________________________ The People of SIBUR 2007 Company Social Report 2008 1 To our readers.........................................................................................3 What changed during the year?...............................................................4 Events, strategies, projects…..................................................................6 Salaries, concessions, bonuses… ..........................................................12 Education, career, management culture….............................................23 Outsourcing, optimization, competency centers…................................27 Occupational health and safety... ..........................................................33 The environment, petrochemicals, nature… .........................................38 The trade union, corporate newspapers, The Pastor’s Word….............42 The regions, the authorities, philanthropy….........................................46 The future, challenges, forecasts….......................................................50 SIBUR’s challenges today and tomorrow.............................................53 2 To our readers Chairman of the SIBUR Board of Directors Alexander Dyukov SIBUR President Dmitry Konov Dear readers, We are proud to welcome you to the pages of the second ever SIBUR Holding social report. 2007 was a successful year for the company in terms of profit growth and business development. Unprecedented high performance ratings were achieved, and personnel’s social security grew. Thus, the positive trend that had previously become apparent continued, and the main creators of SIBUR’s success, without doubt, were us: everyone working in the Company. Today the Holding is entering a new stage in its development. After a period of establishing order, optimizing processes, and understanding and realizing our role we are facing the need to grow more intensively. This does not mean that we do not need to maintain order, improve the performance of existing production facilities, and improve the productivity of labor anymore. Improving existing activities has the potential to enhance performance tremendously. But at the same time, new projects that will bring us to a qualitatively new level of product quality and production scale will require much effort and attention. What resources do we need to achieve these objectives? Most importantly, we need people. The scale of the new tasks is a serious test of SIBUR’s organizational culture, which is just beginning to form from new real conditions and our approaches to handling them. At the same time, it is a great chance. It is a chance for young specialists and experienced professionals, for employees and managers to bring their qualifications to the next level, build their careers, improve their families’ material living conditions, and impact the social climate in their regions of residence. Being aware of the real importance of the moment, SIBUR’s top management has decided to direct this social report primarily to its own colleagues—to Holding employees. The second step was the choice of conversation format. What problems are personnel interested in? In what form would they like to receive answers to their questions? It is no secret that besides issues of the company’s prospects, occupational safety, and environmental challenges, the ordinary worker is most concerned about the subject of his or her career, salary, and material incentives as a whole. Thus the document’s agenda took shape, in which SIBUR executives discuss questions in the form of a trust-based dialogue. Where the Holding is going, what its employees should expect, what they can hope for, and what is likewise expected of them comprise the answers contained in the SIBUR social report, along with a non-economic 2007 summary report. Management sees observing the balance of short-term interests (including solution of a number of social problems) and long-term stable development of the company as its main task. By signifying the search for this balance, the report performs yet another important mission: it encourages development of a dialogue in the management culture at all Company levels. Only by being open and full of competitive ideas may we realize our ambitious plans in global market conditions and provide each SIBUR employee with dignified living standards and self- actualization. 3 What changed during the year? By 2007, various epithets could be added to the history of SIBUR: Unprecedented success. A year of starting big projects. A year of forming strategies. A reference point for a new understanding of the importance of occupational safety. All of these names are correct and speak of the same thing: this year was a truly rich one in the company’s life. In terms of corporate philosophy, major shifts occurred in the corporation’s self-conception. Interviews with SIBUR executives provide a detailed picture of the changes. Now we will try to formulate a summary and the spirit of their statements. So, what were the principal changes that happened in 2007? First of all, the horizons of the company’s viewpoint expanded. A number of business units approved the strategy for the next four to five years and stipulated core directions and resources for development until 2020. This was possible because of the corporation’s growing stability and resilience in the national economy and as a whole. SIBUR managers currently spend up to seventy percent of their work time on strategic planning, investment projects, developing long- term relations with suppliers, and expanding the corporation’s geographic coverage. For example, the company has conclusively gotten past the stage when all associated petroleum gas was supplied on the basis of one-year and sometimes quarterly contracts. The joint venture with TNK-BP, Yugragazpererabotka, began operations in 2007, providing us with a landmark experience which will be replicated at the corporation’s other joint ventures. A JV with Gazprom Neft has already been created, and other partners have lined up. Stability of feedstock supply for the First Directorate inspires confidence in the future of other business units. The social sense of strategic planning is forecasting the future for employees, a guarantee of their families’ wellbeing. Second of all, understanding of the close bond between safety at production facilities and the company’s financial results was strengthened. Undoubtedly, the loss of associated petroleum gas in processing which resulted from an accident at the Belozernyi Gas Processing Plant played a key role here. The magic of numbers amounted to a million cubic meters that should have been gained but were not, a billion rubles in damages, and another billion rubles as the cost of restoration. By now SIBUR is confidently making its way to establishing occupational health and safety as a collective value. It is no simple feat, but in 2007 employees were already beginning to notice management’s special attention to safety at production facilities. Third, succession pool and rotation programs increased in significance, the formation of a unified management culture accelerated, to a large extent evening the entrenched difference between Moscow and the regions. The functional separation remains, along with the peculiar tasks assigned to the corporate center and regional subdivisions. Enterprises will produce, and they must do this as efficiently as possible, while the corporate center will sell and gain a market advantage by consolidating product streams. At the same time, decision-making procedures and corporate values, as well as dynamism, efficiency, and making quality and customers’ needs the top priorities are consciously shared and practiced by an constantly growing number of managers and specialists. To such framework concepts the specific experience of each employee is added and becomes common property through the mobility and openness of corporate structures, working to improve the company’s competitive advantages and to evaluate and promote talent. Program offices, collaboration between employees from various business units on interesting projects, large-scale succession pool and rotation programs: these and other tools encourage communication and innovation, and create a comfortable environment for creative and career growth. 4 Occupational safety, employees’ confidence in the stability of their future and self-actualization are what SIBUR worked on in 2007. These remain the company’s priorities. 5 Events, strategies, projects… Chart 1. Basic indicators of JSC SIBUR Holding1. Revenue, billions of rubles. 160 142.7 140 121.9 120 106.6 100 84.6 80 60 40 20 0 2004 2005 2006 2007 Chart 2. Basic indicators of JSC SIBUR Holding. Clear profit, billions of rubles. 25 22.6 21.4 20 15 10.9 10 4.7 5 0 2004 2005 2006 2007 Chart 3. Financing of investment activities, billions of rubles with VAT. 20 18.19 18 16 14 12 10 8 7.27 6 4 2 0 2007 2008 . 1 Data per IFRS. 6 It is believed that in terms of economy, 2007 was spectacularly successful. How well-founded is that opinion? Dmitry Konov: – The company’s financial results and general developmental results are just a few topics. From a financial point of view, this was the most successful year in terms of absolute indicators, while the foundation for success had been laid over the course of the preceding years. On the other hand, certain relative indicators improved since the year before. We thought about the future a lot in 2007, which was the first year that we implemented big projects. I’m