SYSTEM CAPITAL MANAGEMENT

Transcription

1 2007 SYSTEM CAPITAL MANAGEMENT S U S TA I N A B I L I T Y R E P O R T

2 i ABOUT THIS REPORT This is the first SCM Group sustainability report, which covers our approaches to corporate governance, health and safety, environment and cooperation with society. The report has been developed for our employees, citizens of communities where our enterprises operate, business partners, NGOs, national and regional and local government, and investors. The report has been developed by SCM with the active participation of employees from companies and enterprises in the Group. Structure The report is structured according to SCM s priority areas of corporate responsibility and takes into account the Global Reporting Initiative (GRI) guidelines and UN Global Compact principles. The report features those areas of SCM s activity, which make the major contribution to revenue, profits and employment as well as those which significantly contribute to local community development. Scope The report features the performance of management company SCM and the major enterprises of the Group. The information covers three key business areas: mining and metals, energy-generation and finance. The list of enterprises covered by the report is provided on page 48. These enterprises account for around 90% of employees of the Group. Timeframe SCM Group activity in 2007 lies at the heart of this report. All quantitative figures are for the financial year 2007 (January-to-December period). Certain figures and indicators in the report reflect the dynamics during the period We plan to release the next report in 2009 to cover sustainability performance in Indicators The main indicator in terms of overall economic performance (GRI EC1) has been taken from the consolidated financial reports of SCM Group for Since the Group is diversified, and the report is being developed according to GRI principles for the first time, certain indicators reflect the performance of the industry holdings to which the indicators are relevant, rather than the Group. Reporting principles GRI principles of materiality, completeness and balance of information form the reporting basis that we followed when developing the report. Note on GRI interpretation SCM is the first Ukrainian financial and industrial group to have applied GRI Guidelines to its sustainability reporting. For this reason, the GRI Guidelines required interpretation to make them relevant to Ukraine. To meet this task, we analysed the Guidelines in the context of the national legislation requirements of the Ukrainian statistics authorities. In future, we will develop own guidelines for the preparation of sustainability reports for SCM Group enterprises. Assurance Ernst & Young LLC have provided the independent assurance of this report. The assurance statement is on page 44. CEO STATEMENT SYSTEM CAPITAL MANAGEMENT About SCM Group Business areas of SCM Our understanding of social responsibility Transparent company EMPLOYMENT Our employees Health and safety Salary Social benefits Training and development ENVIRONMENT Policy and strategy Use of resources Environmental footprint of production cycles COOPERATION WITH SOCIETY Policy and strategy Cooperation with local communities Social investments at the national level Sponsorship and Charity ASSURANCE STATEMENT Appendix. Table of compliance with GRI indicators and principles of the UN Global Compact FUTURE PLANS Enterprises and companies of the Group covered by the report For the online version of the report, please go to website of SCM Group in the Social responsibility/reports section. We ll be happy to answer any questions regarding the report. Please send questions and comments to csr@scm.com.ua

3 CEO STATEMENT This is SCM Group s first sustainability report produced to international standard. In the report we have focused on three core areas of mining and metals, energy and finance. The principles of sustainable development are at the core of all SCM Group s operations. Social responsibility comes from the desire of our shareholder and is implemented by the SCM management team, CEOs of businesses in the group, and all our employees. In 2007 we carried out works aimed to systemise the Group s activity in the area of sustainable development. We developed and implemented corporate policies in the area of social responsibility. We have analysed the risks related to mining and energy generation and defined two priority areas of our corporate social responsibility activity. Our first priority is to reduce the occupational injury rate and to improve our performance in health and safety. Our second priority is to mitigate the ecological footprint of our industrial businesses. In the area of health and safety, in 2007 we kept working on implementing management systems at the key industrial businesses. We developed programmes aimed at preventing occupational injuries and cultivating a health and safety culture in each employee. Particular attention was given to health and safety at mining enterprises. In the area of environment, at some of our businesses we carried out works to at prepare for the implementation of modern environmental management systems. We developed strategic environmental programmes, for instance the programme for compliance with the European air emissions norms at Vostokenergo. We also implemented planned environmental projects. For example, YeMZ started the reconstruction of a combined sludge dump, which will help utilize significant volumes of metal waste. During the year we also enjoyed fruitful cooperation with the administrations found in the regions where we operate, implementing projects to support education, culture and sport. Metinvest enterprises implemented partnership programmes that are significant for these regions. For instance, Azovstal executed on an agreement for social and economic cooperation with the City and Regional Administration of Mariupol. DTEK also developed social partnership programmes with local communities in seven cities in Donetsk, Dnepropetrovsk and Lugansk oblasts. Today, it is clear that both business and society face challenging times ahead. Many enterprises have to review their priorities. This will place increased pressure on business to act responsibly in difficult conditions. However, SCM will remain committed in the long-term to the principles and plans outlined in this report. We plan to keep implementing long-term programmes aimed at improvement of health and safety and the environment, as well as continue cooperation with local communities; we will also keep supporting social responsibility in Ukraine. Oleg POPOV CHIEF EXECUTIVE OFFICER

4 SYSTEM CAPITAL MANAGEMENT SCM is Ukraine s leading professional investor and the country s largest managing company. The value of company s assets totals $ billion.

5 SYSTEM CAPITAL MANAGEMENT ABOUT SCM GROUP 3 ABOUT SCM GROUP System Capital Management (SCM) was established in 2000 and is headquartered in Donetsk. The company focuses on six core business areas: mining and metals, power and electricity, finance (banking and insurance), telecommunications, mass media and real estate. In addition, SCM manages and controls assets in other sectors including: retail, clay mining, petrol filling stations and football. Perfomance of SCM in 2007 According to our consolidated group financial report (audited by PriceWaterhouseCoopers) SCM generated $9.563 billion 1 of revenues during During the year no dividends were paid to share holders and all profits were reinvested in the company. Operating costs were $7.771 billion and employees salaries and benefits including pensions were $1,040 billion. SCM Group is also one of the largest Ukrainian tax payers with total tax payments (including profit tax and payroll taxes and excluding VAT) of $912 million. Social Investment In line with our corporate commitment to be a significant contributor to the development of Ukrainian society the Group spent about $ m externally on investments in the community, charitable donations and social programmes in the dollar amounts in the report are given according to the official rate of National Bank of Ukraine as of 29 December 2007, $1 UAH SCM Group consists of SCM Company, the professional investor, and all of the businesses the company invests in. SCM Group is one of Europe s leading financial and industrial groups and plays a key role in the economic development of Eastern Europe. SCM Group businesses employ more than 165,000 people. SCM is 90% owned by businessman Rinat Akhmetov. The Group s geography is centred on its mining and metal businesses as well as energy-generating businesses that are located in Donetsk, Lugansk and Dnepropetrovsk oblasts. The Group s financial and telecom companies are active across Ukraine. The company also owns and operates businesses in the European Union and Switzerland. Metinvest Holding exports to many countries (see map on page 5). Therefore, the information provided by this company is the most important in terms of the sales markets for manufactured products. The remainder of SCM companies sell their products and services primarily inside Ukraine. Market share In the Group s core areas of activity it has the following positions: mining and metal enterprises of SCM consolidated in Metinvest produce annually over 9.12m tonnes of steel, and accounts for 21.3% of the total Ukrainian output the share of DTEK, SCM s energy business, amounts to 27% of the total electricity generated by Ukrainian thermal power plants SCM s financial business which combines the Group s companies in banking and insurance, ranks among the Top 10 biggest financial companies in Ukraine by total asset value.

6 4 SCM Group Sustainability Report 2007 Key companies and enterprises of SCM Group in Ukraine DONETSK REGION 1 System Capital Management managing company Mining and metals business Metinvest Group 2 Azovstal Steel Plant 3 Yenakiyevo Steel Plant and JV Metalen (YeMZ Group) 4 Khartsyzsk Pipe Plant 5 Skif Shipping 6 Prometey 7 Avdeyevka Coke and Chemicals Plant 8 Northern Ore Mining and Processing Plant 9 Central Ore Mining and Processing Plant 10 Ingulets Ore Mining and Processing Plant 11 Dokuchayevsk Flux and Dolomite Plant 12 Krivbassvzrivprom 13 Krivoy Rog Central Ore Mining Equipment Repair Plant (KCRZ-KZGO) 14 Krasnodonugol 15 Novotroitskoye Ore Mining Power business DTEK 16 Vostokenergo 17 PES-Energougol 18 Servis-Invest 19 Tekhrempostavka 20 Komsomolets Donbassa Mine 21 Pavlogradugol 22 Mospino Coal Enrichment Plant 23 Kurakhovskaya Coal Enrichment Plant 24 Pavlogradskaya Coal Enrichment Plant 25 Ekoenergoresurs 26 Pershotravensk Repair and Mechanical Plant Financial Business 27 First Ukrainian International Bank (FUIB) 28 Dongorbank 29 ASKA insurance company 30 ASKA-LIFE insurance company Telecommuncation business 31 Farlep-Optima Telecom Group 32 Astelit Real Estate ESTA Holding 33 Donbass Palace Hotel 34 Opera Hotel 35 Leonardo Business Centre Media business 36 Segodnya Multimedia publishing holding 37 Ukraina TV and radio broadcasting company Other areas of activity 38 Clay Mining (United Northern America Mineral Group) 39 Retail (Ukrainskiy Retail) 40 Petroleum products trade (Gefest, Parallel) 41 FC Shakhtar 42 Stadium Shakhtar (since Donbass Arena) 43 Foundation for Development of Ukraine 44 Analytical Centre BEST Slabs Billets Rolled metal Iron ore raw materials Pipes Shapes

7 SYSTEM CAPITAL MANAGEMENT ABOUT SCM GROUP 5 SCM Group companies in Europe UNITED KINGDOM NEWCASTLE Spartan UK, Steel plant Moscow ITALY VERONA Ferriera Valsider, Steel plant Newcastle SAN GIORGIO DI NOGARO Trametal, Steel plant SWITZERLAND GENEVA Metinvest International, Metal trader Geneva San Giorgio di Nogaro RUSSIA Verona MOSCOW Metinvest Eurasia, Metal Products Distributor Metinvest sales markets Europe Eastern Europe Ukraine CIS Russia Northern Africa Middle East Central Asia

8 6 SCM Group Sustainability Report 2007 BUSINESS AREAS OF SCM Key areas of activity Metinvest mining and metals Metinvest is a strong vertically integrated business and the largest private company in Ukraine s mining and metals industry. Metinvest not only satisfies its own raw material needs, but is also a key supplier for many other steel companies in Ukraine, Eastern Europe and Asia. The company s business covers the entire production chain starting from extraction of iron ore and coal, the production of coke and the smelting of steel, through to supply of rolled products and pipes to consumers globally. Metinvest Group is organised into three divisions: Iron Ore, Coal and Coke, and Steel and Rolled Products. The management company, Metinvest Holding, was established in DTEK energy industry The company was established in 2005 and is the largest privatelyowned, vertically integrated, power generating company in Ukraine. DTEK combines companies from coal production and enrichment to electric power generation and distribution in a single business chain. DTEK is the leader in Ukraine s fuel and energy industry and combines the country s largest producers of steam coal and the leading thermal power generating companies. At present there are three key production divisions in the company: coal production, power generation and power distribution. Financial Business The financial sector is a key business area for System Capital Management with the company focusing on both banking and insurance. Ukraine s financial sector has developed rapidly and offers excellent growth potential. SCM Group s financial businesses include two banks (First Ukrainian International Bank and Dongorbank) and two insurance companies (ASKA and ASKA-LIFE). Promising business areas Telecommunications SCM Group is active in both the mobile and fixed line communication sectors. The telecommunication business of SCM is represented by Farlep-Optima Group and ranks second in Ukraine s fixed-line communications market behind state-run provider Ukrtelecom. It offers local, trunk and long-distance communication services, internet access, data transmission and leased lines. In addition, SCM owns 45.2% in Astelit, which operates a mobile service provider, life:), which is ranked third by number of subscribers in Ukraine. Real Estate Real estate and the hotel business are relatively new areas of SCM Group s interests. SCM Estate was set up in 2006 to manage the assets in this business area. It has a number of projects under development currently. SCM s strategy in real estate is to develop unique projects to the highest international standards and which are landmark developments for Ukraine. SCM Estate was rebranded as ESTA Holding in March Media SCM Group is one of the biggest players in the Ukrainian media market and is committed to improving its position in the sector by investing considerable funds to develop both its TV and publishing businesses. SCM s media business includes TRK Ukraina broadcasting company and publishing holding, Segodnya Multimedia, which publishes the leading national newspaper, Segodnya, as well as regional newspapers in the east of the country. Changes in Group s Structure in 2007 In September, SCM and Smart-Holding agreed to expand their cooperation. The latter became the second shareholder in Metinvest Holding in exchange for transferring its shares in several enterprises to Metinvest. In October, the Group entered a new business area - retail. It is represented by the Ukrainian Retail Company, which is creating a chain of stores under the Brusnytsya brand. In November the decision was made to create a TV media holding on the basis of TRK Ukraina channel.

9 SYSTEM CAPITAL MANAGEMENT Our understanding of social responsibility 7 OUR UNDERSTANDING OF SOCIAL RESPONSIBILITY The companies of SCM Group are united by a common system of values and principles. Corporate Social Responsibility (CSR) is one of the fundamental principles of the Group s operations. SCM must play its role in the society, both on the national scale and on the level of individual companies following a common CSR strategy. CSR for SCM is a means of structuring the relationships between business, society and government based on the concept of mutual benefit with due regard to international standards. The priorities for corporate social responsibility depend on the business activity. The key companies within SCM Group operate in the metals and mining and power generating industries, therefore for SCM, health, safety and environmental protection are the most important CSR areas. Many enterprises of the Group are also major employers in the cities where they are based, making interaction with the local communities very important. Being the country s largest business and national investor we realise that SCM s operation has a significant impact on the country s economic and social development. Therefore, transparency and implementation of effective management and corporate governance are also priority areas for us. CSR as a management tool The principles of CSR are being implemented at all levels of the Group. They form part of the Group s business strategy and help identify and manage the risks related to specific business operations. For example, risks associated with health and safety, level of occupational injury, and the environmental performance are included into the risk management systems of both Metinvest and DTEK. Identifying fundamental principles of CSR SCM identified six areas related to CSR which were important for the Group, and then developed a number of basic principles for each of these based on dialogues with stakeholders and international best practice. The six areas include: corporate governance, employment, environment, cooperation with local communities, social investment, and sponsorship and charity. The principles are outlined in the document SCM s CSR Vision, which is available on the Group s website. The general nature of the principles makes its possible for the companies and enterprises active in different industries - from metals and mining to telecommunications - to adapt them to meet the specific needs of their business. Development of policies Detailed policies were developed for each of the six CSR areas. It was important for SCM to develop them by engaging directly with the employees responsible for the future implementation of these policies. SCM representatives also held consultations with the leading companies of the Group to learn about their current actions, help systemise their CSR practices and explain the meaning of the term social responsibility and the CSR principles at SCM. The consultation process was completed in April 2007 with a corporate CSR conference attended by over 100 participants representing cross-company units and the biggest enterprises of the Group. In June 2007, the policies were approved. CSR management system The SCM has also put in place a system for managing CSR by putting a CSR Committee in place. Members include SCM s senior managers as well as the relevant executives from industrial holdings. The Committee sets the policy and identifies the key areas of CSR activity. CSR activity is regulated by SCM s Director of International and Investor Relations. The position of CSR Manager was introduced in the Investor Relations Department in July The responsibility for implementing CSR strategy is usually divided between different corporate structures as follows: The CSR Committee of SCM coordinates the development of policies and standards and approves them. Industrial holdings develop and implement own their own strategies and programmes which are relevant for their business and based on the policies. SCM monitors the CSR strategy implementation and consolidates information for the reports at the Group level. Supporting CSR development in Ukraine SCM also helps promote the development of CSR in Ukraine. We provide active support to the United Nations Global Compact network in Ukraine. In addition, during 2007 SCM acted as a partner of a number of CSR activities in Ukraine including the International CSR conference organised by Expert magazine; a round table, which led to the formation of the Ukrainian committee on development of international social responsibility standard ISO 26000, as well as CSR training for journalists.

10 8 SCM Group Sustainability Report 2007 TRANSPARENT COMPANY System Capital Management s goal is to achieve the highest standards in each area of its operations, to be a business leader in Ukraine and be a respected member of the international business community. Key objectives to achieve this goal include ensuring an effective system of corporate governance, as well as having a system of values in place that underpin business behaviour and the commercial activity of the Group. History The company was initially established in 2000 to bring together the assets owned by our principal shareholder and provide strategic management of these investments from a single corporate centre. Since 2004 the business has been engaged in a process of streamlining the sometimes complex structure and ownership of these businesses to create a clear, understandable and efficient structure of corporate governance and management which matches international standards. Corporate governance The objective of corporate governance is to ensure control over the activity of the company on the part of shareholders. Corporate governance SCM Group Corporate Governance Structure Minority shareholders SCM Supervisory Board of industrial holding Audit Committee Strategy and Investment Committee Nomination and Remuneration Committee helps manage SCM s investment effectively, assists in reducing the risks, and helps meet the best interests of shareholders, senior managers, employees and other stakeholders. We are committed to following the best international standards in corporate governance. To improve its corporate governance system, the company has implemented a transparent corporate structure and created supervisory boards at each of its industrial holdings. In addition, the company established special committees at the supervisory board level, for example: Audit Remuneration and Investment Committees have been established as well as systems for internal audit and risk management. Holding Company of industrial holding Holding CEO Holding Board Supervisory boards of operating companies if it is decided not to make industrial holding Operational Companies we understand a holding company as Managing company of industrial holdings of SCM Group Division of responsibilities SCM as a majority shareholder and the key investor appoints its representatives to the supervisory boards of the industrial holdings. Minority shareholders are also engaged in the management of the holdings through their representatives who sit on supervisory boards. Supervisory boards oversee the industrial holdings. Supervisory Boards consist of representatives of SCM and of minority shareholders as well as independent (external) experts, who might be appointed as directors. Independent directors are respected professionals in their field with international expertise. For example, Metinvest has 4 independent directors on its Supervisory Board. One of the members is elected by a vote as Chairman of the Supervisory Board. The Chairman is not an executive of the industrial holding and in most cases the Chair will be a senior executive from SCM. The Chief Executive Officer of the industrial holding is appointed by the Supervisory Board to carry out the operational management of the holding. Being a member of the Supervisory Board the CEO participates extensively in the strategic planning of the holding s activity. The Board of the Holding is the highest operational management body. The Board is formed in each holding on a collegial basis. The CEO of the Holding acts as the Chairman of the Board.

11 SYSTEM CAPITAL MANAGEMENT Transparent company 9 Financial Reporting The company has been producing consolidated accounts audited to International Financial Reporting Standards (IFRS) since SCM was the first major Ukrainian financial and industrial company to introduce international standards of financial reporting to Ukraine. On our corporate website we publish a summary version of the report with key indicators: assets, gross income, profit, profit tax payments and headcount. These accounts are audited by the leading accountancy firm, PriceWaterhouseCoopers. Transparency SCM Group is a privately owned business. However, as a major player in the Ukrainian economy and society, we believe we must be open and transparent in the way we do business. We take the opportunity to explain our actions and plans in the media and at public events. We also make available information, which is not confidential or commercially sensitive, on the websites of SCM, and our industrial holdings and assets. SCM is a member of the European Business Association, the EU Ukraine Business Council and the British Ukrainian Society. In January 2007, SCM became an Industry Partner of the World Economic Forum in Davos, the leading international organisation for discussion of global economic and development issues. SCM is also a founding member in Ukraine of the United Nations Global Compact. SCM plays an active role as a member of these business organisations and in their dialogue with the government and society. Stakeholder engagement We regard the sustainable development of the company as the need to grow and develop in the long-term while building relations with other actors in civil society and consider their interests. SCM carried out internal research project to analyse its stakeholders. They include employees, local communities, local and national government, NGOs and the media, as well as Ukrainian and international financial markets and analysts. SCM Group has taken the following obligations in regard to these groups of stakeholders: identify and understand the social aspects of SCM s activity and consider the opinions and views of stakeholders consider and respond to the needs of stakeholders report to stakeholders on the Group s policies, actions and impact on society. Meeting social expectations by SevGOK and CGOK To understand the social expectations of Krivoy Rog inhabitants and the plants employees, senior managers at the businesses carried out a survey into the opinions and needs of stakeholders in December The research showed that the social expectations of the city s population were related to their concerns in the following areas: environment, crime rate, medical services, operation of state institutions, particularly those related to children, education and job creation. Thus, the CSR activity of the company should focus on those areas which are of greatest concern to local citizens. The plants programmes for 2008 were developed taking into account the expectations of stakeholders.

12 EMPLOYMENT Employees working at the Group s enterprises are at the core of SCM s business priorities. The health and safety of miners, coke and chemical workers, those working in steel production and power generation is the top priority for SCM s corporate employment policies.

13 Employment Our employees 11 OUR EMPLOYEES SCM Group companies and enterprises employ about 165,000 people. The businesses covered by the scope of the present report employ over 140,000 people (about 90%). SCM makes every effort to ensure good and safe working conditions for its employees and to engage and retain highly-skilled staff. The development of an efficient and modern employment policy is one of the primary objectives for the Group. Responsible restructuring Today SCM Group employs almost 9% fewer people than in This is due to the restructuring and modernisation process. SCM s businesses have the objective of optimising the headcount while also taking into account at the same time, the needs and opinions of employees and local communities. The minimum notice period regarding operational changes is fixed in collective agreements which operate at all the Group s industrial enterprises. Current collective agreements stipulate that any structural changes or changes in employment conditions and salaries must be agreed with trade unions and communicated to employees two months before their effective date. At some companies the notification period is three months, which is more than specified by Ukrainian legislation. The administrations of businesses provide various types of support to employees who are made redundant. For instance, SevGOK and CGOK have a programme in place on restructuring non-core assets into separate, independent companies. For example in 2007, cleaning services were transferred into outsourcing agreements. As the result, the people retained their jobs in the outsourced businesses, while the quality of services delivered improved. The newly created companies can provide services both to the GOKs and to other companies in the region. Total headcount dynamics in major businesses of the Group , people people * including ZAO SCM: , , , To assist with restructuring, Pavlogradugol established the Redundant Employee Adaptation Centre. In 2007, the Centre helped 50 people whose jobs became redundant. The Centre performs the following functions: Analysing the labour market (in tandem with the Employment Centre) and identifying the needs for labour resources in the region Providing advisory services to redundant employees (including access to lawyers, HR specialists, and psychologists) Helping employees improve their skills and receive additional professional training Organising a hot line for downsized employees, which provides advisory services and support Assisting with employment at other companies of the city and the region Metinvest DTEK SCM Finance Total across major Group businesses*

14 12 SCM Group Sustainability Report 2007 STAFF COMPOSITION AT GROUP MAJOR BUSINESSES, 2007 Staff category Sex Age groups 78% workers 22% MPSM * * MPSM managers, professionals, specialists and maintenance workers (according to Ukrainian State Occupational Classification) 67% male 33% female 31% under 30 48% years 21% over 50 Relations with trade union organisations The Group acknowledges and respects the rights of its employees to form trade unions and other associations to represent their employment, social and economic rights and interests. Employees are free to enter and withdraw from trade unions according to the conditions and procedures fixed by the bylaws of the trade unions. The Group builds long-term partnerships in the social area with trade unions, employees, retired people, company pensioners and other stakeholders and organisations. Participation in these organisations is a mechanism for shareholders or employees to provide recommendations or direction to the highest governance body. For example, trade union representatives at Pavlogradugol can take part in meetings of the Supervisory Board and have an advisory vote. The labour relations at the companies of the Group are regulated in accordance with the current Labour Law of Ukraine. Protection of the labour rights of employees and professional organisations, improvement of employment conditions and the provision of social guarantees are regulated by collective agreements. Krasnodonugol s Trade Unions At Krasnodonugol s coal mining business the employees interests are represented by three trade unions: the Trade Union of Workers of the Coal Mining Industry, the Independent Trade Union of Krasnodon Region Miners, and Executive Bureau of Independent Trade Union of Barakova Mine Miners. All three trade unions have equal rights outlined by the collective agreement, including but not limited to, the right for controlling and distributing proceeds from coal products sales allocated to the social needs of employees; to represent the interests of employees, pensioners and people with disabilities; to demand and receive from employers the corresponding documents and explanations with regard to the employment conditions and compliance with the labour law. Public organizations at Azovstal The Group s companies support employees in the creation of public organisations authorised to represent their interests. Interests of employees are represented through different public organisations at Azovstal including the plant s Council of Young Specialists, Association of Women and the Council Labour Veterans.

15 Employment Health and safety 13 HEALTH AND SAFETY Many of the Group s industrial businesses are involved in production and manufacturing cycles which involve a significant degree of risk. Coal mining in particular, by its very nature is a business which carries risk, particularly to the safety mine workers. Policy and strategy Safety issues at mines have been in the spotlight across Ukraine with the fatality rate in the country s coal mining sector ranked amongst the world s highest. On assuming ownership of mines which had often been run by the state, or in some cases other private sector businesses, SCM usually inherits both poor safety infrastructure and culture. Introduction of new production safety management systems and improving the personal safety equipment of each employee and introducing a safety first operating culture is a priority for SCM. Three coal mining companies, Krasnodonugol (Metinvest Group), Pavlogradugol (DTEK) and Komsomolets Donbassa Mine (DTEK) belong to SCM Group. These mines have been the priority in our efforts to improve safety performance, as serious accidents occur most often in mines. No less importance is attached to safety at other produc- tion enterprises coal and iron ore enrichment plants, steel, coke and chemical plants, power companies, also involve an element of risk and SCM s focus has been to develop a safety first culture with all workers in these sectors. Industrial injuries are one of the most significant risks for SCM s industrial holdings Metinvest and DTEK. As employers, both accept responsibility for reducing these risks through the creation of healthy and safe working environment for all employees. Management systems Health and safety is managed according to the best global practices with international standards of the OHSAS family being rapidly deployed across the Group to help improve safety performance. At Metinvest, the Group s health and safety management system was adopted and certified in line with OHSAS at all six enterprises of the Iron Ore Division (almost 95% of staff have been covered by certification process), as well as at Krasnodonugol, YeMZ and Khartsyzsk Pipe Plant. Azovstal and Avdeyevka Coke and Chemicals Plant are preparing to adopt the system. Elements of OHSAS are also being introduced at DTEK. Three core enterprises of DTEK started implementing the system in May 2007: Vostokenergo, Pavlogradugol and Komsomolets Donbassa Mine. Precertification audit of the health and safety corporate management system was scheduled for All enterprises of the company are expected to introduce OHSAS and have it certified in Improving safety of our enterprises is one of top priorities. Our goal is to reduce occupational injury rate to zero, firstly - at coal enterprises. CEO of METINVEST HOLDING Igor Syry

16 14 SCM Group Sustainability Report 2007 Investment in health and safety SCM Group s industrial businesses invested a total of UAH 286.4m in 2007, including 209.9m invested by Metinvest Group and 76.5m invested by DTEK. The occupational injury rate depends on several factors, investment in health and safety being one of them. For example, Pavlogradugol has increased investment in health and safety for the past four years, with a subsequent drop in the occupational injury rate in proportion to the growth in investments. Correlation between investment in health and safety and occupational injuries at Pavlogradugol, Investments in health and safety, , in thou. UAH thou. UAH Occupational injuries, (by number of cases) cases Preventive measures Changing the approach to safety is a major management objective in this area. Before, studying an accident, finding the causes of that specific incident and then eliminating them was the focus. Today, the cause of an accident is analysed and identified in detail followed by the development of measures expected to prevent similar accidents. For example, groups at risk at Pavlogradugol are given safety advice before a shift change. Miners watch video safety briefings designed to prevent accidents each day before their shifts. In 2007, the first ten videos were produced in-house at the mine on various key health and safety risks. Mine workers participated directly in the creation of the videos about the most hazardous aspects of their jobs. Key subjects included the proper use of equipment that can prevent occupational injuries, the rules of conduct in case of accidents, and first aid in different situations. A professional studio is expected to reshoot the videos in This will help make professional videos on health and safety copyrighted by Pavlogradugol that will be of interest to other mining companies in Ukraine.

17 Employment Health and safety 15 Industrial injuries In 2007, 23 fatal accidents occurred at SCM Group enterprises including 17 at Metinvest Group enterprises and 6 at DTEK enterprises. In Metinvest Group, 13 of the 17 occurred at coal and coke division enterprises. In DTEK, 5 of the 6 fatal accidents happened at coal production enterprises. SCM deeply regrets these accidents. The families of those who lost their lives received help and support. The reasons for each accident analysed in detail to prevent similar tragedies in future. Prevention activities and outreach are delivering results. The number of accidents has been falling year by year. The number of fatal injuries in 2007 was 39.5% lower than in 2006 (38 fatalities registered in 2006). The year of 2006 was especially hard with serious accidents at Pavlogradugol and Krasnodonugol mines. rate 2,5 2,44 INJURIES AT ENTERPRISES OF INDUSTRIAL HOLDINGS, Lost time accident frequency rate (LTAFR) LTAFR= total number of injuries total number of working hours x * rate 0,030 Fatal accident frequency rate (FAFR) 0,035 2,0 1,5 1,0 0,5 0 1,98 1,63 1,55 0,94 0,89 0,81 0, DTEK FAFR= total number of fatal injuries total number of working hours x * * The factor 200,000 is derived from 50 working 40 hours per 100 employees Metinvest industrial holdings of the Group (Metinvest+DTEK) 0,025 0,020 0,015 0,010 0, ,019 0,021 0,

18 16 SCM Group Sustainability Report 2007 Health of employees Every enterprise in the Group has a programme for the prevention of occupational diseases in place. First and foremost, risk groups are assessed with lists of employees subjected to regular medical examination (for some risk groups this can be up to two times per month) Other employees are subjected to annual preventive examinations. Diagnostics of lung and cancerous diseases (chest x-ray, cytological research, visual check-up) are normally included into the medical examination. Regular medical examinations help detect diseases at the early stages. All enterprises have medical units or offer the possibility for employees to be examined in specialised medical centres. This opportunity is also given to veterans and an enterprises pensioners and in some cases to the surrounding community as well. For example, when Krasnodonugol carries out field medical examinations of miners, it invites all villagers in the area to be x-rayed for free at the same time. Timely diagnostics with modern equipment is carried out at enterprises or according to contracts in place with public health facilities. Our enterprises tend to create their own medical centres. In some circumstances, they pay for services at existing medical establishments and make investments there to improve the facilities.

19 Employment Health and safety 17 Medical centres at enterprises Avdeyevka Coke and Chemical Plant Previously, the plant had only one health unit provided by Avdeyevka City Hospital with 4 emergencydoctors and 2 general practioners Today, the plant runs its own medical and sanitary unit with 20 highly-skilled doctors and 42 paramedics. The medical unit is equipped with modern diagnostic facilities and operates a clinical and diagnostic laboratory, a day care unit, a 24-hour medical service, a rehabilitation unit, ultrasound examination suite, functional diagnostics suite and physiotherapy. The investment in new equipment alone ran over UAH 700,000. Preliminary and regular examinations were carried out on 2,712 people in Krasnodonugol Each employee is examined regularly in a dedicated treatment and diagnostic centre named Ultramed. Following the recommendations of its medical specialists, the employees improve their health in the Vostochny and Molodogvardeyskiy health a treatment centres owned by Krasnodonugol. Cooperation with state medical institutions Azovstal supports Outpatient City Hospital No.2 by purchasing medicines for employees that undergo regular check-ups and emergency treatment the hospital, enabling its employees and pensioners to undergo diagnostic examinations in the medical and diagnostic centre, and providing an opportunity for employees and their children to improve their health in dedicated facilities. Azovstal invested UAH 3.533m in a programme to improve medical care for the employees in CGOK works with the Ukrainian Research and Development Centre for Industrial Medicine, where employees undergo check-ups for the early detection of occupational diseases. Pavlogradugol employees are examined on the basis of agreements with a number of medical institutions including City Hospital No.4 of Pavlograd, Ternovka Central City Hospital, and Pershotravensk City Hospital.

20 18 SCM Group Sustainability Report 2007 SALARY Proper remuneration is an important aspect of our human resources policy. SCM pays good salaries to all employees in full compliance with Ukrainian law. Managers salaries depend on labour market conditions, while salaries for other employees are fixed according to the provisions of the general and industrial union agreements. Coal companies establish the minimum rate at not lower than Ukraine s minimum wage. Collective agreements at other enterprises of Metinvest Holding and DTEK fix their base rates at not lower than the minimum standard of living. Salaries at most Group enterprises are higher than Ukraine s average for each industry sector. Average salary at major Group businesses, , UAH Average salary at major Group businesses versus average salaries across industries in Ukraine, by industry, 2007, UAH UAH UAH Metinvest DTEK SCM Finance Total across major Group businesses* * without managing companies industries** 1 Average in the industry* 1 Other industries 2 Heavy engineering and equipment manufacturing 3 Generation and distribution of power, gas and water 4 Mining operations with the exception of fuel and energy resources Average across major Group businesses 5 Metal production and manufacturing metal goods 6 Mining of fuel and energy resources 7 Financial services * data of State Statistics Department of Ukraine ** classification according to State Statistics Department of Ukraine

21 Employment Salary 19 FAIR PAY Salaries at some enterprises of the Group A transparent and objective remuneration system is an essential element of raising standards of business and corporate ethics. SCM has been introducing transparent and efficient employee remuneration policies based on the contribution of each individual. Managing companies develop bonus systems based on key performance indicators (KPIs). Of these, DTEK has been the leader with the successful introduction of this type of KPI based programme. The salaries and bonuses of managers at DTEK s corporate centre depend on their meeting key performance indicators. DTEK s coal mining business, Pavlogradugol also started adopting a pilot bonus system in Defining salary amounts at Metinvest enterprises Azovstal had a labour remuneration system approved as far back as thirty years ago. But it was outdated and no longer met current economic conditions. In October 2005, the plant started working on implementing a fair, transparent, and competitive remuneration system on the basis of job position evaluations. The system evaluates each position according to three criteria: knowledge and skills, complexity of tasks and responsibility for decisions. A grading system ranks the knowledge and skills required for a specific profession and post, the tasks performed in each position and the responsibility involved. This helps identify the contribution to the overall performance of the enterprise made by the employees in these positions and professions. Based on the grade of each position and profession, the plant fixes the minimum and maximum salary for each job role. The average salary at Yenakiyevo Steel Plant was UAH 1,883 in This is 39.3% higher than in YeMZ is a key enterprise for the city s economy. Steel workers salaries are among the highest in Yenakiyevo and exceed the region s average by 22.7% (by comparison, average salary in Donetsk Oblast was UAH 1,535 in 2007). The average monthly salary at Khartsyzsk Pipe Plant was UAH 1,880 in This represents an increase of 20% year on year. The average salary at DTEK s power companies in 2007 was 50% higher than the industry s average. The average salary at DTEK s coal producing enterprises exceeded the industry s average by 25%. Thanks to the introduction of the new system, the payroll fund has grown by more than 7%, and payroll payments have become more transparent and effective. Following the successful introduction of the employee remuneration system at Azovstal, in 2007 Metinvest extended the system to SevGOK and CGOK. As a result, in 2007 salaries went up on average at SevGOK by 22.1% and at CGOK by 23.4%.

22 20 SCM Group Sustainability Report 2007 SOCIAL BENEFITS Collective agreements signed between employees and SCM Group s enterprises are regularly improved and new social benefits added. A standard social package at an SCM Group enterprise includes: voluntary medical insurance paid for by the enterprise partial payment for employees and their families to improve their health at resorts child birth allowances to women employed by plants assistance for young employees (if the plant is their first job) interest-free loans to employees paying for employee education providing loans to buy housing providing retirement benefits. Many enterprises also provide social benefits to non-working pensioners. For example, the social package for pensioners at Vostokenergo includes: providing social vouchers for health improvement providing financial help (one-off assistance during the calendar year; to celebrate the Day of Power Workers professional holiday; to celebrate anniversaries of the enterprise s founding; to celebrate Victory Day - for people with disabilities and war veterans; to commemorate the Day of Memory of Chernobyl Catastrophe Victims (for the people that took part in handling the aftermath of the Chernobyl accident) to provide 2 tonnes of fuel to nonworking pensioners who live in houses heated by coal fires, at a 50% discount on the purchase price and the delivery of the fuel at preferential prices. National and industrial trade unions hold a positive opinion of their collective agreements with the Group s enterprises. For example, the collective agreements of SevGOK and Central GOK received an award for being amongst the best collective agreements at metal plants in Ukraine during In addition, Krivbassvzryvprom was acknowledged in 2005 by the Federation of Trade Unions of Ukraine as being the best company in among the country s leading businesses with more than 500 employees. Improving employees housing conditions Azovstal Improving the quality of life for the plant s employees and their families is a priority for the social policy of Azovstal. Company residential quarters are being built to mitigate housing problems and raise employees loyalty to the plant. The first Azovstal residential building was constructed in December 2005; the second is being completed now. It is located in the Vostochniy district of Mariupol and has 67 flats that will be bought by the plant workers on the basis of interest-free loans. Project expenses over totalled around UAH 18m for the project. Providing social vouchers for health improvement At the peak of the Soviet era 10% of employees travelled to resort centres to improve their health. GOKs in Krivoy Rog have left that indicator behind. In 2007, 25% of Central GOK s employees (2,066 people) and 27% of those at SevGOK (3,195) went to resort centres in the country and on the Azov and Black seas thanks to discount vouchers through which the plants paid for most of the cost of these visits. Social benefits at DTEK DTEK employees enjoy social payments and benefits including standard items such as vouchers for visiting resort centres, financial assistance, paying for the education of employees children in universities and other additional options as well. For example, employees of Pavlogradugol are given loans to buy housing and can take out a mortgage secured by the enterprise. In 2007 Pavlogradugol allocated around UAH 57 million for its social care package. Insurance All CGOK and SevGOK employees have medical insurance (through ASKA). Also, the insured payment cap for out-patient treatment is expected to increase from UAH 20,000 to UAH 25,000 in 2008.

23 Employment Social benefits 21 Employee Retention Corporate life insurance helps retain valuable employees, reduce staff turnover, create a flexible remuneration system, win loyalty and ensure employee motivation for the long term. SCM s insurance company, ASKA-LIFE, has developed 10 years or longer programmes to insure the lives of employees. The programmes allow for the employer to decide which employees should be insured, as well as the conditions and amount. A certain sum is transferred to the insurance account of each employee along with his salary. When the agreement term expires, the insured employee will receive the accumulated money with a guaranteed profit. Depending on length of service of the employee, this may be a significant financial benefit. By doing this, the company retains its most valuable managers and specialists, ensures pensions for employees and provides social protection to them and their families. Insurance programmes of this type have been implemented at Avdeyevka Coke and Chemicals Plant, Khartsyzsk Pipe Plant, Yenakiyevo Steel Plant and Dongorbank.

24 22 SCM Group Sustainability Report 2007 TRAINING AND DEVELOPMENT Highly-skilled employees are a key to a successful business. We invest in the education and development of our workers and are committed to being a company which people choose to come to and where they want to work. We have created education and development programmes for employees at all levels and in all production and management chains. Management development programmes Corporate centres Corporate centres SCM, Metinvest Holding and DTEK send their senior managers to study at the best international business schools. For example SCM cooperates with IN- SEAD, where a number of senior managers have studied for MBAs. Managers in finance and accounting study for ACCA certification. In September, 2007 Metinvest became an ACCA Accredited Employer. Metinvest was the only Ukrainian business awarded with the Professional Development and Development of Education accreditation certificates. ACCA accreditation is international recognition of the effectiveness of a staff training system and an advanced financial department. It also includes the technical assistance of ACCA, the global leader in financial education, to introduce the latest staff development methods. GOKs The plants prefer external education for line and senior managers, and specialists and engage skilled and competent coaches with a solid practical record. The most important employees, those at midlevel and senior managers, attend workshops, conferences, open and corporate training courses. These are carried out on a contract basis by the leading companies that specialise in management training and have recognised expertise (for example Business School of the Open University in the UK and Deloitte). In 2007, SevGOK allocated UAH 2.413m to external education. One of the most successful programmes was the training course for line personnel managers on the Fundamentals of Effective Governance. Internal training run as part of this programme helped reveal each trainee s potential capabilities, develop effective teamwork skills and improve skills for providing efficient feedback. The programme taught 206 of the plant s employees in The training programme was also used to identify the most promising line managers. Twenty three employees who attended the programme have so far been promoted to middle management positions. Financial companies: FUIB First Ukrainian International Bank has brought forward a training and development policy for bank employees. It calls for the establishment of a continuous training system, building up a knowledge bank of employee experience, and preparing a staff reserve of highlyskilled managers and specialists that can make competent and responsible management decisions as well as perform their functions at a high level. FUIB ensures conditions for every employee from experienced professionals to newlyrecruited university graduates to raise their level of professional development and realise their potential. The bank has a differentiated approach to training that keeps a focus on the needs of adapting new employees and improving their professional excellence. To that end, FUIB has introduced an induction programme to help employees learn the standards and rules of corporate culture in the bank, its internal regulations, procedures, as well as achieve the required level of efficiency as soon as possible. The bank also launched an innovative distance learning project and an e- course called Electronic document management at FUIB.

25 Employment Training and development 23 Training programmes for workers The skilled specialists are especially important for industrial businesses. SCM enterprises hold training courses in their own certified education facilities and cooperates in partnerships with external education institutions. Long-term training agreements are signed covering a number of years with training partners, an approach that helps the company improve the development of Ukrainian education institutions as well. Avdeyevka Coke and Chemical Plant AKHZ Training Centre is a licensed educational and training institution. This enables the plant to teach various on-the-job training courses, and it runs six training classes for the enterprise s core professions, as well as a welding training workshop. In 2007, 2,463 workers attended basic and advanced training courses and 2,319 of them studied at the centre. Every year more and more of the company s managers and specialists are improving their professional skills. The year 2007 broke a company record as the number of managers attending excellence courses hit 762, which almost doubled the 2006 figure. Investment in training totalled over UAH 370,000. Pavlogradugol Pavlogradugol offers continuous professional training through the company s education network. The courses help the attendees study mining as a profession, expand and deepen their knowledge and skills in line with production requirements. The training and course network at Pavlogradugol comprises an education centre in Ternovka and 10 units at the company s mines. The training material encompasses theory and practical lessons, and is based on curricula and programmes developed by the education centre and approved by Pavlogradugol s technical director. The work plans and programmes are developed on the basis of standard plans and programmes approved by the Ministry of Education of and Science of Ukraine and coordinated with the Ministry of Labour and Social Policy of Ukraine. Appropriate courses are organised three months before the launch of new machinery to help the workers understand the new equipment, modern production processes, automation and mechanisation and technical specifications. The education programmes are tailored to meet production and health and safety standards, as well as take into account the continuous development of professional knowledge. Pavlogradugol s education centre is licensed by the Ministry of Education and Science of Ukraine to train workers in 65 professions. In 2007, the centre trained 1,614 people in various professions and provided advanced training to 5,272 employees with 3,934 attending on-the-job courses.

26 ENVIRONMENT SCM Group has mining and metals and energy-generating businesses under its umbrella. Their production cycles leave a significant environmental footprint. On the one hand, SCM enterprises consume natural resources energy, water, land resources; on the other hand, their production cycles generate emissions, discharges, and waste.

27 Environment Policy and strategy 25 POLICY AND STRATEGY Environmental protection is a priority for the company. We believe that the efficient use of resources helps us be more effective. Capital investments in cutting-edge technologies help save energy, recycle water or waste, and most importantly help preserve natural resources and cut the cost of production. This chapter describes SCM s approaches and policies in the area of environment protection and provides information about the Group s environmental impact. Environmental Strategy for SCM Group All production facilities owned by SCM were built during the Soviet period when environmental considerations were not a priority. Some enterprises were initially built more than 50 years ago and in many cases some of their equipment is now obsolete and outdated. For example, the sinter plant at Yenakiyevo Metal Plant (YeMZ), which has a significant impact on environment the city of Yenakiyevo, was 70 years old in 2008 and it generates more than 70% of the plant s waste and emissions. Also, cities and towns were raised around enterprises so everybody could walk to work. As a result, many homes are in the immediate proximity of industrial sites. This historical approach to industrial and municipal planning affects the lives of people, even today. When enterprises were acquired by SCM Group, significant investment was needed to tackle environmental problems. Metinvest and DTEK enterprises have implemented, and are still realising extensive investment programmes to modernise production processes and to and reduce their long term environmental impact. SCM Group enterprises have also developed environmental programmes to reduce adverse environmental effects in the short and medium term. Apart from the capital construction of large facilities, existing sites are being repaired and properly maintained. For example, the Environment Protection Programme at YeMZ for specifies significant investment in new capital equipment which will have significant environmental benefits. The programme is developed to strategically further the plant s technological development, and includes a number of environment protection activities. The programme envisages the eventual replacement of the old sinter plant on the same site. The projected investments for total more than UAH 2 billion. Currently, the plant is taking a number of measures to modernise its facilities and environmental protection installations. In 2007 the plant replaced three multicyclone devices at sinter machines. The replacement of one such device alone helped reduce air emissions, from sinter machines by 36%. Metinvest Strategic Capital Investments Programme In 2007, Metinvest Holding developed a strategic Programme for capital investment projects in steel production assets covering the period to The programme was approved by the Metinvest Supervisory Board. According to the Programme, over $7.8bn will be invested in modernising steel mills including $5.4bn in Azovstal and $.2.4bn into YeMZ. Some funds will be used for projects aimed at significantly reducing solid particle emissions including the installation of modern dust and gas treatment units at sinter plants, blast furnaces, converters and processing equipment. The new equipment will come complete with modern environmental monitoring systems. Reducing the plants environmental footprints will be greatly aided by the replacement of YeMZ s sinter plant, as well as the shutdown of the openhearth shop at Azovstal.

28 26 SCM Group Sustainability Report 2007 The Group s enterprises investment and environmental programmes not only meet current environment protection laws but take into account their probable tightening in future as well as meeting international standards of environmental safety. For example, DTEK s thermal power plants benchmark their performance against the European air purification standard, where dust emissions must not exceed 50mg/m3. To meet this ambitious goal, Vostokenergo has developed a Strategic Environment Protection Programme for to meet the 2001/80/ЕС Directive. Environmental programmes are based on specific and thorough analysis. In 2007 an integrated environmental risk assessment was undertaken. DTEK s corporate centre organised the identification of the environmental risk aspects at all enterprises. A number of Metinvest Group enterprises carried out inventories of emission sources. The companies invested funds to improve monitoring systems and equipped laboratories to better assess environmental impacts. For example, Avdeyevka Plant certified its air and water basin protection laboratory. The lab extended its scope of monitoring over the quality of emissions and discharges and adopted new methods to detect heavy metal residues in water and soil. Activities under environmental programmes fall under capital investment, current and other expenses. It is important to note that under SCM group ownership more attention has been attached to capital investment related to environment protection. The structure of environmental investment at YeMZ over is a good example. Structure of environmental investment of YeMZ Group, , in thou. UAH thou. UAH overhauls and current repairs construction of new facilities

29 Environment Policy and strategy 27 Environmental investments by enterprises of Group s industrial holdings, 2007 Metinvest 85% current expenditures 14% capital investments 1% other expenditures Environmental investment of industrial businesses within SCM Group in 2007 totalled over 1 billion UAH. Out of UAH 1,034,929,000 investments by Metinvest Holding were UAH 1 billion and investments by DTEK totalled UAH 91,352,000. Payments and penalties are not included in the indicator. Environmental management systems SCM Group manages environmental performance at several levels of the business. The Group s Corporate Centre developed and approved the overarching environmental principles. Based on that policy, the holdings set up their own environmental management systems. In 2007, DTEK created a special department to coordinate the environmental performance of its enterprises. DTEK also fixes general goals and objectives, evaluates environmental risks and also collects and analyses environmental information. Metinvest plans to set up a similar department in The actual implementation of environmental programmes takes place at the enterprise level. All of SCM s major companies have established dedicated departments responsible for environmental monitoring and the realisation of environment protection programmes. The introduction of the ISO standard was an important step in the development of the environmental management system. At Metinvest, the ISO environmental management system certification has been DTEK 78% current expenditures 17% capital investments 5% other expenditures awarded to all six Iron Ore Division enterprises (certification covers 90% of the employees) and to Khartsyzsk Pipe Plant of the Steel and Rolled Metal Division. Other Metinvest companies are preparing for the introduction of the system. DTEK is also implementing elements of the ISO regime and plans to certify all enterprises by Cooperation with local communities The enterprises strategic environmental programmes are created in close cooperation with local governments. For example, the YeMZ environmental programme for was endorsed by Yenakiyevo City Council. Azovstal s environmental activities are included into the Programme for the Environmental Pro- tection of Mariupol approved by the Ministry for Environmental Protection of Ukraine. AKHZ s environmental programme has the agreement of the Avdeyevka City Council and the plant s actions are part of the annual environmental programmes of Donetsk Oblast and the town of Avdeyevka. Metinvest s GOKs participate in the Programme for Overcoming the Environmental Challenges of Krivoy Rog, a regional programme for protecting small rivers, and a state programme to lower the use of ozone depleting substances. Environmental activities at Pavlogradugol are an integral part of the programme to reduce contamination in Dnepropetrovsk Oblast. Supporting environmental initiatives We support public initiatives in environment protection. Avdeyevka Coke and Chemicals Plant in tandem with Donetsk National Technical University and Moscow State University of Environmental Engineering have been holding an annual international academic and research conference titled Environmental Problems of Industrial Cities since The conference was held in Moscow in 2007, and the plant s specialists spoke on environmental and resource-saving technologies. The enterprise also provides many internships for students: in 2007, 21 students from Donetsk higher education institutions had internships in the environmental department of the plant. They studied environmental and resource-saving technologies. The Group s non-industrial businesses also maintain an awareness of environment protection and seek to play their part in reducing emissions. For example, ASKA insurance company participated (to the extent possible) in the fight against climate change. ASKA places ads on electric transport vehicles instead of motor vehicles. In 2007, ASKA undertook a broad advertising campaign (outdoor advertising accounted for 40% of the company s whole advertising budget) in 13 Ukrainian cities. All ads were placed on environmentally-friendly electric trolley-buses.

30 28 SCM Group Sustainability Report 2007 USE OF RESOURCES The key resources used by SCM Group businesses in their operations include energy, water and land. The Group s policy is focused on saving and recycling primary resources, as well as on reclaiming man-made landscapes resulting from the development of deposits. USE OF ENERGY Energy consumption is a large component of production costs. Efficient energy use is therefore one of the Group s strategic priorities. The first step is to implement modern energy management systems. The enterprises analysed their energy-saving opportunities in The analysis showed that the businesses should introduce or modernise control and measuring systems, electric motors, transformers, heating and lighting systems and recover process heat to ensure higher energy efficiency. The metal industry is the Group s most energy-intensive focus. In 2007 Metinvest enterprises consumed 227,828,107 GJ of energy. The energy consumption structure is shown on the chart. Direct use of energy from primary sources by Metinvest enterprises, 2007 The electric power industry is the second most energy-intensive sector in the Group. Information on DTEK s use of energy according to international practice will be provided in future reports. In 2007, DTEK enterprises energy-saving programmes were aimed at improving the measurement of energy use and implementing modern energy-saving technologies, as well as replacing obsolete equipment with new and more efficient models. Energy saving at Azovstal 39,37% natural gas 33,46% coal 25,16% coke 1,89% diesel fuel 0,12% gasoline The capital overhaul and replacement programme of an enterprise can account for significant energy savings in the mining and metals industry. In 2007, Azovstal undertook significant energy-saving measures. The plant realised a range of activities to improve fuel consumption and made suggestions on the more efficient use of fuel in metal production processes. The measures taken resulted in the following savings: electricity saving 11.8m kwh, or UAH 9,753m; natural gas million m 3 or UAH 8,311m.

31 Environment Use of resources 29 USE OF WATER Water consumption is a critical issue for Metinvest and DTEK. Iron ore and coal mining processes use significant quantities of water: water cools equipment, isolates minerals from rock and takes away waste rock. Water is also used in iron ore processing and beneficiation, energy generation at thermal power plants, and in steel production. Reducing water volume consumed and increasing recycling are essential elements of SCM Group s environmental policy. Energy saving programme at Pavlogradugol Pavlogradugol consistently took measures to cut energy consumption. The company is developing an energy saving programme to carry it through to 2018 while at the same time implementing a number of energy saving measures. Mines use 50-70% of the energy they consume for pumping water, ventilation and transport. The replacement or modernisation of equipment used in these processes can have a significant energy saving effect. For example, one new pump cuts annual electricity consumption by 90,000 kwh on average. In 2007, the mines replaced nine water pumping systems. They also developed energy saving electric drives for fans and elevators. In 2007, Blagodatnaya Mine replaced the main mine fan. As the result, energy costs for ventilation fell by 11% at an annual savings of 1,700,000 kwh. Also, the mine s lift equipment was fitted with an energy saving drive that helped cut energy consumption by 34-35% on average. The mines introduced electricity metering systems (with a breakdown by time: idle, peak periods, and shoulder periods). Only a few mines in Ukraine have such systems. For example, in 2007 DTEK enterprises reduced their consumption of potable water by 7.8% as the result of repair works and organisational actions. In particular, Pavlogradugol reduced water consumption by 303,600 m 3 as the result of briefings on the efficient use of potable water, planned preventive maintenance to avoid water leakage, the timely inspection of shut-off valves, installation of metering devices and use of mine water for technical needs. Water recycling activities were also very successful at AKHZ. Two out of twelve recycling lines used by the plant supply water to all chemical shops. The plant s storage pond, which collects all waste water coming from offsite water treatment facilities, is the second major water supply source for the plant and forms part of the recycling system. The plant annually reuses million m 3 of water from the storage pond in recycling water supply systems.

32 30 SCM Group Sustainability Report 2007 Water saving programmes normally start by monitoring the amount of water consumed. In 2007, a number of the Group s enterprises installed water meters. For example, YeMZ installed ultrasonic meters for potable and waste water. The 2007 report covers information about water withdrawal from three sources: surface and underground water and that provided by utility companies. Group enterprises consume water from other sources as well: open-pit, mine, drainage water and waste water. For example, mine water produced in mining operations is now used by coal mining and treatment enterprises for catching dust and for irrigation. CGOK uses open pit water to keep the correct level of water at tailing dumps and thus withdraws less water from the Ingulets River. As a result, in 2007 CGOK saved 1,357.2 thousand m 3 of water. We are taking efforts to improve the collection of data on water consumption with the objective being able to include in future reports water consumption from other sources. According to the records, total water withdrawal from primary sources by SCM production facilities in 2007 amounted to 1,097,966,000 m 3 ; 1,019,798,000 m 3 was consumed by Metinvest enterprises and 78,168,000 m 3 by DTEK enterprises. Water withdrawal by enterprises of Group s industrial holdings, 2007 Metinvest 94,6% surface water 5,3% water, provided by local utilities and other companies 0,1% underground water DTEK 67% surface water 29% water, provided by local utilities and other companies 4% underground water USE OF LAND Group enterprises extract iron ore and steam coal. The extraction of mineral resources requires the development of deposits and as a result leads to land disturbance. Land reclamation is an essential objective of SCM Group enterprises operating in the mining sector. Reclamation of land at SevGOK and CGOK Iron ore waste dumps are an inevitable result of the activity of mining and ore processing plants. After a waste dump is full it takes decades until it naturally returns to vegetation. Without reclamation processes waste dumps with potentially fertile soil become overgrown with weeds within the first few years. As the result, the structure of the vegetation cover in the region is exposed to irreversible changes. Ore mining plants in partnership with Krivoy Rog Botanical Garden are implementing a long-term programme to reclaim the iron ore dumps and open-pit sides. Botanical Garden experts have studied the processes of soil formation and plant synthesis in different types of disturbed lands, and then have selected a range of woody plants and grass suitable for creating a protective cover. Pine and black locust trees are planted on rock waste dumps. Maple, bird cherry tree, barberry tree, wheatgrass, feather-grass and alfalfa are planted on waste dumps containing potentially fertile land. Openpit sides are planted with black locust trees. In 2007, more than 4,000 tree saplings were planted as a part of the programme. Land resources in production cycles are also used for waste disposal. Group enterprises implement technologies that ensure efficient land use. For example, CGOK arranged a temporary overburden storage within the area of operation of Petrovsky open pit. By doing so, the company eliminated the need to take over farmland to store waste. Avdeyevka Coke and Chemicals Plant adopted technology that dehydrates flotation tailings instead of expanding dams: the tailings are dehydrated and disposed on waste rock storage areas. As a result, the plant avoided the flooding of over 20 hectares initially expected in its dam expansion project.

33 Environment Environmental footprint of production cycles 31 ENVIRONMENTAL FOOTPRINT OF PRODUCTION CYCLES The group recognises that its industrial enterprises significantly affect the environment. Air emissions, effluent water and other waste products are produced as the result of SCM Group enterprises activity. To mitigate the negative environmental impact, enterprises continuously control air and water quality at its productions sites, improve production processes, modernise existing treatment plants and construct new ones, and adopt modern low-waste technologies. IMPACT ON AIR Sources of air emissions Production cycles have the largest impact on the ambient air quality. Most enterprises use significant amounts of fuel which inevitably results in the generation of dust and gas emissions Nitrogen oxides (NOx) Gross air emissions of major pollutants by enterprises of the Group s industrial holdings, 2007, tonnes Metinvest Sulfur oxides (SOx) Carbon monoxide (CO) Solid Nitrogen oxides (NOx) DTEK Sulfur oxides (SOx) 2775 Carbon monoxide (CO) Carbon oxide accounts for the largest part of the emissions generated by steel enterprises, while thermal power plants largely generate sulphur oxides. Solid The metal sector creates most of these emissions. Sintering, the production and processing of pig iron, is the key source of emissions in the metal industry. Sinter plants emit significant amounts of carbon oxide and sulphur dioxide as part of the process. SCM Group s sinter plants at Azovstal and Yenakiyevo Steel Plant are the major air pollutants among production facilities. Re-constructing these plants is one of the main objectives of long-term development and investment programme at Metinvest. Dust and gas emissions are also released as a result of power generation. Thermal power plants generate emissions of sulphur dioxide, carbon oxide, nitrogen oxides, as well as emissions of unburned solids in the form of ash and soot. Dust is generated by processes ranging from fuel combustion to mining and enrichment. Dust and other volatile substances are also generated from blasting at opencast mines, coal storage at outside yards, and the dry surfaces of tailing pits. The pollutant content depends on the type of fuel used. Natural gas (see chart Energy consumption ) accounts for the majority about 40% of the energy used by Metinvest Group enterprises. Natural gas is the most environmentally-friendly fuel. The combustion of natural gas generates almost no harmful air emissions compared to other types of fuel types as it does not contain ash, sulphur or nitrogen compounds.

34 32 SCM Group Sustainability Report 2007 SPECIFIC AIR EMISSIONS AT AVDEYEVKA COKE AND CHEMICALS PLANT, Production of coke, thou. tonnes Air emissions, tonnes per 1 thou. tonne of coke , , , , , , , As the Group s enterprises have been increasing production yearon-year, gross emissions may also increase. Emissions per production unit are more informative measure in this case. The adoption of new technologies may also result in emissions reduction despite the growth of production volumes. For example, AKHZ has been regularly reducing air emissions per tonne of output although coke production has grown. This has been achieved through planned environmental activities. For example, in 2007, the plant reconstructed its desulphurisation workshops at a cost of UAH 10m. Air Protection Activities Improving air quality is a key priority among the environmental activities of the Group s enterprises. The activities cover two main areas: use of state-of-the-art dust catching and gas purifying equipment at stationary sources reduction in dust formation and improved dust catching. Dust catching and gas purifying equipment One of the most effective ways to cut air emissions is installing modern electric filters on fixed sources of pollution. In 2007, Azovstal, YeMZ, Northern GOK and Vostokenergo installed and upgraded electric filters. Reduction in dust formation and improved dust catching. The Group is mostly focused on iron ore mining at open pits. More than 1.5 tonnes of dust gets into the air during blasting at an open pit using traditional technology. Krivbassvzryvprom has developed a method to reduce emissions during blast operations by applying environmentally-friendly explosives. This helps cut air emissions by 53%. Blasting operations are based on emonite (an explosive) and special blast initiation systems. As a result, the plants have seen significant cuts in emissions of harmful substances and lower seismic vibrations. In 2007, this technology helped reduce dust emissions by 2,729.2 tonnes at SevGOK and by tonnes at CGOK. The waste of processing and steel enterprises is stockpiled in tailing storages, which are a significant source of dust. Strong winds can raise hundreds of tonnes of dust from the tailing pit surface, and this can spread for 3-5 km around, polluting the air, water and soil. The Environmental Service of CGOK in cooperation with Krivoy Rog Botanical Garden has developed a unique dust catching technology by using plants. CGOK plants rushes in wet areas, and these grow well on sludge without any additives or fertilisers. Dry areas are fixed with Black Sea lyme grass, although fertilizers are needed. These new methods have made it possible to reduce dust emissions by 49 tonnes per year.

35 Environment Environmental footprint of production cycles 33 GREENHOUSE GAS EMISSIONS AND CLIMATE CHANGE SCM Group enterprises generate significant greenhouse gas emissions including: methane, carbon dioxide and nitrous oxide. As part of meeting Ukraine s obligations under Kyoto Protocol, in 2007 Group s enterprises worked on a GHG inventory and developed plans focused on emissions reduction. GHG emissions by enterprises of the Group s industrial holdings, 2007, tonnes Methane Carbon dioxide (CO2) Nitrous oxide (N2O) Metinvest, total Metinvest Krasnodonugol was one of Ukraine s first companies to implement a coal bed methane recycling programme. Barakova Mine and Sukhodolskaya-Vostochnaya Mine have adopted a process to use methane in their in-house boiler rooms. Barakova Mine has been using methane in the boiler rooms since The volume of methane used in 2007 amounted to 3,752 tonnes; methane emissions reduced by 17,096 tonnes over the 4 years of methane recovery. DTEK, total Enterprises of the industrial holdings of the Group, total DTEK In 2007, Komsomolets Donbassa Mine launched a methane recycling project. Under the project methane will be used to operate boilers at the mine during the winter heating season and flared in recycling units during warm seasons. Methane flaring and recycling at the mine boiler will help reduce methane emissions by 1,600 tonnes in In total GHG emissions (in carbon dioxide equivalent) reduced by 2.7% or by 594,000 tonnes in 2007 across DTEK compared to 2006 levels.

36 34 SCM Group Sustainability Report 2007 DISCHARGES INTO WATER Mining, enrichment, metal, and coke and chemicals enterprises discharge significant volumes a lot of waste water into water reservoirs. Thermal power plants also use large quantities of water for cooling operations and discharge it into water bodies in a conditionally clean form. In 2007 SCM Group enterprises discharged a total of 1,066,583 thousand m 3 of waste water; out of this 1,026,370 thousand m 3 was discharged by Metinvest Holding enterprises and 40,213 thousand m 3 by DTEK companies. In 2007, this included industrial waste water only. Domestic waste water was not included as purification facilities of some Group enterprises take in the domestic wastewater from local communities for treatment. Industrial holdings will develop a common approach to calculation of waste water for future reports. Industrial waste water can contain oil products, iron, sulphates, chlorides, magnesium, calcium and solid residue. The composition of the enterprises waste water is presented in the table attached. To improve waste water quality, Group companies are implementing waste water purification programmes and installing closed water supply cycles. Quality of waste water in 2007 across industrial businesses of the Group in 2007 Substance Oil products Ammonia nitrogen Suspended matters General iron Nitrates Sulphates Chlorides Wt, tonnes Biological oxygen demand For Azovstal, the issue of improving waste water purification is important. Harmful matter has been finding its way into the Sea of Azov through leakages from a sludge dump. Under its technical re-equipment programme, the plant will construct a sludge briquetting facility. The objective is to empty the sludge dump. As a result, waste water will stay longer in the sludge dump and the level of mechanical waste water purification will increase. Some enterprises, such as DTEK s Zuevskaya Plant, have already adopted a closed water cycle. The plant s storm and sewage water system collects waste water into a receiver tank and pumps it into the circulating system for cooling the turbine condensers at the power units. Industrial waste water is discharged into the environment in insignificant amounts. Following treatment at purification facilities, domestic waste water is also pumped into the circulating system. WASTE GENERATION Overburden rocks, sludge, slag and dust waste account for the biggest share of waste products generated by SCM Group enterprises. In coalmining, after the valuable minerals are extracted, waste rock is stored in dumps. Metal production operations generate slag, sludge from wet gas purification, and dust waste from dust catching and gas purifying systems. Waste from purification systems is also produced in coke and chemical production and during the generation of electricity. Most waste generated by the Group enterprises belongs to the lowest hazard class and is treated by dedicated organisations and departments within the enterprises. In the area of waste treatment, the biggest problem is not the danger posed but the volume. As production grows, the enterprises are permanently searching for places to dispose of large volumes of non-hazardous waste. Companies seek new waste areas, or try to reduce waste disposal through improved treatment and by implementing the highest degree of recycling possible. The group s enterprises recycle as much as possible, firstly, through reprocessing waste materials and the re-use of tailings.

37 Environment Environmental footprint of production cycles 35 Waste treatment at enterprises of Group s industrial holdings, 2007 In 2007, the Group s enterprises generated 181,863,000 tonnes of waste in total. Metinvest enterprises accounted for 172,803,000 tonnes and DTEK enterprises generated 9,060,000 tonnes. Most of the waste (68%) was disposed at special storage areas while 30% was recycled. 68% disposed 30% recycled 2% transferred Waste recycling programmes at Group s enterprises YeMZ started reconstructing a combined sludge dump. As the result the plant will be able to recycle significant volumes of waste from metal production. Significant investments are expected in the project; over $11m of investment has been planned for 2008 and Avdeyevka Coke and Chemicals Plant commissioned an environmentally-friendly closed loop system to recycle the liquid waste generated by the enrichment plant. This helped to stop discharging waste into the sludge dump. A solid residue is extracted from the liquid waste; it is stored at the waste rock piles, while cleaned water is channelled back into the technical cycle. The closure of the sludge dump will allow Avdeyevka Plant to start processing 6.5m tonnes of sludge which has a high coal content, and in future, to reclaim the sludge dump area. Khartsyzsk Pipe Plant invested around UAH 1.4m to set up a production line for polymer waste recycling. Around tonnes per month of polyethylene waste is generated in the process of applying an anti-corrosive coating to largediameter pipes. Waste recycling had been a challenge for the plant before it installed the system. The waste polyethylene and waste sacks had previously been stored at the enterprise as demand was insufficient. Specialists at the plant developed a method for producing granulated polyethylene (a product for which there is high market demand) from all types of polyethylene waste for further sale to consumers. GOKs reduced generation and disposal of waste through recycling operations. SevGOK uses tailings to construct walls of tailing dumps, and used overburden rocks to construct the dam of the tailing dump, as well as build railways and roads and produce crushed stone. These activities reduce industrial waste disposal by 14-16% annually. CGOK is realising a programme that enriches the waste to make iron ore concentrate (iron content - 65%). The annual production volume with help of this method provides the GOK with enough concentrate to ensure its operation for three months without blasting operations. Waste rock makes up 98% of the waste produced by Pavlogradugol. The mining company developed and is implementing a complex solution to recycle bulk waste rock and reclaim land, which has suffered from subsidence and exhausted mine workings that have become flooded during the coal production process. This helps reduce the amounts of waste rock placed in dumps. In 2007, a total of 13.8 hectares of land was reclaimed. Kurakhovskaya Thermal Power Plant is reclaiming its ash dumps. Its activities in 2007 helped reduce the storage of ash and sludge waste by thousand tonnes, thus reducing the level of dust generation. In 2007, the enterprise dispatched 15,790 tonnes of dry ash for further use. This helps reduce the volume of waste kept at the ash storage area.

38 COOPERATION WITH SOCIETY Many SCM Group companies were the basis around which cities or districts were formed in the past and these enterprises continue to play an important role in the life and development of the communities they are part of. Therefore interaction and cooperation with the local authorities is very important for SCM s enterprises and for local communities.

39 Cooperation with society Policy and strategy 37 POLICY AND STRATEGY Mining and metals as well as power-generating enterprises are at the core of the Group s business. Prior to joining SCM, most were in state ownership and acted as a guarantor of stability for employees and areas of their operations, in other words, they had both an economic and social function. Changes in ownership led to changes in the scope of social responsibility of the enterprises. A privately-owned enterprise should not perform the functions of local government. It takes part in the economy through paying taxes creating jobs and by active participation in community activities. Today the social activities of SCM group enterprises go beyond the legal requirements. Since SCM acquired its enterprises it has been committed to maintaining the long-standing traditions of caring for employees and the local communities. SCM believes that business can be successful only if employees feel positive about their jobs and working environment, and that their families enjoy good living standards in the areas where the companies operate. Thus, only a socially responsible business which partners with the community can be successful in the long run. Social investments of major businesses of the Group, 2007, in million of UAH 36,188 social investments at the national level 35,583 investments in development of regions of operation 27,405 charity Being a large national investorin local communities, SCM provides material and non-material resources to implement a number of social programmes. This reflects a philosophy of sustainable development and responsible business, and contributes to the sustainable development of the country, and meets the expectations of citizens regarding the importance and role of business in society. In 2007, SCM Group partnered with society both on the local (regions of operations) and national level (through the Corporate Foundation 3,459 sponsorship for Development of Ukraine). Total investments of SCM Group in social development during the year were around UAH m.

40 38 SCM Group Sustainability Report 2007 COOPERATION WITH LOCAL COMMUNITIES Many of the Group s companies are the focal points of their cities, so systematic cooperation with the local authorities and communities is very important for us. We care for the communities where we and our employees live. We understand that the welfare of the city and the living conditions of the employees families will contribute to the creation of a healthy and constructive atmosphere at our companies. The quality of life has a direct impact on the ability to attract staff and the desire of people to live and work in their native city. As a result, SCM Group enterprises make significant contributions to address social and economic problems and improve infrastructure in the areas where it operates. When cooperating with local communities, the Group s enterprises are guided by the following principle: to operate in partnership with all stakeholders and local authorities to ensure the longterm improvement of the quality of life in the communities. SCM s policy in this area recommends the following: to support local authorities programmes only if they have a strategic plan for social and economic development the programmes must be wellgrounded, appropriate and result-oriented cooperation programmes with local communities must match key strategic business development aspects of as much as possible. For example, if a priority business objective is to address environmental problems, environmental activities should be in focus Investment of Group s major businesses in development of regions of operations, ,47% infrastructure development 23,61% community support 14,24% education 12,19% culture and sport 7,25% healthcare 0,78% assistance to children s houses and orphanages 0,46% other employees of enterprises should be involved in the activity of local authorities. Participation helps support the most effective community development projects and serves as a mechanism of representation cooperation with local authorities must be appropriately fixed in a partnership agreement or letter of intent. With these points in mind, the enterprises define the content of the cooperation programmes and have their managing companies approve the programme budgets. It is noteworthy that while preparing this report, the community investment and development information was systemised for the first time at the Group level. This systemisation included the development of the investment categories and consolidation of financial information. According to our calculations, in 2007, the Group s investment in local and regional development totalled UAH 35,582m. The following diagram shows the social investments structure. Most resources were used for infrastructure development. The investments in infrastructure category includes support and development of infrastructure facilities: the development and improvement of land, utility and housing, roads, lighting and playgrounds. The second highest category is local authorities. This category includes cooperation with local authorities and executive bodies as well as social protection bodies and law enforcement bodies.

41 Cooperation with society Cooperation with local communities 39 Metinvest s Iron Ore mining and processing plant helped to develop the botanical gardens as a recreational space for Krivoy Rog citizens Cooperation of the Group s businesses with local communities DTEK developed a programme of social partnership with local communities in seven cities in Donetsk, Dnepropetrovsk and Lugansk oblasts, where DTEK businesses operate. In August, Vostokenergo signed a letter of intent on social partnership with the City Councils of Zugres, Kurakhovo (Donetsk oblast) and Schastye (Lugansk oblast). According to the 2007 protocol, DTEK and Vostokenergo transferred approximately UAH 900,000 to the budgets of municipal authorities to support these social partnership programmes. Krasnodonugol concluded a social agreement with the City Council of Krasnodon. The goal is to consolidate efforts for the mutual implementation of a long-term programme for the economic and social development of the town of Krasnodon and improve the standard of living of its citizens. Under the social agreement Krasnodonugol will allocate UAH 2.5m by spring 2008 to the Town Council. The funds will be used to prepare for the winter heating season, repair and maintain housing, utilities and social infrastructure of the town. UAH 2m will be allocated on repairing and maintenance of housing and utilities infrastructure, and UAH 500,000 on the repair of roofs in schools, nurseries and other state-run institutions. The targeted use and efficiency of the social investment made by Krasnodonugol is supervised by an ad hoc commission composed of representatives of the company and the Town Council. Krasnodonugol is the biggest company in the city, and we have always taken an active part in local social programmes, specifically, our employees help prepare residential buildings for the heating season. This year we decided, together with local authorities, to increase the effectiveness of the social investments made by Krasnodonugol. To this end, we have signed a social agreement which helps improve the reliability of utility services in the town and, as a result, improve the living conditions of area citizens, many of whom are Krasnodonugol employees, said the CEO of Krasnodonugol, Aleksandr Vovk.

42 40 SCM Group Sustainability Report 2007 Azovstal seeks to build partnership relations with state-owned organisations, NGOs and local communities in the city of Mariupol and Donetsk Oblast on the basis of equality and mutual trust. Mutual goals are described in agreements on social and economic cooperation with the city and regional administrations and with the plant s public organisations. Early in 2007, Azovstal signed an agreement on social and economic cooperation with Mariupol City Council. The plant undertook to provide material, organisational and financial support to the city s social programmes targeting the improvement of secondary, vocational and higher education; improve the social infrastructure of the city; develop city infrastructure; and ensure timely tax payments to different budgets, including the local budget. In turn, Mariupol City Council undertook to enhance the investment appeal of the city, ensure favourable conditions for the protection of the rights, interests and property of investors, as well as promote the positive image of the plant. Avdeyevka Coke and Chemicals Plant Recognising its responsibility to local citizens, the management of the company sought to prevent the dilapidation of the existing social infrastructure amid a state funding deficit. The plant signed an agreement on social and economic cooperation with the City Council. The enterprise pays great attention to maintaining the housing facilities in the town, where most of the plant s employees live. Although housing and utilities infrastructure were transferred to the ownership of the Avdeyevka Town Council, maintenance teams from the plant help maintain the heating system and prepare residential buildings for the winter heating season. In addition, the plant undertook to produce and supply thermal power for the heating and hot water systems of the residential houses and enterprises of the town, which is cheaper than in neighbouring communities. Taking care of citizens living in the older part of the town, AKHZ provided UAH 109,000 for the construction of a gas pipeline in the eastern part of Avdeyevka. Employees take part in environmental clean-ups and the improvement of the areas attached to the plant. The company provides refuse trucks for garbage disposal. Both AKHZ and the town benefit from their cooperation as it targets the improvement of citizens quality of life and ensures the social and economic development of Avdeyevka. In 2007, AKHZ allocated UAH 700,000 for social programmes and projects. The plant accounted for 52.7% of the revenues of the local budget in In 2007, AKHZ paid UAH 158.1m in taxes to the national and local budgets. This was up 67.8% year on year. Taking care of Dokuchayevsk citizens, Dokuchayevsk Flux and Dolomite Plant developed a recreation park in the town. This area was a previously abandoned children s camp which had been turned into a landfill ten years ago. DFDK employees cleaned up the area, planted trees and shrubs, built paths, a conservatory, a mini zoo and a children s railway. Every year employees improve the park, which has become one of the remarkable attractions of Dokuchayevsk. Being comfortably located, the zone allows citizens both to enjoy fresh air and relax. The park attracts citizens and visitors from outside the town and has become a favoured leisure destination. In 2007, DFDK s maintenance and development expenditures for the park totalled UAH 1,318 million. The recreation park in Dokuchayevsk is one of the town s most significant social facilities and is a cultural centre for its citizens. The Group s activity aimed at the social and economic development has been recognised publicly. For example, based on the results of the city improvement contests carried out by the City Council of Krivoy Rog, from 2005 to 2007 CGOK and SevGOK annually took the top places among industrial enterprises for the improvement of city streets, sport areas and children s playgrounds. In 2007 Komsomolets Donbassa Mine was given a Letter of Award from Donetsk State Administration for its fruitful work and significant contribution into the social and economic and cultural development of the region.

43 Cooperation with society Social investments at the national level 41 SOCIAL INVESTMENTS AT THE NATIONAL LEVEL SCM s shareholder has always believed that business can be successful only in a prosperous country and he is ready to contribute to the economic development of Ukraine and to organise a constructive dialog between government, business and civil society. For this reason the managing company focuses on the development of Ukraine and invest into society. As our business accounts for approximately 9% of Ukraine`s GDP, we have implemented a number of social investment projects on the national level to help society s development. In 2007 the Foundation for Development of Ukraine served as an instrument for implementing social investments. The Foundation presented a report on its activity in The report is available at the SCM website, in the social responsibility/reports section. The Foundation is focused on the implementation of socially important projects in the fields of healthcare, education and culture and invested around UAH m in social programmes in In future years, the corporate social responsibility of the Group with its constituent companies on the one hand, and the personal charitable activity of SCM s owner on the other, will be separated. The plan is to make FDU a private foundation of SCM s owner. More detailed information is available at: The Foundation for Development of Ukraine helped reconstruct the Metropolitan s Residence at Sofiya Kievskaya national monument. Social investments on national level Foundation for Development of Ukraine, 2007, in million UAH 30,614 healthcare 2,978 education 2,596 culture

44 42 SCM Group Sustainability Report 2007 SPONSORSHIP AND CHARITY SPONSORSHIP AND SUPPORT OF PUBLIC PROGRAMMMES SCM Group takes a strategic approach to the sponsorship projects it is involved with. The objective is to support the events, activities, communities or organisations whose actions directly benefit the communities we are part of, and the development of Ukrainian society. Education Azovstal to Children In 2007, Azovstal continued its tradition of providing support to orphan s schools, the city s centre for the rehabilitation of disabled children, and the children s homes under its programme. In 2007 Azovstal transferred more than UAH 80 thousand for charitable activities aimed at helping children and low-income families. Europe Day For the past three years SCM has been one of the sponsors of the Europe Day celebrations, which take place in Kyiv and across Ukraine each year. The event is organised by the European Union s Delegation to Ukraine and the Ukrainian Ministry of Foreign Affairs. In addition to a European Village in the centre of Kyiv representing the EU member states, the event also features a free open air concert of European and Ukrainian bands on the city s Independence Square as well as discussions on European issues. Culture FUIB supports culture and art First Ukrainian International Bank has been the partner of Ukraine s ballet festival World Ballet Stars for the past 14 years. The festival supports the development of the country s long tradition of ballet excellence. Sport and health The second focus for SCM s sponsorship is sport and health. The Group contributes to sport development in local communities; in particular it helps young athletes realise their potential. We have chosen to highlight two particular projects in Yenakiyevo. FC Shakhtar s Children Academy One of the major social projects of the SCM Group enterprises in 2007 was the opening of a campus of FC Shakhtar s Youth Academy in Yenakiyevo town where Metinvest is a major employer. The project s goal was to promote sports and a healthy life style. More than 100 children from Yenakiyevo and the neighbouring towns have the possibility to play football in the local academy s facility located at the steel plant s recently renovated sports stadium. Here they can play football, receive professional coaching and learn the principles of a healthy lifestyle. The company plans to invest in the project approximately USD 1m. Northern and Central GOKs Metinvest s iron ore businesses based in Krivoy Rog provide financial support for the leading sportsmen of the City Sports Palace to participate in regional, national and international competitions. Northern GOK also provides support for the development of motorsport in the city and funds motorsport teams of the Terny Club to participate in local and international competitions. SCM Group enterprises made sponsorship contributions of around UAH 3.459m. Distribution of sponsorship contributions by major businesses of the Group, ,8% culture and art 24,0% sport 18,9% conferences, workshops 11,8% non-core NGOs 10,5% core NGOs 3,9% international organizations 0,2% academic institutions

45 Cooperation with society Charitable donations 43 CHARITABLE DONATIONS Charitable donations provided by SCM and Group companies seek to help alleviate human suffering, provide immediate assistance during humanitarian disasters, as well as support and assist disadvantaged sectors of the community and those in need. To ensure the effectiveness of the funds we provide, the assistance and support is delivered through recognised public and charitable organisations who are experts in their field. The Group s businesses provide support for those on low incomes and from disadvantaged sectors of the community. A particular focus of the group is supporting children from poorer families and for those in children s homes and those children who need medical care. In addition, the companies of the Group provide support to former workers and pensioners. For example, Pavlogradugol provides support for a retirement home in the city. Breakdown of charitable donations by Group`s major businesses, 2007, in million UAH 24,816 targeted assistance* 2,036 assistance through charities 0,553 assistance through NGOs * including FDU - UAH 24,634 million Companies and enterprises of the Group donated around UAH m in Disabled children DTEK and Komsomolets Donbassa Mine support the We are young and equal! annual festival of children and junior art. This is one of the few festivals in Ukraine in which disabled children from all over the country can also take part. The goal of the festival is to help children realise their potential through art. Avdeyevka helps low income people AKHZ provides hot meals at the company s cafe for those on a low income and for children from poor families. These meals are made possible using funds collected by the plant s employees. Disabled people who cannot get to the café for meals can also have food delivered to their homes. The plant also arranges additional festive events for children and those on low incomes. The amount allocated for lunches in 2007 exceeded UAH 200,000. First Ukrainian International Bank: Hope for Life FUIB in partnership with Nadezhda Charitable Foundation which specailises in treating children with leukaemia runs an annual Hope for life campaign aimed at raising funds for the Donetsk Children s Oncohematology Centre. The bank has been supporting Donetsk Children s Oncohematology Centre Nadezhda for 11 years. The bank has equipped the Centre s diagnostic suite and regularly updates the technical facilities and diagnostic software to ensure fast and high-quality diagnostics. FUIB also donates funds for drug treatment programmes, holds campaigns to collect clothing and other goods for leukaemia-affected kids and helps the Centre with repairs and maintenance.