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SUSTAINABILITY REPORTThese plans require large investments. For example, capital investmentin the Bolshekhetsk depression (Western Siberia) has alreadyamounted to USD 4 billion, and investment in the Northern Caspiandeposit (within the Russian Federation) has required USD 2.9 billion.Future development of gas production is also contingent upon how thesystem of domestic gas price regulation will shape up and upon howthe issues of gas transportation to domestic and international marketswill be handled.Increased utilization of casinghead gas is another part of theCompany's gas strategy. That would help improve ecological indicatorsand use natural resources in a more rational way. However, some relatedtasks still need resolution, particularly, the utilization of casingheadgas and its delivery to main pipelines. Those issues can be resolvedonly through the combined efforts of the state, market participants,experts and specialists.Legislative regulation of the industryThe Company meets its tax obligations promptly and completely.In 2003 and 2004 taxes on Russian operations represented over 80%of the Company's tax expenses.The growth of tax payments was largely caused by an increase in therates of so-called "resource" taxes: the mineral extraction tax (NDPI),export duties and the excise duty on petroleum. Compared to 2003,average tax rates underwent the following changes: NDPI up 31.4%,oil export duty up 83.5%, export duty for petroleum products up anywherefrom 33.9 to 38.6%, excise duty up approximately 12%.Taxes paid by the Сompany in Russia, USD billion2003 20045.23 8.64Note: These taxes include retained earnings tax, NDPI, social taxes and contributions,property tax, other taxes, excise tax, and export duties.The Company's specialists share their experiences of operating underthe new, market conditions in order to assist the development ofa legal environment for Russian business. They participate in parlia-26
COMPANY CONTRIBUTION TO ECONOMICDEVELOPMENT OF THE RUSSIAN REGIONSmentary hearings, sit on expert committees created by public organisationsand government, act as consultants for draft laws on the activitiesof the fuel and energy complex and other industries.During the reporting period, the Company's experts worked on draftchanges to the law "On Mineral Resources" which was to constructa relationship suitable for current conditions between the state as theowner of resources and the organisations that use them. In the summerof 2004 some of the conceptual points repeatedly voiced byLUKOIL representatives were reflected in changes to the current law.Specifically, a resource user who has discovered a deposit automaticallyreceives the right to develop it following its exploration and evaluation.This will stimulate more activity in geological surveying by producingcompanies. Another amendment to the law stipulates thata period of resource use may be extended beyond the time specifiedin the license at the initiative of a resource user if there is a need to finishexploration and evaluation unless the user has breached conditionsof the license.The Company's experts participate in drafting improvements to tax legislation.The opinion of oil and gas business specialists based on precisefinancial and economic calculations is relevant when decisions aremade about the optimal level of taxation in the industry. Such decisionsshould consider not only the state's fiscal interests but also the industry'sdevelopment prospects.In recent years the tax system for the oil business has undergone majorchanges and has become simpler as well as more transparent. Theturnover tax, which had a depressing effect on economic activity, hasbeen abandoned. During the three years since the introduction of thenew system, its disadvantages have also become apparent: tax deductionsbecome too extreme when the world price of oil goes beyondUSD 25 per barrel; and there is no differentiation in the tax burden relatedto the geological, economic and geographic conditions at thedeposits under exploration. The Company's specialists together withrepresentatives of other oil companies and the federal government continuetheir work to improve the system of oil industry taxation.The new Customs Code of the Russian Federation came into effectin 2004. Even though not all proposals made by the working group(in which LUKOIL specialists participated) were taken into account27
Page 4 and 5: SUSTAINABILITY REPORTINTRODUCTIONBY
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Page 9 and 10: CORPORATE PROFILEket. In 2004 the A
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Page 14 and 15: SUSTAINABILITY REPORTfirst time tha
Page 16 and 17: SUSTAINABILITY REPORTThe issue of r
Page 18: SUSTAINABILITY REPORTCOMPANY CONTRI
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Page 34 and 35: SUSTAINABILITY REPORTprovided to ag
Page 36 and 37: SUSTAINABILITY REPORTsocial partner
Page 38: SUSTAINABILITY REPORTSOCIAL POLICY"
Page 41 and 42: SOCIAL POLICYthem go beyond the req
Page 43 and 44: SOCIAL POLICYCollective bargaining
Page 45 and 46: SOCIAL POLICYMOPO results:MOPO was
Page 47 and 48: SOCIAL POLICYREGULATION OF LABOUR,
Page 49 and 50: SOCIAL POLICYdismissals take place
Page 51 and 52: SOCIAL POLICYThe main problems the
Page 53 and 54: SOCIAL POLICYPublic controlThe trad
Page 55 and 56: SOCIAL POLICYHealth careThe Company
Page 57 and 58: SOCIAL POLICYNeither the market nor
Page 59 and 60: SOCIAL POLICYCorporate expenses for
Page 62 and 63: SUSTAINABILITY REPORTBiddingIn Perm
Page 64 and 65: SUSTAINABILITY REPORTKremlin. The e
Page 66 and 67: SUSTAINABILITY REPORTIn 2004, the C
Page 68 and 69: SUSTAINABILITY REPORTof Archangel M
Page 70 and 71: SUSTAINABILITY REPORTParents - Heal
Page 72: SUSTAINABILITY REPORTENVIRONMENT, S
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ENVIRONMENT, SAFETY, AND HEALTHInte
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ENVIRONMENT, SAFETY, AND HEALTHOpti
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ENVIRONMENT, SAFETY, AND HEALTHPrio
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INDEX OF COMPLIANCE WITH GRIREPORTI
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INDEPENDENT ASSURANCE STATEMENTMeth
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INDEPENDENT ASSURANCE STATEMENTit c
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INDEPENDENT ASSURANCE STATEMENTReco
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