4.3.Long-Term Development Programme

The Long-Term Development Programme of Transneft (hereinafter also referred to as «LDP») was authorised by the resolution of the Board of Directors of Transneft in 2014Minutes No. 23 dated 19 November 2014. and is updated every year. It specifies the lists of means and specific measures to ensure the achievement of development goals of Transneft, defined in the Strategy, within the set deadlines, with indication of the level and sources of their financing. The LDP updated in 2019 indicates the current and expected performance of the Company till 2024.

Measures as per LDP
Development and upgrading Increasing the capacity of the OTP and the PPTP systems to provide for transportation of crude planned to be extracted by oil companies both from fields currently being used and from prospective fields. The increased capacity will also ensure transportation of planned volumes of petroleum products from currently operating and new refineries.
Innovations Developing innovative operational activities
Efficiency Raising energy efficiency by taking energy saving measures
Implementing a programme for cutting pipeline construction and operation costs
Ensuring labour productivity at the level of best overseas pipeline companies
Reliability Ensuring reliability of the OTP and PPTP operated systems by inspection-based revamping and modernisation of facilities
Developing benefits for the Company’s employees
Environmental and Industrial Safety Raising the level of environmental and industrial safety at the Company’s operating facilities
External and Internal Communications Shaping the corporate identity and promoting the Company’s unified brand
Providing advertising support of the Company’s activities in the external environment
Shaping and developing an intra-corporate communications system

Changes in the Long-Term Development Programme

In 2019, another update of the Transneft Long-Term Development Programme was carried outTo adjust the LDP, the procedures for its consideration by the Transneft Consumer Council for Operational Issues, the Ministry of Energy of Russia, the Ministry for the Development of the Russian Far East, the Ministry of Economic Development of Russia and the Federal Agency for State Property Management were carried out. The amended LDP was approved by the Board of Directors of Transneft on 24 December 2019 (Minutes No. 22 dated 24 December 2019)., with the main reasons as follows:

  • To prolong the LDP up to 2024 as per the Methodological Recommendations on the Creation of Long-Term Development Projects by Joint-Stock Companies and Federal State Unitary Enterprises, as well as by Public Joint Stock Companies, Whenever the Aggregate Share of the Russian Federation in the Authorised Capital of Such Companies Exceeds 50%.
  • To adjust the Development, Technical Upgrading and Revamping Programme for Transneft Trunk Pipeline Facilities, which is in the LDP.
  • To adjust the indicators of labour productivity, procurement activities, financial and economic indicators.
  • To adjust the Transneft Corporate Import Substitution Plan included in the LDP.
  • To update the list of critical risks in accordance with the Transneft Risk Management System.
  • To update the key performance indicators of Transneft’s economic activity.

Audit of the Transneft Long-Term Development Programme Implementation

The joint-stock company KPMG has conducted an audit of Transneft’s Long-Term Development Programme implementation in 2019.

The audit resulted in the issue of the Auditor’s Opinion Regarding the Implementation of the Transneft Long-Term Development Programme. Based on the results of auditing procedures, the Auditor believes that the Report on the Long-Term Development Programme implementation in 2019 has been prepared in all material respects in compliance with the requirements of the applicable laws, standards, regulatory methodological instructions and recommendations, as well as Transneft’s internal regulations, and does not contain any significant deviations.

The auditor believes that the evidence received is ample and appropriate to provide a basis for the said opinion.

The table shows a number of target and actual indicators established by the Transneft Long-Term Development Programme in 2019, as well as their comparison with the actual figures for 2017 and 2018.

Indicator Unit of Measurement 2017
actual
2018
actual
2019
target actual
Oil turnover bln tkm 1,211.2 1,217.4 1,237.9 1,247.6
Volume of petroleum products transported via the PPTP system mln tonnes 33.1 39.2 38.6 37.8
Specific electricity consumption under comparable conditions, oil transportation thou kWh/mln tkm 10.97 10.92 11.79 11.71
Specific electricity consumption under comparable conditions, petroleum products transportation thou kWh/mln tkm 14.24 14.09 12.12 11.85
Increase in labour productivity % 2.9% 5.9% 2% 4.4%
Specific operating expenses on oil transportation per 100 tkm of turnover RUB/100 tkm 18.60at prices of the relevant period 18.92at prices of the relevant period 20.40at prices of the relevant period 20.28at prices of the relevant period
Total debt to EBITDA ratio - 1.7 1.4 1.4 1.3
Net profit margin (excluding the impact of investments and currency exchange differences) % 25.1% 29.1% 22.6% 24.6%
Reduction of capital costs RUB mln 5,113 4,218 3,804 4,014
Reduction of operating costs RUB mln 6,856 5,214 4,795 5,853
Financing of innovative projects, including R&D, from own funds given as a percentage of Transneft’s revenue from oil transportation services (according to RAS) % 1.41% 1.41% 1.41% 1.41%