Report on Compliance with the Principles and Recommendations of the Code of Corporate Governance

1.1.1

The Company creates the most favorable environment for shareholders to take part in the General Shareholders’ Meetings, develop a reasoned position on the meeting agenda, coordinate their steps and express their opinion on the issues under consideration

Observed

1.1.2

The procedure involving notification of an upcoming General Shareholders’ Meeting and distribution of the relevant materials enables the shareholders to duly prepare for the meeting.

Observed

1.1.3

At the stages of both preparation for and holding of the meeting, the shareholders were able to get the relevant meeting information and materials in a free and timely manner, address their questions to the members of the executive bodies and the Board of Directors, and communicate.

Observed

1.1.4

The exercise of the shareholder’s right to call for a General Shareholders’ Meeting, nominate candidates to the management bodies and propose agenda items was not made unreasonably complex.

Observed

1.1.5

Every shareholder was able to freely exercise his/her voting rights in a simple and convenient way.

1. The internal document (internal policy) of the Company includes the provisions stating that each person taking part in the General Shareholders’ Meeting may request a copy of the ballot completed thereby and certified by the Counting Commission before the end of the relevant meeting.

Observed

1.1.6

The procedure of holding the General Shareholders’ Meeting established by the Company ensures equal rights for all participants to express their opinions and ask questions.

Observed

1.2.1

The Company developed and introduced a transparent and clear mechanism for the calculation of the amount and payment of dividends.

Partly observed

1.2.2

The Company abstains from paying dividends if such payment, while formally compliant with the statutory restrictions, is uneconomic and may create a misperception of the Company’s activities.

1. The Company’s Dividend Policy clearly defines the financial/economic circumstances when the Company should not pay dividends.

Partly observed

1.2.3

The Company does its best to prevent deterioration of existing shareholders’ dividend rights.

1. In the reporting period, the Company did not take any steps that would lead to a deterioration of existing shareholders’ dividend rights.

Observed

1.2.4

The Company strives to prevent its shareholders from using any means of profit (income) generation through the Company other than dividends and disposal value.

1. To prevent shareholders from using any means of profit (income) generation through the Company other than dividends and disposal value, the Company’s internal documents establish controls that ensure timely identification and approval of transactions involving parties affiliated with (related to) the substantial shareholders (persons enjoying the right to use the votes according to their voting shares) in the cases when the law does not officially recognize such transactions as related-party transactions.

Not observed

1.3.1

The Company created conditions for an equitable treatment of each shareholder by the management and supervisory bodies, including conditions that disallow any abuse on the part of major shareholders with respect to minority shareholders.

1. During the reporting period, the procedures for managing potential conflicts of interest between substantial shareholders were effective, and, if there were any conflicts between the shareholders at all, the Board of Directors paid due attention to them.

Observed

1.3.2

The Company does not take any steps that cause or may cause artificial redistribution of corporate control.

1. In the reporting period, quasi-treasury shares did not exist or participate in voting.

Observed

1.4

1. The quality and reliability of maintaining the register of security holders by the Company’s Registrar meet the requirements of the Company and its shareholders.

Observed

2.1.1

The Board of Directors resolves on the appointment and discharge of the executive bodies, including dismissals resulting from failure to perform their duties properly. Besides, the Board of Directors ensures that the Company’s executive bodies act in compliance with the approved development strategy and are focused on the key areas of the Company’s business.

Observed

2.1.2

The Board of Directors determines the main strategic guidelines of the Company’s activities with a long-term outlook, assesses and approves the Company’s key performance indicators and business objectives, reviews and approves the strategy and business plans on the Company’s key activities.

1. In the reporting period, the Board of Directors addressed issues related to the implementation and updating of the strategy, approval of the business plan (budget) of the Company, as well as review of the criteria and indicators (including interim ones) applicable to the implementation of the Company’s strategy and business plans.

Observed

2.1.3

The Board of Directors establishes the principles of and approaches to the organization of the Company’s risk management and internal control system.

Observed

2.1.4

The Board of Directors defines the Company’s policy on remunerating and/or reimbursing the members of the Board of Directors, executive bodies and other key executive officers of the Company.

Partly observed

2.1.5

The Board of Directors plays a key role in preventing, identifying and resolving internal conflicts between the Company bodies, shareholders and employees.

Observed

2.1.6

The Board of Directors plays the key role in ensuring the transparency of the Company, timeliness and completeness of information disclosed by the Company, and unhindered access to the Company’s documents for the shareholders.

Observed

2.1.7

The Board of Directors exercises control over the corporate governance practices in the Company and plays the key role in the Company’s major corporate events.

1. In the reporting period, the Board of Directors addressed the issue of the corporate governance practices in the Company.

Observed

2.2.1

Information on performance of the Board of Directors is disclosed and provided to the shareholders.

Observed

2.2.2

The Chairman of the Board of Directors is available for communication with the Company’s shareholders.

1. The Company applies a transparent procedure that allows shareholders to address questions and their opinions on such questions to the Chairman of the Board of Directors.

Observed

2.3.1

Only those with flawless business and personal reputation, as well as the knowledge, skills and experience required to resolve on the matters within the competence of the Board of Directors and perform the Board functions effectively are elected to the Board of Directors.

Observed

2.3.2

The members of the Board of Directors are elected according to a transparent procedure that allows the shareholders to obtain enough information about the nominees to get an idea of their personal and professional qualities.

1. In all cases of holding the General Shareholders’ Meetings in the reporting period where the agenda included items on the election of the members of the Board of Directors, the Company provided shareholders with the biographies of all candidates to the Board of Directors, the findings of the assessment of such candidates carried out by the Board of Directors (or the Nomination Committee of the Board of Directors), as well as the data on the candidate’s compliance with the independence criteria as per Recommendations 102 to 107 of the Code, and the candidates’ letters of consent to be elected to the Board of Directors.

Observed

2.3.3

The composition of the Board of Directors is well-balanced in terms of qualifications, experience, knowledge and business qualities of the members and other factors, and the members enjoy the confidence of shareholders.

1. As part of the performance assessment of the Board of Directors carried out in the reporting period, the Board of Directors reviewed its own requirement for qualifications, experience and business skills.

Observed

2.3.4

The size of the Board of Directors makes it possible to organize the work of the Board of Directors in a most efficient way, which includes the possibility to set up committees of the Board of Directors, and ensures that substantial minority shareholders of the Company have the opportunity to elect their nominee to the Board of Directors.

1. As part of the performance assessment of the Board of Directors carried out in the reporting period, the Board of Directors addressed the issue regarding compliance of the number of the Board members to the requirements of the Company and the interests of shareholders.

Observed

2.4.1

A person is recognized as an independent director, when such person possesses enough professionalism, experience and independence to form his or her own opinion, is able to make unbiased and scrupulous judgments that do not depend on the influence of the Company’s executive bodies, certain groups of shareholders or other stakeholders. It should further be taken into account that under normal conditions, a candidate (an elected member of the Board of Directors) cannot be recognized as independent if he or she is affiliated with the Company, its substantial shareholder, major counterparty or competitor, or is related to the government.

1. In the reporting period, all independent members of the Board of Directors met all the independence criteria specified in Recommendations 102 to 107 of the Code, or were recognized as independent by the decision of the Board of Directors.

Observed

2.4.2

The Company assesses compliance of the nominees to the Board of Directors with the independence criteria and performs regular review of independent directors’ compliance with the independence criteria. In this assessment, the substance shall prevail over the form.

Observed

2.4.3

Independent directors make at least one third of the elected members of the Board of Directors.

1. Independent directors make at least one third of the members of the Board of Directors.

Observed

2.4.4

Independent directors play the key role in the prevention of internal conflicts in the Company and implementation of major corporate actions by the Company

1. Independent directors (that are free of conflict of interest) carry out a preliminary assessment of significant corporate actions potentially exposed to a conflict of interest, and the findings of such assessment are reported to the Board of Directors.

Observed

2.5.1

An independent director is elected to the position of the Chairman of the Board of Directors, or a senior director is elected of all independent directors to coordinate the work of independent directors and maintain interaction with the Chairman of the Board of Directors.

Partly observed

2.5.2

The Chairman of the Board of Directors creates a workable environment at the meetings, ensures free discussion of the agenda items and follows up on the resolutions passed by the Board of Directors.

1. Performance of the Chairman of the Board of Directors was assessed as part of the Board performance assessment procedure in the reporting period.

Observed

2.5.3

The Chairman of the Board of Directors takes all necessary steps to provide the members of the Board of Directors with the information required to take informed decisions on the agenda items in a timely manner.

1. The duty of the Chairman of the Board of Directors to take steps in order to ensure that the members of the Board of Directors are provided with materials on the Board meeting agenda items in a timely manner is enshrined in the Company’s internal documents.

Observed

2.6.1

The members of the Board of Directors make decisions considering all information available, in the absence of conflict of interest and within the normal entrepreneurial risk, while treating the Company’s shareholders equitably

Partly observed

2.6.2

The rights and obligations of the members of the Board of Directors are defined and formalized in the Company’s internal documents.

1. The Company adopted and published an internal document that clearly defines the rights and obligations of the members of the Board of Directors.

Observed

2.6.3

The members of the Board of Directors have enough time to fulfil their responsibilities.

Observed

2.6.4

All members of the Board of Directors have equal access to the Company’s documents and information. The newly elected members of the Board of Directors are provided with sufficient information about the Company and the work of the Board of Directors within the shortest possible time.

Observed

2.7.1

The meetings of the Board of Directors are held as required with due regard for the scale of the Company’s operations and the objectives set for the Company at a certain time.

1. The Board of Directors held at least six meetings in the reporting period.

Observed

2.7.2

The Company’s internal documents establish the procedure for preparing and holding the meetings of the Board of Directors, which makes it possible for the Board members to prepare for the meeting appropriately.

1. The Company approved an internal document that defines the procedure for preparing and hold the meetings of the Board of Directors. This document, inter alia, establishes that a notice of the meeting shall normally be given at least 5 days prior to the meeting date.

Observed

2.7.3

The format of the meeting of the Board of Directors depends on importance of the agenda items. The most important items are resolved at physical meetings.

1. The Company’s Articles of Association or internal document stipulate that the most important items (as listed in Recommendation 168 of the Code) must be addressed at physical meetings of the Board.

Not observed

2.7.4

Resolutions on the most important matters concerning the Company’s activities are passed at the Board meetings by a qualified majority or a majority of votes of all the elected members of the Board of Directors.

1. The Company’s Articles of Association stipulate that resolutions on the most important matters, as set out in recommendation 170 of the Code, must be passed at Board meetings by a qualified majority of at least three fourths of the votes, or a majority of votes of all the elected members of the Board of Directors.

Not observed

2.8.1

To ensure a preliminary review of the matters concerning control of the Company’s financial and business operations, the Company established an audit committee composed of independent directors.

Observed

2.8.2

For the purpose of preliminary review of the matters concerning the implementation of an effective and transparent remuneration policy, the Company set up a Remuneration Committee composed of independent directors and headed by an independent director other than the Chairman of the Board of Directors.

Observed

2.8.3

For the purpose of preliminary review of the matters concerning human resource planning (succession planning), professional composition and efficiency of the Board of Directors, the Company set up a Nomination (Appointment/ Human Resources) Committee predominantly composed of independent directors.

Observed

2.8.4

Considering the scale of the Company’s activities and exposure levels, the Board of Directors has made sure that the membership of its Committees meets the objectives of the Company in full. Additional Committees were either created or deemed unnecessary (e. g. the Strategy Committee, the Corporate Governance Committee, the Ethics Committee, the Risk Management Committee, the Budget Committee, the HSE Committee, etc.).

1. In the reporting period, the Company’s Board of Directors considered the issue of whether the membership of the Board Committees is adequate to the objectives of the Board of Directors and the goals of the Company. Additional Committees were either created or deemed unnecessary.

Observed

2.8.5

The membership of the Committees was determined so as to ensure that the items subject to preliminary review are discussed comprehensively, considering a variety of opinions.

Observed

2.8.6

The Chairmen of the Committees report on the performance of their respective Committees to the Board of Directors and Chairman of the Board on a regular basis.

1. In the reporting period, the Chairmen of the Committees reported on the performance of their respective Committees to the Board of Directors on a regular basis.

Observed

2.9.1

The performance quality assessment of the Board of Directors is aimed at assessing the performance of the Board of Directors, its Committees and members, evaluating their adequacy for the requirements of corporate development, intensifying the efforts of the Board of Directors and identifying the areas for improvement.

Observed

2.9.2

The performance quality assessment of the Board of Directors, its Committees and members is conducted on a regular basis at least once a year. The independent performance quality assessment of the Board of Directors is conducted at least once every three years by engaging an external contractor (advisor).

1. Within the past three reporting periods, the Company engaged an external contractor (advisor) to carry out an independent assessment of the Board performance at least once.

Observed

3.1.1

The Corporate Secretary has enough knowledge, experience and qualifications to perform his or her duties, a flawless reputation and enjoys the confidence of the shareholders.

Observed

3.1.2

The Corporate Secretary is independent enough from the Company’s executive bodies and has the required authority and resources to fulfil the duties assigned.

1. The Board of Directors approves the appointment, dismissal and additional remuneration of the Corporate Secretary.

Observed

4.1.1

The amount of remuneration payable by the Company to the members of the Board of Directors, executive bodies and other key executive officers creates sufficient motivation to ensure their strong performance and enables the Company to recruit and retain competent and qualified professionals. Nevertheless, the Company avoids overrating the level of remuneration and an unreasonably significant gap between the levels of remuneration payable to the above-mentioned persons and employees of the Company.

1. The Company adopted an internal document (documents) — the remuneration policy (policies) applicable to the members of the Board of Directors, executive bodies and other key executive officers — which clearly defines (define) the approaches to such remuneration.

Partly observed

4.1.2

The Company’s remuneration policy was developed by the Remuneration Committee and approved by the Board of Directors of the Company. The Board of Directors, with the assistance from the Remuneration Committee, supervises the implementation and observance of the remuneration policy in the Company and, where required, revises and amends it.

1. In the reporting period, the Remuneration Committee reviewed the remuneration policy (policies) and the implementation practice thereof and gave relevant recommendations to the Board of Directors as necessary.

Observed

4.1.3

The Company’s remuneration policy contains transparent mechanisms for determining the amount of remuneration payable to the members of the Board of Directors, executive bodies and other key executive officers of the Company, and regulates all kinds of payments, benefits and privileges granted to the said persons.

1. The Company’s remuneration policy (policies) contains (contain) transparent mechanisms for determining the amount of remuneration payable to the members of the Board of Directors, executive bodies and other key executive officers of the Company, and regulates (regulate) all kinds of payments, benefits and privileges granted to the said persons.

Partly observed

4.1.4

The Company establishes a reimbursement (compensation) policy with an itemization of expenses subject to reimbursement and the level of service that the members of the Board of Directors, executive bodies and other key executive officers of the Company are entitled to. This policy may be integrated into the Company’s remuneration policy.

1. The remuneration policy (policies) or other internal documents of the Company establish the rules for reimbursement of expenses incurred by the members of the Board of Directors, executive bodies and other key executive officers of the Company

Observed

4.2.1

1. The fixed annual remuneration was the only form of remuneration in cash payable to the members of the Board of Directors for their work in the Board of Directors during the reporting period.

Partly observed

4.2.2

The long-term holding of the Company’s shares facilitates approximation of financial interests of the members of the Board of Directors and the long-term interests of the shareholders to the greatest extent. However, the Company does not make the right to sell shares contingent on the achievement of certain performance indicators, and the members of the Board of Directors do not take part in employee stock option plans.

1. If the internal document (documents), i. e. the remuneration policy (policies) of the Company, suggests (suggest) a sharebased compensation for the members of the Board of Directors, the rules for holding of shares by the Board members aimed at long-term holding of such shares shall be clearly defined and disclosed.

Observed

4.2.3

The Company does not provide for any additional payments or compensations in the event of early termination of powers of the members of the Board of Directors in connection with the transfer of control over the Company or other circumstances.

1. The Company does not provide for any additional payments or compensations in the event of early termination of powers of the members of the Board of Directors in connection with the transfer of control over the Company or other circumstances.

Observed

4.3.1

The remuneration for members of the executive bodies and other key executive officers of the Company is determined so as to ensure reasonable and feasible proportion between the fixed component and the variable component which depends on the performance of the Company and personal (individual) contribution of the employee to the final outcome

Partly observed

4.3.2

The Company implemented a program for long-term motivation of the members of the executive bodies and other key executive officers of the Company by using the Company’s shares (options or other derivative financial instruments for which the Company’s shares constitute the basic assets).

Partly observed

4.3.3

The amount of a severance pay (a golden parachute) payable by the Company to the members of the executive bodies or other key executive officers in the case of early termination of their powers at the initiative of the Company and without any unethical practices found with the employees does not exceed two times the fixed annual remuneration.

1. In the reporting period, the amount of a severance pay (a golden parachute) payable by the Company to the members of the executive bodies or other key executive officers in the case of early termination of their powers at the initiative of the Company and without any unethical practices found with the employees did not exceed two times the fixed annual remuneration.

Observed

5.1.1

The Company’s Board of Directors defined the principles for and approaches towards the organization of the Company’s risk management and internal control system.

1. The functions assigned to various management bodies and units of the Company in the risk management system and internal control are clearly defined in the relevant internal documents/policy of the Company approved by the Board of Directors.

Observed

5.1.2

The executive bodies of the Company ensure the implementation and maintenance of an effective risk management and internal control system in the Company.

1. The executive bodies of the Company ensured distribution of the functions and authority in respect of risk management and internal control between their subordinate managers (heads) of divisions and departments.

Observed

5.1.3

The risk management and internal control system used in the Company ensures an unbiased, fair and clear understanding of the current status and prospects of the Company, integrity and transparency of the Company’s reports, and reasonability and acceptability of the risks assumed by the Company.

Partly observed

5.1.4

The Company’s Board of Directors takes the necessary measures to make sure that the risk management and internal control system existing in the Company complies with the principles for and approaches towards its organization, as determined by the Board of Directors, and is functioning effectively.

1. In the reporting period, the Board of Directors or the Audit Committee of the Board of Directors assessed the performance of the Company’s risk management and internal control system. The details of the key assessment findings have been incorporated in the Company’s Annual Report.

Observed

5.2.1

The Company set up a dedicated function or engaged an independent external contractor to perform the internal audit functions. The administrative and functional reporting lines for the Internal Audit Department are different. The Internal Audit Department is functionally subordinate to the Board of Directors of the Company.

1. The Company set up a dedicated function to be in charge of internal audit functionally subordinate to the Board of Directors or the Audit Committee, or engaged an independent external contractor following the same reporting principle.

Observed

5.2.2

The Internal Audit Department carries out the assessment of the internal control system efficiency, the assessment of the risk management system efficiency, and the assessment of the corporate governance system. The Company applies the generally accepted standards of internal auditing.

Observed

6.1.1

The Company developed and implemented an information policy that ensures effective communication between the Company, shareholders, investors and other stakeholders.

Observed

6.1.2

The Company discloses information on the corporate governance system and practice, including detailed information on compliance with the principles and recommendations of the Code.

Partly observed

6.2.1

The Company discloses information in accordance with the principles of regularity, consistency and efficiency, as well as availability, reliability, completeness and comparability of the disclosed data.

Partly observed

6.2.2

The Company avoids a formal approach to disclosure and discloses material facts about its activities even if the disclosure of such information is not required by laws.

Partly observed

6.2.3

As one of the most important tools of communication with shareholders and other stakeholders, the Annual Report contains information that helps to assess the performance of the Company in the reporting period.

Observed

6.3.1

Information and documents are provided at the shareholders’ requests in accordance with the principles of fairness and easiness.

1. The Company’s information policy establishes an easy procedure for providing the shareholders with access to corporate information, including information about the legal entities controlled by the Company, at their request.

Observed

6.3.2

In the provision of information to shareholders, a reasonable balance is ensured between the interests of individual shareholders and the interests of the Company that wishes to keep important business information confidential as it may significantly influence the Company’s competitiveness.

Observed

7.1.1

The definition of major corporate actions embraces reorganization of the Company, purchase of 30 or more percent of the Company’s voting shares (take-over), closing of major transactions by the Company, increase or reduction in the Company’s authorized capital, listing and delisting of the Company’s shares, as well as other actions that may result in major changes in the rights of shareholders or infringe their interests. The Company’s Articles of Association define a list (criteria) of transactions or other actions qualified as major corporate actions, and these actions fall within the competence of the Company’s Board of Directors.

Partly observed

7.1.2

The Board of Directors plays the key role in making decisions or elaborating recommendations for major corporate actions based on the opinion of the Company’s independent directors.

1. The Company has a procedure under which independent directors express their opinions on major corporate actions prior to approval thereof

Not observed

7.1.3

When the Company takes major corporate actions that affect the rights and legitimate interests of its shareholders, all shareholders of the Company are treated equitably. Where the statutory mechanisms designed to protect the rights of shareholders are insufficient, the Company takes additional steps to protect the rights and legitimate interests of its shareholders. The Company is guided both by formal statutory requirements and by corporate governance principles set out in the Code.

Partly observed

7.2.1

Information on taking any major corporate actions is disclosed with the explanation of the reasons, conditions and consequences of such actions.

1. In the reporting period, the Company disclosed information on major corporate actions in a timely and detailed manner, including by specifying the reasons and timing of such actions.

Observed

7.2.2

The rules and procedures pertaining to major corporate actions performed by the Company are documented in the Company’s internal documents.

Partly observed