MOL has always been committed to implementing the highest standards of corporate governance structures and practices. This is not only with regard to national expectations but also with reference to the continually evolving and improving standards of good governance on an international level. As a result MOL is geared towards shareholders’ interests, whilst taking into account the interests of a broader group of stakeholders inevitably necessary to enhance the generation of exceptional value for MOL’s shareholders and people.

Among other things, the voluntary approval of the declaration on the Budapest Stock Exchange Corporate Governance Recommendations by the Annual General Meeting in 2006, before the official deadline, served as testament to the Company’s commitment to corporate governance. In addition, MOL made a declaration concerning the application of the corporate governance recommendations of the Warsaw Stock Exchange prior to the admission of its shares to the Warsaw Stock Exchange in December 2004. The Company submits its declaration on this topic to both stock exchanges each year.

MOL’s corporate governance practice meets the requirements of the regulations of the Budapest Stock Exchange, the recommendations of the Hungarian Financial Supervisory Authority and the relevant regulations of the Capital Market Act. MOL also subjects its policies to regular review to ensure that they take account of continually evolving international best practice in this area. MOL’s Corporate Governance Code containing the main corporate governance principles of the Company has been adopted in 2006 and has been updated in 2010. This Code summarises its approach to shareholders’ rights, main governing bodies, remuneration and ethical issues. The Corporate Governance Code has been published on the homepage of the Company.

In 2011, MOL Group, the only Central & East European company to be in the running, has qualified for the SAM Gold Class based on its performance in the field of corporate sustainability. This was announced in The Sustainability Yearbook edited by SAM (Sustainable Asset Management) which conducts the performance research and analysis for the Dow Jones Sustainable Index. The 2,500 largest global companies, based on the Dow Jones Stock Market Index, are invited to undergo the research. The independent assessors examine the three dimensions of sustainability: long-term economic, social and environmental performance. Accordingly, the top 15% of companies from 58 business sectors are selected to appear in the Yearbook. MOL Group received the Bronze qualification in the last year, as well as being selected as the best “Sector Mover”. All the good work performed last year enabled the company to enter the SAM Gold Class category. To qualify for the SAM Gold Class, the SAM Sector Leader must achieve a minimum total score of 75%. Peer group companies whose total scores are within 5% of the SAM Sector Leader also enter the SAM Gold Class. This year out of 113 global oil companies, 68 were examined in detail with 17 being selected to appear in the Yearbook of which 8 entered the Golden Class category. According to SAM’s assessment, the Corporate Governance practice of MOL is outstanding, and its result is above the industry average. The evaluation criteria consisted several topics, e.g. board structure, corporate governance policies or transparency.

Board of Directors

MOL’s Board of Directors acts as the highest managing body of the Company and as such has collective responsibility for all corporate operations. The Board’s key activities are focused on achieving increasing shareholder value with considerations onto other stakeholders’ interest; improving efficiency and profitability and ensuring transparency in corporate activities and sustainable operation. It also aims to ensure appropriate risk management, environmental protection and conditions for safety at work.

Given that MOL and its subsidiaries effectively operate as a single unit, the Board is also responsible for enforcing its aims and policies and for promoting the MOL culture throughout the entire Group.

The principles, policies and goals take account of the Board’s specific and unique relationship with MOL’s shareholders, the executive management and the Company. The composition of the Board reflects this with the majority (eight of eleven members) made up of non-executive directors*. At present, 8 members of the Board of Directors qualify as independent on the basis of its own set of criteria (based on NYSE and EU recommendations) and the declaration of directors.

The members of the Board of Directors and their independence status (professional CVs of the members are available on corporate homepage):

* Before Zsigmond Járai, Dr. László Parragh and Dr. Martin Roman, until 29 April 2010 László Akar, Miklós Kamarás and Dr. Ernő Kemenes were the members of the Board of Directors.
** Before Oszkár Világi  until 30 April 2011 Görgy Mosonyi  was the members of the Board of Directors.

Operation of the Board of Directors

The Board acts and makes resolutions as a collective body.

The Board adopted a set of rules (Charter) to govern its own activities when the company was founded in 1991; these rules were updated in October, 2010 to ensure continued adherence to best practice standards.

The Board Charter covers:

• scope of the authority and responsibilities of the Board,
• scope of the committees operated by the Board,
• the scope of the information required by the Board and the frequency of reports,
• main responsibilities of the Chairman and the Vice Chairman,
• order and preparation of Board meetings and the permanent items of the agenda, and
• decision-making mechanism and the manner in which the implementation of resolutions is monitored.

Members of the Board have signed a declaration on conflict of interest and they have reported their position as director in the Board to their employer or principal as regards other key management positions.

The Board of Directors prepares a formal evaluation of its own performance (the Committees evaluate their performance as well) and it reviews continuously its activity on a yearly basis.

Report of the Board of Directors on its 2010 activities

In 2010, the Board of Directors held 6 meetings with an average attendance rate of 86%. Alongside regular agenda items, such as reports by the Committees’ chairmen on the activities pursued since the last Board meeting, update on key strategic issues or an overview of capital market developments, the Board of Directors also individually evaluates the performance of each of the company’s business units.

The Board of Directors respectively paid highlighted attention to the treatment of the significantly changed external environment, the financial, operation and efficiency improvement challenges regarding INA consolidation and the strategy update process. MOL continuously adjusts its operation to the external environment and became more international, more efficient and more upstream driven in the recent years. MOL not just remained committed to keep its financial stability but continued the key development projects, hereby established an outstanding position for the upturn period in each business division.

The Company’s key task for the coming years is to maximize the value of its extended portfolio by harmonizing the operation and exploiting the synergies.

Committees of the Board of Directors

The Board operates committees to increase the efficiency of the Board’s operations, and to provide the appropriate professional background for decision making. These Committees have the right to approve preliminary resolutions concerning issues specified in the Decisionmaking and Authorities List, which sets out the division of authority and responsibility between the Board and the executive management.

• The responsibilities of the Committees are determined by the Board of Directors.
• The Chairman of the Board of Directors may also request the Committees to perform certain tasks.

The members and chairs of the Committees are elected by the Board of Directors. The majority of the committee members is non-executive and independent.

The Board allocates responsibilities to the various Committees as follows:

Corporate Governance and Remuneration Committee:

Members and dates of appointment (professional backgrounds of members are available on company homepage):

• Dr. Sándor Csányi – Chairman, 17 November 2000
• Zsolt Hernádi, 8 September 2000
• Dr. Gábor Horváth, 8 September 2000
• Dr. Martin Roman, 29 April 2010 *
• Mulham Al-Jarf 23 April 2008

  * Before Dr. Martin Roman until 29 April 2010 Miklós Kamarás was the member of the Corporate Governance and Remuneration Committee.

Responsibilities:

• Analysis and evaluation of the activities of the Board of Directors,
• Issues related to Board membership,
• Promoting the relationship between shareholders and the Board,
• Procedural, regulatory and ethical issues,
• Reviewing corporate processes, procedures, organisational solutions and compensation systems and making recommendations on the introduction of best practice standards.

 Finance and Risk Management Committee:

Members and dates of appointment (professional backgrounds of members are available on company homepage):

• Dr. Miklós Dobák – Chairman, 25 October 2002
• Zsigmond Járai, 29 April 2010 *
• Iain Paterson, 8 September 2000

  * Before Zsigmond Járai until 29 April 2010 Dr. Ernő Kemenes and László Akar were the members of the Finance and Risk Management Committee.

Responsibilities:

• Review of financial and related reports,
• Monitoring the efficiency of the internal audit system,
• Review of planning, scope and results of the audit,
• Oversight of the risk management,
• monitoring the liquidity position of the Company, the financial and operational risks as well as the methodology and strategy of management thereof, review the operation of Enterprise Risk Management (ERM) system,
• Ensuring the independence and objectivity of the external auditor.

Sustainable Development Committee:

Members and dates of appointment (professional backgrounds of members are available on company homepage):

• Dr. László Parragh, 29 April 2010
• Iain Paterson, 29 June 2006*

  The Chairman and the Deputy Chairman of the Supervisory Board are permanent invitees to the Sustainable Development Committee meetings.

  * Chairman of the Committee as from 20th October, 2011
  

Responsibilities:

• Control of the operation under long-term economic, environmental and social aspects,
• Evaluation of objectives and results regarding sustainable development,
• Supervision of the non-financial (sustainability) chapter and the audit process of the annual report,
• Accountability for sustainability performance of business divisions and subsidiaries.

Report of the Corporate Governance and Remuneration Committee on its 2010 activities

In 2010, the Corporate Governance and Remuneration Committee held 6 meetings with a 85% average attendance rate. In addition to the issues of corporate governance, remuneration and the composition of the management, the Committee discussed a number of key strategic and results-related topics prior to their presentation to the Board of Directors for discussion.

Report of the Finance and Risk Management Committee on its 2010 activities

In 2010, the Finance and Risk Management Committee held 5 meetings with a 100% average attendance rate. In addition to the regular items on the agenda, including the audit of all public financial reports, providing assistance with the auditor’s work and the regular monitoring of internal audit, the Committee reviewed the major risk factors of the Company, considering the changed international financial position and the status reports on risk management actions attached to these factors. The Committee provides for duties of Slovnaft a.s Audit Committee.

Report of the Sustainable Development Committee on its 2010 activities

In 2010, the Sustainable Development Committee held 4 meetings with a 100% attendance rate. The Committee evaluated the accomplishment of the actions in 2010, formed opinion on sustainability reporting and decided on 2011 directions and targets. The Committee considered with highlighted attention the results of the assessment related to the Dow Jones Sustainability indexes and the sustainability performance reports of business units.

Relationship between the Board and the Executive Management

The governance of the Company is carried out in line with standardised corporate governance principles and practice, and, within its framework, the Board of Directors will meet its liabilities for the integrated corporate governance by defining the responsibilities and accountabilities of the Executive Board, established by the Board and securing the corporate operative activities, operating and organisational procedures, as well as standardised system for target-setting, reporting and audit (performance control system and business control system).

A consistent document prescribes the distribution of decision-making authorities between the Board of Directors and the company’s organisations, defining the key control points required for efficiently developing and operating MOL Group processes.

Control and management of MOL Group will be implemented through business and functional organisations. The Executive Board (hereinafter “EB”) will be responsible for harmonising their activities.

The EB is a forum for decision preparation and its role is to provide a direct link between the Board of Directors and the Company’s staff and at the same time canalize the matters submitted to the full Board. The EB renders preliminary opinions and advises the Board members on certain proposals submitted to the full Board, the EB is also responsible for the oversight of the execution of the Board’s resolutions.

On the EB meetings each member has an obligation to express their opinion, on the basis of which final decision is made by the Chairman-CEO. In case of a difference of opinion between the Chairman-CEO, GCEO or GCFO, the decision shall be made by the Board of Directors.

The Executive Board (EB) members are:

^{* From 1st April, 2010.
** From 1st June, 2011.}

In 2010, the Executive Board held 46 meetings and discussed 11 issues on a meeting on average.

Incentives provided for Board of Directors

To ensure uniformity and transparency, in addition to fixed remuneration, MOL operates an incentive scheme for directors, which supports commitment of the participants and by taking the Company’s profitability into consideration can ensure that the interests of the participants in the compensation program can coincide with those of the shareholders.
The basis of the effective incentive scheme for directors was approved by the Annual General Meeting (AGM) on 23rd April 2008.

Elements of the incentive scheme:

- Profit sharing incentive system (based on value added methodology):
From January 2009, the incentive system changed from convertible bond program to a value added, profit sharing incentive system. The annual incentive of the Board Members will be determined according to an economic value added methodology. The Economic Value Added will recognize performance as a result on top of the cost of capital invested.
The incentive will consist of two parts: an absolute part (recognizing the performance only of the given year) and an incremental part (recognizing the performance of the given year compared to the average of the previous years).
The profit sharing based incentive system supports the commitment of the participants, thus the methodology will reward the Board Members for increasing shareholder value on long-term and as a sustainable improvement.
The new incentive system applies to non-executive and executive Board members as well.

- Fixed remuneration:
In addition to the Profit sharing incentive as of 1st January 2009, directors are provided with the following fixed net remuneration, following each AGM:

             Directors                                                25,000 EUR/year
             Chairmen of the Committes*            31,250 EUR/year

Other benefits

Directors who are not Hungarian citizens and do not have a permanent address in Hungary are provided with gross 1,500 EUR for each Board meeting (maximum 15 times) they travel to Hungary for.

Incentive system for the top management

The incentive system for the top management in 2009 included the following elements:

1. Incentive (bonus)

The maximum bonus amount is 40-100% of the annual base salary, paid in cash on the basis of the evaluation following the AGM. The elements of the incentive system include:

a) Corporate and division level key financial and non financial indicators (e.g. ROACE, operating cash-flow, lost time injury frequency, CAPEX efficiency, unit production, processing, operating, logistics costs, etc.).

b) Particular individual targets related to the responsibilities of the particular manager in the given year.

2. Relative performance incentive

The basis of the relative incentive is 10% of the annual base wage, and is determined on the basis of rank of manager-specific performance ratings.

3. Complex long term managerial incentive system

The complex long term managerial system which changes and supplements the previous, solely stock option based system, has been implemented uniformly in the Company (Group) as of 1st January 2010.

Purpose of the new incentive system is the implementation of a new and outstanding, long-term incentive system for top managers which corresponds to the incentive system of the members of the Board of Directors and keeps management’s long term interest in the increase of the MOL stock price.

Two incentives employed parallel in the new system:

                               50% Incentive based on option + 50% Profit-sharing incentive

Main characteristics of the two incentives:

 a)  Incentive stock option
Purpose of the incentive: to create the long-term interest of MOL Group management in the increase of MOL stock price. The incentive stock option is a material incentive disbursed in cash, calculated based on call options concerning MOL shares; it is determined as a gross benefit. Cycle time: 5 year periods (2 year long waiting period and 3 year long redemption period) starting annually.

b) Profit sharing incentive
The Profit-sharing incentive incites the long-term, sustainable increase of profitability, based on the value added methodology, thus ensuring that the interest of the participants of the incentive system corresponds with that of shareholders of MOL Plc . The Profit-sharing incentive is a cash-paid annual net bonus calculated on the basis of the increase of the value added. (Value added: recognises a profit performance generated on top of the cost of capital invested).

Since the base of the determination of one unit of the profit-sharing incentive for the given year is the audited financial statement for the given year approved by the AGM (MOL Plc.), the incentive should be disbursed following the AGM (MOL Plc.) summoned to close the given year .

Other Fringe Benefits

These include company cars (also used for private purposes), life insurance, accident insurance, travel insurance, liability insurance, and an annual medical check up.

Supervisory Board

The Supervisory Board is responsible for monitoring and supervising the Board of Directors on behalf of the shareholders. In accordance with MOL’s Articles of Association, the maximum number of members is nine (present membership is nine). In accordance with Company Law, 1/3 of the members shall be representatives of the employees, accordingly three members of the MOL Supervisory Board are employee representatives with the other six external persons appointed by the shareholders.

The members of the Supervisory Board and their independence status:

* Before György Mosonyi, until 30 April 2011 Dr. Mihály Kupa was the member of the Supervisory Board.
** Before István Töröcskei, until 29 April 2010 István Vásárhelyi was the member of the Supervisory Board.

The chairman of the Supervisory Board will be the permanent invitee to the meetings of the Board of Directors and the Finance and Risk Management Committee.

Regular agenda points of the Supervisory Board include the quarterly report of the Board of Directors on company’s operations and the reports of Internal Audit and Corporate Security. In addition, the Supervisory Board reviews the proposals for the Annual General Meeting. The Supervisory Board reviews its annual activity during the year.

In 2010 the Supervisory Board held 5 meetings with an 83% attendance rate.

Remuneration of the members of the Supervisory Board

The General Meeting held on April 27, 2005 approved a new remuneration scheme for the Supervisory Board. Under the new scheme, the members of the Supervisory Board receive remuneration of EUR 3,000/month, while the Chairman of the Supervisory Board receives remuneration of EUR 4,000/month. In addition to this monthly fee, the Chairman of the Supervisory Board is entitled to receive EUR 1,500 for participation in each Board of Directors or Board Committee meeting, up to 15 times per annum.

Audit Committee

In 2006, the general meeting appointed the Audit Committee comprised of independent members of the Supervisory Board. The Audit Committee strengthens the independent control over the financial and accounting policy of the Company. The independent Audit Committee’s responsibilities include the following activities among others:

• providing opinion on the report as prescribed by the Accounting Act
• proposal for the auditor and its remuneration,
• preparation of the agreement with the auditor,
• monitoring the compliance of the conflict of interest rules and professional requirements applicable to the auditor, co-operation with the auditor, and proposal to the Board of Directors or to the Supervisory Board on measures to be taken, if necessary,
• evaluation of the operation of the financial reporting system, proposal on necessary measures to be taken, and
• providing assistance to the operation of the Supervisory Board for the sake of supervision of the financial reporting system.

Members of the Audit Committee and dates of appointment (professional backgrounds of members are available on company homepage):

• Dr. Attila Chikán, Chairman, 27 April, 2006
• John I. Charody, 27 April, 2006
• István Töröcskei* 1 May, 2011

and in case of long-term incapacitation of any of the permanent members, Sándor Lámfalussy Prof.

* Before István Töröcskei Dr. Mihály Kupa was the member of the Audit Comittee

Report of the Audit Committee on its 2010 activities

In 2010, the Audit Committee held 5 meetings with an 87% average attendance rate. In addition to the regular items on the agenda, including the audit of all public financial reports, providing assistance with the auditor’s work and the regular monitoring of Internal Audit, the Committee reviewed the major risk factors of the Company, considering the changed international financial position and the status reports on risk management actions attached to these factors. The Committee continuously monitored the Company’s financial position in particular with regard to the impacts caused by the crisis. The Committee reviewed the materials of the Annual General Meeting (i.e. financial reports, statements of the Auditor).

External auditors

The MOL Group was audited by Ernst & Young in both 2010 and 2009, excluding INA Group and Energopetrol (audited by Deloitte in both years) and the operating company of the Fedorovsky Block and (audited by PricewaterhouseCoopers, in both years). Within the framework of the audit contract, Ernst & Young performs an audit of statutory financial statements, including interim financial statements of MOL Plc. prepared in accordance with Law C of 2000 on Accounting and the consolidated annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS, formerly IAS). Audits of the above mentioned financial statements are carried out in accordance with the Hungarian National Standards on Auditing, the International Standards on Auditing (ISA), the provisions of Accounting Law and other relevant regulations. The auditors ensure the continuity of the audit by scheduling regular on-site reviews during the year, participating in the meetings of MOL’s governing bodies and through other forms of consultation. The auditors also review the stock exchange reports issued quarterly; however they do not perform an audit of or issue any opinion on such reports.

Ernst & Young also provided other services to MOL Plc. Summary of the fees paid to the auditors in 2010 and 2009 are as follows (HUF mn):

Other non-audit services in 2010 included primarily the comfort letter issued with respect to the issuance of MOL’s EUR 750M bond and various due diligence and valuation services. The Board of Directors does not believe that non-audit services provided by Ernst & Young compromised their independence as auditors.

Relationship with the shareholders, insider trading

The Board is aware of its commitment to represent and promote shareholders’ interests, and recognises that it is fully accountable for the performance and activities of the MOL Group. To help ensure that the Company can meet shareholders’ expectations in all areas, the Board continually analyses and evaluates developments, both in the broader external environment as well as at an operational level.

 Formal channels of communication with shareholders include the Annual Report and Accounts and the quarterly results reports, as well as other public announcements made through the Budapest Stock Exchange (primary exchange) and the Warsaw Stock Exchange. Regular and extraordinary announcements are published on PSZÁF (Hungarian Financial Supervisory Authority) publication site and on MOL’s homepage. In addition, presentations on the business, its performance and strategy are given to shareholders at the Annual General Meeting. Regular Roadshow visits are also made to various cities in the UK, the US and Continental Europe where meetings are held with representatives of the investment community, including MOL shareholders and holders of MOL’s Global Depository Receipts. Furthermore, investors are able to raise questions or make proposals at any time during the year, including the Company’s General Meeting. Investor feedbacks are regularly reported to the Board of Directors.

In 2010 MOL participated in 8 roadshows and investor conferences (3 US and 5 European) having over 220 meetings with potential and existing shareholders. A 2 day Investor and Analyst day was organised in Croatia (Pula), where our key financial investors and analysts participated. 8 top managers hold presentations on MOL Group’s growth opportunities focusing on the key projects of upstream and downstream divisions. An offshore platform visit to an exploration and a production platform were organised for the participants as well. In 2010, MOL issued EUR 750 million fixed rate note and participated on a European roadshow afterwards.

MOL has an Investor Relations department which is responsible for the organisation of the above activities as well as for the day-to-day management of MOL’s relationship with its shareholders (contact details are provided in the “Shareholder Information” section at the end of Annual report). Extensive information is also made available on MOL’s website (www.mol.hu), which has a dedicated section for shareholders and the financial community.

MOL Group is committed to the fair marketing of publicly-traded securities. Insider dealing in securities is regarded as a criminal offence in most of the countries in which we carry out business. Therefore, we require not only full compliance with relevant laws, but also the avoidance of even the appearance of insider securities trading and consultancy.

MOL Group requests from its employees, in line with the laws and MOL’s insider trading regulation, that they:

• Should not buy or sell shares in MOL Group or any other company while in possession of insider information.
• Should not disclose insider information to anyone outside the company, without prior approval.
• Should be careful, even with other MOL Group employees, should disclose insider information to a co-worker when they have permission to do so and if it is necessary to do their job.
• Should protect insider information from accidental disclosure.

Exercise of shareholders’ rights, general meeting participation

Voting rights on the general meeting can be exercised based on the voting rights attached to shares held by the shareholders. Each “A” Series share entitles its holder to one vote. The actual voting power depends on how many shares are registered by the shareholders participating in the general meeting.

A condition of participation and voting at the general meeting for shareholders is that the holder of the share(s) shall be registered in the Share Register. The depositary shall be responsible for registering the shareholders in the Share Register pursuant to the instructions of such shareholders in line with the conditions set by the general meeting invitation. According to Article 8.6 of Articles of Associations: „Each shareholder – at the shareholder’s identification related to the closing of the share registry prior to the next general meeting –, shall declare whether he, or he and any other shareholder belonging to the same shareholder group as specified in Articles 10.1.1 and 10.1.2 holds at least 2% of the Company’s shares, together with the shares regarding which he asks for registration.” If the conditions described in the previous sentence are met, the shareholder requesting registration is obliged to declare the composition of the shareholder group taking into account Article 10.1.1 and 10.1.2.

Further, the shareholder shall, for the request of the Board of Directors, immediately identify the ultimate beneficial owner with respect to the shares owned by such shareholder. In case the shareholder fails to comply with the above request or in case there is a reasonable ground to assume that a shareholder made false representation to the Board of Directors, the shareholder’s voting right shall be suspended and shall be prevented from exercising it until full compliance with said requirements.

According to Article 10.1.1 of Articles of Associations: „No shareholder or shareholder group (as defined below) may exercise more than 10% of the voting rights with the exception of the organization(s) acting at the Company’s request as depository or custodian for the Company’s shares or securities representing the Company’s shares (the latter shall be exempted only insofar as the ultimate person or persons exercising the shareholder’s rights represented by the shares and securities deposited with them do not fall within the limitations specified here below).”

In accordance with the Company Act the shareholders have the right to participate, to request information and to make remarks and proposals at the General Meeting. Shareholders are entitled to vote, if they hold shares with voting rights. The shareholders having at least one per cent of the voting rights may request the Board of Directors to add an item to the agenda of the General Meeting, and may submit resolution proposals with respect to the points of the agenda. The conditions to participate in the general meeting are published in the invitation to the general meeting. Invitations to the general meeting are published on company homepage according to the Articles of Association. The ordinary general meeting is usually held in late April, in line with the current regulation.

The ordinary general meeting, based on the proposal of Board of Directors approved by the Supervisory Board, shall have the authority to determine profit distribution, i.e. the amount of the profit after taxation to be reinvested into the Company and the amount to be paid out as dividends. Based upon the decision of the general meeting, dividend can be paid in a noncash form as well.

The starting date for the payment of dividends shall be defined by the Board of Directors in such way as to ensure a period of at least 10 working days between the first publication date of such announcement and the initial date of dividend distribution. Only those shareholders are entitled to receive dividend, who are registered in the share register of the Company on the basis of shareholders identification executed on the date published by the Board of Directors in the announcement on the dividend payment. Such date relevant to the dividend payment determined by the Board of Directors may deviate from the date of the general meeting deciding on the payment of dividend.