Risk management and internal control

G4-2

The Company has a Risk Management and Internal Control System (hereinafter – the RM&ICS). It aims to ensure that the following goals are met:

  • strategic and business objectives;
  • asset integrity;
  • compliance of all reporting forms with established requirements;
  • compliance with applicable laws and the regulations of LUKOIL Group entities.

In order to develop the RM&ICS, the Board of Directors approved the PJSC LUKOIL’s Risk Management and Internal Control Policy in 2016. The document sets forth the key principles of and approaches to organizing the RM&ICS, its main goals, and the main objectives of its stakeholders, which are uniform and binding across the LUKOIL Group. G4-2

The RM&ICS is designed to be a three-line system to protect the interests of the Company. The practicality of organizing such a system of responsibility is aimed at achieving the goals of enhanced reliability in the Company’s activities.

Risk management and internal control processes are integrated into the activities of LUKOIL Group entities. The Risk management regulatory and procedural framework sets out the common requirements for all Company subsidiaries regarding risk management at all stages, and determines the management of separate, more significant risk categories. Risk assessments are conducted regularly, and information about the risk portfolios of LUKOIL Group entities are included in annual reports considered by the Board of Directors and the Audit Committee.

The Group has identified the most significant risks affecting the activities of LUKOIL Group entities and has performed qualitative and quantitative assessments. It has established levels of acceptability for each significant risk and has developed measures designed to reduce or eliminate their negative impact. The implementation and effectiveness of these measures are monitored.

Protection System of Company’s Interests

Environmental and Industrial Safety Risks

The risk management system identified various aspects of environmental and industrial safety risks. The main risk factors are related to changes in the legislative requirements of the countries of presence, the failure of production equipment, the work done by contractors, as well as and offshore and Arctic area operations. The Health, Safety and Environment Management System was set up by the Company and operates successfully to mitigate these risks. Risk management involves the adoption of preventive measures and the implementation of investment projects to reduce the likelihood of their occurrence. Since 2003, the LUKOIL Group has had a system of insurance protection against risks that pose a threat to its business.

Environmental and Industrial Safety Risks
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