Risk Management
As a company that conducts certain types of activities and transactions that could expose us to numerous risks, particularly to our assets, liabilities and cash flows, we opt to maintain robust internal controls to guarantee confidence in both our organization and our leadership. Such policies are ultimately responsible for the preservation and protection of not merely our capital interests, but also for our wider reputation. Consequently, our management has elected to implement a comprehensive system to safeguard our long-term economic security, whilst simultaneously alleviating the volatility of fiscal markets and minimizing the impact of such changes on our fiscal performance. At a fundamental level, this entails ensuring compliance with all applicable laws in the jurisdictions in which we operate, including all safety regulations necessary for our operations. This is in addition to adhering to regulatory reporting obligations, such as providing complete financial disclosures to the relevant authorities when needed, in conjunction with auditing the integrity and reliability of such statements. However, from a broader perspective these balances also encompass the necessity for Rusneftegaz to utilize our existing resources to their optimum effectiveness, principally to maximize our corporate growth as an entity. In recent times, this has involved guaranteeing that various aspects of our business plans are fully executed, together with implementing extensive measures to prevent fraud and corruption.
Although our enterprise does not have an independent monitoring structure beyond the audit committee, which focuses solely on pecuniary matters, all the parameters and objectives of our risk management program are determined and approved by our board of directors. In previous years, our company established a number of bodies to determine the diligence of the contingencies we required, which were then authorized to act on behalf of our leadership. During more contemporaneous reviews, our executives consider whether our current activities are governed by sufficient protections, and if all such hazards are adequately recognized, measured and directed. The identification of these areas of concern is conducted upon consideration of our long-term strategic targets, and the acceptable levels of risk that Rusneftegaz may be subjected to. As a consequence of this scrutiny, our corporation is then able to define the approaches to mitigate potential threats appropriately by attributing each risk to its source and alleviating it accordingly. In practice, this comprises coordinating and delegating functions, responsibilities and powers between the assorted sectors of our organization, primarily to provide oversight and accountability through all the facets of our entity. It also prevents the possibility of power concentration amongst select individuals and groups within our business, which in the fullness of time may lead to unintended repercussions.
To facilitate the mollification of such perils, Rusneftegaz employs a plethora of staff with the relevant experience and skills to undertake such challenges. These members of our workforce bear acute responsibility for implementing schemes to alleviate our sensitivity to the changes market variables have upon our wider operations, and forecast the impact such fluctuations may have on our revenues, asset valuations and cash flows. This can be managed by segmenting the different risks that we may be liable to, inclusive of but not limited to volatility in commodity prices, interest rates and foreign currencies. This quintessentially demands recognizing that such forces could affect multiples areas of our company, far beyond the scopes of which have been previously described, and subsequently devising apt strategies in response. Foremost, the greatest uncertainty that our organization is exposed to is instability in the value of the petroleum we trade. Whilst such unpredictability cannot be abated entirely, we can appraise the total profit at risk from such variations and govern our future production rates in due course. This was particularly notable at the start of the coronavirus pandemic, when the costs of oil recessed rapidly in a short span of time. Although the industry promptly recovered, Rusneftegaz was insulated from this event by ensuring that an ample proportion of our sales were derived from futures contracts, and thus the settlement price had been determined months in advance.
Despite the fact that a sizable ratio of our turnover is earned via derivatives, which inalienably have a more significant risk profile than those transactions settled on a spot basis, we are willing to accommodate such variability when it is beneficial for the long-term development of our entity. For example, our management may upon occasion believe it is necessary to conduct business using alternative forms of legal tender from around the world, making our enterprise sensitive to movements in exchange rates. These adjustments are perhaps most evident in not merely our international contractual agreements and commitments, but also our assets denominated in dollars and euros. This incorporates respectable volumes of receivables that Rusneftegaz is owed from previous trades, in addition to substantial monetary balances held abroad for mercantilist reasons. However, the latent threat of such precariousness can be eased by creating adequate cash flow hedges, in conjunction with monitoring shifts in the value of currency regularly. An equally conspicuous peril to our existing funds is the potential for interest rates to be altered to our detriment. Whilst such concerns pertain solely to our bank deposits and any borrowings we draw, we still deploy thorough measures to lessen the effects on our fiscal standing. As a result, our current policy is to hold an agreed percentage of our liquid capital at a fixed rate, with all remaining monies kept in the manner judged to be correct at the time upon consideration of external forecasts.
Although such issues warrant extensive mitigation, one of our more pertinent occupational hazards is that a counterparty will not meet its obligations arising from a contract, with such a risk inherent throughout the course of our business. In spite of the fact that the maximum exposure to a default is only equitable to the stated worth of the agreement or asset, in almost every circumstance a considerable loss could occur. Our vulnerability to these damages refers predominately to the types of assets previously aforementioned, chiefly our pending receivables and separate investments, all of which are crucial to our ongoing commercial activities. Hence, we only engage customers on credit terms who are solvent and worthy of such conditions. Any customer that wishes to trade with Rusneftegaz with such prerequisites are subject to rigorous assessment prior to any dealings being completed. In certain circumstances, we may also opt to obtain collateral from a buyer as a means of providing guarantees that we shall be fully remunerated for our efforts. Moreover, we routinely monitor all debt instruments we hold to ensure that any outstanding invoices are paid in full, on or before the required date. This is conjoint with exclusively utilizing the services of financial institutions that are internally assessed as sufficiently reputable and economically sound. Such examinations are conducted annually by our audit committee, who assess the performance, suitability and long-term viability of each of the partners we cooperate with. This, together with our other policies and procedures, substantially abates the chance that inadvertent losses will be made, ensuring our organization can prosper into the months and years ahead.
