Meeting with Transneft management to discuss IFRS financial results - - PowerPoint PPT Presentation

ПРОЕКТ 01/04/19

Meeting with Transneft management

to discuss IFRS financial results for 1Q 2019

June, 2019

2

The information contained in this presentation has been prepared by the Company. The conclusions presented here are based on general information collected at the time of preparation

• f the material, and are subject to change without notice. The

Company relies on information obtained from sources that it considers reliable; however, it does not guarantee its accuracy or

• completeness. All indicators in this document are presented with

rounding, and therefore the sum of rounded indicators may differ from the rounded amount of actual indicators. These materials may contain statements regarding future events and explanations representing a forecast of such events. Any statements in these materials that are not a statement of historical facts are forward-looking statements, with known and unknown risks, uncertainties and other factors, in connection with which our actual results, results and achievements may differ significantly from any future results, results

• r

achievements, reflected or implied by such forward-looking

• statements. The Company does not undertake any obligation to

update any forward-looking statements contained herein so that they reflect actual results, changes in assumptions or changes in factors affecting such statements. This presentation does not constitute an offer to sell, or solicit any offer of subscription to, or purchase of any securities. It is hereby understood that no provision of this presentation shall create the basis of any contract or obligation of any nature. The information contained in this presentation should not for any purpose be relied upon as complete, accurate or impartial. The information in this presentation is subject to review, finalization and modification. The content of this presentation has not been verified by the Company. Accordingly, we did not and do not give

• n behalf of the Company, its shareholders, directors, officers or

employees, or any other persons, any assurances or guarantees, whether expressed

• r

implied, regarding the accuracy, completeness or objectivity of the information or opinions contained herein. None of the directors of the Company, its shareholders, officers or employees, or any other persons shall be liable for any losses of any kind that may be incurred as a result of any use of this presentation or its content, or otherwise in conjunction with this presentation. English version of the presentation was translated from the

• riginal version in Russian. In case of any discrepancies, the

version in Russian language has priority.

IMPORTANT NOTICE

3

COMPANY OVERVIEW

Global leader in oil transportation by pipelines

• 51.5

thousand kilometers

• f
• il

pipelines, 16.7 thousand kilometers of petroleum products pipelines, more than 24 million cubic meters of storage tanks and over 500 pumping stations.

• Transportation of about 82% of crude oil and about 30% of light

petroleum products produced in Russia.

• Oil pipelines link major Russian oilfields with refineries and export

markets in Europe and Asia, either directly or through sea

• terminals. Petroleum products pipelines link refineries with key

consumption centers, sea ports, and other domestic and export destinations. Natural monopoly

• The monopoly operator of Russian network of oil and petroleum

products pipelines.

• Tariffs are set by the Federal Antimonopoly Service (FAS) of Russia.

Shares outstanding* Ordinary shares 5,694,468 78.55% Preferred shares 1,554,875 21.45% Total number of shares 7,249,343 Credit Ratings Moody’s Baa2 / Stable S&P ВВB- / Stable RAEX ruAAA / Stable

* Only preferred shares are traded. 100% of

• rdinary

shares are

• wned

by the Russian Government. Preferred shares of Transneft are included in the tier 1 list of the Moscow Exchange. In accordance with Transneft’s Articles

• f

Association, DPS per 1 preferred share may not be less than DPS per 1 ordinary share.

4

KEY ASSETS OF TRANSNEFT GROUP

*

* Classified as associates (7% - indirect ownership, 24% - held in trust by the Company)

5

TABLE OF CONTENTS

• 01. RECENT DEVELOPMENTS
• 02. KEY OPERATING AND FINANCIAL RESULTS
• 03. KEY FACTORS OF INVESTMENT ATTRACTIVENESS
• 04. APPENDIX. ENVIROMENTAL, SOCIAL AND GOVERNANCE (ESG)

• 01. Recent developments

7

March, 29

Publication of IFRS financial statements for 2018

KEY EVENTS

February, 13

Raising of Moody’s credit rating to Baa2, with a Stable outlook

October – November

Completion of the following investment projects:

• “Sever - 25” project
• “Yug” project, 2nd stage

(railway loading rack)

September, 27

Acquisition of controlling stake in NCSP, increase

• f stake in NCSP Group

from 37% to 63%***

August, 7

Full repayment of foreign-currency denominated debt of Transneft: early repayment of a USD loan from China Development Bank and redemption of eurobonds* on schedule

June, 30

Decision on record amount of dividends for 2017 of RUB 82.5 bln

(incl. interim dividends of RUB 27.6 bln)**

2018 2019

* As a result of the acquisition of NSCP Group in 4Q18, Transneft Group has foreign-currency denominated debt obligations as of March 31, 2019. ** 50% of normalized consolidated net income under IFRS *** effective share under IFRS

April, 23

Sale of Novorossiysk Grain Terminal

April, 18

Incident with the injection

• f organic chlorides into

the system

8

injection of oil with excessive concentration of organic chlorides

INCIDENT WITH THE INJECTION OF ORGANIC CHLORIDES INTO THE SYSTEM

Incident

• On 18 April crude oil with excessive level of
• rganic chlorides content was detected at

the Mozyr Refinery in Belarus.

• It was injected at a custody transfer point in

Samara Region.

• No harm to human life and health, or to the

environment, was caused as a result of the incident.

• Crude oil transportation resumed at all

supply directions of the Druzhba pipeline on 9 June.

9

Done

• The Road Map of measures for the displacement of oil with excessive content of organic chlorides and replacing

it with oil conforming to the GOST standard requirements in the Druzhba pipeline, developed and agreed upon with partner midstream companies from Belarus, Ukraine and Eastern Europe, is currently being implemented.

• A Russian-Belorussian joint working group and a working group under the auspices of the Ministry of Energy

have been established to settle the incident.

• Control of crude oil for organic chloride content is performed daily
• Crude oil shipments via the Druzhba pipeline resumed towards Ust-Luga, Belarus, Ukraine, South-Eastern

Europe, Poland and Western Europe.

• Crude oil conforming to standard requirements has been supplied to the Mozyr Refinery in Belarus since

4 May

• Shipments from Ust-Luga Port resumed on 10 May
• Exports through Ukraine to Slovakia and towards the Czech Republic resumed on 23 May
• Exports to Hungary resumed on 29 May
• Exports to Poland and towards Western Europe resumed on 9 June

Un Under erway

• The incident investigation by law enforcement authorities
• Replacing crude oil with excessive content of organic chlorides with oil conforming to the GOST standard

requirements in the Druzhba pipeline, including at the territory of Belarus.

• Applying technical measures to recover oil quality parameters
• Submitting proposals to the Government of the Russian Federation as regards legislative changes to be

introduced in crude oil quality control procedures delivered to the system, in particular, transition from periodic to daily control of crude oil quality. The list of relevant instructions from D.N. Kozak has been circulated among governmental agencies and companies

THE INCIDENT RESPONSE MEASURES

10

SETTLING THE INCIDENT

Key principles

• Transneft has repeatedly confirmed its readiness for out-of-court settlement with shippers of the

consequences caused by the incident under the existing oil transportation contracts.

• Transneft, in cooperation with the Ministry of Energy, has proposed a mechanism of payments to

shippers and in accordance with the law.

11

SALE OF NOVOROSSIYSK GRAIN TERMINAL

LLC “Novorossiysk Grain Terminal” (LLC “NGT”) As part of NCSP Group, LLC "NGT" transferred grain and seed

• ils in the port of Novorossiysk, notably it provided to exporting

companies services of grain crops unloading from railways and motor vehicles, storage, formation of cargos and cargo delivery to the ship. The cargo turnover in 2018 grain year amounted to 6.2 mln tons*, which is significantly higher than the volumes in previous

• years. The growth in cargo turnover was associated with both the

record grain harvest in 2017 and the maximum usage of NCSP Group logistic capacities. Revenues of LLC "NGT" amounted to 6.4 bln rubles in 2018. Transaction details: sale of 99.9968% of LLC “NGT”

• Seller – PJSC “NCSP”
• Buyer – the entity under control of VTB bank (PJSC)
• Transaction size in monetary terms –

RUB 35.5 bln.***

• This transaction was implemented within the

framework of the concept for the creation by the Russian Federation of a unite grain export operator.

• The contract was signed on April 23, 2019

Allocation of funds received The proceeds from the sale of LLC “NGT” were taken into consideration during the preparation

• f

the NCSP Group Development Strategy until 2024 **

* A “grain year” does not equal to a calendar year ** In the process of approval *** The price should be adjusted for an actual deviation of LLC “NGT” working capital from the calculated figure equal to RUB 300 mln.

Contribution of LLC “NGT” to NCSP Group revenues in 2018:

10.7%

• 02. Key operating and financial results

13

KEY RESULTS, 1Q 2019

* Less revenue from export sales of crude oil and revenue from stevedoring, additional port services and fleet services ** Less crude oil sale and purchase operations under contracts with Rosneft and China National United Oil Corporation

2017 2018 YoY 4Q18 1Q19 QoQ 1Q18 1Q19 QoQ

RUB bln

Revenue

884 980 ▲11% 264 260 ▼1% 225 260 ▲15%

Adjusted revenue*

744 765 ▲3% 195 198 ▲1% 186 198 ▲7%

EBITDA**

409 433 ▲6% 119 130 ▲9% 108 130 ▲21%

Profit attributable to shareholders

• f Transneft

192 224 ▲17% 53 50 ▼6% 47 50 ▲6%

Operating cash flow

327 347 ▲6% 124 76 ▼39% 93 76 ▼18%

(minus) CAPEX

• 306
• 268

▼12%

• 76
• 59

▼23%

• 64
• 59

▼9%

Free cash flow

21 79 ▲by 3.8x 48 17 ▼64% 28 17 ▼38%

Total debt

689 673 ▼2% 673 668 ▼1% 752 668 ▼11%

14

ANALYSIS OF OIL AND PETROLEUM PRODUCTS VOLUMES TURNOVER

Oil volume turnover Petroleum products volume turnover

Export Domestic market

• f oil produced in Russia

82

%

In 1Q 2019 Transneft Group transported

• f light petroleum products

produced in Russia

30

%

In 1Q 2019 Transneft Group transported

+2.2%

52.3% 47.7%

1Q18

116.5 .5

MLN TONS

51.0% 49.0%

1Q19

119.1 .1

MLN TONS

20.2% 79.8%

1Q18

9.9

MLN TONS

19.6% 80.4%

1Q19

9.7

MLN TONS

• 2.0%

15

64.4% 7.6% 6.0% 22.0%

260.1 .1

RUB BLN Structure of revenue for 1Q 2019, % Factor analysis of changes in revenue of Transneft Group, RUB bln

Other revenue* Petroleum products transportation services Oil transportation services Stevedoring, additional port services and fleet services

ANALYSIS OF TRANSNEFT GROUP REVENUE

225.2 +10.0 +0.6 +15.7 +8.5

260.1

Revenue 1Q18 Oil transportation Petroleum products transportation Stevedoring, additional port services and fleet services Other revenue Revenue 1Q19

+15.5%

* Other revenue includes revenue from sales of oil and petroleum products, from oil compounding services, oil and petroleum products storage services, communication services, diagnostic services, construction services, services of technological connection to pipeline system, information services related to oil transportation, rent services, resale of goods, organisation of transporting of cargos, revenue from provision of other services

16

FACTOR ANALYSIS OF TRANSNEFT GROUP EBITDA DYNAMICS, RUB BLN

+20.7%

107.5 +10.6 +15.7 +1.7

129.8 .8

• 4.3
• 1.5

EBITDA 1Q18 Revenue from oil and petroleum products transportation services Revenue from stevedoring, additional port services and fleet services Other revenue Inflation Operating expenses EBITDA 1Q19

17

FACTOR ANALYSIS OF OPERATING EXPENSES* DYNAMICS, RUB BLN

+1.8%

82.3 +0.4 +1.0 +1.8

83.8 .8

• 1.5
• 0.2

+0.04

Operating expenses 1Q18 (inflated to 2019) Repair and maintenance of relevant technical condition of pipeline Salaries, insurance contributions and social expenses** Pension expense Cost of domestic oil sales and petroleum products sold Taxes (other than income tax) Other operating expenses Operating expenses 1Q19 * Not including export crude oil sales and depreciation and amortisation. The inflation rates used are based on the prepared by the Ministry of Economic Development forecast of social- economic development of the Russian Federation for 2020 and forecast periods of 2021 and 2022. ** The increase in salaries, insurance contributions and social expenses was mainly caused by consolidation of the NCSP Group and NFT, increase of insurance contributions to non-state funds because of growth in accrual limit.

18

12.9% 11.4% 13.7% 17 .7% 13.0% 13.4% 6.7% 8.9% 14.7% 13.5% 39.0% 35.1% 1Q18 (inflated to 2019) 1Q19 10.6% 10.2% 11.9% 12.1% 23.6% 23.7% 13.5% 13.2% 7 .5% 8.0% 32.9% 32.8% 1Q18 (inflated to 2019) 1Q19

* Unit costs are calculated using operating expenses indicator based on aggregated RAS data (excluding depreciation, tax expenses and new facilities expenditure) which considers the previous year data adjusted for conditions of the reporting period

Struct ctur ure of oil transpor portation

• n unit costs

Oil turnover, bln tkm

294.9 +1.6%

299.5

Operating unit costs, RUB per 100 tkm

18.57

18.34

Struct ctur ure of pet etrol

• leum

eum produc ducts transpor sportation n unit costs

Petroleum products volume turnover, mln tons

9.9

• 2.0%

9.7

Operating unit costs, RUB per 100 ton

674.42

621.12

Other Operating, maintenance and diagnostics costs Fuel and energy resources Telecommunication services Security services Salaries, insurance contributions and social expenses

OPEX* AND ITS OPTIMIZATION

Other Operating, maintenance and diagnostics costs Fuel and energy resources Telecommunication services Security services Salaries, insurance contributions and social expenses

For more than 10 years Transneft has been actively working to control operating costs in the company’s main business lines.

• 1.2%
• 7.9%

1Q18 1Q19 1Q18 1Q19

19

EBITDA TO PROFIT GENERATED BY TRANSNEFT GROUP FACTOR ANALYSIS, RUB BLN

129.8 +4.7 +2.4

53.9 .9

• 55.4
• 14.3
• 0.2
• 13.1

EBITDA 1Q19 Depreciation and amortisation Income tax expense Result of crude oil sales to China Net finance income/costs Share of profit from associates and jointly controlled entities Other income/ expenses, net Profit 1Q19

20

ANALYSIS OF CHANGES IN PROFIT GENERATED BY TRANSNEFT GROUP, RUB BLN

+14.6%

47.0 +22.2 +2.9

53.9

• 11.8
• 2.0
• 3.4
• 1.2

Profit 1Q18 EBITDA Depreciation and amortisation Income tax expense Net finance income/costs Share of profit from associates and jointly controlled entities Other income/ expenses, net Profit 1Q19

21

68.2 +55.4 +13.1 76.0 17.4

• 31.1
• 10.5
• 13.6
• 5.5
• 58.5
• 17.6
• 3.0
• 3.2

Profit before income tax Depreciation and amortisation Net finance income/costs Changes in

• perating

assets and liabilities Amount of income tax payments, net Interest paid Other adjustments Operating cash flow Purchase

• f property,

plant and equipment, net Free cash flow Other investment activities Cash flow from financing activities Net cash flow

ANALYSIS OF CASH FLOW GENERATED BY TRANSNEFT GROUP IN 1Q 2019, RUB BLN

22

81.3 43.0 65.0 60.7 91.0 327,0 2019 2020 2021 2022 2023 2024

Cost of debt (weighted-average rates), % Debt breakdown by maturity, RUB bln FX structure of debt,% Leverage ratios

BORROWING STRUCTURE AND COST OF DEBT (INCLUDING NCSP GROUP)

* EBITDA includes NCSP numbers for the full FY 2018

• 2028

Total debt / EBITDA*

1,4 1,4

0,2 0,4 0,6 0,8 1 1,2 1,4 1,6

31.12.2018 31.03.2019 8,29 29 8,29 29 6,78 78 6,60 60 31.12.2018 31.03.2019

Russian debt FX debt

11% 10% 89% 90% 31.12.2018 31.03.2019

Russian ruble US dollar

23

184 184 158 158 60 60 143 143 233 233 192 192 225 225

• 197

197

• 223

223

• 311

311

• 323

323

• 320

320

• 306

306

• 268

268 20 20 100 100

• 38

38 6

• 2

21 21 79 79

• 5
• 8
• 3
• 13

13

• 31

31

• 82.5

.5

• 400
• 200

200 400 2012 2013 2014 2015 2016 2017 2018 Profit for the reporting period Capital expenditures Free cash flow Total dividend payments, for relevant year

Dividends on preferred shares and dividend payout ratio

% OF NORMALIZED PROFIT DIVIDENDS, RUB PER SHARE

DIVIDENDS AND KEY FINANCIAL RESULTS

Profit for the reporting period, capital expenditures, free cash flow and dividends To form a recommendation on dividends, profit is normalized on key non-monetary items.

* In 2012-2015 dividends were calculated as a share of consolidated profit under RAS. During that period normalization of profit under IFRS was not performed.

RUB BLN. 11,454 4.9 7.9 2.9 12.8 30.6 82.5 3,875 685 724 758 823 4,296 7,578 2.6% 5.0% 5.0% 8.9% 18% 50% 0% 10% 20% 30% 40% 50% 60% 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2012 2013 2014 2015 2016 2017 Interim dividend, RUB per 1 pref. share, for relevant year Annual dividend, RUB per 1 pref. share, for relevant year Payout ratio for all types of shares, % of normalized profit under IFRS*, right axis Total dividend payments, RUB bln, for relevant year

24

IMPACT OF NCSP GROUP ON TRANSNEFT’S FINANCIALS

NCSP consolidation

• In September 2018

Transneft Group obtained control over PJSC NCSP as a result of shares acquisitioning.

• The financial result of

NCSP and its subsidiaries was recognised in the consolidated figure of the Group starting from acquisition date.

• Before obtaining the

control financial result of NCSP Group was recognised in Share of profit from associates and jointly controlled entities.

* NCSP Group information includes PJSC NCSP, its subsidiaries and NFT LLC. Figures of NCSP Group for the year 2018 are disclosed since the date of its acquisition by Transneft Group ** Consolidated IFRS figures include NCSP Group *** Total debt of NCSP Group on 31 December 2018 and 31 March 2019 does not include Omirico Limited debt

Revenue, RUB bln 15.9 980.0 16.7 260.1 EBITDA, RUB bln 10.5 433.4 12.5 129.8 Profit for the period, RUB bln 3.4 225.4 10.7 53.9 Total debt at the end of the reporting period**, RUB bln 69.7 673.0 65.0 667.9 Free cash flow, RUB bln 5.9 79.2 8.6 17.4 Key indicators 2018 2018 1Q19 NCSP Group* Transneft Group** Share of NCSP Group NCSP Group* Transneft Group** Share of NCSP Group

6.4% 19.9% 9.7% 9.7% 49.5% 1.6% 1.5% 10.4% 2.4% 7.5%

• 03. Investment case

26

Comp mparat arative e analysis ysis Ordi dina nary shares res of Transn nsneft Preferre erred d shares res of Transn nsneft Voting rights √

• The presence of a shareholder holding 100% of ordinary

shares √ √ Dividends linked to IFRS net profit √ √ DPS not lower than DPS per ordinary share

• √

Liquidity

• √

PREFERRED SHARES OF TRANSNEFT: KEY FEATURES

100 200 300 400

Daily average Transn sneft t preferred d sha hares s tu turnover Moscow Exchange, RUB mln

In case of

• the presence of a shareholder holding 100% of ordinary shares,
• dividends linked to IFRS net profit,
• DPS per preferred share not lower than DPS per ordinary share,
• comprehensive disclosure requirements in accordance with the Code of Corporate

Conduct preferred shares of Transneft are a close alternative to ordinary shares.

27

INVESTMENT CASE

• Uniq

nique asse ssets ts and nd market pos

• sition
• n – regulated infrastructure company, a natural monopoly in the key economic

sector.

• Sta

Stable tarif ariff reg regul ulation ation – the system of establishing long-term rates with annual indexation within the rates of

• inflation. Possibility of retaining effects of cost cutting.
• In

Incre creasi sing ng vertica cal int nteg egration

• n. In the late 2018, Transneft consolidated the control stake of Novorossiysk

Commercial Sea Port. Non-core grain terminal sold in 2Q 2019.

• Cost reducti

ction – Effectively pursuing optimization and cost cutting programs; energy efficiency measures.

• Comp

mpleti etion of

• f key invest

stment ent projects

• cts. Buildup of a considerable positive free cash flow (RUB 79 bln in 2018).
• In

Incre creased ased di divi viden dend payout

• ut. Dividend payout has been significantly increased since 2016. Dividend yield for 2017

was close to the market average. Government policy targets dividends increase of state-controlled companies.

• Pegging

ging di divi vidends dends on

• n pref

preferred erred share ares to to the the dyna dynamics mics of

• f net pr

prof

• fit an

and or

• rdi

dina nary di divi vidends

• dends. According to the

Articles of Association, preference dividend cannot be lower than ordinary dividend, which is based on net income dynamics.

• Devel

elopm

• pment

ent of

• f the di

dial alogue gue with with investm estment ent com

• mmun

munity

• ty. The company is making efforts to improve corporate

governance and step up dialogue with investment community.

04.

Environmental, social issues, corporate governance (ESG)

29 Alexand ander er Novak vak

Minister of Energy of the Russian Federation Chairman of the Board of Directors of Transneft

Kirill ill Dmitr trie iev

CEO of Russian Direct Investment Fund

Matthias hias Warnig ig

CEO of Nord Stream 2 AG (Switzerland)

Alexand ander er Korsik ik

President and Management Board Chairman of Bashneft (From April 2011 till October 2016) Independent dire rector

Ilya a Klebano anov

Chairman of the Board of Directors of Sovcomflot In 2003-2011 Plenipotentiary Representative of the President of the Russian Federation to the North-Western Federal District Independent dire rector

Maxim Sokolo lov

CEO of LSR Group

Nikola

• lay Tokare

karev

Chairman of the Management Board, President of Transneft

Valer ery Shants tsev

CEO of Hockey club Dynamo-Moscow, Ltd In 2005-2017 Governor of the Nizhny Novgorod Region In 1996-2005 Vice Mayor of Moscow, appointed First Deputy Prime Minister of the Moscow Government

Genadi adii i Shmal

President of the Union of Oil and Gas Producers of Russia Independent dire rector

1/3 of the Board d of Direct ctor

• rs

s are independ penden ent t director

• rs

BOARD OF DIRECTORS

Additional information is available at: https://en.transneft.ru/about/management/board-directors/

30 Kirill ill Dmitr trie iev

Head of Сommittee on Strategy, Investment, and Innovation

Comm mmitt ttee ee on Stra rategy egy, , Investmen estment, t, and Innovat ation ions

Matthias hias Warnig ig

Audit it Comm mmitt ttee ee Human n Resour

• urces

ces and Remuner unerat ation ion Commi mmitt ttee ee

Alexand ander er Korsik ik

Head of Human Resources and Remuneration Committee Independent dire rector

Ilya a Klebano anov

Head of Audit Сommittee Independent dire rector

Maxim Sokolo lov Nikola

• lay Tokare

karev Valer ery Shants tsev Genadi adii i Shmal

Independent dire rector

Alexand ander er Korsik ik

Independent dire rector

Genadi adii i Shmal

Independent dire rector

Ilya a Klebano anov

Independent dire rector

Genadi adii i Shmal

Independent dire rector

100% of inde depe pend nden ent t dire rectors 100% of inde depe pend nden ent t dire rectors

BOARD OF DIRECTORS COMMITTEES

Additional information is available at: https://en.transneft.ru/about/management/board-directors/457/

31 Nikola

• lay Tokare

karev

Chairman of the Management Board President of Transneft

Maksim im Grishanin hanin

First Vice-President

Sergey Andr drono

• nov

Vice-President

Laris isa a Ka Kaland anda

Vice-President

Boris Korol

• l

Vice-President

Mikhail hail Margelo elov

Vice-President

Aleks eksey Sapsay

Vice-President

Pavel el Revel vel-Mu Muroz

• z

Vice-President

Rashid d Sharip ipov

Vice-President

MANAGEMENT BOARD

Additional information is available at: https://en.transneft.ru/about/management/board/

Vyacheslav Skvortsov

Vice-President

32

Transneft’s key priority is to protect the environment and to sustain a high level of environmental safety of production facilities. In accordance with the Policy of Transneft in the areas of labor safety, energy efficiency, and industrial and environmental safety, the main principles of the Company are:

ECOLOGY AND ENVIRONMENTAL PROTECTION

• compliance with the legislative requirements of the Russian

Federation, international agreements

• f

the Russian Federation, standards and regulations in the field

• f

environmental management, protection and safety;

• continuous improvement of environmental activities and

environmental management;

• reduction of the negative impact on environment by

improving the environmental safety

• f pipeline transport

facilities, reduction of emissions, discharges of pollutants and production waste decrease.

33

ENVIRONMENTAL MANAGEMENT SYSTEM

As of today, the Environmental Management System (EMS) is developed, adopted and certified in all Transneft subsidiaries. In 2004, all Transneft subsidiaries were certified internationally for the compliance with ISO 14001 standard. All subsidiaries conduct annual audits to confirm the EMS compliance with the requirements

• f

ISO 14001 international environmental standard. In Q1 2019, EMS certification audits were conducted in 3 Transneft subsidiaries. The audits’ results confirmed the EMS compliance with the requirements of ISO 14001:2015.

34

ENVIRONMENTAL CONTROL SYSTEM

All industrial facilities

• f

the Company established an efficient system of industrial environmental control for atmospheric air, water and soil. The control is carried out by 55 ecology analysis laboratories certified by the Federal Service for Accreditation (Rosaccreditation). The labs are staffed by highly qualified specialists and equipped with modern analytical equipment. Environmental and analytical control is carried

• ut in accordance with schedules agreed with

regulatory authorities. Implementation of measures for construction and revamping of environmental facilities and procurement of environmental equipment ensures that Transneft production facilities comply with legislative requirements of the Russian Federation, international agreements of the Russian Federation, standards and rules in the field of environmental management, protection and safety.

35

ENERGY SAVING

Parameters for Transneft’s Energy Saving and Energy Efficiency Enhancement Program for 2018 – 2023 are:

• Rate of reducing specific electricity consumption for crude oil

and petroleum products transportation, transshipment, intake, loading, unloading and delivery (thousand kWh/mn tkm).

• Rate of reducing consumption of energy resources (boiler and

furnace fuels, thermal energy, electricity, fuels and lubricants) by the company’s internal processes related to the provision of services of oil and petroleum products transportation via trunk pipelines.

• The share of LED lights at production facilities.
• Rate of reducing greenhouse gas emissions achieved by

implementing energy-saving measures.

• The share of natural gas vehicles.

LED lighting Solar panels

36

priority of employees’ life and health over the result of industrial activities

SOCIAL POLICY, OCCUPATIONAL AND INDUSTRIAL SAFETY

personal responsibility of each employee for their own safety, the right of each employee to suspend the works and their duty to refuse to carry out the work which does not meet safety requirements involvement of all employees in the reduction of

• ccupational injuries and diseases

leading role of managers at all levels in ensuring safe working conditions transparency of significant information on

• ccupational safety and health measures

1 2 3 4 5 TRANSNEFT GROUP’S MAIN PRINCIPLES IN THE FIELD OF OCCU CUPATIONAL IONAL SAFET ETY

Protecting employees’ life and health, as well as ensuring safe labor conditions is considered a priority by Transneft Group. The Group has adopted an

• ccupational safety

management system according to the requirements of the international standard BS OHSAS 18001: 2007.

Personal insurance: Voluntary health insurance, insurance against accidents and illnesses Non-governmental pension Health resort and recreation programs for employees and their children Residential and financial support and compensations Support to non-working corporate pensioners Promoting mass athletics and healthy life style

Main vect ctor

• rs

s

• f the socia

ial policy cy

Contacts:

Address: 4 bld. 2, Presnenskaya embankment Moscow, 123112 Telephone: (495) 950-81-78 Fax: (495) 950-89-00, (495) 950-81-68 E-mail: transneft@ak.transneft.ru Investor Relations Telephone: (495) 950-84-54 E-mail: ir@ak.transneft.ru