message from the president - ana səhifə · socar · suleyman gasimov, vice-president for economic...

SUSTAINABLE DEVELOPMENT REPORT | 2 0 1 6

1

SOCAR’s sixth sustainable development report discusses its key achievements as well as the opportunities and risks for 2016.

Since the global fall in oil prices two years ago, our company has undertaken stronger commitments and made challenging decisions with regard to its capital assets. Despite the challenges, we continue to prioritize activities that benefit the environment, society and future generations with a focus on quality, safety and efficiency.

“The Contract of the Century” marked a significant milestone giving new impetus to the Azerbaijan oil and gas industry. Firstly, 416 million tons of oil and 128 billion cubic meters of gas have been produced by the end of 2016 from the deep water areas of the Azeri, Chirag and Guneshli (ACG) fields in the framework of the Contract of the Century. The Company installed safe oil and gas pipeline systems for gathering, storage and export of hydrocarbons to the global market. The commissioning of the Baku-Tbilisi-Jeyhan Main Export Oil Pipeline gave a fresh impetus to the economy of Azerbaijan. The value of this project should not be limited to the invested huge financial resources, but should also consider more than 30 infrastructure projects for non-oil sector development realized within this agreement. Currently, over 4000 local enterprises and companies have been involved in the ACG project.

As the senior management of SOCAR, we understand that our Company cannot survive in a rapidly changing economic and social environment in the long term if a traditional business model is applied. Hence, as the company that has a significant role in the development of our country’s economy, SOCAR shall constantly seek for and use the most innovative methods in its operations. New initiatives, growing competition

in the oil industry, more challenging commitments and tougher technological criteria stimulate this transition. Today, we are also aiming to broaden the boundaries of our success and development beyond the national level and reach new heights on a global scale due to increasing globalization of oil and gas market.

Azerbaijan is an exporter of crude oil and gas as well as petroleum and petrochemical products. The refined and petrochemical products are exported worldwide including the USA, Italy, Egypt and China. In recent years, the quantitative and qualitative requirements for fuel and chemical products have been continuously increasing and changing. The quality of diesel and automotive gasoline complying with European standards as well as the profitability and low environmental impacts are key criteria for petroleum and gas products. Falling crude oil prices have led to rising profitability of petroleum, gas and petrochemical products. This trend was clearly observed in Petkim Petrochemical Holding (Turkey) that is our largest asset in Turkey. Today the Holding exports petrochemical production of around USD 500 million to 40 countries and its net profit is annually increasing.

SOCAR is actively involved in environmental initiatives that have recently gained popularity in Azerbaijan. SOCAR also continues implementing large-scale projects to prevent the fields pollution (especially the ones located in Azerbaijani sector of the Caspian Sea) with oil and petroleum products as well as emissions of greenhouse gases into the atmosphere.

As we all know, climate change and global warming are among the major concerns of the present generation. SOCAR has cooperated with the World Bank’s Global Gas Flaring Partnership organization and joined the “Zero Routine Flaring by 2030” initiative since 2008. Our project on utilization of associated gas implemented in “28 May” and “Neft Dashlary” (Oil Rocks) fields was highly rated by the World Bank and received an “Award of Excellence”. Over the reporting year, the Company also managed to gather the associated gas emitted into the atmosphere, which decreased by 10.8% as compared with 2015.

Formation water is another principal source of environmental pollution. We could increase the volume re-used formation water in a closed-cycle system from 88% to 100% this year.

Over the reporting year, the opening of Waste

Message from the President

2

2 0 1 6 | SUSTAINABLE DEVELOPMENT REPORT

Management Centre was officially launched. This center is the first and only regional facility with the annual capacity to handle and process 100 thousand tons of production wastes generated by the oil industry in the CIS and Caspian region. This Centre will provide additional capacity for processing and disposing the production and utility wastes produced by industrial companies in Azerbaijan.

One of the main objectives of our company is to contribute to improvement of the living conditions of the local population. The gas provision of the regions throughout the country has increased from 62,3% in 2009 to 92% in 2016. The number of registered households (subscribers) has reached two million.

Unfortunately, we also experienced a number of accidents during the reporting year. SOCAR is concentrating its efforts on analyzing the reasons and consequences of the accidents happened in 2015 and 2016 that were caused by extreme weather conditions as a result of which some employees tragically died. Dedicated groups continue to investigate the accident occurred in 2016 as well as necessary support is being provided to the families of nine deceased employees.

SOCAR has also undertaken actions aimed at maintaining the serviceability of all process facilities and equipment in its entities to prevent accidents happening as a result of natural disasters. In addition, the Company has increased the number of safety officers in some of its entities to strengthen control over safe working practices and compliance with the safety rules.

The Company continues to implement actions aiming to reduce the identified risks and enhance positive impacts associated with its operations. Our energy strategy that is implemented in compliance with the modern requirements significantly contributes to the country development.


3

The current report is SOCAR’s sixth sustainable development report. The sustainability performance results of SOCAR are published as a report on an annual basis. The report is issued to provide complete and transparent information on the activities carried out over the reporting year as well as to respond to the comments and suggestions of stakeholders. The sustainable development report of the Company for 2015 was published in Azerbaijani and English languages in August 2016. The report was communicated with the Company’s internal and external stakeholders by distributing the hard copies as well as via the corporate website.

As in the previous years, the annual report incorporates the key industrial and fi nancial indicators of SOCAR for 2016, including the sustainable development performance indicators of SOCAR Azerbaijan and its structural divisions as well as foreign representative offi ces and subsidiaries. Moreover, this year the report covers and discusses the performance indicators of SOCAR Energy Turkey in more detail.

Although the Company has not developed and approved a formal stakeholder engagement policy, the report considers the interests of both internal and external stakeholders. To identify the topics that are

of interest to our stakeholders, the main aspects of SOCAR’s annual performance covered by the mass media were analyzed, sustainable development reports of fi ve international oil and gas companies were reviewed, and interviews with employees responsible for different sustainability issues were organized. Material issues for SOCAR and its stakeholders identifi ed during these analyses are included in the current report as specifi ed in Figure 1. Furthermore, the information on identifi ed material aspects and their boundaries as well as the reasons why these aspects are considered as material can be found in Table 1.

About the Report

Labor practicesgrievance mechanisms

Environmentalcompliance

Ethics andintegrity

Diversity andequal opportunity

Involuntaryresettlement

Products andservices Economic

perfomance

Water

Supplier humanrights assessment

Reserves

Transport

Sosial compliance

Anti-competitivebehaviour

Freedom of associationand collective bargaining

Child/forced or compulsory labor

Ecosystem servicesincluding blodiversity

Market presenceincluding local contentStakeholder

engegement

Asset integrity andprocess safety

Governance Non-discrimination

Valu

e to

Ext

erna

l Sta

keho

lder

s

high

low

Energy

Organizational profile

Strategy and analysis

Employment

Emissions

Effluents and wasteIndirect economicimpact

Occupational healthand safety

Training andeducation

Emergencypreparedness

highlowValue to Internal Stakeholders

Figure 1. Materiality matrix

4


This report presents data on multiple aspects of the oil and gas industry in line with G4 Sustainability Reporting Guidelines of the Global Reporting Initiative (hereinafter referred to as GRI guidelines) and its Oil and Gas Sector Supplement. The report content is defi ned based on GRI principles of materiality, stakeholder inclusiveness, sustainability context and completeness. The report also refl ects the principles of balance, comparability, accuracy, timeliness, reliability, and clarity.

The independent audit and verifi cation of the report is performed by EY Company (for more detail, please, refer to the Independent Assurance Report on page 67). Suleyman Gasimov, Vice-President for economic affairs, is responsible for the organization of the independent audit of the report as well as its review and approval. Any questions, comments and recommendations regarding the report content can be addressed to Nijat Hanifayev, the lead economist of the

Risk Management Department of SOCAR Head Offi ce ([email protected]), or Dilara Abdullayeva, senior engineer ([email protected]).

Material aspects Materiality of aspects for SOCAR Boundaries of material aspects

Strategy and analysis

Well-conceived strategy along with the analysis of risks, impacts and achievements is the main pillar for sustainable and long-term development.

Company, external stakeholders

Ethical behavior

SOCAR ensures that the ethical code and standards necessary for the sustainable development are complied with.

Company, local community

Economic performance

Sustainable and long-term development is possible if the business operations are properly organized and managed.

Company, local community

Energy Energy efficiency can lead to the improved environmental and financial performance results.

Company, local community, external stakeholders

Water As water is a scarce resource, water efficiency is kept under strict control during all operations.


Emissions Greenhouse gases should be controlled continuously as they are the main cause of the climate change.


Effluent and wastes

Hazardous and non-hazardous wastes generated by SOCAR’s operations can have a negative impact on the eco-system, employees and community.


Employment SOCAR is the largest employer in the country and thus has a number of obligations to its employees.

Company, Company’s employees, local community

Occupational health and safety

Considering the risks due to non-compliance with the safety rules, the Company should ensure that occupational health and safety issues are under the constant control.

Company, Company’s employees

Training and education

The sustainable development of the Company largely depends on the professionalism of its employees and their continuous development.


Anticorruption actions

As corruption impedes the development of society and the Company itself, particular attention should be paid to anticorruption practices.


Emergency preparedness

Emergency preparedness can considerably decrease the number of injuries and fatalities due to accidents.


Table 1. Boundaries of material aspects


5

Scope of the CompanyThe operations of the State Oil Company of

Azerbaijan Republic (SOCAR) cover various areas of oil, gas and petrochemical operations both in the Republic of Azerbaijan and in international markets. In Azerbaijan, SOCAR undertakes oil and gas field search, exploration and development, production, refining and transportation of oil, gas and gas condensate as well as the sale of oil, gas and petrochemical products in the domestic and international markets. In general, SOCAR is the largest company in the country employing 50735 people (52104 in 2015).

In 2016, SOCAR operated 25 structural divisions in Azerbaijan including three production units, four factories, two trusts and one institute. All have legal entity status. Simultaneously, the Company is a partner in Production Sharing Agreements that cover fields in the Azerbaijani sector of the Caspian Sea as well as onshore.

Production developmentIn 2016, targeted geological, technical,

technological and organizational works were carried out to stabilize and increase output from oil and gas production.

Development of refining sectorIn the reporting year, significant works to develop

the refining sector were carried out in Heydar Aliyev Oil Refinery. The foundation of the bitumen blowing unit (BBU), was commissioned on September 19, 2016. In addition, to meet domestic demand by 2030 reconstruction and renovation works are continuing at the refinery.

Economic impacts and industrial activitiesBeing one of the largest tax payers in the country,

SOCAR is the driver of the country’s economic development. In 2016, the Company’s payments to the budget were AZN 1 394 126,9 thousand (excluding profit tax). Due to a sharp decline in oil prices and fall in demand, tax payments decreased by AZN 90 435,7 thousand or 6,09 % as compared with the same period in the previous year.

About the Company

71 503

51 978

7 522,40

6 266,80

6 009,40

3 000,70

Proven oil and gas reserves

ths. tons

ths. tons

ths. tons

3mln. m

3mln. m

3mln. m

Oil and gas production

Oil and gas refining

1,8022016

1,3942016

Equity capital of SOCAR in 2016, billion AZN

SOCAR’s payments to the budget in 2016, billion AZN

Note: As of 01.01.2017, oil and gas reserves are estimated and approved for four fields. Oil and gas fields included in the Report: Guneshli, Neft Dashlary, Bulla-Deniz and Umid-Babek.

6


Shafag Asiman

10%11,65%

20%40%

50%

AbsheronBahar and Gum-DenizACGShahdeniz

SOCAR's share in offshore fields in the Azerbaijani sector of the Caspian Sea

SOCAR's share in onshore fields

Mishovdag Kalamaddin Pirsahhat Padar Neftchala and other fields Kurovdag Block 3 of South-West GobustanMuradkhanli, Jafarli and Zardab Zikh HovsanSurakhaniBinaqadi and block of other fieldsBalakhani and block of other fieldsKursangi Garabagly

15%

20%

20%

20%

20%

20%

20%25%

25%

25%

25%

50%


7

Table 2. Economic indicators of SOCAR in 2016, thousand AZN

SOCAR Azerbaijan Economic value generated 3 846 734 Revenues 3 846 734 Economic value distributed (2 426 761) Operating costs (877 822) Employee wages and benefits (572 645) Payments to providers of capital (321 521) Payments to government (437 192) Community investments (217 580) Economic value retained 1 419 973 SOCAR Energy Turkey Economic value generated 2 989 189 Revenues 2 989 189 Economic value distributed (2 415 585) Operating costs (1 928 326) Employee wages and benefits (172 505) Payments to providers of capital (216 463) Payments to government (98 291) Community investments 0 Economic value retained 573 604 SOCAR Energy Georgia Economic value generated 858 555 Revenues 858 555 Economic value distributed (777 670) Operating costs (719 910) Employee wages and benefits (34 057) Payments to providers of capital (17 693) Payments to government (6 010) Community investments 0 Economic value retained 80 885 SOCAR Energy Ukraine Economic value generated 280 485 Revenues 280 485 Economic value distributed (252 439) Operating costs (237 722) Employee wages and benefits (11 697) Payments to providers of capital (673) Payments to government (2 347) Community investments 0 Economic value retained 28 046 SOCAR Energy Switzerland Economic value generated 1 657 559 Revenues 1 657 559 Economic value distributed (1 563 719) Operating costs (1 484 445) Employee wages and benefits (75 597) Payments to providers of capital (646) Payments to government (2 869) Community investments (162) Economic value retained 93 840

8


1

1 Please visit http://socar.az/socar/az/company/joint-ventures/ateshgah-insurance-company-cjsc for the expanded list of the joint ventures

SOCAR’s structure

Transportation Department

FOREIGN ACTIVITY

DEVELOPMENT ANDPRODUCTION PROCESSING

MARKETING AND SALES

GEOPHYSICSAND EXPLORATION

DRILLING AND CONSTRUCTION

PROJECT AND INVESTMENT

TRANSPORTATION AND LOGISTICS SERVICE

OTHER FIELDS ALLIANCES

SOCAR- TGPSOCAR- SCNBYSOCAR-Maersk

SOCAR-Optilan

SOCAR-HC

SOCAR-Petrofac

JOINT VENTURES

Heydar Aliyev Oil RefineryGas Processing Plant

Integrated Drilling Trust

Baku Higher Oil Academy

Oil and gas Construction Trust

Representative Office in GermanyRepresentative Office in Iran


9

Our missionOur mission is to ensure energy security of

the Republic of Azerbaijan as well as meeting the strategic interests in oil, gas and petrochemical industry development. Furthermore, our objective is to support the development of the scientific-technical, economic and intellectual potential of Azerbaijan by applying advanced and environmentally friendly technologies. We aim to hold a decisive position in regional and international energy projects and maximize the profit from delivering the refined products to the domestic and international markets.

Our visionOur vision is to become a vertically integrated,

large international company that aligns its operational efficiency, social and environmental responsibility with the best international practice.

To ensure the effectiveness of our mission, the sustainable and long-term strategic development, “SOCAR’s comprehensive plan for strategic development by 2025” that was approved in 2011 is annually updated.

Oil productionIn 2016, SOCAR produced 7522,4 thousand tons

of oil, 6234,8 thousand tons of which were produced by the “Azneft” Production Unit (PU) and the remainder were produced in the fields where the Company holds a share. In total, 80 onshore and offshore wells were commissioned during 2016.

Oil refineryHeydar Aliyev Oil Refinery successfully met its

annual targets set for 2016. A total of 6625,52 tons of a raw material was processed by the refinery in 2016 including 6009,44 thousand tons of oil and 38,22 thousand tons of different raw materials received from other parties (for more detailed information, please, refer to Attachment 1).

Gas production, refining and salesTo increase transportation capacity of the

natural gas infrastructure, as well as to ensure the safe operations and improve the gas supply, new gas pipelines of 7805,4 km in length were laid during the year. Pipelines (279,4 km) were also refurbished. By January 01, 2017, the number of natural gas consumers reached 2004857 people, whereas the number of subscribers increased to 1978964 people. In 2016, 171707 new subscribers were registered, including 29551 in Baku and 142156 in other regions.

Oil production in the Republic of Azerbaijan (RA) in 2016, thousand tons

Gas production in the RA in 2016,million m3

Refineries production output in 2016, thousand tons

Automobile gasoline 1 139,58

Jet engine fuel 627,34

Diesel fuel 1 881,90

in RA – 41 034,52016

Other - 33 512,1

18%

82%

SOCAR - 7 522,4

in RA – 29 367,32016

Other - 23 100,5

21%

79%

SOCAR - 6 266,8

10


Chemical industry During 2016, Azerkimya produced 459 thousand

tons of chemical products. The quantity of exported automobile gasoline, diesel fuel and other products was 1815,4 thousand tons in 2016 (for more detailed information, please, refer to Attachment 1). The list of the key importers of oil and petrochemical products is provided in Figure 2.

Expansion of overseas activities In 2016, SOCAR and BP signed a Memorandum of

Understanding on the joint implementation of geological exploration works on the D230 block located in the Northern Absheron basin of the Azerbaijani sector of the Caspian Sea. This memorandum laid the foundation for a new joint offshore project between SOCAR and BP.

In November 2016, SOCAR and Total signed a Framework Agreement regulating the principles of the “Absheron” Project development. This Agreement determined contractual and commercial terms of the first stage of the “Absheron” Project. Implementation of this project will make possible the production of 35 thousand barrels of oil equivalent and gas condensate

from this high pressure field that will be located at a depth of 450 m in the Caspian Sea.

In December 2016, SOCAR and Azerbaijan International Operating Company (AIOC), an operator of BP, signed the agreement principles to develop the Azeri-Chirag-Guneshli field by 2050. This Agreement is also known as the Contract of the Century and symbol of the Azerbaijan oil industry. The Agreement covers the development of the Azeri-Chirag-Guneshli field and creates the opportunity to develop significant number of reserves by the mid- century. The field is located east of Baku at a distance of approximately 100 km and covers an area of 432 km2 being the largest oil field operated in the Caspian Sea. Over 3 billion barrels of oil have been produced from this field since November 1997 and USD 33 billion were invested. Production of additional 4 billion barrels of oil is planned in the upcoming years.

South Caucasus PipelineThe South Caucasus Pipeline (SCP) was

commissioned in late 2006 to distribute gas from the Shah Deniz field (Stage 1) to Azerbaijan, Georgia and Turkey. It starts from the Sangachal terminal near to

Russia

Kazakhstan

Uzbekistan

Afghanistan

China

Georgia

LebanonMalta

Greece

Romania

Ukraine

BelarusPoland

NetherlandsBelgium

Spain

Gibraltar Turkey

Figure 2. The key importers of oil and petrochemical production


11

Baku and follows the same route as the Baku-Tbilisi Jeyhan pipeline through Azerbaijan and Georgia to the Turkish border where it is linked to the Turkey’s gas distribution system. The length of the pipeline is 691 km, with 443 km passing through Azerbaijan and 248 km through Georgia.

Expansion of SCP is planned via the framework of the Shah Deniz development project. It includes laying a new pipeline across Azerbaijan and constructing two new compressor plants in Georgia. This will result in a threefold increase in exported gas - up to 20 billion m3 annually. By linking with another pipeline at the border between Georgia and Turkey it will finally deliver gas to Turkey and Europe.

The second meeting of the Advisory Council for the Southern Gas Corridor held on February 29, 2016 in Baku was one of the most important events of that year. These meetings essential due to the political discussions, discussion of possible challenges that may occur during the implementation of the project in the transit countries as well as joint efforts to find appropriate solutions.

Shah Deniz fieldShah Deniz gas field was discovered in 1999.

Works at Shah Deniz’s operating Stage 1, and Stage 2 that is currently under construction were successfully continued in 2016. Extraction of gas from this field for Azerbaijani, Georgian and Turkish markets was successfully continued in 2016. The gas produced from Shah Deniz Stage 1 is sold to Azerbaijan, GOGC (Georgia), BOTAS and BTC companies.

The production capacity of the existing facilities within Shah Deniz Stage 1 is 29,5 million m3 per day or 10,8 billion m3 per year. Over the last 10 years about 76 billion m3 of gas has been exported from this field to the international markets through the SCP.

To export the gas produced from the Development Stage 2 of Shah Deniz project (Shah Deniz 2) to the European market, expansion of the existing SCP is underway. During 2016, 90% of the construction and engineering works were completed and the first gas is planned to be produced within by 2018. It is expected that 16 billion m3 of gas will be produced with 6 billion m3 of gas being transported to Turkey while the remaining 10 billion m3 per year will be delivered to European users.

A workforce of more than 5000 including subcontractors and specialized suppliers was involved in

the construction works. Azerbaijan citizens represented around 90% of the workforce. In general, it is the first time that the construction of Shah Deniz 2 platforms has been carried out fully by the local companies.

To meet the growing energy needs of Europe the country encourages the distribution of gas and diversification of transportation routes. Overall, the proven gas reserves of the country are around 3 billion m3. There are opportunities to increase gas production to 40 billion m3 by 2025, excluding the gas injected into the layers. This will enhance the position of Azerbaijan in the regional as well as European countries energy security.

TANAP-TAP TANAP, which will transport gas produced in the

Azerbaijani sector of the Caspian Sea in Shah Deniz 2 field to Europe, is an integral part of the Southern Gas Corridor. The pipeline is 1810 km and connects to the SCP at the border of Turkey and Georgia and to the TAP pipeline at the border of Turkey and Greece.

The part of the TANAP passing through Eskisheher is planned to be commissioned from mid 2018. Capital investment for the pipeline is estimated at USD 9,2 billion. Azerbaijan plans to allocate USD 2,89 billion to the Southern Gas Corridor project, 55,7% or USD 1,566 billion of which will be spent on TANAP. In addition, the total investment into the TAP during the construction stage is expected to represent around 1,5% of GDP annually in 2016-2017.

Initial transportation capacity of the pipeline will be 16 billion m3, with an opportunity to further increase it to 31 billion m3. The initial stage of the TANAP construction has been completed and the second stage construction works have commenced.

The TANAP shareholding is as follows: Southern Gas Corridor CJSC - 58%, Botas - 30% and BP - 12%.

SOCAR TurkeyBeing among the largest oil and gas companies

in the world, SOCAR carried out large-scale activities in 2016 worldwide. Projects in Turkey have the largest share in its international portfolio. SOCAR aims to attach value to the strategic position and market potential of the country by building a fully integrated oil-gas company in Turkey, which is considered as a key transit hub of the region. These projects will be carried out by SOCAR’s branch company SOCAR Energy Turkey A.S.

Investments in projects implemented in the

12


Turkish oil and gas sector initiated by Azerbaijan have exceeded USD 5 billion. Currently, its business in Turkey is estimated as USD 10 billion by international financial institutions.

Since 2008, SOCAR Energy Turkey A.S has held 51% of Petkim Petrokimya Holding A.S shares, which is the largest asset of SOCAR and the only producer of the petrochemicals in Turkey. Due to SOCAR’s projects implemented in Petkim and continuous investments, its share in Turkish petrochemical product market will continue increasing and reach over 40%.

Apart from the projects implemented at Petkim, works in the following areas are continuing:

• STAR oil refinery with annual capacity of 10 million tons of oil: part of the “Value-Site 2023” concept with an investment value of USD 5,6 billion;

• Container terminal with a capacity of 1,5 million TEU;

• Wind Power Plant as an alternative energy source and other projects.

To allow the effective implementation of projects in Petkim peninsula, the government of Turkey has granted the status of “Special security area” and “Special project area” to Petkim.

In 2012, proposals from the world’s leading contractors for the construction of STAR oil refinery were received. An EPC contractor was selected and, currently, 48% of construction works and 75% of overall works (including engineering and procurement) have been completed. About USD 3,2 billion has been invested in the refinery plant. The operations at this plant should be commissioned in 2018. Given the great significance of the project, the government of Turkey awarded the STAR project with a “Strategic investment encouragement certificate” for the first time in the history of the Turkish Republic.

The STAR oil refinery is the first refinery project implemented by the private sector in Turkey and the largest private sector project in the last 30 years.

Stage 1 of the Container Berth was completed in April 2016 and handed over to the global leader responsible for its operation- APM Terminals. In the first quarter of 2017, it is planned to complete Stage 2 of Petkim Container Berth project, which is implemented as part of the cooperation with Petkim. Once working at a full capacity, the berth will be the only one in the Marmara, Aegean, Mediterranean seas that is capable to conveniently accommodate vessels with the carrying capacity of 11 thousand containers. In addition to the list

of certificates such as ISO 9001 Quality management systems, OHSAS 18001 Occupational health and safety management system, ISO 14001 Environmental management system, ISO 50001 Energy management system, IEC/ISO 27001 Information security management and TS/ISO 10002 customer satisfaction management, Petkim has also added a “Green Berth” certificate.

SOCAR GeorgiaSOCAR is the largest investor in Georgia.

Azerbaijan is aiming to increase gas exports to Georgia by 5% every year. As a result of significant works to develop the country’s economy and provide natural gas for its population, Azerbaijan exported 715,9 million m3 of gas to Georgia from January to September.

Gas produced/supplied from the Shah Deniz field and gas from SOCAR’s sources are between 2,2-2,25 billion m3 in 2016.

From 2009 to 2016, SOCAR Energy Georgia constructed a new distribution network of 5360 km, enabling gas supply to 209136 subscribers. In general, the Company has an investment obligation to build a 7000 km distribution network in Georgia by 2017. This will provide 250 thousand subscribers with blue flame natural gas. 40 thousand more people will be provided with the natural gas by the end of 2017.

In 2016, SOCAR Georgia GAS LLC opened its renovated service center in the city of Kutaisi. The office will ensure the high quality service to subscribers, facilitate and accelerate procedures related to the fast and accurate registration as well as other procedures. Staff are trained on service quality standards. New service centers are located in Batumi, Poti, Rustavi and Kutaisi.

Within the framework of an agreement signed with the government of Georgia, SOCAR Georgia GAS LLC will continue the construction works to ensure the gas supply to the residential areas country wide including the Imereti region.

Based on the surveys conducted in Tbilisi by the “Georgian Times” media holding and GORBI social survey and marketing company, SOCAR Georgia Petroleum won the “National Business” award in 2016 for nominations such as “The largest payer of taxes to the state budget of Georgia”, “Company with the best fuel filling stations and infrastructure” and “The largest employer”. SOCAR Georgia GAS LLC won nominations such as “The best development strategy”, “The best


13

service” and “The most innovative company”. Black Sea Terminal LLC,SOCAR’s terminal in Kulevi located on the shore of the Black Sea, won “The investor of the Year” award. In addition, SOCAR Georgia Petroleum won the Grand Prix award by majority vote.

SOCAR UkraineSOCAR’s subsidiary, SOCAR Energy Ukraine,

operates in the segment of wholesale and retail sales of petroleum products.

Currently there are 59 fuel filling stations operating in Ukraine under the SOCAR brand. SOCAR Energy Ukraine emphasizes its efforts to become a market leader in quality of the service and compliance with the best practices.

SOCAR tax payments between 2010-2016 exceeded UAH 2,5 billion. In 2016, SOCAR Energy Ukraine won a tender conducted by a state-owned company Ukrainian Railways to supply it with 14,08 tons of diesel fuel (worth over USD 10 million) until the end of the year.

In 2016, SOCAR’s subsidiary SOCAR Energy Ukraine established a new company “SOCAR LPG” in Сherkassi to carry out the wholesale and retail sale of the liquefied petroleum gas.

SOCAR SwitzerlandSOCAR Energy Switzerland was established

following the agreement signed between SOCAR and ExxonMobil in 2012 and transfer of the Esso Switzerland assets to SOCAR. The retail network of ESSO Switzerland consisted of 160 fuel filling stations, gas filling plants located in Vangen-Olten, jet fuel stations in Geneva and Zurich that continue to operate under the SOCAR brand.

14


The State Oil Company of Azerbaijan Republic (SOCAR) is in the process of performing its long-term planning related to the development of oil industry. This includes targeted and comprehensive scientific, technical, economic and social programs as well as implementing relevant actions in accordance with the Charter approved by the President of the Republic of Azerbaijan and legislative requirements.

SOCAR applies a centralized management system that is based on corporate management principles. It has a Board, top management and respective committees.

The Board of the CompanyBoard members are Vice-presidents that are

appointed to their positions by the President of the Republic of Azerbaijan, heads of the certain structural divisions and the Chairman of the Azerbaijan Oil and Gas Industry Workers Trade Union. It is a collegial management body which functions under the President of the Company.

To increase top management’s knowledge regarding social, environmental and economic aspects, the outcomes of various operations are being discussed during the meetings organized by top management and the Board. Other management bodies submit monthly and annual reports and develop and present relevant strategies and plans to senior management.

Overall, the Board of SOCAR took 65 Decisions in 2016 some of which are listed below:

• Transferring investment shareholdings owned by SOCAR to the Swiss Streamtrade SA company;

• Approving a pricing policy for the petrochemical products of “Azerikimya” PU;

• Approving the annual work programs of SOCAR’s enterprises for 2016;

• Approving the amounts to be paid to those awarded with the Certificates of Honor;

• Applying the Unified Classification to the products produced in the oil and gas processing and petrochemical entities of SOCAR;

Corporate Governance

1

2

3

4

5

HR Management Committee is a collegial body which sets HR management policy, ensures control over HR management activities, and organizes scholarship programs for students studying in Azerbaijan or abroad. The Chairman and members of this Committee are appointed by the President of SOCAR while the secretaries are appointed by the Chairman of the Committee.

Risk Management Committee regulates risk management and anti-corruption processes, activities of Internal Control System as well as controls Sustainable Development Report preparation process. The Chairman and members of these Committees are appointed by the President of SOCAR while the secretaries are appointed by the Chairman of the Committee.

Procurement Committee ensures that procurement operations comply with relevant regulations, considers controversial cases, approves the list of bidders, and results of bidding. The Chairman and members of this Committee are appointed by the President of SOCAR while the secretaries are appointed by the Chairman of the Committee.

Information Security Committee the primary goal of the committee is to protect SOCAR's interests against domestic or international risks as well as to ensure IT security. The Chairman and members of this Committee are appointed by the President of SOCAR while the secretaries are appointed by the Chairman of the Committee.

Audit Committee determines policies and strategy of internal audit, approves internal audit plans and controls the internal audit.


15

• Awarding and paying scholarships to the students of SOCAR’s Baku Higher Oil School (BHOS);

• Optimizing its financial position and management structure and organizing the routine activities of the Board;

• Establishing SOCAR Capital LLC and SOCAR GPS Limited;

• Approving the additional remuneration for

its management staff and for the Administration and Department managers of its Head Office etc.

Senior managementFollowing the internal changes introduced in 2016,

the senior management of SOCAR is as represented below:

President Rovnag Abdullayev

Khoshbakht Yusifzade

Yashar Latifov

Bahram Huseynov

Rahman Gurbanov

David Mammadov

Suleyman Gasimov

Elshad Nasirov

Tofig Gahramanov

Badal Badalov

Rafiga Huseynzade

Khalik MammadovMikayil Ismayilov

First Vice-PresidentVice-President

for economic affairs

Vice-President for refining

Vice-President for investment and marketing

Vice-President for social affairs

Vice-Presidentfor environment

Vice-President for human resources, work time

patterns and information technologies

Vice-President for strategic development

Vice-President for oil and gas transportation

and gas facilities

Vice-President for geology and geophysics

Vice-President for wells development

Vice-President

16


Management systems To ensure the correctness and accuracy of

the activities carried out by the Company, timely identification and prevention of potential errors, faults and losses, the reliability of operations and their conformity to legislation, the systems noted below have been established:

• Risk management;• Internal control system;• Anticorruption and transparency.

Risk managementFrom 2008, the risk management system is based

on the International COSO Enterprise Risk Management framework. This system is aimed mainly at identifying, analyzing and managing the possible risks. An efficient risk management system has been integrated with the management decision-making process.

Every year, the Corporate Risks Map describes all risks to the Company including different sustainable development risks and those related to the various business processes of the Company in the Caspian Sea. In general, risk control and prevention are the essential areas of the Company’s risk management system.

Internal control system Senior management consider the implementation

of the internal control system as a means to switch to an advanced international management system. The integration between the finance and operational divisions ensures the efficient functioning of the internal control system as well as building constructive relationships within the Company. The Internal Control System working group reports to the Risk Management Committee.

Anticorruption and transparency Due to its involvement in the international finance

markets, the Company applies the US “Foreign Corrupt Practices Act”, UK “Bribery Act” and recommendations of the international non-governmental organization - “Transparency International” - while ensuring compliance with the international legislation, other regulatory and legal acts. It also meets the normative requirements of foreign countries as well as those specified by best international practices. A manual of nine standards on Anticorruption and Transparency was approved on 10 August 2012 and remains the regulatory basis for the above-mentioned processes. By focusing on the

concept of enhanced transparency, each standard considers such issues as combatting corruption, identifying conflicts of interests, and similar matter. The manual also includes a special anti-corruption strategy and Code of Business Ethics.

Furthermore, the Company encourages all employees and other parties to report any reasonable doubts and/or complaints regarding illegal or unethical behaviour by the Company’s management representatives or incidents of corruption through the corporate Hotline. It also encourages employees to report other non- compliant behaviour that could result in financial losses and damage and/or the business reputation of the Company or its employees.

The Standard “Violations reporting system, including breaches of SOCAR’s Code of Ethics and anti-corruption requirements” published on the corporate website 2 discloses the guidelines on the forwarding, receiving and initial processing of incoming grievances through the SOCAR’s internal communications channel. Based on this Standard, grievances can be

communicated through the channels given below.In total, 10331 reports and grievances were filed

in 2016 via letters, email and telegrams, out of which 86 reports were received through the “Hotline”. A larger proportion of the issues were resolved and response letters were sent to the reporters. The review and processing of the remaining grievances are still in

2 http://socar.az/socar/assets/documents/en/socar-standards/Anticorruption_Policy.pdf

Email address (as defined by the relevant structural division)

• [email protected]• The size of the data including attachments should

not exceed 10 Мb

The size of the data including attachments should not exceed 10 Мb

• Frequency of the review every working day

Frequency of the review every working day

• Possibility of anonymity

Possibility of anonymity

Possibility of anonymity

• http://socar.az/socar/az/home/contact-us/email-us

•

••

• Heydar Aliyev avenue, 121, Baku AZ1029, Azerbaijan

• Once a week•

Corporate portal

Postal address (address of SOCAR's Head Office)


17

the process. Following an investigation of the reports, appropriate instructions and tasks were assigned where necessary.

Reports and grievances of the stakeholders are responded to within 15 days. In the event that a special investigation is needed, the response process may take up to 30 days. If a grievance is related to the violation of law due to corruption, it is investigated by the authorized structural unit within 20 working days from the date of its registration, the complainant is notified of the investigation results, and, when needed, appropriate instructions are given to the involved parties/departments.

The filed grievances and inquiries are processed in compliance with the following laws and principles:

• The Law of the Republic of Azerbaijan “On the Reports from Citizens”;

• “Instruction on record keeping in the state bodies, state-owned legal entities and legal entities with majority stake owned by the state, and state-financed organizations”;

• “Rules on the control of the reports record keeping”.

Stakeholder relationshipsStakeholder relationships are based on the

principles of open dialogue and transparency in accordance with the Code of Business Ethics adopted in 2012. This ensures that mutual relationships and interests of each stakeholder are protected equally.

SOCAR has obligations to its shareholder and governmental entities engaged in a commercial activity. Thus, SOCAR provides regular reports to the Cabinet of Ministers of Azerbaijan Republic, Ministry of Industry and Energy, Ministry of Economic Development, Ministry of Finance, Ministry of Taxes and State Statistical Committee of the Republic of Azerbaijan.

Additionally, in recent years SOCAR has cooperated with international institutions and carried out significant work aimed to increase transparency. As a result, the Company is currently a member of the Azerbaijan-France Chamber of Commerce and Industry non-governmental organization, American Chamber of Commerce in Azerbaijan, Azerbaijan Chamber of Commerce and Industry.

Figure 3. SOCAR’s main stakeholders

Mass-mediaInternationalorganizations

Businesspartners

Suppliers andsubcontractors

SocietyGovernmentof the Republicof Azerbaijan

Company'semployees

Competitors

18


SOCAR has also aligned its activities with the International Financial Reporting Standards (IFRS), Global Reporting Initiative (GRI) and other international standards.

Cooperation with suppliers and contractorsWe always prefer to work with local suppliers

and contractors in all our operational areas. Therefore, SOCAR expands opportunities for employment and professional development for the local population. SOCAR’s relationships with suppliers and contractors is regulated by the “Standard on the inspection of the third-parties” which was adopted in 2010. To ensure high quality of operations certain activities were carried out with contractors in 2016.

It exerts strict control over the activities of contractors to ensure that they are ethical, transparent, reliable and safe. It prioritizes its cooperation with organizations that understand and fulfill their environmental, social and economic obligations.3

Compliance of the contractors and suppliers performance with the SOCAR’s principles of minimum damage and availability of the internal policies and procedures ensuring safe and high quality operations are the key criteria.

To improve control over the activities of its contractors within the Aegean Refinery Project in

3 For more details on the regulatory policies on tendering and procurement please visit http://socar.az/socar/az/company/so-car-standards/socar-standards

STAR oil refinery (owned by SOCAR Energy Turkey), an environmental audit system and Environmental Performance Index were prepared and applied accordingly. At the end of each audit, the report was shared with contractor representatives, contractors were also assigned an Environmental Performance Index based on their environmental activities and indicators. Subsequently a contractor ranking table was prepared and discussed. In addition, the selected environmental performance indicators of the various contractors are reviewed on a weekly basis and appropriate reports are made in accordance with the adopted system. By the end of 2016, 84 audits of 17 contractors were conducted at the STAR oil refinery. It is important to note that the new control and evaluation system, which is being implemented, enables stricter and more regular control by senior management over contractors. It also serves as a tool to encourage them to improve their environmental performance.


19

One of the main objectives of SOCAR is to become the most attractive and competitive employer in the region. To achieve this objective, we focus on attracting the most competent and experienced specialists as well as building long-term relationships with all our employees.

The Company’s Human Resources Policy serves as a guideline for Human Resources management, including the attraction of new talents, employees’ education and development.

Taking into account the current economic situation, SOCAR continues to undertake a range of initiatives to optimize costs and internal processes. We undertake a number of initiatives to minimize negative impacts associated with the internal changes on affected employees.

Following the staff reductions in 2016, 425 employees were terminated, out of which 414 persons received compensation of five-month average pay. Over the reporting year, 848 persons retired, out of which 555 persons received compensation of five-month average pay. In general, the employees receive at least a 2-month notice of any significant changes in the corporate structure or staff reductions.

Employee turnover rate was 3% in 2016. All our employees are covered by collective

bargaining agreements. In addition, each employee is provided with medical insurance in accordance with the Voluntary Medical Insurance Agreement concluded between SOCAR and PASHA Insurance. This covers emergency medical services 24 hours a day, 7 days a week, in-patient and out-patient treatment as well as dental care. Furthermore, the retired oil workers can benefit from multiple healthcare services provided by the Central Hospital for Oil Workers.

Human Resources

In 2016, 3009 people were recruitedin SOCAR entities including

1089 employees through internal rotations

1920 new

employees

20


2014 882,08 149

2015 893 149

2016 968,1 164

Total number of employees inSOCAR in 2014-2016

Number of hired and dismissed employeesin 2014-2016 in SOCAR

hired employeesdismissed employees

Employee turnover rate in 2014-2016 in SOCAR

Number of employees by genderin 2014-2016 in SOCAR

Number of SOCAR's senior managementby average age in 2016

29-50

below 29

Number of employees by categories andgender in 2016 in SOCAR

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and averagemonthly salary in 2014-2016 in SOCAR, AZN

average monthly salary

minimum monthly salary

Average age of SOCAR's senior managersin 2014-2016

54 714

5%

44 982

43 163

42 203

5 461

21

6 123

30 598

9 732

8 941

8 532

520

258

3 275

4 479

52 104

15%

50 735

3%

2014 1 304 2 634

2015 1 639 7 834

2016 1 920 1 350

106

3105

2770

2014 43

2015 44

2016 41

above 50


21

2014 426 76

2015 379 60

2016 714 93

Total number of employees in SOCAR EnergyUkraine in 2014-2016

Number of hired and dismissed employees in2014-2016 in SOCAR Energy Ukraine

hired employees

dismissed employees

Employee turnover rate in 2014-2016 inSOCAR Energy Ukraine

Number of employees by gender in 2014-2016in SOCAR Energy Ukraine

Number of employees by age in 2014-2016in SOCAR Energy Ukraine

above 50

29-50

below 29

Number of employees by categories and genderin 2016 in SOCAR Energy Ukraine

1 473

70%

947

971

967

102

198

22

645

526

696

770

60

338

0

372

1 667

84%

1 737

81%

2014 1 131 1 027

2015 1 600 1 406

2016 1 469 1 399

799

771

167

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and average monthlysalary in 2014-2016 in SOCAR Energy Ukraine, AZN



22


4

4 The employee turnover rate was calculated as the ratio of employ-ees who left the company to the total number of employees.

2014 573 238

2015 548 178

2016 575 202

4 166

14,6%

3 511

3 289

3 368

181

24

693

2 449

655

829

885

17

21

331

537

4 118

21,7%

4 253

12%

2014 815 608

2015 846 894

2016 631 504

937

2 207

1 109

Total number of employees in SOCAR EnergyGeorgia in 2014-2016

Number of hired and dismissed employees in2014-2016 in SOCAR Energy Georgia

hired employees

dismissed employees

Employee turnover rate in 2014-2016 inSOCAR Energy Georgia ⁴

Number of employees by gender in 2014-2016in SOCAR Energy Georgia

Number of employees by age in 2014-2016in SOCAR Energy Georgia

above 50

29-50

below 29

Number of employees by categories and genderin 2016 in SOCAR Energy Georgia

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and average monthlysalary in 2014-2016 in SOCAR Energy Georgia, AZN




23

5

5 HR indicators for SOCAR Energy Turkey were reviewed and recal-culated using a single categorization for all entities.

2014 1 911 392

2015 2 500 639

2016 3 483 1 081

⁵

2 701

7%

2 560

2 641

2 559

20

332

232

1 975

141

151

172

2

42

108

20

2 792

8%

2 731

9%

2014 174 178

2015 328 237

2016 194 248

314

1 995

422

Total number of employees in SOCAR EnergyTurkey in 2014-2016

Number of hired and dismissed employees in2014-2016 in SOCAR Energy Turkey

hired employees

dismissed employees

Employee turnover rate in 2014-2016 inSOCAR Energy Turkey

Number of employees by gender in 2014-2016in SOCAR Energy Turkey

Number of employees by age in 2014-2016in SOCAR Energy Turkey

above 50

29-50

below 29

Number of employees by categories and genderin 2016 in SOCAR Energy Turkey

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and average monthlysalary in 2014-2016 in SOCAR Energy Turkey, AZN



24


2014 8 000 3 506

2015 9 786 4 800

2016 15 132 7 452

105

21%

87

93

93

22

13

32

26

18

35

39

4

18

12

5

128

14%

132

2%

2014 18 22

2015 41 18

2016 6 2

12

57

63

Total number of employees in SOCAR EnergySwitzerland (SES) in 2014-2016

Number of hired and dismissed employees in2014-2016 in SOCAR Energy Switzerland (SES)

hired employees

dismissed employees

Employee turnover rate in 2014-2016 inSOCAR Energy Switzerland (SES)

Number of employees by gender in 2014-2016in SOCAR Energy Switzerland (SES)

Number of employees by age in 2014-2016in SOCAR Energy Switzerland (SES)

above 50

29-50

below 29

Number of employees by categories and genderin 2016 in SOCAR Energy Switzerland (SES)

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and average monthlysalary in 2014-2016 in SOCAR EnergySwitzerland (SES), AZN




25

6

6 The employee turnover rate was calculated as the ratio of employ-ees who left the company to the total number of employees.

2014 3 245 2 500

2015 4 324 3 384

2016 6 707 5 233

581

60%

236

179

144

11

133

0

0

345

407

438

4

434

0

0

586

51%

582

33%

2014 307 347

2015 301 296

2016 190 194

126

404

52

Total number of employees in SOCAR EnergySwitzerland (ROC) in 2014-2016

Number of hired and dismissed employees in2014-2016 in SOCAR Energy Switzerland (ROC)

hired employees

dismissed employees

Employee turnover rate in 2014-2016 inSOCAR Energy Switzerland (ROC) ⁶

Number of employees by gender in 2014-2016in SOCAR Energy Switzerland (ROC)

Number of employees by age in 2014-2016in SOCAR Energy Switzerland (ROC)

above 50

29-50

below 29

Number of employees by categories and genderin 2016 in SOCAR Energy Switzerland (ROC)

Executives

Technicians

Specialists

Workers

Growth dynamics of minimum and average monthlysalary in 2014-2016 in SOCAR EnergySwitzerland (ROC), AZN



26


Transformation Program for human resources management

SOCAR has also started applying innovative solutions in its resources management system. The pilot version of the Transformation Program for human resources management covering all our employees was implemented in the administrative office of “Azneft” PU, “28 May” and “A. Amirov” Oil and Gas Production Departments (OGPD). This program will cover 51 thousand employees including the senior management. Moreover, the goals, targets and areas for imporvement for each employee will be defined in the Individual Development Plan (IDP) that will be discussed and approved by the respective line managers. The plan implies the assessment of the employee competency and sets a timeframe for performance evaluation against the specified performance indicators. This will help to ensure that the goals of the employees are aligned with those of the Company as well as personal development targets are also agreed. The Company will provide incentives for all employees based on the unique methodology (depending on the duration of employment) taking into considerations their career progression and performance indicators.

To ensure that the carried out activities meet international standards, we involved SAP MDB that is an international consulting company. The implementation of this program covering the period of 2016-2019 is accompanied by special software for human resources processes (SAP Human Capital Management). The purpose of using this software is to ensure that all processes are transparent. In general, the project covers four areas listed below:

Competency management – The competency management project is aimed at improving the knowledge, skills and behavior of employees in line with Company requirements. It is planned that 54 behavioral competencies will be evaluated for each position during the evaluation process.

Performance management – For performance management, specific targets will be determined for each employee and the job performance will be evaluated accordingly. Various rewards will be provided to employees meeting their targets.

Employment Management – Once the key positions are determined, development plan to ensure the required personnel and competencies will be drawn. The opportunities for career progression are clearly

defined in job descriptions. Moreover, those employees with higher performance results will have greater career opportunities.

Training and development – Following the implementation of the project, the training needs of the employees will be determined more professionally. A development program will be prepared for each employee considering their job specific and personal characteristics.

Furthermore, self-service portal - service portal is being prepared for the employees within the Transformation Program for human resources management. Currently, updates on this project implementation are posted in the “News” page of the Human Resources Portal, and emerging questions are forwarded to the Career Planning and Employee Relations department.

Relationships with employeesOver the reporting year 3284 grievances were

received from the employees working at and terminated from the Company. Following the collection and review of all the necessary information and documents, a detailed response is provided to the complainant within 15 calendar days as required by legislation.

Employee surveys (interviews) were conducted in some of SOCAR entities to determine employee satisfaction and loyalty level, identify and eliminate the factors causing employees to leave the Company, and collect information on the programs for attracting and developing the young specialists. Overall, 83 employees were surveyed. Another survey mainly focusing on the reasons of termination was conducted monthly through the telephone calls and within a year covered 289 people who left the company for various reasons.

Based on the findings of the surveys, appropriate statistical data was prepared in SPSS (Statistical Package for the Social Sciences) while the questionnaires were scrutinized and submitted to senior management.

Furthermore, 1406 formal and 977 electronic requests were handled in 2016. In addition, 901 personal meetings were held with community representatives and employees. Their requests were analyzed and addressed by providing the detailed response.

Ensuring equal opportunitiesEnsuring equal opportunities to all employees is


27

one of the enablers of the sustainable and long-term development of the Company. Non-discrimination and equality among employees are regulated by SOCAR’s Code of Business Ethics. As a Company fulfilling operations in foreign countries, we give priority to hiring personnel from local communities.

Developing and attracting young talentUnderstanding that the sustainable development

of SOCAR largely depends on young specialists, we implement the following programs and initiatives to attract talented students.

Study Abroad Scholarship Program As in previous years, SOCAR has taken initiatives

to provide education opportunities for young specialists in the academic year 2016-2017. In June 2016, we announced the enrolment for the Study Abroad Scholarship Program. As a result, 24 applications were reviewed, out of which 11 candidates meeting the required criteria were recommended to the Scholarship Commission for Education Abroad (hereinafter referred to as the Commission).

At the same time, we provided employment opportunities in multiple specialties to 23 graduates.

In 2016, 140 applications and 977 electronic applications were reviewed. In addition, meetings with 901 people, including employees were held where their complaints were discussed and thoroughly addressed.

Internal Scholarship ProgramSOCAR is focused on the development of

young experts and stimulating students to gain more theoretical and practical knowledge in the oil and gas industry. Since the academic year 2004-2005, we have provided monthly scholarship to high-performing undergraduate students studying at the selected faculties of Azerbaijan State Oil and Industrial University (Geological Exploration, Oil and Gas Mining,

Chemical Technology, Petroleum Machinery, Energetics, Automation of Production Processes, Economy, International Economic Relations and Management). In 2016, we provided monthly scholarship to 40 students (77 in 2015) and employment for 20 scholarship holders.

Applications for the Internal Scholarship Program in the academic year 2016-2017 were submitted electronically via website www.socar.az/tehsil in the period of February 15 - March 15, 2016.

Paid Summer Internship Program Since 2010, SOCAR has implemented the Paid

Summer Internship Program. The aim of this Program is to provide industrial work placement during summer vacations for Azerbaijani students studying oil and gas mining, oil and gas rigs, drilling, geophysics, geology, automation of production processes, computer science, construction, pipelines, environment, petrochemical and chemical engineering, energetics, economy and programming at higher educational institutions in Azerbaijan and foreign countries.

The program is implemented to enable students to increase their practical knowledge as well as to experience a real working environment. Mostly, third and fourth year undergraduates as well as first and second year master’s students studying for a degree in any of the above-mentioned disciplines at any university are eligible to participate in the program. We hire students for specialist position based on the temporary employment contract. The interns receive salaries depending on the duration of employment and position. In the meantime, interns can benefit all the privileges available for our employees.

In 2016, 104 students were enrolled in the Paid Summer Internship Program.

SOCAR Summer School 2016 project Considering the high level of interest that students

and young specialists have in the energy sector, SOCAR has been organizing the Summer School since 2012.

Thirty candidates demonstrating the best results during the interviews were selected. Since 2012, SOCAR’s employees have been invited to participate in Summer School along with students.

Types of Training1. Expertise development2. Retraining3. Awareness raising

Study Abroad Scholarship Program

Admitted candidates 7

Eligible candidates 11

Applications 24

28


4. Refresher courses5. Induction

Training of 507 employees of SOCAR on the following topics was outsourced to external training organizations in 2016:

• Business processes optimization and efficiency improvement;

• SAP HR;• Updated standards;• Innovations and market regulations;• Heavy crude oil quality improvement.One of our main targets is to ensure a skilled and

qualified workforce for the oil industry in line with the requirements of international standards . To achieve this, we strive to upgrade quality of training and education as well as the quality of services provided by our training centers to the internationally accepted levels.

As in previous years, our training centers provided development programs for workers of other companies

in 2016. Training programs for external parties were carried out in the following training centers:

• Center for organization of employee trainings;• Gobustan regional training center;• Sumgait training and education center.

Human resources management in Turkey, Georgia, Ukraine and Switzerland.

SOCAR Energy TurkeySOCAR Energy Turkey focused on the following

issues in 2016:• Following the revision of the employment policy,

the Working Group integrated the unified employment process in all SOCAR Turkey Group companies;

• A new system for performance evaluation was developed and applied;

• Corporate procedures were updated.

1. Center for organization of employee trainings 304 5 632 2. Offshore maritime safety training center 43 3 052 3. Gala training and education center 5 724 4. Sumgait training and education center 57 833

No Our training centersNumber

of trainees

Number of training sessions

Table 3. Trainings organized in SOCAR’s training centers


29

SOCAR Energy GeorgiaThe principal human resources management

initiatives by SOCAR Energy Georgia in 2016 included:• Personnel training and development;• Better performance of personnel;• More efficient interaction between structural

divisions.

SOCAR Energy UkraineSOCAR Energy Ukraine implemented the following

programs in 2016:• Training for senior management on delegation

of authority and transfer of greater responsibility to employees in the various regions;

• Launch of a “Golden Customer” project aiming to improve the quality of the services provided at the sales points and to control the conduct of employees at workplaces;

• Launch of a project aimed to reduce the costs associated with the management of human resources.

As in previous years, the Company conducted regular training for its employees to increase their skills and professional competency. This included both off-job and on-the-job trainings as well as training conducted in the Company’s training center.

SOCAR Energy SwitzerlandAs in previous years, the training and development

of employees was the focus of SOCAR Energy Switzerland in 2016. Over the reporting year, the principal training topics were sales, safety, health and fire protection.

Average training hours per employee in 2016 7

7 The reason for the high average of training hours per employee in SOCAR Energy Ukraine is due to high employee turnover in petrol stations.

SOCAR Azerbaijan8,6

SOCAR Energy Turkey

21

SOCAR EnergyGeorgia

3,7

SOCAR Ukraine Energy

198,7SOCAR Energy

Switzerland 8,3

Average training hours

30


We understand our social responsibility and take an active part in the social life of the country and contribute to a variety of important socio-economic projects realized in Azerbaijan.

In SOCAR we believe that positive social changes are possible if the social impacts caused by our operations are timely identified and managed as well as if an open dialogue with stakeholders is maintained.

SOCAR’s major social activities cover the following directions:

Charity and sponsorship The Company provides financial support to

development of different areas in accordance with the requirements of the Standard on “Charity, social and sponsorship support”, approved to realize Company’s charter objectives and achieve social results of a public importance. In 2016, AZN 8078602 was allocated for different causes to people linked with SOCAR and with consent of SOCAR’s President (for more detailed information, please see Table 6).

In 2016, the Company continued providing financial support to its employees and focused its attention on martyrs’ families and war invalids.

Support of the social welfare of employees SOCAR considers building positive relationships

with its employees as one of the key factors that trigger sustainable development. It continuously focuses on initiatives to reduce the social challenges experienced by its employees. The “Social Development Program for 2016-2020 to improve the social welfare of employees working in SOCAR’s structural divisions” was approved

Social performance and support to the regional development

Table 4. Directions of social support in 2016, thousand AZN

Table 5. Breakdown of social expenditures made in 2016, thousand AZN

Table 6. Payments based on type of assistance in 2016, thousand AZN

Type of support Amount Number of recipients

Financial support of individuals 679,711 142

Charity 115,000 1 Social 562,365 4

Sponsorship 1734,326 6 Financial

assistance to institutions

829,295 6

Total 3920,7 159

Scope of assistance Amount

Sports 335,000 Financial associations and trade unions

1019,520

Education 282,308 Culture and art 1820,144

463,723 Total 3920,7 Financial support of individuals

Type of assistance Number

of recipients

Amount

To family members of deceased employees 188 394,080

To employees for losing a family member 1446 759,170

Monthly payments to children of the employees deceased in Karabakh war and on 20 January tragedy until they are 18 (or until the age of 23 if they receive a full-timeeducation)

6 58,013

Monthly payments to the deceased employees’ young children until they are 18 (or until the age of 23 if they receive a full-time education)

958 2946,643

Approved by the president of SOCAR 191 3920,696

Total 2789 8078,602

1

2

3

4

5

Charity and sponsorship

Welfare of employees

Positive public relationships

Land allocation and involuntary resettlements

Support to sports, education and culture


31

by the joint Order of SOCAR and Azerbaijan Oil and Gas Industry Workers Trade Union Republican Committee. Different initiatives to improve the work conditions in SOCAR entities were determined, as well as the deadlines for these initiatives and required resources were determined in the framework of this Program. One of the initiatives within this program is the housing provision to our employees.

Unfortunately, the emergencies that occurred in 2015-2016 caused unavoidable injuries. All the required actions were undertaken to address the social challenges experienced by the survived employees and families of deceased or lost employees as a result

of the accident that occurred at Guneshli 10 deep-water offshore platform of “28 May” OGPD and 501 platform of “Neft Dashlary” OGPD on 4 December 2015. Families of deceased and lost workers have been provided with insurance payments prescribed by the state law. Moreover, the families have been provided with the following support:

• SOCAR paid for hospital treatment and medication for 33 survivors as well as provided pecuniary aid for their additional treatment;

• In accordance with the 10th decree of the Cabinet of Ministers, 30 families of the deceased and lost workers of 10 deep-water offshore platform were given 15000 AZN from the Reserve Fund of the State Budget;

• Each family of three deceased and lost workers of 501 platform of “Neft Dashlary” were provided with 20 000 AZN;

• SOCAR provided pecuniary aid for 45 children of 20 oil workers, who meet the requirements of the Regulations for pecuniary aid to SOCAR employees, this was the equivalent of 2,5 times the minimum living wage and will be paid until these children reach 23 years old;

• SOCAR provided funding to cover the cost (AZN 134 124) of the apartments of 3 deceased

persons and 1 injured person who were included on the waiting list for housing;

• The debts of the deceased and injured persons to banks and tuition fees for their children were covered by SOCAR upon request. Pecuniary aid was provided to those families to improve their material positions. Social care of these families has always been under SOCAR’s supervision;

• In addition to the above-mentioned SOCAR transferred 5000 AZN to the families’ accounts

The State Labour Inspection Service under the Ministry of Labour and Social Protection of Population and special investigation group established by the order of the Cabinet of Ministers are conducting the investigation of the accident caused by the extreme weather conditions in 2016. The results of the investigation will be provided in the next Sustainability Report.

Building public relationsTransparent and mutual relationships with local

communities are fundamental for our activities. It makes continuous efforts to have a dialogue with the people residing in SOCAR’s operational areas to find out any issues and opinions related to projects and to ensure information exchange. Information obtained as a result of these discussions is the foundation for relevant decisions and initiatives taken by SOCAR and gives an opportunity to prevent undesirable circumstances.

Usage of land plots and compulsory resettlement

SOCAR implements a comprehensive and strict control over the site selection to prevent adverse health and lifestyle impacts on communities living close to SOCAR’s operational areas as well as any involuntary resettlements during the project planning stage. Multiple criteria such as availability, safety and other technical characteristics, as well as environmental and social characteristics of potential land plots are considered when the operational site needs to be selected. Based on the in-depth analyses an option that carries minimum risks is chosen. If physical or economic displacement is unavoidable, an action plan is developed and implemented to ensure that appropriate housing conditions for resettled groups are recovered. It should be mentioned that no resettlement was carried out in 2016.

Waiting list for housing in 2016

The number of people provided with

houses 322

The number of people provided with land

104

Waiting list for housing

Baku

Regions2999

442

32


8

SOCAR Energy TurkeySports supportSOCAR Energy Turkey provides active support to

the sports development in the region. It is among the main sponsors of SOCAR UEFA EURO 2016 and the European qualifying tournaments.

The coverage of SOCAR Turkey’s digital and social media platforms has reached 15 million people through its #dostlukkazansin campaign.

Petkim Sports Club, which is funded by SOCAR Energy Turkey and Petkim, is involved in basketball, volleyball, and football.

8 Amount of social expenses in 2016 were as following: SOCAR Energy Georgia – 3,989,932 GEL, SOCAR Energy Ukraine – 103,294 USD, SOCAR Energy Switzerland (SES) – 5,644 KCHF, SOCAR Energy Switzerland (ROC) – 3,811 KCHF, SOCAR Energy Turkey – 6,336,225 USD. These currencies were converted into AZN as per average exchange rate for 2016 (1 USD-1,5973 AZN, 1 GEL-0,6751 AZN, 1 CHF-1,6202 AZN).

Socio-economic supportWithin the framework of its cooperation with

Habitat Association, SOCAR Energy Turkey has developed Habitat Socio-economic Development Program. The main aim of this Program is enhance the socio-economic development in three Turkish provinces, nearly 90 villages and a town through which the TANAP pipeline passes.

In the framework of the Bee-keeping Development Project, that is one of the agricultural activities of the Black Sea region, in cooperation with Turkish Development Fund, the Company contributes to agricultural diversification activities, an increase of household income and economic activity of underprivileged residents in the areas where the TANAP pipeline passes.

In the framework of the Development of Integrated Organic Poultry Systems Project, that is implemented in cooperation with Turkish Development Fund, it is planned to ensure proficiency of production sources to guarantee food safety and growth of the producer’s income.

In cooperation with Seyitgazi Municipality the Company carries out the Renovation of Village Schools and Development of the Frig Valley Project, that is aimed at developing the Seyitgazi district by preserving the socio-cultural heritage and promoting tourism.

Information on social expenses in 2016, million AZN 8

SOCAR Azerbaijan

SOCAR Energy Ukraine

SOCAR Energy Switzerland (SES)

SOCAR Energy Switzerland (ROC)

SOCAR Energy Georgia

SOCAR Energy Turkey

148

0,165

9,144

6,174

2,693

10,121


33

The occupational safety policy of SOCAR aims to prevent emergency incidents and life threatening situations that could adversely impact employee health and safety, irrespective of the complexity of the production process.

SOCAR’s occupational health and safety policies comply with the requirements of the regulations listed below:

• Unified occupational health and safety management system in the oil industry of Azerbaijan;

• Safety rules for the oil and gas industry;• Requirements of other valid regulations for

occupational safety as well as guidelines developed and applied in each of SOCAR entities.

Introduction to international management systems

SOCAR continually applies international management systems in its business entities. For example, the Company attempts to align the operations of Complex Drilling Works Trust, Administrative Department of “Azneft” PU and “Azerikimya” PU with the requirements of OHSAS 18001 “Operational Health and Safety Management System” and get relevant certificates. Re-certification audits were conducted by various certification bodies in some entities and the existing certificates were renewed. These entities included Training, Education and Certification Department, Environmental Department, “28 May” OGPD of “Azneft” PU, Heydar Aliyev Oil Refinery, Marketing and Economic Operations Department, Department of Geophysics and Geology, Information Technology and Communications Department, Gas Processing Plant, Azerigaz Production Unit, Complex Drilling Works Trust and Department of Labor Standards.

Employee educationIn 2016, SOCAR developed the following

occupational health and safety procedures and instructions that were communicated to the employees:

• Design and safe operation of pressure vessels used in oil, gas and petrochemical industries;

• Unified rules for safe diving works and medical support for (the final edition is currently being prepared).

The Company strictly controls the correct implementation of new rules and organizes the required trainings in all of our entities.

Training on marine survival in emergency situations that shows the correct and skillful handling of the rescue equipment on platforms, was carried out for our offshore employees in the SOCAR’s Offshore Maritime Safety Training Centre as listed below (Table 7)

Safety proceduresThe collective employment agreements concluded

with members of the Trade Union cover the actions that are taken to address the following issues:

• Providing employees with work places that meet occupational safety requirements;

• Providing privileges for the employees, who work in severe and harmful conditions, in compliance with the specified standards and regulations;

• Ensuring that the employees working in severe, harmful and hazardous conditions have regular medical examinations;

• Providing employees with required sanitary and amenity facilities.

Each year, the progress of implementing these collective employment agreements is discussed and decisions are taken as a result.

To improve the working environment and health indicators in production areas, SOCAR allocates at least 3% of its payroll budget for the development and implementation of the required action plans throughout all the entities. The Company also provides regular medical examinations for employees who are exposed to the dangerous working conditions, are involved in overhead and other critical works. We also work to ensure that the required and prompt medical treatment is provided to the injured employees.. In 2016, 23813

Table 7. Offshore safety courses carried out in 2016

Occupational Health and Safety

Name of training course Namber of

trainees Safety familiarization, basic training and instruction for personnel on self-propelled mobile offshore units

2269

Professional training on the use of rescue boats and rafts as well as fast rescue guard boats and slow-speed rescue boats for the personnel of fixed offshore platforms and floating drilling rigs

220

34


employees underwent a scheduled medical examination. Over the reporting year, SOCAR focused on safety in explosion and fire-hazardous facilities. For instance, in 2016 we installed modern wellhead equipment for the production wells at offshore platforms. To ensure safety in this area, a new and up-to-date oil-gathering station at “Neft Dashlary” OGPD was constructed.

To minimize safety risks, the standing commissions of SOCAR and its entities responsible for the occupational safety carried out 490 audits over the reporting year and undertook appropriate actions to eliminate detected non-conformities. As a result of these audits, the following actions were implemented:

• The down-hole equipment of some wells at “28 May” OGPD was refurbished;

• The faults detected in the rescue boats in a number of production units were eliminated;

• The awareness level of the employees was improved by providing additional training;

• The technical condition of equipment, installations and mechanisms was aligned with the safety requirements.

Accidents and injuries Unfortunately, despite the actions taken, 11

accidents occurred in SOCAR entities in 2016, five of which were fatal. In compliance with the Rule of “Investigation and registration of occupational accidents”, the accidents were investigated by dedicated investigation committees of the Labor Inspection of the Ministry of Labor and Social Protection of Population. The circumstances and causes of these accidents were identified and appropriate actions were taken.

In 15 December 2016, severe wind conditions caused the collapse of the offshore ramp at OilGathering Station No. 3 of “N. Narimanov” OGPD of “Azneft” PU, as a result of which 9 people died and 1 person went missing. The incident is being investigated by a dedicated investigation group and more detailed information will be provided in the next Sustainability Report once the investigation results are available. SOCAR and other concerned entities are continuing to provide aid and support to the families of the victims. Moreover, as per Resolution of the Cabinet of Minister of the Republic of Azerbaijan which was adopted following this incident, financial aid is also being provided from the state budget, SOCAR and other affiliated institutions.

Pursuant to the agreements concluded between SOCAR and its entities on one hand and PASHA Life

Insurance OJSC on the other, the insurer pays insurance benefits to any employees injured in the production process or the family members of the deceased.

In 2016, there were no female employees among the injured, and there were no records of occupational diseases in the structural entities of SOCAR.

According to the formal analysis reports, the main causes of all accidents and occupational injuries occurred during 2016 are employee incompliance with the safety rules, as well as severe storm and extreme weather conditions. As mentioned above, the Company started to conduct safety training programs more frequently to prevent any recurrence of such incidents and carried out necessary refurbishment and maintenance works to eliminate the identified risks on the platforms. More detailed information about preventive actions is provided in the section below.

The investigation of the accidents on 501 platform of “Neft Dashlary” OGPD and Guneshli 10 deep-water offshore platform in December 4, 2015 is continued by the specially established groups and committees, although the insurance benefits specified by legislation were provided to the family members of the 14 deceased and 19 missing employees (please, see “Social activity and Support to Regional Development” chapter for more details). Among the deceased and lost workers, four were employed by the SOCAR’s subcontractors. As the official investigation of this accident is still in process, the number of employees injured in the major accidents that occurred in December, 2015 was not covered by the current report (please refer to Attachement 4).

Preventive actionsSOCAR and its joint operating companies analyze

the cause and consequences of accidents and emergencies, assess possible risks and take preventive actions to avoid a recurrence of the incident. The Company has increased the number of its safety officers in some of its entities (Oil and Gas Construction Trust, Gas Export Department, Gas Processing Plant and Department of Geophysics and Geology) to strengthen control over compliance with the safety rules directly in its production areas.

To prevent fire hazards and accidents caused by severe storms and natural disasters, SOCAR has inspected the serviceability of all process facilities and equipment, oil and gas pipelines, electrical cables and hydro technical facilities. It continues to implement actions to maintain them in an operational


35

and serviceable condition. For instance, the Company has started refurbishment works in a number of hazardous production areas.

Moreover, running the vehicles and machinery on the offshore ramps connecting the “Neft Dashlary” OGPD platforms have been prohibited. Following the unsafe conditions identified at Central Oil Gathering Station No2, it has been fully shut down. In addition, personnel working at some of the other hydro technical facilities that do not meet the technical requirements have been relocated to safer working places (i.e. 105 workers from “N. Narimanov” OGPD, 172 workers from “28 May” OGPD and 127 workers from “Neft Dashlari” OGPD were relocated). 9 10 11

9 The number of lost working days in 2016 also includes the lost time due to accidents in 2015 based on the updates of the investigation pro-cess of these accidents.10 The accident frequency rate indicates the total number of accidents per 1000 employees (source: “Single management system for occupa-tional safety in the oil industry of Azerbaijan”, “A guidebook on the occupational health and safety of employees”).11 The accident severity rate indicates the average number of lost time injuries per one accident (source: “Single management system for the occupational safety in the oil industry of Azerbaijan”, “A guidebook on the occupational health and safety of employees”).

Occupational health and safety performance indicators 2016 Total number of accidents 11 including fatal accidents 5 Total number of injured employees 23 including fatalities 13 Total number of lost employees 1 Number of occupational diseases 0 Number of days lost due to production injuries 22529 Sick leaves 182814 Total average number of employees 50645 Total hours worked 77484840 Total days worked 9685605 Production injury rate (per 100000 hours worked) 0,030 Lost days rate (per 100000 hours worked) 2,9 Absentee rate (per 100000 days worked) 1887,5 Accident frequency rate (number of accidents per 1000 employees)10 0,217 Accident severity rate (number of lost days per accident)11 375,3

4

1

2

2

1

1

Oil and Gas Production

Oil and Gas efining

Oil-gas supply and transportation

Construction

Transportation

Drilling

Occupational health and safety expenditures 2016

Total expenditures, including 22 018 Initiatives to improve working conditions 14 367 Personal Protective Equipment (PPE) 6 401 Dairy products 1 042 Other 208

Number of incidents per operating area in 2016

Table 9. Occupational health and safety performance indicators in 2016

Table 8. Occupational health and safety expenditures in 2016, thousand AZN

36


SOCAR’s foreign subsidiariesSenior management of SOCAR’s foreign subsidiaries has always focused on issues related to occupational

health and safety while implementing actions to improve the working environment.SOCAR Energy Turkey considers employee health and safety as one of the top priority issues. The health

and safety management systems applied on its construction sites are also in the focus of attention during the commissioning and operating of the facilities.

The Company promotes a monthly incentive program for all on-site employees to draw attention to and raise awareness about health and safety matters. Senior management communicates the health and safety issues and achievements during the monthly award ceremonies where the supervisory and operating personnel also receive prizes for outstanding safety performance.

The new occupational health and safety monitoring program introduced by STAR oil refinery in 2016 ensures that health and safety performance is regularly evaluated and onsite operations comply with the existing safety standards and requirements.

In 2016, SOCAR Energy Ukraine, SOCAR Energy Switzerland and SOCAR Energy Georgia also implemented a number of initiatives on occupational health and safety, including fire safety and emergency response. Therefore, the regular evaluation of employee knowledge at sale points as well as provision of PPE and regular training is under the strict control of the management. 12 13 14 15

12 The report does not cover performance indicators of SOCAR Energy Georgia due to their immateriality. For all other subsidiaries, the total num-ber of injured employees includes only those that resulted in the lost time injuries.13 The indicators cover the performance of Petkim, STAR oil refinery, Petlim port. The indicators also include the performance of the contractors working in these entities. Due to the fact that some indicators for previous years were calculated using different approaches, several non-con-formities were identified and revised .14 The number of injured employees includes only those that resulted in the lost working time.15 The high value of this indicator is because the contractor hours working at STAR Oil Refinery are also included.

Table 10. Occupational health and safety performance indicators in 2016 12

SOCAR Energy Ukraine Total number of injured employees 1 Total number of fatalities 0 Number of occupational diseases 0 Number of days lost due to production injuries 36

Total average number of employees 1 737 Total hours worked 3 336 002 Sick leaves 8 936 Production injury rate (per 100000 hours worked) 0,030

Accident frequency rate (number of incidents per 1000 employees) 0,576

Accident severity rate (number of lost days per accident) 36,000

Lost day rate (per 100000 hours worked) 1,079

SOCAR Energy Switzerland (ROC) Total number of injured employees 10 Total number of fatalities 0 Number of occupational diseases 9 Number of days lost due to 0 Total average number of employees 582 Total hours worked 1026480 Sick leaves 11640 Production injury rate (per 100000 hours worked) 0,974

Occupational disease rate (per 100000 hours worked) 0,877

Accident frequency rate (number of accidents per 1000 employees) 17,182

production injuries

SOCAR Energy Turkey 13 Total number of injured employees 14 45 Total number of fatalities 1 Number of occupational diseases 0 Number of days lost due to production injuries 1704

Total average number of employees 2708 Total hours worked 15 27983632 Production injury rate (per 100000 hours worked) 0,161

Lost days rate (per 100000 hours worked) 6,089

Accident frequency rate (number of accidents per 1000 employees) 16,617

Accident severity rate (number of lost days per accident) 38,727

SOCAR Energy Switzerland (SES) Total number of injured employees 2 Total number of fatalities 0 Number of occupational diseases 0 Number of days lost due to production injuries 0

Total average number of employees 132 Total hours worked 227752 Sick leaves 1276 Production injury rate (per 100000 hours worked) 0,878

Accident frequency rate (number of incidents per 1000 employees) 15,151


37

Environmental management in SOCAROne of the main goals pursued by SOCAR is to

become a company compliant with global industrial and environmental safety requirements. From 2008, SOCAR’s Environmental Policy has been the principal guiding document for its environmental performance. The Policy defines the main directions of its environmental protection activities in the short term. In addition, some supporting documents have been prepared based on this policy. This includes a Waste Management Plan, Reduction of Atmospheric Emissions of Associated Gas, Potential Emergency Prevention Plan, Strategy for Reduction of Climate Change Impact until 2020, Oil Spill Alert and Cleanup Plan and similar documents.

The Vice-President of SOCAR for the Environment, the Division of Environmental Projects Management and the Environmental Department are responsible for managing environmental protection and risks of the Company.

In 2016, SOCAR spent 15,0 million AZN on environmental measures. There were no fines for non-compliance with environmental regulations or waste discharge in the reporting year.

International and local standards applied in SOCAR

SOCAR continues to apply international standards for environmental protection management systems in its operations. Furthermore, the certification body conducts annual audits to verify the conformity to such standards (e.g. ISO EN 14001), renews the certificates and extends them for the next year.

Environmental Impact AssessmentIn compliance with the international conventions

as well as in accordance with the requirements of local and international legislation, seven reports on an Initial Environmental Examination (IEE) and Environmental Impact Assessment (EIA) were prepared and approved for all projects implemented by SOCAR in 2016.

In 2016, the Environmental Department prepared, approved and submitted 17 environmental regulations for SOCAR’s entities.

Environmental awareness and training SOCAR considers the environmental awareness

of the employees as one of the pillars for sustainable development.

In 2016, the Education, Training and Certification Department organized awareness-raising courses at its employee-training center on:

• Environmental Policy of SOCAR.;• Waste Management.;• Oil Spill Response and so on.

Stakeholder engagementTo increase the environmental awareness of the

public and its employees, SOCAR participated in a number of events in 2016 as in previous years.

In 2016, it participated in the following: • A seminar on World Marine Mammal Protection

Day;• The Earth Day campaign of the IDEA Public

Union;

Environmental performance

Expenditures on waste management and land rehabilitation, million AZN

Table 11. The list of SOCAR’s entities certified with TSE-ISO EN 14001 standard

Name of an entity Issue date, year

Environmental Department 2012 Gas Processing Plant 2012 Department of Geophysics and Geology 2013 Azerigaz Production Union (PU) 2013 Department of Labor Standards 2013 Transportation Department 2012 Diving and Rescue Works Department 2014 Baku Higher Oil School 2014 Experimental Production Unit on Repair and Lease of Submersible Rigs of “Azneft” PU

2012

Department of “Azneft” PU for the operating of gas storages

2013

“28 May” OGPD of “Azneft” PU 2013 Gas Export Department 2013 Complex Drilling Works Trust 2016

Expenses on waste management

Expenses on land rehabilitation

Total13,798

12,760

1,038

38


• An event dedicated to World Environmental Protection Day (June 5);

• A seminar dedicated to the International Day for the Preservation of the Ozone Layer, held at the School Lyceum Complex of Baku Slavish University;

• “We clean the world” campaign conducted jointly by “28 May” OGPD and school students on Chilov island.

Environmental monitoring systemTo assess the impact of oil and gas production

on the eco-system in the Caspian Sea, a number of monitoring activities are carried out throughout SOCAR. These cover a comprehensive analysis of the general physicochemical properties of the aquatic environment, composition and amount of biogenic substances and petroleum products, composition of seabed sediments, organic substances, taxonomy of micro-organisms and planktonic flora as well as determine the level of anthropogenic impact.

A total of 887 monitoring activities were conducted by field monitoring groups in 2016 16 (for more detail, please, see Figure 4). The monitoring results were included in the Geographic Data System database.

Global climate change SOCAR continues to meet its relevant commitments

to the UN Framework Convention on Climate Change and within the framework of Paris Climate Agreement signed by the Republic of Azerbaijan on April 22, 2016. To minimize the risks associated with climate change, the Paris Climate Agreement emphasizes the partnership 16 The number of monitoring activities in 2016 increased due to strengthening environmental control and stricter regulatory require-ments

between business entities and governmental bodies as well as encourages the joint research and application of innovative solutions in this area.

To reduce climate change impact, SOCAR implements targeted actions to decrease the energy consumption per unit of output in oil and gas production as well as in transportation and refining by applying energy-efficient equipment and technologies. 17 For example, to provide smokeless combustion of gases emitted into the atmosphere, the flare facility in “Azerikimya” PU was revamped. The flare tips were replaced and a return system was installed for the fuel gas, which is supplied to the flare stack during the drier regeneration process in the ethylene facility.

The efficiency of air pollution management is directly related with the registration, inventory and control of emissions. The new methodology to calculate the amount of greenhouse gases (GHG) and other pollutants from SOCAR’s stationary sources was developed in 2015 and agreed in 2016 by the World Bank’s Global Gas Flaring Reduction Partnership and Climate Change and Ozone Center formed by the Ministry of Ecology and Natural Resources.

Turkey also implements procedures to calculate GHG emissions and prepare regular reports. The first legislation on the management of GHG emissions (April 25, 2012) was No.28274 “Regulation on Monitoring of Greenhouse Gas Emissions”. As per the regulation requirements, Petkim was obliged to prepare and approve a report on produced GHG emissions in 2015-2016. However, amendments to this regulation were made twice during the year and as per the latest update given by the Ministry of Environment and Urban Planning (MEUP) of Turkey officials, the deadline for the GHG reporting has been extended up until October, 2017.

17 For more detailed information, please, refer to SOCAR Sustaina-bility Report 2015, pages 45-47.

Figure 4. Dynamics of offshore and onshore environ-mental monitoring in 2014-2016

676

460

216

680

436

244

887

590

297

2014 2015 2016

Total number of monitoring surveysOnshoreOffshore


39

To meet the requirements of this regulation, Petkim signed a contract with a third party company accredited by MEUP in January, 2017. 18 19

The report will be published on SOCAR’s and Petkim’s corporate web sites once approved by the MEUP. The Company’s stakeholders will be informed about it through the corporate news.

18 The table does not include indicators from SOCAR Energy Ukraine due to limited production activities. SOCAR Energy Switzer-land produces only indirect emissions due to the limited scope of operations.19 The amount of the indirect emissions of SOCAR Georgia associ-ated with electricity consumption has been recalculated in this report using a single approach.

The reduction in GHG emissions is more evident in the gas production operations managed by SOCAR. The wells that can cause direct emissions into the atmosphere are connected to gas gathering stations, the tubular annulus in low-debit wells is packed, and abandoned wells are sealed to prevent gas leakages in compliance with the specified procedures. 20

To improve the reduction of GHG emissions, SOCAR prepared an action plan to decrease the amount of associated oil gas in 2017-2022. It aims to continue these projects in the coming years. One of the actions in this scope is supplying the associated gas to the network by preventing the greenhouse emissions (for more detailed information please refer to Attachment 5).

20 Direct emissions intensity ratios for SOCAR Energy Georgia, Ukraine and Switzerland were not included in the table due to their immateriality.

GHG emissions produced by SOCAR, thousand tons of CO2-equivalent 18

Table 12. GHG emissions discharged by SOCAR Azerbaijan, thousand tons of CO2-equivalent

GHG emissions (indirect emissions) caused by the electricity consumption of SOCAR Azerbaijan ,

thousand tons of СО2- equivalent.

Direct emissions intensity ratio for SOCAR in 2014-2016, thousand tons of CO2-equivalent per

number of employees 20

Direct emissions 5989,8

Direct emissions 0,342

Direct emissions 0

SOCAR Azerbaijan

SOCAR Energy Georgia��

SOCAR Energy Switzerland

Indirect emissions 669,2



GHG emissions 2016

Total for SOCAR including:

5989,8

emissions from stationary production facilities

including:

5891,1

Structural divisions 5624,4 Operating companies and joint

ventures (OCs and JVs) 266,6

emissions from mobile facilities including:

98,7

Transportation Department 79,5 OCs and JVs 19,2

The total for SOCAR

669,2

Structural divisions438,9

OCs and JVs230,3

0,116

0,116

0,118

40


Pollutants discharged into the atmosphere by

SOCAR, our OCs and JVs

In accordance with the country’s legislation, all energy and industrial enterprises in the country, as well as the structural divisions of SOCAR, must provide the State Statistical Committee with annual data on the amount of pollutants discharged into the atmosphere by its OCs and JVs. To prepare the environmental specifications, an inventory of the pollutants discharged into the atmosphere by SOCAR, it OCs and JVs is being prepared.

To minimize any discrepancies, all the related reports, procedures and regulations are monitored annually (for more detailed information please refer to Attachment 5). Total amount of pollutants emitted into the atmosphere is determined based on results of the monitoring (Table 13).

Environmental control over atmospheric

emissions discharged by vehicles and other

special equipment

From 2009, the Environmental Department has controlled the level of harmful gases emitted into the atmosphere by vehicles and special equipment. Environmental labels were issued to 2915 vehicles that were found to conform to the standards when undertaking environmental measurements. 21

Energy consumption

Energy security and energy efficiency are key solutions to climate change. Guided by its environmental policy on energy efficiency and energy saving, SOCAR continues to carry out various projects in compliance with the State Program on Alternative and Renewable Sources of Energy in the Republic of Azerbaijan.

To increase energy efficiency, SOCAR installs more energy efficient equipment in its entities as well as makes appropriate corrections to operating procedures. The energy intensity ratio specified in Table 14 is calculated to measure the energy efficiency of the Company. Thus, an increase in the electricity intensity ratio in 2015 is caused by the reduction in the number of employees due to optimization process implemented in the reporting year. The slight increase in the electricity intensity ratio demonstrates a need for energy-efficiency initiatives. Therefore, the Company uses an energy consumption recording system gathering data on energy use from all the structural divisions as well as develops optimal patterns for energy consumption. Furthermore, the following actions were taken during the reporting year: the obsolete pumps at the “Absheronneft” OGPD oil wells were replaced with new energy saving screw-type pumps, special actuators were installed to adjust the speed of oil loading pumps and out-of-date diesel generators were replaced with more energy-efficient machinery.

21 For more details, please, refer to SOCAR’s report on sustainable development, pages 48-49.

GHG emissions as a result of SOCAR’s operations in Azerbaijan in 2016, thousand tons

Table 13. Amount of pollutants emitted into the atmosphere by SOCAR in 2016, thousand tons

Methane (CH₄)127,7

Carbon gas (CO₂)3307,6

Subsidiary Amount of pollutants

Total for SOCAR Azerbaijan including: 131,55

solid substances 0,23 gaseous and liquid substances

131,32 Total for SOCAR Energy Georgia

0,43 solid substances gaseous and liquid substances

0,43 Total for SOCAR Energy Ukraine including: 0,07

solid substances 0,02 gaseous and liquid substances

0,05


41

22 23 24

22 Energy intensity ratio indicates the amount of electricity consumed by one employee.23 The environmental indicators of SOCAR Energy Turkey have been recalculated and revised accordingly using a single and approved approach.24 This indicator shows the amount of fuel used by specialized equip-ment and transport vehicles.

Waste managementSOCAR implements a centralized management

of all wastes that are typical for oil, gas and chemical industries to comply with its principle of “zero waste. Its Waste Management Plan (WMP) covers the main principles of waste management is applied to all departments and entities.

Around 13127 tons of drilling sludge and 505,62 tons of industrial waste were transferred to the waste center in 2016. Pursuant to the agreement concluded between the environmental department of SOCAR and “econ industries gmbh” (Germany), two pieces of VacuDry vacuum distillation units designed for the processing of drilled cuttings were installed in the waste center. The above-mentioned units are complex systems that combine components necessary to process drilled cuttings as well as operate automatically using up-to-date technology.

To process the drilling sludge generated in the production process and solid industrial wastes the Garadagh Waste Recycling Center is used for temporary storage. As specified in Figure 5, total drilling sludge increased by 11% due to increased number of wells and drilling works as compared with the previous year. Oil sludge rose by 30% due to the repair and decommissioning works carried out in old wells. Reusable materials accumulated in the Waste Center (such as wood, paper and rubber) are supplied to other organizations for specific uses or are recycled.25

25 The total value of natural gas provided in the previous reports was incomplete as it covered the amount of natural gas used by “Azneft” PU for the heating of pipelines only. Therefore, the amount of the natural gas consumed for production and household purposes by all SOCAR Azerbaijan entities was recalculated and amended in the current Report.

Data on the electricity consumption of SOCAR in 2016, thousand kW/h

Fuel used by SOCAR Azerbaijan in 2016 24

Total for SOCAR, including2160805

SOCAR Azerbaijan1079993

SOCAR Energy Turkey1029450

SOCAR Energy Georgia28615

SOCAR Energy Ukraine 9351 SOCAR

Switzerland 13396

Table 14. Energy intensity ratio in 2014–2016 (consumption of electricity (thousand kW/h) per an employee) 22

Enterprises 2014 2015 2016 SOCAR Azerbaijan 20,2 21,1 21,3 SOCAR Energy Turkey (Petkim) 23 360,59 428,12 433,82 SOCAR Energy Georgia 5,3 7,85 6,73 SOCAR Energy Ukraine 4,6 3,7 5,4 SOCAR Energy Switzerland 20,4 19,7 18,7

Gasoline, tons5826,57

Diesel, tons32119,125

Natural gas, ths. m³ 809218,235 ��

42


Information about generated, utilized and transferred waste can be found in Table 15. The breakdown of waste for hazardous and non-hazardous is given in the Attachment 5. 26 27 28 29

26 The table does not cover the indicators of SOCAR Energy Geor-gia and Switzerland due to their limited production activities. 27 The deviations from the indicators given in the previous year’s report occurred due to the different conversion coefficients used by different SOCAR entities to convert some waste types expressed in m3 to metric tons.. Also, some entities classified hazardous metal wastes as non-hazardous last year. Following the clarifications and reconsiderations made by the Environmental Measurements and Waste Management team of the Environmental Department, the most accurate data on waste management for all 3 years are pre-sented in the current report.28 Due to the fact that some companies owned by SOCAR Energy Turkey are under construction (for example, STAR Oil Refinery etc.), the report covers only the performance indicators of Petkim. Dis-posed wastes include the wastes incinerated at Petkim.29 Processed wastes refer to the wastes incinerated at the Petkim site.

Formation water management The protection of the Caspian Sea basin is a priority

issue in SOCAR’s environmental policy. To prevent the spread of formation waters into the surrounding areas during the production of hydrocarbons, SOCAR has used a formation water management system as well as a closed-cycle utilization of formation water. It continues its efforts aimed to assimilate and apply advanced technologies continuously. As part of the actions taken in this direction, the Company applies state-of-art equipment (capacity of 3550 m3/day) designed for closed-cycle utilization and injection of formation water back into the bed. This technology is used on the deep-water offshore platforms of the Guneshli field of “28 May” OGPD and operational areas of “Neft Dashlary” OGPD.

The figure given below shows the amount of the formation water produced by “Azneft” PU, OCs and JVs in the process of oil production in 2016.

Oil spill prevention and responseAs the operations of the Company are related to

hydrocarbon products, the risk of oil spills increase. Therefore, it prioritizes the prevention of the onshore and offshore spills of oil and petroleum products. A working group established within the Emergency Committee of SOCAR is responsible for managing the operations related to alerting and cleanup of spilled oil and petroleum products.

The approved Oil Spill Alert and Cleanup Plan is considered a guiding document. In accordance with the approved training schedule, basic training has been conducted in those entities that encounter oil spill risks. Awareness-raising courses on oil spill response and prevention have been organized in SOCAR’s entities.

Corrosion and formation of holes in transportation pipelines are among the major causes of oil spills.

15,7

88,97

13,1

10,06

18,87

Drilling sludge Oil slude2014 2015 2016

Table 15. Drilling sludge and oil sludge generated by SOCAR Azerbaijan in 2014–2016,

thousand tons 26

Waste type 2016

SOCAR Azerbaijan 27

Waste generated 60,98 Waste utilized 0,91 Waste transferred to third-party organizations

45,04

Waste transferred to the Waste Disposal Centre

13,709

SOCAR Energy Turkey 28 Waste generated 30,72 Waste processed29 10,1 Waste transferred to third-party organizations

21,1

SOCAR Energy Ukraine Waste generated 2,13 Waste utilized 0 Waste transferred to third-party organizations

2,13 Formation water produced by SOCAR Azerbaijan,

million m3

Total for SOCAR

Azerbaijan 25,059

“Azneft” PU 5,62

OCs and JVs 19,439

Figure 5. Drilling sludge and oil sludge generated by SOCAR Azerbaijan in 2014–2016, thousand tons


43

To prevent ruptures in oil pipelines, various pipelines with the length of 22886 m underwent a major overhaul in 2016 in compliance with the major maintenance program. This action helped to prevent oil leakages. Over the reporting year, only small leakages occurred and no large-size ruptures or oil spills in the old pipelines were observed.

The information exchange between the oil companies operating in the regions (BP Azerbaijan, Karasu Operating Company, Salyanoil Operating Company and others) enables a quick response to pipeline emergencies as well prompt response to any rupture.

In 2016, no significant emergency oil spills occurred.

Water managementTo maximize the efficient use of water resources,

SOCAR implements actions aimed at the rational use of water resources and pollution prevention as well as applies the most advanced innovations for efficient use of water resources in implementing new projects.

To meet the demand of its offshore operational areas for water resources, SOCAR uses reverse osmosis facilities. More detailed information on the amount of water consumed by sources can be found in Attachement 5.

Along with formation water, SOCAR also undertakes large-scale initiatives to manage sewage water generated in the operational areas. It has installed operational biological treatment facilities to treat sewage waters generated in “Neft Dashlary” OGPD and Chilov island. 30 31 32

Rehabilitation of disturbed ecosystemsSOCAR uses a multistage approach to rehabilitate

ecosystems and re-cultivae processes. Its policy enables the rehabilitation of polluted areas around Baku and other strategically important areas at the first place and the rehabilitation of polluted areas near residential districts at a later stage.

Rehabilitation works performed by SOCAR have resulted in a year-on-year decrease in the total area of the lands polluted with petroleum products and formation water (for more detailed information please refer to Attachment 5).

30 There is no demand for recycled and reused water in the entities located in Georgia, Turkey, Ukraine and Switzerland, therefore these indicators are not available in the current Report.31 The reductions in recycled water in 2016 are due to changes in the calculation method applied by the the Gas Processing Plant .32 No statistic reports on these indicators are prepared by SOCAR’s foreign entities.

Amount of recycled and reused water in SOCAR, thousand m3 30

Water consumption in SOCAR in 2016, million m3

SOCAR total68,811

SOCAR Azerbaijan 48,81

SOCAR Energy Turkey 19,601

SOCAR Energy Georgia 0,19

SOCAR Energy Ukraine 0,12


0,09

SOCAR Azerbaijan 270,97

Recycled water �� 268,47

Reused water2,5

Table 16. Data on the lands polluted with the petroleum products by SOCAR, its OCs and JVs in 2016 as well

as the lands covered with formation water, ha 32

The causes of land pollution "Azneft" PU

971,35 1221,88 Land polluted with oil and petroleum products

694,47 731,57

Land covered with formation water 276,88 490,31

JV and OC

The total area of lands polluted

44


Hygiene and epidemiology services 33

The Hygiene and Epidemiology Centre of the Environmental Department is responsible for employees occupational health, the prevention of occupational diseases, compliance with the sanitary and hygiene norms in residential areas, the prevention of infective diseases and implementation of epidemiological response actions in all SOCAR’s entities.

In 2016, Sanitary-hygiene inspections were conducted in 160 entities. Due to these anti-epidemic initiatives, 30 tuberculosis cases were registered and, following medical treatment, work permits were reissued to 26 employees.

Environmental cooperationCooperation with the Global Environmental Fund

(GEF) and UN Development Program (UNDP)The “Nationally appropriate mitigation actions

(NAMA) for low-carbon end-use in Azerbaijan” project was approved by GEF in 2015 and the associated works commenced in 2016.

To provide financial support for the project implementation, GEF had a budget of AZN 3,55 million in addition to the costs to be incurred by SOCAR, while UNDP allocated AZN 0,2 million. The project implementation covers the components listed below:

• SOCAR’s Green Building Program;• Sustainable Transport at SOCAR;• SOCAR’s program for associated gas capture

and supply to the end–consumer.SOCAR has already implemented several works

for each of the above noted three components of the Project. It has identified buildings where energy-efficient technologies will be applied within the scope of the Green Building Program. Currently, insulation works are

33 SOCAR does not make such statistic reports for its oversees entities.

underway. Furthermore, the project on the enhancement of the energy efficiency of the road transport of SOCAR within sustainable transportation program has been implemented. The organizational works on “SOCAR’s program for associated gas capturing and supply to the end–consumer” are also underway.

Cooperation with the World Bank’s Global Gas Flaring Reduction Partnership (GGFR) organization

In the framework of the cooperation with the World Bank led Global Gas Flaring Reduction Partnership (GGFR) organization, SOCAR joined the World Bank’s “Zero Routine Flaring by 2030” initiative. Joining this initiative has opened up new challenging and momentous opportunities for SOCAR.

One of the goals of SOCAR within this initiative is to minimize the amount of the emissions of natural and associated gases into the atmosphere. As a result, the Company developed “The plan to reduce the associated gas emissions discharged by SOCAR and in the joint projects SOCAR” for 2017-2022. Currently, the basic principles for reducing the amount of associated gases emitted into the atmosphere by “Azneft” PU and rehabilitation of polluted lands are being prepared.

Furthermore, SOCAR Absheron is cooperating with the World Bank and other international organizations to recover lakes and promote sustainable management of organic waste.

Cooperation with BPFollowing a joint project initiative by SOCAR

and BP Azerbaijan, gas flaring at the Chirag platform was minimized. Successful cooperation between two companies resulted in reducing CO2 emissions by 265 thousand tons. The project was awarded with the Certificate of Excellence 2015 in the 4th GGFR Global Forum.

Within the framework of the Waste Center Expansion Project, SOCAR and BP Azerbaijan also established a working group responsible for selection of the equipment processing drilled cuttings in compliance with the modern standards.

In 2016, the Waste Centre Expansion Project was continued. The opening ceremony of the renovated Waste Centre was held in September 2016 with representatives of the Ministry of Ecology and Natural Resources, BP, SOCAR and other oil companies operating in the oil and gas sector of the country. Pursuant to an agreement signed between the SOCAR’s

Remediation of SOCAR’s lands polluted with oil, oil-containing water and other industrial

waste in 2016, ha 33

The total for SOCARAzerbaijan

44,8

OCs and JVs25,1

“Azneft” PU19,7


45

Environmental Department and BP, the drilled cuttings from BP’s operational areas are received in our Waste Center and further processed in the special VacuDry facility.

Cooperation with Carbon Limits (Norway)In 2016, SOCAR and Carbon Limits signed a

memorandum of understanding (MoU) to determine total emissions of invisible gases. Instrumental measurement works were carried out at the source leakages (gas supply pipelines for furnaces, gas storage tanks, gas compressors) in the structural divisions of SOCAR. A joint seminar was scheduled for May 2017 to discuss the findings.

SOCAR Energy TurkeyThe “SAFE” (SOCAR Aims For Efficiency)

guidelines of SOCAR Energy Turkey covers 16 basic principles (e.g. risk management, control of contractor operations, environmental assessment) on occupational health, safety and environmental management system as well as defines 100 related targets. The HSE risks related to the Company operations are continuously assessed and documented, and priority actions are specified for each identified risk. At least once a year, senior management reviews the completion status of specified priority actions and the efficiency of the HSE management system.. The results of the review are discussed with all interested parties of the Company.

In 2016, SOCAR Energy Turkey successfully completed its ISO 14001:2004 re-certification for its petrochemical operations. The energy efficiency actions implemented by SOCAR Energy Turkey were mainly related to petrochemical operations. The petrochemical operations of the Company were certified according to ISO 50001 Energy Management Systems. Furthermore, to ensure that water resources are used more efficiently, rain water accumulated in a special reservoir at Petkim undergoes several treatment processes and is re-used for production and household purposes.

STAR Oil Refinery prepared a management plan focusing on reduction of the negative environmental impacts. It launched a program for monitoring marine turtles and large marine mammals to protect the marine ecosystem and to control its biological diversity.

STAR Oil Refinery also uses a satellite surveillance system to control environmental impacts resulting from construction-installation works carried out at coastal areas. Moreover, the contact measurements of the factors negatively affecting the environment were implemented by the accredited third-party to assess the environmental impacts of the construction works carried out on site.

SOCAR Energy GeorgiaSOCAR Energy Georgia is cooperating closely with

the Ministry of Environmental Protection and Natural Resources of Georgia (MEPNR). The Company’s

46


Waste Management Plan was approved by the relevant ministry. Appropriate environmental monitoring was conducted at all petroleum depots. In 2016, waste inventories were prepared for all entities in compliance with the Waste Management Code. The reduction of natural gas losses caused a decrease in the amount of gas emissions discharged into the environment.

The procedure for the electronic calculation of harmful atmospheric emissions was submitted for approval to MEPNR, after which it was completely assimilated and put into practice.

SOCAR Energy UkraineThe Ministry of Ecology and Natural Resources

is the body that determines standards for atmospheric emissions and pollutants. SOCAR Energy Ukraine considers all environmental pollutants when planning the construction of sale points. Thereafter, all the construction plans receive relevant governmental body approval. At the same time, the Company applies the most advanced and environmentally friendly equipment and technology in its operations to minimize environmental damage. 34 35 36

34 The table does not include environmental expenditures of SOCAR Energy Switzerland as these are inmaterials compared with the overall expenditures.35 The exchange rates used for conversion of expenditures into AZN in 2016 are as follows: 1 USD-1,5973 AZN, 1 GEL-0,6751 AZN, 1 TL-0,5278 AZN.36 This indicator covers only the environmental expenditures of Pet-kim and PETIM as environmental expenditures of STAR Oil Refinery were insignificant in 2016. The indicators for the previous years have been recalculated and included in this report by using a single and more appropriate categorization method.

The funds spent by SOCAR’s foreign subsidiaries on environmental activities in 2016 34 , million AZN 35

SOCAR Energy Turkey 3,717

SOCAR Energy

SOCAR Energy Georgia0,018

Ukraine 0,063


47

SOCAR Azerbaijan 2016 2015 2014

5 931 786 5 995 618 3 656 838

16 789 816 15 015 617 12 802 737

22 721 602 21 011 235 16 459 575

(10 915 472) (10 337 788) (10 357 208)

(5 617 944) (4 018 250) (2 917 182)

(6 188 186) (6 655 197) (3 185 185)

(22 721 602) (21 011 235) (16 459 575)

SOCAR Energy Turkey

2 113 077 2 138 117 696 151

7 018 160 5 302 998 2 097 250

9 131 237 7 441 115 2 793 401

(5 015 412) (3 746 829) (1 159 421)

(1 027 073) (984 681) (618 989)

(3 088 752) (2 709 605) (1 014 991)

(9 131 237) (7 441 115) (2 793 401)

SOCAR Energy Georgia

256 346 161 946 66 735

447 490 415 427 247 669

703 836 577 373 314 404

157 565 99 592 15 017

(593 958) (409 730) (216 769)

(267 443) (267 235) (112 652)

(703 836) (577 373) (314 404)

SOCAR Energy Ukraina

61 259 61 081 47 395

128 520 135 019 88 673

189 779 196 100 136 068

(171 648) (103 818) 28 337

(13 980) (86 466) (90 166)

(4 151) (5 816) (74 239)

(189 779) (196 100) (136 068)


315 735 265 785 133 048

569 622 529 854 278 115

885 357 795 639 411 163

(429 068) (395 599) (206 556)

(174 276) (124 214) (85 499)

(282 013) (275 826) (119 108)

(885 357) (795 639) (411 163)

Total current assetsTotal non-current assetsTOTAL ASSETSTotal equityTotal current liabilitiesTotal non-current liabilitiesTOTAL LIABILITIES AND EQUITY





Key financial indicators, thousand AZN

48


ATTACHMENT 1

About the Company 2014 2015 2016Industrial indicators

0,305 17 0,633 470,350 27 snot .sht ,sevreser lio nevorPProven gas reserves, mln. m3 0,879 15 0,200 550,659 45 Oil p 4,225 7 6,061 80,003 8snot .sht ,noitcudorGas production, mln. m3 8,662 6 5,178 60,010 7

4,900 6 9,874 65,047 6 snot .sht ,gninifer liOGas refining, mln. m3 7,000 3 8,104 33,556 3 Production output37,ths. tons, including 8 851,09 6 055,22 5 455,01

85,931 1 29,322 152,832 1 enilosag elibomotuAPrimary processing gasoline cut (to “Azerikimya” PU)

217,30 195,33 173,58

Hydrotreated gasoline (to “Azerikimya” PU) 203,96 0 043,726 13,88666,759 leuf enigne teJ09,188 1 63,350 276,958 2 leuf leseiD0 021,01 tuc enelyporp(enaporP0 050,471 tuc enelytub(enatuB81,061 35,45188,012 lio elcyc thgiL0 039,207 lio elcyc yvaeH26,893 20,31371,942 lio ecanruF95,602 87,45260,062 ekoc muelorteP26,581 26,75171,481 sesag deifeuqiL03,95 49,4691,75 )UP ”aymikirezA“ ot( sag yrd detaerT0 040,2 sag gniraeb negordyH00,563 93,98616,101 1 liosag muucaV14,86 16,3631,601 leuf enignE31,971 77,17158,262 nemutiB67,9 46,4250,35 slio gnitacirbuL

Product produced by Azerkimya PU, ths. tons, including

480,1 484,01 459,61

63,301 56,60140,401 enelyhtE80,25 92,6594,65 enelyporP71,22 97,4261,03 noitcarf eneidatub(enelytuB99,96 53,3777,17 niser sisyloryP96,51 03,0227,81 niser yvaeH64,0 06,025,0 enaporP61,68 74,5801,68 sag leuF62,001 94,30140,101 enelyhteyloP49,8 52,2175,01 lohoclA lyporposI deifiruP05,0 28,096,0 EPID deifiruP

SOCAR’s contribution to budget, bln. AZN 1,851 1,485 1,394SOCAR’s charter capital, bln. AZN 1,496 1,614 1,802Economic indicators, ths. AZN SOCAR Azerbaijan Economic value generated 4 849 165 4 619 975 3 846 734

437 648 3 579 916 4 561 948 4 seuneveREconomic value distributed (2 289 175) (2 272 379) (2 426 761)

)228 778( )381 035( )715 416( stsoc gnitarepOEmployee wages and benefits (542 197) (534 157) (572 645)Payments to providers of capital (137 810) (260 993) (321 521)

)291734( )746 964( )760963( tnemnrevog ot stnemyaP)085 712( )993 774( )485 526( stnemtsevni ytinummoC

099 955 2 deniater eulav cimonocE 2 347 596 1 419 973

37 The indicators for 2014 in Table 4 include Heydar Aliyev Oil Refinery and Azerneftyag Oil Refinery.


49

SOCAR Energy Turkey 981 989 2 108 731 2269 367 1 detareneg eulav cimonocE981 989 2 108 731 2269 367 1 seuneveR)585 514 2( )506 317 1()126 195 1( detubirtsid eulav cimonocE

Op )623829 1( )964 205 1()849274 1( stsoc gnitare)505 271( )468 701()871 37( stifeneb dna segaw eeyolpmE)364 612( )962 19()621 54( latipac fo sredivorp ot stnemyaP)192 89( )300 21()963( tnemnrevog ot stnemyaP

0 00 stnemtsevni ytinummoC306 375 591 424143 271 deniater eulav cimonocE

SOCAR Energy Georgia 555 858 122 665831 625 detareneg eulav cimonocE555 858 122 665831 625 seuneveR)076 777( )087 905()409 484( detubirtsid eulav cimonocE)019 917( )549 774()205 064( stsoc gnitarepO)750 43( )944 22()931 51( stifeneb dna segaw eeyolpmE)396 71( )322 9()296 7( latipac fo sredivorp ot stnemyaP)010 6( )361()175 1( tnemnrevog ot stnemyaP


SOCAR Energy Ukraine 584 082 191 081902 132 detareneg eulav cimonocE584 082 191 081902 132 seuneveR)834 252( )558 561()576 902( detubirtsid eulav cimonocE)127 732( )319 351()194 791( stsoc gnitarepO)796 11( )134 7()112 8( stifeneb dna segaw eeyolpmE)376( )787 2()427 2( latipac fo sredivorp ot stnemyaP)7432( )527 1()9421( tnemnrevog ot stnemyaP


SOCAR Energy Switzerland 955 756 1 570 242 1668 071 1 detareneg eulav cimonocE955 756 1 570 242 1668 071 1 seuneveR)917 365 1( )012 391 1()738 431 1( detubirtsid eulav cimonocE)544 484 1( )206 821 1()064 180 1( stsoc gnitarepO)795 57( )588 16()442 15( stifeneb dna segaw eeyolpmE

Payments to providers of cap )646( )019()847( lati)968 2( )917 1()403 1( tnemnrevog ot stnemyaP

Community investment )261( )49()18( s048 39 568 84920 63 deniater eulav cimonocE

Products exported by SOCAR, ths. tons, including

2 029 581,58 2 280 949,78 1 815 420,71

0 045,234 9 29(A enilosaGTS(1 brand fuel for reactive engines 196 729,09 236 532,30 176 061,86

51,154 997 78,817 12976,923 569 26(L leuf leseiD37,022 583 06,096 32747,775 405 liosag muucaV32,614 2 20,08230,756 lio leuF01,214 532 50,516 75176,051 001 IKA rosserpeD00,045 48 30,033 8809,962 78 enelyhteylop erusserp(hgiH02,743 32 22,340 8209,98752 noitcarf eneidatub(enelytuB05,209 04 50,554 3470,585 54 enelyporP0 006,188 9 niser sisyloryp yvaeH71,775 75 093,942 37 niser sisyloryp diuqiL0 01,968 960 niser sisyloryP13,239 9 01,027 0126,653 01 lohoclA lyporposI deifiruP64,955 64,59663,275 EPID deifiruP

50


ATTACHMENT 2

Human Resources 2014 2015 2016SOCAR Azerbaijan

537 05 401 25417 45 snosrep ,seeyolpme fo rebmun latoTTotal number of employees recruited, persons 1 304 1 639 1 920Total number of employees dismissed, persons 2 634 7 834 1 350

160 634 999 713475 881 sruoh gniniart fo tnuoma latoTAverage training hours per emp 6,8 1,64,3 eeyolSOCAR Energy Turkey38

137 2 297 2107 2 snosrep ,seeyolpme fo rebmun latoTTotal number of employees recruited, persons 174 328 194Total number of employees dismissed, persons 178 237 248Total amount of training hours39 164 75 771 541624 001

0,12 0,252,73 eeyolpme rep sruoh gniniart egarevASOCAR Energy Georgia

352 4 811 4661 4 snosrep ,seeyolpme fo rebmun latoTTotal number of employees recruited, persons 815 846 631Total number of employees dismissed, persons 608 894 504

975 51 086 9783 01 sruoh gniniart fo tnuoma latoT7,3 3,25,2 eeyolpme rep sruoh gniniart egarevA

SOCAR Energy Ukraine 737 1 766 1374 1 snosrep ,seeyolpme fo rebmun latoT

Total number of employees recruited, persons 1 131 1 600 1 469Total number of employees dismissed, persons 1 027 1 406 1 399

501 543 390 432368 451 sruoh gniniart fo tnuoma latoTAverage training hours per employee40 105,1 140,4 198,7SOCAR Energy Switzerland Total number of employees, persons 686 714 714Total number of employees recruited, persons 325 342 196Total number of employees dismissed, persons 369 314 196

649 5 007 6823 6 sruoh gniniart fo tnuoma latoT3,8 4,92,9 eeyolpme rep sruoh gniniart egarevA

38 The indicators for SOCAR Energy Turkey were recalculated for all its using a single approach. 39 The reason of high value of training hours in 2015 is tthat more new employees were required in Petkim in 2015. 40 The reason of high average value of training hours per an employee in SOCAR Energy Ukraine is due to high employee turnover observed in petrol stations.


51

ATTACHMENT 3

Social activities 2014 2015 2016Social expenses, mln. AZN41

841 341351 najiabrezA RACOSSOCAR Energy Turkey42 121,01 277,5647,0 SOCAR Energy Georgia43 396,2 892,1665,1 SOCAR Energy Ukraine44 561,0 17,01,1 SOCAR Energy Switzerland (SES)45 441,9 59,35,4

471,6 72,43,5 )COR( dnalreztiwS ygrenE RACOSTypes of assistance, ths. AZN, including 11 003,35 12 166,07 3 920,7

117,976 812,859 1673,949 slaudividni rof troppus laicnaniF000,511 319,08761,504 ytirahC563,265 802915,721 4 laicoS623,437 1 81,404 3422 3 pihsrosnopS592,928 167,418 53,792 2 snoitutitsni rof ecnatsissa laicnaniF

Scope of assistance, ths. AZN, including 11 003,35 12 166,07 3 920,7000,533 167,496 7443,725 4 stropS025,910 1 057,825000,471 snoinu edart dna snoitaicossa laicnaniF803,282 567,226061,442 noitacudE441,028 1 517,637003,299 1 stra dna erutluC0 000,050 1953,868 2 seidob dna sesirpretne latnemnrevoG0 0005,51 erachtlaeH327,364 320,864 1963,411 1 slaudividni ot ecnatsissa lairetaM0 950,56423,76 snosrep dna snaretev delbasiD

Payments based on types of assistance, ths. AZN, including

3 944,56 4 723,93 8 078,602

To family members of deceased employees 338,07 381,61 394,080071,957 8,26859,276 rebmem ylimaf a gnisol rof seeyolpme oT

Monthly payments to children of the employees deceased in Karabakh war and in 20 January tragedy until they are 18 (until the age of 23 if they are in full-time education)

172,56 113,51 58,013

Monthly aid to each of children of tender age of deceased employees until they are 18 (until the age of 23 if they are in full-time education)

2 704,95 3 366,01 2 946,643

Approved by the p 696,0293 030,65 RACOS fo tnediser

41 Amount of social expenses in 2016 were as following: SOCAR Energy Georgia – 3,989,932 GEL, SOCAR Energy Ukraine –

103,294USD,SOCAR Energy Switzerland (SES) – 5,644 KCHF, SOCAR Energy Switzerland (ROC) – 3,811 KCHF, SOCAR Energy Turkey – 6,336,225 USD. These currencies were converted into AZN as per average exchange rate for 2016 (1 USD-1,5973 AZN, 1 GEL-0,6751 AZN, 1 CHF-1,6202 AZN).

42 Due to the fact that some of the subsidiaries of SOCAR Energy Turkey (Group), e.g., Petlim, included types of expenses that are not classified as social for previous years, they have been reca lculated in the current Report. Significant variations in the amount of social expenses are due to the increased exchange rate for USD to AZN and commitment to the annually defined social goals by the Group.

43 Social expenses in SOCAR Energy Georgia were recalculated and cover all applicable social expenses in the current Report. 44 The reason of decreased social expenses in SOCAR Energy Ukraine is a sharp fall in the UAH value and optimization of the expenses. 45 Although social expenses in SOCAR Energy Switzerland (SES and ROC) are stable in CHF, their equivalent in AZN has increased

due to the changes in the exchange rates since 2015.

52


ATTACHMENT 4

Occupational Health and Safety 2014 2015 2016Offshore safety courses, number of trainees 955 1 549 2 489Number of incidents in operating areas

4 23 noitcudorP saG dna liO1 11 gninifeR saG dna liO2 03 noitatropsnart dna ylppus sag-liO2 45 noitcurtsnoC1 20 noitatropsnarT1 01 gnillirD

Occupational health and safety expenditures, ths. AZN Total expenditures, including 81022 566 1298722

763 41 659 51184 61 snoitidnoc gnikrow evorpmi ot sevitaitinI104 6 469 3526 4 EPP240 1 233 1612 1 stcudorp yriaD802 314764 rehtO

Occupational health and safety performance indicators 11 931 stnedicca fo rebmun latoT5 37 stnedicca lataf gnidulcnI

Total number of injured employees46 32 8303 31 5121 seitilataf fo rebmun latot eht gnidulcnI1 510 seeyolpme tsol fo rebmun latoT

Number of occup 0 00 stnedicni esaesid lanoita252 2 233999 seirujni lanoitapucco ot eud tsol syad gnikroW 47

418 281 973 691892 402 ssenkcis ot eud krow morf ecnesbA546 05 083 25983 65 seeyolpme fo rebmun egarevA048 484 77 489 095 08046 747 68 dekrow sruoh latoT5065869 378 370 0155434801 dekrow syad latoT30,0 740,0530,0 )dekrow sruoh 000001 rep( etar yrujnI9,2 4,051,1 )dekrow sruoh 000001 rep( etar yad tsoL5,788 1 4,949 160,488 1 )dekrow syad 000001 rep( etar eetnesbA

Accident frequency rate (number of accidents per 1000 employees)48

0,231 0,172 0,217

Accident severity rate (number of lost days per accident)49 166,5 55,3 375,3Occupational health and safety performance indicators of OCs and JVs

61 8111 stnedicca fo rebmun latoT3 22 seitilataf gnidulcnI

Number of working days lost due to occupational injuries 607 490 476Occupational health and safety performance indicators of SOCAR subsidiaries50 SOCAR Energy Turkey51 Total number of injured employees52 54 2644

1 10 seitilataf fo rebmun latoT0 00 stnedicni esaesid lanoitapucco fo rebmuN

46 Total number of injured employees in 2015 was updated based on the investigation report approved in 2016. 47 The number of lost working days in 2016 also includes the lost time due to accidents in 2015 as the investigation of these accidents were

completed in 2016.. 48 The accident frequency rate indicates the total number of accidents per 1000 employees (source: “Single management system for occupational

safety in the oil industry of Azerbaijan”, “A guidebook on the occupational health and safety of employees”). 49 The accident severity rate indicates the average number of lost time injuries per one accident (source: “Single management system for the

occupational safety in the oil industry of Azerbaijan”, “A guidebook on the occupational health and safety of employees”). 50 The report does not cover performance indicators of SOCAR Energy Georgia due to their immateriality. For all other subsidiaries, the total

number of injured employees includes lost time injuries only. 51 The indicators cover the performance of Petkim,STAR oil refinery, Petlim port. The indicators also include the performance of the contractors

working in these entities. Due to the fact that some indicators for previous years were calculated using different approaches, several non-conformities were identified andrevised.

52 The number of injured employees includes only those that resulted in the lost working time.


53

Number of working days lost due to occupational injuries 680 1 329 1 704807 2 087 2786 2 seeyolpme fo rebmun egarevA

Total hours worked 53 236 389 72 06 726 731027 297 8 161,0 054,0005,0 )dekrow sruoh 000001 rep( etar yrujnI

Lost day rate (p 980,6 656,9437,7)dekrow sruoh 000001 reAccident frequency rate (number of accidents per 1000 employees)

16,375 22,302 16,617

Accident severity rate (number of lost days per accident) 15,455 21,787 38,727SOCAR Energy Ukraine

1 30 seeyolpme derujni fo rebmun latoT0 00 seitilataf fo rebmun latoT0 00 stnedicni esaesid lanoitapucco fo rebmuN

Number of working days lost due to occupational injuries 0 98 36737 1 766 1374 1 seeyolpme fo rebmun egarevA

Total hours worked54 200 633 3 808 262 3313 387 2 639 8 169 6 ssenkcis ot eud krow morf ecnesbA030,0 290,00 )dekrow sruoh 000001 rep( etar yrujnI

Accident frequency rate (number of incidents per 1000 employees)

0 1,8 0,576

Accident severity rate (number of lost days per accident) 0 32,667 36,000970,1 300,30 )dekrow sruoh 000001 rep( etar yad tsoL

SOCAR Energy Switzerland (SES) 2 21 seeyolpme derujni fo rebmun latoT0 00 seitilataf fo rebmun latoT0 00 stnedicni esaesid lanoitapucco fo rebmuN

Number of working days lost due to occupational injuries 0 0 0231 821501 seeyolpme fo rebmun egarevA257 722 794 822676 622 dekrow sruoh latoT672 1 203 1823 1 ssenkcis ot eud krow morf ecnesbA878,0 578,0144,0 )dekrow sruoh 000001 rep( etar yrujnI

Accident frequency rate (number of incidents per 1000 employees)

9,524 15,625 15,151

SOCAR Energy Switzerland (ROC) 01 941 seeyolpme derujni fo rebmun latoT0 00 seitilataf fo rebmun latoT9 4132 stnedicni esaesid lanoitapucco fo rebmuN

Number of working days lost due to occupational injuries 0 0 0285 685185 seeyolpme fo rebmun egarevA084 620 1 004 730 1042 950 1 dekrow sruoh latoT046 11 027 11102 21 ssenkcis ot eud krow morf ecnesbA479,0 868,0223,1 )dekrow sruoh 000001 rep( etar yrujnI

Occupational diseases rate (per 100000 hours worked) 2,171 1,350 0,877Accident frequency rate (number of accidents per 1000 employees)

24,096 15,358 17,182

53 The high value of this indicator is because the contractor hours working at STAR Oil Refinery are also included. 54 SOCAR Energy Ukraine made some mechanical errors in calculati ng the total number of hours worked in previous years. Thereforethe indicators are included in the current report after being recalculated automatically and are more accurate.

54


ATTACHMENT 5

Environmental performance 2014 2015 2016Environmental penalties and levies, mln. AZN For pollutant emissions within the established limits 0,165 0,1325 0

0 010,0 snoitaluger latnemnorivne fo noitaloiv roFEnvironmental protection costs, mln. AZN 55SOCAR Azerbaijan including: 14,0 23,0 15,0Exp 067,21 530,51246,1 tnemeganam etsaw no sesne

830,1 496,0 noitatilibaher dnal no sesnepxESOCAR Energy Turkey56 1,243 1,157 3,717SOCAR Energy Georgia 0,102 0,086 0,018SOCAR Energy Ukraine 0,033 0,055 0,063GHG emissions produced by SOCAR, ths. tons СО2–equivalent 57 SOCAR Azerbaijan

8,9895 0,160 60,4636 snoissime tceriD2,966 0,4960,796 snoissime tceridnI

SOCAR Energy Georgia58 243,0 410,0800,0 snoissime tceriD434,3 088,3556,2 snoissime tceridnI

SOCAR Energy Switzerland Direct emissions

173,0 983,0783,0 snoissime tceridnIGHG emissions discharged by SOCAR Azerbaijan The total for SOCAR, ths. tons of СО2–equivalentincluding:

6 412,0 6 061,1 5 989,7

emissions from stationary production facilities including: 6 320,7 5 943,6 5 891,08,728 590,512 6 snoisivid larutcurtS 59 5 624,4

6,662 8,5116,501 sVJ dna sCO7,89 5,7114,19 :gnidulcni seitilicaf elibom morf snoissime

Transportation Dep 5,97 0,596,07 tnemtra2,91 5,228,02 sVJ dna sCO

GHG emissions (indirect emissions) caused by the electricity consumption of SOCAR Azerbaijan, ths. tons of СО2–equivalent.

3,4965,696 :gnidulcni RACOS rof latot ehT 60 669,29,834 4,8445,696 snoisivid larutcurtS

9,542- sVJ dna sCO 61 230,3GHG emissions as a result of SOCAR’s operations Azerbaijan, ths. tons. Methane (CH4 7,721 3,1317,421 )Carbon gas (CO2 6,7033 8,303 30,3973 )Amount of pollutants emitted into the atmosphere by SOCAR, ths. tons Total for SOCAR Azerbaijan, including: 125,52 121,82 131,55

32,0 42,032,0 secnatsbus dilosgaseous and liq 23,131 85,12182,521:gnidulcni ,secnatsbus diu

45,0 205,0756,0 edixoid ruflus87,1 509,1409,1 edixo negortin

55 The amounts are specified according to currency exchange rates in 2016 (1 USD-1,5973 AZN, 1 GEL-0,6751 AZN, 1 TL-0,5278 AZN). 56 This indicator covers only the funds spent by Petkim and Petlim as environmental expenditure incurred by STAR Oil Refinery wereinsignificant. The indicators for the previous year have been recalculated in this report by using a single and more appropriatecategorization method. 57 The table does not include indicators from SOCAR Energy Ukraine due to limited production activities. SOCAR Energy Switzerlandproduces only indirect emissions due to the limited scope of operations. 58 The amount of the indirect emissions of SOCAR Georgia associated with electricity consumption has been recalculated in this reportusing a single approach. 59 The reduction of the emissions produced by the stationary sources of SOCAR Azerbaijan of SOCAR Azerbaijan is caused

by the suspended operations in Heydar Aliyev Oil Refinery due to renovation works. 60 Only the electricity supplied by external organizations was taken into consideration while calculating indirect emissions which reduced the value of indirect emissions produced by the structural divisions of SOCAR in 2015. 61 In 2016, the indirect GHG emissions from electricity consumption include the indicators of the OCs and JVs.


55

91,4 245,4133,4 edixo nobrachydrocarbons (without volatile organic compounds) 110,45 105,13 115,55

474,8 856,8282,7 sdnuopmoc cinagro elitalov987,0 048,0366,0 secnatsbus suoesag rehto

Total for SOCAR Energy Georgia, including: 0,341 0,666 0,434206solid substances

434,0 666,0143,0 :gnidulcni ,secnatsbus diuqil dna suoesag300,0 500,0200,0 edixoid ruflus200,0 400,0200,0 edixo negortin700,0 510,0700,0 edixo nobrac224,0 246,033,0 )sdnuopmoc cinagro elitalov( snobracordyh

sdnuopmoc cinagro elitalovTotal for SOCAR Energy Ukraine, including: 0,6501 0,0718462 0,0721

0710,0 49110,020,0 secnatsbus dilos1550,0 9950,01036,0 :gnidulcni ,secnatsbus diuqil dna suoesag4000,0 1000,0510,0 edixoid ruflus2000,0 2000,01001,0 edixo negortin0100,0 2000,051,0 edixo nobrac

hydrocarbons (without volatile organic compounds) 0,013 0,0166 0,00149440,0 9930,0150,0 sdnuopmoc cinagro elitalov2700,0 9200,0103,0 secnatsbus suoesag rehto

Electricity Consumption, ths. kW/h SOCAR Azerbaij 3999701 212 990 19955011 na

054 920 1 747 940 1556 868 )mikteP( yekruT ygrenE RACOS516 82 033 23321 22 aigroeG ygrenE RACOS153 9 301 6277 6 eniarkU ygrenE RACOS693 31 980 41869 31 )SES( )COR( dnalreztiwS RACOS

Fuel used by SOCAR Azerbaijan63 75,628 5 780,625 7364,065 8 snot ,enilosaG521,911 23 372,275 43834,118 53 snot ,leseiD

Natural gas64 532,812908 717,806 548837,200709 ³m .sht ,Waste Management in SOCAR, ths. tons65 SOCAR Azerbaijan66

89,06 1,5752,58 :gnidulcni ,detareneg etsaW28,25 76,3632,57 suodrazah61,8 34,1120,01 suodrazah(non19,0 68,020,0 :gnidulcni ,dezilitu etsaW19,0 68,020,0 suodrazah

non(hazardous Waste transferred to third(party organizations, including: 68,62 73,10 45,04

60,73 87,1671.95 suodrazah89,7 23,1154,9 suodrazah(non

Waste transferred to the Waste Disposal Centre, including: 21,822 11,969 13,709266,31 688,11347,12 suodrazah740,0 380,0970,0 suodrazah(non

62 The required corrections to the previous years’ indicators were made using correct units of measurement. 63 This indicator shows the amount of fuel used by specialized equipment and transportation vehicles. 64 The total value of natural gas provided in the previous reports was incomplete as in covered the amount of natural gas used by “Azneft” PU for the heating of pipelines only. Therefore, the amount of the natural gas consumed for production and household purposes by all SOCAR Azerbaijan entities was recalculated and amended in the current Report. 65 The table does not cover the indicators of SOCAR Energy Georgia and Switzerland due to their limited production activities. 66 The deviations from from the indicators given in the previous year’s report occurred due to the different conversion coefficie nts used by different SOCAR entities to convert some waste types expressed in m3 to metric tons. Also, some entities classified hazardous metal wastes as non-hazardous last year. Following the clarifications and reconsiderations made by the Environmental Measurements and Waste Management team of the Environmental Department, the most accurate data on waste management for all 3 years are presente d in the current report.

56


SOCAR Energy Turkey (Petkim)67 96,03 93,0297,52 :gnidulcni ,detareneg etsaW25,81 61,212,91 suodrazah71,21 32,895,6 suodrazah-non

Waste processed, including68 6,9 4,765,5 :6,9 4,732,2 suodrazaH00,0 033,3 suodrazah-non

Waste transferred to third-party organizations, including: 11,26 13,0 21,19,8 8,476,4 suodrazaH2,21 2,895,6 suodrazah-non

SOCAR Energy Ukraine 41,2 98333,2309,1 :gnidulcni ,detareneg etsaW10,0 58000,0200,0 suodrazaH31,2 40233,2109,1 suodrazah-non

:gnidulcni ,dezilitu etsaWHazardous non-hazardous Waste transferred to third-party organizations, including: 1,903 2,3329 2,13

10,0 58000,0200,0 suodrazaH31,2 40233,2109,1 suodrazah-non

Amount of formation water, mln. m3 Total for SOCAR Azerbaijan, including: 24,657 25,384 25,059

26,5 356,5577,5 UP ”tfenzA“934,91 137,91288,81 sVJ dna sCO

Data on leakages, clogging and losses in SOCAR’s entities0 0,033,901 egakaeL0 0,033,901 gniggolC0 00 sessoL

Water consumption in SOCAR, mln. m3 SOCAR Azerbaijan, including: 55,36 50,64 48,81

5,5 67,587,5 secruos retaw ecafrussubsurface water sources69 13,34 88,4485,94 SOCAR Energy Turkey (Petkim), including: 14,808 18,503 19,601

106,91 305,81808,41 secruos retaw ecafrus secruos retaw ecafrusbus

SOCAR Energy Georgia, including: 0,176958 0,189894 0,195739997871,0 430761,0899661,0 secruos retaw ecafrus49610,0 68220,069900,0 secruos retaw ecafrusbus

SOCAR Energy Ukraine, including: 0,07 0,09 0,1390,0 60,050,0 secruos retaw ecafrus40,0 30,020,0 secruos retaw ecafrusbus

SOCAR Energy Switzerland, including: 0,048 0,045 0,0990,0 540,0840,0 secruos retaw ecafrus

secruos retaw ecafrusbusAmount of recycled and reused water in SOCAR Azerbaijan, ths. m3 70

Recycled water71 74,862 6,0132,292 5,2 577,28,11 retaw desueR

67 Due to the fact that some companies owned by SOCAR Energy Turkey are under construction (for example, STAR Oil Refinery etc.),the report covers only the performance indicators of Petkim. Disposed wastes include the wastes incinerated at Petkim. 68 Processed wastes refer to the wastes incinerated at the Petkim site. 69 Reduced water consumption is due to decreased production in the OCs and JVs. 70 There is no demand for recycled and reused water in the entities located in Georgia, Turkey, Ukraine and Switzerland, therefore these indicators are not available in the current Report. 71 The reductions in recycled water in 2016 are due to changes in the calculation method applied by the the Gas Processing Plant .


57

Data on the lands polluted with the petroleum products of SOCAR, OCs and JVs as well as the lands covered with formation water72, ha, including:

2 312,98 2 244,13 2 193,23

53,179 40,1996,899 UP ”tfenzA“88,122 1 90,352 183,413 1 sVJ dna sCO

Area of lands polluted with oil and petroleum p stcudor74,496 0,1176,517 UP ”tfenzA“75,137 6,957 25,977 sVJ dna sCO

retaw noitamrof htiw dedoolf sdnal fo aerA88,672 40,0820,382 UP ”tfenzA“13,094 94,39468,435 sVJ dna sCO

Rehabilitated area of polluted lands, ha73 8,44 8,176,59 :gnidulcni ,7,91 4,013,32 UP ”tfenzA“1,52 4,163,27 sVJ dna sCO

72 No statistic reports on these indicators are prepared by SOCAR’s foreign entities. 73 SOCAR does not make such statistic reports for its oversees entities.

58


Table of compliance of the Report with GRI ManualGRI General Standard Disclosures

Index Guidance Note Section of the Report / Page External Assurance

Strategy and Analysis

G4-1 Statement from the most senior decision-maker of the organization

Message of the President of SOCAR, Mr. Rovnag Abdullayev / Page 1-2

G4-2 Description of key impacts, risks, and opportunities

Message of the President of SOCAR, Mr. Rovnag Abdullayev / Page 1-2

Organizational Profile

G4-3 Name of the organization About the Company / Page 5

G4-4 Primary goods and services About the Company / Page 9-10

G4-5 Location of the organization’s headquarters

About the Company / Page 5

G4-6 Number and names of the organization's major business markets

About the Company / Page 8; 10

G4-7 Nature of ownership and legal form

Corporate Governance / Page 17

G4-8 The markets served (including geographic breakdown, sectors served, and types of customers and beneficiaries)

About the Company / Page 8; 10

G4-9 Scale of the organization About the Company / Page 5; Human Resources / Page 20-25

Yes, p. 67

G4-10 Distribution of employees by categories

Number of employees by categories by SOCAR's subsidiaries are presented in the respective tables.

Human Resources / Page 20-25 Yes, p. 67

G4-11 Number of employees covered by collective bargaining agreement

The Collective agreement covers all employees of the Company.

G4-12 Organization’s supply chain Corporate Governance / Page 18

G4-13 Significant changes during the reporting period regarding the organization’s size, structure, ownership and the supply chain

About the Company / Page 10 Corporate Governance / Page 15

G4-15 International and local initiatives, environmental and social standards, and a list of principles that the organization is a member of

Corporate Governance / Page 17 Environmental Activity / Page 44-45

G4-16 Memberships in associations (such as industry associations) and national or international advocacy organizations

Corporate Governance / Page 18; Environmental Activity / Page 44-45

Identified Material Aspects and Boundaries

G4-17 All enterprises included in the organization's financial statements

About the Company / Page 8 Yes, p. 67

G4-18 Process for defining the report content and the Aspect Boundaries

About the Report / Page 3 Yes, p. 67

G4-19 All the material Aspects identified in the process for defining report content

About the Report / Page 3


59

G4-20 For each material Aspect, report the Aspect Boundary within the organization


G4-21 For each material Aspect, report the Aspect Boundary outside the organization


G4-22 Effects and reason of any restatements of information provided in previous reports

About the Report / Page 3; Environmental Activity / Page 50-51, 53,

55

G4-23 Significant changes from previous reporting periods in the Scope and Aspect Boundaries


Stakeholder Engagement

G4-24 Stakeholder groups engaged by the organization


G4-25 Basic processes and methods to identify stakeholders to be involved


G4-26 Organization’s approach to stakeholder engagement

Corporate Governance / page 17

G4-27 Key issues raised by stakeholder engagement and ways the organization responds to these topics

Human Resources / page 26

Report Profile

G4-28 Reporting period About the Report / Page 3

G4-29 Date of the most recent report About the Report / Page 3

G4-30 Reporting cycle (such as annual, biennial)


G4-31 Contact point for questions regarding the report or its contents


G4-32 The ‘in accordance’ option the organization has chosen

About the Report / Page 4 Yes, p. 67

G4-33 Organization’s policy and current practice with regard to seeking external assurance for the report


Governance

G4-34 Governance structure of the organization, including committees of the highest governance body. Committees responsible for decision-making on economic, environmental and social impacts


G4-35 Process for delegating authority for economic, environmental and social topics from the highest governance body to senior executives and other employees


G4-36 Executive positions responsible for economic, environmental and social issues; information on reporting by senior officials to the supreme governing body

Corporate Governance / Page 15-16 Environmental Activity / Page 37

60


G4-37 Processes for consultation between stakeholders and the highest governance body on economic, environmental and social topics


G4-38 Composition of the highest governance body and its committees

Corporate Governance / Page 14-15

G4-39 Whether the Chair of the highest governance body is also an executive officer

The President of SOCAR is the Chair of the highest governance body and executive officer at the same time.

G4-42 The role of the supreme governing body in the organization's purpose, values or missions, strategies, policies and objectives in the formation, improvement and approval


G4-43 Measures taken to develop and enhance the highest governance body’s collective knowledge of economic, environmental and social topics

Human Resources / Page 26; Corporate Governance / Page 16

G4-45 Highest governance body’s role in the identification and management of economic, environmental and social impacts, risks, and opportunities


G4-46 Highest governance body’s role in reviewing the effectiveness of the organization’s risk management processes for economic, environmental and social topics

Corporate Governance / Page 14; 16

G4-47 Frequency of the highest governance body’s review of economic, environmental and social impacts, risks, and opportunities


G4-48 The highest committee or position that formally reviews and approves the organization's sustainability report and ensures that all material Aspects are covered


G4-49 Process for communicating critical concerns to the highest governance body

Corporate Governance / Page 14; Environmental Activity / Page 37

Ethics and Integrity

G4-56 Organization’s values, principles, standards and norms of behavior such as codes of conduct and codes of ethics


G4-58 Internal and external mechanisms for reporting concerns about unethical or unlawful behavior, and matters related to organizational integrity, such as escalation through line management, whistleblowing mechanisms or hotlines



61

GRI Specific Standard Disclosures

Aspect Index Guidance Note Section of the Report /

Page External

Assurance

Economic

Economic Performance

G4-EC1 Direct economic value generated and distributed


Yes, p. 67


Market Presence

G4-EC5 Ratios of standard entry level wage by gender compared to local minimum wage at significant locations of operation

Minimum monthly wage and average monthly wage by SOCAR's subsidiaries are presented in the respective tables.

Human Resources / Page 20-25

Indirect Economic Impacts

G4-EC7 Development and impact of infrastructure investments and services supported

Social Activity and Support to Regional

Development / Page 30

G4-EC8 Significant indirect economic impacts, including the extent of impacts

There are several indirect economic impacts caused by SOCAR’s operations, for example improvement of the social welfare of communities, job creation, local suppliers support, etc.

About the Report / Page 5; Social Activity and Support to Regional

Development/ Page 30

Resources OG1 Volume and type of estimated proved reserves and production


Yes, p. 67

Environmental

Energy G4-EN3 Energy consumption within the organization

Environmental Activity / Page 41

Yes, p. 67

G4-EN5 Energy intensity Environmental Activity / Page 41

Yes, p. 67

G4-EN6 Reduction of energy consumption

Environmental Activity / Page 41; 55

Water G4-EN8 Total water withdrawal by source Environmental Activity /Page 43

G4-EN10 Percentage and total volume of water recycled and reused


Biodiversity G4-EN12 Significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas

Environmental Activity / Page 43; 45

G4-EN13 Size and location of all protected residential or restored areas

Environmental Activity/ Page 43

OG4 Number and percentage of significant operating sites in which biodiversity risk has been assessed and monitored


Emissions G4-EN15 Direct greenhouse gas (GHG) emissions (Scope 1)


Yes, p.67

G4-EN16 Energy indirect greenhouse gas (GHG) emissions (Scope 2)


Yes, p. 67

G4-EN18 Greenhouse gas (GHG) emissions intensity


Yes, p. 67

62


G4-EN21 NOx, SOx and other significant air emissions

Environmental Activity / Page 40; 54-55

Effluents and water

G4-EN23 Total weight of waste by type and disposal method


Yes , p.67

G4-EN24 Total number and volume of significant spills


G4-EN25 Weight of transported, imported, exported, or treated waste deemed hazardous and percentage of transported waste shipped internationally


Yes, p. 67

OG5 Volume and disposal of formation or produced water


Yes, p. 67

OG6 Volume of flared and vented hydrocarbon


OG7 Amount of drilling waste (drill mud and cuttings) and strategies for treatment and disposal


Yes, p. 67

Products and Services

G4-EN27 Extent of impact mitigation of environmental impacts of products and services

Environmental Activity / Page 38-40; 43

Compliance G4-EN29 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations

/ ytivitcA latnemnorivnE Page 37

Transport G4-EN30 Significant environmental impacts of transporting products and other goods and materials for the organization’s operations, and transporting members of the workforce


Overall G4-EN31 Total environmental protection expenditures and investments by type

Environmental Activity / Page 37, 46

Yes, p. 67

Environmental Assessment of

Suppliers

G4-EN33 Significant actual and potential adverse environmental impacts in the supply chain and undertaken measures

/ ecnanrevoG etaroproC Page 18

Environmental grievance

mechanisms

G4-EN34 Number of grievances about environmental impacts filed, addressed, and resolved through formal grievance mechanisms

No such grievances were registered during the reporting period.

Social / Labor Practices and Decent Work

Employment G4-LA1 Total number and rates of new employee hires and employee turnover by age group, gender, and region


Yes, p. 67

G4-LA2 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by significant locations of operation

egaP / secruoseR namuH 19

Labor/Manage-ment Relations

G4-LA4 Minimum notice periods regarding operational changes, including whether these are

egaP / secruoseR namuH 19


63

specified in collective agreements

Occupational Health and

Safety

G4-LA6 Type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities, by region and by gender

Occupational Health and Safety / Page 35-36

G4-LA7 Workers with high incidence or high risk of diseases related to their occupation

Occupational Health and Safety / Page 34

G4-LA8 Health and safety topics covered in formal agreements with trade unions

Occupational Health and Safety / Page 33

Training and Education

G4-LA9 Average number of annual training hours allocated to one employee by gender and worker category

Human Resources/ Page 29

G4-LA10 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings


Diversity and Equal

Opportunity

G4-LA12 Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity

Data on the age and gender of the managers in the main regions of SOCAR are reflected in the relevant tables.


Supplier Assessment

for Labor Practices

G4-LA15 Significant actual and potential negative impacts for labor practices in the supply chain and actions taken

No such impacts were reported during the reporting period.

Labor Practices Grievance

Mechanisms

G4-LA16 Number of grievances about labor practices filed, addressed, and resolved through formal grievance mechanisms

No grievances on the labor practices were registered during the reporting period.

Human Resources / Page 26

Social / Human Rights

Non-discrimination

G4-HR3 Total number of incidents of discrimination and corrective actions taken

There were no discrimination incidents during the reporting period.

Child Labor G4-HR5 Operations and suppliers carrying significant risks in child labor and measures undertaken to address child labor

No such cases were reported during the reporting period.

Compulsory or forced labor

G4-HR6 Transactions and suppliers carrying significant risks for compulsory or forced labor, and measures undertaken to eliminate forced or compulsory labor

No such cases were reported during the reporting period.

Indigenous Rights

G4-HR8 Total number of incidents of violations involving rights of indigenous peoples and actions taken

There were no violations involving rights of indigenous people during the reporting period.

64


OG9 Operations where indigenous communities are present or affected by activities and where specific engagement strategies are in place

SOCAR's does not perform such operations and activities.

Assessment G4-HR9 Total number and percentage of operations that have been subject to human rights reviews or impact assessments

No activities in this direction were implemented.

Supplier Human Rights Assessment

G4-HR11 Significant actual and potential negative human rights impacts in the supply chain and actions taken

No such cases were registered during the reporting period.

Human Rights Grievance

Mechanisms

G4-HR12 Number of grievances about human rights impacts filed, addressed, and resolved through formal grievance mechanisms


Social / Society

Local Communities

G4-SO2 Operations with significant actual or potential negative impacts on local communities

Environmental impacts (emissions, waste) caused by the operations of the Company are disclosed in "Environmental Activity" section of the Report.

OG10 Number and description of significant disputes with local communities and indigenous peoples

There were no such disputes during the reporting period.

Anti-corruption G4-SO4 Communication and training on anti-corruption policies and procedures

All the recruited new employees are regularly informed and guided on the anti-corruption policies and procedures.

G4-SO5 Confirmed incidents of corruption and actions taken

A number of measures to prevent the incidents of corruption are regularly implemented in SOCAR.


Public Policy G4-SO6 The total value of political support for the host country and the country itself

About SOCAR/ Page 12-13

Anti-competitive

Behavior

G4-SO7 Total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcomes


Compliance G4-SO8 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations


Involuntary Resettlement

OG12 Operations where involuntary resettlement took place, the number of households resettled in each and how their livelihoods were affected in the process

Social Activity and Regional Development

Support / Page 31-32

Process Safety

OG13 Number of process safety events, by business activity

Occupational Health and Safety / Page 33-34


65

Grievance Mechanisms

for Impacts on Society

G4-SO11 Number of grievances about impacts on society filed, addressed, and resolved through formal grievance mechanisms

Corporate Governance / Page 16; Human

Resources / Page 26

Social / Product Responsibility

Customer Health and

Safety

G4-PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services during their life cycle, by type of outcomes


Product and Service labeling

G4-PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes


G4-PR5 Results of surveys measuring customer satisfaction

No such activities were performed during the reporting period.

Marketing Communi-

cation

G4-PR6 Sale of banned or disputed products


G4-PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of outcomes


Compliance G4-PR9 Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services


66


Terms and Abbreviations

ACG Azeri-Chirag-Guneshli oilfield

DWP Deep water platform

GHG Greenhouse gases

GOA Gas Operation Area

OGPD Oil and Gas Production Department

ROC Retail Operating Company Schweiz GmbH

SES SOCAR Energy Switzerland GmbH

SOP Stationary offshore platform

TANAP Trans-Anatolian Gas Pipeline

TAP Trans Adriatic Pipeline


67

Independent Assurance Statement

68


message from the president - ana səhifə · socar · suleyman gasimov, vice-president for economic...

Documents