Key Principles and Improvement of the Corporate Governance System in 2018

Guidelines of the Company’s Governing Bodies

CARE FOR SHAREHOLDERS

The Company operates in line with the best practices in corporate governance, the requirements of the CBR Corporate Governance Code, and ensures:

• equal and fair opportunities for exercising shareholder rights;
• strategic management by an efficient and competent Board of Directors with an adequate number of independent directors, accountability of the Board of Directors to shareholders;
• efficient risk management and supervision of significant corporate actions, including those in affiliated organizations;
• full disclosure of most important aspects of the Company’s operations to shareholders and investors.

The Company allocates a substantial portion of net income for dividend payouts. A total of RUB 225 bln was paid out by the Company to the shareholders as dividend in 2018 (see more in the section The Dividend Policy).

The Company is committed to developing effective communication with the shareholders (see more in the section Institutional Investor Relations).

INNOVATIONS AND GLOBAL LEADERSHIP

The Company strives to achieve global leadership in the industry and invests in modern technologies (see more in the section Research, Design, and Innovations).

The Technological Council comprising the leaders of business, science and technology sector was established in the Company. In 2018, new developments related to advanced materials creation, exploration and oil production were demonstrated (see more in the section Research, Design, and Innovations).

FAVORABLE ENVIRONMENT FOR THE COMPANY’S SUSTAINABLE GROWTH

The Company cares about people: employees and their families, as well as local community members in the regions of the Company’s operation (see more in the section Personnel and Social Programs).

The Company cares about the environment by gradually introducing clean extraction technologies for mineral raw materials (see more in the section Health, Safety, and Environment).

The Company supports the development of culture and sports, invests in healthcare and contributes to reviving spiritual values (see more in the section Social and Economic Development of Regions and Charity in 2018).

The Company’s relations with its counterparties and employees are based on the commitment to high ethical standards and universally recognized values (see more in the section Supplier and Contractor Relationships).

PARTNERSHIP WITH PUBLIC ORGANIZATIONS AND COOPERATION WITH STATE INSTITUTIONS

The Company is a participant in the UN Global Compact. In 2018, the Board of Directors reaffirmed its commitment to UN sustainable development goals (see more in the section Strategic Objectives and Priorities).

The Company is one of the largest taxpayers in Russia (see more in the section Key Operating and Financial Results).

SECURITY TO SHAREHOLDERS AND KEY STAKEHOLDERS

Company’s care about consumers and counterparties is implemented by introducing the best practices of risk management and internal control, developing the industrial safety and cyber risk protection technologies, and ensuring products safety (see more in the section The Risk Management and Internal Control System).

Key Achievements in 2018

• Self-assessment of performance of the Board of Directors was undertaken.
• Performance assessment of the Board of Directors was initiated with the involvement of an outside consultant. The assessment results will be presented in 2019.
• Performance of the corporate governance framework was audited.
• The Company’s Regulations on Insider Information were updated.
• The performance audit of the risk management framework and internal controls was completed.
• Assessments were carried out to check that Board candidates and the elected members of the Board of Directors meet the independence criteria.
• Compliance monitoring in the Company was finished. The effectiveness of the current framework was confirmed by the Board of Directors.
• The pilot implementation of the analysis information system "Corporate Governance" was started. This system is established for enhancing shareholder relations, automating the key corporate governance processes and achieving a high level of information protection. The system production start-up is expected in 2019.

2019 Priorities

• Improving the corporate governance system to ensure shareholder value protection and capitalization growth.
• Sustaining our leadership in corporate governance practices among Russian publicly quoted companies.
• Updating the Company’s Charter and internal documents to accommodate the amendments to corporate law applied in 2018.

Corporate Governance and Control Structure

Board of Directors

The Board of Directors has two key functions in line with the Law of the Russian Federation::

• control over the executive bodies;
• strategic management of the Company’s activities involving the approval of strategic documents and major transactions.

Executive Bodies

• The legislation provides for the mandatory sole executive body (Chief Executive Officer) authorized to act in relations with third parties on behalf of Rosneft without a power of attorney.
• The Company has established the Collective Executive Body (the Management Board) headed by the sole executive body. In compliance with the Law of the Russian Federation, the Management Board and its members are not authorized to take legal action and close any deals on behalf of the Company without a power of attorney.