Corporate Governance System

Principles and Information on following the recommendations of the Corporate Governance Code

The Company’s corporate governance system respects Russian laws, the Listing Rules of the Moscow Exchange, principles and recommendations of the Corporate Governance Code (CGC)Approved by the Board of Directors of the Bank of Russia on 21 March 2014, as well as commonly accepted rules of corporate conduct and business ethic, openness and transparency principles.

To further improve and structure corporate governance, the Company has approved and implements Transneft Action Plan (Road Map) for Implementation of the Corporate Governance CodeApproved by the resolution of the Board of Directors of Transneft dated 18 September 2015 (Minutes No. 23). Since 2017, the Company's Board of Directors has been reviewing information on corporate governance practices at Transneft in order to comply with one of the key principles of the CGC, which is the responsibility of the Board of Directors to oversee corporate governance practices.

Estimating the Company’s compliance with the corporate governance principles stipulated in the CGC was done in accordance with Recommendations on Drawing a Report on Adherence to the CGCAttachment to Letter from the Bank of Russia No. IN-06-52/8 dated 17 February 2016 Principles and Recommendations. Essential aspects of the Company’s corporate governance model and practice have not changed since 2017.

The Company continues to implement the recommendations of the Corporate Governance Code. So, in 2018, the Company additionally introduced 6 CGC principles that relate to evaluating the performance of the Board of Directors and its Committees, as well as one principle in the field of information disclosure. As a result of the implementation of these principles, the Company fully complied with 51 of the 79 CGC principles (64.6%) by the end of 2018. At the same time, 4 CGC principles (5%) are not applicable to the Company and cannot be fully observed due to the fact that all voting shares (100%) belong to the sole shareholder represented by the Russian Federation.

Compliance with the CGC principles in 2016-2018
Corporate governance principles

Principles Recommended in the CGC

2016 2017 2018

Full compliance

Partial compliance

No compliance

Full compliance

Partial compliance

No compliance

Full compliance

Partial compliance

No compliance

Shareholder rights and equal treatment of all shareholders 13 9 2 2 10 2 1 9 2 2
Board of Directors 36 15 17 4 19 15 2 25 9 2
Corporate secretary 2 2 1 1 1 1
The Company’s Board of Directors and executive management remuneration system 10 7 1 2 7 1 2 7 1 2
Risk management and internal control and audit 6 3 3 3 3 2 4
Information disclosure 7 3 4 5 2 6 1
Material corporate actions 5 3 1 1 3 1 1 1 3 1
Total score 79 40 28 11 48 24 7 51 20 8
100% 50.6% 35.4% 13.9% 60.8% 30.4% 8.9% 64.6% 25.3% 10.1%

Development of the corporate governance system and practices

The main activities aimed at improving the efficiency of corporate governance in 2018

Improving the process of disclosing information and working with shareholders

Transneft has resumed meetings with its investors. In October 2018, an open webinar was held with the participation of Gazprombank as a professional consultant and organiser.

The new edition of the Regulations on Provision of Information and Documents to Shareholders of the Company was approved. The Regulations were brought into line with the Federal Law On Joint-Stock Companies in terms of the rules governing information rights of shareholders. In addition, in order to implement the recommendations of the CGC, the Regulations establish the right of a shareholder owning 25% or more of the Company's voting shares to receive information and documents of Transneft subsidiaries.

The annual report and the report on sustainable development were highly appreciated by the expert community.

Improving the systems of risk management, internal control and internal audit

The following documents were approved:

  • Methods for conducting self-assessment of the effectiveness of the risk management system.
  • Key parameters of Transneft’s risk management system for 2018-2019
  • The Regulations on the Procedure of Access to Insider Information of Transneft, rules for protecting its confidentiality and controlling the observation of the redrafted laws on insider information
  • The Code of Ethics and Conduct for Employees of Transneft and Transneft Subsidiaries
  • The Procedure for Notifying the Employer of Attempts to Bribe Transneft Employees
  • The Procedure for Handling Incoming Anti-Corruption Hotline Calls at Transneft

Amendments to Transneft’s Regulations on Internal Audit have been initiated, a series of methodological documents have been approved, the procedures for resolving conflicts of interest among employees of the internal audit unit have been streamlined.

Improving the management of Transneft subsidiaries

  • 8 companies were reorganised and liquidated/sold
  • Transneft subsidiaries together with JS Company "R.O.S.T. Registrar" introduced an electronic voting service, which allows the Company to optimise the procedure for holding general meetings of shareholders/participants of Transneft subsidiaries

Further improvement of corporate governance practices

Transneft continues to move towards best practices in corporate governance. The Company's plans for 2019 include:

  • Approval of the Corporate Governance Code of Transneft, whose provisions define the principles and general rules for managing the Company and Transneft subsidiaries
  • Approval of the Regulations on Information Preparation and Disclosure
  • Establishment of a dedicated business unitAt the time of publication of the report, the business unit had been established and begun its work. for interaction with investors and shareholders to increase the investment appeal of the Company and implement the Listing Rules of the Moscow Exchange
  • Updating of internal documents in the field of countering and preventing corruption
  • Updating documents related to the misuse of insider information in connection with the adoption of Federal Law No. 514-FZ dated 27 December 2018 On Amendments to the Federal Law On Securities Market and to Certain Legislative Acts of the Russian Federation in terms of Improving the Legal Regulation of the Issue of Securities
  • Conducting an external quality assessment of internal audit at the Company by KPMG At the time of publication of the report, KPMG had completed the external assessment of the quality of internal audit. Based on the assessment results, it was concluded that, as of April 2019, the structure and activities of Transneft’s internal audit unit generally comply with the International Standards for the Professional Practice on Internal Auditing (Standards) and the Code of Ethics developed by the Institute of Internal Auditors. “Generally Complies” is the highest rating, which means that the internal audit business unit has the Regulations on Internal Audit, as well as corresponding policies and procedures, and that their performance and results comply with the International Standards for the Professional Practice on Internal Auditing (Standards).
  • Updating Transneft’s Regulations on Internal Audit
Scheme of Corporate Governance Bodies
Structure of Governing and Control Bodies
Fundamental competencies Regulatory documents Meeting frequency
General Meeting of Shareholders

Transneft’s supreme governing body. Its competences include the most important issues of the Company’s management, including:

  • To approve the Company’s annual report and annual accounting (financial) statements
  • To elect members of the Board of Directors and the Revision Commission
  • To pass resolutions on paying dividends
  • To select external auditors
Competencies, timeframes, preparation and holding procedures for the General Meeting of Shareholders are determined by the Federal Law On Joint-Stock Companies, the Articles of Association, and the Regulations on the General Meeting of Shareholders of Transneft The Annual General Meeting of Shareholders is held once a year. In 2018, an Extraordinary General Meeting of Shareholders was held once
Board of Directors

The Board of Directors of the Company is in charge of the overall management of the Company’s business.
It is the competence of the Board of Directors:

  • To protect and ensure the rights of shareholders
  • To monitor the development and approval of the Company's strategy, long-term plans and basic programmes regulating the Company's activities, as well as to consider reports on their implementation
  • To participate in the establishment of effective mechanisms for internal monitoring of the Company's financial and operational activities, as well as the risk management system
  • To approve the Company’s budget
  • To determine the KPIs for the Company, its President and Board members
  • To facilitate timely disclosure of complete and accurate information on the Company's activities
  • To pass resolutions on the key projects and major transactions
The procedure for forming the Board of Directors, its status, membership, functions, goals and objectives, its competences, the procedure for its work and cooperation with other governing bodies of Transneft are stipulated in the Company’s Articles of Association and the Regulations on the Board of Directors On average, the Board of Directors holds 4-6 in-person meetings per year.
In 2018, 22 meetings were held, including 5 in-person meetings and 17 meetings in absentia
Committees under the Board of Directors
Committees under the Board of Directors are advisory bodies which provide preliminary examination of issues and prepare recommendations to the Board of Directors The Regulations on the Strategy, Investments and Innovations Committee under the Board of Directors of the Public Joint-Stock Company Transneft, the Regulations on the Audit Committee under the Board of Directors of the Public Joint-Stock Company Transneft and the Regulations on the Human Resources and Remuneration Committee under the Board of Directors of the Public Joint-Stock Company Transneft were approved by resolution of the Board of Directors of Transneft on 19 January 2017 (Minutes No. 1) The frequency and the format of meetings of Committees under the Board of Directors depend on the specifics of each Committee.
In total, 34 meetings of Committees under the Board of Directors were held in 2018
President
President is the sole executive body who manages day-to-day operations and reports to the Board of Directors and the General Meeting of Shareholders. President is appointed by the General Meeting of Shareholders for 5 years and serves as the Chairman of the Management Board.
Nikolay Tokarev has been the President of Transneft since 2007
President acts in accordance with the current legislation, the Articles of Association and the Regulations on the President of Transneft
Management Board
The Management Board of the Company is a collective executive body responsible for day-to-day management of Transneft.
The Management Board is chaired by the President of Transneft
The Management Board is guided by the current legislation, the Articles of Association, and the Regulations on the Management Board of Transneft Meetings of the Management Board are held according to the approved plan (at least once a month).
In 2018, the Management Board held 51 meetings
Revision Commission
The Revision Commission is a permanent elective body controlling financial and operational activities of Transneft The Revision Commission’s activities are regulated by the Articles of Association and the Regulations on the Revision Commission of Transneft An inspection of financial and operational activities of Transneft was performed in 2018