TO BE TOGETHER. Social Report OJSC SIBUR Holding

Transcription

1 TO BE TOGETHER Social Report OJSC SIBUR Holding 2006

2 Foreword by SIBUR President 3 Part 1. SIBUR Holding OJSC Russia s Leading Petrochemicals Company 4 History of the Company 6 Corporate Structure 8 SIBUR Holding s Strategy 9 SIBUR Holding s Investment Programme 10 Part 2. Environmental Policy 13 Basic Principles and Objectives in the Area of Environmental Protection 13 Environmental Performance 14 The Company s Environmental Policy 17 Part 3. SIBUR A Responsible Employer 20 Staff Overview 20 Social Policy 22 Pay Policy 23 Non-monetary Incentives for Employees 24 Social Troubleshooting 25 Staff Training and Development 26 Capacity Building 28 Staff Assessment 28 Health and Safety 29 Health and Safety Management System 29 Application of Safety Policy 30 Safety Performance 31 Social Programmes 33 Social Infrastructure 33 Staff Leisure and Health 39 Medical Insurance Programme 40 Pension Programme 40 Children s Programmes 41 Trade Union Work 44 Building a Corporate Culture 45 Corporate Communications 46 Sport in the Company 46 Part 4. Socio-Economic Partnership and Charity 48 Regional Policy 48 Charity Programmes and Sponsorship 49 Main Objectives for On SIBUR Holding s First Social Report 53 Acknowledgements 54 Appendix. GRI Compliance Index 55 2

3 Foreword by SIBUR s President The human factor is of key importance for SIBUR s development. Our operations, investment efficiency and management system depend entirely on the competence of our staff. Transforming SIBUR s many thousands of employees into a strong and motivated team with shared corporate values is a Company priority; if successfully achieved, this will have a direct impact on all the Company s performance indicators. We aim to give our employees a feeling of stability and security, while at the same time making them socially dynamic and opening up new horizons. Everyone should feel that they are needed by the Company and that they, in turn, need the Company. We view social policy as a tool for achieving this objective. Social investment is an integral part of our business; it is taken into account in each individual project and in our progress towards strategic horizons. SIBUR aims to create healthy environmental and social conditions around its enterprises. Our investment in environmental protection, charity programmes and other forms of support and development in the areas where we operate are seen in the context of our overall business activities. The Company s strategic mission is closely interlinked with the needs and aspirations of contemporary Russian society. Industrial growth, the intensive development of resource processing at every stage, and enhancement of environmental responsibility all these processes, with SIBUR s active involvement, are ultimately aimed at improving living standards and creating a comfortable environment. The Company s first Social Report is an important indicator of how our corporate policy is developing. SIBUR has come through a difficult stage in its evolution, when many of its constitutent enterprises teetered on the brink of collapse. Today we see good prospects ahead of us for stable and successful development. Each new SIBUR Social Report will illustrate how our economic performance is impacting the lives of our employees and the development of the regions in which the Company operates. Dmitriy Konov 3

4 Part 1. SIBUR Holding OJSC - Russia s Leading Petrochemicals Company SIBUR Holding OJSC 1 is the largest vertically integrated company in Russia by production volume, processing substantial volumes of hydrocarbon resources in an integrated technological chain. The Company controls 34 petrochemicals enterprises located in 21 regions of the country, and a further 50 independent petrochemicals companies are involved in SIBUR s production cycle. The Company produces over 100 types of petrochemical product, which are supplied to 76 countries around the world. SIBUR employs approximately 83,000 people and provides work for over 200,000 others through industrial cooperation. ASSET BASE Yuzhno-Balyksky GPP Yaroslavl Tyre Plant Nyagangazpererabotka SIBUR-Neftekhim SIBUR-Geotekstil JSC SIBUR Noyabrskgazpererabotka Gubkinsky GPP EUROPE Metafraks Sibur-PETF Spetszisterny Head office in Moscow Siburgazservice LLC SIBUR Plastic Voronezhsintezkauchuk Nizhnevartovsky GPP Belozerny GPP Tomskneftekhim Sibmetakhim Kemerovsky Azot Orton AMERICA Krasnoyarsk Rubber Plant CIS Omskshina Matador-Omskshina ASIA Voltyre-Prom SIBUR-Volzhsky Volzhsky Azotno-Kislorodny Zavod Volzhsky Kauchuk Tobolsk-Neftekhim Uralshina SIBUR-Khimprom Uralorgsintez Toliattikauchuk Novokuibyshev NHK Hydrocarbon Feedstock Synthetic Rubbers Plastics and Organic Synthesis Mineral Fertilizers SUBUR-Russian Tyres Logistics and Operations Support Saransky Plant «Rezinotekhnika» A diverse, vertically-integrated asset portfolio 1. Here and subsequently the names SIBUR Holding OJSC, Holding Company, SIBUR and Company are used interchangeably. 4

5 Thanks to vertical integration, the SIBUR Group operates all the way down the value chain, from primary processing of feedstock to the manufacture of semi-finished goods and consumer products. The Company s industrial and household petrochemical products are sold on the domestic and foreign markets, and include polymers, rubbers, synthetic fibers, mineral fertilizers, organic synthesis products and much more besides. SIBUR S VALUE-CHAIN POSITIONING IN THE GLOBAL CHEMICALS CHAIN NATURAL RESOURCES HYDROCARBON FEEDSTOCK COMMODITY CHEMICALS SPECIALTY CHEMICALS CHEMICAL CONSUMERS NATURAL GAS APG OIL ETHANE PROPANE NAPTHA NGL ETHYLENE PROPYLENE BUTADIENE BENZENE TOLUENE XYLENES ALCOHOLS ESTERS AMINES CHLORINE DERIVATIVES ACIDS FOOD SUPPLEMENTS AROMATIZERS PAINTS AND COLORING AGENTS FINE CHEMISTRY VITAMINS CHEMICALS FOR ELECTRONICS COLORANTS NAPTHA HEAVY FRACTIONS BLACK OIL FUELS & LUBRICANTS WAX POLYMERS CO-POLYMERS RUBBERS FIBRES RESINS COATINGS EMULSIONS ENGINEERING CHEMICALS INDUSTRIAL POLYMERS Source: Company's analysis 5

6 History of the Company SIBUR Holding OJSC was incorporated in 2005, but its origins go much further back into history. Open joint-stock company Siberian Urals Petrochemicals Company (AK Sibur OJSC) was created by a Resolution of the Russian Federation Government on 7th March In 1999 and 2000 AK Sibur expanded rapidly by acquiring equity in petrochemicals enterprises. Following an additional share issue in 2001, Gazprom obtained control over AK Sibur OJSC, with a shareholding of over 50%. Sibur s acquisitions in 1999 and 2000 were almost entirely funded through borrowing. In late 2001, the company was no longer able to service its debts and in March 2002 Gazprom filed a bankruptcy suit. Negotiations with the creditors on debt restructuring terms dragged on for over six months until an amicable agreement was signed on 10 th September Efforts by Gazprom s Management Board and Sibur s new management team to overcome the crisis in the company yielded tangible results. In 2003, Sibur was restored to solvency and the debts built up by Sibur, its subsidiaries and dependent companies were systematized and streamlined, including by means of amicable agreements. SIBUR is effectively the successor of the petrochemicals industry of the Soviet Union. The Group s enterprises are amongst the oldest industrial facilities in the country: for example, the Yaroslavl Tyre Plant, Voronezhsintezkauchuk and Kaprolaktam were built in the 1930s, Omskshina and the Urals Tyre Plant in the 1940s, and the Kauchuk and Voltyre plants in the 1950s. While adopting the best traditions of the Soviet petrochemicals industry, the Company also inherited serious problems, which had to be addressed in order to survive and remain competitive in today s environment. When they were incorporated into the holding company these enterprises were in difficult financial and economic straits. Due to irregular supplies of feedstock, a substantial change in the size and nature of the market, and sharp fluctuations in demand for their products, most of the plants were either bankrupt or nearly bankrupt. Like companies in many other sectors, the petrochemical plants were unable to pay staff salaries, and almost all of them were burdened with debts that were subsequently taken over by SIBUR. Overcoming this crisis required a great deal of investment, together with a well thought-out development strategy. By the time the Soviet Union disintegrated, Russia s petrochemicals industry had fallen far behind the international leaders in technology, and the equipment it used was becoming obsolete. The top priorities were therefore to modernize operations, revise the product slate, upgrade facilities and renovate premises. This could only be achieved by a large organization with sufficient resources for long-term investment. Furthermore, the nature of the petrochemicals market itself makes it difficult for small enterprises to survive unless they become part of a sustainable technological and business chain. For many of the plants the arrival of SIBUR was, therefore, their only chance of survival. The international petrochemicals industry is a highly cyclical business, being more vulnerable than others to the impact of economic cycles. Thus, whereas 2006 was a relatively good year, 2007 is seeing the start of a correction on the international chemicals markets. 6

7 Graph. Profitability Index for Petrochemicals Plants Worldwide However, SIBUR s oganizational structure makes it possible to smooth out the negative impacts of market conditions. In good periods SIBUR accumulates resources that help it to survive the inevitable crises to follow and allow the Company s subsidiaries to function normally. SIBUR Holding s financial performance has improved consistently over the past few years. IFRS FINANCIALS OVERVIEW Bln RUR Sources: consolidated audited IFRS data IFRS quarterly financials in place 7

8 This positive trends has also been acknowledged by Fitch and Moody s, the international ratings agencies: on 1 st January 2007, SIBUR s Fitch rating was BB, forecast stable, while Moody s was quoting Ba2, forecast stable. SIBUR today has every opportunity not only to maintain its current position, but to become a leader in the revival of Russia s petrochemicals industry. The Russian Government plans to grant national priority status to the industry s development strategy to 2015, which will stimulate the development of allied industries that consume SIBUR s products. Corporate Structure In line with its new development strategy, SIBUR Holding s organizational structure was reformed in The purpose of this reorganization was to make the businesses more transparent and competitive, to enhance their ability to withstand unfavourable market fluctuations, to make the Company more attractive for investors and partners, to cut costs and to build a management culture. SIBUR current organization is structured around product divisions. The Group comprises three directorates responsible for the main stages of petrochemical processing: Hydrocarbon Feedstock Directorate Synthetic Rubbers Directorate Plastics and Organic Synthesis Directorate Two other business that functioned as directorates before the restructuring have now been spun off into subsidiaries called SIBUR - Russian Tyres OJSC and SIBUR Mineral Fertilizers OJSC, both of which have been legally independent since Each directorate is a Business Unit and is accountable for the operational and financial performance of its constituent enterprises and the overall financial results for their entire range of products. In 2006, a company called SIBUR LLC was set up to manage SIBUR Holding OJSC. It is responsible for strategic planning, allocating resources between directorates, developing unified corporate policies, standards and regulations, and overseeing fulfillment of business plans and budgets by the Directorates. This structure makes it possible to combine centralized coordination with decentralized management. Decision-making authority on day-to-day matters and a number of tactical issues such as choosing feedstock suppliers and ensuring that the production facilities run smoothly have been delegated to the Directorate level. As of 31 December 2006, SIBUR Holding s main shareholders were Gazprom, with 25% + 1 share, and Gazprombank (CJSC) with 75% - 1 share. 8

9 SHAREHOLDERS AND CORPORATE STRUCTURE AS OF DECEMBER Business unit Business unit that is structured as a separate legal entity Entities that are under control of SIBUR Holding s subsidiary GAZPROM 25%+1 share 75%-1 share 100% SIBUR HOLDING anagement company LLC SIBUR GAZPROMBANK Mineral Fertilizers SIBUR-Fertilizers (100%)** Kemerovsky Azot (74.64%) Orton (71.49%) Hydrocarbon Feedstock SiburTyumenGas (100%) Synthetic Rubbers Plastic and Organic Synthesis Tyres SIBUR-Russian Tyres (100%) Nizhnevartovsky GPP (100%) Belozerny GPP (100%) Gubkinsky GPP (100%) Noyabrskgazpererabotka (100%) Yuzhno-Balyksky GPP (100%) Nyagangazpererabotka (100%) Tobolsk-Neftekhim (100%) Voronezhsintezkauchuk (75.00%) SIBUR-Neftekhim (99.99%) Krasnoyarsk Rubber Plant (97.25%) Tomskneftekhim (71.48%*) Toliattikauchuk (100%) Sibur-PETF (100%) Novokuibyshev NHK (100%) Plastic (67.10%) Volzhsky Kauchuk (100%) SIBUR-Khimprom (100%) Uralorgsintez (88.21%) SIBUR-Geotekstil (100%) SIBUR-Volzhsky (100%)*** Yaroslavl Tyre Plant (87.76%) Omskshina (83.11%) Uralshina (100%) Voltyre-Prom (82.23%) Saransky Plant Rezinotechnika (91.56%) Matador-Omskshina (50%) Logistics and Operations Support Spetszisterny (100%) Siburgazservice (100%) Volzhsky Azotno-Kislorodny Zavod (91.27%) Methanol production Sibmetakhim (66.66%) Metafraks (33.46%) SIBUR Holding s Strategy SIBUR sees its mission as the continuous search for new ways of transforming the Earth s resources into materials and products for mankind s use, thereby contributing to scientific and technical progress and creating a comfortable environment for human life. The Company s main objectives are to become more competitive in its target segments of the international market, to boost economic growth and to combine successful business with social responsibility and environmental safety. To fulfill its aspiration of becoming a leader on the Russian and international markets, the Company is building and commissioning new facilities, applying innovatory solutions and upgrading existing plants. The building blocks are being put in place to boost SIBUR s export volumes. In August 2006, for example, a substantial reduction was negotiated to the anti-dumping duties applied to styrene-butadiene rubbers imported by China from SIBUR Holding s plants. SIBUR has both the internal resources and the market potential to adopt a strong growth strategy. Feedstock Business In view of the specifics of the petrochemicals industry, SIBUR Holding considers it strategically important to strengthen its feedstock business to ensure that the Company receives the necessary volumes of hydrocarbons for processing on a stable, long-term basis. By 2010, the Company plans to complete a range of projects to expand its production capacities, associated gas transmission infrastructure and facilities for gas separation and LPG production. 9

10 Utilization of associated gas is one of the biggest challenges facing Russia s oil producing regions. Flaring of large volumes of gas not only harms the environment, but also represents a loss of valuable feedstock that could be used by the chemicals industry. SIBUR Holding has drawn up a programme of measures to boost processing of associated gas, which it plans to implement in cooperation with the oil companies. In particular, a joint venture has been set up with TNK-BP Holding OJSC. Polymer Products SIBUR Holding is planning a substantial increase in its output of polymer materials. Chemical Fibers Given the growth prospects on the domestic and international markets, SIBUR has plans for vigorous development of this business. Its prime objective is to improve the quality of its cord production through the application of new equipment and processes. Synthetic Rubbers In the synthetic rubber sector SIBUR aims to gain access to promising new market segments. This will require the introduction of new product lines and an increase in output volumes of rubbers already in production. Plastics In the plastics segment the Company plans to boost production of high-density polyethylene and linear polyethylene, polypropylene and expanded polystyrene. In addition, a new PVC plant is in the planning stages and a plastics processing programme is being drawn up. Innovation Projects SIBUR Holding sees its future in the vigorous development and implementation of innovatory projects. The Company has commissioned a number of research and design projects in areas such as: Basic research Improving operational reliability and safety Development of new technologies Enhancement of existing facilities People need to feel comfortable in an ever more complicated world. Petrochemical products should serve mankind by improving living standards and the quality of life. Even from this overview of SIBUR s main activities it can be seen that the Company strives to move with the times, to make our world a better place. SIBUR s operations generate significant social benefits, and the entire workforce serves the common welfare of our nation. SIBUR Holding s Investment Programme Thanks to SIBUR s strong performance, a large-scale investment programme was launched in 2004, aimed at renovating and expanding the Company s industrial and social facilities. 10

11 The investment projects have two components operational-economic and social - and are aimed at growing the value of the Company, improving working conditions and implementing a range of environmental measures. New plants mean new jobs; they provide employees and their families with a guarantee of stability and opportunities for career development. New production facilities stimulate the development of associated industries which, in turn, promotes broad economic growth in the regions. Upgrading of existing plant and implementation of environmental protection measures are essential elements of any investment project and help create a healthier environment for the surrounding population. In 2006, SIBUR funded 20 expansion projects, 10 new infrastructure projects, two environmental projects one to upgrade and re-engineer the biological treatment units at Voronezhsintezkauchuk, and one to connect Tomskneftekhim s water supply system to the municipal utility - and one social project the renovation of a children s recreation centre in Anapa. The investment programme for the next few years consists of two main projects: Construction of a new polypropylene plant at Tobolsk-Neftekhim This new plant is currently SIBUR s single largest investment project. Upon its completion, Tobolsk s city-forming enterprise will double in size, thereby generating a substantial increase in future tax revenue for Tyumen region. The indirect economic benefits to the region will include a higher gross regional product and new jobs (up to 400 when the facility is operational, as many as 3,500 during the construction phase). New jobs will also be created in allied industries, such as construction and transport, as well as the service sector. The plant will process significant volumes of associated gas, which will help create a cleaner environment in Tyumen region. Construction of new PVC Plant in Nizhny Novgorod Region This is the biggest petrochemicals investment project in the European part of Russia over the next five years, and the new plant will be on a par with the largest international PVC production facilities. The decision to design the project was taken in June 2007 and SIBUR Holding plans to sanction the investment in April 2008 together with potential project partners. This project will generate a huge increase in tax revenue for the regional budget and stimulate the development of small and medium-sized businesses to process PVC resin, together with salt production, transport and storage infrastructure, power generation and the building industry (including housing construction). Up to 250 permanent new jobs will be created in the region, and a further 650 during the construction phase. The new PVC plant will apply the latest technologies. Rigid grades of PVC resin will be manufactured without using plastifiers, which are the main cause of environmental harm. In addition, chlorine production will be carried out in premises with special insulation to prevent any pollutants entering the atmosphere. SIBUR Russian Tyres One of the final stages of petrochemical processing is the production of tyres a product whose quality is of concern to millions of motorists and corporate clients. Quality improvement is therefore crucial for this part of the Company s business. 11

12 SIBUR Russian Tyres supplies over 400 product lines to the market. In some types of tyre the Company is an undoubted leader, such as aircraft tyres (market share approximately 60%), agricultural vehicle tyres (56%) and freight vehicle tyres (40%). SIBUR Russian Tyres is also Russia s sole producer of advanced all-metal cord freight tyres, which are marketed under the TyRex AllSteel brand. Despite the fact that SIBUR Holding has extensive experience of producing freight tyres, production of the all-metal cord tyres had to be commenced virtually from scratch. The new products were designed over the course of two years with the help of leading international engineering companies and independent experts from Germany and South East Asia. The result was a range of modern tyres with an optimal price-quality ratio manufactured using the latest technology. SIBUR Russian Tyres is implementing a programme of efficiency measures including the replacement of obsolete models with new products manufactured using modern technologies. In 2005, for instance, three new trademarks were placed on the market: Cordiant for passenger vehicles, Tunga for passenger and light commercial vehicles tyres, and TyRex for professional tyres used in the commercial freight sector. To guarantee product quality the main production stages are being upgraded, from rubber mixing to new press forms and vulcanization aggregates. SIBUR Russian Tyres plants are currently introducing quality management systems. A working group has been formed to draft a corporate quality control policy, common criteria are being developed for product quality, and statistical management methods are being introduced. The Company is also reforming its product delivery system, aiming to ship directly to end consumers through a network of authorized regional distributors. The policy in this area is to shorten the chain of middlemen between the factory gate and the final consumer something that will both benefit the consumer and help the Company achieve its strategic aim of improved efficiency. SIBUR Mineral Fertilizers Optimization of the management structure in the Company s mineral fertilizer business led to the incorporation of OJSC SIBUR Mineralnyye Udobreniya [Mineral Fertilizers] in late This is a fully-owned subsidiary of SIBUR. In May 2007, SIBUR Mineral Fertilizers began to function as a sub-holding company superseding the Mineral Fertilizers Directorate. This asset spin-off was driven by a need to reinforce the Company s position in the mineral fertilizers sector. At present the sub-holding controls two plants Azot OJSC and Orton OJSC (both in Kemerovo). Azot is one of the largest chemical plants in Russia. It supplies mineral fertilizers to farms in Siberia and Central Asia and exports large volumes of fertilizer, caprolactam, ion exchange resins and other products. Organic synthesis products are supplied to plants that manufacture plastics, colouring agents, chemical fibers and pharmaceuticals. The main focus in developing the Company s mineral fertilizers business is selective upgrading and expansion of facilities and production of higher-value products. 12

13 Part 2. Environmental Policy Basic Principles and Objectives in the Area of Environmental Protection SIBUR Holding considers environmental safety and protection of human health and the environment to be integral elements of its business and one of its strategic priorities. The Company s basic strategic objective in the area of environmental safety is to minimize factors capable of causing damage to the health of employees, the general public, the environment and natural resources. SIBUR takes a responsible approach to addressing this task and is implementing measures to achieve its stated goals. Reducing the adverse impact of operations on the environment is the cornerstone of SIBUR s environmental work. In June 2004, an Ecology and Safety Division was created to coordinate activities, monitor performance and provide methodological assistance to help Group enterprises meet health and safety criteria. The Company s efforts to improve the state of the environment at its plants and operational sites can be subdivided into three main areas: 1. Application of the latest scientific and technical developments to upgrade operations and the introduction of advanced research and environmentally safe technologies to extract greater value from feedstock resources with maximum possible output levels. Progress in this area involves modernizing and building new treatment facilities, water supply systems and slag pits, cutting emissions and discharges of pollutants and reducing waste volumes, while increasing production volumes through the application of new technologies, equipment and materials, and greater automation of process control. This package of measures for sensible and rational use of natural resources should lead to an improvement in the quality of the environment around Company sites. 2. A series of measures aimed at developing efficient environmental monitoring systems for Company facilities in the regions and ecological control of process safety. These include: environmental risk assessments for insurance purposes; design and implementation of risk prevention and reduction measures; alignment with SIBUR S partner companies on environmental, health and product quality regulations and standards; and analysis of environmental work by other Russian and foreign companies with subsequent adjustments to SIBUR s policy in this area. 3. A public relations programme aimed at maintaining a positive image as a Company that is successfully addressing environmental issues. The Company is open to active dialogue with all interested parties on any aspect of its activities, including environmental issues; there is a growing level of environmental cooperation with federal and regional legislative and executive agencies; and international collaboration is developing in the search for environmentally clean, efficient and economical technologies and equipment. 13

14 Environmental Performance In line with the environmental policy adopted by the Company in 2006, a range of measures is being implemented to decommission obsolete units and apply new technologies for the treatment of emissions and effluent and to automate the environmental monitoring system. SIBUR is actively investing in advanced environmental technologies in all stages of production. Each year the Company spends between 5 and 6.5 billion roubles on maintaining its fixed production assets. As a result, despite growth in overall output in excess of 11% in 2006 compared to 2005, there has been no increase in the Company s environmental footprint. Slide 1 Gross Production and Gross Emissions of Pollutants into the Atmosphere th.tonnes th.tonnes ,77 65,50 68,76 68, ,03 2,45 2,83 0, Gross emissions, total Above-norm emissions Gross production Moreover, discharges of effluents into surface water bodies fell from 84.9 million cubic meters to 68.7 million cubic meters over the same year. 14

15 Graph. Effluent Discharges 90 84, , mln cu m In 2006 Company enterprises generated 139,800 tonnes of domestic and industrial waste, which was almost 72,000 tonnes less than in Graph. Domestic and Industrial Waste Volumes , , th.tonnes There was also a reduction in the payments made by the Company for damage to the environment from 38.3 million roubles in 2005 to 32.5 million roubles in

16 Graph. Payments for Damage to the Environment , million roubles 32, In 2006 the regulatory agencies imposed five fines on SIBUR Holding companies, which was four less than in At the same time, the total value of the fines increased from 90,000 to 180,000 roubles, reflecting amendments to the Russian Administrative Code resulting in higher penalties. SIBUR Holding allocates substantial amounts of funding for special-purpose programmes run by its subsidiaries to improve the quality of the environment. In 2006, these programmes were 93% fulfilled, which was 17% higher than in In 2005, expenditure by Company subsidiaries on special-purpose environmental quality programmes amounted to 630,734,000 roubles. This rose to 942,893,000 roubles in 2006, including 319,228,000 roubles on environmental investment projects. Spending on Environmental Protection Measures under Special-Purpose Programmes (Including Unscheduled Measures) Th.roubles

17 Introducing the Company s new environmental policy involved internal audit consultations run jointly with consultants from Bureau Veritas Rus (the Russian division of Bureau Veritas Quality International), focusing on the environmental management systems in SIBUR s head office and a pilot group of subsidiaries (Omskshina, Novokuybyshevsk Petrochemicals Company, SiburTyumenGaz, Belozernyy gas processing plant and SIBUR-Neftekhim). The aim of this exercise was to assess the systems against the ISO :2004 standard. The results revealed that the Company has done a lot of work to identify existing environmental risks and to plan priority nature protection measures. The recommendations drawn up by the Veritas consultants will be taken into account in the further development of the corporate environmental management system in all SIBUR Holding enterprises. In 2006, the Company began implementing its corporate environmental policy in line with the ISO 14001:2004 standard in all its subsidiaries. This will be completed in 2007, and in 2008 the Company will be certified to this standard, thereby confirming that all enterprises within the SIBUR production complex meet the highest environmental standards. The Company s Environmental Policy Reducing the adverse impact of operations on the environment is the cornerstone of SIBUR s environmental work. In June 2004 SIBUR set up an Ecology and Safety Division to coordinate activities, monitor performance and provide methodological assistance to help Group enterprises meet health and safety criteria. In May 2006, the President of SIBUR Holding approved a corporate environmental policy that has become an integral part of the Company s mission and strategy. The policy s underlying principle is the continuous reduction of environmental pollution by means of a whole range of measures, including the closure of obsolete facilities and commissioning of modern process units, utilization of industrial waste, introduction of new technologies for treating emissions and effluent, and automation of the environmental monitoring system. By setting itself the objective of attaining high levels of environmental safety, SIBUR has in effect committed to take this factor into account in every aspect of its activities. In addition, the Company demands the same degree of environmental awareness from all its contractors. This provides a further guarantee of compliance with environmental legislation and helps to improve the environmental culture amongst the Russian business community. SIBUR Holding s Environmental Policy SIBUR Holding is a vertically integrated petrochemicals holding company that handles substantial volumes of Russian hydrocarbons from primary processing all the way to production of consumer goods. The Company s primary objectives are continuous growth of capitalization, maximum efficiency and leadership in the petrochemicals industry based on environmentally sound operations. 17

18 The Company regards environmental safety and protection of human health and the environment as a strategic priority, which means that its Environmental Policy is an integral part of its mission and development strategy. The basic objectives of the Company s Environmental Policy are: To introduce advanced scientific developments and technologies to extract more value from feedstock resources with maximum possible output levels; To prioritize planned and current actions and measures aimed at preventing damage to the environment, staff and general public over measures to clear up the repercussions of such damage; To attain a level of environmental safety similar to that of the leading international petrochemicals companies; To cut emissions and discharges of pollutants and reduce waste volumes while increasing output, through the introduction of new environmentally sound technologies, equipment and materials and by increasing the level of automation of process control; To enhance the environmental safety of facilities and operations and mitigate damage to the environment through improved reliability of process equipment ensuring safe and fail-free operation; To improve the efficiency of operational control and environmental monitoring at Company sites using modern information technologies, technical faultfinding and remote sensing methods; To provide information and maintain an active dialogue with stakeholders, the public and local residents on the Company s environmental activities; To develop cooperation with federal and regional legislative and executive bodies in the area of environmental protection and to expand international collaboration on environmentally sound, efficient and economical technologies and equipment. To achieve these aims the Company has made the following commitments: Always to take the environmental aspects of its plans, products and services into consideration when taking and implementing decisions; To carry out environmental impact assessments and ensure phased development and implementation of measures to mitigate impacts and compensate for losses caused by ecological factors; To comply with applicable laws and in-house corporate standards for the management of the environmental aspects of its activities; To plan and implement measures to improve the environmental management system, to reduce environmental impacts, prevent accidents and mitigate potential damage; To upgrade existing process equipment and enhance process flows by applying resource-saving and low-waste technologies; To ensure that all Company staff are involved in environmental management through systematic training, skills enhancement and motivation; To require that contractors working for the Company and at its sites comply with the law and the Company s internal regulations. Fulfillment of these objectives is ensured by making Senior Management and each individual Company employee responsible for the environmental safety of their current and planned activities. Approved by A.V.Dyukov, President SIBUR Holding OJSC, 22 May

19 Beavers and the Chemicals Plant The area around the Uralorgsintez plant in Perm region, which is surrounded on all sides by forest and picturesque streams, has been home to several families of beavers for many years. Beavers are animals that can only live near clean water. The fact that they live permanently in the grounds of a chemicals plant demonstrates to all that industry and the environment can co-exist in harmony if approached responsibly. The beavers have become so accustomed to humans that all new drivers at the plant are given special warning that they might encounter the cute little beasts on the roads. At the same time, the beavers can disrupt the operation of sewerage and treatment facilities and their dams cause the factory grounds to become swampy. Although employees have to remove the dams on a regular basis the beavers invariably start work on them again the following day. This all goes to suggest that the fragile equilibrium allowing the animals and the chemicals plant to exist side by side will be preserved. 19

20 Part 3. SIBUR - A Responsible Employer Staff Overview SIBUR is a key employer in a number of regions of Russia. According to statistics as of late 2006, the Company s enterprises employed around 83,000 people, with a further 200,000 jobs created through direct cooperation with other petrochemicals companies. SIBUR s plants are located in 21 different regions and some of them are town-forming enterprises. For instance, Tobolsk-Neftekhim provides work to most of the ablebodied population of the city of Tobolsk. SIBUR s gas processing plants are also classified as socially significant: despite the proximity of major oil companies in Noyabrsk, Gubkinskiy, Nyagan and Nizhnevartovsk a substantial proportion of the economically active population in those towns are employed by SIBUR. Most of the Company s employees are in the Volga (32.2%) and Siberian (26.4%) federal districts. Figure: SIBUR Holding Staff Breakdown by Federal District Siberian Federal District 26.4% Central Federal District 18.0% Southern Federal District % Urals Federal District 13.3% Volga Federal District 32.2% The majority of Company employees are men 57% in This places additional responsibilities upon the Company, as in Russia the man is traditionally the family breadwinner. The male population is particularly high amongst management and workers. But there are also quite a large number of female employees, who make up most of the specialist categories and office workers in the Company s subsidiaries. 20

21 Graph. Ratio of Men to Women at Company Enterprises 80% 70% 73% 71% 60% 57% 60% 50% 40% 30% 43% 27% 29% 40% Men Women 20% 10% 0% Total Managers Specialists Workers Because of the complexity of petrochemical processes employees need to be well educated. Amongst SIBUR s workforce there are 90 doctors of science and almost one in four employees has higher education (70% of the managers and specialists). Graph. Educational Level of Company Staff. 80% 70% 68% 68% 60% 50% 40% 30% 24% 23% 26% 25% 23% 20% 10% 8% 0% Total staff Managers Specialists Workers Higher Education Secondary Specialized Education 21

22 The staff turnover coefficient at SIBUR (5-10%) is due to the peculiarities of the regional labour markets and operational factors. It indicates that SIBUR is providing stable employment to its staff while at the same time ensuring renewal, which is regarded as a positive factor for development of the business. Social Policy The SIBUR Group s social policy is viewed as an integral part of its activities and is aligned with the Company s development strategy. The Company recognizes that its qualitative growth and prosperity are directly dependant on the knowledge and skills of its employees, their attitude towards their jobs and trust in Management. Employees provide SIBUR with the internal potential to achieve impressive results. The range of socio-economic measures and non-monetary incentives used in SIBUR Holding is designed to improve the social climate within the workforce and to activate the creative human factor to the maximum extent. SIBUR s internal social policy sets out the parameters of various programmes and measures designed to ensure decent living standards and working conditions for its staff. These include: Health and safety measures; Timely payment of salaries; A voluntary medical insurance programme; A housing programme that is now in the planning stages; A pension programme in its planning stages; Staff training and development programmes; Various kinds of employee incentive; Vacations and spa treatment; Various kinds of sport Special programmes for children of employees; Assistance in connection with personal or family circumstances. Each year SIBUR spends billions of roubles on its social programmes. Corporate standards are applied in order to ensure a common policy in this area throughout the Group. At a general level, SIBUR s social policy is designed to give employees a feeling of confidence in the future and to demonstrate the opportunities and prospects they have for individual development together with the Company. Table. SIBUR Holding Expenditure on Social Programmes in 2006 Types of Social Expenditure Amount, millions of roubles Health Staff Training 59.7 Expenditure on maintaining social amenities and benefit payments, including Expenditure on maintaining social amenities Payment of social benefits Expenditure on staff vacations 85.0 Expenditure on charity Services by 3-rd party social organizations

23 (medical etc.) Expenditure on other social needs Pay Policy Pay is the most important factor in staff motivation. The Company s pay policy is based on the principles of regular payment, continuous salary growth and competitiveness on the regional labour markets. The majority of SIBUR s subsidiaries were bankrupt or else approaching bankruptcy when they became part of the Group: with operations in decline or at a standstill, salaries were being paid late (over 6 months late in some plants). Incorporation into the SIBUR group and its integrated operational system made it possible not only to save the production facilities, but also to pay off wage arrears and boost salaries to market levels for each specific region over a short period of time. It must be kept in mind that despite its greater technological complexity, the petrochemicals industry enjoys lower margins than the oil and gas production sectors. The cost of petrochemical products is strongly impacted by the price of feedstock and electricity, and the petrochemicals market is generally more vulnerable to fluctuations than the raw materials sector was the first loss-free year in SIBUR s history. Despite this, SIBUR has always unfailingly met its pay obligations to employees. Moreover, salaries at the Company s subsidiaries, though lower than in the oil and gas industry, have generally been higher than at other regional industrial employers. In recent years salary growth has always outpaced inflation. Salaries for operational staff are based on a pay scale. This helps to ensure differentiation tied to qualifications, job complexity and level of responsibility. The pay scale accounts for between 30 and 75% of individual salaries. A significant portion is made up of monthly bonuses that, in effect, have become part of the salary, while at the same time varying depending on each employee s contribution to overall results. Under the existing pay system, employees receive benefits and additional payments provided for by Russian law, such as the zonal coefficient, the northern supplement, payments for working at night, at weekends, overtime etc. In addition to these, some Group companies make further payments stipulated by collective agreements, such as payments for training, supplementary vacation pay, one-time and spot bonuses etc. 23

24 Diagram. Average Pay Structure in the Company ,1% 2,1% 1,7% Scale / salary, pers.supplement, Vacations, business trips Additions (night, overtime, weekends,, second job, substitution) Routine bonus (monthly) 16,9% 57,5% Quarterly, annual bonuses Spot and one-time bonuses 8,7% Other For the past three years employees have been receiving additional compensation based on annual results the so-called 13 th salary. Its size is defined individually for each enterprise and depends on a whole range of factors, including financial and economic indicators, operational performance and level of managerial discipline. In 2006, quarterly bonuses were introduced to tie compensation to operational achievements. At the same time, if an enterprise manager feels that individual bonus payments are low, he may spend the resources at his disposal on social benefits, such as maintaining the enterprise s social amenities. For SIBUR Holding as a whole, the 2006 quarterly and annual bonus payments were almost twice as high as those paid out in the preceding year. Non-Monetary Incentives for Employees SIBUR Holding operates a system of non-material incentives. Employees receive awards from Gazprom, the Russian Ministry of Industry and Energy, State and corporate awards such as the For Contribution to the Development of SIBUR Holding and the SIBUR Employee of the Year (senior manager, manager and specialist categories) badges, certificates of honour, letters of gratitude, valuable gifts etc. The awards ceremonies are usually held on Chemical Worker s Day. Each year up to 200 employees receive Ministry of Industry and Energy awards and up to 250 receive awards from the Company. In addition, each year the Company submits award applications to the Ministry for employees celebrating special birthdays. In 2006, ministerial awards were conferred on 167 Company employs on Chemical Worker s Day, 15 received the title Honoured Chemical Worker, 69 were given certificates of honour and 83 received letters of gratitude from the Company President. 230 employees from 23 Group enterprises were nominated for internal corporate awards. The For Contribution to the Development of the Petrochemicals Industry award instituted by the Russian Union of Chemical Workers was conferred upon two SIBUR employees, while certificates of honour and letters of gratitude were received by a further 12. Award applications were submitted to the Ministry of Industry and Energy for 10 SIBUR staff members. 24

25 In 2007 SIBUR introduced its Enterprise of the Year title, which was won by three subsidiaries one from each Directorate for their work in 2006: - Nizhnevartovsk Gas Processing Plant OJSC (Hydrocarbon Feedstock Directorate) - Tobolsk-Neftekhim LLC (Synthetic Rubbers Directorate) - Tomskneftekhim LLC (Plastics and Organic Synthesis Directorate). This eminent collective award was made to the three companies for their excellent work and superior financial and economic performance during 2006, as well as their active involvement in Holding Company activities. Together with the title, the workforce of the winning enterprise is presented with a challenge cup on the occasion of Chemical Worker s Day. The winners of the Enterprise of the Year contest are selected in accordance with the Regulations on awarding SIBUR LLC employees and employees of enterprises within the Group s integrated operational system. Social Troubleshooting Most large Russian enterprises have developed along similar lines to SIBUR during the past ten years: acquisition of new assets, change of Management, anti-crisis measures, restructuring. The clash between the new managers and Soviet traditions and former corporate cultures resulted in the total destruction of the latter in all but a very few companies. Anti-crisis measures were applied almost everywhere, social programmes were cut and non-core social amenities had to be given up. In a number of cases, two corporate cultures have come to exist side by side - Soviet labour collectivism at the lower levels of the enterprise, and a market management superstructure. During the 1990s priority was generally given to the operational and financial performance aspects of company development, while workforce relations were neglected. Introduction of market-based operating principles resulted in greater demands on the workforce and more intensive labour. In time, however, it became clear that these primary resources for boosting efficiency were limited. Attention turned to the social aspects of development and socially efficient management. The social climate within a company determines how strongly employees are motivated and how much creative effort they make over and above what is strictly required of them. Today there is a strong focus on how loyal the workforce is to the Management, how well people understand the company s development strategy and how to activate their human and cultural resources. Where there is a positive social climate, the workforce becomes an ally of Management. The partnership model of Management workforce relations is a means of protecting property rights and mitigates risks in the event of hostile takeovers or deterioration in the local socio-economic situation. Experience shows that in addition to its research function, social troubleshooting has a direct positive influence on the workforce. For the employees, taking part in a survey is an opportunity to put forward their point of view and be heard. The very fact that Management is interested in the staff s problems and attitudes raises the level of trust and generates positive expectations. For all those involved (client, respondents, sociologists, addressees), a sociological survey becomes a common channel of communication and a shared activity designed to improve the state of affairs within the company. 25

26 Social troubleshooting takes the form of a survey that employs a pre-determined methodology to provide Company managers and HR departments with information on the moral and psychological climate amongst the workforce, on staff attitudes and problems, on the degree to which people are motivated to work and integrated into the corporation, and on their views on Company values and objectives. Using the data obtained, Management can take informed decisions on social programmes and projects that will produce positive operational benefits and address people s problems. The survey should result in a mutual understanding between the Company s workforce and Management of how closely their interests are bound together by shared expectations for SIBUR s future. If employees perceive that their wishes have been taken into account, they take a more constructive attitude towards their employer and their job. The first of these surveys was carried out at Tolyattikauchuk in early The results were both interesting and valuable for Management at SIBUR Holding and at the enterprise level. Research into the social attitudes of staff at SIBUR enterprises will continue. Staff Training and Development SIBUR attaches great importance to developing the quality of its staff, and regards this as a crucial component of the Company s sustainable development. In 2006, SIBUR Holding spent over 59 million roubles on training courses for over 38,000 employees. This represented increases of 17%, 6.6% and 7% respectively in the number of managers, specialists and workers that received various types of training the previous year. Table. Number of SIBUR Holding Employees Given Training, Persons Trained Total Managers Specialists Workers In unstable market conditions the professionalism and degree of motivation of employees can become deciding factors in overcoming unfavourable trends and mitigating the effects of a range of risks. And these are important issues for the employees themselves. In a market economy it is sometimes hard for people to realize their full potential, especially in a large enterprise, where it can be difficult to achieve the career success one hopes for. SIBUR is now beginning to introduce advanced methods and effective training programmes. In the future there are plans to create a common educational platform spanning the entire Group for training, retraining and skills enhancement issues through a network of regional educational centres. 26