In 2010, LUKOIL Group conducted its environmental activities in compliance with the objectives and obligations within the framework of the Company's HSE Policy. In carrying out its activities, ОАО LUKOIL is guided by the highest HSE standards. Consciously taking social responsibility for the efficient use of natural resources and maintenance of favorable environmental conditions is regarded as one of the key factors taken into account over the course of project implementation.
In 2010, ОАО LUKOIL and other organizations of the Group conducted regular activities to ensure industrial and environmental safety, emergency prevention and response. The HSE Management System of LUKOIL Group underwent a recertification audit. The auditors of the international Bureau Veritas Certifying Company visited 8 organizations of LUKOIL Group and the OAO LUKOIL headquarters. It was the first time the certifying company had not found any considerable discrepancy, and the HSE Management system of the Company was again recommended for recertification in compliance with the requirements of the ISO 14001 international and the OHSAS 18001 standards.
The environmental objectives of the HSE Policy are implemented within the framework of the Mid-term Corporate Environmental Safety Program for 2009-2013 and annually developed environmental action plans of the Company's subsidiaries. Two thousand ten witnessed a sustainable reduction in the technogenic environmental load and improvement of the environmental status in the regions due to such measures as the reconstruction of waste treatment facilities, improvement of the hazardous waste management system, landscaping of production territories and adjacent areas, monitoring of the environment, etc.
Imperfection of environmental legislation, constant amendments to it and ambiguous interpretation are significant factors hindering environmental activities. The environmental services of the Company and its subsidiaries spend considerable resources updating environmental requirements and ensuring compliance of the current activities with the newly introduced requirements. They also develop proposals to improve the existing standards.
Monitoring of the environmental legislation, prompt briefing of respective services of the subsidiaries and legal support from the Company allowed LUKOIL Group organizations to avoid criticism and claims by regulatory and supervisory bodies in the majority of cases in 2010.
According to the results of 2010, a 4-fold reduction in the discharge of contaminated-waste water was registered, all due to the measures taken to enhance efficiency of the treatment facilities. Hazardous waste products registered on the balance sheet of LUKOIL Group organizations went down by 56,000 tons during the reporting year. In order to ensure compliance with the requirements of the RF Government for utilization of at least 95% of associated petroleum gas and to prevent charging extra environmental payments from the year 2012 and on activities are being conducted to implement a target Associated Petroleum Gas Utilization Program, while the level of utilization of associated petroleum gas (hereafter — APG) increased from 71% in 2009 to 77% in 2010. The same year, special attention was also paid to the construction of facilities to utilize associated petroleum gas in the Republic of Kazakhstan, one of the trends being the construction of facilities to generate their own electric power.
In 2010, LUKOIL Group organizations spent about USD 715 million (compared with USD 420 million in 2009) on environmental safety measures. LUKOIL Group organizations ensure environmental safety through a number of measures aimed at efficient use of water resources, prevention of water body contamination, reduction in the atmospheric emissions of pollutants, utilization of accumulated oil waste, contamination prevention and efficient use of land resources. Some of the measures taken were:
trouble-shooting and capital repair of pipeline transport;
modernization and construction of facilities enhancing the petroleum gas utilization level;
purchase of equipment for possible emergency oil and petroleum product spill response;
reclamation of impaired and oil contaminated lands;
integrated monitoring of environmental components, including satellite monitoring;
construction of new and reconstruction of existing water supply and water drainage networks;
assembly of chlorination units for the disinfection of industrial and river water;
replacement of equipment and optimization of technologies aimed at reducing pollutant emissions;
construction of a complex to treat oil-contaminated waste.
Implementation of environmental measures in 2010 helped reduce the share of extra payments for negative environmental impact from 22% of their total amount to 17.6%, as compared with 2009.
Implementation of the Corporate Activity Planning Concept of LUKOIL Group organizations based on the provisions of the Kyoto Protocol was continued. Four projects of the Company were approved by a decree of the RF Ministry of Economic Development as projects implemented in compliance with Article 6 of the Kyoto Protocol.
Modernization of LUKOIL Group refineries targeting enhancement of oil processing efficiency, minimization of negative environmental impact and improvement of environmental properties of manufactured products are currently in progress. Acatalytic cracking complex was commissioned in 2010 at the Nizhny Novgorod refinery. After the complex was launched, production of high-octane automobile gasoline by the enterprise increased by 1.4 million tons annually, of diesel fuel by 400,000 tons per year and of light petroleum products by 12%. The total share of high-octane gasoline in the automobile gasoline production volume of the Company went up to 94% as compared with 92% in 2009, the share of diesel fuel with the sulfur content of 50 PPM, or lower, in the total production volume of diesel fuel rose from 65% to 76%.
As part of the implementation framework of the LUKOIL Group Strategic Development Program for 2008, a new business sector, "Electric Power Generation", was established. The updated Corporate strategy for 2010—2019 pays specific attention to the Electric Power Generation sector. In the long run, the Power Generation sector will become a significant factor determining the growth of cash flows and the Company's shareholder value. The new sector comprises all lines of the energy business, from the generation to the transportation and marketing of thermal and electric power. The Power Generation business sector, the core of which is formed by the assets of OAO YuGK TGK-8 acquired in 2008, also includes the organizations generating electric and thermal power at the Company's refineries in Bulgaria, Romania and Ukraine. Within the reorganization framework of ООО YuGK TGK-8, ООО LUKOIL-Ekoenergo was established, which united the hydraulic power stations of the Company. Establishment of LUKOIL-Ekoenergo is aimed at the implementation of energy projects based on renewable energy sources. The top-priority development trends comprise wind power, water power and solar energy. In 2010, the Company and Italy's ERG Renew signed a Memorandum of Understanding on cooperation in the renewable energy area.
The Company conducts continuous activities to enhance electric power supply safety and reduce energy consumption. The corporate programs of saving energy and enhancing the safety of power supply are considered key elements of the activities in these areas. Due to the implementation of the LUKOIL Group Energy Saving Program in 2010, the actual saving of energy in financial terms came to RUR 2.4 billion and the amount of investments reached RUR 1.7 billion.
Due to the implementation of a set of preventive measures, there were no accidents registered in LUKOIL Group in the category of emergency situations. Regular trainings and maneuvers organized at offshore and river terminals of the Company, at oil production sites and at facilities for oil refining and petroleum-product storage ensured a high level of preparedness of forces and means of LUKOIL Group organizations for any possible oil and petroleum product spill response. Over 80 trainings and maneuvers were arranged to target oil and petroleum-product spill response during the reporting year. The issues of safe navigation in the Gulf of Finland were discussed by Vagit Alekperov, President of the Company, and P. Lekhtomyaki, Minister of Environment of Finland, in April, 2010.
OAO LUKOIL's progress in sustainable business development was repeatedly highlighted by independent experts in 2010. The Trusted Brand. Green Planet title was awarded to the Company based on the results of polling dedicated to the brands with the best reputation in environmental protection. The polling results were studied in Great Britain by the independent marketing agency Wyman Dillon Ltd.
LUKOIL won the Nationwide contest The Best Russian Enterprises. Dynamics, Efficiency, Responsibility — 2009 in the category For Consistency in Nonfinancial Statement Development. The contest was initiated by the Russian Union of Industrialists and Entrepreneurs to determine the most dynamically developing organizations of the branch and to render support to the sustainable development of independent and responsible companies meeting long-term economic interests of the business community. Since 2005, ОАО LUKOIL has regularly published Reports on Sustainable Development.