENT BOARD
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
HR AND REMUNERATION COMMITTEE
CORPORATE GOVERNANCE COMMITTEE
INVESTMENT COMMITTEE
HUMAN RESOURCES MANAGEMENT COMMITTEE
ETHICS AND CORPORATE CULTURE COMMITTEE
The day-to-day activities of the Company are handled by the services
of the executive office, structural business divisions, facilitators of the
business streams and business blocks, as well as by the authorized
representatives in the governing bodies of the subsidiaries and
affiliates.
112
113
CORPORATE GOVERNANCE252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT General Meeting
of Shareholders
The General meeting is the supreme governing body of the Company and acts in
accordance with the regulatory legal acts of the Russian Federation, the Articles of
Association of the Company and these Regulations.
The General meeting of shareholders make decisions on major
issues of the Company’s activities. The General meeting may be
held in the form of a joint attendance gathering of shareholders
to discuss items on the agenda and make decisions on matters
put to the vote, or in the form of an absentee voting meeting. The
General meeting of shareholders may be held by the Company
with an option to fill out electronic ballots online via the Internet.
The General meeting of shareholders delegates the overall
management of the Company to the Board of Directors. The
procedure for holding the General meeting of shareholders fully
ensures observance the rights of shareholders. The procedure
for preparation, convening, holding and summing-up of the
General meeting of shareholders is defined by the Regulations
on the General meeting of shareholders of PJSC TATNEFT
n.a. V.D. Shashin approved as amended by the decision of the
annual General meeting of shareholders of PJSC TATNEFT n.a.
V.D. Shashin, Minutes No. 29 from 25.06.2019.
The Company holds an annual General meeting of shareholders
once a year not earlier than two and not later than six months
after the end of the fiscal year. In addition to the annual general
meeting, extraordinary meetings of shareholders may be
convened. The information is made available to the shareholders
with regard to the general shareholders’ meeting agenda items
in the amount and within the timeframe sufficient for them to
choose a well-grounded stance on the considered matters as
well as make decisions on participation in the meeting and the
form of such participation.
The annual General meeting at all times must consider issues
related to the election of members of the Board of Directors
and the Revision Commission, approval of the auditor, approval
of the annual report, annual accounting (financial) statements,
appropriation of profit, including payments (declarations) of
dividends, and losses as of reporting year-end, and approval of
internal documents regulating the activities of the Company’s
governing bodies. Shareholders make decisions on the most
important issues of the Company’s activities. The full list of
matters reserved to the General meeting of shareholders is
specified by the requirements of Federal Law No. 208-FZ of
December 26, 1995 «On Joint-Stock Companies». When electing
the Board of Directors, the Company gives its shareholders
the detailed background of each candidate such as biography,
experience and skills, and strives to ensure that the candidates
are personally present at the General meeting of shareholders
held in the form of joint attendance of shareholders.
Each shareholder has the right to participate in the meeting
in person or by proxy. At the General Meeting, shareholders
receive a detailed and reliable report on the ongoing corporate
policy and production and business activities of the Company
from the Board of Directors and executive bodies. The Board of
Directors of the Company prepares reports for shareholders on
each agenda item, presenting its position, as well as dissenting
opinions of members of the Board of Directors, if any.
Decisions on the agenda items of the General meeting of
shareholders are made by voting by ballots in accordance with
the current legislation and the Company’s Articles of Association.
When drafting the decisions of the meeting, it is mandatory to
indicate by what majority of votes the decisions were made and
dissenting opinions are recorded. The minutes are signed by The
Chairman and Secretary of the meeting. During the preparation
for and holding of the general meeting, the shareholders can
freely and timely receive information about the meeting and
its materials, pose questions to members of the company’s
executive bodies and the board of directors, and communicate
with each other.
The Company provides its
shareholders with any available
means of communication such as
hotline and e-mail options, making
it possible for the shareholders to
ask questions about their share
ownership, dividend payout
procedure, etc., as well as express
opinions and send questions about
the agenda during the preparations
for the General meeting of
shareholders.
THE GENERAL MEETINGS OF SHAREHOLDERS HELD IN 2019
Annual General Meeting of Shareholders
June 21, 2019 (in the form of joint
attendance)
The decisions taken by the extraordinary
General meeting of shareholders:
1. Approve the annual report of PJSC
TATNEFT n.a. V.D.Shashin for 2018.
2. Approve the annual accounting
(financial) statements of PJSC
TATNEFT n.a. V. D. Shashin for 2018.
3. Approve the appropriation of profit
(including payment (declaration) of
dividends) of PJSC TATNEFT n.a. V.
D. Shashin by the reporting year-end
results. Pay out the 2018 dividends
taking into account the nine- and-six-
months dividends paid out earlier.
a) on the preferred stock in the amount
of 8491% to the par value;
b) on the ordinary stock in the amount
of 8491% to the par value. Set July
05, 2019 as the record date when
the persons entitled to dividends are
determined. The dividends are to be
paid in cash.
4. Elect the following individuals to the
Board of Directors of PJSC TATNEFT
n.a.V. D. Shashin:
• Gaizatullin Radik Raufovich
• Gerecs Laszlo
• Levin Yuri Lvovich
• Maganov Nail Ulfatovich
• Muslimov Renat Khaliullovich
• Nurmukhametov Rafail Saitovich
• Sabirov Rinat Kasimovich
• Sorokin Valery Yurievich
• Syubaev Nurislam Zinatulovich
• Takhautdinov Shafagat Fakhrazovich
• Khalimov Rustam Khamisovich
• Khamaev Azat Kiyamovich
• Khisamov Rais Salikhovich
• Steiner Rene Frederick
5. Elect the following individuals to
the Revision Commission of PJSC
TATNEFT n.a.V. D. Shashin:
• Borzunova Ksenia Gennadievna
• Galeyev Azat Damirovich
• Gilfanova Guzal Rafisovna
• Zalyaev Salavat Galiaskarovich
• Kuzmina Venera Gibadullovna
• Rakhimzyanova Liliya Rafaelovna
• Farkhutdinova Nazilya Rafisovna
• Sharifullin Ravil Anasovich
6. Approve the Joint-Stock Company
PricewaterhouseCoopers Audit as
the auditor for PJSC TATNEFT named
after V. D. Shashin to perform the
statutory audit of the 2019 annual
financial statements prepared in
accordance with the Russian and
international accounting standards for
a period of one year.
7. Approve the amended and restated
Articles of Association of the Public
Joint Stock Company TATNEFT n.a. V.
D. Shashin.
8. Approve the amended and restated
Regulations On General Meeting of
Shareholders of the Public Joint Stock
Company TATNEFT n.a. V. D. Shashin.
9. Approve the amended and restated
Regulations On the Board of Directors
of the Public Joint Stock Company
TATNEFT n.a. V. D. Shashin.
10. Approve the amended and restated
Regulations On the General Director
of the Public Joint Stock Company
TATNEFT n.a. V. D. Shashin.
11. Approve the amended and restated
Regulations On the Management
Board of the Public Joint Stock
Company TATNEFT n.a. V. D. Shashin.
12. Approve the amended and restated
Regulations On the Revision
Commission of the Public Joint Stock
Company TATNEFT n.a. V. D. Shashin.
Extraordinary General meeting of
shareholders (in the form of absentee
voting) September 13, 2019
The decisions taken by the extraordinary
General meeting of shareholders:
1. Make the dividend payment for the six
(6) months of 2019:
а) on the preferred stock in the amount
of 4011% to the par value;
б) on the ordinary stock in the amount of
4011% to the par value.
2. Set September 27, 2019 as the record
date when the persons entitled
to dividends are determined. The
dividends are to be paid in cash.
Extraordinary General meeting of
shareholders (in the form of absentee
voting) December 19, 2019
The decisions taken by the extraordinary
General meeting of shareholders:
1. Pay out the 2019 nine-month’s
dividends taking into account the
2019 six-month’s dividends paid out
earlier:
a) on the preferred stock in the amount
of 6447% to the par value;
b) on the ordinary shares in the amount
of 6447% to the par value.
2. Set December 30, 2019 as the record
date when the persons entitled
to dividends are determined. The
dividends are to be paid in cash.
THE QUORUM OF GENERAL MEETINGS OF SHAREHOLDERS FROM 2015 TO 2019
62,04%
63,53%
61,97%
66,69%
59,91%
63,66%
66,35%
62,97%
65,44%
67,67%
Annual General Meeting of Shareholders
Annual General Meeting of Shareholders
Annual General Meeting of Shareholders
Extraordinary General Meeting of Shareholders
Annual General Meeting of Shareholders
Extraordinary General Meeting of Shareholders
Extraordinary General Meeting of Shareholders
Annual General Meeting of Shareholders
Extraordinary General Meeting of Shareholders
Extraordinary General Meeting of Shareholders
June 26, 2015
June 24, 2016
June 23, 2017
December 12, 2017
June 22, 2018
September 28, 2018
December 21, 2018
June 21, 2019
September 13, 2019
December 19, 2019
114
115
CORPORATE GOVERNANCE252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Board of Directors
On June 21, 2019 the General meeting of shareholders elected the Board of
Directors of PJSC TATNEFT from the candidates who have sufficient professional
background in strategic management, the level of knowledge and skills, as well
as personal qualities to adopt well-balanced and objective decisions on the
Company’s growth and development with the membership that meets the scope
of activities, interests and needs of the Company.
Composition of the
Board of Directors
Chairman of the Board
of Directors
At the first meeting of the Board of Directors of PJSC TATNEFT
following the annual General meeting of shareholders held
on June 21, 2019, Rustam N. Minnikhanov was unanimously
elected the Chairman of the Board of Directors by all members
of the Board of Directors, as the most influential member of
the Board of Directors with high level of professional skills and
knowledge, significant background in management positions,
and impeccable business and personal reputation. The Chairman
of the Board of Directors is a non-executive director, nor is a
member of any of the committees of the Board of Directors.
The procedure of composing the membership, status, structure,
functions, goals and objectives, competences, powers of the
Board of Directors, the work procedures and engagement with
other governing bodies of the Company are determined by
the Articles of Association and the Regulations on the Board
of Directors of PJSC TATNEFT n.a. V. D. Shashin, and clearly
distinguished from the competences of the executive bodies of
the Company, which govern its current activities.
Fourteen (14) members of the Board of Directors are elected by
the general shareholders’ meeting by cumulative voting (the
candidates receiving the largest number of votes are deemed
elected to the Board of Directors. One member of the Board of
Directors is designated under the special Golden Share right.
The Company is to include the matter of electing the members
of the Board of Directors in the agenda of the annual general
shareholders’ meeting.
The Company provides a transparent procedure for electing
members of the Board of Directors and discloses information on
the current composition of the Board of Directors and candidates
to the Board of Directors in advance. When nominating members
of the Board of Directors and its committees, criteria and factors
of professional skills and expertise are considered, including in
the economic, environmental and social areas.
The Board of Directors at its first meeting following the
establishment of membership of the Board, elect the Chairman
of the Board of Directors, whose powers are set out in the
Regulations on the Board of Directors of PJSC TATNEFT n.a. V.
D. Shashin, and set up committees of the Board of Directors.
Information on the composition of the Board of Directors and its
activities is disclosed on the Company’s official website.
The Chairman of the Board of
Directors plays a pivotal role to
ensure that the Board of Directors
and its committees work effectively
and efficiently.
The Chairman of the Board of Directors of the Company is
elected by the members of the Board of Directors from among
them by a majority vote of the total number of members of the
Board of Directors and carries out his duties in accordance with
the Company’s Articles of Association, the Regulations on the
Board of Directors of PJSC TATNEFT n.a. V. D. Shashin, and the
Corporate Governance Code.
The Chairman of the Board of Directors organizes its work,
convenes and presides over meetings of the Board of Directors,
and arranges for minutes to be kept at such meetings. In the
absence of the Chairman of the Board of Directors his duties are
performed by one of the members of the Board of Directors upon
the decision of the Board of Directors of the Company.
The competences of the Chairman of the Board of Directors
include drawing up proposals regarding activity tasking among
members of the Board of Directors and committees of the Board
of Directors; ensuring open discussion of the agenda items
while duly reflecting the views of all members of the Board
of Directors; determining key issues to be considered by the
Board of Directors and choosing the optimum form of meeting
for discussion of matters; representing the Board of Directors
in the relationship with shareholders, management and other
stakeholders.
The activity of the Chairman of the Board of Directors is focused
on creating a constructive atmosphere for holding meetings,
free discussion of issues considered by the Board of Directors in
order to develop the most thoughtful and effective decisions.
Powers and
competencies of the
Board of Directors
The Board of Directors provides overall charge of the Company’s
activities, sets up priorities, strategy and policy of the Company,
authorizes and approves the strategic, long-term and medium-
term plans and programs of development of the TATNEFT
Group, including investment, borrowings and asset management,
main principles and approaches to organization of the system
of internal control and risk management, is responsible for
the management of key risks of the Company affecting the
achievement of its strategic targets and takes decisions on key
projects and major transactions, oversees the achievement
of strategic objectives, plans and programs of the Company,
promotes timely disclosure of full and reliable information on the
activities of the Company.
When considering the Company’s Strategy, shaping and
approving plans, budgets and investment programs, the Board
of Directors takes into account the sustainable development
aspects and goals in HSE, social policy, and human resource
management.
One of the key duty of the Board of Directors is to establish
effective executive bodies and ensure oversight of their
activities. The competence of the Board of Directors pertains to
the following matters:
• election of executive bodies, termination of their powers and
motivation of executive bodies;
• oversight of the Company’s activities based on regular
•
•
progress reports of the executive bodies on the
implementation of Strategy and business plans;
improving the corporate governance system and practice in
the Company;
convocation of the annual and extraordinary general meeting
of shareholders, as well as matters related to the preparation
of general meeting of shareholders;
• approval of internal documents of the Company, except for
internal documents with the approvals which are reserved
to the competence of general meeting of shareholders and
executive bodies of the Company;
• approval of the Company’s registrar and the contract terms
with the registrar, and termination thereof.
The Company ensures that
the candidates to the Board of
Directors and its committees are
nominated and selected based on
criteria of diversity, independence,
professional skills and expertise.
The Board of Directors and executive
bodies play a key role in shaping,
setting, approving, and updating the
Company’s goals, values, and mission,
as well as the strategies, policies, and
objectives to achieve the economic,
environmental, and social well-being.
The Board of Directors works under the approved plans,
inter alia, summarizing the results of activities, determining
the Company’s priorities, preparing general meetings of
shareholders, making decisions on authorization or subsequent
approval of non-arm’s length transactions and other transactions
in accordance with the Articles of Association.
In order to ensure the effective work of the Board of Directors
the Company accomplishes the following comprehensive
actions:
• Provision of information technology resources with a secure
corporate communication link for rapid remote delivery of
information materials to members of the Board of Directors
regarding Board’s meeting agendas;
• Making it possible to hold meetings of the Board of Directors
and its committees in a video-conference;
• Archive storage of minutes of meetings;
• Ensuring that members of the Board of Directors are aware
of and familiar with the internal documentation and business
operations of the Company, including production, financial
and economic, environmental and social aspects of its
operations;
• Procedures for keeping the Board of Directors informed,
including critical issues if they arise.
The Board of Directors plays a key
role in procuring that the Company is
transparent, discloses information in
full and in due time, and provides its
shareholders with unhindered access to
its documents.
The Company has mechanisms in
place to provide members of the
Board of Directors with information
in the amount and within the
timeframe sufficient for them to
make balanced and objective
decision on the agenda items of the
Board of Directors.
116
117
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Composition of the Board
of Directors of PJSC TATNEFT
The composition of the Board of Directors of
the Company is based on the balance of key
knowledge, skills and experience necessary for
efficient work.
Minnikhanov
Rustam Nurgalievich
Non-executive Director
Chairman of the Board of Directors
of PJSC TATNEFT
• Born in 1957.
•
In 1978, graduated from Kazan
Agricultural Institute.
In 1986, graduated from the Soviet
Trade Institute.
•
Maganov
Nail Ulfatovich
Executive Director
General Director of PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Chairman of the Management Board
of PJSC TATNEFT
Chairman of the Corporate Governance
Committee of the Board of Directors
of PJSC TATNEFT
• Born in 1958.
• From July 2000 to November 2013,
First Deputy General Director – Head
of Crude Oil and Petroleum Products
Sales Department of OJSC TATNEFT
Gaizatullin
Radik Raufovich
Non-executive Director
Member of the Board of Directors
of PJSC TATNEFT
Member of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Participation in governing bodies
of other organizations:
• Chairman of the Board of Directors
• Born in 1964.
•
In 1985, graduated from Kazan
Agricultural Institute.
of PJSC Bank ZENIT
• From June 2002 to present, Minister
• Chairman of the Board of Directors
of Finance of the Republic of
Tatarstan
• From 1996 to 1998, Minister of Finance
of the Republic of Tatarstan.
• From July 1998 to March 2010,
presided over the Government of the
Republic of Tatarstan.
• President of the Republic of Tatarstan
since March 2010.
• From November 2013 to present,
of INKO-TEK LLC
General Director of PJSC TATNEFT
• Member of the Board of Directors
of PJSC Nizhnekamskneftekhim
• Member of the Board of Directors
of OJSC Tatneftekhiminvest-holding
• Member of the Board of Directors of
JSC Svyazinvestneftekhim
• Member of the Board of Directors
of KHL LLC
• Member of the Board of Directors
of Tatneft Oil AG
• Chairman of the Board of Directors
of TNA-Services NV
• Member of the Board of Directors
of TAL OIL Ltd
• General Partner, who is entrusted to
run business affairs (without a power
of attorney) of LP TATNEFT, Solid
and Co
• Chairman of the Board of Directors
of TATNEFT Charitable Fund.
• Deputy Chairman of the Supervisory
Board of ANO Academy of Hockey
AK BARS n.a. Y. I. MOISEEV
118
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,000176
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
119
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Gerecs
Laszlo
Independent Director
Ibragimov
Nail Gabdulbarievich
Executive Director until June 21, 2019
Levin
Yuri Lvovich
Independent Director
Muslimov
Renat Khaliullovich
Non-executive Director
Sabirov
Rinat Kasimovich
Non-executive Director
Sorokin
Valery Yurievich
Non-executive Director
Member of the Board of Directors of
PJSC TATNEFT
Member of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Member of the HR and Remuneration
Committee of the Board of Directors of
PJSC TATNEFT
Member of the Board of Directors of
PJSC TATNEFT until June 21, 2019
First Deputy General Director for
Operations – Chief Engineer of PJSC
TATNEFT until February 18, 2020
Member of the Management Board of
PJSC TATNEFT until February 28, 2020
Member of the Board of Directors of
PJSC TATNEFT
Chairman of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Member of the HR and Remuneration
Committee of the Board of Directors of
PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Member of the Corporate Governance
Committee of the Board of Directors
of PJSC TATNEFT
Member of the HR and Remuneration
Committee of the Board of Directors
of PJSC TATNEFT
• Born in 1953.
•
In 1977, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
In 1995, graduated from Oxford
Business University
•
• From 2012 to December 31, 2016 -
Managing Director of MOL Oman,
Oman Branch Office in Muscat
• From January 1, 2017 to present
- Managing Director of G
Petroconsulting Ltd
Participation in governing bodies of
other organizations:
•
Independent Advisor (Member of
Reserves Estimation Committee), MOL
GROUP
• Born in 1934.
•
In 1957, graduated from Kazan State
University
• From June 2007 to present, Adviser
to the President of the Republic of
Tatarstan on development of crude oil
and gas fields, Professor of the Crude
Oil and Gas Geology Department of
Kazan (Volga Region) State University
• Born in 1955.
•
In 1977, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• From 2000 till February 18, 2020 —
First Deputy General Director for
Operations - Chief Engineer of PJSC
TATNEFT
• Born in 1953.
•
•
In 1975, graduated from Moscow
Finance Institute
In 1979, post-graduate studies at
the Institute of World Economy and
International Relations
• From 2001 to present – Managing
Partner of BVM Capital Partners Ltd
Participation in governing bodies
of other organizations:
• Managing Director, Member of
the Management Board of B.V.
Murray&Co. Inc
• Member of the Board of Directors
of Joint-Stock Commercial Bank AK
BARS (Public Joint Stock Company)
• Member of the Board of Directors of
Winter Finanz AG
• Born in 1967.
•
•
•
•
In 1991, graduated from Kazan State
University
In 1994, graduated from the
postgraduate course of Kazan State
Technological University
In 1998, completed a course in the
framework of the President’s Program
of Management Training
In 2012, training under the Master
Business Administration program of
the State University of Colorado (USA)
• From 2006 to June 2010, Head of
Petrochemical Complex Department
of the Office of the Cabinet of
Ministers of the Republic of Tatarstan
• From June 2010 to present, Assistant
to the President of the Republic of
Tatarstan
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of PJSC Nizhnekamskshina
• Born in 1964.
•
In 1986, graduated from Kazan State
University
• From 2003 to present, General
Director of JSC Svyazinvestneftekhim
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
0,019831
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,020873
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
0,047618
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,050282
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
120
none
none
121
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Syubaev
Nurislam Zinatulovich
Executive Director since June 21, 2019.
Member of the Board of Directors
of PJSC TATNEFT from June 21, 2019,
Member of the Corporate Governance
Committee of the Board of Directors
of PJSC TATNEFT
Deputy General Director for Strategic
Development of PJSC TATNEFT
Member of the Management Board
of PJSC TATNEFT
• Born in 1960.
•
In 1982, graduated from Moscow
Institute of National Economy n.a. G.V.
Plekhanov
• From 2001 to July 17, 2016, Head
of Strategic Planning Department
- Advisor to General Director for
Foreign Economic Affairs and
Financial/Banking Issues
• From July 18, 2016 to present,
Khalimov
Rustam Khamisovich
Executive Director
Member of the Board of Directors
of PJSC TATNEFT
First Deputy General Director for Oil and
Gas Exploration and Production of PJSC
TATNEFT, Head of Tatneft-Production
Takhautdinov
Shafagat Fakhrazovich
Non-executive Director
Member of the Board of Directors
of PJSC TATNEFT
Advisor to the Chairman of the Board
of Directors of PJSC TATNEFT
Khamaev
Azat Kiyamovich
Non-executive Director
Member of the Board of Directors
of PJSC TATNEFT
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of CJSC Kara Altyn Enterprise
• Member of the Board of Directors
• Born in 1965.
•
In 1987, graduated from the Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• Born in 1946.
•
In 1971, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of JSC National Non-Governmental
Pension Fund
•
• Born in 1956.
•
In 1985, graduated from Kazan Aviation
Institute
In 2000, graduated from Kazan State
University, Law Faculty
of Karbon-Oil LLC
• From 2010 to 2011, Head of the PJSC
• From 1999 to November 2013,
• Member of the Board of Directors
• From December 2008, First Deputy
• Member of the Board of Directors
TATNEFT’s Branch in Libya
of JSC Aznakaevsky Neftemash plant
• Chairman of the Board of Directors
• From 2011 to 2015, Head of NGDU
Elkhovneft of OJSC TATNEFT
of JSC IDELOIL
General Director of OJSC TATNEFT
of PJSC Bank ZENIT
• From November 2013 to present,
• Member of the Board of Directors
Assistant to the President of the
Republic of Tatarstan on oil industry
issues, Advisor to the Chairman of the
Board of Directors of PJSC TATNEFT
of OJSC Tatneftekhiminvest-holding
• Chairman of the Board of Directors
of JSC Tatoilgas
• Member of the Board of Directors
• From 2015 to May 20, 2018, Deputy
General Director for Oil and Gas
Development and Production of PJSC
TATNEFT
• From May 21, 2018 to present, First
Deputy General Director for Oil and
Gas Exploration and Production, Head
of Tatneft-Production
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of CJSC Yambuloil
• Member of the Board of Directors
of CJSC Troitskneft
Deputy General Director for Strategic
Development of PJSC TATNEFT
• Member of the Board of Directors
of Blagodarov-Oil LLC
• Chairman of the Board of Directors
of Zavod Elastic LLC
• Member of the Board of Directors
of URS - Trading House LLC
• Member of the Board of Directors
of PJSC Bank ZENIT
• Member of the Board of Directors
of P-D Tatneft-Alabuga Fiberglass LLC
• Chairman of the Board of Directors
of JSC National Non-Governmental
Pension Fund
• Member of the Supervisory Board
of Tatneft International Cooperatie
U.A. (the Netherlands)
• Member of Self-regulating
Organization - National Association
of Non-State Pension Funds
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
122
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,000056
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,116503
0,123914
of JSC Tatex
• Member of the Board of Directors
of CJSC Neftekonsorzium
• Chairman of the Board of Directors
• of JSC Bulgarneft
• Chairman of the Board of Directors
of CJSC Kara Altyn Enterprise
• Chairman of the Board of Directors
of JSC Tatnefteprom-Zyuzeevneft
• Chairman of the Board of Directors
of JSC Tatnefteprom
• Chairman of the Board of Directors
of Karbon-Oil LLC
• Chairman of the Board of Directors
of Blagodarov-Oil LLC
• Chairman of the Board of Directors
of PAKER-BIS LLC
• Member of the Board of Directors
of CJSC Selengushneft
• Member of the Board of Directors
of CJSC VELLoil
Minister of Land and Property Relations
of the Republic of Tatarstan
• From March 2009 to September 2019,
Minister of Land and Property Relations
of the Republic of Tatarstan
• From September 2019 - National
Council deputy of the sixth session of
the Republic of Tatarstan, Chairman
of RT State Council Committee on
Ecology, Nature Management, Agro-
Industrial and Food Policy
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
123
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Khisamov
Rais Salikhovich
Executive Director
Steiner
Rene Frederick
Independent Director
Nurmukhametov
Rafail Saitovich
Executive Director
Member of the Board of Directors
of PJSC TATNEFT
Chief Geologist– Deputy General
Director of PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Chairman of the HR and Remuneration
Committee of PJSC TATNEFT
Member of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Member of the Board of Directors
of PJSC TATNEFT
Head of NGDU Leninogorskneft
of PJSC TATNEFT
Member of the Management Board of
PJSC TATNEFT until December 23, 2019
• Born in 1949.
•
In 1974, graduated from Ufa Petroleum
Institute.
• From January 30, 1998 to January 31,
2020, Head of NGDU Leninogorskneft
• Born in 1950.
•
In 1978, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• From October 1997 to present, Chief
Geologist –Deputy General Director
of PJSC TATNEFT
• Born in 1964.
•
In 1989, graduated from Technical
High School in Zurich.
• Bachelor of Swiss Banking, Zurich
since 1992
• Co-founder, Program Director of
Direct Private Investments of FIDES
Business Partner AG, Switzerland,
since 2011.
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of CJSC Kalm Tatneft
• Member of the Board of Directors
Participation in governing bodies
of other organizations:
• Vice Chairman of the Board of
Directors of FC Zurich Football Club
• Member of the Board of Directors of
of OJSC Kalmyk Oil and Gas Company
HB Group SA
• Chairman of the Board of Directors
of CJSC Yambuloil
• Member of the Board of Directors
of Karbon-Oil LLC
• Member of the Board of Directors
of Blagodarov-Oil LLC
Balanced composition
of the Board of Directors
Independent
Directors
Participation of independent directors with high professional
backgrounds in the discussion of the issues considered by the
Board of Directors, including those within the scope of the Board
of Directors’ Committees and interaction with the management,
has a very positive effect on the work of the Board of Directors
and the development of corporate governance.
In 2019, the independent directors made a strong focus upon the
Company’s risk management and internal control system, as well
as other issues in accordance with the Agenda of meetings of
the Board of Directors and its committees.
As part of the development of the Company’s climate planning
system in 2019, Mr Laszlo Gerecs, the independent member
of the Board of Directors, was appointed responsible for
overseeing the Company’s activities related to the climate
change. Mr. Gerecs has a good relevant expertise in this area
and interacts with the Company’s management to discuss
actions and plans to reduce the carbon footprint.
The composition of the Board of Directors is well balanced
in terms of membership of independent, non-executive and
executive directors. The participation of three independent
directors and seven non-executive directors in the work of the
Board of Directors maintains a balance between the interests
of different groups of shareholders, which facilitates objectivity
in decision-making, and inspire investors, shareholders, and
other stakeholders with a high confidence in the Company.
The participation of five executive directors ensures a deep
integration of the activities of the Board of Directors and
executive bodies. In the Company’s opinion, three independent
directors are sufficient to have a significant influence the
decision-making process and ensure flexibility and objectivity in
resolving issues. Moreover, the independence of these directors’
judgments enhance the effectiveness of the Board of Directors.
The company regularly evaluates whether independent
members of the Board of Directors meet the independence
criteria.
Three of the fifteen members of the Board of Directors are
foreign citizens (20% of the total membership of the Board of
Directors). The presence of foreign directors promotes the
integration of international business contacts and best practices
in the Company.
Members of the Board of Directors of PJSC TATNEFT have high
skills and knowledge, and professional background in strategic
management, financial activities, risk management, accounting
and audit, as well as in the Company’s industry areas, sufficient
to make balanced and objective decisions in the best interests of
the Company and its shareholders.
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of CJSC Okhtin-Oil
BOARD OF DIRECTORS
7
NON-EXECUTIVE
DIRECTORS
Rustam Nurgalievich
Minnikhanov
Radik Raufovich Gaizatullin
Renat Khaliullovich Muslimov
Rinat Kasimovich Sabirov
Valery Yurievich Sorokin
Shafagat Fakhrazovich
Takhautdinov
Azat Kiyamovich Khamaev
3
INDEPENDENT
DIRECTORS
Laszlo Gerecs
Yuri Lvovich Levin
Rene Frederick Steiner
5
EXECUTIVE
DIRECTORS
Nail Ulfatovich Maganov
Nail Gabdulbarievich Ibragimov
(until June 21, 2019)
Rafail Saitovich Nurmukhametov
Rustam Khamisovich Khalimov
Rais Salikhovich Khisamov
Nurislam Zinatulovich Syubaev
(from June 21, 2019)
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0.020341
0.021433
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,010465
0,010107
124
125
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
NUMBER OF THE BOARD OF DIRECTORS MEMBERS
BY TENURE
Changes in the membership
of the Board of Directors
Enhancing the collective ESG
knowledge of the Board members
Onboarding
1 person
5 persons
9 persons
less than a year
one to seven years
over seven years
AGE PROFILE OF THE BOARD OF DIRECTORS
45–55 y.o.
56–65 y.o.
66+ y.o.
33,3%
26,7%
40%
5 persons
4 persons
6 persons
In 2019, there were the following changes in the Board
of Directors’ membership:
•
the authorities of the member of the Board of Directors Nail
Gabdulbariyevich Ibragimov were terminated;
• Nurislam Zinatullovich Syubayev was elected to the Board
of Directors by the decision of the General meeting of
shareholders (the AGM Minutes No. 29 of 25.06.2019).
The Company takes appropriate procedures to develop and
improve the collective knowledge of the Board of Directors
on economic, environmental and social issues, including the
implementation of the Sustainable Development Goals of the
UN Global Compact and the Paris Agreement signed under the
United Nations Framework Convention on Climate Change,
which regulates the measures to reduce carbon dioxide
emissions in the air from 2020.
All members of the Board of Directors have significant work experiences in the
Company, high professional reputation and knowledge, which have a strong
positive impact on consistent and balanced decision-making. The current
composition of the Company’s Board of Directors is well diversified and
balanced.
THE COMPANY USES THE MODERN
INFORMATION RESOURCES AND CHANNELS,
INCLUDING DEDICATED SOFTWARES, TO
ENSURE EFFECTIVE COMMUNICATION TO THE
BOARD MEMBERS IN RUSSIAN AND ENGLISH
In order to ensure effective and fast introduction of new
members to the Board of Directors and maximize their efforts
in the best interests of the Company, the latter provides the
onboarding procedure for the newly elected directors to learn
in-house procedures of the work of the Board of Directors and
its committees, meeting agenda preparation and delivery of
information materials, and other matters depending on the extent
to which a new member of the Board of Directors is aware of
and familiar with the strategy and current business operations, as
well as corporate and organizational structure of the Company.
Adherence to the rules of confidentiality and insider information
protection is thoroughly explained in a mandatory manner.
The onboarding procedure for the newly elected members
of the Board of Directors of PJSC TATNEFT is implemented
by the Corporate Secretary, who coordinates interaction of
all the parties involved with the assistance and supervision of
the Human Resources & Remuneration Committee and the
Corporate Governance Committee.
In 2019, Nurislam Zinatulovich SYUBAYEV, Deputy General
Director for Strategic development of PJSC TATNEFT, joined the
Board of Directors for the first time.
Tenure of the Board
of Directors membership
Minnikhanov Rustam Nurgalievich
Maganov Nail Ulfatovich
Gaizatullin Radik Raufovich
Gerecs Laszlo
Ibragimov Nail Gabdulbarievich / until June 21, 2019
Syubaev Nurislam Zinatulovich / from June 21, 2019
Levin Yuri Lvovich
Muslimov Renat Khaliullovich
Sabirov Rinat Kasimovich
Takhautdinov Shafagat Fakhrazovich
Sorokin Valery Yurievich
Khalimov Rustam Khamisovich
Khamaev Azat Kiyamovich
Khisamov Rais Salikhovich
Steiner Rene Frederick
Nurmukhametov Rafail Saitovich
126
127
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT NUMBER OF MEETINGS HELD
3
ABSENTEE
MEETINGS
12
ATTENDEE
MEETINGS
2019 Board of Directors’
Activities
In 2019, the agenda of items reviewed by the Board of
Directors included the implementation of Strategy 2030,
long-and medium-term development plans and programs
of the TATNEFT Group, oversight of their implementation,
including the investment, financial position, production
operations, sustainable development, industrial safety and
occupational health, environmental protection, interaction
with controlled companies, and making decisions on major
transactions. A strong focus was made on improving margin
ratio in the value chain, strengthening the Company’s
technological base, and switching to innovative forms of
governance and business process management.
In 2019, the Board of Directors held fifteen (15) meetings
with a total of 93 issues that were considered therein,
including twelve (12) meetings in presentia (88 issues) and
three (3) meetings in absentia (5 issues). In-person meetings
addressed issues related to the Company’s strategy and
corporate governance, authorization of non-arm’s length
transactions, decision-making in preparations for the
Company’s annual and extraordinary general meetings of
shareholders, and significant operational issues.
Participation of members of the
Board of Directors in meetings
of the Board of Directors in 2019
Surname, Name, Patronymic
Maganov Nail Ulfatovich
Minnikhanov Rustam Nurgalievich
Ibragimov Nail Gabdulbarievich
Until June 21, 2019
Syubaev Nurislam Zinatulovich
From June 21, 2019
Levin Yuri Lvovich
Gaizatullin Radik Raufovich
Gerecs Laszlo
Muslimov Renat Khaliullovich
Sabirov Rinat Kasimovich
Sorokin Valery Yurievich
15/15
15/15
6/6
9/8
15/15
15/14
15/15
15/12
15/15
15/15
Takhautdinov Shafagat Fakhrazovich
15/15
Khalimov Rustam Khamisovich
Khamaev Azat Kiyamovich
Khisamov Rais Salikhovich
Steiner Rene Frederick
Nurmukhametov Rafail Saitovich
15/15
15/15
15/15
15/15
15/15
28.01
13.02 27.02 23.03 26.04 22.05 21.06
19.07 05.08 26.08 30.09 24.10
13.11 28.11 23.12
in absentia
in absentia
in absentia
NUMBER OF ISSUES CONSIDERED BY THE BOARD
OF DIRECTORS FOR THE PERIOD OF 2017-2019
STRUCTURE OF THE MAIN ISSUES CONSIDERED
BY THE BOARD OF DIRECTORS IN 2019
7
1
0
2
8
1
0
2
9
1
0
2
8
5
5
In-person
In absentia
14%
74
79
88
25,8%
28%
8,6%
23,6%
93
NUMBER OF ISSUES
CONSIDERED
Corporate practice
Strategy
Interested-party transactions
Finances
Production
THE REVISED VERSIONS OF PJSC TATNEFT INTERNAL DOCUMENTS WERE
APPROVED BY THE BOARD OF DIRECTORS IN THE REPORTING YEAR
1
2
3
4
Regulations on a branch
office of the Public Joint-Stock
Company TATNEFT n. a. V.D.
Shashin in Turkmenistan.
The regulations on the
interaction of the departments
and offices of the Executive
office, structural subdivisions
of PJSC TATNEFT n.a. V.D.
Shashin to make disclosures,
recognized as the insider
information and material facts
of the Issuer’s securities under
the legislation of the Russian
Federation and the European
Union and/or UK.
The Health, Safety, and
Environment Policy of PJSC
TATNEFT n.a. V.D. Shashin
with considerations to the
climate change
Regulations on the procedure
for corporate engagement
of PJSC TATNEFT n. a. V.
D. Shashin with controlled
and related organizations
(approved in January 2020).
The Board of Directors is in constant interaction with the executive bodies of the
Company and the Committees of the Board of Directors on all key management
issues, including auditing, evaluating the performance of members of the Board of
Directors, human resources development, KPI system, sustainable development
aspects and others.
128
129
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Key topics in core business streams
addressed by the Board of Directors
COMPANY STRATEGIC DEVELOPMENT.
STRATEGY 2030
• Opportunities for strategic diversification based on the
Company’s core competencies and competitive advantages.
• Reserves-to-production ratio trends pursuant to the adopted
Strategy 2030 for oil reserve replacement by field.
• Market strategy related to oil and gas processing amid
•
increasing the quantity and slate of new products as a result
of higher capacity of TANECO.
Implementation of the construction project for the gas-and-
petrochemical complex and the gas-and- petrochemical
business development.
• The tire project development.
• The Company’s strategy in the energy sector of the future.
Implementation of the IT-Strategy goals and projects: 2018
•
actual results and plans for 2019-2020.
• Accomplishment of the innovation and technology strategy
goals and projects: 2018 actual results, medium-and long-
term projects.
• Retail business: market strategy and development plans for
the next few years.
• Strategy and plans for non-core assets (banking, loan
portfolio, etc.).
INTERNATIONAL PROJECTS
• The Company’s development strategy in external regions:
production and financial goals, projects and activities.
HEALTH, SAFETY, AND ENVIRONMENT WITH
CONSIDERATIONS TO THE CLIMATE CHANGE
AND CARBON FOOTPRINT REDUCTION
• Health, Safety, and Environment Policy with considerations to
the climate change
• About the member of the Board of Directors of PJSC
TATNEFT responsible for overseeing activities related to the
climate change.
INVESTMENT AND FINANCIAL ACTIVITIES
• The investment program progress report.
• The 2018 Budget performance report.
• The 2018 Financial and operating performance report
including the 2018 accounts receivable and accounts payable
report.
• The report of the Revision Commission on the audit of the
2018 financial and business operations.
• The 2018 summary report of the Board of Directors, the
annual report, the annual accounting (financial) statements,
including appropriation of retained earnings.
• Approval of the 2019 budget by month.
• The financial and operating performance for the first quarter,
the first six months and the nine months of 2019.
• Approval of the 2020 budget.
• The 2020 financial and operating forecasts.
• Approval of the program of exchange-traded bonds of PJSC
TATNEFT n. a. V. D. Shashin.
• On status of the development of external projects outside the
• Approval of the Securities Prospectus of PJSC TATNEFT n. a.
Russian Federation.
V. D. Shashin.
• The analysts’ assessment of the TATNEFT Group’s financial
performance in comparison with other leading companies in
the industry.
AUDIT
• The 2018 TATNEFT Group’s consolidated financial
statements prepared as per IFRS and the auditor’s report on
the financials and business operations audit performed by
the Joint Stock Company PricewaterhouseCoopers Audit.
• The Internal Audit Department performance for 2018 and the
work plan of the Internal Audit Department for 2019.
PRODUCTION OPERATIONS
• Efficiency of exploration operations.
• Reaching predicted oil production targets and reservoir
management performance
• Application of enhanced oil recovery techniques, including
scientific researches and practical application of various oil
production methods. Current status and future plans.
• Fulfilment of the TANECO Complex construction plan.
• The oil production outlook, opportunities and objectives
for Exploration and Production business segment. Forecast
performance indicators of the Exploration and Production
business stream for 2020.
SOCIAL POLICY
• Social investments of the Company.
• The TATNEFT Charity Fund’s activities
• Development of a unified management system for social
projects and programs of the TATNEFT Group.
The decisions made by the Board of Directors can be found
on the Company’s website www.tatneft.ru.
The 2020 Board of Directors’
work plans
THE KEY ISSUES OF THE BOARD OF
DIRECTORS’ WORK PLAN FOR THE FIRST HALF
OF 2020 INCLUDE AS FOLLOWS:
• Report on the Internal Audit Department performance for the
past year and the internal audit plans for 2020.
• The IT strategy implementation results in the core business
streams of the Company. The potential projects for
2020 include digitalization of the processes for reserve
estimates, well planning and construction, managing
workover operations; replication of digital twins technology
at the TANECO hydrocracking plants and CDU-VDU-6;
development of tools for multi-period optimized planning in
the tire business; deployment of business analysis tools for
cost management, digitalization of efficiency management
processes, etc.
• Organizational and financial effects expected from the
introduction of the personnel satisfaction assessment system
in the TATNEFT Company. The key indicators cover the
main aspects of employee satisfaction, including working
conditions, social climate among the staff, brand loyalty, and
commitment to the corporate culture and values.
• Approval of the amended and restated «Regulations on
the procedure for the corporate engagement of PJSC
TATNEFT n.a. V. D. Shashin with the controlled and
related organizations», which regulates the mechanism of
engagement with organizations of the TATNEFT Group.
• Financing the 2019 investment program. The 2020
investment program parameters aimed at implementing the
Company’s objectives as part of the Strategy - 2030.
• The 2019 performance results of the Exploration and
Production business-segment, taking into account the
improved business processes to ensure environmental
friendliness and sustainability of the Company. As part of the
operational program, the Company continues to implement
projects aimed at ensuring sustainable development and
improving the environmental friendliness of production
operations, including reducing the carbon footprint.
Implementation of the Company’s Exploration Strategy.
Additions to reserves.
•
• The Company’s initiatives to further implement the
international Health, Safety and Environment standards such
as ISO 14001:2015 and ISO 45001:2018 across the TATNEFT
Group were given the green light.
• The Company’s actions to address the climate change
challenges and the Company’s contribution to the
achievement of the relevant Sustainable Development
Goals under the UN Global Compact. These endeavours
are primarily focused on the development of professional
skills. The next step will be motivation system development
to attain the sustainable development goals and mitigate the
anthropogenic impact on the climate.
• The Company’s actions to prevent the COVID-2019 spread,
measures to support the regional health system and provide
social aid under the lockdown and stay-at-home orders.
• The 2019 performance results of the TATNEFT Group’s
companies.
• The 2019 TATNEFT Group’s consolidated financial
statements prepared as per IFRS and the auditor’s report on
the financials and business operations audit performed by the
Joint Stock Company PricewaterhouseCoopers Audit.
• Dividends for 2019 based on the operating performance
results.
• On the annual meeting of shareholders of PJSC TATNEFT
named after V. D. Shashin.
• The results of the internal assessment (self-assessment)
of the quality of work of the Board of Directors and its
committees.
• The statement of the Board of Directors of PJSC TATNEFT n.
a. V. D. Shashin with regard to the independent directors.
• The report of the Revision Commission on the audit of the
2019 financial and business operations of the PJSC TATNEFT
n.a. V.D. Shashin.
• The key priorities for the work of the committees of the Board
of Directors of PJSC TATNEFT n. a. V. D. Shashin.
• The 2019 summary report of the Board of Directors, the
annual report, the annual accounting (financial) statements,
including appropriation of retained earnings of PJSC
TATNEFT n.a. V.D.Shashin.
• Other issues.
The Board of Directors approves the work plan with the
agenda for every half-year period. Plan of matters at issue is
drafted based on the proposals of members of the Board of
Directors, executive bodies and top management including
at all times as follows:
• oversight of implementation of the Strategy and success
•
in achieving targets;
review of plans and results of financial and business
activities;
• evaluating performance of the Board of Directors;
• preparation for general meetings of shareholders, etc.
130
131
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Performance Assessment
of the Board of Directors
and its Committees
The Company has a practice in place to assess the performance
of the Board of Directors, its members and committees as a
whole. It is a regular assessment carried out at least once a year
using a self-assessment procedure.
In 2019, the Board of Directors ‘ self-assessment was conducted
for the reporting corporate year. The results of the self-
assessment and its analysis were reviewed at an in-person
meeting of the Board of Directors. (Minutes No. 12 of 24.04.2019).
The assessment is carried out by fifty (50) criteria in five (5) key
components: competence and powers of the Board of Directors;
composition of the Board of Directors; committees of the Board
of Directors; the procedures of the Board of Directors; the annual
General meeting of shareholders.
The assessment technique uses a polling survey of the members
of the Board of Directors with regard to their activities during
their tenure of office as members of the Board of Directors of
PJSC TATNEFT since their election in the reporting corporate
year.
The survey is based on the RAEX rating scale (RAEX is included
in the register of credit rating agencies of the Bank of Russia,
RAEX ratings are included in the list of the official requirements
for issuers and are used by the Central Bank of Russia, the
Moscow Exchange, and professional experts.)
Based on the self-assessment results, a positive conclusion was
made regarding the work performance of the Board of Directors
in the reporting corporate year. Meanwhile, the Board of
Directors’ self-assessment process reflects the opinion on further
improvement of the Board of Directors’ working mechanisms and
development of the corporate practices. Brief comments on the
Board of Directors’ activities were submitted to the Corporate
Governance Committee and the HR and Remuneration
Committee.
Committees of the
Board of Directors
The membership of the Audit Committee and the Human
Resources and Remuneration Committee has a significant
proportion of the independent directors.
In order to improve the effectiveness and efficiency of the
decisions taken by the Board of Directors, the Board of Directors
operates three committees in the Company, which preliminary
review the most important issues on the agenda of the Board of
Directors and prepare appropriate recommendations within their
competence:
• Audit Committee
• Human Resources and Remuneration Committee
• Corporate Governance Committee
The activities of the committees are governed by the relevant
regulations approved by the Board of Directors:
• Regulations on the Audit Committee of the Board of Directors
of PJSC TATNEFT n.a. V. D. Shashin
• Regulations on the HR and Remuneration Committee of the
Board of Directors of PJSC TATNEFT n.a. V. D. Shashin
• Regulations on the Corporate Governance Committee of the
Board of Directors of PJSC TATNEFT n.a. V. D. Shashin
The committees are fully accountable to the Board of Directors
in their activities. The members of the committees are approved
by the Board of Directors, taking into account the relevant
knowledge and skills, and professional background of each
candidate for a committee membership. The Company furnishes
the Board of Directors with the curriculum vitae details, as well as
expertise, knowledge and skills of each candidate.
COMMITTEES OF THE BOARD OF DIRECTORS
DISTRIBUTION OF AVERAGE SCORES BY KEY COMPONENTS
AUDIT COMMITTEE
4,17
4,21
4,00
4,24
4,54
Competences and
powers of the Board
of Directors
Composition of the Board
of Directors
Committees of the Board
of Directors
Work procedure
of the Board
of Directors
Annual General Meeting
of Shareholders
HUMAN RESOURCES AND REMUNERATION COMMITTEE
CORPORATE GOVERNANCE COMMITTEE
SELF-ASSESSMENT INCLUDES 50 CRITERIA FOR 5 KEY PRACTICE COMPONENTS OF CORPORATE
GOVERNANCE
The work quality assessment of the Board of Directors is intended to
determine how effectively and efficiently the Board of Directors, its
Committees and members perform their duties, how their service aligns with
the Company’s development needs, and to promote better performance of
the Board of Directors and identify the areas in which their activities can be
improved.
QUANTITATIVE REPRESENTATION OF THE DIRECTORS’ COMMITTEES
4
AUDIT
COMMITTEE
4
HUMAN RESOURCES
AND REMUNERATION
COMMITTEE
8
CORPORATE
GOVERNANCE
COMMITTEE
132
133
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
CHAIRMAN
MEETINGS OF THE COMMITTEE IN 2019
NUMBER OF MEETINGS OF THE AUDIT COMMITTEE AND ISSUES
CONSIDERED FOR THE PERIOD OF 2017-2019
Activities of Committee
in 2019
Audit Committee
The Committee makes recommendations with regard
to verifying the completeness, accuracy and fairness of
accounting (financial) statements and other reporting, the
reliability and effectiveness of the internal control and
risk management system, and the independence and
objectivity of internal and external audit functions. It is
a permanent committee. There were no changes in the
composition of the Audit Committee during the corporate
year.
The Audit Committee consists of three independent
directors. Chairman of the Committee Yu.L. Levin has
experience and knowledge in the field of preparation,
analysis, evaluation and audit of accounting (financial)
statements. The members of the Committee possess
the necessary knowledge and competencies for the
preliminary consideration of issues related to the control
over the financial and economic activities of the Company.
The Board of Directors has decided to increase the
composition of the Committee by including an additional
one non-executive director who also has experience
and knowledge in the preparation, analysis, evaluation
and audit of the accounting (financial) statements (R.R.
Gaizatullin).
Yuri Lvovich Levin
Independent Director
Member of the Board of Directors of PJSC TATNEFT
Managing Partner of BVM Capital Partners Ltd
Member of the HR and Remuneration Committee of the Board
of Directors of PJSC TATNEFT
COMMITTEE MEMBERS
Radik Raufovich
Gaizatullin
Member of the Board of Directors
of PJSC TATNEFT
Non-executive Director
Minister of Finance of the Republic
of Tatarstan
Laszlo
Gerecs
Member of the Board of Directors
of PJSC TATNEFT
Independent Director
Managing Director
of G Petroconsulting Ltd
Member of the HR and Remuneration
Committee of the Board of Directors
of PJSC TATNEFT
Rene Frederik
Steiner
Member of the Board of Directors
of PJSC TATNEFT
Independent Director
Program Director of Direct Private
Investments of FIDES Business
Partner AG
Chairman of the HR and Remuneration
Committee of the Board of Directors
of PJSC TATNEFT
MAIN FUNCTIONS OF THE AUDIT COMMITTEE
• Control over ensuring the completeness, accuracy, and
reliability of the accounting (financial) statements of PJSC
TATNEFT, including the preparation of the consolidated
financial statements of PJSC TATNEFT Group with the
integration of the financial statements of ZENIT Bank into the
consolidated financial statements.
• Coordination of the work of external auditors and the internal
audit department, as well as regular review of their reports.
• Organization of an independent assessment of the
performance of the internal audit function and making
suggestions for improving the work of the internal audit
department.
• Check on the external auditor’s independence.
• Consideration and analysis of the quarterly, semi-annual and
annual financial statements of PJSC TATNEFT, including the
results of inspections by its external auditor.
• Assessment of candidates for auditors and submission of
recommendations to the Board of Directors on the election
of independent auditors of the financial statements of PJSC
TATNEFT in accordance with IFRS and RAS.
• Assistance to the Board of Directors in exercising control over
the work of the internal control and risk management systems
of PJSC TATNEFT.
• Preliminary consideration of non-arm’s length transaction
and transactions with parties related to PJSC TATNEFT that
are submitted for approval by the Board of Directors of PJSC
TATNEFT
1
IN ABSENTIA
MEETING
48
ISSUES WERE
CONSIDERED
7
1
0
2
8
1
0
2
9
1
0
2
7
7
7
41
46
48
6
IN-PERSON
MEETING
Number of issues considered
Number of meetings held
KEY ISSUES CONSIDERED BY THE AUDIT COMMITTEE FOR THE PERIOD OF 2017-2019:
Topic
Review of the consolidated financial statements with participation of external auditors
Issues related to the selection of external auditors and confirmation of the independence of external auditors
Issues related to the work of the Internal Audit Department (IAD)
Issues related to a preliminary consideration of non-arm's length transactions and transactions with parties related to PJSC TAT-
NEFT that are submitted for approval by the Board of Directors of PJSC TATNEFT
Review of the MSCI Report on Risks in Accounting and Corporate Governance.
Issues on disclosure of information on financial condition of PJSC TATNEFT in annual report for 2018
On assessment of the current condition of corporate governance of PJSC TATNEFT
Other
2017
2018
2019
12
5
12
4
-
-
-
8
14
3
15
4
-
-
-
10
4
14
3
1
1
1
10
14
PARTICIPATION IN AUDIT COMMITTEE MEETINGS IN 2019
Levin Yuri Lvovich
Gaizatullin Radik Raufovich
Gerecs Laszlo
Steiner Rene Frederik
7/7
7/7
7/7
7/7
29.01 22.03 25.04 3.07
18.07
1.10 27.11
in absentia
134
135
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Human Resources and Remuneration Committee
Activities of Committee
in 2019
CHAIRMAN
NUMBER OF MEETINGS OF THE HR AND REMUNERATION COMMITTEE
AND ISSUES CONSIDERED FOR THE PERIOD OF 2017-2019
The Committee puts together recommendations to
the Board of Directors on the effectiveness of the
human resources policy, the system of nominations
and remuneration, the evaluation of candidates for
the membership to the Board of Directors and the
Company’s management, the compliance of independent
directors with the independence criteria, as well as the
effectiveness and efficiency of the Board of Directors,
executive bodies and top managers of the Company.
The Committee combines duties in terms of performing
functions on human resources (nominations) and functions
on remuneration. It is a permanent committee. There
were no changes in the composition of the HR and
Remuneration Committee during the corporate year.
The HR and Remuneration Committee of the Board
of Directors consists of three independent directors.
Rene STEINER, Independent Director, is the Chairman
of the Committee. Due to the fact that the Committee
combines the tasks of the Remuneration Committee and
the Nominations (Appointments, Staff) Committee, the
Board of Directors decided to increase the composition of
the Committee by including an additional non-executive
director (R.К. Sabirov). All members of the Committee
have the relevant knowledge, competence, and
experience for the tasks of the Committee.
COMMITTEE MEMBERS
The meetings of the Committee
were held in-person and in
absentia in 2019. The meetings
were attended by all members
of the Committee. Committee
member Sabirov R.K. took part in
meetings in absentia by sending
a written opinion on agenda items
and decisions made.
Rene Frederik Steiner
Independent Director
Member of the Board of Directors of PJSC TATNEFT
Program Director of Direct Private Investments
of FIDES Business Partner AG
Member of the Audit Committee of the Board of Directors
of PJSC TATNEFT
9
NUMBER OF ISSUES
CONSIDERED
7
1
0
2
8
1
0
2
9
1
0
2
4
4
5
2
3
Number of issues considered
Number of meetings held
Laszlo
Gerecs
Member of the Board of Directors
of PJSC TATNEFT
Independent Director
Managing Director
of G Petroconsulting Ltd
Member of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Yuri Lvovich
Levin
Member of the Board of Directors
of PJSC TATNEFT
Independent Director
Managing Partner of BVM Capital
Partners Ltd
Chairman of the Audit Committee of the
Board of Directors of PJSC TATNEFT
Rinat Kasimovich
Sabirov
Member of the Board of Directors
of PJSC TATNEFT
Assistant to the President of the Republic
of Tatarstan
Member of the Corporate Governance
Committee of the Board of Directors
of PJSC TATNEFT
•
MAIN FUNCTIONS OF THE AUDIT COMMITTEE
In terms of performing functions on human resources
(nominations):
• Evaluation of the Board of Directors membership in terms of
professional specialization, experience, independence of its
members, participation in the work;
Identification of priority areas for strengthening the
composition of the Board of Directors;
Interaction with all groups of shareholders in the selection of
candidates for the Board of Directors and regarding voting on
the election of candidates for the Board of Directors, bearing
in mind the most comprehensive coverage of the goals and
objectives of the Company;
•
• Analysis of professional qualifications and independence of
candidates nominated to the Board of Directors, etc.
In terms of performing functions on remuneration:
• Development and periodic review of the Company’s policy
on remuneration of members of the Board of Directors,
executive bodies and other key managers, including
development of program parameters for short-term and long-
term motivation of members of the executive bodies;
• Control over the implementation and progress
implementation of the Company’s policy on remuneration and
incentive programs;
• A preliminary assessment of the work of the executive bodies
of the Company and other key executives at the end of the
year and an assessment of the achievement of goals in the
framework of the motivation program, etc.
KEY ISSUES CONSIDERED BY THE HR AND REMUNERATION COMMITTEE IN 2019
Topic
On salary increase in the current financial year.
Review of the effectiveness of external and internal human resource management consultations.
Strategic development of the functional area “HR Management” of TATNEFT Group
Key HR metrics.
Change in IT line of HR area.
Work-flow process the Committee’s work for job evaluation.
Implementation of a satisfaction rating system at PJSC TATNEFT.
Updated information on projects progress in key functional areas.
Approval of the Committee meeting schedule and work plan for 2020.
PARTICIPATION IN HR AND REMUNERATION COMMITTEE MEETINGS IN 2019
Steiner Rene Frederick
Sabirov Rinat Kasimovich
Levin Yuri Lvovich
Gerecs Laszlo
3/3
3/3
3/3
3/3
22.03
26.08
27.11
136
137
9
1
1
1
1
1
1
1
1
1
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Corporate Governance Committee
Activities of Committee
in 2019
CHAIRMAN
NUMBER OF MEETINGS OF THE CORPORATE GOVERNANCE
COMMITTEE AND ISSUES CONSIDERED FOR THE PERIOD
OF 2017-2019
The Committee assists the Board of Directors in
developing and improving the corporate governance
system and practice across the Company by prior
reviewing the corporate governance issues that fall within
the competence of the Board of Directors, regulating
relationship between shareholders, the Board of Directors
and Executive bodies of the Company, as well as the
issues of interaction with legal entities controlled by
the Company and other stakeholders. It is a permanent
committee. There were no changes in the composition of
the Committee in 2019.
Members of the Committee have relevant knowledge
and skills, expertise in the corporate law, requirements of
stock market regulators to issuers of the securities market,
international standards of corporate governance, socially
responsible investment, ESG practices and Sustainable
Development Goals of the UN Global Compact.
Nail Ulfatovich Maganov
General Director
Member of the Board of Directors of PJSC TATNEFT
Chairman of the Management Board of PJSC TATNEFT
COMMITTEE MEMBERS
Nurislam Zinatulovich
Syubaev
Deputy General Director for Strategic
Development, Member of the Board of
Directors of PJSC TATNEFT, Member
of the Management Board of PJSC
TATNEFT
Vasili Aleksandrovich
Mozgovoi
Assistant to the General Director for
Corporate Finance of PJSC TATNEFT
Evgeny Aleksandrovich
Tikhturov
Head of the Finance Department (until
February 12, 2020), Member of the
Management Board of PJSC TATNEFT
(until February 28, 2020).
Natalia
Evgenievna
Dorpeko
Corporate Consultant to the
General Director of PJSC
TATNEFT
Damir Maratovich
Gamirov
Acting Corporate Secretary
– Deputy Head of the Office
of the Corporate Secretary of
PJSC TATNEFT
Rinat Kasimovich
Sabirov
Member of the Board of
Directors of PJSC TATNEFT
Assistant to the President of the
Republic of Tatarstan
Member of the HR and
Remuneration Committee of
the Board of Directors of PJSC
TATNEFT
Nuriya Zufarovna
Valeyeva
Head of Technical and
Economic Information and Best
Practices Department of PJSC
TATNEFT
MAIN FUNCTIONS OF THE AUDIT COMMITTEE
Preparation of recommendations to the Board of Directors
regarding the corporate practice issues:
• Securities policy;
• Dividend policy;
• Convening, preparing and conducting annual and
extraordinary general meetings of shareholders;
• Amendments to the Articles of Association and other internal
documents of the Company, the approval of which is within
the competence of the general meeting of shareholders and
the Board of Directors;
• Analysis and evaluation of the implementation of the Conflicts
of Interest Management Policy of the Company;
• Monitoring system reliability and performance
138
The Committee held two (2) joint
attendance meetings, where the targets
were set. During the year, the day-to-
day work was carried out with the direct
interaction of the Committee members with
the Company’s management in the form
of meetings, business correspondence,
joint drafting of event plans and internal
documents with further submission to the
Board of Directors through the Corporate
Secretary’s Office.
54
NUMBER OF ISSUES
CONSIDERED
7
1
0
2
8
1
0
2
9
1
0
2
2
2
2
2
13
Number of issues considered
Number of meetings held
MAIN ISSUES CONSIDERED BY THE CORPORATE GOVERNANCE COMMITTEE IN 2019:
Topic
Making amendments to the Company’s internal documents
Self-assessment procedure of the members of the Board of Directors
Compliance with the investors’ expectations for corporate ESG practice.
Climate policy, carbon footprint reduction, favourable environment. Social investments
Involvement of the Company in the UN Global Compact and integrating the Sustainable Development Goals
Development of the management system of controlled companies
Improvement of the risk management and internal control
Compliance of the corporate practice to the Bank of Russia Code of Corporate Governance and international standards
Preparation for the general meeting of shareholders
PARTICIPATION IN THE MEETINGS OF THE CORPORATE GOVERNANCE COMMITTEE IN 2019
Maganov Nail Ulfatovich
Gamirov Damir Maratovich
Valeyeva Nuriya Zufarovna
Dorpeko Natalia Evgenievna
Mozgovoi Vasili Aleksandrovich
Sabirov Rinat Kasimovich
Syubaev Nurislam Zinatulovich
Tikhturov Evgeny Aleksandrovich
54
4
2
12
7
6
9
11
3
2/2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
04.04 26.04
139
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT GOVERNING BODIES
Sole Executive
Body
GENERAL DIRECTOR
Nail Ulfatovich Maganov
Since November 2013 to present,
the General Director of TATNEFT
The PJSC TATNEFT operations are run under the leadership
of the General Director who acts as the sole executive body.
The General Director is appointed by the Company’s Board of
Directors. The General Director is accountable to the Company’s
Board of Directors and the Shareholders’ Meeting.
The General Director is the Chairman of the Management Board.
The Director General is guided by the current legislation, the
Articles of Association of the PJSC TATNEFT and the Regulations
on the General Director of PJSC TATNEFT and the Company’s
internal documents and decisions of the General meeting of
shareholders and the Board of Directors.
The General Director is in charge of the Company’s day-to-day
operations, determines the Company’s organizational structure,
oversees the soundness of the Company’s assets and their
effective use, addresses organizational issues related to the
management of the Company’s business structure, the health,
safety, and environmental protection, the development of human
resources and social guarantees for employees, as well as the
sustainable development and corporate responsibility.
In accordance with the Regulations, the General Director has the
right to entrust certain matters to the charge of his deputies.
The Company’s organizational and administrative documents
delineate the duties and responsibilities between the General
Director and the Deputy General Directors in terms of organizing
the work in the following areas:
• Strategic development;
• Core business activities: oil and gas production, geological
exploration, development of oil and gas fields;
• Geological prospecting and exploration, and management of
external oil and gas projects;
• Workover and drilling, and enhanced oil recovery;
• Power generation, mechanics, logistics and transport,
corporate engineering policy;
• Telecommunications, information infrastructure, information
•
security;
Industrial and environmental safety, labor protection and
environmental protection;
• Capital construction;
• Economics and finance;
• Social development;
• Engagement with the Federal authorities of the Russian
Federation, representative offices of foreign countries and
companies;
• Representation and upholding of interests in the Federal
Executive Bodies of the Republic of Tatarstan, legislative
and executive authorities, institutions, organizations and
enterprises of the Republic of Tatarstan.
The Deputy General Directors of PJSC TATNEFT manage the
work and bear responsibility for the relevant business streams of
the Company with regard to the strategic and long term planning,
fulfillment of technical and economic targets, the effective and
efficient use of fixed assets, raw materials, fuel and power,
and other resources, production engineering and workplace
management, occupational health and safety and other business
areas of the Company.
The distribution of duties and responsibilities between the
General Director and Deputy General Directors is determined
by the Company’s internal organizational and administrative
documents.
The Deputy General Directors manage the operations and bear
responsibility for the relevant business streams.
GOVERNING BODIES
Management
Board
The Management Board is a collegial executive body, which is in charge of day-to-
day management of the TATNEFT Company, development and implementation of
the overall development strategy of the Company’s subsidiaries.
EXECUTIVE BODIES OF THE COMPANY GOVERNING DAY-TO-DAY OPERATIONS
OF THE COMPANY WITHIN THE COMPETENCE DEFINED BY THE ARTICLES OF
ASSOCIATION OF TATNEFT
THE GENERAL DIRECTOR (CHIEF
EXECUTIVE OFFICER) IS THE SOLE
EXECUTIVE BODY
THE MANAGEMENT BOARD
IS A COLLEGIAL EXECUTIVE BODY
The Management Board is guided by the current legislation, the
Articles of Association of PJSC TATNEFT n. a. V. D. Shashin and
the Regulations on the Management Board of PJSC TATNEFT
n.a. V. D. Shashin (approved as amended and restated by the
decision of the annual general meeting of shareholders of PJSC
TATNEFT on June 21, 2019) and the internal documents of the
Company.
The procedure for forming the Management Board, the
rights, duties and responsibilities of the Management Board
members, and the Management Board operating regulations
are established by the Regulations on the Management Board
of PJSC TATNEFT n.a. V. D. Shashin. The rights and duties
of the Management Board members are also determined by
the contracts entered into on behalf of the Company by the
Chairman of the Board of Directors with each member of the
Management Board.
The Management Board membership is represented by the
heads of the Company’s core business streams and corporate
areas. The Management Board consists of senior managers
of the Company and its subsidiaries who have the necessary
professional background and managerial experience in the
Company’s activities.
The Management Board meetings are held in accordance with
the work schedule thereof.
The size of the Management Board is determined by the Board
of Directors.
140
141
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Composition of the
Management Board of
PJSC TATNEFT in 2019
Maganov
Nail Ulfatovich
General Director of PJSC TATNEFT
Member of the Board of Directors of PJSC TATNEFT
Chairman of the Management Board of PJSC TATNEFT
• Born in 1958.
•
In 1983, graduated from Moscow Institute of Petrochemical
and Gas Industry named after Academician I.M. Gubkin
• From July 2000 to November 2013, First Deputy General
Director – Head of Crude Oil and Petroleum Products Sales
Department of OJSC TATNEFT
• From November 2013 to present, General Director of PJSC
TATNEFT
Participation in governing bodies of other organizations:
• Chairman of the Board of Directors of PJSC Bank ZENIT
• Chairman of the Board of Directors of INKO-TEK LLC
• Member of the Board of Directors of PJSC
Nizhnekamskneftekhim
• Member of the Board of Directors of OJSC
Tatneftekhiminvest-holding
• Member of the Board of Directors of JSC
Svyazinvestneftekhim
• Member of the Board of Directors of KHL LLC
• Member of the Board of Directors of Tatneft Oil AG
• Chairman of the Board of Directors of TNA-Services NV
• Member of the Board of Directors of TAL OIL Ltd
• General Partner, who is entrusted to run a business (without a
power of attorney) of LP TATNEFT, Solid and Co
• Chairman of the Board of Directors of TATNEFT Charitable
Fund.
• Deputy Chairman of the Supervisory Board of ANO Academy
of Hockey AK BARS n.a. Y. I. MOISEEV
Voskoboinikov
Vladlen Aleksandrovich
Glazkov
Nikolay Mikhailovich
Ibragimov
Nail Gabdulbarievich
Member of the Management Board of
PJSC TATNEFT until November 28, 2019
Head of the Consolidated Financial
Statements Department of PJSC
TATNEFT until November 1, 2019
Member of the Management Board of
PJSC TATNEFT
Deputy General Director for Capital
Construction of PJSC TATNEFT
• Born in 1965.
•
In 1993, graduated from the Southern
Alberta Institute of Technology in
Calgary
• Born in 1960.
•
In 1988, graduated from Kazan
Institute of Engineering and
Construction
• From 2005 to November 1, 2019,
• From 2008 to 2010, Head of the
Head of the Consolidated Financial
Statements Department of PJSC
TATNEFT
Capital Construction Department of
OJSC TATNEFT
• From 2010 to present, Deputy General
Director for Capital Construction of
PJSC TATNEFT
Member of the Board of Directors of
PJSC TATNEFT until June 21, 2019
First Deputy General Director for
Operations – Chief Engineer of PJSC
TATNEFT
Member of the Management Board of
PJSC TATNEFT until February 28, 2020
• Born in 1955.
•
In 1977, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• From 2000 to February 18, 2020,
First Deputy General Director for
Operations – Chief Engineer of PJSC
TATNEFT
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary stocks owned
by the person, %
0,000176
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,019831
0,020873
142
143
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Mukhamadeev
Rustam Nabiullovich
Nurmukhametov
Rafail Saitovich
Tikhturov
Evgeny Aleksandrovich
Syubaev
Nurislam Zinatulovich
Member of the Management Board of
PJSC TATNEFT
Deputy General Director for Social
Development of PJSC TATNEFT
• Born in 1952.
•
In 1977, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• From 2001 to December 4, 2017,
Deputy General Director for HR and
Social Development of PJSC TATNEFT
• From December 4, 2017 to January
31, 2020, Deputy General Director for
General Issues of PJSC TATNEFT
• From February 1, 2020 to present,
Deputy General Director for Social
Development of PJSC TATNEFT
Participation in governing bodies
of other organizations:
• Member of the Board of Directors
of JSC IC Chulpan
• Chairman of the Governing Board
of PEE Tatneft-School
Member of the Board of Directors of
PJSC TATNEFT
Head of NGDU Leninogorskneft of PJSC
TATNEFT
Member of the Management Board of
PJSC TATNEFT until December 23, 2019
• Born in 1949.
•
In 1974, graduated from Ufa Petroleum
Institute.
• From January 30, 1998 to January 31,
2020, Head of NGDU Leninogorskneft
Member of the Management Board of
PJSC TATNEFT until February 28, 2020
Head of the Finance Department of
PJSC TATNEFT
Member of the Corporate Governance
Committee of the Board of Directors of
PJSC TATNEFT
• Born in 1960.
•
In 1992, graduated from Moscow
Institute of Management named after
S. Ordzhonikidze
• From 1999 to February 12, 2020, Head
of the Finance Department of PJSC
TATNEFT
Participation in governing bodies
of other organizations:
• Member of the Board of Directors of
Participation in governing bodies
of other organizations:
• Chairman of the Board of Directors
CJSC Okhtin-Oil
of JSC IC Chulpan
• Member of the Board of Directors
of PJSC AK BARS Bank until June 20,
2019
• Member of the Board of Directors
of PJSC Bank ZENIT
• Member of the Board of Directors
of JSC Tatoilgas
• Member of the Board of Directors
of CJSC Tatex
• Member of the Board of Directors
of JSC Tatnefteprom-Zyuzeevneft
• Member of the Board of Directors
of JSC Tatnefteprom
• Member of the Board of Directors
of Tatneft Oil AG
From June 21, 2019, Member of the Board of Directors of PJSC
TATNEFT
Deputy General Director for Strategic Development of PJSC
TATNEFT
Member of the Management Board of PJSC TATNEFT
Member of the Corporate Governance Committee of the Board
of Directors of PJSC TATNEFT
• Born in 1960.
•
In 1982, graduated from Moscow Institute of National
Economy n.a. G.V. Plekhanov
• From 2001 to July 17, 2016, Head of Strategic Planning
Department - Advisor to General Director for Foreign
Economic Affairs and Financial/Banking Issues
• From July 18, 2016 to present, Deputy General Director for
Strategic Development of PJSC TATNEFT
Participation in governing bodies of other organizations:
• Member of the Board of Directors of CJSC Kara Altyn
Enterprise
• Member of the Board of Directors of Karbon-Oil LLC
• Member of the Board of Directors of JSC Aznakaevsky
Neftemash plant
• Chairman of the Board of Directors of JSC IDELOIL
• Member of the Board of Directors of Blagodarov-Oil LLC
• Chairman of the Board of Directors of Zavod Elastic LLC
• Member of the Board of Directors of URS - Trading House
LLC
• Member of the Board of Directors of PJSC Bank ZENIT
• Member of the Board of Directors of P-D Tatneft-Alabuga
Fiberglass LLC
• Chairman of the Board of Directors of JSC National Non-
Governmental Pension Fund
• Member of the Supervisory Board of Tatneft International
Cooperatie U.A. (the Netherlands)
• Member of Self-regulating Organization - National
Association of Non-State Pension Funds
Share in the authorized capital
of the Company, %
0,004204
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
0,004264
Share of the Company’s ordinary
stocks owned by the person, %
0,010465
0,010107
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary
stocks owned by the person, %
none
none
Share in the authorized capital
of the Company, %
Share of the Company’s ordinary stocks owned
by the person, %
none
none
144
145
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Changes in the Management Board
membership
Activities of the Management
Board in 2019
STRUCTURE OF ISSUES CONSIDERED BY THE MANAGEMENT
BOARD IN 2019
In 2019, the Management Board considered several production
and corporate issues and made the appropriate decisions.
33,9%
NUMBER OF MEETINGS OF THE MANAGEMENT BOARD FOR
THE PERIOD OF 2017-2019
30,4%
8,9%
7
1
0
2
8
1
0
2
9
1
0
2
6
22
12
31
28
Number of issues considered
Number of meetings held
56
10,7%
3,6%
1,8%
10,7%
Corporate issues
Strategy
Budget
Production
Local acts
Social issues
Governance of subsidiaries and affiliates
56
NUMBER OF ISSUES
CONSIDERED
Maganov Nail Ulfatovich
Voskoboinikov Vladlen Aleksandrovich (until November 28, 2019)
Glazkov Nikolay Mikhailovich
Ibragimov Nail Gabdulbarievich (until February 28, 2020)
Nurmukhametov Rafail Saitovich (until December 23, 2019)
Mukhamadeev Rustam Nabiullovich
Tikhturov Evgeny Aleksandrovich (until February 28, 2020)
Syubaev Nurislam Zinatulovich
DURATION OF WORK IN THE MANAGEMENT BOARD
0 person
2 persons
6 persons
less than a year
one to seven years
over seven years
AGE PROFILE OF THE MANAGEMENT BOARD MEMBERS
45–55 y. o.
56–65 y. o.
66+ y. o.
25%
50%
25%
2 persons
4 persons
2 persons
In 2019, there were the following changes in the Management
Board’s membership: The powers of the following members
of the Management Board were terminated: Vladlen
Aleksandrovich Voskoboynikov due to the resignation mutually
agreed by the Parties (Minutes of the Board of Directors No.
7 of 28.11.2019), Raphail Saitovich Nurmukhametov due to his
retirement form service (Minutes of the Board of Directors
No. 8 of 23.12.2019). In 2020, the powers of the Management
Board members Yevgeny Aleksandrovich Tikhturov and Nail
Gabdulbarievich Ibragimov (Minutes of the Board of Directors No.
10 dated 28.02.2020) were terminated due to their retirement
from service.
All the members of the Management Board have relevant work experience in
the Company, professional knowledge and high business reputation.
Duration of work in the Management Board of PJSC TATNEFT
Participation of the Management Board members in meetings
of the Management Board in 2019
Surname, name, patronymic
Maganov Nail Ulfatovich
Voskoboinikov Vladlen Aleksandrovich
Glazkov Nikolay Mikhailovich
Mukhamadeev Rustam Nabiullovich
Tikhturov Evgeny Aleksandrovich
Syubaev Nurislam Zinatulovich
Ibragimov Nail Gabdulbarievich
Nurmukhametov Rafail Saitovich
28/28
28/20
28/28
28/28
28/28
28/28
28/27
28/28
19.02
19.02
20.02
20.02
20.02
07.03
11.04
16.05
21.05
03.06
07.06
10.06
25.06
17.07
15.08
20.08
25.09
15.10
22.10
29.10
12.11
29.11
29.11
06.12
10.12
16.12
12.12
23.12
extraordinary
extraordinary
extraordinary
extraordinary
146
147
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Remuneration of members
of governing bodies
Remuneration of the PJSC
TATNEFT Board of Directors’
members
Remuneration of the Management
Board members
The Board of Directors sets the
Company’s policy on remuneration
and/or reimbursement of costs
(compensations) to the members of
the Board of Directors, members of
its executive bodies and other key
managers of the Company.
THE SYSTEM OF THE MANAGEMENT STAFF
REMUNERATION IS FORMED IN ALIGNMENT
WITH THE COMPANY’S STRATEGIC GOALS
2030.
Remuneration of the members of the executive bodies and
other key managers is determined in such a way as to provide
a reasonable and justified ratio between the fixed part of the
remuneration and the variable part of the remuneration, which
depends upon the performance results of the Company and the
personal (individual) employee’s contribution to the final result.
The Remuneration Committee consisting of independent
directors and headed by an independent director who is not
the Chairman of the Board of Directors has been set up for
preliminary review of issues related to establishing the effective
and transparent remuneration practices.
When forming a remuneration system and determining the
specific amount of remuneration to the members of the
Company’s governing bodies, it is assumed that the amount of
the remuneration paid should be sufficient to engage, motivate
and retain persons with the relevant professional background,
knowledge and skills required for the Company.
The remuneration system is based on the principles and
guidance of the Corporate Governance Code in alignment
with the Company’s current practice of remuneration and
compensation accrual.
The company seeks to establish the remuneration for the
members of the Board of Directors based on the contribution
they make to the Company’s growth and development. An
adequate level of remuneration helps attract highly qualified
candidates and provides compensations for the time and effort
they spend to get prepared for and participate in the meetings of
the Board of Directors.
The remuneration is paid out to the PJSC TATNEFT Board
of Directors’ members under the Regulations on payment of
monetary remuneration to the members of the Board of Directors
and the Revision Commission of PJSC TATNEFT.
The remuneration of the members of the Board of Directors
is made up of the fixed and variable parts. The fixed part of
remuneration is established by the Regulations and is indexed
concurrently with changes in tariffs and salaries of employees of
PJSC TATNEFT.
The variable part of remuneration for the members of the Board
of Directors is formed depending on fulfilment of the following
key performance indicators:
year-on-year ratio of the Company’s capitalization;
•
• dividend costs to net profit ratio (year-on-year);
• amount of additional profitability versus basic profitability.
The amounts of remuneration to be paid to the members of the
Board of Directors is established by a decision of the General
meeting of shareholders and provides for, inter alia, as follows:
•
remuneration for performing the duties of the Chairman of
the Committee of the Board of Directors;
• emuneration for performing the duties of the Chairman of the
Committee of the Board of Directors.
In 2019, the total remuneration paid out to the members of the
Company’s Board of Directors amounted to 231 162 449,70
rubles, including the remuneration for participation in the work
of the Management Board, salaries, bonuses and other types of
remuneration. The compensations to members of the Company’s
Board of Directors amounted to 10 258 895,66 rubles.
The payments are made to the Management Board members
under the basic terms of the concluded contracts for the duties
performed by a Management Board member, that include,
inter alia, putting decisions in practice made by the General
meeting of shareholders and the Board of Directors, participating
in making plans for the Company growth and development,
improving efficiency and productivity of the Company and its
individual business units.
In 2019, the total remuneration paid out to the members of the
Company’s Management Board amounted to 214 854 636,56
rubles, including the remuneration for participation in the work
of the Management Board, salaries, bonuses and other types
of remuneration. The compensations to the members of the
Company’s Management Board amounted to 82 621,00 rubles
The Company’s management staff motivation policy is aimed at creating
a unified remuneration system with its variable part linked to the key
performance indicators that reflect the success in achieving the Company’s
strategic goals.
Name of indicator
Rubles
Name of indicator
Rubles
Remuneration for participation in the work
of the management body
115 558 159,00
Remuneration for participation in the work
of the management body
Salary
Bonus
Commissions
16 595 433,38
Salary
98 955 714,91
Bonus
0,00
Commissions
Other types of remuneration
53 142,41
Other types of remuneration
TOTAL
Compensation
231 162 449,70
TOTAL
10 258 895,66
Compensation
6 303 695,00
69 603 106,34
122 311 250,40
0,00
16 636 584,82
214 854 636,56
82 621,00
Note: The amount of the remuneration under the IFRS methodology is indicated in Note 26 «Related-party transactions» in the consolidated financial statements prepared in accordance with
international financial reporting standards and the independent auditor’s report. For more information, please refer to the Annual Report, Annex 1.
148
149
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Corporate
Secretary
The main task of the Corporate
Secretary is the efficient
implementation of the Corporate
policy and the organization of
efficient communications among
shareholders, management and
control bodies and the Company
itself.
The Corporate Secretary ensures the efficient interaction of
the members of the Board of Directors with the Company’s
shareholders and their representatives, with the executive
bodies of the Company, heads and employees of the divisions of
the Company, coordination of the Company’s actions to protect
the rights and interests of the shareholders, conducting meetings
and keeping minutes of meetings of the Board of Directors.
CORPORATE SECRETARY
Damir Maratovich Gamirov
Acting Corporate Secretary – Deputy Head of the Office
of the Corporate Secretary of PJSC TATNEFT
Member of the Corporate Governance Committee
of the Board of Directors of PJSC TATNEFT
• Born in 1980.
•
In 2003, graduated from Ufa State Petroleum Technical
University
• From 2013 to April 16, 2017, Economist at the Securities
Section of the Property Management Department of PJSC
TATNEFT
• From April 17, 2017 to present, Deputy Head of the Office
of the Corporate Secretary of PJSC TATNEFT
The Corporate Secretary reports to the Board of Directors, is
appointed and dismissed by the General Director based on the
decision of the Board of Directors.
Share in the authorized capital of the Company, %
0,000028
Share of the Company’s ordinary stocks owned
by the person %
none
The duties of the Corporate Secretary are assigned to Damir
Maratovich GAMIROV by the Decision of the Board of Directors
dated November 6, 2017.
The Corporate Secretary enjoys appropriate level of
independence from the executive bodies of the Company and
has necessary powers and resources to perform his tasks.
The Corporate Secretary acts in accordance with the Company’s
Articles of Association and the Regulations on the Corporate
Secretary of PJSC TATNEFT, which takes into account all
the requirements of the Moscow Exchange PJSC and the
recommendations of the Bank of Russia Code regarding the
activities of the Corporate Secretary.
Key functions of the Corporate
Secretary
Office of the Corporate Secretary
The scope of competence of the Corporate Secretary Office
includes maintaining an efficient system of interaction between
all participants of corporate relations, including subsidiaries
and affiliates, monitoring the implementation by the Company,
subsidiaries, and affiliates of corporate procedures relating to
the exercise of the rights of shareholders and other participants
in corporate relations, ensuring the Company’s interaction with
a specialized registrar, depositories, with government bodies
authorized to regulate corporate relations and the securities
market as well as with other participants of the securities market.
The Office of the Corporate Secretary ensures the organization
and control of compliance with the requirements of legislation
on public disclosure of information, including the preparation
and disclosure of information in the form of an annual report,
issuer’s quarterly reports, material facts, as well as documents
and information related to the issuance and circulation of
securities for organized stock market, provision of documents
and information requested by shareholders, proper storage of
corporate documents of the Company. As part of improving
corporate practice, the Office of the Corporate Secretary
monitors the effectiveness of the Company’s current procedures
and ensures that an annual report to the Board of Directors
on the state of corporate governance in the Company and its
development prospects is prepared.
• To ensure the efficiency of the mechanisms for
implementation by the Company, subsidiaries, and affiliates
of the corporate procedures related to the exercise of
the rights of shareholders and other participants of the
Company’s corporate relations.
• To ensure the preparation and holding of General Meetings
of Shareholders and meetings of the Board of Directors,
including the preparation of materials for meetings of the
Board of Directors in accordance with the internal documents
of the Company.
• To ensure the work of committees of the Board of Directors
of the Company, coordination of their activities.
• To provide the interaction of the Company with the
exchanges, registrar, depositories, government bodies
supervising corporate relations and securities market, and
with other professional participants of the securities market
within the scope of authorities vested in the Corporate
Secretary.
• To ensure compliance with the requirements for disclosure
of information, provision of documents and information
upon shareholders’ requests, efficiency control 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 over insiders’
transactions with securities of the Company.
• To ensure the Company’s interaction with its shareholders
and participate in preventing the corporate conflicts.
• To monitor the Company’s compliance with the requirements
of corporate legislation, terms of internal documents of
the Company, and shareholders’ rights in the part related
to the competence of the Corporate Secretary, take the
necessary measures to eliminate such violations, minimize
the consequences of such violations.
• To prepare an annual report to the Board of Directors on
the status of corporate governance in the Company and its
development prospects.
• To monitor the Company’s compliance with the requirements
of corporate legislation, terms of internal documents of
the Company, and shareholders’ rights in the part related
to the competence of the Corporate Secretary, take the
necessary measures to eliminate such violations, minimize
the consequences of such violations.
• To participate in improving the system and practice
of corporate governance of the Company, formation
of mechanisms and regulations of corporate practice,
monitoring their efficiency. To assess efficiency of the
corporate governance system of the Company. To promote
development of the corporate governance system in the
subsidiaries and affiliates in the interests of TATNEFT Group.
150
151
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Internal
Audit
Independent
auditor
In order to independently assess the reliability of the accounting
(financial) statements, the Company annually engages an
external auditor to conduct an audit of statements prepared
under IFRS and RAS. The external auditor is approved by the
General Meeting of Shareholders on the recommendation of the
Board of Directors of the Company, adopted on the basis of the
assessment carried out by the Audit Committee.
AO PricewaterhouseCoopers Audit was approved as an
auditor for compulsory audit of the annual financial accounting
statements for 2019 prepared in accordance with Russian and
International Accounting Standards by the decision of the Annual
General Meeting of Shareholders (Minutes No.29 dated June 25,
2019).
The internal audit of the Company is aimed at assessing the
reliability of the Company’s business processes, provides for
identification of internal reserves to improve the efficiency of the
financial and economic activities of PJSC TATNEFT, including
the Group’s entities, and is carried out in accordance with a plan
approved by the Board of Directors.
The scope areas of the internal audit in 2019:
• Current asset management.
• Procurement and standards of raw material balances of
Tatneft-Neftekhim Management Company.
• Development of the regulations for sample audits in risk
areas.
• Procurement management office of PJSC Bank ZENIT.
• Cost management of the super-viscous oil project.
• Crude oil metering by wells.
• Social asset management.
• Railway transportation of crude oil and petroleum products
by Tatneft-Trans LLC.
When preparing the annual plan, the proposals received and
risks identified as a result of the managers survey of the business
segments and divisions of the Company, the results of previous
audits are taken into account.
As part of the audit, the system of internal control over the
operational efficiency of processes, compliance with the
legislation, property safety is considered. The audit is conducted
on a risk-based approach. The report on the results of the
internal audit is sent to the management of the Company and the
Audit Committee. Subsequently, the Internal Audit Department
monitors the implementation of measures and informs the
management of the Company and the Audit Committee of the
Board of Directors on the progress of elimination of the identified
deficiencies.
Internal Audit and Control
Principles
Regulations on the Internal Audit Department of PJSC TATNEFT
was approved by the Board of Directors of PJSC TATNEFT
(Decision No. 3, Minutes No.9 of January 29, 2016). The internal
audit function is isolated by the nature of its activities, it has the
necessary independence status. The internal audit, together
with the Board of Directors of PJSC TATNEFT and the Executive
Management of the Company, is involved in improving the
system of internal control and risk management.
Control inspections
In 2019, 9 audits were conducted in accordance with the annual
plan. In addition, on the instructions of the Company’s executive
management, the internal audit department participated
in unscheduled projects on various issues of financial and
economic activity. Reports on the completed projects were
sent to the Audit Committee and Executive Management of the
Company. For all projects, the implementation of action plans is
monitored.
The quality assessment of the internal audit function
implemented by the Internal Audit Department of PJSC TATNEFT
was successfully conducted. According to the results of the
evaluation provided by the experts of CJSC Deloitte & Touche
CIS, it was concluded that the management activities generally
comply with the International Professional Standards of Internal
Audit and the Code of Ethics of the Institute of Internal Auditors
152
153
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT CONTROL INSPECTIONS
Audited Item
Subject of Audit
Key Recommendations
Current Asset
Management
Procurement and balance
standards of raw materials
of Tatneft-Neftekhim
Management Company
• Analysis of warehouse inventories,
• Conduct work with the inventory balance with the curators
measures for stock balances
involvement.
• Target indicators of current assets
norms. Actual calculations of their
achievement.
and customers.
• Develop accounts payable management regulations.
• Introduce tools to control the actual payment due dates
regarding contractual obligations.
• Update the Methodology for determining the indicators
• Management of receivables and
of accounts receivable turnover.
payables.
• Expand the perimeter of corporate control in all major business
• Advance payments management.
areas (including Tire business).
• The effect of eliminating these shortcomings may amount
to RUB 200-300 million.
• Results of the project
• Monitor purchases of other tire companies using customs
“Development of the competitive
procurement environment for the
Tire complex of PJSC TATNEFT.
• Optimum cost & quantity ratio of
raw materials procured for the Tire
manufacturing complex.
• Efficiency of raw materials stock
management.
statistics.
• Scientific & Technical Center Kama LLC, when carrying out test
schedules for testing new types of raw materials and materials,
must conduct a factor analysis of fulfillment of homologation
deadlines, identification of delay causes and work on their
reduction.
• As part of the performance assessment, the Deputy Director of
Logistics of Trading House KAMA for the reporting year must
additionally establish a key performance indicator “The share
of non-alternative purchases in the total volume of purchases of
raw materials for the year”.
• Ensure a systematic approach to the analysis of the reasons for
the occurrence of excess reserves of raw materials, determine
the Tatneft-Neftekhim as a service responsible for performing a
factor analysis of implementation of working capital standards
based on the results of the next reporting period.
• The effect of eliminating deficiencies can be up to RUB 250
million.
Development of
Regulations for sampling
audits in risk areas
Consulting project.
Objective of the project:
• updating of Anti-Corruption Policy
• Coordinate and approve the updated Anti-Corruption Policy
and ensure the implementation of the anti-corruption activities
described in the Anti-Corruption Policy.
of the Company;
• development of inspection
regulations for risk areas and
identification of indicators of
negative events.
• According to the newly developed regulations, determine the
responsible services for the audit and put the documents into
action.
Procurement Department,
Bank ZENIT PJSC
• Compliance with procurement
• The Bank’s Internal Audit Service should include audits of the
procedures.
procurement process in annual plans.
• Compliance of procurement
• Technical and commercial parts of offers must be submitted only
procedures with the best practices.
through the electronic trading platform.
• Ensuring transparency of the
procurement process and creating
conditions for competition.
• Include in the Regulations on contractual work the requirement
of mandatory availability of justification (procurement decision)
for concluding a contract.
• Compliance of concluded contracts
• To regulate the procedure for increasing volumes and changing
with procurement decisions.
• Automation of the procurement
process.
the contract value without a new tender.
• To strengthen control over compliance of the terms of the
contract with the terms of the procurement decision.
• The minimum effect of eliminating these shortcomings may be
RUB 100-150 million.
Measures taken
Activities are
approved.
Activities are being
implemented.
Activities are
approved.
Activities are being
implemented.
The Anti-Corruption
Policy has been
updated and
transferred to the
Economic Security,
Information Protection,
Civil Defense and
Emergency Situations
Department for
approval by the Board
of Directors of PJSC
TATNEFT.
Activities are
approved.
Activities are being
implemented.
Cost Management
of Super-Viscous Oil
Production Project (SVO
Project)
• Optimum procurement of materials,
equipment and services by
contractors under the turn-key
construction contracts as part of
SVO production project.
• The contract template must include the terms for selection
of subcontractors to perform works, services, including the
obligation of contractors to conduct all tenders only with the use
of the tender procedure of PJSC TATNEFT.
Activities are
approved.
Activities are being
implemented.
• Approve schedules for works performance on the infrastructure
• Compliance with scheduled
facilities at the time of signing contracts.
construction deadlines of the
infrastructure facilities in SVO fields.
• Formation of the investment
program for development of SVO
fields.
• Document all the cases of violation of contractual obligations by
contractors as per the deadlines for construction and installation
works and apply sanctions for violation of due dates of facilities
construction.
• Transfer of investment sources within the approved limits
of the investment program and the calendar deadlines for
implementation of the SVO project stage shall be carried out on
the basis of a decision of the First Deputy General Director for
Oil & Gas Exploration and Production in coordination with the
Investment Department.
• The effect of eliminating deficiencies can be up to RUB 180
million.
Audited Item
Subject of Audit
Key Recommendations
Oil metering by wells
• Oil metering process by wells
• To develop and approve a methodology that excludes
(water cut data and data on the
additional oil production resulting
from well interventions)
calculations of additional oil production from inefficient well
interventions on injection wells.
• The concerned departments must increase the number of
Measures taken
Activities are
approved.
Activities are being
implemented.
inspections conducted, water cut data of well products (conduct
monthly). In the event that, based on the results of inspections, it
is revealed that there is a distortion of data on water cut of well
products, apply disciplinary measures to employees who have
committed violations.
• Based on the results of data reliability checks on water cut of
well products, analyze and develop action plans to prevent data
distortion.
Social assets
management
• Centralization of the social assets
• Set a strategic objective to make profitable certain areas of the
management.
Complex of Social facilities.
• Cost optimization.
• Quality of services and service
• Reduce the structure of supported social assets based on the
outlook analysis.
provision.
• Establish the management accounting and monitoring of key
• Marketing, pricing policy.
• Customer satisfaction, feedback
performance indicators
• Carry out factor analysis of changes in revenue and facility
and improvement.
loading indicators.
Activities are
approved.
Activities are being
implemented.
• Unify approaches to services pricing and loyalty programs,
create a unified catalog of prices for services.
• Develop sales channels, establish rates of commission fees
of agencies taking into account their interest in promoting
TATNEFT facilities.
• Introduce customer-oriented thinking, begin practical
implementation of quality management principles.
Railway Transportation of
crude oil and petroleum
products by Tatneft-Trans
LLC
• Supervision of financial and
• Organize the management accounting of reasons of railway
economic activities of TN-Trans LLC
by curators.
wagons bunching on railway lines and identify the party guilty of
excess downtime.
• Fulfillment of requirements on
• Analyze the option of shunting out of loaded wagons without
provision of railway operation and
organization of railway trains traffic
on private rail lines of TANECO
JSC.
• Coordination of TN-Trans and JSC
TANECO services in the process of
oil products shipment.
• Fulfillment of industrial and
workplace safety requirements
by TN-Trans employees and their
subcontractors.
shipping details for paid storage in sidings on public railways of
Russian Railways JSC.
• Bring the contractor agreements in line with the corporate
requirements.
• Organize the implementation of procedure requirements
for testing staff knowledge of contractors on industrial and
workplace safety.
Industrial safety &
workplace safety
activities are approved.
Activities are being
implemented.
The action plan to
address remaining
issues is being
developed.
Works with idle well stock • Investments in well intervention
• Ensure the implementation of regulatory documents establishing
services for idle wells.
• Efficiency of using different well
categories.
the requirements for wells included in the environmental
program.
• When tripping a pump c/w packer (in production wells)
Activities are
approved.
Activities are being
implemented.
and packer (in injection wells), according to the results of
unsuccessful isolating works, consider the repair to be
technologically unsuccessful and reflect this fact in the act of well
acceptance after the repair.
• Regulate the procedure for preventive maintenance on injection
wells, taking into account a working agent, injection volume,
operating time, category, condition and internal coating of the
tubing.
154
155
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Revision Commission
On June 21, 2019, the following composition of the Revision
Commission was elected at the Annual General Meeting of
Shareholders of PJSC TATNEFT for the reporting corporate year:
CHAIRPERSON
Nazilya Rafisovna Farkhutdinova
• Year of birth: 1963
•
In 1985, graduated from Kazan Financial and Economic
Institute
• From 2010 to present, Deputy Director for Economics
and Finance of TagraS-RemService LLC
MEMBERS OF THE REVISION COMMISSION
Ksenia Gennadievna
Borzunova
• Year of birth: 1980
•
In 2003, graduated from Kazan State
Financial and Economic Institute
• From 2006 to present, Head of the
Economics Department of the Ministry
of Land and Property Relations of the
Republic of Tatarstan
Salavat Galiaskarovich
Zalyaev
• Year of birth: 1975
•
In 1999, graduated from Moscow
Military Institute of the Federal Border
Service of the Russian Federation
• From 2002 to present, Leading Legal
Counsel of the Corporate and Legal
Section of the Legal Department in
PJSC TATNEFT
Liliya Rafaelovna
Rakhimzyanova
• Year of birth: 1967
•
In 1988, graduated from Kazan
Financial and Economic Institute
• From 2010 to August 2012, Head of
the Oil and Gas Production Section of
the Hydrocarbons Department of the
Ministry of Energy of the Republic of
Tatarstan
• From August 2012, Head of the Oil
Production and Refining Department
of the Ministry of Industry and Trade
of the Republic of Tatarstan
Venera Gibadullovna
Kuzmina
• Year of birth: 1946
•
In 1972, graduated from Moscow
Institute of Petrochemical and Gas
Industry named after Academician I.M.
Gubkin
• From 2002 to 2014, Economist at NIS
OJSC TATNEFT
• From 2014 to present, Veteran of
labor
Ravil Anasovich
Sharifullin
• Year of birth: 1961
•
In 1990, graduated from Kazan
Financial and Economic Institute
• From 2009 to 2012, Chief Accountant
of NGDU Yamashneft
• From 2012 to present, Head of the
Control and Auditing Department
• of PJSC TATNEFT
156
Azat Damirovich Galeyev
• Year of birth: 1977
•
In 1999, graduated from Kazan State
Agricultural Academy
In 2008, graduated from Ufa State
Petroleum Technical University
• From 2007 to 2018, Head of the
Investment Department at NGDU
Aznakayevskneft of PJSC TATNEFT
•
• From 2018 to December 1, 2019,
Deputy Head of NGDU «Jalilneft» of
PJSC TATNEFT on Economics
• From December 1, 2019 to present,
Head of the Investment Projects
Analysis Office of the Investment
Department
**since June 21, 2019
Guzal Rafisovna Gilfanova
• Year of birth: 1967
•
In 1993, graduated from Saint
Petersburg State University
In 2005, graduated from Kursk
Regional Finance and Economics
Institute
•
• From 2013 to present, Deputy Head of
the Control and Auditing Department
Sariya Kashibulkhakovna
Yusupova
• Year of birth: 1965
•
In 1986, graduated from Kazan
Financial and Economic Institute
• From 1991, Deputy Head of the
Economic Analysis Department of the
Ministry of Finance of the Republic of
Tatarstan
During the work of the Revision
Commission of the Company in
2020, the reliability of the data
contained in the annual accounting
(financial) statements and the
Annual Report of the Company
for 2019, and the data contained
in the Report on interested-party
transactions concluded by PJSC
TATNEFT in 2019. The findings
of the Revision Commission are
communicated to the Annual
General Meeting of Shareholders.
Changes occurred in the
composition of the Revision
Commission
By the decision of the Annual General Meeting of Shareholders
(Minutes No. 29 dated June 25, 2019), the powers of the member
of the Revision Commission of PJSC Tatneft R.R.Gizatova
were terminated, and A.D. Galeev was elected to the Revision
Commission.
The Revision Commission monitors the financial and economic
activities of the Company, officials, subdivisions and services,
branches and representative offices. The Revision Commission is
a permanently elected body of the Company.
The Revision Commission is elected by the General Meeting of
Shareholders and accountable thereto. Members of the Revision
Commission may not simultaneously be members of the Board
of Directors of the Company, as well as occupy other positions
in the management bodies of the Company. The Revision
Commission activities are regulated by the Company’s Articles of
Association.
The Revision Commission is an elected body of eight members
by the General Meeting of Shareholders for a term until the next
Annual General Meeting of Shareholders. One member of the
Audit Commission of the Company is appointed on the basis of
the special right of the “golden share”. Any shareholder or any
person nominated by a shareholder may be a member of the
Revision Commission.
The audited items of the Revision Commission are the
Company’s activities, including the identification and assessment
of risks arising from the results and in the process of the financial
and economic activity.
The Revision Commission inspects the legality of the agreements
concluded by the Company, settlements with counterparties,
develops recommendations to the Company to improve the
management efficiency of the Company’s assets and other
financial and economic activities of the Company, reduce
financial and operational risks, improve the internal control
system, and confirms the accuracy of the data included in
the Annual Report of PJSC TATNEFT and annual accounting
(financial) statements of the Company, and also confirms the
reliability of the data contained in the report on interested-party
transactions concluded in the reporting year.
The Revision Commission submits the conclusion on the annual
audit results in accordance with the regulations and procedures
of financial reporting and accounting statements to the Board of
Directors no later than forty days before the Annual Meeting.
Remuneration of the Revision
Commission members
Name of indicator
Remuneration for participation in the work
of the control body
In 2019, the total amount of remuneration to the members of
the Company’s Revision Commission amounted to RUB 15 582
458,19, including remuneration for participation in the work of
the Revision Commission, wages, bonuses and other types of
remuneration. Compensation to the members of the Company’s
Revision Commission amounted to RUB 0.00.
Salary
Awards
Other types of rewards
TOTAL
Compensation
RUB
2 784 625,46
4 306 060,00
8 358 906,79
132 865,94
15 582 458,19
0,00
157
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Risk management
and internal control
Risk management is the process carried out by the Board of Directors, CEO,
Managing Board, management and other employees, affecting all the Company’s
activities, starting from the development of its strategy, and is aimed at identifying
events that may affect the Company and managing the risk associated with
these events, as well as ensuring that risk appetite is not exceeded and that a
reasonable guarantee for achieving the Company’s goals is provided.
The Company’s risk management and internal control system
is based on a set of organizational measures and procedures
taken to achieve an optimal balance between the growth of
the Company’s value, profitability and risks, to ensure financial
stability and safety of assets, to conduct business effectively, to
comply with legislation, the Company’s Articles of Association
and other internal documents, to prepare timely reliable reports
and disclose significant information.
In 2019, the internal document «Company Policy of Risk
Management and Internal Control» was developed (approved
by the Board of Directors in 2020), which defines the goals,
objectives and principles of risk management, the functions of
participants in the corporate risk management system, as well
as the relationship of the risk management process with the
processes of strategic and investment planning, operational
planning, human resources and labor relations management,
supply chain, aspects of industrial safety, environmental and
social activities.
The risk management and internal control system is aimed at
providing reasonable confidence in achieving the Company’s
goals:
• Strategic goals;
• Operational goals aimed at ensuring the effectiveness of the
Company’s financial and economic activities and the safety
of assets
• Ensuring full compliance of the Company’s activities with
the applicable legal requirements and requirements of
local regulatory documents, protection of legal rights of
shareholders;
• Ensuring timely preparation of reliable financial and non-
financial information;
• Timely and complete disclosure of information and protection
of insider information;
• Ensuring labor protection, industrial safety, regulatory
documents on environmental impact, as well as information
and cyber security, personal data protection.
Risk management is aimed at identifying, assessing and
monitoring all significant risks, as well as taking measures to
reduce the level of risks that may have a negative impact on the
current results of activities and long-term work.
The opportunities offered by the risk management process help
the management to achieve profitability and efficiency targets, as
well as to prevent irrational waste of resources.
Taking into account the dynamic development of the business
environment, the constant change in the composition, quality and
intensity of factors that can affect the Company’s activities, the
risk management system is being constantly improved to ensure
prompt response to such processes.
The company continuously develops the risk management
and internal control system based on the generally accepted
concepts and practices, including in accordance with the
«Integrated Concept of Building an Internal Control System»
COSO ERM, the Concept (COSO) “Risk Management of
organizations. Integrated Model», the Committee of sponsored
organizations of the Treadway Commission; international
standards ISO31000 «Risk Management. Principles and
Guidelines», ISO31010 «Risk Management. Risk Assessment
Methods», relevant GOST standards and others.
The opportunities offered by the
risk management process help the
management to achieve profitability
and efficiency targets, as well
as to prevent irrational waste of
resources.
Risk management allows the
management to effectively operate
under conditions of uncertainty
and associated risks and to use
opportunities increasing the
potential for the Company’s value
growth.
The Company uses the three line
protection model.
Target focus
• Development of a risk management system based
on integration of risk identification and control into
the processes of strategic planning, formation and
implementation of the investment program, operational and
financial activities, as well as identification of economic,
environmental and social risks.
Interaction with stakeholders to identify financial, industrial,
technological, legal, economic, environmental and social
impacts that can create risks and effective opportunities in
the risk management
•
• Analysis of the effectiveness of the risk management
methods used
LEVELS OF ENSURING THE RELIABILITY AND EFFICIENCY OF THE RISK MANAGEMENT
AND INTERNAL CONTROL SYSTEM
Strategic level
of management
• Board of Directors of PJSC TATNEFT
• Audit Committee of the Board of Directors
• Corporate Governance Committee of the Board
of Directors
• Defining the main principles and approaches to the organization of the
Company’s risk management and internal control system.
• Control over the implementation of the risk management and internal
control system, organization of analysis and evaluation of the RMICS
effectiveness.
• Approval of the main directions of development of RMICS, control of
their implementation.
• Approval of reports on risks of financial and economic activities at the
corporate level.
• Approval of risk appetite.
• Control of the RMICS performance and reliability.
Operational level
of rmics management
• Director General of PJSC TATNEFT
• Management Board of PJSC TATNEFT
• Corporate Governance Committee of the Board of
• Formation and maintenance of a control environment that contributes
to the effective functioning of the RMICS.
• Support for the introduction and implementation of programs to
Directors, the Company’s Management
improve the RMICS.
• Authorized person of the Company on coordination
the functioning and development of the risk
management and internal control system
• Coordination of risk management and internal control processes.
• Development and updating of the methodological base in the field of
ensuring the RMICS processes.
• Department of economic security, information
• Coordination of the RMICS processes in the field of controlling
protection, civil defense and emergency situations
corporate fraud and corruption.
• Structural divisions of PJSC TATNEFT that perform
separate functions of risk management and internal
control for business / functional units within the
framework of the RMICS.
• The Company’s employees
• Implementation of the RMICS elements in business/functional units, in
the business processes of the business/functional units.
• Constant participation in the control environment of the RMICS,
in the identification and assessment of risks, development and
implementation of risk management measures, control procedures, and
implementation of programs to improve the RMICS.
Independent monitoring
and assessment of the
RMICS effectiveness
• Revision Commission of JSC TATNEFT
• Control of the financial and economic activities of the Company.
• The internal audit service of JSC TATNEFT
• Provision of an independent assessment of the RMICS reliability and
effectiveness at the corporate and business process level.
158
159
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT The key principle of the risk
management system is
a precautionary principle
The principal approach of the Company is to assess the
likelihood of a risk event occurring and the priority of
preventive measures over reactive ones.
The Company adheres to the precautionary principle,
which is one of the basic principles in the system of
strategic and current planning of activities in all areas. This
principle defines a risk control mechanism to prevent the
occurrence of risk or its minimization in circumstances
beyond the control of the Company.
In order to ensure the Company’s sustainable development, risk
management is integrated into the decision-making mechanisms and
management system and in all areas of the activities
ORGANIZATIONAL
SUSTAINABILITY
BUSINESS CONTINUITY
SAFETY
• Strategy and planning
• Compliance with legal requirements
• Corporate governance
• Safety and efficiency of assets
•
Information technologies
• HR issues
• Corporate governance
•
Investment policy
• Production processes
• Technology and intangible assets
• Financial results
• Quality of products and services
•
Information security
Industrial safety
• Corporate governance
•
• Occupational health and safety
• Environmental protection
Reducing climate impact
•
Information and cyber security
•
• Anti-corruption
The corporate risk management system is aimed at identifying
potential risks and the possibility of taking timely measures to
eliminate or minimize them, which makes it possible to adjust the
business planning, investment activities and social policy of the
Company.
When analyzing potential risks, external and internal factors are
considered.
• External factors: market, industry, socio-economic, political,
financial, market and other conditions of the Company and its
subsidiaries and affiliates.
Internal corporate factors: managerial, production, personnel,
social, environmental and others.
•
The Company uses software forecasting tools that allow it to
take measures to minimize potential risks. In particular, corporate
planning uses various scenarios that allow responding quickly to
external changes and unpredictable impacts
An important component of the risk management system is
ensuring the implementation of uniform corporate standards
governing the main processes of production and financial
and business activities of PJSC TATNEFT and the Group’s
enterprises.
The Company’s management system includes the relationship
between management KPIs and goals of the risk management
and internal corporate control.
Risk management and internal
control system
MANAGEMENT OF TATNEFT GROUP
ENSURING THE EFFICIENCY
OF BUSINESS PROCESSES
QUALITY CONTROL OF
BUSINESS PROCESSES
CORPORATE RISK
MANAGEMENT
KEY ELEMENTS OF THE RISK MANAGEMENT
The mechanism for the qualitative assessment of
all possible factors that can significantly affect the
indicators of production and financial and business
activities of the Group, have direct or indirect impact
on the current activities and strategic plans of the
Company, the social environment.
The system of unified corporate standards governing
•
the main processes of production and financial
and economic activities of the Company, structural
subdivisions, and enterprises of the Group;
• ESG aspects;
supply chain.
•
RISK IDENTIFICATION
ENSURING INTERNAL REGULATIONS
ELIMINATION OR MINIMIZATION OF RISKS
AVOIDING RISKS WITHIN THE FRAMEWORK
OF REGULATIONS
RISK MANAGEMENT MONITORING. INTERNAL CONTROL
• Quality control of corporate standards performance
•
• Evaluation of personal responsibility of officials (KPI)
Identification of new risks in the course of business processes and the implementation of new projects
RISK CONTROL. COMPLIANCE
CORPORATE GOVERNANCE
PRODUCTION ACTIVITIES
APPROACHES IN RISK ASSESSMENT:
• Risk identification
• Planning of risk reduction measures
• Risk monitoring and control of risk reduction measures
160
161
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Risk management and internal
control principles
Internal control
The Company carries out works to identify risks of business
processes and introduce control procedures, which contribute
to improving the efficiency of business processes, ensuring the
accuracy of financial reporting, compliance with the legislation
and internal regulatory documents of the Company. Internal
control supports the executive bodies in improving the efficiency
of the Company’s management, the implementation of financial
and economic activities.
The risk management and internal
control process helps to ensure an
effective financial reporting process,
as well as compliance with laws and
regulations, to avoid damage to the
Company’s reputation and related
consequences.
To minimize the possible negative
impact on the results of financial
and economic activities, the
Company develops and implements
appropriate
measures. To keep risks at an
acceptable level, some of the risks
are insured.
compensating
UNIFORMITY OF THE COMPANY’S
METHODOLOGICAL BASE
The risk management system is based on uniform approaches
and standards for all structural subdivisions and subsidiaries of
the Company.
CONTINUITY
The risk management system operates on an ongoing basis.
INTEGRITY
The risk management system covers all lines of the Company’s
business and all types of risks arising within their framework.
Control procedures exist in all business processes of the Group
at all levels of management.
ACCOUNTABILITY
The risk management system defines the competence for
decision- making and control in the field of risk management at
all levels of TATNEFT Group.
AWARENESS AND PROMPT COMMUNICATION
The risk management process is accompanied by the availability
of objective, reliable, and relevant information.
EFFICIENCY
The Company makes efficient use of resources to implement the
risk management measures.
REASONABLE CONFIDENCE
The risk management system can provide only reasonable
guarantees for the achievement of the Company’s goals but
cannot provide an absolute guarantee due to the inherent
limitations of the external and internal environment.
ADAPTABILITY
The risk management system is regularly improved to identify all
possible risks of activities and maximize the use of risk control
and management methods.
STRICT REGULATION
All operations are conducted in accordance with the procedure
for their implementation, established by the internal regulatory
documents.
ACTIVE MANAGEMENT INVOLVEMENT
The management of the Company and its subsidiaries
and affiliates participates actively and provides support in
implementation and improvement of the risk management
system of TATNEFT Group.
Risk management system
infrastructure
The distribution of responsibilities, the availability and
improvement of internal regulatory framework, organizational
measures and coordination allow the risk management
process to be carried out on the company-wide basis. The risk
management infrastructure integrates the risk management
process with all the Company’s business processes, including
business planning, internal control, and audit. The Company
develops a set of components and mechanisms that provide the
basis for effective risk management and internal control.
A unified register of risks and control procedures (risk map)
is being formed, quantitative models are being developed
to assess the key risks of the Company. The development,
implementation and unification of control procedures in the
Company’s business processes is underway on an ongoing basis
The Company adheres to the principle of continuous
improvement of the infrastructure and process of the risk
management system based on:
•
CURRENT PLANS TO IMPROVE THE RISK
MANAGEMENT AND INTERNAL CONTROL
SYSTEM
•
Further improving the effectiveness of mechanisms for a
systematic approach to identifying and assessing risks.
• Development of internal procedures for reporting business
process risks.
• Determination of risk appetite based on the Company’s
planned business goals.
• Determination of risk appetite based on the Company’s
impacts on environment, climate, and social factor.
• Development of communication mechanisms of the KPI
management system with the objectives in the field of risk
• management and internal corporate control.
•
Further integration of the risk management and internal
control system into the supply chain at the level of suppliers
and contractors.
Implementation of the risk management standards of the
international system ISO 31000:2018.
Improving the internal standard and regulatory base
Relationship of the RMICS with all business processes
Sequence of actions
Internal control
• Distribution of responsibilities for the RMICS
•
•
•
•
• Monitoring
• Development and implementation of measures for the quality
of risk management.
Operational and other risks
The Company updates systematically operational risks for
business divisions involved in achieving the Company’s strategic
goals. Identification and assessment of operational risks is aimed
at increasing the probability of achieving medium-term goals
and indicators of business plans of company divisions within 1-3
years, including EBITDA and production indicators. The list of
planned financial and economic indicators is standardized for the
entire scope of the Company’s business planning. When forming
business plans and sources of financing, the Company takes into
account financial risks, credit risks - when selling products and
services, and applies various financial instruments and insurance.
The Company provides centralized allocation and monitoring
of investment performance, taking into account liability limits,
feasibility and risk information.
Strategic risks
The Company forecasts systematically and takes into account
the main trends, challenges and risks that may have a significant
impact on access to the resource base, services, equipment and
technologies, qualified personnel, sales markets, etc. over the
long term. Global socio-economic processes, climate change, the
state of foreign policy and government regulation, infrastructure
and other conditions and restrictions that may affect the
Company’s future profile are taken into account.
162
163
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Protection of insider
information procedures
and regulations
PJSC TATNEFT, the securities of which are traded on organized
markets not only in Russia but also in the UK, pays special
attention to measures aimed at preventing and controlling
inadmissibility of misuse of insider information.
(EU) 596/2014 of the European Parliament and the Council “On
Market Abuse” dated April 16, 2014. The Company’s website
contains the Insider Calendar.
In its activities the Company is guided by Federal Law No. 224-FZ
“On Preventing the Illegal Use of Insider Information and Market
Manipulation and on Amending Certain Legislative Acts of the
Russian Federation” dated July 27, 2010, other legislation of
the Russian Federation, and Regulation (EC) 596/2014 of the
European Parliament and of the Council “On Market Abuse”
dated April 16, 2014.
The Company provides all necessary procedures for the
protection of insider information with the relevant internal
regulatory documents: The Company has enacted the
Regulations for Access to Insider Information of PJSC
TATNEFT named after V.D. Shashin, Rules for protection of its
confidentiality and monitoring compliance with the legislation
of the Russian Federation and the European Union and internal
documents adopted thereunder, the List of information relating
to insider information of PJSC TATNEFT named after V.D.
Shashin, the Rules of interaction of departments and offices of
the Executive office, structural divisions of PJSC TATNEFT named
after V.D. Shashin, when disclosing the information recognized
in accordance with the laws of the Russian Federation and
the European Union and/or the UK as insider information and
material facts of the issuer of securities governing the procedure:
circulation of insider information within the Company;
•
• access to insider information;
• disclosure of insider information;
• making transactions with the Company’s securities, including
the procedure for informing the Company by insiders about
such transactions.
In accordance with the requirements of the EU Regulation
“On Market Abuse”, a special procedure applies to the
implementation of transactions with the Company’s securities by
members of the Board of Directors and the Management Board.
Members of the Company’s governing bodies are informed of
the requirements for handling insider information, procedure
and deadlines for notifying the regulatory authorities and the
Company of securities transactions; a ban on transactions with
the Company’s securities in closed periods.
In accordance with international best practices, insiders who are
not members of the Company’s governing bodies also establish
restrictions on carrying out transactions with securities in the so-
called closed periods.
The Company annually develops a Calendar of periods available
to the insider for transactions with the Company’s securities
and their derivative securities in accordance with Regulation
On an ongoing basis, the explanatory work is being conducted
on the requirements of the applicable legislation by informing
the Company’s employees with the access to insider information,
including through the corporate website of the Company.
The Board of Directors decided to appoint Damir Maratovich
Gamirov, Acting Corporate Secretary – Deputy Chief of the
Office of the Corporate Secretary, as a person responsible for
monitoring compliance with the requirements of the legislation of
the Russian Federation on countering the unlawful use of insider
information and market manipulation.
D.M. Gamirov was appointed the Chairman of the Committee for
Insider Information Protection by the Decision of the Committee
(Minutes No. 1/2018 dated April 16, 2018).
The Insider Information
Protection Committee
CHAIRMAN
Damir Maratovich Gamirov — Acting Corporate Secretary —
Deputy Head of the Office of the Corporate Secretary, the
responsible person for monitoring compliance with the Law on
Countering the Misuse of Insider Information.
COMMITTEE MEMBERS
• Alexey Petrovich Bespalov — Head of the Corporate
Technical Policy Department of PJSC TATNEFT
• Petr Andreevich Glushkov — Advisor to the General Director
for International Legal Issues of PJSC TATNEFT
• Vasili Aleksandrovich Mozgovoi — Assistant to the Director
•
General for Corporate Finance of PJSC TATNEFT
Ildar Asylgaraevich Rakhmatullin — Head of the Internal
Audit Department of PJSC TATNEFT
• Rifdar Rifkatovich Khamadyarov — Deputy Chairman of
Trade-Union Committee of PJSC TATNEFT
The list of insiders of PJSC TATNEFT is updated upon inclusion or exclusion of insiders of
the Company from it. As of December 31, 2018, the list of insiders of PJSC TATNEFT included
13 legal entities and 249 individuals. During 2019, 33 individuals were included in the list of
insiders, eight individuals were excluded. Notifications on the inclusion of persons in the list/ on
the exclusion of persons from the list of insiders of PJSC TATNEFT are timely sent to insiders of
the Company. During 2019, 41 notifications were sent to Company insiders.
In accordance with the requests of the trade organizer (Moscow Exchange PJSC) to transfer the
list of insiders to it, Tatneft in 2019 transferred 5 lists of insiders to the trade organizer as of the
dates indicated in the requests.
Information
policy
Information disclosure
The Company follows the principles of information transparency,
guarantees the timely provision of essential information to its
shareholders, the investment community and all interested
parties based on:
• Regular and consistent disclosure of information regarding
the main areas of activity
• Efficient disclosure of relevant information on the material
events and facts in the Company’s activities;
• Guaranteed accuracy and completeness of the disclosed
information about the Company and its controlled entities
which are of substantial importance within the framework of
the TATNEFT Group
•
• Availability of the information to the stakeholders and equal
access to information for similar categories of stakeholders
Integrity and consistency of the information disclosed
by various means and/or in various forms, as well as
comparability of disclosed indicators for different periods of
time;
• Provision of the financial and other information free from
influence of any persons or their groups
The Company discloses material information about its activities
and avoids a formal approach to information disclosure. At
the same time, the Company does not evade from disclosing
negative information about itself, if such information is
essential for shareholders, investors and other stakeholders.
The Company seeks to provide simultaneous and equivalent
disclosure of material information in the Russian Federation and
abroad in accordance with the circulation of the Company’s
securities in overseas organized securities markets, including
in the form of foreign depositary receipts. The equivalence
of information disclosure means that if it is disclosed in an
organized market in one country, the same content should be
disclosed in other countries where the Company’s securities
circulate in organized markets
Disclosure, dissemination, and provision of information are
carried out in the volume, manner, and within the time limits
established by applicable Russian and applicable foreign law in
the field of information disclosure by issuers of securities.
In the field of information disclosure, PJSC TATNEFT is guided
by the Federal Law No. 39-FZ dated April 22, 1996 “On
the Securities Market,” the Federal Law No. 208-FZ dated
December 26, 1995 “On Joint Stock Companies,” Bank of
Russia Regulations No. 454-P dated December 30, 2014 “On
Information Disclosure by Issuers of Equity Securities,” and is
also guided by the requirements of PJSC Moscow Exchange and
London Stock Exchange, recommendations of the Corporate
Governance Code of the Bank of Russia.
Information subject to mandatory disclosure in accordance with
the legislation of the Russian Federation is disclosed in the
information and telecommunication network on the Company’s
official website (tatneft.ru) in the Russian and English languages
as well as in the news feed and on the website of the Internet
information agency (JSC Screen) authorized to carry out actions
to disclose information of the Company.
Disclosure of Statements
Transparency of financial statements is one of the key elements
of the corporate governance.
The Company has published the audited RAS annual accounting
statements for 2018 on March 27, 2019, and audited IFRS
consolidated annual financial statements for 2018 on March 29,
2019.
The Company has published the audited RAS annual accounting
statements for 2019 on March 27, 2020, and audited IFRS
consolidated annual financial statements for 2019 on March 31,
2020.
DISCLOSURE, DISTRIBUTION, AND PROVISION
OF INFORMATION ARE CARRIED OUT IN
THE VOLUME, MANNER, AND WITHIN THE
TIME LIMITS ESTABLISHED BY CURRENT
RUSSIAN AND APPLICABLE FOREIGN LAW ON
INFORMATION DISCLOSURE BY ISSUERS OF
SECURITIES
COMPANY DISCLOSES MATERIAL
INFORMATION ABOUT ITS ACTIVITY AND
AVOIDS THE FORMAL APPROACH TO
INFORMATION DISCLOSURE.
199
PRESS RELEASES
PUBLISHED ON
THE COMPANY
OFFICIAL SITE
115
MESSAGES DISCLOSED
IN INFORMATION AGENCY
«SCREEN»
164
165
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT NOTICE ON DISCLOSURE OF INFORMATION SUBJECT TO MANDATORY DISCLOSURE
Content of the information disclosed in information agency Screen
Quantity
Publication of the Terms and Conditions of Issuing the Exchange-Traded Bonds (Series 001P of PJSC Tatneft V.D. Shashin.) under the
Program of Exchange-Traded Bonds of Documentary Interest Bearing and/or Discount Non-Convertible to the Bearer with Mandatory
Centralized Storage
Information on the placement (securities placement commencement and completion)
Notice of the Essential Fact “Inclusion of the Issuer's Equity Securities In the List of Securities Admitted to the Organized Trading by the
Russian Securities Trade Market Operator.
Notice of the essential fact “Completion of the Securities Placement”
Publication of the 2018 annual consolidated financial reporting in accordance with IFRS.
Publication of the three-months 2019 consolidated interim concise financial reporting in accordance with IFRS (non-audited).
Publication of the six-months 2019 consolidated interim concise financial reporting in accordance with IFRS (non-audited).
Publication of the nine-months 2019 consolidated interim concise financial reporting in accordance with IFRS (non-audited).
Publication of the list of Affiliated Entities owned by PJCS Tatneft n.a. V.D. Shashin
Publication of Quarterly Report of PJCS Tatneft n.a. V.D. Shashin
Publication of Annual Report of PJCS Tatneft n.a. V.D. Shashin
Publication of the integrated report of PJSC TATNEFT named after V.D. Shashin
Articles of Association
Internal documents governing the activities of the Management and Control Bodies of the Company
31
32
33
22
23
24
25
26
27
28
29
30
31
INFORMATION ON VOLUNTARY DISCLOSURES
Name
1
2
3
4
5
6
7
8
Information on decisions made by the Board of Directors (in the form of a press release)
Presentations for investors
• Forecast of operating results for 2018 and plans for 2019
• Review of IFRS results for 3Q / 9 months of 2018
• Operating activities, results of 2018, plans for 2019.
• IFRS results for the 1st Q of 2019
IFRS messages (statements) (in the form of a press release)
Production performance of the Company (in the form of a press release)
Recommendations of the Board of Directors on the payment of dividends (in the form of a press release)
Announcement of the Annual General Meeting (in the form of a press release)
Announcement of the PJSC TATNEFT workers’ collective conference
News (in the form of a press release)
1
1
1
1
1
1
1
1
4
4
1
1
1
5
Quantity
15
3
4
11
3
1
1
155
Content of the information disclosed in information agency Screen
Quantity
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
20
21
Notice of Disclosure of the List of Affiliated Entities Owned by the Joint Stock Company on the Web Site
Notice of Essential Fact "Holding the issuer’s Board of Directors’ Meeting (Supervisory Board) and its agenda"
Notice On the Access Procedure to the Information Contained in the Quarterly Statement.
Notice on the Essential Fact “Certain Decisions Made by the Issuer's Board of Directors (Supervisory Board)”
Notice on the Essential Fact “Convening and Holding the General Meeting of the Issuer’s Participants (shareholders)”
Notice on the Essential Fact “The Date on Which Persons Entitled to Exercise the Rights on Issued Securities Are Determined”
Notification of a Essential fact on information forwarded or provided by the issuer to the relevant authority (relevant organization) of a
foreign country, to foreign stock exchange and (or) other organizations in compliance with foreign law for the purpose of their disclosure or
forwarding to foreign investors in connection with the placement or circulation of the issuer's securities outside the Russian Federation
Notice on Disclosure of the Annual Accounting Statement of the Joint Stock Company on The Web Site
Notice of the essential fact on the issuer's disclosure of consolidated financial statements as well as on providing an audit report prepared
for such statements
Notice on the access procedure to the insider information contained in the issuer’s document (disclosure of the Joint Stock Company’s
interim accounting report on the Web Site).
Notice on the issuer's disclosure on the Web Site of the interim (quarterly) consolidated financial statements prepared in compliance with
the International Financial Reporting Standards
Notice On the Essential Fact “Other Notice”
Notice on the essential fact “Holding the general meeting of participants (shareholders) of the issuer and the decisions made”
Notice on the essential fact “Accrued Income on Equity Securities”
Notice on the Access Procedure to the Information Contained In the Annual Report
Notice on the Essential Fact “Rating Change or Rating Assignment to the Issuer by a Rating Agency Based on the Signed Agreement”
Notice on the essential fact “Paid Income on the Issuer's Equity Securities”
Notice on the essential fact “The Non-Arm’s Length Transaction Completed by the Issuer”
Notice on the Essential Fact "Adopting a Decision About Restructuring by Organization Controlled by the Issuer Which is of the Vital
Importance to the Issuer”
Notice of the Essential Fact “Making Entries Into the Unified Legal Entities State Register about Reorganization, Termination of Business or
Liquidation of Organization that Controls the Issuer, Organization Under Control to the Issuer that is of a Major Importance to the Issuer or
of an Entity That Provided Security for the Bonds of this Issuer”
22. Notice of the Essential Fact “change in the share size of a member of the issuer's management body in the issuer's authorized capital
23
24
25
26
27
28
Notice of the Essential Fact “Changing (Adjusting) the Information Contained in a Previously Published News Feed”
Notice of the Essential Fact “Stages of the Issuer’s Securities Issuance Procedure»:
• Making a decision on approval of the bond program;
• Assignment of identification number to the stock exchange program or commercial bond program;
• Assignment of identification number to the issuance (additional issuance).
Notice of the Essential Fact “acquisition by a joint-stock company of more than 20 percent of the voting shares of another joint-stock
company”
Notice of the Essential Fact “Obtaining by the Issuer the Right to Dispose of a Certain Number of Votes Attributable to Voting Shares
(Stakes) Constituting the Authorized Capital of Individual Organization
Notice of the Essential Fact “Information that, in the issuer's opinion, has a significant impact on the value of its equity securities”
Notice of the Essential Fact about approval of a document containing the terms of a separate issue of bonds placed under the bond
program
29
Notification of the procedure to access insider information contained in the issuer’s document
• The program of exchange-traded bonds (001Р series of PJSC TATNEFT named after V.D. Shashin) for documentary interest-bearing and/
or discounted non-convertible to the bearer with mandatory centralized storage
• Prospectus of securities of PJSC TATNEFT named after V.D. Shashin. Identification number of the Program of exchange-traded bonds
(001Р series of PJSC TATNEFT named after V.D. Shashin 4-00161-A-001R-02E dated December 09, 2019) of documentary interest-bearing
and/or discounted non-convertible to bearer with mandatory centralized storage.
• The terms of issuing exchange-traded bonds under the Program of exchange-traded bonds (of 001Р series of PJSC TATNEFT named
after V.D. Shashin) of documentary interest-bearing and/or discounted non-convertible to bearer with mandatory centralized storage.
30
Publication of the Securities Program 4-00161-A-001R-02E of December 9, 2019, and the Bonds Program 4-00161-A-001R-02E of December
9, 2012
4
15
4
15
3
6
2
1
1
3
3
1
3
4
1
1
3
1
2
4
1
1
1
1
1
1
1
2
1
1
1
1
1
166
167
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Prevention and Regulation
of potential Conflicts
of Interest
The Board of Directors applies procedures aimed at preventing and managing
conflicts of interest. The Company provides disclosure of information about
conflicts of interest in case of their occurrence.
The Company follows the conviction that one of the most
important conditions for sustainable development is the
existence of internal corporate measures to counteract a conflict
of interests, based on strict observance of the requirements of
the legislation in this area and generally accepted international
corporate practice.
The Company adheres to the following principles of:
complete rejection of a conflict of interest;
•
• mandatory disclosure of information about real or potential
•
•
conflict of interest;
individuality of consideration and assessment of reputational
risks for the Company in identifying each conflict of interest
and its settlement;
confidentiality of conflict of interest disclosure process and its
settlement process;
• maintaining a balance of interests of the Company and the
employee when resolving a conflict of interest;
• protection of an employee from prosecution in connection
with a report of a conflict of interest that was timely
disclosed by the employee and settled (prevented) by the
Company, including the unlawful dismissal of the employee,
infringement of the rights and legitimate interests of the
employee in the performance of official duties.
The corporate governance system of the Company includes a
set of rules and procedures aimed at regulating and eliminating
possible conflicts of interest at all management levels - between
management bodies and shareholders, as well as between
shareholders, if the conflict affects the interests of the Company,
identifying and resolving all possible general and specific
problems, related to the rights of shareholders at the level
of the Board of Directors, Executive bodies, top managers
and employees of the Company. This work is carried out in
collaboration with the Office of the Corporate Secretary with
Committees of the Board of Directors, the Legal Department,
the Office of Economic Security, the Office of Internal Audit and
other competent divisions of the Company.
In the event of conflict of interests, the Company provides
mechanisms for taking all the necessary and possible measures
for its full regulation, as well as creating conditions that preclude
conflict in the future.
The Regulation on Settlement of Conflict of Interest establishes
the procedure for identifying and resolving conflicts of interest
arising from employees of the Company in the course of fulfilling
their labor duties; the formation among the employees of the
Company, subsidiaries and affiliates, shareholders, investors,
counterparties, representatives of state and municipal bodies,
other interested parties of a single representation on the merits
of a conflict of interest. The Regulation applies to all persons
who are employees of the Company, regardless of their position
and functions, as well as to individuals on the basis of civil law
contracts concluded with the Company, in cases where the
respective duties are expressly fixed in agreements with them or
directly derive from the law.
Shareholders
Executive bodies
In order to prevent possible conflicts at the level of shareholders,
the Company provides equal opportunities for shareholders to
exercise the rights provided for by applicable law. Ensuring the
interaction of the Company with shareholders and participation in
the prevention of corporate conflicts are within the competence
of the Board of Directors of the Company. In addition, the
Company organized work on interaction with shareholders,
including clarification of the position of the Company at the
request of shareholders.
Board of Directors
The Chief Executive Officer and members of the Management
Board of the Company should refrain from taking actions that
could lead to conflict of interest, and in the event of such
a conflict should immediately inform the Chairman of the
Management Board/ Chairman of the Board of Directors.
Top managers and employees
The function of conflict of interest management in the Company
is assigned to the Board of Directors, which is enshrined in the
Regulation on the Board of Directors.
To prevent possible conflicts of interest among members of the
Board of Directors, the Company introduced certain restrictions
and requirements for members of the Board of Directors. In
accordance with the Regulation on Board of Directors, a member
of the Board of Directors must refrain from actions that will or
may lead to a conflict of interest. When considering agenda
items, members of the Board of Directors assess their possible
conflict with the interests of the Company. On issues that, in the
opinion of a member of the Board of Directors, may result in
such a conflict of interest, the director does not participate in the
vote, and if necessary, does not participate in its discussion. A
member of the Board of Directors shall notify the Chairman of the
Board of Directors of a conflict of interest or the possibility of its
occurrence.
Monitoring compliance with the mechanism to prevent a
conflict of interests of members of the Board of Directors is
carried out by the Chairman of the Board of Directors and
independent directors. Independent directors are required to
take all necessary and possible measures to prevent and resolve
conflicts, minimize the consequences of conflicts between the
Company and its shareholders, provide effective protection for
all shareholders in case of violation of their rights.
In the reporting year, there were no conflicts of interest among
the members of the Board of Directors.
The Company considers the conflict of interests at the level of
top managers and employees as situations and circumstances
in which the private interests of an employee or his/her close
persons and/or relatives contradict or may contradict the
interests of the Company and, thus, affect or may affect the
proper performance of their job functions/official duties, including
the objective decision-making within the framework of official
duties, as well as those that can lead to harm to the rights,
legitimate interests, property and (or) business reputation of
PJSC TATNEFT.
Preventive measure and prevention of conflicts of interest at the
level of employees of the Company is regulated by the Code of
Corporate Governance of the Company, the Code of Corporate
Culture, which defines the concepts of conflict of interest,
corruption actions and regulates the prevention of conflicts of
interest, as well as the Anti-Corruption Policy of the Company
and a number of other internal documents.
To prevent a conflict of interest at the level of the Company’s
employees, the rules for transactions with financial instruments
by persons included in the list of insiders and the rules for
disclosing insider information have been established and
their implementation is regularly monitored. This procedure is
governed by the «Regulation on the procedure for access to
insider information of PJSC TATNEFT named after V.D. Shashin,
the rules for protecting its confidentiality and monitoring
compliance with the requirements of the legislation of the
Russian Federation and the European Union and internal
documents adopted in accordance with it.
In 2019, the Company approved an internal document — the Regulation
on Settlement of Conflict of Interest.
The Company has established the Conflict of Interest Settlement Commission,
which is a permanent body. Also, conflict of interest settlement is included in
the tasks of the Ethics and Corporate Culture Development Committee of the
Company and Ethics Commissions in structural divisions.
168
169
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Anti-corruption
policy
Principles, rules, procedures aimed to prevent
corruption in all aspects of the company activities
Company policy against corruption
and fraud. Approved documents
Existance of the Company’s public
stance on anti-corruption
The Anti-corruption Policy Standard applies to all areas of the
Company’s activities.
The Company has enacted the Anti-corruption Policy adopted
by the Board of Directors of PJSC TATNEFT in 2014 (Minutes
No. 3 dated July 25, 2014). In addition, the appropriate corporate
standard has been approved, setting out the basic principles
aimed at preventing corruption.
In its anti-corruption activities, the Company is guided by:
• Legislation of the Russian Federation
• Standard for Organization of the Anti-Corruption Policy of
JSC Tatneft named after V.D. Shashin
• Regulation on Settlement of Conflict of Interests in PJSC
TATNEFT named after V.D. Shashin
• Regulations on accepting and giving gifts in PJSC TATNEFT
named after V.D. Shashin
• Regulations on compliance with anti-corruption norms and
rules in the process of fulfilling contractual obligations,
• Rules of operation of the Hot Line corporate system,
• Code of Corporate culture for PJSC TATNEFT employees,
• Regulation on verification of suppliers of goods, works and
services on economic security criteria,
• Regulation on organization of the contractual work in PJSC
TATNEFT named after V.D. Shashin.
In accordance with the Council of Europe Convention on
Criminal Liability for Corruption, Federal Law No. 273-FZ of
December 25, 2008 “On Combating Corruption”, Decree of
the President of the Russian Federation “On the National Plan
for Combating Corruption for 2018-2020” and the Standard
“Anti-corruption policy of PJSC TATNEFT named after V.D.
Shashin” the Company strictly complies with the anti-corruption
legislation of the Russian Federation, as well as the anti-
corruption legislation of other countries in the territories of the
operation. Information on anti-corruption activities is available
on the official website of PJSC TATNEFT - www.tatneft.ru
The Company’s position in the field of anti-corruption is public.
Setting the responsibility for
implementation of Company’s anti-
corruption policy
Responsibility for the implementation of the anti-corruption
policy of the Company lies with the Economic Security,
Information Protection, Civil Defense and Emergency Situations
Department, Legal Department, Internal Audit Department,
Control and Audit Department, Human Resources Department,
Personnel Audit Service. In the entities of TATNEFT Group –
the responsibility is laid on the management of organizations of
TATNEFT Group.
INFORMATION AND TRAINING
The Company informs and clarifies the principles and norms of
the applicable law, the Anti-Corruption Policy and other local
regulatory documents in relation to counteracting involvement
in corruption, including the training of the employees on the
basics of countering engaging in corruption and explains its
policies in this area to counterparties.
MONITORING
The Company carries out continuous monitoring of the
implemented procedures to combat and prevent involvement
in corruption activities and monitors their compliance. The
Company periodically makes an independent assessment
of the state of the system for counteracting involvement
in corruption, as well as evaluating the compliance of the
Company’s activities with the applicable laws and the Anti-
Corruption Policy. The results of the assessment are reported
to shareholders and the public in the annual report, press
releases and other information materials.
Messages about violations of the Anti-Corruption Policy can be
transmitted in the following ways:
•
•
•
to the line manager or superior manager;
to the round-the-clock telephone of the hot line of the
Company;
to law enforcement agencies.
PROTECTING THE INTERESTS OF WORKERS
No sanctions can be applied to an employee for:
•
refusal to participate in corruption activities, even if as a
result of such refusal the Company incurred losses, lost
profits, and commercial and / or competitive advantages
were not obtained;
• bona fide reporting of alleged violations, facts of corruption,
other abuses or insufficient effectiveness of existing control
procedures.
If an employee of the Company or another person provides
information that is knowingly false or is trying, using anti-
corruption procedures, to obtain personal gain that is contrary
to the interests of the Company or applicable law, then such
a person may be held liable in accordance with the current
legislation and local regulatory documents of the Company.
ANTI-CORRUPTION AND PROHIBITION OF
CORRUPTION
The activities of the Company are based on the prevention
of corruption in all forms and manifestations. All employees,
members of the management bodies of the Company and other
persons acting on behalf of the Company or in its interests,
are prohibited directly or indirectly, personally or through any
mediation, from participating in corruption actions regardless of
the practice of doing business in a particular country or region.
TATNEFT does not allow corruption, including the manifestation
of conflict of interest, both in relation to representatives of
the state, public organizations, organizations of any form of
ownership, political figures and other third parties, and in
relation to employees of the Company, in any way, including
through abuse of official position in order to derive any
personal benefit.
INEVITABILITY OF PUNISHMENT
The Company investigates all reasonably substantiated reports
of violations of the appropriate procedures to counteract
involvement in corruption activities and prosecutes those
responsible without taking into account their position, term
of work, status with the Company and other relationships
with it in the manner established by applicable law and local
regulatory documents of the Company. The Company makes
every possible reasonable and legal effort to prevent violations
as quickly as possible. The Company makes public information
about individuals who violate the requirements of applicable
law and the Anti-Corruption Policy.
LEGITIMACY
The Company and its employees are obliged to comply with
the norms of the Russian anti-corruption legislation, as well as
the applicable norms of foreign anti-corruption legislation when
they enter into legal relations falling within the scope of such
legislation.
TOP MANAGEMENT TONE
The Company Executives, including the members of
management bodies, heads of departments, departments and
other divisions of the Company, must declare a strong stand
against any forms and manifestations of corruption at all levels,
demonstrate, implement and comply with it in practice.
CONSISTENCY AND PROPORTIONALITY
The Company develops and implements a system of
appropriate procedures to counteract and prevent involvement
in corruption activities. The Company strives to make the
procedures as transparent, clear, feasible and reasonably
consistent with the identified risks.
PRINCIPLE OF DUE DILIGENCE
The Company carries out monitoring and verification of
counterparties and candidates for positions in the Company
before making a decision on starting or continuing business
relations, or hiring them for reliability, rejection of corruption
and risk of conflict of interest.
170
171
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Responsibility
Regular risk assessment related to
involvement in corruptions
The Company identifies, evaluates and periodically re-assesses
corruption risks characteristic of its potentially vulnerable
business processes. When identifying and assessing risks,
the Company takes into account the fullness of information on
activities and plans, including investment and strategic ones,
available at the time of the assessment and reassessment.
The Company guarantees confidentiality to all Employees
and other persons who in good faith report corruption risks
and violations. Messages can be sent to: the line manager
or superior manager, the hot line of PJSC TATNEFT, law
enforcement agencies.
Informing and personnel training on
anti-corruption methods
Informing using the Internet is carried out by releasing a
statement in the Anti-Corruption section of the official website
of PJSC TATNEFT. Anti-corruption conditions are included in all
types of agreements in a separate section.
The Company informs the staff and clarifies the principles and
norms of the applicable law, the Anti-Corruption Policy and
other local regulatory documents in relation to counteracting
involvement in corruption. Availability of the regulatory
framework contributes to formation of employee behavior rules
and counteracts their involvement in corrupt activities.
In 2019, 11 security officers were trained in programs that
included areas for preventing and combating the corporate
corruption.
Responsibility for implementation of the Company’s Anti-
corruption policy and combating corruption in all areas of the
Company’s business is provided by the Economic Security,
Information Protection, Civil Defense and Emergency Situations
Department of PJSC TATNEFT.
All employees, regardless of their position, are liable under the
current legislation of the Russian Federation for compliance
with the principles and requirements of the Anti-Corruption
Policy, as well as for actions (inaction) of their subordinates who
violate these principles and requirements. Persons responsible
for violations of the requirements of the Anti-Corruption Policy
may be brought to disciplinary, administrative, civil or criminal
liability on the initiative of the Company, law enforcement
agencies or other persons in the manner and on the grounds
provided for by the legislation of the Russian Federation, the
Articles of Association of the Company, local regulations and
employment contracts.
Results of the anti-corruption
programs implementation for
the period of 2017-2019
Continuous efforts to combat corruption in PJSC TATNEFT
allowed to minimize corruption cases.
As a result of continuous activity to identify risks associated
with corruption, 30% of divisions were selectively analyzed. No
significant risks were identified.
Confirmed incidents of corruption and actions taken in 2019:
• Total number and nature of confirmed cases of corruption - 1;
• Total number of confirmed cases of dismissal or punishment
of employees because of corruption - 2;
•
• Number of confirmed cases of non-renewal or termination of
contracts with business partners due to violations related to
corruption - 0;
Information on legal cases related to corruption and initiated
cases against the organization or its employees during the
reporting period, as well as the outcome of such cases – a
criminal case is being currently investigated in respect of
two fuel station operators of Tatneft-AZS-Zapad LLC, which
are suspected of application fraud using electronic means
of payment (Article 159 of the Criminal Code of the Russian
Federation). For both suspects the court has chosen a
preventive measure in the form of a recognizance not to
leave.
Employees of the Company, including employees of the Economic Security,
Information Protection, Civil Defense and Emergencies Department, adhere
to fundamental principles in the field of Human Rights. Human Rights Aspects
Included in Company Personnel Development Programs.
Procurement
and Logistics
Trading & Procurement Platform
of Company
The Company’s trading and procurement platform provides a
unified trading system for all the TATNEFT Group companies,
service and contracting organizations, being the only free
platform for participation in competitive procedures in the
Russian Federation. The Сompany conducts electronic tenders
in an open form on an anonymous description of the properties
of the goods. This feature allows to create an active competitive
environment during each purchase.
In order to control the procurement transparency on the
trading platform, there is a module for controlling the timing
and effectiveness of the procurement process in accordance
with the regulated indicators, a supplier audit module, and a
counterparty verification module until the contract conclusion
stage. Optimization of the terms of competitive procedures was
achieved with the transition to one-stage tenders.
Registered participants of the Trading and procurement platform
— 45 thousand contractors (existing suppliers), of which 7.5
thousand suppliers were registered in 2019, and more than
8 thousand suppliers participated in tenders for the supply of
goods. In 2019, 58 thousand competitive offers were received at
the site.
IN THE 10 YEARS SINCE ESTABLISHMENT OF THE TATNEFT TRADING & PROCUREMENT PLATFORM,
THE OPERATORS HAVE CONDUCTED MORE THAN 117,000 ELECTRONIC TRADING PROCEDURES FOR
OVER 150 PURCHASING ORGANIZATIONS, THE BUSINESS TURNOVER EXCEEDED RUB 460 BILLION.
Procurement activities
PROCUREMENT STRUCTURE
In 2019, the Company concluded 11,808 contracts and
specifications with 1,041 suppliers for RUB 36.9 billion
(excluding VAT). 48% of all the orders were placed at
enterprises of the Republic of Tatarstan, import contracts
amounted to 0.5%. The low proportion of import contracts
indicates a firm reduction of the Company’s import
dependence. The bulk of the procurement structure is a
supply on price books: framework and long-term contracts.
Today, there are more than 900 price books that cover about
150 thousand items and on which 81% of the total volume of
purchases were purchased in 2019 ( for 2018 - 78%).
As part of the improvement of the procurement system, the
Company implements categorization tools for purchasing,
delegating authority and personalizing responsibility. The
Company created and published a library of technical
requirements and conditions for goods; the parametric classifier
is used to systematize the selection of analogues of goods from
stocks in the Electronic Store. There is a mechanism of «reorder
points» - the creation of stocks of goods at regularly consumed
and critical positions. A process approach to the procedure for
concluding contracts was introduced; an optimal framework
was established for the time for concluding contracts with
suppliers. To control contract work, the task setting tool is
actively used in the Tatneft Corporate Social Network. Logistics
of direct deliveries is developed from a supplier to a customer.
4%
3%
4%
6%
29%
10%
8%
8%
9%
Pipe production
Oilfield equipment
Chemical products
20%
Transport, special equipment
Well construction equipment
Shutoff valves
Rolled metal products &structures
Construction materilas
Energy / electrical equipment
Others
USE OF MATERIALS, TONNES
Carton
Packaging
Material
Wood
Packaging
Mateial
Total
Packaging
Wastes
Completely
recycled waste
from
packaging
materials
1,4
5,0
6,4
1,4
172
173
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Anti-monopoly
policy
The Company operates in strict accordance with the anti-
monopoly state regulation, legislation, recommendations of
the Federal Antimonopoly Service (FAS Russia), and the best
international practices. The Company follows the principles of
competitive business conduct and provides for rules of conduct
for employees aimed at preventing violations of anti-monopoly
legislation.
Corporate cyber
security policy
The Company is constantly improving the internal procedures
aimed at alerting and preventing violations of the current anti-
monopoly legislation, including training of employees in anti-
monopoly regulation.
Provision of cyber security is a zone of increased attention
of the top management of the Company.
Hotline information
system
The main topics of inquiries: labor issues and wages, tender
procedures, proposals for improvement, requests for assistance
to veterans and employees, signals of possible violations
and abuses. Each inquiry was considered with adoption of
appropriate measures, including those aimed at reducing the
risks of violations in production and economic activity, as well
as at increasing labor discipline and employee responsibility.
Additional control measures have been introduced to prevent
previously identified violations in the future.
The Company effectively operates a special-purpose confidential
channel, through which an employee or an outsider can report
facts of various violations related to the Company’s activities
— professional activities, corporate governance and corporate
ethics issues, respect for human rights, work schedule, social
aspects, industrial and environmental safety, labor protection,
quality of products and services, other issues, including those of
corruption nature – Hotline.
Calls are received by an independent operator. All messages are
checked.
There is an option of an electronic form submission on the
Company’s website at tatneft.ru/goryachaya-liniya with a choice
of the message subject.
When sending a message on the hot line, you can choose to
receive feedback.
HOTLINE INFORMATION SYSTEM
8 800 100 4112
TELEPHONE
tn@88001004112.ru
E-MAIL
In the context of the transition to digital transactions and
increased electronic communications traffic, the Company takes
a responsible approach to controlling the risks of cyber intrusions
into corporate information systems, which can damage the safety
of assets, operating and financial activities, and the interests
of shareholders and investors. The company takes measures
to ensure a highly protected internal cybersecurity system and
seeks to convey confidence in its quality to all the stakeholders.
The company takes into account global cyber security challenges
that pose potential risks and provide new opportunities in the
development of information technology.
The Company’s key cybersecurity initiatives are based on
analyzing the synergy potential of digital solutions and reducing
operational risks.
The Company follows regulatory requirements and considers
cyber security in three main aspects:
•
Integration of information protection processes and tools into
ongoing digital transformation strategic initiatives
• Security using advanced technologies
•
Improving the efficiency of cybersecurity functions
The Company forms a transparent holistic multi-level cyber
risk management system and integrates it into the overall risk
management system.
PLANS FOR 2020
• Updating the internal regulations on the Cyber security for
TATNEFT Group
Improving the Cyber risk control procedures
•
• Development of cyber security elements integration in the
business processes
Corporate Cyber Security
Operations Center
KEY ELEMENTS OF CYBER SECURITY
Blockchain
Artificial
intelligence
and robotics
Personal Data
Protection
The Company ensures the protection of personal data by
implementing internal procedures in accordance with the law.
The Company takes into account the European General Data
Protection Directive (GDPR), which was entered into force in
2018.
Biometrics
Internet
of Things
174
175
25CORPORATE GOVERNANCE2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Interaction
with shareholders
and investors
SECURITIES PUBLICATIONS
IN FEDERAL MASS MEDIA IN 2019
7 902
1 183
PUBLICATIONS ON COMPANY’S FINANCIAL
PERFORMANCE IN FEDERAL MASS MEDIA
IN 2019
by SCAN Interfax data
GROUP’S SHAREHOLDER
RETURN IN 2019
BLN
RUB
176
177
2019 ANNUAL REPORT Shareholders’ equity
Shareholders’ capital
of PJSC Tatneft
is 2 326 199 200 rubles.
Securities of PJSC TATNEFT named after V.D. Shashin have
been represented on the Russian and international stock
markets for over 20 years including the Moscow and London
stock exchange.
EQUITY HOLDING STRUCTURE (PARTICIPATION INTEREST
IN THE SHAREHOLDERS’ EQUITY)
Ensuring the confidence for
shareholders and investors in the
efficiency of their investments,
long-term and steady growth in
shareholder value is a key aspect
of the corporate practice of Tatneft
Company.
39%
34%
3%
The geography of shareholders covers the Russia (the major
part of shareholders), North America, Europe and Asia. The
Company’s shares are one of the most liquid and representative
tools in the securities market.
Republic of Tatarstan
Treasury groups
ADR program
Other shareholders
24%
Ordinary and preferred shares in the quotation list of the First
level participate in trading of the PJCS Moscow Exchange. The
Tatneft shares are included in the calculation base of the RTS
and MICEX indices which are the main indicator of the Russian
stock market
The Company’s depositary receipts are listed on the London
Stock Exchange and are traded in the Xetra system of the
Deutsche Börse group of companies
INFORMATION ON EACH CATEGORY (TYPE) OF SHARES
Full name of securities
(Kind and Type)
Security issue form
Quantity issued, pcs
Par value of one (1) security (in rubles)
State registration number of the issue of securities
State registration date
ISIN code
Exchange and trading code
Ordinary registered shares
Preferred registered shares
Exchange-traded bonds
Uncertificated
2 178 690 700
1 ruble
1-03-00161-А
26.10.2001
Uncertificated Certificated exchange-traded
bonds in bearer form
147 508 500
1 ruble
15 000 000
1 000 rubles
2-03-00161-А
4В02-01-00161-А-001З
26.10.2001
20.12.2019
RU0009033591
RU0006944147
RU000А1018К1
PJSC Moscow Exchange,
TATN
PJSC Moscow Exchange,
TATNP
PJSC Moscow Exchange,
RU000A1018K1
In accordance with the depositary agreement between PJSC
TATNEFT n.a. V.D. Shashin and the Bank of New York Mellon the
depositary receipts (ADRs) for the Company’s ordinary stocks
have been issued for circulation in foreign markets, 6 ordinary
shares in one ADR, with ISIN code US8766292051. The main
trading platform of the Company’s ADRs trading is the London
Stock Exchange (trading code - ATAD).
The Company does not have any information about the possible
acquisition by certain shareholders of the degree of control
disproportionate to their participation in the authorized capital of
the Company, including on the basis of shareholder agreements
or by other means.
TOTAL NUMBER OF SHARES, OF THEM:
2 326 199 200
ORDINARY SHARES
Total
In possession of foreign persons
In possession of Russian persons
PREFERRED SHARES
Total
In possession of foreign persons
In possession of Russian persons
* without ownership through Russian nominees
Investment potential
of the securities
2 178 690 700
605 300*
2 178 085 400
147 508 500
104 119*
147 404 381
AS OF DECEMBER 31, 2019, 40,392 SHAREHOLDERS WERE REGISTERED IN THE REGISTER OF
SHAREHOLDERS OF PJSC TATNEFT. OF THESE, THE LARGEST OWNERS (NOMINAL HOLDERS) OF
SHARES IN THE COMPANY ARE:
№
1.
2.
Full name of legal entity
Type of registered person
In % of the authorized capital
In % of voting (ordinary) shares
Svyazinvestneftekhim Joint Stock
Company
The Bank of New York Mellon
Owner, is in the nominal holding of
Joint Stock Company, Central Deposi-
tory of the Republic of Tatarstan
Depositary Programs Account is
located in the central depository Non-
bank Credit Organization, National
Settlement Depository Joint Stock
Company
27,232389
29,071778
22,740282
24,279916
The Company has no information on the existence of shares of ownership in excess of 5%, other than those disclosed in this table.
PJSC TATNEFT Securities have been circulating in the Russian
and international stock markets for more than 20 years. The
Company’s shares are traded at the Moscow Exchange PJSC
(first level quotation list), and at the London Stock Exchange as
the American Depositary Receipts (ADRs).
Shares (ordinary, including ADRs and preferred) of PJSC
TATNEFT are included in many stock indices, reflecting both the
size of Tatneft as a Company with a large capitalization and high
rates of return, including:
Ordinary and preferred shares
Ordinary shares
ADR
Moscow Exchange Index, Moscow
Exchange Oil and Gas Index, RTS Index,
RTS Oil and Gas Index.
Moscow Exchange blue chip index,
MSCI Russia, MSCI Russia 10/40, MSCI
Emerging Markets EMEA, MSCI Emerging
Markets Quality Index.
FTSE Russia IOB, MSCI Russia ADR / GDR
Index, S & P / BNY Mellon Russia Select
DR Index, MVIS Russia Index.
178
179
25INTERACTION WITH SHAREHOLDERS AND INVESTORS2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT The total trading volume of ordinary shares during the main
trading amounted to 307 176 855 623 rubles; the average daily
volume - 1 218 955 776 rubles.
The volume of over-the-counter transactions with preferred
shares amounted to 21 473 696 650 rubles; the average daily
turnover - 86 587 486 rubles.
DIVIDENDS PER SHARE, RUB.
The volume of over-the-counter transactions with ordinary shares
amounted to 34 712 149 462 rubles; the average daily turnover -
139 968 345 rubles.
The total trading volume of preferred shares through the Moscow
Exchange, taking into account over-the-counter transactions,
amounted to 96 603 028 949 rubles
The total trading volume of ordinary shares through the Moscow
Exchange, taking into account over-the-counter transactions,
amounted to 341 889 005 085 rubles.
The total trading volume of preferred shares during the main
trading amounted to 75 129 332 299 rubles; the average daily
volume - 298 132 271 rubles.
The volume of the main exchange trading on Tatneft’s ADRs
amounted to 2 765 099 469 US dollars (average daily turnover
– 10 929 246,91 US dollars); including over-the-counter
transactions and other transactions through the London Stock
Exchange, the total trading volume amounted to 3 118 532 418
US dollars or 12 277 686,68 US dollars per day.
VALUE OF SHARES (PREFERRED, ORDINARY) OF PJSC TATNEFT FOR THE
PERIOD OF 2006 THROUGH 2019
522,00
737,90
736,60
759,40
0,15
0,60
1,00
1,00
1,00
0,10
0,30
0,10
0,10
0,30
1,00
1,00
4,60
0,90
1,00
4,60
5,65
5,65
4,42
4,42
6,56
6,56
7,08
8,60
8,60
5,02 7,08
5,02
84,91
84,91
65,47
64,47
39,94
39,94
22,81
22,81
10,96
10,96
10,58
8,23 10,58
8,23
77,31
121,99
87,00
148,00
20,35
55,25
76,35
139,48
86,65
145,06
105,15
88,02
218,00
121,70
208,20
134,60
226,55
158,16
365,00
235,00
478,80
427,00
198,10
315,50
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Preferred
Ordinary
Closing price on the last day of the trading year
Dividend policy
The Board of Directors of the Company determines the
recommended for the general meeting of shareholders amount
of dividends on the basis of economically sound approach to
the distribution of profits and maintaining a balance of short-
term (income generation) and long-term (development of the
Company) interests of shareholders.
The principles and conditions for making decisions on
payment (announcement) of dividends, the procedures used
to determine the amount and dividends payment are specified
by the Regulation on the Dividend Policy of PJSC TATNEFT
approved by the Board of Directors of the Company (Minutes
No. 9 Decision No. 7 dated 01/30/2018). The Regulation is
based on observance of the rights of shareholders stipulated
by the legislation of the Russian Federation and best corporate
governance practices.
The Board of Directors of the Company, when determining
the amount of dividend recommended to the general meeting
of shareholders (per share), is governed by the amount of the
Company’s net profit and assumes that the amount allocated
to dividends is at least 50% of the net profit determined in
accordance with Russian Accounting Standards (RAS) or IFRS,
whichever is the larger. With that, the Board of Directors takes
into account, based on information received from the executive
The company adheres to a progressive
dividend policy recognizing dividends as
one of the key indicators of investment
attractiveness for shareholders, and
seeks to increase dividends based on the
consistent growth of business profitability.
bodies, the duties and investment program of the Company,
the need in working capital and required reserves for normal
business operations, and assumes that free cash that is formed
after funding the specified investment program, execution
liabilities and other needs of the Company can be distributed in
the form of dividend
In June 2019, dividends were approved at the level of 100%
of net profit according to IFRS (by 2018 year-end results), and
according to the results of 6 and 9 months of 2019, the level of
dividend payments amounted to 100% of net profit per RAS.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Preferred
Ordinary
* with the dividends recommended for approval by the annual general shareholders’ meeting
DIVIDEND YIELD ON SHARES FOR 2015 TO 2018
(PREFERRED, ORDINARY)
17,68
14,84
12,34
12,43
10,3
6,59
6,97
3,61
According to the 2019 year-end results, it was recommended to
allocate 150 billion 118 million rubles to pay dividends which is
96,2% of the net profit obtained per RAS (with the rounding to
two decimal places after the comma of the dividend per share).
With that, the amount of dividends was secured by the amount of
free cash flow across the Tatneft Group, which amounted to 152,8
billion rubles according to IFRS reporting.
As such, the amount of dividends is to amount:
• per 1 ordinary share for 2019 – 6 447% of the par value or
64,47 rubles per share, taking into account previously paid
dividends;
• per 1 preferred share for 2019 — 6 547% of the par value or
65,47 rubles per share, taking into account previously paid
dividends.
Considering the fact that according to the decision of the general
meetings of shareholders, interim dividends in the amount of 149
billion 970 million rubles were allocated in accordance with the
decision of the general meetings of shareholders based on the
results of 6 and 9 months of 2019, the additional allocation of
2019 year-end dividends will amount to 147,5 million rubles.
2015
2016
2017
2018
Preferred
Ordinary
The Company generates one of the
highest levels of dividend yield.
180
181
25INTERACTION WITH SHAREHOLDERS AND INVESTORS2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT HISTORY OF DIVIDEND PAYMENTS FOR THE LAST 5 ENDED FISCAL YEARS
Year (period)
for 2014
for 2015
for 2016
For 9 months
of 2017
For the 4. Q
2017
For 2017
Total
for 6 months
of 2018
Year (period)
for 9 months
of 2018
For the 4. Q
2018
For 2018
Total
6 months
2019
9 months
2019
4 Q of 2019
For 2019
Total:*
Total amount of accrued
dividends (billion rubles)
Total amount of dividends
paid (billion rubles)
Ordinary shares (% of par
value)
Ordinary shares (Dividends
amount) (rubles)
Preferred shares (% of par
value)
Preferred shares (Dividends
amount) (rubles)
Dividends (% of net profit)
Date of the decision to pay
dividends
The date on which persons
that have (had) the right
to receive dividends are
(were) determined
Date of actual payment
24,611
25,495
53,061
64,622
28,287
92,909
70,414
24,587
25,468
53,006
64,561
28,26
92,821
70,342
1058%
1096%
2281%
2778%
1216%
3994%
3027%
10,58
10,96
22,81
27,78
12,16
39,94
30,27
1058%
1096%
2281%
2778%
1216%
3994%
3027%
10,58
30%
10,96
22,81
27,78
30%
50,6%
75%
12,16
75%
39,94
30,27
75%
75%
Annual
General Meeting
of Shareholders
at the end of
2014, which
was held on
26.06.2015,
Minutes No.
22 dated
30.07.2015
Annual General
Meeting of
Shareholders at
the end of 2015,
which was held
on 24.06.2016,
Minutes No.
23 dated
29.06.2016
Annual General
Meeting of
Shareholders at
the end of 2016,
which was held
on 23.06.2017,
Minutes No.
24 dated
28.06.2017
Extraordinary
General Meeting
of Shareholders
based on the
results of 9
months of 2017,
which took place
on 12.12.2017,
Minutes No. 25
dated 14.12.2017
Annual General Meeting of
Shareholders at the end of 2017,
which was held on 22.06.2018,
Minutes No. 26 dated 27.06.2018
Extraordinary
General Meeting
of Shareholders
based on the
results of 6
months of 2018,
which was held
on 28.09.2018,
Minutes No.
27 dated
29.09.2018.
15.07.2015
08.07.2016
07.07.2017
23.12.2017
06.07.2018
12.10.2018
To nominal
holder -
29.07.2015
To shareholders
registered in
the register of
shareholders -
19.08.2015
To nominal
holder -
22.07.2016
To shareholders
registered in
the register of
shareholders -
12.08.2016
To nominal
holder -
21.07.2017 To
shareholders
registered in
the register of
shareholders -
11.08.2017
To nominal
holder -
15.01.2018
To shareholders
registered in
the register of
shareholders -
05.02.2018
To nominal holder - 20.07.2018
To shareholders registered in
the register of shareholders -
10.08.2018
To nominal
holder -
26.10.2018
To shareholders
registered in
the register of
shareholders -
20.11.2018
Total amount of accrued
dividends (billion rubles)
Total amount of dividends
paid (billion rubles)
Ordinary shares (% of par
value)
Ordinary shares (Dividends
amount) (rubles)
Preferred shares (% of par
value)
Preferred shares (Dividends
amount) (rubles)
51,781
75,322
197,517
93,304
56,666
51,725
75,247
197,314
93,206
56,612
2226%
3238%
8491%
4011%
2436%
0%
6447%
22,26
32,38
84,91
40,11
24,36
0
64,47
2226%
3238%
8491%
4011%
2436%
100%
6547%
Dividends (% of net profit)
75%
100%
22,26
32,38
84,91
100%
40,11
100%
24,36
100%
Date of the decision to pay
dividends
Annual General Meeting of
Shareholders at the end of 2018,
which was held on 21.06.2019,
Minutes No. 29 dated 25.06.2019.
Extraordinary
General Meeting
of Shareholders
based on the
results of 9
months of 2018,
which was held
on 21.12.2018,
Minutes No.
28 dated
24.12.2018.
Extraordinary
General Meeting
of Shareholders
based on the
results of 6
months of 2019,
which was held
on 13.09.2019
Minutes No.
30 dated
16.09.2019.
Extraordinary
General Meeting
of Shareholders
based on the
results of 9
months of 2019,
which was held
on 19.12.2019,
Minutes No. 31
dated 23.12.2
019.
1,00
65,47
Annual General
Meeting of
Shareholders at
the end of 2019
The date on which persons
that have (had) the right
to receive dividends are
(were) determined
Date of actual payment
09.01.2019
05.07.2019
27.09.2019
30.12.2019
30.06.2020
To nominal holder - 19.07.2019
To shareholders registered in
the register of shareholders -
09.08.2019
To nominal
holder -
23.01.2019
To shareholders
registered in
the register of
shareholders -
13.02.2019
To nominal
holder -
11.10.2019 To
shareholders
registered in
the register of
shareholders-
01.11.2019
To nominal
holder -
21.01.2020 To
shareholders
registered in
the register of
shareholders -
11.02.2020
* The PJSC TATNEFT Board of Directors (Minutes No. 12 dated 04/20/2020) made a decision to
recommend to the General Meeting of Shareholders to:
- determine that the size of ordinary shares dividends by the 2019 year-end results is to amount
to 0% of the par value of a share, excluding previously paid dividends by the results of the six
and nine months of 2019 in the amount of 6447% of the par value of a share;
- pay dividends on preferred shares according to the results of 2019 in the amount of 100% of
the par value of a share, excluding previously paid dividends according to the results of the six
and nine months of 2019 in the amount of 6447% of the par value of a share.
182
183
25INTERACTION WITH SHAREHOLDERS AND INVESTORS2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Protection and ensurance
of shareholders’ rights
The Company has created a
multi-level system for protecting
the shareholders’ rights of the
Company.
Guarantees of the shareholders’
rights provided by law and listing
rules
IN ACCORDANCE WITH THE LEGISLATION
OF THE RUSSIAN FEDERATION, THE
SHAREHOLDERS OF THE COMPANY ARE
ENTITLED TO:
•
•
vote at the General Meeting of Shareholders on the principle
of “one share - one vote” when voting on issues in respect of
which they have the right to vote;
submit issues to the agenda of the General Meeting of
Shareholders and candidates for members of the Board
of Directors (if the shareholders have at least 2% of voting
shares);
• exercise the preemptive right when placing shares and
•
equity securities convertible into shares;
receive dividends declared by the Company in proportion to
the number of shares owned by the shareholder;
• get acquainted with the information and materials presented
in preparation for the General Meeting of Shareholders;
• obtain information on the Company’s activities of the upon
request and in accordance with the conditions established by
the legislation of the Russian Federation;
investment power to freely dispose of shares;
exercise other rights established by the legislation of the
Russian Federation.
•
•
The company provides all the terms
for the shareholders to implement
their rights
• The right to participate in the management of the Company
by voting at the General Meeting of Shareholders of PJSC
TATNEFT.
• The right to participate in the formation of the Board
of Directors of PJSC TATNEFT in accordance with the
conditions stipulated by the legislation of the Russian
Federation.
• The right to receive part of the Company’s profits in the form
of dividends.
• The right to receive the necessary information about the
Company on a timely and regular basis.
• The right to free and unhindered disposal of shares, reliable
methods of recording rights to shares.
Key principles of interaction with
the company shareholders
Guaranteed equal provision and observance of the legal rights
and interests of all shareholders of the Company, regardless
of the size of the block of shares they own, established by the
current legislation of the Russian Federation, requirements
and recommendations of stock market regulators in which the
Company’s shares circulate.
Constant interaction of the Company’s management with all
shareholders in order to effectively manage the Company and
ensure its sustainable and dynamic development.
Constant improvement of existing and development of new
mechanisms and forms of interaction with shareholders,
increasing the efficiency and quality of interaction, taking into
account the emergence of new shareholders, setting new tasks
by shareholders.
Identification and resolution of all possible general and specific
problems associated with the exercise of the shareholders’
rights.
Taking all necessary and possible measures in the event of a
conflict between the bodies of the Company and its shareholders
(shareholder), as well as between shareholders, if the conflict
affects the interests of the Company, to fully resolve the conflict,
as well as creating conditions that preclude future conflicts.
Guarantees to customers are provided by Ingosstrakh
comprehensive insurance policy for the compensation of
property damage as a result of the registration activity.
Information about the registrar, the procedure for transferring
the rights to the shares of PJSC TATNEFT, obtaining extracts
from the register of shareholders and performing other actions is
available at http://eard.ru
The Company along with the
Registrar regularly informs
shareholders about the need
to update the information on
shareholders contained in the
register of shareholders of PJSC
TATNEFT.
The Company together with the Registrar annually sends
shareholders letters notifying them of the need to amend the
register of shareholders of the Company in the event that the
shareholder has changed address and bank details, or other data
necessary for payment of dividends to shareholders.
The Company also searches for shareholders or their heirs.
So, in 2019 - 2020, the Company sent more than 6.5 thousand
letters to shareholders whose dividends were returned to
the Company by the Russian Post due to their non-receipt by
recipients more than 2 times, to the heirs of shareholders whose
accounts were blocked on the basis of death certificates sent by
notaries, to the shareholders Devon-Credit Bank the settlement
accounts of which must be changed due to the reorganization of
the bank.
The Company has enacted the
Regulations on providing information
to the shareholders. The Regulation
establishes the procedure and
deadlines for providing the
shareholders and persons exercising
share rights, as well as their
representatives of documents and
copies of such documents.
Protection of share rights
The Company provides reliable and secure methods of recording
share rights, involving a professional registrar to keep records.
The Company’s Registrar
The organization that registers the rights to equity securities of
PJSC TATNEFT is Eurasian Registrar Limited Liability Company,
which has been conducting professional activities on the Russian
securities market as a specialized registrar for more than 20
years.
Eurasian Registrar is in the top 10 largest Russian registrars and
maintains registers of more than 600 issuers, the rights to shares
of which are recorded on 169,844 personal accounts of securities
owners. Shareholder service centers and transfer-agent
points are open in 52 regions of the greatest presence of the
Company’s shareholders: this is the central office, 6 branches, 50
transfer-agent points in partner registrars.
The Registrar is a member of the self-regulatory organization
Professional Association of Registrars, Transfer Agents, and
Depositories (SRO PARTAD).
The high degree of reliability and security of maintaining
electronic databases is ensured by the use of the Zenit registry
management system, which has the certificate of SRO PARTAD.
The software and hardware capacity of the Registrar allows
servicing over 1 million personal accounts of the owners of
securities.
184
185
25INTERACTION WITH SHAREHOLDERS AND INVESTORS2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Interaction
with shareholders
The Company’s interaction with shareholders and investors
is based on availability of the responsible executives and key
employees of the Company to communicate with shareholders,
investors and analysts of the stock market, as well as consultants
to institutional investors in voting, discussing development plans
and results of the Company’s operations.
The Company’s interaction with shareholders and investors is
provided through telephone conferences, group and individual
meetings, including investment conferences, Company visits’
and special trips (road shows) of the Company’s authorized
representatives to major international financial centers.
THE KEY PRIORITY OF THE COMPANY’S
INTERACTION WITH SHAREHOLDERS AND
THE INVESTMENT COMMUNITY AS A WHOLE
IS BUILDING A DIALOGUE AND EFFECTIVE
FEEDBACK FROM INVESTORS AND ANALYSTS,
REVIEWING AND DISCUSSING THEIR OPINIONS
ABOUT THE COMPANY AND ITS INVESTMENT
HISTORY BY RESPONSIBLE MANAGERS,
MAKING APPROPRIATE DECISIONS.
3 732
INQUIRES FORWARDED
TO THE CORPORATE SECRETARY
OFFICE OF PJSC TATNEFT
IN 2019
> 1000
RESPONSES GIVEN THROUGH
ENGAGEMENT WITH INVESTORS
AND ANALYSTS
> 50
MEETINGS HELD WITH PORTFOLIO
MANAGERS AND ANALYSTS OF
INTERNATIONAL INVESTMENT
COMPANIES AND FUNDS
STATISTICS OF THE SHAREHOLDERS’ INQUIRIES IN 2016-2019
№
Name
Number of inquiries
Updating personal data
Registration of inheritance rights
Selling and redemption of shares
Dividend payment
Providing certificate under 2-NDFL form
Issues related to the General Meeting of Shareholders
Inquiries of notary, court
Other issues
Total
1.
2.
3.
4.
5.
6.
7.
8.
186
2016
203
150
57
1 265
103
43
61
83
2017
228
169
70
1 466
119
50
69
96
1 965
2 266
2018
317
228
92
2 008
158
71
96
131
3 101
2019
349
257
100
2496
98
168
61
203
3732
Interaction with institutional
investors
PJSC TATNEFT shares are one of the most attractive investment
instruments among the Russian issuers. The Company’s
international institutional shareholders are located in the main
centers of business and financial activity, including New York,
London, Frankfurt, and Singapore.
Meetings allow investors, analysts, representatives of
international rating agencies to receive information on the
strategic vector of the Company’s development, production
activities and financial resources management directly from the
Company’s management.
The Company actively interacts with institutional investors and
stock market analysts. During 2019, more than 50 meetings
were held with portfolio managers and analysts of investment
companies and funds from many countries of the world. The
meetings were held in one-on-one format with the support of
investment banks or on their own initiative, as well as in the
framework of investment conferences in which the Company
participated in accordance with the plan of work with investors
and analysts. In particular, in 2019, Tatneft representatives
participated in ATON Oil Day conferences, the Moscow
Exchange Exchange Forum, The Inside Track Sberbank CIB, the
Renaissance Capital Annual Investment Conference, and VTB
Russia Calling! and others. The Company quarterly after the
publication of the consolidated financial statements under IFRS
holds a conference call with investors and analysts to discuss the
results of operations for the reporting period.
The Company has organized a special telephone line and email
address for investors. A dialogue is regularly conducted with
analysts of the “selling side” of investment companies and banks.
In 2019, TATNEFT shares were covered (recommendations
were given on actions on the stock market in relation to shares
and a target price was determined) by more than 15 analysts of
Russian and international investment companies and banks. In
general, in the course of interaction with investors and analysts
STRUCTURE OF INVESTORS AND ANALYSTS
QUESTIONS IN 2019: TOTAL NUMBER OF QUESTIONS -
MORE THAN 1000
Topic of the question
Performance indicators and plans (production and refining)
Strategy of the Company and its implementation
Financial results
Refining profitability
Development of the TANECO complex
Investment program and its change
Dividends and dividend policy
Debt financing and plans to attract it
Participation in the banking business and work with distressed assets
Sustainable development (social policy, ecology and climate change
mitigation, corporate governance)
Macroeconomic conditions and development of the industry as a
whole.
%
5
15
5
10
10
10
20
5
5
10
5
during 2019, answers were provided on more than 1000 inquiries
related to the Company. Most of the questions of investors and
analysts were related to the Strategy of TATNEFT Group and
its implementation, financial investment and dividend policy,
development of the oil refining segment, prospects for the
petrochemical sector, production and financial results, indicators
and goals in the field of sustainable development (ESG). The
opinions of investors and analysts obtained in the course of
interaction with them are promptly brought to the attention of
the responsible executive managers, discussed and taken into
account when making decisions. The Board of Directors of the
Company and the Audit Committee of the Board of Directors are
constantly informed about work on the investor relations.
Most of the inquiries were answered during direct
communications and correspondence with investors and analysts
based on the published information; answers to some questions
were prepared with the involvement of responsible services of
the Company and were sent in writing or communicated orally.
The main language of communication with investors and analysts
is English.
The opinions of investors and analysts regarding the activities of
the Company, its Strategy and plans, investment and dividend
policies on ESG and other topics are promptly brought to the
attention of responsible managers, discussed and taken into
account when making decisions.
The Company has organized the process of prompt preparation
of answers to investor requests in various areas of activity.
Responses are provided in written and oral form with the
mandatory disclosure and publication of any information that is
material and may affect the value of the Company’s securities.
Comments received from investors are regularly reported to the
executive management of the Company.
On a quarterly basis, the Company holds conference calls for
investors with detailed coverage of performance results for the
reporting period. During 2019, 4 presentations were prepared
and published for shareholders, investors and analysts on the
Company’s website, including plans for 2019 and 2020, on the
results of operations for the reporting periods:
• Presentation for investors (Forecast of operating results for
2018 and plans for 2019. Review of IFRS results for Q3/ 9
months of 2018), January 2019.
• Presentation for investors (Operating activities results of
2018, plans for 2019), April 2019.
• Presentation for investors (IFRS results for Q1 of 2019), July
2019.
• Presentation for investors (Forecast of operating results for
2019 and plans for 2020 Review of IFRS results for Q3/ 9
months of 2019), November 2019.
IN ORDER TO ACHIEVE THE HIGHEST
POSSIBLE QUALITY OF INTERACTION WITH
THE SHAREHOLDERS, THE COMPANY STRIVES
TO USE THE MOST RELIABLE METHODS AND
FORMS OF COMMUNICATION, INCLUDING
ADVANCED INFORMATION TECHNOLOGIES.
187
25INTERACTION WITH SHAREHOLDERS AND INVESTORS2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Sustainable
development
7 000
PUBLICATIONS ON COMPANY’S
SUSTAINABLE DEVELOPMENT
ACTIVITIES IN MASS MEDIA IN 2019
by SCAN Interfax data
Tatneft pays special attention to preserving a favorable
environment and reducing the impact on climate aspects, and
attaches high importance to social factors. The basic principles
for the Company are corporate responsibility and security.
A significant landmark of the Company is the UN Action Program
«Transforming our World. The 2030 Agenda for Sustainable
Development”. Tatneft integrates 10 Principles and 17 Goals of
sustainable development into its business model as a member of
the United Nations Global Compact.
AND
PRINCIPLES
OF SUSTAINABLE DEVELOPMENT
GOALS
188
189
2019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Management system
in the field of sustainable
development
The Company adheres to 10
Principles and 17 Goals of
sustainable development of the UN
Global Compact.
The Company’s strategy includes aspects of sustainable growth
and ensuring of favorable economic and social conditions for
business development based on the most rational use of all
types of resources and creating of value for stakeholders at each
stage of activity.
We have been continually improving
our footprint performance related to
our ongoing and projected operations,
products and services that impact on
the staff, public and the environment.
FOCUS 2019
The Company continued to work on improving corporate
governance, focusing on international best practices and
principles of socially responsible investing (SOI).
FOCUS 2020
Formation of target values in the field of sustainable
development.
SOCIAL ASPECT
Compliance with the UN goals
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Law compliance.
Respect for human rights.
Positive public opinion.
Quality management.
Provision of high quality goods and services.
Continuous improvement of product quality.
Strive to follow changing demands of consumers.
Provision of reliable information about the Company’s products
Assistance in the social and economic development of the regions of
the Company’s operation.
Support of local communities in the areas of presence.
Development of human capital in the territories of the Company’s
operation.
Solving socially significant issues in the territories of the Company’s
operation through cooperation with local communities.
Promotion of education, culture, and sports.
Support for vulnerable social groups
Ensuring competitive compensation and social benefits for
employees.
Development and training of personnel, formation of personnel
reserve.
Good working conditions.
Development of effective corporate communication with all
stakeholders.
Implementation of best social practices.
ECONOMIC ASPECT
Compliance with the UN goals
INNOVATIONS
Compliance with the UN goals
ENVIRONMENTAL ASPECT
Compliance with the UN goals
•
•
•
•
•
•
•
•
•
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 the in-house research and production base
integrated with the leading industry research centers.
The Company’s strategy is based on the principles of innovative
development.
The target focus includes the technologies required to
implement the Strategy for overcoming challenges that hinder
its achievement. The Company develops and implements
consistently the most cutting-edge solutions, many of which
are unique in the industry and in the technology supply market.
Interaction with the national and foreign leading scientific,
technical, and technological centers allows for the integration
of production tasks and extensive experience with innovative
scientific potential in all areas of the Company’s operation.
•
•
•
•
•
•
•
Environment protection.
Use of recyclable materials.
Use of environment-friendly energy sources.
Energy saving.
Waste treatment.
Ensuring safe working conditions, protection of health of
the personnel and the population living in the areas of the
Company’s operation.
Reduction of man-caused impact on environment and
prevention of environmental damage from economic
activities.
•
•
•
•
Rational use of natural resources.
Implementation of a set of measures to maintain
the environment in the regions of the Company’s operation
at the standard admissible level complying with the potential
of natural ecosystems for self-recovery.
Increasing the level of industrial safety and labor protection,
reducing injuries, accidents, occupational diseases.
• Reduction of man-caused impact and maintenance of natural
environment and human habitat in a favorable state.
• Rational use, restoration, and protection of natural resources,
biodiversity conservation.
• Combating climate change.
190
191
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Human rights
TATNEFT has historically recognized the importance and value
of the fundamental human rights and freedoms proclaimed by
the UN and throughout its activities it is responsibly committed
to the principles of human rights, labor relations and the fight
against corruption as reflected in international declarations and
conventions:
• UN Universal Declaration on Human Rights;
• UN Declaration on the Environment and Development;
• Guiding Principles on Business and Human Rights endorsed
by the resolution of the UN Human Rights Council;
• OECD Guidelines for Multinational Enterprises;
• Declarations and Conventions of the International Labor
Organization concerning multinational corporations and
social policy, labour, freedom of association and protection of
the right to organize and bargain collectively, as well as the
Social Charter of the Russian Business
The Company uses its best
endeavours to prevent any adverse
human rights impacts that is directly
related to its business activities,
products or services, business
relations, as well as to preserve the
national cultural identity of ethnic
groups living in the regions of the
Company’s operations, and takes all
available measures to eliminate the
consequences of such an impact,
should it happen.
When carrying out business projects
in the countries with different political
systems and cultural traditions, the
Company believes that everyone
should enjoy all the rights and freedoms
proclaimed, including the right to work,
the right to a favorable environment,
the rights of indigenous minorities
and special groups of the population,
without any distinction, regardless of
race, color, sex, age, language, religion,
political or other beliefs, national
or social origin, disability, property,
class or other status, as well as equal
opportunities for women and men,
excluding any forms of harassment or
discrimination in the field of work and
employment.
The company recognizes and respects the rights of each
employee to collective representation, freedom of association,
the right to organize employees into trade unions, and collective
bargaining. The Company strives to prevent any adverse impact
on human rights that is directly related to its activities, products
or services, business relationships, as well as the preservation
of the national and cultural identity of the peoples living in the
regions of the Company’s operation, and takes all available
measures to eliminate the consequences of such impact, if it
occurred.
MAIN AREAS OF MONITORING IN RELATION TO
HUMAN RIGHTS ASPECTS:
•
internal audit in terms of compliance with corporate
procedures and standards according to business lines;
conducting procedures for assessing the impact of
production activities on environment and the effectiveness of
industrial safety and labor protection measures;
interaction with a trade union organization and monitoring
the implementation of a Collective Agreement;
analysis of feedback, including that within the scope of
«hotline».
•
•
•
Responsibility
to stakeholders
Key principles of
interaction with
stakeholders
In 2019, no cases of noncompliance of the Company’s activities
with the legislation in the field of promoting products and
services, advertising, and marketing were registered. In the
reporting year, the Company was not charged with fines for
noncompliance with the legislation and regulatory requirements
relating to the provision and use of products.
Safety
Compensation for damage
Consumer health and safety protection includes the provision
of products and services that are safe and do not pose an
unacceptable risk of harm when used or consumed. The
Company controls strictly the compliance with all regulatory
requirements governing the quality of products and services.
At all life-cycle stages of the offered products and services, the
Company assesses their impact on health and safety in order to
identify opportunities for improvement.
No cases of noncompliance with the regulatory requirements
concerning the impact of products and services on health and
safety were registered in 2019.
Obtaining information
The Company provides consumers with the access to complete,
accurate, and comprehensible information that enables them
to make informed decisions according to their individual
expectations. Contracts concluded for the supply of products
are set out in a clear, precise and plain language, do not contain
unfair contractual obligations, and provide clear and sufficient
information about the price, product features and terms of the
contract.
No cases of noncompliance with the regulatory requirements in
respect of informing consumers about the features of products
and services were registered in 2019.
Fair and responsible marketing
practices
The Company uses only fair marketing practices and protects
consumers from unfair or misleading advertising or labeling.
The Company’s activities in the field of promoting products and
services, advertising, and marketing comply with the legislation
of the Russian Federation.
The Company has clear mechanisms for resolving claims and
disputes with consumers, as well as measures to prevent them.
All cases of receiving complaints from consumers are registered,
the reasons are analyzed and, if objective claims are identified,
appropriate measures are developed. The Company takes
preventive measures to avoid damage to the interests of
consumers.
Privacy
The Company ensures respect for privacy and protection of
personal data through the use of reliable and secure systems
for the collection and protection of consumer data. Information
about consumers is collected only in legal ways. The collection
of personal data of consumers of the Company’s products and
services is limited to the information required for the provision of
products or services or is provided on a voluntary basis with the
consumer’s consent. Protection of the collected personal data
of consumers is ensured with the use of the effective security
measures.
In 2019, there were no complaints regarding violations of
consumer privacy and loss of consumer data.
The Company strives for a consensus
with suppliers, contractors and business
partners in the field of fundamental
human rights principles and makes
certain efforts to prevent human rights
violations in the practices related to the
Company’s activities.
192
193
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Industrial safety, labor
protection and environment
taking into account climate
changes
Strategic
priorities
The Company is one of the leaders of the fuel and energy
complex of the Russian Federation and is aware of the nature
and scale of the impact of its activities, correlates them with the
importance of rational use of natural resources, ensuring safe
working conditions, protecting the health of personnel employed
in all business segments and the population living in the areas
of activity of Tatneft Group organizations, as well as preserving a
favorable environment and reducing climate risks.
In 2019, the Company’s Board of Directors adopted a new
version of the Policy in the field of industrial safety, labor
protection and environment, taking into account a climate
change, based on the international best practices and a risk-
based approach. The Company’s guiding principles in this area
are: recognition of the priority of life and health of people to
industrial activities, a high level of industrial safety, ensuring the
level of potential for self-restoration of ecosystems, reducing the
negative impact on the environment and the carbon footprint for
a sustainable energy future.
To achieve this goal the Company undertakes the following
obligations:
• Ensuring safe and healthy working conditions for employees
•
•
•
•
in order to prevent injuries and deterioration of health.
Improving the level of industrial safety, labor protection and
environment, minimizing the risk of accidents at hazardous
production facilities.
Continuous improvement of performance indicators in the
field of ensuring ISLPE.
Ensuring control of potentially negative impacts on the
environment, health and safety, industrial and environmental
safety in the supply chain and implementation of appropriate
measures to minimize/ eliminate such impacts.
Implementation of effective measures for production control
and audit of the implementation of current norms and rules of
the ISLPE, emergency prevention based on the introduction
of modern information technologies, methods of technical
diagnostics and remote monitoring.
The Company aims to achieve leadership positions in ensuring
accident-free production activities, safe working conditions for
the Company’s employees, as well as rational use of natural
resources, minimizing the negative impact on environment and
preserving a favorable environment for the present and future
generations.
The Company implements
international standards ISO
14001:2015 «Environmental
Management System» and ISO
45001: 2018 «Occupational Health
and Safety Management System».
In order to improve management
practicesin addressing the climate
change challenges it is planned to
integrate the standards of system
ISO14064-1: 2018;
ISO 14064-2: 2019;
ISO14064–3: 2019
Industrial safety and
labor protection
The Company’s key priority is to ensure
life and work safety.
Systematic work is being carried out to improve working
conditions in the workplace. The main tool for assessing and
managing working conditions is the procedure regulated for
this purpose by the Russian legislation - the special assessment
of working conditions (SAWC), which replaced the previous
certification of workplaces according to working conditions in
2014. The SAWC procedure conducted during 2014-2019 covers
all workplaces of Tatneft Group enterprises. Following the results
of the special assessment, measures are being developed to
improve working conditions in the workplaces.
The dynamics of the number of days of temporary incapacity for work
as a result of industrial accidents at Tatneft Group for the period of 2017-
2019 had a positive trend. Over the past three years, this indicator has
decreased by 1.5 times.
In 2019, the Lost Time Injury Frequency Rate LTIFR (the number of
cases of working time loss attributed to the total working time in the
organization for the reporting year and normalized per 1 million people/
hour) for Tatneft Group was 0.26.
The systematic work of the Committee on ensuring occupational
health and safety requirements and joint commissions on occupational
health and safety, which include representatives of the employer
and primary trade union organizations of enterprises, contributes to
the positive solution of occupational health and safety issues. The
committees develop a program of joint actions of the management and
the trade union committee to improve occupational health and safety,
prevent industrial injuries and occupational diseases. Members of the
committees participate in the preparation of the Section «Occupational
Health and Safety», the collective agreement and agreement on
occupational health and safety, inform employees about the state
of conditions and occupational health and safety in the workplace,
the existing risk of health damage and due protection equipment,
compensation and benefits for employees.
PRODUCTION CONTROL OVER COMPLIANCE
WITH THE INDUSTRIAL SAFETY AND LABOR
PROTECTION REQUIREMENTS FOR TATNEFT
GROUP
In-process monitoring in Tatneft Group provides the involvement
of chief specialists and specialists of operations and process
services and departments in carrying out preventive measures.
The work of the Permanent Commission (PC) on occupational
health and safety, the Process Monitoring Committee, the Fire
Safety Commission and the internal audit group of the integrated
management system has been organized.
The Company aims to achieve
leadership positions in ensuring
accident-free production activities,
safe working conditions for the
Company’s employees, as well as
rational use of natural resources,
minimizing the negative impact
on environment and preserving
a favorable environment for the
present and future generations.
0,26
LOST TIME INJURY
FREQUENCY RATE
(LTIFR)
>1,3 RUB
BILLION
WAS ALLOCATED FOR OCCUPA-
TIONAL SAFETY MEASURES IN
2019
OCCUPATIONAL HEALTH AND SAFETY EXPENSES FOR TATNEFT
GROUP, INCLUDING PER EMPLOYEE FOR THE PERIOD OF 2017-
2019, RUB THOUSAND.
Year
Funds spent
on occupational health and
safety
Funds spent
on occupational health and
safety per 1 employee
2017
2018
2019
981 449,29
1 060 052,66
1 327 699,50
22,3
23,9
26,8
IDENTIFICATION AND SOLUTION OF
SIGNIFICANT ISSUES OF PERSONNEL HEALTH
In addition to the voluntary medical insurance programs for
outpatient services, inpatient services, rehabilitation treatment
and comprehensive medical care operating under the contract,
a program of sanatorium rehabilitation of employees involved
in harmful and (or) dangerous occupational risk operates in the
Company.
194
195
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Environment
The Company takes measures to prevent environmental pollution, reduce and
prevent negative impacts on it, including on natural objects with increased
vulnerability and objects the protection and preservation of which is of particular
importance; to increase the energy efficiency of production processes, to ensure
resource saving, rational use of natural resources, and to minimize their losses.
Production and investment planning include the identification of
all significant impacts on the environment, including reduction of
losses of oil, gas and products of oil and gas and the prevention
of their entry into the environment; increasing efficiency of
associated petroleum gas; reducing greenhouse gases; reducing
significant impacts of the Company’s activities, products, and
services on biodiversity of protected natural areas and areas
of high biodiversity value outside of protected natural areas;
conducting additional risk assessment in the ecologically
valuable area.
The Company implements integrated environmental impact
assessment (EIA) approaches for the project from the
construction stage to the liquidation stage within the project
implementation and its affiliated projects; strategic environmental
assessment (SEA) in the case of major infrastructure projects.
A necessary condition for effective performance in this area and
in reducing production risks is greater involvement of employees
and maintaining an open dialogue with stakeholders on the
ISLPE issues.
In 2019, Tatneft Group enterprises continued their targeted
systematic work in the field of improving the environmental
safety of technological processes.
EXPENSES FOR THE ENVIRONMENTAL ACTIVITY IN ACCOR-
DANCE WITH THE EUROPEAN CLASSIFICATION OF ENVIRON-
MENTAL ACTIVITIES (CEPA 2000)
EXPENSES FOR ENVIRONMENTAL PROTECTION IN TATNEFT
GROUP FOR THE PERIOD OF 2017-2019, RUB MLN
For land protection and
rehabilitation (reclamation)
of surface and
underground water
35.345%
For waste
management
3.526%
For waste water
collection and treatment
(protection of water
bodies)
30.162%
For open air protection of
atmospheric air and climate
change prevention
30.498%
For environmental
protection from noise,
vibration and other
physical impacts
0.002%
For other business lines
in the field of environ-
mental protection
0.139%
For biodiversity preservation
and natural areas conser-
vation
0.063%
For research and devel-
opment activities aimed at
reducing negative anthro-
pogenic impacts on the
environment
0.242%
For ensuring radiation safety
of the environment
0.023%
196
12500
12000
11500
11000
10500
10000
9500
12 325
11 002
10 275
2017
2018
2019
Atmospheric air
Special attention is paid to reducing emissions of harmful
substances into the atmosphere, which is achieved through the
implementation of the following measures:
•
•
construction and technical re-equipment of gas
collection systems (flare facilities). Re-equipment of
Tatneftegazpererabotka flare control system will reduce the
company’s annual emissions by 0.94 thousand tonnes.
introduction of technology of light hydrocarbon vapor
recovery (LHVR) allowed reducing carbon emissions by more
than 4 times as compared with emissions in 1991. Currently,
the facilities of PJSC TATNEFT operate 44 LHVR units. In
2019, the amount of carbon recovered by the LHVR units
amounted to 31.1 thousand tonnes.
Rational use of associated
petroleum gas
44
31,1 THOUSAND
TONNES
NUMBER
OF ACTIVE LHVR
NUMBER
OF RECOVERED LHVR
PJSC Tatneft has started creating a system for automatic
monitoring of atmospheric air quality in its area of operation,
identifying and eliminating sources of pollution. In 2019,
automatic air quality control stations as well as a monitor for
displaying information about the state of environment were
installed in Almetyevsk.
A significant share of emissions of pollutants into the air is
accounted for by the business line «Exploration and Production»
(71%), one of the main air protection measures of which is the
rational use of associated petroleum gas (APG), reducing its
flared volume.
Over the period of 2017 through 2019,
the TATNEFT Group had flared 20 %
less of associated petroleum gas.
For the period pf 2017-2019, Tatneft Group reduced the APG
flared volume by 20%.
APG FLARED VOLUMES OF TATNEFT GROUP, MLN M3
Due to the purposeful work to reduce APG flaring at flare
facilities, in 2019, the level of APG use for Tatneft Group was
95.93%. This allowed reducing emissions of pollutants and
greenhouse gases from APG flaring and dispersion.
2019
2018
2017
45
42
55
The implementation of technological solutions contributes to
the achievement of this indicator. The main ones are overhaul
and expansion of the gas collection system from the facilities of
PJSC Tatneft, construction of facilities intended for the utilization
of associated petroleum gas, as well as works on their technical
re-equipment, reconstruction and modernization.
In 2019, more than 21 km of Tatneft gas pipelines were
overhauled. Design and survey work on the object «Expansion
of the Gas Collection Aystem of Yamashinsky and Tyugeyevsky
Fields (GZNU-110, DNS-2S)» of Oil and Gas Production
Department Yamashneft was completed. Construction and
installation works are planned for 2020.
PJSC Tatneft is responsible for monitoring the efficiency of
operation of gas treatment plants, their current and planned
preventive repairs.
DYNAMICS OF THE LEVEL OF APG UTILIZATION
IN TATNEFT GROUP
96,24%
96,09%
95,93%
1010
1000
990
980
970
960
950
940
930
920
2017
2018
2019
Production of APG, mln m3
APG utilization, mln m3
APG utilization rate, %
197
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Greenhouse gas
The Company implements comprehensive measures to reduce
the impact on the climate, taking into account the content of the
UN Framework Convention on climate change (Paris Agreement),
which regulates measures to reduce the content of carbon
dioxide in the atmosphere from 2020.
Since 2015, the Company has been accounting for greenhouse
gas emissions.
Since 2016 (base year), greenhouse gas emissions have been
reduced by 5%. Only due to the high level of APG utilization, the
Company prevents emissions into the atmosphere of about 3 mln
tonnes of CO2-equivalent greenhouse gas per year. Useful APG
utilization is 96.4%.
IN 2019, THE COMPANY OPENED 2 TARGETED PROJECTS
TO REDUCE THE CARBON FOOTPRINT:
•
Implementation of the Company’s initiatives and actions
on climate aspects. Greenhouse gas management and
accounting processes.
• Analysis and selection of promising methods for reducing
emissions, recovering and processing carbon dioxide.
Within the framework of these projects, it is planned to develop
effective and promising technologies that are applicable in
Tatneft Group to reduce greenhouse gas emissions, as well as
to improve the system of accounting and management of climate
aspects.
In 2019, the mass of direct greenhouse gas emissions of Tatneft
Group amounted to 4.1 mln tonnes of CO2-equivalent, which is
20% higher than in 2018 (3.4 mln tonnes of CO2- equivalent).
The growth of greenhouse gas emissions in 2019 is caused by
the increased consumption of natural gas (steam generation) for
the production of SVO, increase in the production of products
of JSC TANECO, increase in the volume of fuel flared during the
production process of Tatneft - Presskomposite, LLC.
* According to the recommendations of the “GHG Protocol Corporate Standard” for making
a consistent comparison of emissions over time, the TATNEFT Group selected 2016 as the
baseline for the earliest year for which reliable data are available.
The dynamics of emissions by business lines shows that most of
the emissions are accounted for by the business area «Energy».
In 2019, emissions from the business line “Exploration and
Production” increased by 1.5 times. The business line “Tire
Business” managed to reduce its carbon footprint in 2019.
Of the total amount of Tatneft Group’s greenhouse gas
emissions, 99.79% is carbon dioxide. In addition, greenhouse
gases such as methane (8.4 thousand tons) and nitrous oxide
N2O (0.002262 tons) are present in the emissions.
Tasks to reduce greenhouse gas emissions are consistently
integrated into the Company’s business processes. Currently,
within the framework of the project «Formation of the Company’s
Sales Strategy», it is planned to assess the environmental impact,
including anthropogenic, along the entire value chain of the
product - at each stage of its life cycle (development, including
laboratory, production, sales and consumption), including the
assessment of impact by contractors and suppliers.
The Company directs significant efforts to the measures
for preserving «clean water», «ecosystems» and ensuring
«responsible consumption and production». Tatneft Group’s
enterprises are city-forming for many settlements in Tatarstan, so
we have always understood our responsibility for the well-being
of these cities. Our efforts ensure the implementation of the goal
«Sustainable Cities and Settlements».
Compensatory measures are the
most important elements in reducing
climate risks. In order to create a
favorable environment in the area of its
operations and increase the absorption
of greenhouse gases, Tatneft Group has
been implementing a Lawning Program
since 2000. During this period, about 11
mln saplings of trees and bushes were
planted. In 2020, it is planned to plant
more than 3 mln saplings.
DYNAMICS OF GREENHOUSE GAS (GHG) EMISSIONS
OF TATNEFT GROUP, MLN M3 (CO2-EQUIVALENT)
DYNAMICS OF GREENHOUSE GAS EMISSIONS BUSINESS
LINES-WISE, TONS
4,3
4,1
• Energy
3,5
3,4
• Exploration and
production
• Oil and gas
processing
• Tire business
1,6
0,8
0,5
1,6
0,8
0,5
1,7
1,4
0,7
0,002
0,001
0,001
2016
2017
2018
2019
2017
2018
2019
Protection of water resources
and rational water use
Water use in Tatneft Group is in compliance with the «Water
Code of the Russian Federation» and Federal law «On Subsoil»
on the basis of contracts on the use of water bodies, decisions on
providing water bodies for use, licenses for the right to use subsoil
for groundwater extraction.
To ensure the standard level of wastewater treatment and
complete exclusion of discharge of polluted effluents into the
environment, the mechanical wastewater treatment unit was
re-equipped in Tolyattikauchuk, LLC in 2019; the biological
treatment unit of system 1 was commissioned in JSC TANECO;
technological standards for the content of pollutants in wastewater
are observed; the territories of sites and places of wastewater
discharge are kept in proper sanitary and ecological condition.
During 2019, a significant amount of work was performed to
improve the reliability of pipelines for various purposes. Anti-
corrosion pipes are used to ensure reliable operation of oilfield
pipelines.
In order to protect land, surface and
underground waters, PJSC Tatneft has
completed overhaul of more than 93
km of oil pipelines for oil collection and
treatment systems, and more than 80 km
of water pipelines for the reservoir pressure
maintenance (RPM) system using anti-
corrosion pipes.
Emergencies prevention
and recovery
The system of prevention and recovery of emergency caused
by oil and petroleum spills, protection of the population and the
environment from their harmful effects is carried out in two main
business lines: a set of engineering and organizational measures
aimed at improving the reliability of production equipment, timely
detection of oil spills and minimizing losses from them, as well as a
set of measures aimed at rapid response to this type of emergency.
Irreducible reserves of natural resources have been secured,
including for the elimination of oil spills into water bodies, there are
2,298 meters of booms and 16 skimmers.
WATER DISPOSAL INTO SURFACE WATER BODIES, MLN M3
16,2
2019
2018
2017
16,6
16,5
Land reclamation
In Tatneft Group, a comprehensive approach is applied to
the reclamation of land affected during the construction and
operation of facilities, taking into account the categories of land
use, soil types, types of violations and pollution.
To support the reclamation process, PJSC Tatneft developed
and implemented standards for the permissible residual
content of oil and petroleum products (PRCOPP) for 9 types
of soils of industrial significance in 2019. Comprehensive field
and laboratory studies on the comparative analysis of the
effectiveness and environmental safety of new technologies
for reclamation of oil-contaminated and saline lands were
conducted. Based on the results of scientific research, a list
of the most effective biotechnologies has been formed, using
native strains in combination with nanosorbents (based on local
agrominerals), as well as humic products.
The Company’s standards for land reclamation affected during
the construction and operation of oilfield facilities, loss of piping
integrity, the use of biotechnologies and the preparation of
reclamation projects have been updated.
Biodiversity conservation
The largest specially protected natural area of federal
importance located in the region of Tatneft Group’s activity is
FSBI National Park Nizhnyaya Kama.
Tatneft Group does not have an irreversible impact on
biodiversity. The main impacts on biodiversity are associated
with the exploration, production, preparation, transportation and
retail sale of petroleum products.
In order to prevent the pollution of surface watercourses (rivers)
and water bodies (reservoirs) with oil, 512 stationary oil recovery
structures (ORU), booms, and lagoons are maintained in working
condition .
The Biodiversity Conservation Program is being implemented - it
sets goals for the conservation of biodiversity in the territories
of activity at a level that ensures their sustainable existence and
inexhaustible use.
198
199
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT
Personnel
Tatneft Group provides about 60 thousand jobs at 105 enterprises
in the Russian Federation and abroad.
TATNEFT GROUP MAIN STAFF CATEGORIES
AS OF 31.12.2019, PEOPLE
Remuneration plan
Managers
Specialists and clerical staff
Workers
TOTAL WORKFORCE:
TATNEFT GROUP HEADCOUNT AS OF 31.12.2019,
BROKEN DOWN BY GENDER, PEOPLE
Men
Women
TOTAL:
TATNEFT GROUP STAFF BREAKDOWN
BY COUNTRY AND GENDER AS OF 31.12.2019,
PEOPLE
men
women
men
women
men
women
men
women
men
women
men
women
men
women
men
women
men
women
men
women
Russian Federation
Canada
China
Libya
Republic of Belarus
Republic of Kazakhstan
Republic of Moldova
Republic of Turkmenistan
Republic of Uzbekistan
Ukraine
200
5 959
16 367
37 434
59 760
The Company considers remuneration as a part of an
integrated system of financial and non-financial encouragement
of personnel, which allows the Company to maintain high
competitiveness by attracting and retaining qualified and
motivated employees. The personnel basic income is formed
from wages and employment benefits. Wages include a tariff-
based (fixed) part, according to the Unified Rate Schedule, and
bonus-based (variable) part. The employment benefits provide
employees with a relevant scope of medical and other social
guarantees.
32 527
27 233
59 760
Based on the outcome of 2019: the ratio of wage to the minimum
consumer budget in the Republic of Tatarstan constituted 4.21,
the ratio of the tariff rate (wage) of the first class with standard
working conditions and the minimum wage for the RT (Minimum
Wage Rate of the RT) constituted 1.29.
PAYROLL FUND OF EMPLOYEES OF PJSC TATNEFT
15 665
16 646
17 820
2017
2018
2019
AVERAGE MONTHLY WAGE OF PJSC TATNEFT
61 796
63 795
66 439
2017
2018
2019
55%
45%
33%
67%
100%
-
100%
-
-
100%
73%
27%
-
100%
96%
4%
80%
20%
58%
42%
The HR management policy is aimed
at attracting and retaining responsible
and professional employees. Career
development, incentives and employee
performance assessment are one of the
key areas of the corporate personnel
development system.
Currently, in order to ensure efficient implementation of the
personnel policy, the HR strategy of Tatneft Group until 2030
is being formed. With the development of operational activities
and the assessment of the need in human resources specialists
and operating personnel, the tasks of forming personnel reserve,
training and development, the system of financial and non-
financial incentives, corporate culture and youth policy have
been focused on.
Level of competence
The Company has built a system for assessing the professional
knowledge and skills of its employees, as well as a
comprehensive system for evaluating the competencies of
managers and specialists.
Taking into account the requirements, candidates for senior
positions are evaluated in several stages:
1. assessment of employees’ qualifications,
2. evaluation of the Key Performance Indicator (KPI) and Pro-
activity (participation in projects) of the candidates
3. professional interview with the company’s experts,
4. assessment of reliability,
5. assessment of professionally important qualities.
In total, 509 persons passed a comprehensive assessment in
2019. Based on the results of the comprehensive assessment,
the competence development specialists provide feedback
to each candidate and assist them in developing Individual
Development Plans (IDPs).
Personnel
certification
Formation of the personnel
reserve
In accordance with the Company’s Personnel Certification
Standard, the executive personnel certification process under
the Director General of PJSC Tatneft has been organized to
determine whether the employees’ competence meets the
job and qualification requirements, as well as to assess the
opportunities for their further career growth.
In 2019, employees of 12 departments and services of the
executive office of PJSC Tatneft – 199 employees - were
certified.
The Certification Commission issued 138 recommendations
aimed at improving skills, developing professional and corporate
competencies, applying financial incentives of employees and
developing career, organizing rotation, as well as updating
organizational and administrative documents.
In 2019, the Company spent 214 273, 2 thousand rubles
to train its personnel.
In 2019, work on the formation of the Company’s personnel
reserve was resumed within the framework of an open
competition for the personnel reserve of Tatneft Group. The
Company has a clear hierarchy of management positions and the
following levels are allocated - TOP 100, TOP 300 and TOP 1000.
In order to create and maintain the human resource potential of
business assets in the context of structural transformations, in
2019, first of all, applications related to the personnel reserve
for positions of line managers of the TOP-1000 level were
processed.
In 2019, more than 30 corporate training programs were
organized. Within the framework of the program for the
development of the personnel reserve, the Corporate University
conducts modular training «Leaders-300» under the target
educational MBA program, «Leaders-100» under the Executive
MBA program, «Leaders-1000». Much attention is paid by the
Company’s management to the development of unique (losing)
competencies of employees for the implementation of promising
projects
NUMBER OF EMPLOYEES WHO HAVE COMPLETED TRAINING, BROKEN DOWN
BY CATEGORY OF EMPLOYEES AND BY GENDER, PERSONS
Employee category
Managers
Specialists
Officers
Workers
Total
Total
2 619
7 000
70
13 464
23 153
including
men
2 167
2 801
7
9 535
14 510
including
women
452
4199
63
3929
8643
201
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Work with veterans
One of the most important activities of a trade union organization
of its elected body, is to work with non-working pensioners -
members of the Trade Union. Today, the number of non-working
pensioners is 47,326 persons.
Each enterprise has a Council of Veterans, and each primary
trade union organization has a Commission for working with non-
working pensioners.
An elaborated system of cooperation between trade unions,
together with the administration, the Council of Veterans, the
youth organization enables targeted work with non-working
pensioners – members of the Trade Union in many areas of
activity and their social protection.
According to the Articles of Association of the trade union
organization, employees who dismiss at his/her own request due
to the retirement and do not continue their work are registered in
the primary trade union organization.
In accordance with the work plans of the Trade Union and its
commissions, approved at a meeting of the Trade Union and
agreed with the administration, veterans, retirees, an extensive
work on the organization of social protection and carrying out
mass cultural, sports and recreational activities is performed,
and special attention is paid to employment, moral, patriotic
education of youth in workforces.
Tatneft Group does a lot in terms of social protection and
improving the standard of living of pensioners. The work is
performed jointly with the Trade Union Committee and the
Council of Veterans. In 2019, a survey of the living conditions
of veterans, identification of apartments and houses in need of
repair, provision of financial assistance, allocation of sanatorium
and health-resort vouchers, and organization of other necessary
activities was organized.
According to the Collective Agreement, financial assistance is
provided through Tatneft Charitable Foundation to:
• participants of the Second World War on Victory Day;
• widows;
• homefront workers.
Corporate
university
In 2019, 7,697 persons (intramural and extramural programs)
were trained in 28 courses at the Corporate University. In
addition, training was organized for 656 persons by external
providers. As a result, the total training plan was exceeded by
71%.
7 697
TRAINED
PERSONS
In order to develop business administration competencies,
managers are implementing: «EMBA Target Educational Program
for Personnel Reserve «TOP 100», «MBA Target Educational
Program for Personnel Reserve «TOP 300» and «Target
Educational Program Leaders-1000». To date, more than 200
managers of various levels have been trained in these programs.
4 300
REMOTE TRAINING
EMPLOYEES
In 2019, more than 4,300 employees completed remote
training. In 2020, it is planned to implement the Development of
E-Learning System in TATNEFT Group project.
In 2019, 13 corporate professional standards were developed
and implemented, and 2 professional standards are being
updated. It is planned to develop 18 corporate professional
standards for 2020-2021.
In 2019, 675 employees were evaluated using the 360-degree
method. Large-scale work is underway to introduce a culture of
self-learning organization. Currently, more than 50, 000 users, 27
courses have been launched in the virtual environment Mirapolis
- the Single Platform for Employee Training and Development of
Tatneft Group.
Work with youth
In 2019, the Youth Organization of Tatneft numbered 25,270
thousand young employees, of which 7,346 were employees of
structural divisions, 7,212 were employees of subsidiaries, 10,712
were employees of oil service enterprises and organizations, etc.
The share of young employees was 34% in structural divisions,
29% - in subsidiaries, and 32% - in oil service enterprises.
In 2019, the Youth Organization implemented a number of
new initiatives aimed at increasing the efficiency of work
with young people, reducing inefficient costs, and increasing
the involvement of young people in scientific, creative, and
innovatory work.
In July 2019, the first International Oil and Gas Youth Forum
organized by the Ministry of Energy of the Russian Federation,
PJSC Tatneft and the Youth Council of the oil and gas industry
under the Ministry of Energy of Russia, was held. 250 persons -
young managers and specialists of Russian and foreign fuel and
energy enterprises, young scientists and experts, representatives
of the authorities of the Russian Federation and the Republic of
Tatarstan, young teachers, graduate students and students of
Russian and foreign universities - took part in the Forum. The
Company’s Youth Committee took a direct part in the Forum.
Young employees of Tatneft Group participate actively in
the Company’s innovation processes, in 2019, young people
submitted more than 3,000 innovation proposals and received
more than 30 patents.
202
The global task was to form
a progressive youth team
to solve the urgent problems facing
the fuel and energy complex of
Russia and neighboring countries.
In 2019, Tatneft was awarded a diploma for efficient
implementation of the youth policy at the enterprise in the
competition for the best socially-oriented company in the oil
and gas industry held by the Ministry of Energy of the Russian
Federation. As part of the IX Saint Petersburg International Gas
Forum, Tatneft was encouraged by a Gratitude Letter from the
Federal Agency for Youth Affairs of the Russian Federation for
assistance in the implementation of the state youth policy in the
oil and gas industry. In addition, in 2019, the Youth Committee
of PJSC Tatneft won the award «On One Wave» organized by
the Ministry of Youth Affairs of the Republic of Tatarstan in the
category «Team of the Year».
As well as for all non-working pensioners:
International Day of Older Persons;
•
• Day of Invalids;
•
financial assistance on a personal application.
In addition, non-working pensioners, participants of a non-state
fund, receive a pension for the period specified in the contracts
after termination of employment.
Creative and meaningful leisure time is of great importance for
the elderly. Any form of leisure time extends the creative activity
of pensioners, preserves internal energy and optimism, changes
the attitude to life, is an environment for new acquaintances,
gives communication with people of interest.
According to the Collective Agreement and the Regulations on
financing cultural and sports events, funds from enterprises and
trade unions have been allocated and efficiently used for these
events.
Green Fitness classes and other types of physically active leisure
time occupies a significant place in health-improving work with
veterans. At the initiative of the Director General of PJSC Tatneft,
N.U. Maganov, «Active Longevity Centers» have been opened,
which are equipped with modern simulators.
Pensioners are active participants in the creative competition
«Talents’ Festival» organized annually by Tatneft Trade Union
Committee.
For the purpose of social protection of non-working pensioners,
the Chairman of the Council of Veterans of the executive office
of PJSC Tatneft was elected from the trade union organization as
a member of the Commission for the preparation of a Collective
Agreement.
Tatneft, a trade union organization, together with the Council of
Veterans, makes every effort to make our veterans feel confident
in the future.
All events held with pensioners are covered in the media.
203
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Collective agreement
The Company provides its employees with a package of social
benefits and guarantees. Obligations for their provision are stated
in the Collective Agreement annually concluded between PJSC
Tatneft and the workforce and covering all employees and non-
working pensioners of the Company.
The enterprises belonging to Tatneft Group have concluded
their own Collective Agreements, which seek to comply with the
Collective Agreement of PJSC Tatneft in terms of the content and
amount of benefits and guarantees.
A Collective Agreement contains the mutual obligations of the
employer and the Trade Union Committee in 12 sections. They
reflect the tasks of efficient production management, organization
of safe labor and its decent remuneration, social benefits for
employees and support for non-working pensioners, and a section
on guarantees of the trade union organization.
A separate section is dedicated to social benefits for young
employees.
In order to monitor the implementation of collective agreements,
the Chairman of the Trade Union Committee of Tatneft, his
deputies and chief specialists of the Trade Union Committee,
chairmen of the Trade Union Committees of enterprises visited
workplaces regularly, got acquainted with living and working
conditions, and met with the collectives of workshops and teams.
Based on the results of personal meetings, shop meetings of
workforces and conferences at the enterprises of Tatneft, a
set of proposals from employees on improving the Collective
Agreement, improving the organization of labor, and problematic
areas in the course of structural changes in the Company was
formed. This list was sent for consideration and search for
solutions to the relevant services and the Conciliative Commission
of PJSC Tatneft on the development of a Collective Agreement.
The Trade Union Committee of Tatneft took an active part in this
work
A COLLECTIVE AGREEMENT PROVIDES:
• benefits and guarantees for employees;
social protection of young workers;
•
support for veterans and pensioners.
•
THE TOTAL AMOUNT OF SOCIAL PAYMENTS TO EMPLOYEES UNDER
SECTIONS 6,7 OF THE COLLECTIVE AGREEMENT OF PJSC TATNEFT
(EXCLUDING LUMP-SUM HOLIDAY PAYMENTS AND INTEREST-FREE
LOANS TO YOUNG EMPLOYEES), RUB MLN
THE TOTAL AMOUNT OF SOCIAL PAYMENTS TO NON-WORKING
PENSIONERS UNDER SECTIONS 6, 7 OF THE COLLECTIVE AGREE-
MENT OF PJSC TATNEFT, RUB MLN
RUB mln
250,0
200,0
150,0
100,0
166,5
223,6
190,7
RUB mln
58,0
57,0
56,0
55,0
54,0
55,8
57,8
56,9
2017
2018
2019
2017
2018
2019
Source: CDU TEK
The increase in the amount of payments in 2018 was due to the
amount of financial assistance provided to the management of
PJSC Tatneft under the articles of the Collective Agreement:
«Financial assistance to employees due to their retirement» and
«Financial assistance in connection with any anniversary date».
Non-state pension provision
program
The increase in the amount of social payments to non-working
pensioners is due to the annual indexation of the amount of
financial assistance under the Collective Agreement.
One of the most important areas of the Company’s social policy
is a non-state pension provision for employees. The pension
program of PJSC Tatneft is based on the principle of social
partnership, in accordance with which the Company and its
employees form a future corporate pension by joint efforts on a
parity basis.
The number of employees of PJSC Tatneft participating in the
corporate program of non-state provision is 8,409 persons. The
actual expenses of PJSC Tatneft for non-state pension provision
in 2019 amounted to RUB 86,541 thousand.
The number of pensioners of PJSC Tatneft receiving non-state
pensions is 9,508 persons. In Tatneft Group - 17,135 persons.
Payments of non-state pension to pensioners of PJSC Tatneft
through National NPF, JSC for 2019 amounted to RUB 349,195
thousand.
In accordance with the Collective Agreement of PJSC Tatneft,
non-working pensioners who retired before the establishment
of NNPF, JSC receive quarterly financial assistance. The
total amount of financial assistance provided to non-working
pensioners of PJSC Tatneft who retired before the creation of
NNPF in 2019 amounted to RUB 19,430 thousand. The number
of non-working pensioners of PJSC Tatneft receiving this
financial assistance is 3.2 thousand persons.
Optional health
insurance
Voluntary medical insurance
programs aimed at preventing
diseases and improving health
of employees (vmi, health resort
rehabilitation, vaccination,
involvement in physical education
and sports).
385,2 MLN
RUB
TOTAL AMOUNT OF OPTIONAL
HEALTH INSURANCE CONTRACTS
In accordance with Voluntary Medical Insurance Contracts,
the total number of insured employees was 22,234 persons.
The total amount of VMI agreements is RUB 385.2 million.
The Company provides organization and payment of medical
and other services under 4 programs: «Outpatient Services»,
«Inpatient Services», «Rehabilitation Treatment» and
«Comprehensive Medical Care».
In order to reduce infectious diseases, annual seasonal
immunoprophylaxis was conducted at the expense of the VMI
funds. In 2019, employees of PJSC Tatneft were vaccinated
against seasonal flu (3,910 persons were vaccinated) and tick-
borne encephalitis (3,493 persons). A medical examination of
employees of PJSC Tatneft was also conducted in order to
detect cancer related diseases at an early stage.
The Company has 11 health care centers on its balance sheet.
In 2019, 2,081 employees of structural divisions of PJSC
Tatneft engaged in work with harmful and (or) dangerous
production factors rested and improved in health care centers.
666 employees underwent sanatorium rehabilitation in the
«Yuzhny Obyekt». 127 employees of Belokurikha Resort, JSC
(«Siberia», «Katun» and «Belokurikha») underwent sanatorium
rehabilitation.
A preferential category of citizens of the Russian Federation,
children and citizens who, if medically required, need
rehabilitation are treated in the Company’s sanatoriums.
High-tech medical care
Thanks to the significant organizational contribution of Tatneft,
a Regional Medical Diagnostic Center of Tatneft Medical Unit
(Almetyevsk) operates in the South-East of Tatarstan, providing
high-tech medical care in cardiovascular surgery, traumatology
and orthopedics, ophthalmology and urology. This is a large
and modern multi-field Health Care Center, which has a highly
qualified personnel potential and is equipped with the latest
medical equipment.
The clinic uses a complex of high-tech methods of diagnostics
and treatment: hybrid cardiac surgery; radiofrequency
ablation of heart rhythm disorders using CARTO 3 non-
fluoroscopic navigation system; neurosurgical operations using
neuronavigation equipment.
Every year, state quotas are allocated for the Medical Unit
to perform high-tech operations for residents of 10 districts
of the South-East of the Republic of Tatarstan in the fields of
cardiovascular surgery, traumatology and orthopedics and
neurosurgery, which are successfully implemented.
As part of the implementation of the state order on provision
of high-tech medical care for residents of the South-East of
the Republic of Tatarstan, funds in the amount of RUB 291.7
million were disbursed. The state order by the specialists of
the Medical Unit was fulfilled in full.
204
205
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT For 2018, funds for the implementation of the state task to
provide VMP for residents of the South-East of the Republic of
Tatarstan were allocated in the amount of RUB 314 million. For
2019, funds for the implementation of the state task to provide
HTMC for residents of the South-East of the Republic of
Tatarstan were allocated in the amount of RUB 328,9 million.
For 2020, an application was submitted for the provision
of HTMC for residents of the South-East of the Republic of
Tatarstan in the amount of RUB 346.8 million, at the moment
RUB 182.7 million have already been allocated.
Since the opening of the Regional Medical Diagnostic
Center in 2008, 2,365 open heart surgeries, 21,378 coronary
angiographies, 7,503 stenting of coronary arteries, 980
implantation of electrocardiostimulators, 842 radiofrequency
ablation operations, more than 589 endoprosthesis
replacements of large joints, as well as more than 8,878
microinvasive operations on the anterior and posterior eye
segments have already been performed. New efficient and
minimally invasive surgical treatment using hybrid technologies
is being developed and implemented, such as transcatheter
aortic valve replacement, installation of stent grafts to eliminate
aortic aneurysms, and other vascular and heart operations. To
date, 96 such operations have been performed.
Organization of summer and winter
holidays for employees’ children in
recreation camps
The Company has 11 children’s recreation camps for 2,723 places
located on the territory of the Company’s activities, which meet
modern requirements for comfortable living and recreation. In
2019, in accordance with the children’s health program, 11,510
children had a rest in the Company’s children’s recreation camps
during four shifts.
Much attention is paid to children’s recreation programs, the
purpose of which is the comprehensive development of a child.
During the holidays, qualified teachers, trainers who conduct
various informative and educational activities take care of
children.
Housing policy
PJSC Tatneft is an active participant and main payer of the social
mortgage housing construction program in the Republic of
Tatarstan.
In 2019, 519 apartments with a total space of 31.7 thousand m2 at
the amount of RUB 1,149.2 million were built and commissioned
for the Company’s employees.
The number of applicants in the oil region for housing under the
social mortgage program as of January 1, 2020 constituted 4,646
persons.
TATNEFT is an industrial partner of the AGNI and provides
comprehensive support for the development of the Institute’s
material and technical facilities, organizational structure, and the
improved professional competence of teaching staff. The leaders
and specialists of the Company as part of the educational process
share their professional knowledge and experience with students
and graduate students, act as experts in their scientific works.
The scientific and educational activities of the Almetyevsk
State Petroleum Institute, along with traditional specialties, are
connected with digital technologies for reservoir management and
innovative mineral resources management. As part of the strategy
implementation, the AGNI together with the Company developed
the projects aimed at accelerating the modernization and
improvement of educational programs, attracting and recruiting
talented applicants, raising the level and volume of research and
development activities, attracting and developing the key staff,
developing the infrastructure and laboratory base.
Development of the Company’s
main activity region
The Company sets a high priority
on the innovative growth of the
territories of its presence on the
basis of smart and environmentally
friendly technologies.
The main region of the Company’s activity is the South-East
of the Republic of Tatarstan with the executive corporate
center located in the city of Almetyevsk. There are also a
significant number of the Company’s production facilities in
close proximity to Almetyevsk, including upstream operations.
Almetyevsk was assigned a role of the state-of-the-art fifth
technological zone with advanced information technologies
integrated into all spheres of life, including social infrastructure,
medicine and education.
Education Development Support
The Company pays great attention to the educational development by investing
material, organizational and intellectual resources at all levels of the educational
processes. The Company financed the reconstruction, repair and improvement
of material and technical facilities of educational institutions in the South-East of
Tatarstan: from kindergartens to universities. The Company supports development
of the high-quality educational environment by facilitating open professional
interaction of educators.
Since 2018, the Company has been involved in the implementation
of the Development Strategy of the Almetyevsk State Petroleum
Institute (AGNI) as a higher oil school. The Strategy covers
the period to 2030 and is aimed at creating a modern smart
educational environment in line with the advanced world trends
at the level of leading research and educational centers of the oil
& gas profile with the priority goals of: better education; advanced
science; modern infrastructure and management system.
The Institute is located in the region of the Company’s core
business and is the basic educational institution for training
of professional personnel for the enterprises of the TATNEFT
Group, and also has a high potential for a scientific branch school,
advanced training and supplementary education.
TATNEFT Public Council
The Company practices Public Councils to improve the efficient
interaction with the stakeholders, including the awareness level
of stakeholders on socially important aspects of the TATNEFT
Group’s activities and the feedback effectiveness.
The Public Council is a collegial body with the participation of
the top management of the Company and representatives of
the public concerned - leaders of civil associations and trade
unions, industry experts, media representatives, and the local
population. The Public Council includes N.U. Maganov, General
Director of PSJC TATNEFT.
The Public Council brings together the stakeholders to discuss
topical issues and further work out appropriate decisions
by the Company. The Company lays special emphasis on
building inclusiveness of local people in the social policy of the
Company.
Development projects of the TATNEFT Medical Treatment
Facility and a new campus of the higher education institution
of Almetyevsk State Petroleum Institute were submitted for
discussion.
The Public Council work in
2019-2020 has been devoted to
socially important infrastructure
projects of the Company in
healthcare and education.
In the process of discussion the constructive proposals were
developed taking into account the proposals received from
participants in the public discussion.
Public councils enable the Company to get more precise
information on the demand and expectations of the social
environment, more efficiently distribute the corporate resources
in implementation of the social policy, and also increase the
stakeholders’ awareness level about the activities of TATNEFT
Group.
206
207
SUSTAINABLE DEVELOPMENT252019 ANNUAL REPORTYEARS OF SUSTAINABLE DEVELOPMENT Annex
208
209
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Annex 1
Independent Auditor’s Report
Independent Auditor’s Report
IFRS Consolidated Financial
Statements and Independent
Auditor’s Report
31 December 2019
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 2019, 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 2019;
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) and 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, Russian Federation, 125047
T: +7 (495) 967 6000, F:+7 (495) 967 6001, www.pwc.ru
210
211
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Independent Auditor’s Report
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
Business combinations
Refer to Note 29 to the consolidated financial
statements
We performed the following procedures to
assess
the appropriateness of valuation
methods and methodology of accounting of
acquired businesses used by the Group’s
management:
examination of documents on acquisition
of control over the subsidiaries, including
purchase
payment
agreements,
documents, other agreements with the
sellers;
analysis of key assumptions and input
data used by the Group’s management
when
preliminary
assessment of the fair values of acquired
assets and liabilities;
performing
a
analysis of reasonableness and review of
the mathematical accuracy of preliminary
calculations of purchase price allocation
of the assets and liabilities of the acquired
entities;
assessment of compliance with IFRS of
the consolidated
the disclosures
in
financial statements.
In the 4th quarter of 2019, the Group acquired 100 %
of the charter capital of LLC Neste Saint-Petersburg
(later renamed to LLC Tatneft-AZS-Severo-Zapad)
from the third party Neste Oyj (Neste Corporation).
LLC Neste Saint-Petersburg owns a premium retail
chain of 75 petroleum stations, a tank farm of oil
products and an office building in Saint-Petersburg.
The acquired subsidiary will increase the Group’s
presence in the fuel and retail market of the North-
West Federal district of Russia.
The purchase price was RR 9,139 million (net of
cash received), cash consideration was fully paid in
2019.
In the 4th quarter of 2019, the Group also acquired
100 % of the charter capital of LLC SIBUR-Togliatti
(later renamed to LLC Togliattikauchuk) and 100 %
of the share capital of JSC Togliattisintez from the
third party PJSC SIBUR Holding. The acquired
subsidiaries form a petrochemical complex and
contribute to the further development of the Group’s
petrochemical and tires business.
The purchase price was RR 11,378 million (net of
cash received), cash consideration was fully paid in
2019.
As of 31 December 2019,
fair value
measurement of the assets and liabilities of the
acquired entities is preliminary and will be finalised
within 12 months from the date of acquisition.
Preliminary fair value of the acquired net assets of
LLC Neste Saint-Petersburg is RR 10,832 million,
net
and
JSC Togliattisintez is RR 12,801 million.
We focused on this matter due to significance of the
acquired businesses
financial
for
position.
LLC SIBUR-Togliatti
the Group’s
assets
the
of
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
Overall Group materiality: Russian Roubles (“RUB”) 12,600 million,
which represents 5.0 % of profit before tax.
We conducted audit work at 4 significant reporting entities.
The Group engagement team visited Group’s operations in
Almetievsk, Nizhnekamsk and Moscow.
Our audit scope addressed 95 % of the Group’s revenues and 94 %
of the Group’s absolute value of underlying profit before tax.
Key audit matter
Business combinations
Impairment of assets
As part of designing our audit, we determined materiality and assessed 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. As in all of our audits,
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.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the consolidated 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 consolidated financial statements as a
whole.
Overall Group materiality
RUB 12,600 million
How we determined it
5.0 % of profit before tax
Rationale for the materiality
benchmark applied
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. We chose 5.0 % which is consistent with
quantitative materiality
for profit-oriented
companies in this industry sector and previous year approach.
thresholds used
2
3
212
213
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Independent Auditor’s Report
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 ended
31 December and 30 September 2019 and years ended 31 December 2019 and 2018” (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 2019 and Quarterly Report of the
Equity Securities Issuer for the 1st quarter 2020, which is 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.
When we read PJSC Tatneft Annual Report 2019 and Quarterly Report of the Equity Securities Issuer
for the 1st quarter 2020, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance.
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.
Key audit matter
How our audit addressed the key audit
matter
Impairment of assets
Refer to Note 12 to the consolidated financial
statements
As a result of assessment performed in 2019 the
Group recognised net impairment losses and losses
on disposal of certain property, plant and equipment
and construction in progress in the amount of
RR 30,875 million (line “Impairment
losses and
disposal of property, plant and equipment and other
non-financial assets net of
the
consolidated statement of profit or loss and other
comprehensive income). Impairment losses are
primarily related to the following:
exploration and evaluation assets;
social assets and construction in progress in
respect of which no future economic benefits are
expected.
reversal” of
We focused on this matter due to significance of
impairment charges, estimates and judgements
involved in the calculations.
We performed the following audit procedures
to assess the appropriateness of valuation
methods and calculations used in estimating
recoverable values:
examination, on a sample basis, of the
models and calculations used for the
assessment of impairment losses;
analysis of key assumptions used by the
Group’s management when estimating
the recoverable values;
verification of the mathematical accuracy
of discounted cash
(if
applicable);
flow models
analysis of collective labor agreements
with respect to Group’s social obligations
to employees;
assessment of compliance with IFRS of
the consolidated
the disclosures
in
financial statements.
How we tailored our Group audit scope
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.
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 ZENIT Banking Group,
we determined the level of involvement we needed to have in the audit work at this reporting unit 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, located in Almetievsk), JSC TANECO (oil refinery subsidiary,
located
in
Nizhnekamsk) and ZENIT Banking Group (banking subsidiaries, holding company is located in
Moscow). In addition, we performed specified audit procedures over selected financial statements line
items at a number of less significant reporting units in order to increase the level of audit comfort.
in Nizhnekamsk), PJSC Nizhnekamskshina (tires producing subsidiary,
located
4
5
214
215
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Independent Auditor’s Report
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The certified auditor responsible for the audit resulting in this independent auditor’s report is
Maxim E.Timchenko.
31 March 2020
Moscow, Russian Federation
M.E. Timchenko, certified auditor (licence No. 01-000267), AO PricewaterhouseCoopers Audit
Audited entity: PJSC Tatneft
Independent auditor: AO PricewaterhouseCoopers Audit
Record made in the Unified State Register of Legal Entities on
18 July 2002 under State Registration Number 1021601623702
Registered by the Government Agency Moscow Registration Chamber
on 28 February 1992 under Nо. 008.890
Taxpayer Identification Number 1644003838
Record made in the Unified State Register of Legal Entities on
22 August 2002 under State Registration Number 1027700148431
423450, Russian Federation, Republic of Tatarstan, Almetievsk,
Lenina str., 75
Taxpayer Identification Number 7705051102
Member of Self-regulatory organization of auditors Association
“Sodruzhestvo”
Principal Registration Number of the Record in the Register of Auditors
and Audit Organizations – 12006020338
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.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
6
7
216
217
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
IFRS Consolidated Financial Statements
IFRS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS OF RUSSIAN RUBLES)
ASSETS
Cash and cash equivalents
Banking: Mandatory reserve deposits with the Bank of Russia
Short-term accounts receivable, net
Banking: Loans to customers
Other short-term financial assets
Inventories
Prepaid expenses and other current assets
Prepaid income tax
Banking: 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
Right-of-use assets
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
Dividends payable
Banking: Other financial liabilities at fair value through profit and loss
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
218
Note
31 December 2019
31 December 2018
6
7
8
9
10
11
7
8
9
12
13
14
15
16
20
17
18
25,157
1,572
84,706
33,880
27,713
53,379
20,770
4,838
1,112
253,127
7,861
102,572
80,578
774
768,735
13,658
2,712
8,622
985,512
1,238,639
19,592
60,289
55,865
4,451
20,293
158,671
65,489
1,875
80,762
53,797
32,901
50,606
23,090
852
2,360
311,732
2,930
92,508
81,513
637
701,922
-
3,548
6,498
889,556
1,201,288
11,953
42,989
50,711
1,190
13,765
183,654
Note
14
15
17
18
12
13
14
19
20
20
Taxes payable
Income tax payable
Other short-term liabilities
Total current liabilities
Long-term debt, net of current portion
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Decommissioning provision, net of current portion
Lease liabilities, net of current portion
Deferred income tax liability
Other long-term liabilities
Total non-current liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Preferred shares (authorised and issued at 31 December 2019 and at 31
December 2018 – 147,508,500 shares; nominal value at 31 December
2019 and at 31 December 2018 – RR1.00)
Ordinary shares (authorised and issued at 31 December 2019 and at 31
December 2018 – 2,178,690,700 shares; nominal value at 31 December
2019 and at 31 December 2018 – RR1.00)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Less: Ordinary shares held in treasury, at cost (75,636,735 shares at 31
December 2019 and 75,483,000 at 31 December 2018, respectively)
Total Group shareholders’ equity
Non-controlling interest
Total shareholders’ equity
Total liabilities and equity
31 December 2019
31 December 2018
37,465
598
869
358,093
21,657
2,522
1,381
50,347
11,578
33,419
7,512
128,416
486,509
38,771
3,254
533
346,820
3,084
4,660
682
34,338
-
31,486
3,437
77,687
424,507
746
746
11,021
84,437
1,073
658,614
(10,359)
745,532
6,598
752,130
1,238,639
11,021
84,437
1,804
683,508
(10,251)
771,265
5,516
776,781
1,201,288
219
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
(IN MILLIONS OF RUSSIAN RUBLES)
Note
Year ended
31 December 2019
Year ended
31 December 2018
Note
Year ended
31 December 2019
Year ended
31 December 2018
IFRS Consolidated Financial Statements
Sales and other operating revenues on non-banking activities, net
25
932,296
910,534
COSTS AND OTHER DEDUCTIONS ON NON-BANKING ACTIVITIES
Operating expenses
Purchased crude oil and refined products
Exploration
Transportation
Selling, general and administrative
Depreciation, depletion and amortization
12,13,25
Impairment losses on financial assets net of reversal
Impairment losses and losses on disposal on property, plant and equipment
and other non-financial assets net of reversal
Taxes other than income taxes
Maintenance of social infrastructure and transfer of social assets
Total costs and other deductions on non-banking activities
Loss on disposal of interests in subsidiaries and associates, net
Other operating gain, net
Operating profit on non-banking activities
7,9
12
14
12
(140,040)
(58,112)
(1,006)
(37,356)
(52,637)
(35,165)
(6,737)
(30,875)
(307,654)
(9,340)
(678,922)
(41)
993
254,326
(132,215)
(76,080)
(688)
(36,952)
(49,700)
(30,520)
(14,955)
(5,874)
(293,162)
(5,613)
(645,759)
(1,842)
488
263,421
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
Net expense on creating provision for credit losses associated with debt
financial assets
Operating expenses
Gain/(loss) arising from dealing in foreign currencies, net
Other operating income/(expense), net
Total net interest, fee and commission and other operating income/
(expenses) and gains/(losses) on banking activities
OTHER INCOME/(EXPENSES)
Foreign exchange (loss)/gain, net
Interest income on non-banking activities
Interest expense on non-banking activities, net of amounts capitalised
Share of results of associates and joint ventures, net
23,24,25
23,24
8
30
22
22
22,584
(12,118)
(462)
(9,871)
70
2,099
2,302
(207)
1,201
(5,407)
127
23,259
(11,132)
(1,310)
(10,019)
(205)
(36)
557
7,936
5,497
(3,590)
(32)
Total other (expense)/income, net
Profit before income tax
INCOME TAX
Current income tax expense
Deferred income tax expense
Income tax expense
Profit for the period
OTHER COMPREHENSIVE INCOME/(LOSS) NET OF INCOME TAX
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments
Gain on debt financial assets at fair value through other comprehensive
income, net
Items that will not be reclassified to profit or loss:
Gain/(loss) on equity financial assets at fair value through other
comprehensive income, net
Actuarial (loss)/gain on employee benefit plans
Other comprehensive income
Total comprehensive income for the period
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)
Ordinary
Preferred
Weighted average shares outstanding (millions of shares)
Ordinary
Preferred
14
20
20
(4,286)
252,342
(57,626)
(1,898)
(59,524)
192,818
(509)
170
1,225
(377)
509
193,327
192,260
558
192,818
192,343
984
193,327
85.43
85.43
2,103
148
220
9,811
273,789
(58,015)
(4,226)
(62,241)
211,548
(76)
44
(150)
334
152
211,700
211,812
(264)
211,548
211,964
(264)
211,700
94.11
93.89
2,103
148
221
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(IN MILLIONS OF RUSSIAN RUBLES)
Attributable to Group shareholders
Number of shares
(thousands)
Share
capital
Additional
paid-in capital
Treasury
shares
Actuarial
(loss)/gain
on employee
benefit plans
Foreign
currency translation
adjustments
Gain/(loss) on financial
assets at fair value
through
other compre-hensive
income, net
Retained
earnings
Total
shareholders’ equity
Non-con-trolling
interest
Total
equity
IFRS Consolidated Financial Statements
2,250,716
11,767
84,437
(10,251)
(1,871)
1,677
1,846
617,295
704,900
4,822
709,722
Balance at 1 January 2018
Profit/(loss) for the year
Other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Acquisition of non-controlling interest in
subsidiaries
Disposal of non-controlling interest in
subsidiaries
Dividends declared (Note 20)
Balance at 31 December 2018
Balance at 1 January 2019
Profit for the year
Other comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year
Treasury shares
- Additions
- Disposals
Acquisition of non-controlling interest in
subsidiaries
Disposal of non-controlling interests in
subsidiaries
Dividends declared (Note 20)
Disposal of equity financial assets at fair value
through other comprehensive income
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,250,716
2,250,716
11,767
11,767
84,437
84,437
-
-
-
(154)
(156)
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(10,251)
(10,251)
-
-
-
(108)
(109)
1
-
-
-
-
-
334
334
-
-
-
(1,537)
(1,537)
-
(377)
(377)
-
-
-
-
-
-
-
(76)
(76)
-
-
-
1,601
1,601
-
(509)
(509)
-
-
-
-
-
-
-
(106)
(106)
-
-
-
1,740
1,740
-
969
969
-
-
-
-
-
(814)
1,895
211,812
-
211,812
-
-
(145,599)
683,508
683,508
192,260
-
192,260
-
-
-
211,812
152
211,964
-
-
(145,599)
771,265
771,265
192,260
83
192,343
(108)
(109)
1
-
(217,968)
(217,968)
814
-
(264)
-
(264)
(48)
1,052
(46)
5,516
5,516
558
426
984
-
-
113
(14)
(1)
-
211,548
152
211,700
(48)
1,052
(145,645)
776,781
776,781
192,818
509
193,327
(108)
(109)
1
113
(14)
(217,969)
-
658,614
745,532
6,598
752,130
Balance at 31 December 2019
2,250,562
11,767
84,437
(10,359)
(1,914)
1,092
222
223
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF RUSSIAN RUBLES)
Note
Year ended
31 December 2019
Year ended
31 December 2018
Note
Year ended
31 December 2019
Year ended
31 December 2018
IFRS Consolidated Financial Statements
OPERATING ACTIVITIES
Profit for the year
Adjustments:
Net interest, fee and commission and other operating income and
gains on banking activities
Depreciation, depletion and amortization
12,13,25
Income tax expense
Impairment losses on financial assets net of reversal
Impairment losses and losses on disposal on property, plant and
equipment and other non-financial assets net of reversal
Loss on disposals of interests in subsidiaries and associates, net
Effects of foreign exchange
Equity investments gain net of dividends received
Interest income on non-banking activities
Interest expense on non-banking activities, net of amounts
capitalised
Other
Changes in operational working capital, excluding cash:
14
7,9
12
22
22
Accounts receivable
Inventories
Prepaid expenses and other current assets
Securities at fair value through profit or loss
Accounts payable and accrued liabilities
Taxes payable
Net cash provided by non-banking operating activities before income
tax and interest
Net interest, fee and commission and other operating income and gains
on banking activities
Adjustments:
Net expense on creating provision for credit losses associated
with debt financial assets
8
Reversal of provision for losses on credit related commitments
Change in fair value of financial assets through profit or loss
Other
Changes in operational working capital on banking activities, excluding
cash:
Mandatory reserve deposits with the Bank of Russia
Due from banks
Banking loans to customers
Due to banks and the Bank of Russia
Customer accounts
Debt securities issued
224
192,818
211,548
Securities at fair value through profit or loss
Net cash used in banking operating activities before income tax
(2,302)
35,165
59,524
6,737
30,875
41
23
(127)
(1,201)
5,407
(958)
(7,252)
(1,462)
1,901
-
13,909
(1,603)
331,495
2,302
462
(84)
(1,148)
(1,737)
303
(6,393)
5,542
5,094
(17,408)
(186)
(557)
30,520
62,241
14,955
5,874
1,842
1,445
32
(5,497)
3,590
807
(27,786)
(11,015)
132
504
4,011
10,939
303,585
557
1,310
(551)
917
165
41
(589)
(11,107)
(16,149)
18,413
(2,298)
Income taxes paid
Interest paid on non-banking activities
Interest received on non-banking activities
Net cash provided by operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash outflow on acquisition of subsidiaries
29
Cash (outflow)/inflow from disposal of subsidiaries and associates, net of
disposed cash
Purchase of securities at fair value through other comprehensive income
Purchase of securities at amortised cost
Proceeds from disposal of securities at fair value through other
comprehensive income
Proceeds from redemption of securities at amortised cost
Proceeds from sale of non-current assets held for sale
Proceeds from 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
(Purchase)/proceeds from disposal of other non-current assets
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from issuance of debt from non-banking activities
Repayment of debt from non-banking activities
Repayment of principal portion of lease liabilities
Issuance of bonds
Redemption of bonds
Repayment of subordinated debt
Dividends paid to shareholders
Dividends paid to non-controlling shareholders
Proceeds from government grants
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 year
Cash and cash equivalents at the end of the year
9
9
30
30
30
30
20
20
19
6
6
(3,948)
(17,201)
(64,268)
(2,222)
1,002
248,806
(95,994)
1,678
(20,438)
(10)
(48,186)
(1,263)
48,724
9,087
1,118
-
27,198
(27,936)
3,981
(642)
(1,209)
(103,892)
115,346
(107,212)
(1,352)
21,790
(1,053)
(2,140)
(212,814)
(1)
3,231
(184,205)
(39,291)
(1,041)
65,489
25,157
4,989
(4,302)
(58,150)
(846)
5,396
245,683
(97,945)
1,693
(173)
20
(35,086)
(20,965)
36,574
43,658
170
10
21,314
(21,053)
4,282
(24,068)
73
(91,496)
25,920
(49,466)
-
-
(6,979)
(1,359)
(100,920)
(46)
-
(132,850)
21,337
1,355
42,797
65,489
225
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Notes to the Consolidated
Financial Statements
Note 1
Organisation
PJSC Tatneft (the “Company”) and its subsidiaries (jointly referred
to as the “Group”) are engaged in crude oil exploration, devel-
opment and production principally in the Republic of Tatarstan
(“Tatarstan”), a republic within the Russian Federation. The Group
also engages in refining of crude oil and associated petroleum gas
processing, marketing of crude oil and refined products as well as
production and marketing of petrochemicals, and since October
2016, with the acquisition of controlling interest in PJSC Bank ZE-
NIT, including its subsidiaries (jointly referred to as “Bank ZENIT”),
the Group is also engaged in banking activities. See Note 28 for
the information about the Group’s principal subsidiaries.
The Company was incorporated as an open joint stock compa-
ny (now referred to as a public 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. All assets and liabilities previously managed by the
production association Tatneft, Bugulminsky Mechanical Plant,
Menzelinsky Exploratory Drilling Department and Bavlinsky
Drilling Department were transferred to the Company at their
book value at the privatization date in accordance with Decree
of the President of the Russian Federation No. 1403 on Privat-
ization 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 at 31 December 2019 and 2018 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 represent-
ative 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 exer-
cises significant 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, Almetyevsk,
Republic of Tatarstan, Russian Federation.
Note 2
Basis of preparation
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 recognition of financial
instruments based on fair value, revaluation of financial instru-
ments categorised at fair value through profit or loss (“FVTPL”)
and at fair value through other comprehensive income (“FVOCI”).
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 state-
ments in accordance with IFRS. The accompanying consolidated
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) valua-
IFRS Consolidated Financial Statements
tion (including indexation for the effect of hyperinflation in the
Russian Federation through 2002) and depreciation of property,
plant and equipment; (2) foreign currency translation; (3) deferred
income taxes; (4) valuation allowances for unrecoverable assets;
(5) consolidation; (6) accounting for oil and gas properties and
fixed assets related to oil refining; (7) recognition and disclosure
of guarantees, contingencies and commitments; (8) accounting
for decommissioning provision; (9) pensions and other post-re-
tirement benefits; (10) business combinations and goodwill and
(11) lease liabilities and right-of-use assets recognition.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process
of applying the Group’s accounting policies. The areas 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
The key accounting policies used in preparing these consoli-
dated financial statements are presented below. In addition to
changes in accounting policies as a result of the transition to
IFRS 16 “Leases” from January 1, 2019, as well as the reflection of
changes in the Tax Code of the Russian Federation (“Tax Code”)
in connection with the introduction of the reverse (“negative”)
excise tax calculation, these principles have been applied con-
sistently to all periods presented in the statements.
FUNCTIONAL AND PRESENTATION CURRENCY
The presentation currency of the Group is the Russian Ruble.
Management has determined the functional currency for the
Company and 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, payable or otherwise measured in Russian
Rubles. Accordingly, transactions and balances not 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”.
For operations of major subsidiaries located outside of the Rus-
sian Federation, that primarily use US Dollar as the functional cur-
rency, adjustments resulting from translating foreign functional
currency assets and liabilities into Russian Rubles are recorded
in other comprehensive income. Revenues, expenses and cash
flows are translated at average exchange rates (unless this aver-
age 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 rates of exchange, as published by the Central Bank
of the Russian Federation (“the Bank of Russia”), of the Russian
Ruble (“RR”) to the US Dollar (“US $”) at 31 December 2019 and
31 December 2018 were RR 61.91 and RR 69.47 to US $, respec-
tively. Average rates of exchange for the years ended 31 Decem-
ber 2019 and 31 December 2018 were RR 64.74 and RR 62.71 per
US $, respectively.
CONSOLIDATION
Subsidiaries are all entities over which the Group has control. The
Group controls an entity when the Group has the power to direct
relevant activities of the investee that significantly affect their
returns, exposed to, or has rights to, variable returns from its in-
volvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consoli-
dated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account
for business combinations. The consideration transferred for
the acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred and the equity interests issued
by the Group. The consideration transferred includes the fair
value of any asset or liability resulting from a contingent consid-
eration arrangement. Acquisition-related costs are expensed as
incurred. Identifiable acquired assets and liabilities and contin-
gent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis at the non-controlling interest’s
proportionate share of the acquiree’s net assets or at fair value.
The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition-date
fair value of any previous equity interest in the acquiree over
the fair value of the identifiable net assets acquired is recorded
within non-current assets as goodwill. If the total of consideration
transferred, non-controlling interest recognised and previously
held interest measured is less than the fair value of the net as-
sets of the subsidiary, the difference is recognised directly in the
profit and loss for the year.
Inter-company transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminat-
ed. Unrealised losses are also eliminated unless the cost cannot
be recovered.
ASSOCIATES AND JOINT VENTURES
Associates and joint ventures are entities over which the Group
has significant influence (directly or indirectly), but not control,
generally accompanying a shareholding of between 20 and 50
percent of the voting rights. Investments in associates and joint
ventures are accounted for using the equity method of account-
ing and are initially recognised at cost. Dividends received from
associates and joint ventures reduce the carrying value of the
investment in associates and joint ventures. Other post-acquisi-
tion changes in Group’s share of net assets of an associate and
joint ventures are recognised as follows: (i) the Group’s share
of profits or losses of associates or joint ventures is recorded
in the consolidated profit or loss for the year as share of result
of associates or joint ventures, (ii) the Group’s share of other
comprehensive income is recognised in other comprehensive
income and presented separately, (iii) all other changes in the
Group’s share of the carrying value of net assets of associates or
joint ventures are recognised in profit or loss within the share of
result of associates or joint ventures.
However, when the Group’s share of losses in an associate or joint
venture equals or exceeds its interest in the associate or joint ven-
ture, including any other unsecured receivables, the Group does
226
227
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate or joint venture.
Unrealised gains on transactions between the Group and its
associates and joint ventures are eliminated to the extent of the
Group’s interest in the associates and joint ventures; unrealised
losses are also eliminated unless the transaction provides evi-
dence of an impairment of the asset transferred.
The Group reviews equity method investments for impairment
on an annual basis, and records impairment when circumstances
indicate that the carrying value exceeds the recoverable amount.
FINANCIAL INSTRUMENTS – KEY
MEASUREMENT TERMS
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The best evidence
of fair value is the price in an active market. An active market is
one in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information
on an ongoing basis. Fair value of financial instruments traded in
an active market is measured as the product of the quoted price
for the individual asset or liability and the number of instruments
held by the Group. This is the case even if a market’s normal dai-
ly trading volume is not sufficient to absorb the quantity held and
placing orders to sell the position in a single transaction might
affect the quoted price.
Valuation techniques such as discounted cash flow models or
models based on recent arm’s length transactions or consider-
ation of financial data of the investees are used to measure fair
value of certain financial instruments for which external market
pricing information is not available.
Fair value measurements are analysed by level in the fair value
hierarchy as follows: (i) level one are measurements at quoted
prices (unadjusted) in active markets for identical assets or liabil-
ities, (ii) level two measurements are valuations techniques with
all material inputs observable for the asset or liability, either di-
rectly (that is, as prices) or indirectly (that is, derived from prices),
and (iii) level three measurements are valuations not based on
solely observable market data (that is, the measurement requires
significant unobservable inputs). Transfers between levels of the
fair value hierarchy are deemed to have occurred at the end of
the reporting period. Refer to Note 30.
Transaction costs are incremental costs that are directly attribut-
able to the acquisition, issue or disposal of a financial instrument.
An incremental cost is one that would not have been incurred if
the transaction had not taken place. Transaction costs include fees
and commissions paid to agents (including employees acting as
selling agents), advisors, brokers and dealers, levies by regulatory
agencies and securities exchanges, and transfer taxes and duties.
Transaction costs do not include debt premiums or discounts,
financing costs or internal administrative or holding costs.
Amortised cost (“AC”) is the amount at which the financial instru-
ment was recognised at initial recognition less any principal re-
payments, plus accrued interest, and for financial assets less any
allowance for expected credit losses (“ECL”). Accrued interest
includes amortisation of transaction costs deferred at initial rec-
ognition and of any premium or discount to the maturity amount
using the effective interest method. Accrued interest income
and accrued interest expense, including both accrued coupon
and amortised discount or premium (including fees deferred at
origination, if any), are not presented separately and are included
in the carrying values of the related items in the consolidated
statement of financial position.
The effective interest method is a method of allocating interest
income or interest expense over the relevant period, so as to
achieve a constant periodic rate of interest (effective interest
rate) on the carrying amount. The effective interest rate is the
rate that exactly discounts estimated future cash payments or
receipts (excluding future credit losses) through the expected life
of the financial instrument or a shorter period, if appropriate, to
the gross carrying amount of the financial instrument.
The effective interest rate discounts cash flows of variable
interest instruments to the next interest repricing date, except
for the premium or discount which reflects the credit spread over
the floating rate specified in the instrument, or other variables
that are not reset to market rates. Such premiums or discounts
are amortised over the whole expected life of the instrument.
The present value calculation includes all fees paid or received
between parties to the contract that are an integral part of the
effective interest rate. For assets that are purchased or originat-
ed credit impaired (“POCI”) at initial recognition, the effective
interest rate is adjusted for credit risk, i.e. it is calculated based
on the expected cash flows on initial recognition instead of con-
tractual payments.
FINANCIAL INSTRUMENTS – INITIAL
RECOGNITION
Financial instruments at FVTPL are initially recorded at fair value.
All other financial instruments are initially recorded at fair value
adjusted for transaction costs. Fair value at initial recognition is
best evidenced by the transaction price. A gain or loss on initial
recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other
observable current market transactions in the same instrument
or by a valuation technique whose inputs include only data
from observable markets. After the initial recognition, an ECL
allowance is recognised for financial assets measured at AC and
investments in debt instruments measured at FVOCI, resulting in
an immediate accounting loss.
All purchases and sales of financial assets that require deliv-
ery within the time frame established by regulation or market
convention (“regular way” purchases and sales) are recorded
at trade date, which is the date on which the Group commits
to deliver a financial asset. All other purchases are recognised
when the entity becomes a party to the contractual provisions of
the instrument.
FINANCIAL ASSETS – CLASSIFICATION AND
SUBSEQUENT MEASUREMENT – MEASUREMENT
CATEGORIES
The Group classifies financial assets in the following measure-
ment categories: FVTPL, FVOCI and AC. The classification and
subsequent measurement of debt financial assets depends on:
(i) the Group’s business model for managing the related assets
portfolio and (ii) the cash flow characteristics of the asset.
FINANCIAL ASSETS – CLASSIFICATION AND
SUBSEQUENT MEASUREMENT – BUSINESS
MODE
The business model reflects how the Group manages the as-
sets in order to generate cash flows – whether the Group’s ob-
jective is: (i) solely to collect the contractual cash flows from the
assets (“hold to collect contractual cash flows”,) or (ii) to collect
IFRS Consolidated Financial Statements
both the contractual cash flows and the cash flows arising from
the sale of assets (“hold to collect contractual cash flows and
sell”) or, if neither of (i) and (ii) is applicable, the financial assets
are classified as part of “other” business model and measured
at FVTPL.
Business model is determined for a group of assets (on a port-
folio level) based on all relevant evidence about the activities
that the Group undertakes to achieve the objective set out for
the portfolio available at the date of the assessment. Factors con-
sidered by the Group in determining the business model include
the purpose and composition of a portfolio, past experience on
how the cash flows for the respective assets were collected, how
risks are assessed and managed, how the assets’ performance
is assessed and how managers are compensated. Refer to Note
4 for critical judgements applied by the Group in determining the
business models for its financial assets.
FINANCIAL ASSETS – CLASSIFICATION AND
SUBSEQUENT MEASUREMENT – CASH FLOW
CHARACTERISTICS
Where the business model is to hold assets to collect contractual
cash flows or to hold contractual cash flows and sell, the Group
assesses whether the cash flows represent solely payments of
principal and interest (“SPPI”). Financial assets with embedded
derivatives are considered in their entirety when determining
whether their cash flows are consistent with the SPPI feature. In
making this assessment, the Group considers whether the con-
tractual cash flows are consistent with a basic lending arrange-
ment, i.e. interest includes only consideration for credit risk, time
value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or
volatility that is inconsistent with a basic lending arrangement,
the financial asset is classified and measured at FVTPL. The
SPPI assessment is performed on initial recognition of an asset
and it is not subsequently reassessed. Refer to Note 4 for critical
judgements applied by the Group in performing the SPPI test for
its financial assets.
FINANCIAL ASSETS – RECLASSIFICATION
Financial instruments are reclassified only when the business
model for managing the portfolio as a whole changes. The
reclassification has a prospective effect and takes place from
the beginning of the first reporting period that follows after the
change in the business model. The Group did not change its
business model during the current and comparative period and
did not make any reclassifications.
FINANCIAL ASSETS IMPAIRMENT – CREDIT
LOSS ALLOWANCE FOR ECL
The Group assesses, on a forward-looking basis, the ECL for
debt instruments measured at AC and FVOCI and for the expo-
sures arising from loan commitments and financial guarantee
contracts, for contract assets. The Group measures ECL and rec-
ognises Net impairment losses on financial and contract assets
at each reporting date. The measurement of ECL reflects: (i) an
unbiased and probability weighted amount that is determined by
evaluating a range of possible outcomes, (ii) time value of money
and (iii) all reasonable and supportable information that is avail-
able without undue cost and effort at the end of each reporting
period about past events, current conditions and forecasts of
future conditions.
Debt instruments measured at AC and contract assets are
presented in the consolidated statement of financial position net
of the allowance for ECL. For loan commitments and financial
guarantees, a separate provision for ECL is recognised as a lia-
bility in the consolidated statement of financial position. For debt
instruments at FVOCI, changes in amortised cost, net of allow-
ance for ECL, are recognised in profit or loss and other changes
in carrying value are recognised in OCI as gains less losses on
debt instruments at FVOCI.
The Group applies a three stage model for impairment, based on
changes in credit quality since initial recognition. A financial instru-
ment that is not credit-impaired on initial recognition is classified
in Stage 1. Financial assets in Stage 1 have their ECL measured at
an amount equal to the portion of lifetime ECL that results from
default events possible within the next 12 months or until contrac-
tual maturity, if shorter (“12 Months ECL”). If the Group identifies a
significant increase in credit risk (“SICR”) since initial recognition,
the asset is transferred to Stage 2 and its ECL is measured based
on ECL on a lifetime basis, that is, up until contractual maturity but
considering expected prepayments, if any (“Lifetime ECL”). Refer
to Note 30 for a description of how the Group determines when a
SICR has occurred. If the Group determines that a financial asset
is credit-impaired, the asset is transferred to Stage 3 and its ECL
is measured as a Lifetime ECL. The Group’s definition of credit
impaired assets and definition of default is explained in Note 30
For financial assets that are purchased or originated credit-im-
paired (“POCI Assets”), the ECL is always measured as a Lifetime
ECL. Note 30 provides information about inputs, assumptions and
estimation techniques used in measuring ECL.
The Group applies the IFRS 9 simplified approach for measuring
expected credit losses which uses a lifetime expected loss allow-
ance for all trade and other receivables. To measure the expected
credit losses, trade and other receivables have been grouped
based on shared credit risk characteristics and the days past due.
The Group calculates expected credit losses on trade receivables
based on historical data assuming reasonable approximation of
current losses rates adjusted on forward-looking information.
FINANCIAL ASSETS – WRITE-OFF
Financial assets are written-off, in whole or in part, when the
Group exhausted all practical recovery efforts and has concluded
that there is no reasonable expectation of recovery. The write-
off represents a derecognition event. The Group may write-off
financial assets that are still subject to enforcement activity when
the Group seeks to recover amounts that are contractually due,
however, there is no reasonable expectation of recovery.
FINANCIAL ASSETS – DERECOGNITION
The Group derecognises financial assets when (a) the assets are
redeemed or the rights to cash flows from the assets otherwise
expire or (b) the Group has transferred the rights to the cash
flows from the financial assets or entered into a qualifying pass-
through arrangement whilst (i) also transferring substantially all
the risks and rewards of ownership of the assets or (ii) neither
transferring nor retaining substantially all the risks and rewards of
ownership but not retaining control.
Control is retained if the counterparty does not have the prac-
tical ability to sell the asset in its entirety to an unrelated third
party without needing to impose additional restrictions on the
sale.
FINANCIAL ASSETS – MODIFICATION
The Group sometimes renegotiates or otherwise modifies the
contractual terms of the financial assets. The Group assesses
whether the modification of contractual cash flows is substantial
228
229
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 considering, among other, the following factors: any new con-
tractual terms that substantially affect the risk profile of the asset
(e.g. profit share or equity-based return), significant change in
interest rate, change in the currency denomination, new collat-
eral or credit enhancement that significantly affects the credit
risk associated with the asset or a significant extension of a loan
when the borrower is not in financial difficulties.
If the modified terms are substantially different, the rights to cash
flows from the original asset expire and the Group derecognises
the original financial asset and recognises a new asset at its fair
value. The date of renegotiation is considered to be the date
of initial recognition for subsequent impairment calculation pur-
poses, including determining whether a SICR has occurred. The
Group also assesses whether the new loan or debt instrument
meets the SPPI criterion. Any difference between the carrying
amount of the original asset derecognised and fair value of the
new substantially modified asset is recognised in profit or loss,
unless the substance of the difference is attributed to a capital
transaction with owners.
In a situation where the renegotiation was driven by financial
difficulties of the counterparty and inability to make the origi-
nally agreed payments, the Group compares the original and
revised expected cash flows to assets whether the risks and
rewards of the asset are substantially different as a result of the
contractual modification. If the risks and rewards do not change,
the modified asset is not substantially different from the original
asset and the modification does not result in derecognition. The
Group recalculates the gross carrying amount by discounting
the modified contractual cash flows by the original effective
interest rate (or credit-adjusted effective interest rate for POCI
financial assets), and recognises a modification gain or loss in
profit or loss.
FINANCIAL LIABILITIES – MEASUREMENT
CATEGORIES
Financial liabilities are classified as subsequently measured at
AC, except for (i) financial liabilities at FVTPL: this classification
is applied to derivatives, financial liabilities held for trading
(e.g. short positions in securities), contingent consideration
recognised by an acquirer in a business combination and other
financial liabilities designated as such at initial recognition and
(ii) financial guarantee contracts and loan commitments.
FINANCIAL LIABILITIES – DERECOGNITION
Financial liabilities are derecognised when they are extinguished
(i.e. when the obligation specified in the contract is discharged,
cancelled or expires).
An exchange between the Group and its original lenders of debt
instruments with substantially different terms, as well as substan-
tial modifications of the terms and conditions of existing financial
liabilities, are accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability.
The terms are substantially different if the discounted present
value of the cash flows under the new terms, including any fees
paid net of any fees received and discounted using the original
effective interest rate, is at least 10% different from the discount-
ed present value of the remaining cash flows of the original
financial liability. In addition, other qualitative factors, such as the
currency that the instrument is denominated in, changes in the
type of interest rate, new conversion features attached to the
instrument and change in loan covenants are also considered.
If an exchange of debt instruments or modification of terms is
accounted for as an extinguishment, any costs or fees incurred
are recognised as part of the gain or loss on the extinguish-
ment. If the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying
amount of the liability and are amortised over the remaining term
of the modified liability.
Modifications of liabilities that do not result in extinguishment are
accounted for as a change in estimate using a cumulative catch
up method, with any gain or loss recognised in profit or loss, un-
less the economic substance of the difference in carrying values
is attributed to a capital transaction with owners.
FINANCIAL LIABILITIES DESIGNATED AT FVTPL
The Group may designate certain liabilities at FVTPL at initial
recognition. Gains and losses on such liabilities are presented
in profit or loss except for the amount of change in the fair value
that is attributable to changes in the credit risk of that liability
(determined as the amount that is not attributable to changes in
market conditions that give rise to market risk), which is record-
ed in OCI and is not subsequently reclassified to profit or loss.
This is unless such a presentation would create, or enlarge, an
accounting mismatch, in which case the gains and losses attribut-
able to changes in credit risk of the liability are also presented in
profit or loss.
OFFSETTING FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position only when there is
a legally enforceable right to offset the recognised amounts, and
there is an intention to either settle on a net basis, or to realise
the asset and settle the liability simultaneously. Such a right of
set off (a) must not be contingent on a future event and (b) must
be legally enforceable in all of the following circumstances: (i) in
the normal course of business, (ii) in the event of default and (iii)
in the event of insolvency or bankruptcy.
CASH AND CASH EQUIVALENTS
Cash represents cash on hand and in bank accounts and the
Bank of Russia, other than mandatory reserves deposits with
the Bank of Russia, 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 AC because:
(i) they are held for collection of contractual cash flows and those
cash flows represent SPPI, and (ii) they are not designated at
FVTPL. Features mandated solely by legislation, such as the bail-
in legislation in certain countries, do not have an impact on the
SPPI test, unless they are included in contractual terms such that
the feature would apply even if the legislation is subsequently
changed.
MANDATORY RESERVE DEPOSITS WITH THE BANK
OF RUSSIA
Mandatory cash balances with the Bank of Russia are carried at
AC and represent non-interest bearing mandatory reserve de-
posits, which are not available to finance the Group’s day to day
operations, and hence are not considered as part of cash and
cash equivalents for the purposes of the consolidated statement
of cash flows.
DUE FROM BANKS
Amounts due from banks other than those that are part of the
Group are recorded when the Group advances money to coun-
terparty banks due on fixed or determinable dates. Amounts
due from other banks are carried at AC when: (i) they are held
IFRS Consolidated Financial Statements
for the purposes of collecting contractual cash flows and those
cash flows represent SPPI, and (ii) they are not designated at
FVTPL. Due from banks that mature within three months or
less from the date of placement are included in cash and cash
equivalents.
INVESTMENTS IN DEBT SECURITIES
Based on the business model and the cash flow characteristics,
the Group classifies investments in debt securities as carried at
AC, FVOCI or FVTPL. Debt securities are carried at AC if they
are held for collection of contractual cash flows and where those
cash flows represent SPPI, and if they are not voluntarily desig-
nated at FVTPL in order to significantly reduce an accounting
mismatch. Debt securities are carried at FVOCI if they are held
for collection of contractual cash flows and for selling, where
those cash flows represent SPPI, and if they are not designated
at FVTPL.
Interest income from these assets is calculated using the effec-
tive interest method and recognised in profit or loss. An impair-
ment allowance estimated using the expected credit loss model
is recognised in profit or loss for the year. All other changes in
the carrying value are recognised in OCI. When the debt security
is derecognised, the cumulative gain or loss previously recog-
nised in OCI is reclassified from OCI to profit or loss.
Investments in debt securities are carried at FVTPL if they do not
meet the criteria for AC or FVOCI. The Group may also irrevoca-
bly designate investments in debt securities at FVTPL on initial
recognition if applying this option significantly reduces an ac-
counting mismatch between financial assets and liabilities being
recognised or measured on different accounting bases.
INVESTMENTS IN EQUITY SECURITIES
Financial assets that meet the definition of equity from the issu-
er’s perspective, i.e. instruments that do not contain a contractual
obligation to pay cash and that evidence a residual interest in
the issuer’s net assets, are considered as investments in equity
securities by the Group. Investments in equity securities are
measured at FVTPL, except where the Group elects at initial
recognition to irrevocably designate an equity investments at
FVOCI. The Group’s policy is to designate equity investments as
FVOCI when those investments are held for strategic purpos-
es other than solely to generate investment returns. When the
FVOCI election is used, fair value gains and losses are recog-
nised in OCI and are not subsequently reclassified to profit or
loss, including on disposal. Impairment losses and their reversals,
if any, are not measured separately from other changes in fair
value. Dividends continue to be recognised in profit or loss when
the Group’s right to receive payments is established except when
they represent a recovery of an investment rather than a return
on such investment.
LOANS AND ADVANCES TO CUSTOMERS
Loans and advances to customers are recorded when the Group
advances money to purchase or originate a loan due from a cus-
tomer. Based on the business model and the cash flow character-
istics, the Group classifies loans and advances to customers into
one of the following measurement categories: (i) AC: loans that
are held for collection of contractual cash flows and those cash
flows represent SPPI and loans that are not voluntarily designat-
ed at FVTPL, and (ii) FVTPL: loans that do not meet the SPPI test
or other criteria for AC or FVOCI are measured at FVTPL.
Note 30 provides information about inputs, assumptions and
estimation techniques used in measuring ECL.
LOAN COMMITMENTS
The Group issues commitments to provide loans in the course
of its banking activities. These commitments are irrevocable
or revocable only in response to a material adverse change.
Such commitments are initially recognised at their fair value,
which is normally evidenced by the amount of fees received.
This amount is amortised on a straight line basis over the
life of the commitment, except for commitments to originate
loans if it is probable that the Group will enter into a specific
lending arrangement and does not expect to sell the resulting
loan shortly after origination; such loan commitment fees are
deferred and included in the carrying value of the loan on initial
recognition. At the end of each reporting period, the commit-
ments are measured at (i) the remaining unamortised balance
of the amount at initial recognition, plus (ii) the amount of the
loss allowance determined based on the expected credit loss
model, unless the commitment is to provide a loan at a below
market interest rate, in which case the measurement is at the
higher of these two amounts.
The carrying amount of the loan commitments represents a liabil-
ity. For contracts that include both a loan and an undrawn com-
mitment and where the Group cannot separately distinguish the
ECL on the undrawn loan component from the loan component,
the ECL on the undrawn commitment is recognised together with
the loss allowance for the loan. To the extent that the combined
ECLs exceed the gross carrying amount of the loan, they are
recognised as a liability.
FINANCIAL GUARANTEES
Financial guarantees require the Group in the course of its bank-
ing activities to make specified payments to reimburse the holder
of the guarantee for a loss it incurs because a specified debtor
fails to make payment when due in accordance with the original
or modified terms of a debt instrument. Financial guarantees are
initially recognised at their fair value, which is normally evidenced
by the amount of fees received. This amount is amortised on
a straight line basis over the life of the guarantee. At the end
of each reporting period, the guarantees are measured at the
higher of (i) the amount of the loss allowance for the guaranteed
exposure determined based on the expected loss model and
(ii) the remaining unamortised balance of the amount at initial
recognition. In addition, an ECL loss allowance is recognised for
fees receivable that are recognised in the statement of financial
position as an asset.
SALE AND REPURCHASE
AGREEMENTS AND LENDING
OF SECURITIES
Sale and repurchase agreements (“repo agreements”), which ef-
fectively provide a lender’s return to the counterparty, are treated
as secured financing transactions. Securities sold under such
sale and repurchase agreements are not derecognised. Securi-
ties sold under repo agreements are presented as other financial
assets carried at FVTPL, FVOCI, AC. The corresponding liability is
presented within amounts “Due to other banks and the Bank of
Russia” or “Customer accounts”.
Securities purchased under agreements to resell (“reverse repo
agreements”), which effectively provide a lender’s return to the
Group, are recorded as “Due from other banks” or “Banking
loans and advances to customers”, as appropriate. The differ-
ence between the sale and repurchase price, adjusted by inter-
est and dividend income collected by the counterparty, is treated
as interest income and accrued over the life of repo agreements
using the effective interest method.
230
231
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 NOTES RECEIVABLE
Notes receivable are included in “Other financial assets” and are
carried at AC if: (i) they are held for collection of contractual cash
flows and those cash flows represent SPPI, and (ii) they are not
designated at FVTPL.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value
and are subsequently carried at AC using the effective interest
method.
TRADE AND OTHER PAYABLES
Trade payables are accrued when the counterparty performs its
obligations under the contract and are recognised initially at fair
value and subsequently carried at AC using the effective interest
method.
DUE TO OTHER BANKS AND THE BANK
OF RUSSIA
Amounts due to other banks and the Bank of Russia are record-
ed when money or other assets are advanced to the Group by
counterparty banks. The non-derivative liability is carried at AC.
If the Group purchases its own debt, the liability is removed
from the consolidated statement of financial position and the
difference between the carrying amount of the liability and the
consideration paid is included in gains or losses arising from
retirement of debt.
CUSTOMER ACCOUNTS
Customer accounts are non-derivative liabilities to individuals,
state or corporate customers and are carried at AC.
SUBORDINATED DEBT
Subordinated debt can only be paid in the event of a liquidation
after the claims of other higher priority creditors have been met.
Subordinated debt is carried at AC.
DEBT SECURITIES AND
BONDS ISSUED
Debt securities issued include promissory notes and certificates
of deposit issued by the Group to its customers in the course of
its banking activities. Bonds issued represent securities 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 carried at AC. If the
Group purchases its own debt, it is removed from the consolidat-
ed statement of financial position and the difference between the
carrying amount and the amount paid is recognised as a gain or
loss on redemption of debt.
current period’s statement of financial position are not reclas-
sified or re-presented in the comparative statement of financial
position to reflect the classification at the end of the current
period.
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 recognised in the con-
solidated 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 recog-
nised to the extent of the cumulative impairment loss that was
previously recognised in relation to that specific asset.
PRECIOUS METALS
The Group has a practice of taking delivery of precious metals
and selling them within a short period after delivery, for the pur-
pose of generating a profit from short-term fluctuations in price
or dealer’s margin. Precious metals are carried at purchase price
from the Bank of Russia and are subsequently measured at fair
value based on London precious metals exchange.
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 bringing an item
or product to its existing condition and location.
PREPAID EXPENSES
Prepaid expenses include advances for purchases of products
and services, insurance fees, prepayments for export duties, VAT
and other taxes. Prepayments are carried at cost less provision
for impairment.
Prepayments to acquire assets are transferred to the carrying
amount of the asset once the Group has obtained control of the
asset and it is probable that future economic benefits associated
with the asset will flow to the Group. Prepayments for services
such as insurance, transportation and others are written off to
profit or loss when the goods or services relating to the prepay-
ments are received.
If there is an indication that the assets, goods or services relating
to a prepayment will not be received, the carrying value of the
prepayment is written down accordingly and a corresponding
impairment loss is recognised in the profit or loss for the year.
NON-CURRENT ASSETS CLASSIFIED AS
HELD FOR SALE
Non-current assets are classified in the statement of financial
position as “Non-current assets held for sale” if their carrying
amount will be recovered principally through a sale transaction
within twelve months after the end of the reporting period.
Assets are reclassified when all of the following conditions
are met: (a) the assets are available for immediate sale in their
present condition; (b) the Group’s management approved and
initiated an active programme to locate a buyer; (c) the assets
are actively marketed for sale at a reasonable price; (d) the sale
is expected within one year and (e) it is unlikely that significant
changes to the plan to sell will be made or that the plan will be
withdrawn. Non-current assets classified as held for sale in the
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 per ton in
2019 and 2018, respectively) adjusted depending on the monthly
average market prices of the Urals blend and the RR/US $ aver-
age exchange rate for the preceding month, taking into account
the features of oil production. MET liabilities are lower for fields
whose depletion 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 en-
visaged for small fields via application of a factor that characteris-
es the volume of reserves. The amount of tax relief for depleted
IFRS Consolidated Financial Statements
and small fields is calculated using the base MET rate of RR 559
per tonne (in 2018 - RR 559 per tonne).
Furthermore, the reduced MET tax rate is applied to the produc-
tion of highly viscous crude oil (with viscosity of 10,000 Meg-
apascal second in reservoir conditions) and oil produced from
Domanic productive sediments.
In addition, another relief 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).
The saving in these circumstances is calculated using the base
MET tax rate of RR 559 per tonne (in 2018 - RR 559 per tonne).
Furthermore, the reduced MET tax rate is applied in the Nenets Au-
tonomous Okrug (in view of the calculation in relation to such oil of
the tax on additional income from the extraction of hydrocarbons).
MET is recorded within Taxes other than income tax in the con-
solidated statements of profit or loss and other comprehensive
income.
REVERSE EXCISE ON CRUDE OIL REFINED AND
NEGATIVE EXCISE ON GASOLINE AND DIESEL
FUEL SOLD ON DOMESTIC MARKET
The Russian Government tax maneuver in the oil industry
involves gradual reduction of crude oil and oil products export
duty rates with a corresponding increase in crude oil mineral
extraction and excise tax rates. To eliminate the negative effect
of export duty reduction on refining margins, a reverse (“neg-
ative”) excise on refinery feedstock was introduced. To reduce
domestic fuel prices sensitivity to international prices fluctuations
“damper coefficient” component was included into the reverse
(“negative”) excise tax calculation. Reverse (“negative”) excise is
recognised as a reduction in excise tax expense deducted from
sales and other operating revenues on non-banking activities in
the statement of profit and loss and other comprehensive income
and is presented in prepaid expenses and other current assets
line in the statement of financial position.
VALUE ADDED TAX
Value added tax (VAT) at a standard rate of 20% (at 2018 – 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 ad-
vance payment by the buyer. Input VAT can be recovered when
purchased goods (works, services) are accounted for and other
necessary requirements provided by the tax legislation are met.
Where provision has been made for the ECL of receivables, the
impairment loss is recorded for the gross amount of the debtor,
including VAT.
Export of goods and rendering certain services related to ex-
ported goods are subject to 0% VAT rate upon the submission of
confirmation documents to the tax authorities.
VAT related to sales and purchases is recognised in the Con-
solidated Statements of Financial Position on a gross basis and
disclosed separately within 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 capitalised.
Other exploration expenses, including geological and geophys-
ical expenses and the costs of carrying and retaining unde-
veloped properties, are expensed as incurred. The costs of
exploratory wells that find oil and gas reserves are capitalised as
exploration and evaluation assets on a “field by field” basis pend-
ing determination of whether proved reserves have been found.
Exploration and evaluation costs are subject to technical, com-
mercial and management review as well as review for impairment
at least once a year to confirm the continued intent to develop
or otherwise extract value from the discovery. When indicators of
impairment are present, resulting impairment loss is measured.
If subsequently commercial reserves are discovered, the carrying
value, less losses from impairment of respective exploration and
evaluation assets, is classified as development assets. How-
ever, 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, deple-
tion, 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 re-
placement 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 construction of property, plant and equip-
ment are accounted for within Construction in progress.
Non-current 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 non-current as-
sets 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 petrol stations. Impairment losses are recognised in the
profit or loss for the year.
Impairments are reversed as applicable to the extent that the
events or circumstances that triggered the original impairment
have changed. The reversal of impairment would be limited to
the original carrying value less depreciation which would have
been otherwise charged had the impairment not been recorded.
Non-current assets committed by management for disposal
within one year, and meet the other criteria for held for sale, are
232
233
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 accounted for at the lower of amortised cost or fair value, less
cost 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 method for each
field based upon proved developed oil and gas reserves, except
in the case of significant asset components whose useful life
differs from the lifetime of the field, in which case the straight-line
method is applied.
From 1 January 2019, leases are recognised as a right-of-use as-
set and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is depreciated
over the shorter of the asset’s useful life and the lease term on
a straight-line basis. The estimated useful lives of right-of-use
assets are determined on the same basis as those of property,
plant and equipment.
Oil and gas licenses for exploration of unproved reserves are
capitalised within property, plant and equipment; they are depre-
ciated on the straight-line basis over the period of each license
validity.
Depreciation of all other property, plant and equipment is de-
termined 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 impairment losses and
losses on disposal on property, plant and equipment and other
non-financial assets net of reversal in the consolidated statement
of profit or loss and other comprehensive income.
LEASES
At inception of a contract, the Group assesses whether a con-
tract is, or contains, a lease. A contract is, or contains, a lease if
the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. An asset
is identified by being explicitly specified in a contract, or implicitly
specified at the time that the asset is made available for use by
the customer. The Group does not have the right to use an identi-
fied asset if the supplier has the substantive right to substitute
the asset throughout the period of use.
To assess whether a contract conveys the right to control the use
of an identified asset for a period of time, the Group assessed
whether both of the following met:
• The Group has the right to obtain substantially all of the eco-
nomic benefits from use of the identified asset, and
• The Group has the right to direct the use of the identified
asset.
The Group leases service equipment used in oil extraction, land
plots, railway tanks and other assets. Some of service agree-
ments include lease component for a heavy and special vehicles
used in oil production, drilling rigs, pipeline. The lease payments
on heavy and special vehicles, drilling rigs, pipelines, land plots
and railway tanks comprise of variable payments that are not
based on an index or rate and therefore are recognised in profit
or loss in the period in which those payments occur. Service
equipment lease contracts are typically made for fixed periods
from 1 to 3 years, but have extension options as described below.
Previously leases of equipment were classified as operating
leases. Payments made under operating leases (net of any incen-
tives received from the lessor) were charged to profit or loss on
a straight-line basis over the period of the lease.
Assets and liabilities arising from a lease are initially measured on
a present value basis. Lease liabilities include the net present val-
ue of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease. If that
rate cannot be determined, the lessee’s incremental borrowing
rate is used. Generally, the Group determines its incremental
borrowing rate as possible borrowing rate offered by banks for
the funds, necessary to obtain an asset of similar value in a similar
economic environment with similar terms and conditions.
The right-of-use asset is initially measured at cost, which com-
prises the amount of the initial measurement of lease liability
adjusted for any lease payments made at or before the com-
mencement date less any lease incentives received, plus any
initial direct costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the underlying
asset or the site on which it is located. The right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted
for certain remeasurements of the lease liability.
The term used to measure a liability and an asset in the form of
a right of use is defined as the period during which the Group
has sufficient confidence that it will lease the asset. Any option
for renewal or termination is taken into account when estimating
the term. Extension options are included in a number of equip-
ment leases across the Group. The majority of extension options
held are exercisable only by the Group and not by the respective
lessor. The Group considers monetary and non-monetary aspects
to determine the lease term of the contract, such as business
plans, past practices and economic incentives to extend or ter-
minate the contract (the presence of inseparable improvements,
integration to the production process, potentially high conse-
quential termination costs, etc.) and other factors that may affect
management’s judgment on the lease term. Extension options
and termination options are only included in the lease term if the
lease is reasonably certain to be extended (or not terminated).
Potential future cash outflows that have not been included in the
lease liability because it is not reasonably certain that the leases
will be extended (or not terminated) are not significant.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an ex-
pense in profit or loss. Short-term leases are leases with a lease
term of 12 months or less.
The Group presents right-of-use assets and lease liabilities in
the separate lines in the Consolidated Statement of Financial
Position.
DEBT
Debt is recognised initially at fair value, net of transaction costs
incurred and is subsequently carried at AC using the effective
interest method.
IFRS Consolidated Financial Statements
INTEREST INCOME ON NON-BANKING
ACTIVITIES
Interest income on non-banking activities is recognised on a
time-proportion basis using the effective interest method. This
method defers, as part of interest income, all fee received be-
tween the parties to the contract that are an integral part of the
effective interest rate, all other premiums.
Fees integral to the effective interest rate include origination fees
received by the Group relating to the creation or acquisition of a
financial asset.
For financial assets that are originated or purchased credit-im-
paired, the effective interest rate is the rate that discounts the
expected cash flows (including the initial expected credit losses)
to the fair value on initial recognition (normally represented by the
purchase price). As a result, the effective interest is credit-adjusted.
Interest income is calculated by applying the effective interest rate
to the gross carrying amount of financial assets, except for (i) finan-
cial assets that have become credit impaired (Stage 3), for which
interest revenue is calculated by applying the effective interest
rate to their AC, net of the ECL provision, and (ii) financial assets
that are purchased or originated credit impaired, for which the
original credit-adjusted effective interest rate is applied to the AC.
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
management. The pension liabilities are measured at the present
value of the estimated future cash outflows using interest rates of
government securities, which have the same currency and terms
to maturity approximating the terms of the related liability. Pension
costs are recognised using the projected unit credit method.
The cost of providing pensions is accrued and charged to staff
expense within operating expenses in the Consolidated State-
ment of Profit or Loss and Other Comprehensive Income reflect-
ing the cost of benefits as they are earned over the service lives
of employees.
Remeasurements of the net defined benefit liability arising as the
actuarial gains or losses from changes in assumptions and from
experience adjustments with regard to post employment benefit
plans are recognised immediately in other comprehensive income.
Actuarial gains and losses related to other long-term benefits are
recognised immediately in the profit or loss for the year.
Past service costs are recognised as an expense immediately.
Plan assets are measured at fair value and are subject to certain
limitations. Fair value of plan assets is based on market prices.
When no market price is available the fair value of plan assets is
estimated by different valuation techniques, including 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.
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 ex-
penses.
DECOMMISSIONING PROVISIONS
The Group recognises a liability for the fair value of legally
required or constructive decommissioning provisions associat-
ed with non-current assets in the period in which the retirement
obligations are incurred. The Group has numerous asset removal
obligations that it is required to perform under law or contract
once an asset is permanently taken out of service. The Group’s
field exploration, development, and production activities include
assets related to: well bores and related equipment and operating
sites, gathering and oil processing systems, oil storage facilities
and gathering pipelines. Generally, the Group’s licenses and other
operating permits require certain actions to be taken by the Group
in the abandonment of these operations. Such actions include well
abandonment activities, equipment dismantlement and other rec-
lamation activities. The Group’s estimates of future abandonment
costs consider present regulatory or license requirements, as well
as actual dismantling and other related costs. These liabilities are
measured by the Group using the present value of the estimated
future costs of decommissioning of these assets. The discount
rate is reviewed at each reporting date and reflects current market
assessments of the time value of money and the risks specific to
the liability. Most of these costs are not expected to be incurred
until several years, or decades, in the future and will be funded
from general Group resources at the time of removal.
The Group capitalises the associated decommissioning costs as
part of the carrying amount of the non-current assets. Changes in
obligation, reassessed regularly, related to new circumstances or
changes in law or technology, or in the estimated amount of the
obligation, or in the pre-tax discount rates, are recognised as an
increase or decrease of the cost of the relevant asset.
The Group’s petrochemical, refining and marketing and distribu-
tion operations are carried out at large manufacturing facilities
and fuel outlets. The nature of these operations is such that
the ultimate date of decommissioning of any sites or facilities is
unclear. Current regulatory and licensing rules do not provide for
liabilities related to the liquidation of such manufacturing facilities
or of retail fuel outlets. Management therefore believes that there
are no legal or contractual obligations related to decommission-
ing or other disposal of these assets.
INCOME TAXES
Effective 1 January 2012, the Company has established the
Consolidated Taxpayer Group which currently includes 5 com-
panies of the Group. Income taxes have been provided for in the
consolidated financial statements in accordance with legislation
enacted or substantively enacted by the end of the reporting pe-
riod. The income tax charge comprises current tax and deferred
tax and is recognised in profit or loss for the year, except if it is
recognised in other comprehensive income or directly in equity
because it relates to transactions that are also recognised, in the
same or a different period, in other comprehensive income or
directly in equity.
Current tax is the amount expected to be paid to, or recovered
from, the taxation authorities in respect of taxable profits or loss-
es for the current and prior periods.
Deferred income tax is provided using the balance sheet liability
method for tax loss carry forwards and temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. In accordance
234
235
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 with the initial recognition exemption, deferred taxes are not
recorded for temporary differences on initial recognition of an
asset or a liability in a transaction other than a business combi-
nation if the transaction, when initially recorded, affects neither
accounting nor taxable profit. Deferred tax balances are meas-
ured 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 for deductible temporary differences and tax
loss carry forwards are recorded only to the extent that it is prob-
able that the temporary difference will reverse in the future and
there is sufficient future taxable profit available against which the
deductions 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 differ-
ences will reverse or the tax loss carry forwards will be utilised.
Deferred tax assets and liabilities are netted only within the Con-
solidated Taxpayer Group or individual companies of the Group
outside the Consolidated Taxpayer 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 statement of financial
position, respectively. Income tax interest expense and payable
are included in interest expense in the consolidated statements
of profit or loss and other comprehensive income and other
accounts payable and accrued expenses in the consolidated
statement of financial position, respectively.
SHARE CAPITAL
Ordinary shares and non-redeemable preference shares with
discretionary dividends are both classified as equity.
Dividends paid to shareholders are determined by the Board of
directors and approved at the annual or extraordinary sharehold-
ers’ meeting. Dividends are recorded as a liability and deduct-
ed from equity in the period in which they are declared and
approved.
TREASURY SHARES
Common shares of the Company owned by the Group at the re-
porting 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 hold-
ers 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 ordinary 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 divi-
dends and the amount allocated for a participation feature.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue is income arising in the course of the Group’s ordinary
activities. Revenue is recognised in the amount of transaction
price. Transaction price is the amount of consideration to which
the Group expects to be entitled in exchange for transferring
control over promised goods or services to a customer, exclud-
ing the amounts collected on behalf of third parties. Revenue is
recognised net of discounts, value added taxes, export duties
and excise tax.
The Group’s business activities include sales of crude oil and
refined products, sales of tires and petrochemical raw materi-
als. Revenues are recognised at a point in time when control
over such products has transferred to a customer, which refers
to ability to direct the use of, and obtain substantially all of the
remaining benefits from the products. Transfer occurs when the
products have been shipped to the specific location, the risks of
obsolescence and loss have been transferred to the customer,
and either the customer has accepted the products in accord-
ance with the sales contract, the acceptance provisions have
lapsed, or the group has objective evidence that all criteria for
acceptance have been satisfied.
The Group considers indicators that customer has obtained con-
trol of an asset, which include, but are not limited to the follow-
ing: the Group has a present right to payment for the products;
the Group has transferred physical possession of the products;
the customer has legal title to the products; the customer has
the significant risks and rewards of ownership of the products;
the customer has accepted the products. Not all of the indicators
need to be met for management to conclude that control has
transferred and revenue could be recognised. Management uses
judgement to determine whether factors collectively indicate that
the customer has obtained control.
If the contract includes variable consideration, revenue is recog-
nised only to the extent that it is highly probable that there will
be no significant reversal of such revenue.
The Group operates a chain of own petrol (gas) stations selling
refined products. Revenue from the sale of products is rec-
ognised when a group entity sells a product to the customer.
Payment of the transaction price is due immediately when the
customer purchases the fuel. Since no right of return, no refund
liability recognised.
Revenues from providing services are recognised in the period in
which the services are rendered.
A receivable is recognised when the goods are delivered as
this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment
is due. No significant element of financing is deemed present as
the sales are made with short-term credit terms consistent with
market practice. As a consequence, the group does not adjust
any of the transaction prices for the time value of money.
RECOGNITION OF INTEREST, FEE AND
COMMISSION INCOME AND EXPENSE ON
BANKING ACTIVITIES
Interest income and expense are recognised on an accrual basis
calculated using the effective interest method. This method
IFRS Consolidated Financial Statements
defers, as part of interest income or expense, all fees paid or
received between the parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other
premiums or discounts.
Fees integral to the effective interest rate include origination
fees received or paid by the entity relating to the creation or
acquisition of a financial asset or issuance of a financial liability,
for example fees for evaluating creditworthiness, evaluating and
recording guarantees or collateral, negotiating the terms of the
instrument and for processing transaction documents. Commit-
ment fees received by the Group to originate loans at market
interest rates are integral to the effective interest rate if it is
probable that the Group will enter into a specific lending arrange-
ment and does not expect to sell the resulting loan shortly after
origination. The Group does not designate loan commitments as
financial liabilities at FVTPL.
For financial assets that are originated or purchased credit-im-
paired, the effective interest rate is the rate that discounts the
expected cash flows (including the initial expected credit losses)
to the fair value on initial recognition (normally represented by
the purchase price). As a result, the effective interest is credit-ad-
justed.
Interest income is calculated by applying the effective interest
rate to the gross carrying amount of financial assets, except for
(i) financial assets that have become credit impaired (Stage 3),
for which interest revenue is calculated by applying the effective
interest rate to their AC, net of the ECL provision, and (ii) financial
assets that are purchased or originated credit impaired, for which
the original credit-adjusted effective interest rate is applied to
the AC.
Fee and commission income is recognised over time on
a straight line basis as the services are rendered, when the
customer simultaneously receives and consumes the benefits
provided by the Group’s performance. Such income includes
recurring fees for account maintenance, account servicing
fees, account subscription fees, premium service package fees,
portfolio and other asset management advisory and service fees,
wealth management and financial planning services, or fees for
servicing loans on behalf of third parties, etc. Variable fees are
recognised only to the extent that management determines that
it is highly probable that a significant reversal will not occur.
Other fee and commission income is recognised at a point in
time when the Group satisfies its performance obligation, usually
upon execution of the underlying transaction. The amount of fee
or commission received or receivable represents the transaction
price for the services identified as distinct performance obliga-
tions. Such income includes fees for arranging a sale or purchase
of foreign currencies on behalf of a customer, fees for processing
payment transactions, fees for cash settlements, collection or
cash disbursements, as well as, commissions and fees arising
from negotiating, or participating in the negotiation of a transac-
tion for a third party, such as the acquisition of loans, shares or
other securities or the purchase or sale of businesses.
TRANSPORTATION EXPENSES
Transportation expenses recognised in the consolidated
statements of profit or loss and other comprehensive income
represent all expenses incurred by the Group to transport crude
oil and refined 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.
Note 4
Critical accounting estimates and
judgements in applying accounting
policies
The Group makes estimates and assumptions that affect the
amounts recognised in the consolidated financial statements and
the carrying amounts of assets and liabilities within the next fi-
nancial year. Estimates and judgements are continually evaluated
and are based on management’s experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances.
Management of the Group also makes certain judgements, apart
from those involving estimations, in the process of applying the
accounting policies. Judgements that have the most significant
effect on the amounts recognised in the consolidated 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;
•
• Accounting of investments in JSC “National Non-State Pen-
Impairment of property, plant and equipment;
sion Fund”;
• Presentation of Revenue net of excise tax, including reverse
excise;
• Financial assets impairment;
• Financial assets classification;
• Financial instruments fair value estimation.
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
of 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
capitalised pending the results of further exploration or appraisal
activity, which may take several years to complete and before
any related proved reserves can be booked.
Proved reserves are estimated by reference to available geo-
logical and engineering data and only include volumes for which
access to market is assured with reasonable certainty. Estimates
of oil and gas reserves are inherently imprecise, require the
application of judgment and are subject to regular revision,
either upward or downward, based on new information such
as from the drilling of additional wells, observation of long-term
reservoir performance under producing conditions and changes
in economic factors, including product prices, contract terms or
development plans. The Group estimates its oil and gas re-
serves 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 developed reserves
affect prospectively the amounts of depreciation, depletion and
236
237
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 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 relat-
ed capitalised 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 insignificant addi-
tional costs. As a result of the anticipated license extensions, the
assets are depreciated over their useful lives beyond the end of
the current license term.
Management assesses the useful life of an asset by considering
the expected usage, estimated technical obsolescence, 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.
Management reviews the appropriateness of the assets’ useful
economic lives and residual values at the end of each reporting
period. The review is based on the current condition of the assets,
the estimated period during which they will continue to bring eco-
nomic benefit to the Group and the estimated residual value.
DECOMMISSIONING PROVISIONS
Management makes provision for the future costs of decom-
missioning oil and gas production facilities, wells, pipelines, and
related support equipment and for site restoration based on
the best estimates of future costs and economic lives of the oil
and gas assets. Estimating future decommissioning provisions is
complex and requires management to make estimates and judg-
ments 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 discount rates
used in valuation.
The amount recognised 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 subjectiv-
ity of these provisions there is uncertainty regarding both the
amount and estimated timing of such costs.
Sensitivity analysis for changes in discount rate:
Impact on decommissioning provision
At 31 December 2019 At 31 December 2018
Discount rate
Change in
+1%
-1%
(11,243)
14,954
(7,207)
9,353
Information about decommissioning provision is presented in
Note 12.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
At 31 December 2019 management assessed whether there is
any indication of impairment of on-current assets. As the result
the impairment of certain exploration and social assets was
recognised (Note 12).
ACCOUNTING OF INVESTMENTS IN JSC “NATIONAL NON-
STATE PENSION FUND”
As at 31 December 2019 and 2018 the Group has 74.46% of
shares of JSC “National Non-Governmental Pension Fund”. The
Group does not exercise either control or significant influence
over JSC “National Non-Governmental Pension Fund” based on
corporate governance and pension legislation. These invest-
ments are presented within financial assets carried at FVOCI as
at 31 December 2019 and 2018 (refer to Note 9).
PRESENTATION OF REVENUE NET OF EXCISE TAX,
INCLUDING REVERSE (NEGATIVE) EXCISE
For the years ended 31 December 2019 and 2018 the Group’s
revenue is presented net of excise taxes, including reverse (neg-
ative) excise on crude oil refined, gasoline and diesel fuel. For
the years ended 31 December 2019 and 2018 excise on refinery
products amounted to RR 38,900 million and RR 18,156 million
respectively, reverse (negative) excise on crude oil refined, gas-
oline and diesel fuel amounted to RR 23,307 million for the year
2019 (2018: not applicable).
FINANCIAL ASSETS IMPAIRMENT
ECL measurement. Calculation and measurement of ECLs is an
area of significant judgement, and implies methodology, models
and data inputs. The following components of ECL calculation
have the major impact on credit loss allowance for ECLs: default
definition, significant increase in credit risk (SICR), probability of
default (PD), exposure at default (EAD), loss given default (LGD),
macromodels and scenario analysis for credit impaired loans. The
Group regularly reviews and validates models and inputs to the
models to reduce any differences between expected credit loss
estimates and actual credit loss experience. Refer to Note 30.
Significant increase in credit risk (SICR). In order to determine
whether there has been a significant increase in credit risk, the
Group compares the risk of a default occurring over the life of
a financial instrument at the end of the reporting date with the
risk of default at the date of initial recognition. The assessment
considers relative increase in credit risk rather than achieving
a specific level of credit risk at the end of the reporting period.
The Group considers all reasonable and supportable forward
looking information available without undue cost and effort,
which includes a range of factors, including behavioural aspects
of particular customer portfolios. The Group identifies behaviour-
al indicators of increases in credit risk prior to delinquency and
incorporated appropriate forward looking information into the
credit risk assessment, either at an individual instrument, or on
a portfolio level. Refer to Note 30.
FINANCIAL ASSETS CLASSIFICATION
Business model assessment. The business model drives clas-
sification of financial assets. Management applied judgement in
determining the level of aggregation and portfolios of financial
instruments when performing the business model assessment.
When assessing sales transactions, the Group considers their
historical frequency, timing and value, reasons for the sales and
expectations about future sales activity. Sales transactions aimed
at minimising potential losses due to credit deterioration are con-
sidered consistent with the “hold to collect” business model. Oth-
er sales before maturity, not related to credit risk management
IFRS Consolidated Financial Statements
activities, are also consistent with the “hold to collect” business
model, provided that they are infrequent or insignificant in value,
both individually and in aggregate. The Group assesses signifi-
cance of sales transactions by comparing the value of the sales
to the value of the portfolio subject to the business model as-
sessment over the average life of the portfolio. In addition, sales
of financial asset expected only in stress case scenario, or in re-
sponse to an isolated event that is beyond the Group’s control, is
not recurring and could not have been anticipated by the Group,
are regarded as incidental to the business model objective and
do not impact the classification of the respective financial assets.
The “hold to collect and sell” business model means that assets
are held to collect the cash flows, but selling is also integral to
achieving the business model’s objective, such as, managing
liquidity needs, achieving a particular yield, or matching the du-
ration of the financial assets to the duration of the liabilities that
fund those assets.
The residual category includes those portfolios of financial
assets, which are managed with the objective of realising cash
flows primarily through sale, such as where a pattern of trading
exists. Collecting contractual cash flow is often incidental for this
business model.
Assessment whether cash flows are solely payments of
principal and interest (“SPPI”). Determining whether a financial
asset’s cash flows are solely payments of principal and interest
required judgement.
The time value of money element may be modified, for example,
if a contractual interest rate is periodically reset but the frequen-
cy of that reset does not match the tenor of the debt instrument’s
underlying base interest rate, for example a loan pays three
months interbank rate but the rate is reset every month. The
effect of the modified time value of money was assessed by
comparing relevant instrument’s cash flows against a benchmark
debt instrument with SPPI cash flows, in each period and cumu-
latively over the life of the instrument. The assessment was done
for all reasonably possible scenarios, including reasonably possi-
ble financial stress situation that can occur in financial markets.
The Group identified and considered contractual terms that
change the timing or amount of contractual cash flows.
The SPPI criterion is met if a loan allows early settlement and the
prepayment amount substantially represents principal and accrued
interest, plus a reasonable additional compensation for the early
termination of the contract. The asset’s principal is the fair value
at initial recognition less subsequent principal repayments, i.e.
instalments net of interest determined using the effective interest
method. As an exception to this principle, the standard also allows
instruments with prepayment features that meet the following
condition to meet SPPI: (i) the asset is originated at a premium or
discount, (ii) the prepayment amount represents contractual per
amount and accrued interest and a reasonable additional com-
pensation for the early termination of the contract, and (iii) the fair
value of the prepayment feature is immaterial at initial recognition.
The Group’s loans, primarily to real estate developers, have
cash flows that highly depend on performance of the underlying
assets. The loans are carried at FVTPL where management de-
termined that such loans are in substance non-recourse.
The instruments that failed the SPPI test are measured at FVTPL
are described in Note 8.
FINANCIAL INSTRUMENTS FAIR VALUE
ESTIMATION
Financial instruments carried at FVTPL or FVOCI and all deriv-
atives are stated at fair value. If a quoted market price is avail-
able for an instrument, the fair value is calculated based on the
market price. When valuation parameters are not observable in
the market 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 accepted
financial theories. Pricing models take into account the contract
terms of the securities as well as market-based valuation param-
eters, 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 parameter 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 recognised in the consol-
idated statement of profit or loss and other comprehensive in-
come on initial recognition unless the value is based on valuation
technique that uses only data from observable markets. Subse-
quent gains or losses are only recognised 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
ADOPTION OF IFRS 16,
LEASES
The Group decided to use the modified retrospective method
when applying the standard from its mandatory adoption date of
1 January 2019, without restatement of comparatives and using
certain simplifications allowed by the standard. Right-of-use
assets were measured at the amount of the lease liability on
adoption (adjusted for any prepaid or accrued expenses).
On adoption of IFRS 16, the Group recognised lease liabilities in
relation to leases which had previously been classified as “op-
erating leases” under the principles of IAS 17 Leases. These liabil-
ities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing
rate as at 1 January 2019. The borrowing rate was determined by
the information on possible borrowing rates offered by banks.
The lessee’s incremental borrowing rate applied to the lease lia-
bilities on 31 December 2019 was ranged from 7.4% to 8.4% and
from 10.5% to 10.8% on a 1 January 2019.
238
239
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Total future minimum lease payments for non-
cancellable operating leases
Future lease payments that are due in periods
subject to lease extension options that are
reasonably certain to be exercised
Effect of discounting to present value
Total lease liabilities
Of which are:
Current lease liabilities
Non-current lease liabilities
At 1 January 2019
6,932
20,886
(11,750)
16,068
2,919
13,149
The associated right-of-use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in
the balance sheet as at 1 January, 2019. There were no onerous
lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
Segment assets at 31 December 2019 increased as a result of
the change in accounting policy. The following segments were
affected by the change in policy:
At 31 December 2019
ASSETS
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total assets
11,323
314
1,422
516
83
13,658
Earnings per share for the year ended 31 December 2019 de-
creased by RR 0.25 as a result of the adoption of IFRS 16. Applica-
tion of this Standard did not have an effect on retained earnings
(or other component of equity) at the date of initial application.
PRACTICAL EXPEDIENTS APPLIED
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
•
•
•
•
•
the use of a single discount rate to a portfolio of leases with
reasonably similar characteristics;
reliance on previous assessments on whether leases are
onerous;
the exclusion of initial direct costs for the measurement of the
right-of-use asset at the date of initial application;
the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease,
and
the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-
term leases.
The following amended standards became effective for the
Group from 1 January 2019, but did not have any material impact
on the Group:
•
IFRIC 23 Uncertainty over Income Tax Treatments (issued on
7 June 2017 and effective for annual periods beginning on or
after 1 January 2019);
• Prepayment Features with Negative Compensation - Amend-
ments 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 effec-
tive for annual periods beginning on or after 1 January 2019);
• Annual Improvements to IFRSs 2015-2017 cycle - amend-
ments 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 following other new standards and interpretations are not
expected to have any material impact on the Group’s consolidat-
ed financial statements 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);
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. As a consequence, it was difficult for
investors to compare and contrast the financial performance
of otherwise similar insurance companies. IFRS 17 is a single
principle-based standard to account for all types of insurance
contracts, including reinsurance contracts that an insurer
holds.
• Amendments to the Conceptual Framework for Financial
Reporting (issued on 29 March 2018 and effective for annual
periods beginning on or after 1 January 2020).
• Definition of a business – Amendments to IFRS 3 (issued
on 22 October 2018 and effective for acquisitions from the
beginning of annual reporting period that starts on or after
1 January 2020). The amendments revise definition of a
business.
• Definition of materiality – Amendments to IAS 1 and IAS 8
(issued on 31 October 2018 and effective for annual periods
beginning on or after 1 January 2020).The amendments
clarify the definition of material and how it should be applied
by including in the definition guidance that until now has
featured elsewhere in IFRS. In addition, the explanations
accompanying the definition have been improved.
Interest rate benchmark reform - Amendments to IFRS 9, IAS
39 and IFRS 7 (issued on 26 September 2019 and effective
for annual periods beginning on or after 1 January 2020).
• Classification of liabilities as current or non-current – Amend-
ments to IAS 1 (issued on 23 January 2020 and effective for
annual periods beginning on or after 1 January 2022).
•
IFRS Consolidated Financial Statements
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 2019
At 31 December 2018
24,730
350
77
25,157
42,340
22,078
1,071
65,489
Term deposits with original maturity of less than three months
represent deposits placed in banks in the course of non-bank-
ing 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:
Short-term accounts receivable:
Trade receivables
Other financial receivables
Other non-financial receivables
Less credit loss allowance
Total short-term accounts receivable
Long-term accounts receivable:
Trade receivables
Other financial receivables
Less credit loss allowance
Total long-term accounts receivable
Total trade and other receivables
At 31 December 2019
At 31 December 2018
81,950
9,516
161
(6,921)
84,706
333
10,301
(2,773)
7,861
92,567
79,088
8,150
144
(6,620)
80,762
1,569
3,063
(1,702)
2,930
83,692
Fair value of short-term and long-term accounts receivable is
presented in Note 30.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss allow-
ance for all trade and other receivables.
below. The provision matrix is based on the number of days that
an asset is past due, with a distribution to portfolios of receivables,
homogeneous in terms of credit risk. In addition to the number of
days that an asset is past due, types of products sold, geograph-
ical specificity of distributional channels and other factors were
taken into account.
The credit loss allowance for trade and other receivables is
determined according to provision matrix presented in the table
Analysis by credit quality of trade and other receivables is as
follows:
240
241
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 At 31 December 2019
At 31 December 2018
At 31 December 2019
At 31 December 2018
IFRS Consolidated Financial Statements
TRADE RECEIVABLES
- current
- less than 90 days overdue
- 91 to 180 days overdue
- over 180 days overdue
Total trade receivables (gross carrying amount)
Credit loss allowance
Total trade receivables (carrying amount)
OTHER RECEIVABLES
- current
- less than 90 days overdue
- 91 to 180 days overdue
- over 180 days overdue
Total other receivables (gross carrying amount)
Credit loss allowance
Total other receivables (carrying amount)
Loss
rate
Gross
carrying
amount
Lifetime
ECL
Loss
rate
Gross
carrying
amount
Lifetime
ECL
0.065%
0.92%
3.51%
88.93%
75,614
2,946
969
2,754
82,283
(2,559)
79,724
(49)
(27)
(34)
0.197%
89.34%
0.59%
(2,449)
89.68%
78,244
798
88
1,527
80,657
(2,240)
78,417
0.254%
12,617
100%
100%
98.65%
12
1
7,187
19,817
(7,135)
12,682
(32)
(12)
(1)
(7,090)
0.735%
5,168
100%
0%
100%
12
-
6,033
11,213
(6,082)
5,131
(157)
(713)
(1)
(1,369)
(37)
(12)
-
(6,033)
The following table explains the changes in the credit loss allow-
ance for trade and other receivables under simplified ECL model
between the beginning and the end of the annual period:
Trade receivables
Other receivables
Trade receivables
Other receivables
2019
2018
Expected credit loss allowance at 1 January
New originated or purchased
Other movements
Total credit loss allowance charge in profit or loss for the period
Write-offs
FX movements
(2,240)
(319)
-
(319)
-
-
(6,082)
(1,095)
53
(1,042)
(11)
-
(1,676)
(734)
-
(734)
228
(58)
(2,419)
(3,635)
(53)
(3,688)
25
-
Analysis by credit quality of trade and other receivables is as
follows:
At 31 December 2019
At 31 December 2018
Trade receivables
Other receivables
Trade receivables
Other receivables
Trade receivables
Other receivables
Trade receivables
Other receivables
Russian construction companies
unrated
including related parties
Not past due
327
7,521
1,003
75,614
PAST DUE BUT NOT INDIVIDUALLY ASSESSED FOR CREDIT LOSS ALLOWANCE
less than 90 days overdue
91 to 180 days overdue
over 180 days overdue
Total past due but not individually assessed for credit
loss allowance
2,946
969
305
4,220
INDIVIDUALLY ASSESSED FOR CREDIT LOSS ALLOWANCE (GROSS)
less than 90 days overdue
91 to 180 days overdue
over 180 days overdue
Total individually assessed for credit loss allowance
Less credit loss allowance
Total
-
-
2,449
2,449
(2,559)
79,724
-
12,617
435
12,617
-
-
65
65
12
1
7,122
7,135
(7,135)
12,682
325
8,322
2,697
78,244
85
88
-
173
713
-
1,527
2,240
(2,240)
78,417
-
5,168
369
5,168
12
-
-
12
-
-
6,033
6,033
(6,082)
5,131
Note 8
Banking: Loans to customers
Loans to legal entities
Loans to individuals
Loans to customers measured at amortised cost before impairment
Credit loss allowance
Total loans to customers measured at amortised cost
Loans to customers measured at fair value through profit and loss
Less: long term loans at measured at fair value through profit and loss
Less: long term loans measured at amortised cost
Less: credit loss allowance for long term loans
Total short term loans to customers and current portion of long term loans to
customers
Less: short term loans at measured at fair value through profit and loss
Total short term loans to customers and current portion of long term loans to
customers measured at amortised cost
At 31 December 2019
At 31 December 2018
92,147
41,836
133,983
(10,478)
123,505
12,947
136,452
(12,740)
(94,165)
4,333
33,880
(207)
33,673
106,538
39,935
146,473
(13,069)
133,404
12,901
146,305
(12,901)
(85,905)
6,298
53,797
-
53,797
NOT PAST DUE
International traders of crude oil, oil products and
petrochemicals
Russian crude oil and oil products traders
Russian oil and petrochemicals refineries
Central and Eastern Europe refineries
Russian tire dealers and automotive manufacturers
Natural monopoly entity
242
23,349
1,501
22,603
15,249
3,430
1,634
-
-
-
-
-
-
21,373
8,252
14,160
15,910
4,732
5,170
-
-
-
-
-
-
As at 31 December 2019 and 2018 the Group granted loans to
19 and 20 customers totalling RR 57,435 million and RR 51,743
million respectively, which individually exceeded 5% of the Bank
ZENIT equity.
As at 31 December 2019 and 2018, the total amount of pledged
loans to legal entities is RR 783 million and RR 1,742 million and
loans to individuals is RR 4,425 million and RR 5,442 million
respectively. The loans are pledged against the funds accounted
within due to banks and the Bank of Russia.
The Group holds a portfolio of loans and advances to customers
that does not meet the SPPI requirement for measured at am-
ortised cost classification under IFRS 9. Dominant features that
243
Expected credit loss allowance at 31 December
(2,559)
(7,135)
(2,240)
(6,082)
Total loans to customers
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 failed SPPI test were the following: the amount of net operating
cash flows according to business-plan is not sufficient to fully re-
payment of loans within the period specified in loan contract; the
time value of money is not compensated to the Group, interest
payments will be performed in the end of loan contract; amount
of collateral is not sufficient for repayment of loan. As a result,
these loans and advances were measured at fair value through
profit and loss from the date of initial recognition.
credit risk. The carrying amount presented in the consolidated
statement of financial position best represents the Group’s max-
imum exposure to credit risk arising from loans and advances
to customers.
The fair value of loans and advances to customers, including a
breakdown by fair value hierarchy level, is disclosed in Note 30.
Information on related party balances is disclosed in Note 26.
Loans and advances to customers measured at fair value
through profit and loss are measured taking into account the
Movements in the credit loss allowance during the year ended 31
December 2019 are as follows:
Credit loss allowance as at 1 January 2019
Net reversal/(provision) for credit loss allowance during the period
Reclassification in the credit loss allowance for other long-term loans
Other changes
Credit loss allowance as at 31 December 2019
(11,533)
698
2,780
264
(7,791)
Movements in the credit loss allowance during the year ended 31
December 2018 are as follows:
Loans to legal entities
Loans to individuals
(1,536)
(1,160)
-
9
Total
(13,069)
(462)
2,780
273
(2,687)
(10,478)
Credit loss allowance as at 1 January 2018
Net provision for credit loss allowance during the period
Credit loss allowance as at 31 December 2018
Loans to legal entities
Loans to individuals
(10,605)
(928)
(11,533)
(1,154)
(382)
(1,536)
Total
(11,759)
(1,310)
(13,069)
Risk concentrations by customer industry within the customer
loan portfolio are as follows:
IFRS Consolidated Financial Statements
Note 9
Other financial assets
Other short-term financial assets comprise the following as at 31
December 2019 and 31 December 2018:
FINANCIAL ASSETS MEASURED AT AMORTISED COST
Notes receivable (net of credit loss allowance of RR 240 million and 249 million as at
31 December 2019 and 31 December 2018 respectively)
Other loans (net of credit loss allowance of RR 3,615 million and 261 million as at 31
December 2019 and 31 December 2018 respectively)
Bank deposits (net of credit loss allowance of RR 5,547 million and 5,544 million as at
31 December 2019 and 31 December 2018 respectively)
Due from banks
REPO with banks
Securities held by the Group (net of credit loss allowance of RR 9 million and 47
million as at 31 December 2019 and 31 December 2018 respectively):
Russian government and municipal debt securities
Corporate debt securities
Securities pledged under sale and repurchase agreements (net of credit loss
allowance of RR 22 million and 37 million as at 31 December 2019 and 31 December
2018 respectively):
Russian government and municipal debt securities
Corporate debt securities
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS
Due from banks
Securities held by the Group:
At 31 December 2019
At 31 December 2018
Russian government and municipal debt securities
Gross book value Share in customer loan
portfolio, %
Gross book 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
19,485
29,191
15,908
17,895
633
10,173
1,041
5,013
41,836
22,843
14,202
4,178
572
41
5,755
Total loans to customers before credit loss allowance
146,930
244
13.26%
19.87%
10.83%
12.18%
0.43%
6.92%
0.71%
3.41%
28.47%
15.55%
9.67%
2.84%
0.39%
0.02%
3.92%
100%
28,943
24,471
16,542
22,877
1,474
12,080
1,538
2,533
39,936
25,333
13,247
846
479
31
8,979
159,373
18.16%
15.35%
10.38%
14.35%
0.92%
7.58%
0.97%
1.59%
25.06%
15.90%
8.31%
0.53%
0.30%
0.02%
5.63%
100%
Corporate debt securities
Corporate shares
Derivatives
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Securities held by the Group:
Russian government and municipal debt securities
Corporate debt securities
Corporate shares
Total short-term financial assets
Other long-term financial assets comprise the following as at 31
December 2019 and 31 December 2018:
At 31 December 2019
At 31 December 2018
112
227
659
1,222
4,081
1,562
30
1,532
9,044
2,609
6,435
1,238
7,658
460
6,865
165
168
1,910
695
1,000
215
27,713
136
3,220
11
997
537
4,632
675
3,957
8,267
2,272
5,995
-
4,017
287
2,018
186
1,526
11,084
176
10,719
189
32,901
245
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 At 31 December 2019
At 31 December 2018
Credit loss allowance
Gross carrying amount
IFRS Consolidated Financial Statements
FINANCIAL ASSETS MEASURED AT AMORTISED COST
Notes receivable (net of credit loss allowance of RR 318 million as at 31 December
2019 and 31 December 2018)
Loans to employees (net of credit loss allowance of RR 1,804 million and 1,776 million
as at 31 December 2019 and 31 December 2018 respectively)
Other loans (net of credit loss allowance of RR 22,392 million and 17,746 million as at
31 December 2019 and 31 December 2018 respectively)
Bank deposits
Due from banks
Securities held by the Group (net of credit loss allowance of RR 31 million and 138
million as at 31 December 2019 and 31 December 2018 respectively):
Russian government and municipal debt securities
Corporate debt securities
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS
Other loans
Securities held by the Group:
Corporate debt securities
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Securities held by the Group:
Russian government and municipal debt securities
Corporate shares
Corporate debt securities
Investment fund units
Total long-term financial assets
-
928
21,281
-
2,027
13,132
1,272
11,860
-
293
293
42,917
15,236
12,440
2,176
13,065
80,578
320
1,046
25,450
646
1,018
19,867
2,301
17,566
117
757
757
32,292
36
12,317
6,851
13,088
81,513
The fair value of financial assets and valuation techniques used
are disclosed in Note 30.
Corporate bonds consist of Russian Ruble and US Dollar de-
nominated bonds and Eurobonds issued by Russian banks and
companies.
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.
Municipal bonds consist of Russian Ruble denominated bonds
issued by regional and municipal authorities of the Russian
Federation.
Corporate shares at FVTPL include quoted and unquoted shares
of Russian companies and banks. At 31 December 2019 and 31 De-
cember 2018 unquoted securities measured at fair value through
other comprehensive income include investment in AK BARS Bank
ordinary shares (17.24%) in the amount of RR 7,300 million.
Investment fund units are solely presented with investment
in closed mutual investment rental fund AK BARS – Gorizont
(45.45% of the total amount a shares). 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 a financial asset measured at fair
value through other comprehensive income.
In 2019 the Group recognised an impairment losses on financial
assets net of reversal in the amount of RR 6,737 million. These
losses consist of expected credit loss allowance for accounts
receivable in the amount of RR 1,361 million, other loans issued in
the amount of RR 5,220 million and other financial assets in the
amount of RR 156 million.
The following table discloses the changes in the credit loss allow-
ance and gross carrying amount for other loans carried at amor-
tised cost between the beginning and the end of the reporting
period:
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit
impaired)
Total
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit
impaired)
Total
OTHER LOANS
At 31 December 2018
-
(543)
(17,464)
(18,007)
83
26,217
20,377
46,677
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)
Net remeasurement of credit
loss allowance within the
same stage
Loans repaid or derecognised
(excluding write-offs)
New originated or purchased
Total movements with impact on
credit loss allowance charge for
the period
-
-
-
-
-
302
(302)
-
-
-
-
(6,608)
(6,608)
1,388
-
1,388
-
-
-
(10)
-
(23,021)
23,021
-
-
-
-
(1,849)
184
(1,756)
439
(3,615)
623
302
(5,522)
(5,220)
(10)
(24,686)
21,704
(2,992)
Movements without impact on credit loss allowance charge for the period:
Reclassification from other
financial assets
At 31 December 2019
At 1 January 2018
-
-
-
-
(2,780)
(2,780)
(241)
(232)
(25,766)
(26,007)
(8,827)
(9,059)
Movements with impact on credit loss allowance charge for the period:
-
1,531
1,768
3,830
45,911
15,435
3,830
47,515
17,252
Transfers:
- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)
Net remeasurement of credit
loss allowance within the
same stage
New originated or purchased
Total movements with impact on
credit loss allowance charge for
the period
-
-
-
-
36
(36)
-
(17)
(323)
(8,273)
(703)
(8,290)
(1,026)
(195)
195
-
34
22,407
-
751
-
-
23,192
(304)
(9,012)
(9,316)
34
22,212
946
23,192
-
73
49
-
-
Movements without impact on credit loss allowance charge for the period:
Disposals
Reclassification from other
financial assets
At 31 December 2018
-
-
-
6
(13)
1,296
1,302
(921)
(934)
(543)
(17,464)
(18,007)
-
-
83
(263)
(3,171)
(3,434)
2,500
26,217
7,167
20,377
9,667
46,677
In December 2018 the Group entered into a transaction to
acquire from a number of Russian government-controlled
banks their rights of claim under the credit facilities with NEFIS
Group, a leading Russian household chemicals, oil and fats
manufacturer. Total rights in the amount of RR 19,861 million
and RR 21,506 million were accounted as other loans in other
long-term financial assets carried at amortised cost at 31 De-
cember 2019 and 31 December 2018 respectively.
246
247
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Note 10
Inventories
Materials and supplies
Crude oil
Refined oil products
Petrochemical supplies and finished goods
Total inventories
Note 11
Prepaid expenses and other current
assets
Prepaid expenses and other current assets are as follows:
Prepaid export duties
Value added tax
Advances
Prepaid transportation expenses
Reverse (negative) excise
Other
Prepaid expenses and other current assets
Note 12
Property, plant and equipment
At 31 December 2019
At 31 December 2018
18,916
9,905
13,197
11,361
53,379
17,640
12,003
11,621
9,342
50,606
At 31 December 2019
At 31 December 2018
2,233
6,006
6,176
1,465
1,942
2,948
20,770
3,818
7,873
8,670
1,752
-
977
23,090
COST
As at 31 December 2017
Additions
Disposals
Changes in Group structure
Transfers
Changes in decommissioning provision
As at 31 December 2018
DEPRECIATION, DEPLETION AND AMORTISATION
As at 31 December 2017
Depreciation charge
Disposals
Changes in Group structure
Transfers
As at 31 December 2018
248
Oil and gas
properties
Buildings and
constructions
Machinery and
equipment
Construc-tion in
progress
Total
382,326
196,072
144,939
-
(3,060)
-
24,377
(6,253)
-
(1,453)
(726)
26,969
-
-
(1,669)
(679)
14,938
-
195,168
95,761
(4,832)
103
(66,284)
-
397,390
220,862
157,529
219,916
168,356
33,764
64,925
14,363
(2,156)
-
(1,204)
179,359
6,783
(454)
(216)
3,699
43,576
9,999
(982)
(607)
(2,495)
70,840
-
-
-
-
-
-
918,505
95,761
(11,014)
(1,302)
-
(6,253)
995,697
267,045
31,145
(3,592)
(823)
-
293,775
IFRS Consolidated Financial Statements
NET BOOK VALUE
As at 31 December 2017
As at 31 December 2018
COST
As at 31 December 2018
Additions
Disposals
Changes in Group structure (Note 29)
Transfers
Changes in decommissioning provision
Oil and gas
properties
Buildings and
constructions
Machinery and
equipment
Construc-tion in
progress
Total
213,970
218,031
162,308
177,286
80,014
86,689
397,390
220,862
157,529
415
(6,266)
-
46,157
13,072
-
(1,506)
10,356
39,944
-
-
(3,369)
7,631
43,137
-
195,168
219,916
219,916
100,094
(1,353)
1,231
(129,238)
-
651,460
701,922
995,697
100,509
(12,494)
19,218
-
13,072
As at 31 December 2019
450,768
269,656
204,928
190,650
1,116,002
DEPRECIATION, DEPLETION AND AMORTISATION
As at 31 December 2018
Depreciation charge
Impairment
Disposals
Changes in Group structure
Transfers
As at 31 December 2019
NET BOOK VALUE
As at 31 December 2018
As at 31 December 2019
179,359
43,576
6,441
4,090
(683)
2
280
53,706
70,840
9,394
-
(2,386)
(48)
1,810
79,610
-
-
24,391
-
-
-
293,775
33,131
29,240
(8,833)
(46)
-
24,391
347,267
177,286
215,950
86,689
125,318
219,916
166,259
701,922
768,735
17,296
759
(5,764)
-
(2,090)
189,560
218,031
261,208
Additions for years 2019 and 2018 years include construction of
TANECO refinery complex and superviscous oil fields facilities.
to the end of the economic lives of the fields, provided certain
conditions are met.
Within construction in progress there are advances for construc-
tion of RR 14,862 million and RR 15,318 million at 31 December
2019 and 2018, respectively.
As stated in Note 3, the Group calculates depreciation, de-
pletion and amortization for oil and gas properties using the
units-of-production method over proved developed oil and
gas reserves. The proved developed reserves used in the
units-of-production method assume the extension of the Group’s
production license beyond their current expiration dates until
the end of the economic lives of the fields as discussed below in
further detail.
The Group’s oil and gas fields are located principally on the
territory of Tatarstan. The Group obtains licenses from the gov-
ernmental 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 2038
and 2090, with other production licenses expiring between
2019 and 2105. The economic lives of several of the Group’s
licensed fields extend beyond the dates of licenses expiration.
Under Russian law, the Group is entitled to renew the licenses
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 stand-
ard for defining proved reserves under the SEC’s Regulation S-X,
Rule 4-10.
Changes in the net book value of exploration and evaluation
assets are presented below:
At 1 January 2018
Additions
Reclassification to development assets
Charged to expense
At 31 December 2018
Additions
Reclassification to development assets
Charged to expense
At 31 December 2019
18,520
2,018
(642)
(3,178)
16,718
3,194
-
(17,818)
2,094
249
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 For the years ended 31 December 2019 and 2018, operating and
investing cash flows used for exploration and evaluation activi-
ties amounted to RR 924 million and RR 688 million and RR 3,194
million and RR 2,018 million, respectively.
LIBYA
As a result of destabilisation of the political situation in Libya, in
February 2011 the Group had to entirely suspend its operations
in that country and evacuate all its Russian personnel. After
improvement of the situation in the country, in early 2013 the
Group returned its staff to Libya and began preparatory work. In
May 2014, exploration was resumed in accordance with contrac-
tual obligations. 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, acknowledged
by the National Oil Company, which is continuing as at the date
of these consolidated financial statements. As at 31 December
2019 the Group recognised an impairment loss in the amount
of RR 6,492 million related to exploration and evaluation assets
associated with its operations in Libya, including RR 4,899 million
recognised for the year ended 31 December 2019. The Group is
constantly monitoring the security and political situation in Libya
to assess the possibility of geological exploration, and plans to
resume its operations once the conditions permit to do so.
ASSETS OUTSIDE THE REPUBLIC OF TATARSTAN
As at 31 December 2019 the Group recognised an impairment loss
for certain other exploration and evaluation assets in the amount
of RR 19,104 million, including RR 12,919 million for the year ended
31 December 2019, related mainly to the oilfields located in Nenets
Autonomous District and Republic of Kalmykia. The Group rec-
ognised this impairment loss due to adverse conditions in the oil
market affecting the current assessment of respective projects.
SOCIAL ASSETS
During the years ended 31 December 2019 and 2018 the Group
transferred social assets with a net book value of RR 345 million
and RR 21 million, respectively, to local authorities. At 31 Decem-
ber 2019 and 2018 the Group held social assets with a net book
value net of impairment provision of RR 6,378 million and RR
9,232 million, respectively. The Group recognised an impairment
loss on social assets not providing future economic benefits, in
the amount of RR 7,208 million for the year ended 31 December
2019; no impairment loss on such assets was recognised for the
year ended 31 December 2018.
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 infrastruc-
ture expenses of RR 8,995 million and RR 5,592 million for the
years ended 31 December 2019 and 2018, respectively, for
maintenance that mainly relates to housing, schools and cultural
buildings.
In 2019 the Group recognised an impairment losses and losses
on disposal on property, plant and equipment and other non-fi-
nancial assets net of reversal in the amount of RR 30,875 million.
These losses consist of impairment losses on property, plant
and equipment in the amount of RR 29,240 milllion and other
non-current assets in the amount of RR 360 million, losses on
creation of provision for impairment of inventories in the amount
of RR 320 million and losses on disposal of property, plant and
equipment in the amount of RR 950 million.
DECOMMISSIONING PROVISIONS
The following table summarizes changes in the Group’s decom-
missioning provision for the year:
IFRS Consolidated Financial Statements
Note 13
Right-of-use assets and lease
liabilities
Starting from January 1, 2019, a lease is recognised as a right-of-use
assets and a lease liabilities on the date the asset becomes available
for use by the Group.
Right-of-use assets comprise the following:
As at 1 January 2019
Additions
Disposals
Depreciation
Revaluation and modification
As at 31 December 2019
The reconciliation between undiscounted lease liabilities and
their present value presented in the table below:
Service equipment
Other assets
13,654
78
-
(1,784)
(896)
11,052
2,414
1,648
(925)
(316)
(215)
2,606
Total
16,068
1,726
(925)
(2,100)
(1,111)
13,658
Balance at the beginning of period
Unwinding of discount
New obligations
Release of existing obligations
Changes in estimates
Balance at the end of period
Less: current portion of decommissioning provisions (Note 16)
Long-term balance at the end of period
In 2019 and 2018 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 provi-
sion were as follows:
Discount rate
Inflation rate
250
2019
34,457
3,015
1,349
(70)
11,723
50,474
(127)
50,347
2018
38,081
2,936
629
(307)
(6,882)
34,457
(119)
34,338
LEASE LIABILITIES
Less than one year
Between one and five years
More than five years
Total undiscounted lease liabilities
Lease liabilities
Of which are:
Current lease liabilities, presented in Accounts payable and accrued liabilities (Note 16)
Non-current lease liabilities
Note 14
Taxes
Income tax expense comprises the following:
Presented below is reconciliation between the provision for
At 31 December 2019
At 31 December 2018
6.69%
4.00%
8.75%
4.21%
Current income tax expense
Deferred income tax expense
Income tax expense for the year
At 31 December 2019
3,024
9,443
11,078
23,545
14,191
2,613
11,578
Year ended 31
December 2019
Year ended 31
December 2018
(57,626)
(1,898)
(59,524)
(58,015)
(4,226)
(62,241)
251
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 income taxes and taxes determined by applying the statutory tax
rate 20% to income before income taxes:
Profit before income tax
Theoretical income tax expense at statutory rate
Increase due to:
Non-deductible expenses, net
Income tax withheld at source on dividends for treasury shares
Deferred income tax liability increase as a result of business combinations (Note 29)
Other
Income tax expense
Year ended
31 December 2019
Year ended
31 December 2018
252,342
(50,468)
(6,705)
(733)
(1,703)
85
273,789
(54,758)
(7,653)
(394)
-
564
(59,524)
(62,241)
IFRS Consolidated Financial Statements
Deferred tax assets are recognised 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 utilised.
Tax losses carry forward. At 31 December 2019, the Group had
recognised deferred income tax assets of RR 3,057 million (RR
3,281 million at 31 December 2018) in respect of unused tax
loss carry forwards of RR 15,285 million (RR 16,405 million at 31
December 2018). 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 2021.
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 realised.
The Group does not have any unrecognised potential deferred
tax assets in respect of deductible temporary differences.
The Group is subject to a number of taxes other than income
taxes, which are detailed as follows:
Deferred income taxes reflect the impact of temporary differenc-
es between the amount of assets and liabilities recognised for
financial reporting purposes and such amounts recognised for
statutory tax purposes. Deferred tax assets (liabilities) are com-
prised of the following:
Mineral extraction tax
Property tax
Other
Total taxes other than income taxes
Year ended 31
December 2019
Year ended 31
December 2018
298,592
7,320
1,742
307,654
284,118
6,680
2,364
293,162
At 31 December 2019 no deferred tax liabilities has been rec-
ognised for taxable temporary differences of RR 68,729 million
(2018: RR 62,453 million) on undistributed earnings of certain
subsidiaries. These earnings have been and will continue to be
reinvested. These earnings, except for undistributed earnings of
subsidiaries operating in a tax free jurisdictions, could become
subject to additional tax of approximately RR 1,203 million (2018:
RR 1,185 million) if they were remitted as dividends.
Tax loss carry forward
Decommissioning provision
Prepaid expenses and other current assets
Accounts receivable
Long-term loans and certificates of deposits
Long-term investments
Other
Deferred income tax assets
Property, plant and equipment
Inventories
Long-term investments
Other liabilities
Deferred income tax liabilities
Net deferred tax liability
Deferred income taxes are reflected in the consolidated state-
ment of financial position as follows:
Deferred income tax asset
Deferred income tax liability
Net deferred tax liability
252
At 31 December 2019
At 31 December 2018
3,057
7,318
189
425
1,773
366
94
13,222
(41,908)
(2,021)
-
-
(43,929)
(30,707)
3,281
6,868
278
230
2,131
395
1,333
14,516
(39,602)
(2,824)
(15)
(13)
(42,454)
(27,938)
At 31 December
At 31 December 2018
2,712
(33,419)
(30,707)
3,548
(31,486)
(27,938)
For mineral extraction tax for fields whose depletion rate ex-
ceeds a certain threshold the Group received a tax relief of RR
50.4 billion and RR 52.2 billion for the years ended 31 December
2019 and 2018, respectively.
Taxes other than income taxes exclude the export duties paid
on the sale of crude oil and refined products as the Group sales
and other operating revenues are presented net of such export
duties.
At 31 December 2019 and 2018 taxes payable were as follows:
At 31 December 2019
At 31 December 2018
Mineral extraction tax
Value Added Tax
Excise
Export duties
Property tax
Other
Total taxes payable
21,172
8,369
2,863
425
1,975
2,661
37,465
21,692
7,622
2,683
2,493
1,549
2,732
38,771
253
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Note 15
Debt
SHORT-TERM DEBT
Bonds issued
Subordinated debt
Debt securities issued
US $75 million 2011 credit facility
US $144.5 million 2011 credit facility
EUR 55 million 2013 credit facility
RR credit facilities
Other debt
Total short-term debt
Сurrent 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
At 31 December 2019
At 31 December 2018
1,850
21
884
816
2,090
1,652
10,142
938
18,393
1,199
19,592
20,007
1,266
39
1,544
22,856
(1,199)
21,657
1,056
2,160
1,061
1,397
2,932
2,353
-
994
11,953
-
11,953
-
1,420
69
1,595
3,084
-
3,084
Fair value of debt is presented in Note 30. Maturity and currency
analysis of debt is presented in Note 30. Debt issued by related
parties is presented in Note 26.
CREDIT FACILITIES
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.
The loan agreement requires compliance with certain financial
covenants including, but not limited to, minimum levels of con-
solidated 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.
During 2019, to cover cash gaps the Group received short-term
loans under the existing credit facilities with PJSC Sberbank, JSC
ALFA-BANK, PJSC Bank Otkrytie FC and PJSC MOSCOW CREDIT
BANK in total amount of 113,200 million Rubles at rates ranging
from 6.33% to 8.54%, which were repaid early. The short-term
debt under these loans at the end of 2019 amounted to 10,142
million Rubles and was fully repaid in January 2020.
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 consol-
idated 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.
BONDS ISSUED
In December 2019 the Company issued Russian Ruble denomi-
nated bonds in the amount of RR 15,000 million with the maturity
in 3 years at a rate of 6.45% per annum.
At 31 December 2019 and 2018 bonds issued include bonds
denominated in Russian Rubles issued by Bank ZENIT in the
aggregate amount of RR 6,857 million and RR 1,056 million,
respectively, that mature between 2020 and 2025 and between
2019 and 2025, respectively. At 31 December 2019 and 2018
the annual coupon rates on these securities range from 7.0% to
8.85% (excluding bonds issued on emission BO-13 at amount RR
1 million and coupon rate 0.1%) and 7.5% to 8.0% respectively. The
majority of bonds issued by Bank ZENIT allow early repurchase
at the request of the bond holder as set in the respective offering
documents.
IFRS Consolidated Financial Statements
SUBORDINATED DEBT
At 31 December 2019 and 2018 subordinated debt is present-
ed by one and two subordinated loans raised by Bank ZENIT
respectively (excluding subordinated debt under the direct re-
purchase agreement with Deposit Insurance Agency (DIA), Note
30). At 31 December 2019 the subordinated loan bears interest at
the rate of 8.9% and matures in 2024. At 31 December 2018 the
subordinated loans bear interest at rates ranging from 6.5% to
9.5% and mature from 2019 to 2024.
this covenant. At 30 June 2019 the lender granted Bank ZENIT
a waiver until 1 March 2020. Starting from 1 March 2020 Bank
ZENIT pays a higher interest rate until the violation is rectified or
a new waiver is received.
Information about subordinated loans received by Bank ZENIT
from Deposit Insurance Agency (DIA) within the Russian Federa-
tion Government program for additional capitalisation of Russian
banks is presented in Note 30.
Bank ZENIT is obliged to comply with eight financial covenants
in relation to the subordinated loan maturing in December 2024.
At 31 December 2019 and at 31 December 2018 Bank ZENIT
was in compliance with these covenants, except one (Cost-to-
income ratio). At 30 June 2019 Bank ZENIT did not comply with
two covenants (Cost-to-income ratio and Liquid assets to Total
assets). This violation does not entail claims for early repayment
of the subordinated loan. Failure to comply with these covenants
may result in a deterioration of the commercial terms of the loan
in the event of failure to obtain a waiver from the lender. At 31
December 2018 the lender granted Bank ZENIT a waiver relating
DEBT SECURITIES ISSUED
At 31 December 2019 and 2018 debt securities are promisso-
ry notes issued by Bank ZENIT at a discount to nominal value
and interest bearing promissory notes denominated in Russian
Rubles and US Dollars. Maturity dates of these promissory notes
vary from 2020 to 2028.
As at 31 December 2019 and 2018 non-interest-bearing promis-
sory notes of the aggregate nominal value of RR 641 million and
RR 469 million respectively were issued by Bank ZENIT for settle-
ment purposes and mature primarily on demand.
Note 16
Accounts payable and accrued
liabilities
Trade payables
Current portion of lease liabilities (Note 13)
Other payables
Total financial liabilities within trade and other payables
Salaries and wages payable
Advances received from customers
Current portion of decommissioning provisions (Note 12)
Other accounts payable and accrued liabilities
Total non-financial liabilities
Accounts payable and accrued liabilities
At 31 December 2019
At 31 December 2018
36,150
2,613
1,809
40,572
8,267
7,828
127
3,495
19,717
60,289
25,728
-
1,013
26,741
7,282
6,197
119
2,650
16,248
42,989
For the current reporting period revenue of RR 6,197 million was
recognised in respect of contract obligations as of 1 January
2019 related to advances received.
The fair value of each class of financial liabilities included in
short-term trade and other payables at 31 December 2019 and
2018 is presented in Note 30.
For the previous reporting period revenue of RR 8,003 million
was recognised in respect of contract obligations as of 1 January
2018 related to advances received.
254
255
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Note 17
Banking: Due to banks and the Bank
of Russia
Term deposits from other banks
Term deposits from the Bank of Russia
REPO
Correspondent accounts and other banks’ overnight deposits
Total due to banks and the Bank of Russia
Less: long term due to banks and the Bank of Russia
Total short term of due to banks and the Bank of Russia
At 31 December 2019
At 31 December 2018
5,364
2,630
13,259
1,562
22,815
(2,522)
20,293
4,073
2,731
10,083
1,538
18,425
(4,660)
13,765
Within due to banks and the Bank of Russia at 31 December
2019 and 2018 there are RR 18,778 million and RR 16,523 million
respectively of correspondent accounts and term deposits, bor-
rowed from the Bank of Russia and from three and four Russian
banks respectively, which individually exceeded 5% of the Bank
ZENIT equity.
As at 31 December 2019 and 31 December 2018 financial liabili-
ties which are subject to offsetting include RR 13,260 million and
RR 10,083 million of due to banks collateralised by securities, fair
value of which is RR 14,446 million and RR 11,098 million respec-
tively.
Note 18
Banking: Customer accounts
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
At 31 December 2019
At 31 December 2018
1,014
90
16,986
22,653
14,265
105,044
160,052
(1,381)
158,671
577
347
22,385
37,679
14,958
108,390
184,336
(682)
183,654
IFRS Consolidated Financial Statements
Within customer accounts at 31 December 2019 and 2018 there
are RR 38,557 million and RR 48,549 million of current/settle-
ment accounts and term deposits from 12 and 19 customers
respectively, which individually exceeded 5% of the Bank ZENIT
equity.
Risk concentrations by customer industry within customer ac-
counts are as follows:
Individuals
Finance
Oil and gas
Trade
Services
Manufacturing
Construction
Other
Total customer accounts
Note 19
Other long-term liabilities
Other long-term liabilities are as follows:
Pension liability
Government grants
Other long-term liabilities
Total other long-term liabilities
At 31 December 2019
At 31 December 2018
Carrying value
Share in customer
loan portfolio, %
Carrying value
Share in customer
loan portfolio, %
119,309
74.54%
9,292
2,195
4,798
12,331
4,306
3,620
4,201
160,052
5.81%
1.37%
3.00%
7.70%
2.69%
2.26%
2.63%
100%
123,348
20,479
3,659
8,097
10,886
5,801
4,741
7,325
184,336
66.91%
11.11%
1.99%
4.39%
5.91%
3.15%
2.57%
3.97%
100%
At 31 December 2019
At 31 December 2018
4,062
3,231
219
7,512
3,287
-
150
3,437
PENSION LIABILITIES
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 condi-
tions of these plans are regulated by the “Statement of Organ-
ization of Non-Governmental Pension Benefits for JSC Tatneft
Employees” and the contracts concluded between the Company
or its subsidiaries, management, and the JSC “National Non-Gov-
ernmental Pension Fund”. In accordance with these contracts the
Group is committed to make certain contributions on behalf of all
employees and guarantees a minimum benefit upon retirement.
Contributions or benefits are generally based upon grade and
years of service upon reaching official retirement age (according
to the Law 350-FZ on amending the appointment and payment
of pensions), and for management are based upon employment
contract terms. In accordance with the provisions of collective
agreements concluded on an annual basis between the Compa-
ny or its subsidiaries and their employees, the Group is obliged
to pay other certain post-employment benefits, the amounts of
which are generally based on salary grade and years of service
at the time of retirement.
GOVERNMENT GRANTS
At the end of 2019, the Group received grants from the Republic
of Tatarstan for the creation, modernization and reconstruction of
energy facilities and infrastructure.
256
257
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Note 20
Shareholders’ equity
AUTHORISED SHARE CAPITAL
At 31 December 2019 and 2018 the authorised, issued and paid
share capital consists of 2,178,690,700 voting common shares
and 147,508,500 non-voting preferred shares; both classes of
shares have a nominal value of RR 1.00 per share. The nominal
value of authorised share capital differs from its carrying value
due to effect of the hyperinflation on 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 repre-
sentative 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 Char-
ter, 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 sharehold-
ers 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.
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 preferred dividends
are either not declared, or declared but not paid. On liquida-
tion, 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 2019 and 2018, the Company
had a statutory current year profit of RR 156,046 million and RR
192,766 million, respectively.
258
In December 2019, the shareholders of the Company approved
the payment of interim dividends for the nine months ended
30 September 2019, in the amount of RR 64.47 per preference
and ordinary share (the “9 months 2019 Dividends”), including
previously paid interim dividends for the six months ended 30
June 2019, in the amount of RR 40.11 per preference and ordinary
share. The 9 months 2019 Dividends are reported as dividends
payable as at 31 December 2019 and were paid in the beginning
of 2020.
In September 2019, the shareholders of the Company approved
interim dividends for the six months ended 30 June 2019 in the
amount of RR 40.11 per each preference and ordinary share. The
dividends were paid in the fourth quarter of 2019.
In June 2019, the shareholders of the Company approved divi-
dends for the year ended 31 December 2018 in the amount of RR
84.91 per each preference and ordinary share with the consid-
eration of earlier paid interim dividends for the nine months
ended 30 September 2018 in the amount of RR 52.53 per each
preference and ordinary share. The dividends were paid in the
third quarter of 2019.
In December 2018, the shareholders of the Company approved
the payment of interim dividends for the nine months ended 30
September 2018 in the amount of RR 52.53 per each preference
and ordinary share (the “9 months 2018 Dividends”), including
previously paid interim dividends for the six months ended 30
June 2018 in the amount of RR 30.27 per each preference and
ordinary share. The 9 months 2018 Dividends are reported as
dividends payable as at 31 December 2018 and were paid in the
beginning of 2019.
In September 2018, the shareholders of the Company approved
the payment of interim dividends for the six months ended 30
June 2018 in the amount of RR 30.27 per each preference and
ordinary share. The dividends were paid in the fourth quarter of
2018.
In June 2018 the shareholders of the Company approved the
payment of dividends for the year ended 31 December 2017 in
the amount of RR 39.94 per each preference and ordinary share,
including previously paid interim dividends for the nine months
ended 30 September 2017 in the amount of RR 27.78 per each
preference and ordinary share. The dividends were paid in the
third quarter of 2018.
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 num-
ber 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 ordinary and preferred
shares to the extent that each class may have share in earnings
if all the earnings for the period had been distributed. Treasury
shares are excluded from calculations. The total earnings allo-
cated to each class of shares are determined by adding together
the amount allocated for dividends and the amount allocated for
a participation feature.
IFRS Consolidated Financial Statements
Profit attributable to Group shareholders
Ordinary share dividends
Preferred share dividends
Income available to ordinary and preferred shareholders, net of dividends
Basic and diluted:
Weighted average number of shares outstanding (millions of shares):
Ordinary
Preferred
Combined weighted average number of ordinary and preferred shares outstanding
Basic and diluted earnings per share (RR)
Ordinary
Preferred
Year ended
31 December 2019
Year ended
31 December 2018
192,260
(203,682)
(14,286)
(25,708)
2,103
148
2,251
85.43
85.43
211,812
(136,057)
(9,542)
66,213
2,103
148
2,251
94,11
93,89
Non-controlling interest. Non-controlling interest is adjusted by
dividends declared and paid by the Group’s subsidiaries amount-
ing to RR 1 million and RR 46 million at 31 December 2019 and
2018, respectively.
Note 21
Employee benefit expenses
Wages and salaries
Statutory insurance contributions
Pension costs – defined benefit plans
Other employee benefits
Total employee benefit expense
Year ended 31 December 2019
Year ended 31 December 2018
41,045
11,474
736
1,801
55,056
39,079
10,949
-
1,901
51,929
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 statement of profit or loss and other comprehen-
sive income.
Note 22
Interest income and interest
expense on non-banking activities
Interest income on non-banking activities comprises the fol-
lowing:
Year ended 31 December 2019
Year ended 31 December 2018
Interest income from financial assets measured at amortised cost
Unwinding of the present value discount of long-term financial assets
Total interest income on non-banking activities
1,128
73
1,201
5,225
272
5,497
259
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Interest expense on non-banking activities comprises the
following:
Bank loans
Unwinding of the present value discount of decommissioning provision
Interest expense on lease liabilities
Unwinding of the present value discount of long-term financial liabilities
Total interest expenses on non-banking activities
Note 23
Interest income and expense
on banking activities
INTEREST INCOME
Loans to customers
Due from banks
Securities measured at amortised cost
Correspondent accounts
Securities measured at fair value through profit and loss
Securities measured at fair value through other comprehensive income
Total interest income on banking activities
INTEREST EXPENSE
Term deposits of individuals
Term deposits of legal entities
Russian Ruble-denominated bonds issued
Expenses directly associated with deposit insurance (DIA)
Subordinated debt
Term placements of banks
Debt securities issued
Total interest expense on banking activities
Net interest income on banking activities
Year ended 31 December 2019
Year ended 31 December 2018
(755)
(3,015)
(1,571)
(66)
(5,407)
(593)
(2,936)
-
(61)
(3,590)
Year ended 31 December 2019
Year ended 31 December 2018
14,216
313
1,737
40
412
1,439
18,157
(5,889)
(2,270)
(182)
(789)
(310)
(1,049)
(2)
(10,491)
7,666
15,518
436
2,286
39
339
867
19,485
(5,082)
(2,304)
(616)
-
(464)
(1,463)
(48)
(9,977)
9,508
IFRS Consolidated Financial Statements
Note 24
Fee and commission income
and expense on banking activities
Settlement transactions
Cash transactions
Agency services
Operations with foreign currencies
Guarantees issued
Transactions with securities
Asset management
Other
Settlement transactions
Cash transactions
Transactions with securities
Operations with foreign currencies
Commission on guarantees received
Other
Total fee and commission expense on banking activities
Net fee and commission income on banking activities
Year ended 31 December 2019
Year ended 31 December 2018
2,664
488
431
331
235
71
5
202
(1,352)
(158)
(29)
(23)
(11)
(54)
(1,627)
2,800
2,499
501
-
392
234
37
8
103
(874)
(164)
(34)
(24)
(12)
(47)
(1,155)
2,619
Note 25
Segment information
Operating segments are components that engage in business
activities that may earn revenues or incur expenses, whose op-
erating 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, devel-
opment, 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
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 tax not including interest in-
come, expense on non-banking activities, and gains from equity
investments, other income (expenses) and foreign exchange
loss or gain. Intersegment sales are at prices that approxi-
mate market. Group financing (including interest expense and
interest income on non-banking activities) and income taxes are
managed on a Group basis and are not allocated to operating
segments.
For the year ended 31 December 2019, revenues of RR 104,506
million or 11% of the Group’s total sales and operating revenues
are derived from one external customer.
For the year ended 31 December 2018, revenues of RR 98,183
million or 11% of the Group’s total sales and operating revenues
are derived from one external customer.
crude oil and refined products from third parties, own refining
activities and retailing operations;
• Petrochemical products include production and sales of tires,
These revenues represent sales of crude oil and are attributa-
ble to the exploration and production segment and refining and
marketing segment.
technical carbon;
• Banking segment includes operations of Banking Group
ZENIT.
Management does not believe the Group is dependent on any
particular customer.
Other sales include revenues from ancillary services provided by
the specialised subdivisions and subsidiaries of the Group, such
as sales of oilfield equipment, revenues from the sale of auxiliary
petrochemical related services and materials as well as other
SEGMENT SALES AND OTHER OPERATING
REVENUES
Reportable operating segment sales and other operating reve-
nues are stated in the following table:
260
261
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Year ended 31 December 2019 Year ended 31 December 2018
175,402
26,818
255,602
3,151
208,886
669,859
225,137
225,137
14,866
14,866
8,900
138,496
147,396
11,426
1,461
400,286
11,466
4,124
3,647
1,028
49,601
18,157
4,427
22,584
1,142,330
23,925
(211,375)
954,880
167,694
28,395
270,966
4,908
191,912
663,875
183,497
183,497
20,565
20,565
7,282
150,960
158,242
8,579
1,239
372,122
10,418
3,806
4,248
994
52,782
19,485
3,774
23,259
1,112,038
15,900
(194,145)
933,793
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
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
1
2
CIS is an abbreviation for Commonwealth of Independent States (excluding
the Russian Federation).
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.
262
IFRS Consolidated Financial Statements
SEGMENT EARNINGS
SEGMENT EARNINGS
Exploration and production
Refining and marketing
Petrochemicals
Banking
Total segment earnings
Corporate and other
Other (expenses)/income
Profit before income tax
Year ended 31 December 2019
Year ended 31 December 2018
241,891
59,407
1,345
1,279
303,922
(47,294)
(4,286)
252,342
267,320
33,867
3,634
269
305,090
(41,112)
9,811
273,789
For the years ended 31 December 2019 and 2018 «Corporate
and other» line includes Head Office administrative expenses,
impairment losses on financial assets net of reversal, impairment
losses and losses on disposal on property, plant and equipment
and other non-financial assets, charity expenses, maintenance of
social infrastructure and transfer of social assets.
ASSETS
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total assets
At 31 December 2019
At 31 December 2018
384,022
450,191
34,324
232,101
138,001
1,238,639
368,991
406,407
32,923
252,854
140,113
1,201,288
SEGMENT ASSETS
As at 31 December 2019 corporate and other includes RR 50,102
million of property, plant and equipment, RR 24,413 million of
securities measured at fair value through other comprehensive
income, RR 20,626 million loans receivable, RR 331 million of
bank deposits measured at amortised cost, RR 3,277 million of
cash.
income, RR 27,799 million loans receivable, RR 49 million of debt
securities measured at amortised cost, RR 22,378 million of bank
deposits measured at amortised cost and RR 420 million of cash.
The Group’s assets and operations are primarily located and con-
ducted in the Russian Federation.
As at 31 December 2018 corporate and other includes RR 41,059
million of property, plant and equipment, RR 24,341 million of
securities measured at fair value through other comprehensive
SEGMENT DEPRECIATION, DEPLETION AND
AMORTISATION AND ADDITIONS TO PROPERTY,
PLANT AND EQUIPMENT
Year ended 31 December 2019
Year ended 31 December 2018
DEPRECIATION, DEPLETION AND AMORTIZATION
Exploration and production
Refining and marketing
Petrochemicals
Banking
Corporate and other
Total 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
22,037
9,885
1,538
349
1,356
35,165
57,708
48,609
2,264
665
23,553
132,799
15,797
11,595
1,687
326
1,115
30,520
39,361
41,235
1,731
596
6,585
89,508
263
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 For the years ended 31 December 2019 and 2018 additions to
property, plant and equipment of exploration and production
segment were adjusted for changes in decommissioning provi-
sion. For the year ended 31 December 2019 additions to proper-
ty, plant and equipment of refining and marketing segment and
corporate and other assets took into account changes in Group
structure (Note 29).
Note 26
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.
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:
Year ended 31 December 2019
Year ended 31 December 2018
REVENUES AND INCOME
Sales of refined products
Other sales
Interest income
COSTS AND EXPENSES
Other services
Other purchases
ASSETS
Accounts receivable, net
Banking: Loans to customers
Other financial assets
Securities measured at fair value through profit and loss
Notes receivable
Other loans receivable
Prepaid expenses and other current assets
Due from related parties short-term
Long-term accounts receivable
Banking: Loans to customers
Other financial assets
Securities measured at fair value through other comprehensive income
Other loans receivable
Due from related parties long-term
LIABILITIES
Accounts payable and accrued liabilities
Banking: Customer accounts
Due to related parties short-term
264
21
122
57
844
501
14
250
302
905
579
At 31 December 2019
At 31 December 2018
231
293
42
-
51
268
885
198
50
4,070
978
5,296
(37)
(910)
(947)
148
193
-
249
51
276
917
114
-
5,249
912
6,275
(61)
(1,668)
(1,729)
IFRS Consolidated Financial Statements
GOVERNMENT RELATED COMPANIES
For the years ended 31 December 2019 and 2018 the outstand-
ing balances with Government related companies were as
follows:
ASSETS
Cash and cash equivalents
Banking: Mandatory reserve deposits with the Bank of Russia
Accounts receivable
Banking: Loans to customers
Other financial assets
Notes receivable
Bank deposits
Securities measured at fair value through other comprehensive income
Securities measured at amortised cost
Securities measured 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
Banking: Loans to customers
Other financial assets
Bank deposits
Securities measured at fair value through other comprehensive income
Securities measured at amortised cost
Other loans receivable
Advances for construction
Due from related parties long-term
LIABILITIES
Accounts payable and accrued liabilities
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Debt
RR credit facilities
Other debt
Due to related parties short-term
Banking: Due to banks and the Bank of Russia
Government grants (Note 19)
Due to related parties long-term
The amounts of transactions for each period with Government
related companies are as follows:follows:
At 31 December 2019
At 31 December 2018
10,044
1,572
4,416
6,563
4
310
505
3,325
3,915
41
3,185
33,880
-
4,994
-
24,193
7,898
148
14
37,247
(1,519)
(2,445)
(2,959)
(10,142)
(881)
(17,946)
(2,763)
(3,231)
(5,994)
16,810
1,875
6,795
7,496
-
-
10,209
8,349
1,679
40
5,067
58,320
1,221
500
346
11,001
8,192
192
1,430
22,882
(1,420)
(100)
(6,298)
-
(3,121)
(10,939)
(2,631)
-
(2,631)
265
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Year ended 31 December 2019
Year ended 31 December 2018
At 31 December 2019
At 31 December 2018
IFRS Consolidated Financial Statements
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
-
30,662
5,302
2,852
764
20,715
18,479
26,987
5,830
2,366
1,132
20,965
4,287
4,988
1,019
34,184
16,691
23,831
4,485
3,822
In December 2018 the Group entered into a transaction to
acquire from a number of Russian government-controlled banks
their rights of claim under the credit facilities with NEFIS Group
(Note 9).
COMPENSATION TO KEY MANAGEMENT
PERSONNEL
The key management personnel of the Group includes members
of the Board of Directors and the Management Board of PJSC
Tatneft.
For the years ended 31 December 2019 and 2018 total remunera-
tion, including pension cost, for key management personnel was
RR 988 million and RR 1,089 million, respectively.
At 31 December 2019 and 2018 key management personnel
customer accounts in Bank ZENIT amounted to RR 31,738 million
and RR 31,290 million, respectively.
Note 27
Contingencies and commitments
OPERATING ENVIRONMENT OF THE GROUP
The Russian Federation displays certain characteristics of an
emerging market. Its economy is particularly sensitive to oil and
gas prices. Tax, currency and customs legislation is sometimes
subject to varying interpretations and contributes to the challeng-
es faced by companies operating in the Russian Federation.
The Russian economy continues to be negatively impacted by
ongoing political tension in the region and international sanc-
tions against certain Russian companies and individuals. Firm oil
prices, low unemployment and rising wages supported a modest
growth of the economy in 2019.
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 recog-
nised 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 measures under-
taken 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. As with any economic forecast, however,
the projections and likelihoods of their occurrence are subject
to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different from those projected.
Note 31 provides more information about changes in economic
environment after reporting date.
CAPITAL COMMITMENTS
As at 31 December 2019 and 2018 the Group has outstanding
capital commitments of approximately RR 46,804 million and RR
38,327 million, respectively, mainly for the construction of the
TANECO refinery complex and superviscous oil fields facilities
construction. These commitments are expected to be paid be-
tween 2020 and 2022.
Management believes the Group’s current and long-term capital
expenditures program can be funded through cash flows gener-
ated 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 facil-
ities (Note 15).
Management believes the Company has the ability to obtain
syndicated loans and other financings as needed to continue
funding the own projects, refinance any maturing debts as well
as finance business acquisitions and other transactions that may
arise in the future.
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 collat-
eral pledged to the Group and accordingly the Group normally
assumes minimal risk.
Outstanding credit related commitments are as follows:
Loan commitments
Guarantees issued
Import letters of credit
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
28,973
12,739
129
(324)
(19)
(130)
41,368
18,810
20,467
271
(426)
(29)
(806)
38,287
TAXATION
The Russian tax legislation is subject to varying interpreta-
tions 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 possible that transactions and activities
that have not been challenged in the past may be challenged.
In 2017, tax authorities completed inspections of the Company
and its subsidiaries for the years ended December 31, 2013 and
2014. In 2019, tax authorities completed inspections of the Com-
pany and its subsidiaries for the years ended December 31, 2015,
2016, 2017. The available results of tax inspections, in particular,
the income tax of the consolidated group of taxpayers of PJSC
TATNEFT do not significantly affect the financial results and cash
flows of the Group.
The Russian transfer pricing legislation is generally aligned
with the international transfer pricing principles developed 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 related 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 deter-
mined using actual transaction prices. It is possible, with the evo-
lution of the interpretation of the transfer pricing rules, that such
prices could be challenged. Management believes that its pricing
policy is arm’s length and it has implemented internal processes
to be in compliance with the new transfer pricing legislation. The
Group believes that its interpretation of the new legislation is
appropriate and the Group’s tax position will be sustained.
ENVIRONMENTAL CONTINGENCIES
The Group, through its predecessor entities, has operated in
Tatarstan for many years 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 ob-
ligations related thereto. The outcome of environmental liabilities
under proposed or any future environmental legislation cannot
reasonably be estimated at present, but could be material. Under
existing legislation, however, management believes that there
are no probable liabilities, which would have a material adverse
effect on the operating results or financial position of the Group.
In addition, the Group is introducing and applying best health,
safety and environmental protection practices and standards
which might go beyond any existing and potential legal require-
ments in the Russian Federation.
LEGAL CONTINGENCIES
The Group is subject to various lawsuits and claims arising in
the ordinary course of business. The outcomes of such contin-
gencies, 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 welfare of its employees within Tatarstan,
which includes contributions towards the construction, devel-
opment and maintenance of housing, hospitals and transport
services, recreation and other social needs. Such funding is
periodically determined by the Board of Directors after consulta-
tion 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 determi-
nable.
266
267
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
Note 28
Principal subsidiaries
Set out below are the Group’s principal subsidiaries at 31 De-
cember 2019. The joint-stock companies as listed below (except
for PJSC «Nizhnekamskshina») have share capital consisting
solely of ordinary shares. The proportion of ownership interests
held equals to the voting rights held by Group. The country of
incorporation or registration is also their principal place of busi-
ness. 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
Bank ZENIT
Tatneft Europe AG
TANECO
Nizhnekamskshina
Principal activity
Banking operations
Export oil sales
Oil refinery
Tires production
Nizhnekamskiy zavod shin CMK
Tires production
Trade House Kama
Tatneft-AZS Centr
Tatneft-AZS-Zapad
Tires sales
Oil products sales
Oil products sales
At 31 December 2019
At 31 December 2018
% 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
72
100
100
82
100
100
100
100
28
-
-
18
-
-
-
-
72
100
100
82
100
100
100
100
28
-
-
18
-
-
-
-
The summarised financial information relating to the subsidiaries
with material non-controlling interest was as follows:
Year ended 31 December 2019
Bank ZENIT
Nizhnekamskshina PJSC
Total
Year ended 31 December 2018
Bank ZENIT
Nizhnekamskshina PJSC
Total
Current assets
Non-current
assets
Current liabilities
Non-current
liabilities
Revenue
Profit
84,220
1,033
85,253
121,300
1,576
122,876
149,286
3,575
152,861
133,315
3,783
137,098
195,643
5,223
200,866
224,675
6,567
231,242
13,184
22,873
-
13,184
8,233
-
8,233
14,918
37,791
23,347
20,368
43,715
1,480
623
2,103
322
237
559
Note 29
Business combinations
LLC Neste Saint-Petersburg
In 4th quarter of 2019 the Group acquired 100% of the charter
capital of LLC Neste Saint-Petersburg (subsequently renamed to
LLC Tatneft-AZS-Severo-Zapad) from third party Neste Oyj (Neste
Corporation) and obtained control becoming its sole partici-
pants. LLC Neste Saint-Petersburg owns a chain of 75 premium
retail petroleum stations, an oil products tank farm and an office
building in Saint-Petersburg, Russia. The acquired subsidiary will
increase the Group’s presence in the fuel and retail market of the
North-West Federal District of the Russian Federation.
The purchase price was RR 9,139 million (net of cash on the
acquired entity’s balance sheet) and the cash consideration
was fully paid in 2019. The consideration paid by the Group was
based on the results of the evaluation of the business value of
the acquired entity as a whole.
As at 31 December 2019 the fair value measurement of the
assets and liabilities of LLC Neste Saint-Petersburg was not com-
pleted. The purchase price allocation of the assets and liabilities
of the acquired entity will be completed within 12 months from
the date of acquisition.
Details of preliminary assessment of the fair value of acquired
assets and liabilities performed by the Group are as follows:
268
IFRS Consolidated Financial Statements
Cash and cash equivalents
Property, plant and equipment
Inventories
Other assets
Accounts payable
Other liabilities
Fair value of identifiable net assets of subsidiary
Total purchase consideration
Сash and cash equivalents of subsidiary acquired
Purchase price, net
Preliminary fair value
1,693
8,680
915
620
(900)
(176)
10,832
10,832
(1,693)
9,139
The acquired subsidiary contributed revenue of RR 3,557 million
and profit of RR 67 million to the Group for the period from the
date of acquisition to 31 December 2019. If the acquisition had
occurred on 1 January 2019, without taking into account any
other acquisitions, the Group revenue for 2019 would have been
RR 950,015 million, and the profit for 2019 would have been RR
193,741 million.
PETROCHEMICAL COMPLEX IN TOGLIATTI
In the 4th quarter of 2019 the Group acquired 100% of the charter
capital of LLC SIBUR Togliatti (subsequently renamed to LLC To-
gliattikauchuk) and 100% of the share capital of JSC Togliattisintez
from the third party PJSC SIBUR Holding and obtained control of
these entities becoming the sole participant of LLC SIBUR Togliatti
and through its ability to cast a majority of votes in the general
meeting of shareholders of JSC Togliattisintez. The acquired com-
panies form a petrochemical complex for the production of various
types of synthetic rubbers, as well as the high-octane component
MTBE for motor fuel, butadiene, isoprene, and other intermediate
products. The acquired subsidiaries contribute to the further de-
velopment of the Group’s petrochemical and tires business.
The purchase price was RR 11,299 million (net of cash on the
targets’ balance sheets), and cash consideration was fully paid
in 2019. The consideration paid by the Group was based on the
results of the evaluation of the business value of the acquired
entities as a whole.
As at 31 December 2019 the fair value measurement of the as-
sets and liabilities of LLC SIBUR Togliatti and JSC Togliattisintez
was not completed. The purchase price allocation of the assets
and liabilities of the acquired entity will be completed within 12
months from the date of acquisition.
Details of preliminary assessment of the fair value of acquired
assets and liabilities performed by the Group are as follows:
Preliminary fair value
Cash and cash equivalents
Property, plant and equipment
Inventories
Other assets
Accounts payable
Other liabilities
Fair value of identifiable net assets of subsidiaries
Total purchase consideration
Сash and cash equivalents of subsidiaries acquired
Purchase price, net
The acquired subsidiaries contributed revenue of RR 4,016
million and loss of RR 122 million to the Group for the period from
the date of acquisition to 31 December 2019. If the acquisition
had occurred on 1 January 2019, without taking into account any
other acquisitions, the Group revenue for 2019 would have been
RR 944,050 million, and the profit for 2019 would have been RR
193,847 million.
1,502
10,452
1,542
664
(790)
(569)
12,801
12,801
(1,502)
11,299
269
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Note 30
Financial risk management
The Group takes on exposure to market risks. Market risks arise
from open positions in (a) foreign currencies, (b) interest rate risk
and (c) financial instruments price risk.
FINANCIAL RISK MANAGEMENT OBJECTIVES
AND POLICIES
The Group‘s activities expose it to a variety of financial risks: mar-
ket risk (including foreign currency risk, interest rate 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.
a) Currency risk
The Group operates internationally and is exposed to currency
risk arising from various currency exposures primarily with re-
spect to the US Dollar. Foreign exchange risk arises from assets,
liabilities, commercial transactions and financing denominated in
foreign currencies.
The table below summarises the Group’s exposure to foreign
currency exchange rate risk as at 31 December 2019.
В таблице ниже представлен риск Группы в отношении
изменения обменного курса валют по состоянию на 31
декабря 2018 г.:
Russian Ruble
US Dollar
Other
Total
16,472
350
-
1,572
42,019
12,633
109,895
350
29
4,081
112
928
21,198
7,079
43,798
12,586
273,102
5,853
2,405
-
-
-
36,895
29
19,897
309
1,450
-
-
-
310
716
850
11,152
77,461
-
77
-
810
20
6,660
-
3,008
-
-
-
-
156
179
-
13,315
24,730
350
77
1,572
79,724
12,682
136,452
659
4,487
4,081
112
928
21,508
7,951
44,827
23,738
363,878
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
Banking: Mandatory reserves with the Bank of Russia
Accounts receivable
Trade receivables
Other financial receivables
Banking: Loans to customers
Other financial assets
Bank deposits
Due from banks
REPO with banks
Notes receivable
Loans to employees
Other loans
Securities at FVTPL
Securities at FVOCI
Securities at AC
Total financial assets
270
IFRS Consolidated Financial Statements
FINANCIAL LIABILITIES
Trade and other financial payables
Trade payables
Dividend payable
Current portion of lease liabilities
Lease obligations, net of current portion
Other payables
Banking: Other finance liabilities at FVTPL
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Total financial liabilities
Net balance sheet position
The table below summarises the Group’s exposure to foreign
currency exchange rate risk as at 31 December 2018.
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
Banking: Mandatory reserves with the Bank of Russia
Accounts receivable
Trade receivables
Other financial receivables
Other financial assets
Bank deposits
Due from banks
REPO with banks
Notes receivable
Loans to employees
Other loans
Securities at FVTPL
Securities at FVOCI
Securities at AC
Russian Ruble
US Dollar
Other
Total
35,109
55,865
2,613
1,764
4,337
21,857
-
809
10,142
1,734
12,951
128,750
287,509
(14,407)
496
-
-
-
45
114
-
1,287
114
4,558
272
9,557
25,982
42,425
35,036
545
-
-
-
-
-
-
-
-
-
476
307
5,320
6,648
6,667
36,150
55,865
2,613
11 578
1,809
4,451
21,857
1,287
923
14,700
2,482
22,815
160,052
336,582
27,296
Russian Ruble
US Dollar
Other
Total
25,249
22,078
29
1,875
42,750
5,130
131,907
310
168
537
456
1,046
28,517
3,149
38,773
18,718
14,353
2,738
-
657
-
35,299
1
8,220
347
428
-
-
-
270
1,625
4,603
14,048
79,851
-
385
-
368
-
6,178
-
1,419
-
-
-
-
-
-
-
11,088
42,340
22,078
1,071
1,875
78,417
5,131
146,305
657
2,015
537
456
1,046
28,787
4,774
43,376
32,766
411,631
271
Total financial assets
320,692
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25
FINANCIAL LIABILITIES
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Banking: Other finance liabilities FVPL
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Other short-term liabilities
Total financial liabilities
Net balance sheet position
Russian Ruble
US Dollar
Other
Total
25,727
50,711
933
1,190
1,056
2,160
981
-
1,754
15,212
144,070
533
244,327
76,217
1
-
80
-
-
1,420
149
6,682
835
3,087
33,764
-
46,018
33,833
-
-
-
-
-
-
-
-
-
126
6,502
-
6,628
4,460
25,728
50,711
1,013
1,190
1,056
3,580
1,130
6,682
2,589
18,425
184,336
533
296,973
114,510
For the year ended 31 December 2019 the Group recognised RR
12,892 million and RR 13,099 million foreign exchange gains and
losses respectively in the consolidated statement of profit or loss
and other comprehensive income (for the year ended 31 Decem-
ber 2018: RR 21,483 million and RR 13,547 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:
IFRS Consolidated Financial Statements
Treasury departments of Bank ZENIT are responsible for day-
to-day management of the interest rate mismatch, preliminary
approval of interest rates on projected transactions, preparation
and submission for approval suggestions on acceptable interest
rate levels by instrument and duration. Risk management
departments of Bank ZENIT review current interest rate gaps
and assess resulting effects of interest rate risk on the Group’s
interest margin and economic capital.
The interest rate risk measurement system provides the ability
to evaluate a risk profile from two different, but complementary
points of view. From the economic value point of view the
effect of changes in interest rates and the associated volatility
of the present value of all future cash flows is considered and
is calculated as the change in the sensitivity of fair value using
a shock effect on the interest rate curve. From the profit point
of view the effect generated by measuring interest rates on net
profit in the form of interest and, therefore, on the associated
effect on net interest income on a 1-year horizon is analysed.
Interest rate risk reporting is compiled and reported to the Bank
ZENIT’s Management Board on a quarterly basis.
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
From 1 to 6
months
From 6 to 12
months
From 1 to 5
years
More than 5
years
Non-sensitive
Total
31 December 2019
Total financial assets
Total financial liabilities
Net interest sensitivity gap
31 December 2018
Total financial assets
Total financial liabilities
22,101
58,220
(36,119)
73,319
41,385
19,095
65,700
16,043
46,762
(46,605)
(30,719)
41,463
46,508
20,961
57,113
96,644
39,911
56,733
92,419
44,540
76,635
9,668
66,967
54,469
1,560
133,360
116,321
17,039
129,000
105,867
363,878
336,582
27,296
411,631
296,973
Net interest sensitivity gap
31,934
(5,045)
(36,152)
47,879
52,909
23,133
114,658
Year ended 31 December 2019
Year ended 31 December 2018
Impact on profit before tax
Impact on equity
Impact on profit before tax
Impact on equity
The table below summarises the effective average year end
interest rates, by major currencies (US Dollars, Russian Rubles),
for financial instruments outstanding as at 31 December 2019 and
2018. The analysis has been prepared on the basis of weighted
average effective interest rates for the various financial instru-
ments using year-end contractual terms and conditions.
US Dollar strengthening by 20%
US Dollar weakening by 20%
7,007
(7,007)
5,606
(5,606)
6,767
(6,767)
5,413
(5,413)
b) Interest rate risk.
Banking operations interest rate risk management
The Group takes on exposure to the effects of fluctuations in the
prevailing levels of market interest rates on its financial position
and cash flows. Interest margins may increase as a result of
such changes, but may reduce or create losses in the event that
unexpected movements arise. Management monitors on a daily
basis and sets limits on the level of mismatch of interest rate
repricing that may be undertaken.
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 financing on fixed-rate or variable-rate basis would
be more beneficial to the Group over the expected period until
maturity.
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 repricing 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 Bank ZENIT’s as-
sets and liabilities are relatively short-term and that provides the
Bank ZENIT 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 structure
of assets and liabilities, current and projected interest rates.
272
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
REPO with banks
Notes receivable
Loans to employees
Other loans
Securities at FVTPL
Securities at FVOCI
Securities at AC
At 31 December 2019
At 31 December 2018
Russian Ruble
US Dollar
Russian Ruble
US Dollar
-
7.21%
4.41%
10.13%
13.00%
4.41%
6.05%
0.10%
3.19%
9.22%
7.11%
8.67%
8.35%
1.00%
-
-
4.60%
6.26%
7.96%
1.20%
8.30%
1.60%
13.00%
-
-
-
-
-
3.66%
6.57%
6.57%
1.20%
8.21%
0.10%
3.19%
9.25%
5.56%
7.76%
9.18%
0.30%
-
-
6.60%
1.60%
-
-
-
-
-
7.89%
5.86%
6.11%
273
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 FINANCIAL LIABILITIES
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Other financial liabilities at fair value
through profit and loss
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
At 31 December 2019
At 31 December 2018
Russian Ruble
US Dollar
Russian Ruble
US Dollar
6.89%
0.00%
5.00%
6.47%
4.57%
7.46%
6.41%
6.00%
-
8.92%
1.20%
4.19%
0.01%
-
1.60%
2.30%
7.73%
6.50%
2.92%
-
5.24%
7.90%
7.58%
5.46%
-
9.50%
2.30%
4.18%
2.91%
-
2.00%
2.80%
The following table presents a sensitivity analysis of interest rate
risk on banking and non-banking financial assets and liabilities:
Year ended 31 December 2019
Year ended 31 December 2018
Impact on profit
before tax
Impact on equity
Impact on profit
before tax
Impact on equity
Increase by 100 basis points
Decrease by 100 basis points
(273)
273
(218)
218
(1,147)
1,147
(917)
917
c) Financial instruments price risk
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 (general 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 restrict-
ing the total amount of an investment or maximum mismatch
between respective assets and liabilities) 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.
Sensitivity to changes in other prices is estimated using the Val-
ue at Risk (VaR) methodology. This is a way to assess potential
losses that may occur at a risk position as a result of changes in
market rates and prices in a certain period of time with a given
level of confidence.
VaR estimates in respect of financial assets at fair value through
profit or loss and available-for-sale financial assets as at 31 De-
cember 2019 and 2018 are as follows:
Year ended 31 December 2019
Year ended 31 December 2018
Impact on profit
before tax
Impact on equity
Impact on profit
before tax
Impact on equity
Fixed income securities price risk
Equity securities price risk
Total price risk
301
6
307
240
5
245
104
12
116
83
10
93
IFRS Consolidated Financial Statements
CREDIT RISK
The Group exposes itself to credit risk, which is the risk that one
party to a financial instrument will cause a financial loss for the
other party by failing to meet an obligation.
Exposure to credit risk arises as a result of the Group’s lending
and other transactions with counterparties, giving rise to financial
assets and off-balance sheet credit-related commitments.
The Group’s maximum exposure to credit risk is reflected in
the carrying amounts of financial assets in the consolidated
statement of financial position. For financial guarantees issued,
commitments to extend credit, undrawn credit lines and export/
import letters of credit, the maximum exposure to credit risk is
the amount of the commitment.
The estimation of credit risk for risk management purposes
is complex and involves the use of models, as the risk varies
depending on market conditions, expected cash flows and the
passage of time. The assessment of credit risk for a portfolio of
assets entails further estimations of the likelihood of defaults
occurring, the associated loss ratios and default correlations
between counterparties.
Expected credit loss (ECL) measurement
ECL is a probability-weighted estimate of the present value of
future cash shortfalls (i.e., the weighted average of credit losses,
with the respective risks of default occurring in a given time
period used as weights). An ECL measurement is unbiased and
is determined by evaluating a range of possible outcomes. ECL
measurement is based on four components used by the Group:
Probability of Default (“PD”), Exposure at Default (“EAD”), Loss
Given Default (“LGD”) and Discount Rate.
EAD is an estimate of exposure at a future default date, tak-
ing into account expected changes in the exposure after the
reporting period, including repayments of principal and interest,
and expected drawdowns on committed facilities. The EAD on
credit related commitments is estimated using Credit Conversion
Factor (“CCF”). CCF is a coefficient that shows the probability of
conversion of the committed amounts to an on-balance sheet
exposure within a defined period.
PD an estimate of the likelihood of default to occur over a given
time period. LGD is an estimate of the loss arising on default. It
is based on the difference between the contractual cash flows
due and those that the lender would expect to receive, including
from any collateral. It is usually expressed as a percentage of
the EAD. The expected losses are discounted to present value
at the end of the reporting period. The discount rate represents
the effective interest rate (“EIR”) for the financial instrument or an
approximation thereof.
Expected credit losses are modelled over instrument’s lifetime
period. The lifetime period is equal to the remaining contractual
period to maturity of debt instruments, adjusted for expected
prepayments, if any. For loan commitments and financial guaran-
tee contracts, it is the contractual period over which an entity has
a present contractual obligation to extend credit.
Management models Lifetime ECL, that is, losses that result from
all possible default events over the remaining lifetime period of
the financial instrument. The 12-month ECL, represents a portion
of lifetime ECLs that result from default events on a financial
instrument that are possible within 12 months after the reporting
period, or remaining lifetime period of the financial instrument if it
is less than a year.
The ECLs that are estimated by management for the purposes of
these financial statements are point-in-time estimates, rather than
through-the-cycle estimates that are commonly used for regula-
tory purposes. The estimates consider forward-looking informa-
tion, that is, ECLs reflect probability weighted development of
key macroeconomic variables that have an impact on credit risk.
The ECL modelling does not differ for Purchased or Originated
Credit Impaired (“POCI”) financial assets, except that (a) gross
carrying value and discount rate are based on cash flows that
were recoverable at initial recognition of the asset, rather than
based on contractual cash flows, and (b) the ECL is always a
lifetime ECL. POCI assets are financial assets that are credit-im-
paired upon initial recognition, such as impaired loans acquired
in a past business combination.
Credit risk management
Credit risk is the single largest risk for the Group’s business; man-
agement therefore carefully manages its exposure to credit risk.
An assessment is performed at each reporting date to identify
a significant increase in credit risk since initial recognition of a
financial instrument. Such assessment is performed on the basis
of qualitative and quantitative information:
• Quantitative assessment is performed on the basis of a
change in risk of default arising over the expected lifetime of
a financial asset.
• Qualitative assessment implies that a number of factors are
important for assessing significant increase in credit risk
(restructuring indicative of problems, establishing favourable
schedule for repaying loan interest and principal, significant
changes in expected results of operations and behaviour of a
borrower and other material changes).
Financial assets move from Stage 1 to Stage 2 if there is one or a
combination of the following factors:
• financial assets are over 30 days overdue;
•
•
credit rating deteriorates;
there are early warning indicators of an increase in credit risk;
a need to change previously agreed on terms of the agree-
ment to create more favourable environment for a customer
due to his inability to meet current liabilities because of the
customer’s financial position; full or partial refinancing of the
current debt which would not be required if the client did not
experience financial difficulties;
• a customer has no rating at the reporting date;
•
information on future changes in assets that may result in
credit losses not considered in the rating systems is identified
(e.g. military conflicts in the region that may have a significant
impact on future credit quality).
A default is recognised if one or a combination of the following
events occur:
• financial assets are over 90 days overdue (a rebuttable pre-
sumption);
• a default rating is assigned;
•
• a favourable schedule for repaying interest and principal with
restructuring indicative of problems is undertaken;
payments to be made at the end of the term is granted.
274
275
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Non-banking activities credit risk management
Credit risk arises from cash and cash equivalents, bank deposits,
loans and notes receivables, as well as credit exposures to cus-
tomers 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 expected credit losses. A significant portion
of the Group’s accounts receivable is due from domestic and
export trading companies. The Group does not always require
collateral to limit the exposure to loss; however, in most cases
letters of credit and prepayments are used, especially with
respect to accounts receivables from non-CIS sales of crude oil.
The Group operates with various customers and a substantial
part of its sales relate to major customers. Although collec-
tion 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. Credit risk analysis for accounts receivable is
presented in Note 7.
The Group performs an ongoing assessment and monitoring of
the risk of default. In addition, as part of its cash management
and credit risk function, the Group regularly evaluates the credit-
worthiness of financial and banking institutions where it deposits
cash.
The Group deposits available cash mostly with financial institu-
tions 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’s credit risk policies prescribe its acceptance only
through formalized procedures and only based on decisions of
the authorized collegial body. The Bank ZENIT has a system of
credit committees responsible for making credit decisions, the
main objective of which is to create a high-quality loan portfolio
that ensures the implementation of the strategy, credit policies
and risk management policies. The credit committees of Bank
ZENIT, authorized to make credit decisions, have a clear seg-
mentation according to business lines, lending segments and the
amount of authority.
Credit committees and their level of responsibility in respect of
approval of maximum exposures on a borrower or group of relat-
ed borrowers are as follows:
Name of committee
Credit committee
Credit committee on small and medium-
sized business borrowers
Credit committee on retail lending
* Within the limits of standards N6 and N25
Maximum exposure allowed to
be approved, RR million
Not limited*
400
90
IFRS Consolidated Financial Statements
Rating
group
I
II
III
IV
V
PD interval
Corresponding ratings of external international rating agencies
Description
<0.36%
[0.36%; 1.51%)
[1.51%; 7.51%)
[7.51%; 100%)
100.00%
S&P \ Fitch
«AAA»…«BBB-»
«BB+»…«BB-»
«B+»…«B-»
«CCC»…«C»
«D»
Moody`s
«Aaa»…«Baa3»
Minimal credit risk
«Ba1»…«Ba3»
«B1»…«B3»
«Caa1»…«C»
«D»
Low credit risk
Medium credit risk
High credit risk
Default assets
The Group does not enter into transactions with an initial rating
of III or IV.
In order to monitor the credit risk, responsible employees of
credit departments prepare regular reports based on a struc-
tured analysis of the Client’s business and financial performance.
Management obtains and analyses all information about signif-
icant risks related to customers with deteriorating creditworthi-
ness.
Credit risk monitoring has an important role in maintaining the
quality of loans at least as good as at the moment of credit limits
approval, in preventing losses on the formed portfolio in excess
of planned norms and consists in:
• maintaining constant contact and holding regular risk-fo-
•
•
•
•
•
cused discussions (meetings) with the borrower by business
managers;
structured and continuous monitoring of the implementation
of financial and non-financial covenants using the control
register;
carrying out, with an established frequency, regular inspec-
tions of the volume, type and conditions of maintenance of
the pledged items, its validity and insurance;
conducting a quarterly analysis of the financial and economic
activities of the borrower and monitoring its financial position;
monitoring of proper loan maintenance and repayment
(tranches);
compulsory comprehensive annual review of the risk limit
established for the Client in order to re-approve, increase or
reduce it (in case of negative trends in the borrower’s activity,
in its sector, in the economy as a whole, etc.);
• analysis of actual exposures versus established limits;
•
control over compliance with internal policies, procedures,
instructions and orders issued by respective management
bodies;
• monitoring of macroeconomic parameters in order to check
the adequacy of risk assessment and forecast;
• portfolio analysis showing trends in levels of default, concen-
trations, diversifications by borrowers or groups of borrowers,
products, industries, countries, etc.
In order to ensure financial stability, forecast expected losses,
plan capital requirements, calculate risk-appetite limits, the Group
performs periodic stress-testing of credit risk. The stress-test-
ing tool includes regression models based on macroeconomic
factors. A mandatory condition for the application of regression
models is their high quality, confirmed by the results of validation.
The Group’s divisions carry out loan maturity analysis and fol-
low-up control over overdue balances.
For more detailed analyses please refer to
www.zenit.ru/rus/about_bank/disclosure/financial-statements/
Credit risk analysis on banking and non-banking operations of
the Group
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 re-
ferred 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.
The following table contains an analysis of the credit risk expo-
sure of cash and cash equivalents including mandatory reserve
deposits with the Bank of Russia. The carrying amount as at 31
December 2019 and 2018 also represents the Group’s maximum
exposure to credit risk on these financial assets.
The Group structures the level of credit risk it undertakes by
placing the appropriate limits. Limits are set by the Group on an
individual (for example, for specific customers and counterpar-
ties), group and portfolio basis (for example, industry and region-
al limits, limits on types of operations, etc.).
Internal regulations on financial analysis and risk assessment
are created and applied to each segment of the lending activity,
including lending to legal entities, individuals, small and medi-
um-sized businesses and other categories of borrowers.
To reduce the level of risk, the Group accepts collateral in the
form of pledges, sureties and guarantees. In case of accept-
ance of a surety, the Group performs a financial analysis of the
guarantor. The assessment of collateral is performed internally
by special division 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.
Credit risk for off-balance sheet financial instruments is defined
as the possibility of sustaining a loss as the result of another par-
ty to a financial instrument failing to perform in accordance with
the terms of the contract. The Group uses the same credit poli-
cies in assuming conditional obligations as it does for on balance
sheet financial instruments, through established credit approvals,
risk control limits and monitoring procedures.
Risk management departments monitor compliance with the
requirements of external and internal polices of risk assessment,
credit decision making, authority to make credit decisions, and
work with collaterals.
To quantify the credit risk, the Group uses internal models (rating
systems). In the absence of a model, the assessment can be
carried out in one of the alternative ways:
• based on the average values obtained on the internal statis-
tics;
• using external ratings of international rating agencies (S&P,
Fitch, Moody`s), mapped to the internal scale of the Bank
ZENIT.
The system of internal ratings has been applied by Bank ZENIT
since 1999 and is continuously updated and developed. The in-
formation accumulated over this period provides a sound ground
for assessment of ratings migration and allows the Group to
calibrate corresponding parameters of default probability.
The Group updates and validates internal models and approach-
es on a periodic basis, but at least once a year. For the purpose
of information disclosure, assets are grouped in one of the 4
credit quality rating categories in order of credit quality deterio-
ration (credit risk increase) in accordance with the approaches
outlined below:
276
277
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Stage 1
(12-months ECL)
At 31 December 2019
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
На 31 декабря 2018
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
IFRS Consolidated Financial Statements
CASH ON HAND AND CASH IN BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
22,999
10
1,721
24,730
-
24,730
TERM DEPOSITS WITH ORIGINAL MATURITY OF LESS THAN THREE MONTHS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
DUE FROM BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
128
222
-
350
-
350
77
-
-
77
-
77
BANKING: MANDATORY RESERVE DEPOSITS WITH THE BANK OF RUSSIA
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
1,572
-
-
1,572
-
1,572
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,999
10
1,721
24,730
-
24,730
128
222
-
350
-
350
77
-
-
77
-
77
1,572
-
-
1,572
-
1,572
278
CASH ON HAND AND CASH IN BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
31,721
4,030
6,589
42,340
-
42,340
TERM DEPOSITS WITH ORIGINAL MATURITY OF LESS THAN THREE MONTHS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
DUE FROM BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
6,468
15,610
-
22,078
-
22,078
-
1,071
-
1,071
-
1,071
BANKING: MANDATORY RESERVE DEPOSITS WITH THE BANK OF RUSSIA
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
1,875
-
-
1,875
-
1,875
The following table contains an analysis of the credit risk exposure
of other financial assets measured at amortised cost and measured
at fair value through other comprehensive income for which ECL
allowance is recognised other than cash and cash equivalents in-
cluding mandatory reserve deposits with the Bank of Russia, loans
to customers and accounts receivable. The carrying amount as at
31 December 2019 and 2018 also represents the Group’s maximum
exposure to credit risk on these financial assets.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,721
4,030
6,589
42,340
-
42,340
6,468
15,610
-
22,078
-
22,078
-
1,071
-
1,071
-
1,071
1,875
-
-
1,875
-
1,875
279
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 At 31 December 2019
At 31 December 2019
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
IFRS Consolidated Financial Statements
-
-
-
-
-
-
-
-
7 158
7 158
-
7 158
-
-
-
-
-
-
309
12
338
659
-
659
-
-
112
112
-
112
-
-
4 551
4 551
(3 322)
1 229
-
-
-
-
-
-
-
-
-
-
-
-
-
-
240
240
(240)
-
-
-
35 806
35 806
(22 685)
13 121
-
-
2,732
2,732
(1,804)
928
-
-
5,547
5,547
(5,547)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
352
352
(240)
112
-
-
47 515
47 515
(26 007)
21 508
2,732
2,732
(1,804)
928
309
12
5,885
6,206
(5,547)
659
DUE FROM BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
REPO WITH BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
1,475
3,121
-
4,596
(109)
4,487
4,081
-
-
4,081
-
4,081
DEBT SECURITIES MEASURED AT AMORTISED COST
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
16,354
5,087
2,359
23,800
(62)
23,738
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
16,476
797
1,848
19,121
(34)
19,087
-
-
20
20
-
20
-
-
32
32
(32)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,475
3,121
32
4,628
(141)
4,487
4,081
-
-
4,081
-
4,081
16,354
5,087
2,359
23,800
(62)
23,738
16,476
797
1,868
19,141
(34)
19,107
281
NOTES RECEIVABLE
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
OTHER LOANS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
LOANS TO EMPLOYEES
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
BANK DEPOSITS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
280
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 At 31 December 2018
At 31 December 2018
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit impaired)
POCI
Total
IFRS Consolidated Financial Statements
-
-
-
-
-
-
-
-
83
83
-
83
-
-
-
-
-
-
346
-
311
657
-
657
-
-
456
456
-
456
-
-
26,217
26,217
(543)
25,674
-
-
-
-
-
-
-
-
-
-
-
-
-
-
566
566
(566)
-
-
-
20,377
20,377
(17,464)
2,913
-
-
2,822
2,822
(1,776)
1,046
-
-
5,544
5,544
(5,544)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,022
1,022
(566)
456
-
-
46,677
46,677
(18,007)
28,670
2,822
2,822
(1,776)
1,046
346
5,855
6,201
(5,544)
657
DUE FROM BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
REPO WITH BANKS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
333
1,599
83
2,015
-
2,015
537
-
-
537
-
537
DEBT SECURITIES MEASURED AT AMORTISED COST
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
32,938
35
-
32,973
(221)
32,752
-
-
-
-
-
-
-
-
-
-
-
-
3
10
1
14
-
14
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
15,662
1,677
478
17,817
(124)
17,693
-
-
89
89
-
89
Within short term bank deposits there are RR 5,540 million
of deposits placed with Tatfondbank. In March 2017, by the
order of the Bank of Russia the license to conduct banking
operations was withdrawn from Tatfondbank. At 31 December
2019 and 2018 the Group created a provision for impairment of
deposits placed with Tatfondbank in the amount of RR 5,540
million.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
333
1,599
83
2,015
-
2,015
537
-
-
537
-
537
32,941
45
1
32,987
(221)
32,766
15,662
1,677
567
17,906
(124)
17,782
283
NOTES RECEIVABLE
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
OTHER LOANS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
LOANS TO EMPLOYEES
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
BANK DEPOSITS
Investment grade rating
Non-investment grade rating
Unrated
Gross carrying amount
Credit loss allowance
Carrying amount
282
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 The resulting models allow for the assessment of future expect-
ed cash flows due to projected future business and different
crisis scenarios. While managing liquidity risk treasury depart-
ments of the Group distinguish liquidity required within a current
business day and term liquidity. 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 customer
based);
• purchase and sale of certain financial assets in liquid portfo-
lios;
• accelerating closure of trade positions;
• estimation of minimum expected cash inflow during a busi-
ness day; and
• daily control over the balance of cash and estimated liabilities
to be settled on demand.
In order to optimize liquidity management procedures, Bank
ZENIT allocates instant (intraday) and emergency liquidity man-
agement. The monitoring of the current and forecasted state
of urgent liquidity is carried out by the Bank’s Treasury daily on
the basis of calculating the sufficiency of highly liquid assets to
cover planned and unplanned outflows and meeting resource
requirements for a period of up to 30 days. In the normal course
of business, liquidity reports reflecting the current and projected
structure of assets and liabilities, taking into account the model
of daily minimum balance on current accounts by currency based
on an analysis of historical dynamics, as well as expected future
cash flows are regularly reported to ALCO. Liquidity management
decisions made by the ALCO are implemented by treasuries as
part of their duties.
The share of liquid assets is maintained at a level sufficient to
meet obligations to customers and counterparties of Bank ZENIT,
which can significantly reduce liquidity risks and non-market
funding rates.
To maintain instant liquidity, limits are open on Bank ZENIT by a
significant number of Russian banks. In addition, the liquidity risk
is minimized by the Bank ZENIT’s ability to raise funds from the
Bank of Russia within the framework of the refinancing system
and state support for the financial sector, as well as established
liquidity management policies and technologies that provide for
stress approaches in estimating future cash flows.
In accordance with the Group’s Liquidity Management Policy, the
basic principle of liquidity management is risk limiting, in particu-
lar, using the required liquid assets limit. If necessary (changing
the financial situation in the markets or at Bank ZENIT), other
limits (for counterparties, financial instruments, etc.) included in
the Bank ZENIT’s limit structure can be used to manage liquidity.
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 undiscounted
payments, including interest payments as at 31 December 2019
and 2018:
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 in-
curring unacceptable losses or risking damage to the Group‘s
reputation. In managing its liquidity risk, the Group maintains ad-
equate cash reserves and debt facilities, continuously monitors
forecast and actual cash flows and matches the maturity profiles
of financial assets and liabilities on non-banking activities.
The Group prepares various financial plans (monthly, quarterly
and annually) which ensures that the Group has sufficient cash
on demand to meet expected operational expenses, financial ob-
ligations 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
The objective of liquidity risk management is to ensure the stable
operations of all banks of the Group, the possibility of uninter-
rupted operations in accordance with the Group’s business
plans, including the timely fulfilment of all obligations to custom-
ers and counterparties related to making payments, as well as
minimising the negative impact on financial results, own funds
(capital), the Group’s reputation for a possible liquidity deficit.
Also, the priority objective of liquidity risk management is to
ensure that all banks of the Group comply with the mandatory
liquidity ratios established by the Central Bank of Russia.
The Group’s approach to banking operations liquidity manage-
ment 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.
In respect to the banking segment The Group endeavors to main-
tain a stable and diversified funding base including core corporate
and individual customer 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 unfore-
seen liquidity requirements in an efficient and timely manner.
Key parameters in liquidity risk management such as the struc-
ture of assets and liabilities, composition of liquid assets and
acceptable liquidity risks are established by Assets and Liabilities
Management Committee (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 pro-
jected by business units;
current and projected characteristics of liquid assets which in-
clude, apart from cash and cash equivalents, amounts due from
other banks and certain financial assets held-for-trading; and
relevant external factors.
•
•
284
IFRS Consolidated Financial Statements
FINANCIAL LIABILITIES
Trade and other financial payables
Trade payables
Dividend payable
Current portion of lease liability
Lease obligations, net of current portion
Other payables
Banking: Other financial liabilities at fair value through profit and loss
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Credit related commitments (Note 27)
Total
At 31 December 2019
Less than
1 year
Between 1 and 5
years
Over
5 years
Total
36,150
55,865
3,024
-
1,660
4,451
3,232
292
880
14,700
475
20,727
134,315
36,114
311,885
-
-
-
9,443
149
-
22,323
3,137
40
-
2,007
2,827
29,486
5,725
75,137
-
-
-
11,078
-
-
7
509
3
-
3
8
-
11,608
36,150
55,865
3,024
20,521
1,809
4,451
25,562
3,938
923
14,700
2,482
23,557
163,809
41,839
398,630
At 31 December 2018
Less than
1 year
Between 1 and 5
years
Over
5 years
Total
FINANCIAL LIABILITIES
Trade and other financial payables
Trade payables
Dividend payable
Other payables
Banking: Other financial liabilities at fair value through profit and
loss
Debt
Bonds issued
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and the Bank of Russia
Banking: Customer accounts
Other short-term liabilities
Credit related commitments (Note 27)
Total
25,728
50,711
1,013
1,190
945
2,498
1,051
6,682
964
15,386
170,869
533
38,929
316,499
-
-
-
-
59
1,966
76
-
1,625
4,660
38,753
-
-
-
-
-
-
193
2,125
4
-
-
-
8
-
-
47,139
2,330
25,728
50,711
1,013
1,190
1,197
6,589
1,131
6,682
2,589
20,046
209,630
533
38,929
365,968
285
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 FAIR VALUES
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an ordinary transaction between
market participants at the measurement date. The estimat-
ed fair values of financial instruments are determined with
reference to various market information and other valuation
techniques as considered appropriate.
Level 2 - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or
indirectly.
Level 3 – Unobservable inputs for the asset or liability. These
inputs reflect the Group‘s own assumptions about the assump-
tions a market participant would use in pricing the asset or
liability.
The different levels of fair value hierarchy have been defined
as follows:
Recurring fair value measurements
Level 1 – Quoted prices in active markets for identical assets or
liabilities that Group has the ability to assess at the measure-
ment date.
The levels in the fair value hierarchy into which the recurring
fair value measurements are categorised are as follows:
At 31 December 2019
Fair value
Carrying value
Level 1
Level 2
Level 3
-
7,015
-
18,325
-
(4,425)
20,915
-
643
1,238
10,407
-
(26)
12,262
12,947
293
-
16,095
1,323
-
30,658
12,947
7,951
1,238
44,827
1,323
(4,451)
63,835
At 31 December 2019
Fair value
Carrying value
Level 1
Level 2
Level 3
-
2,320
-
18,056
-
(1,190)
19,186
-
2,265
-
9,227
-
-
11,492
13,043
189
117
16,092
918
-
30,359
13,043
4,774
117
43,375
918
(1,190)
61,037
Banking: Loans to customers measured at fair value through profit
and loss
Securities measured at fair value through profit and loss
Banking: Due from banks
Securities measured at fair value through other comprehensive
income
Investment property
Banking: Other financial liabilities measured at fair value through
profit and loss
Total
Banking: Loans to customers measured at fair value through profit
and loss
Securities measured at fair value through profit and loss
Other loans measured at fair value through profit and loss
Securities measured at fair value through other comprehensive
income
Investment property
Banking: Other financial liabilities measured at fair value through
profit and loss
Total
286
IFRS Consolidated Financial Statements
The description of valuation technique and description of inputs
used in the fair value measurement for Level 2 and Level 3 meas-
urements at 31 December 2019 и 2018:
Fair value hierarchy
Valuation technique and key input data
Banking: Loans to customers at FVTPL
Level 3
Securities at FVOCI
Level 2, Level 3
Publicly available information, comparable market prices/ discounted
cash flow models adjusted at credit risk
Уровень 2,
Уровень 3
Securities at FVTPL
Level 2, Level 3
Discounted cash flow models adjusted
at credit risk
Quoted prices for similar investments in active
markets, net assets valuation, comparative
(market) approach /
Рыночная цена аналогичных инвестиций
на открытом рынке, метод чистых активов
сравнительный (рыночный) подход/
Использование публично доступной
информации, сопоставимых рыночных
цен/ Дисконтированные денежные потоки,
скорректированные на кредитный риск
Quoted prices for similar investments in active
markets, net assets valuation, comparative
(market) approach /
Publicly available information, comparable market
prices / discounted cash flow models adjusted at credit risk
Уровень 3
Дисконтированные денежные потоки,
скорректированные на кредитный риск
Banking: Due from banks
Other loans at FVTPL
Investment property
Level 2
Level 3
Level 3
Quoted prices for similar investments in active
markets adjusted at credit risk
Discounted cash flow models adjusted
at credit risk
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 years
ended 31 December 2019 and 2018.
There have been no transfers between Level 1, Level 2 and
Level 3 during 2019 and 2018 year.
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:
287
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 At 31 December 2019
At 31 December 2018
At 31 December 2019
At 31 December 2018
Fair value
Carrying value
Fair value
Carrying value
Fair value
Carrying value
Fair value
Carrying value
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
IFRS Consolidated Financial Statements
6,365
18,365
350
35,800
36,150
272
25,456
25,728
-
-
-
-
24,730
5,451
36,889
350
77
-
-
22,078
1,071
1,572
1,875
-
-
-
-
-
-
42,340
22,078
1,071
1,875
78,417
78,417
LIABILITIES
Trade and other financial
payables
Trade payables
Dividend payable
Current portion of lease
liabilities
Other payables
Non-current lease liabilities
Debt
-
-
-
-
-
Bonds issued
20,032
ASSETS
Cash and cash equivalents
Cash on hand and in
banks
Term deposits
Due from banks
Banking: Mandatory reserve
deposits with the Bank of
Russia
Accounts receivable
Trade receivables
Other financial
receivables
Banking: Loans to customers
measured at amortised cost
Other financial assets
Bank deposits
Due from banks
REPO with banks
Notes receivable
Loans to employees
Other loans measured
at amortised cost
-
-
1,572
-
-
-
-
-
-
-
-
-
350
77
-
-
659
3,283
4,081
-
-
-
-
79,724
79,724
1,176
11,506
12,682
-
122,842
123,505
-
-
-
112
928
659
3,249
4,081
112
928
21,508
21,508
-
-
-
-
-
-
-
-
-
596
4,535
5,131
-
133,404
133,404
657
2,015
537
-
-
-
-
-
-
456
1,046
657
2,015
537
456
1,046
28,670
28,670
-
-
332
-
1,825
1,287
923
-
-
-
-
-
-
55,865
55,865
2,613
1,809
11,578
-
-
-
-
-
21,857
1,056
1,287
923
14,700
2,482
-
-
-
-
2,613
1,477
11,578
-
-
-
14,700
2,482
-
-
-
-
-
500
-
-
3,580
1,130
-
-
50,711
50,711
-
513
-
-
-
-
6,682
2,589
-
1,013
-
1,056
3,580
1,130
6,682
2,589
-
-
18,425
182,970
1,527
21,288
-
-
156,578
-
22,815
1,526
16,899
160,052
-
-
-
182,970
-
533
533
Total financial liabilities
21,559
182,583
124,515
332,131
2,582
205,351
86,484
294,417
Subordinated debt
Debt securities issued
Credit facilities
Other debt
Banking: Due to banks and
the Bank of Russia
Banking: Customer accounts
Other short-term liabilities
Securities measured at
amortised cost
24,777
-
23,738
31,276
1,490
-
32,766
Total financial assets
32,714
27,991
236,620
296,915
38,602
65,333
246,528
350,463
288
289
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Reconciliation of liabilities arising from financing activities
Banking operations capital management
Note 31
IFRS Consolidated Financial Statements
The Bank ZENIT’s objectives when managing capital are (i) to
comply with the capital requirements set by the Central Bank
of the Russian Federation, (ii) to safeguard the Group’s ability to
continue as a going concern and (iii) to maintain a sufficient cap-
ital base to achieve a capital adequacy ratio based on the Basel
Accord of at least 8%. Compliance with capital adequacy ratios
set by the Central Bank of the Russian Federation is monitored
by the Management of Bank ZENIT on a daily basis. Other objec-
tives of capital management are evaluated annually.
Under the current capital requirements set by the Central Bank
of Russia, banks have to maintain a ratio of regulatory capital to
risk weighted assets (“statutory capital ratio”) above a prescribed
minimum level. Bank ZENIT is also subject to minimum capital
requirements established by loan covenants, including capital
adequacy level of 8% calculated in accordance with Basel I
and IFRS, and Tier 1 capital adequacy ratio of 6%. Bank ZENIT
has complied with all externally imposed capital requirements
throughout 2019 and 2018.
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 subordinated loan agreements
DIA paid these loans by securities (OFZ of five series), that should
be returned upon maturity of the subordinated loans. These subor-
dinated loans mature from January 2025 to November 2034 and
bear interest equal to OFZ coupon rate plus 1%. In accordance with
IFRS 9 and IAS 39 if securities are loaned under an agreement to
return them to the transferor, they are not derecognised because
the transferor retains substantially all the risks and rewards of own-
ership. Accordingly, the obligation to return the securities should
not be recognised. Therefore, OFZ and the subordinated loan
received from DIA are not recognised within assets and liabilities
in the consolidated statement of financial position. These subordi-
nated loans are accounted for in capital adequacy ratio calculation
in accordance with Bank of Russia’s Regulation No. 395-P.
Subsequent events
In the first quarter of 2020 the Group borrowed RR 101,960 mil-
lion in total from Russian banks at the current market rates under
existing credit facilities. The Group repaid RR 72,320 million of
these loans by the date of this report.
Since the end of 2019, the spread of a new coronavirus, called
COVID-19, which can cause serious consequences leading to
human death, has begun. At the end of 2019, the World Health
Organization reported a limited number of cases of COVID-19
infection, but on January 31, 2020 declared a public health
emergency of international concern, and on March 13, 2020,
announced a pandemic due to the rapid spread of COVID-19 in
Europe and other regions. The measures taken around the world
to combat the spread of COVID-19 result in limitation of business
activity, which affects the demand for energy resources and other
products of the Group, as well as the need for protective meas-
ures aimed at preventing the spread of infection. In addition, in
March 2020, no agreement was reached on the OPEC+ limitation
of crude oil production and the existing arrangement expires
on April 1, 2020, which leads to the possibility of an increase in
the supply of crude oil and refined products in the market from
producing countries. Against the backdrop of these events,
there has been a significant drop in stock markets, commodity
prices fell, in particular, crude oil prices declined significantly, the
Russian Ruble weakened against the US dollar and the Euro, and
the lending rates for many companies in the emerging markets
increased. While this is still an evolving situation at the time of is-
suing these consolidated financial statements, it appears that the
impact on the global economy and uncertainty regarding further
economic growth may negatively affect the financial position and
financial results of the Group in the future.
Management is closely monitoring the situation and implements
measures to reduce the negative impact of these events on the
Group, while the excess of supply over demand and the associ-
ated decrease in world oil prices will directly affect the revenues
of the Group and other financial results if prices do not recover
within the near term. Management considers the reduction in oil
demand due to the outbreak of COVID-19 coronavirus infection
to be a non-adjusting event after the reporting period.
The fair values in Level 2 fair value hierarchy were estimated
using the discounted contractual cash flows and observable
interest 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.
The table below sets out an analysis of the movements in the
Group’s liabilities from financing activities for each of the periods
presented. The items of these liabilities are those that are report-
ed as financing in the statement of cash flows:
Liabilities arising as a result of financing activities
Short-term and long-term debt
Bonds issued
Subordinated debt
31,150
7,742
4,492
At 31 December 2017
Cash flow movement, including:
Proceeds from issuance of debt
Repayment of debt
Redemption of bonds
Interest paid
Foreign exchange adjustments
Interest accrued
Other non-cash flows
At 31 December 2018
Cash flow movement, including:
Proceeds from issuance of debt
Repayment of debt
Issuance of bonds
Redemption of bonds
Interest paid
Foreign exchange adjustments
Interest accrual
Other non-cash flows
At 31 December 2019
Total
43,384
25,920
(49,466)
(8,338)
(602)
993
1,734
281
-
-
(6,979)
(602)
-
614
281
-
-
(1,359)
-
(19)
466
-
1,056
3,580
13,906
-
-
21,790
(1,053)
(119)
-
182
1
-
-
-
(2,140)
(286)
(160)
310
(17)
1,287
115,346
(107,212)
21,790
(3,193)
(2,627)
553
1,247
516
40,326
25,920
(49,466)
-
-
1,012
654
-
9,270
115,346
(107,212)
-
-
(2,222)
713
755
532
MANAGEMENT OF CAPITAL
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 adjust-
ments to it, in light of changes in economic conditions.
The Group defines capital under management as the total Group
shareholders’ equity as shown in the consolidated statement of
financial position. The amount of capital that the Group man-
aged as at 31 December 2019 was RR 745,532 million (2018: RR
771,265 million). The Group manages capital for banking and
non-banking operations separately.
Consolidated total borrowings excluding borrowings of Bank ZENIT:
Bonds issued
Credit facilities
Other debt
Consolidated shareholders’ equity
Debt to capital employed ratio, % (Consolidated total borrowings / Consolidated
shareholders’ equity)
17,182
21,857
Non-banking operations capital management
The Group considers equity and debt to be the principal ele-
ments of capital management. In order to maintain or adjust the
capital structure, the Group may adjust the dividend payment to
shareholders, revise its investment program, attract new or settle
existing debt or sell certain non-core assets.
The Group monitors capital on the basis of its gearing ratio.
Year ended 31 December 2019
Year ended 31 December 2018
32 182
15 000
14 700
2 482
745,532
4.3%
9 271
-
6 682
2 589
771,265
1.2%
290
291
2019 ANNUAL REPORTANNEX 1YEARS OF SUSTAINABLE DEVELOPMENT25 Annex 2
Independent Auditor’s Report
Independent Auditor’s Report
Financial Statements under
the Russian Accounting
Standards
Independent Auditor’s Report
To the Shareholders and Board of Directors of PJSC TATNEFT named after V.D. Shashin:
Our opinion
In our opinion, the enclosed accounting statements present fairly, in all material respects,
the financial position of PJSC TATNEFT named after V.D. Shashin (hereinafter referred
to as the “Company”) as of December 31, 2019, as well as its financial results and cash
flows for the year ended on that date, in compliance with the accounting rules established
in the Russian Federation.
Subject of audit
We have audited the Company’s accounting statements, which include:
• Balance Sheet as of December 31, 2019;
• Profit & Loss Statement for the year then ended;
• Statement of Changes in Equity for the year then ended;
• Statement of Cash Flows for the year ended on that date;
• Notes to the Balance Sheet and Profit & Loss Statement.
Basis for our opinion
We conducted our audit in accordance with the International Standards on Auditing
(ISA). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the audit of the accounting 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 in respect of the Company, in accordance with the Code of Ethics
for Professional Accountants developed by the International Ethics Standards Board for
Accountants (IESBA Code) and the ethical requirements of the Code of Professional
Ethics for Auditors and Auditors & Audit Organizations Independence Rules, applicable
to our audit of the accounting statements in the Russia Federation. We have fulfilled our
other ethical obligations in accordance with these requirements and the IESBA Code.
Joint Stock Company PricewaterhouseCoopers Audit (JSC PwC Audit)
10 Butyrsky Val Str., Business Center Belaya Ploschad, Moscow, 125047, Russia
Telephone: +7(495) 967-6000, Fax: +7(495) 967-6001, www.pwc.ru
292
1
293
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
Independent Auditor’s Report
Materiality at the level
of the overall Company’s
accounting statements
RUB 11,600 million
How we determined it
5% of adjusted profit before tax
Rationale for the
materiality benchmark
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 the users to assess the
Company’s activities results and, furthermore, is a generally
accepted base indicator. The use of adjusted profit before tax
provides a more stable basis for determining the level of
materiality, since it reduces the effect of volatility (which can be
significant) caused by factors of a one-time nature, such as
impairment losses on exploration assets, financial investments,
receivables, and other non-current assets, associated with oil and
gas exploration activities provides a more stable basis for
determining the level of materiality, taking into account, mainly,
basic profitability of the Group's operations.
We established materiality at the level of 5%, which falls within
the range of acceptable quantitative thresholds of materiality
applicable to profit-driven companies in this industry sector and
corresponds to the approach used in the previous year.
Key audit matters
Key audit matters are those matters, which according to our professional judgment, were of the
most significant in our audit of the annual accounting statements for the current period. These
matters were addressed in the context of our audit of the accounting statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
3
Our auditing approach
Overview
Materiality
• Materiality at the level of the Company's accounting statements in
total: Russian Rubles 11,600 million (RUB mln), which
represents 5% of the adjusted profit before tax, excluding one-
time effects from impairment of exploration assets, financial
investments, account receivables for loans issued and other
noncurrent assets related to oil and gas exploration activities.
Key audit matters
• Changes in accounting policies as regards to recognition of
changes in evaluation of liabilities related to decommissioning
fixed assets and restoring natural resources
• Provision for impairment of assets
When planning the audit, we determined the materiality and assessed the risks of material
misstatements in the accounting statements. In particular, we analyzed, in which areas the
management made subjective judgments, for example, with respect to significant
accounting estimates that involved making assumptions and considering future events that
are inherently uncertain. As in all of our audits, 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 defined the scope of the audit in such a way, that we could perform the works sufficient
to express our opinion on the accounting statements as a whole, taking into account the
Company’s structure, accounting processes and controls used by the Company, as well as
the specifics of the industry, in which the Company operates.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is
designed to obtain reasonable assurance whether the accounting statements are free from
material misstatement. Misstatements may arise due to fraud or error. Misstatements are
considered material if they could reasonably be expected to affect, individually or
collectively, the economic decisions of users made on the basis of these accounting
statements.
Based on our professional judgment, we determined certain quantitative thresholds for
materiality, including for materiality at the level of the Company’s accounting statements
as a whole, as indicated in the table below. Using 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 evaluated the impact of misstatements (those individual
and taken in aggregate), if any, on the accounting statements as a whole.
2
294
295
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
Independent Auditor’s Report
Key audit matter
How our audit addressed the
key audit matter
Key audit matter
Change in accounting policy with respect to
reflecting changes in the evaluation of estimated
liabilities for liquidation of fixed assets and
restoration of natural resources
Refer to Note II, III, IV.20 (text part) to the
Balance Sheet and the Profit & Loss Statement.
The Company's accounting statements recognise
estimated liabilities for liquidation of fixed assets
related to exploration, development and production
in the end of their life and restoration of natural
resources
(i.e. Asset Retirement Obligations
hereinafter referred to as “ARO”).
to
the management due
ARO are evaluated annually by the management
and involves the use of various estimates and
judgments of
the
complexity inherent in estimating future costs. The
amount of estimated liabilities is significant for the
balance sheet of the Company, as of December 31,
2019 it amounted to RUB 50,490 million, for
December 31, 2018 – RUB 34,471 million, at 31
December 2017 - RUB 38,092 million (lines 1430
and 1540 “Estimated liabilities” of the Balance
Sheet).
We paid considerable attention to the issue of ARO
evaluation, given the materiality of these liabilities
and, especially, in connection with the ARO increase
by RUB 16,019 million during 2019, which affected
the financial results and the value of the Company's
assets for the year and as of the end of 2019. This
increase was due to several multidirectional factors,
the most significant of which was the revision of the
assumptions used in the calculation, in particular, of
the discount rate. Other changes are mainly related
to ARO creation for newly introduced facilities of
fixed assets.
Expenses of RUB 3,017 million from the discount
accrual due to the increase in the present value of
ARO are reflected in the statement of financial
results in line 2330 " Interest payable".
We performed the following procedures in relation
to calculation models for the ARO valuation:
• Verification of the arithmetic accuracy of
calculations and the completeness of the data
used, such as a list of objects to be
decommissioned, the cost of conservation
and liquidation of wells, the number of wells
the cost of
and other
reclamation and the area of land, the field
decommissioning period (discount period);
fixed assets,
• Analysis of the validity of the assumptions
used in the ARO calculations, such as both
the inflation rate and discount rate.
Our procedures for verifying the reasonableness of
the cost values used by the management to
evaluate ARO of well liquidation costs, other fixed
assets and soil recultivation included discussions
with the Company's technical specialists of the list
and works order procedure for carrying out
liquidation and reclamation works, reconciliation
with standard estimates of the Company for
liquidation of fixed assets, as well as comparison
with the prices of the contractors' proposals.
The most significant effect on the change in the
ARO value during 2019 was the change in the
discount rate used to estimate the future cost of
decommissioning fixed assets. We compared the
discount rate applied by the management of the
Company with the level of profitability of
government securities, the maturity of which is
comparable with
the expected deadline of
fulfillment of provisions for decommissioning
fixed assets and restoring natural resources.
Increase in assets amounting to RUB 8,011 million,
and decrease in the additional paid-in capital regarding
revaluation of non-current assets on fixed assets
facilities valued at current (replacement) value by
RUB 4,214 million, are recognised in the balance
sheet and the statement of financial results according
to lines 1190 “Other non-current assets” and 1340
“Revaluation of non-current assets”, respectively.
Starting from January 1, 2019, the Company reflects
ARO changes because of changes
in basic
assumptions in the manner prescribed by requirements
(IAS) 37 “Estimated Liabilities, Contingent Liabilities
and Contingent Assets” and IFRIC 1 “Changes in
Existing Decommissioning, Restoration and Similar
Obligations”.
The right to create an accounting policy taking into
account the requirements of the International Financial
Reporting Standards by organizations which disclose
consolidated
in
accordance with the International Financial Reporting
Standards (IFRS) is provided for by the accounting
regulations 1/2008 "Accounting policies of
the
organization."
The Company believes that the transition from the
accounting model
the basic
assumptions through "Other income" and Other
expenses" indicators of the financial results statement
to the accounting model stipulated by IFRS provides
users with more relevant and reliable information on
the Company's performance results, which helps to
reduce volatility of financial results and avoid
multidirectional effects on the Company's net profit as
a result of changes in basic assumptions, and also
contributes to greater comparability of indicators of
accounting (financial) statements of the Company
with
financial
statements of the Group.
statements prepared
the consolidated
indicators of
for changes
financial
in
How our audit addressed the
key audit matter
We analyzed the adjusted accounting registers of
the Company’s ARO for comparable periods. Our
procedures related to the Company’s change in the
accounting policy and recalculation of the effect of
ARO changes on the balance sheet and statement
of financial results included the following:
• Analysis of the validity of the Company's
judgments made in relation to changes in
accounting policies;
and
testing
relevance
• Validation
the
methodology used by the Company for
adoption of the new model of accounting for
ARO changes in accordance with IFRS;
• Data verification of the recalculated ARO
registers for compliance with the selected
transition methodology, as well as the
mathematical accuracy of the calculations;
• Receipt and analysis of the written statements
by
the Company
regarding changes in the accounting policies
in terms of ARO and its impact on the
accounting (financial) statements.
the management of
In addition, we checked the compliance of the
information disclosed in Sections 11, 111 and IV of
the Notes to the Balance sheet and the Statement of
financial results with the requirements for the
presentation and disclosure of information of
accounting regulation 1/2008 "Accounting policies
of the organization" and accounting provisions 4/99
"Accounting statements of the organization."
4
5
296
297
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
Key audit matter
How our audit addressed the
key audit matter
In connection with the retrospective application of the
new accounting policy, comparable indicators of
accounting (financial) statements have been changed.
The impact of changes in accounting policies on the
indicators of the accounting (financial) statements of
the Company is disclosed in detail in Section III of the
Notes to the Balance sheet and Profit & Loss
statement.
We paid considerable attention to the change in the
accounting policy of the Company in relation to ARO,
since the process of switching to another methodology
of liabilities accounting is complicated, and this
change in accounting policy has a significant impact
on the accounting (financial) statements of the
Company.
Provision for assets impairment
Refer to Note IV.15 (text part) to the Balance Sheet
and the Profit & Loss Statement.
According to the results of December 31, 2019
valuation, the Company created provisions for bad
debts, impairment financial investments and assets
related to oil and gas exploration in the amount of
RUB 14,863 million, RUB 11,206 million and RUB
15 182 million. (in 2018 - RUB 16,881 million, RUB
150 million and RUB 591 million. respectively)
reflected in line 2350 “Other expenses” of the report
on financial results for the following assets:
- tangible and intangible exploratory assets for the
search and exploration of oil and gas fields, as well as
the costs of exploration as part of other non-current
assets;
We evaluated the methodology for calculating the
provision for doubtful debts, the methodology for
impairment of
the provision for
calculating
financial
to
related
investments and assets
prospecting and exploration used by the Company,
for
rules
its compliance with accounting
established in the Russian Federation.
We performed the following procedures:
• Analysis of the validity of critical assumptions
used in the feasibility study models by field,
such as production volume, hydrocarbon prices,
production costs;
Independent Auditor’s Report
Key audit matter
carrying out search and exploration of oil and gas fields.
- other interest-free loans granted to subsidiaries.
In terms of exploration assets, exploration expenses and
debts of subsidiaries and affiliates engaged in the search
and exploration of oil and gas, the Company analyzes the
feasibility studies for each of the fields. The company also
analyzes discounted expected cash flow models of
subsidiaries.
In accordance with Accounting Regulation 24/2011,
“Accounting for Expenditures for Development of Natural
Resources”, if there are signs of impairment, the Company
reviews assets for impairment and takes into account
changes in value due to impairment in accordance with
International Financial Reporting Standards (IAS) 36
Impairment of Assets,
(IFRS) 6 Exploration and
Evaluation of Mineral Resources.
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, in order to identify doubtful
receivables, the Company analyzes information on each
debtor’s solvency, obtains experts’ opinions on market
values of property provided as collateral under loan
agreements ( where possible) and analyzes the models of
discounted expected cash flows, requests other relevant
information, based on which the Company can assess
probability of failure to repay debts within the terms
established by contracts.
The analysis revealed the need to recognize impairment
reserves in connection with adverse conditions in the oil
market that affect the current assessment of relevant
projects.
We paid special attention to this matter due to significance
of impairment provisions, as well as significance of
judgements and estimates involved in the calculations.
How our audit addressed the key
audit matter
• Analysis of critical assumptions used by the
management of the Company in assessing
the current market value of the property and
rights of claim provided as collateral under
loan agreements;
• Verification of mathematical accuracy of
models expected funds;
• Verification of the correctness of determining
the recoverable amount of assets and
calculating
accrued
impairment
amount
the
of
price
hydrocarbons
We evaluated the macroeconomic assumptions
used by the management, which include, for
example,
forecasts,
comparing them with the consensus forecast of
investment banks.
Our procedures for verifying the reasonableness
of the value of production costs used by
management included a discussion with the
Company's
the
composition of the relevant costs, sources of
information
and
their
for
reconciliation with these sources.
We also performed an assessment of compliance
with RAS requirements for the disclosure of
information in accounting statements.
forecasting
specialists
technical
on
6
7
298
299
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
Other information
The management shall be responsible for the other information. The other information comprises
the Company’s Annual Report 2019 and the Issuer’s Quarterly Report Q1 2020 (but excludes
the accounting statements and our audit report on these accounting statements), which are
expected to be provided to us after the date of this audit report.
Our opinion on the accounting statements does not cover the other information, and we will not
express any form of assurance conclusion thereon.
In connection with our audit of the accounting statements, our responsibility is to read the above-
mentioned other information upon its provision and, in doing so, consider whether the other
information is materially inconsistent with the accounting statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated.
If we conclude that the Company’s Annual Report 2019 and the Issuer’s Quarterly Report Q1
2020 contain material misstatements, we are required to communicate the matter to those persons
charged for corporate governance.
Responsibility for accounting statements of the management and persons
responsible for corporate governance
The management is responsible for the preparation and fair presentation of these accounting
statements in accordance with the accounting rules established in the Russian Federation and for
such internal control system as the management determines appropriate to enable the preparation
of accounting statements that are free from material misstatement, whether due to fraud or error.
In preparing the accounting statements, the management is responsible for assessing the ability
of the Company to continue as a going concern, disclosing, as applicable, matters related to
going concern, and using the going concern basis of accounting, unless the management either
intends to liquidate the Company or to cease the operations, or has no realistic alternative but to
do so.
The persons responsible for corporate governance are responsible for the supervision of the
preparation of the Company’s accounting statements.
Independent Auditor’s Report
Auditor’s responsibilities for the audit of accounting statements
Our objective is to obtain reasonable assurance about whether the accounting statements are free
from material misstatements, whether due to fraud or error, and to issue an auditor’s report that
represents our opinion. Reasonable assurance is a high degree of assurance, but it is not a guarantee
that the audit conducted in accordance with ISAs will always detect material misstatements, if any.
Misstatements may result from fraud or errors and they are considered material if they could
reasonably be expected to affect, individually or collectively, economic decisions of users made on
the basis of these accounting statements.
Within the scope of the audit conducted in accordance with ISA, we exercise professional judgment
and maintain professional skepticism throughout the audit. Besides, we perform the following:
• Identify and assess the risks of material misstatement of accounting statements, due to fraud or
error; design and perform audit procedures to respond to those risks; obtain audit evidence that
is sufficient and appropriate to provide the grounds for our opinion. The risk of failure to detect
a material misstatement resulting from fraud is higher than the risk of failure to detect a material
misstatement resulting from an error, since fraud may involve collusion, forgery, intentional
omissions, misrepresentation, or circumventing the internal control system;
• Obtain insight of the internal control system relevant to the audit in order to develop audit proce-
dures 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 appropriateness of the accounting policies applied and the reasonableness of
accounting estimates and the corresponding disclosure of information prepared by the
management;
• Conclude on the appropriateness of the application by the management of the going concern
assumption and, on the grounds of the audit evidence obtained, conclude on the existence of a
material uncertainty related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we come to the conclusion that a material
uncertainty exists, we must draw attention in our audit report to the appropriate disclosures in
the accounting statements or, if such disclosures are inadequate, modify our opinion. Our
conclusions are based on the audit evidence obtained prior to the date of our audit report.
However, future events or conditions may lead to the Company losing its ability to continue as
a going concern.
• Evaluate the overall presentation, structure, and content of the accounting statements, including
disclosures, and whether the accounting statements present the underlying transactions and
events in a manner ensuring their fair presentation.
We share information with persons responsible for corporate governance by communicating to them,
inter alia, the information about the planned scope and timing of the audit as well as major comments
on the audit results, including on significant deficiencies in the internal control system, identified by
us in the course of the audit.
8
9
300
301
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
We also provide the persons responsible for corporate governance with a statement that we
have complied with all relevant ethical requirements for independence and have informed
these persons about all relationships, as well as on other matters that can reasonably be
considered to have an influence on the auditor’s independence and, where necessary, about
the relevant precautions.
Among the issues, which we have communicated to the parties responsible for corporate
governance, we identify the issues that were the most significant for the audit of the
accounting statements for the current period and, therefore, were key audit matters. We
describe these matters 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 presented in our
report, as it can be reasonably assumed that the negative consequences of the disclosure of
such information will exceed the socially significant benefit from its disclosure.
Maksim Evgenievich Timchenko is the Head of the Assignment, which resulted in the
issuance of this auditor report of an independent auditor
March 27, 2019
Moscow, Russian Federation
M.E. Timchenko, Head of the Assignment (Qualification Certificate No. 01-000267),
Joint Stock Company PricewaterhouseCoopers Audit
Audited entity:
Public Joint Stock Company TATNEFT
named after V.D. Shashin
Registered by the Ministry of Finance of the Republic of
Tatarstan under No. 632 on January 21, 1994
Record made in the Unified State Register of Legal Entities
on July 18, 2002, under State Registration Number
1021601623702
Taxpayer Identification Number 1644003838
75 Lenin Str., Almetyevsk, 423450,
Republic of Tatarstan, Russian Federation
Independent auditor
Joint Stock Company “PricewaterhouseCoopers Audit”
Registered by the Government Agency Moscow Registration Chamber
on February 28, 1992 under No. 008.890
Record made in the Unified State Register of Legal Entities on August
22, 2002, under State Registration Number: 1027700148431
Taxpayer Identification Number 7705051102
Member of Self-regulatory Organization of Auditors Association
“Sodruzhestvo”
Primary Registration Number of Entry in the Register of Auditors and
Audit Organizations: 12006020338
10
2019 PJSC Tatneft Financial Statements Balance Sheet Report
2019 PJSC Tatneft Financial
Statements Balance Sheet Report
BALANCE SHEET REPORT
(RUB ‘000)
Notes
ASSETS
Line Code
As of 31.12.2019
As of 31.12.2018
As of 31.12.2017
VI-2, 8
VI-2, 8
VI-3, 8
VI-3, 8
I. NON-CURRENT ASSETS
Intangible assets
Research and development results
Intangible development assets
Tangible development assets
VI-1, 7,8
Fixed assets
VI-1
VI-8
VI-1, 8
VI-5
VI-4
VI-4
VI-7
VI-7
VI-7
VI-7
VI-7
VI-7
VI-8
VI-8
including capital investments in progress
advances issued for the acquisition and construc-
tion of fixed assets
Income-bearing investments in tangible assets
Financial investments
Deferred tax assets
Other non-current assets
including asset retirement obligations
Total for Section I
II. CURRENT ASSETS
Inventories
including raw materials and supplies
work in progress costs
finished products and goods for resale
goods shipped
other inventories and expenses
Value added tax on acquired valuables
Receivables
including noncurrent nondelinquent accounts
receivable (that are due beyond 12 months after the
reporting date)
VI-8
including buyers and customers
1110
1120
1130
1140
1150
1151
1152
1160
1170
1180
1190
1191
1100
1210
1211
1212
1213
1214
1215
1220
1230
1231
1232
1 854 480
1 519 494
882 443
1 144 240
939 972
792 200
82 200
4 265 212
4 320 885
624 333
2 292 250
2 561 503
266 569 521
256 510 046
233 442 786
107 760 624
115 195 430
100 782 153
14 856 513
8 920 829
4 760 324
392 259
4 323 952
4 199 156
99 328 503
92 381 756
92 578 452
-
-
-
25 777 779
26 959 839
42 820 400
25 211 401
17 053 844
21 027 007
395 773 315
389 192 521
381 597 825
41 210 116
65 781 674
48 115 981
6 465 505
12 085 489
9 873 466
2 199 449
1 518 853
971 862
26 352 269
27 274 632
24 839 505
5 519 803
22 724 492
7 669 809
673 090
2 178 208
4 761 339
1 902 349
3 617 822
3 919 516
373 794 549
332 674 500
267 690 805
242 747 758
203 639 972
163 426 232
48 655
104 673
718 656
302
303
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25
Balance sheet report, RUB ‘000 (continuation)
2019 PROFIT AND LOSS STATEMENT
Notes
ASSETS
Line Code
As of 31.12.2019
As of 31.12.2018
As of 31.12.2017
Notes
Line Item
Line Code
For 12 months of 2019
For 12 months of 2018
2019 PJSC Tatneft Financial Statements Balance Sheet Report
2019
VI-14
VI-14
VI-14
VI-14
VI-15
VI-15
VI-12
VI-12
VI-12
Revenue
Cost of sales
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
Profit (loss) before taxation
Current income tax
including permanent tax liabilities (assets)
Changes in deferred tax liabilities
Changes in deferred tax assets
Other
Income tax redistribution within the consolidated group
of taxpayers
Net profit (loss)
2110
2120
2100
2210
2220
2230
2200
2310
2320
2330
2340
2350
2300
2410
2421
2430
2450
2460
2465
2400
VI-1
Surplus on revaluation of fixed assets not included in net
profit (loss) for the period
2510
Result from other operations not included in net profit
(loss) for the period
Total profit / loss for the period
VI-19
For reference only
Basic earnings (loss) per share, RUB
Diluted earnings (loss) per share
2520
2500
2900
2910
827 026 695
793 237 174
(505 680 797)
321 345 898
(46 078 486)
(9 885 505)
(260 092)
265 121 815
4 751 697
1 234 120
(473 760 104)
319 477 070
(46 274 869)
(8 022 792)
(40 291)
265 139 118
2 931 884
5 073 049
(3 261 408)
(3 094 329)
60 085 765
58 616 522
(124 843 535)
203 088 454
(80 732 987)
247 933 257
(54 568 624)
(55 494 136)
(8 080 557)
(5 676 807)
5 870 376
230 677
–
61 774
–
77 890
1 594 066
17 946
156 046 046
192 765 634
(3 665 536)
3 899 319
(29 589)
9 501
152 350 921
196 674 454
67,26
-
82,73
-
VI-8
VI-8
VI-8
VI-8
VI-8
VI-8
VI-5
VI-6
VI-10
VI-10
VI-10
VI-10
VI-11
VI-9
VI-9
VI-9
VI-9
VI-9
VI-9
VI-9
advances paid
other debtors
including current nondelinquent accounts receiv-
able (that are due in the next 12 months after the
reporting date)
including buyers and customers
advances paid
other debtors
1233
1234
1235
1236
1237
1238
66 350
98 572
205 258
242 632 753
203 436 727
162 502 318
131 046 791
129 034 528
104 264 573
71 570 267
77 536 010
61 981 366
3 721 492
3 266 296
5 373 018
55 755 032
48 232 222
36 910 189
Financial investments (except for cash equivalents)
1240
545 117
3 340 306
28 418 509
Cash and cash equivalents
Other current assets
Total for Section II
Balance (assets)
III. CAPITAL AND RESERVES
Authorized capital (contributed capital, authorized
fund, contributions of partners)
Shares repurchased
Revaluation of non-current assets
Additional capital (without revaluation)
Reserve capital
Retained profit (uncovered loss)
Total for Section III
IV. LONG-TERM LIABILITIES
VI-11
Borrowings
Deferred tax liabilities
VI-20
Estimated liabilities
Other liabilities
Total for Section IV
V. SHORT-TERM LIABILITIES
Borrowings
Payables
including suppliers and contractors
debt in respect of insurance premiums
taxes and duties payable
advances received
Other creditors
Deferred revenues
VI-20
Estimated liabilities
Other liabilities
Total for Section V
Balance
1250
1260
1200
1600
1310
1320
1340
1350
1360
1370
1300
1410
1420
1430
1450
1400
1510
1520
1521
1522
1523
1524
1 723 345
28 850 530
10 866 389
1 595 321
5 097 762
1 735 899
420 770 797
439 362 594
360 747 099
816 544 112
828 555 115
742 344 924
2 326 199
2 326 199
2 326 199
-
-
-
13 389 408
17 477 427
13 665 476
298 820
328 409
318 908
116 310
116 310
116 310
556 625 941
625 404 234
582 990 845
572 756 678
645 652 579
599 417 738
15 370 000
370 000
370 000
2 177 796
8 048 172
8 278 850
50 360 737
34 346 312
38 026 536
–
–
–
67 908 533
42 764 484
46 675 386
32 893 591
16 036 104
32 212 379
140 151 901
121 654 847
61 779 884
34 404 264
22 081 257
17 057 659
710 227
594 348
172 200
28 211 874
32 121 047
25 945 577
8 515 291
5 095 325
6 957 711
1526
1530
1540
1550
1500
1700
10 787 637
9 540 032
5 615 231
251 966
238 436
136 631
2 581 443
2 208 665
2 122 906
–
–
–
175 878 901
140 138 052
96 251 800
816 544 112
828 555 115
742 344 924
dividends or profit due to shareholders (owners)
1525
57 522 608
52 222 838
6 031 506
304
305
ANNUAL REPORT 2019ANNEX 2YEARS OF SUSTAINABLE DEVELOPMENT25 Significant Aspects of Accounting Policies
and Presentation of Information in the
Financial Statements
BASIC APPROACHES TO PREPARING THE
ANNUAL FINANCIAL STATEMENTS
The Company keeps its accounting records as per the Feder-
al Law N 402-FZ of December 6, 2011 “On Accounting”, and
the Regulations for 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 current
Russian Accounting Standards (RAS), as well as the accounting
policy of the Company. The financial statements of the Compa-
ny for 2019 were prepared in accordance with the above Law,
the regulations and the accounting policy. The annual financial
statements for 2019 were prepared as per the forms developed
and approved by the Company in accordance with the Order
of the Ministry of Finance of the Russian Federation dated
02.07.2010 No. 66n «On Accounting Forms of Organizations».
The reporting financials statements are presented in thousands
of rubles.
FOREIGN CURRENCY DENOMINATED ASSETS
AND LIABILITIES
The foreign currency denominated assets and liabilities are rec-
ognized in the accounting records in accordance with the RAS
3/2006 «Accounting for Foreign Currency Denominated Assets
and Liabilities», approved by Order of the Ministry of Finance of
the Russian Federation No. 154n dated November 27, 2006.
The exchange rate difference is recorded in the accounting
records and reporting in that reporting period which the payment
due date pertains to or which the financial statements have been
prepared for.
The exchange difference arising from the translation of the
foreign currency denominated assets and liabilities of an entity
used for carrying out its business operations outside of the
Russian Federations into rubles is recognized in the additional
paid-in capital of the entity.
When accounting for business transactions made in foreign cur-
rencies, the official exchange rate of the foreign currency to ruble,
which was in effect on the day of the transaction, was applied.
Cash in foreign currency accounts at banks and cash on hand,
financial deposits (except for stocks) and funds in settlements in
foreign currency (except for funds received and issued for advanc-
es and front payments, deposits) are reflected in the accounting
statements in amounts calculated on the basis of the official
exchange rates in effect at the reporting date. The exchange rates
amounted RUB 61,9057 per USD as at 31 December 2019 (as at 31
December 2018 – RUB 69,4706, as at 31 December 2017 – RUB
57,6002), and RUB 69,3406 per Euro (as at 31 December 2018 –
RUB 79,4605, as at 31 December 2017 – RUB 68,8668).
INTANGIBLE ASSETS
Intangible assets include computer software programs; data-
bases; inventions; utility models; trademarks and service marks;
licenses for mineral geological exploration and production;
licenses for mineral production, mineral prospecting, appraisal
and exploration costs (transferred from the intangible prospect-
ing assets after the commercial viability of oil production at the
field has been confirmed).
Intangible assets are recognized for accounting purposes at their
historical cost in the reporting period when the documents are
received confirming the Company’s rights to the result of intellec-
tual activity or a means of individualization, regardless of the use
of intangible assets to produce goods, perform works or render
services for management needs.
The value of intangibles is repaid by a straight-line method of
depreciation at the rates determined based on their estimated
useful life.
No depreciation is charged for intangible assets with an indefi-
nite useful life.
The exchange rate difference for the rest of the transaction is
recognized in the profit and loss account as other income and
expenses. The foreign exchange gains and losses are record-
ed in the Profit and Loss Report, netted under the lines «Other
Income» or «Other Expenses».
Depreciation is charged by accumulating the corresponding
amounts on a separate account. Intangible asset depreciation
charge is recognized in the accounting period which they pertain
to, and it is accrued regardless of the company’s performance
results in the reporting period.
The useful life of intangible assets is annually verified for the
purpose of clarification. If the duration period is substantially
changed (by more than twenty percent) within which the asset
is intended to be used, its useful life period should be updated.
The resulting adjustments are reflected in the accounting records
and reporting as changes in estimates.
Intangible assets of homogeneous groups at fair market value
are not revaluated.
RESEARCH, DEVELOPMENT, AND ENGINEERING
COSTS
Research, development, and engineering costs are included in
the amount of actual expenditure incurred
to perform these operations.
The research, development, and engineering costs that yielded
positive results and started to be deployed in the operations
are written off as normal business expenses beginning from
the month following the month in which the results obtained in
carrying out the above mentioned activities to produce goods
(perform works or render services) or for the company’s manage-
rial needs are started to be used in a real life.
in the cost of mineral prospecting, appraisal and exploration for
relevant subsurface areas.
Expenditures incurred for the purpose of acquiring the licenses
for geological study and production of minerals, as well as costs
for prospecting, appraisal and exploration of minerals, are not
subject to depreciation until the commercial feasibility of oil
production within the relevant licensed area of mineral resourc-
es is confirmed and the order to bring the field into commercial
development is approved.
The commercial feasibility of oil production is considered sub-
stantiated at the time of approval of the reservoir management
plan for the field within the licensed subsurface area of mineral
resources.
The Company runs impairment testing for its prospecting assets
on a yearly basis as of December 31 as well as in case of their
derecognition when the commercial feasibility of oil production
has been substantiated within the licensed subsurface area.
For the purpose of testing the assets for impairment, these
assets are grouped by the mineral subsurface areas specified in
the licenses.
The costs associated with each performed research, develop-
ment, and engineering activity with positive result yielded are
written off evenly on a straight-line basis over the useful life of
the R&D deliverables (which should not exceed five (5) years).
The prospecting asset impairment loss is recognized in the profit
and loss report in the line of «Other expenses». In addition, the
Company applies a reversal of impairment loss to prospecting
assets.
The costs associated with the research, development, and
engineering activities resulted in a failure are expensed to the
financial result in other expenses account in the reporting period.
PROSPECTING ASSETS
The Company recognizes the prospecting costs in tangible pros-
pecting assets including as follows:
•
•
costs for the acquisition and construction of prospecting,
exploratory and early production wells and other oilfield facili-
ties;
costs for buying and installing the equipment for prospecting,
exploration and early production wells.
• The Company recognizes the prospecting costs in intangible
•
•
prospecting assets including as follows:
costs for acquisition of licenses for geological study of the
subsurface, licenses for geological study and production of
minerals;
costs for minerals prospecting, appraisal and exploration:
costs for geological, geochemical and geophysical surveys,
costs for acquisition of geological information related to the
subsurface from third parties including government agencies
and costs for drilling of stratigraphic test wells, parametric
and structural wells.
Tangible prospecting assets are depreciated on a straight-line
basis over their useful lives.
Depreciation charges for the tangible prospecting assets are
included in the cost of mineral prospecting, appraisal and explo-
ration for relevant subsurface areas.
Intangible prospecting assets in the form of licenses for geolog-
ical study of the subsurface are depreciated on a straight-line
basis over the period of validity of the respective licenses. De-
preciation charges for the above mentioned assets are included
The Company derecognizes prospecting assets in relation to a
certain licensed subsurface area of mineral resources when the
commercial feasibility of oil production is substantiated within the
relevant licensed subsurface area or the prospects of mineral
resources production in this area have no chance of success.
When the commercial feasibility of oil production is substantiated
within the licensed subsurface area the Company reclassifies its
prospecting assets as follows:
•
•
tangible prospecting assets included in fixed assets at their
depreciated book value;
intangible prospecting assets included in intangible assets at
their depreciated book value.
FIXED ASSETS
Fixed assets include land plots, buildings, plants, machinery,
equipment, vehicles and other relevant facilities with their service
life of more than 12 months and worth more than 40,000 rubles.
The Company runs revaluation of its fixed assets ( industrial
purpose buildings, plants and constructions such as the pipe-
lines, machinery and equipment (except information technology
equipment)) at the current (replacement) cost once a year (as at
the end of the reporting year).
The fixed assets that were commissioned before January 1, 2002
are depreciated based on uniform depreciation rates approved
by Decree of the USSR Council of Ministers dated October 22,
1990, No. 1072 “On Uniform Depreciation Rates of Fixed Assets
of the USSR National Economy” and those commissioned after
January 1, 2002 – 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 Decree of
the Government of the Russian Federation No. 1 dated January
1, 2002, except for fixed assets acquired for lease, as well as
306
307
2019 ANNUAL REPORTANNEX 2Significant Aspects of Accounting Policies and Presentation of Information in the Financial StatementsYEARS OF SUSTAINABLE DEVELOPMENT25 those included in the production and technological complex for
generating electrical energy by low-grade steam turbines and
aircraft, the useful life of which is determined on the basis of the
lease period and the planned period of their operation according
to the reports of a special committee.
Depreciation is calculated on a straight-line basis.
Group of fixed assets
Before 01.01.2002
After 01.01.2002
Useful lives of facilities (number of years)*
Buildings
Facilities, including:
Wells
Machinery and equipment
25-50
10-25
10-15
5-15
8-31
2,5-31
6-14
1-26
* СThe useful lives of fixed assets acquired for leasing, as well as those included in the produc-
tion and technological complex for generating electric power by low-grade steam turbines and
aircraft, may differ from the useful life value indicated in the table above.
No depreciation is charged for land plots and sites for the use of
natural resources.
The historical value of fixed assets at which they were included
in the accounting records can be changed in the cases of further
construction, further equipping, renovation, modernization, par-
tial retirement and revaluation of the fixed assets.
Renovation costs of fixed assets are included at actual costs
and are reflected in the reporting period in which they were
incurred.
The “Capital expenditures in progress” line includes the costs
of construction and installation works, acquisition of buildings,
plants and equipment (including equipment requiring assembly)
and other tangible durable assets, materials for the construction
of fixed assets, and other capital works and expenses. This line
reflects the cost of capital facilities before they are commis-
sioned or decided to be sold, after which these assets are trans-
ferred into fixed assets, income-yielding investments in tangible
assets or other non-current assets.
Fixed assets intended for lease are reflected in the “Income
yielding investments into tangible assets” line.
OTHER NON-CURRENT ASSETS
Other non-current assets include asset retirement obligations,
costs of implementing the exploration and production sharing
agreement, and construction-in-progress items to be disposed of
upon the decision of the management.
FINANCIAL INVESTMENTS
Financial investments are recognized for accounting purposes at
historical cost.
Financial investments defining the current market value are re-
flected in the financial statements as of the end of the reporting
year at current market value by adjusting their valuation as at the
previous reporting date.
Financial investments for which the current market value cannot
be measured are recorded in the financial statements as of the
reporting date at historical cost less less the amount of the pro-
vision made for their impairment. A provision for impairment of
financial investments is created for the amount of the difference
between the carrying value and their estimated value, if the im-
pairment testing results confirm a sustained significant decrease
in the value of these financial investments.
Financial investments are recorded as current assets if their
anticipated holding period does not exceed twelve (12) months
after the reporting date. Other financial investments are recorded
as non-current assets.
Depending on the nature of financial investments and the proce-
dure for their acquisition and use, the accounting unit of financial
investments may be a contribution to the authorized capital, a
loan agreement, bank deposit agreement, a block of securities
issue, etc.
When the financial investments for which the current market
value cannot be determined, their value is formed on the basis of
the valuation determined:
• at the historical value of the first-time purchased financial
assets (FIFO method) upon disposal of shares or bonds;
• at historical value of each accounting unit of financial invest-
ments upon disposal of promissory notes.
When the financial investments for which the current market val-
ue can be determined, their value is determined by the company
on the basis of the last valuation.
Gains and losses from the disposal of financial investments
are recognized in the profit and loss statement as part of other
income and expenses.
MATERIALS AND SUPPLIES INVENTORIES
The “Raw materials and supplies” line of the balance sheet
reflects feedstocks, basic and auxiliary materials, purchased
semi-finished products and components, fuel, packaging materi-
als, spare parts, construction and other materials.
The materials and supplies inventories also include assets that
meet the conditions necessary for them to be recognized as
fixed assets valued at no more than RUB 40 000 per unit.
The materials and supplies inventories are recognized in the
amount of the actual costs of their acquisition, except for value
added tax and other recoverable taxes (except as provided for
by the legislation of the Russian Federation). Inventories are
disposed of at average cost.
The materials and supplies inventories that are obsolete, wholly
or partially have lost their original quality, or whose current mar-
ket value has decreased, are reflected in the balance sheet less
the inventory reserve.
The raw materials and supplies transferred to processing on an
as-needed basis continue to be accounted for in raw materials
and supplies of the Company separately. Every month, the raw
materials and supplies that have passed through all processing
stages are recognized as part of finished products.
FINISHED PRODUCTS, GOODS AND SALES EXPENSES
Finished products are recorded in the balance sheet based
on actual direct costing of production excluding administrative
expenses
When shipping crude 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 to the Company’s profit and loss
account without their distribution between sold and unsold
products.
GOODS SHIPPED
The «goods shipped» balance sheet item reflects the shipped
products with no ownership title that has been passed to the
buyers.
•
This line also shows immovable property that has been trans-
ferred to the buyer under the acceptance and transfer act
before the state registration of the ownership title transfer.
OTHER INVENTORY AND COSTS
The Other inventories and costs line includes expenses associ-
ated with super viscous oil production that were incurred before
commencement of production. These costs are written off evenly
over the period of oil production at the relevant oil field develop-
ment site, but not for more than two (2) years, starting from the
first day of the month following the month oil production starts.
RECEIVABLES
Trade receivable (recognized in the accounts receivable) is
determined on the basis of the prices established by contracts
concluded between the Company and its buyers (customers) tak-
ing into account all discounts (markups). Non-recoverable debt is
written off from the balance sheet as it is recognized as such.
Accounts receivable, which are overdue or would be most likely
outstanding as stipulated by the contract terms as well as not
secured by 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 (solven-
cy) of the debtor and an estimated recoverability of debt 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 reflect-
ed in the profit and loss statement minimized in “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) to be deducted (paid) in accordance with tax
legislation.
CASH AND CASH EQUIVALENTS
As per RAS 23/2011 “Statement of Cash Flows” approved by Or-
der of the Ministry of Finance of Russia No. 11n dated February 2,
2011, 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 changes in value.
The Company qualifies bank deposits placed for a maximum
period of three (3) months as cash equivalents.
In the Statement of Cash Flows:
• balances of cash and cash equivalents in foreign currency at
ny’s cash flows and balances of cash and cash equivalents
in foreign currency at the 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) in the proceeds from
buyers and customers, payments to suppliers and contrac-
tors, and payments to the budget system of the Russian
Federation or refunds therefrom are recognized as balanced
result in the other income (payments) from the current opera-
tions in the line “Other income” (“Other payments”);
• proceeds from compensation for refundable (negative) excise
tax on crude oil and negative excise tax on motor gasoline
and diesel fuel are reflected in a separate sub-line in the line
«Other income»;
• proceeds from the sale of products and goods include cus-
•
toms duties;
interest-free loans granted to subsidiaries and affiliates are
mainly related to the capital investment financing, and there-
fore, based on the principle of rationality, the movement of all
loans issued to subsidiaries and affiliates is reflected in cash
flows from investment activities.
Cash flows are reflected in the statement of cash flows on a net
basis in the following cases:
•
•
•
cash inflows coming from certain entities provide for relevant
cash outflows going to other entities (cash flows of the com-
mission 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 making these pay-
ments 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, cash flows on loans
received by the Company from subsidiaries – participants of
the Treasury system, etc.);
cash flows on short-term deposits (more than three months
but less than one year) that are classified as financial invest-
ments. Cash flows on deposits are disclosed in Note 5 “Fi-
nancial Investments” in the Notes to the balance sheet report
and profit and loss statement.
AUTHORIZED CAPITAL, ADDITIONAL PAID-IN
CAPITAL AND RESERVE CAPITAL
The authorized capital is reflected in the amount of the par value
of ordinary and preferred shares.
Additional paid-in capital of the Company include foreign curren-
cy to ruble translation differences of the assets and liabilities de-
nominated in foreign currencies of an entity used to carry out its
operating activities outside the Russian Federation. In addition,
the «Revaluation of non-current assets» line shows the amount of
additional valuation less subsequent writedowns of fixed assets
as a result of revaluation, attributed to the additional paid-in cap-
ital. The amount of additional valuation when an item of property,
plant and equipment is disposed of is transferred from the addi-
tional paid-in capital to the Company’s retained earnings.
the beginning and at the end of the reporting period are ex-
pressed in rubles in the amount which is determined in accord-
ance with RAS 3/2006 “Accounting for Assets and Liabilities
Denominated in Foreign Currencies” approved by Order of
the Ministry of Finance of Russia No. 154n dated November 27,
2006. Differences arising from the translation of the compa-
In accordance with the legislation, the Company has created
a Reserve Fund in the amount of five (5%) percent of the author-
ized capital, formed out of the Company’s net profit. The Reserve
fund is intended to cover losses of the Company, repay bonds
and buy back the Company’s shares in the event that there are
no other assets available.
308
309
2019 ANNUAL REPORTANNEX 2Significant Aspects of Accounting Policies and Presentation of Information in the Financial StatementsYEARS OF SUSTAINABLE DEVELOPMENT25 tax on motor gasoline and diesel fuel. This excise tax is account-
ed for as a decrease in the cost of sales of the reporting period,
in the line «Cost of sales» of the Statement of profit and loss.
Other expenses include expenses which are not related to the
manufacture and sales of products, completion of work, render-
ing of services, purchase and sale of goods.
The outstanding amount of CGT income tax on the CGT as
a whole, to be paid by the Company as a responsible CTG
member to the budget, is reflected in the Company’s balance
sheet in line 1523 “Taxes and fees payable.”
The overpaid amounts of CGT income tax to the budget is re-
flected in the balance sheet in line 1238 “Other debtors.”
PROFIT TAX ACCOUNTING
The Company has been a responsible member of the consoli-
dated group of taxpayers (hereinafter referred to as the “CGT”)
from January 1, 2012. As of the date of the agreement, the CGT
included four members. Since 2016, the list of CGT participants
has been expanded to five members.
The Company independently generates the accounting informa-
tion on income tax as per RAS 18/02 “Corporate Profit Tax Ac-
counting” approved by Order of the Ministry of Finance of Russia
dated November 19, 2002 No. 114n. In this regard, the temporary
and permanent differences are determined by the Company
based on its revenues and expenses included in the tax base in
accordance with the norms of the Tax Code of the Russian Fed-
eration. 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 cal-
culated by the Company for inclusion in the consolidated tax base
of the CGT and the amount of funds due and payable by the Com-
pany 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 the determination of net income (loss) of the Company without
participating in generating profit (loss) before taxation.
The outstanding amount upon settlements with the CGT mem-
bers on CGT income tax (interim payment) is reflected in the
balance sheet separately in the items of the current assets in
line 1238 “Other debtors” and short-term liabilities in line 1526
“Other creditors” of the balance sheet, respectively.
The Company as a responsible CGT member reflects the in-
come tax assessment and payments to the members under the
contract on CGT establishment with account 78 “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
RECORDS AND FINANCIAL REPORTING
An error identified in accounting records 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 statement of the
Company for the reporting period is a minimum of five percent.
In all other cases, the error is considered insignificant.
ESTIMATED LIABILITIES
The Company recognizes an estimated liability to pay year-
end- performance-based remuneration. The amount of monthly
deductions for the estimated liability is determined based on
the monthly percentage of deductions and the actual amount of
labor costs. The percentage of deductions for the estimated lia-
bility is calculated on the basis of the ratio of the annual planned
amount of year-end performance-based remuneration expenses
to the planned amount of labor costs.
The Company also recognises in its accounting records the esti-
mated liability for vacations not used by employees.
The amount of the estimated liability for unused vacation is de-
termined based on the total number of days of unused vacation
for each employee, average daily earnings and insurance contri-
butions accrued for this amount.
The actual amount of vacation pay (including the amount of
unused vacation compensation) accrued to the employee in the
accounting records is attributed to the recognized amount of the
estimated liability to pay for unused vacation.
calculation parameters (such as forecast inflation rate, discount-
ed rate, discounted period) is recorded according to the proce-
dure set out in the Section III of the Notes.
LOANS AND CREDITS
As per RAS 15/2008 “Accounting of Expenses on loans and
credits” approved by Order of the Ministry of Finance of Russia
No. 107n dated October 6, 2008, the principal amount of the loan
(credit) received from the lender is accounted for in accordance
with the terms of the loan agreement (credit agreement) in the
amount of actually received monetary assets or in the cost esti-
mate of other items stipulated by the contract.
Indebtedness with regard to the received loans and credits, and
outstanding bonds, as well as accrued interest are reflected in
the balance sheet in the “Borrowings” line.
Loan and credit indebtedness, as well as accrued interest is
subdivided in the accounting into short-term indebtedness (with
repayment period that does not exceed 12 months under the
contract terms) and long-term indebtedness (with repayment
period that exceeds 12 months under the contract terms).
As at the last day of each quarter, an inventory of the estimated
liability to pay for unused vacations is done which results in mak-
ing adjustments to the amount of the estimated liability.
The long-term indebtedness is transferred to short-term indebt-
edness at the moment when there are 365 days left before
repayment of the principal amount.
In accordance with the requirements of the regulations (Federal
Law No. 2395-1 “On Subsoil” No. 7-FZ “On Environmental Protec-
tion”, 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 immovable oil and gas
assets. Estimated decommissioning and restoration liabilities
are calculated by groups of oil fields. The estimated liability is
recorded at the present (discounted) cost.
In order to calculate the estimated liability as of December 31,
2019, the Company used the following key assumptions: dis-
count rate – 6,69% (as of December 31, 2018 – 8,75%), inflation
rate – 4,0% (as of December 31, 2018 – 4.21%), discount period –
from 14 to 32 years depending on the field (as of December 31,
2018 – from 15 to 31 years).
Accrued estimated liabilities at initial recognition, as well as the
newly commissioned fixed assets are included in the “Other
non-current assets” line.
Depreciation of assets on decommissioning liabilities is accrued
on a monthly basis in proportion to the oil production output. The
amount of monthly depreciation is determined for each group
of oil fields and Oil & Gas Production Divisions (NGDUs) based
on the amount of oil produced during the current month and the
amount of assets on the decommissioning liabilities attributable
to one (1) tonne of oil reserves for a group of oil fields at the end
of the previous reporting period.
The discount that accrued with increase in the present value as
the estimated liability matures is reflected in the profit and loss
statement in the «Interest payable» line.
Interest on received loans and credits is recognized as other
expenses of that period in which they are accrued, except for the
part to be included in the value of the investment asset.
Expenses on received loans and credits directly attributable to
the acquisition and/or construction of the investment asset are
included in the value of this asset and are repaid through depre-
ciation.
Inclusion of expenses on received loans and credits in the origi-
nal value of the investment asset is terminated on the first day of
the month following the month of termination of the acquisition,
construction and (or) manufacturing of the investment asset, or
the start of using the investment asset.
REVENUE RECOGNITION
Revenue from the sale of goods and products (performance
of work, provision of services) is recognized as the title to the
product is transferred to customers (performance of work,
provision of services to customers). Revenues are reflected in
the accounting statements less value added tax, excise duties
and customs fees.
Other income includes income which is not included in the
revenue: revenue from the sale of fixed assets, construction
in progress assets and other assets, foreign currency, income
from changes in estimates of decommissioning of fixed assets
and restoration of natural resources, exchange differences, and
other similar income.
EXPENSES
Administrative expenses include the Headquarter Office
expenses. At the end of the month the indicated expenses are
fully written off to the debit of account 90 “Sales”, i.e. are fully
recognized in the reporting period without distribution to the
balances of work in progress and finished products.
Adjustment of estimated liabilities for decommissioning of fixed
assets and restoration of natural resources due to revision of key
From January 1, 2019, the Company gets a refund for the «re-
turnable (negative) excise tax» on crude oil and negative excise
310
311
2019 ANNUAL REPORTANNEX 2Significant Aspects of Accounting Policies and Presentation of Information in the Financial StatementsYEARS OF SUSTAINABLE DEVELOPMENT25 Annex 3
Report on Non-Arm’s
Length Transactions Made by
PJSC Tatneft n.a. V. D. Shashin
in 2019
List of Non-arm’s Length Transactions Made by the Company in 2019
List of Non-arm’s Length Transactions
Made by the Company in 2019
Counterparty
Non-arm's length
party
Transaction approval or
ratification date
TANECO Joint Stock
Company
28.01.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Governance body of
the Company which
made the transaction
approval decision
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
TANECO Joint Stock
Company
28.01.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Essential transaction terms
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: distribution transformer
substation (Title 124/39).
Transaction value: 916 037 270 rubles 32
kopecks.
Transaction date: 21.11.2018.
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: feedstock depot of the
aromatics production (Title 028/1).
Transaction value: 799 049 864 rubles
04 kopecks.
Transaction date: 21.11.2018.
TANECO Joint Stock
Company
13.02.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Subject matter of the transaction: conclusion
of the supplementary agreement to the agency
contract with JSC TANECO.
This Report presents a list of transactions made by PJSC
TATNEFT named after V. D. Shashin (hereinafter referred to as
the Company, PJSC TATNEFT) in 2019 that are recognized as
non-arm’s length transactions in accordance with Federal Law
№ 208-FZ of 26.12.1995 «On Joint-Stock Companies».
The parties listed in this Report are recognized as being
interested in making transactions as at the date of transactions.
312
TANECO Joint Stock
Company
21.06.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
TANECO Joint Stock
Company
21.06.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Scope of contract: increase in the amount.
Transaction value: 8 333 333 334 rubles
00 kopecks.
Transaction date: 06.02.2019.
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: CDU-6 plant
(Plant 1007, Section 1102).
Transaction value: 12 066 448 537 rubles
22 kopecks.
Transaction date: 18.06.2019.
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: vacuum distillation unit
of the visbreaker stable cracked residue (Title 012,
Section 3510).
Transaction value: 4 642 642 706 rubles
43 kopecks.
Transaction date: 18.06.2019.
313
2019 ANNUAL REPORTANNEX 3YEARS OF SUSTAINABLE DEVELOPMENT25 List of Non-arm’s Length Transactions Made by the Company in 2019
EXPLANATORY NOTES
The present report is to be published by the Company pursuant
to the Articles 52 and 81 of the Federal Law No. 208-FZ of
26.12.1995 «On Joint-Stock Companies».
The report is 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 report on PJSC TATNEFT’s non-arm’s length transactions
carried out in 2019 is to be signed by the General Director of
the Company and is subject to approval by the Board of Directors
during preparation for the annual general meeting of shareholders.
The accuracy and validity of
the information presented in the report is to be verified by the
Company’s Auditing Committee.
MAJOR TRANSACTIONS IN THE REPORTING YEAR
In 2019, the Company carried out no transactions that the Federal
Law on Joint-Stock Companies No 208-FZ of 26/12/1995 would
treat as major transactions.
Counterparty
Non-arm's length
party
Transaction approval or
ratification date
TANECO Joint Stock
Company
19.07.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Governance body of
the Company which
made the transaction
approval decision
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
TANECO Joint Stock
Company
19.07.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Essential transaction terms
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: sulfolane extractive
distillation unit (Title 011, Section 2500).
Transaction value: 1 204 847 976 rubles
85 kopecks.
Transaction date: 01.08.2019.
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: processing units control
center of deep conversion refinery (Title 092).
Transaction value: 681 108 862 rubles 06
kopecks.
Transaction date: 01.11.2019.
LLC Nizhnekamsk CHP
30.09.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of LLC Nizhnekamsk
CHP
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Subject matter of the transaction: alienation of
PJSC TATNEFT n.a. V.D. Shashin as the additional
contribution to the authorized capital of the
“NIZHNEKAMSK CHP”.
Transaction value: 3 919 454 700 rubles
00 kopecks.
Transaction date: 19.11.2019
TANECO Joint Stock
Company
28.11.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: water unit No. 3 (Title 176/2,
Section 7660).
Transaction value: 1 688 699 000 rubles
00 kopecks.
Transaction date: 12.11.2019.
TANECO Joint Stock
Company
28.11.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: heavy coker gasoil
hydrotreatment unit (Title 008, Section 4200).
TANECO Joint Stock
Company
23.12.2019
PJSC TATNEFT
n.a. V.D. Shashin
as a controller
of JSC TANECO
Board of Directors
of PJSC TATNEFT
n.a. V. D. Shashin
Transaction value: 8 782 698 608 rubles
94 kopecks.
Transaction date: 01.12.2019.
Subject matter of the transaction: purchase and
sale of immovable property.
Immovable property: loading dock section with
a floating botaport (Title 160).
Transaction value: 694 026 387 rubles 17
kopecks.
Transaction date: 06.12.2019
314
315
2019 ANNUAL REPORTANNEX 3YEARS OF SUSTAINABLE DEVELOPMENT25 Annex 4
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Report on Compliance of
PJSC Tatneft N. A. V. D. Shashin
with the Corporate
Governance Code Guidelines
of the Bank of Russia
based on the results of the reporting calendar year 2019
and the end of the corporate year (June 2019 / June 2020)
The present report has been prepared pursuant to the Bank of
Russia’s Regulation on Disclosure by Securities Issuers No 454-P
of 30/12/2014, Chapter 70 and describes how the Company
is compliant with the guidelines of the Corporate Governance
Code of the Bank of Russia (hereinafter the Code) for joint-
stock companies with listed securities. Full text of the Corporate
Governance Code is available at the website of the Bank of
Russia at http://www.cbr.ru/finmarkets/files/ common/letters/2014/
inf_apr_1014.pdf.
The Corporate Governance Code compliance is assessed by
PJSC TATNEFT according to the guidance of the Bank of Russia
provided in its Letter No IN-06-52/8 of 17 February 2016 “On Dis-
closure of the report on compliance with the Corporate Govern-
ance Code guidelines in the annual report of a public joint stock
company”.
This Corporate Governance Compliance Report was considered
by the Board of Directors of PJSC TATNEFT n.a. V.D. Shashin
at the meeting in May 18, 2020. (Minutes No. 4-z dated May 18,
2020) as part of the 2019 Annual report.
The Board of Directors acknowledges that the information and
data disclosed herein contain complete and accurate information
with regard to the PJSC TATNEFT compliance with the guidance
of the Corporate Governance Code in 2019.
The Company’s corporate governance model and practice is set
out in the Corporate Governance Section of this Report.
THE COMPANY SHALL ENSURE EQUAL AND FAIR TREATMENT OF ALL ITS SHAREHOLDERS IN THE COURSE OF EXERCISE
BY THEM OF THEIR RIGHTS TO PARTICIPATE IN THE MANAGEMENT OF THE COMPANY
1.1.
1.1.1.
The Company creates most favour-
able conditions for its shareholders
enabling them to participate in
the general meeting and develop
informed positions on issues on its
agenda, as well as provide them
with the opportunity to coordinate
their actions and express their opin-
ions on issues being discussed.
1.1.2.
Procedures for notification of the
general meeting and provision of
materials for it should enable the
shareholders to get properly pre-
pared for participation therein.
1.1.3. During the preparation for and
holding of the general meeting,
the shareholders could freely and
timely receive information about
the meeting and its materials, pose
questions to members of the com-
pany’s executive bodies and the
board of directors, and communi-
cate with each other.
1.1.4.
There were no unjustified difficul-
ties preventing shareholders from
exercising their right to demand
that a General meeting be con-
vened, nominate candidates to the
company’s governing bodies, and
to place proposals on its agenda.
1.1.5.
Each shareholder could freely exer-
cise their right to vote in a straight-
forward and most convenient way.
1. The Company’s internal document ap-
full compliance
proved by the General meeting of share-
holders and regulating the procedures for
holding the General meeting is publicly
available.
2. The Company provides an accessible
means of communication with the Com-
pany, such as a hotline, e-mail or Internet
forum to allows shareholders to express
their opinions and send their questions
regarding the agenda during preparation
for the General meeting. These actions
were taken by the Company ahead of
each General meeting held during the
reporting period.
1. The notification of the General meeting of
shareholders is posted (published) on the
website on the Internet at least 30 days
before the date of the General meeting.
2. The notification indicates the venue of the
meeting and the documents to be pre-
sented permitting access to the premises.
3. Shareholders have been provided with an
access to the information about who pro-
posed agenda items and who nominated
candidates to the Board of Directors and
the Audit Committee of the Company.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
1. During the reporting period, the share-
full compliance
holders were given the opportunity to ask
questions to the members of the Compa-
ny’s executive bodies and the Board of
Directors before and during the annual
General meeting.
2. The standpoint of the Board of Directors
(including dissenting opinions record-
ed in the minutes) on each item on the
agenda of General meetings held during
the reporting period was included in the
proceedings for the General meeting of
shareholders.
3. The Company provided the eligible
shareholders with an access to the list
of persons entitled to participate in the
General meeting, starting from the date
when it was received by the Company, in
all cases when General meetings were
held in the reporting period.
1. During the reporting period, shareholders
could submit their proposals to be includ-
ed in the agenda of the annual General
meeting within at least 60 days after the
end of the relevant calendar year.
2. In the reporting period, the Company did
not reject any proposals for the agenda
or nominees to the Company’s govern-
ance bodies if there were typos and other
slight insufficiencies in the shareholder’s
proposal.
1. The internal document (internal policy)
of the company contains provisions
according to which each participant of
the General meeting may request a copy
of the completed ballot, certified by the
ballot-counting committee, before the end
of the relevant meeting.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
316
317
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
1.1.6.
1.2.
1.2.1.
Procedures for holding a gener-
al meeting set by the company
provide equal opportunity to all
persons present at the general
meeting to express their opinions
and ask questions that might be of
interest to them.
1. When holding General meetings of
full compliance
partial compliance
noncompliance
shareholders in the form of a meeting
( joint attendance of shareholders) in
the reporting period, sufficient time was
provided to speakers for their presenta-
tions and discussions with regard to the
agenda items.
2. Candidates for the governance and
control bodies of the Company were
available to answer questions asked by
the shareholders at the meeting, at which
their nominations were put to the vote.
3. When making decisions regarding
preparation and holding of the general
meetings of shareholders, the Board of
Directors considered the option of using
telecommunications so that the share-
holders could remotely participate in the
general meetings in the reporting period.
SHAREHOLDERS HAVE EQUAL AND FAIR OPPORTUNITIES TO PARTICIPATE IN THE PROFITS OF THE COMPANY BY MEANS
OF RECEIVING DIVIDENDS
The Company has developed and
put in place a transparent and
clear mechanism for determining
the amount of dividends and their
payment.
1. The Company has developed its dividend
policy that has been approved by the
Board of Directors and disclosed.
2. If the dividend policy of the Compa-
ny uses the Company’s performance
indicators from its accounting reports
to determine the size of dividends, then
relevant provisions of the dividend policy
take into account consolidated figures of
the financial statements.
full compliance
partial compliance
noncompliance
1.2.2. The company does not make a
1. The Company’s dividend policy contains
full compliance
decision to pay dividends if such
decision, while formally compliant
with laws, is unjustified from the
economic point of view and may
lead to misrepresentation of the
company’s performance.
clear indications of financial and economic
circumstances when the Company should
not pay dividends.
partial compliance
noncompliance
1.2.3. The Company does not allow
1. In the reporting period, the Company
full compliance
deterioration of dividend rights of
its existing shareholders.
1.2.4. The Company strives to rule
out any ways through which its
shareholders can obtain any profit
or gain at the Company’s expense
other than dividends and distribu-
tions of its liquidation value.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
did not take any actions that would lead
to deterioration of dividend rights of its
existing shareholders.
2. The history record of dividend payments
reflects the Company’s consistency in
terms of ensuring high level of dividend
yield while maintaining a balance between
short-term (earnings in the form of divi-
dend payouts) and long-term (investment
into the development of the Company)
interests of shareholders.
1. In order to rule out any ways for its share-
holders to obtain any profit or gain at the
company’s expense other than dividends
and distributions of its liquidation value,
the internal documents of the Company
set out controls that ensure timely identi-
fication and approval procedure for trans-
actions with persons affiliated (associated)
with substantial shareholders (persons
who have the right to exercise their voting
shares rights), when the law formally does
not recognize such transactions as non-
arm’s length transactions.
1.3.
1.3.1.
THE SYSTEM AND PRACTICES OF CORPORATE GOVERNANCE ENSURE EQUAL TERMS AND CONDITIONS FOR ALL
SHAREHOLDERS OWNING SHARES OF THE SAME CLASS (CATEGORY) IN THE COMPANY, INCLUDING MINORITY AND FOREIGN
SHAREHOLDERS AS WELL AS THEIR EQUAL TREATMENT BY THE COMPANY
The Company has created con-
ditions, which would enable its
governing bodies and controlling
persons to treat each shareholder
fairly, in particular, which would rule
out the possibility of any abuse
of minority shareholders by major
shareholders.
In the reporting period, the procedures for
managing potential conflict of interest of
substantial shareholders have been effec-
tive, and the conflicts among shareholders,
if they took place, were given sufficient
attention by the Board of Directors.
full compliance
partial compliance
noncompliance
1.3.2. The company does not take any
actions, which will or might result
in artificial reallocation of corporate
control therein.
There were no quasi-treasury shares, nor
did they participate in voting in the reporting
period.
full compliance
partial compliance
noncompliance
The company prevents all actions,
which will or might result in artificial re-
allocation of corporate control therein.
The structure of the shareholder capital
is such that 61 % of voting shares are in
free circulation of minority sharehold-
ers. Total quasi-treasury stock of the
Company makes up minimal 3.47 %
of voting shares, and voting with
this stake cannot significantly affect
the overall voting result. Voting for
candidates for the governance and
control bodies is carried out in equal
proportions between each candidate,
which does not give an advantage to
any candidate. The voluntary nature
of such approach is equivalent of
voluntary renunciation of voting under
quasi-treasury stock in principle. Based
on the above, the Company believes
that in essence, it fully complies with
the requirement not to undertake any
actions that result or may result in
artificial reallocation of control.
The Company regularly considers
various ways of using the financial
instrument of quasi-treasury shares,
This instrument is currently planned to
be worked out thoroughly.
1.4.
1.4.1.
2.1.
2.1.1.
THE SHAREHOLDERS ARE PROVIDED WITH RELIABLE AND EFFICIENT MEANS OF RECORDING THEIR RIGHTS IN SHARES AS WELL
AS WITH THE OPPORTUNITY TO FREELY DISPOSE OF SUCH SHARES IN A NON-ONEROUS MANNER
The shareholders are provided
with reliable and efficient means
of recording their rights in shares
as well as with the opportunity to
freely dispose of such shares in a
non-onerous manner.
1. The quality and reliability of the activities
carried out by the Registrar of the Com-
pany to maintain the register of holders of
securities meet the needs of the Company
and its shareholders.
full compliance
partial compliance
noncompliance
THE BOARD OF DIRECTORS IS IN CHARGE OF STRATEGIC MANAGEMENT OF THE COMPANY, DETERMINE MAJOR PRINCIPLES
OF AND APPROACHES TO CREATION OF A RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM WITHIN THE COMPANY,
MONITOR THE ACTIVITY OF THE COMPANY’S EXECUTIVE BODIES, AND CARRY OUT OTHER KEY FUNCTIONS
The Board of Directors is responsi-
ble for making decisions with regard
to appointments and dismissals of
members of executive bodies, in-
cluding those related to their failure
to properly perform their duties. The
Board of Directors also procures that
the Company’s executive bodies
act in accordance with an approved
development strategy and main
business goals of the Company.
1. The Board of Directors is vested with the
powers embodied in the Articles of Asso-
ciation to appoint, dismiss and determine
the terms of contracts with respect to
members of Executive bodies.
2. The Board of Directors has considered
the progress report of the sole execu-
tive body and members of the collegial
executive body on implementation of the
Company’s strategy.
full compliance
partial compliance
noncompliance
318
319
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
2.1.2. The Board of Directors sets the
Company’s main guidelines and
targets for its business activities
in the long term, evaluates and
approves the Company’s key
performance indicators and main
business goals, as well as evalu-
ates and approves the Company’s
strategy and business plans for its
core business activities.
1. In the reporting period, the Board of
full compliance
Directors addressed the matters related
to implementation and updating of the
strategy, approval of the Company’s
financial and economic plan (budget), as
well as reviewed criteria and performance
indicators (including interim ones) for the
implementation of the Company’s strategy
and business plans.
partial compliance
noncompliance
2.1.3. The Board of Directors defines
1. The Board of Directors defined the
full compliance
the principles and approaches to
setting up of the risk management
and internal control system in the
company.
principles and approaches to setting up of
the risk management and internal control
system in the company.
partial compliance
2. The Board of Directors assessed the
noncompliance
2.1.4. The board of directors defines the
company’s policy on remunera-
tion due to and/or reimbursement
of costs incurred by its board
members, members of its executive
bodies and other key managers.
2.1.5. The Board of Directors plays a key
role in preventing, detecting and
resolving internal conflicts between
the company’s governance bodies,
shareholders and employees.
Company’s risk management and internal
control system during the reporting
period.
1. The Company has developed and put
in place the policy (policies) on remu-
neration due to and/or reimbursement
of costs incurred by its board members,
members of the executive bodies of
the company and other key managers,
which has been approved by the Board
of Directors.
2. During the reporting period, matters
related to this policy (s) were considered
at meetings of the Board of Directors.
1. The Board of Directors plays a key role in
the prevention, detection and resolution
of internal conflicts.
2. The Company has established a system
for identifying transactions related to
conflicts of interest and a set of measures
aimed at resolving such conflicts.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
2.1.6. The Board of Directors plays a key
role in procuring that the company
is transparent, discloses information
in full and in due time, and provides
its shareholders with unhindered
access to its documents.
2.1.7.
The Board of Directors oversees
corporate governance practices in
the company and plays a key role
in significant corporate events of
the company.
1. The Board of Directors has approved the
full compliance
Information Policy Regulation.
2. There are designated persons in the
partial compliance
Company,
who are responsible for implementation
of the information policy.
1. In the reporting period, the Board of
Directors considered the matter of
corporate governance practices in the
Company.
noncompliance
full compliance
partial compliance
noncompliance
2.2.
THE BOARD OF DIRECTORS IS ACCOUNTABLE TO THE SHAREHOLDERS OF THE COMPANY
2.2.1.
Information with regard to the
work of the Board of Directors
is disclosed and provided to the
shareholders.
1. The Annual report of the Company for the
reporting period includes information on
attendance at meetings of the Board of
Directors and committees by individual
directors.
2. The Annual report contains information on
the main results of the Board of Directors’
performance assessment conducted in
the reporting period.
full compliance
partial compliance
noncompliance
2.2.2. The Chairman of the Board of Di-
rectors is available to communicate
with the Company’s shareholders.
1. There is a transparent procedure in place
in the Company that allows the sharehold-
ers direct all their queries to the Chairman
of the Board of Directors as well as their
own points of view thereupon.
full compliance
partial compliance
noncompliance
2.3.
THE BOARD OF DIRECTORS IS AN EFFICIENT AND PROFESSIONAL GOVERNING BODY OF THE COMPANY, WHICH IS ABLE TO
MAKE OBJECTIVE AND INDEPENDENT JUDGEMENTS AND PASS RESOLUTIONS IN THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS
2.3.1. Only persons who have an im-
peccable business and personal
reputation and have knowledge,
skills, and experience necessary to
make decisions that fall within the
jurisdiction of the board of directors
and to perform its functions effi-
ciently are elected to the Board of
Directors.
2.3.2. Members of the Company’s Board
of Directors are elected using a
transparent procedure enabling
the shareholders to obtain the
sufficient information with regard to
respective candidates so that they
could form their opinion of the can-
didates’ personal and professional
qualities.
2.3.3. The composition of the Board of
Directors is well balanced, including
in terms of the qualifications of
its members, their experience,
knowledge and business acumen,
which enjoy the confidence of
shareholders.
1. The Company’s procedure for assessment
of the performance of the Board of Di-
rectors includes, inter alia, evaluating the
professional qualifications of the members
of the Board of Directors.
2. Over the reporting period, the Board of
Directors (or its Nomination Committee)
evaluated candidates for the Board of
Directors in terms of their necessary expe-
rience, knowledge, business reputation,
lack of conflicts of interest, etc.
1. In all general meetings of shareholders held
in the reporting period, where the meeting
agenda items called for the election of the
Board of Directors, the Company furnished
its shareholders with biographical details
of all candidates for the Board of Directors,
results of evaluation of the candidates
performed by the Board of Directors (or its
Nomination Committee), as well as the
information on whether candidates meet
independence criteria as per recommenda-
tions 102–107 of the Code, and the written
consent of the candidates to be elected for
the Board of Directors.
1. In the course of assessment of the Board
of Directors’ performance carried out in
the reporting period, the Board analyzed
its own needs in terms of professional
qualifications, experience and business
skills.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
2.3.4. The membership of the Board of
1. As part of the Board of Directors’ as-
full compliance
Directors of the Company makes it
possible to organize the operation
of the Board of Directors in the
most efficient way, in particular, to
create committees of the Board
of Directors, as well as to enable
substantial minority shareholders of
the Company to elect a candidate to
the Board of Directors for whom they
would vote.
sessment procedure conducted in the
reporting period, the Board of Directors
addressed the matter of whether the num-
ber of members of the Board of Directors
meets the company’s needs and interests
of shareholders.
partial compliance
noncompliance
2.4.
THE BOARD OF DIRECTORS INCLUDES A SUFFICIENT NUMBER OF INDEPENDENT DIRECTORS
1. During the reporting period, all independ-
ent members of the Board of Directors
met all the independence criteria speci-
fied in Recommendations 102–107 of the
Code, or were deemed independent by
the decision of the Board of Directors.
full compliance
partial compliance
noncompliance
2.4.1. A person is qualified as an
independent director, if he/she
has required professional skills,
experience and independence to
form his/her own position, is able to
make objective and bona fide judg-
ments, free from the influence of the
executive bodies of the Company,
certain groups of shareholders
or other stakeholders. However,
it should be noted that, under
normal circumstances, a candidate
(an elected member of the Board of
Directors) may not be deemed to be
independent, if he/she is associ-
ated with the Company, any of its
substantial shareholders, material
counterparties or competitors to the
Company, or connected with the
government.
320
321
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
1. In the reporting period, the Board of
full compliance
2.5.2. The Chairman of the Board ensures
1. The performance of the Chairman of the
full compliance
2.4.2.
It is evaluated whether candidates
nominated to the Board of Directors
meet the independence criteria
as well as it is reviewed, on a
regular basis, whether independent
members of the Board meet the in-
dependence criteria. When carrying
out such evaluation, the content
should prevail over form.
partial compliance
noncompliance
Directors (or the Committee on nomina-
tions of the Board of Directors) made an
opinion on the independence of each
candidate to the Board of Directors and
presented the relevant opinion to the
shareholders.
2. During the reporting period, the Board of
Directors (or the committee on nomina-
tions of the Board of Directors) at least
once examined the independence of the
current members of the Board of Direc-
tors, indicated by the Company as inde-
pendent directors in the 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 ceases to be independent,
including the obligation to promptly inform
the Board of Directors thereof.
2.4.3.
Independent directors account for
at least one third of all the directors
elected to the Board of Directors.
1. Independent directors account for at least
full compliance
one-third
of all the directors elected to the Board of
Directors.
partial compliance
noncompliance
The membership of the Board of Direc-
tors has been composed to balance
and align the interests of minority
and majority shareholders, as well as
the Company itself needed for highly
professional managers to participate
in the Board. The Board of Directors
has three independent directors and
in the future, the Company intends to
increase the number of independent
directors to one third of the Board
membership.
2.4.4.
Independent directors play a
key role in prevention of internal
conflicts in the Company and per-
formance by the latter of material
corporate actions.
1. Independent directors (who have no
full compliance
conflict of interest) preliminarily assess the
material corporate actions associated with
a possible conflict of interests, and the re-
sults of such an assessment are submitted
to the Board of Directors.
partial compliance
noncompliance
2.5.
THE CHAIRMAN OF THE BOARD OF DIRECTORS CONTRIBUTES TO THE MOST EFFICIENT IMPLEMENTATION OF THE FUNCTIONS
ASSIGNED TO THE BOARD OF DIRECTORS
2.5.1. The Board of Directors is chaired
by an independent director, or one
of the independent directors is
appointed as a senior independent
director who coordinates the work
of the independent directors and
liaises with the Chairman of the
Board of directors.
1. The Board of Directors is chaired by an
independent director, or one of the inde-
pendent directors is appointed as a senior
independent director.
2. The role, rights and duties of the Chair-
man of the Board of Directors (and the
senior independent director, if applicable)
are duly determined in the internal docu-
ments of the Company.
full compliance
partial compliance
noncomplianc
Explanation for Item 1: The Chairman of
the Board of Directors is a non-exec-
utive director elected unanimously by
all members of the Board of Directors
as the most competent Board member,
who is a knowledgeable profes-
sional with an impeccable business
and personal reputation, significant
experience in leadership positions,
ensuring increased efficiency of the
Company’s efficiency in the interests
of shareholders.
Currently, based on the position of the
independent directors themselves,
a senior independent director is not
identified among them. All the inde-
pendent directors have equal rights
to interact with the Chairman of the
Board of Directors.
Next corporate year, after election of
the new membership of the Board
of Directors by the Annual General
Meeting of Shareholders following the
results of 2019, the independent di-
rectors will be offered to elect a senior
independent director. The Company
proceeds from the principle of volun-
tariness of the approach.
Item 2: Full compliance.
that Board meetings are held in a
constructive atmosphere and that
any issues on the meeting agenda
are discussed freely. The Chairman
also monitors fulfilment of decisions
made by the Board of directors.
Board of
Directors has been evaluated as part of
the performance evaluation of the Board
of Directors carried out in the reporting
period.
partial compliance
noncompliance
2.5.3. The Chairman of the Board of Di-
rectors takes any and all measures
as may be required to provide the
Board members in a timely manner
with the information required to
make decisions on the agenda
issues.
1. The internal documents of the Company
provide that it is the duty of the Chairman
of Board of Directors to take measures to
provide the Board members with materials
on Board meetings agendas.
full compliance
partial compliance
noncompliance
2.6.
THE BOARD MEMBERS ACT REASONABLY AND IN GOOD FAITH IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS, BEING SUFFICIENTLY INFORMED, WITH DUE CARE AND DILIGENCE
2.6.1. The Board members make deci-
sions considering all available infor-
mation, in the absence of a conflict
of interest, treating shareholders of
the Company equally, and assuming
normal business risks.
full compliance
partial compliance
noncompliance
1. The internal documents of the Company
provide that a member of the Board of
Directors shall notify the Board of Direc-
tors if he/she has a conflict of interest in
respect of any item on the meeting agen-
da of the Board or a Board’s committee
before the beginning of the discussion of
the concerned item.
2. The internal documents of the Company
provide that a Board member shall abstain
from voting on any items in respect of
which he/she has a conflict of interest.
3. The Company has a procedure in place
that allows the Board of Directors to ob-
tain professional consultations on matters
within the scope at the expense of the
Company.
2.6.2. Rights and duties of the Board
1. The Company has approved and pub-
full compliance
members are clearly stated and
documented in the Company’s
internal documents.
lished an internal document that clearly
states the rights and duties of the mem-
bers of the Board of Directors.
2.6.3. The Board members have sufficient
time to perform their duties.
2.6.4. All the Board members have equal
opportunities to access the Com-
pany’s documents and information.
Newly elected Board members are
provided with sufficient information
about the Company and work of
the Board of directors as soon as
practicable.
1. Individual attendance at the meetings of
the Board of Directors and its committees,
as well as time allotted to preparation for
the meetings, were covered in the perfor-
mance evaluation of the Board of Direc-
tors carried out in the reporting period.
2. The internal documents of the Company
provide that members of the Board of
Directors shall notify the Board about
their intention to become a member
of governance bodies in other entities
(besides the Company’s controlled and
subsidiary companies), as well as of such
appointments.
1. The internal documents of the Company
provide that members of the Board of
Directors have the right to have access to
documents and make requests con-
cerning the Company and its controlled
companies, and the executive bodies of
the Company shall provide requested
information and documents.
2. The Company has a formal onboarding
program for newly elected members of
the Board of Directors.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
322
323
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
2.7. MEETINGS OF THE BOARD OF DIRECTORS, PREPARATION FOR THEM, AND PARTICIPATION OF BOARD MEMBERS THEREIN
ENSURE EFFICIENT WORK OF THE BOARD
2.7.1.
The meetings of the Board of Direc-
tors are held as required with due
account of the Company’s scope of
activities and objectives in a certain
period.
2.7.2. The procedure for preparing for
and holding meetings of the Board
of Directors is set out in the Com-
pany’s internal documents, which
enable the members of the Board
of Directors to properly prepare for
the meetings.
2.7.3. The form of a meeting of the Board
of Directors is determined with due
account of importance of issues
on the agenda of the meeting. The
most important issues are decided
at the meetings held in person.
1. The Board of Directors held at least six
meetings during the reporting year.
1. The Company has approved an internal
document that sets out the procedure
for preparing for and holding Board of
Directors meetings, which also stipulates
that the meeting notification should be
made, as a rule, at least 5 days before the
meeting date.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
1. The Articles of Association or internal
full compliance
documents of the Company stipulate that
the most important issues (according to
the list given in Recommendation 168 of
the Code) should be decided at the Board
meetings held in person.
partial compliance
noncompliance
2.7.4. Decisions on the most important
1. The Articles of Association of the Com-
full compliance
issues of the Company are 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.
pany provide that decisions on the most
important issues set out in Recommen-
dation 170 of the Code shall be taken at
a meeting of the Board of directors by a
qualified majority vote of at least three
quarters of the votes or by a majority vote
of all elected Board members.
partial compliance
noncompliance
THE BOARD OF DIRECTORS FORMS COMMITTEES FOR PRELIMINARY CONSIDERATION OF THE MOST IMPORTANT ISSUES
OF THE COMPANY’S BUSINESS
For the purpose of preliminary con-
sideration of any matters of control
over the Company’s financial and
business activities, the Audit Com-
mittee is established and comprised
of independent directors.
full compliance
partial compliance
noncompliance
1. The Board of Directors has set up an Audit
Committee consisting solely of independ-
ent directors.
2. The internal documents of the Company
specify the objectives of the Audit Commit-
tee, including the objectives indicated in
Recommendation 172 of the Code.
3. At least one member of the Audit Com-
mittee, who is an independent director,
has sufficient experience and expertise in
preparation, analysis, evaluation and audit
of accounting (financial) statements.
4. The Audit Committee held meetings at
least once a quarter during the reporting
period.
Explanation for Item 1: The Audit Com-
mittee consists of three independent
directors, one of whom has an experi-
ence and expertise in preparation, anal-
ysis, evaluation and audit of accounting
(financial) statements (Yu. L. Levin,
Committee Chairman).
The Board of Directors decided to
increase the membership of the
Committee by adding a nonexecutive
director who is also experienced and
knowledgeable in preparation, analy-
sis, evaluation and audit of accounting
(financial) statements (R. R. Gaizatullin).
The Company reviews membership of
the Committee on an annual basis.
Compliance with recommendations
of the Bank of Russia Code on the
committee membership exclusively of
independent directors will be possible
after the increased share of independ-
ent directors in the Board of Directors
planned by the Company. (Clarifications
in Item 2.4.3 of this report).
2.8.
2.8.1.
324
2.8.2. For the purpose of preliminary con-
sideration of any matters of devel-
opment of efficient and transparent
remuneration practices, the Remu-
neration Committee is established,
comprised of independent directors
and chaired by an independent
director who is not concurrently the
Chairman of the Board of Directors.
1. The Board of Directors has established a
Remuneration Committee, which consists
solely of independent directors.
2. The Remuneration Committee is chaired
by an independent director who is not the
Chairman of the Board of Directors.
3. The internal documents of the Company
specify the objectives of the Remuneration
Committee, including the objectives indi-
cated in Recommendation 186 of the Code.
full compliance
partial compliance
noncompliance
2.8.3. For the purpose of preliminary
1. The Board of Directors has set up the
full compliance
partial compliance
noncompliance
Clarification for Item 1: The Human
Resources & Remuneration Committee
of the Board of Directors is comprised
of three independent directors and
chaired by the independent director
(R. Steiner).
The Board of Directors decided to
increase the Committee membership
by adding a non-executive director
(R. K. Sabirov). The expansion of the
membership is related to the fact that
the Committee also functions as the
Nominations Committee (for appoint-
ments, human resources).
The Company reviews the member-
ship of the Committee on an annual
basis. Compliance with recommenda-
tions of the Bank of Russia Code on
the committee membership exclu-
sively of independent directors will be
possible after the increased share of
independent directors in the Board of
Directors planned by the Company.
(Clarification in Item 2.4.3 herein).
The objectives of the Nominations
Committee are combined with func-
tions of the HR and Remuneration
Committee.
Nominations Committee (or its functions
indicated in Recommendation 186 of the
Code are delegated to another Commit-
tee), and most of its members are inde-
pendent directors.
2. The internal documents of the Company
specify the objectives of the Nominations
Committee (or another Committee which
performs its functions), including the
objectives indicated in Recommendation
186 of the Code.
1. In the reporting period, the Board of
Directors of the Company has consid-
ered alignment of the membership of
the Board’s committees and corporate
objectives of the Company. Addition-
al committees were either formed, or
deemed not necessary.
consideration of any matters relating
to human resources planning
(making plans regarding successor
directors), professional composition
and efficiency of the Board of Direc-
tors, the Nominations Committee
(appointments, human resources)
is established with a majority of
its members being independent
directors.
2.8.4. Taking account of the scope of
activities and levels of related risks,
the Board of Directors of the Com-
pany has ascertained that its Com-
mittees’ membership is fully in line
with the corporate objectives of the
Company. Either additional com-
mittees were formed, or they were
deemed not necessary (Strategy
Committee, Corporate Governance
Committee, Ethics Committee, Risk
Management Committee, Budget
Committee, Committee on Health,
Security & Environment, etc.)
The Committee has been formed in
the Company Corporate Governance
full compliance
partial compliance
noncompliance
325
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
2.8.5. The composition of the committees
is determined in such a way to pro-
vide a comprehensive discussion
of issues being considered on a
preliminary basis with due account
of differing opinions.
1. The Committees of the Board of Directors
are headed by independent directors.
2. The internal documents (policies) of the
Company include the provisions accord-
ing to which persons not being members
of the Audit Committee, Nominations
Committee and the HR & Remuneration
Committee may attend the meetings of
the Committees upon the invitation of the
respective Chairman only.
full compliance
partial compliance
noncompliance
Clarification for Item 1:
The Company adheres to the interpre-
tation of the Bank of Russia Code that
Audit, Remuneration and Nominations
Committees are mandatory for public
companies, the requirements for these
committees are clearly stated in the
Corporate Governance Code, and the
Company follows them.
Corporate Governance Committee is
not a mandatory body of the Board of
Directors, and the Code’s restriction
on the number of independent direc-
tors (at least three) creates a conflict
of participation whereby the same
directors may be members in different
committees, which can undermine the
quality of their contribution to the work
of committees.
Therefore, the Company is of the
opinion that the membership of the
Corporate Governance Committee
and its Chairman (N. U. Maganov) do
not contradict the recommendations
of the Bank of Russia Code on the
composition of the Committee, and
taking into account qualifications and
evaluating the effectiveness of mem-
bers of the Committee, the composi-
tion of the Committee is in line with its
goals and provides opportunities for a
comprehensive and balanced discus-
sion of the issues under consideration,
taking into account different opinions.
2.8.6. The chairmen of the Committees
report on the work of their Commit-
tees to the Board of Directors and
the Chairman on a regular basis.
1. During the reporting period, Chairmen of
the Committees regularly reported on the
work of the Committees to the Board of
Directors.
full compliance
partial compliance
noncompliance
2.9.
THE BOARD OF DIRECTORS PROVIDES FOR PERFORMANCE EVALUATION OF THE BOARD OF DIRECTORS, ITS COMMITTEES
AND MEMBERS OF THE BOARD
2.9.1. Performance evaluation of the
Board of directors is aimed at de-
termining how effectively the Board
of directors, its Committees and
Board members work and whether
their work meets the company
development requirements, as
well as at making their work more
intensive and identifying areas of
improvement.
1. Self-evaluation or external evaluation
of the Board of Directors performance
conducted in the reporting period included
evaluation of the work of Committees, indi-
vidual members of the Board of Directors
and the Board as a whole.
2. The results of self-evaluation or external
evaluation of the Board of Directors con-
ducted in the reporting period were consid-
ered at a physical meeting of the Board.
full compliance
partial compliance
noncompliance
2.9.2. Performance evaluation of the
1. For the purposes of independent
full compliance
performance evaluation of the Board of
Directors, during the last three reporting
periods the Company has at least once
engaged the third party entity (consultant).
partial compliance
noncompliance
Board of directors, the Committees
and Board members, is carried
out regularly, at least once a year.
To carry out an independent
evaluation of the Board of directors’
performance, the third party entity
(consultant) is engaged on a regular
basis, at least once every three
years.
Performance of the Board of Directors
is evaluated on a regular basis once
a year, the evaluation is based on
formalized self-evaluation system and
the results are further considered by
the Audit Committee and Corporate
Governance Committee with the
involvement of
independent directors.
The self-evaluation system is based
on the methods similar to the RAEX
(Expert RA) methodology adopted
since 01.06.2014.
The results are disclosed in the annual
report and are available to the share-
holders and all stakeholders.
The Company has not engaged a third
party entity for performance evaluation
of the Board of Directors for the last
three years on the basis of reasonable
grounds associated with qualitative
changes in the Company (develop-
ment, approval and implementation of
the corporate Long-term Strategy) and
positive financial results and produc-
tion performance.
The Company considers an independ-
ent evaluation with the involvement of
a third party entity (consultant) within
the next three-year period.
THE COMPANY’S CORPORATE SECRETARY ENSURES EFFECTIVE INTERACTION WITH ITS SHAREHOLDERS, COORDINATION
OF THE COMPANY’S ACTIONS TO PROTECT THE RIGHTS AND INTERESTS OF THE SHAREHOLDERS, AND SUPPORT OF EFFICIENT
WORK OF ITS BOARD OF DIRECTORS
3.1.
3.1.1.
The corporate secretary has the
knowledge, experience, and qualifi-
cations sufficient to fulfill the duties
assigned, as well as an impeccable
reputation and enjoys the trust of
the shareholders.
3.1.2. The corporate secretary is suffi-
ciently independent of the Com-
pany’s executive bodies and be
vested with powers and resources
required to perform his/her tasks.
1. The Company has adopted and disclosed
an internal document — the Regulation on
Corporate Secretary.
2. The Company’s website and the annual
report provide biographical information
of the corporate secretary, with the same
degree of detail as for the members of
the Board of Directors and the executive
management of the Company.
1. The Board of Directors approves the
appointment, removal from office and
additional fee of the corporate secretary.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
326
327
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
4.1.
4.1.1.
THE LEVEL OF REMUNERATION PAID BY THE COMPANY IS ADEQUATE TO ENABLE IT TO ATTRACT, MOTIVATE, AND RETAIN
PERSONS HAVING REQUIRED SKILLS AND QUALIFICATIONS. THE REMUNERATION DUE TO THE MEMBERS OF THE BOARD
OF DIRECTORS, THE EXECUTIVE BODIES, AND OTHER KEY MANAGERS OF THE COMPANY IS AID IN ACCORDANCE WITH
A REMUNERATION POLICY APPROVED BY THE COMPANY
1. The Company has approved an internal
full compliance
document (documents) — policy (policies)
on remuneration for the members of the
Board of Directors, executive bodies
and other key managers, which clearly
describes (describe) the remuneration
framework.
partial compliance
noncompliance
The level of remuneration paid
by the Company to its Board
members, executive bodies, and
other key managers is adequate to
motivate them to work efficiently
and enable the Company to attract
and retain knowledgeable, skilled,
and duly qualified persons. The
Company avoids setting the level
of remuneration any higher than
necessary, as well as an excessive-
ly large gap between the level of
remuneration of any of the above
persons and that of the Company’s
employees.
4.1.2. The Company’s remuneration
policy is developed by its Remu-
neration Committee and approved
by the Board of Directors. With
the help of the Remuneration
Committee, the Board of Directors
monitors implementation of and
compliance with the remuneration
policy by the Company and, if nec-
essary, reviews and amends it.
1. In the reporting period, the Remuneration
Committee reviewed the remuneration
policy (policies) and its (their) implemen-
tation practices, and, where necessary,
provided relevant recommendations to
the Board of Directors.
full compliance
partial compliance
noncompliance
4.1.3.
4.1.4.
The Company’s remuneration pol-
icy provides for transparent mech-
anisms to be used to determine
the amount of remuneration due to
members of the Board of Directors,
the executive bodies, and other
key managers of the Company, as
well as regulates any and all types
of payments, benefits, and privileg-
es provided to the above persons.
1. The Company’s remuneration policy (pol-
icies) provides (provide) for transparent
mechanisms to be used to determine the
amount of remuneration due to members
of the Board of Directors, the executive
bodies, and other key managers of the
Company, as well as regulates (regulate)
any and all types of payments, benefits,
and privileges provided to the above
persons.
full compliance
partial compliance
noncompliance
The Company develops a policy
on reimbursement of expenses
(compensation) which contains a
list of reimbursable expenses and
specifies service level provided to
members of the Board of Directors,
the executive bodies, and other
key managers of the Company.
Such policy can form part of the
Company’s policy on remuneration.
1. The remuneration policy (policies) or
full compliance
other internal documents of the Company
set out the rules for reimbursement of
expenses to the members of the Board of
Directors, the executive bodies, and other
key managers of the Company.
partial compliance
noncompliance
4.2.
THE SYSTEM OF REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS ENSURES HARMONIZATION OF FINANCIAL
INTERESTS OF THE DIRECTORS WITH LONG-TERM FINANCIAL INTERESTS OF THE SHAREHOLDERS
1. The fixed annual remuneration was the
only monetary remuneration for the
members of the Board of Directors for
their work on the Board of Directors in the
reporting period.
full compliance
partial compliance
noncompliance
4.2.1. The Company pays fixed annual
remuneration to the members of
the Board of Directors.
The Company doesn’t pay remu-
neration for participation in certain
Board meetings or the Board’s
committees’ meetings.
The Company doesn’t engage
methods of short-term motivation
and additional financial incentives
towards members of the Board of
Directors.
4.2.2. Long-term ownership of the
1. If the internal document (documents) —
full compliance
Company’s shares contributes
most to aligning financial interests
of the members of the Board of
Directors with long-term interests
of the shareholders. However, the
Company doesn’t make the right
to dispose of shares dependent on
the achievement by the Company
of certain performance results; and
members of the Board of Direstors
don’t take part in the option plans.
remuneration policy (policies) of the Com-
pany stipulate provision of shares of the
Company to the members of the Board
of Directors, there should be provisions
and clear rules for share ownership by
members of the Board of Directors aimed
at incentivizing long-term ownership of
such shares.
partial compliance
noncompliance
4.2.3. The Company doesn’t provide
for any additional allowance or
compensation in the event of early
resignation of the Board members
due to change of control over the
Company or other circumstances.
1. The Company doesn’t provide for any
full compliance
additional allowance or compensation in
the event of early resignation of the Board
members due to change of control over
the Company or other circumstances.
partial compliance
noncompliance
4.3.
THE SYSTEM OF REMUNERATION DUE TO MEMBERS OF THE EXECUTIVE BODIES AND OTHER KEY MANAGERS OF THE COMPANY
PROVIDES THAT THEIR REMUNERATION IS DEPENDENT ON THE COMPANY’S PERFORMANCE RESULTS AND THEIR PERSONAL
CONTRIBUTIONS TO THE ACHIEVEMENT THEREOF
4.3.1. Remuneration due to members of
1. In the reporting period, annual perfor-
full compliance
partial compliance
noncompliance
the executive bodies and other
key managers of the Company is
determined in such a way as to
procure a reasonable and justified
ratio between its fixed part and its
variable part that is dependent on
the Company’s performance results
and employees’ personal (individu-
al) contributions to the achievement
thereof.
mance indicators approved by the Board
of Directors were used to determine the
variable remuneration due to members of
the executive bodies and other key manag-
ers of the Company.
2. In the course of the last evaluation of the
system of remuneration due to members of
the executive bodies and other key manag-
ers of the Company, the Board of Directors
(the Remuneration Committee) assured
that the Company applies effective ratio of
fixed and variable parts of remuneration.
3. The Company provides for a procedures
that ensure that bonuses received by
members of the executive bodies and oth-
er key managers illegitimately are returned
back to the Company.
4.3.2. The Companies has put in place
1. The Companies has put in place a long-
full compliance
a long-term incentive programme
for members of the Company’s
executive bodies and other key
managers involving the Compa-
ny’s shares (or options or other
derivative financial instruments the
underlying assets for which are the
Company’s shares).
4.3.3. The amount of severance pay (so-
called «golden parachute») payable
by the Company in the event of
early dismissal of a member of
the executive body or other key
manager at the initiative of the
Company, provided that there have
been no bad faith actions on the
part of such person, doesn’t exceed
two times the fixed part of their
annual remuneration.
term incentive programme for members of
the Company’s executive bodies and oth-
er key managers involving the Company’s
shares (or options or other derivative fi-
nancial instruments the underlying assets
for which are the Company’s shares).
2. The long-term incentive programme for
members of the Company’s executive
bodies and other key managers provides
that the right to sell the shares or other
financial instruments provided under the
programme arises no earlier than in three
years from the date when they were pro-
vided. At the same time, the right to sell
the same is conditioned by the achieve-
ment of certain targets by the Company.
1. The amount of severance pay (so-called
«golden parachute») payable by the
Company in the event of early dismissal
of a member of the executive body or
other key manager at the initiative of the
Company, provided that there have been
no bad faith actions on the part of such
person, didn’t exceed two times the fixed
part of their annual remuneration.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
328
329
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
THE COMPANY HAS IN PLACE AN EFFICIENT RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM DESIGNED TO PROVIDE
REASONABLE CONFIDENCE THAT THE COMPANY’S GOALS WILL BE ACHIEVED
5.1.
5.1.1.
The Board of Directors has
determined the principles and
approaches to creation of the risk
management and internal controls
system in the Company.
5.1.2. The Company’s executive bodies
ensure the establishment and
continuing operation of the efficient
risk management and internal con-
trol system in the Company.
1. The functions of different governance
bodies and divisions of the Company
in the risk management and internal
control system are clearly defined in the
internal documents/relevant policies of
the Company, approved by the Board of
Directors.
1. The executive bodies of the Company
ensured distribution of functions and
powers in respect of risk management
and internal control among the managers
(heads) of divisions and departments
accountable to them.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
5.1.3. The Company’s risk management
1. The Company has an approved policy on
full compliance
and internal control system enables
one to obtain an objective, fair and
clear view of the current condition
and prospects of the Company,
integrity and transparency of its
accounts and reports, and reason-
ableness and acceptability of risks
being assumed by the Company.
combating corruption.
2. The Company has in place a usable
partial compliance
method (hotline) for informing the Board
of Directors or the Audit Committee of
the Board of Directors of any breaches of
legislation, internal procedures and the
ethics code of the Company.
noncompliance
5.1.4. The Board of Directors takes
required and sufficient measures
to procure that the existing risk
management and internal control
system of the Company is con-
sistent with the principles of and
approaches to its creation as set
forth by the Board of Directors and
that it operates efficiently.
1. In the reporting period, the Board of
Directors or the Audit Committee of
the Board of Directors conducted an
evaluation of the risk management and
internal control system of the Company.
The evaluation results are included in the
annual report of the Company.
full compliance
partial compliance
noncompliance
5.2.
FOR THE PURPOSES OF REGULAR INDEPENDENT EVALUATION OF RELIABILITY AND EFFICIENCY OF THE RISK MANAGEMENT
AND INTERNAL CONTROL SYSTEM, AS WELL AS CORPORATE GOVERNANCE PRACTICES, THE COMPANY ARRANGES FOR
INTERNAL AUDIT
5.2.1. The Company has a separate
1. For the purposes of internal audit, the
full compliance
structural division (internal audit
department) or an independent
third-party entity is engaged to carry
out internal audit of the Company.
The internal audit department has
separate lines of functional and
administrative reporting. Function-
ally, the internal audit department
is accountable to the Board of
Directors.
Company created a separate structural
division (internal audit department), which
is functionally accountable to the Board
of Directors or the Audit Committee, or an
independent third-party entity is engaged
with the same accountability principle.
partial compliance
noncompliance
5.2.2. The internal audit department
1. In the reporting period, the efficiency of
full compliance
evaluates efficiency of the inter-
nal control system and the risk
management system, as well as
evaluate corporate governance.
The Company applies generally ac-
cepted standards of internal audit.
the internal control and risk management
system was evaluated, as part of the
internal audit.
partial compliance
2. The Company applies commonly accept-
noncompliance
ed approaches to the internal control and
risk management.
6.1.
THE COMPANY AND ITS ACTIVITIES ARE TRANSPARENT TO SHAREHOLDERS, INVESTORS AND OTHER STAKEHOLDERS
6.1.1.
The Company developed and
implemented an information policy
ensuring efficient exchange of
information between the Company,
shareholders, investors, and other
stakeholders.
1. The Board of Directors of the Compa-
full compliance
ny has approved an information policy
aligned with the recommendations of the
Code.
2. The Board of Directors (or one of its Com-
mittees) considered issues related to the
Company’s compliance with its informa-
tion policy at least once in the reporting
period.
partial compliance
noncompliance
6.1.2. The Company discloses information
on its corporate governance system
and practices, including detailed
information on 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 Com-
pany, including the information disclosed
on the Company’s Internet website.
full compliance
partial compliance
noncompliance
2. The Company discloses information about
membership of the executive bodies and
the Board of Directors, independence
of the members of the Board and their
membership in the Board’s Committees
(as defined in the Code).
3. In the event there is a person who con-
trols the Company, the Company publish-
es a memorandum of the controlling per-
son regarding the plans of such person
in respect of the corporate governance in
the Company.
6.2.
THE COMPANY DISCLOSES, ON A TIMELY BASIS, FULL, UPDATED AND RELIABLE INFORMATION ABOUT ITSELF SO AS TO ENABLE
ITS SHAREHOLDERS AND INVESTORS TO MAKE INFORMED DECISIONS
6.2.1. The Company discloses information
1. The Company’s information policy
full compliance
in accordance with the principles
of regularity, consistency and
timeliness, as well as accessibility,
reliability, completeness and com-
parability of disclosed data
6.2.2. The Company avoids a formalistic
approach to information disclosure
and discloses material information
on its activities, even if disclosure
of such information is not required
by law.
identifies the approaches and criteria for
identifying information that can have a
significant impact on the Company’s val-
uation and the value of its securities and
procedures that ensure timely disclosure
of such information.
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 hold a significant
number of Company’s shares, then infor-
mation disclosed during the reporting year
was not only in Russian, but also in one of
the most common foreign languages.
1. In the reporting period, the Company dis-
closed annual and semi-annual financial
statements prepared under IFRS stand-
ards. The annual report of the Company
for the reporting period includes annual
financial statements prepared under IFRS
and an auditor’s report.
2. The Company discloses full information
on the structure of the Company’s capital
in compliance with the Recommendation
290 of the Code in the annual report and
in the corporate website.
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
6.2.3. The annual report, as one of the
1. The annual report of the Company
full compliance
most important tools of information
exchange with the shareholders
and other stakeholders, contains
the information enabling one to
evaluate the Company’s perfor-
mance results for the year.
contains information on key aspects of
the Company’s operation and its financial
results.
2. The annual report of the Company con-
tains information on environmental and
social aspects of the Company’s activities.
partial compliance
noncompliance
6.3.
THE COMPANY PROVIDES INFORMATION AND DOCUMENTS REQUESTED BY ITS SHAREHOLDERS IN ACCORDANCE WITH
THE PRINCIPLE OF EQUAL AND UNHINDERED ACCESSIBILITY
6.3.1. The Company provides information
and documents requested by its
shareholders in accordance with
the principle of equal and unhin-
dered accessibility.
1. The information policy of the Company
defines an unhindered procedure for
providing the shareholders with access
to information, including information on
entities controlled by the Company, at the
request of the shareholders.
full compliance
partial compliance
noncompliance
330
331
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
Item
No.
Corporate
Governance
Principle
Compliance Assessment Criteria
Corporate Governance Principle
Status of compliance
with the corporate
governance principle
Explanations for deviations from the
criteria for assessing compliance with
the corporate governance principle
6.3.2. When providing information to
its shareholders, the Company
maintains a reasonable balance
between the interests of indi-
vidual shareholders and its own
interests related to the fact that the
Company is interested in keeping
confidential sensitive business
information that might have a mate-
rial impact on its competitiveness.
1. In the reporting period, the Company
full compliance
didn’t refuse to satisfy the shareholders’
requests for information, or such refusals
were justified.
2. In the events specified in the information
policy of the Company, shareholders are
advised of the confidential nature of the
information and assume the obligation to
maintain its confidentiality.
partial compliance
noncompliance
7.1.
ANY ACTIONS, WHICH AFFECT OR MAY MATERIALLY AFFECT THE COMPANY’S SHARE CAPITAL STRUCTURE AND FINANCIAL
POSITION OF THE COMPANY AND, ACCORDINGLY, THE POSITION OF ITS SHAREHOLDERS (“MATERIAL CORPORATE ACTIONS”)
ARE TAKEN ON FAIR TERMS AND CONDITIONS ENSURING THAT THE RIGHTS AND INTERESTS OF THE SHAREHOLDERS AS WELL
AS OTHER STAKEHOLDERS ARE OBSERVED
7.1.1. Material corporate actions are
1. The Company’s Articles of Association
full compliance
partial compliance
noncompliance
deemed to include reorganization
of the Company, acquisition of 30
or more percent of its voting shares
(takeover), entering by the Compa-
ny into any material transactions,
increasing or decreasing its share
capital, listing and delisting of its
shares, as well as other actions
which can result in material chang-
es in rights of its shareholders or
violation of their interests. The
Company’s Articles of Association
provides for a list of (criteria for
identifying) transactions or other
actions falling within the category
of material corporate actions and
provide therein that decisions on
any such actions fall within the
jurisdiction of the Company’s Board
of Directors.
provides for a list of transactions or other
actions falling within the category of mate-
rial corporate actions and criteria for their
identifying. Decisions on material cor-
porate actions fall within the jurisdiction
of the Company’s 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 recom-
mendations to the shareholders.
2. Reorganization of the Company,
acquisition of 30 or more percent of
voting shares of the Company (takeover),
entering by the Company into any major
transactions or other material transac-
tions, increasing or decreasing its share
capital, as well as listing and delisting of
its shares are recognized in the Articles of
Association of the Company as material
corporate actions.
7.1.2.
The Board of Directors plays a
key role in passing resolutions or
making recommendations relating
to material corporate actions, the
Board of Directors relies on opin-
ions of the Company’s independent
directors
1. The Company has provided for a proce-
full compliance
dure whereby the independent directors
declare their opinion on any material
corporate actions prior to their approval.
partial compliance
noncompliance
1. The Articles of Association of the Com-
pany, taking into account the specifics of
its activities, sets lower, than legislatively
stipulated, criteria for recognizing transac-
tions as material corporate actions.
2. In the reporting period, all material cor-
porate actions went through the approval
procedure prior to their implementation.
full compliance
partial compliance
noncompliance
7.1.3. When taking any material corporate
actions which affect rights and
legitimate interests of the Com-
pany’s shareholders, equal terms
and conditions are ensured for all
of the shareholders; if statutory
mechanisms designed to protect
the shareholder rights prove to be
insufficient for that purpose, addi-
tional measures are taken with a
view to protecting the rights and le-
gitimate interests of the Company’s
shareholders. In such instances, the
Company seeks not only to comply
with the formal requirements of law
but also is guided by the principles
of corporate governance set out in
the Code.
THE COMPANY HAS IN PLACE SUCH A PROCEDURE FOR TAKING ANY MATERIAL CORPORATE ACTIONS THAT ENABLES ITS
SHAREHOLDERS TO RECEIVE FULL INFORMATION ABOUT SUCH ACTIONS IN DUE TIME AND INFLUENCE THEM, AND THAT ALSO
GUARANTEES THAT THE SHAREHOLDER RIGHTS ARE OBSERVED AND DULY PROTECTED IN THE COURSE OF TAKING SUCH ACTIONS
7.2.
7.2.1.
full compliance
partial compliance
noncompliance
full compliance
partial compliance
noncompliance
Information on the performance
of material corporate actions is
disclosed with explanations con-
cerning reasons for, conditions and
consequences of such actions.
1. In the reporting period, the Company
disclosed information about material
corporate action in a timely manner and in
detail, including grounds and timescale of
such actions.
7.2.2. Rules and procedures in relation
to material corporate actions taken
by the Company are set out in its
internal documents.
1. The internal documents of the Company
provide for a procedure for engaging an
independent appraiser to determine the
value of property disposed or acquired
pursuant to a major transaction or a non-
arm’s length transaction.
2. The internal documents of the Company
provide for a procedure for engaging an
independent appraiser to evaluate the
cost of acquisition and buyback of the
Company’s stock.
3. The internal documents of the Company
provide for an extensive list of grounds
for recognizing members of the Board
of Directors or other persons as stated
in respective laws as interested in the
Company’s transactions.
332
333
2019 ANNUAL REPORTANNEX 4YEARS OF SUSTAINABLE DEVELOPMENT25 Annex 5
Principal risks
Risk description
STRATEGIC RISK
The implementation of the Company’s Development Strategy and the
achievement of operational and financial results depends on multiple factors,
which include changes in the energy markets, international and domestic
policies, macroeconomics, agreements between OPEC and other oil
producers, legal and tax regulations, the development of technologies and
information resources, the dynamics of the labor market as well as various
other factors.
COUNTRY AND FOREIGN POLICY RISKS
The Company is registered in the Russian Federation, where a significant
part of its assets is located. Principal production activities are carried out
in the Republic of Tatarstan, which is a constituent entity of the Russian
Federation. The political situation in the Russian Federation and, in particular,
in the Republic of Tatarstan is stable.
At the same time, a number of international organizations, commercial,
nongovernmental organizations publish their country ratings based risks,
including political ones. In such ratings, the Russian Federation may be
classified as a country with increased risks that investors should take into
account when investing their funds in the country’s economy and securities
of Russian issuers, such as the Company.
U.S. and EU sanctions
Since 2014, the United States, the European Union, and a number of other
countries have consistently imposed sanctions on the Russian Federation,
including sectoral sanctions affecting the activities of individual companies in
the energy and other sectors of the Russian economy.
These sanctions, including their unpredictability, increase the country risk of
the Russian Federation.
Company’s risk management practice
The Company implements the Development Strategy for the period of up
to 2030, formed on the basis of a detailed analysis of the combination of
all key factors, which may affect the development of the Company and the
achievement of the planned results. Decisions of the Company’s manage-
ment bodies related to the strategic and current planning and operational
activities are based on all available information related to possible develop-
ment scenarios and tend to consider all reasonably foreseeable variations
and assumptions used in such planning.
The Company has a high-quality assets structure and a high-tech foun-
dation, which it is continuously improving in accordance with production
goals, including the development of import-substituting technologies and
equipment.
The Company has a stable management platform for implementation of the
Strategy and adjusts its plans as and when required.
The Company’s investments are protected by the relevant Risk Control Map.
The Company implements a policy of vertical integration and diversification,
which allows to significantly reduce (eliminate) strategic risks, including criti-
cal risks through redistribution of resources and commodity flows.
The Company adheres to the opinion that the situation in the region of prin-
cipal activities and location of key assets of the Group as a whole is stable.
Rating agencies assess the creditworthiness of a country using their own
methodologies.
During 2018, the credit ratings of the Russian Federation assigned by such
international agencies as Standard & Poor’s, Moody’s, and Fitch were at
BBB-, Baa3(was increased in February 2019), and BBB (was increased in Au-
gust 2019), respectively. These credit ratings are used by investors to assess
the risks associated with investing in assets in the Russian Federation.
In its activities, the Company takes into account and monitors the existing
sanctions to minimize the adverse effects and consequences (considering
the potential expansion of sanctions, i.e. various initiatives in the United
States to strengthen the sanction regime against the Russian Federation),
which might have a selective impact on the Company’s highly potential
projects.
To reduce the risks related to the availability of technologies and equipment
subject to sanctions, the Company consistently implements the program
of import substitution and development of its own technologies with the
localization of equipment production in the Russian Federation and the
engagement of advanced industry research centers.
FINANCIAL RISKS
Company’s activities are exposed to various financial risks: market risks
(including currency, interest rate, and price risks), credit risks, and the
liquidity risk.
The Company’s financial risk management policy is focuses on risk measure-
ment, assessment, and monitoring procedures as well as on the selection of
appropriate risk management techniques.
For details on financial risks, including those related to the banking segment within TATNEFT Group, see the IFRS Consolidated Financial Statements, Note 28: Financial Risk Management.
CHANGES IN LEGISLATION AND REGULATORY ENVIRONMENT
The Company’s performance may be significantly impacted by changes in
the applicable legislation, such as:
• tax legislation (in terms of changes in taxation procedure and tax rates
both for legal entities and for companies whose activities are related to
production and sale of gas and liquid hydrocarbons);
• currency legislation (in terms of regulation of export-import operations and
The Company conducts continuous monitoring of changes taking place
in legislation, evaluates and forecasts the extent of their impact on the
activities of the Group entities. The Company participates on a regular basis
in working groups to develop draft laws in various areas of legislation that
meet the requirements of the Company’s interests, evaluates consequences
of such changes and accounts for in its plans.
borrowing activities);
• customs regulation (in terms of regulating the export of liquid hydrocar-
bons and their processed products);
• subsoil use licensing
334
335
252019 ANNUAL REPORTANNEX 5YEARS OF SUSTAINABLE DEVELOPMENT Company’s risk management practice
Risk description
Company’s risk management practice
Risk description
LITIGATION RISKS
The company may be involved as a defendant or plaintiff in multiple legal
proceedings that arise out of normal business activities.
In carrying out financial and economic activities, the Company adheres to
the principle of prudence. As of the date of approval of the Annual Report,
the Company was not involved in any significant litigation, and the risks
associated are negligible
INDUSTRY RISKS
Oil price risk, oil and petroleum products demand risk
Business efficiency and profitability largely depend on oil and oil products
price as well as on the demand for oil and oil products. Recently, oil and oil
product prices have shown significant volatility due to multiple factors.
COVID-19
Since the end of 2019, the spread of a new coronavirus infection started
which was called COVID-19, and can cause serious consequences leading
to death. As of the end of 2019, the World Health Organization reported
a limited number of cases of COVID-19 infection but in January 31, 2020
declared a public health emergency, and on March 13, 2020 announced a
pandemic due to the rapid spread of COVID-19 in Europe and other regions.
Measures taken globally to combat the spread of COVID-19 lead to the need
to limit business activity which affects the demand for energy resources and
other products of the Group, as well as to the need for preventive measures
aimed at preventing the spread of infection. Amid the spread of COVID-19,
there has been a significant drop in stock markets, decline in commodity
prices, in particular, significant drop in oil prices, and the Russian ruble
weakening against the US dollar and Euro. Despite the fact that, at the time
of releasing this report, the situation is still progressing, it appeares that a
negative impact on the global economy and the uncertainty regarding further
economic growth may negatively affect the issuer’s financial position and
financial results going forward.
Technical and technological risks
Exploration, development, and equipping of new fields, keeping the existing
wells up and running, drilling new wells as well as crude oil treatment,
transportation, oil and gas refining are extremely complex and expensive
process. Enhanced oil recovery requires extra costs which is very crucial
for the Company. In the future, as fields go depleted, the role of ad hoc
approach for enhanced oil recovery will be growing.
The Company has launched a development of a new area - petrochemical
industry business.
Concurrently, the Company is developing the banking segment.
As a whole, the economic efficiency of all business lines of the Company
will largely depend on the Company’s ability to use the most productive and
affordable technologies, including information technologies.
The Company performs continuous monitoring and analysis on the dynamics
of prices and demand for oil and oil products.
The Company’s model of strategic and current planning provides for ap-
propriate adjustments. Planning is based on a scenario approach, including
variability based on market forecasts.
The Company has the internal potential to redistribute commodity flows in
the event of a significant price difference between domestic and internation-
al markets, demand for crude oil and oil products, and the ability to reduce
or rebalance capital and operating costs in order to fulfill its obligations in
the event of a sharp decline in oil, gas, and oil product prices.
The Company analyzes the risks of prices and demand for oil and oil prod-
ucts based on modeling various scenarios.
In terms of demand for oil and oil products, the Company believes that the
alternative energy will be able to replace significantly oil and oil products in
the medium-term perspective. Regardless of the development of alternative
sources of energy and a potential increase in the number of electric vehi-
cles, the demand for oil and oil products will continue to grow (largely due to
the emerging markets). Therefore, the Company does not expect any signifi-
cant negative changes in the industry in terms of the demand structure.
Any short-term risks related to changes in oil and oil products prices that
could affect the financial performance of the Company are disclosed in the
financial (accounting) statements.
The management of PJSC TATNEFT closely monitors the situation and imple-
ments steps to reduce the negative impact of these events on the company,
with that the excess of demand over supply and the associated reduction in
global oil prices will directly affect the revenue and other financial indicators
if prices do not recover.
The Company pays special attention to development and application of
cutting-edge technologies in all areas of its business being one of the
innovative leaders in Russia, and develops its own research and production
base, interacts with advanced industry research centers.
Target focus is the technologies required to implement the strategy, effec-
tive investment in R&D, and pilot developments.
The Company is actively developing IT infrastructure based on the new-gen-
eration single information platform of production management, which
integrates information flows of all services at all stages of the value chain.
The Company plans to implement a series of IT projects by 2021, which will
increase the efficiency of business processes.
Transportation
As the majority of oil production regions in Russia are located far from the
main oil and oil product markets, oil companies are dependent on the maturity
of transport infrastructure, securing its continuous functioning as well as on
opportunity to access them. The Company transports a significant part of
the crude oil, which it sells in foreign and domestic markets, via the network
of major pipelines under contracts with PJSC Transneft and its subsidiary
structures. A significant part of the oil transported via the pipeline is headed
to seaports to be transported by sea. Russian sea terminals have certain
limitations due to geographic location, weather conditions, and throughout
capacity. Within Russia, oil products are transported mainly by rail road.
The railway infrastructure in the Russian Federation is owned and overseen
by JSC Russian Railways. Both Transneft and Russian Railways are joint
stock companies partially owned by the government, the above companies
belong to the natural monopolies sector, their tariff policy is governed by the
government authorities to ensure a balance of the interests of the government
and of all parties involved in the transportation process. The Federal
Antimonopoly Service of the Russian Federation (FAS of Russia) sets the tariffs
for natural monopolies. The Tariff rate depends on the route of transportation,
size of shipment, distance to destination, and several other factors. FAS of
Russia reviews tariffs at least once a year.
Industry risks of production and environmental safety
The Company and TATNEFT Group enterprises operate complex process
systems and facilities for production, treatment, transportation, and refining
of oil and gas some of which are classified as especially hazardous
production facilities.
The oil and gas sector of the economy is extremely exposed to industrial and
environmental risks, which entail the threat of injury, potentially pose danger
to life, health and potentially may cause fine sanctions, etc.
The Company’s activities lead to greenhouse gas emissions both during
production process and consumption of its products
The region of the Company’s principal activities is not remote in terms of
transportation and other infrastructures.
The Company monitors closely the development and maintenance of the
transport infrastructure required to deliver oil and oil products to buyers, as
well as it monitors the tariff policy, and participates actively in the relevant
industrial discussions and initiatives.
The company has a large tank farm for storing commercial stocks of oil and
oil products which can be also used during extraordinary disruptions in the
operation of the transport infrastructure.
The Company has developed a comprehensive program aimed at mitigating
negative situations associated with industry production and environmental
risks. The Company continuously implements new technical and organi-
zational activities to minimize the impact of such risks. Also. the Company
provides liability insurance for several facilities.
The Company is committed to becoming a leader in industrial, labor, and
environmental safety of production, minimizing the impact on the envi-
ronment, including the impact on the climate. Comprehensive actions in
this area have resulted in the reduced environmental footprint to the level
where there is a potential for ecosystems to self-recover. To improve the
efficiency of industrial and environmental safety management, TATNEFT
Group is currently introducing the management system in compliance with
the latest-generation of international standards ISO 14001-2015 and ISO
45001:2018.
The Company shares global climate change concerns and the “Climate
Care” Strategic Global Partnership initiative, the UN Global Compact and the
secretariat of the United Nations Framework Convention on Climate Change
(UNFCCC), as enshrined in the Paris Climate Agreement. The company con-
sistently and comprehensively adheres to initiatives related to the climate
aspects and reduction of greenhouse gas emissions, and also takes an
active part in the discussion and implementation of steps relating to regula-
tion of greenhouse gas emissions at the national and international levels. In
order to ensure reduction of greenhouse gas emissions and carbon footprint
reduction, the Company provides management decisions on the develop-
ment of a corporate system for accounting and managing greenhouse gas
emissions, plans target values to reduce total greenhouse gas emissions
and takes relevant measures to ensure meeting these target values. In its
long-term strategic planning, the Company is considering the possibility
of scenarios for transition of the global energy system to decarbonization,
expansion of low-carbon fuels use and, in general, to a low-carbon global
infrastructure.
336
337
252019 ANNUAL REPORTANNEX 5YEARS OF SUSTAINABLE DEVELOPMENT Risk description
Company’s risk management practice
RISK OF DAMAGE TO BUSINESS REPUTATION (REPUTATIONAL RISK) RELATED TO THE QUALITY OF PRODUCTS AND SERVICES
Perception of Company’s products consumers regarding the quality of its
products and services impacts the amount of sales and profitability of the
relevant business segment.
GEOGRAPHICAL AND NATURE-RELATED ASPECTS
Geographical and natural features of the region of the Company’s principal
activities are not characterized by factors that can have a significant adverse
impact on the normal production activities and plans implementation. At the
same time, there is a potential risk of the impact of these aspects on the
production and economic activities of the Company.
Improving the quality of interaction and establishing long-term relations with
consumers is one of the priorities in creating a competitive advantage of the
Company based on the quality control system, high level services as well as
by raising consumers’ information awareness.
While interacting with consumers of products and services, the Company
adheres to the UN guidelines for protection of consumers’ interests and the
International Covenant on Economic, Social, and Cultural Rights.
Quality of products and services
The Company strictly controls compliance with all regulatory requirements
governing the quality of products and services.
Safety of products and services
At all life-cycle stages of the offered products and services, the Company as-
sesses their impact on health and safety in order to identify opportunities for
improvement and takes a set of measures to minimize any negative impact
of the products and services provided on the environment. Protection of
consumer health and safety includes the provision of products and services
that are safe and do not pose an unacceptable risk of harm when used
or consumed. The Company adheres to a high level of quality and safety
standards.
Information sharing
The Company consistently updates its customers and counterparties about
its activities by publications and press releases on the Internet, in the mass
media as well as via social media and mobile applications.
Feedback
The Company has a hotline.
Procedures have been adopted and are in place to promptly respond to
complaints and claims received via the hotline in order to address their
causes.
Fair and responsible marketing practices
The Company uses only fair marketing practices and protects consumers
from unfair or misleading advertising or labeling. The Company’s activities in
promoting its products and services, advertising, and marketing comply with
the legislation of the Russian Federation.
When planning its activities, the Company takes into account the geograph-
ical, including climatic, features of the operation region. In the event of neg-
ative consequences for the Company’s activities that may be caused by nat-
ural disasters, such as floods, earthquakes, mudflows, hurricane winds, etc.,
the Company has approved procedures and policies aimed at the prompt
elimination of such consequences and, in case of emergency, to reduce the
impact of such situations on the life, health, and safety of employees and
residents living in operation regions as well as on the production activities of
the Company.
There are monitoring procedures in place in which latest technical means
are used with the aim of preventing the possibility of adverse consequences
of natural phenomena and informing the population of the region where the
Company carries out its operations about the possibility of such conse-
quences.
338
339
252019 ANNUAL REPORTANNEX 5YEARS OF SUSTAINABLE DEVELOPMENT Annex 6
Register of the mandatorily
dislosed information
by PJSC Tatneft in 2019
№
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Content of Notice
Disclosure date
Notice of Disclosure of the List of Affiliated Entities Owned by the
Joint Stock Company on the Web Site.
Notice of Essential Fact "Holding the issuer’s Board of Directors’
Meeting (Supervisory Board) and its agenda"
10.01.2019, 01.04.2019, 01.07.2019, 02.10.2019
21.01.2019, 06.02.2019, 20.02.2019, 15.03.2019, 19.04.2019, 14.05.2019,
13.06.2019, 12.07.2019, 29.07.2019, 19.08.2019, 23.09.2019, 17.10.2019,
05.11.2019, 21.11.2019,16.12.2019
Notice On the Access Procedure to the Information Contained in the
Quarterly Statement.
07.02.2019, 14.05.2019, 09.08.2019, 12.11.2019
Notice on the Essential Fact “Certain Decisions Made by the Issuer's
Board of Directors (Supervisory Board)”
28.01.2019, 13.02.2019, 27.02.2019, 23.03.2019, 26.04.2019, 22.05.2019,
21.06.2019, 19.07.2019, 05.08.2019, 26.08.2019, 30.09.2019, 24.10.2019,
14.11.2019, 28.11.2019, 23.12.2019
Notice on the Essential Fact “Convening and Holding the General
Meeting of the Issuer’s Participants (shareholders)”
27.02.2019, 05.08.2019, 13.11.2019
Notice on the Essential Fact “The Date on Which Persons Entitled to
Exercise the Rights on Issued Securities Are Determined”
Notification of a Essential fact on information forwarded or provided
by the issuer to the relevant authority (relevant organization) of a for-
eign country, to foreign stock exchange and (or) other organizations
in compliance with foreign law for the purpose of their disclosure or
forwarding to foreign investors in connection with the placement or
circulation of the issuer's securities outside the Russian Federation
27.02.2019, 05.08.2019, 25.06.2019, 16.09.2019, 13.11.2019,23.12.2019
23.01.2019, 28.06.2019
Notice on Disclosure of the Annual Accounting Statement of the Joint
Stock Company on The Web Site
27.03.2019
Notice of the essential fact on the issuer's disclosure of consolidated
financial statements as well as on providing an audit report prepared
for such statements
29.03.2019
Notice on the access procedure to the insider information contained
in the issuer’s document (disclosure of the Joint Stock Company’s
interim accounting report on the Web Site).
Notice on the issuer's disclosure on the Web Site of the interim (quar-
terly) consolidated financial statements prepared in compliance with
the International Financial Reporting Standards
30.04.2019, 30.07.2019, 30.10.2019
07.06.2019, 28.08.2019, 29.11.2019
Notice On the Essential Fact “Other Notice”
07.05.2019
Notice on the essential fact “Holding the general meeting of partici-
pants (shareholders) of the issuer and the decisions made”
25.06.2019, 16.09.2019,23.12.2019
Notice on the essential fact “Accrued Income on Equity Securities”
25.06.2019, 16.09.2019,17.12.2019, 23.12.2019
Notice on the Access Procedure to the Information Contained In the
Annual Report
25.06.20198
Notice on the Essential Fact “Rating Change or Rating Assignment to
the Issuer by a Rating Agency Based on the Signed Agreement”
13.02.2019
Notice on the essential fact “Paid Income on the Issuer's Equity
Securities”
13.02.2019, 09.08.2019, 01.11.2019
Notice on the essential fact “The Non-Arm’s Length Transaction
Completed by the Issuer”
18.06.2019
Notice on the Essential Fact "Adopting a Decision About Restruc-
turing by Organization Controlled by the Issuer Which is of the Vital
Importance to the Issuer”
Notice of the Essential Fact “Making Entries Into the Unified Legal
Entities State Register about Reorganization, Termination of Business
or Liquidation of Organization that Controls the Issuer, Organization
Under Control to the Issuer That is of a Major Importance to the Issu-
er or of an Entity That Provided Security for the Bonds of this Issuer”
11.09.2019 (Bank ZENIT), 11.09.2019 (Bank “Devon-Credit”)
18.09.2019, 15.11.2019 (Банк ЗЕНИТ), 18.09.2019, 15.11.2019
(Bank “Devon-Credit”)
Notice of the Essential Fact “change in the share size of a member of
the issuer's management body in the issuer's authorized capital
01.10.2019
Notice of the Essential Fact “Changing (Adjusting) the Information
Contained in a Previously Published News Feed”
03.10.2019
340
341
252019 ANNUAL REPORTANNEX 6YEARS OF SUSTAINABLE DEVELOPMENT №
23.
24.
25.
26.
27.
28.
29.
30.
31.
Content of Notice
Disclosure date
Notice of the Essential Fact “Stages of the Issuer’s Securities Issu-
ance Procedure”:
- Making a decision on approval of the bond program;
- Assignment of identification number to the stock exchange
program or commercial bond program;
- assignment of identification number to the issuance (additional
issuance)
Notice of the Essential Fact “acquisition by a joint-stock company
of more than 20 percent of the voting shares of another joint-stock
company”
Notice of the Essential Fact “Obtaining by the Issuer the Right to
Dispose of a Certain Number of Votes Attributable to Voting Shares
(Stakes) Constituting the Authorized Capital of Individual Organiza-
tion
24.10.2019
09.12.2019
20.12.2019
05.11.2019
05.11.2019
Notice of the Essential Fact “Information that, in the issuer's opinion,
has a significant impact on the value of its equity securities”
11.12.2019 (2 notices)
Notice of the Essential Fact about approval of a document contain-
ing the terms of a separate issue of bonds placed under the bond
program
13.12.2019
Notification of the procedure to access insider information contained
in the issuer’s document
- The program of exchange-traded bonds (001Р series of PJSC
TATNEFT named after V.D. Shashin) for documentary interest-bearing
and/or discounted non-convertible to the bearer with mandatory
centralized storage
- Prospectus of securities of PJSC TATNEFT named after V.D.
Shashin. Identification number of the Program of exchange-traded
bonds (001Р series of PJSC TATNEFT named after V.D. Shashin
4-00161-A-001R-02E dated December 09, 2019) of documentary
interest-bearing and/or discounted non-convertible to bearer with
mandatory centralized storage.
- The terms of issuing exchange-traded bonds under the Program of
exchange-traded bonds (of 001Р series of PJSC TATNEFT named af-
ter V.D. Shashin) of documentary interest-bearing and/or discounted
non-convertible to bearer with mandatory centralized storage.
- Publication of the Securities Program 4-00161-A-001R-02E of
December 9, 2019, and the Bonds Program 4-00161-A-001R-02E of
December 9, 2012
- Publication of the Terms and Conditions of Issuing the Ex-
change-Traded Bonds (Series 001P of PJSC Tatneft V.D. Shashin.)
under the Program of Exchange-Traded Bonds of Documentary
Interest Bearing and/or Discount Non-Convertible to the Bearer with
Mandatory Centralized Storage
13.12.2019
23.12.2019
13.12.2019
23.12.2019
Information on the placement (securities placement commencement
and completion)
17.12.2019
Notice of the Essential Fact “Inclusion of the Issuer's Equity Securities
In the List of Securities Admitted to the Organized Trading by the
Russian Securities Trade Market Operator.
20.12.2019
32.
Notice of the essential fact “Completion of the Securities Placement” 24.12.2019
BY INTERNATIONAL STANDARDS (IN THE FORM OF PRESS RELEASES AND PUBLICATION OF STATEMENTS ACCORDING
TO THE LONDON STOCK EXCHANGE RULES)
Publication of the 2018 annual consolidated financial reporting in
accordance with IFRS.
29.03.2019
Publication of the three-months 2019 consolidated interim concise
financial reporting in accordance with IFRS (non-audited).
07.06.2019
Publication of the six-months 2019 consolidated interim concise
financial reporting in accordance with IFRS (non-audited).
28.08.2019
Publication of the nine-months 2019 consolidated interim concise
financial reporting in accordance with IFRS (non-audited).
30.11.2019
1.
2.
3.
4.
342
343
252019 ANNUAL REPORTANNEX 6YEARS OF SUSTAINABLE DEVELOPMENT Annex 7
On the Annual Report and
the underlying regulatory
documents constituting the
framework for this annual
report
The Annual Report of TATNEFT Company (this report) is
prepared for the period from January 1 to December 31, 2019,
and includes the operating results of the Company and its
subsidiaries, collectively referred to as TATNEFT Group (Group).
The designations of “PJSC TATNEFT”, “TATNEFT Group”,
“Group”, “TATNEFT”, “Company”, “we” and “our” used in the
text of this Annual Report, are considered equivalent and refer
to the Group TATNEFT as a whole, PJSC TATNEFT and/or its
subsidiaries, as the context requires. PJSC TATNEFT is the
parent company of the Group and for this Report provides the
consolidated information on operating and financial activities in
key business segments and activities.
This Annual Report is based on the Consolidated Financial
Statements of the Company for 2019, formed in accordance
with the International Financial Reporting Standards and the
audit report of the independent auditor, which together are an
integral part of this Annual Report, as well as on the Company’s
Management of the financial status and performance results.
The Annual Report is prepared with the elements of integrated
reporting, which allows to reflect the priority areas of activities,
production, financial, economic, environmental and social results
in direct correlation. The Company adheres to the principle that
the effective and sustainable business development is possible
only based on maintaining the balance between these aspects.
The preparation practice of the Annual Report includes the
establishment of an ad hoc Working Group (it includes senior
managers and specialists of the Company), the formation of
internal regulatory documents for the preparation and analysis of
information for the report, interaction with stakeholders. In order
to ensure the accuracy of the information, the Annual Report is
submitted for approval to the responsible departments.
The Annual Report of the Public Joint-Stock Company TATNEFT
for 2019 was tentatively approved by the PJSC TATNEFT Board
of Directors, Minutes No. 4-z of May 18, 2020.
The reliability of the data presented in the Annual Report is
confirmed by the Revision Commission.
Unless otherwise indicated, the figures given in this report are
indicated in Russian Rubles.
The report contains links to web-site TATNEFT.com, individual
documents and resources for the convenience of readers.
This report is available at TATNEFT.com in the electronic form,
as well as in hard copies at the offices of the Company in
Almetyevsk, Moscow and Kazan.
The key communication objective
of the Annual Report is to create
the most complete understanding
among the stakeholders of the
Company’s activities and strategic
plans, as well as the potential for
their realization, results achieved,
and the measures taken to improve
the effectiveness of the business
model, taking into account aspects
of sustainable development.
344
345
252019 ANNUAL REPORTANNEX 7YEARS OF SUSTAINABLE DEVELOPMENT The Annual Report of the Company is compiled in accordance
with the requirements of the following documents:
• Federal Law No. 39-FZ of April 22, 1996 “On the Securities
Market”;
In order to reflect the Company’s actions to ensure the principles
of the UN Global Compact, the G20/OECD Guidelines for
Corporate Governance, the implementation of the UN Sustainable
Development Goals, the corporate responsibility policy in the ESG
aspects, the content of the Annual Report takes into account the
following documents and Guidelines:
In order to reflect the Company’s position in the corporate policy
and actions related to climate issues, the Annual Report takes into
account the following international initiatives and platforms:
• Paris Climate Agreement;
• Federal Law No. 208-FZ of December 26, 1995 “On Joint-
Stock Companies”;
• United Nations Global Compact Principles;
• Climate Initiative Platform of International Petroleum Industry
Environmental Conservation Association (IPIECA);
• Regulations “On Disclosure of Information by Issuers of the
Issued Securities”, approved by the Order of the Bank of
Russia No. 454-P dated December 30, 2014;
• Bank of Russia Regulations N660-P of November 16, 2018
• Organization for Economic Co-operation and Development
(OECD) Guidelines for Multinational Enterprises;
• SDG Compass;
«On General Meetings of Shareholders»;
• UN Guiding Principles on Business and Human Rights;
• The Corporate Governance Code recommended for the use
by the Letter of the Bank of Russia No.06-52/2463 dated
April 10, 2014;
• Tripartite Declaration of the International Labour Organization
(ILO) Principles concerning Multinational Enterprises and
Social Policy;
• The Letter of the Bank of Russia “On Reporting on
•
ISO 26000 Guidance on Social Responsibility;
Compliance with the principles and recommendations of
the Corporate Governance Code by Public Joint-Stock
Companies in annual reporting” No. IN-06-52/8 dated
February 17, 2016;
• The Information Letter of the Bank of Russia “On
Recommendations on the Disclosure in Annual Reports of a
Public Joint-Stock Company of Information on Remuneration
to Members of the Board of Directors (Supervisory Board),
Members of Executive Bodies and other Key Executives
by Public Joint-Stock Companies” No. IN-06–28/57dated
December 11, 2017.
• GRI Sustainability Reporting Guide;
• AA1000 Series of Standards developed by the International
Institute for Social and Ethical Reporting (AccountAbility);
• Provisions of the Social Charter of Russian Business; 10)
Basic performance indicators. Recommendations on the
use in the management practice and in corporate non-
financial reporting of the Russian Union of Industrialists and
Entrepreneurs (RSPP).
• Climate Oil and Gas industry Initiative (OGCI);
• Recommendations for companies to disclose the financial
risks associated with global climate change. (The FSB Task
Force on Climate-related Financial Disclosures — TCFD).
While preparing the Annual Report, the elements of the
Integrated Reporting Standard of the International Integrated
Reporting Council (IIRC) have been used; published studies and
recommendations in the corporate reporting.
This report contains forward-looking statements regarding
the financial condition, operating and performance results
of TATNEFT Group. Such statements include, but are not
limited to, the plans, objectives, and forecasts for production,
including those related to the volume of products and
services, economic and financial indicators, information
about projected or expected income, profit (loss), net profit
(loss) in respect of stocks, dividends, capital structure,
other indicators and ratios, as well as statements regarding
the premises on which our statements are based. All
statements, other than statements of historical facts, are
or may be considered as forecast statements. Forward-
looking statements are statements of future expectations
that are based on the management’s current expectations
and assumptions and include known and unknown risks and
uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied
in these statements. Forward-looking statements include,
among other things, statements regarding the Company’s
potential exposure to market risks and statements
expressing the expectations, beliefs, estimates, forecasts,
projections and assumptions. These statements are
accompanied by the words “expected”, “intends”, “planned”,
“will”, “seeks”, “predicted”, “predicted”, “ambition” and other
similar expressions.
Forward-looking statements in relation to the future are
subject to uncertainties, assumptions and inherent risks,
both of a general nature and specific to the business.
There is a risk that future actual results may differ materially
from plans, goals, expectations, estimates and intentions
expressed in such statements or may not be realized due to
a number of different factors of economic, financial, political,
social, legal aspects that are outside of the Company’s
control, including factors that may affect future operations
of the Company. (See “Risk Factors” further in the Annual
Report.) Forward- looking statements cannot be the basis
for making investment decisions. Each forward-looking
statement corresponds only to the date of this report.
Neither the Company nor any of its subsidiaries undertakes
any obligation to publicly update or revise any forward-
looking statements as a result of new information, future
events or other information. With the exception of financial
statements, errors may occur in the text of the report when
calculating shares, percent, and amounts when rounding
calculated indicators. The data presented in this report may
slightly differ from previously published data due to the
difference in rounded figures.
346
347
252019 ANNUAL REPORTANNEX 7YEARS OF SUSTAINABLE DEVELOPMENT List of acronyms
Public Joint Stock Company TATNEFT named after V.D.
Shashin throughout the text of the Report is referred to as PJSC
TATNEFT, TATNEFT, the Company
BIA
ABS
AGFS
ASPI
AB
FFS
AIS
JSC
БВУ
ZBG
BMZ
VOIR
FEA
GMPS
GMS
GIBDD
SCNS
HS
GOST
HEI
RBS
CC
BPS
CHC
CYSS
UBS
EU
UIAS
Business Idea Auction
Automated Banking System
Autogas Fueling Station
Almetyevsk State Petroleum Institute
Anode Bed
Fuel Filling Station
Automated Information System
Joint Stock Company
BVMB Basin Water Management Board
ZENIT Banking Group
Bugulma Mechanical Plant (a structural subdivision
of TATNEFT)
All-Russian Society of Inventors and Innovators
VEB Vnesheconombank
Foreign Economic Activity
Group Metering Pump Station
Group Metering Station
State Traffic Safety Inspectorate
State Complex Nature Sanctuary
Horizontal Settler
National State Standard Frac Formation Hydraulic
Fracturing F&L Fuel & Lubricants
IS
IT
CB
CIS
KFU
CSR
HRS
CDW
MGPP
MICEX
IPS
MPP
MTBR
SME
EOR
MPP
Information System
Information Technology
Corporate Business
Corporate Information System PPS Pad Pumping Station
Kazan (Volga Region) Federal University
Corporate Social Responsibility
Horse-racing School
Corporate Data Warehouse
Minnibayevo Gas Processing Plant
Moscow Interbank Currency Exchange
International Payment Systems
Metal-Plastic Pipes
Mean Time Between Repair
Small and Medium Enterprises
Enhanced Oil Recovery
Multiphase Pump
EMERCOM
of Russia The Ministry of the Russian Federation for Civil
Defense, Emergencies, and Elimination of Consequences
of Natural Disasters NGDU Oil and Gas Field Operating
Division (a structural subdivision of TATNEFT)
MRRT
VAT
Mineral Resource Recovery Tax
Value Added Tax
Hydraulic Engineering Installations
NSSCTF
Nizhnekamsk Solid Steel Cord Tire Factory
Remote Banking Services
Community Center
Booster Pumping Station
Children’s Holiday Camp
Children’s and Youth Sports School
Unified Biometric System
European Union
Unified Identification and Authentication System
UNECE
United Nations Economic Commission for Europe
Reinforced Concrete Tank
Closed Joint Stock Company
Investment Business
Discounted Profitability Index
RCT
CJSC
IB
DPI
348
R&D
OR & PP
OPU
NPCS
STC
LLC
NCA
PO
PDC
P&IDC
Research and Development Tubing
Oil Well Tubing ITA Intangible assets
Oil Refining and Petrochemical Plants Refinery
Oil Refinery
Oil Processing Unit
National Payment Card System
Science and Technology Center PCC Petrochemical
Complex
Limited Liability Company
Nature Conservation Area
Pilot Operations
Production Dual Completion
Production and Injection Dual Completion IDC Injection
Dual Completion
DC
SEZ
MPC
APG
RPM
PCP
PS
CD
VSST
RIA
SCS
RYSO
RT
RF
REC
SVO
CPS
CGS
SES
Dual Completion
Special Economic Zone
Maximum Permissible Concentration
Associated Petroleum Gas
Reservoir Pressure Maintenance
Polymer Coated Pipes
Power Substation
Chain Drive RB Retail Business
Vertical Stainless Steel Tank
Result of Intellectual Activities
Settlement and Cash Services
Regional Youth Social Organization
the Republic of Tatarstan
the Russian Federation
Russian Export Center
Super Viscous Oil
Cathodic Protection Station
Corporate Governance Standard
Secondary Education School
EDMS
Electronic Document Management System
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
Initial Water Separation Unit
for RPM Process Fluid Treatment Facility for Reservoir
Pressure Maintenance (a subsidiary of TATNEFT)
TH
TTH
TS
FEC
TPP
DCU
MC
LHVR
HSOTF
OTF
PWSU
PFTF
SRU
UTNGP
Ind
PRF
Individuals
Payroll Fund
AS-tires
All-Steel Tires
PSC
PTC
CDH
NPV
NII
NGL
EIC
EXIAR
ECU
AUM (Assets
Under Manage-
ment)
Processing and Storage Center
Personnel Training Center
Central District Hospital
Net Present Value NFI Net Fee Income
Net Interest Income
Natural Gas Liquids
Electrical Insulating Connection
Export Insurance Agency of Russia
Electronic Corporate University
Assets Under Management
APEX (capital
expenditure)
Capital expenses, one-time costs for the acquisition of
physical assets for the business
CIR
The indicator that characterizes the degree of risk of
a bank is defined as the amount of created reserves
for credit losses (risk) divided by the size of the loan
portfolio.
(Cost/Income Ratio) An indicator that reflects the
business efficiency. Calculated as the ratio of expenses
(operating expenses) of the bank for the reporting period
and operating profit (operating income) and expressed
as a percentage.
COR (Сost of
Risk)
The indicator, which characterizes the degree of risk of
the bank, is defined as the amount of provisions for cred-
it losses (risk) divided by the loan portfolio amount.
CRM
ROE
Customer Relationship Management E-Commerce (Elec-
tronic Commerce) RAROC PRIVATE BANKING (Risk-Ad-
justed Return on Capital) Risk-adjusted return on capital
of the bank.
(Return on Equity) Return on authorized capital of the
bank. Calculated as the ratio of profit of the bank after
tax as of the reporting date and the average value of the
balance sheet capital for the relevant period
OPEX (operation-
al expenditure)
Operating expenses incurred by the company in the
course of its day-to-day continuous operations to ensure
its functioning
Sulfur Recovery Unit
PB
private banking
TATNEFTEGAZPERERABOTKA Division (structural subdi-
vision of TATNEFT)
TCO (Total Cost
of Ownership)
Total cost of IT-systems ownership
349
252019 ANNUAL REPORTANNEX 7YEARS OF SUSTAINABLE DEVELOPMENT 350
351
252019 ANNUAL REPORTANNEX 7YEARS OF SUSTAINABLE DEVELOPMENT Contact information
Holding Company “Public Joint Stock Company TATNEFT named
after V.D. Shashin (hereinafter referred to as the Company)
was established pursuant to the Decree of the President of
the Republic of Tatarstan “On Measures for transformation of
the state-owned enterprises, entities, and amalgamations into
jointstock companies” dated 26.09.1992 No.UP-466 and the Law
of the Republic of Tatarstan “On transformation of the national
and communal properties in the Republic of Tatarstan
(denationalization and privatization)”. The Company
was established in June 1994 for an indefinite period.
The Company was registered with the Republic of
Tatarstan Ministry of Finance (Registration No. 632
dated January 21, 1994). The Company’s activity is
focused on a profit-making goal.
PUBLIC JOINT STOCK
COMPANY TATNEFT
ABBREVIATED NAME:
PJSC TATNEFT HEAD
OFFICE:
75, Lenin Street, Almetyevsk, 425450, Republic of Tatarstan,
Russian Federation Phone: +7 (8553) 30-75-68
REPRESENTATIVE OFFICE IN MOSCOW:
17, Tverskoy Boulevard, Moscow, 123104 Russian Federation,
Phone: +7 (495) 937-55-78
REPRESENTATIVE OFFICE IN KAZAN:
Russian Federation, Republic of Tatarstan 71, Karl Marx Street,
Kazan Phone: +7 (843) 533-83-12
FOR SHAREHOLDERS:
Corporate Secretary Office Phone: +7 (8553) 37-61-01
AUDITOR OF COMPANY’S FINANCIAL STATEMENTS
ACCORDING TO RUSSIAN AND INTERNATIONAL
STANDARDS
Joint-Stock Company “PriceWaterhouseCoopers Audit” Belaya
Ploshchad Business Centre, 10, Butyrskiy Val Street, Moscow,
125047, Russian Federation Phone: +7 (495) 967-60-00
COMPANY’S REGISTRAR:
LLC Euro-Asian Registrar 10, Mira Street, Almetyevsk,
423450 Republic of Tatarstan, Russian Federation,
Phone: +7 (8553) 22-10-88
COMPANY WEB-SITE:
tatneft.com
REPORT RELEASE MONTH AND YEAR:
May 2020
REPORT CONCEPT:
Dorpeko N.E.- training coordination annual report
REPORT PREPARATION WORKING GROUP
Gaifullina R.R.
Gamirov D.M.
Ganiyev B.G.
Karpov V.A
Kurochkin D.V.
Matveev O.M.
Mukhamadeev R.N.
Salahov I.I.
Syubayev N.Z.
Khalimov R.H.
Khisamov R.S.
Sharagina O.A.
DESIGN AND PRINTING
LLC EuroPublicity
352
WWW.TATNEFT.COM
2019 ANNUAL REPORTANNEX 7YEARS OF SUSTAINABLE DEVELOPMENT