Legal Risks

Gazprom Neft carries out its activities in strict compliance with the standards of Russian legislation as well as the legislation of the jurisdictions in which the Company performs its operations.

Gazprom Neft cannot guarantee the absence of adverse changes in Russian legislation in the long term since most risk factors in this area are out of its control. The negative impact of this risk category is mitigated by monitoring and timely reaction to changes made to various sections of legislation as well as active interaction with the legislative and executive authorities and public organisations on matters involving the interpretation, proper application and improvement of legislative norms.

Description of risks

Risk management measures

RISKS ASSOCIATED WITH CHANGES TO TAX LEGISLATION

Gazprom Neft is one of the biggest taxpayers in the Russian Federation and pays federal, regional and local taxes, in particular VAT, corporate profit tax, mineral extraction tax, corporate property tax and land tax.

In 2014, special attention was paid to the risk of the “tax manoeuvring” effect on the Company’s performance results.

In its operating activities, Company specialists perform continuous monitoring of changes to tax legislation and changes to the practice of interpreting and applying the standards of existing tax legislation. The Company acts as an expert in the process of improvements to the regulatory framework and the development of new legal acts of tax legislation.

Risks caused by “tax manoeuvring” were identified by the Company on time and taken into account when compiling the business plan for 2015.

RISKS ASSOCIATED WITH CHANGES TO THE RULES FOR CUSTOMS CONTROL AND DUTIES

The Company is involved in foreign economic relations and therefore exposed to risks associated with changes to legislation in the state regulation of foreign trade activities as well as customs legislation governing relations for establishing procedures for the movement of goods across the customs border of the Russian Federation, establishing and applying customs regimes as well as establishing, introducing and collecting customs payments.

Another risk may be the ability of the Russian Government to change customs duty rates (both import and export) for certain goods for which Gazprom Neft concludes foreign trade transactions. The primary adverse effect from this risk is an increase in expenses and lower export efficiency.

Gazprom Neft meets the requirements of customs control, completes all documentation required for both export and import transactions in a timely manner and has sufficient financial and human resources to comply with the standards and rules in matters of customs regulation.

The risks were assessed as acceptable taking into account the reduction in the customs duty on crude oil exports.

RISKS ASSOCIATED WITH CHANGES TO THE REQUIREMENTS FOR LICENSING CORE ACTIVITIES

The development of modern legislation on subsoil resources is based on the detailed regulation of subsoil resource use processes by the government, the need to improve the rational use of subsoil resources and strict compliance with legislative environmental standards.

Gazprom Neft operates on licensed areas taking into account the stringent requirements of Russian legislation on subsoil resources while ensuring the updating of licensing agreements based on changes to existing legislation.

The Company is working on analysing and assessing legislative initiatives from relevant ministries and agencies that concern subsoil resources and the licensing of individual types of operations. The amendments to existing legislation that have been proposed and are under discussion will have an overall favourable effect on the subsoil resource regime and the performance of licensed activities in the Russian Federation.

No legal risks associated with the loss of the right to use subsoil resource sections or the violation of existing legislation due to such changes are directly foreseen for Gazprom Neft.

RISKS ASSOCIATED WITH CHANGES TO JUDICIAL PRACTICE ON MATTERS RELATED TO THE COMPANY’S OPERATIONS

In the existing law enforcement system in the Russian Federation the legal positions of the nation’s highest courts are of great importance, especially the legal positins of the Constitutional Court, the Supreme Court and the Supreme Arbitration Court of the Russian Federation. Ruling s from these bodies may affect conditions of the Company’s business activities.

Gazprom Neft regularly monitors the decisions adopted by the high courts and also evaluates trends in law enforcement practice seen at the level of district arbitration courts while actively applying and using such practice not only to protect its rights and legitimate interests in court but also when resolving legal issues that arise during the process of its activities. In this regard, risks associated with changes to judicial practice are regarded as negligible.

RISKS ASSOCIATED WITH ANTIMONOPOLY REGULATION

If the Russian Federal Antimonopoly Service (FAS) concludes that the Company is operating in violation of antimonopoly legislation, this may results in administrative action being taken against the Company’s enterprises.

The oil industry in Russia operates under strict pricing control by government authorities that monitor petroleum product prices and track coordinated actions by companies as well as price collusion.

As a result, even substantiated growth in prices for oil company products may lead to complaints and accusations by the FAS concerning the violation of Russian antimonopoly legislation.

The FAS has fined the Company in the past in connection with allegations that it abused its dominant position on the market.

In accordance with the decisions of the FAS and with the support of the Presidium of the Supreme Arbitration Court of the Russian Federation, Gazprom Neft and other vertically integrated Russian oil companies were found to be dominating the motor and jet fuel markets in Russia.

In addition, the FAS has prepared draft laws “On the Price Market for Oil and Petroleum Products” and "On the Specific Details of Oil and Petroleum Product Turnover in the Russian Federation’’, which contain other potential risks for the Company.

The Company devotes much attention to maintaining compliance with antimonopoly legislation and in this regard has established a division whose activities aim to manage antimonopoly risks at the Company. In addition, the Company has also developed a pricing policy that is coordinated with regulatory authorities.