Introduction to the
sustainable development report

This is the seventh sustainable development report of Viru Keemia Grupp AS (VKG), and its goal is to publish the economical, social, environmental and organisational data of VKG for the years 2015-2016.

Two-year summary report particularly reflects the group's developments in 2015 and 2016, compares the results to previous periods, analyzes the oil shale sector and provides a forecast for the upcoming period.

With this report, Viru Keemia Grupp intends to introduce and promote the concept of sustainable development and the basics of responsible entrepreneurship in Ida-Viru County and in Estonia as a whole.

In addition to that, our goals are:

• to increase the transparency of the activities of our organisation;
• to establish a relationship of trust between the parties interested in the activities of the enterprise, the residents of the region, and the employees of VKG;
• informing all interested parties of our work.

VKG's sustainable development report is a public document available at the group's website in Estonian, English and Russian. The report's target audience is a wide range of Viru Keemia Grupp's stakeholders, including specialists, shareholders, investors, residents of Virumaa, social organisations, clients and partners.

Several channels for providing feedback are set up at VKG. Suggestions and comments regarding sustainable development shall be sent to Irina Bojenko, Viru Keemia Grupp's Head of Public Relations, to the e-mail address provided in the contacts section. All notes will be reviewed and considered during the preparation of the next report.

The structure and methodology of the report

The group uses principles of reporting laid down in the report of 2008-2009; these principles remain unchanged and are based on the approach described in GRI guidelines. This report presents data on aspects and indicators according to the GRI guideline, including reporting elements considered to be important for businesses in oil and gas industry.

This report, which covers the years 2015 and 2016, was prepared based on the results of the analysis on the importance of sustainable development, carried out in 2015-2016, according to the approach determined in the fourth version of Global Reporting Initiative's sustainability reporting guidelines (GRI G4 guidelines). The compliance of this publication with the high standards of disclosure can be found on the last page of the report, where GRI table of contents is located. Previous reports have been prepared in accordance with GRI level G3.

The GRI is a voluntary organisation promoting reporting and gathering enterprises that value sustainable development all over the world. This organisation is considered to be the founder of the concept of sustainable development and it has developed recommended guidelines for sustainable development reports. Read more about the organisation and the guidelines at www.globalreporting.org.

The preparation of the report was also guided by the document “Oil and Gas Industry Guidance on Voluntary Sustainability Reporting” issued in cooperation with the International Petroleum Industry Environmental Conservation Association (IPIECA) and the American Petroleum Institute (API).

The ISO and OHSAS certification materials of the enterprise were also used while preparing the report. The data pertaining to environment protection and occupational safety conform to the requirements prescribed in the relevant standards.

The structure of the report consists of descriptions of the group's operating results in the following areas:

Limitations related to the report

The preparation of sustainable development reports is voluntary for organisations. Economic data of 2015-2016 has been audited and projections for 2017 collected. Reports from 2014 and earlier reflected unaudited financial statements. For this reason, data in reports from 2014 and earlier may somewhat diverge from data in approved annual reports. The group presents reprorted data on the basis of transparency and good business practice.

Procedure for defining the importance and
boundaries of aspects

Methodology for determining the content of stable development report of 2015-2016 is based on a dialogue with interested parties throughout the entire reporting period. In the process of collecting, classifying and analyzing issues to be raised and topics to be discussed in the spectrum of all channels of interaction, the primary, inital list of themes is determined which provides the most interest to the interested parties and is of greatest importance.

The methodology also provides for carrying out internal consultations, starting from the group's highest officials to the managers of subunits and subsidiaries, who have first-hand information about the situation of specific directions, considering the limitations of possible internal aspects. The source of additional information is the analysis of operational indicators and most important occasions. The impact of various changes regarding corporate management, strategy, composition of aspects, but also content and limitations that are considered important, is being analyzed.

Differences from the report of sustainable development of 2014

The report presents a set of data concerning important changes in comparison to previous periods – virtually all of them are listed and expained in the text. Important changes in the limitation of aspects have not beed added compared to the previous reporting period.

General standard elements of reporting

Themes and aspects	The priorities of internal interested parties	The priorities of external interested parties	Reasoning
ECONOMIC EFFICIENCY
The group's strategy			The development and implementation of a flexible and competitive strategy, taking into account the needs of internal and external interested parties – this is the basis of the stability and persistence of the Group's business activities.
Financial stability			Increasing production efficiency is the most important factor of the group's competitiveness.
Investment projects			Investment projects in the field of oil shale mining and processing – one of the key priorities of the group and an important factor in achieving strategic goals.
Production quality			Improving the quality of production promotes the satisfaction of buyers and stronger market positions.
Innovative actions			Development and introduction of innovation – an important factor in the group's efficiency and competitiveness.
ENVIRONMENTAL SAFETY
Compliance with environ- mental protection laws according to EU directives			Compliance with environmental protection laws, international standards and EU directives, but also environmental inspection of production is the group's main priority in environmental safety.
Performed environmental inspection
Rational use of natural resources			The group's activity is related to impact on the environment and natural resources: air, water, soil. The company has taken the responsibility to rationally use, restore and protect these resources.
The use and efficiency of energy			Increase of production over the last 7 years requires higher use of energy resources in the group. VKG is working on increasing energy efficiency and optimizing energy resources in order to mimimize the impact of this process.
Exhaust emissions			Oil shale processing is related to the emission of substances, including greenhouse gases, dioxides, sulphur.
PRODUCTION SAFETY AND OCCUPATIONAL HEALTH AND SAFETY
The safety of production processes, preparedness for emergencies			The group's manufacturing operations are related to potential safety risks. Safe production, complete lack of damage to persons, objects and machines – these are the key priorities of Viru Keemia Grupp.
Occupational health and safety, caring for the health of employees
EMPLOYEES
Training and development of employees			Training and development of employees allows the group to supply itself with qualified human resource at the moment and in the future.
Employment relationships and employment rate			The group's performance of obligations to employees and engaging and keeping the best specialists ensures stable operation and helps to achieve strategic goals.
Valuable working environment and social benefits of employees			A competitive work environment and fair wage system with social benefits – the most important factor in engaging and retaining employees.

Dear Reader,

you are holding Viru Keemia Grupp's sustainable development report, which summarizes the group's greatest achievements in the years 2015-2016. During this short period of time, almost every occasion took place that can be brought to a company by today's dynamic economic environment.

In 2015, VKG finished its program of substantial investments, the last achievement being the launch of Petroter III oil plant in September 2015. In the next year which marked the 100th anniversary of oil shale mining, oil shale industry was hit by the worst oil crisis in the last 20 years. Operating in the described environment tested the company's ability to act in accordance with its core values when it is most needed. Fortitude, reliance on core values and working towards a common goal allowed VKG to overcome all difficult moments.

The valuation of oil shale without taking into account environmental, economic and socio-economic aspects is unthinkable. Environmental protection is an area of importance even in the deepest crisis. In 2016, another sulphur trapping device was completed and launched at VKG Energia's Põhja power station. With this investment, VKG ensured compliance with all environmental requirements and directives until at least 2030. Cooperation will continue with both scientists and local community in order to improve environmental indicators and fight the impact of residual pollution from the Soviet era.

Socially responsible behaviour is possible for a company that is strong both financially and in its work culture. The oil crisis that hit the oil shale sector in 2016 forced the group to make difficult decisions. Temporary conservation of Kiviter plants and reduction of the production output of Ojamaa mine were absolutely necessary steps in order to ensure the company's liquidity as the crisis continued, however this meant the loss 500 jobs. In this situation, the group did everything in its power to advise the people who lost their jobs or to bring them together with new employers. Two job fairs were organised in Kohtla-Järve in cooperation with Estonian Unemployment Insurance Fund, businesses all over Estonia were invited. The group gathered advisers and psychologists to help. In hindsight, decisions made during the crisis were right and as soon as autumn 2016, VKG restored its pre-crisis production output and jobs related to it.

In 2016, we also took steps to develop and strengthen the organisation. In order to increase focus on oil shale industry, VKG sold its sole ownership in VKG Plokk, a manufacturer of building materials, and VKG Transport stopped the provision of ADR services. The goals of the group's companies have been unified and production planning processed improved. In the next few years we will put more effort into training our employees both internally and in cooperation with Estonian educational institutions. We have put focus on occupational safety – trainings, raising awareness and zero tolerance for unsafe behaviour is currently topical at every job and management level.

Facing challenges makes you stronger, gives experience and make you evaluate your action with a critical look. Overcoming difficulties provides insight in the company's strength and boosts confidence in executing new plans. In September 2016, VKG reopened two Kiviter plants which were temporarily conserved due to crisis and from that moment on, we have been looking into the future. Goals and expected results in the year 2017 are the highest of all time for both mining and processing of oil shale. Essentially, the group is operating in every area with the maximum capacity permitted by the oil shale resource allocated by the state.

VKG adds value to Estonian oil shale. With the help of added value, VKG paid approximately 30 million euros in taxes to the state budget even in the year of the crisis, work was guaranteed for hundreds of subcontractors and jobs for numerous households. At the same time there is no way to be satisfied with actions (or rather inaction) of the state in creating the legislative and economic environment for the valuation of oil shale.

The enterpreneurs have little expectations for the state. Earth's Crust Act which regulates the mining of Estonian mineral resources (including oil shale) has been inappropriate for the regulation of open oil shale market for some time now. Incompatibilities with EU's principles of free competition and failure to provide oil shale processing outputs using resources in the state's ownership has led to numerous litigations and loss of tax revenue.

Viru Keemia Grupp has little expectations for the state. Stable and predictable fiscal environment and providing access to raw material corresponding to the current production outputs seem like basic requirements to the economic environment, however, these tasks have proven to be beyond the means of the state.

In its 101 years of history, the energy produced from oil shale continues to be competitive. VKG's employees and management continue to be inspired by unlocking the potential of oil shale which allows the industry to demonstrate good results despite the volatile world market of oil, unstable tax environment or poor national legislative base. Our biggest wish is to turn our inspiration into a value to be shared with society, employees and shareholders.

Open approach

VKG's complete social responsibility and sustainable development policy began in 2009. We are proud that VKG is one of the first promoters and advocates of the concept of social responsibility in Estonia and especially in Virumaa.

VKG was the first Estonian company to disclose all of its resource use and environmental information in accordance with the Global Reporting Standards for Social Responsibility GRI G3. Although the original purpose of the initiative was to raise awareness, evaluate and manage the group's overall impact on the country's economy, social life and environment, today the responsibility is integrated into the company's business strategy, since in VKG's case, it is impossible to distinguish between responsible activities and the company's main acitvity.

Environmental management system

Conformity to the ISO standard

Most of the subsidiaries of VKG are employing an environmental management system conforming to the international standard ISO 14001.

VKG, VKG Oil, VKG Energia, VKG Transport, VKG Soojus, Viru RMT and VKG Elektriehitus have all acquired the Environmental and Quality Management System certifications ISO 14001 and ISO 9001.

VKG Oil, VKG Energia, VKG Transport, ViruRMT, VKG Soojus, VKG Elektrivõrgud and VKG Elektriehitus hold the Occupational Health and Safety standard OHSAS 18001.

In addition to certificates OHSAS 18001, ISO 14001 and ISO 9001, energy management certificate ISO 50001 is also implemented in VKG Energia.

Viru Keemia Grupp has set the goal to make the transition to versions EVS-EN 9001:2015 and 14001:2015 of standards in 2017. The management system is continuously developed and principles of more efficient management implemented.

Investments into environment protection

VKG constantly seeks to be more efficient in its activity. The goal is to add maximum value to oil shale, which means the complete use of its potential. From the environmental aspect this means less environmental impact per one unit of processed oil shale and more social and economic profit. We consider that in order to ensure the sustainability of shale oil production, we need to invest in the development of best available technology and environmental protection, participate in the preparation of legislative acts, perform monitoring of production and environment, optimize production and introduce energy efficient solutions. We follow the requirements of law, consider relevant opinions of several interested parties and offer reliable partnership to public authorities, local government and communities. We also place importance on cooperation with scientific and research institutions.

The recent years have seen much work being done for the benefit of environment; tens of millions of euros have been invested and significant shifts towards more environment-friendly production have been made. At the same time, the legislation of the European Union and the Republic of Estonia and the increasing production needs are setting higher and higher requirements and new, higher environmental targets for the enterprises of the Group.

In 2010, the Industrial Emissions Directive (IED) of the European Commission came into effect, which was taken over into the Estonian legislation by the Industrial Emissions Act (hereinafter IEA) in 2013. The new legal framework imposes an obligation to conform to the requirements of the best possible technology (BPT), in addition to the end-of-pipe technologies. It means that now the investments into the protection of environment are considered on a much larger scale than before.

The investments into environment are divided into two categories:

• the investments that reduce the effect on the environment directly,
• the investments that reduce the effect on the environment indirectly.

The investments that reduce the effect on the environment directly include such investments which provide immediate effect on the environment. They include, for example, the so-called end-of-pipe investments (trapping equipment), the renovation of tank fleets, closing the existing sources of pollution, or the investments aimed at the reduction, waste disposal, etc.

The investments that reduce the effect on the environment indirectly include the activities which help to reduce the effect on the environment as a result of the long-term ongoing activities. They include the investments in the BPT, into the development and implementation of new environmentally-friendly and efficient technologies, the technologies that facilitate the rational use of resources, the implementation of relevant measures, etc.

The investments that reduce the effect
on the environment directly

In 2008, an environmental investment of almost 9.5 million euros was made to build a sulphur trapping device at VKG Energia. The sulphur trapping device allows to bind sulphur contained in the combustion fuels used in Põhja thermal power plant and thus significantly reduces emissions of sulphur dioxide as the primary pollutant to the surrounding environment. In 2009, the volume of environmental investments decreased due to economic recession. In 2010 and 2011, the amount of environmental investments directly reducing the environmental impact was still quite moderate, the reason for which was the completion of large-scale environmental projects in 2008 and large amounts of investments into the development activities. In the course of planning and implementing the development activities the principles of environmental protection, energy efficiency, and sustainable development are taken into consideration as the integral parts of planning and implementing.

In 2012, the amount of investments reducing the environmental impact directly was 27.5 million EUR, which is 13 times higher than in the previous year. The main investments in 2012 were made into closing the hazardous waste storage site, closing the old heat and power plant in Ahtme, building the oil shale belt conveyor, and acquiring the sulphur trap.

In 2013-2014, direct investments were smaller compared to the previous year. This is due to the increase of BAT (best available technology) investments and the development of sustainable and efficient use of resources in manufacturing.

In 2015, the direct investment into reducing environmental impact was 7.85 million euros. In 2016, the amount of investments rose to 14.32 million euros. Despite of the difficult economic situation, third sulphur trapping unit was completed at VKG Energia's Põhja thermal power plant in October 2016. With this investment of almost 18 millions, the multi-step action plan for reducing SO₂ emissions was completed. The three units are connected to a single system, where flue gas from all boilers of the plant are directed to. This unique solution allows flexible adjustment of the desulphurisation system’s operation and ensures flue gas cleaning in the event of malfunction of one trapping device.

The investments that reduce the effect
on the environment indirectly

VKG is constantly investing in developing environmentally-friendly technologies and making sustainable use of resources more effective. The planning of new activities considers BAT requirements and constantly tightening environmental standards.

Indirect investments in reducing environmental impact have increased dramatically over the period 2013-2014, amounting to almost 50 million euros per year. During this period, a lime plant was established at VKG Energia's Põhja thermal power plant, with the main purpose of producing sorbent necessary for the desuplhurization of flue gas, and boiler no 9 was renovated. One of the major projects was also the development of the new Petroter II plant. All of these measures have contributed to achieving the resource efficiency goal.

In 2015, indirect investments amounted to 18.29 million euros. In 2016, they dropped by almost 34%, as the share of investments in reducing direct environmental impact increased. The Petroter III plant was built during this period. Using a shale oil production plant that is based on new technology will allow the maximum valuation of oil shale. In addition to that, the industrial waste water system was modified to maximize recovery of industrial waste water from the production, thus saving clean water.

Strategic vision of reducing the impact of the industry

The main directions of environmental activities for the years 2012–2018 include reducing atmospheric emissions, especially pertaining to sulphur dioxide and the sources of pollution causing unpleasant odours.

Also, increased attention will be paid to improving the quality of storm water and waste water and to enhancing of treatment technologies. Issues regarding depositing of oil shale ash and bottom ash and the closing of the wet deposit are also planned to be solved. Besides, the measures aimed at an increase in energy efficiency are also being sought for.

The main environmental targets are as follows:

• reducing the sources of air pollutants and emissions of aliphatic hydrocarbons and hydrosulphide;
• more efficient and complex monitoring of the Group’s air pollution and precise forecast modelling of the effect of expansion;
• reduction of suplhur emissions and concentration; reducing the quantities and concentrations of sulphur dioxide emission, by installing two additional sulphur scrubbers;
• reducing the quantities and concentrations of sulphur dioxide emission, by installing two additional sulphur scrubbers;
• closing and tidying old hazardous waste deposits, thus reducing the pollution load of soil water and ground water;
• more efficient treatment of storm water and waste water;
• more conservative resource use, by way of developing energy efficiency (with the energy audit) and conserving natural resources (research on using mining water as coolant water, lime production plant), boosting the efficiency of co-production;
• development of oil shale processing BAT and improvement of existing production.

The following studies were conducted in 2015 and 2016:

• updating the project of Kiviter's permitted emissions;
• updating the project of Petroter's production's permitted emissions;
• updating the project of VKG Energia's permitted emissions;
• study on recycling and depositing scraps from VKG limestone plant;
• baseline report of the territory of VKG Oil;
• baseline report of the territory of VKG Energia;
• baseline report of VKG's formaline unit;
• baseline report of the production territory of VKG Soojus Ahtme boiler house for peak and back-up loads;
• determination of noise levels in ambient air at VKG Oil and VKG Energia;
• environmental impact assessment of Sonda mine, which assesses the impact of the planned mine on the surrounding territory;
• verification of CO₂ emissions produced in the group and improvement of the system;
• study on the renewal of waste disposal methodics;
• study on options for industrial waste water recovery;
• additional study on residual product from the purification of VKG Energia Põhja thermal power plant flue gases;
• Muraka ecosystem monitoring.

Main investments in reducing environmental impact in 2015 and 2016:

• completion of Põhja thermal power plant's ash landfill reclamation works;
• eliminating pollutants with unpleasant odours in the group;
• implementation of a technical solution allowing the recovery of oily waste water;
• construction works of the third sulphur trapping device of VKG Energia Põhja thermal power plant;
• renewing VKG Energia's constant monitoring equipment and the construction of a new measuring platform;
• construction of a device for cleaning phenolic water from Petroter plants;
• reconstruction of heat pipelines;
• project for the suppression of blaze areas at semi-coke landfill.

Despite the uncertain economic situation caused by the drop of oil prices in the world market and unclear policy of environmental charges, VKG continues to make large investments into environmental projects.

Industrial wastes

Hazardous wastes

In the year 2014, the Group generated 1.95 million tonnes of hazardous wastes, which is 3,6% more than in the year 2013. The increased amount of generated hazardous waste is due to the launch of the Petroter II, which caused an increase in the amount of oil shale ash.

In the years 2015 and 2016, the increase in the amount of hazardous waste was 0.26 million tonnes compared to 2014. This is mainly due to the launch of VKG Oil's Petroter III plant and Petroter II's operation at maximum capacity throughout the year. Prior to that, Petroter II had only been in use for six months. Oil shale ash is produced as a waste in the operation of these plants.

Deposited quantities of solid wastes (tonnes)

Solid wastes depositing fees (EUR)

Non-hazardous wastes

In 2014, 24,580 tons of non-hazardous waste was generated within the group, which is ca 95% less than a year before. The main types of waste are construction and demolition waste, household waste, and metal scrap. The decrease in the amount of generated waste is mainly caused by the cessation of generation of mine waste at the Ojamaa mine. In summer 2013, the limestone excavated at the mine was certified. Thus due to improvement of technical solutions, in addition to oil shale, the excavations of limestone as a by-product started at the mine, which can be used in different construction works. As a result, a product is obtained in the result of a technological process, and the generation of waste is prevented

17,890 tonnes of non-hazardous waste was generated in the group in 2015, which is almost 27% less in comparison to the previous year. In 2016, the volume of non-hazardous waste decreased even more. This is caused by the end of major construction projects and less demolition waste and scrap metal.

Reusable wastes

In 2014, 1.08 mln tons of hazardous and non-hazardous waste was recycled at the group, which is about 47% less than a year before. A decrease in recycling was caused by the cessation of generation of mine waste as well as the cessation of closing operations of semi-coke landfills. The main wastes taken into reuse were:

• phenol water used for producing phenol fractions and refined chemicals,
• semi-coke and oil shale ash used as construction material for closing the old semi-coke hills.

Volume of waste diverted to recycling by the group has increased by almost 10% compared to the previous year. The increase comes mainly from oil shale ash. This type of waste was used in 2015 within the project of reclamation of VKG Energia's ash landfill. In 2016, recycling within the group decreased by 86%, as recycling activities at VKG Energia's ash landfill were completed. Most of the recycling consisted of purifying phenolic water from Petroter process.

Atmospheric emissions

CO₂ emissions

SO₂ emissions

Air pollution fees

Resource use

Electricity consumption

In the year 2014, the electricity consumption of the entire Group was 150,839 MWh, whereas the largest consumers of electricity were VKG Oil and VKG Energia. The Group consumed 15,814 MWh more electricity in the year 2014 than in the year 2013. An increase in energy consumption in 2014 was mainly caused by the launch of the Petroter II oil plant by VKG Oil.

The group's total energy consumption was 176,534 MWh in 2015 and 163,481 MWh in 2016. In comparison to 2014, an increase of around 17% took place in 2015. This can be explained by the launch of Petroter III plant and Petroter II plant's first-time operation at maximum capacity throughout the year. Thus, the demand for electricity increased. In 2016, the group's electricity consumption dropped by almost 7%, as Kiviter plants were temporarily conserved.

Water consumption and water emissions

Water consumption

Water emissions

Water pollution charges

Occupational health and safety

The group's employees are its most valuable assets. That is why we seek to ensure safe working conditions and reduce the number of jobs in harmful working conditions. The group is implementing a program for the protection of health and safety at work. Our goal is to reduce work-related traumas and to achieve a lack of deaths, including among our partners — contracting entities.

Total number of accidents at work (both severe and minor) in the period from 2008 to 2016 is the highest in VKG OIL ‒ 38, Viru RMT ‒ 25, VKG Kaevandused ‒ 20 and VKG Energia ‒ 13. The high number of occupational accidents in the abovementioned companies is due to the dangerous nature of work (underground mining, handling of hazardous chemicals, repair and service of technological equipment).

No employment injuries have occurred at VKG Soojus in the recent years. The last employment injury was registered in 2012.

The most important measures for improving working environment in 2016-2017:

• development and implementation of VKG's general occupational safety culture;
• registration of incidents (accidents and near misses) and analysis of their root cause;
• registration of occupational accidents involving (sub)contractors and analysis of causes;
• improving the efficiency of internal audit of work environment;
• inspection of the use of personal protective equipment;
• raising the awareness of employees: information days on occupational and chemical safety, personal protective equipment trainings;
• implementing trauma prevention system in all of the group's companies;
• in-depth analysis of the causes of employment injuries that have occurred in the group;
• examining the best practices of other businesses.

Safety of chemicals and product liability

VKG takes active part in the chemical industry undertakings on local, national, and international levels. The Group is the member of the Federation of Estonian Chemical Industries (FECI), through which it is closely connected to the application of voluntary initiatives CEFIC and ICCA launched by the European and global chemical industry umbrella organisations. VKG has been committed to the Responsible Care (RC) initiative for over 10 years already, and in 2013, a decision was made to join the project of implementation of the Global Product Strategy (GPS) among the first in Estonia.

GPS is a voluntary initiative managed by ICCA, which, together with the RC Global Charter, is the foundation for the contribution made by the chemical industry into the Strategic Approach to International Chemicals Management (SAICM), implemented by the United Nations. For the chemical industry all over Europe, GPS will allow to boost the results and to expand the range of use of REACH as well as to raise the level of trust displayed by the public in terms of safe handling of chemical substances. While the REACH subject files are very thick, specific, complex, and detailed, the GPS files are summaries of the safety information (GPS Product Safety Summary), which contain risk analysis and the information concerning risk management in a clear format that can be forwarded to employees, subusers, and other interested parties. Those summaries contain the information about dangers and exposure, recommendations for risk management, and the description of benefits this or that chemical substance can bring to society.

In Estonia, the application of GPS is coordinated by FECI, but it is implemented by companies themselves, and in our particular case, VKG has become an active proponent of this initiative at the level of the Estonian chemical industry. In 2013, the main efforts were spent on getting ready for the project: mapping essential activities, clarifying the needs, planning resources, etc. The first tangible results will be achieved this year, i.e. in 2015, when the first summaries of the safety information will be uploaded to the GPS portal, and the completion of the project is connected with the last REACH registration deadline in 2018, by which the safety information summaries about all of the substances present on the market must be made available for the public.

The main goals of GPS:

• wide distribution of knowledge about hazardous substances;
• promotion of product liability and provision of adequate handling and use of chemical substances within the entire value chain, regardless of the geographical position (the minimization of differences between developing and industrial countries), offering relevant and reliable information;
• increase in transparency; helping the companies to offer to the interested groups the information about chemical substances on sale easily and in a clear format: GPS safety information in the form of a summary;
• in 2018, the product safety information about all the substances on the market will be available for the public.

Recording and reporting hazardous chemical substances

The important principles of the Responsible Care initiative is the provision of assistance to other companies and taking responsibility for the company´s own products within the entire value chain. In addition to ordinary customers, those principles should also be applied within the Group, which is why the principles of recording and reporting hazardous chemical substances are being harmonized and improved at VKG as a whole at all levels. The priority of the Group in this field is cooperation and synergy between subsidiaries as well as learning from each other. The preliminary works that prepare the company for harmonization of the principles of recording and reporting had started earlier, but in 2013, the first tangible and comparable results were achieved. The aim of subsequent years shall be the advancement of the system and the ongoing increase in the quality of information to be collected through the distribution of the best practices among subsidiaries.

VKG as an employer

Low prices dominating the energy markets in 2015 and 2016 made oil shale companies look for additional ways to save costs and increase efficiency. Several restructurings took place in the group at the time, resulting in the number of employees changing between 2,000 and 1,500.

The average gross salary of VKG employees was 1,404 euros in 2015 and 1,325 euros in 2016, which exceeds the average gross salary in Ida-Virumaa with more than one thirds.

We pay extras for evening and night shifts, seniority pay, anniversary bonuses, and also child birth benefits as well as make payments on sadder occasions, such as funerals.

Our employees can benefit from the availability of the healthcare station service, where they can get help from qualified medical staff. We also offer vaccination against flu.

We value our employees through traditions: Chemists’ Days and Miners’s Days, Christmas parties, appreciation events for jubilees, party for children starting school and their parents, where the children are given backpacks equipped with school supplies.

Trainings

Internal training

In order to retain and pass on knowledge in the group and to shape efficient, high quality training conditions, an internal training resource is being established in the group. The current system has been successfully implemented in a number of the group's subsidiaries, but requires improvement at the group's common level. We see great potential in the development of internal training resource and bringing it to a new level of better quality. Several measures are planned for this, particularly trainings and practices for future internal trainers and coaches.

Employee training on the development of strategic projects

Corporate targeted training is carried out in the group to provide strategic projects with qualified employees. This line of training has been actively introduced from 2017. Among the corporate training programs planned for 2017-2018, there is a special place for complex employee training programs and efficient management of business processes and production.

Work with young specialists

Active work with young specialists is one of the main priorities of VKG's human resources policy. This work is aimed at ensuring the group's employees' compliance with requirements, preparing highly qualified young specialists among the best graduates of educational institutions and their fast and efficient adaptation at the company.

95 young people interned at VKG's companies in 2015 and there were almost 50 interns from vocational schools and higher education institutions in 2016. To speed up the adaptation of recent graduates, councils of young specialists work at community groups and mentors are appointed. Training and professional growth of young specialists takes place in accordance with development plans. Experienced colleagues will instruct first-time employees and interns and remuneration is provided for this effort.

Cooperation with educational institutions

We believe that the promotion of engineering and the profession of an engineer has an important and a clearly positive effect on social and economic advancement of Ida-Virumaa, i.e. the life and well-being of the county. In our opinion, it is really important that future specialists should acquire thorough knowledge in sciences at school. On 8 April 2015, such industrial companies of Ida-Virumaa as Viru Keemia Grupp, Eesti Energia, and Eastman Specialities signed a Goodwill Agreement in order to join forces and boost the interest towards the profession of an engineer among the young people in Ida-Virumaa. The creation, implementation, and development of elective subjects connected with engineering as well as the development of enhanced studying of Maths and natural sciences is going to take place at Jõhvi State Gymnasium. The cooperation between industrial companies and the school should enhance the possibilities of acquiring an interesting profession and getting a good salary in the home county.

VKG has been providing scholarships via TTÜ Development Fund since 2003. From 2003 until today we have granted scholarships in the total amount of more than 85,000 euros.

VKG's Bachelor degree scholarships are provided for up to two successful Bachelor's students of electrical engineering, mechatronics, earth sciences and geotechnology, environmental and chemical technology or thermal engineering at Tallinn University of Technology's School of Engineering. One scholarship is 1,300 euros.

VKG Master degree scholarships are provided for one successful Master's student of environmental and chemical technology, fuel chemistry and technology, thermal engineering and electrical engineering at Tallinn University of Technology. One scholarship is 1,400 euros.

VKG's professional higher education scholarships are provided for up to four successful professional higher education students of fuel technology, industrial automation, machine building engineering, energy technology,  chemistry technology, energy technology processes control and telematics and smart systems of Tallinn University of Technology's Virumaa College. One scholarship is 1,000 euros.

VKG scholarships support the students' motivation to acquire professions necessary in the group and send a clear signal that we expect young professionals to join us.

Cooperation with trade unions

Kohtla-Järve Chemists' Trade Union is active in the group and a collective agreement, valid until the end of 2017, has been signed with the union. Additional benefits provided for by the collective agreement shall extend to all workers, regardless of whether the employee is a member of the trade union or not.

The participation of employees in decision-making is being mediated by a trade union active in VKG. Trustees of the trade union who represent employees` interests have regular meetings with the management team members of VKG’s enterprises, delivering to them questions and requests of employees and discussing employee-related problems and their possible solutions. The meetings usually take place once a month. The specific members of the supervision or management team are selected for the meeting by the trade union.

The chemical workers trade union active in VKG includes the Group’s subsidiaries and also other chemical industries of the city. The trade union includes the employees of VKG, VKG Oil, Viru RMT, VKG Energia, VKG Transport, VKG Soojus, VKG Plokk, VKG Kaevandused and also Novotrade Invest. The professional association of employees of chemical enterprises has been active since the year 1948 when the first collective agreement was signed.

Corporate governance

Good practices of corporate governance

VKG follows the good practices of corporate governance in its activities. The good practices of corporate governance are intended to be followed primarily by enterprises having their shares traded in the Estonian regulated market, but they are also recommended for other enterprises subject to public interest. The objective of VKG is to follow the good practices of corporate governance and to present the activities of the enterprise in a transparent manner; thus the sustainable development report includes a chapter dedicated to the description of the good practices of corporate governance.

Shares and share capital

As of 01.01.2016, the nominal value of the share capital of VKG was 6,391,164.21 euros. There were no changes in the share capital in the years 2008– 2016. VKG’s shares are not noted on the securities market.

The Group has four shareholders with the following holdings as of 01.01.2016:

• OÜ Tristen Trade 38.91%
• OÜ Alvekor 25.49%
• Ants Laos 19.53%
• OÜ Sergos Invest 16.07%

General meeting. Exercise of the shareholders' rights

The highest management body of Viru Keemia Grupp is the general meeting of shareholders. General meetings can be regular and extraordinary. The competence of the general meeting is prescribed in the Commercial Code of Estonia and in the Articles of Association of VKG.

General meetings are summoned by the Management Board of VKG. The notice of summoning a regular general meeting of shareholders is sent to the shareholders at least 3 weeks before the date of holding the general meeting; the notice of summoning an extraordinary general meeting is sent at least 1 week before the date of holding the meeting. Annual reports are available to shareholders at least 2 weeks before the date of holding the general meeting.

A general meeting of shareholders is competent to make decisions if more than 50% of the votes granted by shares are represented at the meeting.

The meeting that approved the annual report of 2014 was held on June 30, 2015 with the participation of 100% of the votes granted by shares.
The following decisions were made in the course of the general meeting of shareholders:

• to approve the annual report of the financial year 2014;
• to pay out dividends in the amount of 1 200 000 EUR;
• to increase the amount of undistributed profit up to 270 825 671 EUR.

The meeting that approved the annual report of 2015 was held on July 8, 2016 with the participation of 100% of the votes granted by shares.
The following decisions were made in the course of the general meeting of shareholders:

• to approve the annual report of the financial year 2015;
• dividend income shall not be paid for the reporting period;
• to increase the amount of undistributed profit up to 257 702 714 EUR.

The meeting that approved the annual report of 2016 was held on July 30, 2017 with the participation of 100% of the votes granted by shares.
The following decisions were made in the course of the general meeting of shareholders:

• to approve the annual report of the financial year 2016;
• dividend income shall not be paid for the reporting period;
• to increase the amount of undistributed profit up to 247 057 843 EUR.

Management Board. Staff, duties and remuneration

The Management of the parent enterprise

The Management Board of Viru Keemia Grupp AS consists of five members: Chair of the Management Board, Deputy Chair of the Management Board and Technical Director, Financial Director, Management Board Member of VKG Kaevandused and Management Board Member of VKG Oil.

Three Management Board Members – Ahti Asmann, Meelis Eldermann and Jaanis Sepp – manage the activities of the Group as a whole and are also Supervisory Board Members of subsidiaries.

Two Management Board Members – Margus Kottise and Nikolai Petrovitš – are the Managers of the strategically most important subsidiaries of the Group.

The duties of the Management Board include everyday management of VKG’s economic activities and representing the business association.

In all legal procedures of the Group, an enterprise is always represented by two Management Board Members together, whereas one of them must be the Chair or Deputy Chair of the Management Board.

Supervisory Board. Staff and duties

The Supervisory Board plans the activities of the Group, organises its managing and exercises supervision over the Management Board; according to the Articles of Association the Supervisory Board has three to seven members.

Management Board Members are prohibited from competing with Viru Keemia Grupp AS in its field of activities, unless having the prior consent of the Supervisory Board.

In 2015 and 2016, no Management Board Member notified about own actual or intended direct or indirect participation in entrepreneurship in the field of activities of Viru Keemia Grupp AS.

In order to avoid conflicts of interest, all Management Board Members and middle-level managers of the business associations belonging to the Group are required to submit upon any changes a declaration in approved format, stating their holdings in legal entities and/or membership in management bodies of legal entities and/or activities as self-employed persons.

The Management Board of Viru Keemia Grupp AS has the duty of preparing financial reports. The accounting principles and methods of presenting information, utilised in accountancy of all VKG’s subsidiaries, conform to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and to the relevant issued interpretations. Decisions about VKG’s largest transactions and about its strategic financial targets are made by the Management Board of the Group at its weekly meetings.

The Financial Division of the Group manages and plans the everyday cash flows, i.e. prepares the budgets of the Group and its subsidiaries, exercises supervision over the respecting of those budgets, prepares business projects, and communicates with sources of financing. The Financial Division of the Group is aided in this by Financial Divisions of subsidiaries, which have the duty of analysing the economic activities of the relevant subsidiary. All technical financial transactions are performed by the centralised Accountancy Department of the Group. The Accountancy Department makes the necessary payouts, accounts the salaries, makes the payments of vacation pay and sick pay, and prepares the annual balance sheet of the financial year. An accounting entity is required to ensure the availability of relevant, significant, objective and comparable information about its financial state, economic results and cash flows. If the internal regulations don’t describe an event occurring in the accountancy of VKG, then the event is accounted according to the International Financial Reporting Standards (IFRS), the Accounting Act of the Republic of Estonia, the guidelines issued by the Estonian Accounting Standards Board (EASB), and other legal acts.

The accounting period is a financial year with the length of 12 months. The financial year begins on January 1 and ends on December 31.

VKG has the right and obligation to keep independent accounts on the basis of the internal regulations of accountancy approved according to the procedure prescribed in the Articles of Association of the Group. The internal regulations of accountancy are replaced and amended with the approval of the owners of VKG, if necessitated by economic considerations, reorganisation of the activities of the Group, amendments of the accounting principles on the basis of the contents of the International Financial Reporting Standards (IFRS) and the guidelines and recommended methods issued by the Estonian Accounting Standards Board (EASB) or on the basis of amendments of the national tax laws and tax guidelines, or by other reasons.

The enterprise is required to document all its economic transactions and to register those transactions in its accounting ledgers. Economic transactions are carried on debit accounts and credit accounts according to the double entry method.

Economic transactions are recorded in chronological and systematic accounting registries at the moment they take place or immediately after. An accounting registry is a database used in accountancy. An accounting registry is formed in chronological order (ledger) and as accounts (turnover balance). All reports and registries of accounts are prepared on the basis of the accounting software in use. Reports and registries of accounts are preserved on computer diskettes, CDs and/or as paper printouts. Since January 1, 2001 the Baan software for resource planning and financial management of subsidiaries is used in the accountancy of the Group. The auditor of Viru Keemia Grupp AS is assigned with a decision of the general meeting of shareholders.

The Management Board organises a competition to find an auditor, with the goal of finding the auditor for the next financial year. The latest competition to find an auditor took place in the year 2015. Auditing service is provided by KPMG Baltics OÜ.

Risk management and internal audit

Risk management system

The Management Board of the Group has the duty of shaping the risk management policy and affecting the risk management of Viru Keemia Grupp AS.

The goals of risk management of VKG are as follows:

• to support the making of management decisions;
• to avoid or diminish any damages to the Group’s assets and reputation;
• to increase the effectiveness of the Group’s activities;
• to increase the efficiency of using the Group’s resources (capital, energy);
• to reduce occurrences of unexpected situations and to prepare action plans and risk scenarios for such situations.

The base document for risk management is the one on which the risk management system is based. The document provides descriptions of significant risks of the Group, assessments of those risks, and opportunities to hedge them. The risks are determined on the basis of the Group’s most important targets, related to VKG’s striving to value oil shale as much as possible and to process it as efficiently as possible.

Methodology of risk management

The risk management report outlines important risks for VKG, the descriptions, assessments and mitigation measures thereof. Risk management is based on the group's main goals which are particularly related to VKG's endeavours to add maximum value to oil shale and process it most efficiently.

Identified risks are divided into four groups:

• strategic risks ‒ related to the group's long-term goals (changes in the market and competition);
• operational risks ‒ related to the group's processes (operations of employees and equipment);
• financial risks ‒ related to direct financial loss (interest rates, exchange rates);
• compliance risks ‒ related to regulations (laws, guidelines).

Risks related to the availability of raw materials

Current resource policy lacks long-term strategic vision, does not provide equal conditions of competiton and prevents private companies from operating at their full capacity. In order to manage the risk, we continue to cooperate with the state and seek for opportunities to buy raw materials from other oil shale businesses for a fair price.

It is strategically important for the group to guarantee oil shale resources for the long term. For this purpose it is planned to establish a common mine for Sonda oil shale mine's mining claims, which would have common opening, technology and transportation system. We are planning to develop this project in cooperation with Kiviõli Keemiatööstus.

Risks related to world market prices of crude oil

The group's financial and economic results are directly related to product prices. A drop in product prices may be accompanied by a decline in profitable oil shale mining and shale oil production outputs. The risk of changes in world market prices of crude oil and petroleum products is an inevitable part of the group's activity. Part of the group's sales agreements for shale oil have been concluded on the condition that the product's selling prices directly depend on stock quotations of petroleum products and the other part of shale oil prices (domestic sales) depends on world market prices indirectly. Oil prices of the world market also affect the company's expenditure side: the prices of crude oils bought from elsewhere and the price of natural gas used in production.

The above risk is constantly monitored in the group and profit sensitivity analyses are carried out in relation to world market changes in the prices of oil and petroleum products. Even a small change in Brent crude price has a remarkable impact on the group's earnings.

A change of 0.01 USD per EUR in the USD-EUR exchange rate (rate change of -1.1%) would affect 2016 earnings by 0.25 million euros (at the oil price of 30 USD/barrel). The higher the price of oil, the greater the effect of changes in the exchange rate of dollar and vice versa, the lower the price of oil, the lower the impact of changes in the exchange rate of dollar.

The group uses derivatives to hedge the risk of changes in world market prices for oil and petroleum products. Derivatives are available at the parent company Viru Keemia Grupp, which manages and mitigates the risk of changes in market prices.

During the year 2016, hedging transactions were valid for the volume of 363,000 with an average price of 250 €/tonne. This accounted for 90% of produced oil. As of the end of the reporting period, the fair value of SWAP contracts for liquid fuels is -26,434,931 euros (31.12.2015: +33,281,745 euros). Due to volatility of oil market prices, the management decided to continue to use derivatives. In accordance with the group's hedging policy, the goal is to fix at least 35%, but no more than 65% of the planned production of the next 18 months.

Risks related to the attribution and prices of CO₂ quotas

Out of market risks that are considered to be strategic risks, the group is also affected by the market prices of CO₂. Dependence on CO₂ market prices may continue to increase in the future, since less and less permitted emission units are attributed to manufacturers with high carbon emissions due to the impact of environmental directives. As a result of directives regulating the sulphur content of marine fuel, such content should decrease significantly, and in relation to this, VKG is carrying out relevant studies and tests to make sure that the main products will not be classified as a low-grade fuel.

Financial risks

Among the main risks affecting the group, it is important to highlight financial risks, which include currency, credit, interest and liquidity risk. Export operations of shale oil provides an important part of the revenue. In this regard, the fluctuations of the US dollar against the euro affect the outcome of the group's financial-economic activity, which in turn may result in the group's insufficient cash flow. The structure of foreign exchange earnings and obligations include hedging mechanisms, in which opposite factors compensate for each other and minimize the impact of currency risk factors to the group's results.

Credit risks

Credit risk management closely monitors the tax behavior of partners, analyzes their financial position and, if necessary, involves third parties into transactions as suretys.

In case of pre-payments to suppliers, the beneficiary of the payment is requested to present a bank guarantee. We grant business credits only to our long-term cooperation partners. In case of one-off transactions and new clients we always request either pre-payment or a letter of credit.

The Group deals with the unpaid /delayed bills from the clients on a daily basis. When a payment deadline of an invoice issued to a buyer is exceeded, the buyer is reminded by notices and warnings. The Conditions have been determined for initiating a court action if there is a need to collect the debt. Signing of the special agreements is in the Management Board’s competence.

Liquid funds of the Group are held as short-term deposits in banks with the highest credit ratings. The maximum credit risk arising from unsecured claims is 23,033,000 euros as of the end of the reporting period (31.12.2015: 59,063,000 euros).

Interest risks

As of 31.12.2016, the group had 218,678,000 euros (2015: 216,652,000 euros) of interest bearing obligations, which amounts to 42.3% (2015: 38,9%) of assets. Due to the average share of interest-bearing liabilities in the group, the management considers direct risk arising from the rise in money market interest rates to be significant for the group's operations. 1% rise of the base rate would decrease the group's pre-tax profit by 2.48 million euros. However, given the ongoing decline in interest rate future transactions in the market and the fact that five-year interest rate swaps can be set at 0%, the management considers the raise of interest rates in the near future to be unlikely. Nevertheless, the plan is to determine the replacement of the most commonly used 1-month Euribor with longer interest fixes.

Liquidity risk

Liquidity risk is the risk of the group not having enough liquid assets to cover necessary expenses and investments. Liquidity risk is mitigated through various financial instruments such as loans,  management of working capital, creation of reserves, risk hedging future transactions etc. The group's liquidity has improved in the reporting year. The group's solvency level (current assets/current liabilities) is 1.24 at the end of the reporting period (31.12.2015: 0.94). As of the end of the reporting period, the group has 21,132,000 euros (2015: 5,805,000 euros) of free funds plus unused overdrafts limits in the amount of 17,000,000 euros.

The following liquidity analysis provides a breakdown of the group's current and non-current liabilities by the maturity dates. All amounts shown in the table are contractually payable undiscounted cash flows. The analysis takes into account loan interest rates between 3.75%-9%. The interest payments of syndicated loan and EBRD loan interest were calculated using the interest rate of 3.79%. These contracts determine the interest rate dependency on the value of the ratio of net debt/EBITDA. If the net debt/EBITDA is at least 3.5, the interest rate is 4%. If the net debt/EBITDA drops below 3.5, the interest rate is 2.75%. In case of maximum interest, the undiscounted debt would be 288,425,341.

Currency risk

In 2016, 66% (2015: 64%) of the group's sales comprised of export sales. The main selling currencies are EUR and USD. The group's expenses are mostly in euros. Agreements are usually signed in the currency of the client's country of residence and open currency positions are avoided in usual activity. Important international agreements are concluded in euros and USD.

No derivative contracts have been concluded in the group to hedge currency risk.

Monitoring of said risk is carried out continuously in the group with the aim of analyze the sensitivity of estimated profits to the change in US dollar exchange rate. Products that are traded in USD are reviewed while preparing the group's budget. Given the projected prices and volumes, the possible impact of the USD exchange rate on sales and profits is estimated.

Risks related to EU directives

Oil shale processing could lose its competitiveness in relation to the establishment of EU's new environmental directives. VKG thoroughly observes environmental requirements and participates in the work of professional associations in order to be informed of future regulations. The group has a central enviromental department and procedures for internal monitoring have been developed. Upon the tightening of environmental regulations, the group will continue to make constant and timely investments in modern technologies.

Risks related to environmental protection and industrial safety

VKG has an environment-intensive production cycle.

The company's industrial safety, labor and environmental risks are associated with:

• accidents, incidents, fires and other emergency situations characterized by damage to equipment and production sites, a deviation from the established parameters of the technological process;
• causing damage to the health of employees or visitors and residents of the adjoining areas;
• production and economic activity with negative environmental impact.

Centralisation of the Environmental Department and mapping of risks at the Group’s level ensure an integral availability of environmental knowledge and competence. Environmental risks are mapped in the production cycles of each enterprise, quality standards for environmental management are adopted, and environmental risks are taken into account when establishing new investments, utilising independent experts for assessing the environmental impacts. Environmental risks are hedged via the fulfilment of all legal requirements and via the exercising of supervision. There is cooperation with the Rescue Board, and conformity to the requirements prescribed by the regulations is being audited.

Risks of destruction of assets

Destruction of assets can be caused by risks of production technology and, in turn, it can cause liquidity risk. The main cash flows of the Group depend on the oil industry, thus timely diagnostics and equipment mainteinance need to be performed on a regular basis, according to the schedule. Mapping significant elements of the production process allows timely reactions to the occurrences of technological risks. In order to systematise this activity and to hedge the risk, an asset management programme has been implemented. VKG has signed a complex property insurance agreement for business interruptions, in order to protect itself against destruction of assets. The complex property insurance agreement includes all subsidiaries (excluding VKG Soojus, VKG Plokk and VKG Elektrivõrgud which have entered into separate property insurance contracts) and the insurance provider is Seesam Insurance AS, If P&C Insurance AS and AIG Europe Ltd. The insured object is the immovable and movable property which belongs to the insured entity is administrated or controlled by the insured entity, or for which the insured entity bears legal liability. Separate construction insurance agreements are signed for major investments.

Employee risks

Employees are the foundation of the group's successful operation. Based on the results of employee risks evaluation, certain categories of risks stand out that are related to the lack of qualified employees for certain specific courses of action. In order to manage these risks, the group is taking a complex of measures to attract and retain qualified specialists and talented employees, and also developing and improving the corresponding HR management and corporate culture procedures and policies.

Internal audit

An important part of risk management is ensuring and monitoring the functioning of internel auditing systems. VKG has established the Internal Auditing Department for that function; the Department is a structural unit that operates independently from VKG and monitors the activities of the Group, its subsidiaries and their subsidiaries, and other business associations belonging to the consolidated group of VKG, in order to make sure that those activities conform to the laws of the Republic of Estonia and to other legal acts, the Articles of Association of VKG, decisions of general meetings of shareholders, decisions of the Supervisory Board and the Management Board, and internal regulations and action guidelines of the Group and its subsidiaries. The central task of theGroup’s Internal Auditing Department is to study and assess the economic activities of the Group on the basis of trustworthiness and efficiency of internal auditing.

The central task of the Group’s Internal Auditing Department is to study and assess the economic activities of the Group on the basis of trustworthiness and efficiency of internal auditing.

The task of internal auditing is to identify possible shortcomings in the activities of the employees of the Group and its subsidiaries, their possible work errors and cases of abandoning of duties and exceeding of authorisations, to draw attention to those, and to make suggestions for avoiding those in the future.

The internal auditor prepares an act or a report of internal auditing and presents it to the audited entity for reviewing and feedback. The Internal Auditing Department prepares reports on the discovered shortcomings together with assessments,conclusions and suggestions, consolidates data about the activities of the Group and its subsidiaries, and prepares overviews and analyses thereof for presenting to the Executive Managers and Management Board Members of the Group and/ or its subsidiaries depending on their importance and level of generalisation.

International management systems

International management systems like ISO and OHSAS have separate procedures for risk hedging in quality management, environmental management and occupational safety management. Those internationally recognised systems are in effect in VKG as well. The table below lists the management systems in use in the Group’s subsidiaries.

* Energy management certificate ISO 50001 is implemented in VKG Energia.

Supply chain

Viru Keemia Grupp develops cooperation with contracting entities, with an emphasis on the openness of market, market-based price setting, long-term and structured mutual relations. The group seeks to develop long-term contractual relationships, various instruments for motivating contractors and flexible pricing mechanisms.

Selection of partners supplying goods, works and services to the group is carried out on the basis of a integrated system, based on the results of competition proceedings.

Approaches applied to the cooperation with contractors allow:

• to ensure the maximum economic efficiency of purchases;
• to achieve optimal level of competition among the potential participants of the proceedings;
• to ensure an objective, justified and impartial process of selecting the winner of the proceedings;
• to ensure reasonable openness of proceedings;
• to stimulate the contractors' competitiveness and development of technological base.

The underlying criteria in selecting the suppliers of goods, works and services are price, quality, period of production and supply / performance of works / provision of services, reliability of the supplier and availability of technical resources and workforce, experience in performance of relevant work / provision of services. One of the key criteria of selection is the supplier's compliance with industrial and environmental safety and occupational health and safety regulations applied at the group.

The company uses a database of suppliers and an evaluation system which allows to identify the most and least reliable suppliers and contractors.

The total number of organisations supplying products and providing services to VKG in 2016 was 1 471. The percentage of Estonian suppliers among the group's total number of suppliers was more than 87%.