IMPORTANT NOTICE: NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES EXCEPT TO QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT OF 1933 AS AMENDED (“RULE 144A”) THAT ARE ALSO QUALIFIED PURCHASERS (“QPs”) WITHIN THE MEANING OF SECTION 2(A)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE “INVESTMENT COMPANY ACT”) OR OTHERWISE TO PERSONS TO WHOM IT CAN LAWFULLY BE DISTRIBUTED.

IMPORTANT: You must read the following before continuing. The following applies to the document following this page (the “Prospectus”), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. If you have gained access to this transmission contrary to any of the following restrictions, you are not authorised and will not be able to purchase any of the securities described herein (the “Securities”). You acknowledge that this electronic transmission and the delivery of the attached Prospectus is intended for you only and you agree you will not forward this electronic transmission or the attached Prospectus to any other person. Any forwarding, distribution or reproduction of this document in whole or in part is unauthorised. Failure to comply with the following directives may result in a violation of the U.S. Securities Act of 1933 as amended (the “Securities Act”) or the applicable laws of other jurisdictions. The Prospectus has been prepared solely in connection with the proposed offering to certain institutional and professional investors of the Securities.

In particular, the Prospectus is prepared pursuant to Directive 2003/71/EC (the “Prospectus Directive”) and published and made available in accordance with applicable laws in due course.

Investors should not subscribe for or purchase securities except on the basis of information in the Prospectus. Copies of the Prospectus will, following publication, be made available to the public in accordance with applicable rules.

NOTHING IN THIS PROSPECTUS CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES DESCRIBED IN THIS PROSPECTUS (THE “NOTES”) HAVE NOT BEEN, AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QIB THAT IS ALSO A QUALIFIED PURCHASER AS DEFINED IN SECTION 2(A)(51) OF THE INVESTMENT COMPANY ACT (A “QP”) THAT (A) IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF UNAFFILIATED ISSUERS, (B) IS NOT A PARTICIPANT DIRECTED EMPLOYEE PLAN, SUCH AS A 401(K) PLAN, (C) WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN TMK CAPITAL S.A. (THE “ISSUER”), (D) IS ACQUIRING THE NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP, IN A PRINCIPAL AMOUNT THAT IS NOT LESS THAN U.S.$200,000 (OR ITS EQUIVALENT UNDER ANY OTHER CURRENCY) (E) UNDERSTANDS THAT THE ISSUER MAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES AND (F) WILL PROVIDE NOTICE OF THE TRANSFER RESTRICTIONS TO ANY SUBSEQUENT TRANSFEREE, OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

Confirmation of your representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the Securities, investors must be (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act) outside the United States who are not acting for the account or benefit of U.S. persons or (ii) QIBs that are also QPs that are acquiring the securities for their own account or the account of another QIB that is also a QP. By accepting this e-mail and accessing the Prospectus, you shall be deemed to have represented to us that: (1) (A) you and any customers you represent are not U.S. persons and/or are not acting for the account or benefit of any U.S. persons and the electronic mail address that you gave us and to which this e-mail has been delivered is not located in the U.S. or (B) you are a QIB that is also a QP acquiring the securities referred to herein for your own account and/or for another QIB that is also a QP and (2) you consent to delivery of such Prospectus by electronic transmission. The Prospectus may only be communicated or caused to be communicated to persons in the United Kingdom in circumstances where section 21(1) of the Financial Services and Markets Act 2000 (the “FSMA”) does not apply and may be distributed in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the “Order”), or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”.) of the Order (all such persons together being referred to as “Relevant Persons”). In the United Kingdom, the Prospectus is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which the Prospectus relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.

The Securities are not eligible for placement and circulation in the Russian Federation, unless, and to the extent, otherwise permitted by Russian law. The information provided in the Prospectus is not an offer, or an invitation to make offers, sell, exchange or otherwise transfer securities in the Russian Federation or to or for the benefit of any Russian person or entity.

The Prospectus and information contained herein does not constitute an advertisement or an offer of any securities in the Russian Federation. It is not intended to be, and must not be, distributed or circulated in the Russian Federation unless and to the extent otherwise permitted under Russian law.

The Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate on behalf of the Issuer in such jurisdiction.

This Prospectus is being sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and, consequently, none of TMK Capital S.A., OAO TMK, the Guarantors described herein, Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, J.P. Morgan Securities plc (the “Joint Lead Managers”) nor any person who controls any of them, nor any director, officer, employee or agent of any of them, nor any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference between the attached document distributed to you in electronic format and the hard copy version available to you on request.

You are responsible for protecting against viruses and other destructive items. Your use of this email is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

The information set forth in this document is only accurate as of the date on the front cover of this document. OAO TMK’s business and financial condition may have changed since that date. In making an investment decision, prospective investors must rely on their own examination of OAO TMK and the terms of this document, including the risks involved. U.S.$500,000,000 6.75% LOAN PARTICIPATION NOTES DUE 2020 issued by, but with limited recourse to, TMK Capital S.A. for the sole purpose of financing a loan to OAO TMK such loan initially and unconditionally, and irrevocably guaranteed by OAO Volzhsky Pipe Plant and ZAO TMK Trade House, and to be additionally unconditionally and irrevocably guaranteed by OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc. Issue Price: 100% TMK Capital S.A., a company incorporated as a société anonyme under the laws of the Grand Duchy of Luxembourg (the “Issuer”), is issuing an aggregate principal amount of U.S.$500,000,000 6.75% Loan Participation Notes due 2020 (the “Notes”) for the sole purpose of financing a loan (the “Loan”) to OAO TMK, an open joint stock company organised under the laws of the Russian Federation (the “Borrower”), pursuant to a loan agreement dated 28 March 2013 (the “Loan Agreement”) between the Issuer and the Borrower. The Loan shall be initially unconditionally and irrevocably guaranteed (the “Initial Loan Guarantees”) by the Borrower’s subsidiaries OAO Volzhsky Pipe Plant and ZAO TMK Trade House (the “Initial Loan Guarantors”) and the Further Guarantors (as defined below), and the Borrower has agreed in the Loan Agreement to procure that each of the Borrower’s subsidiaries, OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc. (the “Additional Loan Guarantors” and, together with the Initial Loan Guarantors, and the Further Guarantors (as defined below), the “Loan Guarantors”) shall also provide an unconditional and irrevocable guarantee of the Loan (the “Additional Loan Guarantees”, and together with the Initial Loan Guarantees and the Further Guarantees (as defined below), the “Loan Guarantees”) within 90 days of 3 April 2013 (the “Issue Date”). In addition, in certain circumstances set out in the Loan Agreement, the Borrower may be obligated to procure certain further guarantees (the “Further Guarantees” from certain of its subsidiaries (the “Further Guarantors”). Failure of the Borrower to procure any such guarantees shall entitle the holders of the Notes (the “Noteholders”) to request that the Issuer repurchase the Notes, as set out in the Terms and Conditions. Pursuant to the trust deed (the “Trust Deed”) relating to the Notes between the Issuer and Deutsche Trustee Company Limited, as trustee (the “Trustee”), the Issuer will provide certain security for all payment obligations in respect of the Notes for the benefit of the Noteholders, including a first fixed charge in favour of the Trustee of all amounts paid and payable to it under the Loan Agreement and the Deed of Loan Guarantee and an assignment to the Trustee of the Issuer’s rights and interests under the Loan Agreement and the Deed of Loan Guarantee, in each case other than in respect of certain reserved rights (as more fully described in “Description of the Transaction and the Security”). Interest on the Loan, and consequently the Notes, will be payable semi-annually in arrear on the interest payment date falling on 3 April and 3 October in each year, commencing on 3 October 2013 and the Loan will bear interest from, and including, 3 April 2013 at a rate of 6.75% per annum. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest, premium and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest, premium and additional amounts (if any) are due, for an amount equivalent to the principal, interest, premium, increased amounts of principal, interest, premium and any other payment due under the Loan Agreement and additional amounts (if any) actually received by or for the account of the Issuer from the Borrower or the Loan Guarantors pursuant to the Loan Agreement or the Deed of Loan Guarantee. The Issuer will have no other financial obligation under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the credit and financial standing of the Borrower and the Loan Guarantors in respect of the obligations of the Borrower and the Loan Guarantors under the Loan Agreement and the Deed of Loan Guarantee, respectively. Except as set forth herein, payments in respect of the Notes will be made without any deduction or withholding for or on account of taxes of any relevant jurisdiction. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 1. The Notes, the Loan and the Loan Guarantees (together, the “Securities”) have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (“Regulation S”)). The Notes may be offered and sold (i) within the United States only to qualified institutional buyers (“QIBs”), as defined in Rule 144A under the Securities Act (“Rule 144A”), that are also qualified purchasers (“QPs”), as defined in Section 2(a)(51) of the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), in reliance on the exemption from registration under Section 5 of the Securities Act provided by Rule 144A or on another exemption therefrom, (the “Rule 144A Notes”) and (ii) to non-U.S. persons in offshore transactions as defined in and in reliance on Regulation S (the “RegulationSNotes”). The Issuer has not been and will not be registered under the Investment Company Act. Prospective purchasers are hereby notified that sellers of the Rule 144A Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers, sales and transfers of the Notes and this distribution of the Prospectus, see “Subscription and Sale”and“Transfer Restrictions”. This Prospectus has been approved by the Central Bank of Ireland, as competent authority under Directive 2003/71/EC, as amended (the “Prospectus Directive”). The Central Bank of Ireland only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange Limited (the “Irish Stock Exchange”) for the Notes to be admitted to the Official List of the Irish Stock Exchange and trading on its regulated market (the “Main Securities Market”). The Main Securities Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC. It is expected that the Notes will be rated B1 by Moody’s Investors Service Ltd. (“Moody’s”), and B+ by Standard and Poor’s Credit Market Services France SAS, a division of The McGraw-Hill Companies, Inc. (“Standard and Poor’s”). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating agency. Moody’s and Standard and Poor’s are established in the European Union and are registered under the Regulation (EC) No. 1060/2009, as amended (the “CRA Regulation”). As such, Standard and Poor’s and Moody’s are included in the list of credit rating agencies published by the European Securities and Markets Authority (“ESMA”) on its website in accordance with the CRA Regulation. For more information on the ratings of the Notes, see “Terms of the Offering”. In general, European regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the European Union and registered under the CRA Regulation. The Notes will be offered and sold in the minimum denomination of U.S.$200,000 and higher integral multiples of U.S.$1,000. The Regulation S Notes will initially be represented by interests in a global note certificate in registered form (the “Regulation S Global Note Certificate”), without interest coupons, which will be deposited with a common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”), and registered in the name of a nominee, on or about the Issue Date. The Rule 144A Notes will initially be represented by interests in a global note certificate in registered form (the “Rule 144A Global Note Certificate” and, together with the Regulation S Global Note Certificate, the “Global Note Certificates”), which will be registered in the name of Cede & Co., as nominee of, and deposited with a custodian for, The Depository Trust Company (“DTC”) on or about the Issue Date. Beneficial interests in the Global Note Certificates will be shown on, and transfers thereof will be effected only through records maintained by DTC, Euroclear or Clearstream, Luxembourg (as the case may be) and their respective participants. See “Clearing and Settlement”. Individual note certificates in registered form will only be available in certain limited circumstances as described herein. Joint Lead Managers Citigroup Deutsche Bank J.P. Morgan The date of this Prospectus is 28 March 2013 IMPORTANT INFORMATION ABOUT THIS PROSPECTUS

This prospectus (the “Prospectus”) comprises a prospectus for the purposes of Directive 2003/71/EC, as amended (the “Prospectus Directive”) for the purpose of giving information with respect to the Issuer, the Borrower together with its consolidated subsidiaries (“TMK” or the “TMK Group”), the Loan Guarantors, the Loan Guarantees, the Loan and the Notes and which is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, the Borrower, the Loan Guarantors and the TMK Group. Each of the Issuer, the Borrower and each of the Loan Guarantors accepts responsibility for the information contained in this document. To the best of the knowledge and belief of each of the Issuer, the Borrower and each of the Loan Guarantors, each of which has taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

The Borrower and each of the Loan Guarantors confirms that (i) this Prospectus contains all information with respect to TMK, each of the Loan Guarantors and their respective subsidiaries, the Loan, the Loan Guarantees and the Notes that is material in the context of the issue and offering of the Notes; (ii) the statements contained in this Prospectus relating to TMK, each of the Loan Guarantors and their respective subsidiaries are in every material respect true and accurate and not misleading; (iii) the opinions, beliefs, expectations and intentions expressed in this Prospectus with regard to TMK, each of the Loan Guarantors and their respective subsidiaries are honestly held, have been reached after considering all relevant circumstances, and are based on reasonable assumptions; (iv) there are no other facts in relation to TMK, each of the Loan Guarantors and their respective subsidiaries, the Loan, the Loan Guarantees or the Notes, the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Prospectus misleading in any material respect; and (v) all reasonable enquiries have been made by TMK and each of the Loan Guarantors to ascertain such facts and to verify the accuracy of all such information and statements.

This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, TMK, the Loan Guarantors or the Joint Lead Managers (as defined in “Subscription and Sale”) to subscribe for or purchase any Notes in any jurisdiction where it is unlawful to make such an offer or invitation. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, TMK, the Loan Guarantors and the Joint Lead Managers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Prospectus, see “Subscription and Sale” and “Transfer Restrictions”.

No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, TMK, the Loan Guarantors, the Trustee or the Joint Lead Managers. The delivery of this document at any time does not imply that the information contained in it is correct as at any time subsequent to its date. TMK Group’s websites do not form any part of the contents of this Prospectus.

Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer, TMK or the Loan Guarantors since the date of this Prospectus.

None of the Issuer, TMK, the Loan Guarantors, the Joint Lead Managers, the Trustee or any of its or their respective representatives or affiliates makes any representation to any offeree or purchaser of the Notes offered hereby regarding the legality of an investment by such offeree or purchaser under applicable legal, investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes.

Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or sell any Notes or possess this Prospectus. Any consents or approvals that are needed in order to purchase any Notes must be obtained. The Issuer, TMK, the Loan Guarantors, the Trustee and the Joint Lead Managers are not responsible for compliance with these legal requirements. The appropriate characterisation of the Notes under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase the Notes, is subject to significant interpretative uncertainties. No representation or warranty is made as to whether or the extent to which the Notes constitute a legal investment for investors whose investment authority is subject to legal restrictions, and investors should consult their legal advisers regarding such matters.

i In connection with the issue of the Notes, Citigroup Global Markets Limited (the “Stabilising Manager”) (or any person acting on behalf of any Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the final terms of the offer of the Notes is made and, if commenced, may be discontinued at any time and must be brought to an end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment shall be conducted in accordance with all applicable laws and rules.

The contents of the Borrower’s website do not form any part of this Prospectus.

NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE JOINT LEAD MANAGERS OR ANY OF THEIR AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF OR THE TRUSTEE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS DOCUMENT, AND NOTHING CONTAINED IN THIS DOCUMENT IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION BY THE JOINT LEAD MANAGERS OR ANY OF THEIR AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF, WHETHER AS TO THE PAST OR THE FUTURE. NONE OF THE JOINT LEAD MANAGERS OR ANY OF THEIR AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF OR THE TRUSTEE ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS DOCUMENT. EACH PERSON RECEIVING THIS PROSPECTUS ACKNOWLEDGES THAT SUCH PERSON HAS NOT RELIED ON THE JOINT LEAD MANAGERS OR ANY OF THEIR AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF IN CONNECTION WITH ITS INVESTIGATION OF THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION OR ITS INVESTMENT DECISION.

EACH PERSON CONTEMPLATING MAKING AN INVESTMENT IN THE NOTES MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE CREDITWORTHINESS OF TMK AND THE LOAN GUARANTORS AND ITS OWN DETERMINATION OF THE SUITABILITY OF ANY SUCH INVESTMENT WITH PARTICULAR REFERENCE TO ITS OWN INVESTMENT OBJECTIVES AND EXPERIENCE AND ANY OTHER FACTORS WHICH MAY BE RELEVANT TO IT IN CONNECTION WITH SUCH INVESTMENT.

The Issuer is not and will not be regulated by the Central Bank of Ireland as a result of issuing the Notes. Any investment in the Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank of Ireland.

The language of this Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

NOTICE TO UNITED KINGDOM RESIDENTS

This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

NOTICE TO PROSPECTIVE UNITED STATES INVESTORS

THE NOTES, THE LOAN AND THE LOAN GUARANTEES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.

ii THIS OFFERING IS BEING MADE IN THE UNITED STATES IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF THE SECURITIES WHICH DOES NOT INVOLVE A PUBLIC OFFERING. IN MAKING YOUR PURCHASE, YOU WILL BE DEEMED TO HAVE MADE CERTAIN ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENTS. SEE “SUBSCRIPTION AND SALE” AND “TRANSFER RESTRICTIONS”. THIS PROSPECTUS IS BEING PROVIDED (1) TO A LIMITED NUMBER OF INVESTORS IN THE UNITED STATES THAT THE ISSUER REASONABLY BELIEVES TO BE “QIBS” THAT ARE ALSO “QPS” FOR INFORMATIONAL USE SOLELY IN CONNECTION WITH THEIR CONSIDERATION OF THE PURCHASE OF THE NOTES AND (2) TO INVESTORS OUTSIDE THE UNITED STATES WHO ARE NOT U.S. PERSONS IN CONNECTION WITH OFFSHORE TRANSACTIONS COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S. TO ENSURE COMPLIANCE WITH UNITED STATES TREASURY DEPARTMENT CIRCULAR 230 (“CIRCULAR 230”), NOTEHOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS PROSPECTUS IS NOT INTENDED TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY NOTEHOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON NOTEHOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER AND THE BORROWER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER AND JOINT LEAD MANAGERS OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) NOTEHOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA 421-B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

NOTICE TO RUSSIAN INVESTORS This Prospectus or the information contained herein is not an offer, or an invitation to make offers, to sell, exchange or otherwise transfer the Notes in the Russian Federation to or for the benefit of any Russian person or entity and does not constitute an advertisement or offering of the Notes in the Russian Federation within the meaning of Russian securities laws. Information contained in this Prospectus is not intended for any persons in the Russian Federation who are not “qualified investors” within the meaning of Article 51.2 of the Federal Law no. 39-FZ “On the Securities Market” dated 22 April 1996, as amended (the “Russian QIs”) and must not be distributed or circulated into Russia or made available in Russia to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law. The Notes have not been and will not be registered in Russia and are not intended for “placement” or “circulation” in Russia (each as defined in Russian securities laws) unless and to the extent otherwise permitted under Russian law.

AVAILABLE INFORMATION The Issuer and the Borrower have agreed that, for so long as any Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, they will, during any period in which they are neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner or to the Trustee for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner, prospective purchaser or the Trustee, the information required to be provided by Rule 144A(d)(4) under the Securities Act.

iii TABLE OF CONTENTS

PAGE

RISK FACTORS ...... 1 CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS ...... 29 ENFORCEABILITY OF JUDGMENTS IN THE RUSSIAN FEDERATION ...... 30 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... 32 OVERVIEW OF THE GROUP ...... 36 SUMMARY CONSOLIDATED FINANCIAL INFORMATION ...... 41 TERMS OF THE OFFERING ...... 45 DESCRIPTION OF THE TRANSACTION AND THE SECURITY ...... 50 USE OF PROCEEDS ...... 52 CAPITALISATION ...... 53 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 54 BUSINESS ...... 85 RELATED PARTY TRANSACTIONS ...... 123 PRINCIPAL SHAREHOLDERS ...... 125 DIRECTORS AND MANAGEMENT ...... 126 CERTAIN REGULATORY MATTERS ...... 137 THE ISSUER ...... 147 THE LOAN GUARANTORS ...... 148 THE LOAN AGREEMENT ...... 154 FORM OF THE DEED OF LOAN GUARANTEE ...... 188 TERMS AND CONDITIONS OF THE NOTES ...... 199 SUMMARY OF PROVISIONS OF THE NOTES WHILE IN GLOBAL FORM ...... 213 TRANSFER RESTRICTIONS ...... 217 CLEARING AND SETTLEMENT ...... 222 SUBSCRIPTION AND SALE ...... 226 TAXATION OF THE NOTES, LOAN AND GUARANTEES ...... 230 CERTAIN ERISA CONSIDERATIONS ...... 242 INDEPENDENT AUDITORS ...... 243 GENERAL INFORMATION ...... 244 GLOSSARY OF SELECTED TERMS ...... 247 INDEX TO FINANCIAL STATEMENTS ...... F-1

iv RISK FACTORS

An investment in the Notes involves a high degree of risk. Prospective investors should consider carefully, among other things, the risks set forth below and the other information contained in this document prior to making any investment decision with respect to the Notes. The risks highlighted below could have a material adverse effect on our business, financial condition, results of operations and prospects which, in turn, could have a material adverse effect on the ability of the Borrower and the Loan Guarantors to service payment obligations under the Loan Agreement and the Loan Guarantees and, as a result, the debt service on the Notes. In addition, the value of the Notes could decline if any of these risks materialise, and the Noteholders may lose some or all of their investment.

Prospective investors should note that the risks described below are not the only risks we face. We have described only the risks we consider to be material. However, there may be additional risks that we currently consider immaterial or of which we are currently unaware, and any of these risks could have the effect set forth above.

Risks Relating to Our Business and the Pipe Industry Our business is substantially dependent on the oil and gas industry, and a decline in international prices of oil and natural gas and other factors affecting the oil and gas industry in Russia and globally has affected, and in future periods could negatively impact, our business. The oil and gas industry is the principal consumer of steel pipe products worldwide and accounts for most of our sales, in particular sales of oil country tubular goods (consisting of drill pipe, surface casing, production casing and production tubing) (“OCTG”), line pipes and large diameter welded pipes. In the years ended 31 December 2012, 2011 and 2010, approximately 75%, 74% and 74% respectively, of our sales volumes of pipes were sold to the oil and gas industry, and approximately 26%, 34% and 32%, respectively, of our sales volumes of pipes were sold to our five largest customers. The oil and gas industry has historically been volatile and downturns in the oil and gas markets adversely affect demand for our products, which depends, among other factors, on the number of oil and gas wells being drilled, completed and reworked and the depth and drilling conditions of these wells, as well as on the construction of pipelines to service these wells. The level of such industry specific activities in turn depends on the level of capital spending by major oil and gas companies.

A decline in Russian, U.S. and worldwide oil and gas exploration, drilling and production activities adversely affects our results of operations. Capital spending on OCTG and other kinds of pipes used for oil and natural gas exploration, drilling and production activities is driven in part by the prevailing prices for oil and natural gas and the perceived stability and sustainability of those prices. In this regard, there was a significant decrease in crude oil prices worldwide following their peak in 2008. In the following years, oil prices have recovered to substantially higher levels, but there remains the possibility of a future decline. In the United States, prices for natural gas have fallen significantly in the period from 2010 to 2012 due to structural changes taking place in the marketplace, with supply being transformed by recent advancements in horizontal drilling and the inflow from previously unconventional production areas such as shale gas. As a consequence, in 2012, we faced pricing pressure on our products in the United States and are continuing to and may in the future face similar pressure as exploration and development of new natural gas reserves decreases.

A substantial or extended decline in oil and natural gas prices can reduce our customers’ activities and their spending on our products. If global economic conditions and the limited access to debt funding experienced in late 2008 and 2009 were to reoccur, this could reduce our customers’ levels of expenditures and have a significant adverse effect on our revenue and operating results. In addition, oil and natural gas prices are subject to significant volatility due to other factors beyond our control, including market uncertainty, world events, regulatory control (including by the Russian government), political developments in petroleum-producing regions and the price and availability of alternative energy sources. We cannot assure you that oil and natural gas prices will not decline or that such prices will remain at sufficiently high levels to support levels of investment in exploration, drilling and production activities that will sustain demand for our products. Further, any increase in demand following such a decline may not have an immediate positive effect on our business if industry-wide inventory levels of OCTG products are high as customers can draw from inventory rather than purchase new products, as has been seen in prior periods such as in relation to our U.S. operations following the global economic crisis in 2008-2009.

In particular, in Russia, the oil and gas industry is subject to significant political, economic and other factors which could affect our business. In the years ended 31 December 2012, 2011 and 2010, sales to customers located in Russia accounted for 54%, 60% and 62%, respectively, of our consolidated revenue. In addition, the

1 Russian oil industry is subject to substantial taxes, including significant resources production taxes and significant export customs duties, and changes to the tax regime and customs duties rates may adversely affect the level of oil and gas exploration and development in Russia.

While levels of demand and production have been relatively stable, other than in the United States with respect to customers in the natural gas industry, in the period from 2010 to 2012, changes in demand in the future may have a material adverse effect our business, financial condition, results of operations and prospects. A reduction in investment activity by the oil and gas industry, either in Russia, the United States or globally due to another economic downturn or otherwise, may result in declining demand for our products which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Increases in the cost of raw materials may negatively affect our business. We require substantial quantities of raw materials to produce steel pipes. Our principal raw material requirements include scrap metal and ferroalloys for use in our in-house steel-making operations, steel billets for producing seamless pipes, and steel coils and plates for producing welded pipes. The demand for the principal raw materials we utilise is generally correlated with macroeconomic fluctuations, which are in turn affected by global economic conditions. These prices are influenced by many factors, including oil and gas prices, worldwide production capacity, capacity utilisation rates, inflation, exchange rates, trade barriers and improvements in steel- making processes.

In the years ended 31 December 2012, 2011 and 2010, the costs of raw materials and consumables, including costs relating to supplies of raw materials and consumables, accounted for approximately 66%, 69% and 68%, respectively, of our cost of production.

In 2012, raw material prices fell as compared to 2011, while in 2011, as compared to 2010, prices initially increased but then decreased in the fourth quarter of 2011. In 2012, the cost of scrap metal decreased by 1% to 5% (depending on the division), as compared to 2011. In 2011, the cost of scrap metal increased by 20% to 25%, (depending on the division), as compared to 2011. In 2012, the cost of coils decreased by 11% to 17% (depending on the division) as compared to 2011. In 2011, the cost of coils increased by 17% to 19% (depending on the division), as compared to 2010. As a result of the increase both in prices for raw materials and sales volumes in 2011, our costs of raw materials and consumables increased from U.S.$2,971.8 million in 2010 to U.S$3,720.9 million in 2011, and, following the decreases in prices, decreased to U.S.$3,352.1 million in 2012.

Although increases in our internal steel-making capacity in recent years have reduced our consumption of steel billets purchased from third parties and thus our exposure to fluctuations in the price of steel products, we remain subject to increases in the prices of scrap metal, which is the principal raw material in our steel-making operations. In particular, in Russia we mainly purchase scrap from a single local supplier. Further, as Russian steel makers continue to modernise their production facilities, including through the installation of EAFs (which use scrap metal as their principal input), we expect demand for scrap in Russia to increase, which may result in increased scrap prices and tighter supply. While we plan to take steps to increase our internal steel scrap-sourcing capabilities, and may acquire a scrap collection business, we nevertheless may experience higher scrap prices or limitations in scrap supplies in the future. We also consume significant quantities of energy, particularly electricity and gas. See “— Increasing tariffs and the continuing liberalisation of the Russian energy sector could negatively impact our business”.

The price of raw materials, such as scrap metal, steel billets and steel coils and plates, has had, and will continue to have, a significant impact on our production costs. Because we have supply agreements with many of our large customers that have pricing terms which are fixed for certain periods of time, we may not be able to pass on an increase in the costs of raw materials (particularly increases in the prices for scrap metal and coils) to our customers in a timely manner or at all, which may have a material adverse effect on our profit margins, results of operations, financial condition and prospects.

We are significantly leveraged and are required to meet certain financial and other restrictive covenants under the terms of our indebtedness, and failure to do so could negatively affect our business. As at 31 December 2012, our total interest-bearing loans and borrowings amounted to U.S.$3,832.70 million, including U.S.$1,065.0 million of short-term interest bearing borrowings. As at 31 December 2012, the nominal

2 principal value of our total interest-bearing loans and borrowings amounted to U.S.$3,816.9 million, including U.S.$1,037.7 million of nominal principal amount of short-term interest bearing borrowings. In addition, as at 31 December 2012, 23% of our total nominal principal amount interest-bearing loans and borrowings were secured over a range of our Group assets. Certain of our material loan agreements and debt securities currently include financial covenants. For example, some covenants are set in relation to leverage, total indebtedness and tangible net worth, in respect of TMK and/or its subsidiaries and impose financial ratios that must be maintained. Other covenants impose restrictions in respect of certain transactions, including restrictions in respect of indebtedness. The set of covenants is not uniform across the various debt instruments, the various debt instruments do not use uniform definitions of the accounting measures to be tested and the levels at which the ratios are set vary to some extent. As at the date hereof, our debt-to-EBITDA ratio in respect of the outstanding loan participation notes due 2018 issued by TMK Capital S.A. (for the sole purpose of financing a loan to OAO TMK) (the “2011 LPNs”) exceeded a threshold as a result of which we are only allowed to incur further indebtedness if it is “Permitted Indebtedness” as defined in the relevant loan agreement. As a result, we are currently unable to increase our financial indebtedness except in certain limited circumstances and are subject to some restrictions on our ability to borrow and our overall financial flexibility. Because TMK will use the proceeds of the Loan described herein to refinance existing indebtedness, the Loan will constitute “Permitted Indebtedness” for the purpose of our outstanding 2011 LPNs. See “Use of Proceeds”. These restrictions on incurring indebtedness could prevent us from obtaining sufficient working capital, fund capital expenditures, make acquisitions and or otherwise restrict us from operating our business effectively.

In addition, the terms of our loan agreements and debt securities could potentially require us to dedicate all or a substantial portion of our cash flow to service this debt, which would reduce funds available for other business purposes, such as capital expenditures, investments or acquisitions; limit our flexibility in planning for or reacting to changes in the markets in which we compete; place us at a competitive disadvantage relative to our competitors with less indebtedness; render us more vulnerable to general adverse economic and industry conditions; and make it more difficult for us to satisfy our financial obligations, including the Notes, or to refinance maturing indebtedness.

Further, our ability to comply with or return to compliance in the future with our financial covenants and make payments on our indebtedness depends upon our ability to maintain our operating performance at a certain level, which is subject to general economic and market conditions and to financial, business and many other factors, some of which we cannot control. If our cash flow from operating activities becomes insufficient, we may be required to take certain actions, including delaying or reducing capital or other expenditures, selling properties or other assets or seeking additional debt or equity capital in an attempt to restructure or refinance our indebtedness. We may be unable to take any of these actions on favourable terms or in a timely manner. Further, such actions may not be sufficient to allow us to comply with our financial covenants or service our borrowing obligations in full and, in any event, may have a material adverse effect on our business. In addition, many of our existing debt instruments contain cross-default provisions under which a breach of a financial or other covenant (subject to certain thresholds) under one instrument would also permit lenders under other indebtedness to demand immediate payment thereof. If we cannot service our debt or refinance existing debt as it comes due or remain in compliance with our covenants, such failure could have a material adverse effect on our business, results of operations, financial condition and prospects.

A small number of our customers account for a large proportion of our sales, and the loss of any of these customers may negatively impact our business. In the year ended 31 December 2012, our five largest customers by sales volumes were Rosneft, Surgutneftegas, TNK-BP, LUKOIL and Gazprom (excluding Gazprom Neft), accounting for 26% of our total pipe sales. Further, in the same period, our largest three customers of large diameter welded pipe, which included Gazprom and Transneft, accounted for approximately 52% our of consolidated large diameter pipe sales volumes. We expect these concentrations of customers to continue for the foreseeable future. In the event that our relationship with any of these major customers were to deteriorate, or these customers were to cease operations, to terminate or downsize their relationship or tighten their terms of trade with us, this may have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, some of our major customers may be similarly affected by changes in industry specific conditions given their focus on the oil and gas industry. Further, given the customer concentration we are potentially exposed to large individual credit risk losses in the event one or more of our major customers experience a deterioration in financial performance or financial condition and are unable to meet their obligations to us, which may have a material adverse effect on our business, results of operation, financial condition and prospects.

3 We have grown rapidly in a relatively short period, particularly in markets outside of Russia with which we are less familiar, and, accordingly, we may be unable to successfully integrate our acquisitions into our group. We have grown rapidly during the past several years primarily through acquisitions including, in particular, our acquisition of TMK IPSCO in 2008 and our acquisition of a controlling interest in Gulf International Pipe Industry LLC (“GIPI”) in 2012. Our strategy has been based on our ability to successfully integrate these acquisitions in order to enhance our position as one of the world’s largest steel pipe producers. As part of our acquisition strategy, we regularly evaluate potential acquisition opportunities and from time to time engage in preliminary discussions with a variety of potential counterparties.

The integration of newly acquired businesses may be difficult for a variety of reasons, including differing culture or management styles, poor records or internal controls and difficulty in establishing immediate control over cash flows. Our ability to realise production synergies or other benefits from these acquisitions may be limited for similar reasons as well, due to the regional nature of the pipe-making business where, other than intellectual property and other knowhow, our ability to integrate our physical production and supply chains may be limited due to the geographic distances involved.

The need to integrate recently acquired assets poses significant risks to our existing operations, including additional demands placed on our senior management, who are also responsible for managing our existing operations, increased overall operating complexity of our business, requiring greater personnel and other resources, and incurrence of debt to finance acquisitions and higher debt service costs related thereto, including, if necessary, upgrade costs of such assets.

We have acquired and established businesses in countries that represent new operating environments for us and that are located at a great distance from our headquarters in Russia, including the United States, Romania and Oman. We thus expect to have less control over their activities and these businesses may face more uncertainties with respect to their operational needs. These factors may adversely affect the profitability of our current and future operations in these countries. Additionally, our businesses outside of Russia conduct operations in accordance with local customs and laws. For example, TMK IPSCO has significant operations, assets and employees in the United States, which are subject to U.S. federal and state laws and regulations. Our TMK- Artrom and TMK-Resita plants also have significant operations, assets and employees in Romania which are subject to EU laws and regulations, and our GIPI plant in Oman is subject to Omani laws and regulations.

Further, when making acquisitions, it has not always been, and will not always be, possible for us to conduct a detailed investigation of the nature of the assets and the profitability of the business being acquired due to, for example, time constraints in making the decision, inadequate financial information about the target and other factors. For these and other reasons, we may become responsible for additional liabilities or obligations not foreseen at the time of an acquisition and may acquire businesses that are less profitable than originally expected. As a result, the impact of our previous and future acquisitions on our results of operations and financial condition is difficult to predict and may differ from expectations.

Any failure to conclude acquisitions in the future or to successfully integrate past or future acquisitions could have a material adverse effect our business, financial condition, results of operations and prospects, and our ability to execute our strategy. In addition, integrating new acquisitions may require significant initial cash investments. Further, even if we were successful in integrating newly acquired assets and acquiring additional assets, expected synergies and cost savings may not materialise, resulting in lower-than-expected profit margins. The geographic spread, revenue mix between regions and operations, regulatory profile and other important aspects of our business profile may differ depending on the nature and extent of our future acquisitions.

We operate in competitive markets, and an inability to compete successfully may negatively affect our business. The global market for steel pipe products, particularly in the oil and gas sector, is highly competitive and primarily based on compliance with technical requirements, price, quality and related services. In recent years, in addition to the competition we face from our traditional competitors, we have begun to face increasing competition from Chinese and South Korean pipe producers in the Russian, U.S. and other international markets, and this trend may increase in the future.

In the Russian and CIS markets, we face competition primarily from ChTPZ Group (“ChTPZ”), which produces both seamless and welded pipes, ZAO United Metallurgical Company (“OMK”), currently the second largest pipe producer in Russia, which produces welded pipes, and Ukrainian pipe producers, primarily Interpipe

4 Limited (“Interpipe”). In the market for large diameter welded pipe, we face significant competition from OMK, JSC Severstal (“Severstal”), one of Russia’s largest steelmakers, and ChTPZ, and in the CIS, from OAO Khartsyzsk Pipe Plant in Ukraine. We also face competition from a large number of Russian domestic manufacturers in our industrial welded pipe business. In addition, competition in Russia from Chinese and South Korean companies may increase following Russia’s accession to the WTO.

Outside Russia and the CIS, we compete against a limited number of producers of premium quality principally seamless steel pipe products, including Tenaris S.A. (“Tenaris”), Vallourec S.A. (“Vallourec”), Sumitomo and a number of Chinese and South Korean producers, including Shanghai Baosteel Group Corporation (“Baosteel”), Tianjin Pipe International Economic and Trading Corporation (“TPCO”).

In the United States, our American division faces intense competition primarily from local producers, such as Tenaris, U.S. Steel Corporation (“U.S. Steel”) and V&M Star, a subsidiary of Vallourec, as well as from companies importing OCTG and line pipe products. Several key domestic competitors have announced capacity additions in recent years, and in particular, Tenaris is currently planning to construct a seamless pipe mill along with new premium connections production capacity. Some foreign competitors, which have historically imported products into the United States, have announced that they plan to construct domestic manufacturing facilities, including for example, TPCO America Corp, which has begun construction of a new seamless pipe facility. We compete with these and other U.S. domestic producers as well as certain foreign steel pipe producers, especially from South Korea and other countries, in the market for lower grade welded and seamless industrial pipe. Price is the main differentiating factor for these lower grade products, and certain foreign producers are often able to offer lower prices than us. While U.S. trade restrictions against Chinese seamless pipe producers have effectively closed off the market to pipe originating from China, which has benefited TMK IPSCO and other U.S. domestic producers, competition for TMK on other markets has somewhat intensified, as Chinese production has been redirected to these regions. In addition, increases in the extraction of shale gas, a form of natural gas embedded in highly impervious shale, have contributed to a general decrease in U.S. gas prices in recent years, and has now led to a reduction in natural gas exploration activity. As a result, sales of OCTG pipe products in North American markets are likely to continue to be subject to significant competition, which could lead to pricing pressure and adversely affect our sales and our margins. Similarly, competitors with new U.S. domestic production capacity, once completed, may seek to secure market share by offering lower prices, assisted by potentially lower production costs at these new facilities than at our own facilities, which may also lead to pricing pressure and adversely affect our sales and our margins.

Chinese producers, including Baosteel and TPCO, have relatively rapidly improved the range and quality of their pipes in recent times. They may continue to increase their seamless and welded pipe output, and the Chinese pipe industry may further consolidate, over the next several years, both in the global markets where we compete, and in our U.S. regional market.

Global producers of premium quality pipe products, such as Tenaris and Vallourec, offer a broader mix of value- added downstream pipe services, such as premium threading services and repair and field services, than we currently offer, while the Asian producers typically offer lower prices than we do, both of which may hinder our ability to compete effectively. In addition, other global producers may have greater financial resources and more extensive global operations than we do, while the Chinese producers are largely state-owned, and consequently benefit from government support, allowing them to weather economic downturns more effectively.

We may not be able to compete effectively against existing or potential producers and preserve our current share of the various geographical or product markets in which we operate. A failure to compete effectively in one or more of these markets could have a material adverse effect on our business, financial condition, results of operations and prospects.

High levels of imports of OCTG and line pipe products into North America could reduce the demand for TMK IPSCO’s products and could cause us to lower prices for our products, which would decrease our earnings. High levels of imports of OCTG and line pipe products, such as those from South Korean producers in 2011 and 2012, could create pricing pressure and reduce the volume of OCTG and line pipe products sold by domestic pipe producers, including TMK IPSCO, in the United States, which would result in decreased earnings for our U.S. operations. Imports have been principally from South Korean producers, which typically sell at lower prices and produce lower grade products. We believe that import levels are affected by, among other things: • currency exchange rates; • overall world demand for OCTG and line pipe products; • freight costs and availability;

5 • country specific production costs; • the trade practices of foreign governments and producers; and • the presence or absence of anti-dumping, countervailing duty or other U.S. government orders that raise the cost of, or impose limits on, imports.

Although trade restrictions have been introduced against Chinese pipe producers, anti-dumping and countervailing duty orders could be modified or revoked. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — We rely on barriers to the import of steel pipe products into Russia and, to a degree, the United States, the removal of which could lead to increased competition and negatively impact our business”. These orders, which impose special duties designed to offset unfair pricing and foreign government subsidisation, are subject to annual administrative reviews that may be requested by various foreign and domestic parties and may be revoked as a result of periodic “sunset reviews”. We cannot predict the U.S. Government’s future actions regarding duties, tariffs or any other trade restrictions on imports of OCTG and line pipe products and any changes that may be made. For example, a reduction in any existing restrictions on imported pipe products, could increase the competition we face, negatively impact our level of sales or profit margins and, accordingly, have a material adverse effect on our business, results of operations, financial condition or prospects.

Anti-dumping proceedings and other import restrictions may limit sales of our products in important geographical markets, particularly in Europe. We face protective tariffs which reduce our competitiveness in, and limit our access to, certain markets, in particular, the European Union. Producers in the European Union have filed anti-dumping actions against us and other producers in their home jurisdictions in several instances in the past. In 1997, anti-dumping duties were imposed on sales into the European Union of certain types of the seamless pipes we produce in Russia. In 2008, the European commission also introduced anti-dumping measures relating to imports of small and medium diameter welded pipes from, among other countries, Russia. Anti-dumping duty proceedings or any resulting penalties or any other form of import restrictions may limit our access to export markets for our products, and in the future additional markets could be closed to us as a result of similar proceedings, thereby adversely impacting our sales or limiting our opportunities for growth. Currently, as a result of the high duty levels on our seamless and small and medium diameter welded pipe products, it is difficult for us to sell these Russian-produced pipe products in the European Union market.

Further, the European Commission has also recently conducted a review of the anti-dumping measures applicable to TMK. In October 2011, the European Commission opened a review of the level of these anti-dumping measures and in December 2012, it decided to increase the level of the duty applicable to TMK seamless pipes from 27.2% to 28.7%. In addition, European Union anti-dumping measures applicable to imports of seamless pipes from Russia have recently been extended until 2017, while the current term of anti-dumping duties imposed on welded pipes from Russia expire in December 2013, although there is a high probability that this will be extended for at least an additional five-year period.

Accordingly, the imposition of further measures by the European Union, or any future review of existing measures, applicable to our Russian or other non-EU operations cannot be ruled out and could further impede or prevent sales of our products into those markets, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We rely on barriers to the import of steel pipe products into Russia and, to a degree, the United States, the removal of which, due to the Russian Federation’s entry into the World Trade Organisation or otherwise, could lead to increased competition and negatively impact our business. On 16 December 2011, the Russian Federation signed the protocol of accession to the World Trade Organisation (the “WTO”). The protocol was ratified on 21 July 2012 and since 22 August 2012, the Russian Federation has become a fully-fledged WTO member. Russian membership of the WTO may lead to significant changes in Russian legislation including, among others, regulation of foreign investments in Russian companies, competition laws, as well as changes in the taxation system and customs regulations in Russia. In particular, Russia is required to reduce or remove certain import tariffs, including those on pipe products, which is expected to result in increased competition in the Russian pipe market from foreign producers. A reduction in the levels of import tariffs or the removal of other duties on imports of pipe products into Russia could have a material adverse effect on our business, financial condition, results of operations and prospects.

6 In particular, following its accession to the WTO, Russia is currently in the process of reducing certain import tariffs on steel pipe products, which are expected to be lowered to a maximum of 10% by the end of 2014, compared to the previous import tariffs of between 5% and 15%, depending on the type of product. Imports of certain types of pipes from Ukraine are currently subject to anti-dumping duties which vary from 18.9% to 37.8% and are set to expire in November 2015, while for certain types of pipes produced in Ukraine, there is also a quota, which was decreased from 150 thousand tonnes in the second half of 2012 to 120 thousand tonnes for the first half of 2013. Russia also has an anti-dumping duty in place against imports of bearing pipes (19.4%), which is set to expire in June 2013. These measures currently limit the competitiveness of foreign pipe suppliers in Russia. These protective measures may be reduced or eliminated in the future, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Since 2009, our U.S. subsidiary TMK IPSCO has benefited from the decision by the U.S. Department of Commerce and the ITC to take action against certain Chinese importers through the imposition of significant tariffs, which has rapidly served to reduce competition from Chinese steel pipe producers. In particular, since 2010, U.S. anti- dumping and countervailing duties in relation to OCTG pipes from China are set at rates of 32.07% to 172.54% and of 10.49% to 15.78%, respectively. After anti-dumping investigations in relation to the import of drill pipes from China, in 2010 anti-dumping and countervailing duties against imports of drill pipes from China to the United States were set at rates of 0% to 429.29% and of 18.18%, respectively. However, there can be no assurance that such decision and accompanying measures will not be reversed, or that assigned tariff margins may not serve as a deterrent to Chinese imports. Further, there is a risk that Chinese imports successfully removed from the U.S. market by such measures could be replaced by low priced imports from other countries, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Equipment failures or production curtailments or shutdowns could adversely affect our production. Our production capacities are subject to equipment failures and to the risk of catastrophic loss due to unanticipated events, such as fires, explosions and adverse weather conditions. Our manufacturing processes depend on critical pieces of steel-making and pipe-making equipment. Such equipment may, on occasion, be out of service as a result of unanticipated failures, which could require us to close part or all of the relevant production facility or cause us to reduce production on one or more of our production lines. Any interruption in production capability may require us to make significant and unanticipated capital expenditures to effect repairs, which could have a negative effect on our profitability and cash flows. We do not currently maintain business interruption insurance, and any recoveries under insurance coverage that we may obtain in the future may not offset the lost revenues or increased costs resulting from a disruption of our operations. A sustained disruption to our business could also result in delays to or cancellations of customer orders and contractual penalties, which may also negatively impact our reputation among our customers. Any or all of these occurrences could have a material adverse effect on our business, results of operations, financial condition and prospects.

We depend on the Russian railroad, port and waterway infrastructure for the transportation of our raw materials and pipe products in Russia and the CIS. Railway transportation is our principal means of transporting raw materials and steel products to our facilities and pipe products to our Russian and CIS customers. We also depend upon Russian port and waterway infrastructure for the onward transportation to non-CIS customers. The Russian railway network is currently characterised by congestion on some of the major routes and ports we use to transport our products, which has in the past resulted and may in the future result, in delays in shipments to customers. While in the past we have been able to re-route shipments or otherwise arrange deliveries to mitigate this congestion, there can be no assurance that we will always be able to do so in the future, and any failure to do so may result in delivery delays, order cancellations or contractual penalties. In addition, the Russian railway network may not always have a sufficient number of locomotives in the relevant locations to service the volume of freight to be transported, and therefore we may face difficulties in obtaining locomotive traction services resulting in delays in our shipments. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Further, increases in transportation costs may adversely affect our ability to compete successfully in our principal markets. The Russian rail industry has been subject to significant reform and liberalisation since 2003. Currently, the Russian Federal Tariff Service (“FTS”) sets the tariffs payable for access to infrastructure and locomotive traction, which are usually increased annually, although in some cases this has occurred more frequently. Prices for the use of rolling stock are now largely unregulated and we use railcars provided by private operators, with prices determined by relevant market forces. Accordingly, significant changes in the levels of regulated or

7 unregulated components of our rail transportation costs in Russia could have a material adverse effect on our business, financial condition, results of operations and prospects.

Increasing tariffs and the continuing liberalisation of the Russian energy sector could negatively impact our business. In the years ended 31 December 2012, 2011 and 2010, energy and utility costs comprised approximately 8%, 7% and 8% of our total cost of production, respectively. In the years ended 31 December 2012, 2011 and 2010, our Russian operations purchased approximately 2.7 billion, 2.7 billion and 2.5 billion kilowatt hours (“kWh”) of electricity, respectively, from certain local electricity suppliers. The Russian electricity market has been the subject of reforms, the primary purposes of which are to liberalise the wholesale electricity market. During the period 2007 to 2010, the proportion of planned output that electricity generators had to sell at regulated tariffs was reduced semi-annually. As from the beginning of 2011, the Russian energy sector has been fully liberalised and electricity is sold using market-based pricing. As a result of such deregulation, electricity tariffs for industrial users have risen. Our production subsidiaries in Russia purchase electricity primarily on the open market. Our average cost of electricity in Russia was RUB2.11, RUB2.11 and RUB1.89 per kWh in the years ended 31 December 2012, 2011 and 2010, respectively. The Russian government has also been seeking to attract private investment capital into electricity generating companies through public offerings and other means. These efforts may also result in increases in electricity tariffs, particularly for industrial customers. Further price increases for electricity may also occur in the future as the industry is controlled to a greater extent by the private sector, which will increase our costs and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our Russian operations also purchase significant amounts of natural gas from subsidiaries of Gazprom, primarily for steel production in open hearth furnaces at Tagmet (which are currently expected to be closed in late 2013 or early 2014), for heat treatment of pipes and for the production of heat energy at our facilities. Gazprom is a state- controlled company and the dominant producer and monopoly transporter of natural gas within Russia. Domestic natural gas prices are regulated by the government, and have been rising over the last few years. In 2012, average natural gas tariffs increased by approximately 6.0% as compared to 2011 while in 2011, the increase was approximately 13% as compared to 2010. Further, Russian domestic natural gas prices are significantly below Western European levels, which presently helps to provide us with a cost advantage over our competitors, an advantage which is expected to diminish to the extent that Russian domestic gas prices increase and approach Western European levels. If we are required to pay higher prices for gas in the future, our costs will rise and this could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our Romanian operations may be subject to higher costs and greater regulation than our Russian operations. Many of the competitive advantages that we enjoy in Russia are not available to us in Romania, or, if available, are of less benefit to us. For example, Romania is not self-sufficient in energy resources. Energy prices in Romania, which are higher than the prices we pay in Russia, have increased in recent years and may continue to increase in the future, which would hurt the profitability of our operations in Romania. In 2013, we expect natural gas and electricity prices in respect of our Romanian operations to further increase.

Further, labour costs at our Romanian subsidiaries, TMK-Resita and TMK-Artrom, have increased in recent years due to the free circulation of the Romanian labour force within the European Union. Similarly, to comply with EU environmental regulations, we have made substantial investments in those entities. However, there can be no assurance that the European Union will not impose new environmental regulations or that Romanian state authorities will not change national environmental laws in the future which, in either case, would require us to make further investments to comply with such laws or regulations. In addition, our Romanian subsidiaries may be required to adopt and implement more stringent environmental and labour laws in the future. The costs of complying with more stringent environmental and labour law requirements of the European Union, including the increased obligations of the European Union in respect of CO2 emissions, may be substantial and could have a material adverse effect on our results of operations and financial condition of our Romanian operations. Further, until the adoption of the euro by Romania, Romanian companies will be affected by fluctuations in the exchange rate of the Romanian lei as against the euro and U.S. dollar.

Our business involves occupational hazards to our workforce. Our operations rely heavily on our workforce which is exposed to a wide range of operational hazards typical for the pipe- and steel-making industries. These hazards arise from working at industrial sites, operating heavy

8 machinery and performing other hazardous activities. Although we provide our workforce with occupational health and safety training and believe that our safety standards and procedures are adequate, accidents at our sites and facilities have occurred in the past and may occur in the future as a result of unexpected circumstances, failure of employees to follow proper safety procedures, human error or otherwise. If any of these circumstances were to occur in the future, they could result in personal injury, business interruption, possible legal liability, damage to our business reputation and corporate image and, in severe cases, further fatalities, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

Increases in interest rates may negatively impact our results of operations. As at 31 December 2012, approximately 17% of our total loans and borrowings was subject to variable rates of interest. Accordingly, while we had entered into hedging arrangements in respect of a part of this amount as at such date to fix the relevant interest rates, we remain subject to interest rate risk resulting from fluctuations in the relevant reference rates for such debt. Further, while the fixed portion of our total indebtedness is not subject to interest rate risk currently, we will be subject to the risk that interests rates have increased at the time the relevant indebtedness is due to be refinanced, if not repaid. Consequently, any increase in such interest rates will result in an increase in our interest expense and could have a material adverse effect on our financial condition, results of operations or prospects. Further, while we have been able to successfully hedge some of our interest rate risk associated with variable rates of interest, there can be no assurance that we will be able to do so on commercially reasonable terms in the future in respect of other amounts of indebtedness to minimise our expose to such variable rates of interest and the consequential adverse effect it may have on our results of operations.

We may have our intellectual property rights infringed, or be exposed to infringement claims by third parties, and there can be no assurance that our intellectual property rights will be protected. We have, and plan to continue to develop, a range of proprietary products and technologies, including in relation to our premium connections products. While we take certain steps towards protecting our intellectual property, third parties may obtain and use our intellectual property without our authorisation, including through our employees who have access to it, and contractual protections or other legal remedies may not in every case be sufficient to protect our rights. In such a case, our competitors may obtain an advantage by using such intellectual property, which could have a material adverse effect on our business, operating results, financial condition and prospects.

Conversely, we may be subject to infringement claims from third parties in the future resulting from the technology and intellectual property used in the production of our products. If we are found liable for infringement, we may be required to pay significant damages, and if we are unable to license or develop non- infringing technology on a timely basis, we may be unable to continue offer the affected products or services without risk of liability.

Further, in Russia, intellectual property rights are generally offered less protection than some of the more developed economies of North America and Europe. If we are unable to protect our intellectual property rights (such as those developed through our Russian research and development centre) against infringement or misappropriation, this could have a material adverse effect on our business, operating results, financial condition and prospects. Also, as we increasingly share technological developments between our U.S. and Russian operations, it is possible that technology developed in the United States may be infringed upon in Russia and we may be unable to protect our intellectual property rights in the same manner or to the same extent as we would have in the United States. In addition, we may need to engage in litigation to enforce our intellectual property rights in the future or to determine the validity and scope of our rights and the rights of others. Any litigation could result in substantial costs and diversion of management and other resources, either of which could have a material adverse effect on our business, operating results, financial condition and prospects.

If we fail to continue to innovate and develop new pipe products and production techniques, we may be unable to grow our business or maintain market share. The pipe industry is characterised by high levels of competition, and our competitive advantages and future growth prospects depend in part on our ability to continue to develop products and improve our production techniques. In recent years, we have invested significant amounts of capital expenditure into expanding our research and development facilities, such as by constructing a research and development centre in Houston, Texas, as well as continuing to develop our research and development in Russia. There can be no assurance that

9 these or future investments in research and development will provide us with the innovation and technological advances required to ensure that our products and production techniques remain competitive. If our competitors are able to create innovative new products or production techniques that allow them to produce at a lower cost, the demand for some of our pipe products may wane, which could negatively impact our business in a number of ways, including through lower revenues from sales. Failure to continue to innovate and develop new pipe products and production techniques could have a material adverse effect on our business, results of operations, financial condition and prospects.

Sustained periods of high inflation in Russia could negatively impact our business. A significant amount of our production activities are located in Russia, and a majority of our direct costs are incurred in Russia. The Russian economy has recently experienced relatively high rates of inflation. The annual inflation rate was 8.8% in 2010, 6.1% in 2011 and 6.6% in 2012, according to Rosstat, and while inflation has been reduced in some of these periods, it may increase in the future. We tend to experience inflation-driven increases in certain of our costs, such as raw material costs, transportation costs, energy costs and salaries that are linked to the general price level in Russia. We may not be able to increase the prices that we receive from the sale of our pipe products sufficiently in order to preserve existing operating margins, particularly in the case of our export sales and especially when such inflation is accompanied by an appreciation of the Russian rouble against the U.S. dollar. Accordingly, high rates of inflation in Russia could increase our costs, decrease our operating margins and could have a material adverse effect on our business, financial condition results of operations and prospects.

Volatility in currency exchange rates, particularly that of the Rouble against the U.S. dollar, could negatively impact our results of operations. Our products are typically priced in Russian roubles for Russian sales and in U.S. dollars and euros for CIS, U.S. and other international sales. Our direct costs, including raw materials, labour and transportation costs, are largely incurred in Roubles, and, to a lesser degree, in U.S. dollars. Other costs, such as interest expense, are currently incurred largely in U.S. dollars and Roubles, and capital expenditures are incurred principally in Roubles, euros and U.S. dollars.

As at 31 December 2012, the Rouble had appreciated by 5.7% against the U.S. dollar, as compared to the rate as at 31 December 2011, while it had depreciated by 5.6% as at 31 December 2011 as compared to 31 December 2010. Although the Rouble has recovered from its lows against the U.S. dollar during the economic crisis in 2009, standing at RUB30.72 to U.S.$1.00 as at 18 March 2013, it remains considerably volatile. The effect of movements in the U.S. dollar and euro exchange rates against the Rouble include gains or losses arising from the revaluation into Roubles (the functional currency of OAO TMK and principal production subsidiaries in Russia) of U.S. dollar and euro denominated loans and eurobonds. For example, in 2012, we incurred gains from spot rate changes in the amount of U.S.$83.0 million, including gains of U.S.$22.6 million recognised in the income statement and gains of U.S.$60.4 million recognised in the statement of comprehensive income. The appreciation of the Rouble against the U.S. dollar in 2012 caused a rise in the U.S. dollar equivalent of our Rouble- denominated loans and borrowings. Because of our current high levels of U.S. dollar denominated debt, real depreciation of the Rouble against the U.S. dollar in the future may have a material adverse effect on our financial condition and results of operations.

In addition, fluctuations in the value of the Romanian lei, or RON, against the euro and the U.S. dollar may adversely affect the results of our Romanian operations. Our exports from TMK-Artrom and TMK-Resita are priced largely in U.S. dollars and euro, while our direct costs are incurred mostly in RON, and accordingly, the results of operations for our Romanian operations may fluctuate with movements in the applicable exchange rates.

The costs of complying with environmental regulations and potentially unforeseen environmental liabilities may negatively impact our business. We are subject to a wide range of local, regional and federal laws, regulations, permits and decrees relating to the protection of the environment and incur and will continue to incur expenditures to comply with applicable laws and regulations. The expenditures necessary to remain in compliance with laws and regulations, including site or other remediation costs, or unforeseen environmental liabilities, including potentially large fines for breaches of environmental laws, could have a material adverse effect on our business, financial condition, results of operations and prospects.

10 Under current Russian environmental legislation, we must make payments for air and water discharges as well as waste which are within specified limits and make increased payments for discharges and waste in excess of these limits. While fees imposed for pollution within the statutory limits tend to be quite low, fees for pollution exceeding such limits are significantly higher. Further, the payment of fees for exceeding these limits does not relieve us from our responsibility to take environmental protection measures and to compensate for environmental damage.

Environmental legislation in Russia is constantly developing. Our operations are associated with the emission of “greenhouse” gases, and further development of Russian regulation concerning these gases or ongoing international negotiations which aim to limit greenhouse gas emissions as well as the imposition of any new environmental laws and regulation systems may require further expenditures to modernise production operations, install pollution control equipment, perform site clean-ups and reclamation, pay fees and fines or make other payments if we do not comply with such new environmental laws and regulations. See also “— Our United States and Romanian operations may be subject to higher costs and greater regulation than our Russian operations”. Further, in the course of, or as a result of, an environmental investigation, regulatory authorities in Russia can issue an order reducing or halting production at a facility that has violated environmental standards. In the event that production at one of our facilities was partially or wholly prevented due to this type of sanction, our business could suffer and our operating results would be adversely affected.

Our U.S. operations, including those of TMK IPSCO, must comply with stringent U.S. laws on the environment. The environmental protection regime in the United States is significantly more onerous than what we face with respect to our operations in Russia and other countries and compliance with these U.S. laws may expose us to additional costs.

Potential environmental, product liability and other claims may create significant liabilities and negatively impact our business. Our OCTG and line pipe products are sold primarily for use in oil and gas drilling and transportation activities, which are subject to inherent risks, including well failures, line pipe leaks and fires, that could result in death, personal injury, property damage, environmental pollution or loss of production. Any of these hazards and risks can result in the release of hydrocarbons, environmental liabilities, personal injury claims and property damage. Similarly, defects in our other industrial seamless and welded pipe products could result in death, personal injury, property damage, environmental pollution or loss of production.

Further, we certify products to be in accordance with customer specifications and fit for their intended purpose. Actual or claimed defects in our products may give rise to claims against us for losses and expose us to claims for damages. We have product liability insurance to protect us against such risks, but recoveries under this insurance coverage that we obtain in the future, if any, may not fully offset our costs in the event of a claim. Any resulting costs or liabilities borne by us may be significant, and could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are exposed to credit risk. We pay considerable attention to credit risk attributable to trade receivables from a number of our customers and advances issued to our suppliers. Credit is only offered to customers that are major Russian and foreign companies and that have been working with us for a protracted period of time and have strong credit histories. To manage the risk of payment arrears, we monitor the status of receivables on a daily basis and have set up an Accounts Receivable and Accounts Payable Committee, which is responsible for this monitoring. In addition, we have developed procedures aimed at preventing payment arrears and ensuring effective collection. However, there can be no assurance that the implementation of these measures will be successful to substantially reduce our credit risk in these transactions. Any significant increase in the credit risk associated with our trade receivables could have a material adverse effect on our business, financial condition, results of operations and prospects.

If the title to any company we acquired through privatisation or otherwise is successfully challenged, we may lose our ownership interest in that company or its assets. Almost all of our production assets in Russia consist of companies that had been privatised before we acquired them and we may seek to acquire additional companies that have been privatised or that have undergone bankruptcy proceedings. Privatisation legislation in Russia is vague, internally inconsistent and in conflict with

11 other elements of Russian legislation. As a result, most, if not all, privatisations are arguably deficient and vulnerable to challenge, including through selective action by governmental authorities. Although the statute of limitations for challenging transactions entered into in the course of privatisations is currently three years, privatisations may still be vulnerable to challenge, including through selective action by governmental authorities motivated by political or other extra legal considerations.

If any of our acquisitions are challenged as having been improperly conducted and we are unable to defend ourselves successfully, we may lose our ownership interests, which could materially adversely affect our business, financial condition, results of operations and prospects.

The interests of our controlling beneficial owner could conflict with those of the holders of the Notes. As at 4 March 2013, approximately 71.68% of our issued and outstanding shares were owned directly and indirectly by TMK Steel, a holding company incorporated in Cyprus, whose ultimate beneficial owner is Mr. Pumpyanskiy, the Chairman of our Board of Directors. Mr. Pumpyanskiy has the ability to exert significant influence over certain actions requiring shareholder approval, including increasing or decreasing our authorised share capital (in cases other than decisions on share capital increases that are adopted by our Board of Directors), the election of directors, declaration of dividends, the appointment of management and other policy decisions. The interests of Mr. Pumpyanskiy could at times conflict with the interests of holders of the Notes, and any such conflict of interest could adversely affect our business, financial condition, results of operations and prospects.

We do not carry insurance against all potential risks and losses, and our insurance might be inadequate to cover all of our losses or liabilities or may not be available on commercially reasonable terms. We have limited and, potentially, an insufficient level of insurance coverage for expenses and losses that may arise in connection with the quality of our products, property damage, work-related accidents and occupational illnesses, natural disasters and environmental contamination. We have no insurance coverage for loss of profits or other losses caused by the death or incapacitation of our senior management and we have no business interruption insurance. Losses or liabilities arising from these or other such events could increase our costs and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our subsidiaries are in many cases the largest employers in their respective locations, and as a result, we may be limited in our ability to make rapid and significant reductions in numbers of employees. Our Russian subsidiaries are in many regions the largest employers in the locations in which they operate, such as Volzhsky (where Volzhsky is located), Taganrog (where Tagmet is located), Kamensk Uralsky (where Sinarsky is located) and Polevskoy (where Seversky is located). While we do not have any specific legal social obligations or responsibilities with respect to these regions, our ability to effect alterations in the number of our employees may nevertheless be subject to political and social considerations. Any inability to make planned reductions or to be able to plan reductions in the number of employees or other changes to our operations in such regions could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our business may be affected by labour disruptions, shortages of skilled labour and labour cost inflation. Competition for skilled labour in the steel pipe industry is relatively intense, and labour costs continue to increase moderately, particularly in the CIS, Eastern Europe and the United States. We expect the demand and, hence, costs for skilled engineers, construction workers and operators will continue to increase, reflecting the significant demand from other industries and public infrastructure projects. Continual high demand for skilled labour and continued increases in labour costs could have a material adverse effect on our business, financial condition, results of operations and prospects. Further, significant work slowdowns, stoppages or other labour-related developments could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our competitive position and future prospects depend to a large extent on the experience and expertise of our board of directors and senior management. The involvement in our management of our controlling beneficial owner, Dmitriy Pumpyanskiy, who serves as the Chairman of our Board of Directors, has been, and we believe will continue to be, important in the pursuit

12 and implementation of our strategy. However, there can be no assurance that Mr. Pumpyanskiy will continue to make his services available to us in the future. Our business could suffer if Mr. Pumpyanskiy ceased to participate actively in the management of our company.

In addition, our ability to maintain our competitive position and to implement our business strategy is dependent to a significant extent on the services of our senior managers, and in particular the members of our Management Board. We depend on our current senior management including, in particular, our Chief Executive Officer and Chairman of the Management Board, Mr. Shiryaev, for the implementation of our strategy and the supervision of our day-to-day activities. However, there can be no assurance that these individuals will continue to make their services available to us in the future.

The loss or diminution of the services of our controlling beneficial owner or senior managers or an inability to attract and retain additional senior management personnel could have a material adverse effect on our business, financial condition, results of operations and prospects. Further, competition in Russia for personnel with relevant expertise is intense due to the relatively small number of qualified individuals, and this situation could seriously affect our ability to retain our existing senior management and attract additional suitably qualified senior management personnel. As a result, the departure of key managers could have a material adverse effect on our business, financial condition, results of operations and prospects.

Some transactions between our Russian subsidiaries and their interested parties, affiliates and other members of the TMK group require the approval of disinterested directors or disinterested shareholders. We own less than 100% of the shares in some of our Russian subsidiaries, including Seversky, Sinarsky and Tagmet. These subsidiaries have in the past carried out, and continue to carry out, numerous transactions with other companies within our consolidated group and our affiliates that may be considered “interested party transactions” under Russian law, requiring prior approval for each transaction, to be obtained not later than the date of such transaction’s completion, by a majority vote of the “disinterested directors,” “independent disinterested directors” or “disinterested shareholders,” as the case may be. In particular, our production subsidiaries rely to a large extent on the supply of raw materials from related parties, including TMK Trade House, and sales to TMK Trade House and TMK IPSCO.

The concept of “interested parties” is defined with reference to the concepts of “affiliated persons” and “group of persons,” which are subject to many different interpretations under Russian law. Further, the provisions of Russian law defining which transactions must be approved as “interested party” transactions are subject to different interpretations. We cannot be certain that our compliance with these provisions will not be subject to challenge. Any such challenge could result in our inability to enter into such transactions or the invalidation of transactions that are important to our business. Although we generally use our best efforts to obtain the required approvals for interested party transactions, in some cases, as a practical matter, we may not be able to obtain them. Further, we may not always be aware of who our “interested parties” are at any moment in time, as this sometimes depends on obtaining information from persons that we do not control. Therefore, there is a risk that we could enter into “interested party” transactions without our knowledge and without following the special approval procedures provided for by Russian law. Failure to obtain the necessary approvals for transactions involving our Russian subsidiaries or any successful challenge to such transactions could result in the invalidation of such transactions and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to the Russian Federation General Emerging markets such as the Russian federation are subject to greater risks than more developed markets, including significant economic and political and legal and legislative risks. Investors in emerging markets such as the Russian Federation and other markets such as the former Soviet Union, should be aware that these markets are subject to greater risks than more developed markets, including in some cases significant economic, political and social, and legal and legislative risks. It should also be noted that emerging markets such as Russia are subject to rapid change and that the information set out in this Prospectus may become outdated within a relatively short period. Further, during times of financial crises, companies operating in emerging markets can face particularly severe liquidity constraints as foreign funding sources are moved to more stable developed markets. Thus, even if the Russian economy remains relatively stable, financial turmoil in any emerging market country could adversely affect our business, financial condition, results of operations and prospects.

13 The European sovereign debt crisis of 2011 and 2012 so far has had relatively limited impact on the Russian economy since it has not led to significant declines in the prices of Russia’s key exports (which are mainly natural resource commodities, including oil and gas) as well as due to Russia’s relatively healthy public finances including a low debt to GDP ratio, relatively small budget deficit, and high levels of foreign currency reserves. Should the ongoing crisis lead to a significant worsening of the global macroeconomic situation and/or impact commodity prices and global trade flows, Russia’s overall economic and financial condition in the short and medium term could also be negatively affected.

Accordingly, prospective investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is only suitable for sophisticated investors who are familiar with and fully appreciate the significance of the risks involved in investing in emerging markets and prospective investors are urged to consult with their own legal and financial advisors before making an investment in the Notes.

Political and Social Risks Political and governmental instability could adversely affect our business. Although the political situation in Russia has stabilised since 2000, future political instability, in particular in light of the recent parliamentary and presidential elections, could result in a worsening of the overall economic situation, including capital flight and a slowdown of investment and business activity.

Following both the Russian parliamentary elections in December 2011 and presidential elections in March 2012, controversy concerning the election results being in favour of the current ruling party and the newly elected President, as well as criticism of the current political system, led to organised political demonstrations in several Russian cities, including Moscow. Renewed protests might also occur in the future. Future political instability may disrupt or reverse political, economic and regulatory reforms, which could have a material adverse effect on the value of investments relating to Russia and the Notes in particular, as well as on our business, ability to obtain financing in the international capital markets and our financial condition, results of operations and prospects.

In addition, the potential for political instability resulting from the 2008-2009 global financial and economic crisis as well as the more recent European sovereign-debt crisis, the recent growth slow-down in economies (both emerging and developed), budgetary and fiscal crises in the United States and any associated worsening of the economic situation in Russia and deteriorating standards of living should not be underestimated. Any such instability could negatively affect the economic and political environment in Russia, particularly in the short term, which may in turn have a material adverse effect on our business, results of operations, financial condition and prospects.

Selective or arbitrary government action could negatively impact our business. We operate in an uncertain regulatory environment. Governmental authorities in Russia have a high degree of discretion and at times exercise their discretion arbitrarily, without hearing or prior notice, or influenced by political or commercial considerations. Selective or arbitrary governmental actions have included unscheduled inspections by regulators, suspension or withdrawal of licences and permissions, unexpected tax audits, criminal prosecutions and civil actions. Whilst we have not previously been affected by such government actions, any of such actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

Domestic conflicts could create an uncertain operating environment hindering our long term planning ability which could decrease the value of investments in Russia, including the value of the Notes. The Russian Federation is a federation of sub federal political units, consisting of republics, territories, regions, cities of federal importance and autonomous regions and districts, some of which have the right to manage their internal affairs pursuant to agreements with the federal government and in accordance with applicable laws. The delineation of authority and jurisdiction among the members of the Russian Federation and the federal government is, in many instances, unclear and remains contested. In practice, the division of authority and uncertainty could hinder our long term planning efforts and may create uncertainties in our operating environment, which may prevent us from effectively carrying out our business strategy.

14 In addition, the political and economic changes in Russia in recent years have resulted in significant dislocations of authority. The local and international press have reported that significant criminal activity in Russia, including organised, has arisen, particularly in large metropolitan centres. In addition, the local press and international press have reported high levels of corruption, including bribery and using investigative or procedural powers for corrupt purposes. Additionally, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions among the population and, in certain cases, have led to military conflict, such as the conflict in Chechnya. In recent years, Russia has suffered a number of terrorist attacks, including suicide bombings, bombings of two domestic passenger flights and hostage-taking at a school in Beslan, resulting in significant loss of life and damage to property. In March 2010 two explosions in the Moscow underground led to the deaths and injuries of dozens of people. In the same year, suicide bombings and other fatal explosions where also reported in Kizlyar, Stavropol and Karabulak, Russia. A further intensification of criminal activity and violence in Russia, including terrorist attacks and suicide bombings, could cause disruptions to domestic commerce and exports from Russia and have a materially adverse effect on our business, financial condition, results of operations and prospects, and the value of investments in Russia, including the value of the Notes.

In addition, the military conflict in August 2008 between Russia and Georgia involving South Ossetia and Abkhazia resulted in criticism of Russia by a number of Western European countries and countries in North America, which were considering political and economic sanctions and other actions against Russia. Political disturbances or hostilities involving the Russian Federation may undermine investor confidence, increase investors’ perception of risk and increase the overall cost of capital for Russian issuers. If existing conflicts remain unresolved, or new disturbances or hostilities arise, we may be unable to access capital, or access capital on terms reasonably acceptable us, which may have a material adverse effect on our business, financial condition, results of operations and prospects.

Economic Risks Instability in the Russian economy could negatively impact our business. The Russian economy has been subject to abrupt downturns in the past and has experienced at various times: • significant declines in GDP; • hyperinflation; • an unstable currency market and exchange rates; • a weak banking system providing limited liquidity to Russian enterprises; • high levels of loss-making enterprises that continued to operate due to the lack of effective bankruptcy proceedings; • significant use of barter transactions and illiquid promissory notes to settle commercial transactions; • widespread tax evasion; • extensive capital flight; • corruption and the penetration of organised crime into the economy; • significant increases in unemployment and underemployment; • significant poverty levels amongst the Russian population; • imposition of currency controls; • unstable credit conditions; and • a weakly diversified economy which depends significantly on global prices for raw materials.

The global financial and economic turmoil in 2008-2009 also adversely affected the Russian economy. At that time, for example, the Russian economy was characterised by extreme volatility in the debt and equity markets (which experienced significant declines in the second half of 2008), causing market regulators to temporarily suspend trading multiple times on the Moscow Interbank Currency Exchange and Russian Trading System stock exchanges. The Russian economy was also characterised by significant reductions in foreign investment and sharp decreases in gross domestic product which also caused reductions in the sovereign credit rating.

In addition, as Russia produces and exports large quantities of crude oil, natural gas and other commodities, its economy is particularly vulnerable to fluctuations in the prices of crude oil, natural gas and other commodities on

15 the world market, which reached record high levels in mid-2008 and subsequently fell dramatically by the end of 2008 and in early 2009 as a result of the global financial and economic crisis at that time. Oil prices have since rebounded to over U.S.$100 per barrel, but remain volatile. While there have been positive trends in the Russian economy in recent years, such as increases in GDP, a relatively stable currency and a reduced rate of inflation, any renewed economic downturn in Russia and the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and prospects, and may also inhibit our ability to obtain financing.

The Russian banking system remains underdeveloped, and another banking crisis in Russia could place severe liquidity constraints on, and negatively impact our business. Russia’s banking and other financial systems are not well developed or regulated, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent applications.

There are currently a limited number of creditworthy Russian banks, most of which are headquartered in Moscow. Although the CBR has the mandate and authority to suspend banking licences of insolvent banks, many insolvent banks still operate. Many Russian banks also do not meet international banking standards, and the transparency of the Russian banking sector still does not meet internationally accepted norms.

The serious deficiencies in the Russian banking sector, combined with the deterioration in the credit portfolios of Russian banks, may result in the banking sector being more susceptible to the current worldwide credit market downturn and economic slowdown. For example, during the financial and economic crisis in 2008-2009, Russian banks suffered from a deterioration in the credit quality of borrowers and their assets and a lack of liquidity which resulted in intervention by the Russian government and the central bank (as occurred in many other jurisdictions throughout the world) so as to stabilise the sector and prevent the occurrence of a banking crisis. A prolonged or serious banking crisis or the bankruptcy of a number of Russian banks could, should they occur in the future, have a material adverse effect on our business and our ability to complete banking transactions in Russia.

Further, we rely to a significant extent on debt financing from Russian banks. As at 31 December 2012, a significant part of our total interest-bearing loans and borrowings consisted of indebtedness provided by Russian banks. Accordingly, if a prolonged or serious banking crisis were to occur in Russia, our ability to access this source of financing may be limited, which in turn, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Russia’s physical infrastructure is in poor condition, which could disrupt or impair our normal business activity, and efforts by the Russian government to improve the country’s infrastructure may increase our costs. Russia’s physical infrastructure largely dates back to Soviet times and has not been adequately funded and maintained since then. Russia’s poor infrastructure disrupts the transportation of goods and supplies as well as communications and adds costs to doing business in Russia. Particularly affected are the road networks, power generation and transmission systems, communication systems and building stock. Further, electricity and heating shortages in some of Russia’s regions have at times seriously disrupted local economies. For example, in August 2009, an accident at the Sayano-Shushenskaya hydroelectric power plant, the largest hydroelectric power plant in Russia in terms of installed capacity, resulted in a significant portion of the supply to the local power grid being lost, which led to widespread power failure in the region and forced all major users such as aluminum smelters to switch to generators.

Road conditions in many areas of Russia are also poor, with many roads not meeting minimum requirements for usability and safety. The Russian government is actively considering plans to strengthen and enhance the nation’s rail, electricity and telephone systems. Any such effort, while supporting and enhancing our commercial operations, would also likely result in increased charges and tariffs. On the other hand, in the event the recent economic downturn delayed or reduced those expansion plans, this could lead to a further deterioration in Russia’s infrastructure network. These factors could have a material adverse effect on our business, financial condition, results of operations and prospects. See also “— We depend on the Russian railroad, port and waterway infrastructure for the transportation of our raw materials and pipe products in Russia and the CIS”.

16 Legal and Legislative Risks Weaknesses relating to the Russian legal system and Russian law create an uncertain environment for investment and business activity. Russia is still developing the legal framework required by a market economy. Since 1991, Russian law has been largely, but not entirely, replaced by the new legal regime established by the 1993 Federal Constitution. Our business is subject to the rules of the Civil Code of the Russian Federation, as amended (the “Civil Code”), other federal laws and decrees, and orders and regulations issued by the President, the Russian government, the federal ministries and State agencies, which are, in turn, complemented by regional and local rules and regulations. The following risks relating to the Russian legal system create uncertainties with respect to the legal and business decisions that we make, many of which do not exist to the same extent in countries with more developed market economies: • inconsistencies between and among the Constitution, federal and regional laws, presidential decrees and governmental, ministerial and local orders, decisions, resolutions and other acts; • conflicting local, regional and federal rules and regulations; • the relative unavailability of Russian legislation and court decisions in an organised manner that facilitates understanding of such legislation and court decisions; • substantial gaps exist in the legal framework due to the delay or absence of implementing regulations for certain legislation; • the possibility of undue influence on or manipulation of, the judiciary and governmental authorities; • limited court personnel with the ability to interpret new principles of Russian legislation, particularly business and corporate law; • a high degree of discretion on the part of governmental authorities, which could result in arbitrary actions; • problematic and time consuming enforcement of both Russian and non-Russian judicial orders and international arbitration awards; and • poorly developed bankruptcy procedures and certain violations in bankruptcy proceedings.

All of these weaknesses could affect our ability to enforce our legal rights under our contracts, or to defend ourselves against claims by others in Russia. We can give no assurance that regulators, judicial authorities or third parties will not challenge our internal procedures and by-laws or our compliance with applicable laws, decrees and regulations.

In addition, amendments to several Russian federal laws have only recently become effective. In particular, amendments have recently been introduced to the Civil Code, and further amendments to it are expected to be adopted in the near future. The recent nature of much Russian legislation, the lack of consensus about the scope, content and pace of economic and political reform and the rapid evolution of the Russian legal system in ways that may not coincide with market developments may result in ambiguities, inconsistencies and anomalies, and ultimately in investment risks that do not exist in countries with more developed legal systems. We can give no assurance that the development or implementation or application of legislation (including government resolutions or presidential decrees) will not adversely affect foreign investors (or private investors generally).

The state of the judiciary, the difficulty of enforcing court decisions could prevent us or you, as an investor in the Notes from obtaining effective redress in a court proceeding. The independence of the judicial system and its immunity from economic and influences in Russia is still developing. The court system is largely understaffed and underfunded. Russia is a civil law jurisdiction, and as such, judicial precedents generally have no binding effect on subsequent decisions and are not recognised as a source of law. However, Plenary Resolutions of the Supreme Arbitrazh Court of the Russian Federation on court practice are mandatory for the arbitrazh courts of the Russian Federation to follow and, in practice, courts usually consider judicial precedents in their decisions. In addition, many court decisions are not readily available to the public or organised in a manner that facilitates understanding. Enforcement of court judgments in Russia can in practice be complicated and may be slow to be implemented.

The judiciary’s reported exposure to undue influence and manipulation and occasional abuse of discretion can lead to unjustified and abusive court decisions. For example, it is not uncommon for excessive injunctive remedies to be sought by claimants and granted by courts in commercial disputes.

17 In addition, judgments rendered by a court in any jurisdiction outside Russia will be recognised by courts in Russia only if (i) an international treaty exists between Russia and the country where the judgment was rendered providing for the recognition of judgments in civil cases or (ii) a federal law of Russia providing for the recognition and enforcement of foreign court judgments is adopted. No such federal law has been passed, and no such treaty exists between Russia and most Western jurisdictions, including the United States and the United Kingdom. Consequently, should a judgment be obtained from a court in any applicable jurisdiction, it is unlikely to be given direct effect in Russian courts.

All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Russian legislation may not adequately protect against expropriation and nationalisation. The Russian government has enacted legislation to protect foreign investment and other property against expropriation and nationalisation. If such property is expropriated or nationalised, legislation provides for fair compensation. However, there is no assurance that such protections would be enforced due to lack of experience in enforcing these provisions or due to political pressure. In addition, land may be subject to compulsory purchase by the State for its own needs or as a sanction for the inappropriate use of that land. It is not clear from Russian law how losses from nationalised assets would be calculated nor whether there would be any way to seek to challenge (and therefore to prevent) the confiscation of such assets. Losses from the expropriation or nationalisation of all or a portion of our business, potentially with little or no compensation, would have a material adverse effect on our business, results of operations, financial condition and prospects.

Shareholder liability under Russian legislation could cause us to become liable for the obligations of our subsidiaries. Russian law generally provides that shareholders in a Russian joint stock company or participants in a limited liability company are not liable for the obligations of the joint stock company and bear only the risk of loss of their investment. This may not be the case, however, when one person is capable of determining decisions made by another person or entity. The person or entity capable of determining such decisions is deemed an “effective parent”. The person whose decisions are capable of being so determined is deemed an “effective subsidiary.” The effective parent bears joint and several liability for transactions concluded by the effective subsidiary in carrying out business decisions if: • the effective parent gives binding instructions to the effective subsidiary; and • the right of the effective parent to give binding instructions is set out in the charter of the effective subsidiary or in a contract between those entities.

Further, an effective parent is secondarily liable for an effective subsidiary’s debts if the effective subsidiary becomes insolvent or bankrupt as a result of the action or inaction of the effective parent. This is the case no matter how the effective parent’s ability to determine decisions of the effective subsidiary arises. For example, this liability could arise through ownership of voting securities or by contract. In these instances, other shareholders of the effective subsidiary may claim compensation for the effective subsidiary’s losses from the effective parent which caused the effective subsidiary to take action or fail to take action knowing that such action or failure to take action would result in losses. Accordingly, we could be liable in some cases for the debts of our subsidiaries. This liability could have a material adverse effect on our business, results of operations, financial condition and prospects. The total interest-bearing loans and borrowings of our consolidated Russian subsidiaries including Sinarsky, Seversky, Tagmet, Volzhsky, the Orsky Machine Building Plant and TMK Trade House (excluding intercompany indebtedness) as at 31 December, 2010, 2011 and 2012 were U.S.$1,341.6 million, U.S.$1,336.9 million and U.S.$1,371.0 million, respectively.

Shareholder rights provisions under Russian law may impose additional costs on us, which could materially adversely affect our financial condition and results of operations. Russian law provides that shareholders that vote against or abstain from voting on certain matters have the right to sell their shares to the company at market value in accordance with Russian law. The decisions that trigger this right to sell shares include: • decisions with respect to a reorganisation; • the approval by shareholders of a “major transaction” the value of which comprises over 50% of the company’s assets calculated according to Russian accounting standards (“RAS”) as at the latest reporting date, regardless of whether the transaction is actually consummated or not;

18 • decisions concerning the submission of an application to delist a company’s shares or other securities convertible into shares; • amendments to the company’s charter in a manner that limits shareholder rights; • In these circumstances, the obligations for the company to buy back shares is limited to an amount of shares with an aggregate value of up to 10% of the company’s net assets, calculated according to RAS at the time the relevant decision is taken; and • If these circumstances were to occur in relation to us, our (or, as the case may be, our subsidiaries’) obligation to purchase shares could have a material adverse effect on our business, financial condition, results of operations and prospects.

Russian corporate governance and disclosure requirements differ significantly from those applicable in other jurisdictions. Our corporate affairs and our corporate governance system are regulated by the laws governing companies incorporated in the Russian Federation, our charter and the UK Listing Authority. The rights of shareholders and the responsibilities of members of our Board of Directors and our Management Board under Russian law are different from, and we may be subject to certain requirements not generally applicable to, corporations organised in the United States, the United Kingdom and other jurisdictions.

A principal objective of the securities laws of the United States and the United Kingdom and other countries is to promote the full and fair disclosure of all material corporate information to the public. We are subject to Russian law requirements, which oblige Russian companies to publish, among other things, financial statements under RAS and IFRS and information on material events relating to Russian companies (such as major acquisitions and increases in charter capital). Although we comply with the applicable UK and Irish Listing Authority requirements, there is less information publicly available about us than fully listed companies in the United States, the United Kingdom or certain other jurisdictions.

Weaknesses and changes in the Russian tax system could negatively impact our business. We are subject to a broad range of Russian taxes and other compulsory payments and levies imposed at the federal, regional and local levels, including, but not limited to, corporate income tax, VAT, property tax, compulsory insurance payments and other taxes.

The discussion below provides general information regarding Russian taxes and is not intended to be exhaustive, and prospective investors should seek advice from their own tax advisors before investing in the Notes.

Russian laws and regulations related to these taxes, such as the Russian Tax Code, have been in force for a short period relative to tax laws in more developed market economies, and the Russian government’s implementation of these tax laws and regulations is often unclear or inconsistent.

Historically, the system of tax collection in Russia has been relatively ineffective, resulting in continual changes in the tax legislation, which sometimes occur at short notice and apply retrospectively, and in the interpretation and application of the existing laws and regulations by the various authorities. Furthermore, the tax environment in Russia has been complicated by the fact that various authorities have often interpreted tax legislation inconsistently. Although Russia’s tax climate and the quality of Russian tax legislation have generally improved with the introduction of the Russian Tax Code, there can be no assurance that the Russian Tax Code will not be changed or interpreted in the future in a manner adverse to the stability and predictability of the Russian tax system. The possibility exists that the Parliament may impose arbitrary or onerous taxes, levies, fines and penalties in the future, which could adversely affect our business.

Since Russian federal, regional and local tax laws and regulations have been subject to frequent change and some of the sections of the Russian Tax Code relating to the aforementioned taxes are comparatively new, the interpretation and application of these laws and regulations is often unclear, unstable or non-existent. Differing interpretations of tax laws and regulations may exist both among and within government bodies at federal, regional and local levels, increasing the amount of uncertainty and tax risks and leading to the inconsistent enforcement of these laws and regulations. In some instances, the Russian tax authorities have applied new interpretations of tax laws and regulations retrospectively. The Russian tax system is therefore impeded by the fact that at times it still relies heavily on the inconsistent judgments of local tax officials and fails to address many of the existing issues.

19 Furthermore, taxpayers, the Russian Ministry of Finance and the Russian tax authorities often interpret tax laws and regulations differently. Private clarifications to specific taxpayers’ queries in respect of particular situations issued by the Russian Ministry of Finance are not binding on the Russian tax authorities. There can be no assurance, therefore, that the representatives of the local Russian tax authorities will not take different positions to those set out in the private clarification letters issued by the Russian Ministry of Finance. During the past several years the tax authorities have shown a tendency to take more assertive positions in their interpretation of tax legislation, which has led to an increased number of material tax assessments made by them as a result of tax audits of Russian companies operating in various industries. In some instances, the Russian tax authorities have applied tax laws and regulations retroactively. It is therefore possible that our transactions and activities that have not been challenged in the past may be challenged in the future.

In practice, taxpayers often have to resort to court proceedings to defend their position against the tax authorities. In absence of binding precedent, court rulings on tax or other related matters by different courts relating to the same or similar circumstances may also be inconsistent or contradictory. Recent practice suggests that the tax authorities may be taking a more assertive position in their interpretation of the legislation and in making assessments.

On 12 October 2006 the Plenum of the Supreme Arbitration Court of the Russian Federation issued ruling No. 53 (the “Ruling No. 53”) which introduced a concept of “unjustified tax benefit” defined mainly by reference to specific examples of such tax benefits (for example, tax benefits obtained as a result of a transaction that has no reasonable business purpose) which may lead to disallowance of their application. Based on the available court practice relating to the Ruling No. 53, it is apparent that the Russian tax authorities actively seek to apply this concept when challenging tax positions taken by taxpayers. Although the intention of this ruling was to combat the abuse of tax law, based on the available judicial interpretations relating to the Ruling No. 53, the Russian tax authorities have started applying the “unjustified tax benefit” concept in a broader sense than may have been intended by the Russian Supreme Arbitration Court. Importantly, we are aware of cases where this concept has been applied by the Russian tax authorities in order to disallow benefits granted by double tax treaties. To date, however, in many cases where this concept has been applied, the courts have ruled in favour of taxpayers, but there is no assurance that the courts will follow these precedents in the future.

In its decision of 25 July 2001, the Constitutional Court of the Russian Federation introduced the concept of “a taxpayer acting in bad faith” without clearly stipulating the criteria for interpretation and application of the concept. Similarly, this concept is not defined in Russian tax law or other branches of Russian law. Based on the available practice the Russian tax authorities and courts often exercise significant discretion in interpreting this concept in a manner that is at times unfavorable to taxpayers.

Tax declarations, together with related documentation are subject to review and investigation by a number of Russian authorities, which are empowered by Russian law to impose fines and penalties on taxpayers. Generally, tax declarations together with the related documentation remain subject to inspection by the Russian tax authorities for a period of three calendar years immediately preceding the year in which the decision to conduct a tax audit is taken. The fact that a particular year has been reviewed by the Russian tax authorities does not prevent any tax declarations and other documentation relating to that year, from further review and investigation by the Russian tax authorities during the three-year limitation period. In particular, a repeated tax audit may be conducted (i) by a higher-level tax authority as a measure of control over the activities of lower-level tax authorities, or (ii) in connection with the reorganisation/liquidation of a taxpayer, or (iii) as a result of the filing by such taxpayer of an amended tax return decreasing the tax payable to the revenue. Therefore, previous tax audits may not preclude subsequent claims relating to the audited period.

Also the Russian Tax Code provides for possible extension of the three-year statute of limitations for liabilities for tax offences if the taxpayer has actively obstructed the performance of the tax audit and this has become an insurmountable obstacle for the tax audit. As the terms “obstructed” and “insurmountable obstacles” are not specifically defined in Russian tax law or any other branches of Russian law, the Russian tax authorities may attempt to interpret these terms broadly, effectively linking any difficulty experienced by them in the course of their tax audit with obstruction by the taxpayer and use that as a basis to seek tax adjustments and penalties beyond the three-year limitation period. Therefore, the statute of limitations is not entirely effective with respect to liability for tax offences in Russia. Such extended tax audit, if it is concluded that we had significant tax underpayments relating to previous tax periods, may have a material adverse effect on our business, financial condition and results of operations.

Even if further reforms to tax laws are enacted, they may not result in a reduction of the tax burden on Russian companies and the establishment of a more efficient tax system. Conversely, the reforms may also introduce

20 additional tax collection measures. There can be no assurance that the Russian Tax Code will not be changed in the future in a manner adverse to the stability and predictability of the tax system. Historically, the main Russian entities of the TMK Group have paid significant amounts of taxes due to the scale of their operations. Consequently, the introduction of new taxes or introduction of amendments to current taxation rules may have a substantial impact on the overall amount of tax liabilities of the respective entities. Although each of the entities concerned undertakes internal procedures aimed at minimising tax risk and the approach to management of tax liabilities and tax risks within the TMK Group has been conservative, there is no assurance that the Russian entities of the TMK Group would not be required to make substantially larger tax payments in the future, which may adversely affect the financial results of the TMK Group.

Furthermore, Russian tax legislation in effect as at the date of this Prospectus does not contain a concept of the tax residency for legal entities. Russian companies are taxed on their worldwide income, whilst foreign entities are taxed in Russia on income attributable to a permanent establishment and on a Russian source income. However, the Government has been considering introduction of the concept of tax residency for legal entities into domestic tax law, particularly for the purposes of avoidance of tax evasion. Recently, such plans were confirmed by the Government in the Main Directions of Russian Tax Policy for 2013 and the planned period 2014-2015. It has been proposed to determine the tax residency of legal entities based on a number of criteria similar to those used in double tax treaties concluded by the Russian Federation. No assurance can currently be given as to whether and when these suggestions will be enacted, their exact nature, their potential interpretation by the Russian tax authorities and the possible impact on the Issuer or other non-Russian companies of the TMK Group. It may not be ruled out that, as a result of the introduction of these changes to the Russian tax legislation, the Issuer or other foreign companies of the TMK Group might be deemed to be Russian tax residents, subject to all applicable Russian taxes which could have a material adverse effect on the business, prospects, financial condition and results of operations of the TMK Group.

Further, the Government in its Main Directions of the Russian Tax Policy for 2013 and planned period of 2014- 2015 also expressed its intention to introduce the “controlled foreign companies” rule into the Russian Tax Code. It is currently unclear how and when these proposed policies will be enacted (if at all) and what effect these provisions may have on the TMK Group. The imposition of additional tax liabilities as a result of the application of the “controlled foreign companies” rule to transactions carried out by the TMK Group may have a material adverse effect on the TMK Group’s business, results of operations, financial condition or prospects.

A new concept of consolidated taxpayer (the “Tax Group”) was incorporated into the Russian Tax Code and became effective from 1 January 2012. The new rules introduce consolidated tax reporting that enables the consolidation of the financial results of Russian companies for corporate tax purposes which form one group. There are several requirements which should be met for consolidated group creation. TMK Group believes that its Russian companies do not satisfy these requirements and thus new consolidation rules in their current version are unlikely to apply to TMK Group and thus the Russian subsidiaries of TMK could not use the benefits envisaged by the consolidated taxpayer regime and tax losses incurred by any Russian subsidiary of TMK could not be surrendered to reduce the tax liability of any other Russian subsidiary of TMK, which complicates tax planning within TMK Group.

These factors, plus the potential for state budget deficits, increase the risk of the imposition of additional taxes, levies, fines and penalties on the TMK Group. The introduction of new taxes or levies or introduction of amendments to current taxation rules may have a substantial impact on the overall amount of our tax liabilities. There is no assurance that we would not be required to make substantially larger tax payments in the future, which may affect the financial results of TMK Group. For a further discussion of the risks and uncertainties associated with the enforcement and application of the tax regime in Russia, see “— Risks Relating to the Russian Federation — Selective or arbitrary government action could negatively impact our business”.

Russian transfer pricing rules may affect our results of operations. Russian transfer pricing legislation in place before 1 January 2012 was broad in scope and vaguely drafted, leaving broad scope for interpretation at the discretion of the Russian tax authorities and courts, and there was limited guidance as to how these rules should have been applied. Moreover, in the event that a transfer pricing adjustment was made by the Russian tax authorities, the transfer pricing rules did not provide for an offsetting adjustment to the related counterparty in the relevant transaction.

On 1 January 2012, new Russian transfer pricing legislation became effective, which allows the Russian tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of “controlled”

21 transactions (except for those conducted at state regulated prices and tariffs. The list of the “controlled” transactions under this new law includes transactions performed with related parties and certain types of cross-border transactions. This new law has considerably increased compliance burdens for taxpayers compared to the law which was in effect before 1 January 2012 due to, among other things, shifting the burden of proving market prices from the Russian tax authorities to the taxpayer. Although the new law is intended to be in line with international transfer pricing principals developed by the OECD, there are some peculiarities as to how the OECD transfer pricing principles are reflected in the local rules. Special transfer pricing rules continue to apply to transactions with securities and derivatives. It is currently difficult to evaluate what effect these new provisions may have on us. However, the new transfer pricing legislation could have a considerable impact on the TMK Group’s tax position.

Accordingly, due to uncertainties in the interpretation of Russian transfer pricing legislation which was in effect before 2012 and the recently introduced new transfer pricing legislation, no assurance can be given that the Russian tax authorities will not challenge the TMK Group’s prices and make adjustments which could affect our tax position. The imposition of additional tax liabilities under the Russian transfer pricing legislation may have a material adverse effect on our business, financial condition, results of operations and prospects.

See also “— Legal and Legislative Risks — Weaknesses and changes in the Russian tax system could negatively impact our business”.

Risks Relating to the Notes and the Trading Market Our obligations to make payments under the Loan Agreement are effectively subordinated to all the liabilities of our subsidiaries other than those of the Loan Guarantors. We are a holding company with no direct operations other than certain functions for our group. Our ability to make payments to the Issuer under the Loan Agreement depends upon the receipt of dividends, distributions, intercompany loan repayments and other payments from our subsidiaries, or our issuance of debt or equity securities. Our subsidiaries are separate and distinct legal entities. With the exception of the Loan Guarantors, from time to time, pursuant to the terms of the Deed of Loan Guarantee, and any other subsidiaries which may become Loan Guarantors pursuant to the terms of the Deed of Loan Guarantee, our subsidiaries have no obligation in respect of any amounts due under the Loan Agreement. In the event of a bankruptcy, liquidation or reorganisation of a subsidiary, holders of that subsidiary’s indebtedness and trade and other creditors of that subsidiary will have a claim to the assets of that subsidiary that is senior to your interest in those assets (except that the Loan Guarantee shall rank pari passu with the other senior unsecured obligations of the Loan Guarantors, from time to time, and to the extent that we are recognised as a creditor through intercompany claims or loans). Therefore, in most circumstances, obligations under the Loan Agreement will effectively rank junior to all liabilities of our subsidiaries other than those of the Loan Guarantors, including, but not limited to, trade payables.

In addition, our subsidiaries may be subject to legal, contractual or other restrictions that would prevent them from paying dividends or otherwise distributing cash to us. There can be no assurance that any of our subsidiaries will be able to make distributions to us to enable us to make payments under the Loan Agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness” for a discussion of our borrowings.

Our Russian subsidiaries may not approve the issuance of guarantees securing the Borrower’s obligations under the Loan Agreement. We have agreed in the Loan Agreement to procure, not more than 90 days after the Issue Date of the Notes, that OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars as the Additional Loan Guarantors, will issue the Additional Loan Guarantees in favour of the Issuer, pursuant to which they will jointly and severally guarantee the payment of all the amounts due by the Borrower under the Loan Agreement. In addition, under certain circumstances we may also be required to procure that further subsidiaries guarantee our obligations under the Loan. As the issuances of any such guarantees constitute interested party transactions for our Russian subsidiaries under the Russian Joint Stock Companies Law, the provision of such guarantees requires the approval of the majority of the “disinterested shareholders” of any such subsidiaries. We do not have control over disinterested shareholders in any of our subsidiaries, and there can be no assurance that the disinterested shareholders will approve the issuance of any such guarantees.

22 Accordingly, if the Borrower fails to provide any such Additional Loan Guarantor or Further Loan Guarantor in accordance with the Loan Agreement, the Noteholders will have an option to redeem their Notes in whole or in part, and the Borrower will be required to prepay the Loan to the extent such Notes are tendered for redemption. See “Description of the Transaction and the Security”. There can be no assurance that, if required to prepay the Loan in whole or in part, the Borrower or the other Loan Guarantors will have, or be able to obtain, the funds required to make such payments and that accordingly, the Issuer will be able to redeem such Notes.

Our obligations to make payments under the Loan Agreement are subordinated to our secured obligations and the obligations of any Loan Guarantor to make payments under the Deed of Loan Guarantee are subordinated to secured obligations of the Loan Guarantors. Some of our indebtedness, as well as some of the indebtedness of the Loan Guarantors, is secured by property, plant and equipment, inventory and/or trade receivables. Upon the occurrence of an event of default under any of any Loan Guarantor’s secured loans, or if we default on the Loan and this default triggers an event of default under any of our or any Loan Guarantor’s secured loans or other debt, or in the event of our or any Loan Guarantor’s bankruptcy, liquidation or reorganisation, the relevant entity’s secured creditors will have a claim that will have priority over your interest in the assets that serve as the security for such creditor’s indebtedness. Therefore, our obligations under the Loan Agreement and the obligations of any Loan Guarantor under the Deed of Loan Guarantee, respectively, will rank junior to our and each Loan Guarantor’s respective secured obligations.

As at 31 December 2012, approximately 23% of the principal amount of our total consolidated loans and borrowings was secured, and the Loan Guarantors had outstanding secured indebtedness in the principal amount of U.S.$503 million.

Covenants in our debt agreements, including the Loan Agreement, restrict our ability to borrow and invest, which could impair our ability to expand or finance our future operations. Certain of our short-term and long-term debt agreements, including the Loan Agreement, contain covenants that impose operating and financial restrictions on us and our subsidiaries. These restrictions significantly limit, and in some cases prohibit, among other things, our and certain of our subsidiaries’ (including the Loan Guarantors’) ability to incur additional debt, provide guarantees in relation to the obligations of third parties, create liens on assets or enter into business combinations. Failure to comply with these restrictions may constitute a default under our debt agreements, including the Loan Agreement, and the Loan and any of our other senior debt containing cross default provisions could become immediately due and payable. In addition, some of our debt agreements contain provisions that permit our lenders to require us to repay our debt to them in the event of a material deterioration in our financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness” for a discussion of these limitations. See also “— Risks Relating to our Business and the Pipe Industry — We are significantly leveraged and are required to meet certain financial and other restrictive covenants under the terms of our indebtedness, and failure to do so could negatively affect our business.”

The ability of investors to receive payment on the Notes is limited to payments received by the Issuer under the Loan Agreement and/or the Deed of Loan Guarantee. The obligations of the Issuer are limited recourse in nature and it is only obliged to make payments under the Notes to Noteholders in an amount equivalent to sums of principal, interest, increased amounts of principal, interest and “any other payment due under the Loan Agreement” (as defined in the Loan Agreement) and any “Additional Amounts” (as defined in the Loan Agreement) actually received by or for the account of the Issuer under the Loan Agreement and/or the Deed of Loan Guarantee, less any amount in respect of Reserved Rights. Consequently, if we fail to meet fully our obligations under the Loan Agreement and/or any Loan Guarantor fails to meet fully its obligations under the Deed of Loan Guarantee, investors will receive less than the scheduled amount of principal, interest, increased amounts of principal, interest and any other payment due under the Loan Agreement (if any) and/or Additional Amounts (if any) on the relevant due date. The Issuer’s assets solely consist of the Loan Agreement and its liabilities solely consist of its obligations to make payments under the Notes. As an orphan special purpose vehicle incorporated for the sole purpose of issuing notes, it has no other material assets or liabilities.

Noteholders have no direct recourse against the Issuer. Except as otherwise disclosed in “Terms and Conditions of the Notes” and in the Trust Deed, no proprietary or other direct interest in the Issuer’s rights under or in respect of the Loan Agreement and/or the Deed of Loan

23 Guarantee exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions of the Loan Agreement and/or the Deed of Loan Guarantee or have direct recourse against the TMK Group, except through action by the Trustee under the Security Interests (as defined in “Terms and Conditions of the Notes”). Neither the Issuer nor the Trustee under the Assigned Rights (as defined in “Terms and Conditions of the Notes”) shall be required to enter into proceedings to enforce payment under the Loan Agreement and/or the Deed of Loan Guarantee.

The lack of a public market for the Notes could reduce the value of an investment in the Notes. There may not be an existing market for the Notes at the time they are issued. The Notes are expected to be listed and admitted to trading on the Main Market. However, there can be no assurance that a liquid market will develop for the Notes, that holders of the Notes will be able to sell their Notes, or that such holders will be able to sell their Notes for a price that reflects their value.

Payments we make under the Loan or the Loan Guarantees may be subject to Russian withholding tax. In general, interest payments on borrowed funds made by a Russian legal entity to a non-Russian legal entity or organisation having no registered presence or permanent establishment in Russia are subject to Russian withholding tax at the rate of 20% (or such other tax rate as may be effective at the time of payment), which could be reduced or eliminated pursuant to the terms of an applicable double tax treaty subject to treaty clearance formalities to be satisfied by the foreign legal entity in a timely manner.

In particular, the Convention between the Grand Duchy of Luxembourg and the Russian Federation for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital signed on 28 June 1993 (the “Russia-Luxembourg double tax treaty”) establishes that Russian withholding tax could be eliminated provided that certain criteria specified in the treaty are satisfied by the recipient of the relevant income.

The application of the tax benefits under the Russia-Luxembourg double tax treaty could be affected by the change in the interpretation by the Russian tax authorities of the concept of factual/beneficial owner of income. Specifically, on 30 December 2011 the Russian Ministry of Finance issued letter No. 03-08-13/1 (the “Letter”) addressed to the Federal Tax Service, in which the Ministry of Finance asserted that in the context of a specific eurobond structure, which is different from the structure of the transaction described in this Prospectus, a foreign issuer of eurobonds cannot benefit from the provisions of the Russia-Ireland double tax treaty in respect of interest paid by the Russian borrower because, in the view of the Ministry of Finance, such foreign issuer of eurobonds may not be considered as the beneficial owner of interest income. Conversely, the Letter says that holders of the notes could apply the provisions of the respective tax treaty (if any) concluded between Russia and the country of residency of each holder of the notes. We cannot preclude the possibility that the Russian tax authorities might apply the same approach to the payments made under the structure as described in this Prospectus.

Notwithstanding the above, subsequently in 2012, Federal Law No. 97-FZ dated 29 June 2012 “On introduction of amendments in part one and two of the Tax Code of the Russian Federation and article 26 of Federal law on banks and banking activity” (the “Law No. 97-FZ”) was introduced and provides an exemption from withholding tax for eurobond structures. In particular, the Law No. 97-FZ provides that Russian borrowers in eurobond structures such as the structure described in this Prospectus should be fully released from the obligation to withhold tax from interest and other payments made to foreign entities provided that certain conditions are met. See “Taxation of the Notes, Loans and Guarantees — Russian Federation”. Similarly, the exemption provided by the Law No. 97-FZ should also apply to payments made by the Loan Guarantors under the Loan Guarantees to the Issuer. In particular, the Law 97-FZ provides that Russian companies which make payments in favour of foreign legal entities upon the execution of a guarantee or suretyship should be released from the obligation to withhold tax from such payments provided that certain conditions are met. See “Taxation of the Notes, Loans and Guarantees — Russian Federation”.

Based on professional advice, we believe that it should be possible to satisfy the conditions established by the Law 97-FZ and obtain a release from the obligation to withhold tax from payments of interest and certain other amounts on the Loan by TMK to the Issuer and payments made by the Loan Guarantors under the Loan Guarantees. Under that law, this exemption applies for transactions entered into before 1 January 2014.

Importantly, the Law No. 97-FZ does not provide an exemption for foreign interest income recipients from Russian withholding tax, although currently there is no requirement in the Russian tax legislation for the foreign

24 income recipients being legal entities to self-assess and pay the tax to the Russian tax authorities. The Russian Ministry of Finance acknowledged in its information letter published on its website that the release from the obligation to act as a tax agent means, in effect, that tax at source within Russia should not arise in connection with eurobonds, since there is neither a mechanism nor an obligation for a non-resident to independently calculate and pay such tax. However, there can be no assurance that such rules will not be introduced in the future or that the tax authorities would not make attempts to collect the tax from the foreign income recipients, including the Issuer or the holders of the Notes.

If interest and/or other amounts due under the Loan become payable to the Trustee pursuant to the Trust Deed, such as in connection with any enforcement following an event of default, there is some residual uncertainty whether the release from the obligation to withhold tax under the Law No. 97-FZ is available to the Trustee. There is a potential risk that Russian withholding tax in respect of payments of interest and some other amounts to the Trustee at the rate of 20% (or such other tax rate as may be effective at the time of payment) or Russian personal income tax at the rate of 30% (or such other tax rate that may be effective at the time of payment) may be deducted by the TMK Group upon making such payments to the Trustee. There is also a potential risk that Russian withholding tax in respect of payments made by Loan Guarantors under the Loan Guarantees to the Trustee at the rate of 20% (or such other tax rate as may be effective at the time of payment) or Russian personal income tax at the rate of 30% (or such other tax rate that may be effective at the time of payment) may be deducted by Loan Guarantors upon making such payments to the Trustee. It is not expected that the Trustee will, or will be able to, claim a Russian withholding tax exemption or reduction under any applicable double tax treaty under such circumstances. In addition, whilst some holders of Notes that are foreign persons not residing in Russia for tax purposes may seek a reduction or elimination of Russian withholding tax or personal income tax, as applicable, or a refund of the respective taxes under applicable double tax treaties entered into between their countries of tax residence and the Russian Federation, there is no assurance that any treaty relief will be available to them in practice under such circumstances.

Russian thin capitalisation rules will be applicable to interest payable on the Loan by TMK since the Russian affiliated entities of a non-Russian legal entity that directly owns more than 20% of TMK, act as the Loan Guarantors for TMK’s debt obligations under the Deed of Loan Guarantee. Under Russian thin capitalisation rules, the deductibility of interest payable on the Loan is subject to certain limitations if the TMK’s outstanding debt to the non-Russian legal entity that directly or indirectly owns more than 20% of TMK or to such legal entity’s affiliated Russian entities, or guaranteed by such entity or by such entity’s affiliated Russian entities, jointly qualified as “controlled debt” of TMK under the Russian thin capitalisation rules, exceeds 300% of TMK’s own capital. Any interest expense paid by TMK in excess of such limitations (on a pro-rata basis corresponding to the share of investment by the particular non-Russian legal entity into the charter capital of TMK) will be reclassified as a dividend for TMK for the purposes of Russian profit tax and will be subject to a Russian withholding income tax at a rate of 15% unless such withholding tax is reduced or eliminated pursuant to the terms of an applicable double tax treaty. There is some residual uncertainty as to whether the release from the obligation to withhold tax envisaged by the Law No. 97-FZ should be applied in this case.

If interest payments or any other amounts due under the Loan become subject to Russian withholding tax (as a result of which the Issuer will reduce the respective payments made under the Notes by the amount of such withholding tax) TMK would be obliged under the terms of the Loan Agreement to increase the relevant payments, as may be necessary to ensure that the net amount of payments received by the Issuer will not be less than the amount it would have received in the absence of such withholding. It is unclear however whether provisions of the Loan Agreement obliging TMK to gross-up any payments under the Loan will be enforceable under Russian law as currently in effect. If payments under the Loan Guarantees are subject to any Russian withholding tax or deduction for any taxes, duties, assessments or governmental charges of any nature (as a result of which the Issuer would reduce the relevant payments made under the Notes and the Loan Guarantees by the amount of such withholding tax), the relevant Loan Guarantor would be obliged to increase the relevant payments as may be necessary to ensure that the net payments received by the Issuer will not be less than the amounts it would have received in the absence of such withholding or deduction. It is currently unclear whether the provisions obliging the Loan Guarantors to gross-up any payments will be enforceable under Russian law as currently in effect. There is a risk that gross-up for withholding tax will not take place and that payments under the Loan or Loan Guarantees made by us will be reduced by the amount of the Russian income tax or Russian personal income tax withheld by us at source. See “Taxation of the Notes, Loans and Guarantees —Russian Federation”. If we are obliged to increase payments or to make additional payments, we may, subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes would be redeemable at par together with accrued and unpaid interest and additional amounts, if any, to the date of repayment. See “Terms and Conditions of the Notes”.

25 Further, if TMK or the Loan Guarantors were to fail to make tax gross-up payments in accordance with the terms of the Loan or the Loan Guarantees, as applicable, and the relevant provisions of the Loan or the Loan Guarantees were deemed to be unenforceable, the net amount of the payments made by TMK or the Loan Guarantors to the Issuer, as applicable, could be insufficient to make payment in full under the Notes.

Any of the foregoing risks and circumstances associated with the imposition of Russian withholding tax may result in holders of the Notes failing to receive the full amounts otherwise due to them and could adversely affect the value of the Notes.

Tax might be withheld on dispositions of the Notes in Russia, reducing their value. Where proceeds from sale or other disposal of the Notes (including accrued and paid interest on the Notes) are deemed to be received from a source within Russia by a non-resident Noteholder, who is an individual, a personal income tax at the rate of 30% (or such other tax rate as could be effective at the time of such disposition) would apply to the gross amount of sales proceeds realised upon disposition of the Notes decreased by any available duly documented cost deduction (including the acquisition cost of the Notes and other documented expenses related to the acquisition, holding and the disposition of the Notes), provided that the documentation supporting cost deduction is available to the person obliging to calculate and withhold Russian personal income tax in a timely manner.

Although technically such Russian personal income tax may be reduced or eliminated under provisions of an applicable double tax treaty subject to compliance with the treaty clearance formalities, in practice individuals would not be able to obtain advance treaty relief in relation to sales proceeds received from a source within Russia, whilst obtaining a refund of taxes withheld can be extremely difficult, if not impossible.

The imposition or possibility of imposition of this withholding tax could adversely affect the value of the Notes.

The Notes may or must be redeemed early in a number of circumstances. On the occurrence of one of the early redemption events described in “Terms and Conditions of the Notes — Redemption and Purchase” and in “The Loan Agreement”, the Borrower may, or in some cases must, prepay the Loan in whole or in part together with accrued interest at any time, and (to the extent that it has actually received the relevant funds from the Borrower or the Loan Guarantors) the Issuer shall redeem all outstanding Notes in accordance with the Terms and Conditions of the Notes. On such redemption, or at maturity, the Borrower and/or the Loan Guarantors may not have the funds to fulfil its obligations under the Loan Agreement and/or the Deed of Loan Guarantee, as the case may be, and the Borrower may not be able to arrange for additional financing. If the early repayment or maturity date of the Loan occurs at a time when other arrangements prohibit.

Modification, waivers and substitution. The Terms and Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.

The Terms and Conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Condition 12 of the Terms and Conditions of the Notes.

The market price of the Notes may be volatile. The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the TMK Group’s own or the TMK Group’s competitors’ operating results, adverse business developments, changes to the regulatory environment in which the TMK Group operates, changes in financial estimates by securities analysts, and the actual or expected sale of a large number of Notes, as well as other factors. Historically, the market for non-investment grade debt, such as the Notes, has been subject to disruptions that have caused substantial volatility in the prices of such securities. Any such disruptions may harm Noteholders. In addition, in recent years the global financial markets have experienced significant price and volume fluctuations that, if repeated in the future, could adversely affect the market price of the Notes without regard to the TMK Group’s results of operations, prospects or financial condition.

26 Credit ratings of the Notes may not reflect all risks. As described in “— Changes to the Borrower’s credit rating may adversely affect the trading price of the Notes”, two independent credit rating agencies are expected to assign credit ratings to the Notes. Credit ratings assigned to the Notes do not necessarily mean that they are a suitable investment. The ratings may not reflect the potential impact of all risks related to the structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on any particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation.

Changes to the Borrower’s credit rating may adversely affect the trading price of the Notes. It is expected that the Notes will be rated B1 by Moody’s and B+ by Standard and Poor’s. As payments to be made under the Notes depend on payments made by the Borrower under the Loan, any changes in the credit ratings of the Borrower could adversely affect the trading price of the Notes. A change in the credit rating of the Russian Federation, or one or more other Russian corporate borrowers or banks could also adversely affect the trading price of the Notes. Further, any rating given to the Notes is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation.

The Notes may not be a suitable investment for all investors. Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: • have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus; • have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio; • have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes; • understand thoroughly the terms of the Notes and be familiar with the behaviour of the relevant financial markets; and • be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

Noteholders’ rights will be limited so long as the Notes are issued in book-entry interests. Owners of book-entry interests will not be considered owners or holders of Notes unless and until definitive notes are issued in exchange for book-entry interests. Instead, Euroclear, Clearstream, Luxembourg or DTC or their nominees, will be the sole holders of the Notes.

Payments of principal, interest and other amounts owing on or in respect of the Notes in global form will be made as described in “Summary of the Provisions Relating to the Notes in Global Form” and none of the Issuer, the Loan Guarantors, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments of interest, principal or other amounts to Euroclear, Clearstream, Luxembourg, or DTC or to owners of book-entry interests.

Owners of book-entry interests will not have the direct right to act upon the Issuer’s, TMK’s or the Loan Guarantors’ solicitations for consents or requests for waivers or other actions from holders of the Notes, including enforcement of security for the Notes and the Loan Guarantees. Instead, Noteholders who own a book- entry interest will be reliant on the nominees for the common depositary or custodian (as registered holder of the Notes) to act on their instructions and/or will be permitted to act directly only to the extent such holders have received appropriate proxies to do so from Euroclear, Clearstream, Luxembourg or DTC or, if applicable, from a participant. There can be no assurances that procedures implemented for the granting of such proxies will be sufficient to enable you to vote on any requested actions or to take any other action on a timely basis.

27 Additional notes may not be fungible for U.S. federal income tax purposes with the Notes issued in this offering which could affect the value of the Notes. Additional notes issued in additional offerings by the Issuer may not be treated as fungible for U.S. federal income tax purposes with the Notes issued in the original offering. If additional notes, if any, are not treated as fungible with the original Notes for U.S. federal income tax purposes and are treated as issued with more than de minimis original issue discount (“OID”), U.S. holders of the additional notes may be required to accrue OID on such additional notes into income whether or not they receive cash payments. Because the additional notes may not be distinguishable from the previously outstanding Notes, this may adversely affect the market value of the Notes.

Payments on the Notes may be subject to U.S. withholding under the Foreign Account Tax Compliance provisions (“FATCA”) of the Hiring Incentives to Restore Employment Act of 2010. The Issuer and other non-U.S. financial institutions through which payments on the Notes are made may be required to withhold U.S. tax at a rate of 30 per cent. on all, or a portion of, payments made after 31 December 2016 with respect to the Notes if the Notes or the underlying Loan are treated as equity for U.S. federal income tax purposes or are materially modified after 1 January 2014, or, if later, the date that is six months after the date on which the final regulations that define “foreign passthru payments” for purposes of FATCA are published. Such withholding tax generally would apply unless the recipient or intermediary of the relevant payment has entered into an agreement with the U.S. Internal Revenue Service (“IRS”) to provide certain information on its account holders or is in deemed-compliance with FATCA or otherwise exempt from FATCA withholding. If the Issuer itself is not in compliance with FATCA, payments it receives may be subject to FATCA withholding.

If an amount in respect of FATCA were to be deducted or withheld from interest, principal or other payments on or with respect to the Notes, the Issuer would have no obligation to pay additional amounts or otherwise indemnify a holder for any such withholding or deduction by the Issuer, the Principal Paying Agent or any other party as a result of the deduction or withholding of such amount. As a result, if FATCA withholding were imposed on payments on or with respect to the Notes, Noteholders could receive less interest or principal than expected.

A Noteholder that is withheld upon under FATCA generally will be able to obtain a refund of amounts withheld, if any, only to the extent an applicable income tax treaty with the United States entitles the Noteholder to a reduced rate of tax on the payment that was reduced by the withholding, provided the required information is furnished in a timely manner to the IRS.

Risk Factors Relating to Luxembourg Law Insolvency laws in Luxembourg could negatively affect the ability of Noteholders to enforce their rights. Any insolvency proceedings with regard to the Issuer would most likely be based on and governed by the insolvency laws of Luxembourg, the jurisdiction under which the Issuer is organised. As a result, in the event of the Issuer’s insolvency, a Noteholder’s claim against the Issuer will most likely be subject to insolvency laws of Luxembourg. The insolvency laws of Luxembourg may not be as favourable to the interest of Noteholders as the laws in other jurisdictions. In the event that the Issuer experiences financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced or how these proceedings would be resolved. In addition, there can be no assurance as to how the insolvency laws of Luxembourg will be applied in insolvency proceedings relating to several jurisdictions.

28 CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, and can be identified by the use of such words and phrases as “according to estimates”, “anticipates”, “assumes”, “believes”, “could”, “estimates”, “expects”, “intends”, “is of the opinion”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “to the knowledge of”, “will”, “would” and similar expressions, which are intended to identify a statement as forward-looking. This applies, in particular, to statements containing information on future financial results, plans, or expectations regarding the our business and management, our future growth or profitability and general economic and regulatory conditions and other matters affecting us.

Forward-looking statements reflect our current views of future events, are based on our assumptions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The occurrence or non-occurrence of an assumption could cause our actual financial condition and results to differ materially from, or fail to meet expectations expressed or implied by, such forward-looking statements. Our business is subject to a number of risks and uncertainties that could also cause a forward-looking statement, estimate or prediction to become inaccurate. These risks include, but are not limited to, the following: • changes in the demand for OCTG, line pipes and large diameter welded pipes; • changes in the supply of, or demand for raw materials, including scrap metal, ferroalloys, steel billets, steel plate and steel coils in Russia, the United States and elsewhere; • our ability to successfully implement any of our business strategies; • our ability to realise the benefits we expect from existing and future investments in our existing operations and capital investment programme; • changes in the competitive environment in which we and our customers operate; • our ability to fund future operations and capital needs through borrowing or otherwise; • our ability to integrate any new acquisitions and any future expansion of our business; • changes in laws and regulations applicable to our operations, as well as the enactment of future governmental regulations related to our operations in Russia, the United States, Oman and Europe; • general economic conditions in Russia, the United States and other countries in which we operate, such as the rate of economic growth and fluctuations in exchange and interest rates; • government intervention, resulting in changes to the economic, tax, tariff or regulatory environment in Russia or other countries in which we operate; • changes in Russian foreign trade policy; • changes in political or social conditions in Russia; • actions taken by our controlling beneficial shareholder that are not in line with, or may conflict with, our best interests and/or our other shareholders; and • our success in identifying other risks to our business and managing the risks of the aforementioned factors.

Additional factors that could cause the TMK Group’s actual results, performance or achievements to differ materially include, but are not limited to, those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Any forward-looking statements speak only as of the date of this Prospectus. Neither we nor our management nor the Joint Bookrunners can give any assurance regarding the future accuracy of the opinions set forth herein or as to the actual occurrence of any predicted developments.

We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based unless required to do so by the Listing Rules of the Irish Stock Exchange or the Central Bank or other applicable laws. All subsequent written and oral forward-looking statements attributable to us, and those acting on our behalf of the TMK Group, are expressly qualified in their entirety by this paragraph. Before making an investment decision, prospective investors should specifically consider the factors identified in this Prospectus that could cause actual results to differ.

29 ENFORCEABILITY OF JUDGMENTS IN THE RUSSIAN FEDERATION

The Borrower and the Loan Guarantors (other than IPSCO Tubulars Inc.) are incorporated under the laws of the Russian Federation and substantially all of the assets of the Borrower and the Loan Guarantors are located outside the United Kingdom and the United States. In addition, a substantial majority of the directors and executive officers of the Borrower and the Loan Guarantors are residents of countries other than the United Kingdom or the United States. As a result, it may not be possible for Noteholders to: • effect service of process within the United Kingdom or the United States upon the Borrower or the Loan Guarantors or upon any of the directors or executive officers of the Borrower and the Loan Guarantors; or • enforce, in the English or U.S. courts, judgments obtained outside English or U.S. courts against the Borrower, the Loan Guarantors or any of their respective directors and executive officers in any action.

In addition, it may be difficult for the holders of Notes and/or the Trustee to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom and the United States, liabilities predicated upon English laws or U.S. federal securities laws. Courts in the Russian Federation will generally recognise judgments rendered by a court in any jurisdiction outside the Russian Federation if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the country where the judgment is rendered or a federal law is adopted in the Russian Federation providing for the recognition and enforcement of foreign court judgments. No such treaty for the reciprocal recognition and enforcement of foreign court judgments in civil and commercial matters exists between the Russian Federation and certain other jurisdictions (including the United Kingdom and the United States), and no relevant federal law on enforcement of foreign court judgments has been adopted in the Russian Federation. As a result of which new proceedings may have to be brought in the Russian Federation in respect of a judgment already obtained in any such jurisdiction against the Borrower or the Loan Guarantors or their officers or directors. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of such judgment or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes or under the Loan or Loan Guarantees.

In the absence of an applicable treaty, enforcement of a final judgment rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the country where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. While Russian courts have recently recognised and enforced English court judgments on these grounds, the existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgment is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgment issued by a foreign court, including an English court.

The Loan Agreement, the Deed of Loan Guarantees and any non-contractual obligations arising out of or in connection with them will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto to be settled by arbitration in accordance with the UNCITRAL Rules. The place of such arbitration shall be London, England. The Russian Federation and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Consequently, Russian courts should generally recognise and enforce in the Russian Federation an arbitral award from an arbitral tribunal in the United Kingdom on the basis of the rules of the New York Convention (subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation).

The Arbitrazh Procedural Code of the Russian Federation (the “Arbitrazh Procedural Code”) sets out the procedure for the recognition and enforcement of foreign awards by Russian courts. The Arbitrazh Procedural Code also contains an exhaustive list of grounds for the refusal of recognition and enforcement of foreign arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention.

The Arbitrazh Procedural Code and other Russian procedural legislation could change, and other grounds for Russian courts to refuse the recognition and enforcement of foreign courts’ judgments and foreign arbitral awards could arise in the future. In practice, reliance upon international treaties may meet with resistance or a lack of understanding on the part of a Russian court or other officials, thereby introducing delay and unpredictability into the process of enforcing any foreign judgment or any foreign arbitral award in the Russian Federation.

30 Enforceability of Judgments in the Russian Federation

Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the UNCITRAL Rules and the application of English law to the Loan Agreement and the Deed of Loan Guarantee and any non- contractual obligations arising out of or in connection with them may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies and credit organisations in particular.

31 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial Information Our financial information set forth herein has, unless otherwise indicated, been derived, without material adjustment, from our audited consolidated financial statements as at and for the year ended 31 December 2012 (the “2012 Annual Consolidated Financial Statements”), as at and for the year ended 31 December 2011 (the “2011 Annual Consolidated Financial Statements”) and as at and for the year ended 31 December 2010 (the “2010 Annual Consolidated Financial Statements”), as set forth in the section beginning on page F-1 in this Prospectus (together, the “Consolidated Financial Statements”). The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

Presentation of Certain Terminology In this Prospectus, all references to:

•“OAO TMK” and the “Company” are to OAO TMK on an unconsolidated basis, unless the context otherwise requires;

•“TMK,” “TMK Group,” “we,” “us” and “our” are to OAO TMK and its consolidated subsidiaries, unless the context otherwise requires;

•“Blagoustroystvo” are to OOO Blagoustroystvo;

•“Central Pipe Yard” are to TMK Central Pipe Yard;

•“Corinth Pipeworks” are to Corinth Pipeworks S.A.;

•“Evraz” are to Evraz plc and its subsidiaries;

•“GIPI” are to Gulf International Pipe Industry LLC;

•“IPSCO Tubulars” are to IPSCO Tubulars Inc.;

•“NS Group” are to NS Group Inc.;

•“Orsky Machine Building Plant” are to Open Joint Stock Company “Orsky Machine Building Plant”;

•“Pipe Maintenance Department” are to TMK Pipe Maintenance Department;

•“TMK Premium” are to Threading and Mechanical Key Premium LLC;

•“RosNITI” are to The Russian Research Institute of the Tube & Pipe Industries, Joint Stock Company (RosNITI JSC);

•“RusNano” are to the Russian Corporation of Nanotechnologies;

•“Seversky” are to Seversky Tube Works, Joint Stock Company;

•“Sinarsky” are to Public Joint Stock Company “Sinarsky Pipe Plant”;

•“Sinarskaya TES” are to OJSC “Sinarskaya TES”;

•“SSAB” are to Swedish Steel AB;

•“Tagmet” are to Joint stock company “TAGANROG METALLURGICAL WORKS”;

• “TMK-Africa” are to TMK Africa Tubulars;

•“TMK-Artrom” are to S.C TMK-ARTROM S.A.;

•“TMK-CPW” are to ZAO “TMK-CPW”;

•“TMK Europe” are to TMK Europe GmbH;

32 Presentation of Financial and Other Information

•“TMK Global” are to TMK Global AG;

•“TMK Hydroenergy Power” are to TMK Hydroenergy Power S.R.L.;

•“TMK Italia” are to TMK Italia s.r.l.;

•“TMK-INOX” are to Limited Liability Company TMK-INOX.;

•“TMK IPSCO” are to IPSCO Tubulars and its subsidiaries;

•“TMK-Kazakhstan” are to TOO TMK-Kazakhstan;

•“TMK-Kaztrubprom” are to TOO TMK-Kaztrubprom;

•“TMK Middle East” are to TMK M. E. FZCO;

•“TMK North America” are to TMK Sinara North America Inc.;

•“TMK NSG” are to TMK NSG, LLC;

•“TMK Oilfield Services” are to OOO TMK Oil Field Services;

•“TMK-Premium Service” are to OOO TMK-Premium Services;

•“TMK-Resita” are to SC TMK-Resita S.A.;

•“TMK Steel” are to TMK Steel Limited;

•“TMK Trade House” are to Trade House “TMK” Closed Joint Stock Company;

•“ULTRA Premium Oilfield Services” are to ULTRA Premium Oilfield Services, Ltd.;

•“Truboplast” are to “Truboplast Pipe Coating Company”; and

•“Volzhsky” are to “Volzhsky Pipe Plant” OJSC.

Volume Measurement In this Prospectus, all references to “tonnes” are to metric tonnes; one metric tonne is equal to 1,000 kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons.

Currencies In this Prospectus, all references to:

•“EUR” and “euro” are to the currency of the participating member states in the third stage of the Economic and Monetary Union of the Treaty establishing the European community, as amended;

•“RON” are to Romanian lei, the currency of the Republic of Romania;

•“RUB,”“Rouble” and “Russian rouble” are to the currency of the Russian Federation; and

•“USD”, “U.S. dollar” and “U.S.$” are to the currency of the United States of America.

Certain Jurisdictions In this Prospectus, all references to:

•“China” are to the People’s Republic of China;

33 Presentation of Financial and Other Information

•“CIS” are to the Commonwealth of Independent States and its member states as at the date of this Prospectus: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. In this Prospectus, references to “sales to the CIS” (and derivations thereof) mean sales to customers in CIS member states other than Russia;

•“EU” are to the European Union;

•“Kazakhstan” are to the Republic of Kazakhstan;

•“Romania” are to the Republic of Romania;

•“Russia” are to the Russian Federation;

•“Singapore” are to the Republic of Singapore;

•“U.K.” and “United Kingdom” are to the United Kingdom of Great Britain and Northern Ireland; and

•“U.S.” and the “United States” are to the United States of America.

Market, Other Statistical Data and Information Derived from Third Parties Market data used in this Prospectus, including under the captions “Overview of the Group,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, have been extracted from official and industry sources and other sources we believe to be reliable but have not been independently verified. The Issuer, TMK and each of the Loan Guarantors confirm that such information has been accurately reproduced and that, so far as the Issuer, TMK and each of the Loan Guarantors are aware and are able to ascertain from information published by such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.

Where information has been sourced from a third party, this information has been accurately reproduced and so far as the Issuer, TMK and each of the Loan Guarantors are aware and are able to ascertain from information published by such third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Such information sourced from third parties contained in this Prospectus, including official data published by certain Russian government agencies, relates to the Russian steel pipe production industry and TMK’s competitors (and may include estimates and approximations). See “Risk Factors — Risks Relating to Our Business and the Pipe Industry”, “Risk Factors — Risks Relating to the Russian Federation”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Our Results of Operations”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Disclosures about Market Risk”, “Business — Competitive Strengths” and “Business — Production Facilities”.

Throughout this Prospectus, we have set forth certain statistical information sourced from third parties which has been accurately reproduced and so far as the Issuer, TMK and the Loan Guarantors are aware and are able to ascertain from information published by such third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. In particular data relating to our share of the steel pipe markert in Russia is based upon Russian steel pipe production data from monthly Metal Courier Reports, a compilation of statistical data from the Russian Ministry of Economics as well as Russian statistical authorities, as well as information published by the Russian Federal Service for State Statistics (“Rosstat”). We accept responsibility for accurately reproducing such information, data and statistics. Such information, data and statistics may be approximations or estimates or use rounded numbers. While we believe that these sources are reliable, we have not independently verified them and there can be no assurance that statistics derived from third party sources are true and accurate in all material respects.

In addition, the official data published by Russian federal, regional and local governments may be substantially less complete or researched than those of Western countries. Official statistics may also be produced on bases different from those used in Western countries. Any discussion of matters relating to Russia in this Prospectus must, therefore, be subject to uncertainty due to concerns about the completeness or reliability of available official and public information. Further, the veracity of some official data released by the Russian government may be questionable.

34 Presentation of Financial and Other Information

This Prospectus contains certain statistical information relating to the volume of pipe and other products that TMK has shipped and/or sold to its customers. As used in this Prospectus, the term “shipment volumes” (and corresponding derivative forms thereof) refers to the total volumes of products that TMK has (over a referenced period) shipped or otherwise transported from its production facilities for delivery to customers, irrespective of whether the legal ownership of such products has been transferred to the customer. The term “sales volumes” (and corresponding derivative forms thereof) refers to the total volume of products the TMK has (over a referenced period) delivered in a manner such that legal ownership has been transferred to that customer. TMK recognises revenue in its financial statements based upon the transfer of legal ownership of its products and, accordingly, for IFRS purposes, sales volumes are a more relevant measurement than shipment volumes. As a result, in certain cases, for any given period, there may be some difference between the volumes of shipped products and the volumes of sold products recorded by TMK.

Rounding Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

References to Ratings Agencies This Prospectus contains references to ratings assigned by Moody’s Investors Service Ltd., Standard and Poor’s Credit Market Services France SAS, a division of The McGraw-Hill Companies, Inc., Standard & Poor’s Credit Market Services Europe Limited and Fitch Ratings Ltd (together, the “Ratings Agencies”). The Ratings Agencies are established in the European Union and are registered under the Regulation (EC) No. 1060/2009, as amended (the “CRA Regulation”). As such, the Ratings Agencies are included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with the CRA Regulation.

Exchange Rate Information The functional currency of OAO TMK and its subsidiaries located in Russia, Kazakhstan and Switzerland is the Rouble. The Romanian lei is the functional currency of our Romanian subsidiaries and the euro is the functional currency of TMK Europe and TMK Italia. The functional currency of TMK IPSCO, TMK North America, TMK Middle East, GIPI, TMK Premium and OFS International LLC is the U.S. dollar. The presentation currency for our Consolidated Financial Statements included in this Prospectus is the U.S. dollar. See the Notes to our Consolidated Financial Statements included elsewhere in this Prospectus for a description of the methodology we use to translate our financial position and results of operations from Roubles and other currencies to U.S. dollars.

The table below sets forth, for the periods and dates indicated, certain information regarding the exchange rate between the Rouble and the U.S. dollar, based on the official exchange rate quoted by the Central Bank of the Russian Federation (the “CBR”). Fluctuations in the exchange rate between the Rouble and the U.S. dollar in the past are not necessarily indicative of fluctuations that may occur in the future.

RUB per U.S.$1.00 Period High Low average(1) Period end Year ended 31 December 2012 ...... 34.04 28.95 31.09 30.37 2011 ...... 32.68 27.26 29.39 32.20 2010 ...... 31.78 28.93 30.37 30.48 2009 ...... 36.43 28.67 31.72 30.24 2008 ...... 29.38 23.13 24.86 29.38 Month ended 31 January 2013...... 30.42 30.03 30.26 30.03 28 February 2013...... 30.62 29.93 30.16 30.62 March 2013 (through 18 March 2013) ...... 30.79 30.51 30.71 30.72 (1) The average rates are calculated as the average of the daily exchange rates on each business day (which rate is announced by the CBR for each such business day) and on each non-business day (which rate is equal to the exchange rate on the previous business day).

As at 18 March 2013, the exchange rate between the Rouble and the U.S. dollar was RUB 30.72 to U.S.$1.00.

35 OVERVIEW OF THE GROUP

This overview may not contain all the information that may be important to prospective purchasers of the Notes and, therefore, should be read in conjunction with this entire Prospectus, including the more detailed information regarding our business and the Consolidated Financial Statements and related notes included elsewhere in this Prospectus. Prospective purchasers of the Notes should also carefully consider the information set forth under the heading “Risk Factors”. Certain statements in this Prospectus include forward-looking statements that also involve risks and uncertainties as described under “Forward-Looking Statements”.

Information in this Prospectus is presented on the basis of certain conventions that are set forth under “Presentation of Financial and Other Information” and definitions of certain terms related to our business and industry are set forth under “Glossary of Selected Terms”.

Our Business We believe that we are a global leader in tubular products and are among the world’s largest steel pipe producers, with approximately a 6% worldwide market share for seamless pipes and a 10% worldwide market share for seamless OCTG by sales volume in 2012, according to our estimates. We also believe that we are Russia’s largest manufacturer and supplier of steel pipes, with approximately a 25% market share for steel pipes, a 52% market share for seamless pipes and a 62% market share for seamless OCTG in Russia by sales volume in 2012, according to our estimates.

In 2012, we sold 4,238 thousand tonnes of pipe products, including 2,495 thousand tonnes of seamless pipes, and 1,722 thousand tonnes of OCTG. In 2011, we sold 4,185 thousand tonnes of pipe products, including 2,342 thousand tonnes of seamless pipes and 1,535 thousand tonnes of OCTG. In 2010, we sold 3,962 thousand tonnes of pipe products, including 2,119 tonnes of seamless pipes and 1,478 thousand tonnes of OCTG. Pipes for the oil and gas industry accounted for approximately 75%, 74% and 74% of our total sales volume in 2012, 2011 and 2010, respectively.

We believe that we are a leading exporter of pipes produced in Russia, with sales volumes of pipe products produced at our Russian plants accounting for 54% and 51% of the volume of all steel pipe exports from Russia in 2012 and 2011, respectively, according to our estimates.

We produce both seamless and welded pipes. Our primary focus is the production of typically higher margin seamless and welded OCTG pipes, including premium connections, developed both in Russia and the United States. We have also been concentrating on developing our large diameter welded pipe business, demand for which is relatively high in the oil and gas industry. We believe that co-operation with the oil and gas industry, where demand for our products is high, will provide better growth opportunities. We also produce higher margin industrial seamless pipes which are widely used in the nuclear energy and chemical industries. We also produce welded industrial pipes, although we do not consider the production of these to be our core market.

We currently have the following seven principal product lines: • seamless OCTG, which are used in oil and gas production; • welded OCTG, which are used in oil and gas production; • seamless line pipes, which are used for in-field short-distance oil and gas transportation; • welded line pipes, which are used for in-field short-distance oil and gas transportation; • large diameter welded pipes, which are used for the transportation of oil and gas, typically over long distances; • seamless industrial pipes, which have various industrial applications in the machine building, chemicals and petrochemicals, power generation, automotive, nuclear and other industries; and • industrial welded pipes, which are used in a wide variety of infrastructure and industrial applications.

As at 31 December 2012, our nominal annual production capacity for steel pipes was approximately 6 million tonnes, including 3 million tonnes of seamless pipes. As a vertically integrated steel pipe producer, we operate our own steel-making facilities and in 2013 plan to complete a new EAF at Tagmet. In the years ended 31 December 2012 and 2011, we produced 2.8 million tonnes of steel, which satisfied more than 95% of our

36 steel billet requirements for seamless pipe production. We primarily use EAFs in connection with our steel- making operations, the principal input for which is scrap metal that we source from a local Russian supplier and from third parties in Romania and the United States. We purchase steel coils and plates for use in our welded pipe production.

We currently supply our products to customers in more than 80 countries. Our principal customers include major Russian oil and gas and service companies, such as Gazprom, Rosneft, TNK-BP, Surgutneftegas, Gazprom Neft, LUKOIL, Transneft, Russneft, Tatneft and Bashneft. In the United States, TMK IPSCO benefits from long- standing relationships with a diverse end-user base, including Chevron, ExxonMobil/XTO, Marathon, Anadarko, Devon, Chesapeake Energy, EnCana, EOG Resources, Williams Production and BP. We also work with major multinational oil and gas companies, such as Royal Dutch Shell, Agip, Total and ExxonMobil. We also ship significant amounts of our pipe products to national oil companies, such as ONGC.

Our business is globally represented by three operating segments consisting of: • Russia: includes plants located in Russia and Oman, a finishing facility in Kazakhstan, and oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates, South Africa and Switzerland, engaged in the sale of pipe production; • Americas: includes plants and sales offices located in the United States and Canada; and • Europe: includes plants in Romania and trading companies located in Germany and Italy, engaged in the sale of pipe production and steel billets.

We have an extensive sales network with trading subsidiaries and representative offices in Russia, the United States, the United Arab Emirates, South Africa, Germany, Italy, Switzerland, China, Singapore, Azerbaijan, Turkmenistan and Kazakhstan.

We have now completed most of the principal projects of our capital expenditure programme, (initiated in 2004) which has served to significantly modernise and increase the efficiency of our Russian seamless and welded pipe operations. We plan to complete the remaining two projects in 2013 and 2014 with the expected completion of a new EAF at Tagmet and the expected completion of a new FQM mill at Seversky. In the United States, our capital expenditure programme has focussed on the development of production facilities for our premium connections business, the replacement of existing equipment and fulfilling compliance requirements at our various U.S. facilities. In addition, in 2011, we opened a research and development centre in Houston, Texas, (the “R&D Centre”) to further extend our research and development capabilities. See “Business — Capital Expenditure Programme”.

In 2012, we had total consolidated revenue of U.S.$6,687.7 million and profit before tax of U.S.$404.7 million, compared to total consolidated revenue of U.S.$6,753.5 million and profit before tax of U.S.$544.1 million in 2011, and total consolidated revenue of U.S.$5,578.6 million and profit before tax of U.S.$185.2 million in 2010. Our Adjusted EBITDA in 2012 was U.S.$1,039.8 million, compared to U.S.$1,050.1 million and U.S.$942.3 million in 2011 and 2010, respectively (for the definition of Adjusted EBITDA, see “Summary Consolidated Financial Information”).

Competitive Strengths We believe, the following competitive strengths distinguish our past operational and financial performance and our future growth prospects from other global steel pipe producers for the oil and gas industry: • We have a focus on the oil and gas services industry; • We have a leading presence in the market; • We believe that we have a strong international and export platform; • We have a low cost position in the market; • We have a high degree of vertical integration, with in-house steel making capacity at most of our facilities; and • We have strong organic growth potential and are well placed to benefit from the recent completion of key projects in our capital expenditure programme in Russia.

See “Business — Competitive Strengths”.

37 Strategy Our strategy is to enhance our position as one of the world’s leading producers of steel pipes. Since the foundation of the TMK Group we have developed our pipe business through acquisitions and capital expenditure and we believe that our Russian, U.S., Middle Eastern and European assets, as well as the completion of key projects under our capital investment programme, have provided us with a strong platform from which we enhance our position as a global leader in OCTG and line pipe products.

We currently intend to pursue our strategy by enhancing our product mix to improve our margins, including by working more closely with our customers (principally those in the oil and gas industry) on a global basis to deliver higher value-added products and services, including premium connections, by increasing the efficiency of our seamless pipe production, by building on our global presence and recognised brands (such as by expanding the export of Russian-produced pipe to the United States and the Middle East) and by exercising greater discipline over our operating costs. We also intend to enhance our research and development capabilities with the aim of improving the technological sophistication of our products, improving our manufacturing efficiency and decreasing our production costs. We also currently plan to improve the sharing of best practices across the TMK Group, with a particular focus on sharing our existing production and business practices and know-how.

We plan to increase our global footprint for pipe products in the major oil and gas markets where we already have local production facilities. These markets are in North America, Russia and the Caspian region, Latin America and the Middle East. We also currently intend to continue to focus principally on higher value-added OCTG products with an emphasis on seamless OCTG production and their export from our Russian plants, including the export of seamless OCTG to the United States, and the development of our welded OCTG business in North America, where there is currently strong demand for welded pipes among oil and gas producers. As part of this strategy, we plan to further develop our premium connection business by further developing our premium connection product range and improving our marketing, particularly through TMK IPSCO and its ULTRA premium connections products. In 2012, TMK IPSCO opened a new ULTRA premium connections facility in Edmonton, Canada. The close proximity of this facility to one of the most significant oil development regions in Canada, the Canadian oil sands, is expected to improve our sales of tubular goods and related services in that region. For our Russian welded pipe business, we currently intend to keep focusing on large diameter welded pipes for the oil and gas industry. We also plan to develop our Russian premium product business further, in anticipation of the increasing complexity of oil extraction in Russia. We also plan to pursue growth through the effective integration of our recent acquisitions as well as by leveraging the capacity enhancements and modernisation of our production processes resulting from our capital expenditure programme. The capital expenditure programme is currently expected to be completed with the construction of a new EAF at Tagmet in 2013 and a continuous FQM rolling mill at Seversky in 2014. We expect these projects to further enhance our steel-making and seamless pipe production capacities and efficiency in Russia.

Commercial and Manufacturing Synergies We plan to continue to focus on commercial and manufacturing synergies especially between our Russian and American divisions. North America is the largest oil and gas market in the world, yet lacks sufficient local pipe production capacity and, as a result, currently imports approximately half of its demand for steel pipes. As a result of the TMK IPSCO acquisition several years ago, we significantly increased our exposure to the U.S. market and increased our export shipments of pipes used in the oil and gas industry from our Russian and European plants whilst also expanding TMK IPSCO’s product range. In addition, TMK IPSCO’s ULTRA products strongly augment our premium connection product offering. The construction of the R&D Centre in Houston has improved the sharing of existing technological and scientific knowledge and business practices between our U.S. and Russian operations and also facilitated the sharing of technology and know-how to the benefit our European and recently acquired Middle Eastern operations. We are also continuing to implement and improve our application of the “Six Sigma” process improvement strategy which is widely used in the United States. This has helped us to increase our operational efficiency at our plants in Russia and Europe.

Seamless Pipes We plan to maintain and strengthen our position as the leading supplier of OCTG and line pipe to the oil and gas industry in Russia and the CIS, and aim to become a leading supplier of OCTG in the United States, the Middle East and globally. We aim to become a leading supplier of OCTG and line pipes to the global oil and gas industry by enhancing our product mix and combining our production in Russia with a global network of

38 strategically located distribution, service, processing and finishing facilities. We aim to offer a full range of seamless OCTG pipes enhanced by innovative solutions and supply chain management for oil and gas customers. We intend to accomplish these objectives by: • Enhancing our product mix of pipes for the oil and gas industry to match global leaders; • Strengthening our position as a global leader within the OCTG and line pipe markets; and • Focusing on higher margin products within the industrial seamless pipe sector. Welded Pipes TMK IPSCO is a major producer of welded OCTG pipes in the United States, where welded pipes represent a significant portion of the OCTG market and where welded OCTG pipes can be used interchangeably with seamless products in most conventional operations. Accordingly, in the United States, we plan to continue to focus on the relatively higher margin welded OCTG pipe market, as well as on the seamless pipe market. In Russia, in this segment, we expect to focus increasingly on sales of large diameter pipes to oil and gas companies and oil and gas pipeline projects in Russia and the CIS. Our seamless OCTG pipes are already well-known in the Middle Eastern market, and following the acquisition of GIPI, we plan to significantly enhance our presence in that market with welded OCTG and line pipe produced in Oman. In Russia, we also aim to maintain our long- term supply and cooperation arrangements with key customers such as Gazprom and Transneft. We also intend to become actively involved at various stages of such pipeline projects, from the initial planning stage to the development and implementation stages to enhance our opportunities to serve such projects with pipe supplies. Trading Update We expect our sales and profitability in the first quarter of 2013 to be generally in line with the last quarter of 2012, but to show a moderate decline compared to the first quarter of 2012, owing primarily to declines in sales and profitability in the Americas segment, driven mainly by declines in sales volumes and pricing and relatively stable costs. See also “Risk Factors — Risks Related to Our Business and the Pipe Industry—Our business is substantially dependent on the oil and gas industry, and a decline in international prices of oil and natural gas and other factors affecting the oil and gas industry in Russia and globally has affected, and in future periods could negatively impact, our business”. In January and February 2013, our shipment volumes decreased by 1.0% and 3.4% to 337.3 thousand tonnes and 330.6 thousand tonnes, respectively, compared to 340.6 thousand tonnes and 342.2 thousand tonnes, respectively, in January and February 2012. The following table sets forth the shipment volumes of our principal pipe products for the periods indicated. January January Percentage February February Percentage Product 2013 2012 change 2013 2013 change (thousands of tonnes, except percentages Seamless Pipes ...... 206.8 198.6 4.1% 191.7 212.3 (9.7)% Welded Pipes ...... 130.5 142.0 (8.1)% 138.9 121.9 6.9% Total Pipes ...... 337.3 340.6 (1.0)% 330.6 342.2 (3.4)% Including Total OCTG Pipes ...... 144.4 147.3 (1.9)% 125.8 139.2 (9.6)% Risk Factors An investment in the Notes is subject to, among other things, risks relating to our business and the pipe industry as well as economic, political, social and legal risks associated with the Russian Federation and risks arising from the nature of the Notes and the markets upon which they are expected to be traded, including risks associated with the following matters: • The substantial dependence of our business on the oil and gas industry, and a decline in international prices of oil and natural gas and other factors affecting the oil and gas industry in Russia and globally has affected, and in future periods could negatively impact our business; • Increases in the costs of the raw materials that we require could negatively impact our business; • Our significant leverage and our requirements to meet certain financial and other restrictive covenants under the terms of our indebtedness, and any failure to do so could negatively affect our business; • The dependence of our businesses on a small number of customers which account for a large proportion of our sales, the loss of any of which may negatively impact our business; • We have grown rapidly in a relatively short period, particularly in markets outside of Russia with which we are less familiar, and, accordingly, we may be unable to successfully integrate our acquisitions into our group;

39 • We operate in competitive markets, and an inability to compete successfully may negatively affect our business; • The high levels of imports of OCTG and line pipe products into North America that could reduce the demand for TMK IPSCO’s products and could cause us to lower prices for our products, which would decrease our earnings; • Anti-dumping proceedings and other import restrictions may limit sales of our products in important geographical markets, particularly in Europe; • We rely on barriers to the import of steel pipe products into Russia and, to a degree, the United States, the removal of which, due to the Russian Federation’s entry into the World Trade Organisation or otherwise, could lead to increased competition and negatively impact our business; • Equipment failures or production curtailments or shutdowns could adversely affect our production; • Increasing tariffs and the continuing liberalisation of the Russian energy sector could negatively impact our business; • TMK’s Russian large diameter pipe business may be subject to fines from the Russian Federal Antimonopoly Service arising from an ongoing investigation into an alleged cartel agreement among suppliers to Gazprom; • Sustained periods of high inflation in Russia could negatively impact our business; • Volatility in currency exchange rates, particularly that of the Rouble against the U.S. dollar, could negatively impact our results of operations; • The costs of complying with environmental regulations and potentially unforeseen environmental liabilities may negatively impact our business; • If the title to any company we acquired through privatisation or otherwise is successfully challenged, we may lose our ownership interest in that company or its assets; • The interests of our controlling beneficial owner could conflict with those of the holders of the Notes; • Emerging markets such as the Russian Federation are subject to greater risks than more developed markets, including significant economic and political and legal and legislative risks; • Political and governmental instability could adversely affect our business; • Instability in the Russian economy could negatively impact our business; • Weaknesses relating to the Russian legal system and Russian law create an uncertain environment for investment and business activity; and • Weaknesses and changes in the Russian tax system could negatively impact our business.

Prior to making a decision to invest in the Notes, investors should carefully consider the information setforth under the heading “Risk Factors”.

40 SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The summary consolidated financial information set forth below shows our historical consolidated financial information and other operating information as at and for the years ended 31 December 2012, 2011 and 2010. This information has been extracted without material adjustment from, and should be read in conjunction with, the Consolidated Financial Statements included elsewhere in this Prospectus. This information should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. See also “Presentation of Financial and Other Information — Presentation of Financial Information” for important information about the financial information presented herein.

Year ended 31 December 2012 2011 2010 (millions of U.S. dollars, except per share data) CONSOLIDATED INCOME STATEMENT DATA Revenue ...... 6,687.7 6,753.5 5,578.6 Cost of sales ...... (5,204.3) (5,307.2) (4,285.3) Gross profit ...... 1,483.4 1,446.3 1,293.3 Selling and distribution expenses ...... (433.2) (411.3) (403.1) Advertising and promotion expenses ...... (11.1) (9.2) (11.1) General and administrative expenses ...... (292.5) (282.8) (232.0) Research and development expenses ...... (16.6) (18.7) (13.3) Other operating expenses ...... (68.0) (53.3) (45.0) Other operating income ...... 10.7 13.1 11.0 Impairment of goodwill ...... — (3.4) — Impairment of investment in associate ...... — (1.8) — Impairment of property, plant and equipment ...... (8.4) — — Reversal of impairment of property, plant and equipment ...... — 73.4 — Foreign exchange gain/(loss), net ...... 22.6 (1.3) 9.5 Finance costs ...... (297.1) (302.8) (430.6) Finance income ...... 22.3 32.1 18.9 (Loss)/gain on changes in fair value of derivative financial instruments ...... (7.4) 44.8 (12.4) Share of profit/(loss) of associates ...... 0.0 (0.2) — Gain on disposal of assets classified as held for sale ...... — 19.2 — Profit before tax ...... 404.7 544.1 185.2 Income tax expense ...... (122.6) (159.4) (81.2) Profit for the year ...... 282.1 384.7 104.1 Attributable to: Equity holders of the parent entity ...... 276.9 380.1 104.3 Non-controlling interests ...... 5.2 4.6 (0.3) 282.1 384.7 104.1 Earnings per share attributable to equity holders of the parent entity (in U.S. dollars): Basic ...... 0.32 0.44 0.12 Diluted ...... 0.32 0.40 0.12

As at 31 December 2012 2011 2010 (millions of U.S. dollars) CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA Cash and cash equivalents ...... 225.1 230.6 157.5 Total assets ...... 7,600.2 7,132.2 6,861.5 Total interest bearing loans and borrowings ...... 3,832.7 3,750.8 3,871.6 Total equity ...... 2,081.9 1,824.8 1,607.3

41 Year ended 31 December 2012 2011 2010 (millions of U.S. dollars, except per share data) CONSOLIDATED CASH FLOW DATA Net cash flows from operating activities ...... 928.5 787.1 386.3 Net cash flows used in investing activities ...... (454.9) (377.3) (271.2) Net cash flows used in financing activities ...... (488.8) (334.9) (186.3)

Year ended 31 December 2012 2011 2010 (millions of U.S. dollars, except percentage) NON-IFRS MEASURES Adjusted EBITDA(1) ...... 1,039.8 1,050.1 942.3 Adjusted EBITDA margin(2) ...... 15.5% 15.5% 16.9% Gross profit margin(2) ...... 22.2% 21.4% 23.2% Net profit margin(2) ...... 4.2% 5.7% 1.9% Net Debt(3) ...... 3,655.8 3,552.3 3,710.1 Net profit adjusted for loss/(gain) on changes in fair value of derivative financial instruments(4) ...... 289.5 339.9 116.4 (1) Adjusted EBITDA represents profit/(loss) for the period excluding finance costs and finance income, income tax (benefit)/expense, depreciation and amortisation, foreign exchange (gain)/loss, impairment/ (reversal of impairment) of non-current assets, movements in allowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associates and other non-cash items. We present Adjusted EBITDA because we consider Adjusted EBITDA to be an important supplemental measure of our operating performance. Adjusted EBITDA is a measure of our operating performance that is not required by, or presented in accordance with IFRS. Adjusted EBITDA is not a measure of our operating performance under IFRS and should not be considered as an alternative to gross profit, net profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of our liquidity. In particular, Adjusted EBITDA should not be considered to be a measure of discretionary cash available to invest in our growth. Adjusted EBITDA has limitations as analytical tool, and potential investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under IFRS. Some of these limitations include: • Adjusted EBITDA does not reflect the impact of financing or finance costs on our operating performance, which can be significant and could further increase if we were to incur more debt; • Adjusted EBITDA does not reflect the impact of income taxes on our operating performance; • Adjusted EBITDA does not reflect the impact of depreciation and amortisation on our operating performance. The assets that are being depreciated and/or amortised will have to be replaced in the future and such depreciation and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from Adjusted EBITDA, it does not reflect our future cash requirements for these replacements; and • Adjusted EBITDA does not reflect the impact of other non-cash items on our operating performance, such as foreign exchange (gain)/loss, impairment/(reversal of impairment) of non-current assets, movements in allowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associates and other non-cash items. Other companies in the pipe industry may calculate Adjusted EBITDA differently or may use it for other purposes, limiting its usefulness as comparative measure.

We compensate for these limitations by relying primarily on our IFRS operating results and using Adjusted EBITDA only supplementally. (2) Margins are calculated as a percentage of revenue.

42 (3) Net Debt represents interest bearing loans and borrowings plus liability under finance lease less cash and cash equivalents and short-term financial investments. Net Debt is not a measure under IFRS, and it should not be considered to be an alternative to other measures of financial position. Other companies in the pipe industry may calculate Net Debt differently and therefore comparability may be limited. Net Debt is a measure that is not required by, or presented in accordance with, IFRS. Although Net Debt is a non IFRS measure, it is widely used to assess liquidity and the adequacy of a company’s financial structure. We believe that Net Debt provides an accurate indicator of our ability to meet our financial obligations, represented by gross debt, from available cash. Net Debt demonstrates to investors the trend in our net financial position over the periods presented. However, the use of Net Debt assumes that gross debt can be reduced by cash. In fact, it is unlikely that all available cash would be used to reduce gross debt all at once, as cash must also be available to pay employees, suppliers and taxes, and to meet other operating needs and capital expenditure requirements. Net Debt and the ratio of net debt to equity, or leverage, are used to evaluate our financial structure in terms of sufficiency and cost of capital, level of debt, debt rating and funding cost. These measures also may be used to evaluate if our financial structure is adequate to achieve our business and financial targets. We monitor the net debt and the leverage ratio or similar measures as reported by other companies in Russia or abroad in order to assess our liquidity and financial structure relative to peer companies. We also monitor the trends in our Net Debt and leverage in order to optimise the use of internally generated funds versus external funds. (4) Net profit adjusted for gain/(loss) on changes in fair value of derivative financial instruments is calculated as net profit minus loss/(gain) on changes in fair value of derivative financial instruments, and is presented because we consider it an important supplemental measure of our performance. Net profit adjusted for gain/ (loss) on changes in fair value of derivative financial instruments is not a measurement of performance under IFRS and should not be considered as an alternative to net profit or any other performance measures derived in accordance with IFRS.

Reconciliation of profit before tax to Adjusted EBITDA for the years indicated is as follows:

Year ended 31 December 2012 2011 2010 (millions of U.S. dollars) Profit before tax ...... 404.7 544.1 185.2 Plus / (minus) Depreciation of property, plant and equipment ...... 266.4 266.5 215.4 Amortisation of intangible assets ...... 59.6 69.2 85.2 Loss on disposal of property, plant and equipment ...... 17.3 2.3 10.2 Impairment of goodwill ...... — 3.4 — Impairment of property, plant and equipment ...... 8.4 — — Reversal of impairment of property, plant and equipment ...... — (73.4) — Impairment of investment in associate ...... — 1.8 — Foreign exchange (gain)/loss, net ...... (22.6) 1.3 (9.5) Finance costs ...... 297.1 302.8 430.6 Finance income ...... (22.3) (32.1) (18.9) Loss/(gain) on changes in fair value of derivative financial instruments ...... 7.4 (44.8) 12.4 Gain on disposal of assets classified as held for sale ...... — (19.2) — Share of (profit)/loss of associates ...... (0.0) 0.2 — Allowance for net realisable value of inventory ...... 6.4 (0.7) (4.8) Allowance for doubtful debts ...... 9.7 19.6 5.4 Movement in other provisions ...... 7.7 9.0 31.1 Adjusted EBITDA ...... 1,039.8 1,050.1 942.3

43 Net Debt has been calculated at the dates indicated as follows:

As at 31 December 2012 2011 2010 (millions of U.S. dollars) Current interest-bearing loans and borrowings ...... 1,065.0 597.6 700.3 Current liability under finance lease ...... 3.2 1.8 1.6 Non-current interest-bearing loans and borrowings ...... 2,767.6 3,153.3 3,134.6 Non-current liability under finance lease ...... 49.0 34.3 35.1 Net of: Cash and cash equivalents ...... (225.1) (230.6) (157.5) Short term financial investments ...... (4.0) (4.0) (4.0) Net Debt ...... 3,655.8 3,552.3 3,710.1

Net profit adjusted for gain/(loss) on changes in fair value of derivative financial instruments has been calculated as follows:

Year ended 31 December 2012 2011 2010 (millions of U.S. dollars) Net profit ...... 282.1 384.7 104.1 Loss/(gain) on changes in fair value of derivative financial instruments . . . 7.4 (44.8) 12.4 Net profit adjusted for loss/(gain) on changes in fair value of derivative financial instruments ...... 289.5 339.9 116.4

44 TERMS OF THE OFFERING

The Notes

Issuer ...... TMKCapital S.A.

Joint Lead Managers ...... Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, and J.P. Morgan Securities plc

Issue Amount ...... U.S.$500,000,000 6.75% Loan Participation Notes due 2020

Issue Price ...... 100% of the principal amount of the Notes

Issue Date ...... 3April 2013

Maturity Date ...... 3April 2020

Trustee ...... Deutsche Trustee Company Limited

Principal Paying Agent ...... Deutsche Bank AG, London Branch

Registrars ...... Deutsche Bank Luxembourg S.A. in respect of the Regulation S Notes and Deutsche Bank Trust Company Americas in relation to the Rule 144A Notes.

Paying Agents ...... Deutsche Bank AG, London Branch and, in relation to Notes sold pursuant to Rule 144A, Deutsche Bank Trust Company Americas.

Transfer Agents ...... Deutsche Bank Luxembourg S.A. and, in relation to Notes sold pursuant to Rule 144A, Deutsche Bank Trust Company Americas.

Interest ...... Oneach interest payment date (being 3 April and 3 October in each year and commencing on 3 October 2013), the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement and/or the Deed of Loan Guarantee, which interest under the Loan accrues at a rate of 6.75% per annum from and including the Issue Date. The Notes will constitute the obligation of the Issuer to apply an amount equal to the gross proceeds from the issue of the Notes solely for the purpose of financing the Loan to the Borrower pursuant to the terms of the Loan Agreement. The Issuer will only account to the holders of the Notes for all amounts equivalent to those (if any) received from the Borrower or the Loan Guarantors in respect of principal, interest or any additional amounts under the Loan Agreement and/or the Deed of Loan Guarantee less amounts in respect of the Reserved Rights (as defined under “Terms and Conditions of the Notes”).

Form and Denomination ...... The Notes will be issued in registered form, in denominations of U.S.$200,000 and higher integral multiples of U.S.$1,000. The Regulation S Notes and the Rule 144A Notes will be represented by a Regulation S Global Note Certificate and a Rule 144A Global Note Certificate, respectively. The Regulation S Global Note Certificate and the Rule 144A Global Note Certificate will be exchangeable for Individual Note Certificates in the limited circumstances specified in the Regulation S Global Note Certificate and the Rule 144A Global Note Certificate.

Initial Delivery of Notes ...... Onorbefore the Issue Date, the Regulation S Global Note Certificate shall be registered in the name of a nominee of, and deposited with a

45 common depositary for, Euroclear and Clearstream, Luxembourg and the Rule 144A Global Note Certificate shall be registered in the name of Cede & Co. as nominee of, and deposited with a custodian for, DTC.

Status of the Notes ...... The Notes are limited recourse, secured obligations of the Issuer which rank pari passu, without any preference among themselves, with all other outstanding present and future unsecured and unsubordinated obligations of the Issuer.

Security ...... TheNotes will be secured by the Charge (as defined in “Description of the Transaction and the Security”) on: • all principal, interest and other amounts now or hereafter payable to the Issuer by the Borrower under the Loan Agreement and/or the Loan Guarantors under the Deed of Loan Guarantee; • the right to receive all sums which may be or become payable by the Borrower or the Loan Guarantors under any claim, award or judgment relating to the Loan Agreement and/or the Deed of Loan Guarantee, as the case may be; and • all the rights, title and interest in and to all sums of money now or in the future deposited in the Account (as defined in “Description of the Transaction and the Security”) and the debts represented thereby (including interest from time to time earned on the Account, if any), pursuant to the Trust Deed,

provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge.

The Notes will also be secured by an absolute assignment with full title guarantee by the Issuer to the Trustee of its rights under the Loan Agreement and the Deed of Loan Guarantee (save for the Reserved Rights and those rights subject to the Charge) pursuant to the Trust Deed.

Withholding Tax ...... All payments by or on behalf of the Issuer in respect of the Notes shall be made free and clear of, and without withholding or deduction for, any present or future tax, duty, levy, impost, assessment, or other governmental charge imposed or levied by Luxembourg or Russia or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In the event that any deduction or withholding is required by law, the Issuer will be required, except in certain limited circumstances, to pay increased amounts of principal, interest or any other payment due thereon to the extent that it receives corresponding amounts from the Borrower or a Loan Guarantor under the Loan Agreement or the Deed of Loan Guarantee, as the case may be.

Early Redemption at the Option of the All as more fully described in “Terms and Conditions of the Notes — Noteholders ...... Redemption and Purchase”, the Notes may be redeemed early at the option of the Noteholders: • upon the failure of the Borrower to procure the Additional Loan Guarantors to provide the Additional Loan Guarantees within 90 days of the Issue Date, at 101% of their principal amount thereof, together with accrued and unpaid interest thereon plus any additional amounts or other amounts that may be due thereon, if any, up to but excluding the date of such early redemption; or

46 • upon the failure of the Borrower to procure any Further Loan Guarantor to provide a Further Loan Guarantees in accordance with the Loan Agreement, at 101% of their principal amount thereof, together with accrued and unpaid interest thereon plus any additional amounts or other amounts that may be due thereon, if any, up to but excluding the date of such early redemption. Optional Redemption for Taxation The Issuer will be required to redeem in whole, but not in part, the Reasons ...... Notes at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption should (1) the Borrower elect to repay the Loan in the event that it is required to pay increased amounts of principal, interest or any other payment due under the Loan Agreement on account of Russian or Luxembourg withholding taxes, or (2) the Borrower elect to repay the Loan in the event it is required to pay additional amounts on account of certain costs incurred by the Issuer pursuant to the Loan Agreement. Optional Redemption by the Issuer for In limited circumstances as more fully described in the Loan Illegality ...... Agreement, the Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, upon giving notice to the Trustee, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption, in the event that it becomes unlawful for the Issuer to fund the Loan or allow the Loan to remain outstanding under the Loan Agreement or allow the Notes to remain outstanding and in such case the Issuer shall require the Loan to be repaid in full. Early Redemption at Option of Borrower On one occasion only the Borrower may elect to prepay the Loan (in at Make Whole ...... whole but not in part) at the principal amount thereof and the Make Whole Premium (as defined in the Loan Agreement) together with accrued and unpaid interest and additional amounts, if any, to the Call Settlement Date (as defined in the “Terms and Conditions of the Notes”). The Issuer shall only be obliged to Noteholders on the Call Settlement Date for an amount equivalent to that received by it under the Loan. Relevant Event ...... Upon the occurrence of a Relevant Event (as defined in “Terms and Conditions of the Notes”), the Trustee may, subject as provided in the Trust Deed and subject to being indemnified and/or secured to its satisfaction, enforce the security created in its favour pursuant to the Trust Deed. Ratings ...... Itisexpected that the Notes will be rated B1 by Moody’s and B+ by Standard & Poor’s. Credit ratings assigned to the Notes do not necessarily mean that they are a suitable investment for an investor. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on any particular date before the legal final maturity date of the Notes. The ratings do not address marketability of the Notes or any market price. Any change in the credit ratings of the Notes or the Borrower could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating.

47 Listing ...... Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List of the Irish Stock Exchange and trading on its Main Securities Market. The Main Securities Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC.

Selling Restrictions ...... The Notes have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States. The Notes may be sold in other jurisdictions (including, without limitation, the United Kingdom and the Russian Federation) only in compliance with applicable laws and regulations. See “Subscription and Sale”.

Governing Law and Arbitration ...... The Notes, the Trust Deed and the Agency Agreement (as defined below) and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law and, in the case of the Agency Agreement, contains provisions for arbitration in London, England. The provisions of articles 86 to 94-8 of the Luxembourg law of 10 August 1915, as amended, on commercial companies are excluded.

Use of Proceeds ...... The gross proceeds to the Issuer from the offering of the Notes are expected to be U.S.$500,000,000, which the Issuer intends to use for the sole purpose of financing the Loan to the Borrower.

Security Codes ...... Regulation S Notes: Common Code: 091159970 International Security Identification Numbers (“ISIN”): XS0911599701

Rule 144A Notes: Common Code: 091160854 ISIN: US87263TAA34 CUSIP: 87263TAA3

Clearing Systems ...... DTC (in the case of the Rule 144A Notes) and Euroclear and Clearstream, Luxembourg (in the case of the Regulation S Notes).

Yield ...... Theannual yield of the Notes when issued is 6.75%. The annual yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield.

Risk Factors ...... Aninvestment in the Notes involves a high degree of risk. See “Risk Factors”.

The Loan and the Loan Guarantees

Lender ...... TMKCapital S.A.

Borrower ...... OAOTMK.

Initial Loan Guarantors ...... OAOVolzhsky Pipe Plant and ZAO TMK Trade House.

Additional Loan Guarantors ...... TheBorrower has agreed in the Loan Agreement to procure that each of OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc. shall provide an unconditional and irrevocable guarantee of the Loan not later than 90 days after the Issue Date.

48 Further Loan Guarantees ...... TheBorrower may be required to procure further of its subsidiaries to provide an unconditional and irrevocable guarantee of the Loan in the circumstances outlined in the Loan Agreement.

Failure of the Borrower to procure the guarantee of its obligations under the Loan by the Additional Loan Guarantors or any Further Loan Guarantees (if required) shall be deemed a “Further Loan Guarantee Event” under the Notes and Noteholders will have an option to redeem their Notes as further set out in the “Terms and Conditions of the Notes — Redemption and Purchase”.

Loan Guarantees ...... The Loan will be initially unconditionally, irrevocably, jointly and severally guaranteed by the Initial Loan Guarantors, and is intended to be further unconditionally and irrevocably guaranteed by the Additional Loan Guarantors. In certain circumstances set out in the Loan Agreement, the Borrower may be obligated to procure certain Further Loan Guarantees. The Loan Guarantees will rank equally in right of payment with other outstanding and unsecured indebtedness of the Loan Guarantors.

Certain Covenants ...... Asdescribed in “The Loan Agreement” and the “Form of the Deed of Loan Guarantee”.

Events of Default ...... Asdescribed in the “Loan Agreement”.

Withholding Tax ...... Allpayments under the Loan Agreement and the Deed of Guarantee will be made free and clear of, and without withholding or deduction for, or on account of any present or future tax, duty, levy, impost, assessment, or other governmental charge imposed or levied by or on behalf of any government or political subdivision or territory or possession of any government or authority or agency therein or thereof having the power to tax within Russia or Luxembourg except as required by law. In the event that any deduction or withholding is required by law with respect to payments under the Loan Agreement or the Deed of Loan Guarantee, the Borrower and the Loan Guarantors will be obliged, except in certain limited circumstances, to increase the amounts payable under the Loan Agreement and the Deed of Loan Guarantee, respectively, by an amount equivalent to the required tax payment.

Prepayment ...... See “Optional Redemption for Taxation Reasons”, “Optional Redemption by the Issuer for Illegality”, “Early Redemption at the Option of the Noteholders”, and “Early Redemption at option of Borrower at Make Whole”.

Use of Proceeds ...... The Borrower intends to use the proceeds of the Loan to refinance existing indebtedness. See “Use of Proceeds”.

Governing Law ...... English law.

49 DESCRIPTION OF THE TRANSACTION AND THE SECURITY The following summary description should be read in conjunction with, and is qualified in its entirety by “Terms and Conditions of the Notes”, “Summary of Provisions of the Notes While in Global Form” and the forms of the Loan Agreement and the Deed of Loan Guarantee set out herein.

The transaction will be structured as a loan to the Borrower, as borrower, from the Issuer, as lender.

The Issuer will issue the Notes for the sole purpose of funding the Loan to the Borrower. The Initial Loan Guarantors will initially provide an unconditional and irrevocable guarantee in respect of the obligations of the Borrower under the Loan Agreement. In addition, the Loan Agreement provides that the Borrower must procure the Additional Loan Guarantors each to provide a further unconditional and irrevocable guarantee in respect of the obligations of the Borrower under the Loan Agreement within 90 days of the Issue Date, and any failure to do so will be deemed a Further Loan Guarantee Event (as defined in the Terms and Conditions of the Notes). Upon a Further Loan Guarantee Event, the Noteholders will have an option to require the Issuer to redeem their Notes, in whole or in part, at 101% of the principal amount thereof, plus accrued but unpaid interest and plus any additional amounts or other amounts that may be due thereon, up to but excluding the date of redemption and the Borrower will be required to prepay the Loan to the extent and in the amount that the Lender is required to repurchase the Notes. See “Risk Factors — Risks Relating to the Notes and the Trading Market — Our Russian subsidiaries may not approve the issuance of guarantees securing the Borrower’s obligations under the Loan Agreement”. In certain circumstances set out in the Loan Agreement, the Loan Guarantees in respect of any or all Loan Guarantors may be terminated or Further Loan Guarantors may be added to the Loan Guarantees.

The Notes will have the benefit of, be subject to, and be constituted by the Trust Deed. The Issuer will not have any obligations to the Noteholders, other than the obligation to account to the Noteholders in respect of the payments of principal, interest and any increased amounts of principal interest or any other payment due under the Loan (as defined in the Loan Agreement) and any Additional Amounts (as defined in the Loan Agreement) under the Loan and the Loan Guarantees if, and only to the extent, received from the Borrower or any Loan Guarantor, less any amounts in respect of Reserved Rights (as defined in Terms and Conditions of the Notes). Accordingly, the assets backing the issue, namely the obligations of the Borrower pursuant to the Loan Agreement and the Loan Guarantors pursuant to the Loan Guarantees, have characteristics that demonstrate the capacity to produce funds to service any payments due and payable under the Notes.

As provided in the Trust Deed, the Issuer will charge (the “Charge”) by way of security to the Trustee: • all of its rights, title, interests and benefits in and to principal, interest and other amounts now and in the future paid and payable to it under the Loan Agreement and the Deed of Loan Guarantee; • its right to receive amounts paid and payable to it under any claim, award or judgment relating to the Loan Agreement and the Deed of Loan Guarantee; and • its rights, title, interest and benefit to sums held on deposit from time to time, in an Account (as defined in the Trust Deed) in London in the name of the Issuer with the Principal Paying Agent together with the debt represented thereby (other than interest from time to time earned thereon if any), provided that Reserved Rights and amounts relating to Reserved Rights are excluded from the Charge.

The Issuer will also assign (the “Assignment”) absolutely to the Trustee all of its rights, title, interest and benefit to and under the Loan Agreement and the Deeds of Loan Guarantee (save for those rights charged or excluded above) to the Trustee upon the closing of the offering of the Notes.

The Borrower or a Loan Guarantor, as applicable, will be obliged to make payments under the Loan Agreement or the Deed of Loan Guarantee, as the case may be, to the Account. The Issuer will agree in the Trust Deed not to agree to any amendments to, or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement or the Deed of Loan Guarantee unless the Trustee has given its prior written consent or unless authorised to do so by an Extraordinary Resolution (as defined in the Trust Deed) or Written Resolution (as defined in the Trust Deed) of the Noteholders (except in relation to Reserved Rights). The Issuer will further agree to act at all times in accordance with the instructions of the Trustee from time to time with respect to the Loan Agreement and the Deed of Loan Guarantee (subject to being indemnified and/or secured to its satisfaction), other than as provided in the Trust Deed and except in relation to Reserved Rights. Any amendments, modifications, waivers or authorisations made with the Trustee’s consent shall be binding on the Noteholders. The Issuer will also agree in the Agency Agreement to require that all payments made by the

50 Description of the Transaction and the Security

Borrower under the Loan Agreement or the Loan Guarantors under the Deed of Loan Guarantee, as the case may be, be directed to the Account. Formal notice of the security interests created by the Trust Deed will be given to the Borrower and each of the Loan Guarantors, who will each be required to acknowledge the same. The Issuer does not intend to provide post-issuance transaction information regarding the Notes or the performance of the Loan.

In the event that the Trustee enforces the security interests granted to it, the Trustee will apply the proceeds of enforcement in accordance with the provisions of the Trust Deed. The Trustee is not obliged to enforce the security interests granted to it unless it has been indemnified and/or secured to its satisfaction and instructed to do so by the Noteholders.

Payments in respect of the Notes will be made without any deduction or withholding for or on account of Luxembourg taxes, except as required by law. See “Terms and Conditions of the Notes — 8. Taxation”. In the event that any deduction or withholding is required by law, the Issuer will be required, except in certain limited circumstances, to pay increased amounts of principal, interest or any other payment due thereon or Additional Amounts to the extent that it receives corresponding amounts from the Borrower or a Loan Guarantor under the Loan Agreement or Deed of Loan Guarantee, as the case may be. In addition, payments under the Loan Agreement and the Deed of Loan Guarantee shall, except in certain limited circumstances, be made without deduction or withholding for or on account of Russian or Luxembourg taxes, except as required by law. In the event that any deduction or withholding is required by law with respect to payments under the Notes or the Loan Agreement, the Borrower and the Loan Guarantors will be obliged, except in certain limited circumstances, to increase the amounts payable under the Loan Agreement and the Deed of Loan Guarantee, respectively, by an amount equivalent to the required tax payment. See “Risk Factors — Risks Relating to the Notes and the Trading Market — Payments we make under the Loan or the Loan Guarantees may be subject to Russian withholding tax” and “Risk Factors — Risks Relating to the Notes and the Trading Market — Tax might be withheld on dispositions of the Notes in Russia, reducing their value”.

In certain circumstances, the Loan may be prepaid at its principal amount, together with accrued interest, at the Borrower’s option, upon the Borrower being required to increase the amount payable or to pay increased amounts of principal, interest or any other payment due thereon on account of Russian or Luxembourg taxes under the Loan Agreement or required to pay additional amounts on account of certain costs incurred by the Issuer. The Issuer may, in its own discretion, require the Loan to be prepaid if it becomes unlawful for the Loan or the Notes to remain outstanding, as set out in the Loan Agreement. In the event the Loan is repaid due to any of these circumstances, the Issuer will redeem the Notes in whole, but not in part, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption.

The following is a diagram setting forth the transaction structure:

Proceeds of the Loan The Issuer The Borrower

Principal and interest on the Loan Principal and Proceeds of the Payments under the Interest on the Ownership Issuance Loan Guarantee Notes

Noteholders Loan Guarantors

51 USE OF PROCEEDS

The gross proceeds of the issue of the Notes will be on-lent from the Issuer to the Borrower under the Loan. The Borrower intends to use the proceeds of the Loan to refinance existing indebtedness. Total commissions and expenses payable by the Borrower in relation to the Offering and the listing to admission and trading of the Notes are expected to be approximately U.S.$3,100,000.

52 CAPITALISATION

The following table sets forth the TMK Group’s consolidated capitalisation (as defined below) on an historic basis, as derived from the 2012 Annual Consolidated Financial Statements.

This table should be read in conjunction with the sections entitled “Summary Consolidated Historical Financial Data”, “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

As at 31 December 2012(1) (millions of U.S. dollars) Non-current interest-bearing loans and borrowings 2,767.6 Shareholder’s equity: Issued capital 326.4 Treasury shares (319.1) Additional paid-in capital 388.3 Reserve capital 16.4 Retained earnings 1,586.8 Foreign currency translation reserve (9.8) Unrealised loss on financial instruments (3.0) Total shareholders’ equity 1,986.0 Non-controlling interests 95.9 Total equity 2,081.9 Total capitalisation(2) 4,849.5 Cash and cash equivalents 225.1 Current interest-bearing loans and borrowings 1,065.0

Notes: (1) Does not include the effect of the offering of the Notes and the making of the Loan. (2) Capitalisation is calculated as the sum of total equity and total non-current interest-bearing loans and borrowings.

Since 31 December 2012, a number of transactions have taken place which affect our capitalisation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Other than as described above, there has been no material change in our capitalisation since 31 December 2012.

53 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our Consolidated Financial Statements included elsewhere in this Prospectus. This section presents our financial condition and results of operations on a consolidated basis.

Certain information contained in this section and presented elsewhere in this Prospectus, including information with respect to our plans and strategy, includes forward looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward Looking Statements”. In evaluating this discussion and analysis, you should specifically consider the various risk factors described under “Risk Factors” that could cause our results to differ materially from those expressed in such forward looking statements.

Overview We believe that we are a global leader in tubular products and are among the world’s largest steel pipe producers, with approximately a 6% worldwide market share for seamless pipes and a 10% worldwide market share for seamless OCTG by sales volume in 2012, according to our estimates. We also believe that we are Russia’s largest manufacturer and supplier of steel pipes, with approximately 25% market share for steel pipes, a 52% market share for seamless pipes and a 62% market share for seamless OCTG in Russia by sales volume in 2012, according to our estimates.

We produce both seamless and welded pipes. Our main focus is the production of typically higher margin seamless and welded OCTG pipes, including premium connections, developed both in Russia and the United States. We have been concentrating on developing our large diameter welded pipe business, demand for which is relatively high in the oil and gas industry. We believe that co-operation with the oil and gas industry, where demand for our products is high, will provide better growth opportunities. We also produce higher margin industrial seamless pipes which are widely used in the nuclear energy and chemical industries. We also produce welded industrial pipes, although we do not consider the production of these to be our core market.

We believe that we are a leading exporter of pipes produced in Russia, with sales volumes of pipe products produced at our Russian plants accounting for 54% and 51% of the volume of all steel pipe exports from Russia in 2012 and 2011, respectively, according to our estimates.

In 2012, we sold 4,237.7 thousand tonnes of pipe products, including 2,494.2 thousand tonnes of seamless pipes, and 1,721.0 thousand tonnes of OCTG. In 2011, we sold 4,185.1 thousand tonnes of pipe products, including 2,341.5 thousand tonnes of seamless pipes and 1,535.0 thousand tonnes of OCTG. In 2010, we sold 3,962.0 thousand tonnes of pipe products, including 2,119.3 tonnes of seamless pipes and 1,478.0 thousand tonnes of OCTG. Pipes for the oil and gas industry accounted for approximately 74.7%, 73.8% and 74.2% of our total sales volume in 2012, 2011 and 2010, respectively, according to our estimates.

In 2012, we had total consolidated revenue of U.S.$6,687.7 million and profit before tax of U.S.$404.7 million, compared to total consolidated revenue of U.S.$6,753.5 million and profit before tax of U.S.$544.1 million in 2011, and total consolidated revenue of U.S.$5,578.6 million and profit before tax of U.S.$185.2 million in 2010. Our Adjusted EBITDA in 2012 was U.S.$1,039.8 million, compared to U.S.$1,050.1 million and U.S.$942.3 million in 2011 and 2010, respectively (for the definition of Adjusted EBITDA, see “Summary Consolidated Financial Information”).

Recent Developments Convertible Bonds On 11 February 2010, we completed an offering of U.S.$412.5 million 5.25% guaranteed convertible bonds due February 2015. According to the terms and conditions of these bonds, the bondholders had an option to submit the bonds for redemption before 11 February 2013. As at that date, no bondholder had exercised the option to redeem the bonds and accordingly there was no redemption of the bonds. As such, the liability under these bonds, which was classified as current as at 31 December 2012, will be classified as long-term at the nearest reporting date.

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

Trading Update We expect our sales and profitability in the first quarter of 2013 to be generally in line with the last quarter of 2012, but to show a moderate decline compared to the first quarter of 2012, owing primarily to declines in sales and profitability in the Americas segment, driven mainly by declines in sales volumes and pricing and relatively stable costs. See also “Risk Factors — Risks Related to Our Business and the Pipe Industry—Our business is substantially dependent on the oil and gas industry, and a decline in international prices of oil and natural gas and other factors affecting the oil and gas industry in Russia and globally has affected, and in future periods could negatively impact, our business”.

In January and February 2013, our shipment volumes decreased by 1.0% and 3.4% to 337.3 thousand tonnes and 330.6 thousand tonnes, respectively, compared to 340.6 thousand tonnes and 342.2 thousand tonnes in January and February 2012, respectively.

The following table shows shipment volumes of our principal pipe products for the periods indicated.

January January Percentage February February Percentage Product 2013 2012 Change 2013 2012 Change (thousands of tonnes except percentages) Seamless pipes ...... 206.8 198.6 4.1% 191.7 212.3 (9.7)% Welded pipes ...... 130.5 142.0 (8.1)% 138.9 129.9 6.9% Total pipes ...... 337.3 340.6 (1.0)% 330.6 342.2 (3.4)% including total OCTG pipes ...... 144.4 147.3 (1.9)% 125.8 139.2 (9.6)%

Certain Factors Affecting Our Results of Operations Our results of operations are affected by a number of factors, including global and Russian macroeconomic trends, the demand for seamless and welded pipes from the oil and gas industry, production costs (in particular, raw material costs), currency exchange fluctuations and our levels of leverage. See “— Results of Operations” for a description of the extent to which these factors have affected our results of operations.

Macroeconomic Conditions Our results of operations have been, and will likely continue to be, affected by macroeconomic conditions, particularly in Russia and the United States, on which our business is primarily focused. Macroeconomic conditions, among other things, affect consumption of oil and natural gas, natural resources and commodity products and influence currency exchange rates. Levels of oil and gas consumption affect oil and gas exploration activities and capital investment in the construction of new, and the repair of existing, oil and gas transmission pipelines, and are therefore positively correlated with the demand for our products. See also “— The Global and Russian Oil and Gas Industry”.

Macroeconomic conditions also affect demand for, and supply of, raw materials used in the manufacturing of our products. Because we use large volumes of raw materials (such as scrap metal, steel plates and coils, and ferroalloys) in our pipe and steel production process, we are exposed to the effect of changes in the demand for, and supply of, such raw materials and their price. For example, we may benefit from higher short-term profitability due to fixed pricing agreed for our products with our customers when the price of raw materials decreases, and vice versa. See “— Raw Material Costs”.

In addition, macroeconomic conditions have an impact on the availability of capital markets funding and liquidity levels across the banking system as well as on foreign exchange fluctuations, as changes in macroeconomic conditions in a given market could have an impact on foreign exchange rates. See also “— Currency Exchange Fluctuations”.

Our business is primarily focused on Russia and the CIS and to a lesser extent on the United States and Europe. Our Russia segment generated 70.5%, 70.9% and 71.7% of our total revenue and our Americas segment generated 24.7%, 23.5% and 23.7% of our total revenue in 2012, 2011 and 2010, respectively. As a result, we are particularly dependent on macroeconomic trends in Russia and CIS, and the United States. Following the recovery from the 2008-2009 global economic downturn, economic conditions in Russia and the United States have remained relatively positive. Russian GDP grew at 4.5% in 2010, 4.3% in 2011 and 3.4% in 2012, in each

55 Management’s Discussion and Analysis of Financial Condition and Results of Operations case compared to the previous year, according to Rosstat. GDP growth in the United States was 2.4% in 2010, 1.8% in 2011 and 2.2% in 2012, in each case compared to the previous year, according to The Bureau of Economic Analysis of the U.S. Department of Commerce. As economic conditions improved in these markets, our results of operations have been positively affected. See “— Results of Operations”.

The Global and Russian Oil and Gas Industry Sales to oil and gas companies worldwide represent a high percentage of our total sales, and therefore, demand for seamless and welded steel pipes from the global oil and gas industry is a significant factor affecting sales volumes and prices for our products. Following the global financial and economic crisis demand for oil and gas began to rebound in the second half of 2009. As prices and demand for oil and gas continued to grow in 2010, 2011 and 2012, this resulted in increased drilling activity, and consequently, in strong demand for pipes from the oil and gas industry.

The majority of our pipe sales are in Russia. Thus, the general level of volumes and prices for our products is significantly influenced by trends in the Russian pipe market. The oil and gas industry is the primary consumer of Russian pipe production. Following a period of the weak demand from Russian oil and gas companies for seamless and welded pipes in 2009, exploration and production expenditures again increased in Russia in 2010, driven by the need of Russian oil and gas companies to deliver on their long-term production targets. In the period from 2010 to 2012, we supplied (and for certain projects continue to supply) pipes for major national and international projects, including the following: Pochinki-Gryazovets gas pipeline; the CAC gas pipeline, which transports gas from Turkmenistan through Uzbekistan and Kazakhstan to China; the onshore section of the Nord Stream gas pipeline, which, upon completion, will connect Russia to Germany via the Baltic Sea; the Bovanenkovo-Ukhta gas pipeline, which is a part of the Yamal-Europe gas pipeline; Ukhta-Torzhok gas pipeline; the Sakhalin-Khabarovsk-Vladivostok gas pipeline; South Stream gas pipeline; the Baltic Pipeline System-2 oil pipeline, which connects oil fields in Western Siberia to a Russian port on the Gulf of Finland; phase two of the East Siberia-Pacific Ocean oil pipeline, which will run from Eastern Siberia to the Amur region near the border with China; the Zapolyarye-Purpe and Purpe-Samotlor oil pipeline, which will connect new oil fields being developed in the Yamal and Krasnoyarsk regions to oil refinery facilities and connect Eastern and Western parts of the Russian oil transportation system; and deep water pipelines at the oil and gas condensate deposit developed by Lukoil in the North Caspian Sea.

Due to the long lead times and significant capital expenditures required for the development of major new oil and gas reserves and the modernisation and repair of existing pipelines and construction of planned pipelines, demand for our OCTG and line pipe in 2010, 2011 and 2012 remained fairly stable in Russia. However, demand for large diameter pipe is more volatile. As a number of larger projects utilising our large diameter pipe products have come to completion or been cancelled or postponed in 2011 and 2012, sales volumes of such products have generally decreased in 2012.

Sales volumes on the U.S. pipe market represented more than a quarter of our total sales volumes. The oil and gas industry is our primary consumer, with seamless and welded OCTG pipe sales representing the predominant majority of our total sales volumes on the U.S. market. Following weak demand in 2008 and 2009, the U.S. pipe market began to recover in 2010 and 2011, as oil and gas drilling and production grew. In 2012, a downward trend in the oil and gas prices resulted in an overall decrease in drilling: the total number of oil and gas rigs decreased from approximately 2,000 in 2011 to approximately 1,780 in 2012. In addition, decreased drilling was attributable to enhanced drilling and production efficiencies (such as utilising technological advances in oil and gas drilling and extraction, which allowed for the maintenance of the same production levels using fewer drilling wells). The overall decrease in drilling contributed to a slowdown in our sales volume growth from 5.6% in 2011 to 1.3% in 2012. Further, a decrease in drilling resulted in a decrease in the resupply of inventories by our dealers, which also contributed to a decrease in our sales growth in 2012.

Raw Materials Costs We require substantial amounts of raw materials in the pipe and steel production process. We purchase large volumes of scrap metal and ferroalloys for use in our in-house steel-making operations, a small amount of steel billets, for the use in our seamless pipe production, and steel plates and coils, for the use in our welded pipe production. See “Business — Raw Materials”. Prices of raw materials and consumables have generally increased since the first half of 2009 when they were at a low, primarily due to the onset of the global economic downturn. In the second half of 2009 and 2010, raw materials prices increased significantly as macroeconomic conditions

56 Management’s Discussion and Analysis of Financial Condition and Results of Operations improved. In 2011, prices of our raw materials increased up to 24.7%, depending on the type of raw materials. Growth in raw materials prices has put pressure on our gross profit margins. As a result, we sought to implement cost optimisation measures to reduce other cost of goods sold expenditures and enhance the efficiency of the production processes. In 2012, prices of different types of raw materials varied: scrap metal and coils prices decreased, while prices for steel plate increased. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — Increases in the cost of raw materials may negatively affect our business”.

Currency Exchange Fluctuations The functional currency of OAO TMK and its subsidiaries located in Russia, Kazakhstan and Switzerland is the Rouble. The Romanian lei is the functional currency of our Romanian subsidiaries and the euro is the functional currency of TMK Europe and TMK Italia. The functional currency of TMK IPSCO, TMK North America, TMK Middle East, Gulf International Pipe Industry LLC (“GIPI”), TMK Premium and OFS International LLC is the U.S. dollar. Our products are typically priced in Roubles for sale on the Russian market and in U.S. dollars for CIS, U.S. and international sales except for the European Union (in Euros) and Romania (in Romanian lei).

Our direct costs, including raw materials and consumables, labour and transportation costs are largely incurred in Roubles in Russia, U.S. dollars in the United States and lei in Romania, our capital expenditures are incurred principally in euro in Russia and U.S. dollars in the United States, and other costs, such as interest expense, are incurred in Roubles, U.S. dollars and euro.

The mix of our revenues and costs is such that appreciation in real terms of the Rouble against the U.S. dollar tends to result in an increase in our costs relative to our revenues, while depreciation of the Rouble against the U.S. dollar in real terms tends to result in a decrease in our production costs relative to our revenues. As a consequence we are exposed to currency rate fluctuations between the Rouble and both the U.S. dollar and the euro. See “—Results of Operations — Comparison of the years ended 31 December 2012 and 31 December 2011 — Foreign exchange gain/(loss), net” and “— Results of Operations — Comparison of the years ended 31 December 2011 and 31 December 2010 — Foreign exchange gain/(loss), net”.

The table below shows the nominal exchange rate and real Rouble appreciation/depreciation against the U.S. dollar and the euro during the periods indicated.

Year ended 31 December 2012 2011 2010 Nominal exchange rate (Roubles per U.S. dollar)(1) ...... 31.09 29.39 30.37 Real Rouble appreciation/(depreciation) against U.S. dollar(2) ...... (2.7)% 8.8% 9.7% Nominal exchange rate (Roubles per euro)(1) ...... 39.95 40.88 40.30 Real Rouble appreciation/(depreciation) against euro(2) ...... 4.9% 4.1% 15.5%

Source: CBR Notes: (1) Calculated as the weighted average of the relevant exchange rates on each day during the relevant period. (2) Real Rouble appreciation against the U.S. dollar or the euro, as the case may be, represents changes in the consumer price index adjusted for changes in the nominal exchange rate over the same period.

Implementation of our Capital Expenditure Programme Since 2004, we have been engaging in a significant capital expenditure programme, primarily to increase our Russian seamless OCTG and line pipe production capacity and to enhance the efficiency of our production processes. As a result of this programme and together with recent acquisitions, we have increased our seamless pipe production capacity to 3.0 million tonnes per annum and our steel-making capacity to 3.4 million tonnes per annum, as at 31 December 2012. Further, since 2009, we believe that we have the largest pipe production capacity (in tonnes) globally. In the period from 2004 to 2012, cash used to acquire property, plant, and equipment (including expenditure on the implementation of our capital expenditure programme) was in excess of U.S.$3.6 billion, including U.S.$445.3 million spent in 2012. As a consequence of the successful implementation of our capital expenditure programme to date, we have effectively increased the carrying value of our property, plant and equipment as they appear on our Consolidated Statement of Financial Position, and, as a result, have incurred, and will continue to incur, higher depreciation charges than in recent years. As at 31 December 2012,

57 Management’s Discussion and Analysis of Financial Condition and Results of Operations there were two major capital expenditure projects being implemented: the installation of an EAF at Tagmet, which we expect to be completed in 2013, and the installation of a new FQM at Seversky, which we expect to be completed in 2014. See “Business — Capital Expenditure Programme”. Our projected capital expenditure for 2013 is U.S.$387.2 million, including U.S.$100.4 million of maintenance capital expenditure.

Leverage Level The following table sets forth certain information regarding our indebtedness, leverage and certain key related financial measures as at and for the dates/periods indicated, the liquidity profile and the key financial measures for the periods indicated:

Year ended 31 December 2012 2011 2010 (in millions of U.S. dollars except percentages) Liabilities under interest bearing loans and borrowings and finance lease obligations, including: ...... 3,884.9 3,786.9 3,871.6 Short-term portion ...... 1,068.2 599.4 701.9 Share of short-term portion, % ...... 27.5% 15.8% 18.1% Net Debt(1) ...... 3,655.8 3,552.3 3,710.1 Adjusted EBITDA(2) ...... 1,039.8 1,050.1 942.3 Net-Debt-to-EBITDA ratio(3) ...... 3.5:1 3.4:1 3.9:1 Notes: (1) For the calculation of Net Debt see footnote 3 at “Summary Consolidated Financial Information”. (2) For the calculation of Adjusted EBITDA see footnote 1 at “Summary Consolidated Financial Information”. (3) Net-Debt-to-EBITDA ratio is defined as Net Debt at the given measurement date to Adjusted EBITDA for the 12 months immediately preceding the given measurement date.

As at 31 December 2012, the principal value of our total interest-bearing loans and borrowings amounted to U.S.$3,816.9 million, including U.S.$1,037.7 million of the nominal principal amount consisting of short-term interest bearing borrowings. Additionally, as at 31 December 2012, 23.2% of our total nominal principal amount of interest-bearing loans and borrowings were secured by pledges over assets of the TMK Group, of which 33.9% were secured by pledges of shares in subsidiaries of OAO TMK and 66.1% were secured by pledges over property, plant and equipment, inventories, deposits, cash and accounts receivable of subsidiaries of OAO TMK.

Our interest-bearing loans and borrowings increased by U.S.$98.0 million as at 31 December 2012 compared to 31 December 2011. Although in 2012 our net repayment of loans amounted to U.S.$147.8 million, our total debt increased due to the appreciation of the Rouble against the U.S. dollar and the consolidation of GIPI’s borrowings in December 2012 upon its acquisition.

The share of short-term debt increased as at 31 December 2012, reflecting the reclassification of convertible bonds issued in February 2010, from long-term liability as at 31 December 2011 to short-term as at 31 December 2012. In February 2010, we issued U.S.$412.5 million 5.25% bonds due 2015, convertible into TMK’s GDRs. Due to the bondholder’s right to redeem the bonds on the third anniversary following the issue date, the bond liability was included in short-term loans and borrowings starting 31 March 2012, increasing the share of short-term debt to 27.5% as at 31 December 2012 from 15.8% as at 31 December 2011. However, as a result of non-redemption of the bonds, as at 31 March 2013, the bonds will be classified as long-term liabilities. See Note 34 of the 2012 Consolidated Financial Statements.

Our Net-Debt-to-EBITDA ratio increased to 3.5:1 as at 31 December 2012 from 3.4:1 as at 31 December 2011, which was primarily due to the growth of Net Debt attributable to an appreciation of the Rouble against the U.S. dollar.

Segments Our operating segments reflect TMK’s management structure and the way financial information is regularly reviewed. For management purposes, TMK is organised into business divisions based on geographical location and has three reporting segments: • Russia segment: includes plants located in Russia and Oman, a finishing facility in Kazakhstan and oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates, South Africa and Switzerland, engaged in the sale of pipe production;

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

• Americas segment: includes plants and sales offices located in the United States and Canada; and • Europe segment: includes plants in Romania and trading companies located in Germany and Italy, engaged in the sale of pipe production and steel billets.

Results of Operations Comparison of the years ended 31 December 2012 and 2011 The following discussion is based on, and should be read in conjunction with, the 2012 Consolidated Financial Statements contained in the section beginning on page F-1 of this Prospectus.

The following table sets forth our consolidated operating results for the years ended 31 December 2012 and 2011.

Year ended 31 December Percentage 2012 2011 Change Change (in millions of U.S. dollars except percentages) Sales volumes, thousand tonnes ...... 4,237.7 4,185.1 52.6 1.3% Revenue ...... 6,687.7 6,753.5 (65.8) (1.0)% Cost of sales ...... (5,204.3) (5,307.2) 102.9 (1.9)% Gross profit ...... 1,483.4 1,446.3 37.2 2.6% Net operating expenses(1) ...... (810.7) (743.2) (67.6) 9.1% (Impairment)/reversal of impairment of assets(2) ...... (8.4) 68.2 (76.6) n/a Foreign exchange gain/(loss), net ...... 22.6 (1.3) 23.9 n/a Gain/(loss) on changes in fair value of derivative financial instrument ...... (7.4) 44.8 (52.2) n/a Finance income/(costs), net ...... (274.8) (270.7) (4.0) 1.5% Profit before tax ...... 404.7 544.1 (139.4) (25.6)% Income tax expense ...... (122.6) (159.4) 36.8 (23.1)% Profit/(loss) for the year ...... 282.1 384.7 (102.6) (26.7)% Adjusted EBITDA ...... 1,039.8 1,050.1 (10.3) (1.0)%

Notes: (1) Net operating expenses comprise selling and distribution expenses, advertising and promotion expenses, general and administrative expenses, research and development expenses, net other operating income/ (expense), share of profit/(loss) of associate and gain on disposal of assets classified as held for sale. (2) Impairment of assets comprise impairment of goodwill, impairment of investment in associate, impairment of property, plant and equipment and reversal of impairment of property, plant and equipment.

Revenue Revenue represents our total sales to customers net of value added tax and product returns.

The following table shows our revenue by operating segment for the years ended 31 December 2012 and 2011.

Year ended 31 December Percentage 2012 2011 Change Change (in millions of U.S. dollars except percentages) Russia ...... 4,713.9 4,788.0 (74.1) (1.5)% Americas ...... 1,650.0 1,590.4 59.6 3.7% Europe ...... 323.8 375.1 (51.3) (13.7)% Total revenue ...... 6,687.7 6,753.5 (65.8) (1.0)%

In 2012, our consolidated revenue decreased by 1.0%, or U.S.$65.8 million, primarily as a result of the negative currency translation effect. Excluding the unfavourable currency translation effect of U.S.$318.2 million, total revenue growth would have been U.S.$252.4 million.

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

The following table shows our pipe sales volumes by reporting segment for the years ended 31 December 2012 and 2011.

Year ended 31 December Percentage 2012 2011 Change (thousands of tonnes except percentages) Russia ...... 3,158.1 3,115.0 1.4% Americas ...... 902.9 892.3 1.2% Europe ...... 176.7 177.8 (0.6)% Total pipes ...... 4,237.7 4,185.1 1.3%

In 2012, total sales volumes increased by 1.3%, which was due to the following opposite trends: (i) lower demand for large diameter pipe as a result of completion of major pipeline projects in the second half of 2011 and the postponement of new projects by our customers, and (ii) higher demand for OCTG and line pipe from Russian oil and gas companies driving an overall increase in sales volumes.

The following table shows our pipe sales volumes by group of products for the years ended 31 December 2012 and 2011.

Year ended 31 December Percentage 2012 2011 Change (thousands of tonnes except percentages) Welded pipe ...... 1,743.4 1,843.6 (5.4)% Seamless pipe ...... 2,494.2 2,341.5 6.5% Total pipes ...... 4,237.7 4,185.1 1.3%

Russia segment Revenue generated by the Russia segment decreased by 1.5%, or U.S.$74.1 million, in 2012 compared to 2011, primarily due to a negative currency translation effect of U.S.$273.6 million.

Revenue from sales of seamless pipe increased by U.S.$435.0 million, primarily due to higher demand from Russian oil and gas companies resulting in an increase in sales volumes. In addition, improved pricing and product mix, and particularly an increase in the share of seamless OCTG sold, also had a significant positive effect on revenues.

Revenue from sales of welded pipe decreased by U.S.$231.4 million, due to a decrease in sales volumes and unfavourable changes in the product mix as demand for large diameter pipe decreased significantly following the completion of certain major pipeline projects and the postponement of certain new projects by some of our customers.

Americas segment In the Americas segment, revenue increased by 3.7%, or U.S.$59.6 million, in 2012 compared to 2011, primarily due to an increase in revenue from sales of welded pipe.

Revenue from sales of welded pipe increased by U.S.$33.1 million, primarily due to sales volumes growth in welded OCTG and welded line pipe resulting from an increase in demand primarily from oil companies due to an increase in oil drilling in the United States in the first half of 2012. In the second half of 2012, oil and gas drilling in the United States decreased resulting in a decrease in sales volumes of welded OCTG and welded line pipe, which partially offset the increase in sales volumes in the first half of 2012.

Revenue from sales of seamless pipe increased by U.S.$2.7 million, reflecting a favourable effect from changes in pricing and product mix that was, however, to a significant extent offset by a decrease in sales volumes of both seamless industrial and seamless line pipe, which was primarily attributable to a decrease in oil and gas drilling mainly in the second half of 2012.

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

Revenue from other operations increased by U.S.$23.8 million in 2012 compared to 2011, which was primarily due to higher sales of fishing tools for lifting of the pipes from wells and threading services.

Europe segment In the Europe segment, revenue decreased by 13.7%, or U.S.$51.3 million, in 2012 compared to 2011, primarily due to a decrease in sales volumes and selling prices as well as an unfavourable currency translation effect.

Revenue from sales of seamless industrial pipe, which represented more than 80% of total sales volumes of the Europe segment, increased by U.S.$6.1 million in 2012 compared to 2011. A marginal decrease in total pipe sales volumes and adverse changes in pipe pricing resulting from worsened economic conditions on the EU market in 2012 compared with 2011, were partially offset by an improved product mix, as we sold higher margin pipe to customers in the United States and Canada in the first half of 2012.

Revenue from other operations, representing primarily sales of steel billets, declined by U.S.$12.8 million in 2012 compared to 2011, as a result of worsened economic conditions on the EU market primarily in the second half of 2012.

Cost of Sales and Gross Profit Cost of Sales The table below sets out our cost of sales for the years ended 31 December 2012 and 2011.

Year ended 31 December 2012 2011 (millions of U.S. (% of total cost (millions of U.S. (% of total cost dollars) of production) dollars) of production) Raw materials and consumables ...... 3,352.1 66.4% 3,720.9 68.7% Staff costs including social security ...... 669.4 13.3% 661.8 12.2% Energy and utilities ...... 383.8 7.6% 400.2 7.4% Depreciation and amortisation ...... 253.0 5.0% 257.6 4.8% Repairs and maintenance ...... 142.9 2.8% 162.4 3.0% Contracted manufacture ...... 81.8 1.6% 55.6 1.0% Freight ...... 58.1 1.2% 63.7 1.2% Taxes ...... 52.5 1.0% 51.8 1.0% Professional fees and services ...... 34.1 0.7% 25.8 0.5% Rent ...... 11.1 0.2% 10.5 0.2% Travel ...... 3.0 0.1% 2.6 — Communications ...... 1.0 — 1.2 — Insurance ...... 1.0 — 0.8 — Other ...... 7.4 0.1% 3.8 0.1% Total production cost ...... 5,051.3 100.0% 5,418.7 100.0% Change in own finished goods and work in progress ...... 102.8 2.0% (147.0) (2.7)% Cost of sales of externally purchased goods ..... 24.5 0.5% 33.2 0.6% Obsolete stock and write offs/(reversal of write- offs) ...... 25.8 0.5% 2.4 — Cost of sales ...... 5,204.3 103.0% 5,307.2 97.9%

Our cost of sales decreased by 1.9%, or U.S.$102.9 million, in 2012 compared to 2011. The decrease was primarily due to a 9.9% decrease in the cost of raw materials and consumables, a 4.1% decrease in energy and utilities costs, a 1.8% decrease in depreciation expenses, which was partially offset by a 1.1% growth of staff costs, all of which in the aggregate represented 92.2% of the total production costs in 2012.

Changes in finished goods and work in progress saw opposite trends in 2011 and 2012. The gradual growth of finished goods and work in progress balances in 2011 reflects growing prices for raw materials as well as

61 Management’s Discussion and Analysis of Financial Condition and Results of Operations increased stock driven by the growth of sales volumes. Conversely, in 2012, finished goods and work in progress decreased reflecting a decrease on average in prices for raw materials and lower stock as a result of working capital optimisation measures.

Raw materials and consumables Raw materials and consumables, comprising scrap metal, coil, steel plates, ferroalloys, steel billets and other consumables, represented 66.4% of the total production cost in 2012. Scrap metal, coil, and steel plates are the major components of our raw materials and consumables.

Our costs of raw materials and consumables decreased by 9.9%, or U.S.$368.8 million, in 2012 compared to 2011. All our segments were exposed to volatility in prices for certain raw materials in 2012. The decreases in the average purchase prices for scrap metal in our Russia, Americas and Europe segments ranged from 0.8% to 5.4%. The decreases in the average purchase prices for coil in our Russia and Americas segments were 11.5% and 3.1%, respectively. Average purchase price for steel plate in our Russia segment increased by 6.7% as we purchased higher quality steel plate in 2012.

The currency translation effect accounted for a U.S.$158.0 million decrease in the raw materials costs.

Staff costs including social security Staff costs represented 13.3% of our total production costs in 2012. Our staff costs increased by 1.1%, or U.S.$7.6 million, in 2012 compared to 2011. Staff costs growth in 2012 resulted mainly from the increase in payroll rates in all our segments. In addition, an increase in the workforce in the Americas segment due to rehiring of production workers contributed to an increase in labour costs, which was partially offset by a decrease in the number of staff in the Russia segment, which was due to optimisation measures.

The currency translation effect accounted for a U.S.$29.5 million decrease in staff costs.

Energy and utilities costs Energy and utilities costs mainly comprise costs for electricity, natural gas and water. Our energy and utilities costs decreased by 4.1%, or U.S.$16.4 million, in 2012 as compared to 2011. In 2012, electricity and natural gas prices differed depending on the region. In the Russia segment, our effective average electricity and natural gas prices increased in Rouble-terms by approximately 0.1% and 6.0%, respectively. In the Americas segment, the average electricity prices decreased only marginally, while the average natural gas tariffs decreased by 14.6%. The average electricity and natural gas tariffs in the Europe segment increased by 3.7% and 9.8%, respectively.

The currency translation effect accounted for a U.S.$23.4 million decrease in energy costs in 2012.

Depreciation and amortisation Depreciation and amortisation costs decreased by 1.8%, or U.S.$4.5 million, in 2012 compared to 2011, primarily due to an unfavourable currency translation effect of U.S.$13.5 million. This decrease was partially offset by the increased depreciation costs attributable to new equipment put into operation during 2012 as part of our capital expenditure programme.

Gross Profit The table below shows our gross profit and gross margin percentages by operating segment for the years ended 31 December 2012 and 2011.

Year ended 31 December 2012 2011 Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin (in millions of U.S. (in %) (in millions of U.S. (in %) dollars) dollars) Russia ...... 1,124.0 23.8% 1,035.9 21.6% Americas ...... 284.7 17.3% 310.8 19.5% Europe ...... 74.7 23.1% 99.6 26.6% Total ...... 1,483.4 22.2% 1,446.3 21.4%

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

Our gross profit, which represents our revenue less our cost of sales, increased by 2.6%, or U.S.$37.2 million, in 2012. The gross profit margin increased to 22.2% in 2012 from 21.4% in 2011.

Russia segment In 2012, gross profit of the Russia segment increased by 8.5% or U.S.$88.2 million. Gross profit growth was primarily attributable to an increase in sales volumes of seamless pipe. Gross profit from sales of seamless pipe increased by U.S.$122.2 million, which to a large extent was driven by an increase in sales volumes of seamless OCTG, which was primarily attributable to the growth in drilling activities in the first half of 2012.

Gross profit of welded pipe increased by U.S.$8.4 million, which was primarily due to a significant drop in the average purchase price of steel coil used in the production process. The increase in gross profit was partially offset by a decrease in sales volumes of large diameter welded pipe.

Gross profit from other operations (including pipe-related services, such as protective coating, repair and field services) increased by U.S.$22.8 million, which was primarily attributable to a higher volume of pipe-related services.

Gross profit of the Russia segment in 2012 was partially offset by a U.S.$65.2 million negative currency translation effect.

Gross profit margin of the Russia segment increased from 21.6% in 2011 to 23.8% in 2012 primarily due to improved profitability of welded pipe, following a significant drop in the average purchase price for steel coil. Gross profit margin of seamless pipe largely remained unchanged in 2012.

Americas segment The Americas segment’s gross profit decreased by 8.4%, or U.S.$26.1 million, in 2012, which was primarily due to a decrease in gross profit of seamless pipe. Gross profit from sales of seamless pipe decreased by U.S.$40.6 million, primarily attributable to an increase in the average production costs, while average selling prices remained relatively flat in 2012 and 2011. A decrease in sales volumes of seamless pipe, and particularly of OCTG seamless pipe, demand for which declined in the second half of 2012, also contributed to a decrease in gross profit.

Gross profit of welded pipe increased by U.S.$6.2 million reflecting an increase in sales volumes of welded OCTG pipe in the first half of 2012. The average price and cost per tonne of welded pipe remained relatively stable in 2012 and 2011.

Gross profit from other operations (including pipe-related services, such as protective coating, repair and field services) increased by U.S.$8.2 million, which was primarily due to a higher volume of pipe-related services.

Gross profit margin of the Americas segment declined from 19.5% to 17.3%, primarily reflecting an increase in sales of lower-margin welded pipe and a decrease in sales of higher-margin seamless pipe, and a decline in gross profit margin of seamless pipe sold.

Europe segment Gross profit in the Europe segment decreased by 25.0%, or U.S.$24.9 million, primarily due to worsened economic conditions, which adversely affected sales volumes and selling prices for our products. Gross profit margin decreased from 26.6% to 23.1%.

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

Net Operating Expenses The following table shows a breakdown of our net operating expenses for the years ended 31 December 2012 and 2011.

Year ended 31 December Percentage 2012 2011 Change Change (in millions of U.S. dollars except percentages) Selling and distribution expenses ...... 433.2 411.3 22.0 5.3% Advertising and promotion expenses ...... 11.1 9.2 1.9 20.2% General and administrative expenses ...... 292.5 282.8 9.8 3.4% Research and development expenses ...... 16.6 18.7 (2.1) (11.2)% Other operating expenses ...... 68.0 53.3 14.7 27.5% Other operating income ...... (10.7) (13.1) 2.4 (18.2)% Share of (profit)/loss of associate ...... 0.0 0.2 (0.2) (100.0)% (Gain)/loss on disposal of assets classified as held for sale .... 0.0 (19.2) 19.2 (100.0)% Total net operating expenses ...... 810.7 743.2 67.6 9.1%

Selling and distribution expenses and general and administrative expenses represented 89.5% of our net operating expenses in 2012.

Selling and Distribution Expenses In 2012, our selling and distribution expenses increased by 5.3%, or U.S.$22.0 million. Freight costs, staff costs including social security payments, and depreciation and amortisation costs attributable to our sales activities represented 83.8% of our total selling and distribution expenses.

Freight costs Railway transportation is our principal means of transporting pipe products to our Russian, CIS, and European customers, as well as to ports for onward transportation overseas. In 2012, freight costs increased by 16.2%, or U.S.$34.4 million. The currency translation effect accounted for the U.S.$15.4 million decrease in freight costs. The increase in freight costs was primarily due to an increase in costs in the Russian segment as a result of transportation tariffs growth in Russia and higher share of sales with long distance delivery terms, which was partially offset by a currency translation effect.

Transportation costs with respect to raw materials and consumables are reflected in raw material costs.

Staff costs including social security In 2012, staff costs including social security increased by 7.1%, or U.S.$4.2 million. Growth in our staff costs was primarily due to increased payroll rates in the Russia segment and sales personnel in the Americas segment hired to increase sales in general and sales of products with premium connections in particular. The currency translation effect accounted for a U.S.$3.7 million decrease in staff costs.

Depreciation and amortisation In 2012, depreciation and amortisation decreased by 18.7% or U.S.$12.2 million. This decrease was attributable to amortisation of an intangible asset, “customer relationships” in the Americas segment, amortised using the diminishing balance method to reflect the pattern of consumption of the related economic benefits. The currency translation effect was negligible.

General and Administrative Expenses In 2012, our general and administrative expenses increased by 3.4%, or U.S.$9.8 million. Staff costs, including social security, professional fees and services and depreciation and amortisation costs represented 81.0% of our general and administrative expenses.

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

Staff costs including social security In 2012, staff costs including social security increased by 2.9%, or U.S.$4.6 million. The increase was primarily due to an increase in the number of staff in the Americas segment and increased payroll rates in all segments. The currency translation effect accounted for a U.S.$7.7 million decrease in the staff costs.

Professional fees and services Professional fees and services comprise primarily consulting and audit services. Professional fees and services in 2012 increased by 4.6%, or U.S.$2.5 million, mainly as a result of an increase in consulting services related to the acquisition of a subsidiary, which were partially offset by an unfavourable currency translation effect of U.S.$2.5 million.

Depreciation and amortisation Depreciation and amortisation in 2012 increased by 21.8%, or U.S.$2.9 million, compared to 2011, primarily due to the acquisition of new software. The currency translation effect was negligible.

Loss from impairment of goodwill, property, plant and equipment and financial assets Loss from impairment of assets in 2012 was U.S.$8.4 million compared to a U.S.$68.2 million net gain from reversal of impairment of assets recognised in 2011.

As at 31 December 2012, we determined in respect of certain non-production assets in the Russia segment that the carrying value of these assets exceeded their recoverable amount. As a result, we recognised an impairment of property, plant and equipment in the amount of U.S.$8.4 million.

As at 31 December 2011, we determined that the value in use of the Europe segment’s cash-generating unit significantly exceeded its carrying value. As a result, we reversed the impairment loss recognised in 2008 and 2009 in respect of property, plant and equipment of the Europe segment in the amount of U.S.$73.4 million.

Foreign exchange gain/(loss), net In 2012, we recognised a foreign exchange gain in the amount of U.S.$22.6 million compared to a U.S.$1.3 million loss in 2011.

Gain/loss on changes in fair value of derivative financial instrument In February 2010, we issued U.S.$412.5 million 5.25% convertible bonds due 2015, convertible into TMK’s GDRs. The convertible bonds represent a combined financial instrument containing two components: (i) a bond liability and (ii) an embedded derivative representing a conversion option in foreign currency combined with an issuer call. In accordance with IFRS, a bond liability of U.S.$368.1 million (net of transaction costs of U.S.$8.9 million) and liability under the embedded conversion option of U.S.$35.5 million were recognised at the initial recognition date.

As at 31 December 2012, the carrying value of the bond liability and the fair value of the embedded conversion option were U.S.$412.4 million and U.S.$10.5 million, respectively. As at 31 December 2011, the carrying value of the bond liability and the fair value of the embedded conversion option were U.S.$386.0 million and U.S.$3.0 million, respectively. As a result, we recognised a loss of U.S.$7.4 million on the change in the fair value of the embedded derivative in 2012 compared to a gain of U.S.$44.8 million in 2011.

Finance costs Finance costs decreased by 1.9%, or U.S.$5.7 million, as result of a partial repayment of our indebtedness in 2012 and the currency translation effect. Our weighted average nominal interest rate remained relatively flat at 6.99% as at 31 December 2012 compared to 6.92% as at 31 December 2011. Finance income decreased by 30.4%, or U.S.$9.7 million, due to a decrease in dividend income from an investment. As a result, our net finance costs increased by 1.5%, or U.S.$4.0 million, in 2012.

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

Income tax In 2011 and 2012, the following corporate income tax rates were in force in the countries where our production facilities are located: 20% in Russia, 35% (federal rate) in the United States and 16% in Romania.

In 2012, a pre-tax income of U.S.$404.7 million was reported as compared to U.S.$544.1 million in 2011; an income tax expense of U.S.$122.6 million was recognised compared to U.S.$159.4 million in 2011. Our effective income tax rate increased by 1.0% to 30.3% in 2012.

Profit for the year For the reasons set forth in the discussion above, we recorded a net profit of U.S.$282.1 million in 2012 compared to a net profit of U.S.$384.7 million in 2011.

Comparison of the years ended 31 December 2011 and 2010 The following discussion is based on, and should be read in conjunction with, the 2011 Consolidated Financial Statements contained in the section beginning on page F-1 of this Prospectus.

The following table sets forth our consolidated operating results for the years ended 31 December 2011 and 2010:

Year ended 31 December Percentage 2011 2010 Change Change (in millions of U.S. dollars except percentages) Sales volumes, thousand tonnes ...... 4,185.1 3,962.0 223.1 5.6% Revenue ...... 6,753.5 5,578.6 1,174.9 21.1% Cost of sales ...... (5,307.2) (4,285.3) (1,021.9) 23.8% Gross profit ...... 1,446.3 1,293.3 153.0 11.8% Net operating expenses(1) ...... (743.2) (693.5) (49.7) 7.2% Impairment of assets(2) ...... 68.2 0.0 68.2 n/a Foreign exchange gain/(loss), net ...... (1.3) 9.5 (10.8) n/a Gain/(loss) on changes in fair value of derivative financial instrument ...... 44.8 (12.4) 57.2 n/a Finance income/(costs), net ...... (270.7) (411.7) 141.0 (34.2)% Profit before tax ...... 544.1 185.2 358.9 193.7% Income tax expense ...... (159.4) (81.2) (78.3) 96.4% Profit/(loss) for the year ...... 384.7 104.1 280.6 269.6% Adjusted EBITDA ...... 1,050.1 942.3 107.8 11.4%

Notes: (1) Net operating expenses comprise selling and distribution expenses, advertising and promotion expenses, general and administrative expenses, research and development expenses, other operating income/(expense), net, share of profit/(loss) of associate and gain on disposal of assets classified as held for sale. (2) Impairment of assets comprise impairment of goodwill, impairment of investment in associate, impairment of property, plant and equipment and reversal of impairment of property, plant and equipment.

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

Revenue Revenue represents our total sales to customers net of value added tax and product returns.

The following table shows our revenue by operating segment for the years ended 31 December 2011 and 2010.

Year ended 31 December Percentage 2011 2010 Change Change (millions of U.S. dollars except percentages) Russia ...... 4,788.0 3,997.7 790.3 19.8% Americas ...... 1,590.4 1,324.4 266.0 20.1% Europe ...... 375.1 256.5 118.6 46.2% Total revenue ...... 6,753.5 5,578.6 1,174.9 21.1%

Our consolidated revenue increased by 21.1% or U.S.$1,174.9 million in 2011 compared to 2010. This increase was due to increases in our pipe products’ selling prices and sales volumes, which was primarily due to an increase in demand for seamless pipe products stemming from an increase in world oil and gas production.

The following table shows our pipe sales volumes by operating segment for the years ended 31 December 2011 and 2010.

Year ended 31 December Percentage 2011 2010 Change (thousands of tonnes except percentages) Russia ...... 3,115.0 2,989.4 4.2% Americas ...... 892.3 803.8 11.0% Europe ...... 177.8 168.9 5.3% Total Pipes ...... 4,185.1 3,962.0 5.6%

In 2011, total pipe sales volumes increased by 5.6%, which was due to an increase in the total sales volumes of seamless pipe. The total welded pipe sales volumes remained flat in 2011.

The following table shows our pipe sales volumes by group of products for the years ended 31 December 2011 and 2010.

Year ended 31 December Percentage 2011 2010 Change (thousands of tonnes except percentages) Welded pipe ...... 1,843.6 1,842.7 0.05% Seamless pipe ...... 2,341.5 2,119.3 10.5% Total pipes ...... 4,185.1 3,962.0 5.6%

Russia segment Revenue generated by our Russia segment increased by 19.8%, or U.S.$790.3 million, in 2011 compared to 2010, including a U.S.$154.8 million favourable currency translation effect.

Revenue from sales of seamless pipe increased by U.S.$637.3 million, as a result of higher selling prices and changes in the product mix, as well as a 10.9% increase in sales volumes. Selling prices of all our seamless pipe products increased, which was primarily attributable to growing demand from oil and gas companies stemming from growth in oil and gas production. Sales of seamless line pipe and seamless OCTG demonstrated the most significant growth. Demand for seamless OCTG (which is generally a higher-priced pipe product within our product mix) in the Russia segment was particularly strong resulting in an increase in seamless OCTG sales volumes, which was partially offset by a reduction in export sales to North Africa and the Middle East due to the political instability in these regions.

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

Revenue from sales of welded pipe decreased by U.S.$11.9 million, as a result of the lower sales volumes, which was partially offset by higher prices and changes in the product mix. See “— The Global and Russian Oil and Gas Industry”. Lower sales volumes of welded pipe were mostly attributable to a 13.1% reduction in the sales volumes of large-diameter welded pipe for the construction of major pipelines which was attributable to the completion of certain major pipeline construction projects in the first half of 2011 as well as the postponement of certain new pipeline construction projects in Russia and CIS. The decrease in the sales volumes of large-diameter welded pipe were also attributable to other pipe producers’ increased production capacities and an increase in imports, which resulted in an increased competition.

Americas segment Revenue generated by our Americas segment increased by 20.1%, or U.S.$266.0 million, in 2011 compared to 2010. This increase was due to higher selling prices, changes in the product mix and an 11.0% increase in sales volumes of seamless and welded pipe, and particularly in seamless and welded line pipe sales as a result of the growth in demand for line pipe in the United States.

Revenue from sales of seamless pipe increased by U.S.$152.9 million, primarily due to higher selling prices and changes in the product mix. Selling prices of seamless pipe increased primarily due to growth in drilling activities and oil and gas production. The share of seamless OCTG pipe with premium connections, which is a higher-priced pipe product within our product mix, more than doubled. Sales volumes of seamless pipe, and primarily seamless line and industrial pipe, increased in 2011, which also contributed to an increase in the Americas segment’s revenue generated from the sale of seamless pipe.

Revenue from welded pipe increased by U.S.$141.5 million, driven by higher sales volumes, higher selling prices and changes in the product mix. Growth in sales volumes was attributable to an overall increase in demand for all welded pipe, with particularly strong demand for welded line pipe, which was due to increased drilling activities and oil and gas production in the United States. Selling prices across the board have increase due to growing demand for all welded pipe. Sales volume growth in the OCTG welded pipe (which is a higher-priced pipe product within our product mix) also contributed to revenue growth.

Revenue from other operations, primarily from premium threading services, decreased by U.S.$28.3 million. The decrease in threading services was primarily due to pipe threading being performed directly at the pipe manufacturing facilities as a part of the production process (rather than performed as a separate service after the production of pipe). As a result, sales of pipes with ULTRA premium connection increased and revenue from pipe threading services for external customers decreased.

Europe segment Revenues from the Europe segment increased by 46.2%, or U.S.$118.6 million, in 2011 compared to 2010, including a U.S.$15.0 million favourable currency translation effect.

Revenue growth in 2011 was primarily attributable to higher selling prices due to pipe market recovery and an increase in sales of seamless industrial pipe, a core product for the Europe segment, reflecting high market demand, mainly from the engineering industry. In addition, a significant increase in sales volumes of steel billets also contributed to the Europe segment’s revenue growth in 2011.

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

Cost of Sales and Gross Profit Cost of Sales The table below sets out our cost of sales for the periods indicated.

Year ended 31 December 2011 2010 (% of total (% of total (millions of cost of (millions of cost of U.S. dollars) production) U.S. dollars) production) Raw materials and consumables ...... 3,720.9 68.7% 2,971.8 67.9% Staff costs including social security ...... 661.8 12.2% 540.2 12.3% Energy and utilities ...... 400.2 7.4% 336.1 7.7% Depreciation and amortisation ...... 257.6 4.8% 218.3 5.0% Repairs and maintenance ...... 162.4 3.0% 110.1 2.5% Freight ...... 63.7 1.2% 52.3 1.2% Contracted manufacture ...... 55.6 1.0% 70.6 1.6% Taxes ...... 51.8 1.0% 43.5 1.0% Professional fees and services ...... 25.8 0.5% 20.0 0.5% Rent ...... 10.5 0.2% 8.9 0.2% Travel ...... 2.6 — 1.6 — Communications ...... 1.2 — 0.9 — Insurance ...... 0.8 — 0.8 — Other ...... 3.8 0.1% 4.0 0.1% Total production cost ...... 5,418.7 100% 4,379.0 100% Change in own finished goods and work in progress ...... (147.0) (2.7)% (170.6) (3.9%) Cost of sales of externally purchased goods . . . 33.2 0.6% 80.9 1.8% Obsolete stock and write offs/(reversal of write-offs) ...... 2.4 — (4.0) (0.1)% Cost of sales ...... 5,307.2 97.9% 4,285.3 97.9%

Our cost of sales increased by 23.8% in 2011 compared to 2010. This increase was primarily due to a 25.2% increase in raw materials and consumables costs, a 22.5% increase in staff costs, a 19.1% increase in energy and utilities costs, and a 18.0% increase in depreciation costs, all of which in the aggregate represented 93.0% of the total production costs in 2011.

Raw materials and consumables Raw materials and consumables represented 68.7% of the total production cost in 2011. Our costs of raw materials and consumables increased by 25.2%, or U.S.$749.1 million, in 2011 compared to 2010. All our segments were exposed to volatility in prices for certain raw materials in 2011 compared to 2010. Average purchase prices for scrap metal and coils, the two main raw materials in our production process, increased in all of our segments.

In addition, sales growth, and the resulting higher production volumes, also contributed to the increase in cost of raw materials. Sales volumes growth in all of our three segments contributed to an increase in the cost of raw materials. See also “— Revenue”.

The currency translation effect accounted for a U.S.$93.6 million increase in the raw materials costs.

Staff costs including social security Staff costs represented 12.2% of our total production costs in 2011. Our staff costs increased by 22.5%, or U.S.$121.6 million, in 2011 compared to 2010.

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

Staff costs growth in 2011 was primarily due to an increase in wages in all segments of the Group and changes in the Russian tax legislation in respect of social security contributions effective from 1 January 2011, which caused an increase in insurance contribution rates from 26% to 34% and resulted in changes in the calculation methodology. In addition, the growth in the number of staff in the Americas segment due to rehiring production workers, due to increase in production volumes, contributed to an increase in staff costs, which was partially offset by a marginal decrease in the number of staff in the Russia segment, which was due to workforce optimisation measures.

The currency translation effect accounted for a U.S.$15.5 million increase in staff costs.

Energy and utilities Our energy and utilities costs increased by 19.1%, or U.S.$64.1 million, in 2011 compared to 2010. The increase was primarily attributable to an increase in prices for energy and utilities consumed in the production process. In addition, an overall growth in production volumes also contributed to an increase in energy and utilities costs.

In 2011, electricity and natural gas price trends differed depending on the region. In the Russia segment, our effective average electricity and natural gas prices increased in rouble-terms by approximately 13.2%. In the Americas segment, the average electricity prices decreased marginally, while the average natural gas tariffs decreased by 5.8%. The average electricity and natural gas tariffs in the Europe segment increased by 27.6% and 15.1%, respectively.

The currency translation effect accounted for a U.S.$11.9 million increase in energy costs.

Depreciation and amortisation Depreciation and amortisation costs increased by 18.0%, or U.S.$39.3 million, in 2011 compared to 2010. The increase was primarily attributable to the reduction of estimated useful lives of certain open-hearth furnaces, a pilger mill and the 2520 welded pipe mill in the Russia segment. The reduction in the estimated useful lives of these assets was due to the planned replacement of this equipment before the end of the previously assessed useful lives.

The currency translation effect accounted for a U.S.$7.3 million increase in the depreciation and amortisation costs.

Gross profit The table below illustrates our gross profit and gross margin percentages by operating segment for the years ended 31 December 2011 and 2010.

Year ended 31 December 2011 2010 Gross Profit Gross Profit Gross Profit Gross Profit (in millions of Margin (in %) (in millions of Margin (in %) U.S. dollars) U.S. dollars) Russia ...... 1,035.9 21.6% 932.2 23.3% Americas ...... 310.8 19.5% 301.7 22.8% Europe ...... 99.6 26.6% 59.4 23.1% Total ...... 1,446.3 21.4% 1,293.3 23.2%

Our gross profit, which represents our revenue less our cost of sales, increased by 11.8%, or U.S.$153.0 million, in 2011 compared to 2010. The increase in gross profit was primarily attributable to the growth in selling prices and an increase in sales volumes. The gross profit margin decreased to 21.4% in 2011 from 23.2% in 2010.

Russia segment In 2011, gross profit of the Russia segment increased by 11.1% or U.S.$103.7 million, including U.S.$33.6 million due to a favourable currency translation effect. Gross profit growth was primarily attributable to an increase in the selling price and sales volumes of seamless pipe. Gross profit from the sale of seamless pipe

70 Management’s Discussion and Analysis of Financial Condition and Results of Operations increased by U.S.$218.4 million, which was primarily attributable to the growth in selling prices of seamless pipe that outpaced the growth in the average production cost per tonne. An increase in the sales volumes of seamless pipe also contributed to an increase in gross profit in 2011.

In 2011, gross profit of welded pipe was lower by U.S.$140.5 million than that in 2010 as a result of lower gross profit per tonne and lower sales volumes.

Gross profit margin decreased to 21.6% in 2011 from 23.3% in 2010 primarily due to lower gross margin contribution from large-diameter welded pipe as a result of completion of certain higher-margin projects. These projects included long-distance delivery terms which resulted in higher selling prices and additional selling and distribution expenses. The decrease in the gross profit margin of large-diameter welded pipe was partially offset by the growth in the gross margin of seamless OCTG and seamless line pipe.

Americas segment In 2011, gross profit of the Americas segment increased by 3.0% or U.S.$9.1 million. Gross profit growth was primarily attributable to an increase in the selling price and sales volumes of seamless pipe, which was partially offset by a decrease in gross profit from the sale of welded pipe. Gross profit from the sale of seamless pipe increased by U.S.$41.9 million, which was primarily due to a higher gross profit per tonne of pipe and higher sales volumes, and particularly in respect of seamless line and seamless industrial pipe.

Gross profit of welded pipe decreased by U.S.$1.0 million. The decrease was primarily due to the changes in the product mix and production costs. Gross profit per tonne of welded pipe decreased primarily due to a lower share of welded OCTG, which generates higher gross margin compared to other welded pipe products, from the total sales volumes of welded pipe. In addition, gross profit of welded pipe was adversely affected by a significant increase in the cost of coil used in the production process of welded pipe, which could not be covered in full by price increases of the finished product, because of strong price competition from Korean pipe producers, particularly in the welded carbon pipe products. The decrease was partially offset by an overall increase in the sales volumes of welded pipe, and particularly, welded line pipe.

The Americas segment’s gross profit from other operations decreased by U.S.$31.8 million as a result of a decline in threading services rendered. See “ — Revenue — Americas segment”.

Gross profit margin decreased to 19.5% in 2011 from 22.8% in 2010 primarily due to a decrease in gross margin of both seamless and welded pipe.

Europe segment In 2011, gross profit of the Europe segment increased by 67.8%, or U.S.$40.2 million, of which U.S.$3.6 million was attributable to a favourable currency translation effect. The increase was primarily due to an increase in gross profit per tonne of seamless pipe and higher sales volumes, which in the aggregate represented a U.S.$33.1 million of the Europe segment’s gross profit growth.

In 2011, gross profit margin of the Europe segment increased to 26.6% in 2011 from 23.1% in 2010, which reflected a favourable market conditions and, in particular, an increased share of high-margin orders related to industrial heat-treated alloy pipe.

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

Net Operating Expenses The following table shows a breakdown of our net operating expenses for the periods indicated.

Year ended 31 December Percentage 2011 2010 Change Change (in millions of U.S. dollars except percentages) Selling and distribution expenses ...... 411.3 403.1 8.1 2.0% Advertising and promotion expenses ...... 9.2 11.1 (1.9) (17.1)% General and administrative expenses ...... 282.8 232.0 50.8 21.9% Research and development expenses ...... 18.7 13.3 5.4 40.4% Other operating expenses ...... 53.3 45.0 8.3 18.6% Other operating income ...... (13.1) (11.0) (2.0) 18.5% Share of loss of associate ...... 0.2 0.0 0.2 100% Gain on disposal of assets classified as held for sale ...... (19.2) 0.0 (19.2) (100)% Total Net operating expenses ...... 743.2 693.5 49.7 7.2%

In 2011, selling and distribution expenses and general and administrative expenses represented 93.4% of our net operating expenses.

Selling and Distribution Expenses Our selling and distribution expenses primarily comprised freight costs, depreciation and amortisation and staff costs including social security payments attributable to our sales activities, which in the aggregate represented 81.9% of selling and distribution costs in 2011.

Freight costs In 2011, freight costs increased by 2.4% or U.S.$5.0 million. The currency translation effect accounted for a U.S.$6.9 million increase in freight expenses. Freight costs in the Russia segment increased primarily due to the currency translation effect partially offset by an increase in certain freight tariffs. An increase in sales in the Europe segment resulted in an increase in freight expenses.

Transportation costs with respect to raw materials and consumables are reflected in raw material costs.

Depreciation and amortisation Depreciation and amortisation decreased by 19.4%, or U.S.$15.8 million, in 2011 compared to 2010. This decrease was attributable to amortisation of the intangible asset “Customer relationships” in the Americas segment; which was amortised using the diminishing balance method to reflect a pattern of consumption of the related economic benefits. The currency translation effect was negligible.

Staff costs including social security In 2011, staff costs including social security increased by 8.9% or U.S.$4.8 million. The increase was primarily due to an increase in the number of sales staff and an increase in wages and related social security contributions. The currency translation effect accounted for U.S.$1.7 million increase in staff costs.

General and Administrative Expenses In 2011, our general and administrative expenses increased by 21.9% or U.S.$50.8 million. Our general and administrative expenses comprised primarily of staff costs, including social security, professional fees and services and depreciation and amortisation costs, which in the aggregate represented 80.2% of total general and administrative costs in 2012.

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

Staff costs including social security In 2011, staff costs including social security increased by 25.3% or U.S.$32.0 million. The increase was primarily due to an increase in staff, growing salaries and related social security contributions. The increase was also attributable to changes in the Russian tax legislation in respect of social security contributions effective from 1 January 2011, which caused an increase in insurance contribution rates from 26% to 34% and resulted in changes in the calculation methodology. The currency translation effect accounted for U.S.$4.2 million increase of the expenses.

Professional fees and services Professional fees and services in 2011 increased by 15.3%, or U.S.$7.3 million, mainly as a result of an increase in costs relating to management consulting services. The currency translation effect accounted for U.S.$1.3 million increase of the expenses.

Depreciation and amortisation Depreciation and amortisation increased by 4.5% or U.S.$0.6 million in 2011 compared to 2010, including the unfavourable currency translation effect of U.S.$0.4 million.

Loss from impairment of goodwill, property, plant and equipment and financial assets As at 31 December 2011, we determined that the value in use of the Europe segment significantly exceed its carrying value. We applied a 13.36% pre-tax discount rate for the calculation of the value in use of this cash generating unit. The increase of its recoverable was mostly due to the projected increase in the share of most profitable products in total production and the projected increase in sales volumes of the Europe segment. As a result, we reversed the impairment loss recognised in 2008 and 2009 in respect of property, plant and equipment of the Europe segment in the amount of U.S.$73.4 million.

In 2011, we recorded a loss from impairment of investment in associate, the Volgograd River Port, in the amount of U.S.$1.8 million.

In 2011, we determined that the carrying value of TMK-Kaztrubprom exceeded its recoverable amount. As a result we recognised a loss from the impairment of goodwill in the amount of U.S.$3.4 million.

Foreign exchange gain/(loss), net In 2011, we recognised a foreign exchange loss in the amount of U.S.$1.3 million compared to a U.S.$9.5 million gain in 2010.

Gain/loss on changes in fair value of derivative financial instrument In February 2010, we issued U.S.$412.5 million 5.25% convertible bonds due 2015, convertible into TMK’s GDRs. The convertible bonds represent a combined financial instrument containing two components: (i) a bond liability and (ii) an embedded derivative representing a conversion option in foreign currency combined with an issuer call. In accordance with IFRS, a bond liability of U.S.$368.1 million (net of transaction costs of U.S.$8.9 million) was recognised and the liability under the embedded conversion option of U.S.$35.5 million at the initial recognition date.

As at 31 December 2011, the bond liability and the liability under the embedded conversion option were U.S.$386.0 million and U.S.$3.0 million, respectively. As at 31 December 2010, the bond liability and the liability under the embedded conversion option were U.S.$ 377.9 million and U.S.$47.8 million, respectively. As a result, we recognised a gain of U.S.$44.8 million on changes in fair value of the derivative financial instrument in 2011 compared to a U.S.$12.4 million loss in 2010.

Finance costs Finance costs decreased by 29.7%, or U.S.$ 127.8 million, in 2011 compared to 2010. In late 2010 and the beginning of 2011, we negotiated lower interest rates for existing loans with major creditors and obtained lower

73 Management’s Discussion and Analysis of Financial Condition and Results of Operations interest rate loans to refinance existing debt. Consequently, the weighted average nominal interest rate stood at 6.92% as at 31 December 2011 compared to 7.86% as at 31 December 2010. A significant reduction in the amount of unamortised debt issue costs recognised in the income statement in 2011 also decreased our finance costs.

Finance income increased by 69.7%, or U.S.$13.2 million, in 2011, primarily due to growing dividend income. As a result, net finance costs decreased by 34.2%, or U.S.$141.0 million, in 2011 compared to 2010.

Income tax TMK, as a global company with production facilities and trading companies located in Russia, the CIS, the United States, and Europe, is exposed to local taxation in each jurisdiction in which it operates. In 2010 and 2011, the following corporate income tax rates were in force in the countries where our production facilities are located: 20% in Russia, 35% (federal rate) in the United States and 16% in Romania.

In 2011, a pre-tax income of U.S.$544.1 million was reported compared to U.S.$185.2 million in 2010 and in 2011 an income tax expense of U.S.$159.4 million was recognised compared to U.S.$81.2 million in 2010. Our effective income tax rate declined from 43.8% to 29.3%, closer to the normal level of the income tax rate of the Group considering the fiscal residence structure of the Group’s assets. The effective income tax rate declined due to, first, a significant growth in pre-tax income accompanied by a lower level of non-deductible expenses, second, a higher share of profit before tax of the entities with lower than the Group average income tax rate, and, third, non-taxable income related to gain on changes in fair value of derivative financial instrument.

Profit for the year For the reasons set forth in the discussion above, we recorded a net profit of U.S.$384.7 million in 2011 compared to a net profit of U.S.$104.1 million in 2010, reflecting profit growth of 269.6%.

Liquidity and Capital Resources Capital Requirements Historically, we have relied on cash provided by operations and long-term debt to finance our working capital and other capital requirements, and our management expects that these will continue to be important sources of cash in the future. Following the challenging economic environment in 2008 and 2009, we shifted our focus to increasing the share of long-term debt in our credit portfolio. As a result, we believe that our current debt portfolio is comprised of a diversified portfolio of instruments, including bonds, convertible bonds, bank loans and other debt instruments. See also “Risk Factors — Risk Factors Relating to Our Business and the Pipe Industry — We are significantly leveraged and are required to meet certain financial and other restrictive covenants under the terms of our indebtedness, and failure to do so could negatively affect our business”. We do not make use of off-balance sheet financing arrangements.

Capital Expenditures In the period from 2004 to 2012, cash used to acquire property, plant, and equipment (including expenditure on the implementation of our strategic capital expenditure programme) was in excess of U.S.$3.6 billion, including U.S.$445.3 million spent in 2012. Our projected capital expenditure for 2013 is U.S.$387.2 million, including U.S.$100.4 million of maintenance capital expenditure.

Given the difficult financial and economic situation that began in late 2008, we adjusted our strategic capital expenditure programme and, accordingly, put on hold significant spending under the programme beginning in late 2008 and in 2009. In 2010, 2011 and 2012, economic conditions have improved and we have recommenced the execution of our capital expenditure projects. Subject to market conditions we intend to continue to implement the remainder of our capital expenditure programme, including the addition of an EAF at Tagmet, and an ongoing construction of a new FQM at Seversky, to further enhance our seamless pipe production and efficiency. See also “— Certain Factors Affecting Our Results of Operations — Implementation of Our Strategic Capital Expenditure Programme” and “Business —Capital Expenditure Programme”.

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

Our total capital expenditures by operating segment for the years ended 31 December 2012, 2011 and 2010 are set forth below.

Year ended 31 December 2012 2011 2010 (in millions of U.S. dollars) Russia ...... 346.7 247.6 228.7 Americas ...... 95.0 64.3 36.2 Europe ...... 45.4 14.0 5.5 Total capital expenditures(1) ...... 487.2 326.0 270.3

Note: (1) Capital expenditures are defined as additions of property, plant and equipment.

We undertook the majority of our strategic capital expenditure projects in the Russia segment, where as at 31 December 2012, we were implementing the following two major capital expenditure projects: the installation of an EAF at Tagmet, which we expect to be completed in 2013, and the installation of a new FQM at Seversky, which we expect to be completed in 2014. We expect these projects to further expand our steel-making and seamless pipe production capacities and improve efficiency in Russia.

We are also implementing several smaller capital expenditure projects, including the installation of additional testing instrumentation and threading equipment at Sinarsky, construction of a new seamless pipe mill at TMK-INOX and development of coating facilities at TMK Oilfield Services, all of which are designed to allow us to maintain our production flexibility and improve efficiency. These projects are scheduled to be completed in 2013.

In the Americas segment, we are carrying out several capital expenditure projects at TMK IPSCO facilities, which are expected to enable it to strengthen its position in the premium connections product line for horizontal and directional drilling in the United States and Canada. These projects, which are scheduled to be completed in 2013, include a consolidation of threading operations at the Odessa Facility and the commission of a new threading line, including ULTRA connections, at the Edmonton Facility. We also intend to augment our heat treatment and finishing facilities at TMK IPSCO’s Koppel facility in 2014, as well as further improve our research and testing capacities.

In our Europe segment, we have launched a programme to increase the share of higher value-added product sales at TMK-Artrom. This programme included the construction of a new pipe finishing shop that commenced in 2012, which we expect to complete in 2014.

Cash flows The table below sets forth our summarised cash flows for the periods indicated.

Year ended 31 December 2012 2011 2010 (millions of U.S. dollars) Profit/(loss) before tax ...... 404.7 544.1 185.2 Non-cash and other adjustments ...... 635.1 506.0 757.1 Changes in operating assets and liabilities ...... (33.8) (156.1) (527.0) Income taxes paid ...... (77.5) (106.9) (29.0) Net cash flows from operating activities ...... 928.5 787.1 386.3 Net cash flows used in investing activities ...... (454.9) (377.3) (271.2) Net cash flows (used in)/from financing activities ...... (488.8) (334.9) (186.3) Net increase/(decrease) in cash and cash equivalents ...... (15.2) 74.9 (71.1)

Operating activities Cash from operating activities primarily consists of net income adjusted for certain non-cash items including depreciation, amortisation and other items, and the effect of financing changes in working capital.

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

Net cash flows provided by operating activities increased by 18.0% to U.S.$928.5 million in 2012 from U.S.$787.1 million in 2011. Net cash provided by operating activities before changes in working capital decreased from U.S.$1,050.1 million in 2011 to U.S.$1,039.8 million in 2012 mainly due to weaker results of welded pipe products and a negative currency translation effect. Cash flows in the amount of U.S.$33.8 million were used to finance working capital compared to U.S.$156.1 million in 2011. In 2012, working capital increased less than in 2011 mostly due to a significant decrease in inventories reflecting a decline in prices for raw materials and lower stock as a result of working capital optimisation measures.

Net cash flows from operating activities increased more than two-fold in 2011. Net cash provided by operating activities before changes in working capital increased from U.S.$942.3 million in 2010 to U.S.$1,050.1 million in 2011. The increase was mainly attributable to improved operating performance. Cash flows in the amount of U.S.$156.1 million were used to finance working capital compared to U.S.$527.0 million in 2010. Working capital increased in 2010 at a faster pace in response to growing production and sales activities following the period of economic downturn.

Investing activities Net cash flows used in investing activities increased by 20.6%, or U.S.$77.6 million, in 2012. This increase was due to significant expenditures on certain capital projects, particularly, the construction of the EAF at Tagmet and the construction of a new FQM at Seversky.

Net cash flows used in investing activities increased by 39.2% in 2011. This increase was due to a significant expenditures on certain capital projects, particularly, the construction of the EAF at Tagmet and the construction of a new FQM at Seversky.

Financing activities Net cash used in financing activities increased by 46.0%, or U.S.$153.9 million, in 2012 compared to 2011. The net repayment of debt amounted to U.S.$147.8 million in 2012 compared to U.S.$4.3 million net proceeds from debt in 2011. We spent U.S.$263.7 million on interest payments, or 8.3% less as compared to 2011.

Net cash used in financing activities increased by 79.8%, or U.S.$148.6 million, in 2011 compared to 2010. The net proceeds of debt amounted to U.S.$4.3 million in 2011 compared to a net proceeds in U.S.$102.6 million in 2010. We spent U.S.$287.5 million on interest payments, or 16.1% less compared to 2010 as a result of lower interest rates negotiated with our creditors. Significant amounts of cash related to proceeds and repayments of borrowings reflect refinancing of existing loans with lower interest rates.

Dividends In 2012, we paid dividends to OAO TMK shareholders in the aggregate amount of U.S.$76.0 million (including a full year dividend for 2011 in the amount of U.S.$67.9 million and an interim dividend in respect of the first six months of 2012 in the amount of U.S.$8.1 million, as approved by the annual shareholders’ meeting in June 2012 and an extraordinary shareholders’ meeting in November 2012, respectively). We also paid U.S.$3.2 million in 2012 to non-controlling shareholders of our subsidiaries compared to U.S.$1.5 million in 2011.

In 2011, we paid dividends to OAO TMK shareholders in the aggregate amount of U.S.$47.3 million (including a full year dividend for 2010 in the amount of U.S.$23.3 million and an interim dividend in respect of the first six months of 2011 in the amount of U.S.$24.0 million, as approved by the annual shareholders’ meeting in June 2011 and an extraordinary shareholders’ meeting in November 2011, respectively). We also paid U.S.$1.5 million to non-controlling shareholders of our subsidiaries compared to U.S.$0.6 million in 2010.

Indebtedness Our financial debt comprises interest-bearing loans and borrowings and finance lease liability.

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

The following table summarises the maturity profile of our debt as at 31 December 2012 and 2011:

Unamortised 1 year or less 1 to 3 years Over 3 years debt issue costs Total debt (in millions of U.S. dollars) As at 31 December 2012 ...... 1,073.5 1,351.5 1,474.2 (14.2) 3,884.9 As at 31 December 2011 ...... 601.6 1,468.0 1,740.7 (23.4) 3,786.9

As a result of borrowings undertaken for the acquisition of TMK IPSCO in 2008, as well as a result of continued large-scale capital expenditure programme, our leverage remains significant. Our overall financial debt increased from U.S.$3,786.9 million as at 31 December 2011 to U.S.$3,884.9 million as at 31 December 2012. The appreciation of the Rouble against the U.S. dollar resulted in an increase of the U.S. dollar equivalent of the Rouble-denominated loans and borrowings as at 31 December 2012. The acquisition of GIPI and consolidation of its financial debt in the amount of U.S.$97.7 million into our balance sheet also increased our consolidated financial debt. In 2012, the net repayment of loans and borrowings was U.S.$147.8 million (including partial repayment of GIPI’s debt).

As at 31 December 2012, our debt portfolio comprised diversified debt instruments, including bank loans, bonds, convertible bonds, and other credit facilities. As at 31 December 2012, our Rouble-denominated portion of debt represented 46.4%, the U.S. dollar-denominated portion of debt represented 48.5%, euro-denominated portion of debt represented 5.0%, and other currencies represented less than 1% of our total debt.

The share of short-term portion of debt increased to 27.5% as at 31 December 2012 as compared to 15.8% as at 31 December 2011, as the convertible bond liability was included in our short-term portion of debt as at 31 December 2012 due to the bondholders’ option to submit their bonds for redemption before 11 February 2013. To exercise such option a bondholder had to submit the relevant bonds for redemption within particular period of time before 11 February 2013. No convertible bonds were redeemed and there was no conversion of the bonds.

As at 31 December 2012, our debt portfolio was comprised of fixed and variable interest rate debt facilities. Borrowings with a variable interest rate represented U.S.$667.3 million or 17.4% of total debt, and borrowings with a fixed interest rate represented U.S.$3,165.3 million or 82.6% of our total debt.

As at 31 December of 2012, our weighted average nominal interest rate was 6.99%, which was a 7 basis point increase compared to 31 December 2011.

Our most significant credit facilities as at 31 December 2012 were as follows:

Outstanding Type of borrowing Bank Original currency principal amount Maturity period (in millions of U.S. dollars) 7.75% LPN USD 500.0 January 2018 Loan Sberbank of Russia RUB 489.5 September 2015 5.25% convertible bonds USD 412.5 February 2015 Loan Gazprombank USD 400.0 January 2017 Loan Alfa-Bank RUB 335.8 November 2016 Loan Nordea Bank USD 200.0 January 2017 Bonds, series 6O-01 RUB 164.6 October 2013 Loan Gazprombank RUB 150.9 March 2014 Loan Sberbank of Russia RUB 144.9 April 2016 Loan Wells Fargo USD 120.6 August 2016 Loan Gazprombank RUB 112.5 February 2014 Loan Gazprombank RUB 111.9 January 2014 Sub total 3,143.2 Other facilities 673.7 Total borrowings 3,816.9

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

Most significant borrowings Loan Facilities Loans from AB Gazprombank (ZAO) (“GPB”) In January 2009, OAO TMK entered into two credit facilities in the amount of U.S.$300 million and U.S.$600 million with GPB (the “GPB Facilities”). The U.S.$300 million facility is scheduled to be repaid in 12 equal quarterly instalments beginning in January 2014 and with repayment in the amount of U.S.$120 million at final maturity date in January 2017. The facility was secured by a pledge of 50% plus one share of Volzhsky. Under the U.S.$600 million facility, U.S.$100 million in principal balance was outstanding as at 31 December 2012 with bullet repayment in January 2017. Both facilities bear interest at a fixed rate and are guaranteed by TMK Trade House. As at 31 December 2012, an aggregate of U.S.$400 million in principal balance was outstanding under the GPB Facilities.

In February 2011, OAO TMK entered into a credit facility in the amount of RUB8,000 million with GPB. The facility matures in February 2014 and bears interest at a fixed rate. The facility is guaranteed by Volzhsky and Seversky. As at 31 December 2012, RUB3,417 million in principal balance was outstanding under the facility.

In February 2011, Volzhsky entered into a credit facility in the amount of RUB4,000 million with GPB. The facility matures in January 2014 and bears interest at a fixed rate. The facility is neither secured nor guaranteed. As at 31 December 2012, RUB3,400 million in principal balance was outstanding under the facility.

In March 2011, Seversky entered into a credit facility in the amount of RUB5,000 million with GPB. The facility matures in March 2014 and bears interest at a fixed rate. The facility is guaranteed by Volzhsky and Tagmet. As at 31 December 2012, RUB4,583 million in principal balance was outstanding under the facility.

Loan from Savings Bank of the Russian Federation (“Sberbank”) In October 2010, Tagmet, Seversky and Sinarsky entered into three credit facilities with Sberbank in the aggregate principle amount of RUB10,000 million, including a RUB3,000 million facility for Tagmet, a RUB3,000 million facility for Seversky and a RUB4,000 million facility for Sinarsky. The facilities mature in September 2015 and bear interest at a fixed rate. Tagmet, Seversky and Sinarsky are required to repay the loans in twelve quarterly instalments starting from December 2012. The facilities are secured by a pledge of equipment and a mortgage on real estate and also guaranteed by OAO TMK, Volzhsky, Seversky, Tagment and Sinarsky. As at 31 December 2012, an aggregate of RUB9,167 million in principal balance was outstanding under these facilities.

In September 2012, Volzhsky entered into a credit facility with Sberbank in the amount of RUB6,000 million. The facility matures in September 2015 and bears interest at a fixed rate. The facility is guaranteed by OAO TMK. As at 31 December 2012, RUB5,700 million in principal balance was outstanding under the facility.

In April 2011, OAO TMK entered into a credit facility with Sberbank in the amount of RUB5,000 million. The facility matures in April 2016 and bears interest at a fixed rate. The facility is guaranteed by Volzhsky. As at 31 December 2012, RUB4,400 million in principal balance was outstanding under the facility.

In December 2010, OAO TMK entered into a credit facility with Sberbank in the amount of RUB4,000 million. The facility is scheduled to be repaid in 49 equal monthly instalments beginning in December 2011 with final repayment in December 2015. The facility bears interest at a fixed rate. The facility is guaranteed by Volzhsky. As at 31 December 2012, RUB2,939 million in principal balance was outstanding under the facility.

Others loans In November 2010, OAO TMK entered into a credit facility with Alfa-Bank in the amount of RUB10,200 million. The facility is scheduled to be repaid in 47 equal monthly instalments beginning in January 2013 and with final repayment in the amount of RUB7,140 million in November 2016. The facility bears interest at a fixed rate. The facility is guaranteed by Volzhsky, Tagmet, Seversky and Sinarsky. As at 31 December 2012, RUB10,200 million in principal balance was outstanding under the facility.

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

In September 2011, Volzhsky entered into a credit facility with Nordea Bank in the amount of U.S.$200 million. The facility is scheduled to be repaid in 12 equal quarterly instalments beginning in January 2014 with final repayment in the amount of U.S.$80 million in January 2017. The facility bears interest at three-month LIBOR plus a margin. The facility is guaranteed by OAO TMK and TMK Trade House. As at 31 December 2012, U.S.$200 million in principal balance was outstanding under the facility.

In August 2011, the Group entered into syndicated credit facility with Wells Fargo Capital Finance, LLC, Bank of America, N.A., GE Capital Finance Inc., JPMorgan Chase Bank, N.A. and ING Capital LLC, including term loan financing in the amount of U.S.$66.2 million and revolver advances in the amount of up to U.S.$200 million. The term loan facility is scheduled to be repaid in 19 equal quarterly instalments beginning in January 2012 and with final repayment in the amount of U.S.$25.5 million in August 2016. The facility bears interest at LIBOR plus a margin. The facilities are secured by a pledge of TMK IPSCO assets. As at 31 December 2012, an aggregate of U.S.$120.6 million in principal balance was outstanding under the revolver and term loan facilities.

Russian Bond Issuances In December 2009, we established a Russian bond programme in the total amount of RUB30,000 million, which was registered with MICEX on 30 December 2009. Under the programme, we are able to issue four series of bonds, each with a three-year maturity, split into two series in the amount of RUB5,000 million each and another two series in the amount of RUB10,000 million each. In October 2010, we have issued the first series of bonds in the aggregate principal amount of RUB5,000 million, due in October 2013. This series of bonds has six semi- annual interest coupons over its maturity. The annual interest rate for all coupons was set at 8.85%. Obligations under the bonds are not guaranteed. As at 31 December 2012, RUB5,000 million in principal balance remained outstanding under this series of bonds. As at the date hereof, we have made no decision with respect to the timing of issuance of the remaining three bond series under the programme.

Loan Participation Notes On 27 January 2011, we completed an offering of U.S.$500 million 7.75% loan participation notes due January 2018 (the “2011 LPNs”). The notes were issued by TMK Capital S.A., a Luxembourg special purpose vehicle, for the sole purpose of funding a loan to OAO TMK. OAO TMK’s obligations under the loan are unconditionally and irrevocably guaranteed by TMK Trade House, Volzhsky, Seversky, Sinarsky, Tagmet and IPSCO Tubulars. These notes have been admitted to trading on the London Stock Exchange. The terms of these notes restrict us, among other things, from incurring additional indebtedness other than “Permitted Indebtedness”, as defined in the terms of the notes, once our ratio of consolidated indebtedness to 12-month consolidated EBITDA exceeds 3.5 to 1. The terms of these notes also contain certain restrictions including on our ability to incur liens, to engage in assets sales, to engage in transactions with affiliates, and to engage in mergers and similar transactions. As at 31 December 2012, the entire LPN issue remained outstanding.

Convertible Bonds On 11 February 2010, we completed an offering of U.S.$412.5 million 5.25% of guaranteed convertible bonds due February 2015. According to the terms and conditions of these bonds, the bondholders had an option to submit the bonds for redemption before 11 February 2013. To exercise such option a bondholder had to submit the relevant bonds for redemption within particular period of time before 11 February 2013. No convertible bonds were redeemed and there was no conversions of the bonds.

Contractual Commitments As at 31 December 2012, we had contractual commitments for the acquisition of property, plant and equipment from third parties for the total amount of U.S.$263.7 million (net of VAT), the majority of which relates to the continuation of our capital expenditure programme. As at 31 December 2012, we had paid advances of U.S.$93.6 million with respect to such commitments. Within the contractual commitments disclosed above, the TMK Group had opened unsecured letters of credit in the amount of U.S.$33.5 million.

Disclosures about Market Risk We are exposed in the ordinary course of business to risks related to changes in our liquidity, exchange rates, interest rates, commodity prices and energy and transportation tariffs. See Note 33 to our 2012 Annual Consolidated Financial Statements.

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

Liquidity Risk Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. Our approach to managing liquidity and monitoring liquidity risks is to ensure that sufficient financial resources are maintained and available to meet upcoming liabilities, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.

We manage liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives. This enables us to maintain an appropriate level of liquidity and financial capacity, to minimise borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. We have access to a wide range of funding at competitive rates through the capital markets and banks and coordinate relationships with banks centrally. At present, we believe we have access to sufficient funding and also have both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.

Effective management of the liquidity risk has the objective of ensuring both availability of adequate funding to meet short-term requirements and due obligations, and a sufficient level of flexibility in order to fund the development plans of our business and maintaining an adequate finance structure in terms of debt composition and maturity. This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves.

As a result of borrowings undertaken for the acquisition of TMK IPSCO in 2008 and our ongoing large-scale capital expenditure programme, our leverage remains significant. As at 31 December 2012, our total debt amounted to U.S.$3,884.9 million compared to U.S.$3,786.9 million at the end of 2011. The increase in our total debt in 2012 was primarily attributable to the acquisition of GIPI, and the subsequent inclusion of its debt in our balance sheet, as well as the appreciation of the Rouble against the U.S. dollar.

In 2012, we have continued to improve our liquidity profile and optimising financial performance. We have extended the maturities and negotiated lower interest rates for some of our credit facilities, which contributed to the improvement of our financial condition and overall debt maturity profile. Despite these efforts, the share of short-term portion of debt increased to 27.5% as at 31 December 2012 as compared to 15.8% as at 31 December 2011, as the convertible bond liability was included in our short-term portion of debt as at 31 December 2012 due to the bondholders’ option to submit their bonds for redemption on 11 February 2013. To exercise such option a bondholder had to submit the relevant bonds for redemption within particular period of time before 11 February 2013. No convertible bonds were redeemed and there was no conversion of the bonds.

Liquidity risks may be aggravated by the following factors: • A decrease in our cash flow due to factors outside of our control, such as the global economic crisis. • An increase of the cost of borrowing for refinancing purposes. • A temporary reduction in the availability of existing credit lines.

We may experience difficulties in refinancing our debt if the negative trends associated with these risks continue to develop. In order to monitor and control liquidity risks exposure, we seek to maintain adequate financial resources and access to further liquidity through our continued and mutually profitable relationships with our key strategic stakeholders, primarily Russian state owned banks. However, there is no guarantee that we will be able to access bank finance at acceptable terms. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — We are significantly leveraged and are required to meet certain financial and other restrictive covenants under the terms of our indebtedness, and failure to do so could negatively affect our business”.

Foreign Currency Exchange Rate Risk While we generate most of our revenue in Roubles representing more than half of our total revenues with the expansion of our international operations, we also generate increasingly significant revenue in other currencies, primarily in U.S. dollars representing approximately one third of our total revenues. In addition, we export a significant portion of our products manufactured in Russia, and therefore, we are exposed to foreign currency risk in connection with such export sales. The same exposure is connected with the sales from our Romanian plants outside of Romania, although this is not so material.

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

Our products are typically priced in Roubles for Russian sales, and in U.S. dollars for U.S., CIS and other international sales, and our direct costs, including raw materials and consumables, labour and transportation costs, are largely incurred in Roubles and U.S. dollars, our capital expenditures are incurred principally in Roubles, U.S. dollars and euros, while other costs, such as interest expense, are incurred in Roubles and U.S. dollars. The mix of our revenues and costs is such that volatility of currencies may result in an increase in our costs relative to our revenues. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — Volatility in currency exchange rates, particularly that of the Rouble against the U.S. dollar, could negatively impact our results of operations”.

We seek to manage our currency risk through the considered choice of currency when arranging financing, thereby engaging in a policy of “economic hedging”. Some of this hedging is treated under IFRS as hedging and is reflected as such in our financial statements. See Note 33 to our 2012 Annual Consolidated Financial Statements.

Commodity Price Risk Our revenue is exposed to the market risk of price fluctuations related to the sale of our pipe products. Prices for the pipe products that we sell both inside and outside Russia are generally determined by market forces. These prices may be influenced by factors such as supply and demand, production costs (including the costs of our raw material inputs) and global and Russian economic growth. Adverse changes in any of these factors may reduce the revenue that we receive from the sale of our pipe products. Our costs are also exposed to fluctuations in prices for the purchase, processing and production of metal scrap, steel billets and other raw material inputs.

Credit Risk We are subject to credit risk, principally in the form of trade receivables. We have policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Our exposure to credit risk is represented principally by the carrying amount of our accounts receivable in our statement of financial position net of provisions for impairment of receivables. Although collection of receivables may be influenced by economic factors, we believe that we are not subject to significant risk of loss in excess of the provision already recorded. See Note 33 to our 2012 Annual Consolidated Financial Statements.

Interest Rate Risk We are exposed to variations in cash flow risk related to our variable interest rate debt and exposed to fair value risk related to our fixed-rate debt. As at 31 December 2012, approximately U.S.$667.3 million, or 17.4%, of our total interest bearing loans and borrowings consisted of variable interest rate debt, while approximately U.S.$3,165.3 million, or 82.6%, of our interest bearing loans and borrowings (excluding finance lease liability) consisted of fixed interest rate debt. We may in the future incur significant debt obligations and become more exposed to interest rate fluctuations, in particular in order to fund acquisitions or our capital expenditure requirements. See Note 33 to our 2012 Annual Consolidated Financial Statements.

Critical Accounting Policies The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the period under review, and the reported amount of revenues and expenses during the period. Our management regularly evaluates these estimates. Our management estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accordingly, actual results may differ materially from current expectations under different assumptions. Our management believes that the following are the most significant judgments and estimates used in the preparation of our financial statements. See “Significant Estimates and Assumptions” Note in our Annual Consolidated Financial Statements.

Accounting for Business Combinations Acquisitions of subsidiaries are accounted for under the purchase method of accounting. In accordance with IFRS 3, Business Combinations, identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.

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

The accounting for business combinations under the purchase method is complicated and involves the use of significant judgment. The excess of purchase price over the fair value of our share of identifiable net assets is recorded as goodwill. If the fair value of our share of identifiable net assets of the subsidiary acquired exceeds the cost of the acquisition, we would reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination and would recognise directly in the income statement any excess remaining after that reassessment.

Determining the fair values of the assets and liabilities involves the use of judgment, particularly in relation to the property, plant and equipment since the fair market value of the production complexes do not have fair values that are readily determinable. We may use different techniques to determine fair values, including, among others, market prices, where available, appraisals, comparisons to transactions for similar assets and liabilities and present value of estimated future cash flows. Since these estimates involve the use of significant judgment, they can change as new information becomes available. We use all available information to assess the fair value of the assets acquired through business combinations and, for major business acquisitions, typically engage an outside appraisal firm to assist in the fair value determination of the acquired long-lived assets.

Purchases of subsidiaries from entities under common control are accounted for using the pooling of interests method. The assets and liabilities of the subsidiary transferred under common control are recorded at the historical cost of the predecessor. The differences between the total book value of net assets, including the predecessor’s goodwill, and the consideration paid is accounted for as an adjustment to equity.

Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. Subsequent changes in the carrying value reflect the post acquisition changes in our share of net assets of the associate. Our share of our associates’ profits or losses is recognised in the income statement. When our share of losses in an associate equals or exceeds its interest in the associate we do not recognise further losses, unless we are obligated to make further payments to, or on behalf of, the associate.

Impairment of Property, Plant and Equipment Impairment loss with respect to property, plant and equipment is recognised for the difference between the estimated recoverable amount and the carrying value of such assets. The carrying amounts of such assets are reduced to their estimated recoverable amount either directly or through the use of an allowance account and the amount of the loss is included in the net profit and loss for the period.

We assess at each reporting date whether there is any indication that an asset or a group of assets may be impaired. If any such indication exists, we estimate the recoverable amount of the asset. This requires an estimation of the value in use of the cash- generating units to which the item is allocated. The determination of impairment of property, plant and equipment involves the use of estimates that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances that indicate impairment exists. The determination of the recoverable amount of a cash-generating unit involves the use of estimates by management. Methods used to determine the fair value in use include discounted cash flow-based methods which require us to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. These estimates, including the methodologies used, may have a material impact on the recoverable amount and ultimately the amount of any property, plant and equipment impairment.

As at 31 December 2012, we determined in respect of certain non-production assets in the Russia segment that the carrying value of these assets exceed their recoverable amount. As a result, we recognised an impairment of property, plant and equipment in the amount of U.S.$8.4 million. As at 31 December 2011, we determined that the value in use of the Europe segment significantly exceed its carrying value. We applied a 13.36% pre-tax discount rate for the calculation of the value in use of this cash generating unit. The increase of its recoverable was mostly due to the projected increase in the share of most profitable products in total production and the projected increase in sales volumes of the Europe segment. As a result, we reversed the impairment loss recognised in 2008 and 2009 in respect of property, plant and equipment of the Europe segment in the amount of U.S.$73.4 million. In 2010, we did not recognise any loss in respect of impairment of property, plant and equipment.

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

Useful Lives of Items of Property, Plant and Equipment Items of property, plant and equipment, except for items acquired prior to 1 January 2003, are stated at historical cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in value.

Our management considers the following factors in determining the useful life of an asset: (a) the expected usage of the asset by the enterprise; (b) the expected physical wear and tear; (c) technical obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset; and (d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.

The estimation of the useful life of an item of property, plant or equipment is a matter of management judgment based on the experience of the enterprise with similar assets.

Our management calculates depreciation on a straight-line basis over the estimated useful lives of the assets as follows:

Land ...... Notdepreciated Buildings ...... 8-100 years Machinery and equipment ...... 5-30 years Transport and motor vehicles ...... 4-15 years Furniture and fixtures ...... 2-10 years

We assess the remaining useful lives of items of property, plant and equipment at least at each financial year-end and, if expectations differ from previous estimates, any changes are accounted for as a change in an accounting estimate in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”.

Impairment of Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of our share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is recognised as a non-current asset from the acquisition date.

Goodwill is not amortised but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that carrying amount may be impaired. As at the acquisition date, any goodwill is allocated to each of the cash-generating units expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

We determine whether goodwill is impaired at least on an annual basis and when circumstances indicate the carrying value may be impaired. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. We performed impairment tests on the carrying value of our goodwill on 31 December 2012 for all cash generating units. As a result of the test, we determined that the carrying values of all cash-generating units do not exceed their recoverable amounts. Consequently, no additional impairment losses were recognised in respect of goodwill and intangible assets with indefinite useful lives in 2012.

As at 30 June 2011, we performed impairment tests on the carrying value of our goodwill for TMK-Kaztubprom. As a result of that test, we recorded impairment loss of U.S.$3.4 million related to our TMK-Kaztubprom unit. We did not recognise any impairment loss of goodwill in 2010.

Post-Employment Benefits In addition to defined contributions to Russian Federation state pension, social insurance, medical insurance and unemployment funds at statutory rates in force, our subsidiaries provide pensions and other post-employment

83 Management’s Discussion and Analysis of Financial Condition and Results of Operations benefits to their employees in accordance with collective bargaining agreements. 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 and is determined based on the amount of the benefits stipulated in the collective bargaining agreements.

The liability we recognise in our statement of financial position in respect of post-employment benefits is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plant assets. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the benefits is determined by discounting the estimated future cash outflows using interest rates of high- quality government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related obligations.

We use the actuarial valuation method for measurement of the present value of post-employment benefit obligations and related current service cost. This involves the use of demographic assumptions about the future characteristics of current and former employees who are eligible for benefits (including mortality, both during and after employment, rates of employee turnover, disability and early retirement) as well as financial assumptions (including discount rate, future inflation rates and future salaries). Changes in one or all of these assumptions can result in higher or lower expense. In each of the years ended 31 December 2012, 2011 and 2010, we recognised net benefit expense of U.S.$2.9 million, U.S.$4.0 million and U.S.$7.2 million, respectively.

Allowances We make allowances for doubtful accounts receivable. Our management uses significant judgment in estimating doubtful accounts. In estimating doubtful accounts, we consider such factors as current overall economic conditions, industry specific economic conditions and historical and anticipated customer performance. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in our consolidated financial statements. As at 31 December 2012, 2011 and 2010, we recorded allowances for doubtful accounts of U.S.$20.4 million, U.S.$31.8 million and U.S.$17.9 million, respectively.

We make allowances for obsolete and slow-moving raw materials and spare parts. We estimate allowances for write-downs to net realisable values based on inventory levels on hand, future purchase commitments, and current and forecasted product demand. Our allowance level, and as a result our overall profitability, is therefore subject to our ability to reasonably forecast future consumption levels versus quantities on hand and existing purchase commitments. Forecasting and resource planning are subject to extensive assumptions that we must make regarding, among other variables, expected market changes, overall supply and demand, pricing incentives and raw material availability. We make estimates of net realisable value of finished goods based on the most reliable evidence available at the time the estimates are made. In making these estimates, we take into consideration fluctuations of price or cost directly relating to events occurring subsequent to the end of the reporting period date to the extent that such events confirm conditions existing at the end of the period. As at 31 December 2012, 2011 and 2010, we recorded an allowance for write-downs to net realisable values of U.S.$23.0 million, U.S.$15.8 million and U.S.$17.1 million, respectively.

Deferred Income Taxes We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary differences resulting from differing treatment of items, such as accruals and amortisation, among others, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated statement of financial position. We must assess in the course of our tax planning process our ability and the ability of our subsidiaries to obtain the benefit of deferred tax assets based on expected future taxable profit and available tax planning strategies. In the event that the assessment of future utilisation indicates that the carrying amount of deferred tax assets must be reduced, this reduction is recognised in profit or loss.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to reflect the potential inability to fully recover deferred tax assets. In our financial statements the analysis is based on the estimates of taxable income in the jurisdictions in which we operate and the period over which the deferred tax assets and liabilities will be recoverable. If actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could adversely affect our financial condition and results of operations.

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Overview We believe that we are a global leader in tubular products and are among the world’s largest steel pipe producers, with approximately a 6% worldwide market share for seamless pipes and a 10% worldwide market share for seamless OCTG by sales volume in 2012, according to our estimates. We also believe that we are Russia’s largest manufacturer and supplier of steel pipes. We estimate that we had an approximate 25% market share for steel pipes, a 52% market share for seamless pipes and a 62% market share for seamless OCTG in Russia by sales volume in 2012, according to our estimates.

In 2012, we sold 4,238 thousand tonnes of pipe products, including 2,495 thousand tonnes of seamless pipes, and 1,722 thousand tonnes of OCTG. In 2011, we sold 4,185 thousand tonnes of pipe products, including 2,342 thousand tonnes of seamless pipes and 1,535 thousand tonnes of OCTG. In 2010, we sold 3,962 thousand tonnes of pipe products, including 2,119 thousand tonnes of seamless pipes and 1,478 thousand tonnes of OCTG. Pipes for the oil and gas industry accounted for approximately 75%, 74% and 74% of our total sales volume in 2012, 2011 and 2010, respectively.

We believe that we are a leading exporter of pipes produced in Russia, with sales volumes of pipe products produced at our Russian plants accounting for 54% and 51% of the volume of all steel pipe exports from Russia in 2012 and 2011, respectively, according to our estimates.

We produce both seamless and welded pipes. Our primary focus is the production of typically higher margin seamless and welded OCTG pipes, including premium connections, developed both in Russia and the United States. We have also been concentrating on developing our large diameter welded pipe business, demand for which is relatively high in the oil and gas industry. We believe that co-operation with the oil and gas industry, where demand for our products is high, will provide better growth opportunities. We also produce higher margin industrial seamless pipes which are widely used in the nuclear energy and chemical industries. We also produce welded industrial pipes, although we do not consider the production of these to be our core market.

We currently have the following seven principal product lines: • seamless OCTG, which are used in oil and gas production; • welded OCTG, which are used in oil and gas production; • seamless line pipes, which are used for in-field short-distance oil and gas transportation; • welded line pipes, which are used for in-field short-distance oil and gas transportation; • large diameter welded pipes, which are used for the transportation of oil and gas, typically over long distances; • seamless industrial pipes, which have various industrial applications in the machine building, chemicals and petrochemicals, power generation, automotive, nuclear and other industries; and • industrial welded pipes, which are used in a wide variety of infrastructure and industrial applications.

As at 31 December 2012, our nominal annual production capacity for steel pipes was approximately 6 million tonnes, including 3 million tonnes of seamless pipes. As a vertically integrated steel pipe producer, we operate our own steel-making facilities and in 2013 plan to complete a new EAF at Tagmet. In the years ended 31 December 2012 and 2011, we produced 2.8 million tonnes of steel, which satisfied more than 95% of our steel billet requirements for seamless pipe production. We primarily use EAFs in connection with our steel-making operations, the principal input for which is metal scrap that we source from a local Russian supplier and from third parties in Romania and the United States. We purchase steel coils and plates for use in our welded pipe production.

We currently supply our products to customers in more than 80 countries. Our principal customers include major Russian oil and gas and service companies, such as Gazprom, Rosneft, TNK BP, Surgutneftegas, Gazprom Neft, LUKOIL, Transneft, Russneft, Tatneft and Bashneft. In the United States, TMK IPSCO benefits from long- standing relationships with a diverse end-user base, including Chevron, ExxonMobil/XTO, Marathon, Anadarko, Devon, Chesapeake Energy, EnCana, EOG Resources, Williams Production and BP. We also work with major multinational oil and gas companies, such as Royal Dutch Shell, Agip, Total and ExxonMobil. We also ship significant amounts of our pipe products to national oil companies, such as ONGC.

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Our business is globally represented in three operating segments consisting of: • Russia: includes plants located in Russia and Oman, a finishing facility in Kazakhstan, and oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates, South Africa and Switzerland, engaged in the sale of pipe production; • Americas: includes plants and sales offices located in the United States and Canada; and • Europe: includes plants in Romania and trading companies located in Germany and Italy, engaged in the sale of pipe production and steel billets.

We have an extensive sales network with trading subsidiaries and representative offices in Russia, the United States, the United Arab Emirates, South Africa, Germany, Italy, Switzerland, China, Singapore, Azerbaijan, Turkmenistan and Kazakhstan.

We have now completed most of the principal projects of our capital expenditure programme, (initiated in 2004) which has served to significantly modernise and increase the efficiency of our Russian seamless and welded pipe operations. We plan to complete the remaining two projects in 2013 and 2014 with the expected completion of a new EAF at Tagmet and the expected completion of a new FQM mill at Seversky. In the United States, our capital expenditure programme has focussed on the development of production facilities for our premium connections business, the replacement of existing equipment and fulfilling compliance requirements at our various U.S. facilities. In addition, in 2011, we opened a research and development centre in Houston, Texas, (the “R&D Centre”) to further extend our research and development capabilities. See “—Capital Expenditure Programme”.

In 2012, we had total consolidated revenue of U.S.$6,687.7 million and profit before tax of U.S.$404.7 million, compared to total consolidated revenue of U.S.$6,753.5 million and profit before tax of U.S.$544.1 million in 2011, and total consolidated revenue of U.S.$5,578.6 million and profit before tax of U.S.$185.2 million in 2010. Our Adjusted EBITDA in 2012 was U.S.$1,039.8 million, compared to U.S.$1,050.1 million and U.S.$942.3 million in 2011 and 2010, respectively (for the definition of Adjusted EBITDA, see “Summary Consolidated Financial Information”).

Competitive Strengths We believe the following competitive strengths distinguish our past operational and financial performance and our future growth prospects from other global steel pipe producers for the oil and gas industry:

Focus on the Oil and Gas Services Industry Our product portfolio is strongly oriented toward higher value-added technologically sophisticated products necessary for the production chain of the global oil and gas industry, including OCTG and premium connections, seamless line pipe, large diameter welded pipe and premium connections. OCTG costs generally represent a higher percentage of total well costs in conventional (vertical) wells in deep formations and a smaller percentage of total well costs in more complex wells. Operators of more complex wells are generally less sensitive to OCTG pricing as OCTG represents a smaller portion of the overall cost structure of more complex wells due to the larger construction costs of such wells. Above ground, a major part of oil and gas pipeline construction costs are associated with the procurement of line pipe.

Currently, global drilling activity is focused on a number of geographic markets where we already produce pipe products, such as Russia, the United States and the Middle East. Some of there operating environments are becoming increasingly complex, leading to more capital intensive drilling activity and related capital expenditure by the oil and gas industry, supplied by a relatively strong outlook for oil prices. Further, offshore drilling and exploration and production in challenging environments requires higher value-added pipes and more steel per well. This is because the length of offshore or onshore unconventional wells tends to be significantly greater than the length of onshore conventional wells. As a leading manufacturer of steel pipes in Russia based on output, we are also benefitting from Russia’s relatively strong economy and high levels of drilling and well-completion activity. We believe that despite deteriorating production conditions in some traditional oil regions, the increasing number of large-scale greenfield projects, investment in oil and gas exploration, production and transportation in Russia will lead to strong growth in the consequential demand for pipes for the oil and gas industry in the coming years.

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We are a leading supplier of OCTG pipes to customers in the U.S. oil and gas market, where we estimate that we had a 10% market share for seamless OCTG pipes in 2012. We expect to benefit from favourable oil prices, an relatively high level of drilling activity in North America and an increase in unconventional drilling activity, especially that used in shale gas developments.

Leading Presence in the Market We are a leader by tubular capacity and our strategic focus is on value-added pipes for the oil and gas industry. During 2012, we estimate that, by sales volume, we had approximately 10% of the global seamless OCTG pipe market, approximately 62% of the Russian seamless OCTG pipe market. There is a relatively small number of large international producers. New entrants to the market would have to contend with the capital intensive nature of production, the high technological sophistication of the production process and products and the requirement for certification by industry bodies and approvals from major international oil and gas companies. In addition, there are presently import tariffs in place. As an incumbent producer, we have been able to secure larger market shares in Russia, Europe and the United States. In Russia, we are significantly larger than our principal competitors in the seamless pipe market and benefit from strong relationships with many of the local principal oil and gas production companies, including Gazprom, Rosneft, TNK-BP, Surgutneftegas, Gazprom Neft, LUKOIL, and Transneft. In the United States, TMK IPSCO benefits from long-standing relationships with a diverse end user base, which includes, among others, Chevron, ExxonMobil/XTO, Marathon, Anadarko, Devon, Chesapeake Energy, EnCana, EOG Resources, Williams Production and BP. We also work with major multinational oil and gas companies, such as Royal Dutch Shell, Agip, Total and ExxonMobil and national oil companies. We also ship significant accounts of our pipe products to national oil companies, such as ONGC.

Strong International and Export Platform We have a strong international presence, with significant production facilities in four key markets — Russia/CIS, Europe, North America and the Middle East. We have approximately 30 production and service sites in Russia, the CIS, Europe, the Middle East and the United States supported by an extensive wholly-owned sales and marketing network covering all key oil and gas markets. We estimate that we are the leading exporter of pipes from Russia in 2012, with an estimated 54% share of all Russian-produced steel pipe exports from Russia and an estimated 73% share of total seamless pipe exports from Russia. Two of our plants, Volzhsky and Tagmet, are strategically located in the south-western part of Russia near the Black Sea and Volga river shipping routes to North America, the Middle East and Southern Europe and transit routes to the Caspian region, which gives them a strong export orientation.

We believe that our global presence, coupled with the completion of key strategic investment projects, provide us with a strong platform from which to enhance our position as a global leader in the OCTG and line pipe segments. We have significant access to the U.S. market, which remains the world’s largest oil and gas pipe market. TMK IPSCO benefits from strong brand recognition in the United States and Canada with a track record across key customer classes. Our production sites are located in close proximity to the main oil and gas production regions and consumers of our products. Our two European plants, TMK-Artrom and TMK-Resita, provide us with a strong base from which to access European markets, particularly following Romania’s entry into the European Union. Our Omani plant, Gulf International Pipe Industry LLC (“GIPI”) is advantageously located in the Gulf region close to some of the largest oil companies and near the deep-water port of the Gulf of Oman, providing us with access to convenient shipping routes to North Africa and Asia.

We believe that our strong international and export platform, together with our diversified product portfolio enables us to mitigate to some extent changes in demand in particular geographic areas, ultimately aimed at achieving some degree of earnings resilience in changing markets.

Low Cost Position In Russia, we are typically able to source the main raw material for our seamless pipe production, steel scrap, at lower costs than on the international markets due to our relationship with a local scrap supplier, favourable location of our assets, as well as due to the sufficient supply of scrap in Russia and constraints on the export of steel scrap from Russia, including export duties. Our plants are also strategically located near important domestic customers and export routes. For example, Seversky and Sinarsky are located in the Urals region near transport routes linking the Russian industrial centres with the oil and gas regions in Western Siberia, which helps to

87 Business reduce our transportation costs. Our long operating history as well as acquisitions in Russia and elsewhere provides us with significant industrial know-how. We maintain high levels of integration of our facilities as a result of our in-house steel production and share benchmarking and best-practices from facility to facility. We have already achieved significant cost benefits from capital expenditures at our plants, which feature technologically sophisticated steel-making, pipe-rolling and pipe-finishing equipment and we believe we have some of the most efficient pipe-making facilities in Russia. We expect to achieve further cost benefits once we complete a new EAF with annual production capacity of 1 million tonnes at Tagmet and a FQM seamless rolling mill with an annual production capacity of 600 thousand tonnes at our Seversky plant, currently expected in 2013 and 2014, respectively.

Vertically Integrated Producer We are a vertically integrated steel pipe producer. In particular, we meet almost all of our own needs for steel billets. Three of our four Russian pipe plants have internal steel manufacturing facilities and produce their own billets used for, amongst other things, seamless pipe-making. While our Sinarsky plant in Russia does not have its own steel-making facilities, it is advantageously situated near the Seversky plant and obtains its steel billets from there). The Koppel facility in Pennsylvania, United States and TMK-Resita in Europe both produce steel and billets. Almost all of their output is consumed by the Ambrige facility in the United States and by TMK- Artrom in Romania, respectively, each of which is located close to the plant which provides them with steel billets. As a result, we are able to achieve cost savings by reducing our need to purchase semi-finished steel products from third party manufacturers. Having internal steel-making capabilities also enables us to have a greater degree of quality control over the steel used in our pipe-making operations and certain production flexibility. Further, the construction of a new EAF steel-making facility at Tagmet, currently to be completed in late 2013, is expected to significantly enhance our steel-making capabilities as well as improve our environmental performance by enabling us to close our remaining open hearth furnaces.

Strong Organic Growth Potential and Well Placed to Benefit from Anticipated Market Recovery We have almost completed our current capital expenditure programme, which has served to enhance significantly our Russian seamless pipe production capabilities and the efficiency of our production processes, and we have integrated the operations of our production subsidiaries into the overall structure of the TMK Group. As a result, we believe that most of the necessary infrastructure is in place to enable us to grow our business on the basis of our existing manufacturing capacity and equipment. See “— Capital Expenditure Programme”.

Strategy Our strategy is to enhance our position as one of the world’s leading producers of steel pipes. Since the foundation of the company we have developed our pipe business through acquisitions and capital expenditure and we believe that our Russian, U.S., Middle Eastern and European assets, as well as the completion of key projects under our capital investment programme, have provided us with a strong platform from which to enhance our position as a global leader in OCTG and line pipe products.

We currently intend to pursue our strategy by enhancing our product mix to improve our margins, including by working more closely with our customers (principally those in the oil and gas industry), on a global basis to deliver higher value-added products and services, including premium connections, by increasing the efficiency of our seamless pipe production, by building on our global presence and recognised brands (such as by expanding the export of Russian-produced pipe to the United States and the Middle East) and by exercising greater discipline over our operating costs. We also intend to enhance our research and development capabilities with the aim of improving the technological sophistication of our products, improving our manufacturing efficiency and decreasing our production costs. The construction of the R&D Centre enhanced our scientific and technological cooperation with RosNITI, a Russian technological institute, on a range of new product and other technological developments and is evidence of our research and development capabilities. We also currently plan to improve the sharing of best practices across the TMK Group, with a particular focus on sharing our existing production and business practices and know-how.

We plan to increase our global footprint for pipe products in the major oil and gas markets where we already have local production facilities. These markets are in North America, Russia and Caspian, Latin America and Middle East. We also currently intend to continue to focus principally on higher value-added OCTG products

88 Business with an emphasis on seamless OCTG production and their export from our Russian plants, including the export of seamless OCTG to the United States, and the development of our welded OCTG business in North America, where there is currently strong demand for welded pipes among oil and gas producers. As part of this strategy, we plan to further develop our premium connection business by further developing our premium connection product range and improving our marketing, particularly through TMK IPSCO and its ULTRA premium connections products. In 2012, TMK IPSCO opened a new ULTRA premium connections facility in Edmonton, Canada. The close proximity of this facility to one of the most significant oil development regions in Canada, the Canadian oil sands, is expected to improve our sales of tubular goods and related services in that region. For our Russian welded pipe business, we currently intend to keep focusing on large diameter welded pipes for the oil and gas industry. We also plan to develop our Russian premium product business further, given the frequently complicated conditions for oil extraction in Russia. In 2011, we commissioned a new premium product line at the Orsky Machine Building Plant, which also capable of producing ULTRA connections.

We also plan to pursue growth through the effective integration of our recent acquisitions as well as by leveraging the capacity enhancements and modernisation of our production processes resulting from our capital expenditure programme. The capital expenditure programme is currently expected to be completed with the construction of a new EAF at Tagmet in 2013 and a continuous FQM rolling mill at Seversky in 2014. We expect these projects to further enhance our steel-making and seamless pipe production capacities and efficiency in Russia.

Our strategy to enhance our position as one of the world’s leading producers of steel pipes with the acquisition over several years of assets and subsidiaries in the United States, Middle East, Europe, Russia and the CIS has: • provided us with a strong production presence in major oil and gas regions; • represented a strategic fit with our existing position in OCTG pipes; • enhanced our global profile; • broadened our product mix and provided us with complimentary higher value-added products to offer to the oil and gas industry; and • provided us with product and geographical diversification.

Commercial and Manufacturing Synergies We plan to continue to focus on commercial and manufacturing synergies especially between our Russian and American divisions. North America is the largest oil and gas market in the world, yet lacks sufficient local pipe production capacity and, as a result, currently imports approximately half of its demand for steel pipes. As a result of the TMK IPSCO acquisition several years ago, we significantly increased our exposure to the U.S. market and increased our export shipments of pipes used in the oil and gas industry from our Russian and European plants whilst also expanding TMK IPSCO’s product range. In addition, TMK IPSCO’s ULTRA products strongly augment our premium connection product offering.

The construction of the R&D Centre in Houston, which was completed in 2011, has also improved the sharing of existing technological and scientific know-how and business practices between our U.S. and Russian operations and also facilitated the sharing of technology and know-how to the benefit of our European and recently acquired Middle Eastern operations.

We are also continuing to implement and improve our application of the “Six Sigma” process improvement strategy which is widely used in the United States. This has helped us to increase our operational efficiency at our plants in Russia and Europe.

In the Middle East, our acquisition in 2012 of GIPI in Oman as well as establishing a joint venture in Abu Dhabi, in the UAE, have demonstrated our plan to intensify our activities in the Middle East in relation to production, technology and business, enhancing operations in the region to the existing sales organisation.

Seamless Pipes We plan to maintain and strengthen our position as the leading supplier of OCTG and line pipe to the oil and gas industry in Russia and the CIS, and aim to become a leading supplier of OCTG in the United States, the Middle

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East and globally. We aim to become a leading supplier of OCTG and line pipes to the global oil and gas industry by enhancing our product mix and combining our production in Russia with a global network of strategically located distribution, service, processing and finishing facilities. We aim to offer a full range of seamless OCTG pipes enhanced by innovative solutions and supply chain management for oil and gas customers. We intend to accomplish these objectives by: • Enhancing our product mix of pipes for the oil and gas industry to match global leaders. One of our strategic priorities is enhancing the range of technologically sophisticated higher-margin OCTG and line pipe products we offer to the oil and gas industry. We plan to continue to introduce new high performance pipes that are specifically designed for use in difficult high pressure and high temperature drilling environments, such as deepwater offshore wells and in arctic drilling, including vacuum insulated tubing and alloyed steel OCTG and line pipes with higher precision, high anti-corrosion characteristics and greater resistance to low temperatures. TMK-Premium Service currently develops and promotes all of our Russian existing and new premium connection products for global markets. We aim to further leverage our well- established ULTRA premium connection business in the United States to strengthen our global premium connections business. TMK-Premium Service and our U.S. subsidiaries will continue to develop intellectual property for premium connections, perform product testing and arrange for certification in accordance with international standards, including ISO 13679 CAL IV. We believe that TMK-Premium Service and our ULTRA developments are enabling us to improve the quality of our higher value-added products and helping to make us a leading supplier of a full range of premium-class threaded connections and complex OCTG products in conjunction with the provision of related services in Russia, the CIS and elsewhere. As an integral part of expanding our OCTG business, we intend to further develop our finishing capabilities and downstream services, such as threading repair and maintenance and sales of pipe accessories. We plan to strengthen our margins by enhancing our product mix and the value-added features of our products for oil and gas customers. • Strengthening our position as a global leader within the OCTG and line pipe markets. We intend to strengthen our leading position in the OCTG and line pipe segments by expanding our relationship with existing customers and by developing our downstream services and technical components business to complement our existing products. In major international markets, we plan to expand by progressively developing a global network of commercial and distribution channels. In particular, we plan to build upon our position as a leading producer of oil and gas pipe products in North America, Russia and the Middle East. In 2012, we estimate TMK Group had approximately a 10% share of the global seamless OCTG pipe market, and a 62% share of the Russian OCTG pipe market. We also seek to increase the number of certifications we have received for our products and extend our vendor approvals from major global oil and gas companies as a means of increasing our acceptance in the global market. We believe that these key initiatives will help us to continue to develop an international brand. • Leveraging the benefits of our capital expenditure programme to date. In recent years, we have continued to implement a significant capital expenditure programme to enhance our production capabilities. See “— Capital Expenditures”. The remaining key elements of this programme include the construction of a new EAF at Tagemet with an annual capacity of 1 million tonnes, to replace the existing open hearth furnance, and a FQM continuous seamless rolling mill with an annual capacity of 600 thousand tonnes at Seversky, expected to be completed in 2013 and 2014, respectively. We plan to continue to focus on obtaining the maximum benefits from the capital expenditure programme, which has been targeted specifically at enhancing the capacity and product range of our seamless OCTG and line pipes and has already significantly enhanced our production capabilities and cost effectiveness at each stage of the integrated seamless pipe production process. • Focusing on higher margin products within the industrial seamless pipe sector. To diversify our business and improve the utilisation of our existing production capacity, we intend to continue to focus on certain higher margin segments within the industrial seamless pipe sector, such as boiler and heat exchanger pipes for the power generation industry and pipe products for the oil refining and petrochemical sectors. We also intend to expand our capabilities throughout the value chain, concentrating on pipe accessories. We plan to continue to use TMK-Artrom, which was established as a supplier of industrial seamless pipes for major automotive and machine building industry customers, as a platform to expand our presence in the European industrial seamless pipe market.

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Welded Pipes TMK IPSCO is a major producer of welded OCTG pipes in the United States, where welded pipes represent a significant portion of the OCTG market and where welded OCTG pipes can be used interchangeably with seamless products in most conventional operations. Accordingly, in the United States, we plan to continue to focus on the relatively higher margin welded OCTG pipe market, as well as on the seamless pipe market. In Russia, in this segment, we expect to focus increasingly on sales of large diameter pipes to oil and gas companies and oil and gas pipeline projects in Russia and the CIS. Our seamless OCTG pipes are already well-known in Middle Eastern market, and following the acquisition of GIPI, we plan to significantly enhance our presence in that market with welded OCTG and line pipe produced in Oman.

In Russia, we also aim to maintain our long-term supply and cooperation arrangements with key customers such as Gazprom and Transneft. We will continue to monitor closely developments in relation to ongoing and proposed large-scale inter-regional oil and gas transportation projects in Russia and the CIS. We also intend to become actively involved at various stages of such pipeline projects, from the initial planning stage to the development and implementation stages to enhance our opportunities to serve such projects with pipe supplies.

Corporate Organisation We conduct all of our production, sales, marketing and other operations through our subsidiaries. Our business is globally represented in three operating segments consisting of: • Russia: plants located in the Russian Federation and Oman, a finishing facility in Kazakhstan, and oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates, South Africa and Switzerland, engaged in the sale of pipe production; • Americas: plants and sales offices located in the United States and Canada; and • Europe: plants and trading companies located in Romania, Germany and Italy, engaged in the sale of pipe production and steel billets.

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The following chart presents the main production, trading and services companies within our group, including our effective ownership interest in these companies as of 31 December 2012:

OAO TMK

Production Oil and Gas Sales and Premium Research and Operations Services Marketing Connections Development

Volzhsky TMK Oilfield TMK Trade House TMK-Premium RosNITI 100% Services 100% 99.99% Service 97.36% 100% Seversky Orsky Machine TMK North IPSCO 96.33%(6) Building(3) America 100% Tubulars(1)(4) 100% Sinarksy Truboplast TMK IPSCO TMK Premium 97.28%(6) 100% Canada 100% 100% Tagmet 96.38%

TMK-CPW Pipe Maintenance TMK Europe ULTRA Premium 51% Department 100% 100% Oilfield Services 100% TMK-INOX(5) Central Pipe Yard TMK Global 51% 100% 100% TMK-Artrom TMK Italia 92.73% 100%

TMK-Resita TMK Middle East 99.99% 100% TMK-Kaztubprom TMK-Kazakhstan 100% 100%

IPSCO Tubulars(1)(2) TMK Africa 100% Tubulars 100%

GIPI 55% Notes: (1) IPSCO Tubulars and its subsidiaries comprise TMK IPSCO, the U.S. division of OAO TMK. (2) Ambridge, Blytheville, Camanche, Geneva, Wilder, Baytown, Koppel and Catoosa facilities. (3) TMK owns 100% of the ordinary voting shares which comprise 75% of share capital. The Russian government owns a 25% interest consisting of preference shares, which are non-voting. (4) Houston, Odessa, Edmonton and Brookfield facilities. (5) OAO TMK holds a 0.1% interest in TMK-INOX and Sinarsky holds a 50.9% interest in TMK-INOX. (6) Our subsidiary, Rockarrow Investments Limited, holds a 0.95% interest in Seversky and a 2.3% interest in Sinarksy. Production Operations We conduct all of our production operations at approximately 30 production subsidiaries and one strategic venture located in Russia, the United States, Romania, Kazakhstan, Oman and UAE.

Russia • Volzhsky, which produces both steel and seamless and welded pipes, is located in the town of Volzhsky in the Volgograd region;

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• Seversky, which produces both steel and seamless and welded pipes, is located in the town of Polevskoy in the Sverdlovsk region; • Sinarsky, which produces seamless pipes, is located in the town of Kamensk-Uralsky in the Sverdlovsk region; • Tagmet, which produces both steel and seamless and welded pipes, is located in the town of Taganrog in the Rostov region near the Azov Sea; • TMK-CPW, which produces welded oil and gas pipes and is located in Polevskoy, in the Sverdlovsk region; and • TMK-INOX established in December 2009, to further develop the production and sales of stainless steel pipes by TMK-INOX and Volzhsky.

United States In the United States and Canada we operate through several 100% owned subsidiaries, which include 12 production facilities: • Ambridge Facility, which produces seamless pipes and carries out heat treatment and non-destructive testing (“NDT”) inspection and is located in Pennsylvania, United States; • Blytheville Facility, which produces welded pipes and carries out heat treatment, threading and NDT inspection and is located in Arkansas, United States; • Camanche Facility, which produces welded pipes and carries out threading and NDT inspection and is located in Iowa, United States; • Geneva Facility, which produces welded HSS and is located in Nebraska, United States; • Wilder Facility, which produces welded pipes, carries out threading and NDT inspection and is located in Kentucky, United States; • Baytown Facility, which carries out heat treatment, threading and NDT inspection and is located in Texas, United States; • Koppel Facility, which produces steel billets, carries out heat treatment and NDT inspection and is located in Pennsylvania, United States; • Catoosa Facility, which carries out heat treatment, threading and NDT inspection and is located in Oklahoma, United States; • Houston Facility, which carries out premium threading and is located in Texas, United States; • Odessa Facility, which carries out premium threading and is located in Texas, United States; • Brookfield Facility, which carries out premium threading and is located in Ohio, United States; and • Edmonton Facility, which carries out premium threading, is located in Edmonton, Canada.

Europe • TMK-Artrom, which produces seamless pipes, is located in Slatina, in southern Romania; and • TMK-Resita, which produces steel billets, is located in Resita, in south-western Romania.

Kazakhstan • TMK-Kaztrubprom, which produces premium threading and finishing of tubing and casing pipes used in the oil and gas industry, is located in the town of Uralsk in Kazakhstan.

Middle East • GIPI, which produces welded pipes, is located in Sohar, in Oman; and • TMK Premium, which carries out threading and service operations, is located in Abu Dhabi, the United Arab Emirates.

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Oil and Gas Services Our oil and gas services division is comprised of: • TMK Oilfield Services, which is our management company for our oil and gas services division; • Orsky Machine Building Plant, which produces joints for drill pipes and couplings for tubing and casing pipes, carries out premium threading, as well as producing pump barrels and other equipment for the oil and gas and other industries, is located in Orsk, in the Urals region; • Truboplast, which produces protective coatings for steel pipes used in the oil and gas industry, is located in Yekaterinburg, in the Urals region; • Pipe Maintenance Department, which provides anti-corrosion coating and pipe repair and field services and produces threading and finishing tubing pipes, is located in the Khanty-Mansi autonomous area in the Tyumen region; and • Central Pipe Yard, which provides pipe repair services and produces threading and finishing tubing pipes, is located in Buzuluk in the Orenburg region.

Premium Connections Our premium connections activity is carried out through: • TMK-Premium Service, which develops premium threaded connections and high-technology oil and gas threaded pipes, and provides product support services in Russia, CIS and internationally, is located in Moscow; and, in particular, the following TMK facilities form part of our premium connections business in Russia and Kazakhstan: Volzhsky, located in the town of Volzhsky in the Volgograd region; Seversky, located in the town of Polevskoy in the Sverdlovsk region; Sinarsky, located in the town of Kamensk-Uralsky in the Sverdlovsk region; Tagmet, located in the town of Taganrog in the Rostov region near the Azov Sea; TMK-Kaztrubprom, located in the town of Uralsk in Kazakhstan; and Orsky Machine Building Plant, located in Orsk, in the Urals region. • ULTRA Premium Oilfield Services, which manufactures premium connections and oilfield accessories and provides services at several plants in the United States and Canada. We also produce and repair fishing tools and accessories for oilfields and have quick turnaround capabilities at our TMK IPSCO facilities in Houston, Odessa and Brookfield. In addition, we have recently started to develop the production of pipes with premium connections, including ULTRA connections, at the Orsky Machine Building Plant in Russia. In particular, the following TMK IPSCO facilities form part of our premium connections business:

Houston Facility, which carries out premium threading and is located in Texas, United States; Odessa Facility, which carries out premium threading and is located in Texas, United States; Brookfield Facility, which carries out premium threading and is located in Ohio, United State; Edmonton Facility, which carries out premium threading and is located in Edmonton, Canada; Catoosa Facility which carries out premium threading and is located in Oklahoma, United States; and

Blytheville Facility which carries out premium threading and is located in Arkansas, United States.

Sales and Marketing Our sales and marketing activities are carried out through:

Russia • TMK Trade House, incorporated in Russia, which is primarily responsible for sales of our products in Russia, other CIS markets and Asia. TMK Trade House has branches or representative offices in several countries including Azerbaijan, Turkmenistan, China and Singapore.

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United States and Canada • TMK IPSCO, which has sales offices located in the United States; and • TMK IPSCO Canada, which has a sales office in Calgary, Alberta, Canada, which functions as a head office for sales in Canada and supports conventional and unconventional hydrocarbon exploration and development programmes in Canada.

Europe, the CIS, Middle East and Africa • TMK Europe, incorporated in Germany, which currently distributes our products in northern Europe; • TMK Italia, incorporated in Italy, which distributes our products in southern Europe; • TMK Middle East, incorporated in United Arab Emirates, which is primarily responsible for distribution of our pipe products in the Middle East; • TMK-Kazakhstan, incorporated in Kazakhstan, which currently distributes our products in Kazakhstan; and • TMK Global, incorporated in Switzerland, and TMK Africa Tubulars, incorporated in Cape Town, South Africa, which are primarily responsible for the distribution of our pipe products to certain customers outside Europe, Russia and the CIS;

Our trading houses serve purely to facilitate our sales functions and do not serve as profit centres.

Research and Development In Russia, our research and development activities are carried out through RosNITI, which we believe is Russia’s largest research institute devoted to the scientific and technological development of the Russian pipe industry and is located in Chelyabinsk. We authorise RosNITI to evaluate the quality of inputs used in pipe production, analyse product performance and audit the quality systems of our suppliers.

In the United States, our research and development activities are carried out at the R&D Centre located in Houston, Texas. The R&D Centre was commissioned in 2011 and is the centre of TMK IPSCO’s innovation initiatives, including new product design and development, experimental and validation testing, and advanced metallurgical research. As drilling technology continues to improve, we believe that the R&D Centre will become key to developing the pipe products and connections that will be required to meet more stringent strength and corrosion requirements.

We intend to enhance our research and development capabilities with the aim of improving the technological sophistication of our products, improving our manufacturing efficiency and decreasing our production costs.

Corporate History OAO TMK was founded in 2001. Our legal and commercial name is OAO “TMK”. OAO TMK was originally incorporated as a closed joint stock company under the name ZAO TMK. ZAO TMK was acquired from MDM Industrial Group in September 2002 together with controlling interests in Seversky, Volzhsky and TMK Trade House to entities controlled by Mr. Pumpyanskiy, the General Director of ZAO TMK at that time. In addition, entities controlled by Mr. Pumpyanskiy acquired a controlling interest in Sinarsky during 2001 and 2002. In February 2004, Mr. Pumpyanskiy entered into an agreement with Dalecone Limited, a Cypriot company affiliated with the MDM Industrial Group, according to which Dalecone Limited contributed a 94.59% interest in Tagmet to ZAO TMK. As a result, TMK began consolidating Tagmet in its financial statements with effect from 26 February, 2004. In 2005 all the plants were consolidated by TMK Steel, which is 100% beneficially owned by Mr. Pumpyanskiy. In October 2006, TMK Steel conducted a public offering of 180 million of our ordinary shares in the form of ordinary shares and global depositary receipts for the purpose of repaying a loan that we had provided to TMK Steel; we, in turn, used the proceeds of the loan repayment to fund our strategic capital expenditure programme, to repay certain indebtedness and for general corporate purposes.

As at 4 March 2013, our shareholders were TMK Steel (which held, together with affiliated entities, 71.68% of our shares), subsidiaries of TMK (which held, together with affiliated entities, 0.114% of our share capital), TMK Bonds S.A. (which held 7.63% of our share capital) and a 20.58% free float.

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We acquired an initial 50% interest in TMK Italia in 2000 and the remaining 50% interest in 2006. In 2005, 2006, we acquired a 100% interest in TMK Global and in 2006 also acquired a 100% interest in TMK Europe.

In 2007 we acquired our oil and gas services plants, which later formed our oil and gas service division, including a 75% interest in the Orsky Machine Building Plant for U.S.$45.5 million from Sinara Group S.A., an entity under common control with us. The remaining 25% is owned by the Russian government. The Orsky Machine Building Plant specialises in the production of tool joints, which are critical components for drill pipes, as well as pump barrels, and other equipment for the oil and gas and other industries. We also acquired a 100% equity interest in Truboplast. Truboplast is one of Russia’s largest producers of protective coatings for steel pipes used in the oil and gas industry. We also acquired certain service assets of TNK-BP including OOO “Central PipeYard” and ZAO “Pipe Maintenance Department”. Control over the legal entities holding the service assets passed to us at the end of December 2007.

In June 2008, we acquired 100% of the issued and outstanding shares of IPSCO Tubulars and 51% of the issued and outstanding shares of NS Group, together with an option to acquire the remaining 49% ownership interest, from Evraz. We exercised the call option in January 2009. In December 2009, we contributed our 51% interest in NS Group to IPSCO Tubulars and, as a result, currently hold a 100% direct interest in IPSCO Tubulars and a 100% indirect interest in TMK NSG.

In the last quarter of 2012, we acquired a 55% equity interest in GIPI in Oman, with a plant that produces welded OCTG and line pipe for the oil and gas industry. Currently, GIPI supplies pipes to major oil and gas companies in the Gulf Cooperation Council (“GCC”) countries.

Our registered office, which is also our principal office, is located at 40 Pokrovka Street, building 2A, 105062, Moscow, Russian Federation. Our main telephone at our principal office is +7 495 775 7600.

Products and Services We produce both seamless and welded pipes. Our main focus is the production of typically higher margin seamless and welded OCTG pipes, including premium connections, developed both in Russia and the United States. We have been concentrating on developing our large diameter welded pipe businesses, demand for which is relatively high in the oil and gas industry. We believe that co-operation with the oil and gas industry, where demand for our products is high, will lead to better growth opportunities. We also produce higher margin industrial seamless pipes which are widely used in the nuclear energy and chemical industries. We also have capacity to produce welded industrial pipes, although we do not consider the production of these to be our core market. In the years ended 31 December 2012, 2011 and 2010, for seamless pipes our gross margins were 26%, 28% and 26%, respectively, whereas in the years ended 31 December 2012, 2011 and 2010, for welded pipes our gross margins were 15%, 14% and 20%, respectively.

One of the key differentiating factors in the modern pipe products market is the satisfaction of a customer’s requirements with respect to product specifications and quality. This is particularly true in respect of products for the oil and gas industry, which are often used in severe climate conditions, such as the northern regions of Russia and on ocean shelves. These pipes must meet both international quality standards as well as the specific requirements of each individual customer. Pipes for the oil and gas industry are subject to strict requirements with respect to functional reliability and structural strength and need to be adjustable to particular petroleum chemical composition and temperature conditions. We believe that the extensive range of products we currently offer and our efforts to continually improve our existing products and develop new products enable us to satisfy the high demands of our customers in an efficient manner.

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The table below shows the sales volumes of our principal pipe products for the periods indicated.

Year ended Year ended 31 December 31 December Percentage Percentage 2012 2011 Change change 2011 2010 Change change (in thousand tonnes, except percentages) Russia ...... 3,158 3,115 43 1% 3,115 2,989 126 4% Americas ...... 903 892 11 1% 892 804 89 11% Europe ...... 177 178 (1) (1)% 178 169 9 5% Total pipes ...... 4,238 4,185 53 1% 4,185 3,962 223 6%

Our total pipe sales volumes remained relatively constant in 2012 as compared to 2011. Sales volume of seamless pipe increased by 7%, while welded pipe sales decreased by 5%. In seamless pipe sales, seamless OCTG demonstrated the most significant growth. The decrease in welded pipe sales was mostly attributable to decrease in demand for large diameter pipes after completion of major pipeline projects and the postponement of certain new projects by customers.

The increase in overall sales volumes of seamless pipes in 2012 to 2,494 thousand tonnes from 2,342 thousand tonnes was attributable to higher demand from Russian oil and gas companies. Sales volumes of welded pipes decreased from 1,844 thousand tonnes in 2011 to 1,743 thousand tonnes in 2012 as a result of a decrease in demand for large diameter pipe after the completion of major pipline projects and postponement of new projects.

Demand for premium threaded connections continued to increase throughout 2012 in both the United States and Russia. During 2012, we shipped more than 426,000 ULTRA premium connection joints, representing a 21% increase as compared to 2011. In the United States, the main driver behind premium connection consumption remains the active development of unconventional fields and horizontal drilling activity. In Russia we sold 140 thousand tonnes of premium connections in 2012, which represented 30% growth as compared to 2011. In 2011, we sold 108 thousand tonnes of premium connections compared to 97 thousand tonnes in 2010, which represented 11% growth as compared to 2010. According to our estimates, our Russian market share of pipes with premium connections was 58% in 2012. Until August 2010, only imported pipes were used in Russian offshore oil and gas production. At the end of the second quarter of 2010, our premium threaded gas-tight casing connection, designed for horizontal and directional wells in oil, gas and gas-condensate fields, was successfully intended at in the Yury Korchagin field in the Caspian Sea. Currently, we supply pipes with premium connections to various customers globally, including for projects in the Gulf of Mexico.

Russia Our pipe sales volumes in our Russian segment remained relatively constant in 2012 as compared to 2011. Seamless pipe sales volumes increased in 2012 by 9%, while welded pipe sales volumes decreased by 10%. The most significant growth in seamless pipe sales was in 2012 demonstrated by seamless OCTG due to an increase in demand from oil and gas companies. The decrease in welded pipe sales volumes in 2012 was mostly attributable to a decrease in the demand for large diameter pipes after completion of major pipeline projects and the postponement of certain new projects. In Russia, the emphasis has been on the development of East Siberian and offshore fields.

Americas Our sales volumes in the Americas segment remained relatively constant in 2012 as compared to 2011. Sales volumes of welded pipes increased by 4%, while seamless pipe sales decreased by 5%. For several years the American energy market has experienced significant changes caused by the shale gas revolution. Exploration of shale gas led to a considerable decrease of gas prices in the market and resulted in the majority of drilling shifting from gas to oil. At the end of 2012 gas drilling represented 24% of total rigs in the U.S., while oil drilling represented 75% of total rigs, according to Baker Hughes. In addition to low gas prices caused by shale exploration, relatively high and stable oil prices made the development of oil shales and some limited activity in the Gulf of Mexico more attractive. Both gas and oil shale exploration require horizontal drilling. As a result, horizontal drilling now accounts for a much larger percentage of the total rigs in the U.S.; 63% at the end of 2012, according to Baker Hughes. This change in the mix has major consequences; the consumption of OCTG tubes for a rig assigned to unconventional drilling is several times higher than for conventional vertical drilling.

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Europe Our sales volumes in the European segment remained relatively constant in 2012 as compared to 2011.

Seamless pipes Based on our internal estimates, we believe that we are the leading producer, by volume, of seamless pipes in Russia and one of the three largest seamless pipe producers in the world, with an approximately 6% worldwide market share of seamless pipe in 2012 and 2011. We produce seamless pipes with diameters from 1.5 mm to 426 mm and wall thickness from 0.12 mm to 55 mm. We sell our seamless products principally to the oil and gas, machine-building, chemicals and petrochemicals, power generation, automotive and aviation and aerospace industries.

Our principal seamless pipe products consist of:

Seamless OCTG which encompasses drill pipes, casing pipes and tubing pipes. Drill pipe is used to drill wells. Casing pipe is used for drilling and well construction and is connected by standard or premium connections. Casing pipe is also used to protect water bearing formations during the drilling of a well; production casing forms the structural liner in oil and natural gas wells to provide support and prevent collapse during drilling operations. It is also the pipe cemented in the well to seal off formation fluids and to keep the hole from caving in. Production tubing is placed within the casing and is used to convey oil and natural gas to the surface, and may be replaced many times during the life of a producing well.

Seamless line pipes which are used to construct in-field oil and gas pipelines and to transport crude oil, oil products and natural gas from well heads to primary refineries, storage tanks and loading and distribution centres.

Industrial seamless pipes which are used for various industrial applications, including in machinery, chemicals and petrochemicals applications and in the power generation and automotive industries, and are used for the construction of pipelines that require high performance pipes for the transportation of steam, water, gas and oxygen under high pressure.

Welded pipes We produce welded pipes with diameters from 8 mm to 1,420 mm and wall thicknesses from 0.5 mm to 42 mm.

Our principal welded pipe products consist of:

Large diameter welded pipes which are used to construct main oil and gas pipelines for long distance transmission and to transport crude oil and natural gas from primary collectors to refineries, storage tanks and loading and distribution centres. We are one of the suppliers of 530-1,420 mm diameter pipes to Gazprom and of 530-1,220 mm diameter pipes to Transneft, LUKOIL and other customers. We make both longitudinal and spiral welded pipes. Longitudinal welded pipes are made from steel plate with only one weld seam joining the two edges of the rolled plate. Spiral welded pipes are manufactured through the helical moulding of steel coils. In contrast to longitudinal welded pipe production, in which each pipe diameter requires an exact plate width, various diameters of spiral welded pipe can be manufactured from a single steel coil width. Spiral weld construction is more flexible as it allows large diameter pipe to be produced from coil and thinner flat steel products.

Welded OCTG which encompasses surface casing and production tubing pipes. Casing pipe is used for drilling and well construction and is connected by standard or premium connections. Casing pipes are used to protect water bearing formations during the drilling of a well; production casing forms the structural liner in oil and natural gas wells to provide support and to prevent collapse during drilling operations. It is the pipe cemented in the well to seal off formation fluids and to keep the hole from caving in. Tubing is placed within the casing and is used to convey oil and natural gas to the surface and may be replaced many times during the life of a producing well.

Welded Line pipes which are used to construct main oil and gas pipelines and to transport crude oil, oil products and natural gas to refineries, storage tanks and loading and distribution centres.

Industrial welded pipes which are used by the general industry for various applications, including utilities and construction. Industrial welded pipes are largely commodity products.

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Premium Connections Standard or premium connections are used to join two OCTG pipes. Premium connections are used in wells with challenging environments.

Premium connections consist of premium-class threaded pipe connections designed to withstand difficult operating conditions by ensuring high seal ability in vertical, deviated and horizontal wells. Unlike standard pipe connections, premium connections feature high technology and innovation components and the performance of such connections is certified by national and international testing laboratories. Our products include threaded and coupled premium connections designed for special applications; integral joint connections for thin-wall pipes and integral joint connections for thick-wall pipes. Our premium connections consist of Russian-developed premium connections threaded at our Russian plants and a range of U.S. premium connections under the ULTRA brand, developed by TMK IPSCO in 2011. The premium connections under the ULTRA brand can also be produced at the Orsky Machine Building Plant in Russia.

TMK-Premium Service, a company we established in 2007 to enhance our presence on the Russian and global premium connections market, develops a range of patented connections through our own research and development efforts. TMK-Premium Service also offers comprehensive services for the construction, repair and efficient operation of wells, including delivery of premium threaded tubing, casing and drill piping, provision of equipment and accessories with premium connections for the construction of wells, logistical support and engineering and process consulting. ULTRA connections, developed by TMK IPSCO, are proprietary premium connections which are widely used by North American oil and gas companies. ULTRA connections have been used in natural gas shale exploration/development activity since July 2004 and as at 2012 are one of the most widely used premium connections in U.S. natural gas shale exploration/development activity.

In Russia, we produce premium threaded pipes at our Tagmet, Volzhsky, Seversky, Sinarsky, the Orsky Machine Building Plant and at Kaztrubprom in Kazakhstan. Also, we thread ULTRA connections at the Orsky Machine Building Plant, while in the United States and Canada, we produce premium ULTRA connections at our TMK IPSCO facilities in Odessa and Houston, Texas and at our Brookfield facility in Ohio, our Blytheville facility in Arkansas, our Catoosa facility in Oklahoma and Edmonton, Canada. We also license our premium connections technology to both Russian and foreign partners.

Steel Billets Steel billets are square or round semi-finished steel products used in the production of seamless pipes as well as other finished steel products. Billets are delivered in bars of various diameters/sizes and cut into pieces of various lengths, corresponding to the length of the desired finished pipe.

We produced more than 95% of the steel that we use for our seamless pipe production in the years ended 31 December 2012, 2011 and 2010. We produced in aggregate 2.8 million tonnes of steel in the years ended 31 December 2012 and 2011 and 2.6 million tonnes of steel in the year ended 31 December 2010.

Oilfield Services Our oilfield services include the provision of comprehensive solutions for the construction, repair and efficient operation of wells, including, among other things, the manufacture and delivery of premium threaded pipes and connections for the oil and gas industry, logistics, repair and process-consulting services and are principally offered through our TMK Oilfield Services division, which we established in March 2008. TMK Oilfield Services is comprised of the Orsky Machine Building Plant, which produces tool joints for drill pipes, couplings for tubing and casing pipes, carries out premium threading (including ULTRA connections), drilling accessories, gas cylinders and hydro cylinders, Truboplast, which produces protective coatings for steel pipes used in the oil and gas industry, and Pipe Maintenance Department and Central Pipe Yard, which specialise in the repair of tubing pipes, piston rods and pipe coatings, and provides transportation services.

Production Processes We make steel from raw materials for our seamless pipe production using two principal techniques.

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Steel-Making Electric arc furnaces EAFs produce steel by applying heat generated by electricity arcing between graphite electrodes and a metal bath. The steps in the EAF production process consist of charging, melting, oxidising or purifying and deoxidising or refining. The charge includes scrap, iron ore, fluxes (lime and fluorspar), a reducing agent (carbon) and ferroalloys. Temperatures in the EAF may reach as high as 3,500oC in order to melt alloying components that are otherwise difficult to melt. Lime, fluorspar and other materials are used to form slag, which absorbs impurities during the steel-making process. We use EAFs to produce steel at Volzhsky, Seversky, TMK- Resita and Koppel (TMK IPSCO). Among other advantages, EAFs melt steel significantly faster than open hearth furnaces, provide a greater degree of quality of and production cost control over the steel used in pipe- making operations and release fewer emissions than open hearth furnaces.

Open hearth process Open hearth furnaces produce steel by melting scrap, pig iron and iron ore by means of a direct flame. The furnace is charged with scrap, flux, pig iron and iron ore prior to heating. Open hearth furnaces burn fuel, in the form of gas, coal or oil, to provide the heat necessary to melt the raw materials. During melting, carbon and other impurities (such as silicon and manganese) are oxidised. Open hearth furnaces are disadvantaged by relatively high operating costs due to high levels of energy consumption, slow melting processes and relatively low productivity, and they also emit relatively high volumes of pollutants. Open hearth furnaces are also less well- suited for continuous casting than EAFs, as a result of which open hearth furnaces generally operate in conjunction with the less efficient ingot casting process. For a number of years, the general trend worldwide has been for open hearth furnaces to be replaced by more efficient and environmentally cleaner oxygen converters and EAFs.

The last open hearth furnace in the TMK Group currently operates at Tagmet and is currently expected to cease to operate in 2013 or 2014. See “— Capital Expenditure Programme”.

Steel Casting The steel produced from an open hearth furnace or EAF is then cast in order to give it a basic shape that can be used for further processing.

We use continuous casting process, in which molten steel is cast directly into semi-finished products, such as the billets that we use for our pipe-rolling operations. Continuous casting equipment produces a strand of moulded metal that is continuously withdrawn from the furnace at a set casting speed. The metal strand cools and solidifies and is then cut into billets and discharged for intermediate storage or hot charged for finished rolling. See “— Capital Expenditure Programme”.

Seamless Pipes Seamless pipe production involves the piercing, elongation and reduction of steel billets to obtain the required length and diameter for the finished pipe. The billet is cut to the required length and heated to temperatures of up to 1300o C. The heated billet is then rolled under high pressure. The compressive stresses cause the billet to stretch and a hole to form in its centre. A bullet shaped piercer point is pushed through the middle of the billet as it is being rolled in the piercing mill to create a uniform hollow in the billet. The size of the piercing point and the position of the rolls determine the hollow billet’s outside diameter and the wall thickness.

The hollow billet then undergoes additional rolling processes that reduce the diameter and wall thickness of the billet. We use six principal types of pipe-rolling technologies in our plants: continuous rolling, Assel rolling, pilger rolling, tandem rolling, pipe extrusion and cross-piercing elongation. In a continuous rolling mill, the mandrel, or metal rod, that pierced the billet is retained inside the billet and the billet is passed without reheating through a series of seven to nine rolling stands. In an Assel mill, the hollow billet is rolled using three tapered rolls arranged symmetrically around the billet. In a pilger mill, the hollow billet is rolled between two rolls which move back and forth as the mandrel rotates within the hollow billet. In a tandem mill two rolling stands are placed successively. We utilise longitudinal rolling in our tandem mill at Sinarsky, in which a hollow billet passes through two rolling stands with short plugs to reduce the size of the billet. In an extrusion mill, the heated

100 Business billet is pierced through the centre by a mandrel driven by a hydraulic ram, which extrudes the material under the pressure exerted by the ram to form the pipe. The material remaining in the extruder is subsequently cut from the pipe as recyclable waste. Cross-piercing elongation includes several consecutive processes including piercing, elongation, rolling and reeling.

We use continuous rolling mills, pilger mills and tandem mills primarily to manufacture OCTG and line pipe products; Assel mills primarily to produce industrial seamless pipes for the machine building industry; and extrusion mills primarily to produce industrial seamless pipes using high-grade steel for the chemical and petrochemical, power generation and aerospace industries. While pilger mills are effective for rolling thick walled pipes, and can be reconfigured quickly to produce pipes of different measurements. Continuous rolling mills are significantly faster and less wasteful than pilger mills and produce higher quality pipes. Currently, the only pilger mill operates at Seversky and in early 2014 is currently expected to be replaced with a continuous rolling mill FQM. While the extrusion process is highly effective for making pipes from grades of special steel, it requires expensive machinery, consumes more raw materials and has lower productivity than continuous rolling mills.

Welded Pipes The process of manufacturing welded pipes involves the bending of steel coil or plate and then welding the seam at the edges. After being unwound from the coil in which it is delivered, the steel is passed through a series of rollers which cause the edges of the coil to curl together to form a cylinder. These edges are then welded and sealed using welding electrodes, following which the pipe is cut to the desired length and sorted for further processing. We make both longitudinal and spiral welded pipe. Longitudinal welded pipes are made from steel plate with only one weld seam joining the two edges of the rolled plate. Spiral welded pipes are manufactured through the helical rolling of steel coils. In the United States, TMK IPSCO produces welded pipes using the Electric Resistant Welding (“ERW”) process from steel coil. In the ERW process, the edges of the steel strip are heated up by the welding current and the two sides of the strip are then forged together and welded before the heat has time to dissipate. The excess melted material is then removed from the outside and inside of the pipe.

Pipe Finishing Pipe finishing processes are important elements in ensuring that the finished pipe product meets customers’ specifications. The pipe finishing stages for seamless and welded pipes are largely similar and may include heat treatment, upsetting, threading, hydrostatic and ultrasonic testing, inspection, coating and packing. Heat treatment involves the application of a combination of heating and cooling operations to the pipe to achieve desired physical and mechanical properties such as increased strength, hardness and ductility, to relieve internal stresses and reduce brittleness. Upsetting is done mainly to increase the strength of connections by way of increasing the diameter and thickness of the ends of pipes. Larger sizes are threaded and connected with no upset needed. Hydrostatic testing involves filling the pipe with water and pressurising it to a high level to check for leaks. Pipes may also undergo anti-corrosion coating treatment, which includes lacquer, epoxy and polypropylene coating. The final stage of the pipe finishing process generally involves marking, packing and storage.

A portion of our seamless industrial pipes, including pipes produced at our Sinarsky, TMK-INOX and TMK- Artrom facilities, also undergo subsequent cold finishing. Cold rolling and cold drawing involve rolling a pipe at room temperature or drawing a pipe through a die at room temperature. These cold working processes reduce the outside diameter and wall thickness of the pipe and improve the surface finish and mechanical properties of the pipe. These processes are often used in the production of pipes for use in machine building and power generation applications, automobile production and other industrial applications. Our pipe finishing processes were enhanced with the acquisition of Central Pipe Yard, Pipe Maintenance Department and Truboplast in 2007.

Production Facilities We manufacture our pipes at four Russian operating plants: Volzhsky, Seversky, Sinarsky and Tagmet, twelve pipe production and finishing facilities in the United States within our TMK IPSCO network, one Romanian operating plant, TMK-Artrom, one Kazakh finishing facility, TMK-Kaztrubprom and one Omani operating plant, GIPI. We also manufacture welded line pipe at our TMK-CPW strategic venture and stainless and highly-alloyed corrosion-proof seamless and welded pipes at TMK-INOX. We carry out threading operations at Volzhsky, Seversky, Sinarsky, Tagmet, Truboplast, the Pipe Maintenance Department, Central Pipe Yard and the Orsky

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Machine Building Plant, which can also produce ULTRA premium connections and at our Kazakh finishing facility, TMK-Kaztrubprom. We produce steel at five of our plants: Volzhsky, Seversky, Tagmet, TMK-Resita and the Koppel facility. In addition, we produce tool joints and ULTRA premium connections at the Orsky Machine Building Plant in Orsk and protective pipe coatings for steel pipes used in the oil and gas industry at Truboplast in Yekaterinburg and at the Pipe Maintenance Department. We also produce ULTRA premium connections at our Odessa and Houston facilities in Texas, our Brookfield facility in Ohio and Edmonton, Canada. In recent years, we have modernised our production facilities, which enabled us to improve the quality of our products and to adapt our product range to the requirements of the international market, and we have taken significant steps toward import substitution of products in Russia and enter a number of new global market segments. We have taken significant steps to modernise our production facilities and increase the efficiency of our production processes through the implementation of our capital expenditure programme, which began in 2004. See “— Capital Expenditure Programme”.

The following table shows the annual production capacity of our principal manufacturing facilities as at 31 December 2012.

Seamless pipe production Welded pipe production Line and Total Large Line and Total Total Pipe Steel OCTG Industrial Seamless OCTG Diameter Industrial Welded Production Production (thousands of tonnes) Volzhsky 360 580 940 — 900 — 900 1,840 900 Seversky 220 120 340 — — 400 400 740 950 Sinarsky 378 216 594 — — — 0 594 — Tagmet 445 155 600 — — 500 500 1,100 600 TMK-INOX — 12 12 — — 10 10 22 — TMK CPW 0 0 0 — 110 110 110 — TMK-Artrom 0 220 220 — — — 0 220 — TMK-Resita 0 0 0 — — — 0 0 450 TMK IPSCO 210 90 300 520 — 480 1,000 1,300 450 GIPI 20 180 200 200 Total 1,613 1,393 3,006 540 900 1,680 3,120 6,126 3,350

Our production capacity has been significantly increased as a result of the completion of key projects under our capital expenditure programme.

The table above is based on nominal production capacity, while actual product mix and order books have a significant impact on actual output. In 2012, our capacity utilisation rates slightly decreased, due to decreased demand in the market for large diameter pipes after completion of major pipeline projects and the postponement of new projects by some of our customers. Utilisation rates in our Russia and Americas segments were approximately 70% in the 2012, while the utilisation rate in our Europe segment was close to 80%. In accordance with our strategy to become one of the world’s leading suppliers of premium pipes and related services, we are increasing our production capacity, enhancing our product mix with higher value-added production, expanding our global operations, and pursuing advancements in research and development.

Volzhsky Volzhsky started its operations in 1970 and underwent significant upgrades in the late 1980s and 1990s, and we have further expanded its capacity in the last several years in line with our capital expenditure programme. It is located in the Volgograd region, on the Volga river, near the city of Volzhsky. We own the facility and the land, comprising approximately 4.74 million square metres, on which the facility is situated. We also lease approximately 1.3 million square metres of land near the facility from the administration of the city of Volzhsky and surrounding settlements.

Volzhsky is one of the most modern Russian plants, featuring modern steel-making, pipe-rolling and pipe welding equipment, most of which was supplied by European manufacturers. The plant is located close to rail, road and river transport routes and is linked by the Volga River to ports on the Caspian, Black, Baltic and Azov seas.

Volzhsky manufactures pipes of more than 900 sizes for various applications, including seamless casing and line pipe, spiral welded and longitudinal welded large diameter pipes for oil and gas pipelines, seamless pipes for

102 Business steam boilers, seamless pipes for mechanical engineering and round and square steel billets. Volzhsky is currently the largest pipe manufacturer in Russia and one of few Russian plants that produces 1,420 mm pipes for high-pressure transmission gas pipelines in commercial volumes. Volzhsky supplies the majority of its output of welded 1,420 mm diameter pipes to Gazprom. • Volzhsky’s principal production facilities consist of: • a steel shop, including an EAF, a ladle furnace, a vacuum degasser and three continuous casting units; • a 650,000 tonne mill that produces longitudinal welded pipes of up to X100 grade with diameters ranging from 530mm to 1420mm and wall thickness of up to 42mm. The pipes primarily produced by the facility are designed to be used in long distance oil and gas pipelines including offshore pipelines and oilfield pipelines; • a continuous pipe-rolling mill, including finishing lines and threading and cutting equipment, primarily used for the production of threaded or bevelled OCTG and line pipe; heat treatment ; • an Assel pipe-rolling mill and a conservation coating line with an annual capacity of 200,000 tonnes; • two extrusion lines, principally used for the production of seamless line pipes, seamless stainless steel pipes and seamless pipes for the power engineering and chemical industries; • pipe-welding mills for automatic submerged arc-welding, together with a heat treatment facility and pipe- finishing lines, primarily used for the production of large diameter spiral welded pipes for oil and gas pipelines and petroleum and industrial process pipelines; and • external anti-corrosion coating lines with an annual capacity of 650,000 tonnes; and one internal anti- corrosion coating line with an annual capacity of 600,000 tonnes.

Seversky Seversky commenced pipe-making operations in 1964. Seversky is located in the Sverdlovsk region, near the Ural mountains, in close proximity to major Russian oil and gas fields. We own the facility and the land, comprising approximately 4.42 million square metres, on which the facility is situated.

Seversky produces a variety of seamless and welded pipes principally for domestic oil and gas customers, including seamless casing and line pipes and electric welded line pipes, as well as industrial seamless pipes for general application and industrial welded pipes for the automotive and power industries, construction sector, public works, and in furniture manufacturing.

Seversky’s principal production facilities consist of: • a steel shop, including an EAF, a ladle furnace, a vacuum degasser and a continuous casting machine; • a pilger pipe mill, including a finishing line, heat treatment line and threading equipment, principally used for the production of seamless casing and line pipes; and • five electric-welding pipe mills, including finishing lines and a hot galvanisation line, used to coat pipes with zinc to inhibit corrosion, which are used to produce a variety of longitudinal welded line and industrial pipes.

Tagmet Tagmet was founded in 1896 and its facilities were significantly upgraded in the 1990s. It is located in the Rostov region, near the Azov Sea, and benefits from its close proximity to raw materials and sea export routes. We own the facility and the land, comprising approximately 1.8 million square metres. We also lease approximately 1 million square metres of land near the facility.

Tagmet produces principally seamless drill, casing and line pipes, industrial seamless pipes and electric welded pipes.

Tagmet’s principal production facilities consist of: • a steel shop, including three open hearth furnaces, a ladle furnace, vacuum degasser and continuous casting machine;

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• a 600,000 tonne capacity PQF seamless rolling mill; • finishing lines, including upsetting, threading and cutting equipment, heat treatment lines, primarily used for the production of seamless drill, casing, tubing and line pipes as well as industrial seamless pipes; and • electric-welding pipe mills, including a hot galvanisation line, which are used to produce a variety of longitudinal welded line and industrial pipes.

Sinarsky Sinarsky was founded in 1934 and underwent significant modernisation in the 1990s. As with Seversky, Sinarsky is located in the Sverdlovsk region, near the Ural mountains, in close proximity to major Russian oil and gas fields. We own the facility and the land, comprising approximately 3.2 million square metres, on which the facility is situated. We also lease approximately 0.6 million square metres of land near the facility from the administration of Kamensk-Uralsky.

Sinarsky specialises in producing drill, casing, tubing and line pipes as well as various industrial pipes including cold-finished carbon and special grade seamless steel pipes principally for the power generation, chemical and machine building industries. Sinarsky does not have any in-house steel-making capacity, but obtains steel billets from Volzhsky, Sevesky and Tagmet and third party suppliers.

Sinarsky’s principal production facilities consist of: • a tandem mill, including a heat treatment line, a pipe upsetting area and two threading lines, principally used for the production of seamless drill and casing pipes; • a continuous pipe-rolling mill, which is used for seamless tubing and high quality corrosion resistant pipes; • cold drawing and cold rolling mills, which are used for seamless industrial pipes, including cold rolled pipe finishing lines; • a heat treatment line; and • a pipe finishing and coupling production line.

TMK IPSCO TMK IPSCO, which is comprised of IPSCO Tubulars, TMK NSG and their subsidiaries, and is based in Houston, Texas, is a leading vertically-integrated manufacturer of seamless pipes and supplier of both seamless and welded steel pipes in the United States. Its production operations are conducted through 12 facilities located throughout the central United States and Canada. TMK IPSCO is strongly focused on oil and gas products, and is a leading producer of high performance OCTG pipe and premium connections required in unconventional drilling environments such as gas shale drilling. TMK IPSCO produces a diverse range of carbon and alloyed seamless and welded pipe products for the oil and gas sector and a wide range of welded pipe products primarily for energy applications. The product offering includes seamless and welded tubing and casing, drill pipe, line pipe, standard pipe and HSS, coupling stock, premium connections and oilfield accessories. Through its facility in Koppel, Pennsylvania, TMK IPSCO also has steel-making facilities that produce steel billets for the manufacturing of seamless pipes and for commercial sale.

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TMK IPSCO’s facilities, along with the annual production capacity and products manufactured in each facility, are set forth in the following table:

Steel- Making and Seamless Welded Finishing ULTRA (tonnes)(1) (tonnes)(1) (tonnes)(1) (joints) Electric resistance welded pipe, OCTG, line Electric pipe and resistance OCTG and standard welded pipe Heat Premium Facility line pipe pipe Threading and HSS Billets treating Threading connections Ambridge, Pennysylvania 300,000 72,700 Blytheville, Arkansas 204,500 181,800 91,000 (including Premium connections) Camanche, Iowa 227,300 250,000 Geneva, Nebraska 81,800 Wilder, Kentucky 490,900 272,700 Baytown, Texas 145,400 151,800 Koppel, Pennsylvania 435,000 145,400 Catoosa, Oklahoma 130,900 130,900 (including Premium connections) ULTRA Houston, Texas 145,000 Odessa, Texas 206,000 Brookfield, Ohio 263,500 Edmonton, Canada 55,000 Ambridge, Pennysylvania 300,000 72,700 Blytheville, Arkansas 204,500 181,800 91,000 (including Premium connections)

Notes: (1) In metric tonnes.

Seamless Pipes Ambridge facility. TMK IPSCO manufactures its seamless products at its Ambridge, Pennsylvania facility, which began pipe-making operations in 1973. It is strategically located in the Marcellus Shale region and adjacent to rail lines and waterways and in close proximity to the interstate highway system for transporting our products. TMK IPSCO owns the land and facility, which is 632,000 square feet under roof. At this facility, TMK IPSCO manufactures seamless OCTG tubing and casing, line pipe, coupling stock, drill pipe hollows, and mechanical tubing. The Ambridge facility’s seamless mill has a piercer, stand floating mandrel mills, stand stretch-reducing mills, heat treatment line, non-destructive testing, and IMS wall control gauges.

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Welded Pipe Facilities TMK IPSCO manufactures its welded pipe products at four facilities, which include Blytheville, Arkansas, Camanche, Iowa, Geneva, Nebraska and Wilder, Kentucky. Blytheville facility. The Blytheville, Arkansas facility began operations in 1999 as a Greenfield site and manufactures OCTG casing and tubing, line pipe and standard pipe products. The facility occupies 297,000 square feet. This facility has full finishing, upsetting, heat treating and high speed threading capabilities. Camanche facility. TMK IPSCO also manufactures OCTG casing, line pipe and standard pipe products at its Camanche, Iowa facility, which was purchased by IPSCO in 1990. The company owns the land and the facility, which is approximately 337,000 square feet, including 12,000 square feet of office space. This facility has full finishing and high speed threading capabilities. Geneva facility. The Geneva, Nebraska facility (approximately 13,000 square feet) was acquired in 1988 and manufactures HSS and hollow structural rounds. Wilder facility. The Wilder, Kentucky facility began operation in 1981 and was purchased by IPSCO Tubulars in 2006. It is now operated by IPSCO Tubulars (KY) Inc., which owns the land and the facility (453,000 square feet), which also includes office space. The facility manufactures line pipe, casing and standard pipe products.

Steel-Making and Finishing Finishing. The Baytown, Texas pipe and tube finishing facility is operated by IPSCO Koppel Tubulars, LLC. The land and buildings (196,000 square feet) are owned by IPSCO Koppel Tubulars, LLC. This facility has a heat treat quench and temper line, full finishing and high speed threading capabilities for OCTG casing, upsetters and threading for external upset end tubing.

Catoosa facility. The Catoosa, Oklahoma facility, which occupies approximately 138,000 square feet, has heat treating, testing and threading capabilities, including ULTRA Connections. The land on which the facility is located is leased from the Port of Catoosa.

Steel-Making. TMK IPSCO’s Koppel, Pennsylvania facility, which occupies approximately 265,000 square feet, produces steel billets from scrap using an EAF. It is capable of producing 5 1⁄2 and 6 1⁄2 inch steel billets. The majority of the billets are transferred to the Ambridge facility for seamless pipe production and heat treating. The remainder are sold externally.

ULTRA Premium Connections In addition to the Catoosa Facility, TMK IPSCO manufactures premium connections and oilfield accessories and provides field services for complex oil and gas exploration and production from our Houston and Odessa, Texas and Brookfield, Ohio facilities. These services include fishing tool repair, custom threading and general oilfield machine work and manufacturing.

Houston facility. The Houston facility (41,000 square feet) began operations in 2006 and is capable of threading casing joints. The land and facility are owned by ULTRA Premium Oilfield Services.

Odessa facility. The Odessa facility (27,000 square feet) is capable of manufacturing both tubing and casing joints. The Odessa facility is comprised of two physical locations, with the major site having been recently relocated to a single combined site in Midland, Texas. All the land and facilities are owned by ULTRA Premium Oilfield Services.

Brookfield facility. In response to increased demand for ULTRA’s products, TMK IPSCO commissioned a new ULTRA premium threading facility for premium connections by opening a threading line in Brookfield, Ohio, in May 2010. The facility is located in close proximity to the Marcellus Shale Region, one of America’s largest shale gas deposits and has been successfully ramping-up since becoming operational. The second threading line was completed in 2011 and doubled the mill’s annual ULTRA premium connections threading capacity.

Edmonton facility. The Edmonton facility (33,000 square feet) commenced operations in 2012 and is capable of threading the full range of ULTRA premium connections for both full length casing joints and accessories to support oil field drilling operations. The facility has direct rail access and is situated in close proximity to the Canadian oil sands.

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TMK-Artrom TMK-Artrom, a leading Romanian pipe manufacturer, was founded in 1982 and modernised in 1992. TMK- Artrom is located in Slatina, in southern Romania.

The plant produces seamless pipes for various applications, including for the mechanical engineering and automotive industries, as well as seamless line pipes for the oil and gas industry. TMK-Artrom’s pipe products are exported to over 30 countries. TMK-Artrom does not have any in-house steel-making capacity.

TMK-Artrom’s principal production facilities consist of: • one double Assel line with one billet reducing mill, one piercing mill, two Assel pipe-rolling mills, one size mill and one reducing mill, a heat-treatment complex and a finishing line which consists of cutting, beveling and non-destructive testing; • three cold rolling mills, five draw benches, a continuous furnace (in which the material being heated moves steadily on a conveyor through the furnace) and one beveling machine. Non-destructive testing is used in the production of cold rolled pipes; and • a cross piercing elongation pipe rolling mill (“CPE mill”) producing carbon steel pipes, two reducing mills and a finishing line, which consists of cutting, beveling and non-destructive testing.

TMK-Resita TMK-Resita, a Romanian steel mill has recently undergone a number of significant modernisations. TMK-Resita is located in Resita, in south-western Romania, approximately 400 kilometres from TMK-Artrom.

TMK-Resita produces billets for TMK-Artrom and other consumers, as well as heavy round profiles, blooms and square billets. The majority of TMK-Resita’s steel production is delivered to TMK-Artrom.

TMK-Resita’s principal production facilities consist of a steel shop, including an EAF, a ladle furnace, vacuum degassing and a continuous casting machine.

TMK-Kaztrubprom Located in western Kazakhstan, TMK-Kaztrubprom specialises in the threading and finishing of tubing and casing pipes used in the oil and gas industry, mainly with premium connections. The plant’s production capacity is approximately 40,000 tonnes of pipes per year.

Orsky Machine Building Plant Located in the Urals region, in the town of Orsk, the Orsky Machine Building Plant produces a wide range of tool joints, couplings for casing and tubing pipes, drilling accessories, gas cylinders and hydraulics. The Orsky Machine Building Plant is authorised by the American Petroleum Institute (“API”) to manufacture drill pipe joints in compliance with the API Spec 7 international standards. Its quality management system is certified according to EN ISO 9001/API Q1 international standards and its products are delivered to both Russian and international customers. In addition, in 2012, the Orsky Machine Building Plant opened a new production line for ULTRA connections.

Truboplast Truboplast was founded in 1993 and it is located in Yekaterinburg, near the Ural mountains, in close proximity to our Seversky and Sinarsky mills.

Truboplast is one of Russia’s largest producers of protective coatings to steel pipes and pipe fittings for oil and gas industry. Truboplast has a 50,000 tonne per annum coating capacity, of pipes with diameters ranging from 57 to 720 mm, primarily line pipes and large diameter pipes. Truboplast produces one-, two-, and three-layered exterior coatings, thermo-hydro insulated coatings, and interior protection for the inner part of the pipe. Truboplast’s products are used by major Russian and international oil and gas companies confronted with complex oil and gas production conditions that necessitate the use of anti-corrosive coatings.

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Central Pipe Yard and Pipe Maintenance Department OOO “Central Pipe Yard” and ZAO “Pipe Maintenance Department” specialise in the repair of tubing pipes, piston rods and pipe coatings, the manufacturing of pipe column sections and other downhole equipment as well as provide transportation services for tubular goods to oil field sites located in the Urals-Volga and Western- Siberian oil and gas regions. TMK plans to develop the companies by expanding their service offerings. At present, these service companies have the capacity to repair 485,000 pipes per year and 36,000 tonnes of tubing per year.

Capital Expenditure Programme Since 2004, we have been engaging in a significant capital expenditure programme, primarily to increase our Russian seamless OCTG and line pipe production capacity and to enhance the efficiency of our production processes. As a result of this programme and together with recent acquisitions, we have increased our seamless pipe production capacity to 3.0 million tonnes per annum and our steel-making capacity to 3.4 million tonnes per annum, as at 31 December 2012. Further, since 2009, we believe that we have the largest pipe production capacity (in tonnes) globally. In the period from 2004 to 2012, cash used to acquire property, plant, and equipment (including expenditure on the implementation of our strategic capital expenditure programme) was in excess of U.S.$3.6 billion, including U.S.$445.3 million spent in 2012. Our projected capital expenditure for 2013 is U.S.$387.2 million, including U.S.$100.4 million of maintenance capital expenditure.

Two main projects remain to be completed — the addition of a new EAF at Tagmet, which we currently expect will be completed in 2013, and the addition of a FQM mill at Seversky, which we currently expect will be completed in 2014, to further enhance our seamless pipe production and production efficiency in Russia. Once completed, our capacity is expected to increase by approximately 600,000 tonnes of steel and 250,000 tonnes of pipes per year, while overall capacity of each is 1 million tonnes of steel and 600,000 tonnes of seamless pipe, respectively. In addition to these projects we intend to further develop our finishing and testing capacities, premium connections and production of high-alloyed and technology-intensive pipes.

Our capital expenditure programme has been focused principally on: • increasing our seamless pipe production, including production and development of premium connections; • increasing the efficiency of our production processes, through both the modernisation and expansion of our steel-making operations and our pipe-rolling and finishing facilities; • improving the quality and range of our products; • increasing the production of higher value-added products; and • reducing the environmental impact of our operations.

This has included the completion of several large projects, including: • installation of a longitudinal large diameter pipe mill at Volzhsky with an annual capacity of 600,000 of large diameter pipes including pipes with a diameter of up to 1,420mm; • commission of an EAF at Seversky with an annual capacity of 950,000 tonnes of steel; • installation of a premium quality finishing mill at Tagmet with an annual capacity of 600,000 tonnes of seamless pipe; and • overall modernisation of seamless capacities at Volzhsky.

Further, our main capital expenditure projects completed in 2011 and 2012 in the Russian and European divisions include the following: • modernisation of coating equipment at Volzhsky to improve the technical characteristics of pipes used in off-shore projects; • implementation of thick wall longitudinal welded pipe production at Volzhsky; • modernisation and installation of a NDT inspection and ultrasonic testing at Tagmet and Sinarsky; • commission of a long cold-rolled pipe production including carbon and alloyed seamless cold-rolled pipes for the energy and machine building industries at Sinarsky;

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• commission of a stainless precision pipe site at TMK-INOX; • building of a new vacuum insulated tubing line at Sinarsky. Pipe from this line is intended for fields located in some of the most difficult conditions for oil and gas production, such as in permafrost zones, as the pipe helps to prevent the soil thawing around the well; • commission of a new premium threading line at the Orsky Machine Building Plant, including ULTRA connections production capacity; and • modernisation of the gas cleaning system at TMK-Resita.

The main capital expenditure at TMK IPSCO relate principally to the replacement of existing equipment and/or compliance requirements at various U.S. facilities. However, in 2011, we opened the R&D Centre in Houston, Texas, to further extend our research and development capabilities, primarily for product design and development, experimental and validation testing, and advanced metallurgical research. During 2011 and 2012, our American division’s main capital expenditure projects also included the following: • opening of a second threading line for premium connections at the Brookfield facility; • construction of additional API threading capacity of 272,700 tonnes at the Wilder facility, reducing the need to ship product to other facilities or third parties and significantly reducing cost and delivery times to our customers out of this facility; • significantly upgrades and improvements to the heat treatment facilities at the Catoosa and Koppel facilities, increasing the annual heat treatment capacity by 100,000 tonnes; and • construction of a pipe threading and service facility in Edmonton, Canada.

In the coming years, we also intend to augment our heat treatment and finishing facilities at TMK IPSCO as well as further improve our research and testing capacities.

Strategic Ventures Strategic Venture with Corinth Pipeworks In January 2007, Seversky entered into a strategic venture with Corinth Pipeworks, a leading producer of welded pipes in Greece, for the production of ERW longitudinal welded pipes with diameters from 168 mm to 530 mm principally for use in oil and gas, construction and machine building applications. We hold 51% of the strategic venture and Corinth Pipeworks holds 49% of the strategic venture. We contribute land and facilities to the strategic venture and Corinth Pipeworks contributes welding equipment. Our strategic venture has a total production capacity of 110 thousand tonnes of medium-diameter welded pipes per annum.

Strategic Venture with RusNano In December 2010, we launched a strategic venture with Russia’s state-owned nanotechnology corporation RusNano for the production of high-tensile precise stainless pipes at TMK-INOX production facilities, which are located at our Sinarsky plant. We hold 51% of the strategic venture and RusNano holds the remaining 49%. We contribute cash resources, intellectual property, facilities and equipment to the strategic venture and RusNano contributes cash resources. We aim to further enhance product quality and characteristics and increase the production of high-tensile precise stainless pipes principally used by nuclear energy power, machine building and chemical industries.

Strategic Venture with EMDAD At the end of 2012, we established a service joint venture with EMDAD LLC, in Abu Dhabi, the United Arab Emirates. The service and support centre, TMK Premium, will focus on repair of pipes and underground equipment, as well as threading of connections on various components of pipe columns for oil and gas companies operating in the Arabian Gulf region. The commissioning of the centre is currently planned for the second quarter of 2013. Its annual production capacity is expected to be approximately 10,000 tonnes of premium pipes.

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Raw Materials Our raw material requirements consist principally of the following: • Integrated Seamless Pipe Operations: Our principal raw materials are scrap metal, ferroalloys and refractories purchased from third party suppliers. • Other Seamless Pipe Operations: Our principal raw materials are steel billets purchased from third party suppliers as well as produced by our integrated steel operations. • Welded Pipe Operations: Our principal raw materials for the production of welded pipes are steel plates and steel coils purchased from third party suppliers.

In 2012, our raw material costs amounted to U.S.$3,352.1 million, which represented 66% of our total cost of production. In 2011, our raw material costs amounted to U.S.$3,720.9 million, which represented 69% of our total cost of production.

Seamless Pipe Operations We produce steel for use in our seamless pipe-making operations at Volzhsky, Tagmet and Seversky. Our seamless pipe production facilities at Volzhsky, Tagmet and Seversky are now integrated, such that we supply substantially all of the steel billets required for our own seamless pipe production at such facilities, with the exception of certain special high-grade steel billets, which we purchase in small amount, from third parties. In addition, TMK-Resita provides TMK-Artrom with substantially all of its steel billet requirements, and TMK IPSCO’s Koppel facility provides Ambridge facility with substantially all of its steel billet requirements

Sinarsky, which does not have internal steel-making facilities, purchases steel billets mainly from our Russian plants as well as from a number of Russian integrated steel companies including Evraz, OOO Ural Steel and Mechel Steel Group. Volzhsky and Seversky supplied Sinarsky with approximately 75%, 73% and 78% of its annual steel billet requirements in the years ended 31 December 2012, 2011 and 2010, respectively.

EAFs, which we operate at Volzhsky, TMK-Resita, Koppel and Seversky, consume almost exclusively scrap, whereas the open hearth furnace at Tagmet consumes pig iron. In accordance with our strategic capital expenditure programme, we currently expect to commission a new EAF to replace the existing open hearth furnace at Tagmet in late 2013 or early 2014. These improvements are expected to further reduce our pig iron and ferroalloy requirements and increase our scrap metal consumption.

We purchase scrap metal in Russia from a local supplier, with whom we maintain a positive relationship. We also procure scrap metal from waste created by our own our steel-making and pipe-making operations. We may also acquire a major steel scrap collector and processor to better control the availability and quality of our scrap as well as reduce our raw material costs. We purchase our pig iron in Russia principally from Evraz, OAO Mechel and OAO Tulachermet. We purchase ferroalloys, which are used in various stages of the steel-making process, such as deoxidation, and provide properties needed to make particular steel products, principally from a number of Russian and Ukrainian suppliers, including ChEMK, Serovsky Ferroalloy and Nikopol Ferroalloy. We purchase refractories, which are heat resistant materials used to line our open hearth furnaces and EAFs, from a number of Russian and foreign suppliers, including Chinese and European companies. TMK-Resita sources most of its scrap from suppliers in Romania, Serbia, Hungary and Bulgaria derives a portion of its scrap requirements from the dismantling of its obsolete assets and from production waste of TMK-Artrom pipe-making operations. TMK-Resita purchases most of its refractories from European producers. Although our internal steel-making capacity significantly reduces the consumption of steel billets purchased from third parties and thus our exposure to fluctuations in the price of steel products, we remain subject to increases in the prices of scrap, which is the principal raw material in our steel-making operations. Because we have supply agreements with many of our large customers that have pricing terms that are fixed for certain periods of time, we may not be able to pass on an increase in the costs of raw materials to our customers in a timely manner or at all or may be able to do so only after a delay. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — Increases in the cost of raw materials that may negatively affect our business”. We do not, at present, use derivative instruments to hedge any commodity price risks.

TMK IPSCO obtains scrap metal for its steel operation at Koppel from a number of regional scrap companies and from its internally created scrap. TMK IPSCO purchases ferroalloys, which are used in various stages of the steel-making process, such as deoxidation, and provide properties needed to make particular steel products,

110 Business principally from Traxys, Hickman-Williams, Varomet, Minerais and Climax. TMK IPSCO purchases refractories, which are heat resistant materials used to line our open hearth furnaces and EAFs, from Vesuvius, Resco, Universal and LWB. U.S. scrap prices increased significantly in 2011, but since then have decreased to an average of approximately U.S.$350 per tonne of delivered scrap in 2012.

The benefits from having in-house steel production include lower prices, as scrap is cheaper and less expensive to transport than semi-finished products; greater quality control and greater speed to market; and greater operational flexibility.

Welded Pipe Operations For the production of welded pipes in Russia, we purchase steel plate and coils from Russian and international producers for processing into welded steel pipes. Our principal suppliers of steel plate include MMK, Severstal, Dilinger, Salzgitter, Azovstal, Metalloinvest (Ural Steel), Nippon Steel, POSCO, ISD, EVRAZ and Voestalpine AG. Our principal suppliers of steel coil include MMK, JSC Severstal, OJSC Novolipetsk Steel (“NLMK”), ArcelorMittal-Temirtau and JSC Zaporozhstal. For the production of welded pipes in the United States, coils are purchased from domestic steel producers for processing into welded steel pipes. Principal suppliers of steel hot rolled band coil include Arcelor Mittal-Temirtau, Nucor, Steel Dynamics, Gallatin and JSC Severstal. TMK IPSCO’s pipemills are in close proximity to the steel mills which supply TMK IPSCO.

Supply Agreements Most of our raw material supply agreements represent framework agreements for a period of one calendar year, which may be extended for the following calendar year. Terms of delivery of products under our supply agreements are generally determined based on individual orders.

In addition, in February, 2007 we signed a strategic cooperation memorandum with MMK. Pursuant to the terms of the memorandum, we have agreed to cooperate on future joint activities relating to the implementation of key technologies at MMK’s mills and at our mills, the use of MMK products in the production of new types of pipes by us, and on future deliveries of wide plates for longitudinal large diameter welded pipes. MMK is one of the main suppliers of flat rolled steel for pipe production at our mills. The memorandum also establishes a joint research and development programme to create new products. We also have agreements for the supply of coil and plate to our plants with Russian producers JSC Severstal, EVRAZ, Metalloinvest and NLMK, European producers ISD, Azovstal and Zaporizhstal located in Ukraine, Voestalpine located in Austria, as well as ArcelorMittal, Nippon Steel in Japan and POSCO in Korea. TMK IPSCO also does not rely on a single source of supply for skelp material. Aiming to have diversified supply channels, TMK IPSCO cooperates with numerous U.S. flat steel producers.

Energy and Utilities Our steel-making and pipe-rolling operations require a significant amount of electrical power and heat energy. In 2012, energy and utilities costs related to our costs of production amounted to approximately 8% of our total costs of production, as compared to 7% in 2011. In 2012, our main Russian production subsidiaries (Volzhsky, Seversky, Sinarsky, Tagmet and the Orsky Machine Building Plant) consumed approximately 2.7 billion kWh of electricity, as compared to 2.8 billion kWh in 2011.

We purchase electricity from certain electricity suppliers. The average cost of electricity purchased in 2012 in Russia was RUB2.11 per kWh. Prices for electricity in the Russian market have continued to increase and we expect further increases as a result of increases in natural gas prices growth. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — Increasing tariffs and the continuing liberalisation of the Russian Energy Sector could negatively impact our business”. As EAFs consume electricity instead of natural gas, we expect that with the current planned installation of an EAF at our Tagmet plant in 2013, our electricity consumption will slightly increase.

We also use natural gas, principally to heat our open hearth furnaces at Tagmet and for seamless pipe production and heat treatment. We purchase all of our natural gas supplies from subsidiaries of Gazprom. In 2012, 2011 and 2010, our Russian plants purchased 850, 872 and 872 million cubic metres of natural gas, respectively. Our average natural gas prices increased by approximately 6% in 2012, as compared to 2011. In 2013 we currently

111 Business plan to replace our open hearth furnace at Tagmet with a new EAF. We believe that this improvement will serve to reduce our consumption of natural gas. The increase in consumption of electricity due to the addition of EAFs and simultaneous reduction in our consumption of natural gas due to closure of our open hearth furnaces should have a positive effect on our energy and utility costs.

Sales and Marketing We sell our products to customers in over 80 countries through two principal channels: • directly, pursuant to ongoing supply contracts and tenders, to both Russian and non-Russian customers; and • through wholesale traders for onward sale to end-use customers, principally in some of our export markets.

In addition, to satisfy the immediate demand of some of our customers, we maintain inventories of our products at our own warehouse facilities.

We sell our products in Europe, the Middle East, North America, Central Asia, South Asia, the Far East and North Africa as well as to customers in Russia. In addition, we have entered the Central and Sub-Saharan markets by participating in regional tenders. In the years ended 31 December 2012 and in 2011, sales to customers located in Russia accounted for 54% and 60%, respectively, of our consolidated sales revenue.

Our principal customers include major Russian oil and gas companies, such as Gazprom, Rosneft, TNK BP, Surgutneftegas, Gazprom Neft, LUKOIL and Transneft. In the United States, our major customers include Anadarko, Devon, XTO, ExxonMobil, BP, Chevron and Marathon Oil. We also maintain close relationships with major oil and gas companies, such as Royal Dutch Shell, Agip, Total and ExxonMobil and national oil companies, such as ONGC and KOC. In 2012, our five largest customers by sales volumes were Rosneft, Surgutneftegas, LUKOIL, TNK BP and Gazprom (excluding Gazprom Neft), which together accounted for approximately 26% of our total sales volumes.

Marketing We seek to tailor our sales and marketing strategies to our customers and the markets we serve. Our subsidiary, TMK Trade House, headquartered in Moscow, coordinates all of our Russian and CIS sales and is principally responsible for establishing, expanding and maintaining contacts with customers, conducting market development studies, marketing and promotion. TMK Trade House has six branch offices in Russia as well as representative offices in Azerbaijan, Turkmenistan, Singapore and China. In Kazakhstan, our sales operations are carried out by our wholly owned subsidiary, TMK-Kazakhstan. We also have a network of over 100 official distributors throughout Russia and the CIS, which principally market and sell our industrial welded pipes.

Our sales operations outside of Russia and CIS and Asia are coordinated principally by our subsidiaries: Trade House TMK, TMK Global, headquartered in Switzerland (and its subsidiary TMK Middle East), TMK Europe, headquartered in Germany, TMK Italy, headquartered in Italy, TMK IPSCO, headquartered in the United States and TMK IPSCO’s recently established sales office in Canada. TMK-Artrom and TMK-Resita ship their products directly to domestic Romanian market and use our international sales network for global sales. With the acquisition of TMK IPSCO, we have now obtained significant access to the North American markets. TMK IPSCO coordinates the sales in the Western Hemisphere of all of the U.S. production facilities and the sales of imported products from our Russian and Romanian production facilities.

We seek to develop close, long-term relationships with our customers, including end customers who purchase our products through international wholesale traders, by seeking to provide them with a consistent quality of products, competitive pricing and timely delivery of orders. We also seek to respond to our end-customers’ individual requirements, ranging from specific packing or delivery requirements to the development of new products, including products manufactured using our own premium threaded connections. We periodically conduct customer satisfaction surveys and also arrange meetings with customers to discuss our products and services and their specific requirements. We attend major steel and pipe industry conventions to maintain and enhance our profile, and our PR service issues regular press releases in various publications to publicise significant developments in our business operations.

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As part of our downstream marketing strategy, in 2010 we opened a representative office of Trade House TMK — TMK Africa Tubulars in South Africa to develop sales of TMK pipe products in Sub-Saharan markets. In line with our strategy to increase our presence in core markets, in 2012 we established a joint venture in the United Arab Emirates, providing threading, repair and related services to the Middle East market. In May 2010, TMK IPSCO opened a new Brookfield facility fully dedicated to the threading of ULTRA premium connections. In 2012, we opened a new facility in Edmonton, Canada, to support the expansion of this business.

We also expect to enhance our international profile through our ongoing qualification programmes with target customers.

Sales and Market Position Our global presence is reflected in our extensive network of trading subsidiaries and representative offices, which are situated in close proximity to our key customers. We also have a global network of over 100 authorised distributors. We sell our products primarily pursuant to sales contracts with our customers, including our international wholesale trading partners, typically based on standard industry terms and conditions. We set prices for our customers on a quarterly or semi-annual basis in order to allow for adjustments in line with our price lists, which we revise each calendar quarter. Our customers include almost every significant oil and gas service company in Russia. We sell our products to more than 50 such customers according to framework supply agreements, which are subject to extension on an annual basis.

We also have a well-established supply relationship with Gazprom and its subsidiaries, which has remained one of our key customers over a number of years. We sell our products to Gazprom based on a unified price formula applicable to all large diameter pipe suppliers, which is reviewed regularly. In 2012 we were a supplier for a number of pipeline projects such as the Bovanenkovo-Ukhta gas pipeline and the South Stream gas pipeline, in addition to providing supplies for repair and maintenance needs. Transneft is also one of our key customers and in 2012 our large-diameter pipe supplies for Transneft included pipes used in the Zapolyarye-Purpe oil pipeline.

We supply seamless threaded pipes, including pipes with premium connections to certain Russian independent gas producers, including Intera Group and OAO Novatek and its subsidiaries. In addition to supplying the oil and gas industries, we sell significant amounts of our pipe products to the automotive sector and the machine building industry. We also supply pipes for the Russian and European energy sector, petrochemical, chemical, public utilities and construction industries.

From 2010 until 2012 we have supplied pipes and/or are currently supplying pipes to pipeline projects including: • the Pochinki-Gryazovets gas pipeline; the CAC Pipeline, which transports gas from Turkmenistan through Uzbekistan and Kazakhstan to China; • the onshore section of the Nord Stream gas pipeline, which, upon completion, will connect Russia to Germany via the Baltic Sea; • the Bovanenkovo-Ukhta gas pipeline, which is a part of the Yamal-Europe gas pipeline; • the Ukhta-Torzhok gas pipeline; • the Sakhalin-Khabarovsk-Vladivostok gas pipeline; • the South Stream gas pipeline; • the BPS-2, which connects oilfields in Western Siberia to a Russian port on the Gulf of Finland; • phase two of the ESPO Pipeline, which will run from Eastern Siberia to the Amur region near the border with China; • the Zapolyarye – Purpe and Purpe-Samotlor oil pipeline, which will connect new oil fields being developed in the Yamal and Krasnoyarsk regions to oil refinery facilities; • the Zapolyarye – Purpe and Purpe-Samotlor oil pipeline, which will connect new oil fields being developed in the Yamal and Krasnoyarsk regions to oil refinery facilities, and connect Eastern and Western parts of the Russian oil transportation system;

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• the Nautilus Minerals’ offshore mining project in Papua New Guinea. Seamless line pipes have been shipped for Nautilus’ Solwara 1 project, the world’s first seafloor copper-gold project; and • deep water pipelines at the oil and gas condensate deposit developed by Lukoil in the North Caspian Sea.

Russian Sales Our customers in Russia principally include the major oil and gas companies and machinery and power generation enterprises. Our sales revenue to customers located in Russia accounted for 54%, 60% and 62% of total revenue in the years ended 31 December 2012, 2011 and 2010, respectively. Our five major customers, which were all Russian, accounted for approximately 26%, 34% and 32% of our sales volumes in the years ended 31 December 2012, 2011 and 2010, respectively.

In addition to direct shipments from our plants to key oil and gas fields, we also operate warehouses in Moscow and at our Russian plants, where we sell all types of pipe products to wholesalers. We realise higher margins on these sales compared to our other sales of comparable products. Through these sales, we also identify potential new end-user customers of our products and market our production capabilities and products directly to them. We expand the kinds of services provided by our warehouses, OCTG repair and threading operations. Although we have begun to sell larger volumes of our OCTG pipes outside of Russia in the wake of our acquisition of TMK IPSCO, we still sell most of our OCTG products produced at Russian plants domestically principally to large Russian oil and gas producers pursuant to tenders or directly under contracts with such customers.

In the year ended 31 December 2010, our five largest domestic customers by sales volumes were Gazprom (excluding Gazprom Neft), Transneft, Rosneft, Surgutneftegas and TNK-BP, which together accounted for approximately 32% of our total pipe sales.

In the year ended 31 December 2011, our five main domestic customers were Gazprom (excluding Gazprom Neft), Rosneft, Surgutneftegas, TNK-BP and LUKOIL, which together accounted for approximately 34% of our total pipe sales.

In the year ended 31 December 2012, our five main domestic customers of pipe sales were Rosneft, Surgutneftegas, LUKOIL, TNK-BP and Gazprom (excluding Gazprom Neft), which together accounted for approximately 26% of our total pipe sales.

Gazprom currently buys the majority of our 1,420 mm pipe output produced at Volzhsky. Our sales of large diameter pipes to Gazprom amounted to 121 thousand tonnes, 434 thousand tonnes and 420 thousand tonnes, respectively, in 2012, 2011 and 2010. In the years ended 31 December 2012, 2011 and 2010, we sold approximately 70%, 93% and 93%, respectively, of our large diameter welded pipes domestically.

Sales Outside Russia Our sales outside of Russia, which are comprised principally through TMK Trade House in general and in particular of our sales activity in the United States through TMK IPSCO, sales activity in Europe through our European subsidiaries, and sales activity in the Middle East and North Africa through TMK M. E. In addition, we export pipes outside of our primary markets to Africa and Asia, among other regions. To enhance our global presence, we are targeting the Sub-Saharan market. In the years ended 31 December 2012, 2011 and 2010, OCTG and line pipe sales remained almost flat and amounted to 67% of our total sales volumes outside of Russia.

Our sales of seamless pipes from Russia to customers in the European Union are limited by anti-dumping duties which apply to the import into the European Union of a broad range of seamless pipes manufactured by us. While a significant percentage of our pipes is purchased through European agents and representatives for other markets, some of the end customers for our OCTG and line pipe do take delivery of and use our pipes in the European Union. Romania acceded to the European Union on 1 January 2007 and the Anti-dumping regulation ceased to apply to pipes produced by TMK-Artrom. With respect to our Russian plants, our production is subject to anti-dumping duties of up to 28.7% for seamless and 16.8% for welded pipes. We currently intend to contest the European anti-dumping duties relating to Russian seamless pipe in the European Court and in September 2012, we filed a claim to this effect. See “Risk Factors — Risks Relating to our Business and the Pipe Industry — Anti-dumping proceedings and other import restrictions may limit sales of our products in important geographical markets, in particular Europe”.

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In 2012 and 2011, we exported approximately 171 thousand tonnes and 156 thousand tonnes, respectively, to North America from our non-U.S. plants, while in 2010, we exported approximately 50 thousand tonnes of pipes to North America from our non-U.S. plants. Through TMK IPSCO, we are able to ship both finished and green pipes from Russia to the United States for finishing treatment, and threading and subsequent sale to customers. TMK IPSCO has an established network of distributors and sales representatives throughout the United States with strong relationships with end use customers. In the United States, TMK IPSCO benefits from long-standing relationships with a diverse end-user base, which includes Chevron, ExxonMobil/XTO, Marathon, Anadarko, Devon, Chesapeake Energy, EnCana, EOG Resources, Williams Production and BP.

The largest export customers of our Russian plants include: • Bourland & Leverich, Pipeco, Vass Pipe, American Piping Production, LINCOLN MANUFACTURING, INC., and Texas Pipe & Supply Co., in North America; • Arcelor projects, Voest Alpine Tubulars GmbH & Co KG, Assotubi S.p.a., in Europe; • ONGC, Akakus Oil Operations, Al-Reziza Trading & Contracting Co, SIGMA SUPPLIES CO, SIGMA PETROLEUM SERVICES CO, ADCO and Offshore Engineering & Marketing Ltd. in the Middle East; and • Hascelik, AYDIN BORU ENDUSTRISI A.S. and HUNG CUONG STEEL JOINT STOCK COMPANY, in other regions.

Transportation We ship our products principally by railway, water and motor transport. Substantially all of our finished products produced at our Russian operations are transported by railway and road directly to customers as well as to sea ports (Novorossiysk, Taganrog, Saint Petersburg, Astrakhan in Russia and Ilyichevsk in Ukraine) and the Volzhsky river port for export. We have mostly concentrated on our transportation and logistics operations, to allow each of our operating facilities to benefit from the TMK Group’s centralised and timely planning, logistics and shipment control systems.

Our main provider of rail transportation services is Russian Railways, whose tariffs for which are set annually by the Federal Tariffs Service. We are party to strategic partnership agreements with key owners of railcars that we use for raw materials and pipe products transportation. Our main export points for sea transportation are on the Black Sea, Azov Sea and Baltic Sea. During the navigable season, we use shipment via the Volga River to European destinations, including the Netherlands and Romania. For export sales, we generally deliver our products on the following terms: for pipes delivered by rail, CPT (carriage paid to); for pipes delivered by sea, FOB (free on board) or CIF (cost, insurance and freight)/CFR (cost and freight) to different ports of destination.

In addition, the proximity of Sinarsky and Seversky, which are situated east of the Ural mountains, close to the main oil and gas fields of Western Siberia and the proximity of Volzhsky and Tagmet (whose production is partially export-oriented) to the ports of Black and Azov seas helps us to reduce our transportation costs.

TMK IPSCO ships its products by truck, railway, and barge transport. Shipments of work-in-process between our facilities use all three modes of transportation. Finished goods are primarily shipped to customers by truck and rail transport. Truck transport is provided by 50 to 60 different trucking companies. For barge transport we are contracted with Ingram. Rail transportation is provided by most of the major U.S. carriers, including BNSF, the Union Pacific, the CSX and Norfolk Southern. All truck rates are contracted annually as needed, with rail rates being a combination of tariff and private rates. Shipping terms with our customers are a combination of freight on board at the mill or prepaid and delivered by TMK IPSCO and can be arranged in any of the desired modes of transportation, where applicable.

Research and Development We engage in research and development of new products to meet the increasingly stringent requirements of our customers. In Russia, our research and development activities are carried out through RosNITI, which we believe is Russia’s largest research institute devoted to the scientific and technological development of the Russian pipe industry and is located in Chelyabinsk. These research and development activities are often in cooperation with Russian federal authorities (such as the Ministry of Industry and Science and Gosstandart), customers (such as

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Gazprom and Transneft), and suppliers (such as Severstal and MMK). We authorise RosNITI to evaluate the quality of inputs used in pipe production, analyse product performance and audit the quality systems of our suppliers. We also cooperate with leading Russian research and development institutions in the gas industry (VNIIGAS), ferrous metals industry (CNII Chermet), oil and gas transportation industry (VNIIST) and energy equipment industry (CNIITMASH).

We also conduct research and development through our subsidiaries TMK-Premium Service and ULTRA Premium Oilfield Services.

In the United States, our research and development activities are carried out at the R&D Centre located in Houston, Texas. The R&D Centre was commissioned in 2011 and is the centre of TMK IPSCO’s innovation initiatives, including new product design and development, a full range of experimental and validation testing capabilities (including most metallurgical analysis such as metallography, corrosion testing, SEM analysis and two full connection testing machines, used for developing the next generation of premium connections) As drilling technology continues to improve, we believe that the R&D Centre will become key to developing the pipe products and connections that will be required to meet more stringent requirements. This facility has a full range of testing capabilities including most metallurgical analysis such as metallography, corrosion testing, SEM analysis along with two full connection testing machines which are used for developing the next generation of premium connections.

We intend to enhance our research and development capabilities with the aim of improving the technological sophistication of our products, improving our manufacturing efficiency and decreasing our production costs.

In the year ended 31 December 2012, we spent U.S.$16.6 million on research and development as compared to U.S.$18.7 million in the year ended 31 December 2011 and the U.S.$13.3 million in the year ended 31 December 2010.

Product development and research projects we currently conduct include: • development of production technologies of spiral welded and longitudinal welded pipes using strong steel grades, such as API steel grades X70 — X100, which can withstand high levels of pressure; • development of new types of external and internal insulating coating for oil and gas transmission pipes; • smelting, billet production, rolling and heat treatment of high strength threaded cold resistant and hydrogen sulphide resistant pipes; • development of casing and pump compressor pipes with different types of threaded connections and coating, including premium-class threaded pipes and vacuum insulated tubing for oil and gas wells; • development of dope-free coating for threaded connections for casing pipes and tubing; and • development of effective technology for cold-worked pipe production applying nanotechnology and new generation of steels and alloys.

In addition to research and development aimed at new or improved products, we continuously study opportunities to improve the efficiency of our manufacturing processes and, in particular, our steel production processes. See “— Capital Expenditure Programme” for a description of our strategic investment initiatives.

We are also working with the Russian Fund for the Development of the Pipe Industry and other Russian pipe producers and consumers to develop new technical rules and national standards for pipes.

The rights for the results of our research and development efforts are registered with patents for inventions and with useful model patents. In the year ended 31 December 2012, our Russian plants and RosNITI obtained 115 patents for inventions and 13 useful model patents.

Competition Global Market Global pipe markets are highly competitive, particularly in view of the recent poor global economic and financial conditions. The primary competitive factors consist of quality, price and value added features, such as premium threading, special steel grades and related services. The production of seamless steel pipe products following the

116 Business stringent requirements of major oil and gas companies requires the development of specialised skills and significant investments in manufacturing facilities. In comparison, seamless pipe products for standard applications can be produced in most seamless pipe mills worldwide and sometimes compete with welded pipe products for such applications. Welded pipe, however, is not generally considered a satisfactory substitute for seamless steel pipe in high-pressure or high-stress applications, which constitute a significant segment of our target market.

We estimate that in 2012, we were the largest worldwide producer of steel pipes, by output, with total sales volumes of 4,238 thousand tonnes.

Our principal competitors in the international seamless steel pipe markets are: • Tenaris is a leading supplier of tubes and related services for the world’s energy industry and certain other industrial applications. Tenaris has manufacturing facilities in Argentina, Mexico, Columbia, the United States, Canada, Italy, Romania and Japan; • Vallourec, has hot rolled pipes facilities in Brazil, France, Germany and the United States. Vallourec has a strong presence in the European market for seamless pipes for industrial use and a significant market share in the international market with customers primarily in Europe, the United States, Brazil and the Middle East. Vallourec is an important competitor in the international OCTG market, particularly for high-value premium joint products; • Sumitomo Metal Industries Limited, based in Japan, has established a strong position in the markets in the Far East, North America and the Middle East. It is internationally recognised for the high quality of its products and for its supply of high-alloy grade pipe products; • Chinese producers, including Baosteel and TPCO, are rapidly becoming significant competitors globally. While Chinese producers have historically competed primarily in the “commodity” sector of the market, where price is more important than quality and service, these producers have been increasing their product quality and capacity and became stronger competitors on the international market. Each of Baosteel and TPCO is state-owned and has direct and indirect forms of state financial support; and • Ukrainian producer Interpipe has also historically competed in the “commodity” sector of the market, and, like the Chinese producers, is gradually improving the quality of its products and capacity. In addition, Korean and other Asian pipe producers have recently become increasingly significant competitors for TMK IPSCO in the U.S. market due in part to their low-priced product offering.

Russia We estimate that we were the largest producer of steel pipes in the Russian market in 2012 by sales volume, with an estimated share of the Russian market of 25%. As a result of restrictions on imports of steel pipes to Russia, which are subject to import duties of up to 15%, we have a larger market share in Russia than in other territories. See “Risk Factors — Risks Relating to Our Business and the Pipe Industry — There are restrictions on the import of steel pipe products into Russia and, to a degree, the United States, the removal of which could lead to currently excluded competitors newly competing for the business we transact in those territories. We estimate that imports represented approximately 14% of the total sales of steel pipes in Russia by volume in 2012, most of which were supplied by Ukrainian producers in the “commodity” sector of the market.

OCTG In 2012, according to our estimates our share in the Russian market for seamless OCTG based on sales volumes was approximately 62%. The only other significant producer of OCTG in Russia is ChTPZ, which controls Chelyabinsk Tube Rolling Plant and Pervouralsk New Pipe Plant, United Metallurgical Company (“OMK”), which controls, among others, OAO Vyksa Steel Works (“Vyksa Steel Works”) and OAO Almetyevsky Pipe Plant (“Almetyevsky”), also produces certain grades of welded line and welded OCTG pipes that compete with our seamless line and OCTG products for certain applications.

Seamless Line Pipe We estimate that we had an approximate 58% share in the Russian market for seamless line pipe based on sales volumes in the year ended 31 December 2012. ChTPZ is our only significant competitor in the Russian market.

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Seamless Industrial Pipe We estimate that we had an approximate 31% share in the Russian market for seamless industrial pipe based on sales volumes in the year ended 31 December 2012. ChTPZ is the largest producer in Russia in this segment.

Large Diameter Welded Pipe We estimate that we had an approximate 16% share in the Russian market for large diameter welded pipe based on sales volumes in the year ended 31 December 2012. OMK, Severstal (Izhora plant) and ChTPZ are our principal competitors in this segment.

Industrial Welded Pipe We estimate that we had an approximate 7% share in the Russian market for industrial welded pipe based on sales volumes in the year ended 31 December 2012. There are a large number of Russian producers in this market, of which we are among the largest, together with OMK. We are also subject to some competition in this market segment from importers, primarily from Ukraine.

Our principal competitors in the Russian market are:

ChTPZ Group ChTPZ Group, which includes Chelyabinsk Tube Rolling Plant and Pervouralsky Novotrubny Works, is located in the Urals region. ChTPZ has been actively modernising its large diameter welded pipe production. In July 2010, ChTPZ commissioned a new longitudinal welded pipe mill, which allows ChTPZ to produce longitudinal large diameter pipes with diameters of up to 1,420 mm. ChTPZ is also reportedly contemplating an investment to enhance its own steel-making facilities which would enable it to have greater control over production quality and speed of delivery, adding to its competitive strength in the industrial seamless pipe segment.

United Metallurgical Company OMK, which includes Vyksa Steel Works and Almetyevsky, is headquartered in the Nizhny Novgorod region of Russia and produces welded pipes. OMK’s welded pipes meeting API specifications compete with our seamless pipes for the oil and gas industry. OMK has also completed the construction of a new facility for wide heavy steel plate production at the Vyksa Steel Works plant and is now believed to be self-sufficient in the production of large diameter pipe. At the beginning of 2013, OMK opened a new facility in Houston with reported annual production capacity of 200 thousand tonnes of OCTG pipes.

Severstal Severstal is a major Russian steel producer and one of the major producers in the Russian large diameter pipe market. Severstal commenced manufacture of large diameter welded pipe for long distance pipelines at its Izhora pipe mill in July 2006.

Severstal also launched an expansion project for HSS production at its Sheksna facility. We view Severstal as an emerging competitive threat to us in the large diameter pipe market, particularly in light of its self sufficiency in wide steel plate.

United States The principal domestic competitors of TMK IPSCO in the United States are Tenaris, U.S. Steel and V&M Star, a subsidiary of Vallourec, as well as companies importing OTCG and line pipe products. Several key domestic competitors have announced capacity additions in recent years and in relation to lower grade welded and seamless industrial pipe. We compete with domestic producers as well as certain foreign steel pipe producers, especially from South Korea.

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Product Quality Standards All of our products are manufactured in accordance with a variety of internationally recognised and accepted standards set forth by the following organisations: • API (API standards); • ASTM International (ASTM standards); • American Society of Nondestructive Testing (ASNT standards); • German Standardisation Institute (Deutsches Institut für Normung, DIN standards); • Det Norske Veritas (DNV) (standard for offshore pipelines); • Technical Inspection Association (Technischer U¨ berwachungs Verein, TU¨V standards); • Association francaise de normalisation (AFNOR); • European Committee for Standardisation (CEN); • National standards introduced by Gosstandart and the Russian Federal Agency on Technical Regulating and Metrology (GOST standards); and • International Organisation for Standardisation (ISO certifications).

To help ensure compliance with industry standards and performance specifications, as well as maintain the international competitiveness of our products, we implemented and integrated the Corporate Quality Management System (“CQMS”) to allow our facilities to operate under common standards, completing the transition of the CQMS to the new ISO 9001-2008 requirements, in 2009. In 2011, the independent audit company Lloyd Register Quality Assurance again recognised our Quality Management System as complying with the new ISO 9001-2008 requirements. In addition, we maintain various API licences with respect to Seversky, TMK-CPW, Sinarsky, the Orsky Machine Building Plant, Volzhsky, Tagmet, TMK-Kaztrubprom and TMK-Artrom.

TMK IPSCO’s quality management system is registered as compliant with the International Standard ISO 9001:2008, API Specification Q1 and Technical Specification ISO TS 29001. This registration was granted by API as part of the API Q Plus programme to all U.S. manufacturing facilities, except Geneva, Nebraska, whose quality management system is registered to be in compliance only to ISO 9001:2008.

The ISO 9001 quality management system is intended to ensure that the end product complies with applicable regulations and customers’ quality requirements from the acquisition of raw materials to the delivery of the final product. ISO 9001 is designed to ensure the reliability of both the product and the process associated with the manufacturing operation.

API Spec Q1 licences are designed to cover all of the requirements of ISO 9001:2000 as well as additional quality-control requirements that are considered valuable to the oil and gas industry. API Spec Q1 licences are entitled to apply the API mark to the products they offer, thereby identifying themselves as the producers of safe high-quality equipment for the petroleum and natural gas industry.

Our products must also satisfy our customers’ requirements. Many international oil and gas companies purchase pipes only from suppliers that have satisfied the rigorous qualification requirements of such oil and gas companies with respect to specific kinds of pipes. These companies often keep official lists of qualified suppliers. Since the beginning of 2005, our Russian plants have received qualifications covering various kinds of pipes from a number of large international oil and gas companies including Gazprom, Rosneft, Royal Dutch Shell, , KOC, KNPC, Agip KCO, PDVSA, KARACHAGANAK, Technip Coflexip and Saipem. We actively continue to seek to obtain qualifications from major global oil and gas companies as a means of increasing global market acceptance for our products.

Environmental Matters We strive to ensure that the activity of our subsidiaries conforms to global standards and environmental legislation. Our primary goal in this respect is to make environmental protection an integral part of our business. We are subject to a wide range of local, regional and national laws, regulations, permits and decrees in Russia, Romania and the United States concerning, among other matters, environmental safety, discharges to the air and water and the handling of solid wastes.

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According to our environmental policy, each of our plants approves an environmental protection plan on an annual basis. These plans include measures to aid in adhering to the limits imposed on air and water pollution and storage of industrial waste, introduction of environmentally-friendly industrial technologies, the construction of purification and filtering facilities, the repair and reconstruction of industrial water supply systems, the installation of metering systems, reforestation and the recycling of water and industrial waste.

We also work with non-governmental organisations, including the Russian Union of Industrialists and Entrepreneurs and the Chamber of Commerce and Industry of the Russian Federation and the Russian Steel Association, to respond in a timely fashion to changes in state and market driven environmental regulatory standards.

We have introduced environmental management systems at each of our plants as a means of improving our environmental processes. All of our Russian and Romanian plants have received ISO:14001 certifications with respect to their environmental management systems and are regularly audited by independent companies to ensure compliance with standards. Three of TMK IPSCO’s operations in the United States are ISO:14001 certified. TMK IPSCO’s remaining facilities will be subjected to gap analyses to become certified and will accordingly develop a plan to achieve ISO:14001 certification. The remaining sites are audited by external consultants on a regular basis to verify compliance.

We have not been subject to any material fines for any material environmental violation in the last five years, and we are not aware of any current material legal or administrative proceedings pending against us with respect to environmental matters which could have an adverse material impact on our financial position or results of operations. See “Risk Factors — Risks Relating to our Business and the Pipe Industry — Potential environmental, product liability and other claimsmay create significant liabilities and negatively impact our business”.

Employees

As at 31 December 2012 2011 2010 OAO TMK ...... 339 335 318 TMK Trade House ...... 695 661 646 Russian Plants: Seversky ...... 7,116 7,217 7,329 Tagmet ...... 7,682 8,078 8,736 Sinarsky ...... 7,167 7,477 7,711 Volzhsky ...... 12,123 12,608 12,718 Total Russian Plants ...... 40,340 41,198 41,831 Total Service Division ...... 188 188 184 Foreign Subsidiaries: TMK-Artrom ...... 1,207 1,165 1,104 TMK-Resita ...... 759 773 783 TMK IPSCO ...... 2,617 2,516 2,477 Total Foreign Subsidiaries ...... 4,652 4,530 4,442 Total Other ...... 16 16 14 Total TMK Group ...... 44,992 45,728 46,273

During the last few years, we have been optimising our business processes and outsourcing some of our non-production operations, thus gradually decreasing the number of our employees. Further, staff optimisation was implemented during the global financial and economic crisis in 2008-2009. While our productivity (as measured by tonnes of production per employee) at Russian plants is below western European standards, our production facilities are the principal employers in their respective towns and regions and reductions in the workforce are generally constrained by relevant Russian labour legislation as well as other political and social considerations. For these reasons, we manage reductions in the number of personnel we employ gradually and in a controlled manner.

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We believe that, overall, our relations with our employees and the unions are good. We believe that this is due in part to our commitment to the social infrastructure of our host cities, our good history of timely salary payments and our strong commitment to the social welfare of our employees. As at 31 December 2012, approximately 83% of our employees were members of the Mining and Metallurgical Trade Union of Russia. Each of our production facilities enters into annual collective bargaining arrangements with trade unions. Our collective bargaining agreements establish certain benefits and privileges for employees, including working conditions which are more favourable than those provided for under Russian labour law.

The current agreements, which are to be renegotiated in 2013 provide for an increase in employee wages which are indexed to the Russian consumer price index for the particular region and, for employment stabilisation purposes, contain all necessary measures to hold positions of employment, develop and modernise production and create new employment positions, provide job search assistance to terminated employees and require us to provide notice to the trade union prior to making any major lay-offs.

There have been no strikes or other cases of industrial action at our production facilities since we acquired each of these facilities. We believe that average salaries at all of our production facilities are equal to or above average for the respective regions.

We are party to collective bargaining arrangements at four of our facilities in the United States. These collective bargaining agreements regulate all facets of our labour relations, including salaries and compensations and working hours for bargaining unit members at these plants. Approximately 50% of our employees in the United States are members of the United Steel Workers (“USW”), the primary U.S. steel industry trade union. Work terms and conditions for our USW-affiliated employees are regulated by three collective bargaining agreements. We maintain strong relationships with our U.S. employees and with the trade unions. There have been no strikes or labour disputes in connection with our U.S. facilities since our acquisition of TMK IPSCO, in June 2008. Salaries, compensation and working hours for the seven U.S. plants that are not subject to collective bargaining agreements are determined in accordance with company policy.

Our Russian subsidiaries make defined contributions on behalf of their employees to the Russian Federation state pension, social insurance, medical insurance and unemployment funds at the applicable rates based on gross salary payments. These contributions are expensed as incurred and we have no legal or constructive obligation to make any further payment in respect of such statutory social and pension contributions. Furthermore, our subsidiaries provide certain pension and other post-employment benefits to their employees in accordance with collective bargaining agreements. In addition, we and each of our Russian plants are parties to agreements with each of the regional authorities in the regions where our Russian plants operate, which cover certain aspects of activities in the respective regions. In particular, we have undertaken in the agreements to contribute to the social infrastructure of the localities where each of our plants operate, including providing assistance to schools and medical facilities.

Insurance We paid insurance premiums of an aggregate of approximately U.S.$9.0 million, U.S.$ 7.9 million and U.S.$6.0 million in 2012, 2011 and 2010, respectively. The increase in the insurance premium we paid for 2012 as compared to 2011 was largely due to the increase in the cost of insurance in the U.S. while the increase in the insurance premium we paid for 2011 as compared to 2010 was largely due to the introduction of a new type of obligatory insurance in Russia relating to third party liabilities, and also to the increase of the increase in the cost of insurance in the United States.

At present we have insurance for, among other things: • our real property and production facilities against fires and certain other natural disasters; • our equipment against damage; • our production operations against damages to third parties, including environmental liabilities; • transported goods against theft or damage; • product liability for our exported products; • liability insurance for our directors and officers; and • life insurance, insurance for accidents and diseases.

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We maintain obligatory insurance policies required by Russian law and provide employees with medical insurance as part of our compensation arrangements with our employees. We have also obtained directors’ and officers’ liability insurance for our Board of Directors and senior management. We do not have business interruption insurance.

Legal Proceedings From time to time, we have been and continue to be involved in legal and arbitration proceedings both as plaintiff and defendant. In particular, we are not and have not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which we are aware) during the 12 months preceding the date of this Prospectus, which may have, or have had, in the recent past, a significant effect on our financial position or profitability.

Other Proceedings We are involved in legal and regulatory proceedings from time to time that arise in the ordinary course of business.

We and other Russian pipe producers were investigated, commencing on 26 October 2011, by the Russian Federal Antimonopoly Service (“FAS”) concerning a potential violation of Russian competition law relating to allegations of anti-competitive behaviour in the supply of large diameter pipes to OAO Gazprom. In March 2013, the FAS concluded its investigation and made its determination, which is final. The FAS determined that the tender process conducted by OAO Gazprom for the supply of pipes had lead to certain anti-competitive behaviour on the part of such pipe producers, but that such behaviour was permitted under the law given the resulting positive socio-economic benefits. However, a FAS official noted that any similar further behaviour that restricts competition will be viewed by the FAS as a contravention of applicable law and, if proven, guilty parties will be subject to turnover-based fines.

122 RELATED PARTY TRANSACTIONS

The following is a summary of our most significant transactions with related parties for the years ended 31 December 2012, 2011 and 2010. For further details of these transactions, see Note 30 to the 2012 Annual Consolidated Financial Statements and Note 27 to the 2011 Annual Consolidated Financial Statements.

In the ordinary course of our business, we have engaged, and continue to engage, in transactions with parties that are under common control with us or that are otherwise related parties to TMK.

We seek to conduct all transactions with entities that are under common control or otherwise constitute related parties on market terms and in accordance with applicable law. Transactions with related parties are established on an arm’s length basis.

Transactions with the Parent of the Company and Entities under Common Control with the Parent of the Company In 2009, Bravecorp Limited (an entity under common control with TMK Steel) pledged its shares in OAO TMK to VTB in order to guarantee the TMK Group’s loans in the amount of U.S.$750 million from VTB. The TMK Group was charged U.S.$10 million for this arrangement. As at 31 December 2010, the TMK Group carried a liability in the amount of U.S.$5.3 million in respect of the guarantee by Bravecorp Limited. In the year ended 31 December 2011, the TMK Group discharged its obligations under the guarantee in full.

In June 2011, the TMK Group approved the distribution of final dividends in respect of 2010, from which RUB555.3 million (or approximately U.S.$19.6 million at the exchange rate as at the date of the approval) related to the Parent of the Company and Entities under Common Control with the Parent of the Company.

In November 2011, the TMK Group approved the distribution of interim dividends in respect of six months ended 30 June 2011, from which RUB607.5 million (or approximately U.S.$19.7 million at the exchange rate as of the date of the approval) related to the Parent of the Company and Entities under Common Control with the Parent of the Company.

As at 31 December 2011, the TMK Group paid out in full the final dividends in respect of 2010 and interim dividends in respect of the first half of 2011 to the Parent of the Company and Entities under Common Control with the Parent of the Company.

In June 2012, the TMK Group approved the distribution of final dividends in respect of 2011, from which RUB1,763.8 million (or approximately U.S.$53.2 million at the exchange rate at the date of approval) related to the parent of the Company and entities under common control with the parent of the Company. In August 2012, these dividends were paid in full amount.

In November 2012, the TMK Group approved the distribution of interim dividends in respect of 2012, from which RUB1,008 million (or approximately U.S.$32.1 million at the exchange rate at the date of approval) related to the parent of the Company and entities under common control with the parent of the Company. As at 31 December 2012, no interim dividends were paid to the parent of the Company and entities under common control with the parent of the Company.

Transactions with Associates In the year ended 31 December 2012, the TMK Group rendered no services to its associates and received services from its associates in the amount of U.S.$0.6 million. In the year ended 31 December 2011, the TMK Group rendered services to its associates and received services from its associates in the amounts of U.S.$0.4 million and U.S.$0.5 million, respectively. In the year ended 31 December 2010, the TMK Group did not render services to its associates or receive services from its associates.

Compensation to Key Management Personnel of the Group Key management personnel comprise members of the Board of Directors, the Management Board and certain executives of the TMK Group, totaling 31 persons as at 31 December 2012, 29 persons as at 31 December 2011 and 28 persons as at 31 December 2010.

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The TMK Group provides compensation to key management personnel only in the form of short-term employee benefits, which include:

Wages, salaries, social security contributions and other benefits in the amounts of U.S.$14.9 million for the year ended 31 December 2012, U.S.$15.2 million for the year ended 31 December 2011 and U.S.$9.1 million for the year ended 31 December 2010;

Provision for performance bonuses, which are dependent on operating results for a given year. Such performance bonuses were U.S.$5 million for the year ended 31 December 2012, U.S.$4.3 million for the year ended 31 December 2011 and U.S.$3.1 million for the year ended 31 December 2010.

The amounts disclosed above are recognised as general and administrative expenses in the income statement for the relevant year.

For the years ended 31 December 2012, 2011 and 2010, the TMK Group did not provide compensation to key management personnel in the form of post-employment benefits, other long-term benefits, share-based payments or termination benefits.

The balance of loans issued to key management personnel was U.S.$1.2 million as at 31 December 2012, U.S.$1.1 million as of 31 December 2011 and U.S.$0.4 million as at 31 December 2010.

The TMK Group guaranteed debts of key management personnel with the outstanding amounts of U.S.$2.6 as of 31 December 2012, U.S.$2.6 million as at 31 December 2011 and U.S.$3.4 million as at 31 December 2010.

In 2010, the TMK Group paid U.S.$2.5 million to a member of key management personnel for a guarantee issued.

Transactions with Other Related Parties The following table sets forth our outstanding balances with other related parties as at 31 December 2012, 2011 and 2010.

As at 31 December 2012 2011 2010 (millions of U.S. dollars) Cash and cash equivalents ...... 43.5 125.7 47.2 Accounts receivable ...... 2.0 5.4 3.3 Prepayments ...... 0.0 0.1 0.1 Accounts payable ...... (53.9) (0.7) (2.2) Interest payable ...... — (1.0)

Accounts payable to related parties included accounts payable for raw materials in the amount of U.S.$41.4 million as of 31 December 2012.

On October 18, 2012, the TMK Group acquired three real estate companies in Romania whose principal assets comprised of office building, residential property and land for U.S.$11.6 million (at the historical exchange rate). The acquired buildings and land were considered an asset acquisition. The most part of consideration will be paid to the related party of the TMK Group in order to settle the liability of the acquired companies. The liability of the acquired companies in the amount of U.S.$11.7 million (at exchange rate as at 31 December 2012) was included in accounts payable to related parties in the statement of financial position.

Transactions with related parties for the years ended 31 December 2012, 2011 and 2010 are set out below.

As at 31 December 2012 2011 2010 (millions of U.S. dollars) Sales revenue ...... 14.2 12.4 4.7 Purchases of goods and services ...... 688.4 8.7 7.6 Interest income from loans and borrowings ...... 0.6 0.6 0.5 Interest expenses from loans and borrowings ...... 0.0 0.2 0.5

Purchases of goods and services from related parties during the year ended 31 December 2012 included purchases of raw materials in the amount of U.S.$680.3 million.

124 PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the ownership of our shares as at 4 March 2013:

Number of shares Percentage Owner TMK Steel and its subsidiaries ...... 672,030,999 71.68% Subsidiaries of OAO TMK ...... 53,580 0.006% The Bank of New York Mellon as the depositary in relation to TMK’s depositary receipts programmes ...... 244,068,252 26.03% Other ...... 21,433,263 2.29% Total ...... 937,586,094 100.0%

To our knowledge, no person other than TMK Steel and its subsidiaries and TMK Bonds S.A. holds more than 3% of OAO TMK’s outstanding shares. There are no agreements in place between OAO TMK and our controlling shareholder, TMK Steel and its subsidiaries (which is beneficially owned by Mr. Pumpyanskiy, the Chairman of our Board of Directors) to ensure that its control is not abused. The rights of our shareholders are determined in accordance with our charter and applicable Russian law.

As at 6 March 2013, an aggregate of 17,876,489 Reg S GDRs representing 71,505,956 shares, comprising 7.63% of our issued and fully paid share capital was held by TMK Bonds S.A. to support conversion obligations under the U.S.$412.5 million 5.25% guaranteed convertible bonds due 2015 issued in February 2010 through TMK Bonds S.A. In addition, as at 5 March 2013, an aggregate of 253,523 Reg S GDRs representing 1,014,092 shares, comprising 0.108% of our share capital was held by our subsidiary, Rockarrow Investments Limited.

Other than the foregoing, based on our shareholder register, we believe that we are not directly or indirectly owned or controlled by any other person, corporation or government, and that there are no arrangements, the operation of which may result in a change of control.

125 DIRECTORS AND MANAGEMENT

Our management bodies comprise the Board of Directors, the Management Board (collective executive body) and the General Director (sole executive body).

General Meetings of Shareholders The General Shareholders’ Meeting is our supreme governing body. The General Shareholders’ Meeting must be convened at least once a year. The scope of authority of a general shareholders’ meeting is limited to the issues specified by the Joint Stock Companies Law and our charter. Among the issues that the shareholders have the power to decide at a general shareholders’ meeting are: • amendments to our charter; • our reorganisation or liquidation, appointment of liquidation commission and approval of interim and final liquidation balance sheets; • determination of the number of members of the board of directors, election and dismissal of members of the board of directors; • determination of the number, nominal value and class/type of authorised shares and the rights granted by such shares; • changes in our share capital (other than those specifically delegated to the competence of the board of directors); • appointment and dismissal of members of the Internal Audit Commission; • approval of our external auditor; • adoption of annual reports and financial statements; • distribution of profits; • split and consolidation of our shares; • approval of certain interested party transactions and major transactions; • repurchase by us of issued shares in cases stipulated by the Joint Stock Companies Law and our charter; • approval of our participation in financial and industrial groups, associations and other unions of commercial organisations; • approval of certain internal documents and corporate records; and • other issues, as provided for by the Joint Stock Companies Law and our charter.

Voting at a shareholders’ meeting is generally based on the principle of one vote per ordinary share, except for the election of the board of directors, which is effected through cumulative voting. Decisions are generally passed by a simple majority vote of the voting shareholders present at a shareholders’ meeting. However, Russian law and our charter require a three-quarters majority vote of the voting shareholders present at a general shareholders’ meeting to approve the following: • amendments to our charter; • our reorganisation (except for transformation into a non-commercial partnership) or liquidation, appointment of liquidation commission and approval of interim and final liquidation balance sheets; • determination of the number, nominal value and class/type of authorised shares and the rights granted by such shares; • any issuance of shares or securities convertible into shares by closed subscription; • issuance by open subscription of ordinary shares or securities convertible into ordinary shares, in each case, constituting more than 25% of the number of issued and outstanding ordinary shares; • reduction of the nominal value of our shares; • repurchase by the Company of our outstanding shares pursuant to a shareholders’ decision, as provided for by our charter; and • major transaction involving assets in excess of 50% of the book value of our assets.

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The shareholders’ meeting also approves compensation for the members of the board of directors. A shareholder or a group of shareholders owning in aggregate at least 2% of the issued voting shares may introduce proposals for the agenda of the annual shareholders’ meeting and may nominate candidates for the corporate bodies of TMK. Any agenda proposals or nominations must be provided to the company no later than 30 calendar days after the end of the preceding financial year. Extraordinary shareholders’ meetings may be convened by the board of directors at its own initiative, or at the request of the Internal Audit Commission, the external auditor or a shareholder or a group of shareholders owning in the aggregate at least 10% of the issued voting shares as at the date of the request. A general shareholders’ meeting may be held in a form of a meeting or by absentee ballot. The form of a meeting contemplates the adoption of resolutions by the general shareholders’ meeting through attendance of the shareholders or their authorised representatives for the purpose of discussing and voting on issues on the agenda, provided that if a ballot is mailed to shareholders for participation at a meeting convened in such form, the shareholders may complete and mail the ballot back to the company without personally attending the meeting. A general shareholders’ meeting by absentee ballot envisages collecting shareholders’ opinions on issues on the agenda by means of a written poll. The following issues cannot be decided by a shareholders’ meeting by absentee ballot: • election of members of the board of directors; • appointment of members of the Internal Audit Commission; • approval of the annual reports and financial statements, including the balance sheet and profit and loss statement; • approval of an external auditor; and • approval of distribution of annual profits, including payment of annual dividends, if any.

Board of Directors The Board of Directors is responsible for our overall governance and presently consists of eleven members.

Our directors, and their respective years of birth, current positions and duties outside TMK as at the date hereof, are as follows:

Year of Name birth Position Independent(1) Current duties outside TMK Dmitriy A. 1964 Chairman No President and Chairman of the Board of Directors of Pumpyanskiy of the ZAO Sinara Group; member of the Board of Directors of Board of SKB Bank; Chairman of the Supervisory Board of Directors OAO Russian Agricultural Bank; member of the Board of Directors of OAO Rosagroleasing and President of Sverdlovsk Regional Union of Industrialists and Entrepreneurs Alexander N. 1951 Director Yes President of the Russian Union of Industrialists and Shokhin Entrepreneurs; President of the State University — Higher School of Economics; member of the Board of Directors of several companies, including OAO Russian Railways, OJSC Lukoil, OAO Baltika Breweries, TNK-BP Limited and OAO Fortum Andrey Yu. 1960 Director No Member of the Board of Interregional Non State Big Pension Kaplunov Fund; member of the Board of Directors of ZAO Sinara Group; Deputy Chairman of the Board of Directors of SKB-BANK (JOINT-STOCK COMMERCIAL BANK OF SUPPORT TO COMMERCE AND BUSINESS) and member of the Guardian Council of Sverdlovsk Regional Sports Public Fund “Mini-football Club ‘Sinara’” Igor B. 1972 Director No Vice President of ZAO Sinara Group; member of the Board Khmelevsky of Directors of ZAO Sinara Group; and Director of TMK Steel, Bravecorp Limited, Tirelli Holding Limited and Sinara Capital Management SA

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Year of Name birth Position Independent(1) Current duties outside TMK

Sergey T. 1955 Director No Vice President and member of the Board of Directors of ZAO Papin Sinara Group, member of the Board of Directors of OOO Urals Lokomotives, OAO Burgas Vacation Hotel, OAO Sinara Transport Machines and OAO Arkhyz Sinara Alexander 1952 Director No Member of the Board of Directors of ZAO Sinara Group G Shiryaev. Mikhail Yu. 1964 Director Yes Chairman of the Management Board of ZAO UniCredit Bank; Alekseev member of the Supervisory Board for OAO OZK, ZAO Locat Leasing Russia, the Association of Russian Banks and ZAO UniCredit Securities; member of the Supervisory Board of UniCredit Consumer Financing Bank S.p.A.; Board member of Russian Union of Industrialists and Entrepreneurs; Board member of the Association of Regional Banks of Russia and member of the Supervisory Board of OOO “UniCredit Leasing”. Ruben A. 1964 Director Yes Member of the Board of Directors of Open Joint Stock Aganbegyan Company “Moscow Exchange MICEX-RTS” (formerly known as ZAO Moscow Interbank Currency Exchange); member of the Supervisory Board of non-banking credit organization National Settlement Depositary; Chairman of the Board of Directors of CJSC MICEX — Information Technologies; member of the Board of Directors of self-regulatory organization National Association of Securities Market Participants; member of the Management Board of Russian Union of Industrialists and Enterpreneurs; member of the Board of Directors of CJSC MICEX Stock Exchange and of CJSC Settlement Depository Company; Co-chairman of the Board of self-regulatory non-commercial organization National Securities Market Association; member of the Board of Directors of the non-banking credit organization RTS Settlement Chamber and of Russian Exchange Union; member of the Supervisory Board of CJSC JSCB National Clearing centre; Chairman of the Management Board and General Director of OAO Otkritie Financial Corporation. Robert 1968 Director Yes President of Barclays Capital in Russia, Independent Director Foresman of VEB Capital Peter L. 1969 Director Yes Chairman of the Board of Rusrailleasing and Transfin-M; O’Brien Independent Director of IGSS; Director of European Pension Fund; Independent Director of HRT Participacoes (Brazil) Oleg A. 1962 Director Yes None Schegolev

(1) As defined in Order No. 10-78/pz-n of the Federal Service for the Financial Markets approving the Regulation on Activities Related to Organisation of Trading on the Securities Market dated 28 December 2010, as amended.

The term of our Board of Directors expires on the date of our next annual meeting of shareholders, which is expected to occur in June 2013.

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Biographies of our directors are set out below.

Dmitriy A. Pumpyanskiy joined TMK in 2002 and has served as a member of our Board of Directors since 2004 and Chairman of the Board of Directors since June 2005. Mr. Pumpyanskiy graduated from the Ural S.M. Kirov Polytechnic Institute in 1986. In 2001 Mr. Pumpyanskiy received a PhD degree in technical sciences. From 1994 to 1998 he held various administrative positions in metallurgical enterprises, including OAO Verkh Ysetski Metallurgical Works, AOOT Inter Industry Concern Uralmetprom and OAO Mechel. Between 1998 and 1999, he was a General Director of ZAO Trade House of Sinarsky Pipe Plant. From 1999 to 2002, Mr. Pumpyanskiy held a position as First Deputy General Director and Chairman of the Board of Directors of Sinarsky. During 2001 to 2002 he was a General Director of ZAO Sinara Group. Between 2002 and 2005, Mr. Pumpyanskiy was a General Director of TMK. Since 2008, Mr. Pumpyanskiy has been a member of the Board of Directors of OAO SKB-BANK. Since June 2005, Mr. Pumpyanskiy has held the position of President and member Board of Directors of ZAO Sinara Group.

Alexander N. Shokhin has served as a member of our Board of Directors since 27 June 2008. Mr. Shokhin graduated with a degree in economics from Moscow State University in 1974. Between 1991 and 1994, and again in 1998, he held the post of Deputy Prime Minister of the Russian Federation. From 1991 to 1994, he held the positions of Minister of Labour, Minister of Economics, Chairman of the Russian Agency for International Cooperation and Development and Russian governor at the International Monetary Fund and the World Bank. From 2002 to 2005, Mr. Shokhin was Chairman of the Supervisory Board of Renaissance Capital. From 2005 to 2009, he was a member of the Public Chamber of the Russian Federation and Chairman of its Commission for Competitiveness, Economic Development and Entrepreneurship Issues and President of the Russian Union of Industrialists and Entrepreneurs. Currently Mr. Shokhin is a member of several deliberative bodies under the President of Russia and the Government of Russia, President of the Russian Union of Industrialists and Entrepreneurs; President of the State University — Higher School of Economics; as well as a member of the Board of Directors of several companies, including OAO Russian Railways, OJSC Lukoil, OAO Baltika Breweries, TNK-BP Limited and OAO Fortum.

Andrey Yu. Kaplunov joined TMK in 2001 and has served as a member of our Board of Directors since 2005. Mr. Kaplunov received a degree in economics from the Moscow Finance Institute in 1982 (now known as the Financial University under the Government of the Russian Federation). Mr. Kaplunov received a PhD degree in economics in 1985. Between 1998 and 1999 he served as Deputy Head of the currency and financial department of the Russian foreign economic union, Zarubezhneft. From 1999 to 2000, Mr. Kaplunov was a senior Vice President and a Director of the human resources and corporate development department at ZAO KB Guta Bank. In addition, Mr. Kaplunov served as a Director of the human resources and organisational development department of AKB Rosbank in 2000-2001. He was then appointed Deputy General Director of TMK responsible for organisational development in 2001 and remained in this role until 2005. Mr. Kaplunov has been a Deputy Chairman of the Board of Directors of OAO SKB-BANK since 2006 and he has served as Chairman of the Board of Directors of Sinarsky Pipe Plant, Taganrog Metallurgical Works, Volzhsky Pipe Plant, Seversky Tube Works since 2006 and as a member of the Board of Directors of ZAO Sinara Group since 2007. Mr. Kaplunov has also been First Deputy General Director of TMK and Chairman of the Board of Directors of TMK Trade House since 2008 and a member of the Interregional Non State Grand Pension Fund since 2004 and the Guardian Council of Sverdlovsk Regional Sports Public Fund “Mini-football Club ‘Sinara’” since 2012. Since 2006 Mr. Kaplunov has also been a Deputy Chairman of the Board of Directors of Joint-Stock Commercial Bank of support to commerce and business.

Igor B. Khmelevsky joined TMK in 2003 and has served as a member of our Board of Directors since 2004. Mr. Khmelevsky received a degree in law from Sverdlovsk Legal Institute in 1994 and a degree in foreign languages from State Teachers College of Shadrinsky in 1995. In 1999 he served as Deputy Head of the legal department at OAO Mechel. Between 1999 and 2001, Mr. Khmelevsky was the Deputy General Director responsible for legal matters and head of the legal department at Zlatoustovsky Metallurgical Plant. From 2001 to 2003, Mr. Khmelevsky served as Deputy General Director responsible for legal matters and Head of the legal department at ZAO Sinara Group, and from 2003 to 2005 he was the Deputy General Director of TMK responsible for legal matters. He was also a member of the Administrative Board of SC TMK-Artrom from 2008 to 2010, and a member of the Board of Directors of TMK Global AG from 2009 to 2011. Mr. Khmelevsky has been a Vice President and member of the Board of Directors of ZAO Sinara Group since 2005 and a Director of TMK Steel, Bravecorp Limited, Tirelli Holding Limited and Sinara Capital Management SA since 2008.

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Sergey T. Papin joined TMK in 2002 and has served as a member of our Board of Directors since 2005. Mr. Papin received a degree in metallurgical engineering from Donetsk Polytechnic Institute in 1977. Between 1996 and 2000, Mr. Papin was Vice President, member of the Management Board and Head of the expert and analytical council of OAO AB Incombank. From 2000 to 2002, he was Vice President and Head of the department responsible for interaction with state authorities, advertising and public relations at ZAO KB Guta Bank. From 2002 to 2005, Mr. Papin was a Deputy General Director of TMK responsible for public relations. In 2009 he served as Chairman of the Board of Directors of OAO Urals Plant of Railway Engineering and from 2009 to 2010 he was a member of the Board of Directors of Lyudinovo Locomotive Worsk. From 2008 to 2011, Mr. Papin was a member of the Board of Directors of ZAO Inturist-Sinara. Mr. Papin has been a Vice President and member of the Board of Directors of ZAO Sinara Group and OAO Sinara Transport Machines since 2005 and a member of the Board of Directors of OAO Burgas Vacation Hotel and OAO Arkhyz-Sinara since 2008. He has also been a member of the Board of Directors of OOO Ural Locomotives since 2010.

Alexander G. Shiryaev joined TMK in 2003 and has served as a member of our Board of Directors since 2005. Mr. Shiryaev received a degree in economics from Sverdlov Institute of National Economics in 1991. From 1998 to 2000, Mr. Shiryaev served as General Director and Deputy General Director of OAO Uralshina. In 2001 Mr. Shiryaev served as Deputy General Director responsible for strategic development at ZAO Trade House Sinarsky Pipe Plant. Between 2001 and 2003, he was a Deputy General Director responsible for development at ZAO Sinara Group. Mr. Shiryaev worked as a Deputy General Director responsible for economics and finance at TMK Trade House from 2004 to 2005 and served as General Director of ZAO Sinara Group from 2006 to 2008.

Mr. Shiryaev has been a member of the Board of Directors of Taganrog Metallurgical Works since 2006 and a member of the Board of Directors of Sinarsky Pipe Plant and Volzhsky Pipe Plant since 2007 and has served as General Director and Chairman of the Management Board of TMK since 2008. Mr. Shiryaev has also been a member of the Board of Directors of Seversky Tube Works and TMK Trade House since 2009 and has served as Chairman of the Board of Directors of Orsky Machine-Building Plant since 2011. Since 2007, Mr. Shiryaev has also been a Member of the Board of Directors of ZAO Sinara Group.

Mikhail Yu. Alekseev joined TMK in 2011 as a member of our Board of Directors. Mr. Alekseev received a degree in finance from the Moscow Finance Institute in 1986 (now known as the Financial University under the Government of the Russian Federation). In 1992 Mr. Alekseev received a PhD degree in economics. From 1989 to 1991, he worked at the Ministry of Finance of the USSR as Deputy Head of the Directorate and served as a Board Member of Mezhkombank from 1992 to 1994. In 1995, he moved to Uneximbank as a Deputy Chairman and remained in this role until 1998. Mr. Alekseev then worked at Rosbank from 1999 to 2006, where he was responsible for retail operations for small and medium enterprises, strategic development and operations and IT, and left in 2006 as Deputy Chairman. From 2006 to 2008, he was the Chairman of the Board and President of Rosprombank. Since 2008 Mr. Alekseev has been serving as Chairman of the Management Board of ZAO UniCredit Bank, as a member of the Supervisory Board for OAO OZK, ZAO Locat Leasing Russia, the Association of Russian Banks and ZAO UniCredit Securities. Since 2009 Mr. Alekseev has been serving as a member of the Supervisory Board of UniCredit Consumer Financing Bank S.p.A., and Board member of Russian Union of Industrialists and Entrepreneurs. Since 2011 Mr. Alekseev has been serving as Board member of The Association of Regional Banks of Russia and member of the Supervisory Board of OOO “UniCredit Leasing”.

Ruben A. Aganbegyan joined TMK in 2012 as a member of our Board of Directors. Mr Aganbegyan received a degree in law from the Moscow State Law Academy in 1995. He worked at PricewaterhouseCoopers from 1992 to 1995 and worked as a senior lawyer at Clifford Chance and Credit Suisse Financial Products (Moscow) from 1995 to 1997. In 1997, Mr. Aganbegyan became Vice President of the legal department at Credit Suisse Financial Products (Moscow) and became Co-Head of Credit Suisse First Boston in Russia in the same year. He left this position in 2002 and served as Managing Director of Project Finance at Troika Dialog Investment Company until 2003. From 2003 to 2010, Mr. Aganbegyan served in Renaissance Capital – Financial Counsel LLC. In 2007, he became Director of the Russian Business Sector , and in 2009 became Chairman of its Management Board and later that year became President of Renaissance Capital – Financial Counsel LLC. From 2010 to 2012, he served as President of Open Joint Stock Company “Moscow Exchange MICEX-RTS” (formerly known as ZAO Moscow Interbank Currency Exchange).

Since 2009 Mr Aganbegyan has served as a Member of the Board of Directors of Open Joint Stock Company “Moscow Exchange MICEX-RTS” (formerly known as ZAO Moscow Interbank Currency Exchange). Since 2010 Mr Aganbegyan has served as a member of the Supervisory Board of non-banking credit organization

130 Directors and Management

National Settlement Depositary, a Chairman of the Board of Directors of CJSC MICEX — Information Technologies, a member of the Board of Directors of self-regulatory organization National Association of Securities Market Participants, a member of the Management Board of Russian Union of Industrialists and Enterpreneurs. Since 2011 he has been a member of the Board of Directors of CJSC MICEX Stock Exchange and of CJSC Settlement Depository Company, and also a Co-chairman of the Board of self-regulatory non- commercial organization National Securities Market Association. Since 2012 Mr Aganbegyan has served as a member of the Board of Directors of the non-banking credit organization RTS Settlement Chamber and of Russian Exchange Union; as a member of the Supervisory Board of CJSC JSCB National Clearing centre and as a Chairman of the Management Board and General Director of OAO Otkritie Financial Corporation.

Robert Foresman joined TMK in 2012 as a member of our Board of Directors. Mr. Foresman graduated from Bucknell University in 1990 and from Harvard University Graduate School of Arts & Sciences in 1993 with a masters degree in foreign affairs. From 1993 to 1997 he served as a Director of the Ukraine privatisation advisory team of the International Finance Corporation (World Bank Group) in Washington. From 1997 to 2001 he was Head of Investment Banking for Russia and the CIS at ING Barings. In 2001 Mr. Foresman became Chairman of the Management Committee for Russia and the CIS at Dresdner Kleinwort Wasserstein and remained in this position until 2006. From 2006 to 2009 he served as Deputy Chairman of Renaissance Capital. From 2008 to 2011 Mr. Foresman served as Independent Director of Eurofinance Mosnacbank. In 2009 he joined Barclays Capital in Russia and has served as President of Barclays Capital in Russia. Since 2010 he has also served as Independent Director of VEB Capital.

Peter L. O’Brien joined TMK in 2012 as a member of our Board of Directors. Mr. O’Brien received a degree in Russian studies from Duke University (USA) in 1991 and a degree in finance from Columbia Business School in 2000. In 2011 he received an advanced management program degree from Harvard Business School. From 1993 to 1994 he was a Press Officer in the U.S. Treasury Department and served as Vice President of Troika Dialog from 1995 to 1998. In 2000 Mr. O’Brien joined Morgan Stanley in Russia and served as Co-Head of Investment Banking and Executive Director until 2006. From 2006 to 2011, he served as member of the Management Board and Vice President for Finance and Investments of Rosneft. Since 2012 Mr. O’Brien has served as Chairman of the Board of Rusrailleasing and Transfin-M; as an Independent Director of IGSS Independent Director of HRT Participacoes (Brazil). He also currently serves as a Director of European Pension Fund.

Oleg A. Schegolev joined TMK in 2012 as a member of our Board of Directors. Mr. Schegolev graduated from the Moscow Finance Institute (now known as the Financial University under the Government of the Russian Federation) in 1984 with a degree in international economics. From 1984 to 1998 he served as an officer in the armed forces of Russia. Between 1998 and 2002 he held various executive positions at Sibneft, including Senior Specialist and Deputy Department Director and Head of the strategic development department. In 2002, Mr. Schegolev was Deputy Head of the perspective development department of the Ministry of Energy of Russia. He then joined Slavnet as Executive Director and served there from 2002 to 2007. From 2007 to 2009 he served as First Vice President of Russneft.

None of the above directors has any family relationship with any other director or with any member of senior management. Furthermore, there are no potential conflicts of interest between any duties that each of the Board of Directors owes to TMK and any private interests and or other duties of such directors.

The business address for each of the members of our Board of Directors is 40 Pokrovka Street, Building 2A, 105062.

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Management Board Our Management Board is generally responsible for certain day-to-day operational matters. Members of the Management Board, and their respective years of birth and positions as at the date hereof, are as follows:

Name Year of birth Position Alexander G. Shiryaev 1952 Chairman of the Management Board Andrey Yu. Kaplunov 1960 Member of the Management Board Alexander A. Klachkov 1957 Member of the Management Board Alexander G. Lyalkov 1961 Member of the Management Board Vladimir B. Oborsky 1961 Member of the Management Board Tigran I. Petrosyan 1968 Member of the Management Board Konstantin A. Semerikov 1959 Member of the Management Board Vladimir V. Shmatovich 1964 Member of the Management Board

Biographies of the members of the Management Board who are not directors of TMK are set out below.

Alexander G. Shiryaev. — For biography, see “— Board of Directors”.

Andrey Vu. Kaplunov — For biography, see “— Board of Directors”.

Alexander A. Klachkov joined TMK in 2004. From 2004 to 2005, he was a Director of the technical department of TMK and from 2005 to 2009, he served as Director of the department for technical development of TMK.

He currently serves as our Deputy General Director, Chief Engineer and member of the Management Board of TMK.

Alexander G. Lyalkov joined TMK in 2003. Mr. Lyalkov graduated from Volgograd Polytechnic College in 1989. Between 1980 and 2005 Mr. Lyalkov worked at Volzhsky Pipe Plant. He held a number of managing positions at Volzhsky including Operations Director (2001), First Deputy Director of Volzhsky (2001-2002) and subsequently as the plant’s General Director (2002-2004). From 2004 through August 2006, Mr. Lyalkov was a Managing Director of Volzhsky Pipe Plant. From 2007 to 2008, he served as First Deputy General Director of TMK Trade House responsible for operational matters. From 2008 to 2010 he was the First Deputy General Director of TMK and TMK Trade House for manufacturing. He currently serves as our Senior Deputy General Director and member of the Management Board of TMK.

Vladimir B. Oborsky joined TMK in 2003. Mr. Oborsky graduated from Kiev High Military School in 1982 and Military Academy named after M.V. Frunze in 1994. From 2000 to 2001, Mr. Oborsky was Head of the division of VIP clients and tenders and Head of the division for interaction with gas industry at ZAO Trade House of Volzhsky Pipe Plant. In 2001 he joined TMK Trade House; from 2001 to 2003 he served as a Head of the department for interaction with Transneft and enterprises of the gas industry; between 2003 and 2005, he was Head of the Department for interaction with Gazprom, independent gas producers and Transneft. He has been our Deputy General Director for procurement since 2008 and member of the Management Board since 2007. He is also currently the General Director and member of the Board of Directors of TMK Trade House.

Tigran I. Petrosyan joined TMK in 2001. Mr. Petrosyan graduated from Yerevan State University in 1993. From 1993 to 1994 he held a position in the Ministry of the Economy of the Republic of Armenia. From 1994 to 1995, he served as an economist at AKB Noy and Volzhsky. Between 1995 and 1997, he was Deputy General Director of OOO Volzhsky Audit. From 2000 to 2001 Mr. Petrosyan worked as a Head of the planning and economics department at OAO PO Volzhsky. From 2001 to 2002, Mr. Petrosyan was a Head of the planning and economics department at TMK. From 2002 to April 2006, he served as a Director of the Economic and Planning Directorate of TMK. Since April 2007 Mr. Petrosyan has been our Deputy General Director, Chief Financial Officer and member of the Management Board of TMK. Since 2007 Mr. Petrosyan has also been a member of the Board of directors of SinTZ, STZ, VTZ and Tagmet.

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Konstantin A. Semerikov joined TMK in 2003. Mr. Semerikov graduated from the Moscow Institute of Steel and Alloys in 1981 with an engineering degree in metallurgy. Since 1992, he has held various positions in Tagmet, and in 2001 he was elected as a member of the Management Board of Tagmet. From 2002 to 2003 Mr. Semerikov was Mayor of Taganrog. In May 2003, he was nominated Deputy Chief Engineer of TMK and in December 2003 became a Deputy General Director for Operations of TMK. From 2004 to 2005 Mr. Semerikov served as General and Executive Director of TMK Trade House and from 2005 to 2008 served as our General Director and Chairman of the Management Board. He was also a General Director of TMK Trade House and First Deputy General Director of TMK from 2008 to 2012. Currently he is a member of the Management Board of TMK. Since August 2012 Mr. Semerikov has served as a Vice President of TMK IPSCO.

Vladimir V. Shmatovich joined TMK in 2005. Mr. Shmatovich graduated from the Moscow Finance Institute in 1989 (now known as the Financial University under the Government of the Russian Federation) and completed an MBA program at the University of Notre Dame in 1993. From 1996 to 2002, Mr. Shmatovich worked as a General Director and Deputy General Director of OAO Interros. He served as a Deputy General Director for Economy and Finance at OAO Udmurtneft (2002) and as a Director for Financial Control at OAO Sidanco (2002-2003). From 2003 to 2005 he was a Deputy General Director and Director for Economy and Finance of OOO RusPromAvto, and from May 2005 to April 2006 he worked as a Deputy General Director for Economics and Finance at TMK. Mr. Shmatovich was also a Deputy General Director for Finance and Economics at TMK Trade House and a Deputy General Director for Finance of TMK from 2005 to 2007. In 2008 he worked as Deputy General Director for Strategy and Business Development of TMK Trade House. Since 2005, Mr. Shmatovich has been a member of the Management Board of TMK.

None of the above members of the Management Board has any family relationship with any director or with any other member of the Management Board. Furthermore, there are no potential conflicts of interest between any duties that each of the Management Board owes to TMK and any private interests and or other duties of such members of the Management Board.

The business address for each of the members of our Management Board is 40 Pokrovka Street, building 2A, 105062, Moscow, Russian Federation

Remuneration of Directors and Management Key management personnel comprise members of the Board of Directors, the Management Board and certain executives of the TMK Group, totaling 31 persons as at 31 December 2012, 29 persons as at 31 December 2011 and 28 persons as at 31 December 2010. Total compensation to key management personnel included as part of the general and administrative expenses in the income statement amounted to U.S.$19.9 million, U.S.$19.5 million and U.S.$12.2 million for the year ended 31 December 2012, 2011 and 2010, respectively. Compensation to key management personnel consists of wages, salaries, social security contributions, provision for performance bonuses depending on operating results for a given year and other short-term employee benefits. For the years ended 31 December 2012, 2011 and 2010, the TMK Group did not provide compensation to key management personnel in the form of post-employment benefits, other long-term benefits, share-based payments or termination benefits. The balance of loans issued to key management personnel was U.S.$1.2 million as at 31 December 2012, U.S.$1.1 million as at 31 December 2011 and U.S.$0.4 million as at 31 December 2010. The TMK Group guaranteed debts of key management personnel outstanding as at 31 December 2012 in the amount of U.S.$2.6 million with maturities ranging from 2014 to 2016.

Members of the Board of Directors, including the Chairman, serve in their capacities pursuant to written agreements with us. Agreements with the members of the Board of Directors, each of which contains largely standard identical terms, provide for the payment of monthly compensation to each member of the Board of Directors and annual remuneration to the Chairman and members of the Board of Directors’ committees, as well as reimbursement of certain expenses. Such agreements are valid until termination of the powers of such member of the Board of Directors. Relations with the Chairman of the Board of Directors are governed by a separate agreement which is similar to agreements executed with the members of the Board of Directors. The Chairman has a right to receive monthly remuneration for the execution of his duties and for reimbursement of certain expenses. The agreement with our Chairman of the Board is valid until termination of the powers of the Chairman of the Board or re-election of the Chairman of the Board of Directors.

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Members of our Management Board serve in their capacities pursuant to written labour agreements and contracts (soglasheniya) specifying their particular duties and responsibilities. Such contracts, containing identical terms, provide for the payment of monthly compensation and annual remuneration to each member of our Management Board. Annual remuneration is paid only if a member of the Management Board fully achieves the main objectives as provided under the contract. Furthermore, the General Director may grant to a member of the Management Board additional remuneration for specific achievements.

Board Practices Board of Directors Members of our Board of Directors are elected at our annual general shareholders’ meeting by cumulative voting. Each director is elected for a term that expires at the next annual general shareholders, meeting and may be reelected for an unlimited number of periods. Our Board of Directors currently consists of eleven members, including six independent directors. According to our charter the Board of Directors has the authority to make the principal management decisions for TMK, except in respect of those matters reserved for the general meeting of shareholders.

The standing committees of our Board of Directors are: • the Audit Committee; • the Nomination and Remuneration Committee; and • the Strategy Committee.

Audit Committee Pursuant to our internal regulations, our Audit Committee consists of at least three members from our Board of Directors, each of whom is to be an independent director (or, if this is not reasonably possible, either an independent or non-executive director, an “independent” director generally being a director who does not hold, and did not hold during the last five years organisational, management or administrative positions with TMK, is not an affiliate of TMK, is not a representative of the state government, and who meets certain other criteria as provided in our Regulations on the Board of Directors, and a “non-executive director” being a member of the Board of Directors who does not hold an organisational, management or administrative position with TMK). As at the date of this Prospectus, the Audit Committee consists of Peter L. O’Brien, Igor Khmelevsky and Mikhail Alexeev and is headed by Peter L. O’Brien, each of whom will serve until our next annual meeting of shareholders.

The Audit Committee is principally responsible for: • review of our financial statements; • review of reports of the Internal Audit Commission and the internal control department; • review of, and making recommendations to, the Board of Directors in relation to the standards and procedures for internal and risk control of TMK; • evaluating the efficiency of internal control procedures and preparing proposals for their improvement; • assessment of planned major and interested party transactions to be entered into by TMK; and • analysis, together with the external auditors, of major issues with respect to the audit of financial and accounting reporting.

Nomination and Remuneration Committee Pursuant to our internal regulations, our Nomination and Remuneration Committee consists of at least three members from our Board of Directors, each of whom is to be an independent director (or, if this is not reasonably possible, either an independent or non-executive director). As at the date of this Prospectus, the Nomination and Remuneration Committee consists of Mikhail Alexeev, Robert Foresman and Sergey Papin and is headed by Mikhail Alexeev, each of whom serves until our next annual meeting of shareholders.

134 Directors and Management

The Nomination and Remuneration Committee encourages the recruitment of qualified specialists to our management and determines appropriate salary levels for our management.

The Nomination and Remuneration Committee is principally responsible for:

• establishing criteria for evaluation of candidates to the Board of Directors and the Management Board, as well as to the position of the General Director; • defining principles and criteria for the amount of remuneration and compensation for the General Director and the members of the Board of Directors and the Management Board; and • evaluating the performance of the General Director and the Management Board.

Strategy Committee Pursuant to our internal regulations, the Strategy Committee consists of at least three members who are members of our Board of Directors and, if deemed necessary, other officers and employees of TMK. As at the date of this Prospectus, the Strategy Committee consists of Alexander Shokhin, Alexander Shiryaev and Oleg Schegolev and is headed by Alexander Shokhin, each of whom serves until our next annual general shareholders’ meeting.

The Strategy Committee is principally responsible for:

• proposing our business priorities, including budgets, long-term plans, strategies and development programmes; • proposing upgrades of our budgeting system, investment planning, monitoring and analysis processes; • reviewing and making recommendations in relation to our investment policy; • making proposals on dividend policy; and • making proposals on the mergers and acquisitions policy and the sale of fixed assets.

Management of Subsidiaries To achieve integrated control over the activities of our operating facilities, in December 2003 we assumed the duty of a centralised management company. TMK has been appointed by the shareholders of each of Seversky, Tagmet and Sinarsky as the management company until and including 31 December 2015, and in respect of Volzhsky until and including 31 December 2014.

These management contracts transfer all executive powers that are not under the direct control of the Board of Directors of these plants to TMK. We exercise the managing powers of a sole executive body of the companies that we manage including entering into transactions on behalf of each company (within the limits provided for by applicable law and restrictive charters), operate their bank accounts and represent them in their relations with various governmental and judicial agencies. Management is exercised by our officer acting under a power of attorney.

Our appointment as a management company serves to centralise all management functions in a single body and facilitates the adoption of standard operating and financial management practices across all of our operations. The delegation of management functions to us also serves to improve the efficiency of management activities.

Corporate Governance Our corporate governance procedures have been prepared in accordance with general requirements of the Russian Joint Stock Companies Law, listing rules of the Russian stock exchanges, other regulatory acts governing operations of joint stock companies in the Russian Federation, our charter and internal regulations. We have adopted standards for relations with our shareholders, the composition and proceedings of our Board of Directors, the role of our executive officers, disclosure of information and the auditing of our financial performance that comply with the Recommended Corporate Governance Code adopted by the Federal

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Commission on Securities Market on 4 April 2002. For the purposes of implementation of the provisions of the Recommended Corporate Governance Code, we have adopted the following documents relating to the corporate governance matters: • Regulations on the General Meeting of shareholders; • Regulations on the Board of Directors; • Regulations on the Management Board; • Regulations on the Internal Audit Commission; • Regulations on the Audit Committee of the Board of Directors; • Regulations on the Strategy Committee of the Board of Directors; • Regulations on the Nomination and Remuneration Committee of the Board of Directors; • Regulations on the Information Policy; • Regulations on Insider Information; and • Dividend Policy Regulations.

We have approved an Ethics Code that establishes standards of professional activity and ethics for all our employees, including members of the Board of Directors, Management Board and Internal Audit Commission.

Certain Proceedings against our Management At the date of this Prospectus, no member of our Board of Directors or Management Board for at least the previous five years:

• has any convictions in relation to fraudulent offences; • has held an executive function in the form of a senior manager or a member of the administrative, management or supervisory bodies, of any company at the time of or preceding any bankruptcy, receivership or liquidation; or • has been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) nor has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company.

136 CERTAIN REGULATORY MATTERS

General Russia has not enacted any specific legislation governing the operation of pipe manufacturing activities. The production, sale and distribution of pipes in the Russian Federation is regulated by general civil legislation and special legislation relating to quality standards, industrial safety rules, environmental and other issues.

At the federal level, the Ministry of Industry and Trade of the Russian Federation is the principal state body supervising the operation of the pipes sector. The ministry is responsible for the development of governmental policy in the industry, including, among other things, attraction of investments, foreign trade, taxation, support of scientific research and employment, however, it lacks direct regulatory authority. The Ministry of Industry and Trade of the Russian Federation on 18 March 2009 approved the “Strategy for Development of Metal Manufacture Industry of the Russian Federation for the Period till 2020” (the “Strategy”). The Strategy supersedes the “Strategy for Development of Metal Manufacture Industry of the Russian Federation for the Period till 2015” dated 29 May 2007. The Strategy, inter alia, outlined the key trends and factors relevant for the development of national ferrous and non-ferrous metallurgy, set out three stages of development of the Russian metallurgy (2009-2011, 2012-2015 and 2016-2020) and determined that innovative growth would be the priority for improving competitive strength of national manufacturers.

The Ministry of Economic Development of the Russian Federation regulates Russian export and import of products and coordinates intergovernmental negotiations relating to export and import activity.

The federal ministries in Russia are not responsible for compliance control or management of state property and provision of services, which are directed by the federal services and the federal agencies, respectively. The federal services and agencies that are relevant to our activities include: • the Federal Service for Ecological, Technological and Nuclear Supervision, which sets procedures for, and oversees compliance with, industrial safety and environmental rules and issues licences for certain industrial activities and activities relating to safety and environmental protection; • the Federal Service for the Supervision of Environmental Use oversees compliance with the terms and conditions of licences issued by the Federal Subsoil Use Agency and environmental legislation; • the Federal Agency for Technical Regulation and Metrology, which determines and oversees levels of compliance with applicable technical regulations; and • the Federal Anti-Monopoly Service (the FAS) oversees, inter alia, economic concentration, including acquisitions of controlling stakes in companies and, the activities of companies enjoying dominant market positions.

Aside from the above federal executive bodies, which are directly involved in the regulation of and supervision over the Russian pipe industry, a number of other governmental bodies and agencies have authority over general issues connected with the pipe industry such as defense, rail transport and tax enforcement.

Licensing We are required to obtain numerous licences, authorisations and permits from the Russian governmental authorities for our operations. Federal Law No 99-FZ “On Licensing of Certain Types of Activities” of 4 May 2011 (the “Licensing Law”), as well as other laws and regulations, sets forth the activities subject to licensing and establishes procedures for issuing licences. The list of activities relating to the pipe industry includes, among other things, activities connected with handling of hazardous waste, operation of explosive and chemically hazardous production facilities.

The requirements imposed by regulatory authorities may be costly and time-consuming, which may result in delays in the commencement or continuation of exploration or production operations. Accordingly, the licences that we need may not be issued in a timely fashion, or may impose requirements that restrict our ability to conduct our operations or to do so profitably.

These licences are usually issued for an indefinite term. Licences for subsoil use can have both a limited and unlimited term that depends upon the type of this use and may be extended in certain circumstances upon application of a licencee. A licence can be suspended by a licensing authority or by the court if the licencee

137 Certain Regulatory Matters becomes subject to administrative liability for violation of conditions and requirements of a licence under the procedure stipulated by Russian law. If a licencee does not mitigate any breach of the licence granted to it within the period established by the court or a licensing authority, this licensing authority must apply to the court for cancellation of this licence.

As part of our obligations under licensing regulations, we must comply with numerous industrial standards, employ qualified personnel, maintain certain equipment and a system of quality controls, monitor operations, maintain and make appropriate filings and, upon request, submit specified information to the licensing authorities that control and inspect their activities. Failure to comply with these requirements may result in suspension and subsequent revocation of the licences by a court order. Besides, special rules apply to suspension and revocation of subsoil licences.

Certification Federal Law No 184-FZ “On Technical Regulation” dated 27 December 2002, as amended, (the “Technical Regulation Law”), establishes specific rules relating to the development, enactment, application and enforcement of obligatory technical requirements and the development of voluntary standards relating to manufacturing processes, operations, storage, transportation, selling and utilisation.

The Technical Regulation Law represents the first step in the long-term reform of the Russian standardisation and certification legislation. It supersedes the Laws of the Russian Federation “On Certification of Goods and Services” No 5151-1 dated 10 June 1993 and “On Standardisation” No 5154-1 dated 10 June 1993 and will be followed by the revision of existing legislation and technical rules falling within the scope of its regulation. Under the Technical Regulation Law, technical rules and regulations relating to industrial safety and environmental protection can be enacted only by federal laws, decrees of the president, resolutions of the government and by-laws adopted by state authorities responsible for technical regulation.

The Technical Regulation Law provides for voluntary confirmation of products’ compliance with technical regulations and envisages mandatory confirmation of such compliance in certain instances. The mandatory confirmation may take the following two forms: declaration of compliance by producers or sellers, or mandatory certification.

Violation of the rules of mandatory certification, i.e. sale of goods subject to mandatory certification without required certificates, may lead to an administrative fine and/or administrative suspension of business operations for up to ninety days.

Land Use Rights Russian legislation prohibits the carrying out of any commercial activity on a land plot without appropriate land use rights.

Under the Land Code of the Russian Federation of 25 October 2001, as amended, (the “Land Code”), legal entities may generally have the rights of ownership or lease with regard to land plots in the Russian Federation.

The majority of land plots in the Russian Federation are owned by federal, regional or municipal authorities which, through public auctions or tenders or filing of requests by individuals and legal entities, can sell and lease land to private users.

Legal entities may also have a right of perpetual use of land that was obtained prior to the enactment of the Land Code; however, Federal Law No 137-FZ “On Introduction of the Land Code,” dated 25 October 2001, as amended, with certain exceptions, requires companies having the right of perpetual use either to purchase the land from, or to enter into a lease agreement relating to, the land with the relevant federal, regional or municipal authority, owner of the land, by 1 July 2012.

Our subsidiaries generally have a right of ownership or a long-term lease. There are also certain land plots in perpetual use, however, those plots are currently being transferred to long-term lease agreements. A land plot lessee has a priority right to enter into a new land lease agreement with a lessor upon the expiration of a land lease. In order to renew a land lease agreement, the lessee must apply to the lessor (usually state or municipal

138 Certain Regulatory Matters authorities) for a renewal prior to the expiration of the agreement. Any lease agreement entered into for the period of one year or more must be registered with the registration services and local land authorities if required by municipal legislation.

Anti-monopoly Regulation The anti-monopoly legislation of the Russian Federation is based on the Federal Law No 135-FZ of 26 July 2006 “On Protection of Competition” (the “Competition Law”) and other federal laws and regulations governing anti- monopoly issues.

The anti-monopoly legislation of the Russian Federation governs relations which are aimed at the protection of competition in the Russian market and which involve, inter alia, Russian legal entities, foreign legal entities, state authorities of the Russian Federation and regional and local government authorities.

The compliance with anti-monopoly legislation in Russia is monitored by the FAS. The Russian legislation grants the FAS ample powers necessary for the performance of its functions and dealing with violations of anti- monopoly legislation. The FAS is, inter alia, authorised (i) to initiate or examine cases regarding violation of anti-monopoly legislation (pursuing, inter alia, invalidation of any agreements violating anti-monopoly legislation); (ii) to issue binding orders to business entities in cases specified in the Competition Law; and (iii) to penalise commercial and non-commercial organisations and their officers for violating anti-monopoly laws in the instances and in accordance with the procedure that is established by the Russian legislation.

In general, anti-monopoly regulation comprises certain measures aimed at prevention and termination of monopolistic activity and control over the economic concentration.

Prevention and termination of monopolistic activity Anti-monopoly restrictions in the sphere of regulation of monopolistic activity include prohibitions of (i) conclusion of anticompetitive agreements, (ii) exercise of anticompetitive coordinated actions, (iii) unfair competition, and (iv) abuse of dominant position.

An entity or a group of entities is deemed to have a dominant position in a particular commodity market if: (a) the entity (or the group of entities) has a market share on a particular commodity market in excess of 50%, unless it is specifically established by the FAS that the entity (or the group of entities) does not have a dominant position; or (b) the entity has a market share in a particular commodity market which is less than 50%, but more than 35%, and the dominant position of the entity (or the group of entities) is specifically established by FAS based on (i) the stability or near stability of such entity’s (group of entities’) share on the particular commodity market, and (ii) certain characteristics of the relevant commodity market (such as the accessibility of the commodity market for new competitors). The Competition Law additionally specifies circumstances in which an entity is recognised as having a dominant position though its market share is less than 35%.

The Competition Law also provides the possibility of several unrelated entities being considered to collectively have a dominant position. In particular, each of three business entities collectively having a market share exceeding 50%, or each of five business entities collectively having a market share exceeding 70%, provided that the market share of each entity in any case exceeds 8%, may be considered as having the dominant position provided that (i) market shares of relevant entities have been stable or nearly stable during a significant period of time; (ii) the access of new competitors to a particular commodity market is hindered; (iii) the relevant commodity cannot be easily substituted; and (iv) the demand for the commodity is price-inelastic.

Furthermore, pursuant to the Competition Law, any entity being a natural monopoly is deemed to enjoy a dominant position in the relevant commodity market which represents the natural monopoly (“natural monopolies” are regulated by specific legislation and, inter alia, include the gas and electricity markets).

The Competition Law establishes a regulatory framework for companies enjoying dominant positions in certain markets, aimed at protection of competition in the relevant markets. In particular, an entity enjoying a dominant position is prohibited from abusing such a position through; inter alia, the following activities: (i) fixing and/or maintaining a monopolistic high or low price of goods; (ii) withdrawing goods from circulation which results in price increase; (iii) dictating to a counterparty terms of agreement unfavourable to it or not relevant to the subject-matter of the agreement; (iv) economically or technologically unjustified reducing or terminating the

139 Certain Regulatory Matters production of certain goods; (v) economically or technologically unjustified refusing to enter into an agreement with certain buyers (customers) or avoiding such agreement; (vi) economically or technologically unjustified fixing various prices (tariffs) for the same goods; (vii) creating discriminatory conditions; (viii) creating impediments for other entities to either access or exit a particular commodity market; and (ix) violation of established pricing rules.

If a company is determined to be a dominant entity which has abused its dominant position, the FAS may: (i) issue a binding order requiring the company to remedy or mitigate the consequences of such actions, to amend abusive contractual terms or terminate any abusive contracts, to perform any actions aimed at maintaining market competition and to provide the FAS with any information regarding business activities of the company; (ii) impose fines on the company in the amount of up to 15% of revenues in the market where the offence occurred, earned in the year preceding the year in which the offence occurred, but not more than two percent of the gross revenues, or seise net income earned as a result of the abusive practices; (iii) impose fines on the company officers in the amount of up to RUB50,000 or prohibit them to hold management positions or practice certain activities for a period of up to three years; (iv) initiate criminal proceedings against the company’s officers. Criminal penalties for violation of competition laws include imprisonment for up to seven years with or without a fine in the amount of up to RUB1,000,000 or a fine equal to the relevant officer’s income earned over a five-year period with or without disqualification for a period of up to three years; and (v) file a claim to the court to invalidate abusive contracts partially or in whole or acts of state authorities, to require reorganisation or liquidation of the company (if a company enjoying a dominant position systematically carries out any monopolistic activities, the court based on such FAS claim may decide that such company is subject to forcible division or spin-off).

Russian law in respect of the protection of competition also includes a general prohibition for any entity, irrespective of whether it holds a dominant market position or not, to enter into an agreement (a cartel agreement) or perform concerted actions in the market that result or may result in the prevention, restriction or elimination of market competition or infringement of interests of third parties. The sanctions for violation of these norms are generally similar to those for the abuse of a dominant market position, and include significant fines of up to 15% of the revenues of the offender in the market where the offence occurred, earned in the year preceding the year in which the offence occurred. In addition, the administrative sanctions (such as fines or disqualification (i.e. prohibition on holding a management position) for up to three years) and/or criminal liability (including imprisonment for up to 7 years and a fine of up to 1 million roubles or five years’ salary or income of the relevant person) may also be imposed on the officers (including key managers) of offender. The FAS may also direct the offender to terminate any agreement or other agreed actions which it has determined has or may lead to a limitation on competition.

Control over the economic concentration Anti-monopoly control over economic concentration involves control over (a) mergers, accessions, and incorporation of companies, and (b) acquisitions (i) of more than 25%, 50%, or 75% of the shares of Russian joint-stock companies (or more than 1/3, 1/2, or 2/3 of the participatory shares of Russian limited liability companies), (ii) of more than 20% of the production assets (except for the land plots, non-industrial buildings and unfinished construction) located in Russia and (iii) of rights to determine the commercial activity of Russian companies. All abovementioned transactions require either a prior approval or a subsequent notification of the FAS in cases established in the Competition Law.

The Competition Law expressly provides for its extraterritorial application to transactions and actions which impact the competition environment in Russia. In particular, it applies to the acquisitions of fixed production assets and(or) intangible assets located in the territory of Russia or share of a foreign company performing delivery of goods to the Russian Federation in the volume of more than RUB 1 billion for the preceding year.

Strategic Investments According to Federal Law No 57-FZ “On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for the National Defense and Security of the Russian Federation” dated 29 April 2008, as amended, (the “Strategic Investments Law”) (which became operative in practice in late July 2008, after the Governmental Commission for Control over Foreign Investment chaired by the Russian Prime Minister (the “Government Commission”) was formed), a transaction entered into by a foreign investor that results in the

140 Certain Regulatory Matters acquisition of control (or blocking power) over a Strategic Company (as defined below) requires filing a notification to the FAS or obtaining a prior approval of the Government Commission. Decisions of the Government Commission may be contested in the Supreme Commercial Court of the Russian Federation.

The Strategic Investments Law defines “foreign investors” as: (i) foreign states or international organisations which are authorised to make investments under an international treaty; (ii) individuals or organisations which are citizens of or are registered in a foreign state, and are authorised to make investments under the laws of that foreign state; and (iii) Russian companies under foreign control.

Strategic Companies According to the Strategic Investments Law, a Strategic Company is a business entity that is established in the Russian Federation and is engaged in at least one of the designated activities of strategic importance for Russian national defense and security.

As at the date of this Prospectus, the Strategic Investments Law lists 42 strategically important activities including placing, constructing, operating, and disarming nuclear facilities and activities (other than operating radiation sources in a civilian (non-military) sector of economy), operations with infectious agents, as well as activities of those companies that have a market share in a particular segment in excess of 35%.

For the purposes of the Strategic Investments Law, a Strategic Company will be considered under the “control” of a foreign investor if such investor: • has the right to directly or indirectly dispose (including by means of the contracts of entrusted property management, simple partnership, delegation or as the result of other agreements or on other grounds) of more than 50% of the total number of votes which pertain to the voting shares in the charter capital of the Strategic Company’s; • as a result of entering into an agreement or on other grounds has the right to determine decisions of the Strategic Company including decisions on its commercial activities; • has the right to appoint the sole executive body and/or more then 50% of the collective executive body of the Strategic Company (or has the undeniable option to elect more than 50% of the board of directors/other collegial managing bodies of the Strategic Company); • executes the powers of the managing company of the Strategic Company; and • in other cases where a foreign investor has less than 50% of the Strategic Company’s voting shares, but nevertheless the ratio of the foreign investor’s voting shares and of voting shares owned by other shareholders enables the foreign investor to determine the Strategic Company’s decisions.

Furthermore, the Strategic Investments Law sets more stringent regime for Strategic Companies conducting geological exploration and/or prospecting and extraction of mineral resources within subsoil plots of federal significance. This regime has been established mainly due to the state’s endeavour to protect its natural resources (gas, gold, oil, copper) which currently appear to be the main source of the state’s budget proceeds.

Strategic Approval Requirements According to the Strategic Investments Law, any transaction entered into by a foreign investor that results in “control” establishment over a Strategic Company (as discussed above) requires a prior consent from the Government Commission. A prior consent is also required when foreign states, international organisations (with few exceptions) and entities under their control enter into transactions resulting in the acquisition of the right to (i) dispose (directly or indirectly) of more than 25% of the total number of votes which pertain to the voting shares in the charter capital of a Strategic Company, or (ii) block resolutions of the Strategic Company’s management bodies, or (iii) dispose (directly or indirectly) of more than 5% of the total number of votes which pertain to the voting shares in the charter capital of the Strategic Company which uses subsoil deposits of federal significance.

A prior consent is not required for the acquisition of shares in a Strategic Company (save for those using subsoil deposits of federal significance) if prior to such acquisition, a foreign investor or its group had the right to directly or indirectly dispose of more than 50% of the total number of votes which pertain to the voting shares in the charter capital of the Strategic Company.

141 Certain Regulatory Matters

A retroactive consent of the Government Commission is required if a foreign investor or its group acquires control over a Strategic Company as a result of redistribution of voting rights among shareholders of a strategic company due to redemption of treasury shares or conversion of non-voting preferred shares into ordinary (voting) shares. In these cases a foreign investor must apply for the consent within 3 months period after the control over a Strategic Company was obtained.

A foreign investor must file a notification with the FAS in case of the acquisition of 5% or more of shares in the charter capital of a Strategic Company.

Russian legislation provides for certain penalties for breaching of approval / notification requirements of the Strategic Investments Law. In particular:

In case of non-compliance with the notification requirements, the Administrative Offences Code of the Russian Federation provides for the imposition of administrative fines.

The failure to obtain a prior consent when required under the Strategic Investments Law results in the voidness of any transaction executed in violation of the requirement or the acquirer may be deprived from voting rights which correspond to the stake acquired in the Strategic Company.

If a retroactive consent is denied a foreign investor must within 3 months period after the denial was sent to them dispose of a part of its shares, so that the remaining shares do not provide “control” over the respective Strategic Company.

Environmental Matters We are subject to laws, regulations and other legal requirements relating to the protection of the environment, including those governing the discharge of hazardous substances into the air and water, the management and disposal of hazardous substances and waste, the cleanup of contaminated sites, flora and fauna protection and wildlife protection. Issues of environmental protection in Russia are regulated primarily by Federal Law No 7-FZ “On Environmental Protection,” dated 10 January 2002 (the “Environmental Protection Law”), as well as by a number of other federal and local legal acts.

Pay-to-pollute The Environmental Protection Law establishes a “pay-to-pollute” regime administered by federal and local authorities. The Ministry of Natural Resources and Ecology, The Federal Service for Environmental, Technological and Nuclear Supervision, the Federal Agency on Water Resources and other government agencies have established standards relating to the permissible impact on the environment and, in particular, limits for emissions and disposal of substances, waste disposal and resource extraction. A company may obtain approval for exceeding these statutory limits from the federal or regional authorities, depending on the type and scale of environmental impact. As a condition to such approval, a plan for the reduction of the emissions or disposals must be developed by the company and cleared with the appropriate governmental authority. Fees, as set forth in a governmental decree, are assessed on a sliding scale for both the statutory or individually approved limits on emissions and effluents and for pollution in excess of these limits: the lowest fees are imposed for pollution within the statutory limits, intermediate fees are imposed for pollution within the individually approved limits, and the highest fees are imposed for pollution exceeding such limits. Payments of such fees do not relieve a company from its responsibility to take environmental protection measures and undertake restoration and clean- up activities.

Ecological approval Certain activities that may affect the environment are subject to state ecological approval by federal authorities in accordance with Federal Law No 174-FZ “On Ecological Expert Examination” dated 23 November 1995, as amended. Conducting such operations that may cause damage to the environment without state ecological approval may result in the negative consequences described under “— Environmental liability”.

142 Certain Regulatory Matters

Enforcement authorities The Federal Service for the Supervision of the Use of Natural Resources, the Federal Service for Environmental, Technological and Nuclear Supervision, the Federal Service for Hydrometeorology and Environmental Monitoring, the Federal Agency on Subsoil Use, the Federal Agency on Forestry and the Federal Agency on Water Resources (along with their regional branches) are involved in environmental control, implementation and enforcement of relevant laws and regulations. The federal government and mainly the Ministry of Natural Resources and Ecology is responsible for coordinating the activities of the regulatory authorities in this area. Such regulatory authorities, along with other state authorities, individuals and public and non-governmental organisations, also have the right to initiate lawsuits for the compensation of damage caused to the environment. The statute of limitations for such lawsuits is 20 years.

Environmental liability If the operations of a company violate environmental requirements or cause harm to the environment or any individual or legal entity, environmental authorities may suspend these operations or a court action may be brought to limit or ban these operations and require the company to remedy the effects of the violation. Any company or employees that fail to comply with environmental regulations may be subject to administrative and/ or civil liability, and individuals may be held criminally liable. Courts may also impose clean-up obligations on violators in lieu of or in addition to imposing fines.

Health and Safety Due to the nature of our business, substantially all of our operating activities are conducted at industrial sites by large numbers of workers, and workplace safety issues are of significant importance to the operation of these sites.

The principal law regulating industrial safety is Federal Law No 116-FZ “On Industrial Safety of Dangerous Industrial Facilities” dated 21 July 1997, as amended (the “Safety Law”). The Safety Law applies, in particular, to industrial facilities and sites where certain hazardous substances (e.g. flammable, or toxic substances, explosives, combustibles, etc) are used, processed, stored, transported, or destroyed. The Safety Law also contains a comprehensive list of dangerous substances and their permitted concentration, and extends to facilities and sites where these substances are used. There are also regulations that address safety rules for the steel smelting and the production of pipes. Additional safety rules also apply to certain industries, including the metallurgical industry.

Any construction, reconstruction, liquidation or other activities in relation to regulated industrial sites is subject to a state industrial safety review. Any deviation from project documentation in the process of construction, reconstruction and liquidation of industrial sites is prohibited unless reviewed by a licenced expert and approved by the Federal Service for Environmental, Technological and Nuclear Supervision. Companies that operate such industrial facilities and sites have a wide range of obligations under the Safety Law and the Labour Code of Russia effective 1 February 2002, as amended (the “Labour Code”). In particular, they must limit access to such sites to qualified specialists, maintain industrial safety controls and carry insurance for third party liability for injuries caused in the course of operating industrial sites. The Safety Law also requires these companies to enter into contracts with professional wrecking companies or create their own wrecking services in certain cases, conduct personnel training programmes, create systems to cope with and inform the Federal Service for Environmental, Technological and Nuclear Supervision of accidents and maintain these systems in good working order. In addition, the Labour Code provides for the state inspections of work safety to verify, in particular, the compliance of work conditions to state standards as well as compensations to employees due to hazardous work conditions. Besides, companies with more than 50 employees must have a special work safety service or a work safety officer. Business entities are required to spend 0.2% of their production expenses on improvement of work safety.

Companies operating industrial sites where the amounts of hazardous substances exceed maximum permissible levels established in the Safety Law must also prepare declarations of industrial safety which summarise the risks associated with operating a particular industrial site and measures the company has taken or will take to mitigate such risks and use the site in accordance with applicable industrial safety requirements. Such declaration must be adopted by the chief executive officer of the company, who is personally responsible for the completeness and accuracy of the data contained therein. The industrial safety declaration, as well as a state industrial safety review, are required for the issuance of a licence permitting the operation of a dangerous industrial facility.

143 Certain Regulatory Matters

The Federal Service for Environmental, Technological and Nuclear Supervision has broad authority in the field of industrial safety. In case of an accident, a special commission led by a representative of the Federal Service for Environmental, Technological and Nuclear Supervision conducts a technical investigation of the cause. The company operating the hazardous industrial facility where the accident took place bears all costs of an investigation. The officials of the Federal Service for Environmental, Technological and Nuclear Supervision have the right to access industrial sites and may inspect documents to ensure a company’s compliance with safety rules. The Federal Service for Environmental, Technological and Nuclear Supervision may suspend or terminate operations or impose administrative liability.

Any company or individual violating industrial safety rules may incur administrative and/or civil liability. A company that violates safety rules in a way that negatively impacts the health of an individual may also be obligated to compensate the individual for lost earnings, as well as health related damages.

Employment and Labour Regulation Labour matters in Russia are primarily governed by the Labour Code. In addition to this core legislation, relationships between employers and employees are regulated by various federal laws.

Employment contracts As a general rule, employment contracts for an indefinite term are concluded with all employees. Russian labour legislation expressly limits the possibility of entering into fixed term employment contracts. Generally, an employment contract can be entered into for a fixed term of up to five years in cases where labour relations may not be established for an indefinite term due to the nature of the duties or the conditions of the performance of such duties, as provided by the Labour Code and federal laws. The Labour Code specifies where the employer is obliged to enter into a fixed term employment contracts, and where the employer may, but is not obliged to, conclude such agreement subject to the parties’ mutual agreement. Employment contract with the chief executive officer, his deputy, and the chief accountant may be concluded either for a fixed or an indefinite term.

An employer may terminate an employment contract only on the basis of the specific grounds listed in the Labour Code, including, inter alia: • liquidation of the organisation or reduction of personnel (downsizing); • unsuitability of the employee for the job due to insufficient skills as evidenced by the results of an evaluation; • systematic failure by the employee to fulfil his or her duties without due cause if the employee already has a disciplinary sanction imposed on him/her; • a single gross breach by the employee of his or her employment duties in the events expressly identified by the Labour Code; • provision by the employee of false documents when concluding the employment contract; and • other grounds provided in the Labour Code or other federal laws.

An employee dismissed from an organisation due to a reduction of personnel (downsizing) or liquidation is entitled to receive a severance payment and other payments in accordance with the requirements of the Labour Code.

The Labour Code also provides protection from dismissal for specified categories of employees. For example, except in cases of liquidation of an organisation, an employer cannot dismiss an expectant mother. In addition, an employer may not dismiss a mother with a child under the age of three, a single mother with a child under the age of 14 (or a disabled child under the age of 18) or other persons caring for a child under the age of 14 (or a disabled child under the age of 18) without a mother, other than due to liquidation of an organisation, specified breach of the employment duties by an employee, and for certain delinquent actions. The same restriction applies to both male and female employees being parents or other official representatives of children in families with three or more children under 14 years of age, provided they are the only wage earners (i.e. the other parent is unemployed) and have a disabled child under eighteen years of age or a child under three years of age. Employment contracts with minors can be terminated at the initiative of the employer only with the consent of the state labour inspection and the commission for protection of minors’ rights (except in the case of liquidation of an organisation).

144 Certain Regulatory Matters

Any termination by the employer that is inconsistent with the Labour Code requirements may be invalidated by a court, and where a court invalidates a termination, the relevant employee will be reinstated. Where an employee is reinstated by a court, the employer must compensate the employee for his unpaid salary for the period between his wrongful dismissal and his reinstatement, as well as for any mental distress suffered.

Work Time The Labour Code generally sets the regular working week at 40 hours. Any time worked beyond 40 hours per week, as well as work on public holidays and weekends, must be compensated at a higher rate or with additional days of paid vacation.

The minimum duration of annual paid vacation under the Labour Code is 28 calendar days. The Labour Code contemplates additional paid vacation in a number of cases, including work on an irregular hours basis, work under harmful conditions and work in the regions of Russia with abnormal climatic conditions. Companies may establish additional paid vacations beyond the statutory minimums. Employees who perform work in harmful conditions may be entitled to additional paid vacation generally ranging from six to 36 working days.

The retirement age in the Russian Federation is generally 60 years for men and 55 years for women.

Salary The minimum salary in the Russian Federation is established by federal law and as at 1 January 2013 was at the rate of RUB5,205 (approximately U.S.$174 per month).

Employees working in localities with abnormal climatic conditions are entitled to regional coefficients salary increase and percentage salary increase related to the duration of work in such conditions. Coefficients are generally aimed at compensating unfavourable climatic or other conditions in particular regions.

Strikes The Labour Code defines a strike as the temporary and voluntary refusal of the employees to fulfill their employment duties with the intention of settling a collective labour dispute. Russian legislation contains several requirements for legal strikes. Participation in a legal strike may not be considered by an employer as grounds for terminating an employment contract, although employers are generally not required to pay wages to striking employees for the duration of the strike. Participation in an illegal strike may be considered an adequate ground for termination.

Trade Unions Although recent Russian labour regulations have curtailed the authority of trade unions, they still retain significant influence over employees. The activities of trade unions are generally governed by the Federal Law No. 10-FZ of 12 January 1996 “On Trade Unions, Their Rights and Guaranties of Their Activity” (as amended) (the “Trade Union Law”). The Trade Union Law defines a trade union as a voluntary union of individuals with common professional and production interests incorporated for the purposes of representing and protecting the social and labour rights and interests of its members.

As part of their activities, trade unions have the right to: • negotiate collective contracts and agreements between trade unions and employers, federal, regional and local governmental authorities and other entities; • monitor compliance with labour laws, collective bargaining and other agreements; • access work sites and offices and request information relating to labour issues from the management of companies and state and municipal authorities; • represent their members and other employees in individual and collective labour disputes with employers; • organise strikes and participate in them; and • monitor redundancies and seek action by municipal authorities to delay or suspend mass layoffs.

145 Certain Regulatory Matters

Russian laws require that companies cooperate with trade unions and do not interfere with their activities. Trade unions and their officers enjoy certain guarantees as well, such as: • protection from disciplinary punishment or dismissal on the initiative of the employer without prior consideration of motivated opinion of the management of the trade union and, in certain circumstances, the consideration of motivated opinion of the relevant trade union association; • retention of job positions for those employees who stop working due to their election to the management of trade unions; and • provision of premises and, in certain circumstances, provision of the necessary office equipment free of charge.

If a trade union discovers any violation of work condition requirements, notification is sent to the employer with a request to cure the violation and to suspend work if there is an immediate threat to the lives or health of employees. The trade union may also apply to state authorities and labour inspectors and prosecutors to ensure that an employer does not violate Russian labour laws. Trade unions may also initiate collective labour disputes, which may lead to strikes.

To initiate a collective labour dispute, trade unions present their demands to the employer. The employer is then obliged to consider the demands and notify the trade union of its decision. If the dispute remains unresolved, a reconciliation commission attempts to end the dispute. If this proves unsuccessful, collective labour disputes are generally referred to mediation or labour arbitration.

The Trade Union Law provides that those who violate the rights and guarantees provided to trade unions and their officers may be subject to disciplinary, administrative and criminal liability.

146 THE ISSUER

General TMK Capital S.A. (the “Issuer”) was incorporated as a société anonyme on 8 September 2006 for an unlimited duration with limited liability under the laws of the Grand Duchy of Luxembourg. Its Articles of Incorporation have been filed on 18 September 2006 and published on page 97588 of the Mémorial, Recueil des Sociétés et Associations No. C-2034 dated 30 October 2006. The Issuer is registered with the Luxembourg Register of Commerce and Companies under number B-119.081. Its registered office is located at 2, boulevard Konrad Adenauer, L-1115 Luxembourg and its telephone number is +352 421 22-462.

The Issuer’s subscribed share capital amounts to U.S.$50,000 divided into 500 registered shares with a par value of U.S.$100 each. All of the shares are fully paid up. Four-hundred and ninety nine (499) shares are owned by Stichting TMK Capital, and one (1) share by Stichting Participatie DITC Amsterdam.

The Issuer has a Board of Directors, currently consisting of three directors. The directors at present are: • Daniel Bley, having his professional address at 2, Boulevard Konrad Adenauer, L-1115 Luxembourg; • Heike Kubica, having her professional address at 2, Boulevard Konrad Adenauer, L-1115 Luxembourg; and • Erik van Os, having his professional address at 2, Boulevard Konrad Adenauer, L-1115 Luxembourg.

There are no potential conflicts of interest between any duties of the members of the Board of Directors towards the Issuer and their private interests and/or other duties.

Deutsche Bank Luxembourg S.A. is the domiciliation agent of the Issuer. Its duties include the provision of certain administrative and related services. It may terminate its appointment at any time upon not less than two months’ prior notice in writing, provided that any such termination shall not be effective until a replacement acceptable to the Issuer has been suggested by Deutsche Bank Luxembourg S.A.

The Issuer has been established as a special purpose vehicle for the purpose of issuing asset backed securities. The corporate object of the Issuer, as described in article 3 of its articles of incorporation is: • the issue of loan participation notes and other debt securities for the purpose of financing loans to OAO TMK; • the granting of loans to OAO TMK; • the granting of security interests over its assets to a trustee in relation to the issuance of the loan participation notes and other debt securities; • the making of deposits (including fiduciary deposits) at banks or with other depositaries; and • the entering into all ancillary transactions, documents and agreements.

The Issuer may carry out any transactions, whether commercial or financial which are directly or indirectly connected with its corporate object at the exclusion of any banking activity.

In general, the Issuer may carry out any operation which it may deem useful or necessary in the accomplishment and the development of its corporate purpose.

Ernst & Young S.A., having its registered office at 7, rue Gabriel Lippmann, Parc d’Activité Syrdall, L-5365 Münsbach, Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-47.771, has been appointed to act as approved independent auditor (réviseur d’entreprises agrée) of the Issuer and is a member of the Luxembourg body of registered auditors (“Institut des Réviseurs d’Entreprises”).

The Issuer’s financial year begins on 1 January and ends on 31 December. The Issuer’s financial statements as at and for the years ended 31 December 2010 and 2011 are included in this Prospectus in the section beginning on page F-1.

147 THE LOAN GUARANTORS

OAO TMK’s 100% owned subsidiary Volzhsky and its subsidiary TMK Trade House (of which OAO TMK owns all shares but one, which is held by Sinarsky) are the Initial Loan Guarantors of the Notes. Seversky, Sinarsky, Tagmet and IPSCO Tubulars, which are 95.37%, 94.97%, 96.38% and 100.00% owned subsidiaries of TMK , respectively, are Additional Loan Guarantors and, together with the Initial Loan Guarantors, the Loan Guarantors of the Notes. See “Terms of the Offering”. As at 31 December 2012, the Loan Guarantors represented approximately 91% by net assets of the TMK Group excluding goodwill.

The following discussion contains certain corporate and other information regarding each of the Loan Guarantors other than TMK, the business of which is described in other sections of this Prospectus.

Volzhsky Incorporation and Status Volzhsky started operations in 1970 and was registered on 26 July, 2002 as an open joint stock company under the laws of the Russian Federation. The registered office of Volzhsky is 6 Autodoroga No. 7, City of Volzhsky, Volgograd Region, 404119, Russian Federation, and its telephone number is +7 8443 22 2150. Volzhsky is registered in the Russian Federation under number 1023401997101.

As at the date of this Prospectus, Volzhsky holds a licence for engineering and production of equipment for nuclear plants, radiation sources, nuclear materials and radioactive substances storage facilities and nuclear waste storage facilities, issued to it by the Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor) in 19 September 2012 and effective until 19 September 2017. The holding of this licence makes Volzhsky a Strategic Company, subject to the specific rules and regulations listed in the Strategic Investments Law. See “Certain Regulatory Matters — Strategic Investments”.

Objects The objects of Volzhsky, as set out in its charter, are to manufacture pipes for various application, including seamless casing and line pipes, spiral welded large-diameter pipes for oil pipelines, seamless pipes for steam boilers, seamless pipes for mechanical engineering and round and square steel billets.

Share Capital Volzhsky’s share capital is RUB1,440,910,000.00, represented by 1,440,910,000 registered ordinary shares, each with a nominal value of RUB1.00, all of which has been issued and fully paid.

Organisational Structure Volzhsky is one of our subsidiaries. Volzhsky owns 99% of the share capital in its subsidiary, Blagoustroystvo; 1% is held by TMK Trade House.

Business Volzhsky is one of our principal operating subsidiaries. See “Business” for a further description of Volzhsky’s operations.

Management Volzhsky is managed by its sole executive body under the supervision of its Board of Directors. Presently, Volzhsky’s Board of Directors consists of the following members:

Director Position Andrey Yu. Kaplunov Chairman of the Board of Directors Alexander G. Lyalkov Director Tigran I. Petrosyan Director Andrei A. Zimin Director Inna V. Kim Director Elena E. Blagova Director Alexander G. Shiryaev Director

148 The Loan Guarantors

Except as disclosed in “Directors and Management — Board of Directors”, none of the directors of Volzhsky performs other principal activities outside of TMK that are significant with respect to TMK.

The authority of the sole executive body was transferred to the managing company OAO TMK in December 2005. The business address of each of the directors of Volzhsky is 6 Autodoroga No. 7, City of Volzhsky, Volgograd Region, 404119, Russian Federation. None of the directors of Volzhsky are aware of any conflicts of interests or potential conflicts of interests between their respective duties in Volzhsky and their respective private interests or principal outside activities.

TMK Trade House Incorporation and Status TMK Trade House was founded in April 2000 as a closed joint stock company under the laws of the Russian Federation. The registered office of TMK Trade House is 51 Rosa Luxembourg Street, Yekaterinburg, 620026, Russian Federation, and its telephone number is +7 495 775-7600. TMK Trade House is registered in the Russian Federation under main state registration number 1027700429602.

Objects The objects of TMK Trade House, as set out in its charter, are trading activities including wholesaling, import and export operations, warehousing, marketing and advertising.

Share Capital TMK Trade House’s share capital is RUB504,000,000, represented by 6,000,000 registered ordinary shares, each with a nominal value of RUB84, all of which has been issued and fully paid.

Organisational Structure TMK Trade House is one of our subsidiaries. TMK Trade House has branch offices in the Russian cities of Volzhsky, Polevskoy, Taganrog, Kamensk-Uralsky, Orsky and Moscow, as well as representative offices in Azerbaijan, the Republic of China, Turkmenistan, Singapour, Uzbekistan and the South African Republic.

Business TMK Trade House is a trading entity. See “Business” for a further description of TMK Trade House’s operations.

Management TMK Trade House is managed by its sole executive body (general director) under supervision of its Board of Directors, which consists of the following members:

Director Position Andrey Yu. Kaplunov Chairman of the Board of Directors Andrei A. Zimin Director Tigran I. Petrosyan Director Vladimir B. Oborsky Director Alexander G. Shiryaev Director

Except as disclosed in “Directors and Management — Board of Directors”, none of the directors of TMK Trade House performs other principal activities outside of TMK that are significant with respect to TMK.

The business address of each of the directors of TMK Trade House is 51 Rosa Luxembourg Street, Yekaterinburg, 620026, Russian Federation. None of the directors of TMK Trade House are aware of any conflicts of interests or potential conflicts of interests between their respective duties in TMK Trade House and their respective private interests or principal outside activities.

149 The Loan Guarantors

Seversky Incorporation and Status Seversky commenced pipe-making operations in 1964 and was registered on 26 November, 1992 as an open joint stock company under the laws of the Russian Federation. The registered office of Seversky is 7 Vershinin street, City of Polevskoy, Sverdlovsk Region, 623388, Russian Federation, and its telephone number is +7 8 34350 35404. Seversky is registered in the Russian Federation under number 1026601606118.

As of the date of this Prospectus, Seversky holds a licence for operations with infectious agents, issued to it by the Federal Service for Supervision of Consumer Rights Protection and Human Welfare in December 2009 and effective until December 2014. The holding of this licence makes Seversky a Strategic Company. See “Certain Regulatory Matters — Strategic Investments”.

Objects The objects of Seversky, as set out in its charter, are to manufacture pipes of all types, including seamless casing and line pipes, spiral welded large-diameter pipes for oil pipelines, seamless pipes for steam boilers, seamless pipes for mechanical engineering and round and square steel billets.

Share Capital Seversky’s share capital is RUB721,936,800, represented by 48,129,120 registered ordinary shares, each with a nominal value of RUB15, all of which has been issued and fully paid.

Organisational Structure Seversky is one of our subsidiaries. Seversky owns 51% of the share capital in its subsidiary, ZAO TMK-CPW.

Business Seversky is one of our principal operating subsidiaries. See “Business” for a further description of Seversky’s operations.

Management Seversky is managed by its sole executive body under supervision of its Board of Directors. Presently, Seversky’s Board of Directors consists of the following members:

Director Position Andrey Yu. Kaplunov Chairman of the Board of Directors Alexander A. Klachkov Director Tigran I. Petrosyan Director Natalia Yu. Cherepanova Director Andrei A. Zimin Director Mikhail V. Zuev Director Alexander G. Shiryaev Director

Except as disclosed in “Directors and Management — Board of Directors”, none of the directors of Seversky performs other principal activities outside of TMK that are significant with respect to TMK.

The authority of the sole executive body was transferred to the managing company OAO TMK in December 2005. The business address of each of the directors of Seversky is 6 Vershinin street No. 7, City of Polevskoy, Sverdlovsk Region, 623388, Russian Federation. None of the directors of Seversky are aware of any conflicts of interests or potential conflicts of interests between their respective duties in Seversky and their respective private interests or principal outside activities.

150 The Loan Guarantors

Sinarsky Incorporation and Status Sinarsky Pipe Works was founded in 1934. Sinarsky was reorganised into an open joint stock company in November 1992. The registered office of Sinarsky is 1 Zavodskoy Proezd, City of Kamenetsk-Uralsky, Sverdlovsk region, 623401, Russian Federation, and its telephone number is +7 3439 36 3560. Sinarsky is registered in the Russian Federation under number 1026600931686.

At the date of this Prospectus, Sinarsky holds three Strategic licences, namely (i) a licence for operations with infectious agents, issued to it by the Federal Service for Supervision of Consumer Rights Protection and Human Welfare in 2 October 2008 and effective until 2 October 2013, (ii) a licence for operation and storage of products containing radioactive substances, issued to it by the Federal Service for Environmental , Technological and Nuclear Supervision in September 2008 and effective until September 2013, and (iii) a licence for production of equipment for a nuclear plant, issued to it by the Federal Service for Environmental, Technological and Nuclear Supervision in June 2012 and effective until June 2022. The holding of each of this licences makes Sinarsky a Strategic Company. See “Certain Regulatory Matters — Strategic Investments”.

Objects The objects of Sinarsky, as set out in its charter, are to manufacture drill, casting, tubing and line pipes and industrial seamless pipes.

Share Capital Sinarsky’s share capital is RUB409,211,075.00, represented by 6,295,555 registered ordinary shares, each with a nominal value of RUB65, all of which have been issued and fully paid.

Organisational Structure Sinarsky is one of our subsidiaries. Sinarsky owns 100% of the share capital in OOO SinaraTransAuto, 50.9% of the share capital in TMK-INOX and 68.79% in OAO Sinarskaya TES.

Business Sinarsky is one of our principal operating subsidiaries. See “Business” for a further description of Sinarsky’s operations.

Management Sinarsky is managed by its sole executive body under the supervision of its Board of Directors. Presently, Sinarsky’s Board of Directors consists of the following members:

Director Position Andrey Yu. Kaplunov Chairman of the Board of Directors Alexander G. Lyalkov Director Tigran I. Petrosyan Director Andrei A. Zimin Director Alexander Yu. Churin Director Sergey G. Chetverikov Director Alexander G. Shiryaev Director

Except as disclosed above and in “Directors and Management — Board of Directors”, none of the directors of Sinarsky performs other principal activities outside of TMK that are significant with respect to TMK. The authority of the sole executive body was transferred to the managing company OAO TMK in December 2005. The business address of each of the directors of Sinarsky is 1 Zavodskoy Proezd, City of Kamenetsk-Uralsky, Sverdlovsk region, 623401, Russian Federation. None of the directors of Sinarsky are aware of any conflicts of interests or potential conflicts of interests between their respective duties in Sinarsky and their respective private interests or principal outside activities.

151 The Loan Guarantors

Taganrog Metallurgical Works Incorporation and Status Taganrog Metallurgical Works was founded in 1986 and was registered as an open joint stock company under the laws of the Russian Federation on 16 November, 1998. The registered office of Tagmet is 1 Zavodskaya Street, City of Taganrog, Rostov region, 347928, Russian Federation, and its telephone number is +7 8634 32 4201. Tagmet is registered in the Russian Federation under number 1026102572473.

Objects The objects of Tagmet, as set out in its charter, are to manufacture drill, casing and line pipes, industrial seamless pipes and electric welded pipes.

Share Capital Tagmet’s share capital is RUB508,706,000.00, represented by 508,706,000 registered ordinary shares, each with a nominal value of RUB1.00, all of which have been issued and fully paid.

Organisational Structure Tagmet is one of our subsidiaries. Tagmet does not have any subsidiaries or dependent companies.

Business Tagmet is one of our principal operating subsidiaries. See “Business” for a further description of Tagmet’s operations.

Management Tagmet is managed by its sole executive body under the supervision of its Board of Directors. Presently, Tagmet’s Board of Directors consists of the following members:

Director Position Andrey Yu. Kaplunov Chairman of the Board of Directors Vitaliy F. Miroshnichenko Director Tigran I. Petrosyan Director Andrei A. Zimin Director Lyudmila L. Belkova Director Dmitry A. Livshits Director Alexander G. Shiryaev Director

Except as disclosed in “Directors and Management — Board of Directors”, none of the directors of Tagmet performs other principal activities outside of TMK that are significant with respect to TMK.

The authority of the sole executive body was transferred to the managing company OAO TMK in December 2005. The business address of each of the directors of Tagmet is 1 Zavodskaya Street, City of Taganrog, Rostov region, 347928, Russian Federation. None of the directors of Tagmet are aware of any conflicts of interests or potential conflicts of interests between their respective duties in Tagmet and their respective private interests or principal outside activities.

IPSCO Tubulars Incorporation and Status IPSCO Tubulars was incorporated in 1985 under the laws of Delaware and was assigned file number 2068504. IPSCO Tubulars has its headquarters at 10120 Houston Oaks Drive, Houston, Texas 77064, United States of America and its telephone number is +(630) 874 0078. IPSCO Tubulars was originally incorporated under the name IPSCO Sales Inc., which was subsequently changed to IPSCO Steel Inc. in 1986 and further changed to IPSCO Tubulars in 1994.

152 The Loan Guarantors

Objects The purpose of IPSCO Tubulars is to engage in any lawful act or activity for which corporations may be organised under the General Corporation Law of Delaware as set forth in its amended and restated certificate of incorporation.

Share Capital

IPSCO Tubulars has issued 10,100 shares of common stock, each with a par value of U.S.$0.01. All 10,100 shares of common stock have been issued to OAO TMK.

Organisational Structure IPSCO Tubulars is one of our wholly-owned subsidiaries and has a 100% interest in TMK NSG, Blytheville Finance Corporation, TMK IPSCO International LLC and TMK IPSCO Canada, Ltd.

Business IPSCO Tubulars is one our principal operating subsidiaries. See “Business” for a further description of the operations of IPSCO Tubulars.

Management IPSCO Tubulars is managed by its Board of Directors. Presently, IPSCO Tubulars’ Board of Directors consists of the following members:

Director Position Piotr D. Galitzine Chairman of the Board of Directors Andrei A. Zimin Director Vicky Avril Director Adrian N.W. Cobb Director

Except as disclosed in “Directors and Management — Board of Directors”, none of the directors of IPSCO Tubulars performs other principal activities outside of TMK that are significant with respect to TMK.

The business address of each of the directors of IPSCO Tubulars is 10120 Houston Oaks Drive, Houston, Texas 77064, United States of America. None of the directors of IPSCO Tubulars are aware of any conflicts of interests or potential conflicts of interests between their respective duties in IPSCO Tubulars and their respective private interests or principal outside activities.

153 THE LOAN AGREEMENT

The following is the text of the Loan Agreement to be entered into between the Borrower and the Issuer.

THIS AGREEMENT is dated 28 March 2013 between::

(1) OPEN JOINT STOCK COMPANY TMK, an open joint stock company organised under the laws of the Russian Federation (the “Borrower”); and

(2) TMK CAPITAL S.A., a company incorporated under the laws of Luxembourg as a société anonyme with registered office at 2, boulevard Konrad Adenauer, L-1115 Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-119.081 (the “Lender”).

WHEREAS: The Lender and the Borrower wish to record herein the terms of the Loan to be made by the Lender to the Borrower. The Loan is to be unconditionally, irrevocably, jointly and severally guaranteed by the Initial Loan Guarantors under the Initial Loan Guarantees and the Borrower has undertaken hereunder that the Loan will be additionally guaranteed by each of the Additional Loan Guarantors once the Additional Loan Guarantors accede to the Deed of Loan Guarantee, by way of executing Additional Loan Guarantees not later than 90 calendar days after the date hereof. The Borrower may also be obligated to procure Further Loan Guarantees upon the satisfaction of certain conditions set out in Clause 12.11 hereof.

It is intended that, concurrently with the extension of the Loan under this Agreement, the Lender will issue the Notes (as defined below) in the same aggregate nominal amount and bearing the same rate of interest as such Loan.

IT IS AGREED:

1. DEFINITIONS AND INTERPRETATION

1.1 DEFINITIONS In this Agreement the following terms have the meanings given to them in this Clause 1.1:

“12-Month Consolidated EBITDA” means the aggregate Consolidated EBITDA for the four most recent consecutive Measurement Periods (for such time that the Borrower has published audited or reviewed IFRS financial statements in respect of at least four consecutive financial quarters (defined herein) and continues to publish such financial statements in respect of financial quarters) failing which, the two most recent consecutive Measurement Periods preceding any date of determination for which consolidated financial statements of the Group prepared in accordance with Accounting Standards are available.

“Acceleration Notice” has the meaning set forth in Clause 13.2.

“Account” means the account of the Lender with Deutsche Bank AG, London Branch, account number: 28013405.

“Accounting Standards” means IFRS or any other internationally recognised set of accounting standards deemed equivalent to IFRS by the relevant regulators from time to time; provided however, that where such term is used with respect to the financial statements of the Subsidiaries of the Borrower, in this Agreement, it shall, where financial statements prepared in accordance with IFRS are not available, be deemed to include U.S. GAAP, Russian GAAP or any other generally accepted accounting standards of the jurisdiction of incorporation of the relevant Subsidiary from time to time.

“Additional Amounts” has the meaning set out in Clause 8.3.

“Additional Loan Guarantees” means guarantees by way of the deeds of accession to the Deed of Loan Guarantee, substantially in the form set out in the Schedule to the Deed of Loan Guarantee executed by the Additional Loan Guarantors.

“Additional Loan Guarantors” means OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc.

“Affiliate” of any specified Person means any other Person, directly or indirectly controlling, controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control

154 The Loan Agreement with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that beneficial ownership of 20 per cent. or more of the Capital Stock with voting power of a Person shall be deemed to be control.

“Agency” means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not).

“Agency Agreement” means the agency agreement dated 28 March 2013, as amended or supplemented from time to time with the prior written approval of the Trustee, between the Issuer, the Borrower, the Trustee and the Agents named therein;

“Approved Jurisdiction” means the United States of America, Russia and any member nation of the European Union as constituted on the Issue Date.

“Asset Acquisition” means (i) an Investment by the Borrower or any Subsidiary of the Borrower in any other Person pursuant to which such Person shall become a Subsidiary of the Borrower or shall be consolidated or merged with the Borrower or any Subsidiary of the Borrower or (ii) the acquisition by the Borrower or any Subsidiary of the Borrower of assets of any Person which constitute all or substantially all of the assets of such Person or which comprise a division or line of business of such Person.

“Asset Sale” means any lease, sale, sale and lease-back, transfer or other disposition either in one transaction or in a series of related transactions, by the Borrower and/or any of the Subsidiaries of the Borrower to a Person or Persons that is/are outside the Group, of any Production Assets or Capital Stock of any Subsidiary of the Borrower the value of which exceeds 10 per cent. of the value of the total Production Assets of the Group in any 12 month period (determined in each case by reference to the most recent publicly available consolidated audited or reviewed balance sheet of the Borrower, prepared in accordance with Accounting Standards); provided that “Asset Sale” shall not include (i) sales or other dispositions of inventory or stock in trade in the ordinary course of business or (ii) assignments of or other arrangements over the rights or revenues arising from contracts for the sale of products on an arm’s-length basis or (iii) the sale, lease or other disposition of obsolete, worn out, negligible, surplus or outdated equipment or machinery; and provided that the value of the Capital Stock of the relevant Subsidiary so sold or disposed of shall for these purposes be deemed to be the value of the relevant proportion of that Subsidiary’s Production Assets.

“Board of Directors” means, as to any Person, the board of directors of such Person or any duly authorised committee thereof.

“Borrower” means the party named as such above until a successor replaces it in accordance with Clause 12.5 and thereafter means such successor.

“Borrower Further Loan Guarantee Event Notice” means a notice given by the Borrower to the Lender and the Trustee upon the occurrence of an Further Loan Guarantee Event.

“Business Day” means a day which is a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in Moscow, Luxembourg, London and New York City.

“Call Settlement Date” has the meaning in Clause 7.5 hereof.

“Capital Stock” means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s equity, including any preferred stock of such Person, whether now outstanding or issued after the Issue Date, including without limitation, all series and classes of such Capital Stock but excluding any debt securities convertible into such Capital Stock.

“Cash Equivalents” means: (a) any evidence of Indebtedness with a maturity of one year or less issued or directly and fully guaranteed or insured by a corporation or other legal entity organised under the laws of an Approved Jurisdiction or any Agency or instrumentality thereof; provided that the full faith and credit of an Approved Jurisdiction (or similar concept under the laws of the relevant Approved Jurisdiction) is pledged in support thereof;

155 The Loan Agreement

(b) commercial paper with a maturity of one year or less issued by a corporation organised under the laws of an Approved Jurisdiction and rated at all times at least the same rating as that of the unsecured, unsubordinated debt obligations of the Borrower by Standard & Poor’s Credit Market Services Europe Limited or any entities within the same group that assign a rating to such obligations from time to time, Moody’s Investors Service Limited or Fitch Ratings Ltd. to the extent that the aggregate amount of Cash Equivalents (as defined in this paragraph (b)) invested by application of Disposal Proceeds do not exceed at any time U.S.$50 million or its U.S. Dollar Equivalent; and/or (c) commercial paper with a maturity of one year or less, issued by a corporation organised under the laws of an Approved Jurisdiction, and at all times listed or traded on the Moscow Inter-bank Currency Exchange to the extent that the aggregate amount of Cash Equivalents (as defined in this paragraph (c)) invested by application of Disposal Proceeds do not exceed at any time U.S.$50 million or its U.S. Dollar Equivalent.

“Change of Law” means any of the enactment or introduction of any new law, the variation, amendment or repeal of an existing or new law, and any ruling on or interpretation or application by a competent authority of any existing or new law which, in each case, occurs after the date hereof and for this purpose the word “law” means all or any of the following whether in existence at the date hereof or introduced hereafter and with which it is obligatory or customary for banks or other financial institutions or, as the case may be, companies in the relevant jurisdiction to comply: (i) any statute, treaty, order, decree, instruction, letter, directive, instrument, regulation, ordinance or similar legislative or executive action by any national or international or local government or authority or by any ministry or department thereof and other agencies of state power and administration (including, but not limited to, taxation departments and authorities); and/or (ii) any letter, regulation, decree, instruction, request, notice, guideline, directive, statement of policy or practice statement given by, or required of, any central bank or other monetary authority, or by or of any Taxing Authority or fiscal or other authority or agency (whether or not having the force of law); and (iii) the decision or ruling on, the interpretation or application of, or a change in the interpretation or application of, any of the foregoing by any court of law, tribunal, central bank, monetary authority or agency or any Taxing Authority or fiscal or other competent authority or agency.

“Conditions” has the meaning given to it in the Trust Deed.

“Consolidated Depreciation and Amortisation” means, in respect of any period, the consolidated depreciation and amortisation of the Group for such period as shown in the latest available consolidated financial statements of the Group prepared in accordance with Accounting Standards.

“Consolidated EBITDA” means, in respect of any period, (i) the consolidated net income (loss) of the Group for such period as shown in the Income Statements adjusted, to the extent included in calculating such net income (loss), by excluding, without duplication: (a) gains or losses in respect of dispositions of property, plant and equipment; (b) any net foreign exchange gain or loss recognised in the Income Statements; (c) any share of the profit or loss of any associated company, associated undertaking or unconsolidated joint venture; (d) the cumulative effect of changes in accounting principles; (e) any loss or gain on impairment of non-current assets charged to the profit and loss account; (f) inventory and doubtful debt allowances and the movement on other provisions; (g) any other non-cash items, increasing (decreasing) consolidated net income (loss) for the Group for such period; (h) gain or loss on changes in fair value of financial instruments recognised in the Income Statements; and (i) any extraordinary items (net of taxes) including gains and losses in respect of dispositions of assets other than in the ordinary course of business otherwise not included in (a) above,

156 The Loan Agreement

(ii) as adjusted by adding back (to the extent deducted in calculating Subclause (i) of this definition) or deducting (to the extent added when calculating Subclause (i) of this definition), without duplication for such period: (a) Consolidated Finance Costs; (b) Consolidated Finance Income (c) Consolidated Income Tax Expense and/or Benefit; and (d) Consolidated Depreciation and Amortisation.

“Consolidated Finance Costs” means, in relation to any period, the finance costs of the Group as shown in the Income Statements or equivalent line item to the extent the presentation of the Income Statements changes from time to time which shall, for the avoidance of doubt, include:

(i) cash and non-cash interest expense, including, without limitation: (a) interest expense calculated using the effective interest method (including amortisation of fees, points paid or received, transaction costs and other premiums or discounts); (b) net gains and losses associated with hedging instruments (including amortisation of fees and discounts); (c) interest portion of any deferred payment obligations; (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing; and (e) interest due and payable under any guarantee, indemnity or equivalent arrangement; (ii) finance charges in respect of finance leases of any member of the Group accrued during such period; (iii) unwinding of discount on provisions; (iv) losses on disposal of financial assets; (v) losses on extinguishment of debts; and (vi) losses on change in fair value of liabilities under put options of non-controlling interest shareholders in subsidiaries.

“Consolidated Finance Income” means, in relation to any period, the finance income of the Group as shown in the Income Statements or equivalent line item to the extent the presentation of the Income Statements changes from time to time which shall, for the avoidance of doubt, include:

(i) interest income and dividend income on financial assets but not including any foreign exchange gains (whether, in each case, paid or payable); (ii) gains on disposal of financial assets; (iii) gains on extinguishment of debts; and (iv) gains on change in fair value of liabilities under put options of non-controlling interest shareholders in subsidiaries.

“Consolidated Income Tax Expense and/or Benefit” means, in respect of any period, the expenses and/or benefits of the Group in respect of income taxes as shown in the Income Statements.

“Consolidated Indebtedness” means at any date of determination (and without duplication) all Indebtedness of the Group as calculated in accordance with the then most recently published consolidated financial statements of the Group prepared in accordance with Accounting Standards.

“Core or Related Business” means the business of (a) producing steel and steel pipe products, (b) investing in property, plant or equipment for the production of steel and steel pipe products, (c) purchasing and processing of raw materials and manufacturing equipment for the production of steel and steel pipe products, (d) conducting business connected with the consumption and/or sale of steel and steel pipe products, (e) industrial construction for the production of steel and steel pipe products, (f) automobile, railway and ship transportation of steel and steel pipe products in connection with the Group’s production of steel and steel pipe products, (g) conducting sales of steel and steel pipe products and related activities, (h) supplemental pipe services such as the repair or

157 The Loan Agreement finishing of steel pipe products, (i) energy distribution ancillary to/necessary for the pipe business, (j) research activities relating to the scientific and technological development of the pipe industry and relevant business, or (k) evaluating, participating in or pursuing any other activity or opportunity that is related to those identified in paragraphs (a) to (j) above.

“Credit Facility” means one or more debt facilities (including the existing credit facilities) in the form of loan agreements, revolving credit facilities, overdraft facilities, working capital facilities, syndicated credit facilities, letters of credit and other facilities provided by commercial banks and other financial institutions as each such facility may be amended, restated, modified, renewed, refunded, replaced, restructured or refinanced in whole or in part from time to time.

“Deed of Loan Guarantee” means the deed of loan guarantee, substantially in the form set out in the Schedule hereto, containing the Loan Guarantees, as such Deed of Loan Guarantee may be amended or supplemented from time to time.

“Disinterested Director” means, with respect to any transaction or series of related transactions, a member of the Board of Directors of the Borrower who does not have any material direct or indirect financial interest in or with respect to such transaction or series of related transactions. A Person shall not be ineligible to constitute a Disinterested Director solely as a result of such Person owning any equity interests of the Borrower or any of its Subsidiaries or acting as an officer, director or employee of the Borrower or any of its Subsidiaries.

“Disposal Proceeds” has the meaning set forth in Clause 12.4.

“Dispute” has the meaning set forth in Clause 25.2.

“Event of Default” has the meaning set forth in Clause 13.1.

“Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith either by an Independent Appraiser, should the Borrower elect to obtain a report of an Independent Appraiser, failing which, the chief executive officer or chief financial officer of the Borrower, whose determination shall be conclusive.

“Finance Lease Obligations” means an obligation that is required to be classified and accounted for as a capital or finance lease for financial reporting purposes in accordance with Accounting Standards and the amount of Indebtedness represented by such obligation will be the capitalised amount of such obligation at the time any determination thereof is to be made as determined in conformity with Accounting Standards, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.

“Further Loan Guarantor” means any Person who accedes to the Deed of Loan Guarantee as a result of the application of the requirements of Clause 12.11(b) hereof.

“Further Loan Guarantee” means any guarantee issued by means of accession to the Deed of Loan Guarantee as a result of the application of the requirements of Clause 12.11(b) hereof.

“Further Loan Guarantee Event” means (a) the failure of any Additional Loan Guarantee to be provided as specified pursuant to Clause 12.11(a) hereof or (b) the failure of any Further Loan Guarantee (if required) to be provided as specified pursuant to Clause 12.11(b) hereof.

“Further Loan Guarantee Event Notice” means the notice given by the Issuer to the Noteholders in accordance with the terms and conditions of the Notes, specifying, inter alia, that a Further Loan Guarantee Event has occurred and providing particulars in respect of the Further Loan Guarantee Event Put Option.

“Further Loan Guarantee Event Payment Date” means five Business Days after the expiration of the Further Loan Guarantee Event Put Period.

“Further Loan Guarantee Event Put Option” means the option of any Noteholder to require the Issuer to redeem a Note on the Further Loan Guarantee Event Payment Date at 101 per cent. together with accrued but unpaid interest up to but excluding the Further Guarantee Event Payment Date (if any) and plus any additional amounts or other amounts that may be due thereon.

158 The Loan Agreement

“Further Loan Guarantee Event Put Period” means 60 calendar days after the Further Loan Guarantee Event Notice is given.

“Group” means the Borrower and its Subsidiaries, together with special purpose entities that are consolidated in the latest available consolidated financial statements of the Borrower prepared in accordance with Accounting Standards.

“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person: (a) to purchase or pay, or advance or supply funds for the purchase or payment of, such Indebtedness of such other Person, whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise, or (b) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such oblige against loss in respect thereof, in whole or in part, provided, that “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. “Guarantee” used as a verb has a corresponding meaning.

“IFRS” means the International Financial Reporting Standards.

“Income Statements” means, in respect of any period, the then most recent consolidated income statement of the Group prepared in accordance with Accounting Standards.

“increased amounts of principal, interest or any other payment due hereunder” has the meaning set forth in Clause 8.1(b).

“Incur” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Indebtedness or other obligation on the balance sheet of such Person, and “Incurrence,” “Incurred” and “Incurring” shall have meanings correlative to the preceding. Indebtedness of any acquired Person or any of its Subsidiaries existing at the time such acquired Person becomes a Subsidiary (or is merged into or consolidated with the Borrower or any Subsidiary), whether or not such Indebtedness was Incurred in connection with, as a result of, or in contemplation of, such acquired Person becoming a Subsidiary (or being merged into or consolidated with the Borrower or any Subsidiary), shall be deemed Incurred at the time any such acquired Person becomes a Subsidiary or merges into or consolidates with the Borrower or any Subsidiary.

“Indebtedness” means, with respect to any Person at any date of determination (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such Person in respect of uncovered letters of credit (including reimbursement obligations with respect thereto); (d) all obligations of such Person to pay the deferred and unpaid purchase price of property, assets or services, which purchase price is due more than 180 days after the earlier of the date of placing such property in service or taking delivery and title thereof or the completion of such services; (e) all Finance Lease Obligations of such Person; (f) all Indebtedness of other Persons secured by a Lien granted by such Person on any asset (the value of which, for these purposes, shall be determined by reference to the balance sheet value of such asset in respect of the latest half year period of the Person providing the Lien) of such Person, whether or not such Indebtedness is assumed by such Person; (g) all Indebtedness of other Persons guaranteed or indemnified by such Person to the extent such Indebtedness is guaranteed or indemnified by such Person;

159 The Loan Agreement

(h) to the extent not otherwise included in this definition, net obligations under any currency or interest rate hedging agreements; and (i) any monies raised under any other transaction (including, but without limitation to, any forward sale or purchase agreement) having the economic or commercial effect of a borrowing.

For the avoidance of doubt Indebtedness of any Person does not include (i) bank guarantees, trade account payables, including, without limitation, trade letters of credit, bills of exchange, counter-indemnities in respect of any guarantee or indemnity or other negotiable instruments arising solely in the ordinary course of business of such Person and maturing in less than 270 days (other than promissory notes, other negotiable instruments, bills of exchange, trade letters of credit and similar obligations incurred for the purpose of a borrowing) and (ii) for the purposes of Clause 12.2 only, restructured tax payable reported in the most recent balance sheet prepared in accordance with Accounting Standards of such Person.

For the purpose of determining compliance with any U.S. Dollar-denominated restriction on Indebtedness, the U.S. Dollar Equivalent of Indebtedness denominated in another currency shall be calculated.

“Independent Appraiser” means any of PricewaterhouseCoopers, KPMG, Deloitte & Touche, Ernst & Young or such investment banking, accountancy or appraisal firm generally recognised in the relevant jurisdiction selected by the competent management body of the Borrower or the relevant Subsidiary, provided it is not an Affiliate of the Borrower, or any Subsidiary.

“Initial Loan Guarantors” means OAO Volzhsky Pipe Plant and ZAO TMK Trade House.

“Interest Payment Date” means 3 April and 3 October of each year in which the Loan remains outstanding, being the last day of the corresponding Interest Period, commencing on 3 October 2013, and the last such date being the Repayment Date.

“Interest Period” means, except as otherwise provided herein, any of those periods mentioned in Clause 4.

“Interest Rate” means, except as otherwise provided herein, the interest rate specified in Clause 5.2.

“Investment” means, with respect to any Person, directly or indirectly, any advance (other than advances to customers in the ordinary course of business), loan (including guarantees), or other extension of credit (including guarantees) or capital contribution to (by means of any transfer of cash) or other property to others or any payment for property or services for the account or use of others, or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures, or other securities (including, without limitation, any interests in any partnership or joint venture) or evidence of Indebtedness issued or owned by any Person and all other items that would be classified as investments on a balance sheet prepared in accordance with Accounting Standards; provided that: (a) hedging obligations entered into in the ordinary course of business and in compliance with the terms of this Agreement; and (b) endorsements of negotiable instruments in the ordinary course of business, shall in each case be deemed not to be an Investment.

“IPSCO Credit Facility” means the credit agreement dated as of 1 December 2010 by and among IPSCO Tubulars Inc. and its subsidiaries that are signatories thereto, the Lenders party thereto and Wells Fargo Capital Finance, LLC, as agent for the Lenders, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents granted by IPSCO Tubulars Inc. and/or one or more of its subsidiaries in favour of the Agent and/or Lenders), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time by one or more credit agreements, including (without limitation) any agreement adding additional borrowers or guarantors thereunder, removing such subsidiaries as existing borrowers or guarantors thereunder or extending the maturity of, Refinancing, refunding, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement(s) or any successor or replacement agreement(s) and whether granted by or to the same or any other agent, lender or group of lenders.

“Issue Date” means 3 April 2013.

160 The Loan Agreement

“Leverage Ratio” means, at the date of the Incurrence of the Indebtedness giving rise to the need to calculate the Leverage Ratio and subject to provisions of Clause 12.2, the ratio of (i) Consolidated Indebtedness as at such date (ii) to 12-Month Consolidated EBITDA of the Borrower, after giving effect, as determined in good faith by a responsible financial or accounting officer of the Borrower, on a pro forma basis to: (a) the Incurrence of any Indebtedness the permissibility of which is then being measured, the Incurrence or repayment of any other Indebtedness since the date of the then most recently published consolidated financial statements of the Group prepared in accordance with Accounting Standards and, in each case, the receipt and application of the proceeds (if applicable) therefrom; and (b) the exclusion of Consolidated EBITDA associated with any Asset Sales or the inclusion of Consolidated EBITDA associated with any Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Incurrence or assumption of Indebtedness) occurring on or after the first day of the Measurement Period relevant for such calculation as if any such Asset Sale or Asset Acquisition occurred on the first day of the first Measurement Period used in the calculation of 12-Month Consolidated EBITDA, provided, however, that any such pro forma Consolidated EBITDA in respect of an Asset Acquisition may only be so included if such pro forma Consolidated EBITDA shall have been derived from (i) financial statements of, or relating to or including, such acquired entity, that have been prepared in accordance with Accounting Standards or (ii) such other financial statements or financial reports of the acquired entity that the chief financial officer of the Borrower believes in good faith to present fairly the financial position and results of operations of the acquired entity so as to permit such a pro forma Consolidated EBITDA to be prepared on the basis of reasonable assumptions and estimates.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest) securing any obligation of any Person.

“Loan” means the U.S.$500,000,000 term loan granted to the Borrower by the Lender pursuant to the terms of this Agreement.

“Loan Guarantees” means the guarantees of the Loan Guarantors under the Deed of Loan Guarantee.

“Loan Guarantors” means the Initial Loan Guarantors together with the Additional Loan Guarantors and any other Person who becomes a guarantor pursuant to Clause 12.11 hereof and “Loan Guarantor” means any of them.

“Luxembourg” means the Grand Duchy of Luxembourg.

“Make Whole Premium” the excess, if any, of (a) the present value of the aggregate principal amount of the Loan outstanding at the Call Settlement Date, plus any required interest payments that would otherwise be due to be paid on the Loan from the Call Settlement Date through to the Repayment Date calculated using a discount rate equal to the Treasury Rate at the Call Settlement Date plus 50 basis points, over (b) the outstanding aggregate principal amount of the Loan at the Call Settlement Date, provided that if the value of the Make Whole Premium at any time would otherwise be less than zero, then in such circumstances, the value of the Make Whole Premium will be equal to zero.

“Material Adverse Effect” means any material adverse effect on the business, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole.

“Material Subsidiary” means at any relevant time a Subsidiary of the Borrower: (a) whose Production Assets represent not less than 10 per cent. of the total consolidated Production Assets of the Borrower or whose gross revenues (excluding intercompany revenues) represent not less than 10 per cent. of the gross consolidated revenues of the Borrower (determined by reference to the most recent publicly available annual or interim financial statements of the Borrower prepared in accordance with Accounting Standards and the latest financial statements of the Subsidiary determined in accordance with Accounting Standards (or, if unavailable, such Subsidiary’s most recent management accounts)); or

161 The Loan Agreement

(b) to which is transferred all or substantially all the assets and undertakings of a Subsidiary which immediately prior to such transfer is a Material Subsidiary, save that each Loan Guarantor shall at all times be deemed to be a Material Subsidiary, and as identified in an Officers’ Certificate of the Borrower delivered to the Lender (and the Trustee) at the same time as the most recent financial statements referred to herein or within 10 days of a request therefor.

“Measurement Period” means each financial quarter ending on 31 March, 30 June, 30 September or 31 December (each a “financial quarter” and together “financial quarters”), for such time that the Borrower has published audited or reviewed IFRS financial statements in respect of at least four consecutive financial quarters and continues to publish such financial statements in respect of financial quarters, failing which each financial half-year ending on 30 June or 31 December. For the avoidance of doubt, (i) Consolidated EBITDA for a Measurement Period of a financial half-year ending on 31 December of any year shall be calculated by subtracting (a) Consolidated EBITDA for the Measurement Period of a financial half-year ending on 30 June of that year from (b) Consolidated EBITDA for that year, (ii) Consolidated EBITDA for a Measurement Period of a financial quarter ending on 30 June of any year shall be calculated by subtracting (a) Consolidated EBITDA for the Measurement Period of the financial quarter ending on 31 March of that year from (b) Consolidated EBITDA for the financial half-year ending on 30 June of that year, (iii) Consolidated EBITDA for a Measurement Period of a financial quarter ending on 30 September of any year shall be calculated by subtracting (a) Consolidated EBITDA for the financial half-year ending on 30 June in that year from (b) Consolidated EBITDA for the 9 months ending on 30 September in that year and (iv) Consolidated EBITDA for a Measurement Period of a financial quarter ending on 31 December of any year shall be calculated by subtracting (a) Consolidated EBITDA for the 9 months ending on 30 September in that year from (b) Consolidated EBITDA for that year.

“Noteholder” means the person in whose name the Note is registered in the register of the noteholders (or in the case of joint holders, the first named holder thereof).

“Notes” means the U.S.$500,000,000 6.75 per cent. loan participation notes due 2020 proposed to be issued by the Lender in its capacity as issuer pursuant to the Trust Deed for the purpose of financing the Loan.

“Officer” means, with respect to a Person, the Chairman of the Board of Directors, the General Director, the Chief Executive Officer, the President, the Chief Financial Officer, the Controller, the Treasurer or the General Counsel of such Person or any duly authorised representative or any other officer of such Person who is authorised to bind such Person by virtue of such Person’s constitutive documents.

“Officers’ Certificate” means a certificate signed by two Officers of the Borrower.

“Permitted Indebtedness” means: (a) the Incurrence by the Borrower or any Subsidiary of the Borrower of intercompany Indebtedness to the Borrower and/or any Subsidiary of the Borrower; provided that (i) any disposition, pledge or transfer of the rights under any such Indebtedness (other than pursuant to the IPSCO Credit Facility) to any Person other than a disposition, pledge or transfer to the Borrower or a Subsidiary of the Borrower and (ii) any transaction pursuant to which any Subsidiary of the Borrower that has Indebtedness owing to it from the Borrower or another Subsidiary ceases to be a Subsidiary of the Borrower, shall, in each case, be deemed to be an Incurrence of such Indebtedness which shall not be permitted by this paragraph (a); (b) Refinancing Indebtedness in respect of (1) Indebtedness outstanding on the date hereof, and (2) Indebtedness Incurred pursuant to Clause 12.2 (including, for the avoidance of doubt, Permitted Indebtedness); (c) Net obligations under hedging agreements entered into in the ordinary course of business for the purposes of protection against or benefiting from fluctuations in the rates of exchange or prices and not for speculative purposes unrelated to transactions undertaken in the ordinary course of business; (d) Indebtedness in respect of performance, bid, appeal and surety bonds and completion bonds and guarantees provided by the Borrower or any Subsidiary of the Borrower and that do not secure other Indebtedness, in amounts and for purposes customary in the Core or Related Business; (e) Indebtedness arising from netting arrangements and the honouring by a bank or other financial institution of a cheque, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of its Incurrence;

162 The Loan Agreement

(f) Indebtedness arising from agreements of the Borrower or a Subsidiary of the Borrower providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Capital Stock of any Subsidiary of the Borrower; provided that (A) the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds (including the Fair Market Value of non-cash consideration) actually received by (or held in escrow as a collateral for such Indebtedness) the Borrower and its Subsidiaries in connection with such disposition (without giving effect to any subsequent changes in value) and (B) such Indebtedness is not reflected in the balance sheet of the Borrower or any Subsidiary of the Borrower (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this paragraph (f)); (g) Indebtedness Incurred in respect of workers’ compensation claims or claims arising under similar legislation, or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit; provided that such Indebtedness is reimbursed within 30 days of its Incurrence; (h) Indebtedness in respect of Finance Lease Obligations and Purchase Money Indebtedness, provided that the aggregate principal amount of such Indebtedness does not exceed the aggregate of the lesser of the Fair Market Value (on the date of the Incurrence thereof) or the purchase price or cost of the property, plant, equipment or capital assets acquired, constructed, improved or leased or the shares so acquired (where such property, plant, equipment or capital assets are purchased through the acquisition of shares of a Person that owns such property, plant, equipment or capital assets) and expenses in connection therewith, and provided further that the aggregate principal amount of such Indebtedness Incurred under this paragraph (h) does not exceed Euro 200 million (or its equivalent in other currencies) at any time outstanding, but excluding any accrued but unpaid interest, fees and/or reimbursable expenses which may be owing in connection therewith, whether or not added to the principal amount of such Indebtedness; (i) Indebtedness of IPSCO Tubulars Inc. and its subsidiaries Incurred under one or more Credit Facilities in an aggregate principal amount up to U.S.$200 million (or its equivalent in other currencies) at any time outstanding, including amounts outstanding under the IPSCO Credit Facility, but excluding any accrued but unpaid interest, fees and/or reimbursable expenses which may be owing in connection therewith, whether or not added to the principal amount of such Indebtedness, for the avoidance of doubt, it being understood that IPSCO Tubulars Inc. or any of its subsidiaries may repay, prepay, redeem or otherwise retire Indebtedness Incurred pursuant to this paragraph (i) at any time, and any principal amount so repaid, prepaid, redeemed or otherwise retired shall reduce the principal amount of Indebtedness Incurred pursuant to this paragraph (i); or (j) Indebtedness in an aggregate principal amount up to U.S.$300 million (or its equivalent in other currencies), but excluding any accrued but unpaid interest, fees and/or reimbursable expenses which may be owing in connection therewith, whether or not added to the principal amount of such Indebtedness, at any one time Incurred by the Borrower or a Subsidiary of the Borrower (for the avoidance of doubt, it being understood that the Borrower or any Subsidiary may repay, prepay, redeem or otherwise retire Indebtedness Incurred pursuant to this paragraph (j) at any time, and any principal amount so repaid, prepaid, redeemed or otherwise retired shall reduce the principal amount of Indebtedness Incurred pursuant to this paragraph (j)).

“Permitted Liens” means: (a) Liens granted by: (i) a Subsidiary of the Borrower (including any Loan Guarantor) in favour of the Borrower or any Loan Guarantor, or (ii) a Subsidiary of the Borrower other than a Loan Guarantor in favour of another Subsidiary of the Borrower, or (iii) by the Borrower in favour of a Loan Guarantor, in each case with respect to the property or assets, or any income or profits therefrom, of the Borrower or such Subsidiary of the Borrower, as the case may be; (b) any Lien existing on the Issue Date; (c) Liens imposed by law, including but without limitation, Liens of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Liens arising in the ordinary course of business; (d) any Lien on any property, income or assets of any Person existing at the time such Person is acquired, merged or consolidated with or into the Borrower or any of its Subsidiaries and not created in contemplation

163 The Loan Agreement

of such event; provided that no such Lien shall extend to any other property, income or assets of such Person or to any other property or assets of the Subsidiaries of such Person or the Borrower or any of its Subsidiaries; (e) any Lien existing on any property, income or assets prior to the acquisition thereof by the Borrower or any of its Subsidiaries and not created in contemplation of such acquisition; provided that no such Lien shall extend to any other property, income or assets of the Borrower or any of its Subsidiaries; (f) any Lien on the property, income or assets of the Borrower or any of its Subsidiaries securing working capital facilities with disbursements of a tenor of 180 days or less with an aggregate principal amount outstanding at any time not to exceed U.S.$400 million; (g) any Lien on any property or assets of the Borrower or any Subsidiary securing Indebtedness incurred for the purpose of financing all or part of the acquisition, maintenance, repair or construction of such property or assets provided that (i) such Lien is created solely for the purpose of securing Indebtedness incurred by the Borrower or relevant Subsidiary in compliance with Clause 14.2, (ii) no such Lien shall extend to any other property or assets of the Borrower or any of its Subsidiaries, (iii) the aggregate principal amount of all Indebtedness secured by Liens under this paragraph (g) on such property or assets does not exceed the purchase price of such property or assets (including customs duties, transport, insurance, construction and installation costs and other incidental costs and expenses of purchase and any VAT or similar taxes thereon) and (iv) (A) in the case of property or assets acquired, maintained or repaired, such Lien attaches to such property or assets concurrently with the maintenance or repair thereof or within 180 days after the acquisition thereof and (B) in the case of property or assets constructed, within 180 days after the completion of construction thereof and the recognition of such property or asset as a fixed asset under Accounting Standards, as the case may be; (h) any Lien granted in favour of a Person providing Project Financing if the Lien is solely on the property, income, assets or revenues of the project for which the financing was incurred provided that (i) the person or persons providing such financing limits its recourse primarily to the property, income, assets or revenues subject to such Lien, (ii) such Lien is created solely for the purpose of securing Indebtedness incurred by the Borrower or any Subsidiary in compliance with Clause 12.2, and (iii) no such Lien shall extend to any other property, income, assets or revenues of the Borrower or any Material Subsidiaries; (i) any Lien securing the Loan and any Guarantee under the Deed of Loan Guarantee or any other Guarantee or any other Guarantees in connection with the Loan (including, but not limited to, any Additional Loan Guarantees and Further Loan Guarantees); (j) any Lien incurred, or pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security benefits and other obligations of like nature in the ordinary course of business; (k) any deposits to secure the performance of bids, trade contacts, government contracts, leases, statutory obligations, customs duties, surety and appeal bonds, performance or return-of-money bonds or liabilities to insurance carriers under insurance or self-insurance arrangements and other obligations of like nature, in each case so long as, such Liens do not secure obligations constituting Indebtedness for borrowed money and are Incurred in the ordinary course of business; (l) easements, rights of way, restrictions (including zoning restrictions), reservations, permits, servitudes, minor defects or irregularities in title and other similar charges and encumbrances, and Liens arising under leases or subleases granted to others, in each case not interfering in any material respect with the business of the Borrower or any of its Subsidiaries and existing, arising or incurred in the ordinary course of business; (m) any Lien securing Indebtedness of which Purchase Money Indebtedness is a part provided that the related Purchase Money Indebtedness shall not be secured by any property or other assets of the Borrower or a Subsidiary of the Borrower other than the property, plant, equipment or capital assets so acquired, improved, constructed or leased or the shares so acquired (where such property, plant, equipment or capital assets are purchased through the acquisition of shares of a Person that owns such property, plant, equipment or capital assets) and any rights under any Indebtedness incurred by the Borrower or a Subsidiary of the Borrower to the Borrower or a Subsidiary of the Borrower in connection with such acquisition, construction, improvement or lease of such property, plant, equipment or capital assets or such shares, and the Lien securing such Indebtedness shall be created within 180 days of such acquisition, construction, improvement or lease;

164 The Loan Agreement

(n) any Lien securing reimbursement obligations of the Borrower or any of its Subsidiaries with respect to letters of credit encumbering only documents and other property relating to such letters of credit and other property relating to such letters of credit and the products or proceeds thereof in the ordinary course of business; (o) any Lien in respect of obligations arising under hedging agreements so long as the related indebtedness is permitted to be incurred under the terms of this Agreement and any such hedging agreement is not speculative; (p) a right of set-off, right to combine accounts or any analogous right which any bank or other financial institution may have relating to any credit balance of any member of the Group; (q) any Lien for ad valorem, income or property taxes or assessments, customs charges and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Borrower or relevant Material Subsidiary has set aside in its accounts reserves to the extent required by Accounting Standards; (r) Liens securing Indebtedness and other obligations under a Credit Facility permitted to be Incurred under clause (i) under the definition of Permitted Indebtedness; (s) any extension, renewal or replacement of any Lien described in clauses (a) to (r) above, provided that the amount of Indebtedness secured by such Lien is not increased (except by an amount necessary to pay any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees and expenses related to such extension, renewal or replacement); and (t) any Lien on the property, income or assets of the Borrower or any Subsidiaries of the Borrower securing Indebtedness of the Borrower or any Subsidiaries of the Borrower incurred in an aggregate principal amount outstanding at any one time not to exceed 40 per cent. of the total assets of the Group (determined by reference to the then most recent publicly available annual or interim financial statements of the Group prepared in accordance with Accounting Standards and measured on the date the underlying Indebtedness giving rise to any such Lien is Incurred). For the avoidance of doubt this paragraph (t) does not include any Lien created in accordance with paragraphs (a) to (s) hereof;

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organisation or government or any Agency or political subdivision thereof.

“Potential Event of Default” means any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination and/or request and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute, an Event of Default.

“Production Assets” means property, plant and equipment of the Group determined in accordance with Accounting Standards.

“Project Financing” means any financing of all or part of the costs of the acquisition, construction, development or operation of any asset or project if the person or persons providing such financing limits its recourse solely to the asset or project financed and the revenues derived from such asset or project.

“Purchase Money Indebtedness” means Indebtedness: (a) where the aggregate principal amount of such Indebtedness does not exceed (i) the lesser of (x) the Fair Market Value of the property, plant, equipment or capital assets purchased for use in the business of the Group as at the date of the Incurrence thereof and (y) the purchase price or cost of such acquired property, plant, equipment or capital assets or (ii) if such property, plant, equipment or capital assets is purchased through the acquisition of shares of a Person that owns such property, plant, equipment or capital assets, the lesser of (x) the Fair Market Value of such acquired shares as at the date of the Incurrence thereof and (y) the purchase price or cost of such acquired shares, including in all cases any refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the date of refinancing and the maturity of such Indebtedness does not exceed the anticipated useful life of such property, plant, equipment or capital assets being acquired; and (b) Incurred to finance the acquisition, construction, improvement or lease of such property, plant, equipment or capital assets, including additions and improvements thereto or the acquisition of such shares, as the case may be;

165 The Loan Agreement provided, however, that such Indebtedness is Incurred, prior to but in contemplation of, or within 180 days after, the acquisition, construction, improvement or lease of such property, plant, equipment or capital assets or the acquisition of such shares by the Borrower or a Subsidiary.

“Qualifying Jurisdiction” means any jurisdiction the transfer or assignment of the Loan (or any rights, benefits and/or obligations hereunder) to which would not, at the time of such transfer or assignment, cause the Borrower to have to provide payments of increased amounts of principal, interest or any other payment due hereunder or Additional Amounts when interest, principal and any other amounts paid under this Loan Agreement is paid to or from such jurisdiction.

“Qualified Securitisation Transaction” means (i) any transaction by which an entity acquires or provides finance against the security of assets (financial or otherwise) or any rights arising from or by reference to such assets from the Borrower or any of its Subsidiaries and that entity funds such acquisition or financing from external funding sources (including, but not limited to, debt securities or banking facilities) on terms that such funding will be repaid primarily from the cashflows and/or values and/or rights attributable to such assets, or (ii) any asset-backed financing, receivables financing or comparable secured loan financing or similar arrangement pursuant to which, at any time, the aggregate principal amount of the funding raised does not at the initial funding thereof exceed 10 per cent. of the consolidated total assets of the Borrower as determined at any time by reference to the most recent consolidated balance sheet of the Borrower prepared in accordance with Accounting Standards.

“Redeemable Capital Stock” means any Capital Stock that, either by its terms or by the terms of any security into which it is convertible or exchangeable or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to 180 days after the Repayment Date or is redeemable at the option of the holder thereof at any time prior to 180 days after the Repayment Date, or is convertible into or exchangeable for debt securities at any time prior to 180 days after the Repayment Date at the option of the holder thereof.

“Refinance” means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or incur Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part and “Refinanced” and “Refinancing” shall have correlative meanings.

“Refinancing Indebtedness” means any Refinancing by the Borrower or any Subsidiary of the Borrower, to the extent that such Refinancing does not: (a) result in an increase in Consolidated Indebtedness as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees and expenses incurred by the Borrower in connection with such Refinancing); or (b) create Indebtedness with: (i) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (ii) a final maturity earlier than the final maturity of the Indebtedness being Refinanced, for the avoidance of doubt, it being understood that any Incurrence of additional Indebtedness for Refinancing purposes and the related Refinancing of any existing Indebtedness may not be concurrent, and that a lapse of time of up to 90 Business Days between the Incurrence of additional Indebtedness for Refinancing purposes and the related Refinancing of existing Indebtedness shall not prejudice the determination that such transaction falls within the definition of Refinancing Indebtedness.

“Repayment Date” means 3 April 2020, or if such day is not a Business Day, the next succeeding Business Day.

“Russia” shall mean the Russian Federation and any province or political subdivision or Agency thereof or therein, and “Russian” shall be construed accordingly.

166 The Loan Agreement

“Russian GAAP” means the rules set by Federal Law «On Accounting» (No. 402-FZ of December 6, 2011, as amended), the Regulation on Accounting and Reporting in the RF, approved by Order No. 34n of July 29, 1998, of the RF Ministry of Finance; the Accounting Regulation “Financial Statement of an Organisation” (PBU/499), approved by Order No. 43n of July 6, 1999, of the RF Ministry of Finance; and other normative acts of the Russian Federation regulating accounting procedures and the preparation of financial statements.

“Stated Maturity” means: (a) with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final instalment of principal of such Indebtedness is due and payable; and (b) with respect to any scheduled instalment of principal of or interest on any Indebtedness, the date specified in such Indebtedness as the fixed date on which such instalment is due and payable.

“Subsidiary” of any Person means (a) any corporation more than 50 per cent. of the outstanding voting power of the Capital Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, (b) any limited partnership of which such Person or any Affiliate of such Person is a general partner or (c) any other Person in which such Person, or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries, directly or indirectly, has more than 50 per cent. of the outstanding partnership or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof.

“Taxes” has the meaning set out in Clause 8.1(a).

“Taxing Authority” has the meaning set out in Clause 8.1(a).

“Treasury Rate” means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity most nearly equal to the period from the Call Settlement Date to the Repayment Date. The Borrower will obtain such yield to maturity from information compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days (but not more than five Business Days) prior to the Call Settlement Date (or, if such Statistical Release is not so published or available, any publicly available source of similar market data selected by the Borrower in good faith)); provided, however, that if the period from the Call Settlement Date to the Repayment Date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Call Settlement Date to the Repayment Date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

“Trust Deed” means the trust deed to constitute the Notes for the equal and rateable benefit of the Noteholders to be dated the Issue Date between the Lender, in its capacity as issuer, and the Trustee as amended, varied or supplemented from time to time.

“Trustee” means Deutsche Trustee Company Limited, as trustee under the Trust Deed and any successor thereto as provided thereunder.

“unpaid sum” has the meaning set forth in Clause 14.1.

“U.S. Dollar Equivalent” means with respect to any amount denominated in a currency other than U.S. Dollars, at any time for the determination thereof, the amount of U.S. Dollars obtained by converting such other currency involved into U.S. Dollars at the spot rate for the purchase of U.S. Dollars with such other currency as most recently published under “Currency Rates” in the section of the Financial Times entitled “Currencies, Bonds & Interest Rates”.

“U.S. GAAP” means generally accepted accounting principles, standards and practices in the United States of America.

167 The Loan Agreement

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products obtained by multiplying: (i) the amount of each then remaining instalment, sinking fund, serial maturity or other required payment of principal or liquidation preference, as the case may be, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment into (b) the then outstanding aggregate principal amount or liquidation preference, as the case may be, or such Indebtedness

Other Definitions: the “Lender” shall be construed so as to include it and any of its subsequent successors, assignees and chargees in accordance with their respective interests;

“repay” (or any derivative form thereof) shall, subject to any contrary indication, be construed to include “prepay” (or, as the case may be, the corresponding derivative form thereof); and

“VAT” shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time.

1.2 Interpretation Unless the context otherwise requires, (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with Accounting Standards consistently applied; (c) “or” is not exclusive; (d) words in the singular include the plural, and words in the plural include the singular; (e) provisions apply to successive events and transactions; (f) references to “U.S.$” or “U.S. dollars” are to United States dollars; and (g) references to the “Loan Guarantee” are to any Loan Guarantee which may exist from time to time in accordance with the provisions hereof; in the event that no such Loan Guarantee exists at any time, the relevant provisions and references in this Agreement shall be deemed to be amended accordingly.

1.3 Statutes Any reference in this Agreement to a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

1.4 Headings Clause and Schedule headings are for ease of reference only.

1.5 Amended Documents Except where the contrary is indicated, any reference in this Agreement to this Agreement, the Loan Guarantee or any other agreement or document shall be construed as a reference to this Agreement, the Loan Guarantee or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented.

168 The Loan Agreement

2. THE LOAN The Lender grants to the Borrower, upon the terms and subject to the conditions hereof, a single disbursement term loan facility in the amount of U.S.$500,000,000.

3. AVAILABILITY OF THE LOAN The Loan will be available by way of a single advance which will be made by the Lender to the Borrower, and the Borrower will draw down the Loan, on 3 April 2013 , or such later date as may otherwise be agreed by the parties to this Agreement, if: (1) the Lender has not, prior to 3 April 2013, or such later date as may otherwise be agreed by the parties to this Agreement, notified the Borrower that it has not received the condition precedent documents as listed in the agreements entered into in connection with the Notes in form and substance satisfactory to the Lender; (2) the Lender has received the arranged funding for the Loan; and (3) no event has occurred or circumstance arisen which would, whether or not with the giving of notice and/ or the passage of time constitute an event described under Clause 13.

4. INTEREST PERIODS The period for which the Loan is outstanding shall be divided into successive semi-annual periods, ending on and excluding 3 April and 3 October, each of which, other than the first (which shall commence on, and shall include, 3 April 2013) shall start on, and shall include, the last day of the preceding such period (each, an “Interest Period”).

5. PAYMENT AND CALCULATION OF INTEREST 5.1 Payment of Interest Not later than 10.00am (New York City time) one Business Day prior to each Interest Payment Date, the Borrower shall pay to the Account, or, following a notice from the Lender, to such other account as the Lender may specify, all accrued and unpaid interest, any increased amounts of principal, interest or any other payment due hereunder and any Additional Amounts, calculated to the last day of each Interest Period, on the outstanding principal amount of the Loan.

5.2 Calculation of Interest The amount of interest payable for any Interest Period shall be calculated by applying the rate of 6.75% per cent. per annum (the “Interest Rate”) to the amount of the Loan, dividing the product by two and rounding the resulting figure to the nearest cent, half a cent being rounded upwards. When interest is required to be calculated for any other period, it shall be calculated on the basis of a 360 day year consisting of 12 months of 30 days each, and in the case of an incomplete month, the actual number of days elapsed.

6. REPAYMENT Subject to Clause 13.2, not later than 10:00 am (New York City time) one Business Day prior to the Repayment Date, the Borrower shall repay in full the outstanding principal amount of the Loan and, to the extent not already paid in accordance with Clause 5.1, all accrued and unpaid interest, any increased amounts of principal, interest or any other payment due hereunder and any Additional Amounts, calculated to the last day of the last Interest Period.

7. PREPAYMENT 7.1 Prepayment for Tax Reasons If, as a result of the application of or any amendment or clarification to, or change (including a change in interpretation or application) in, or determination under, the double taxation treaty between Russia and Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) or the laws or regulations of Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) or of any political sub-division thereof or any Agency therein, the Borrower would thereby be required to pay any increased amounts of principal, interest or any other payment due hereunder in respect of Taxes pursuant to Clause 8.1, or pay any Additional Amounts

169 The Loan Agreement pursuant to Clause 8.3, then the Borrower may (without premium or penalty), upon not less than 30 calendar days’ written irrevocable notice to the Lender and the Trustee, including an Officers’ Certificate of the Borrower, to the effect that the Borrower would be required to pay such increased amounts of principal, interest or any other payment due hereunder or Additional Amounts prepay the Loan in whole (but not in part) at any time together with all accrued and unpaid interest, any increased amounts of principal, interest or any other payment due hereunder and any Additional Amounts; provided, however, that no such notice shall be given earlier than 90 calendar days prior to the earliest date on which the Borrower would be obligated to pay such increased amounts of principal, interest or any other payment due hereunder or Additional Amounts, as the case may be.

7.2 Prepayment for Reasons of Increased Costs or Illegality The Borrower may, if it is required to make any payment by way of indemnity under Clause 10.1, subject to giving to the Lender not less than 30 calendar days’ prior written notice to that effect (without premium or penalty), prepay the whole, but not part only, of the amount of the Loan, together with any amounts then payable under Clause 10.1 and accrued and unpaid interest, any increased amounts of principal, interest or any other payment due hereunder and Additional Amounts, if any.

If, at any time after the date of this Agreement, it is unlawful for the Lender to make, fund or allow to remain outstanding the Loan made or to be made by it hereunder or to maintain the Notes, the Borrower may, if it is so required by the Lender and subject to Clause 10.3 hereof, prepay without premium or penalty the Loan together with accrued and unpaid interest thereon and all other amounts owing to the Lender hereunder.

7.3 Reduction of a Loan Upon Cancellation of corresponding Notes The Borrower or any Subsidiary or affiliate of the Borrower or any other company acting for the benefit of the Borrower may from time to time purchase any Notes (or may provide funding to the Lender to purchase the Notes in the open market, by tender or by private agreement) at any price and on such other terms as the Borrower may determine. The Borrower (or any Subsidiary or affiliate of the Borrower) may from time to time surrender to the Lender for cancellation Notes, together with an authorisation addressed to the agent of the Lender designated for such purpose (or instruct the Lender to cancel the Notes it has purchased at the request of the Borrower), whereupon the Lender shall have the relevant Notes cancelled and the principal amount of the Loan corresponding to the principal amount of such Notes is deemed to have been repaid by the Borrower for all purposes as of the date of such cancellation and no further payments shall be made by the Borrower in respect of such amounts.

7.4 Noteholder Put 7.4.1 As soon as practicable, and in any event, within 10 calendar days after the date of a Further Loan Guarantee Event pursuant to Clause 12.11(a) or 12.11(b) the Borrower shall deliver to the Lender and the Trustee a Borrower Further Loan Guarantee Event Notice, which notice shall be irrevocable; and 7.4.2 If, following a Further Loan Guarantee Event, any Noteholder has exercised its Further Loan Guarantee Event Put Option, the Borrower shall on the Business Day before the Further Loan Guarantee Event Payment Date, prepay the relevant proportion of the Loan which corresponds to the aggregate principal amount of the Notes (as notified to the Borrower and the Lender by the Paying Agents) in relation to which the Further Loan Guarantee Event Put Option has been duly exercised at 101 per cent. of such relevant proportion’s principal amount, together with accrued but unpaid interest to the Further Loan Guarantee Event Payment Date (if any) and plus the Additional Amounts and increased amounts of principal, interest or any other payment due hereunder, in accordance with the terms and conditions of the Notes.

7.5 Optional Redemption at Make Whole At any time prior to the Repayment Date, but on one occasion only, the Borrower may, at its option, having given not less than 30 nor more than 60 days’ irrevocable notice to the Lender (the “Call Option Notice”), prepay the Loan in whole but not in part at the price which shall be the following: (i) its principal amount; plus (ii) the Make Whole Premium; plus

170 The Loan Agreement

(iii) interest and any additional amounts or other amounts that may be due thereon (if any) accrued but unpaid to but excluding the date on which the call option is to be settled (the “Call Settlement Date”).

The Call Option Notice shall specify the Call Settlement Date. The Borrower shall be bound to repay the Loan in accordance with this Clause 7.5 one Business Day prior to the Call Settlement Date.

7.6 Notice of Prepayment Without prejudice to any other requirement in this Agreement, any notice of prepayment given by the Borrower pursuant to Clause 7.1 or Clause 7.2 hereof, shall be irrevocable, shall specify the date upon which such prepayment is to be made and shall oblige the Borrower to make such prepayment one Business Day prior to such date.

7.7 Costs of Prepayment The Borrower shall, on the date of prepayment, pay all accrued and unpaid interest, any increased amounts of principal, interest or any other payment due hereunder and any Additional Amounts (each only with respect to the amount subject to such prepayment), as of such date of prepayment and all other amounts payable to the Lender hereunder in connection with such prepayment. The Borrower shall indemnify the Lender on demand against any costs and expenses reasonably incurred and properly documented by the Lender on account of any prepayment made in accordance with this Clause 7.

7.8 No Other Repayments The Borrower shall not repay the whole or any part of the amount of the Loan except at the times and in the manner expressly provided for in this Agreement.

8. CERTAIN ADDITIONAL PAYMENTS 8.1 No Withholding and increased amounts of principal, interest or any other payment (a) Subject to Clause 8.1(b), all payments made by the Borrower under or with respect to the Loan will be made free and clear of, and without withholding or deduction for, or on account of any present or future tax, duty, levy, impost, assessment, or other governmental charge (including penalties, interest and other liabilities related thereto) (collectively, “Taxes”) imposed or levied by or on behalf of any government or political subdivision or territory or possession of any government or authority or Agency therein or thereof having the power to tax (each, a “Taxing Authority”) within Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes), unless the Borrower is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. For the avoidance of doubt, this Clause 8.1 shall not apply to any taxes on income payable by the Lender. (b) If the Borrower shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of Taxes imposed or levied by or on behalf of any Taxing Authority within Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes), it shall, on the due date for such payment, increase the payment of principal or interest or any other payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in U.S. dollars equal to the full amount which it would have received had payment not been made subject to such taxes (“increased amounts of principal, interest or any other payment due hereunder”). (c) The Borrower will also: (i) make such withholding or deduction; and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. (d) If the Lender pays any amount in respect of such Taxes in respect of which increased amounts of principal, interest or any other payment due hereunder are payable (without prejudice to, and duplication of, the provisions of Clause 8.3), the Borrower shall pay to the Lender an increased amount of principal, interest or any other payment due hereunder equal to such amount in U.S. dollars on demand.

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(e) Whenever this Agreement mentions, in any context, the payment of amounts based upon the principal or premium, if any, interest or of any other amount payable under or with respect to the Loan, this includes, without duplication, payment of any increased amounts of principal, interest or any other payment due hereunder and Additional Amounts that may be applicable such as shall be verified by supporting documentation provided by the Lender to the Borrower.

The foregoing provisions shall apply, modified as necessary, to any Taxes imposed or levied by any Taxing Authority in any jurisdiction in which any successor of the Borrower is organised.

8.2 Exemption assistance The Lender shall assist the Borrower in ensuring that all payments made under this Agreement are exempt from deduction or withholding of Tax.

8.3 Additional Amounts Without prejudice to, and without duplication of, the provisions of Clause 8.1, (a) if at any time the Lender makes or is required to make any payment to a Person (other than to or for the account of the Noteholders) on account of Tax (other than Taxes on income payable by the Lender) in respect of the Loan or in respect of any instruments issued to, or documents entered into with, the Noteholders imposed by any Taxing Authority of or in Russia, Luxembourg or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes, or any liability in respect of any such Tax is asserted, imposed, levied or assessed against the Lender, the Borrower shall, as soon as reasonably practicable following, and in any event within 30 calendar days of, written demand made by the Lender (setting out in reasonable detail the nature and the extent of the obligation), pay to the Lender an amount sufficient to cover such payment, together with any interest, penalties, costs and expenses payable or incurred in connection therewith; and (b) if at any time a Taxing Authority of or in Russia, Luxembourg or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes imposes an obligation on the Lender to withhold or deduct any amount on any payment made or to be made by the Lender to or for the account of the Noteholders and the Lender is required by the Notes to pay additional amounts to such Noteholders in connection therewith, the Borrower shall, as soon as reasonably practicable following, and in any event within 30 calendar days of, written demand made by the Lender (setting out in reasonable detail the nature and the extent of the obligation), pay to the Lender such additional amounts as may be necessary so that the net amount received by the Noteholders (including such additional amounts) in U.S. dollars after such withholding or deduction will not be less than the amount such Noteholders would have received if such withholdings or deductions had not been made and free from liability in respect of such withholding or deduction. Notwithstanding the previous provisions of the Clause 8.3(b), such additional amounts shall be paid by the Borrower to the Lender no later than one Business Day prior to the due date for any relevant payment under the Notes. The Lender shall, as soon as reasonably practicable, provide the Borrower in writing with reasonable details as to the reasons for such withholding or deduction.

Any payments required to be made by the Borrower under this Clause 8.3 are collectively referred to as “Additional Amounts”. For the avoidance of doubt, the provisions of this Clause 8.3 shall not apply to any withholding or deductions of Taxes with respect to the Loan which are subject to payment of increased amounts of principal, interest or any other payment due hereunder under Clause 8.1.

8.4 Tax Claims If the Lender intends to make a claim for any Additional Amounts pursuant to Clause 8.3, it shall notify the Borrower thereof; provided that nothing herein shall require the Lender to disclose any confidential information relating to the organisation of its affairs.

8.5 Tax Credits and Tax Refunds (a) If any increased amounts of principal, interest or any other payment due hereunder are paid under Clause 8.1 or Additional Amounts are paid under Clause 8.3 by the Borrower for the benefit of the Lender

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and the Lender, in its reasonable opinion, determines that it has received or been granted a credit against, a relief or remission for, or a repayment of, any Tax, then, if and to the extent that the Lender, in its reasonable opinion, determines that such credit, relief, remission or repayment is in respect of or calculated with reference to the deduction or withholding giving rise to such increased amounts of principal, interest or any other payment due hereunder or, in the case of Additional Amounts, with reference to the liability, expense or loss to which the payment giving rise to such Additional Amounts relates, the Lender shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as the Lender shall, in its reasonable opinion, have concluded to be attributable to such deduction or withholding or, as the case may be, such liability, expense or loss; provided that the Lender shall not be obliged to make any payment under this Clause 8.5 in respect of such credit, relief, remission or repayment until the Lender is, in its reasonable opinion, satisfied that its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled. Any such payment shall, in the absence of manifest error and subject to the Lender specifying in writing in reasonable detail the calculation of such credit, relief, remission or prepayment and of such payment and providing relevant supporting documents evidencing such matters, be conclusive evidence of the amount due to the Borrower hereunder and shall be accepted by the Borrower in full and final settlement of its rights of reimbursement hereunder in respect of such deduction or withholding. Nothing contained in this Clause 8.5 shall interfere with the right of the Lender to arrange its tax affairs generally in whatever manner it thinks fit nor oblige the Lender to disclose any information relating to its tax affairs generally or any computations in respect thereof. The Lender shall use reasonable endeavours to obtain any tax credits or tax refunds available to the Lender and shall notify the Borrower of any such available tax credits or tax refunds. (b) If as a result of a failure to obtain relief from deduction or withholding of any Tax imposed by Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) (i) such Tax is deducted or withheld by the Borrower and pursuant to Clause 8.1 an increased amount is paid by the Borrower to the Lender in respect of such deduction or withholding, and (ii) following the deduction or withholding of Tax as referred to above, (A) the Borrower applies on behalf of the Lender to the relevant Russian Taxing Authorities for a tax refund and such tax refund is credited by the Russian Taxing Authorities to the Lender or (B) if such tax refund is otherwise credited by a relevant Taxing Authority to the Lender pursuant to a final decision of such Taxing Authority, the Lender shall as soon as reasonably possible notify the Borrower of the receipt of such tax refund and promptly transfer the amount equal to the tax refund to a bank account of the Borrower specified for that purpose by the Borrower.

8.6 Representations and Undertakings of the Lender The Lender represents that (a) it is a company which at the date hereof is a resident of Luxembourg for Luxembourg domestic purposes as well as under the Luxembourg-Russia double tax treaty, is subject to taxation in Luxembourg on the basis of its registration as a legal entity, location of its management body or another similar criterion and it is not subject to taxation in Luxembourg merely on income from sources in Luxembourg or connected with property located in Luxembourg; (b) at the date hereof, it does not have a permanent establishment in Russia; and (c) does not have any current intention to effect, during the term of the Loan, any corporate action or reorganisation or change of taxing jurisdiction that would result in the Lender ceasing to be a resident of Luxembourg and subject to taxation in Luxembourg.

The Lender shall make reasonable and timely efforts to assist the Borrower to obtain relief from withholding of Russian income tax pursuant to the double taxation treaty between Russia and the jurisdiction in which the Lender is incorporated, including its obligations under Clause 8.8. The Lender makes no representation as to the application or interpretation of any double taxation treaty between Russia and the jurisdiction in which the Lender is incorporated.

The Lender shall not take any action or do any thing likely to cause it to cease to be resident for taxation purposes in Luxembourg or a Qualifying Jurisdiction, other than as required by a Change of Law.

8.7 Exceptions The Lender agrees promptly, upon becoming aware of such, to notify the Borrower if it ceases to be resident in Luxembourg or a Qualifying Jurisdiction or establishes a permanent establishment in Russia or if any of the

173 The Loan Agreement representations set forth in Clause 8.6 are no longer true and correct. If the Lender ceases to be resident in Luxembourg or a Qualifying Jurisdiction, then, except in circumstances where the Lender has ceased to be resident in Luxembourg or a Qualifying Jurisdiction by reason of any Change of Law (including a change in a double taxation treaty or in such law or treaty’s application or interpretation), in each case taking effect after the date of this Agreement, the Borrower shall not be liable to pay to the Lender under Clause 8.1 or Clause 8.3 any sum in excess of the sum it would have been obliged to pay if the Lender had not ceased to be resident in Luxembourg or a Qualifying Jurisdiction.

8.8 Delivery of Forms The Lender shall, not more than 30 days prior to the first Interest Payment Date and within 30 calendar days of the request of the Borrower, to the extent it is able to do so under applicable laws including Russian laws, deliver to the Borrower (i) a certificate issued by the competent Taxing Authority in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) confirming that the Lender is a tax resident in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) and (ii) such other information or forms as the Borrower may need to be duly completed and delivered by the Lender, to enable the Borrower to apply to obtain relief from deduction or withholding of Russian Tax after the date of this Agreement or, as the case may be, to apply to obtain a tax refund if a relief from deduction or withholding of Russian Tax has not been obtained.

The Lender shall, within 30 calendar days of the request of the Borrower, to the extent it is able to do so under applicable laws including Russian laws, from time to time deliver to the Borrower any additional duly completed application forms as need to be duly completed and delivered by the Lender to enable the Borrower to apply to obtain relief from deduction or withholding of Russian Tax or, as the case may be, to apply to obtain a tax refund if a relief from deduction or withholding of Russian Tax has not been obtained.

The certificate and, if required, other forms referred to in this Clause 8.8 shall be duly signed by the Lender, if applicable, and stamped or otherwise approved by the competent Taxing Authority in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) and apostilled or otherwise legalised.

If a relief from deduction or withholding of Russian Tax under this Clause 8.8 has not been obtained and further to an application of the Borrower to the relevant Russian Taxing Authorities the latter requests the Lender’s rouble bank account details, the Lender shall at the request of the Borrower (x) use reasonable efforts to procure that such rouble bank account of the Lender is duly opened and maintained, and (y) thereafter furnish the Borrower with the details of such rouble bank account. The Borrower shall pay for all costs associated, if any, with opening and maintaining such rouble bank account.

9. TAX RECEIPTS 9.1 Notification of Requirement to Deduct Tax If, at any time, the Borrower is required by law to make any deduction or withholding from any sum payable by it hereunder, or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated, the Borrower shall promptly notify the Lender.

9.2 Evidence of Payment of Tax

The Borrower will make all reasonable endeavours to obtain certified copies, and translations into English, of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Borrower will furnish to the Lender and/or the Trustee, within 60 calendar days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by the Borrower or, if such receipts are not obtainable, other evidence of such payments by the Borrower.

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10. CHANGES IN CIRCUMSTANCES 10.1 Increased Costs

If, by reason of (i) any Change of Law, other than a Change of Law which relates only to the basis or rate of Tax on the net income of the Lender or the amounts due pursuant to Clauses 18.1 and/or 18.4: (a) the Lender incurs an additional cost as a result of the Lender’s entering into or performing its obligations, including its obligation to make the Loan, under this Agreement (excluding Taxes payable by the Lender on its net income); or (b) the Lender becomes liable to make any additional payment on account of Tax or otherwise, not being a tax imposed on its net income or the amounts due pursuant to Clauses 18.1 and/or 18.4, on or calculated by reference to the amount of the Loan and/or to any sum received or receivable by it hereunder except where compensated under Clause 8.1 or under Clause 8.3, then the Borrower shall, from time to time within 30 calendar days of written demand of the Lender, pay to the Lender amounts sufficient to cover such properly documented (1) cost or (2) liability; provided that the Lender will not be entitled to indemnification where such increased cost or liability arises as a result of the gross negligence, fraud or wilful default of the Lender.

10.2 Increased Costs Claims If the Lender intends to make a claim pursuant to Clause 10.1, it shall notify the Borrower thereof and provide a written description in reasonable detail of the relevant Change of Law, including a description of the relevant affected jurisdiction or country and the date on which the change in circumstances took effect; provided that nothing herein shall require the Lender to disclose any confidential information relating to the organisation of its or any other person’s affairs. The written description shall demonstrate the connection between the change in circumstance and the increased costs and shall be accompanied by relevant supporting documentation evidencing the matters described therein.

10.3 Illegality If, at any time after the date of this Agreement, it is unlawful for the Lender to make, fund or allow to remain outstanding the Loan made or to be made by it hereunder or to maintain the Notes, then the Lender shall, after becoming aware of the same, deliver to the Borrower a written notice, setting out in reasonable detail the nature and extent of the relevant circumstances, to that effect and: (a) if the Loan has not then been made, the Lender shall not thereafter be obliged to make the Loan; and (b) if the Loan is then outstanding and the Lender so requests by written notice to the Borrower, the Borrower shall: (i) on the latest date permitted by the relevant law or such earlier date as the Borrower elects (to be notified to the Lender not less than 30 calendar days prior to the date set for repayment by written notice), or (ii) if such request is received after the latest date permitted by the relevant law, on the date which is three Business Days after such request is received by the Borrower; repay the Loan pursuant to Clause 7.2.

10.4 Mitigation If circumstances arise which would result in:

(a) any payment falling due to be made by or to the Lender or for its account pursuant to Clause 10.3; (b) any payment falling due to be made by the Borrower pursuant to Clause 8.1; or (c) a claim for indemnification pursuant to Clause 8.3 or Clause 10.1, then, without in any way limiting, reducing or otherwise qualifying the rights of the Lender or the Borrower’s obligations under any of the above mentioned provisions, the Lender shall, upon becoming aware of the same, notify the Borrower thereof and, in consultation with the Borrower and to the extent it can lawfully do so and without prejudice to its own position, take reasonable steps to remove such circumstances or mitigate the effects of such circumstances including, without limitation, by transfer of its rights or obligations under this Agreement

175 The Loan Agreement to another entity; provided that the Lender shall be under no obligation to take any such action if, in its opinion, to do so might have any adverse effect upon its business, operations or financial condition or might be in breach of any arrangements which it may have made with the Noteholders.

11. FINANCIAL INFORMATION The Borrower will, at its own expense, so long as the Loan remains outstanding, furnish to the Lender and the Trustee: 11.1 copies of all reports and other communications (financial or other) furnished to stockholders of the Borrower (excluding communications made only in the Russian language); 11.2 as promptly as practicable, copies of (i) any reports and financial statements furnished to or filed with any securities exchange (other than any securities exchange in Russia) on which any class of securities of the Borrower is listed; and (ii) such additional publicly available information concerning the business and financial condition of the Borrower as the Lender may from time to time reasonably request; 11.3 such information as the Central Bank of Ireland or the Irish Stock Exchange (or any other or further stock exchange or stock exchanges or any other relevant authority or authorities on which the Notes may, from time to time, be listed or admitted to trading) may require in connection with the listing or admittance to trading on such stock exchange or relevant authority of the Notes; 11.4 11.4.1 its audited annual consolidated financial statements, prepared in accordance with Accounting Standards consistently applied with the corresponding financial statements for the preceding period, within 180 days of the end of the financial year to which such statements relate; 11.4.2 its reviewed semi-annual consolidated financial statements, prepared in accordance with Accounting Standards consistently applied with the corresponding financial statements for the preceding period, within 150 days of the end of the period to which such statements relate; and 11.4.3 its other interim consolidated financial statements (if the Borrower prepares any such other interim consolidated financial statements), prepared in accordance with Accounting Standards consistently applied with the corresponding financial statements for the preceding period, within 150 days of the end of the period to which such statements relate, provided that the Borrower shall not be required to deliver any other interim consolidated financial statements if such financial statements are prepared solely for internal purposes, in each case together with a certificate signed by the individual then responsible for the financial matters of the Group stating that since the date of the last certificate or, if none, the Issue Date each of the Borrower and the Guarantors has performed its obligations under, and complied with, the terms of this Agreement and is not in default in the performance of any of the terms of this Agreement (or, if an Event of Default or Potential Event of Default shall have occurred, describing all such Events of Default or Potential Event of Default, of which he may have knowledge). In addition, the Borrower shall provide such a certificate to the Lender and the Trustee within 10 days of any request by the Lender. 11.5 If so requested by the Lender, the Borrower shall deliver to the Lender and/or the Trustee, within 14 Business Days of such request, an Officers’ Certificate (a) stating that to the best of each of the Officers’ knowledge (i) the Borrower has kept, observed, performed and fulfilled each and every covenant, and complied with the covenants and conditions contained in this Agreement and (ii) the Borrower is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Potential Event of Default or Event of Default shall have occurred, describing all such Potential Events of Default or Events of Default of which he may have knowledge) and (b) setting out the calculations of the ratios set out in Clause 12.2.

12. COVENANTS For so long as any amount remains outstanding hereunder:

12.1 Limitation on Liens Neither the Borrower nor any of its Material Subsidiaries shall, directly or indirectly, create, incur, assume or suffer to exist any Lien, other than a Permitted Lien, on any of its assets, now owned or hereafter acquired, or any

176 The Loan Agreement income or profits therefrom, securing any Indebtedness unless, at the same time or prior thereto, the Loan or the relevant Loan Guarantee, as the case may be, (a) is secured equally and rateably therewith or (b) has the benefit of other security or other arrangement, in each case to the satisfaction of the Trustee.

12.2 Incurrence of Indebtedness (a) Neither the Borrower nor any Subsidiary of the Borrower shall incur any Indebtedness, other than in circumstances where, (i) no Potential Event of Default nor Event of Default shall have occurred and be continuing at the time, or would occur as a consequence, of the incurrence of such Indebtedness, and (ii) the Leverage Ratio is 3.5 or lower. (b) At any time when the conditions set forth in Clause 12.2(a) hereof are not met, the Borrower and its Subsidiaries may only Incur additional Indebtedness if it is Permitted Indebtedness. (c) Notwithstanding any other provision of this Clause 12.2, the maximum amount that the Borrower or a Subsidiary of the Borrower may Incur pursuant to this Clause 12.2 shall not be deemed to be exceeded, with respect to outstanding Indebtedness, due solely to the result of fluctuations in the exchange rate of currencies. (d) For the purposes of determining compliance with this covenant: (i) in the event that an item of Indebtedness (or any portion thereof) on Incurrence meets the criteria of more than one of the types of Indebtedness described in this Clause 12.2 or the definition of Permitted Indebtedness, the Borrower, in its sole discretion, will classify such item of Indebtedness (or any portion thereof) at the time of Incurrence and will only be required to include the amount and type of such Indebtedness in one of the classifications as described in sub-Clause 12.2(a), sub-Clause 12.2(b) or one of the paragraphs under the definition of Permitted Indebtedness; and (ii) the Borrower will be entitled to divide and classify such item of Indebtedness which meets the criteria of more than one of the types of Indebtedness described in this Clause 12.2 or the definition of Permitted Indebtedness and may at any time change the classification of such item of Indebtedness (or any portion thereof) to any other type of Indebtedness that it meets the criteria of.

12.3 Transactions with Affiliates Neither the Borrower nor any Subsidiary or the Borrower shall, directly or indirectly, enter into or make or amend any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Borrower or any other Subsidiary of the Borrower unless such transaction or series of related transactions is entered into in good faith and in writing and such transaction or series of related transactions is on terms that are no less favourable to the Borrower or the relevant Subsidiary or the Borrower, as the case may be, than those that would be available in a comparable transaction at arm’s-length with an unrelated third party, provided, however, that this provision shall not apply to: (i) any employment agreement, collective bargaining agreement or employee benefit arrangements with any officer or director of the Borrower or any of its Subsidiaries, including under any stock option or stock incentive plans, entered into in the ordinary course of business; (ii) payment of reasonable fees and compensation to employees, officers, directors, consultants or agents in the ordinary course of business; (iii) transactions between the Borrower and any of its Subsidiaries or between its Subsidiaries; (iv) transactions undertaken pursuant to contractual obligations or rights in existence on the Issue Date (as in effect on the Issue Date) or any amendment thereto after the Issue Date (so long as such amendment is not disadvantageous to the Lender in any material respect in the reasonable opinion of the Borrower); (v) transactions with customers, clients, suppliers, purchasers or sellers of goods or services, in each case, in the ordinary course of business and otherwise in compliance with the terms of this agreement which are on terms at least as favourable to the Borrower or the relevant Subsidiary as might reasonably be obtained at such time from an unrelated third party;

177 The Loan Agreement

(vi) sales of Capital Stock (other than Redeemable Capital Stock) of the Borrower (vii) sales or other transfers or dispositions of accounts receivables and other related assets customarily transferred in a Qualified Securitisation Transaction, and acquisitions of Investments in connection with a Qualified Securitisation Transaction, in each case to or from the relevant securitisation vehicle; or (viii) any reorganisation (by way of a merger, accession, division, separation, transformation or other basis or procedure for reorganisation) undertaken by the Borrower or any of its Subsidiaries as may be permitted pursuant to Clause 12.5.

12.4 Asset Sales Neither the Borrower nor any Subsidiary of the Borrower shall consummate any Asset Sale, unless the proceeds received by the Borrower or the relevant Subsidiary of the Borrower, as the case may be, are at least equal to the Fair Market Value of the assets sold or disposed of and an amount equal to such proceeds (less any costs incurred in relation to such Asset Sale) (the “Disposal Proceeds”) is: (a) applied to repay permanently any Indebtedness of the Group (other than Indebtedness subordinated to the Loan); (b) invested in assets of a nature or type that is used or usable in the ordinary course of a Core or Related Business of the Borrower or any of its Subsidiaries; (c) retained as cash deposited with a bank or invested in Cash Equivalents; and/or (d) applied to finance: (i) an acquisition of Capital Stock of a Person engaged in a Core or Related Business who, following the consummation of such Asset Sale, is to become a Subsidiary of the Borrower, or (ii) an acquisition of, or a merger, reorganisation or other combination of a business of the Group with, the business of a Person that is similar or related to the Core or Related Business, in each case within 360 days of the date when such proceeds are received (it being understood that receipt by the Borrower or any Subsidiary of the Borrower of Capital Stock of any Person who, following the consummation of such Asset Sale is to become a Subsidiary of the Borrower, as consideration for such Asset Sale shall be deemed to satisfy the financing of the acquisition of Capital Stock requirement set out above); provided that if the Disposal Proceeds are applied pursuant to paragraph (c), the Borrower or the relevant Subsidiary, as the case may be, shall apply or invest the Disposal Proceeds on or prior to the date falling 540 days after the date when such proceeds are received either to (i) repay permanently Indebtedness of the Group (other than Indebtedness subordinated to the Loan), (ii) invest in assets of a nature or type that is used or usable in the ordinary course of Core or Related Business of the Borrower or any of its Subsidiaries or (iii) applied to finance the acquisition of Capital Stock of, or merger, reorganisation or other combination of a business of the Group with the business of, a Person whose business is similar or related to the Core or Related Business.

12.5 Mergers and Similar Transactions The Borrower shall not enter into or become subject to, and shall not permit any Material Subsidiary to enter into or become subject to, any reorganisation (as such term is construed by applicable legislation, including, without limitation and where applicable, any amalgamation, demerger, merger or corporate reconstruction) or other analogous event (as determined by the legislation of the relevant jurisdiction) if such reorganisation or other analogous event would have a Material Adverse Effect.

12.6 Maintenance of Authorisations The Borrower and each Loan Guarantor shall obtain or make, and procure the continuance or maintenance of, all registrations, recordings, filings, consents, licences, approvals and authorisations, which may at any time be required to be obtained or made in any relevant jurisdiction for the purposes of the execution, delivery or performance of the Notes, this Agreement, the Deed of Loan Guarantee and the Trust Deed and for the validity and enforceability thereof, provided that, in any case, if the Borrower or the relevant Loan Guarantor remedies any failure to comply with this Clause within 90 days of such failure or of the occurrence of such event, then this covenant shall be deemed not to have been breached.

178 The Loan Agreement

12.7 Maintenance of Property The Borrower and each Material Subsidiary shall cause all property used in the conduct of its or their business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements and improvements thereof, all as, in the judgment of the Borrower or the relevant Material Subsidiary, may be reasonably necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that if the Borrower or the relevant Material Subsidiary remedies any failure to comply with the above within 90 days or any failure would not have a Material Adverse Effect, this covenant shall be deemed not to have been breached.

12.8 Payment of Taxes and Other Claims The Borrower and each of the Material Subsidiaries shall pay or discharge, or cause to be paid and discharged, before the same shall become overdue and without incurring penalties, (a) all Taxes levied or imposed upon, or upon the income, profits or property of the Borrower or the Material Subsidiaries and (b) all lawful claims for labour, materials and supplies which, if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property of any of the Borrower or the Material Subsidiaries; provided that none of the Borrower or the Material Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such Tax (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Accounting Standards as consistently applied or other appropriate provisions have been or will be made or (ii) whose amount, together with all such other unpaid or undischarged taxes, assessments, charges and claims of the Group, not so contested and for which adequate reserves in accordance with Accounting Standards as consistently applied or other appropriate provisions have been or will be made would not have a Material Adverse Effect.

12.9 Insurance The Borrower and each of the Material Subsidiaries shall obtain and maintain insurance with an insurer or insurers of sufficient standing (in the reasonable judgment of the Borrower or the relevant Material Subsidiary) against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged in the jurisdiction(s) where it operates; provided that if the Borrower or the relevant Material Subsidiary remedies any failure to comply with the above within 90 days or if such potential losses or risks (which may be assessed by reference to the actual risks and losses borne by the Borrower or the relevant Material Subsidiary over the preceding 3 years) would not have a Material Adverse Effect, this covenant shall be deemed not to have been breached.

12.10 Change of Business Neither the Borrower nor any of the Material Subsidiaries shall make any material change to the Core or Related Business of the Group.

12.11 Additional Loan Guarantees (a) Procurement of Additional Loan Guarantees (i) The Borrower shall procure that the Additional Loan Guarantors, not later than 90 calendar days after the Issue Date, execute Additional Loan Guarantees in favour of the Lender whereby the Additional Loan Guarantors will, jointly and severally, unconditionally and irrevocably guarantee that if the Borrower does not pay any sum payable under the Loan Agreement by the time and on the date specified for such payment (whether on the normal due date, an acceleration or otherwise) the Additional Loan Guarantor will pay that sum to or to the order of the Borrower before the close of business that day (ii) The Borrower shall also procure that the following opinions are delivered to the Lender and the Trustee on the date of the execution of the Additional Loan Guarantees: (a) an opinion of counsel or tax advisors reasonably acceptable to the Lender and the Trustee, in form and substance satisfactory to the Lender and the Trustee, to the effect that neither the Lender nor any Noteholder will recognise any income, gain or loss for Tax purposes as a result of the addition of such Additional Loan Guarantees, subject to customary exceptions, qualifications and limitations; and

179 The Loan Agreement

(b) an opinion of counsel reasonably acceptable to the Lender and the Trustee, in form and substance satisfactory to the Lender and the Trustee, stating that all legal conditions precedent in relation to such addition have been complied with and that each Additional Loan Guarantee constitutes legal, valid and binding obligations of the respective Additional Loan Guarantor, enforceable in accordance with its terms, subject to customary exceptions, qualifications and limitations. (b) Procurement of Further Loan Guarantees (i) The Borrower will use its reasonable best efforts to cause each Material Subsidiary to execute and deliver to the Lender (with a copy to the Trustee) a Further Loan Guarantee, pursuant to which such Material Subsidiary will unconditionally and irrevocably guarantee the payment of all moneys payable under this Agreement and will become vested with all the duties and obligations of a Loan Guarantor as if originally named a Loan Guarantor, as soon as practicable (but in any event no later than 90 calendar days) after the total Production Assets or the gross revenues (excluding intercompany revenues) of such Material Subsidiary (determined by reference to the most recent period for which financial statements of such Material Subsidiary prepared under Accounting Standards are available (or, if unavailable, such Material Subsidiary’s most recent management accounts) or, if the relevant Material Subsidiary does not prepare financial statements in accordance with Accounting Standards, the most recent period for which audited financial or reviewed financial statements of such Material Subsidiary are available (or if unavailable, such Material Subsidiary’s most recent management accounts)) equals or exceeds 20 per cent. of the Group’s consolidated total Production Assets or 20 per cent. of the Group’s consolidated revenues, respectively (determined by reference to the most recent period for which the Group’s financial statements prepared in accordance with Accounting Standards are available). (ii) In addition and as a separate obligation to those above in this Clause 12.11, the Borrower will procure that any Material Subsidiary of the Borrower that is not a Loan Guarantor execute, and deliver a copy thereof to the Lender (with a copy to the Trustee), a Further Loan Guarantee, pursuant to which such Material Subsidiary will unconditionally and irrevocably guarantee the payment of all money payable under this Agreement and will become vested with all the duties and obligations of a Loan Guarantor as if originally named as such, as soon as practicable (but in any event no later than 90 calendar days) after such Material Subsidiary Guarantees, together with all of the Loan Guarantors at such time, any Indebtedness of any member of the Group. (iii) A Loan Guarantor will be automatically and unconditionally released and discharged from its Loan Guarantee: (i) upon any sale, exchange or transfer to any Person which is not an Affiliate of Borrower of all or substantially all of the Capital Stock of the Loan Guarantor held by Borrower and other Subsidiaries of Borrower (which sale, exchange or transfer is not prohibited by these Conditions) or (ii) upon the reorganisation (whether by way of merger or accession) of the relevant Loan Guarantor pursuant to which such Loan Guarantor accedes to or is merged into the Borrower. (iv) The Borrower will give notice to the Lender (with a copy to the Trustee) in accordance with Clause 22 hereof of any Loan Guarantor becoming or ceasing to be a Loan Guarantor and, so long as the Notes are listed on the Irish Stock Exchange and/or any other stock exchange on which the Notes may be listed or quoted from time to time, shall comply with applicable rules of the Irish Stock Exchange and/or such other exchange (including preparation of a supplemental offering circular) in relation to any Loan Guarantor becoming or ceasing to be a Loan Guarantor.

12.12 Other Information The Borrower shall: (a) provide the Lender and the Trustee with a list of its authorised signatories (together with specimen signatures) and forthwith to notify the Lender and the Trustee of any changes to the list; and (b) forthwith following a request by the Lender notify the Lender and the Trustee of any Notes held by or on behalf of the Borrower or any Loan Guarantor or any of their Affiliates, in each case as beneficial owner. 12.13 Claims Pari Passu

180 The Loan Agreement

The Borrower shall, and shall procure the Guarantors to, ensure that at all times the obligations of the Borrower under the Loan Agreement and each Loan Guarantor under the Deed of Loan Guarantee will rank at least pari passu in right of payment with all other unsecured and unsubordinated obligations of the Borrower or the Loan Guarantors, as the case may be, except as otherwise provided by mandatory provisions of applicable law.

13. EVENTS OF DEFAULT 13.1 Circumstances which constitute Events of Default Each of the following constitutes an “Event of Default” with respect to the Loan: (a) default by the Borrower or any Loan Guarantor in the payment of principal of (or premium, if any, on) the Loan, in the currency and in the manner provided herein or in the Loan Guarantee, as the case may be, when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise and such default continues for a period of 5 Business Days; (b) default by the Borrower or any Loan Guarantor in the payment of interest on the Loan, in the currency and in the manner provided herein or in the Loan Guarantee, as the case may be, when the same becomes due and payable if such default continues for a period of 7 Business Days; (c) failure by the Borrower or any Loan Guarantor to prepay the Loan in accordance with Clause 7.4 hereof and such default continues for a period of 10 Business Days; (d) default by the Borrower or any Loan Guarantor in the performance of any of its other obligations under this Agreement or the Loan Guarantee, as the case may be and (except where in any such case that failure is not capable of remedy) that failure continues for a period of 30 days following the submission by the Lender of a notice in writing requiring the breach to be remedied; provided that a failure in the performance by the Borrower of the provisions contained in Clauses 12.11 hereof shall be deemed not to constitute an Event of Default; (e) any Indebtedness of either the Borrower or any of its Subsidiaries is not paid when due (taking into account any originally applicable grace period), or any Indebtedness of either the Borrower or any of its Subsidiaries is declared to be due and payable prior to its Stated Maturity as a result of a default by the Borrower or its Subsidiaries pursuant to the terms of the relevant Indebtedness; provided, however, that the total amount of such Indebtedness which is not paid when due or becomes due and payable prior to its Stated Maturity is equal to or greater than U.S.$30 million (or its U.S. Dollar Equivalent in another currency) disregarding any guarantee of the Borrower or its Subsidiaries given in respect of such Indebtedness owed by the Borrower or its Subsidiaries, as the case may be; (f) any final judgment or order (not covered by insurance) for the payment of money in excess of U.S.$30 million (or, to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent of such amount) in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self- insurance or retention as not so covered) shall be rendered against the Borrower or any Material Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive calendar days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed U.S.$30 million (or, to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent of such amount) during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) the validity of this Agreement or the Loan Guarantee is contested by the Borrower or any Loan Guarantor or the Borrower or any Loan Guarantor shall deny any of its obligations under this Agreement or any Loan Guarantor shall deny any of its obligations under the Loan Guarantee; or it is, or will become, unlawful for the Borrower or any Loan Guarantor to perform or comply with any of its obligations under or in respect of this Agreement or the Loan Guarantee, as the case may be, or any of such obligations shall become unenforceable or cease to be legal, valid and binding; (h) a decree, judgment, or order by any Agency or a court of competent jurisdiction shall have been entered adjudging the Borrower or any of its Material Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition seeking reorganisation of the Borrower or any of its Material Subsidiaries under any bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction over the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of the Borrower or any of its

181 The Loan Agreement

Material Subsidiaries, or any substantial part of the assets or property of any such Person, or for the winding up or liquidation of the affairs of any such Person, shall have been entered, and such decree, judgment or order shall have remained in force undischarged and unstayed for a period of 60 days, or any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in this Clause 13.1(h), in all cases excluding any solvent reorganisations which are not otherwise prohibited by this Agreement; or (i) the Borrower or any of its Material Subsidiaries shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganisation under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee or assignee in bankruptcy or insolvency of it or any substantial part of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall, within the meaning of any bankruptcy law, become insolvent, fail generally to pay its debts as they become due, or takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing or any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in this Clause 15.1(i).

13.2 Rights of Lender upon occurrence of an Event of Default (a) If an Event of Default occurs under this Agreement and is continuing, the Lender and/or the Trustee may, by written notice (an “Acceleration Notice”) to the Borrower (including if the Lender and/or the Trustee receives written instructions from the Noteholders), (i) declare the obligations of the Lender hereunder to be terminated, whereupon such obligations shall terminate, and (ii) declare the principal amount of, premium, if any, and accrued and unpaid interest, increased amounts of principal, interest or any other payment due hereunder and Additional Amounts, if any, on the Loan to be immediately due and payable and the same shall become immediately due and payable, pursuant to and in accordance with the terms of any agreements entered into in connection with the arranged funding. (b) If an Event of Default specified in Clause 13.1(h) or (i) occurs with respect to the Borrower or any of its relevant Material Subsidiaries, the obligations of the Lender hereunder shall immediately terminate, and the principal amount of, premium, if any, and accrued and unpaid interest, increased amounts of principal, interest or any other payment due hereunder and Additional Amounts, if any, on the Loan then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Lender and/or the Trustee, all without diligence, presentment, demand of payment, protest or notice of any kind, which are expressly waived by the Borrower.

13.3 Other Remedies If an Event of Default occurs and is continuing, the Lender by notice to the Borrower and/or the Loan Guarantors, as the case may be, and/or the Trustee may pursue any available remedy to collect the payment of principal or interest on the Loan or to enforce the performance of any provision of this Agreement or the Loan Guarantee. A delay or omission by the Lender and/or the Trustee in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.

13.4 Notification of Potential Event of Default or Event of Default The Borrower shall and shall procure that each of the Loan Guarantors shall promptly on becoming aware thereof inform the Lender of the occurrence of any Potential Event of Default or Event of Default and, upon receipt of a written request to that effect from the Lender, confirm to the Lender that, save as previously notified to the Lender or as notified in such confirmation, no Potential Event of Default or Event of Default has occurred.

182 The Loan Agreement

14. DEFAULT INTEREST AND INDEMNITY 14.1 Default Interest Periods If any sum due and payable by the Borrower hereunder is not paid on the due date therefor in accordance with the provisions of Clause 17 or if any sum due and payable by the Borrower under any judgement of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of the Borrower to pay such sum (the balance thereof for the time being unpaid being herein referred to as an “unpaid sum”) is discharged shall be divided into successive periods, each of which, other than the first, shall start on the last day of the preceding such period and the duration of each of which shall, except as otherwise provided in this Clause 14, be selected by the Lender, but shall in any event not be longer than one month.

14.2 Default Interest During each such period relating thereto as is mentioned in Clause 14.1 an unpaid sum shall bear interest at a rate per annum equal to the Interest Rate.

14.3 Payment of Default Interest Any interest which shall have accrued under Clause 14.2 in respect of an unpaid sum shall be due and payable and shall be paid by the Borrower at the end of the period by reference to which it is calculated or on such other dates as the Lender may specify by written notice to the Borrower.

14.4 Borrower’s Indemnity The Borrower undertakes to pay to the Lender a sufficient premium to cover any reasonably incurred and properly documented cost, claim, loss, expense (including legal fees) or liability, together with any VAT thereon, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by the Borrower in the performance of any of the obligations expressed to be assumed by it in this Agreement.

14.5 Unpaid Sums as Advances Any unpaid sum shall, for the purposes of this Clause 14 and Clause 10.1, be treated as an advance and accordingly in this Clause 14 and Clause 10.1 the term “Loan” includes any unpaid sum and the term “Interest Period,” in relation to an unpaid sum, includes each such period relating thereto as is mentioned in Clause 14.1.

15. AMENDMENTS TO AGREEMENTS RELATING TO THE NOTES Any amendment to, or waivers of any provision of, any agreements entered into in connection with the Notes shall be prohibited without the express written consent of the Borrower, which consent shall not be unreasonably withheld (other than amendments or waivers that are made pursuant to any legal, regulatory or accounting requirement, with respect to which the Lender shall consult with the Borrower to the extent reasonably practicable).

16. CURRENCY OF ACCOUNT AND PAYMENT 16.1 Currency of Account The U.S. dollar is the currency of account and payment for each and every sum at any time due from the Borrower hereunder.

16.2 Currency Indemnity If any sum due from the Borrower under this Agreement or any order or judgment given or made in relation hereto has to be converted from the currency (the “first currency”) in which the same is payable hereunder or under such order or judgment into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against the Borrower, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation hereto, the Borrower shall indemnify and hold harmless the Lender from and against any loss suffered or reasonably incurred as a result of any discrepancy

183 The Loan Agreement between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the Lender may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.

17. PAYMENTS 17.1 Payments to the Lender On each date on which this Agreement requires an amount denominated in U.S. dollars to be paid by the Borrower, the Borrower shall make the same available to the Lender by payment in U.S. dollars and in same day funds on such date, or in such other funds as may for the time being be customary in London for the settlement in London of international banking transactions in U.S. dollars, to the Account, or, following a notice from the Trustee under the provisions of Clause 2.6(b) of the Trust Deed, to such other account as the Trustee may specify. The Borrower shall procure that the bank effecting payment on its behalf confirms to the Lender or to such person as the Lender may direct by tested telex or authenticated SWIFT message three Business Days prior to the date that such payment is required to be made by this Agreement the payment instructions relating to such payment.

17.2 Alternative Payment Arrangements If, at any time, it shall become impracticable, by reason of any action of any governmental authority or any Change of Law, exchange control regulations or any similar event, for the Borrower to make any payments hereunder in the manner specified in Clause 17.1, then the Borrower may agree with the Lender alternative arrangements for such payments to be made; provided that, in the absence of any such agreement, the Borrower shall be obliged to make all payments due to the Lender in the manner specified herein.

17.3 No Set-off All payments required to be made by the Borrower hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim.

18. COSTS AND EXPENSES 18.1 Transaction Expenses and Fees In consideration of the Lender making the Loan available to the Borrower, the Borrower hereby agrees that it shall pay to the Lender a fee including applicable front-end expenses incurred in connection with the financing of the Loan, the negotiation, preparation and execution of this Loan Agreement and all related documents and other expenses connected with and necessary for the extension of the Loan (the “Loan Arrangement Fee”), in the amount of U.S.$3,100,000. The Lender shall promptly submit an invoice to the Borrower stating the amount due. The Borrower and the Lender shall enter into and sign a delivery and acceptance act (“Act of Acceptance”). Such Act of Acceptance shall specify (i) the net amount due, (ii) any applicable Russian income tax withholding (if any), (iii) any applicable Russian value added tax (if any) and (iv) the resulting total amount inclusive of tax.

18.2 Preservation and Enforcement of Rights The Borrower shall, from time to time on demand of the Lender and following receipt from the Lender of a description in writing in reasonable detail of the relevant costs and expenses, together with the relevant supporting documents evidencing the matters described therein, reimburse the Lender for all costs and expenses, including legal fees, together with any VAT thereon properly incurred in or in connection with the preservation and/or enforcement of any of its rights under this Agreement except where the relevant claim is successfully defended by the Borrower.

18.3 Stamp Taxes The Borrower shall pay all stamp, registration and other similar Taxes to which this Agreement or any judgement given against the Borrower in connection herewith is or at any time may be subject and shall, from time to time on demand of the Lender, indemnify the Lender against any properly documented liabilities, costs, expenses and claims resulting from any failure to pay or any delay in paying any such Tax.

184 The Loan Agreement

18.4 Ongoing Fees and Expenses In consideration of the Lender (i) making available the Loan hereunder and (ii) supporting such a continuing loan and managing the account, the Borrower shall pay to the Lender each year ongoing fees as increased by expenses. Such fees shall be sufficient to cover expenses of the Lender arising with respect to any claim, demand, action, liability, damages, cost, loss or expense (including, without limitation, legal fees) arising out of, or in connection with the arranged funding, or based on any dispute or issue arising out of, or in connection with, the arranged funding. Payments to the Lender referred to in this Clause shall be made by the Borrower as soon as reasonably practicable and in any event no later than 15 days following receipt of an invoice from the Lender setting out in detail the nature of fees and calculation of the relevant payment. In addition, the Borrower and the Lender shall enter and sign an Act of Acceptance as provided in Clause 18.1 above.

19. ASSIGNMENTS AND TRANSFERS 19.1 Binding Agreement This Agreement shall be binding upon and inure to the benefit of each party hereto and its or any subsequent successors and assigns.

19.2 No Assignments and Transfers by the Borrower The Borrower shall not be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder, except as permitted under Clause 12.5.

19.3 Assignments by the Lender The Lender may not assign or transfer all or any part of its rights and benefits or obligations hereunder except pursuant to (i) the charge by way of first fixed charge granted by the Lender in favour of the Trustee (as Trustee) and (ii) the absolute assignment by the Lender to the Trustee of certain rights, interests and benefits hereunder, in each case pursuant to the provisions of the Trust Deed.

20. CALCULATIONS AND EVIDENCE OF DEBT 20.1 Basis of Accrual Default interest payable hereunder shall accrue from day to day and shall be calculated on the basis of a year of 360 days consisting of 12 30-day months.

20.2 Evidence of Debt The Lender shall maintain, in accordance with its usual practice, accounts evidencing the amounts from time to time lent by and owing to it hereunder; in any legal action or proceeding arising out of or in connection with this Agreement, in the absence of manifest error and subject to the provision by the Lender to the Borrower of written information describing in reasonable detail the calculation or computation of such amounts together with the relevant supporting documents evidencing the matters described therein, the entries made in such accounts shall be conclusive evidence of the existence and amounts of the obligations of the Borrower therein recorded.

20.3 Change of Circumstance Certificates A certificate signed by two authorised signatories of the Lender describing in reasonable detail (a) the amount by which a sum payable to it hereunder is to be increased under Clause 8.1 or (b) the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 8.3 or Clause 10.1 shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Borrower.

21. REMEDIES AND WAIVERS,PARTIAL INVALIDITY 21.1 Remedies and Waivers No failure by the Lender to exercise, nor any delay by the Lender in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.

185 The Loan Agreement

21.2 Partial Invalidity If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

22. NOTICES;LANGUAGE 22.1 Communications in Writing Each communication to be made hereunder (including notice of arbitration) shall be made in writing and, unless otherwise stated, shall be made by fax or letter.

22.2 Delivery Any communication or document to be made or delivered by one person to another pursuant to this Agreement (including notice of arbitration) shall, unless that other person has by 15 calendar days’ written notice to the same, specified another address, be made or delivered to that other person at the address identified with its signature below and shall be effective or when left at that address (in the case of a letter) or when received by the addressee (in the case of a fax). Provided that any communication or document to be made or delivered by one party to the other party shall be effective only when received by such other party and then only if the same is expressly marked for the attention of the department or officer identified with the such other party’s signature below, or such other department or officer as such other party shall from time to time specify for this purpose.

22.3 Language This Agreement shall be signed in English. Each communication and document made or delivered by one party to another pursuant to this Agreement shall be in the English language or accompanied by a translation thereof into English certified by an officer of the person making or delivering the same as being a true and accurate translation thereof.

23. LAW AND JURISDICTION 23.1 English Law This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by, and construed in accordance with, English law.

23.2 Arbitration If any dispute or difference of whatever nature howsoever arises from or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or this Clause 23 or any non-contractual obligation arising out of or in connection with this Agreement), or any supplement, modifications or additions thereto (each a “Dispute”), each party hereto agrees that such claim shall be settled by arbitration in accordance with this Clause. Each party hereby agrees that (regardless of the nature of the Dispute) any Dispute shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules (the “Rules”) (provided that any provision of such Rules relating to the nationality of an arbitrator shall, to that extent, not apply) as at present in force by a panel of three arbitrators appointed in accordance with the Rules. The seat of any reference to arbitration shall be London, England. The procedural law of any reference to arbitration shall be English law. The language of any arbitral proceedings shall be English. The appointing authority for the purposes set forth in Articles 7(2) and 7(3) of the Rules shall be the LCIA.

23.3 Consent to Enforcement, etc. Each of the Lender and the Borrower consents generally in respect of any Dispute to the giving of any relief or the issue of any process in connection with such Dispute including, without limitation, the making, enforcement or execution against any property whatsoever, irrespective of its use or intended use, of any order or judgement which is made or given in such arbitral proceedings.

186 The Loan Agreement

23.4 Contracts (Rights of Third Parties) Act 1999 A person who is not a party to this Agreement has no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

23.5 Counterparts This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.

187 FORM OF THE DEED OF LOAN GUARANTEE

The following is the text of the form of Loan Guarantee to be entered into between the Issuer and the Initial Loan Guarantors:

THIS DEED OF LOAN GUARANTEE is entered into on 28 March

BETWEEN: (1) OAO VOLZHSKY PIPE PLANT AND ZAO TMK TRADE HOUSE (each a “Loan Guarantor” and collectively, the “Initial Loan Guarantors”); and (2) TMK CAPITAL S.A., a company incorporated under the laws of Luxembourg as a société anonyme with registered office at 2, boulevard Konrad Adenauer, L-1115 Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-119.081 (the “Lender”).

WHEREAS: The Lender has agreed, pursuant to the terms of the Loan Agreement, to grant to the Borrower a single disbursement term loan facility in the amount of U.S.$500,000,000 and each Loan Guarantor has agreed to guarantee all the obligations of the Borrower to the Lender under the Loan Agreement on an irrevocable, unconditional, joint and several basis.

NOW THIS DEED WITNESSETH AS FOLLOWS: INTERPRETATION Terms defined in the Loan Agreement dated 28 March 2013 (the “Loan Agreement”) between the Lender and OAO TMK as Borrower (the “Borrower”) shall have the same meaning when used in this Loan Guarantee, except where the context otherwise requires and except that, for the purposes of this Loan Guarantee: the term “Loan Guarantor” shall include any of the Borrower’s Subsidiaries from time to time guaranteeing the obligations of the Borrower under the Loan Agreement; and the term “this Deed” means this Deed of Loan Guarantee.

1LOAN GUARANTEE AND INDEMNITY 1.1 Loan Guarantee and Indemnity Each Loan Guarantor irrevocably and unconditionally jointly and severally: (a) guarantees to the Lender the due and punctual performance by the Borrower of all the Borrower’s obligations under the Loan Agreement; (b) undertakes with the Lender that whenever the Borrower does not pay any amount when due under or in connection with the Loan Agreement, that Loan Guarantor shall immediately on demand pay or cause to be paid in full that amount as if it was the principal obligor; and (c) agrees, as an independent primary obligation, that it shall pay to the Lender on demand sums sufficient to indemnify the Lender against any cost, loss or liability suffered by the Lender by reason of the non- payment, as and when the same shall become due and payable, of any sum expressed to be payable by the Loan Guarantor under this Loan Guarantee, whether by reason of any of the obligations guaranteed by that Loan Guarantor being or becoming unenforceable, invalid or illegal including any and all reasonable expenses properly documented, such as legal fees and expenses incurred by the Lender in enforcing any rights under the Loan Agreement or this Deed.

1.2 Continuing guarantee This Deed is a continuing guarantee and extends to the total balance of sums payable by the Borrower under the Loan regardless of any intermediate payment or discharge in whole or in part.

1.3 Reinstatement If any payment by the Borrower is avoided or reduced or any discharge given by the Lender or the Noteholders (whether in respect of the obligations of the Borrower or any security for those obligations or otherwise) as a result of any insolvency, reorganisation or similar event in respect of the Borrower: (a) the liability of each Loan Guarantor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and

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(b) the Lender shall be entitled to recover the full amount of such payment from each Loan Guarantor, as if the payment, discharge, avoidance or reduction had not occurred.

1.4 Waiver of defences As between each Loan Guarantor and the Lender, but without affecting the Borrower’s obligations, each Loan Guarantor will be liable as if it were the sole principal debtor and not merely a surety. Accordingly, such Loan Guarantor will not be discharged nor will its liability be affected, by anything which would not discharge it or affect its liability if it were the sole principal debtor, including: (a) any time, waiver or consent granted to, or composition with, the Borrower or other person; (b) the release of the Borrower or any other person under the terms of any composition or arrangement with any creditor of any member of the Group; (c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, the Borrower or other person or any non- presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; (d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of the Borrower or any other person; (e) any amendment (however fundamental) or replacement of the Loan Agreement or any other document or security; (f) any unenforceability, illegality or invalidity of any obligation of any person under the Loan Agreement or any other document (including any other guarantee given in respect of the Loan) or security or the absence of any action to enforce the same; (g) any insolvency or similar proceedings; or (h) any failure by any party to perform any requisite due diligence or to present any requisite document, claim, demand for payment, protest or notice with respect to the Loan Agreement.

1.5 Immediate recourse Each Loan Guarantor waives any right it may have of first requiring the Lender (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Loan Guarantor under this Deed. This waiver applies irrespective of any law or any provision of the Loan Agreement to the contrary.

1.6 Appropriations Until all amounts which may be or become payable by the Borrower pursuant to the terms of the Loan Agreement have been irrevocably paid in full, the Lender (or any trustee or agent on its behalf) may: (a) refrain from applying or enforcing any other moneys, security or rights held or received by the Lender (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Loan Guarantor shall be entitled to the benefit of the same; and (b) hold in an interest-bearing suspense account any moneys received from any Loan Guarantor or on account of any Loan Guarantor’s liability under this Deed.

1.7 Deferral of Loan Guarantors’ rights Until all amounts which may be or become payable by the Borrower pursuant to the terms of the Loan Agreement have been irrevocably paid in full no Loan Guarantor will exercise any rights which it may have by reason of the performance by it of its obligations under this Deed: (a) to be indemnified by the Borrower; (b) to claim any contribution from any other Loan Guarantor of the Borrower’s obligations under the Loan Agreement; and/or

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(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Lender under the Loan Agreement or of any other guarantee or security taken pursuant to, or in connection with, the Loan Agreement by the Lender.

1.8 Additional security This Deed is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by the Lender, for the avoidance of doubt including any other guarantee (present or future) given in connection with the Loan Agreement.

1.9 Acceleration Each Loan Guarantor further agrees that, as between it, on the one hand, and the Lender, on the other hand, (i) for the purposes of this Deed, the maturity of the obligations guaranteed by this Loan Guarantee may be accelerated as provided in Clauses 7 and 13 of the Loan Agreement, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed thereby; provided, however, that if a court of competent jurisdiction determines that the Loan was improperly accelerated pursuant to the terms thereof, then the maturity of such obligations may not be accelerated for the purposes of this Deed, and (ii) in the event of any acceleration of such obligations (whether or not due and payable) such obligations shall forthwith become due and payable by each Loan Guarantor for purposes of this Deed.

1.10 Termination and accession of Loan Guarantors This Deed will be terminated in relation to any Loan Guarantor and the relevant Loan Guarantor will be automatically and unconditionally released and discharged from its obligations hereunder upon: (i) any sale, exchange or transfer to any Person which is not an Affiliate of Borrower of all or substantially all of the Capital Stock of the relevant Loan Guarantor held by Borrower and/or other Subsidiaries of Borrower (which sale, exchange or transfer is not prohibited under the Loan Agreement) or (ii) upon the reorganisation (whether by way of merger or accession) of the relevant Loan Guarantor pursuant to which such Loan Guarantor accedes to or is merged into the Borrower.

The Borrower will give notice to the Lender and the Trustee in accordance with Clause 12.1 of the Loan Agreement of any Loan Guarantor becoming or ceasing to be a Loan Guarantor and, so long as the Notes are listed on the Irish Stock Exchange and/or any other stock exchange on which the Notes may be listed or quoted from time to time, shall comply with applicable rules of the Irish Stock Exchange and/or such other exchange (including preparation of a supplemental prospectus) in relation to any Loan Guarantor becoming or ceasing to be a Loan Guarantor.

1.11 Suspense Account Provided that the Trustee, acting in the best interests of the Noteholders, instructs the Lender to do so, the Lender may place any amount, received or recovered by or on behalf of itself from any of the Loan Guarantors in respect of any sum payable by the Borrower under the Loan Agreement, in a suspense account and keep it there for as long as the Lender (on instructions of the Trustee, acting in the best interests of the Noteholders) considers appropriate.

2COVENANTS OF THE LOAN GUARANTORS Each Loan Guarantor covenants as follows, in respect of itself, and acknowledges that the Lender has entered into the Loan Agreement in reliance on these covenants:

2.1 Limitation on Liens The Loan Guarantor shall not, directly or indirectly, create, incur, assume or suffer to exist any Lien, other than a Permitted Lien, on any of its assets, now owned or hereafter acquired, or any income or profits therefrom, securing any Indebtedness unless, at the same time or prior thereto, this Loan Guarantee (a) is secured equally and rateably therewith or (b) has the benefit of other security or other arrangement, in each case to the satisfaction of the Trustee.

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2.2 Incurrence of Indebtedness (a) The Loan Guarantor shall not incur any Indebtedness, other than in circumstances where (i) no Potential Event of Default nor Event of Default shall have occurred and be continuing at the time, or would occur as a consequence, of the incurrence of such Indebtedness, and (ii) the Leverage Ratio is 3.5 or lower. (b) At any time when the conditions set forth in Clause 2.2(a) hereof are not met, the Loan Guarantor may only Incur additional Indebtedness if it is Permitted Indebtedness. (c) Notwithstanding any other provision of Clause 2.2, the maximum amount that the Loan Guarantor may Incur pursuant to Clause 2.2 shall not be deemed to be exceeded, with respect to outstanding Indebtedness, due solely to the result of fluctuations in the exchange rate of currencies. (d) For the purposes of determining compliance with this covenant: (i) in the event that an item of Indebtedness (or any portion thereof) on Incurrence meets the criteria of more than one of the types of Indebtedness described in this Clause 2.2 or the definition of Permitted Indebtedness as defined in the Loan Agreement, the Borrower, in its sole discretion, will classify such item of Indebtedness (or any portion thereof) at the time of Incurrence and will only be required to include the amount and type of such Indebtedness in one of the classifications as described in sub-Clause 2.2(a), sub-Clause 2.2(b) or one of the paragraphs under the definition of Permitted Indebtedness as defined in the Loan Agreement; and (ii) the Borrower will be entitled to divide and classify such item of Indebtedness which meets the criteria of more than one of the types of Indebtedness described in this Clause 2.2 or the definition of Permitted Indebtedness as defined in the Loan Agreement and may at any time change the classification of such item of Indebtedness (or any portion thereof) to any other type of Indebtedness that it meets the criteria of.

2.3 Transactions with Affiliates The Loan Guarantor shall not, directly or indirectly, enter into or make or amend any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Loan Guarantor unless such transaction or series of related transactions is entered into in good faith and in writing and such transaction or series of related transactions is on terms that are no less favourable to the Loan Guarantor than those that would be available in a comparable transaction at arm’s-length with an unrelated third party, provided, however, that this provision shall not apply to: (i) any employment agreement, collective bargaining agreement or employee benefit arrangements with any officer or director of the Loan Guarantor, including under any stock option or stock incentive plans, entered into in the ordinary course of business; (ii) payment of reasonable fees and compensation to employees, officers, directors, consultants or agents in the ordinary course of business; (iii) transactions between the Loan Guarantor, the Borrower and any of the other Subsidiaries of the Borrower; (iv) transactions undertaken pursuant to contractual obligations or rights in existence on the Issue Date (as in effect on the Issue Date) or any amendment thereto after the Issue Date (so long as such amendment is not disadvantageous to the Lender in any material respect in the reasonable opinion of the Loan Guarantor); (v) transactions with customers, clients, suppliers, purchasers or sellers of goods or services, in each case, in the ordinary course of business and otherwise in compliance with the terms of this agreement which are on terms at least as favourable to the Loan Guarantor as might reasonably be obtained at such time from an unrelated third party; (vi) sales of Capital Stock (other than Redeemable Capital Stock) of the Borrower; (vii) sales or other transfers or dispositions of accounts receivables and other related assets customarily transferred in a Qualified Securitisation Transaction, and acquisitions of Investments in connection with a Qualified Securitisation Transaction, in each case to or from the relevant securitisation vehicle; or

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(viii) any reorganisation (by way of a merger, accession, division, separation, transformation or other basis or procedure for reorganisation) undertaken by the Loan Guarantor as may be permitted pursuant to Clause 2.5.

2.4 Asset Sales The Loan Guarantor shall not consummate any Asset Sale, unless the proceeds received by the Loan Guarantor are at least equal to the Fair Market Value of the assets sold or disposed of and an amount equal to such proceeds (less any costs incurred in relation to such Asset Sale) (the “Disposal Proceeds”) is: (a) applied to repay permanently any Indebtedness of the Group (other than Indebtedness subordinated to the Loan); (b) invested in assets of a nature or type that is used or usable in the ordinary course of a Core or Related Business of the Borrower, any Loan Guarantor or any Subsidiary of the Borrower; (c) retained as cash deposited with a bank or invested in Cash Equivalents; and/or (d) applied to finance: (i) an acquisition of Capital Stock of a Person engaged in a Core or Related Business who, following the consummation of such Asset Sale, is to become a Subsidiary of the Borrower, or (ii) an acquisition of, or a merger, reorganisation or other combination of a business of the Group with, the business of a Person that is similar or related to the Core or Related Business, in each case within 360 days of the date when such proceeds are received (it being understood that receipt by the Borrower, any Subsidiary of the Borrower or any Loan Guarantor of Capital Stock of any Person who, following the consummation of such Asset Sale is to become a Subsidiary of the Borrower, as consideration for such Asset Sale shall be deemed to satisfy the financing of the acquisition of Capital Stock requirement set out above); provided that if the Disposal Proceeds are applied pursuant to paragraph (c), the Borrower, any Subsidiary of the Borrower or the Loan Guarantor, as the case may be, shall apply or invest the Disposal Proceeds on or prior to the date falling 540 days after the date when such proceeds are received either to (i) repay permanently Indebtedness of the Group (other than Indebtedness subordinated to the Loan), (ii) invest in assets of a nature or type that is used or usable in the ordinary course of Core or Related Business of the Borrower, any of its Subsidiaries or any Loan Guarantor or (iii) applied to finance the acquisition of Capital Stock of, or merger, reorganisation or other combination of a business of the Group with the business of, a Person whose business is similar or related to the Core or Related Business.

2.5 Mergers and Similar Transactions The Loan Guarantor shall not enter into or become subject to, any reorganisation (as such term is construed by applicable legislation, including, without limitation and where applicable, any amalgamation, demerger, merger or corporate reconstruction) or other analogous event (as determined by the legislation of the relevant jurisdiction) if such reorganisation or other analogous event would have a Material Adverse Effect.

2.6 Maintenance of Authorisations The Loan Guarantor and each of its Subsidiaries shall obtain or make, and procure the continuance or maintenance of, all registrations, recordings, filings, consents, licences, approvals and authorisations, which may at any time be required to be obtained or made in any relevant jurisdiction for the purposes of the execution, delivery or performance of the Notes, this Agreement and the Trust Deed and for the validity and enforceability thereof, provided that, in any case, if the Borrower, any of its Material Subsidiaries or the Loan Guarantor or its relevant Subsidiary remedies any failure to comply with this Clause within 90 days of such failure or of the occurrence of such event, then this covenant shall be deemed not to have been breached.

2.7 Maintenance of Property The Loan Guarantor and each of its Subsidiaries shall cause all property used in the conduct of its or their business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements and improvements thereof, all as, in the judgment of the Loan Guarantor or the relevant Subsidiary, may be reasonably necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that if the Loan

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Guarantor or the relevant Subsidiary remedies any failure to comply with the above within 90 days or any failure would not have a Material Adverse Effect, this covenant shall be deemed not to have been breached.

2.8 Payment of Taxes and Other Claims The Loan Guarantor and each of its Subsidiaries shall pay or discharge, or cause to be paid and discharged, before the same shall become overdue and without incurring penalties, (a) all Taxes levied or imposed upon, or upon the income, profits or property of the Loan Guarantor or any of its Subsidiaries and (b) all lawful claims for labour, materials and supplies which, if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property of any of the Loan Guarantor; provided that none of the Loan Guarantor or any of its Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such Tax (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Accounting Standards as consistently applied or other appropriate provisions have been or will be made or (ii) whose amount, together with all such other unpaid or undischarged taxes, assessments, charges and claims of the Group not so contested, and for which adequate reserves in accordance with Accounting Standards as consistently applied or other appropriate provisions have been or will be made would not have a Material Adverse Effect.

2.9 Insurance The Loan Guarantor and each of its Subsidiaries shall obtain and maintain insurance with an insurer or insurers of sufficient standing (in the reasonable judgment of the Loan Guarantor or the relevant Subsidiary) against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged in the jurisdiction(s) where it operates; provided that if the Loan Guarantor or the relevant Subsidiary remedies any failure to comply with the above within 90 days or if such potential losses or risks (which may be assessed by reference to the actual risks and losses borne by the Loan Guarantor or the relevant Subsidiary over the preceding 3 years) would not have a Material Adverse Effect, this covenant shall be deemed not to have been breached.

2.10 Financial Information The Loan Guarantor undertakes to deliver to the Lender and the Trustee, at its own expense, copies of such financial statements, communications and reports as are furnished to the stockholders of the Loan Guarantors (excluding communications made only in the Russian language) which are material in the context of the Notes as the Lender or the Trustee may reasonably request.

If so requested by the Lender or the Trustee, the Loan Guarantor shall deliver to the Lender and the Trustee, within 14 days of such request, an Officers’ Certificate stating that to the best of the Officers’ knowledge (i) the Loan Guarantor has kept, observed, performed and fulfilled each and every covenant, and complied with the covenants and conditions contained in this Agreement and (ii) the Loan Guarantor is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Potential Event of Default or Event of Default shall have occurred, describing all such Potential Events of Default or Events of Default of which he may have knowledge).

2.11 Change of Business Neither the Loan Guarantor nor any of its Subsidiaries shall make any material change to their respective Core or Related Business.

2.12 Claims Pari Passu The Loan Guarantor shall ensure that at all times the obligations of the Loan Guarantor under the Deed of Loan Guarantee will rank at least pari passu in right of payment with all other unsecured and unsubordinated obligations of the Loan Guarantor, as the case may be, except as otherwise provided by mandatory provisions of applicable law.

3TAXATION 3.1 No withholding and increased amounts of principal, interest or any other payment (a) Subject to Clause 3.1(b) below, all payments made by each Loan Guarantor under or with respect to this Deed will be made free and clear of and without withholding or deduction for or on account of any

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present or future tax, duty, levy, impost, assessment, or other governmental charge (including penalties, interest and other liabilities related thereto) (collectively, “Taxes”) imposed or levied by or on behalf of any government or political subdivision or territory or possession of any government or authority or Agency therein or thereof having the power to tax (each, a “Taxing Authority”) within Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes), unless the relevant Loan Guarantor is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. For the avoidance of doubt, this Clause 3.1 shall not apply to any Taxes on income payable by the Lender. (b) If at any time a Loan Guarantor is required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of Taxes imposed or levied by or on behalf of any Taxing Authority within Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes), it shall, on the due date for such payment, increase the payment of principal, interest or any other payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in U.S. dollars equal to the full amount which it would have received had payment not been made subject to such taxes (“increased amount of principal, interest or any other payment due hereunder”). (c) Each Loan Guarantor will also: (i) make such withholding or deduction; and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. (d) If the Lender pays any amount in respect of such Taxes, in respect of which increased amounts of principal, interest or any other payment due hereunder are payable (without prejudice to, and duplication of, the provisions of Clause 3.3 below, each relevant Loan Guarantor shall pay to the Lender an increased amount of principal, interest or any other payment due hereunder equal to such amount in U.S. dollars on demand. (e) Whenever this Deed mentions, in any context, the payment of amounts based upon the principal or premium, if any, interest or of any other amount payable under or with respect to the Loan or the this Deed, this includes, without duplication, payment of any increased amounts of principal, interest or any other payment due hereunder and Additional Amounts that may be applicable.

The foregoing provisions shall apply, modified as necessary, to any Taxes imposed or levied by any Taxing Authority in any jurisdiction in which any Loan Guarantor or any successor of the Borrower or of any Loan Guarantor is organised.

3.2 Exemption assistance The Lender shall assist each Loan Guarantor in ensuring that all payments made under this Deed are exempt from deduction or withholding of Tax.

3.3 Additional Amounts Without prejudice to, and without duplication of, the provisions of Clause 3.1 above, (a) if at any time the Lender makes or is required to make any payment to a Person (other than to or for the account of the Noteholders) on account of Tax (other than Taxes on income payable by the Lender) in respect of this Deed or in respect of any instruments issued to, or documents entered into with, the Noteholders, imposed by any Taxing Authority of or in Russia, Luxembourg or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes, or any liability in respect of any such Tax is asserted, imposed, levied or assessed against the Lender, each Loan Guarantor shall, as soon as reasonably practicable following, and in any event within 30 calendar days of, written demand made by the Lender (setting out in reasonable detail the nature and the extent of the obligation), pay to the Lender an amount sufficient to cover such payment, together with any interest, penalties, costs and expenses payable or incurred in connection therewith; and (b) if at any time a Taxing Authority of or in Russia, Luxembourg or any Qualifying Jurisdiction in which the Lender or any successor thereof is resident for tax purposes imposes an obligation on the Lender to withhold or deduct any amount on any payment made or to be made by the Lender to or for the account

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of the Noteholders and the Lender is required by the Notes, to pay additional amounts to such Noteholders in connection therewith, each Loan Guarantor shall, as soon as reasonably practicable following, and in any event within 30 calendar days of, written demand made by the Lender (setting out in reasonable detail the nature and the extent of the obligation), pay to the Lender such additional amounts as may be necessary so that the net amount received by the Noteholders (including such additional amounts) in U.S. dollars after such withholding or deduction will not be less than the amount such Noteholders would have received if such withholdings or deductions had not been made and free from liability in respect of such withholding or deduction. Notwithstanding the previous provisions of this Clause 3.3(b), such additional amounts should be paid by each Loan Guarantor to the Lender no later than the Business Day prior to the due date for any relevant payment under the Notes. The Lender shall, as soon as reasonably practicable, provide the Loan Guarantors in writing with reasonable details as to the reasons for such withholding or deduction.

Any payments required to be made by any Loan Guarantor under this Clause 3.3 are collectively referred to as “Additional Amounts”. For the avoidance of doubt, the provisions of this Clause 3.3 shall not apply to any withholding or deductions of Taxes with respect to this Deed which are subject to payment of increased amounts of principal, interest or any other payment due hereunder under Clause 3.1 above.

3.4 Tax Claims If the Lender intends to make a claim for any Additional Amounts pursuant to Clause 3.3 above, it shall notify each relevant Loan Guarantor thereof; provided that nothing herein shall require the Lender to disclose any confidential information relating to the organisation of its affairs.

3.5 Tax Credits and Tax Refunds (a) If any increased amounts of principal, interest or any other payment due hereunder are paid under Clause 3.1 above or Additional Amounts are paid under Clause 3.3 above by any Loan Guarantor for the benefit of the Lender and the Lender, in its reasonable opinion, determines that it has received or been granted a credit against, a relief or remission for, or a repayment of, any Tax, then, if and to the extent that the Lender, in its reasonable opinion, determines that such credit, relief, remission or repayment is in respect of or calculated with reference to the deduction or withholding giving rise to such increased amounts of principal, interest or any other payment due hereunder or, in the case of Additional Amounts, with reference to the liability, expense or loss to which the payment giving rise to such Additional Amounts relates, the Lender shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to each relevant Loan Guarantor such amount as the Lender shall, in its reasonable opinion, have concluded to be attributable to such deduction or withholding or, as the case may be, such liability, expense or loss; provided that the Lender shall not be obliged to make any payment under this Clause 3.5 in respect of such credit, relief, remission or repayment until the Lender is, in its reasonable opinion, satisfied that its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled. Any such payment shall, in the absence of manifest error and subject to the Lender specifying in writing in reasonable detail the calculation of such credit, relief, remission or prepayment and of such payment and providing relevant supporting documents evidencing such matters, be conclusive evidence of the amount due to each relevant Loan Guarantor hereunder and shall be accepted by each relevant Loan Guarantor in full and final settlement of its rights of reimbursement hereunder in respect of such deduction or withholding. Nothing contained in this Clause 3.5 shall interfere with the right of the Lender to arrange its tax affairs generally in whatever manner it thinks fit nor oblige the Lender to disclose any information relating to its tax affairs generally or any computations in respect thereof. The Lender shall use reasonable endeavours to obtain any tax credits or tax refunds available to the Lender and shall notify the Loan Guarantors of any such available tax credits or tax refunds. (b) If as a result of a failure to obtain relief from deduction or withholding of any Tax imposed by Russia or Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) (i) such Tax is deducted or withheld by any Loan Guarantor and pursuant to Clause 3.1 above an increased amount is paid by any relevant Loan Guarantor to the Lender in respect of such deduction or withholding, and (ii) following the deduction or withholding of Tax as referred to above, (A) the relevant Loan Guarantor applies on behalf of the Lender to the relevant Taxing Authorities for a tax refund and such tax refund is credited by the relevant Taxing Authorities to the Lender or (B) if such

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tax refund is otherwise credited by a relevant Taxing Authority to the Lender pursuant to a final decision of such Taxing Authority, the Lender shall as soon as reasonably possible notify such relevant Loan Guarantor of the receipt of such tax refund and promptly transfer an amount equal to the tax refund to a bank account of each relevant Loan Guarantor specified for that purpose by each relevant Loan Guarantor.

3.6 Representations and Undertakings of the Lender The Lender represents that it is a company which at the date hereof is a resident of Luxembourg, is subject to taxation in Luxembourg on the basis of its registration as a legal entity, location of its management body or another similar criterion and it is not subject to taxation in Luxembourg merely on income from sources in Luxembourg or connected with property located in Luxembourg; (b) at the date hereof, it does not have a permanent establishment in Russia and (c) does not have any current intention to effect, during the term of the Loan, any corporate action or reorganisation or change of taxing jurisdiction that would result in the Lender ceasing to be a resident of Luxembourg and subject to taxation in Luxembourg.

The Lender shall make reasonable and timely efforts to assist each relevant Loan Guarantor to obtain relief from the withholding of income tax in any jurisdiction in which the relevant Loan Guarantor is resident for tax purposes, pursuant to the double taxation treaty between the jurisdiction in which the relevant Loan Guarantor is resident for tax purposes and the jurisdiction in which the Lender is incorporated, including its obligations under Clause 3.8 below The Lender makes no representation as to the application or interpretation of any double taxation treaty between the jurisdiction in which the relevant Loan Guarantor is resident for tax purposes and the jurisdiction in which the Lender is incorporated. The Lender shall not take any action or do any thing likely to cause it to cease to be resident for taxation purposes in Luxembourg or a Qualifying Jurisdiction, other than as required by a Change of Law.

3.7 Exceptions The Lender agrees promptly, upon becoming aware of such, to notify each Loan Guarantor if it ceases to be resident in Luxembourg or a Qualifying Jurisdiction or if any of the representations set forth in Clause 3.6 above are no longer true and correct. If the Lender ceases to be resident in Luxembourg or a Qualifying Jurisdiction, then, except in circumstances where the Lender has ceased to be resident in Luxembourg or a Qualifying Jurisdiction by reason of any Change of Law (including a change in a double taxation treaty or in such law or treaty’s application or interpretation), in each case taking effect after the date of this Deed, no Loan Guarantor shall be liable to pay to the Lender under Clause 3.1 above or Clause 3.3 above any sum in excess of the sum it would have been obliged to pay if the Lender had not ceased to be resident in Luxembourg or a Qualifying Jurisdiction.

3.8 Delivery of Forms The Lender shall within 30 calendar days of the request of any Loan Guarantor, to the extent it is able to do so under applicable law including the laws of the jurisdiction in which the relevant Loan Guarantor is resident for tax purposes, deliver to that Loan Guarantor a certificate issued by the competent Taxing Authority in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) confirming that the Lender is a tax resident in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) and such other information or forms as the relevant Loan Guarantor may need to be duly completed and delivered by the Lender to enable that Loan Guarantor to apply to obtain relief from deduction or withholding of the relevant Tax after the date of this Loan Guarantee or, as the case may be, to apply to obtain a tax refund if a relief from deduction or withholding of the relevant Tax has not been obtained. The Lender shall, within 30 calendar days of the request of any Loan Guarantor, to the extent it is able to do so under applicable laws, including the laws of the jurisdiction in which the relevant Loan Guarantor is resident for tax purposes, from time to time deliver to that Loan Guarantor any additional duly completed application forms as need to be duly completed and delivered by the Lender to enable that Loan Guarantor to apply to obtain relief from deduction or withholding of the relevant Tax or, as the case may be, to apply to obtain a tax refund if a relief from deduction or withholding of the relevant Tax has not been obtained. The certificate and, if required, other forms referred to in this Clause 3.8 shall be duly signed by the Lender, if applicable, and stamped or otherwise approved by the competent Taxing Authority in Luxembourg (or any Qualifying Jurisdiction in which the Lender or any successor thereto is resident for tax purposes) and apostilled or otherwise legalised. If a relief from deduction or withholding of the relevant Tax under this

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Clause 3.8 has not been obtained and further to an application of that Loan Guarantor to the relevant Taxing Authorities the latter requests the Lender’s rouble bank account details, the Lender shall at the request of that Loan Guarantor (x) use reasonable efforts to procure that such rouble bank account of the Lender is duly opened and maintained, and (y) thereafter furnish that Loan Guarantor with the details of such rouble bank account. The relevant Loan Guarantor shall pay for all costs associated, if any, with opening and maintaining such rouble bank account.

3.9 Notification of Requirement to Deduct Tax If, at any time, a Loan Guarantor is required by law to make any deduction or withholding from any sum payable by it hereunder, or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated, that Loan Guarantor shall promptly notify the Lender.

3.10 Evidence of Payment of Tax Each relevant Loan Guarantor will make all reasonable endeavours to obtain certified copies, and translations into English, of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. That Loan Guarantor will furnish to the Lender and the Trustee, within 60 calendar days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, either certified copies of tax receipts evidencing such payment by that Loan Guarantor or, if such receipts are not obtainable, other evidence of such payments by that Loan Guarantor.

4CURRENCY OF ACCOUNT AND PAYMENT 4.1 Currency of Account The U.S. dollar is the currency of account and payment for each and every sum at any time due from each Loan Guarantor hereunder.

4.2 Currency Indemnity If any sum due from any Loan Guarantor under this Deed or any order or judgment given or made in relation hereto has to be converted from the currency (the “first currency”) in which the same is payable hereunder or under such order or judgment into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against such Loan Guarantor, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation hereto, the relevant Loan Guarantor shall indemnify and hold harmless the Lender from and against any loss suffered or reasonably incurred as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which the Lender may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.

5ASSIGNMENTS AND TRANSFERS 5.1 No Assignments and Transfers by the Loan Guarantors No Loan Guarantor shall be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder.

5.2 Assignments by the Lender The Lender may not assign or transfer all or any part of its rights and benefits or obligations hereunder except pursuant to (i) the charge by way of first fixed charge granted by the Lender in favour of the Trustee (as Trustee) and (ii) the absolute assignment by the Lender to the Trustee of certain rights, interests and benefits hereunder, in each case pursuant to the provisions of the Trust Deed.

6PARTIAL INVALIDITY If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

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7NOTICES;LANGUAGE 7.1 Communications in Writing Each communication to be made hereunder (including notice of arbitration) shall be made in writing and, unless otherwise stated, shall be made by fax or letter.

7.2 Delivery Any communication or document (including notice of arbitration) to be made or delivered by one person to another pursuant to this Deed shall, unless that other person has by 15 calendar days’ written notice to the same specified another address, be made or delivered to that other person at the address identified with its signature below and shall be effective or when left at that address (in the case of a letter) or when received by the addressee (in the case of a fax). Provided that any communication or document to be made or delivered by one party to the other party shall be effective only when received by such other party and then only if the same is expressly marked for the attention of the department or officer identified with the such other party’s signature below, or such other department or officer as such other party shall from time to time specify for this purpose.

7.3 Language This Deed shall be signed in English. Each communication and document made or delivered by one party to another pursuant to this Deed shall be in the English language or accompanied by a translation thereof into English certified by an officer of the person making or delivering the same as being a true and accurate translation thereof.

8GOVERNING LAW AND JURISDICTION 8.1 English Law This Deed and any non-contractual obligations arising out of or in connection with it shall be governed by, and construed in accordance with, English law.

8.2 Arbitration If any dispute or difference of whatever nature howsoever arises from or in connection with this Deed (including a dispute regarding the existence, validity or termination of this Deed or this Clause 8 or any non-contractual obligation arising out of or in connection with this Deed), or any supplement, modifications or additions thereto, (each a “Dispute”), each party hereto agrees that such claim shall be settled by arbitration in accordance with this Clause 8. Each party hereby agrees that (regardless of the nature of the Dispute) any Dispute shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules (the “Rules”) (provided that any provision of such Rules relating to the nationality of an arbitrator shall, to that extent, not apply) as at present in force by a panel of three arbitrators appointed in accordance with the Rules. The seat of any reference to arbitration shall be London, England. The procedural law of any reference to arbitration shall be English law. The language of any arbitral proceedings shall be English. The appointing authority for the purposes set forth in Articles 7(2) and 7(3) of the Rules shall be the LCIA.

8.3 Consent to Enforcement, etc. Each Loan Guarantor consents generally in respect of any Dispute to the giving of any relief or the issue of any process in connection with such Dispute including, without limitation, the making, enforcement or execution against any property whatsoever, irrespective of its use or intended use, of any order or judgement which is made or given in such arbitration proceedings.

8.4 Contracts (Rights of Third Parties) Act 1999 A person who is not a party to this Deed has no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Deed, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

198 TERMS AND CONDITIONS OF THE NOTES

The following is the text of the Terms and Conditions of the Notes which contains summaries of certain provisions of the Trust Deed and which will be endorsed on each Note Certificate in definitive form (if issued) and will be attached and (subject to the provisions hereof) apply to the Global Note Certificate:

The US$500,000,000 6.75 per cent. Loan Participation Notes due 2020 (the “Notes”, which expression includes any further notes issued pursuant to Condition 14 and forming a single series therewith) of TMK CAPITAL S.A. (the “Issuer”) are constituted by, are subject to and have the benefit of, a trust deed (as amended or supplemented from time to time, the “Trust Deed”) dated 3 April 2013 between the Issuer and Deutsche Trustee Company Limited as trustee (the “Trustee”, which expression includes all persons from time to time appointed trustee or trustees under the Trust Deed). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing the U.S.$500,000,000 loan (the “Loan”) to OAO TMK (the “Borrower”). The Loan is unconditionally, irrevocably, jointly and severally guaranteed (the “Initial Loan Guarantees”) by OAO Volzhsky Pipe Plant and ZAO TMK Trade House (the “Initial Loan Guarantors”) under a Deed of Loan Guarantee in favour of the Issuer as Lender under the Loan Agreement dated 28 March 2013 (the “Deed of Loan Guarantee”), and the Borrower has undertaken pursuant to Clause 12.11(a) of the Loan Agreement that the Loan will be additionally so guaranteed (the “Additional Loan Guarantees”) by each of OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc. (the “Additional Loan Guarantors” and, together with the Initial Loan Guarantors and Further Loan Guarantors (as defined below), the “Loan Guarantors”) executing a deed of accession to the Deed of Loan Guarantee, substantially in the form set out in the Schedule to the Deed of Loan Guarantee, not later than 90 calendar days after the Closing Date. The Borrower may also be obligated to procure certain further loan guarantees from further loan guarantors (“Further Loan Guarantors”) upon the satisfaction of certain conditions set out in Clause 12.11(b) of the Loan Agreement (the “Further Loan Guarantees”). The Initial Loan Guarantees, Additional Loan Guarantees and Further Loan Guarantees are together referred to as the “Loan Guarantees”. Loan Guarantors may be automatically released in accordance with the Loan Agreement.

In each case where amounts of principal, interest, additional amounts, or any other amounts due pursuant to Condition 8 are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders (as defined in Condition 2), on each date upon which such amounts are due in respect of the Notes, for an amount equivalent to the sums of principal, interest, increased amounts of principal, interest or any other payment due or any other amounts actually received by, or for the account of, the Issuer pursuant to the Loan Agreement or the Loan Guarantees, as the case may be, less any amount in respect of the Reserved Rights (as defined below). Noteholders must therefore rely solely and exclusively upon the Borrower’s covenant to pay under the Loan Agreement or each Loan Guarantor’s covenant to pay under the Loan Guarantees, as the case may be, and the credit and financial standing of the Borrower or each Loan Guarantor, respectively. Noteholders shall have no recourse (direct or indirect) to any other assets of the Issuer.

Security Pursuant to the Trust Deed, the Issuer has: (A) charged by way of first fixed security to the Trustee: (i) its present and future rights, title, interest and benefit to principal, interest and other amounts paid and payable to it under the Loan Agreement and the Initial Loan Guarantees; (ii) its present and future right, title, interest and benefit to receive amounts paid and payable to it under any claim, award or judgment relating to the Loan Agreement and the Initial Loan Guarantees; in each case other than its right to amounts in respect of any rights, title, interests and benefits of the Issuer under the following clauses of the Loan Agreement: Clause 7.5, second sentence thereof, Clause 8.3(a), Clause 10, Clause 14.4, Clause 18, and (to the extent that the Issuer’s claim is in respect of one of the aforementioned clauses of the Loan Agreement) Clause 16.2; and the following clauses of each Initial Loan Guarantee: Clauses 2 and 3.3, and (to the extent that the Issuer’s claim is in respect of one of the aforementioned clauses of any Initial Loan Guarantee) Clause 5.2 (such rights referred to herein as the “Reserved Rights”) and will so charge its rights, title, interest and benefit under the Additional Loan Guarantees and the Further Loan Guarantees; (B) charged by way of first fixed security to the Trustee its rights, title, interest and benefit sums held on deposit from time to time, in an account in London in the name of the Issuer with the Principal Paying Agent (defined below), account number 28013405, together with the debt represented thereby (other than interest from time to time earned thereon and sums held in respect of the Reserved Rights) (the “Account”); and

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(C) has assigned absolutely to the Trustee all of its present and future rights, title, interest and benefit in and under the Loan Agreement and the Initial Loan Guarantees and will so assign its rights, title, interest and benefit under the Additional Loan Guarantees and the Further Loan Guarantees (save in each case for those rights charged or excluded in (A) and (B) above) (the “Loan Assignment” and the “Loan Guarantee Assignment”, respectively and, together, the “Security Interests”).

In addition, the Issuer has granted a power of attorney by way of security in favour of the Trustee in respect of the Security Interests created pursuant to the Trust Deed.

In certain circumstances, the Trustee can (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) be required by Noteholders holding at least one quarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to enforce the Security Interests pursuant to Condition 13 (Enforcement)).

The Notes are the subject of an agency agreement dated 28 March 2013 (as amended or supplemented from time to time, the “Agency Agreement”) among the Issuer, the Trustee, Deutsche Bank AG, London Branch, at its specified office in London, as the principal paying agent (the “Principal Paying Agent”, which expression shall include any successor principal paying agent appointed from time to time in connection with the Notes), Deutsche Bank Luxembourg S.A., at its specified office in Luxembourg, as the Regulation S registrar and a transfer agent (the “Regulation S Registrar” and the “Regulation S Transfer Agent”, which expressions shall include any successors appointed from time to time in connection with the Notes) and Deutsche Bank Trust Company Americas as the Rule 144A registrar, the U.S. paying agent and a transfer agent (the “Rule 144A Registrar” (and together with the Regulation S Registrar, the “Registrars” and each a “Registrar”)), the “U.S. Paying Agent” (and together with the Principal Paying Agent, the “Paying Agents” and each a “Paying Agent”) and the “Rule 144A Transfer Agent” (and together with the Regulation S Transfer Agent, the “Transfer Agents” and each a “Transfer Agent”)), which expressions shall include any successors. References herein to the “Agents” are to the Registrars, the Paying Agents and the Transfer Agents, and any reference to an “Agent” is to any one of them.

Certain provisions of these terms and conditions (“Conditions”) are summaries of the Trust Deed, the Deed of Loan Guarantee, the Loan Agreement and the Agency Agreement and are subject to their detailed provisions. The Noteholders are bound by, and are deemed to have notice of, all the provisions of the Trust Deed, the Deed of Loan Guarantee, the Loan Agreement and the Agency Agreement applicable to them. Copies of the Trust Deed, the Deed of Loan Guarantee, the Loan Agreement and the Agency Agreement are available for inspection during normal business hours at the registered office for the time being of the Trustee, being at the date hereof Winchester House, 1 Great Winchester Street, London EC2N 2DB and at the Specified Offices (as defined in the Agency Agreement) of the Registrars, the Principal Paying Agent, any Transfer Agent and any Paying Agent. The initial Specified Offices of the initial Agents are set out below.

Unless otherwise stated, terms not defined herein shall have the same meanings given to them in the Trust Deed.

1. FORM AND DENOMINATION Form and denomination: The Notes are in registered form in amounts of U.S.$200,000 and higher integral multiples of U.S.$1,000 (each an “Authorised Holding”).

2. TITLE,REGISTERS AND TRANSFERS (a) Registers: Each Registrar will maintain, outside the United Kingdom, a register (the “Registers” and each a “Register”) in respect of the Notes in accordance with the provisions of the Agency Agreement. In these Conditions, the “Holder” of a Note means the person in whose name such Note is for the time being registered in the relevant Register (or, in the case of a joint holding, the first named thereof) and “Noteholder” shall be construed accordingly. A certificate (each, a “Note Certificate”) will be issued to each Noteholder in respect of its registered holding. Each Note Certificate will be numbered serially with an identifying number which will be recorded on the relevant Note Certificate and in the relevant Register. An up-to-date copy of each Register will be kept with the Issuer at its registered office (each, an “Issuer’s Register”). Under the terms of the Agency Agreement, each Registrar will provide to the Issuer an updated copy of each Register which the Issuer shall keep at its registered office and insert into the relevant Issuer’s Register. In case of inconsistency between any Register and the corresponding Issuer’s Register, the Issuer’s Register shall prevail.

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(b) Title: The title to the Notes passes only by registration in the relevant Register. The holder of each Note shall (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as the absolute owner of such Note for all purposes, whether or not such Note is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon (other than the endorsed form of transfer) or any notice of any previous loss or theft of the relative Note Certificate, and no person shall be liable for so treating such holder. (c) Transfers: Subject to Conditions 2(f) (and 2(g) below, a Note may be transferred in whole or in part upon surrender of the relevant Note Certificate, with the endorsed form of transfer duly completed (including any certificates as to compliance with restrictions on transfer included therein), at the Specified Office of the relevant Registrar or Transfer Agent, together with such evidence as such Registrar or (as the case may be) such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided however, that a Note may not be transferred unless the principal amount of the Notes transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of the Notes not transferred are Authorised Holdings. Where not all the Notes represented by the surrendered Note Certificate are the subject of the transfer, a new Note Certificate in respect of the balance of the Notes will be issued to the transferor in accordance with Condition 2(d) below. (d) Registration and delivery of Note Certificates: Subject to Condition 2(g) within five business days of the surrender of a Note Certificate in accordance with Condition 2(c) above, the relevant Registrar will register the transfer in question and deliver a new Note Certificate of a like principal amount to the Note(s) transferred to the relevant Holder at the relevant Registrar’s Specified Office or (as the case may be) the Specified Office of a Transfer Agent or (at the request and risk of any such relevant Holder) by uninsured first class mail (airmail if overseas) to the address specified for the purpose by such relevant Holder. In this paragraph, “business day” means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the relevant Registrar has its Specified Office. In the case of the transfer of part only of the Notes, a new Note Certificate in respect of the balance of the Notes not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor. (e) No charge: The transfer of a Note will be effected without charge by or on behalf of the Issuer or the relevant Registrar, but against such indemnity as the relevant Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. (f) Closed periods: Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes. (g) Regulations concerning transfers and registration: All transfers of Notes and entries on the relevant Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee, the Registrars and the Borrower. A copy of the current regulations will be mailed (free of charge) by the relevant Registrar and/or any Transfer Agent to any Noteholder who requests in writing a copy of such regulations and will be available at the office of the relevant Registrar in Luxembourg and the Transfer Agent in Luxembourg.

3. STATUS The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute obligations of the Issuer to apply an amount equal to the gross proceeds from the issue of the Notes for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest, “increased amounts of principal, interest or any other payment due” (as defined in Clause 8.1 of the Loan Agreement) and “Additional Amounts” (as defined in Clause 8.3 of the Loan Agreement), if any, actually received by, or for the account of, the Issuer pursuant to the Loan Agreement and/or any Loan Guarantee, as the case may be (less any amounts in respect of the Reserved Rights), the right to receive which is, inter alia, being charged by way of security to the Trustee by virtue of the Security Interests (as defined in the Trust Deed) as security for the Issuer’s payment obligations under the Trust Deed and in respect of the Notes.

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Payments in respect of the Notes equivalent to the sums actually received by or for the account of the Issuer by way of principal, interest, increased amounts of principal, interest or any other payment due or Additional Amounts, if any, pursuant to the Loan Agreement and/or any Loan Guarantee, as the case may be (less any amounts in respect of the Reserved Rights) will be made pro rata among all Noteholders (subject to Conditions 6(c) and Condition 8), on the corresponding payment dates (as provided in the Loan Agreement) of, and in the currency of, and subject to the conditions attaching to, the equivalent payment in accordance with the Loan Agreement and/or any Loan Guarantee, as the case may be. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. The Issuer shall be under no obligation to exercise in favour of the Trustee or the Noteholders any rights of set-off or of banker’s lien or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and the Borrower and/or the Issuer and any of the Loan Guarantors, as the case may be.

Noteholders are deemed to have accepted that: (i) neither the Issuer nor the Trustee makes any representation or warranty in respect of, and shall at no time have any responsibility for, or liability, or obligation in respect of the performance and observance by the Borrower or any of the Loan Guarantors, as the case may be, of its obligations under the Loan Agreement or any Loan Guarantee, respectively, or the recoverability of any sum of principal, interest, increased amounts of principal, interest or any other payment due or Additional Amounts, if any, due or to become due from the Borrower or any of the Loan Guarantors, as the case may be, under the Loan Agreement or any Loan Guarantee, respectively; (ii) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial, operational or otherwise), creditworthiness, affairs, status, nature or prospects of the Borrower or any of the Loan Guarantors, as the case may be; (iii) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, any misrepresentation or breach of warranty or any act, default or omission of the Borrower or any of the Loan Guarantors, as the case may be, under or in respect of the Loan Agreement or any Loan Guarantee, respectively; (iv) neither the Issuer nor the Trustee shall at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Registrars, the Principal Paying Agent, any Transfer Agent or any Paying Agent of their respective obligations under the Agency Agreement; (v) the financial servicing and performance of the terms of the Notes depend solely and exclusively upon performance by the Borrower and each the Loan Guarantor, as the case may be, of their respective obligations under the Loan Agreement and/or the Loan Guarantees, the Borrower’s covenant to pay under the Loan Agreement and each Guarantor’s covenant to pay under its respective Loan Guarantee, respectively and their respective credit and financial standings; (vi) the Issuer (and, pursuant to the Loan Assignment, the Trustee) will rely on self-certification by the Borrower and any Loan Guarantor and certification by third parties as a means of monitoring whether the Borrower or such Loan Guarantor is complying with its obligations under the Loan Agreement or the relevant Loan Guarantee, respectively, (including, without limitation, compliance with the covenants in Clause 12 of the Loan Agreement) and shall not otherwise be responsible for investigating any aspect of the Borrower’s or any Loan Guarantor’s performance or compliance in relation thereto and, subject as further provided in the Trust Deed, the Trustee will not be liable for any failure to make the usual or any investigations which might be made by a security holder in relation to the property which is the subject of the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the secured property whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will it have any liability for the enforceability of the security created by the Security Interests whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security and the Trustee will have no responsibility for the value of such security; (vii) the Issuer will not be liable for any withholding or deduction or for any payment on account of Taxes (as defined in the Loan Agreement) (not being a tax imposed on the Issuer’s net income) required to be made by the Issuer on or in relation to any sum received by it under the Loan Agreement or any Loan Guarantee, as the case may be, which will or may affect payments made or to be made by the Borrower or any of the Loan Guarantors, as the case may be under the Loan Agreement or any Loan Guarantee, respectively, save

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to the extent that it has received increased amounts of principal, interest or any other payment due or Additional Amounts under the Loan Agreement or any Loan Guarantee, as the case may be, in respect of such withholding or deduction; the Issuer shall, furthermore, not be obliged to take any actions or measures as regards such deductions or withholdings other than those set out in this context in Clause 8 and Clause 10.4 of the Loan Agreement and in Clause 3 of the Deed of Loan Guarantee; and (viii) where the Trustee or the Issuer is required, pursuant to the Loan Agreement or the Loan Guarantee, to determine whether a matter or amount is “material” or “substantial” or has a Material Adverse Effect (as defined in the Loan Agreement), the Trustee shall be entitled to direct the Issuer to obtain advice in relation thereto from an Independent Appraiser (as defined in the Loan Agreement) on which advice the Trustee will be entitled to rely. The Issuer shall have 5 Business Days (as defined in the Trust Deed) after the occurrence of the circumstance which gives rise to the need for such determination to appoint an Independent Appraiser, the Issuer will notify the Trustee if it has failed to do so and the Trustee may, but shall not be obliged to, use reasonable endeavours to make such appointment, at the expense of the Issuer, within 15 Business Days of being notified of the Issuer’s failure. The Trustee shall have no responsibility for performing the role of the Independent Appraiser itself, shall not be obliged to take any action in relation to making such appointment unless previously indemnified and/or secured and/or pre-funded to its satisfaction and shall have no liability for any failure to appoint such Independent Appraiser. If the Trustee has not engaged an Independent Appraiser after 15 Business Days of being notified of the Issuer’s failure to do so, the Trustee shall not make such a determination but either (i) shall call a meeting of Noteholders which shall by means of an Extraordinary Resolution make such a determination in place of the Trustee or (ii) shall accept a direction making such a determination by the holders of at least one-quarter in principal amount of the outstanding Notes making such a determination.

Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer’s rights under or in respect of the Loan Agreement or any Loan Guarantee exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions in the Loan Agreement or any Loan Guarantee or have direct recourse to the Borrower or any of the Loan Guarantors except through action by the Trustee under the Security Interests. Neither the Issuer nor the Trustee pursuant to the Loan Assignment or the Loan Guarantee Assignment, as the case may be, shall be required to take proceedings to enforce payment under the Loan Agreement or any Loan Guarantee, as the case may be, unless it has been indemnified and/or secured and/or prefunded by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith.

As provided in the Trust Deed, the obligations of the Issuer are solely to make payments of amounts in aggregate equivalent to each sum actually received by or for the account of the Issuer from the Borrower or the Loan Guarantors, as the case may be, in respect of principal, interest, increased amounts of principal, interest or any other payment due or Additional Amounts, if any, as the case may be, pursuant to the Loan Agreement or any Loan Guarantee, as the case may be, (less any amount in respect of the Reserved Rights), the right to which is being assigned by way of security to the Trustee as aforesaid. Noteholders must therefore rely solely and exclusively upon the Borrower and the Loan Guarantors complying with their obligations under the Loan Agreement or the Loan Guarantees, as the case may be, the credit and financial standing of the Borrower and the Loan Guarantors and the ability of the Issuer (or, in certain circumstances as described in Condition 13 the Trustee) to enforce such obligations against the Borrower and the Loan Guarantors under the Loan Agreement or the Loan Guarantees, as the case may be.

The obligations of the Issuer to make payments as stated in the previous paragraph constitute direct and general obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.

Payments to be made by the Borrower under the Loan Agreement or by any of the Loan Guarantors under the Loan Guarantees to the Account (before such time that the Issuer has been required by the Trustee, pursuant to the terms of the Trust Deed, to pay to or to the order of the Trustee) will satisfy pro tanto the obligations of the Issuer to make payments in respect of the Notes unless there is subsequent failure to pay such amounts to Noteholders.

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4. ISSUER’S COVENANT As provided in the Trust Deed, so long as any of the Notes remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution or Written Resolution (each as defined in the Trust Deed), agree to any amendments to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement or the Deed of Loan Guarantee and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement and/or the Loan Guarantees, as the case may be, except as otherwise expressly provided in the Trust Deed, the Loan Agreement and/or the Loan Guarantees. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and any such amendment or modification shall be notified by the Trustee to the Noteholders in accordance with Condition 15.

5. INTEREST (a) Accrual of interest: The Notes bear interest from 3 April 2013 (the “Closing Date”) at the rate of 6.75 per cent. per annum (the “Interest Rate”) payable semi-annually in arrear on 3 April and 3 October in each year (each, other than the Closing Date, an “Interest Payment Date”), subject as provided in Condition 7. Each period from (and including) the Closing Date or any Interest Payment Date to (but excluding) the next (or first) Interest Payment Date is herein called an “Interest Period”. Each Note will cease to bear interest from the due date for redemption unless, upon due presentation of the relevant Note Certificate, payment of principal is improperly withheld or refused, in which case interest will continue to accrue (before or after any judgment) from the due date for redemption to, but excluding, the date on which payment in full of the principal is made under the Notes. The amount of interest payable in respect of each Note for any Interest Period shall be calculated by applying the Interest Rate to the principal amount of such Note, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). When interest is required to be calculated in respect of a period other than an Interest Period, it shall be calculated on the basis of a 360 day year consisting of 12 months of 30 days each, and in the case of an incomplete month, the actual number of days elapsed. (b) Default Interest under the Loan Agreement: In the event that, and to the extent that, the Issuer actually receives any amounts in respect of interest on unpaid sums from the Borrower and/or a Loan Guarantor, as the case may be, pursuant to Clause 14 of the Loan Agreement the Issuer shall account to the Noteholders for an amount equivalent to the amounts in respect of interest on unpaid sums actually so received. Any payments made by the Issuer under this Condition 5(b) will be made on the next following Business Day (as defined in Condition 7(c)) after the day on which the Issuer receives such amounts from the Borrower and/ or the Loan Guarantor, as the case may be, and, save as provided in this Condition 5(b), all subject to and in accordance with Condition 7.

6. REDEMPTION AND PURCHASE (a) Final redemption: Unless previously prepaid pursuant to Clauses 7.1, 7.2, 7.3 or 7.4 of the Loan Agreement or repaid in accordance with Clause 10.3 of the Loan Agreement, the Borrower or the Loan Guarantors, as the case may be, will be required to repay the Loan on the Business Day prior to its due date as provided in the Loan Agreement and, subject to such repayment, all the Notes will be redeemed at their principal amount on 3 April 2020 together with interest accrued and unpaid to the date fixed for redemption and any additional amounts, subject as provided in Condition 7. (b) Redemption by the Issuer: Under the Loan Agreement: (i) the Borrower may, in the circumstances set out in Clause 7.1 or 7.2 of the Loan Agreement prepay the Loan in whole but not in part; and (ii) the Issuer may require the Borrower to prepay the Loan in whole but not in part in the circumstances set out in Clause 10.3 of the Loan Agreement.

If the Loan should become repayable pursuant to Clauses 7.1, 7.2 or 10.3 of the Loan Agreement prior to the Repayment Date, as set forth in the Loan Agreement, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at 100 per cent. of the principal amount thereof together with interest

204 Terms and Conditions of the Notes accrued and unpaid to the date fixed for redemption and any additional amounts in respect thereof pursuant to Condition 8 (subject to the Loan being repaid together with such accrued interest and/or additional amounts or equivalent amounts being paid under the Loan Guarantees) and shall be redeemed or repaid by the Issuer on the date specified pursuant to the Loan Agreement and the Issuer will endeavour to give not less than 25 days’ notice thereof to the Trustee and the Noteholders in accordance with Condition 15.

The Issuer shall deliver to the Trustee an Officer’s Certificate (as defined in the Trust Deed) of the Issuer stating that the Issuer is entitled to effect such redemption in accordance with this Condition 6(b). A copy of the Borrower’s notice of prepayment or details of the circumstances contemplated by Clause 10.3 of the Loan Agreement and the date fixed for redemption shall be set out in the notice. The Trustee shall be entitled to accept any notice or certificate delivered by the Issuer in accordance with this Condition 6(b) as sufficient evidence of the satisfaction of the applicable circumstances in which event they shall be conclusive and binding on the Noteholders. (c) Redemption at the Option of the Noteholders on the failure to procure any Additional Loan Guarantee or Further Loan Guarantee: If a Further Loan Guarantee Event (as defined below) shall have occurred, the holder of a Note will have the option (the “Further Loan Guarantee Event Put Option”) to require the Issuer to redeem such Note on the Further Loan Guarantee Event Payment Date (as defined below) at 101 per cent. together with accrued but unpaid interest up to but excluding the Further Guarantee Event Payment Date (as defined below) (if any) and plus any additional amounts or other amounts that may be due thereon.

Promptly, upon the Issuer receiving written notice from the Borrower in accordance with Clause 7.4.1 of the Loan Agreement (the “Borrower Further Loan Guarantee Event Notice”) that a Further Loan Guarantee Event has occurred, the Issuer shall give notice (a “Further Loan Guarantee Event Notice”) to the Noteholders in accordance with Condition 15, specifying (i) that a Further Loan Guarantee Event has occurred (ii) the details relating to the occurrence of the Further Loan Guarantee Event, (iii) the purchase price in connection with the Further Loan Guarantee Event Put Option, (iv) the Further Loan Guarantee Event Put Period (v) the procedure for exercising the Further Loan Guarantee Event Put Option (vi) that any Note not properly tendered or not tendered at all prior to the Further Loan Guarantee Event Payment Date will remain outstanding and continue to accrue interest and additional amounts (if any) and (vii) that Noteholders can tender their Notes in part and will be issued a new Note Certificate in respect of the unredeemed portion, providing that such unredeemed portion is an Authorised Holding.

In order to exercise the Further Loan Guarantee Event Put Option, the holder of a Note must deliver no later than 60 calendar days after the Further Loan Guarantee Event Notice is given (the “Further Loan Guarantee Event Put Period”), to the specified office of the Principal Paying Agent, evidence satisfactory to the Principal Paying Agent of such holder’s entitlement to such Note and a duly completed additional guarantee put option notice (a “Further Loan Guarantee Event Put Option Notice”) specifying the principal amount of the Notes in respect of which the Further Loan Guarantee Event Put Option is exercised, in the form obtainable from the Principal Paying Agent. The Principal Paying Agent will provide such Noteholder with a non-transferable receipt. On the Business Day (as defined in the Loan Agreement) following the end of the Further Loan Guarantee Event Put Period, the Principal Paying Agent shall notify in writing the Issuer and the Borrower of the exercise of the Further Loan Guarantee Event Put Option specifying the aggregate principal amount of the Notes to be redeemed in accordance with the Further Loan Guarantee Event Put Option. Provided that the Notes that are the subject of any such Further Loan Guarantee Event Put Option Notice have been delivered to the Principal Paying Agent prior to the expiry of the Further Loan Guarantee Event Put Period, then the Issuer shall (subject (i) to the receipt of sufficient funds to do so from the Borrower pursuant to the Loan Agreement or from the Initial Loan Guarantors pursuant to the Deed of Loan Guarantee and (ii) as provided in Condition 7) redeem all such Notes on the date falling 5 Business Days after the expiration of the Further Loan Guarantee Event Put Period (the “Further Loan Guarantee Event Payment Date”). No Further Loan Guarantee Event Put Option Notice, once delivered to the Principal Paying Agent in accordance with this Condition 6(c), may be withdrawn.

For the purposes of these Conditions “Further Loan Guarantee Event” means (a) the failure of any Additional Loan Guarantee to be provided as specified pursuant to Clause 12.11(a) of the Loan Agreement or (b) the failure of any Further Loan Guarantee (if required) to be provided as specified pursuant to Clause 12.11(b) of the Loan Agreement.

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(d) Optional Redemption at Make Whole: At any time prior to the Repayment Date, but on one occasion only, the Borrower may, at its option, on giving not less than 30 nor more than 60 days’ irrevocable notice to the Issuer (the “Call Option Notice”), prepay the Loan in whole but not in part, at the price which shall be the following: (i) the principal amount; plus (ii) the Make Whole Premium (as defined in the Loan Agreement); plus (iii) interest and any additional amounts or other amounts that may be due thereon (if any) accrued but unpaid to but excluding the date on which the call option is to be settled (the “Call Settlement Date”).

The Call Option Notice shall specify the Call Settlement Date.

Immediately on receipt of such notice, the Issuer shall forward it to the Noteholders (in accordance with Condition 15), the Trustee and the Principal Paying Agent. The Loan shall be repaid one Business Day prior to the Call Settlement Date. The Issuer’s obligations in respect of this Condition 6 to redeem and make payment for the Notes shall constitute an obligation only to account to Noteholders on the Call Settlement Date for an amount equivalent to the sums received by or for the account of the Issuer pursuant to the Loan Agreement. (e) No other redemption: Except where the Loan is accelerated pursuant to Clause 13.2 of the Loan Agreement, the Issuer shall not be entitled to redeem the Notes otherwise than as provided in Conditions 6(a), 6(b), 6(c) and 6(d) above. (f) Purchase and Cancellation: The Issuer or the Borrower or any of its Subsidiaries or affiliates (each as defined in the Loan Agreement) or any other company acting for the benefit of the Borrower may at any time purchase Notes in the open market or otherwise and at any price. Such Notes may be held, reissued, resold or, at the option of the Issuer, the Borrower or any of its Subsidiaries, as the case may be, delivered to the Issuer together with a request for the Issuer to redeem and thereafter cancel such Notes, whereupon the Issuer shall, pursuant to the Agency Agreement, instruct the Principal Paying Agent and the relevant Registrar to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by the Borrower in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon and no further payment shall be made in respect of such Notes.

7. PAYMENTS (a) Principal: Payments of principal shall be made by U.S. dollar cheque drawn on, or upon application by, a Holder of a Note to the Specified Office of the Principal Paying Agent not later than the fifteenth day before the due date for any such payment, by transfer to a U.S. dollar account maintained by, the payee, upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificate(s) at the Specified Office of the Principal Paying Agent and/or the Transfer Agent. (b) Interest: Payments of interest shall be made by U.S. dollar cheque drawn on, or upon application by a Holder of a Note to the Specified Office of the Principal Paying Agent not later than the fifteenth day before the due date for any such payment, by transfer to a U.S. dollar account maintained by the payee, and (in the case of interest payable on redemption in whole) upon presentation of the relevant Note Certificate(s) at the Specified Office of the Principal Paying Agent or the Transfer Agent. (c) Payments on Business Days: Where payment is to be made by transfer to a U.S. dollar account, payment instructions (for value the due date for payment, or, if the due date for payment is not a Business Day, for value the next succeeding Business Day) will be initiated and, where payment is to be made by U.S. dollar cheque, the cheque will be mailed (i) (in the case of payments of principal and interest payable on redemption) on the later of the due date for payment and the day on which the relevant Note Certificate is surrendered (or, in the case of part payment only, endorsed) at the Specified Office of the relevant Registrar and (ii) (in the case of payments of interest payable other than on redemption) on the due date for payment. A Holder of a Note shall not be entitled to any interest or other payment in respect of any delay in payment resulting from (A) the due date for a payment not being a Business Day or (B) a cheque mailed in accordance with this Condition 7 arriving after the due date for payment or being lost in the mail. In this Condition 7, “Business Day” means any day (other than a Saturday or Sunday) on which banks generally are open for business in New York City and in the city where the specified office of the Principal Paying Agent is located.

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(d) Partial payments: If the Principal Paying Agent makes a partial payment in respect of any Note, the Issuer shall procure that the amount and date of such payment are noted on the relevant Register and, in the case of partial payment upon presentation of a Note Certificate, that a statement indicating the amount and the date of such payment is endorsed on the relevant Note Certificate. (e) Record date: Each payment in respect of a Note will be made to the person shown as the Holder in the relevant Register at the opening of business in the place of the Specified Office of the relevant Registrar on the fifteenth day before the due date for such payment (the “Record Date”) whether or not a Business Day. Where payment in respect of a Note is to be made by cheque, the cheque will be mailed to the address shown as the address of the Holder in the relevant Register at the opening of business on the relevant Record Date. (f) Payment to the Account: Save as the Trustee may otherwise direct at any time after the Charge (as defined in the Trust Deed) created pursuant to the Trust Deed becomes enforceable, the Issuer will pursuant to the provisions of Clause 7.1 of the Agency Agreement require the Borrower or the Loan Guarantors, as the case may be, to make all payments of principal and interest to be made pursuant to the Loan Agreement or the Loan Guarantees, respectively, less any amounts in respect of the Reserved Rights, to the Account (as defined in the Loan Agreement). (g) Payment obligations limited: The obligations of the Issuer to make payments under Conditions 6 and 7 shall constitute an obligation only to account to the Noteholders on such date upon which a payment is due in respect of the Notes, for an amount equivalent to sums of principal, interest, increased amount of principal, interest or any other payment due or Additional Amounts, if any, actually received by or for the account of the Issuer pursuant to the Loan Agreement and/or any Loan Guarantee less any amount in respect of the Reserved Rights. (h) Payments Subject to Fiscal Laws: All payments are subject in all cases to any applicable fiscal or other laws, regulations and directives in the place of payment or other laws to which the Issuer or its Agents agree to be subject and the Issuer will not be liable for any taxes or duties of whatever nature imposed or levied by such laws, regulations, directives or agreements, but without prejudice to the provisions of Condition 8. No commission or expenses shall be charged to the Noteholders in respect of such payments.

8. TAXATION All payments of principal and interest by or on behalf of the Issuer in respect of the Notes shall be made to, or for the account of, each Holder free and clear of, and without withholding or deduction for, any Taxes imposed or levied by the Grand Duchy of Luxembourg (“Luxembourg”) or the Russian Federation or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall, subject as provided below, pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them if no such withholding or deduction had been made or required to be made. No such additional amounts shall be payable in respect of any Note: (a) held by a Holder who is liable for such Taxes in respect of such Note by reason of its having some connection with Luxembourg other than the mere holding of such Note (including being a citizen or resident or national of, or carrying on a business or maintaining a permanent establishment in, or being physically present in, Luxembourg); or (b) where (in the case of a payment of principal or interest on redemption) the relevant Note Certificate is surrendered for payment more than 30 days after a Relevant Date except to the extent that the relevant Holder would have been entitled to such additional amounts if it had surrendered the relevant Note Certificate on the last day of such period of 30 days; or (c) where such withholding or deduction is imposed or levied on a payment to an individual and is required to be made pursuant to any European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or (d) for any Taxes that would not have been imposed but for the failure of the relevant Holder to comply with the Issuer’s written request, addressed to the relevant Holder and delivered at least 30 days prior to the date when the relevant payment is due, to provide information with respect to any reasonable certification, documentation, information or other reporting requirement concerning the nationality, residence, identity or connection with the taxing jurisdiction of the relevant Holder; or

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(e) presented for payment by or on behalf of a Holder who would be able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a Member State of the European Union.

Notwithstanding the foregoing provisions, the Issuer shall only make payments of additional amounts to the Noteholders pursuant to this Condition 8 to the extent and at such time as it shall have actually received an equivalent amount for such purposes from the Borrower and/or the Loan Guarantors under the Loan Agreement and/or any Loan Guarantee, as the case may be, by way of increased amount of principal, interest or any other payment due or Additional Amounts or otherwise.

To the extent that the Issuer receives a lesser sum, in respect of an increased amount of principal, interest or any other payment due from the Borrower and/or the Loan Guarantors for the account of the Noteholders, the Issuer shall account to each Noteholder entitled to receive an additional amount pursuant to this Condition 8 for an additional amount equivalent to a pro rata portion of such increased amounts of principal, interest or any other payment due (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement and/or any Loan Guarantee on the date of, in the currency of, and subject to any conditions attaching to the payment of such increased amounts of principal, interest or any other payment due to the Issuer.

In these Conditions, “Relevant Date” means whichever is the later of (a) the date on which the payment in question first becomes due and (b) if the full amount payable has not been received in London by the Principal Paying Agent or the Trustee on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders.

Any reference in these Conditions to principal or interest shall be deemed to include any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 8 or any undertaking given in addition to or in substitution of this Condition 8 pursuant to the Trust Deed, the Loan Agreement or the Deed of Loan Guarantee.

If the Issuer becomes subject at any time to any taxing jurisdiction other than Luxembourg, references in these Conditions to Luxembourg shall be construed as references to Luxembourg and/or such other jurisdiction.

9. PRESCRIPTION Claims for principal shall become void unless the relevant Note Certificates are surrendered for payment within ten years, and claims for interest due other than on redemption shall become void unless made within five years, in each case of the appropriate Relevant Date.

10. REPLACEMENT OF NOTE CERTIFICATES If any Note Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the relevant Registrar or any Paying Agent, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer, the relevant Registrar or Paying Agent may reasonably require. Mutilated or defaced Note Certificates must be surrendered before replacements will be issued.

11. TRUSTEE AND AGENTS The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances, including provisions relieving it from taking proceedings to enforce payment unless indemnified and/or secured and/or prefunded to its satisfaction, and to be paid its costs and expenses in priority to the claims of Noteholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer, the Borrower, any of the Loan Guarantors and any entity relating to the Issuer, the Borrower or any of the Loan Guarantors without accounting for any profit.

In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have regard

208 Terms and Conditions of the Notes to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders except to the extent already provided for in Condition 8 and/or any undertaking given in addition to, or in substitution for, Condition 8 pursuant to the Trust Deed.

In acting under the Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders.

The initial Agents and their initial Specified Offices are outlined in the Agency Agreement. The Issuer reserves the right (with the prior written approval of the Trustee) at any time to vary or terminate the appointment of any Agent and to appoint a successor registrar or principal paying agent or additional or successor other paying agents and transfer agents; provided, however, that so long as the Notes are listed on the Stock Exchange and the rules of such exchange so require the Issuer shall, maintain a transfer and paying agent with a specified office in Dublin or such other place as may be approved by the Stock Exchange and shall maintain the registrars at all times outside the United Kingdom. Notice of any change in any of the Agents or in their Specified Offices shall promptly be given to the Noteholders.

The Issuer will ensure that it maintains a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive.

12. MEETINGS OF NOTEHOLDERS;MODIFICATION AND WAIVER;SUBSTITUTION (a) Meetings of Noteholders: The Trust Deed contains provisions for convening meetings of Noteholders to consider matters relating to the Notes, including the modification of any provision of the Loan Agreement, the Loan Guarantees or any provision of these Conditions or the Trust Deed. Any such modification may be made if sanctioned by an Extraordinary Resolution (as defined in the Trust Deed). Such a meeting may be convened on no less than 21 days’ notice by the Trustee, the Borrower or the Issuer or by the Trustee upon the request in writing of Noteholders holding not less than one-tenth of the aggregate principal amount of the outstanding Notes provided it shall have been indemnified and/or secured and/or prefunded to its satisfaction. The quorum at any meeting convened to vote on an Extraordinary Resolution will be two or more persons holding or representing more than half of the aggregate principal amount of the outstanding Notes or, at any adjourned meeting, two or more persons being or representing Noteholders whatever the principal amount of the Notes held or represented; provided, however, that certain proposals (including but not limited to any proposal to change any date fixed for payment of principal or interest in respect of the Notes, to reduce the amount of principal or interest payable on any date in respect of the Notes, to alter the method of calculating the amount of any payment in respect of the Notes or the date for any such payment, to change the currency of payments under the Notes, to change the quorum requirements relating to meetings or the majority required to pass an Extraordinary Resolution, to alter the governing law of the Conditions, the Trust Deed, the Loan Agreement or any Loan Guarantee, to change any date fixed for payment of principal or interest under the Loan Agreement or any Loan Guarantee, to alter the method of calculating the amount of any payment under the Loan Agreement or any Loan Guarantee or to change the currency of payment or events of default under the Loan Agreement or any Loan Guarantee (each, a “Reserved Matter”) may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which two or more persons holding or representing not less than three-quarters or, at any adjourned meeting, one quarter of the aggregate principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Noteholders, whether present or not. The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than three-quarters in principal amount of the Notes outstanding shall for all purposes be as valid and effective as

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an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders. (b) Modification and waiver: The Trustee may, without the consent of the Noteholders, agree to any modification of these Conditions, the Trust Deed or following the Loan Assignment, the Loan Agreement or any Loan Guarantee (i) (other than in respect of a Reserved Matter) which is, in the opinion of the Trustee, proper to make if, in the opinion of the Trustee, such modification will not be materially prejudicial to the interests of Noteholders or (ii) which is, in the opinion of the Trustee, of a formal, minor or technical nature or is to correct a manifest error. In addition, the Trustee may, without the consent of the Noteholders, authorise or waive any breach or proposed breach of the Notes or the Trust Deed by the Issuer or, following the Loan Assignment, the Loan Agreement or the Deed of Loan Guarantee by the Borrower or any Loan Guarantor, as the case my be, or determine that any event which would or might otherwise give rise to a right of acceleration under the Loan Agreement or any Relevant Event (as defined below) shall not be treated as such (other than a proposed breach or breach relating to a Reserved Matter) if, in the opinion of the Trustee, the interests of the Noteholders will not be materially prejudiced thereby provided always that the Trustee may not exercise such power of waiver in contravention of a written request given by holders of one-quarter in aggregate principal amount of the Notes then outstanding or any express direction by Extraordinary Resolution or Written Resolution. Unless the Trustee agrees otherwise, any such authorisation, waiver or modification shall be notified to the Noteholders in accordance with Condition 15 as soon as practicable thereafter. (c) Substitution: The Trust Deed contains provisions under which the Issuer may, without the consent of the Noteholders, transfer the obligations of the Issuer as principal debtor under the Trust Deed and the Notes to a third party provided that certain conditions specified in the Trust Deed are fulfilled.

13. ENFORCEMENT At any time after the Trustee has actual notice that an Event of Default (as defined in the Loan Agreement) has occurred and is continuing or a Relevant Event (as defined below) has occurred, the Trustee may, at its discretion and without notice, institute such steps, actions or proceedings as it thinks fit to enforce its rights under the Trust Deed in respect of the Notes (including, after a Relevant Event, enforcing the Security Interests and, where applicable, after an Event of Default, directing the Issuer to enforce its rights against the Borrower and/or the Loan Guarantors under the Loan Agreement or the Deed of Loan Guarantee), but it shall not be bound to do so unless: (a) it has been so requested in writing by the Holders of at least one-quarter in principal amount of the outstanding Notes or has been so directed by an Extraordinary Resolution; and (b) it has been indemnified and/or provided with security and/or prefunded to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith.

No Noteholder may proceed directly against the Issuer unless the Trustee, having become bound to do so, fails to do so within a reasonable time and such failure is continuing.

The Trust Deed also provides that, in the case of an Event of Default, or a Relevant Event, the Trustee may, and shall if requested to do so by Noteholders of at least one-quarter in principal amount of the Notes outstanding or if directed to do so by an Extraordinary Resolution and, in either case, subject to it being indemnified and/or secured and/or prefunded to its satisfaction, (1) require the Issuer to declare all amounts payable under the Loan Agreement by the Borrower to be due and payable (in the case of an Event of Default), or (2) enforce the security created in the Trust Deed in favour of the Noteholders (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default, the Notes will be redeemed or repaid at the principal amount thereof together with interest accrued to the date fixed for redemption together with any additional amounts due in respect thereof pursuant to Condition 8 and thereupon shall cease to be outstanding.

For the purposes of these Conditions, “Relevant Event” means the earlier of any of (i) the failure by the Issuer to make any payment of principal or interest on the Notes when due, following receipt by the Issuer of the

210 Terms and Conditions of the Notes corresponding amount under the Loan Agreement and/or any Loan Guarantee, (ii) the filing of an application for the institution of controlled management (“gestion contrôlée”), suspension of payment (sursis de paiement), liquidation by decision of the court (“liquidation judiciaire”), bankruptcy, moratorium, insolvency, composition proceedings (“concordat préventif de la faillite”), general agreement with any of its creditors or any other similar legal procedure, (iii) the appointment of a “commissaire à la gestion contrôlée”,a“liquidateur judiciaire”, a “curateur”,a“commissaire” or any similar officer in respect of the Issuer, or (iv) the taking of any action in furtherance of the dissolution of the Issuer.

14. FURTHER ISSUES The Issuer may from time to time, with the consent of the Borrower and the Loan Guarantors and without the consent of the Noteholders and in accordance with the Trust Deed, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes. Such further notes shall be issued under a deed supplemental to the Trust Deed containing such provisions as the Trustee may require. In relation to any further issue which is to be consolidated and form a single series with the Notes, the Issuer will enter into a loan agreement with the Borrower on the same terms as the Loan Agreement (or on the same terms except for the first payment of interest) and supplemental to the Loan Agreement, or may amend and restate the same with the Borrower on substantially the same terms as the Loan Agreement and supplemental deeds of loan guarantee to the Deed of Loan Guarantee (which shall be included within the definition of “Deed of Loan Guarantee” for the purposes of these Conditions) or may amend and restate the same with the Loan Guarantors on substantially the same terms as the Deed of Loan Guarantee. The Issuer will provide a first fixed charge in favour of the Trustee in respect of certain of its rights and interests under such loan agreement and supplemental deed of loan guarantee and will assign absolutely to the Trustee certain of its rights under such loan agreement and supplemental deed of loan guarantee, which will secure both the Notes and such further notes and which will supplement the Security Interests in relation to the existing Notes or may amend and supplement the Security Interests for such purpose. Any further securities forming a single series with the outstanding securities of any series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other securities may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides. Application will be made for such further notes or bonds to be listed and admitted to trading on the stock exchange on which the Notes are from time to time listed or quoted.

15. NOTICES Notices to the Noteholders will be sent to them by first class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the relevant Register. Any such notice shall be deemed to have been given on the fourth day after the date of mailing. The Issuer shall also ensure that all notices are duly published (if such publication is required) in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed and/or admitted to trading. Any such notice shall be deemed to have been given on the date of such notice.

In case by reason of any other cause it shall be impracticable to publish any notice to holders of Notes as provided above, then such notification to such holders as shall be given with the approval of the Trustee in accordance with the rules of the stock exchange or other relevant authority on which the Notes are for the time being listed and/or admitted to trading shall constitute sufficient notice to such holders for every purpose hereunder.

16. GOVERNING LAW AND JURISDICTION (a) Governing law: The Trust Deed, the Agency Agreement, the Notes, the Loan Agreement, the Deed of Loan Guarantee, all other agreements entered into in connection therewith and any non-contractual obligations arising out of or in connection therewith shall be governed by, and construed in accordance with, English law. The provisions of Articles 86 to 94-8 of the Luxembourg law of 10 August 1915 on commercial companies, as amended, are hereby excluded.

211 Terms and Conditions of the Notes

(b) Jurisdiction: Without prejudice to the foregoing provisions, (i) the Issuer has in the Loan Agreement, the Deed of Loan Guarantee and the Agency Agreement (ii) the Borrower has, in the Loan Agreement and the Agency Agreement, and (iii) the Loan Guarantors have, in the Deeds of Guarantee, agreed that any disputes which may arise out of or in connection therewith (as the case may be), including any questions regarding their existence, validity or termination may be referred to and finally resolved by arbitration under the UNCITRAL Rules.

17. CONTRACTS (RIGHTS OF THIRD PARTIES)ACT 1999 No person shall have any right to enforce any term of condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

212 SUMMARY OF PROVISIONS OF THE NOTES WHILE IN GLOBAL FORM

The Notes will be represented by a Regulation S Global Note Certificate and Rule 144A Global Note Certificate. The Global Note Certificates contains provisions which apply to the Notes in respect of which the Global Note Certificates are issued, some of which modify the effect of the Terms and Conditions of the Notes. Terms defined in the Terms and Conditions of the Notes have the same meanings as in the paragraphs below. The following is a summary of those provisions.

The Global Note Certificates The Regulation S Notes will be evidenced on issue by the Regulation S Global Note Certificate registered in the name of a nominee for, and deposited with a common depository on behalf of, Euroclear and Clearstream, Luxembourg. Beneficial interests in the Regulation S Global Note Certificate may be held only through Euroclear or Clearstream, Luxembourg at any time. See “Clearing and Settlement — Book-Entry Procedures for the Global Certificates”. By acquisition of a beneficial interest in the Regulation S Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is not a U.S. person, that it is located outside the United States and that, if it determines to transfer such beneficial interest prior to the expiration of the “distribution compliance period” (as such term is defined in Rule 902 of Regulation S), it will transfer such interest only (a) to a non-U.S. person in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (b) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB that is also a QP purchasing for its own account or the account of a QIB that is also a QP, in each case in accordance with any applicable securities laws of any state of the United States. See “Transfer Restrictions”.

The Rule 144A Notes will be evidenced on issue by the Rule 144A Global Note Certificate deposited with a custodian for, and registered in the name of a nominee of, DTC. Beneficial interests in the Rule 144A Global Note Certificate may only be held through DTC at any time. See “Clearing and Settlement — Book-Entry Procedures for the Global Certificates”. By acquisition of a beneficial interest in the Rule 144A Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is a QIB that is also a QP and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Trust Deed. See “Transfer Restrictions”.

Beneficial interests in Global Note Certificates will be subject to certain restrictions on transfer set forth therein and in the Trust Deed, the Agency Agreement and the Global Note Certificates will bear the applicable legends regarding the restrictions set forth under “Transfer Restrictions”. A beneficial interest in the Regulation S Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate only in denominations greater than or equal to the minimum denominations applicable to interests in the Rule 144A Global Note Certificate and only upon receipt by the Registrar of a written certification (in the form provided in an Agency Agreement relating to the Notes (the “Agency Agreement”)) to the effect that the transferor reasonably believes that the transferee is a QIB that is also a QP and that such transaction is in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in the Rule 144A Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate only upon receipt by the Registrar of a written certification (in the form provided in the Agency Agreement) from the transferor to the effect that the transfer is being made in an offshore transaction in accordance with Regulation S.

Any beneficial interest in the Regulation S Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate will, upon transfer, cease to be an interest in the Regulation S Global Note Certificate and become an interest in the Rule 144A Global Note Certificate, and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Rule 144A Global Note Certificate for as long as it remains such an interest. Any beneficial interest in the Rule 144A Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate will, upon transfer, cease to be an interest in the Rule 144A Global Note Certificate and become an interest in the Regulation S Global Note Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Regulation S Global Note Certificate for so long as it remains such an interest. No service charge will be made for any registration of transfer or exchange of Notes, but the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Except in the limited circumstances described below, owners of beneficial interests in Global Note Certificates will not be entitled to receive physical delivery of Individual Note Certificates. The Notes are not issuable in bearer form.

213 Summary of Provisions of the Notes while in Global Form

Exchange For Individual Note Certificates Exchange Subject to receipt by the Issuer of the funds necessary to cover the cost realised from the Borrower, each Global Note Certificate will be exchangeable, free of charge to the holder, on or after its Exchange Date (as defined below), in whole but not in part, for Notes in definitive form if: (i) a Global Note Certificate is held by or on behalf of (A) DTC, and DTC notifies the Issuer that it is no longer willing or able to discharge properly its responsibilities as depository with respect to the Global Note Certificate or ceases to be a “clearing agency” registered under the Exchange Act or if at any time it is no longer eligible to act as such, and the Issuer is unable to locate a qualified successor within 90 days of receiving notice or becoming aware of such ineligibility on the part of DTC or (B) Euroclear or Clearstream, Luxembourg, as the case may be, and Euroclear or Clearstream, Luxembourg, as the case may be, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention to permanently cease business or does in fact do so, by the holder giving notice to the Registrar or any Transfer Agent and the Issuer or (ii) the Issuer or the Borrower would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 8 which would not be suffered were the Notes in definitive form and a note to such effect signed by the requisite number of signatories of the Issuer or the Borrower is delivered to the Trustee. The Issuer shall notify the Trustee and the Noteholders of the receipt of a notice from a holder (in the case of (i) above) and the Trustee shall notify the Noteholders of the receipt of notice from the Issuer or the Borrower (in the case of (ii) above), in each case of its intention to exchange the relevant Global Note Certificate for Individual Note Certificates or (iii) the Trustee has instituted or has been directed to institute any judicial proceeding in a court to enforce the rights of the Noteholders under the Notes and the Trustee has been advised by counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the Notes, by the Trustee giving notice to the relevant Registrar or any Transfer Agent and the Noteholders.

The Registrar will not register the transfer of, or exchange of interests in, a Global Note Certificate for Individual Note Certificates for a period of 15 calendar days ending on the date for any payment of principal or interest in respect of the Notes.

If only one of the Global Note Certificates (the “Exchanged Global Note Certificate”) becomes exchangeable for Individual Note Certificates in accordance with the above paragraphs, the transfers of Notes may not take place between, on the one hand, persons holding Individual Note Certificates issued in exchange for beneficial interests in the Exchanged Global Note Certificate and, on the other hand, persons wishing to purchase beneficial interests in the other Global Note Certificate.

Delivery In such circumstances, the relevant Global Note Certificate shall be exchanged in full for Individual Note Certificates and the Issuer will, at the cost of the Issuer (and against such indemnity as the Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Individual Note Certificates to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders. A person having an interest in a Global Note Certificate must provide the Registrar with (a) a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such Notes and (b) in the case of the Rule 144A Global Note Certificate only, a fully completed, signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of simultaneous sale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule 144A to a QIB that is also a QP. Individual Note Certificates issued in exchange for a beneficial interest in the Rule 144A Global Note Certificate shall bear the legend applicable to transfer pursuant to Rule 144A, as set forth under “Transfer Restrictions”.

Legends The holder of an Individual Note Certificate may transfer the Notes evidenced thereby in whole or in part in the applicable minimum denomination by surrendering it at the specified office of the relevant Registrar or any Transfer Agent, together with the completed form of transfer thereon. Upon the transfer, exchange or replacement of a Rule 144A Individual Note Certificate bearing the legend referred to under “Transfer

214 Summary of Provisions of the Notes while in Global Form

Restrictions”, or upon specific request for removal of the legend on a Rule 144A Individual Note Certificate, the Issuer will deliver only Rule 144A Individual Note Certificates that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act and the Investment Company Act.

In addition, each Global Note Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Note Certificate. The following is a summary of these provisions.

Payments Payments of principal and interest in respect of Notes evidenced by a Global Note Certificate shall be made to the person who appears at the relevant time on the register of Noteholders as holder of the relevant Global Note Certificate against presentation and (if no further payment falls to be made on it) surrender thereof to or to the order of the Principal Paying Agent (or to or to the order of such other Paying Agent as shall have been notified to the Noteholders for this purpose) which shall endorse such payment or cause such payment to be endorsed in Schedule A to the relevant Global Note Certificate (such endorsement being prima facie evidence that the payment in question has been made). No person shall, however, be entitled to receive any payment on the relevant Global Note Certificate falling due after the date of exchange of the relevant Global Note Certificate for the relevant Individual Note Certificates, unless the exchange of the relevant Global Note Certificate for the relevant Individual Note Certificates is improperly withheld or refused by or on behalf of the Issuer.

Notices Notwithstanding Condition 14, so long as the Global Note Certificate is held by or on behalf of DTC, Euroclear, Clearstream, Luxembourg or any other clearing system (an “Alternative Clearing System”), notices to Noteholders represented by the Global Note Certificate may be given by delivery of the relevant notice to DTC, Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System.

Payment All payments in respect of Notes represented by a Global Note Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where Clearing System Business Day means Monday to Friday inclusive except 25 December and 1 January.

Meetings The holder of the Global Note Certificate will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as having one vote in respect of each U.S.$1,000 in principal amount of Notes represented by the relevant Global Note Certificate.

Trustee’s Powers In considering the interests of Noteholders whilst the Global Note Certificate is held on behalf of a clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Note Certificate and may consider such interests as if such accountholders were the holders of the Global Note Certificate.

Cancellation Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the Global Note Certificate by a record made in the relevant Register.

215 Summary of Provisions of the Notes while in Global Form

Prescription Claims in respect of principal, interest and other amounts payable in respect of the Global Note Certificates will become void unless they are presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest or any other amounts) from the appropriate Relevant Date (as defined in Condition 8).

Enforcement For the purposes of enforcement of the provisions of the Trust Deed against the Trustee, the persons named in a certificate of the holder of the Notes in respect of which the relevant Global Note Certificate is issued shall be recognised as the beneficiaries of the trusts set out in the Trust Deed to the extent of the principal amount of their interest in the Notes set out in the certificate of the holder as if they were themselves the holders of Notes in such principal amounts.

Benefit of the Conditions Unless a Global Note Certificate has been exchanged or cancelled the holder hereof shall, except as provided in the relevant Global Certificate, be entitled to the same rights and benefits and subject to the Conditions as if such holder were the holder of the relevant Individual Note Certificates for which the Global Certificate may be exchanged.

Each Global Note Certificate shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the relevant Registrar.

The Global Note Certificates and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law.

216 TRANSFER RESTRICTIONS

In view of the following restrictions, investors are advised to consult legal counsel prior to making any offer, resale or other transfer of the Notes.

Rule 144A Notes Each purchaser of Rule 144A Notes, by accepting delivery of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is (a) a qualified institutional buyer within the meaning of Rule 144A (a “QIB”) that is also a qualified purchaser as defined in Section 2(a)(51) of the Investment Company Act (“QP”), (b) not a broker-dealer that owns and invests on a discretionary basis less than U.S.$25 million in securities of unaffiliated issuers, (c) not a participant-directed employee plan, such as a 401(k) plan, (d) acquiring such Notes for its own account, or for the account of one or more QIBs each of which is also a QP, (e) not formed for the purpose of investing in the Notes or the Issuer, and (f) aware, and each beneficial owner of such Notes has been advised, that the seller of such Notes to it may be relying on Rule 144A. 2. It will (a) along with each account for which it is purchasing, hold and transfer beneficial interests in the Rule 144A Notes in a principal amount that is not less than U.S.$200,000 (or its equivalent in any other currency) and (b) provide notice of these transfer restrictions to any subsequent transferees. In addition, it understands that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositories. 3. It understands that the Rule 144A Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB that is also a QP purchasing for its own account or for the account of one or more QIBs that are also QPs each of which is purchasing not less than U.S.$200,000 (or its equivalent in any other currency) principal amount of Notes or (b) in an offshore transactions to a person, that is not a U.S. person (within the meaning of Regulation S) in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, and in each case in accordance with any applicable securities laws of any State or other jurisdiction of the United States. 4. It understands that the Issuer has the power under the Trust Deed to compel any beneficial owner of Rule 144A Notes that is not a QIB and also a QP to sell its interest in the Rule 144A Notes, or may sell such interest on behalf of, or purchase such interest from, such owner at a price equal to the least of (x) the purchase price therefor paid by the beneficial owner, (y) 100% of the principal amount thereof or (z) the fair market value thereof. The Issuer has the right to refuse to honour the transfer of an interest in the Rule 144A Notes to a U.S. person who is not a QIB and also a QP. 5. It understands that the Rule 144A Notes, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, will bear a legend to the following effect:

THIS NOTE, THE LOAN IN RESPECT THEREOF AND THE GUARANTEES IN RESPECT OF SUCH LOAN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A “QIB”) THAT IS ALSO A QUALIFIED PURCHASER (A “QP”) WITHIN THE MEANING OF SECTION 2(a)(51) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (THE “INVESTMENT COMPANY ACT”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, AND IN AN AMOUNT FOR EACH ACCOUNT OF NOT LESS THAN U.S.$200,000 (OR ITS EQUIVALENT IN ANY OTHER CURRENCY) PRINCIPAL AMOUNT OF NOTES OR (2) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”), AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES IN RESPECT HEREOF OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.

217 Transfer Restrictions

TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE OR EFFECT, WILL BE VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER OF THIS NOTE, THE TRUSTEE OR ANY INTERMEDIARY. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE.

EACH BENEFICIAL OWNER HEREOF REPRESENTS THAT (1) IT IS A QIB THAT IS ALSO A QP; (2) IT IS NOT A BROKER-DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25,000,000 IN SECURITIES OF UNAFFILIATED ISSUERS; (3) IT IS NOT A PARTICIPANT- DIRECTED EMPLOYEE PLAN, SUCH AS A 401 (k) PLAN; (4) IT IS HOLDING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QIB THAT IS ALSO A QP; (5) IT WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE ISSUER OR THIS NOTE; (6) IT, AND EACH ACCOUNT FOR WHICH IT HOLDS NOTES, WILL HOLD AND TRANSFER AT LEAST U.S.$200,000 (OR ITS EQUIVALENT IN ANY OTHER CURRENCY) IN PRINCIPAL AMOUNT OF NOTES; (7) IT UNDERSTANDS THAT THE ISSUER MAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES AND (8) IT WILL PROVIDE NOTICE OF THE FOREGOING TRANSFER RESTRICTIONS TO ITS SUBSEQUENT TRANSFEREES.

THE BENEFICIAL OWNER HEREOF HEREBY ACKNOWLEDGES THAT, IF AT ANY TIME WHILE IT HOLDS AN INTEREST IN THIS NOTE IT IS A PERSON WHO IS NOT A QIB THAT IS ALSO A QP, THE ISSUER MAY (A) COMPEL IT TO SELL ITS INTEREST IN THIS NOTE TO A PERSON (1) WHO IS ALSO A QIB THAT IS ALSO A QP AND WHO IS OTHERWISE QUALIFIED TO PURCHASE THIS NOTE IN A TRANSACTION EXEMPT FROM OR NOT SUBJECT TO REGISTRATION UNDER THE SECURITIES ACT OR (2) IN AN OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A U.S. PERSON IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S OR (B) COMPEL THE BENEFICIAL OWNER TO SELL ITS INTEREST IN THIS NOTE TO THE ISSUER OR AN AFFILIATE OF THE ISSUER OR TRANSFER ITS INTEREST IN THIS NOTE TO A PERSON DESIGNATED BY OR ACCEPTABLE TO THE ISSUER AT A PRICE EQUAL TO THE LEAST OF (X) THE PURCHASE PRICE THEREFOR PAID BY THE BENEFICIAL OWNER, (Y) 100% OF THE PRINCIPAL AMOUNT THEREOF OR (Z) THE FAIR MARKET VALUE THEREOF. THE ISSUER HAS THE RIGHT TO REFUSE TO HONOUR A TRANSFER OF AN INTEREST IN THIS NOTE TO A PERSON WHO IS NOT A QIB AND ALSO A QP. THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT.

EACH BENEFICIAL OWNER HEREOF OR OF ANY INTEREST HEREIN IS DEEMED TO REPRESENT AND WARRANT THAT FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN (1) IT IS NOT AND IS NOT USING ASSETS OF A BENEFIT PLAN INVESTOR (AS DEFINED IN SECTION 3(42) OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”)), (2) IF IT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR ANY ENTITY WHOSE ASSETS ARE TREATED AS ASSETS OF ANY SUCH PLAN, THE PURCHASE AND HOLDING OF THIS NOTE OR ANY INTEREST HEREIN DOES NOT VIOLATE ANY STATUTE, REGULATION, ADMINISTRATIVE DECISION, POLICY OR ANY OTHER LEGAL AUTHORITY APPLICABLE TO SUCH PLAN AND (3) IT WILL NOT SELL OR OTHERWISE TRANSFER ANY SUCH NOTE OR INTEREST THEREIN TO ANY PERSON WITHOUT FIRST OBTAINING THESE SAME FOREGOING DEEMED REPRESENTATIONS AND WARRANTIES. “BENEFIT PLAN INVESTORS” INCLUDE (1) ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA), THAT IS SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN TO WHICH SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) APPLIES, INCLUDING, WITHOUT LIMITATION, INDIVIDUAL RETIREMENT ACCOUNTS AND KEOGH PLANS (EACH OF (1) AND (2) A “PLAN”), AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN’S INVESTMENT IN THE ENTITY PURSUANT TO THE PLAN ASSET REGULATION ISSUED BY THE UNITED STATES DEPARTMENT OF LABOR, 29 C.F.R. SECTION 2510.3-101, AS MODIFIED BY SECTION 3(42) OF ERISA (INCLUDING, FOR THIS PURPOSE, THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF THE UNDERLYING ASSETS OF WHICH CONSTITUTE “PLAN ASSETS” UNDER SECTION 401(c) OF ERISA, OR A WHOLLY OWNED SUBSIDIARY THEREOF).

218 Transfer Restrictions

THE ISSUER MAY COMPEL EACH BENEFICIAL OWNER HEREOF TO CERTIFY PERIODICALLY THAT SUCH OWNER IS A QIB AND ALSO A QP. 6. It understands and acknowledges that its purchase and holding of such Notes constitutes a representation and agreement by it that, by its purchase and holding of such Notes or any interest therein, the purchaser and/or holder thereof and each transferee will be deemed to have represented therein, that (1) it is not and is not using assets of a Benefit Plan Investor (as defined in Section 3(42) of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (2) if it is a governmental, church or non-U.S. plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or any entity whose assets are treated as assets of any such plan, the purchase and holding of the Notes or any interest therein does not violate any statute, regulation, administrative decision, policy or any other legal authority applicable to such plan, and (3) it will not sell or otherwise transfer any such note or interest therein to any person without first obtaining these same foregoing representations and warranties. “Benefit Plan Investors” include (1) any employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to Part 4 of Title I of ERISA, (2) any plan to which Section 4975 of the United States Internal Revenue Code of 1986, as amended (the “Code”) applies, including, without limitation, individual retirement accounts and Keogh plans (each of (1) and (2) a “Plan”), and (3) any entity whose underlying assets include plan assets by reason of a Plan’s investment in the entity pursuant to the Plan Asset Regulation issued by the United States Department of Labor, 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA (including, for this purpose, the general account of an insurance company, any of the underlying assets of which constitute “plan assets” under section 401(c) of ERISA, or a wholly owned subsidiary thereof). It acknowledges that the Issuer, the Borrower, the Guarantors, the Registrar, the Joint Lead Managers and their respective affiliates, and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements and agrees that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer, the Borrower, the Guarantors and the Joint Lead Managers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts who are QIBs that are also QPs, it represents that it has sole investment discretion with respect to each such account, and that it has full power to make the above acknowledgements, representations and agreements on behalf of each such account.

The purchaser and any fiduciary causing it to acquire an interest in any Notes agrees to indemnify and hold harmless the Issuer, the Joint Lead Managers and the Trustee and their respective affiliates, from and against any cost, damage or loss incurred by any of them as a result of any of the foregoing representations and agreements being or becoming false.

In the event that the Issuer determines that any Note is held by a Benefit Plan Investor, the Issuer may cause a sale or transfer of such Note.

Any purported acquisition or transfer of any Note or beneficial interest therein to an acquirer or transferee that does not comply with the requirements of this paragraph 6 shall be null and void ab initio. 7. It understands that the Rule 144A Notes will be evidenced by the Rule 144A Global Note Certificate. Before any interest in the Rule 144A Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S Notes Each purchaser of Regulation S Notes, by accepting delivery of this Prospectus and the Regulation S Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is, or at the time Regulation S Notes are purchased will be, the beneficial owner of such Regulation S Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Issuer, the Borrower or a person acting on behalf of such an affiliate.

219 Transfer Restrictions

2. It understands that the Regulation S Notes have not been and will not be registered under the Securities Act and that, prior to the expiration of the “distribution compliance period” (as such term is defined in Rule 902 of Regulation S), it will not offer, sell, pledge or otherwise transfer such Notes except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believes is a QIB that is also a QP purchasing for its own account or for the account of a QIB that is also a QP or (b) in an offshore transaction to a person that is not a U.S. person in accordance with Rule 903 or Rule 904 of Regulation S, in the case of (a) and (b), in accordance with any applicable securities laws of any state of the United States. 3. It understands that the Regulation S Notes will be evidenced by the Regulation S Global Note Certificate. Before any interest in the Regulation S Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws. 4. It understands and acknowledges that its purchase and holding of such Notes constitutes a representation and agreement by it that, by its purchase and holding of such Notes or any interest therein, the purchaser and/or holder thereof and each transferee will be deemed to have represented and warranted at the time of its purchase and throughout the period that it holds such Note or any interest therein, that (1) it is not and is not using assets of a Benefit Plan Investor (as defined in Section 3(42) of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (2) if it is a governmental, church or non-U.S. plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or any entity whose assets are treated as assets of any such plan, the purchase and holding of the Notes or any interest therein does not violate any statute, regulation, administrative decision, policy or any other legal authority applicable to such plan, and (3) it will not sell or otherwise transfer any such note or interest therein to any person without first obtaining these same foregoing representations and warranties. “Benefit Plan Investors” include (1) any employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to Part 4 of Title I of ERISA, (2) any plan to which Section 4975 of the United States Internal Revenue Code of 1986, as amended (the “Code”) applies, including, without limitation, individual retirement accounts and Keogh plans (each of (1) and (2) a “Plan”), and (3) any entity whose underlying assets include plan assets by reason of a Plan’s investment in the entity pursuant to the Plan Asset Regulation issued by the United States Department of Labor, 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA (including, for this purpose, the general account of an insurance company, any of the underlying assets of which constitute “plan assets” under section 401(c) of ERISA, or a wholly owned subsidiary thereof). It acknowledges that the Issuer, the Borrower, the Guarantors, the Registrar, the Joint Lead Managers and their affiliates and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements and agrees that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Notes is no longer accurate, it shall promptly notify the Issuer, the Borrower, the Guarantors and the Joint Lead Managers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each of those accounts and that it has full power to make the above acknowledgements, representations and agreements on behalf of each account. The purchaser and any fiduciary causing it to acquire an interest in any Notes agrees to indemnify and hold harmless the Issuer, the Joint Lead Managers and the Trustee and their respective affiliates, from and against any cost, damage or loss incurred by any of them as a result of any of the foregoing representations and agreements being or becoming false. In the event that the Issuer determines that any Note is held by a Benefit Plan Investor, the Issuer may cause a sale or transfer of such Note. Any purported acquisition or transfer of any Note or beneficial interest therein to an acquirer or transferee that does not comply with the requirements of this paragraph 4 shall be null and void ab initio. 5. It understands that the Regulation S Notes, unless otherwise determined by the Issuer in accordance with applicable law, will bear a legend to the following effect: THIS NOTE, THE LOAN IN RESPECT THEREOF AND THE GUARANTEES IN RESPECT OF SUCH LOAN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY

220 Transfer Restrictions

NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO REGISTRATION UNDER THE SECURITIES ACT. EACH BENEFICIAL OWNER HEREOF OR OF ANY INTEREST HEREIN IS DEEMED TO REPRESENT AND WARRANT THAT FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN (1) IT IS NOT AND IS NOT USING ASSETS OF A BENEFIT PLAN INVESTOR (AS DEFINED IN SECTION 3(42) OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”)), (2) IF IT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR ANY ENTITY WHOSE ASSETS ARE TREATED AS ASSETS OF ANY SUCH PLAN, THE PURCHASE AND HOLDING OF THIS NOTE OR ANY INTEREST HEREIN DOES NOT VIOLATE ANY STATUTE, REGULATION, ADMINISTRATIVE DECISION, POLICY OR ANY OTHER LEGAL AUTHORITY APPLICABLE TO SUCH PLAN AND (3) IT WILL NOT SELL OR OTHERWISE TRANSFER ANY SUCH NOTE OR INTEREST THEREIN TO ANY PERSON WITHOUT FIRST OBTAINING THESE SAME FOREGOING DEEMED REPRESENTATIONS AND WARRANTIES. “BENEFIT PLAN INVESTORS” INCLUDE (1) ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA), THAT IS SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN TO WHICH SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) APPLIES, INCLUDING, WITHOUT LIMITATION, INDIVIDUAL RETIREMENT ACCOUNTS AND KEOGH PLANS (EACH OF (1) AND (2) A “PLAN”), AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN’S INVESTMENT IN THE ENTITY PURSUANT TO THE PLAN ASSET REGULATION ISSUED BY THE UNITED STATES DEPARTMENT OF LABOR, 29 C.F.R. SECTION 2510.3-101, AS MODIFIED BY SECTION 3(42) OF ERISA (INCLUDING, FOR THIS PURPOSE, THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF THE UNDERLYING ASSETS OF WHICH CONSTITUTE “PLAN ASSETS” UNDER SECTION 401(c) OF ERISA, OR A WHOLLY OWNED SUBSIDIARY THEREOF).

221 CLEARING AND SETTLEMENT

Book-Entry Procedures for the Global Certificates Custodial and depository links are to be established between Euroclear, Clearstream, Luxembourg and DTC to facilitate the initial issue of the Notes and cross-market transfers of the Notes associated with secondary market trading. See “— Book-Entry Ownership” and “— Settlement and Transfer of Notes”.

Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Investors may hold their interests in the Regulation S Global Note Certificate directly through Euroclear or Clearstream, Luxembourg if they are accountholders (“Direct Participants”) or indirectly (“Indirect Participants” and together with Direct Participants, “Participants”) through organisations which are accountholders therein.

DTC DTC has advised the Issuer as follows: DTC is a limited-purpose trust company organised under the laws of the State of New York, a “banking organisation” under the laws of the State of New York, a member of the U.S. Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants (“DTC Participants”) and facilitate the clearance and settlement of securities transactions between DTC Participants through electronic computerised book-entry changes in accounts of its DTC Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly.

Investors may hold their interests in the Rule 144A Global Note Certificate directly through DTC if they are DTC Participants in the DTC system, or indirectly through organisations which are DTC Participants in such system.

DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more DTC Participants and only in respect of such portion of the aggregate principal amount of the relevant Rule 144A Global Note Certificate as to which such DTC Participant or DTC Participants has or have given such direction.

Book-Entry Ownership Euroclear and Clearstream, Luxembourg The Regulation S Global Note Certificate will have an ISIN and a Common Code and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg.

The address of Euroclear is 1 Boulevard du Roi Albert 11, B-1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F Kennedy, L-1855, Luxembourg.

DTC The Rule 144A Global Note Certificate will have a CUSIP number, an ISIN and a Common Code and will be deposited with a custodian (the “Custodian”) for, and registered in the name of a nominee of, DTC. The

222 Clearing and Settlement

Custodian and DTC will electronically record the principal amount of the Notes held within the DTC system. The address of DTC is 55 Water Street, New York, New York 10041, United States of America.

Relationship of Participants with Clearing Systems Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder of a Note evidenced by a Global Certificate must look solely to Euroclear, Clearstream, Luxembourg or DTC (as the case may be) for his share of each payment made by the Issuer to the holder of such Global Certificate and in relation to all other rights arising under that Global Note Certificate, subject to and in accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or DTC (as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Certificate, the common depositary by whom such Note is held, or nominee in whose name it is registered, will immediately credit the relevant participants’ or accountholders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Global Certificate as shown on the records of the relevant clearing system or its nominee. The Issuer also expects that payments by Direct Participants or DTC Participants (as the case may be) in any clearing system to owners of beneficial interests in such Global Certificate held through such Direct Participants or DTC Participants (as the case may be) in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Certificate and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of such Global Certificate in respect of each amount so paid. None of the Issuer, the Trustee or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Certificate or for maintaining, supervising or reviewing any records relating to such ownership interests.

Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants or DTC Participants (as the case may be), which will receive a credit for such Notes on the clearing system’s records. The ownership interest of each actual purchaser of each such Note (the “Beneficial Owner”) will in turn be recorded on the Direct Participants’, Indirect Participants’ or DTC Participants’ records (as the case may be).

Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant, Indirect Participant or DTC Participant (as the case may be) through which such Beneficial Owner entered into the transaction.

Transfers of ownership interests in Notes held within the clearing system will be affected by entries made on the books of Direct Participants, Indirect Participants or DTC Participants (as the case may be) acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Certificate held within a clearing system are exchanged for Individual Note Certificates.

No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the Direct Participants or DTC Participants (as the case may be) to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct Participants or the DTC Participants (as the case may be) will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants or DTC Participants (as the case may be), by Direct Participants to Indirect Participants, and by Direct Participants, Indirect Participants or DTC Participants (as the case may be) to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in the Global Certificates to such persons may be limited. In particular, because DTC can only act on behalf of DTC Participants the ability of a person having an interest

223 Clearing and Settlement in the Rule 144A Global Note Certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.

Trading between Euroclear and/or Clearstream, Luxembourg Participants Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional Eurobonds.

Trading between DTC Participants Secondary market sales of book-entry interests in the Notes between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to U.S. corporate debt obligations in DTC’s Same-Day Funds Settlement system in same-day funds, if payment is effected in U.S. dollars, or free of payment, if payment is not effected in U.S. dollars. Where payment is not effected in U.S. dollars, separate payment arrangements outside DTC, are required to be made between DTC Participants.

Trading between DTC Seller and Euroclear/Clearstream, Luxembourg Purchaser When book-entry interests in Notes are to be transferred from the account of a DTC Participant holding a beneficial interest in the Rule 144A Global Note Certificate to the account of a Euroclear or Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in the Regulation S Global Note Certificate (subject to the certification procedures provided in the Agency Agreement), the DTC Participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12:00 p.m., New York time, on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg Participant. On the settlement date, the custodian of the Rule 144A Global Note Certificate will instruct the Registrar to (1) decrease the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate of the relevant class and (2) increase the amount of Notes registered in the name of the nominee of the common depository for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate. Book-entry interests will be delivered free of payment to Euroclear or Clearstream, Luxembourg, as the case may be, for credit to the relevant accountholder on the first business day following the settlement date.

Trading between Euroclear/Clearstream, Luxembourg Seller and DTC Purchaser When book-entry interests in the Notes are to be transferred from the account of a Euroclear or Clearstream, Luxembourg accountholder to the account of a DTC Participant wishing to purchase a beneficial interest in the Rule 144A Global Note Certificate (subject to the certification procedures provided in the Agency Agreement), the Euroclear or Clearstream, Luxembourg participant must send to Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7:45 p.m., Brussels or Luxembourg time, one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will in turn transmit appropriate instructions to the common depository for Euroclear and Clearstream, Luxembourg and the Registrar to arrange delivery to the DTC Participant on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg accountholder, as the case may be. On the settlement date, the common depositary for Euroclear and Clearstream, Luxembourg will (a) transmit appropriate instructions to the custodian of the Rule 144A Global Note Certificate who will in turn deliver such book-entry interests in the Notes free of payment to the relevant account of the DTC Participant and (b) instruct the Registrar to (1) decrease the amount of Notes registered in the name of the nominee of the common depository for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate; and (2) increase the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate.

Although Euroclear, Clearstream, Luxembourg and DTC have agreed to the foregoing procedures in order to facilitate transfers of beneficial interest in Global Certificates among participants and accountholders of Euroclear, Clearstream, Luxembourg and DTC, they are under no obligation to perform or continue to perform

224 Clearing and Settlement such procedure, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or any Agent will have the responsibility for the performance, by Euroclear, Clearstream, Luxembourg or DTC or their respective Direct Participants, Indirect Participants or DTC Participants, as the case may be, of their respective obligations under the rules and procedures governing their operations.

Pre-issue Trades Settlement It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which could be more than three business days following the date of pricing. Settlement procedures in different countries will vary. Purchasers of Notes may be affected by such local settlement practices, and purchasers of Notes between the relevant date of pricing and the Closing Date should consult their own advisors.

225 SUBSCRIPTION AND SALE

Each of Citigroup Global Markets Limited, Deutsche Bank AG, London Branch and J.P. Morgan Securities plc (together the “Joint Lead Managers”) have severally and not jointly, nor jointly and severally, agreed, subject to the satisfaction of the terms and conditions of a subscription agreement dated 28 March 2013 (the “Subscription Agreement”), by and among the Issuer, the Joint Lead Managers and the Borrower, to subscribe and pay for the Notes at the issue price of 100% of the principal amount of the Notes in the following amounts:

Joint Lead Manager Principal Amount of Notes (U.S.$) Citigroup Global Markets Limited ...... 166,800,000 Deutsche Bank AG, London Branch ...... 166,600,000 J.P. Morgan Securities plc ...... 166,600,000

The Subscription Agreement provides that the obligation of the Joint Lead Managers to purchase the Notes is subject to the satisfaction of certain conditions, including, among other things, the delivery of legal opinions by legal counsel and tax opinions by tax advisers. In connection with the offering of the Notes, the Borrower has agreed to pay management, underwriting and selling commissions to the Joint Lead Managers and to reimburse certain of their expenses related to the offering of the Notes. See “Use of Proceeds”. The Borrower, the Initial Loan Guarantors and the Issuer have agreed to indemnify the Joint Lead Managers against certain liabilities incurred in connection with the issue of the Notes. The Joint Lead Managers are entitled to be released and discharged from their obligations under the Subscription Agreement in certain circumstances prior to the closing of the issue of the Notes.

The Joint Lead Managers and their respective affiliates have performed and expect to perform in the future various financial advisory, investment banking and commercial banking services for, and may arrange loans and other non-public market financing for, and enter into derivative transactions with, the Borrower and its affiliates (including its shareholders). The proceeds of the Offering shall be used by the Issuer to provide as Loan to the Borrower. The Borrower will use the proceeds of the Loan to refinance existing indebtedness. See “Use of Proceeds”.

The Joint Lead Managers shall make any offers and sales into the United States, to the extent necessary, through their U.S. registered broker-dealer affiliates.

Selling Restrictions United States of America The Notes, the Loan and the Loan Guarantees have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act.

Each Joint Lead Manager has agreed, severally and not jointly, that, except as permitted by the Subscription Agreement, it will not offer or sell the Notes (1) as part of its distribution at any time or (2) otherwise until 40 days after completion of the distribution compliance period within the United States to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes (other than a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S.

Each Joint Lead Manager has agreed, severally and not jointly, that neither it nor any of its affiliates (as defined in Rule 501(b) of Regulation D, nor any person acting on its or their behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer and sale of the Notes in the United States. The Joint Lead Managers only may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of the Notes in the United States only to QIBs in accordance with Rule 144A.

The Notes are being offered and sold outside of the United States in reliance on Regulation S. The Subscription Agreement provides that the Joint Lead Managers may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of Notes in the United States only to persons whom they reasonably believe are QIBs that are also QPs who can represent that (a) they are QPs who are QIBs within the meaning of Rule 144A; (b) they are not broker-dealers that own and invest on a discretionary basis less than U.S.$25 million in securities of unaffiliated issuers; (c) they are not participant directed employee plans, such as a 401(k) plan;

226 Subscription and Sale

(d) they are acting for their own account, or the account of one or more QIBs each of which is also a QP; (e) they are not formed for the purpose of investing in the Issuer or the Notes; (f) each account for which they are purchasing will hold and transfer at least U.S.$200,000 (or its equivalent in any other currency) in principal amount of Notes at any time; (g) they understand that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositaries; and (h) they will provide notice of the transfer restrictions set forth in this Prospectus to any subsequent transferees.

In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of Notes within the United States by a dealer that is participating in the Offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.

The Issuer and the Joint Lead Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Prospectus does not constitute an offer to any person in the United States or to any U.S. person other than any QIB who is also a QP and to whom an offer has been made directly by one of the Joint Lead Managers or its U.S. broker-affiliate. Distribution of this Prospectus by any non-U.S. person outside the United States or by any QIB who is also a QP within the United States to any U.S. person or any person within the United States other than any QIB who is also a QP, and those persons, if any, retained to advise such person outside the United States or QIB who is also a QP with respect thereto, is unauthorised and any disclosure without the prior written consent of the Issuer of any of its contents to any such U.S. person or any person within the United States other than any QIB who is also a QP and those persons, if any, retained to advise such non-U.S. person outside the United States or QIB who is also a QP, is prohibited.

United Kingdom Each Joint Lead Manager has severally represented, warranted and agreed that: (a) Financial promotion: it has only communicated or caused to be communicated, and will only communicate or cause to be communicated, any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”) received by it in connection with the issue or sale of any Notes in circumstances in which section 21 (1) of the FSMA does not apply to the Issuer; and (b) General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.

Russian Federation Each of the Joint Lead Managers has severally represented and agreed that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian law.

Hong Kong Each of the Joint Lead Managers has represented and agreed that: (i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the Prospectus being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and (ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to Persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

227 Subscription and Sale

Singapore Each Joint Lead Manager has acknowledged that the Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Joint Lead Manager has represented that it has not offered or sold any Notes or caused such Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell such any Notes or cause such Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Notes, whether directly or indirectly, to Persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant Person pursuant to Section 275(1), or any Person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of any Notes may not be circulated or distributed, nor may any Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where Notes are subscribed or purchased under Section 275 of the SFA by a relevant Person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor or to a relevant Person defined in Section 275(2) of the SFA, or to any Person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; or (iv) as specified in Section 276(7) of the SFA.

Switzerland This document is not intended to constitute an offer or solicitation to purchase or invest in the Notes described herein. The Notes may not be publicly offered, sold or advertised, directly or indirectly, in, into or from Switzerland and will not be listed on the SIX Swiss Exchange or on any other exchange or regulated trading facility in Switzerland. Neither this Prospectus nor any offering or marketing material relating to the Notes constitutes a prospectus as such term is understood pursuant to article 652a or article 1156 of the Swiss Code of Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange or any other regulated trading facility in Switzerland or a simplified prospectus or a prospectus as such term is defined in the Swiss Collective Investment Scheme Act, and neither this Prospectus nor any other offering or marketing material relating to the Notes may be publicly distributed or otherwise made publicly available in Switzerland. Neither this Prospectus nor any other offering or marketing material relating to the offering nor the Issuer, nor OAO TMK nor the Notes have been or will be filed with or approved by any Swiss regulatory authority. The Notes are not subject to the supervision by any Swiss regulatory authority, e.g., Swiss Financial Markets Supervisory Authority FINMA (“FINMA”), and investors in the Notes will not benefit from protection or supervision by such authority.

228 Subscription and Sale

General Each Joint Lead Manager has agreed that it has, to the best of its knowledge and belief, complied and will comply in all material respects with applicable laws and regulations in each jurisdiction in which they offer, sell or deliver Notes or distribute this Prospectus (and any amendments thereof and supplements thereto) or any other offering or publicity material relating to the Notes, the Issuer, the Borrower or any Loan Guarantor.

No action has been taken, in any jurisdiction, by the Issuer, the Borrower, any Loan Guarantor or any of the Joint Lead Managers that would, or is intended to, permit a public offer of the Notes or possession or distribution of the Prospectus or any other offering or publicity material relating to the Notes in any country or jurisdiction where any such action for that purpose is required. Accordingly, each Joint Lead Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or have in its possession, distribute or publish any prospectus, offering circular, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of the Notes by it will be made on the same terms.

Persons into whose possession this Prospectus comes are required by the Issuer, the Borrower, the Loan Guarantors and the Joint Lead Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or have in their possession, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense.

229 TAXATION OF THE NOTES, LOAN AND GUARANTEES

Prospective purchasers of the Notes are advised to consult their own tax advisers as to the consequences under the tax laws of the country of which they are residents of a purchase of Notes, including, but not limited to, the consequences of receipt of interest and sale or redemption of the Notes. The following is a general description of certain tax laws relating to the Notes, the Loan and the Loan Guarantees as in effect on the date hereof and does not purport to be a comprehensive discussion of the tax treatment of the Notes.

Russian Federation General The following is a summary of certain Russian tax considerations relevant to the purchase, ownership and disposition of the Notes as well as taxation of interest and some other payments on the Loan. The summary is based on the laws of the Russian Federation in effect on the date of this Prospectus (whereas they are subject to changes which could occur frequently and at short notice and could apply retrospectively). The information and analysis contained within this section are limited to tax issues, and prospective investors should not apply any information or analysis set out below to other areas, including (but not limited to) the legality of transactions involving the Notes. The summary does not seek to address the applicability of, or procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of Russia, nor does it seek to address the availability and eligibility of double tax treaty relief in respect of income payable on the Notes, or practical difficulties connected with claiming such double tax treaty relief.

Prospective investors should consult their own tax advisors regarding the tax consequences of investing in the Notes that may arise in their own particular circumstances. No representation with respect to the Russian tax consequences to any particular Noteholder is made hereby.

Many aspects of Russian tax laws and regulations are subject to significant uncertainty and lack of interpretive guidance resulting in inconsistent interpretations and application thereon by the various authorities in practice. Further, the substantive provisions of Russian tax laws and regulations applicable to financial instruments may be subject to more rapid and unpredictable changes (possibly with the retroactive effect) and inconsistent interpretations as compared to the jurisdictions with more developed capital markets and tax systems. For the purposes of this summary, the term “Resident Noteholder” means:

• a Russian legal entity or an organization which acquires, holds and disposes of the Notes, and a legal entity or an organization, in each case organized under a non-Russian law, which acquires, holds and disposes of the Notes through its permanent establishment in Russia the (“Resident Noteholder — Legal Entity”); or • a Noteholder who is an individual and satisfies the criteria for being a Russian tax resident. A “Russian tax resident” is an individual who is actually present in Russia for an aggregate period of 183 calendar days or more in any period comprised of 12 consecutive months, who acquires, holds and disposes of the Notes (the “Resident Noteholder — Individual”).

For the purposes of this summary, the term “Non-Resident Noteholder” means:

• a Noteholder who is an individual and does not satisfy the criteria for being a Russian tax resident as defined above (the “Non-Resident Noteholder — Individual”), or • a legal entity or an organisation in each case not organised under Russian law which acquires holds and disposes of the Notes otherwise than through a permanent establishment in Russia (the “Non-Resident Noteholder — Legal Entity”).

Presence in Russia is not considered interrupted if an individual departs for short periods (less than six months) for medical treatment or education purposes.

For the purposes of this summary, the definitions of “Russian Resident Noteholder” and “Non-Resident Noteholder” are taken at face value based on the wording of the tax law as currently written. In practice, however, the application of the above formal residency definition by the tax authorities may differ depending on the position. The law is currently worded in a way that implies the potential for a split year residency for individuals. However both the Russian Ministry of Finance and the tax authorities have expressed the view that an individual should be either resident or non-resident in Russia for the full year. Consequently if the travel pattern dictates differing residency status for a part of the tax year, the application of the residency tax rate may in practice be disallowed. This situation may be altered by amendments to the Russian Tax Code dealing with taxation of individuals, a change in the position of the tax authorities or by outcomes of tax controversy through the courts.

230 Taxation of the Notes, Loan and Guarantees

Tax residency rules and Russia’s rights with regard to taxation rights may be affected by an applicable double tax treaty.

The Russian tax treatment of interest payments made by the Borrower to the Issuer (or to the Trustee, as the case may be) under the Loan Agreement may affect the Noteholders. See “— Taxation of Interest on the Loan” below.

Taxation of the Notes Non-Resident Noteholders Taxation of Non-Resident Noteholders — Legal Entities Acquisition of the Notes Acquisition of the Notes by the Non-Resident Noteholders — Legal Entities (whether upon their issue or in the secondary market) should not constitute a taxable event under the Russian tax law. Consequently, the acquisition of the Notes should not trigger any adverse Russian tax implications for the Non-Resident Noteholders — Legal Entities.

Sale or Other Disposition of the Notes In the event that proceeds from sale or other disposition of the Notes are received by a Non-Resident Noteholder — Legal Entity from a source within Russia, a Non-Resident Noteholder — Legal Entity should not be subject to any Russian tax on any gain on sale or other disposition of the Notes. Historically there was some uncertainty regarding the tax treatment of the portion of the sales or disposition proceeds, if any, attributable to the accrued interest on the Notes. The risk of withholding tax was substantially mitigated by the changes to the Russian Tax Code (introduced by the Law No. 97-FZ which applies retrospectively starting from 1 January 2007).

Non-resident Noteholder — Legal Entities should consult their own tax advisers with respect to the details and risks associated with this possibility.

Redemption of the Notes The Non-Resident Noteholders — Legal Entities should not generally be subject to any Russian taxes in respect of repayment of principal on the Notes received from the Issuer.

Taxation of Non-Resident Noteholders — Individuals Acquisition of the Notes Acquisition of the Notes by the Non-Resident Noteholders — Individuals may constitute a taxable event for Russian personal income tax purposes pursuant to provisions of the Russian Tax Code relating to the material benefit (deemed income) received by individuals as a result of acquisition of securities. In particular, if the acquisition price of the Notes is below the lower margin of the fair market value of the Notes calculated under a specific procedure for the determination of market prices of securities for Russian personal income tax purposes, the difference between the actual price and such lower margin may become subject to Russian personal income tax at the rate of 30% (or such other tax rate as may be effective at the time of acquisition), which is, arguably, subject to reduction or elimination under the applicable double tax treaty. Under the Russian tax legislation, taxation of income of Non-Resident Noteholders — Individuals will depend on whether this income is received from Russian or non-Russian sources. Although the Russian Tax Code does not contain any provisions in relation to how the related material benefit should be sourced, the tax authorities may infer that such income should be considered as Russian source income, if the Notes are purchased “in Russia”. In the absence of any additional guidance as to what should be considered as a purchase of securities “in Russia”, the Russian tax authorities may apply various criteria in order to determine the source of the related material benefit, including looking at the place of conclusion of acquisition transaction, the location of the Issuer, or other similar criteria. There is no assurance therefore that as a result any material benefit received by the Non-Resident Noteholders — Individuals in connection with the acquisition of the Notes will not become taxed in Russia.

231 Taxation of the Notes, Loan and Guarantees

Disposition of the Notes Subject to any available tax treaty relief, any proceeds from disposition of the Notes (qualifying as income from Russian sources for Russian personal income tax purposes) by a Non-Resident Noteholder — Individual will be subject to Russian personal income tax at the rate of 30% (or such other tax rate as may be effective at the time of payment). Since the Russian Tax Code does not contain any additional guidance as to when the sales or disposition proceeds should be deemed to be received from Russian sources, in practice the Russian tax authorities may infer that such income should be considered as Russian source income if the Notes are sold or disposed “in Russia”. In absence of any additional guidance as to what should be considered as a sale or other disposition of securities “in Russia”, the Russian tax authorities may apply various criteria in order to determine the source of the sale or other disposition, including looking at the place of conclusion of the transaction, the location of the Issuer, or other similar criteria. There is no assurance therefore that as a result sales or disposition proceeds received by the Non-Resident Noteholders — Individuals will not become taxed in Russia. The tax will apply to the gross amount of sales proceeds received upon disposition of the Notes (including accrued and paid interest on the Notes) decreased by the amount of any available duly documented cost deductions (including the original purchase value of the Notes and other documented expenses related to the acquisition, holding and disposition of the Notes) provided that such documentation is duly executed and is available to the person obliging to calculate and withhold the tax in a timely manner. There is a risk that, if the documentation supporting the cost deductions is deemed insufficient by the Russian tax authorities or the person remitting the respective income to the Non-Resident Noteholders — Individuals (where such person is considered the tax agent obliging to calculate and withhold Russian personal income tax and remit it to the Russian tax authorities), the deduction will be disallowed and the tax will apply to the gross amount of sales proceeds.

In certain circumstances if sales proceeds are paid to a Non-Resident Noteholder — Individual by a licensed broker or an asset manager that is a Russian legal entity or organisation, who carries out operations under an asset management agreement, a brokerage agreement, an agency agreement, a commission agreement or a commercial mandate agreement for the benefit of the Non-Resident Noteholder — Individual, the applicable personal income tax at the rate of 30% (or such other tax rate as may be in force at the time of payment) should be withheld at source by such person who will be considered as the tax agent.

When a sale is made to other legal entities, organisations or individuals (other than licensed brokers and asset managers mentioned in the preceding paragraph), generally no Russian personal income tax should be withheld at source by these persons. The Non-Resident Noteholder — Individual will be required to file a tax return individually, report on the amount of income realized to the Russian tax authorities and apply for a deduction in the amount of the acquisition and other expenses related to the acquisition, holding and sale of the Notes, confirmed by the supporting documentation. The applicable tax will then have to be paid by the Non-Resident Noteholder — Individual on the basis of the filed personal income tax return.

Under certain circumstances gains received and losses incurred by a Non-Resident Noteholder — Individual as a result of disposition of the Notes and other securities occurring within the same year may be aggregated which would affect the total amount of tax payable by the Non-Resident Noteholder — Individual in Russia.

Any gain derived by a Non-Resident Noteholder — Individual from the disposition of the Notes may be affected by changes in the exchange rate between the currency of acquisition of the Notes, the currency of disposition of the Notes and rubles.

Tax Treaty Relief Russia has concluded double tax treaties with a number of countries and honours some double tax treaties concluded by the former Union of Soviet Socialist Republics. These double tax treaties may contain provisions that allow to reduce or to eliminate Russian tax due with respect to income received by Non-Resident Noteholders from Russian sources, including income relating to disposition of the Notes. In order to obtain the benefit available under the respective double tax treaty, a Non-Resident Noteholder must comply with the certification, information, and reporting requirements which are in force in Russia (relating, in particular, to the confirmation of the entitlement and eligibility for treaty benefits).

Under Russian domestic tax legislation in order to enjoy benefits of the respective double tax treaty a Non- Resident Noteholder — Individual must provide the Russian tax authorities with a tax residency certificate issued by the competent authorities in his/her country of residence for tax purposes and a confirmation from the relevant foreign tax authorities of income received and the tax paid outside Russia in relation to income with respect to

232 Taxation of the Notes, Loan and Guarantees which treaty benefits are claimed. Such requirements may be imposed even if they directly contradict provisions of the applicable double tax treaty. Technically, these requirements mean that a Non-Resident Noteholder — Individual cannot rely on the tax treaty until he or she pays the tax in the jurisdiction of his or her tax residency. Individuals in practice would not be able to obtain the advance treaty relief in relation to income derived from Russian sources, as it is unlikely that the supporting documentation required for the treaty relief can be provided to the Russian tax authorities and, consequently, approval from the latter could be obtained, before the receipt of income by a Non-Resident Noteholder — Individual occurs.

Non-Resident Noteholders should consult their own tax advisors regarding possible tax treaty relief and procedures for obtaining such relief with respect to any Russian taxes imposed in respect of proceeds received upon a disposition of the Notes.

Refund of Tax Withheld If Russian withholding tax on income derived from Russian sources by a Non-Resident Noteholder — Legal Entity was withheld at source, despite the domestic release of such income from Russian withholding tax, a claim for a refund of the tax that was excessively withheld at source can be filed by that Non-Resident Noteholder — Legal Entity with the Russian tax authorities within three years following the year in which the tax was withheld, provided that such Non-Resident Noteholder — Legal Entity is entitled to the benefits of the applicable double tax treaty allowing it not to pay the tax or allowing it to pay the tax at a reduced tax rate in relation to such income. There is no assurance that such refund will be available in practice.

If Russian personal income tax on income derived from Russian sources by a Non-Resident Noteholder — Individual was withheld at source and the Non-Resident Noteholder — Individual has a right to rely on benefits of the applicable double tax treaty allowing not to pay the tax in Russia or allowing to pay the tax at a reduced rate in relation to such income, a claim for application of the benefits of the applicable double tax treaty may be filed with the Russian tax authorities together with the supporting documents envisaged by this double tax treaty confirming the right of the Non-Resident Noteholder — Individual to such benefits within one year following the year in which the tax was withheld. Provided that such claim has been made in a timely manner, an application for a refund of Russian personal tax which was excessively withheld at source may be filed with the tax agent within three years following the date when the tax was withheld/paid. In the absence of the tax agent who withheld the Russian personal income tax under consideration, e.g. when the tax has been paid on the basis of the tax return, such an application for a refund may be filed with the Russian tax authorities within the same period (three years) accompanied by the Russian tax return from the date when the tax was paid provided a claim for application of the benefits of the applicable double tax treaty has been made in a timely manner. There can be no assurance that the tax agent and/or the tax authorities will refund this tax in practice.

Although the Russian Tax Code arguably contains an exhaustive list of documents and information which have to be provided by the foreign person to the Russian tax authorities for the tax refund purposes, the Russian tax authorities may, in practice, require a wide variety of documentation confirming the right of a Non-Resident Noteholder to obtain tax relief available under the applicable double tax treaty. Such documentation may not be explicitly required by the Russian Tax Code and may to a large extent depend on the position of local tax inspectorates.

Obtaining a refund of Russian personal income taxes which were excessively withheld at source is likely to be a time consuming process requiring many efforts and no assurance can be given that such refund will be granted to the Non-Resident Noteholders in practice.

Resident Noteholders Resident Noteholders will be subject to all applicable Russian taxes in respect of income realized by them in connection with acquisition, ownership and/or disposition of the Notes and interest received on the Notes.

Resident Noteholders should consult their own tax advisers with respect to the effect that acquisition, ownership and/or disposition of the Notes may have on their tax position.

Taxation of Interest on the Loan In general, payments of interest on borrowed funds made by a Russian entity to a non-resident legal entity or organization having no registered presence and/or no permanent establishment in Russia are subject to Russian

233 Taxation of the Notes, Loan and Guarantees withholding tax at the rate of 20%, which could be potentially reduced or eliminated under the terms of an applicable double tax treaty subject to timely compliance with the respective treaty clearance formalities by the interest income recipient.

In particular, the Russia-Luxembourg double tax treaty establishes that Russian withholding tax could be eliminated provided certain criteria specified in the treaty are satisfied by the recipient of income.

The application of the tax benefits under the Russia-Luxembourg double tax treaty could be affected by changes in the interpretation by the Russian tax authorities of the concept of factual/beneficial owner of income. Specifically, on 30 December 2011 the Russian Ministry of Finance issued letter No. 03-08-13/1 (the “Letter”) addressed to the Federal Tax Service, in which the Ministry of Finance asserted that in the context of a specific eurobond structure, which is different from the structure of the transaction described in this Prospectus, a foreign issuer of eurobonds cannot benefit from the provisions of the Russia-Ireland double tax treaty in respect of interest paid by the Russian borrower because, in the view of the Ministry, such foreign issuer of eurobonds may not be considered as the beneficial owner of interest income. Conversely, the Letter says that holders of the notes could apply the provisions of the respective tax treaty (if any) concluded between Russia and the country of residency of each holder of the notes. We cannot exclude the possibility that the Russian tax authorities might apply the same approach to the payments made under the structure described in this Prospectus.

Notwithstanding anything to the contrary above, no withholding tax should arise in Eurobond structures by virtue of the exemption envisaged by the Law No. 97-FZ. The Law No. 97-FZ provides that Russian borrowers should be fully released from the obligation to withhold tax from interest and other payments made to foreign entities provided that the following conditions are all met: (1) interest is paid on debt obligations of Russian entities that arose in connection with the placement by foreign entities of “issued bonds,” which are defined as bonds or other debt obligations (a) listed and/or admitted to trading on one of the specified foreign exchanges and/or (b) that have been registered in foreign depository/clearing organisations; The lists of qualifying foreign exchanges and foreign depositary/clearing organizations were approved by the Order No. 12-91/pz-n dated 25 October 2012 of the Federal Financial Markets Service of the Russian Federation which came into force on 30 December 2012. Before the adoption of the above-mentioned lists, any foreign exchanges or foreign depositary/clearing organizations could have qualified for the purposes of the test mentioned above. The Irish Stock Exchange and clearing systems Clearstream, Luxembourg and Euroclear are included in the above-mentioned lists. DTC is not expressly mentioned in the lists as opposed to its holding company, the Depository Trust & Clearing Corporation. We believe that the aforementioned conditions provided by the Law No. 97-FZ are satisfied because, among other things, the Rule 144A Global Notes, if any, will be deposited with Deutsche Bank Trust Company Americas as custodian for DTC, and Deutsche Bank Trust Company Americas is included in the lists. The connection between the loan and the issued bonds needs to be evident and supported with certain documents, which are set forth in the Law No. 97-FZ. (2) there is a double tax treaty between Russia and the jurisdiction of tax residence of the Loan interest income recipient (i.e., the Issuer) which can be confirmed by a tax residency certificate.

The release from the obligation to withhold tax from interest and other payments described herein will apply retrospectively to income paid since 2007 and will continue to be available in respect of “issued bonds” that are issued before 1 January 2014.

Based on professional advice, we believe that it should be possible to satisfy conditions established by the Law No. 97-FZ and obtain a release from the obligation to withhold tax from payments of interest and certain other amounts, as the case may be, on the Loan by TMK to the Issuer, which satisfies the conditions set forth above.

Importantly, the Law No. 97-FZ does not provide exemption to the foreign interest income recipients from Russian withholding tax, although currently there is no requirement in the Russian tax legislation for the foreign income recipients being the legal entities to self-assess and pay the tax to the Russian tax authorities. The Ministry of Finance acknowledged in its information letter published on its website that the release from obligation to act as a tax agent means, in effect, that tax at source within Russia should not arise in connection

234 Taxation of the Notes, Loan and Guarantees with eurobonds, since there is neither a mechanism nor obligation for a non-resident to independently calculate and pay such tax. However, there can be no assurance that such rules will not be introduced in the future or that the tax authorities would not make attempts to collect the tax from the foreign income recipients, including the Issuer or the Noteholders.

If interest under the Loan becomes payable to the Trustee pursuant to the Trust Deed, there is some residual uncertainty whether the release from the obligation to withhold tax under the Law No. 97-FZ is available to the Trustee. There is a potential risk that Russian withholding tax in respect of payments of interest and some other amounts to the Trustee at the rate of 20% (or such other tax rate as may be effective at the time of payment), or Russian personal income tax at the rate of 30% (or such other tax rate that may be effective at the time of payment) may be deducted by TMK upon making such payments to the Trustee. It is not expected that the Trustee will, or will be able to, claim a Russian withholding tax exemption or reduction under any applicable double tax treaty under such circumstances.

In addition, while some of the Noteholders that are persons not residing in Russia for tax purposes might be eligible for the exemption from or the reduction of Russian withholding tax rate or Russian personal income tax rate, as the case may be, under the applicable double tax treaties entered into between their countries of tax residence and Russia, where such treaties exist and to the extent they are applicable and could be relied upon by these Noteholders, there is no assurance that such exemption or reduction will be available to them in practice under these circumstances.

If any payments under the Loan become subject to Russian withholding tax (as a result of which the Issuer will be required to reduce payments made by it under the Notes by the amount of such withholding tax), TMK is obliged (subject to certain conditions) to increase payments made by it under the Loan as may be necessary so that the net payments received by the Issuer and the Noteholders will be equal to the amounts they would have received in the absence of such withholding tax. It is currently unclear whether the provisions obliging TMK to gross-up payments payable under the Loan will be enforceable under Russian law. There is a risk that gross-up for Russian withholding tax will not take place and that any payments made by TMK under the Loan will be reduced by the amount of the Russian income tax or Russian personal income tax withheld at source. If TMK is obliged to increase any payments payable under the Loan or to make additional payments on the Loan as described above, it may (without premium or penalty), subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes will each be redeemable at par together with accrued and unpaid interest and additional amounts, if any, to the date of redemption.

No Russian value added tax will be payable in Russia in respect of interest and principal payments under the Loan.

Taxation of Payments under the Loan Guarantees Russian tax legislation in respect of withholding tax on guarantee payments to non-residents is unclear. Non- Resident Noteholder should consult their own tax advisors with respect to the tax consequences of the receipt of any payments under the Loan Guarantees, including applicability of any available double tax treaty relief.

In general, no withholding tax obligations should arise upon making payments under the Deed of Loan Guarantee by the Loan Guarantors to Non-Resident Noteholders — Legal Entities (e.g. in case of enforcement following an event of default) or the Issuer by virtue of the exemption envisaged by Law 97-FZ.

The Law 97-FZ provides that Russian companies which make payments in favour of foreign legal entities upon the execution of the guarantee or suretyship should be fully released from the obligation to withhold tax from such payments provided that the following conditions are all met:

(1) payments under a guarantee or suretyship relate to the “issued bonds” placed by a foreign entity in order to fund a debt to a Russian entity, where “issued bonds” are defined as bonds or other debt obligations (a) listed and/or admitted to trading on one of the specified foreign exchanges and/or (b) that have been registered in foreign depository/clearing organizations;

(2) there is a double tax treaty between Russia and the jurisdiction of tax residence of income recipient (i.e. the Issuer or the respective Noteholder) which can be confirmed by a tax residency certificate.

See “Taxation of Interest on the Loan” above for further detail related to application of an exemption envisaged by the Law 97-FZ.

235 Taxation of the Notes, Loan and Guarantees

It should be noted that there can be no assurance that the Russian withholding tax would not be imposed on the payments made under the Trust Deed or the Loan Guarantees to the Non-Resident Noteholders — Legal Entities not residing for tax purposes in countries which have concluded a double tax treaty with Russia. In such case there is a risk that Russian withholding tax would be imposed on the full amount of the Loan Guarantee payment, including the principal amount of the Notes. Since the above could only be relevant in case of payments made in favour of the Non-Resident Noteholders — Legal Entities residing for tax purposes in countries which does not have a double tax treaty with Russia, reduction or elimination of 20 %. Russian withholding tax on the basis of the double tax treaties under such circumstances should not be possible.

If payments under the Trust Deed or the Deed of Loan Guarantee to a Non-Resident Noteholder — Individual performed by the Loan Guarantors are viewed as Russian-source income, they may be subject to Russian tax regardless of whether payment is made in monetary form or in kind. In this case, depending on how these payments would be effected, either the full amount of payments, or a part of such payments covering the interest on the Notes, would be subject to a 30% tax, which may be payable on a self-assessed basis or withheld at source. This tax may be subject to relief under the terms of an applicable double tax treaty. The treaty relief and refund procedures should generally be similar to the tax relief and refund procedures described above with respect to proceeds from disposition of the Notes.

If payments under the Trust Deed or the Deed of Loan Guarantee are subject to any Russian withholding tax as a result of which the Issuer would have reduced payments under the Notes and the Loan Guarantees by the amount of such withholding tax, the Loan Guarantors will be obliged, subject to certain conditions, pay increased amounts of principal, interest or other payments due thereunder as may be necessary, so that Noteholders receive net payments equal to those that they would have received in the absence of such withholding. It is currently unclear whether the provisions obliging the Loan Guarantors to gross-up payments under the Deed of Loan Guarantee will be enforceable under the Russian laws. There is a risk that gross-up for withholding tax will not take place and that the payments made by the Loan Guarantors under the Deed of Loan Guarantee will be reduced by the amount of the Russian income tax withheld by the Loan Guarantors at the rate of 20% (in the case of Non-resident Noteholders — Legal Entities) or at a rate of 30 % (in the case of Non-resident Noteholders — Individuals), or such other rate as may be in force at the time of payment. See “Risk Factors — Risks Relating to the Notes and the Trading Market — Payments we make under the Loan or the Loan Guarantees may be subject to Russian withholding tax”.

No Russian value added tax should be payable in Russia in respect of payments under the Trust Deed or the Deed of Loan Guarantee, as the case may be, representing principal or interest on the Loan.

Luxembourg Taxation The following is a general description of certain Luxembourg tax considerations relating to the Notes. It has been included for information purposes only and does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in Luxembourg or elsewhere, relevant to the purchase of the Notes. This summary does not take into consideration the specific circumstances of the investors. Prospective purchasers of the Notes should consult their own tax advisers as to which countries’ tax laws could be relevant to acquiring, holding and disposing of the Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of Luxembourg. This summary is based upon the law, regulations and administrative and judicial interpretations that are in effect as at the date of this Prospectus. The information contained within this section is limited to Luxembourg taxation issues related to the Notes, and prospective investors should not apply any information set out below to other areas, including (but not limited to) the legality of transactions involving the Notes.

Any reference in this present section (“Taxation on the Notes, Loan and Guarantees — Luxembourg Taxation”) to a tax, duty, levy, or other charge or withholding of a similar nature refers only to Luxembourg tax law and/or concepts under Luxembourg tax laws and practices. Also, please note that a reference to Luxembourg income tax generally encompasses corporate income tax (impôt sur le revenu des collectivités), municipal business tax (impôt commercial communal), unemployment surcharge (contribution au fonds pour l’emploi) as well as personal income tax (impôt sur le revenu). Investors may further be subject to net wealth tax (impôt sur la fortune) as well as other duties, levies or taxes.

236 Taxation of the Notes, Loan and Guarantees

Corporate income tax, municipal business tax, as well as the unemployment surcharge, invariably apply to most corporate taxpayers resident of Luxembourg for tax purposes. Individual taxpayers are generally subject to personal income tax and the unemployment surcharge. Under certain circumstances, where an individual taxpayer acts in the course of the management of a professional or business undertaking, municipal business tax may also apply.

All payments of principal and interest in respect of the Notes by or on behalf of the Issuer will be made in full without deduction or withholding for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of Luxembourg or any authority thereof or therein having the power to tax, unless such deduction is required by law. In the event of any deduction or withholding on account of tax becoming required by law, the Issuer shall make the required deduction or withholding and shall not pay any additional amounts to the Noteholders.

Withholding Tax Save for the provisions of the Savings Directive (see below), under the Luxembourg tax law currently in effect, there is no withholding tax on interest (including accrued but unpaid interest), other than interest on profit participating bonds and similar instruments, payable to non-resident Noteholders and certain entities so long as the interest rate is considered to be at arm’s length. There is also no Luxembourg withholding tax, with the possible exception of payments of interest made to Luxembourg resident individual Noteholders and to certain entities, upon repayment of principal in case of reimbursement, redemption, repurchase or exchange of the Notes.

Taxation of Luxembourg non-residents For implications under the Savings Directive on Luxembourg non-residents, please see below.

We refer you also to the subsections below concerning the taxation of capital gains, income and net worth tax.

Notwithstanding anything in this prospectus, investors are advised to consult their own tax advisor for advice on their individual taxation with respect to the acquisition, sale and redemption of the Notes.

Taxation of Luxembourg residents Interest payments made under the Notes by Luxembourg paying agents (defined in the same way as in the Savings Directive) to Luxembourg resident individual beneficial owners of the Notes will be subject to a 10% withholding tax. The 10% withholding tax on the interest payments received by Luxembourg resident individuals receiving the payment in their private capacity constitutes a final tax charge. In the case of Luxembourg resident individuals receiving the interest payments as business income the 10% withholding tax levied will then be credited against their final income tax liability.

Please see further details concerning income and net worth tax in the below subsections.

Taxes on Income and Capital Gains A Noteholder who derives income from such Notes (including accrued but unpaid interest) or who realises a gain on the disposal, redemption, repurchase or exchange thereof will not be subject to Luxembourg taxation on such income or capital gains (except for the potential application of the Savings Directive to interest payments) unless: (a) such holder is, or is deemed to be, a resident company fully taxable in Luxembourg; or (b) such income or gain is attributable to an enterprise or part thereof which is carried on through a permanent establishment, a permanent representative or a fixed base of business in Luxembourg.

Luxembourg resident individual Noteholders who hold Notes in their private capacity are not subject to taxation on capital gain upon disposal of a Note, unless such a disposal precedes the acquisition of the Note or the Note is disposed of within six months of its date of acquisition.

237 Taxation of the Notes, Loan and Guarantees

Net Wealth Tax Luxembourg net wealth tax will not be levied on a Noteholder unless: (a) such holder is, or is deemed to be, a Luxembourg fully taxable resident company; or (b) such Note is attributable to an enterprise or part thereof which is carried on through a permanent establishment, a permanent representative or a fixed base of business in Luxembourg.

The net wealth tax does not apply to Luxembourg resident and non-resident individuals.

Inheritance and Gift Tax Where the Notes are transferred for no consideration, note in particular: (a) no Luxembourg inheritance tax is levied on the transfer of the Notes upon death of a Noteholder in cases where the deceased holder was not a resident of Luxembourg for inheritance tax purposes; and (b) Luxembourg gift tax will be levied on the transfer of a Note by way of a gift by the Noteholder if this gift is registered in Luxembourg.

Value Added Tax There is no Luxembourg value-added tax payable in respect of payments in consideration for the issue of the Notes or in respect of the payment of interest or principal under the Notes or the transfer of a Note. Luxembourg value added tax may, however, be payable in respect of fees charged for certain services rendered to the Issuer, if for Luxembourg value added tax purposes such services are rendered, or are deemed to be rendered, in Luxembourg and an exemption from value added tax does not apply with respect to such services.

Other Taxes and Duties There is no Luxembourg registration tax, capital tax, stamp duty or any other similar tax or duty (other than nominal court fees and contributions for the registration with the Chamber of Commerce) payable in Luxembourg in respect of or in connection with the execution, delivery and enforcement by legal proceedings (including any foreign judgment in the courts of Luxembourg) of the Notes. In case of proceedings in a Luxembourg court or of the presentation of documents relating to the Notes, other than the Notes themselves, to an “autorité constituée”, it may be required the documents be registered, in which case the documents will be subject to registration duties depending on the nature of the documents. Any other voluntary registration of the Notes may equally trigger the said registration duty.

Residence A Noteholder will not become resident, or deemed to be resident, in Luxembourg by reason only of the holding of such Note or the execution, performance, delivery and/or enforcement of that or any other Note.

Stamp Duty and Stamp Duty Reserve Tax No stamp duty or stamp duty reserve tax is payable on the issue of the Notes or on a transfer by delivery of the Notes in definitive form.

EU Savings Directive on the Taxation of Savings Income in the Form of Interest Payments (Directive 2003/48/EC) A European Directive regarding taxation of savings income in the form of interest payments within the European Community (the “Savings Directive”) was passed on 3 June 2003, published on 26 June 2003 and entered into force on 1 July 2005. Subject to a number of important conditions being met, the Savings Directive foresees that European Member States will have to provide to the tax authorities of another Member State details of payments of interest or similar income paid by a paying agent within its jurisdiction to an individual (or under certain circumstances to the benefit of an individual) who is the beneficial owner of the interest and resident in that other Member State. Luxembourg and Austria may, however, apply a withholding tax for a transitional period which

238 Taxation of the Notes, Loan and Guarantees began on 1 July, 2005 (the end of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries) unless the beneficiary of the interest payments elects that the exchange of information regime be applied instead.

If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Principal Paying and Transfer Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on a payment made by a Paying and Transfer Agent, the Issuer will be required to maintain a Paying and Transfer Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive.

With effect from 1 July 2005, a number of non-EU countries (Switzerland, Andorra, Liechtenstein, Monaco and San Marino) have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a paying agent (within the meaning of the EU Savings Directive) within its jurisdiction to, or collected by such a paying agent for, an individual resident or a residual entity (as defined by the EU Savings Directive) established in a Member State. The same applies to the following dependent or associated territories of the EU: Aruba, Anguilla, the British Virgin Islands, Curaçao, the Channel Islands of Guernsey and Jersey, Isle of Man, Montserrat, Sint Maarten and the Cayman Islands.

Luxembourg has entered into reciprocal provision of information or transitional withholding arrangements with certain of the dependent or associated territories in relation to payments made by a paying agent (within the meaning of the EU Savings Directive) in Luxembourg to, or collected by such a paying agent for, an individual resident or a residual entity established in one of those territories.

Investors should note that the European Commission has announced on 13 November 2008 proposals to amend the Savings Directive. If implemented, the proposed amendments would, inter alia, (i) extend the scope of the Savings Directive to payments made through certain intermediate structures (whether or not established in a EU Member State) for the ultimate benefit of EU resident individuals and (ii) provide for a wider definition of the concept of interest subject to the Savings Directive. The European Parliament approved an amended version of this proposal on 24 April 2009. Discussions are still ongoing at Council level, building on unanimous conclusions adopted on 2 December 2008 and on 9 June 2009.

Investors who are in any doubt as to their position should consult their own professional advisers.

United States Federal Income Taxation The following discussion is a summary based on present law of certain U.S. federal income tax considerations relevant to the purchase, ownership and disposition of the Notes. This discussion addresses only U.S. Holders (as defined below) who purchase Notes in the original offering at the original offering price, hold the Notes as capital assets and use the U.S. dollar as their functional currency. This discussion is not a complete description of all U.S. tax considerations relating to the purchase, ownership and disposition of Notes that may be relevant to particular purchasers. It does not address the tax treatment of prospective purchasers subject to special rules, such as banks, dealers in currencies and securities, traders that elect to mark-to-market, insurance companies, investors liable for the alternative minimum tax, U.S. expatriates, tax-exempt entities or persons holding Notes as part of a hedge, straddle, conversion or other integrated financial transaction. It also does not address the tax treatment of prospective purchasers that will hold the Notes in connection with a permanent establishment outside of the United States. This discussion does not consider U.S. federal estate and gift tax, U.S. state or local tax matters or non-U.S. tax considerations. Finally, this discussion does not address prospective purchasers of additional notes, if any, issued pursuant to Condition 14 and forming a single series therewith.

THE FOLLOWING STATEMENTS ABOUT U.S. FEDERAL TAX ISSUES ARE MADE TO SUPPORT MARKETING OF THE NOTES. NO TAXPAYER CAN RELY ON THEM TO AVOID TAX PENALTIES. EACH PROSPECTIVE PURCHASER SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR ABOUT THE TAX CONSEQUENCES UNDER ITS OWN PARTICULAR CIRCUMSTANCES OF INVESTING IN THE NOTES UNDER THE LAWS OF LUXEMBOURG, THE RUSSIAN FEDERATION, THE UNITED STATES AND ITS CONSTITUENT JURISDICTIONS AND ANY OTHER JURISDICTION WHERE THE PURCHASER MAY BE SUBJECT TO TAXATION.

239 Taxation of the Notes, Loan and Guarantees

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of a Note that is for U.S. federal income tax purposes (i) a citizen or individual resident of the United States, (ii) a corporation or other business entity treated as a corporation for U.S. federal income tax purposes created or organised under the laws of the United States or its political subdivisions, (iii) a trust subject to the control of a U.S. person and the primary supervision of a U.S. court or (iv) an estate the income of which is subject to U.S. federal income taxation regardless of its source.

The tax treatment of a partner in a business entity or other arrangement treated as a partnership for U.S. federal income tax purposes that acquires, holds or disposes of a Note generally will depend upon the status of the partner and the activities of the partnership. A prospective investor that is a partnership for U.S. federal income tax purposes should consult its own tax advisors about the tax consequences for its partners of purchasing, holding and disposing of Notes.

Characterisation of the Notes No authority directly addresses the U.S. federal income tax characterisation of securities like the Notes and no ruling will be received from the U.S. Internal Revenue Service (the “IRS”) as to the characterisation of the Notes for such purposes. Although the matter is not free from doubt, to the extent relevant for U.S. federal income tax purposes, the Issuer intends to take the position that a U.S. Holder will be treated as owning a debt instrument that is not a contingent payment debt instrument for such purposes and this discussion assumes that treatment is correct. No assurance can be given that the IRS will not assert, or that a court would not sustain, a position regarding the characterisation of the Notes that is contrary to this discussion. Alternative characterisations include treatment of the Notes as contingent payment debt instruments subject to special rules relating to accrual of original issue discount and contingent interest, or as equity in the Issuer, a passive foreign investment company, or as other types of financial instruments. If the Notes were treated as contingent payment debt instruments or as equity in the Issuer, U.S. Holders may be required, among other things, to recognise income for U.S. federal income tax purposes at different times and in different amounts, or subject to higher rates of tax, than described below and may suffer additional adverse U.S. federal income tax consequences. Prospective investors should seek advice from their own tax advisors as to the consequences to them of alternative characterisations of the Notes for U.S. federal income tax purposes.

Interest A U.S. Holder must include stated interest on the Notes (including any additional amounts and the amount of any foreign taxes withheld from payments on the Notes) in gross income in accordance with its regular method of tax accounting. Interest on the Notes, including any additional amounts paid on account of withheld tax, will be ordinary income from sources outside the United States. The characterisation of any amounts received by the Issuer under the Loan and not paid to the holders of the Notes is unclear. U.S. Holders may be required to include a proportionate amount of such receipts in their gross income and an expense for the same amount. U.S. Holders should consult their own advisors regarding the treatment of any such amounts.

A U.S. Holder may claim a deduction or a foreign tax credit (subject to generally applicable limitations) only for tax withheld at the appropriate rate. To the extent payments of interest under the Loan are reduced by Russian withholding tax, it is unclear whether a U.S. Holders could claim a foreign tax credit or a deduction for the amount any such withholding. Each U.S. Holder should consult its own tax advisor about its eligibility for exemption from, and its ability to credit or deduct any Russian withholding tax.

For the tax years beginning after 31 December 2012, interest received by certain individuals, estates and trusts will generally be includible in “net investment income” for purposes of the Medicare contribution tax.

Disposition A U.S. Holder generally will recognise gain or loss on a sale, exchange, retirement or other disposition of a Note in an amount equal to the difference between the amount realised (less any accrued but unpaid interest, which will be taxable as interest) and the U.S. Holder’s adjusted tax basis in the Note. A U.S. Holder’s adjusted tax basis in a Note generally will be the amount the U.S. Holder paid for the Note.

240 Taxation of the Notes, Loan and Guarantees

Gain or loss on disposition of a Note generally will be U.S. source capital gain or loss. Gain or loss will be long- term capital gain or loss if the U.S. Holder has held the Note for more than one year. A noncorporate U.S. Holder’s long-term capital gain may be taxed at lower rates. Deductions for capital losses are subject to limitations.

For the tax years beginning after 31 December 2012, gain or loss on the disposition of Notes by certain individuals, estates and trusts will generally be includible in “net investment income” for purposes of the Medicare contribution tax.

Substitution of Issuer The terms of the Notes provide that, in certain circumstances, the obligations of the Issuer under the Notes may be assumed by another entity. Any such assumption might be treated for U.S. federal income tax purposes as a deemed disposition of Notes by a U.S. Holder in exchange for new notes issued by the new obligor. As a result of this deemed disposition, a U.S. Holder could be required to recognise capital gain or loss equal to the difference, if any, between the issue price of the new notes (as determined for U.S. federal income tax purposes), and the U.S. Holder’s adjusted tax basis in the Notes. U.S. Holders should consult their tax advisers concerning the U.S. federal income tax consequences to them of a change in obligor with respect to the Notes.

Reporting, backup withholding and disclosure Payments of interest, principal, additional amounts, if any, and proceeds from the sale, exchange, retirement or other disposition of a Note by a U.S. paying agent or other U.S. intermediary may be reported to the IRS unless the holder establishes a basis for exemption. Backup withholding tax may apply to amounts subject to reporting if the holder fails to provide an accurate taxpayer identification number or to report all interest and dividend income required to be shown on its U.S. federal income tax returns. A U.S. Holder can claim a credit against its U.S. federal income tax liability for the amount of any backup withholding tax and a refund of any excess.

Certain U.S. Holders must report to the IRS information with respect to their investment in Notes not held through an account with a domestic financial institution. Investors who fail to report required information could become subject to substantial penalties. Potential investors should consult their own tax advisors regarding the possible implications of this information reporting obligation for their investment in Notes.

THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE NOTES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.

241 CERTAIN ERISA CONSIDERATIONS

The United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”) imposes fiduciary standards and certain other requirements on employee benefit plans subject thereto (collectively, “ERISA plans”), including but not limited to collective investment funds, separate accounts, and other entities or accounts whose underlying assets are treated as assets of such plans pursuant to the U.S. Department of Labor “plan assets” regulation, 29 CER Section 2510.3-101 (the “Plan Assets Regulation”) as modified by Section 3(42) of ERISA, and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA plan’s investments be made in accordance with the documents governing the plan.

Under a “look-through rule”, if an ERISA Plan or plan that is not subject to ERISA but that is subject to Section 4975 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (collectively, the “Plans”), invests in an “equity interest” of an entity and no other exception applies, the Plan’s assets include both the equity interest and an undivided interest in each of the entity’s underlying assets. Unless another exception applies, this rule will only apply where benefit plan investors own 25 per cent. or more of the value of any class of equity interest in the entity. For purposes of this 25 per cent. determination, the value of equity interests held by persons (other than benefit plan investors) that have discretionary authority or control with respect to the assets of the entity or that provide investment advice for a fee (direct or indirect) with respect to such assets (or any affiliate of such a person) is disregarded. An equity interest does not include debt (as determined by applicable local law) which does not have substantial equity features. The term “benefit plan investor” is defined as (a) an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to Title 1 of ERISA, (b) a plan to which Section 4975 of the Code applies, or (c) any entity whose underlying assets include “plan assets” by reason of any such plan’s investment in the entity. Where the value of any equity interest in an entity relates solely to identified property of the entity, that property is treated as the sole property of a separate entity.

Because the Notes do not represent an interest in any property of the Issuer other than the Loan and the Guarantees, they may be regarded for ERISA purposes as equity interests in a separate entity whose sole asset is the Loan and the Guarantees. Further, neither the Issuer nor Deutsche Trustee Company Limited as trustee will be able to monitor the Noteholders’ possible status as benefit plan investors. Accordingly, the Notes (and interests in Notes) are not permitted to be acquired by or on behalf of any benefit of any benefit plan investor.

Governmental plans, certain church plans and certain non U.S. plans, while not subject to the prohibited transaction provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to federal state, local non-U.S. or other laws or regulations that are substantially similar to the foregoing provisions of ERISA or the Code, Fiduciaries of such plans should consult with their counsel before purchasing any of the Notes or any interest therein.

BY ITS PURCHASE AND HOLDING OF A NOTE OR ANY INTEREST THEREIN, THE PURCHASER AND/OR HOLDER THEREOF AND EACH TRANSFEREE WILL BE DEEMED TO MAKE THE REPRESENTATIONS AND AGREEMENTS AT THE TIME OF ITS PURCHASE AND THROUGHOUT THE PERIOD THAT IT HOLDS SUCH NOTE OR INTEREST THEREIN THAT (1) IT IS NOT AND IS NOT USING ASSETS OF A BENEFIT PLAN INVESTOR (AS DEFINED IN SECTION 3(42) OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”)), (2) IF IT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR ANY ENTITY WHOSE ASSETS ARE TREATED AS ASSETS OF ANY SUCH PLAN, THE PURCHASE AND HOLDING OF THE NOTES OR ANY INTEREST THEREIN DOES NOT VIOLATE ANY STATUTE, REGULATION, ADMINISTRATIVE DECISION, POLICY OR ANY OTHER LEGAL AUTHORITY APPLICABLE TO SUCH PLAN, AND (3) IT WILL NOT SELL OR OTHERWISE TRANSFER ANY SUCH NOTE OR INTEREST THEREIN TO ANY PERSON WITHOUT FIRST OBTAINING THESE SAME FOREGOING REPRESENTATIONS AND WARRANTIES. SEE “TRANSFER RESTRICTIONS”.

The foregoing discussion should not be construed and legal advice. Any potential purchase of Notes should consult its legal counsel with respect to issues arising under ERISA, the Code and any other applicable laws and make its own independent decisions.

242 INDEPENDENT AUDITORS

The Consolidated Financial Statements have been audited by Ernst & Young LLC, independent auditors, of Sadovnicheskaya Naberezhnaya 77, building 1, 115035 Moscow, Russian Federation.

243 GENERAL INFORMATION

1. The Notes are expected to be accepted for clearance through DTC, Euroclear and Clearstream, Luxembourg. The Common Code of the Regulation S Notes is 091159970 and the ISIN is XS0911599701. The Common Code of the Rule 144A Notes is 091160854, the ISIN is US87263TAA34 and the CUSIP is 87263TAA3. The Maturity Date of the Notes is 3 April 2020 and the annual yield of the Notes when issued is 6.75%. See “Terms of the Offering”. 2. The Borrower expects to obtain all necessary consents, approvals, authorisations or other orders for the issue of the Notes by the Issuer and the other documents to be entered into by it in connection with the issue of the Notes, and each of the Loan Guarantors expects to obtain all necessary consents, approvals and authorisations in the Russian Federation in connection with their entry into, and the performance of their obligations under, the Loan Guarantees, as set out in the documents entered into by the Loan Guarantors in connection with the issue of the Notes. 3. The issue of the Notes was authorised by a decision of the Board of Directors of the Issuer on 27 March 2013. The entry into the Loan Agreement was authorised by a decision of the Board of Directors of the Borrower on 13 March 2013, and by a decision of the Board of Directors of the Issuer on 27 March 2013. The Initial Loan Guarantees were authorised by a decision of the sole shareholders of Volzhsky on 13 March 2013 and by a decision of the general meeting of shareholders of TMK Trade House on 13 March 2013. The Additional Loan Guarantees are expected to be authorised by decisions of the general meetings of shareholders of Seversky, Sinarsky and Tagmet by 1 July 2013. The Additional Loan Guarantee in respect of IPSCO Tubulars is also expected to be authorised by the Board of Directors of IPSCO Tubulars by 1 July 2013. 4. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List of the Irish Stock Exchange and to trading on the Main Securities Market through Arthur Cox Listing Services Limited. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Notes and is not itself seeking admission of the Notes to the Official List or to trading on the regulated market of the Irish Stock Exchange for the purposes of the Prospectus Directive. The total expenses relating to the admission to trading are expected to be approximately EUR5,000. 5. There has been no significant change in the financial or trading position or material adverse change in the prospects of the Borrower, the Loan Guarantors or the TMK Group since 31 December 2012. There has been no significant change in the financial or trading position or material adverse change in the prospects of the Issuer since 31 December 2011, the date of its latest audited financial statements. The Issuer has no subsidiaries. 6. Neither the Borrower, the Issuer, nor any Loan Guarantor is involved in, or has been involved in during the previous 12 months, any government, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer, the Borrower or any Loan Guarantor is aware) which may have, or have had in the recent past, a significant effect on the financial position or profitability of the Borrower, the Issuer or any Loan Guarantor. 7. Copies in English of the following documents may be inspected in hard copy and are available at the offices of the Principal Paying Agent and Transfer Agent during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for so long as any of the Notes are outstanding: (a) the charter of the Borrower and each Loan Guarantor and the articles of incorporation of the Issuer; (b) this Prospectus, together with any amendment or supplement hereto; (c) the Loan Agreement; (d) the Agency Agreement; (e) the Trust Deed, which includes the forms of the Global Note Certificates and the Individual Note Certificates; (f) the Loan Guarantees; (g) the consolidated financial statements of the Borrower prepared in accordance with IFRS for the years ended 31 December 2012 and 2011 together with the reports of Ernst & Young LLC thereon; and (h) the financial statements of the Issuer for the years ended 31 December 2011 and 2010, together with the reports of Ernst & Young S.A. thereon. 8. The Borrower prepares annual consolidated and interim condensed consolidated financial statements in accordance with IFRS. The Loan Guarantors do not prepare any financial information in accordance with IFRS.

244 General Information

9. Save for the fees payable to the Joint Lead Managers, the Trustee and the Agents, so far as the Borrower and the Issuer are aware no person involved in the issue of the Notes has an interest that is material to the issue of the Notes. 10. The Annual Consolidated Financial Statements for the years ended 31 December 2012 and 2011 included in this Prospectus have been audited by Ernst & Young LLC, independent auditors, as stated in their report dated 5 March 2013 and reproduced in this Prospectus. See “Index to Consolidated Financial Statements — TMK’s Consolidated Financial Statements as at and for the years ended 31 December 2012 and 2011”. Ernst & Young LLC is a member of the Audit Chamber of Russia, acting through their office at Savodnicheskaya Nabrezhnaya 77/1, Moscow, 115035, the Russian Federation. 11. The Borrower was incorporated on 17 April 2001 and is included in the Unified State Register of Legal Entities of the Russian Federation under registration No. 1027739217758. The following table sets forth certain information with respect to our significant subsidiaries:

Actual interest as at 31 December TMK entity 2012(1) Registered office

Production operations

1 Volzhsky 100% 6 Avtodoroga No. 7404119 Volzhsky,Volgograd Region, Russian Federation 2 Seversky 96.33%(9) 7 Vershinina Street 623388 Polevskoy, Sverdlovsk Region, Russian Federation 3 Tagmet 96.38% 1 Zavodskaya Street 347928 Taganrog, Russian Federation 4 Sinarsky 97.28%(9) 1 Zadovskoy Proezd, 623401 Kamensk-Uralsky, Sverdlovsk Region, Russian Federation 5 TMK-Artrom 92.72%(2) 30 Draganesti Street 230119 Slatina Olt, Romania 6 TMK-INOX 51%(8) 1 Zadovskoy Proezd 623401 Kamensk- Uralsky, Sverdlovsk Region, Russian Federation 7 TMK-Resita 99.99%(2) 36 Traian Halescu Street, Caras-Severin 320050 Resita, Romania 8 TMK-CPW 51%(3) 7 Vershinina Street 623388 Polevskoy, Sverdlovsk Region, Russian Federation 9 IPSCO Tubulars(7) 100% 2650 Warrenville Road Suite 700 Downers Grove, Illinois, 60515, United States 10 GIPI 55% P.O.Box, 1831, PC 130 Azaiba, Sultanate of Oman

Sales and marketing 11 TMK Trade House 100%(4) 51 Rosa Luxembourg Street 620026 Ekaterinburg, Sverdlovsk Region, Russian Federation 12 TMK-Kazakhstan 100% 24/2 Ugolnaya Street 473000 Astana, Kazakhstan 13 TMK Global 100% 2 Boulevard Du Theatre 1204 Geneva, Switzerland 14 TMK Europe 100% 62, Hohestaufenring 50674 Köln, Germany

245 General Information

Actual interest as at 31 December TMK entity 2012(1) Registered office

Oil and Gas Services

15 Truboplast 100% 5/2 Prospect Lenina 620144 Ekaterinburg, Sverdlovsk Region Russian Federation 16 Orsky Machine Building Plant 100%(5) 1 Krupskoy Street 462431 Orsk, Orenburg Region, Russian Federation 17 Pipe Maintenance Department 100% 30 km of a Highway Nizhnevartovsk- Raduzhny 628616 Yugra, Nizhnevartovsk region Tyumen region, Khanty-Mansijsk Autonomous District, Russian Federation 18 Central Pipe Yard 100% 6 Tekhnicheskaya Street 461046 Buzuluk, Orenburg Region, Russian Federation 19 TMK Oilfield Services(6) 100% 51 Rosa Luxembourg Street, 620026 Ekaterinburg, Sverdlovsk Region, Russian Federation

Premium Connections

20 TMK-Premium Service 100% 3 Kazenny pereulok, Business Center Pokrovsky Dvor 105064 Moscow, Russian Federation 21 TMK Premium 100% Abu-Dhabi, Corniche Road, AMF Building, Level 8, United Arab Emirates 22 Ultra Premium Oilfield Services 100% 101120 Houston Oaks Drive, Houston, Texas 77064, Ltd United States Research and Development 23 RosNITI 97.36% 30 Novorossiskaya Street 454139 Chelyabinsk, Chelyabinsk Region, Russian Federation

Notes: (1) Represents our proportionate ownership of the relevant entity through our consolidated subsidiaries as of 31 December 2012. (2) OAO TMK holds its interest through TMK Europe. (3) OAO TMK holds it interest through Seversky. (4) Including 1 share owned by Sinarsky. (5) TMK owns 100% of the ordinary voting shares which comprise 75% of the share capital. The Russian government owns a 25% interest consisting of preference shares, which are non-voting. (6) TMK Oilfield Services was established in July 2007. (7) IPSCO Tubulars and its subsidiaries comprise TMK IPSCO, the U.S. division of OAO TMK and is part of our production operations and premium connections. (8) OAO TMK holds a 0.1% interest, SinTZ holds a 50.9% interest. (9) Our subsidiary, Rockarrow Investments Limited, holds a 0.95% interest in Seversky and a 2.3% interest in Sinarksy.

246 GLOSSARY OF SELECTED TERMS

API American Petroleum Institute. API is the U.S. petroleum industry’s primary trade association that, among other things, develops consensus standards for the oil and natural gas industry.

ASTM International A leading global voluntary standard development organisation, formerly known as ASTM, or the American Society for Testing and Materials.

Billet A round or square steel product that has been hot-worked by forging, rolling or extrusion. A billet is a semi-finished product used for the production of seamless pipes. Billets are delivered in bars of certain diameter and cut into pieces of certain length, according to the length of the desired finished pipe. Thereafter, billets are heated and pierced to form a tube hollow.

Casing pipes Pipes used as structural retainers for the walls of the drilled hole of deep wells in order to prevent collapse.

Civil Code Civil Code of the Russian Federation.

Continuous casting A method of producing billets and other semi-finished steel products in long lengths from steel that is continuously withdrawn from a furnace at a set casting speed. The need for primary and intermediate mills and the storage and use of large numbers of ingot moulds is eliminated in the continuous casting process.

Corporate Quality Management System The system helps to operate under common standards and ensure (“CQMS”) compliance with industry standards and performance specifications, as well as maintain the international competitiveness of our products.

Cross piercing elongation pipe rolling A cross piercing elongation pipe rolling mill producing carbon steel mill “CPE mill” pipes, two reducing mills and a finishing line, which consists of cutting, beveling and non-destructive testing.

Double submerged arc welding A welding technique for longitudinal pipe where the pipe seam is (“DSAW”) welded by an electric arc welder on the interior and exterior surfaces (hence double), with the welding arc being submerged under flux (hence submerged). The advantage of this process is that the welds penetrate 100% of the pipe wall and produce a very strong bond of the pipe material. DSAW pipe is recommended for larger diameter welded pipes for high pressure oil and gas transmission purposes.

Electric arc furnace (“EAF”) A steel melting furnace in which heat is generated by electricity that arcs from the graphite electrodes to a metal bath. EAFs use scrap as the primary input in the production of steel. Among other advantages over open hearth furnaces, EAFs melt steel significantly faster than open hearth furnaces.

Electric resistance welded (“ERW”) A welding technique using an electric current passed between the two edges of the steel sheet to heat the steel to a point at which the edges are forced together to form a bond without the use of welding filler material.

EU Savings Directive The European Directive regarding the taxation of savings income in the form of interest payments within the European Community.

FAS The Russian Federal Antimonopoly Service.

Gulf Cooperation Council (“GCC”) Political and economic alliance of six Middle Eastern countries— Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

247 Glossary of Selected Terms

Heat treatment A process where solid steel or components manufactured from steel are subject to treatment by heating to obtain required properties, and includes softening, normalising, stress relieving and hardening.

Ingot A mass of metal that results from casting molten steel into a mould. An ingot is usually rectangular in shape and is subsequently rolled into blooms and billets for rods, bars and sections and slabs for plates, sheet and strip. With the increasing use of the continuous casting process, in which molten steel is directly cast into billets or other semi-finished steel products, ingot casting is now used less frequently.

IRS U.S. Internal Revenue Service. kWh Kilowatt hours.

Line steel pipes Line steel pipes, usually seamless steel pipes, are used for construction of long distance pipelines for oil and gas, combustible liquids and gases, nuclear station pipelines, heating system pipelines and general purpose pipelines.

Longitudinal welded pipes Pipes formed from bending metal plates and welding them in such a manner that the weld seam runs along the axis of the pipe.

Mandrel A metal rod or bar around which material, such as metal, may be shaped.

Non-destructing testing of pipes “NDT” Method of testing that does not damage products

OCTG Oil Country Tubular Goods, consisting of drill pipe, surface casing, production casing and production tubing, made in accordance with API specifications.

Open-hearth furnace Steel is produced in the open hearth process by melting scrap and hot metal on the hearth of a combustion reverberating furnace bath. Scrap, flux and ore are charged into the furnace prior to heating. Fuel is burned in the furnace and the heat necessary to melt the raw materials is provided by radiation from the burning fuel. Open hearth furnaces are disadvantaged by relatively high operating costs due to high levels of energy consumption, high levels of pollutants, slow melting process and relatively low productivity.

RAS Russian accounting standards.

R&D Centre Our research and development centre in Houston, Texas.

Rolling The process of shaping metal by passing it between revolving rolls.

Spiral welded pipes Pipe made from coils of steel by bending and welding in such a manner that the weld seam spirals around the circumference of the pipe.

Threaded connections Threaded connections are similar to grooves on a bolt and enable sections of drill pipe and other kinds of pipe to be screwed together.

United steel workers “USW” The primary U.S. steel industry trade union.

2011 LPNs Outstanding loan participation notes due 2018 issued by TMK Capital S.A. (for the sole purpose of financing a loan to OAO TMK).

248 INDEX TO FINANCIAL STATEMENTS

TMK’s Consolidated Financial Statements as at and for the years ended 31 December 2012 and 2011

Independent auditor’s report ...... F-3

Consolidated Income Statement ...... F-6

Consolidated Statement of Comprehensive Income ...... F-7

Consolidated Statement of Financial Position ...... F-8

Consolidated Statement of Changes in Equity ...... F-9

Consolidated Statement of Cash Flows ...... F-11

Notes to Consolidated Financial Statements ...... F-12

TMK’s Consolidated Financial Statements as at and for the years ended 31 December 2011 and 2010

Independent auditor’s report ...... F-76

Consolidated Income Statement ...... F-79

Consolidated Statement of Comprehensive Income ...... F-80

Consolidated Statement of Financial Position ...... F-81

Consolidated Statement of Changes in Equity ...... F-82

Consolidated Statement of Cash Flows ...... F-84

Notes to Consolidated Financial Statements ...... F-85

TMK Capital S.A.’s Financial Statements as at and for the year ended 31 December 2011

Directors and other information ...... F-149

Statement of Directors’ responsibilities ...... F-150

Director’s report ...... F-151

Independent auditor’s report ...... F-156

Balance sheet ...... F-158

Profit and loss account ...... F-159

Notes to the annual accounts ...... F-160

TMK Capital S.A.’s Financial Statements as at and for the year ended 31 December 2010

Director’s report ...... F-170

Independent auditor’s report ...... F-171

Annual accounts — Balance sheet ...... F-173

Annual accounts — Profit and loss account ...... F-174

Notes to the annual accounts ...... F-175

F-1

OAO TMK

Consolidated Financial Statements for the year ended December 31, 2012

F-2

Ernst & Young LLC ООО «Эрнст энд Янг» Sadovnicheskaya Nab., 77, bld. 1 Россия, 115035, Москва Moscow, 115035, Russia Садовническая наб., 77, стр. 1

Tel: +7 (495) 705 9700 Тел: +7 (495) 705 9700 +7 (495) 755 9700 +7 (495) 755 9700 Fax: +7 (495) 755 9701 Факс: +7 (495) 755 9701 www.ey.com ОКПО: 59002827

Independent auditors’ report

To the shareholders and Board of Directors OAO TMK

We have audited the accompanying consolidated financial statements of OAO TMK and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2012, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

F-3 A member firm of Ernst & Young Global Limited

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at December 31, 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

March 5, 2013

F-4

OAO TMK

Consolidated Financial Statements

for the year ended December 31, 2012

Contents Consolidated Income Statement ...... 2 Consolidated Statement of Comprehensive Income ...... 3 Consolidated Statement of Financial Position ...... 4 Consolidated Statement of Changes in Equity ...... 5 Consolidated Statement of Cash Flows ...... 7

Notes to the Consolidated Financial Statements ...... 8

Corporate Information ...... 8

Basis of Preparation of the Financial Statements ...... 8 Statement of Compliance ...... 8 Basis of Accounting ...... 8 Functional and Presentation Currency ...... 9

Significant Estimates and Assumptions ...... 10 Impairment of Property, Plant and Equipment ...... 10 Useful Lives of Items of Property, Plant and Equipment ...... 10 Fair Value of Assets and Liabilities Acquired in Business Combinations...... 10 Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives ... 11 Employee Benefits Liability ...... 11 Allowances ...... 11 Litigations ...... 12 Current Taxes...... 12 Deferred Income Tax ...... 12

Significant Judgments ...... 13 Consolidation of Special Purpose Entities ...... 13

Changes in Accounting Policies ...... 13

Significant Accounting Policies ...... 18

Index to the Notes to the Consolidated Financial Statements ...... 31

1 F-5

OAO TMK Consolidated Income Statement for the year ended December 31, 2012 (All amounts in thousands of US dollars)

Year ended December 31, NOTES 2012 2011

Revenue: 1 6,687,740 6,753,517 Sales of goods 6,575,050 6,645,963 Rendering of services 112,690 107,554

Cost of sales 2 (5,204,315) (5,307,243)

Gross profit 1,483,425 1,446,274

Selling and distribution expenses 3 (433,243) (411,252)

Advertising and promotion expenses 4 (11,060) (9,204)

General and administrative expenses 5 (292,539) (282,785)

Research and development expenses 6 (16,592) (18,690)

Other operating expenses 7 (68,011) (53,325) Other operating income 8 10,707 13,090 Impairment of goodwill 20 – (3,368) Impairment of investment in associate 10 – (1,833) Impairment of property, plant and equipment 19 (8,406) – Reversal of impairment of property, plant and equipment 19 – 73,417 Foreign exchange gain/(loss), net 22,597 (1,254) Finance costs (297,099) (302,786) Finance income 9 22,329 32,063 (Loss)/gain on changes in fair value of derivative financial instruments (7,436) 44,792 Share of profit/(loss) of assoсiates 10 41 (185) Gain on disposal of assets classified as held for sale 11 – 19,184

Profit before tax 404,713 544,138

Income tax expense 12 (122,634) (159,441)

Profit for the year 282,079 384,697

Attributable to: Equity holders of the parent entity 276,897 380,130 Non-controlling interests 5,182 4,567 282,079 384,697

Earnings per share attributable to equity holders of the parent entity (in US dollars)

Basic 13 0.32 0.44

Diluted 13 0.32 0.40

The accompanying notes are an integral part of these consolidated financial statements. 2 F-6

OAO TMK Consolidated Statement of Comprehensive Income for the year ended December 31, 2012 (All amounts in thousands of US dollars)

NOTES 2012 2011

Profit for the year 282,079 384,697

Exchange differences on translation to presentation currency (a) 34,895 (57,619)

Foreign currency gain/(loss) on hedged net investment in foreign operation (b) 32 (xiii) 60,427 (67,772) Income tax (b) 32 (xiii) (12,085) 13,554 48,342 (54,218)

Movement on cash flow hedges (a) 32 (xiv) (3,998) – Income tax (a) 32 (xiv) 972 – (3,026) –

Other comprehensive income/(loss) for the year, net of tax 80,211 (111,837) Total comprehensive income/(loss) for the year, net of tax 362,290 272,860

Attributable to: Equity holders of the parent entity 352,629 273,303 Non-controlling interests 9,661 (443) 362,290 272,860

(a) The amounts of exchange differences on translation to presentation currency, net of income tax, and loss on movement on cash flow hedges, net of income tax, were attributable to equity holders of the parent entity and to non-controlling interests as presented in the table below:

Year ended December 31, 2012 2011 Exchange differences on translation to presentation currency attributable to: Equity holders of the parent entity 30,413 (52,609) Non-controlling interests 4,482 (5,010) 34,895 (57,619) Movement on cash flow hedges attributable to: Equity holders of the parent entity (3,023) – Non-controlling interests (3) – (3,026) –

(b) The amount of foreign currency gain/(loss) on hedged net investment in foreign operation, net of income tax, was attributable to equity holders of the parent entity.

The accompanying notes are an integral part of these consolidated financial statements. 3 F-7

OAO TMK Consolidated Statement of Financial Position as at December 31, 2012 (All amounts in thousands of US dollars)

NOTES 2012 2011 ASSETS Current assets Cash and cash equivalents 15, 30 225,061 230,593 Trade and other receivables 16 912,327 766,155 Accounts receivable from related parties 30 2,008 5,526 Inventories 17 1,346,303 1,418,455 Prepayments and input VAT 18 167,902 170,708 Prepaid income taxes 12,447 29,580 Other financial assets 4,008 2,670,056 4,047 2,625,064

Non-current assets Investments in associates 10 1,862 1,717 Property, plant and equipment 19 3,805,912 3,347,648 Goodwill 20 594,898 547,211 Intangible assets 20 356,602 413,263 Deferred tax asset 12 56,713 97,880 Other non-current assets 21 114,191 4,930,178 99,458 4,507,177

TOTAL ASSETS 7,600,234 7,132,241

LIABILITIES AND EQUITY Current liabilities Trade and other payables 22 855,569 862,940 Advances from customers 189,693 188,861 Accounts payable to related parties 30 87,103 733 Provisions and accruals 23 55,520 46,075 Interest-bearing loans and borrowings 24, 25 1,065,044 597,551 Finance lease liability 26 3,198 1,826 Derivative financial instruments 10,520 3,024 Dividends payable 303 323 Income tax payable 8,281 2,275,231 4,078 1,705,411

Non-current liabilities Interest-bearing loans and borrowings 24 2,767,627 3,153,274 Finance lease liability 26 49,045 34,290 Deferred tax liability 12 302,314 304,785 Provisions and accruals 23 29,293 25,336 Employee benefits liability 27 51,973 51,836 Other liabilities 28 42,856 3,243,108 32,525 3,602,046 Total liabilities 5,518,339 5,307,457

Equity 32 Parent shareholders' equity Issued capital 326,417 326,417 Treasury shares (319,149) (327,339) Additional paid-in capital 388,335 384,581 Reserve capital 16,390 16,390 Retained earnings 1,586,794 1,421,437 Foreign currency translation reserve (9,796) (88,551) Unrealised gain/(loss) on financial instruments (3,023) 1,985,968 – 1,732,935 Non-controlling interests 95,927 91,849 Total equity 2,081,895 1,824,784

TOTAL EQUITY AND LIABILITIES 7,600,234 7,132,241

The accompanying notes are an integral part of these consolidated financial statements. 4 F-8

OAO TMK Consolidated Statement of Changes in Equity

for the year ended December 31, 2012 (All amounts in thousands of US dollars)

Attributable to equity holders of the parent Foreign Unrealised Non- Additional Issued Treasury Reserve Retained currency gain/(loss) controlling paid-in Total TOTAL capital shares capital earnings translation on financial interests capital reserve instruments At January 1, 2012 326,417 (327,339) 384,581 16,390 1,421,437 (88,551) – 1,732,935 91,849 1,824,784 Profit for the year – – – – 276,897 – – 276,897 5,182 282,079 Other comprehensive income/(loss) for the year, net of tax – – – – – 78,755 (3,023) 75,732 4,479 80,211 Total comprehensive income/(loss) for the year, net of tax – – – – 276,897 78,755 (3,023) 352,629 9,661 362,290 F-9 Dividends declared by the parent entity to its shareholders (Note 32 iii) – – – – (111,540) – – (111,540) – (111,540) Dividends declared by subsidiaries of the Group to the non-controlling interest owners (Note 32 iv) – – – – – – – – (1,571) (1,571) Acquisition of non-controlling interests in subsidiaries (Note 32 v) – – 1,711 – – – – 1,711 (5,871) (4,160) Acquisition of non-controlling interests in subsidiaries in exchange for treasury shares (Note 32 vi) – 8,190 4,900 – – – – 13,090 (13,090) – Acquisition of subsidiaries (Note 14) – – – – – – – – (666) (666) Contribution from non-controlling interest owners (Note 32 vii) – – – – – – – – 16,245 16,245 Recognition of the change in non-controlling interests in the subsidiary as an equity transaction (Note 32 ix) – – (2,857) – – – – (2,857) (557) (3,414) Derecognition of non-controlling interests due to the expiration of subscription rights (Note 32 xi) – – – – – – – – (73) (73) At December 31, 2012 326,417 (319,149) 388,335 16,390 1,586,794 (9,796) (3,023) 1,985,968 95,927 2,081,895

The accompanying notes are an integral part of these consolidated financial statements. 5

OAO TMK Consolidated Statement of Changes in Equity for the year ended December 31, 2012 (continued)

(All amounts in thousands of US dollars)

Attributable to equity holders of the parent Foreign Non- Additional Issued Treasury Reserve Retained currency controlling paid-in Total TOTAL capital shares capital earnings translation interests capital reserve

At January 1, 2011 (as reported) 326,417 (318,351) 362,898 15,387 1,122,771 18,276 1,527,398 109,509 1,636,907 Voluntary change in accounting policy – – – – (28,210) – (28,210) (1,393) (29,603) Recognition of the change in non-controlling interests in the subsidiary as an equity transaction – – 13,587 – – – 13,587 (13,587) –

F-10 At January 1, 2011 (as restated) 326,417 (318,351) 376,485 15,387 1,094,561 18,276 1,512,775 94,529 1,607,304 Profit for the year – – – – 380,130 – 380,130 4,567 384,697 Other comprehensive income/(loss) for the year, net of tax – – – – – (106,827) (106,827) (5,010) (111,837) Total comprehensive income/(loss) for the year, net of tax – – – – 380,130 (106,827) 273,303 (443) 272,860 Purchase of treasury shares (Note 32 x) – (8,988) – – – – (8,988) – (8,988) Increase in reserve capital (Note 32 ii) – – – 1,003 (1,003) – – – – Dividends declared by the parent entity to its shareholders – – – – (51,993) – (51,993) – (51,993) Dividends declared by subsidiaries of the Group to the non- controlling interest owners (Note 32 iv) – – – – – – – (338) (338) Sale of non-controlling interests (Note 32 viii) – – – – (42) – (42) 9,307 9,265 Recognition of the change in non-controlling interests in the subsidiary as an equity transaction (Note 32 ix) – – 7,657 – – – 7,657 (9,609) (1,952) Acquisition of non-controlling interests in subsidiaries (Note 32 v) – – 439 – (14) – 425 (1,799) (1,374) Increase in non-controlling interests from contributions of assets by the Group (Note 32 xii) – – – – (202) – (202) 202 – At December 31, 2011 326,417 (327,339) 384,581 16,390 1,421,437 (88,551) 1,732,935 91,849 1,824,784

The accompanying notes are an integral part of these consolidated financial statements. 6

OAO TMK

Consolidated Statement of Cash Flows

for the year ended December 31, 2012

(All amounts in thousands of US dollars) Year ended December 31, NOTES 2012 2011 Operating activities Profit before tax 404,713 544,138

Adjustments to reconcile profit before tax to operating cash flows: Depreciation of property, plant and equipment 266,449 266,537 Amortisation of intangible assets 20 59,613 69,234 Loss on disposal of property, plant and equipment 7 17,255 2,319 Impairment of goodwill 20 – 3,368 Impairment of property, plant and equipment 19 8,406 – Reversal of impairment of property, plant and equipment 19 – (73,417) Impairment of investment in associate 10 – 1,833 Foreign exchange (gain)/loss, net (22,597) 1,254 Finance costs 297,099 302,786 Finance income 9 (22,329) (32,063) Loss/(gain) on changes in fair value of derivative financial instruments 7,436 (44,792) Gain on disposal of assets classified as held for sale 11 – (19,184) Share of (profit)/loss of assoсiates 10 (41) 185 Allowance for net realisable value of inventory 17 6,399 (662) Allowance for doubtful debts 9,711 19,551 Movement in other provisions 7,701 9,039 Operating cash flows before working capital changes 1,039,815 1,050,126 Working capital changes: Decrease/(increase) in inventories 123,152 (280,232) Increase in trade and other receivables (101,650) (110,210) Decrease/(increase) in prepayments 6,005 (26,862) (Decrease)/increase in trade and other payables (53,482) 172,369 (Decrease)/increase in advances from customers (7,866) 88,875 Cash generated from operations 1,005,974 894,066 Income taxes paid (77,455) (106,926) Net cash flows from operating activities 928,519 787,140

Investing activities Purchase of property, plant and equipment and intangible assets (445,296) (402,459) Proceeds from sale of property, plant and equipment 1,137 1,431 Purchase of ownership interest in associate – (4,004) Acquisition of subsidiaries, net of cash acquired 14 (33,017) – Issuance of loans (2,959) (1,333) Proceeds from repayment of loans issued 2,420 962 Interest received 6,240 2,638 Dividends received 14,256 25,425 Receipt of government grants 28 2,290 – Net cash flows used in investing activities (454,929) (377,340)

Financing activities Purchase of treasury shares 32 (x) – (8,988) Proceeds from borrowings 649,222 2,768,477 Repayment of borrowings (797,045) (2,764,149) Interest paid (263,701) (287,533) Reimbursement of interest paid 545 1,272 Payment of finance lease liabilities (4,789) (3,014) Acquisition of non-controlling interests (4,160) (1,374) Proceeds from sale of non-controlling interests 32 (viii) – 9,265 Contributions from non-controlling interest owners 32 (vii) 10,265 – Dividends paid to equity holders of the parent (75,985) (47,313) Dividends paid to non-controlling interest shareholders (3,184) (1,531) Net cash flows used in financing activities (488,832) (334,888)

Net (decrease)/increase in cash and cash equivalents (15,242) 74,912 Net foreign exchange difference 9,710 (1,843) Cash and cash equivalents at January 1 230,593 157,524 Cash and cash equivalents at December 31 225,061 230,593 The accompanying notes are an integral part of these consolidated financial statements. 7 F-11 OAO TMK

Notes to the Consolidated Financial Statements for the year ended December 31, 2012

(All amounts are in thousands of US dollars, unless specified otherwise)

Corporate Information

These consolidated financial statements of OAO TMK and its subsidiaries (the “Group”) for the year ended December 31, 2012 were authorised for issue in accordance with a resolution of the General Director on March 5, 2013.

OAO TMK (the “Company”), the parent company of the Group, is an open joint stock company (“OAO”). Both registered and principal office of the Company is 40/2a Pokrovka Street, Moscow, the Russian Federation.

As at December 31, 2012, the Company’s controlling shareholder was TMK Steel Limited. TMK Steel Limited is ultimately controlled by D.A. Pumpyanskiy.

The Group is one of the world’s leading producers of steel pipes for the oil and gas industry, a global company with extensive network of production facilities, sales companies and representative offices.

The principal activities of the Group are the production and distribution of seamless and welded pipes, including pipes with the entire range of premium connections backed by extensive technical support. Research centres established in Russia and in the United States are involved in new product design and development, experimental and validation testing and advanced metallurgical research.

Basis of Preparation of the Financial Statements

Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

Basis of Accounting

Group companies maintain their accounting records in their local currency and prepare their statutory financial statements in accordance with the regulations on accounting and reporting of the country in which the particular subsidiary is resident. The consolidated financial statements are based on the statutory accounting records, with adjustments and reclassifications for the purpose of fair presentation in compliance with IFRS. The principal adjustments relate to (1) expense and revenue recognition, (2) valuation of unrecoverable assets, (3) depreciation and valuation of property, plant and equipment, (4) accounting for income taxes, (5) use of fair values, (6) business combinations and (7) translation to the presentation currency.

The consolidated financial statements have been prepared on an accrual basis and under the historical cost convention, except as disclosed in the accounting policies below.

All Group companies and associates have a December 31 accounting year-end.

8 F-12 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Basis of Preparation of the Financial Statements (continued)

Functional and Presentation Currency

The presentation currency for the purpose of these consolidated financial statements of the Group is the US dollar because the presentation in US dollars is convenient for the major current and potential users of the Group’s financial statements.

The functional currency of the Group’s entities is the currency of their primary economic environment. The functional currencies of the Group’s entities are the Russian rouble, US dollar, Euro, Romanian lei and Canadian dollar.

On consolidation, assets and liabilities of Group companies reported in their functional currencies are translated into US dollars, the Group’s presentation currency, at year-end exchange rates. Income and expense items are translated into US dollars at the annual weighted average rates of exchange or at the rate on the date of the transaction for significant items.

Transactions in foreign currencies are initially recorded in the functional currency at the rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the end of reporting period. All resulting differences are taken to the income statement with the exception of differences on foreign currency borrowings accounted for as hedges of net investment in foreign operations. Non- monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

9 F-13 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation of uncertainty at the end of reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment of Property, Plant and Equipment

The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the asset’s recoverable amount. This requires an estimation of the value in use of the cash-generating units to which the item is allocated. The determination of impairments of property, plant and equipment involves the use of estimates that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances that indicate impairment exists. The determination of the recoverable amount of a cash-generating unit involves the use of estimates by management.

Methods used to determine the value in use include discounted cash flow-based methods, which require the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. These estimates, including the methodologies used, may have a material impact on the recoverable value and ultimately the amount of any property, plant and equipment impairment.

Assets that suffered an impairment loss are tested for possible reversal of the impairment at each reporting date if indications exist that impairment losses recognised in prior periods no longer exist or have decreased.

Useful Lives of Items of Property, Plant and Equipment

The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end. If expectations differ from previous estimates, the changes accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Fair Value of Assets and Liabilities Acquired in Business Combinations

The Group is required to recognise separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in the business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerable judgment in forecasting future cash flows and developing other assumptions.

10 F-14 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions (continued)

Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives

The Group determines whether goodwill and intangible assets with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the value in use of the cash- generating units to which the goodwill and intangible assets with indefinite useful lives are allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

Employee Benefits Liability

The Group companies provide a number of post-employment and other long-term benefits to their employees (pensions, lump-sum post-employment payments, jubilee payments, etc.). Such benefits are recognised as defined benefit obligations. The Group uses the actuarial valuation method for measurement of the present value of defined benefit obligations and related current service cost. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, rates of employee turnover and others. In the event that further changes in the key assumptions are required, the future amounts of the employment benefit costs may be affected materially.

Allowances

The Group makes allowances for doubtful debts. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts, such factors are considered as current overall economic conditions, industry-specific economic conditions, historical and anticipated customer performance. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful debts recorded in the consolidated financial statements.

The Group makes allowances for obsolete and slow-moving raw materials and spare parts. In addition, certain finished goods, work in process and raw materials of the Group are carried at net realisable value. Estimates of net realisable value of finished goods are based on the most reliable evidence available at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring subsequent to the end of reporting period to the extent that such events confirm conditions existing at the end of the period.

11 F-15 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions (continued)

Litigations

The Group exercises considerable judgment in measuring and recognising provisions and the exposure to contingent liabilities related to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the final settlement. Because of the inherent uncertainties in this evaluation process, actual losses may differ from the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of internal specialists, if available, or with the support of external consultants, such as actuaries or legal counsel. Revisions to the estimates may significantly affect future operating results of the Group.

Current Taxes

The Group is subject to taxes in different countries all over the world. Taxes and fiscal risks recognised in these consolidated financial statements reflect management’s best estimate of the outcome based on the facts known at each reporting date in each individual country. These facts may include but are not limited to change in tax laws and interpretation thereof in the various jurisdictions where the Group operates.

Tax, currency and customs legislation is subject to varying interpretations and changes occur frequently. Furthermore, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities may not coincide with that of management. As a result, tax authorities may challenge transactions and Group’s entities may be assessed additional taxes, penalties and interest, which can be significant. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from tax audits. As at December 31, 2012, management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the Group's tax, currency and customs positions will be sustained.

Deferred Income Tax

Management judgment is required for the calculation of deferred income taxes. Deferred tax assets are recognised to the extent that their utilisation is probable. The utilisation of deferred tax assets will depend on whether it is possible to generate sufficient taxable income in the respective tax type and jurisdiction. Various factors are used to assess the probability of the future utilisation of deferred tax assets, including past operating results, the operational plan, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these estimates are adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilisation indicates that the carrying amount of deferred tax assets must be reduced, this reduction is recognised in profit or loss.

12 F-16 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Judgments

In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those judgments involving estimates, which have a significant effect on the amounts recognised in the consolidated financial statements:

Consolidation of Special Purpose Entities

The Group determined that the substance of the relationship between the Group and TMK Capital S.A., a special purpose entity, indicates that the Group controls TMK Capital S.A. In January 2011, TMK Capital S.A. issued notes due January 2018 to provide financing to the Group’s companies.

The Group determined that the substance of the relationship between the Group and TMK Bonds S.A., a special purpose entity, indicates that the Group controls TMK Bonds S.A. In February 2010, TMK Bonds S.A. completed the offering of convertible bonds due 2015 convertible into Global Depository Receipts each representing four ordinary shares of OAO TMK to provide financing to the Group’s companies.

Changes in Accounting Policies

Application of New and Amended IFRS and IFRIC

The Group has adopted the following new and amended IFRS and IFRIC in the consolidated financial statements for the annual period beginning on January 1, 2012: • IFRS 7 Financial Instruments: Disclosures (amended); • IAS 12 Income Taxes (amended) – Deferred Tax: Recovery of Underlying Assets.

The principle effect of these changes in policies is discussed below.

IFRS 7 Financial Instruments: Disclosures (amended)

The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable users of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable users to evaluate the nature of, and risks associated with, the Group’s continuing involvement in those derecognised assets. The amendment affects disclosure only and did not have any impact on the financial position or performance of the Group.

13 F-17 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

Application of New and Amended IFRS and IFRIC (continued)

IAS 12 Income Taxes (amended) – Deferred Tax: Recovery of Underlying Assets

The amendment clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The amendment did not have any impact on the financial position or performance of the Group.

New Accounting Pronouncements

The following new or amended (revised) IFRS and IFRIC have been issued but are not yet effective and not applied by the Group. This listing of standards and interpretations issued is those that the Group reasonably expects to have an impact on disclosures, financial position and performance when applied at a future date. The Group intends to adopt these standards when they become effective.

IFRS 7 Financial Instruments: Disclosures (amended) – Offsetting Financial Assets and Financial Liabilities (effective for financial years beginning on or after January 1, 2013)

The amendment requires disclosures to include information 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 associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. These amendments will not impact the Group’s financial position or performance.

IFRS 9 Financial Instruments (effective for financial years beginning on or after January 1, 2015)

The standard as issued reflects the first phase of the International Accounting Standards Boards work on the replacement of IAS 39 Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities. In subsequent phases, the International Accounting Standards Board will address impairment methodology and hedge accounting. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets and financial liabilities. The Group will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.

14 F-18 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

New Accounting Pronouncements (continued)

IFRS 10 Consolidated Financial Statements (effective for financial years beginning on or after January 1, 2013)

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The Group expects that the adoption of the new standard will not have a significant impact on its financial position or performance in the period of initial application.

IFRS 11 Joint Arrangements (effective for financial years beginning on or after January 1, 2013)

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non- monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Jointly controlled entities must be accounted for using the equity method. The Group expects that the adoption of the new standard will not have a significant impact on its financial position or performance in the period of initial application.

IFRS 12 Disclosure of Involvement in Other Entities (effective for financial years beginning on or after January 1, 2013)

IFRS 12 includes all of the disclosures that were previously in IAS 27 Consolidated and Separate Financial Statements related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 Interests in Joint Ventures and IAS 28 Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The amendment affects disclosures only and will have no impact on the Group’s financial position or performance.

IFRS 13 Fair Value Measurement (effective for financial years beginning on or after January 1, 2013)

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance.

15 F-19 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

New Accounting Pronouncements (continued)

IAS 1 Financial Statement Presentation (amended) – Presentation of Items of Other Comprehensive Income (effective for financial years beginning on or after July 1, 2012)

The amendments change the grouping of items presented in other comprehensive income. Items that could be reclassified to profit or loss at a future point in time would be presented separately from items that will never be reclassified. The amendments affect presentation only and will have no impact on the Group’s financial position or performance.

IAS 19 Employee Benefits (revised) (effective for financial years beginning on or after January 1, 2013)

The revision includes a number of changes that range from fundamental changes such as removing the “corridor” mechanism (the revised standard requires actuarial gains and losses to be recognised in other comprehensive income when they occur) and the concept of expected returns on plan assets to new and revised disclosure requirements and simple clarifications and re-wording. The Group is currently assessing the impact that this standard will have on the financial position and performance.

IAS 27 Separate Financial Statements (revised) (effective for financial years beginning on or after January 1, 2013)

As a consequence of the new IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Involvement with Other Entities, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The revision will have no impact on the consolidated financial statements of the Group.

IAS 28 Investments in Associates and Joint Ventures (revised) (effective for financial years beginning on or after January 1, 2013)

As a consequence of the new IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Involvement with Other Entities, IAS 28 has been renamed to IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The Group expects that the adoption of the amended standard will not have a significant impact on its financial position or performance in the period of initial application.

IAS 32 Financial Instruments: Presentation (amended) – Offsetting Financial Assets and Financial Liabilities (effective for financial years beginning on or after January 1, 2014)

The amendment clarifies financial assets and financial liabilities offsetting rules. These amendments are not expected to impact the Group’s financial position or performance.

16 F-20 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

New Accounting Pronouncements (continued)

Improvements to IFRSs (effective for financial years beginning on or after January 1, 2013)

In May 2012, the International Accounting Standards Board issued “Improvements to IFRSs”, primarily with a view of removing inconsistencies and clarifying wording. These are separate transitional provisions for each standard. The document sets out amendments to International Financial Reporting Standards, which are mainly related to changes for presentation, recognition or management purposes terminology or editorial changes. These amendments will not have any impact on the financial position or performance of the Group.

17 F-21 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies

Index to Accounting Policies

A) Basis of Consolidation ...... 19 B) Business Combination and Goodwill ...... 20 C) Cash and Cash Equivalents ...... 21 D) Financial Assets ...... 22 E) Inventories ...... 24 F) Property, Plant and Equipment ...... 25 G) Intangible Assets (Other than Goodwill) ...... 25 H) Impairment of Non-Financial Assets (Other than Goodwill) ...... 26 I) Borrowings ...... 27 J) Leases ...... 27 K) Provisions ...... 28 L) Employee Benefits Liability ...... 28 M) Government Grants ...... 29 N) Deferred Income Tax ...... 29 O) Equity ...... 29 P) Revenue Recognition ...... 30

18 F-22 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

A) Basis of Consolidation

A subsidiary is an entity in which the Group has an interest of more than one-half of the voting rights or otherwise has power to exercise control over its operations. Subsidiaries are consolidated from the date when control over their activities is transferred to the Company and are no longer consolidated from the date when control ceases.

All intragroup balances, transactions and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transactions provide evidence of an impairment of the asset transferred. Where necessary, accounting policies in subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests at the end of the reporting period represent the non-controlling interest shareholders’ portion of the fair values of the identifiable assets and liabilities of the subsidiary at the acquisition date and the non-controlling interests’ portion of movements in equity since the date of the combination. Non-controlling interest is presented within equity, separately from the parent’s shareholders’ equity.

Losses within subsidiary are attributed to the non-controlling interest even if that results in deficit balance.

When the Group increases its ownership interests in subsidiaries, the differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for such increases is either added to additional paid-in capital, if positive, or charged to accumulated profits, if negative.

When the Group grants put options to non-controlling interest shareholders at the date of acquiring control of a subsidiary the Group considers the terms of transaction to conclude on accounting treatment.

Where the terms of the put option provide the Group with a present ownership interest in the shares subject to the put, the shares are accounted for as acquired. Financial liabilities in respect of put options are recorded at fair value at the time of entering into the options, and are subsequently re- measured to fair value with the change in fair value recognised in the income statement.

When the terms of the put option do not provide a present ownership interest in the shares subject to the put, the Group determined that its accounting policy is to partially recognise non-controlling interests and to account such put options as the following: • the Group determines the amount recognised for the non-controlling interest, including its share of profits and losses (and other changes in equity) of the subsidiary for the period; • the Group derecognises the non-controlling interest as if it was acquired at that date; • the Group records the fair value of financial liability in respect of put options; and • the Group accounts for the difference between the non-controlling interest derecognised and the fair value of financial liability as a change in the non-controlling interest as an equity transaction (in accordance with the Group’s policy for the increase of its ownership interests in subsidiaries).

19 F-23 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

A) Basis of Consolidation (continued)

When the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary; • Derecognises the carrying amount of any non-controlling interest; • Derecognises the cumulative translation differences, recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

B) Business Combination and Goodwill

Acquisition of Subsidiaries

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs are included in administrative expenses in the periods in which the costs are incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, are recognised either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.

Goodwill

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Goodwill is recorded in the functional currencies of the acquired subsidiaries.

20 F-24 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

B) Business Combination and Goodwill (continued)

Goodwill (continued)

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying amount may be impaired. As at the acquisition date, goodwill is allocated to each of the cash-generating units (groups of cash-generating units), expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash-generating unit (groups of cash-generating units), to which the goodwill relates. Where recoverable amount of cash-generating unit (groups of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Acquisition of Subsidiaries from Entities under Common Control

Purchases of subsidiaries from entities under common control are accounted for using the pooling of interests method.

The assets and liabilities of the subsidiary transferred under common control are recorded in the financial statements at the historical cost of the controlling entity (the “Predecessor”). Any difference between the total book value of net assets, including the Predecessor’s goodwill, and the consideration paid is accounted for in the consolidated financial statements as an adjustment to equity. The financial statements, including corresponding figures, are presented as if the Company had acquired the subsidiary on the date it was initially acquired by the Predecessor.

C) Cash and Cash Equivalents

Cash is comprised of cash in hand and cash at banks.

Cash equivalents are comprised of short-term, liquid investments (with original maturity date less than 90 days) that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash equivalents are carried at fair value.

21 F-25 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets

Initial Recognition and Measurement

The Group classifies its financial assets into the following categories: loans and receivables, financial assets at fair value through profit or loss, held-to-maturity investments and available-for- sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets on initial recognition and, where allowed and appropriate, reassesses this designation at each reporting date.

Financial assets are initially recognised at fair value plus directly attributable transaction costs. However when a financial asset at fair value through profit or loss is recognised, the transaction costs are expensed immediately.

Subsequent Measurement

The subsequent measurement of financial assets depends on their classification as described below:

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments not quoted in an active market. Subsequent to initial measurement, such assets are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Trade receivables, which generally are short term, are carried at original invoice amount less an allowance for doubtful debts. An allowance for doubtful debts is established in case of objective evidence that the Group will not be able to collect amounts due according to the original terms of contract. The Group periodically analyses trade receivables and makes adjustments to the amount of the allowance. The amount of the allowance is the difference between the carrying amount and recoverable amount. The amount of the doubtful debts expense is recognised in the income statement.

Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. Gains or losses on held for trading assets are recognised in the income statement.

22 F-26 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets (continued)

Held-to-Maturity Investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity, when the Group has the positive intention and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are recognised at amortised cost using the effective interest method less any allowance for impairment. During the period, the Group did not hold any investments in this category.

Available-for-Sale Financial Assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised as other comprehensive income until the financial assets are derecognised or determined to be impaired, at which time the cumulative gain or loss is included in the income statement.

Derivatives Designated as Hedging Instruments

Derivatives are financial instruments that change their values in response to changes in the underlying variable, require no or little net initial investment and are settled at a future date. Derivatives are primarily used to manage exposures to foreign exchange risk, interest rate risk and other market risks.

For the purpose of hedge accounting, derivatives are designated as instruments hedging the Group’s exposure to changes in the fair value of a recognised asset or liability (fair value hedges), as instruments hedging the Group’s exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedges) and as hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group applies hedge accounting and the risk management objective and strategy for undertaking the hedge.

The Group’s derivatives consist of interest rate swaps and currency forwards and their use is governed by the Group’s policies which are consistent with Group’s overall risk management strategy. These derivatives are designated as hedging instruments in cash flow hedges. The objective of the hedge is to protect future cash flows against unfavorable variations of interest rates and exchange rates.

The Group assesses effectiveness of such hedges at inception and verifies at regular intervals and at least on a quarterly basis, using prospective and retrospective testing. The effective part of the changes in fair value of hedging instruments is recognised in other comprehensive income while any ineffective part is recognised immediately in the income statement. When forecasted transaction occurs, the gains or losses previously recognised in other comprehensive income are transferred to the income statement. If the forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is transferred to the income statement. 23 F-27 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets (continued)

Impairment of Financial Assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indicators that a debtor or a group of debtors is experiencing significant financial difficulties, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

The amount of the impairment loss is measured as a difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of financial assets other than loans and receivables is reduced directly without the use of an allowance account and the amount of loss is recognised in the income statement.

E) Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and costs necessary to make the sale. The cost of inventories is determined on the weighted average basis.

The costs of inventories are comprised of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present condition and location. The value of work in progress and finished goods includes costs of raw materials, direct labor, direct production costs and indirect production overheads including depreciation. Financing costs are not included in stock valuation.

The Group periodically analyses inventories to determine whether they are damaged, obsolete or slow-moving or if their net realisable value has declined, and makes allowance for such inventories.

24 F-28 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

F) Property, Plant and Equipment

Property, plant and equipment, except for the items acquired prior to January 1, 2003, are stated at historical cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in value.

The items of property, plant and equipment acquired prior to January 1, 2003, the date of transition to IFRS, were accounted for at deemed cost being their fair value as at January 1, 2003.

Depreciation is calculated on a straight-line basis. Average depreciation periods, which represent estimated useful economic lives of respective assets, are as follows:

Land Not depreciated Buildings 8-100 years Machinery and equipment 5-30 years Transport and motor vehicles 4-15 years Furniture and fixtures 2-10 years

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment and can be measured reliably. All other expenditures are recognised in the profit or loss as an expense when incurred.

G) Intangible Assets (Other than Goodwill)

Intangible assets (other than goodwill) are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that intangible asset may be impaired. Amortisation period and amortisation method for an intangible asset with a finite life are reviewed at least at each year end. Changes in expected useful life or expected pattern of consumption of future economic benefits embodied in the asset are treated as changes in accounting estimates. Amortisation expense of intangible assets is recognised in the income statement in the expense category consistent with the function of an intangible asset.

Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually or at the cash-generating unit level.

25 F-29 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

G) Intangible Assets (Other than Goodwill) (continued)

Research and Development

Costs incurred on development (relating to design and testing of new or improved products) are recognised as intangible assets only when the Group can demonstrate technical feasibility of completing intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, availability of resources to complete and ability to measure reliably the expenditure during the development. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from commencement of commercial production of the product on a straight-line basis over the period of its expected benefit. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year.

H) Impairment of Non-Financial Assets (Other than Goodwill)

An assessment is made at each reporting date to determine whether there is an objective evidence that an asset or a group of assets may be impaired. When there is an indication that an asset may be impaired, the recoverable amount is assessed and, when impaired, the asset is written down immediately to its recoverable amount, which is the higher of the fair value less costs to sell and the value in use.

Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, after deducting any direct incremental disposal costs. Value in use is the present value of estimated future cash flows expected to arise from continuing use of an asset and from its disposal at the end of its useful life.

In assessing value in use, estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of time value of money and risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, recoverable amount is determined for the cash-generating unit to which the asset belongs.

Impairment loss is recognised for the difference between estimated recoverable amount and carrying value. Carrying amount of an asset is reduced to its estimated recoverable amount and the amount of loss is included in the income statement for the period.

Impairment loss is reversed if there is an indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may be decreased and if subsequent increase in recoverable amount can be related objectively to event occurring after the impairment loss was recognised. Impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

Intangible assets not yet available for use are tested for impairment annually.

26 F-30 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

I) Borrowings

Borrowings are initially recognised at fair value less directly attributable transaction costs. In subsequent periods, borrowings are measured at amortised cost using the effective interest method. Any difference between the initial fair value less transaction costs and the redemption amount is recognised within finance costs over the period of the borrowings.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of cost of respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

J) Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to finance costs in the income statement.

The depreciation policy for depreciable leased assets is consistent with that for depreciable assets which are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term or its useful life.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

27 F-31 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

K) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that outflow of resources will be required to settle obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

If the effect of time value of money is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects current market assessments of time value of money and where appropriate, risks specific to the liability. Where discounting is used, increase in provision due to the passage of time is recognised as a finance cost.

L) Employee Benefits Liability

Short-Term Employee Benefits

Short-term employee benefits paid by the Group include wages, salaries, social security contributions, paid annual leave and paid sick leave, bonuses and non-monetary benefits (such as medical care). Such employee benefits are accrued in the year in which the associated services are rendered by employees of the Group.

Defined Benefit Obligations

The Group companies provide a number of post-employment and other long-term benefits to their employees (pensions, lump-sum post-employment payments, financial support to pensioners, jubilee payments, etc.). All post-employment benefit plans are unfunded. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age, the completion of a minimum service period and the amount of the benefits stipulated in the collective bargaining agreements. The liability recognised in the balance sheet in respect of post-employment and other long-term employee benefits is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognised past-service costs. Defined benefit obligation is calculated by external consultants using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using yields on high-quality corporate bonds or, in countries where there is no deep market in such bonds, yields on government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related obligation.

Actuarial gains and losses are recognised in the income statement in the period in which they occurred. Past service costs are charged immediately to the income statement to the extent that the benefits have vested, and are otherwise recognised on a straight-line basis over the average period until the benefits vest.

28 F-32 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

M) Government Grants

Grants from the government are recognised when there is a reasonable assurance that the grant will be received and the Group will comply with all conditions attached to it.

When the grant relates to an expense item, it is recognised as the decrease of respective expenses over the periods when the costs, which it is intended to compensate, are incurred.

Government grants relating to assets are included in non-current liabilities as deferred government grants and are credited to other income in the income statement on a straight-line basis over the expected lives of the related assets.

N) Deferred Income Tax

Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income tax is recognised in the income statement, except to the extent that it relates to items directly taken to equity or other comprehensive income, in which case it is recognised against equity or other comprehensive income.

Deferred income taxes are provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, except where deferred income tax arises from initial recognition of goodwill or of an asset or liability in transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss.

A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where timing of reversal of temporary differences can be controlled and it is probable that temporary differences will not be reversed in the near future.

O) Equity

Share Capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction from proceeds in equity.

Treasury Shares

Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of treasury shares. 29 F-33 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

O) Equity (continued)

Dividends

Dividends are recognised as a liability and deducted from equity at the end of the reporting period only if they are declared before or on the end of the reporting period. Dividends are disclosed in the financial statements when they are proposed before the end of the reporting period or proposed or declared after the end of the reporting period but before the financial statements are authorised for issue.

P) Revenue Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the amount of revenue can be measured reliably. Revenues from sales of inventory are recognised when significant risks and rewards of ownership of goods have passed to the buyer. Revenues arising from rendering of services are recognised in the same period when the services are provided.

Revenues are measured at the fair value of the consideration received or receivable. When the fair value of consideration received cannot be measured reliably, revenue is measured at the fair value of goods or services provided.

30 F-34 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Index to the Notes to the Consolidated Financial Statements

1) Segment Information ...... 32 2) Cost of Sales ...... 35 3) Selling and Distribution Expenses ...... 35 4) Advertising and Promotion Expenses ...... 35 5) General and Administrative Expenses ...... 36 6) Research and Development Expenses ...... 36 7) Other Operating Expenses...... 36 8) Other Operating Income...... 36 9) Finance Income ...... 37 10) Investments in Associates ...... 37 11) Gain on Disposal of Assets Classified as Held for Sale ...... 37 12) Income Tax ...... 38 13) Earnings per Share ...... 40 14) Acquisition of Subsidiaries ...... 41 15) Cash and Cash Equivalents ...... 42 16) Trade and Other Receivables ...... 43 17) Inventories ...... 43 18) Prepayments and Input VAT ...... 43 19) Property, Plant and Equipment ...... 44 20) Goodwill and Other Intangible Assets ...... 46 21) Other Non-Current Assets ...... 49 22) Trade and Other Payables ...... 49 23) Provisions and Accruals ...... 49 24) Interest-Bearing Loans and Borrowings ...... 50 25) Convertible Bonds ...... 51 26) Finance Lease Liability ...... 52 27) Employee Benefits Liability ...... 53 28) Other Non-Current Liabilities ...... 54 29) Principal Subsidiaries...... 55 30) Related Parties Disclosures ...... 56 31) Contingencies and Commitments ...... 57 32) Equity ...... 59 33) Financial Risk Management Objectives and Policies ...... 62 34) Subsequent Events ...... 69

31 F-35 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information

Operating segments reflect the Group’s management structure and the way financial information is regularly reviewed. For management purposes, the Group is organised into business divisions based on geographical location, and has three reportable segments: • Russia segment represents the results of operations and financial position of plants located in Russian Federation and the Sultanate of Oman, a finishing facility in Kazakhstan, Oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates and Switzerland. • Americas segment represents the results of operations and financial position of plants located in the United States of America and traders located in the United States of America and Canada. • Europe segment represents the results of operations and financial position of plants and traders located in Europe, excluding Switzerland.

Management monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted EBITDA. Adjusted EBITDA is determined as profit/(loss) for the period excluding finance costs and finance income, income tax (benefit)/expense, depreciation and amortisation, foreign exchange (gain)/loss, impairment/(reversal of impairment) of non-current assets, movements in allowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associates and other non-cash items. Group financing (including finance costs and finance income) is managed on a group basis and is not allocated to operating segments.

The following tables present revenue and profit information regarding the Group’s reportable segments for the years ended December 31, 2012 and 2011, respectively.

Year ended December 31, 2012 Russia Americas Europe TOTAL Revenue 4,713,913 1,650,007 323,820 6,687,740 Cost of sales (3,589,873) (1,365,341) (249,101) (5,204,315) GROSS PROFIT 1,124,040 284,666 74,719 1,483,425 Selling, general and administrative expenses (565,957) (150,235) (37,242) (753,434) Other operating income/(expenses), net (43,899) (12,543) (862) (57,304) OPERATING PROFIT 514,184 121,888 36,615 672,687 ADD BACK: Depreciation and amortisation 222,482 91,437 12,143 326,062 Loss/(gain) on disposal of property, plant and equipment 10,482 6,175 598 17,255 Allowance for net realisable value of inventory 4,542 793 1,064 6,399 Allowance for doubtful debts 9,848 (760) 623 9,711 Movement in other provisions 4,130 2,933 638 7,701 251,484 100,578 15,066 367,128 ADJUSTED EBITDA 765,668 222,466 51,681 1,039,815

32 F-36 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information (continued)

Year ended December 31, 2012 Russia Americas Europe TOTAL

RECONCILIATION TO PROFIT BEFORE TAX: ADJUSTED EBITDA 765,668 222,466 51,681 1,039,815 Reversal of adjustments from operating profit to EBITDA (251,484) (100,578) (15,066) (367,128) OPERATING PROFIT 514,184 121,888 36,615 672,687

Impairment of property, plant and equipment (8,406) – – (8,406) Foreign exchange gain/(loss), net 23,702 1,366 (2,471) 22,597 OPERATING PROFIT AFTER IMPAIRMENT AND FOREIGN EXCHANGE GAIN/(LOSS) 529,480 123,254 34,144 686,878 Finance costs (297,099) Finance income 22,329 Loss on changes in fair value of derivative financial instruments (7,436) Share of profit of assoсiates 41 PROFIT BEFORE TAX 404,713

Year ended December 31, 2011 Russia Americas Europe TOTAL

Revenue 4,788,039 1,590,399 375,079 6,753,517 Cost of sales (3,752,176) (1,279,603) (275,464) (5,307,243) GROSS PROFIT 1,035,863 310,796 99,615 1,446,274 Selling, general and administrative expenses (529,741) (149,305) (42,885) (721,931) Other operating income/(expenses), net (38,780) 2,255 (3,710) (40,235) OPERATING PROFIT 467,342 163,746 53,020 684,108

ADD BACK: Depreciation and amortisation 228,405 98,476 8,890 335,771 Loss/(gain) on disposal of property, plant and equipment 2,083 (49) 285 2,319 Allowance for net realisable value of inventory (426) (107) (129) (662) Allowance for doubtful debts 17,819 897 835 19,551 Movement in other provisions 5,408 2,427 1,204 9,039 253,289 101,644 11,085 366,018

ADJUSTED EBITDA 720,631 265,390 64,105 1,050,126

Year ended December 31, 2011 Russia Americas Europe TOTAL

RECONCILIATION TO PROFIT BEFORE TAX: ADJUSTED EBITDA 720,631 265,390 64,105 1,050,126 Reversal of adjustments from operating profit to EBITDA (253,289) (101,644) (11,085) (366,018) OPERATING PROFIT 467,342 163,746 53,020 684,108

Impairment of goodwill (3,368) – – (3,368) Impairment of investment in associate (1,833) – – (1,833) Reversal of impairment of property, plant and equipment – – 73,417 73,417 Foreign exchange gain/(loss), net (2,021) (2,738) 3,505 (1,254) OPERATING PROFIT AFTER IMPAIRMENT AND FOREIGN EXCHANGE GAIN/(LOSS) 460,120 161,008 129,942 751,070 Finance costs (302,786) Finance income 32,063 Gain on changes in fair value of derivative financial instruments 44,792 Share of loss of assoсiates (185) Gain on disposal of assets classified as held for sale 19,184 PROFIT BEFORE TAX 544,138

33 F-37 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information (continued)

The following tables present additional information of the Group’s reportable segments as at December 31, 2012 and 2011:

Year ended December 31, 2012 Russia Americas Europe TOTAL Segment assets 5,297,910 1,863,149 439,175 7,600,234 Property, plant and equipment expenditure 346,728 95,046 45,432 487,206

Year ended December 31, 2011 Russia Americas Europe TOTAL Segment assets 4,771,557 1,957,104 403,580 7,132,241 Property, plant and equipment expenditure 247,629 64,322 14,047 325,998

The following table presents the revenues from external customers for each group of similar products and services for the years ended December 31, 2012 and 2011, respectively:

Seamless Other Sales to external customers Welded pipes TOTAL pipes operations Year ended December 31, 2012 4,134,289 2,257,120 296,331 6,687,740 Year ended December 31, 2011 3,910,622 2,535,658 307,237 6,753,517

The following tables present the geographic information. The revenue information is disclosed based on the location of the customer. Non-current assets are disclosed based on the location of the Group’s assets and include property, plant and equipment, intangible assets and goodwill.

Cent.Asia Middle East Year ended Asia & Far Russia Americas Europe & Caspian & Gulf Africa TOTAL December 31, 2012 East Region Region Revenue 3,644,415 1,983,043 486,326 352,858 171,563 33,557 15,978 6,687,740 Non-current assets 3,117,967 1,300,327 274,980 24,142 39,986 – 10 4,757,412

Cent.Asia Middle East Year ended Asia & Far Russia Americas Europe & Caspian & Gulf Africa TOTAL December 31, 2011 East Region Region Revenue 4,070,519 1,801,174 589,397 197,276 67,671 23,243 4,237 6,753,517 Non-current assets 2,746,620 1,296,053 243,757 21,633 42 – 17 4,308,122

34 F-38 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

2) Cost of Sales

Cost of sales for the year ended December 31 was as follows:

2012 2011 Raw materials and consumables 3,352,080 3,720,904 Staff costs including social security 669,356 661,764 Energy and utilities 383,754 400,169 Depreciation and amortisation 253,048 257,589 Repairs and maintenance 142,893 162,434 Contracted manufacture 81,829 55,625 Freight 58,149 63,741 Taxes 52,464 51,777 Professional fees and services 34,132 25,841 Rent 11,098 10,450 Travel 3,043 2,596 Communications 1,040 1,173 Insurance 1,008 803 Other 7,418 3,798 Total production cost 5,051,312 5,418,664 Change in own finished goods and work in progress 102,759 (147,035) Cost of sales of externally purchased goods 24,479 33,235 Obsolete stock, write-offs 25,765 2,379 Cost of sales 5,204,315 5,307,243

3) Selling and Distribution Expenses

Selling and distribution expenses for the year ended December 31 were as follows:

2012 2011 Freight 246,801 212,425 Staff costs including social security 63,004 58,807 Depreciation and amortisation 53,312 65,536 Consumables 21,453 20,020 Professional fees and services 17,262 14,701 Bad debt expense 11,612 19,618 Rent 7,748 7,953 Travel 4,747 4,501 Utilities and maintenance 2,217 2,169 Communications 1,354 1,294 Insurance 1,350 1,731 Other 2,383 2,497 433,243 411,252

4) Advertising and Promotion Expenses

Advertising and promotion expenses for the year ended December 31 were as follows:

2012 2011 Exhibits and catalogues 5,036 5,451 Outdoor advertising 4,132 2,256 Media 927 877 Other 965 620 11,060 9,204

35 F-39 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

5) General and Administrative Expenses

General and administrative expenses for the year ended December 31 were as follows:

2012 2011 Staff costs including social security 163,134 158,573 Professional fees and services 57,587 55,056 Depreciation and amortisation 16,110 13,224 Travel 11,319 12,928 Utilities and maintenance 9,469 9,126 Insurance 6,664 5,366 Rent 6,356 5,294 Transportation 6,240 6,130 Communications 6,160 5,307 Consumables 4,354 4,123 Taxes 3,029 5,174 Other 2,117 2,484 292,539 282,785

6) Research and Development Expenses

Research and development expenses for the year ended December 31 were as follows:

2012 2011 Staff costs including social security 9,535 11,669 Professional fees and services 3,227 2,999 Travel 1,021 731 Consumables 793 860 Depreciation and amortisation 634 1,003 Other 1,382 1,428 16,592 18,690

7) Other Operating Expenses

Other operating expenses for the year ended December 31 were as follows:

2012 2011 Social and social infrastructure maintenance expenses 19,133 16,859 Loss on disposal of property, plant and equipment 17,255 2,319 Sponsorship and charitable donations 15,201 17,579 Penalties, fines and claims 14,142 12,567 Other 2,280 4,001 68,011 53,325

8) Other Operating Income

Other operating income for the year ended December 31 was as follows:

2012 2011 Gain from penalties and fines 5,314 4,235 Gain on sales of current assets 360 43 Reimbursement from insurance company 8 1,272 Other 5,025 7,540 10,707 13,090

36 F-40 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

9) Finance Income

Finance income for the year ended December 31 was as follows:

2012 2011 Dividends 15,609 27,481 Interest income – bank accounts and deposits 6,720 3,333 Gain on disposal of other investments – 1,249 22,329 32,063

10) Investments in Associates

The movement in investments in associates was as follows:

Volgograd Lhoist-TMK Total River Port B.V. Investments in associates as at January 1, 2011 – – – Acquisition of share in associate 4,004 55 4,059 Share of loss of associate (185) – (185) Impairment of investment in associate (1,833) – (1,833) Currency translation adjustment (324) – (324) Investments in associates as at December 31, 2011 1,662 55 1,717 Share of profit/(loss) of associates 98 (57) 41 Currency translation adjustment 102 2 104 Investments in associates as at December 31, 2012 1,862 – 1,862

11) Gain on Disposal of Assets Classified as Held for Sale

On May 27, 2011, the Group sold 100% ownership interest in TMK Hydroenergy Power S.R.L.

As at the date of disposal the carrying amounts of assets and liabilities were as follows:

May 27, 2011 Cash and cash equivalents 12 Trade receivables 685 Inventories 59 Prepayments 12 Current assets 768 Property, plant and equipment 8,702 Intangible assets 105 Deferred tax asset 138 Non-current assets 8,945 Total assets 9,713 Trade and other payables (170) Total liabilities (170) Net assets 9,543

Gain from the sale of TMK Hydroenergy Power S.R.L. in the amount of 19,184 was included in the income statement for the year ended December 31, 2011.

37 F-41 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

12) Income Tax

Income tax expense for the years ended December 31 was as follows:

2012 2011 Current income tax expense 99,338 98,034 Adjustments in respect of income tax of previous years 2,203 (634) Deferred tax expenses arising from write-down of deferred tax assets 207 2,193 Deferred tax expenses related to origination and reversal of temporary differences 20,886 59,848 Total income tax expense 122,634 159,441

Profit before tax for financial reporting purposes is reconciled to tax expense as follows:

2012 2011 Profit before tax 404,713 544,138 Theoretical tax charge at statutory rate in Russia of 20% 80,943 108,828 Adjustments in respect of income tax of previous years 2,203 (634) Effect of items which are not deductible for taxation purposes or not taxable 18,562 17,333 Effect of different tax rates in countries other than Russia 21,913 25,228 Tax on dividends distributed by the Group’s subsidiaries to parent company 2,432 11,537 Effect of differences in tax rates on dividend income (1,716) (3,023) Effect of change of US (state) effective tax rate 671 (1,909) Deferred tax expenses arising from write-down of deferred tax assets 207 2,193 Effect of unrecognised tax credits, tax losses and temporary differences of previous years (2,000) 152 Other (581) (264)

Total income tax expense 122,634 159,441

Deferred income tax assets and liabilities, their movements for the year ended December 31, 2012 were as follows:

Change Change Increase due recognised Currency recognised to acquisition in other translation 2012 in income of 2011 comprehen- adjustments statement subsidiaries sive income Valuation and depreciation of property, plant and equipment (295,963) (1,263) – (233) (11,726) (282,741) Valuation and amortization of intangible assets (38,985) 7,693 – – 8 (46,686) Valuation of accounts receivable (5,832) 500 – – (347) (5,985) Prepayments and other current assets (1,048) (543) – – 24 (529) Tax losses available for offset 51,703 (38,802) (12,085) – 4,541 98,049 Provisions and accruals 17,041 2,086 – – 514 14,441 Trade and other payable 3,817 (1,572) – – (4) 5,393 Finance lease obligations 9,520 2,352 – – 459 6,709 Impairment of accounts receivable 7,962 2,113 – – 372 5,477 Valuation of inventory 523 3,562 – – (79) (2,960) Other 5,661 2,781 972 – (19) 1,927 (245,601) (21,093) (11,113) (233) (6,257) (206,905) Reflected in the statement of financial position as follows: Deferred tax liability (302,314) 12,698 588 (233) (10,582) (304,785) Deferred tax asset 56,713 (33,791) (11,701) – 4,325 97,880

38 F-42 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

12) Income Tax (continued)

Deferred income tax assets and liabilities, their movements for the year ended December 31, 2011 were as follows:

Change Change recognised Currency recognised 2011 in other translation 2010 in income comprehen- adjustments statement sive income Valuation and depreciation of property, plant and equipment (282,741) (22,522) – 11,557 (271,776) Valuation and amortization of intangible assets (46,686) 12,615 – (16) (59,285) Valuation of accounts receivable (5,985) (34) – 339 (6,290) Prepayments and other current assets (529) 1,976 – (11) (2,494) Tax losses available for offset 98,049 (42,957) 13,554 (4,244) 131,696 Provisions and accruals 14,441 1,350 – (457) 13,548 Trade and other payable 5,393 565 – 39 4,789 Finance lease obligations 6,709 71 – (381) 7,019 Impairment of accounts receivable 5,477 3,354 – (423) 2,546 Valuation of inventory (2,960) (12,401) – 131 9,310 Other 1,927 (4,058) – 225 5,760 (206,905) (62,041) 13,554 6,759 (165,177) Reflected in the statement of financial position as follows: Deferred tax liability (304,785) (14,313) – 10,012 (300,484) Deferred tax asset 97,880 (47,728) 13,554 (3,253) 135,307

In the context of the Group’s current structure, tax losses and current tax assets of the different companies are not offset against taxable profits and current tax liability of other companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Therefore, a deferred tax asset of one subsidiary of the Group is not offset against the deferred tax liability of another subsidiary.

As at December 31, 2012, the deferred tax asset for 3,646 (December 31, 2011: 3,439) relating to tax deductible losses incurred in transactions with securities has not been recognised, as it is not probable that sufficient taxable profit on transactions with securities will be available to offset the deductible temporary differences to which the asset relates. Such tax losses are offset only against future taxable profits generated in transactions with securities over the remaining period of 2 years.

The Group recognised the deferred tax assets for the companies with net loss. The Group believes that this tax loss will be recovered as future taxable profits will exceed recognised tax asset on tax loss.

As at December 31, 2012, the Group has not recognised deferred tax liability in respect of 1,358,448 (December 31, 2011: 1,301,486) temporary differences associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

39 F-43 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

13) Earnings per Share

Basic earnings per share are calculated by dividing the profit for the period attributable to ordinary shareholders of the parent entity by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share are calculated by dividing the profit for the period attributable to ordinary shareholders of the parent entity adjusted for interest expense and other gains and losses for the period, net of tax, relating to convertible bonds by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.

In calculation of diluted earnings per share, the denominator represents the weighted average number of ordinary shares which could be outstanding assuming that all of the convertible bonds were converted into ordinary shares (Note 25).

Year ended December 31, 2012 2011 Profit for the period attributable to the equity holders of the parent entity 276,897 380,130 Effect of convertible bonds, net of tax (if dilutive) – (1,710) Profit for the period attributable to the equity holders of the parent entity adjusted for the effect of dilution 276,897 378,420 W eighted average number of ordinary shares outstanding 863,306,943 864,976,286 Weighted average number of ordinary shares outstanding adjusted for the effect of dilution (where convertible bonds were dilutive) 863,306,943 936,751,609 Earnings per share attributable to the equity holders of the parent entity (in US dollars) Basic 0.32 0.44 Diluted 0.32 0.40 Earnings per share attributable to equity holders of the parent entity (in Russian roubles) Basic 9.97 12.91 Diluted 9.97 11.87

In the year ended December 31, 2012, the convertible bonds were antidilutive as the interest expense and other gains and losses for the period, net of tax, relating to convertible bonds divided by the number of ordinary shares obtainable on the conversion of the convertible bonds exceeded basic earnings per share.

40 F-44 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

14) Acquisition of Subsidiaries

Acquisition of Gulf International Pipe Industry LLC

On December 2, 2012, the Group acquired 55% of the voting shares of Gulf International Pipe Industry LLC (“GIPI”), a company based in the Sultanate of Oman and specialising in the manufacture of welded steel pipes. As a result of the acquisition, the Group is expected to increase its presence in Middle East and Gulf region.

The following table summarises the purchase consideration for GIPI, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date:

December 2, 2012 Cash and cash equivalents 591 Property, plant and equipment 89,646 Trade and other receivables 8,326 Inventories 2,256 Total assets 100,819

Trade and other payables (3,782) Advances from customers (27) Provisions and accruals (197) Interest-bearing loans and borrowings (97,690) Employee benefits liability (603) Total liabilities (102,299) Total identifiable net liabilities at fair value (1,480) Non-controlling interests (666) Goodwill arising on acquisition 39,945 Purchase consideration (39,131)

The fair value of the trade and other receivables amounted to 8,326. The gross contractual amount for trade receivables due was 8,890, of which 564 was expected to be uncollectible.

Since the valuation of the assets and liabilities of GIPI is still in process, the values are determined provisionally.

Goodwill arising from the acquisition of GIPI in the amount of 39,945 related to the expected synergy from integration of the acquired subsidiary into the Group. Goodwill was allocated to the Middle East division cash-generating unit, that also includes TMK Middle East FZCO and Threading & Mechanical Key Premium L.L.C. None of the goodwill recognised is expected to be deductible for income tax purposes.

The non-controlling interests were measured based on their proportionate share in the recognised amounts of GIPI’s net liabilities and comprised 666 at the acquisition date.

The cash flows on acquisition were as follows:

Net cash acquired with the subsidiary 591 Cash paid (27,431) Net cash outflow (26,840)

41 F-45 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

14) Acquisition of Subsidiaries (continued)

Acquisition of Gulf International Pipe Industry LLC (continued)

Acquisition-related costs of 1,103 were charged to general and administrative expenses in the consolidated income statement for the year ended December 31, 2012. As at December 31, 2012 the unpaid amount of the purchase consideration was 11,700.

From the date of acquisition, GIPI contributed 16,075 to the revenue and 1,135 to the profit before tax of the Group. If the combination had taken place at the beginning of the year, revenue from the Group’s operations would have been 6,726,188 and profit before tax of the Group would have been 399,508. These amounts were determined based on the assumption that the fair value adjustments at the acquisition date would have been the same as at January 1, 2012.

Acquisition of OOO “Uralskiy Dvor”

On August 3, 2012, the Group acquired 100% ownership interest in OOO “Uralskiy Dvor”, hotel facilities, for cash consideration of 199,000 thousand Russian roubles (6,130 at the historical exchange rate). The fair value of the net identifiable assets and the liabilities of the acquiree as at the date of acquisition was 2,842, including property, plant and equipment in the amount of 3,296. The excess in the amount of 3,288 of the purchase consideration over the fair value of net assets of OOO “Uralskiy Dvor” was recognised as goodwill. In the year ended December 31, 2012, cash flows on acquisition amounted to 6,177, net of cash acquired of 449.

15) Cash and Cash Equivalents

Cash and cash equivalents were denominated in the following currencies:

2012 2011 Russian rouble 171,689 164,695 US dollar 36,604 60,980 Euro 14,124 3,235 Romanian lei 707 1,205 Other currencies 1,937 478 225,061 230,593

The above cash and cash equivalents consisted primarily of cash at banks.

As at December 31, 2012, the amount of cash and cash equivalents included 22,862 which was available to finance investing activities only (December 31, 2011: 42,291).

42 F-46 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

16) Trade and Other Receivables

Trade and other receivables consisted of the following:

2012 2011 Trade receivables 903,083 758,343 Officers and employees 2,200 1,964 Other accounts receivable 27,449 37,630 Gross accounts receivable 932,732 797,937 Allowance for doubtful debts (20,405) (31,782) Net accounts receivable 912,327 766,155

Accounts receivables in the amount of 99,908 were pledged as security for borrowings as at December 31, 2012 (December 31, 2011: 103,851) (Note 24).

17) Inventories

Inventories consisted of the following:

2012 2011 Raw materials 402,994 389,140 Work in process 395,017 373,423 Finished goods and finished goods in transit 339,044 429,573 Goods for resale 4,545 17,254 Supplies 227,747 224,891 Gross inventories 1,369,347 1,434,281 Allowance for net realisable value of inventory (23,044) (15,826) Net inventories 1,346,303 1,418,455

The carrying amount of inventories carried at net realisable value amounted to 265,926 as at December 31, 2012 (December 31, 2011: 330,008).

As at December 31, 2012, certain items of inventory with a carrying amount of 100,000 (December 31, 2011: 121,365) were pledged as security for borrowings (Note 24).

The following summarises the changes in the allowance for net realisable value of inventory:

2012 2011 Balance at the beginning of the year 15,826 17,112 Increase/(decrease) in allowance 6,399 (662) Currency translation adjustments 819 (624) Balance at the end of the year 23,044 15,826

18) Prepayments and Input VAT

Prepayments and input VAT consisted of the following:

2012 2011 Prepayment for VAT, input VAT 115,777 111,459 Prepayment for services, inventories 45,632 51,435 Prepayment for insurance 4,115 3,708 Prepayment for other taxes 706 931 Prepayment for property tax 416 698 Prepayment for rent 304 256 Other prepayments 952 2,221 167,902 170,708

43 F-47 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Property, Plant and Equipment

Movement in property, plant and equipment for the year ended December 31, 2012 was as follows:

Machinery Transport Leasehold Construc- Land and Furniture and and motor improve- tion in TOTAL buildings and fixtures equipment vehicles ments progress COST Balance at January 1, 2012 1,251,585 2,664,393 59,453 54,878 12,860 495,403 4,538,572 Additions 487,206 487,206 Assets put into operation 63,821 226,949 4,662 12,386 5,953 (313,771) – Disposals (4,103) (26,541) (879) (949) – (527) (32,999) Increase due to acquisition of subsidiaries (Note 14) 21,573 71,127 90 152 – – 92,942 Currency translation adjustments 64,967 126,812 2,612 2,790 107 29,621 226,909 BALANCE AT DECEMBER 31, 2012 1,397,843 3,062,740 65,938 69,257 18,920 697,932 5,312,630

ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance at January 1, 2012 (206,163) (922,159) (26,792) (32,430) (3,380) – (1,190,924) Depreciation charge (38,011) (212,704) (4,174) (8,390) (760) – (264,039) Impairment (8,406) – – – – – (8,406) Disposals 1,534 16,067 792 831 – – 19,224 Currency translation adjustments (11,081) (48,438) (1,276) (1,754) (24) – (62,573) BALANCE AT DECEMBER 31, 2012 (262,127) (1,167,234) (31,450) (41,743) (4,164) – (1,506,718) NET BOOK VALUE AT DECEMBER 31, 2012 1,135,716 1,895,506 34,488 27,514 14,756 697,932 3,805,912 NET BOOK VALUE AT JANUARY 1, 2012 1,045,422 1,742,234 32,661 22,448 9,480 495,403 3,347,648

Movement in property, plant and equipment for the year ended December 31, 2011 was as follows:

Machinery Transport Leasehold Construc- Land and Furniture and and motor improve- tion in TOTAL buildings and fixtures equipment vehicles ments progress COST Balance at January 1, 2011 1,248,487 2,536,920 60,317 47,585 9,911 554,106 4,457,326 Additions – – – – – 325,998 325,998 Assets put into operation 71,153 272,618 3,784 10,820 3,051 (361,426) – Disposals (3,977) (15,739) (1,723) (662) – (376) (22,477) Currency translation adjustments (64,078) (129,406) (2,925) (2,865) (102) (22,899) (222,275) BALANCE AT DECEMBER 31, 2011 1,251,585 2,664,393 59,453 54,878 12,860 495,403 4,538,572

ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance at January 1, 2011 (181,734) (834,077) (25,587) (26,576) (2,692) – (1,070,666) Depreciation charge (37,687) (217,261) (4,267) (8,252) (711) – (268,178) Reversal of impairment – 73,417 – – – – 73,417 Disposals 2,048 10,755 1,645 619 – – 15,067 Currency translation adjustments 11,210 45,007 1,417 1,779 23 – 59,436 BALANCE AT DECEMBER 31, 2011 (206,163) (922,159) (26,792) (32,430) (3,380) – (1,190,924) NET BOOK VALUE AT DECEMBER 31, 2011 1,045,422 1,742,234 32,661 22,448 9,480 495,403 3,347,648 NET BOOK VALUE AT JANUARY 1, 2011 1,066,753 1,702,843 34,730 21,009 7,219 554,106 3,386,660

44 F-48 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Property, Plant and Equipment (continued)

As at December 31, 2012, bank borrowings were secured by properties and equipment with a carrying value of 401,813 (December 31, 2011: 391,897) (Note 24).

As at December 31, 2012, there were indicators of impairment of certain property in the Russia operating segment, therefore, the Group performed an impairment test in respect of these assets. As a result of that test, the Group determined that the carrying value of this property exceeds their recoverable amount. Resulting impairment loss of 8,406 was recognised in the income statement for the year ended December 31, 2012.

As at December 31, 2011, the Group determined that the value in use of European division cash- generating unit significantly exceeded its carrying value. The Group used pre-tax discount rate of 13.36% for the calculation of the value in use of this cash-generating unit. The increase of its recoverable amount was mostly due to the increase of the share of the most profitable products in total production and sales volume of European division cash-generating unit. As a result, the Group reversed the impairment loss recognised in 2008-2009 in respect of property, plant and equipment of European division cash-generating unit in the amount of 73,417.

Capitalised Borrowing Costs

The Group started to capitalise borrowing costs for all eligible assets where construction was commenced on or after January 1, 2009. The amount of borrowing costs capitalised during the year ended December 31, 2012 was 3,274 (2011: 4,682). The rate of the specific borrowing used to determine the amount of borrowing costs eligible for capitalisation was 5.19% in the year ended December 31, 2012 (2011: 5.19%).

45 F-49 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

20) Goodwill and Other Intangible Assets

Movement in intangible assets for the year ended December 31, 2012 was as follows:

Customer Patents and Proprietary Goodwill Software relation- Backlog Other TOTAL trademarks technology ships

COST Balance at January 1, 2012 209,541 562,823 21,542 472,300 14,100 8,500 6,274 1,295,080 Additions 175 – 590 – 4 – 1,624 2,393 Disposals (16) – (8) – – (8,500) (1,798) (10,322) Increase due to acquisition of subsidiaries (Note 14) – 43,233 – – – – – 43,233 Currency translation adjustments 46 5,390 1,296 – – – 1,280 8,012 BALANCE AT DECEMBER 31, 2012 209,746 611,446 23,420 472,300 14,104 – 7,380 1,338,396

ACCUMULATED AMORTISATION AND IMPAIRMENT Balance at January 1, 2012 (294) (15,612) (12,303) (290,074) (6,261) (8,500) (1,562) (334,606) Amortisation charge (79) – (4,882) (51,300) (1,763) – (1,589) (59,613) Disposals 16 – 8 – – 8,500 709 9,233 Currency translation adjustments (13) (936) (848) – – – (113) (1,910) BALANCE AT DECEMBER 31, 2012 (370) (16,548) (18,025) (341,374) (8,024) – (2,555) (386,896)

NET BOOK VALUE AT DECEMBER 31, 2012 209,376 594,898 5,395 130,926 6,080 – 4,825 951,500

NET BOOK VALUE AT JANUARY 1, 2012 209,247 547,211 9,239 182,226 7,839 – 4,712 960,474

Movement in intangible assets for the year ended December 31, 2011 was as follows:

Customer Patents and Proprietary Goodwill Software relation- Backlog Other TOTAL trademarks technology ships

COST Balance at January 1, 2011 209,578 567,681 16,972 472,300 14,100 8,500 7,265 1,296,396 Additions 11 – 6,850 – – – 1,861 8,722 Disposals (4) – (861) – – – (2,537) (3,402) Currency translation adjustments (44) (4,858) (1,419) – – – (315) (6,636) BALANCE AT DECEMBER 31, 2011 209,541 562,823 21,542 472,300 14,100 8,500 6,274 1,295,080

ACCUMULATED AMORTISATION AND IMPAIRMENT Balance at January 1, 2011 (231) (13,328) (11,963) (226,389) (4,499) (8,500) (2,342) (267,252) Amortisation charge (81) – (2,309) (63,685) (1,762) – (1,397) (69,234) Impairment – (3,368) – – – – – (3,368) Disposals 1 – 849 – – – 2,117 2,967 Currency translation adjustments 17 1,084 1,120 – – – 60 2,281 BALANCE AT DECEMBER 31, 2011 (294) (15,612) (12,303) (290,074) (6,261) (8,500) (1,562) (334,606)

NET BOOK VALUE AT DECEMBER 31, 2011 209,247 547,211 9,239 182,226 7,839 – 4,712 960,474

NET BOOK VALUE AT JANUARY 1, 2011 209,347 554,353 5,009 245,911 9,601 – 4,923 1,029,144

46 F-50 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

20) Goodwill and Other Intangible Assets (continued)

Customer relationships represent non-contracted interactions with clients. Remaining amortisation period for customer relationships is 4-6 years. Customer relationships are amortised using the diminishing balance method which reflects the pattern of consumption of the economic benefits that customer relationships provide.

Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group.

Patents and trademarks include intangible assets with indefinite useful lives with the carrying value of 208,700 (2011: 208,700).

The carrying amount of goodwill and intangible assets with indefinite useful lives were allocated among cash-generating units as follows as at December 31:

2012 2011 Intangible assets Intangible assets Goodwill with indefinite Goodwill with indefinite

useful lives useful lives American division 472,968 208,700 472,968 208,700 Middle East division (Note 14) 39,945 – – – Oilfield division 31,755 – 29,957 – European division 6,329 – 6,185 – Kaztrubprom Plant 5,155 – 4,863 – Other cash-generating units 38,746 – 33,238 – 594,898 208,700 547,211 208,700

The Group determines whether goodwill and intangible assets with indefinite useful lives are impaired on an annual basis and when circumstances indicate the carrying value may be impaired.

Goodwill and intangible assets with indefinite useful lives were tested for impairment as at December 31, 2012. As a result of the test, the Group determined that the carrying values of all cash-generating units did not exceed their recoverable amounts. Consequently, no impairment losses were recognised in respect of goodwill and intangible assets with indefinite useful lives in the year ended December 31, 2012.

As at June 30, 2011, there were indicators of impairment of Kaztrubprom Plant cash-generating unit, therefore, the Group performed an impairment test at that date in respect of this unit. As a result of that test, the Group determined that the carrying value of Kaztrubprom Plant cash- generating unit exceeds its recoverable amount. Consequently, the Group recognised impairment of Kaztrubprom Plant cash-generating unit’s goodwill in the amount of 3,368.

47 F-51 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

20) Goodwill and Other Intangible Assets (continued)

For the purpose of impairment testing of goodwill the Group has determined value in use of each of its cash-generating units. The value in use has been calculated using cash flow projections based on the actual operating results and business plans approved by management and appropriate discount rates reflecting time value of money and risks associated with respective cash-generating unit or group of cash-generating units. The key assumptions used by management in calculation of the value in use are presented in the table below. For the periods not covered by management plans, cash flow projections have been estimated by extrapolating the respective business plans taking into account business cycles using zero growth rate.

Period of Pre-tax discount Cash-generating units forecast, years rate, % American division 5 12.11 Oilfield division 5 12.66 European division 5 13.19 Kaztrubprom Plant 5 11.79 Other cash-generating units 5 12.23

The recoverable amounts of American division, European division and Oilfield division are based on the business plans approved by management. The reasonably possible deviation of assumptions from these plans could lead to an impairment. The calculation of value in use of these cash- generating units was the most sensitive to the following assumptions:

Costs

If costs of American division were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to an impairment of goodwill in the amount of 396,895.

If costs of European division were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to the full impairment of goodwill in the amount of 6,329.

If costs of Oilfield division were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to an impairment of goodwill in the amount of 29,505.

Sales Prices

If prices of American division during the forecasted period were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 472,968.

If prices of European division during the forecasted period were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 6,329.

If prices of Oilfield division during the forecasted period were 5% lower than those assumed in the impairment test, this would lead to an impairment of goodwill in the amount of 30,507.

Volume of Production of Billets and Pipes

If the quantities of the units sold by American division were 5% lower than those assumed in the impairment test during the period of forecast, this would lead to an impairment of goodwill in the amount of 98,288.

48 F-52 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

20) Goodwill and Other Intangible Assets (continued)

With regard to the assessment of value in use of Kaztrubprom Plant and other cash-generating units no reasonably possible changes in the key assumptions would cause their carrying values to exceed their recoverable amounts.

21) Other Non-Current Assets

Other non-current assets consisted of the following:

2012 2011 Prepayments for acquisition of property, plant and equipment 93,576 80,389 Long-term trade receivables 18,272 71 Loans to employees 6,958 5,840 Restricted cash deposits for fulfillment of guaranties 2,749 7,850 Other 14,990 5,308 136,545 99,458 Allowance for doubtful debts (22,354) – 114,191 99,458

22) Trade and Other Payables

Trade and other payables consisted of the following:

2012 2011 Trade payables 612,038 653,100 Liabilities for VAT 58,709 55,103 Accounts payable for property, plant and equipment 47,748 42,282 Payroll liabilities 31,064 30,348 Accrued and withheld taxes on payroll 17,628 16,204 Liabilities for property tax 14,314 13,399 Liabilities under put options of non-controlling interest shareholders in subsidiaries 12,433 14,051 Sales rebate payable 9,152 7,926 Notes issued to third parties 5,386 8,408 Liabilities for other taxes 2,903 3,442 Other payables 44,194 18,677 855,569 862,940

23) Provisions and Accruals

Provisions and accruals consisted of the following:

2012 2011 Current: Provision for bonuses 26,527 21,488 Accrual for long-service benefit 14,447 10,209 Current portion of employee benefits liability 5,042 2,693 Accrual for unused annual leaves, current portion 3,930 10,549 Environmental provision, current portion 964 932 Other provisions 4,610 204 55,520 46,075 Non-current: Accrual for unused annual leaves 22,245 20,930 Provision for bonuses 3,277 – Environmental provision 3,094 4,406 Other provisions 677 – 29,293 25,336

49 F-53 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

24) Interest-Bearing Loans and Borrowings

Interest-bearing loans and borrowings consisted of the following:

2012 2011 Current: Bank loans 44,398 242,830 Interest payable 30,019 27,981 Current portion of non-current borrowings 418,738 329,009 Current portion of bearer coupon debt securities 574,569 – Unamortised debt issue costs (2,680) (2,269) Total short-term loans and borrowings 1,065,044 597,551

Non-current: Bank loans 2,697,918 2,459,613 Bearer coupon debt securities 1,074,568 1,043,806 Unamortised debt issue costs (11,552) (21,136) Less: current portion of non-current borrowings (418,738) (329,009) Less: current portion of bearer coupon debt securities (574,569) – Total long-term loans and borrowings 2,767,627 3,153,274

The carrying amounts of the Group’s borrowings were denominated in the following currencies:

Interest rates for the year 2012 Interest rates for the year 2011

Russian rouble Fixed 8.5% - 9.6% 1,776,496 Fixed 6.7% - 9.5% 1,712,829 Fixed 5.25% 412,401 Fixed 5.25% 385,981 Fixed 7.75% 513,423 Fixed 7.75% 512,935 Fixed 7% 401,222 Fixed 3.15% - 7% 447,541 US Dollar Cost of funds + 3% (*) 2,939 Cost of funds + 1.75% - 2.5% (*) 5,424 Variable: 527,617 Variable: 440,304 Libor (1m) + 2% - 3% Libor (1m) + 2.25% - 4.15%

Libor (3m - 12m) + 0.8% - 4% Libor (3m - 13m) + 1% - 2.75%

Fixed 5.19% 55,084 Fixed 5.19% 74,510 Variable: 136,627 Variable: 170,953 Euribor (1m) + 3.5% - 4% Euribor (1m) + 1.6% - 4.05% Euro Euribor (3m) + 1.7% - 4% Euribor (3m) + 2.7% - 3.5%

Euribor (6m) + 0.26% - 0.9% Euribor (6m) + 0.26% - 0.3% Euribor (10m - 15m) + 1.1%

Romanian Lei Robor (6m) + 3% 147 Robor (6m) + 3% 348 Omani Rial Fixed 8% 6,715 – 3,832,671 3,750,825

(*) Cost of funds represents internal rate of a bank.

Unutilised Borrowing Facilities

As at December 31, 2012, the Group had unutilised borrowing facilities in the amount of 1,536,687 (December 31, 2011: 736,163).

50 F-54 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

25) Convertible Bonds

On February 11, 2010, TMK Bonds S.A., the Group’s special purpose entity, completed the offering of 4,125 convertible bonds due 2015 convertible into Global Depository Receipts (“GDR”) each representing four ordinary shares of OAO TMK. The bonds are listed on the London Stock Exchange. The bonds have nominal value of 100,000 US dollars each and were issued at 100% of their principal amount. The convertible bonds carry a coupon of 5.25% per annum, payable on a quarterly basis. The conversion could be exercised at the option of bondholders on any date during the period commencing 41 days following the February 11, 2010 and ending on the date falling seven London business days prior to the maturity date or, if earlier, ending on the seventh day prior to any earlier date fixed for redemption of the Convertible bonds. As at December 31, 2012, the bonds are convertible into GDRs at conversion price of 22.308 US dollars per GDR (December 31, 2011: 22.927 US dollars per GDR). The conversion price was adjusted in the year ended December 31, 2012 as a result of dividends in respect of 2011 distributed by the parent entity.

The Group can early redeem all outstanding bonds, in whole but not in part, at any time on or after March 4, 2013 at their principal amount plus accrued interest, if the volume weighted average price of the GDRs traded on the London Stock Exchange during 30 consecutive dealing days exceeds 130 per cent of the conversion price (the “Issuer Call”). In addition, the Group has the option to redeem the bonds at the principal amount plus accrued interest if 15% or less of the bonds remain outstanding. Bondholders have the right to request redemption of the bonds on the third anniversary following the issue date at the principal amount plus accrued interest.

The Group determined that the convertible bonds represent a combined financial instrument containing two components: the bond liability (host component) and an embedded derivative representing conversion option in foreign currency combined with the Issuer Call (the “Embedded Conversion Option”).

The Embedded Conversion Option in foreign currency was classified as financial instrument at fair value through profit or loss. The Embedded Conversion Option was initially recognised at the fair value of 35,455. The Group used binomial options pricing model for initial and subsequent measurement of fair value of this embedded derivative. For the purposes of this model, the Group assessed that the credit spread comprised 673 bps and 1,094 bps as at December 31, 2012 and 2011, respectively. As at December 31, 2012, the fair value of the Embedded Conversion Option was 10,490 (December 31, 2011: 3,024). The change in the fair value of the embedded derivative during the year ended December 31, 2012 resulted in a loss of 7,466 (2011: gain of 44,792), which has been recorded as (loss)/gain on changes in fair value of derivative financial instruments in the income statement.

The fair value of the host component at the initial recognition date has been determined as a residual amount after deducting the fair value of the Embedded Conversion Option from the issue price of the convertible bonds adjusted for transaction costs. The host component is subsequently carried at the amortised cost using the effective interest method. As at December 31, 2012, the carrying value of the host component was 412,401 (December 31, 2011: 385,981). Due to the bondholder’s right to request redemption of the bonds on the third anniversary following the issue date, the bond liability was included to short-term loans and borrowings as at December 31, 2012.

There were no conversions of the bonds during the year ended December 31, 2012.

51 F-55 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

26) Finance Lease Liability

The Group’s finance lease obligations primarily related to machinery, equipment and motor vehicles with certain leases having renewal and purchase options at the end of lease term.

The carrying value of the leased assets was as follows as at December 31:

2012 2011 Machinery and equipment 42,761 26,030 Transport and motor vehicles 651 609 43,412 26,639

The leased assets were included in property, plant and equipment in the consolidated statement of financial position.

Future minimum lease payments under finance leases with the present value of the net minimum lease payments were as follows as at December 31, 2012:

Minimum Present value

payments of payments 2013 5,150 3,198 2014-2017 19,160 12,629 after 2017 43,348 36,416 Total minimum lease payments 67,658 52,243 Less amounts representing finance charges (15,415)

Present value of minimum lease payments 52,243 52,243

Future minimum lease payments under finance leases with the present value of the net minimum lease payments were as follows as at December 31, 2011:

Minimum Present value

payments of payments 2012 3,011 1,826 2013-2016 11,563 7,500 after 2016 32,456 26,790 Total minimum lease payments 47,030 36,116 Less amounts representing finance charges (10,914)

Present value of minimum lease payments 36,116 36,116

In the year ended December 31, 2012, the average interest rate under the finance lease liabilities was 4% (2011: 3%).

52 F-56 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

27) Employee Benefits Liability

The Group operates post-employment and other long-term employee benefit schemes in accordance with the collective bargaining agreements, local regulations and practices. These plans cover a large portion of the Group’s employees and include benefits in the form of lump-sum post-employment payments, pensions, financial support to pensioners, jubilee payments to employees and pensioners, etc. These benefits generally depend on years of service, level of compensation and amount of benefit under the collective bargaining agreement. The Group pays the benefits when they fall due for payment.

The following table summarises the components of net benefit expense/(income) recognised in the consolidated income statement and amounts recognised in the consolidated statement of financial position by country:

Russia USA Others Total 2012 2011 2012 2011 2012 2011 2012 2011 Movement in the benefit liability: At January 1 51,496 52,855 1,521 956 1,512 1,651 54,529 55,462 Benefit expense/(income) 1,373 3,371 1,036 707 502 (47) 2,911 4,031 Benefit paid (4,047) (1,768) – (142) (245) (83) (4,292) (1,993) Other – – – – 201 – 201 – Increase due to acquisition of subsidiaries (Note 14) – – – – 603 – 603 – Currency translation adjustment 3,052 (2,962) – – 11 (9) 3,063 (2,971) At December 31 51,874 51,496 2,557 1,521 2,584 1,512 57,015 54,529 Short-term 4,671 2,596 – – 371 97 5,042 2,693 Long-term 47,203 48,900 2,557 1,521 2,213 1,415 51,973 51,836

Current service cost 1,909 1,065 509 380 62 88 2,480 1,533 Interest cost on benefit obligation 4,517 2,092 73 55 130 150 4,720 2,297 Net actuarial (gain)/loss recognised in the period (5,271) (484) 454 272 257 (263) (4,560) (475) Past service cost 218 698 – – 53 (22) 271 676 Net benefit expense/(income) 1,373 3,371 1,036 707 502 (47) 2,911 4,031

Net benefit expense/(income) was recognised as cost of sales, general and administrative expenses and selling and distribution expenses in the income statement for the years ended December 31, 2012 and 2011.

2012 2011 Present value of defined benefit obligation 58,948 56,455 Unrecognised past service cost (1,933) (1,926) Benefit liability as at December 31 57,015 54,529

The Group had no plan assets and unrecognised actuarial gains or losses in the years ended December 31, 2012 and 2011.

53 F-57 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

27) Employee Benefits Liability (continued)

The following table is a summary of the present value of the benefit obligation and experience adjustments as at December 31:

2012 2011 Defined benefit obligation as at December 31 58,948 56,455 Experience adjustments on plan liabilities (2,609) 325

The principal actuarial assumptions used in determining defined benefit obligations for the Group’s plans are shown below:

Russia USA Others 2012 2011 2012 2011 2012 2011 Discount rate 7.3% 8.3% 4.4% 4.9% 6.3% 7.2%

Average long-term rate of 6.4% 6.7% 3.5% 3.5% 4.3% - 4.5% 4.4% compensation increase

28) Other Non-Current Liabilities

Other non-current liabilities consisted of the following:

2012 2011 Liabilities under put options of non-controlling interest shareholders in subsidiaries 25,648 20,898 Derivative financial instruments 3,950 – Deferred government grants 2,334 – Other long-term liabilities 10,924 11,627 42,856 32,525

During the year ended December 31, 2012, the Group received grants from the government for the purchase of certain equipment. As at December 31, 2012, there was a reasonable assurance that the Group will comply with all conditions attached to grants. Consequently, government grants were included in non-current liabilities as deferred government grants.

54 F-58 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

29) Principal Subsidiaries

Effective ownership interest Company Location December 31, 2012 December 31, 2011 Manufacturing facilities OAO "Seversky Tube Works" Russia 96.33% 94.63% OAO "Sinarsky Pipe Plant" Russia 97.28% 94.40% OAO "Taganrog Metallurgical Works" Russia 96.38% 96.13% OAO "Volzhsky Pipe Plant" Russia 100.00% 100.00% OOO "TMK-INOX" * Russia 49.61% 48.15% ZAO "TMK-CPW" * Russia 49.13% 48.26% OAO "Orsky Machine Building Plant" Russia 75.00% 75.00% IPSCO Tubulars Inc. USA 100.00% 100.00% IPSCO Koppel Tubulars, L.L.C. USA 100.00% 100.00% IPSCO Tubulars (KY) Inc. USA 100.00% 100.00% IPSCO Tubulars (OK) Inc. USA 100.00% 100.00% Ultra Premium Oilfield Services, Ltd USA 100.00% 100.00% S.C. TMK-ARTROM S.A. Romania 92.73% 92.66% S.C. TMK-RESITA S.A. Romania 100.00% 100.00% TOO "ТМК-Kaztrubprom" Kazakhstan 100.00% 100.00% Gulf International Pipe Industry LLC Oman 55.00% 0.00% Services for oilfield and gas industries OOO "TMK-Premium Services" Russia 100.00% 100.00% OOO "Predpriyatiye "Truboplast" Russia 100.00% 100.00% ZAO "Pipe Repair Department" Russia 100.00% 100.00% OOO "Central Pipe Yard" Russia 100.00% 100.00% OOO "TMK Oilfield Services" Russia 100.00% 100.00% OFS International LLC USA 75.00% 0.00% Threading & Mechanical Key Premium L.L.C ** UAE 49.00% 0.00% Trading companies ZAO "Trade House TMK" Russia 100.00% 100.00% ООО "Skladskoy Kompleks ТМК" Russia 100.00% 100.00% TMK IPSCO INTERNATIONAL, L.L.C. USA 100.00% 100.00% TMK North America Inc. USA 100.00% 100.00% TMK IPSCO Canada, Ltd. Canada 100.00% 100.00% TMK Europe GmbH Germany 100.00% 100.00% TMK Italia s.r.l. Italy 100.00% 100.00% TMK Middle East FZCO UAE 100.00% 100.00% TOO "TMK-Kazakhstan" Kazakhstan 100.00% 100.00% TMK Global S.A. Switzerland 100.00% 100.00% TMK Africa Tubulars (PTY) Ltd. South Africa 100.00% 100.00% Research and development OAO "Russian Research Institute of the Tube and Pipe Industries" Russia 97.36% 97.36% Financing and other activities OAO "Sinarskaya heat and power plant" Russia 66.92% 64.93% OOO "Accounting services center" Russia 100.00% 100.00% OOO "Pokrovka 40" Russia 100.00% 100.00% OOO "Blagoustroystvo" Russia 100.00% 100.00% OOO "Uralskiy Dvor" Russia 100.00% 0.00% OOO "SinaraTransAvto" Russia 97.28% 94.40% OOO "TMK-Trans" Russia 100.00% 100.00% TMK NSG L.L.C. (former NS Group, Inc.) USA 100.00% 100.00% UPOS GP L.L.C. USA 100.00% 100.00% UPOS L.L.C. USA 100.00% 100.00% Blytheville Finance Corporation USA 100.00% 100.00% TMK Capital S.A. Luxembourg 0.00% 0.00% TMK Bonds S.A. Luxembourg 0.00% 0.00% TMK Holdings S.a r.l. Luxembourg 100.00% 0.00% OFS Development S.a r.l. Luxembourg 75.00% 0.00% Rockarrow Investments Ltd. Cyprus 100.00% 100.00% Capitoline Holdings Limited Cyprus 100.00% 0.00% TMK Real Estate SRL (former Sinara Imobiliare SRL) Romania 100.00% 0.00% TMK Assets SRL (former SNR Properties SRL) Romania 100.00% 0.00% TMK Land S.A. (former Aranis Developments SRL) Romania 100.00% 0.00%

* The Group recorded a liability under put option in the consolidated financial statements ** The Group has power to exercise control over the subsidiary’s operations.

55 F-59 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Related Parties Disclosures

Compensation to Key Management Personnel of the Group

Key management personnel comprise members of the Board of Directors, the Management Board and certain executives of the Group, totaling 31 persons as at December 31, 2012 (29 persons as at December 31, 2011).

The Group provides compensation to key management personnel only in the form of short-term employee benefits, which include: • Wages, salaries, social security contributions and other benefits in the amount of 14,855 for the year ended December 31, 2012 (2011: 15,211); • Provision for performance bonuses which are dependent on operating results for 2012 year in the amount of 5,032 for the year ended December 31, 2012 (2011: 4,335).

The amounts disclosed above are recognised as general and administrative expenses in the income statement for the years ended December 31, 2012 and 2011.

In the years ended December 31, 2012 and 2011, the Group did not provide compensation to key management personnel in the form of post-employment benefits, other long-term benefits, share- based payment or termination benefits.

The balance of loans issued to key management personnel amounted to 1,194 as at December 31, 2012 (December 31, 2011: 1,103).

The Group guaranteed debts of key management personnel outstanding as at December 31, 2012 in the amount of 2,582 with maturity in 2014-2016 (December 31, 2011: 2,574).

Transactions with the Parent of the Company and Entities under Common Control with the Parent of the Company

In June 2012, the Group approved the distribution of final dividends in respect of 2011, from which 1,763,813 thousand Russian roubles (53,176 at the exchange rate at the date of approval) related to the parent of the Company and entities under common control with the parent of the Company. In August 2012, these dividends were paid in full amount.

In November 2012, the Group approved the distribution of interim dividends in respect of 2012, from which 1,008,046 thousand Russian roubles (32,138 at the exchange rate at the date of approval) related to the parent of the Company and entities under common control with the parent of the Company. As at December 31, 2012 no interim dividends were paid to the parent of the Company and entities under common control with the parent of the Company.

Transactions with Associates

During the year ended December 31, 2012, the Group rendered no services to its associates and received services from its associates in the amount of 566 (2011: 415 and 532, respectively).

56 F-60 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Related Parties Disclosures (continued)

Transactions with Other Related Parties

The following table provides balances with other related parties as at December 31:

2012 2011 Cash and cash equivalents 43,548 125,687 Accounts receivable 1,992 5,417 Prepayments 16 109 Accounts payable (53,914) (733)

Accounts payable to related parties included accounts payable for raw materials in the amount of 41,383 as at December 31, 2012.

On October 18, 2012, the Group acquired three real estate companies in Romania whose principal assets comprised of office building, residential property and land for 11,586 (at the historical exchange rate). The acquired buildings and land were considered an asset acquisition. The most part of consideration will be paid to the related party of the Group in order to settle the liability of the acquired companies. The liability of the acquired companies in the amount of 11,685 (at exchange rate as at December 31, 2012) was included in accounts payable to related parties in the statement of financial position.

The following table provides the total amount of transactions with other related parties for the years ended December 31:

2012 2011 Sales revenue 14,217 12,440 Purchases of goods and services 688,405 8,700 Interest income from loans and borrowings 647 614 Interest expenses from loans and borrowings 27 235

Purchases of goods and services from related parties during the year ended December 31, 2012 included purchases of raw materials in the amount of 680,321.

31) Contingencies and Commitments

Operating Environment of the Group

Significant part of the Group’s principal assets are located in the Russian Federation and USA, therefore its significant operating risks are related to the activities of the Group in these countries.

Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy is vulnerable to market downturns and global economic slowdowns. The global financial crisis has resulted in uncertainty regarding further economic growth, availability of financing and cost of capital, which could negatively affect the Group’s future financial position, results of operations and business prospects.

57 F-61 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

31) Contingencies and Commitments (continued)

Operating Environment of the Group (continued)

The US economy stays on a moderate growth path: activity in the industrial sector remains tenuous, businesses keep hiring at a modest pace. The specialists forecast little improvement in consumption growth, significantly reduced growth in investments in equipment and software and reduced growth in industrial production. An uncertainty over the US economic growth could have a negative impact on the Group’s future financial position, results of operations and business prospects.

Management believes it is taking appropriate measures to support the sustainability of the Group’s business in the current circumstances.

Taxation

Tax, currency and customs legislation is subject to varying interpretations 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. Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities based on management’s best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities.

Up to the date of authorisation of these consolidated financial statements for issuance, the court proceedings and pre-trial disputes had not been finalised for the claims in the amount of 46,263 thousand Russian roubles (1,523 at the exchange rate as at December 31, 2012). Management believes that the Group’s position is justified and it is not probable that the ultimate outcome of these matters will result in additional losses for the Group. Consequently, the amounts of the claims being contested by the Group were not accrued in the consolidated financial statements for the year ended December 31, 2012.

Contractual Commitments and Guarantees

The Group had contractual commitments for the acquisition of property, plant and equipment from third parties in the amounts of 263,743 and 192,954 as at December 31, 2012 and 2011, respectively (contractual commitments were expressed net of VAT). As at December 31, 2012, the Group had advances of 93,576 with respect to commitments for the acquisition of property, plant and equipment (December 31, 2011: 80,389). These advances were included in other non-current assets.

Under contractual commitments disclosed above, the Group opened unsecured letters of credit in the amount of 33,492 (December 31, 2011: 8,739).

Insurance Policies

The Group currently maintains insurance against losses that may arise in case of property damage, accidents, transportation of goods. The Group also maintains corporate product liability and directors and officers liability insurance policies. Nevertheless, any recoveries under maintained insurance coverage that may be obtained in the future may not offset the lost revenues or increased costs resulting from a disruption of operations. 58 F-62 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

31) Contingencies and Commitments (continued)

Legal Claims

During the 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 effect on the result of operations or financial position of the Company.

Guarantees of Debts of Others

The Group guaranteed debts of others outstanding as at December 31, 2012 in the amount of 3,275 (December 31, 2011: 3,378).

32) Equity i) Share Capital

2012 2011 Number of shares Authorised Ordinary shares of 10 Russian roubles each 937,586,094 937,586,094 Issued and fully paid Ordinary shares of 10 Russian roubles each 937,586,094 937,586,094 ii) Reserve Capital

According to Russian Law, the Company must create a reserve capital in the amount of 5% of the share capital per the Russian statutory accounts by annual appropriations that should be at least 5% of the annual net profit per the statutory financial statements. The reserve capital can be used only for covering losses and for the redemption of the Company’s bonds and purchase of its own shares if there are no other sources of financing.

In 2011, the Company increased reserve capital by 32,292 Russian roubles (1,003 at the exchange rate as at December 31, 2011) to the amount of 5% of the share capital per the Russian statutory accounts. No additional appropriation of profit to the reserve was required as at December 31, 2012. iii) Dividends Declared by the Parent Entity to its Shareholders

On June 26, 2012, the annual shareholder meeting approved final dividends in respect of 2011 in the amount of 2,531,482 thousand Russian roubles (76,320 at the exchange rate at the date of approval) or 2.70 Russian roubles per share (0.08 US dollars per share), from which 200,935 thousand Russian roubles (6,058 at the exchange rate at the date of approval) related to the treasury shares in possession of the Group.

On November 2, 2012, the extraordinary shareholders’ meeting approved interim dividends in respect of six months 2012 in the amount of 1,406,379 thousand Russian roubles (44,837 at the exchange rate at the date of approval) or 1.50 Russian roubles per share (0.05 US dollars per share), from which 111,631 thousand Russian roubles (3,559 at the exchange rate at the date of approval) related to the treasury shares in possession of the Group.

59 F-63 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

32) Equity (continued) iv) Dividends Declared by Subsidiaries of the Group to the Non-controlling Interest Owners

During the years ended December 31, 2012 and 2011, the Group’s subsidiaries declared dividends to the non-controlling interest owners in the amounts of 1,571 and 338, respectively. v) Acquisition of Non-controlling Interests in Subsidiaries

In the year ended December 31, 2012, the Company purchased additional 0.74% of OAO “Seversky Tube Works” shares, 0.57% of OAO “Sinarsky Pipe Plant” shares and 0.25% of OAO “Taganrog Metallurgical Works” shares for cash consideration of 4,160. The excess in the amount of 1,711 of the carrying values of net assets attributable to the acquired interests over the consideration paid was recorded in additional paid-in capital.

In the year ended December 31, 2011, the Company purchased additional 0.26% of OAO “Seversky Tube Works” shares, 0.13% of OAO “Sinarsky Pipe Plant” shares, 0.03% of OAO “Taganrog Metallurgical Works” shares. The total cash consideration for the shares amounted to 1,374. The excess in the amount of 14 of the consideration given for the shares over the carrying values of net assets attributable to interest in OAO “Taganrog Metallurgical Works” was charged to accumulated profit. The excess in the amount of 439 of the carrying values of net assets attributable to interest in OAO “Seversky Tube Works” and OAO “Sinarsky Pipe Plant” over the consideration paid for such non-controlling interest was recorded in additional paid-in capital. vi) Acquisition of Non-controlling Interests in Subsidiaries in Exchange for Treasury Shares

In the year ended December 31, 2012, the Company acquired 0.96% of OAO “Seversky Tube Works” shares and 2.31% of OAO “Sinarsky Pipe Plant” shares in exchange for 1,860,868 treasury shares of the Company. The excess in the amount of 4,900 of the carrying values of net assets attributable to the acquired interests over the value of treasury shares transferred (Note 32 x) was recorded in additional paid-in capital. vii) Contributions from Non-controlling Interest Owners

On December 24, 2012, the Group increased share capital of Gulf International Pipe Industry LLC. The share capital increase was partially financed by the non-controlling interest shareholders. Consideration received from the non-controlling interest shareholders amounted to 16,245 and comprised of cash in the amount of 10,265 and loans converted into the share capital in the amount of 5,980. viii) Sale of Non-controlling Interests

In the year ended December 31, 2011, the Group increased share capital of OOO “TMK-INOX”. The share capital increase was partially financed by the non-controlling interest shareholder. Cash consideration received from the non-controlling interest shareholder amounted to 298,500 thousand Russian roubles (9,265 at historical exchange rate). The difference between the consideration received and the carrying values of net assets attributable to non-controlling interests in the amount of 42 was charged to accumulated profit.

60 F-64 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

32) Equity (continued) ix) Recognition of the Change in Non-controlling Interests in the Subsidiary as an Equity Transaction

• Non-controlling interest shareholder of OOO “TMK-INOX” has a right to sell its ownership interest to the Group under certain circumstances beyond the Group’s control starting 2018. The terms of the put option do not provide the Group with a present ownership interest in the shares subject to the put, thus the Group accounted for this put option as an equity transaction:the Group derecognised the non-controlling interest’s share of profit in OOO “TMK-INOX”, net of dividends attributable, in the amount of 557 in the year ended December 31, 2012 as if it was acquired at that date (2011: change in non-controlling interests amounted to 9,609, including 302 of the non-controlling interest’s share of profit, net of dividends attributable); • the Group recorded change in the fair value of financial liability in respect of put option held by non-controlling interest shareholder of OOO “TMK-INOX” and accounted for the difference between the non-controlling interest in OOO “TMK-INOX” derecognised and the change in fair value of financial liability in the amount of 2,857 in additional paid-in capital (2011: 7,657). x) Treasury Shares

2012 2011 Number of Number of Cost Cost shares shares Outstanding as at January 1 74,420,496 327,339 71,575,796 318,351 Treasury shares purchased during the year – – 2,844,700 8,988 Treasury shares transferred as consideration for the acquisition of non-controlling interests (Note 32 vi) (1,860,868) (8,190) – – Outstanding as at December 31 72,559,628 319,149 74,420,496 327,339 xi) Derecognition of Non-controlling Interests Due to the Expiration of Subscription Rights

In the year ended December 31, 2012, the Group derecognised the non-controlling interests in SC TMK-ARTROM SA in the amount of 73 as a result of the expiration of subscription rights. xii) Increase in Non-controlling Interests from Contribution of Assets by the Group

During the year ended December 31, 2011, the Group made additional contribution of assets to the capital of OAO “Sinarskaya heat and power plant”. As a result of the transaction, net assets attributable to non-controlling interests increased by 202. The effect of the increase of non- controlling interests in the amount of 202 was charged to accumulated profit.

61 F-65 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

32) Equity (continued) xiii) Hedges of Net Investment in Foreign Operations

At the date of the acquisition of controlling interests in NS Group, Inc. and IPSCO Tubulars, Inc. the Group hedged its net investment in these operations against foreign currency risk using borrowings in US dollars made by Russian companies of the Group. As at December 31, 2012, the Group designated US dollar denominated loans in the amount of 1,158,610 (December 31, 2011: 1,158,610) as the hedging instrument. The aim of the hedging was to eliminate foreign currency risk associated with the repayment of these liabilities resulting from changes in US dollar/Russian rouble spot rates.

The effectiveness of the hedging relationship was tested using the dollar offset method by comparing the cumulative gains or losses due to changes in US dollar / Russian rouble spot rates on the hedging instrument and on the hedged item. In the year ended December 31, 2012, the effective portion of net gains from spot rate changes in the amount of 1,864,262 thousand Russian roubles (60,427 at historical exchange rates), net of income tax of 372,852 thousand Russian roubles (12,085 at historical exchange rates), was recognised in other comprehensive income. xiv) Movement on Cash Flow Hedges

The Group hedges its exposure to foreign currency risk using currency forwards and its exposure to variability in cash flows attributable to interest rate risk using interest rate swaps.

The details of movement on cash flow hedges during the year ended December 31, 2012 are presented in the following table:

Currency Interest rate forward Total swap contracts contracts Cash flow hedges Loss arising during the period (665) (3,950) (4,615) Recognition of realised results in the income statement 617 – 617 Movement on cash flow hedges (48) (3,950) (3,998) Income tax 5 967 972 Movement on cash flow hedges, net of tax (43) (2,983) (3,026)

33) Financial Risk Management Objectives and Policies

In the course of its business, the Group is exposed to a number of financial risks: market risk (including interest rate risk, foreign currency risk and other price risk), liquidity risk and credit risk. The presented information shows susceptibility of the Group concerning each of these risks. The Board of Directors reviews and establishes policies for managing each of these risks which are summarised below.

62 F-66 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Market Risk

The Group is exposed to risk from movements in interest rates, foreign currency exchange rates and market prices that affect its assets, liabilities and anticipated future transactions. The objective of market risk management is to manage and control market risk exposures, while optimising the return on the risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Group’s interest rate risk management policy is to minimise risk with the aim to achieve financial structure objectives defined and approved in the management’s plans. Borrowing requirements of the Group’s companies are pooled by the Group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits.

The Group borrows on both a fixed and variable rate basis. EURIBOR and LIBOR served as the basis for the calculation of interest rates on loans with variable rate. The Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. Variable rate loans accounted for 11% of the total loan portfolio at the end of 2012, after taking into account the effect of interest rate swaps (16% at the end of 2011).

The Group does not have any financial assets with variable interest rate.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:

Effect on profit Basis points before tax As at December 31, 2012 Increase in LIBOR 5 (128) Decrease in LIBOR (5) 128

Increase in EURIBOR 16 (225) Decrease in EURIBOR (16) 225 As at December 31, 2011 Increase in LIBOR 15 (660) Decrease in LIBOR (15) 660

Increase in EURIBOR 15 (262) Decrease in EURIBOR (15) 262

63 F-67 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Foreign Currency Risk

The Group’s exposure to currency risk relates to sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group’s subsidiaries, and the Group’s net investments in foreign operations. The currencies in which these transactions and balances primarily denominated are US dollars and euro.

The Group’s exposure to currency risk determined as the net monetary position in respective currencies was as follows as at December 31:

2012 2011 USD/RUR (1,320,539) (1,336,893) EUR/RUR (144,625) (198,643) USD/EUR 3,864 (17,634) USD/RON (12,699) (11,445) EUR/RON (59,464) (70,128) KZT/RUR 3,414 5,621 USD/CAD (5,458) (12,040)

The Group hedged its net investments in foreign operations against foreign currency risk using borrowings in US dollars made by Russian companies of the Group and its exposure to currency risk related to USD and EUR denominated sales of Romanian subsidiaries using USD/RON and EUR/RON forward contracts. The Group doesn’t have other formal arrangements to manage currency risks of the Group’s operations and balances. However, the Group seeks to bring its financial liabilities in foreign currency in line with export net sales, thus mitigating currency risk.

The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant, of the Group’s profit before tax and other comprehensive income. The movement in other comprehensive income arises from gains or losses on the US borrowings related to the effective portion of the hedge of net investments in foreign operations (Note 32 xiii). In estimating reasonably possible changes for 2012 and 2011 the Group assessed the volatility of foreign exchange rates during the three years preceding the end of the reporting period.

As at December 31, 2012 Effect on other comprehensive Volatility range Effect on profit before tax income Low High Low High Low High USD/RUR 10.81% -10.81% (29,492) 29,492 (113,304) 113,304 EUR/RUR 8.45% -8.45% (12,221) 12,221 – – USD/EUR 10.72% -10.72% 414 (414) – – USD/RON 12.73% -12.73% (1,617) 1,617 – – EUR/RON 4.45% -4.45% (2,645) 2,645 – – KZT/RUR 10.45% -10.45% 357 (357) – – USD/CAD 9.01% -9.01% (492) 492 – –

64 F-68 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Foreign Currency Risk (continued)

As at December 31, 2011 Effect on other comprehensive Volatility range Effect on profit before tax income Low High Low High Low High USD/RUR 12.57% -12.57% (22,410) 22,410 (145,637) 145,637 EUR/RUR 9.96% -9.96% (19,785) 19,785 – – USD/EUR 11.44% -11.44% (2,017) 2,017 – – USD/RON 14.24% -14.24% (1,630) 1,630 – – EUR/RON 5.04% -5.04% (3,537) 3,537 – – KZT/RUR 16.88% -16.88% 949 (949) – – USD/CAD 11.61% -11.61% 70 (70) – –

Other Price Risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

The Group’s exposure to other price risk relates to changes of the fair value of the Embedded Conversion Option (Note 25) as a result of fluctuations of GDR’s quotations. The Group manages its exposure to other price risk by holding treasury shares in the quantity corresponding to the number of shares in which convertible bonds are convertible. The reasonably possible changes in the price of underlying GDRs, with all other variables held constant, would have an effect on the Group’s profit before tax. In estimating reasonably possible fluctuations of GDR’s quotations, the Group assessed the volatility of GDRs during the year ended December 31, 2012. A 38.01% increase to the value of GDR as at December 31, 2012 would reduce profit before tax by 42,047. A 38.01% decrease from the value of GDR as at December 31, 2012 would result in the increase of profit before tax by 10,490.

Liquidity Risk

Liquidity risk arises when the Group encounters difficulties to meet commitments associated with liabilities and other payment obligations. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives. This enables the Group to maintain an appropriate level of liquidity and financial capacity as to minimise borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. The Group has access to a wide range of funding at competitive rates through the capital markets and banks and coordinates relationships with banks centrally. At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.

65 F-69 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Liquidity Risk (continued)

Effective management of the liquidity risk has the objective of ensuring both availability of adequate funding to meet short-term requirements and due obligations, and a sufficient level of flexibility in order to fund the development plans of the Group’s business, maintaining an adequate finance structure in terms of debt composition and maturity. This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including interest payments:

As at December 31, 2012 Less than 3 to 12 1 to 2 2 to 3 3 to 4 > 4 years Total 3 months months years years years Trade and other payables 641,487 70,523 – – – – 712,010 Accounts payable to related parties 84,351 2,752 – – – – 87,103 Interest-bearing loans and borrowings: Principal 543,101 497,158 761,742 586,044 631,393 800,000 3,819,438 Interest 68,635 172,921 172,557 133,389 86,714 60,418 694,634 Finance lease liability 1,561 3,589 4,861 4,888 4,781 47,978 67,658 Dividends payable 303 – – – – – 303 Liabilities under put options of non-controlling interest shareholders in subsidiaries 12,433 – – – – 25,648 38,081 Other non-current liabilities – – 427 314 1,152 9,031 10,924 1,351,871 746,943 939,587 724,635 724,040 943,075 5,430,151

As at December 31, 2011 Less than 3 to 12 1 to 2 2 to 3 3 to 4 > 4 years Total 3 months months years years years Trade and other payables 716,807 5,521 – – – – 722,328 Accounts payable to related parties 733 – – – – – 733 Interest-bearing loans and borrowings: Principal 142,967 428,872 793,248 695,260 325,084 1,384,810 3,770,241 Interest 73,140 178,017 203,328 139,538 108,805 140,762 843,590 Finance lease liability 774 2,237 2,709 2,931 2,701 35,678 47,030 Dividends payable 323 – – – – – 323 Liabilities under put options of non-controlling interest shareholders in subsidiaries 14,051 – – – – 20,898 34,949 Other non-current liabilities – – 403 595 1,129 9,500 11,627 948,795 614,647 999,688 838,324 437,719 1,591,648 5,430,821

Credit Risk

Credit risk is the potential exposure of the Group to losses that would be recognised if counterparties failed to perform or failed to pay amounts due. Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and trade accounts receivable.

66 F-70 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Credit Risk (continued)

The credit risk arising from the Group’s normal commercial operations is controlled by each operating unit within Group-approved procedures for evaluating the reliability and solvency of each counterparty, including receivable collection. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines and measurement techniques to qualify and monitor counterparty risk.

The Group sells goods to some of the biggest Russian and international companies on credit terms. It is the Group’s policy that all customers applying for the credit terms are subject to credit verification procedures.

As at December 31, 2012, accounts receivable from the three biggest debtors of the Group amounted to 270,423 (December 31, 2011: 256,961). Management determines concentration by reference to receivables from particular customers as percentage of total accounts receivable.

The maximum exposure to credit risk is equal to the carrying amount of financial assets, which are disclosed below:

2012 2011 Cash and cash equivalents 225,061 230,593 Trade and other receivables 922,932 766,226 Accounts receivable from related parties 1,992 5,417 Other financial assets 4,008 4,047 Other 9,807 13,690 1,163,800 1,019,973

The ageing analysis of trade and other receivables, accounts receivable from related parties and other financial assets is presented in the table below:

2012 2011 Gross amount Impairment Gross amount Impairment Current trade and other receivables – not past due 679,590 (420) 636,820 (2,345) Current trade and other receivables – past due – – less than 30 days 137,564 (884) 77,758 (990) between 30 and 90 days 60,129 (630) 24,139 (3,489) over 90 days 55,449 (18,471) 59,220 (24,958) Accounts receivable from related parties – not past due 1,992 – 5,417 – Non-current trade and other receivables – not past due 32,959 (22,354) 71 – Other – not past due 9,807 – 13,690 – 977,490 (42,759) 817,115 (31,782)

67 F-71 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Credit Risk (continued)

Movement in allowance for doubtful debts was as follows:

2012 2011 Balance at the beginning of the year 31,782 17,947 Utilised during the year (2,068) (3,431) Additional increase in allowance 11,061 19,551 Currency translation adjustment 1,984 (2,285) Balance at the end of the year 42,759 31,782

Capital Management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise the return to shareholders. The Board of directors reviews the Group’s performance and establishes key performance indicators. In addition, the Group is subject to externally imposed capital requirements (debt covenants) which are used for capital monitoring. Through 2012, the Group was in compliance with such externally imposed capital requirements. The Group met its objectives for managing capital.

Capital includes equity attributable to the equity holders of the parent entity. The Group manages its capital structure and adjusts it by issue of new shares, dividend payments to shareholders, purchase of treasury shares. The Group monitors the compliance of the amount of legal reserve with the statutory requirements and makes appropriations of profits to legal reserve. In addition, the Group monitors distributable profits on a regular basis and determines the amounts and timing of dividend payments.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, such as cash and cash equivalents, short-term investments, short-term accounts receivable and short-term loans approximate their fair value.

The following table shows financial instruments which carrying amounts differ from fair values:

As at December 31, 2012 As at December 31, 2011 Net carrying Net carrying Fair value Fair value amount amount Financial liabilities Fixed rate long-term bank loans 2,046,239 2,043,917 1,778,324 1,776,743 Variable rate long-term bank loans 397,937 386,896 467,749 439,413 Russian bonds due 2013 164,622 164,786 155,298 155,143 5.25 per cent convertible bonds 409,946 411,560 388,508 384,054 7.75 per cent loan participation notes due 2018 500,000 527,000 500,000 429,690

68 F-72 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

33) Financial Risk Management Objectives and Policies (continued)

Fair Value of Financial Instruments (continued)

The fair value of the bonds and notes was determined based on market quotations. The fair value of fixed-rate bank loans was calculated based on the present value of future principal and interest cash flows, discounted at prevailing interest rates of 9%, 7% and 5% per annum for loans denominated in Russian rouble, US dollar and euro, respectively, as at December 31, 2012 (9%, 7% and 5% per annum for loans denominated in Russian rouble, US dollar and euro, respectively, as at December 31, 2011).

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

As at December 31, 2012 and 2011, the Group held the following financial instruments measured at fair value:

2012 Level 2 2011 Level 2 Foreign exchange forward contracts 15 15 – – Total current assets measured at fair value 15 15 – –

Embedded Conversion Option (10,490) (10,490) (3,024) (3,024) Foreign exchange forward contracts (30) (30) – – Total current derivative financial instruments (10,520) (10,520) (3,024) (3,024) – Interest rate swaps (3,950) (3,950) – – Total non-current derivative financial instruments (3,950) (3,950) – –

During the reporting period, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

34) Subsequent Events

Convertible Bonds

According to the Terms and Conditions of the convertible bonds the issuer had to redeem the bonds at the option of the bondholder on February 11, 2013. To exercise such option the holder should have duly submitted such bond for redemption within particular period of time. Up to the date of these financial statements have been authorised for issuance no Bonds were redeemed and full issue was left outstanding.

69 F-73 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

34) Subsequent Events (continued)

Acquisition of Gulf International Pipe Industry LLC

In January-February 2013, the Group paid 8,000 of purchase consideration for the acquisition of Gulf International Pipe Industry LLC. As at the date of authorisation of these consolidated financial statements for issuance, the unpaid amount of the purchase consideration was 3,700.

70 F-74

OAO TMK

Consolidated Financial Statements for the year ended December 31, 2011

F-75

Ernst & Young LLC ООО «Эрнст энд Янг» Sadovnicheskaya Nab., 77, bld. 1 Россия, 115035, Москва Moscow, 115035, Russia Садовническая наб., 77, стр. 1

Tel: +7 (495) 705 9700 Тел: +7 (495) 705 9700 +7 (495) 755 9700 +7 (495) 755 9700 Fax: +7 (495) 755 9701 Факс: +7 (495) 755 9701 www.ey.com/ ОКПО: 59002827

Independent auditors’ report

To the shareholders and Board of Directors OAO TMK

We have audited the accompanying consolidated financial statements of OAO TMK and its subsidiaries (‘the Group’), which comprise the consolidated statement of financial position as at December 31, 2011, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

F-76 A member firm of Ernst & Young Global Limited

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at December 31, 2011, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

March 15, 2012

F-77

OAO TMK

Consolidated Financial Statements

for the year ended December 31, 2011

Contents Consolidated Income Statement ...... 2 Consolidated Statement of Comprehensive Income ...... 3 Consolidated Statement of Financial Position ...... 4 Consolidated Statement of Changes in Equity ...... 5 Consolidated Statement of Cash Flows ...... 7

Notes to the Consolidated Financial Statements ...... 8

Corporate Information ...... 8

Basis of Preparation of the Financial Statements ...... 8 Statement of Compliance ...... 8 Basis of Accounting ...... 8 Functional and Presentation Currency ...... 9

Significant Estimates and Assumptions ...... 10 Impairment of Property, Plant and Equipment ...... 10 Useful Lives of Items of Property, Plant and Equipment ...... 10 Fair Value of Assets and Liabilities Acquired in Business Combinations...... 10 Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives ... 11 Post-Employment Benefits ...... 11 Allowances ...... 11 Litigations ...... 12 Current Taxes...... 12 Deferred Tax Assets ...... 12

Significant Judgments ...... 13 Consolidation of Special Purpose Entities ...... 13

Changes in Accounting Policies ...... 13

Significant Accounting Policies ...... 18

Index to the Notes to the Consolidated Financial Statements ...... 31

1 F-78

OAO TMK Consolidated Income Statement for the year ended December 31, 2011 (All amounts in thousands of US dollars)

Year ended December 31, NOTES 2011 2010

Revenue: 1 6,753,517 5,578,599 Sales of goods 6,645,963 5,421,084 Rendering of services 107,554 157,515

Cost of sales 2 (5,307,243) (4,285,349)

Gross profit 1,446,274 1,293,250

Selling and distribution expenses 3 (411,252) (403,143)

Advertising and promotion expenses 4 (9,204) (11,099)

General and administrative expenses 5 (282,785) (231,975)

Research and development expenses 6 (18,690) (13,309)

Other operating expenses 7 (53,325) (44,978) Other operating income 8 13,090 11,042 Impairment of goodwill 19 (3,368) – Impairment of investment in associate 10 (1,833) – Reversal of impairment of property, plant and equipment 18 73,417 – Foreign exchange (loss)/gain, net (1,254) 9,512 Finance costs (302,786) (430,586) Finance income 9 32,063 18,895 Gain/(loss) on changes in fair value of derivative financial instrument 24 44,792 (12,361) Share of loss of assoсiate 10 (185) – Gain on disposal of assets classified as held for sale 11 19,184 –

Profit before tax 544,138 185,248

Income tax expense 12 (159,441) (81,174)

Profit/(loss) for the year 384,697 104,074

Attributable to: Equity holders of the parent entity 380,130 104,334 Non-controlling interests 4,567 (260) 384,697 104,074

Earnings per share attributable to equity holders of the parent entity (in US dollars)

Basic 13 0.44 0.12

Diluted 13 0.40 0.12

The accompanying notes are an integral part of these consolidated financial statements. 2 F-79

OAO TMK Consolidated Statement of Comprehensive Income for the year ended December 31, 2011 (All amounts in thousands of US dollars)

NOTES 2011 2010

Profit for the year 384,697 104,074

Exchange differences on translation to presentation currency (a) (57,619) (12,547)

Foreign currency loss on hedged net investment in foreign operation (b) 29 (x) (67,772) (8,847) Income tax (b) 29 (x) 13,554 1,769 (54,218) (7,078)

Other comprehensive income/(loss) for the year, net of tax (111,837) (19,625) Total comprehensive income/(loss) for the year, net of tax 272,860 84,449

Attributable to: Equity holders of the parent entity 273,303 85,929 Non-controlling interests (443) (1,480) 272,860 84,449

(a) The amount of exchange differences on translation to presentation currency represents other comprehensive loss of 52,609 (2010: 11,327) attributable to equity holders of the parent entity and other comprehensive loss of 5,010 (2010: 1,220) attributable to non-controlling interests.

(b) The amount of foreign currency loss on hedged net investment in foreign operation, net of income tax, was attributable to equity holders of the parent entity.

The accompanying notes are an integral part of these consolidated financial statements. 3 F-80

OAO TMK Consolidated Statement of Financial Position as at December 31, 2011 (All amounts in thousands of US dollars)

NOTES 2011 2010 ASSETS Current assets Cash and cash equivalents 14, 27 230,593 157,524 Trade and other receivables 15 766,155 716,897 Accounts receivable from related parties 27 5,526 3,395 Inventories 16 1,418,455 1,207,540 Prepayments and input VAT 17 170,708 154,302 Prepaid income taxes 29,580 18,099 Other financial assets 4,047 2,625,064 3,966 2,261,723

Assets classified as held for sale – 2,625,064 8,003 2,269,726

Non-current assets Investments in associates 10 1,717 – Intangible assets 19 413,263 474,791 Property, plant and equipment 18 3,347,648 3,386,660 Goodwill 19 547,211 554,353 Deferred tax asset 12 97,880 135,307 Other non-current assets 20 99,458 4,507,177 40,697 4,591,808

TOTAL ASSETS 7,132,241 6,861,534

LIABILITIES AND EQUITY Current liabilities Trade and other payables 21 862,940 732,733 Advances from customers 188,861 136,885 Accounts payable to related parties 27 733 8,434 Provisions and accruals 22 46,075 42,153 Interest-bearing loans and borrowings 23, 24 599,377 701,864 Derivative financial instrument 24 3,024 47,816 Dividends payable 323 430 Income tax payable 4,078 1,705,411 3,846 1,674,161

Liabilities directly associated with the assets classified as held for sale – 1,705,411 143 1,674,304

Non-current liabilities Interest-bearing loans and borrowings 23, 24 3,187,564 3,169,714 Deferred tax liability 12 304,785 300,484 Provisions and accruals 22 25,336 24,096 Post-employment benefits 25 51,836 53,612 Other liabilities 32,525 3,602,046 32,020 3,579,926 Total liabilities 5,307,457 5,254,230

Equity 29 Parent shareholders' equity Issued capital 326,417 326,417 Treasury shares (327,339) (318,351) Additional paid-in capital 384,581 376,485 Reserve capital 16,390 15,387 Retained earnings 1,421,437 1,094,561 Foreign currency translation reserve (88,551) 1,732,935 18,276 1,512,775 Non-controlling interests 91,849 94,529 Total equity 1,824,784 1,607,304

TOTAL EQUITY AND LIABILITIES 7,132,241 6,861,534

The accompanying notes are an integral part of these consolidated financial statements. 4 F-81

OAO TMK Consolidated Statement of Changes in Equity

for the year ended December 31, 2011 (All amounts in thousands of US dollars)

Attributable to equity holders of the parent Foreign Non- Additional Issued Treasury Reserve Retained currency controlling paid-in Total TOTAL capital shares capital earnings translation interests capital reserve At January 1, 2011 (as reported) 326,417 (318,351) 362,898 15,387 1,122,771 18,276 1,527,398 109,509 1,636,907 Voluntary change in accounting policy – – – – (28,210) – (28,210) (1,393) (29,603) Recognition of the change in non-controlling interests in the subsidiary as an equity transaction (Note 29 vi) – – 13,587 – – – 13,587 (13,587) – At January 1, 2011 (as restated) 326,417 (318,351) 376,485 15,387 1,094,561 18,276 1,512,775 94,529 1,607,304

F-82 Profit for the year – – – – 380,130 – 380,130 4,567 384,697 Other comprehensive income/(loss) for the year, net of tax – – – – – (106,827) (106,827) (5,010) (111,837) Total comprehensive income/(loss) for the year, net of tax – – – – 380,130 (106,827) 273,303 (443) 272,860 Purchase of treasury shares (Note 29 xi) – (8,988) – – – – (8,988) – (8,988) Increase in reserve capital (Note 29 ii) – – – 1,003 (1,003) – – – – Dividends declared by the parent entity to its shareholders (Note 29 iii) – – – – (51,993) – (51,993) – (51,993) Dividends declared by subsidiaries of the Group to the non-controlling interest owners (Note 29 ix) – – – – – – – (338) (338) Sale of non-controlling interests (Note 29 v) – – – – (42) – (42) 9,307 9,265 Increase in liability to non-controlling interests (Note 29 v) – – (1,952) – – – (1,952) – (1,952) Recognition of the change in non-controlling interests in the subsidiary as an equity transaction (Note 29 vi) – – 9,609 – – – 9,609 (9,609) – Acquisition of non-controlling interests in subsidiaries (Note 29 iv) – – 439 – (14) – 425 (1,799) (1,374) Increase in non-controlling interests from contributions of assets by the Group (Note 29 viii) – – – – (202) – (202) 202 – At December 31, 2011 326,417 (327,339) 384,581 16,390 1,421,437 (88,551) 1,732,935 91,849 1,824,784

The accompanying notes are an integral part of these consolidated financial statements. 5

OAO TMK Consolidated Statement of Changes in Equity for the year ended December 31, 2011 (continued)

(All amounts in thousands of US dollars)

Attributable to equity holders of the parent Foreign Non- Additional Issued Treasury Reserve Retained currency controlling paid-in Total TOTAL capital shares capital earnings translation interests capital reserve

At January 1, 2010 (as reported) 305,407 (37,378) 104,003 15,387 1,019,322 36,681 1,443,422 75,874 1,519,296 Voluntary change in accounting policy – – – – (28,210) – (28,210) (1,393) (29,603) At January 1, 2010 (as restated) 305,407 (37,378) 104,003 15,387 991,112 36,681 1,415,212 74,481 1,489,693 Profit/(loss) for the year – – – – 104,334 – 104,334 (260) 104,074

F-83 Other comprehensive income/(loss) for the year, net of tax – – – – – (18,405) (18,405) (1,220) (19,625) Total comprehensive income/(loss) for the year, net of tax – – – – 104,334 (18,405) 85,929 (1,480) 84,449 Issue of share capital (Note 29 i) 21,010 – 258,417 – – – 279,427 – 279,427 Purchase of treasury shares (Note 29 xi) – (280,973) – – – – (280,973) – (280,973) Dividends declared by subsidiaries of the Group to the non-controlling interest owners (Note 29 ix) – – – – – – – (8) (8) Sale of non-controlling interests (Note 29 v) – – – – (741) – (741) 13,587 12,846 Recognition of the change in non-controlling interests in the subsidiary as an equity transaction (Note 29 vi) – – 13,587 – – – 13,587 (13,587) – Contributions from non-controlling interest owners (Note 29 vii) – – – – – – – 23,124 23,124 Acquisition of non-controlling interests in subsidiaries (Note 29 iv) – – 478 – (144) – 334 (1,588) (1,254) At December 31, 2010 326,417 (318,351) 376,485 15,387 1,094,561 18,276 1,512,775 94,529 1,607,304

The accompanying notes are an integral part of these consolidated financial statements. 6

OAO TMK

Consolidated Statement of Cash Flows

for the year ended December 31, 2011

(All amounts in thousands of US dollars)

Year ended December 31, NOTES 2011 2010 Operating activities Profit before tax 544,138 185,248

Adjustments to reconcile profit before tax to operating cash flows: Depreciation of property, plant and equipment 266,537 215,416 Amortisation of intangible assets 19 69,234 85,199 Loss on disposal of property, plant and equipment 7 2,319 10,195 Impairment of goodwill 19 3,368 – Reversal of impairment of property, plant and equipment 18 (73,417) – Impairment of investment in associate 10 1,833 – Foreign exchange loss/(gain), net 1,254 (9,512) Finance costs 302,786 430,586 Finance income 9 (32,063) (18,895) (Gain)/loss on changes in fair value of derivative financial instrument 24 (44,792) 12,361 Gain on disposal of assets classified as held for sale 11 (19,184) – Share of loss of associate 10 185 – Allowance for net realisable value of inventory 16 (662) (4,818) Allowance for doubtful debts 30 19,551 5,420 Movement in other provisions 9,039 31,115 Operating cash flows before working capital changes 1,050,126 942,315 Working capital changes: Increase in inventories (280,232) (277,508) Increase in trade and other receivables (110,210) (148,208) (Increase)/decrease in prepayments (26,862) 21,095 Increase in trade and other payables 172,369 90,862 Increase/(decrease) in advances from customers 88,875 (213,250) Cash generated from operations 894,066 415,306 Income taxes paid (106,926) (28,987) Net cash flows from operating activities 787,140 386,319

Investing activities Purchase of property, plant and equipment and intangible assets (402,459) (314,096) Proceeds from sale of property, plant and equipment 1,431 386 Proceeds from disposal of subsidiaries 11 – 26,027 Purchase of ownership interest in associate 10 (4,004) – Issuance of loans (1,333) (968) Proceeds from repayment of loans issued 962 1,277 Interest received 2,638 2,120 Dividends received 25,425 14,092 Net cash flows used in investing activities (377,340) (271,162)

Financing activities Purchase of treasury shares 29 (xi) (8,988) (280,973) Proceeds from issue of share capital 29 (i) – 279,427 Proceeds from borrowings 2,768,477 3,097,306 Repayment of borrowings (2,764,149) (2,994,735) Interest paid (287,533) (342,743) Reimbursement of interest paid 1,272 3,905 Payment of finance lease liabilities (3,014) (2,822) Acquisition of non-controlling interest (1,374) (1,085) Proceeds from sale of non-controlling interests 29 (v) 9,265 32,939 Contributions from non-controlling interest owners 29 (vii) – 23,124 Dividends paid to equity holders of the parent (47,313) – Dividends paid to non-controlling interest shareholders (1,531) (599) Net cash flows used in financing activities (334,888) (186,256)

Net increase/(decrease) in cash and cash equivalents 74,912 (71,099) Net foreign exchange difference (1,843) (15,133) Cash and cash equivalents at January 1 157,524 243,756 Cash and cash equivalents at December 31 230,593 157,524 The accompanying notes are an integral part of these consolidated financial statements. 7 F-84 OAO TMK

Notes to the Consolidated Financial Statements for the year ended December 31, 2011

(All amounts are in thousands of US dollars, unless specified otherwise)

Corporate Information

These consolidated financial statements of OAO TMK and its subsidiaries (the “Group”) for the year ended December 31, 2011 were authorised for issue in accordance with a resolution of the General Director on March 15, 2012.

OAO TMK (the “Company”), the parent company of the Group, is an open joint stock company (“OAO”). Both registered and principal office of the Company is 40/2a Pokrovka Street, Moscow, the Russian Federation.

As at December 31, 2011, the Company’s controlling shareholder was TMK Steel Limited. TMK Steel Limited is ultimately controlled by D.A. Pumpyanskiy.

The Group is one of the world’s leading producers of steel pipes for the oil and gas industry, a global company with extensive network of production facilities, sales companies and representative offices.

The principal activities of the Group are the production and distribution of seamless and welded pipes, including pipes with the entire range of premium connections backed by extensive technical support. Research centres established in Russia and in the United States are involved in new product design and development, experimental and validation testing and advanced metallurgical research.

Basis of Preparation of the Financial Statements

Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

Basis of Accounting

Group companies maintain their accounting records in their local currency and prepare their statutory financial statements in accordance with the regulations on accounting and reporting of the country in which the particular subsidiary is resident. The consolidated financial statements are based on the statutory accounting records, with adjustments and reclassifications for the purpose of fair presentation in compliance with IFRS. The principal adjustments relate to (1) expense and revenue recognition, (2) valuation of unrecoverable assets, (3) depreciation and valuation of property, plant and equipment, (4) accounting for income taxes, (5) use of fair values, (6) business combinations and (7) translation to the presentation currency.

The consolidated financial statements have been prepared on an accrual basis and under the historical cost convention, except as disclosed in the accounting policies below. For example, property, plant and equipment are accounted for at deemed cost at the date of transition to IFRS.

All Group companies and associates have a December 31 accounting year-end.

8 F-85 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Basis of Preparation of the Financial Statements (continued)

Functional and Presentation Currency

The presentation currency for the purpose of these consolidated financial statements of the Group is the US dollar because the presentation in US dollars is convenient for the major current and potential users of the Group’s financial statements.

The functional currency of the Company and its subsidiaries located in the Russian Federation, Kazakhstan, Switzerland and Cyprus is the Russian rouble. The functional currencies of other foreign operations of the Group are the Euro, the United States dollar, the Romanian lei and Canadian dollar, which are the currencies of countries in which the Group's entities are incorporated.

On consolidation, assets and liabilities of Group companies reported in their functional currencies are translated into US dollars, the Group’s presentation currency, at year-end exchange rates. Income and expense items are translated into US dollars at the annual weighted average rates of exchange or at the rate on the date of the transaction for significant items.

Transactions in foreign currencies are initially recorded in the functional currency at the rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the end of reporting period. All resulting differences are taken to the income statement with the exception of differences on foreign currency borrowings accounted for as hedges of net investment in foreign operations. Non- monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The Group hedges its net investment in operations located in the Unites States against foreign currency risks using US dollar denominated liabilities. Gains or losses on the hedging instruments relating to the effective portion of the hedge are recognised as other comprehensive income while any gains or losses relating to the ineffective portion are recognised in the income statement. On the disposal of the foreign operation, the cumulative value of any such gains or losses recognised as a component of other comprehensive income is transferred to the income statement.

9 F-86 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation of uncertainty at the end of reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment of Property, Plant and Equipment

The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the asset’s recoverable amount. This requires an estimation of the value in use of the cash-generating units to which the item is allocated. The determination of impairments of property, plant and equipment involves the use of estimates that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances that indicate impairment exists. The determination of the recoverable amount of a cash-generating unit involves the use of estimates by management.

Methods used to determine the value in use include discounted cash flow-based methods, which require the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. These estimates, including the methodologies used, may have a material impact on the recoverable value and ultimately the amount of any property, plant and equipment impairment.

Assets that suffered an impairment are tested for possible reversal of the impairment at each reporting date if indications exist that impairment losses recognised in prior periods no longer exist or have decreased.

In 2011 and 2010, no impairment losses were recognised in respect of property, plant and equipment. In 2011, the Group reversed impairment losses of 73,417 recognised in 2008-2009 in respect of property, plant and equipment of European division cash-generating unit (Note 18).

Useful Lives of Items of Property, Plant and Equipment

The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end. If expectations differ from previous estimates, the changes accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. There were no any changes in accounting estimates of remaining useful lives of items of property, plant and equipment in 2011.

Fair Value of Assets and Liabilities Acquired in Business Combinations

The Group is required to recognise separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in the business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerable judgment in forecasting future cash flows and developing other assumptions.

10 F-87 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions (continued)

Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives

The Group determines whether goodwill and intangible assets with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the value in use of the cash- generating units to which the goodwill and intangible assets with indefinite useful lives are allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at December 31, 2011 was 547,211 (2010: 554,353). In 2011, the Group recognised impairment losses in the amount of 3,368 in respect of goodwill (Note 19) (2010: nil).

Post-Employment Benefits

The Group uses the actuarial valuation method for measurement of the present value of post- employment benefit obligations and related current service cost. This involves the use of demographic assumptions about the future characteristics of current and former employees who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.) as well as financial assumptions (discount rate, future salary). In the event that further changes in the key assumptions are required, the future amounts of the post-employment benefit costs may be affected materially (Note 25).

Allowances

The Group makes allowances for doubtful debts. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts, such factors are considered as current overall economic conditions, industry-specific economic conditions, historical and anticipated customer performance. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful debts recorded in the consolidated financial statements. As at December 31, 2011 and 2010, allowances for doubtful debts have been made in the amount of 31,782 and 17,947, respectively (Notes 15, 20, 30).

The Group makes allowances for obsolete and slow-moving raw materials and spare parts. In addition, certain finished goods, work in process and raw materials of the Group are carried at net realisable value. Estimates of net realisable value of finished goods are based on the most reliable evidence available at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring subsequent to the end of reporting period to the extent that such events confirm conditions existing at the end of the period. As at December 31, 2011 and 2010, allowances for net realisable value of inventory were 15,826 and 17,112, respectively (Note 16).

11 F-88 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Estimates and Assumptions (continued)

Litigations

The Group exercises considerable judgment in measuring and recognising provisions and the exposure to contingent liabilities related to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the final settlement. Because of the inherent uncertainties in this evaluation process, actual losses may differ from the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of internal specialists, if available, or with the support of external consultants, such as actuaries or legal counsel. Revisions to the estimates may significantly affect future operating results of the Group.

Current Taxes

The Group is subject to taxes in different countries all over the world. Taxes and fiscal risks recognised in these consolidated financial statements reflect management’s best estimate of the outcome based on the facts known at each reporting date in each individual country. These facts may include but are not limited to change in tax laws and interpretation thereof in the various jurisdictions where the Group operates.

Tax, currency and customs legislation is subject to varying interpretations and changes occur frequently. Furthermore, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities may not coincide with that of management.

As a result, tax authorities may challenge transactions and Group’s entities may be assessed additional taxes, penalties and interest, which can be significant. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from tax audits. As at December 31, 2011, management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the Group's tax, currency and customs positions will be sustained (Note 28).

Deferred Tax Assets

Management judgment is required for the calculation of deferred income taxes. Deferred tax assets are recognised to the extent that their utilisation is probable. The utilisation of deferred tax assets will depend on whether it is possible to generate sufficient taxable income in the respective tax type and jurisdiction. Various factors are used to assess the probability of the future utilisation of deferred tax assets, including past operating results, the operational plan, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these estimates are adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilisation indicates that the carrying amount of deferred tax assets must be reduced, this reduction is recognised in profit or loss.

12 F-89 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Judgments

In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those judgments involving estimates, which have a significant effect on the amounts recognised in the consolidated financial statements:

Consolidation of Special Purpose Entities

The Group determined that the substance of the relationship between the Group and TMK Capital S.A., a special purpose entity, indicates that the Group controls TMK Capital S.A. In July 2008 and in January 2011, TMK Capital S.A. issued notes due July 2011 and January 2018, respectively, to provide financing to the Group’s companies (Note 23).

The Group determined that the substance of the relationship between the Group and TMK Bonds S.A., a special purpose entity, indicates that the Group controls TMK Bonds S.A. In February 2010, TMK Bonds S.A. completed the offering of convertible bonds due 2015 convertible into Global Depository Receipts each representing four ordinary shares of OAO TMK to provide financing to the Group’s companies (Note 24).

Changes in Accounting Policies

Application of New and Amended IFRS and IFRIC

The Group has adopted the following new and amended IFRS and IFRIC in the consolidated financial statements for the annual period beginning on January 1, 2011: • IAS 24 Related Party Disclosures (revised); • IAS 32 Financial Instruments: Presentation (amended); • IFRIC 14 Prepayments of a Minimum Funding Requirement (amended); • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; • Improvements to IFRSs (May 2010)

The principle effect of these changes in policies is discussed below.

IAS 24 Related Party Disclosures (revised)

The revision clarifies the definition of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarify in which circumstances persons and key management personnel affect related party relationships of an entity. The revision introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The revision did not have any impact on the financial position or performance of the Group.

13 F-90 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

Application of New and Amended IFRS and IFRIC (continued)

IAS 32 Financial Instruments: Presentation (amended) – Classification of Rights Issues

The amendment alters the definition of a financial liability in order to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment did not have effect on the financial position or performance of the Group.

IFRIC 14 Prepayments of a Minimum Funding Requirement (amended)

The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits an entity to recognise a prepayment of future service cost as pension assets. The amendment had no impact on the financial position or performance of the Group.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

The new interpretation addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. The interpretation had no effect on the financial position or performance of the Group.

Improvements to IFRSs

In May 2010, the International Accounting Standards Board issued “Improvements to IFRSs”, primarily with a view to removing inconsistencies and clarifying wording. These are separate transitional provisions for each standard. The document sets out amendments to International Financial Reporting Standards, which are mainly related to changes for presentation, recognition or management purposes terminology or editorial changes. These amendments did not have any impact on the financial position or performance of the Group.

Voluntary Change in Accounting Policies

In the year ended December 31, 2011, the Group changed its accounting treatment in respect of certain payments made to retired employees. Previously such benefits were treated as those that do not represent a constructive obligation. Starting 2011, the Group considers such payments as a constructive obligation as the Group intends to continue paying such benefits. Consequently, the Group recognised liability on such benefits retrospectively as a part of defined benefit obligation. The impact of this voluntary change in accounting policy on the consolidated financial statements resulted in reduced retained earnings attributable to equity holders of the parent, reduced balance of non-controlling interests and increased post-employment benefits liability.

14 F-91 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

Reclassifications

Certain corresponding information presented in the consolidated financial statements for the year ended December 31, 2010 has been reclassified in order to achieve comparability with the presentation used in these consolidated financial statements.

New Accounting Pronouncements

The following new or amended (revised) IFRS and IFRIC have been issued but are not yet effective and not applied by the Group. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position and performance when applied at a future date. The Group intends to adopt these standards when they become effective.

IFRS 7 Financial Instruments: Disclosures (amended)

In October 2010, the International Accounting Standards Board issued amendments to IFRS 7 – Disclosures – Transfers of Financial Assets. These amendments require additional disclosure about financial assets that have been transferred but not derecognised to enable users of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendments require disclosures about continuing involvement in derecognised assets to enable users to evaluate the nature of, and risks associated with, the Group’s continuing involvement in those derecognised assets. These amendments become effective for financial years beginning on or after July 1, 2011. In December 2011, the International Accounting Standards Board further amended IFRS 7 by clarifying requirements for offsetting financial assets and financial liabilities. These amendments become effective for financial years beginning on or after January 1, 2013. The amendments affect disclosure only and will have no impact on the Group’s financial position or performance.

IFRS 9 Financial Instruments (effective for financial years beginning on or after January 1, 2015)

The standard as issued reflects the first phase of the International Accounting Standards Boards work on the replacement of IAS 39 Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities. In subsequent phases, the International Accounting Standards Board will address impairment methodology and hedge accounting. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets and financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

15 F-92 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

New Accounting Pronouncements (continued)

IFRS 10 Consolidated Financial Statements (effective for financial years beginning on or after January 1, 2013)

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The Group expects that the adoption of the new standard will not have a significant impact on its financial position or performance in the period of initial application.

IFRS 11 Joint Arrangements (effective for financial years beginning on or after January 1, 2013)

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Jointly controlled entities must be accounted for using the equity method. The Group expects that the adoption of the new standard will not have a significant impact on its financial position or performance in the period of initial application.

IFRS 12 Disclosure of Involvement with Other Entities (effective for financial years beginning on or after January 1, 2013)

IFRS 12 includes all of the disclosures that were previously in IAS 27 Consolidated and Separate Financial Statements related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 Interests in Joint Ventures and IAS 28 Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The amendment affects disclosures only and will have no impact on the Group’s financial position or performance.

IFRS 13 Fair Value Measurement (effective for financial years beginning on or after January 1, 2013)

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance.

IAS 1 Financial Statement Presentation (amended) – Presentation of Items of Other Comprehensive Income (effective for financial years beginning on or after July 1, 2012)

The amendments change the grouping of items presented in other comprehensive income. Items that could be reclassified to profit or loss at a future point in time would be presented separately from items that will never be reclassified. The amendments affect presentation only and will have no impact on the Group’s financial position or performance. 16 F-93 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Changes in Accounting Policies (continued)

New Accounting Pronouncements (continued)

IAS 12 Income Taxes (amended) – Deferred Tax: Recovery of Underlying Assets (effective for financial years beginning on or after January 1, 2012)

The amendment clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The Group expects that the adoption of the amended standard will not have a significant impact on its financial position or performance in the period of initial application.

IAS 19 Employee Benefits (revised) (effective for financial years beginning on or after January 1, 2013)

The revision includes a number of changes that range from fundamental changes such as removing the “corridor” mechanism (the revised standard requires actuarial gains and losses to be recognised in other comprehensive income when they occur) and the concept of expected returns on plan assets to new and revised disclosure requirements and simple clarifications and re-wording. The Group expects that the adoption of the amended standard will affect disclosures and presentation of financial statements only and will have no impact on the Group’s financial position or performance as the Group’s current accounting policy is to recognise actuarial gains and losses in the income statement in the period in which they occurred without using the “corridor” mechanism.

IAS 27 Separate Financial Statements (revised) (effective for financial years beginning on or after January 1, 2013)

As a consequence of the new IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Involvement with Other Entities, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The revision will have no impact on the consolidated financial statements of the Group.

IAS 28 Investments in Associates and Joint Ventures (revised) (effective for financial years beginning on or after January 1, 2013)

As a consequence of the new IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Involvement with Other Entities, IAS 28 has been renamed to IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The Group expects that the adoption of the amended standard will not have a significant impact on its financial position or performance in the period of initial application.

17 F-94 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies

Index to Accounting Policies

A) Basis of Consolidation ...... 19 B) Business Combination and Goodwill ...... 20 C) Cash and Cash Equivalents ...... 21 D) Financial Assets ...... 22 E) Borrowings ...... 24 F) Inventories ...... 24 G) Property, Plant and Equipment ...... 25 H) Leases ...... 26 I) Intangible Assets (Other than Goodwill) ...... 26 J) Impairment of Non-Financial Assets (Other than Goodwill) ...... 27 K) Provisions ...... 28 L) Post-Employment Benefits ...... 28 M) Value Added Tax ...... 28 N) Deferred Income Tax ...... 29 O) Equity ...... 29 P) Revenue Recognition ...... 30

18 F-95 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

A) Basis of Consolidation

A subsidiary is an entity in which the Group has an interest of more than one-half of the voting rights or otherwise has power to exercise control over its operations. Subsidiaries are consolidated from the date when control over their activities is transferred to the Company and are no longer consolidated from the date when control ceases.

All intragroup balances, transactions and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transactions provide evidence of an impairment of the asset transferred. Where necessary, accounting policies in subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests at the end of the reporting period represent the non-controlling interest shareholders’ portion of the fair values of the identifiable assets and liabilities of the subsidiary at the acquisition date and the non-controlling interests’ portion of movements in equity since the date of the combination. Non-controlling interest is presented within equity, separately from the parent’s shareholders’ equity.

Losses within subsidiary are attributed to the non-controlling interest even if that results in deficit balance.

When the Group increases its ownership interests in subsidiaries, the differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for such increases is either added to additional paid-in capital, if positive, or charged to accumulated profits, if negative.

When the Group grants put options to non-controlling interest shareholders at the date of acquiring control of a subsidiary the Group considers the terms of transaction to conclude on accounting treatment.

Where the terms of the put option provide the Group with a present ownership interest in the shares subject to the put, the shares are accounted for as acquired. Financial liabilities in respect of put options are recorded at fair value at the time of entering into the options, and are subsequently re-measured to fair value with the change in fair value recognised in the income statement.

When the terms of the put option do not provide a present ownership interest in the shares subject to the put, the Group determined that its accounting policy is to partially recognise non-controlling interests and to account such put options as the following: • the Group determines the amount recognised for the non-controlling interest, including its share of profits and losses (and other changes in equity) of the subsidiary for the period; • the Group derecognises the non-controlling interest as if it was acquired at that date; • the Group records the fair value of financial liability in respect of put options; and • the Groups accounts for the difference between the non-controlling interest derecognised and the fair value of financial liability as a change in the non-controlling interest as an equity transaction (in accordance with the Group’s policy for the increase of its ownership interests in subsidiaries). 19 F-96 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

A) Basis of Consolidation (continued)

When the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary • Derecognises the carrying amount of any non-controlling interest • Derecognises the cumulative translation differences, recorded in equity • Recognises the fair value of the consideration received • Recognises the fair value of any investment retained • Recognises any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

B) Business Combination and Goodwill

Acquisition of Subsidiaries

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs are included in administrative expenses in the periods in which the costs are incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, are recognised either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.

Goodwill

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Goodwill is recorded in the functional currencies of the acquired subsidiaries.

20 F-97 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

B) Business Combination and Goodwill (continued)

Goodwill (continued)

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying amount may be impaired. As at the acquisition date, goodwill is allocated to each of the cash-generating units (groups of cash-generating units), expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash-generating unit (groups of cash-generating units), to which the goodwill relates. Where recoverable amount of cash-generating unit (groups of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Acquisition of Subsidiaries from Entities under Common Control

Purchases of subsidiaries from entities under common control are accounted for using the pooling of interests method.

The assets and liabilities of the subsidiary transferred under common control are recorded in the financial statements at the historical cost of the controlling entity (the “Predecessor”). Any difference between the total book value of net assets, including the Predecessor’s goodwill, and the consideration paid is accounted for in the consolidated financial statements as an adjustment to equity. The financial statements, including corresponding figures, are presented as if the Company had acquired the subsidiary on the date it was initially acquired by the Predecessor.

C) Cash and Cash Equivalents

Cash is comprised of cash in hand and cash at banks.

Cash equivalents are comprised of short-term, liquid investments (with original maturity date less than 90 days) that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash equivalents are carried at fair value.

21 F-98 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets

Initial Recognition and Measurement

The Group classifies its financial assets into the following categories: loans and receivables, financial assets at fair value through profit or loss, held-to-maturity investments and available-for- sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets on initial recognition and, where allowed and appropriate, revaluates this designation at each reporting date.

Financial assets are initially recognised at fair value plus directly attributable transaction costs. However when a financial asset at fair value through profit or loss is recognised, the transaction costs are expensed immediately.

Subsequent Measurement

The subsequent measurement of financial assets depends on their classification as described below:

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments not quoted in an active market. Subsequent to initial measurement, such assets are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Trade receivables, which generally are short term, are carried at original invoice amount less an allowance for doubtful debts. An allowance for doubtful debts is established in case of objective evidence that the Group will not be able to collect amounts due according to the original terms of contract. The Group periodically analyses trade receivables and makes adjustments to the amount of the allowance. The amount of the allowance is the difference between the carrying amount and recoverable amount. The amount of the doubtful debts expense is recognised in the income statement.

Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. Gains or losses on held-for-trading assets are recognised in the income statement.

22 F-99 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets (continued)

Held-to-Maturity Investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity, when the Group has the positive intention and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are recognised at amortised cost using the effective interest method less any allowance for impairment. During the period, the Group did not hold any investments in this category.

Available-for-Sale Financial Assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value with unrealised gains or losses being recognised as other comprehensive income until the financial assets are derecognised or determined to be impaired, at which time the cumulative gain or loss is included in the income statement.

Derivatives Designated as Hedging Instruments

Derivatives are financial instruments that change their values in response to changes in the underlying variable, require no or little net initial investment and are settled at a future date. Derivatives are primarily used to manage exposures to foreign exchange risk, interest rate risk and other market risks.

For the purpose of hedge accounting, derivatives are designated as instruments hedging the Group’s exposure to changes in the fair value of a recognised asset or liability (fair value hedges), as instruments hedging the Group’s exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedges) and as hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group applies hedge accounting and the risk management objective and strategy for undertaking the hedge.

The Group’s derivatives mainly consist of currency forwards and their use is governed by the Group’s policies which are consistent with Group’s overall risk management strategy. These derivatives are designated as hedging instruments in cash flow hedge. The objective of the hedge is to protect the value of highly probable future export sales in foreign currency against unfavourable variations of exchange rates.

The Group assesses effectiveness of such hedges at inception and verifies at regular intervals and at least on a quarterly basis, using prospective and retrospective testing. The effective part of the changes in fair value of hedging instruments is recognised in other comprehensive income while any ineffective part is recognised immediately in the income statement. When forecasted transaction occurs, the gains or losses previously recognised in other comprehensive income are transferred to the income statement. If the forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is transferred to the income statement. 23 F-100 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

D) Financial Assets (continued)

Impairment of Financial Assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indicators that a debtor or a group of debtors is experiencing significant financial difficulties, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

The amount of the impairment loss is measured as a difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of financial assets other than loans and receivables is reduced directly without the use of an allowance account and the amount of loss is recognised in the income statement.

E) Borrowings

Borrowings are initially recognised at fair value less directly attributable transaction costs. In subsequent periods, borrowings are measured at amortised cost using the effective interest method. Any difference between the initial fair value less transaction costs and the redemption amount is recognised within finance costs over the period of the borrowings.

Finance cost of the loans, including the issue costs and any discount on issue, is dealt with as a profit and loss charge over the term of the debt using the effective interest method. Carrying amount of the loan is decreased by unamortised balance of debt issue costs.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of cost of respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

F) Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and costs necessary to make the sale. The cost of inventories is determined on the weighted average basis.

24 F-101 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

F) Inventories (continued)

The costs of inventories are comprised of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present condition and location. The value of work in progress and finished goods includes costs of raw materials, direct labor, direct production costs and indirect production overheads including depreciation. Financing costs are not included in stock valuation.

The Group periodically analyses inventories to determine whether they are damaged, obsolete or slow-moving or if their net realisable value has declined, and makes allowance for such inventories.

In preparing the consolidated financial statements, unrealised profits resulting from intragroup transactions are eliminated in full.

G) Property, Plant and Equipment

Property, plant and equipment, except for the items acquired prior to January 1, 2003, are stated at historical cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in value. Such cost includes the cost of replacing part of plant and equipment when the cost is incurred if the recognition criteria are met.

The items of property, plant and equipment acquired prior to January 1, 2003, the date of transition to IFRS, were accounted for at deemed cost being their fair value as at January 1, 2003.

Depreciation is calculated on a straight-line basis. Average depreciation periods, which represent estimated useful economic lives of respective assets, are as follows:

Land Not depreciated Buildings 8-100 years Machinery and equipment 5-30 years Transport and motor vehicles 4-15 years Furniture and fixtures 2-10 years

Repair and maintenance expenditure is expensed as incurred. Major renewals and improvements are capitalised, and assets replaced are retired. Gains and losses arising from retirement of property, plant and equipment are included in the income statement as incurred.

When material repairs are performed, the Group recognises cost of repair as a separate component within the relevant item of property, plant and equipment if the recognition criteria are met.

The Group has the title to certain non-production and social assets, primarily buildings and social infrastructure facilities. The items of social infrastructure do not meet the definition of an asset according to IFRS. Construction and maintenance costs of social infrastructure facilities are expensed as incurred.

25 F-102 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

H) Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to finance costs in the income statement.

The depreciation policy for depreciable leased assets is consistent with that for depreciable assets which are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term or its useful life.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

I) Intangible Assets (Other than Goodwill)

Intangible assets (other than goodwill) are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that intangible asset may be impaired. Amortisation period and amortisation method for an intangible asset with a finite life are reviewed at least at each year end. Changes in expected useful life or expected pattern of consumption of future economic benefits embodied in the asset are treated as changes in accounting estimates. Amortisation expense of intangible assets is recognised in the income statement in the expense category consistent with the function of an intangible asset.

Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually or at the cash-generating unit level.

26 F-103 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

I) Intangible Assets (Other than Goodwill) (continued)

Research and Development

Costs incurred on development (relating to design and testing of new or improved products) are recognised as intangible assets only when the Group can demonstrate technical feasibility of completing intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, availability of resources to complete and ability to measure reliably the expenditure during the development. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from commencement of commercial production of the product on a straight-line basis over the period of its expected benefit. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year.

J) Impairment of Non-Financial Assets (Other than Goodwill)

An assessment is made at each reporting date to determine whether there is an objective evidence that an asset or a group of assets may be impaired. When there is an indication that an asset may be impaired, the recoverable amount is assessed and, when impaired, the asset is written down immediately to its recoverable amount, which is the higher of the fair value less costs to sell and the value in use.

Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, after deducting any direct incremental disposal costs. Value in use is the present value of estimated future cash flows expected to arise from continuing use of an asset and from its disposal at the end of its useful life.

In assessing value in use, estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of time value of money and risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, recoverable amount is determined for the cash-generating unit to which the asset belongs.

Impairment loss is recognised for the difference between estimated recoverable amount and carrying value. Carrying amount of an asset is reduced to its estimated recoverable amount and the amount of loss is included in the income statement for the period.

Impairment loss is reversed if there is an indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may be decreased and if subsequent increase in recoverable amount can be related objectively to event occurring after the impairment loss was recognised. Impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

Intangible assets not yet available for use are tested for impairment annually.

27 F-104 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

K) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that outflow of resources will be required to settle obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

If the effect of time value of money is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects current market assessments of time value of money and where appropriate, risks specific to the liability. Where discounting is used, increase in provision due to the passage of time is recognised as a finance cost.

L) Post-Employment Benefits

The Group companies provide additional pensions and other post-employment benefits to their employees in accordance with collective bargaining agreements. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age, the completion of a minimum service period and the amount of the benefits stipulated in the collective bargaining agreements.

Liability recognised in the statement of financial position in respect of post-employment benefits is the present value of defined benefit obligation at the end of the reporting period less fair value of the plan assets. Defined benefit obligation is calculated by external consultants quarterly using the projected unit credit method. Present value of the benefits is determined by discounting estimated future cash outflows using interest rates of high-quality government bonds that are denominated in currency in which benefits would be paid, and that have terms to maturity approximating to the terms of the related obligations.

Actuarial gains and losses are recognised in the income statement in the period in which they occurred. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested.

M) Value Added Tax

The Russian tax legislation partially permits settlement of value added tax (“VAT”) on a net basis.

VAT is payable upon invoicing and delivery of goods, performing work or rendering services, as well as upon collection of prepayments from customers. VAT on purchases, even if they have not been settled at the end of the reporting period, is deducted from the amount of VAT payable.

Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT.

28 F-105 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

N) Deferred Income Tax

Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income tax is recognised in the income statement, except to the extent that it relates to items directly taken to equity or other comprehensive income, in which case it is recognised against equity or other comprehensive income.

Deferred income taxes are provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, except where deferred income tax arises from initial recognition of goodwill or of an asset or liability in transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss.

A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where timing of reversal of temporary differences can be controlled and it is probable that temporary differences will not be reversed in the near future.

O) Equity

Share Capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction from proceeds in equity.

Treasury Shares

Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of treasury shares.

Dividends

Dividends are recognised as a liability and deducted from equity at the end of the reporting period only if they are declared before or on the end of the reporting period. Dividends are disclosed in the financial statements when they are proposed before the end of the reporting period or proposed or declared after the end of the reporting period but before the financial statements are authorised for issue.

29 F-106 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Significant Accounting Policies (continued)

P) Revenue Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the amount of revenue can be measured reliably. Revenues from sales of inventory are recognised when significant risks and rewards of ownership of goods have passed to the buyer. Revenues arising from rendering of services are recognised in the same period when the services are provided.

Revenues are measured at the fair value of the consideration received or receivable. When the fair value of consideration received cannot be measured reliably, revenue is measured at the fair value of goods or services provided.

30 F-107 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

Index to the Notes to the Consolidated Financial Statements

1) Segment Information...... 32 2) Cost of Sales ...... 35 3) Selling and Distribution Expenses ...... 35 4) Advertising and Promotion Expenses ...... 35 5) General and Administrative Expenses ...... 36 6) Research and Development Expenses...... 36 7) Other Operating Expenses ...... 36 8) Other Operating Income ...... 37 9) Finance Income ...... 37 10) Investments in Associates ...... 37 11) Gain on Disposal of Assets Classified as Held for Sale ...... 38 12) Income Tax ...... 38 13) Earnings per Share ...... 40 14) Cash and Cash Equivalents ...... 41 15) Trade and Other Receivables...... 41 16) Inventories ...... 41 17) Prepayments and Input VAT ...... 42 18) Property, Plant and Equipment ...... 42 19) Goodwill and Other Intangible Assets ...... 44 20) Other Non-Current Assets ...... 47 21) Trade and Other Payables ...... 47 22) Provisions and Accruals ...... 47 23) Interest-Bearing Loans and Borrowings ...... 48 24) Convertible Bonds ...... 51 25) Post-Employment Benefits ...... 52 26) Principal Subsidiaries ...... 54 27) Related Parties Disclosures ...... 55 28) Contingencies and Commitments ...... 57 29) Equity ...... 58 30) Financial Risk Management Objectives and Policies ...... 62 31) Subsequent Events ...... 69

31 F-108 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information

Operating segments reflect the Group’s management structure and the way financial information is regularly reviewed. For management purposes, the Group is organised into business divisions based on geographical location, and has three reportable segments: • Russia segment represents the results of operations and financial position of plants located in Russian Federation, a finishing facility in Kazakhstan, Oilfield service companies and traders located in Russia, Kazakhstan, the United Arab Emirates, Switzerland, South Africa that are selling their production (seamless and welded pipes). • Americas segment represents the results of operations and financial position of plants located in the United States of America and traders located in the United States of America and Canada (seamless and welded pipes). • Europe segment represents the results of operations and financial position of plants and traders located in Europe (excluding Switzerland) selling their production (seamless pipes and steel billets).

Management monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted EBITDA. Adjusted EBITDA is determined as profit/(loss) for the period excluding finance costs and finance income, income tax (benefit)/expense, depreciation and amortisation, foreign exchange (gain)/loss, impairment/(reversal of impairment) of non-current assets, movements in allowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associate and other non-cash items. Group financing (including finance costs and finance income) is managed on a group basis and is not allocated to operating segments.

The following tables present revenue and profit information regarding the Group’s reportable segments for the years ended December 31, 2011 and 2010, respectively.

Year ended December 31, 2011 Russia Americas Europe TOTAL

Revenue 4,788,039 1,590,399 375,079 6,753,517 Cost of sales (3,752,176) (1,279,603) (275,464) (5,307,243) GROSS PROFIT 1,035,863 310,796 99,615 1,446,274 Selling, general and administrative expenses (529,741) (149,305) (42,885) (721,931) Other operating income/(expenses), net (38,780) 2,255 (3,710) (40,235) OPERATING PROFIT 467,342 163,746 53,020 684,108

ADD BACK: Depreciation and amortisation 228,405 98,476 8,890 335,771 Loss/(gain) on disposal of property, plant and equipment 2,083 (49) 285 2,319 Allowance for net realisable value of inventory (426) (107) (129) (662) Allowance for doubtful debts 17,819 897 835 19,551 Movement in other provisions 5,408 2,427 1,204 9,039 253,289 101,644 11,085 366,018

ADJUSTED EBITDA 720,631 265,390 64,105 1,050,126

32 F-109 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information (continued)

Year ended December 31, 2011 Russia Americas Europe TOTAL

RECONCILIATION TO PROFIT BEFORE TAX: ADJUSTED EBITDA 720,631 265,390 64,105 1,050,126 Reversal of adjustments from operating profit to EBITDA (253,289) (101,644) (11,085) (366,018) OPERATING PROFIT 467,342 163,746 53,020 684,108

Impairment of goodwill (3,368) – – (3,368) Impairment of investment in associate (1,833) – – (1,833) Reversal of impairment of property, plant and equipment – – 73,417 73,417 Foreign exchange gain/(loss), net (2,021) (2,738) 3,505 (1,254) OPERATING PROFIT AFTER IMPAIRMENT AND FOREIGN EXCHANGE GAIN/(LOSS) 460,120 161,008 129,942 751,070 Finance costs (302,786) Finance income 32,063 Gain on changes in fair value of derivative financial instrument 44,792 Share of loss of assoсiate (185) Gain on disposal of assets classified as held for sale 19,184 PROFIT BEFORE TAX 544,138

Year ended December 31, 2010 Russia Americas Europe TOTAL

Revenue 3,997,737 1,324,380 256,482 5,578,599 Cost of sales (3,065,574) (1,022,663) (197,112) (4,285,349) GROSS PROFIT 932,163 301,717 59,370 1,293,250 Selling, general and administrative expenses (470,495) (152,734) (36,297) (659,526) Other operating income/(expenses), net (32,867) 700 (1,769) (33,936) OPERATING PROFIT 428,801 149,683 21,304 599,788

ADD BACK: Depreciation and amortisation 172,647 119,928 8,040 300,615 Loss/(gain) on disposal of property, plant and equipment 9,650 (26) 571 10,195 Allowance for net realisable value of inventory (3,247) (529) (1,042) (4,818) Allowance for doubtful debts 6,520 (1,103) 3 5,420 Movement in other provisions 18,346 12,603 166 31,115 203,916 130,873 7,738 342,527

ADJUSTED EBITDA 632,717 280,556 29,042 942,315

Year ended December 31, 2010 Russia Americas Europe TOTAL

RECONCILIATION TO PROFIT BEFORE TAX: ADJUSTED EBITDA 632,717 280,556 29,042 942,315 Reversal of adjustments from operating profit to EBITDA (203,916) (130,873) (7,738) (342,527) OPERATING PROFIT 428,801 149,683 21,304 599,788

Foreign exchange gain/(loss), net 19,391 – (9,879) 9,512 OPERATING PROFIT AFTER FOREIGN EXCHANGE GAIN/(LOSS) 448,192 149,683 11,425 609,300 Finance costs (430,586) Finance income 18,895 Loss on changes in fair value of derivative financial instrument (12,361) PROFIT BEFORE TAX 185,248

33 F-110 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

1) Segment Information (continued)

The following tables present additional information of the Group’s reportable segments as at December 31, 2011 and 2010:

Year ended December 31, 2011 Russia Americas Europe TOTAL Segment assets 4,771,557 1,957,104 403,580 7,132,241 Property, plant and equipment expenditure 247,629 64,322 14,047 325,998

Year ended December 31, 2010 Russia Americas Europe TOTAL Segment assets 4,585,342 1,941,572 334,620 6,861,534 Property, plant and equipment expenditure 228,657 36,188 5,456 270,301

The following table presents the revenues from external customers for each group of similar products and services for the years ended December 31, 2011 and 2010, respectively:

Welded Seamless Other Sales to external customers TOTAL pipes pipes operations Year ended December 31, 2011 2,535,658 3,910,622 307,237 6,753,517 Year ended December 31, 2010 2,351,729 2,951,592 275,278 5,578,599

The following tables present the geographic information. The revenue information is disclosed based on the location of the customer. Non-current assets are disclosed based on the location of the Group’s assets and include property, plant and equipment, intangible assets and goodwill.

Cent.Asia Middle Year ended Asia & Far Russia Americas & Caspian East & Gulf Africa Europe TOTAL December 31, 2011 East Region Region Revenue 4,070,519 1,801,174 197,276 67,671 4,237 589,397 23,243 6,753,517 Non-current assets 2,746,620 1,296,053 21,633 42 17 243,757 – 4,308,122

Cent.Asia Middle Year ended Asia & Far Russia Americas & Caspian East & Gulf Africa Europe TOTAL December 31, 2010 East Region Region Revenue 3,485,287 1,434,653 161,115 56,132 13,030 398,586 29,796 5,578,599 Non-current assets 2,882,293 1,330,740 25,270 46 23 177,432 – 4,415,804

34 F-111 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

2) Cost of Sales

Cost of sales for the year ended December 31 was as follows:

2011 2010 Raw materials and consumables 3,720,904 2,971,841 Staff costs including social security 661,764 540,214 Energy and utilities 400,169 336,072 Depreciation and amortisation 257,589 218,251 Repairs and maintenance 162,434 110,087 Freight 63,741 52,259 Contracted manufacture 55,625 70,597 Taxes 51,777 43,543 Professional fees and services 25,841 19,986 Rent 10,450 8,900 Travel 2,596 1,568 Communications 1,173 858 Insurance 803 774 Other 3,798 4,045 Total production cost 5,418,664 4,378,995 Change in own finished goods and work in progress (147,035) (170,645) Cost of sales of externally purchased goods 33,235 80,949 Obsolete stock, write-offs/(reversal of write-offs) 2,379 (3,950) Cost of sales 5,307,243 4,285,349

3) Selling and Distribution Expenses

Selling and distribution expenses for the year ended December 31 were as follows:

2011 2010 Freight 212,425 207,384 Depreciation and amortisation 65,536 81,304 Staff costs including social security 58,807 53,980 Consumables 20,020 18,465 Bad debt expense 19,618 5,740 Professional fees and services 14,701 18,196 Rent 7,953 6,690 Travel 4,501 4,185 Utilities and maintenance 2,169 1,587 Insurance 1,731 1,303 Communications 1,294 1,282 Taxes 849 1,281 Other 1,648 1,746 411,252 403,143

4) Advertising and Promotion Expenses

Advertising and promotion expenses for the year ended December 31 were as follows:

2011 2010 Exhibits and catalogues 5,451 4,014 Outdoor advertising 2,256 5,800 Media 877 636 Other 620 649 9,204 11,099

35 F-112 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

5) General and Administrative Expenses

General and administrative expenses for the year ended December 31 were as follows:

2011 2010 Staff costs including social security 158,573 126,525 Professional fees and services 55,056 47,737 Depreciation and amortisation 13,224 12,658 Travel 12,928 9,132 Utilities and maintenance 9,126 7,626 Transportation 6,130 4,571 Insurance 5,366 3,957 Communications 5,307 4,102 Rent 5,294 5,427 Taxes 5,174 5,241 Consumables 4,123 2,795 Other 2,484 2,204 282,785 231,975

6) Research and Development Expenses

Research and development expenses for the year ended December 31 were as follows:

2011 2010 Staff costs including social security 11,669 9,510 Professional fees and services 2,999 1,578 Depreciation and amortisation 1,003 643 Consumables 860 379 Travel 731 378 Utilities and maintenance 727 426 Transportation 285 153 Other 416 242 18,690 13,309

7) Other Operating Expenses

Other operating expenses for the year ended December 31 were as follows:

2011 2010 Sponsorship and charitable donations 17,579 10,207 Social and social infrastructure maintenance expenses 16,859 12,104 Penalties, fines and expenses related to tax issues 12,567 8,675 Loss on disposal of property, plant and equipment 2,319 10,195 Other 4,001 3,797 53,325 44,978

36 F-113 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

8) Other Operating Income

Other operating income for the year ended December 31 was as follows:

2011 2010 Gain from penalties and fines 4,235 2,340 Reimbursement from insurance company 1,272 – Assets received for free 494 553 Gain on sales of current assets 43 296 Income from emission rights sale – 2,149 Other 7,046 5,704 13,090 11,042

9) Finance Income

Finance income for the year ended December 31 was as follows:

2011 2010 Dividends 27,481 14,992 Interest income - bank accounts and deposits 3,333 3,024 Gain on disposal of other investments 1,249 879 32,063 18,895

10) Investments in Associates

Volgograd River Port

On August 4, 2011, the Group acquired 25.5% ownership interest in Volgograd River Port for 112,825 thousand Russian roubles (4,004 at the exchange rates as at the payment dates).

As at December 31, 2011, there was objective evidence of impairment of investment in Volgograd River Port, therefore, the Group performed an impairment test at that date in respect of this investment. As a result of that test, the Group determined that the carrying value of investment in Volgograd River Port exceeds its recoverable amount. Consequently, the Group recognised impairment of investment in Volgograd River Port in the amount of 1,833.

Movement in investment in Volgograd River Port was as follows:

Acquisition of share in associate 4,004 Share of loss of associate (185) Impairment of investment in associate (1,833) Currency translation adjustment (324) Investment in associate as at December 31, 2011 1,662

Lhoist-TMK B.V.

On November 4, 2011, the Group established a new entity Lhoist-TMK B.V. with the ownership interest of 30%.

As at December 31, 2011, the carrying value of investment in Lhoist-TMK B.V. was 55.

37 F-114 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

11) Gain on Disposal of Assets Classified as Held for Sale

On May 27, 2011, the Group sold 100% ownership interest in TMK HYDROENERGY POWER S.R.L.

As at the date of disposal the carrying amounts of assets and liabilities were as follows:

May 27, 2011 Cash and cash equivalents 12 Trade receivables 685 Inventories 59 Prepayments 12 Current assets 768 Property, plant and equipment 8,702 Intangible assets 105 Deferred tax asset 138 Non-current assets 8,945 Total assets 9,713 Trade and other payables (170) Total liabilities (170) Net assets 9,543

Gain from disposal of TMK HYDROENERGY POWER S.R.L. in the amount of 19,184 was included in the income statement for the year ended December 31, 2011.

In December 2010, the Group received 26,027 as a consideration from the purchaser. The cash consideration received was included in advances from customers.

12) Income Tax

Income tax expense for the year ended December 31 was as follows:

2011 2010 Current income tax expense 98,034 53,985 Current income tax benefit – (2,430) Adjustments in respect of income tax of previous periods (634) (1,697) Deferred tax expenses arising from write-down of deferred tax asset 2,193 46 Deferred income tax expense related to origination and reversal of temporary differences 59,848 31,270 Total income tax expense 159,441 81,174

Profit before tax for financial reporting purposes is reconciled to tax expense as follows:

2011 2010 Profit before tax 544,138 185,248 Theoretical tax charge at statutory rate in Russia of 20% 108,828 37,050 Adjustment in respect of income tax of previous years (634) (1,697) Effect of items which are not deductible or assessable for taxation purposes 17,333 30,455 Effect of different tax rates in countries other than Russia 25,228 14,689 Tax on dividends distributed by the Group’s subsidiaries to parent company 11,537 2,085 Effect of differences in tax rates on dividend income (3,023) (1,649) Effect of change of US (state) effective tax rate (1,909) 1,317 Deferred tax expenses arising from write-down of deferred tax asset 2,193 46 Effect of unrecognised tax credits, tax losses and temporary difference of a prior period 152 (971) Other (264) (151) Total income tax expense 159,441 81,174

38 F-115 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

12) Income Tax (continued)

Deferred income tax assets and liabilities, their movements for the years ended December 31, 2011 and 2010 were as follows:

Change Change Change recognised Foreign Change recognised Foreign recognised in other currency recognised in other currency 2011 2010 2009 in income compre- translation in income compre- translation statement hensive reserve statement hensive reserve income income Deferred income tax liability: Valuation and depreciation of property, plant and equipment (282,741) (22,522) – 11,557 (271,776) (18,945) – 1,481 (254,312) Valuation and amortisation of intangible assets (46,686) 12,615 – (16) (59,285) 13,330 – (1) (72,614) Valuation of accounts receivable (5,985) (34) – 339 (6,290) 429 – 50 (6,769) Valuation of inventory (2,960) (12,401) – 131 9,310 (8,854) – (30) 18,194 Prepayments and other current assets (529) 1,976 – (11) (2,494) (2,996) – (3) 505 (338,901) (20,366) – 12,000 (330,535) (17,036) – 1,497 (314,996) Deferred income tax asset: Tax losses available for offset 98,049 (42,957) 13,554 (4,244) 131,696 (21,395) 1,769 (975) 152,297 Provisions and accruals 14,441 1,350 – (457) 13,548 8,951 – (45) 4,642 Trade and other payable 5,393 565 – 39 4,789 (2,025) – (9) 6,823 Finance lease obligations 6,709 71 – (381) 7,019 (1) – (55) 7,075 Impairment of accounts receivable 5,477 3,354 – (423) 2,546 (397) – (14) 2,957 Other 1,927 (4,058) – 225 5,760 587 – (17) 5,190 131,996 (41,675) 13,554 (5,241) 165,358 (14,280) 1,769 (1,115) 178,984 Net deferred income tax liability (304,785) (14,313) – 10,012 (300,484) (30,076) – 1,256 (271,664) Net deferred income tax asset 97,880 (47,728) 13,554 (3,253) 135,307 (1,240) 1,769 (874) 135,652

In the context of the Group’s current structure, tax losses and current tax assets of the different companies are not offset against taxable profits and current tax liability of other companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Therefore, a deferred tax asset of one subsidiary of the Group is not offset against the deferred tax liability of another subsidiary.

As at December 31, 2011, the deferred tax asset for 3,439 (2010: 3,633) relating to tax deductible losses incurred in transactions with securities has not been recognised, as it is not probable that sufficient taxable profit on transactions with securities will be available to offset the deductible temporary differences to which the asset relates. Such tax losses are offset only against future taxable profits generated in transactions with securities over a period of 3 years. 39 F-116 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

12) Income Tax (continued)

The Group recognised the deferred tax assets for the companies with net loss. The Group believes that this tax loss will be recovered as future taxable profits will exceed recognised tax asset on tax loss.

As at December 31, 2011, the Group has not recognised deferred tax liability in respect of 1,301,486 (2010: 1,321,361) temporary differences associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

13) Earnings per Share

Basic earnings per share are calculated by dividing the profit for the period attributable to ordinary shareholders of the parent entity by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share are calculated by dividing the profit for the period attributable to ordinary shareholders of the parent entity adjusted for interest expense and other gains and losses for the period, net of tax, relating to convertible bonds by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.

In calculation of diluted earnings per share, the denominator represents the weighted average number of ordinary shares which could be outstanding assuming that all of the convertible bonds were converted into ordinary shares (Note 24).

Year ended December 31, 2011 2010 Profit for the year attributable to the equity holders of the parent entity 380,130 104,334 Effect of convertible bonds, net of tax (if dilutive) (1,710) – Profit for the year attributable to the equity holders of the parent entity adjusted for the effect of dilution 378,420 104,334 Weighted average number of ordinary shares outstanding 864,976,286 860,480,570 Weighted average number of ordinary shares outstanding adjusted for the effect of dilution 936,751,609 860,480,570 Earnings per share attributable to equity holders of the parent entity, basic and diluted in US dollars Basic 0.44 0.12 Diluted 0.40 0.12 Earnings per share attributable to equity holders of the parent entity, basic and diluted in Russian roubles Basic 12.91 3.68 Diluted 11.87 3.68

In the year ended December 31, 2010, the convertible bonds were antidilutive as the interest expense and other gains and losses for the period, net of tax, relating to convertible bonds divided by the number of ordinary shares obtainable on the conversion of the convertible bonds exceeded basic earnings per share.

40 F-117 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

14) Cash and Cash Equivalents

Cash and cash equivalents were denominated in the following currencies:

2011 2010 Russian rouble 164,695 108,516 US dollar 60,980 39,819 Euro 3,235 4,823 Romanian lei 1,205 4,035 Other currencies 478 331 230,593 157,524

The above cash and cash equivalents consisted primarily of cash at banks.

As at December 31, 2011, the amount of cash and cash equivalents included 42,291 which is available to finance investing activities only (December 31, 2010: 55,780).

15) Trade and Other Receivables

Trade and other receivables consisted of the following:

2011 2010 Trade receivables 758,343 710,714 Officers and employees 1,964 2,235 Other accounts receivable 37,630 21,884 Gross accounts receivable 797,937 734,833 Allowance for doubtful debts (31,782) (17,936) Net accounts receivable 766,155 716,897

Accounts receivables in the amount of 103,851 were pledged as security for borrowings as at December 31, 2011 (December 31, 2010: 91,661) (Note 23).

16) Inventories

Inventories consisted of the following:

2011 2010 Raw materials 389,140 335,362 Work in process 373,423 356,392 Finished goods and finished goods in transit 429,573 333,205 Goods for resale 17,254 4,084 Supplies 224,891 195,609 Gross inventories 1,434,281 1,224,652 Allowance for net realisable value of inventory (15,826) (17,112) Net inventories 1,418,455 1,207,540

Inventories carried at net realisable value in the amount of 330,008 (December 31, 2010: 262,328) were included in inventories as at December 31, 2011.

As at December 31, 2011, certain items of inventory with a carrying amount of 121,365 (December 31, 2010: 122,794) were pledged as security for borrowings (Note 23).

41 F-118 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

16) Inventories (continued)

The following summarises the changes in the allowance for net realisable value of inventory:

2011 2010 Balance at the beginning of the year 17,112 22,133 Decrease in allowance (662) (4,818) Currency translation adjustments (624) (203) Balance at the end of the year 15,826 17,112

17) Prepayments and Input VAT

Prepayments and input VAT consisted of the following:

2011 2010 Prepayment for VAT, input VAT 111,459 92,304 Prepayment for services, inventories 51,435 45,778 Prepayment for insurance 3,708 9,887 Deferred charges 2,221 4,372 Prepayment for other taxes 931 1,551 Prepayment for property tax 698 179 Prepayment for rent 256 231 170,708 154,302

Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax authorities on the Group’s revenue or via direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the balance of input VAT and believes it is recoverable within one year.

18) Property, Plant and Equipment

Movement in property, plant and equipment for the year ended December 31, 2011 was as follows:

Machinery Transport Leasehold Land and Furniture Construction and and motor improve- TOTAL buildings and fixtures in progress equipment vehicles ments COST Balance at January 1, 2011 1,248,487 2,536,920 60,317 47,585 9,911 554,106 4,457,326 Additions – – – – – 325,998 325,998 Assets put into operation 71,153 272,618 3,784 10,820 3,051 (361,426) – Disposals (3,977) (15,739) (1,723) (662) – (376) (22,477) Currency translation adjustments (64,078) (129,406) (2,925) (2,865) (102) (22,899) (222,275) BALANCE AT DECEMBER 31, 2011 1,251,585 2,664,393 59,453 54,878 12,860 495,403 4,538,572 ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance at January 1, 2011 (181,734) (834,077) (25,587) (26,576) (2,692) – (1,070,666) Depreciation charge (37,687) (217,261) (4,267) (8,252) (711) – (268,178) Reversal of impairment – 73,417 – – – – 73,417 Disposals 2,048 10,755 1,645 619 – – 15,067 Currency translation adjustments 11,210 45,007 1,417 1,779 23 – 59,436 BALANCE AT DECEMBER 31, 2011 (206,163) (922,159) (26,792) (32,430) (3,380) – (1,190,924) NET BOOK VALUE AT DECEMBER 31, 2011 1,045,422 1,742,234 32,661 22,448 9,480 495,403 3,347,648 N ET BOOK VALUE AT JANUARY 1, 2011 1,066,753 1,702,843 34,730 21,009 7,219 554,106 3,386,660

42 F-119 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

18) Property, Plant and Equipment (continued)

Movement in property, plant and equipment for the year ended December 31, 2010 was as follows:

Machinery Transport Leasehold Land and Furniture Construction and and motor improve- TOTAL buildings and fixtures in progress equipment vehicles ments COST Balance at January 1, 2010 1,243,839 2,370,728 59,571 40,466 9,439 567,204 4,291,247 Additions – – – – – 270,301 270,301 Assets put into operation 32,374 232,626 4,263 8,172 485 (277,920) – Transfer to assets held for sale (8,844) (730) (301) (13) – (158) (10,046) Disposals (1,779) (33,227) (1,289) (576) – (707) (37,578) Currency translation adjustments (17,103) (32,477) (1,927) (464) (13) (4,614) (56,598) BALANCE AT DECEMBER 31, 2010 1,248,487 2,536,920 60,317 47,585 9,911 554,106 4,457,326 ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance at January 1, 2010 (150,761) (692,309) (23,150) (20,758) (1,589) – (888,567) Depreciation charge (35,720) (177,543) (4,165) (6,506) (1,024) – (224,958) Transfer to assets held for sale 1,486 527 59 3 – – 2,075 Disposals 563 21,129 1,027 424 – – 23,143 Currency translation adjustments 2,698 14,119 642 261 (79) – 17,641 BALANCE AT DECEMBER 31, 2010 (181,734) (834,077) (25,587) (26,576) (2,692) – (1,070,666) NET BOOK VALUE AT DECEMBER 31, 2010 1,066,753 1,702,843 34,730 21,009 7,219 554,106 3,386,660

NET BOOK VALUE AT JANUARY 1, 2010 1,093,078 1,678,419 36,421 19,708 7,850 567,204 3,402,680

As at December 31, 2011, bank borrowings were secured by properties and equipment with a carrying value of 391,897 (December 31, 2010: 746,307) (Note 23).

In 2011 and 2010, no impairment losses were recognised in respect of property, plant and equipment.

As at December 31, 2011, the Group determined that the value in use of European division cash- generating unit significantly exceeded its carrying value. The Group used pre-tax discount rate of 13.36% for the calculation of the value in use of this cash-generating unit. The increase of its recoverable amount was mostly due to the increase of the share of the most profitable products in total production and sales volume of European division cash-generating unit. As a result, the Group reversed the impairment loss recognised in 2008-2009 in respect of property, plant and equipment of European division cash-generating unit in the amount of 73,417.

Capitalised Borrowing Costs

The Group started to capitalise borrowing costs for all eligible assets where construction was commenced on or after January 1, 2009. The amount of borrowing costs capitalised during the year ended December 31, 2011 was 4,682 (2010: 4,488). The rate of the specific borrowing used to determine the amount of borrowing costs eligible for capitalisation was 5.19% in 2011 (2010: 5.19%).

43 F-120 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Goodwill and Other Intangible Assets

Movement in intangible assets for the year ended December 31, 2011 was as follows:

Customer Patents and Proprietary Goodwill Software relation- Backlog Other TOTAL trademarks technology ships C OST Balance at January 1, 2011 209,578 567,681 16,972 472,300 14,100 8,500 7,265 1,296,396 Additions 11 – 6,850 – – – 1,861 8,722 Disposals (4) – (861) – – – (2,537) (3,402) Currency translation adjustments (44) (4,858) (1,419) – – – (315) (6,636) BALANCE AT DECEMBER 31, 2011 209,541 562,823 21,542 472,300 14,100 8,500 6,274 1,295,080

ACCUMULATED AMORTISATION AND IMPAIRMENT Balance at January 1, 2011 (231) (13,328) (11,963) (226,389) (4,499) (8,500) (2,342) (267,252) Amortisation charge (81) – (2,309) (63,685) (1,762) – (1,397) (69,234) Impairment – (3,368) – – – – – (3,368) Disposals 1 – 849 – – – 2,117 2,967 Currency translation adjustments 17 1,084 1,120 – – – 60 2,281 BALANCE AT DECEMBER 31, 2011 (294) (15,612) (12,303) (290,074) (6,261) (8,500) (1,562) (334,606)

NET BOOK VALUE AT DECEMBER 31, 2011 209,247 547,211 9,239 182,226 7,839 – 4,712 960,474

NET BOOK VALUE AT JANUARY 1, 2011 209,347 554,353 5,009 245,911 9,601 – 4,923 1,029,144

Movement in intangible assets for the year ended December 31, 2010 was as follows:

Customer Patents and Proprietary Goodwill Software relation- Backlog Other TOTAL trademarks technology ships C OST Balance at January 1, 2010 209,740 568,891 17,049 472,300 14,100 8,500 5,708 1,296,288 Additions 28 – 75 – – – 1,907 2,010 Disposals (181) – – – – – (304) (485) Currency translation adjustments (9) (1,210) (152) – – – (46) (1,417) BALANCE AT DECEMBER 31, 2010 209,578 567,681 16,972 472,300 14,100 8,500 7,265 1,296,396

ACCUMULATED AMORTISATION AND IMPAIRMENT Balance at January 1, 2010 (217) (13,429) (8,930) (147,092) (2,737) (8,500) (1,562) (182,467) Amortisation charge (82) – (3,118) (79,297) (1,762) – (940) (85,199) Disposals 61 – – – – – 143 204 Currency translation adjustments 7 101 85 – – – 17 210 BALANCE AT DECEMBER 31, 2010 (231) (13,328) (11,963) (226,389) (4,499) (8,500) (2,342) (267,252)

NET BOOK VALUE AT DECEMBER 31, 2010 209,347 554,353 5,009 245,911 9,601 – 4,923 1,029,144

NET BOOK VALUE AT JANUARY 1, 2010 209,523 555,462 8,119 325,208 11,363 – 4,146 1,113,821

44 F-121 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Goodwill and Other Intangible Assets (continued)

Customer relationships represent non-contracted interactions with clients. Remaining amortisation period for customer relationships is 5-7 years. Customer relationships are amortised using the diminishing balance method which reflects the pattern of consumption of the economic benefits that customer relationships provide.

Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group.

Patents and trademarks include intangible assets with indefinite useful lives with the carrying value of 208,700 (2010: 208,700).

The carrying amount of goodwill and intangible assets with indefinite useful lives were allocated among cash-generating units as follows as at December 31:

2011 2010 Intangible Intangible assets with assets with Goodwill Goodwill indefinite indefinite useful lives useful lives American division 472,968 208,700 472,968 208,700 European division 6,185 – 6,324 – Kaztrubprom Plant 4,863 – 8,301 – Oilfield division 29,957 – 31,648 – Other cash-generating units 33,238 – 35,112 – 547,211 208,700 554,353 208,700

The Group determines whether goodwill and intangible assets with indefinite useful lives are impaired on an annual basis and when circumstances indicate the carrying value may be impaired.

As at June 30, 2011, there were indicators of impairment of Kaztrubprom Plant cash-generating unit, therefore, the Group performed an impairment test at that date in respect of this unit. As a result of that test, the Group determined that the carrying value of Kaztrubprom Plant cash- generating unit exceeds its recoverable amount. Consequently, the Group recognised impairment of Kaztrubprom Plant cash-generating unit’s goodwill in the amount of 3,368.

Goodwill and intangible assets with indefinite useful lives were tested for impairment at December 31, 2011. As a result of the test, the Group determined that the carrying values of all cash-generating units do not exceed their recoverable amounts. Consequently, no additional impairment losses were recognised in the year ended December 31, 2011. In 2010, no impairment losses were recognised in respect of goodwill and intangible assets with indefinite useful lives.

For the purpose of impairment testing of goodwill the Group has determined value in use of each of its cash-generating units. The value in use has been calculated using cash flow projections based on the actual operating results and business plans approved by management and appropriate discount rates reflecting time value of money and risks associated with respective cash-generating unit or group of cash-generating units. The key assumptions used by management in calculation of the value in use are presented in the table below. For the periods not covered by management plans, cash flow projections have been estimated by extrapolating the respective business plans taking into account business cycles using zero growth rate.

45 F-122 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Goodwill and Other Intangible Assets (continued)

Cash-generating units Period of forecast, years Pre-tax discount rate, % American division 5 12.01 European division 5 13.36 Kaztrubprom Plant 5 11.59 Oilfield division 5 12.48 Other cash-generating units 5 11.92

With regard to the assessment of value in use of European division no reasonably possible change in the key assumptions would cause the carrying value of this unit to exceed its recoverable amount.

The recoverable amounts of American division, Kaztrubprom Plant, Oilfield division and Taganrog Metallurgical Works (which is included in other cash-generating units) are based on the business plans approved by management. The reasonably possible deviation of assumptions from these plans could lead to an impairment. The calculation of value in use of these cash-generating units was the most sensitive to the following assumptions:

Discount Rates

Discount rates reflect the current market assessment of the risks specific to cash generating unit. The discount rates have been determined using the CAPM concept and analysis of industry peers. Reasonably possible change in discount rate could lead to impairment of goodwill.

A 10% increase in the discount rate of Oilfield division would result in an impairment of goodwill in the amount of 987.

Costs

If costs of American division were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to the full impairment of goodwill in the amount of 472,968.

If costs of Kaztrubprom Plant were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to an impairment of goodwill in the amount of 4,469.

If costs of Oilfield division were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to the full impairment of goodwill in the amount of 29,957.

If costs of Taganrog Metallurgical Works were 5% higher than those assumed in the impairment test during the period of forecast, this would lead to the full impairment of goodwill in the amount of 31,103.

Commodity Prices

If prices of American division forecasted for 2012 were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 472,968.

If prices of Kaztrubprom Plant forecasted for 2012 were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 4,863.

46 F-123 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

19) Goodwill and Other Intangible Assets (continued)

If prices of Oilfield division forecasted for 2012 were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 29,957.

If prices of Taganrog Metallurgical Works forecasted for 2012 were 5% lower than those assumed in the impairment test, this would lead to the full impairment of goodwill in the amount of 31,103.

20) Other Non-Current Assets

Other non-current assets consisted of the following:

2011 2010 Prepayments for acquisition of property, plant and equipment 80,389 29,774 Restricted cash deposits for fulfillment of guaranties 7,850 1,659 Loans to employees 5,840 5,357 Other 5,379 3,918 99,458 40,708 Allowance for doubtful debts – (11) 99,458 40,697

21) Trade and Other Payables

Trade and other payables consisted of the following:

2011 2010 Trade payables 653,100 531,888 Liabilities for VAT 55,103 28,120 Accounts payable for property, plant and equipment 42,282 65,410 Payroll liabilities 30,348 29,942 Accrued and withheld taxes on payroll 16,204 14,368 Liabilities under put options of non-controlling interest shareholders in subsidiaries 14,051 14,934 Liabilities for property tax 13,399 10,281 Notes issued to third parties 8,408 7,226 Sales rebate payable 7,926 7,134 Liabilities for other taxes 3,442 4,500 Other payables 18,677 18,930 862,940 732,733

22) Provisions and Accruals

Provisions and accruals consisted of the following:

2011 2010 Current: Provision for bonuses 21,488 20,710 Accrual for unused annual leaves, current portion 10,549 9,546 Accrual for long-service benefit 10,209 8,468 Current portion of post-employment benefits 2,693 1,850 Provision for tax and other fines 204 241 Environmental provision, current portion 932 1,338 46,075 42,153

Non-current: Accrual for unused annual leaves 20,930 19,379 Environmental provision 4,406 4,717 25,336 24,096

47 F-124 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

23) Interest-Bearing Loans and Borrowings

Interest-bearing loans and borrowings consisted of the following:

2011 2010 Current: Bank loans 242,830 201,585 Interest payable 27,981 26,473 Current portion of non-current borrowings 329,009 125,104 Current portion of bearer coupon debt securities – 350,759 Unamortised debt issue costs (2,269) (3,648) 597,551 700,273 Finance lease liability - current 1,826 1,591 Total short-term loans and borrowings 599,377 701,864 Non-current: Bank loans 2,459,613 2,733,457 Bearer coupon debt securities 1,043,806 897,034 Unamortised debt issue costs (21,136) (20,048) Less: current portion of non-current borrowings (329,009) (125,104) Less: current portion of bearer coupon debt securities – (350,759) 3,153,274 3,134,580 Finance lease liability - non-current 34,290 35,134 Total long-term loans and borrowings 3,187,564 3,169,714

As at December 31, 2010, the Group pledged its rights under sales contracts in Romania totaling to 9,444 as collateral under loan agreements in addition to collaterals disclosed in Notes 15, 16, 18. There were no such pledges as at December 31, 2011.

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

Interest rates for the year 2011 Interest rates for the year 2010

Russian rouble Fixed 6.7% - 9.5% 1,712,829 Fixed 4.3% - 10% 1,640,713 Fixed 10% 193,129

Fixed 5.25% 385,981 Fixed 5.25% 377,910 Fixed 7.75% 512,935

Fixed 3.15% - 7% 447,541 Fixed 2.6% - 8.5% 1,244,629 US Dollar Cost of funds + 1.75% - 2.5% (*) 5,424

Variable: 440,304 Variable: 112,546 Libor (1m) + 2.25% - 4.15% Libor (1m) + 1.75% - 5.65%

Libor (3m - 13m) + 1% - 2.75% Libor (1w) + 2.39%

Fixed 5.19% 74,510 Fixed 5.19% 84,420 Variable: 170,953 Variable: 179,248 Euribor (1m) + 1.6% - 4.05% Euribor (1m) + 1.6%

Euribor (3m) + 2.7% - 3.5% Euribor (3m) + 2.7% - 4% Euro Euribor (6m) + 0.26% - 0.3% Euribor (5m) + 1.1% Euribor (10m - 15m) + 1.1% Euribor (6m) + 0.26% - 1.1% Euribor (8m) + 1.1% Euribor (12m) + 1.2%

Romanian Lei Robor (6m) + 3% 348 Fixed 10.5% - 11% 2,253 – Variable: 5 Swiss Frank Libor (1w) + 2.39%

3,750,825 3,834,853

(*) Cost of funds represents internal rate of a bank.

48 F-125 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

23) Interest-Bearing Loans and Borrowings (continued)

Loan Participation Notes

On January 27, 2011, TMK Capital S.A., a Luxemburg special purpose entity, completed the offering of loan participation notes due 2018 in the total amount of 500,000 with a coupon of 7.75% per annum, payable on semi-annual basis. The notes are admitted for trading on the London Stock Exchange. As at December 31, 2011, an aggregate of 500,000 of notes remained outstanding.

On July 29, 2011, the Group fully repaid 10% loan participation notes in the amount of 186,700 issued in 2008 by TMK Capital S.A.

Bank Loans

In January 2011, the Group partially repaid 1,107,542 Gazprombank loan facilities using the proceeds from issuance of 7.75% loan participation notes in the amount of 500,000. In October 2011, the Group refinanced a further part of Gazprombank loan facilities in the amount of 207,542 using proceeds from Nordea Bank loan and cash generated from operations. As at December 31, 2011, the principle outstanding balance of the loan facilities in Gazprombank was 400,000.

In February-April 2011, the Group entered into several loan agreements with Gazprombank with a maturity in 2014. The proceeds from these loans were used to repay loans from Sberbank in the aggregated amount of 4,000,000 thousand Russian roubles (135,206 at the exchange rates as at the payment dates), a loan from VTB in the amount of 94,000 and for settlement of liability under 5,000,000 thousand Russian roubles bonds issued on February 21, 2006 (170,892 at the exchange rate as at the payment date). As at December 31, 2011, the aggregated principle outstanding balance of these loans in Gazprombank was 11,400,490 thousand Russian roubles (354,096 at the exchange rate as at December 31, 2011).

In April 2011, the Group refinanced Sberbank loans in the aggregated amount of 7,118,490 thousand Russian roubles (250,273 at the exchange rates as at the payment dates) with new Sberbank loans in the aggregated amount of 6,900,000 thousand Russian roubles (244,477 at the exchange rates as at the cash proceeds dates). As at December 31, 2011, the aggregated principle outstanding balance of these loans in Sberbank was 6,900,000 thousand Russian roubles (214,312 at the exchange rate as at December 31, 2011).

In July 2011, the Group entered into loan agreement with Gazprombank in the amount of 150,000 with a maturity in 2012. The proceeds from this loan were used for partial repayment of 10% loan participation notes in the amount of 186,700 issued by TMK Capital S.A. As at December 31, 2011, the principle outstanding balance of this loan in Gazprombank was 36,660.

In August 2011, the Group entered into syndicated credit facility with Wells Fargo Capital Finance, LLC, Bank of America, N.A., GE Capital Finance Inc., JPMorgan Chase Bank, N.A. and ING Capital LLC with a maturity in 2016. The proceeds from this credit facility were partially used to refinance 96,706 of the Wells Fargo senior secured credit facility. As at December 31, 2011, the aggregated principle outstanding balance under the facility was 146,168.

49 F-126 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

23) Interest-Bearing Loans and Borrowings (continued)

Bank Loans (continued)

In October 2011, the Group entered into loan with Nordea Bank in the amount of 200,000 with a maturity in 2017. The proceeds from this loan were used for partial repayment of Gazprombank loan facilities. As at December 31, 2011, the principle outstanding balance of Nordea Bank loan was 200,000.

Russian Bond Obligations

On February 15, 2011, the Group fully repaid its liability under 5,000,000 thousand Russian roubles bonds issued on February 21, 2006 (170,892 at the exchange rate as at the payment date) using the proceeds from the loan provided by Gazprombank.

Unamortised Debt Issue Costs

Unamortised debt issue costs represent agent commission and arrangement costs paid by the Group in relation to the arrangement of loans and issue of notes.

As at December 31, 2011, the Group had unutilised borrowing facilities in the amount of 736,163 (December 31, 2010: 588,281).

Finance Lease Liabilities

Starting from 2001, the Group entered into lease agreements under certain of which it has a bargain option to acquire the leased assets at the end of lease term ranging from 3 to 20 years. The estimated average remaining useful life of leased assets varies from 8 to 17 years.

The leases are accounted for as finance leases in the consolidated financial statements. The carrying value of the leased assets was as follows as at December 31:

2011 2010 Machinery and equipment 26,030 28,372 Transport and motor vehicles 609 183 26,639 28,555

The leased assets are included in property, plant and equipment in the consolidated statement of financial position.

Future minimum lease payments under finance leases with the present value of the net minimum lease payments were as follows as at December 31, 2011:

Minimum Present value payments of payments 2012 3,011 1,826 2013-2016 11,563 7,500 after 2016 32,456 26,790 Total minimum lease payments 47,030 36,116 Less amounts representing finance charges (10,914)

Present value of minimum lease payments 36,116 36,116

50 F-127 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

23) Interest-Bearing Loans and Borrowings (continued)

Finance Lease Liabilities (continued)

Future minimum lease payments under finance leases with the present value of the net minimum lease payments were as follows as at December 31, 2010:

Minimum Present value

payments of payments 2011 2,779 1,591 2012-2015 10,779 6,571 after 2015 35,142 28,563 Total minimum lease payments 48,700 36,725 Less amounts representing finance charges (11,975)

Present value of minimum lease payments 36,725 36,725

In the years ended December 31, 2011 and December 31, 2010, the average interest rate under the finance lease liabilities was 3%.

24) Convertible Bonds

On February 11, 2010, TMK Bonds S.A., the Group’s special purpose entity, completed the offering of 4,125 convertible bonds due 2015 convertible into Global Depository Receipts (“GDR”) each representing four ordinary shares of OAO TMK. The bonds are listed on the London Stock Exchange. The bonds have nominal value of 100,000 US dollars each and were issued at 100% of their principal amount. The convertible bonds carry a coupon of 5.25% per annum, payable on a quarterly basis. The conversion can be exercised at the option of bondholders on any date during the period commencing 41 days following the February 11, 2010 and ending on the date falling seven London business days prior to the maturity date or, if earlier, ending on the seventh day prior to any earlier date fixed for redemption of the Convertible bonds. As at December 31, 2011, the bonds are convertible into GDRs at conversion price of 22.927 US dollars per GDR (December 31, 2010: 23.075 US dollars per GDR). The conversion price was adjusted in 2011 as a result of dividends in respect of 2010 distributed by the parent entity.

The Group can early redeem all outstanding bonds, in whole but not in part, at any time on or after March 4, 2013 at their principal amount plus accrued interest, if the volume weighted average price of the GDRs traded on the London Stock Exchange during 30 consecutive dealing days exceeds 130 per cent of the conversion price (the “Issuer Call”). In addition, the Group has the option to redeem the bonds at the principal amount plus accrued interest if 15% or less of the bonds remain outstanding. Bondholders have the right to request redemption of the bonds on the third anniversary following the issue date at the principal amount plus accrued interest.

The Group determined that the convertible bonds represent a combined financial instrument containing two components: the bond liability (host component) and an embedded derivative representing conversion option in foreign currency combined with the Issuer Call (the “Embedded Conversion Option”).

51 F-128 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

24) Convertible Bonds (continued)

The Embedded Conversion Option in foreign currency was classified as financial instrument at fair value through profit or loss. The Embedded Conversion Option was initially recognised at the fair value of 35,455. The Group used binomial options pricing model for initial and subsequent measurement of fair value of this embedded derivative. For the purposes of this model, the Group assessed that the credit spread comprised 1,094 bps and 650 bps as at December 31, 2011 and 2010, respectively. As at December 31, 2011, the fair value of the Embedded Conversion Option was 3,024 (December 31, 2010: 47,816). The change in the fair value of the embedded derivative during the year ended December 31, 2011 resulted in a gain of 44,792 (2010: loss of 12,361), which has been recorded as gain/(loss) on changes in fair value of derivative financial instrument in the income statement.

The fair value of the host component of 368,149 at the initial recognition date has been determined as a residual amount after deducting the fair value of the Embedded Conversion Option from the issue price of the convertible bonds of 412,500 adjusted for transaction costs of 8,896. The host component is subsequently carried at the amortised cost using the effective interest method. As at December 31, 2011, the carrying value of the host component was 385,981 (December 31, 2010: 377,910).

There were no conversions of the bonds during the year ended December 31, 2011.

25) Post-Employment Benefits

The Group companies provide additional pensions and other post-employment benefits to their employees in accordance with collective bargaining agreements. Defined benefits consist of lump- sum amounts payable at the retirement date and certain regular post-retirement payments. These benefits generally depend on years of service, level of compensation and amount of pension payment under the collective bargaining agreement. The Group pays the benefits when they fall due for payment.

52 F-129 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

25) Post-Employment Benefits (continued)

The following table summarises the components of net benefit expense recognised in the consolidated income statement and amounts recognised in the consolidated statement of financial position by country:

Russia Romania USA Total 2011 2010 2011 2010 2011 2010 2011 2010 Movement in the benefit liability: At January 1 52,855 48,242 1,651 1,342 956 – 55,462 49,584 Benefit expense 3,371 6,136 (47) 595 707 458 4,031 7,189 Benefit paid (1,768) (1,363) (83) (157) (142) – (1,993) (1,520) Other – – – – – 498 – 498 Currency translation adjustment (2,962) (160) (9) (129) – – (2,971) (289) At December 31 51,496 52,855 1,512 1,651 1,521 956 54,529 55,462 Short-term 2,596 1,772 97 78 – – 2,693 1,850 Long-term 48,900 51,083 1,415 1,573 1,521 956 51,836 53,612 Net benefit expense (recognised in cost of sales, general and administrative expenses and selling and distribution expenses): Current service cost 1,065 796 88 65 380 290 1,533 1,151 Interest cost on benefit obligation 2,092 1,807 150 121 55 30 2,297 1,958 Net actuarial (gain)/loss recognised in the period (484) 3,363 (263) 202 272 138 (475) 3,703 Past service cost 698 170 (22) 207 – – 676 377 Net benefit expense/(income) 3,371 6,136 (47) 595 707 458 4,031 7,189

The Group expects to contribute 2,693 to its defined post-employment benefit programme in 2012.

2011 2010 Present value of defined benefit obligation 56,455 57,655 Unrecognised past service cost (1,926) (2,193) Benefit liability as at December 31 54,529 55,462

The Group had no plan assets and unrecognised actuarial gains or losses in the year ended December 31, 2011.

The following table is a summary of the present value of the benefit obligation and experience adjustments as at December 31:

2011 2010 Defined benefit obligation as at December 31 56,455 57,655 Experience adjustments on plan liabilities 325 4,120

The principal actuarial assumptions used in determining pension obligations for the Group’s plan are shown below:

Russia Romania USA 2011 2010 2011 2010 2011 2010 current 9.21%, current 8.74%, decreasing to decreasing to Discount rate 8.31% 7.96% 4.85% 5.75% 4.38% in 4.29% in the long- term the long- term

current 3.14%, current 5.5%, Average long-term rate of changing to 3.5% decreasing to 6.7% 6.3% 3.5% 3.5% compensation increase in 3.5% in the long-term the long-term

53 F-130 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

26) Principal Subsidiaries

Actual Effective Actual Effective ownership ownership ownership ownership Company Location Main activity interest interest interest interest December 31, 2011 December 31, 2010

Manufacturing of seamless and welded OAO “Seversky Tube Works” Russia steel pipes, steel billets 94.63% 94.63% 94.37% 94.37% OAO “Sinarsky Pipe Plant” Russia Manufacturing of seamless steel pipes 94.40% 94.40% 94.27% 94.27% Manufacturing of seamless and welded OAO “Taganrog Metallurgical Works” Russia steel pipes, steel billets 96.13% 96.13% 96.10% 96.10% Manufacturing of seamless and welded OAO “Volzhsky Pipe Plant” Russia steel pipes, steel billets 100.00% 100.00% 100.00% 100.00% Manufacturing of joints for drill pipes OAO “Orsky Machine Building Plant” Russia and other products 75.00% 75.00% 75.00% 75.00% OOO “TMK-INOX” * Russia Manufacturing and sales of steel pipes 51.00% 48.15% 53.00% 49.97% ZAO “TMK-CPW” * Russia Manufacturing of welded steel pipes 51.00% 48.26% 51.00% 48.13% TOO “ТМК-Kaztrubprom” Kazakhstan Manufacturing of seamless steel pipes 100.00% 100.00% 100.00% 100.00% IPSCO Tubulars Inc. USA Manufacturing of welded steel pipes 100.00% 100.00% 100.00% 100.00% IPSCO Koppel Tubulars, L.L.C. USA Manufacturing of seamless steel pipes 100.00% 100.00% 100.00% 100.00% IPSCO Tubulars (KY) Inc. USA Manufacturing of welded steel pipes 100.00% 100.00% 100.00% 100.00% Manufacturing of seamless and welded IPSCO Tubulars (OK) Inc. USA steel pipes 100.00% 100.00% 100.00% 100.00% Manufacturing of premium pipes connections, services for oil and gas Ultra Premium Oilfield Services, Ltd USA industries 100.00% 100.00% 100.00% 100.00% S.C. TMK-ARTROM S.A. Romania Manufacturing of seamless steel pipes 92.66% 92.66% 92.66% 92.66% S.C. TMK-RESITA S.A. Romania Manufacturing of steel billets 100.00% 100.00% 100.00% 100.00% Promotion and development of OOO “TMK-Premium Services” Russia premium connections 100.00% 100.00% 100.00% 100.00% Sales & distribution of pipes, raw ZAO “Trade House TMK” Russia materials procurement 100.00% 100.00% 100.00% 100.00% ООО “Skladskoy Kompleks ТМК” Russia Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TOO “TMK-Kazakhstan” Kazakhstan Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TMK Global S.A. Switzerland Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% Sales & distribution of pipes, raw TMK Europe GmbH Germany materials and equipment procurement 100.00% 100.00% 100.00% 100.00% TMK Italia s.r.l. Italy Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TMK Middle East FZCO UAE Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TMK North America Inc. USA Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TMK IPSCO INTERNATIONAL, L.L.C. USA Sales & distribution of pipes 100.00% 100.00% 0.00% 0.00% TMK IPSCO Canada, Ltd. Canada Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% TMK Africa Tubulars (PTY) Ltd. South Africa Sales & distribution of pipes 100.00% 100.00% 100.00% 100.00% OOO “Predpriyatiye “Truboplast” Russia Coating of pipes 100.00% 100.00% 100.00% 100.00% ZAO “Pipe Repair Department” Russia Services for oil and gas industries 100.00% 100.00% 100.00% 100.00% OOO “Central Pipe Yard” Russia Services for oil and gas industries 100.00% 100.00% 100.00% 100.00% OAO “Russian Research Institute of the Tube and Pipe Industries” Russia In-house R&D facility 97.36% 97.36% 97.36% 97.36% OAO “Sinarskaya heat and power plant” Russia Heat and electrical energy production 68.79% 64.93% 68.79% 64.85% TMK HYDROENERGY POWER S.R.L. Romania Electrical energy production 0.00% 0.00% 100.00% 100.00% OOO “TMK Metallurgical Service” Russia Maintenance and repair of equipment 0.00% 0.00% 100.00% 94.37% TMK NSG, L.L.C. (former NS Group, Inc.) USA Holding company of US assets 100.00% 100.00% 100.00% 100.00% UPOS GP, L.L.C. USA Holding company of US assets 100.00% 100.00% 100.00% 100.00% UPOS, L.L.C. USA Holding company of US assets 100.00% 100.00% 100.00% 100.00% Blytheville Finance Corporation USA Financial investments 100.00% 100.00% 100.00% 100.00% Rockarrow Investments Ltd. Cyprus Stock servicing 100.00% 100.00% 100.00% 100.00% TMK Capital S.A. Luxembourg Financing (SPV) 0.00% 0.00% 0.00% 0.00% TMK Bonds S.A. Luxembourg Financing (SPV) 0.00% 0.00% 0.00% 0.00% OOO “Pokrovka 40” Russia Assets holding 100.00% 100.00% 100.00% 100.00% OOO “TMK Oilfield Services” Russia Management services 100.00% 100.00% 100.00% 100.00% OOO “Accounting services center” Russia Accounting shared-services 100.00% 100.00% 100.00% 100.00% OOO “Blagoustroystvo” Russia Services 100.00% 100.00% 100.00% 100.00% OOO “SinaraTransAvto” Russia Services 100.00% 94.40% 100.00% 94.27% OOO “TMK-Trans” Russia Logistics 100.00% 100.00% 100.00% 100.00%

* The Group recorded a liability under put option in the consolidated financial statements Actual ownership interest in subsidiaries differs from the effective ownership interests due to the existence of non-controlling interests in subsidiaries that hold ownership interest in other subsidiaries.

54 F-131 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

27) Related Parties Disclosures

For the purposes of the financial statements, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the 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 at December 31, 2011 and 2010 are detailed below.

Transactions with the Parent Company and Entities with Significant Influence

As at December 31, 2010, the Group had a liability of 5,300 in respect of the guarantee provided by Bravecorp Limited (an entity under common control with the parent company, TMK Steel Limited). During the year ended December 31, 2011, the Group settled a liability in full amount.

In June 2011, the Group approved the distribution of final dividends in respect of 2010 year, from which 555,274 thousand Russian roubles (19,588 at the exchange rate at the date of approval) related to TMK Steel Limited, Bravecorp Limited and Tirelli Holdings Limited (entities under common control with TMK Steel Limited).

In November 2011, the Group approved the distribution of interim dividends in respect of six months 2011, from which 607,536 thousand Russian roubles (19,697 at the exchange rate at the date of approval) related to TMK Steel Limited, Bravecorp Limited and Tirelli Holdings Limited.

The Group paid final dividends in respect of 2010 year and interim dividends in respect of six months 2011 to TMK Steel Limited, Bravecorp Limited and Tirelli Holdings Limited in full amount as at December 31, 2011.

Transactions with Associates

During the year ended December 31, 2011, the Group rendered services to its associates and received services from its associates in the amounts of 415 and 532, respectively (2010: nil).

Compensation to Key Management Personnel of the Group

Key management personnel comprise members of the Board of Directors, the Management Board and certain executives of the Group, totaling 29 persons as at December 31, 2011 (28 persons as at December 31, 2010).

The Group provides compensation to key management personnel only in the form of short-term employee benefits, which include: • Wages, salaries, social security contributions and other benefits in the amount of 15,211 for the year ended December 31, 2011 (2010: 9,136); • Provision for performance bonuses which are dependent on operating results for 2011 year in the amount of 4,335 for the year ended December 31, 2011 (2010: 3,086).

55 F-132 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

27) Related Parties Disclosures (continued)

Compensation to Key Management Personnel of the Group (continued)

The amounts disclosed above are recognised as general and administrative expenses in the income statement during the reporting period.

In the years ended December 31, 2011 and 2010, the Group did not provide compensation to key management personnel in the form of post-employment benefits, other long-term benefits, share- based payment or termination benefits.

The balance of loans issued to key management personnel amounted to 1,103 as at December 31, 2011 (December 31, 2010: 396).

The Group guaranteed debts of key management personnel outstanding as at December 31, 2011 in the amount of 2,574 with maturity in 2014 – 2017 (December 31, 2010: 3,368).

In 2010, the Group paid 2,494 to the member of key management personnel for the guarantee issued.

Transactions with Other Related Parties

The following table provides balances with other related parties as at December 31:

2011 2010 Cash and cash equivalents 125,687 47,151 Accounts receivable 5,417 3,305 Prepayments 109 90 Accounts payable (733) (2,157) Interest payable – (977)

The following table provides the total amount of transactions with other related parties for the year ended December 31:

2011 2010 Sales revenue 12,440 4,718 Purchases of goods and services 8,700 7,576 Interest income from loans and borrowings 614 521 Interest expenses from loans and borrowings 235 460

In the year ended December 31, 2011, sales transactions with related parties constituted approximately 0.18% of the total Group’s sales (2010: 0.08%).

56 F-133 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

28) Contingencies and Commitments

Operating Environment of the Group

Significant part of the Group’s principal assets are located in the Russian Federation and USA, therefore its significant operating risks are related to the activities of the Group in these countries.

In the wake of the global financial crisis, all countries continue to face an uneven economic recovery. Despite the stabilisation measures introduced by the Russian Government in 2011 there continues to be uncertainty regarding further economic growth which could negatively affect the Group’s future financial position, results of operations and business prospects.

The US economy is recovering slower than expected, and the economic growth slowed-down starting the second quarter of 2011. An uncertainty over the US economic growth could have a negative impact on the Group’s future financial position, results of operations and business prospects.

While management believes it is taking appropriate measures to support the sustainability of the Group’s business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Group’s results and financial position in a manner not currently determinable.

Taxation

Tax, currency and customs legislation is subject to varying interpretations 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. Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities based on management’s best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities.

Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in its interpretation of the legislation and assessments and as a result, it is possible that transactions and activities that have not been challenged in the past may be challenged. As such, significant additional taxes, penalties and interest may be assessed. It is not practical to determine the amount of unasserted claims that may manifest, if any, or the likelihood of any unfavourable outcome. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Up to the date of authorisation of these consolidated financial statements for issuance, the court proceedings had not been finalised for the claims in the amount of 36,807 thousand Russian roubles (1,143 at the exchange rate as at December 31, 2011). Management believes that the Group’s position is justified and it is not probable that the ultimate outcome of these matters will result in additional losses for the Group. Consequently, the amounts of tax claims being contested by the Group were not accrued in the consolidated financial statements for the year ended December 31, 2011. 57 F-134 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

28) Contingencies and Commitments (continued)

Contractual Commitments and Guarantees

As at December 31, 2011, the Group had contractual commitments for the acquisition of property, plant and equipment from third parties for 3,884,084 thousand Russian roubles (120,638 at the exchange rate as at December 31, 2011), 35,551 thousand Euros (46,014 at the exchange rate as at December 31, 2011), 489 thousand Romanian lei (147 at the exchange rate as at December 31, 2011) and 26,155 thousand US dollars for the total amount of 192,954 (all amounts of contractual commitments are expressed net of VAT). The Group had paid advances of 80,389 with respect to such commitments (2010: 29,774).

Under contractual commitments disclosed above, the Group opened unsecured letters of credit in the amount of 8,739 (2010: 8,330).

Insurance Policies

The Group currently maintains insurance against losses that may arise in case of property damage, accidents, transportation of goods. The Group also maintains corporate product liability and directors and officers liability insurance policies. Nevertheless, any recoveries under maintained insurance coverage that may be obtained in the future may not offset the lost revenues or increased costs resulting from a disruption of operations.

Legal Claims

During the 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 effect on the result of operations or financial position of the Company.

Guarantees of Debts of Others

The Group guaranteed debts of others outstanding as at December 31, 2011 in the amount of 3,378 (December 31, 2010: 4,664).

29) Equity i) Share Capital

2011 2010 Number of shares Authorised, issued and fully paid Ordinary shares of 10 Russian roubles each As at January 1 937,586,094 873,001,000 Share capital increase – 64,585,094 As at December 31 937,586,094 937,586,094

58 F-135 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

29) Equity (continued) i) Share Capital (continued)

On February 5, 2010, the Board of Directors authorised an increase of share capital.

In June 2010, the Group received 8,589,818 thousand Russian roubles (279,427 at the historical exchange rate) as consideration from shareholders for the issuance of 64,585,094 shares with par value of 10 Russian roubles each at price of 133 Russian roubles per share.

On November 30, 2010, the Group finalised the increase of share capital by 64,585,094 shares with par value of 10 Russian roubles each by means of an open subscription at price of 133 Russian roubles per share. Number of shares subscribed represented approximately 7.4% of the Company’s issued and fully paid share capital before additional issue. After completion of the share capital increase, the total number of the issued and fully paid shares was 937,586,094. ii) Reserve Capital

According to Russian Law, the Company must create a reserve capital in the amount of 5% of the share capital per the Russian statutory accounts by annual appropriations that should be at least 5% of the annual net profit per the statutory financial statements. The reserve capital can be used only for covering losses and for the redemption of the Company’s bonds and purchase of its own shares if there are no other sources of financing.

In 2011 the Company reported net profit in Russian statutory accounts (net loss in 2010) and subsequently increased reserve capital by 32,292 Russian roubles (1,003 at the exchange rate as at December 31, 2011) to the amount of 5% of the share capital per the Russian statutory accounts. iii) Dividends Declared by the Parent Entity to its Shareholders

On June 28, 2011, the annual shareholder meeting approved final dividends in respect of 2010 year in the amount of 796,948 thousand Russian roubles (28,113 at the exchange rate at the date of approval) or 0.85 Russian roubles per share (0.03 US dollars per share), from which 60,839 thousand Russian roubles (2,146 at the exchange rate at the date of approval) related to the treasury shares in possession of the Group.

On November 7, 2011, the extraordinary shareholders’ meeting approved interim dividends in respect of six months 2011 in the amount of 871,955 thousand Russian roubles (28,270 at the exchange rate at the date of approval) or 0.93 Russian roubles per share (0.03 US dollars per share), from which 69,211 thousand Russian roubles (2,244 at the exchange rate at the date of approval) related to the treasury shares in possession of the Group.

In accordance with Russian legislation, dividends may only be declared to the shareholders from accumulated undistributed and unreserved earnings as shown in the Company's Russian statutory financial statements. The Company had 246,033 of undistributed and unreserved earnings recognised in Russian statutory financial statements as at December 31, 2011. In addition, the Group’s share in the undistributed and unreserved earnings of its subsidiaries was 1,322,904 as at December 31, 2011. 59 F-136 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

29) Equity (continued) iv) Acquisition of Non-controlling Interests in Subsidiaries

In the year ended December 31, 2011, the Company purchased additional 0.26% of OAO “Seversky Tube Works” shares, 0.13% of OAO “Sinarsky Pipe Plant” shares, 0.03% of OAO “Taganrog Metallurgical Works” shares. The total cash consideration for the shares amounted to 1,374.

The excess in the amount of 14 of the consideration given for the shares over the carrying values of net assets attributable to interest in OAO “Taganrog Metallurgical Works” was charged to accumulated profit. The excess in the amount of 439 of the carrying values of net assets attributable to interest in OAO “Seversky Tube Works” and OAO “Sinarsky Pipe Plant” over the consideration paid for such non-controlling interest is recorded in additional paid-in capital.

In the year ended December 31, 2010, the Company purchased additional 0.15% of OAO “Seversky Tube Works” shares, 0.11% of OAO “Sinarsky Pipe Plant” shares, 0.04% of OAO “Taganrog Metallurgical Works” shares and 49% ownership interest in OOO “TMK Metallurgical Service”. The total cash consideration for the shares amounted to 1,254.

The excess in the amount of 144 of the consideration given for the shares over the carrying values of net assets attributable to interest in OAO “Seversky Tube Works”, OAO “Sinarsky Pipe Plant” and OAO “Taganrog Metallurgical Works” was charged to accumulated profit. The excess in the amount of 478 of the carrying values of net assets attributable to interest in OAO “Seversky Tube Works” over the consideration paid for such non-controlling interest is recorded in additional paid- in capital. v) Sale of Non-controlling Interests

In December 2010, the Group increased share capital of OOO “TMK-INOX”. The share capital increase was partially financed by the non-controlling interest shareholder. Cash consideration received from the non-controlling interest shareholder amounted to 1,000 million Russian roubles (32,939 at historical exchange rate). As a result of the transaction, the ownership interest of the Group in OOO “TMK-INOX” decreased and amounted to 53.00%. The difference between the consideration received and the carrying values of net assets attributable to non-controlling interest in the amount of 741 was charged to accumulated profit. As non-controlling interest shareholder has a right to sell its ownership interest to the Group under certain circumstances beyond the Group’s control starting 2018, the Group recognised the amount of 20,015 at the exchange rate as at December 31, 2010 as a liability to non-controlling interest shareholder under put option and included it in other non-current liabilities. As at December 31, 2011, the fair value of liability under put option was reassessed by the Group and amounted to 20,898.

60 F-137 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

29) Equity (continued) v) Sale of Non-controlling Interests (continued)

In the year ended December 31, 2011, the Group increased share capital of OOO “TMK-INOX”. The share capital increase was partially financed by the non-controlling interest shareholder. Cash consideration received from the non-controlling interest shareholder amounted to 298,500 thousand Russian roubles (9,265 at historical exchange rate). As a result of the transaction, the ownership interest of the Group in OOO “TMK-INOX” decreased to 51.00%. The difference between the consideration received and the carrying values of net assets attributable to non-controlling interests in the amount of 42 was charged to accumulated profit. vi) Recognition of the Change in Non-controlling Interests in the Subsidiary as an Equity Transaction

In the year ended December 31, 2011, the increase of non-controlling interests in OOO “TMK- INOX” amounted to 9,609, including 302 of the non-controlling interest’s share of profit, net of dividends attributable to the non-controlling interest shareholder (2010 year: 13,587 and nil, respectively). This amount was recognised in additional paid-in capital. vii) Contributions from Non-controlling Interest Owners

In 2010, the Group established a new subsidiary, OAO “Sinarskaya heat and power plant”. The 31.21% ownership interest in OAO “Sinarskaya heat and power plant” was acquired by a third party for 700 million Russian roubles (23,124 at historical exchange rate). As a result of the transaction, the Group’s ownership interest in OAO “Sinarskaya heat and power plant” amounted to 68.79%. As at the date of the transaction, the Group recognised non-controlling interest in the amount of 23,124. viii) Increase in Non-controlling Interests from Contribution of Assets by the Group

During the year ended December 31, 2011, the Group made additional contribution of assets to the capital of OAO “Sinarskaya heat and power plant”. As a result of the transaction, net assets attributable to non-controlling interests increased by 202. The effect of the increase of non- controlling interests in the amount of 202 was charged to accumulated profit. ix) Dividends Declared by Subsidiaries of the Group to the Non-controlling Interest Owners

During the years ended December 31, 2011 and 2010, the Group’s subsidiaries declared dividends to the non-controlling interest owners in the amounts of 338 and 8, respectively.

61 F-138 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

29) Equity (continued) x) Hedges of Net Investment in Foreign Operations

At the date of the acquisition of controlling interests in NS Group, Inc. and IPSCO Tubulars, Inc. the Group hedged its net investment in these operations against foreign currency risk using borrowings in US dollars made by Russian companies of the Group. As at December 31, 2011, the Group designated US dollar denominated loans in the amount of 1,158,610 (December 31, 2010: 1,158,610) as the hedging instrument. The aim of the hedging was to eliminate foreign currency risk associated with the repayment of these liabilities resulting from changes in US dollar/Russian rouble spot rates.

The effectiveness of the hedging relationship was tested using the dollar offset method by comparing the cumulative gains or losses due to changes in US dollar/Russian rouble spot rates on the hedging instrument and on the hedged item. In the year ended December 31, 2011, the effective portion of net losses from spot rate changes in the amount of 1,991,882 thousand Russian roubles (67,772 at historical exchange rates), net of income tax benefit of 398,376 thousand Russian roubles (13,554 at historical exchange rates), was recognised in other comprehensive income (foreign currency translation reserve). xi) Treasury Shares

2011 2010 Number of shares Cost Number of shares Cost Outstanding as at January 1 71,575,796 318,351 7,097,364 37,378 Purchased during the period 2,844,700 8,988 64,478,432 280,973 Outstanding as at December 31 74,420,496 327,339 71,575,796 318,351

In the year ended December 31, 2011, the Group purchased 2,844,700 shares of the Company for 8,988. As at December 31, 2011, the Group owned 74,420,496 treasury shares.

In the year ended December 31, 2010, the Group purchased 64,478,432 shares of the Company from TMK Steel for 280,973 (including transaction fees of 2,000).

In order to facilitate the issuance of the convertible bonds, investment banks offered to certain institutional investors an opportunity to borrow GDRs of OAO TMK during the term of the bonds.

30) Financial Risk Management Objectives and Policies

The Group’s principal financial liabilities comprise bank loans, bonds issued, trade payables, liabilities under put options of non-controlling interest shareholders in subsidiaries and finance leases. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets such as trade receivables and cash and deposits, which arise directly from its operations.

In the course of its business, the Group is exposed to a number of financial risks: market risk (including interest rate risk, foreign currency risk and other price risk), liquidity risk and credit risk. The presented information shows susceptibility of the Group concerning each of these risks. The Board of Directors reviews and establishes policies for managing each of these risks which are summarised below.

62 F-139 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Market Risk

The Group is exposed to risk from movements in interest rates, foreign currency exchange rates and market prices that affect its assets, liabilities and anticipated future transactions. The objective of market risk management is to manage and control market risk exposures, while optimising the return on the risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Group’s interest rate risk management policy is to minimise risk with the aim to achieve financial structure objectives defined and approved in the management’s plans. Borrowing requirements of the Group’s companies are pooled by the Group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits.

The Group borrows on both a fixed and variable rate basis. EURIBOR and LIBOR served as the basis for the calculation of interest rates on loans with variable rate. These loans accounted for 16% of the total loan portfolio at the end of 2011 (8% at the end of 2010). The Group considers such risks as not significant and is not using instruments to hedge such interest-rate risks at present. Nevertheless, the Group monitors interest rates and will use instruments to hedge such risk as necessary.

The Group does not have any financial assets with variable interest rate.

The following table demonstrates the sensitivity to reasonably possible changes in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings).

Effect on profit Basis points before tax As at December 31, 2011 Increase in LIBOR 15 (660) Decrease in LIBOR (15) 660

Increase in EURIBOR 15 (262) Decrease in EURIBOR (15) 262 As at December 31, 2010 Increase in LIBOR 100 (1,126) Decrease in LIBOR (25) 281

Increase in EURIBOR 100 (1,792) Decrease in EURIBOR (25) 448

Foreign Currency Risk

The Group’s exposure to currency risk relates to sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group’s subsidiaries, and the Group’s net investments in foreign operations. The currencies in which these transactions and balances primarily denominated are US dollars and Euro.

63 F-140 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Foreign Currency Risk (continued)

The Group’s exposure to currency risk determined as the net monetary position in respective currencies was as follows as at December 31:

2011 2010 USD/RUR (*) (1,336,893) (1,457,948) EUR/RUR (198,643) (323,931) EUR/USD (17,634) 21,467 USD/RON (11,445) (90,967) EUR/RON (70,128) (5,541) KZT/RUR 5,621 4,544 USD/CAD 600 –

* As disclosed in Note 29 the Group hedged its net investments in foreign operations against foreign currency risk using borrowings in US dollars made by Russian companies of the Group. The net monetary position in USD/RUR included the hedging instruments in the amount of 1,158,610 (2010: 1,158,610) which exposure to currency risk is reflected directly in other comprehensive income.

The Group hedges its exposure to currency risk related to Euro denominated sales of Romanian subsidiaries using EUR/RON forward contracts. The fair value of these forward contracts in the amount of 3 was included in other financial assets as at December 31, 2011.

The Group doesn’t have other formal arrangements to manage currency risks of the Group’s operations and balances. However, the Group seeks to bring its financial liabilities in foreign currency in line with export net sales, thus mitigating currency risk.

The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant, of the Group’s profit before tax and other comprehensive income. In estimating reasonably possible changes for 2011 and 2010 the Group assessed the volatility of foreign exchange rates during the three years preceding the end of the reporting period.

As at December 31, 2011 Effect on Statement of Volatility range Effect on Income Statement Comprehensive Income Low High Low High Low High USD/RUR 12.57% -12.57% (22,410) 22,410 (145,637) 145,637 EUR/RUR 9.96% -9.96% (19,785) 19,785 – – EUR/USD 11.44% -11.44% (2,017) 2,017 – – USD/RON 14.24% -14.24% (1,630) 1,630 – – EUR/RON 5.04% -5.04% (3,537) 3,537 – – KZT/RUR 16.88% -16.88% 949 (949) – – USD/CAD 11.61% -11.61% 70 (70) – –

As at December 31, 2010 Effect on Statement of Volatility range Effect on Income Statement Comprehensive Income Low High Low High Low High USD/RUR 11.91% -11.91% (35,651) 35,651 (137,990) 137,990 EUR/RUR 10.07% -10.07% (32,620) 32,620 – – EUR/USD 11.75% -11.75% 2,522 (2,522) – – USD/RON 16.49% -16.49% (15,000) 15,000 – – EUR/RON 7.85% -7.85% (435) 435 – – KZT/RUR 12.57% -12.57% 571 (571) – –

64 F-141 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Other Price Risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

The Group’s exposure to other price risk relates to changes of the fair value of its derivative financial instrument as a result of fluctuations of GDR’s quotations. The Group manages its exposure to other price risk by holding treasury shares in the quantity corresponding to the number of shares in which convertible bonds are convertible.

The reasonably possible changes in the price of underlying GDRs, with all other variables held constant, would have an effect on the Group’s profit before tax. In estimating reasonably possible fluctuations of GDR’s quotations, the Group assessed the volatility of GDRs during the year ended December 31, 2011. A 43.69% increase to the value of GDR as at December 31, 2011 would reduce profit before tax by 12,065. A 43.69% decrease from the value of GDR as at December 31, 2011 would result in the increase of profit before tax by 2,898.

Liquidity Risk

Liquidity risk arises when the Group encounters difficulties to meet commitments associated with liabilities and other payment obligations. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives. This enables the Group to maintain an appropriate level of liquidity and financial capacity as to minimise borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. The Group has access to a wide range of funding at competitive rates through the capital markets and banks and coordinates relationships with banks centrally. At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.

Effective management of the liquidity risk has the objective of ensuring both availability of adequate funding to meet short-term requirements and due obligations, and a sufficient level of flexibility in order to fund the development plans of the Group’s business, maintaining an adequate finance structure in terms of debt composition and maturity. This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves.

65 F-142 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Liquidity Risk (continued)

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including interest payments:

As at December 31, 2011 Less than 3 to 1 to 2 to 3 to > 4 years Total 3 months 12 months 2 years 3 years 4 years Trade and other payables 716,807 5,521 – – – – 722,328 Accounts payable to related parties 733 – – – – – 733 Interest-bearing loans and borrowings: Principal 143,427 430,238 794,855 697,143 326,800 1,413,894 3,806,357 Interest 73,454 178,888 204,430 140,586 109,790 147,356 854,504 Dividends payable 323 – – – – – 323 Liabilities under put options of non-controlling interest shareholders in subsidiaries 14,051 – – – – – 14,051 Other non-current liabilities – – 403 595 1,129 30,398 32,525 948,795 614,647 999,688 838,324 437,719 1,591,648 5,430,821

As at December 31, 2010 Less than 3 to 1 to 2 to 3 to > 4 years Total 3 months 12 months 2 years 3 years 4 years Trade and other payables 617,862 5,171 – – – – 623,033 Accounts payable to related parties 7,457 977 – – – – 8,434 Interest-bearing loans and borrowings: Principal 346,061 332,978 429,252 822,783 560,812 1,407,200 3,899,086 Interest 91,411 207,935 238,268 189,386 139,254 171,767 1,038,021 Dividends payable 261 169 – – – – 430 Liabilities under put options of non-controlling interest shareholders in subsidiaries 14,934 – – – – – 14,934 Other non-current liabilities – – 599 1,040 466 29,915 32,020 1,077,986 547,230 668,119 1,013,209 700,532 1,608,882 5,615,958

Credit Risk

Credit risk is the potential exposure of the Group to losses that would be recognised if counterparties failed to perform or failed to pay amounts due. Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and trade accounts receivable.

The credit risk arising from the Group’s normal commercial operations is controlled by each operating unit within Group-approved procedures for evaluating the reliability and solvency of each counterparty, including receivable collection. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines and measurement techniques to qualify and monitor counterparty risk.

66 F-143 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Credit Risk (continued)

The Group sells goods to some of the biggest Russian and international companies on credit terms. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures.

As at December 31, 2011, accounts receivable from the three biggest debtors of the Group amounted to 256,961 (December 31, 2010: 234,055). Management determines concentration by reference to receivables from particular customers as percentage of total accounts receivable.

The maximum exposure to credit risk is equal to the carrying amount of financial assets, which are disclosed below:

2011 2010 Cash and cash equivalents 230,593 157,524 Trade and other receivables 766,226 716,940 Accounts receivable from related parties 5,417 3,305 Other financial assets 4,047 3,966 Other 13,690 7,016 1,019,973 888,751

The ageing analysis of trade and other receivables, accounts receivable from related parties and other financial assets is presented in the table below:

2011 2010

Gross amount Impairment Gross amount Impairment

Current Trade and other receivables - not past due 636,820 (2,345) 578,481 (292) Current Trade and other receivables - past due less than 30 days 77,758 (990) 65,141 (43) between 30 and 90 days 24,139 (3,489) 33,412 (229) over 90 days 59,220 (24,958) 57,799 (17,372) Accounts receivable from related parties - not past due 5,417 – 3,305 – Non-current Trade and other receivables - not past due 71 – 54 (11) Other - not past due 13,690 – 7,016 – 817,115 (31,782) 745,208 (17,947)

Movement in allowance for doubtful debts was as follows:

2011 2010 Balance at the beginning of the year 17,947 15,172 Utilised during the year (3,431) (2,347) Additional increase in allowance 19,551 5,420 Currency translation adjustment (2,285) (298) Balance at the end of the year 31,782 17,947

67 F-144 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Capital Management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise the return to shareholders. The Board of directors reviews the Group’s performance and establishes key performance indicators. In addition, the Group is subject to externally imposed capital requirements (debt covenants) which are used for capital monitoring. Through 2011, the Group was in compliance with such externally imposed capital requirements. The Group met its objectives for managing capital.

Capital includes equity attributable to the equity holders of the parent entity.

The Group manages its capital structure and adjusts it by issue of new shares, dividend payments to shareholders, purchase of treasury shares. The Group monitors the compliance of the amount of legal reserve with the statutory requirements and makes appropriations of profits to legal reserve. In addition, the Group monitors distributable profits on a regular basis and determines the amounts and timing of dividend payments.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, such as cash and cash equivalents, short-term and long-term investments, short-term accounts receivable and short-term loans approximate their fair value.

The following table shows financial instruments which carrying amounts differ from fair values:

As at December 31, 2011 As at December 31, 2010 Net carrying Net carrying Fair Value Fair Value amount amount Financial Liabilities Fixed rate long term bank loans 1,778,324 1,776,743 2,471,628 2,469,174 Variable rate long term bank loans 467,749 439,413 244,378 242,660 Bonds due 2013 155,298 155,143 164,059 165,371 Bonds due 2011 – – 164,059 165,010 5.25 per cent convertible bonds liability 388,508 384,054 382,216 404,123 7.75 per cent loan participation notes due 2018 500,000 429,690 – – 10 per cent loan participation notes due 2011 – – 186,700 193,261

The fair value of the bonds and notes was determined based on market quotations. The fair value of fixed-rate bank loans was calculated based on the present value of future principal and interest cash flows, discounted at prevailing interest rates of 9%, 7% and 5% per annum for loans denominated in Russian rouble, US dollar and Euro, respectively, as at December 31, 2011 (9%, 8% and 5% per annum for loans denominated in Russian rouble, US dollar and Euro, respectively, as at December 31, 2010).

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

68 F-145 OAO TMK

Notes to the Consolidated Financial Statements (continued)

(All amounts are in thousands of US dollars, unless specified otherwise)

30) Financial Risk Management Objectives and Policies (continued)

Fair Value of Financial Instruments (continued)

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

As at December 31, 2011 and 2010, the Group held the following financial instruments measured at fair value:

2011 Level 2 2010 Level 2 Liabilities measured at fair value Derivative financial instrument 3,024 3,024 47,816 47,816

During the reporting period, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

31) Subsequent Events

Bank Loans

In January 2012, the Group fully repaid a short-term loan from Gazprombank in the principal amount of 36,660 in accordance with the terms of the loan agreement.

69 F-146

TMK Capital S.A. société anonyme

Annual Accounts for the year ended 31 December 2011 (with the report of the Independent auditor thereon)

Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081

F-147

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Index Page

Directors and other information 1

Statement of Directors' responsibilities 2

Directors' Report 3 - 7

Independent auditor's report 8 - 9

Balance Sheet 10

Profit and Loss Account 11

Notes to the Annual Accounts 12 – 20

Page 2 F-148

Directors Heike Kubica Anja Lakoudi Daniel Bley

Corporate Administrator, Domiciliation Deutsche Bank Luxembourg S.A. Agent and Principal Banker 2, boulevard Konrad Adenauer L-1115 Luxembourg Grand Duchy of Luxembourg

Arranger UBS Limited Citigroup centre Canada Square Canary Wharf London E14 51B United Kingdom

Principal Paying and Transfer Agent Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

Trustee Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

Réviseur d’entreprises agréé Ernst & Young S.A 7, Rue Gabriel Lippman Parc d'Activité Syrdall 2 L-5365 Munsbach Grand Duchy of Luxembourg

Page 3 F-149

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Statement of the Board of Directors' responsibility for the year ended 31 December 2011

The Board of Directors of the Company reaffirm their responsibility to ensure the maintenance of proper accounting records disclosing the financial position of the Company with reasonable accuracy at any time, and ensuring that an appropriate system of internal controls is in place to ensure the Company’s business operations are carried on efficiently and transparently. In accordance with Article 3 of the law of 11 January 2008 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, we declare that, to the best of our knowledge, the annual accounts for the year ended 31 December 2011, prepared in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts, give a true and fair view of the assets, liabilities, financial position and result for the year then ended. In addition, the Directors’ report includes a fair review of the development and performance of the Company’s operations during the year and of the business risks, where appropriate, faced by the Company.

The Board of Directors,

Luxembourg, 29 May 2012

Page 4 F-150

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Directors' Report for the year ended 31 December 2011

The Directors present their Report and the Annual Accounts for the year ended 31 December 2011.

1. ACTIVITIES AND REVIEW OF THE DEVELOPMENT OF THE BUSINESS

TMK Capital S.A. (the "Company") is a Luxembourg company incorporated on 8 September 2007, for an unlimited duration, as a «société anonyme» and is subject to the law of 10th August 1915 on commercial companies, as subsequently amended.

The Company's principal activity is the issue of loan participation notes and other debt securities for the purpose of financing loans to OAO TMK, an open joint stock company organised under the laws of the Russian Federation.

On 27 January 2011, the Company issued USD 500,000,000 7.75% Loan Participation Notes due 2018. The proceeds received from the notes issued were used to finance a loan to OAO TMK at an interest rate of 7.75% per annum. Interest is payable semi-annually in arrears on 27 January and 27 July each year, commencing on 27 July 2011.

On 29 July 2011, the outstanding loan of USD 186,700,000 has been reimbursed and the corresponding outstanding amount on the 10 % USD 600,000,000 Loan Participation Notes has been redeemed.

2. BUSINESS REVIEW

During the year:

- The Company made no profit or loss (2010: profit of USD 272,110);

- There were no credit events that affected the Company;

As at 31 December 2011:

- The Company's total indebtedness was USD 516,619,543 (2010: USD 194,596,865);

- The Company had the following Notes in issue:

USD 500,000,000 - 7.75% Loan Participation Notes due 2018

3. PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties faced by the Company relate to the loan granted to OAO TMK by the Company.

Page 5 F-151

The Company has exposure to the following risks from its use of financial instruments and does not have any externally imposed capital requirements, other than those of the Luxembourg Law.

(i) Credit risk

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s credit linked assets.

The recoverability of the loan provided by the Company to OAO TMK is dependent upon the favorable business development and financial position of OAO TMK. As described in the section "Risk Factors" of the Prospectuses dated 25 July 2008 and 25 January 2011 relating to the issuance of the notes, certain risks exist that could have a material adverse effect on the business, financial condition, results of operations and prospects of OAO TMK, which, in turn, could have a material adverse effect on its ability to service its payment obligations under the loan agreements dated 25 July 2008 and 25 January 2011, and as a result, the ability of the Company to meet its obligations under the notes. In addition, the value of the notes could decline due to any of these risks, and the noteholders may lose some or all of their investments.

The loan is initially, unconditionally and irrevocably guaranteed by OAO Volzhsky Pipe Plant and ZAO TMK Trade House, and additionally, unconditionally and irrevocably guaranteed by OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc.

As of 31 December 2011, the Directors of the Company are of the opinion that there is currently no non-performance by OAO TMK which would result in a permanent impairment of the loan.

(ii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations arising from its financial liabilities as they fall due. The Company is not exposed to liquidity risk as the obligation to the noteholders is limited to the net proceeds from the loans to affiliated undertakings.

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s income or the value of its holdings of financial instruments. The noteholders are exposed to the market risk of the assets portfolio. Market risk embodies the potential for both gains and losses and includes currency risk, interest rate risk and price risk.

(a) Currency risk

Currency risk is the risk which arises due to the assets and liabilities of the Company held in foreign currencies, which will be affected by fluctuations in foreign exchange rates. The Company limits its exposure to currency risk by operating bank accounts in other currencies than its functional currency for receipts and payments in other currencies than its functional currency. The Company is exposed to movement in exchange rates between US Dollars

Page 6 F-152

("USD"), its functional currency, and foreign currencies namely Euro (''EUR'') and British Pound ("GBP").

The Company does not face major currency risk since both the notes issued by the Company and the loans given to OAO TMK are in the same currency, being in USD.

(b) Interest rate risk

Interest rate risk is the risk that the Company does not receive adequate interest from the loans to secure interest payments on the notes.

The Company does not face interest rate risk since both the notes issued by the Company and the loans to OAO TMK bear interest at the same interest rate and the same terms and conditions.

(c) Price risk

Price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The Directors do not consider price risk to be a significant risk to the Company as any fluctuation in the value of loans held by the Company will be borne by the noteholders.

4. DIRECTORS' INTERESTS

The Directors who held office on 31 December 2011 did not hold any shares in the Company or in any group company at that date, or during the year. There were no contracts of any significance in relation to the business of the Company in which the Directors had any interest at any time during the year.

5. CORPORATE GOVERNANCE STATEMENT

The Company is subject to and complies with the law of 10 August 1915 on commercial companies, as subsequently amended, and the Listing Rules of the London Stock Exchange. The Company does not apply additional requirements in addition to those required by the above. All the service providers engaged by the Company are subject to their own corporate governance requirements.

Financial Reporting Process

The Board of Directors (“the Board”) is responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company’s financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing the Administrator, Deutsche Bank Luxembourg S.A., to maintain the accounting records of the Company independently of the Arranger and the Custodian. The Administrator is contractually obliged to maintain proper books and records as required by the Corporate Administration agreement. To that end the Administrator performs reconciliations of its

Page 7 F-153

records to those of the Arranger and the Custodian. The Administrator is also contractually obliged to prepare, for review and approval by the Board, annual accounts which give a true and fair view.

The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time the Board also examines and evaluates the external auditors’ performance, qualifications and independence. The Administrator has operating responsibility for internal control in relation to the financial reporting process and the Administrator’s report to the Board.

Risk Assessment

The Board is responsible for assessing the risk of irregularities whether caused by fraud or error in financial reporting and ensuring the processes are in place for the timely identification of internal and external matters with a potential effect on financial reporting. The Board has also put in place processes to identify changes in accounting rules and recommendations and to ensure that these changes are accurately reflected in the Company’s annual accounts.

Control Activities

The Administrator is contractually obliged to design and maintain control structures to manage the risks which are significant for internal control over financial reporting. These control structures include appropriate segregation of responsibilities and specific control activities aimed at detecting or preventing the risk of significant deficiencies in financial reporting for every significant account in the annual accounts and the related notes in the Company’s annual accounts.

Monitoring

The Board has an annual process to ensure that appropriate measures are taken to consider and address the shortcomings identified and measures recommended by the independent auditors. Given the contractual obligations on the Administrator, the Board has concluded that there is currently no need for the Company to have a separate internal audit function in order for the Board to perform effective monitoring and oversight of the internal control and risk management systems of the Company in relation to the financial reporting process.

Capital Structure

No person has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over the Company’s share capital.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the law of 10 August 1915 on commercial companies, as subsequently amended, and the Listing Rules of the London Stock Exchange. The Articles of Association themselves may be amended by special resolution of the shareholders.

Powers of Directors

The Board is responsible for managing the business affairs of the Company in accordance with the Articles of Association. The Directors may delegate certain functions to other parties, subject to the supervision and direction by the Directors.

Page 8 F-154

6. SUBSEQUENT EVENTS

There were no significant events since 31 December 2011, which could influence the presentation of the current annual accounts.

7. AUDIT COMMITTEE

The Company has not established an audit committee.

The Board of Directors,

Luxembourg, 29 May 2012

Page 9 F-155

Ernst & Young Société anonyme 7, rue Gabriel Lippmann Parc d’Activité Syrdall 2 L-5365 Munsbach B.P. 780 L-2017 Luxembourg

Tel: +352 42 124 1 Fax: +352 42 124 5555 www.ey.com/luxembourg

R.C.S. Luxembourg B 47 771 TVA LU 16063074

Independent auditor’s report

To the Shareholders of TMK Capital S.A. 2, boulevard Konrad Adenauer L-1115 Luxembourg

Report on the annual accounts1

We have audited the accompanying annual accounts of TMK Capital S.A., which comprise the balance sheet as at 31 December 2011 and the profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors’ responsibility for the annual accounts

The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts and for such internal control as the Board of Directors determines is necessary to enable the preparation and presentation of annual accounts that are free from material misstatement, whether due to fraud or error.

Responsibility of the “réviseur d’entreprises agréé”

Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the judgment of the “réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

1 A member firm of Ernst & Young Global Limited

Page 10 F-156

effectiveness2 of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the annual accounts give a true and fair view of the financial position of TMK Capital S.A. as of 31 December 2011, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts.

Report on other legal and regulatory requirements

The Directors’ report, which is the responsibility of the Board of Directors, is consistent with the annual accounts.

ERNST & YOUNG Société Anonyme Cabinet de révision agréé

René ENSCH

Luxembourg, 29 May 2012

2 A member firm of Ernst & Young Global Limited

Page 11 F-157

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Balance Sheet as at 31 December 2011 (expressed in USD)

31-Dec-2011 31-Dec-2010 Note(s) USD USD ASSETS Fixed assets Financial assets (3) Loans to affiliated undertakings 500,000,000 186,700,000 Current assets Debtors (4) Amounts owed by affiliated undertakings 16,903,783 8,159,307 becoming due and payable within one year Cash at bank and in hand (5) 44,114 13,451 Total Assets 516,947,897 194,872,758

LIABILITIES Capital and reserves (6) Subscribed capital 50,000 50,000 Legal reserve 594 594 Loss brought forward (594) (272,704) Profit for the financial year - 272,110 50,000 50,000 Provisions Provisions for taxation (7) 249,528 212,281 Other provisions (8) 28,826 13,612 Non-subordinated debts Notes (9) Non-convertible notes becoming due and payable after more than one 500,000,000 - year becoming due and payable within one year 16,576,389 194,582,889 Other creditors (10) becoming due and payable within one year 43,154 13,976 Total Liabilities 516,947,897 194,872,758

The accompanying notes form an integral part of these Annual Accounts.

Page 12 F-158

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Profit and Loss Account for the year ended 31 December 2011 (expressed in USD)

Year ended 31- Year ended 31-Dec-2011 31-Dec-2010 Note(s) USD USD CHARGES Other external charges (11) 3,678,047 1,358,407 Interest payable and similar charges (12) other interests payable and similar charges 46,738,500 18,670,000 Tax on profit or loss (17) 103,312 - Other taxes not included in the previous caption 732 - Profit for the financial year - 272,110 Total Charges 50,520,591 20,300,517

INCOME Other operating income (13) 3,778,226 1,282,962 Other interests and other financial income (14) derived from affiliated undertakings 46,738,500 18,670,000 other interest receivable and similar income 3,865 17,617 Extraordinary income (15) - 329,938 Total Income 50,520,591 20,300,517

The accompanying note form an integral part of these Annual Accounts.

Page 13 F-159

TMK Capital S.A. société anonyme Registered Office: 2, boulevard Konrad Adenauer L-1115 Luxembourg R.C.S. Luxembourg B 119.081 (the "Company")

Notes to the Annual Accounts for the year ended 31 December 2011

Note 1 - General information

TMK Capital S.A. (the "Company") is a Luxembourg company incorporated on 8 September 2007, for an unlimited duration, as a «société anonyme» and subject to the law of 10th August 1915 on commercial companies, as subsequently amended.

The registered office of the Company is established at 2, boulevard Konrad Adenauer, L-1115 Luxembourg.

The Company's financial year starts on 1 January and ends on 31 December of each year.

The corporate object of the Company is:

(i) the issue of loan participation notes and other debt securities for the purpose of financing loans to OAO TMK, an open joint stock company organised under the laws of the Russian Federation. The Company is beneficially owned by OAO TMK (a related party);

(ii) the granting of loans to OAO TMK;

(iii) the granting of security interests over its assets to a trustee in relation to the issuance of the loan participation notes and other debt securities;

(iv) the making of deposits (including fiduciary deposits) at banks or with other depositaries; and

(v) the entering into all ancillary transactions, documents and agreements.

The Company may carry out any transactions, whether commercial or financial, which are directly or indirectly connected with its corporate object at the exclusion of any banking activity.

In general, the Company may carry out any operation which it may deem useful or necessary in the accomplishment and the development of its corporate purpose.

Note 2 - Summary of significant accounting policies

Note 2.1 - Basis of preparation

The Annual Accounts of the Company are prepared in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts. The Company maintains its books and records in United States Dollars (“USD”).

Page 14 F-160

Accounting policies and valuation rules are, besides the ones laid down by the Law of 19 December 2002, as subsequently amended, determined and applied by the Board of Directors.

The preparation of Annual Accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the accounting policies. Changes in assumptions may have a significant impact on the Annual Accounts in the period in which the assumptions changed. The Directors believe that the underlying assumptions are appropriate and that the Annual Accounts therefore present the financial position and results fairly.

The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Note 2.2 - Significant accounting policies

The main accounting policies applied by the Company are the following:

Note 2.2.1 - Assets and liabilities

Unless stated otherwise, assets have been stated at their historical cost less any value adjustment and liabilities have been stated at their repayable amount, expressed in USD.

Note 2.2.2 - Financial assets

Financial assets are stated at their nominal value less any write-down. Write-downs are recorded if, in the opinion of the Board of Directors, there is a permanent impairment in value which has occurred.

Note 2.2.3 - Debtors

Debtors are recorded at their nominal value. They are subject to value adjustments where their recoverability is either uncertain or compromised at the end of the financial year.

Note 2.2.4 - Cash at bank and in hand

Cash at bank and in hand comprises cash in hand, cash at bank and deposits held at call with banks. In the balance sheet, bank overdrafts are included in Non-subordinated debts under “Amounts owed to credit institutions”.

Note 2.2.5 - Notes issued

The notes issued are stated at their nominal value and are composed of loan participation notes issued by the Company. The notes are quoted on the London Stock Exchange.

Note 2.2.6 - Provisions

Provisions are intended to cover losses or debts the nature of which is clearly defined and which, at the date of the balance sheet, are either likely to be incurred or certain to be incurred but uncertain as to their amount or as to the date on which they will arise.

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Note 2.2.7 - Other external charges and other operating income

Arrangement fees and ongoing fees and expenses incurred in the context of the issue of loan participation notes are recorded in the caption “Other external charges”. In accordance with the loan agreements with OAO TMK, the Company recharges these costs to OAO TMK. The recharge of these costs is recorded in the caption “Other operating income”.

Note 2.2.8 - Interest income and expenses

Interest income and expenses are recorded on an accrual basis.

Note 2.2.9 - Foreign currencies

Transactions expressed in currencies other than USD are translated into USD at the exchange rates effective at the time of the transaction.

Long term assets and liabilities, expressed in foreign currencies, are translated into USD at the exchange rates effective at the time of the transaction. At the balance sheet date, these assets and liabilities remain translated at historical exchange rates.

Cash at bank and in hand is translated at the exchange rates effective at the balance sheet date. Exchange losses and gains are recorded in the profit and loss account of the year.

Other assets and liabilities are translated separately respectively at the lower or at the higher of the value converted at the historical exchange rates or the value determined on the basis of the exchange rates effective at the balance sheet date. The realised exchange losses and gains and the unrealised exchange losses are recorded in the profit and loss account. The unrealised exchange gains are not recognised.

Where there is an economic link between an asset and a liability, these are valued in total according to the method described above and the net unrealised exchange loss is recorded in the profit and loss account and the net unrealised exchange gain is not recognised.

Note 2.2.10 - Credit risk

The recoverability of the loan provided by the Company to OAO TMK is dependent upon the favorable business development and financial position of OAO TMK. As described in the section "Risk Factors" of the Prospectuses dated 25 July 2008 and 25 January 2011 relating to the issuance of the notes, certain risks exist that could have a material adverse effect on the business, financial condition, results of operations and prospects of OAO TMK, which, in turn, could have a material adverse effect on its ability to service its payment obligations under the loan agreements dated 25 July 2008 and 25 January 2011, and as a result, the ability of the Company to meets its obligations under the notes. In addition, the value of the notes could decline due to any of these risks, and the noteholders may lose some or all of their investments.

As of 31 December 2011, the Directors of the Company are of the opinion that there is currently no non-performance by OAO TMK which would result in a permanent impairment of the loan.

Note 2.2.11 - Comparative figures

In accordance with the Luxembourg commercial law, certain reclassifications have been done on the comparative figures as of 31 December 2010 in order to allow a better comparison

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between both exercises. These reclassifications neither impact the shareholders' equity as of 31 December 2010 nor the result for the year then ended.

Note 3 - Financial assets

Loans to affiliated undertakings

Loans to affiliated undertakings, in the amount of USD 500,000,000, are comprised as follows:

Currency Loan amount Interest Maturity date Balance as at (Reimburse- Balance as rate per 1-Jan-2011 ment) / at 31-Dec- annum additions 2011 during the year USD 186,700,000 10.00% 29 July 2011 186,700,000 (186,700,000) - USD 500,000,000 7.75% 27 January 2018 - 500,000,000 500,000,000 186,700,000 313,300,000 500,000,000

In 2008, the Company granted a loan of USD 600,000,000 to OAO TMK at an interest rate of 10% per annum financed through the issuance of Loan Participation Notes (Note 9). Interest was receivable semi-annually on 29 January and 29 July. On 20 August 2009, USD 413,300,000 of the loan was repaid on the request of the Company. As a compensation for the early redemption of the loan, the Company paid an indemnity of USD 6,677,000 to OAO TMK. The outstanding loan amount of USD 186,700,000 has been repaid on 29 July 2011.

On 27 January 2011, the Company granted a loan of USD 500,000,000 to OAO TMK at an interest rate of 7.75% per annum financed through the issuance of Loan Participation Notes (Note 9). Interest is receivable semi-annually on 27 January and 27 July each year till maturity. The loan matures on 27 January 2018.

Note 4 - Debtors

Amounts owed by affiliated undertakings 31-Dec-2011 31-Dec-2010 USD USD Amounts owed by affiliated undertakings, in the amount of USD 16,903,783, are comprised as follows: Becoming due and payable within one year: Interest receivable on the loan to OAO TMK (Note 3) 16,576,389 7,882,889 Receivable related to the recharge of ongoing fees and expenses 327,394 276,418 16,903,783 8,159,307 Note 5 - Cash at bank and in hand Cash at bank and in hand, in the amount of USD 44,114, is comprised as follows: Cash account with Deutsche Bank AG - USD 33,189 - Cash account with Deutsche Bank Luxembourg S.A. - USD 9,021 11,567 Cash account with Deutsche Bank Luxembourg S.A. - GBP 1,904 1,884 44,114 13,451

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Note 6 - Capital and reserves

The carrying value of capital and reserves, is comprised as follows:

Subscribed Legal Loss Result for Total capital reserve brought the year USD USD USD forward USD USD Balance as at 31 December 2010 50,000 594 (272,704) 272,110 50,000 Allocation of prior year result - - 272,110 (272,110) - Profit for the financial year 2011 - - - - - 50,000 594 (594) - 50,000

Subscribed capital

The subscribed capital of the Company consists of 500 shares having a par value of USD 100 each (USD 50,000). As at 31 December 2011, 500 shares were issued and fully paid.

Legal reserve

In accordance with Luxembourg Company Law, the Company is required to transfer a minimum of 5% of its net profit for each financial year to a legal reserve. This requirement ceases to be necessary once the balance on the legal reserve reaches 10% of the issued share capital. The legal reserve is not available for distribution to the shareholders.

Note 7 - Provisions for taxation 31-Dec-2011 31-Dec-2010 USD USD Provisions for taxation, in the amount of USD 249,528, are comprised as follows : Corporate tax - 2006 - 12,440 Corporate tax - 2007 - 47,648 Corporate tax - 2008 58,749 60,121 Corporate tax - 2009 59,069 60,449 Corporate tax - 2010 30,901 31,623 Corporate tax - 2011 100,809 - 249,528 212,281

Note 8 - Other provisions

Other provisions, in the amount of USD 28,826, are comprised as follows:

Administration and management fees 15,526 - Audit fees 13,300 13,612 28,826 13,612

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Note 9 - Notes

Notes are comprised as follows:

Becoming due and payable after more than one year

Currency Notes Interest Maturity Balance Additions Balance as at outstanding rate per date as at during the 31-Dec-2011 annum 1-Jan- year USD 2011 USD USD USD 500,000,000 7.75% 27-Jan-18 - 500,000,000 500,000,000

Becoming due and payable within one year

Currency Notes Interest Maturity Balance as Additions Balance as at outstanding rate per date at during the 31-Dec-2011 annum 1-Jan-2011 year USD USD USD USD 186,700,000 10.00% 29-Jul-11 186,700,000 (186,700,000) -

This caption also includes interest payable on loan participation notes amounting to USD 16,576,389 ( 2010: 7,882,889).

On 29 July 2008, the Company issued loan participation notes with a total nominal amount of USD 600,000,000 bearing interest at 10.00%, due on 29 July 2011. The Company used the proceeds from the issue of the loan participation notes for the sole purpose of financing a loan to OAO TMK (note 3). On 20 August 2009, there has been an early partial redemption of USD 413,300,000 of the USD 600,000,000 loan participation notes. The remaining notes of USD 186,700,000 matured on 29 July 2011.

On 27 January 2011, the Company issued loan participation notes with a total nominal amount of USD 500,000,000 bearing interest at 7.75% per annum, due on 27 January 2018. The Company used the proceeds from the issuance of the loan participation notes for the sole purpose of financing a loan to OAO TMK (note 3). Interest is payable semi-annually on 27 January and 27 July respectively till maturity.

The total amount of loan participation notes issued is collaterally secured by the loan referred to in note 3. The notes were issued with limited recourse to the Company for the sole purpose of financing a loan to OAO TMK. The loan is initially, unconditionally and irrevocably guaranteed by OAO Volzhsky Pipe Plant and ZAO TMK Trade House, and additionally, unconditionally and irrevocably guaranteed by OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc.

The loan participation notes issued are traded on the London Stock Exchange.

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Note 10 – Other creditors 31-Dec-2011 31-Dec-2010 USD USD Other creditors, in the amount of USD 43,154, are comprised as follows: Administration and management fees 32,091 13,976 Tax advisor fees 10,000 - Annual filing fees 1,063 - 43,154 13,976

Note 11 – Other external charges Year ended Year ended 31-Dec-2011 31-Dec-2010 USD USD Other external charges, in the amount of USD 3,678,047, are comprised as follows: Arrangement fees (note 13) 3,451,570 1,246,875 Legal fees 97,432 51,014 Administration and management fees 54,034 29,630 Agents fees 30,000 22,500 Audit fees 21,003 7,220 Trustee fees 15,000 - Listing fees 6,958 739 Annual filing fees 1,300 - Other fees 750 429 3,678,047 1,358,407

Arrangement fees relate to expenses incurred in relation to the issuance of the new notes and the related loan agreement. These expenses were recharged to OAO TMK (note 13).

Note 12 – Other interests payable and similar charges Year ended Year ended 31-Dec-2011 31-Dec-2010 USD USD Other interests payable and similar charges, in the amount of USD 46,738,500, are comprised as follows:

Interest expenses on notes (note 9) 46,738,500 18,670,000

Note 13 - Other operating income

Other operating income, in the amount of USD 3,778,226, is comprised as follows: Recharge of arrangement fees (note 11) 3,350,000 1,246,875 Recharge of ongoing fees and expenses 428,226 36,087 3,78,226 1,282,962

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Note 14 – Other interests and other financial income Year ended Year ended 31-Dec-2011 31-Dec-2010 USD USD Other interests and other financial income, derived from affiliated undertakings, in the amount of USD 46,738,500, are comprised as follows:

Interest on loans to OAO TMK (note 3) 46,738,500 18,670,000

Note 15 - Extraordinary income

Extraordinary income for the year ended 31 December 2010 represented the reversal of excess tax provision amounting to USD 57,234 booked in the prior years. It also included the recharge of ongoing fees and expenses amounting to USD 272,704 to be recovered from OAO TMK relating to prior years.

Note 16 - Personnel

During the year under review, the Company did not employ any personnel and, consequently, no payments for wages, salaries or social securities were made.

Note 17 - Taxation

The Company is subject to the general tax regulations applicable to commercial companies in Luxembourg.

Note 18 - Related Party transactions

During the year, the Company incurred a fee of USD 68,607 (2010: USD 25,901) relating to administration services provided by Deutsche Bank Luxembourg S.A.

Note 19 - Subsequent events

There are no events which occurred after 31 December 2011, which could influence the presentation of the current Annual Accounts.

Note 20 - Advances and loans granted to members of the administrative, managerial and supervisory bodies

No loans, advances and emoluments were granted to the Board of Directors during the year ended 31 December 2011.

Page 21 F-167

TMK Capital S.A. 2, boulevard Konrad Adenauer L-1115 Luxembourg

R.C.S. Luxembourg B 119.081

Directors’ report and Annual accounts as of 31 December 2010, and Independent auditor’s report

F-168

Table of contents Pages

Directors’ report 1

Independent auditor’s report 2 - 3

Annual accounts

- Balance sheet 4

- Profit and loss account 5

- Notes to the annual accounts 6 - 14

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TMK Capital S.A. Société Anonyme

R.C.S.Luxembourg B 119.081 ______

Directors’ report

The Directors present their report and the annual accounts for the year ended 31 December 2010.

1. ACTIVITIES AND REVIEW OF THE DEVELOPMENT OF THE BUSINESS

The Company’s principal activity is the issue of loan participation notes for the purpose of financing loans to OAO TMK.

2. RESULTS AND ALLOCATION

The result for the year ended 31 December 2010 is a profit of USD 272,110 (year ended 31 December 2009: loss of USD 179,462).

3. POST BALANCE SHEET EVENTS

On 27 January 2011, the Company issued USD 500,000,000 7.75% loan participation notes due 2018. The proceeds received from the notes issued were used to finance a loan to OAO TMK at an interest rate of 7.75% per annum. Interest is payable semi-annually in arrear on 27 January and 27 July each year, commencing on 27 July 2011.

4. ANNUAL ACCOUNTS AS AT 31 DECEMBER 2010

We propose the approval of the annual accounts, to continue the activities of the Company and to give full discharge to the Board of Directors and the statutory auditor for their mandates during the year ended 31 December 2010.

The Board of Directors,

Luxembourg, 23 May 2011

Tel: +352 421 22 462 2, Boulevard Konrad Adenauer Fax: +352 421 22 718 L-1115 Luxembourg

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Ernst & Young Société anonyme 7, rue Gabriel Lippmann Parc d’Activité Syrdall 2 L-5365 Munsbach B.P. 780 L-2017 Luxembourg

Tel: +352 42 124 1 Fax: +352 42 124 5555 www.ey.com/luxembourg

R.C.S. Luxembourg B 47 771 TVA LU 16063074

Independent auditor’s report

To the Shareholders of1 TMK Capital S.A. 2, boulevard Konrad Adenauer L-1115 Luxembourg

We have audited the accompanying annual accounts of TMK Capital S.A., which comprise the balance sheet as at 31 December 2010 and the profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors’ responsibility for the annual accounts

The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts and for such internal control as the Board of Directors determines is necessary to enable the preparation and presentation of annual accounts that are free from material misstatement, whether due to fraud or error.

Responsibility of the “réviseur d’entreprises agréé”

Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the judgment of the “réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of

1 A member firm of Ernst & Young Global Limited - 4 -

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accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion2

In our opinion, the annual accounts give a true and fair view of the financial position of TMK Capital S.A. as of 31 December 2010, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts.

ERNST & YOUNG Société Anonyme Cabinet de révision agréé

René ENSCH

Luxembourg, 23 May 2011

A member firm of Ernst & Young Global Limted - 5 -

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TMK Capital S.A. Société Anonyme

Balance sheet As of 31 December 2010 (expressed in USD)

Note(s) 31-Dec-2010 31-Dec-2009 ASSETS USD USD

Fixed assets

Financial assets Loans to affiliated undertakings (3) 186,700,000 186,700,000

Current assets

Debtors Amounts owed by affiliated undertakings (4) becoming due and payable within one year 8,159,307 7,882,889

Cash at bank (5) 13,451 134,996

Total assets 194,872,758 194,717,885

LIABILITIES

Capital and reserves

Subscribed capital (6) 50,000 50,000 Legal reserve 594 594 Loss brought forward (272,704) (93,242) Loss for the financial year 272,110 (179,462) 50,000 (222,110) Provisions for liabilities and charges

Provisions for taxation (15) 212,281 287,871

Creditors

Notes (7) becoming due and payable after more than one year - 186,700,000 becoming due and payable within one year 194,582,889 7,882,889

Other creditors (8) becoming due and payable within one year 27,588 69,235

Total liabilities 194,872,758 194,717,885

The accompanying notes form an integral part of the annual accounts. - 4 -

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TMK Capital S.A. Société Anonyme

Profit and loss account For the year ended 31 December 2010 (expressed in USD)

Year ended Year ended 31-Dec-2010 31-Dec-2009 Note(s) USD USD CHARGES

Other operating charges (9) 1,358,407 41,443,434

Interest payable and similar charges (10) Other 18,670,000 63,879,404

Taxation (15) - 119,596

Profit for the financial year 272,110 -

Total charges 20,300,517 105,442,434

INCOME

Other operating income (11) 1,282,962 -

Other interest receivable and similar income (12) Concerning affiliated undertakings 18,687,617 63,872,972

Extraordinary income (13) 329,938 41,390,000

Loss for the financial year - 179,462

Total income 20,300,517 105,442,434

The accompanying notes form an integral part of the annual accounts. - 5 -

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts As of 31 December 2010

Note 1 – General

TMK Capital S.A. (the “Company”) is a Luxembourg company incorporated on 8 September 2007, for an unlimited duration, as a public limited liability company “Société Anonyme” and subject to the law of 10 August 1915, as subsequently amended.

The registered office of the Company is established at 2, boulevard Konrad Adenauer, L-1115 Luxembourg.

The Company’s financial year starts on 1 January and ends on 31 December of each year.

The corporate object of the Company is:

(a) the issue of loan participation notes and other debt securities for the purpose of financing loans to OAO TMK, an open joint stock company organised under the laws of the Russian Federation. The Company is beneficially owned by OAO TMK (a related party);

(b) the granting of loans to OAO TMK;

(c) the granting of security interests over its assets to a trustee in relation to the issuance of the loan participation notes and other debt securities;

(d) the making of deposits (including fiduciary deposits) at banks or with other depositaries; and

(e) the entering into all ancillary transactions, documents and agreements.

The Company may carry out any transactions, whether commercial or financial which are directly or indirectly connected with its corporate object at the exclusion of any banking activity.

In general, the Company may carry out any operation which it may deem useful or necessary in the accomplishment and the development of its corporate purpose.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 2 – Summary of significant accounting policies

2.1 – Basis of preparation

The annual accounts of the Company are prepared in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts. The Company maintains its books and records in United States Dollars (“USD”).

2.2 – Significant accounting policies

The main accounting policies applied by the Company are the following:

2.2.1 – Assets and liabilities

Unless stated otherwise, assets have been stated at their historical cost and liabilities have been stated at their amount repayable.

2.2.2 – Financial assets

Loans are stated at their nominal value less any write-down. Write-downs are recorded if, in the opinion of the Board of Directors, there is a permanent impairment in value which has occurred.

2.2.3 – Debtors

Debtors are recorded at their nominal value. They are subject to value adjustments where their recoverability is either uncertain or compromised at the end of the financial year.

2.2.4 – Cash at bank

Cash at bank comprise cash in hand, cash at bank, deposits held at call with banks. In the balance sheet, bank overdrafts are included in Creditors under “Amount owed to credit institutions”.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 2 – Summary of significant accounting policies (continued)

2.2.5 – Notes issued

The notes issued are stated at their nominal value and are composed of loan participation notes issued by the Company. The notes are quoted on the London Stock Exchange.

2.2.6 – Provisions for liabilities and charges

Provisions for liabilities and charges are intended to cover losses or debts the nature of which is clearly defined and which, at the date of the balance sheet are either likely to be incurred or certain to be incurred but uncertain as to their amount or as to the date on which they will arise.

2.2.7 – Other operating charges and income

Arrangement fees and ongoing fees and expenses incurred in the context of the issue of loan participation notes are recorded in the caption “Other operating charges”. In accordance with the loan agreements with OAO TMK, the Company recharges these costs to OAO TMK. The recharge of these costs is recorded in the caption “Other operating income”.

2.2.8 – Interest income and expenses

Interest income and expenses are recorded on an accrual basis.

2.2.9 – Foreign currencies

Transactions expressed in currencies other than USD are translated into USD at the exchange rates effective at the time of the transaction.

Long term assets and liabilities, expressed in foreign currencies, are translated into USD at the exchange rates effective at the time of the transaction. At the balance sheet date, these assets and liabilities remain translated at historic exchange rates.

Cash at bank is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the profit and loss account of the year.

Other assets and liabilities are translated separately respectively at the lower or at the higher of the value converted at the historic exchange rates or the value determined on the basis of the exchange rates effective at the balance sheet date. The realised exchange losses and gains and the unrealised exchange losses are recorded in the profit and loss account. The unrealised exchange gains are not recognised.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 2 – Summary of significant accounting policies (continued)

2.2.10 – Credit risk

The recoverability of the loan provided by the Company to OAO TMK is dependent upon the favorable business development and financial position of OAO TMK. As described in the section “Risk Factors” of the Prospectus dated 25 July 2008 relating to the issuance of the notes, certain risks exist that could have a material adverse effect on the business, financial condition, results of operations and prospects of OAO TMK, which, in turn, could have a material adverse effect on its ability to service its payment obligations under the loan agreement dated 25 July 2008, and as a result, the ability of the Company to meet its obligations under the notes. In addition, the value of the notes issued could decline due to any of these risks, and the noteholders may lose some or all of their investments.

As of 31 December 2010, the Directors of the Company are of the opinion that there is currently no non-performance by OAO TMK which would result in a permanent impairment of the loan.

2.2.11 – Comparative figures

In accordance with the Luxembourg commercial law, certain reclassifications have been done on the comparative figures as of 31 December 2009 in order to allow a better comparison between both exercises. These reclassifications neither impact the shareholders’ equity as of 31 December 2009 nor the result for the year then ended.

Note 3 – Loans to affiliated undertakings

Loans to affiliated undertakings, in the amount of USD 186,700,000, are comprised as follows:

31-Dec-2010 31-Dec-2009 USD USD

OAO TMK (10%), due 2011 186,700,000 186,700,000

In 2008, the Company granted a loan of USD 600,000,000 to OAO TMK at an interest rate of 10% per annum through the issuance of notes. Interest is receivable semi-annually on 29 January and 29 July till maturity. On 20 August 2009, USD 413,300,000 of the loan was repaid on the request of the Company. As a compensation for the early redemption of the loan, the Company paid an indemnity of USD 6,677,000 to OAO TMK. The outstanding loan matures on 29 July 2011.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 4 – Amounts owed by affiliated undertakings

Amounts owed by affiliated undertakings, in the amount of USD 8,159,307, are comprised as follows:

31-Dec-2010 31-Dec-2009 USD USD Becoming due and payable within one year:

Interest receivable on loan to OAO TMK 7,882,889 7,882,889 Receivable related to the recharge of ongoing fees and expenses 276,418 -

8,159,307 7,882,889

Note 5 – Cash at bank

Cash at bank, in the amount of USD 13,451, is comprised as follows:

31-Dec-2010 31-Dec-2009 USD USD

Cash account with Deutsche Bank Luxembourg S.A. - USD 11,567 94,836 Cash account with Deutsche Bank Luxembourg S.A. - GBP 1,884 40,160

13,451 134,996

Note 6 – Capital and reserves

Subscribed capital

The subscribed capital of the Company consists of 500 shares with a par value of USD 100 each (USD 50,000). As at 31 December 2010, all shares were issued and fully paid up.

Legal reserve

In accordance with Luxembourg Company Law, the Company is required to transfer a minimum of 5% of its net profit for each financial year to a legal reserve. This requirement ceases to be necessary once the balance on the legal reserve reaches 10% of the issued share capital. The legal reserve is not available for distribution to the shareholders.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 7 – Notes

Notes are comprised as follows:

31-Dec-2010 31-Dec-2009 USD USD Becoming due and payable after more than one year:

USD 600,000,000 10% loan participation notes, due 2011 (*) - 186,700,000

31-Dec-2010 31-Dec-2009 USD USD Becoming due and payable within one year:

USD 600,000,000 10% loan participation notes, due 2011 (*) 186,700,000 - Interest payable on notes (**) 7,882,889 7,882,889 194,582,889 7,882,889

(*) On 29 July 2008, the Company issued loan participation notes with a total nominal amount of USD 600,000,000 bearing interest at 10.00%, due on 29 July 2011. The Company used the proceeds from the issue of the loan participation notes for the sole purpose of financing a loan to OAO TMK (note 3). Interest is payable semi-annually on 29 January and 29 July respectively till maturity.

The total amount of loan participation notes issued is collaterally secured by the loan referred to in note 3. The notes were issued with limited recourse to the Company for the sole purpose of financing a loan to OAO TMK. The loan is initially, unconditionally and irrevocably guaranteed by OAO Volzhsky Pipe Plant and ZAO TMK Trade House, and additionally, unconditionally and irrevocably guaranteed by OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc.

The loan participation notes issued are traded on the London Stock Exchange.

On 20 August 2009, there has been an early partial redemption of USD 413,300,000 of the USD 600,000,000 loan participation notes. The Company repurchased these notes for a cash consideration of USD 371,910,000, thus realising a profit of USD 41,390,000 which has been recorded in the profit and loss account under the caption “Extraordinary income” (note 13). Transaction costs related to this transaction amount to USD 34,624,848 and are comprised of consent fees and other transaction fees (note 9). The remaining notes of USD 186,700,000 will mature on 29 July 2011.

(**) This represents the accrued interest on outstanding loan participation notes issued.

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TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 8 – Other creditors

Other creditors, in the amount of USD 27,588, are comprised as follows:

31-Dec-2010 31-Dec-2009 USD USD

Becoming due and payable within one year:

Arrangement fee payable - 32,373 Administration and management fees 13,976 22,201 Audit fees 13,612 14,661

27,588 69,235

Note 9 – Other operating charges

Other operating charges, in the amount of USD 1,358,407, are comprised as follows:

Year ended Year ended 31-Dec-2010 31-Dec-2009 USD USD

Arrangement fee expense (note 11) 1,246,875 - Administration and management fees 29,630 39,023 Legal fees 51,014 78,179 Agent fees 22,500 - Audit fees 7,220 21,362 Listing fees 739 1,964 Other fees 429 788 Consent fees - 26,670,000 Other transaction fees related to the repurchase of notes - 7,954,848 Indemnity paid to OAO TMK - 6,677,000 Notary fees - 270

1,358,407 41,443,434

Consent fees reflect fees paid in relation to the early repurchase of loan participation notes in August 2009 (note 7).

Other transaction fees reflect agent and legal advisory fees of USD 7,954,848 which are related to the early repurchase of the notes (note 7).

The Company paid an indemnity of USD 6,677,000 to OAO TMK as a compensation for the early repayment of the loan (note 3).

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F-181

TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 10 – Interest payable and similar charges

Interest payable and similar charges, in the amount of USD 18,670,000, are comprised as follows:

Year ended Year ended 31-Dec-2010 31-Dec-2009 USD USD

Interest expenses on notes 18,670,000 63,872,972 Exchange loss - 6,432

18,670,000 63,879,404

Note 11 – Other operating income

Other operating income, in the amount of USD 1,282,962, is comprised as follows:

Year ended Year ended 31-Dec-2010 31-Dec-2009 USD USD

Recharge of arrangement fee (note 9) 1,246,875 - Recharge of ongoing fees and expenses 36,087 -

1,282,962 -

Note 12 – Other interest receivable and similar income

Other interest receivable and similar income, in the amount of USD 18,687,617, are comprised as follows:

Year ended Year ended 31-Dec-2010 31-Dec-2009 USD USD

Interest income on loan to OAO TMK 18,670,000 63,872,972 Exchange gain 17,617 -

18,687,617 63,872,972

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F-182

TMK Capital S.A. Société Anonyme

Notes to the annual accounts (continued) As of 31 December 2010

Note 13 – Extraordinary income

Extraordinary income as at 31 December 2010 represents the reversal of excess tax provision amounting to USD 57,234 booked in the prior years. It also includes the recharge of ongoing fees and expenses amounting to USD 272,704 to be recovered from OAO TMK relating to prior years.

As at 31 December 2009, this represents profit realised by the Company on the partial redemption of the loan participation notes (note 7).

Note 14 – Personnel

During the year under review, the Company did not employ any personnel and, consequently, no payments for wages, salaries or social securities were made.

Note 15 – Taxation

The Company is subject to the general tax regulations applicable to all commercial companies in Luxembourg.

Note 16 – Guarantees

The loan described in note 3 is initially, unconditionally and irrevocably guaranteed by OAO Volzhsky Pipe Plant and ZAO TMK Trade House, and additionally, unconditionally and irrevocably guaranteed by OAO Seversky Pipe Plant, OAO Sinarsky Pipe Plant, OAO Taganrog Metallurgical Works and IPSCO Tubulars Inc.

Note 17 – Subsequent events

On 27 January 2011, the Company issued USD 500,000,000 7.75% loan participation notes due 2018. The proceeds received from the notes issued were used to finance a loan to OAO TMK at an interest rate of 7.75% per annum. Interest is payable semi-annually in arrear on 27 January and 27 July each year, commencing on 27 July 2011.

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F-183 BORROWER OAO TMK 40 Pokrovka Street, building 2A 105062 Moscow, Russian Federation THE ISSUER TMK Capital S.A. 2, Boulevard Konrad Adenauer L-1115 Luxembourg JOINT LEAD MANAGERS Citigroup Global Markets Limited Deutsche Bank AG, London Branch J.P. Morgan Securities plc Citigroup Centre Winchester House 25 Bank Street Canary Wharf 1 Great Winchester Street Canary Wharf London E14 5LB London EC2N 2DB London E14 5JP United Kingdom United Kingdom United Kingdom LEGAL ADVISERS TO THE BORROWER As to English and U.S. law As to Russian law Freshfields Bruckhaus Deringer LLP Freshfields Bruckhaus Deringer LLP 65 Fleet Street Kadashevskaya Nab. 14/2 London EC4Y 1HS Moscow 119017 United Kingdom Russian Federation LEGAL ADVISERS TO THE JOINT LEAD MANAGERS AND TRUSTEE As to English and U.S. law As to Russian law Linklaters LLP Linklaters CIS One Silk Street Paveletskaya Square 2/2 London EC2Y 8HQ Moscow 115054 United Kingdom Russian Federation LEGAL ADVISERS TO THE ISSUER As to Luxembourg law MNKS Vertigo Polaris Building 2-4 rue Eugène Ruppert L-2453 Luxembourg R.C.S. Luxembourg B 169476 INDEPENDENT AUDITORS TO THE BORROWER Ernst & Young LLC Sadovnicheskaya Naberezhnaya 77/1 Moscow 115035 Russian Federation U.S. REGISTRAR, U.S. PAYING PRINCIPAL PAYING LUXEMBOURG REGISTRAR AND AGENT AND TRANSFER AGENT AGENT TRANSFER AGENT Deutsche Bank Trust Company Deutsche Bank AG, London Branch Deutsche Bank Luxembourg Americas 1 Great Winchester Street 2, Boulevard Konrad Adenauer 60 Wall Street London EC2N 2DB L-115 Luxembourg New York 10005 United Kingdom United States of America LISTING AGENT TRUSTEE Arthur Cox Listing Services Limited Deutsche Trustee Company Limited Earlsfort Centre Winchester House Earlsfort Terrace Great Winchester Street Dublin 2 London EC2N 2DB Ireland United Kingdom RUSSIAN TAX ADVISOR DLA Piper Rus Limited 25, Leontievsky pereulok Moscow 125009 Russian Federation

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