annualethylene pipes market volume, '000 tons manufactured by pjsc kazanorgsintez1, '000...

ANNUAL REPORT

2016

www.kazanorgsintez.ru

Kazanorgsintez | 2016 > Annual Report

5

GENERAL INFORMATION

POSITION IN INDUSTRY

CORE PRODUCTS MANUFACTURE

REPORT BY BOARD OF DIRECTORS SUMMARIZING

DEVELOPMENT OF PRIORITY PRODUCTION ACTIVITIES

ENERGY CONSUMPTION

DEVELOPMENT OUTLOOK

REPORT ON PAYOUT OF STATED (ACCRUED) DIVIDENDS IN 2016

FOLLOWING THE RESULTS OF 2015

MAIN RISKS

COMPANY’S DEALS

BOARD OF DIRECTORS

EXECUTIVE BOARD

MAIN PROVISIONS OF REMUNERATION POLICY

AMOUNT OF REMUNERATION AND/OR EXPENSES REIMBURSEMENT FOR

EACH GOVERNING BOARD OF COMPANY

REPORT ON OBSERVING PRINCIPLES AND RECOMMENDATIONS

OF CORPORATE GOVERNANCE CODE

TABLE OF CONTENTS

6

8

9

12

14

15

16

17

21

22

28

31

31

32


6 GENERAL INFORMATION

COMPANY’S AUDITOR

COMPANY PROFILE

JSC PricewaterhouseCoopers Audit (JSC PCWC Audit)

Registered address

10, Butyrsky Val, Moscow, Russian Federation 125047

Member of the Noncommercial Partnership Auditing Chamber of Russia (NP ACR), a self-regulatory organization of auditors. Registration number in the membership register of NP ACR: 870

Kazan Public Joint Stock Company “Organichesky Sintez”

PJSC Kazanorgsintez

101, Belomorskaya St., Kazan, Republic of Tatarstan, Russian Federation, 420051

Full corporate name

Short name

Registered address

!

GRAND TOTAL EQUITY CAPITAL(as of the end of 2016)

REVENUE NET PROFIT CAPITALIZATION

45.42

55.95

17.76

35.19

54.4868.59

6.11

19.2925.4

60.561.09

2014 2015 2016

47.50

75.41

18.17

77.6

61.09 47.50 75.41 18.17 77.6RUB BLN RUB BLN RUB BLN RUB BLN RUB BLN

+9.19%+9.19%

2014 2015 2016

+34.98%+34.98%

2014 2015 2016

+9.94%+9.94%

2014 2015 2016

-5.81%-5.81%

2014 2015 2016

+28.26%+28.26%

RUSSIA

TATARSTAN

MARI ELUDMURTIA

SAMARAREGION

ULYANOVSKREGION

TATARSTAN

Kazan

KEY FINANCIAL INDICATORS


7

!

GRAND TOTAL EQUITY CAPITAL(as of the end of 2016)

REVENUE NET PROFIT CAPITALIZATION

45.42

55.95

17.76

35.19

54.4868.59

6.11

19.2925.4

60.561.09

2014 2015 2016

47.50

75.41

18.17

77.6

61.09 47.50 75.41 18.17 77.6RUB BLN RUB BLN RUB BLN RUB BLN RUB BLN

+9.19%+9.19%

2014 2015 2016

+34.98%+34.98%

2014 2015 2016

+9.94%+9.94%

2014 2015 2016

-5.81%-5.81%

2014 2015 2016

+28.26%+28.26%

Information about PJSC Kazanorgsintez is disclosed in Trud Newspaper, as well as on the Company’s website: www.kazanorgsintez.ru and the webpage of JSC SKRIN Information Disclosure Agency: www.disclosure.skrin.ru/disclosure/1658008723

CONTACT PERSONS FOR COORDINATION WITH SHAREHOLDERS

Kazan affiliate of LLC Eurasian Registrar

REGISTRAR OF SHAREHOLDERS

Registered address

6, Vishnevsky St., Kazan, Republic of Tatarstan, Russian Federation, 420043

Phone/Fax:

(843) 236-63-96/(843) 236-27-52

LLC Eurasian Registrar

Registered address

2, Nikolay Stolbov St., Kazan, Republic of Tatarstan, Russian Federation, 420021

Website

www.erd.ru

License

10-000-1-00332 (date of issue: 10.03.2005) without limitation as to period of validity

Licensing authority

Federal Financial Markets Service of the Russian Federation

Head of Corporate Governance Department, PJSC Kazanorgsintez Igor V. Gavrilov

Phone/Fax:

(843) 533-99-85, 533-93-42, 533-95-86/(843) 533-93-42

E-mail

[email protected]


8 POSITION IN INDUSTRY

THE DISTRIBUTION NETWORK OF PJSC

KAZANORGSINTEZ IS CONSTANTLY EXPANDING,

THUS INCREASING THE COMPANY’S PRODUCTS

SHARE IN THE LEADING MARKETS

The Integrated System for Quality Management, Health Care, Occupational Safety and Environment Protection adopted by PJSC Kazanorgsintez complies with the international standards GOST ISО 9001-2011 (ISO 9001:2008), GOST R 54934-2012/ OHSAS18001:2007, GOST 12.0.230-2007 and GOST R ISO 14001- 2007 (ISO 14001:2004)

0%

100%

Ethylene polymers and

copolymers

1,647 71 65 35 137 222 254

43%(713)

100%(71)

100%(65)

40%(14) 34%

(46)32%(71)

10%(25)

Poly-carbonate Bisphenol A

Ethanol-amines Acetone Phenol

Poly-ethylene

pipesMarket volume,'000 tons

Manufactured byPJSC Kazanorgsintez1,

'000 tons

Share of PJSCKazanorgsintez

170950 1,000of various chemicals being produced and distributed annually by PJSC Kazanorgsintez. Apart from main products, these are ethylene glycols, ethanolamines and other organic synthesis products

commercial output from 27 countries worldwide are among our customers

TYPES‘000 TONS ENTERPRISES

OVEROVER ABOUT

1 including the internal consumption

The Company consistently performs mandatory and voluntary certification in GOST R system. Following the results of 2016, share of certified products in the Company’s total output amounted to 95.6%


9CORE PRODUCTS MANUFACTURE

75,411 1,796revenues from sales and services in 2016

total confirmed production capacities

RUB MLN‘000 TONS

In 2016, the Company’s total confirmed production capacities amounted to 1, 796,000 tons of organic synthesis products. The capacity utilization rate reached 91.97%. The reason of underutilized production capacity consists in the shortage of primary raw materials.

In the reporting year, the commercial output made RUB 75,243 million, which exceeds the corresponding 2015 indicator by RUB 6,442 million (i.e. by 9.4%). The volume index amounted to 104.1%.

In 2016, the commercial products structure changed insignificantly compared to that of 2015. The main share in the commercial products structure belongs to ethylene polymers and polycarbonates (87.7% in value terms).

In the reporting year, the production expenses increased by RUB 5,013 million (i.e. by 11.4%) compared to the corresponding indicator of 2015 and reached RUB 49,008 million.

Since 2015, the expenses increased in such aspects as: feedstock and materials, third- party energy, salaries and allowances and others.

The output cost composition of PJSC Kazanorgsintez did not undergo any considerable changes y-o-y.

The 2016 revenue structure slightly differs from that of 2015. Major part of the income still accrues to ethylene polymers and copolymers (74.9%) and polycarbonate (12.4%).

Prices for products of PJSC Kazanorgsintez depend on prices in the global and Russian markets. Products and services sold in the domestic market amounted to RUB 62,021 million, which exceeds the corresponding 2015 indicator by 9.7%.

In 2016, PJSC Kazanorgsintez exported products worth RUB 13,389 million, thus exceeding the previous year indicator by 10.8%.

In 2016, PJSC Kazanorgsintez shipped its products to 27 countries worldwide. New markets for the Company’s export shipments in 2016 included Israel and Nigeria. Moreover, we resumed shipments to Moldavia, Italy and Switzerland.

The Company prioritized export shipments to countries having higher contractual prices.

MANUFACTURE OF

COMMERCIAL PRODUCTS

SALES OF COMMERCIAL

PRODUCTS

IN 2016, PJSC KAZANORGSINTEZ SOLD

PRODUCTS AND SERVICES WORTH

RUB 75,411 MILLION


10

ETHYLENEPLANT

LDPEPLANT

HDPE PLANT BISPHENOL A PLANT

PLASTIC GOODS PRODUCTION UNIT

HDPE PRODUCTION UNIT

MAINTENANCE ANDOVERHAUL PLANT

AUXILIARY UNITSAND SHOPS

MAINTENANCE OF PRODUCTION FACILITIES

prepares and performs shutdown and current repairs

of the industrial equipment in all the Company's units.

provide the manufacturing process of themain production facilities with material and power resources, motor and railway transport, as well as storage facilities. The auxiliary units are also engaged in

products quality analyzing and environmental monitoring

MAIN AND AUXILIARY PRODUCTION FACILITIESOF PJSC KAZANORGSINTEZ

Main raw materials: ethane and propane- butane fraction. Main output

products: ethylene and propylene.

All the manufactured ethylene is transported to HDPE and LDPE Plants for further processing and commercial

products manufacture.

Main raw material: ethylene.The Plant manufactures

high-pressure low-density natural polyethylene (LDPE) of various

grades, as well as diverse compositions intended for the production of molding, blown,

extruded, film and cable components.

PHENOL AND ACETONE PRODUCTION UNIT

BISPHENOL A PRODUCTION UNIT

POLYCARBONATE PLANT

The Plant product list includes mainly polycarbonates.

Ethylene glycol is a by-product of polycarbonate manufacture.

Owing to their thermal resistance, high impact properties and chemical stability, polycarbonates are widely

used as structural materials in mechanical, instrument and aircraft

engineering, as well as in construction and electronic and

electrical industry.

Major part

ORGANIC PRODUCTS AND INDUSTRIAL GASES

PLANTconsists of two core production facilities

Main raw material: ethylene.The Plant manufactures low-pressure high/medium-density polyethylene of

various grades.

uses HDPE as a raw material.Polyethylene pipes are manufactured

through extrusion, while the production of fittings thereof is based

on injection molding, molding and winding.

Main raw material: benzene and propylene.

The Plant manufactures phenol and acetone applied both for industrial purposes and

bisphenol A production.

Main raw materials: phenol and acetone. The Plant manufactures

bisphenol A. Most of bisphenol A is used to produce polycarbonate. The

end use of the remaining part of bisphenol A consists in the production

of epoxide resins applied in various industries.

manufactures ethylene oxide-based products, corrosion inhibitors,

demulsifiers, nitrogen, oxygen, argon, compressed air and cold. The Plant is also involved in receiving and storage

of liquefied petroleum gases.

EthyleneEthylene

PropylenePropylene

HDPEHDPE

PJSC KazanorgsintezPJSC Kazanorgsintez

Phenol and acetonePhenol and acetone

Bisphenol ABisphenol A


11

ETHYLENEPLANT

LDPEPLANT

HDPE PLANT BISPHENOL A PLANT

PLASTIC GOODS PRODUCTION UNIT

HDPE PRODUCTION UNIT

MAINTENANCE ANDOVERHAUL PLANT

AUXILIARY UNITSAND SHOPS

MAINTENANCE OF PRODUCTION FACILITIES

prepares and performs shutdown and current repairs

of the industrial equipment in all the Company's units.

provide the manufacturing process of themain production facilities with material and power resources, motor and railway transport, as well as storage facilities. The auxiliary units are also engaged in

products quality analyzing and environmental monitoring

MAIN AND AUXILIARY PRODUCTION FACILITIESOF PJSC KAZANORGSINTEZ

Main raw materials: ethane and propane- butane fraction. Main output

products: ethylene and propylene.

All the manufactured ethylene is transported to HDPE and LDPE Plants for further processing and commercial

products manufacture.

Main raw material: ethylene.The Plant manufactures

high-pressure low-density natural polyethylene (LDPE) of various

grades, as well as diverse compositions intended for the production of molding, blown,

extruded, film and cable components.

PHENOL AND ACETONE PRODUCTION UNIT

BISPHENOL A PRODUCTION UNIT

POLYCARBONATE PLANT

The Plant product list includes mainly polycarbonates.

Ethylene glycol is a by-product of polycarbonate manufacture.

Owing to their thermal resistance, high impact properties and chemical stability, polycarbonates are widely

used as structural materials in mechanical, instrument and aircraft

engineering, as well as in construction and electronic and

electrical industry.

Major part

ORGANIC PRODUCTS AND INDUSTRIAL GASES

PLANTconsists of two core production facilities

Main raw material: ethylene.The Plant manufactures low-pressure high/medium-density polyethylene of

various grades.

uses HDPE as a raw material.Polyethylene pipes are manufactured

through extrusion, while the production of fittings thereof is based

on injection molding, molding and winding.

Main raw material: benzene and propylene.

The Plant manufactures phenol and acetone applied both for industrial purposes and

bisphenol A production.

Main raw materials: phenol and acetone. The Plant manufactures

bisphenol A. Most of bisphenol A is used to produce polycarbonate. The

end use of the remaining part of bisphenol A consists in the production

of epoxide resins applied in various industries.

manufactures ethylene oxide-based products, corrosion inhibitors,

demulsifiers, nitrogen, oxygen, argon, compressed air and cold. The Plant is also involved in receiving and storage

of liquefied petroleum gases.

EthyleneEthylene

PropylenePropylene

HDPEHDPE

PJSC KazanorgsintezPJSC Kazanorgsintez

Phenol and acetonePhenol and acetone

Bisphenol ABisphenol A


12 REPORT BY BOARD OF DIRECTORS SUMMARIZING DEVELOPMENTOF PRIORITY PRODUCTIONACTIVITIESIMPLEMENTATION OF ACTION PLAN FOR 2013–2016

In 2016, the Company continued implementing the “Program of Main Investment Measures by PJSC Kazanorgsintez for 2013-2016 Pursuing the Company’s Performance Stabilization and Maximum Load of its Production Facilities”1.

1 Approved by the Decision of the Board of Directors of PJSC Kazanorgsintez at the meeting dated August 16, 2013

PRIORITY AREAS FOR THE DEVELOPMENT OF PJSC

KAZANORGSINTEZ COMPRISE STABLE OPERATION OF ITS

EXISTING FACILITIES, BOOST OF COMMERCIAL OUTPUT,

REDUCTION OF PRODUCTS ENERGY INTENSITY, AS WELL

AS ELIMINATION OF FACTORS CAUSING FEEDSTOCK LOSSES

AND EXCESSIVE CONSUMPTION OF ENERGY RESOURCES

DURING UNSCHEDULED PRODUCTION SHUTDOWNS.

The Program includes the following major activities to:

• Ensure stable operation and feedstock diversification for Ethylene Plant;

• Ensure stable operation of HDPE Plant;

• Enhance reliability of the Company’s power supply system.


13

HDPE PLANTETHYLENE PLANT

In the reporting year, Ethylene Plant implemented the following:

• E-500 Unit launched the new Technip high-selective double-cell ethane cracking furnace replacing the obsolete and deteriorated ones.

• E-200 Unit completed the construction and put into operation the new short-cycle adsorption plant for expansion of hydrogen production capacities.

• Installation of isopropyl benzene feed line at the unit of inhibitors solution preparation of shops 204-205, 58-68 and 65-76 to remove methanol as a solvent during polymerization inhibitor solution preparation at the unit of propylene production.

• Replacement of radiant coils, refractory lining and TLE at cracking furnaces pos. P510/515 Technip and pos. P-101/3 due to their deterioration.

• Replacement of flare tip and installation of the system of forced air supply to the combustion area in substitution of previously used water steam for the purpose of enhancing the efficiency of flare No. 2055.

In 2016, HDPE Plant implemented the following:

• Launch of the new Coperion compounding line that allows full processing of the basic product from the Reactor A into a more sought- after and competitive pipe-grade HDPE composition. To date, it is Russia’s largest facility producing pipe-grade bimodal HDPE of PE 100 grade boasting the annual capacity of 236,000 tons.

• Reconstruction of buildings 181, 180-182 and 159 involving the arrangement of an area for packaging, palletizing and storage of HDPE.


14 ENERGY CONSUMPTION

200

980

RUB MLN

RUB MLN

OVER

ONE OF PRIORITY GOALS FOR PJSC KAZANORGSINTEZ IS TO INCREASE

ITS OUTPUT, INCLUDING THROUGH DEVELOPMENT AND INTRODUCTION

OF ENERGY- AND-RESOURCE EFFICIENT MEASURES MINIMIZING ENERGY

CONSUMPTION PER MANUFACTURED UNIT AND ENSURING THE MOST USE

OF SECONDARY AND RENEWABLE RESOURCES

For the purpose of implementing the Federal Law No. 261-FZ dated 23 November 2009 “On Energy Saving, Energy Efficiency Enhancement and Amending Certain Legislative Acts of the Russian Federation”, PJSC Kazanorgsintez developed the “Long- Term Program on Energy Saving and Energy Efficiency in 2011-2015 with the Outlook till 2020” approved by the Decree of the Company’s General Director. The adopted Program provides for the introduction of advanced technologies, materials and equipment ensuring the fulfilment of technology potential for energy saving.

PROGRAM ON ENERGY SAVING AND ENERGY EFFICIENCY

saved by PJSC Kazanorgsintez during 6 years of the ongoing “Long-Term Program on Energy Saving and Energy Efficiency in 2011-2015 with the Outlook till 2020”

CONSUMPTION OF ENERGY RESOURCES 1

2015 2016 2015 2016

Energy resource In physical terms In monetary termsRUB mln ex VAT

Heat energy, '000 Gcal

Electric power, MWh

Automotive gasoline, t

Diesel fuel, t

Combustible natural gas, '000 m3

2,298

1,653,429

585

9,180

52,817

2,195

1,707,934

401

6,396

45,610

1,635

3,546

22

286

247

1,680

3,907

16

206

222

In 2016, within the Program implementation, the Company continued to adopt energy-saving and energy-efficient measures pursuing the enhancement of power supply reliability, introduction of energy- saving and energy-efficient equipment and materials enabling the decrease of the outsourcing steam consumption (supplied by Kazan-3 Powerplant), thus increasing the internal steam generation. In addition, divisions of PJSC Kazanorgsintez proceeded with replacing obsolete and deteriorated lighting fixtures in service by energy-saving and LED ones. In general, the adopted Program provides for the introduction of advanced technologies, materials and equipment ensuring the fulfilment of technology potential for energy saving.

economic effect resulted from the program measures undertaken in the reporting year

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


15DEVELOPMENT OUTLOOK

In 2016, we almost completed the implementation of key measures stipulated by the adopted “Program of Main Investment Measures by PJSC Kazanorgsintez for 2013-2016 Pursuing the Company’s Performance Stabilization and Maximum Load of its Production Facilities”.

Within the Program, the Company constructed the new two-cell cracking furnace and new short- cycle adsorption unit at the Ethylene Plant, as well as phase II of base warehouse for hydrocarbon feed, new compounding unit and packaging lines at the HDPE Plant. The Company completed the upgrade of diphenyl carbonate section at the Polycarbonate Plant involving the transition to a more selective catalyst, along with a whole range of measures on enhancing the Company’s power supply reliability.

THE COMPANY PROCEEDS WITH ELABORATING

THE CONCEPT OF ITS DEVELOPMENT THROUGH

2025 PROVIDING FOR ADDRESSING THE ISSUES

OF RAW MATERIALS SUPPLIES AND OPTIONS

FOR EXPANDING PRODUCTION CAPACITIES

OF ETHYLENE, POLYETHYLENES AND OTHER

PETROCHEMICALS BASED ON ETHYLENE

PROCESSING

In the reporting year, electric power rates increased by 6.7%, while heat energy tariff grew by 7.6% as compared to the previous year.

In 2016, the electric power consumption increased by 3.3% and made 1,708 mln kWh as compared to the 2015 indicator. Electric capacity index decreased by 4.0% y-o-y.

Total heat energy consumption including the internal generation grew by 1% and made 3,547,000 Gcal, while the amount of outsourced heat energy declined by 4.5% reaching 2,195,000 Gcal. The internal steam generation and heating water production increased by 139,000 Gcal, i.e. by 11.4% as compared to the previous year. The heat capacity index declined by 11.3% y-o-y.

The energy intensity of the commercial output decreased by 9.7%. This result was achieved owing to steady operation of the Company’s facilities and implementation of measures pursuing the conservation and efficient employment of energy resources.

ENERGY INTENSITY OF

COMMERCIAL OUTPUT

RATES, GENERATION AND

ENERGY CONSUMPTION


16 REPORT ON PAYOUT OF STATED (ACCRUED) DIVIDENDS IN 2016 FOLLOWING THE RESULTS OF 2015

The dividends for 2015 were not paid in full due to the unavailability of shareholders’ (legal entities and individuals) requisite details. The dividends shall be paid upon the requisite details of these shareholders are clarified.

Category (type) of shares

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

Amount of stated dividends on all shares of this category (type), RUB

Amount of dividends on all shares of this category (type) paid by the issuer, RUB

Source of stated dividends payout

Share of stated dividends in the net profit for the reporting year

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

Ordinary shares Preference shares

3.2261 0.25

5,758,956,275 29,899,000

5,758,813,924 29,860,600

Net profit for the reporting year

Net profit for the reporting year

29.85% 0.15%

99.99% 99.87%


17MAIN RISKSThe following risks may negatively affect the activities implemented by PJSC Kazanorgsintez

COUNTRY AND REGIONAL RISKS

INDUSTRY RISKS

PJSC Kazanorgsintez runs its core business in Kazan selling about 41.5% of its products in the Tatarstan market and about 40.7% in other Russian regional markets. This sales geography determines the dependence of the Company’s commercial performance on social, economic and political environment both in Russia and in the Company habitat. Adverse economic changes may undermine the investment climate in the Russian Federation, thus making the market segments the Company works in less attractive. Economic decline in the Company habitat might cause slump in demand for its products.

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

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

CHANGES IN PRICES FOR

FEEDSTOCK AND

SERVICES USED BY

PJSC KAZANORGSINTEZ

POSSIBLE CHANGES IN

PRICES FOR PRODUCTS OF

PJSC KAZANORGSINTEZ IN

DOMESTIC MARKET

GLOBAL PRICES FOR

EXPORT PRODUCTS

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

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

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

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

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

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

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

• Reduce production prime costs via cost management ;

• Enhance sales performance.


18

PERFORMANCE RISKS FINANCIAL RISKS

MANUFACTURING

PROCESS

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

Raise of inflation leads to the devaluation of the national currency and price growth. Accelerated rates of price growth might cause the raise of the Company’s expenses due to increased prices for energy resources, feedstock and inventories and increased value of borrowed funds, thus making the profitability index shrink.

Production activities of PJSC Kazanorgsintez are associated with potential adverse impact on the environment.

In order to be authorized to perform its activities in the field of production and use of natural resources, PJSC Kazanorgsintez obtains appropriate licenses. Most of them provide for a possibility of the license revocation in case of a failure to comply with requirements of licensing agreements. There are also risks associated with an inability to extend the licenses for PJSC Kazanorgsintez.

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

LICENSES VALIDITY

ENVIRONMENT

PROTECTION

In order to execute its licensable activities after the license termination, the Company shall conduct a procedure of obtaining the license for a new term. Failure to timely obtain new licenses might be caused by violation of regulatory requirements, which is currently minimized. In view of preventing licenses revocations, PJSC Kazanorgsintez fulfils all the requirements of licensing agreements. Nevertheless, the failure to extend the licenses or revocation thereof might have a significant adverse impact on the Company’s business.

Being aware of the extent of possible environmental problems, PJSC Kazanorgsintez monitors the chemical composition of its air emissions and wastewater discharges. The Company also undertakes scheduled preventive measures for the purpose of preventing adverse impact of its facilities on the environment and strictly observes occupational health and safety policies. So, in case the actual inflation rates

significantly exceed those estimated by the Russian Government, the leaders of PJSC Kazanorgsintez intend to take measures to restrict expenses growth, decrease receivables and payables, as well as adjust products prices for inflation.

INFLATION

IN RUSSIA

A good deal of products manufactured by PJSC Kazanorgsintez is exported to foreign markets; hence, the Company is exposed to certain currency risks.

The currency of the Company’s main costs is rouble, so the export sales revenue in rouble equivalent grows with the exchange rates raise, and vice versa, it declines at decreased exchange rates. Following the results of 2016, the Company exported 17.8% of its products1. I case of major shifts in currency rates, the Company’s sales policy shall be corrected to refocus on sales to external (export) or domestic market for the purpose of raising its profitability.

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

SHIFTS IN

CURRENCY RATES

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

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

1 in value terms


19

FLUCTUATIONS OF

INTEREST RATES

As a major borrower, PJSC Kazanorgsintez is exposed to risks associated with changes in interest rates on its financial obligations. The Company has long-term rouble credits and loans. Volatile situation across the financial market causes increase in interest rates, which may result in raised value of the Company’s debt servicing.

As of the end of the reporting year, all loans of PJSC Kazanorgsintez have fixed rate.

LIQUIDITY

RISK

Liquidity risk consists in a company’s inability to settle its liabilities when they fall due.

PJSC Kazanorgsintez manages its liquidity risk applying the combination of debt financing and its own funds, thus ensuring a balanced arrangement of its assets profile and timely obligations fulfilment. Stable financial position of the Company is confirmed by the international credit rating. On 26 January 2016, Fitch Ratings raised long-term issuer default rating (IDR) of PJSC Kazanorgsintez to level B. Rating outlook: Stable. Rating growth features the Company’s consistent debt relief in absolute terms throughout several years and improvement of its liquidity.

PJSC Kazanorgsintez applies the policy of concluding contracts with creditworthy counterparties only. The solvency of counterparties in analyzed based on available financial information and the Company’s sales history. Deals with new customers are made on terms of advanced payments. The Company created the Receivables and Payables Committee chaired by the Deputy General Director for Economy and Finance involved, without limitation, in reduction of receivables and minimization of overdue payments and number of debtors.

STRATEGY RISKS

The underway investment decisions, as well as decisions regarding the Company’s strategic development are based on market forecasts and analysis of positive and negative factors (both internal and external) influencing the activities and further development of PJSC Kazanorgsintez.

The Company’s managers opt for the most cost-effective measures for the Company’s further development with determining reasonable terms of their implementation and appointing persons-in-charge. While implementing its strategic projects, PJSC Kazanorgsintez adheres to the principles of project management. Financing of investment shall be effected upon completing the design works, clarifying the projects terms and costs, as well as their feasibility. With the view of expanding its growth prospects and mitigating current risks, PJSC Kazanorgsintez is engaged in vigorous cooperation with regional state authorities.

PRODUCTS MANUFACTURED BY PJSC

KAZANORGSINTEZ ARE SOUGHT-AFTER

IN NUMEROUS INDUSTRIES INVOLVED IN THE

PRODUCTION OF DAILY NECESSITIES

WITH THE VIEW OF EXPANDING ITS GROWTH

PROSPECTS AND MITIGATING CURRENT RISKS,

PJSC KAZANORGSINTEZ IS ENGAGED IN

VIGOROUS COOPERATION WITH REGIONAL STATE

AUTHORITIES

CREDIT

RISK

Credit risk implies that a counterparty (buyer) might not be able to timely fulfil his contractual obligations to PJSC Kazanorgsintez, which may result in increased receivables, risk of cash deficiency and, as a consequence, financial damages in the form of lost profit.


20

LEGAL RISKS

CHANGES IN

CUSTOMS REGULATIONS

AND DUTIES

Purchase of imported equipment and export supplies imply the risks related to possible amendments in customs legislation regulating the procedure of goods transfer across the customs boarder, establishment and application of customs treatment, as well as setting and levying the customs duties, which might influence expenses borne by PJSC Kazanorgsintez.

The Company’s experts consistently monitor the customs legislation and practices, whereat in case of any changes having potential adverse effect the Company undertakes a number of remedial actions to mitigate their detrimental effect on its financial and operating performance.

AMENDMENTS IN

TAX LEGISLATION

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

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

CHANGES IN

JUDICIAL PRACTICES

Risks related to the activities of PJSC Kazanorgsintez and capable to have an adverse impact on the Company’s current contentious cases with the third parties are insignificant.

PJSC Kazanorgsintez always applies its efforts to settle issues with counterparties via pre-court dispute resolution.

INSURANCE RISKS

The Russian insurance industry is in its development stage, so many forms of insurance protection, including coverages in case of business activities shutdown, common in more developed countries are yet to be widely applied in the Russian Federation on comparable conditions. PJSC Kazanorgsintez has all-risks property insurance, as well as nonlife insurance against emergencies and environmental impact thereof caused by accidents at the Company’s production facilities and/or those related to the activities of PJSC Kazanorgsintez. Liability of PJSC Kazanorgsintez to third parties as an owner of a hazardous facility is also insured. Nevertheless, the Company has no financial risks insurance against production shutdown and profit losses. Consequently, in case of emergency causing the Company’s production shutdown, the financial performance of PJSC Kazanorgsintez might be adversely affected.

PJSC Kazanorgsintez tries to reveal risks that might have an adverse impact on its performance at the planning stage in order to elaborate and undertake preventive measures to manage such risks and to avoid any emergency measures.

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

PJSC KAZANORGSINTEZ HAS ALL-RISKS PROPERTY

INSURANCE, AS WELL AS NONLIFE INSURANCE

AGAINST EMERGENCIES AND ENVIRONMENTAL

IMPACT THEREOF


21COMPANY’S DEALS

INFORMATION ON DEALS OF PJSC KAZANORGSINTEZ CONCLUDED IN 2016 THAT IN ACCORDANCE WITH THE FEDERAL LAW «ON JOINT-STOCK COMPANIES» ARE REFERRED TO AS:

INTERESTED PARTY

TRANSACTIONS

MAJOR

TRANSACTIONS

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

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


22 BOARD OF DIRECTORSThe number of the Board members is determined by the Company’s Charter and is limited to 11 persons. The current members were appointed on 22 April 2016 by the Decision of the Company’s Annual General Shareholders Meeting.

10 members of the Board were elected through cumulative voting and 1 member was appointed by the Resolution of the Tatarstan Cabinet of Ministers No. 97 dated 17 February 2016 based on the special right (golden share).

RUSLAN A. SHIGABUTDINOV

FARID G. MINIGULOV

SERGEY V. ALEKSEYEV

1976

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

Deputy General Director for Corporate Governance, Property and Investments, PSC TAIF

None

None

1966

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

General Director, PJSC Kazanorgsintez

None

None

1966

University degree, Vladimir I. Ulyanov-Lenin Kazan State University; Tatar Institute of Business Cooperation

First Deputy General Director, JSC Svyazinvestneftekhim

None

None

Year of birth

Education

Chairman

Primary employment

Share ownership in the Company’s authorized capital

Owned ordinary shares of the Company


23

MARAT M. GARAYEV

ARTYOM A. ZDUNOV

MILIC ZELJKO

1973

University degree, Saint Petersburg University of Economics and Finance

General Director, LLC Gazprom Pererabotka

None

None

1978

University degree, Kazan Finance and Economics Institute; University of Cambridge; Russian Presidential Academy of National Economy and Public Administration

Minister of Economy, Republic of Tatarstan

None

None

1946

University degree, Zagreb Institute of Economics

Executive Director, IPCO-TRADING SA

None

None

Independent Director Independent Director


24

VLADIMIR V. PRESNYAKOV

ALEKSANDR L. RAPPOPORT

RINAT K. SABIROV

1951

University degree, Kazan Chemical Technological Institute

Deputy General Director for Refining and Petrochemicals, PSC TAIF

None

None

1959

University degree, Moscow State Judicial Academy

Managing Partner, Rappoport and Partners Law Firm

None

None

1967

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

Aide to the President of the Republic of Tatarstan

None

None

Year of birth

Education

Independent Director

Primary employment



BOARD OF DIRECTORS


25

DAMIR KH. SAFIULLIN

DMITRY I. TESLENKO

1969

University degree, Vladimir I. Ulyanov-Lenin Kazan State University; Kazan Finance and Economics Institute; Kazan Power Engineering University

Head, Corporate Governance, Property and Investments, PSC TAIF

None

None

1961

University degree, Leningrad Institute of Fine Mechanics and Optics

Head, Finance and Economic Division, PSC TAIF

None

None


26

CHANGES IN THE BOARD OF DIRECTORS (DURING 2016)

MEETINGS ATTENDED BY MEMBERS OF THE BOARD (DURING 2016)

Members of the Board of Directors prior to the Annual General Shareholders Meeting held on 22 April 2016

Members of the Board of Directors elected at the Annual General Shareholders Meeting held on 22 April 2016 Meetings

in praesentiaMeetings held via poll (vote in absentia)

Meetings attended

Ruslan A. Shigabutdinov (Chairman)

Farid G. Minigulov

Sergey V. Alekseyev

Marat M. Garayev

Artyom A. Zdunov

—

Naim Mujichich

Vladimir V. Presnyakov

—

Rinat K. Sabirov

Damir Kh. Safiullin

Albert F. Sulteyev

Dmitry I. Teslenko

Ruslan A. Shigabutdinov (Chairman)

Farid G. Minigulov

Sergey V. Alekseyev

Marat M. Garayev

Artyom A. Zdunov

Milic Zeljko

—

Vladimir V. Presnyakov

Aleksandr L. Rappoport

Rinat K. Sabirov

Damir Kh. Safiullin

—

Dmitry I. Teslenko

3

4

3

4

3

3

1

4

3

4

4

1

4

5

4

5

4

4

4

1

5

4

5

5

1

5

GENERAL STRATEGY OF PJSC KAZANORGSINTEZ PURSUES

ITS FURTHER MODIFICATION INTO AN INTERNATIONALLY

RECOGNIZED COMPANY THAT SHALL COMPETE WITH LEADING

GLOBAL ENTERPRISES IN TERMS OF ITS MARKET VALUE AND

MAIN FINANCIAL AND ECONOMIC INDICATORS. THIS REQUIRES

APPROPRIATE UPGRADE OF THE CORPORATE GOVERNANCE

SYSTEM


27

COMMITTEES UNDER THE BOARD OF DIRECTORS

THE COMPANY OFFICER HOLDING THE POSITION OF A CHIEF EXECUTIVE

In accordance with recommendations of the Corporate Governance Code and in order to improve the Board structure, the Company created permanent committees under its Board of Directors.

The committees under the Board act of the basis of the Company’s internal documents (Regulations on the corresponding committees approved by the Board) providing for the procedures of their establishment, activities, as well as number of members.

If necessary, the committees may involve experts possessing required professional knowledge.

AUDIT COMMITTEE UNDER

THE BOARD OF DIRECTORS

PERSONNEL AND REMUNERATION COMITTEE

UNDER THE BOARD OF DIRECTORS

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

Promotes efficient and transparent remuneration practices in the Company

Members of the Committee

Members of the Committee elected prior to 22 April 2016

Members of the Committee elected after to 22 April 2016

Meetings attended

Meetings attended

5

4

5

In 2016, the composition of the Audit Committee did not undergo any changes.

22 April 2016 The Annual General Shareholders Meeting was held on

Rinat K. Sabirov (Chairman)

Naim Mujichich

—

Damir Kh. Safiullin

Albert F. Sulteyev

Atyom A. Zdunov (Chairman)

Sergey V. Alekseyev

Dmitry I. Teslenko

Rinat K. Sabirov (Chairman)

—

Aleksandr L. Rappoport

Damir Kh. Safiullin

—

5

2

3

5

2

Farid G. Minigulov

Year of birth

1966

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

Primary employment General Director, PJSC Kazanorgsintez

Share ownership in the Company’s authorized capital None

Owned ordinary shares of the Company None


28 EXECUTIVE BOARD

FARID G. MINIGULOV

ALEKSEY A. BLINOV

ALBERT I. GATIN

1966

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

General Director, PJSC Kazanorgsintez

None

None

1982

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

Deputy General Director for Corporate Governance, Property and Investments, PJSC Kazanorgsintez None

None

1961

University degree, Kazan Chemical Technological Institute

Deputy Director General for Capital Construction and Overhaul, PJSC Kazanorgsintez

None

None

Year of birth

Education

Chairman

Primary employment




29

RINAT T. ZARIPOV

FANIS M. KALIMULLIN

LARISA N. KALEYEVA

1966

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

Deputy General Director for Production, PJSC Kazanorgsintez

0.0002%

None

1969

University degree, Kazan Finance and Economics Institute

Deputy General Director for Economy and Finance, PJSC Kazanorgsintez

0.0001%

None

1957

University degree, Kazan Finance and Economics Institute

Chief Accountant, PJSC Kazanorgsintez 0.013%

0.0017%


30

RAFAEL A. SAFAROV

RASHIT N. KHAFIZOV

GAIFUTDIN G. SHAIKHIYEV

1965

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

Chief Engineer, PJSC Kazanorgsintez

None

None

1957

University degree, Kazan Aviation Institute; High School of the USSR State Security Committee Deputy General Director for Economic Security and Regime, PJSC Kazanorgsintez

None

None

1951

University degree, Kazan Agricultural Institute

Deputy General Director for Personnel and General Issues, PJSC Kazanorgsintez

None None

Year of birth

Education

Primary employment



EXECUTIVE BOARD


31

TIMUR R. SULTEEV

BOARD OF DIRECTORS

EXECUTIVE BOARD

1983

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

Deputy General Director for Commerce, PJSC Kazanorgsintez

None

None

MAIN PROVISIONS OF REMUNERATION POLICY

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

Net profit is the main feature for remunerating.

AMOUNT OF REMUNERATION AND/OR EXPENSES

REIMBURSEMENT FOR EACH GOVERNING BOARD

OF THE COMPANY1

1 exclusive of the individual acting as a chief executive

Total remunerations paid

Total amount paid (including remunerations, salaries, wage bonuses, commission fees, etc.)

Current agreements regarding such payouts in this financial year

No reimbursements to the members of the Board of Directors were paid

No reimbursements to the members of the Executive Board were paid

RUB 75,557,000 RUB 92,146,000

In line with the Regulation of the Board of Directors, the amount of remuneration for the members of the Board shall be determined by the decision of the General Shareholders Meeting. Decision on a mode of remuneration distribution shall be made by the Board of Directors.

Revenues of the members of the Executive Board consist of their revenues as the Company’s regular employees and remunerations and expenses reimbursements paid in accordance with the Regulation “On Principles and Criteria for Remunerating the Members of the Board of Directors, Executive Committee, Audit Committee and Committees under the Board of Directors of PJSC Kazanorgsintez». Amounts and procedures of paying out remunerations and expenses reimbursements to the Executive Board members shall be determined by the Board of Directors


32 REPORT ON OBSERVING PRINCIPLES AND RECOMMENDATIONS OF CORPORATE GOVERNANCE CODESTATEMENT BY THE BOARD OF DIRECTORS

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

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

The report on observing principles and recommendations of the Corporate Governance Code was reviewed by the Board of Directors during the meeting held on 6 March 2016 (Minutes of the Meeting No.9).

— Observed — Partially observed — Not observed

Compliance status:

The Board of Directors confirms that this report contains full and correct information regarding observance of principles and recommendations of the Corporate Governance Code by the Company in 2016.

Corporate governance principle

Criteria of evaluating observance of corporate governance principle

Compliance status and explanations of deviation from criteria of evaluating principle observance

1.1 THE COMPANY SHALL ENSURE EQUAL AND FAIR TREATMENT FOR ALL ITS SHAREHOLDERS

IN THE EXERCISE BY THEM OF THEIR RIGHTS TO PARTICIPATE IN THE MANAGEMENT OF THE

COMPANY

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

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

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


33


Compliance status:




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

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

2. The notice of holding the meeting indicates the venue and documents necessary to have an access to the venue.

3. Shareholders had an access to the information regarding who suggested the agenda and nominated members of the board of directors and audit committee of the company.

1.1.3 During the preparation for and conduct of the general meeting, the shareholders shall have the opportunity to receive clear and timely information about the meeting and its materials, to put questions to members of the company’s executive and board of directors, and to communicate with each other.

1. In the reporting year, shareholders were given an opportunity to put questions to members of the company’s executive board and board of directors prior to and during the general meeting.

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

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


34


Compliance status:




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

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

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

In accordance with par. 10.12. of the Company’s Charter, its shareholders owning the aggregate of at least 2% of the Company voting shares are entitled to place issues on the agenda of the Annual General Shareholders Meeting within 45 days after the financial year.

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

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

The Company ensures equal and fair treatment for all its shareholders in the exercise by them of their right to participate in the management of the Company. Shareholders exercise their rights in line with the Russian legislation. The Counting Committee, in terms of its duties, is an independent and constantly operating body of a meeting with its functions being fulfilled by the registrar of the Company. Any attendee may address to the Counting Committee regarding meeting-related issues, but the attendee’s actions shall not impede the work of the Counting Committee.


35


Compliance status:




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

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

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

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

The Company provides all shareholders with an equal opportunity to participate in general meetings in line with the Russian legislation. While approving a program on preparation, convocation and holding of general shareholders meeting, the Board of Directors reviews all issues and proposals. Outstanding issues shall be solved based on observing shareholders’ rights and interests. Considering the structure of the Company’s authorized capital, remote participation of shareholders through telecommunication means is impossible. Shareholders participate in meetings either personally or via their representatives.

1.2 SHAREHOLDERS SHALL BE GIVEN EQUAL AND FAIR OPPORTUNITIES TO PARTICIPATE IN

PROFITS OF A COMPANY BY RECEIVING DIVIDENDS.

1.2.1 The company shall develop and install transparent and comprehensible mechanism for determining the amount of dividends and their payment.

1. The company’s board of directors developed, adopted and disclosed its dividend policy.

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

The Company has no internal document regulating its dividend policy. The Company’s Charter contains main areas of its dividend policy, including among others:• dividend rates on preference

shares;• circumstance preventing the

Company from making a decision on paying dividends;

• procedure of making a decision to pay dividends.


36


Compliance status:




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

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

1.2.3 The company shall not allow the dividend rights of its existing shareholders to deteriorate.

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

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

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

The Company’s internal documents do not provide for ways of control ensuring timely detection and procedure of approving deals with individuals associated with substantial shareholders (those having the right to manage votes attached to voting shares) in cases when the law officially shall not refer to such deals as interested party transactions. But the Company has regulations on procedures of concluding business contracts, holding bids, contests, suppliers registration, as well as purchase of goods and works (services) using the e-platform. The Company also keeps records of interdependent persons and controls the transfer pricing in accordance with the current Company’s Regulation on Observing the Tax Legislation of the Russian Federation in Terms of Transfer Pricing. This system of concluding and controlling contracts guarantees equal opportunities to all counterparties.


37




1.3 SYSTEM AND PRACTICES OF CORPORATE GOVERNANCE SHALL ENSURE EQUAL TERMS AND

CONDITIONS FOR ALL SHAREHOLDERS OWNING SHARES OF THE SAME CLASS (CATEGORY) IN

A COMPANY, INCLUDING MINORITY AND FOREIGN SHAREHOLDERS, AS WELL AS THEIR EQUAL

TREATMENT BY THE COMPANY.

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

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

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

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

1.4 SHAREHOLDERS SHALL BE PROVIDED WITH RELIABLE AND EFFICIENT METHODS OF

RECORDING THEIR RIGHTS IN SHARES AS WELL AS AN OPPORTUNITY TO DISPOSE OF SUCH

SHARES FREELY AND WITHOUT HINDRANCE.

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

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

2.1 BOARD OF DIRECTORS SHALL IMPLEMENT THE STRATEGIC MANAGEMENT OF A COMPANY,

DEFINE MAJOR PRINCIPLES AND APPROACHES TO ORGANIZING A RISK MANAGEMENT AND

INTERNAL CONTROL SYSTEM WITHIN THE COMPANY, MONITOR ACTIVITIES OF THE COMPANY’S

EXECUTIVE BODIES AND PERFORM OTHER KEY FUNCTIONS.


Compliance status:


38




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

1. The board of directors defined in in the charter its authorities to appoint and remove executives and determine provisions of contracts with regard to members of executive bodies.

2. The board of directors reviewed report (reports) of the chief executive and members of collective executive body on implementing the company’s strategy.

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

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

2.1.3 The board of directors shall define principles of and approaches to organizing a risk management and internal control system in the company.

1. The board of directors determined principles of and approaches to organizing a risk management and internal control system in the company.

2. During the reporting year, the board of directors made an assessment of the company’s risk management and internal control system.

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

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

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


Compliance status:


39




2.1.5 The board of directors shall play a key role in prevention, detection and resolution of internal conflicts among company organs, shareholders and employees.

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

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

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

1. The board of directors adopted a resolution on information policy.

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

The Company did not adopt any internal documents determining its information policy. The Company’s information policy is determined by its Board of Directors. For the purpose of transparency, timeliness and completeness of information disclosure, the Board of Directors may make corrections in the form if instructions and proposals to executive bodies. The Company’s information policy is implemented through its Press Office.

2.1.7 The board of directors shall monitor the company’s corporate governance practices and play a key role in its substantial corporate events.

1. During the reporting year, the board of directors reviewed the issue of the company’s corporate governance practices.

In the reporting year, no significant issues were reviewed in this area. The control over the Company’s corporate governance practices is performed by its Board of Directors. All substantial corporate events in the Company are held in accordance with decisions made by its Board of Directors.

2.2 BOARD OF DIRECTORS SHALL BE ACCOUNTABLE TO THE COMPANY’S SHAREHOLDERS.


Compliance status:


40


Compliance status:




2.2.1 Information about the board’s work shall be disclosed and made available to shareholders.

1. The company’s report for 2016 includes information on attendance of meetings of its board of directors and committees by directors.

2. The annual report summarizes key results of evaluating the work performed by the company’s board of directors in the reporting year.

2.2.2 The chairman of the board of directors shall be available for contact with the company’s shareholders.

1. The company has a transparent procedure allowing its shareholders to submit their questions and opinions to the chairman of the board of directors.

2.3 BOARD OF DIRECTORS SHALL BE AN EFFICIENT AND PROFESSIONAL GOVERNING BODY OF

THE COMPANY CAPABLE OF MAKING OBJECTIVE AND INDEPENDENT JUDGEMENTS AND PASS

RESOLUTIONS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS.

2.3.1 It is recommended that only persons with an impeccable business and personal reputation be elected to the board of directors; they shall also have the knowledge, skills and experience necessary to make decisions within the jurisdiction of the board of directors and essential to perform its functions efficiently.

1. The company adopted a procedure of evaluating the efficiency of work performed by its board of directors that comprises, among others, evaluation of professional qualification of its members.

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


41


Compliance status:




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

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

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

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

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

1. Within the procedure of evaluating the work performed by the board of directors in the reporting year, the board reviewed the issue of conformity of its composition to the company’s needs and shareholders’ interests.

2.4 BOARD OF DIRECTORS SHALL INCLUDE A SUFFICIENT NUMBER OF INDEPENDENT DIRECTORS.


42


Compliance status:




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

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

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

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

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

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

In the reporting year, the Board of Directors did not make an assessment as to whether candidates nominated to the board of directors meet independence criteria, since the number of nominees corresponded to the composition of the Board of Directors determined by par. 16.5 of the Company’s Charter. At the same time, the way current Board members who do not meet independence criteria under the Code recommendations 102–107, proves the independence of their opinions and judgements. They require the Executive Board to answer their questions and request additional information when necessary.


43


Compliance status:




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

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

Independent directors account for less than one-third of all directors elected to the Board. Nevertheless, the Board has enough independent directors based on the established model and practices of the Company’s corporate governance. The members of the Board were elected at the Annual General Shareholders Meeting held on 22 April 2016 among candidates proposed by the shareholders. The Board of Directors comprises three independent directors based on independence criteria determined by the Code.

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

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

2.5 CHAIRMAN OF THE BOARD OF DIRECTORS SHALL CONTRIBUTE TO THE MOST EFFICIENT

PERFORMANCE OF THE BOARD’S FUNCTIONS.

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

1 . Elected chairman is either an independent director or a senior independent director among the company’s independent directors.

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

The Chairman of the Board of Directors is not an independent director. Nevertheless, the Chairman of the Board of Directors contributes to the most efficient performance of the Board’s functions based on the established model and practices of the Company’s corporate governance

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

1. Efficiency of work performed by the board’s chairman was assessed within the procedure of evaluating the efficiency of work performed by the board of directors in the reporting year.


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

1. Internal documents of the company specify the duty of the chairman to take all necessary steps to supply board members in good time with the information regarding the issues on the agenda.

2.6 BOARD MEMBERS SHALL ACT REASONABLY AND IN GOOD FAITH IN THE INTERESTS OF THE

COMPANY AND ITS SHAREHOLDERS, ON THE BASIS OF SUFFICIENT INFORMATION AND WITH

DUE CARE AND DILIGENCE.

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

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

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

3. The company determined a procedure allowing the board to take, on the company’s account, professional opinions regarding its responsibilities.

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

1. The company adopted and published an internal document clearly stating and incorporating rights and duties of board members.


Compliance status:


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Compliance status:




2.6.3 Board members shall have sufficient time to perform their duties.

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

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

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

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

The company adopted a formal program on get-acquainted session for newly elected board members.

2.7 MEETINGS OF THE BOARD, PREPARATION THERETO AND PARTICIPATION OF BOARD MEMBERS

THEREIN SHALL ENSURE EFFICIENT WORK OF THE BOARD.

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

1. The board held at least six meetings in the reporting year.


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Compliance status:




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

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

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

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

Article 9 of the Regulation on the Company’s Board of Directors specifies the list of issues the Board is not entitled to resolve by polls (vote in absentia). But the Board of Directors adheres to the position of possible expansion of list of the issues stipulated by the Regulation on the Board to be resolved in praesentia in accordance with the Recommendation 168 of the Code.

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

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

2.8 BOARD OF DIRECTORS SHALL FORM COMMITTEES FOR PRELIMINARY CONSIDERATION OF THE

MOST IMPORTANT ISSUES IN THE COMPANY’S BUSINESS.


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2.8.1 An audit committee consisting of independent directors shall be created for preliminary consideration of any matters related to monitoring the company’s financial and business activities.

1. The board of directors formed an audit committee comprising independent directors only.

2. The company’s internal documents provide for objectives of the audit committee, including those stipulated by the Recommendation 172 of the Code.

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

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

Audit Committee under the Board of Directors includes not only independent directors. Based on the established model and practices in the Committee, all its members contribute to the most efficient performance of the Committee’s functions and use principles of independence in fulfilling their obligations in the field of decision making.

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

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

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

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

The Personnel and Remuneration Committee under the Board of Directors includes not only independent directors. The Committee is chaired by the State representative, who, based on the established model and practices in the Committee, contributes to the most efficient performance of the Committee’s functions.


Compliance status:


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Compliance status:




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

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

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

The Board of Directors did not form a nomination committee. Having regard to its activities and the risk level, the Company’s Board of Directors made certain that its composition fully meets objectives of the Company’s business. A nomination committee was deemed by the Board as unnecessary. The Board adheres to the basic principle (par. 2.8.) and if necessary, objectives stipulated by the Recommendation 186 of the Code may be assigned to the Personnel and Remuneration Committee under the Company’s Board of Directors.

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

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

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

1. Committees of the board are chaired by independent directors.

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

Chairmen of the Committees are not independent directors as stipulated by independence criteria in Recommendations 102–107 of the Code. Based on the established model and practices in the Committees, their chairmen contribute to the most efficient performance of the Committees’ functions.


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Compliance status:




2.8.6 Committee chairmen shall inform the board of directors and its chairman on the work of their committees on a regular basis.

1. During the reporting year, chairmen of the committees informed the board of directors on the work of their committees on a regular basis.

2.9 BOARD OF DIRECTORS SHALL ENSURE THAT THE QUALITY OF ITS WORK AND THAT OF ITS

COMMITTEES AND ITS MEMBERS IS ASSESSED.

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

1. Self-assessment or external evaluation of the work performed by the board in the reporting year included the assessment of work implemented by its committees, members and the board in general.

2. Results of self-assessment or external evaluation of the work performed by the board in the reporting year were considered during meeting in praesentia of the board.

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

1. For independent assessment of the quality of the board’s work during the last three reporting periods, the company at least once involved an outside organization (consultant).

The Company’s Board of Directors annually reports its activities at the General Shareholders Meeting. The assessment of the work performed by the Board, its committees and the Board members does not involve an outside organization (consultant). But such assessment may be implemented by the decision of the Company’s shareholders.

3.1 THE COMPANY’S SECRETARY SHALL BE RESPONSIBLE FOR EFFICIENT DAY-TO-DAY RELATIONS

WITH ITS SHAREHOLDERS, COORDINATION OF THE COMPANY’S ACTIONS TO PROTECT THE

RIGHTS AND INTERESTS OF ITS SHAREHOLDERS, AND SUPPORTING THE WORK OF ITS BOARD

OF DIRECTORS.


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3.1.1 The company secretary shall have the trust of the shareholders as well as the knowledge, experience and qualifications sufficient for performance of his duties.

1. The company adopted and disclosed an internal regulation on the company secretary.

2. The company should disclose information on the corporate secretary on its website and in its annual report as detailed as that specified for disclosure in respect of board members and members of the company executives.

The Company does not provide for a company secretary. Efficient work performed by the Board is assisted by its Secretary. Relations with shareholders and coordination of the Company’s actions to protect the rights and interests of its shareholders are maintained by the Corporate Governance Department of PJSC Kazanorgsintez.

3.1.2 The company secretary shall be sufficiently independent of the company’s executive bodies and have the powers and resources required to perform his tasks.

1. The board of directors shall approve the appointment, dismissal from office and additional remuneration of the company secretary.

4.1 LEVEL OF REMUNERATION PAID BY THE COMPANY SHALL BE SUFFICIENT TO ATTRACT, MOTIVATE

AND RETAIN PERSONS POSSESSING NECESSARY SKILLS AND QUALIFICATIONS. REMUNERATION

OF BOARD MEMBERS, EXECUTIVE BODIES AND OTHER KEY MANAGERS OF THE COMPANY SHALL

BE PAID IN ACCORDANCE WITH THE REMUNERATION POLICY ADOPTED IN THE COMPANY.

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

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


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Compliance status:




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

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

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

1. The company’s remuneration policy contains transparent mechanisms determining the amount of remuneration for members of the board of directors, executives and other key managers of the company, as well as regulating all forms of payment, benefits or privilege granted to any of the above.

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

1. The company’s remuneration policy or other internal documents specify rules of expenses reimbursement to the board members, executives and other key managers of the company.

4.2 THE SYSTEM OF REMUNERATION FOR BOARD MEMBERS SHALL ENSURE THAT THE FINANCIAL

INTERESTS OF THE DIRECTORS ARE IN LINE WITH THE LONG-TERM FINANCIAL INTERESTS OF

THE SHAREHOLDERS.


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4.2.1 The company shall pay a fixed annual fee to the board members. The company shall not pay a fee for attending individual meetings of the board or its committees. No form of short-term motivation or additional financial incentive for board members shall be applied.

1. The fixed annual fee was the only monetary remuneration to board members for their work in the board of directors during the reporting year.

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

1. If the company practices remuneration of board members with shares, its board remuneration policy shall contain clear and transparent rules regulating the ownership of shares by board members. These rules shall encourage building a holding and owning shares long term.

4.2.3 The company shall not provide for any additional payment or compensation in the event of early dismissal of board members in connection with a change of control over the company or other circumstances

1. The company does not provide for any additional payment orcompensation in the event of early dismissal of board members in connection with a change of control over the company or other circumstances

4.3 SYSTEM OF REMUNERATION FOR MEMBERS OF EXECUTIVE BODIES AND OTHER KEY MANAGERS

OF THE COMPANY SHALL PROVIDE THAT THEIR REMUNERATION IS DEPENDENT ON THE

COMPANY’S PERFORMANCE RESULTS AND THEIR CONTRIBUTIONS TO ACHIEVING THESE.


Compliance status:


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Compliance status:




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

1. During the reporting year, annualperformance indicator approved by the board were used to determine the amount of variable remunerations for members for executive bodies and other key managers of the company.

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

3. The company provides for aprocedure ensuring repay of remuneration payments wrongfully obtained by members of executive bodies and other key managers of the company.

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

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

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

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

Based on the Company’s internal regulations, remunerations for its executive bodies and other key managers depend on the Company’s performance results and their personal contributions to achieving theses.


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

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

5.1 THE COMPANY SHALL CREATE AN EFFICIENT RISK MANAGEMENT AND INTERNALCONTROL

SYSTEM DESIGNED TO ENSURE WITH REASONABLE CONFIDENCE ACHIEVEMENT OF THE

COMPANY’S GOALS.

5.1.1 The board of directors shall define principles of and approaches to organizing the risk management and internal control system in the company.

1. Functions of the company’s governing bodies in its risk management and internal control system are clearly specified in the company’s internal documents/corresponding policy approved by the board of directors.

5.1.2 The company’s executives shall ensure the establishment and continuing efficiency of the company’s risk management and internal control system.

1. The company’s executive bodies ensured the distribution of functions and authorities between subordinate heads of divisions and departments with regard to risk management and internal control.

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

1. The company adopted anti-bribery policy.

2. The company arranged a comprehensible way of informing the board of directors or its audit committee on violating legislation or the company’s internal procedures and code of conduct.


Compliance status:


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Compliance status:




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

1. During the reporting year, the board of directors or its audit committee assessed the efficiency of the company’s risk management and internal control system. Main results of the assessment are contained in the company’s annual report.

The Company’s Internal Control Department is involved in efficiency assessment of its risk management and internal control system. Most issues are referred to as confidential information. The Board of Directors does not follow the policy of disclosing such information. Information is disclosed in line with the current legislation. The Board of Directors quarterly reviewed the issue of the Company’s financial and economic performance in the reporting year (including implementation of production plans, commercial activities, execution of capital construction plans, etc.). All existing and possible risks are considered during such meeting within the above-mentioned issues.

5.2 THE COMPANY SHALL ORGANIZE AN INTERNAL AUDIT, FOR REGULAR INDEPENDENT

EVALUATION OF EFFICIENCY AND RELIABILITY OF ITS RISK MANAGEMENT AND INTERNAL

CONTROL SYSTEM AND CORPORATE GOVERNANCE PRACTICE.

5.2.1 Internal audits shall be performed by a separate structural division to be created by the company or by the engagement of an independent outside body. Functional and administrative reporting lines of internal audit department shall be kept separate. Functionally the internal audit department shall report to the board of directors.

1. For the purpose of internal audit, the company created separate structural division of internal audit that functionally reports to the board of directors or audit committee. Alternatively, the company engaged an independent outside body based on the same reporting principle.


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5.2.2 Internal audit department shall evaluate the efficiency of the internal control system and the risk management system and of corporate governance. The company shall apply generally accepted standards of internal auditing.

1. During the reporting year, the internal audit involved the evaluation of the company’s risk management and internal control system.

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

6.1 THE COMPANY AND ITS ACTIVITIES SHALL BE TRANSPARENT TO ITS SHAREHOLDERS,

INVESTORS AND OTHER INTERESTED PARTIES.

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

1. The company’s board of directors adopted its information policy developed with due regard to the Code recommendations.

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

The Company did not adopt any internal documents regulating its information policy. The Company’s internal policy is governed by its local acts (orders, decrees, etc.). The Company implements its information policy through its Press Office and official website www.kazanorgsintez.ru. This website contains replies to shareholders’ and investors’ questions, financial statements, lists of affiliated persons, substantial facts, annual and quarterly reports, information for shareholders meetings, Charter and internal documents, as well as other helpful information for shareholders and investors.


Compliance status:


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Compliance status:




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

1. The company discloses information (also on its website) on its corporate governance system and general principles of corporate governance adopted in the company.

2. The company discloses information on composition of its executive bodies and board of directors, board members independence and their membership in the board’s committees (in accordance with the Code).

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

The Company has no special memorandum containing plans with regard to a person controlling the Company. The Company has no memorandum by reason of the established model and practices of the Company’s corporate governance determined by peculiarities of its organizational structure.

6.2 THE COMPANY SHALL DISCLOSE FULL, UP-TO-DATE AND RELIABLE INFORMATION ABOUT ITSELF IN GOOD TIME TO ENABLE ITS SHAREHOLDERS AND INVESTORS TO MAKE INFORMED DECISIONS.

6.2.1 The company shall disclose information in accordance with the principles of regularity, consistency and timeliness, as well as accessibility, reliability, completeness and comparability.

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

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

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


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

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

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

The Company, of its own accord, prepares and discloses financial statements in accordance with IFRS standards within the terms determined by the legislation of the Russian Federation. These statements are not contained in the Company’s annual report, but by the date of holding the General Shareholders Meeting it is available on the Company’s website used to disclose its information. The information about the Company’s capital structure is available on its official website. But the information on the capital structure is disclosed as of the date of preparing a list of persons entitled to participate in the Annual General Shareholders Meeting for 2015, thus becoming outdated at the time of preparing the annual report. In accordance with amendments introduced into the Russian legislation, the Company has no access to capital structure as of the end of the reporting period. In view of the above, comprising this information into the annual report is deemed unreasonable.

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

1. The company’s annual report contains information about key aspects of its operating activities and its financial performance.

2. The company’s annual report contains information about environmental and social aspects of its activities.

Information about environmental and social aspects of the Company’s activities is available on the official website of PJSC Kazanorgsintez (www.kazanorgsintez.ru).

6.3 THE COMPANY SHALL PROVIDE INFORMATION AND DOCUMENTS REQUESTED BY ITS SHAREHOLDERS

IN ACCORDANCE WITH THE PRINCIPLES OF EQUAL AND UNHINDERED ACCESSIBILITY.

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

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


Compliance status:


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Compliance status:




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

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

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

7.1 ACTIONS WHICH WILL OR MAY MATERIALLY AFFECT THE COMPANY’S SHARE CAPITAL

STRUCTURE AND ITS FINANCIAL POSITION AND ACCORDINGLY THE POSITION OF ITS

SHAREHOLDERS («MATERIAL CORPORATE ACTIONS») SHALL BE TAKEN ON FAIR TERMS

ENSURING THAT THE RIGHTS AND INTERESTS OF THE SHAREHOLDERS AND OTHER INTERESTED

PARTIES ARE OBSERVED.

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

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

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


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Compliance status:




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

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

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

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

7.2 THE COMPANY SHALL PROVIDE A PROCEDURE FOR TAKING MATERIAL CORPORATE ACTIONS

THAT ENABLES ITS SHAREHOLDERS TO RECEIVE FULL INFORMATION ABOUT SUCH ACTIONS IN

DUE TIME AND INFLUENCE THEM, AND ALSO GUARANTEES THAT THE SHAREHOLDERS’ RIGHTS

ARE OBSERVED AND DULY PROTECTED WHEN SUCH ACTIONS ARE TAKEN.

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

1. During the reporting year, the company disclosed information about its material corporate actions in detail and in due time, including grounds and terms of taking such actions.


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

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

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

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

Based on the established model and practices of corporate governance, determination of price (monetary value) of property and placement and repurchase of issue-grade securities in cases stipulated by the Federal Law «On Joint Stock Companies» refers to the jurisdiction of the Company’s Board of Directors. Independent assessor shall be engaged in cases specified by the legislation of the Russian Federation.

In 2017, PJSC Kazanorgsintez is scheduled to take measures on improving its model and practices of corporate governance within recommendations of the Corporate Governance Code advised by the Bank of Russia.

General Director of PJSC Kazanorgsintez

Farid G. Minigulov


Compliance status:


62

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

The Annual Report is preliminary approved by the Decision of the Board of Directors of PJSC Kazanorgsintez (Protocol No.9 dated 6 March 2017).

The Annual Report of PJSC Kazanorgsintez for 2016 is approved by its Annual General Shareholders Meeting held on 7 April 2017 (Protocol dated 12 April 2017).

annualethylene pipes market volume, '000 tons manufactured by pjsc kazanorgsintez1, '000...

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