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Internal Control and Risk Management

The Gazprom Neft risk management system aims to ensure the Company’s financial stability, achieve a balance between growth in the Company’s value, profitability and risk, effectively manage business activities, ensure the safekeeping of assets, identify, correct and prevent violations, prepare reliable accounting in a timely manner and improve the Company’s investment appeal as a result.

The principles and approaches to organising the Gazprom Neft risk management and internal control system are determined by the Company’s Board of Directors. The Audit Committee under the Board of Directors assesses whether the system is functioning effectively and submits a report on the audit results to shareholders as part of materials for the annual General Meeting of Shareholders. The creation and maintenance of the risk management and internal control system falls within the responsibilities of the Management Board and CEO.

The Company employs a hotline to provide information about violations of legislation, internal procedures or the Corporate Conduct Code by any Company employee and/or member of a management or supervisory body.

COMPANY SUPERVISORY BODIES
INTERNAL AUDIT DEPARTMENT AUDIT COMMISSION EXTERNAL AUDITOR
Assessment and assistance in improving corporate governance, risk management and internal control processes with respect to the Company’s operations. Assessment of the effectiveness of anti-corruption and anti-fraud measures. The department coordinates its work with an external auditor at all stages of the audit cycle. Interacts with the Company’s audit commissions and external auditors. Monitoring of the Company’s financial and business activities. Audit and analysis of the Company’s financial position and the operation of the internal control and risk management systems as well as verifying the validity of business transactions. Elected by the General Meeting of Shareholders. Annual audit of the financial statement in accordance with Russian Accounting Standards and International Financial Reporting Standards. Approved by the General Meeting of Shareholders based on a recommendation by the Company’s Board of Directors.

The Company’s risk management processes are described by the corporate risk management policy and the Integrated Risk Management System (IRMS) unified corporate standard, which covers all of Gazprom Neft’s major assets. The IRMS provides a continuous process to identify, assess and manage risks. Risk analysis and management tools are integrated into key corporate processes.

The Company continuously develops the methodological framework for the IRMS, including general recommendations on the quantitative risk assessment of project and business planning as well as detailed methods for assessing the most substantial inherent risks.

Responsibility for risk management and preparing reporting on risk management is determined in accordance with the system of linear and functional management. An owner is appointed for each risk and is responsible for managing it. Risk coordinators who promote and support the use of corporate risk management principles are selected from among managers at the level of each function and key business process. The risk analysis deadlines and objectives take into account the specific features and demands of each business process for which risk management is performed.

SCHEMATIC DIAGRAM OF IRMS PROCESS AT THE GAZPROM NEFT GROUP

LEVELS OF FINANCIAL IMPACT OF RISK AND DISTRIBUTION OF POWERS WITHIN THE IRMS

In addition to financial and operational risks, the risk management system covers risks of a social and environmental nature. The Board of Directors assesses the effectiveness of the risk management system.

Management of social and environmental risks
Risk description Risk management measures
Risks associated with human resources
Successfully achieving the Company’s strategic goals largely depends on the efforts and abilities of key employees, including skilled technical personnel. The inability to recruit personnel and/or retain existing personnel with the necessary skills and experience could have a negative effect on the Company’s appeal as an employer. Factors that increase HR risks include a growing shortage of skilled specialists and, as a consequence, increased competition on the labour market in Russia and abroad. Gazprom Neft offers competitive remuneration, including a salary, performance-based bonuses and a social benefits package. The Company develops and implements programmes to establish a talent pool as well as train and develop personnel which aim to meet its demand for qualified staff both now and in the future.

Gazprom Neft is improving its recruitment procedures and undertaking measures to reduce staff turnover and encourage staff to realize their potential.

The Company implements social investment programmes in its regions of operation that aim to improve the quality of life of employees and their families, among other things.

Risks related to industrial and occupational safety
The Group is exposed to risks relating to the safety of its employees and their operations. Such risks may arise as a result of equipment damage and failure, natural disasters, terrorist attacks or the actions or inaction of personnel. Any of these risks could have a materially adverse effect on the business, financial situation, operating results or reputation of Gazprom Neft. Gazprom Neft strives to provide a safe working environment for its employees and seeks to avoid injury or death, actions brought against the Group or damage to its business reputation. The Company constantly monitors safety threats, and pays particular attention to complying with safety equipment regulations.
Environmental risks
Gazprom Neft’s operations carry an inherent risk of environmental damage or pollution, which may lead to civil liability and require action to mitigate such damage. Environmental risks and expenses related to compliance with environmental requirements or commitments may increase in the future as the Company’s production activities and assets expand. The Company is fully aware of its responsibility to the public for creating safe working conditions and protecting the natural environment. Gazprom Neft ensures compliance with environmental protection standards and also monitors changes in environmental legislation in the various countries in which it operates. The Company also implements programmes to minimise its negative impact on the environment as well as nature conservation and biodiversity preservation programmes.