SIBUR HOLDING Annual Review 2011 Contents SIBUR Annual Review 2011

2011 Highlights 2 Environmental and Social Responsibility 21

— Environment 21 Chairman and CEO Letters 5 — Industrial Safety and Occupational Health & Safety 24 — People 25 — Communities and Society 27 SIBUR Today 8 Corporate Governance and Management 29

Strategic Objectives 14 — Corporate Governance 29 — Board of Directors 30 — Committees of the Board of Directors 34 Our Operations 15 — Management Board 37 and 2011 Performance — Share Capital 43 — Dividends 43 — Code of Corporate Conduct 43 — Key Risk Factors 44

Management’s Discussion and Analysis 48 of Financial Condition and Results of Operations

— Selected Data 48 — Overview 50 — Certain Factors Affecting Our Results of Operations 50 — Recent Developments 63 — Operational Review 65 — Results of Operations 83 — Liquidity and Capital Resources 93 — Appendices 104

Additional Information 107

IFRS Combined Financial Information 109 and Independent Auditor’s Report

2011 Highlights SIBUR Annual Review 2011

Record Financial Performancе(1)

— FY 2011 revenue growth of 32% year-on-year to RR 249 billion

— Industry-leading profitability with an EBITDA margin of 35%

— Profit for the year of RR 63 billion, a 54% increase year-on-year

— Strong financial position with a net debt to EBITDA ratio of 0.78x as of 31 December 2011

Strategic Progress

— Enhanced access to advantaged feedstock in Western Siberia through… • … expansion and modernization of hydrocarbon feedstock processing and transportation infrastructure, and… • … growing partnership and new supply contracts with oil & gas companies to provide economical and environmentally-friendly solutions for processing stranded hydrocarbons

— Divestment of mineral fertilizers and tires businesses to focus on core strategy

— Expanded production and selective acquisitions in target petrochemical segments

— JV with Reliance Industries to set up India’s first producer of butyl rubbers

Corporate Governance

— Acquisition of 100% control of SIBUR by a group of shareholders led by Leonid Mikhelson completed by year end

— New Board of Directors appointed with Mr. Mikhelson as Chairman

— Audited IFRS financial statements for the three past years(2) and international standards 2011 Annual Review published to increase transparency

(1) All the financial numbers in this Annual Review are based on audited combined financial information as of and for the years ended 31 December 2011 and 2010, prepared in accordance with International Financial Reporting Standards (IFRS). The combined financial information for 2011 and 2010 excludes the results of the mineral fertilizers and tires businesses, which were divested by SIBUR in December 2011. SIBUR’s management believes that the combined financial information provides a proper basis for analysis of the underlying performance of the Company based on fully comparable data for both 2011 and 2010 (2) SIBUR has prepared financial statements in accordance with IFRS since 2003

2 2011 Highlights SIBUR Annual Review 2011

2011 Financial and Operational Highlights(1)

Year ended 31 December Change Millions of Russian roubles except as stated 2011 2010 % Operating results

APG processing(2) (thousand cubic meters) 18,032,320 17,453,926 3.3% APG processing, SIBUR’s share(3) (thousand cubic meters) 12,697,565 12,963,731 (2.1%)

Natural gas(4) production(2) (thousand cubic meters) 15,806,351 15,325,007 3.1% Natural gas production, SIBUR’s share(3) (thousand cubic meters) 10,864,052 11,154,101 (2.6%)

NGL production(2) (metric tons) 4,175,843 3,954,516 5.6% NGL production, SIBUR’s share(3) (metric tons) 2,864,371 2,627,054 9.0%

Natural gas sales volumes (thousand cubic meters) 9,165,517 9,734,209 (5.8%) Hydrocarbon liquids sales volumes (metric tons) 3,986,810 3,298,682 20.9% MTBE, other fuel additives & fuels sales volumes (metric tons) 626,625 565,415 10.8% Petrochemical products sales volumes (metric tons) 2,142,011 2,129,365 0.6%

Financial results

Income statement highlights Revenues (net of VAT and export duties) 248,660 188,563 31.9% EBITDA 86,669 58,178 49.0% EBITDA margin, % 34.9% 30.9% Operating profit 78,453 51,812 51.4% Operating margin, % 31.6% 27.5% Profit for the year 62,799 40,737 54.2% Profit margin, % 25.3% 21.6% Earnings per share (in Russian roubles) 1,571 980 60.3%

Cash flow highlights Net cash from operating activities 54,181 51,431 5.3% Net cash (used in) investing activities, incl. (41,290) (50,809) (18.7%) Capital expenditures (55,553) (39,423) 40.9% Proceeds from disposal of the mineral fertilizers and tires businesses(5) 33,023 - nm Net cash (used in) financing activities (12,526) (204) 6,040.2%

Key ratios Debt/EBITDA 0.96x 1.00x Net debt(6)/EBITDA 0.78x 0.74x EBITDA/Interest 34x 18x

(1) Please note that in this and other tables of this Annual Review, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding (2) Includes TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Review) (3) Excludes TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka (4) Equivalent to dry gas (5) Net of related income tax of RR 4,295 million (6) Net debt represents total debt less cash and cash equivalents

3 2011 Highlights SIBUR Annual Review 2011

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4 Chairman Letter SIBUR Annual Review 2011

2011 was a successful year for SIBUR. The business is including three independent directors, with relevant in good shape, and its success has been underpinned by knowledge of strategic and financial issues and consistent execution of the Company’s strategy, years commercial experience with the largest Russian of investment in the core asset base and continuous companies. We strive to apply global best practices to efficiency improvements by the management team. ensure the effectiveness of the Committees of the Board and of our internal control procedures, and to promote As SIBUR’s new shareholders, we are excited about high levels of disclosure and business transparency. supporting its long-term sustainable development as the largest integrated gas processing and petrochemicals SIBUR is well positioned to enhance its leadership in company in Russia, the CIS and Central and Eastern Russia and grow its market shares in target export Europe. markets. We look forward to achieving the Company’s objectives and taking SIBUR to the next level of We are committed to developing corporate governance success. and transparency policies in line with international standards for public companies. SIBUR’s Board of Leonid Mikhelson Directors elected in 2012 consists of nine directors, Chairman of the Board of Directors

5 CEO Letter SIBUR Annual Review 2011

Dear shareholders, business partners and associates! Our capital expenditures increased 41% to RR 55,553 million as part of a multi-year investment program aimed We are pleased to present our 2011 Annual Review. In at strengthening our position in feedstock processing line with our stated intention to significantly increase and substantially expanding our petrochemical transparency, this year we provide insights on SIBUR’s operations. Despite this increased level of investment, performance, strategic objectives and future prospects. SIBUR maintained a strong financial position with a year-end net debt to EBITDA ratio of 0.78x, well within SIBUR has a unique business model that in many ways the conservative balance sheet limit of 2.5x set by the creates a virtuous circle of benefits. Our integration Board’s financial policy. into processing of associated petroleum gas and natural gas liquids that are by-products of Western Siberian oil Strategic Progress & gas extraction gives the Company a reliable supply of SIBUR made strong progress on its long-term strategic low-cost stranded feedstock to support our growing priorities in 2011, including reinforcement of the petrochemical business. This also provides the Russian Company’s infrastructure, extension of long-term energy industry with critically important environmental relationships with suppliers and execution of major and economical solutions to reduce flaring of APG on expansion projects. oil fields and to enable wet gas production. In turn, our petrochemical business produces economically useful Facilitating access to advantaged stranded feedstock products to meet growing demand for major industrial is a major priority for SIBUR. We work with oil & gas and consumer applications that improve the quality of producers in Western Siberia to provide the most people’s lives. efficient, reliable and attractive processing solution for associated petroleum gas and liquid hydrocarbon We are making use of the latest Russian and international feedstock, which are by-products of their energy technologies to implement world-class investment extraction activities. In 2011, we continued to invest projects and modernize our existing production in the development of our transportation infrastructure facilities. This brings jobs and investment to support and expansion of processing capacity to strengthen regional development and contributes to a more diverse, competitive positions, increase feedstock flows and innovative and competitive Russian economy. optimize energy product distribution and sales activities. In addition, we expanded our joint venture with TNK-BP, 2011 Financial Performance signed a number of new long-term supply contracts 2011 was a successful year for the global energy and with Gazprom, LUKoil, RussNeft, Surgutneftegaz, and chemical industries, with oil prices surging 40% year- others, thus further extending our cooperation with on-year and chemical production posting an increase of energy companies. almost 5%. This was also a good year for the Russian economy as a whole and our end-customer industries in Our other major objective is to expand petrochemical particular. Russian GDP growth exceeded 4% on the production to capitalize on the strong growth of the back of a rebound in industrial and consumer activity from Russian market and leverage our unique cost advantages pre-crisis levels and a strong pick-up in construction. for developing global sales. The demand outlook for Russian petrochemicals is fundamentally strong as the SIBUR visibly benefited from these trends as well as from country is actively modernizing, rebuilding and expanding growth in our production volumes and efforts to enhance its infrastructure. This is fueling macroeconomic sales efficiency. Full year 2011 revenues increased 32% growth and end-user demand across major industries to RR 248,660 million. EBITDA rose 49% to RR 86,669 and increasing Russia’s relatively low consumption of million, while EBITDA margin reached 34.9% compared petrochemical products compared to other markets. to 30.9% in 2010. Profit for the year amounted to RR Internationally, we are also positioned to grow market 62,799 million, a 54% increase from 2010. shares, particularly through exports to Europe and Asia. According to CMAI and other industry experts, SIBUR’s

6 Chairman and CEO Letter SIBUR Annual Review 2011

key projects are positioned at the low-end of the global as the cornerstone of a sustainable business. Our cost curve for basic polymers (such as polypropylene and commitments to reducing environmental impact, polyethylene) compared to other major petrochemicals improving safety and health conditions for our employees producers. and neighboring communities, and support social and cultural programs in Russian society, are outlined in this We are on track to complete the Tobolsk-Polymer plant, Annual Review. our key investment in petrochemicals and one of the state’s top regional economic development priorities. It SIBUR provides a unique solution for oil & gas companies is hard to overstate the strategic value of this project, to reduce flaring on oil fields. The volume of APG which represents a major first step in the creation of a processed by SIBUR in 2011 is equivalent to preventing full-scale petrochemical hub in Western Siberia, right at the release of about 5.4 million tons of pollutants into the the source of a reliable supply of feedstock. Launch of atmosphere due to flaring. propane dehydrogenation and polypropylene production in 2013 will result in greater integration of our businesses We are also a major engine of economic development, and offer an attractive and efficient opportunity for bringing jobs, investment and new technologies to our monetizing SIBUR’s access to the region’s vast resource regions of operations. Our success would not be possible base. Sales of basic polymers are expected to benefit without SIBUR’s people, numbering 30,500 employees at from a global cost advantage, and reduce our reliance the end of 2011. We strive to be an employer of choice, on energy products that are expensive to transport, providing economic and professional career development subject to export duties and exposed to global energy opportunities to our associates. price volatility. *** In December 2011, we completed the disposal of the SIBUR’s strategic progress and strong financial results Company’s mineral fertilizers and tires businesses. This in 2011 provide a solid foundation for the future. We is in line with our objectives to exit non-core activities, look forward to executing of our long-term business streamline SIBUR’s asset structure and focus on our plans and strategies to support sustainable growth and core strategy. Proceeds were used for debt repayment create value for shareholders in the years to come. as per the Company’s stated commitments. Dmitry Konov Environmental and Social CEO and Chairman of the Management Board Responsibility SIBUR is focused on developing global best practice standards for environmental and social responsibility

7 SIBUR Today SIBUR Annual Review 2011

Introduction Because of the strategic location of our assets, unique SIBUR is the largest integrated gas processing and infrastructure and long-term relationships with suppliers, petrochemical company in Russia and CIS as well as we enjoy advantageous access to abundant stranded Central and Eastern Europe as measured by revenues. We hydrocarbon feedstock in Western Siberia, which makes purchase associated petroleum gas and liquid hydrocarbon us one of the lowest-cost producers of energy and basic feedstock from major Russian oil and gas companies and petrochemical products globally. Our integration into process them into energy products, including liquefied hydrocarbon feedstock processing and transportation petroleum gases, natural gas and naphtha and further into creates valuable synergies in production processes, various petrochemical products, including basic polymers, allows us to generate margins well above industry synthetic rubbers, plastics, products of organic synthesis, averages and also reduces our exposure to movements intermediates and other chemicals. We sell to around in feedstock prices. 1,500 customers in the energy, automotive, construction, retail and other industries in 60 countries. SIBUR’s business structure comprises two segments: feedstock & energy and petrochemicals. These business For the full year 2011, our revenues totaled RR 248,660 segments vary significantly in their end-user markets, million, EBITDA reached RR 86,669 million, and profit for supply and demand trends, value drivers and consequently the year amounted to RR 62,799 million. Revenues from current and long-term profitability. However, there is a sales to the Russian domestic market accounted for high level of integration as almost 85% of feedstock for 57.1% of total and 42.9% was attributable to exports. our petrochemical segment is supplied by our feedstock As of 31 December 2011, SIBUR owned and operated & energy segment. 24 production sites across Russia and employed approximately 30,500 people.

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8 SIBUR Today SIBUR Annual Review 2011

Feedstock & Energy We process APG at our GPPs into natural gas and NGL. We own and operate unique hydrocarbon processing We also buy NGL from third parties. Both produced assets and transportation infrastructure located and purchased NGL are fractionated at our GFUs to primarily in Western Siberia. These consist of seven gas produce energy products such as liquefied petroleum processing plants (GPPs), five compressor stations, gases (LPG) and naphtha. Additionally, our feedstock three gas fractionation units (GFUs), six railway loading & energy business produces fuels and fuel additives, racks, and approximately 3,000 kilometers of gas and including methyl tertiary butyl ether (MTBE). product pipelines. In 2011, our GPPs processed over 18 billion cubic meters Western Siberia is the region with the largest base of of APG, which accounts for 58% of all APG processed proved oil and gas reserves in Russia(1). Oil and gas in Russia (excluding flaring and in-field utilization), and companies in Western Siberia typically lack the capacity produced 15.8 billion cubic meters of natural gas and for processing and transportation of light hydrocarbons 4.2 million metric tons of NGL. We produced 3.6 million that are by-products of oil and gas extraction, such as metric tons of LPG, 1.3 million metric tons of naphtha associated petroleum gas (APG) and natural gas liquids and over 400 thousand metric tons of MTBE, accounting (NGL), and choose to sell these to SIBUR. APG and NGL for 34% оf all LPG, for 7% of all naphtha and for 51% (3) are the basic raw materials for our feedstock & energy of all MTBE produced in Russia in 2011 . business, while NGL can also be used as a raw material for our petrochemicals business(2).

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9 SIBUR Today SIBUR Annual Review 2011

In 2011, our feedstock & energy segment gross revenues The segment employed approximately 6,400 people as of totaled RR 149,478 million(1). The segment’s EBITDA 31 December 2011. contribution(2) for the year amounted to RR 68,106 million.

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Petrochemicals — Plastics and organic synthesis products, including SIBUR is the leading petrochemicals producer in Russia. alcohols, mono-ethylene glycol and other glycols, As of 31 December 2011, we operated 15 production polyethylene terephthalate (PET), polystyrene (PS), sites across the country, providing essential materials for biaxially oriented polypropylene films (BOPP films) downstream manufacturers in Russia and internationally. and plastic compounds. In 2011, our production of Our petrochemicals business sources its feedstock plastics and organic synthesis products totaled 587 mostly from our feedstock & energy business. thousand metric tons; and — Intermediates and other chemicals, including ethylene, SIBUR’s petrochemical products comprise: propylene, butadiene, styrene, isoprene, ethylene — Basic polymers, including polypropylene (PP) and oxide, isobutylene, benzene and others. In 2011, our low-density polyethylene (LDPE). In 2011, our total production of intermediates and other chemicals production of PP and LDPE amounted to 373 thousand totaled 3,161 thousand metric tons, with almost metric tons; 80% of this volume used for further processing and — Synthetic rubbers, including commodity rubbers, production of the first three groups of products. specialty rubbers and thermoplastic elastomers. In 2011, our production of synthetic rubbers exceeded 426 thousand metric tons;

(1) Including inter-segment revenues, excluding unallocated revenues (2) Does not include corporate overheads and other unallocated expenses

10 SIBUR Today SIBUR Annual Review 2011

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(1) Investment projects (2) These GPPs are part of Yugragazpererabotka, our JV with TNK-BP (3) Investment project, Yuzhno-Priobskiy GPP is part of our JV with Gazprom Neft SIBUR Today SIBUR Annual Review 2011

Competitive Strengths Net long position in energy products. Unlike most SIBUR’s feedstock access, our infrastructure, the petrochemical companies, SIBUR is a net seller of strategic geographic location of our assets, and the energy products. This increases our flexibility and works Company’s vertically integrated business model provide as a natural hedge against growth in feedstock prices, us with major competitive advantages: and also generates substantial cash flows that we can reinvest to support our growth strategy. Raw material cost advantage: — APG gathering and processing. SIBUR gathers Diversified feedstock and product portfolio. Thanks and processes associated petroleum gas (APG), a to the diversification of our feedstock and product by-product of oil extraction. Russian environmental portfolio, we are in a position to optimize our production protection rules require oil companies to curtail APG and sales activities. Depending on market trends and flaring. Our unique infrastructure in Western Siberia shifts in demand fundamentals, we can change the provides an economical and environment-friendly composition of our feedstock and product mix to solution for oil & gas companies. SIBUR buys APG maximize production and sales efficiency and support on attractive terms and processes it into natural gas margins. and natural gas liquids (NGL), generating substantial margins and cash flows for our company. NGL is the Substantial installed base as a barrier to entry. key target product of APG processing for SIBUR SIBUR has invested significantly in the expansion because it serves as a raw material for production and modernization of its existing asset base and new of energy products and as a feedstock for our projects at advanced construction stages in remote petrochemical business. regions. Potential competitors in these regions would need to make major capital commitments with substantial — Access to growing volumes of liquid hydrocarbon lead-times, requiring high rates of return to justify their feedstock. Liquid hydrocarbons, including LPG, economic rationale. naphtha and NGL, are key raw materials for our petrochemical business. In addition to production Specialized project management and technological of liquid hydrocarbons from APG, they are also expertise. We have a strong track record of developing by-products of gas extraction. Western Siberia's large industrial projects in remote regions with difficult abundance of gas reserves has led to strong growth climate, logistics and market conditions, working with in production of liquid hydrocarbons, but much of world-leading engineering firms. We also have advanced these volumes are locked in the region due to high and and in some cases unique technologies that provide us rising transportation costs and export duties. This with operational benefits and opportunities for licensing provides SIBUR with a reliable source of raw materials and joint venture agreements with leading global for growing our highly competitive petrochemical players. business in close proximity to the resource base while making us one of the lowest cost producers globally.

13 Strategic Objectives SIBUR Annual Review 2011

SIBUR’s strategic goal is to ensure long-term profitable Moreover, much of Russia’s demand for basic growth and maximize shareholder value. We leverage our petrochemicals as well as for more value-added products integrated business model, unique cost advantages and is currently satisfied by imports due to a shortage of strong demand fundamentals to substantially expand our domestic petrochemical capacity. This makes Russian petrochemical business, increase our market leadership basic petrochemicals market a premium one for domestic in Russia and secure strong positions in target export producers. Thanks to our cost advantage and extensive markets. project pipeline, we are well positioned to capture this opportunity. To achieve these objectives, we focus on the following strategic priorities: Respond to changes in marketplace and selectively develop specialty chemicals. We strive to apply the Cement long-term access to feedstock. We aim to latest technologies and know-how in the development of reinforce our competitive positions in APG and liquid our petrochemical product offering to adapt to evolving hydrocarbons processing and transportation to further customer needs and demand trends while strengthening consolidate growing feedstock flows in Western Siberia. SIBUR’s competitive edge. We have consistently SIBUR continues to develop a network of long-term increased out investments in research and development contracts and joint ventures with oil and gas companies. and made selective acquisitions to support these goals. We invest in the expansion of our processing capacity In addition, SIBUR looks for opportunities to broaden its and transportation infrastructure as well as in technology offering and market positions in selective higher margin upgrades both in existing regions of operations and new specialty chemicals both in Russia and internationally, areas to secure reliable long-term access to attractively building on our assets, technologies and cooperation priced hydrocarbon feedstock and to support its with international manufacturers and customers. monetization through sales of energy products. Pursue operational excellence. We pursue operational Monetize stranded feedstock through excellence to enhance our cost advantages, reduce risks petrochemicals. In close proximity to our feedstock and promote the long-term sustainability of our business. base in Western Siberia, we are making substantial We apply global best practices, adapting them where investments to develop large-scale petrochemicals necessary to the Russian market situation, in order to production capacity, primarily in basic polymers. We improve productivity, streamline and further integrate our expect these investments to result in further integration of asset base, enhance business processes and functions, our businesses and provide an alternative, more efficient upgrade our IT infrastructure and implement a strong way to monetize our access to low cost hydrocarbon ERP system. These and other initiatives aim to improve feedstock stranded in the region. Through conversion SIBUR’s operational efficiencies, offset upward pressure of liquid hydrocarbons into petrochemicals right at the on costs, enhance our long-term competitiveness and place of origin, we will save on costly transportation and support operating margins. export duties on energy products, while gaining a strong cost advantage for our basic polymers on both Russian Enhance capital efficiency. SIBUR development and international markets. This will reduce our exposure program is capital intensive. We aim to ensure a to volatile global energy markets and support blended disciplined, prudent and effective use of capital. We Company operating margins well above industry-average prioritize investment opportunities to focus on projects levels. with the best strategic fit and industry-leading returns, while increasing cash flows and maintaining balance Capture domestic growth opportunities. Russia’s sheet strength in line with our financial policy to support demand for basic petrochemical products is expected to steady growth in the years to come. grow significantly faster than globally as the country’s per-capita use of basic petrochemicals lags substantially behind both developed and many developing economies.

14 Our Operations SIBUR Annual Review 2011 and 2011 Perfomance

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Feedstock & Energy 2011 was generally a very positive year for our Our energy products, mainly comprised of natural gas, feedstock & energy business due to higher production liquefied petroleum gases (LPG), naphtha and natural gas and sales volumes as well as growth in global oil and oil liquids (NGL), are sold primarily to end-customers in the derivatives prices, higher natural gas prices in Russia energy, utilities and petrochemical industries in Russia and a relatively weak rouble. and internationally. We also produce fuel additives, including methyl tertiary butyl ether (MTBE), which we Our revenues from sales of energy products increased by sell to major oil refineries on both the domestic and 40.8% year-on-year to RR 112,396 million in 2011 from international markets. In 2011, revenues from external 79,809 million in 2010, primarily driven by higher sales of energy product sales to the Russian domestic market LPG, naphtha and MTBE. accounted for approximately 47.7% of total external energy product sales and 52.3% was attributable to ,FZ
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16 Our Operations and 2011 Perfomance SIBUR Annual Review 2011

Basic Polymers In 2011, we benefited from the strong performance Our basic polymer product group comprises low-density of end-customer industries, which drove the growth polyethylene (LDPE) and polypropylene (PP). LDPE in demand for our products and supported favorable sales are evenly split between the Russian and export pricing trends in Russia and globally. As a result, our markets, serving customers in the retail and construction 2011 revenues from sales of basic polymers increased industries. We sell PP primarily on the domestic by 16.1% year-on-year to RR 21,782 million from 18,760 market, where our end-customer industries are retail, million in 2010. The strongest revenue growth was construction, automotive and road building. In 2011, posted in domestic PP sales. our total production of PP and LDPE amounted to 373 thousand metric tons.

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Synthetic Rubbers Thermoplastic elastomers are primarily used in the Our synthetic rubber product group includes commodity construction and road building industries. In 2011, rubbers, specialty rubbers and thermoplastic elastomers. domestic market sales accounted for 86.5% of In 2011, our production of synthetic rubbers exceeded thermoplastic elastomers revenues, while 13.5% came 426 thousand metric tons. from export sales.

Commodity rubbers primarily comprise polyisoprene (IR), 2011 was a record year for our synthetic rubber polybutadiene (BR) and styrene-butadiene (SBR) rubbers business as we benefited from favorable pricing trends, and are sold mostly to customers in the automotive and wider price spreads between monomers and rubbers, industrial machinery industries. Our 2011 commodity strong demand for rubbers in Russia and internationally, rubber sales were almost evenly split between domestic particularly in the first half of the year. Higher rubber and export markets with 47.3% of revenues attributable prices more than compensated for a marginal reduction to sales in Russia and 52.7% derived from exports. in our production and sales volumes. SIBUR’s 2011 revenues from synthetic rubber sales increased by Specialty rubbers primarily comprise nitrile-butadiene 33.0% year-on-year to RR 50,971 million compared to (NBR) and butyl rubbers (IIR) as well as latexes and are RR 38,336 million in 2010. The growth was primarily sold mostly to customers in the automotive, oil and gas, driven by commodity rubbers sales. construction and healthcare industries. Approximately 20.5% of our 2011 specialty rubber revenues were derived from the domestic market, while export sales accounted for 79.5% of revenues.

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Plastics and Organic Synthesis thousand metric tons of the product group production Products volumes, approximately 9% was used internally for Our plastics and organic synthesis product group further processing. comprises primarily mono-ethylene glycol and other glycols, alcohols, polyethylene terephthalate (PET), In 2011, our external revenues from sales of plastics and plastic compounds(1), polystyrene and biaxially oriented organic synthesis products increased by 31.4% year- polypropylene films (BOPP-films). We sell these products on-year to RR 23,755 million from RR 18,079 million in mainly on the domestic market (except for alcohols) 2010. The growth was primarily driven by stronger sales to customers in the chemical, retail, construction and of glycols, polystyrene and PET as well as consolidation road building industries. We also use some of these of BOPP-film production and sales volumes of OOO for further processing into other petrochemicals in this Biaxplen NK from the fourth quarter of 2010. product group and others. In 2011, out of a total 587

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NJMMJPO   isoprene, isobutylene, ethylene and others. These   chemicals are mainly used internally and processed into higher value-added products within three product groups discussed above. Out of 3,161 thousand metric tons of intermediates and other chemicals produced in   2011, approximately 80% was used internally for further processing.

   We also sell these products externally, primarily to other petrochemical companies, particularly within our purchasing schemes when we supply feedstock in exchange for refined products. This enables us to strengthen our market positions in respective products and enhance sales efficiency. SIBUR’s integrated business model enables us to change the composition of our feedstock and product mix to maximize production and sales efficiency and support margins. As a result, our share of external sales in intermediates and other chemicals fluctuates significantly period to period depending on market trends, shifts in supply and demand fundamentals, capacity constraints and other factors.

In 2011, our revenues from external sales of intermediates and other chemicals increased by 4.5% year-on-year to RR 25,335 million from RR 24,247 million in 2010 on higher prices despite lower sales volumes.

More details on our energy and petrochemical products and SIBUR’s operational performance in 2011 are provided in the “Operational Review” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Review.

(1) External revenues

20 Environmental & Social SIBUR Annual Review 2011 Responsibility

As Russia’s largest integrated natural gas processing Environment and petrochemical company, SIBUR recognizes that Reducing environmental impact and protecting the environmental and social responsibility are cornerstones health of our employees and neighbors are fundamental of building a successful and sustainable business. Our operating principles at SIBUR and key prerequisites for unique role in processing by-products of oil & gas our sustainable development. We strive to continually extraction provides energy companies with a solution optimize the ecological impact and safety of our to the important environmental issue of flaring, while operations. The Company’s environmental protection our petrochemical business turns these by-products standards are based on international best practices, and into economically useful products. We are committed SIBUR regularly coordinates with major global chemical to reducing environmental impact, improving safety companies, NGOs and government representatives on and health conditions for our employees and neighbors eco-management issues. and supporting social and cultural programs in Russian society. SIBUR’s Environmental Policy focuses on the following priorities: Our unique ability to process by-products of oil & gas — Applying the latest science and technology to extraction and turn them into petrochemical products maximize efficient use of hydrocarbon resources and provides energy companies with an economically useful provide solutions for reducing ecologically harmful solution to reduce APG flaring in compliance with new flaring by the oil & gas industry; environmental protection rules. — Reducing environmental impact of our operations SIBUR’s corporate responsibility programs include by integrating environmentally clean, efficient and commitments to: economically-sound technologies and equipment at — Environment : We provide environmental and our newest facilities while modernizing older facilities economically productive solutions to flaring by the to improve the reliability and safety of production; oil & gas industry, while working to minimize the — Providing transparency regarding SIBUR’s environmental impact of our own operations. environmental impact and actions, increasing — Health and Safety : We work in partnership with cooperation with government agencies and global leaders in industrial and occupational safety to municipalities to protect the environment. improve performance and protect our employees and neighboring communities. SIBUR’s unique contribution to solving environmental problems is our ability to process vast amounts of — Employees : We strive to provide a positive work associated petroleum gas (APG) – a by-product of experience for our employees, both in terms of quality oil extraction that energy companies have historically of life and on-the-job support. disposed of through flaring. Industry experts estimate — Communities and Society : We actively support social that flaring of one million cubic meters of APG releases and philanthropic programs including cultural, sports into the atmosphere more than 300 tons of pollutants and educational initiatives in the communities in which such as nitrogen dioxide, soot and carbon monoxide that we operate. are harmful to human health. By contrast, processing of APG into energy and petrochemical products These initiatives provide measurable benefits for SIBUR provides an alternative to flaring and helps minimize in terms of increased operational and resource efficiency, environmental impact in oil-producing regions. Instead new sources of income and lower costs, improved of a wasted by-product that harms the environment, employee productivity and safety, and mitigation of SIBUR is able to turn APG into a source of raw materials material risks to our business. for basic polymers, synthetic rubbers and plastics – materials that increasingly provide substitutes for

21 Environmental & Social Responsibility SIBUR Annual Review 2011

other resources utilized in manufacturing, construction (CEMS), fully compliant with international ISO standard and other intensive industries. 14001:2004, was implemented in 2008. In the first half of 2011, a pre-certification audit of SIBUR’s CEMS The volume of APG processed by SIBUR in 2011 was carried out at several SIBUR subsidiaries, and as a exceeded 18 billion cubic meters, a year-on-year increase result, SIBUR was recommended for an extension of its of 3.3% in 2011 compared to 2010. This is equivalent CEMS certification for the next three years. As part of to preventing the release of about 5.4 million tons of SIBUR’s CEMS and to raise ecological awareness, 4,811 pollutants into the atmosphere. SIBUR employees were trained in 2011, an increase of 25% compared to 2010. SIBUR’s expansion of gas processing capacity will support further progress in oil & gas industry The primary purpose of the CEMS is to effectively environmental performance through reduced flaring of manage all environment-related issues through planning APG. In 2011, the Ministry of Economic Development and achievement of targets to decrease environmental and Trade of the Russian Federation approved SIBUR’s impact. In accordance with corporate targets, all SIBUR plan to launch the second stage of the expansion of the enterprises develop and implement annual and long-term Yuzhno-Balykskiy gas processing plant (GPP) in the Environmental Programs, some of which are described Khanty-Mansi Autonomous Region as part of Article 6 below. In 2011, SIBUR spent over RR 1.2 billion on of the Kyoto Protocol to the United Nations Framework implementation of such programs. Convention on Climate Change(1). This project is expected to reduce oil industry greenhouse gas — Water Resource Protection Program, 2011 - 2015. emissions by the equivalent of 7.1 million tons of СО2. Implemеntation of this program includes renovation, The relevant estimates were approved by DNV (Norway), reconstruction and building of new treatment facilities an independent accredited agency that conducted the as well as water intake facilities and disposal sewers project design documentation (PDD) audit. for treated outflows.

— Waste Management Program, 2011 - 2015. This In early 2012, SIBUR sold its first tranche of emission program includes construction of additional waste reduction units (ECB) in the amount of 1.2 million tons storage facilities, decrease of waste output, of СО on the international market. The buyer was 2 dismantling of existing industrial waste, purchase of JPMorgan Chase in a purchase coordinated by Sberbank, waste processing and utilization equipment. As part which is the operator of carbon credits in the Russian of the program, SIBUR has initiated and developed Federation. The funds obtained by SIBUR will be used to a project to wind down utilization of the White Sea complete the construction of the Vyngapurovskiy GPP in sludge reservoir. Located near the city of Dzerzhinsk, the Yamalo-Nenets Autonomous Region, and to finance the sludge reservoir was put into operation nearly 40 regional infrastructure expansion for the transportation years ago, and more than 90% of its content dates of natural gas liquids, one of the processing products back to Soviet times. SIBUR, together with SolVin, of APG. The future sale of ECBs will be executed in plans to launch a modern PVC production complex in accordance with the Agent Agreement signed between Kstovo, the Nizhny Novgorod region. Consequently, SIBUR and Sberbank. Any future proceeds generated the production of chlorine and caustic soda in will go towards financing of APG processing projects. Dzershinsk, which is the source of the waste directed to the sludge reservoir, will cease. Separately, SIBUR continuously works to reduce its own impact on the environment. As part of the — Air Resource Protection Program, 2012 - 2016. This implementation of the Company’s Environmental Policy, program was launched in 2012. It aims to decrease SIBUR’s Corporate Environmental Management System the emission of pollutants into the air and reduce the

(1) The implementation of the Kyoto Protocol to the UN Framework Convention on Climate Change enables Russian companies to sell greenhouse gas emissions reduction units, obtained through implementation of investment projects, to foreign companies

22 Environmental & Social Responsibility SIBUR Annual Review 2011

industrial impact in the regions of SIBUR’s operations. billion cubic meters compared to 56 billion cubic meters Implementation of this program will include the in 2010. The amount of the sanitary waste produced introduction of a means to help collect contaminants decreased by 31% year-on-year to 219 thousand tons and other emission decreasing systems. from 317 thousand tons in 2010. Emission of pollutants in the air totaled 74 thousand tons in 2011 compared to — “Business for Ecology” Corporate Program. 66 thousand tons in 2010, an increase of 12% year-on- This program is focused on making improvements year, which is in line with business growth. As described to the environment in the regions in which SIBUR above, this year SIBUR has launched a new ecological operates through development of public initiatives program for 2012 -2016, which specifically aims to and involvement of community members, such as decrease emission of pollutants into the air. schoolchildren and young people. Major projects under this program in 2011 included planting of greenery in SIBUR works hard to improve the energy efficiency of urban areas and near child welfare institutions, tree our production. In 2010, the Company established a planting in forests, purchasing of equipment for dedicated division called Energy Saving Engineering ecological monitoring, participation in nationwide Center (ESEC), which focuses on centralized environmental trash collection campaigns, holding development and implementation of the Energy Saving ecological-oriented contests and informational nature Program for SIBUR’s subsidiaries and the Company as protection campaigns. In 2011, as part of our “Business a whole. As part of the program, SIBUR’s enterprises for Ecology” corporate program, we developed five are staffed with designated energy managers who went parks and 2.5 hectares of forest, collected more than through special training programs. These managers are 6 tons of garbage, and implemented several projects responsible for the implementation of energy saving supporting publishing of environmentally-focused measures at the enterprise level and in coordination with media. These initiatives were launched in cooperation headquarters. SIBUR has introduced an information and with such civic organizations as “Zeleny Krest” (the Green Cross), “the Russian Ecological Congress”, 8BTUFXBUFS
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The implementation of target ecological programs enables SIBUR to continuously reduce its impact on the environment. In 2011, the Company reduced its wastewater discharge by 27% year-on-year to 41  

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23 Environmental & Social Responsibility SIBUR Annual Review 2011

analytical system to monitor energy saving measures, company and industry leader in occupational safety and analyze the performance and efficiency of these culture. In 2008-2011 we jointly implemented a project measures. Additionally, an information exchange on safety culture and currently continue our cooperation system for best practices on energy saving initiatives as part of SIBUR Production System project. was introduced. ESEC actively liaises with engineering companies and energy efficient equipment vendors for By the end of 2011, the number of accidents and injuries a detailed development and implementation of energy at SIBUR had decreased by 38% compared to 2010. saving initiatives. Energy saving is also addressed The lost time injury frequency rate (LTIFR(1)) was 0.81, by the SIBUR Production System project, which was beating the Company’s 2011 target of 1.1. There were no implemented jointly with DuPont. In 2011, annual savings fatal accidents connected with production activities in of electricity and heat power achieved due to the 2011 and the number of production accidents decreased implementation of SIBUR’s energy savings programs, by 3% year-on-year. amounted to RUR 818 million. We saved 151 million kilowatt-hours of electric power (out of our annual We believe that the most efficient way to promote consumption of approximately 7 900 million kilowatt- industrial and occupational safety is to make hours), and 644 thousand Gcal of heat power (out of our SIBUR’s employees part of the corporate IS and OHS annual consumption of approximately 9 700 thousand management. Starting from 2010, SIBUR rewards Gcal). the enterprises and individuals that demonstrate the strongest safety practices. Gubkinskiy GPP was named Industrial Safety and Occupational “Best Enterprise in Industrial Safety” for 2011. The “IS Health & Safety and OHS Champion” title was awarded to 60 employees SIBUR recognizes the Company’s responsibility to the for their safety-related achievements and the “IS and public and its employees and considers the industrial OHS Leader” title was given to 1,849 workers across the safety (IS) and occupational health & safety (OHS) Company’s enterprises. Total bonus payments related to management system to be a necessary and integral these awards amounted to approximately RR 10 million element of efficient business development. The Company in 2011. believes that sustained progress in IS and OHS can be achieved only through a commitment to occupational The winners of the competition for the best maintained safety involving all employees. In 2008, SIBUR launched production area, buildings and facilities for 2011 were: the Corporate Program for Development of Safety Noyabrskiy GPP, Krasnoyarsk Synthetic Rubber Plant, a Culture and IS and OHS Management Systems. In 2011, company of Biaxplen Group BIAXPLEN K and ZAO Sibur the Company reorganized its chain of command so Trans’ representative office in Togliatti. that all safety-related information from its plants gets reported directly to the general directors, an initiative SIBUR’s key priorities in the improvement of IS and OHS aimed at enhancing overall safety performance. in 2012 include the reduction of accident and employee injury risk and the implementation of an integral IS and SIBUR aligns its IS and OHS practices with global best OHS management system, as well as a risk evaluation practice standards. As part of our focus on safety, system. we work in partnership with DuPont, a multinational

(1) Lost Time Injury Frequency Rate (LTIFR) is the number of injured employees per million working hours

24 Environmental & Social Responsibility SIBUR Annual Review 2011

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SIBUR has high standards for professional conduct 33
NJMMJPO and personnel management. We are a rapidly growing business, and the professional development of our  employees is critical to long-term competitiveness. The   success of large-scale investment projects, productivity,   and product quality are all contingent upon having a strong, motivated team. SIBUR aims to create an efficient and transparent organizational structure to help team members understand their role as well as their   career growth and personal development potential. The Company is creating a personnel management system designed to build SIBUR’s reputation as the best Since 2012, the Company’s enterprises have utilized a employer in the eyes of potential employees, clients and unified remuneration system. SIBUR’s compensation partners. and bonus strategy uses the market midpoint salary as a benchmark for average base compensation and As of December 31, 2011, SIBUR employed 30,453 a higher-than-market-midpoint benchmark for total people, with 63% engaged in the fuel and raw materials compensation. Within the remuneration structure, business, 21% in the petrochemical business, and 16% there is the fixed portion, the amount of pay specified in logistics, marketing and administration. as a base, and the variable portion, which comes in the form of bonus payments. The revision of base Personnel management is comprised of several important pay is performed annually, taking both labor market elements, including the development of a strong conditions and individual employee performance corporate culture, efficient mechanisms for employee into account. In 2011, the average wages at SIBUR promotion, labor productivity growth, performance increased by 14% compared to 2010, and reached incentives and professional development. RR 36,968 per month.

Remuneration System All changes in the remuneration system are directed at A clear and transparent remuneration system is SIBUR’s cultivating a corporate culture that motivates personnel most important competitive advantage in attracting and and, consequently, yields improved performance and retaining talent. In 2011, SIBUR completed a large-scale competitiveness for SIBUR. project to implement a systematic framework for the management of employee remuneration.

25 Environmental & Social Responsibility SIBUR Annual Review 2011

Health and Wellness Programs best-in-class professional education through the Corporate As an employer, it is important to SIBUR that its employees University and leading world educational centers. and their family members can lead healthy lives. The “Executive Talent Pool” program aims to SIBUR’s employees receive medical benefits that cultivate talent to support the needs of our growing go beyond mandatory medical insurance program business. At SIBUR, there are two levels of Talent Pool stipulations. Since 2011, employees at SIBUR’s initiatives: those that apply to the whole company and enterprises are entitled to participate in the Company’s those specific to certain enterprises. Corporate and Voluntary Health Insurance (VHI). According to VHI individual programs are developed for employees who program statistics, 28,596 company employees are now are identified as having high leadership potential. These covered by insurance. programs include education, training, job rotation, and project participation. Individuals are also assigned a SIBUR offers corporate sporting activities as a means of supervisor selected from Company leaders. The first promoting health and wellness and building camaraderie. Talent Pool was selected in 2007, and the second in There are currently football, volleyball, hockey, skiing, 2009. Since the program launch, more than 35% of chess, tennis and other sport clubs at our enterprises. candidates have been promoted or assigned to a key Major corporate sporting events have already become a project. tradition. In the winter the Company runs the “SIBUR ski track”, in the summer the we hold the SIBUR Spartakiada SIBUR’s Corporate University runs a number of Games, and in the autumn, employees participate in the programs to develop management and leadership skills “the Volga Autumn” competition. Every year, SIBUR’s for a growing number of SIBUR’s employees. In 2011, best sportsmen take part in a tournament with employees our Corporate University launched several new courses, from other energy companies. including leadership, management, marketing, sales and project management. These courses were developed SIBUR is committed to the health and happiness of the with the help of external experts and business school next generation. In 2012, SIBUR opened “SIBUR-Yug”, lecturers (from “Skolkovo” and the Stockholm School the corporate summer camp for employees’ children, of Economics). In addition to theory, SIBUR’s Corporate in Anapa, on the Black Sea coast. More than 1,200 University also provides hands-on professional employees’ children will be offered an annual vacation education, to help drive improved productivity with the at this corporate camp starting from 2012. More than help of high-level professionals, including equipment 20,000 employees’ children under 14 years of age operators, power engineers and other technical receive gifts for the New Year and, on September 1, all specialists. In short term SIBUR’s Corporate University first grade schoolchildren from SIBUR employee families will run production efficiency, corporate services, receive backpacks for school along with a complete set finance, IT, HR management, logistics and procurement of school supplies. Additionally, SIBUR helps foster educational programs. creativity, by hosting the “SIBUR Child” artwork contest for employees’ children. Participants and winners receive The Personnel Development and Re-education awards for their work. Center helps employees put the skills gained at the Corporate University into practice, designing individual Programs for Staff Training professional development programs and teaching and Development employees to build on the unique capabilities of SIBUR’s The SIBUR professional development program helps give enterprises. The Center prepares employees for work employees the tools they need to achieve professional on specific SIBUR projects and encourages them growth. The Company has an ongoing training system, to participate in educational programs. The Center which helps grow our talent pool and nurture the next helps employees with the personal and professional generation of leaders. These employees have access to development necessary to get promoted or move to another area of the company. The first class graduated

26 Environmental & Social Responsibility SIBUR Annual Review 2011

at the end of 2011, and the graduates are now putting technology of basic organic and petrochemical synthesis. their knowledge into practice across the Company. While obtaining their Master’s degree, the students can gain work experience at NIOST – SIBUR’s R&D center, Recruitment and Development of which is equipped with state-of-the-art analytical research Entry-Level Professionals equipment from the world’s leading manufacturers. The SIBUR strives to recruit and retain the best and brightest most talented students are invited to join the Company young employees. Every year, more than 500 university upon graduation. At the end of 2011, a new informational and technical school graduates join the Company. campaign called “Job For Your Soul” was launched to As SIBUR continues to replenish its staff with young encourage graduates with relevant expertise to get talent, more than one-third of the personnel is currently involved in the Company’s young specialist program. comprised of people under 35. Specially tailored education programs are geared towards training young SIBUR’s Corporate Culture professionals at specialized schools, vocational and SIBUR strives to create a corporate culture that allows higher education institutions. employees to bring their own individuality to the professional environment, while sharing a common set of professional With SIBUR’s support, a series of career-oriented values: the drive to achieve results, leadership and classes were organized at regional schools, along with proactivity regardless of position, teamwork, readiness to a system for identifying talented schoolchildren on learn and teach others, trust, mutual respect and reliability. the basis of their results in chemistry olympiads and contests. School graduates with high marks are granted All of SIBUR’s achievements are the result of the work of admission privileges when applying to vocational and more than 30,000 people, and we aim to provide the best higher schools. possible working environment for our employees.

SIBUR’s cooperation with technical educational Communities and Society institutions includes facility upgrades as well as SIBUR places a very high degree of importance on social organizing and granting scholarships for the best responsibility. The Company is engaged with a range of students and professors. The Company partners charity programs and sponsorships, allocating resources with universities in Moscow, Perm, Voronezh, to various social groups in the regions where it operates. Togliatti, Nizhny Novgorod, Tobolsk, Tomsk, Tyumen, Our charitable programs are primarily aimed at children, Nizhnevartovsk and Krasnodar. With SIBUR’s support, teens and the elderly, focusing mainly on sports, a system of specialized departments is being created medicine, education and culture. within higher education institutions, new specialities and training programs are being added, and a mechanism for SIBUR has agreements with certain regional governing on-the-spot and skills upgrade training for university bodies which establish cooperation to address socially professors at SIBUR’s enterprises is being developed. important issues and initiatives. In 2011, the Company Leading SIBUR specialists also lecture at educational allocated funds to the following causes: institutions. — RR 100 million to provide alternative housing for Pyt- Yakh dwellers residing in sub-standard housing; SIBUR, together with the Lomonosov Moscow State — RR 20 million for the capital repair of the swimming University of Fine Chemical Technology, launched a pool at the Nyagan Child Development Center; professional standards project to train process engineers for the Company’s enterprises. At the end of 2011, a — RR 21 million for social initiatives in Nizhnye- specialized SIBUR Master’s degree program was offered vartovsk; at some universities. The program helps prepare students — RR 50 million to finance social programs in the Yamalo- to work in the Company’s research and development Nenets Autonomous Region: to support youth sports, centers. There are two separate tracks for this training: high as well as high performance sport; to implement art molecular weight compound technologies and chemical

27 Environmental & Social Responsibility SIBUR Annual Review 2011

and culture projects; and to support social-economic students from universities, researchers, chemical plant development while preserving traditions for the employees and chemistry enthusiasts. The awards for indigenous small ethnic communities of the North. the Second International Competition of Ideas were given for the most innovative solutions connected In 2011, SIBUR’s expenditures on charitable and to the production and utilization of petrochemicals. sponsorship activity exceeded RR 1 billion, which is As part of the “SIBUR-Technologies” corporate a considerable increase compared to 2010 due to the scientific center created in 2011, we plan to test out addition of a number of new social humanitarian aid the best ideas, estimate their economic feasibility and programs and projects in Western Siberia and in the consider the possibility for further development and Nizhny Novgorod and Leningrad regions, where we implementation. implement our strategic investment projects. Historical Preservation Athletic Programs SIBUR supports the preservation of traditions and cultural SIBUR supports professional sports organizations as continuity in the regions where it is active. In recent part of its regional sponsorship strategy. In 2011, we years, one of the largest culturally-focused charitable supported the Russian Basketball Federation and the initiatives has been the construction of the Annunciation Spartak Basketball Team (St. Petersburg), the Zenit Cathedral in Voronezh. The Public Chamber of the Football Club (St. Petersburg), the Torpedo Hockey Voronezh Region, on behalf of 300 public associations Club (Nizhny Novgorod), the Tyumen Club’s football active in the region, appealed to the public to support and volleyball teams, the Tyumen Table Tennis Club, and the construction of the new cathedral on the site of the the Rubin Hockey Club (Tyumen Region), as well as the former St. Vladimir Cathedral, which was destroyed Centre for Training and Conducting Sport Events of the during Soviet times. With SIBUR’s support of RR 17.8 State Autonomous Enterprise of the Tyumen Region million, construction was accelerated in time for the 900th (Tyumen), the Regional Specialised Children’s and Youth anniversary of the Baptism of Rus, a very significant Sports School of Olympic Reserve (Tyumen), the Modern event. In September 2011, Patriarch of Moscow and All Pentathlon Federation, and the Caterham F1 Team. Russia Kirill consecrated the Annunciation Cathedral in Voronezh and signed the Patriarchal certificate to SIBUR Education and Innovation Programs “for assisting in building the Annunciation Cathedral in As the leader in the Russian petrochemical industry, the City of Voronezh”. SIBUR is involved in a number of programs designed to promote the industry. In particular, during the SIBUR also financed the construction of an Orthodox international year of chemistry, the Company supported church in Tobolsk. The church will be the only one in the opening of specialized chemical classes in Togliatti, the modern part of the city, where a large part of the Voronezh, Pyt-Yakha and Noyabrsk. At SIBUR’s request population lives. In addition, the Company devoted RR 12 and with its support, the “EKSMO” Publishing House million to build a church in the Nizhnevartovsk District. published a book called “Popular Petrochemistry”, We have been continuously patronizing the Pearl of the which provides a basic introduction to the chemical Urals Fund created in support of the Perm Academic transformation of hydrocarbon feedstock into products Opera and Ballet Theatre, and several other cultural and used every day around the world. art centers.

Last year, SIBUR held the Second International Child Welfare Competition for Innovative Ideas in the Production SIBUR actively supports children’s welfare institutions and Use of Petrochemicals. The total award budget and children’s aid foundations. In particular, the increased by 40% compared to 2010 and amounted Company participates in the “Gift of Life” campaign to RR 2.4 million. There were 175 participants from organized by the Chulpan Khamatova Foundation. In Russia, the CIS and non-CIS countries, including 2011, SIBUR again sponsored the organization of the university professors, undergraduate and postgraduate “Simple Wonder” fund telethon in Tomsk.

28 Corporate Governance SIBUR Annual Review 2011 and Management

Corporate Governance The General Shareholders’ Meeting elects the Company’s The General Shareholders’ Meeting is the supreme Revision Commission to ensure control over the governing body of ОАО SIBUR Holding (hereinafter preparation of accurate financial and accounting referred to as “we,” “SIBUR” or the “Сompany”); the statements, other information about the Company’s responsibility of the General Shareholders’ Meeting financial and operational activities, and the status of includes making decisions on the Company’s most critical the Company’s assets. The Revision Commission is also issues and activities. The most recent Annual General tasked with enhancing asset management effectiveness, Shareholders’ Meeting took place on 26 April 2012. mitigating SIBUR’s financial and operational risks, and optimizing internal controls. The Board of Directors is the governing body of SIBUR responsible for the strategic management of the SIBUR engages an external independent auditor to Company’s activities, which are aimed at the creation conduct an annual audit of the Company’s financial and enhancement of shareholder value. The Board of statements in accordance with Russian Accounting Directors makes decisions on all general management Standards (RAS) and consolidated financial statements issues except for those that are the exclusive prerogative in accordance with International Financial Reporting of the General Shareholders’ Meeting. Standards (IFRS). The auditor is approved by the General Shareholders’ Meeting based on the recommendation of The Collegial Executive Body is the Management the Board of Directors. Board. The Management Board is responsible for effective day-to-day management of the Company’s All issues concerning the formation, responsibilities and operations and implements resolutions made by the activities of the Company’s governing and controlling General Shareholders’ Meeting and the Company’s Board bodies are stipulated in the Charter and relevant internal of Directors. documents, including: — By-laws of the General Shareholders’ Meeting of ОАО According to a resolution of the General Shareholders’ SIBUR Holding; Meeting, the Sole Executive Body is the Management — By-laws of the Board of Directors of ОАО SIBUR Company OOO SIBUR (hereinafter referred to as the Holding; “Management Company”). The rights and responsibilities of the Management Company are governed by the Federal — By-laws of the Management Board of ОАО SIBUR Law “On Joint Stock Companies,” the Company’s Charter Holding; and and the agreement on transferring power of attorney — By-laws of the Revision Commission of ОАО SIBUR between SIBUR and the Management Company. The Holding. responsibilities of the Management Company include all day-to-day management issues except for those that are These documents are available on the Company’s website the exclusive prerogative of the General Shareholders’ at www.sibur.com. Meeting, the Board of Directors and the Management Board.

29 Corporate Governance and Management SIBUR Annual Review 2011

Board of Directors Members of the Board of Directors The responsibilities of the Board of Directors include The Company’s current Board of Directors comprises the strategic management of the Company’s business the following members elected by the Annual General activities in compliance with the Federal Law “On Joint Shareholders’ Meeting on 26 April 2012: Stock Companies” and SIBUR’s Charter. — Leonid V. Mikhelson, Chairman of the Board of The Board of Directors determines SIBUR’s strategic Directors priorities; approves annual and long-term business —, Ruben K. Vardanian Independent Director, plans, and annual investment programs; oversees the Chairman of the Human Resources and Remuneration Company’s financial activities and internal controls; and is Committee, member of the Finance Committee responsible for other issues, including approvals of major transactions and related-party deals; recommendations — Oleg B. Golounin , member of the Finance, Audit, and on dividend payout ratios and timing; and the convening Human Resources and Remuneration committees of General Shareholders’ Meetings. The full list of the — Alexander V. Dyukov, Deputy Chairman of the Board of Directors’ responsibilities is available on the Board of Directors, Chairman of the Strategy and Company’s website at www.sibur.com. Investments Committee

In accordance with the Charter, the minimum number — Dmitry V. Konov of elected members of the Board of Directors is seven. — Pavel N. Malyi, Chairman of the Finance Committee, The Company is committed to transparent election member of the Strategy and Investments Committee procedures for each member, which, among other provisions, entail the following: —, Seppo Y. Remes Independent Director, Chairman — The Company’s shareholders are entitled to nominate of the Audit Committee, member of the Finance and members of the Board of Directors. Human Resources and Remuneration committees

— The Company discloses information on the —, Arkadiy F. Samokhvalov Independent Director, composition of the current Board of Directors and on member of the Audit and Strategy and Investments prospective candidates in a timely manner. committees

— Cumulative voting is applied in the election of members — Gennady N. Timchenko , member of the Strategy and of the Board of Directors. Investments Committee Changes to the Board of Directors Members of the Board of Directors take office immediately in 2011 upon their election at the General Shareholders’ Meeting. From 28 April 2011 to 26 April 2012, SIBUR’s Board of Early termination of the directors’ authority may be Directors comprised the following members elected by the applied only to the entire membership of the Board Annual General Shareholders’ Meeting on 28 April 2011: of Directors, in accordance with the relevant General — Leonid V. Mikhelson, Chairman of the Board Shareholders’ Meeting resolution. of Directors — Ruben K. Vardanian Members of the Board of Directors must possess all — Oleg B. Golounin necessary knowledge of strategic and financial issues, — Alexander V. Dyukov and have relevant commercial experience in large Russian — Dmitry V. Konov companies. SIBUR’s Board of Directors includes three — Pavel N. Malyi independent directors. — Vladimir V. Razumov — Seppo Y. Remes — Arkadiy F. Samokhvalov

30 Corporate Governance and Management SIBUR Annual Review 2011

Prior to 28 April 2011, SIBUR’s Board of Directors Board of the OAO Russian Regional Development comprised the following members elected by the Annual Bank. Mr. Mikhelson is the recipient of the Russian General Shareholders’ Meeting on 24 June 2010: Federation’s Order of the Badge of Honor. — Alexander V. Dyukov, Chairman of the Board of Directors Ruben K. Vardanian — Dmitry V. Bakatin Independent Director — Anatoly A. Gavrilenko Born: 1968 — Alexander B. Garankin — Valery A. Golubev Mr. Vardanian graduated with honors from Moscow — Sergey V. Grishchenko State University with a degree in Economics. In — Dmitry V. Konov 2000, he completed executive management courses — Alexey A. Matveev at INSEAD (Fontainebleau, France) and, in 2001 and — Seppo Y. Remes 2005, he completed the courses at Harvard Business — Arkadiy F. Samokhvalov School (USA). — Kirill G. Seleznev Ruben Vardanian is Co-head of the Corporate — Yury N. Shamalov Investment Unit and Head of Wealth Management of Sberbank of Russia. From 2005 until present Mr. Information on the Current Members Vardanian is the Chairman of the Board of Directors of the Board of Directors of Troika Dialog.

Leonid V. Mikhelson Mr. Vardanian is a Board member of several companies: Chairman of the Board of Directors OAO AvtoVAZ, OAO KAMAZ, OAO NOVATEK, Born: 1955 Joule Unlimited, Inc (a pioneer in production of renewable fuel based on solar energy) and others. Mr. Mikhelson received his primary degree from the He is also Board Chairman of several companies: Samara Institute of Civil Engineering in 1977, where OAO Rosgosstrakh, AmeriaBank, OAO Russian he specialized in Industrial Civil Engineering. That Ventures Company. Mr. Vardanian is Co-founder of the same year, Mr. Mikhelson began his career as foreman Moscow-based Skolkovo School of Management and of a construction and assembling company in Surgut, is represented on its Coordinating Council. The school Tyumen region, where he worked on the construction of was established on the initiative of Mr. Vardanian and the first section of Urengoi-Chelyabinsk gas pipeline. several Russian businessmen. Between 2006 and 2011, In 1985, Mr. Mikhelson was appointed Chief Engineer Mr. Vardanian was President of the Skolkovo School of Ryazantruboprovodstroy. In 1987, he became of Management. General Director of Kuibishevtruboprovodstroy, which in 1991, was the first company in the region to Mr. Vardanian is also a member of the President’s sell its shares and became private company, AO SNP Council on Implementation of National Projects and NOVA. Mr. Mikhelson remained SNP NOVA’s Managing Demographic Policy, President’s International Advisory Director from August 1987 through October 1994. Committee on Establishment of International Financial Subsequently, he became a General Director of the Center in the Russian Federation. He is a member of the management company “Novafininvest”. Since 2002, RF Government’s Competition and Entrepreneurship Mr. Mikhelson has served as a member of the Board of Council. Directors and Chairman of the Management Board of OAO NOVATEK. From March 2008 to December 2010, The World Economic Forum (Davos) included Mr. he has been a member and Chairman of the Board of Vardanian in a list of “100 future world leaders”. He was Directors of OAO Stroytransgas. From 2008 to 2011 also included in the Top-22 Business Leaders of Russia he was a member of the Board of Directors of OOO for three consecutive years (rating by the “Kommersant” Art Finance. He is the a member of the Supervisory newspaper and Managers Association).

31 Corporate Governance and Management SIBUR Annual Review 2011

Oleg B. Golounin In 1994, Mr. Konov started his career at AKB International Born: 1971 Finance Company. From 1998 to 2000, he worked in the Treasury Department of OAO NK YUKOS. From 2001 to Mr. Golounin graduated from Samara State University in January 2004, he worked for AKB Trust and Investment 1994 with a Law degree. Bank, where he held positions as Vice President-Head of the Investment Banking Department and then as From 2005 to 2007, Mr. Golounin served as General Managing Director, Corporate Finance. Mr. Konov joined Director of OOO Novafininvest and from 2007 to 2010 he SIBUR in February 2004 and was successively employed was General Director of OOO NOVATEK-Polymer. From as Advisor to the President, Vice President for Strategy 2010 to 2012, he was General Director of ZAO Miracle. and Analysis, Vice President for Corporate Policy and Since 2010, he has served as Chairman of the Board Strategy, Senior Vice President for Corporate Policy and of Directors of OAO First United Bank (Pervobank). Strategy, and Head of the Plastics and Organic Synthesis Since May 2012, Mr. Golounin has also been Director of Business Unit. From November 2006 to 2011, he was OOO LEVIT’s representative office in Moscow. President of the Management Company OOO SIBUR. From June 2007, he was Chairman of the Management Alexander V. Dyukov Board of SIBUR, and from November 2009 he has served Deputy Chairman of the Board of Directors as Chairman of the Management Board of the Management Born: 1967 Company OOO SIBUR. Since 2011, Mr. Konov has also served as General Director of the Management Company Mr. Dyukov graduated from the Leningrad Shipbuilding OOO SIBUR. Institute in 1991. In 2001, he received an MBA from the International Management Institute of St. Petersburg. Pavel N. Malyi Born: 1970 From 1996 to 1998, he served as Financial Director and General Director of Joint Venture ZAO Petersburg Oil Mr. Malyi graduated from the Moscow State Institute of Terminal. In 1998, he was appointed Economic Director, International Relations (MGIMO University) in 1991 with and during 1999 served as Acting General Director a degree in International Law. In 1995, he graduated with of OAO St. Petersburg Sea Port. In 2000, Mr. Dyukov a Master’s degree from the University of Chicago Law returned to the Petersburg Oil Terminal as Chairman of School. the Board of Directors. From February 2003 to November 2006, he was President of SIBUR. From November 2006, From 2004 to 2010, Mr. Malyi successively worked as Mr. Dyukov served as the Chairman of the Board of Director, Executive Director, Managing Director and Directors of SIBUR, and from 2011 as Deputy Chairman Head of UBS Investment Bank in the Russian Federation, of the Board of Directors of SIBUR. He also served as Ukraine and Kazakhstan. From 2011 to 2012, he served Acting President of OAO Gazprom Neft from November as President of ZAO Miracle. Since May 2012, Mr. Malyi to December 2006, after which he was appointed as the has been Managing Director of OOO LEVIT. company’s President. Since January 2008, he has served as Chairman of the Management Board and General Seppo Y. Remes Director of OAO Gazprom Neft. Independent Director Born: 1955 Dmitry V. Konov Born: 1970 Mr. Remes graduated from the University of Oulu (Finland) in 1986, where he majored in Economics. He Mr. Konov graduated from the Moscow State Institute later studied at the School of Economics and Business of International Relations (MGIMO University) in 1994. In Administration in Turku, Finland, and holds a Master 2001, he received an IMD MBA degree. degree in Economics.

32 Corporate Governance and Management SIBUR Annual Review 2011

Mr. Remes is a member of the Board of Directors of energy industry. Between 1982 and 1988, he was a Senior OAO SOLLERS, OAO RusHydro, Federal Grid Company, Engineer at the Ministry of Foreign Trade. Mr. Timchenko OAO Interregional Distribution Grid Company of has more than 20 years of experience in Russian and North-West, OAO Design and research institute on International energy sectors and he has built interests in projecting power systems and power line networks trading, logistics and transportation related companies. ENERGOSETPROECT, and OAO Lenenergo . Since 2007 In 1988, Mr. Timchenko became a Vice President of he has been Chairman of the Board of Directors of EOS Kirishineftekhimexport, the export and trading arm of Russia. Mr. Remes currently serves as General Director of the Kirishi refinery in the Leningrad region. In 1991, he KIURU OOO. He is an Honorary Doctor of the Plekhanov worked for Urals Finland which specialized in oil and Russian Academy of Economics and was granted a Non- petrochemical trading. Between 1994 and 2001, Mr. Executive Director of the Year award. Timchenko was Managing Director of IPP OY Finland and IPP AB Sweden. In 1997, he co-founded Gunvor, a leading Arkadiy F. Samokhvalov independent oil trading company. Mr. Timchenko was a Independent Director member of the Board of Directors of OOO Transoil and Born: 1948 OOO BalttransService. Since 2009, he has been a member of NOVATEK’s Board of Directors. Mr. Timchenko is also Mr. Samokhvalov graduated from the Plekhanov Russian the Chairman of the Board of Directors and President of Academy of Economics in 1972, where he majored in the Ice Hockey Club SKA St. Petersburg. Economics. In 1980, he graduated from the Central Economics and Mathematics Institute of the USSR Board of Directors’ Activities in 2011 Academy of Sciences. In 2011, the Board of Directors held meetings according to the approved plan, which follows best corporate Mr. Samokhvalov holds a post-graduate degree in governance practices and supports the efficient Economics and is a State Counselor of the Russian performance of the Board. Federation, First Class. From 1998 to 2000, he served as First Deputy Minister of Economics of the Russian Key Issues Discussed or Resolved by the Board of Federation, and from 2000 to 2003 as Chairman of the Directors in 2011: Board of Directors of ZAO International Center for — Strategic planning and investment activities: Regional Development. From 2003 to 2004, he was — review and approval of the report on execution of Finance Director and Executive Director of ZAO Guta the 2010 annual investment program; Textil, after which he worked until 2006 as Executive Director of ZAO Pro-Invest-Consulting and General — review and approval of the Company’s 2012 Director of Pro-Invest-Spetsproekt OOO. From 2006 annual investment program; and to 2008, he served as First Deputy General Director of — review and approval of regular reports on the ZAO Strategicheskiye Aktivy Management Company. progress of major investment projects. Until 2012, Mr. Samokhvalov was Assistant to the Deputy Prime Minister of the Russian Federation. Currently he is — Budget planning and financing activities: also an Advisor to the President of OAO NK Rosneft. — review and preliminary approval of the Company’s annual report and financial statements with a Gennady N. Timchenko recommendation for final approval by the Annual Born: 1952 General Shareholders’ Meeting;

— review and preliminary approval of the report on Mr. Timchenko graduated from the Mechanical University execution of 2010 annual business plan, including in Leningrad in 1976. financial and operational performance;

He began his career at the Izjorskii Factory in Leningrad, — approval of the Company’s charity and sponsorship an industrial plant which made components for the budget;

33 Corporate Governance and Management SIBUR Annual Review 2011

— approval of the Company’s 2012 business plan; Committees of the Board

— approval of several financing transactions; and of Directors In 2007, SIBUR’s Board of Directors approved the — approval of the terms of the addendum to the establishment of the following Board Committees: agreement on transferring power of attorney between SIBUR and the Management Company. — Audit Committee; — Approval of large divestitures, acquisitions and — Human Resources and Remuneration Committee; partnerships with international petrochemical — Strategy and Investments Committee; and companies. — Finance Committee.

— Corporate governance activities: The committees were established to ensure efficient — approval of a revised version of the Code of performance by the Board of Directors. The committees Corporate Conduct and new editions of SIBUR’s play an important role in maintaining high standards of internal by-laws; corporate governance by performing a comprehensive — convening of an extraordinary General analysis of the issues to be reviewed by the Board of Shareholders’ Meeting to review and approve a Directors. The committees are governed by internal revised version of the Charter; and by-laws, which are available on the Company’s website at www.sibur.com. — review of D&O insurance options.

— Approval of an independent auditor for SIBUR’s 2011 financial statements in accordance with RAS and IFRS.

— Review of SIBUR’s remuneration system and approval of key remuneration principles.

Committee Membership as of 31 December 2011 Leonid V. Mikhelson

Human Resources and Remuneration Committee (Chairman) Ruben K. Vardanian (1) Finance Committee

Audit Committee Oleg B. Golounin Human Resources and Remuneration Committee

Alexander V. Dyukov Strategy and Investments Committee (Chairman)

Dmitry V. Konov

Finance Committee (Chairman) Pavel N. Malyi Strategy and Investments Committee

Vladimir V. Razumov Strategy and Investments Committee

Audit Committee (Chairman) Human Resources and Remuneration Committee Seppo Y. Remes (1) Finance Committee

Audit Committee Arkadiy F. Samokhvalov (1) Strategy and Investments Committee

(1) Independent Director according to SIBUR’s Code of Corporate Conduct

34 Corporate Governance and Management SIBUR Annual Review 2011

Audit Committee Human Resources and Remuneration The primary objective of the Audit Committee is to Committee develop and make recommendations to the Board of The primary objective of the Human Resources and Directors concerning the following: Remuneration Committee is to develop and make recommendations to the Board of Directors concerning — conducting an annual independent external audit of the the following: Company’s financial (accounting) or other statements, including the IFRS consolidated financial statements; — developing the Company’s HR policy;

— the independent external auditor’s qualifications, — approving KPIs for remuneration paid to the members the quality of the services rendered by the auditor, of the Board of Directors, the Management Board and and whether the auditor meets independence the Sole Executive Body; and requirements; and — implementing the Company’s Long-Term Incentive — assessing the effectiveness of the internal control Program. and risk management systems and developing recommendations for their further improvement. The Human Resources and Remuneration Committee has the right to consider any issue within its scope of The Audit Committee has the right to consider any issue responsibility, as stipulated in the relevant by-laws, within its scope of responsibility, as stipulated in the including the following: relevant by-laws, including the following: — The Committee can request and receive information — The Committee can request and receive information from the head or official of any corporate executive from the head or official of any corporate executive body. body. — It can review information on issues regarding the — It can request reports of internal or external auditors. development of the Company’s HR policy.

— Subject to the Board of Directors’ approval, the — It can review information on remuneration of the Committee can invite professionals and specialists members of the Management Board of SIBUR, the with relevant expertise for discussion of specific Management Board of the Management Company, and issues. key personnel of the Management Company.

— It can request a list of executives entitled to participate The Audit Committee actively cooperates with the in the Long-Term Incentive Program. executive bodies of SIBUR and invites the Company’s senior executives to participate in meetings of the — Subject to the Board of Directors’ approval, the Committee. These executives include the CFO, Financial Committee can invite professionals and specialists Controller and Chief Accountant as well as the Internal with relevant expertise to participate in its discussions Audit Director. A representative of the independent of specific issues. auditor participates in all meetings of the Committee as a regularly invited member. The Human Resources and Remuneration Committee submits recommendations to the Board of Directors The Audit Committee held six meetings in 2011. on improvements in HR policy, and the criteria for determining what constitutes an Independent Director. The Committee compares the Company’s HR policy and incentive programs with peers and market practices, and informs the Board of Directors about the results of such analysis.

35 Corporate Governance and Management SIBUR Annual Review 2011

The Human Resources and Remuneration Committee process management and strategic planning process; actively cooperates with the executive bodies of it also evaluates SIBUR’s policy on cooperation with SIBUR and invites the Company’s senior executives investors and shareholders and makes recommendations to participate in meetings of the Committee. These to the Board of Directors for improving the policy. executives include the CEO and Executive Director in The Committee also reviews issues related to SIBUR’s charge of Organizational Development. establishment of commercial and non-commercial organizations, as well as mergers, acquisitions, The Human Resources and Remuneration Committee held divestments or pledges of the Company’s assets. four meetings in 2011. The Strategy and Investments Committee actively Strategy and Investments cooperates with the executive bodies of SIBUR and Committee invites the Company’s senior executives to participate The primary objective of the Strategy and Investments in meetings of the Committee. These executives include Committee is to develop and make recommendations to the CEO and Executive Director in charge of Strategic the Board of Directors concerning the following: Development.

— defining SIBUR’s priority areas for development; and The Strategy and Investments Committee held 14 meetings in 2011. — SIBUR’s long-term strategy, objectives and tasks, as well as the Company’s annual and long-term Finance Committee investment programs. The primary objective of the Finance Committee is to The Strategy and Investments Committee has the right develop and make recommendations to the Board of to consider any issue within its scope of responsibility, Directors concerning the following: as stipulated in the relevant by-laws, including the — developing SIBUR’s financial strategy in line with the following: Company’s operational results and financial standing, as well as its strategic priorities, objectives and tasks, — The Committee can request and receive information as approved by the Board of Directors; and from the head or official of any corporate executive — SIBUR’s areas for development and its annual and body. long-term business plans. — It can review information on SIBUR’s main development areas and the Company’s investment program. The Finance Committee has the right to consider any issue within its scope of responsibility, as stipulated in — It can request and receive updates on the progress the relevant by-laws, including the following: of SIBUR’s investment projects and post-investment analysis. — The Committee can request and receive information from — Subject to the Board of Directors’ approval, the the head or official of any corporate executive body. Committee can invite professionals and specialists — It can review information on all transactions that with relevant expertise to participate in its discussions require raising funds, including loans, pledges, and of specific issues. guarantees, if such fundraising equals 5% or more of the book value of the Company’s assets. The Strategy and Investments Committee submits recommendations to the Board of Directors on — Subject to the Board of Directors’ approval, the SIBUR’s development strategy, the Company’s plans, Committee can invite professionals and specialists and its annual and long-term investment programs. with relevant expertise to participate in its discussions The Committee evaluates the Company’s investment of specific issues.

36 Corporate Governance and Management SIBUR Annual Review 2011

The Finance Committee submits recommendations to the Members of the Management Board: Board of Directors on SIBUR’s development strategy and The Company’s current Management Board comprises its annual and long-term business plans as well as issues the following members, who were elected by the Board related to SIBUR’s long-term and short-term financial of Directors on 25 August 2011: policy. The Committee reviews the Company’s annual — Dmitry V. Konov, Chairman of the Management report and recommends it to the Board of Directors Board for preliminary approval. The Committee also makes — Mikhail Y. Karisalov recommendations to the Board of Directors with respect — Vladimir V. Razumov to dividend amounts and payout schedules. Additionally, — Aleksey N. Filippovskiy the Finance Committee reviews issues related to the — Kirill N. Shamalov issuance or buyback of bonds and other securities, as well as the raising or issuance of loans, guarantees and pledges, when such transactions require the Board of Directors’ approval.

The Finance Committee actively cooperates with the executive bodies of SIBUR and invites the Company’s senior executives, including the CFO, to participate in meetings of the Committee.

The Finance Committee held 14 meetings in 2011. Management Board SIBUR’s Management Board is the Company’s Collegial Executive Body. The Management Board is responsible for the day-to-day management of SIBUR’s operations. The Management Board also participates in the development and execution of the Company’s strategy.

The primary objectives of the Management Board include managing SIBUR’s assets to maximize their value and returns, improving the efficiency of internal control and risk management systems, and ensuring the protection of shareholder rights and interests.

In accordance with the Company’s Charter, the Management Board is formed by the Board of Directors from senior executives of the Company based on the recommendations of the Sole Executive Body. The Management Board is governed by its Chairman.

Detailed information on the responsibilities of SIBUR’s Management Board is available on the Company’s website at www.sibur.com.

37 Corporate Governance and Management SIBUR Annual Review 2011

Information on Members of the Management Board

Dmitry V. Konov

Chairman of the Management Board of OAO SIBUR Holding

General Director of the Management Company OOO SIBUR

Born: 1970 joined SIBUR in February 2004 and was successively employed as Advisor to the President, Vice President Mr. Konov graduated from the Moscow State Institute for Strategy and Analysis, Vice President for Corporate of International Relations (MGIMO University) in 1994. Policy and Strategy, Senior Vice President for Corporate In 2001, he received an IMD MBA degree. Policy and Strategy, and Head of the Plastics and Organic Synthesis Business Unit. From November 2006 In 1994, Mr. Konov started his career at AKB International to 2011, he was President of the Management Company Finance Company. From 1998 to 2000, he worked in the OOO SIBUR. From June 2007, he was Chairman of the Treasury Department of OAO NK YUKOS. From 2001 to Management Board of SIBUR, and from November 2009 January 2004, he worked for AKB Trust and Investment he has served as Chairman of the Management Board of Bank, where he held positions as Vice President-Head the Management Company OOO SIBUR. Since 2011, of the Investment Banking Department and then as Mr. Konov has also served as General Director of the Managing Director, Corporate Finance. Mr. Konov Management Company OOO SIBUR.

38 Corporate Governance and Management SIBUR Annual Review 2011

Mikhail Y. Karisalov

Member of the Management Board of OAO SIBUR Holding

Deputy Chairman of the Management Board and

Executive Director of the Management Company OOO SIBUR

Born: 1973 Procurement, Head of Logistics and Capital Construction, and General Director of OAO SiburTyumenGaz. From Mr. Karisalov graduated from the Russian Civil Service 2006 to 2011, he was Vice President and Head of the Academy under the President of the Russian Federation Hydrocarbon Feedstock Business Unit. Since June 2007, and from the State Procurement Institute of the Higher Mr. Karisalov has been a member of SIBUR’s Management School of Economics. Board, and since November 2009 he has been a member of the Management Board of the Management Company From 1997 to 2003, Mr. Karisalov served as General OOO SIBUR. Since January 2012, Mr. Karisalov has Director of OOO Oblkonservprom. In 2003, he served as Deputy Chairman of the Management Board was appointed General Director of OOO Russian and Executive Director of the Management Company Promyshennik. Later in 2003, Mr. Karisalov joined SIBUR, OOO SIBUR. where he served as Advisor to the President, Director of

39 Corporate Governance and Management SIBUR Annual Review 2011

Vladimir V. Razumov

Member of the Management Board of OAO SIBUR Holding

Deputy Chairman of the Management Board and Executive Director of the Management Company OOO SIBUR

Born: 1944 served as Vice President of ZAO Roskhimneft and, from 1997 to 1999 he successively held the positions of Vice Mr. Razumov graduated with honors from the Voronezh President and First Vice President of ZAO Korporatsiya Technological Institute in 1967. In 1980, he graduated Rosshina. From 1999 to 2002, he worked at SIBUR as from the Plekhanov Russian Academy of Economics, the Vice President in charge of Production of Synthetic majoring in Procurement. From 1987 to 1989, he studied Rubber and Tires, and as Senior Vice President in at the Academy of the National Economy under the charge of Petrochemical Production. Between 2002 USSR Council of Ministers, specializing in Economics and 2003, he served as COO of OAO Avtotor Holding. and Management of the National Economy. In August 2003, he rejoined SIBUR and successively served as Advisor to the President, Vice President From 1968 to 1983, Mr. Razumov worked at the Voronezh in charge of Production and Senior Vice President in Synthetic Rubber Plant as an engineer, section manager, charge of Production and Marketing. In December 2005, mechanic, shop manager and the Deputy Director for he became Senior Executive Vice President at SIBUR. Procurement and Marketing. He was appointed as Since June 2007, Mr. Razumov has been a member of Director of the Volga Synthetic Rubber Plant in 1983. In SIBUR’s Management Board, and since November 2009 1988, he was appointed as Head of the Main Procurement he has been a member of the Management Board of Department of the USSR Ministry of the Oil Refining and the Management Company OOO SIBUR. Since January Petrochemicals Industry. From 1989 to 1992, Mr. Razumov 2012, Mr. Razumov has served as Deputy Chairman of served as USSR Deputy Minister of the Oil Refining and the Management Board and Executive Director of the Petrochemicals Industry. Between 1992 and 1997, he Management Company OOO SIBUR.

40 Corporate Governance and Management SIBUR Annual Review 2011

Aleksey N. Filippovskiy

Member of the Management Board of OAO SIBUR Holding

Deputy Chairman of the Management Board and Chief Financial Officer of the Management Company OOO SIBUR

Born: 1972 specializing in finance. Since October 2004, he has held the positions of Director of the Finance and Economics Mr. Filippovskiy graduated from the Ural State Technical Department, Head of the Finance and Economics University in 1995. Between 2000 and 2002, he studied Department and Acting Vice President for Economics at the Graduate School of Management at the University and Finance at SIBUR. From 2007 to 2012, he was Vice of California, Los Angeles (UCLA), where he received an President for Economics and Finance. Since June 2007, MBA in Finance and Strategy. he has been a member of SIBUR’s Management Board, and since November 2009 he has been a member of Mr. Filippovskiy worked in the United States at Four the Management Board of the Management Company Media Company as an accountant, senior accountant and OOO SIBUR. Since January 2012, Mr. Filippovskiy has financial manager. From 1998 to 2000, he was Financial served as Deputy Chairman of the Management Board Controller and then CFO of Mobile Telecom, a Russian- and Chief Financial Officer of the Management Company American joint venture. From 2002 to 2004, he worked OOO SIBUR. in the Moscow office of McKinsey & Co. as a consultant

41 Corporate Governance and Management SIBUR Annual Review 2011

Kirill N. Shamalov

Member of the Management Board of OAO SIBUR Holding

Deputy Chairman of the Management Board of the Management Company OOO SIBUR

Born: 1982 as a specialist consultant in the Economics and Finance Department, where he was responsible for managing In 2004, Mr. Shamalov graduated from St. Petersburg state property and the privatization and reform of state- State University with a Law degree and began his owned companies. In June 2008, he joined SIBUR as Vice career at OAO Gazprom as Chief Legal Counsel for President for Business Administration. Since June 2008, foreign economic activity. In 2004, he worked for Mr. Shamalov has been a member of SIBUR’s Management FGUP Rosoboronexport as an expert in the regional Board, and since November 2009 he has been a member department, where he was responsible for military- of the Management Board of the Management Company technical cooperation with Western European countries. OOO SIBUR. Since January 2012, Mr. Shamalov has In 2005, Mr. Shamalov joined ZAO AB Gazprombank as served as Deputy Chairman of the Management Board Chief Lead Counsel in the legal department, where he of the Management Company OOO SIBUR and has been dealt with corporate law issues. Between 2005 and 2008, responsible for administrative business support and he worked for the Government of the Russian Federation government relations.

42 Corporate Governance and Management SIBUR Annual Review 2011

Share Capital Dividends The share capital of OAO SIBUR Holding amounts to SIBUR’s dividend policy is intended to maintain a RR 21,784,791,000. As of 31 December 2011, the share balance between the Company’s goals and the interests capital consisted of 21,784,791 ordinary shares with a of its shareholders, while respecting shareholders’ par value of RR 1,000 each. In June 2012, the Company rights and complying with Russian legislation and the implemented a 1:100 stock split. As a result, SIBUR’s Company’s charter documents. Our dividend policy is equity capital currently consists of 2,178,479,100 aimed at increasing the Company’s investment appeal ordinary shares with a par value of RR 10 each. The state and shareholder value. registration number is 1-01-65134-D, with a registration date of 1 September 2005. The General Shareholders’ Meeting makes decisions on dividend payouts, as well as their amount, timing and the The amount of authorized shares totals 9,653,045,500 form of payment, on the basis of the Board of Directors’ ordinary shares and 2,500,000,000 preferred shares with recommendations. The Board of Directors develops a par value of RR 10 each. No preferred shares have been these recommendations based on SIBUR’s payout target issued. of 25% of the net profit for the period based on the IFRS consolidated financial statements.

Accrued and Paid Dividends for 2005-2011

Dividend Accrual Period Dividends, RR per share Total amount of dividends, RR

2005 4.59 184,460,000.00

2006 98.04 3,931,407,333.36

2007 138.81 5,566,285,719.54

2008 (9 months) 230.67 9,249,874,842.78

2009 110.85 4,829,687,832.15

2010 --

2011 1,000.00 21,784,791,000.00

43 Corporate Governance and Management SIBUR Annual Review 2011

Code of Corporate Conduct According to the Management Board resolution of 27 SIBUR’s Board of Directors approved a revised version June 2012, SIBUR’s key risks are as follows: of the Company’s Code of Corporate Conduct on 29 — industrial accident risks; June 2012. The Code was developed in compliance with — regulatory risks; the current legislation of the Russian Federation, the — IT system risks; Company’s Charter, generally accepted principles of — risks related to non-performance of organizational corporate governance, and SIBUR’s strategic priorities. projects; — risks related to non-performance of investment The Code of Corporate Conduct is intended to protect projects; the rights and interests of the Company’s shareholders — market risks; and and ensure the transparency of decision-making — logistical risks. processes, the accessibility of information, and visibility into SIBUR’s performance. As a growing and developing Industrial Accident Risks company, SIBUR is committed to constant improvement SIBUR’s operational activity may be hampered by of its corporate governance principles. accidents at the Company’s production sites. Such factors as obsolescence of certain equipment, control Key Risk Factors systems failure, loss of containment and other factors The list of risks presented herein is not exhaustive may lead to fires, explosions, emission of toxic fumes and and only reflects SIBUR’s opinion and estimates. other hazardous conditions that could cause personnel This section does not include any analysis of general injuries or death, property damage, environmental economic and social risks, such as the global financial damage or interruption of operations. SIBUR takes crisis, slowdowns in economic growth, or decreases in active steps to minimize the potential impact of industrial consumer purchasing power, among others. accidents. Examples of such measures include continuous monitoring of assets to prevent emergencies and Key Risks accidents, introduction of advanced asset maintenance The Company’s key risks are evaluated every six months. and modernization methods, promotion of industrial The list of the risks is discussed at the meetings of the safety culture among employees, and continuous Audit Committee and approved by the Management training of personnel. We also strive to have appropriate Board along with the management’s proposed actions to insurance coverage in place, both for property damage mitigate such risks. and potential disruptions of operations.

The following executive bodies are responsible for risk Regulatory Risks management at SIBUR: Substantive changes to the legal or regulatory — Board of Directors (Audit Committee); framework may have a negative effect on our business — Management Board; and operations, particularly with respect to energy or — Management Company; and transportation tariffs, export duties on energy products, — subsidiaries. import duties on production equipment, and taxation. SIBUR is implementing an informational and analytical According to the relevant Management Board resolution, system for monitoring the regulatory environment, key risks include events that could have a negative which should enable the Company to react in a timely impact on the Company’s strategic goals, and sufficiently manner to relevant legislative changes. SIBUR also and irreversibly damage or threaten SIBUR’s business trains its employees on issues regarding anti-monopoly continuity. regulations and plays an active role in discussions and development of draft legislative bills.

44 Corporate Governance and Management SIBUR Annual Review 2011

IT System Risks projects and negatively affect our future operational SIBUR’s business and operations may be negatively performance. SIBUR is actively developing mechanisms affected by failures of the Company’s key IT systems to make the contractor selection process more efficient, and equipment, unauthorized access to confidential and the Company is also strengthening its in-house information, and distortion of information during technical supervision capabilities to ensure adequate data transfers. These factors may result in a lack of design and construction quality. Additionally, SIBUR information or potential information inaccuracies that aims to have proper insurance coverage for its large- could cause disruptions in the Company’s decision- scale investment projects. making process, as well as deterioration in the quality of SIBUR’s operational and financial reporting and Market Risks the overall manageability of the Company. SIBUR is in SIBUR’s business and operational results may be the process of actively integrating its IT systems. To negatively affected by drops in demand or decreased minimize its IT-related risks, SIBUR has implemented and prices for its products as well as market share losses continues to develop back-up and information protection in its key markets. To manage its market risks, SIBUR systems. focuses on the following key areas:

Risks Related to Non-Performance of — market monitoring and analysis; Organizational Projects — conclusion of long-term agreements with both Any new organizational projects expose SIBUR to suppliers and customers; risks related to the quality, timing and cost of such projects. SIBUR’s successful development requires — customer-oriented approach to meet our customers’ timely organizational changes aimed at improvement of quality and service requirements; the Company’s operational and financial performance, — development of sales and distribution channels; and cost optimization, enhancement of production and operational management, and higher corporate — active pre-marketing initiatives. governance standards. Our failure to successfully implement planned organizational projects could result Logistical Risks in sub-optimal allocation of resources, lower production SIBUR may face difficulties in delivering its intermediate levels, and financial losses. SIBUR is implementing a or refined products to customers due to the limitations methodology for project portfolio management and is of the available transportation infrastructure in Russia. developing both project management procedures and Insufficient rail transportation capacity and other specific responsibilities for project team members. logistical bottlenecks could negatively affect SIBUR’s ability to meet its contractual obligations related to Risks Related to Non-Performance of Investment delivery of intermediate or finished goods to customers Projects and the Company’s operational and financial performance. SIBUR’s strategic objectives include constant expansion SIBUR is developing alternative transportation routes and modernization of the Company’s production facilities and its own logistical infrastructure, and is optimizing and infrastructure, which requires the implementation of its delivery schedules. The Company also works in large-scale investment projects. Actual costs related to cooperation with the Russian Government and SIBUR’s any projects could exceed the planned levels, and any logistical partners, including Russian Railways (RZD), delays in completion of these projects could adversely Russia’s state-owned rail transportation monopoly, to affect our operations. Moreover, low-quality design and develop long-term logistical solutions. construction work could decrease the efficiency of such

45 Corporate Governance and Management SIBUR Annual Review 2011

Other Risks Country and Regional Risks Industry Risks All SIBUR’s production assets are located in the SIBUR’s business and operational results may be affected Russian Federation, which still has some features of by negative trends in the energy and petrochemical an emerging market. Despite the positive trend in industries both in Russia and globally. the Russian economy, as well as strong GDP growth, political stability, improving living standards, and other The key industry risks include: factors, the country’s economy is still developing. As — Imbalances between feedstock supply and demand it is largely commodity-based and reliant on exports of for SIBUR’s petrochemical business. Insufficient raw materials, there is a high level of dependence on the feedstock volumes or shortages of certain target demand for raw materials in global markets. hydrocarbon fractions may result in intensified competition for the feedstock and higher feedstock Financial Risks prices, which, in turn, could lead to lower rates of The Company faces a number of financial risks, including utilization at the Company’s petrochemical plants and foreign exchange rate fluctuations, changes in interest negatively affect SIBUR’s profitability. rates, liquidity risk and credit risk. SIBUR’s overall financial risk management focuses on financial market — Capacity additions by our competitors. The unpredictability, and seeks to minimize potential adverse simultaneous completion of major petrochemical effects on its financial performance. Risk management projects in Russia and abroad could result in is carried out by the central finance function. SIBUR’s overcapacity, intensified competition among Treasury manages credit risks related to transactions petrochemicals producers, lower prices for with financial institutions and liquidity risk. Credit petrochemical products, lower rates of utilization risks related to operating transactions are managed by at SIBUR’s petrochemical plants and reduction in individual business units in accordance with the policies profitability. established centrally at the Company level. — Drops or lower rates of growth in demand for petrochemical products. Drops or lower rates of Foreign exchange rate fluctuations. Movements of growth in demand for petrochemical products due to the Russian rouble against the US dollar and the euro a slowdown in economic activity in Russia or globally may have a significant effect on SIBUR’s financial could also result in lower prices for petrochemical performance. Our functional and reporting currency is products, lower rates of utilization at SIBUR’s the Russian rouble. However, our sales outside of Russia petrochemical plants and reduction in profitability. are mainly denominated in US dollars with a smaller portion denominated in euro. At the same time, most of To minimize its exposure to industry risks, SIBUR actively our expenses are denominated in Russian roubles. Thus, invests in the development of its feedstock gathering, Russian rouble appreciation has a negative effect on our processing and transportation infrastructure, aiming to financial results. consolidate hydrocarbon feedstock flows in Western Siberia and ensure reliable access to the region’s Mitigating this currency effect, however, is the high growing feedstock base. The Company’s strategy also historical level of correlation between RR/USD and implies construction of large-scale globally competitive RR/EUR exchange rates and oil prices. When oil prices petrochemical facilities, which will enable SIBUR to go up, the Russian rouble tends to appreciate against monetize stranded low-cost feedstock, further enhance major world currencies and vice versa. Prices for a large competitiveness, and reduce the Company’s exposure to portion of our products are linked to oil prices. Hence, industry risks. rising oil prices tend to increase our revenues, mitigating the negative effect of a strengthening Russian rouble on export sales. On the contrary, lower oil prices, while

46 Corporate Governance and Management SIBUR Annual Review 2011

negatively impacting part of our sales, tend to lead to When managing its liquidity, SIBUR aims to ensure a weaker Russian rouble, which has a positive effect on continuity of the Company’s operations while maintaining SIBUR’s export revenue. This works as a natural hedge an adequate capital structure and optimizing its cost of against foreign exchange rate fluctuations and oil price capital. volatility. Credit risk. Credit risk arises from cash and cash A significant part of SIBUR’s borrowings is also equivalents (including short-term deposits with banks), denominated in foreign currencies, primarily in US issued loans as well as credit exposures to customers, dollars. When the Russian rouble depreciates against including outstanding receivables and committed the USD, US dollar-denominated liabilities increase in transactions. Russian rouble terms, as do interest costs on our foreign currency-denominated borrowings. To minimize this Cash and cash equivalents are deposited only with effect, SIBUR aims to match the currency split of its banks that are considered by the Company at the time of liabilities with the currency structure of the Company’s deposit to have minimal risk of default within set credit revenues. limits. Loans are typically granted to joint ventures or subsidiaries and require approvals by the Strategy and Interest rate change. The Company’s interest rate risk Investment Committee and the Board of Directors. arises from long-term borrowings with floating interest rates. SIBUR analyses its interest rate exposure on A large part of the Company’s domestic receivables a regular basis. Financing decisions are made after a come from Russia’s largest companies, including careful consideration of various scenarios and may OAO Gazprom, OAO LUKOIL, TNK-BP, OAO Gazprom include alternative financing at fixed interest rates. The Neft and OAO Rosneft, which SIBUR believes to be of a Company currently does not use derivative instruments high credit quality. For other domestic customers, SIBUR to hedge its interest rate risk. assesses credit quality taking into account financial position and past experience, alongside other factors. Liquidity risk. Liquidity risk is the risk that the Company Regarding export customers, SIBUR sells to major would not be able to meet its financial obligations in a market players including Michelin Group, Continental timely manner. Liquidity risk management at SIBUR Group, Gunvor Group, and Naftomar LTD INC., based on includes maintaining sufficient cash balances and a standard delay of no more than 30 days. Most other ensuring access to sufficient amounts of debt financing. export sales are primarily secured by a letter of credit or Due to the dynamic nature of the underlying businesses, are prepaid. SIBUR’s management maintains funding flexibility by ensuring funds availability under committed credit lines Although collection of accounts receivable could be and expected cash flows from operating activities. influenced by economic factors affecting the Company’s SIBUR’s management monitors rolling forecasts of the customers, the management believes that there is no Company’s liquidity on a weekly, monthly and annual significant risk of loss beyond the provisions already basis. This is done on the basis of a minimum amount of recorded in the financial statements. SIBUR also cash and cash equivalent balances, and undrawn credit constantly monitors the status of trade receivables and lines. the creditworthiness of customers.

SIBUR also has a financial policy to maintain a net debt to EBITDA ratio of no more than 2.5x and an EBITDA to Interest ratio of no less than 7x. These objectives are stricter than bank covenants stipulated in some of our credit agreements.

47 Management’s SIBUR Annual Review 2011 Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations as of 31 December 2011 and for the year then ended in conjunction with our audited combined financial information as of and for the years ended 31 December 2011 and 2010. The audited combined financial information and the related notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS).

The combined financial information for 2011 and 2010 excludes the results of the mineral fertilizers and tires businesses, which were divested by SIBUR in December 2011. SIBUR’s management believes that the combined financial information provides a proper basis for analysis of the underlying performance of the Group based on fully comparable data for both 2011 and 2010. More details on respective divestiture transactions are provided in the “Recent Developments” section and in Appendix II to this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”).

For convenience, the Group also publishes audited consolidated financial statements that include the results of the mineral fertilizers and tires businesses up to the date of their respective divestitures. The consolidated financial statements can be found on the Group’s website at www.sibur.com.

The financial and operating information contained in this MD&A comprises information on ОAO SIBUR Holding(1) and its consolidated subsidiaries (hereinafter jointly referred to as “we”, “SIBUR” or the “Group”).

Selected Data(2)

Year ended 31 December Change 2011 2010 %

Operating results

APG processing(3) (thousand cubic meters) 18,032,320 17,453,926 3.3% APG processing, SIBUR’s share(4) (thousand cubic meters) 12,697,565 12,963,731 (2.1%)

Natural gas production(3) (thousand cubic meters) 15,806,351 15,325,007 3.1% Natural gas production, SIBUR’s share(4) (thousand cubic meters) 10,864,052 11,154,101 (2.6%)

NGL production(3) (metric tons) 4,175,843 3,954,516 5.6% NGL production, SIBUR’s share(4) (metric tons) 2,864,371 2,627,054 9.0% Natural gas sales volumes (thousand cubic meters) 9,165,517 9,734,209 (5.8%) Hydrocarbon liquids sales volumes (metric tons) 3,986,810 3,298,682 20.9% MTBE, other fuel additives & fuels sales volumes (metric tons) 626,625 565,415 10.8% Petrochemical products sales volumes (metric tons) 2,142,011 2,129,365 0.6%

(1) As of 31 December 2011, SIBUR was a closed joint-stock company (ZAO). On 9 June 2012, SIBUR changed its legal form to an open joint-stock company (OAO) (2) Please note that in this and other tables of this MD&A, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding (3) Includes TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section) (4) Excludes TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka

48 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Year ended 31 December Change Millions of Russian roubles except as stated 2011 2010 % Financial results(1)

Income statement highlights Revenues (net of VAT and export duties) 248,660 188,563 31.9% EBITDA 86,669 58,178 49.0% EBITDA margin, % 34.9% 30.9% Operating profit 78,453 51,812 51.4% Operating margin, % 31.6% 27.5% Profit for the year 62,799 40,737 54.2% Profit margin, % 25.3% 21.6% Earnings per share (in Russian roubles) 1,571 980 60.3%

Cash flow highlights Net cash from operating activities 54,181 51,431 5.3% Net cash (used in) investing activities, incl. (41,290) (50,809) (18.7%) Capital expenditures (55,553) (39,423) 40.9% Proceeds from disposal of the mineral fertilizers and tires businesses(2) 33,023 - nm Net cash (used in) financing activities (12,526) (204) 6,040.2%

Key ratios Debt/EBITDA 0.96x 1.00x Net debt(3)/EBITDA 0.78x 0.74x EBITDA/Interest 34x 18x

The following table provides a reconciliation of EBITDA to profit for the years ended 31 December 2011 and 2010:

Year ended 31 December

Millions of Russian roubles except as stated 2011 2010 Profit for the year 62,799 40,737 (Gain) from discontinued operations (1,240) - Income tax expense 15,561 12,251 Loss / (gain) on disposal of investments 380 (16) Impairment of property, plant and equipment - 426 Impairment of notes and other receivables 1,731 - Share of net (income) of joint ventures (236) (108) (Gain) on acquisition of subsidiaries (4,957) - Net finance expense / (income) 4,415 (1,052) Depreciation and amortization 8,216 5,940 EBITDA 86,669 58,178

(1) All the financial numbers in this section are based on audited combined financial information as of and for the years ended 31 December 2011 and 2010, prepared in accordance with International Financial Reporting Standards (IFRS). The combined financial information for 2011 and 2010 excludes the results of the mineral fertilizers and tires businesses, which were divested by SIBUR in December 2011. SIBUR’s management believes that the combined financial information provides a proper basis for analysis of the underlying performance of the Company based on fully comparable data for both 2011 and 2010 (2) Net of related income tax of RR 4,295 million (3) Net debt represents total debt less cash and cash equivalents

49 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Overview SIBUR is the largest integrated gas processing and petrochemicals company in Russia and CIS as well as Central and Eastern Europe as measured by revenues. We purchase associated petroleum gas and liquid hydrocarbon feedstock from major Russian oil and gas companies and process them into energy products, including liquefied petroleum gases, natural gas and naphtha and further into various petrochemical products, including basic polymers, synthetic rubbers, plastics, products of organic synthesis, intermediates and other chemicals. We sell to around 1,500 customers in the energy, automotive, construction, retail and other industries in 60 countries. In 2011, sales to the Russian domestic market accounted for 57.1% of total revenues and 42.9% was attributable to exports.

SIBUR was formed in 1995 as part of the Russian Government’s privatization process on the basis of gas processing and gas fractionation assets located primarily in Western Siberia. Through the early 2000s, SIBUR pursued an active acquisition strategy and became a vertically integrated petrochemicals company through purchases of several Russian petrochemical enterprises. From 2003 our focus has shifted to predominantly organic development, and we have continuously invested in the expansion and modernization of our assets to enhance our opportunities of growth in both feedstock supplies and domestic demand for petrochemicals. As of 31 December 2011, SIBUR owned and operated 24 production sites across Russia and employed approximately 30,500 people.

SIBUR is controlled by a group of shareholders led by Mr. Leonid Mikhelson, the CEO and founder of NOVATEK. Our shareholding structure is as follows: Mr. Leonid Mikhelson – 57.5%, Mr. Gennady Timchenko (a co-founder of the independent oil-trading company Gunvor) – 37.5% and a group of current and former senior SIBUR managers – 5%.

Certain Factors Affecting Our Results of Operations Our business, operating results, cash flow and financial condition are subject to the influence of a number of external factors and conditions, including those set out below.

Macroeconomic Environment The overall economic conditions in Russia and globally significantly impact our operations as demand for our products is driven by consumers across a diverse range of industries, which are dependent on the state of the economy globally and in their respective countries. We are also subject to economic risks specific to the Russian Federation as all of our production assets are located in Russia.

The global economy continued its upturn in 2011. However, the strong growth momentum of the first half of the year was followed by significantly weaker growth in the second half of 2011. This was largely explained by the escalation of the sovereign debt crisis in the Eurozone, concerns over political deadlock on the national debt in the United States, and higher interest rates and industry overcapacity in China. These factors hampered global demand and weakened international trade.

As a result, global gross domestic product posted a 2.7% growth for 2011 compared to 4.5% in 2010. GDP in the European Union grew almost as fast as in the previous year led primarily by Germany. The US economy grew only half as fast as in the previous year as continuously high unemployment rates led to lower consumer spending and uncertainties about government policies further affected confidence. Asia apart from Japan reported relatively strong growth, driven primarily by China. Government investment programs strengthened the Chinese economy, however, higher interest rates and excess capacity weakened consumer demand and investment activity. In Japan, the economy was significantly impacted by the earthquake and tsunami disaster.

50 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

In 2011, the Russian economy finally surpassed its pre-crisis levels, posting GDP growth of 4.3%, the same as in 2010. Consumer spending, which accounts for 50% of Russia’s GDP(1), grew by 6.4% in 2011 compared to 5.1% in 2010. Retail sales growth rate reached 7.2%, almost one percentage point higher than in 2010 but still significantly lower than the average pre-crisis level of 12% per annum. Domestic demand improvements of 2011 were partially offset by a net export decrease as imports expanded by 21.5% while export grew by about only 1%. Industrial production growth normalized from the post- crisis rebound of 8.2% in 2010 to 4.7% in 2011. The record 2011 harvest was a major economic driver, with agricultural production growth of 22.1%. Construction in 2011 also outpaced GDP growth, posting a year-on-year increase of 5.1%.

The following table contains selected data on GDP growth for the years ended 31 December 2011 and 2010(1):

Year ended 31 December

2011 2010

World 2.7% 4.5% European Union 1.5% 2.0% United States 1.7% 3.0% Asia (excluding Japan) 7.1% 9.2% Russia 4.3% 4.3%

Foreign Exchange Rate Fluctuations and Inflation Movements of the Russian rouble against the US dollar and euro can have a significant effect on our financial performance. Our functional and reporting currency is the Russian rouble. However, our sales to countries outside of Russia (42.9% and 43.3% of total revenue in 2011 and 2010, respectively) are mainly denominated in US dollars with a smaller part denominated also in Euro. At the same time, most of our expenses are denominated in Russian roubles. Russian rouble depreciation thus positively affects SIBUR’s results, while rouble appreciation has a negative effect.

Mitigating this currency effect, however, is the high historical level of correlation between RR/USD and RR/EUR exchange rates and oil prices. When oil prices go up, the Russian rouble tends to appreciate against major world currencies and vice versa. Prices for a large portion of our products are linked to oil prices. Hence rising oil prices tend to increase our revenues, mitigating the negative effect of the strengthening of the Russian rouble on export sales. On the contrary, lower oil prices, while negatively impacting part of our sales, tend to lead to a weaker Russian rouble, which has a positive effect on SIBUR’s export revenue. This works as a natural hedge against foreign exchange rate fluctuations and oil price volatility.

A significant part of the Group’s borrowings is also denominated in foreign currencies (51.9% and 51.2% in 2011 and 2010, respectively), primarily in US dollars. When the Russian rouble depreciates against the US dollar, US dollar-denominated liabilities increase in Russian rouble terms, as do interest costs on our foreign currency-denominated borrowings. In addition, our financial expenses tend to increase as a result of foreign exchange losses that we must record.

Inflation and interest rates in Russia have been steadily declining in recent years, but historically the country had higher inflation and interest rates compared to developed markets. High inflation and interest rates may have a significant effect on our financial performance as they increase our cost base and could also negatively affect our ability to ensure cost- effective debt financing.

(1) Sources: Eurostat, International Monetary Fund, Russian Federal State Statistics Service

51 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents selected data on exchange rate movements and inflation for the years ended 31 December 2011 and 2010(1):

Year ended 31 December

2011 2010 RR/USD rate at the beginning of the period 30.4769 30.2442 RR/USD rate at the end of the period 32.1961 30.4769 Average RR/USD rate 29.3874 30.3692 RR/EUR rate at the beginning of the period 40.3331 43.3883 RR/EUR rate at the end of the period 41.6714 40.3331 Average RR/EUR rate 40.8848 40.2980 Consumer price index (CPI) for the period 6.1% 8.8% Producer price index (PPI) for the period 12.0% 16.7%

Feedstock Sourcing and Mix To operate our business successfully, we must obtain sufficient quantities of feedstock in a timely manner and at acceptable prices. Our feedstock access and mix therefore can have a material impact on our financial results.

Types of Hydrocarbon Feedstock We primarily use two major types of hydrocarbon feedstock: associated petroleum gas (APG) and liquid hydrocarbons.

APG is used as a feedstock for our feedstock and energy business. It is processed at our GPPs into natural gas and natural gas liquids (NGL), which are further fractionated at our GFUs into liquified petroleum gases (LPG) and naphtha. APG accounted for 18.7% and 24.8% of our expenses related to third-party hydrocarbon feedstock purchases in 2011 and 2010, respectively. As a percentage of total feedstock and materials costs, APG accounted for 11.4% and 14.1% in 2011 and 2010, respectively.

Liquid hydrocarbons comprise NGL, LPG and naphtha. LPG and naphtha represent the principal feedstock for our petrochemical business. NGL can be used as a raw material for both feedstock & energy business and for petrochemicals. A large portion of NGL, LPG and naphtha is produced internally by our feedstock & energy business: NGL is produced through processing of APG at GPPs; while LPG and naphtha through subsequent fractionation of NGL at GFUs. We also purchase NGL, LPG and naphtha from third parties, located primarily in Western Siberia. Liquid hydrocarbon feedstock accounted for 81.3% and 75.2% of our expenses related to third-party hydrocarbon feedstock purchases in 2011 and 2010, respectively(2). As a percentage of total feedstock and materials costs, liquid hydrocarbons purchased from third- parties accounted for 49.5% and 42.8% in 2011 and 2010, respectively(2). Due to the abundance of liquid hydrocarbon feedstock in Western Siberia, domestic prices for liquid hydrocarbons are determined on the basis of export netbacks to international market prices. Given relatively high and rising transportation costs and export duties in Russia, our sourcing prices of liquid hydrocarbon feedstock are substantially lower than those available to most of our international petrochemical peers.

(1) Sources: the Central Bank of the Russian Federation, Russian Federal State Statistics Service

(2) NGL purchased from TNK-BP as part of our JV arrangements (OOO Yugragazpererabotka) is accounted for as liquid hydrocarbon feedstock (see “Feedstock Sourcing” below)

52 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Other Feedstock Other feedstock and materials include methanol, which is used in the production of MTBE, and certain intermediate chemicals such as butadiene, benzene and terephthalic acid, which we buy in addition to our own production of intermediates for processing into value-added petrochemical products.

Feedstock Sourcing A large portion of our hydrocarbon feedstock (45.7% and 52.5% of total hydrocarbon feedstock supply volumes as measured in metric tons of liquids extracted in both 2011 and 2010(1)) is obtained through OOO Yugragazpererabotka, our joint venture (JV) arrangement with TNK-BP located in the Khanty-Mansi Autonomous Area, which was established in 2007. SIBUR owns a 51% stake in the JV, while TNK-BP’s share is 49%. OOO Yugragazpererabotka owns and operates three GPPs (Nizhnevartovskiy GPP, Belozerniy GPP and Nyagan GPP), three compressor stations, APG pipelines from compressor stations to the GPPs and NGL transportation infrastructure connecting the GPPs with SIBUR’s NGL pipeline.

SIBUR and TNK-BP have a series of agreements, under which TNK-BP supplies APG to OOO Yugragazpererabotka for processing into NGL and dry gas(2). SIBUR pays for 51% of total APG volumes supplied by TNK-BP to OOO Yugragazpererabotka, while the remaining 49% are processed by OOO Yugragazpererabotka for TNK-BP, which pays a processing fee for these services. SIBUR obtains 51% of all NGL and dry gas volumes produced by the JV’s GPPs, while TNK-BP obtains the rest. Subsequently SIBUR purchases TNK-BP’s share of NGL and sells to TNK-BP its share of dry gas.

In addition to our arrangements with TNK-BP, we purchase APG from other major oil companies in Western Siberia, including Rosneft, LUKoil, Gazprom Neft and RussNeft, primarily under long-term contracts. As of 31 December 2011, 48% of our planned APG supplies for 2012 were guaranteed under multi-year supply contracts(3). Overall, our multi-year APG supply contracts have weighted average maturity of 7.1 years(3).

Our main suppliers of liquid hydrocarbon feedstock in addition to TNK-BP, which supplies NGL under our JV arrangements, are major oil and gas companies, including Gazprom, Surgutneftegas and Northgas. As of 31 December 2011, 60% of our planned liquid hydrocarbon feedstock supplies for 2012 were guaranteed under multi-year supply contracts(3). Overall, our multi-year liquid hydrocarbon feedstock supply contracts have weighted average maturity of 7.0 years(3).

We continuously work with all the largest oil and gas producers in Western Siberia with the view of extending tenors of the existing agreements and/or entering into new long-term supply contracts on both APG and liquid hydrocarbon feedstock supplies.

Feedstock Trends APG is currently and expected to remain the most attractive feedstock for SIBUR, based on a number of factors: — Oil companies produce APG as a by-product of oil extraction and by law have to evacuate it from the field or otherwise utilize it. Failure to do so can result in increasingly high fines and potentially jeopardize an oil company’s license to operate the field.

— Oil companies typically do not own gas processing facilities and have been reluctant to develop such facilities as this requires substantial capital investments, while oil companies prefer to invest in their core oil exploration and production business.

(1) Calculation of metric tons of liquids extracted does not take into account natural gas produced through processing of APG (2) Equivalent to natural gas (3) Including all APG and NGL supplies from TNK-BP under JV arrangements (OOO Yugragazpererabotka)

53 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

— Apart from processing into hydrocarbon feedstock at a GPP, only limited volumes of APG can be used productively, mostly for power generation or for re-injection into the reservoir.

— The Russian Government has consistently increased incentives for oil companies to utilize APG. Among other things, companies face fines for flaring APG in excess of an allowed limit (now set at 5% of APG production, while by some estimates producers flare up to 25% of APG). Recent tightening of regulations has increased the material risks of flaring for oil companies.

SIBUR provides oil companies with an attractive solution for APG utilization, thus we are able to source APG at advantageous prices. As APG does not have a relevant benchmark price, we purchase it from oil companies at prices that are negotiated on a case-by-case basis and are dependent on the following key factors: quality and composition of APG in terms of target liquid fractions content, distance of an APG source from SIBUR’s GPP, availability of collection and transportation infrastructure and capital and operating expenditures needed to construct, expand and maintain it as well as which of the parties incurs such expenditures. The price is also dependent on potential capital expenditures of an oil company to construct its own gas processing capacity as an alternative to selling APG to SIBUR. Once agreed upon in absolute terms, our APG purchase price is regularly indexed to reflect changes in the regulated prices for natural gas (see “Natural Gas Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details).

APG volumes from the oil fields located in Western Siberia are expected to increase only moderately given the maturity profile of the region’s oil fields, while concentration of liquid fractions in APG may decline. We expect this trend to be partially offset by lower APG flaring rates and SIBUR’s efforts to increase liquids recovery ratio at our GPPs.

Liquid hydrocarbons, our other major feedstock type, can also come from oil production, but they are increasingly produced alongside natural gas. Unlike APG, liquid hydrocarbon feedstock is priced with a reference to international oil prices on an export netback basis. Given abundant volumes of liquid hydrocarbon feedstock in Western Siberia, high and rising transportation tariffs and export duties, domestic prices in Western Siberia are substantially lower than those available to majority of our international petrochemical peers. This makes liquid hydrocarbons an attractive feedstock for a domestic petrochemical business, particularly if it is located close to hydrocarbon resources, where transportation factor is minimized.

We believe that supplies of liquid hydrocarbons in Western Siberia will grow substantially faster than those of APG, due to steadily growing production of natural gas and increasing share of wet gas in upcoming gas production. Liquid hydrocarbon feedstock is expected to be a growing source for the future development of our petrochemical business, particularly for our projects located in Western Siberia.

Crude Oil, NGL, LPG and Naphtha Prices Changes in prices for crude oil have a significant effect on both our cost of sales and revenues, as prices for a large portion of our feedstock and processed goods are directly or indirectly linked to oil or oil derivative prices. Oil prices have historically been volatile and dependent on a variety of factors such as changes in market supply and demand balances, geopolitical developments affecting producing countries, force majeure events, etc. In 2011, political instability in Middle East and North Africa, launch of economic stimulus packages and softening of monetary policies across the world in response to the global financial crisis among other factors triggered oil prices growth. In 2011, Brent crude oil prices surged on average 40% year-on-year to USD 111 per barrel.

54 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents average benchmark market prices for crude oil, naphtha and LPG for the years ended 31 December 2011 and 2010(1):

Year ended 31 December Change USD per ton except as stated 2011 2010 % Brent (USD per bbl) 111.3 79.5 40.0% Naphtha (average FOB Rotterdam/CIF NWE) 929.2 710.9 30.7% LPG DAF Brest 804.2 636.5 26.3% LPG Sonatrach 869.9 698.8 24.5%

Pricing for our feedstock represented by NGL, LPG and naphtha is based on various factors including transportation costs and export duties, which are discussed further in this section, but the most influential effects on prices are directly or indirectly linked to international market prices for oil or oil derivatives. Hence higher prices for oil and oil derivatives negatively affect our cost base, and vice versa.

In addition to purchasing NGL, LPG and naphtha, we also produce them at our GPPs and GFUs, while only a certain portion of produced and purchased volumes is used as feedstock by our petrochemicals business (ranging between 30% and 40% from period to period). As a result, SIBUR is a net seller of these energy products. Sales of NGL, LPG and naphtha accounted for approximately 30.5% and 27.1% of our total external revenues in 2011 and 2010, respectively. We sell NGL, LPG and naphtha on both the domestic and international markets under long-term contracts and on the energy spot markets at prices that are dependent on international market prices for oil and oil derivatives.

Our position as a net seller of energy products mitigates the negative effect of higher oil prices on our cost base and produces a net positive impact on our financial results driven by higher revenues from sales of products linked to prices for oil and oil-derivatives. Lower oil prices, on the contrary, positively impact our cost base but suppress revenues, with a net negative impact on our financial results.

In addition to our feedstock & energy segment, a large portion of our revenues is derived from the production and sales of petrochemical products (approximately 49.0% and 52.7% of total external revenues in 2011 and 2010, respectively). Prices for many petrochemical products tend to track price movements for oil and oil derivatives, particularly naphtha, the primary feedstock for most chemicals, as petrochemical producers strive to pass feedstock price increases onto consumers. However, petrochemical product prices are also largely dependent on supply and demand fundamentals determined by cyclical factors in the petrochemical industry, which do not necessarily move in parallel with oil and oil product prices, and also demand trends in the customer industries, which are influenced by the macroeconomic situation globally and in respective countries. Our vertically integrated business model enables us to react flexibly to market trends and shifts in supply and demand fundamentals by rebalancing our sales mix between energy products and petrochemicals. This partially protects us against volatility in oil prices as our petrochemical business is exposed to customer industries other than energy with different supply and demand trends.

(1) Sources: Platts, Petroleum Argus

55 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Natural Gas Prices The Russian Government, through the Federal Tariff Service (FTS), regulates the price at which Gazprom sells natural gas on the domestic market. Changes in regulated gas prices have a significant effect on both our operating expenses and revenues, as they directly or indirectly influence the prices at which SIBUR purchases a large portion of its feedstock and sells its natural gas, and also has a substantial impact on the utility costs.

In November 2006, the FTS announced a plan to liberalize prices for natural gas sold on the Russian domestic market. Over time, regulated natural gas prices are expected to rise to a level closer to parity with export netbacks, although present prices are significantly below parity. With effect from 1 January 2010 and 2011, the FTS approved two annual increases of 15% each in regulated natural gas prices. In February 2011, the FTS issued a revised version of the domestic natural gas market liberalization plan, according to which the target date for full liberalization of the domestic natural gas market was set at 1 January 2015. According to the revised Russian Socio-Economic Development Forecast for 2012, issued in September 2011, regulated natural gas prices will be increased by an additional 15% with effect from 1 July 2012, with further annual increases of 15% each to be implemented in 2013 and 2014. We believe that the FTS will continue to approve annual rate increases but could modify the percentages from those specified in the revised plan.

APG, one of our key raw materials, does not have a secondary market or a benchmark market price. Prices at which we purchase APG from the oil companies are negotiated on a case-by-case basis and depend on a variety of factors as discussed in “Feedstock Sourcing and Mix” above. While there are major differences in APG and natural gas prices in absolute terms as we typically purchase APG with a substantial discount to the FTS regulated gas prices due to economic reasons laid out in “Feedstock Sourcing and Mix” above, most of our supply contracts regularly index APG prices to reflect changes in FTS regulated gas prices.

SIBUR processes APG to produce NGL, which are further fractionated into LPG and naphtha, and we also produce natural gas for sale on the domestic market. Our natural gas sales accounted for approximately 7.0% and 8.4% of total revenues in 2011 and 2010, respectively. We sell natural gas primarily to major Russian oil and gas companies under long-term agreements. We are not subject to the Russian Government’s regulation of natural gas prices, but our effective selling prices are linked to movements in regulated gas prices.

As the prices at which SIBUR purchases APG and at which we sell natural gas are both dependent on changes of regulated gas prices, while APG purchase price is substantially lower than natural gas selling price, increases in natural gas prices at present have a net positive effect on SIBUR’s financial results. However, changes in our pricing arrangements with either APG suppliers or natural gas buyers have a negative effect on our financial results if spread between our APG purchasing price and our natural gas selling price tightens.

Additionally, our net long position in natural gas reduces our exposure to growth in utility costs, which to a large extent are influenced by increases in natural gas prices. Nevertheless, expected dilution of natural gas’ share in our sales due to changing composition of our feedstock is likely to increase our potential exposure to utility cost increases.

56 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Trends in Key End-Customer Industries Demand for our products is affected by trends in key customer industries, which differ depending on a segment or a product group. Our feedstock & energy segment sells energy products to customers primarily in the energy, utilities and petrochemical industries in Russia and internationally, while MTBE is sold to major oil refineries on both the domestic and international markets. The types of customers in our petrochemicals business vary significantly between product groups. Basic polymers and plastics are sold primarily on the domestic market to customers in the construction, road building and retail industries. Synthetic rubbers are sold mainly to the automotive, industrial machinery, construction and medical equipment sectors in Russia and internationally. Glycols and intermediates (if not used internally) are sold to chemical industry customers mainly in Russia, while alcohols are also exported.

In 2011, growth in global industrial production totaled 4.7% compared to 8.9% in 2010. Of all regions, Asian emerging markets posted the strongest growth in industrial production (+10.4%). Growth was considerably weaker in the industrialized countries of the OECD (+2.2%), mostly due to the production outages in Japan following the earthquake and tsunami disaster in March 2011.

Among our end-customer industries globally, the strongest growth was posted by the construction sector. Construction recovered from the slight global recession of 2010 and increased by 3.9% in 2011 (by 10.4% in developing Asian countries) growing faster than global GDP (+2.7%). Road building posted moderate but steady growth of 1.4%. Automobile production rose 3.1%, while the retail sector grew by 3.0%. Energy consumption by transportation and residential/commercial sectors posted growth of 2.4% and 1.5%, respectively.

Russia’s industrial production grew at an average rate of 4.7% in 2011. It was mainly driven by the growth in automotive industry, electronics, rubber and plastics production, machinery and equipment. Automobile production demonstrated solid performance both in 2011 and 2010 due to comprehensive localization programs and development of automotive industry clusters. The rubber and plastics industry also benefited from strong demand and increased by 13.1% in 2011. Machinery and equipment production posted average growth of 9.5% compared to 12.2% for 2010.

The Russian construction picked up in 2011, with a 5.1% growth versus 3.5% in 2010. For the first time since 2008, residential construction exceeded pre-crisis levels, posting strong growth of 9.8%. Road building alone added solid 5.7%. Growth rates in food and non-food retail sales (5.0% and 8.5% respectively) averaged out to 6.8% for the retail sector. Energy consumption continued its growth but the pace slowed as almost everywhere in the world. Energy consumption in the transportation sector increased by 3.1%, but growth in energy consumption in the residential and commercial sectors decelerated to 1.8%.

The following table presents selected data on growth in key customer industries both globally and in Russia for the years ended 31 December 2011 and 2010(1):

World Russia 2011 2010 2011 2010 Industrial production 4.7% 8.9% 4.7% 8.2% Retail 3.0% 4.2% 6.8% 5.6% Automotive 3.2% 25.8% 41.7% 93.5% Construction 3.9% (1.3%) 5.1% 3.5% Road building 1.4% 1.4% 5.7% 2.1% Energy consumption by the transportation sector 2.4% 3.2% 3.1% 8.2% Energy consumption by the residential & commercial sectors 1.5% 4.0% 1.8% 6.1%

(1) Sources: Global Insight, World Bank, International Organization of Motor Vehicle Manufacturers, Federal State Statistics Service, Enerdata - Global Energy & CO2 Data, World Energy Outlook 57 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Cyclicality and Trends in the Petrochemicals Industry Prices of petrochemical products are subject to significant fluctuations as they are influenced by global supply and demand trends. Consequently, petrochemical producers’ profit margins have historically been cyclical and are sensitive to domestic and international market imbalances. Demand is generally linked to economic activity, while supply is linked to long-term investments in capacity expansion. When significant new capacity comes on stream and is not matched by corresponding growth in demand, average industry operating margins fall. As a result, the petrochemical cycle is characterized by periods of tight supply, leading to high capacity utilization rates and margins, followed by periods of oversupply, leading to reduced capacity utilization rates and margins.

2011 was a successful year for the global chemical industry. Global production grew by 4.8% year-on-year on the back of strong demand from key customer industries. Growth was especially strong in the first half of 2011. The market pulled back in the second half with destocking by petrochemical players on fears of weaker demand, leading to a noticeable price correction at the end of the year. The correction reflected concerns over the escalating European debt crisis, rising unemployment rate in the United States, concerns about a possible economic slow-down in China, and other factors.

The global petrochemical industry is likely to be affected by a continuation of some of these factors in 2012. While cracker utilization rates in Europe and Asia have improved in the first quarter of 2012, performance of petrochemical producers during the rest of the year could be volatile, subject to changes in global economic outlook and oil price volatility.

2011 was marked by major investments in shale gas developments in North America and several petrochemical players began to consider plans for new gas processing and cracker capacity in shale gas production areas. Global petrochemical majors restructured their businesses and expanded through M&A and organic growth.

These consolidation and restructuring trends, as well as strategies to focus on production of high-end value-added chemicals, are likely to prevail in Europe. European producers face intense competition in bulk petrochemicals market segments from players from the Middle East and Asia. The Middle East and Asian producers are likely to continue to focus on petrochemicals growth strategies. Peak capacity expansion in the Middle East is over, due to constraints on further oil production growth; going forward the region is expected to focus on adding downstream capacity. China, on the other hand, is set to continue its aggressive expansion of the domestic petrochemicals production base, seeking self- sufficiency. This could lead to increased competition in other export markets by producers from Asia, the Middle East and other regions.

As with the rest of the world, chemicals production in Russia slowed from double digit growth in the first half of 2011 to almost flat volumes towards the year end. The fourth quarter was marked by weaker prices for petrochemical products across the board.

Fundamentally, the outlook for the Russian petrochemicals industry remains strong, as the country substantially lags behind developed and emerging market peers in use of petrochemicals on a per capita basis. According to CMAI, in 2011 Russian consumption of polypropylene (PP) per capita was 1.9 times lower than in China, 2.2 times lower than in Central Europe, 3.0 times lower than in the US, while Russian consumption of polyethylene (PE) per capita was 1.1 times, 1.3 times and 2.9 times lower than in China, Central Europe and the US, respectively(1). Russia is well positioned to increase petrochemicals production due to the solid macroeconomic outlook, size of the domestic market, high market share of expensive imports, combined with the access to low-cost feedstock and solid balance sheets of Russian producers.

(1) Source: CMAI, SIBUR estimates

58 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents selected data on chemical sector production growth for the years ended 31 December 2011 and 2010(1):

Year ended 31 December

2011 2010

World 4.8% 9.3% European Union 1.6% 10.1% United States 2.1% 5.0% Asia (excluding Japan) 11.1% 13.0% Russia 5.2% 14.6%

Electricity and Heat Tariffs Our business is energy-intensive. The share of energy as a portion of total processing costs varies significantly between our production facilities, ranging from 10% at certain petrochemical plants to 60% at our GPPs. Electricity and heat account for the largest portion of our energy costs (approximately 87.2% and 89.5% in 2011 and 2010, respectively). Changes in tariffs for electric power and heat have a significant effect on our operating expenses.

Electricity SIBUR’s electricity purchases are centralized, primarily through our subsidiary OAO SiburEnergoManagement. This approach enables us to leverage our purchasing power and save on the purchase price.

The Russian electricity market has been liberalized since 1 January 2011. However, electricity prices remain under the supervision of the Federal Tariff Service (FTS) and regional regulatory authorities. In addition to investment budgets of generating companies, an important factor that influences electricity tariffs is fuel cost (mainly natural gas and coal). Increases in natural gas prices tend to result in higher electricity tariffs despite the Government’s efforts to constrain inflation.

Heat Energy SIBUR sources heat energy, mostly in the form of steam and hot water, from regional suppliers, at prices regulated by regional energy commissions. Heat energy prices are also largely dependent on prices for natural gas. In order to minimize our dependence on third-party providers, SIBUR generates a substantial portion of heat energy (approximately 54% of the total heat consumed) at our own facilities. This enables us to save up to 30% on total heat costs.

The following table presents volumes purchased and effective average tariffs for electricity and heat for the years ended 31 December 2011 and 2010:

Year ended 31 December

2011 2010 Change, %

Average Average Average Volume tariff Volume tariff Volume tariff Electricity(millions of kw/hour or RR per kw/hour) 7,938 2.02 7,780 1.80 2% 12% Heat (thousand of gigacalories or RR per gigacalory) 9,720 670 9,400 592 3% 13%

(1) Sources: BASF, Russian State Statistics Committee

59 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

As both electricity and heat tariffs are influenced by increases in natural gas prices, SIBUR’s net long position in natural gas reduces our exposure to growth in these tariffs. Nevertheless, expected dilution of natural gas’ share in our sales due to changing composition of our feedstock is likely to reduce the level of protection against utility cost growth (see “Natural Gas Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details).

Transportation Tariffs SIBUR incurs substantial transportation costs due to the geographic spread of our operations. While we operate our own gas and NGL pipelines and railway carrier fleet, we also use third-party transportation services. Changes in transportation tariffs and prices for these services have a significant effect on our operating expenses.

Pipeline Transportation Tariffs SIBUR transports natural gas through its own gas pipelines into the Unified Gas Supply System (UGSS), which is owned and operated by OAO Gazprom, Russia’s state-owned monopoly. The Federal Tariff Service (FTS) regulates tariffs for transportation of natural gas through UGSS for independent gas producers and revises them on an annual basis. In December 2009, the FTS approved a 12.3% average increase in the UGSS transportation tariff for 2010; in December 2010, a further increase of 9.3% on average was introduced. In September 2011, the FTS announced that in 2012 the transportation tariff for natural gas will be increased with effect from 1 July 2012, simultaneously with the increase in the regulated natural gas prices, and will range from 6% to 12%.

Our natural gas transportation routes are relatively short (with the exception of insignificant deliveries of natural gas to end-customers). SIBUR’s current exposure to changes in regulated UGSS transportation tariffs is therefore limited at present.

Railway Transportation Tariffs We use rail for transportation of our refined products, intermediates and feedstock, including 100% of our LPG, MTBE and naphtha, significant volumes of NGL (between our GPPs and GFUs) and a major part of our petrochemical products.

Rail transportation costs in Russia comprise a transportation tariff charged for access to Russia’s main railway and usage of locomotives (the “RZD tariff”), which accounts for approximately 80-85% of total rail transportation costs, as well as operator fees and cost of rolling stock (approximately 15-20% of total rail transportation costs). The RZD tariff is charged by Russian Railways (RZD), Russia’s state-owned monopoly, and is regulated by the FTS. Operator services and services related to the provision of rolling stock are provided by RZD and independent operators on market terms.

The RZD tariff is specific to types of products, types of carriers and their tonnage, transportation routes and size of a transportation patch. The FTS revises RZD tariffs on an annual basis. In December 2009, the FTS approved a 9.4% average increase for the 2010 RZD transportation tariff. In December 2010, an average increase of the RZD transportation tariff for 2011 was approved at 8.0%.

Historically we have been able to obtain discounted rates from the FTS on export deliveries of LPG from our Tobolsk GFU (our major LPG production facility) on an annual basis. In 2010, the discounted rate was 0.53 of the basic tariff. In 2011, the discounted rate was revised to 0.68 of the basic tariff, while for 2012 the FTS approved the discounted rate of 0.71 of the basic tariff. It is expected that the discounted rates for transportation of LPG will no longer be applied starting from 2013.

SIBUR owns and operates ZAO Sibur Trans, a licensed railway operator. ZAO Sibur Trans is responsible for handling SIBUR’s rail logistics, which includes purchasing transportation services from RZD and acting as a rail car fleet operator. ZAO Sibur Trans manages its own rolling stock comprising mostly specialized tankers and rail cars for LPG transportation

60 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

and also general purpose rail cars. As of 31 December 2011, total fleet under management of ZAO Sibur Trans included 16,699 rail cars and tankers, 6,206 of which were owned with the remainder rented under long-term lease agreements or short-term transportation contracts. Centralized management of rail logistics and carrier fleet ownership enable SIBUR to optimize transportation expenses.

Truck Transportation SIBUR also uses trucks to transport petrochemical products, primarily within Russia (for basic polymers and synthetic rubbers) and to some extent for export (for synthetic rubber deliveries to Europe). We do not operate our own truck fleet but use third-party services from a variety of truck transportation service providers. There is no single operator that handles a significant portion of our truck deliveries, as this is a highly fragmented and competitive market.

Port Facilities We deliver our LPG, naphtha and MTBE to export markets through the international ports in Odessa (Ukraine), Ilyichevsk (Ukraine), Kerch (Ukraine), Riga (Latvia), St. Petersburg (Russia), Nakhodka (Russia) and Vladivostok (Russia). In some ports we are using loading and storage facilities, while to majority we deliver on FOB basis. Currently port charges do not represent a significant portion of our transportation costs.

Export Duties on LPG and Naphtha LPG (excluding butane and isobutane) and naphtha (excluding pentane and isopentane) sold internationally are subject to export duties, which are set monthly by the Russian Government. Exports to CIS countries that are members of the Customs Union (Republic of Belarus and Republic of Kazakhstan) are not subject to export duties.

The export duty on LPG is formula-based and depends on the international benchmark price of LPG (LPG DAF Brest). When the market price for LPG is below USD 490 per ton, export duty is not levied.

Export duty on naphtha is calculated as a percentage of export duties on crude oil (Urals). In 2010, export duty on naphtha was 67% of the crude oil export duty. Effective July 2011 the Russian Government raised export duty on naphtha to 90% of the crude oil export duty with the aim to restrain petroleum prices growth in Russia. We expect this rate to remain unchanged in 2012.

The following table presents average quarterly export duties on LPG and naphtha for the years ended 31 December 2011 and 2010:

1 quarter 2 quarter 3 quarter 4 quarter Year Change, % Export duties, 2011 USD / ton 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 vs 2010

LPG At the end of the period 150.2 80.0 189.8 27.3 192.0 45.2 221.8 118.1 221.8 118.1 87.8% Average for the period 166.1 63.7 137.0 48.4 182.6 34.3 218.3 98.5 175.9 61.2 187.5% Naphtha At the end of the period 244.6 183.2 309.6 209.1 399.7 196.5 365.9 217.0 365.9 217.0 68.6% Average for the period 234.3 190.0 299.1 202.1 398.2 188.8 363.3 205.6 323.7 196.4 64.6%

As Russia’s domestic prices for LPG and naphtha are based on export netbacks, high export duties and transportation expenses reduce the local price for LPG and naphtha, making them an attractive feedstock for domestic petrochemical producers.

61 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Taxation As all of our production assets are located in Russia, we are subject to a wide range of taxes, which we pay in the Russian Federation and which are imposed at the federal, regional, and local levels. In addition to income tax, significant taxes, which we are subject to, include VAT, excise duties, property tax, payments to non-budget funds and other contributions. In accordance with existing tax legislation in certain regions of the Russian Federation, we may enjoy preferential tax treatment in the form of lower local income tax and/or property tax rates.

In practice, Russian tax authorities often have their own interpretation of tax legislation that rarely favors taxpayers, who have to resort to court proceedings to defend their position. Differing interpretations of tax regulations exist both among and within government ministries and organizations at the federal, regional and local levels, creating uncertainties and inconsistent enforcement. Tax returns, together with related documentation such as supportive initial documents, are subject to review and investigation by a number of authorities, most of which may impose fines and penalties. Moreover, starting from 1 January 2012, Russian transfer pricing rules were amended to a significant degree. Among other effects, this resulted in additional documentation requirements and government controls. Generally, taxpayers are subject to inspections for a period of three calendar years immediately preceding the year in which the field tax audit is conducted. At the same time, the completion of a tax audit does not exclude the possibility of subsequent claims relating to the audit period. In addition, in some instances, new tax regulations have been given retroactive effect.

We have not applied any tax minimization schemes involving low tax jurisdictions either at the domestic or offshore levels.

62 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Recent Developments

Changes in Ownership Structure As a result of several transactions between December 2010 and November 2011, a group of shareholders led by Mr. Leonid Mikhelson, the CEO and founder of NOVATEK, purchased 100% of SIBUR’s share capital from our previous owner, the non-state pension fund Gazfund, which had controlled SIBUR directly and through OAO Gazprombank since 2008. The transactions received all the required regulatory approvals. As of 31 March 2012, SIBUR Limited, a Cyprus legal entity, is the sole direct shareholder of SIBUR, while SIBUR’s beneficial ownership structure is as follows: Mr. Leonid Mikhelson – 57.5%, Mr. Gennady Timchenko (a co-founder of the independent oil-trading company Gunvor) – 37.5% and a group of current and former SIBUR senior managers – 5%. See Appendix I for further details.

New Feedstock Supply Contracts In February 2012, SIBUR signed a ten-year contract with ОАО Gazprom Neft for the supply of APG to our Vyngapurovskiy GPP. The contract covers APG supply terms from 2012 to 2016. During this period, annual supply of APG is expected to increase from no less than 1.2 billion cubic meters in 2012 to no less than 1.4 billion cubic meters in 2016. APG supply volumes for the period from 2017 to 2021 have not been agreed upon and are subject to further negotiations.

In December 2011, we signed a ten-year contract with OAO Gazprom for the supply of NGL from the Surgut Condensate Stabilization Plant to our Tobolsk GFU through 2021. Under the contract, NGL supply volumes are defined for the period from 2012 to 2016 and are expected to increase from 440 thousand metric tons per annum in 2012 to more than one million metric tons per annum in 2016. NGL supply volumes for the period from 2017 to 2021 have not been agreed upon and are subject to further negotiations.

In March 2011, we signed a five-year contract with OAO LUKOIL for the supply of APG to our Nyagan GPP (a gas processing plant, which is part of OOO Yugragazpererabotka, our joint venture with TNK-BP). Under the contract annual APG supply volume is to increase from approximately 400 million cubic meters in 2011 to 500 million cubic meters per annum in 2015.

With effect from January 2011, we expanded our cooperation with TNK-BP by transferring SIBUR’s gas processing subsidiary OOO Nygangazpererabotka into our existing OOO Yugragazpererabotka joint venture. This purchase was jointly financed by TNK-BP and SIBUR in December 2010. This facilitated an almost 1,500 million cubic meter increase in APG volumes supplied from TNK-BP oil fields to OOO Yugragazpererabotka in 2011 compared to 2010.

Divestitures

Disposal of Mineral Fertilizers and Tires Businesses In December 2011 we disposed of the Group’s mineral fertilizers and tires businesses. These divestitures were executed in line with our objectives to exit non-core business activities, streamline SIBUR’s asset structure and focus on our core strategy. Proceeds from the divestitures were used for debt repayment.

— 100% control of OAO SIBUR Mineral Fertilizers was sold to the Siberian Business Union Holding Company.

— A 51.22% stake in OAO Mineralnye Udobrenia, Perm was sold to URALCHEM Holding.

— 100% control of OAO SIBUR-Russian Tires (SRT) was sold to a group of investors including the management and the former CEO of SRT.

See Appendix II fo r further details on the above divestitures.

63 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Additionally, in the period from December 2011 to February 2012, SIBUR sold its 100% control of OAO Kirov Tire Plant and ZAO Voronezh Tire Plant to a joint venture between Pirelli Group and the State Corporation Rostechnologii. OAO Kirov Tire Plant and ZAO Voronezh Tire Plant owned Amtel Group’s tire production assets, which SIBUR acquired earlier in 2011 in the course of Amtel Group’s bankruptcy.

Sale of ZAO Novokuibishevskaya Neftekhimicheskaya Kompaniya In April 2011, we sold 100% control of ZAO Novokuybyshevskaya Neftekhimicheskaya Kompaniya, a producer of LPG, monomers and other petrochemical products, to investors representing the controlling shareholder group of OOO Samaraorgsintez. The rationale for the disposal was low operating efficiency of the production site due to its remoteness from our feedstock base in Western Siberia.

Acquisitions and Joint Ventures In March 2012, we gained control of Biaxplen group of companies, a producer of biaxially oriented polypropylene films (BOPP-films), by increasing our stake from 50% to 100%. Production facilities of Biaxplen comprise three plants located in the Nizhny Novgorod, Kursk and Moscow regions with a total capacity of 78 thousand metric tons per annum.

In February 2012, SIBUR and Reliance Industries, India’s largest private company, formed Reliance Sibur Elastomers Private Limited, a joint venture that is expected to become the first manufacturer of butyl rubbers in India. Using SIBUR’s proprietary production technology, the JV will produce 100 thousand metric tons of butyl rubbers per annum in Jamnagar, India. Reliance Industries owns 74.9% of the JV, while SIBUR’s share is 25.1%. The JV will invest USD 450 million in total (approximately 50% of financing is expected to come through debt, while the rest will be invested by the partners on a pro-rata basis) to build the production facility, which is expected to be commissioned in mid-2014.

In October 2011, we obtained control over OAO Polief, a domestic producer of polyethylene terephthalate (PET) with an annual capacity of 141 thousand metric tons and purified terephtalic acid (PTA) with an annual capacity of 263 thousand metric tons, by increasing our stake to 83% through a direct purchase of an 18% stake in OAO Polief; and an increase in our ownership of OOO National Polymers, a company that owns 65% of OAO Polief, from 50% to 100%.

In July 2011, we acquired 100% of the outstanding shares of ОАО Acrylate, the only producer of acrylic acid and its esters in Russia. Located in Dzerzhinsk, ОАО Acrylate’s annual production capacity is 25 thousand metric tons of ester grade acrylic acid, 36 thousand metric tons of heavy esters (butyl acrylate) and 10 thousand metric tons of light esters (methyl and ethyl acrylate). OAO Acrylate is supplied with our propylene and butyl alcohols as feedstock.

In June 2011, OOO RusVinyl, the Group’s 50/50 joint venture with SolVin Holding NL BV, signed a multi-facility loan agreement for EUR 750 million for a period of up to 12.5 years to finance the construction of Russia’s first world scale, fully integrated vinyl plant. Located in the Nizhny Novgorod region, the plant is designed to have an annual capacity of 330 thousand metric tons of polyvinyl chloride (PVC) and 225 thousand metric tons of caustic soda. The JV was established between SIBUR and SolVin Holding NL BV (87% owned by SolVin Group, the joint subsidiary of Solvay and BASF, and 13% owned by EBRD) in 2007. Construction of the plant commenced in 2010 and its commercial launch is scheduled for 2014.

64 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Operational Review Energy Products Our energy products, mainly comprised of natural gas, liquefied petroleum gases (LPG), naphtha and natural gas liquids (NGL), are sold primarily to end-customers in the energy, utilities and petrochemical industries in Russia and internationally. We also produce fuel additives, including methyl tertiary butyl ether (MTBE), which we sell to major oil refineries on both the domestic and international markets. In 2011, revenues from external energy product sales to the Russian domestic market accounted for approximately 47.7% of total external energy product sales and 52.3% was attributable to exports.

We also use LPG, naphtha and NGL as feedstock for processing into petrochemical products: in 2011, approximately 33.7% of our total NGL, LPG and naphtha volumes available for sale (both produced internally and purchased from third parties), were supplied to our petrochemicals business for further processing, while external sales accounted for 66.3% of available for sale volumes.

2011 was generally a very positive year for our feedstock & energy business due to higher production and sales volumes as well as growth in global oil and oil derivatives prices, higher natural gas prices in Russia and a relatively weak rouble (see “Certain Factors Affecting Our Results of Operations” section for further details). Our revenues from sales of energy products increased by 40.8% year-on-year to RR 112,396 million in 2011 from RR 79,809 million in 2010, primarily driven by higher sales of LPG, naphtha and MTBE.

The following table presents data on revenues from energy product sales for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total SIBUR SIBUR Change Millions of Russian roubles except as stated 2011 revenues(1) 2010 revenues(1) % LPG 52,502 21.1% 34,628 18.4% 51.6% Domestic 14,887 28.4% 10,227 29.5% 45.6% Export 37,615 71.6% 24,402 70.5% 54.1% Naphtha 21,118 8.5% 15,700 8.3% 34.5% Domestic 5,304 25.1% 3,673 23.4% 44.4% Export 15,814 74.9% 12,027 76.6% 31.5% Natural gas, domestic sales 17,499 7.0% 15,766 8.4% 11.0% MTBE 14,946 6.0% 10,753 5.7% 39.0% Domestic 10,589 70.8% 5,386 50.1% 96.6% Export 4,357 29.2% 5,367 49.9% (18.8%) Other fuel additives and fuels 4,218 1.7% 2,230 1.2% 89.1% Domestic 4,205 99.7% 2,194 98.4% 91.6% Export 12 0.3% 36 1.6% (65.6%) NGL 2,113 0.8% 732 0.4% 188.7% Domestic 1,173 55.5% - 0.0% n/m Export 940 44.5% 732 100.0% 28.5% Total revenues from energy product sales 112,396 45.2% 79,809 42.3% 40.8% Domestic 53,657 47.7% 37,246 46.7% 44.1% Export 58,739 52.3% 42,563 53.3% 38.0%

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues

65 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Liquefied Petroleum Gases (LPG) We sell LPG both in Russia and abroad, to customers in the energy, utilities and petrochemical industries. We also use LPG as feedstock for our own petrochemical business: approximately 20.1% and 30.9% of the total volumes of LPG available for sale were delivered to our petrochemical business for further processing in 2011 and 2010, respectively.

In 2011, our revenues from external LPG sales increased by 51.6% year-on-year to RR 52,502 million from RR 34,628 million on both higher prices and volumes. Approximately 28.4% of total revenues from LPG sales were derived from the domestic market, while export accounted for 71.6% (primarily to Europe and CIS countries).

Our effective average selling price increased by 23.2% year-on-year on stronger benchmark prices on the international markets, which followed higher oil prices. Volumes increased by 23.1% year-on-year due to higher production, purchases from third parties and a lower share of LPG in the feedstock mix supplied to our petrochemicals business in 2011 compared to 2010.

The following table presents data on our LPG production, purchases and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 %

LPG Production 3,624,868 3,397,866 6.7% Purchases from third parties, including 893,166 177,461 403.3% Purchases for resale 164,625 - n/m Total production and purchases 4,518,034 3,575,327 26.4% (Fractionation(1) and internal use) (939,857) (228,338) 311.6% (Increase)/decrease in stock (19,376) (3,976) 387.3% Gross sales, including 3,558,801 3,343,013 6.5% Intercompany sales to petrochemical business 714,710 1,032,777 (30.8%) External sales 2,844,091 2,310,236 23.1% Domestic 1,101,533 904,245 21.8% Export 1,742,558 1,405,991 23.9%

Naphtha We sell naphtha both in Russia and abroad, to customers in the energy, utilities and petrochemical industries. We also use naphtha as feedstock for our own petrochemical business: approximately 47.8% and 44.1% of the total volumes of naphtha available for sale were delivered to our petrochemical business for further processing in 2011 and 2010, respectively. SIBUR’s feedstock & energy business uses negligible volumes of naphtha internally.

In 2011, our revenues from external naphtha sales increased by 34.5% year-on-year to RR 21,118 million from RR 15,700 million on both higher prices and volumes. Approximately 25.1% of total revenues from naphtha sales were derived from the domestic market, while export accounted for 74.9% (primarily to Europe and CIS).

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues

66 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Our effective average selling price increased by 29.4% year-on-year on stronger benchmark prices on the international markets, which followed higher oil prices. Volumes increased by 3.9% year-on-year due to higher production as well as purchases from third parties. This more than compensated for the higher share of naphtha in the feedstock mix supplied to our petrochemicals business in 2011 compared to 2010.

The following table presents data on our naphtha production, purchases and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 %

Naphtha Production 1,294,536 1,262,026 2.6% Purchases from third parties 571,497 382,359 49.5% Total production and purchases 1,866,033 1,644,385 13.5% (Internal use/losses) (1,054) (944) 11.6% (Increase)/decrease in stock 12,151 41,797 (70.9%) Gross sales, including 1,877,130 1,685,238 11.4% Intercompany sales to petrochemical business 897,685 742,652 20.9% External sales 979,445 942,586 3.9% Domestic 282,443 265,463 6.4% Export 697,002 677,123 2.9%

Natural Gas In accordance with Russian legislation, the domestic market accounts for 100% of our external natural gas sales. We sell primarily to oil and gas companies and, to a limited extent, to regional and municipal power companies. We also use certain volumes of natural gas internally, mainly as fuel at our GPPs and for own heat power generation: internal usage of natural gas accounted for 10.9% of SIBUR’s share in produced volumes(1) in 2011 and for 11.2% in 2010.

In 2011, our revenues from external natural gas sales increased by 11.0% year-on-year to RR 17,499 million from RR 15,766 million in 2010 on higher prices despite lower volumes.

Our effective average selling price for natural gas increased by 17.9% year-on-year due to an increase in the regulated natural gas price set by the FTS (see “Natural Gas Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details) as well as efficiency improvements in our marketing and sales activities.

Natural gas volumes declined by 5.8% year-on-year due to the transfer of our Nyagan GPP to our JV with TNK-BP (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details), which increased natural gas production at our GPPs, but decreased SIBUR’s share of produced volumes (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). Additionally, we accumulated 518.4 million cubic meters of natural gas as inventories at the end of 2011, with the goal of achieving better selling terms in 2012.

(1) Excluding TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section)

67 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on our natural gas production and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Thousands of cubic meters except as stated 2011 2010 %

Natural gas Production(1) 15,806,351 15,325,007 3.1% Production, SIBUR's share(2) 10,864,052 11,154,101 (2.6%) (Internal use/losses) (1,180,179) (1,244,874) (5.2%) (Increase)/decrease in stock (518,356) (175,017) 196.2% External sales 9,165,517 9,734,209 (5.8%) Domestic 9,165,517 9,734,209 (5.8%) Export - - -

Methyl Tertiary Butyl Ether (MTBE) We sell MTBE primarily to oil refineries in Russia and internationally. We do not use any material volumes of MTBE for internal purposes. In 2011, our revenues from MTBE sales increased by 39% year-on-year to RR 14,946 million from RR 10,753 million on higher prices despite lower volumes. Approximately 70.8% of revenues from MTBE sales were derived from the domestic market, while exports accounted for 29.2% (primarily to Finland, the CIS countries and the Baltic states). In 2011, we substantially increased our share of domestic sales (from 50.1% in 2010) to capitalize on favorable pricing and growth in demand for fuel additives in Russia following the introduction of EURO-3 fuel standards.

Our effective average selling price increased by 41.4% year-on-year due to higher oil prices and demand growth. Volumes decreased marginally by 1.7% year-on-year due to the divestment of OAO Kauchuk in June 2010 and deconsolidation of its production volumes.

The following table presents data on our MTBE production, purchases and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 %

MTBE Production 405,371 414,620 (2.2%) Purchases from third parties 28,972 28,001 3.5% Total production and purchases 434,343 442,621 (1.9%) (Internal use/losses) (306) - n/m (Increase)/decrease in stock 3,600 2,700 33.4% External sales 437,638 445,321 (1.7%) Domestic 299,117 211,085 41.7% Export 138,521 234,235 (40.9%)

(1) Excludes TNK-BP’s share in production volumes of OOO Yugragazpererabotka(see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section) (2) Includes TNK-BP’s share in production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section)

68 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Other Energy Products Other energy products, including other fuel additives and fuels and NGL, represent an insignificant share of total revenues (2.5% in 2011 and 1.6% in 2010).

The following table presents data on production, purchases and sales volumes of other energy products for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 %

Other fuel additives and fuels Production 337,158 215,970 56.1% (Internal use/losses) (146,751) (91,953) 59.6% (Increase)/decrease in stock (1,420) (3,922) (63.8%) External sales 188,987 120,095 57.4% Domestic 187,900 117,184 60.3% Export 1,087 2,911 (62.7%) NGL Production(1) 4,175,843 3,954,516 5.6% Production, SIBUR's share(2) 2,864,371 2,627,054 9.0% Purchases from third parties, including 2,544,569 2,268,070 12.2% Purchases for resale 38,575 - n/m Total production and purchases 5,408,940 4,895,123 10.5% Fractionation (4,803,389) (4,513,208) 6.4% (Increase)/decrease in stock (24,771) 19,789 (225.2%) Gross sales, including 580,781 401,705 44.6% Intercompany sales to petrochemical business 417,508 355,846 17.3% External sales 163,274 45,859 256.0% Domestic 93,263 - n/m Export 70,011 45,859 52.7%

Production Capacity and Utilization Rates Actual cumulative gas processing capacity at our GPPs increased to 21 billion cubic meters of APG per annum in 2011 from 20 billion cubic meters in 2010 as a result of capacity expansion and equipment upgrades. Annualized capacity utilization rate remained unchanged at 87%. In 2011 we improved the average liquids recovery ratio at our GPPs from 87% to 91%.

Actual cumulative gas fractionation capacity at our GFUs decreased to 5,058 thousand metric tons of NGL per annum in 2011 from 5,118 thousand metric tons in 2010, which was predominantly attributable to the deconsolidation of production capacity of ZAO Novokuybyshevskaya Neftekhimicheskaya Kompaniya (475 thousand metric tons per annum) following its sale in April 2011. The decision to divest ZAO Novokuybyshevskaya Neftekhimicheskaya Kompaniya was made due to its remoteness from our feedstock sources. The effect from the deconsolidation was partially offset by

(1) Includes TNK-BP’s share in production volumes of OOO Yugragazpererabotka see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section) (2) Excludes TNK-BP’s share in production volumes of OOO Yugragazpererabotka see “Feedstock Sourcing and Mix” in “Certain Factors Affecting Our Results of Operations” section)

69 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

the modernization of our Tobolsk GFU. Annualized capacity utilization rate improved to 92% in 2011 from 86% in 2010. Utilization was positively impacted by shorter maintenance shutdowns at the Tobolsk GFU, higher NGL production volumes and purchases from third parties.

MTBE production capacity decreased to 444 thousand metric tons per annum in 2011 from 464 thousand metric tons in 2010 due to the disposal of OAO Kauchuk in June 2010.

Petrochemicals

Basic Polymers Our basic polymer product group comprises low-density polyethylene (LDPE) and polypropylene (PP). LDPE sales are evenly split between the Russian and export markets, serving customers in the retail and construction industries. We sell PP primarily on the domestic market to customers in the retail, construction, automotive and road building industries. In 2011, we benefited from the strong performance of end-customer industries, which drove the growth in demand for our products and supported favorable pricing trends in Russia and globally. As a result, our 2011 revenues from sales of basic polymers increased by 16.1% year-on-year to RR 21,782 million from RR 18,760 million in 2010. The strongest growth was posted in domestic PP sales.

The following table presents data on revenues from basic polymer sales for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total SIBUR SIBUR Change Millions of Russian roubles except as stated 2011 revenues(1) 2010 revenues(1) % PE (LDPE) 10,978 4.4% 10,022 5.3% 9.5% Domestic 5,489 50.0% 5,485 54.7% 0.1% Export 5,489 50.0% 4,537 45.3% 21.0% PP 10,805 4.3% 8,738 4.6% 23.6% Domestic 10,010 92.6% 8,242 94.3% 21.4% Export 794 7.4% 496 5.7% 60.2% Total revenues from basic polymers sales 21,782 8.8% 18,760 9.9% 16.1% Domestic 15,499 71.2% 13,727 73.2% 12.9% Export 6,283 28.8% 5,032 26.8% 24.8%

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues

70 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Low-density polyethylene (LDPE) In 2011, revenues from sales of LDPE increased by 9.5% year-on-year to RR 10,978 million compared to RR 10,022 million in 2010 on higher prices despite slightly lower volumes. Our 2011 LDPE sales were split 50/50 between the domestic and export markets. We sell LDPE for export primarily to the CIS countries and China, with a small but growing share of sales to Europe.

Our effective average selling price for LDPE grew by 10.2% year-on-year, driven by higher feedstock prices worldwide. LDPE sales volumes decreased marginally by 0.6% year-on-year despite production growth of 2.4%. This was attributable to higher inventories and goods-in-transit balances as we changed our marketing and distribution strategy in basic polymers to eliminate intermediates and deal directly with our customers. This increased average transportation distances and required stocking up at our regional warehouses. Additionally, at the end of the year, we had higher balances of goods-in-transit on the way to China.

Polypropylene (PP) In 2011, revenues from sales of PP surged 23.6% year-on-year to RR 10,805 million compared to RR 8,738 million in 2010 on higher prices and volumes. In 2011, we increased share of premium PP grades, which contributed to revenue growth. Approximately 92.6% of our PP revenues were from sales in the Russian market, as we capitalized on strong growth in domestic demand and continued to pursue our import-substitution strategy. Exports, mainly to China and Europe, accounted for 7.4% of total PP revenues.

Our effective average selling price for PP increased by 17.2% year-on-year, driven by higher feedstock prices globally. PP sales volumes increased by 5.5% year-on-year, on an 8.0% production growth at our own PP plant in Tomsk and purchases from OOO NPP Neftekhimia, our JV with OAO Moskovsky NPZ. This was partially offset by higher inventories and goods- in-transit balances at the end of 2011 due to changes in our marketing and distribution strategy as described above.

Production capacity and utilization rates Basic polymers actual cumulative production capacity at our Tomsk plant increased to 380 thousand metric tons per annum in 2011 from 365 thousand metric tons in 2010(1) due to upgrades of equipment and processes, including a new cleaning technique for heat exchangers used in the PE production process and a switch to a new titanium-magnesium catalyst for PP production.

Our annualized capacity utilization rate at the Tomsk plant remained unchanged at 98%. At the same time, production of basic polymers declined by 10.8% year-on-year to 373 thousand metric tons from 418 thousand metric tons in 2010. This decline was attributable to deconsolidation of production volumes of NPP Neftekhimia, as we changed our format of cooperation from processing to purchasing and began reporting the JV’s volumes as purchases of goods for resale as of October 2010.

The Russian basic polymer market is experiencing strong growth momentum. PP and PE per capita consumption lags substantially behind developed and emerging market peers, with opportunities for increased usage in various industries. Moreover, due to a shortage of domestic petrochemical capacity, much of domestic demand for basic petrochemical products is currently met by imports. This, combined with positive growth trends in the end-customer industries, makes Russia an attractive market for basic polymers and provides a strong foundation for SIBUR’s strategic growth projects as described in the “Capital Expenditures” section.

(1) Excluding production capacity of OOO NPP Neftekhimia in both 2011 and 2010

71 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on our basic polymer production, purchases and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 % Production 372,967 418,153 (10.8%) PE (LDPE) 244,177 238,369 2.4% PP 128,791 179,784 (28.4%) Purchases from third parties (PP) 114,295 36,437 213.7% Total production and purchases 487,262 454,591 7.2% (Internal use/losses) (9,194) (6,332) 45.2% (Increase)/decrease in stock (31,977) (12,280) 160.4% External sales PE (LDPE) 225,476 226,807 (0.6%) Domestic 107,225 114,187 (6.1%) Export 118,252 112,620 5.0% PP 220,614 209,172 5.5% Domestic 203,985 193,307 5.5% Export 16,629 15,865 4.8% Total basic polymers sales volumes 446,090 435,979 2.3% Domestic 311,210 307,494 1.2% Export 134,881 128,485 5.0%

72 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Synthetic Rubbers 2011 was a record year for our synthetic rubber business as we benefited from favorable pricing trends, wider price spreads between monomers and rubbers, and strong demand for rubbers in Russia and internationally, particularly in the first half of the year. Higher rubber prices more than compensated for a marginal reduction in our production and sales volumes. SIBUR’s 2011 revenues from synthetic rubber sales increased by 33.0% year-on-year to RR 50,971 million compared to RR 38,336 million in 2010. The growth was primarily driven by commodity rubbers sales.

The following table presents data on revenues from our synthetic rubber sales for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total SIBUR SIBUR Change Millions of Russian roubles except as stated 2011 revenues(1) 2010 revenues(1) % Commodity rubbers 37,525 15.1% 26,143 13.9% 43.5% Domestic 17,743 47.3% 11,595 44.4% 53.0% Export 19,782 52.7% 14,548 55.6% 36.0% Specialty rubbers 10,664 4.3% 9,662 5.1% 10.4% Domestic 2,183 20.5% 1,303 13.5% 67.5% Export 8,481 79.5% 8,359 86.5% 1.5% Thermoplastic elastomers 2,782 1.1% 2,531 1.3% 9.9% Domestic 2,406 86.5% 2,098 82.9% 14.7% Export 376 13.5% 434 17.1% (13.2%) Total revenues from synthetic rubbers sales 50,971 20.5% 38,336 20.3% 33.0% Domestic 22,332 43.8% 14,995 39.1% 48.9% Export 28,639 56.2% 23,341 60.9% 22.7%

Commodity rubbers Commodity rubbers primarily comprise polyisoprene (IR), polybutadiene (BR) and styrene-butadiene (SBR) rubbers and are sold mostly to customers in the automotive and industrial machinery industries. In 2011, revenues from sales of commodity rubbers surged 43.5% year-on-year to RR 37,525 million compared to RR 26,143 million in 2010 on higher prices despite slightly lower volumes. Our 2011 commodity rubber sales were almost evenly split between domestic and export markets with 47.3% of revenues attributable to sales in Russia and 52.7% derived from exports. In 2011, we increased our share of sales to the Russian market from 44.4% in 2010 in response to strong demand from the Russian automotive sector.

In 2011, our effective average selling price for commodity rubbers grew by 45.5% year-on-year driven by higher rubber prices around the globe. This was attributable to two key factors. First, in February 2011, prices for natural rubber rose to their historic highs, which fueled growth in polyisoprene rubber prices. Second, butadiene shortages in the first half of the year resulted in higher prices for butadiene-based rubbers. Prices corrected to some degree in the second half of the year, but the full-year effect was still strongly positive for the industry.

In 2011, sales volumes of commodity rubbers decreased marginally by 1.3% year-on-year on almost flat production and lower purchases from third parties.

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues

73 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Specialty rubbers Specialty rubbers primarily comprise nitrile-butadiene (NBR) and butyl rubbers (IIR) as well as latexes and are sold mostly to customers in the automotive, oil and gas, construction and healthcare industries.

In 2011, specialty rubber revenues increased by 10.4% year-on-year to RR 10,664 million compared to RR 9,662 million in 2010 on higher prices and higher domestic sales despite a slight decrease in overall volumes. Approximately 20.5% of our specialty rubber revenues were derived from the domestic market, while export sales accounted for 79.5% of revenues.

In 2011, our effective average selling price for specialty rubbers increased by 11.7%, driven by a 48.0% increase in domestic prices and a 6.1% increase in export prices. Higher domestic prices were attributable to strong demand from end-customer industries, while international prices were negatively affected by butyl rubber capacity additions in China. SIBUR shifted some of its sales volumes from international markets to Russia in response to pricing trends.

Specialty rubber sales volumes decreased by 1.2% year-on-year due to a 3.3% decline in production, partially offset by higher volumes of purchases from third parties. Production decline was due to our decision to shut down production of nitrile-butadiene rubbers at our Voronezh site to concentrate nitrile-butadiene rubber production at our Krasnoyarsk site as well as optimization of our portfolio to focus on premium rubber grades.

Thermoplastic elastomers Thermoplastic elastomers are primarily used in the construction and road building industries. In 2011, our revenues from sales of thermoplastic elastomers increased by 9.9% year-on-year to RR 2,782 million from RR 2,531 million in 2010. Strong price increases for thermoplastic elastomers were largely offset by lower sales volumes. Domestic market sales accounted for 86.5% of revenues, while 13.5% came from export sales.

Our effective average selling price for thermoplastic elastomers increased by 27.8% year-on-year on strong demand from end-customer industries. We experienced similar pricing trends on both domestic and export markets. We continued to focus on the domestic market to capitalize on the strong growth of the Russian construction industry.

Sales volumes declined by 14.0% year-on-year. This was attributable to a production decrease of 10.4% due to longer than expected maintenance shutdowns and accumulation of stock at the end of the year aimed at selling on better terms during peak construction season in the spring and summer of 2012.

While currently thermoplastic elastomers account for a relatively small share of our synthetic rubber sales (5.5% of synthetic rubber revenues in 2011 and 6.6% in 2010), we are positioned to increase output significantly. In early 2011, we initiated construction of a new thermoplastic elastomers production facility with an annual capacity of 50 thousand metric tons at our synthetic rubber complex in Voronezh. The project is scheduled for completion in the first quarter of 2013, and is on target to increase our thermoplastic elastomers production capacity by more than 150%.

Production capacity and utilization rates Our actual cumulative production capacity in synthetic rubbers increased to 484 thousand metric tons per annum in 2011 from 481 thousand metric tons in 2010. We commissioned an additional production line of polyisoprene rubbers, which was partially offset by decommissioning of a nitrile-butadiene rubber production line in Voronezh.

Our annualized capacity utilization rate in synthetic rubbers declined to 88% in 2011 from 90% in 2010, due to longer maintenance shutdowns of thermoplastic elastomers production capacity, temporary shortage of butadiene in the middle of the year and product portfolio rebalancing in specialty rubbers.

74 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on our synthetic rubber production, purchases and sales volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 % Production 426,200 431,640 (1.3%) Commodity rubbers 307,594 306,700 0.3% Specialty rubbers 90,629 93,706 (3.3%) Thermoplastic elastomers 27,977 31,234 (10.4%) Purchases from third parties 63,828 60,232 6.0% Total production and purchases 490,028 491,872 (0.4%) (Internal use/losses) - (14) (100.0%) (Increase)/decrease in stock (5,152) 3,495 (247.4%) External sales Commodity rubbers 365,383 370,304 (1.3%) Domestic 169,480 157,662 7.5% Export 195,903 212,642 (7.9%) Specialty rubbers 92,359 93,499 (1.2%) Domestic 19,092 16,860 13.2% Export 73,267 76,638 (4.4%) Thermoplastic elastomers 27,133 31,550 (14.0%) Domestic 23,133 25,498 (9.3%) Export 4,000 6,052 (33.9%) Total synthetic rubbers sales volumes 484,876 495,352 (2.1%) Domestic 211,705 200,020 5.8% Export 273,170 295,332 (7.5%)

Plastics and Organic Synthesis Products Our plastics and organic synthesis product group comprises primarily glycols, alcohols, polyethylene terephthalate (PET), plastic compounds(1), polystyrene and biaxially oriented polypropylene films (BOPP-films). We sell these products mainly on the domestic market (except for alcohols) to customers in the chemical, retail, construction and road building industries. We also use some of these for further processing into other petrochemicals in this product group and others. In 2011, out of a total 587 thousand metric tons of the product group production volumes, approximately 9% was used internally for further processing.

In 2011, our external revenues from sales of plastics and organic synthesis products increased by 31.4% year-on-year to RR 23,755 million from RR 18,079 million in 2010. The growth was primarily driven by stronger sales of glycols, polystyrene and PET as well as consolidation of BOPP-film production and sales volumes of OOO Biaxplen NK from the fourth quarter of 2010.

(1) Including ABS plastics and PVC cable compounds

75 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on revenues from sales of our plastics and organic synthesis products for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total SIBUR SIBUR Change Millions of Russian roubles except as stated 2011 revenues(1) 2010 revenues(1) % Glycols 7,885 3.2% 6,121 3.2% 28.8% Domestic 6,063 76.9% 4,631 75.7% 30.9% Export 1,823 23.1% 1,490 24.3% 22.3% Alcohols (including 2-ethylhexanol) 5,806 2.3% 5,045 2.7% 15.1% Domestic 2,131 36.7% 1,901 37.7% 12.1% Export 3,675 63.3% 3,144 62.3% 16.9% Polyethylene terephthalate 4,553 1.8% 3,326 1.8% 36.9% Domestic 4,391 96.4% 3,017 90.7% 45.5% Export 163 3.6% 308 9.3% (47.2%) Plastic compounds(2) 2,838 1.1% 2,664 1.4% 6.5% Domestic 2,639 93.0% 2,461 92.4% 7.2% Export 198 7.0% 203 7.6% (2.0%) Polystyrene 1,624 0.7% 489 0.3% 232.4% Domestic 1,398 86.0% 326 66.7% 328.6% Export 227 14.0% 163 33.3% 39.4% Biaxially oriented polypropylene films 1,048 0.4% 434 0.2% 141.5% Domestic 1,035 98.7% 389 89.7% 165.8% Export 13 1.3% 45 10.3% (70.0%) Total revenues from plastics and organic synthesis products sales 23,755 9.6% 18,079 9.6% 31.4% Domestic 17,656 74.3% 12,726 70.4% 38.7% Export 6,099 25.7% 5,352 29.6% 14.0%

Glycols, which include mono ethylene glycol, diethylene glycol and triethylene glycol, are used primarily as antifreeze as well as for production of other petrochemical products. Glycols are primarily sold on the domestic market (76.9% of total revenues from sales of glycols in 2011), with the remaining share attributable to exports to the Republic of Belarus and Eastern Europe. We also use glycols for further processing: out of 244 thousand metric tons of glycols produced in 2011, approximately 20% were used internally for production of polyethylene terephthalate and other petrochemical products. In 2011, our revenues from external sales of glycols totaled RR 7,885 million, increasing by 28.8% year-on-year on a 2.8% increase in sales volumes and a 25.4% increase in effective average price due to higher feedstock prices globally. SIBUR’s glycols performance in 2011 was affected by intensified domestic competition; however overall demand increased due to additions of new polyethylene terephthalate capacity, which uses glycols as feedstock.

Alcohols, which include 2-ethylhexanol, are used primarily as solvents and also for production of other petrochemical products. We sell our alcohols both in Russia and internationally. In 2011, approximately 63.3% of our revenues from sales of alcohols were derived from exports (mainly to Europe and China), while domestic sales accounted for 36.7%. We also

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues (2) Including ABS plastics and PVC cable compounds

76 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

use alcohols for our own production of butyl acrylate: out of 148 thousand metric tons of alcohols produced in 2011, approximately 8% was used internally. In 2011, our revenues from external sales of alcohols totaled RR 5,806 million, increasing by 15.1% year-on-year on a 15.6% increase in effective average price despite flat volumes. Effective average price increased due to higher prices for propylene as well as a generally positive environment in the Asian markets, which set the global price for alcohols.

PET is mainly used to produce plastic bottles. We sell 100% of PET externally, primarily on the domestic market. In 2011, approximately 96.4% of our revenues from PET sales were derived from Russia, while export sales accounted for 3.6%. Russian PET market performance was not uniform throughout 2011 as excessive purchases of imported PET in early 2011 resulted in stock accumulation and a decrease in demand in the second half of the year. Additionally, a material addition of new capacity in Kaliningrad resulted in intensified competition. Our 2011 revenues from PET sales totaled RR 4,553 million, increasing by 36.9% year-on-year on a 24.2% increase in effective average sales price and a 10.2% increase in volumes due to the acquisition of OAO Polief in October 2011. We accumulated approximately 10 thousand metric tons in inventory at the end of 2011, with the objective to sell it on better terms in 2012 based on expected improvement in market conditions.

Plastic compounds are used for production of wire/cable insulation and auto components. We sell 100% of our production volumes of plastic compounds externally, primarily on the domestic market. In 2011, approximately 93.0% of our revenues from sales of plastic compounds were derived from Russia, while export sales accounted for 7.0%. Our 2011 revenues from sales of plastic compounds totaled RR 2,838 million, growing by 6.5% year-on-year on a 10.5% increase in effective average sales price despite a slight decline in volumes. Price growth was attributable to higher feedstock prices, while the volume decline was due to product portfolio rebalancing to adapt to market changes and increase the share of high-margin products.

Expandable polystyrene is used mainly for production of thermo-insulating and packaging materials as well as decorative elements. We sell 100% of our production volumes externally, primarily on the domestic market, which is largely short of expandable polystyrene (approximately 68% of domestic demand in 2011 was satisfied by imports). In 2011, approximately 86.0% of our revenues from expandable polystyrene sales were derived from Russia, while export sales accounted for 14.0%. In 2011, our revenues from sales of expandable polystyrene more than tripled year-on-year to RR 1,624 million on added volumes from the new production capacity of 50 thousand metric tons per annum in Perm in November 2010. On top of that, we plan to put into operation a second line of 50 thousand metric tons of expandable polystyrene per annum in Perm in 2012. This is expected to further strengthen our market positions and enable SIBUR to capitalize on Russia’s import-substitution potential and the strong growth of the domestic construction industry.

BOPP-films are mainly used by the retail industry for packaging of food and non-food products. We sell 100% of BOPP- films externally, primarily on the domestic market. In 2011, approximately 98.7% of our revenues from BOPP-film sales were derived from Russia, while export sales accounted for 1.3%. Our 2011 revenues from BOPP-film sales increased 141.5% year-on-year to RR 1,048 million due to the consolidation of OOO Biaxplen NK from the fourth quarter of 2010. To further expand our position in the domestic BOPP-film market, in March 2012, we acquired control over Biaxplen group of companies, which comprises three plants in the Nizhny Novgorod, Kursk and Moscow regions with the total annual production capacity of 78 thousand metric tons.

Production capacity and utilization rates Our actual cumulative production capacity in plastics and organic synthesis products increased to 676 thousand metric tons per annum in 2011 from 558 thousand metric tons in 2010. We expanded our existing capacity in polystyrene, glycols and alcohols with new production lines and equipment upgrades, as well as the acquisition of OOO Biaxplen NK, a BOPP- film producer, in September 2010 and of OAO Polief, a PET producer, in October 2011.

77 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Our annualized capacity utilization rate in plastics and organic synthesis products declined to 87% in 2011 from 93% in 2010. This was attributable to unscheduled maintenance shutdowns at our polystyrene plant in Perm to fine-tune the production process, in addition to a decrease in demand for glycols at the end of 2011.

The following table presents data on our production, purchases and sales volumes in plastics and organic synthesis products for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 % Production 586,944 524,071 12.0% Glycols 243,664 241,174 1.0% Alcohols (including 2-ethylhexanol) 148,425 140,128 5.9% Polyethylene terephthalate 95,230 73,577 29.4% Plastic compounds(1) 49,124 53,053 (7.4%) Polystyrene 36,741 11,036 232.9% Biaxially oriented polypropylene films 13,761 5,104 169.6% Purchases from third parties - - n/m Total production and purchases 586,944 524,071 12.0% (Internal use/losses) (55,322) (61,408) (9.9%) (Increase)/decrease in stock (21,282) 557 (3,920.2%) External sales Glycols 196,909 191,629 2.8% Domestic 150,066 140,140 7.1% Export 46,842 51,489 (9.0%) Alcohols (including 2-ethylhexanol) 127,656 128,259 (0.5%) Domestic 48,274 47,465 1.7% Export 79,382 80,794 (1.7%) Polyethylene terephthalate 85,305 77,376 10.2% Domestic 82,256 70,558 16.6% Export 3,049 6,818 (55.3%) Plastic compounds(1) 49,481 51,308 (3.6%) Domestic 46,438 47,562 (2.4%) Export 3,043 3,746 (18.8%) Polystyrene 37,935 9,857 284.9% Domestic 33,499 6,338 428.5% Export 4,436 3,519 26.1% Biaxially oriented polypropylene films 13,054 4 792 172.4% Domestic 12,907 4 292 200.7% Export 146 500 (70.7)% Total plastics and organic synthesis product sales volumes 510,340 463,220 10.2% Domestic 373,441 316,355 18.0% Export 136,899 146,865 (6.8%)

(1) Including ABS plastics and PVC compounds

78 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Intermediates and Other Chemicals Intermediates and other chemicals primarily comprise benzene, styrene, propylene, ethylene oxide, butadiene, isoprene, isobutylene, ethylene and others. These chemicals are mainly used internally and processed into higher value-added products within three product groups discussed above. Out of 3,161 thousand metric tons of intermediates and other chemicals produced in 2011, approximately 80% was used internally for further processing. We also sell these products externally, primarily to other petrochemical companies, particularly within our product swap schemes when we supply feedstock in exchange for refined products. This enables us to strengthen our market positions in respective products and enhance sales efficiency. SIBUR’s integrated business model enables us to change the composition of our feedstock and product mix to maximize production and sales efficiency and support margins. As a result, our share of external sales in intermediates and other chemicals fluctuates significantly period to period depending on market trends, shifts in supply and demand fundamentals, capacity constraints and other factors.

In 2011, our revenues from external sales of intermediates and other chemicals increased by 4.5% year-on-year to RR 25,335 million from RR 24,247 million in 2010 on higher prices despite lower sales volumes.

79 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on revenues from sales of our intermediates and other chemicals for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total SIBUR SIBUR Change Millions of Russian roubles except as stated 2011 revenues(1) 2010 revenues(1) % Intermediates, including Benzene 2,348 0.9% 1,919 1.0% 22.4% Domestic 2,348 100.0% 1,919 100.0% 22.4% Export - - - - n/m Styrene 2,090 0.8% 2,108 1.1% (0.8%) Domestic 398 19.0% 617 29.3% (35.5%) Export 1,692 81.0% 1,490 70.7% 13.5% Propylene 2,063 0.8% 3,973 2.1% (48.1%) Domestic 1,352 65.5% 3,184 80.1% (57.5%) Export 711 34.5% 789 19.9% (10.0%) Ethylene oxide 1,908 0.8% 1,490 0.8% 28.0% Domestic 1,583 83.0% 1,320 88.6% 19.9% Export 324 17.0% 169 11.4% 91.5% Butadiene 1,358 0.5% 623 0.3% 117.9% Domestic 1,358 100.0% 623 100.0% 117.9% Export - - - - n/m Isoprene 1,082 0.4% 955 0.5% 13.3% Domestic 24 2.2% 14 1.5% 72.6% Export 1,058 97.8% 941 98.5% 12.5% Isobutylene 742 0.3% 608 0.3% 21.9% Domestic 651 87.8% 453 74.5% 43.6% Export 91 12.2% 155 25.5% (41.5%) Ethylene - - - - n/m Other intermediates 3,825 1.5% 2,640 1.4% 44.9%. Domestic 3,108 81.3% 2,221 84.2% 39.9%. Export 717 18.7% 418 15.8% 71.3%. Total intermediates 15,415 6.2% 14,315 7.6% 7.7% Domestic 10,823 70.2% 10,352 72.3% 4.5% Export 4,592 29.8% 3,963 27.7% 15.9% Other chemicals 9,920 4.0% 9,932 5.3% (0.1%) Domestic 7,922 79.9% 8,619 86.8% (8.1%) Export 1,998 20.1% 1,313 13.2% 52.2% Total revenues from intermediates and other chemicals sales 25,335 10.2% 24,247 12.9% 4.5% Domestic 18,745 74.0% 18,971 78.2% (1.2%) Export 6,590 26.0% 5,276 21.8% 24.9%

(1) “Domestic” and “export” lines in this table contain percentages of the respective product/product group revenues

80 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Production capacity and utilization rates Our actual cumulative production capacity in selected intermediate products and respective utilization rates are presented below.

Benzene: in 2011, actual benzene production capacity increased to 178 thousand metric tons per annum from 131 thousand metric tons per annum in 2010 due to modernization of our production line at OAO Uralorgsintez. Annualized capacity utilization rate increased to 84% in 2011 from 78% in 2010, on growing external sales of benzene due to a more favorable pricing for benzene versus benzene-based higher value-added products, such as styrene.

Ethylene: In 2011, actual ethylene production capacity increased to 614 thousand metric tons per annum from 597 thousand metric tons per annum in 2010 as we launched new ethyl benzene capacity, which resulted in higher utilization of our ethylene cracker at ZAO Sibur-Khimprom. The annualized capacity utilization rate remained mostly unchanged at 87%.

The following table presents data on our production, purchases and sales volumes in intermediates and other chemicals for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 %

Production(1) 3,161,054 2,797,824 13.0% Intermediates, including 2,410,866 2,296,686 5.0% Benzene 149,019 101,923 46.2% Styrene 122,664 108,321 13.2% Propylene 327,441 365,177 (10.3%) Ethylene oxyde 85,746 83,452 2.7% Butadiene 226,558 223,262 1.5% Isoprene 10,111 10,630 (4.9%) Isobutylene 38,883 45,728 (15.0%) Ethylene 535,080 525,643 1.8% Other intermediates 915,364 832,549 9.9% Other chemicals 750,188 501,138 49.7% Purchases from third parties 51,925 40,176 29.2% Total production and purchases 3,212,979 2,838,000 13.2% (Internal use/losses) (2,513,250) (2,095,831) 19.9% (Increase)/decrease in stock 976 (7,355) (113.3%)

81 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Year ended 31 December Change Metric tons except as stated 2011 2010 % External sales, including Intermediates Benzene 93,035 88,746 4.8% Domestic 93,035 88,746 4.8% Export - - - Styrene 51,807 60,734 (14.7%) Domestic 9,571 15,657 (38.9%) Export 42,236 45,077 (6.3%) Propylene 58,547 120,894 (51.6%) Domestic 39,365 102,138 (61.5%) Export 19,183 18,757 2.3% Ethylene oxyde 60,853 53,930 12.8% Domestic 53,317 48,821 9.2% Export 7,536 5,109 47.5% Butadiene 18,147 11,148 62.8% Domestic 18,147 11,148 62.8% Export - - - Isoprene 9,587 10,618 (9.7%) Domestic 196 153 28.0% Export 9,391 10,465 (10.3%) Isobutylene 17,555 18,787 (6.6%) Domestic 14,966 13,278 12.7% Export 2,589 5,509 (53.0%) Ethylene - 8 (100.0%) Domestic - 8 (100.0%) Export - - - Other intermediates 154,043 158,689 (2.9%) Domestic 130,963 130,124 0.6% Export 23,080 28,565 (19.2%) Total intermediates 463,575 523,555 (11.5%) Domestic 359,560 410,073 (12.3%) Export 104,015 113,482 (8.3%) Other chemicals 237,130 211,259 12.2% Domestic 220,770 201,419 9.6% Export 16,360 9,840 66.3% Total intermediate and other chemicals sales volumes 700,705 734,814 (4.6%) Domestic 580,330 611,492 (5.1%) Export 120,375 123,321 (2.4%)

82 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Results of Operations for the Year Ended 31 December 2011 Compared to the Year Ended 31 December 2010

The following table presents selected data on our results of operations for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 revenues 2010 revenues %

Total revenues (net of VAT and export duties) 248,660 100.0% 188,563 100.0% 31.9% including: Energy products 112,396 45.2% 79,809 42.3% 40.8% Petrochemical products 121,843 49.0% 99,422 52.7% 22.6% Other 14,421 5.8% 9,332 4.9% 54.5% Operating expenses (170,207) (68.4%) (136,751) (72.5%) 24.5% Operating profit 78,453 31.6% 51,812 27.5% 51.4% Net finance (expense)/income (4,415) (1.8%) 1,052 0.6% (519.7%) Gain on acquisition of subsidiaries 4,957 2.0% - - n/m Share of net income of joint ventures 236 0.1% 108 0.1% 118.5% Impairment of notes and other receivables (1,731) (0.7%) - - n/m (Loss)/gain on disposal of subsidiaries (380) (0.2%) 16 0.0% n/m Profit before income tax 77,120 31.0% 52,988 28.1% 45.5% Income tax expense (15,561) (6.3%) (12,251) (6.5%) 27.0% Profit from continuing operations 61,559 24.8% 40,737 21.6% 51.1% Gain from discountinued operations 1,240 0.5% - - n/m Profit for the year 62,799 25.3% 40,737 21.6% 54.2% Non-controlling interest 30 0.0% 46 0.0% (34.8%) Profit attributable to shareholders of SIBUR 62,829 25.3% 40,783 21.6% 54.1%

Total Revenues In 2011, our full-year revenues increased by 31.9% year-on-year to RR 248,660 million from RR 188,563 million in 2010. The growth was attributable to higher production volumes, positive demand trends, strong pricing environment for both energy and petrochemical products, and our efforts to enhance sales efficiency.

Sales of energy products accounted for 45.2% of our total revenues, 49.0% of the total revenues were attributable to petrochemical product sales, and the remaining 5.8% were derived primarily from sales of processing services and other sales.

83 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents a breakdown of our revenues by key product groups for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 revenues 2010 revenues %

Energy products LPG 52,502 21.1% 34,628 18.4% 51.6% Naphtha 21,118 8.5% 15,700 8.3% 34.5% Natural gas 17,499 7.0% 15,766 8.4% 11.0% MTBE 14,946 6.0% 10,753 5.7% 39.0% Other fuels and fuel additives 4,218 1.7% 2,230 1.2% 89.1% NGL 2,113 0.8% 732 0.4% 188.7% Total energy product sales 112,396 45.2% 79,809 42.3% 40.8% Petrochemical products Synthetic rubbers 50,971 20.5% 38,336 20.3% 33.0% Plastics and organic synthesis products 23,755 9.6% 18,079 9.6% 31.4% Basic polymers 21,782 8.8% 18,760 9.9% 16.1% Intermediates and other chemicals 25,335 10.2% 24,247 12.9% 4.5% Total petrochemical products sales 121,843 49.0% 99,422 52.7% 22.6% Sales of processing services 5,171 2.1% 3,749 2.0% 37.9% Trading and other sales 9,250 3.7% 5,583 3.0% 65.7% Total revenues 248,660 100.0% 188,563 100.0% 31.9%

For detailed discussion on revenue dynamics see “Operational Review” section above.

84 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Operating Expenses In 2011, our total operating expenses increased by 24.5% year-on-year to RR 170,207 million compared to RR 136,751 million in 2010. The key factors that impacted our operating expenses were higher feedstock and materials costs, increased expenses related to purchases of goods for resale and increases in transportation and energy expenses. As a percentage of total revenues our operating expenses declined to 68.4% in 2011 from 72.5% in 2010, primarily due to stronger growth in revenues on higher volumes and a positive pricing environment, supported by strong oil prices and a relatively weak rouble.

The following table presents information on our operating expenses for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 revenues 2010 revenues % Feedstock and materials 46,300 18.6% 33,089 17.5% 39.9% Transportation 33,918 13.6% 27,904 14.8% 21.6% Energy 28,950 11.6% 25,086 13.3% 15.4% Staff costs 22,091 8.9% 22,798 12.1% (3.1%) Long-term incentive (LTI) - - 3,335 1.8% n/m Goods for resale 15,516 6.2% 7,141 3.8% 117.3% Services provided by third parties 6,899 2.8% 6,516 3.5% 5.9% Repairs and maintenance 4,077 1.6% 2,909 1.5% 40.2% Rent expenses 2,581 1.0% 2,258 1.2% 14.3% Taxes other than income tax 1,543 0.6% 758 0.4% 103.6% Charity and sponsorship 1,051 0.4% 159 0.1% 561.0% Marketing and advertising 783 0.3% 435 0.2% 80.0% Impairment of property plant and equipment - - 426 0.2% (100.0%) Depreciation and amortization 8,216 3.3% 5,940 3.2% 38.3% Other 3,950 1.6% 2,970 1.6% 33.0% Change in WIP and refined products balances (5,668) (2.3%) (1,638) (0.9%) 246.0% Total operating expenses 170,207 68.4% 136,751 72.5% 24.5%

85 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Feedstock and Materials Feedstock and materials mainly comprise various types of feedstock and intermediates that we process into higher value- added products. In 2011, feedstock and materials increased by 39.9% year-on-year to RR 46,300 million from RR 33,089 million in 2010. The growth was primarily attributable to higher purchasing volumes, higher prices and an increased share of liquid hydrocarbon feedstock in our feedstock mix. As a percentage of total revenues, feedstock and materials increased to 18.6% in 2011 from 17.5% in 2010.

The following table presents information on our costs related to purchasing of feedstock and materials as of 31 December 2011 and 2010:

As of 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 materials 2010 materials % APG 5,268 11.4% 4,677 14.1% 12.6% Liquid hydrocarbon feedstock 22,903 49.5% 14,155 42.8% 61.8% Other feedstock, materials and other 18,129 39.2% 14,257 43.1% 27.2% Total feedstock and materials 46,300 100.0% 33,089 100.0% 39.9%

In 2011, APG purchasing costs accounted for 11.4% of the total cost of feedstock and materials compared to 14.1% in 2010, increasing 12.6% year-on-year in absolute terms. While the effective average APG purchase price increased by 15.0% in line with the regulated natural gas prices (see “Natural Gas Prices” in the “Certain Factors Affecting Our Results of Operations” section), APG purchasing volumes declined by 2.1% year-on-year. This was attributable to the transfer in January 2011 of Nyagan GPP to OOO Yugragazpererabotka, our JV with TNK-BP, which increased the overall volumes of APG processed by the GPPs within OOO Yugragazpererabotka, but reduced volumes purchased by SIBUR under the agreement with TNK-BP (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section). The overall volumes of APG processed by our GPPs increased by 3.3% year-on-year.

Expenses related to purchasing of liquid hydrocarbon feedstock accounted for 49.5% of the total cost of feedstock and materials in 2011 compared to 42.8% in 2010, an increase of 61.8% year-on-year in absolute terms. Total volumes of purchased liquid hydrocarbons increased by 21.6% year-on-year, while average purchase price surged 33%, which reflects growth in market prices for oil and oil derivatives, partially offset by higher transportation costs and export duties for LPG and naphtha. The growth in average purchase price was also attributable to rebalancing of our feedstock mix, resulting in a lower share of NGL and a higher share of LPG and naphtha, which are generally more expensive than NGL (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section).

Other feedstock includes methanol used in the production of MTBE and certain intermediate chemicals such as butadiene, benzene and terephthalic acid, which we buy in addition to our own production of intermediates and which we further process into higher value-added petrochemical products. Materials and other primarily include supplementary raw materials, spare parts, materials for auxiliary workshops and other operating supplies. In 2011, costs associated with other feedstock and materials purchasing accounted for 39.2% of our total cost of feedstock and materials compared to 43.1% in 2010, a year-on-year increase of 27.2% in absolute terms.

86 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents selected data on our hydrocarbon feedstock purchasing volumes for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Metric tons except as stated 2011 2010 % APG (thousands of cubic meters) 12,697,565 12,963,731 (2.1%) Liquid hydrocarbon feedstock 3,349,138 2,753,873 21.6%

Transportation Transportation costs comprise expenses related to transportation of feedstock and materials as well as transportation of refined products. These costs are related to third-party services only and exclude operating expenses of ZAO Sibur- Trans and SIBUR’s operating expenses related to maintenance of gas and NGL pipelines. Transportation of feedstock and materials represents third parties services related to deliveries of feedstock and intermediate products to and between our processing facilities. Transportation of refined products represents third-party services to deliver our products to customers and comprises expenses primarily related to railway and pipeline transportation as well as usage of trucks and port facilities (see “Transportation Tariffs” in the “Certain Factors Affecting Our Results of Operations” section).

Our transportation expenses rose 21.6% to RR 33,918 million in 2011 from RR 27,904 million a year ago. As a percentage of total revenues transportation expenses amounted to 13.6% and 14.8% in 2011 and 2010, respectively. The increase was mainly attributable to higher transported volumes and to the growth in railway transportation tariffs set by the FTS (see “Transportation Tariffs” in the “Certain Factors Affecting Our Results of Operations” section). Depending on a product, increases in effective average railway transportation tariffs for our refined products ranged from 8% to 12% for domestic routes and from 7% to 53% for international deliveries due to changes in transportation distances and also reduced discounts on tariffs for export deliveries of LPG from the Tobolsk production site. The growth in transportation tariffs was partially offset by the development of our own NGL transportation infrastructure in order to lower our transportation expenses.

The following table presents our effective tariffs for rail transportation of selected products on key directions for the years ended 31 December 2011 and 2010:

As of 31 December

2011 2010 Change, %

RR per ton Domestic Export Domestic Export Domestic Export LPG 2,750 4,043 2,447 2,638 12.4% 53.3% Naphtha 1,877 2,865 1,684 2,660 11.5% 7.7% MTBE 2,323 2,979 2,072 2,622 12.1% 13.6%

Energy Energy costs primarily comprise expenses associated with purchases of electric power and heat. In 2011, energy expenses increased by 15.4% year-on-year to RR 28,950 million from RR 25,086 million in 2010. The growth was primarily attributable to increases in electricity and heat tariffs (see “Electricity and Heat Tariffs” in the “Certain Factors Affecting Our Results of Operations” section) on almost flat volumes. As a percentage of total revenues, energy costs declined to 11.6% in 2011 from 13.3% a year ago.

87 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents data on our energy costs for the years ended 31 December 2011 and 2010:

Year ended 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 energy 2010 energy % Electricity 19,185 66.3% 16,924 67.5% 13.4% Heat 6,057 20.9% 5,528 22.0% 9.6% Fuel 1,727 6.0% 803 3.2% 115.0% Other 1,981 6.8% 1,831 7.3% 8.2% Total energy costs 28,950 100.0% 25,086 100.0% 15.4%

Staff Costs In 2011, staff costs decreased by 3.1% year-on-year to RR 22,091 million from RR 22,798 million in 2010. The decrease was mainly attributable to long-term incentive program (LTI) compensations of RR 3,335 million reported in 2010, while in 2011 they were nil. Net of LTI compensations, staff costs increased by 13.5% year-on-year due to higher social taxes as a result of an increase in social tax rate to 34% in 2011 from 26% in 2010, and an average monthly salary increase by approximately 13.7%. In 2010, the management made a decision to pay higher bonuses to employees as an additional incentive since there were no bonuses in 2009 due to the financial crisis and poor market conditions. This mitigated staff cost growth in 2011 versus 2010. Average headcount remained at approximately 30,620 employees in 2011, unchanged from 2010 despite business scale growth, thanks to business structure optimization and centralization of management functions.

Goods for Resale In 2011, expenses related to purchases of goods for resale increased by 117.3% year-on-year to RR 15,516 million from RR 7,141 million in 2010. As a percentage of total revenues, goods for resale increased to 6.2% in 2011 from 3.8% in 2010. The growth is explained by higher volumes of SIBUR’s trading activities, which enable us to consolidate sales volumes and strengthen market positions in our core products. They also enable us to earn attractive cash margins with no associated growth in fixed costs. In particular, in October 2011, we changed the format of our cooperation with OOO NPP Neftekhimia, our JV with OAO Moskovsky NPZ, from processing to direct purchasing of polypropylene for further resale. Additionally, we sell monomers produced by us to third-parties for processing into synthetic rubbers, which we buy for further resale.

Depreciation and Amortization In 2011, depreciation and amortization expenses increased by 38.3% year-on-year to RR 8,216 million from RR 5,940 million in 2010. The increase was attributable to launch of new production facilities as well as purchases of new IT and other licenses primarily related to SIBUR’s supply chain management and IT upgrade programs. As a percentage of total revenues depreciation and amortization increased marginally to 3.3% in 2011 from 3.2% in 2010.

Services Provided by Third Parties Services provided by third parties comprise legal, audit and consulting fees, as well as services related to environmental and industrial safety, R&D, design and engineering, security expenses and third party processing services. Processing services represent services we obtain from other petrochemical producers to process our feedstock into intermediates or refined products, which we subsequently use for production of higher value-added products or resell. Our decision to use such services depends on existing agreements, market trends, logistical issues and shortages of our own capacities.

88 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Third-party services costs increased by 5.9% year-on-year to RR 6,899 million in 2011 from RR 6,516 million in 2010, decreasing as a percentage of total revenues to 2.8% in 2011 from 3.5% in 2010. The decline as a percentage of total revenues was primarily attributable to lower processing costs due to a change in our cooperation with OOO NPP Neftekhimia from processing to direct purchasing of polypropylene for further resale.

Repairs and Maintenance In 2011, repairs and maintenance expenses increased by 40.2% year-on-year to RR 4,077 million from RR 2,909 million in 2010. The growth was primarily attributable to repair works, which were suspended during the global economic crisis, higher share of repair services provided by third-party contractors, which enabled SIBUR to optimize staff costs, and additions of new capacities both organically and through acquisitions. As a percentage of total revenues repairs and maintenance expenses increased to 1.6% in 2011 from 1.5% in 2010.

Rent Expenses Rent expenses primarily represent rental of rolling stock for transportation of NGL and LPG, as SIBUR rents specialized tankers and rail cars as well as general purpose rail cars. Rent expenses also include lease payments for land plots. In 2011, rent expenses increased by 14.3% year-on-year to RR 2,581 million from RR 2,258 million in 2010, which was attributable to growth in leased rolling stock by 1,131 tankers and rail cars (to 6,652 as of 31 December 2011 from 5,521 as of 31 December 2010) and higher rental rates. As a percentage of total revenues rent expenses decreased to 1.0% in 2011 from 1.2% in 2010.

Taxes Other Than Income Tax Taxes other than income tax mainly include land tax and property tax. In 2011, taxes increased by 103.6% year-on-year to RR 1,543 million from RR 758 million in 2010, primarily due to higher land taxes as we purchased several land plots occupied by our strategic production facilities and higher property tax as new taxable properties were put in operation in both 2011 and 2010.

Charity and Sponsorship In 2011, expenses related to charity and sponsorship increased to RR 1,051 million from RR 159 million in 2010, growing to 0.4% of sales from 0.1% of sales. SIBUR plays an active role in local communities in regions of our operations. In 2011, we initiated a number of new social programs and humanitarian projects in Western Siberia, Nizhny Novgorod and St. Petersburg regions where we are implementing strategic investment projects. This includes investments in regional infrastructure, sports, education and medicine.

Marketing and Advertising Marketing and advertising costs mainly comprise corporate sponsorships of leading Russian and regional football, hockey, basketball and volleyball teams in Moscow, Nizhny Novgorod, St. Petersburg and regional leagues in Western Siberia, in addition to the Caterham F1 team. This helps to strengthen SIBUR’s corporate brand visibility and positions us as an active promoter of Russian sports both nationally and in the regions where we operate. In 2011, marketing and advertising costs increased by 80.0% year-on-year to RR 783 million in 2011 from RR 435 million in 2010. As a percentage of total revenues, marketing and advertising expenses increased to 0.3% in 2011 from 0.2% in 2010.

Impairment of Property, Plant and Equipment In 2010, as a result of our regular impairment test SIBUR reported an impairment charge of RR 426 million. RR 293 million of this impairment charge was associated with SIBUR’s program to optimize our gas transportation infrastructure by selling or decommissioning certain unutilized or non-core gas pipelines. The remaining amount relates to a write-down provision on the outdated compressor equipment at one of our synthetic rubber production sites.

89 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Change in WIP and Refined Products Balances In 2011, we recorded a reversal of RR 5,668 million to our operating expenses compared to a reversal of RR 1,638 million in 2010, which is related primarily to growth in balances of refined products and higher cost of such refined products. In 2011, our inventory balance of refined products increased primarily due to change of our marketing and distribution strategy in basic polymers and synthetic rubbers, which implied elimination of intermediaries to get direct access to customers. This resulted in higher inventory and goods-in-transit balances at the end of 2011 as it increased average transportation distance and required accumulation of stock at our regional warehouses to ensure that we have sufficient quantities to meet customer demands. Another material factor was deliberate accumulation of inventory balances in several products in line with market conditions with the view of achieving better selling terms later in 2012. In particular, we intentionally increased inventory balance of natural gas and certain types of synthetic rubbers. Our volumes of refined product balances fluctuate from period to period depending on market conditions, changes in marketing and distribution strategy, as well as logistical constraints. They also tend to increase in the periods of completion of our major investment projects, which may trigger substantial inventory accumulation.

Operating Profit As a result of factors discussed above, our operating profit increased by 51.4% year-on-year to RR 78,453 million from RR 51,812 million in 2010. Our 2011 operating margin totaled 31.6% compared to 27.5% a year ago.

Finance Income / (Expense) In 2011, we reported a net finance expense in the amount of RR 4,415 million compared to a net finance income of RR 1,052 million in 2010. This is primarily due to a non-cash foreign exchange loss recorded in 2011 as opposed to a foreign-exchange gain in 2010.

The following table presents data on our finance income/(expense) for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Millions of Russian roubles except as stated 2011 2010 % Interest income 2,142 3,271 (34.5%) Interest expense (2,524) (3,292) (23.3%) Foreign exchange (loss)/gain (3,660) 352 n/m Other finance (expense) / income (373) 721 n/m Total finance (expense)/income (4,415) 1,052 n/m

Interest income decreased by 34.5% year-on-year to RR 2,142 million in 2011 from RR 3,271 million in 2010. Interest income is primarily related to bank deposits as well as loans provided to our joint ventures or partners, including the divested mineral fertilizers and tires businesses, OOO RusVinyl, the Group’s 50/50 joint venture with SolVin Holding NL BV and OAO Polief. At the end of 2011, SIBUR changed its approach to the financing of RusVinyl’s investment program, which now is being reported as an equity contribution as opposed to previous reporting as loans issued. Additionally, SIBUR acquired control over OAO Polief in October 2011. This is expected to reduce the amount of outstanding loans provided to joint ventures in 2012 and hence decrease our interest income.

Interest expense decreased by 23.3% year-on-year to RR 2,524 million in 2011 from RR 3,292 million in 2010. The decrease was mainly attributable to lower market interest rates as well as a change in SIBUR’s debt structure as the Group refinanced debt with cheaper borrowings where possible. Our weighted average interest rates decreased to 6.8% on RR-denominated loans in 2011 from 7.5% in 2010, on US-dollar denominated borrowings to 3.2% in 2011 from 4.8% in 2010, and on Euro-denominated loans to 3.0% from 5.9% in 2010. The decrease in interest rates more than compensated growth in the outstanding debt, which increased by 41.2% year-on-year. 90 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

In 2011, we recorded a net foreign exchange loss in the amount of RR 3,660 million compared to a net foreign exchange gain of RR 352 million in 2010, primarily due to the revaluation of our USD-denominated debt. The Russian rouble depreciated by 5.6% against the US dollar during 2011 compared to Russian rouble depreciation of 0.8% in 2010.

Other finance expenses amounted to RR 373 million in 2011 compared to other finance income of RR 721 million in 2010. This is primarily associated with certain non-recurring finance gains recorded in 2010, such as gains on restructured liabilities and reversal of financial guarantees after full debt repayment.

Gain on Acquisition of Subsidiaries In 2011, we recognized a gain on acquisition of subsidiaries in the amount of RR 4,957 million. This was mainly attributable to re-measurement of previously held interest in OAO Polief and OOO National Polymers and also re-measurement of loans and notes receivable from OAO Polief, which were impaired in 2009 (see Note 4 to the audited combined financial information for the years ended 31 December 2011 and 2010 for further details).

Share of Net Income in Joint Ventures In 2011, our share of net income in joint ventures increased by 118.5% year-on-year to RR 236 million from RR 108 million in 2010. The increase was primarily associated with the results of OOO NPP Neftekhimia, a polypropylene producer. OOO NPP Nefterkhimia is our 50/50 JV with OAO Moskovsky NPZ, which was set up in September 2010 in order to increase our share on the Russian polypropylene market.

Impairment of Notes and Other Receivables In 2011, we recognized RR 1,731 million in impairment provision on notes and other receivables. This charge relates to receivables from Amtel Group recognized by SIBUR in the course of Amtel Group’s bankruptcy.

(Loss) / Gain on Disposal of Subsidiaries In 2011, SIBUR recorded RR 380 million in loss on disposal of subsidiaries as opposed to a gain of RR 16 million recorded in 2010. This is associated with disposals of ZAO Novokuybyshevskaya Neftekhimicheskaya Kompaniya and OAO Saranskiy zavod RTI.

Income Tax Expense In 2011, our income tax expense increased by 27.0% year-on-year to RR 15,561 million from RR 12,251 million in 2010. Our effective tax rate (total income tax expense as a percentage of our profit before income tax) totaled 20.2% in 2011 compared to 23.1% in 2010. The Russian statutory income tax rate for both periods was 20%. The difference between our effective and statutory tax rates is attributable to certain non-deductible expenses and/or non-taxable income.

Gain from Discontinued Operations In 2011, SIBUR recorded RR 1,240 million in gain from discontinued operations, which primarily relates to the disposal of OAO Kirov Tyre Plant.

Profit for the Year and Profit Attributable to Shareholders of SIBUR In 2011, our profit for the year increased by 54.2% year-on-year to RR 62,799 million from RR 40,737 million in 2010. Net margin totaled 25.3% in 2011 compared to 21.6% in 2010. Profit attributable to shareholders of SIBUR amounted to RR 62,829 million in 2011, an increase of 54.1% from RR 40,783 million in 2010.

91 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Liquidity and Capital Resources Cash Flow The following table presents data on our net cash flows for the years ended 31 December 2011 and 2010:

Year ended 31 December Change Millions of Russian roubles except as stated 2011 2010 % Net cash from operating activities, including 54,181 51,431 5.3% Operating cash flows before working capital changes 84,484 60,148 40.5% Changes in working capital (11,926) 3,953 n/m Income tax paid (18,377) (12,670) 45.0% Net cash (used in) investing activities, including (41,290) (50,809) (18.7%) Purchase of property, plant and equipment (55,553) (39,423) 40.9% Proceeds from disposal of the mineral fertilizers and tires businesses(1) 33,023 - n/m Other (18,760) (11,386) 64.8% Net cash (used in) financing activities (12,526) (204) 6,040.2% Effect of exchange rate changes on cash and cash equivalents (810) 152 n/m

Net (decrease)/increase in cash and cash equivalents (445) 570 n/m

Net Cash from Operating Activities In 2011, our net cash from operating activities increased by 5.3% year-on-year to RR 54,181 million from RR 51,431 million in 2010. Operating cash flows before working capital changes grew by 40.5% year-on-year to RR 84,484 million compared to RR 60,148 million in 2010 on the back of strong operational performance as discussed above. This growth was largely offset by a negative effect of changes in working capital and higher income tax paid.

The following table presents data on changes in working capital for the years ended 31 December 2011 and 2010:

Year ended 31 December

Millions of Russian roubles except as stated 2011 2010 Decrease in trade and other receivables 322 3,692 (Increase) in prepayments and other current assets (5,092) (1,713) (Increase) in inventories (7,327) (1,294) (Decrease) in trade and other payables (502) (126) Increase in taxes payable 673 3,394 Changes in working capital (11,926) 3,953

(1) Net of related income tax of RR 4,295 million 92 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Our net working capital totaled RR 32,405 million as of 31 December 2011 compared to RR 15,099 million as of 31 December 2010 and RR 23,317 million as of 31 December 2009(1) (see Appendix III for further details).

In 2011, changes in working capital had a negative impact on SIBUR’s cash flow from operating activities in the amount of RR 11,926 million (the reported revenue increase totaled RR 60,097 million or 31.9% year-on-year) compared to a net positive effect of RR 3,953 million in 2010(2) (the reported revenue increase totaled RR 60,763 million or 47.5% year-on-year).

The year-on-year movements in net working capital for the past two years were impacted by several non-recurring factors in both 2010 and 2011 that resulted in a sharp decrease in net working capital balance and working capital days at the end of 2010 and in an unusual increase in net working capital balance and working capital days at the end of 2011, as discussed below.

The decrease in net working capital position at the end of 2010 was primarily attributable to changes in Russian tax legislation related to reimbursement of VAT and a more than 50% decrease in trade receivable days: — During 2010, SIBUR changed its VAT reimbursement procedures from “permissive” to “notifying” in line with the tax regime changes, which came into effect as of 1 January 2010. This resulted in a substantially shorter period of VAT reimbursement (on average, VAT reimbursement days decreased to 6 days in 2010 from 16 in 2009(2)), which reduced overall net working capital balance as of 31 December 2010. Throughout 2010, SIBUR applied a conservative treatment of VAT reimbursement rights by recording full amounts of VAT payable and VAT receivable until a confirmation of the reimbursement right was received.

— Trade receivables decreased as we significantly improved collection of receivables from both domestic and export customers. In particular, export discipline was achieved thanks to the integration of SIBUR’s export trading firm SIBUR International GmbH (formerly Citco Waren-Handelsgesellshaft m.b.H. ), which was acquired in 2009 to eliminate SIBUR’s reliance on third-party intermediaries. As a result of these efforts, trade receivable days decreased by more than half to approximately 18 days in 2010 from approximately 39 in 2009(2).

The above factors resulted in an improvement of working capital days to approximately 29 days in 2010 from 67 in 2009(2).

The 2011 increase in net working capital was partially attributable to SIBUR’s growing business scale, while there also were several non-recurring factors that negatively affected our working capital turnover. These factors comprised significantly higher inventory, a substantial decrease in payables to employees and the consolidation of OAO Polief.

— Inventory of refined products increased primarily due to the change of our marketing and distribution strategy in basic polymers and synthetic rubbers, as we took out third-party intermediaries to get direct access to customers. While this is expected to have a positive impact on both our competitive positions and selling terms in the future, it resulted in higher inventory and goods-in-transit balances at the end of 2011, as discussed in the “Change in WIP and Refined Products Balances” subsection above. This, combined with deliberate increases in inventory balances of several products, led to higher inventory days, which increased to approximately 33 in 2011 from 24 in 2010(2).

— Payables to employees decreased in 2011 as SIBUR fully settled its obligations under the terminated long-term incentive program and paid higher bonuses to employees as an additional incentive since there were no bonuses in 2009 due to the financial crisis. As a result, days of payables to employees decreased to approximately 6 in 2011 from 13 in 2010.

(1) Absolute change in working capital as recorded in the statement of financial position is not equal to the change in working capital recorded in the statement of cash flows as it includes non-cash items

(2) Calculated using items of the statement of financial position at the end of respective period

93 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

— SIBUR acquired full control of OAO Polief in October 2011 and began consolidating its results as of 1 November 2011. Consequently, our 2011 financial statements reflect the full amount of OAO Polief’s working capital as of 31 December 2011 but only two months of the acquired company’s revenues. This consolidation effect caused SIBUR’s working capital turnover to increase by approximately 3 days(1).

The above factors were the primary contributors to the reported increase of working capital days to approximately 48 in 2011 from 29 in 2010(2). While this represents a deterioration year-on-year, the underlying trend in working capital was positive with a significant improvement compared to the approximately 67 working capital days in 2009(2).

Our net working capital balance may fluctuate from period to period due to factors within or outside our control, such as market conditions, our tactical marketing initiatives in response to changes in market conditions, logistical constraints as well as completion of major investment projects, which could require substantial inventory accumulation.

Net Cash Used in Investing Activities In 2011, our net cash used in investing activities decreased by 18.7% year-on-year to RR 41,290 million from RR 50,809 million in 2010. This is mainly the result of the following key factors: growth in capital expenditures (purchase of PP&E) to RR 55,553 million from RR 39,423 million in 2010; growth in loans issued to RR 41,968 million from RR 5,507 million in 2010; growth in cash spent on acquisition of interest in joint ventures to RR 12,650 million in 2011 from RR 3,366 million in 2010; proceeds received in 2011 from the disposal of the mineral fertilizers and tires businesses in the amount of RR 33,023 million (net of related income tax of RR 4,295 million) and dividends received in 2011 from the disposed mineral fertilizers and tires businesses in the amount of RR 6,921 million.

Growth in capital expenditures was attributable to the implementation of our strategic investment projects as described in the “Capital Expenditures” section.

Growth in loans issued is primarily explained by several loans in the total amount of RR 34,250 million provided to ZAO Miracle for a partial refinancing of ZAO Miracle’s borrowings obtained for the acquisition of SIBUR’s shares. Loans to ZAO Miracle were eliminated as inter-company in November 2011, when SIBUR acquired 100% control of ZAO Miracdle (see Appendix I for further details).

Growth in cash spent on acquisition of interest in joint ventures was attributable to the contribution of RR 12,650 million to the share capital of OOO RusVinyl, our joint venture with SolVin Holding NL B.V. for financing of RusVinyl’s investment program.

In 2011, net cash proceeds from the disposal of the mineral fertilizers and tires businesses amounted to RR 33,023 million, which is equivalent to RR 37,318 million of cash proceeds received in 2011 net of related income tax of RR 4,295 million paid by SIBUR in 2011. In addition to cash proceeds from the disposal of the mineral fertilizers and tires businesses, SIBUR also received RR 6,921 million in dividends from the divested businesses (see Appendix II for further details).

Net Cash Used in Financing Activities In 2011, our net cash used in financing activities increased to RR 12,526 million from RR 204 million in 2010. This was attributable to higher amounts of debt repaid compared to proceeds from new borrowings. At the same time, SIBUR’s debt increased, which is explained by the assumption of ZAO Miracle’s debt at SIBUR’s acquisition of ZAO Miracle as described in Appendix I.

(1) The consolidation of OAO Polief to a smaller extent affected SIBUR’s cash flow from operating activities due to adjustments, which eliminated the consolidation effect described above

(2) Calculated using items of the statement of financial position at the end of respective period

94 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Net cash used in financing activities was positively affected by grants and subsidies received by SIBUR from various regional budgets. As a major investor in infrastructure and social projects in the regions of its operations, SIBUR has signed cooperation agreements with a number of regional authorities, including investment and financial support agreements, within which the Group is entitled to partially refund capital expenditures incurred in the respective regions subject to certain conditions, including investments in business and social infrastructure and local payment of income taxes. Total grants received under such agreements amounted to RR 13,632 million and RR 6,339 million in 2011 and 2010, respectively.

Capital Expenditures In 2011, the Group’s capital expenditures increased by 40.9% year-on-year to RR 55,553 million compared to RR 39,423 million in 2010, as we are making substantial investments in development of both our feedstock & energy and petrochemical businesses in line with our strategic objectives.

The following table presents data on our capital expenditures and key investment projects for the years ended 31 December 2011 and 2010:(1)

Millions of Russian roubles except as stated Year ended 31 December

Location Description 2011 2010 Feedstock & energy Transportation infrastructure development Leningrad region Greenfield construction of an LPG and light oils trans-shipment facility at Ust- 6,432 2,766 Luga sea port Noyabrsk Construction of an NGL railway loading rack and an NGL storage facility 3,077 1,903 Western Siberia Reconstruction of an NGL pipeline connecting Belozerniy and 970 462 Nizhnevartovskiy GPPs with Yuzhno-Balykskaya main pumping station Western Siberia Construction of an NGL pipeline between Gubkinskiy and Muravlenkovskiy 959 1,128 GPPs Western Siberia Construction of an NGL pipeline between Purovskiy gas condensate plant 553 158 (GCP), Yuzhno-Balykskaya main pumping station and the Tobolsk production site Western Siberia Purchase of 1,600 railway carriers for LPG transportation 437 3,002

Gas processing capacity modernization and expansion Noyabrsk Construction of Vyngapurovskiy GPP on the basis of Vyngapurovskaya 1,639 679 compressor station Nizhnevartovsk Construction of a third compressor station at the Nizhnevartovsk GPP’s site 1,931(1) 23(1) Pyt-Yakh Construction of a new gas processing unit at Yuzhno-Balykskiy GPP 920 459 Gubkinskiy Reconstruction of a low temperature condensation unit at Gubkinskiy GPP 20 329

Gas fractionation capacity modernization and expansion Tobolsk Modernization and expansion of gas fractionation capacity of the existing 416 276 GFU. Construction of a new GFU Petrochemicals Tobolsk Greenfield construction of a polypropylene complex 22,463 7,083 Perm Construction of an expandable polystyrene production capacity 1,379 1,246 Kstovo Reconstruction of an ethylene cracker 1,240 494 Voronezh Construction of a thermoplastic elastomers production plant 1,015 215 Perm Construction of a new ethyl benzene production line and reconstruction 415 2,083 of a styrene production line

(1) Including TNK-BP’s share of financing

95 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Feedstock & Energy In 2011, we continued to invest in the development of our transportation infrastructure and expansion of our feedstock processing capacity to strengthen our competitive positions and further consolidate growing feedstock flows in Western Siberia and also optimize our energy products distribution and sales.

Transportation infrastructure development Greenfield construction of an LPG trans-shipment facility at Ust-Luga sea port In 2011, SIBUR continued the implementation of one of its key infrastructure development projects - construction of an LPG trans-shipment facility in the Leningrad region with an annual storage and loading capacity of 1.5 million metric tons of LPG and 2.5 million metric tons of light oils per annum. The project is aimed to support growth in LPG exports to premium Western European markets. As of 31 December 2011, the project was 30% completed with the engineering works 89% finalized, the equipment delivery contracts with the principal suppliers signed, the contractors for main construction stages selected and 25% of construction works carried out. The commercial launch of the project is scheduled for 2013. SIBUR estimates its total investment in the project at RR 21,239 million net of VAT(1), including RR 6,432 million spent in 2011.

Development of transportation infrastructure in Western Siberia SIBUR is implementing several logistical projects in Western Siberia. They are aimed to ensure a reliable and uninterrupted transportation of hydrocarbon feedstock from areas of production to downstream facilities. In parallel we seek to form a unified transportation infrastructure, which will link SIBUR’s key gas processing plants to all major feedstock providers by gas and product pipelines. Construction of railway loading racks at key intersections of this pipeline network will provide us with additional flexibility in choosing transportation means and routes.

Construction of an NGL railway loading rack and an NGL storage facility in Noyabrsk The railway loading rack in Noyabrsk with an annual shipment capacity of up to 1.3 million metric tons of NGL was put into operation in November 2011. Total capital expenditures amounted to RR 6,662 million net of VAT, including RR 3,077 million spent in 2011.

Reconstruction of an NGL pipeline between Belozerniy GPP, Nizhnevartovskiy GPP and Yuzhno-Balykskaya main pumping station

This pipeline was put into operation in September 2011. Total capital expenditures amounted to RR 4,670 million net of VAT, including RR 970 million spent in 2011.

Construction of an NGL pipeline between Gubkinskiy and Muravlenkovskiy GPPs The NGL pipeline between Gubkinskiy and Muravlenkovskiy GPPs was put into operation in December 2011. Total capital expenditures amounted to RR 2,955 million net of VAT, including RR 959 million spent in 2011.

Construction of an NGL pipeline between Purovskiy gas condensate plant (GCP), Yuzhno-Balykskaya main pumping station and the Tobolsk production site

SIBUR plans to finalize construction of 1,100 km NGL pipeline connecting Purovskiy GCP, Yuzhno-Balykskaya main pumping station and the Tobolsk production site in 2015. We plan to invest RR 69,135 million in total (net of VAT), including RR 553 million spent in 2011.

(1) This and other capital expenditure estimates are based on the latest approved budgets. These numbers may change along the project implementation 96 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Purchase of 1,600 railway carriers for LPG transportation During 2010 - 2011, we purchased 1,600 railway carriers for LPG transportation in order to further reduce our dependence on third-party carrier providers and optimize our transportation costs. Total capital expenditures amounted to RR 3,484 million net of VAT, including RR 437 million spent in 2011.

Gas processing capacity expansion Construction of Vyngapurovskiy GPP on the basis of Vyngapurovskaya compressor station In 2011, SIBUR continued the transformation of the Vyngapurovskaya compressor station into a GPP. We are targeting an increase in APG processing capacity by 750 million cubic meters per annum and an improvement of the liquids recovery ratio from 56% to 99%. This will result in the expansion of the GPP’s NGL production capacity by 390 thousand metric tons per annum to 640 thousand metric tons per annum. The project is scheduled for completion by the end of 2012. Total capital expenditures on the project are estimated at RR 4,760 million net of VAT, including RR 1,639 million spent in 2011.

Construction of a third compressor station at the Nizhnevartovsk GPP’s site In 2011, SIBUR continued the construction of a third compressor station at its Nizhnevartovsk gas processing site, which is part of SIBUR’s JV with TNK-BP OOO Yugragazpererabotka. The station will compress up to 760 million cubic meters of APG annually, which shall facilitate an increase in APG processing volumes at the Nizhnevartovsk GPP to 6.2 billion cubic meters annually and result in an increase in production of NGL by 190 thousand metric tons to 1,640 thousand metric tons per annum and in production of dry gas by 670 million cubic meters to 5,450 million cubic meters per annum. The project is scheduled for completion by the end of 2012. It is jointly financed by SIBUR and TNK-BP on a pro-rata basis. Total capital expenditures on the project are estimated at RR 2,728 million net of VAT(1), including RR 1,931 million spent in 2011(1).

Construction of a new gas processing unit at Yuzhno-Balykskiy GPP The project is aimed at the expansion of the GPP’s NGL production capacity by 120 thousand metric tons per annum through construction and launch of a new gas processing unit. The project is scheduled for completion by the end of 2012. Total capital expenditures on the project are estimated at RR 2,112 million net of VAT, including RR 920 million spent in 2011.

Reconstruction of a low temperature condensation unit at Gubkinskiy GPP The project is aimed at the expansion of the GPP’s NGL production capacity by 130 thousand metric tons per annum through improvement of the liquids recovery ratio from 74% to 99%. The project was completed in the fourth quarter of 2010. Total capital expenditures on the project amounted to RR 1,407 million net of VAT, including RR 20 million of post-financing in 2011.

Gas fractionation capacity expansion Modernization and expansion of gas fractionation capacity in Tobolsk In 2011, SIBUR completed modernization of its central GFU at the Tobolsk production site, increasing the GFU’s NGL fractionation capacity from 3.4 to 3.8 million metric tons per annum. Capital expenditures on the project totaled RR 333 million net of VAT, including RR 79 million spent in 2011.

In addition, we are in the process of constructing a new GFU at the Tobolsk production site, which will raise our overall NGL fractionation capacity in Tobolsk to 6.6 million metric tons per annum. The project is scheduled for completion by the end of 2014. SIBUR estimates its total capital expenditures on the project at RR 13,564 million net of VAT, including RR 337 million spent in 2011.

(1) Including TNK-BP’s share of financing

97 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Petrochemicals In 2011, we continued to execute our growth strategy in the petrochemical business through implementation of investment projects aimed at substantial expansion of production capacities.

Greenfield construction of a polypropylene complex in Tobolsk In 2011, we made substantial progress in construction of Tobolsk-Polymer, one of our key investment projects in basic polymers. Tobolsk-Polymer is a petrochemical complex in Tobolsk, which is designed to produce propylene through propane dehydrogenation and consequently produce 500 thousand metric tons of polypropylene per annum. As of 31 December 2011, the project was 84% completed, moving on schedule to start commercial operations in 2013. Project documentation was finalized, large-size equipment was delivered to the Tobolsk site, while construction works were 55% complete. We estimate our total capital expenditures on Tobolsk-Polymer at RR 59,311 million net of VAT, including RR 22,463 million spent in 2011.

Tobolsk-Polymer is on the state top-priority project list in the region. It aims to satisfy Russia’s growing demand for basic polymers and shall enable SIBUR to monetize vast hydrocarbon resources of Western Siberia through production of polypropylene.

Construction of an expandable polystyrene production capacity in Perm In 2011, we continued construction of an expandable polystyrene production facility at our production site in Perm with an annual capacity of 100 thousand metric tons. At the end of 2010, the first production line of 50 thousand metric tons per annum was completed and started pilot production. In December 2011, the line was put into commercial operation. The construction of the second line of the same capacity is in progress and is expected to be launched in 2012. We estimate total capital expenditures on the project at RR 4,127 million net of VAT, including RR 1,379 million spent in 2011.

Reconstruction of an ethylene cracker in Kstovo In 2011, SIBUR continued reconstruction of an ethylene cracker in Kstovo. The project is targeted at expansion of the pyrolysis capacity from 240 to 360 thousand metric tons per annum and is scheduled for completion in 2013. We estimate our total capital expenditures on the project at RR 9,351 million net of VAT, including RR 1,240 million spent in 2011.

Construction of a new thermoplastic elastomers production capacity in Voronezh In early 2011, we initiated construction of a new thermoplastic elastomers production facility with an annual capacity of 50 thousand metric tons at our synthetic rubber complex in Voronezh. The project is aimed at satisfaction of the growing domestic market for butadiene-styrene thermoplastic elastomers. The project is scheduled for completion in the first half of 2013. We estimate our total capital expenditures on the project at RR 3,904 million net of VAT, including RR 1,015 million spent in 2011.

Construction of ethyl benzene and styrene production capacities in Perm In December 2010, SIBUR completed construction of a styrene production line with an annual capacity of 135 thousand metric tons at its production site in Perm. In December 2011, we also completed construction of an ethyl benzene production line with an annual capacity of 220 thousand metric tons at the same site. These production lines will provide feedstock for our expandable polystyrene production capacity, which is being constructed at the Perm production site, as well as other SIBUR’s capacities that use styrene as feedstock. We estimate our total capital expenditures on styrene and ethyl benzene production lines at RR 4,501 million net of VAT, including RR 415 million spent in 2011.

98 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Greenfield construction of a polyvinyl chloride (PVC) production plant in the Nizhny Novgorod region In 2011, we took an active part in the implementation of the RusVinyl investment project, which is being implemented by our 50/50 joint venture with SolVin Holding NL B.V. The plant is designed to have an annual capacity of 330 thousand metric tons of PVC and 225 thousand metric tons of caustic soda. As of 31 December 2011, the project was more than half way through to completion with the design of the project 92% finalized, the equipment and procurement stage 79% completed and 20% of construction works carried out. Commercial start-up of the project is planned for 2014.

RusVinyl is on the state top-priority project list in the region and is primarily aimed at satisfaction of domestic demand for PVC and import-substitution in the context of PVC capacities bottleneck in Russia. Total capital expenditures on construction of the plant are estimated at RR 47,889 million, 50% of which will be financed by the partners on a pro-rata basis, while the remaining 50% will be financed through debt. In the audited combined financial information, SIBUR’s contribution to the share capital of the JV in the total amount of RR 13,371 million was recorded as an investment in joint ventures as of 31 December 2011.

Borrowings As of 31 December 2011, the Group’s total debt amounted to RR 82,910 million compared to RR 58,698 million as of 31 December 2010, an increase of RR 24,212 million or 41.2% year-on-year. The maturity and currency profile of our debt portfolio improved in line with our financial policy objectives.

The increase in the outstanding debt was primarily attributable to changes in shareholder structure and, to a smaller extent, by additional long-term borrowings to finance our capital expenditure program, as described below: — In September 2011, SIBUR raised funds to provide ZAO Miracle, a company controlled by Mr. Leonid Mikhelson, with several long-term loans for a partial repayment of ZAO Miracle’s bank debt obtained for the acquisition of SIBUR’s shares. Additionally, SIBUR’s acquisition of ZAO Miracle in November 2011 resulted in assumption of ZAO Miracle’s outstanding debt to third-parties (see Appendix I for further details). Increases in SIBUR’s debt related to ZAO Miracle were largely compensated by the disposals of mineral fertilizers and tires businesses, as discussed in Appendix II, as cash proceeds from the disposals received in 2011 we used for debt repayment. Furthermore, in 2011, in accordance with the shareholders’ decision, SIBUR did not pay dividends for 2010 in order to maximize cash available to SIBUR for debt repayment.

— In the course of funding our capital expenditure program, in 2011, we increased debt under our VEB project finance facility to fund the Tobolsk-Polymer construction project by a US-dollar equivalent of RUR 12,240 million. We also increased borrowings from leading international banks under ECA-backed credit facilities by RUR 1,443 million used for purchases of services and equipment for our investment projects.

As of 31 December 2011, all of our debt was unsecured with the exception of a US-dollar equivalent of RUR 13,718 million outstanding under the Tobolsk-Polymer project finance facility as of 31 December 2011. The financing is primarily secured by OOO Tobolsk-Polymer shares and property, plant and equipment.

99 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents our total debt position as of 31 December 2011 and 2010:

As of 31 December

Millions of Russian roubles except as stated Currency Due 2011 2010

Variable rate loans UniCredit Bank, Germany EUR 2013-2019 858 187 ZAO UniCredit Bank USD 2011 - 2,845 ING Bank, Amsterdam EUR 2013-2019 495 424 ING Bank, Amsterdam USD 2013-2019 134 - ING Bank, Frankfurt EUR 2008-2014 431 557 OAO Nordea Bank EUR 2011-2012 - 1,940 OAO Nordea Bank USD 2015-2016 6,439 - OAO Nordea Bank USD 2013-2014 4,807 4,550 OAO Vnesheconombank USD 2013-2023 13,718 1,478 AKB Rosbank USD 2013 4,829 - OAO Sberbank of Russia RR 2012 3,000 - ING Bank RR 2012 4,500 - Credit Agricole RR 2012 3,000 - HSBC Bank plc USD 2012 2,415 - ING Bank EUR 2012 278 - Raiffeisen Bank USD 2012 4,829 - ING Bank, Frankfurt EUR 2011-2021 567 -

Fixed rate loans Russian rouble denominated bonds RR 2012 31 31 Gazprombank EUR 2013 - 9,199 OOO Mezhregiongaz RR 2011-2014 3,970 4,511 OOO Mezhregiongaz RR 2012 577 - TNK-BP USD 2017 2,753 2,688 TNK-BP RR 2017 558 558 TNK-BP RR 2013 1,234 352 OAO Sberbank of Russia USD 2011-2013 - 6,095 OAO Sberbank of Russia RR 2012-2014 18,000 - OOO NPP Neftekhimia RR 2012 500 - TransCreditBank RR 2012 2,900 - Citibank International USD 2012 431 - Credit Swiss RR 2012 1,500 - Kommerz Investments (Moscow) RR 2011 - 20,032 Other RR/USD 2011-2031 156 3,251 Total borrowings 82,910 58,698

Our financial policy aims to maintain a diversified debt portfolio with a sound balance of fixed and floating interest rate instruments and a currency split that to a large extent matches our revenue mix. We also target improvements in our debt maturity profile.

100 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

The following table presents scheduled maturities of our outstanding debt as of 31 December 2011 and 2010:

As of 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 borrowings 2010 borrowings %

Due for repayment: Within one year 31,194 37.6% 30,166 51.4% 3.4% Between one and two years 16,364 19.7% 4,633 7.9% 253.2% Between two and five years 22,636 27.3% 20,974 35.7% 7.9% After five years 12,716 15.3% 2,925 5.0% 334.7% Total borrowings 82,910 100.0% 58,698 100.0% 41.2%

The following table presents currency split of our outstanding debt as of 31 December 2011 and 2010:

As of 31 December

% of total % of total Change Millions of Russian roubles except as stated 2011 borrowings 2010 borrowings %

Denominated in: Russian rouble 39,911 48.1% 28,666 48.8% 39.2% Euro 2,629 3.2% 12,307 21.0% (78.6%) US Dollar 40,370 48.7% 17,725 30.2% 127.8% Total borrowings 82,910 100.0% 58,698 100.0% 41.2%

USD-denominated debt as a percentage of total borrowings increased from 30.2% in 2010 to 48.7% in 2011, mainly as a result of the new draw-down under the Tobolsk-Polymer project finance facility in the amount equivalent to RUR 12,240 and new USD-denominated borrowings from leading international banks. We also reduced EUR-denominated debt as a percentage of total from 21.0% in 2010 to 3.2% in 2011.

The following table presents our key liquidity and credit ratios as of 31 December 2011 and 2010:

Year ended 31 December

2011 2010

Liquidity ratios Current ratio 1.39x 1.10x Debt to equity 0.50x 0.51x Debt/EBITDA 0.96x 1.00x Net debt(1)/EBITDA 0.78x 0.74x EBITDA/Interest 34x 18x

SIBUR’s financial policy is to maintain a net debt to EBITDA ratio of no higher than 2.5x and EBITDA to interest ratio of no lower than 7x. These objectives are stricter than bank covenants stipulated in some of our credit agreements. As of 31 December 2011, our net debt to EBITDA ratio was 0.78x compared to 0.74x at the end of 2010. EBITDA to interest ratio was 34x and 18x for 2011 and 2010, respectively.

(1) Net debt is calculated as total debt less cash and cash equivalents 101 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

As of 31 December 2011, SIBUR had access to an equivalent of RR 66.7 billion of undrawn credit facilities denominated in Russian roubles, US dollars and euro, both short- and long-term, of which RR 52.5 billion were committed. These facilities are more than sufficient to cover our short-term liquidity needs.

Management considers the Group to have a strong financial position, supported by robust internal cash generation and sustainable access to external financing. These resources enable the Group to finance its capital expenditure needs, while meeting its debt and other obligations in a timely manner.

102 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Appendix I: Changes in Ownership Structure In the period from December 2010 to March 2011, ZAO Miracle, a company owned by Dellawood Holdings Ltd. and ultimately controlled by Mr. Leonid Mikhelson, acquired a 50% stake in SIBUR from the non-state pension fund Gazfund, which had controlled SIBUR directly and through OAO Gazprombank since 2008. The first 25% were acquired on 23 December 2010, while the remaining 25% were acquired on 2 March 2011. The transactions received all the required regulatory approvals.

The above acquisitions were primarily financed through bank debt. In September 2011, SIBUR issued several loans in the total amount of RR 34,250 million to ZAO Miracle for a partial repayment of ZAO Miracle’s borrowings. This resulted in an identical increase in SIBUR’s net debt position.

As a result of several transactions that took place between September and November 2011, Dellawood Holdings, a parent company of ZAO Miracle, became an owner of 100% in SIBUR, including direct ownership of 50% plus one share and indirect ownership (through ZAO Miracle) of the remaining 50% minus one share. In November 2011, Dellawood Holdings Ltd. was renamed to Sibur Limited.

Also, in November 2011, SIBUR acquired 100% control of ZAO Miracle from Sibur Limited. As a result, SIBUR assumed 100% of ZAO Miracle’s outstanding third-party debt in the amount of RR 38,885 million, while the Group’s loans to ZAO Miracle were eliminated as inter-company. Simultaneously, we recognized ZAO Miracle’s stake of 50% minus one share in SIBUR as treasury shares. In December 2011, SIBUR fully repaid all the outstanding bank debt of ZAO Miracle.

In February 2012, ZAO Miracle was formally merged into SIBUR in accordance with the Russian legislation. As a result, treasury shares were cancelled and Sibur Limited became our 100% direct owner.

103 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Appendix II: Disposal of Mineral Fertilizers and Tires Businesses In December 2011 we disposed of the Group’s mineral fertilizers and tires businesses in a series of transactions: — 100% control of OAO SIBUR Mineral Fertilizers was sold to the Siberian Business Union Holding Company.

— A 51.22% stake in OAO Mineralnye Udobrenia, Perm was sold to URALCHEM Holding.

— 100% control of OAO SIBUR-Russian Tires was sold to a group of investors including the management and the former CEO of SRT.

Total net distributions from and contributions to the disposed businesses were recognized within equity in the combined financial information for the years ended 31 December 2011 and 2010.

Total consideration of the transactions amounted to RR 45,907 million. This amount comprises: RR 33,023 million in net cash proceeds from the disposals received in 2011, RR 8,589 million in receivables of cash proceeds from the disposals received in January 2012 and RR 4,295 million in income tax paid by SIBUR in 2011. Cash proceeds from the disposals received in 2011 were used for repayment of SIBUR’s debt.

SIBUR is also entitled to dividends from the disposed businesses in the amount of RR 7,499 million. Of this amount, RR 6,921 million were received in 2011 and the remaining RR 578 million were reported as receivables. Additionally, in December 2011, before the disposal, OAO SIBUR-Russian Tires purchased from SIBUR SRT’s convertible bonds issued in 2009, which resulted in a positive distribution of RR 4,981 million to SIBUR. As a result of the disposal of OAO SIBUR- Russian Tires, SIBUR was also released from a financial guarantee in the amount of RR 4,140 million on OAO SIBUR- Russian Tires’ external debt.

The following table presents net distributions and contributions from and to the shareholders of mineral fertilizers and tires businesses for the years ended 31 December 2011 and 2010:

Year ended 31 December

Millions of Russian roubles except as stated 2011 2010 Proceeds from disposal of mineral fertilizers and tires businesses net of related income tax RR 4,295 million 33,023 - Receivables for disposed businesses 8,589 - Deferred income tax related to disposal of mineral fertilizers and tires businesses 1,650 - Sale/(purchase) of equity instruments of mineral fertilizers and tires businesses 4,981 (6,000) Dividends from the disposed businesses 7,499 - Other distributions/(contributions) from/(to) disposed businesses (2,868) (1,878) Net distributions / (contributions) from/(to) disposed businesses 52,874 (7,878)

104 Management’s Discussion and Analysis SIBUR Annual Review 2011 of Financial Condition and Results of Operations

Appendix III: Net Working Capital SIBUR’s net working capital position takes into account trade receivables net of advances from customers; inventory balances of refined products, goods for resale, feedstock and materials; VAT balance; trade payables net of prepayments and advances to suppliers; payables to employees; and other assets and liabilities listed in the table below.

The following table presents detailed calculation of our net working capital position as of 31 December 2011, 2010 and 2009: As of 31 December

Millions of Russian roubles except otherwise stated 2011 2010 2009 Trade receivables including advances from customers 11,047 9,350 13,721 Trade receivables 14,816 12,485 14 565 Advances from customers (3,769) (3,135) (844) Finished goods and materials 22 187 12,651 11,472 Refined products 14,805 7,082 6 077 Materials and supplies 6,781 5,379 4 767 Goods for resale 601 190 628 VAT balance 5 535 3,303 5,750 VAT receivable 4,567 3,404 2 272 Recoverable VAT 3,384 3,906 4 310 VAT (2,416) (4,007) (832) Trade payables including prepayments (1 531) (1,954) (938) Prepayments and advances to suppliers 5,142 3,163 2 620 Trade payables (6,673) (5,117) (3 558) Payables to employees (4 059) (6,919) (4,736) Long-term payables to employees - (1,016) - Payables to employees (4,059) (5,903) (4 736) Other assets and liabilities (774) (1,332) (1,952) Other prepaid taxes 1,367 1,018 413 Recoverable excise 1,275 593 692 Other current assets 646 198 223 Post-employment obligations (1,296) (1,242) (833) Other non-financial liabilities (177) (251) (427) Other payables (217) (214) (602) Excise tax (1,061) (536) (661) Property tax (227) (202) (201) Unified social tax (235) (121) (154) Other taxes (849) (575) (402) Total working capital 32,405 15,099 23,317

105 Additional SIBUR Annual Review 2011 Information

Abbreviations

APG Associated petroleum gas IR Polyisoprene rubber

One stock tank barrel, LDPE Low-density polyethylene barrel or 42 US gallons of liquid volume LPG Liquefied petroleum gas bbl Barrel(s) mcm Million cubic meters bcm Billion cubic meters MTBE Methyl tertiary butyl ether BOPP-films Biaxially oriented polypropylene films NBR Nitrile-butadiene rubber BR Polybutadiene rubber NGL Natural gas liquids CIF Cost, Insurance and Freight PE Polyethylene DAF Delivered At Frontier

FOB Free On Board PET Polyethylene terephthalate

FTS Federal Tariff Service PP Polypropylene

GCP Gas condensate plant PVC Polyvinyl chloride

GFU Gas fractionation unit RR Russian rouble

GPP Gas processing plant SBR Styrene-butadiene rubber

IIR Butyl rubber UGSS Unified Gas Supply System

Disclaimer The information contained herein pertaining to SIBUR (the “Company”) has been provided by the Company solely for information purposes. By reading this Annual Review, you agree to be bound by the limitations set out below.

The material contained in this Annual Review is presented solely for information purposes and is not to be construed as providing investment advice. As such, it has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It should not be regarded by recipients as a substitute for the exercise of their own judgment.

There may be material variances between estimated data set forth in this Annual Review and actual results, and between the data set forth in this Annual Review and corresponding data previously published by or on behalf of the Company.

This Annual Review contains forward-looking statements, including (without limitation) statements, based on the current expectations and projections of the Company about future events and are subject to change without notice. All statements, other than statements of historical fact, contained herein are forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties, such that future events and actual results may differ materially from those set forth in, contemplated by or underlying such forward-looking statements. The Company may not actually achieve or realize its plans, intentions or expectations. There can be no assurance that the Company’s actual results will not differ materially from the expectations set forth in such forward-looking statements. Factors that could cause actual results to differ from such expectations include, but are not limited to, the state of the global economy, the ability of the petrochemical sector to maintain levels of growth and development, risks related to petrochemical prices and regional political and security concerns. The above is not an exhaustive list of the factors that could cause actual results to differ materially from the expectations set forth in such forward-looking statements. The Company and its Affiliates are under no obligation to update the information, opinions or forward-looking statements in this Annual Review.

106 Additional Information SIBUR Annual Review 2011

Contact Information

Legal Address 5/A Galernaya St. St. Petersburg, 190000 tel./fax: +7 (812) 347 7777

Office in Moscow 16/1 Krzhizhanovskogo St. Moscow, GSP-7, 117997 tel./fax: +7 (495) 777 5500 www.sibur.com

Media Center Anna Lebed-Lastukhina International Media Relations tel.: + 7 (495) 937 1726 [email protected]

Investor Relations Anna Kareva Director tel.: +7 (495) 777-55-00 (*34-20) [email protected]

107 International Financial Reporting Standards Combined Financial Information and Independent Auditor’s Reportr’s Report

31 December 2011

108 ZAO SIBUR HOLDING IFRS COMBINED STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

Notes 31 December 31 December 31 December 2011 2010 2009 Assets Non-current assets 6 Property, plant and equipment 150,502 101,662 75,881 7 Goodwill 6,697 6,697 6,272 8 Investments in joint ventures 18,118 5,810 3,086 27 Deferred income tax assets 10,380 1,409 135 9 Advances and prepayments for capital construction 32,858 26,511 14,472 10 Loans receivable 638 4,947 5,674 11 Trade and other receivables 335 4,224 2,313 12 Other non-current assets 3,432 2,653 2,304 222,960 153,913 110,137 Current assets 13 Inventories 22,187 12,651 11,472 11 Trade and other receivables 20,965 21,024 15,166 11 Receivables for disposed businesses 11,368 - - Prepaid current income tax 3,025 1,007 474 14 Prepayments and other current assets 20,749 13,439 10,355 10 Loans receivable 911 10,299 9,804 15 Cash and cash equivalents 14,971 15,416 14,846 5 Assets classified as held for sale 5,993 2,802 - 100,169 76,638 62,117 Total assets 323,129 230,551 172,254 Liabilities and equity Non-current liabilities 16 Long-term debt 51,716 28,532 29,663 17 Grants and subsidies 19,549 7,286 947 27 Deferred income tax liabilities 8,110 3,993 2,931 18 Non-current trade and other payables 6,512 6,716 2,335 85,887 46,527 35,876 Current liabilities 20 Short-term debt and current portion of long-term borrowings 31,194 30,166 25,217 19 Current trade and other payables 29,973 31,357 20,557 Income tax payable 5,286 2,696 2,188 21 Taxes other than income tax payable 4,788 5,441 2,250 5 Liabilities associated with non-current assets classified as held for sale 667 - - 71,908 69,660 50,212 Total liabilities 157,795 116,187 86,088 22 Equity Shareholders of the Parent net investment 163,911 113,692 85,710 23 Non-controlling interest 1,423 672 456 Total equity 165,334 114,364 86,166 Total liabilities and equity 323,129 230,551 172,254

D.V. Konov A.N. Filippovskiy Chief Executive Officer Chief Financial Officer 28 April 2012 28 April 2012 The accompanying notes on pages 6 to 56 are an integral part of this combined financial information.

2 ZAO SIBUR HOLDING IFRS COMBINED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

Notes Year ended 31 December 2011 2010 2009 Continuing operations 24 Revenue 248,660 188,563 127,800 25 Operating expenses (170,207) (136,751) (106,256) Operating profit 78,453 51,812 21,544 26 Finance income 2,910 5,622 8,045 26 Finance expenses (7,325) (4,570) (9,638) 4 Gain on acquisition of subsidiaries 4,957 - - 8 Share of net income (loss) of joint ventures 236 108 (88) 11,4 Impairment of notes and other receivables (1,731) - (3,262) 5 (Loss)/gain on disposal of investments (380) 16 3,514 Profit before income tax 77,120 52,988 20,115 27 Income tax expense (15,561) (12,251) (3,964) Profit from continuing operations 61,559 40,737 16,151 5 Gain from discontinued operations 1,240 - -

Profit for the year 62,799 40,737 16,151

Profit attributable to: 23 Non-controlling interest (30) (46) (53) Shareholders of the parent 62,829 40,783 16,204 Other comprehensive loss after tax: Actuarial loss on post-employment benefit obligations (94) (311) (207) Other comprehensive loss for the year (94) (311) (207) Total comprehensive income for the year from continuing operations 61,465 40,426 15,944 Total comprehensive income for the year 62,705 40,426 15,944 Comprehensive income attributable to: 23 Non-controlling interest (30) (46) (53) Shareholders of the parent 62,735 40,472 15,997

The accompanying notes on pages 6 to 56 are an integral part of this combined financial information.

3 ZAO SIBUR HOLDING IFRS COMBINED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

Year ended 31 December Notes 2011 2010 2009 28 Cash from operating activities of continuing operations before 72,558 64,101 21,122 income tax payment Income tax paid from continuing operations (18,377) (12,670) (1,019) Net cash from operating activities of continuing operations 54,181 51,431 20,103

Net cash from operating activities 54,181 51,431 20,103 Purchase of property, plant and equipment (55,553) (39,423) (24,934) 10,3 Loans issued (41,968) (5,507) (8,333) 228 Acquisition of interest in joint ventures (12,650) (3,366) (1,750) Purchase of listed equity securities held for trading at fair value through profit and loss (2,050) - - Acquisition of interest in subsidiaries, net of cash acquired (3,433) (1,205) (8,192) 5 Proceeds from disposal of subsidiaries, net of cash disposed 1,110 749 - Repayment of loans and notes receivable 17,008 6,551 9,107 Decrease /(increase) in other non-current assets, net 137 (642) (28) 5 Settlement/(purchase) of receivables 3,081 (4,205) (1,917) Proceeds from sale of property, plant and equipment 5,946 1,489 574 Dividends received 6,921 - 1,344 22 Proceeds from disposal of Mineral Fertilizers and Tires businesses net of related income tax of RR 4,295 33,023 - - Decrease in short-term deposits - - 21,879 Restricted cash for investment activities - - 8,833 8 Refund of contingent consideration - 750 - Repayment/(purchase) of equity instruments of Tires business 4,981 - (4,981) Investment in share capital of tires business - (6,000) - Cash used in investing activities of continuing operations (43,447) (50,809) (8,398) Cash from investing activities of discontinued operations 2,157 - - Cash used in investing activities (41,290) (50,809) (8,398) Proceeds from issue of common shares - - 9,000 Proceeds from long-term debt 43,298 14,019 49,452 Repayment of long-term debt (63,137) (11,257) (41,224) Proceeds from short-term debt 84,135 90,092 21,370 Repayment of short-term debt (81,798) (88,298) (32,058) 17 Grants and subsidies 13,632 6,339 225 Treasury shares sale 6,984 - - Interest received 757 1,154 1,083 Prepaid borrowing costs (37) (3,701) - Proceeds from issue of promissory notes - - 5,000 Repayment of promissory notes and loans (13,129) (392) - Interest paid (3,509) (3,706) (5,238) Dividends paid to the Company's shareholders - (4,612) (8,760) Settlement of forward and option contracts - - (4,688) Other 278 158 66 Cash used in financing activities of continuing operations (12,526) (204) (5,772) Net cash used in financing activities (12,526) (204) (5,772) Effect of exchange rate changes on cash and cash equivalents (810) 152 133 Net (decrease)/increase in cash and cash equivalents (445) 570 6,066 Cash and cash equivalents, at the beginning of the reporting year 15,416 14,846 8,780 Cash and cash equivalents, at the end of the reporting year 14,971 15,416 14,846

The accompanying notes on pages 6 to 56 are an integral part of this combined financial information.

4 ZAO SIBUR HOLDING IFRS COMBINED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

Shareholders of the Parent Non- net controlling Total Notes investment interest Equity Balance as of 31 December 2008 64,831 487 65,318 Profit for the year 16,204 (53) 16,151 Actuarial loss on post employment benefit obligations (207) - (207) Comprehensive income for the year 15,997 (53) 15,944 Acquisition of shares in subsidiaries - 22 22 Share issue 9,000 - 9,000 Net contributions/distributions from/to shareholders of Mineral 22 Fertilizers and Tires businesses (4,118) - (4,118) Balance as of 31 December 2009 85,710 456 86,166 Profit for the year 40,783 (46) 40,737 Actuarial loss on post employment benefit obligations (311) - (311) Comprehensive income for the year 40,472 (46) 40,426 Acquisition of shares in subsidiaries - 285 285 Disposal of shares in subsidiaries - (23) (23) Dividends (4,612) - (4,612) Net contributions/distributions from/to shareholders of Mineral 22 Fertilizers and Tires businesses (7,878) - (7,878) Balance as of 31 December 2010 113,692 672 114,364 Profit for the year 62,829 (30) 62,799

Actuarial loss on post employment benefit obligations (94) - (94) Comprehensive income for the year 62,735 (30) 62,705 Acquisition of subsidiaries - 781 781 22 Disposal of treasury shares 6,984 - 6,984 22 Acquisition of treasury shares (72,374) - (72,374) Net contributions/distributions from/to shareholders of Mineral 22 Fertilizers and Tires businesses 52,874 - 52,874 Balance as of 31 December 2011 163,911 1,423 165,334

The accompanying notes on pages 6 to 56 are an integral part of this combined financial information.

5 ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

1 NATURE OF OPERATIONS

ZAO “SIBUR Holding” (the “Company”) and its subsidiaries (together referred to as the “Group”) form a vertically integrated petrochemicals business. The Sibur Group purchases raw materials (primarily associated petroleum gas and natural gas liquids), and produces and markets energy and petrochemical products domestically and internationally. This combined financial information of the Company and its subsidiaries excludes those engaged in the activities of the Mineral Fertilizers and Tires businesses. The Group represents the Petrochemical and Feedstock & Energy segments as disclosed in consolidated financial statements of Sibur Group. The Group’s productions facilities are located in the Russian Federation. From 24 June 2008 the non-state pension fund “Gazfund” through OAO “Gazprombank” (“Gazprombank”) was the Group’s ultimate parent. In December 2010, JSC “Miracle”, a company owned by Dellawood Holdings Ltd. and ultimately controlled by Mr. L.V.Mikhelson, acquired rights to a 50 percent stake in the Company from the previous owners. This acquisition was subject to antimonopoly approval. The first 25 percent was acquired on 23 December 2010, while the remaining 25 percent was acquired on 2 March 2011 upon receipt of approval. On 24 January 2011, the Company changed its legal form from an open joint-stock company (OAO) to a closed joint-stock company (ZAO). In September 2011, Mr L.V. Mikhelson became the Group’s controlling shareholder with the acquisition of 9,141 additional shares in the Company by JSC “Miracle”, thus increasing its ownership stake in ZAO “SIBUR Holding” to 50.02 percent. In October 2011, Dellawood Holdings Ltd. acquired the remaining 49.98 percent stake in the Company. In November 2011, Dellawood Holdings Ltd. was renamed to Sibur Limited and acquired 0.02 percent in the Company from JSC “Miracle” which resulted in 100 percent ownership in the Company including direct ownership of 50 percent plus one share and an indirect ownership (through JSC “Miracle”) of 50 percent less one share. Also, in November 2011, the Company acquired a 100 percent in JSC “Miracle” from Sibur Limited. As a result, the Company recognized 50 percent less one share stake in ZAO “SIBUR Holding” as treasury shares (Note 22). In February 2012, JSC “Miracle” was formally merged into ZAO “SIBUR Holding” under Russian law, which resulted in the Company redeeming its treasury shares and Sibur Limited becoming the sole direct owner of the Company.

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation. This combined financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRIC interpretations except as described below. Most of the Group companies maintain their accounting records in Russian Roubles (“RR”) and prepare their statutory financial statements in accordance with the Federal Law on Accounting (“RAR”). The financial information is based on the statutory records, with adjustments and reclassifications recorded for the purpose of fair presentation in accordance with IFRS. The combined financial information comprises an aggregation of amounts included in the financial information of ZAO “SIBUR Holding” and its subsidiaries relating to the activities of the Petrochemical and Feedstock reportable segments of Sibur Group. The principal entities included within the combined financial information are shown in Note 31. During the first quarter 2011, the Group announced its intention to sell its Mineral Fertilizers business and Tires business. These businesses were disposed by the Group in December 2011 (Note 22). The combined financial information excludes those businesses. The balances and financial results of the following key subsidiaries of Sibur Group are excluded from this combined financial information:

6

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Effective percentage of share capital held by Sibur Group as of 31 December 31 December 31 December Tires business: Type of activity 2011 2010 2009 Holding company, tires sale OAO “Sibur-Russian Tires” activity - 100 100 OAO “Yaroslavsky Tire Plant” Tires production - 91 91 OAO “Sibur-Volzhskiy” Tire cords production - 100 100 OOO “Uralsk Tire Plant” Tires production - 100 100 OAO “Voltair-Prom” Tires production - 95 95 OAO “Omskshina” Tires production - 85 85 OAO “Volzhskiy Airnitrogen Plant” Chemical products - 95 95 Mineral Fertilizers business: OAO “SIBUR-Mineral Holding company, mineral Fertilizers” fertilizers sale activity - 100 100 Mineral fertilizers and caprolactam OAO “AZOT”, Kemerovo production - 89 89 OAO “Mineralnye Udobreniya, Perm” Mineral fertilizers production - 511 511 1 includes potential voting rights interest of 48 percent The combined financial information is prepared on a combined basis by aggregating the results, assets and liabilities of Petrochemical and Feedstock & Energy businesses of Sibur Group by applying the principals underlying the consolidation procedures of IAS 27 and IAS 27R as at and for the years ended 31 December 2011, 2010 and 2009. The following summarises the accounting and other principles applied in preparing the combined financial information.  The combined financial information is presented under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.  The combined financial information excludes the balances, results of operations and cash flows and related disclosures of entities and operations included into Mineral Fertilizers and Tires businesses as described above.  Any funding, investments in or dividends received from the excluded entities have been recorded within movements in equity (Note 22).  Proceeds/payments (including current and deferred taxes) related to disposal of Mineral Fertilizers and Tires businesses received/accrued during the period of the combined financial information have been recorded within movements in equity (Note 22).  Transactions and balances between entities included within the combined financial information have been eliminated. Transactions and balances with the entities not combined into the Group and under the control of the key shareholders have been classified as related party transactions and details of such transactions and balances are included in Note 32.  The combined financial information was prepared on the assumption that transactions related to purchasing of raw materials by the Group with subsequent re-selling to Mineral fertilizers/Tires businesses will continue after disposal of the businesses by Sibur Group and corresponding purchases and sales have been included within the combined statement of comprehensive income and classified as related party transactions up to the moment of disposal in Note 32.

7

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Historically the Company has not recharged corporate costs of the Group’s management company to any of the underlying businesses. No adjustment has been made to the combined financial information to reflect any amount which might be viewed to be attributable to the excluded entities.  The results of the Group presented for the period might have been different had the entities excluded from combined financial information operated without control of the Company throughout the period, and thus the results are not necessarily indicative of those of future periods.  Tax charges in this combined financial information have been determined based on the tax charges recorded by the Group companies in their local statutory accounts. The tax charges recorded in the combined information of comprehensive income may not necessarily be representative of the charges that may arise in the future.  Cash flows relating to transactions recorded within equity are presented as cash flows from operating, investing and financing activities according to their nature. The preparation of combined financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the combined financial information are disclosed in Note 3. The principal accounting policies applied in the preparation of this combined financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Consolidation procedures. For the purpose of this combined financial information subsidiaries, related to the activities of Feedstock & Energy and Petrochemical reportable segments of Sibur Group as describe above, are those companies and other entities (including special purpose entities) in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies so as to obtain benefits. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are included into combined financial information from the date on which control is transferred to the Group (acquisition date) and are excluded from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognized in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity.

8

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Purchases of subsidiaries from parties under common control. Purchases of subsidiaries from parties under common control are accounted for using the purchase accounting method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are recycled to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate. Assets and disposal groups classified as held for sale. Assets and disposal groups (which may include both non- current and current assets) are classified in the statement of financial position as “assets classified as held for sale” if their carrying amount will be recovered principally through a sale transaction (including loss of control of a subsidiary holding the assets) within twelve months after the reporting period and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. Non-current assets or disposal groups classified as held for sale in the current period’s statement of financial position are not reclassified or re-presented in the comparative statement of financial position to reflect the classification at the end of the current period. Property, plant and equipment. Property, plant and equipment are stated at cost, restated to the equivalent purchasing power of the Russian Rouble as of 31 December 2002 for assets acquired prior to 1 January 2003, less accumulated depreciation and provision for impairment, where required. Costs of minor repairs and maintenance are expensed when incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalized when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably and the replaced part is retired and derecognized. Gains and losses on disposals determined by comparing proceeds with carrying amount are recognized in profit or loss. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Depreciation. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives: Useful lives in years Buildings 20-100 Facilities 10-50 Machinery and equipment 5-30 Transport and other 5-20 The useful lives are reviewed annually taking into consideration the nature of the assets, existing practices regarding repairs and maintenance of the assets, their intended use and the evolution of technology. The change of useful lives of property, plant and equipment is handled as a change in accounting estimate and is accounted for on a prospective basis. The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The residual value of an asset is assumed to be nil if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

9

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Leases. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit and loss on a straight-line basis over the period of the lease. The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group carries substantially all the risk and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payment. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. Intangible assets. (a) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in “intangible assets”. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses, if any. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment. (b) Acquired licences are shown at historical cost. Licences have a finite useful life from 1 to 10 years and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives. Annually at each reporting date management assesses whether there is any indication of impairment of intangible assets. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell. (с) Customer relationships acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have a finite useful life of 8 years and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship. Impairment of non-financial assets. Assets that have an indefinite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered the impairment are reviewed for possible reversal of the impairment at each reporting date. Investments in joint ventures. Joint ventures are entities over which the Group exercises joint control. Investments in joint ventures are accounted for by the equity method of accounting and are initially recognized at cost. The carrying amount of joint ventures includes goodwill identified on acquisition less accumulated impairment losses, if any. The Group’s share of post-acquisition profit or loss of joint ventures is recorded in profit or loss for the year as share of net income of joint ventures. The Group’s share of post-acquisition other comprehensive income of joint ventures is recognized in the Group’s other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

10

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loans and receivables. Loans and receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method amount less provision made for impairment of these receivables. Amortized cost is the amount at which the financial instrument was recognized at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortization of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortized discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortized over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Inventories. Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses. Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortized cost using the effective interest method. Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under the contract and are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Provisions for liabilities and charges. Provisions for liabilities and charges are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there is a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are reassessed at each reporting date and changes in the provisions are reflected in the profit or loss within operating expenses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. Value added tax. Output value added tax (VAT) related to sales is payable to tax authorities upon the earlier of (a) collection of the receivables from customers and (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases which have not been settled at the reporting date (VAT recoverable and VAT payable) is recognized on a gross basis and disclosed separately as current asset and short-term liability, while VAT related to the long-term portion of restructured liabilities is included within non- current assets. Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT. The related VAT liability is maintained until the debtor is written off for tax purposes.

11

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Grants and subsidies. Grants and subsidies are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Grants and subsidies relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the profit or loss: a) on a straight-line basis over the expected lives of the related assets or b) in full amount when the assets are sold. Borrowings. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and presented as prepaid borrowing costs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Capitalization of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalized as part of the costs of those assets, if the commencement date for capitalization is on or after 1 January 2008. Capitalization of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalized are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalized. Equity. As this combined financial information has been prepared on a combined basis, it is not meaningful to show share capital or analysis of reserves. Therefore, amounts which reflect the carrying value of investments of the Group’s companies were aggregated and disclosed as “Equity”, while carrying value of net assets attributable to shareholders other than the Group were presented as “Non-controlling interest”. Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity until the equity instruments are reissued, disposed of or cancelled. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included back in equity. Dividends. Dividends are recognized as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. Dividends are disclosed when they are declared after the reporting date but before the financial information is authorised for issue. Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interest. The Group recognizes the difference between the purchase consideration and the carrying amount of non-controlling interest acquired and records it as a capital transaction directly in equity. Any the difference between sales consideration and carrying amount of non-controlling interest sold is also recognized as a capital transaction in the statement of changes in equity. Current and deferred income tax. Income taxes have been provided for in the combined financial information in accordance with Russian legislation enacted or substantively enacted by the reporting date. The income tax charge or credit comprises current tax and deferred tax and is recognized in profit or loss unless it is recognized in other comprehensive income or directly in equity because it relates to transactions that are recognized, in the same or different period in other comprehensive income or directly in equity.

12

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than income tax are recorded within operating expenses. Deferred income tax is recognized using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that there are sufficient taxable temporary differences or that it is probable that future taxable profit will be available against which the deductions can be utilized. The Group controls reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal. The Group does not recognize deferred tax liabilities on such temporary differences except to the extent that Management expects the temporary differences to reverse in the foreseeable future. Post-employment obligations. Some Group companies provide post-retirement benefits to their retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. Revenue recognition. Revenues from sales of goods are recognized for financial reporting purposes at the point of transfer of risks and rewards of ownership, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognized when the goods are passed to the customer at the destination point. Sales are shown net of VAT, excise taxes and other similar compulsory payments. Revenues are measured at the fair value of the consideration received or receivable. Interest income is recognized on a time-proportion basis using the effective interest method. Classification of financial assets. The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as financial assets at fair value through profit or loss. Assets in this category are classified as current assets as they are expected to be settled within twelve months. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the profit or loss within finance income and finance expense in the period in which they arise. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date. These are classified as non-current assets. The Group’s loans and receivables comprise trade and other receivables, loans and notes receivable and cash and cash equivalents in the statement of financial position. (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date.

13

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Classification of financial liabilities. Financial liabilities have the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognized in profit or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortized cost. Recognition and measurement of financial assets. Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method. The fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is reclassified from other comprehensive income to profit or loss for the year. Impairment losses on equity instruments are not reversed through the profit or loss. Impairment of financial assets carried at amortized cost. Impairment losses are recognized in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and the realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:  any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;  the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains;  the counterparty considers bankruptcy or a financial reorganisation;  there is an adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty; or  the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. If the terms of an impaired financial asset held at amortized cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are always recognized through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

14

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account within the profit or loss for the year. Foreign currency transactions. The functional currency of each of the Group’s entities included into combined financial information is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and most of its subsidiaries, and the Group’s presentation currency, is the national currency of the Russian Federation, Russian Roubles (“RR”). Monetary assets and liabilities, which are held by the Group entities as of 31 December 2011, 2010 and 2009 and denominated in foreign currencies, are translated into RR at the exchange rate prevailing at that date. Foreign currency transactions are accounted for at the exchange rate prevailing at the date of the transaction. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currency are recognized as exchange gains or losses in the profit or loss. The official US dollar (USD) and Euro to RR exchange rates, as determined by the Central Bank of the Russian Federation are follows: Euro US dollar As at 31.12.2009 43.3883 30.2442 2009 weighted average 44.1299 31.7231 As at 31.12.2010 40.3331 30.4769 2010 weighted average 40.2980 30.3692 As at 31.12.2011 41.6714 32.1961 2011 weighted average 40.8848 29.3874 Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities in future financial reporting periods. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognized in the financial information and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities in future financial reporting periods are as follows: Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations (Note 33). Initial recognition of loans given to and received from related parties. In the normal course of business the Group provides and receives loans with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of loans given to related parties are disclosed in Note 10. Terms and conditions of loans received from related parties are disclosed in Note 16 and 20. Deferred income tax asset recognition. The deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. In determining future taxable profits and

15

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUED) the amount of tax benefits that are probable in the future management makes judgements and applies estimations based on the recent taxable profits and expectations of future income that are believed to be reasonable under the circumstances. Useful lives of property, plant and equipment (PP&E). Items of property, plant and equipment are stated net of accumulated depreciation. The estimation of the useful life of a PP&E item is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, residual value, physical wear and tear and the environment in which the asset is operated. Differences between such estimates and actual results may result in losses in future periods, and changes in any of these conditions or estimates may result in adjustments to future depreciation rates. Estimated impairment of goodwill. The Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units are the higher of their fair value less costs to sell and their value-in-use calculations. These calculations require the use of estimates (Note 7). Estimated impairment of property, plant and equipment (PP&E). Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGU). The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value-in-use calculations which require the estimation of discounted cash flows. The estimation of cash flows and assumptions consider all information available at the year end on the future development of the operating business and may deviate from actual future developments. An impairment charge is the difference between the carrying amount and the recoverable amount of CGU.

4 ACQUISITION OF SUBSIDIARIES

Acquisition of Citco Waren-Handelsgesellschaft m.b.H. In July 2009 the Group acquired 100 percent in share capital of Citco Waren-Handelsgesellschaft m.b.H., for RR 9,708 (EUR 222 million) from a third party. The acquired business contributed revenues of RR 41,838 and net profit of RR 805 to the Group for the period from 2 July 2009 to 31 December 2009. If the acquisition had occurred on 1 January 2009, Group revenue would have been RR 136,045 and profit for year would have been RR 17,053.

The Group is indemnified and held harmless by the seller from and against all and any direct losses, damage, liabilities, penalties, interest or expenses suffered, incurred or paid directly as a result of, in connection with or arising out of any non-compliance with the legislation due to an event or circumstance existing or arising prior to the acquisition date of Citco Waren-Handelsgesellschaft m.b.H. if the seller is responsible for such non-compliance. The Group recognized such indemnification asset at acquisition date at fair a value of zero due to the uncertainty of future cash flows because of collectability considerations. In 2011 Citco Waren-Handelsgesellschaft m.b.H. was renamed to SIBUR International GmbH. The assets and liabilities arising from the acquisition are as follows:

Fair values Cash 1,516 Property, plant and equipment 32 Inventories 3,757 Trade and other receivables 5,490 Trade and other payables (7,359) Net assets 3,436 Group’s share in net assets 100% Purchase consideration 9,708 Goodwill 6,272 Formation of OOO “Plastic-Geosintetika”. In January 2010 the Group received 67% percent in the share capital of the newly established entity OOO “Plastic-Geosintetika” through disposal of construction-in-progress of RR 570. The other investor Venture fund “Leader-innovations”, then a related party, received 33% in share capital of OOO “Plastic-Geosintetika” through cash contribution of RR 300. The Group controls and consolidated this entity.

16

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

4 ACQUISITION OF SUBSIDIARIES (CONTINUED)

Acquisition of OOO “ Novatek-Polymer”. In September 2010, the Group acquired 100 percent of the capital of OOO Novatek-Polymer (renamed to OOO “Biaxplen NK” in December 2010) for a total cash consideration of RR 2,400. After the transaction the seller (OAO “NOVATEK”) became a related party of the Group (Note 32). The acquired subsidiary is one of the largest producers of BOPP-film and polyethylene-based isolating anticorrosive materials in Russia and the CIS countries. This acquisition has created an additional sales channel of basic polymers for the Group. The fair values of the assets and liabilities acquired are based on valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired and goodwill arising are as follows: Attributed fair value Cash and cash equivalents 39 Property, plant and equipment 1,172 Inventory 450 Trade and other receivables 621 Other liabilities (105) Deferred tax liability (63) Fair value of identifiable net assets of subsidiary 2,114 Goodwill arising on acquisition 286 Total purchase consideration 2,400 Less: Account payables for acquisition of subsidiary 1,730 Less: Discount on account payables for acquisition of subsidiary 383 Less: Cash and cash equivalents of subsidiary acquired 39 Outflow of cash and cash equivalents on acquisition 248 The acquired subsidiary contributed revenue of RR 640 and profit of RR 56 to the Group for the period from the date of acquisition to 31 December 2010. If the acquisition had occurred on 1 January 2010, Group revenue for 2010 would have been RR 190,302, and profit for 2010 would have been 40,902. As of 31 December 2011 and 2010 100% of OOO “Novatek-Polymer” shares were pledged until full settlement. Acquisition of transportation infrastructure. In August 2010, the Group acquired a 100 percent of the share capital of ZAO “Promyshleniy capital” and 97 percent of OAO “Tyumenpromgeldotrans” from the group of individuals for a total cash consideration of RR 1,004. The acquired subsidiaries own the transportation infrastructure in Tobolsk region and the aim of acquisition was to secure transportation infrastructure in Tyumen region and to reduce the Group’s transportation. The fair values of assets and liabilities acquired are based on valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired and goodwill arising are as follows: Attributed fair value Cash and cash equivalents 47 Property, plant and equipment 875 Inventory 35 Trade and other receivables 134 Other current assets 46 Loans and borrowings (61) Trade and other payables (72) Deferred tax liability (139) Fair value of identifiable net assets of subsidiaries 865 Less: non-controlling interest - Goodwill arising on acquisition 139 Total purchase consideration 1,004 Less: Cash and cash equivalents of subsidiaries acquired 47 Outflow of cash and cash equivalents on acquisition 957 The acquired subsidiaries contributed revenue of RR 143 and loss of RR 72 to the Group for the period from the date of acquisition to 31 December 2010. If the acquisition had occurred on 1 January 2010, Group revenue for 2010 would have been RR 188,849, and profit for 2010 would have been RR 40,593.

17

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

4 ACQUISITION OF SUBSIDIARIES (CONTINUED)

Acquisition of Acrylate Group. In July 2011 the Group acquired a 100 percent stake in Acrylate Group to enter a new product market. Total consideration was RR 1,673. Acrylate Group is the only producer of acrylic acid in Russia. The fair values of assets and liabilities acquired are based on a valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired are as follows: Fair values Cash and cash equivalents 11 Property, plant and equipment 2,960 Inventory 415 Trade and other receivables 48 Loans and borrowings (61) Trade and other payables (1,221) Other current liability (50) Deferred tax liability (429) Net assets of subsidiary 1,673 Less: Cash and cash equivalents of subsidiary acquired 11 Outflow of cash and cash equivalents on acquisition 1,662 The acquired subsidiary contributed for the period from the date of acquisition to 31 December 2011 revenue of RR 361 and profit of RR 101 to the Group. If the acquisition had occurred on 1 January 2011, Group revenue from continuing operations for 12 months 2011 would have been RR 249,267 and profit from continuing operations for 12 months 2011 would have been RR 61,926. Acquisition of OOO “National Polymers” and OAO “Polief”. In 2005 the Group entered into a joint venture arrangement with ZAO “Lukoil-Neftekhim” to jointly control OOO “National Polymers” and acquire share in OAO “Polief”, a terephthalic acid and polyethylene terephthalate producer, located in Bashkortostan. In June 2011 the Group directly acquired an 18 percent stake in OAO “Polief” from OAO “VTB Bank” for RR 1,554, payable by 2019. This investment was recognized at the acquisition date at a fair value of RR 941, using an 8 percent market interest rate. In October 2011 the Group acquired control over OAO “Polief” by means of increasing its stake in OOO “National Polymers” from 50 to 100 percent for USD 9,003,000 (RR: 283). As a result, the Group increased its ownership in OAO “Polief” to 83 percent including direct ownership of 18 percent and an indirect ownership (through OOO “National Polymers”) of 65 percent. The fair values of the assets and liabilities of OOO “National Polymers” and OAO “Polief” at the acquisition date are based on a valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired and goodwill arising are as follows: Fair values Cash and cash equivalents 248 Property, plant and equipment 11,576 Deferred tax asset 1,183 Inventory 1,601 Trade and other receivables 1,283 Other assets 527 Loans and borrowings (12,050) Trade and other payables (498) Other liabilities (15) Deferred tax liability (205) Net assets of subsidiary 3,650 Less: Non-controlling interest 781 Fair value of interest previously held 1,822 Recognized within gain on acquisition of subsidiaries 764 Total purchase consideration 283 Less: Cash and cash equivalents of subsidiary acquired 248 Outflow of cash and cash equivalents on acquisition 35

18

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

4 ACQUISITION OF SUBSIDIARIES (CONTINUED)

The gain on acquisition of these subsidiaries of RR 764 resulted mainly from the absence of other market participants interested in acquiring OAO “Polief” and OOO “National Polymers”. This gain was recognized within a gain on acquisition of subsidiaries in combined statement of comprehensive income. The acquired subsidiaries contributed for the period from the date of acquisition to 31 December 2011 revenue of RR 1,643 and loss of RR 11 to the Group, respectively. If the acquisition had occurred on 1 January 2011, Group revenue and profit from continuing operations for the 12 months 2011 would have been RR 258,167 and RR 62,411, respectively. As of the date of acquisition, the Group re-measured its previously held interest in OAO “Polief” and OOO “National Polymers” at fair value (Note 8). As a result further RR 877 gain was recognized in the combined statement of comprehensive income in this combined financial information. On acquisition, the Group had loans and notes receivable from OAO “Polief” of RR 4,772, of which a RR 3,316 was impaired during 2009 with respective loss recognized within impairment of notes and other receivables in this combined financial information (Note 10). As of the acquisition date, the Group remeasured loans and notes receivable from OAO “Polief”, and as a result RR 3,316 gain was recognized in the combined statement of comprehensive income within gain on acquisition of subsidiaries.

5 DISPOSAL OF SUBSIDIARIES, ASSETS CLASSIFIED AS HELD FOR SALE AND DISPOSAL OF OTHER SUBSIDIARIES

Amtel Group assets. In 2009-2010 the Group acquired the majority of receivables to be paid by Amtel Group (Note 11). Amtel Group is a tire producer which in 2011 was undergoing bankruptcy. It owned two tire plants: the Kirov tire plant and the Voronezh tire plant.

During August to November 2011 the Group acquired Amtel Group`s subsidiaries OJSC “Kirov Tyre Plant” and essentially all the assets of the Voronezh tire plant in the course of bankruptcy. These acquisitions were not business acquisitions as defined by IFRS 3 Business Combinations; therefore, they were not accounted under the acquisition method of accounting. The funds received by Amtel Group from the partial sale of its assets were used to settle a part of its liabilities, including the receivables acquired by the Group. As a result Amtel Group partially settled the receivables of the Group to an amount of RR 3,081. In 2012 the Group expects to receive RR 3,500 from Amtel Group before Amtel Group bankruptcy procedure is finalized. In December 2011 the Group sold its subsidiary OJSC “Kirov Tyre Plant” which owned the Kirov tire plant`s assets. In February 2012 the Company sold its newly formed subsidiary CJSC “Voronezh Tyre Plant” which owned the Voronezh tire plant assets. Both subsidiaries were disposed to OOO “E-Volution Tyre”, a joint venture of Pirelli Group and “Rostechnologii”, for a total consideration of EUR 222 million (RR: 9,251). The disposed assets and liabilities of OJSC “Kirov Tyre Plant” were as follows: Carrying amounts Assets 2,909 Liabilities 161 Net assets of OJSC “Kirov Tyre Plant” 2,748 The post-tax gain recognized on disposal of OJSC “Kirov Tyre Plant” included in profit from discontinued operations in the combined statement of comprehensive income, was calculated as follows:

19

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

5 DISPOSAL OF SUBSIDIARIES, ASSETS CLASSIFIED AS HELD FOR SALE AND DISPOSAL OF OTHER SUBSIDIARIES (CONTINUED)

Total consideration 4,936 Less: Net assets disposed 2,748 Less: Income tax expense 438 Post-tax gain on disposal of OJSC “Kirov Tyre Plant” 1,750 The assets and liabilities of CJSC “Voronezh Tyre Plant” were included in assets classified as held for sale and liabilities associated with non-current assets classified as held for sale in combined statement of financial position as follows: Carrying amounts Assets 4,621 Liabilities 667 Net assets of CJSC “Voronezh Tyre Plant” 3,954 The Group recognized a pre-tax loss of RR 510 on the remeasurement of CJSC “Voronezh Tyre Plant” net assets to the lower of carrying amount and fair value less selling costs. This loss was included in the results from discontinued operations in the combined statement of comprehensive income. Other assets classified as held for sale. As of 31 December 2011 and 2010 assets classified as held for sale included ZAO “Severnye Gazoprovody”`s and OOO “Yugozapadnye Gazoprovody”`s property, plant and equipment of RR 1,370 and RR 2,802, respectively. In 2012 the Group plans to sell these property, plant and equipment.

Other subsidiaries In June 2010 the Group disposed of all of its shares in its 100% subsidiary OAO “Kauchuk” for a total consideration of RR 758 to Group ROEL. The gain of RR 62 was recognized in the combined statement of comprehensive income as gain from disposal of investments. In April 2011 the Group disposed of all of its shares in 100% subsidiary ZAO “Novokuybyshevskaya Neftekhimicheskaya Kompaniya” for a total consideration of RR 728 to OOO “Nefteorgsintez”. The loss of RR 156 was recognized in the combined statement of comprehensive income as loss from disposal of investments. In June 2011 the Group disposed of all of its shares in 100% subsidiary OAO “Saranskiy zavod RTI” for a total consideration of RR 400 to OAO “Kurskrezinotechnika”. The loss of RR 224 was recognized in the combined statement of comprehensive income as loss from disposal of investments.

20

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

6 PROPERTY, PLANT AND EQUIPMENT

Movements in the net book value of property, plant and equipment were as follows: Machinery and Assets under Buildings Facilities equipment Transport construction Other Total Net book value as of 31 December 2008 9,526 11,886 11,839 5,140 17,140 589 56,120 Depreciation charge (315) (1,089) (2,526) (403) - (90) (4,423) Additions - 5 3,051 5 21,353 104 24,518 Acquisition of subsidiaries - - 32 - - - 32 Reclassifications - - - - 533 - 533 Transfers 927 10,577 1,599 131 (13,462) 228 - Disposals (9) (293) (137) (69) (420) (5) (933) Reversal of write-offs - - - - 34 - 34 Cost as of 31 December 2009 16,033 31,477 28,607 7,046 25,178 1,349 109,690 Accumulated depreciation (5,904) (10,391) (14,749) (2,242) - (523) (33,809) Net book value as of 31 December 2009 10,129 21,086 13,858 4,804 25,178 826 75,881 Depreciation charge (347) (1,590) (3,292) (526) - (98) (5,853) Additions 83 451 924 66 34,224 30 35,778 Acquisition of subsidiaries 459 566 747 146 73 56 2,047 Reclassifications 949 (3,481) 2,532 - - - - Transfers 842 3,549 4,225 2,600 (11,396) 180 - Impairment - (293) - - (133) - (426) Disposal of subsidiaries (332) (163) (150) (114) (72) (10) (841) Disposals (66) (1,052) (4) (34) (956) (10) (2,122) Assets held for sale (Note5) - (646) - - (2,156) - (2,802) Cost as of 31 December 2010 17,678 27,686 36,000 9,485 44,762 1,567 137,178 Accumulated depreciation (5,961) (9,259) (17,160) (2,543) - (593) (35,516) Net book value as of 31 December 2010 11,717 18,427 18,840 6,942 44,762 974 101,662 Depreciation charge (508) (2,063) (3,936) (648) - (202) (7,357) Additions 22 1,465 53 123 47,954 4 49,621 Acquisition of subsidiaries (Note 4) 4,253 1,536 8,187 42 444 74 14,536 Reclassifications (17) 13 (16) 1 - 19 - Transfers 3,186 11,772 8,577 1,232 (25,681) 914 - Disposal of subsidiaries (7) (59) (151) (19) (39) (12) (287) Disposals (312) (1,583) (330) (176) (3,842) (60) (6,303) Assets held for sale (Note 5) - (1,370) - - - - (1, 370) Cost as of 31 December 2011 24,513 39,568 51,623 10,484 63,598 2,465 192,251 Accumulated depreciation (6,179) (11,430) (20,399) (2,987) - (754) (41,749) Net book value as of 31 December 2011 18,334 28,138 31,224 7,497 63,598 1,711 150,502 For 2011 the Group capitalized interest expenses of RR 1,796 (2010: RR 1,080; 2009: RR 1,093) with a capitalization rate of 5.45 percent for 2011 (2010: 6,97 percent; 2009: 8.18 percent).

21

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

7 INTANGIBLE ASSETS

Movements in the net book value of intangible assets were as follows:

Software Goodwill Other licenses Total Net book value as of 31 December 2008 - 746 - 746 Amortization charge - (8) - (8) Acquisition of subsidiary 6,272 - - 6,272 Historic cost as of 31 December 2009 6,272 763 - 7,035 Accumulated amortization - (25) - (25) Net book value as of 31 December 2009 6,272 738 - 7,010 Amortization charge - (8) - (8) Acquisition of subsidiary 425 - - 425 Historic cost as of 31 December 2010 6,697 763 - 7,460 Accumulated amortization - (33) - (33) Net book value as of 31 December 2010 6,697 730 - 7,427 Additions - 484 837 1,321 Amortization charge - (5) (837) (842) Historic cost as of 31 December 2011 6,697 1,247 837 8,781 Accumulated amortization - (38) (837) (875) Net book value as of 31 December 2011 6,697 1,209 - 7,906 Amortization of intangible assets of RR 842 (2010: RR 8, 2009: RR 8) is recorded as operating expenses in the profit and loss. Intangible assets other than goodwill are presented as other non-current assets in the statement of financial position (Note 12). Impairment tests for goodwill Goodwill related to acquisition of SIBUR International GmbH (Citco Waren-Handelsgesellschaft m.b.H. before 2011) is allocated to the Group’s cash-generating units (CGUs) identified according to operating segments (Note 30). An operating segment-level summary of the goodwill allocation is presented below.

31 December 2011 31 December 2010 31 December 2009 Feedstock & Energy 4,020 4,020 3,763 Petrochemical 2,677 2,677 2,509 Total goodwill 6,697 6,697 6,272 The recoverable amount of each CGU segment is the higher of its fair value less selling cost and its value-in-use calculations, and has been determined based on value-in-use calculation. These calculations use pre-tax cash flow projections based on the management-approved four-year financial forecast. Cash flows beyond the four-year period are extrapolated using the estimated growth rates of 3 percent. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. Discount rate of 13 percent and gross margin of 28 percent were used as the key assumptions for value-in-use calculations. Management determined budgeted gross margin based on expectations of market conditions relating to the relevant operating segments. The discount rates used are pre-tax and reflect specific risks relating to the CGU operating activity.

22

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

8 INVESTMENTS IN JOINT VENTURES

31 December 2011 31 December 2010 31 December 2009 OOO “Rusvinyl” 13,371 1,257 1,299 OOO “NPP Neftekhimia” 3,523 3,418 - OOO “Biaxplen” 960 971 1,685 OOO “ITSK” 256 123 71 OOO “Yuzhno-Priobskiy GPZ” 6 25 28 OOO “SNHK” 2 3 3 OOO “Sintez-Invest, Voronezh” n/a 13 - OOO “National Polymers” n/a - - 18,118 5,810 3,086 OOO “RusVinyl”. In June 2007 the Group formed a joint venture OOO “RusVinyl” with “SolVin Holding Netherland B.V.”, controlled by “Solvay SA”, for the construction of a polyvinyl chloride production complex in Nizhny Novgorod Region and contributed RR 1,400 to this joint venture. In August 2011 the Group and “SolVin Holding Nederland B.V.” contributed RR 12,650 each to the share capital of OOO “RusVinyl”. As a result the Group’s ownership share remained unchanged. OOO “NPP Neftekhimia”. In September 2010 the Group entered into a joint venture by acquiring of 50 percent stake in OOO “NPP Neftekhimia” from OAO “Moskovsky NPZ” for a total cash consideration of RR 3,360 to increase the Group’s share on the Russian polypropylene market and guarantee raw materials supplies for Biaxplen Group plants. OOO “Biaxplen”. In December 2009 the Group acquired a 50 percent interest in OOO “Biaxplen”, polyethylene terephthalate producer, for a total net cash consideration of RR 1,000. On 29 March 2012 the Group acquired an additional 50 percent of OOO Biaxplen for a total consideration of RR 1,200 and, as a result, increased the Group’s ownership up to 100 percent. OOO “National Polymers”. In October 2011 the Group increased to 100 percent its stake in OOO “National Polymers”, controlling OAO “Polief” (Note 4). Correspondingly, the Group acquired control over OAO “Polief”. In 2011 the Group disposed of its investments in OOO “Sintez-Invest”, Voronezh. The table below summarises information about the Group’s major investments in joint ventures.

Interest, %, held as of 31 December Country of incorporation Nature of operations 2011 2010 2009 OOO “Rusvinyl” Russia Polyvinyl chloride production 50 50 50 OOO “NPP Neftekhimia” Russia Polypropylene production 50 50 - OOO “Biaxplen” Russia Polyethylene terephthalate 50 50 50 OOO “ITSK” Russia Informationproducer services 50 50 50 OOO “Yuzhno- Associated petroleum gas Priobskiy GPZ” Russia processing 50 50 50 Production of plastics and OOO “SNHK” Russia synthetic resins 50 50 50 OOO “Sintez-Invest”, Voronezh Russia Petrochemical production - 50 - OOO “National Polymers” Russia Investments in OAO “Polief” 100 50 50

23

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

8 INVESTMENTS IN JOINT VENTURES (CONTINUED)

31 December 31 December 31 December 2011 2010 2009 Balance at the beginning of the year 5,810 3,086 4,257 Share of net profit/(loss) 236 108 (88) Additions 12,657 3,366 1,750 Dividends (585) - - Repayment of contingent consideration - (750) - Disposals - - (2,833) Balance at the end of the year 18,118 5,810 3,086 Additions during 2011 primarily comprised the Group’s RR 12,650 equity contribution to OOO “RusVinyl”. In January 2009, the Group disposed of its interest in OOO “Sibmetakhim” (a methanol production business) for a total consideration of RR 6,333 in the form of settlement of loan payable with respective gain of RR 3,500 recognized within combined statement of comprehensive income as a gain on disposal of investments. The Group’s share of the results of its principal joint ventures, all of which are unlisted, and its aggregated assets and liabilities, are as follows: As of and for the year ended 31 December 2011 Non-current Current Non-current Reve- Profit Current Assets Assets Liabilities Liabilities nues /(Loss) OOO “RusVinyl” 2,329 14,726 200 3,403 229 (537) OOO “Biaxplen” 1,017 2,966 1,167 2,873 5,860 (11) OOO “NPP Neftekhimia” 795 1,397 131 1 2,828 690 OOO “ITSK” 550 15 306 - 1,808 132 OOO “Yuzhno-Priobskiy GPZ” 252 718 228 722 - (19) OOO “Sintez-Invest” - - - - - (19) OOO “SNHK” 1 - 1 - - -

As of and for the year ended 31 December 2010 Non-current Current Non-current Reve- Profit Current Assets Assets Liabilities Liabilities nues /(Loss) OOO “RusVinyl” 4,110 4,062 6,669 156 124 (42) OOO “Biaxplen” 752 3,170 1,018 2,952 2,792 33 OOO “National Polymers” 637 4,187 701 2,992 2,504 (110) OOO “NPP Neftekhimia” 538 1,465 145 - 822 58 OOO “ITSK” 290 10 170 - 1,149 55 OOO “Yuzhno-Priobskiy GPZ” 68 277 64 256 - (2) OOO “Sintez-Invest” 8 62 3 - 22 6 OOO “SNHK” 1 - 1 - - -

As of and for the year ended 31 December 2009 Non-current Current Non-current Reve- Profit Current Assets Assets Liabilities Liabilities nues /(Loss) OOO “RusVinyl” 1,516 2,493 2,668 16 43 (83) OOO “Biaxplen” 703 2,543 1,107 3,051 332 (64) OOO “ITSK” 215 11 149 - 1,742 57 OOO “National Polymers” - - - 674 - (132) OOO “Yuzhno-Priobskiy GPZ” 65 217 163 92 - 2 OOO “NPP Neftekhimia” ------OOO “Sintez-Invest” ------OOO “SNHK” ------

24

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

9 ADVANCES AND PREPAYMENTS FOR CAPITAL CONSTRUCTION

As of 31 December 2011, 2010 and 2009 the most significant advances and prepayments for capital construction were paid to Group contractors for the construction of a polymer plant in Tobolsk and of gas infrastructure assets in the Leningrad Region. The most significant advances and prepayments for capital constructions were paid by the Group to the following contractors: LINDE-KCA-DRESDEN GmbH, Tecnimont S.p.A, ООО “Tecnimont Russia”, ООО “Gazprom Mezhregiongaz”, and OOO “Lenniihimmash”.

10 LOANS RECEIVABLE

31 December 2011 31 December 2010 31 December 2009 ОАО “Sibur Mineral Fertilizers” - 6,554 5,846 OAO “Sibur-Russian Tires” 410 779 7,118 OAO “Polief” (Note 4) - 1,510 - OOO “Yuzhno-Priobskiy GPZ” 638 - - OOO “Biaxplen” 501 - - OOO “RusVinyl” (Note 8) - 5,900 2,360 Other - 503 154 1,549 15,246 15,478 Less non-current portion: (638) (4,947) (5,674) 911 10,299 9,804 During 2009 the financial position of OAO “Polief” deteriorated. An impairment loss of RR 3,316 was recorded in relation to the notes receivable of OAO “Polief” in the profit or loss for the year ended 31 December 2009. In 2010 the Company provided OAO “Polief” with a loan of RR 1,510. As of 31 December 2010 the financial position of OAO “Polief” indicated that this loan would be repaid, therefore it was not impaired. In September 2011 the Group provided a RR 5,964 loan to OOO “National Polymers” which was consolidated to the Group in November 2011 (Note 4). Loans given to Sibur Russian Tires bore average interest rates of 8.52 – 8.8 percent as of 31 December 2011, 2010 and 2009, mature in 2012. Loans were fully paid in February 2012. Loans given to Sibur Mineral Fertilizers bore interest rates of zero as of 31 December 2010 and 2009, and had an original maturity in 2012. Those loans were recognized at fair value using a 14.9 percent market interest rate as of 31 December 2010 and 2009. The market interest rate was determined at the loans origination dates based on the average market interest rate under loans provided to commercial entities other than financial institutions as reported by the Central Bank of the Russian Federation. As of 31 December 2011 these loans were fully paid.

11 TRADE AND OTHER RECEIVABLES

31 December 31 December 31 December 2011 2010 2009 Trade receivables (net of impairment provision of RR 243, RR 293 and RR 243 as of 31 December 2011, 2010 and 2009 , respectively) 14,816 12,485 14,565 Other receivables (net of impairment provision of RR 1,771, RR 31 and RR 25 as of 31 December 2011, 2010 and 2009, respectively) 6,484 12,763 2,914 21,300 25,248 17,479 Less non-current portion: Prepaid borrowing cost - (1,919) - Other receivables (335) (2,305) (2,313) 20,965 21,024 15,166 Receivables for disposed businesses 11,368 - -

25

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

11 TRADE AND OTHER RECEIVABLES (CONTINUED)

As of 31 December 2011, 2010 and 2009 RR 383, RR 565 and RR 439 of trade receivables were secured by collateral, mainly bank guarantees. In 2009 the Group acquired receivables to be paid by Amtel Group for RR 1,917. In 2010 the Group acquired additional receivables of Amtel Group for RR 5,729 paid by cash in amount of RR 4,205 and promissory notes of one the Group subsidiaries in an amount of RR 1,524. As of 31 December 2011, 2010 and 2009 other receivables included RR 3,500, RR 8,300 and RR 1,917 receivables from Amtel Group, respectively, net of impairment provision of RR 1,731 as of 31 December 2011 and nil as of 31 December 2010 and 2009 (Note 5). The impairment provision was recognized by the Group in the course of Amtel Group’s bankruptcy and was included in impairment of other receivables in the combined statement of comprehensive income. As of 31 December 2011 receivables for disposed businesses included RR 8,589 from one of the buyers of the Group’s Mineral Fertilizers business (Note 5). This receivable was fully paid in January 2012. As of 31 December 2011 receivables for disposed businesses included RR 2,779 from OOO “E-Volution Tyre” for OJSC “Kirov Tyre Plant” (Note 5). This receivable was fully paid in March 2012. The aging analysis of trade receivables that are past due but not impaired is as follows: Trade receivables Other receivables Total As of 31 December 2011 Up to 3 months 225 5 230 3 to 6 months 204 - 204 429 5 434 As of 31 December 2010 Up to 3 months 615 193 808 3 to 6 months 236 1 237 851 194 1,045 As of 31 December 2009 Up to 3 months 446 20 466 3 to 6 months 1,071 7 1,078 6 to 12 months 145 3 148 1,662 30 1,692 Movements on the Group provision for impairment of trade receivables are as follows: Trade receivables Other receivables Total As of 31 December 2008 509 799 1,308 Provision for impairment 131 19 150 Written off during the year as uncollectible (248) (721) (969) Unused amounts reversed (149) (72) (221) As of 31 December 2009 243 25 268 Provision for impairment 94 20 114 Written off during the year as uncollectible (8) (13) (21) Unused amounts reversed (36) (1) (37) As of 31 December 2010 293 31 324 Written off during the year as uncollectible (35) (14) (49) Unused amounts reversed (52) (6) (58) Impairment for receivables 37 1,760 1,797 As of 31 December 2011 243 1,771 2,014 The impairment provision was accrued on trade and other accounts receivable which are more than 365 days past due. Accrual and release of the impairment provision have been recognized as other operating expenses in the profit and loss, except for impairment of accounts receivable which do not relate to the Group’s operating activity. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

26

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

12 OTHER NON-CURRENT ASSETS

31 December 2011 31 December 2010 31 December 2009 Metal catalysts 674 492 518 Natural gas liquids in pipelines 633 623 558 Intangible assets 1,209 730 738 Recoverable VAT related to assets under construction 364 232 175 Other 552 576 315 3,432 2,653 2,304

13 INVENTORIES

31 December 2011 31 December 2010 31 December 2009 Refined products (net of impairment provision of RR 85 , RR 40 and RR nil as of 31 December 2011, 2010 and 2009, respectively) 14,805 7,082 6,077 Materials and supplies (net of impairment provision of RR 130, RR 176 and RR 328 as of 31 December 2011, 2010 and 2009, respectively) 6,781 5,379 4,767 Goods for resale (net of impairment provision of RR 19, RR 175 and RR nil as of 31 December 2011, 2010 and 2009, respectively) 601 190 628 22,187 12,651 11,472

14 PREPAYMENTS AND OTHER CURRENT ASSETS

31 December 31 December 31 December 2011 2010 2009 Financial assets Listed equity securities held for trading 1,400 - - Derivative financial instruments 548 - - Non-financial assets Prepayments and advances to suppliers 5,142 3,163 2,620 VAT receivable 4,567 3,404 2,272 Recoverable VAT 3,384 3,906 4,310 Prepaid borrowing cost 2,784 1,389 - Other prepaid taxes 1,367 1,018 413 Recoverable excise 1,275 593 692 Other current assets 646 198 223 Total prepayments and other current assets 21,113 13,671 10,530 Less non-current portion: Recoverable VAT related to assets under construction (364) (232) (175) 20,749 13,439 10,355

15 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include deposits held with banks, which are readily convertible to cash and have an original maturity of less than three months of RR 5,775, RR 9,635 and RR 11,744 as of 31 December 2011, 2010 and 2009, respectively.

27

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

16 LONG -TERM DEBT

31 December 31 December 31 December Long-term borrowings payable to Currency Due 2011 2010 2009 Variable rate loans OAO “Vnesheconombank” US dollar 2013-2023 13,718 1,478 339 OAO “Nordea Bank” Euro, US dollar 2011-2016 11,246 6,490 6,424 OAO “Rosbank AKB” US dollar 2013 4,829 - - ING Bank Group Euro, US dollar 2008-2021 1,627 981 748 ZAO “UniCredit Bank” Euro, US dollar 2011-2019 858 3,032 4,234 Fixed rate loans OAO “Sberbank of Russia” RR,US dollar 2011-2014 18,000 6,095 6,049 OOO “Mezhregiongaz” RR 2011-2014 4,547 4,511 4,946 OAO “TNK-BP” RR, US dollar 2013-2017 4,545 3,598 3,265 Russian Rouble denominated bonds RR 2012 31 31 31 OAO “Gazprombank” Euro 2013 - 9,199 9,595 Other US dollar 2011-2031 15 1 1 Total long-term borrowings 59,416 35,416 35,632 Less: current portion of long-term borrowings (7,700) (6,884) (5,969) 51,716 28,532 29,663 Long-term RR denominated borrowings bear average interest rates of 7.2 percent, 8 percent and 12 percent for the year ended 31 December 2011, 2010 and 2009, respectively. Long-term USD denominated borrowings bear average interest rates of 3.5 percent, 5 percent and 7.4 percent for the year ended 31 December 2011, 2010 and 2009, respectively. Long - term EUR denominated borrowings bear average interest rates of 3.1 percent, 7 percent and 7.7 percent for the year ended 31 December 2011, 2010 and 2009, respectively. OAO “Vnesheconombank”. In July 2010 the Group signed an agreement with OAO “Vnesheconombank” for project financing of the construction of new polypropylene production facilities in the Tobolsk area. As of 31 December 2011 the Group received RR 13,718 out of a RR 39,280 (USD 1,220 million) tranche covered by export credit agencies. The financing is primarily secured by OOO “Tobolsk-Polymer” shares and property, plant and equipment valued at RR 15,523. OOO “Mezhregiongaz”. The Group entered into a number of agreements with OOO “Mezhregiongaz”, a subsidiary of Gazprom, then a related party. Under these agreements, OOO “Mezhregiongaz” provided loans to ZAO “Sibur Holding” in 2007-2009 to finance construction of infrastructure gas transportation in the regions (see also Note 17). TNK-BP Group. In March 2007, the Group and TNK-BP Group established OOO “Yugragazpererabotka”, located in the Tyumen Region, to process associated petroleum gas. The Group received a 51 percent stake by contributing its subsidiaries OOO “Nizhnevartovskiy GPK”, OOO “Belozerniy GPK” and OOO “Truboprovodnaya Company”. “TNK-BP” received a 49 percent stake by contributing cash. The Group consolidates the contributed assets through call options included in the agreement. In accordance with the call options, the Group will pay between 10-20 percent per annum interest on the amounts contributed by “TNK-BP”. Accordingly, OOO “Yugragaspererabotka” was consolidated as a wholly owned subsidiary of the Group and “TNK- BP”’s contribution is accounted for as an interest bearing long-term loan in this combined financial information. In December 2010, the Group and “TNK-BP” additionally contributed RR 560 each to OOO “Yugragazpererabotka” to finance the acquisition of OOO “Nyagangazpererabotka”, the Group’s subsidiary. Accordingly, the long-term loan from “TNK-BP” was increased by RR 560 at 31 December 2010. During 2007-2011, OOO “Yugragazpererabotka” received long-term loans from “TNK-BP” of RR 1,234 to finance capital investments in gas processing assets of OOO “Nizhnevartovskiy GPK” and OOO “Belozerniy GPK”. The loans have an interest rate of 8 percent and mature in December 2013. The scheduled maturities of long-term borrowings as of 31 December 2011, 2010 and 2009 are presented below:

28

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

16 LONG -TERM BORROWINGS (CONTINUED)

31 December 2011 31 December 2010 31 December 2009 Due for repayment: Between one and two years 16,364 4,633 17,199 Between two and five years 22,636 20,974 11,044 After five years 12,716 2,925 1,420 51,716 28,532 29,663 Long-term borrowings include fixed rate loans with a carrying value of RR 24,730, RR 24,393 and RR 23,436 and fair value of RR 24,370, RR 23,222 and RR 21,179 as of 31 December 2011, 2010 and 2009, respectively. All other long-term borrowings generally have variable interest rates linked to LIBOR or EURIBOR, and the carrying amounts approximate their fair value. The Group had no subordinated debt and no debt that may be converted into an equity interest in the Group. As of 31 December 2011, 2010 and 2009 the Group had the following committed long-term credit facilities: Credit Undrawn limit Amount As of 31 December 2011 Euro denominated (in millions of Euro) 61 4 USD denominated (in millions of USD) 1,646 1,160 RR denominated (in millions of RR) 36,000 15,000 As of 31 December 2010 Euro denominated (in millions of Euro) 454 139 USD denominated (in millions of USD) 1,795 1,381 As of 31 December 2009 USD denominated (in millions of USD) 753 542

17 GRANTS AND SUBSIDIES

As a major investor in infrastructure and social projects in the regions of its operations, the Group has signed cooperation agreements with a number of regional authorities, including investment and financial support agreements, within which the Group is entitled to partially refund capital expenditures incurred in the respective regions subject to certain conditions, including amounts of regional investments in business and social infrastructure and income taxes paid locally. This refund is made after supporting documents are provided to the relevant authority either in the form of income tax reimbursement or direct grants of public funds. Total grants received under such agreements amounted to RR 13,632, RR 6,339 and RR 225 in 2011, 2010 and 2009, respectively. During 2011 the Group recognized profit of RR 669 (2010: zero, 2009: zero) in relation to such arrangements.

29

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

18 NON-CURRENT TRADE AND OTHER PAYABLES

31 December 31 December 31 December 2011 2010 2009 Financial liabilities Payables for acquisition of a subsidiary and an associate 3,090 1,730 - Restructured liabilities 32 448 337 Interest payable 1,353 1,115 738 Promissory notes payable 564 914 - 5,039 4,207 1,075 Non-financial liabilities Payables to employees - 1,016 - Post-employment obligations 1,296 1,242 833 Other 177 251 427 1,473 2,509 1,260 6,512 6,716 2,335 The carrying amounts of non-current trade and other payables approximate their fair value.

19 CURRENT TRADE AND OTHER PAYABLES

31 December 31 December 31 December 2011 2010 2009 Financial liabilities Trade payables 6,673 5,117 3,558 Accounts payable to contractors and suppliers of property, plant and equipment 9,094 8,365 1,374 Short term promissory notes payable 2,631 6,060 6,276 Interest payable 510 234 567 Other payables 217 214 602 19,125 19,990 12,377 Non-financial liabilities Advances from customers 3,769 3,135 844 Payables to employees 4,059 5,903 4,736 Other payables 2,320 2,329 2,600 Grants and subsidies 700 - - 10,848 11,367 8,180 29,973 31,357 20,557 Payables to employees as of 31 December 2011, 2010 and 2009 include provisions for annual bonuses of RR 2,540, RR 2,500 and RR nil, respectively. Payables to employees as of 31 December 2010 and 31 December 2009 included a liability related to the Share Option Plan of RR 737 and 4,252, respectively (Note 32). As of 31 December 2011 this obligation was fully paid. Payables to employees as of 31 December 2010 included a provision for bonuses to Group management of RR 3,214 (31 December 2009: nil) with non-current portion of RR 1,016 recorded in other non-current liabilities (Note 18). As of 31 December 2011 this obligation was fully paid.

30

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

20 SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM BORROWINGS

31 December 2011 31 December 2010 31 December 2009 Short-term borrowings: RR denominated borrowings 15,542 23,282 19,248 USD denominated borrowings 7,675 - - EUR denominated borrowings 277 - - 23,494 23,282 19,248 Current portion of long-term borrowings 7,700 6,884 5,969 31,194 30,166 25,217 Short-term RR denominated borrowings bear average interest rates of 7.8 percent, 7 percent and 10.4 percent for the year ended 31 December 2011, 2010 and 2009, respectively. Short-term USD denominated borrowings bear average interest rates of 2.2 percent and 5.1 percent for the year ended 31 December 2011 and 2009, respectively, there were no short-term USD denominated borrowings as of 31 December 2010. Short-term EUR denominated borrowings bear average interest rates of 2 percent for the year ended 31 December 2011, there were no short-term EUR denominated borrowings as of 31 December 2010 and 2009. The carrying amounts of short-term borrowings approximate their fair value. As of 31 December 2011 the Group had no committed short-term credit facilities. As of 31 December 2010 and 2009 the Group had the following committed short-term credit facilities: Credit limit Undrawn amount As of 31 December 2010 RR denominated (RR million) 3,550 3,550 USD denominated (USD million) 375 231 As of 31 December 2009 RR denominated (RR million) 2,880 2,880

21 TAXES OTHER THAN INCOME TAX PAYABLE

31 December 2011 31 December 2010 31 December 2009 VAT 2,416 4,007 832 Excise tax 1,061 536 661 Property tax 227 202 201 Unified social tax 235 121 154 Other taxes 849 575 402 4,788 5,441 2,250

31

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

22 EQUITY

Registered capital contribution. In 2009 OAO “Gazprombank” contributed cash of RR 9,000 for additional shares issued in a total amount of 3,469,549 with nominal value of RR 1,000 per share. The state registration of the issue was finalised in January 2010. Dividends. On 23 June 2010, the shareholders of the Group approved the distribution of a final dividend for the year ended 31 December 2009 in the amount of RR 4,612 (110.85 Roubles per share). These distributions have been accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended 31 December 2010. No dividends were accrued and paid during the 12 months ended 31 December 2011. Treasury shares. In February 2011 OAO “Gazprombank” acquired from the Group 2,005,002 treasury shares for a total amount of RR 6,984. In November 2011 as a result of acquisition of JSC “Miracle”, the Company recognized 21,784,788 treasury shares at the cost of RR 72,374 (Note 32 a). Net contributions/(distributions) from shareholders of Mineral Fertilizers and Tires businesses. Year ended 31 December 2011 2010 2009 Proceeds from disposal of Mineral Fertilizers and Tires businesses net of related income tax RR 4,295 33,023 - - Receivables for disposed businesses (Note 11) 8,589 - - Deferred income tax related to disposal of Mineral Fertilizers and Tires businesses (Note 27) 1,650 - - Sale/(purchase) of equity instruments of Mineral Fertilizers and Tires businesses 4,981 (6,000) (4,981) Dividends from the disposed businesses 7,499 - 1,337 Other contributions /( distributions) from/(to) disposed businesses (2,868) (1,878) (474) 52,874 (7,878) (4,118)

In accordance with the basis of preparation the above transactions were recognized within equity (Note 2).

23 NON-CONTROLLING INTEREST

Year ended 31 December 2011 2010 2009 Non-controlling interest at the beginning of the reporting year 672 456 531 Non-controlling interest share of net income of subsidiaries (30) (46) (53) Effect of acquisition of subsidiaries 781 285 - Effect of disposal of subsidiaries - (23) (22) Non-controlling interest at the end of the reporting year 1,423 672 456

32

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

24 REVENUE

Year ended 31 December 2011 2010 2009 Sales of refined products (net of excise tax, custom duties and VAT): Energy products: Liquefied petroleum gas 52,502 34,628 22,612 Naphtha 21,118 15,700 11,315 Natural gas 17,499 15,766 14,285 MTBE 14,946 10,753 10,438 Other fuels and fuel additives 4,218 2,230 1,448 Natural gas liquids 2,113 732 538 Petrochemical products: Synthetic rubbers 50,971 38,336 21,459 Plastics and organic synthesis products 23,755 18,079 12,158 Basic polymers 21,782 18,760 14,535 Intermediates and other chemicals 25,335 24,247 9,843 Total refined products 234,239 179,231 118,631 Sales of processing services 5,171 3,749 3,110 Trading and other sales 9,250 5,583 6,059 Total revenue 248,660 188,563 127,800

25 OPERATING EXPENSES

Year ended 31 December 2011 2010 2009 Feedstock and materials 46,300 33,089 19,230 Transportation 33,918 27,904 19,456 Energy 28,950 25,086 23,350 Staff costs 22,091 22,798 18,649 Goods for resale 15,516 7,141 3,834 Services provided by third parties 6,899 6,516 6,160 Repairs and maintenance 4,077 2,909 2,059 Rent expenses 2,581 2,258 2,308 Taxes other than income tax 1,543 758 555 Charity and sponsorship 1,051 159 - Marketing and advertising 783 435 518 Impairment of property plant and equipment - 426 - Depreciation and amortization 8,216 5,940 4,423 Other 3,950 2,970 4,110 Change in WIP and refined products balances (5,668) (1,638) 1,604 Total operating expenses 170,207 136,751 106,256

33

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

26 FINANCE INCOME AND EXPENSES

Year ended 31 December 2011 2010 2009 Discount on borrowings and non-current accounts payable - 1,034 265 Interest income 2,142 3,271 2,547 Foreign exchange gain - 352 - Gain on written off restructured liabilities - 210 212 Fair value gain on derivative financial instruments 498 - 5,021 Gain on reversal of financial guarantee - 755 - Unwinding of discount on loans receivable and non-current accounts receivable 270 - - Finance income 2,910 5,622 8,045 Foreign exchange loss (3,660) - (720) Discount on loans receivable (Note 10) and non-current account receivables - (873) (1,621) Interest expenses (2,524) (3,292) (5,883) Unwind of discount on borrowings and non-current accounts payable (314) (306) (659) Fair value loss on listed equity securities held for trading (600) - - Loss on financial guarantee - - (755) Other finance expenses (227) (99) - Finance expenses (7,325) (4,570) (9,638) The Group operates internationally and has significant accounts receivable and borrowings denominated in foreign currencies. In 2008 and 2009, the Group managed its foreign exchange risk arising from future sales primarily by using forward contracts. The increase in fair value of those financial instruments was recorded as finance income for the year 2009 in the amount of RR 5,021. The financial instruments were settled in full as of 31 December 2009. Since then, the Group has ceased using derivatives to hedge its foreign exchange risk exposure.

27 INCOME TAXES

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the taxable entity. The offset amounts are as follows:

31 December 31 December 31 December 2011 2010 2009 Deferred tax asset to be recovered after more than 12 months 9,654 16 15 Deferred tax asset to be recovered within 12 months 726 1,393 120 Deferred tax assets 10,380 1,409 135 Deferred tax liability to be paid after more than 12 months (6,514) (3,596) (2,693) Deferred tax liability to be paid within 12 months (1,596) (397) (238) Deferred tax liabilities (8,110) (3,993) (2,931)

34

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

27 INCOME TAXES (CONTINUED)

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same subsidiaries, is as follows: Credited/ Credited/ Credited/ Business (charged) to Business (charged) (charged) 31 combi- the profit or 31 combi- to the 31 to the 31 December nations and loss or December nations and profit or December profit or December 2011 acquisitions Equity 2010 acquisitions loss 2009 loss 2008 Tax effects of taxable temporary differences Property, plant and equipment (5,506) (633) (1,842) (3,031) (201) (69) (2,761) (231) (2,530) Inventory (333) - (333) - - 94 (94) 273 (367) Investments in joint ventures (131) - (44) (87) - (11) (76) 6 (82) Prepaid borrowing costs (914) - (67) (847) - (847) - - - Disposal of Mineral Fertilizers and Tires businesses (1,086) - (1,086) ------Others (140) - (112) (28) - (28) - 155 (155) Deferred tax liabilities (8,110) (633) (3,484) (3,993) (201) (861) (2,931) 203 (3,134) Tax effects of deductible temporary differences Tax losses carry forward 3,313 1,981 662 670 - 361 308 (14) 322 Inventory - - (220) 220 - 220 - - - Financial instruments ------(987) 987 Trade and other receivables 134 - 115 19 - 19 - - - Payables to employees 508 - 8 500 - 500 - (548) 548 Grants and subsidies 3,584 - 3,584 ------Disposal of Mineral Fertilizers and Tires businesses 2,647 - 2,647 ------Others 194 - 194 - - 173 (173) (173) - Deferred tax assets 10,380 1,981 6,990 1,409 - 1,273 135 (1,722) 1,857 Total net deferred tax assets/(liabilities) 2,270 1,348 3,506 (2,584) (201) 412 (2,796) (1,519) (1,277) Differences between in the recognition criteria between Russian and IFRS statutory taxation regulations of Russia and IFRS give rise to temporary differences between the carrying value of certain assets and liabilities for financial reporting purposes and for income tax purposes. The tax effect of change in these temporary differences is recorded at the statutory tax rate. Deferred tax liabilities arise mainly from differences in the taxable and financial reporting bases of property, plants and equipment.

35

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

27 INCOME TAXES (CONTINUED)

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realisation of the related tax benefits through the future taxable profits is probable. The Group did not recognise deferred income tax assets of RR 683 (2010: RR 1,175, 2009: RR1,164) regarding losses amounting to RR 3,414 (2010: RR 5,876, 2009: RR 5,820)) that can be carried forward against future taxable income. Under the Russian Tax Code, tax loss can be carried forward until an expiry date ten years after the origination of the tax loss. The temporary differences associated with undistributed earnings of subsidiaries comprised RR 1,395, RR 1,054 and RR 740 as of 31 December 2011, 2010 and 2009, respectively. A deferred tax liability on these temporary differences was not recognized because management controls the timing of this temporary difference reversal, and believes that there will be no reversal in the foreseeable future. Year ended 31 December 2011 2010 2009 Current tax: Current tax on profits for the year 17,749 12,747 2,638 Adjustments in respect of prior years (332) (84) (193) Total current tax 17,417 12,663 2,445 Deferred tax: Accrual/(reversal) of temporary differences (3,506) (412) 1,519 Temporary differences related to disposal of Mineral Fertilizers and Tires businesses (Note 22) 1,650 - - Total deferred tax (1,856) (412) 1,519 Income tax expense 15,561 12,251 3,964 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the Russian statutory tax rate applicable to the consolidated entities’ profits as follows: Year ended 31 December 2011 2010 2009 Profit before income tax and non-controlling interest 77,120 52,988 20,115 Theoretical tax charge at the statutory rate (20% for years ended 31 December 2011 and 2010) (15,424) (10,599) (4,023) Tax effect of items which are not deductible or assessable for taxation purposes: Non- deductible differences (2,683) (1,837) (2,098) Non- taxable differences 2,546 185 2,157 Income tax expense (15,561) (12,251) (3,964)

36

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

28 CASH GENERATED FROM OPERATIONS

Year ended 31 December 2011 2010 2009 Profit before income tax 77,120 52,988 20,115 Adjustments to profit before income tax Depreciation and amortization 8,216 5,940 4,423 Foreign exchange loss/(gain) 3,660 (352) 720 Accrual of annual bonus - 2,500 - Impairment of other receivables 1,731 - 3,262 Impairment charge/(reversal) of trade and other receivables - 56 (1,040) (Reversal)/accrual of provision for inventory obsolescence and valuation allowances (84) 32 (575) Interest expense 2,524 3,292 5,883 Discount on loans receivable and non-current accounts receivable - 873 1,621 Discount on borrowings and non-current accounts payable - (1,034) (265) Unwinding of discount on loans receivable and non-current accounts receivable (270) - - Unwind of discount on borrowings and non-current accounts payable 314 306 659 Accrual/(reversal) of Share Option Plan obligations and other obligations to employees - (357) 4,252 Fair value loss on listed equity securities held for trading 600 - - Fair value gain on derivative financial instruments (498) - - Loss/(Gain) on disposal of property, plant and equipment (308) 633 359 Share of net (income) of joint ventures (236) (108) 88 Interest income (2,142) (3,271) (2,547) Gain on acquisition of subsidiaries (4,957) - - Fair value gains on financial instruments - - (5,021) Loss/(gain) on disposal of investments 380 (16) (3,514) Reversal of tax fines and penalties - - (917) (Gain) on restructured taxes and other liabilities - (210) (212) Impairment of property, plant and equipment - 426 - (Gain)/loss on financial guarantee - (755) 755 Other adjustments (1,566) (795) 743 Operating cash flows before working capital changes 84,484 60,148 28,789 Changes in working capital Decrease/ (increase) in trade and other receivables 322 3,692 (4,634) (Increase)/decrease in prepayments and other current assets (5,092) (1,713) (1,216) (Increase)/decrease in inventories (7,327) (1,294) 3,549 Decrease in trade and other payables (502) (126) (4,785) Increase / (decrease) in taxes payable 673 3,394 (581) Cash generated from operating activities of continuing operations before income tax payment 72,558 64,101 21,122 Income tax paid (18,377) (12,670) (1,019) Net cash from operating activities of continuing operations 54,181 51,431 20,103

37

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS

Loans and receivables 31 December 2011 31 December 2010 31 December 2009 Non-current financial assets Trade and other receivables 335 2,305 2,313 Loans receivable 638 4,947 5,674 Current financial assets Cash and cash equivalents 14,971 15,416 14,846 Trade and other receivables 32,333 21,024 15,166 Loans receivable 911 10,299 9,804 49,188 53,991 47,803

Financial instruments at fair value through profit and loss 31 December 2011 31 December 2010 31 December 2009 Current financial assets Listed equity securities held for trading 1,400 - - Derivative financial instruments 548 - - 1,948 - -

Financial instruments at amortized cost 31 December 2011 31 December 2010 31 December 2009 Non-current financial liabilities Trade and other payables 4,475 3,293 1,075 Borrowings 51,716 28,532 29,663 Promissory notes payable 564 914 - Current financial liabilities Trade and other payables 16,494 12,360 6,101 Borrowings 31,194 30,166 25,217 Promissory notes payable 2,631 6,060 6,276 107,074 81,325 68,332 The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency exchange risk, cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management focuses on financial market unpredictability, and seeks to minimise potential adverse effects on the Group’s financial performance. The Group focuses on managing exposure to risks that could lead to a potential loss of RR 1,000 or more. Risk management is carried out by the central finance function. The Group’s treasury manages credit risks relating to transactions with financial institutions. Credit risks relating to operating transactions are managed by business units in accordance with written policies established at Group level. Liquidity risk is managed by the Group treasury. Foreign exchange risk. The Group operates internationally, exports production to European and Asian countries and attracts a substantial amount of foreign currency denominated borrowings and therefore is exposed to foreign exchange risk. The table below summarises the Group’s exposure to foreign currency exchange rate risk at the reporting date:

38

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)

Denominated in As of 31 December 2011 USD Euro Other currency Cash and cash equivalents 88 571 35 Trade and other receivables 27 6,207 1 115 6,778 36 Trade and other payables 60 213 3 Borrowings 40,370 2,630 - 40,430 2,843 3 Denominated in As of 31 December 2010 USD Euro Other currency Cash and cash equivalents 525 1,009 6 Trade and other receivables 46 5,520 10 571 6,529 16 Trade and other payables - 328 3 Borrowings 17,724 12,307 - 17,724 12,635 3 Denominated in As of 31 December 2009 USD Euro Other currency Cash and cash equivalents 1,370 2,348 3 Trade and other receivables 52 6,515 6 1,422 8,863 9 Trade and other payables 757 2,149 - Borrowings 13,290 17,498 - 14,047 19,647 - The sensitivity analysis given in the table below reflects the hypothetical gain (loss) that would occur assuming the Russian Rouble had weakened/strengthened by 10 percent against the US dollar and Euro and that there were no changes in the portfolio of instruments and other variables as of 31 December 2011, 2010 and 2009 respectively. Increase in exchange rate 31 December 2011 31 December 2010 31 December 2009 Effect on pre-tax profit RR / USD 10% (4,032) (1,716) (1,262) RR / Euro 10% 394 (606) (1,078)

Decrease in exchange rate 31 December 2011 31 December 2010 31 December 2009 Effect on pre-tax profit RR / USD 10% 4,032 1,716 1,262 RR / Euro 10% (394) 606 1,078 Cash flow and fair value interest rate risk. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2011, 2010 and 2009, the Group’s borrowings at floating rate were denominated in Russian Roubles, US dollars and Euro (Notes16, 20). The Group’s interest-bearing assets primarily included loans receivable and cash deposits as of 31 December 2011, 2010, 2009. The Group analyses its interest rate exposure on a regular basis. Financing decisions are made after a careful consideration of various scenarios and may include refinancing, renewing existing positions or alternative financing. The Group currently does not use derivative instruments to hedge its cash flow and fair value interest rate risk. The Group’s financial results are sensitive to changes in interest rates on the floating portion of the Group’s debt portfolio. If the interest rates applicable to floating rate debt were higher/lower assuming all other variables remain constant, it is estimated that the Group’s profit before taxation would change by the amounts shown below:

39

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)

Increase in floating 31 December 31 December rates by 31 December 2011 2010 2009 Effect on pre-tax profit Russian Rouble-denominated borrowings 10% (87) - - US dollar-denominated borrowings 15% (182) (48) (32) Euro-denominated borrowings 15% (9) (16) (67) Decrease in floating 31 December rates by 31 December 2011 31 December 2010 2009 Effect on pre-tax profit Russian Rouble-denominated borrowings 10% 87 - - US dollar-denominated borrowings 15% 182 48 32 Euro-denominated borrowings 15% 9 16 67 Credit risk. Credit risk arises from cash and cash equivalents (including short-term deposits with banks), from loans given and as well as credit exposures to customers, including outstanding receivables and committed transactions. Cash and cash equivalents are deposited only with banks that are considered by the Group at the time of deposit to have minimal risk of default within set credit limits. All loans given were provided to joint ventures or subsidiaries and approved by the investment committee and the Group’s Board of Directors supported by project feasibility studies (see Note 10). With regards to customers, the large part of Group domestic receivables come from biggest Russian companies, including OAO “Gazprom”, OAO “LUKOIL”, TNK-BP Group, OAO “Gazpromneft” and OAO “Rosneft”, which the Group assessed as being high credit quality. For other domestic customers the Group assesses credit quality taking into account financial position and past experience alongside other factors. Regarding export customers, the Group’s priority is also to sell to major market players including Michelin Group, Continental group, Gunvor group, “Naftomar LTD INC”, etc. based on a standard delay of no more than 30 days. The major part of other export sales are primarily secured by credit letter or prepaid. Although collection of accounts receivable could be influenced by economic factors affecting these customers, the management believes that there is no significant risk of loss to the Group beyond the provisions already recorded. The maximum credit risk exposure for accounts receivable is RR 32,668, RR 25,248 and RR 17,479 as of 31 December 2011, 2010 and 2009, respectively. The Group estimates fair value of its financial liabilities as a close-out amount that does not incorporate changes in the Group’s credit risk. The credit risk posed by off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to adhere to the contract. The Group uses the same credit policies in assuming conditional obligations that it does for on-balance sheet financial instruments, through established credit approvals, risk control limits and monitoring procedures.

40

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) As of 31 December 2011 the maximum credit risk exposure due to financial guarantees issued for SIBUR Russian Tires loans was RR 4,140. As of 31 December 2011 this credit risk was mitigated by a bank guarantee of RR 1,129. In February 2012 the Group was released from the financial guarantee of RR 3,011.

Also, as of 31 December 2011 the Group issued finance guarantee for a 50 percent of loan obtained by OOO “RusVinyl”. The maximum credit risk exposure for guarantee issued by the Group is RR 3,089, nil and RR 756 as of 31 December 2011, 2010 and 2009, respectively. The table below shows the credit limit and balance of the major counterparty groups as of the reporting date.

As of and for the year ended 31 December 2011 Credit limit for one Bank equity Rating bank Balance Major banks >= 25,000 B+/B2 5,000 12,517 Secondary banks >= 5,000 B+/B2 2,500 1,700 Other banks Not set Not set Individually set 754 14,971 As of and for the year ended 31 December 2010 Credit limit for one Bank equity Rating bank Balance Related banks - Gazprombank Not limited BBB- Not set 5,277 Major banks >= 25,000 B+/B2 5,000 4,631 Secondary banks >= 5,000 B+/B2 2,500 4,486 Other banks Not set Not set Individually set 1,022 15,416 As of and for the year ended 31 December 2009 Credit limit for one Bank equity Rating bank Balance Related banks - Gazprombank Not limited BBB- Not set 10,007 Major banks >= 25,000 B+/B2 5,000 2,451 Secondary banks >= 5,000 B+/B2 2,500 2,151 Other banks Not set Not set Individually set 237 14,846 No credit limits were exceeded during the reporting period, and management does not expect any losses resulting from these counterparties’ non-performance. The maximum credit risk exposure for cash and cash equivalents is RR 14,971, RR 15,416 and RR 14,846 as of 31 December 2011, 2010 and 2009, respectively. Liquidity risk and capital risk management. Liquidity risk management includes maintaining sufficient cash balances, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group’s management maintains funding flexibility by ensuring funds availability under committed credit lines and expected cash flows from operating activities. Management monitors rolling forecasts of the Group’s liquidity reserve (comprising the undrawn borrowing facilities (Notes 16, 20) and cash and cash equivalents on the basis of expected cash flow. This is carried out at Group level monthly and annually. In addition, the Group's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these while maintaining debt financing plans.

41

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)

The table below analyses the Group’s financial liabilities in relevant maturity groupings based on the remaining period at the reporting to the contractual maturity date. Less than one Between one and Between two Over five As of 31 December 2011 year two years and five years years Borrowings 28,738 17,474 25,739 25,309 Trade and other payables 19,125 5,039 - - 47,863 22,513 25,739 25,309 As of 31 December 2010 Borrowings 28,700 5,743 24,950 6,414 Trade and other payables 18,420 4,207 - - 47,120 9,950 24,950 6,414 As of 31 December 2009 Borrowings 33,694 16,028 14,827 4,187 Trade and other payables 12,377 1,075 - - 46,071 17,103 14,827 4,187 As the amounts included in the table represent contractual undiscounted cash flows, these amounts may not reconcile with those disclosed in the financial position statement on borrowings, derivative financial instruments, trade and other payables. In 2011, 2010 and 2009 the Group monitored liquidity on the basis of net debt to EBITDA ratio. This ratio was calculated as net debt divided by EBITDA. Net debt is calculated as total borrowings less cash, cash equivalents and short-term deposits. EBITDA is calculated as profit before income tax less depreciation, finance income, and expenses, excluding the effects of non-recurring expenditures such as impairment of assets and share of net income (loss) of joint ventures as shown in the combined statement of comprehensive income. In accordance with some of its loans agreements with banks, the Group should not exceed the debt to EBITDA ratio stipulated in the loan agreements. The Group’s financial policy is to have the net debt to EBITDA ratio not higher than 2.5 and EBITDA to interest expense ratio not lower than 7. This policy is stricter than the bank requirements. The net debt to EBITDA ratio was 0.78, 0.74 and 1.54 as of 31 December 2011, 2010 and 2009, respectively. EBITDA to interest expense ratio was 34, 18 and 5 as of 31 December 2011, 2010 and 2009, respectively. The primary objectives of the Group’s liquidity management policy is to ensure a strong liquidity base to fund and sustain its business operations through prudent investment decisions and to maintain investor, market and creditor confidence to support its business activities.

30 SEGMENT INFORMATION

The Group operates as a vertically integrated business, gathering and processing hydrocarbon feedstock, which it obtains from major Russian oil and gas companies, and producing and selling energy products as well as a wide range of petrochemical products. The chief operating decision-maker has been identified as the Group chief executive officer, two executive directors and chief financial officer. These managers review the Group’s internal reporting in order to assess performance and allocate resources.

42

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

30 SEGMENT INFORMATION (CONTINUED)

The management has determined two operating and reportable segments:  Feedstock & Energy – processing of associated petroleum gas and other hydrocarbon feedstock to produce energy products, including natural gas, natural gas liquids and naphtha, which are marketed and sold externally and are also used as feedstock by the petrochemical segment. In addition, the Feedstock & Energy segment produces fuel additives, including methyl tertiary butyl ether (MTBE), 100% of which is sold externally;  Petrochemical – the production of basic polymers, synthetic rubbers, plastics, organic synthesis products and other petrochemical products. The Group reports two segments in this combined financial information and comparative amounts were adjusted, accordingly. The management assesses the performance of the operating segments based on EBITDA contribution (Note 29) of each segment. The revenues and expenses of some of the Group’s subsidiaries which provide primarily energy supply, transportation, processing, managerial and other services to the Group entities are not allocated into operating segments. Other information provided to the management, except as noted below, is measured in a manner consistent with that in this combined financial information. Feedstock & Energy Petrochemical segment segment Unallocated Total Year ended 31 December 2011 Total segment revenue 149,478 134,243 18,221 301,942 Inter-segment transfers (36,329) (9,525) (7,428) (53,282) External revenue 113,149 124,718 10,793 248,660 EBITDA 68,106 24,330 (5,767) 86,669 Year ended 31 December 2010 Total segment revenue 108,379 105,510 12,268 226,157 Inter-segment transfers (28,389) (3,500) (5,705) (37,594) External revenue 79,990 102,010 6,563 188,563 EBITDA 49,136 20,330 (11,288) 58,178 Year ended 31 December 2009 Total segment revenue 67,271 62,357 10,147 139,775 Inter-segment transfers (8,183) (1,830) (1,962) (11,975) External revenue 59,088 60,527 8,185 127,800 EBITDA 24,678 8,347 (7,058) 25,967

43

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

30 SEGMENT INFORMATION (CONTINUED)

A reconciliation of EBITDA to profit before income tax is provided as follows:

Year ended 31 December Feedstock & Energy 2011 segment Petrochemical segment Unallocated Total EBITDA 68,106 24,330 (5,767) 86,669 Depreciation (3,152) (3,410) (1,654) (8,216) Operating profit 64,954 20,920 (7,421) 78,453 Finance income 2,910 2,910 Finance expenses - - (7,325) (7,325) Gain on acquisition of subsidiaries - - 4,957 4,957 Share of net income of joint ventures - - 236 236 Loss on disposal of investments - - (380) (380) Impairment of notes receivable - - (1,731) (1,731) Profit before income tax 64,954 20,920 (8,754) 77,120

Year ended 31 December Feedstock & Energy 2010 segment Petrochemical segment Unallocated Total EBITDA 49,136 20,330 (11,288) 58,178 Depreciation (2,834) (2,500) (606) (5,940) Impairment of property, plant and equipment - - (426) (426) Operating profit 46,302 17,830 (12,320) 51,812 Finance income - - 5,622 5,622 Finance expenses - - (4,570) (4,570) Share of net income of joint ventures - - 108 108 Gain on disposal of investments - - 16 16 Profit before income tax 46,302 17,830 (11,144) 52,988

44

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

30 SEGMENT INFORMATION (CONTINUED)

Year ended 31 Feedstock & December 2009 Energy segment Petrochemical segment Unallocated Total EBITDA 24,678 8,347 (7,058) 25,967 Depreciation (1,940) (2,038) (445) (4,423) Operating profit 22,738 6,309 (7,503) 21,544 Finance income - - 8,045 8,045 Finance expenses - - (9,638) (9,638) Share of net loss of joint ventures - - (88) (88) Impairment of other receivables - - (3,262) (3,262) Loss on disposal of subsidiaries - - 3,514 3,514 Profit before income tax 22,738 6,309 (8,932) 20,115 Geographical information. All of the Group’s production facilities are located in the Russian Federation. Revenues for each individual country for which the revenues are material are reported separately as follows:

31 December 2011 31 December 2010 31 December 2009 Russia 141,999 106,876 63,301 Europe 66,330 56,424 38,451 Asia 20,397 15,689 11,810 CIS 13,077 6,137 7,347 Other 6,857 3,437 6,891 Total revenue 248,660 188,563 127,800 Sales to Europe comprise sales to Switzerland, Austria, Poland, France, the Netherlands, Greece, Hungary, Germany, Finland, and the Czech Republic. Sales to Asia comprise sales to the following countries: China, Turkey, the United Arab Emirates, Hong Kong, Taiwan, Korea, Singapore, and India. Sales to the CIS comprise sales to Ukraine, Belarus, Kazakhstan, and Moldova.

45

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

31 PRINCIPAL SUBSIDIARIES

Principal wholly-owned operating subsidiaries of the Group OAO “Gubkinskiy GPK” OOO “Tobolsk-Neftekhim” OAO “Yuzhno-Balykskiy GPK” OAO “Krasnoyarskiy ZSK” OOO “Noyabrskiy GPK”* ZAO “Sibur-Khimprom” OAO “Sibur-Neftekhim” OOO “Sibur-Belservice” OAO “Sibur-PETF” ZAO “Sibur-Trans” SIBUR International GmbH (Citco Waren H m.b.H.) OOO “Tomskneftekhim” OAO “SiburTyumenGaz” OOO “Sibur-Geotekstil” OOO “Tollyattikauchuk” * OOO Noyabrskiy GPK is the holding entity for Muravlenkovskiy GPP and Vyngapurovskiy GPP

Principal other operating subsidiaries of the Group

Effective percent of share capital held by the Group as of 31 December 2011 31 December 2010 31 December 2009 OAO “Uralorgsintez” 97 96 95 OAO “Voronezhsintezkauchuk” 98 77 75 KOAO “Orton” 99 96 96 OAO “Plastic” 99 67 67 OAO “Polief” 83 25 25 OOO “Yugragaspererabotka” (Note 16)* 51 51 51 * OOO “Yugragaspererabotka” controls OOO “Belozerniy GPK”, OOO “Nizhnevartovskiy GPK”, OOO “Nyagangaspererabotka”,

46

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

32 RELATED PARTIES

For the purposes of this combined financial information, parties are generally considered to be related if one party has the ability to control the other party, they are under common control, or if one party can exercise significant influence over the other party in the financial and operational decision-making process. In considering each possible related party relationship, attention is paid to the substance of the relationship, not merely the entities’ legal form. The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding as of 31 December 2011, 2010 and 2009 are detailed below. a) JSC “Miracle” acquisition In September and October 2011 the Company provided RR 34,250 in loans to JSC “Miracle” bearing an average interest rate of 8.5 percent, due to mature in September 2013. The loans were used for the partial refinancing of bank loans JSC “Miracle” received for acquisition of the Company shares (Note 1). In November 2011 the Company acquired 100 percent of JSC “Miracle” shares for RR 1. JSC “Miracle” is not a business as defined by IFRS 3 Business Combinations; therefore this acquisition was not accounted under the accounting purchase method. As a result of the acquisition the Group recognized the following assets and liabilities of JSC “Miracle”:

07 November 2011 Cash 41 Deferred tax assets 797 Investments in ZAO “Sibur Holding” shares 72,374 Short-term investments 50 Other assets 13 Long-term loans and borrowings, including: (72,598) Long-term loans from the Group (34,419) Short-term loans and borrowings (676) As a result of the acquisition ZAO “Sibur Holding” acquired 50 percent less 1 of its own shares, which were deducted from equity as treasury shares. Additionally, the long-term loan provided by the Group to JSC “Miracle” before the acquisition was effectively settled at the date of acquisition without impact in profit or loss. In December 2011 the Company fully repaid bank loans received by JSC “Miracle” for the Company share acquisition. b) NOVATEK Group As of 31 December 2011and 2010 trade and other payables included RR 1,502 and RR 1,730 respectively, payables to NOVATEK Group for the acquisition of OOO “Novatek-Polymer”. This amount is payable until 31 December 2013. OOO “Novatek-Polymer” was subsequently renamed OOO “Biaxplen NK”.

47

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

32 RELATED PARTIES (CONTINUED) c) Gunvor Group In October 2011 a party which jointly controls Gunvor Group has acquired a 37.5 percent in the Group. During the period from October to December 2011 the Group’s revenue from the sales of petrochemical products to Gunvor Group amounted to RR 1,846. As of 31 December 2011 the Group’s trade receivables included trade receivables from Gunvor Group of RR 497. d) Gazprombank Group

Financing activities 31 December 2011 31 December 2010 31 December 2009 Interest expense (133) (743) (2,558) Interest income 226 357 331 Fair value gain/(loss) on financial instrument - - 2,203 As of 31 December 2010 and 2009 the Sibur Group had the following balances with Gazprombank companies: 31 December 2010 31 December 2009

Cash and cash equivalents 5,293 10,991 Long-term borrowings (Note 16) (9,199) (9,595) As of 31 December 2010 and 31 December 2009 the Group had short term undrawn credit facilities with Gazprombank Group of RR 3,500 and RR 3,050 respectively and long term undrawn credit facilities with Gazprombank Group of RR 200 and RR 200 rspectively. In October 2011 Gazprombank Group ceased to be a related party to the Group. e) Gazprom Group Operating activities 31 December 2011 31 December 2010 31 December 2009 Purchases of materials and supplies (10,298) (7,705) (2,585) Purchases of gas transportation and other transportation services (1,738) (1,697) (1,215) Purchases of other goods and services (451) (870) (948) Total purchases (12,487) (10,272) (4,748) Natural gas sales 4,562 3,370 4,677 Petrochemical products sales 1,347 773 1,787 Sales of other goods and services 13 109 652 Total revenues 5,922 4,252 7,116 As of 31 December 2010 and 2009 the Group had the following balances with Gazprom Group: 31 December 31 December 2010 2009 Accounts receivable and prepayments 578 1,492 Advances and prepayments for capital constructions 4,966 3,694 Accounts payable and accrued charges (391) (653) Current portion of restructured liabilities - (15) Long-term borrowings (2,273) (1,353) Short-term borrowings (2,238) (3,593) In October 2011 Gazprom companies ceased to be related parties to the Group. f) Remuneration of directors and key management The Board of Directors of the Group consists of nine members, including shareholder representatives. Members of the Board of Directors are entitled to annual compensation, approved at the General Shareholders’ Meeting. In 2011, 2010 and 2009 the Company paid RR 218, RR 127 and RR 127 to the Board of Directors as compensation for the years ended 31 December 2010, 2009 and 2008, respectively. In 2012 the Company expects to pay RR 84 for year ended 31 December 2011.

48

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

32 RELATED PARTIES (CONTINUED)

Key management is entitled to salaries, bonuses, voluntary medical insurance and other employee benefits, including Share Option Plan related benefits, which in total amounted to RR 1,028, RR 5,079 and RR 577 for the years ending 31 December 2011, 2010 and 2009 respectively. Key management compensation is set by annual employment contracts. j) Share Option Plan In March 2008, the Board of Directors approved a share-option plan for the management and key employees of the Group (the “Plan”). The Plan provided for the granting of share-options at a specially determined exercise price to the members of the Management Board and other key employees of the Group majority of whom provided services to the Group over the last three years or more. The number of share options granted to each individual manager was based on the duration of services provided by manager to the Group. As of 31 December 2009 1,657,609 shares were granted.

All options outstanding as of 31 December 2009 were exercisable in November 2010. Plan participants had no right to exercise the share option at any time prior to exercise date. In case of termination of the service before the exercise date, Plan participants lost rights under the Plan. The Plan was cash-settled. As of the exercise date Plan participants had the right to purchase shares at exercise price with the obligation of subsequently selling-back the shares at the market price. The shares’ market price at the exercise date would have been determined based on the current stock quote if the Group had completed a public offering before November 2010. Otherwise the implied market share price would have been determined based on the Enterprise value (EV)/EBITDA multiple of similar world listed companies, multiplied by the Group’s EBITDA for the latest four reporting quarters, and adjusted for the Group’s net debt. As of 31 December 2009, the Group recognized a liability of RR 4,252 related to the fair value of options recorded within trade and other payables, and the corresponding charge is recorded within operating expenses as staff costs. The fair value of options granted was measured using Black-Scholes share-option valuation model. In November 2010, the Group signed the agreements with all Plan participants to terminate the share-option plan with RR 3,452 repayment obligation. As of 31 December 2010, the obligation was partially repaid and the outstanding amount of RR 737 was recorded in trade and other payables. As of 31 December 2011, the obligation had been fully repaid. The remaining balance of originally accrued liability related to the option plan was written down with the corresponding effect of RR 790 and recorded as credit to the staff cost in operating expense. k) Joint ventures As of 31 December 2011, 2010 and 2009 the Group had the following balances with its associated companies: 31 December 2011 31 December 2010 31 December 2009 Loans receivable 1,139 7,410 2,360 Short-term borrowings (500) - - Trade and other receivables 1,314 2,244 5,089 Trade and other payables (259) (112) (59)

49

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

32 RELATED PARTIES (CONTINUED)

Operating activities 31 December 2011 31 December 2010 31 December 2009 Purchases of materials, goods and services (7,626) (1,991) (3) Sales of materials 5,538 1,594 - Interest income 704 418 650 l) Mineral Fertilizers

Subsidiaries that belonging to the Mineral Fertilizers business of Sibur Group are considered related parties for the purpose of this combined financial information (Note 1) up to the moment when it was disposed by Sibur Group to third parties in December 2011. For the years ended 31 December 2011, 2010 and 2009 the Group performed the following operations with Sibur Group’s subsidiaries included in Mineral Fertilizers business.

31 December 2011 31 December 2010 31 December 2009 Sales of raw materials 4,346 3,845 2,335 Sales of electric power 1,025 920 682 Discount on loans receivable (Note 10) - (188) (1,621) Interest income 556 783 721 Unwinding of borrowings 270 - - As of 31 December 2010 and 2009 the Sibur Group had the following balances with its subsidiaries included in Mineral Fertilizers business. 31 December 2010 31 December 2009 Accounts receivable 100 69 Short term loans receivable 3,695 3,358 Long term loans receivable 2,859 2,488 Promissory notes receivable - 53 Short term borrowings (3,181) - Short term promissory notes payable on demand - (1,009) Advances received (117) (29) m) Tires Subsidiaries belonging to the Tires business of Sibur Group are considered related parties for the purpose of this combined financial information (Note 1) up to the moment when it was disposed by Sibur Group to third parties in December 2011. For the years ended 31 December 2011, 2010 and 2009 the Group had the following operations with Sibur Group’s subsidiaries included in Tires business. 31 December 2011 31 December 2010 31 December 2009 Sales of raw materials and other inventories 13,365 8,617 4,307 Sales of electric power 965 797 779 Sales of other work and services 40 85 91 Purchases of tires and rubber goods - (2) (5) Purchases of other work and services - (12) - Purchases of financial investments and financial issues - - (17) Interest income - 691 640 Interest expense (294) (520) (347)

50

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

32 RELATED PARTIES (CONTINUED)

As of 31 December 2010 and 2009 the Group had the following balances with Sibur Group’s subsidiaries included in Tires business.

31 December 2010 31 December 2009 Accounts receivable 1,610 515 Long-term loans given (Note 9) 560 3,186 Short term loans given 219 3,932 Accounts payable (153) (158) Notes payable (Note 19) (5,306) (5,192) Advances received (2) (11)

33 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS

Operating environment. The Russian Federation displays certain characteristics of an emerging market. Tax, currency and customs legislation is subject to varying interpretations and contributes to the challenges faced by companies operating in the Russian Federation. The international sovereign debt crisis, stock market volatility and other risks could have a negative effect on the Russian financial and corporate sectors. Management determined impairment provisions by considering the economic situation and outlook at the end of the reporting period. Provisions for trade receivables are determined using the ‘incurred loss’ model required by the applicable accounting standards. These standards require recognition of impairment losses for receivables arising from past events and prohibit recognition of impairment losses that could arise from future events, no matter how likely those future events are. The future economic development of the Russian Federation is dependent upon external factors and internal measures undertaken by the government to sustain growth, and to change the tax, legal and regulatory environment. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment. Legal proceedings. During this period, the Group was involved in a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. Management believes there are no current legal proceedings or other claims outstanding which could have a material adverse effect on the result of operations or financial position of the Group and which have not been accrued or disclosed in the combined financial information. Taxation. Russian tax, currency and customs legislation is subject to varying interpretation, and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. Recent events in the Russian Federation suggest that the Russia’s tax authorities may be taking a more assertive position in their interpretation of the law and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. The Supreme Arbitrazh Court issued guidance to lower courts on reviewing tax cases, providing a systemic roadmap for anti-avoidance claims, and it is possible that this will significantly increase the level and frequency of tax authorities’ scrutiny. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year under review. Under certain circumstances, reviews may cover longer periods. The current Russian transfer pricing rules, introduced from 1 January 1999, allow the Russian tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of all controllable transactions, provided that the tax authorities prove that the transaction price established by the parties differs from the market price by more than 20 percent. Controllable transactions include transactions with interdependent parties, as determined under the Russian Tax Code, and all cross-border transactions (irrespective of whether they are performed between related or unrelated parties), transactions where the price applied by a taxpayer differs by more than 20 percent from the price applied in similar transactions by the same taxpayer within a short period of time, and barter transactions. There is no formal guidance on how these rules should be applied in practice. The Arbitrazh Court precedent in this respect is contradictory.

51

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

33 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS (CONTINUED)

Tax liabilities arising from intercompany transactions are determined using actual transaction prices. It is possible with the evolution of the interpretation of the transfer pricing rules in the Russian Federation and the changes in the Russian tax authorities’ approach, that such transfer prices could potentially be challenged in future. Given the brief nature of current Russian transfer pricing rules, the impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the Group. New transfer pricing rules were introduced in Russia – applicable from 2012. Compared to the previous transfer pricing legislation, these new rules appear more technically developed and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). In connection with the introduction of new Russian transfer pricing rules, the Group is revising its transfer pricing policies and will be required to prepare annual notices to local tax offices and transfer pricing documentation supporting the arm’s length nature of prices applied and transfer pricing methods used in transactions that are subject to special oversight from the tax authorities. The Group is currently assessing the potential impact of the new transfer pricing rules on intragroup transactions. The Group includes companies incorporated outside Russia. The Group’s tax liabilities are determined on the assumption that these companies are not subject to Russian profit tax because they are not permanently established in Russia. Russian tax laws do not provide detailed rules on the taxation of foreign companies. With the evolution of the rules of Russian legislation and/or administrative practices in respect to the interpretation of these rules, the Russian tax authorities’ approach to determine the tax status of the Group’s foreign companies may be changed. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the entity. Management believes that its interpretation of the relevant legislation is appropriate and that the Group's tax, currency and customs positions will be retained. Where management believes it is probable that a position cannot be retained, an appropriate amount has been accrued for in these IFRS combined financial information. Environmental matters. The enforcement of environmental regulation in the Russian Federation is evolving, and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. Obligations are recognized as soon as they are determined. Potential liabilities which could arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated, but could be material. Management believes that there are no likely liabilities for environmental damage, which would have a materially adverse impact on the Group’s financial position or operating results. Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of employees in the areas of its production operations, including contributions in the construction, development and maintenance of housing, hospitals, transportation services, recreation and other social needs. Such funding is expensed as incurred. Compliance with covenants. The Group is subject to certain covenants primarily related to its borrowings. Non- compliance with such covenants may result in negative consequences for the Group increased borrowing costs. The Group’s management believes that the Group is in compliance with its covenants. Capital commitments. In the normal course of business, the Group has entered into contracts for the purchase of property, plant and equipment. The Board of Directors has approved a capital expenditure budget for the year 2012 of RR 68,479 (for year 2011: RR 64,209, for year 2010: RR 46,445).

34 EVENTS AFTER THE REPORTING DATE

In February 2012 JSC “Miracle” was merged into the Company which became its legal successor. At the merger, all of the Company’s shares owned by JSC “Miracle” were cancelled. As a result, Sibur Limited became the single direct owner of the Company and the number of the Company’s outstanding shares equalled to 21,784,791 shares. In February 2012 the Company disposed CJSC “Voronezh Tyre Plant” to OOO “E-Volution Tyre”, joint venture between the Pirelli Group and “Rostechnologii” for EUR 100 million (RR: 4,167). On 26 April 2012, the Annual General Meeting of Shareholders made the decision on the following: a) splitting the Company's shares using the index of 100: 21,784,791 ordinary registered shares of the Company with the nominal value of 1,000 Russian Rouble each to be converted into 2,178,479,100 ordinary registered shares with the nominal value of 10 Russian Rouble each;

52

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

34 EVENTS AFTER THE REPORTING DATE (CONTINUED) b) on distributing RR 21,785 as dividends to the Company's shareholders by paying dividends of 1,000 Russian Rouble per ordinary share. On 29 March 2012 the Group acquired an additional 50 percent of OOO “Biaxplen”, a polyethylene terephthalate producer, for a total consideration of RR 1,200 and, as a result, increased the Group’s ownership up to 100 percent.

35 NEW ACCOUNTING DEVELOPMENTS.

Beginning 1 January 2011 the Group has adopted the following new standards and interpretations: Amendment to IAS 24, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning on or after 1 January 2011). IAS 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements for government-related entities. Improvements to International Financial Reporting Standards (issued in May 2010 and effective from 1 January 2011). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first- time adopter to explain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements; IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRS standards) of non-controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on the acquiree’s share-based payment arrangements that were not replaced, or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date, and not the amount obtained during the reporting period; IAS 1 was amended to clarify the requirements for the presentation and content of the statement of changes in equity; IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008); IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial assets or changes in business or economic environment that affect the fair values of the entity’s financial instruments; and IFRIC 13 was amended to clarify measurement of fair value of award credits. The above amendments resulted in additional or revised disclosures, but had no material impact on measurement or recognition of transactions and balances reported in this combined financial information. The financial effect of collateral required to be disclosed by the amendments to IFRS 7 is presented in this combined financial information by disclosing collateral values separately for (i) those financial assets where collateral and other credit enhancements are equal to, or exceed, carrying value of the asset (“over-collateralised assets”) and (ii) those financial assets where collateral and other credit enhancements are less than the carrying value of the asset (“under-collateralised assets”). Other revised standards and interpretations effective for the current period. IFRIC 19 “Extinguishing financial liabilities with equity instruments”, amendments to IAS 32 on classification of rights issues, clarifications in IFRIC 14 “IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction” relating to prepayments of minimum funding requirements and amendments to IFRS 1 “First-time adoption of IFRS”, did not have any impact on this combined financial information. The adoption of these new standards and interpretations had insignificant effect on the Group’s combined financial information. Some new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2012 or later, and that the Group has not early adopted.

53

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

35 NEW ACCOUNTING DEVELOPMENTS (CONTINUED)

IFRS 9, Financial Instruments: Classification and Measurement. IFRS 9, issued in November 2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after 1 January 2015 and (ii) add transition disclosures. Key features of the standard are as follows:  Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortized cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.  An instrument is subsequently measured at amortized cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.  All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted. The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group. IFRS 10, Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation - special purpose entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance. The Group is currently assessing the impact of the new standard on its financial information. IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities—Non- Monetary Contributions by Ventures”. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. The Group is currently assessing the impact of the new standard on its financial information IFRS 12, Disclosure of Interest in Other Entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currently found in IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgments and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. The Group is currently assessing the impact of the new standard on its financial information. IFRS 13, Fair value measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), aims to improve consistency and reduce complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Group is currently assessing the impact of the standard on its financial information.

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ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

35 NEW ACCOUNTING DEVELOPMENTS (CONTINUED)

IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013), was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10, Consolidated Financial Statements. The Group is currently assessing the impact of the amended standard on its financial information. IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment of IAS 28 resulted from the Board’s project on joint ventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures using the equity method into IAS 28 because this method is applicable to both joint ventures and associates. With this exception, other guidance remained unchanged. The Group is currently assessing the impact of the amended standard on its financial information. Disclosures—Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 and effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party, yet remain on the entity's balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognized, but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood. The Group is currently assessing the impact of the amended standard on disclosures in its financial information. Amendments to IAS 1, Presentation of Financial Statements (issued June 2011, effective for annual periods beginning on or after 1 July 2012), changes the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be reclassified to profit or loss in the future. The suggested title used by IAS 1 has changed to ‘statement of profit or loss and other comprehensive income’. The Group expects the amended standard to change presentation of its financial information, but have no impact on measurement of transactions and balances. Amended IAS 19, Employee Benefits (issued in June 2011, effective for periods beginning on or after 1 January 2013), makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Group is currently assessing the impact of the amended standard on its financial information. Disclosures—Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off. The amendment will have an impact on disclosures but will have no effect on measurement and recognition of financial instruments. Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. The Group is considering the implications of the amendment, the impact on the Group and the timing of its adoption by the Group.

55

ZAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011, 2010 AND 2009 (In millions of Russian Roubles, unless otherwise stated)

35 NEW ACCOUNTING DEVELOPMENTS (CONTINUED)

Other revised standards and interpretations: The amendments to IFRS 1 “First-time adoption of IFRS”, relating to severe hyperinflation and eliminating references to fixed dates for certain exceptions and exemptions, the amendment to IAS 12 “Income taxes”, which introduces a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, and IFRIC 20, “Stripping Costs in the Production Phase of a Surface Mine”, which considers when and how to account for the benefits arising from the stripping activity in mining industry, will not have any impact on this combined financial information.

The Group head office: ZAO SIBUR Holding 16/1 Krzhizhanovskogo St. Moscow, GSP-7, 117997 Russia Telephone/fax: +7 (495) 777 5500 Website: www.sibur.ru (Russian) www.sibur.ru/eng/ (English)

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