Compliance with environmental legislation

PJSC LUKOIL carefully monitors changes to legislation and rules that apply to the entire range of issues related to the operation of organizations in the fuel and energy sector in each country where we operate. Using qualitative analysis, situation modelling, and forecasting, the prerequisites for the manifestation of regulatory risks are disclosed in a timely manner, and steps are taken to adequately and timely react to cross-functional regulatory risks.

New provisions in Federal Law No. 7-FZ dated January 10, 2002 "On Environmental Protection,"The amendments were introduced by Federal Laws No. 219-FZ dated July 21, 2014 (amended July 29, 2018), No. 225-FZ dated July 29, 2017, and No. 212-FZ dated July 19, 2018, No. 252-FZ dated July 29, 2018. which change the requirements for production facilities that have negative impacts on the environment, are coming into effect in Russia, and provisions relating to the implementation of the best available technologies have also been introduced. In Bulgaria and Romania, legislative conditions are also changing, including in relation to the requirements for complex environmental permits.

Thanks to the completion of a large-scale modernization program for the Russian oil refineries of LUKOIL Group, the Company has sought to ensure its ability to meet the new requirements. The modernization program was accompanied by the construction of environmental protection facilities (discharge treatment and disposal plants), refurbishments of treatment facilities, and other activities. As a result, in the context of a substantial complication of oil-refining processes, increased oil-processing volumes, and bringing product quality into compliance with European standards, a stabilization and in some cases a reduction in specific indicators of pollutant emissions into the atmosphere was achieved, and the treatment of wastewater in accordance with regulatory standards was ensured.

Environmental safety program activities are aimed at reducing the negative impacts of LUKOIL Group entities. Thanks to systematic work in the sphere of industrial and environmental safety, in 2018 no material casesA material case is understood to mean: a case with regard to which there is a legally effective resolution of an administrative body or a court verdict on subjecting PJSC LUKOIL, LUKOIL Group entities, and/or their officials to administrative sanction on the grounds stipulated by the respective articles of Chapter 8 of the Russian Code of Administrative Violations, with punishment in the form of the maximum possible administrative fine prescribed by the sanctions of the respective article, and/or and administrative suspension of operations for a period of up to 90 days, and/or 2) a legally effective court verdict on the collection of compensation from PJSC LUKOIL or LUKOIL Group entities for damage caused to the environment with regard to the requirements of the Federal Law "On Environmental Protection," in an amount equivalent to the materiality limit determined in accordance with the Regulations for Data Collection and Processing on Material Contingent Liability and Uncertainty Regarding Income Tax to Be Reflected in the Consolidated Financial Statements of OJSC LUKOIL, as per US General Accounting Principles for the respective calendar year. The case is material if one of the criteria is met. of fines or damagesThis Report only provides data for cases on which a final verdict was passed in the reporting year. were recorded.

The share of excess payments Excess payments may arise, among other things, due to a failure to meet deadlines for obtaining permits. in 2018 stood at 23%. In the past five years, this indicator has dropped by a factor of more than three (from 85.5% in 2014).