annual report 2018 - kazanorgsintez · gost r system and in national certification system (ncs)....

60 YEARS FOR THE GREATER GOOD | KAZANORGSINTEZ PJSC | ANNUAL REPORT 2018

ANNUAL REPORT2018

YEARS FOR THE GREATER GOOD

19582015

19651968

1974

1980

2004

2016

2007

1983

2000


ANNUAL REPORT2018


1958

2018

2015

1965

1963

1968

1974

1980

2003

1989

2004

2016

200720072015

2010

1983

2000

60 YEARS FOR THE GREATER GOOD | KAZANORGSINTEZ PJSC | ANNUAL REPORT 2018 www.kazanorgsintez.ru 3

TABLE OF CONTENTS

General information 4Position in Industry 5Priority production activities 6Report of Board of Directors summarizingdevelopment of priority production activities 11Energy consumption 14Development outlook 16Report on payout of stated (accrued) dividents in 2018following the results of 2017 17Key risk factors 18Company’s deals 21Board of Directors 22Executive board 28Main provisions of remuneration and expencesreimbursement policy 32Report on observing principles and reccommendations ofcorporate governance code 34

http://www.kazanorgsintez.ru


GENERAL INFORMATION

Company profile

Registrar of shareholders:

Сведения об аудиторе

Contact persons for coordination with shareholders:

Full corporate name:Kazan Public Joint Stock Company Organichesky sintez

Short mane:Kazanorgsintez PJSC

Registered address:101, Belomorskaya str., Kazan Republic of Tatarstan Russian Federation

Information about Kazanorgsintez PJSC is disclosed on the Company’s site: www.kazanorgsintez.ru in the Internet and the webpage of JSC SKRIN Information Dis-closure Agency: www.disclosure.skrin.ru/ disclosure/1658008723 in the Internet.

LLC Eurasian Registrar.

Registered address:2, Nikolay Stolbov St., Kazan, Republic of Tatarstan, Russian Federation.

Website:www.earc.ru

License no.:10-000-1-00332.

Issue date and period of validity:10.03.2005. Without limitation as to period of validity.

Licensing authority:Federal Financial Markets Service ofthe Russian Federation.

Kazan affiliate of LLC Eurasian Registrar

Registered address:6, Vishnevsky St., Kazan, Republic of Tatarstan, Russian Federation.

Telephone: 8 (843) 236-63-96

Fax: 8 (843) 236-27-52

JSC PricewaterhauseCoopers Audit (JSC PCWC Audit)

Registered address:10, Butyrsky Val, Moscow, Russian Federation

Member of self-regulatory organization of auditors “Russian Union of Auditors” (Association).

Principal Number of Registration Entry (PNRE) in the register of auditors and audit organizations - 11603050547.

Julia A.LukyanovaHead of Corporate Governance Department, PJSC Kazanorgsintez

Telephone:(843) 533-99-85, 533-95-86

Fax:(843) 533-93-42

E-mail: [email protected]

1959 1963

Start of productionfacilities construction

• Launching the production of phenol and ace-tone. Capacity for phenol - 45 kta, for acetone - 27.5 kta.

• In July 13, first batch of phenol and acetone was received.

http://www.disclosure.skrin.ru/disclosure/1658008723

http://www.disclosure.skrin.ru/disclosure/1658008723


1000

1964

Launching the 30 kta isopropyl benzene production.

Putting the first stage ethylene produc-tion into operation. Capacity was 62.4 kta for ethylene and 16.5 kta for propylene.

1 млн

Core products share of Kazanorgsintez PJSC* in all-Russia production

Market volume, ‘000 tons271

202

127

37

73

78

1 77840.27 % | 716

100 % | 78

100 % | 73

40.54 % | 15

35.44 % | 45

34.66 % | 70

8.86 % | 24

170types

Over

tons

About

enterprises

About

of various chemicals: ethylene, polyethylene, polycarbonate, PE pipes, bisphenol A, phenol, acetone, ethylene glycols, ethanolamines and other organic synthesis products being produced and distributed annually by Kazanorgsintez PJSC.

*Information is provided for Kazanorgsintez PJSC including the internal consumption

commercial output in 2018. from 33 countries worldwide, including Russian Federation, are among our customers. The distribution network of Kazanorgsintez PJSC is constantly expanding, thus increasing products share of Kazanorgsintez PJSC in the leading markets.

POSITION IN INDUSTRY

The Company takes actions relating to mandatory and voluntary certification in GOST R system and in national certification

system (NCS). Share of certified products in the Company’s total output amounted to 94.9% for 2018.

Ethylene polymers and copolymers

Polycarbonate

Bisphenol A

Ethanolamines

Acetone

Phenol

PE pipes



MAIN AND AUXILIARY PRODUCTIONFACILITIESОсновные и вспомогательные производства

Kazanorgsintez PJSC

ETHYLENE PLANT LDPE PLANT

HDPE Production unit

Plastic goods production unit

HDPE PRODUCTION AND PROCESSING PLANT

(consists of two core production facilities)

Ethylene

Propylene

Ist stage Ist stage(EVA)

E-500 complex(II, III, IV stages)

IInd stage

IIIrd stage


MAIN AND AUXILIARY PRODUCTIONFACILITIES

Production structure of Kazanorgsintez PJSC consists of 7 plants as well as auxiliary units and shops.

MAINTENANCE AND OVERHAUL PLANT AUXILIARY UNITS AND SHOPS

Bisphenol A production unit

Phenol and acetone production unit

BISPHENOL A PLANT POLYCARBONATE PLANT ORGANIC PRODUCTS AND INDUSTRIAL GASES PLANT

(consists of two main facilities)

Bisphenol А СО2

Polycarbonates Ethanolamines

Monoethylene glycol

Proxamine

Butyl cellosolve

Industrial gases



Ethylene Plant

Low Density Polyethylene (LDPE) Plant

Ethylene Plant consists of four ethylene production stages. Main raw material for the Plant is ethane and propane-butane fraction.

Core commercial products are ethylene and propylene.

All produced ethylene is processed into commercial products at HDPE and LDPE Plants, namely into different grades of PE. Propylene is used for phenol and acetone production at Bisphenol A Plant.

Kazanorgsintez PJSC is the biggest domestic producer of ethylene polymers and copolymers and the leading chemical Company in the Russian Federation having its strategic importance for the economic development of the Republic of Tatarstan and included in TAIF Group of Companies. The Company was found in 1958. First products - phenol and acetone - were produced in 1963.

Kazanorgsintez PJSC is located at one production site with total area of 4.2 km2. The Company has the integrated

transport, energy and telecommunication infrastructure.

Currently, the Company produces ethylene, propylene, polycarbonate, PE pipes, bisphenol A, phenol, acetone, monoethylene glycol, ethanolamines and other products of organic synthesis.

Main raw materials for the products production are ethane, ethylene, liquefied hydrocarbon gases (propane, butane), benzene, ethylene oxide, propane-propy-lene fraction and vinyl acetate. Priority

areas of activity for Kazanorgsintez PJSC are securing stable operation of existing production facilities, increasing output, enhancing the production efficiency and implementing the projects of perspective development program.

LDPE Plant consists of three individual production facilities of first, second and third stages.

Main raw material for LDPE production is ethylene, and vinyl acetate is used for EVA production.

Basic grades of natural low density polyethylene are produced at the Plant as well as different compositions based on high pressure PE for production of

injection-molded, blown, extrusion and film articles; compositions for manufacturing of cord sheathing; cable compositions (natural and black color); PE composition for manufacturing of large-sized articles by rotational molding.

1965 1967

Putting the first stage 24 kta low density polyethylene (LDPE) production into operation.

Launching the first stage 30 kta ethylene oxide production.


1968

• Commissioning the second stage 48 kta LDPE production.• Putting the second stage Ethylene production with a capacity of 60 kta for ethylene and 27 kta for

propylene into operation.

High Density Polyethylene Production and Processing (HDPE) Plant

Завод Бисфенола А

HDPE Plant consists of PE, plastic goods and comonomers production units.

Basic raw material for PE production is ethylene. Different grades of high and middle density PE are produced at the Plant as well as bimodal high density PE. Output products are intended for processing by extrusion, blow and injection molding, production of film materials, pressure pipes for gas- and water supply.

High density PE is used as raw material for plastic goods production. PE pipes and fittings for gas- and water supply are produced. The production of PE pipes are performed by extrusion method, and fittings for the pipes are produced by injection molding, press molding, winding and welding.

Ethylene is used as raw material for comonomers production. Final product - butene-1 - is used as a comonomer- modifier for high and middle density LPPE, linear LDPE.

Bisphenol A Plant consists of phenol, ace-tone and bisphenol A production units.

Benzene and propylene are used as raw materials.

Key products of the Plant are bisphenol A, phenol and acetone. Commercial phenol is used for production of caprolactam, di-phenylolpropane, medical products, syn-thetic resins, plasticizers and herbicides. Acetone is used in production of acetic anhydride, acetonecyanohydrin, dipheny-lolpropane and as solvent in different fields of industry.

Main volume of bisphenol A is used in poly-carbonate production. And the rest part of bisphenol A is applied in production of ep-oxy resins which are used in the different fields of industry.



1973 1974

Launching the second stage 60 kta ethylene oxide production. Launching the third stage 100 kta ethyl-

ene production

Organic products and industrial gases plant

Maintenance and Overhaul Plant

The products based on ethylene oxide such as ethanolamines and butyl cellosolve are produced at the Plant. Ethanolamines are used in gas and oil industry for gases purification from acid and sulfur-content organic compounds as well as in production of perfumes. Butyl cellosolve is used in perfume, paint and coatings industry.

The Plant also produces gaseous and liquid nitrogen, gaseous and liquid oxygen, gaseous and liquid argon, a cold, a compressed dry air, liquid and gaseous carbon dioxide. The Plant receives and stores the liquefied hydrocarbon gases.

The Plant performs preparing for and executes the capital and current repair activities of the equipment in all units of the Company.

It also provides works on installation and repair of process equipment, process pipelines and steam supply lines. Repair of pumps and compressors of any complexity

are carried out, as well as repair and dynamic balancing of the equipment at site.

Polycarbonate PlantMain raw materials for polycarbonate pro-duction are bisphenol A, ethylene oxide and carbon dioxide.

Core products are different grades of poly-carbonate. By-product of polycarbonate production is monoethylene glycol.

Due to thermal stability, high impact resis-tance and chemical inertness the polycar-bonates are widely used as construction materials in automotive, electronic, electri-

cal industries, in household and medicine devices, instruments and aircraft manu-facturing, industrial and civil construction. Sheets made of polycarbonate are used for glazing of buildings and sport facilities, greenhouses and for production of high impact multilayer glasses.

Auxiliary units and shopsProvide the process of key production units with material and energy resources, movable auto- and railway transport,

storage facilities, perform the products quality analysis and monitoring of the environment.


1976 1980

Putting the third stage 120 kta LDPE production into operation.

Launching the 53 kta polyethylene pipe and fitting production.

The results of activity on priority areas

REPORT BY BOARD OF DIRECTORS SUMMARIZING DEVELOPMENT OF PRIORITY PRODUCTION ACTIVITIESIn 2018, 8 meetings of the Board of Directors of Kazanorgsintez PJSC were held, 5 of them were held in presentio and 3 of them in absentia.

The Company’s Board of Directors has considered and adopted the decisions on the following key issues:

• on the results of financial and economic activities of Kazanorgsintez PJSC;

• on the results of external economic activity of Kazanorgsintez PJSC;

• on approval of the production and financial plan of Kazanorgsintez PJSC for 2019;

• on execution of capital construction schedule and financing, and execution of the schedule for putting the capital construction objects of Kazanorgsintez PJSC into operation;

• on execution of Plan of administrative and technical measures for improving power supply reliability of Kazanorgsintez PJSC;

• on execution of measures for improving the level of industrial and ecological safety and labor protection of Kazanorgsintez PJSC;

• on approval of Regulations on information policy implementation with media sources of Kazanorgsintez PJSC.

At the held meetings, the members of the Board of Directors of PJSC Kazanorgsintez within the Committee of the Board of Directors on audit heard detailed reports on the implementation of the approved plans and programs of the Company.

At the held meetings the members of the Board of Directors as a part of the Committee of the Board of Directors on personnel and remunerations considered the issues of staffing, remuneration and motivation of personnel, as well as issues of compliance with industrial and ecological safety and labor protection.

Within the frame of implementation of production revamping and decreasing the Company’s products cost price the following activities were carried out:

• in March 2018, a new line for tubular 3-layers FFS-film (Form-Fill-Seal) production was launched at HDPE Plant. The film is intended for bags production on high capacity bagging and packaging machines followed by packing therein of the entire amount of polymer products from shipped Kazanorgsintez PJSC.

• in December 2018, a new line for production of carbon black masterbatch was launched at the HDPE Plant. The production capacity of the newly constructed line will amount to 20 kta. The new line will provide the Company with own carbon black masterbatch in full, as well as improve а quality of output product and decrease its cost price.

• in November 2018, four new cracking furnaces were commissioned in complex trial operation mode at E-200

Unit of Ethylene Plant. The four new cracking furnaces after commissioning should replace ten old furnaces that have worked for almost 40 years. The revamping of the furnace block shall improve the efficiency of existing production facilities as follows: increasing the capacity of ethylene production units, enhancing the safety of the process and reducing the cost price of production.



79.0

KEY FINANCIAL INDICATORS, RUB BLN

2016 2017 2018

61.1 63.8

74.1

47.553.7

66.0

75.472.0

79.0

2016 2017 2018 2016 2017 2018

74.1Grand total Equity capital Revenue

66.0

MANUFACTURE OF PRODUCTSIn 2018, the total approved produc-tion capacities of Kazanorgsintez PJSC amounted to 1,798.000 tons of organic synthesis products. The capacity utiliza-tion rate reached 93.98%. The main rea-son of production capacity underutiliza-tion consists in the shortage of primary raw materials.

In the reporting year, the commercial output made RUB 78,821.4 million, which is 110.4% of the 2017 index. Index of phys-ical volume for 2018 amounted to 100% to the level of 2017.

The commercial products structure in 2018 relative to the past year has not

94%

Capability utilization index

Manufactured commercial product, rub mln Expenses for the manufacture of commercial products, rub mln

2017 2017

2018 201878,821.4 54,738.5

71,371.5 51,773.2

+ 16%

+ 23%

+ 10%

changed. The main share in commercial production belongs to ethylene poly-mers and polycarbonates (86.3% in value terms).

Expenses for the production of commer-cial products in the reporting year in-creased compared to the previous year by 2,965.3 million rubles (or 5.7%) and amounted to 54,738.5 million rubles. The structure of the cost price of the Com-pany’s commercial products has not un-dergone any significant changes in rela-tion to the previous year. The increase in costs in relation to 2017 occurred accord-ing to the articles: «raw materials and materials», «third party energy».


KEY FINANCIAL INDICATORS, RUB BLN

* ordinary and preference shares of Kazanorgsintez PJSC are included into the Third level (non-quotation part) of List of securities accepted for trading at Moscow Exchange PJSC.

18.215.2

19.977.6

143.6

181.7

2016 2017 2018 2016 2017 2018

19.9Net profit Capitalization*

181.7

Sales of commercial productsIn 2018, Kazanorgsintez PJSC sold products in amount to 79,021.8 million rubles, which is by 7,018.6 million rubles more than last year. The main impact on the revenue increase was due to the prevailing price environment in polyethylene and polycarbonate market.

The largest share of revenue comes from polymers and copolymers of ethylene –

69% and of polycarbonate – 17%. Prices for the products of Kazanorgsintez PJSC are directly dependent on prices in the global and Russian commercial markets.

The domestic market sold products worth 64,859.1 million rubles, which is 13,9% more than in 2017. Exported products worth 14,162.7 million rubles, which is 6% less than in 2017.

In 2018, Kazanorgsintez PJSC shipped products for export to customers from 32 countries. New markets for export shipments are Uruguay, Chile, Brazil.

The Company’s export shipments were primarily oriented to countries having higher contractual prices.

Domestic market sold products, mln rub. New markets for export shipments

ChileUruguay

Expenses for the manufacture of commercial products, rub mln Exported products, mln rub.

2017

2017

2018

2018

64,859.1

14,162.7

56,941.0

15,062.0

Brazil

+ 31%

+ 27%



ENERGY CONSUMPTIONOne of priority goals for Kazanorgsintez PJSC is to increase its output, including through development and introduction of energy-and-resource efficient measures minimizing energy consumption per manufactured unit and ensuring the most use of secondary and renewable re-sources.

For the purpose of implementing the Fed-eral Law No. 261-FZ dated 23 November 2009 “On Energy Saving, Energy Efficiency Enhancement and Amending Certain Leg-islative Acts of the Russian Federation”, Kazanorgsintez PJSC developed the “Long-Term Program on Energy Saving and Ener-gy Efficiency in 2011-2015 with the Outlook

till 2020” approved by the Decree of the Company’s General Director. The adopt-ed Program provides for the introduction of advanced technologies, materials and equipment ensuring the fulfilment of tech-nological potential for energy saving.

In 2018, within the Program implementa-tion, the Company continued to adopt en-ergy-saving and energy- efficient measures, focused on:

• enhancement of power supply reliability;

• introduction of energy-saving and en-ergy-efficient equipment that enables

decreasing the steam consumption sup-plied by outside source - branch of TGK-16 JSC - Kazan-3 Power plant, thus in-creasing the internal steam generation;

• reduction of electricity and water con-sumption.

In addition, the divisions of Kazanorgsint-ez PJSC proceeded with replacing obsolete and deteriorated lighting fixtures in service by energy- saving and LED ones. Totally, the adopted Program provides for the introduc-tion of advanced technologies, materials and equipment ensuring the fulfilment of technological potential for energy saving.

In the reporting year, the tariffs for electric-ity increased by 5%, and for the thermal en-ergy - by 16% relative to the previous year.

In 2018, electricity consumption increased by 0.2% compared to the previous year and amounted to 1,686 million kWh. The index

of electric capacity increased relative to 2017 by 0.17% and amounted 29.47 thousand kWh/million rubles.

The total heat energy consumption, taking into account its own output, increased by 0,3% and amounted to 3,490 thousand

Gcal, while the purchase of heat en-ergy from outside decreased by 0,9% and amounted to 2,093 thousand Gcal. Own generation of steam and heating water has increased relative to theprevious year by 30 thousand Gcal or by 2.2%. The heat capacity index decreased by 0.97%

Electricity consumption, million kWh Total consumption of thermal energy taking into account own output, thousand Gcal

Procurement of heat energy from third parties, thousand Gcal

2017 2017 2017

2018 2018 20181,686 3,490 2,093

1,683 3,480 2,112

1982 1983

Launching the fourth stage 90 kta ethylene production. Launching the 200 kta low-density poly-

ethylene (HDPE) production.


ENERGY CONSUMPTION

1989

Expansion of the fourth stage ethylene production to bring the capacity up to 160 kta.

and amounted to 36.57 Gcal/million rubles relative to 2017.

Energy intensity of commercial output in-creased by 1.24% and amounted to 9.83 tons of reference fuel / million rubles.

The increase of electric capacity of com-mercial output is due to the increase in electrical power consumption by:

• 152 shop of HDPE Plant in connection with commissioning a dual-cycle reac-tors cooling system, as well as Reactor C recovery unit;

• shops of Polycarbonate Plant in connec-tion with operation at maximum loads without shutdown maintenance.

The increase of energy intensity was relat-ed to:

а) increasing a natural gas consumption by 20.46% as per following reasons:

• decreasing propane processing which led to reduction in production of own fuel gas (methane-hydrogen fraction);

• preparing a launching of new Technip cracking furnaces at the fourth stage ethylene production;

• СО2 production using natural gas with-out RFG (recovered flare gases) in the period of gas-holder repair in Building 942 in August-November, 2018.

b) increasing the electrical power con-sumption in shop 152 at HDPE Plant and in the shops at Polycarbonate Plant.

During the reporting period, as a result of the program activities, an economic effect of 255.2 million rubles was received. Over 8 year period of the “Long-term program of energy saving and energy efficiency for 2011-2015 and with the Outlook till 2020” availability, Kazanorgsintez PJSC saved over 1,461 million rubles.

Consumption of energy resources*

* the above table depicts outsourcing energy resources consumed by the Company, excluding the internally generated heat energy.

Energy resourceIn physical terms In monetary terms, mln RUB ex VAT

2017 г. 2018 г. 2017 г. 2018 г.

Heat energy, ‘000 Gcal 2,112 2,093 1,802 2,073

Electric power, MWh 1,682,808 1,686,485 4,235 4,463

Automotive gasoline, t 410 385 18 18

Diesel fuel, t 5,987 6,142 208 244

Combustible natural gas, ‘000 m3 41,251 49,691 204 260



DEVELOPMENT PERSPECTIVES

The Program for Kazanorgsintez PJCS development for the period of 2020-2025 was developed in the Company whereby the activity on implementation of the following investment projects providing the revamp of existing production facilities and construction of new ones is performed:

• Revamp of the shops at Ethylene Plant for feasibility of propane feedstock processing. The project goal is to compensate the ethane feedstock shortage through creation of technical possibility for alternative feedstocks processing (propane) and increasing the production volume of own ethylene.

• Revamp of the isopropylbenzene production unit at Bisphenol A Plant with implementing the cumene production technology using zeolite catalyst. The project is aimed at decreasing the consumption rates for

raw materials and energy resources, as well as reducing the negative impact on the environment.

• Expansion of the Polycarbonate Plant. The project goal is to increase the capacity of the existing polycarbonate production facilities due to their capabilities.

• Revamp of reactor «B» at HDPE Plant by means of waste gases recovery system provision. The project is aimed at expansion of the reactor «B» capacity up to 220 kta.

• Construction of autoclave EVA production unit. The project is aimed at the introduction of new EVA production unit using autoclave process instead of worn out and outdated existing facilities and the expansion of EVA production capacity.

• Construction of CCPP-250 power- generating unit. The project goal is to have the power-generating facilities for the Company’s own needs and to reduce the costs for production facilities power supply.

2000

• Expansion of the third stage LDPE production to bring the capacity up to 117 kta.• Expansion of the second stage LDPE production to bring the capacity up to 72 kta.


REPORT ON PAYOUT OF STATED (ACCRUED) DIVIDENDS

The dividends for 2018 were not paid in full due to the unavailability of shareholders’ (legal entities and individuals) requisite details. The dividends shall be paid upon the requisite details of these shareholders are clarified.

Ordinary shares Preference shares

Amount of stated dividends per share of this category (type), RUB 4.253 0.250

Amount of stated dividends on all shares of this category (type), RUB 7,592,089,842 29,899,000

Amount of dividends on all shares of this category (type) paid by the issuer, RUB 7,591,770,475.72 29,855,012.5

Source of stated dividends payout Net profit for the reporting year

Net profit for the reporting year

Share of stated dividends in the net profit for the reporting year, % 49.8 0.2

Share of paid dividends in the total amount of stated dividends on shares of this category (type), % 99.99 99.85

2002 2003

Expansion of the fourth stage ethylene production to bring the capacity up to 205 kta.

Kazanorgsintez OJSC joined TAIF Group of Companies.



In order to reduce the possibility of risk with regard to market prices, Kazanorgsintez PJSC applies its best efforts to:

• Maintain high quality of processes and products at all production cycles;

• Reduce production prime costs via cost management;

• Enhance sales performance.

Risks associated with global prices for export products.

Kazanorgsintez PJSC exports a part of its products. Export contracts policies involve the conclusion of contracts for up to 1-year period. The product prices are determined considering the delivery terms and competitors’ prices in each certain country.

These prices may fluctuate under the influence of factors beyond the Company’s control.

Risks associated with production activities of Kazanorgsintez PJSC

Risks associated with manufacturing process

Production activities of Kazanorgsintez PJSC are associated with adverse influences, such as equipment failure and unscheduled overhaul causing lower than expected performance level. In this

KEY RISK FACTORSThe following risks may negatively affect the activities implemented by Kazanorgsintez PJSC:

Country and regional risks

Kazanorgsintez PJSC runs its core business in Kazan selling most of its products in the Tatarstan market as well as in other Russian regional markets. This sales geography determines the dependence of the Company’s commercial performance on social, economic and political environment both in Russia and in the Company habitat.

Adverse economic changes may undermine the investment climate in the Russian Federation, thus making the market segments the Company works in less attractive. Economic decline in the Company habitat might cause slump in demand for its products.

Risks related to social, economic and political processes in the Russian Federation are beyond the Company’s control.

Risks associated with the geographic and climate pattern of the region the Company runs its core business in are insignificant, since Kazanorgsintez PJSC enjoys the location area distinguished with no major hazard of natural disasters, while its easy access to transport intersection and routes of communication makes the Company more available to its suppliers and customers. Convenient access ways enable uninterrupted shipments by trucks and railways from warehouses of Kazanorgsintez PJSC.

Industry risks

Risks associated with possible changes in prices for feedstock and services used by Kazanorgsintez PJSC.

Raw materials and energy hold the greatest share in the chemicals industry expenses. The main raw materials used by the Company include ethane, ethylene, propane- butane and benzene. Prices for the main raw materials to various extents depend on the global oil prices. The procurement of the main raw materials is based on long-term contracts.

The issues of providing Kazanorgsintez PJSC with raw materials are resolved owing to close and mutually beneficial cooperation with Gazprom PJSC and the republic’s petrochemical and gas enterprises, as well as the policies of the republic’s leaders aimed to render strong state support to the gas and petrochemicals sector of Tatarstan.

Risks associated with possible changes in prices for products of Kazanorgsintez PJSC in domestic market.

High quality of the Company’s products allows setting worldmarket prices without reducing sales over the years. To determine the prices, the Company takes due account of the market conditions and production costs. Nevertheless, the Company is limited in regulating prices for its products, since they mainly depend on the market conditions, as well as the supply-to-demand ratio in certain regions of Russia.

2004 2005

Start of Bisphenol A and Poly-carbonate production plants construction.

Completion of the HDPE plant revamping, as a result the capacity has been increased up to 510 kta. A new linear low density pol-yethylene was firstly produced in Russia.


regard, Kazanorgsintez PJSC introduced the automated process control system. Preventive and current maintenances, as well as shutdown overhaul of the production facilities are implemented timely and to full extent.

Risks associated with licenses validity

In order to be authorized to perform its activities in the field of production and use of natural resources, Kazanorgsintez PJSC obtains appropriate licenses. Most of them provide for a possibility of the license revocation in case of a failure to comply with requirements of licensing agreements. There are also risks associated with an inability to extend the licenses for Kazanorgsintez PJSC. In order to execute its licensable activities after the license termination, the Company shall conduct a procedure of obtaining the license for a new term. Failure to timely obtain new licenses might be caused by violation of regulatory requirements, which is currently minimized. In view of preventing licenses revocations, Kazanorgsintez PJSC fulfils all the requirements of licensing agreements. Nevertheless, the failure to extend the licenses or revocation thereof might have a significant adverse impact on the Company’s business.

Risks associated with environment protection

Production activities of Kazanorgsintez PJSC are associated with potential adverse impact on the environment. Being aware of the extent of possible environmental problems, Kazanorgsintez PJSC monitors the chemical composition of its air emissions and wastewater discharges. The Company also undertakes scheduled preventive measures for the purpose of preventing adverse impact of its facilities on the environment and strictly observes

occupational health and safety policies.

The integrated quality management system, labor safety, health protection and ecology applicable at Kazanorgsintez PJSC conforms to the requirements of international and regional standards ISO 9001:2015, GOST R 54934-2012/ OHSAS 18001:2007, GOST 12.0.230-2007 and GOST R ISO 14001-2016 (ISO 14001:2015).

Financial risks

Risks associated with inflation in Russia

Raise of inflation leads to the devaluation of the national currency and price growth. Accelerated rates of price growth might cause the raise of the Company’s expenses due to increased prices for energy resources, feedstock and inventories and increased value of borrowed funds, thus making the profitability index shrink. So, in case the actual inflation rates significantly exceed those estimated by the Russian Government, the leaders of Kazanorgsintez PJSC intend to take measures to restrict expenses growth, decrease receivables and payables, as well as adjust products prices for inflation.

Risks associated with shifts in currency rates

A part of products manufactured by Kazanorgsintez PJSC is exported to foreign markets; hence, the Company is exposed to certain currency risks. The currency of the Company’s main costs is ruble, so the export sales revenue in ruble equivalent grows with the exchange rates raise, and vice versa, it declines at decreased exchange rates. Following the results of 2018, the Company exported 18% of its products*, whereby 12% of the total sales received in

the main currency of export revenue – US dollars and euro. In case of major shifts in currency rates, the Company’s sales policy shall be corrected to refocus on sales to external (export) or domestic market for the purpose of raising its profitability.

As of the end of the reporting year, Kazanorgsintez PJSC has no borrowings in foreign currencies.

Risks associated with changes in interest rates

As a potential major borrower, Kazanorgsintez PJSC is exposed to risks associated with changes in interest rates.

As of the end of the reporting year, Kazanorgsintez PJSC has no debt obligations to credit institutions.

Liquidity risks

Liquidity risk consists in a company’s inability to settle its liabilities when they fall due. Kazanorgsintez PJSC manages its liquidity risk applying the combination of debt financing and its own funds, thus ensuring a balanced arrangement of its assets profile and timely obligations fulfilment. Stable financial position of the Company is confirmed by the international credit rating. In June 2018, Fitch Ratings raised the long-term issuer default rating (IDR) of Kazanorgsintez PJSC from level «B» up to level «B+». The rating outlook is «Stable». Fitch also confirmed the short-term IDR of the Company at the level «B». This was affected by the Company’s consistent debt relief in absolute terms throughout several years and its payment in full discharge in 2017. Thus the Company’s liquidity has been improved. As of the end of 2018 reporting period, the Company has no debt obligations to credit institutions.

KEY RISK FACTORS

* In value terms

2006

Expansion of the phenol production was completed with an increase in capacity to 65 kta.



Credit risk

Credit risk implies that a counterparty (buyer) might not be able to timely fulfil his contractual obligations to Kazanorgsintez PJSC, which may result in increased receivables, risk of cash deficiency and, as a consequence, financial damages in the form of lost profit. Kazanorgsintez PJSC applies the policy of concluding contracts with creditworthy counterparties only in order to minimize financial losses due to non- fulfilled obligations. The solvency of counterparties is analyzed based on available financial information and the Company’s sales history. New customers are served under advance payment terms. The Company created the Receivables and Payables Committee chaired by the Deputy General Director for Economy and Finance involved in reduction of receivables and minimization of overdue payments and number of debtors.

Reputational risk

In order to minimize its reputational risk, the Company applies all its efforts to maintain high quality of its products and excellent service. Kazanorgsintez PJSC developed and adopted a strategy in the field of its sustainable development, created the system of interacting with parties interested and determined the key principles of cooperation. These measures are designed to completely satisfy expectation of all parties interested in the Company and to create a favorable view of Kazanorgsintez PJSC maintaining its positive business reputation.

Products manufactured by Kazanorgsintez PJSC are sought-after in numerous industries involved in the production of daily necessities.

Strategy risksThe underway investment decisions, as well as decisions regarding the Company’s strategic development are based on market forecasts and analysis of positive and negative factors (both internal and external) influencing the activities and further development of Kazanorgsintez PJSC. The Company’s managers opt for the most cost-effective measures for the Company’s further development with determining reasonable terms of their implementation and appointing persons- in-charge. While implementing its strategic projects, Kazanorgsintez PJSC adheres to the principles of project management. Financing of investment shall be effected upon completing the design works, clarifying the projects terms and costs.

With the view of expanding its growth prospects and mitigating current risks, Kazanorgsintez PJSC is engaged in vigorous cooperation with regional state authorities.

Legal risksRisks associated with changes in customs regulations and duties

Purchase of imported equipment and export supplies imply the risks related to possible amendments in customs legislation regulating the procedure of

goods transfer across the customs boarder, establishment and application of customs treatment, as well as setting and levying the customs duties, which might influence expenses borne by Kazanorgsintez PJSC. The Company’s experts consistently monitor the customs legislation and practices, whereat in case of any changes having potential adverse effect the Company undertakes a number of remedial actions to mitigate their detrimental effect on its financial and operating performance.

Risks associated with amendments in tax legislation

Tax legislation is a branch of law distinguished with numerous amendments, clarifications and additions. Risks related to amendments in the tax legislation consist in increased production prime costs that might be caused by raised tax rates or introduced supplementary taxation.

In case of significant reduction in profitability due to changed tax legislation, the Company shall adjust its pricing policy.

Risks associated with changes in judicial practices

Risks related to the activities of Kazanorgsintez PJSC and capable to have an adverse impact on the Company’s current contentious cases with the third parties are insignificant. Kazanorgsintez PJSC always applies its efforts to settle issues with counterparties via pre-court dispute resolution.

2007

Construction of Technip Benelux B.V. high-selective double-cell cracking furnace with capacity of 18 t/h for ethylene was completed.

Completion of Bisphenol A plant construction with the design capacity of 70 kta.


Insurance risks

Kazanorgsintez PJSC has all-risks property insurance, as well as nonlife insurance against emergencies and environmental impact thereof caused by accidents at the Company’s production facilities and/or those related to the activities of Kazanorgsintez PJSC.

Liability of Kazanorgsintez PJSC to third parties as an owner of a hazardous facility is also insured. Nevertheless, the Company has no financial risks insurance against production shutdown and profit losses. Consequently, in case of emergency causing the Company’s production shutdown, the financial performance of Kazanorgsintez PJSC might be adversely affected.

The Company has established the Internal control department and performs the risks management. The internal control department reports on performed activity to the Board of Directors on the regular basis.

In case of one or several risks mentioned above, Kazanorgsintez PJSC shall undertake all necessary measures to mitigate any adverse changes occurred.

COMPANY’S DEALSInformation on deals of Kazanorgsintez PJSC concluded in 2018 that in accordance with the Federal Law «On Joint-Stock Companies» are referred to as interested party transactions was disclosed in the corporate action announcement as well as included in Kazanorgsintez PJSC quarterly report for 4th quarter of 2018.

Information on deals of Kazanorgsintez PJSC concluded in 2018 that in accordance with the Federal Law «On Joint-Stock Companies» are referred to as major transactions:

In the reporting year, Kazanorgsintez PJSC did not conclude any deals referred to as major transactions in accordance with the Federal Law “On Joint-Stock Companies”.

2008

Launching the polycarbonate plant with design capacity of 65 kta.

Kazanorgsintez OJSC celebrated the 50th anniversary of its foundation and the 45th anniversary of the first product output.

Internet links of pages wherein the information on deals referred to as interested party transactions was disclosed are provided below: www.kazanorgsintez.ru/about/information/sushchestvennye-fakty.php www.kazanorgsintez.ru/about/information/ezhekvartalnye-otchety.php www.disclosure.skrin.ru/ShowMessage.asp?id=31&fid=1658008723&eid=188127&agency=7 www.disclosure.skrin.ru/ShowMessage.asp?id=31&fid=1658008723&eid=188125&agency=7


http://www.kazanorgsintez.ru/about/information/sushchestvennye-fakty.php

http://www.kazanorgsintez.ru/about/information/ezhekvartalnye-otchety.php

http://disclosure.skrin.ru/ShowMessage.asp?id=31&fid=1658008723&eid=188127&agency=7

http://disclosure.skrin.ru/ShowMessage.asp?id=31&fid=1658008723&eid=188125&agency=7


BOARD OF DIRECTORS

The number of the Board members is determined by the Company’s Charter and is limited to 11 persons. The current members were appointed on 06 June 2018 by the Decision of the Company’s Annual General Shareholders Meeting. 10 members of the Board were elected through cumulative voting and 1 member was appointed by the Resolution of the President of the Republic of Tatarstan No. 67 dated 25 January, 2018 and the Resolution of the Cabinet of Ministers of the Republic of Tatarstan based on the special right (golden share).

Year of birth: 1976;

University degree, Vladimir I. Ulyanov-Lenin Kazan State University;

Deputy General Director for Corporate Governance, Property and Investments, TAIF JSC;

Share ownership in the Company’s autho-rized capital: none;

Owned ordinary shares of the Company: none.


University degree, Kazan Chemical Technological Institute Candidate of Chemical Sciences;

General Director, Kazanorgsintez PJSC;

Share ownership in the Company’s authorized capital: none;


Ruslan A. Shigabutdinov Chairman

Farid G. Minigulov


BOARD OF DIRECTORS


University degree, Vladimir I. Ulyanov-Lenin Kazan State University; Tatar Institute for promotion of business;

First Deputy General Director, Svyazinvestneftekhim JSC;




University degree, Saint Petersburg University of Economics and Finance;

General Director, Gazprom Pererabotka LLC;




University degree, Kazan Finance and Economics Institute, University of man-agement “Tatar Institute for promotion of business”, Kazan (Volga Region) Federal Univercity, Moscow Management School “Skolkovo”. Doctor of Economic Science;

Minister of Economic Affairs, Republic of Tatarstan;



Sergey V. Alekseyev Marat M. GarayevFarid S. Abdulganiev



BOARD OF DIRECTORS


University degree, Zagreb Institute of Economics.

Executive Director, IPCOTRADING SA;




University degree, Kazan Chemical Technological Institute;

Deputy General Director for Refining and Petrochemicals, TAIF JSC;



Milic Zeljko Independent director

Vladimir V. Presnyakov


University degree, Kazan State Institute of Finance and Economy. Candidate of Economic Sciences;

Deputy Prime Minister, Republic of Tatarstan – Minister of Trade and Industry, Republic of Tatarstan;



Albert A. Karimov


BOARD OF DIRECTORS


University degree, Vladimir I. Ulyanov-Lenin Kazan State University Candidate of Chemical Sciences;

Aide to the President of the Republic of Tatarstan;




University degree, Leningrad Institute of Fine Mechanics and Optics;

Head, Finance and Economic Division, TAIF JSC;




University degree, Moscow State Judicial Academy;

Managing Partner, Rappoport and Partners Law Firm;



Rinat K. Sabirov Dmitry I. TeslenkoAleksandr L. Rappoport Independent director



Changes in the Board of Directors during 2018

Meetings attended by Members of The Board during 2018

Members of the Board of Directors prior to the Annual General Shareholders Meeting held on 06 June, 2018

Members of the Board of Directors elected at the Annual General Shareholders Meeting held on 06 June, 2018

Meetings attended

Meetings in praesentia*

Meetings held via poll (vote in absentia)**

R.A. Shigabutdinov(Chairman)

R.A. Shigabutdinov(Chairman)

5 3

F.G. Minigulov F.G. Minigulov 5 3

— F.S. Abdulganiev 2 2

S.V. Alekseyev S.V. Alekseyev 5 3

M.M. Garayev M.M. Garayev 4 3

A.A. Zdunov — 0 0

A.A. Karimov A.A. Karimov 4 3

Milic Zeljko Milic Zeljko 5 3

V.V. Presnyakov V.V. Presnyakov 3 3

A.L. Rappoport A.L. Rappoport 5 3

R.K. Sabirov R.K. Sabirov 5 3

D.I. Teslenko D.I. Teslenko 5 3

* inclusive of submitted written votes ** by means of absentee voting

2010 2015

Revamping the 2nd, 3rd, 4th stages and launching a new gas separating section ofE-500 with increasing the capacity up to 640 kta of ethylene at Ethylene Plant.

Launching a new Coperion compounding unit with capacity of 240 kta at HDPE Plant.


Committees under the Board of Directors:

The Company Officer holding the Position of a Chief Executive

General strategy of Kazanorgsintez PJSC pursues its further modification into an internationally recognized company that shall compete with leading global enterprises in terms of its market value and main financial and economic indicators. This requires appropriate upgrade of the corporate governance system.

In accordance with recommendations of the Corporate Governance Code and in order to improve the Board structure, the Company created permanent committees under its Board of Directors. The committees under the Board act on the basis of the Company’s internal documents (Regulations on the corresponding committees approved by the

Board) providing for the procedures of their establishment, activities, as well as number of members. If necessary, the committees may involve experts possessing required professional knowledge.

Farid G. Minigulov


University degree, Kazan Chemical Technological Institute Candidate of Chemical Sciences.




Audit Committee under the Board of Directors

Personnel and Remuneration Committee underthe Board of Directors

Promotes fruitful performance of the Board in terms of control over the Company’s financial and economic activities.

Promotes efficient and transparent remuneration practices in the Company.

Members of the Audit Committee under the Board of Directors prior to the Annual General Shareholders Meeting (06.06.2018)

Members of the Audit Committee under the Board of Directors after the Annual General Shareholders Meeting (06.06.2018)

Meetings attended (inclusive of submitted written votes)

A.A. Zdunov (Chairman) - -

- F.S. Abdulganiev (Chairman) 3

S.V. Alekseyev S.V. Alekseyev 6

D.I. Teslenko D.I. Teslenko 6

Members of the Personnel and Remuneration under the Board of Directors

Meetings attended (inclusive of submitted written votes)

R.K. Sabirov (Chairman) 6

A.L. Rappoport 6

A.A. Karimov 5

In 2018, the Personnel and Remuneration Committee did not undergo any changes related to its members.



EXECUTIVE BOARD


University degree, Kazan Chemical Techno-logical Institute Candidate of Chemical Sciences;





University degree, Kazan Chemical Technological Institute;

Deputy Director General for Capital Construction and Overhaul, Kazanorg-sintez PJSC;



Farid G. Minigulov Chairman

Aleksey A. Blinov


EXECUTIVE BOARD


University degree, Kazan Chemical Tech-nological Institute; Vladimir I. Ulyanov- Lenin Kazan State University;

Deputy General Director for Production, Kazanorgsintez PJSC;

Share ownership in the Company’s authorized capital: 0.0002 %;



University degree, Kazan Juridical Institute under the Ministry of Internal Affairs of the Republic of Tatarstan;

Deputy General Director for Corporate Governance, Property and Investments, Kazanorgsintez PJSC;



Rinat T. ZaripovAlbert I. Gatin



EXECUTIVE BOARD


University degree, Kazan Finance and Economics Institute;

Chief Accountant, Kazanorgsintez PJSC;


Owned ordinary shares of the Company: 0.0017 %.

Larisa N. Kaleyeva


University degree, Kazan Finance and Economics Institute;

Deputy General Director for Economy and Finance, Kazanorgsintez PJSC;



Fanis M. Kalimullin


EXECUTIVE BOARD


University degree, Kazan State Techno-logical University; Vladimir I. Ulyanov- Lenin Kazan State University;

Chief Engineer, Kazanorgsintez PJSC;




University degree, Moscow Juridical In-stitute of the Ministry of Internal Affairs of Russia;

Deputy General Director for Economic Security and Regime, Kazanorgsintez PJSC;




University degree, Vladimir I. Ulyanov- Lenin Kazan State University;

Deputy General Director for Commerce, Kazanorgsintez PJSC;



Rafael A. Safarov Rostislav O. Sarkisov Timur R. Sulteev



2016 2018

Launching a new Technip high- selective double-cell ethane cracking furnace instead of worn out and outdated furnaces at Ethylene Plant.

Putting four new cracking furnaces with capacity of 72 t/h of raw material into op-eration at E-200 unit of the Ethylene Plant.

MAIN PROVISIONS OF REMUNERATION AND EXPENSES REIMBURSEMENT POLICY

General information on remuneration policy

The main objective of the remuneration policy is staff incentive, increase in motiva-tion and material interest of the members of the Board of Directors, Committees of the Board, executive Board and Audit Com-mittee of the Company in final performance results of Kazanorgsintez PJSC to be deter-mined based on its accounting (financial) statements.

The amount and criteria for remunerat-ing the members of the Board of Directors, Audit Committee and Executive Board are determined based on the Regulation “On Principles and Criteria for Remunerating the Members of the Board of Directors, Executive Committee, Audit Committee and Committees under the Board of Directors of Kazanorgsintez PJSC».

Key (main) principles of remuneration policy

The amount of remuneration for members of the Board of Directors, Committees un-der the Board, Executive Board and Au-dit Committee of the Company shall be determined in percent of the amount of net profit obtained by the Company for the pre-vious reporting year subject to adjustment coefficient considering the implementation by the Company of the approved plan on net profit for the same period. With re-spect to members of the Board of Directors and Executive Board of the Company, the remuneration amount depends on positive absolute capital gain of the Company for the period of work of the current members of the Board of Directors and Executive Board. The amount of remuneration for the members of the Board of Directors, Com-mittees under the Board and Audit Com-mittee of the Company shall be determined by the Board of Directors of the Company by the decision of the Personnel and Re-muneration Committee and approved by the decision of the General Shareholders Meeting of the Company.

The amount of remuneration for the Exec-utive Board shall be approved by the Board of Directors of the Company by the decision of the Personnel and Remuneration Com-mittee.

In the absence of the net profit in the Com-pany, the remuneration shall not be paid to members of the Board of Directors, Com-mittees under the Board, Executive Board and Audit Committee of the Company.

Remuneration structure

Amounts of remuneration and/or reim-bursement of expenses to members of the Executive Board shall be approved by the decision of the Company’s Board of Direc-tors.

Remuneration of labour of the General Di-rector (Chairman of the Executive Board) and members of the Executive Board of the Company shall be paid under the employ-ment agreements concluded between them and the Company.


• A new 20 kta line for production of carbon black masterbatch was started up at the HDPE Plant.• Technical assistance agreement for revamping Polycarbonate plant up to 100 kta capacity was signed between

Kazanorgsintez PJSC and Asahi Kasei Corporation.

Information on the amount of remuneration and/or expenses reimbursement for each gover-nance body of the Company

The aggregate amount of payments (in-cluding remuneration, expenses reim-bursement) to members of the Board of Directors (excluding civilian personnel) and the aggregate amount of payments (including remuneration, salary, bonuses, commissions and other kinds of remuner-ation) to the Executive Board of the Com-pany for the year of 2018 made up as fol-lows: payments to the Board of Directors - 57,413,000 rub.; payments to the Executive Board - 94,084,000 rub.

Control over remuneration policy implementation

Control over the introduction and imple-mentation of the remuneration policy shall be ensured by the Personnel and Remuner-ation Committee under the Board of Direc-tors of Kazanorgsintez PJSC.

Information on the Company’s in-ternal documentation containing remuneration policy

The Company applies the Regulation “On Principles and Criteria for Remunerating the Members of the Board of Directors, Ex-ecutive Committee, Audit Committee and Committees under the Board of Directors of Kazanorgsintez PJSC” approved by the Board of Directors of Kazanorgsintez PJSC.



REPORT ON OBSERVING PRINCIPLES AND RECOMMENDATIONS OF CORPORATE GOVERNANCE CODE

Statement by the Board of Directors

Following the advanced practices, the Board of Directors of Kazanorgsintez PJSC declares the Company’s commitment to the highest standards in the field of corporate governance, as well as the Company’s adherence to the key and vital principles of the Corporate Governance Code recommended by the Bank of Russia and depicted in this report.

The Board of Directors considers the observance of the main principles of the Corporate Governance Code as an effective way to enhance the Company control efficiency pursuing its long-term sustainable development.

The report on observing principles and recommendations of the Corporate Governance Code was reviewed by the Board of Directors during the meeting held on 15 March, 2019 (Protocol no. 7) within

the frame of considering and preliminary approval of the Company’s annual report 2018.

The Board of Directors confirms that this report contains full and correct information regarding observance of principles and recommendations of the Corporate Governance Code by the Company in 2018.

Item Corporate governance philosophy

Corporate Governance Philosophy Observance Assessment Criteria

Corporate governance philosophy compliance status

Explanations of Deviation from Corporate Governance Philosophy Observance Assessment Criteria

1.1 The Company shall ensure equal and fair treatment for all its shareholders in the exercise by them of their rights to participate in the management of the Company

1.1.1 The Company shall create the best possible conditions for shareholders to participate in a general meeting and develop informed positions on issues on its agenda and to coordinate their actions, as well as an opportunity to express their opinions on issues being discussed.

1. The Company’s document approved at the general shareholders meeting regulating procedures of holding gener-al meetings is publicly available.

2. The Company assures available means of communicating with the soci-ety, such as hotline, e-mail or forum on the Internet allowing shareholders to express their opinions and submit their questions regarding the agenda within the preparation to a general meeting. The Company undertook the above actions prior to every general meeting held in the reporting year.

Observed






1.1.2 The procedure for notice of a General meeting and the provision of materials for it shall give the shareholders the opportunity for making proper preparation for participation.

1. The notice of holding shareholders meeting is posted on the website at least 30 days prior to the date of the meeting.

2. The notice of holding the meeting in-dicates the venue and documents nec-essary to have an access to the venue.

3. Shareholders had an access to the in-formation regarding who suggested the agenda and nominated members of the Board of Directors and Audit Committee of the Company.

Observed

1.1.3 During the preparation for and conduct of the General meeting, the shareholders shall have the opportunity to receive clear and timely information about the meeting and its materials, to put questions to members of the Company’s Executive and Board of Directors, and to communicate with each other.

1. In the reporting year, shareholders were given an opportunity to put questions to members of the Company’s Executive board and Board of Directors prior to and during the General meeting.

2. Opinions of the Board of Directors (including special opinions documented) on every issue on the agenda of General meetings held during the reporting year were included to material prepared for the General meeting.

3. The Company granted to appropriately authorized shareholders access to the list of persons entitled to participate in the General meeting starting with the date this right was obtained by the Company in all cases of holding General meetings in the reporting year.

Observed

1.1.4 There shall be no unjustified difficulties preventing shareholders from exercising their right to demand that a General meeting be convened, to nominate candidates to the Company’s governing bodies, and to place proposals on its agenda.

1. In the reporting year, shareholders had an opportunity to, within at least 60 days after the corresponding calendar years, place proposals to the agenda of the annual General meeting.

Partially observed

1. In accordance with the Charter of the Company effective on the date of the annual General meeting of the shareholders 2017, the shareholders of the Company had the opportunity to make proposals for inclusion into the agenda of the annual General meeting at least 45 days after the end of the relevant calendar year.

At the annual General meeting of the Company’s shareholders 2017 the amendments in the Charter of the Company in terms of increasing this period to 60 days were made.







1.1.4 2. In the reporting year, the Company did not reject any proposals to the agenda or nominees to its bodies due to literal errors or other insignificants faults contained in a shareholder’s proposal.

Observed

1.1.5 Each shareholder shall be able to exercise his right to vote without hindrance, in the simplest and most convenient way.

The Company’s policy contains provisions enabling every attendee of a General meeting, prior to the end of the corresponding meeting, demand a copy of a voting paper he completed to be certified by the counting committee.

Observed

1.1.6 Procedures for holding the General meeting set by the Company shall provide an equal opportunity for all persons present at the General meeting to express their opinions and ask questions that might be of interest to them.

1. In the reporting year, while holding general meetings involving joint presence of shareholders, we provided enough time for reports on agenda items and discussion thereof.

Observed

2. Nominees to regulating bodies of the Company were available to answer shareholders’ questions during the meeting whereat they were nominated to election.

Observed

3. While making decisions on holding and preparing to General meeting, the Board of Directors considered opportunity of using telecommunicating means to provide shareholders with remote access to participate in General meetings in the reporting year.

Not observed 3. While making decisions on holding and preparing to General meeting, the Board of Directors has not yet considered the opportunity of using telecommunicating means to provide shareholders with remote access to participate in General meetings in the reporting year.

1.2 Shareholders shall be given equal and fair opportunities to participate in profits of the Company by receiving dividends

1.2.1 The Company shall de-velop and install trans-parent and comprehen-sible mechanism for determining the amount of dividends and their payment.

1. The Company’s Board of Directors developed, adopted and disclosed its dividend policy.

Partially observed

1. The Company’s Charter reflects the principal directions of the dividend policy.

2. If the Company’s dividend policy uses indicators of its financial reports to determine amounts of dividends, the corresponding provisions of the dividend policy stipulate consolidated indicators of financial reports.

2. To determine the size of the dividends the data from Company’s accounting reports was used compiled as per RAS.






1.2.2 It is not recommended that the Company make a decision on paying dividends, if such decision, though not officially in breach of limits set by the legislation, is unjustified from the economic point of view and might lead to false assumptions about the Company’s activities.

The Company’s dividend policy provides for clear description of financial and economic circumstances under which the Company shall not pay dividends.

Observed

1.2.3 The Company shall not allow the dividend rights of its existing sharehold-ers to deteriorate.

In the reporting year, the Company did not undertake any actions deteriorating the dividend rights of its existing shareholders.

Observed

1.2.4 The Company shall make every effort to exclude ways in which its shareholders can profit (gain) from the Company other than dividends and liquidation value.

In order to exclude any ways in which its shareholders can profit (gain) from the Company other than through dividends and liquidation value, the Company’s internal documents provide for ways of control ensuring timely detection and procedure of approving deals with individuals associated with substantial shareholders (those having the right to manage votes attached to voting shares) in cases when the law officially shall not refer to such deals as interested party transactions.

Partially observed

The Company has provided for the ways of control ensuring timely detection and procedure of approving deals with individuals associated with substantial shareholders while preparing to concluding transactions.

1.3 System and practices of corporate governance shall ensure equal terms and conditions for all shareholders owning shares of the same class (category) in the Company, including minority and foreign shareholders, as well as their equal treatment by the Company

1.3.1 The Company shall create conditions fair treatment of each shareholder by its governing bodies and controlling persons, in particular, ruling out the possibility of abuse of minority shareholders by major shareholders.

During the reporting year, procedures of settling potential conflicts of interest among substantial shareholders proved to be effective, while conflicts between shareholders, if any, gained appropriate attention of the Board of Directors.

Observed







1.3.2 The Company shall not perform any actions which will or might result in artificial reallocation of corporate control.

There were no quasi-treasury shares or they did not participate in voting during the reporting year.

Observed

1.4 Shareholders shall be provided with reliable and efficient methods of recording their rights in shares as well as an opportunity to dispose of such shares freely and without hindrance.

1.4.1 Shareholders shall be provided with reliable and efficient methods of recording their rights in shares as well as the opportunity to dispose of such shares freely and without hindrance.

Quality and reliability of activities on keeping the register of securities holders performed by the registrar of the Company correspond to requirements of the Company and its shareholders.

Observed

2.1 The Board of Directors shall implement the strategic management of the Company, define major principles and approaches to organizing a risk management and internal control system within the Company, monitor activities of the Company’s executive bodies and perform other key functions.

2.1.1 The Board of Directors shall be responsible for decisions to appoint and remove executives, including decisions arising from failure to perform duties properly. The Board of Directors shall also ensure that the Company’s Executive bodies act in accordance with an approved development strategy and the business profile of the Company.

1. The Board of Directors defined in the charter its authorities to appoint and remove executives and determine provisions of contracts with regard to members of Executive bodies.

2. The Board of Directors reviewed report (reports) of the chief executive and members of collective executive body on implementing the Company’s strategy.

Observed

2.1.2 The Board of Directors shall establish basic long-term targets for the Company, and shall assess and approve its key performance indicators and principal business goals, as well as its strategy and business plans with regard to its principal areas of operations.

During its meetings within the reporting year, the Board of Directors reviewed the issues related to implementation and update of strategy, approval of budget and revision of criteria and indicators (including preliminary ones) in performing the Company’s strategy and business plans.

Observed






2.1.3 The Board of Directors shall define principles of and approaches to organizing a risk management and internal control system in the Company.

1. The Board of Directors determined principles of and approaches to organizing a risk management and internal control system in the Company.

2. During the reporting year, the Board of Directors made an assessment of the Company’s risk management and internal control system.

Partially observed

1, 2. The Company has established the internal control department and performs the risks management. The internal control department reports on performed activity to the Board of Directors on the regular basis. However, the Board of Directors did not determine the principles of and the approaches to organizing a risk management and internal control system and the evaluation is not performed. Risk management and internal control policy will be approved by the Board of Directors in 2019.

2.1.4 The Board of Directors shall define the Company’s policy on remuneration and/or reimbursement of costs (compensation) for its Board members, executives and other key managers.

1. The Company developed and introduced the policy (policies) approved by the Board of Directors on remuneration and/or reimbursement of costs (compensation) for its Board members, executives and other key managers.

2. During its meetings within the reporting year, the Board of Directors reviewed the issues related to the afore-mentioned policy (policies).

Observed

2.1.5 The Board of Directors shall play a key role in prevention, detection and resolution of internal conflicts among the Company’s organs, shareholders and employees.

1. The Board of Directors plays a key role in prevention, detection and resolution of internal conflicts.

2. The Company created a system identifying deals related to interest conflicts and a system of measures pursuing the resolution of such conflicts.

Observed

2.1.6 The Board of Directors shall play a key role in ensuring that the Company is transparent, discloses information in full and in due time, and provides its shareholders with unhindered access to its documents.

1. The Board of Directors adopted a resolution on information policy.

Partially observed

1. The Board of Directors approved the Regulations of the information policy implementation with media sources.

2. The Company appointed persons in charge of implementing its information policy.

Observed

2.1.7 The Board of Directors shall monitor the Company’s corporate governance practices and play a key role in its substantial corporate events.

During the reporting year, the Board of Directors reviewed the issue of the Company’s corporate governance practices.

Partially observed

The control over the Company’s corporate governance practices is performed by its Board of Directors within its competence.







2.2 The Board of Directors shall be accountable to the Company’s shareholders.

2.2.1 Information about the Board’s work shall be disclosed and made available toshareholders.

1. The Company’s report for the reporting year includes information on attendance of meetings of its Board of Directors and committees by the directors.

2. The annual report summarizes key results of evaluating the work performed by the Company’s Board of Directors in the reporting year.

Observed

2.2.2 The chairman of the Board of Directors shall be available for contact with the Company’s shareholders.

The Company has a transparent procedure allowing its shareholders to submit their questions and opinions to the chairman of the Board of Directors.

Observed

2.3 The Board of Directors shall be an efficient and professional governing body of the Company capable of making objective and independent judgements and decisions meeting the interests of the Company and its shareholders.

2.3.1 Only persons having an impeccable business and personal reputation shall be elected to the Board of Directors; they shall also have the knowledge, skills and experience necessary to make decisions within the jurisdiction of the Board of Directors and essential to perform its functions efficiently.

1. The Company adopted a procedure of evaluating the efficiency of work performed by its Board of Directors that comprises, among others, evaluation of professional qualification of its members.

Observed

2. In the reporting year, the Board of Directors (or its nomination committee) evaluated nominees to the Board in terms of their experience, knowledge, goodwill, absence of interests conflict, etc.

Partially observed

2. In the reporting year as a part of its performance the Board of Directors considered the suggestions of the shareholders regarding nominees to the Board of Directors proposed to be elected at the annual General shareholders meeting of the Company taking into account their experience, knowledge, goodwill and absence of interests conflict.

2.3.2 The Board’s members shall be elected via a transparent procedure enabling the shareholders to obtain sufficient information about the nominees in order to form a view of their personal and professional qualities.

In all cases of holding a General shareholders meeting in the reporting year with its agenda comprising issues of electing the Board’s members, the Company provided its shareholders with biographics of each nominee, as well as results of evaluation of nominees conducted by the Board of Directors (or its nomination committee), and information on nominee conformity to independence criteria in accordance with the Code recommendations 102–107 along with nominees’ written consent to be elected as the Board members.

Observed






2.3.3 The composition of the Board of Directors shall be balanced, in particular in terms of qualifications, expertise, and business skills of its members. The Board of Directors shall enjoy the confidence of the shareholders.

Within the procedure of evaluating the work performed by the Board of Directors in the reporting year, the Board analyzed its own needs in the field of professional qualification, experience and business skills.

Observed

2.3.4 The composition of the Board of Directors shall enable it to organize its activities in a most efficient way, in particular forming committees of the Board as well as enabling substantial minority shareholders of the Company to elect a candidate to the Board for whom they vote.

Within the procedure of evaluating the work performed by the Board of Directors in the reporting year, the Board reviewed the issue of conformity of its composition to the Company’s needs and shareholders’ interests.

Partially observed

The Company’s Charter determines the composition of the Board of Directors consisting of 11 persons. The shareholders and the Board of Directors consider that the present composition is sufficient to perform the effective activity meeting the needs of the Company and the interests of the shareholders.

2.4 The Board of Directors shall include a sufficient number of independent directors.

2.4.1 An independent director shall be a person who has sufficient professional skills, expertise and independence to hold his own position, capable of making objective and bona fide judgments free from the influence of the Company’s executive, individual groups of shareholders or other interested parties. It should be noted that, under normal circumstances, a nominee (elected director) cannot be regarded as independent if he is connected with the Company, a substantial shareholder, a material trading partner or competitor, or connected with the government.

1. During the reporting year, all independent members of the Board of Directors met independence criteria provided for in the Code recommendations 102–107 and were recognized as independent based on the decision of the Board of Directors.

Observed







2.4.2 Carrying out of assessment is recommended as to whether candidates nominated to the Board of Directors meet independence criteria, as well as regular analysis to ascertain whether independent Board members meet the independence criteria. When carrying out such assessment, substance shall take precedence over form.

1. In the reporting year, the Board of Directors (or its nomination committee) formed its opinion on independence of each nominee to the Board and submitted the corresponding conclusion to the shareholders.

Partially observed

1, 2, 3. Independent directors are members of the Board of Directors. However, there is no procedure provided in the internal documents for forming an opinion by the Board of Directors on the independence of each nominee to the Company’s Board of Directors because the Company’s shares are included in the quotation list of the third level of Moscow Exchange for which there are no requirements about the presence of independent directors in the Board of Directors.

2. In the reporting year, the Board of Directors (or its nomination committee) at least once reviewed the independence of its members featured in the Company’s annual report as independent directors.

Not Observed

1. The Company developed procedures determining measures to be undertaken by a member of the board in case he is no longer an independent director, including his obligation to properly inform the Board thereof.

Not Observed

2.4.3 Independent directors shall account for at least one-third of all directors elected to the Board.

Independent directors account for at least one-third of all directors elected to the Board.

Not Observed Independent directors are members of the Board of Directors. However, there is no procedure provided in the internal documents for forming an opinion by the Board of Directors on the independence of each nominee to the Company’s Board of Directors because the Company’s shares are included in the quotation list of the third level of Moscow Exchange for which there are no requirements about the presence of independent directors in the Board of Directors.

2.4.4 Independent directors shall play a key role in preventing internal conflicts in the Company and in its performance of substantial corporate actions.

Independent directors (those having no conflict of interests) preliminary assess substantial corporate actions related to possible conflict of interests and submit results of such assessment to the Board of Directors.

Not Observed As a part of established practice of the Company’s Board of Directors performance the items on the agenda including those related to the substantial corporate actions shall be considered by all members of the Board of Directors including the independent members thereof.






2.5 Chairman of the Board of Directors shall contribute to the most efficient performance of the Board’s functions.

2.5.1 It is recommended either to elect an independent director to the post of chairman of the Board of Directors, or to nominate a senior independent director among the Company’s independent directors to coordinate their work and liaise with the chairman.

1. Elected chairman of the Board of Directors is an independent director or a senior independent director was appointed among the Company’s independent directors.

Not Observed 1. The chairman of the Board of Directors is not an independent director.

2. Role, rights and duties of chairman of the Board of Directors (and senior independent director, if applicable) are properly determined in the Company’s internal documents.

Partially Observed

2. Role, rights and duties of the Chairman of the Company’s Board of Directors are duly determined by the Charter and the internal documents of the Company.

2.5.2 The chairman of the Board of Directors shall ensure that the Board’s meetings are held in a positive atmosphere, that any items on the meeting agenda are discussed freely and shall monitor the implementation of resolutions passed by the Board.

Efficiency of work performed by the Board’s chairman was assessed within the procedure of evaluating the efficiency of work performed by the Board of Directors in the reporting year.

Observed

2.5.3 Chairman of the Board of Directors shall take all necessary steps to supply the Board’s members in time with the information essential to decision-making on issues on the agenda.

Efficiency of work performed by the Board’s chairman was assessed within the procedure of evaluating the efficiency of work performed by the Board of Directors in the reporting year.

Observed







2.6 The Board’s members shall act reasonably and in good faith in the interests of the Company and its shareholders, on the basis of sufficient information and with due care and diligence.

2.6.1 The Board’s members shall make decisions considering all available information, with no conflict of interest, treating shareholders equally, and in the context of normal business risks.

1. The Company’s internal documents specify that the Board’s member shall notify the Board of Directors if he has a conflict of interests with regard to any issues on the agenda of a meeting of the Board or committee before discussing the corresponding issue.

2. The Company’s internal documents specify that the Board’s member shall abstain from voting on any issue in respect of which he has a conflict of interests.

3. The Company determined a procedure allowing the Board of Directors to take, on the Company’s account, professional opinions regarding its responsibilities.

Observed

2.6.2 Rights and duties of the Board’s members shall be clearly stated and incorporated in the Company’s internal documents.

The Company adopted and published an internal document clearly stating and incorporating rights and duties of the Board’s members.

Observed

2.6.3 The members of the Board of Directors shall have sufficient time to perform their duties.

1. Individual attendance of meetings of the Board of directors and committees as well as the time spent to prepare to the meetings were considered within the procedure of evaluating the Board during the reporting year.

2. In accordance with the Company’s internal documents, the Board’s members shall notify the Board of their intention to take a position in the management of other organizations (apart from those subordinated or related to the Company) and of the fact of such appointment.

Observed






2.6.4 All Board’s members shall have an equal opportunity to access the Company’s documents and information. Newly elected Board’s members shall be provided with sufficient information about the Company and the work of its Board as soon as practicable.

1. In accordance with the Company’s internal documents, the Board’s members are entitled to gain access to documents and submit requests related to the Company and its subordinate organizations, while the Company’s Executive bodies shall provide the corresponding information and documents.

2. The Company adopted a formal program on get-acquainted session for newly elected Board’s members.

Observed

2.7 Meetings of the Board of Directors, preparation thereto and participation of the Board’s members therein shall ensure efficient work of the Board.

2.7.1 The Board’s meetings shall be held as necessary, having regard to the scale of the Company’s activities and its outstanding tasks for a specified period.

The Board of Directors held at least six meetings in the reporting year.

Observed

2.7.2 A procedure of preparing for and holding the Board’s meetings shall be developed and embodied in the Company’s internal documents enabling the Board’s members to prepare properly for such meetings.

The Company adopted an internal document specifying the procedure of preparing for and holding the Board’s meetings and inter alia stating that the meeting shall be notified at least five days prior to it.

Observed

2.7.3 The format of the Board’s meeting shall be determined with due regard to the importance of issues on the agenda. The most important issues shall be resolved at meetings held in praesentia.

The Company’s Charter or internal document stipulates that the most important issues (in accordance with the list specified in the Recommendation 168 of the Code) shall be resolved at meetings held in praesentia.

Partially observed

Regulation on the Company’s Board of Directors specifies the list of issues the Board is not entitled to resolve by poll (vote in absentia).







2.7.4 Decisions on most important issues related to the Company’s business shall be made at a meeting of the Board of Directors by a qualified majority vote or by a majority vote of all elected Board’s members.

The Company’s Charter specifies that decisions on most important issues stipulated by the Recommendation 170 of the Code shall be made at a meeting of the Board of Directors by a qualified majority vote by at least of three fourths of votes or by a majority vote of all elected Board’s members.

Not observed The Company’s Charter did not specify these criteria. Decision on issues under consideration is made by voting in accordance with the requirements of Federal Law «On Joint Stock Companies». The effective Charter was approved by the decision of the General shareholders meeting. The Company did not receive the suggestions of the shareholders on the issue in the reporting year.

2.8 The Board of Directors shall form committees for preliminary consideration of the most important issues in the Company’s business.

2.8.1 An Audit Committee con-sisting of independent directors shall be created for preliminary consid-eration of any matters related to monitoring the Company’s financial and business activities.

1. The Board of Directors formed an Audit Committee comprising independent directors only.

Not observed 1, 2, 3. Independent directors are not members of the Company’s Board of Directors’ Audit Committee.

The Company’s shares are included in the quotation list of the third level of Moscow Exchange for which there are no requirements about the presence of Independent Directors in Company’s Board of Directors’ Audit Committee.

The Company’s internal documents provide for objectives of the Board of Directors’ Audit Committee.

2. The Company’s internal documents provide for objectives of the Audit Committee, including those stipulated by the Recommendation 172 of the Code.

Not observed

3. At least one of Audit Committee members being an independent director shall possess experience and knowledge in the field of preparation, analysis, assessment and audit of accounting reporting.

Not observed

4. Audit Committee meetings were held at least quarterly in the reporting year.

Observed

2.8.2 A remuneration committee consisting of independent directors and chaired by an independent director, but not the Board’s chairman, shall be created for preliminary consideration of any issues related to the development of efficient and transparent remuneration practices.

1. The Board of Directors formed a Remuneration Committee comprising independent directors only.

2. The remuneration committee shall be chaired by an independent director, but not the Board’s chairman.

3. The Company’s internal documents specify objectives of the remuneration committee, including, inter alia, those stipulated by the Recommendation 180 of the Code.

Partially observed

1, 2, 3. Independent directors are members of the Remuneration and Personnel Committee.

The Company’s shares are included in the quotation list of the third level of Moscow Exchange for which there are no requirements about the presence of Independent Directors in the Remuneration and Personnel Committee.

The Company’s internal documents provide for objectives of the Board of Directors’ Remuneration and Personnel Committee.






2.8.3 A nomination committee (appointments and human resources) shall be formed for preliminary consideration of issues related to human resources planning (succession planning) and the professional composition and efficiency of the board. Majority of its members shall be independent directors.

1. The Board of Directors formed a nomination committee (or its objectives stipulated by the Recommendation 186 of the Code that are being implemented within another committee). Majority of its members shall be independent directors.

2. The Company’s internal documents specify objectives of the nomination committee (or a corresponding committee performing combined functions), including, inter alia, objectives stipulated by the Recommendation 186 of the Code.

Partially observed

1, 2. The Board of Directors has not formed a nomination committee.

The Board of Directors adheres to the basic principle (par. 2.8.) and if necessary, objectives stipulated by the Recommendation 186 of the Code may be assigned to the Personnel and Remuneration Committee under the Company’s Board of Directors.

2.8.4 Having regard to the scale of its activities and the risk level, the Company’s Board of Directors shall make certain that its composition fully meets objectives of the Company’s business. Additional committees were either formed or deemed as unnecessary (a strategy committee, a corporate governance committee, an ethics committee, a risk management committee, a budget committee, a committee on health, safety and the environment, etc.).

In the reporting year, the Company’s Board of Directors considered the issue of compliance of its committees compositions to objectives of the Board and goals of the Company’s business. Additional committees were either formed or deemed as unnecessary.

Observed

2.8.5 The composition of the committees shall be defined so as to allow comprehensive discussion of issues being considered on a preliminary basis with due regard for differing opinion.

1. The Committees of the Board of Directors are chaired by independent directors.

Not observed Chairmen of the Committees of the Board of Directors are not independent directors. The Company’s shares are included in the third level quotation list of the Moscow Exchange, for which there are no requirements to chairing the Committees of the Board of Directors solely by independent directors.

2. The Company’s internal documents (policies) specify provisions whereby persons not being members of Audit Committee, nomination committee and remuneration committee may attend committees meetings only if invited by the chairman of the corresponding committee.

Observed







2.8.6 Committee chairmen shall regularly keep the Board of Directors and its chairman advised for the performance of their committees.

In the course of the reporting year, chairmen of the committees have reported to the Board of Directors for the performance of their committees on a regular basis.

Observed

2.9 The Board of Directors shall ensure that the quality of its performance and that of its committees and its members is assessed.

2.9.1 Assessment of the quality of the Board’s performance shall be aimed at defining how efficiently the Board of Directors, its committees and its members performance and whether their performance meets the requirements of the Company development, revitalizing the performance of the Board and identifying areas where it might be improved.

1. Self-assessment or external evaluation of the Board’s performance in the reporting year included the assessment of the performance of its committees, individual members and the entire Board.

Observed

2. Results of self-assessment or external evaluation of the Board’s performance in the reporting year were discussed during the meeting in praesentia of the Board.

Not observed 2. The results of self-assessment or external evaluation of the Board’s performance in the reporting year were not discussed during the meeting in praesentia of the Board.

2.9.2 The performance of the Board, its committees and board members shall be assessed on a regular basis, at least once a year. For independent assessment of the quality of the Board’s performance, an outside organization (consultant) shall be involved from time to time, at least once every three years.

For independent assessment of the Board’s performance during the last three reporting periods, the Company at least once involved an outside organization (consultant).

Not observed The independent assessment of the Board’s performance by an outside organization (consultant) is not prescribed by the Company’s Charter and internal documents.

3.1The Company’s Secretary shall be responsible for the efficient day-to-day liaison with its shareholders, coordination of the Company’s actions to protect the rights and interests of its shareholders, and supporting the performance of its Board of Directors.

3.1.1 The Company’s Secretary shall have the trust of the shareholders as well as the knowledge, experience and qualifications sufficient for the performance of his/her duties.

1. The Company has adopted and disclosed an internal regulation on the Company’s Secretary.

2. The Company should disclose information on the Company’s Secretary on its website and in its annual report as detailed as that specified for disclosure in respect of board members and members of the Company’s executives.

Not observed 1, 2. No provisions for the Company’s Secretary are made in the Company’s Charter and internal documents.

The Company’s shares are included in the third level quotation list of the Moscow Exchange, for which there are no requirements to the Company’s Secretary provided. A Secretary of the Board of Director serves as the Company’s Secretary.






3.1.2 The Company’s Secretary shall be sufficiently independent of the Company’s executive bodies and have the powers and resources required to perform his/her responsibilities.

The Board shall approve the appointment, dismissal from office and additional remuneration of the Company’s Secretary.

Partially observed

The Board of Directors approves the appointment, dismissal from office of the Company’s Secretary. The additional remuneration to the Company’s Secretary is not paid.

4.1Level of remuneration paid by the Company shall be sufficient to attract, motivate and retain persons possessing necessary skills and qualifications. Remuneration of the Board’s members, executive bodies and other key managers of the Company shall be paid in accordance with the remuneration policy applicable by the Company.

4.1.1 Level of remuneration paid by the Company to its Board’s members, executives and other key managers shall be sufficient to motivate them to work efficiently and enable the Company to attract and retain competent and qualified specialists. The Company shall avoid setting the level of remuneration any higher than necessary, or creating an unjustifiably wide gap between the levels of remuneration of any of the above and of the Company’s employees.

The Company adopted internal document (documents) such as policy (policies) on remunerating its board members, executives and other key managers specifying approaches to rewarding the above-mentioned persons.

Observed

4.1.2 The Company’s remuneration policy shall be devised by its remuneration committee and approved by the Board of Directors. With the support of its remuneration committee, the Board shall monitor the introduction and implementation of remuneration policy in the Company and if necessary review and amend the same.

During the reporting year, the remuneration committee considered the remuneration policy and practices of introduction thereof and, if necessary, submitted the corresponding recommendations to the Board.

Observed







4.1.3 The Company’s remuneration policy shall contain transparent mechanisms of determining the amount of remuneration for the Board’s members, executives and other key managers of the Company, as well as regulating all forms of payment, benefits or privilege granted to any of the above.

The Company’s remuneration policy (policies) contains transparent mechanisms of determining the amount of remuneration for the Board’s members, executives and other key managers of the Company, as well as regulating all forms of payment, benefits or privilege granted to any of the above.

Observed

4.1.4 The Company shall define a policy on reimbursement of expenses which would contain a list of reimbursable expenses and specify service levels that the Board’s members, executives and other key managers of the Company can claim. Such policy can form part of the Company’s policy on remuneration.

The Company’s remuneration policy (policies) or other internal documents specify rules of expenses reimbursement to the Board’s members, executives and other key managers of the Company.

Observed

4.2 The system of remuneration for the Board’s members shall ensure that the financial interests of the Directors are in line with the long-term financial interests of the shareholders.

4.2.1 The Company shall pay a fixed annual fee to the Board’s members.

The Company shall not pay a fee for attending individual meetings of the Board or its committees.

No form of short-term motivation or additional financial incentive for board members shall be applied.

The fixed annual fee was the only monetary remuneration to the Board’s members for their performance in the Board of Directors during the reporting year.

Partially observed

According to the Company’s actual principles and criteria of remuneration for the Board’s members a payable remuneration is not fixed but variable, received by means of a calculation based on some achievable values that is, on the Company’s opinion, a motivating factor.

In accordance with the Regulation on the Company’s Board of Directors the Board’s members shall not entitled to receive other remuneration and/or reimbursement for their duties performance as the Board’s members except for the remuneration and/or reimbursement received by a decision of General shareholders meeting.






4.2.2 Long-term ownership of Company shares shall be the greatest contribution to aligning the Board members’ financial interests with the long-term interests of shareholders. However making the right to dispose of shares dependent on the Company reaching specific targets, or the Board’s members participating in option programs, are not recommended.

If the Company’s internal document(s) - a policy (policies) for the remuneration stipulates the provision of shares to the Board’s members, the remuneration policy shall contain clear and transparent rules that regulate the ownership of shares by the Board’s members. These rules shall encourage building a holding and owning shares long term.

Observed

4.2.3 The Company shall not provide for any additional payment or compensation in the event of early dismissal of the Board’s members in connection with a change of control over the Company or other circumstances.

The Company does not provide for any additional payment or compensation in the event of early dismissal of the Board’s members in connection with a change of control over the Company or other circumstances.

Observed

4.3 The system of remuneration for members of executive bodies and other key managers of the Company shall provide that their remuneration is dependent on the Company’s performance results and their contributions to achieving them.

4.3.1 Remuneration of executives and other key managers of the Company shall be set so as to ensure a reasonable and justified relationship between its fixed and variable portions that is dependent on the Company’s performance results and their personal (individual) contributions to the end result.

1. During the reporting year, annual performance indicators approved by the Board of Directors were used to determine the amount of variable remunerations for members for executive bodies and other key managers of the Company.

Observed

2. During the most recent assessment of the system of remunerations for members of executive bodies and other key managers of the Company, the Board of Directors (remuneration committee) made certain that the Company practices efficient ratio between fixed and variable portions of remunerations.

Observed







4.3.1 3. The Company provides for a procedure ensuring repay of remuneration payments wrongfully obtained by members of executive bodies and other key managers of the Company.

Not observed The Company does not provide for a procedure ensuring repay of remuneration payments wrongfully obtained by members of executive bodies and other key managers.

4.3.2 The Company shall introduce a long-term incentive program for members of the Company’s executive bodies and other key managers involving the Company’s shares (options or other derivative financial instruments, the underlying assets for which are the Company’s shares).

1. The Company introduced a long- term incentive program for members of the Company’s executive bodies and other key managers involving the Company’s shares (financial instruments based on the Company’s shares).

2. A long-term incentive program for members of the company’s executive bodies and other key managers provides that the right to dispose of shares involved in such program of shares and other financial instruments shall not arise earlier than three years from the date when such shares were provided. In addition, the right to dispose of such shares shall be conditional on certain targets being reached by the Company.

Not Observed 1, 2. The Company does not provide for any long-term incentive program for members of the Company’s executive bodies and other key managers involving the Company’s shares (financial instruments based on the Company’s shares).

4.3.3 The amount of severance pay («golden parachute») payable by the Company in the event of early resignation of an executive or other key manager at the initiative of the Company, provided that there has been no mala fide behavior on the part of such person, shall not exceed twice the value of the fixed portion of the annual remuneration.

The amount of severance pay («golden parachute») payable by the Company in the event of early resignation of an executive or other key manager at the initiative of the Company, provided that there has been no mala fide behavior on the part of such person, did not exceed twice the value of the fixed portion of the annual remuneration.

Observed

5.1 The Company has an efficient risk management and internal control system in place designed to ensure with reasonable confidence achievement of the Company’s goals.

5.1.1 The Board of Directors shall define principles of and approaches to organizing the risk management and internal control system in the Company.

Functions of the Company’s governing bodies in its risk management and internal control system are clearly specified in the internal documents / corresponding policy approved by the Board of Directors.

Partially observed

The Company has established the Internal control department and performs the risks management. Risk management and internal control policy will be approved by the Board of Directors in 2019.






5.1.2 The Company’s executives shall ensure the establishment and maintenance of the healthy company’s risk management and internal control system.

Functions of the Company’s governing bodies in its risk management and internal control system are clearly specified in the internal documents / corresponding policy approved by the Board of Directors.

Observed

5.1.3 The Company’s risk management and internal control system shall give an unbiased, fair and clear view of the current state and future prospects of the Company and ensure that its accounts and reports are complete and transparent and that the risks being assumed by the Company are reasonable and acceptable.

1. The Company adopted anti-bribery policy.

2. The Company arranged a comprehensible way of keeping the Board of Directors or its Audit Committee advised of violating legislation or the internal procedures and code of conduct.

Observed

5.1.4 Board of Directors shall take necessary and sufficient actions to ensure that the Company’s existing risk management and internal control system is consistent with the principles and approaches to its organization defined by the Board of Directors and that it operates efficiently.

During the reporting year, the Board of Directors or its Audit Committee assessed the performance of the Company’s risk management and internal control system. Main results of the assessment are contained in the Company’s Annual Report.

Partially observed

During the reporting period, the Company’s Board of Directors and its Audit Committee did not undertake to evaluate the performance of the Company’s risk management and internal control system.

The annual report of the Company includes risk factors and approaches of responding to risks arising from Company’s activities.

5.2 The Company shall organize an internal audit, for regular independent evaluation of efficiency and reliability of its risk management and internal control system and corporate governance practice.

5.2.1 Internal audits shall be performed by a separate structural division to be set up within the Company or by an independent outside body. Functional and administrative reporting lines of internal audit department shall be kept separate. Functionally, the internal audit unit shall report to the Board of Directors.

For the purpose of internal audit, the Company created a separate unit of internal audit that functionally reports to the Board of Directors or Audit Committee. Alternatively, the Company engaged an independent outside body based on the same reporting principle.

Observed







5.2.2 Internal audit department shall evaluate the performance of the internal control system, the risk management system and the corporate governance system.

The Company shall apply generally accepted standards of internal auditing.

1. During the reporting year, the internal audit gave an estimate of the Company’s risk management and internal control system.

2. The Company applies generally accepted standards of internal control and risk management.

Partially observed

1, 2. The Company has established the internal control department and performs the risks management. The internal control department reports on performed activity to the Board of Directors on the regular basis. However, the Board of Directors did not determine the principles of and the approaches to organizing a risk management and internal control system and the evaluation is not performed. Risk management and internal control policy will be approved by the Board of Directors in 2019.

6.1 The Company and its activities shall be transparent to its shareholders, investors and other interested parties.

6.1.1 The Company shall develop and implement an information policy ensuring the efficient exchange of information by the Company, its shareholders, investors and other interested parties.

1. The Company’s Board of Directors adopted its information policy as developed with due regard to the Code recommendations.

2. At least once in the reporting year the Board of Directors (or one of its committees) considered the issues related to observance by the Company of its information policy.

Partially observed

1, 2. The Company’s Board of Directors approved an internal document regulating its information policy without due regard to the Code recommendations. The Company’s information policy is also governed by its local acts (orders, decrees, etc.)

6.1.2 The Company shall disclose information on its corporate governance system and practice, including detailed information on compliance with the principles and recommendations of this Code.

1. The Company discloses information (also through its website) on its corporate governance system and general principles of corporate governance applicable by the Company.

Observed

2. The Company discloses information on composition of its executive bodies and the Board of Directors, board members independence and their membership in the Board’s committees (in line with the Code).

Observed

3. In the event there is a person controlling the Company, the latter shall publish a memorandum regarding such controlling person’s plans on corporate governance in the Company.

Not Observed The Charter and internal documents of the Company do not provide for the publication of a Memorandum by the person controlling the Company with regard to the plans of such person related to corporate governance in the Company.






6.2 The Company shall disclose full, up-to-date and reliable information about itself in good time to enable its shareholders and investors to make informed decisions.

6.2.1 The Company shall disclose information in accordance with the principles of regularity, consistency and timeliness, as well as accessibility, reliability, completeness and comparability of details to be disclosed.

1. The Company’s information policy specifies approaches to and criteria of defining information capable to materially influence its corporate appraisal and value of its securities, as well as procedures ensuring timely disclosure of such information.

Partially observed

1. The Company provides the information regarding its business results capable to influence the Company’s appraisal and value of its securities, in accordance with legal requirements as well as an established practice of communications with the interested parties. However the Company’s information policy does not specify the approaches to and criteria of defining such information.

2. If the Company’s securities are traded on foreign organized markets, disclosure of material information in the Russian Federation and in such markets shall be performed on concerted and equivalent basis during the reporting period.

2. The Company’s securities do not traded on foreign organized markets.

3. If foreign shareholders hold a substantial amount of the Company’s shares, the information disclosure during the reporting year was performed not only in Russian, but also in a foreign language generally accepted.

3. Foreign shareholders owning to a substantial amount of the Company’s shares are not a part of the Company’s shareholders structure.

6.2.2 The Company shall avoid using a formalistic approach to information disclosure and disclose material information on its activities, even if disclosure of such information is not required by legislation.

1. During the reporting year, the Company disclosed annual and semiannual financial statements prepared in accordance with IFRS standards. The Company’s report for the corresponding period includes annual financial statements under IFRS standards and audit report.

Partially observed

1. The Company prepares and discloses financial statements in accordance with IFRS standards within the terms determined by the legislation of the Russian Federation. These statements are not included in the Company’s annual report.

The Company discloses full information about its capital structure in accordance with Recommendation 290 of the Code in the Company’s annual report and on its website.

2. The information on the Company’s capital structure is publicly available on its official website.



Item Corporate governance philosophy Corporate Governance Philosophy Observance Assessment Criteria



6.2.3 The Company’s annual report, as one of the most important tools of its information exchange with shareholders and other interested parties, shall contain information making it possible to assess the Company’s performance results for the year.

1. The Company’s annual report contains information on the key aspects of its operating activities and its financial performance.

Observed

2. The Company’s annual report contains information on the environmental and social aspects of its activities.

Partially observed

2. Information on the environmenta and social aspects of the Company’s activities is publicly available on the Company’s official website.

6.3 The Company shall provide information and documents requested by its shareholders in accordance with the principles of equal and unhindered accessibility.

6.3.1 The Company shall provide information and documents requested by its shareholders in accordance with the principle of equal and unhindered accessibility.

The Company’s information policy shall provide for unhindered procedure of granting shareholders (at request) with access to information, including that regarding legal entities controlled by the Company.

Observed

6.3.2 The Company, when providing information to its shareholders, maintain a reasonable balance between the interests of individual shareholders and its own interests, mindful of its interest in keeping confidential sensitive business information that might have a material impact on its competitive strength.

1. During the reporting year, the Company did not reject any shareholders’ requests on information provision, or such refusals were well-reasoned.

2. In cases determined by the Company’s information policy its shareholders are notified about confidential nature of information, thus assuming responsibility to keep it confidential.

Observed


Item Corporate governance philosophy Corporate Governance Philosophy Observance Assessment Criteria

Corporate governance philosophy compliance tatus


7.1 Actions which will or may materially affect the Company’s share capital structure and its financial position and accordingly the position of its shareholders (material corporate actions) shall be taken on fair terms ensuring that the rights and interests of the shareholders and other interested parties are observed.

7.1.1 Material corporate actions shall be deemed to include reorganization of the Company, acquisition of 30 percent or more of its voting shares (takeover), making major deals, increasing or reducing its share capital, listing and delisting of its shares, as well as other actions which might result in material changes in the rights of shareholders or infringement of their interests. The Company’s Charter shall include a list (criteria) of transactions or other actions amounting to material corporate actions and refer consideration of such actions to the jurisdiction of the Board of Directors.

1. The Company’s Charter defines a list of deals and actions referred to as material corporate actions and criteria to determine those. Decision making with regard to major corporate actions refers to the jurisdiction of the Board. If implementation of such actions legally refers to jurisdiction of the general shareholders meeting, the Board provides shareholders with corresponding recommendations.

2. The Company’s Charter shall define as material corporate actions at least the following: reorganization of the Company, acquisition of 30 per cent or more of its voting shares (takeover), making major deals, increasing or reducing its share capital, listing and delisting of its shares.

Observed

7.1.2 The Board of Directors shall play a key role in passing resolutions or making recommendations related to material corporate actions, relying on the opinions of the Company’s independent directors.

1. The Company provides for a procedure ensuring that independent directors express their opinions on major corporate actions prior to approve those.

Observed

7.1.3 When taking material corporate actions which would affect rights or legitimate interests of shareholders, it is recommended that equal terms and conditions be guaranteed for all shareholders; if the statutory mechanisms designed to protect shareholders’ rights prove insufficient, additional measures be taken to protect their rights and legitimate interests. In such instances, the Company shall comply with the formal requirements of law and also with the principles of corporate governance set out in this Code.

1. Having regard to peculiarities of its business, the Company’s Charter determines lower than statutorily required minimal criteria of considering the company’s deals as material corporate actions.

2. During the reporting year, all material corporate actions underwent approval procedure prior to being implemented.

Observed





Corporate governance philosophy compliance tatus


7.2The Company shall provide a procedure for taking material corporate actions that enables its shareholders to receive all the details on such actions in due time and influence them, and also guarantees that the shareholders’ rights are observed and duly protected when such actions are taken.

7.2.1 Information on material corporate actions shall be disclosed with explanations of the grounds, circumstances and consequences.

During the reporting year, the Company disclosed information on its material corporate actions in detail and in due time, including grounds and of taking such actions.

Observed

7.2.2 Rules and procedures in relation to material corporate actions by the Company shall be embodied in its internal documents.

1. The Company’s internal documents provide for a procedure of engaging an independent assessor to determine the value of its property being alienated or acquired under a major deal ог interested party transaction.

Partially observed

1. Engagement of an independent assessor to determine the value of the Company’s property being alienated or acquired under a major deal ог interested party transaction is carried out in cases determined by the laws of the Russian Federation.

2. The Company’s internal documents provide for a procedure of engaging an independent assessor to determine the value of acquisition or repurchase of its shares.

2. Engagement of an independent assessor to determine the value of acquisition or repurchase of Company’s shares is carried out in cases determined by the laws of the Russian Federation.

3. The Company’s internal documents provide for an expanded list of reasons making the board members and other persons under the law considered as interested in the Company’s deals.

3. Recognition of the Board’s members of the Company and other persons under the law considered as interested in the Company’s deals is carried out as required by the laws of the Russian Federation.

In 2018, Kazanorgsintez PJSC took the following actions on improving its model and practices of corporate governance:

1. The Company’s Charter was amended and the amendments allow the shareholders to have an opportunity to, within at least

60 days after the corresponding calendar years, place proposals to the agenda of the annual General meeting,

2. The Company’s Regulations on General shareholders meeting was amended as follows: every attendee of a General meeting, prior to the end of

the corresponding meeting, is enable to demand a copy of a voting paper he completed to be certified by the counting committee.

3. The Board of Directors approved the Regulations of the information policy implementation with media sources.

General Director of Kazanorgsintez PJSC

______________ Farid G. Minigulov


Credibility of information contained in the Annual Report is certified by the Audit Committee of Kazanorgsintez, PJSC.

The Annual Report is preliminary approved by the Decision of the Board of Directors of Kazanorgsintez, PJSC (Protocol No. 7 dated March 15, 2019).

The Annual Report of Kazanorgsintez, PJSC for 2018 is approved by its Annual General Shareholders Meeting held on April 19, 2019 (Protocol dated April 24, 2019).


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