Address of the Chairman of the Board of Directors of Transneft

Alexander Novak

Dear shareholders,

Within its 25-year experience of providing effective oil and petroleum products transportation both on the domestic market and on export routes, Transneft plays a strategic role in Russia’s fuel and energy sector and its ongoing development.

In 2018, Transneft’s performance was characterised by positive dynamics. Oil transportation volume grew by 0.5% to 479.8 million tonnes, including by 2.3% to Russian refineries – up to 249.4 million tonnes.

In 2018, Transneft completed the delivery of several large projects with an eye to increasing transported volumes – in particular, to the TANECO Refinery in the Republic of Tatarstan, in the direction of the port of Primorsk (the Sever project) and to the Moscow area. The newly commissioned facilities helped increase crude oil and petroleum products supplies by 39.2 million tonnes, up 18.4% year-on-year.

The Company continued its effort to increase the capacity of the ESPO pipeline to 80 MTPA in the Tayshet – Skovorodino section and to 50 MTPA in the Skovorodino – Kozmino section. The projects are to be completed in 2019. A lot has been done for implementing the technical upgrading and revamping programmes for operating facilities.

A milestone event of the reporting year was consolidation of the majority interest in NCSP that comprises two largest ports of Russia: Novorossiysk and Primorsk. The Company is now able to control supplies along these important routes all the way until they are loaded on board, addressing the issues of raising the effectiveness of export operations.

In 2018, the IFRS financial performance of Transneft considerably improved year-on-year. The Group’s EBITDA grew by 6.1%; profits went up by 17.5%, reaching the RUB 225.4 billion mark.

Among the top priorities for the Company’s management set by the Board of Directors is the unconditional preservation of transported oil’s quality within the industry standards and the regulations specified in the contractual relationship with consumers, including due to stiffer control of the crude fed to the system and constant monitoring of quality at key points of the oil pipeline system.

The Board of Directors supports the management’s effort to further increase the Company’s operational efficiency and implement the energy saving and import substitution programmes.

Transneft continues to improve its corporate governance. As of today the Company complies with most standards of the Corporate Governance Code while analysing further opportunities with regard to the industry’s special features and the shareholding structure.

As it addresses the key strategic objectives, Transneft must remain an effective asset both for the state and for other shareholders. The Company will keep expanding the dialogue with all shareholders and investors, while the Board of Directors is ready to discuss constructive initiatives at its level.

Alexander Novak Chairman of the Board of Directors of Transneft,
Minister of Energy of the Russian Federation