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ANNUAL REPORT

Public Stock Company “TAIF-NK”

for 2008

PERPETUUM To change the stone axe for the pocket PC, the humanity required not only thousand years and significant mental tension, but

also constant striving to investigate the unexplored, to embrace the boundless,

to find the philosophers’ stone, to invent a perpetuum mobile – the continuously operating machine. The idea of endless movement appeared long ago, it found

its implementation in a variety of mechanisms of complexity and operation level. Modern scientists divide all created

“perpetuum mobile – like devices” into types and classes: mechanical, magnetic,

hydraulic, thermodynamic…Not denying a significant contribution to

the development of technical idea

MOBILEby every failed perpetual project, from century to century the science luminaries say it time and again to the persevering dreamers that the attempts to create continuously operating mechanisms or machines with the ability to operate without energy consumption or to use their own produced energy, are doomed to failure. Anyhow, the background of engineering science and the main physics laws appeared because of the sterile search of everlasting motion. Indeed, what can prevent the inquisitive minds from believing again and again in the possibility of the impossible and dreaming about the perpetual? About the perpetuum mobile.

CONTENTS

MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS 6

CHAPTER IROLE OF THE PSC “TAIF-NK” IN THE OIL REFINING INDUSTRY Role in the industry 10 The industrial structure of the Сompany 19

CHAPTER IIPRIORITY BUSINESS LINES OF THE COMPANY'S ACTIVITIES Priority business lines of activities 24 Production activity 25 Key technical and economical indicators of activities 27 Tax accruals and charges 30 Energy saving 31 Environmental protection 33 Industrial safety and labour protection 34 Implementation of integrated management system 35

CHAPTER IIIPERSONNEL AND SOCIAL POLICY OF THE COMPANY Personnel 38 Employees training 40 Social protection of the employees 41 Physical training and sport 43 Participation in social programs 43

CHAPTER IVDEVELOPMENT PROSPECTS OF THE COMPANY 47

CHAPTER VDESCRIPTION OF THE MAIN RISK FACTORS CONNECTED WITH THE COMPANY’S BUSINESS ACTIVITIES Branch risks 51 Credit risk 51 Interest rate risk 51 Exchange rate risk 52 Inflation risk 52 Risks of property loss 53 Legal risks 53

CHAPTER VICORPORATE MANAGEMENT Transactions 56 Share capital. Dividend policy 57 Management bodies 59 Report of the Audit commitee 61

CHAPTER VIIPSC “TAIF-NK” IN MASS MEDIA 65

CHAPTER VIIIFINANCIAL STATEMENTS OF THE COMPANY 69

INFORMATION ON THE COMPANY 76

6

Message from the Chairman of the Board of Directors

SULTEEV RUSTEM NURGASIMOVICH

DEAR LADIES AND GENTLEMEN!

resources demand, and, consequently, to an oil prices slump.

However, it is this difficult situation providing stable progressive development of modern refinery and petrochemical industries, as well as the transition from raw materials export to the end products export that will allow Russia to depart from the status of a mainly raw materials supplier for the developed world and to gain considerably higher incomes.

Strategic development direction of PSC “TAIF-NK” is the successive improvement of the existing plants and the construction of new ones that enable to reach the world level of high sulfur oil refining as well as to maximally meet the requirements of Tatarstan Republic in petrochemical feedstock and high-quality motor fuels, which meet the requirements of European standards.

In the reported year PSC “TAIF-NK” processed 97.4 % of the total volume of crude oil refined in the Republic. PSC “TAIF-NK” capacity utilization of primary processing made up 95.9 % in 2008.

Motor gasoline production increased by 1.3 times in the reported year, at that its production share in the Russian Federation made up 1.76 % (1.4 % - in 2007; 0.8 % - in 2006), in Tatarstan Republic it made up 90.2 % (89.4 % - in 2007; 71.1 % - in 2006).

At the beginning of April, 2008 PSC “TAIF-NK” started to ship the first production lots of fuel for jet engines of grade RT under the GOST 10227-86 to consumers. This grade fuel used in modern aviation is in great demand at the market, what provides stable and steady demand for these products. High quality of RT grade fuel produced by PSC “TAIF-NK” was confirmed at the tests, carried out in an independent testing laboratory of the Certification Center air POL FSUE SRDE of Civil Aviation certification body.

With the purpose of creating a greater range of products and meeting consumer’s demand

The previous year of 2008 was difficult for the Russian refining sector.

Economical upturn at the beginning of the year gave way to economic recession by the end of the reported period, which led to reduction of energy

MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS

Annual ReportPublic Stock Company “TAIF-NK” for 2008

7

for jet fuels in 2008 PSC “TAIF-NK” conducted operations to launch industrial-scale production of jet fuel for gas-turbine engines Jet А-1.

In 2008 PSC “TAIF-NK” successfully completed the complex certification of the integrated management system of quality, industrial safety, labour and environmental protection for the compliance with the international standards ISO 9001:2000, ISO 14001:2004, OHSAS 18001:2007 and EN/AS 9100:2001.

The International certification body confirmed the compliance of all business-processes within the productive-economic activity of the Refinery and the Gasoline Plant to the requirements of international standards.

The Company carried out considerable work in certification of end products for compliance with the requirements of state standards.

In May 2008 at the Refinery of the Company “AVTODORSERT” certification body experts conducted certification audit of oil road bitumen production to the compliance with the requirements of “AVTODORSERT” Voluntary Certification System with regard to road facilities and GOST R ISO 9001-2001 “Quality Management System. Requirements”.

The audit resulted in confirmation of the high quality of the oil road bitumen produced by PSC “TAIF-NK” as well as in production process stability.

Also in May of the reported year PSC “TAIF-NK” was given a certificate of compliance with the first level of production stability and the quality of produced bitumen (PREMIUM CLASS).

In accordance with the requirements of Technical regulations “On requirements as to motor and aviation motor gasoline, diesel and marine fuels, fuels for jet engines and residual oil” in 2008 PSC “TAIF-NK” carried out a range of work to launch the industrial-scale production of motor gasoline of EURO standard: Premium

EURO-95 and Regular EURO-92 under the GOST R 51866-2002 (ЕН 228-2004) “Motor fuel. Unleaded gasoline”, which meet the requirements of EURO-3, EURO-4 standards. Subsequent to the results of positive pilot batches qualification tests of Premium EURO-95 and Regular EURO-92 gasoline produced by PSC “TAIF-NK”, the Company received compliance certificates and launched mass production of these products.

A unit of bringing in additives into EURO diesel fuels was set in operation at the Company’s Refinery, and also the Company mastered the industrial production of EURO diesel fuel, grades А,В,С,D,E,F under the GOST R 52368-2005 (ЕН 590:2004) “EURO Diesel fuels”, which meet the EURO-3 and EURO-4 standards. Subsequent to the results of pilot batches positive qualification tests certificates of compliance for diesel fuels produced by PSC “TAIF-NK” were given.

The sales of motor gasoline produced by PSC “TAIF-NK” increased from 19 % in 2007 to 42 % in 2008 on the republican territory, this gasoline being of high quality, which meets the requirements of EURO-4 regulations, production of which the Company started in the reported year.

The Company actively participates in the diverse charitable events. The Company spent 11.5 mln RUB with the purposes of charity assistance in the reported year.

Summarizing work undertaken in the reported year I would like to highlight that we have much to do to achieve the desired goals. With that I am sure that PSC “TAIF-NK” will successfully deal with all the designated tasks thanks to its competitive advantages – the efficient technologies, high quality products and staff professionalism.

Chairman of the PSC “TAIF-NK”Board of Directors R.N. Sulteev

The great Greek physicist, mathematician,

engineer and mechanic Archimedes is widely regarded as the apologist of

learning about the perpetuum mobile. He never engaged in the construction of perpetuum mobile. But it was he, who introduced the centre of gravity concept into the mechanics, invented the water engine, and above all he invented the axle with the screwed surface, installed in the inclined pipe. This machine which was later

called “the Archimedes screw” became the element of great many

perpetuum mobiles.

CHAPTER I

ROLE OF THE PSC “TAIF-NK” IN THE OIL REFINING

INDUSTRY

10

In every country macroeconomic growth and welfare largely depend on the development

of key economic sectors. As for the Republic of Tatarstan, which is considered to be one of the oldest oil refining regions of Russia, the key economic sector is first of all the oil producing and oil refining industries.

In Russia oil refining industry was built up in fifties-eighties of the XXth century. In the Soviet period, under the conditions of the crude production growth and increasing of the fuel oil consumption level in the heat power industry, engineering capability of oil refining was formed

without sufficient development of processes, which define the processing depth of crude oil stock and improve the consumer and environmental properties of oil products. As a result, currently the process of oil refining in Russia is not balanced with its production, as for the level of oil refining and petrochemical industries’ development, Russia significantly remains short of developed countries, primarily on qualitative indicators and crude oil processing depth.

In terms of primary crude oil processing, Russia maintains the 4th position in the world, and in terms of capacities it maintains the 2nd position after the USA.

Dynamics of crude oil processing(mln tons)

Role in the industry

Sources: “InfoTEK. Oil and gas bulletin” №1 2008, №1, 2009 Federal State Statistics Service of the Russian Federation and Federal State Unitary Enterprise “Fuel and Energy Complex Central Dispatch Service”

2003 2004 2005 2006 2007 2008

190.0 195.0211.1 219.6 228.6 236.3

ROLE OF THE PSC “TAIF-NK” IN THE OIL REFINING INDUSTRY

Annual ReportPublic Stock Company “TAIF-NK” for 2008I

CHAPTER

11

The following key problems of oil refining industry continue in Russia:

• Oil refining deepening; • Obtaining the products of global quality level.Oil refining deepening is a way of saving of

such nonrenewable strategic resource as crude oil. It ensures the receipt of great cost saving, reserves crude oil as a resource for its sales and covering fuel needs of Russia. In nineties it was planned to reach the refining depth index to 75 % by 2000, but this task was not fulfilled by many companies. The government program “Energy strategy of Russia until 2020” says about the necessity to gain the oil processing depth to 75 % by 2010, and to 85 % by 2020. For reference in Europe the processing depth to date comes up to 85 % and in the USA it comes up to 95 %.

This problem can be solved by developing the destructive processes of vacuum distillates and fuel oil residue processing. But the share of these processes (different kinds of hydrocracking, catalytic cracking, and thermal processes) in the diagrams of domestic oil refineries is several times lower than in other countries.

The implementation of these objectives in Russia is associated with the domestic refineries (hereafter Refinery) fundamental modernization including advance assimilation of oil refining deepening capacities by means of installing new and modernization the existing fluid catalytic cracker (FCC), hydrocracking unit (HCU), coke unit and others. Besides, industrial engineering is required, which allows improving the quality of motor fuel and commits in production the products from the destructive processes of feedstock processing.

Another objective task, which the industry inevitably will face, is to supply the growing demand of petrochemical industry with feedstock and to increase the product export for petrochemical plants, prices of which are significantly higher than the prices for basic refined products.

To solve these tasks and furnish the quality of fuel types and other refined products on the up-to-date world level, the construction and upgrading of many processing units are required. It is necessary even today to reconsider the attitude to oil processing – it is important to invest the capital in its modernization and development.

Arabic scientists wanted to bring the idea of perpetuum mobile to life. For instance, in the manuscript of Fahr ad din Ridvan ben Mohammed some ideas were outlined, resonating with the projects of Indian scientists but having their own constructive peculiarities. Arabic perpetuum mobiles frequently were of a large size, they had wooden pivot levers, radially installed on the gear, rotating on the cross axis. A big wheel was remaining the main part.

arabic perpetuum mobiles

1212

Feedstock processing depth at refineries in Russia 2001-2008

Sources: InfoTech-Consult, Association of petroleum refineries and petrochemists

1 Novo-Ufimsky refinery 6,734.7 898.8 85.15 1 80.0 72.0 2 Permnefteorgsintez 12,421.9 1,833.4 83.74 2 85.2 83.2 3 Omsk refinery 18,369.6 3,052.5 81.88 3 84.4 82.8 4 Ukhtaneftepererabotka 3,793.5 660.2 81.10 4 76.0 59.2 5 Volgogradneftepererabotka 10,740.5 1,916.9 80.65 5 81.5 81.7 6 Ufaneftekhim 7,478.8 1,422.4 79.48 6 76.9 75.5 7 Ufimsky refinery 6,148.4 1,244.4 78.26 7 80.1 77.0 8 Angarsk Petrochemicals Company 9,525.7 1,969.3 77.83 8 - 9 78.2 76.4 9 Salavatnefteorgsintez 6,392.3 1,321.1 77.83 8 - 9 78.1 64.1 10 TAIF-NK 7,672 1,875.6 74.1 10 71.1 44.4 11 Saratov refinery 6,634.6 1,746.5 72.18 11 70.8 64.0 12 Novokuibyshev refinery 7,355.1 2,064.8 70.43 12 71.0 74.5 13 Moscow refinery 9,773.5 2,647.5 69.26 13 59.7 67.5 14 Ryazan refinery 14,864.8 4,749.3 66.55 14 66.3 61.4 15 Syzran refinery 6,477.1 2,086.8 66.28 15 68.9 69.2 16 Yaroslavnefteorgsintez 13,477.5 4,370.8 66.07 16 66.8 62.6 17 «Kirishinefteorgsintez» 20,480.8 6,749.4 65.55 17 66.5 61.6 18 Nizhegorodnefteorgsintez 16,971.8 5,874.6 63.39 18 64.6 62.6 19 Achinsk refinery 6,778.7 2,458.7 62.23 19 61.1 66.4 20 Khabarovsk refinery 4,914.9 1,897.1 59.90 21 62.8 67.3 21 Orsknefteorgsintez 4,914.9 1,897.1 59.90 21 62.8 67.3 22 Kuibyshev refinery 6,417.5 2,511.8 59.36 22 62.9 67.4 23 Komsomolsk refinery 7,292.9 2,913.6 58.55 23 60.8 58.1 24 Krasnodarekoneft 2,585.3 1,113.1 55.45 24 59.8 62.4 25 Tuapse refinery 5,234.9 2,254.9 55.43 25 56.5 56.1 26 Afipsky refinery 2,471.5 1,189.8 50.36 26 52.4 52.3 Total for Russia 224,343.7 62,070.6 71.46 71.7 67.6

№ Company/plant PrimaryprocessingThousand

tons

Fuel oilproductionThousand

tons

Oil refining

depth,%, 2008

Rating Oil refining

depth,%, 2007

Oil refining

depth,%, 2007



CHAPTER

13

For the implementation of arrangements in terms of upgrading the refi ned products, in 2008 the sulfur removal unit of diesel fuel was signifi cantly upgraded by “TAIF-NK” with the complete replacement of internals and catalyst system of desulfurization reactor and with setting up the additive block in diesel fuel.

In 2007 “TAIF-NK” set into the operation the sulfur removal unit for propane –propylene, butane-butylene fractions and light gasoline. In the reported year it allowed furnishing the petrochemical industries with quality feed: propane –propylene, butane-butylene fractions with low sulfur content.

Production of cat-cracked gasoline which is the basic component of motor gasoline with sulfur content no more than 50 ppm is deemed to be the signifi cant fact of the project realization. It allows organizing industrial production of

automobile gasoline which meets the requirements of ecological standard EURO-4 and technical regulations.

From September 2008 “TAIF-NK” has been ready for total volume yield of diesel fuel with sulfur content no more than 50 ppm, which meets the requirements of ecological standard EURO-4 and technical regulations.

In 2008 the fuel, produced by “TAIF-NK” passed GOST R 51866-2002 (ЕН 228-2004) certifi cation “Road fuels. Unleaded gasoline”, successfully which meets EURO – 4 standard.

Th e sales of motor gasoline, produced by “TAIF-NK”, is increased signifi cantly on the territory of Tatarstan Republic and equals to 42 % over the reported year while in 2007 the sales share of “TAIF-NK” premium fuel which meets the requirements of EURO-4 standard was only 19 %.

Production perfomances of oil stock refining by PSC “TAIF-NK”, 2006-2008 (%)

50,0055,0060,0065,0070,0075,0080,00Feedstock

processing depth

End oilproducts selection

Light oil products selection

69.35 71.1574.12

72.2262.6068.78

59.6267.54

55.72

2006 2007 2008

14

Oil products output structure in the

1 Angarsk Petrochemicals Company 1,383.8 1,272.0 1,269.9 2,458.7 2,802.0 2,994.4

2 Afipsky refinery – – – 615.2 673.8 651.9

3 Achinsk refi nery 1,125.0 1,129.8 1,208.2 1,743.6 2,037.6 2,152.5

4 Volgogradneftepererabotka 868.5 1,165.5 1,461.2 2,614.7 2,458.3 2,876.5

5 Kirishinefteorgsyntez 2,309.8 2,198.1 2,333.6 4,706.0 4,849.1 5,013.4

6 Komsomolsk refinery 475.3 458.9 449.7 1,630.9 1,829.4 1,984.6

7 Krasnodareconeft – – – 737.6 804.7 823.6

8 Kuibyshev refinery* 1,098.6 1,070.9 981.2 2,255.0 2,225.6 2,186.9

9 Moscow refinery 2,112.0 2,305.4 2,175.2 2,658.3 2,777.3 2,674.3

10 Nizhegorodnefteorgsintez* 1,765.1 1,986.0 1,987.9 3,450.1 4,035.6 4,126.0

11 Novokuibyshev refinery * 1,041.7 1,091.7 1,070.2 2,169.3 2,144.0 2,119.5

12 Novo-Ufimsky refinery* 1,801.5 1,672.2 1,440.7 2,096.4 2,260.1 1,770.0

13 Omsk refinery 3,487.2 3,488.6 3,610.4 5,277.3 5,261.7 6,051.5

14 Orsknefteorgsintez* 722.7 731.1 684.6 1,414.5 1,340.2 1,356.5

15 Permnefteorgsintez* 1,463.3 1,401.3 1,645.6 3,607.5 3,687.4 3,902.1

16 Ryazan refinery 3,085.0 3,078.0 3,126.8 4,063.5 4,016.8 4,089.8

17 Salavatnefteorgsintez* 951.0 841.4 731.3 2,464.5 2,332.7 2,245.5

18 Saratov refinery* 791.5 805.8 841.2 1,731.7 1,850.1 1,971.3

19 Syzran refinery* 1,092.9 1,046.3 970.9 1,909.0 2,067.0 1,997.4

20 TAIF-NK 272.3 489.1 627.5 1,828.5 1,716.3 1,918.6

21 Tuapse refinery 262.6 269.6 258.0 1,449.0 1,764.5 1,771.5

22 Ufaneftekhim* 1,513.5 1,740.4 2,035.5 2,667.4 2,619.3 3,305.3

№ Company/plant Motor gasoline Diesel fuel

2006 2007 2008 2006 2007 2008

2,458.7 2,802.0 2,994.4.4 4

615.2 673.8 651.1.9 9

1,743.6 2,037.6 2,1522.5.5

2,614.7 2,458.3 2,8766.5.5

4,706.0 4,849.1 5,0133.4.4

1,630.9 1,829.4 1,9844.6.6

737.6 804.7 823.3.6 6

2,255.0 2,225.6 2,1866.9.9

2,658.3 2,777.3 2,6744.3.3

3,450.1 4,035.6 4,126.6.0 0

2,169.3 2,144.0 2,1199.5.5

2,096.4 2,260.1 1,7700.0.0

5,277.3 5,261.7 6,051.1.5 5

1,414.5 1,340.2 1,356.6.5 5

3,607.5 3,687.4 3,902.2.1

4,063.5 4,016.8 4,089.9.8 8

2,464.5 2,332.7 2,2455.5.5

1,731.7 1,850.1 1,971.1.3 3

1,909.0 2,067.0 1,9977.4.4

1,828.5 1,716.3 1,918.6 6

1,449.0 1,764.5 1,771.1.55

2,667.4 2,619.3 3,305.5.3 3

1,383.8 1,272.0 1,269.9

– – –

1,125.0 1,129.8 1,208.2

868.5 1,165.5 1,461.2

2,309.8 2,198.1 2,333.6

475.3 458.9 449.7

– – –

1,098.6 1,070.9 981.2

2,112.0 2,305.4 2,175.2

1,765.1 1,986.0 1,987.9 1,765.1

7 1,091.7 1,070.2 1,0414 .7

5 1,672.2 1,440.7 11111111,8,, 01.5

2 3,488.6 3,610.4 3,3,33,3,3,3,3,3,3,333,33 4848448484444 7.2

7 731.1 684.6 72727272727727222.22 7

3 1,401.3 1,645.6 1,1,1,1,1,1,1,1,1,1 464646464646444 3.33 3

0 3,078.0 3,126.8 3,3,3,3,33,3,3,3,3,3 080808080808000 5.55 0

0 841.4 731.3 999999999999999515151555555 .0

5 805.8 841.2 7911.5

9 1,046.3 970.9 1,09222.9

3 489.1 627.5 272.2 3

6 269.6 258.0 262.22 6

5 1,740.4 2,035.5 1,513.33 5



CHAPTER

15

1,794.2 2,089.2 1,969.3 532.4 469.8 422.5 – 65.0 514.0

1,161.5 1,284.8 1,189.8 – 3.5 30.3 555.1 567.0 508.6

2,143.9 2,327.3 2,458.7 281.1 325.6 340.2 14.6 168.0 172.8

1,678.5 2,005.7 1,916.9 806.9 860.7 931.8 799.9 551.2 380.5

6,625.9 6,440.8 6,749.4 1,117.0 741.1 779.8 – – –

2,506.9 2,775.7 2,913.6 270.2 320.3 328.4 743.9 792.8 854.9

935.2 957.5 1,113.1 42.0 59.3 58.3 496.7 495.2 509.5

2,264.8 2,452.6 2,511.8 – – – 122.3 92.3 152.2

2,805.0 2,621.2 2,647.5 491.3 531.1 554.4 200.1 198.5 170.8

4,949.6 5,981.3 5,874.6 748.3 815.3 878.1 63.6 226.6 120.1

1,993.2 2,014.2 2,064.8 306.9 311.4 344.2 157.4 177.1 186.2

1,136.7 1,097.6 898.8 58.4 74.9 71.9 13.7 180.6 504.0

2,397.8 3,610.9 3,052.5 1,174.2 1,273.8 1,244.7 – – –

1,690.4 1,847.8 1,897.1 238.7 248.9 284.5 46.0 48.4 38.8

1,643.1 1,745.4 1,833.4 654.2 758.9 775.8 164.4 334.6 519.6

4,690.1 4,690.7 4,749.3 925.7 888.3 888.3 101.0 128.2 18.1

1,427.8 1,342.1 1,321.1 – – – 130.7 347.5 338.9

1,663.5 1,503.4 1,746.5 – – – 141.3 141.2 69.2

1,853.0 1,973.0 2,086.8 191.1 174.5 149.8 175.2 223.0 266.6

2,152.0 1,959.4 1,875.6 - - 44.7 1,233.2 1,241 1,333.6

1,835.1 2,262.0 2,254.9 – – – 576.1 756.0 769.4

1,353.7 1,270.2 1,422.4 – – – – – –

Fuel oil (mazut) Aviation kerosene Straight-run gasoline

2006 2007 2008 2006 2007 2008 2006 2007 2008

The continuation of the table on p.15

Russian Federation in 2006-2008, thousand tons

1616

*- are included into the Privolzhsky Federal District (VFD)SOURCES: “Oil trade. Monthly statistics bulletin. Special edition. 2006 year Results”;Federal State Unitary Enterprise “Fuel and Energy Complex Central Dispatch Service”“InfoTEK. Oil and gas bulletin. №1 2008”“InfoTEK. Oil and gas bulletin. №1 2009”

The continuation of the table. The beginning is on p.14

№ Company/plant Motor gasoline Diesel fuel

2006 2007 2008 2006 2007 2008

23 Ufimsky refinery* 1,533.8 1,497.1 1,545.9 2,518.1 2,225.4 2,179.8

24 Ukhtaneftepererabotka 308.0 355.9 303.6 943.5 1,127.2 1,021.9

25 Khabarovsk refinery 340.0 344.6 341.7 514.5 533.6 644.2

26 Yaroslavnefteorgsintez 2,122.0 2,289.3 2,283.7 3,801.7 3,810.3 4,145.4

27 Tatneft (mini-refinery) * 64.6 65.77 68.6 104.6 101.65 104.8

28 Maryisky refinery* – – – 254.9 342.7 208.1

Total for Tatarstan Republic 341.6 547.5 695.7 1,947.4 1,791.2 2,039.1

TAIF-NK share, % 80.8 88.1 90.1 94.6 94.4 94.8

Total for VFD 14,117.2 14,431.7 14,630.7 28,485.8 28,921.3 29,407.5

TAIF-NK share, % 1.93 3.4 4.3 6.4 5.9 6.5 Total for the Privolzhsky Federal District 34,287.2 35,105.4 35,746.1 64,157.7 66,354.0 69,019.2

TAIF-NK share, % 0.79 1.39 1.76 2.85 2.59 2.78

In the reported year the Company started shipping the first production lots of fuel for jet engines of grade RT under the GOST 10227-86 to consumers. The jet fuel of RT grade produced by “TAIF-NK” is transported to the nearest consumer in Tatarstan Republic – OJSC “Air company “Tatarstan” (Begishevo airport, OJSC “MAK”) and airports of the Russian Federation.

With the purpose of creating a greater range of products and meeting consumer’s demand for jet fuels PSC “TAIF-NK” in 2008 conducted operations to launch industrial-scale production of jet fuel for gas-turbine engines Jet А-1. Tests of fuel pilot batches are completed successfully and gave positive results.



CHAPTER

1717

1,354.8 1,234.3 1,244.4 – – – 749.5 643.5 516.9

850.1 986.0 660.2 40.2 18.1 26.7 11.0 163.4 186.5

1,164.6 1,179.6 1,247.3 202.8 186.1 208.6 264.8 269.4 352.8

3,996.4 3,979.5 4,370.8 723.0 700.6 737.3 511.9 461.8 493.7

– – – – – – – – –

102.5 103.7 274.8 – – – 79.4 158.9 134.6

2,183.2 2,034.4 1,898.0 – – 44.3 1,263.1 1,241.0 1,071.5

100.0 100.0 100.0 – – 100.0 100.0 100.0 100.0

23,616.3 24,600.0 25,074.5 2,197.6 2,383.9 2,548.6 3,106.6 3,814.7 3,918.6

9.1 8.0 7.5 – – 1.8 40.1 32.5 31.9

59,260.1 62,434.0 63,901.4 9,059.6 9,007.8 9,335.6 8,492.2 8,388.3 10,182.0

3.63 3.14 2.94 – – 0.48 14.52 14.79 13.10

Fuel oil (mazut) Aviation kerosene Straight-run gasoline

2006 2007 2008 2006 2007 2008 2006 2007 2008

Among the drawings of the first perpetuum mobiles one may see the images of mechanical devices, the main part of which being a screw wheel. The profile of teeth in the wheel coincides with the shape of cylindrical link-calendars. The ring circuit, interlocking with the wheel and starting it up, was to be driven by the gravity force of the calendars rolling down. However, frictional force and some other physical laws don’t allow the engine to work perpetually.

а ring circuit

18

AnAA tiquq e pep rppettuum mobibilel s

рerpetual motion of the universe

A legendary mathematician and mechanic of the ancientry Archimedes constructed an extraordinary device in the shape of a glass sphere with the image of the heaven cope which reproduced the motions of all heaven

hosts known by that time. A mechanical planetarium imitated perpetual motion of the Universe: the Earth, the Sun, the Moon and other planets. Afterwards Archimedes’ inventions and discoveries

(“Archimedes’ screw”, “Archimedes’ spiral”, Archimedes Law) were used in the construction of mechanical and hydraulic perpetuum mobiles.

in conformity with Archimedes’ law



CHAPTER

1919

Industrial structure of the Company.

• The proсess of sour crude distillation and production of refined products from it includes the following units:

Electrical desalting unit, crude distillation unit and a modernized vacuum distillation unit (hereafter CDU-VDU (ELOU-AVT-7)) are designated for processing of crude oil with the production of desired cuts, which are the feedstock for Base Complex (Middle Distillates Hydrotreating Complex, Bitumen Unit, Visbreaking Unit), Gasoline Plant, OJSC “Nizhnekamskneftekhim”.Gudron visbreaker is designated for gudron processing from the Vacuum section CDU-VDU (ELOU-AVT-7) by means of its thermal conversion into the fuel oil component. Road bitumen unit. The unit is designated for the production of road bitumen using “Biturox” technological process.

• The Middle Distillates Hydrotreating Production includes the following units:

Hydrogen production unit is designated for production of high purity hydrogen (99.9 %), with productive capacity of 16.4 tons per year.Kerosene and diesel hydrotreating units are designated for desulfurization of fuels, which come from CDU/VDU-7. Sulfur Recovery Unit with a granulation section is designated for elementary sulfur production out of hydrogen sulfide of acid gases using the Claus -process.

• Commodity-raw material Plant:

This plant includes the commodity-raw material base with loading racks, which is designated for regular supplies of plants with feedstock, the storage and shipping of diesel fuel, furnace oil, kerosene, vacuum gasoil and gasoline by means of the railway transport, and also for delivery of fuel to the consumers by means of pipeline.

Industrial structure of PSC “TAIF-NK” consists of two technological plants: a Refinery and a Gasoline Plant.

The Refinery

The Refinery of PSC “TAIF-NK” includes three core operations:

mercury engineIndia is considered to be the ancestral home of the perpetuum mobile. In Bhaskara’s ancient manuscripts a wheel with long narrow spokes, half-filled with mercury, is described: “In a part of spokes the mercury will rise up, in others – it will go down, thus providing perpetual motion”.

20222000

Gasoline Plant

Nowadays, the Gasoline Plant of PSC “TAIF-NK” is one of the most up-to-date plants of the industry. It consists of FCC of sulphurous oil products. This unit is designated for vacuum gasoil cracking using microspheric zeolite-containing catalyst in order to produce commercial gasoline components, propane-propylene and butane-butylene fractions, heavy and light gasoils, dry hydrocarbon gas, acid (sulfurous) gas.

The unit of sulfur compound treatment and hydrocarbon fraction (С3, С4) and light fractions (NК-70 S) separation which is a part of the Company’s Gasoline Plant. This unit is designated for H2S and mercaptan sulfur treatment and separation of propane-propylene, butane-butylene and light gasoline fractions.

Etherification unit of TAME and MTBE production is designated for the synthesizing of methyl tertiary butyl ether (hereafter MTBE) out of

isobutylene, which is contained in butane-butylene fraction (hereafter BBF) and methanol, and also for the synthesizing of t-amyl methyl ether as part of light gasoline fraction out of isoamylenes, which are contained in light gasoline fraction.

The unit for preparation and loading of hydrocarbon fractions, including tank fields for storage, filling and shipping the refined products, which is designated for receiving, storage of hydrocarbon fractions and commercial gasoline components, and also for preparation and storage, filling and shipping of commercial gasoline of the following grades: “Normal-80”, “Regular EURO-92”, “Premium EURO-95”.

Gas condensate processing plant with the productive capacity of 1 mln tons per year is designated for production of stable natural gasoline, diesel fuel, propane-butane fraction out of gas condensate.

Heron of Alexandria, a Greek engineer and mechanic of the 1st century, created the illusion of perpetuum mobile – an automatic temple doors “opener”, which became an antique prototype of the steam-powered engine, invented as late as in the beginning of the 19th century. Heated air displaced part of water from the vessel into the bucket which opened the temple doors with its weight. When the fire in the altar was out, the air cooled down and the pressure went down, so the water flew back from the bucket into the vessel. The counterweight elevated the bucket to the original height, thus closing the doors.

Heron’s inventions



CHAPTER

2121

Retail trade of petroleum products

everything began with singing birds

In the reported year the work on establishing the proprietary filling station chain was fulfilled by the Company. The development of the proprietary filling station chain allows supplying of the end consumer with the quality fuel, which meets the latest requirements and standards, and obtaining the additional source for the replenishment of current assets.

The Company established the Administration of refined products retail trade for controlling and developing the proprietary chain of refined products retail trade.

In June 2008 the Company bought two filling stations, which are located in Naberezhnye Chelny and in the Tukaevsk region of Tatarstan Republic.

In July the Company acquired a stake in the charter capital of LLC “Oil-Info” in an amount of 99 %. Hence, four filling stations that were formerly owned by LLC “Oil-Info” passed into the ownership of “TAIF-NK”.

In the reported year PSC “TAIF-NK” conducted negotiations with the shareholders of Closed Joint-

Stock Company “TATNEFTEKHIM-SOLVALUB” (CJSC “TATSOL”) about the possibility of purchasing CJSC “TATSOL” shares by the Company. 10 filling stations with 8 of them located in Kazan belong to CJSC “TATSOL”.

In the reported year the Company acquired 74.99 % of Private Limited Company “SNRG Logistic Limited” (Cyprus Republic) shares. This Company consolidates several Russian enterprises which hold the assets on the territory of the Port Caucasus (hereafter – enterprises of “SNRG Logistic Limited” Group) and render different kinds of services on the territory of the Port Caucasus.

Talking about the bulk commodity capacity, nowadays the Caucasus port takes the third position after the Novorossiysk Port and the Tuapse Port in the Black Sea. However, 90 % of cargo turn-over which is carried out in the port, falls at the enterprise terminals of the “SNRG Logistic Limited” Group.

Everything began with singing birds. Aquatic machines with moving and singing figures of birds

were a favourite subject of invention of Heron of Alexandria. The construction was very simple as

things go nowadays: the bird was sitting on the top of the hermetically sealed vessel. Wheels rotation caused the figure to move, with that a hollow cap

simultaneously went up in a small vessel with water. With the cap dropping the air from it by its gravity

went through the whistle. When the vessel was topfull, the bird subsided, the water automatically ran out of the vessel through the siphon, and then

everything repeated once again.

Laws of mechanics are simple

and clear. Based on these laws, any perpetuum mobile can easily be

constructed, what was done by the medieval designers with enviable regularity. Th ey could successfully use in practice many important

properties of the materials, analyze static and dynamic characteristics of the functional parts of

ordinary machines, but those scientists lacked the knowledge of physical laws as they were

discovered much later.

CHAPTER II

PRIORITY BUSINESS LINES OF THE COMPANY'S

ACTIVITIES

2424

The strategic direction of the PSC “TAIF-NK” development is the successive updating of the

existing plants of the Company and construction of new ones, which enable to reach the global level of processing of high-sulphur crude oil and maximize satisfying the Tatarstan Republic demand in petrochemical feedstock and high quality motor fuels meeting the requirements and regulations of European standards. This supposes:– bringing the oil processing depth to the level of minimum 98.5 % on processed oil basis, maximizing production output of light oil products and raising the added value and operation profitability.

– providing the considerable growth of industrial production and sales of market commodity output of the republican refining by increasing the refining output at PSC “TAIF-NK” to 9.1 mln tons per year and by development the component basis production for motor gasoline output. – providing an opportunity for processing of high-sulphur carbon oil, produced on the territory of Tatarstan Republic in the volume of 9.1 mln tons per year. – encouraging the growth of population employment in Tatarstan Republic by introducing the new highly-paid workplaces in production plants, put into operation by PSC “TAIF-NK”.

Johann Ernst Elias Bessler, known under the name of Orffyreus, presented his little operating model of perpetuum mobile to the people. Since then the draftsman produced the life-sized mobile. The huge wheel, installed in the castle of the influential magnate, not only went round in and of itself but at the same time lifted heavy goods. The people were enthused; the glory of the inventor came down even to Russia. Peter the First was interested in the invention. But Orffyreus demanded an incredible sum of 100,000 thalers for his invention. The deal fell through, and the enterprising inventor died soon afterwards and the secret of perpetuum mobile also died with him.

Priority business lines of activities

Johann Orffyreus

PRIORITY BUSINESS LINES OF THE COMPANY’S ACTIVITIES

Annual ReportPublic Stock Company “TAIF-NK” for 2008II

CHAPTER

2525

In the reported year the Company processed 7,672 thousand tons of feedstock, including

6,987 thousand tons of oil and 685 thousand tons of gas condensate.

The export group of commodity output of the Company includes: motor gasoline – 236.1 thousand tons, diesel fuel – 873.6 thousand tons, fuel oil – 1,336.3 thousand tons, vacuum gas oil – 628.6 thousand tons.

PSC “TAIF-NK” production capacity utilization of primary crude distillation made up 95.9 % in 2008. At that, according to the results of the year, CDU/VDU-7 was loaded for 99.8 %, and the gas condensate processing plant was loaded for 68.5 %.

Production activity

• Pipeline transportation (OJSC “Sredne-Volzhsky Transnefteproduct”, “Nizhny Novgorod – Almetyevsk – Nabebrezhnye Chelny – Chelnynefteproduct” group)

• Automobile transport;• Railway station (Biklyan station, Krugloye Pole)• River transport (docks “Betki”, “Nabebrezhnye Chelny” river port).

Marketable products of PSC “TAIF-NK” in 2006-2008

Fuel oil (mazut) 2,137,511 30.7 1,959,429 27.1 1,871,598 25.2Diesel fuel 1,807,924 25.9 1,714,843 23.7 1,918,103 25.8Straight-run gasoline 1,188,555 17.1 1,238,844 17.1 1,333,858 17.9Vacuum gas-oil 866,959 12.4 690,873 9.6 662,055 8.9Motor gasoline 272,275 3.9 488,692 6.8 627,050 8.4Furnace 280,943 4.0 413,575 5.7 382,318 5.1Kerosene 292,680 4.2 384,093 5.3 268,959 3.6Road Bitumen – – 60,386 0.8 75,202 1.0Other products 121,586 1.7 280,677 3.9 295,228 4.0

Total 6,968,432 100.0 7,231,412 100.0 7,434,371 100.0

Product

Quantity(tons)

SpecificGravity,

%

SpecificGravity,

%Quantity

(tons)Gravity,

%Quantity

(tons)

2006 2007 2008

The Company carries out the loading of the end products by means of:

26

Mechanical enggines of f Middle Ageg s

Ulrich von Cranach, the military engineer from Hamburg, was the theorist rather than the empiric. He embodied the elaborations of the perpetual motion machine only on paper, providing his thoughts and

detailed description of the perpetuum mobile mechanism with the basilisk engravings.In 1664 Ulrich described in detail the interesting version of the perpetuum mobile with the unbalanced balls. The engineer suggested using the Archimedes screw to carry the balls to the upper part of the driven wheel.

In this case the Archimedes’ water wheel was designated not for the water feed but for the ring closure of ball systems movement. “The basic operating condition of the engine is deemed to be the absolute

resilience of balls”, - the author cautioned in his work. The engineer had many followers, who tried to recreate and improve the ball engine.

perpetuum mobile, designed by Ulrich von

Cranach



CHAPTER

27

Key technical and economical indicatorsof activities

Title Unit 2006 2007 2008

Marketable production output million RUB 54,877 65,358 89,131Sales, total million RUB 55,465 64,621 89,149

Including exports sales million RUB 29,016 35,241 43,793Cost per 1 RUB output Kopecks 88 83 80Earnings before interest, taxes, depreciation and amortization (EBITDA) million RUB 5,598 9,168 10,695Taxes payable million RUB 5,994 10,393 15,888Pre-taxation profit million RUB 2,613 6,086 7,100Net income million RUB 1,954 4,582 5,272Net income to total costs ratio % 3.8 % 8.0 % 6.7 %Investments (without VAT) million RUB 1,739 8,732 2,027Net assets million RUB 1,440 5,436 16,557Staff on payroll person 2,428 2,616 2,718

In 2008, the Company released the marketable products in the amount of 89.1 billion RUB.

In comparable prices the growth of marketable products output with regard to the level of 2007 made up 106 %.

The products and services were sold in the amount of 89.1 billion RUB. Export share in the sold products made up 49 %. Net income equaled to 5.3 billion RUB. Profitability of expenses on net income made up 6.7 %.

It can be seen on one of the survived medieval drafts that the Earth appeared as the main backbone of perpetuum mobile. It was only necessary to drill a channel from pole to pole and to launch a large ball to it, and the ball would travel inside the Earth from one airproof hole to another. For what purpose?

the Earth like a perpetuum mobile

2828

PRIMARY PROCESSING

Aggregates

2007

Thousand tons

Incl. PSC “TAIF-NK”

Thousand tons

%

STRAIGHT-RUN GASOLINE

Production

MOTOR GASOLINE

Production

DIESEL FUEL Production

Marketing

FURNACE FUEL OIL

Production

SOURCES: • The volume of crude oil processing in the RF – “Info TEK. Oil and gas bulletin” – 2009 - № 1 – p.52-53, 83.• The production of basic petroleum products in the RF – “Info TEK. Oil and gas bulletin” – 2009 - № 1 – p.53-59, 84-86.• The information about the export of oil products from the RF – “Info TEK. Oil and gas bulletin” – 2009 – № 2 – p.32-42 (the mentioned source is the Federal Customs Service of Russia)

Marketing

Marketing

Aggregates of petrochemicals production

Russian Federation 228,598.3 7,556.0 3.3

Tatarstan 7,720.9 7,556.0 97.8


Tatarstan 1,016.0 1,016.0 100

Russian Federation 35,105 .4 489.1 1.4

Tatarstan 547.4 489.1 89.4

Export 6,096.2 275.1 4.5

Russian Federation 29,457.3 205.9 0.7

Including Tatarstan 663.6 128.3 19.3


Tatarstan 1,791.1 1,716.0 95.8

Export 32,097.2 1,028.0 3.2




Export 55,374.2 1,287.7 2.3





CHAPTER

29

and marketing in 2007-2008

2008

Thousand tons


Thousand tons

%

Increase

Thousand tons


Thousand tons

%

• The gasoline supply from the refineries of the RF to the domestic market in 2008 – “Info TEK. Oil and gas bulletin” – 2009 – № 1 – p.87-88. • The diesel fuel and fuel oil residue supplies from the refineries of the RF to the domestic markets in 2008 – “Info TEK. Oil and gas bulletin” – 2009 - № 1 – p.89-91.

236,301.1 7,672.0 3.3 7,702.80 163.2 -0.04

7,873.6 7,672.0 97.5 152.70 163.2 0.19

10,182.0 1,032.0 10.1 -1,681.90 16.0 0.95

1,032.4 1,032.0 100 16.00 16.0 0.00

35,746.1 627.5 1.8 640.70 138.4 0.36

695.7 627.5 90.2 148.30 138.4 0.85

4,570.3 236.1 5.2 -1,077.80 -46.4 0.16

31,175.8 382.5 1.2 1,718.50 173.9 0.52

768.1 282.4 42.1 104.50 194.9 22.74

69,019.2 1,918.6 2.8 2,665.20 202.3 0.19

2,039.1 1,918.6 94.1 248.00 202.3 -1.73

33,810.0 873.6 2.6 1,744.40 -154.2 -0.62

35,209.2 1,045.9 3.0 952.40 383.9 1.04

958.2 621.6 73.5 102.60 289.9 25.07

63,901.4 1,875.6 2.9 1,467.40 -90.2 -0.21

44,037.0 1,336.3 3.0 -11,337.20 -23.6 0.58

19,864.4 581.1 2.9 -2,536.00 -92.4 -0.08

278.8 224.9 100 175.70 208.4 31.72

30

Employee efficiency (thousand RUB)

Title 2006 2007 2008

Monthly productivity per employee per month 1,900 2,058 2,733Net income per employee per month 67 146 162Capital/labour ratio, thousand RUB 3,840 5,039 5,954

Liquidity ratios

Title 2006 2007 2008

Current ratio 0.91 1.14 3.05Quick ratio 0.54 0.78 2.32Absolute liquidity ratio 0.04 0.23 1.16

Tax accruals and charges

Local budget 0.34 %

Tatarstan budget 17.63 %

RF budget 82.03 %

Tax accruals and charges

Public Stock Company “TAIF-NK” pays taxes-and-duties in accordance with the established procedure and in due time under the terms of the Russian Federation tax and revenue legislation. According to the amount of tax payments to

different level budgets, the Company is the largest taxpayer of the region and the country in general. In 2008 the total sum of tax accruals paid by PSC “TAIF-NK” to the budget made 14,900,629 thousand RUB.



CHAPTER

31

Energy saving

Energy saving activities of PSC “TAIF-NK” are performed according to the energy saving

program for 2007-2010. Implementation of the energy saving program

in the reported year was realized in the following directions:

• process units reconstruction by the implementation of new technologies;

• development of control and calculation system of consumed energy resources;

• replacement of the out-dated equipment with the new equipment of improved performance;

• increasing the percentage of secondary resources usage;

• implementation and development of the information system, which allows collecting and analyzing of data on utilities consumption as well as arrangements planning regarding optimization of energy consumption.

The Company executed the work regarding the usage of the total volume of hydrocarbon gases from Visbreaking unit treated from hydrogen sulphide in the CDU/VDU-7 furnaces. This allowed reducing fuel oil consumption to 59.5 % from 90,664 tons of fuel oil in 2007 and to 36,739 tons in 2008.

The “Modernization of CDU/VDU-7 and MDHC steam pipeline system for the usage of domestically produced steam” program is being implemented to increase the share of domestically produced steam in the total volume of heat consumption. The realization of this program allowed more flexible redistribution of domestically produced thermal energy at alterations in steam consumption by the units in different periods of time as well as reducing the steam consumption by the combined heat and power plant.

Fuel gas was replaced with the secondary resource – dry gas, what enabled the Company to save fuel gas in the amount of 19.7 thousand Nm3/year in 2008.

The system of commercial energy metering was launched into pilot operation. It allows monitoring the energy consumption.

At the Refinery the energy audit was executed, the result of which confirmed the efficiency of energy usage by the PSC “TAIF-NK”. The report made in accordance with the research results determines the energy saving potential, suggests its implementation arrangements which the Company intends to realize in future.

Tax payments to the budget (thousand RUB)

Budget 2006 2007 2008

Russian Federation budget 5,517,548 9,477,694 12,222,795Tatarstan Republic budget including budgetary trust funds 845,897 955,774 2,627,216Local budget 33,266 44,208 50,618Total 6,396,711 10,477,676 14,900,629

32

Mechanical enggines of f Middle Ageg s

Besides quite traditional projects of perpetuum mobile, Gaspar Schott described the so called physical-mechanical perpetuum mobile constructed by Johann Joachim Becher in his work “The sights of engineering”

dated 1664. The elector Mainza Hans Philip Schonborn commanded to erect a separate stone tower for the physical-mechanical perpetuum mobile. The cyclical motion of perpetuum mobile details provided the

permanent driving force, which was necessary for bringing the chronometric mechanism in the movement. Such a clock could work for weeks and even months.

a tower for perpetuum mobile



CHAPTER

333

PSC “TAIF-NK” activity is carried out within the environmental regulations of the Russian Federation and Tatarstan Republic.

In the course of constant changes of the regulatory system with regard to environmental protection and modernization of operating plants and with the launch of new plants into operation, adjustments and changes are being made into the corresponding normative-technical documents (process regulations, projects of limits for allowable emissions, wastes generation and disposal ) and into environmental aspects register.

For the qualitative improvement of mechanical treatment and reducing of slops’ quantity the “Flottweg” unit is used. With its launch, emissions from the top of slops reservoirs to the air were reduced, about 26,000 m3 of slops, accumulated in the emergency reservoirs over the 20 years of CDU/VDU-7 operation, were processed. Besides, threat of storage reservoirs overfl ow

Environmental protection

and environmental pollution by melt waters during the high-water period was eliminated, and the Company received the economy from the entrapped oil product.

One more important measure of the enterprise within the framework of environmental safety in the reported year was the completion of produced motor gasoline certifi cation process and the launch of industrial-scale production of ecological class EURO-4 gasoline by PSC “TAIF-NK”.

PSC “TAIF-NK” was pronounced the winner in the “Best Ecological Project of the Year-2008” contest, organized by the Ministry of Natural Resources and Ecology of the Russian Federation, in the category “Ecological effi ciency of the economy” for the development of the modern refi nery complex for motor fuels production and sales, which meets the requirements of “EURO” international standards. Th e Company was registered as an ecologically responsible enterprise.

a ball mechanical engine

Ulrich von Cranach’s followers created a great number of ball engine schemes. The operation mode

of the mechanism was basically the same; the ball delivery was carried out in a variety of ways. The

balls could rise up via continuous belt with buckets, or surmounted the rotational moment of the whole

system the balls were transferred to the top at the ends of flexible articulated levers.

343344

Industrial safety and labour protection

Currently the Company performs steady tight control over 16 dangerous industrial facilities,

registered in the State Register of Fire Defense Division and insured in accordance with the Federal Law “On Industrial Safety of Dangerous Industrial Facilities” at the Company enterprises.

As in the previous year, the technical inspection of the rotating equipment, pipelines, buildings and facilities of structural subdivisions was made by the Company in 2008, as well as compliance of operating characteristics with the technical procedures. Engineering certification of 832 production units and industrial pipelines was carried out.

With the purposes of training and monitoring of the personnel knowledge in regards to

industrial safety, in 2008 the Company got and brought into action the training and supervisory system OLYMP: OKS – an integrated automation system of arranging the Company managers’ and professionals’ pre-examination training and certification on industrial safety, environmental and labour protection.

The implementation of corporate training and employees’ rating automation system allows solving the following tasks of the Company:

• to create the centralized automated process management system on constant increase of professional standard knowledge of the Company employees;

• to create target and vocationally-oriented training courses for certain groups and categories of employees;

• to boost the employees’ demand for self-education by means of bringing them to self-guided work on the basis of corporate training technology usage;

• to save costs related to constant training and knowledge assessment of the employees.

In appearance the operation mode of the mechanism is immensely simple: the difference in weight between the longer part of the belt which passed between supporting rollers and its straight vertical part provided force imbalance. This fact causes the constant movement of the whole system. Such kind of perpetuum mobile was immensely popular, since one can see it in literature in many variations: with belts, chains, etc.

by chain



CHAPTER

3535

Implementation of the integrated management system

Public Stock Company “TAIF-NK” constantly develops its business-processes management

system, as financial results of the Company’s activity at one and the same production capacities can be antipodal depending on the quality of management decision making, control and management system. It is possible to get the maximum profit only by means of the competent and automated management of the existing assets, what is becoming very important for successful progressive advance of the Company in the modern economical situation.

In February of 2008 PSC “TAIF-NK” successfully completed the complex certification of the integrated management system in regards to quality, industrial safety, labour and environmental protection for the compliance with the requirements of the international standards ISO 9001:2000, ISO 14001:2004, OHSAS 18001:2007 and EN/AS 9100:2001.

In November of 2008 the first certification audit for the compliance with aviation standard requirements EN/AS 9100:2001 was performed. By results of the certification audit the Company gathered 91.07 points, what surpasses the results of the certification audit of November, 2007 (89.8 points).

Certification covers the whole range of produced oil products: vacuum gas oil, sulphur, naphtha, heating kerosene and jet fuel, diesel fuel, straight-run gasoline, fuel oil, bitumen, motor gasoline, low-viscosity marine fuel, furnace oil, heavy gas oil, butane-butylene fraction, propane-butane fraction, propane-polyethylene fraction, stable natural gasoline, export process fuel.

Within the management system optimization they started arrangements on the Project “The creation of the automated management system of PSC “TAIF-NK” production and operational activity on the “SAP” basis”.

The main project mission is:- to analyze the current business- processes

and to design conceptually the target model of the Company’s business-processes taking into account the usage of the automated management system of the PSC “TAIF-NK” enterprise.

- to formalize target business-processes of PSC “TAIF-NK” (“as it will be”) with the purpose of increasing of the operation efficiency, their agreement with the operating rates of the Company and its separate subdivisions.

To increase competitive advantage and the output promotion to the domestic and foreign markets they started to prepare materials for the participation of PSC “TAIF-NK” in Tatarstan Republic Governmental contest “For quality”.

a drum-type engine

Th e new step to the way

of the perpetual motion was to put the water power for the humanity

service. Th e fl ow of the river was constant. Th ousands of watermills all over Europe

drove the huge stone mills. Water wheel was successfully used for driving hammer in the blacksmith’s shop, log frames, bellows. Why not use the water as the natural component

of perpetuum mobile?

CHAPTER III

PERSONNEL AND SOCIAL POLICY OF THE COMPANY

3838

Personnel

The main trends in the enterprise’s staff policy are the following:

• Determination of factors affecting staffing requirements in accordance with the Company’s development strategy, the quantity of produced goods, the technologies used, etc;

• Carrying out the analyses of professional and qualification structure of the employed and required staff;

• Definition of qualitative (revealing the compliance with the professional and qualification requirements, analysis of personnel ability necessary for fulfillment of production program) and quantity (prediction of general demands for personnel, assessment of personnel movement) requirements in personnel.

Qualitative composition of employees of PSC “TAIF-NK”

Candidate of Science degree: in 2006 – 3 employees, in 2007 - 4 employees, in 2008 - 7 employees.

Higher education, % 36.42 36.69 37.53Secondary professional education, % 24.13 24.24 23.53Elementary professional education, % 20.11 20.72 28.90Secondary education, % 19.34 18.35 10.04

2006 2007 2008Indicators

Indicators The number % The number % The number % of employees of employees of employees

The number of employed staff 2,611 100 2,698 100 2,920 100Including managers 317 12.14 326 12.08 356 12.20Specialists 444 17.01 466 17.27 520 17.80Officers 75 2.87 82 3.04 78 2.70Workers 1,775 67.98 1,824 67.61 1,966 67.30

Employees structure by occupation

2006 2007 2008

PERSONNEL AND SOCIALPOLICY OF THE COMPANY

Annual ReportPublic Stock Company “TAIF-NK” for 2008III

CHAPTER

3939

a hydraulic engineEven bishops were engaged in perpetuum mobiles. John Wilkins – an English bishop – in his work “Mathematical Magic” described in detail a hydraulic engine. The mechanism representing something between a three stage waterwheel and a turbine in a triple waterfall, placed on the common inclined shaft was seen by the medieval mechanics as a perpetuum mobile. A pumping device driven by the wheel was to deliver to the upper tray the amount of water equal to the volume of liquid, running out of the wheel vane.

The number and the age of personnel

The number of the working youth as of December 31, 2008 was 1,389 people or 47.56 % from the overall number of the Company‘s personnel.

Average age of staff 37 37 37Average age of managers 41 42 41Average age of specialists 36 36 36Average age of workers 37 37 38

Personnel at the age of:

18-35 1,283 1,292 1,38936-40 235 275 31341-50 771 772 78551-60 312 346 41360 and older 10 13 20

Indicators

18-35 36-40 41-50 51-60 60 and older

1,283 235 771 312

10

1,292 275 772 346

13

1,389313785413

20

2006 2007 2008

2006 2007 2008

40

Employees training over the period from 2006 to 2008(people)

2006 2007 2008

1,671

2,985 2,912

Employees training

The main purpose of professional training is the organization and continuous training

of personnel, constant improvement of training process and educational material base in accordance with industry demands.

The purpose of the Company’s personnel professional training is continuous career training in accordance with changeable industrial and social conditions, the development of high professionalism, adequate economical way of thinking, and ability to work in marketable conditions. It is achieved on the basis of the detailed study of the Company demands.

Periodicity and consistency of different kinds of professional training is set up in accordance with operational need.

The training of the Company personnel is done in a professional college № 44 in Nizhnekamsk.

A contract for managers and specialists’ qualification improvement was concluded between PSC “TAIF-NK” and Institute of additional professional training of Kazan State Technology University in order to improve the Company’s top managers’ professional skills.

In 2008, 2,985 employees of “TAIF-NK” were trained for the total amount of 13.6 mln RUB.

The Company pays great attention to the adaptation of new employees in the enterprise. Vocational adaptation in the Company consists in active mastering of the profession and required skills, development of powers. For this purpose the Company organizes the occupational training for new joiners.

For the adequate valuation of labour potential and more efficient use of their professional, intellectual and creative abilities (the selection of



CHAPTER

4141

Social protection of personnel

The current economic situation dictates its own rules of employer-employee relations. First of

all, it is the great social responsibility to the labour collective.

Th e important social problems of employees and their families are solved in PSC “TAIF-NK”. Particularly, in 2008 contraction relations on voluntary medical insurance between OJSC “AlfaStrakhovanie” and PSC “TAIF-NK” were prolonged. Such fact gives an opportunity to obtain diff erent kinds of medical and health improvement

services in any other cities of Tatarstan Republic. Th e provision of employees with the comfortable

housing is performed because of the Company’s participation in the republican program “Social mortgage”. For the period of 2008, 108 apartments were given to the employees, which is for 39 more than in 2007.

Th e realization of the PSC “TAIF-NK” social policy is performed via provision of the following guaranties and social benefi ts to the personnel.

the waterwheel The waterwheel as a means of energy extraction out of the water stream was a unique driving force of the industry development in Europe. However, despite its simplicity the waterwheel also had a considerable disadvantage – it had to turn every day and the year round. This is precisely why the idea of creating a perpetuum mobile based on the waterwheel enjoyed great popularity. It would make a perpetuum mobile independent from changeable water streams thus providing its higher use.

work depending on the human ability) the rotation of staff is made. Th e rotation is made regularly and in relation to all categories of personnel.

The principal condition of such personnel reshuffle realization is the following: the employee should have enough time to learn how well to fulfill his new duties.

Any enterprise worker, who has an appropriate

education, practical experience, professional, business, personal and ethical qualities necessary to fulfill his work, can be the candidate for the introduction him in the personnel reserve.

Such Company’s attitude to the organization of productive activity makes possible to avoid the professional “standstill” of officers and use labour reserves effectively.

42

Hyydraulic engig nes off Middle Ageg s

the driving force of water

A certain Vittorio Zonca, an architect from an Italian town of Padua, decided to handle the effect of the siphon, known since ancient times. At that he decided to use it not for water discharge but for water lifting. Round 1600, Vittorio decided to make a sewer which was considerably wider than the suction pipe. As per the conception, a great suction force was to emerge in the sewer, which would drive the siphon mechanism – provided that the suction pipe was lower than the sewer. Zonca wrote: “the force emerging in the wider elbow fitting will pull everything, coming through the narrower elbow fitting”. By the discharge pipe the water would sluice onto the millwheel, spread over aside and return again to the collecting tank, into which the suction pipe end was to be brought down. Everything was calculated exactly, but for a number of reasons Dzonca couldn’t build what looked so grand on paper.



CHAPTER

4343

PSC “TAIF-NK” pays great attention to the development of physical training and sport

and the popularization of active life style among the Company’s employees.

Sport activities for the employees and the members of their families were organized in the following health and leisure centres:

• Sports and fi tness complex “Druzhba” (Gym, weight room, football fi eld with synthetic coating, swimming pool (aqua-aerobics, swimming));

• Sports school № 29 (swimming pool);• Sports complex “Neft ekhimik” (skating).For the reported period the recreation activities

and sports competitions were repeatedly organized by the Company.

In particular the Company organized a trip to

Physical training and sport

Participation in social programs

the ski complex “Yan” (Almetyevsk), sports and health festival “Father, mother and I are a sporty family” which took place in sport complex “Fakel”.

Th e enterprise’s employees took an active part in the championship of “TAIF-NK” for volleyball and mini-football among the men’s teams of subdivisions, workshops, departments; in the championship of “TAIF-NK” for mini-football among the men’s teams of subdivisions, workshops, departments, the last one being for the Cup of 2008.

In the reported year the representatives of “TAIF-NK” labour collectives took part in Olympics among the enterprises of Rosprofsojuz Tatarstan Republican organization (chemical industry) and in skiing relay competition among the subdivisions, workshops and departments.

The active participation in realization of diff erent kinds of social projects on the

territory of Tatarstan Republic was and remains to be one of the PSC “TAIF-NK” burning areas of business. Th e funds devoted to the realization of such kind of arrangements constituted a signifi cant part of all Company’s welfare expenditures. Th e increasing of such expenditures undoubtedly creates the positive image of PSC “TAIF-NK” but primarily this fact is deemed to be the high social responsibility warrant of the Company to the citizens, living in the Republic.

Under the traditional position to the charity, the more effi cient, social signifi cant and actual

fact is deemed the appropriation of funds by the Company for the delivery of assistance to the most vulnerable groups in society.

Over the period from January to December of 2008 for the purpose of charity support “TAIF-NK” expended over 11.5 mln RUB.

Investing into the society development, the Company not only creates the positive environment for its operating activities but has an impact on the improving of the social situation in the region.

Medieval scientists were impressed by the fact of iron

object pulling to magnets, and they found application for this act of nature.

Magnetism became a major source of “perpetual” energy for many perpetuum mobiles where metal elements were used

together with loadstone.

CHAPTER IV

DEVELOPMENT PROSPECTS OF THE COMPANY

46

Once William Gilbert, a Surgeon- in- ordinary to the Queen Elizabeth, was shown another project of perpetuum mobile based on the effect of magnetic adhesion. A steel ball pulled by the magnet was to roll upwards by the tip chute. The magnet was to be placed on the upper device platform. Despite the seeming simplicity of the idea, the Surgeon- in -ordinary took the suggested idea apart. William Gilbert was puzzled

why the ball, going up on the inclined plane was to drop down? If magnet power is no as great as to keep the ball going upwards on the inclined plane, it means that the magnet would fail to pull the ball. The questions were

unanswered, and the inventors were not recognized by the public.

Magng etic enggines of f Middle Ageg sgg gg gg

magnetic perpetuum mobile

DEVELOPMENT PROSPECTS OF THE COMPANY

Annual ReportPublic Stock Company “TAIF-NK” for 2008IV

CHAPTER

4747

In recent years the construction of new complexes of deeper crude oil conversion is

in active phase in Russia. Th e launch of these up-to-date refi neries allows increasing the depth of crude oil processing signifi cantly. Th us, the amount of produced fuel-oil residue by the refi neries is reduced and the yield of light oil products is substantially raised.

To gain the mentioned goal the major project is implemented in PSC “TAIF-NK”. It is the construction of Heavy Residue Conversion Complex (HRCC), which allows raising the production of light oil products of high quality.

Th e implementation of this project is supposed to be executed in two stages.

Th e fi rst stage includes the expanding of the Company’s existent refi nery capacities from 7 mln tons per year up to 9.1 mln tons per year and the deepening of high sulfur oil processing up to 98.5 %.

Th e fi rst stage of construction of HRCC is planned for completion for 2013-2014.

It is assumed that with the launch of HRCC, the production output of straight run gasoline will be increased by 59 %, motor gasoline – by 38 %, diesel fuel – more than twofold, aviation kerosene in more than 2.5 times. It will mean a healthy increase of the Company’s share on the RF fuel market.

Th e combusted global fi nancial crisis had a negative impact on all sectors of Russian economy including the crude refi ning. However, even in such complicated conditions the “TAIF-NK” strategy remains the same – the Company heads for the development and strengthening its market powers.

Th e Company carries out the systematic works on the preparation to the entering into contract for purchasing the high technology of the deeper crude oil conversion.

For the purpose of increasing the refi ning output up to 9.1 mln tons per year with the possibility of high sulfur crude oil processing, it is supposed to fi nish the CDU/VDU-7 reconstruction which increases its capacity up to 7.35 mln tons per year.

It is planned to reconstruct the visbreaking unit and road bitumen unit into the high sulfur crude oil primary processing unit with the capacity of 1.8 mln tons per year.

Besides process improvement at PSC “TAIF-NK” it is planned to continue the arrangements on creation of the own retail outlets chain under the unifi ed brand, by means of purchasing the existing retail outlets and the construction of new ones.

Th e project implementation on the creation of the own retail outlets chain will allow PSC “TAIF-NK” to provide the fuel market of the region by the quality motor fuel of EURO-4 standard.

experiments with magnetism

Development prospects of the Company

Th e subject of perpetuum mobile

was also learned by Leonardo da Vinci. Th e scientist enthusiastically

worked on the project of a “perpetually moving” machine. While calculating Leonardo da Vinci incidentally constructed devices for the conversion of the rotational motion into

the progressive one, as well as bevel and spiral gearings, roll chain and many

other mechanisms.

CHAPTER V

DESCRIPTION OF THE MAIN RISK FACTORS CONNECTED WITH

THE COMPANY'SBUSINESS ACTIVITIES

50

LeLeL ononarardodo d da a ViVincnci’is s pepepp rprpppetetuuuum m momobibilele

Leonardo da Vinci

For several years Leonardo da Vinci tried to create a continuously running engine, considerably improving the already known constructions and inventing the completely new schemes. Many models of perpetuum mobile were

based on the Archimedes’ screw (a waterlifting machine) and a wheel. Leonardo examined in detail the internal reasons, preventing the most typical engine in the shape of a wheel with moving weights from working. Then he

decided to create a device where the water was at first to be lifted by a screw from the lower container to the upper one, and then through the tip chute it was to run down to the buckets of the wheel which rotated the screw and the millstone by means of a screw wheel. Neither of the constructed models worked. Leonardo da Vinci traced out again and again, calculated, but came to no desirable result. In the end, disappointed in the idea of the perpetual

aquatic engine, the great Italian said categorically: “To search the construction of the perpetual wheel – a source of the perpetual motion – can be qualified as one of the most senseless errors of a human being”.

DESCRIPTION OF THE MAIN RISK FACTORS CONNECTED WITH THECOMPANY’S BUSINESS ACTIVITIES

Annual ReportPublic Stock Company “TAIF-NK” for 2008V

CHAPTER

51

Branch risks

The main factor of branch risk is the destabilization of price policy that is

connected with political and economical situation not only in the Russian Federation but overseas.

Oil refi ning industry has its specifi c risks that include the volatility of world prices for crude oil and competitiveness among oil companies.

At present PSC “TAIF-NK” and OJSC “Tatneft ” named aft er V.D. Shashin established close mutually benefi cial cooperation in the oil supplies. Th is cooperation guarantees supplies of feedstock in due time of good quality and at market price. However, the absence of other important feedstock suppliers increases the Company’s dependence on

PSC “TAIF-NK” actively increases and expands its business activity, raising both equity funds

and borrowed funds for these purposes. Th e positive history of cooperation with creditors allows the Company attracting the signifi cant credit resources for its projects if necessary.

Th e eff ective arrangement of debts based on the repayment dates is one of the key methods on

Credit risk

monopolistic oil supplier.One of the risks for gas condensate delivery is

the absence of constant partners with substantial feedstock base.

Technological innovation development by competitors which considerably reduces operating costs and increases the quality of output products can also constitute a threat for the Company’s economic security.

To minimize risks the Company is building new plants and is upgrading the existing ones to increase the depth of feedstock processing and to produce high quality products meeting EURO-4 and EURO-5 standards.

removal negative infl uence of credit risk for PSC “TAIF-NK”.

Th e company is also the borrower on the global debt market, where the debt servicing obligation is made US dollars. Th e foreign currency revenue allows minimizing the infl uence of credit risk factors and untimely fulfi llment of PSC “TAIF-NK” obligations to the creditors.

At the present time the debt market condition allows PSC “TAIF-NK” making borrowings at

suffi ciently low interest rates. In 2008 the average rate of debt fi nancing was 5.24 % per annum.

Th e risk management is based on the analysis of possible interest rate change in the specifi ed

perspective. On the basis of obtained results PSC “TAIF-NK” structures the credit portfolio between the diff erent kinds of lending institutions, what allows choosing the best rates of interest swift ly.

Interest rate risk

5252

Exchange rate risk

Considering that PSC “TAIF-NK” exports the substantial part of products and borrows

recources on the global debt market (syndicated loan), it is necessary to assess the impact of exchange risks on the Company’s fi nancial results.

For the purpose of losses minimization, PSC “TAIF-NK” realizes the control over the sales pattern between the external and internal market, which is based on the price monitoring and forecast of change in the exchange rate.

Inflation risk

The infl ation rate change in the country can infl uence on the operating results of

the Company. Th e disinfl ation has the positive impact on the PSC “TAIF-NK” ability to fulfi ll the accepted obligations to the partners. Th e increasing of the infl ation rate, on the contrary, can lead to the rise of transport costs, expenses for energy supply and feedstock by the rates exceeding the rate of

Besides, the raising of currency funds is frequently used for the purpose of redemption of debts in foreign currency. Th is fact allows avoiding the conversion operations and at the same time reducing probable losses which are due to the drop in the currency rate. Th e Company also optimizes the correlation of rouble and currency credits attraction depending on the situation on the currency market.

price increase for the end products. At the same time, the current infl ation rate of the Company is far from the critical one. Th e Company makes arrangements for expenditures limitation, lowering the accounts receivable and reduction of intermediate terms of its turnover for the purpose of decreasing such a risk.

The fact that Leonardo da Vinci was ready to submit a working model of perpetuum mobile for public approval can be proved by the survived documentary records. There are even drawings and schemes of that astonishing device based on Archimedes screw. However, it is a known fact that Leonardo intentionally committed errors in drawings to prevent industrial intelligence, saying in modern language, so our contemporaries will have still much to break their heads over the realization of this great Italian’s ideas.

in strict confidence

DESCRIPTION OF THE MAIN RISK FACTORS CONNECTED WITH THECOMPANY’S BUSINESS ACTIVITIES

Annual ReportPublic Stock Company “TAIF-NK” for 2008V

CHAPTER

5353

Risks of property loss

The insurance complex system including property insurance, liability insurance and

insurance against construction and assembly risks and others is used in PSC “TAIF-NK” for the purpose of minimizing the insurance risk. Th is system is treated as one of the key supporting mechanisms for the stable strategic development of the Company in the long term, as the instrument of Company’s protection from the uncompensated fi nancial losses which arise in the industrial accidents or any kinds of industrial emergencies.

Th e insurance work in PSC “TAIF-NK” is based on the unifi ed principles and methodology of insurance process organization and has

a complex character. Under this work, the system of insurance risks monitoring, insurance contracts, and quality of insurance coverage is established. Th is system is based on the list of requirements, criteria of quality (reliability) determination of the insurance company and its insurance services.

Th e result of the conducted operations is deemed to be the qualitative insurance coverage of PSC “TAIF-NK” which allows enforcing the absolute right and property interests of the stockholder as to the safekeeping of property and exclusion of uncompensated losses (indemnities) from the production accidents.

Legal risks

The legal risks management is performed by the legal service of the Company in order to

reduce (exclude) the possible losses. Th e uprising of legal risk can be determined by both internal factors and external ones. Th e non-observance of Russian Federation law by the Company including the adoption of local acts which are uncomfortable to the regulatory legal acts and also the terms of transactions violation by the Company are related to the internal factors. Th e imperfection of government legal frame which is stated in the absence of suffi cient legal regulations of several social relations, the inconsistence of legal system and its aptitude to regular changes are related to the external factors of legal risk appearance. Beyond that point to the risk factors they relate the incorrect enforcement of foreign state law and (or) the standards of international law, impossibility of solving the individual questions by means of negotiations and as a result – the Company’s appeal to the law courts for the purpose of such questions

regulation and also the violation of the contract terms by the Company’s contractors.

In order to provide the minimization of legal risk, the Company legal service takes the following measures: continuous monitoring of the existing legislation, conducting of operations on informing and explanation to the employees and the Company’s services about the changes in regulatory legal acts of the Russian Federation including local acts; regular training of lawyers for the career progression program; conducting consultations with the qualifi ed specialists of PSC “TAIF-NK” and the TAIF Group of Companies; the regular work on creation of the eff ective and local rulemaking.

In prespective view, the general legal risks reduction can be predicted in connection with fi lling of the gaps in the law by judicial practice and permanent perfection of tax and currency laws of the Russian Federation.

Since antiquity many people dreamed of time taming, but only a few managed to draw

minutes and seconds into the perpetually working chronometers. The mechanism of a “perpetual clock” is diverse. For instance, John William Strutt’s clock with the radium

salt “enclosed” inside is for 1600 years (that is radium half-life period). It will stop, but it’ll

work long till that moment, longer than a human life lasts; and for us it is an

unconscionable long time!

CHAPTER VI

CORPORATEMANAGEMENT

56

Transactions

Transactions, made by the Company in the reported year, recognized as major

transactions or interested party transactions in

accordance with the Federal Law “On joint-stock companies”.

PSC “TAIF-NK” (Lessee),

LLC “TAIF-NK” (Lessor)

R.A. Shigaboutdinov Tenement ,3,851,100 RUB

Board of Directors

Board of Directors

PSC “TAIF-NK” (Lessee),

LLC “Oil-Info” (Lessor)

R.N. Sulteev,A.K. Shigaboutdinov,

V.V. Presnyakov,R.A. Shigaboutdinov.

Pledge of property ,1,330,383,448.83 RUB.

Modification in the Agreement to lodge

a revolving line of credit in terms of interest rate

increase, 2,000,000,000 RUB,Maximum 9 % per

annum

Tenement ,3,693,891.63 RUB

Shareholder’s decision

PSC “TAIF-NK” (Pledger),

Saving Bank of the Russian Federation – “Bank Tatarstan” branch of SB RF № 8610 (Pledge-holder)

PSC “TAIF” (Borrower) – Beneficiary party

PSC “TAIF-NK” (Borrower),

Saving Bank of the Russian Federation – “Bank Tatarstan” branch of SB RF № 8610 (Creditor)

– Shareholder’s decision

Parties to Transaction An interested Person

Essential Conditions of the

Transaction

Authority

A.A. Babynin

CORPORATE MANAGEMENT

Annual ReportPublic Stock Company “TAIF-NK” for 2008VI

CHAPTER

5757

Structure of the share capital as of December 31, 2008

PSC “TAIF-NK” issued share capital is 5,851,000,000 RUB

The shareholder of PSC “TAIF-NK” is Public Stock Company “TAIF-NK”.

The shareholder’s location is 27, Shchapov Street, Kazan, Republic of Tatarstan, the Russian Federation

Share in issued share capital is 100 %

I. Main information of capital issue:

Category and type: common registered non-documentary stock• Total amount: 8,349 RUB• Total number of shares: 8,349• Par value: 1 rouble/piece• Date of registration: July 29, 1998 • Registration number: 1-01-50545-К• The state registration body: FCSM of the Russian Federation• Way of distribution: distribution at issue

II. Information on additional capital issues:

1. Category and type: common registered non- documentary stock• Total amount: 991,651 RUB• Total number of shares: 991,651• Par value: 1 rouble/piece• Date of registration: June 29, 2006• Registration number: 1-01-50545-К-001D• The state registration body: FSFM of the Russian Federation• Way of distribution: close subscription• Cancellation date of the individual number: December 18, 2007

Share capital. Dividend policy

2. Category and type: common registered non-documentary stock• Total amount: 5,850,000,000 RUB• Total number of shares: 5,850,000,000• Par value: 1 rouble/piece• Date of registration: November 22, 2007• Registration number: 1-01-50545-К-002D• The state registration body: FSFM of the Russian Federation• Way of distribution: close subscription• Cancellation date of the individual number: July 8, 2008

Dividend policy:

PSC “TAIF-NK” dividend policy is based on the balance of interests of the Company and its only shareholder, on increasing of the investment appeal of PSC “TAIF-NK” and its capitalization, on the observation of the shareholder’s rights incorporated in the existing legislation of the Russian Federation, in the Company Charter and in its internal documents.

In 2008 the shareholders made no decisions on payment of dividends.

a marvellous wheel

58

The Company’s

Board of Directors:

RUSTEM NURGASIMOVICH SULTEEV

Deputy General Director for

Production and Sale – First Deputy, PSC “TAIF”

Holds no shares of the Company

RUSLAN ALBERTOVICH SHIGABOUTDINOV

Deputy General Director for Corporate Governance of Property

and Investments, PSC “TAIF”


ALEXANDER ALEXANDROVICH BABYNIN

General Director of PSC “TAIF-NK”


VLADIMIR VASILIEVICH PRESNYAKOV

Deputy General Director for Petrochemicals and Refining,

PSC “TAIF”


ALBERT KASHAFOVICH SHIGABOUTDINOV

General Director of PSC “TAIF”


Information on changes in the composition of the Board of directors occurred in 2008: the composition of PSC “TAIF-NK” Board of directors did not change.



CHAPTER

59

OLGA ALEXANDROVNA KUZNETSOVA Service lead accountant for RAS, PSC “TAIF”Holds no shares of the Company.

The amount of remuneration of the person, being the PSC «TAIF-NK» sole executive body, is determined in accordance with the labour code and local normative acts of the Company.

The amount of remuneration of the person, being the PSC “TAIF-NK” sole executive body incumbent, obtained by him in 2008 made 8,673,223.82 RUB.

The remuneration was not paid out to the Board of Directors members in 2008.

Company observation of the Code of Corporate Conduct

In its activity the Company longs for keeping to the Code of Corporate Conduct, recommended by the Federal Committee for Securities Market, № 421/R dated April 4, 2002.

Th e Code of Corporate Conduct states basic principles of functioning of corporate governance arrangements such as the rights protection and equal treatment of all shareholders; timely disclosure of information of the Company; strategic company management and the eff ective monitoring of the Company executive bodies’ activities, as well as accountability of the Board of Directors to the General shareholders meeting.

59

and equal treatment of all shareholders; timely disclosure of information of the Company; strategic companny y mamanan geg ment andd the eff ective monitoring oof the CoC mpmpanny yyy execcutive bobodiies’activities, as well as acccouuntabbili ity y of ttttttheheheheheheheehehehhe B B BBoarddd of Directors to thehe GGenenerere all shahahahahaahaah rererererererererereerer hohohohohohohohoohohhohohh ldldldldldldlddldldldlderererererererererereerrereee s sssssssssssss mememememememememememememememeeetetetetetetetetetettettettininininininininininininininininng.g.g.g.g.g.g.g.gg.g.g..g.g

The system of the Company’s governing bodies includes:

• General shareholders meeting;• Company’s Board of Directors;• Sole executive body – General Director

Sole executive body – General Director

ALEXANDER ALEXANDROVICH BABYNINHolds no shares of the Company.

The company’s supervisory body is the Company’s Audit committee:

The Chairman of the Audit committee:

DMITRIY IVANOVICH TESLENKO Head of financial and economic department, PSC “TAIF”Holds no shares of the Company.

Members of the Audit committee:

IRINA YURIEVNA AVERYANOVA Senior economist of oil, gas and petrochemical complex controlling service of the financial and economic department, PSC “TAIF”Holds no shares of the Company. SVETLANA SERGEEVNA GARAEVA Deputy Head of planning and economic department for production and prime cost planning PSC “TAIF-NK”Holds no shares of the Company.

VENERA HARISOVNA MUSTAFINA Senior economist of production and sales department, PSC “TAIF”Holds no shares of the Company.

Management bodies

6060

Perppetual clock

In 1928 an engineer called Jean-Leon Reutter from a

Swiss town of Neuchatel built a clock driven quite literary by air. Several decades later the perfected chronometer

produced by a Swiss company “Jaeger-LeCoultre” under Atmos trademark came to be called a real perpetuum

mobile. Inside the mechanism there are capsules with ethyl

chloride which expands as the temperature rises, it produces

oscillations and winds the mainspring. With that, the “Atmos” pendulum moves 150 times slower than the

pendulum in a conventional chronometer, thus making

the parts wear-free and thereby prolonging the term of its impeccable operation.

These chronometers are exceptionally fine-tuned; thanks to it at a variation

in temperature of only one degree in the range between 15 and 30 degrees centigrade “Atmos” clocks are sufficient

for two days’ operation. Every “Atmos” is made entirely by hand. A single “Atmos” takes more than two months to produce, check and tune. Purely theoretically, such a device may be supposed to enjoy a service life of perpetuity,

but for some reason producers guarantee only 30 years, and with today’s air pollution a through cleaning is recommended about every 20 years.

operating life– perpetuity



CHAPTER

6161

In the course of the inspection the committeestudied:

• Th e data of PSC “TAIF-NK” annual accounting reports for the year of 2008;• Standard reports on the availability of equity funds of the Company, capital and fi nancial investments, receivables and payables;• Data on tax accounting and reporting;• LLC “FBK Povolzhie” auditor’s report, which confi rms the reliability of fi nancial (accounting) statements of the Company for the year of 2008.

Th e inspection results were as follows:1. In 2008 the PSC “TAIF-NK” business

activities were carried out in accordance with the current legislation of the Russian Federation. Th e accounting statements were prepared in accordance with the Law of the Russian Federation “On Accounting” dated November 21, 1996 № 129-FL on the basis of the normative acts on accountant matters and the formation of the annual accounting statements forms. Th e accounting policy in 2008 was approved by the order of the General Director of PSC “TAIF-NK” № 766 dated December 31, 2008. Checked bank and fi nancial operations and transactions of 2008 were made by PSC “TAIF-NK” in accordance with the current legislation of the Russian Federation. Th e terms of periodical accounts providing were observed.

During the inspection any deviations from the established order of accounting maintenance and annual fi nancial statements preparation were not detected.

2. Th e Company obtained the following fi nancial results over the year of 2008:• Sales revenues made 89,148,809 thousand RUB;• Sales profi t made 10,451,098 thousand RUB;

• Income before taxation made 7,099,853 thousand RUB;• Net income was 5,271,560 thousand RUB.

3. Th e Balance sheet value of the Company’s property over the year of 2008:• Non current assets made 19,482,402

thousand RUB;• Current assets made 15,052,116

thousand RUB.

Th e sources of the Company’s assets formation as of December 31, 2008:

• Capital and reserves made 16,557,481 thousand RUB;• Long-term liabilities made 13,047,728 thousand RUB, of which 12,737,352 thousand RUB fall on credits and loans;• Short term liabilities make 4,929,309 thousand RUB including accounts payable in the amount of 4,927,476 thousand RUB.

According to the results of the financing and operating activities’ audit of the Company over the year of 2008 the Audit committee drew the following conclusion:

The accounting statement provides completely and accurately the financial information of PSC “TAIF-NK” as of December 31, 2008, in accordance with the normative requirements on accounting and financial reporting. The audit committee has detected no facts of infringement of the order of accounting and bookkeeping and financial statements established by the legal acts of the Russian Federation, as well as of the legal acts of the Russian Federation in the financial and operational activities of PSC “TAIF-NK”.

The report of the Audit committee

Many inventors exteriorized

their engineering findings into an extremely unusual shape, which in

itself could trim any engineering museum. But more often unsuccessful experiments

with perpetuum mobile ended in designing witty and funny mechanisms, fit for work with no batteries, sometimes on a single touch of a human hand. Such devices unexceptionally set wondering and excite admiring by the

accuracy of calculation and novelty of the idea.

CHAPTER VII

PSC “TAIF-NK”IN MASS MEDIA

64

Unusual perppetuum mobiles

Perpetuum mobile with own hands

To put perpetuum mobile together via erector is an unusual solution. It is necessary not only to put the model with permanently running multicolored balls together, but to do it promptly and correctly so that the balls don’t fall out from the swirl, but skate. The set includes 269 details. Metal reinforcing cables are mounted to the

foundation by means of plastic details, and also mounted internally on the underside – it results in “the rail tracks” with the rare “fastening sleepers”. The erector operation is based on physics concepts such as centrifugal

force and force of gravitation.

PSC “TAIF-NK” IN MASS MEDIA

Annual ReportPublic Stock Company “TAIF-NK” for 2008VII

CHAPTER

6565

1 “Leninskaya Pravda” № 21-22, February 1, 2008 “TAIF-NK” gathers momentum

2 “Niznekamskoye Vremya”, № 16, April 15, 2008 PSC “TAIF-NK” successfully passed Integrated Management System Certification

3 Оil Market , March 2008 Productive leadership

4 Oil-and-gas-field engineering, I Quarter, 2008 PSC “TAIF-NK” – the Refinery of the Year

5 “The Republic of Tatarstan” newspaper, How to clean the “products basket” and make Ecological supplement “Ecology: current news, industrial ecology more profitable experience”, June 5, 2008 (interview with the General Director)6 “Niznekamskoye Vremya”, № 24, June 10, 2008 Prospects came true (about collecting the EURO-4 certificate and production of gasoline in the amount of 1 mln tons)7 Oil and Capital, № 6 (148), June 2008 Alexander Babynin : “We are intended to double the turnover and to triple the net profit”

8 “Vasha Gazeta”, № 25, June 18, 2008 Successful certification of bitumen production by PSC “TAIF-NK”

9 “Commersant”, № 157, September 3, 2008 PSC “TAIF-NK” adopted the credit.

10 “Vremya Dengi”, № 165, September 3, 2008 “TAIF-NK” obtains a syndicated credit for development.

11 Analytical magazine “Transport”, Production of bitumen in Nizhnekamsk collected № 9 (11), September 2008 a certificate of quality.

12 “Vasha Gazeta», № 53, December 30, 2008 PSC “TAIF-NK” is an awardee of the Russian Ministry of environment contest “The best ecological project of the year”

13 “Niznekamskoye Vremya”, № 53, PSC “TAIF-NK” is awarded the Republican December 30, 2008 State Prize in science and technology for the year of 2008

14 “Regional ecological newspaper”, PSC “TAIF-NK” is an awardee of environment № 23-24, December 30, 2008 contest of the Russian Ministry of “The best ecological project of the year”

PSC “TAIF-NK” in mass media

Name of publications, release number, date Subject№

The attempts of creating perpetuum mobile

occurred at all times, even when the physics laws, which explained the

impossibility of perpetual motion were disclosed. Replicating the mistakes of the previous centuries, using old techniques

and new materials the modern researchers invent “deathless

machines” again.

CHAPTER VIII

FINANCIAL STATEMENTS OF THE COMPANY

68

Modern perpetuum mobile

A light wiry wheel with eight weights became the main part

of the hydraulic-mechanical perpetuum mobile designed by

Czech Josef Buresh in 1926. The Prague inventor applied again

the idea of a wheel, which was used in the ancient world and

was “overplayed” later. Thus the tillable weights, placed on

the wheel crown were linked by means of weights with buckets

of hydraulic cylinders. By means of tubes the cylinder chambers

were connected with central reservoir in the hub of the

wheel and in the process of engine operation they were

filled with the liquid, supplied from it. The hydraulic system

allowed to increase the unbalance in the weights position: when the wheel

rotated, the liquid flew out of the central reservoir into the

boxes which were at the ends of levers and bore against the

buckets, linked by means of rods with weights , thereby, increasing their displacement. After passing

the vertical position the liquid turned back and the depression

which was arisen under the buckets, shifted weights into the original position. But in spite of

the modern reading of the old idea, the miracle didn’t happen.

the engine of our time


Annual ReportPublic Stock Company “TAIF-NK” for 2008VIII

CHAPTER

6969

Balance sheet as for December 31, 2008

(thousand RUB)

ASSET Indicator As of the As of the code beginning of the end of the reported year reported period

1 2 3 4

I. Non- current assets Intangible assets 110 – – Fixed assets 120 17,198,366 15,167,774Construction in progress 130 509,853 1,741,780Income-bearing investments in material assets 135 9,970 11,455Long-term investments 140 533,551 2,521,561Deferred tax assets 145 3,509 39,832Other non-current assets 150 – – Total for section I 190 18,255,249 19,482,402

II. Current assets Stocks 210 4,915,930 2,818,155VAT for purchased assets 220 1,013,151 800,158Accounts receivable (settlement is expected in over 12months after the reporting date) 230 – – Accounts receivable (settlement is expected during 12 months after the reporting date) 240 7,818,362 5,722,273Short-term financial investment 250 2,997,000 3,539,500Cash 260 800,997 2,171,751Other current assets 270 1,622 279 Total for section II 290 17,547,062 15,052,116BALANCE 300 35,802,311 34,534,518

70

LIABILITIES Indicator As of the As of the code beginning of the end of the reported year reported period

1 2 3 4

III. Capital and reserves Equity capital 410 1,000 5,851,000Treasury shares 411 – – Additional capital 420 – – Reserve capital 430 50 263,628 Retained profit (uncovered loss) 470 5,434,871 10,442,853 Total for section III 490 5,435,921 16,557,481

IV. Long-term liabilities Loans and credits 510 8,931,017 12,737,352Deferred tax liabilities 515 358,726 310,376Other long-term liabilities 520 – – Total for section IV 590 9,289,743 13,047,728

V. Short-term liabilities Loans and credits 610 2,860,887 1,833Accounts payable 620 17,629,620 4,927,476Liabilities to shareholders on income payment) 630 586,140 – Deferred income 640 – – Provisions for future expenses 650 – – Other short-term liabilities 660 – – Total for section V 690 21,076,647 4,929,309 BALANCE 700 35,802,311 34,534,518

Balance sheet as for December 31, 2008

(thousand RUB)



CHAPTER

7171

Statement of value charged on off-balance accounts

Typical for the 19-20th centuries growth of trade, which required covering long distances, inspired creating more powerful and economical means of transport.No wonder that the inquisitive human mind began to seek the implementation of the perpetuum mobile. One of the earliest transport perpetuum mobiles was a car driven by a spherical self-moving motor, designed by an Austrian Alois Drasch from the town of Sant-Egidio who even received a US patent on this device dated December 22, 1868.

(thousand RUB)

the patent on the perpetuum mobile

Indicator As of the As of the code beginning of the end of the reported year reported period

1 2 3 4

Rented assets 910 321,760 741,214 Including leasing 911 – – Material assets under custody 920 – 196Goods accepted on commission 930 – – Bad debt written off to losses 940 2 483 2,483Collateral received 950 – – Collateral paid 960 8,250,616 5,323,561Depreciation of housing funds 970 – – Depreciation of land improvement facilities and other similar ones 980 353 512Intangible assets obtained for use 990 31,121 57,448Strict reporting forms – –

72

Profit and loss statement

Code For the For the reported same period period last year

1 2 3 4

Revenues and expenses from ordinary activities Revenues from sales, products, activities, services (net) (excluding VAT, excises and similar compulsory payments) 010 89,148,809 64,620,590Costs of sold goods, activities and services 020 (72,713,540) (52,992,377)Gross profit 029 16,435,269 11,628,213Business expenses 030 (4,714,802) (3,655,942)Administrative expenses 040 (1,269,369) (960,765)Profit (loss) on sales 050 10,451,098 7,011,506Other revenues and expenses Interests income 060 247,570 47,239Interests expenses 070 (779,866) (1,046,056)Income from partnership with other companies 080 – – Other income 090 57,090,472 54,951,884Other expenses 100 (59,909,421) (54,878,283)Profit (loss) before taxation 140 7,099,853 6,086,290Deferred tax assets 141 21,817 (14,822)Deferred tax liabilities 142 48,208 (243,555)Current income tax 150 (1,896,525) (1,243,936)Tax sanctions 180 (1,065) (1,692)Net income (loss) of the reported period 190 5,271,560 4,582,285FOR REFERENCE: Permanent tax liabilities (assets) 200 123,519 42,009Basic profit (loss) per share 201 – – Diluted profit (loss)per share 202 – –

(thousand RUB)



CHAPTER

73

Decoding of separate profit and loss

General DirectorA.A. Babynin

Chief AccountantD.R. Kuramshina

The annual report is preliminary approved at the meeting of the PSC “TAIF-NK” Board of directors on April 30, 2009.The reliability of data, contained in the Annual report of the Company, is confirmed by the Company’s audit committee

Parameterdescription

Code For the reported year For the same period last year

profit loss profit loss

Acknowledged Fines, Forfeitures and Other Financial Penalties 210 3,260 12,831 – 16,421Profit (loss) of previous years 220 38 (1,896) (1,064) (5,708)Compensation for losses inflicted by default on or improper fulfillment of obligations 230 – – – –Exchange rate differences for foreign exchange operations 240 8,622,86 3,227,042 977,937 535,925Allocations to valuation reserves 250 Х 8,792 Х – Write-off of receivables and payables with expired limitation period 260 – – – 2 483

(thousand RUB)

74

AUDITOR’S REPORT ON FINANCIAL(ACCOUNTING) STATEMENTS

To the shareholders of Public Stock Company

“TAIF-NK”

Auditor Name: LLC “FBK Povolzhie”

Address: 10, Prospekt Yamashev Street, Kazan, 420080

Registration certificate series 16 № 002302961 dated November 10, 2002

PSRN in USRLE № 1021603276155License: № Е 002876 dated December 10, 2002

issued by the Ministry of Finance of the Russian Federation, valid till 2012

Member of the Institute of professional auditors of Russia (IPAR) (Moscow)

Audited entityName: PSC “TAIF-NK”

Address: PSC “TAIF-NK”, Industrial Area, Nizhnekamsk, Tatarstan Republic

Registration certificate Series 16 № 005027766 dated September 12, 2006

PSRN in USRLE № 1031619009322

75

We have conducted the audit of the attached financial (accounting) statements of PSC “TAIF-NK” for the period of January, 1 through December 31, 2008. The financial (accounting) statements of PSC “TAIF-NK” included:➢ balance sheet;➢ income statement;➢ notes for the balance sheet and income statement;➢ explanatory note.

The executive body of PSC “TAIF-NK” has the responsibility for the preparation and presentation of these financial (accounting) statements. Our duty is to express our opinion on accuracy of these statements in all material aspects and on compliance of the order of accounting and bookkeeping to the legislation of the Russian Federation on the basis of the conducted audit.

➢ the Federal law “On Audit”;➢ the Federal rules (standards) of Audit;➢ the Auditor’s Internal Rules (Standards) of Audit;➢ the regulatory documents of a body, controlling the activity of the audited entity.

The audit was planned and carried out in order to obtain reasonable assurance that the financial (accounting) statements do not contain material misstatement. The audit was carried out on a test basis and included the study of evidence on testing basis, this evidence confirming the numerical indicators in the financial (accounting) statements and disclosure the information of financing and operating activities in it, the assessment of principles observance and book-keeping regulations, applied in preparation of financial(accounting) statements, the study of main numerical indicators obtained by the Directors of the audited entity and also the assessment of financial(accounting) statements presentation. We consider that the conducted audit represents the reasonable ground for expressing our opinions about the truthfulness of financial (accounting) statements and compliance of the order of accounting and bookkeeping to the Russian Federation legislation.

In our opinion, the financial (accounting) statements in all material aspects give a true and fair view of the financial situation of PSC “TAIF-NK” as of December 31, 2008, and the results of its financial and operational activities for the period of January, 1 through December 31, 2008, in accordance with the Russian Federation legislation in so far as it relates to the preparation of financial (accounting) statements.

March 16, 2009

The head of the auditing organization S.A. Nikiforov

The head of the auditing group E.M. Paracheva

E.M. P

on

up

Qualification certificate№ K012584 dated January 29, 1998, undated

76

Reference information

Public Stock Company “TAIF-NK” (PSC “TAIF-NK”)Place of location and postal address: PSC “TAIF-NK”, PO 20, OPS-11, Nizhnekamsk,Republic of Tatarstan, 423570, Russian Federation.Tel.: +7 (8555) 38-16-16, fax: +7 (8555) 38-17-17 e-mail: [email protected] address: www.taifnk.ru

Information on the registrar:

Limited Liability Company “Euro-Asian Registrar” - Kazan branch

Place of location and postal address: 6, Vishnevskiy Street, Kazan, Republic of Tatarstan, 420043, Russian Federation.Tel.: +7 (843) 236-27-52, fax: +7 (843) 236-27-52e-mail: [email protected] address: www.erd.ru

License:Number: 10-000-1-00332Date of issue: March 10, 2005Expiration date: unlimitedThe body that issued the license: Federal Service for Financial Markets

Information on the Company’s auditor:

Limited Liability Company “FBK Povolzhie”

Place of location and postal address: 10, Prospekt Yamashev Street, Kazan, Republic of Tatarstan, 420080, Russian Federation.Tel.: +7 (843) 555-64-94, fax: +7 (843) 555-60-67e-mail: [email protected] address: www.acg-pkf.ru

License:Number: № Е 002876Date of issue: December 10, 2002Valid until: December 10, 2002The body that issued the license: Ministry of Finance of the Russian Federation

Design: art-studio “RIM”

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