Management Board of VKG

The Management Board of Viru Keemia Grupp AS consists of five members.

Three Management Board Members – Ahti Asmann, Meelis Eldermann ja 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 ja 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.

General corporate management

We believe that efficient general corporate management is the basis of good business activities. Through management, we define clear areas of responsibility for our managers, employees and partners.

We do it, because we believe that in the end that is the best way to offer long-term and competitive revenue to our shareholders and to ensure the sustainability of our business activities in every aspect.

Efficient general management allows the enterprise to work smoothly, ensuring that everyone has a clear understanding of the distribution of roles, obligations, rights and responsibilities.

The activities of the Management Board of the parent company is supervised by a five-member Supervisory Board which includes:

Risk management

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

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.

Risks related to clients

As shale oil is a niche product which is sold to a limited number of clients, dependence on the main clients is great. The risk stems from the possibility of the Group suffering direct damage, if any of the partners should withdraw from cooperation or experience economic difficulties. The situation may also be influenced by changes in the needs and/or habits of clients, resulting in a decrease of revenue and profit.

Risks arising from suppliers

This involves the risk that the cooperation partners fail to fulfil their contractual obligations and are unable to ensure the supply of the necessary equipment/components. That may affect the work of technological units and the output of products. This also includes the risk of the quality of the supplied products/services not meeting requirements. This may entail deviations in the quality and quantity of products.

Risks related to employees

In the event of scarcity of qualified work force (particularly in the nearby regions), less experienced people may end up in decisive positions, which has an effect on the results of the enterprise. The lack of necessary work force forces the enterprise to make compromises upon recruitment, which affect performance.

Risks arising from the legal environment, i.e. Estonian national and EU policies

1. The processing of oil shale may become non-competitive in connection with the imposition of the new EU environmental directives, such as the European Green Deal. According to the Green Deal, the oil shale industry is to be shut down by 2050 at the latest. As there are practically no good examples of a transformation of an industry and the Ida-Viru County is a region of monofunctional economy, it must be taken into account that the closure of production would involve strongly negative socio-economic consequences. VKG aims to work together with the state to ensure that the measures of achieving the ambitious climate objectives and the pace of moving towards these objectives ensure a responsible transition.

2. The market price and the distribution principles of the CO₂ quotas are changing as a result of political decisions. Last year, 68% of the CO₂ emissions were covered with free of charge quotas the aim of which is to maintain the competitiveness of the European Union refining sector. Purchasing the missing quotas from the market would have meant an additional cost of 12 million euros. At the moment, the quota policy of the European Commission is only known until 2025.

In addition to the constant reduction of free of charge quotas, there is also the risk of an extensive increase in the price of the CO₂ quotas, if the European Commission decides to steeply cut the amount of the quotas traded on the market through the Market Stability Mechanism (MSR). In the case of negative scenarios, the Group’s CO₂ costs could grow to 50 million euros a year, rendering the production of shale oil as well as the generation of electricity from oil shale globally non-competitive.

Risks related to the community

1. The risk that the way of thinking in the community becomes increasingly greener and opposes the production of fossil fuels. Social unacceptance may affect the activities and reputation of the enterprise and cause difficulties in implementing investment projects and recruiting employees.

2. The risk that the local community does not support the new development projects of the enterprise and the expansion of the industry. In order to hedge this risk, we communicate openly with the local residents and hold regular meetings with initiative groups, in the course of which we describe the directions of development and discuss environmental matters. We invest into the improvement of the living environment, e.g. into the improvement of ambient air quality in the city of Kohtla-Järve. At the same time, we find that the integration of the oil shale industry in the socio-economic development and their interaction are characteristic features of the Ida-Viru region. The oil shale industry is one of the largest employers in the region – approximately 7,300 people are directly employed in the sector, but many times more are indirectly involved. The sector also offers a salary that is above the average in the region. For the people living here, the presence and development of the sector therefore mean a stable income which ensures everyday subsistence and a sense of security for the future.

Risks related to the natural environment

Since VKG is a representative of the processing industry and a manufacturer of the fuel containing carbon, significant environmental risks accompany the activities of VKG, which manifest themselves both in oil shale extraction, boosting its value, and marketing oil shale products. The goal of VKG is to become a pioneer in this branch of industry and set an example of how it is possible to resolve environmental risks within traditional production in a smart and rational way, using modern technologies. Within the past 15 years the Group has made an investment in the total amount of 86 million EUR into different environmental project, aiming at minimising its environmental footprint. Investments has mainly been focused on the efficient use of resources and the minimisation of accompanying environmental effects.

In addition to the minimisation of environmental risks that accompany production activities, it is as important to talk publicly about them as well as involve different interest groups into the discussion of how to change things for the better. With that purpose in mind, VKG holds an Environmental Day every year. The focus of the 2019 Environmental Day was on the viability of the oil shale sector in the changing conditions of climate policy.

Risks arising from the overall economic situation

1. The sale price of oil drops below a critical line in connection with the overall decrease in oil prices.

The sale of shale oil makes up ⅔ of the Group’s net turnover and therefore the risk of changes in the market prices of oil and oil products is an inevitable part of the Group’s activities. The majority of sales contracts have been concluded on the condition that the sale price of the product depends directly on the exchange prices of oil products. The rest of the contracts depend indirectly on world market prices. The sale price of shale oil may drop in connection with a decrease in the world market price of oil and the weakening of the dollar.

Risks arising from damage to reputation

Damage to reputation may occur in connection with environmental pollution, low salaries, or the establishment of new plants/mines, etc. The activities of the enterprise may cause damage to reputation or, in a worse case, some kind of social action against the enterprise.

Mapped hedging measures:

• The activities of the enterprise must meet all the applicable legal acts;
• Regular publication of a sustainable development and social responsibility report in accordance with the GRI standard;
• Compliance with the disclosure requirements in developing our activities and processing spatial plans by involving various stakeholders (the state, the city, the community);
• Compliance with the principles of responsible business;
• Contributing to the development of the local community;

Other

Other significant risks have been mapped and presented in the Social Responsibility and Sustainable Development Report and are available at www.vkg.ee/SAA2018/et/arijuhtimine/