REFINING ON OUR WAY TO THE TOP

Transcription

1 REFINING ON OUR WAY TO THE TOP

2 2 Refining Refining 3 Equipment modernization, innovative approach, and application of modern technologies in nis are a prerequisite for advancement, competitiveness, and gaining of regional leadership

3 2 Refining Refining 3 contents ENERGIZE - THE mouth of all positive energies 5 REFINING On our Way to the Top The Colours of NIS in the Balkans mission NIS in brief 6-7 Sales and Distribution NIS from the Land to the Skies Why we need efficiency history Decades toward a Leading Position BUISINESS partnership for THE future energy Three Lines of Growth interview Regional development a key priority NIS from the Land to the Skies region cooperation The Colours of NIS in the Balkans exploration and production Moving courageously towards new discoveries service Why we need Efficiency HSE SAFETY FIRST people Employees as a Key to Success social responsibility Environmental and Local Community Care Regional development a key priority 60 Environment and local communities care

4 4 Refining Refining 5 REFINING ON OUR WAY TO THE TOP regional magazine The mark of responsible forestry issue 1 This magazine is printed on paper from responsibly managed forests Y: 2013 OCTOBER november december ENERGIZE - THE mouth of all positive energies Dear friends, In recent years, NIS has been dynamically developing new markets and expanding its presence in other countries. We are currently working in nine countries and NIS employs staff in 23 countries. Thus, NIS is a company with an international team of experts - both in the parent company, as well as in affiliated companies and subsidiaries abroad. Our dynamic development has propelled the need for active communication, which is something that is always in motion, following along with the company s core business. Energize The international magazine of NIS. Issue 1, December 2013 Published by: NIS, Novi Sad, Serbia Public Relations and Communication Department [email protected] Phone Art direction and design by Metaklinika Illustrators: Aleksa Jovanović,Bruno Tolić Photographers: Mladen Janković, Dušan Đorđević Print: Stojkov Energize Magazine is published quarterly. Copyright 2013 NIS Our dynamic development has propelled the need for active communication, which is something that is always in motion, following along with the company s core business. That is why we are launching NIS s international magazine also in the English language, where we will consolidate everything that we do and all the people involved therein into one place, irrespective of the country where they work or the language they speak. The basic idea of starting a new magazine is to improve the communication among all employees, strengthen the sense of belonging to the parent company, and get to know the people who work in the same or similar fields. Also, entering the international market will include communication with business partners outside of Serbia - who are also our target group - as well as investors, government agencies, and experts in the field of energy. Therefore, the first issue of our new magazine is devoted primarily to familiarizing our readers with our core business lines - as a short overview of the history of our company s development strategy. In the next issues, Energize will be a place where you can keep track of trends in the fields of energy, where you can stay up-to-date on analysis, market conditions, and new technologies, and where you can read up on discussions about developmental directions. Most importantly, you can stay firmly and clearly oriented about the future of the company, which is something that NIS has always striven towards. For us, Energize is a harmony of all our energies and we hope that while reading our new magazine, you will also feel at least some of that energy. CEO of NIS Kirill Kravchenko

5 6 mission mission 7 NIS in brief Our Mission By responsibly using natural resources and advanced technologies, we provide people of the Balkans with the energy to strive for improvement Our values Our Vision NIS will emerge as a leader in its industry across the entire Balkan region through its sustainable growth and increased efficiency, demonstrating high social and environmental responsibility and high customer service standards. NIS is one of the biggest vertically integrated energy companies in Southeastern Europe. The company performs oil and gas exploration, production, refining, sales and distribution of petroleum products, and implementation of petrochemical and energy projects. In Serbia, NIS owns a refinement compound with two production units in Pančevo and in Novi Sad - with a total processing capacity of 7 million tonnes of oil per year, as well as LPG production unit in Elemir. NIS produces around 1.7 million tonnes of oil and gas a per year. The total volume of processed crude oil amounts to around 2.1 million tonnes a year. The Company s retail network includes more than 500 facilities: petrol stations, filling stations and a network of crude oil storage facilities on the territory of the Balkan region. Outside of Serbia, NIS is also present in Bosnia and Herzegovina, Hungary, Bulgaria, Romania, Turkmenistan, Angola, Belgium and Russia. The Company s registered office and its main production capacities are located in the Republic of Serbia, which is the Balkan s trading and investment center due to its geographic position. NIS is a the leading supplier of petroleum products in Serbia. Gazprom Neft owns % of the share capital in NIS, while % of NIS shares are owned by the Republic of Serbia. The remaining portion belongs to the citizens, employees, former employees and other minor shareholders. The Company has around 2.5 million shareholders. NIS shares are listed in the Belgrade Stock Exchange. INITIATIVE AND RESPONSIBILITY Finding and suggesting new solutions both in the working environment, and in the sphere of company interests. EXPERTISE Gaining up-to-date knowledge with the goal of constant professional development, and the ability to implement it in actual business processes. POSITIVISM AND COOPERATION Readiness to participate in multifunctional groups and projects, eagerness to meet the demands of colleagues from other units of the company, willingness to exchange information, ability to work in a team. COLLECTIVE RESULTS Collective effort in achieving visible and meaningful results, a desire to succeed and provide each other with needed assistance.

6 8 history history 9 Decades toward a Leading 1953 An intensified construction of first petrol stations in Serbia s major cities. Initially, the sale of petroleum products was measured in dozens of thousand tonnes to exceed the limit of a million tonnes a few decades later. Position NIS is a company with a rich history. Since the first steps in 1949 when the early beginnings of the Yugoslav oil industry were only emerging, it has grown into a successful energy company. Retrospection shows many years marked with great enthusiasm, hard work, and unsurmountable progress The Oil and Petroleum Product Trading Company was founded. Through the nationalisation and acquisition of existing smallscale petroleum storage facilities and the construction of new ones, a network of storage facilities was created. This prepared the grounds for a future distribution network which continued to develop alongside the road network and an increase in the number of vehicles The Oil Exploration and Production Company was founded. The aim of the newly founded company was to discover the black gold in the eastern part of the Pannonian Basin. The first natural gas reservoir was discovered in Serbia five months after the Company s establishment. The government started to allocate funds for exploration and investments and also banks started to approve loans for the development of oil and gas fields The first oil field was discovered in the North of the country - near Jermenovci in the Banat district - close to a gas reservoir. Even though this is not a large field, it has been pivotal for the development of the entire oil industry in Serbia. Resources were allocated for further exploration and development of the Company and the staff acquired valuable knowledge in oil and gas exploration and production at this first site Belgrade Aeroservice was established for the purpose of supplying air carriers with jet fuel. In the same year, an intensive cooperation with JAT, the Yugoslav air carrier, was established. The cooperation was later extended to international air carriers as well The construction of the first main gas pipeline connecting all oil fields with the City of Pančevo, where the first refinery was to be constructed, was completed Oil refineries were put into operation in the cities of Novi Sad and Pančevo. The first two decades were marked with the construction of primary refining plants. The secondary plants were built during the second period lasting from 1980 to 1992 for the purpose of deep crude oil processing. In terms of their technological capacity, the refineries were at the world s top at that time Velebit oil reservoir, the country s largest reservoir, was discovered. Velebit oil is suitable for the production of naphthenic base oils due to its chemical composition. Base naphthenic oils are highly appreciated, because they are deficient in Europe and huge volumes are imported from the USA and Asia. NIS would soon launch the production of naphthenic base oils from the abovementioned Serbian Velebit oil A record annual gas production of 1,14 billion m 3 was achieved A new record in the annual oil production of 1,3 million tonnes was achieved Oil exploitation commenced in Angola and this was the first time the Company entered in a concession agreement in a foreign country. Since then, NIS has produced over 4.2 million tonnes of oil at the concession reservoirs in Angola.

7 10 history history The public enterprise Naftna Industrija Srbije was established. All the companies in the oil industry which had operated independently to that point were now united into a single company for the first time Some production companies were destroyed, most of the damage having been caused to the refineries in Novi Sad and Pančevo during the NATO bombing campaign The Company received the status of a joint stock company, appointing its own Shareholders Assembly, Board of Directors and other managing bodies NISOTEC oil and lubricant brand entered the Serbian market. The lubricant business in NIS includes the development, production and sale of oil and technical liquids for consumers, commerce and industry The Russian company Gazprom Neft became the Company s shareholder, pursuant to the interstate Sales Agreement between the Republic of Serbia and the Russian Federation on Purchasing 51% of the shares. 51% 2010 NIS became a public company with the highest number of shareholders (nearly five million) listed on the Belgrade Stock Exchange. Consequently NIS became the largest blue chip company listed on the Belgrade Stock Exchange By following its strategy towards becoming the regional leader, NIS started to expand its business rapidly in the regional market as well. Subsidiary companies were established in Bosnia and Herzegovina, Bulgaria, Hungary and Romania, and the Company s branch office in Brussels was opened to provide assistance in Serbia s European integrations The NIS Board of Directors adopted a long-term NIS Development Strategy for the Balkans by 2020 for the first time in the Company s history. The Company s main strategic goal by 2020 is to become the most efficient, fastest-growing energy company in the Balkans, maintaining its leadership position on the Serbian market and becoming one of the top three companies in the Southeaster Europe The construction of the hydrocracking and hydrotreatment facility at the Pančevo Oil Refinery was completed, marking the completion of the first stage of modernisation of NIS refining facilities. NIS success from the ground up The establishment of the Oil and Gas Exploration and Production Company, the predecessor of today s NIS, was in many ways significant for Serbia half a century ago, especially since Serbia was at that time underdeveloped and still almost completely destroyed from by the war. This significance was primarily economic the company was established in a very prospective industry, which has been beneficial for the development of other industries, such as the chemical and petrochemical industries, plastics industry. This was a firm grounding for the later emergence of petrochemical and chemical industries, plastics industry, industry of artificial fibres etc. All this also involved technological development, which was priceless for Serbia and ultimately for Yugoslavia as well. The Serbian oil industry soon became one of the pillars of both economic and social development. The fact that the companies from this area of business operations were at the top among the largest companies, not only in Serbia but in Yugoslavia as well, testifies to this. NIS has retained this position and role up to the present day. Being a company with the largest profit and one of the largest investors, NIS is among the key players in Serbia s economy. And not only in economy - the company has an increasingly significant role in the cultural and artistic life of the country By opening two new bunkering stations for ships on the Danube, NIS launched a new business activity a secure supply of domestic and foreign ships and shipping companies with top quality fuel at important waterways in Serbia. Mijat Lakicević, economic analyst 2012 A ceremonial opening of the first GAZPROM premium brand petrol station in Belgrade was held. This retail network started to expand rapidly in the region as well, namely in Bosnia and Herzegovina, Bulgaria and Romania NIS has started the construction of the first wind farm. With a capacity of 102 MW and consisting of 34 wind turbines, this will be the first project of its kind in Serbia. The capital investment in the project will amount to around

8 12 BUSINESS BUSINESS 13 partnership for THE future Another stage in the development of NIS started in The arrival of a new majority shareholder Gazprom Neft marked the beginning of a reform process in NIS. The reform was aimed at adjusting the company to new work conditions of work and to increase business efficiency. It was hard to achieve this goal using merely NIS resources. It was then that the foundations of a partnership between the Serbian and the Russian companies were set. In the years to come. The partnership was established in many areas. Investments In accordance with the Sales Agreement for the purchase of 51% of NIS shares, one of the key liabilities of Gazprom Neft was to finance the modernisation of the refineries. With the financial help of Gazprom Neft, NIS experts completed the construction of the compound for mild hydrocracking at the Pan vo Refinery. The Majority Shareholder allocated more than EUR 500 million for the construction of a MHC/DHT plant and its accompanying facilities. The anticipated funds for the project were paid before its completion, and were higher than originally planned. Experts of Gazprom Neft took active participation in the construction process from the MHC/DHT plant and offered consulting support to their peers from NIS.

9 14 BUSINESS BUSINESS 15 In accordance with the Sales Agreement for the purchase of 51% of NIS shares, one of the key liabilities of Gazprom Neft was to finance the modernisation the Pancevo Refinery. Developing an HR Policy Another instrument of mutual cooperation which enables both NIS and Gazprom Neft to cooperate on a mutually beneficially basis, is the rotation of personnel, during which employees from both companies have a possibility to exchange experiences with their colleagues from other countries. For many of them, the experiences acquired during long business trips were really valuable. Each of the companies has its specifics and its strengths, and only a combination of the two creates a synergy effect which is necessary for successful operations. Internship practice has also been widely applied, whereby employees from both companies have had a chance to get to know the work of their Russian, i.e. Serbian colleagues during a longer period of time. a New Work Philosophy One of the most seriously tackled novelties has also been the implementation of a new organizational structure in the company. Since 2009, a great task has been completed in consolidating different company units, with the aim of improving their efficiency. One should also mention the elevated role of the NIS Board of Directors, which has become directly involved in the consideration and strategic implementation of company decisions. Changes in the organisational and managerial structure of NIS contributed to a spred more efficient control of the Company business, higher transparency level in business processes and an increase of NIS attractiveness for shareholders. Today NIS applies high standards in the area of corporate management, which is based on internationally recognised principles and the best global practice. One of the main changes that hap- Nothing but TeamWork Thanks to their rich and multidisciplinary experience in the realisation of projects, Gazprom Neft experts were permanent interlocutors for NIS colleagues in the process of making strategic and tactical decisions regarding the further development of the Serbian company. This aspect of mutual cooperation takes one of the most important places in today s communication between NIS and Gazprom Neft. New Technologies Due to historical circumstances, NIS has been deprived of progressive technical and technological solutions that are necessary for efficient business activity for almost 20 years. However, after the year 2009, NIS received the possibility, not only to get acquainted with state-of-the-art technical and technological solutions in the energy field, but also to use them actively in its operation, leaning on support given by colleagues from Gazprom Neft. In order to clarify the importance of this form of cooperation, it should be mentioned that it was with the help of consultations and technical support from Gazprom Neft that NIS s Block Exploration and Production was able to stop its drop in production of hydrocarbon and since 2010, to generate the opposite, positive trend. In close cooperation with colleagues from Gazprom Neft, NIS experts have implemented new technologies in the area of oil refining. pened in close mutual cooperation with the Gazprom Neft head office, were innovations introduced in the corporate management of NIS and work with employees. Foremost, the approach of the personnel training process was changed at the Serbian company. If this approach was elitist and non-transparent earlier, now additional knowledge has become absolutely available to NIS employees, and the assets allocated annually for this purpose are expressed in seven-figure amounts. An equally important initiative was the introduction of a modern motivation system that included the renumeration of individual performance for each employee, which has already shown positive effects. Due to historical circumstances, NIS has been deprived of progressive technical and technological solutions that are necessary for efficient business activity for almost 20 years. However, after the year 2009, NIS received the possibility, not only to get acquainted with state-of-the-art technical and technological solutions in the energy field, but also to use them actively in its operation, leaning on support given by colleagues from Gazprom Neft.

10 16 regional cooperation regional cooperation 17 The Colours of NIS in the Balkans Since 2010, NIS has been dynamically expanding its business activities into the Balkan markets. Subsidiaries were started in Bosnia and Herzegovina, Bulgaria, Hungary, and Romania. To support Serbia s European integration, a Company representative office was opened in Brussels. NIS has representative offices in Russia and Croatia as well, and has also been doing business in the territory of Angola and Turkmenistan. In 2010, NIS adopted a ten-year Development Strategy which laid solid foundations for the dynamic expansion of business in the region. According to the Strategy, oil and gas production should reach five million tonnes a year. However, given the fact that the possibilities of strategic growth of oil production in Serbia are insufficient for attaining the ambitious target of increasing production, and that the production on new reservoirs abroad can be more economically viable than oil production on old domestic reservoirs, a strategic plan has been drawn up of concession activities, aimed at ensuring the growth of production and oil and gas reserves. This has incited NIS to develop regional business activities. One of the advantages of this move is that company experts are wellacquainted with the characteristics of this area, and NIS has logistical advantages as well, owing to the proximity of these locations. Subsidiaries were started in Bosnia and Herzegovina, Hungary and Romania, and at present we are already addressing the issue of analyzing geological and technical data from exploration wells. Yet another strategic goal - increasing the volume of oil processing - has motivated NIS to expand its business in the region. In 2009, NIS embarked on a thorough modernisation of its refining capacities, and as a result, towards the end of last year, one of the most important investment project in Serbia was finished: a modern hydrocracking and hydrotreatment complex, which ensures a continued supply of the highest-quality fuel to the state, produced in accordance with the Euro-5 standard. The new refining capacity, at almost five million tonnes a year, allows the company to meet its strategic goal. However, this opens up a new question: Where are such great quantities of petroleum products, produced in accordance with the most up-todate world standards, to be marketed? The answer was found in the regional market. At present, apart from Serbia, NIS has been marketing its fuel in Bosnia and Herzegovina, Romania, and Bulgaria.

11 18 regional cooperation regional cooperation 19 Bosnia and Herzegovina In Bosnia and Herzegovina, NIS is performing operations in the field of exploration and production through Jadran- Naftagas, a joint company with the Russian company Neftegazinkor with retail presented through two consumer brands - Gazprom and NIS Petrol. In 2012, the first petrol stations were opened in this country under the brand name NIS Petrol, while this year, NIS acquired petrol stations from the Austrian OMV in Bosnia and Herzegovina, and launched the premium consumer brand Gazprom. Romania NIS Petrol, the NIS representative office in Romania, is in the business of exploration and production, as well as the development of the retail network covering the entire country. As part of exploration and production, NIS Petrol collaborates with four companies: the Canadian East West Petroleum, the Irish Moesia Oil and Gas, the English Zeta Petroleum and the Romanian Armax Gaz. In the retail network, there are 13 Gazprom petrol station facilities in Romania. By the end of 2015, a network of 120 petrol stations in total will be operating in Romanian territory. Branko Radujko, NIS Regional Manager for the Adriatic: Our business in Bosnia and Herzegovina is developing according to plan. Apart from the exploration drilling which started at the end of May in the Northeastern parts of the country, the plan is for Jadran-Naftagas to drill another exploration well during the course of this year, in the eastern part of the Republic of Srpska one of the entities of Bosnia and Herzegovina. The results of the drilling will determine the dynamic of further oil and gas exploration in this area. Aside from exploration, we have also been working on improving our retail network, which at the present moment has 36 petrol stations spread throughout Bosnia and Herzegovina. Out of the 36 petrol stations, the 28 that we have acquired from OMV operate under the premium brand Gazprom, and the majority are located in the Federation of Bosnia and Herzegovina. The remaining eight facilities are located in the Republic of Srpska and operate under the brand name NIS Petrol. We plan to develop company activities in the territory of Bosnia and Herzegovina in the upcoming period as well. We will strive to ensure that every Gazprom petrol station is a place of recognizable quality: with the best fuels, choice consumer goods, and outstanding service. The network as a whole should be the leading premium brand in the market of Bosnia and Herzegovina. In addition, we will make an effort to optimize the network itself, as well as the supply process, so that NIS products are delivered to our stations in the fastest and most convenient way. Also, we have plans regarding development and significant positioning in the wholesale domain. I am sure that buyers will recognize the quality of our service in logistics and supply. We are particularly focusing on the corporate client segment. By the end of 2015, the Gazprom retail network will have 250 facilities in the Balkan region, out of which about 40 petrol stations will be in Bosnia and Herzegovina. In addition to the development targets in the area of sales and logistics, we are oriented in the long term towards activities related to exploration and, I hope, exploitation as well. The plan is to invest 40.7 million US dollars by the end of 2014 into oil and gas exploration, and a couple of hundred million dollars into the exploitation stage, on the condition that hydrocarbon reserves are confirmed. Aside from our activities in the Republic of Srpska, we are putting in efforts to get an opportunity to carry out explorations in the area of the Federation of Bosnia and Herzegovina, as well. Vadim Smirnov, NIS Regional Manager for Romania: The key projects of our company in the Romanian market focus on hydrocarbon exploration and production activities in the Western part of the country. NIS has already started the exploration activities in Timis County, where an exploration well was drilled and testing the oil and gas flows are in progress. In the county of Bihor, on the territory of the concession block Tria NIS started the seismic prospection activities by contracting the Hungarian company Acoustic Geophysical Services (AGS to perform 2D and 3D seismic surveys in the field, in the area covering 545 square kilometers and 83 kilometers respectively. According to the plans, the drilling of the first exploration well on this block is to start at the beginning of next year, and by the end of 2014 at least three oil wells should be opened. The total value of investments in this stage of project implementation is about 21.2 million Euro. The Gazprom petrol stations can be found on an increasing number of public roads in this country. At present, this network has 13 facilities. Incidentally, the plan is for the Gazprom petrol station network in Romania to have 120 facilities by the end of Our goal is to have at least a 10 percent share in the market by 2016, and at least one third in the premium segment to which the Gazprom network belongs. We plan to invest as much as 150 million Euros for that purpose. Apart from oil and gas exploration and retail development projects in this country, NIS has already attained stability in the domain of ship bunkering in Constanta. NIS is also evaluating the possibilities of supplying aircrafts with aviation fuel in the Timisoara area, as well as in the delivery of bitumen for the building of roads whose quality meets the current European standards. In addition, our Oilfield Services Block has obtained certificates for two workover plants and well services for operations in Romania. We plan to use their capacities for the purposes of other projects in the near future.

12 20 regional cooperation regional cooperation 21 Hungary Bulgaria Hungary is one of the principal countries for the geological exploration works carried out by NIS abroad. In this country, NIS conducts its business via the daughter-company Pannon Naftagas Kft. NIS s partners in this country are Falcon Oil and Gas from Canada, and RAG from Austria. In collaboration with them, NIS is carrying out work in three exploration blocks near the border with Serbia. At present, NIS collaborates with RAG on two blocks Kelebia and Kiskunhalas. NIS works with Falcon on the Mako Depresija block, where the drilling of the exploration well Kutvolgy-1 was completed on July 15, and the contractor was the renowned service company Drilltec from Germany. Currently, the analysis of the geological and technical data is under way, based on which the well testing program will be drawn up. According to the contract with RAG, by mid-next year two more wells will be drilled, one each on the Kiskunhalas and Kelebia blocks. According to the contract with Falcon, three wells will be drilled by July NIS s share in the production will be 50 percent from the entire area of these licence blocks. The Bulgarian market is one of the priorities for the development of the premium NIS retail network in the region. In this country, a subsidiary NIS Petrol EOOD has been registered, and owns at present 42 assets the existing petrol stations or construction land. At the beginning of July, the first petrol station under the brand name of Gazprom was opened in Bulgaria, and by the end of the year, over 35 operative Gazprom facilities will be opened in this country. NIS Petrol has bought a storage facility in Kostinbrod near Sofia, and thus opened up the possibility for the development of fuel distribution from Serbia using its own retail facilities, as well as for the commencement of wholesale activities. Slavko Pecanac, Director of Pannon Naftagas Kft: Ivan Kostadinov, Director of the NIS Petrol EOOD Subsidiary: The strategic development of the company in Hungary consists of the contractual completion of programs with partners, after which a technical and economic analysis is done. Naturally, the main strategic goal of all explorations is providing the resource base increase and the production of hydrocarbons outside of Serbia. However, exploration is a process in which we can obtain the final results and assess them after three to five years, which is when we will have all the data and finish the analyses. Now we can say that we have good competences as strategic partners for the development of joint business in Hungary, with companies which are world-renowned, and that we have confirmed our status as the reliable strategic partner for the joint development of business in the oil and gas sector. NIS s partners in Hungary are Falcon Oil and Gas from Canada, and RAG from Austria. In collaboration with them, NIS carries out work in three exploration blocks near the border with Serbia. Current activities focus on the further development of the network through the acquisition of facilities. At the same time, extensive activities are under way in the area of reconstruction and re-branding, as well as the designing of new petrol stations. A retail system is being built in the region: operation standards are being set, fuel and additional assortments of goods supplied, business quality controlled, and lubricants provided by NIS for retail facilities. A dealership management system has been established. In the territory of Bulgaria, 28 petrol stations are currently operational. The wholesale of fuel directly from Serbia and from the storage facility in Kostinbrod has been started, as well as the wholesale of lubricants from the production program of NIS and Gazprom Neft. The goal of the company in Bulgaria is to build a retail network of over 90 petrol stations by the end of The investment plan for development in the Bulgarian market is ambitious, and has been implemented according to the plan so far, despite the unstable political situation in Bulgaria since the beginning of In the upcoming period as well, the investment plans will be implemented at a faster rate, and will include new acquisitions and the building of petrol stations on premium locations. Apart from the Bulgarian capital, Sofia, these plans include major cities, basic European corridors, highways, and border crossings.

13 22 exploration and production exploration and production 23 Moving courageously towards new discoveries NIS has set forth in its Strategy that it will not renounce the development of Serbia s oil and gas potentials and that it is primarily focused on increasing the production and resource base which is also the national strategic reserve and on regional hydrocarbon explorations. The results are certainly tangible: oil and gas production has doubled over the last four years.

14 24 exploration and production exploration and production 25 Despite the fact that oil and gas explorations and production in this area have been conducted for over 60 years, the Pannonian Basin still has significant oil and gas reserves. This year, 3D seismic operations will be conducted on more than 2000km 2. Before the acquisition of NIS by its Russian strategic partner Gazprom Neft in 2009, oil resources in Serbia were believed to have been depleted and oil production had no future. Although there have been no expectations of increasing the reserves, NIS investments in new geological research and oil reservoir rehabilitation with the application of new technologies and the development of complex reservoirs have brought about higher output at existing reservoirs and an increase in the resource base. a New Picture of the Pannonian Basin Regarding exploration and production activities, the priority is still to further develop the Pannonian Basin which spans across Serbia, Bosnia and Herzegovina, Croatia, Hungary and Romania. It is expected that NIS operational capacity, application of leading-edge technologies, the experience of our experts and the knowledge of regional geological features will contribute to the success of the Pannonian Basin research programme. Despite the fact that oil and gas explorations and exploitation in this area have been conducted for over 60 years, the Pannonian Basin still has significant oil and gas reserves. Continuous hydrocarbon discoveries in the region can testify to this, as well as an increased production at NIS over the past few years. The Company s considerable investments in further development certainly add value to this, and we will accomplish new oil and gas outputs and increase reserves with the aid of new technologies. Serbia 3D The prospective locations for 2D and 3D seismic explorations and exploratory drilling were defined under the Strategic Oil and Gas Research Plan for Serbia and the Geological Research Projects. A preliminary investment plan has been formulated for this period and the preliminary budgets for oil and gas exploration projects have been allocated by With regard to oil and gas geological research in Serbia, 2D seismic explorations (with the scope of work of 677km) and 3D explorations (342km²) were carried out at several sites in Serbia in 2012 and four exploratory wells were drilled. This year, 3D seismic operations will be conducted on more than 2000km 2. There are also plans for drilling eight exploratory wells and introducing shallow slim hole wells into NIS exploration practice. As part of the Company s innovation and scientific technical activities, NIS has launched the implementation of the Small Oil and Gas Reservoir Exploration by drilling slim hole wells. This is the first time that this method has been applied in this region for oil and gas exploration and the project was developed by NIS Science and Technological Centre. This is a much easier, faster and more cost-effective method of discovering small oil and gas reservoirs typical for this area. Apart from its economic effects, this method is also characterised by its environmental aspect, given that a far smaller area of land is affected by this type of drilling and the quantity of drilled, i.e.mud material, used in the process. The Strategic Research Plan envisions higher oil and gas production and greater reserves for this energy carrier by The overall planned investment in geological exploratory works in Vojvodina and Serbia south of the Sava River and the Danube River by the end of 2020 will amount to 450 million Euros. New experiences Anwar ali Alward, the Manager of the Reservoir Monitoring Service, has been engaged in oil and gas reservoir development in Russia for 12 years and in Serbia for a year. Here is his account of the professional experience and impressions regarding reservoir management in Russia and Serbia: The geological structure of oil and gas field in Serbia, i.e. in the entire Pannonian Basin, is much more complex than those where I have been engaged in Russia in the past, and the insufficient study (geological diversification) of the field is an additional professional challenge for me. An incomplete picture of the geological structure entails a completely new approach to reservoir development and a need for more complex project document preparation. This requires the application of new technologies primarily aimed at drilling deep exploratory wells, new interpretation methods, the purchase of new equipment for rock and fluid analysis and a complex geophysical research of the wells. By applying the findings of all of the above,we will be able to develop the appropriate geological and hydrodynamic model. In 2012, 2D seismic explorations with the scope of works of 677km and 3D explorations 342km² were conducted at several sites in Serbia and four exploratory wells were drilled.

15 26 exploration and production exploration and production 27 One of the Company s strategic goals is efficient oil and gas production and a rational use of reserves. Over the past few years, NIS has taken a series of measures on most oil and gas reservoirs to increase hydrocarbon production. According to Oleg Bobylev, the NIS Naftagas Scientific and Technological Centre Deputy Director, this primarily refers to drilling exploratory and directional wells, the application of simulative exploitation methods such as hydraulic fracturing and ESP pumps (electrical subversive centrifugal pumps), whereas the largest oil and gas quantities have recently been obtained through the Geological and Technical Measures Project (GTM) referring mainly to perforating new intervals in existing wells. The overall effect of production optimisation, the application of new technologies and exploitation methods from 2009 onwards have yielded an additional 1.3 million tonnes of oil in the period of four years Oleg Bobylev, Deputy Director of NTC NIS Naftagas Oil Production in thousand tonnes of oil equivalent ,694 1,543 1, Efficient and Rational Production: Oil and gas are produced in Serbia at 53 oil and gas fields as well as in Angola through concessions. Currently 597 oil and 98 gas wells are being exploited. The current annual production in Serbia is equivalent to over 1.7 million tonnes of oil and has marked significant growth over the part three years. The main contributing factors to this production growth have been exploration and development drilling, new technologies applied to the production process and additional measures of geological and Technical Activities (GTA). Oil and gas are produced in Serbia at 53 oil and gas fields as well as in Angola through concessions. At this moment, 597 oil and 98 gas wells are subject to exploitation. Technological Development Looking Ahead Introducing and successfully implementing new technologies are NIS development priorities in all areas of business operations, from production and refining to human resources. An innovative approach and application of cutting-edge technologies are prerequisites of progress and without them maximum efficiency cannot be achieved. In 2009, NIS established the NIS Naftagas Science and Technological Centre (STC) by merging several affiliated organisational units (Geology, Geophysics, Reservoir Development, Engineering and Laboratory) to monitor the technological demands of NIS Blocks by analysing, testing and adapting the existing and proven global technologies and participating in their implementation at NIS. In addition, NIS has launched explorations of unconventional hydrocarbon resources and started developing the production and refining technology for oil shale, heavy and viscose oil in cooperation with world-class leaders in the field. Angola NIS has been conducting business operations in this African country since In 1985, oil exploitation activities were initiated in Angola. From its establishment onwards, NIS has produced about 4.2 million tonnes of oil in concession reservoirs in Angola. In Angola, NIS currently operates in cooperation with a partner group at one production block, eight fields and one exploration block, where two discovered exploratory fields are currently developed: Punja and Caco/Gazela, with the Company s share in the consortium at the blocks amounting to four per cent. Sonangol P&P is the operator at the blocks. In 2011, NIS and its consortium partner, the Japanese company AJOCO, entered into agreement on performing joint lifting, which ensures higher export frequency of its oil volumes year-round.

16 28 service service 29 Why Why we we need New equipment facilitates the work of field specialists, achieving greater efficiency. need Efficiency John Small, Director of Oilfield Services Block Strategic Development System Maintenance Service improvements and expansion are strategic goals in the further development of the Company s Oilfield Services Block. NIS has its own servicing capacities which fully meet the Company s requirements and also render services to third parties. The Oilfield Services Block has all the required equipment, units and vehicles necessary for performing these types of operations. NIS Oilfield Services are comprised of three subsidiary companies: NAFTAGAS Oilfield Services, NAFTAGAS Technical Services and NAFTAGAS Transport. Owing to the state-of-the-art equipment and its experienced staff, the Oilfield Services has been engaged in conducting operations in numerous foreign countries. It is currently engaged in drilling an exploration well in Bosnia and Herzegovina, the Republic of Srpska, and carries out works in Turkmenistan. Recently NAFTAGAS Oilfield services has certified two workover units and well services to operate in the EU and Romania and established a branch office in this country, where it will soon be possible to engage our services, is currently in place. The Oilfield Services priority is to ensure high quality of its services, better technical and technological efficiency and greater engagement at NIS and other companies. The Oilfield Services objective is to increase its engagement in the region and on the international market. This organisational unit s strategy is primarily aimed at improving operational efficiency. According to its Director, Mr John Small, this year s goal is for the Block to prove its capacity to work more efficiently than before. We also need to prove that we are capable of achieving the same results as our contractors, i.e. third parties which are currently on the market with similar services, and will come to Serbia and be engaged by the Exploration and Production Block. This year, we will carry out our services benchmarking against the competitors on the market, in order to determine the areas in which we need to improve the quality of our services, says Mr Small. In addition to ongoing preparations for entering the European and regional markets, NAFTAGAS Oilfield service invests great efforts in upgrading equipment. There are investments in new drilling and workover equipment and well services, new leading and top-quality equipment for geophysical data acquisition has been purchased from SERCEL, as well as Top Drive - an integrated system for drilling tool rotation and working fluid (mud) circulation during drilling. NAFTAGAS Technical Services provides maintenance service, workover, the construction and development of equipment and units used in the oil industry. Technical Services accompany the Company s technical tools in all operational segments: oil and gas exploration and production, drilling and well workover, as well as in refining and petroleum product sale. The maintenance strategy for technical resources includes all types of maintenance: emergency, preventive, proactive maintenance and repairs. If the parent company achieves a growth in production, maintenance units have done a good job, given that technical systems fulfil their projected function to ensure that the system is functional (wells producing oil and gas, the refinery is in operation, drilling rigs drill etc.), they told us at NAFTAGAS Technical Services, a NIS subsidiary. The main task was accomplished by ensuring minimum downtime of technical resources, whereas all system failures were eliminated by timely and high-quality interventions. The Maintenance Strategy entails a larger scope of preventive maintenance, which is intended to prevent and reduce equipment downtime as well to lower the overall maintenance costs.

17 30 service service 31 Modern Vehicle Pool Naftagas Transport vehicles (freight, handling, specialised and passenger) are a logistical support to all NIS organisational units. In 2012 the vehicle pool was significantly renewed: 453 vehicles were purchased so that currently the average passenger vehicle is about four years old. Naftagas Transport took a series of preventive activities regarding traffic safety esulting in the reduction of the traffic accident coefficient in 2012 by 20 per cent compared to the previous year, whereas one of the most important realised activities in this year was the installation of navigation devices in all vehicles. By installing a new GPS system, this NIS subsidiary has set new standards in vehicle pool management. The surveillance and control of various main vehicle parameters in vehicle operation directly contributes to reducing vehicle maintenance costs, fuel consumption and preventing unauthorised vehicle use. This is what the Oilfield Services employees say about the Improvement Programme: Milos Delić, the Toolpusher at the ID-5 drilling rig: Improving on-site conditions is highly important for us and gives us an incentive for further work. The new containers we have been provided with are much different in quality than the ones we have used so far, and we expect to replace the equipment which is extremely worn-out in order to achieve higher-quality work and be competitive. I, as the Toolpusher, spend 24 hours on the site and I sleep here, and so this new container for rest means a lot to me. Farkas Tibor, the Driller: The conditions are now much better than before. The equipment modernisation and the improvement of on-site working conditions certainly facilitate our jobs and increase operational efficiency. NIS Oilfield Services provide the following services: Geophysical research Drilling, completion and workover of oil, gas and water wells All of the three Oilfield Services subsidiaries are certified as per the following standards: ISO 9001: Quality Management System, ISO 14001:2004 Environmental Protection Management System and OHSAS 18001:2008 Occupational Safety and Health Management System. The Oilfield Services priority is to ensure the high quality of its services, better technical and technological efficiency and greater engagement at NIS and other companies. The Oilfield Services objective is to increase its engagement in the region and on the international market. Special operations and measurements at wells Maintenance and overhaul of facilities and equipment, pipeline construction, installation of oil and gas technological systems and preparatory construction works The Maintenance Strategy implies a greater scope of preventive maintenance, which is intended to prevent and reduce equipment downtime as well as overall maintenance costs. Equipment and passenger transport

18 32 Refining Refining 33 On our Way to the Top EURO 5 EUROPEAN QUALITY FROM PANČEVO The development of the refining industry which followed the 2008 Interstate Strategic Cooperation Agreement between the Russian Federation and Serbia, the successful completion of the first phase of modernisation, and the construction of a mild hydrocracking and hydrotreatment unit in Pancevo have ensured a steady production of topquality petrol and diesel meeting the Euro 5 Standard. The second phase of modernisation is under way and is sure to achieve the Company s goal - to be the leader in this part of Europe with its refining business among the world s best. The first phase of modernisation in Pan evo and the construction of new units for mild hydrocracking and hydrotreatment (MHC&DHT Complex) late in 2012 successfully launched the production of top-quality petrol and diesel fuel with sulphur content below 10 ppm as per the Euro 5 Standard. With this investment project, the refining business has opened a new chapter of rapid development with new horizons regarding NIS refining capacities in Pan evo and Novi Sad. Regarding the scope of investment, the MHC&DHT complex in Pan evo is the largest single investment over the past few decades in Serbia. This is not an easy task. Several of the major European oil industry players operate in the Balkans. Assuming strategically important leadership and running successful operations in a highly competitive market is feasible only with leading refining facilities, the application of new technologies ensuring maximum petroleum product output with a high margin, as well as with a good and flexible logistics chain for petroleum product distribution. To achieve this, NIS has invested more than 540 million Euros in the first phase of modernising its refinery over the past four years, with the participation of its majority shareholder, Gazprom Neft. Investing in the refining business is a step towards implementing the NIS Development Strategy - to become a leader among the regional energy companies by 2020, with one of the most efficient refineries in Southeastern Europe. Within just over two years, some other large investments have been completed and the following have been established as part of the MHC&DHT complex in Pan evo: Spent Acid Recovery Unit, Sulphur Granulation Unit, Amine Recovery Unit, Sour Water Treatment Unit and Hydrogen and Natural Gas Generation Unit. During this period, 28 production facilities and more than 300 process plants were built. The modernisation included the construction of a new storage facility for liquid petroleum gas, the renovation of the Gas Treatment Unit, the construction of a state-of-the-art substation, a new nitrogen station, a new measurement and regulation station for natural gas and a new hydrocarbon flare, as well as the upgrade of all petroleum product loading/unloading stations at the terminal and railroad and product shipping from the Danube jetty. The overall investments in the refining infrastructure exceed 140 million euros.

19 34 Refining Refining 35 What has the modernisation brought about? Annual refining capacity of nearly 5,000,000 tonnes refined Exporting topquality products into regional countries Producing automotive and aircraft fuel, liquid petroleum gas, heating oil, various types of industrial and road bitumen, oils and lubricants, petrochemicals and other products Producing top-quality petrol and diesel fuel meeting the Euro 5 Standard with sulphur content below 10 ppm (more than 638,000 tonnes of Euro Petrol and over 1,500,000 tonnes of Euro Diesel a year) Increased production of white products to more than 70% and greater depth of crude oil processing by nearly 10% (now it amounts to 80%) One of the advantages of NIS refining facilities in two cities in Serbia, namely Pančevo and Novi Sad, is their excellent geographical location: they are located on communication routes which are highly favourable for this industry. NIS refineries are located on the banks of the Danube, which enables river transport, with railroad transport also available within close proximity. Furthermore, NIS has a widespread network of petroleum product storage facilities and a sizeable vehicle pool (both passenger and railroad) which is undergoing modernisation and optimisation with a single aim to achieve European supply chain standards. In addition, NIS refining facilities are already on the market with huge possibilities for marketing petroleum products locally and regionally. NIS has invested more than 540,000,000 Euros in the first phase of upgrading its refining business over the past four years. This year s Refining Plan will exceed 3,000,000 tonnes refined, and according to the Company s Development Strategy and regional market expansion, the annual oil refining volume will have reached 5,000,000 refined tonnes by NIS now supplies 74% of consumers in the open competition on the Serbian market. REGIONAL MARKET LEADER With the newly built facilities in Pan evo, the projected annual refining capacity totals about 5 million tonnes refined, which fully meets the Serbian market demand and ensures the export of top-quality products into neighbouring countries. Newly built production capacities ensure the production of more than 638 thousand tonnes of Euro Petrol and more than 1.5 million tonnes of Euro Diesel a year, which is much more than before the implementation of the modernisation programme. NIS refineries produce a wide range of other oil and natural gas products which fully meet international quality standards and manufacturing specifications: automotive and aircraft fuel, liquid petroleum gas, heating oil, various types of industrial and road bitumen, including polymer bitumen, oils and lubricants, petrochemicals and other products. In addition to a transfer to environmentally-friendly fuel production as per the Euro 5 Standard, the first phase of upgrading the Pan evo Refinery has also resulted in the increase of white product volume production to more than 70 per cent, and the crude oil refining depth is nearly 10 per cent higher as well, now reaching almost 80 per cent. All the above mentioned has enabled NIS to have the largest share in open competition on the Serbian market. Owing to its high-quality products from the Company s modernised refining facilities, it is on the route to assume leadership on the Southeastern European market. This year s Refining Plan will exceed 3 million tonnes refined, and according to the Company s Development Strategy and regional market expansion, the annual scope of refining will have reached 5 million tonnes by 2020.

20 36 Sales and Distribution Sales and Distribution traffic 37 NIS from the The Sales and Distribution Block is what characterizes NIS, what creates profit, but also what represents the Company in its true essence it is what consumers are in touch with every day. NIS wholesales crude oil in the Serbian market and, for the purposes of export, sells gas and petroleum products, and on top of that, the Company has its own retail line of marketready petroleum products, liquefied petroleum gas and an array of accompanying products. The key activity of the Sales and Distribution Block is retail sales. NIS owns the largest retail network in Serbia and is the leading supplier of petroleum products on the Serbian market. Petrol stations are the first point of contact with the consumers, so their operation is a direct reflection of the im- age of the company and the way it conducts business. The retail sector of NIS has in recent years had good results, despite the crisis in the country and the region, as well as the diminishing Serbian retail market. In 2012, the volume of retail sales increased by 15 percent. The increase of NIS s shares in the retail market was 5.9 percent, while the share of other companies in the retail market has been dropping yearly. As a consequence of rebranding and the increased work efficiency in 2012, the daily sales of petroleum products at NIS petrol stations have grown on average by about 38 percent. The mean annual volume of sales is about 2.5 million tonnes, which covers 50 percent of the wholesale market, 34 percent of retail sales, and about 68 percent of the entire petroleum products market in Serbia. Land to the Skies At present, NIS can showcase the largest and most modern retail network in Serbia, which has been actively expanding in the region in the past year. The Company supplies European-quality fuel not only to drivers in the Balkans, but also to aircraft and river vessels.

21 38 Sales and Distribution Sales and Distribution 39 The Region as a Priority The fact that subsequent to the modernisation of the refining complex in Pan evo NIS started to produce Euro-5 standard fuel, and that the refining capacity is about 5 million tonnes refined on the annual level, allows NIS to export petroleum products of the highest quality to countries in the region. In accordance with the strategic goal of becoming the leader in the region, NIS is opening petrol stations in neighbouring countries Bosnia and Herzegovina, Bulgaria, and Romania. One of the priority markets for the development of the NIS retail network in the region is the Bulgarian market, where the Company is present with the Gazprom premium brand. The first Gazprom petrol station in Bulgaria was opened in July this year. NIS plans to start the operation of over 40 Gazprom petrol stations in Bulgaria by the end of the year, and to build a network of 80 retail facilities by the end of Besides petrol stations, NIS owns a storage facility for petroleum products in this country. Another country that NIS is targeting at with its premium Gazprom brand is the neighbouring Romania. In this country, the Gazprom network currently has 12 petrol stations, and by the end of the year the Gazprom network in Romania will include over 50 petrol stations. The plan is that in this country, by the end of 2015, over 120 petrol stations will be opened, which will be located along the international and national public roads, as well along thoroughfares in major cities. In Bosnia and Herzegovina, besides the existing NIS Petrol brand, with eight petrol stations in the Republic of Srpska, the Company extended its retail network with the premium petrol stations under the brand name Gazprom. Today, 28 petrol stations operate throughout Bosnia and Herzegovina under this brand name. As the Chief Executive Officer of NIS, Mr. Kirill Kravchenko, said that the development of retail sales in the region represents one of the priority business directions. Opening Gazprom petrol stations is yet another step on the road to the development of a unified retail network of the Company in the Balkans. The appearance in the market of a brand which is well-known to the buyers, and confidence Hungary Romania Croatia Serbia B&H Bulgaria regarding the quality of our products will contribute to the realisation of the strategic goals of the Company to become one of the leaders in the area of petroleum products sales in the region, said Kirill Kravchenko. One of the strategic goals of NIS is to sell five million tonnes of petroleum products a year by Given that these are greater needs than what the Serbian market can absorb, but also taking into account the fact that NIS is in the game of being a regional player, what is key is the development and expansion of the regional retail network. It is planned that, by the end of 2015, more than 250 petrol stations will be operating under the brand name of Gazprom in the Balkans, and that the entire retail network of NIS in Serbia and the region will have as many as 800 facilities in the medium term. We Run the Serbian Sky In addition to retail sales, NIS is a national leader in supplying aircrafts with fuel, which is one of the older activities of the Company. The fact that over 92 percent of aviation fuel sales in Serbia are done through NIS is testament to the involvement of the Company in this segment of the market. Supplying aircrafts with fuel at two international airports, in Belgrade and Niš, is one sales channel, the other one being the export of aviation fuel to neighbouring markets, first and foremost to the markets of Romania and Hungary. The quality of jet fuel produced by NIS is in line with Serbian and international standards regarding this type of aviation fuel. Jet fuel is intended for the majority of aircrafts, passenger planes and cargo planes, and is produced in sufficient quantities at the NIS refining facilities. In addition, NIS offers avgas, which is obtained through exports and is mostly used in agriculture and for business aviation and aviation training. All major airline companies with regular flights from the Belgrade Airport Nikola Tesla, such as Lufthansa, Air France, Alitalia, Turkish Airlines, Wizz Air, Aeroflot, and others, are supplied by NIS. The biggest buyer of aviation fuel is the national airline carrier Air Serbia (former JAT) which NIS has been collaborating with for many decades. Paving the Way to Europe Apart from high-quality fuel, NIS also produces bitumen in its Pan evo Refinery, according to the highest EU standards. NIS has already become the leading exporter of this petroleum product to Romania and Macedonia, and given the fact that Romania is the greatest consumer of bitumen and has no production of its own, it is clear what sort of challenge this poses for NIS. Besides these countries, NIS exports bitumen to Bulgaria, Bosnia and Herzegovina and Croatia. Direct delivery by means of tank trucks first began in the territory of the Kosovo. In order to be in the proximity of foreign partners who buy bitumen, renting warehouses in the said countries is under consideration, so that bitumen could be stored there and thus be available to consumers at all times. NIS on the River Even though it has come later than the rest, supplying river vessels with fuel is an important and promising business direction for NIS. Owing to its geographic location, Serbia has a major strategic resource the Danube which has always been a trans- European artery. On the one hand, thanks to its rich culture, Serbia is an interesting destination for tourists travelling on the Danube. On the other hand, the Danube has enormous potential because of the increase in sales of goods. It is for these reasons that in Serbia and its surroundings there is a great degree of river transportation, which requires a bunkering service. In line with this, it is the goal of NIS to cover the entire navigable waterway of the Danube through Serbia. Apart from the two bunker stations which are already operational and where two independent lines work, dedicated to both the local and the international market, three more Danube terminals are planned.

22 40 Sales and Distribution Sales and Distribution 41 Two Brands for Better Business In order to have even better results, from late last year NIS has been present in the market with two retail brands the mass and the premium brand. This is a common practice of big companies who are present in the market with many independent brands in order to satisfy the diverse needs of consumers, and thus take a bigger share in the market. The goal of both is increased sales: winning over new buyers and keeping the old ones. The NIS Petrol mass brand is intended for the buyers who above all like to buy Serbian products and not stay too long at petrol stations, spending additional money on the multitude of offers at shops or restaurants. This tricolour commercial brand offers reliability, availability, modern standard services, and guaranteed quality of petroleum products. NIS Petrol stations are most numerous in Serbia, and thus far, over 200 retail facilities have been rebranded in this country. A strategic step in the expansion of the retail network in the region was the opening of the first NIS Petrol station in the neighbouring Republic of Srpska in Today, there are eight petrol stations in the Republic of Srpska network. Owing to a greater work efficiency and its increased presence in the retail market in Serbia and the region, NIS has launched a premium petrol station brand Gazprom. This brand focuses on a different target group from the NIS Petrol brand, and is intended more for the consumers who value quality and a choice of goods and services. This includes foreign visitors who are travelling through, as well as those people who like to choose among many different items in shops, and get a lot of rest. For them, the Gazprom brand facilities offer European-standard fuel, high-quality oils and lubricants, other assorted goods, wireless Internet access, and an excellent restaurant menu which also includes national dishes. In blue and white, and with a recognizable modern design, the Gazprom petrol stations have a contemporary and urban look in order to attract the young population as well. The first petrol station under this brand name was opened in Serbia in late 2012, and today there are ten facilities in this country. 1 Petrol stations are the first point of contact with the consumers, so their operation is a direct reflection of the image of the company and the way it conducts business. NIS Petrol Gazprom It is intended for buyers who above all like to buy Serbian products and not stay too long at petrol stations spending additional money at shops or restaurants. This brand offers reliability, availability, modern standard services, and guaranteed quality of petroleum products. The brand is intended more for the consumers who value quality and a choice of goods and services. This includes foreign visitors who are travelling through, as well as those people who like to choose among many different items in shops, and get a lot of rest. For them, the Gazprom brand facilities offer European-standard fuel, high-quality oils and lubricants, other assorted goods, wireless Internet access, and an excellent restaurant menu which also includes national dishes. shop Payment using NIS card cafe EU-standard fuel availability WI-FI restaurant EU-standard fuel Playground 24H

23 42 energy energy 43 Three Lines We are investigating opportunities in other countries of the region and preparing our regional development plan of Growth Energy Block was established at NIS in 2011 in pursuance of a decision from the NIS Board of Directors. It kick-started the process of transforming NIS from a national oil and gas company into a regional-scale energy-holding company, which essentially was part of the 2020 NIS Development Strategy. No meaningful business diversification was possible unless the company explored new market territory, including the electricity market, which was why, as early as 2011, NIS started planning projects that were launched in The primary task of Energy Block has been to make NIS more energy efficient. That was done by raising the efficiency of the company s existing energy assets. It is still one of the underpinnings of the company s industrial profitability and, ultimately, its primary competitive edge. Equally important for the work of Energy Block is the efficient monetisation of the company s idle or underused assets. Like building a park of cogeneration facilities, running on associated gas, to generate heat energy and electricity. There are also plans to tap deep into the geothermal potential of the company s depleted wells. Another proposal is to utilize waste heat generated in large amounts by refining installations. The third and biggest line of business of Energy Block has to do with its big generation projects. Primarily it involves constructing and/or reconditioning some of the larger assets of Serbia s energy infrastructure. The current plans include the construction of a CHP plant in Pan evo and a major overhaul of the CHP plant in Novi Sad. A wind park in Plandiste deserves special note.: When up and running, it will help Serbia to faster embrace the EU s sustainability requirements. An in-depth overview of these three lines of business will be given below. It should be noted that NIS top management has created a plan to raise the company s generating capacity to 500 MW. Alexey Belov, Director of Energy Block Energy Efficiency Energetic, efficient Energy Block s first project was aimed to improve the energy efficiency of the company s production assets. The first location was the NIS refinery in Pan evo (Pan evo Refinery). Because around 60 percent of the refinery s production costs were associated with the acquisition of energy, it was clear that there was a great potential for improvement in this segment. In Energy Block s specialists teamed up with their colleagues from Refining Block to carry out large-scale operations to improve the situation with regard to energy consumption. The daily monitoring of energy consumption at the Pan evo Refinery allowed specialists to identify the production areas where heat and electric energy was not used rationally. After that, a number of administrative measures were put in place, including those aimed at improving working practices, which eventually produced the desired energy saving. Simultaneously, technical upgrades were made at some of the installations of the refinery energy-saving technologies were implemented, the operation of the electric drives was adjusted, and isolation was renewed. As a result, by the end of 2012, the 6 million euro investment produced an economic effect of around 18 million euro. Energy Block Director Alexey Belov says, the best illustration of what Energy Block and Refining Block have achieved together over the recent years is the reduction of the power input indicator at Pan evo Refinery, which is calculated according to the Solomon method. In 2009 this indicator was 182 points; by the end of 2012 it was down to 161 points already, and by 2020 this indicator is expected to fall to 105 points. In 2013, several additional projects have been implemented: a new energy-efficient compressor system has been put into operation at the Novi Sad Refinery, and a project to replace the thermal isolation on the 24 generation tanks was launched at Pan evo Refinery. Improvement of energy efficiency is not limited to administrative measures and the introduction of new equipment. However, in 2013, the company launched a project to introduce the ISO :2011 energy management standard across all NIS departments. The reason is clear: the wise management of procurement, distribution and consumption of energy are the key to the company s energy-efficient operation. This project is being implemented in collaboration with TUV, a European company, and is now in its first phase: the training and the collection of the documents necessary for obtaining licenses. This program will be implemented in pilot mode at the Pan evo Refinery, the NIS business center in Novi Sad, the oil depot, at an exploration and production unit, and at one fuel station. It is expected that the company will obtain the necessary certificate no later than 2014.

24 44 energy energy 45 In 2009 this indicator was 182 points Saving resources The efficient and rational use of available resources is something every company needs in order to deliver a sound performance financially, economically, and production-wise. In early June, NIS launched a project for the utilisation of associated gas, which was previously burnt in flares at the company s oil facilities. Among others, the associated gas utilisation program, as a part of a long-term project for the efficient use of the company s gas resources, has a considerable energy component. The idea is to install cogeneration modules on some of the company s oil and gas fields. The modules are designed to use associated gas to The best illustration of what Energy Block and Refining Block have achieved together over the recent years is the reduction of the power input indicator at Pancevo Refinery, which is calculated according to the Solomon method. By the end of 2012 it was down to 161 points already generate heat as well as electric energy, thus allowing the company to reduce energy costs associated with the provision of reservoirs and wells by an average of percent. On 3 July 2013, the first cogeneration module of this type, with a capacity of around 1 MW, was launched at the oil-gathering station in Sirakovo. Energy Block s plans include installing another seven cogeneration units of this type. By the end of 2014 their total number is expected to reach at least 14 units, with a total investment of around 30 million euro. According to representatives of Energy Block, the aggregate capacity of the cogeneration units will be around 25 MW, enabling the company to prepare itself for entry into the Serbian electricity market, which will be fully liberalised starting from 1 January And by 2020 this indicator is expected to fall to 105 points Another area, which historically attracted little interest on the part of the company s specialists, is the geothermal potential of depleted wells. Today there are about 80 wells of this kind with potential. In 2013, Energy Block started intensive research to investigate the potential of old wells. There are plans to start the construction of the first thermal power plant with a capacity of around 1 MW in the vicinity of Nakovo. The main benefit of this kind of project is the comparatively low investment (around 50 percent of the costs are associated with drilling) as well as the high degree of predictability as to the results (the company has more or less complete data about the geothermal potential of the wells). The aggregate capacity of the geothermal generation project during the period ending in 2013 is estimated at around 30 MW, with investment standing at several tens of millions of euros. Strategic project However, the most ambitious project (at least, in terms of investment input and energy output) is the construction and reconditioning of the CHP plants in Pan evo and Novi Sad. Both projects are now the subject of negotiations between NIS and prospective partners. Because of that, at this moment we can give only a rough picture of the technical capabilities of the future plants. The CHP plant in Pan evo will have a capacity of around 200 MW; it will run on natural gas and allow the Pan evo Refinery and the second industrial company in Pan evo, HIP Petrohemija, to switch their production units into autonomous mode, making them independent of external energy suppliers and immune to tariff fluctuations. In the future, NIS will be able to start selling electricity to external consumers, reducing the energy costs of both companies at the same time. The situation with the CHP plant in Novi Sad is more complex the project will see the plant capacity increased to 240 MW. This project is now being actively discussed with the current owners of the facility, the municipal authorities of Novi Sad and Elektroprivreda Srbije, and as a result its details cannot be disclosed at this time. According to Alexey Belov, Director of Energy Block, the block s projects are not limited to Serbia only. We are investigating opportunities the other countries of the region and preparing our regional development plan, he said. The CHP plant in Pančevo will have a capacity of around 200 MW; it will run on natural gas and allow the Pančevo Refinery and the second industrial company in Pančevo, HIP Petrohemija, to switch their production units A special place among Energy Block s projects belongs to the construction of a wind park in Plandište. With a capacity of 102 MW and consisting of 34 wind turbines, this will be the first project of its kind in Serbia. into autonomous mode, making them independent of external energy suppliers and immune to tariff fluctuations. The project will see the plant capacity increased to 240 MW. This project It will help the country increase the share of sustainable energy in its energy consumption mix, thus bringing Serbia closer to meeting the EU sustainable energy standards contained in the EU directive 2008/29/EU. is now being actively discussed with the current owners of the facility, the municipal authorities of Novi Sad and Elektroprivreda Srbije, and as a result its details cannot be disclosed at this time The Serbian Government has already adopted a strategy for the development of renewables, in accordance with which, by 2020, environmentally friendly energy is expected to make up at least 29 percent of Serbia s energy consumption mix.

25 46 interview interview 47 Regional development a key priority The Chief Executive Officer of NIS, Kirill Kravchenko, reveals why the company started conquering the regional market, why transparency in business operations is always worthwhile, which countries are priorities for NIS and what the company s plans for business development outside of Serbia are.

26 48 interview interview 49 Nowadays, NIS is a company which influences economic development and provides approximately 8,3% GDP and up to 11% of the total budgetary revenue owing to tax payments and implemented investment projects. How can we describe the company you lead? K.K. I would say that NIS is one of the rare major companies in Southeastern Europe which can rightfully bear the title of a regional company. We operate in almost all of Serbia`s neighboring countries and we also implement projects outside of the Balkans. In that respect, I believe I should mention that we are not alone we have partners in almost all major projects, who, as a rule, are well-known companies in this area and whose cooperation is a priceless experience for us. After 2009, when Gazprom Neft became a majority owner, many things changed in the company. We changed its organisational structure and to make it more compact efficient; we consolidated our mass retail brand which transformed into a tricolored NIS Petrol brand; we launched an international network of premium Gazprom petrol stations; we succeeded in making a significant step in terms of our debts, we stopped accumulating debts and transformed NIS into a profitable company. At the same time, we have been doing business completely transparently it was in 2009 that NIS started regularly publishing its reports, which transparently reflect its business operations, difficulties NIS encounters and successes it achieves. Nowadays, NIS is a company which influences economic development and provides approximately 8,3% GDP and over to 11% of the total budgetary revenue owing to tax payments and implemented investment projects. According to our estimates, in 2013 the role of the Company will be even more significant the tax duties of NIS will amount to more than 13% of the budget of the Republic of Serbia. Since 2009, approximately Euro 1,5 billion not counting funds allocated for purchasing shares. Thus, NIS has become the greatest investment project not only in Serbia, but in the whole region of the Balkans. For a second consecutive year we have been awarded with the honorary title of Investor of the Year. We do not intend to slow down our pace and in the following three years the total scope of our investments will amount to about Euro 500 million per year. The most important course, which is also our first priority, is the technological development of the company. It is precisely the usage of the most advanced technologies that guarantees the company will manage to handle the pressure of competition and the economic crisis, as well as to maintain its profitability We have recently completed the reconstruction of our refining capacities and now our Company has the state-ofthe-art capacities for refining oil in the region which can process up to 7 million tons of crude oil per year. We are actively developing our retail network nowadays there are about 500 service stations controlled by NIS in four countries of Southeastern Europe, but we do not intend to stop here. I believe our financial results are worth mentioning as well the company has a turnover of approximately Euro 2.5 billion, whereas the profits for last year amounted to Euro 450 million. For a third consecutive year we have been present in the Belgrade market, where we are the biggest blue chip. Finally, in 2013, for the first time since 2009, we paid dividends to our shareholders: Gazprom Neft, the Government of the Republic of Serbia and minority shareholders. Why is regional development significant for NIS and what brought about the decision to launch the company s expansion beyond the borders of Serbia? K.K. Upon Gazprom Neft becoming the majority shareholder of NIS in 2009, we analyzed the then-existing situation in the company and began preparing a long-term strategy for its development. To be honest, we did not immediately make a decision to embark on a regional expansion as it was first necessary to calculate all the risks with maximum accuracy and also to identify hidden obstacles that could hinder our plans to a certain extent. The concept of NIS` development that was eventually accepted envisages the realisation of the following indicators: oil production volume 5 million tonnes per year, refined oil volume 5 million tonnes per year and sales volume 5 million tonnes per year. An objective evaluation of the domestic petroleum product market and the estimation of crude oil supplies in the territory of Serbia along with the potential of our retail network indicated that it was necessary to make a choice in favor of regional development. Another aspect that was taken into consideration when making this decision was that in, 2012, we completed the modernisation of our production base the refinery in Pan evo, whose capacities currently exceed the needs of the Serbian market and the quality of fuel produced there meets the Euro 5 standard, which enables its export to EU countries, as well. In the end and, after a truly comprehensive discussion, it was exactly the choice that was made. In line with the vision of the shareholders and members of the NIS Board of Directors, by 2020 the company is to become a realistic competitor to major regional actors, such as the Hungarian MOL and Austrian OMV. Even after making such a strategic decision, however, a large number of equally important subjects remain to be analyzed on which criteria to define priority geographic directions of business development, which organisational units should be the first to expand outside the borders of Serbia, or how to define risks, including the political ones, we are to face in each of the countries. We ultimately had to make serious preparations and we defined priority directions, where we possess logistical advantages or where we can establish cooperation with the companies that have already positioned themselves in the region and that do not treat NIS as direct competition. This has resulted in our presence in Hungary, Montenegro, Bulgaria, Romania, and Bosnia and Herzegovina. The basic courses of our development involve the retail and wholesale of petroleum products and also projects in the area of oil and gas production. The progress of our business operations is of great benefit to the states in which NIS conducts its business. As with Serbia, our share in the economic development of other countries is also on the steady increase. Does NIS have any projects outside of the region, as well? For a long time now, NIS has been involved in oil production projects in Angola this is a region where we produce oil and since, 1985, we have produced around 4 million tonnes of oil. Additionally, we provide oilfield services in Turkmenistan and we are preparing to launch a similar project in Iraq. Another one of our interest spheres is Brussels, where NIS has opened its representative office, which now actively operates. We do not produce oil there, but our experience shows us that, since we do business in Europe, we have to keep up with the events in the very center of the process of decision-making which are subsequently affected in the territory of the whole EU. Certainly, we have a representative office in Russia our majority shareholder`s country. In 2012 we opened an office in Zagreb, the capital of Croatia, and this helps us monitor the fuel and energy related situation in this country. How would you assess current development dynamics in relation to NIS` regional projects? I feel comfortable saying that we now assess it as entirely satisfactory. Naturally, some projects were not implemented as fast as we would have preferred. Nevertheless, the work we have done since 2011 is quite impressive. Our retail network NIS Petrol in Bosnia and Herzegovina has been active for a while and the network of GAZPROM premium petrol stations, which are operated by our Company, has recently started operating in this country. Besides this, following a complex program of seismic explorations, we have been realizing a program for drilling wells in this territory since 2011 together with the subsidiary of the Russian company Zarubežneft through the joint company Jadran Naftagas. We have initiated seismic explorations in Romania along with partners from the company East West Petroleum and we have planned cooperation on 4 blocks located in the western part of the country. Besides this, there are two more ongoing projects in Romania in the field of exploration and production. On one of those projects, we are working together with our partners from Zeta Petroleum and we are completing testing of the Djimbolija-100 and reactivating the existing oil wells. As in Bosnia, we have big plans for Romania regarding the retail network. The Gazprom network petrol stations have begun operating and we will gradually increase their number there. Besides the so called ground retail sales, we will also have aqua sales. We are currently planning to open a petrol station for supplying various river vessels with Gazprom Neft Marine Bunker in Romania. Currently, our ambitions in Bulgaria are limited to the creation of an efficient retail network as we assess, the situation in the local retail market will enable NIS to become a serious stakeholder there. As we also intend to work in the premium

27 50 interview interview 51 Since 2009, approximately Euro 1,5 billion has been invested in the Company s development. Thus, NIS has become the greatest investment project not only in Serbia, but in the whole region of the Balkans. sector in Bulgaria, similar to Bosnia and Romania, GAZPROM network service stations commenced their operation by the middle of the second quarter of However, we are not going to stop at retail fuel delivery to corporate clients in Bulgaria has already begun and a logistics base is being developed I am referring to the oil installation in Kostinbrod. the territory under Serbian autonomy we operate under the NIS-Petrol and GAZRPOM brand, whereas in the territory of BiH we operate only under the GAZPROM brand. However, I can assure everyone that the quality of services and fuel will be superior everywhere. We are striving towards an objective of 15% in the fuel market share in BiH. Hungary is a specific resource base for us we work in the area of exploration and production there. Together with our partners from the Austrian RAG and Canadian Falcon Oil & Gas, we have already engaged in drilling exploration wells. What was the guiding principle in selecting these countries for the development of your business? A certain country`s level of priority is defined on the basis of the course we had in mind for it. For instance, all oil production projects in Romania, Bulgaria and Hungary are located in the territory of the so-called Pannonian Basin, to which our deposits in Serbia belong to as well. In regards to that, if you consider the geographic position of the deposits NIS finds interesting, you will notice that almost all of them are in the zones bordering with Serbia. The direction of developing sales and distribution, i.e. the retail network, is defined on the basis of logistical advantages. In other words, we primarily pay attention to which countries it is easier to deliver fuel from our refinery in Pan evo. Another important parameter is the capacity of the local petroleum products market for instance, in Romania and Bulgaria these indicators are rather high and allow us to make a justifiable conclusion that in the medium-term perspective we will win a certain share in the markets. The political specificity of Bosnia and Herzegovina (the country consists of the Republic of Srpska and the Federation of Bosnia and Herzegovina) deserves a special approach. In Another important regional project for us is providing oilfield services to third parties in view of that, we have quite recently introduced our Naftagas-Oilfield Services subsidiary into the European market. I believe it is an equally important regional project since its implementation has seriously enhanced the level of the market of these services in the region. How does a certain country`s specificity affect doing business and is NIS facing serious problems? I have already explained the specificity of doing business in Bosnia and Herzegovina. The work of our colleagues in the External and Governmental Relations within NIS, who monitor all our foreign projects, quite substantially facilitates the resolution of various bureaucratic matters. I have to say that the fundamental problem in developing business lies in the economic crisis, whose consequences are very much felt in neighboring countries the purchasing power of their population is going down, which results in reduced markets and reduced profits of the companies operating within those markets. Second in conditions of economic crisis, there is a frequent occurrence of instability with the central government bodies, which could, in our case, lead to an extension of the process of obtaining permits and approvals, as was the case in Romania, where there are occasional delays in the processes of obtaining permits necessary for the exploration and production of oil and gas. Nevertheless, I have to repeat that, owing to the professionalism of our experts, we do not have any serious problems with the implementation of our regional projects.

28 52 interview interview 53 A special block dealing with energy projects was formed by NIS Board of Directors as early as It was this block s precise task to diversify business from exclusively oil and gas business to energy business. The most important course, which is also our first priority, is the technological development of the company. It is precisely the usage of the most advanced technologies that guarantees the company will manage to handle the pressure of competition and the economic crisis, as well as maintain its profitability. Are there any other European countries which are of interest to you? Naturally, we carefully study all potential business development possibilities in the countries of the region. It seems to me that now it is still too early to discuss specific plans for any of the countries; we are carefully monitoring everything that is happening in Croatia, Albania or Montenegro. For example, we are analyzing the operation of oil companies in these countries, observing the market potential, etc. You have mentioned that NIS is an energy-holding company. How is its energy side reflected? A special block dealing with energy projects was formed by the NIS Board of Directors as early as It was this block s precise task to diversify business from exclusively oil and gas business to energy business. We are currently implementing several projects in our deposits we are commencing the operation of co-generation modules that use associated gas. The operation of the first such module commenced on 3 July In September we initiated the realization of the construction process of the windpark a Plandište. This is the first plant of this type in Serbia. The beginning of the CCGT Plant Pan evo is also planned with our partner Gazprom Energoholding. What is particularly interesting is the geothermal energy generation project, but you can read about all these projects in more detail in the rest of the magazine. To what extent are NIS` regional subsidiaries integrated into the system of the parent company? In terms of sound mutual cooperation and efficient property management, distances no longer have such a great importance modern communication means enable online communication with other countries. It is much more important to be guided by the same principles in our work, as well as to feel commitment to the same basic values. This is precisely why in the near future our subsidiaries will be involved in a program to promote NIS` corporate culture. I feel certain that its realisation will increase cooperation efficiency of all parts of our company both in Serbia and abroad. Concerning the human resource policy, what is a guiding principle in the selection of human resources for regional projects? I would first like to point out that we have a truly international company citizens of 23 countries are employed at NIS. First and foremost, this provides us with a cumulative effect of synergy experiences are shared, new professional boundaries are discovered through new colleagues. What is significant is that we have managed to find a common communication denominator for the whole team which is the English language whose knowledge is a mandatory requirement for career development. Moreover, NIS provides all its employees with an opportunity to learn English and other foreign languages at no cost and during working hours. If we are discussing the principles of staff selection for regional projects, we have two basic sources of human resources. In the first place, these are our employees who possess the qualities of competence and professionalism and are ready for such challenges, the most important issue being that they have healthy ambitions. Another source is the local market, where we carefully analyze applications and strive towards hiring the most qualified experts. I have to emphasize that an international team increases the chances of a project being successful it is precisely under these conditions that the exchange of experiences is the most intensive, as well as the creation of original solutions to business tasks. Before departing to the country of their engagement, our employees undergo a special training on the country`s culture and history which is supposed to accelerate and simplify the process of integration into a new environment. How does Gazprom Neft as a parent company view the active development of NIS` regional operations? Our company is a training ground for Gazprom Neft through which our majority shareholder develops its European course of business operations. In addition, we have succeeded in making our company efficient this is the first time since 2010 that we have achieved an operating profit and, as a fruit of our labour in 2012, our shareholders were paid dividends for the first time since It is my belief that an important role in the company`s success was played by the fact that we have managed to form an efficient board of directors, comprising of two autonomous directors as well Stanislav Shekshnia and Wolfgang Ruttenstorfer who provide NIS with a level of transparency that is essential for a company with more than 1,5 million minority shareholders. Naturally, NIS and Gazprom Neft have extremely good relations the help of the colleagues from the parent company, especially regarding new technologies and the exchange of experience, is truly important to us. However, there is an opportunity for them to gain experience in the implementation of international projects as the conditions of operations in the region, which is NIS` focus of interest, differ from the ones that may be found in Russia. In the relations between NIS and Gazprom Neft, it is vital to emphasize that we at NIS also actively apply the principle of staff rotation representatives of the parent company may go to work in a regional daughter company or any other part of Gazprom Neft, and the experts of Gazprom Neft often come to do their internship in Serbia. Staff rotation is an excellent mechanism to transfer experiences horizontally thus optimizing the efficiency of the entire system. Another important role of NIS in the Gazprom Neft system is the development of the centers for new competencies. This has to do with the development and application, in collaboration with the experts from Russia and other countries, of the most advanced technologies, which are sometimes applied in Serbia even before their application in Russia. Here I would like to mention the slim hole drilling technology, horizontal drilling, as well as the plans for the development of the Gaj heavy crude oil reservoir. Many things that we plan and work on here are new for Russia, especially in the exploration and production segment. In essence, NIS is a sort of technological incubator, since the technologies which are developed and applied in our company are subsequently used both in Russia and in other projects of the Gazprom Neft Group abroad. Yet another example of an unparalleled project is the planned construction of the centre for the production of unique naphthene and paraffin base oils, which will be sold all over Europe.

29 hse 54 hse 55 SAFETY FIRST The environment must not be jeopardised and the risks must be minimised. NIS and each of its employees share the same interest, which is to achieve the highest level of occupational safety and health as well as environmental protection. The main source of accidents is human behaviour NIS pays special attention the health and safety of its employees, contractors, third parties and the local populationin the areas of its business operations. Furthermore, NIS continually improves its capacity to avoid incidents but also to be able to respond to any emergency and mitigate the consequences. HSE implies the establishment of a work environment and processes where steps and actions are taken to prevent adverse consequences, such as occupational injuries, occupational illnesses and incidents at the workplace which may harm the environment and human safety. NIS and each of its employees share the same interest, which is to go home in the same condition in which we arrive and to do no harm to the environment in which we operate. To this end, NIS has been making efforts to develop and improve the HSE culture. In this respect, the company has adopted Five Golden HSE Rules for workplace safety which apply to all employees. This small pledge has brought about major improvements and positive results in protecting human health and the environment and ensuring safety at the workplace. Human life is priceless, says David Allison, the company s HSE Director. The main source of accidents is human behaviour. We cannot accept that it can only be attributed to fate. We must accept that we can influence and control what happens to us! We strive to encourage people to think what can happen to them or to their friends or to this equipment here when performing their duties. People tend to think that HSE is an additional burden on top of business operations. In fact, it is not. It is incorporated into everything we do. We only do not recognise that it is the case, he added. The job of the HSE Function is to educate our people in these simple facts in order to reduce risk and consequent losses. When you wear your face mask, you protect your own health. When you try not to spill something, you protect the environment. This is how things are arranged in our daily routines. If we think beforehand, we can control events and reduce losses. Therefore, we invest so as to reduce loss and to be more efficient. That is risk management. That is HSE to act appropriately, as best as you can, at all times and if you are not sure, use the cardinal rule of stopping unsafe activities and, as a team, thinking of risk reduction measures and before the environment or the equipment get damaged. David Allison, HSE Director

30 56 people people 57 Employees as a Key to Success NIS currently employs experts from more than 20 countries all over the world. Last year alone, 400 local and foreign professionals joined the Company, whereas nearly eight million euros were invested in professional development, education and training in the past four years. Employing young people is NIS top priority. Great effort has been made to promote cooperation with universities whose students meet the Company s staffing requirements; however, continuous professional education, the so-called on-the-job training, is not disregarded either. In addition, the material and non-material incentives scheme encourage employees to stay in the Company. Our mission is not only to find qualified personnel, but also to establish an environment which encourages employees to stay with the Company, enabling them to work to their full potential. We are particularly proud of our commitment to employing young people, which is vital for the Company s long-term sustainable development, explains Nataša Stamenkovi, the Company s HR Director. It is not always possible to find professionals on the market capable of meeting the high demands of modern business operations in nine countries around the world. This is the reason why the professional development of employees having the knowledge, experience, skills and competencies to hold responsible positions in the Company is particularly important. Tailor-made Trainings assess development activities which also determine the employee s annual bonus. Another programme designed to develop leadership potential for top management positions in the Company is the Leadership Last year the programme comprised of five intensive group and individual coaching modules lasting several days, as well a group project preparation. The trainees were divided into seven project teams and worked in cooperation with a mentor, NIS Block and Function directors and the coach on preparing their projects to be presented to the top management. After the project presentations, the trainees were awarded certificates. The Leader 2014 Programme is currently in the works and it will focus on the professional development of employees with leadership potential primarily from the Exploration and Production Block, given the fact that the Company has highly qualified engineers without sufficient managerial skills. Another highlight is the Young Specialists Programme for employees with less than three years of experience and less than a year of employment within the Company, as well as the programmes for internship and scholarships for talented students of the faculties associated with NIS, such as the Faculty of Technology and Metallurgy, Faculty of Sciences and Faculty of Mining and Geology. One of the Company s most demanding programmes is the Candidate Pool, given the fact that more than 450 employees attend it each year. Once or twice a year, managers nominate employees to attend the programme. Since they are recognised as prospective leaders, this programme prepares them for managerial positions they are to assume in the near future - in up to one year s time or beyond that - in five years time. One of the key documents is a form termed Individual Development Plan (IDP), tailored to delineate development needs, activities and goals for each trainee. The IDP is an important tool for an employer to monitor the progress in terms of developing specific competences. The trainees have the opportunity to develop targeted competences by participating in in-house trainings. At the end of the planned period - which lasts approximately a year - the employee and the manager We strive to ensure that all employee profiles develop. We have made great efforts to provide oopportunities for our employees to acquire good qualifications, licences and certificates according to international standards in oil and petroleum product production, refining and sale. We have organised foreign guest lectures and visits by international institutions so that employees learn what is key for their business instead of being passive listeners. The current trend is to invest each year in average 50 per cent more funds than the previous year, says Nataša Stamenkovi. The Company applies the job rotation model and an internal database of vacancies was developed in order to fill the positions with the internal candidates participating in the Candidate Pool or having a high performance evaluation. With the Company s regional expansion, such rotation programmes will be launched among the subsidiaries in Romania, Hungary, Bulgaria and Bosnia and Herzegovina.

31 58 people people 59 Employee values euro of investments in training and development from % of the employees are aged 30 to 49 72% of the employees have a high school, college or university degree 943 training courses in 2013 attended by 8,032 employees Our mission is not only to find qualified personnel, but also to establish an environment which encourages employees to stay with the Company, enabling them to work to their full potential. NIS invests 50 % more funds each year in training and development. Common results Professionalism Positive attitude and cooperation Initiative and responsibility Highest-ranking Salaries in the Region Apart from professional development and improvement opportunities, employees are provided with a wide range of benefits. The salaries in NIS are among the highest in the region. In addition, hardly any company in the Balkans let alone Serbia nowadays enables its employees to apply for a subsidised housing loan, to obtain additional health care for themselves and their families or to be given favourable terms for summer and winter vacations. Furthermore, a material motivation scheme has been developed so that employees have an opportunity to receive bonuses on several grounds. Finally, NIS practically forces its employees to be physically active by providing free-of-charge fitness trainings, gym, swimming, organising competitions in volleyball, basketball, football etc. As in all other areas, NIS builds its human resources policy in line with the best global practices and looking up to the advanced standards and practices applied at Gazprom Neft. Last year the Company was proclaimed Best Employer by the Serbian Association of Managers and every fourth student has recognised NIS as the most favourable company to pursue their career in. Energy of Knowledge In order to provide a longterm influx of candidates who meet the staffing requirements, the Company has launched a special programme called Energy of Knowledge. During the implementation of the programme, NIS has entered into agreements with some of the faculties for adapting their curricula to meet corporate requirements and organise guest lectures of NIS experts, and rooms were accommodated for the purposes of remote learning so that students could listen to the lectures of the most renowned global experts wherever they are located. NIS supports local and international contests in physics, mathematics and chemistry, given the fact that young people who prefer sciences generally become engineers with the qualifications which meet the NIS professional requirements. Through special programmes called First Chance as well as NIS Chance, aimed at employing young candidates with no prior professional experience, 700 young persons have been given the opportunity to work with NIS from 2010 onwards and this has been the Company s indirect contribution to preventing brain drain. International Team NIS Management has formed an efficient international team of members from 23 countries. As a rule, managers are polyglots, and apart from their native language they must have a good command of English and the local language: Serbian, Bulgarian, Romanian, etc. The Company has an active programme Same Code for All Reputation, which takes years to acquire, may be ruined by a single improper act and this is the reason why the Code of Business Ethics is a basic corporate legal act applicable to all employees without exception, from the lowest-rank- called Back to Serbia offering job positions to Serbs living abroad. So far, thirty of them have returned to the country, some of them even from the remotest destinations such as South Africa, USA and Australia to work with the most successful company in Serbia and one of the leaders in the Southeastern European region. ing to the top positions. The Code serves as a benchmark for managing daily situations with colleagues, clients, suppliers, governmental bodies regarding occupational health and safety, media relations, confidential documents or ethics-related decisions. Some interesting lectures were held as part of the Leader 2013 Programme, where we have acquired new knowledge not only about the organisation, results, strategies, problems in other organisational units, but also on the methods as to how to successfully manage an oil company as well as companies in other industries (examples from Serbia and globally). In addition, participating in this programme has given me the opportunity to meet colleagues from other organisational units and this has facilitated our communication and attempts to resolve any issues we encounter in our daily operations. Biljan Elezović, Exploration and Production Block

32 60 social responsibility social resposibility 61 By presenting its third Report on Sustainable Development, which satisfies the highest international standards, NIS has demonstrated once again its long-term dedication to responsible and transparent management and to nourishing sustainable development principles. Round Tables On the occasion of presenting the Report for 2012, NIS also held a forum within which five round tables were organised, and conducted public debates about most current topics related to the Company s development. Idea as Potential Environmental and Local Community Care Sustainable development is one of the primary orientations of NIS s business activity. Apart from good financial and production results, NIS also cares about rational resource usage and environmental protection, as well as about the health of the local population, by investing in numerous projects of sustainable development. The Company accomplished great success in this area in previous years: emission of harmful matters was reduced, the number of environmental incidents in the Company was significantly reduced, the recovery of polluted ground and other big projects is ongoing. Investment in local communities and regions, as well as in social infrastructure, and extending help to vulnerable groups, are regular activities of the Company. Report by the Highest Standards Following the experience of leading world companies, NIS introduced in 2011, for the first time in Serbia, the practice of presenting to the public its activities from the area of a socially responsible business and published its first Sustainable Development Report. The report for the year 2012, as well as for the previous two years, was one according to the standards and quality of corporate reporting prescribed by the international organisation Global Reporting Initiative, and the review of this Report was published by the independent audit company KPMG. Compared to 2011, the number of reported indicators doubled, which is the best way for illustrating improvement in Company business activity. Thus, within the round table Management of New Technologies Introducing Innovations in all Walks of Business it was underlined that NIS has seen its potential in efficient introduction of new technologies, and that a special role in this process is played by the Scientific-Engineering Center (NTC). The Director of the Scientific- Engineering Center, Mr. Nikola Zalevski, explained how innovations are being managed in the Company. Very often, the resolution of complex scientific tasks calls for the engagement of experts from many areas. Therefore, our strength is exactly in this unification of all domains and all possibilities, Mr. Zalevski said. Round table participants especially emphasised here the role of the project I have an idea. This project is based on a concept of acceptance and application of best solutions from all fields of business activity, and each proposal from the employees, but also from all stakeholders beyond NIS, is welcome.

33 62 social responsibility social resposibility 63 Most Desirable Employer The round table HR Management in NIS staff as the most important resource underlined that NIS is the most desirable employer in Serbia. Therefore, NIS should search for the best models to keep talented staff in the Company, and the round table participants agreed that the concept of lifelong learning a principle of employee s development, by use of modern development approaches should continue at NIS. Transparency at the Stock Exchange Participants of the round table NIS at the Stock Exchange reliable partner to investors and shareholders concluded that NIS has the best relations with investors due to its transparent business strategy. They agreed that NIS is the company which has shown the Serbian capital market what quality corporate management is. NIS proved it in the best fashion by distributing, for the first time this year, dividends in the amount of 25 % of their profit. That is 10 per cent more than the minimum anticipated by the Sales Agreement and the Company s policy on dividend distribution. Assistance in the Promulgation of New Regulations At the round table HSE NIS as a leader in Environmental, Occupational Health and Safety Protection, one could hear the already-known facts on NIS numerous environmental projects, which should contribute to the reduction of pollutants in air, but also to the reduction of pollutants in the air. An invitation was offered at the round table, to the NIS team which is in charge of HSE, to help in the re-examination of the existing and the promulgation of new regulations, in order to facilitate the implementation of environmental, health and safety protection of employees in other companies as well. Women in NIS Still, the majority of attendees attention was attracted to the round table Women in Men s Business. It was said there that NIS has cared about gender equality and that it does not discriminate against women, as well as that there is a huge space for improvement. Proof of this statement is that a lot of sectors in NIS are headed by women. Participants of this round table agreed that women in NIS are satisfied, even when they work a predominantly men s environment, since they feel respected and protected. Still, in conversation with women from media and companies, there was an undivided conclusion that women are often more diligent, but poorer in self-promotion. It is important to mention that NIS has incited family development, and that women who plan for the family are in no way threatened or discriminated against. Projects: One of the biggest projects realised in 2012, was the modernisation of the Oil Refinery in Pan evo, in which more than EURO 547 million was invested. Most modern available technologies of oil refining and environmental protection were applied in this modernisation. The beginning of the production of motor fuels that fully comply with the requirements of the Euro 5 standard will have positive effects on the environmental situation in Serbia. During 2012, NIS invested around EURO 30 million in projects concerning environmental protection. These projects were aimed at equipment modernisation and the reduction of pollutant emission into the air, water, and ground, the remediation and re-cultivation of polluted sites, and the monitoring of environmental situations. In addition to environmental protection, one of the key directions of the Company s business is the development of energy related projects. Last year, the Company started these projects, one of which is the construction of the first wind park in Serbia. Its exploitation will provide the production of at least 212 GWh of electricity per year, along with the reduction of gas emissions in the atmosphere and the greenhouse effect. NIS continually invests in the training and development of its employees. In 2012 alone, the Company allocated for this purpose over EURO 2.5 million, which represents as much as 63% more than in the previous year. The company has actively supported different humanitarian projects, as well as science, culture and sports. Around EURO 3.4 million was invested in different social projects during the last year. At the presentation of the Report on Sustainable Development in 2012, Mr. James Tomley, partner of the renowned independent auditor KPMG, which verified this Report, emphasised the pioneer role of NIS in Serbia thanks to the introduction of this manner of publishing business results. This type of reporting helps to improve efficiency in the company, to more easily anticipate the plan and schedule of work and business activity, and to improve the flow of information which is of importance for stakeholders. The information that is found in this document is more useful than a mere reading of financial statements. The successful business of NIS, since Russian Gazprom Neft has become the major owner owner of the Company, may positively influence other potential investors in Serbia. James Thornley, Chief Executive Partner and Head of Audit of KPMG in Serbia

34 64 Sales and Distribution Sales and Distribution 65 Everyday business and production activity carries a certain risk for the environment, and that is why NIS, as a responsible company, has set priorities for rational use of natural resources and reduction of negative influences on the environment

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