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НАК „НАФТОГАЗ УКРАЇНИ“. Річний звіт англійською (2018 рік) - 8

121

120

2018

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2017

2016

14/1"F"

1/1"С"

1/1"F"

10/2"F"

6/1"С"

Number of injured in accidents

   Traffic accident
   Fall of an injured person
   Injuries caused by moving objects
   Fall of equipment
   Intentional injury inflicted by other person
   Poor health
   Contact with animals (dog bite)
   Gas dynamic phenomena
   Injuries caused by objects reacting under

pressure

   Traffic accident
   Fall of an injured person
   Injuries caused by moving objects
   Fall of equipment
   Intentional injury inflicted by other person
   Electrocution
   Other

   Traffic accident
   Fall of an injured person
   Injuries caused by moving objects
   Fall of equipment
   Intentional injury inflicted by other person
   Poor health
   Injuries caused by toxic substances
   Electrocution
   Injuries caused by high temperature
   Other

Number of injured in accidents by cause in 2016-2018

2018

13/1"F"

1/1"F"

27 accidents including 2 fatalities

35 accidents including 3 fatalities

36 accidents including 3 fatalities

Due to the full implementation of road

safety measures, the number of injuries

from road accidents has decreased

significantly.

The gas transportation system (GTS)

and the main oil pipelines system are

critical infrastructure elements. The

economic and national security of

Ukraine depends on their smooth and

continuous operations.

Ukrnafta – 8 accidents, including 1 group

accident, 9 persons were injured, including

1 death (in 2017 – 11 accidents, including

1 group accident, 13 injured persons);

Ukrtransnafta – 2 accidents, 2 persons

were injured, including 1 death (in 2017 –

4 accidents, including 1 group accident,

5 employees were injured);

Ukrgasvydobuvannya – 20 accidents,

20 employees were injured (in 2017 –

9 accidents, 9 people were injured,

including 1 death);

Ukrtransgaz – 3 accidents, including

1 group accident, 4 employees were

injured (in 2017 – 4 accidents, including

1 group accident, 6 people were injured,

including 1 death);

Naftogaz – 1 accident, 1 employee died (in

2017 there were no accidents);

In 2017, 1 collective accident occurred in

Kirovogradgaz, 2 workers were injured,

including 1 death.

Number of Naftogaz group companies' employees injured as a result of road accidents

2010

2011

2012

2013

2014

2015

2016

2017

2018

Number of employees injured in road accidents
Including number of deaths as a result of road accidents

The main causes of accidents:

26 accidents (76% of the total number of accidents), of which 2 group

accidents, were due to organizational reasons (non-compliance with

occupational safety requirements, failure to fulfill official duties, violation

of technological process and traffic safety rules), resulting in injuries to 28

employees (78% of the total number of injured people), including 3 deaths;

5 accidents (15%) were caused by psychophysiological reasons (personal

carelessness of the victim, unsatisfactory health and trauma due to illegal

actions of other people), resulting in injuries of 5 employees (14%);

3 accidents (8%) were caused by technical reasons, resulting in injuries to 3

employees (9%).

In 2018, a number of cases were

identified where the results of medical

examination did not reflect the actual

state of health of workers. As a result,

in 2018 there were 17 cases (9 in

Ukrnafta, 4 in Ukrgasvydobuvannya, 3

in Ukrtransgaz and 1 in Ukravtogaz) of

sudden (natural) deaths of employees

at work (accidents not related to

production). In most cases, the sudden

death of workers was caused by

cardiovascular disease.

Prevention, elimination of harmful and

dangerous production factors, and

prevention of occupational accidents and

occupational diseases remains one of the

main tasks of the group.

Security of natural gas and oil supply

During the 12 months of 2018, Ukrtransgaz performed
the following works:

- major and emergency repair of 155.1 km of the linear part of the main gas pipelines;

- repair of 16 gas compressor units at compressor stations;

- overhaul of 65 wells in underground gas storage facilities;

- geophysical studies of 180 wells.

Injuries at Naftogaz group in 2016-2018

Number of injured persons

2017

2018

2 1

2016

2018

2017

2016

Ukrnafta
Ukrtransnafta

Ukrgasvydobuvannya

Ukrtransgaz

Naftogaz

Kirovogradgaz

Number of injuries

"F" – fatal accidents

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2018

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

During the 12 months of 2018, Ukrtransnafta performed the
following repair works:

Оn the linear part of the main oil pipelines:

• major repairs of 2.71 km of the linear part of the main oil pipelines were

carried out, including the repair of insulating coating (2.28 km);

• 39 incidents of malicious damage were eliminated on the linear part of

the oil pipelines;

• 47 687 km of oil pipelines was cleaned due to repeated piston passes;

• 915 defects of trunk oil pipelines were found and repaired;

• external pipe diagnostics of 266 km of trunk oil pipelines was conducted.

Оn reconstruction, repair and upgrading of anti-corrosion protection

facilities:

• 12 sets of anode grounding of cathode protection stations and

24 cathode protection stations and drainage installations were repaired;

• scheduled and preventive repairs of pump units were carried out:

32 pumps and 101 electric motors.

In the summer of 2018, experts of the

Joint Research Centre of the Directorate

General of the European Commission

(JRC) with the participation of specialists

of Ukrtransgaz conducted a study and

prepared a report "Risk Assessment and

Operating Standards for the 2018-2019

Gas Year". This research deals with the

quality of natural gas supplied by gas-pro-

ducing companies to Ukrtransgaz’s GTS,

that fails to meet the requirements of

the current regulatory and technical

documents and the GTS Code in terms

of quality. Such failures lead to disrup-

tion of operation of the GTS equipment,

additional expenditures required to im-

prove the quality of gas, deterioration in

reliability of gas supplied to consumers,

making fulfillment of transit obligations

under contract more complicated, penal-

ties imposed by gas distributing compa-

nies and importing countries, as well as

reputational losses.

In December 2018, JRC experts along with

experts from the Ministry of Energy

and Coal Industry, Naftogaz, and

Ukrtransgaz conducted training

exercises to study the responses

of natural gas market participants

in a crisis situation.

In addition, in December, the Ministry

of Justice registered the orders of the

Ministry of Energy to amend the National

Action Plan and the Rules for the Security

of Natural Gas Supply regarding the

Consumer Disconnection Algorithm.

Adoption of these documents will

oblige oblast state administrations and

gas distribution network operators to

develop procedures for the disconnec-

tion of consumers in the event of emer-

gencies.

• further implementation of the

international standard ISO 45001:2018

"Occupational Health and Safety

Management Systems. Requirements"

and best practices in health and safety

management;

• review and update of the lists of

potential threats that may arise in the

course of labor activities of employees,

by all professions and positions that

exist at the company;

• improvement of methodologies to

ensure continuous identification

of hazards, risk assessment and

implementation of necessary control

instruments;

• introduction of material incentives for

company management and personnel

to encourage compliance with health

and safety requirements;

• implementation of psychosocial risk

preventive measures (stress in the

workplace);

• introduction of work safety monitoring

mechanisms in the structural units of

the company (section, shop, base),

where accidents with fatal and grave

consequences occur;

• improvement of the quality of accident

investigation and development of

preventive measures;

• organization of training for the

company managers and specialists of

health and safety units and production

and technical services on a risk-

oriented approach in occupational

safety management, including

general risk assessment methods,

establishing risk registers, and auditing

of occupational health and safety

management systems.

Organization of work on fire safety

Security of oil and gas facilities

Overall, the company employs 245 fire

safety specialists. Of these, 123 are full-time

employees and 122 persons combine fire

safety and other functions. 138 fire and

technical commissions are in place at the

enterprises of the group, with a total of 864

members. There are 297 fire brigades and

96 fire units that comprise 3 925 people.

During 2 018, 3 089 internal fire prevention

trainings were held and 1 762 training

sessions jointly with the departments of

the State Service of Ukraine for Emergency

Situations. The specialists of the company

carried out 6 201 inspections of fire safety

conditions at the group's enterprises, which

detected 34 578 violations. For violations

of fire safety rules, 86 disciplinary penalties

were imposed, including 20 penalties on

company officials.

During the reporting period, the State

Service of Ukraine for Emergency

Situations conducted 494 inspections

of group enterprises, following which

555 instructions were issued containing

3 792 measures, of which 1 347 were

implemented by the end of 2018.

During 2018, three fires occurred at the

enterprises of Naftogaz group.

On 4 January, the exhaust manifold of

the gas-pumping unit #7 KS-16 burst into

flames at UMG CherkasyTransGas, owned

by Ukrtransgaz (resulted in no losses). Two

ignitions occurred at enterprises owned by

Ukrnafta: on 17 March, in the territory of

GZU-7, Kachanivske field of CVNG #2 of the

NGVU "OkhtyrkaNaftogaz", a measuring

unit "Suputnyk-B40" went up in flames

(which caused direct losses of UAH 50 000

and incidental damages of UAH 36 221),

and on 11 November, smoke spread in

a car TATRA-815 on the territory of the

transportation department (there are no

direct losses, incidental damages amounted

to UAH 36 231). There were no human

casualties due to these fires.

Damages or destruction of the main

and industrial oil, gas and condensate

pipelines in order to prepare and

facilitate illegal taps and hydrocarbon

raw material theft are significant threats

to the functioning of the pipeline

transport facilities of Naftogaz group

companies.

The illegal actions of intruders lead

both to direct material damage and

technological process failures, equipment

downtime, accidents and fires, and

environmental pollution.

In 2018, 219 recorded acts of illegal

encroachment on the property of the

company's enterprises included:

• 77 illegal cuts into main and industrial

oil, gas, and condensate pipelines with

the aim of stealing hydrocarbon raw

materials;

• 85 incidents of damage (destruction)

of technological equipment (pipelines

electrochemical protection systems,

fountain armature of wells, crane

knots, etc.).

• 57 thefts of inventory (cable and

wire products, stubs, theft of light

petroleum products from railway tanks,

etc.).

Evidence of unlawful cuts to pipelines

was detected and documented in

13 Ukrainian regions (Volyn – 1,

Dnipropetrovsk – 4, Donetsk – 2,

Zhytomyr – 7, Zakarpattya – 8,

Kirovograd – 2, Lviv – 4, Mykolaiv – 1,

Poltava – 33, Rivne – 4, Sumy – 7,

Kharkiv – 2, Khmelnytsky – 2).

Almost 40% of all damage (destruction)

of technological equipment of the

main pipelines was registered in

Dnipropetrovsk (19) and Kyiv (15)

regions.

All evidence of illegal encroachment

on the companies of Naftogaz group

was reported to the law enforcement

agencies that initiated the relevant

criminal proceedings.

Key tasks in the field of health and safety at the enterprises of the group in 2019:

UAH 1.3 million

– fire-fighting equipment upgrades;

UAH 1.4 million

– R&D;

UAH 1.6 million

– measures required by regulations;

UAH 25.1 million

– maintenance of fire detection and extinguishing

systems, purchase of fire extinguishing agents;

UAH 114.3 million

– funding provided for state emergency rescue units;

UAH 8.2 million

– other fire prevention measures.

During 2018, the enterprises of the group spent a total

of UAH 151.9 million on fire prevention measures, including:

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124

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

Naftogaz group companies are the key

partners of local government and local

communities wherever hydrocarbons are

produced.

Group companies have developed and

implemented a Stakeholder Engagement

Procedure and Code of Corporate

Ethics which establish uniform rules

and approaches towards corporate

social responsibility (CSR) and charity.

The Procedure and the Code have been

developed according to the relevant

Ukrainian legislation and international

standards ІSО 26000:2010 Guidance on

Social Responsibility, SA 8000. These

documents are public and are available at

the Naftogaz corporate website.

Ukrgasvydobuvannya is focused on social

partnership projects intended to improve

the social and economic situation where

the company has its operations. In

particular this means:

• development of society through

educational projects;

• enhanced safety, efficiency and

environmental security;

• health improvement and professional

development of employees;

• construction (reconstruction, capital

repairs) of social and transportation

infrastructure facilities.

Ukrgasvydobuvannya cooperates

closely with local government and

supports project implementation not

only via financial aid but also through

technical support like provision of special

equipment and materials. Following

project completion, Ukrgasvydobuvannya

receives feedback from the community

and plans subsequent projects while

considering the needs of the local

community.

INTERACTION WITH LOCAL COMMUNITIES:

MORE GAS FOR UKRAINE MEANS

MORE FUNDS FOR COMMUNITIES

Ukrgasvydobuvannya projects under social agreements, 2018

UAH

40.1

million

projects

26.1

7.1

0.2

0.1

6.5

Amounts in UAH million

Number of projects

Road repair

Repair and construction of schools,

kindergartens, community centers etc.

Repair and construction of heat,

gas and water supply networks

Construction of sports grounds,

improvement of territories

Lighting in towns and villages

Internet connection,

video surveillance

http://www.naftogaz.com/files/official_documents/Procedure_for_Interaction_with_Stakeholders_UA.pdf

http://www.naftogaz.com/files/HR/Naftogaz-Code-Ethics.pdf

Even after the introduction of Law #3038,

which enabled the transfer of 5% of rent

payments and turned the production

of hydrocarbons into one of the major

resources of local budget funds, Naftogaz

group companies are still implementing

social projects channeling additional

funds towards community needs. This will

continue.

In 2018, Ukrgasvydobuvannya (UGV)

spent UAH 40.1 million on infrastructure

development in areas of operations,

providing the local government with

the necessary resources to address

social problems and improve local living

standards.

Naftogaz group social investments

In 2018, a new project, Smart-Selo, was

launched. As part of a pilot project, a

video surveillance system with 30-day

remote access to video recordings was

installed by Kamyshnya local council.

This will help to improve local security

and monitor remotely the movement of

the company`s technological vehicles.

In 2019, Ukrgasvydobuvannya plans

to implement 10 similar projects in

towns and villages where the company

produces hydrocarbons.

Key Ukrgasvydobuvannya social projects in 2018, UAH million

Kharkiv r

egion

Lviv r

egion

Polta

va r

egion

Kolomatskyi ATC

(amalgamated
territorial community)

Road repair

Capital repairs of a school, a community center and a boiler facility

13.0

Donets village

Capital repairs of a kindergarten and a music school

Individual boiler facility in a school

Road repair

Water well drilling and furnishing

3.3

Krasnokutsk

local council

Capital repair of a pediatric unit at the Krasnokutsk central district hospital

0.6

Murafi village

Capital repair of the local outpatient department of the general practice of family medicine

0.9

Lviv

Capital repair of a surgery unit of surgical department #2 at the

surgery building of the Lviv regional clinical hospital

0.7

Reshetylivka region

0.2

Free Wi-Fi in the Pischane secondary school named after L.M. Dudka

Community

Projects

Investments

Kamyshnya

local council

Smart-Selo project: installation of a video surveillance system with

30-day remote access to video recordings

0.02

(one project)

As a socially responsible company,

UGV pays considerable attention to

the development of children. In two

secondary schools in the Kharkiv region

(in Donets village and the town of

Krasnograd), UGV has initiated robot

technology classes for kids under the

title BroBots. Children will learn robotic

engineering, programming, CAD and 3D

modeling. The educational course also

aims to develop a system of air pollution

monitoring. Each of the schools can teach

up to 10 groups, with 16 kids aged 8-14

in each group. During the year, about

300 boys and girls will benefit from this

new knowledge.

BroBots is a social non-profit project

intended to train children in the areas

of programming and robot technology.

12 schools already operate this project

in Ukraine.

New opportunities for children

Scan the QR code

and see how we

opened innovation

classes in schools

Ukrnafta also cooperates with local

communities through social agreements.

This support involves free provision of

materials, works and services. In 2018,

Ukrnafta`s social investments amounted

to UAH 5.2 million, of which UAH 2.5

million was provided as charitable

aid and UAH 2.8 million donated

through participation in regional

social development (via so-called

“social development agreements”). All

funds allocated for the regional social

development were streamlined to road

repairs.

The companies plan to extend social

agreements and to continue cooperation

with local communities in future.

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CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

UAH 1.25 billion rent payments is the

contribution that UGV made to local

budgets in 2018. Total rent payments to

the consolidated budget of Ukraine (local

budgets and state budget) amounted to

UAH 25 billion.

Depending on the production volumes

of a particular territory, since the be-

ginning of 2018 the budgets of many

communities have enjoyed a 2- to 6-fold

increase. For example, 2018 hydrocarbon

production in Poltava region replen-

ished the budgets of the local councils

of Basylivka (UAH 5.5 million rent pay-

ments), Martynivka (UAH 6 million),

Opishnya (UAH 4.6 million), and Sencha

(UAH 58 million). The budget of the Kolo-

matskyi ATC changed from UAH 2 million

in 2017 to UAH 12 million in 2018 with

almost 80% coming from rent payments.

However, not all Ukrainian regions could

fully benefit from the progressive chang-

es in the country’s rent allocation laws.

Since 2016, the regional council of Polta-

va has rejected UGV requests for approv-

al of special permits for the use of sub-

soils and the extension of existing fields

on more than 60 occasions, which may

result in the company`s loss of at least

3.3 billion cubic meters of gas by 2020.

In 2018 alone, Ukrgasvydobuvannya was

unable to produce an additional 500

million cubic meters of gas due to this

situation. This also decreased the poten-

tial proceeds going to the Poltava region-

al budget. Extra funds could significantly

contribute to improvements in regional

infrastructure such as hospitals, schools,

roads etc.

Such actions by the Poltava regional

council result in considerable losses

to the Ukrainian economy and Poltava

region. In particular, unpaid rents and

taxes will result in UAH 4.9 billion in

losses incurred by the State Budget of

Ukraine, of which Poltava region loses

UAH 135 million.

Rent payments for the needs of local communities

Recreation tours to Artek summer camp for 500 children of Ukraine’s defenders

5% of rent payments to local budgets, by region, UAH million

Lviv region

40.3

30.2

512.7

36.8

637.4

165.0

62.5

37.2

87.4

Ivano-Frankivsk region

Total:

1250.6

Total:

389.3

Ukrgasvydobuvannya:

Ukrnafta

Chernihiv region

Sumy region

Poltava region

Kharkiv region

Dnipropetrovsk region

23.4

7.0

Other regions

Another production company of the

group, Ukrnafta, made rent payments

to budgets of UAH 7.8 billion in 2018,

which is 36.7% more than in 2017, with

UAH 389.3 million allocated to

local communities in Sumy, Ivano-

Frankivsk, Poltava and other

regions of Ukraine.

Naftogaz group pays considerable attention

to providing charitable aid to military units

of the Armed Forces of Ukraine involved in

the Joint Forces Operations on the territory

of Donetsk and Luhansk regions, and to

charitable aid for medical care institutions.

In 2018, the company allocated

UAH 10.2 million for protection and

equipment for Ukrainian combatants, as

well as the purchase of equipment required

for the treatment of wounded soldiers.

Also in 2018, following the initiative of

Naftogaz and Resolution #172-р of the

Cabinet of Ministers of Ukraine “On

disposal of immovable property of the

subsidiary company “Gaz Ukrainy” dated

21 March 2018, Naftogaz transferred

6 apartments for free in the city of Kyiv

with a total value of UAH 3.4 million to

the National Police of Ukraine to provide

housing to anti-terrorist operation

(ATO) participants who protected the

independence, sovereignty and territorial

integrity of Ukraine and have become

disabled as a result of their service.

In June-July 2018, Naftogaz employees and

their trade union provided charity funding

to organize recreation tours to Artek-

Bukovel Forrest Camp for 500 children

aged 8-18 whose parents had died or been

wounded in action in the east of Ukraine.

The charity funding amounted to nearly

UAH 7.5 million and covered two fourteen-

day tours for children from Luhansk, Lviv,

Kharkiv, Volyn, Ivano-Frankivsk, Chernihiv,

Kyiv, Mykolaiv and Rivne regions. To

implement the charity project, Naftogaz

involved Kryla Vosmoi Sotni (Wings of the

8th Company) NGO, which includes families

of soldiers who died or missed in action

in the east of Ukraine, war veterans and

volunteers.

Charity

Supporting military units of Ukraine's Armed Forces, UAH million

Medicine,

military hospitals

5.2

UAH million

51.0%

Clothing, military

gear, spare parts

41,2%

4.2

UAH million

10.2

million collected in 2018

Naftogaz aid for 2014 - 2018 UAH

33.8

million

Support

to mobilized employees, оther

7.8%

0.8

UAH million

Ukrgasvydobuvannya

Ukrnafta

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CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

INVESTMENTS

IN ENERGY EFFICIENCY

Use and savings of FER by Naftogaz group in 2010-2018

FER consumption, Mtoe

Actual savings of FER, %

(compared to the targets)

2010

2011

2012

2013

2014

2015

2016

2017

2018

2010

2011

2012

2013

2014

2015

2016

2017

2018

5.0 4.9

3.6 3.8 3.3 3.2

2.6

3.2 3.3

5.7

6.1

7.1

5.3

4.1

5.3

7.6

6.9

5.8

Operational and technological consumption of FER in 2018, %

natural gas

85.0%

electricity

3.1%

heat

2.5%

other types of FER

9.4%

0.33% Ukrtransnafta

47.1

35.2

17.3

0.41

Ukrtransgaz

Ukrgasvydobuvannya

Ukrnafta

0.07% Ukravtogaz
0.01% Ukrspetstransgaz

By group companies

By type of FER

Increasing energy efficiency and implementing energy efficiency technologies are of strategic

importance for Naftogaz group. This is not only an issue of the efficient use of energy resources

and savings, but also a matter of energy independence and national security.

Energy resources used by the group

In 2018, the increase in FER consumption

was primarily due to an increase in oper-

ational and technological consumption

of gas by Ukrgasvydobuvannya because

of the intensification of the deposit de-

velopment process, increased volume of

production drilling, a significant increase

in the number of well operations due to

the intensification of hydrocarbon extrac-

tion and specifically hydraulic fracturing,

operations using coiled-tubing equip-

ment, etc.

* 1 thousand tons of reference fuel = 0.7
thousand tons of oil equivalent (oe)

3.5 bcm

natural gas

1.3 billion kWh

electricity

710.7 thousand Gcal

heat

104.7 thousand tons

oil (gas condensate)

300.5 ktoe

other types of FER (boiler and furnace fuel)

FER saved, ktoe

171.1

27.0

6.6

0.6

Ukrtransgaz

Ukrgasvydobuvannya

Ukrnafta

Ukrtransnafta

By company

By program

Naftogaz Energy

Efficiency Program for

2015-2020

Sectoral energy-saving

programs of subsidiaries

and jointstock

companies of

Naftogaz

Total

205.3

51.2

154.1

FER saved by Naftogaz companies, 2014-2018

2014 2015 2016 2017

2018

Total (ktoe)

Natural gas (mcm)

Heat (thousand Gcal)

Electricity (million kWh)

Other types of FER (ktoe)

140.1

17.5

214.8

232.3

205.3

151.7

192.9

253.7

227.4

86.8

108.8

106.0

98.8

99.9

23.5

24.9
25.6

54.6

32.6

0.8

0.9
0.9
1.2
1.1

240.1

Results of energy-saving policies

In 2018, the implementation of energy-

saving measures under the NJSC Naftogaz

of Ukraine Energy Efficiency Program for

2015-2020, as well as the energy-saving

programs of its subsidiaries, continued. As

a result, saved fuel and energy resources

(FER) amounted to 205.3 ktoe.

Natural gas savings amounted to

227.4 mcm, electricity – 32.6 million kWh,

heat energy – 99.9 thousand Gcal.

Actual energy savings exceeded the target
figure by 46.0 ktoe, including:

45.7 mcm

natural gas

3.6 million kWh

electricity

67.3 thousand Gcal

heat

0.8 ktoe

other types of fuel

The total cost of fuel

and energy resources

saved in 2018 amounted

to UAH 2.159 million

(including VAT).

In 2018, the group used 3.3 million

tons of fuel and energy resources (FER)

in oil equivalent for technological needs, including:

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130

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

France

Certified gas transmission companies as of 2018

Ukraine

Spain

Romania

Germany

Slovakia

Poland

Czech Republic

Italy

Gas transmission companies

ISO 9001

ISO 14001

OHSAS 18001

ISO 50001

Other

ISO 27001

ISO 26 000

ISO 3834-2

PN-ISO/IEC 27001

ISO 27001,

ISO 22301

JSC Ukrtransgaz

NJSC Naftogaz of Ukraine

ENAGAS Group

Transgaz

E.ON

Verbundnetz Gas Aktiengesellschaft

GRTgaz

SPP A.S. Eustream S.A.

Gas Transmission ГАЗ-SYSTEM SA

NET4GAS

Snam Rete Gas

ISO 37001

ENI

Implementation of energy management system

In 2016-2018, the company implemented

an Energy Management System (EMS) in

accordance with the requirements of the

International Standard ISO 50001 as part

of the company’s integrated management

system.

On 21 August 2017, the company’s board

approved an Energy Efficiency Policy,

together with Goals and Tasks in the Field

of Energy Management for 2017-2020.

In September, the International

Certification Agency TUV-SUD

Management Service GmbH (Germany)

verified the compliance of the integrated

management system of the company’s

structural divisions units with the

requirements of International Standards

ISO 14001, OHSAS 18001 and ISO 50001.

Based on the results of the company audit,

the compliance of the energy management

system with the requirements of ISO

50001: 2011 (energy management) was

verified and the respective certificate

12 340 55484 TM was issued.

Reconstruction of Yahotyn CS

In 2018, Ukrtransgaz entered into

an agreement for the full-scale

reconstruction of a compressor station

(CS) in the town of Yahotyn. The

agreement has a budget of UAH 2.25

billion. An important aspect of the

concluded agreement is cooperation

with the counterparty of the domestic

machine-building industry State

Enterprise SPGC Zorya -Mashproekt.

Yahotyn CS is one of the priority focuses

of Ukrainian GTS modernization, as it is

used to transmit domestically produced

gas from Shebelynkagazvydobuvannya

and Poltavagazvydobuvannya gas

production divisions, as well as to

inject gas into the UGS. The station

compresses gas for its further

transmission via Shebelynka – Dykanka –

Kyiv, Shebelynka – Poltava – Kyiv, and

Yefremivka – Dykanka – Kyiv trunk gas

pipelines. Even in the “zero transit”

scenario, the station will be needed for

gas supply to Ukrainian consumers.

Within the framework of the project,

it is planned to build by 2021 a new

Implementation of energy efficiency projects

compressor shop at Yahotyn CS

consisting of four gas-compressor units

capacity of 16 MW each with efficiency

at 36% and the necessary engineering

infrastructure. The use of modern units

with high environmental performance

and efficiency will allow transmission of

about 50 mcm per day, which is 16.5 bcm

per year.

Reconstruction of Bar CS

In 2018, Ukrtransgaz moved into the

active phase of the modernization

of the Bar compressor station (CS)

(Vinnytsia region) under a joint project

with Ferrostaal and Deutsche Bank. CS is

engaged both in gas transit from Russia

to Europe and in gas supply to consumers

within Ukraine.

This reconstruction project will increase

both the efficiency of Bar compressor

station operation and the overall

reliability of the Ukrainian GTS. Energy

efficiency will also improve. The efficiency

of gas compressor units will increase

from 25% to 36%, and the annual saving

of fuel gas for the operation of gas

compressor units will be 75 mcm, while

concentrations of pollutant emissions

during the operation of the station will

comply with European environmental

standards.

The estimated cost of construction is

more than EUR 79 million, of which

EUR 53.6 million is a loan provided by

Germany’s Deutsche Bank AG and about

EUR 26 million comes from Ukrtransgaz’s

own funds.

Reconstruction of Hrebinkivska CS

In 2018, Ukrtransgaz started the repair

of three GPU-16 gas compressor

units at Hrebinkivska CS including

the replacement of DZH59L2 gas

turbine engines with DG90L2.1 units.

The work is performed with the

involvement of representatives of the

equipment manufacturer SE SPGC

Zorya -Mashproekt. In December

2018, Ukrtransgaz launched the first

modernized unit. The replacement of gas

turbine engines will enable to increase

the economic and environmental

performance of equipment to the level

of modern European standards. New gas

turbine engines consume fuel gas at a

rate of 15% less than the old ones. Based

on test results, the emissions of nitrogen

oxides to the atmosphere amounted on

average to 59 mg/cm (almost half the

emission level of the old turbines), and

emissions of carbon oxides amounted

to 1 mg/cm (30 times less). This

performance is in line with the provisions

of Directive 2010/75/EC on industrial

emissions.

Solar power station

In 2018, Ukrtransgaz’s Solar Power

Station (SPS) produced 308 MWh of

electricity. Since December 2017,

Ukrgaztechzviazok has sold all electricity

produced by the station under “green

tariff” conditions to the unified energy

system of Ukraine, SE Energorynok.

In 2018, Ukrtransgaz earned UAH 1.9

million on these transactions.

Last year, the creation of a park of solar

power stations was initiated. The project

involves the design and construction

of several land-based SPS with a total

capacity of up to 30 MW.

Modernization of individual

heating systems

As part of the implementation of

Naftogaz group’s corporate strategy

to increase energy efficiency and

reduce natural gas consumption in

Chernihiv region, the Affordable Heat for

Employees project has been launched.

The project provides for the installation

and modernization of individual heating

systems at Naftogaz group employees’

homes and in the towns and villages

where the group is operating.

Modernization of boiler houses

In 2018, as a result of implementation

of the Gas Transmission System

Development Plan, a boiler-house at

Stavyshchenska CS on the Urengoy-

Pomary-Uzhhorod gas pipeline, a boiler-

house at Husiatyn CS of the Soyuz gas

pipeline, and a boiler-house at Ilynitsy

pipeline CS of the Urengoy-Pomari-

Uzhhorod gas pipeline, were put into

operation.

Expanding use

of secondary energy resources

A pilot project to generate electricity

from heat of combustion products

emitted from gas turbine engines

was designed in 2018. The new

equipment, which is to be installed

at the Ukrgasvydobuvannya facility,

will enable electricity generation on

an industrial scale without additional

fuel. The project involves technologies

that have not been used in Ukraine

before. Its implementation will improve

energy efficiency of Naftogaz group,

reducing greenhouse gas emissions and

environmental pollution. The project

is currently undergoing finalization

and approval. In case of successful

implementation, the proposed solution

could be disseminated to dozens of the

group’s facilities.

Key energy efficiency

improvement tasks for 2019

1. Further implementation of the Energy Efficiency Program. In 2019, it is

planned to save about 112.1 ktoe of FER, including 129.5 mcm of gas,

14.71 million kWh of electricity, and 27.9 thousand Gcal of heat energy.

2. Further implementation of energy efficiency and renewable energy

projects targeting public institutions and household consumers.

3. Сonstruction of a solar power station in Zhytomyr region for the

generation of electricity from solar radiation. The station’s expected

capacity is 30 MW.

4. Equipping gas turbines with a combustion products heat utilization

system to generate additional electricity at the Lokachynskyi OGF owned

by Ukrgasvydobuvannya.

5. In 2019, Ukrtransgaz plans to implement 22 projects for the

reconstruction, construction, and technical re-equipment of heat supply

facilities to replace obsolete equipment with new energy-efficient and

automated equipment meeting modern environmental requirements.

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133

132

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

ECOLOGY

AND ENVIRONMENT PROTECTION

Environmental policy

Environmental goals

Environmental actions

Environmental impact

Naftogaz group has in place an
Environmental Policy aimed at ensuring
the group’s effective functioning and
development, mitigating environmental
risks during production operations,
harmonizing the group’s economic
interests with public ecological and social
interests, and implementing international
environmental standards.

To implement this Environmental Policy, the
company’s management has undertaken
the following commitments:
• protect environment and minimize

environmental impact;

• comply with applicable legal and other

regulatory requirements regarding

environmental protection;

• implement and improve the

environmental management system
under ISO 14001:2015;

• adhere to the principle of dynamic

economic development with the most
rational use of natural resources and
environment preservation;

• consider environmental factors when

planning activities, buying technologies,
materials and equipment as well as when
performing works and services;

• improve production efficiency through

application of the best available
technologies;

• ensure goal-oriented planning to prevent

and reduce environmental impact

through a risk-oriented approach;

• building employees’ environmental

culture and awareness of their role in
environmental protection;

• ensure openness of information on

environmental impact.

The company’s environmental policy is
harmonized with the provisions of the
Law of Ukraine “On the Main Principles
(Strategy) of the National Environmental
Policy”, the Law of Ukraine “On
Environmental Protection”, and DSTU
(State Standard of Ukraine) ISO 14001
“Environmental Management
Systems - Requirements with
Guidance for Use”.

The commitments specified in the

company’s Environmental Policy

establish the following strategic

goals:

• improve environmental management

system;

•reduce water use;

• reduce waste.

Achieving these goals involves certain

“green” reforms:

• green updates to bidding procedures;

• introduction of environmental audit

procedures for suppliers;

• installation of resource-saving and

environmental protection equipment;

• regulatory and methodological support

for environmental management;

• improved environmental culture and

awareness;

• establishment and extension of

environmental relations with

stakeholders;

• access to environmental

information.

To accomplish its objectives, the

company has developed and

implemented:

• NJSC Naftogaz of Ukraine

Comprehensive Environmental Action

Plan for 2015-2020;

• NJSC Naftogaz of Ukraine Energy

Efficiency Program for 2015-2020;

• Waste Management Program at the

Companies of NJSC Naftogaz of Ukraine

NJSC 2016-2020;

• Environmental Protection and Social

Action Plan stipulated in the loan

agreement with the International Bank

of Reconstruction and Development

(IBRD);

• Integrated research and development

(R&D) plans;

• environmental plans for Naftogaz group

companies.

Company bodies responsible for

environmental issues:

• working group on implementation of

integrated management system;

• working group on environmental

activities;

• emergency committee.

Naftogaz group companies develop

annual plans for comprehensive

environmental measures. These include

water conservation, air protection,

sustainable use of mineral resources and

lands, waste management.

Naftogaz group’s environmental

activities aim to comply with the

Ukrainian environmental laws,

improve the existing environmental

management structure, obtain permits

and licenses for business operations,

prevent form excessive environmental

pollution, minimize negative

environmental impact

caused by production operations of

business entities controlled by the

company.

Naftogaz environmental risks are

related to the following activities:

• exploration; field development;

• transportation of hydrocarbons via

and industrial pipelines;

• oil storage;

• maintenance and operation of

underground gas storage facilities;

• treatment and processing of

hydrocarbons;

• natural and liquefied petroleum

gas supply to industrial

consumers and public utility

sector;

• operation of LPG stations,

etc.

Main aspects of Naftogaz

environmental impact:

• pollutants and greenhouse gas

emissions;

• water consumption;

• waste;

• accidental emissions or spills of

pollutants.

Major environmental achievements in 2018

1) Timely and proper implementation

of the Environmental Protection

and Social Action Plan according

to the IBRD loan documentation of

30 December 2016. This enabled

the company to attract financial

resources and confirm its reliable

counterparty status. The Action

Plan implementation brought the

company’s operation standards

closer in line with the environmental

and social policies of international

organizations such as the World Bank,

the European Bank for Reconstruction

and Development, OPIC and other

world leading companies.

As part of the management system

implementation, the company

underwent an external audit and

received ISO 9001: 2015, ISO

14001: 2015, OHSAS 18001: 2010

and ISO 50001: 2014 compliance

certificates from the reputable

international certification body TÜV

SÜD Management Service GmbH. In

addition, the company successfully

passed a third-party witness audit

on compliance with ISO 9001: 2015.

The company built and operates an

Integrated Management System in the

areas of quality, environment, health

and safety, and energy management.

2) In 2018, Naftogaz developed and

implemented SOU (corporate standard)

“Environmental Protection. Elimination

of Soil and Water Pollution with Oil

and Oil Products. Rules”. This is the

first regulatory document to rank

emergencies by amount of spilled

oil and petroleum products, provide

stakeholder notification procedures,

and specify soil contamination grading,

which is currently unavailable in Ukraine.

This standard will be widely used as

an emergency elimination guide by

Ukrainian oil and gas companies.

3) In 2018, Naftogaz group continued

the World Bank’s pilot project to

introduce a Monitoring, Reporting

and Verification (MRV) system for

greenhouse gas emissions. Project

participants include Naftogaz, VERICO

(Germany), Ukrtransgaz, PMR project

of the World Bank, Carbon Limits

(Norway), and TMS (Ukraine). As part

of the project, production processes,

activities, sources of greenhouse

gas emissions and material flows

were reviewed; and a set of relevant

documents, including GHG emission

reports, was prepared and verified

by an independent verifier, VERICO

(Germany). Naftogaz group and

Ukrtransgaz are ready to operate in

the MRV system and the GHG emission

trading system as soon as they are

introduced in Ukraine (expected

in 2019-2020). The experience of

preparing a monitoring plan and GHG

emission report will be disseminated

throughout Naftogaz group.

4) The EBRD, the Ministry of Ecology

and Natural Resources, and Naftogaz

of Ukraine signed a Memorandum

of Understanding on reduction

of fugitive methane emissions in

Ukraine’s gas supply chains.

5) New green procedures were

introduced in the company:

- as part of the Green Office project,

the company ensures separate

waste collection;

- purchasing of goods, works and

services which may produce

an environmental impact

involves assessment of supplier

compliance with the environmental

requirements of the law and the

company;

- new employees are instructed on

environmental and radiological safety.

In 2018, Naftogaz group started to

publish annual environmental reports

on its web site and internal portal to

ensure access to its environmental

information for all stakeholders. The

company agrees all activities and

projects involving significant impact on

the environment and community life

with stakeholders under the current

interaction procedure. Naftogaz

designed an environmental section on

the internal portal to ensure access

to environmental information for its

employees. This contains updates on

the company’s environmental activities,

the working group on environmental

issues and implementation of the

Green Office project, relevant

regulatory documents, and useful

environmental information.

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135

134

CORPORATE GOVERNANCE AND CSR

ANNUAL REPORT 2018

2018

Emissions of greenhouse gases -

7332.5

Emissions of carbon oxide (СО) -

27.2

Emissions of sulfur oxide (SO

) and other sulfur compounds -

0.3

Emissions of nitrogen compounds (NО

), excluding (N

O) -

17.4

Emissions of non-methane volatile organic compounds -

22.0

underground water –

1274.1

surface water –

3284.8

public water supply –

574.6

other –

5.7

Waste management, ktons

Water resources, tcm

Environmental impact of Naftogaz group in 2018

Emissions of air pollutants by Naftogaz group, ktons:

Emissions of greenhouse gases, ktons, СО

-eq.:

210.2 ktons

5139.2 tc

Was

te generated

disposed of -

21.9

burnt -

0.06

removed -

151.4

other -

47.7

PETROLEUM PRODUCTS

STORAGE

OIL

REFINERY

PROCESSING

PIPELINE

OFFSHORE

DRILLING RIG

CONDENSATE

STABILIZER

OIL

WELL

EXPLORATORY

WELL

PRODUCTION

WELL

SEISMIC

VIBRATORS

COILED

TUBING UNIT

WELL

WORKOVER

GAS

DRYER

COMPENSATOR

67.0

Air pollution, thou

sand tons

7332.5

Emi

ssions o

f greenhou

se gases, СО2-eq., ktons

67.0

Air pollution, thou

sand tons

7332.5

Emi

ssions o

f greenhou

se gases, СО2-eq., ktons

5139.2 tc

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