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MD&A / Risk Management / Legal Risks

Gazprom Neft acts in strict compliance with the standards of Russian law and those of other jurisdictions where it operates.

The Company cannot rule out adverse changes in Russian law at some point in the future, since most such risk factors are beyond the Company’s control.

Negative impacts in this risk category are mitigated by monitoring and timely response to changes in various areas of the law, and by ongoing interaction with legislative and executive governments, and with social organizations on issues of interpretation, correct application and improvement of legislation.

Risks

Description

Risk management activities

RISKS RELATED TO CHANGES IN TAX LAW

Gazprom Neft is one of the largest taxpayers in the Russian Federation; it pays federal taxes, regional and local taxes, including the value-added tax, corporate income tax, mineral extraction taxes, corporate property taxes and land taxes.

In the course of its business, the Company constantly monitors all changes in tax law, and changes in the interpretation and application of existing tax law. The Company also advises the Government on improving legislation and on creating new regulatory acts in the field of taxation.

RISKS RELATED TO CHANGES IN CUSTOMS REGULATIONS AND DUTIES

The Company is engaged in foreign trade, and is thus exposed to risks related to changes in laws and government regulation in the sphere of foreign trade, and to customs laws which specify procedures for the passage of commodities across the customs border of the Russian Federation, adoption and enforcement of customs regimes, and the introduction and collection of customs duties.

Risks include the possibility that the Russian Government might change the level of customs duties (both import and export duties) payable on various commodities for which Gazprom Neft has signed foreign contracts. The main consequence of such risk would be higher costs and a lower efficiency of exports.

OJSC Gazprom Neft complies with customs control procedures and processes all documents required for both export and import operations. It has sufficient financial and human resources to ensure compliance with customs-related rules and regulations.

RISKS RELATED TO CHANGES IN LICENSE COMPLIANCE FOR MAIN BUSINESS LINES

Sub-soil legislation is evolving towards detailed regulation of sub-soil usage by the Government, more rational use of sub-soil areas, and strict compliance with legal standards for environmental protection.

Gazprom Neft operates its license areas in strict conformity with the requirements of Russian sub-soil law, and updates its license agreements to keep them compliant with relevant laws. The Company analyzes and assesses legislative initiatives by relevant ministries and departments in the sphere of sub-soil law and licensing.

Gazprom Neft is not aware of any legal risks associated with the loss of sub-soil rights or violation of current law due to changes in the law.

RISKS RELATED TO CHANGES IN COURT PRACTICE ON ISSUES RELEVANT TO COMPANY BUSINESS

Under the current system of enforcement, in the Russian Federation the highest courts have the most significant legal positions (the Constitutional Court of the Russian Federation, the Supreme Court, and the Supreme Arbitration Court), which can influence the company’s business activities.

Gazprom Neft regularly monitors verdicts by high courts, and assesses the impact of trends in legal interpretation by district arbitration courts. The Company proactively uses the results of such monitoring to protect its lawful rights and interests in court, and to resolve legal issues that arise from its operations. Therefore, risks related to changes in court practices are viewed as negligible.

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