contents

contents

PART IABOUT THE COMPANY

About the Company 9

Message from General Director 10

Mission and strategy 12

Main highlights of activity 13

Main risk factors 14

Key events of the year 18

Russia and Tatarstan Republic economy review 20

PART IIPRODUCTIONACTIVITY

Production and the cost of products 28

Industrial structure of OJSC Kazanorgsintez 30

Ethylene plant 30

LDPE plant 31

HDPE plant 31

Organic products plant 32

BPA plant 33

Polycarbonates plant 34

NOC plant 34

PHMO plant 35

Auxiliary divisions 35

Development of technologies and branded assortment 36

Quality Management System 38

Resources effectiveness 40

Nature protection activity and industrial safety 42

Personnel management 46

Social field 48

PART IIICOMMERCIAl ACTIVITY

Position in industry 55

Basic products markets review 56

Sales results review 62

Raw material supply 65

PART VCORPORATE GOVERNANCE

Authorities 88

Structure of the Board of Directors 88

Structure of the Management Board 93

Authorized capital and stock market 96

Essential facts and deals 100

Affiliated parties 102

Long-term financial investments 103

General information about the Company 104

PART IVINVEsTMENT ACTIVITY

Development program 71

Development program financing 72

Development program perfomance 75

PART VIFINANCIAl sTATEMENTs

Audit report 110

Accounting forms 111

Contents

2 3

AN

NU

Al

REPO

RT` 2

008

contents

Humanity got so much used to chemicals which surround us day and night and have for a long time been taken by people as something artificial, industrially created and serving only human beings. But we forget that in fact mankind barely bor-rowed many of its achievements from Mother Nature. And myriads of creatures around us work every day and every hour making products with the help of chemical reaction methods. We say about the world of insects for which chemical synthe-sis products become food, shelter, habitation, communicative means, and guarantee of their life!

Practically all substances used by insects in their vital activity for making nests, protecting themselves from enemies or hunt-ing for food are the result of organic synthesis going on inside original natural laboratories – organisms of insects. Every species of insects has organs intended for production under a chitin shell in the depths of its organism. Moreover, those chemicals produced by insects often excel man-made products in quality and utility by many times. No wonder! While people had thousands of years for developing an ability to create poly-mer materials, insects had millions of years for that.

In insects’ life activity organic synthesis is of evident im-portance – this is a chemical process forming the basis of our company’s operation, life of all beings on the Planet.

The given report is made by the Economic Analysis Department of OJSC Kazanorgsintez on the basis of the enterprise structural divisions’ data, independent auditor’s report of the Company, and the official external sources, with the purpose to display the balanced and proved picture of economic, ecological and social productivity of organization’s activity. The report is intended for a wide range of people, including management of OJSC Kazanorgsintez, shareholders of the Company, investors and other interested parties. When making up the report, the Company was guided by the following principles:

openness, completeness, and importance;

reliability, quality and objectivity;

comparability, clearness and timeliness.

ANNUAl REPORT 2008

«ORGANICHEsKY sYNTEZ»K A Z A N O P E N J O I N T s T O C K C O M P A N Y

4

contents

PART I

ABOUT THE COMPANY

About the Company

Message from General Director

Mission and strategy

Main highlights of activity

Main risk factors

Key events of the year

Russia and Tatarstan Republic economy review

Spiderlat. Arachnoidea, the group of invertebrate animals, the Arthropoda phylum

contents

These days activities of a successful company comprise not only production of quality and unique goods, but also a constant extension of the influence sphere, an active search for new solutions, an ability to adapt oneself to any habitat, an ability to defend oneself, and care for potential workforce, personnel training and development. In the world of insects such a versatile activity combined with a very energetic life-style is especially characteristic for representatives of Arachnida, in particular, to an order of spiders widespread from the polar zone to the equator.

Spiders belong to the order Aranei, the class Arachnida. A body of the spider consists of a cephalothorax and a solid abdomen. The front-most appendages – chelicerae – end with hooks at the tips of which ducts for venom glands open. Biology and peculiarities of spiders’ behaviour are very diverse, but their similarity is in general preying on others and occurrence of arachnoid warts. According to the nature of food acquisi-tion they can be divided into several groups: web-building spiders wait-ing for their prey in the corner of set nets, ambush spiders, and water and vagrant spiders.

A distinctive feature of spiders is arachnoid warts (from 2 to 6) located on top of an abdomen. Their constituents are several types of arachnoid glands producing different kinds of a web used for various purposes. The web is of exceptional importance in spiders’ life: for in-stance, because of their weak sight spiders communicate with an external world mostly through their web. The web is used for hunting, shelter, for reproduction and protection of eggs, ballooning of young spiders. The web is a unique product: it is twice as durable as a steel thread of the same diameter and much more flexible than the best rubber.

ABOUT THE COMPANY

OJSC Kazanorgsintez is one of the largest en-terprises in the Russian chemical industry of strategic significance for the development of Tatarstan Repub-lic economy. The enterprise is located in the capital of Tatarstan Republic, in Kazan. It is founded in 1958. In 1963 the first batch of products - phenol and ac-etone was produced.

Now the enterprise produces polyethylene, polyethylene pipes, phenol, acetone, ethylene gly-cols, ethanol amines, bisphenol, polycarbonate, and other products of organic synthesis. The total assort-ment includes more than 170 denominations with a total production volume over 1.2 mln. tons. Products correspond to the International Quality Standards of GOST R ISO 9001-2001 (ISO 9001:2000) and are ex-ported to many countries of the world.

OJSC Kazanorgsintez includes eight plants and auxiliary divisions, located on one industrial platform with a total area of 4.2 sq.km. and possessing uniform transport, power and telecommunication infrastruc-ture:

Ethylene plant. The main products of the plant are ethylene, and propylene. All ethylene is fur-ther processed at LDPE plant, HDPE plant and Organic products plant.

lDPE plant. It produces various grades and compositions of low density polyethylene.

Plant for production and processing of high density polyethylene (HDPE plant). It releases various brands and compositions of high den-sity polyethylene, pressure and gas pipes of HDPE.

Organic products plant. It produces ethylene oxide and other products on the ethylene ox-ide basis: ethylene glycols, ethanolamines and others.

Plant for production of nitrogen, oxygen and cold. About 90 % of its products are supplied by other plants and divisions of the enterprise.

Plant for preparation and making major overhauls. It carries out the preparation & per-formance of current and major overhauls of the industrial equipment in all divisions of the en-terprise.

Bisphenol plant. It was put into operation in October 2007. It produces different grades of bisphenol A in grains. In 2008, phenol and ace-tone production unit was included in BPA plant. Phenol and acetone are the main raw materials for bisphenol A production. Bisphenol A is, on the other hand, the main raw material for poly-carbonate production.

Polycarbonates plant. It was put into opera-tion in August 2008. The plant produces differ-ent grades of polycarbonate and monoethyle-neglycol. This is the only plant for polycarbonate production in Russia, using environmentally-friendly non-phosgene method of production and without waste production technology. Thanks to thermo stability, high impact and chemical inertness polycarbonates are widely used in electrical, automotive, construction and other industries.In the field of quality OJSC Kazanorgsintez

follows the International Standards ISO 9000 and ISO 14001:2004.

Number of employees of the Company by the end of the year came to 9,154 people.

9

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

All these important events have hap-pened in a jubilee year for OJSC Kazan-orgsintez. Our company is 50 years old since the founding! One more impor-tant page is inscribed in the history of OJSC Kazanorgsintez. New jobs created and tax base increased– are our contribu-tion to the economy of Tatarstan Republic and Russia for many further decades.

Production and sales volumes in-creased in the reporting year. 410 thou-sand tons of ethylene and more than half of a million tons of polyethylene - are the record production parameters. In a whole, the rate of production growth in compa-rable prices made 106.7% to the level of 2007. Sales made RUR 23.5 bln, we have got profit from sales in the amount of RUR 1.8 bln.

Production of new HDPE grades, pipes from the polyethylene of PE-100 grade of own production are developed, new types of products such as polycar-bonate, butane-1, and carbon dioxide production is started. Recertification of the Integrated Quality Management Sys-tem and Environmental Management of OJSC Kazanorgsintez is successfully passed, confirming compliance of the management system of the Company to International Standards ISO 9001:2000 and ISO 14001:2004.

Lowering environmental impact is the priority activity for OJSC Kazan-orgsintez. In 2008, in accordance with the ecological policy we have performed the activities aimed at reduction of pollutant emissions into the atmosphere, reducing the volume of wastewater discharge, re-duction in waste production.

We have done a lot, though not all the scheduled plans and objectives were achieved in the reporting year. World fi-nancial crisis didn’t let us perform high financial results. As a result of the sharp increase in USD and Euro rate, negative exchange differences on foreign loans made almost RUR 3 bln. by the end of the year, consequently the Company has got the negative financial result for the year 2008 in the amount of RUR 2.7 bln.

Summing up the results of the past year, I can say that nowadays our goal is not just to overcome the current diffi-cult economic situation, but to keep the achieved growth rate, confirming our po-sition as the one of the leaders of the pet-rochemical industry of the country.

On behalf of the Management Board of the Company and personally from my-self I thank all the shareholders for the giv-en support, employees for the profitable work, and partners for their confidence, and hope for productive cooperation in future!

General DirectorOJSC Kazanorgsintez

l. s. Alekhin

MEssAGE FROM GENERAl DIRECTOR MEssAGE FROM GENERAl DIRECTOR

Dear shareholders, colleagues and investors!

5 years have passed through from the moment when OJSC Kazanorgsin-tez together with PSC TAIF embarked on performance of the large scale De-velopment program, aimed at upgrad-ing existing and building new plants. In accordance with the Program, High density polyethylene plant was up-graded, which increased the capacities

at 2.5 times and started production of new grades of linear and bimodal polyethylene. Phenol-acetone produc-tion unit is upgraded. New Bisphenol A and Polycarbonate plants are put into operation. With the launch of the Poly-carbonate plant, we have completed the first stage of the Development pro-gram.

10

ABOUT THE COMPANY

11

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

MIssION AND sTRATEGY

Mission

MAIN HIGHlIGHTs OF ACTIVITY

Our purpose is to be the best in the Russian market of chemical goods, to meet high world standards in dealing with our business partners, investors, employees, society and environment.

We are achieving and will achieve performance of the tasks put to us by shareholders due to professionalism and introduction of new technolo-gies.

OJSC Kazanorgsintez in mutual relations with business partners, con-sumers, financial and public institutions strictly adheres to the principles of busi-ness ethics, considering its reputation as one of the most powerful assets. Con-structive partner relations with suppli-ers, buyers, authorities and all interested groups of society are supported.

The guarantee of the enterprise suc-cessful development and business pros-

perity are people, therefore OJSC Kazan-orgsintez aspires to create the corporate environment in which each employee can realize professional opportunities with the utmost advantage for the Company. We provide our employees with the good working conditions and worthy material compensation.

The main directions for investments are up to date know-how introduction and our own scientific developments for sufficient and constant Company’s profit-ability increase.

OJSC Kazanorgsintez provides the level of the industrial and ecological safety exceeding legislation’s requirements and makes the best efforts for maximum im-provements of the environment and hu-man health.

№ Parameters Units 2006 2007 2008 2008/2007

1 Commodity output RUR,mln. 15,648.3 21,273.8 23,243.3 109.3%

cost RUR mln. 11,745.0 17,471.3 21,894.5 125.3%

index of physical volume % 104.3 128.5 106.7 83.0%

2 Revenues from sale RUR mln. 15,621.9 21,455.5 23,468.8 109.4%

incl. export RUR mln. 2,815.2 5,819.9 5,848.4 100.5%

cost RUR mln. 11,841.4 17,494.3 21,642.8 123.7%

profit RUR mln. 3,780.5 3,961.2 1,826.0 46.1%

profitability % 24.2 18.5 7.8 42.0%

3 Taxes (charged) RUR mln. 34.2 397.6 294.6 74.1%

4 Net profit (loss) RUR mln. 2,209.0 2,603.5 (2,796.6) -

5Depreciation of the industrial group fixed assets

RUR mln. 586.6 971.0 1,485.0 152.9%

6 Own capital RUR mln. 11,120.2 13,099.7 9,528.3 72.7%

7Capital investments (without stock of equipment in the warehouse)

RUR mln. 9,704.5 10,956.3 10,121.4 92.4%

8 liabilities RUR mln. 17,173.9 25,560.3 35,412.0 138.5%

9 Accounts receivable RUR mln. 3,681.5 2,660.0 1,494.7 56.2%

10 Average personal number employees 8,072 8,525 8,946 104.9%

11 Average salary RUR / month 16,739 20,531 23,613 115.0%

StrategyIncreasing the production capacities of the existing products and production of new ones;

Increasing production with the high added value;

Increasing efficiency by optimization the parity of domestic and export sales;

Increasing efficiency by reduction of expenses;

Financing base diversification;

Energy-saving technologies implementation;

Raw-material base diversification.

12

ABOUT THE COMPANY

13

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

MAIN RIsK FACTORs MAIN RIsK FACTORs

Risks listed below can render the negative influence on OJSC Kazanorgsintez’s activity.

Country and regional risks

The risks connected with activity of the companyIndustry risks

The enterprise is registered as the taxpayer in Moscow and carries out its primary activity in Kazan. The economic situation in Russia for the last several years was stable. Such positive tendencies as: GDP growth, national currency stabilization, real level of wages growth were registered. In 2008, Russia like many other countries was covered with global finan-cial crisis. Gold-value reserves declined by 10.8%, in-flation made 13.3% (the highest level during the last 5 years). In the fourth quarter capital outflows started, and exchange rate depreciation took place. The credit rating of Russia as of the end of 2008 in a foreign cur-rency on the international scale made by the data of: Standard&Poor’s - BBВ; Fitch - BBB+; Moody’s – Baa1.

Economic and political instability in Russia can negatively influence on OJSC Kazanorgsintez’s activity.

The geographic risks are insignificant, since the location of the enterprise is characterized by absence of the increased danger of acts of nature, and pres-ence of traffic intersections and ways of communica-tion excludes inaccessibility of the enterprise for sup-pliers and consumers.

The risks related to possible change of prices for raw materials, and services used by the company

Raw materials and energy expenses have the greatest relative density in the structure of chemical industry expenses. Prices for the main raw materials are the subject to the world oil prices influence in different extent. Propane-butane and benzene fall under the strongest influence.

The decision of questions connected with OJSC Kazanorgsintez raw materials supply is being promoted: by closer cooperation with OJSC Gazprom group of companies, and enterprises of oil-and-gas chemical complex of Tatarstan Republic on mutually advantageous conditions; and also a policy of Tatarstan Republic country leaders, directed to the active state support of the whole oil-and-gas chemical complex of the Republic. Provision of the enterprise with the electric power is carried out by OJSC Tatenergo from two power sources of: Thermal Power Stations-2 and Thermal Power Station-3, which are interconnected and have connections with power grid of Russia . The heat supply is carried out by Kazan Thermal Power Station-3 and also by own heat sources. The enterprise uses basically local sources of resources, works, and services in its activity.

The risks related to possible change of prices for company’s products in the domestic market

High quality of OJSC Kazanorgsintez’s products allows establishing prices up to the level of the world prices without reduction of the sales volumes during many years. Production costs and market conjuncture are considered for price level definitions. Competitive struggle of the companies and aspiration for increasing the share in the Russian market influence the market prices.

The risks related to production process

OJSC Kazanorgsintez’s industrial activity is in-terfaced with adverse factors possibility, including equipment failure, carrying out of not planned works for repair and, as consequence, industrial parameters decrease below the expected level. Considering it, the automated control system of technological processes is being installed at the enterprise. In full and in time scheduled preventive, current and major overhauls of production assets are carried out. Certificates of con-formity are received for: Quality Management System GOST R ISO 9001-2001 (ISO 9001: 2000); Environmen-tal Management System ISO 14001: 2004; Integrated Management System ISO 9001 and ISO 14001.

The risks related to licenses effect

For the activity in the field of production and use of natural resources OJSC Kazanorgsintez receives the licenses, permitting such activities. In major cases the possibility of license withdrawal is provided if re-quirements of license agreements are not carried out. OJSC Kazanorgsintez aspires to fulfill all requirements of license agreements.

Environmental risks

OJSC Kazanorgsintez’s activity is interfaced with the potential danger of environment pollution or causing damages to it. The ecological policy of the Company is approved at OJSC Kazanorgsintez; cer-tificates of Environmental Management System are received. The scheduled nature protection activities are carried out to prevent the adverse impact of the operating units on the environment.

The effects of the global financial crisis had a negative impact on Company’s prices. In the 4th quarter of 2008 prices for Company’s products fell down, while prices for purchased raw materials were not managed to reduce as much in this period. Consumers’ expectations for the further price reductions for OJSC Kazanorgsintez’s products led to fall in demand and as a result to sales decrease in this period.

However, the situation has stabilized at the moment.

The risks related to influence of the world prices conjuncture for exported products

The part of OJSC Kazanorgsintez’s products is exported. The policy of export contracts provides the conclusion of contracts up to 1 year. The prices for products are established according to deliveries conditions in each concrete country. These prices can feel fluctuations under influence of the factors which are not controlled by OJSC Kazanorgsintez.

14

ABOUT THE COMPANY

15

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

MAIN RIsK FACTORs MAIN RIsK FACTORs

legal risks Insurance risks

The risks related to the change of the Customs control and duties rules

In view of purchasing import equipment and delivery of products for export, there is a risk of the state customs regulation change that can affect to OJSC Kazanorgsintez’s expenses.

Taxation risks

The risk consists in products’ cost price increase in case of increase in tax rates or unanticipated taxa-tion.

The risks related to judiciary practice change

The questions connected with OJSC Kazan-orgsintez’s activity and capable to affect the results of the current disputes of OJSC Kazanorgsintez with the third parties, are significant, since because of the world financial crisis there are some difficulties with restructuring of OJSC Kazanorgsintez’s accounts pay-able, and there is a possibility for counterparties to apply to the judiciary.

Insurance industry in the Russian Federa-tion is at the formation state, and different forms of insurance protection generally accepted in more economically developed countries, are not yet widely applied in the Russian Federation on comparable conditions, including coverage at economical activity stop. OJSC Kazanorgsintez insures the main working production facilities and equipment, including non-life insurance because of damage and environmental affect of the event of an emergency at the Company’s production facilities or connected with the Compa-ny’s activity. However, OJSC Kazanorgsintez doesn’t have the coverage of production activity stop and profit loss. If the event of an emergency takes place at the production facilities of the Company, from which the Company is not insured or is partially insured, it can affect adversely on the Company’s work results from the material point of view.

In case of occurrence of one or several risks listed above, OJSC Kazanorgsintez will take all possible measures on reduction of developed negative changes at the enterprise. At the moment, definition of the full list of specific actions at any risk is not obviously possible, because elaboration of adequate measures is complicated with uncertainty of situation development in the future. Parameters of held actions will depend on features of the situation in each specific case. OJSC Kazanorgsintez cannot guarantee, that the activities directed to the arisen negative changes overcoming, will lead to essential change of situation.

The risks related to inflation in Russia

At the inflation rate increase the national cur-rency depreciation and prices increase are taking place. The increase in the rates of price rise can lead to the growth of the enterprise’s expenses (due to the price rise for energy resources, raw material, and materials), growth of the borrowing funds costs, and can become the reason of profitability parameters decrease. Therefore, in case of significant excess of the inflation actual parameters over forecasts of the Russian Federation Government, the management of the Company plans to take actions on restriction of expenses growth, decrease of accounts receivable and reduction of its average terms.

Currency risks

The part of the produced goods is exported; therefore the enterprise is the subject of the cer-tain currency risk. Main Company’s expenses are measured in rubles, whereas the revenues from ex-port sales in ruble equivalent increase with the rate growth and decrease with the rate reduction. The share of export sales by the end of 2008 made 25%, terms of delivery – upfront payment basically. At the same time, the Company has borrowings in foreign currencies. With the devaluation of the national cur-rency the Company’s debt increases, which could lead to profit decrease.

Interest rates risk

The enterprise has long-term borrowings de-nominated in foreign currency and in rubles, with floating and fixed interest rates. Great instability at fi-nancial market leads to interest rates growth, and has a negative influence on the Company’s profitability.

Financial risks

16

ABOUT THE COMPANY

17

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

February

June

October

November

December

August

September

April

May

KEY EVENTs OF THE YEARKEY EVENTs OF THE YEAR

Centrifugal air compressor of Cooper’s compa-ny (USA) was put into operation to meet the needs of BFA, Polycarbonates plants, and other renovation production units.

Water-polo team “Sintez” won a nomination “The best team of the year” in Tatarstan Republic, a coach of the team Vladimir Zaharov was recognized as the best coach of the year.

Certificate for completion of the guarantee test run to confirm capacity and quality of the BPA product in accordance with relationship under the License Agreement between IDEMITSU KOSAN CO., LTD. and OJSC Kazanorgsintez was signed.

Water-polo team “Sintez” won the silver prize of the water-polo Championship of Russia in 2007-2008 seasons.

The first tones of the final product - necessary raw material used in production process at new Poly-carbonate plant – were produced at the new liquid carbon dioxide unit at Organic Products plant.

New Polycarbonates plant was put into operation.

OJSC Kazanorgsintez has celebrated its 50th anniversary since the beginning of construction, and 45th anniversary since the first products output.

OJSC Kazanorgsintez annual report was recog-nized as the best one at the annual reports’ contest in nomination “The best presentation Annual report for 2007”. The contest was organized by IC “Artcentu-rious” and Euroland Investors AB.

Federal Service for Ecological, Technologi-cal and Atomic Supervision highly appreciated the achievements of OJSC Kazanorgsintez, and the first time in the history of the Company’s activities it awarded a Diploma for the ongoing work for indus-trial safety improvements, new technologies devel-opment, and production modernization, increase of reliability and safety of the production facilities of the Company.

OJSC Kazanorgsintez accomplished the pay-ment for the note of Eurobond loan. The payment amount made $ 9.25 mln. The payment was arranged for the benefit of Paying and Transfer Agents and the Trustee The Bank of New York, London Branch, according to the schedule in corpore.

The external audit of the working Integrated Quality Management and Environmental Manage-ment System has been carried out by OJSC VNIIS experts aimed to recertification of the system. As a result it was confirmed that the working Integrated Quality Management and Environmental Manage-ment follows the requirements of GOST R ISO 14001: 2007 (Environmental Management) and GOST R ISO 9001-2004 (Quality Management).

OJSC Kazanorgsintez produced the 10th million ton of ethylene. The 1st ethylene production unit was put into operation in January 1965.

A planned external inspection control (audit) of the Integrated Management System has been carried out by VNIIS’ Experts (Moscow) to confirm the compliance of the system with the requirements of GOST R ISO 9001-2001 (ISO 9001:2000) and ISO 14001:2004. As a result of the audit held, it was de-clared that in general the Integrated Management System of OJSC Kazanorgsintez with respect to de-sign, manufacture and supply of organic synthesis products, mineral products (gas and basic materi-als), polymers, plastics and products made from them, follows the requirements of GOST R ISO 9001-2001 (ISO 9001:2000) and ISO 14001:2004.

OJSC Kazanorgsintez has hold the pilot tests of the new bimodal polyethylene composition grade PE2NT11-285D, resulting in the opportunity of bi-modal polyethylene grade PE2NT11-285D process-ing into thin-walled products with the blow mold-ing method.

OJSC Kazanorgsintez annual report was recog-nized as “The best annual report of the issue at Volga Federal district” according to the results of the XIth Annual Federal Contest of annual reports and web-sites. 159 companies participated in the contest.

Academy of Sciences of Tatarstan Republic to-gether with the Republican Board of inventors and innovators society have summed up the results of the contest among industrial enterprises of the Re-public “The best invention of the year”. The first place was given to the invention “High density polyethyl-ene production method”, which was developed and implemented at OJSC Kazanorgsintez.

OJSC Kazanorgsintez trademark № 132767 “Laddya” was awarded with the 2nd place in the re-gional stage of the All-Russian contest of trademarks Zolotnik -2008 in nomination “legal protection”. The trademark is valid from 1972 for the product labeling.

On the 26th of December 2008 due to the ces-sation of electricity supply the stop of production was generated at OJSC Kazanorgsintez because of the accident at the Thermal Power Station 3 (OJSC Tatenergo).

OJSC Kazanorgsintez took place in the Xth International exhibition “Energy. Resources safety 2008”, and in the IXth International Symposium “Energy resources efficiency and energy safety”. According to the results of the contest OJSC Ka-zanorgsintez was awarded with the Gold Diploma for presented “MolClean” technology in the cooling systems of chemical, and petroleum and refining industries; and with the Gold Diploma for “polycar-bonate” in the nomination “Production with new or improved characteristics in the section of fuel ener-gy resources and other material resources discharge intensities minimization”.

OJSC Kazanorgsintez’s products were award-ed with the titles of the laureates of the contest “100 best goods of Russia”:

- bisphenol A;- bimodal high density polyethylene composi-

tion type PE100 grade PE2NT11-9; - technical butyl cellosolve.Bisphenol A and polyethylene grade

PE2NT11-9 has got the status “Novelty of the year”.

18

ABOUT THE COMPANY

19

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

RUssIA AND TATARsTAN REPUBlIC ECONOMY REVIEW RUssIA AND TATARsTAN REPUBlIC ECONOMY REVIEW

In 2008, the rate of gross domestic product (GDP) growth has made 5.6% against 8.1% in the year earlier. The most significant growth rates decline took place in construc-tion, transport, and industrial produc-tion. The volume of GDP of Russia, ac-cording to preliminary estimation, has made RUR 41.5 trln. (or $ 1.4 trln., ac-cording to the rate exchange as of the end of the year).

The amount of gold re-serves of the Russian Federation has reduced by 10.8% and made $ 427 bln. as of January 1, 2009. The amount of the Reserve Fund made $ 137 bln. The amount of the Fund of National Welfare made $ 88 bln. Thus, the total amount of the mentioned funds increased dur-ing 2008 by 72% and amounted to 15.5% of GDP, or $ 225 bln.

Consumer inflation during 2008 made 13.3%, which is the high-est parameter since 2002. Consumer inflation strengthening in comparison with the last year (11.9%) occurred prior till October, and was identified by two groups of factors. External – food prices increase; a jump in the world oil, fertilizers, and other products prices

in 2008. Internal – intensive growth of the solvent demand of population dur-ing the last two years; rapid increase in budget spending; strengthening of inflation costs influence, first of all due to high growth of prices for agricultural raw materials, fuel, and other material recourses, and also of labor payments.

Leading role in the level of infla-tion growth in 2008 in Russia, as well as in other countries, played an increase in world food prices from the second half of 2007.

Average monthly salary across the RF in 2008 according to preliminary estimation made RUR 17.1 th., and grew by 25.5% in comparison with 2007. Average monthly salary across RT in 2008 made RUR 14.8 th., and grew by 26.3% in comparison with 2007. The number of the permanent population of the Russian Federation as of December 1, 2008 made 141.9 million of people. The decrease in comparison with the beginning of the year made 117.4 thousand of people. In general, for the year 2008 the total number of unemployed people made 4.8 million, increased by 4.3% in com-parison with 2007.

Export of goods according to the Russian Ministry of Economic De-velopment estimation made $ 471 bln. in 2008 and increased by 33% in com-parison with 2007 (in 2007 – by 17%). Export increase has occurred due to growth of prices with the reduction of physical volumes. Export increase as a whole was determined with oil prices growth, above all - at 1.4 times, despite of physical volumes reduction by 6%, and also with significant growth of pe-troleum and natural gas export amount, as due to price growth at 1.5 times, as due to physical volumes increase by 5% and 1.8% accordingly. Export amount of the chemical industry products has grown up sufficiently (145.5%), includ-ing fertilizers – at 2.1 times entirely due to price growth.

Import of goods according to the Russian Ministry of Economic Development estimation made $ 292 bln. in 2008 and increased by 30% in comparison with the same period of the last year (in 2007 – by 36%). The share of machinery and equipment in the import structure in 2008 contin-ued to increase in comparison with the same period of the last year; their rates of growth (138%) were ahead of the rate of import growth as a whole. Im-port of raw non-energy commodities increased by 27%.

Trade balance surplus ac-cording to the Russian Ministry of Eco-nomic Development estimation made $ 179 bln. in 2008 and increased by 37% in comparison with the same period of the last year.

In 2008, investments into fixed capital increased by 9% in comparison with 21% increase in 2007. The determining factor in the invest-ments growth was financing the con-struction of buildings and structures. Investments into fixed capital accord-ing to the Russian Ministry of Economic Development estimation made RUR 8.6 trln. in 2008.

Industrial production has grown up by 2.1% during 2008 in com-parison with the same period of the last year. Due to the fall of the world prices for the raw-material resources and shortage of consumers’ working capital since September 2008 deflation took place in industry. During September-December prices fell down by 24.9% on average, and as a result of the year price index in industry made 93%.

Index of chemical produc-tion made 96% in 2008 to the level of 2007, in December - 71% (to the level of December 2007). The decline of cer-tain types of chemical products to the level of production in 2007 made:

- synthetic resins and plastics - 96.1% (including: PVC resins and co-polymers of vinyl chloride - 98.6%, polystyrene and copolymers of sty-rene - 96.6%, polypropylene - 86,2%);

Positive dynamics was demon-strated by polyethylene production – growth by 2.1%, and resins and plas-tics – growth by 12.5% to the level of 2007.

Economic development in Russia was uneven in 2008. Until mid-2008 due to record export prices for energy and other commodity resources, Rus-sia’s economy was developing dynamically. Since the beginning of the sec-ond half-year the developing world financial crisis has negatively influenced the economic development of Russia.

20

ABOUT THE COMPANY

21

AN

NU

Al

REPO

RT` 2

008

PART

I

contents

RUssIA AND TATARsTAN REPUBlIC ECONOMY REVIEW

Indicators (in % to the last year) 2006 2007 2008

GDP 107.4 108.1 105.6

Index of consumer prices to the level of December of the last year

109.0 111.9 113.3

Index of industrial production 103.9 106.3 102.1

Investments into a fixed capital 113.7 121.1 109.1

Export of goods 124.7 116.8 132.8

Import of goods 131.3 136.0 130.4

Indicators

Exchange rate as of December, 31st RUR./$ 26.33 24.55 29.38

Exchange rate as of December, 31st RUR /Euro 34.70 35.93 41.44

The average price for oil grade Urals $/barrel 61.1 69.3 94.4

Main indicators of economic development of Russia

The material is prepared according to the data of the Ministry of Economic Development and Goskomstat of Russia

The gross regional prod-uct in Tatarstan Republic (GRP) in 2008 made RUR 930 bln., which is by 25.7% more in comparison with 2007. GRP share in GDP of Russia made 2.2%. Index of industrial production across Tatarstan Republic made 104.3%. In 2007 it was 108.8%.

According to “Expert RА” rating, the Republic is stably included in the list of ten Russian regions with the least investment risks and according to the results of 2007-2008 in the general rat-ing of Russian regions is placed among the “supporting regions-leaders”.

The investment climate in Russia and Tatarstan Republic is quite stable, which is confirmed by the international rating agencies data:

The long-term credit rating of the Russian Federation on the in-ternational scale as of the end of 2008 is determined by Standard & Poor’s agency at the level BBB, Moody’s agency – Ваа1, Fitch Rat-ings agency – ВВВ+.

The long-term credit rating of Tatarstan Republic on the inter-national scale as of the end of 2008 is determined by Standard & Poor’s agency at the level ВВ, Fitch Ratings agency – BBB-.

The basis of arachnoid and caterpillar silk is not dis-solving in water fibroin consisting of a complex aggregate of albumins, alpha alanine and glutamic acid. According to physical properties, arachnoid threads differ from caterpil-lar and artificial silk in greater durability. Thus, a breaking strength (kg/1 mm2) of the spider-web varies from 40 to 261, and that of caterpillar and artificial silk doesn’t exceed 43 and 20 respectively. The web has antibiotic properties, particularly the web used for making a cocoon to protect eggs from baneful bacteria and mycelial fungi. If necessary a spider can secrete a sticky or dry thread of a definite thickness and colour. Orb web weavers (family Tetraganthide) use a dry (not sticky) thread to make a cocoon, to build vertical wheel-shaped snares. The last of such threads stretch the frame of the web and its internal radiuses. The basis of the sticky thread is double silk fibers covered with a layer of mucin. Soon after these threads have been formed, the sticky layer is fragmented as a result of surface tension making the tiniest drops (like a string of small beans). This sticky surface is short-lived and loses its proper-ties drying out. So, most of spiders spinning such silk webs have to renew the sticky thread from time to time.

22

ABOUT THE COMPANYcontents

PART II

PRODUCTION ACTIVITY

Production and the cost of products

Industrial structure of OJSC Kazanorgsintez

Ethylene plantLDPE plantHDPE plantOrganic products plantBPA plantPolycarbonates plantNOC plantPHMO plantAuxiliary divisions

Development of technologies and branded assortment

Quality Management System

Resources effectiveness

Nature protection activity and industrial safety

Personnel management

Social field

Antlat. Formicidae – the family of social insects, the superfamily Formicoidea

contents

PART

II

THE INTEGRATED sCHEME OF PRODUCTION

The ant family (Formicidae) is the largest insect family. In all the family numbers up to 6 000 species of ants, but, taking into account the fact that every year new species and genera are still described, this quantity can be much higher. A specific character in which ants differ from other Hymenoptera is a thin petiole of one or two segments between a thorax and an abdo-men. All the rest Hymenoptera have an abdomen joined straight to a thorax. All ants without exception are social insects.

The ant family is a perennial, efficient community of individuals consisting of males and females, and worker ants – ergates – which are undeveloped, non-reproductive females. The life-span of a female ant is maximal for the world of insects – up to 20 years.

The ant family lives thanks to food exchange. Food exchange, or trophallaxis, involves all members of the family without exception. The components of the given food are natural 4-hydroxy-2-acylcyclohexane-1,3-diones and enzymes produced by ants on the basis of 2-tetradecanoyl-, 2-hexadecanoyl- and 2-octadecanoyl-4-hydroxycyclohexane-1,3-diones. A changed content of different ferments in the food chain can speed up or, vice versa, hold back the growth and development of young ants, stimulate adult ants (imagoes) to move to one or another occu-pational (functional) group.

Ants and termites use organic acids, spirits, terpenes as signs to mark out a territory and lay roads. For the same purpose isomers of citral (neral and geranial) and heptane-2-ol are used.

27

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

PRODUCTION AND THE COsT OF PRODUCTs

In 2008, commercial output in the amount of RUR 23,243 mln. was produced, that is by RUR 1,969 mln. or by 9.3% more than in 2007. The total commercial out-put increase was positively influenced by the volume of production growth (6.7%) and price increase (2.6%).

Total expences for commercial output produc-tion increased in the reporting year by RUR 4,424 mln. (or by 25%) in comparison with the last year and made RUR 21,895 mln. Production cost growth occurred at all kinds of expenses. The increase in the cost of production basically was influenced by the volumes growth and rise in prices of purchased raw materials

and energy resources. Ethylene prices increased by 13.3% on average, ethane prices – increase by 13%, propane-butane prices – by 20.5%. In comparison with 2007, heat energy prices grew by 32.1% on aver-age, electricity prices – by 27.2%. In general, expences for raw material and energy resources acquisition in-creased by RUR 2,587 mln. or by 20.4% in comparison with 2007.

Cost per ruble of commercial output increased by 14.7% and made 94 kopecks.

Structure of commercial output

in tons RUR mln.Cost of commercial output

Maximum specific weight in the cost of commercial output took expenses for: raw materials - 56.3%, energy from the third party – 13.3%, and salary and social expenses – 12.1%.

Name of expenses 2006 2007 2008 2008/2007

Raw materials 6,692 10,586 12,331 116%

Energy from the third party 1,514 2,071 2,913 141%

salary and social expenses 1,748 2,240 2,646 118%

Production services 312 419 422 101%

Fixed assets depreciation 546 923 1,411 153%

Other expenses 933 1,232 2,172 176%

Total expenses for production 11,745 17,471 21,895 125%

PRODUCTION AND THE COsT OF PRODUCTs

Gross output volume of the main kinds of products

In 2008, total production capacities of the Company made 1,411 thousand tons of organic synthesis products, that is by 4.2% higher than the level of the last year. Production capacities utilization increased by 6.2% in comparison with 2007 and made 87%. The volume of production increased in all main products.

Product 2006 2007 2008 2008/2007

Ethylene 318,304 350,070 410,111 117%

Phenol 24,491 53,538 53,952 101%

Acetone 15,355 34,160 34,603 101%

lDPE 181,836 197,835 203,127 103%

HDPE 208,250 302,492 321,610 106%

Ethylene oxide 38,455 36,349 45,606 126%

Pipes and poly-ethylene details 27,723 30,515 32,341 106%

Glycols 52,117 37,120 44,527 120%

Ethanolamines 11,963 12,536 14,366 115%

Bisphenol A - 2,388 36,069 1511%

Polycarbonate - - 3,650 -

21 273,8RUR mln.

23 243,3RUR mln.

2007

2008

28

PRODUCTION ACTIVITY

29

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

Ethylene plant

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

Ethylene plant is the first in the technological chain of conversion of OJSC Kazanorgsintez. In 2008, phenol production unit was removed from the struc-ture of Ethylene plant and transferred to BPA plant.

The main products of the plant are: ethylene, and propylene.

The process of gas separation takes place at four production units with the total capacity of 430 th.tons of ethylene and 59.3 th.tons of propylene a year. The main raw materials for the products of the plant are: ethane, and propane-butane.

The produced ethylene is transferred to LDPE, HDPE and Organic products plants for the further processing. Due to the higher profitability, polyethylene productions have the priority in raw material maintenance.

In 2008, there were produced 410.1 th.tons of ethylene (it’s a record amount). The growth made 60 th.tons or 17.2% relatively the same parameter of 2007.

Production growth was provided by increase in eth-ane supply. Ethylene production capacities utilization made 95.4%.

Much of propylene produced is directed to phe-nol and acetone production (BPA plant), the rest is sold outside.

In the reporting year, the total propylene produc-tion made 32.2 th.tons that is lower by 2.9 th.tons, or by 8.3% than in the last year. The reason of propylene pro-duction decrease was decrease in processing of pro-pane-butane fraction in ethylene production unit. Pro-pylene production capacities utilization made 54.3%.

Relative share of the plant’s products in the commercial output of OJSC Kazanorgsintez made 1%.

Number of the personnel by the end of the reporting year made 873 people.

lDPE plant

Relative share of LDPE plant’s products in the commercial output of

OJSC Kazanorgsintez made 26%. Number of the personnel by the end of the reporting

period made 618 people.

The products of the plant are various grades of low density polyethylene and also compositions of LDPE. Ethylene is the main raw material.

Low density polyethylene is used in production of food and technical films, isolation.

The products are supplied to the market under the trade mark “Kazpelen”.

The structure of the plant consists of two separate production units with the total production capacity 205 th.tons of products a year.

In 2008, there were produced 203.1 th.tons of products (it’s a record amount), that is by 5.3 th.tons or by 2.7% more than in 2007. Growth of production vol-umes mainly was provided by stable raw material sup-ply. Production capacities utilization made 99.1%.

The plant for production and processing of high density polyethylene (HDPE) consists of two production units:

1. HDPE production

The plant produces HDPE grades for the dif-ferent purposes: pipe, molding, cable, extrusion, blown grades. Advanced technological lines of the plant allow producing bimodal and linear structure polyethylene. Ethylene is the main raw material at HDPE production.

Pipe grades of polyethylene are transferred to plastics production and are shipped to third parties; other grades are in full shipped to the consumers.

The products of the plant are supplied to the market under the trade marks “Kazpelen” and “Pal-lant”.

There were produced 321.6 th.tons of polye-thylene in the reporting year. That is another record, achieved due to the stable work of the modernized equipment and necessary raw material supply. Pro-duction growth made plus 19.1 th.tons or plus 6.3% relatively 2007. Production capacities utilization made 97.5%.

2. Plastic products production

Using modern technologies and equipment al-low producing pressure and gas pipes of different di-ameters, as well as connecting details to them (fittings). Polyethylene pipes are applied in gas supply and water supply systems, sewage systems, and systems of pro-cess piping.

In 2008, there were produced 32.3 th.tons of polyethylene pipes and details to them (it’s a record amount). In comparison with the amount of 2007 the growth made 1.8 th.tons or 5.9%. Production capacities utilization in the reporting year made 64.1%.

HDPE plant

Relative share of HDPE plant’s products in the commercial output of

OJSC Kazanorgsintez made 50%.Number of the personnel by the end of the reporting year

made 818 people.

lDPE plant

HDPE plant

30

PRODUCTION ACTIVITY

31

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

ORGANIC PRODUCTs plant

Ethylene is used as the basic raw material for pro-duction.

Quite wide range of produced chemical products (more than 50 denominations) allows modifying the assortment, versus the existing demand at the mar-ket.

The plant produces ethylene oxide and products on the basis of ethylene oxide: glycols, ethanolamines, textile-auxiliary substances and modifiers, demulsifi-ers, peroxides, cooling liquids and other.

Glycols are used for antifreeze production, in the manufacture of polyesters (as for polyester fibers and yarns production, as for bottle polyethylene terephtha-late production); they are also used by transmission and gas companies for gas dehydration.

Ethanolamines are used in oil and gas industry for gas purification from acid and sulfur-containing organic compounds, for ethylenediamine, ethylene amine, corrosion inhibitors productions, and also in perfumery products production.

Oil demulsifiers, corrosion inhibitors and paraffin sediments are used by oil-extracting enterprises for oil-water separation, for increase of layers petrofeed-back and drilling equipment protection.

Textile-auxiliary substances: stearoxes, oleoxes, oxamines, oxethylene fat acids are used in woolen, cotton, silk, artificial fibers production, imparting the fiber processability, antistatic character, modifying its structure, increasing strength characteristics.

Cooling liquids are intended for application in cooling systems of heat exchanging devices and en-gines of internal combustion.

In 2008, there were produced 62.6 th.tons of products. The growth of production made 3.5 th.tons or plus 5.9% in comparison with the last year. Produc-tion capacities utilization made 64.3%.

The structure of commercial output of Organic products plant consists of: glycols - 53.7%, ethano-lamines – 30.5%, demulsifiers – 10.4%, other prod-ucts – 5.4%.

Relative share of Organic products plant’s products in the commercial output of OJSC Kazanorgsintez made 9%.

Number of the personnel by the end of the year made 684 people.

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

BPA plant

Bisphenol A (BPA) plant consists of two separate production units:

1. Phenol and acetone production unit (was moved to BPA plant structure in 2008)

Benzene and propylene are the main raw materi-als for phenol and acetone production.

Phenol is used in the industry for production of caprolactam, bisphenol A (diphenylpropane), medical preparations, synthetic resins, softeners, herbicides, lu-bricating oils and additives to them.

Acetone is used in acetic anhydride, acetonecyan-hydrine, bisphenol A, paints, and solvents productions

Production capacities of production unit made 65 th.tons of phenol and 41 th.tons of acetone a year.

In 2008, the volume of production was: 54 th.tons of phenol, and 34.6 th.tons of acetone, which corre-sponds to 84% of capacity utilization. Phenol produc-tion increased by 0.41 th.tons (+0.8%), acetone produc-tion increased by 0.44 th.tons (+1.3%) in comparison with 2007.

The sufficient part of produced output is used at bisphenol A production. In 2008, 32 th.tons of phenol and 10 th.tons of acetone were supplied by bisphenol A production, the rest of the products were sold to con-sumers.

2. Bisphenol A production Bisphenol A is applied for optical, molding and

extrusion polycarbonate production; polysulfones, ep-oxy resins, varnishes and glues.

Bisphenol A production was constructed in 2007, and in October 2007 the first batch of commercial out-put was produced.

There were produced 36 th.tons of bisphenol A in 2008, which is by 33.7 th.tons more than in 2007. 7 th. ons were supplied by polycarbonates production, the rest was sold to consumers.

Production capacities utilization in the reporting year made 52%.

Relative share of BPA plant’s products in the commercial output of OJSC Kazanorgsintez made 11%.

Number of the personnel by the end of the reporting year made 518 people.

32

PRODUCTION ACTIVITY

33

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

POlYCARBONATEs plant NOC plant

The year of 2008 became the year of putting into commercial operation a new production for Russia. The first batch of commercial polycarbonate was produced in October 2008.

The main product of the plant is polycarbonate, which is linear polyester of coal acid. Ethyleneglycol is a by-side product at polycarbonate production.

Bisphenol A, ethylene oxide, and carbon dioxide are used as raw materials for polycarbonate produc-tion.

Polycarbonate is intended for the manufacture of construction products, and electric supplies, used in machine building, radio, lighting, electrical, electronics, construction, manufacture of optical products, CD and DVD discs, as well as in other industries, including the manufacture of products that come into contact with foodstuffs and drinking water.

In 2008, there were produced 6.7 th.tons of com-mercial output, including: 3.6 th.tons of polycarbonate, and 3.1 th.tons of ethyleneglycol.

Relative share of the plant’s products in the commercial output of OJSC Kazanorgsintez made

1% in the reporting period. Number of the personnel by the end of the reporting year

made 391 people.

The main products of the plant are compressed air, liquid and gaseous nitrogen, liquid and gaseous oxygen, and gaseous argon. In addition, the plant pro-vides the main production units of OJSC Kazanorgsin-tez with the energy resource “cold”, which is antifreeze with a temperature -4 and +7 Celsius degrees, circulat-ing in the pipes for removing heat generated in the mechanisms and devices.

Sufficient amount (about 90%) of the plant’s products are supplied by the other plants and divisions of the enterprise.

Oxygen, nitrogen, and cold are shipped to con-sumers.

Relative share of NOC plant’s products in the commercial output of

OJSC Kazanorgsintez made 0.3%.

Number of the personnel by the end of the year made 336 people.

INDUsTRIAl sTRUCTURE OF OJsC KAZANORGsINTEZ

PHMO plant

Plant for preparation and holding major over-hauls (PHMO) carries out preparation and performance of routine and major overhauls of industrial equipment in all divisions of the enterprise. The basic kinds of works: repair of process equipment, pipelines, thermal insulation, buildings and constructions, production of the equipment and metal constructions; mounting and dismantling of the equipment at modernization and reconstructions.

The amounts of works which are carried out by PHMO plant constitute 10% in the structure of the re-pair fund.

Alongside with PHMO plant maintenance works are carried out by the repair departments of the main plants, repair workshops and contractors. The amount of works which are carried out by the third parties made 27% of repair fund.

Auxiliary divisions of the enterprise provide the technological process of the main productions with material and power resources, mobile and rail trans-port, warehouse facilities, execute maintenance of buildings and equipment, are engaged in processing of polymeric waste, production of polypropylene bags, and also carry out quality analysis of products and monitoring of the environment.

Number of personnel by the end of the reporting period made 547 people.

The total number of personnel of auxiliary divisions by the end of the reporting period made 2 729 people.

AUXIlIARY DIVIsIONs

34

PRODUCTION ACTIVITY

35

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

DEVElOPMENT OF TECHNOlOGIEs AND BRANDED AssORTMENT

In 2008, OJSC Kazanorgsintez con-tinued new branded assortment develop-ment.

The following new polyethylene grades of bimodal type were produced in the reporting period at HDPE plant:

PE2NT11-9 – the grade is intended for polyethylene pipes and con-necting details for gas supply sys-tems. The conformity certificate of polyethylene grade PE2NT11-9 cor-respondence to polyethylene type PE100 was received.

PE2NT11-285D – is intended for pro-duction of compositions for high-strength films production (with thick-ness of 20 micromeres and more), pressure and gas pipes marking, production of multi-layer corrugated pipes, as well as for products pro-duced by blow molding method. Production of the full range of

polyethylene pipes, designed for under-ground gas pipelines, water transporting

pipelines, including for household and drinking water, from the own produced PE2NT11-9 grade was adjusted in the plastic products production unit of HDPE plant.

The construction of the high purity liquid carbon dioxide production unit was completed and put into operation at Or-ganic products plant. High purity liquid carbon dioxide is the feedstock for poly-carbonate production.

The new production unit – Polycar-bonates plant - was put into commercial operation in 2008. Polycarbonate produc-tion is carried out in accordance with re-quirements TU 2226-173-00203335-2007.

Recycled water reagent processing according to “MolClean” technology was developed in 2008, allowing reducing the biofouling in the cooling systems of the Company.

According to the results of the 10th International exhibition “Energy. Resources safety 2008” which took place in Kazan, OJSC Kazanorgsintez was awarded with two Gold Diplomas:

Gold Diploma in the nomination “Production with new or improved characteristics in the section of fuel energy resources and other material resources discharge intensities minimization” for “Polycarbonate”.

Gold Diploma in the nomination “The equipment and technologies, allowing at their implementation to reduce the operating costs of fuel and energy resources and materials, and the adverse impact on the environment during the life cycle” for presented “MolClean” technology.

OJSC Kazanorgsintez’s exposition was noticed as one of the most high-tech expositions.

In 2008, OJSC Kazanorgsintez took place in the 15th International exhibition “Oil. Gas. Petrochemicals - 2008”, which is the largest international show of modern techniques and technologies in the Volga region. According to the results of the exhibition the Company was awarded with the 1st place Diploma in the nomination “Equipment and technologies for the safe management and oil-, gas-, and petrochemical industries’ waste disposal, including the secondary resources or materials production” for the development of gas emissions recycling technology.

The Company also became the owner of the superior prestige Grand Prix award in the nomination “Products of new or improved properties” for polycarbonate production development.

DEVElOPMENT OF TECHNOlOGIEs AND BRANDED AssORTMENT

36

PRODUCTION ACTIVITY

37

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

QUAlITY MANAGEMENT sYsTEM

Processes quality and products quality are the determining factors for OJSC Kazanorgsin-tez’s successful development. In the reporting year the Company continued carrying out its activity for achieving the stated goals and implementation of voluntary commitments in the quality and ecology fields.

increasing the competitiveness of the Company and improv-ing financial and economic parameters for providing the stable profit and further production development according to the interests of consumers, shareholders and investors;

manufacture of products with the stable quality, correspond-ing to consumers requirements;

strengthening the leadership of the Company in the field of plastics production on the Russian market, due to increase of the existing production units’ capacities, and creating the new production capacities;

development of new kinds of products through the introduc-tion of innovative energy-saving technologies;

renovation of the fixed assets of the Company;

constant improvement and enhancing the impact of quality management and processes’ quality;

development of mutually beneficial and long term cooperation with consumers, investors, and all other interested parties;

motivating and encouraging staff initiatives aimed at the de-velopment of the Company; processes’, and products’ quality improving.

The main goals of OJsC Kazanorgsintez’s policy

in the field of quality are:

In 2008, the certification body OJSC VNIIS successfully held the in-spection control and recertification of OJSC Kazanorgsintez’s Quality Manage-ment System and Environmental Manage-ment System, as well as Integrated Man-agement System. The audit confirmed the correspondence of the systems to the re-quirements of GOST R ISO 9001-2001 (ISO 9001:2000), and ISO 14001:2004.

In 2008, the certification body SGS (Switzerland) hold the QMS inspection control of corresponding to the require-ments of ISO 9001:2000.

Pursuant to the standards’ require-ments of working Quality Management Systems periodical checks, 64 internal complex audits of the divisions of the Company were held.

In 2008, within the framework of con-firmed Quality program at OJSC Kazan-orgsintez, 30 activities were performed, aimed at stabilizing and improving the technological processes and equipment control, improving products’ quality, re-ducing the amount of wastes, improving the quality of equipment repair.

The amount of certified products pro-duced made RUR 21,423 mln. The volume of certified products to the total amount of commercial output made 92.2%, in 2007 the same parameter was 89%.

General level of products’ quality remains consistently high. Production vol-ume accepted by Quality department at the first check has made 99.7%.

In 2008, OJSC Kazanorgsintez took place in the contest “The best goods of Tatarstan Republic” within the framework of the Program “100 best goods of Russia”. The following products were represented to the contest:

Bisphenol A; High density polyethylene composi-tion type PE100 grade PE2NT11-9; Technical butyl cellosolve;Diproksamin 157; Concentrate of functional additives on the basis thermoplastics “Slip-form O/10”.According to the contests’ results bis-

phenol A, high density polyethylene com-position type PE100 grade PE2NT11-9, and technical butyl cellosolve became the laureates of the contest “The best goods of Tatarstan Republic” and were presented at the Federal step of the contest of the Program “100 best goods of Russia”, where also were granted with the “laureate” titles. Considering the originality, Bisphenol A and polyethylene grade PE2NT11-9 has got the status “Novelty of the year”.

As a result of 2008 contest for the prize competition of Tatarstan Republic Government, OJSC Kazanorgsintez re-ceived the diploma “For the achievement of significant results in the field of quality 2007-2008” and was recognized as one of the best.

QUAlITY MANAGEMENT sYsTEM

38

PRODUCTION ACTIVITY

39

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

REsOURCEs EFFECTIVENEss

In 2008, OJSC Kazanorgsintez continued its work according to the confirmed at the enterprise resources effectiveness program for 2006-2010 within the framework of the federal “Effective consumption of power resources” program and the Tatarstan Republic program “Power and resources savings in Tatarstan Republic for 2006-2010”.

The purpose of the program:

Tasks of the program:

Increase of natural-raw, material, labour and administrative - managerial resources efficiency.

Introduction of the new advanced high technologies and the equipment, allowing to provide the decrease in specific charges for raw material, fuel and energy, and to increase work pro-ductivity.

Modernization of existing technologi-cal processes and the equipment.

Optimization of technological process-es parameters.

Creation of the organizational, norma-tive and economic conditions provid-ing effective resources utilization.

Use of secondary resources.

REsOURCEs EFFECTIVENEss

The priority task for OJSC Kazan-orgsintez in order to actions introduction for power-and-resource efficiency is pro-duction volumes growth at minimization of power resources absolute consumption per unit of produced goods and maximum secondary and renewable resources use.

For power resources efficiency esti-mation the index of power consumption was applied. The given index shows how much electric and heat energy were spent per ruble of commercial output. At the same time the commercial output is count-ed in comparable prices of the compared period. During the last years this index tends to decrease, which means growth of electric and heat energy efficiency use.

In 2008, electric energy consump-tion in KWh increased by 9.7% in compari-son with 2007, at the same time electro-capacity index increased by 2.8%.

Heat energy consumption in Gcal increased by 19.5% in comparison with 2007, when heat-capacity of commercial output index increased by 11.9% in 2008.

The total increase in heat and elec-tric energy consumption has happened basically because of increase of produc-tions of the Company. Growth of heat- and

electro-capacity indexes basically caused by commissioning of new polycarbon-ates production unit (holding the start-up works, and running of the technological equipment), and also by BPA plant opera-tion in incomplete downloads.

Heat energy price growth in 2008 in comparison with 2007 made 32% on av-erage. Electric energy prices increased by 27% on average.

Since September 2008 OJSC Kazan-orgsintez started the new system of pay-ments with OJSC Tatenergo, which means the hourly (interval) method of electric energy consumption planning. Interval method of calculation, taking into account the integrated automation of the process, will reduce the payments for electric en-ergy consumption.

OJSC Kazanorgsintez was awarded with two Gold Diplomas at the Interna-tional exhibition “Energy. Resources safety 2008” - for “MolClean” technology devel-opment and “Polycarbonate” product - and also with the Diploma “For the active participation in the program “Power and resources savings in Tatarstan Republic for 2006-2010”.

Average price for electric and heat energy

Power intensity of commercial output (in prices of 2004), tons of conventional fuel/RUR th.

40

PRODUCTION ACTIVITY

41

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

Work in the field of nature protection is one of the priority directions of OJSC Kazan-orgsintez’s activity. The activity in this field is carried out according to the necessary per-missive documentation, in accordance with environmental regulations and environmental management system, operating since 2005. Within the framework of Environmental man-agement system the ecological policy is confirmed, corresponding goals and tasks are as-signed, standards are developed, which show the procedures of: environmental manage-ment planning; working with production and consumption wastes, relations with interested parties (inside and outside), monitoring of the factors measures, influencing as the environ-ment as people; preventing and liquidation of contingencies.

ECOlOGICAl POlICYOJSC Kazanorgsintez’s employees producing the organic synthesis products, inorganic products, poly-

mers and polymer goods understand that production process itself, production wastes and goods affect the environment.

We consider that introduction and sustenance of Environmental Management system functioning, meet-ing the requirements of ISO 14001:2004 is one of the main ways for environmental problems solving and pre-vention.

Our purposes: Our tasks:Organization of production ac-cording to the requirements of environmental regulations;

Development of production pro-cesses with consecutive minimiza-tion of QAment;

Reduction of raw materials, mate-rials, water and power resources consumption per unit of produced output;

Constant improvement of activity in the field of environment protec-tion;

Decrease of the level of emer-gency situations with ecological consequences.

To create Integrated System of Quality Management and Environmental Management according to the requirements of standards ISO 9001:2000 and ISO 14001:2004;

To analyze tendencies, to take into account changes and to develop necessary documents and procedures according to requirements of environmental regulations, recommenda-tions of territorial nature protection bodies, generally accept-ed principles of environmental management;

To provide regular monitoring of ecological aspects and their affects on the environment and functioning of Environmental Management System;

To involve workers of OJSC Kazanorgsintez into activities related to nature protection, having created system of their ecological activity motivation;

To raise workers qualification in the field of environment pro-tection, using own resources and participating in regional and international projects;

To provide economical raw material, materials, water and power resources supply;

To provide step-by-step transition to resources saving tech-nologies introduction.

NATURE PROTECTION ACTIVITY AND INDUsTRIAl sAFETY

NATURE PROTECTION ACTIVITY AND INDUsTRIAl sAFETY

OJSC Kazanorgsintez’s management declares that Environmental Management is included into a number of supreme pri-orities of our enterprise as a basis of the concept of steady development, and in this connection:

realizes special responsibility for achieving the stated objectives, and expects active participation from each employee in implementation of the objectives;

undertakes to take all steps directed on constant increase of Environmen-tal Management System productivity;

declares readiness for open dialogue with the public and other interested parties regarding the influence on the environment.

Expenses for the environment pro-tection in the reporting year made RUR 369 mln., which is by 31.3% more than in 2007. Expenses growth is basically con-nected with increase in payments for holding and operation of fixed assets for nature protection purposes, increase in payments to third parties because of in-creasing the cost of waste disposal, car-rying out of nature protection activities for reducing the harmful impacts on the environment.

The cost of industrial nature protec-tion assets increased by the end of the year by 0.6% in comparison with 2007 and made RUR 365 mln. Slight growth of fixed assets cost in 2008 in comparison with the last year occurred due to sewage disposal units’ cost increase because of putting into operation sludge facilities for sludge dewatering and two radial secondary sed-imentations for drain treatment.

Main industrial nature protection as-sets include:

flare units;

station for thermal liquid waste neu-tralization;

unit for collection and recycling of hy-drocarbon purges with their return to the technological process;

green plantings;

cooling towers of circulation water supply;

sewage disposal units;

other assets.

With the purpose of prevention the harmful operating objects influence to the environment 37 activities have been ex-ecuted in the reporting period with the to-tal amount of expenses RUR 225.2 mln. (in 2007 – 25 activities with the total amount of expenses RUR 107.1 mln.).

42

PRODUCTION ACTIVITY

43

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

The maximum concentration of harmful substances in the atmosphere, polluting substances in the reservoirs, lim-its of waste formation, and limits of water consumption for 2008 haven’t exceeded the established specifications.

The control over a sanitary condition of the air environment, quality of sewage discharged into r. Volga, the control over soil pollution are made by sanitary-indus-trial laboratories of the Company accord-ing to the plans-schedules confirmed by the state inspecting bodies.

The amount of the harmful sub-stances emission into the atmosphere increased in 2008 in comparison with 2007 and made 13.7 th.tons (in 2007 – 8.7 th.tons). The increase was caused by the cessation of electricity supply from Ther-mal Power Station 3 (OJSC Tatenergo) on the 26th of December 2008, which was the reason of accidental discharges to the flare systems of the Company.

With the purpose of providing the en-terprise with water for industrial and house-hold needs and also transferring to the sub-scribers, the diversion capacity from r. Volga has been done in 2008 in the amount of 30.2 mln. cubic meters (in 2007 – 28.3 mln. cubic meters). The increase in the amount of taken water is connected with increase in water supply for the Company’s needs be-cause of start-up works at putting into ope-

ration the new productions: butene-1, car-bon dioxide, E-500, polycarbonate plant.

During 2008, production and con-sumption wastes in the mount of 29.5 th.tons were generated which is by 4.1 th.tons more than in 2007. Wastes increase in 2008 is connected with putting into ope ration of new BPA and Polycarbonates plants. Great part of wastes was trans-ferred to the specialized organizations, having corresponding licenses for further use and recycling; the rest was recycled at the station of thermal wastes sterilization, and was used for industrial needs.

Payments for environmental affect in 2008 made RUR 3,737.3 th. (in 2007 – RUR 4,753 th.), including:

for emissions of polluting substances into the atmosphere – RUR 648.4 th.;

for discharge of polluting substanc-es into basin – RUR 1,149.8 th.;

for accommodation of wastes – RUR 1,939.5 th. The amount of environmental pay-

ments in comparison with 2007 decreased by 21.4%, because of introduction of the new payments scheme in 2007, accord-ing to which the payments are carried out at maximum allowed rate of pollutions, but in 2008 payments for environmental affects were paid quarterly, according to actual pollutions amounts.

NATURE PROTECTION ACTIVITY AND INDUsTRIAl sAFETY

The Company carries out purposeful work for perfection of providing the acci-dent-free work system, for creation of safe work conditions and prevention of indus-trial injuries and professional illnesses. In 2008, in accordance with the Agreement between OJSC Kazanorgsintez’s manage-ment and trade union committee 21 ac-tivities for the amount of RUR 10.5 mln. have been executed.

According to the “Summary plan of the enterprise work in the field of la-bour protection, industrial safety, indus-trial work control and ecology” preven-tive work and 54 complex examinations has been carried out with the purpose of discovering the breach of standards and rules in the field of labour protection and industrial safety.

The amount of labour protection expenses in 2008 made RUR 237.3 mln., which is by 25.2% (+ RUR 47.7 mln.) more than in 2007.

In 2008, the following checks and audits of the Company has been carried out:

– OJSC Kazanorgsintez’s Inte-grated Management System inspection audit was held by the certification body OJSC VNIIS. The audit confirmed the cor-respondence of the Management Sys-tem to the requirements of ISO 9001, and ISO 14001 standards;

– OJSC Kazanorgsintez’s Integrated Management System recertification was held by the experts of OJSC VNIIS, which confirmed the correspondence of the management system to the requirements of ISO 9001, and ISO 14001 standards;

– Technological and Environmen-tal Inspectorate Department of Russian Technical Inspectorate of Tatarstan Re-public has held the complex inspection of the Company to comply with licensing requirements and conditions for imple-mentation of collection, use, disposal, transportation and placement of hazard-ous wastes and fees administration. No sufficient comments on issues related to environmental protection have been identified

OJSC Kazanorgsintez annually par-ticipates in exhibitions, conferences, and contests devoted to the ecological safety.

NATURE PROTECTION ACTIVITY AND INDUsTRIAl sAFETY

44

PRODUCTION ACTIVITY

45

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

OJSC Kazanorgsintez’s activity in the field of personnel management was carried out according to the enterprise development strategy, purposes and tasks of the manpower policy. The main purpose of the manpower policy is the timely enterprise provision with the necessary number of personnel with required qualification.

determination of the basic requirements for the personnel, taking into account the enterprise development perspectives;

new manpower structures formation and development of personnel management procedures;

formation of the concept of labour material compensation, moral and material motivation of the personnel , taking into account the planned business strategy;

choice of the ways of manpower attraction, use, preservation and deliverance;

social relations development;

choice of the ways of manpower development, study, training, raising the level of their skills, career development;

moral and psychological climate improvement in the team.

The main directions of the manpower policy are:

PERsONNEl MANAGEMENT

Selection of the personnel in 2008 has been car-ried out as from the internal enterprise resources as from the outside sources. There were 1,950 moves ar-ranged inside of the enterprise, including 129 moves from the working category to the technical and engi-neering category, and 35 moves from the specialist cat-egory to the management staff. Outside selection was basically carried out due to young specialists’ attrac-tion. As part of the targeted training of future workers and specialists, 389 students of Kazan State Techno-logical University, 270 students of professional lyceum №19, and 55 students of other educational institutions passed the field experience in the workshops and de-partments of the enterprise. OJSC Kazanorgsintez, together with the Center for Employment has worked for the employment of schoolchildren (from 14 up to 16 y.o.) for the summer holidays, as well as graduates of primary and secondary professional education. 20 teenagers were employed in 2008.

In 2008, the employment was given to 1,206 people, including 37% with higher education. Share of workers made 87%.

Personnel education was carried out according to the Regulations “About the permanent professional and economic manpower education” and enterprise’s standard ”Manpower resources”, developed in accor-dance with ISO 9001-2000 (GOST R ISO 9001-2001) and ISO 14001-2004 requirements. In 2008, the profes-sional-economic education was got by 4,892 employ-ees, which makes 53% of all number of personnel. The necessary educational base for personnel professional education is created; there are highly skilled pedagog-ical experts among the employees of the Company: teachers – 573 people and instructors – 700 people, who carry out personnel professional training with-out discontinuing work. OJSC Kazanorgsintez has got the permission from Russian technical inspectorate to have the right of carrying out the educational activ-ity (retraining) for employees of 23 working profes-sions for dangerous industrial units, and education of the personnel, serving the units under pressure, and steam and hot water pipelines.

The necessary conditions for work and study combination are created for employees carrying out the education without discontinuing work. In 2007-2008 schoolyear 606 workers of the Company studied without discontinuing work: 553 persons were study-ing at Institutes and Universities, and 53 persons were studying at Colleges.

Actual number of enterprise’s personnel in 2008 increased by 221 employees in comparison with 2007, and at the end of the year made 9,154 people. Personnel number growth is basically connected with recruitment of new BPA and Polycarbonates plants,

and inventories department. Average personnel age at the enterprise remains at the level of 39-40 y.o., at the same time the share of the personnel with higher education increased comparing to 2007 from 3 4.5% up to 36.7%.

Number dynamics in the age structure is showed in the round diagram. The parameter of staff turnover in comparison with the last year increased and made 11% (in 2007 8.1%). Rate of labour productivity in the current prices made 4.1%.

The average salary at the enterprise in 2008 made RUR 23.6 thousand, which is by 15% higher than in 2007. The wages at the enterprise consist of constant (the tariff rate) and variable (premium) part. It allows to provide workers social security and to mo-tivate them for achievements of the planned param-eters of the divisions, and the enterprises as a whole. The level of payment provides attraction and fixing at the enterprise the personnel with the necessary professional characteristics. Total amount of money spent in the reporting year for labour payments made RUR 2,556 mln., including bonuses for the main activ-ity’s results in the amount of RUR 731 mln.

The management also uses non-material meth-ods for personnel labour promotion.

More than 1,300 employees of the Company were honored with appreciation awards and honorary titles in 2008 for the exemplary performance of work duties, as well as for special labour merits to the soci-ety and the state.

PERsONNEl MANAGEMENT

Personnel number

Age of personnel

46

PRODUCTION ACTIVITY

47

AN

NU

Al

REPO

RT` 2

008

contents

PART

II

Trying to harmonize the own busi-ness-purposes with the purposes of so-ciety development, OJSC Kazanorgsintez builds a system of social guarantees and benefits according to its financial capa-bilities and specificity of the industry. Despite the difficult financial situation in the country and in the world in 2008, the Company continued to provide assumed social guarantees. The expenses for social field objects maintenance and social pay-ments in 2008 remained at the level of 2007 and made RUR 745 mln.

The priority directions of the Com-pany’s social policy correspond to the na-tional projects of Tatarstan Republic and the Russian Federation. The number of priority directions of workers social sup-port consists of the following:

Health services, sanatorium treat-ment and recreation. In 2008, med-ical-sanitary unit of OJSC Kazan-orgsintez rendered free-of-charge services for the amount of RUR 6.4 mln. 906 workers of the Company took the course of treatment in the sanatorium of the enterprise during 2008. In 2008, the expenses for the voluntary medicine insurance made RUR 49.9 mln.

Non-state pensions provision. RUR 39.8 mln. were transferred to the fund of non-state provision of pensions during 2008.

New Collective agreement for 2008-2010 was confirmed in the reporting year. The amount of pay-ments in accordance with the collec-tive agreement increased by 15.8% in comparison with 2007 and made RUR 70.5 mln.

The year 2008 was announced the Year of Family by the Russian authorities. Annually the Company performs and holds such activities as: Day of Family, Mother’s Day, and Anniversary celebrat-ing days. In 2008, the Company granted RUR 2.3 mln. on the occasion of the birth of 196 children. Large families of the Com-pany get lump-sum financial assistance for each student by the beginning of the school year.

The total amount of money directed by OJSC Kazanorgsintez to charity and sponsorship in 2008 made RUR 95 mln., including:

Education and science develop-ment. RUR 1.2 mln. were trans-ferred in 2008 for theses purposes, including RUR 948 mln. directed to overhaul and office equipment pur-chase for Kazan professional lyce-um №19, which trains high-skilled workers for the chemical industry of the republic.

sOCIAl FIElD

All OJSC Kazanorgsintez’s efforts in the social field are directed to the creation and keeping up of favorable conditions for effective labour activity. The Company keeps its obligations for employees for wages payments and material compensation within the framework of confirmed collective agreement, and also obligations for the budget, timely making tax and other deductions to the state non-budget funds.

sOCIAl FIElD

Medicine. The expenses for assis-tance the activities in the field of health prevention and protection made RUR 206 th.

sport support, and healthy life style development. In 2008, the en-terprise participated in organization of the ice hockey World Champion-ship among juniors. The amount of RUR 500 th. was granted for these purposes. More over, OJSC Kazan-orgsintez is the general sponsor of the water polo team “Sintez”, which became the silver winner of Russian Championship of the season 2007-2008.

Culture development. The amount of money which the Company trans-ferred for different kind of cultural arrangements made RUR 624 th.

Rendering the assistance to reli-gious institutions. In 2008, the en-terprise transferred RUR 420 th. for these purposes.

RUR 9 mln. were transferred by the enterprise for the public order pro-tection and to the public funds.

RUR 1.6 mln. were transferred to other purposes, including help to OJSC Kazanorgsintez’s Board of Vet-erans’, charity-schools, and expenses for holding the city-wide celebra-tions.

9 divisions of OJSC Kazanorgsintez with more than 700 employees are en-gaged in the solving of social tasks of cre-ation the favorable conditions for labour activity.

Public catering complex. It unites 13 branches for 1,450 seating places and 6 buffets.

Medical-sanitary unit. The struc-ture of a medical-sanitary unit in-cludes polyclinic, dental unit, 2 day time hospitals, 2 health centers and the sanatorium equipped with the up to date medical equipment.

Housing complex for accommo-dation of enterprise’s workers and the people sent to the business trip. Structure of the complex con-sists of the hotel House of foreign experts for 116 people and 2 hostels for 393 places.

Recreation centers: Solnechny, Shelanga, Observatoria. In total, 3,238 people had a rest in the cen-ters during 2008. The comfortable territory and buildings equipped with all necessary facilities allow accepting the workers of the enter-prise and members of their families for the rest at Solnechny recreation center all the year round.

48

PRODUCTION ACTIVITY

49

AN

NU

Al

REPO

RT` 2

008

contents

sOCIAl FIElD

Water-rowing center sintez. The center has the steam-ship Sintez, which is used for excursions along the river Volga for employees and the guests of the Company.

Kazanorgsintez’s History Muse-um. During 2008, the museum has hold 171 excursions, with 1,781 visi-tors.

swimming pool sintez. During 2008, 37 sports-mass events have been hold there, including such fa-mous as: water polo matches on the Euro league Cup, the First All-Russian summer swimming Univer-siade, swimming championship of Russia, and others.

The basic tools of the social reporting of the Company are: the official web-site of the company www.kazanorgsintez.ru, the newspaper Sintez, weekly meetings of the trade-union committee leaders, annual report of financial and economic activity of the enterprise, and also other external sources of accommodation the information of social policy of the enter-prise.

Known is a symbiosis of ants and aphids. Ants protect aphids from pests, take females away to anthills for winter, carry aphids to the juiciest draws. Aphids produce drops of honeydew when ants “milk” them. Living on lime trees aphids produce up to 25 milligrams of sweet syrup a day. A carpenter ant milks 5,107 litres (6,454 kilograms) of “milk” during a summer. A brown garden one brings 1,7204 litres, or 2,145 kilograms of “milk” during summer “lactation”.

Arms and defence of ants is formic (methanoic) acid – HCOOH, mol wt 46.03; this is a colourless liquid with a sharp smell. It is harmless in an organism of its host, but after contact with air it becomes mortal, also for a “shot” itself.

A molecule of formic acid has a flat structure. Bond distances C––H, C=O, C––O and O––H are equal to 0.1085, 0.1245, 0.1312 and 0.095 nm respectively; angles O––C=O, H––C=O and C––O––H are 124.3, 117.8 and 107.8° resp. Natural formic acid contains a large amount of zinc organic components. And zinc, as is generally known, is an antioxidant and immuno-gen which enables to actively use this substance in pharmacol-ogy.

And acid properties enable to use formic acid in a number of chemical industry branches. For example, it is used as a mor-dant by textile and paper dyeing and finishing, leather working; as a preservative by siloing of green mass, fruit juice, and for dis-infection of beer and wine barrels; for a struggle against Varroa mites infecting honeybees; for acquisition of pesticides, solvents (for example, dimethyl formamide), salts and ethers.

50

PRODUCTION ACTIVITYcontents

Beelat. Anthophila, the superfamily of flying insects, the Petiolate suborder

PART III

COMMERCIAl ACTIVITY

Position in industry

Basic products markets review

Sales results review

Raw material supply

contents

Honey bees refer to the class of insects, the phylum Arthropoda, the order Hymenoptera, the family Apoidea, social or true honey bees (genus Apis), species of honey bees.

The bee family consists of a great number of working bees and one queen. Temporary, seasonal members – drones – appear in the bee family in summer time. During 8-9 months in a year the queen ovipos-its breaking only for winter.

And the main bulk of the bee family is working bees: they feed larvae, heat the nest, gather nectar and pollen from flowers, carry water to the beehive, produce beeswax in their organisms for construction of honeycombs. They defend the beehive from enemies, clean, air it, repair the beehive with bee glue (propolis). In short, working bees perform all actions to satisfy the vital requirements of the bee family.

The composition of propolis is different depending on its botani-cal origin. It comprises up to 150 various components. Propolis has got the complex composition: 50-55% resins, 20-35% waxes, 5-10% essential oils, 5% pollen and 5% other different organic and mineral substances. It should also be noted that there are over 40 flavonoids (flavones, flavonols and flavonones), aliphatic and aromatic acids, phe-nol compounds (of coumaric acid and acetylsalicylic acid which is none other than aspirin), aromatic aldehydes, terpene compounds (farnesol), chalcones, aliphatic fatty acids, sugars, amino acids, vitamins A and B, and a number of oligoelements (Fe, Cu, Mn) in propolis.

POsITION IN INDUsTRY

Annually OJSC Kazanorgsintez sells more than 170 kinds of various chemical products with the total volume of more than 750 thousand tons. Sales network of the Company is constantly expanding; increasing the share of OJSC Kazanorgsintez in the markets of basic products. In 2008, the Company delivered products to more than 25 countries of the world. About 2,000 enterprises are consumers of our products.

Name of the product

Production volumes, th.tons OJsC Kazan-

orgsintez’s share, %Russia OJsC Kazan-

orgsintez

lDPE 641.8 203.1 31.6

HDPE 629.3 321.6 51.1

incl. linear polyethylene 19.2 19.2 100.0

Phenol 209.6 54.0 25.8

Acetone 130.4 34.6 26.5

Bisphenol А 92.0 36.1 39.2

Polycarbonate 3.6 3.6 100.0

Monoethyleneglycol 369.0 38.3 10.4

Ethanolamines 44.1 14.4 32.7

Polyethylene pipes 265.0 32.3 12.2

55

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

BAsIC PRODUCTs MARKETs REVIEW

In 2008, the total volume of the polyethylene consumption in Russia made 1,433 th.tons, which is by 1% less than in 2007. Decrease occurred due to reduction of high density polyethylene consumption by 4.3%. Low density polyethylene and linear poly-ethylene consumption increased by 1.2% and 16.1% accordingly.

The volume of polyethylene production in Rus-sia made 1,271 th.tons, and increased by 2% in com-parison with 2007. Growth is generally provided with linear polyethylene production volumes increase from 3.8 up to 19.2 th.tons. OJSC Kazanorgsintez is the only one linear polyethylene producer in Russia. LDPE and HDPE production had light growth by 0.1% and 1.6% accordingly.

Growth of polyethylene production volumes in 2008 was basically provided by such companies as OJSC Kazanorgsintez (production growth at the enterprise made +4.9% to the level of 2007), CJSC Tomskneftekhim (+8.7% to the level of 2007), and to a lesser degree by LLC Stavrolen (+1.9%), and OJSC Neftekhimsevilen (+1.7%). Other producers had production decrease.

OJSC Kazanorgsintez’s share in the total poly-ethylene production volume in Russia made 41% in 2008 (in 2007 – 40%, in 2006 - 37%).

Polyethylene export from Russia in 2008 de-creased by 9% in comparison with 2007 and made 200.2 th.tons. At the same time LDPE export de-creased by 6.3%, HDPE export decreased by 14.5%; also in 2008 for the first time Russia exported linear polyethylene.

Polyethylene import decreased by 14% in 2008 and made 362.1 th.tons. At the same time HDPE im-port decreased by 19.5% down to 240 th.tons, LDPE import import decreased by 3.7% down to 38 th.tons, when linear polyethylene import grew by 0.8% and made 84 th.tons.

Average polyethylene prices dynamics is pre-sented on the chart. The average polyethylene prices of OJSC Kazanorgsintez in 2008 made RUR 47 th./tn including VAT.

Polyethylene

BAsIC PRODUCTs MARKETs REVIEW

In 2008, polyethylene pipes consumption vol-ume in Russia made 282 th.tons, which is by 10.6% more than the level of 2007.

Production volume in Russia increased by 10.4% in comparison with 2007 and made 265 th.tons. The contribution of producers to the total gain of produc-tion made:

• +0.7% - increase in OJSC Kazanorgsintez’svolumes by 5.9% up to 32.3 th.tons;

• +1.9%-increaseinproductionoftheenter-prises with capacities of more than 10 th.tons, except-ing OJSC Kazanorgsintez;

• +7.8%-increaseinproductionoftheenter-prises with capacities less than 10 th.tons.

The share of OJSC Kazanorgsintez in the all-Russian production was reduced slightly from 12.7% in 2007 down to 12.2% in 2008, which is mainly con-nected with production capacities increase of the main competitor Polyplastic Group of companies (Moscow).

Import share in the total polyethylene pipes consumption volume in Russia almost remained the same and made 7.1%.

Average polyethylene pipes’ prices dynamics is presented on the chart. The average polyethylene pipes’ prices of OJSC Kazanorgsintez in 2008 made RUR 66 th./tn. including VAT.

Ployethylene market in Russiath. tons

Information source: Market Report Company (MRC)

Polyethylene pipes

th. tons

Information source: Market Report Company (MRC)

Polyethylene pipesmarket in Russia

RUR/tn.

Information source: OJSC Kazanorgsintez (according to the price-lists of producers)

Average polyethylene pipesprices in Russia (incl. VAT)

Average polyethylene prices$/tn

Information source: Chem-expert (ICIS)

Russia (inc. VAT)

Europe (spot prices, FOB NWE)

56

COMMERCIAL ACTIVITY

57

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

BAsIC PRODUCTs MARKETs REVIEW

In 2008, the total ethyleneglycol consump-tion volume in Russia increased by 6.8% and made 234 th/tons. Consumption growth was mainly satis-fied by Russian producers due to export decrease.

Ethylene production volume decreased by 7.3% in comparison with 2007 and made 368 th.tons.

The main ethyleneglycol producers are: OJSC Sibur-Neftekhim, OJSC Nizhnekamskneftekh-im, Petrokam, and OJSC Kazanorgsintez. Decrease occurred mainly due to reduction of OJSC Nizhneka-mskneftekhim production by 22.4%, and OJSC Sibur-Neftekhim production by 4.3%. At the same time OJSC Kazanorgsintez increased it’s production vol-umes by 21.6% from 31.5 th.tons up to 38.3 th.tons. The share of OJSC Kazanorgsintez in the total produc-tion volume in Russia made 10.4% in 2008 (7.9% in 2007).

Ethyleneglycol export from Russia decreased by 42 th.tons in 2008, or by 23.8% in comparison with the last year, and made 136 th.tons.

Ethyleneglycol import volume remained at the level of 2007, and made 330 tons. Import share made 0.1% of the domestic market volume.

Average ethyleneglycol’s prices dynamics is pre-sented on the chart. The average price for OJSC Ka-zanorgsintez’s ethyleneglycol in 2008 made RUR 33.3 th./tn., including VAT.

Ethyleneglycol

Ethyleneglycol market in Russia

Average ethyleneglycol prices

BAsIC PRODUCTs MARKETs REVIEW

Phenol consumption in Russia made 201 th.tons in 2008, which is by 2.1% lower than in 2007.

While phenol production volumes in Russia de-creased by 8.8% in comparison with 2007 and made 210 th.tons. It is mainly connected with decrease of production volumes of the following companies: Saratovoorgsintez, Omskij kauchuk, and Ufaorgsin-tez. OJSC Kazanorgsintez produced 53.9 th.tons of phenol in 2008 (+0.8% to the level of 2007).

The share of OJSC Kazanorgsintez in the to-tal phenol production in the Russian Federation in-creased by 3.3% in 2008 in comparison with 2007 and made 25.7%.

Phenol export volume decreased in 2.7 times in 2008 and made 12.4 th.tons, which is generally con-nected with OJSC Kazanorgsintez’s export decrease by 13.7 th.tons.

The Company’s export volumes decrease is mainly caused with processing of phenol in bisphe-nol At the own capacities, as well as the more favor-able prices in the domestic market.

Phenol import increased up to 3.6 th.tons in 2008, which made 1.8% of the domestic market vol-ume.

Average phenol’s prices dynamics is presented on the chart. The average price for OJSC Kazanorgsin-tez’s phenol in 2008 made RUR 37.2 th./tn., includ-ing VAT.

Phenol

Phenol market in Russia

Average phenol prices

th. tons

$/tn $/tn

Information source: Information center “Kortes”

Information source: Information center “Kortes” Information source: Information center “Kortes”, ICI’S

Russia (inc. VAT)

Europe (CIF NWE)

th. tons

Information Source: Market Report Company (MRC)

Russia (inc. VAT)

Europe (FOB RDAM)

58

COMMERCIAL ACTIVITY

59

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

BAsIC PRODUCTs MARKETs REVIEW

Bisphenol A consumption at the Russian market increased in 3.6 times in 2008 in comparison with the last year and made 18 th.tons. The main part of bis-phenol consumption in Russia fall on phenol-formal-dehyde and epoxy resins producers, which form 61% of domestic market. The rest of the market - 39%, falls on polycarbonates production, where OJSC Kazan-orgsintez is the only one producer in Russia.

The total amount of bisphenol A production in Russia increased by 53.3% in comparison with the last year and made 92 th.tons. More than 80% of produc-tion is exported. The main producers are: LLC Ufa-himprom, and OJSC Kazanorgsintez. OJSC Kazan-orgsintez’s bisphenol production increased by 33.7 th.tons in 2008 in comparison with 2007 and made 36.1 th.tons.

OJSC Kazanorgsintez’s share in the total pro-duction volume in Russia made 39%. LLC Ufahim-prom decreased its production volume in 2008 by 2.1 th.tons, or by 3.6%.

Bisphenol A export from Russia made 74 th.tons, which is by 34% more than in 2007. OJSC Kazan-orgsintez exported more than 76% of the own pro-duction of bisphenol A.

The geography of OJSC Kazanorgsintez’s bis-phenol A exports deliveries in 2008 covered more than 20 customers from 11 countries in Europe, Asia and South America.

Average bisphenol A prices dynamics in Europe and Asia is presented on the chart. The average price for OJSC Kazanorgsintez’s bisphenol in 2008 made RUR 42.6 th./tn., including VAT.

Bisphenol А

Bisphenol А market in Russia

Average bisphenol А prices

BAsIC PRODUCTs MARKETs REVIEW

The volume of polycarbonate domestic market increased by 29.4% in 2008 in comparison with the last year, and made 44 th.tons. The main volume of polycarbonate consumption in Russia falls on such segments of the market as: engineering – 27.8%, con-struction – 28.6%, electrical and electronics – 16.6%, optical discs – 18.5%.

In 2008, 3.6 th.tons of polycarbonate were pro-duced in Russia. The only one polycarbonate pro-ducer in Russia is OJSC Kazanorgsintez. The Company produced the first batch of commercial polycarbon-ate in November 2008. Annual production capacity makes 65 th.tons.

Polycarbonate export from Russia made 233 tons or 6.5% of the total amount of production.

Polycarbonate import made 40.2 th.tons and increased by 18.8% in comparison with 2007. More than 20 countries of the world became the importers of polycarbonate in Russia in 2008. The main world polycarbonate producers, importing polycarbon-ate in Russia are: GE Plastics, Bayer, Dow Chemical, Idemitsu, and Asahi.

Average polycarbonate prices dynamics in Eu-rope and Asia is presented on the chart. The average price for OJSC Kazanorgsintez’s polycarbonate in 2008 made RUR 34.5 th./tn., including VAT.

Relatively low OJSC Kazanorgsintez’s poly-carbonate price is generally connected with sale of launch grades.

Polycarbonate

Polycarbonate market in Russia

Average polycarbonate prices

th. tons th. tons

Information source: Market Report Company (MRC) Information source: Market Report Company (MRC)

$/tn $/tn

Information source: ICI’SInformation source: ICI’S

Asia (CFR N.E.ASIA)

Europe (spot prices, FD NWE)

Asia (CFR N.E.ASIA)

Europe (contract prices, FD NWE)

60

COMMERCIAL ACTIVITY

61

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

sAlEs REsUlTs REVIEW

In 2008, OJSC Kazanorgsintez sold goods and services in the amount of more than RUR 23.4 bln., which is by RUR 2 bln. more, than the last year(+9.4%). The basic relative share in the structure of sale proceeds belongs to high density polyethylene (HDPE) – 39%, and low density polyethylene (LDPE) – 24%. Combined specific weight of polyethylenes in total amount of sales didn’t change in comparison with the last reporting period.

Sales amount of HDPE increased by 14.6% (+RUR 1,174 mln.), LDPE – by 1.8% (+ RUR 96 mln.), glycols – by 20.6% (+ RUR 220 mln.), polyethylene pipes – by 6.4% (+RUR 109 mln.) in comparison with 2007.

Phenol and acetone sales decrease by 62.5% and 24.7% accordingly in comparison with 2007 is connected with bisphenol A production volumes increase at the new BPA plant, where phenol and acetone are used as raw mate-rials. Bisphenol A sales amount increased by RUR 952 mln., and made RUR 1,035 mln. In August 2008, Polycarbonate plant was put into operation, where bisphenol A is used as a raw material. Polycarbonate sales didn’t have significant influence upon the increase of the Company’s revenue.

Growth of high density polyethylene, polyethylene pipes, monoethyleneglycol, and ethanolamines sales vol-umes had the main influence upon the revenue increase. High density polyethylene sales volume increased by 4.5% in physical measures in comparison with 2007, pipes – by 6.2%, MEG – by 19.1%, ethanolamines – by 7.7%. At the same time LDPE sales volume decreased by 5%, because of which the Company didn’t get the sales revenue in the amount of RUR 274 mln.

The major average price growth in comparison with 2007 was observed for: ethanolamines (+23.6%), HDPE (+9.6%), LDPE (+7.1%). Polyethylene pipes’ and monoeth-yleneglycol’s prices remained at the level of the previous year. In the 4th quarter of 2008 as a result of the global financial crisis, domestic and external demand for our products declined. Thereby prices from September up to December 2008 decreased for LDPE and bisphenol A in 2.3 times, HDPE - in 1.8 times, for phenol – in 3 times, and for MEG – in 2.2 times.

The share of tolling (processing) in the sale proceeds increased by 1% in comparison with 2007 and made 6% (RUR 1,364 mln.). The main reason of growth is the increase of physical volumes of processing in comparison with 2007. The average tolling price increased by 4.4% in 2008 in com-parison with 2007.

sAlEs REsUlTs REVIEW

granting preferential terms to the constant con-sumers, supplying significant volumes of prod-ucts for a long time;

expansion of sales markets and search for new consumers;

establishment of such products’ prices, which would allow entering the planned volume of profit and seizing the greatest possible share in the market;

choice of deliveries to the domestic or the for-eign market is carried out to maximize sales profitability.

Sales of the Company are based on the following principles:

Domestic market sales of products and servic-es made RUR 17.6 bln., which is by 13% more, than in 2007. The main influence upon the domestic market sales growth was due to increase of poly-ethylenes, polyethylene pipes, and tolling sales. Thus, the volumes growth in the physical measures made: for HDPE (+21.5%), for LDPE (+1.8%), poly-ethylene pipes and details (+7%), ethanolamines (+8%), tolling (+30.2%). Phenol and acetone sales in physical measures decreased by 39% in compar-

ison with 2007, which is connected with increase in the share of internal consumption. Bisphenol A sales to the domestic market remained at the level of 2007.

The main OJSC Kazanorgsintez’s sales to the Russian market fall for Volga Federal district and Central Federal district of Russia (92%).

Export share in the total sale proceeds de-creased by 2% in comparison with 2007 and made 25% in the reporting period.

Structure of sale proceeds by the basic kinds

of products

Proceeds structure by sales market

Domestic market sale proceeds structure by regions in 2008

2007

2007 2008

2008

RUR 21,456 mln.

RUR 23,469mln.

RUR 21,456mln.

RUR 23,469mln.

RUR 17,621mln.

62

COMMERCIAL ACTIVITY

63

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

sAlEs REsUlTs REVIEW

made 17% versus 1% in 2007. Phenol and acetone share had the negative dynamics, decreased from 12% in 2007 down to 2% in 2008.

Export sales growth mainly was caused by increase in the sales volumes of bisphenol A (from 927 tons in 2007 up to 27,532 tons in 2008), and glycols (from 9,100 tons in 2007 up to 17,290 tons in 2008). Other products showed decrease in their physical volumes sales in comparison with 2007: HDPE (-21%), LDPE (-18%), phenol-acetone (-64%). LDPE and HDPE export decrease is mainly caused by favourable domestic market conjuncture, and world financial crisis influence.

In 2008, the average annual export prices of bisphenol A (-13%), phenol-acetone (-21%), glycols (-9%) fell down. The most average annual export prices growth in comparison with 2007 was ob-served at such products as ethanolamines (+30%), LDPE (+3.9%), HDPE (+8.5%).

The main foreign markets in 2008 became: Ukraine, China, Kazakhstan, Belarus, and Turkey. The share of these countries made 63% of the total ex-port sales.

In comparison with 2007 the geography of ex-port deliveries expanded in the direction of foreign countries, particularly Europe, and covered new countries for the shipment of commercial output. The share of export to the markets of Kazakhstan and Belarus increased slightly.

In 2008, OJSC Kazanorgsintez exported its products for the amount of RUR 5.8 bln. to more than 20 countries of Europe and Asia. Export sales growth made RUR 28.6 mln. in 2008 (+0.5%). The ba-sic relative share in export structure still belongs to polyethylene – 69% (in 2007 – 80%). Glycols’ share increased from 4% in 2007 up to 7%. Bisphenol A share in export sales increased sufficiently, and

RAW MATERIAl sUPPlY

In 2008, OJSC Kazanorgsintez’s expenses for raw material and materials made RUR 12,330.8 mln. In comparison with the same period of the last year the expenses for raw material and materials supply increased by 16.5%. Expenses growth is mainly connected with the raw material cost increase

The main raw materials for OJSC Kazanorgsintez are the following: ethane, propane-butane, ethylene and benzene. The share of expenses for the main raw material in the total expenses for raw material and materials in 2008 made 78% (in 2007 - 83.2%). The part of the main raw material is supplied as tolling. Total supply volume of the main kinds of raw mate-rial is presented in the table:

th. tons

Ethane – is used for ethylene production. Ethane supplies are carried out by ethane pipeline connecting Orenburg GPZ and Minnibaevsky GPZ (Tatarstan Republic). Ethane deliveries increased by 29% in 2008 in comparison with the last year.

Propane-butane – is alternative in relation to ethane raw material, which is also used for ethylene production. Propane-butane producers are gas and oil refining plants. Transportation of the given raw material is carried out by railway tanks as condensed gas. Main suppliers are: Sibur, Impexneftekhim, and Tatneft. Purchased volumes decreased by 4% in 2008 in comparison with the last year. Propane-butane volumes decrease is connected with ethane supplies increase.

Ethylene – is used for polyethylene and ethylene oxide production. OJSC Kazanorgsintez produces ethylene independently, and also buys it from outside. Ethylene transportation is carried out by ethylene pipeline. Ethylene deliveries decreased by 11% in comparison with 2007. Main supplier was NKNH.

Benzene – is used for phenol and acetone production. Benzene deliveries are carried out by railway transportation in tanks. The main benzene deliveries are carried out from such producers as Sibur, Severstal, Impexneftekhim, Sintezhiminvest, and NHC Arikon. Benzene deliveries increased by 2% in 2008 in comparison with 2007.

Raw material 2006 2007 2008 2008/2007

Ethane 323 350 451 129%

including tolling 118 123 181 147%

Propane-butane 225 242 232 96%

including tolling 15 7 0 0%

Ethylene 136 209 187 89%

including NKNH 95 153 187 122%

including tolling 5 0 0 -

Benzene 27 58 59 102%

including tolling 1.6 0 0 -

Export structure by main products in 2008

Export structure by countries

2007 2008

64

COMMERCIAL ACTIVITY

65

AN

NU

Al

REPO

RT` 2

008

PART

III

contents

RAW MATERIAl sUPPlY

Price growth rates in relation to 2004

Large suppliers of the main raw material in 2008

The growth of supplied raw material volumes is connected with increase in production volumes.

The main raw material prices are the subject to the world oil prices influence in different extent. Propane-butane falls under the strongest influence.

No less interesting is the composition of beeswax: it com-prises up to 15 independent chemical compounds. The components of beeswax are small amounts of dyes and essential oils responsible for its colour and smell.

The peculiarity of honey bees bred by people is their ability to gather a considerably larger supply of feed than the family needs.

Honey comprises: carbohydrates (70-80%) due to which 100 g of bee honey satisfy 10% of an adult’s daily energy-requirement; water (up to 20%); proteins (0.3-0.4%); amino acids and other organic as well as inorganic acids; mineral substances of honey the content of which is small in 100 g of honey, but satisfies a daily requirement of copper and zinc by 4%, of potassium, iron and manganese by 6.6%, of cobalt by 25%; enzymes of honey; dextrins (carbohydrates generated by enzymatic degradation of starch); vitamins B1, B2, B3, B6, PP, H, C; volatile production, aromatic substances and many other different substances. In sum it numbers 30-37 elements. The content of mineral substances in honey varies from 0.006 to 3.45%. The ratio of microelements depends on an area and flowers from which nectar was gathered. The content of water in honey varies from 16 to 22%, 19% on the average.

The major constituent of bee venom actively used in medi-cine – melittin – can cause smooth muscle contraction.

Like many insects bees are natural pollinators and are of primary importance for pollination of bloomers.

66

COMMERCIAL ACTIVITYcontents

BomByxlat. Bombyx mori, or silkworm

PART IV

INVEsTMENT ACTIVITY

Development program

Development program financing

Development program perfomance

contents

DEVElOPMENT PROGRAM

short project’s

nameThe subject of the project

Performance stage

EP 640

Ethylene production unit modernization with increase in capacity from 430 up to 640 th.tons of ethylene a year. Purpose – supplying the new capacities of HDPE production unit with the raw material.

To be completed in

2009

HDPE 510

HDPE production unit modernization with increase in capacity from 197 up to 510 th.tons of HDPE a year. Purpose - production volumes and profit increase, expansion of the assortment.

Completed in 2006

PhP 65

Phenol production unit modernization. Purpose – the existing production unit work stabilization for providing bisphenol A plant with raw material.

Completed in 2006

BPA 70

Bisphenol A plant construction with capacity of 70 th.tons a year. Purpose – supplying polycarbonates plant with the raw material and entering the new bisphenol A markets.

Completed in 2007

PC 65

Polycarbonates plant construction with capacity of 65 th.tons a year. Purpose - entering the new polycarbonate market.

Completed in 2008

In 2004, the Board of Directors approved OJSC Kazanorgsintez’s development pro-gram, which includes the upgrading of existing production units and construction of new ones. Development Program consists of two stages:

The Board of Directors together with the Management Board is carrying out the study of the second stage of OJSC Kazanorgsintez’s development program. According to preliminary estimations, the total amount of investments for the second stage of development program performance will make RUR 93 bln., and will allow OJSC Kazan-orgsintez to increase the sale proceeds by more than RUR 70 bln.

The first stage (2004-2008):

The second stage:

This butterfly Bombyx mori belonging to the family of true silkworms (Bombycidae) is unknown in wild nature. The silkworm was domesticated in China as far back as 3 thousand years ago and is still used for production of silk cocoons which serve as raw material for real silk production. The butterfly with whitish wings (wing span 4-6 cm) can’t fly and doesn’t feed. But its caterpillar is very vora-cious. To receive 3 kg of a silk thread it is necessary to feed leaves from approximately 30 mulberry trees to caterpillars.

When the caterpillar needs to make a silk thread, it produces a liquid trickle from a silk gland and in contact with air the liquid solidifies. The silk thread is only 13-14 microns thick in diameter, but for all that it can hold a load of about 15 grams. It was calculated that if it were possible to make one pencil-thick silk fibre, a Boeing-747 could be hanged up on this fibre. The components of the thread are such substances as fibroin, sericin, fats, oils, wax, pigments, etc.

Silk is extremely stretch durable excelling nylon in that. Silk fibroin produced by silkworm caterpillars within a pupa forming period and being the major component of silk threads is considered a classical example of structural protein. Structural proteins secure mechanical strength and other mechanical properties of certain tissues of living organisms. Under the influence of its own weight it tears only when it is 50 kilometers long!

71

AN

NU

Al

REPO

RT` 2

008

PART

IV

contents

DEVElOPMENT PROGRAM FINANCING

Development program financing is carried out according to OJSC Kazanorgsintez’s funding strategy.

Long-term credits attraction for a period from 5 up to 12 years in national and in foreign currencies, with beneficial period of crediting during investments realization.

Attraction of loans from international markets of unsecured debt financing.

Attraction of unsecured credits.

Optimization of expenses for debt service at signing the investment contracts by issue the letters of credit, purchase of the equipment in leasing, delay of payment till equipment delivery.

Use of short- and medium term credits for current activity financing.

Execution of overdraft unsecured credits for covering the time cash breaks.

Funding strategy:

DEVElOPMENT PROGRAM FINANCING

In 2008, the amount of the main projects’ fi-nancing made RUR 6,317 mln. The total amount of the main projects of development program financ-ing from 2004 up to 2008 made more than RUR 35,344 mln.

In 2008, OJSC Kazanorgsintez continued con-clusion of Loan Agreements with the leading Russian and foreign banks with the purpose of financing the investment program, current activities, and previous credits refinancing.

There were no breaches of payment obligations under the Loan Agreements in the reporting year.

Projects of the 1st stage

Has been financed from 2004 up to 2008,

total

including, due to:

borrowed funds

own funds

1. HDPE 510 7,618 5,016 2,602

2. EP 640 7,190 5,246 1,944

3. PhP 65 2,718 1,069 1,649

4. BPA 70 6,105 3,456 2,649

5. PC 65 11,713 7,167 4,546

Total of the main projects

35,344 21,954 13,390

RUR mln. incl. VAT

Development program financing

72

INVESTMENT ACTIVITY

73

AN

NU

Al

REPO

RT` 2

008

PART

IV

contents

DEVElOPMENT PROGRAM FINANCING

In 2008, the international credit ratings of OJSC Kazanorgsintez, assigned by the credit agencies Standard & Poor’s, and Fitch Ratings in 2005 were reduced.

Credit rating

According to Standard & Poor’s report, OJSC Kazanorgsintez’s rating is lowered from “CCC+” down to “CC” because of the problems with refinancing.

Date of rating assignment / change Issue’s Credit Rating Outlook

18.11.2005 B- Stable

02.05.2008 B- CreditWatch Negative

19.08.2008 B- Stable

06.11.2008 ССС+ Negative

02.04.2009 СС Negative

Standard & Poor’s

According to Fitch report, downgrading of OJSC Kazanorgsintez’s rating reflects rating agency’s height-ened concern regarding lack of visible progress in the search of long-term debt refinancing in order to comply with the substantive obligations maturing 2009.

Date of rating assignment / change

Issuer Default Rating Outlook

21.11.2005 B Stable

29.04.2008 B- Rating Watch Negative

10.11.2008 ССС Rating Watch Negative

12.02.2009 СС Rating Watch Negative

27.04.2009 С Rating Watch Negative

Fitch Ratings

DEVElOPMENT PROGRAM PERFOMANCE

Ethylene production unit modernizationThe ethylene production unit modernization

with capacity increase from 430 up to 640 th.tons of ethylene per year is carried out according to the de-sign project of Technip Benelux B.V. (Netherlands).

Within the given task realization in 2008:

second ethylene production unit operating equipment modernization is at the final stage: works for static and dynamic equipment assem-bling and pipeline mounting are completed, as-sembling works of the Instrument system and electrical equipment are near completion;

new high-selective double-cell cracking fur-nace of the second ethylene production unit is put into operation. The construction of the furnace is performed according to the design of Technip Benelux B.V., design capacity is 18 tons of ethylene per hour;

new furnaces crack gas section of the second ethylene production unit is put into operation;

Information about credit ratings is presented in accordance with the data from the web sites of rating agencies: www.standardandpoors.com, and www.fitchratings.com

74

INVESTMENT ACTIVITY

75

AN

NU

Al

REPO

RT` 2

008

PART

IV

contents

DEVElOPMENT PROGRAM PERFOMANCE

construction and assembling works for the new gas separation section of the third ethylene production unit are at the final stage: static and dynamic equipment mounting is completed; assembling works of the Instrument system and electrical equipment are near completion, com-missioning is started;

third ethylene production unit operating equip-ment modernization is at the final stage: furnac-es crack gas water ablution unit is put into oper-ation, static and dynamic equipment mounting is completed; intershop and intrashop commu-nication lines, and Instrument system and elec-trical equipment mounting is near completion;

fourth ethylene production unit operating equipment modernization is at the final stage: static and dynamic equipment mounting is completed; intershop and intrashop commu-nication lines, and Instrument system and elec-trical equipment mounting is near completion, launch of the equipment has been started;

flare unit construction and assembling works are at the final stage.

DEVElOPMENT PROGRAM PERFOMANCE

Subproject - liquified hydrocarbon gases warehouse

Liquefied hydrocarbon gases warehouse de-signed for liquefied hydrocarbon raw material receiv-ing, keeping and transferring to the ethylene plant production units. Construction design is executed by OJSC Samaraneftechimproekt and provides the cre-ation of two warehouse units.

Within the given task realization in 2008:

installation, wiring with pipelines, and testing of eight ball reservoirs with the volume of 600 cu-bic meters each are completed at the first unit of the warehouse;

installation of the following units is completed: the railway platform for discharge; the gas com-pressor house with the installation of three CORKEN compressors; heating system and boiler house, air compressor house; open pump station; fire water supply system; wastewater treatment system; access automobile roads and railways; outside platform for heat content-wire;

the following works are at the final stage: as-sembling of the liquefying propane setting, and the flare unit; finishing works at the transformer substation;

assembling of three ball reservoirs at the se cond unit of the warehouse is completed.

76

INVESTMENT ACTIVITY

77

AN

NU

Al

REPO

RT` 2

008

PART

IV

contents

DEVElOPMENT PROGRAM PERFOMANCE

HDPE production unit modernizationIn 2007, HDPE production unit modernization is

completed.Production unit modernization has been per-

formed according to licensing technology of “Univa-tion Technologies” (USA), and base project of “ТЕС” (Japan). Design capacity of the project is 510 th.tons of high density polyethylene a year.

Due to performed modernization the produc-tion of linear and bimodal polyethylenes, which has no analogues in Russia as well as new grades of poly-ethylene with improved consumer properties, was developed.

In 2008, works for performance the subprojects of HDPE production unit modernization were continued:

Butene-1 production unit construction

Buten-1 is used as the co-monomer in high den-sity polyethylene production.

Buten-1 production unit construction is per-formed according to the design of CJSC Incor Engi-neering. Designed capacity is 20.5 th.tons of butene-1 per year.

In 2008, the production was put into operation. At the time the works for reaching the designed pro-duction capacity are carried out.

Butene-1 warehouse reconstruction

Subproject provides warehouse reconstruction and capacity increase in order to provide uninter-rupted supply of butene-1 to high density polyeth-ylene production unit. The reconstruction design is executed by CJSC Incor Engineering.

In 2008, installation of three ball-reservoirs with the maintenance platforms is completed, control room and fire fighting pump station are built. Dy-namic equipment is purchased.

Hexene-1 and isopentane warehouse expansion

Subproject provides warehouse’s capacity in-crease in order to provide uninterrupted supply of hexane-1 and isopentane to high density polyethy-lene production unit.

In 2008, assembling of the most part of the technological equipment was finished. A temporary scheme of the warehouse operating has been im-plemented, providing receiving and transferring of products.

DEVElOPMENT PROGRAM PERFOMANCE

Phenol production unit modernization

Bisphenol A plant construction

In 2006, the project has been completed.Phenol production unit modernization has been

performed according to the design of OJSC “Sintez-kauchukproekt”.

As a result of modernization the production ca-pacity of 65 th. tons of phenol per year was reached.

In 2007, Bisphenol A plant start-up has been performed.

Bisphenol A plant construction is per-formed according to the license and design of Idemitsu Kosan Co., Ltd (Japan). Design production capacity makes 70 th.tons of bisphenol per year.

The process of bisphenol A production is an in-novative technology, showing high-quality of prod-ucts and low environmental impact.

78

INVESTMENT ACTIVITY

79

AN

NU

Al

REPO

RT` 2

008

PART

IV

contents

DEVElOPMENT PROGRAM PERFOMANCE

Polycarbonates plant construction

Carbonic dioxide production unit

construction (subproject)In 2008, Polycarbonates plant start-up has

been performed.Polycarbonate plant construction is performed

according to the license and design of Asahi Kasei Chemicals Corporation (Japan). Design production capacity makes 65 th.tons of polycarbonate per year.

Polycarbonate production process represents the innovation technology, showing high-quality of the wide range of products, excluding the use and receipt of dangerous for person’s health and envi-ronment poison substances, such as phosgene and methylene chloride, and forms small quantity of wastes, which causes low environmental impact and high ecological compatibility of production.

In 2008, Carbonic dioxide production unit was put into operation.

The construction of the production unit is per-formed according to the design of CJSC Incor Engi-neering. Design capacity – 20 th.tons of carbonic di-oxide per year.

The most part of carbonic dioxide is used in polycarbonates production. The silkworm is a unique insect being a living producer of

industrial goods in volumes significant for the world market.

100 kg cocoons make it possible to get about 9 kg of silk threads. The silkworm spins the most beautiful yarn, but caterpillars of some other butterflies can also make a silk thread, though a rougher one. Thus, fagara silk is obtained from Atlas moth cocoons from Eastern Asia (Attacus attacus), and silk used in tussore production is acquired from cocoons of Chinese oak silk moths (genus Antheraea).

The story about this unique insect could be incomplete without a concise description of its main “partner” in silk produc-tion – a white mulberry. The white mulberry is one of the names of a mulberry tree (Morus alba) which is found in nature in mountain broad-leaved forests of China. The mulberry got to Europe together with silkworms. Under auspicious conditions the tree exceeds 10-20 m tall, and under unfavourable conditions it looks like a bush. The mulberry lives up to 200-300 years. The mulberry is a monoecious plant, but sometimes fruitless (staminate) trees are found. Young branches are from grey-green to red-brown, with light or reddish-pale lenticels. Leaves are of various configurations and sizes even on one tree, from entire-kind to laminal leaves. Fruits are edible, sweet ber-ries the colour of which varies from white to black.

By an example of this original “trade union” of the tree and the insect we see a model of a very efficient investment campaign cre-ated by nature itself.

80

INVESTMENT ACTIVITY contents

Glowwormlat. Lampyridae, the lightning bugs family

PART V

CORPORATE GOVERNANCE

Authorities

Structure of the Board of DirectorsStructure of the Management Board

Authorized capital and stock market

Essential facts and deals

Affiliated parties

Long-term financial investments

General information about the Company

contents

The glowworm family (Lampyridae) numbers about 2000 species. The ability to bioluminescence (the light of wild-life) made the representatives of this family known. Arthropoda comprise luminescent species in Pycnogonida, Eucrustacea, Diplopoda, Chilopoda and Insecta. Especially imposing is this group in the class Insecta where luminescent species are concentrated basically in the order Coleoptera, in the super-families Cantharoidea and Elateroidea (two genera). Several luminescent species are discovered in the orders Diptera and Homoptera. Besides, there are species creating a symbiosis with luminescent bacteria in the orders Lepidoptera, Isoptera, Ortoptera, Ephemeroptera and Heminoptera. And still the largest number of species with their own bioluminescence is in the above mentioned family Lampyridae.

Outwardly the bugs resemble leather-winged beetles very much, but have got a less bright coloration. Many species of glowworms have males looking like beetles in which they dif-fer from wingless, vermiform females.

The light organs of glowworms are located at the end of an abdomen in the overwhelming

majority of cases. Big photogenic cells are under a transparent cuticle. The cells filled

with crystals of uric acid act as light reflectors. Oxygen and nitrogen neces-sary for oxidation processes come to the

photogenic cells by tracheae, and a feltwork regulates these processes. If you remove a head

of a glowworm its glow will stop, but then if you irritate nerves going from the head the headless glowworm will start illuminating again.

CORPORATE GOVERNANCE

Corporate governance of OJSC Kazanorgsintez is carried out according to the current legislation, the Charter, and other internal documents of the Company.

OJSC Kazanorgsintez corporate governance system is based on the Russian and in-ternational practice, principles of Code of corporate behavior, and is directed to keeping, and augmentation of the Company’s assets, market value increase, maintenance of finan-cial stability and profitability of the Company, and respect of the rights and interests of all persons interested in the enterprise’s successful activity.

All the most significant events are carried out on the basis of the open information interchange with shareholders and other interested parties.

Constantly operating Committees are attached to the Board of Directors:

Audit Committee; Personnel and Remuneration Committee.

The main task of the Committees is preliminary consider-ation of the most important questions within the framework of the Board of Directors’ competence and preparation of recom-mendations to the Board of Directors for decision-making.

85

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

The purpose of the Audit Committee is provi-sion of actual participation of the Board of Directors in the control of financial and economic activity of the Company. The Audit Committee is operating in accordance with the Regulations and Work plan, con-firmed by the Board of Directors of the Company.

Members of the Audit Committee:Grishin Evgeny Anatolevich – State Advisor to the President of Tatarstan Republic on economic issues, Chairman of the Audit Committee.

Alekseev sergey Vladimirovich – First Deputy General Director of OJSC Svyazinvestneftekhim.

Teslenko Dmitry Ivanovich – Head of Finance and Economic Depart-ment of PSC TAIF.

Audit Committee of the Board of Directors

Audit Committee functions:

Preparing recommendations for preliminary confirmation of the annual reports of the Com-pany;

Preparing recommendations for the Company’s profit distribution, including the amount of divi-dends for shares, forms and regulations of the dividends payments;

Development recommendations for confirma-tion of the candidate auditors of the Company, determination of the amount of payment for auditor’s services;

Efficiency of the risk management procedures analysis, preparing recommendations for their perfection;

Preparing recommendations for internal Com-pany’s activity control perfection;

Other functions, related to the Committee’s competence.

Audit Committee is not the authority of the Company and doesn’t have the right to act on behalf of the Board of Directors.

CORPORATE GOVERNANCE

The purpose of the Personnel and Remunera-tion Committee is provision of attraction the quali-fied experts to the management of the Company and creation of the necessary stimulus for their successful work. Personnel and Remuneration Committee is op-erating in accordance with the Regulations and Work plan, confirmed by the Board of Directors of the Com-pany.

Members of the Committee on Per-sonnel and Remuneration are:

sabirov Rinat Kasimovich – Assistant to the Prime Minister of Tatar-stan Republic on the issues related to petrochemical complex, Chairman of the Personnel and Remuneration Com-mittee.

Alekhin leonid stepanovich – General Director of OJSC Kazanorgsintez.

sarkin Andrey Vladislavovich – Head of the Corporate Governance of Property and Investments Department of PSC TAIF.

Personnel and Remuneration Committee of the Board of Directors

CORPORATE GOVERNANCE

Personnel and Remuneration Committee functions:

Preparing recommendations to the General Shareholders Meeting for determination the size of the bonuses and compensations to the members of the Board of Directors and the In-spection Commission of the Company;

Preparing recommendations for determination the amount of compensation to the Chief Offi-cers of the Company;

Preparing recommendations for election the individual executive body of the Company, and the candidates for his Deputies;

Preparing recommendations for quantitative composition and election members of the col-lective executive body;

Preparing recommendations for appointment the managers of the branches and representa-tive offices of the Company;

Other functions, related to the Personnel and Remuneration Committee’s competence.

Personnel and Remuneration Committee is not the authority of the Company and doesn’t have the right to act on behalf of the Board of Directors.

86

CORPORATE GOVERNANCE

87

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

AUTHORITIEs

Structure of the Board of Directors of OJSC Kazanorgsintez

shigabutdinov Albert Kashafovich

General Director of PSC TAIF. Chairman of the Board of Directors of OJSC Kazanorgsintez.

Was born in 1952. In 1976, graduated from Kazan Aviation Institute.

Since 1995 till nowadays – General Director of PSC TAIF.

Honored Economist of Tatarstan Republic.

Presnyakov Vladimir Vasilevich

Deputy General Director of PSC TAIF on Refinery and Petrochemicals. Deputy Chairman of the Board of Directors of OJSC Kazanorgsintez.

Was born in 1951. In 1976, graduated from Kazan Chemical-Technological Institute.

From 1999 till 2003 – First Deputy General Director – Director on Production & Sales of OJSC Nizhnekamskneftehim.

Since 2003 till nowadays - Deputy General Director of PSC TAIF on Refinery and Petrochemicals.

Honored Chemist of Tatarstan Republic.

Alekhin leonid stepanovich

General Director of OJSC Kazanorgsintez.

Was born in 1955. In 1980, graduated from Kazan Chemical-Technological Institute.

From 2002 till 2003 – Director of OJSC Nizhnekamskneftehim Plant for polystyrene production and gaseous condensate processing.

Since 2003 till nowadays – General Director of OJSC Kazanorgsintez.

Honored Chemist of Tatarstan Republic.

Structure of the Board of Directors of OJSC Kazanorgsintez

AUTHORITIEs

Alekseev sergey Vladimirovich

First Deputy General Director of OJSC Svyazinvestneftekhim.

Was born in 1966. In 1989, graduated from Kazan State University, in 1999 graduated from Tatar Institute of Business Assistance.

From 2002 till 2003 – Director on Economy and Finance of LLC Agency “Consulting. Planning. Finance.”

Since 2003 till nowadays - First Deputy General Director of OJSC Svyazinvestneftekhim.

safiullin Marat Rashitovich

RT Minister of Economy.

Was born in 1970. In 1991, graduated from Kazan Institute of Finance and Economics.

From 1998 till 2007 – Head of Management Department of Kazan Institute of Finance and Economics.

Since 1999 till nowadays – Head of the module “Management of organization” of the international program “Master of Business Administration” MBA, ESIDEK Group (France) St. Petersburg Universi-ty of Finance and Economics and Kazan Institute of Finance and Economics.

From 2003 till 2007 – State Counselor under RT President on social-economic issues.

Since 2007 till nowadays - RT Minister of Economy.

Doctor of Economic sciences, Honored Economist of Tatarstan Republic.

sabirov Rinat Kasimovich

Assistant to the Prime Minister of Tatarstan Republic on the issues related to petrochemical complex.

Was born in 1967. In 1991, graduated from Kazan State University.

In 2003 – Chief Referent of the Organizing Department of RT President machinery.

From 2003 till 2006 – Advisor to the Prime Minister of Tatarstan Republic on the issues related to petrochemical complex.

From 2006 till 2008 - Head of Petrochemical Complex Department of the RT Cabinet of Ministers.

Since 2008 till nowadays – Assistant to the Prime Minister of Tatarstan Republic on the issues related to petrochemical complex.

Pre-Doctorate Degree in Chemical Sciences.

88

CORPORATE GOVERNANCE

89

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

Structure of the Board of Directors of OJSC Kazanorgsintez

sulteev Rustem Nurgasimovich

Deputy General Director of PSC TAIF, Production & Sales – First Deputy General Director of PSC TAIF.

Was born in 1954. In 1976, graduated from Kazan Con-struction Engineering Institute.

Since 1995 till nowadays – Deputy General Director of PSC TAIF, Production & Sales, First Deputy General Director of PSC TAIF.

Honored Constructor of Tatarstan Republic.

sarkin Andrey Vladislavovich

Head of Corporate Property and Investments Department of PSC TAIF.

Was born in 1960. Graduated from Kazan State Univer-sity.

Since 1995 till nowadays – Head of Corporate Property and Investments Department of PSC TAIF.

Pre-Doctorate Degree in Economic Sciences.

AUTHORITIEs

Grishin Evgeny Anatolyevich

State Advisor to the RT President on economic issues.

Was born in 1961. In 1987, graduated from Kazan Insti-tute of Finance and Economics.

From 1999 till 2007 – Head of the Department of Economy, Finance, and Management of State Property of the Cabinet of Ministers of the RT.

Since 2007 till nowadays - State Advi-sor to the RT President on economic issues

Honored Economist of Tatarstan Republic.

Structure of the Board of Directors of OJSC Kazanorgsintez

Teslenko Dmitry Ivanovich

Head of Finance and Economic Department of PSC TAIF.

Was born in 1961. In 1984, graduated from Leningrad Institute of Fine Mechanics and Optics.

From 2002 till 2006 – First Deputy General Director of CJSC TAIF-Art.

In 2006 – Deputy Head of Finance and Economic Department of Kazan GTS.

Since 2006 till nowadays – Head of Finance and Economic Department of PSC TAIF.

Fardiev Ilshat shaehovich

General Director of OJSC Tatenergo, General Director of OJSC Generation Company.

Was born in 1960. In 1983 graduated from Moscow Power Engineer-ing Institute.

Since 2002 till nowa-days – General Director of OJSC Tatenergo.

Since 2005 till nowa-days – General Director of OJSC Generation Company.

Honored Power Worker of Tatarstan Republic.

AUTHORITIEs

90

CORPORATE GOVERNANCE

91

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

AUTHORITIEs

According to the Charter of OJSC Kazanorgsintez the Board of Directors of the Company is elected by the General Shareholders’ Meeting for a period till the next Annual Gen-eral Shareholders’ Meeting.

The Board of Directors of OJSC Kazanorgsintez consists of eleven members, ten of which are elected by the General Shareholders’ Meeting, and one member of the Board of Di-rectors is appointed by the President of Tatarstan Republic according to the special right (“golden share”).

In the composition showed above the Board of Direc-tors was approved on the 16th of April, 2008 by the decision of the Annual General Shareholders’ Meeting. According to the decision the following persons left the Board of Direc-tors:

Gaizatullin Radik Raufovich – Minister of Finance of Tatarstan Republic;

Metshin Ilsur Raisovich – Head of municipal formation “city of Kazan”;

Musin Robert Renatovich – Chairman of the Board of Directors of OJSC Joint-stock commercial bank AK BARS;

safina Guzelija Muharjamovna – Deputy General Director of PSC TAIF, Economy and Finance;

Tuktarov Farid Haidarovich – Deputy Minister of Tatarstan Republic, Industry and Trade.

Yarullin Rafinat samatovich – General Director of OJSC Tatneftekhiminvest-holding.

The following persons entered the Board of Directors:

Grishin Evgeny Anatolyevich – State Advisor to the RT President on economic issues;

sarkin Andrey Vladislavovich – Head of Corporate Prop-erty and Investments Department of PSC TAIF;

Teslenko Dmitry Ivanovich – Head of Finance and Economic Department of PSC TAIF;

Fardiev Ilshat shaehovich – General Director of OJSC Tatenergo, General Director of OJSC Generation Company.

Safiullin Marat Rashitovich was appointed to the Board of Directors by RT President Order. Other members of the Board of Directors have been re-elected.

The Board of Directors in the previous structure, elect-ed by the General Shareholders’ Meeting on the 15th of June 2007, has held 4 sessions during the period from the 1st of January 2008 till the 15th of April 2008, including 2 sessions in correspondence form.

Issues connected with the Company’s activity relating to the Board of Directors’ competence were discussed during the sessions, including financial and economic activity results, approving of accounting of the Company, deals concerning to which there was an interest, an ordinary share buypack, and other questions.

The Board of Directors in the new structure, elected by the General Shareholders’ Meeting on the 16th of April 2008, has held 7 sessions during the period from the 16th of April 2008 till the 31st of December 2008, including 3 ses-sions in correspondence form.

Participation of the Board of Directors’ members, elected on the 15th of June 2007, in the sessions held from the

1st of January 2008 till the 15th of April 2008

Participation of the Board of Directors’ members, elected on the 16th of April 2008, in the sessions held from the

16th of April 2008 till the 31st of December 2008

Name

Participated in sessions held

in internal form

by ques-tionnaire (in corre-

spondence form)

presented the opinion in

written form on agenda questions

Alekhin l. s. 2 2 -

Alekseev s. V. 2 2 -

Gaizatullin R. R. - 2 -

Metshin I. R. - 2 -

Musin R. R. - 2 -

Presnyakov V. V. 2 2 -

sabirov R. K. 2 2 -

safina G. M. 2 2 -

safiullin M. R. - 2 -

sulteev R. N. 2 2 -

Tuktarov F. H. 1 2 -

shigabutdinov A. K. 2 2 -

Yarullin R. s. 1 2 -

Name

Participated in sessions held

in internal form

by ques-tionnaire (in corre-

spondence form)

presented the opinion in

written form on agenda questions

Alekhin l. s. 4 3 -

Alekseev s. V. 2 3 2

Grishin E.A. 4 3 -

Presnyakov V. V. 4 3 -

sabirov R. K. 3 3 1

sarkin A.V. 4 3 -

safiullin M. R. 3 3 1

sulteev R. N. 4 3 -

Teslenko D.I. 3 3 1

Fardiev I.s. 2 3 -

shigabutdinov A. K. 4 3 -

AUTHORITIEs

Kudryashov Vladimir Nikolaevich

First Deputy General Director – Technical Director on Production and Development.

Was born in 1958. In 1980, graduated from Kazan Chemical-Technological Institute.

From 1999 till 2004 - First Deputy General Director of OJSC Kazanorgsintez– Tech-nical Director.

Since 2004 till nowadays – First Deputy General Direc-tor of OJSC Kazanorgsin-tez – Technical Director on Production and Develop-ment.

Pre-Doctorate Degree in Technical Sciences.

Honored Chemist of Tatar-stan Republic.

Alekhin leonid stepanovich

General Director of OJSC Kazanorgsintez, Chair-man of the Management Board of OJSC Kazanorgsin-tez.

Was born in 1955. In 1980, graduated from Kazan Chemical-Technological Institute.

From 2002 till 2003 – Direc-tor of OJSC Nizhnekamsk-neftehim Plant for polysty-rene production and gaseous condensate processing.

Since 2003 till nowa-days – General Director of OJSC Kazanorgsintez.

Honored Chemist of Tatar-stan Republic.

Gainullina Natalia Fanisovna

Deputy General Director – Chief Financial Officer.

Was born in 1975. In 1997, graduated from Kazan Institute of Finance and Economics.

From 2001 till 2003 – Senior consultant of the interna-tional audit company Price-WaterhouseCoopers.

From 2003 till 2007 - Deputy Chief Financial Officer at OJSC OMZ.

Since 2007 till nowadays – Deputy General Director of OJSC Kazanorgsintez– Chief Financial Officer

Gainullin Nail samigullovich

Deputy General Director – Chief Engineer.

Was born in 1952. In 1976, graduated from Kazan Chemical-Technological Institute. In 2002, graduated from Russian Economic Academy named after Plekhanov.

From 1994 till 2004 – director of low density polyethylene plant of OJSC Kazanorgsintez.

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez– Chief Engineer.

Honored Chemist of Tatarstan Republic.

Structure of the Management Board of OJSC Kazanorgsintez

92

CORPORATE GOVERNANCE

93

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

Potashkin Andrey Fedorovich

Deputy General Director – Director on Production.

Was born in 1962. In 1985, graduated from Kazan Chemical-Technologi-cal Institute.

From 2002 till 2004 – direc-tor of high density polyeth-ylene plant of OJSC Kazan-orgsintez.

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez – Di-rector on Production.

Honored Chemist of Tatar-stan Republic.

Raimov Asaf Magsumovich

Deputy General Director – Director on Commerce.

Was born in 1965. In 1992, graduated from Kazan Construction Engineer-ing Institute.

From 1995 till 2004 – busi-ness-manager of PSC TAIF.

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez – Direc-tor on Commerce.

Honored Constructor of Tatarstan Republic.

shaikhiev Gaifutdin Gilazovich

Deputy General Director – Director on Personnel and General issues.

Was born in 1951. In 1987, graduated from Kazan Agricultural Institute.

From 1994 till 2004 – General Director of CJSC Ferroconcrete constructions plant.

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez – Director on Personnel and General issues.

Honored Constructor of Tatarstan Republic, Honored Constructor of the Russian Federation.

Gataullin Magdut Makhmutovich

Deputy General Director – Director on Capital constructions.

Was born in 1960. In 1987, graduated from Construction Engineering Institute.

From 2002 till 2004 – General Director of LLC Production and construction union “Kazan”

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez – Director on Capital constructions.

Honored Constructor of Tatarstan Republic.

AUTHORITIEs

Structure of the Management Board of OJSC Kazanorgsintez

AUTHORITIEs

Kurbanov Ravil Barievich

Deputy General Director – Director on Economic Safety and Regime.

Was born in 1955. In 1977, graduated from law department of Kazan State University. In 1985 graduated from USSR MIA Academy.

From 1997 till 2004 – Director of the private guarding enterprise LLC KENNARD.

Since 2004 till nowadays – Deputy General Director of OJSC Kazanorgsintez – Director on Economic Safety and Regime.

Kaleeva larisa Nikolaevna

Chief Accountant.

Was born in 1957. In 1985, graduated from Kazan Institute of Finance and Economics.

From 1986 till 2006 – Deputy Chief Accountant of OJSC Kazanorgsintez.

Since 2006 till nowadays – Chief Accountant of OJSC Kazanorgsintez.

Honored Economist of Tatarstan Republic.v

The Board of Directors and Management Board members, possessing shares of OJSC Kazanorgsintez (as of December 31, 2008)

surname, name, patronymic/position

share in authorized capital, %

Kudryashov Vladimir NikolaevichMember of the Management Board of OJSC Kazanorgsintez

0.013

Gainullin Nail samigullovichMember of the Management Board of OJSC Kazanorgsintez

0.003

Kaleeva larisa NikolaevnaMember of the Management Board of OJSC Kazanorgsintez

0.011

Total 0.027

The share of the specified persons in the authorized capital of the joint-stock

company during 2008 did not change.

94

CORPORATE GOVERNANCE

95

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

AUTHORIZED CAPITAl AND sTOCK MARKET

As of December 31, 2008 the size of the authorized capital of OJSC Kazanorgsintez has not been changed during the reporting year, and made RUR 1,904.71 mln.

Type of securities Face value, RUR Number of sharesshare in

authorized capital, %

Ordinary shares 1 1,785,114,000 93.72

Preference shares 1 119,596,000 6.28

Total 1,904,710,000 100.00

The authorized capital of OJSC Kazanorgsintez has been paid completely.

The authorized capital consists from 1,904,710,000 shares and is distributed by categories of shares as follows:

№ Decision about issue Type of shares Number of

shares in issue Type of issue

state body, real-izing registra-

tion of an issue, № of registration

Condition of issue

1. Privatization planOrdinary shares,

face value RUR 10,000

1,785,114 Closed subscription

RT Ministry of Finance;

№11-1p-436 от 31.08.1993

Canceled

2. Privatization planPreference shares,

face value RUR 10,000

119,596 Closed subscription

RT Ministry of Finance;

№11-1p-436 от 31.08.1993

Canceled

3.Shareholders’ Meeting

26.06.1998Ordinary shares, face value RUR 1

17,851,140 Conversion

RT regional office of the Federal

Commission on Securities

№ 1-02-55245-D 08.02.1999

Issued

4. Shareholders’ Meeting

26.06.1998Preference shares, face value RUR 1

1,195,960 Conversion

RT regional office of the Federal

Commission on Securities

№ 2-02-55245-D от 08.02.1999

Issued

5.Supervisory Board

17.03.2003Ordinary shares, face value RUR 1

1,767,262,860Distribution of the additional shares

among shareholders

RT regional office of the Federal

Commission on Securities

№ 1-03-55245-Dот 09.04.2003

Canceled (combined

together with the issue№1-02-55245-D)

6.Supervisory Board

17.03.2003Preference shares, face value RUR 1

118,400,040Distribution of the additional shares

among shareholders

RT regional office of the Federal

Commission on Securities

№ 2-03-55245-Dот 09.04.2003

Canceled (combined

together with the issue

№ 2-02-55245-D)

Information on share issue

AUTHORIZED CAPITAl AND sTOCK MARKET

Nameshare in the authorized capital, %

LLC Telecom-Management 50.24

OJSC Svyazinvestneftekhim 26.64

Other legal entities 11.72

Individuals 11.40

Total 100.00

Type of securitiesInterest to face value

2004 2005 2006 2007

Ordinary shares 27.50 15.14 35.45 42.07

Preference shares 25.00 25.00 25.00 25.00

Structure of OJSC Kazanorgsintez’s authorized capital as of December 31, 2008

Dynamics of dividend payments on shares of the Company:

Number of persons registered in the shareholder register as of December 31, 2008, makes 8,456; includ-ing individuals – 8,430, legal entities – 26 (including 13 Nominee shareholders).

Owners of preference shares according to the Charter of the Company have the right to receive annual dividends not less than 25% of the share’s face-value.

Number of shares on which dividends are charged: 1,904,710,000 shares.

Dividends

Type of securities

Face value,

RUR

Number of shares

Total amount,

RUR

Ordinary shares 1 25 bln. 25 bln.

Information on declared shares of the Company

96

CORPORATE GOVERNANCE

97

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

AUTHORIZED CAPITAl AND sTOCK MARKET

OJSC Kazanorgsintez’s shares are traded on OJSC Stock exchange Russian Trading System” (RTS): Classical market RTS, Exchange market RTS, and RTS Board.

Classical RTs market – is the oldest organized securities market of Russia, operating since 1995. OJSC Kazanorgsintez’s ordinary shares are included in the list of securities accepted to the auction of Clas-sical RTS market since 1997. Company’s shares are related to unlisted stocks, i.e. accepted to the auction without going through the listing procedure (without including into Quotation List). Share code – KZOs.

As of December 31, 2008 OJSC Kazanorgsintez’s ordinary shares are included in the list of shares used for RTS-2 index calculation. RTS-2 index is the indica-tor of the auction at RTS Stock exchange with shares related to the second echelon according to liquidity and capitalization.

Exchange RTs market is operating since 2004. The platform is created for organization the auction of the wide range of securities of the Russian issuers. One of the priority directions of the system’s activity is the second echelon shares market development. In 2004, OJSC Kazanorgsintez’s ordinary shares were admitted to circulation at the OJSC RTS Exchange market. Share code – KZOsG.

RTs Board – is the information system, intended for indicative quotation of securities (shares, bonds, investment shares) not admitted to the auction at RTS, and for initial liquidity growth of securities. In 2002, OJSC Kazanorgsintez’s preference shares were includ-ed in the list of RTS Board. Share code – KZOsP.

In 2008, total volume of OJSC Kazanorgsintez’s ordinary shares trade at RTS Stock exchange made RUR 185 mln. (14,059,223 pieces). The maximal quo-tation on one OJSC Kazanorgsintez’s ordinary share purchase made $0.73, the minimal quotation on sale made $0.11.

Capitalization of the Company, calculated ac-cording to OJSC RTS as of December 31, 2008 made RUR 4,855 mln.

OJsC Kazanorgsintez’s shares circulation at trade platforms.

AUTHORIZED CAPITAl AND sTOCK MARKET

Table of OJSC Kazanorgsintez’s ordinary shares quotations

at the classical RTS market (USD)

Period

Max quotation

for purchase

Min quotation

for purchase

Max quotation

for sale

Min quotation

for sale

2006 г. Q1 0.6 0.35 1.05 0.445

Q2 0.583 0.3 0.78 0.42

Q3 0.51 0.31 0.78 0.4155

Q4 0.62 0.375 0.8 0.4875

2007 г. Q1 0.62 0.375 0.77 0.52

Q2 0.592 0.4 0.79 0.4905

Q3 0.545 0.4 0.75 0.475

Q4 0.6 0.39 1 0.4975

2008 г. Q1 0.64 0.3 1 0.485

Q2 0.73 0.3 1 0.6

Q3 0.5 0.2 1 0.35

Q4 0.27 0.05 1 0.11

Information about OJSC Kazanorgsintez’s shares circulation at the trade platforms is prepared on the basis of the data from OJSC Stock exchange “Russian Trading System” website: www.rts.ru

98

CORPORATE GOVERNANCE

99

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

EssENTIAl FACTs AND DEAls EssENTIAl FACTs AND DEAls

30.0416.04

15.10

21.11

26.11

31.12

30.0725.0930.09

Board of Directors’ MeetingAnnual General Shareholders’ Meeting

Board of Directors’ Meeting

Board of Directors’ Meeting

Board of Directors’ Meeting

Federal Tax Service

Federal Tax Service

Federal Tax Service

Federal Tax Service

1. Annual report, annual Financial Statements of OJSC Kazanorgsintez, including profit and loss account by the results of financial year 2007 were approved.

2. Distribution of OJSC Kazanorgsintez profit by the results of financial 2007 was approved.

Compensations for the members of OJSC Kazan-orgsintez’s Board of Directors and Inspection Commission according to the results of 2007 financial year were ap-proved in the amount of RUR 16,500 thousand.

The size of the annual dividends payment was ap-proved in the amount of 30% in money terms from the net profit of OJSC Kazanorgsintez, received according to the results of 2007 financial year. The size of the dividend under the share of each category is the following:

Under preference shares – in the mount of 25 kopecks per share;

Under ordinary shares – in the amount of 42.07 kopecks per share.

Term of dividends payment is specified - during twelve months from the date of OJSC Kazanorgsintez Annual General Shareholders’ Meeting’s decision about dividends payment by the results of financial 2007.

3. Members of OJSC Kazanorgsintez’s Board of Directors were elected.

4. Members of OJSC Kazanorgsintez’s Inspection Commission were elected.

5. Auditor is approved – ZAO PriceWaterhouseCoopers Audit.

6. OJSC Kazanorgsintez’s Charter is approved in new wording.

7. Internal Regulations of OJSC Kazanorgsintez, determining the activities of management and control bodies, are approved in new wording.

8. The following bargains in accomplishment of which there is an interest are approved:

between OJSC Kazanorgsintez and OJSC Nizhnekamskneftehim for ethylene purchase for the amount of RUR 7,124 mln.;

between OJSC Kazanorgsintez and OJSC Tatenergo for heat energy in the steam delivery for the amount of RUR 2,089 mln.;

between OJSC Kazanorgsintez and OJSC Tatenergo for electrical energy delivery for the amount of RUR 2,122 mln.

Changes to the terms of the bargain (inter-related bargains) for the finance attraction, structured as a loan,

provided by Kazanorgsintez SA to OJSC Kazanorgsintez, fi-nanced by the Eurobond issue and placement by the com-

pany at the international capital markets, are approved. The amount of additional costs of changes the terms of the bargain (inter-related bargains) will not exceed $4,600,000

(four million six hundred thousand US dollars).

Liquidation of subsidiary company LLC Trade House Orgsintez.

Liquidation of subsidiary company OJSC Spetsneftekhimmontazh.

Change of the share of OJSC Kazanorgsintez’s participation in LLC Agricultural enterprise Kolos Sintez.

Changes to the previously concluded Loan Agree-ments with the Joint-Stock Commercial Savings Bank of

the Russian Federation are approved.

The election of Leonid Stepanovich Alekhin for the position of the General Director of OJSC Kazanorgsintez

from the 1st of December, 2008 for a period of 5 years.

Changes to the previously concluded Loan Agree-ments with the Joint-Stock Commercial Savings Bank of

the Russian Federation are approved.

Change of the share of OJSC Kazanorgsintez’s participation in LLC TAIF-Invest.

100

CORPORATE GOVERNANCE

101

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

AFFIlIATED PARTIEs

List of affiliated parties as of December 31, 2008

lONG-TERM FINANCIAl INVEsTMENTs

OJSC Kazanorgsintez’s long-term financial investments as of December 31, 2008

№ Name of the company Type of activityshare in the authorized capital, (%)

Authorized capital, RUR

thousand

Amount of investment,

RUR thousand

1llC Palace of culture of chemists

Cultural-entertainment activity

100.0 300 300

2llC Agricultural enterprise Kolos sintez

Production and processing of agricultural goods

49.0 104 51

3 llC JV Elmer lTD Sales activity 50.0 788 394

4 llC Tatkhimremont Maintenance and construction works

100.0 5,357 13,243

5OJsC Tatneftekhiminvest - holding

RT petrochemical companies’ activities coordination

7.3 40,000 9,533

6 llC TAIF-INVEsTInvestment activity, work at stock markets

6.6 75,190 5,000

7Non-commercial organization National non-state pension fund

Non-state pension provision

2.4 328,600 8,000

8 OJsC Kazan fairOrganizing and holding exhibitions and fairs

2.2 78,240 2,950

9llC Novomoskovsky trubny zavod

Production of goods from polyethylene, polypropylene and other polymeric materials

26.0 10 2.6

Total 39,474

In 2008, OJSC Kazanorgsintez came out from participation in the authorized capital of the following entities:

LLC Trade house Orgsintez– because of liquidation of the organization by decision of the court;OJSC Spetsneftekhimmontazh– because of liquidation of the organization by decision of the extraordinary

General Shareholders’ Meeting of OJSC Spetsneftekhimmontazh;OJSC CRRT consult – because of the sale of shares.

Name or surname, name, and patronymic of the affiliated party

Argument, on account of which the party is determined as affiliated

01 Shigabutdinov Albert Kashafovich Chairman of the Board of Directors 02 Alekseev Sergey Vladimirovich Member of the Board of Directors03 Grishin Evgeny Anatolyevich Member of the Board of Directors04 Presnyakov Vladimir Vasilevich Member of the Board of Directors05 Sabirov Rinat Kasimovich Member of the Board of Directors06 Sarkin Andrey Vladislavovich Member of the Board of Directors07 Safiullin Marat Rashitovich Member of the Board of Directors08 Sulteyev Rustem Nurgasimovich Member of the Board of Directors09 Teslenko Dmitry Ivanovich Member of the Board of Directors10 Fardiev Ilshat Shaehovich Member of the Board of Directors11 Alekhin Leonid Stepanovich Member of the Board of Directors

Chairman of the Management Board12 Gainullin Nail Samigullovich Member of the Management Board 13 Gainullina Natalia Fanisovna Member of the Management Board 14 Gataullin Magdut Makhmutovich Member of the Management Board 15 Kudryashov Vladimir Nikolaevich Member of the Management Board 16 Kaleeva Larisa Nikolaevna Member of the Management Board 17 Kurbanov Ravil Barievich Member of the Management Board 18 Potashkin Andrey Fedorovich Member of the Management Board 19 Raimov Asaf Magsumovich Member of the Management Board 20 Shaikhiev Gaifutdin Gilazovich Member of the Management Board 21 LLC Telecom-Management Possession more than 20% of voting shares

of OJSC Kazanorgsintez, the company and OJSC Kazanorgsintez belong to the same group of companies

22 Shigabutdinov Ruslan Albertovich The person and OJSC Kazanorgsintez belong to the same group of companies

23 OJSC Svyazinvestneftekhim Possession more than 20% of voting shares of OJSC Kazanorgsintez

24 LLC Tatkhimremont OJSC Kazanorgsintez possesses more than 20 % of the authorized capital of this company, the company belongs to OJSC Kazanorgsintez group of companies

25 JV Elmer LTD OJSC Kazanorgsintez possesses more than 20 % of the authorized capital of this company

26 LLC Novomoskovsky trubny zavod OJSC Kazanorgsintez possesses more than 20 % of the authorized capital of this company

27 LLC SHP Kolos-Sintez OJSC Kazanorgsintez possesses more than 20 % of the authorized capital of this company

28 LLC Palace of culture of chemists OJSC Kazanorgsintez possesses more than 20 % of the authorized capital of this company, the company belongs to OJSC Kazanorgsintez group of companies

29 Kuramshin Aleksey Ravilevich The person belongs to OJSC Kazanorgsintez group of companies

30 PSC TAIF The company and OJSC Kazanorgsintez belong to the same group of companies

31 OJSC Nizhnekamskneftekhim The company and OJSC Kazanorgsintez belong to the same group of companies

102

CORPORATE GOVERNANCE

103

AN

NU

Al

REPO

RT` 2

008

PART

V

contents

GENERAl INFORMATION ABOUT THE COMPANY

Full brand name of the Company:Kazan Open Joint Stock Company “Organichesky Sintez”

shortened name:OJSC Kazanorgsintez

Address of the Company:420051, Russian Federation, Tatarstan Republic,

city Kazan, Belomorskaya street, 101

Information on state registration of the Company:Registered by RT Ministry of Finance on the 31st of August,

1993, under the filing number 400.

Main state registration number in the uniform legal entities state register:

1021603267674

Head of the Company: General Director Alekhin leonid stepanovich

legal status of the Company: Open Joint Stock Company

Main kinds of the Company’s activities are as follows:•Productionofplasticsandsyntheticresinsintheinitialforms

•Productionofsoapanddetergents

•Productionofoil,additivesandantifreezes

•Productionofplasticplates,andpipes

•Productionofplasticgoodsforpacking

•Productionofothermainorganicchemicalproducts, not included in the groups above

•Elaborationofnonmetalwastesandscraps

•Watercollection,purificationanddistribution

•Wholesaletradeofplasticsandsyntheticresins in the initial forms

•Wholesaletradeotherindustrialchemicalproducts

Management bodies of the Company:General Shareholders’ Meeting

Board of Directors

Individual Executive Body (General Director)

Collective Executive Body (Management Board)

Control body of the Company:Inspection Commission

Inspection Commission structure:Chairman of Inspection Commission,

Chief Accountant of PSC TAIF Ignatovskaya Olga Vladimirovna

Principal Adviser to the Prime Minister of Tatarstan Republic

Voronina Yulia VladimirovnaHead of Planned-Economic-Department

of OJSC Kazanorgsintez Gabdrakhmanova Aida Rinatovna

Head of Economic Analysis Department of RT Ministry of Finance

Galeev Almaz Ilgizyarovich1st category Economist of Controlling Service

of Finance and Economic Department of PSC TAIF Gimadudinova Nailya Rishatovna

Data on Auditor: Auditor of the Company is

ZAO PricewaterhouseCoopers Audit

Data on license of the auditor: Number of license: Е000376

Date of issue: 20.05.2002 Valid till: 20.05.2012

Body issued the license: Ministry of Finance of the Russian Federation

Data on registry holder: Register of shareholders is kept by

Kazan branch of LLC Eurasian Registrar Location: Tatarstan, 420043, Kazan, Vishnevsky Street, 6

Telephone: (843) 236-63-96, fax (843) 236-27-52 Website: www.erd.ru

Number of license: 10-000-1-00332 Date of issue: 10.03.2005

Valid till: without restriction of validity Body issued the license: Federal Service on the financial

markets of the Russian Federation

Representation of the Company: Moscow Representation

of Kazan Open Joint Stock Company “Organichesky Sintez” Location and postal address:

117186, Russian Federation, Moscow, Sevastopol Avenue, 43А, case 2

Head: Zotov Alexander Gennadievich

Information about the Company is published: In the republican newspapers Respublika Tatarstan,

“VatanymTatarstan”, Trud; In Internet on the site of the Company

by the address: www.kazanorgsintez.ru

Work with shareholders is carried out by:Tchekmaryov sergei Fedorovich – Secretary of the Board of Directors

Phone: (843) 533-98-18

E-mail: Sergey.Checmarev@kos.ru

Gavrilov Igor Victorovich – Head of the Corporate Governance Department

Phone: (843) 533-99-85 e-mail: Gavrilov@kos.ru

Annual report is preliminarily approved by OJsC Kazanorgsintez’s Board of Directors’ decision

In nature lightning bugs differ in size and shape, and diverse species of glowworms radiate the light coloured from green to orange, that is it varies in the spectrum of bioluminescence from 490 to 590 nm at most.

Power levels of glowworms depend both on electronic structure of oxyluciferine molecules mainly in an exited state and on energy of interaction between a radiator and a dissolvent that is salvation energy. The higher it is the lower the power level of the exited molecule is, the less energy in the form of illumination is, and the more the upper limit of radiation is moved to a long-wave region by an invariable spectral shape.

The effectiveness of lightning bugs’ glow is about 98% of consumed energy, whereas only 4% of energy turns into light in an electric light bulb.

For conservation of life and reproduction animals formed an ability to communication, reception and transfer of biologically significant information already on the early evolution stages.

In recent years on the basis of biolumines-cence there has been created a number of the most sensitive analyses of a wide range of substances: microbial pollution control, goal-oriented selection of antibiotics, etc.

Aboriginals of Amazonia tribes consider glowworms servants of a forest spectre which either points a man the way in the thicket or leads him to a mortal trap. You can guard yourself against this forest spectre’s anger only with the help of a proper behaviour under the trees of the forest and a respectful attitude to the forest on the whole and to the forest in which you are in particular. The spectre reads people’s thoughts and if it sees a lie it puts out the lights of glowworms leaving a man in the darkness face to face with the selva.

104

CORPORATE GOVERNANCEcontents

lAdyBirdlat. Coccinellidae – the family of beetles

PART VI

FINANCIAl sTATEMENTs

Audit report

Accounting forms

contents

Coccinellidae – ladybirds – are widely known among insects of deciduous trees. Ladybirds attract attention both due to an original shape of their rounded, very prominent body, and the bright colour of shining, as if varnished wing sheaths and front back. Especially typical is the colouring of beetles which have small round spots scattered on the bright background ton-ing well with them. The pattern on wing sheaths of one and the same species of ladybirds can vary greatly with a gamut of tints, that’s why they are one of favourite objects when studying color-ation variability.

Larvae of ladybirds live openly on plants. They are very mobile and usually dark, often dirty-green coloured with a yellow or red pattern. Their body quite often carries different growths imparting fanciful outlines to larvae. Larvae hidden under a cap of friable wax excretions resembling alkanes and loose polymer materials by their structure seem still stranger. Ladybirds mainly feed on not mobile arthropods which form big colonies. They prefer aphids, monks, white flies, arachnoid ticks. The number of ladybirds quickly grows under favourable condi-tions, and their voracity makes beetles people’s staunch allies in the struggle against many destructive insects.

INFORMATION

AUDITOR: ZAO PricewaterhouseCoopers Audit

420111, Kazan, Pravobulachnaya Street, 35/2telephone +7 (843) 233 0707, facsimile +7 (843) 233 0717

State registration certificate № 008.890, issued by Moscow Registration Bureau on 28 February 1992.

Certificate of inclusion in the Unified State Register of Legal Enti-ties regarding the legal entity registered before 1 July 2002 No. 1027700148431 issued by the Interregional Inspectorate of the Russian Ministry of Taxes and Levies No. 39 for the Moscow City on August 22, 2002.

Audit license № E000376 issued by the Ministry of Finance of the Russian Federation on 20 May 2002. The license is valid until 20 May 2012.

Member of the Institute of Professional Accountants and Auditors of Russia and of the Audit Chamber of Russia

ClIENT: Open Joint Stock Company “Kazanorgsintez”

420051, Kazan, Belomorskaya street, Bld 101.

State registration certificate № 400, issued by Ministry of Finance of Tatarstan Republic on 31 August 1993.

Certificate of inclusion in the Unified State Register of Legal Entities regarding the legal entity registered before 1 July 2002 No.1021603267674 issued by the Inspectorate of the Federal Tax Authorities for the Moscow district of Kazan City on July 24, 2002.

AUDIT REPORT on statutory accounting reportsTo the shareholders of Open Joint stock Company “Kazanorgsintez”:

TRANSLATOR’S EXPLANATORY NOTE: The above translation of the auditor’s report is provided as a free translation from Russian, which is the official and binding version. This English translation does not contain the English translation of the explanatory notes, which is included in the official Russian version of the auditor’s report.

109

AN

NU

Al

REPO

RT` 2

008

PART

VI

contents

AUDIT REPORT

1. We have audited the attached Statutory accounting reports of Open Joint Stock Company “Kazanorgsintez” (hereinaf-

ter – the Company) for the period from 1 January up to 31 December 2008. Statutory accounting reports of the Company consist

of Balance Sheet, Profit and Loss Account, Flow of Equity and Funds Report, Cash Flow Statement, Supplement to the Balance

Sheet, Explanatory Notes (hereinafter all the reports together are called “Statutory accounting reports”). The Statutory accounting

reports were prepared by the management of the Company in accordance with the legislation of Russian Federation applicable to

Statutory accounting reports. Such Statutory accounting reports differ to a significant extent from those prepared in accordance

with International Financial Reporting Standards.

2. Preparation of the Statutory accounting reports is the responsibility of management of the Company. Our responsibility

as auditors is to express our opinion on the fair presentation, in all material respects, of these Statutory accounting reports based

on our audit.

3. We conducted our audit in accordance with The Federal Law “On auditing activity”, Federal Auditing Standards, Interna-

tional Standards on Auditing and our internal standards.

Our audit was planned and performed to obtain reasonable assurance about whether the Statutory accounting reports are

free of material misstatement. The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in

the Statutory accounting reports, assessing compliance with accounting principles, techniques and rules of Statutory accounting

reports preparation, evaluating significant estimates made by the management of the Company and the overall Statutory ac-

counting reports presentation. We believe that our audit provides a reasonable basis for our opinion on these Statutory account-

ing reports.

4. In our opinion, the Statutory accounting reports of the Company attached to this report have been properly prepared

to present fairly, in all material respects, the financial position of the Company as at 31 December 2008 and financial results of its

operations for the period from 1 January up to 31 December 2008 in accordance with the legislation of Russian Federation ap-

plicable for Statutory accounting reports.

5. Without qualifying our opinion on the accounting reports we draw your attention to the information disclosed in Note

11, Section III of the explanatory note to the accounting reports of the Company for 2008. The Company has significant liabilities

which are contractually due within 12 months following the reporting period. If the Company is not able to re-finance its short

term liabilities, this condition may raise substantial doubt about the Company›s ability to continue as a going concern and per-

form its obligations within, at least, 12 months following the reporting period.

Director of ZAO J. S. Root

Statutory auditorCertificate No K027170for general audittermless

M.V. Gumerova

17 March 2009

BAlANCE sHEET

as at 31 December 2008

AssETs line codeAs of the

beginning of the reporting year

As of the end of the reporting

period

1 2 3 4

I. NON-CURRENT AssETs

Intangible assets 110 51 226

Fixed assets 120 13,122,788 17,558,581

Construction in progress 130 16,230,686 18,812,096

Income-bearing investments in tangible assets 135

Lomg-term finantial investments 140 57,885 39,474

Deferred tax assets 145 7,678 1,111,258

Other non-current assets 150 132 1,321,515

Total section I 190 29,419,220 38,843,150

II. CURRENT AssETs

Inventories 210 5,832,165 4,234,209

including:

raw materials and other inventories 211 3,642,612 3,070,726

livestock 212

work in progress 213 346,530 473,882

finished goods and goods for resale 214 527,237 534,232

goods dispatched 215 47,192

expenses related to future periods 216 1,315,786 108,177

other inventories and expenses 217

Value added tax on goods purchased 220 306,351 80,535

Accounts receivable (payments expected beyond 12 months of the reporting date)

230

including buyers and customers 231

Accounts receivable (payments expected within 12 months of the reporting date)

240 2,659,535 1,494,731

including buyers and customers 241 505,953 698,862

Short-term investments 250 1,117 100,252

Cash 260 439,437 187,421

Other current assets 270

Total section II 290 9,238,605 6,097,148

TOTAl 300 38,657,825 44,940,298

On statutory accounting reports of Open Joint stock Company “Kazanorgsintez”To the shareholders of Open Joint stock Company “Kazanorgsintez”

C O D E S

Form № 1 on OKUD 0710001

Date (day, month, year) 2008/12/31

Company OJsC Kazanorgsintez OKPO 00203335

Taxpayer identification number INN 1658008723

Field of activity Petrochemistry production and sale

OKVED 24.16

Legal form/ Property form

Open Joint stock Company/ Joint ownership of the Russian Federation subjects and foreign ownership

OKOPF/OKFS 47 / 32

Unit of measurement thousands of RUR OKEI 384

Address 101, Belomorskaya st., 420051, Kazan

110

FINANCIAL STATEMENTS

111

AN

NU

Al

REPO

RT` 2

008

PART

VI

contents

BAlANCE sHEET (continuation)

EQUITY AND lIBIlITIEs line codeAs of the

beginning of the reporting year

As of the end of the reporting

period 1 2 3 4

III. EQUITY AND REsERVEs

Share capital 410 1,904,710 1,904,710

Treasure shares 411 (7,712)

Additional paid in capital 420 1,852,045 1,852,045

Reserves 430 95,235 95,235

including:

reserves formed in accordance with legislation 431

reserves formed in accordance with foundation documents

432 95,235 95,235

Retained earnings (uncovered loss) 470 9,253,214 5,676,277

Total section III 490 13,097,492 9,528,267

IV. NON-CURRENT lIABIlITIEs

Borrowings and bank loans 510 17,845,920 24,203,710

Deferred tax liabilities 515 917,094 1,234,474

Other non-current liabilities 520

Total section IV 590 18,763,014 25,438,184

V. CURRENT lIABIlITIEs

Borrowings and bank loans 610 3,039,155 4,660,909

Accounts payable 620 3,151,374 4,528,342

including:

payable to suppliers and contractors 621 1,977,612 3,994,924

payable to staff 622 151,370 94,255

payable to state non-budget funds 623 28,940 8,161

taxes payable 624 114,483 102,566

other creditors 625 878,969 328,436

Payable to participants (shareholders) under incomes payments 630 602,960 780,515

Deferred income 640 3,830 4,081

Reserves for future expenses and payments 650

Other current liabilities 660

Total section V 690 6,797,319 9,973,847

TOTAl 700 38,657,825 44,940,298

BAlANCE sHEET (continuation)

Narrative line codeAs of the

beginning of the reporting year

As of the end of the reporting

period

1 2 3 4

Rented fixed assets 910 681,697 1,021,325

including financial leasing 911 681,697 1,021,325

Inventories received for storing 920 42,798 105,382

Strict accounting forms 930 60 31

Bad debts of insolvent debtors written off to losses 940 64,194 80,954

Securities of liabilities and payments received 950 30,000

Securities of liabilities and payments issued 960 2,725,978 1,638,780

Housing stock depreciation 970 166 166

External accomplishment objects’ depreciation and other similar objects’ depreciation

980

Intangible assets received for use 990

Reference on items accounted on off-balance sheet accounts

13 March 2009

General Director L. S. Alekhin Chief Accountant L. N. Kaleeva

112

FINANCIAL STATEMENTS

113

AN

NU

Al

REPO

RT` 2

008

PART

VI

contents

PROFIT AND lOss ACCOUNT

for 2008

Narrative line codeFor reporting

period

For the same period of the previous year

1 2 3 4

Income from and expenses on ordinary activities

Sales (net) of goods, products, work, services (less VAT, excise duty and other similar compulsory payments)

010 23,468,799 21,455,501

Cost of goods, products, work, services sold 020 (18,652,216) (15,280,249)

Gross profit 029 4,816,583 6,175,252

Selling expenses 030 (920,615) (492,849)

General and administrative expenses 040 (2,070,016) (1,721,201)

Profit (loss) from sales 1,825,952 3,961,202

Other income and expenses

Interest receivable 060 3,972 7,124

Interest payable 070 (1,170,371) (290,594)

Income from participation in other companies 080 2,340 2

Other income 090 1,472,182 1,804,024

Other expenses 100 (5,716,317) (1,980,410)

Profit before taxation 140 (3,582,242) 3,501,348

Deferred tax assets 141 1,103,580 1,182

Deferred tax liabilities 142 (317,380) (352,948)

Current income tax 150 (546,049)

Net profit of the reporting period 190 (2,796,042) 2,603,533

REFERENCE

Permanent tax liabilities (assets) 191 73,538 56,177

Basic earnings per common share (RUR) 192 (1.58) 1.44

Diluted earnings (loss) per share 193

Breakdown of specific income and expenses

Narrative line code

For reporting period For the

same period of the previous year

income expense income expense

1 2 3 4 5 6

Fines and penalties recognized by court or those on which there are judgments of a court (or arbitrage court) on their recovery

230 2,739 4,448 1,619 6,618

Profit (loss) of the previous years 240 8 7,482

Payment of damages caused by failure or improper fulfilment of obligations

250

Exchange rate differences 260 1,023,491 4,001,896 1,049,881 520,176

Revaluation reserve 270 331,752 18,745

Write off of debtor and creditor indebtedness on which the period of limitation has expired 280 1,498 12,054 1,670 6,446

PROFIT AND lOss ACCOUNT (continuation)

C O D E S

Form № 2 on OKUD 0710002

Date (day, month, year) 2008/12/31

Company OJsC Kazanorgsintez OKPO 00203335

Taxpayer identification number INN 1658008723

Field of activity Petrochemistry production and sale

OKVED 24.16

Legal form/ Property form

Open Joint stock Company/ Joint ownership of the Russian Federation subjects and foreign ownership

OKOPF/OKFS 47 / 32

Unit of measurement thousands of RUR OKEI 384

Address 101, Belomorskaya st., 420051, Kazan

13 March 2009

General Director L. S. Alekhin Chief Accountant L. N. Kaleeva

114

FINANCIAL STATEMENTS

115

AN

NU

Al

REPO

RT` 2

008

PART

VI

contents

As a matter of fact, our life is a train of ceaseless chemi-cal processes. Every second tens of chemical reactions go on in an organism of any living being. But exactly insects learned to derive from their internal “plants” material products of organic synthesis providing them with vital resources.

Familiarizing yourself with our report you have got an idea about such insects and their communities being a single whole, a perfect, smoothly running mechanism, a brilliant com-pany of chemical industry efficiently working under any economic and natural conditions.

Our enterprise seeks to approximate to the same extremely efficient use of resources, high quality of production and an ability to promptly react to changing conditions. That’s why we search-ingly look at the world surrounding us and keep on learning, gaining new experience and knowledge.

The natural laboratory has got something we can’t afford – time. Nature and the Universe have eternity at their disposal. And we have to get their results spending several years or decades for that. Therefore we try to effectively use that priceless experi-ence which our Earth endows us with. We remember that it’s necessary to strictly observe environmental safety measures, to care about nature we belong to, so long as chemistry is the most “natural” of all natural sciences!

contents