Oil Refinery Complex Construction Project

Oil Refinery Complex Construction Project

ABSTRACTS Project overview. The risks related with the project implementation. Project environment. The brief characteristics of basic technological, technical and environmental solutions included in the project. Main economic and integral parameters of the project.

Technology of Oil Refining Corporation 2012

CONFIDENTIAL

General Director VLADIMIR V. PATOKOV Phone: +7 910 400 2207 E-mail: v.v.patokov@tverorc.ru

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JOINT STOCK COMPANY

Tver Oil Refinery Complex 3b 50 Let Oktyabrya Prospekt, Tver, Russian Federation, 170024 Phone: +7 4822 394 812 www.tverorc.ru ●

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Project Summary CONTENTS

1.

Introduction. .............................................................................................................7

2.

Project development background. ..........................................................................12

3.

2.1.

The Russian Federation. .................................................................................12

2.2.

Ukraine. ..........................................................................................................27

2.3.

Australia..........................................................................................................38

Project environment. ..............................................................................................47 3.1.

Operating conditions. .....................................................................................47

3.2.

The risks associated with project implementation .........................................49

3.2.1. Macroeconomic and price-related risks. ...................................................49 3.2.2. Industrial risks. ..........................................................................................50 3.2.3. Territorial risks. .........................................................................................52 3.2.4. Financial Risks. .........................................................................................52 3.2.5. Legal risks..................................................................................................54 3.2.6. The risks related to the complex operations. .............................................55 3.3.

The Complex location. ...................................................................................57

3.4.

The location of town for builders and for the Complex staff. ........................62

3.5.

Raw materials market. ....................................................................................65

3.5.1. Raw materials market in the Russian Federation. .....................................65 3.5.2. Raw materials market in Ukraine. .............................................................66 3.5.3. Raw materials market in Australia. ...........................................................68 3.6.

The markets for selling the finished products. ...............................................70

3.7.

The taxes. ........................................................................................................74

Contents

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3.8.

4.

Project Summary

The transportation infrastructure. ................................................................... 76

Constructive, technical, technological and environmental solutions. ................... 79 4.1.

Basic technical and technological solutions. ................................................. 79

4.2.

Main constructive solutions. .......................................................................... 87

4.2.1. Approach to project implementation......................................................... 87 4.2.2. The volume of construction. ..................................................................... 94 4.2.3. The transportation infrastructure characteristics. .................................... 103 4.3.

Main environmental solutions. ..................................................................... 105

4.3.1. Technical solutions protecting the atmosphere. Gaseous wastes. .......... 106 4.3.2. Technical solutions protecting water resources. Liquid wastes.............. 115 4.3.3. Solid industrial wastes............................................................................. 120 4.4.

Solutions creating the necessary social infrastructure. ................................ 123

4.4.1. The approach to social infrastructure construction. ................................ 123 4.4.2. The social infrastructure construction volume. ....................................... 125 5.

Project Scales and Results. .................................................................................. 133 5.1.

Consumed Raw Materials and The Volumes of Their Purchase. ................ 133

5.1.1. Raw material balance of the Complex. ................................................... 133 5.1.2. Integrated amount of the raw materials purchased by the Complex. ..... 137 5.2.

Finished products and the volumes of their manufacturing. ........................ 144

5.2.1. Motor fuels and their components. ......................................................... 144 5.2.2. Organic synthesis products. .................................................................... 146 5.2.3. Fertilizers................................................................................................. 146 5.2.4. Electric power. ........................................................................................ 148 5.2.5. Other products. ........................................................................................ 148 ~4~

Contents

Project Summary

5.2.6. Merchantable products balance of the Complex. ....................................149 5.3.

The markets and selling volumes for finished products...............................155

5.3.1. Motor fuels and their components. ..........................................................155 5.3.2. Organic synthesis products. .....................................................................156 5.3.3. Fertilizers. ................................................................................................157 5.3.4. Electric power. .........................................................................................158 5.3.5. Other products. ........................................................................................159 5.3.6. Integrated amount of the finished products selling by the enterprise. ....160 5.4.

Finance and economic performance. ............................................................163

5.4.1. Investments into the project implementation. .........................................163 5.4.2. Securing the obligations of the project. ...................................................170 5.4.3. Integrated parameters. .............................................................................170 5.4.4. Analytics based on the integrated parameters. ........................................177 5.5.

Revenues for the project participants. ..........................................................184

5.5.1. Project Organizers. ..................................................................................185 5.5.2. Strategic Investor. ....................................................................................188 5.5.3. The Government. .....................................................................................197 5.5.4. Financial Investor. ...................................................................................200 5.6.

Financial and analytical indicators. ..............................................................203

5.6.1. Current ratio. ............................................................................................204 5.6.2. Fixed assets turnover. ..............................................................................207 5.6.3. Time interest earned. ...............................................................................209 5.6.4. Long-term debt to total assets index........................................................211 5.6.5. Net profit margin. ....................................................................................211 Contents

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Project Summary

5.6.6. Return on investment index. ................................................................... 213 5.6.7. Earnings per ordinary share index. ......................................................... 215

6.

5.7.

Tax load. ....................................................................................................... 217

5.8.

Shipping costs. ............................................................................................. 237

5.9.

The market value of the company. ............................................................... 244

The Government participation. ............................................................................ 247 6.1.

The Russian Federation. ............................................................................... 247

6.1.1. The enterprise construction and operation. ............................................. 247 6.1.2. Involvement of high-qualified foreign specialists. ................................. 249 6.1.3. Benefits of taxation and legal support of the project. ............................. 250 6.1.4. Decisions required for infrastructural support of the project. ................. 251 6.1.5. Decisions required for social infrastructure development. ..................... 254 6.2.

Ukraine. ........................................................................................................ 257

6.2.1. Decisions providing the construction and operation of the enterprise. .. 257 6.2.2. Decisions required for provision the enterprise with infrastructure. ...... 259 6.2.3. Decisions for high-qualified foreign specialists’ involvement. .............. 262 6.2.4. Benefits of taxation and legal support of the project. ............................. 262 6.2.5. Decisions required for social infrastructure development. ..................... 264 6.3.

Australia. ...................................................................................................... 267

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Contents

1. Introduction.

Project Summary

This document is intended for familiarization in basic technological, technical and environmental solutions as well as in basic parameters of oil refinery construction project in Tver Oblast of Russian Federation; Zhytomyr Oblast of Ukraine, and in City of Perth, WA, Australia. It represents a brief version of pre-project documentation and includes the most important parameters of the project. The necessity of this document has been caused by large amount of pre-project documentation that requires significant time consumption for analysis of certain sections by highly specialized experts. The document meets the following criteria provided during its development: the ability of quick and comprehensive familiarization in the project; the presence of basic calculated parameters allowing the evaluation and analysis of the project, and the ability of answering the basic, fundamental questions related with the project.

The technology, main technical solutions, financial parameters and the best locations have been designed and calculated by experts of JSC Tver Oil Refinery Complex in association with their foreign colleagues.

The project purpose is the plant construction and arrangement of manufacturing of ecologically clean synthetic and semi-synthetic motor fuels from three sorts of raw material such as oil, coal and natural gas, manufacturing of organic synthesis products, aromatic hydrocarbons and fertilizers and electric power generation from the products and secondary power resources of motor fuel manufacturing process. The project also provides construction of the social infrastructure facilities.

The Oil Refinery Complex construction is planned to be complete within two stages described below.

I.

Stage 1 provides construction of the first phase of the Complex that is intended for manufacturing of ecologically clean synthetic motor fuels, organic synthesis products and fertilizers. The raw materials for this phase are coal with annual demand of 11 mln tonnes and natural gas with annual demand of 10 bln m続. The

Introduction

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Project Summary

construction of the social infrastructure facilities is also provided at this stage.

II.

Stage 2 provides construction of the second phase of the Complex that is intended for manufacturing of ecologically clean semi-synthetic motor fuels, aromatic hydrocarbons and fertilizers. The raw materials for this phase are “Uralsâ€? crude oil with annual demand of 10 mln tonnes, coal with annual demand of 4 mln tonnes and natural gas with annual demand of 5.5 bln mÂł. The construction of the social infrastructure facilities is to be completed at this stage.

The data demonstrated in the present document have been obtained during the

front-end engineering design for the plant location in Russian Federation. The following documents have been developed: 1. Process flow diagram of the Complex. The present document has been developed in order to fix the ideas included into the manufacturing technology and to generate the initial data for Complex Working Model creation. The Process flow diagram of the Complex reflects fundamental technical, technological and environmental approaches and solutions that provided to accomplish the purposes and tasks assigned to the enterprise. The model being obtained has been optimized, the Process Licensors have been chosen for it, a list of technological units has been defined for the processes as well as their cumulative parameters, such as technical, technological and environmental. The flow explication (the material and energetic balance of the model) based on the results of Working Model development and optimization has been included into the Process flow diagram of the Complex. The reliability of all its technical and technological solutions is validated by accumulated operating experience at oil refinery plants working nowadays.

2. Working Model of the Complex. The Working Model of the Complex is a simulation model calculating the yield of products and the intake of raw materials and power resources during the plant operation. The model provides at least 95% of calculation accuracy; moreover, updating the errors improves all the parameters. It has been developed basing on the initial data received from the ~8~

Introduction

Project Summary

Process Licensors, according to tasks assigned to the enterprise. The model allows changing the technological parameters such as raw materials consumption, recycling in separately taken processes, etc., in real time mode.

3. Master Plan of the Complex. This document has been developed in order to evaluate the area required for project site, to arrange the phases of construction and technological objects, to allocate and configure the manufacturing infrastructure units, to input external communications such as oil and gas pipelines, electrical transmission line, road and railroad, water lines, sewer system, to estimate the capacity of internal communications and to evaluate the amount of investments required for project implementation. The Master Plan has been developed basing on the Process flow diagram with reference to project site location in Russian Federation. Neither Master Plan has been developed for Ukraine, nor for Australia, since the project site locations have not been selected there yet. The Master Plan developed for Russia can be considered as an example for these territories.

4. Feasibility Study (FS). This document has been developed in order to evaluate the economic, technological and environmental parameters of the project. FS is the main document for making a decision about the Complex construction expediency. FS is based on the data obtained during creation of the Process flow diagram, the Working Model and the Master Plan of the Complex. It consists of the following basic sections: marketing and logistics of raw materials and finished products; the investment plan for enterprise construction; the project business plan for next 20 years, including all the economic parameters calculation according to UNIDO recommendations; basic technical and technological solutions included in the project; basic environmental solutions included in the project.

5. Technical Design Assignment for the Project. These documents have been developed as essential base of the Contract for Turnkey Enterprise Construction.

Without them, the project implementation is impossible. The Technical Design Introduction

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Project Summary

Assignment define the Licensors for technological processes and their elements, they describe in detail technical and technological solutions included in Process flow diagram, they contain the list of criteria for selection the ways of implementation these technical and technological solutions, the list of criteria for selection the process equipment manufacturers and the list of functional warranties to be provided by General Contractor. Technical and technological solutions description provide their univocal understanding and application of advanced achievements in technics, technology and ecology is guaranteed by availability of criteria for selection the ways of these solutions implementation and for equipment manufacturers choice. The Technical Design Assignment allow evaluation of the cost of the Contract for General Contractor Selection Tender with maximal accuracy and their amount corresponds to Engineering Order.

6. Logistical Model of Raw Materials Supply and Finished Products Selling.

This document has been developed for comprehensive estimation of the transportation infrastructure required by plant and for evaluation, whether the existing one in the neighbourhood complies the requirements being calculated.

Transneft JSC, Gazprom JSC and RZD JSC consider this document as main for evaluation the actions required to provide the raw materials delivery and finished products shipping. The Logistical Model includes route charts for both delivery and shipping by pipelines and railroad. No logistical model for Ukraine or Australia developed.

7. Preliminary General Plan of the City. This document has been developed for evaluation of the area required for arrangement and construction of the city along with urban infrastructure. In addition, the General Plan aims estimation of minimal investment amount necessary for it. General Plan is based on the data about the need in residential premises for accommodation of JSC TORC employees, as well as for General Contractor’s employees’ accommodation while the construction process is in action. The data has been obtained from ~ 10 ~

Introduction

Project Summary

preliminarily drawn up staffing tables of the plant and from Investment Plan. The required infrastructure including public authorities, as well as residual premises required for the personnel engaged in maintenance of this infrastructure, are also provided by General Plan. Development of social infrastructure satisfying the highest international standards of quality of life, not only for the enterprise employees but also for the rest of the citizens is the main idea included into the General Plan during its development. One of the major aims of the project is social responsibility of its participants. Such approach facilitates the engagement of qualified personnel; it creates a positive reputation of the enterprise among the local residents and sets the quality standards for the rest of business around. We can consider the Preliminary General Plan of The City presented in the project as an example for Ukraine and Australia.

Introduction

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Project Summary

2. Project development background.

The analysis of oil refining industry worldwide displays that there are at least three territories with similar parameters, such as considerable depreciation of oil refineries’ fixed assets, significant dependence on imported petroleum products (and a great shortage of own production), availability of domestic raw materials for oil refineries processing and resource-dominated export structure. Those territories are Russia, Ukraine and Australia.

Changes in the global economy characterized by markets growth termination and increase of competition for value added being produced in a particular territory or country and being the basis of wealth at this territory or country objectively lead to essential growth of interest in involving maximal amount of domestic raw materials into processing, not only in filling the market with country’s own production like motor fuels and power resources.

The enterprise to be proposed for construction available at the territory or in the country is going to make a significant incentive for high-tech processing industries development, as well as to create a basis for industrial and agricultural production development.

The background for each territory described below.

2.1. The Russian Federation.

As a rule, most of oil refining and engineering companies worldwide use standard refining schemes with three various specializations called profiles, classified in accordance with finished products, like fuel profile, fuel and lube profile and petrochemical profile. Actually, over 90% of oil refineries operated in 2010, producing fuels, lubes and petrochemical products; use the same raw materials like crude oil or its

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Project Development Background

Project Summary

refining products. According to refining depth, oil refineries split to three groups like shallow refining plants, deep refining plants and full (100%) refining plants. The shallow refining presumes operations without or with slight processing of heavy fractions boiling above 340-380ยบC; those fractions are the finished products of such enterprise, like residual fuel or raw material for other refineries. The deep refining plants process the most of heavy fractions boiling above 340-380ยบC, producing residual fuel and/or coke and other products with low value added or negative profitability, in amount of up to 15 wt. %. Full (100%) refining plants process all the fractions boiling above 340-380ยบC completely into main products, without producing low-profitable or non-profitable products such as residue fuel or petroleum coke, even for their own needs.

The typical schemes of oil refineries built in USSR are shown below at Figures 14. The diagrams depict that the plants use different equipment, depending on refining depth and finished products. All the fuel plants apply catalytic reforming, catalytic cracking and distillate hydrotreating processes. Plants having the lube profile use tar deasphalting, selective treating (e.g., by phenol, furfural or by N-methylpyrrolidone), dewaxing, hydro- or adsorptive treating or pre-treating processes.

Project Development Background

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Project Summary

Figure 1. Flow diagram of sulphurous oil shallow refining according to fuel profile. ~ 14 ~

Project Development Background

Project Summary

Figure 2. Flow diagram of sulphurous oil deep refining according to fuel profile.

Project Development Background

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Project Summary

Figure 3. Flow diagram of sulphurous oil deep refining according to fuel and lubes profile. ~ 16 ~

Project Development Background

Project Summary

Figure 4. Flow diagram of sulphurous oil deep refining according to petrochemical profile.

Project Development Background

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Project Summary

Oil refineries operating according to fuel and lube profile combine processes typical for both fuel and lube plants. As for petrochemical plants, they apply processes typical for fuel plants and many other processes, such as benzene-toluene mixture extraction, p-xylene extraction by crystallization, adsorption or distillation, hydrocarbon fractions pyrolysis, ethylene and propylene polymerization, benzene alkylation by ethylene or propylene, etc.

Flow scheme, as shown at Figure 1, is applied on many oil refineries, designed according to fuel profile for shallow oil processing, operating in former USSR countries, such as Orsk Oil Refinery, Kirishi Oil Refinery and many others. Obviously they differ according to processes and equipment set, however, their basic parameters are similar and there is no catalytic cracking, hydrocracking and/or coking processes on most of them. Nevertheless, recently a tendency of including the processes of deeper refining, such as catalytic cracking and hydrocracking, into existing technological operations has appeared.

Flow scheme, as shown at Figure 2, is used on such plants as Omsk Oil Refinery, Pavlodar Oil Refinery, Moscow Oil Refinery, Ufa Oil Refinery, (“Ufaneftekhim”), Mažeikių Oil Refinery and some others designed according to fuel profile for deep oil processing1.

Flow scheme, as shown at Figure 3, is operated on such plants as Volgograd Oil Refinery, Ryazan Oil Refinery, Kstovo Oil Refinery, Fergana Oil Refinery and most of the others designed according to fuel and lube profile for deep oil processing1.

Flow scheme, as shown at Figure 4, is used on such plants as Nizhnekamsk Oil Refinery, Salavat Oil Refinery and some others designed according to petrochemical profile for deep oil processing1.

While working on the project, JSC TORC experts have analysed technological models applied on oil refineries operating in the Russian Federation and described above, typical oil refining technologies being applied or being preparing to apply by

1

In accordance with the requirements for refineries with deep oil processing accepted in the USSR.

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Project Development Background

Project Summary

companies in EU, USA and other developed countries, key factors affecting both the economic efficiency of existing companies in particular and global economy in total.

Significant toughening of quality and environmental requirements to motor and jet fuels and to the rest of oil products recently became one of the most important factors worldwide. Traditional oil refining technologies can hardly satisfy these new conditions still remaining profitable. Environmental requirements to oil refineries themselves have also become harder and it has led to significant growth of investments in environmental solutions while constructing new and upgrading existing oil refineries. On this basis, technological models providing wasteless and complete, 100% oil refining with minimized output of low-profitable and hard-selling products become more and more actual in keeping payback period and profitability of existing and constructing refineries at the same level. In the intermediate term period, such models allow to solve most of problems that oil industry faces. However, these schemes cannot provide stable and predictable income for the long-term period. Reduce of global oil reserves and crude oil production relocation to remote areas with poor infrastructure contributes it a lot. Those factors caused faster increase of oil price in comparison with price of other resources like coal and natural gas. Besides these factors, monopoly of oil in the energy market has led to high volatility in oil prices with their abrupt speculative fluctuations and substantial speculative component in them. In the long-term period, the oil prices rising and speculative component in them lead to increase in financial losses by oil refineries and decrease the economy effect of 100% oil refining. The described situation in the oil market stimulates the need for raw material diversification. At the present level of technological development, involving coal and natural gas into production as raw materials is a solution for motor fuel and synthetic organic products manufacturers as well as for electric power generators. In the future, due to improvement of hydrogen production technologies, including its production from alternative sources of raw materials with application of renewable sources of energy, the symbiosis of traditional and alternative sources of raw materials and energy sources involved in the production of motor fuels and organic synthesis products, as well as in electric power generation, Project Development Background

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will be possible.

Project Summary

While selecting the capacity of the Complex for finished products, the project developers have considered the lack of motor fuels and their poor quality which is the main problem of the fuel market in the Russian Federation, as well as they have paid attention to the ratio of investments into the plant and transportation infrastructure capacity and investments required for its upgrade. This problem is caused by high degree of fixed assets depreciation in the most of oil refineries and petrochemical plants. Due to it, the highly profitable production of high-quality motor fuels on those enterprises in the foreseen future is impossible. Besides insufficient amount of fuels produced by oil refineries in the Russian Federation, there is another problem in production facilities structure that does not correspond to demand structure of the market. The average depreciation of equipment at oil refineries and petrochemical plants operating in the Russian Federation has reached 80%. Note: 2 among 28 oil refineries operating nowadays, six were put into operation before 1940, six before 1950 and eight before 1960. Therefore, 20 plants from 28 operate over 40 to 60 years. The consequence of such high fixed assets depreciation in oil refining and petrochemical industry and low rate of their update is the situation when there is almost no enterprise providing 100% of oil refining and the quality of their products does not meet the modern requirements worldwide. Wide practice of the largest engineering companies shows that it is almost impossible to reach this goal by upgrading these enterprises within reasonable time and with comparable amount of investments. In comparison with the construction of the new enterprise, the investment cost of upgrade is usually 25% to 35% higher and the terms are 1.5 to 2.0 times longer. The situation prevailing in oil refining and petrochemical industry in the Russian Federation actually requires the construction of several enterprises similar to this project, not one, with differentiated product lines.

There are some statistical and calculated data confirming the above thesis and statements.

2

Taken from the open sources.

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Project Development Background

Project Summary

According to Russian Federal State Statistic Service (RosStat), there were 487.6 mln tonnes of oil produced and 235.7 mln tonnes processed in 2009. From those amounts there were produced: 1. 35,775.9 thousand tonnes of gasoline (31,456.0 thousand tonnes for domestic consumption and 4,500.9 thousand tonnes for export).

2. 67,292.8 thousand tonnes of diesel fuel (27,437.1 thousand tonnes for domestic consumption and 39,773.6 thousand tonnes for export).

3. About 42,000.0 thousand tonnes of other petroleum products.

4. 78,818.3 thousand tonnes of fuel oil (14,519.7 thousand tonnes for domestic consumption and 64,117.1 thousand tonnes for export).

According to the statistics, the average refining depth was 66.56 wt. %, which corresponds to shallow oil refining.

The oil processing depth at major oil refineries in the Russian Federation is shown at Table 1. The table demonstrates that the maximum refining depth of 85.2% is at Lukoil – Permnefteorgsintez, LTD, which is the only plant of all refineries with deep oil processing, according to IEA classification3.

Table 1.

Oil processing depth at major oil refineries in the Russian Federation.

Oil Refinery

1.

2.

3.

4.

5.

6.

7.

8.

9.

3

Lukoil – Permnefteorgsintez, LTD Sibneft – Omsk Oil Refinery, JSC Lukoil – Volgograd Oil Refinery, LTD Ufa Oil Refinery, JSC Novo-Ufimski Oil Refinery, JSC Angarsk Petrochemical Company, JSC Salavatnefteorgsintez, JSC Ufaneftekhim, JSC Lukoil – Ukhtaneftepererabotka, JSC

Refining Depth, % 85.2 84.4 81.5 80.1 80.0 78.2 78.1 76.9 76.0

According to IEA classification, the oil refineries with processing depth of 85% and over are considered as the deep oil processing refineries.

Project Development Background

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Project Summary

Table 1 (continuation).

Refining Depth, %

Oil Refinery 10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

Novokuybyshevsk Oil Refinery, JSC Saratov Oil Refinery, JSC Moscow Oil Refinery, JSC TAIF – Oil Refinery, JSC Syzran Oil Refinery, JSC Slavneft – Yaroslavnefteorgsintez, JSC PO Kirishinefteorgsintez, LTD Ryazan Oil Refining Company, JSC Lukoil – Nizhegorodnefteorgsintez, JSC Kuybyshev Oil Refinery, JSC Orsknefteorgsintez, JSC Slavneft – Yaroslav Oil Refinery, JSC Khabarovsk Oil Refinery, JSC Achinsk Oil Refinery, JSC Rosneft – Komsomolsk Oil Refinery, LTD Krasnodareconeft, JSC Rosneft – Tuapse Oil Refinery, LTD Afipski Oil Refinery, LTD Antipino Oil Refinery, JSC Total for the Russian Federation:

71.0 70.8 69.7 69.4 68.9 66.8 66.5 66.3 64.6 62.9 62.8 61.7 61.6 61.1 60.8 59.8 56.5 52.4 52.5 71.7

In addition, in accordance to the statistics, the structure of production

facilities

in

oil

18.76%

refining industry of the Russian Federation looks as follows: 15.98%

is

for

30.06%

35.20%

gasoline

production, 30.06% is for diesel

15.98%

fuel production, 18.76% is for other

refining

products

and

35.20% is for fuel oil production.

The Figure 5 depicts the structure of production facilities in oil refining industry of the Russian ~ 22 ~

Automotive gasolines Diesel fuel Other petrochemical products Fuel oil

Figure 5.

The structure of production facilities in oil refining industry of the Russian Federation.

Project Development Background

Project Summary

Federation. However, in the industrial countries the structure of production facilities in oil refining is as follows: 40.67% is for gasoline production, 23.20% is for diesel fuel production, 28.56% is for other refining products and 7.57% is for fuel oil production.

The displayed data demonstrate that the ratio of gasoline amount to diesel fuel amount in the Russian Federation is 0.53, while in industrial countries this ratio equals to 1.75.

It indicates a significant misbalance between production and consumption in the Russian Federation. The Russian export structure reflects the same.

The automotive gasoline production structure in the Russian Federation in 2008 was as follows: 1. 8,180,000 tonnes of 80 RON gasoline per annum.

2. 18,400,000 tonnes of 92 RON gasoline, 1,750,000 tonnes of which had met the requirements of Euro III and Euro IV emission standards.

3. 4,720,000 tonnes of 95 RON gasoline, 1,500,000 tonnes of which had met the requirements of Euro III and Euro IV emission standards.

4. 156,000 tonnes of 95 RON gasoline, 22,000 tonnes of which had met the requirements of Euro III and Euro IV emission standards.

58.50%

According to statistics being demonstrated, gasoline

the

amount

complying

of the

15.00%

26.00%

requirements of Euro III and Euro IV emission standards produced in

0.50%

the Russian Federation is equal to 10.31 wt. % from the total amount of gasoline produced in the country. Since the quality of the most of gasoline amount is low,

80 RON

92 RON

95 RON

98 RON

Figure 6.

The structure of gasoline production in the Russian Federation в 2008 году.

mainly naphtha and 80 RON Project Development Background

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Project Summary

gasoline excess are exported. The structure of gasoline production in the Russian Federation is demonstrated at Figure 6. The amount of diesel fuel satisfying the requirements of Euro III and above standards is 50-55 wt. % from the total produced; most of it is exported, and usually the lower-quality fuel remains in the country. For evaluation the demand in high quality and environmentally friendly fuels the structure of automotive transportation if the Russian Federation is to be considered. Experts predict that by the middle of 2012 it will be as following 36.9% of vehicles complying Euro II and below standards, 18.9% complying Euro III and 44.2% complying Euro IV and above. It displays a demand in fuels meeting Euro III, Euro IV and above requirements; over than twice overcoming the corresponding fuels production.

RosStat does not provide the data displaying motor fuel deficit at the market.

Nevertheless, in order to access the lack and the approximate conditions of the market, the calculation based on indirect data is helpful. According to RosStat, by the end of 2008, the quantity of passenger cars was 32.0 mln units, about 4% of which were equipped by diesel engines. About 11.3 mln of total quantity were the cars produced abroad. Besides the passenger cars, there are the light commercial vehicle consuming gasoline used in the Russian Federation. In 2008, there were 0.6 mln of such vehicles.

The structure of the passenger vehicles fleet according to lifetime is as following: 70% are used within 10 years and over, 20% within 3 to 10 years and 10% are used within less than 3 years. The calculation presumes the average gasoline usage by vehicle operating in combined cycle equal to 12 litres (94 kg) per 100 km and the average annual mileage equal to 15,000 km. The resulting average annual fuel consumption per vehicle is equal to 1,350 kg, and total gasoline consumption in the country is equal to 43.2 mln tonnes per annum. According to RosStat, the gasoline sales volume at the internal market in 2008 was 31.5 mln tonnes; thus, the calculated shortage of automotive fuel was about 11.7 mln tonnes. The absence of confirmed large amounts of imported gasoline allows to assume that the lack is compensated by mini oil refineries activity. Considering the

4

The automotive gasoline density is considered for calculations as750 kg/m3.

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Project Development Background

Project Summary

output of light products like gasoline, naphtha and diesel fuel attainable by mini oil refineries as 55 wt. % from crude oil amount 5, the calculated amount of diesel fuel missed by the statistics was 15.7 mln tonnes per annum. The above calculation demonstrates that the estimated automotive fuel production of 27.4 mln tonnes unreported by the statistics. The technical and technological feasibilities of mini oil refineries can provide the quality of the products far below even Euro II emission standard.

According to expert estimations corresponding to automobile manufacturers’ assessments, the average growth of automobile market for the period until 2030 is expected as 2% to 3% per annum. Figure 7 displays the quality structure of gasolines being produced in the Russian Federation in 2008. Basing on these assessments, a steady growth of automotive fuel

demand

is

estimated. In addition, the

requirements

100% 90% 80%

to

70%

quality of automotive

60%

fuel

50%

are

increase

going

to

permanently,

year after year, due to the

technical

compulsions of brand new car engines and because

of

decommission

of

outdated vehicles. In

40% 30% 20% 10% 0% 80 RON

92 RON

Euro III and above

95 RON

98 RON

Below Euro III

Figure 7.

The quality structure of gasolines being produced in the Russian Federation in 2008.

perspective, it will lead to significant (over 80-90%) reduction in demand on low-octane, low-quality gasoline as 80 RON and 92 RON which is 84.5% of total automotive

5

The average potential rate of naphtha in crude oil is equal to 21.5 wt. %, the diesel fuel fraction rate is 28.5 wt. %.

Project Development Background

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Project Summary

gasoline amount currently produced in the Russian Federation.

The situation with diesel fuel is non that critical. Nevertheless, significant growth of automotive fleet equipped with diesel engines requiring high-quality fuel (Euro IV or higher, with putting the according standards into the operation) will make low quality and polluting fuel usage impossible and its production will become non-profitable.

The analysis of displayed above data related to motor fuel market state, as well as to oil refining industry both in the Russian Federation and worldwide indicates a necessity in the following changes in oil industry: 1. Increase of motor fuels production in the whole range to the level providing complete satisfaction of fuel demand in domestic market of the Russian Federation and covering the further consumption growth.

2. Accomplishing the quality criteria corresponding to the modern requirements of quality and environmental safety in the whole range of motor fuels and in their production.

3. Implementation of advanced technologies in the refining industry, allowing to achieve at the present time the level of both productivity and value added as high as possible, as well as to provide the safe and comfortable working conditions.

4. Diversification of raw materials in order to implement into petrochemical production the raw materials, which are not currently used, like coal and natural gas.

According to the above analysis, the following goals have been set up for the enterprise: 1. Implementation of the most advanced technologies and equipment allowing to process all the secondary products formed in the process of motor fuel production into the products with high value added, demanded on the market.

2. Involving alternative raw materials like coal and natural gas into the process in order to maximize the profitability and to reduce the price risks at the raw materials market.

3. Production of all the components necessary for finished products manufacturing ~ 26 ~

Project Development Background

right on the plant.

Project Summary

4. Full energetic self-sufficiency of the enterprise6.

2.2. Ukraine.

The primary prerequisite for consideration of Ukraine as a territory for the construction of the proposed enterprise is a great shortage of fuels compensated by imports. This means a significant dependence of domestic market from external supplies from the Russian Federation, Belarus, Lithuania and Romania. Other prerequisites are the availability of coal as the raw material for the production, the transportation infrastructure for oil and natural gas shipping, as well as a high degree of fixed assets depreciation in oil companies over the country and economic inexpediency of their recovery or reconstruction.

Currently, Ukraine's fuel balance is deficient; moreover, there is a tendency of reduction in production volumes and strain ageing of fixed assets at processing plants.

The plant being proposed for construction is estimated to produce 10.0 mln tonnes of gasoline with 95 RON and 98 RON, 6.8 mln tonnes of diesel fuel and 1.05 mln tonnes of jet fuel of TS-1, RT or Jet A-1 grades. The data on existing production volumes of gasoline, diesel fuel and jet fuel in Ukraine are demonstrated at Figures 8, 9 and 10. The figures also demonstrate the perspectives of increased consumption of such kinds of fuel, according to “The Energetic Strategy of Ukraine for The Period of up to 2030�.

6

100% of crude oil and coal and 70% of natural gas are used for finished products manufacturing, 30% of natural gas used for energetic purposes is totally compensated with the supplies of generated electric power to the outer networks.

Project Development Background

~ 27 ~

Project Summary

14000 12800

12000 10000

12800

12800

10000

10000

10000

8000 6000

6300

4000

5300

4600 2800

2000

2800

2800

0 2011

2020 Basic Scenario

Gasoline (production) Gasoline (the Complex capacity)

2020 Optimal Scenario

Gasoline (consumption) Gasoline (production including Complex)

Figure 8.

Gasoline production and consumption in Ukraine in 2011 and predicted values.

10000

9500

9500

9000 8000

7600

6800

7000 6000

9500

7600

6800

6800

5300

5000 4000 3000

2700 2700 2700

2000 1000 0 Diesel fuel (production) Diesel fuel (consumption)

2011

Diesel fuel (the Complex capacity)

2020 Basic Scenario 2020 Optimal Scenario

Diesel fuel (production including Complex)

Figure 9.

Diesel fuel production and consumption in Ukraine in 2011 and predicted values.

~ 28 ~

Project Development Background

1400

1330

1200

Project Summary 1330

1050

1330

1050

1000

1050

800 700

700

600 400

400 280 280

200

280

0 2011

Jet fuel (production) 2020 Basic Scenario Jet fuel (consumption) Jet fuel (the Complex capacity) Jet fuel (production including Complex)

2020 Optimal Scenario

Figure 10.

Jet production and consumption in Ukraine in 2011 and predicted values.

In order to evaluate the affection of the plant on Ukrainian fuel balance, its estimated fuel production is also shown at the figures along with the existing production volumes in Ukraine.

The data presented at the figures indicate the inability of oil refining industry existing in the country to satisfy the demand of domestic market by itself. This is a threat to the state energetic safety, but moreover, it is also the factor that limits the economic growth.

The oil refining industry of Ukraine consists of eight oil refineries with average processing depth not increasing 60%. The technical characteristics of them and their history described below.

Odessa Oil Refinery. Its projected capacity is 60,000 bbl per day (2.8 mln tonnes per annum). Oil refinery located in Odessa City, Odessa Oblast. Date of construction is 1937; the area occupied by plant is 80 hectares (198 acres). The refinery has been reconstructed in 2005-2008; it allowed a slight increase of the quality of fuels being Project Development Background

~ 29 ~

Project Summary

produced. The plant is operated by Lukoil – Ukraine, JSC. The oil refinery is processing Russian crude oil shipped by pipelines: by Lysyshansk – Kremenchuk – Odessa pipeline until October 2009 and since November 2009 by Druzhba pipeline and in the reverse mode by Odessa – Brody pipeline. In October 2010, Odessa Oil Refinery has been shut down and mothballed due to unfavourable marketing situation and, as a result, because of its low efficiency. The approximate processing depth is about 56-60%.

Lysychansk Oil Refinery. The projected capacity is 325,000 bbl per day (16.0 mln tonnes per annum). Oil refinery located in Lysychansk, Lugansk Oblast. The plant is operated by TNK-BP, JSC. In 1996–1999, one of the trains of oil refining was closed and mothballed. It has led to plant capacity decrease down to 160,000 bbl per day (8.0 mln tonnes per annum). At the moment the mothballed train actually can not be put back into operation because its equipment has been used as a source of spare parts for the working trains and finally rendered useless. Putting the catalytic cracking unit into the operation during reconstruction in 1994 significantly increased the processing depth of oil refinery. In 2005 and 2007, the medium-temperature isomerization unit was set up and diesel fuel hydrotreatment unit was reconstructed. It allowed to improve the quality of manufactured fuels. The crude oil is shipped to the refinery by pipelines and by railroad. Over 98% of total oil supplies come from Russia (98.2% in 2010) by Samara – Lysychansk pipeline. The main supplier is TNK-BP, JSC. In addition, there are small amounts of crude oil supplied from Ukraine (25.8 thousand tonnes in 2010) and from Kazakhstan (56 thousand tonnes). On March 31, 2011, the Board of Directors of TNKBP, JSC has decided to shut the oil refinery down due to its unprofitability. Since that, the oil refinery has repeatedly stopped and the amount of oil being processed has decreased. Lysychansk Oil Refinery has finally been shut down on March 15, 2012. In September 2012, it was sold out to a new owner. Crude oil refining depth is about 78%.

Kremenchuk Oil Refinery. The projected capacity is 370,000 bbl per day (18.6 mln tonnes per annum). Oil refinery located in Kremenchuk, Poltava Oblast, it was constructed in 1961. The plant is operated by Ukrtatnafta, JSC. In 1970 and 1972, the vacuum gasoil catalytic cracking and tar visbreaking units have been put into the ~ 30 ~

Project Development Background

Project Summary

operation, which increased the processing depth of oil refinery. In 1995, two of three trains of oil refining were closed and mothballed. It has led to plant capacity decrease down to 120,000 bbl per day (6.0 mln tonnes per annum). At the moment one of the two trains being mothballed actually rendered useless and another one can be put back into operation only after being overhauled, which requires significant investments. In 2001, the MTBE production unit, allowed to increase the production of gasoline with high RON, was set up and put into operation. Since 2006 until 2009, a reconstruction of hydrotreatment units, allowed to decrease the sulphur concentration in merchantable diesel fuel down to 50 ppm, has been undertaken. In October 2007, a conflict between shareholders has happened (some experts believe it as a corporate raid attack). As a result, the Ukrainian financial and industrial group named “Privat” took the plant under control and Russian oil supplies have been terminated. After several trials in Ukrainian courts, Russian shareholders have lost their rights over the ownership of 56% share of Ukrtatnafta, JSC that belonged to them. The share has been “returned” to the issuer with no compensation refunded to Russian shareholders. Currently the intergovernmental commission between the Russian Federation and Ukraine is working in order to solve the conflict. Last years the processing capacity hardly could reach 40,000 to 70,000 bbl per day. Refining depth is about 76% for Ukrainian oil and up to 80% for Azeri Light oil.

Drogobych Oil Refinery. The projected capacity is 45,000 bbl per day (2.3 mln tonnes per annum). Oil refinery located in Drogobych, L’viv Oblast. Date of construction is 1863. The plant is operated by Galychyna Corporation, JSC. The 75% share of corporation is owned by “Privat” and “Continuum” financial and industrial groups and by their affiliated structures. In 2005 the reconstruction of refinery has started. It presumed two stages: the increase of finished products output (mainly by putting into operation the hydrotreatment and catalytic reforming units) and increase of refining depth up to 92% by construction of the vacuum gasoil catalytic cracking complex. However, in 2008 reconstruction has been terminated at the stage of equipment purchasing. Crude oil is shipped to the refinery by pipelines and by railroad. All the Project Development Background

~ 31 ~

Project Summary

supplied oil is Ukrainian. The average processing capacity in 2011 was 3,250 bbl per day (161 thousand tonnes per annum). Since January 2012, the plant is shut down. In February 2012, shareholders declared their intention to close, to mothball the refinery for the period of two years, and to use it as a terminal area for oil products. The refining depth is about 54%.

Nadvirna Oil Refinery. The projected capacity is 50,000 bbl per day (2.6 mln tonnes per annum). Oil refinery located in Nadvirna, Ivano-Frankivsk Oblast. Date of construction is 1902. The plant is operated by Naftokhimik Prykarpattia, JSC; 75% share of it is owned by “Privat” financial and industrial group. Before 1961, the plant was performing the still pot oil distillation, and in 1961, the CDU and vacuum distillation unit have been put into operation and the plant had transformed into oil refinery in its common meaning. Currently the diesel fuel hydrotreating unit is under construction.

Crude oil is shipped to the refinery by pipelines and by railroad. All the supplied oil is Ukrainian. The average processing capacity in 2011 was 2,800 bbl per day (138 thousand tonnes per annum). Since January 2012, the plant is shut down. The refining depth is about 70.5%.

Kherson Oil Refinery. The projected capacity is 140,000 bbl per day (7.1 mln tonnes per annum). Oil refinery located in Kherson, Kherson Oblast. Date of construction is 1938. The plant is operated by Kherson Oil Refinery, JSC, owned by “Continuum” financial and industrial group and its affiliated structures. Since the end 0f 2005 the plant is shut down and mothballed. At the present time its capacity is 22 000 bbl per day (1.08 mln tonnes per annum). Currently, a feasibility study for the plant reconstruction is developed and the contracts for designing are signed. The reconstruction presumes two stages: the first is increase of finished products quality with the slight increase of processing depth and the second is increase of refining depth up to 90-92% by construction of the hydrocracking complex. At the moment the refining depth is about 48%.

Currently the electric power balance of Ukraine is sufficient; however, according to “The Energetic Strategy of Ukraine for The Period of up to 2030”, electric power ~ 32 ~

Project Development Background

Project Summary

consumption (and, obviously, electric power production) in Ukraine should increase by 27.0 TW per annum by 2015, and by 94.0 TW per annum by 2030, which is equivalent to putting into operation the generating facilities of 3.25 GW•hour and 11.2 GW•hour.

The Complex proposed for the construction is planned to generate 16.0 TW per annum of electric power which equals to 1.89 GW•hour. The existing power generation data for Ukraine is shown at Figure 11.

250

200

150

100 50 0

188 188

204

236

236

204

2011

Electric power (production) Electric power (consumption)

243

243

204

2020 Basic Scenario 2020 Optimistic Scenario

Electric power (production by the Complex with regard to volumes of 2011) Figure 11.

Electric power production and consumption in Ukraine in 2011 and predicted values.

The Figure also displays the perspectives of electric power production growth by 2020, according to “The Energetic Strategy of Ukraine for The Period of up to 2030”.

The data displayed on the Figure demonstrate a significant contribution to implementation of the plans provided by “The Energetic Strategy of Ukraine for The Period of up to 2030”. It will allow to decrease the electric power production by power plants using coal and having much lower efficiency and environmental performance, or by the nuclear plants.

The data demonstrating the current production of fertilizers and ammonia in Project Development Background

~ 33 ~

Ukraine is shown at Figure 12.

Project Summary

6000 5640 5000

5542

5262

4000

3000 2940

2700

2000

1000 280 0 Fertilizers

Current production

Production by the Complex

Ammonia

Production with regard to the Complex

Figure 12.

Fertilizers and ammonia prodution in Ukraine in 2011 and predicted values.

The fertilizers, as well as ammonia, may replenish the export potential of Ukraine with high-quality fertilizers that, in particular, can be used in agriculture, reducing the cost of agricultural products due to their properties.

The data demonstrating the current production of aromatic hydrocarbons and plastics in Ukraine is shown at Figure 13. The aromatic hydrocarbons can be used as a raw material in the production of various high-quality and modern plastics and polymers currently imported from the outer markets.

Polypropylene and isopropyl alcohol can be used for production of finished goods demanded in domestic market of Ukraine. Isopropyl alcohol is also can be used in synthesis of other compounds like methylisobuthylketone or isopropylacetate, as well as in other industries, e.g., for cutting aluminium, in turning, milling, etc.

~ 34 ~

Project Development Background

Project Summary

1800 1600

1609

1400 1300

1200 1000

911

800 600 561

400 309

200

350

0 Aromatic hydrocarbons

Current production

Primary plastics

Production by the Complex (polypropylene)

Production with regard to the Complex Figure 13.

Aromatic hydrocarbons and plastics production in Ukraine in 2011 and predicted values.

Liquefied atmospheric gases can be exported to the outer markets or can be used inside the country in metallurgy, food industry and electronics, in various lamps and laser production and in medicine.

The fly ash and grained slag macadam for concrete can be used as the components of building materials. In particular, the fly ash can be used as a raw material in highquality cements production, allowing to improve their consumer properties and to reduce costs.

The construction and modification of the transport infrastructure is necessary in order to diversify the natural gas supply. Perhaps it could be implemented within a separate Investment Project or, probably, as a separate business. The required events are as following: 1. Construction of the Terminal for liquefied natural gas receiving and regasification through the port of Odessa into Ukrainian Gas transportation system.

Project Development Background

~ 35 ~

Project Summary

2. Implementing of technical solutions into the gas transportation system as a modification, in order to allow the natural gas delivery to the gas transportation system, regarding the Complex demand in gas, as well as for export purposes.

The current and predicted volumes of natural gas extracting and import, with regard to the volumes demanded by the Complex, are shown at Figure 14.

36.6

2010

15.5

27.1

2020

0

5

10 Import

15

20.5

15.5

20

25

30

35

23.7

40

45

50

55

The Complex demand

60

65

70

75

80

Extraction

Figure 14.

The current and predicted volumes of natural gas import and extracting in Ukraine, with regard to the volumes demanded by the Complex .

The finished capacity of the Terminal should be 80 bln m3. Its construction is planned within the two stages of 40 bln m3 each. The first stage will completely cover the Complex demand in natural gas, as well as to cover the total demand of Ukrainian market in gas being imported.

The analysis of the above data regarding the motor fuels market and petrochemical industry of Ukraine displays that the project implementation, including the Terminal construction, will allow to reach the following goals by Ukraine: 1. The energetic safety of the country will be provided.

2. A high-tech production will be created, allowing the implementation of innovating technologies and providing the basis for their further development.

3. The national regulatory framework will be unified with the international.

~ 36 ~

Project Development Background

Project Summary

4. The oil-alternative raw material base for motor fuel production will be expanded.

5. The resource basis necessary for the growth of various segments of economy like transportation and manufacturing industries (e.g., electric power generation, petrochemical industry and manufacturing the raw materials for organic synthesis, inert gases production), agriculture and energetic science, will be established.

6. The dependence of the country on fuel supplies from neighbour countries as the Russian Federation, Belarus, Lithuania, etc., will be reduced.

7. The dependence of the country on natural gas supply from the Russian Federation will be reduced.

8. The access to the world market of high-quality motor and jet fuels, organic synthesis products and fertilizers will be provided.

9. The status of a major country transiting natural gas to the EU will be continued.

Besides the above described, the following macroeconomic benefits for the Ukrainian society as a whole will be provided after the project implementation: 1. The growth in GDP of Ukraine will get by 22.1 bln USD or by 13.45% in relation to the data for Ukraine's GDP in 2011, and by 24.5 bln USD, or 14.89%, including the Terminal construction. According to IMF calculating method for GDP growth forecast, the synergetic Ukraine's GDP growth will get to 37.0% and 40.9% correspondingly.

2. 9,393 jobs will be created directly at the Complex and up to 40,000 jobs will be available at the enterprises adjacent to the Complex. In addition, the additional jobs will be appeared due to the economic growth caused by the enterprise construction.

3. From 500 to 600 jobs will be created directly at the Terminal and up to 1 500 jobs will be available at the enterprises adjacent to the Terminal. In addition, the additional jobs will be appeared due to the economic growth caused by the Terminal construction.

Project Development Background

~ 37 ~

Project Summary

2.3. Australia.

The main prerequisites for consideration of Australia as a territory for the construction of the proposed enterprise are the following: 1. Significant shortage of fuels compensated by imports. This means a serious dependence of domestic market from external supplies from Singapore, Taipei and some other Asian and Pacific countries.

2. Availability of coal and natural gas as the raw materials.

3. Availability of the transportation infrastructure for coal, oil and natural gas shipping to the refinery.

4. A high degree of fixed assets depreciation in oil refineries.

5. Low profitability of oil refineries due to higher costs in Australian refining industry in comparison with the neighbour Asian and Pacific countries, low capacity of Australian refineries and slightly obsolete technologies used over there.

The Australian

profitability refineries

is

of also

33%

affected by imported crude oil supplies, part of which is used by

43%

14%

refineries themselves as energy source. The Complex proposed for construction is projected for using 100% of crude oil in order to produce the finished products only. Actually, it will allow to save from 5% to 8% of current oil costs. Another prerequisite is the ability of high-quality production

~ 38 ~

4% Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Fuel oil Other products

4%

2%

Figure 15.

The structure of the production facilities in Australian refineries (vol.%).

Project Development Background

Project Summary

export to the neighbour markets, not only motor fuels but also

37.46%

fertilizers and organic synthesis products. Current Australia's fuel balance is deficient; moreover,

13.16% 36.76%

7.45%

there is a tendency of reduction in production volumes because the shareholders shut the unprofitable refineries down and strain ageing of fixed assets at processing plants is observed. The actual structure of the production facilities in Australian refineries is shown at

Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Fuel oil Other products

3.53% 1.64%

Figure 16 The structure of demand on petroleum products imprting in Australia (vol.%).

Figure 15. The Australian market of petrochemical products is expanding, with rapid growth of jet and diesel fuel demand and

with

slight

decrease

of

automotive and aviation gasolines

53.37%

demand. The current structure of demand on merchantable motor fuels and petrochemical products is shown at Figure 16.

The

import

petrochemical products shortage the

country.

The

17.51%

10.18%

structure

actually reflects the structure of in

10.73%

current

structure of merchantable motor fuels and petrochemical products imported into the country is shown

Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Fuel oil Other products

3.35%

4.86%

Figure 17.

The structure of petroleum products importing into Australia (vol.%).

at Figure 17. The volume of Project Development Background

~ 39 ~

Project Summary

imported petroleum products in 2011 was 41.32% of total demand. According to forecasts, by 2020 it may reach the rate of 70%. This situation is extremely threatens the energetic safety of the country and limits the economy growth rate with possible increase of petroleum products imported volumes.

11200

500 1999 Australia Singapore

2000

2001 China South Korea

2002

2003 India Taipei

2004

2005

2006 Indonesia Thailand

2007

2008

2009

Japan Other countries

Figure 18.

The oil processing volumes in Asian and Pacific countries within last 10 years.

With current demand of 877,000 bbl per day (equivalent of 944,000 bbl per day of production capacity) and annual consumption growth from 0.5% to 1.2%, or from 5,000 to 10,000 bbl per day, the shrinking of processing capacities is planned by 27%, from current 773,500 bbl per day down to 564,000 bbl per day by 2014. On the other hand, practically all the Asian and Pacific countries have increased their refining volumes, and some of them also have enlarged their export potential. In such situation, the petrochemical products import is actually a redistribution of tax revenues and value added from oil products manufacturing and, in common, the competitiveness of ~ 40 ~

Project Development Background

Australian exporting

economy countries.

Project Summary

to

oil

The

oil 25% 22%

processing volumes in Asian and Pacific countries within last 10 years are shown at Figure 18.

50% 45%

The oil refining industry of Australia consists of eight oil refineries with average processing depth of over 90%. The technical characteristics of them and their history described below.

Kurnell

Refinery.

The

projected capacity is 124,500 bbl

15% 23% 4% 3%

Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Gasolines Fuel oil Jet fuel Bitumen Fuel oilproducts Other

5%

4%

1% 3% Diesel fuel Liquefied petroleum gas

Figure 19.

20.

The structure of the products manufacturing by Kurnell Clyde Refinery (vol.%).

per day (6.15 mln tonnes per annum). Oil refinery located in Botany Bay, New South Wales. The plant is operated by Caltex Australia, 50% share of which is owned by Chevron Corporation and another 50% share belong to Australian shareholders. In 1964 and 1973, the refinery has been enlarged and the oil processing depth has been increased up to 90%. The structure of production manufactured by Kurnell Refinery is shown at Figure 19. On July 26, 2012, Caltex Australia company had decided to completely close Kurnell Refinery by the second half of 2014 and to re-orientate it into the terminal for receiving the imported petroleum products. The budget of 430 mln USD is planned for closure of Kurnell Refinery and 250 mln USD extra cost will be invested into its re-orientation into the terminal receiving petroleum products with simultaneous increase of its capacity. The closure of Kurnell Refinery will result to the layoff of 330 employees working directly for Kurnell Refinery and up to 300 employees working for its contractors, performing the operations linked with Kurnell Refinery. This staff can get involved for implementation of the Complex construction project and its further operation.

Clyde Refinery. The projected capacity is 85,000 bbl per day (4.20 mln tonnes Project Development Background

~ 41 ~

Project Summary

per annum). Oil refinery located in Clyde, New South Wales. The refinery was constructed in the early 1920s; the area occupied by plant is 10 hectares (25 acres). The plant is operated by Shell Australia. In 1971, a first in Australia polypropylene producing unit has been set up and put into operation on the refinery. The unit capacity is 25,000 tonnes per annum. In addition, there is a polypropylene producing complex with annual capacity of 170,000 tonnes, owned by LyondellBasell, operating at the territory of the plant. The crude oil refining depth is about 91%. The structure of production manufactured by Clyde Refinery is shown at Figure 20. On July 27, 2011, Shell Australia company had decided to completely close Clyde Refinery by the middle of 2013 and to re-orientate it into the terminal for receiving the imported petroleum products. The closure of Clyde Refinery will result to the layoff of 330 employees working directly for Clyde Refinery and up to 300 employees working for its contractors, performing the operations linked with Clyde Refinery. This staff can get involved for implementation of the Complex construction project and its further operation.

Geelong Refinery. The projected capacity is 120,000 bbl per day (6.0 mln tonnes per annum). Oil refinery located in Geelong, Victoria. The refinery was constructed at the beginning of 1954; the area occupied by plant is 120 hectares (295 acres). The plant is operated by Shell Australia. In the 1960-70 and in 1992, the processes of deep oil refining have been implemented and the processing depth has been increased. In addition, the olefins processing, the processes of catalytic reforming with continuous catalyst regeneration, catalytically cracked gasolines and diesel fuel hydrotreating down to 10 ppm of sulphur concentration have been implemented. The crude oil refining depth is about 92%. There is no information about the products structure.

Altona Refinery. The projected capacity is 135,000 bbl per day (6.7 mln tonnes per annum). Oil refinery located in Altona North, Victoria. The refinery was constructed at the beginning of 1949; the area occupied by plant is 138 hectares (341 acres). The plant is operated by ExxonMobil Australia. In 1971, the facilities have been expanded and the refinery has been reconstructed for processing oil from local Bass Strait deposit.

In 1997, the thermocatalytic cracking and catalytic cracking along with the associated ~ 42 ~

Project Development Background

Project Summary

processes of deep oil refining, as well as the olefins processing, catalytic reforming with continuous catalyst regeneration, catalytically cracked gasolines and diesel fuel hydrotreating down to 50 ppm of sulphur concentration, have been implemented. In 2004, one of the oil refining trains has been closed and the processing capacity fell down to 100,000 bbl per day (5.0 mln tonnes per annum). At the same time, the process of propane-propylene fractioning has been set up. The crude oil refining depth is about 92%. The structure of production manufactured by Altona Refinery is shown at Figure 21.

Bulwer Island Refinery. The projected capacity is 25,000 bbl per day (1.25 mln tonnes per annum). Oil refinery located in Bulwer Island, Queensland. The refinery was constructed at the beginning of 1964; the area occupied by plant is 121.5 hectares (300 acres). The plant is operated by British Petroleum Australia. In 1984, the reconstruction has been performed, and both processing depth and finished products quality, as well as plant’s environmental characteristics, have been improved. In addition, olefins processing, the processes of catalytic reforming with continuous catalyst regeneration, catalytically cracked gasolines and diesel fuel hydrotreating down to 10 ppm of sulphur concentration implemented.

have In

1996

28%

been

54%

the 10%

manufacturing capacity has been 3%

increased up to 101,000 bbl per

5%

day (5.0 mln tonnes per annum), and the complex of technical and

Gasolines

Diesel fuel

technological solutions, allowing

Jet fuel

Liquefied petroleum gas

Other products

to bring the sulphur concentration down to 50 ppm in merchantable gasoline and down to 10 ppm in

Figure 21.

The structure of the products manufacturing by Altona Refinery (vol.%).

merchantable diesel fuel, has been Project Development Background

~ 43 ~

Project Summary

implemented. The crude oil refining depth is about 92%. There is no information about the products structure.

Lytton Refinery. The projected capacity is 106,000 bbl per day (5.3 mln tonnes per annum). Oil refinery located in Lytton, Queensland. The refinery was constructed at the beginning of 1964; the area occupied by plant is 223 hectares (551 acres). The plant is operated by Caltex Australia. In 2006, the diesel fuel hydrotreatment unit and selective benzene hydration unit were built up at the refinery. As a result, the environmental characteristics of the produced fuels have been improved. In 2009, a new diesel fuel hydrotreating unit, allowing to decrease the sulphur concentration down to 10 ppm, has been set up. The crude oil refining depth is about 93%. The structure of production manufactured by Lytton Refinery is shown at Figure 22.

Port Stanvac Refinery. The projected capacity is 42,000 bbl per day (2.1 mln tonnes per annum). Oil refinery located in Lonsdale, South Australia. The refinery was constructed at the beginning of 1963; the area occupied by plant is 223 hectares (551 acres). The plant is operated by ExxonMobil Australia. In 1976, the refinery has been reconstructed for processing oil from local Bass Strait deposit. In addition, the lube plant has been built up with capacity of 30,000 bbl per day (1.48 mln tonnes per

35% 45% 13%

annum), and the total refinery

5%

capacity has been increased up 72,000 bbl per day. In the early 1980s the unit for catalytic dewaxing of the lube fractions has been set up which increased the capacity of lube plant. In 1988, the

light

isomerisation ~ 44 ~

gasoline unit

fraction has

Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Fuel oil

2%

Figure 22.

The structure of the products manufacturing by Lytton Refinery (vol.%).

been Project Development Background

Project Summary

constructed. In 2003, the refinery has

been

shut

down

and

mothballed in order to reactivate it

33%

after the market conditions get better. In 2009, the shareholders

43%

9%

decided not to restart the refinery 5%

and proposed to demolish its facilities and remediate the site for housing. The demolishing has started at the second half of 2012 and the whole process, including remediation, should be completed by 2019. There is no information

5%

5%

Gasolines Diesel fuel Jet fuel Liquefied petroleum gas Organic synthesis products Fuel oil

Figure 23.

The structure of the products manufacturing by Kwinana Refinery (vol.%).

about the products structure.

Kwinana Refinery. The projected capacity is 137,000 bbl per day (6.8 mln tonnes per annum). Oil refinery located in Kwinana, West Australia. The refinery was constructed at the beginning of 1955; the area occupied by plant is 250 hectares (618 acres). The refinery is operated by British Petroleum Australia. In 1964, the lube plant has been put into operation. In 1969, the ammonium nitrate production plant has been built up; later on, it has been allocated as a separate company. In 1981, the gas processing plant has been completed. In 1987, the vacuum gasoil catalytic cracking unit has been modified into the fuel oil catalytic cracking unit. In 1995, a significant reconstruction of the refinery was carried out and the new units for light gasoline fractions isomerisation and for catalytic reforming with continuous catalyst regeneration have been put into the operation. The lube plant has been shut down in 2002. The structure of production manufactured by Kwinana Refinery is shown at Figure 23.

The above data analysis regarding the motor fuels market and petrochemical industry of Australia displays that the project implementation will allow to reach the following goals by Australia: Project Development Background

~ 45 ~

Project Summary

1. The energetic safety of the country will be provided.

2. A high-tech production will be created, allowing the implementation of innovating technologies and providing the basis for their further development.

3. The human resources employed at refineries outgoing from the operation will be saved.

4. The oil-alternative raw material base for motor fuel production will be expanded.

5. The resource basis that necessary for the growth of various segments of economy like transportation and manufacturing industries (e.g., electric power generation, petrochemical industry and manufacturing the raw materials for organic synthesis, inert gases production), agriculture and energetic science, will be established.

6. The dependence of the country on fuel supplies from neighbour countries as Singapore, South Korea, Japan, Taipei, etc., will be reduced.

7. The access to the world market of high-quality motor and jet fuels, organic synthesis products and fertilizers will be provided.

8. The resource-dominated dependence of Australian export will be eliminated.

Besides the above described, the following macroeconomic benefits for the Australian society as a whole will be provided after the project implementation: 1. The growth in GDP of Australia will get by 22.1 bln USD or by 1.55% in relation to the data for Australia's GDP in 2011. According to IMF calculating method for GDP growth forecast, the synergetic Australian GDP growth will be 4.97%.

2. 9,393 jobs will be created directly at the Complex and 40,000 jobs will be available at the affiliated enterprises. In addition, the additional jobs will be appeared due to the economic growth caused by the enterprise construction.

3. A solid potential for economic growth will be provided in such industries as petrochemicals, agriculture, transportation, metallurgy, food industry and electronics, in various lamps and laser production, in medicine and in education and science.

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Project Development Background

3. Project environment.

Project Summary

3.1. Operating conditions.

During the pre-design of the project and while performing the calculations in order to estimate the risks associated with the project and for the most accurate assessment of its performance and stability under different economic conditions, the developers identified various factors that have the most significant effect on the results of the project. The state of the global economy has been considered as the global factor and the assistance to the project from the government has been counted as local.

The factors in the original data of the economic model of the project considering the global economy state due to its cyclical development are reflected as the following conditions: 1. The growing market conditions are the basic prices on raw materials, finished products and equipment in the USA and the EU and the business environment in the Russian Federation existed on May 1, 2008.

2. The crisis market conditions are the basic prices on raw materials, finished products and equipment in the USA and the EU and the business environment in the Russian Federation existed on September 1, 2010.

The factors considering the government support to the project (in case of the Russian Federation) in the initial data of the economic model of the project are reflected as two variants of the Investment Plan, with the benefits provided by the government and without them.

The Investment Plan considering the benefits provided by the government includes: 1. The abolition of customs duties paid on all the types of imported equipment, components and materials allocated for the capital assets formation.

Project Environment

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Project Summary

2. The abolition of VAT paid on the purchased equipment, components, materials and services allocated for the capital assets formation on imports and a similar payment abolition or refund of VAT 7 included in the cost of the project components being purchased on the domestic market of the Russian Federation.

The Investment Plan that does not consider the benefits provided by the government presumes complete payments of customs duties and VAT, as it permitted by the law of the Russian Federation.

The combination of factors having the most significant effect on the results of the project leads to the four alternative economic model calculations. The key characteristics of the project implementation in extreme conditions are included into these models and described as following: necessary volume of investments (both direct and financial), key project performance indicators and participants’ revenue. The Feasibility Study provides the calculation of average economic performance of the project, based on the assumption that the project will be developed in the growing market conditions within 75% of its lifetime and 25% of its lifetime will pass under the crisis market conditions 8.

The Investment Plan for Ukraine and Australia has not been developed. However, from the legal environment point of view, the repeated calculation of economic indicators for the Complex construction at the selected location in the Zhytomyr Oblast of Ukraine won’t take long because only the costs related to the raw materials price and their transportation expenses, as well as for the finished products, would be recalculated, and the corrections regarding taxation would be performed. The approaches to the government participation in the project, including share owning, the benefits being provided, the presence of the state-controlled monopolies, making decisions in order to recruit foreign experts, the technical standards being applied, etc., are very similar in

7

8

This concept of formation of benefits provided by the government is provided by the project solely in order to protect the domestic manufacturers of goods and services that can be involved in the project implementation. Provision of the benefits is considered as direct governmental investments to the by refunding the VAT being a part of the equipment, components, materials and services intended to form the capital assets of the Complex, the implementation of which is permitted by the current legislation of the Russian Federation.

This presumption is based on the analysis of the global economy development cycles within the last 50 years.

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Project Environment

Project Summary

both Ukraine and the Russian Federation.

The legal environment of the project in Australia and the influence of the Australian government and the state governments on the project are significantly different from the Russian Federation and Ukraine. The project considers the Australian legal environment as the most favourable, and due to this, the economic performance of the project is going to be greater than in Ukraine or the Russian Federation.

3.2. The risks associated with project implementation This section considers all the risks. Part of them is applicable to all the territories and another part of them is regarded to the Russian Federation and Ukraine only (e.g., the presence of the government-controlled monopolies, etc.). The risks applicable to Australia only have not been considered in detail by the project.

3.2.1. Macroeconomic and price-related risks.

Possible deterioration of the global macroeconomic conjuncture as well as the continuing global economic recession will both affect negatively on the overall project, including the results of its operations and its ability to provide the planned revenue for its participants. The project provides four alternative economic models calculation. The main characteristics of those models are the hydrocarbon prices, exchange rates, the availability or lack of government support for the project, etc., and they are considered as the ways to evaluate the possible consequences of these risks implementation.

The sharp and multidirectional fluctuations in hydrocarbons prices may also complicate the project implementation. Those fluctuations will remain in the medium term due to the volatile balance of supply and demand in the global market caused by the significant speculative component in their structure. The following solutions are provided the project in order to eliminate the possible consequences of this risk Project Environment

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Project Summary

implementation by the raw materials diversification with providing a maximum processing depth and the highest quality of rationally diversified finished products being manufactured by the Complex.

3.2.2. Industrial risks.

There are the risks of the raw materials (e.g., natural gas, coal and crude oil) availability. The following solutions are provided by the project in order to eliminate the possible consequences of this risk implementation: 1. The guarantees provided by the government on the natural gas and coal supply by governmental companies.

2. Purchasing the coal at the world price, which is higher than the price on the domestic market in the Russian federation. It will allow to redirect part of export flows to the Complex and to make the manufacturers interested in coal production increase.

The Complex depends mainly on the capacity of governmental monopolies for raw materials and finished products shipping, such as Transneft JSC, Transnefteproduct JSC, FGC UES JSC, Russian Railways (RZD) JSC and Gazprom JSC. This dependence can lead to very significant negative consequences, the following of them may occur: 1. Limited

access

to

the

transportation

facilities

of

Transneft

JSC,

Transnefteproduct JSC, FGC UES JSC, RZD JSC and Gazprom JSC. In extreme case, the Complex would be unable to carry on its operation or to sell the finished products on the certain markets. This will lead to an unexpected increase in costs associated with urgently required search of alternative ways of raw materials and finished products shipping.

2. The losses related to the irregularities in pipelines or railroad operation.

3. The accidental increase of costs related to the sharp rise of raw materials and finished products shipping tariffs.

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Project Environment

Project Summary

The following solutions are provided by the project in order to eliminate the possible consequences of this risk implementation: 1. Receiving the governmental guarantees in order to provide the shipping services in required volumes by government-controlled monopolies, such as Transneft JSC, Transnefteproduct JSC, FGC UES JSC, RZD JSC and Gazprom JSC, including the construction, renovation and maintenance of their infrastructure, depending on their technical facilities.

2. Diversification by transportation types is provided by the project in order to protect the Complex in case of any fault in transportation system as follows: 2.1. Investments in construction of railroads for shipping oil.

2.2. Receiving the governmental guarantees for pipeline "Torzhok-Polotsk" construction by JSC "Transneft" for shipping the finished products through pipelines. Receiving the governmental guarantees for land allocation for the pipeline and providing its construction on the territory of the Republic of Belarus.

2.3. Investment in the railway station construction on site in order to process all the operations related to shipping by railroad by the enterprise itself.

2.4. Investments in advanced storage infrastructure construction providing significant storage capacity for basic raw materials and supplies, as well as the opportunity for keeping the large amounts of finished products without shutting down the plant, with further rapid shipping to the customers.

3. For elimination the risks related with accidental increase of costs due to the sharp rise of raw materials and finished products shipping tariffs, the location for project site is chosen with minimal transportation arm for cargo with the most expensive transportation tariffs and for cargo with the maximal risk of tariffs increase.

The market environment and high level of competition in the refining and petrochemical industry actually does not make any risk to the enterprise due to Project Environment

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Project Summary

high quality of its finished products, the low cost of its raw materials and the modern technologies application in order to ensure the minimal production costs at maximal performance.

3.2.3. Territorial risks.

According to the international rating agencies, the Russian Federation is a country with a high level of political and economic risks that could significantly complicate the project implementation and may even lead to its termination.

In order to eliminate these risks, the project provides the investment agreement between the Complex and the government, which could allow decision-making by the government aimed at minimizing the opportunity of these risks. The project also provides the participation of the government as a shareholder in the project implementation.

3.2.4. Financial Risks.

During the construction of the first phase of the Complex, the project is threatened by the risk of inflationary cost increases. The biggest impact of this risk may occur in capital expenditures. It may endanger the successful implementation of the investment plan. In order to minimize this risk, the following solutions are provided by the project: 1. The turnkey construction contract provides enough power for the Complex to control the project implementation and the ability to influence the decisions made by the General Contractor.

2. The funds intended for protection from the investment risks are included into the costs of the Investment Plan.

3. The funds intended for protection from the accidental expenses are included into the costs of the Investment Plan.

There is a risk of the interest rates fluctuations in the EU and in the USA. These ~ 52 ~

Project Environment

Project Summary

fluctuations can hardly increase the cost of financial services related to the investments used to finance the most of the Investment Plan costs. To reduce the impact of this risk the project priority is to involve either part or all of the financial investments with fixed interest rate.

There are the following risks related to the Complex cash flows: 1. The sharp fluctuations of energy resources prices.

2. The growing rates of taxes, duties and customs fees.

3. The growing infrastructural costs.

These risks can negatively affect the liquidity of the Complex during the project implementation. In order to reduce the maximal impact of these risks, the project envisages the provisions for granting the governmental guarantees protecting from the deterioration of economic conditions to be included into the Investment Agreement between the Complex and the government. In addition, while calculating the required direct and financial investments, the project envisages to create the liquidity reserve aimed at maintaining the solvency of the Complex during its construction and to form the liquidity and financial reserves for the period of its operation. The volume of liquidity and financial reserves would allow to minimize the risk of liquidity shortage on all the stages of the project.

Another factor that can lead to liquidity shortage of the Complex during its construction is a significant strengthening of Russian rouble against the U.S. dollar. This risk will affect the results of operations of the Complex, since the cash intended for the project implementation are denominated in U.S. dollars, while the most of the payments associated with the project, including transportation expenses, would be performed in the Russian Federation in Russian roubles.

One of the major risks that may have an impact on the Complex creditability of is, above all, the risk of payments default by the obligations of the counterparties. In order to reduce the impact of this risk on the implementation process, the project provides to ship the finished products mainly after 100% advance payment and cooperation with partners having a high credit rating and guarantees from the top banks.

Project Environment

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Project Summary

This will also allow to limit the creditability risks per counterparty while choosing the traders for selling the finished product produced by the Complex. In addition to these solutions intended to improve the Complex, the project provides to use the secondary financial instruments, such as the purchase of credit default swaps (CDS) allowing to eliminate the non-return of financial investments during the project implementation.

3.2.5. Legal risks.

At the moment, there is a risk of both legislation and legal practice tightening in relation to companies engaged in oil refining and petroleum products manufacturing in the Russian Federation. The Russian Government initiated a number of changes in the law that give additional power to the regulating authorities. In order to reduce the legal risks, the project envisages the Complex to be operated strictly according to the principles of competitive interaction with all market participants, using the market mechanisms of pricing for raw materials and finished products, complying with all the applicable legislative requirements. The Complex plans nothing that could restrict the competition and give it the monopoly power on the market, as well as it points as its main purpose the participating in creation of a free and transparent market of motor fuel, organic synthesis products and fertilizers in the Russian Federation as an independent manufacturer. However, the Complex cannot eliminate the possible risks of litigations and the penalties impositions in disputable cases.

In addition, one of the most significant risks that have arisen against the background of significant growth in world oil prices is the initiative of the Russian Government on the introduction of state regulation in petroleum products prices in the Russian market. The decrease in revenue from the Complex finished products selling in the Russian Federation can be a consequence of this action of the Government, while the simultaneous introduction of restrictive governmental efforts aimed to limit the export of petroleum products will negatively affect the performance of the Complex. The

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Project Environment

Project Summary

project provides to include the guarantees of governmental protection from the deterioration of economic conditions to the investment agreement between the Complex and the Government as a solution in order to reduce the maximal impact of these risks.

Besides the most significant and above-mentioned legal risks, the following ones have also been considered: 1. Tax legislation tightening, especially in the predicted deficit of the Russian Federation state budget. In case of the new taxes introduction or any changes in existing tax payment order, it may lead to higher tax payments and therefore can have a negative impact on the Complex operations and financial results.

2. Currency regulating legislation tightening. In that case, a lot of export operations may become complicated and it may negatively affect on the current liquidity of the Complex.

3. Customs regulations and customs duties tightening. In particular, the export duties on oil products may be increased, including the imposition of the new export duties on synthetic petroleum products, especially in the predicted deficit of the Russian Federation state budget. These changes may negatively affect the financial performance of the Complex. The probability of such risk is partially can be eliminated by including the guarantees of governmental protection from the deterioration of economic conditions to the investment agreement between the Complex and the Government.

3.2.6. The risks related to the complex operations.

The following risks associated with the Complex operations considered below: 1. The requirements for carbon dioxide emissions tightening. When the probability of this risk becomes high, the liquefaction gases released into the atmosphere, containing over 80 wt. % of carbon dioxide, can get included into the production cycle of the Complex with their further injection into the underground formations.

Project Environment

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Project Summary

2. The need to eliminate the possible industrial accidents. In order to reduce the maximal impact from this risk, the project provides to include the liability insurance into the list of the costs of the Complex. This insurance covers the liability if the organization operates with hazardous production facilities; the limit of insurance coverage is up to 1.25 billion U.S. dollars. Deposit insurance coverage in the amount of financial reserves, the company provided for the project, provide the total amount of funds that can be directed at the elimination of consequences of the implementation of the risk of up to 2.5 bln USD. 3. The termination of all or part of finished products manufacturing due to the equipment failure. It can lead to production and financial performance failure. In order to minimize this risk, the following solutions are provided by the project: 3.1. The qualified and responsible staff recruitment.

3.2. The insurance on the equipment, buildings and infrastructure is to be included into the list of the Complex expenses. The insurance coverage limit is up to 10 bln USD. 3.3. The significant planned investments into the quarterly preventative maintenance are to be included into the list of the Complex expenses.

3.4. The significant planned investments into the biennial stopping repairs are to be included into the list of the Complex expenses.

3.5. The industrial safety system of the Complex provides continuous monitoring of the technological equipment at the units, performing the activities in order to improve the personnel skills and carrying out other efforts for preventing the accidents.

3.6. The industrial safety system of the Complex is to be certified according to the international industrial safety standards of ISO 14001 and OHSAS 18001.

There is a risk of production plans failure during the project implementation caused by various managerial and manufacturing circumstances. In order to reduce its

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Project Environment

Project Summary

consequences, the project provides the recruitment of highly qualified staff and the motivating system introduction.

During the construction of both first and second stages of the Complex, there is a risk of delayed commissioning of facilities being set up. The key factors affecting the possibility of this risk are the planning errors, the operations of General Contractor and subcontractors, as well as the risks caused by the infrastructure. In order to reduce the consequences of this risk, the project provides the following solutions: 1. A reliable General Contractor experienced in projects of similar scale is to be chosen.

2. The service contracts between the Complex and the operators of infrastructural facilities (e.g., governmental monopolies, federal and local authorities of the Russian Federation) would be signed.

3. The turnkey construction contract is to contain a solid date for commissioning of manufacturing facilities into the operation.

4. The professional liability for architects, engineers and designers is to be insured.

5. The construction risks are to be insured.

The growing global shortage of professionals and ageing of the staff in oil refining and petrochemical industry are forcing foreign companies to involve Russian specialists into their operations. This increases the risk of shortage of highly qualified personnel necessary for the project implementation. The possible consequences may increase the labour force cost and may cause the creation of high-quality social infrastructure. It may have a negative impact on the financial performance of the Complex.

3.3. The Complex location.

For the successful implementation of the project and in order to achieve the estimated performance, the project site for the Complex must comply the following criteria: Project Environment

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Project Summary

1. The advanced transportation infrastructure for shipping the raw materials and finished products is to be available.

2. The large markets consuming the merchantable production are to be close enough.

3. The shipping for export is to be convenient: the advanced transportation infrastructure with short transport arm is to be available, providing a high profitability on exports.

4. There must be the favourable environmental conditions around and in the neighbourhood of the proposed site: no business entities that can synergistically influence the ecosystem of the region and lead to the environmental situation deterioration in the nearby-located settlements and reservoirs.

5. The high quality, advanced and large social and educational infrastructure is to be around.

After considering all the possible plant locations in the Russian Federation, only few sites corresponding to all the criteria have been found in the country. Among them, there is actually the only one such location in the central region of Russia. After reviewing of all the locations acceptable for the construction, the site located in 3 km away from the town of Torzhok, Tver region has been selected.

The Tver Oblast map indicating the location of the Complex is shown at Figure 24. The site coordinates are 56°59'33.7” latitude and 34°51'6.2'' longitude.

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Project Environment

Project Summary

Figure 24. The Tver Oblast map indicating the location of the Complex.

After considering the locations in Ukraine, the unique site complying all the requirements has been chosen. In addition, this site is a former military training ground that can be allocated for the construction by the Cabinet of Ministers of Ukraine and there is no need in purchasing the land from private owners, changing the land intension and consolidating the small plots into a major. The site is located 12 km away from the city of Korosten, Zhytomyr Oblast.

In Australia, the selection of site and definition of the land boundaries for the construction of facilities and social infrastructure has not been performed. However, there is a conceptual understanding that the site is to be located in the region of Perth with considering the above requirements for the placement.

According to the General Plan, the project site area within the fence boundaries Project Environment

~ 59 ~

Project Summary

will be 2,697 hectares. The minimal required reserves considering the lack of engineering, geological, geodetic and geophysical research, equals to 300 hectares.

While setting up the industrial area for the Complex construction, the area of 1,500 to 2,000 hectares should also be provided, either by one or by several neighbour plots necessary for the allocation of the servicing, maintaining and other enterprises related to the project. The total amount of agricultural land and forests assigned for the project implementation is going to be about 4,500 to 5,000 hectares.

The area of the site selected in Ukraine is 4,700 hectares, considering the plant development. Currently it has not been passed to the Complex yet and its actual status is defined by Appendix 1 to the Protocol of Intention of Oil Refinery Complex Construction in Korosten District, Zhytomyr Oblast, from July 12, 2012.

JSC TORC had redeemed the plots from the private owners with total area of 321 hectares. Moreover, there are the small plots and housings in several settlements that also need to be redeemed, such as: 1. As of 2009, 9 houses of residence and 12 houses used as summer cottages are to be redeemed in Isakovo village.

2. The housings where 28 people live are to be redeemed in Pechki village.

3. 1 housing is to be redeemed in Skripkovo village.

4. The housings where 70 people live are to be redeemed in Kosteshino village.

5. The housings where 111 people live are to be redeemed in Lyakhovo village.

The rest of area necessary for construction is owned by Administration of Torzhok District and by Tver Oblast Forestry.

The site being selected for construction corresponds the above-described criteria, which is characterized by the following: 1. The oil pipeline is located nearby. It will allow to provide crude oil shipped by pipeline.

2. The gas pipelines are located nearby. It will allow to provide natural gas shipped by pipeline.

3. The advanced railroad system is available. ~ 60 ~

Project Environment

Project Summary

4. The transport arm to the exporting terminals is short and the profitability of exports is to be high. The distance to St. Petersburg port is 488 km, the distance to Muuga port is 846 km, the distance to Ventspils port is 943 km, the distance to Klaipeda port is 1 281 km.

5. The advanced automotive road system is available.

6. The large domestic markets consuming motor fuels as Moscow and St. Petersburg are located nearby.

7. The water sources are available (s river). The hydrogeological researches also confirm the availability of underground water sources 9 that will be used as a backup water intake through the artesian wells.

8. The terrain is rather plain and slightly elevated in comparison to surrounding areas. It allows to use the gravity sewer system at some areas and also provides the territory to be properly ventilated.

9. There is no other oil refinery in Torzhok District and there are few other business entities that can synergistically influence the ecosystem of the region and lead to the environmental situation deterioration in the neighbourhood. It allows to conclude that the environmental situation will not get changed much in comparison to current level.

10. The high quality, large and advanced social and educational infrastructure located nearby in cities of Torzhok, Tver and Moscow. The population of Torzhok is 49 thousand people, the site is located 3 km away from it, there are 3 technical colleges and 4 vocational schools in the city. The population of Tver is 444.5 thousand people, the site is located 62 km away from it, there are 19 universities and colleges, 14 technical colleges and 10 vocational schools in the city. The population of Moscow is 10,562 thousand people, the site is located 230 km away from it, there are 264 universities and colleges, 188 technical

9

These studies have been carried out during the construction of gas pipelines and oil pipelines that pass in close proximity to the site, as well as during the construction of other facilities, including artesian water intake.

Project Environment

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Project Summary

colleges and 136 vocational schools in the city. These factors will allow to provide the Complex with high-qualified personnel.

3.4. The location of town for builders and for the Complex staff.

Preliminary study of the Complex staffing tables indicated that lots of experts, including foreign ones, are required for the project implementation. The estimated number of staff is 9393 people. The analysis of existing business entities and the labour market in Torzhok showed that involving of most of the experts who are provided with their own housing and already living close to the site is impossible. In addition, the analysis of real estate market and urban infrastructure has shown that there is no adequate housing and urban infrastructure with required quality in Torzhok. As a result, the construction of the necessary housings within the existing town without major reconstruction of Torzhok’s urban infrastructure is impossible, due to the fact that much more investments would be require in comparison to the construction of the new town.

The investments involvement on acceptable terms for the town construction, considering their non-core intension, is going to be a complicated problem requiring the ways to minimize them without losing in quality of housings and urban infrastructure. The construction of the new town located close to both Torzhok and the plant has been considered as most effective solution for the problem of the specialists’ accommodation.

The site for the new town construction is to comply the following requirements: 1. The site should be in a short distance from the existing district centre of Torzhok in order to provide the access to the existing urban infrastructure during the new town construction. In addition, further on the site location is to provide the merge of Torzhok and the town being constructed into a single locality. It will align the social conditions of the new town inhabitants and the citizens of Torzhok. In addition, it will provide to use a part of tax revenues from the project for Torzhok urban infrastructure reconstruction and therefore to improve the quality of life ~ 62 ~

Project Environment

Project Summary

for people living over there.

2. There must be a minimum of settlements with a minimal number of residents at the selected site in order to avoid significant additional costs for resettlement of these people.

3. The site should be in a short distance from the project site of the plant. It will minimize the cost of the staff delivery to the plant and home, as well as to minimize the length of the network infrastructure connecting the refinery with the planned city.

After analysis and considering of different alternatives, the site shown at Figure 25 has been selected for the town construction.

The site coordinates are 57째3'36.9'' latitude, 34째46'58.4'' longitude. In accordance to Preliminary General Plan of the Town, the total project site area is to be 1,500 hectares and 5,000 hectares considering further development of town.

The boundaries of the town considering its further development are marked with dotted magenta line. The additional area around the refinery10 for servicing, maintaining and other entities required for the project implementation are also marked with dotted magenta line.

10

The project considers this area as a part of sanitary protection zone.

Project Environment

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Project Summary

Figure 25. The Torzhok District map showing the location of the Complex. The refinery area is marked red; the town area is marked blue.

Project Environment

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Project Summary

The site selected for construction is characterised by the following: 1. The optimal location regarding to the plant. The town is to be located within 4 km away from the refinery.

2. The optimal location regarding to Torzhok. The town is to be located within 3 km away from Torzhok, Tver Oblast.

3. There are only two little settlements on the area planned for the town construction: Gari village and Dobryni village with total population of 41 people.

4. The gravel roads passing by the site, leading to Torzhok. It allows to renovate one of them to highway with minimal investments, and at the initial stage of construction the roads can be used for delivery of the constructing equipment and building materials to the site.

The Protocol of Intention for Oil Refinery Complex Construction in Korosten District, Zhytomyr Oblast provides to use two sites proposed by Ukrainian party with area of 14.5 hectares and 21.5 hectares for the construction of housings for builders and refinery staff in Korosten as well as to allocate more land with area of up to 1,000 hectares, including Korosten suburbs at Korosten District for housing construction with further merging of these areas with the city.

The matters regarding the accommodation of the builders and refinery employees in Australia has not been considered in the project.

3.5. Raw materials market.

3.5.1. Raw materials market in the Russian Federation.

The total annual demand of the refinery planned for construction is 15.0 mln tonnes of coal, 10.0 mln tonnes of crude oil and 15.5 bln m3 of natural gas.

The project provides to process coal, natural gas and crude oil.

The coal for processing is to be supplied from four sources as below: Project Environment

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Project Summary

1. Kuznetsk Coal Basin (Russian Federation).

2. Pechora Coal Basin (Russian Federation).

3. Ekibastuz Coal Basin (Republic of Kazakhstan).

4. Donetsk Coal Basin (Ukraine).

The natural gas for processing is to be supplied from two sources as below: 1. Multiline gas transportation system “Urengoy – Nadym – Peregrebnoye – Ukhta – Torzhok”.

2. Multiline gas transportation system “Bovanenkovo – Ukhta – Torzhok” (under construction).

The crude oil for processing is to be supplied mainly by “Yaroslavl-3 – Torzhok – Polotsk” pipeline and by railroad, poured in tank cars, from the oil fields in the Republic of Komi, Nenets, Yamalo-Nenets and Khanty-Mansijsk Autonomous Districts, Tyumen Oblast and Kazakhstan.

The basic prices on raw materials including the shipping costs are shown in Table 2.

Table 2. The basic prices on raw materials to be purchased.

Name Crude oil Natural gas Coal Other components of merchantable products and expendables

Price at May 1, 2008, USD, excluding VAT

Price at Sep 1, 2010, USD, excluding VAT

60,55 per barrel 167,45 per thousand m3 115 per tonne

37,25 per barrel 141,84 per thousand m3 80 per tonne

1,050 per tonne

800 per tonne

3.5.2. Raw materials market in Ukraine.

The total annual demand of the refinery planned for construction is 15.0 mln tonnes of coal, 10.0 mln tonnes of crude oil and 15.5 bln m3 of natural gas.

The coal for processing is to be supplied by railroad from Donets Coal Basin and Lviv-Volyn Coal Basin. ~ 66 ~

Project Environment

Project Summary

The crude oil and the natural gas for processing are to be supplied from the Russian Federation, from Caspian region, from the Middle East and from the South-East Asia, using the existing pipeline infrastructure. In order to diversify the oil supplies, Ukraine has the entire necessary infrastructure, such as “Odessa – Brody” pipeline with reverse oil pumping facility through "Druzhba" pipeline. Recently this route has been used to supply the Venezuelan oil for Mozyr Refinery in Belarus through Odessa port.

In order to diversify the supplies, the project provides the construction of the Terminal for liquefied natural gas receiving and regasification, as well as modification of gas transportation system that could provide the natural gas supply from the Terminal to the Complex and also to Ukrainian domestic market and for exports. The finished capacity of the Terminal should be 80 bln m3. Its construction is planned within the two stages of 40 bln m3 each.

The current and predicted volumes of crude oil import and extraction in Ukraine with considering the Complex demand are shown at Figure 26.

7.5

2010

10

9.4

2020

0

5 Import

3.6

10

10

15

The Complex demand

2.4

20

25

Extraction

Figure 26.

The current and predicted volumes of crude oil import and extraction in Ukraine with considering the Complex demand.

The current and predicted volumes of coal import and mining in Ukraine with considering the Complex demand are shown at Figure 27.

Project Environment

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Project Summary 12.1

2010

7.6

2020

0

15

15

75

92.8

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 Import

The Complex demand

Mining

Figure 27.

The current and predicted volumes of coal import and extraction in Ukraine with considering the Complex demand.

The current and predicted volumes of natural gas import and extraction in Ukraine with considering the Complex demand are shown at Figure 14, on page 39.

The figures and diagrams display the demand in natural gas, crude oil and coal appearing during the Complex construction. As for coal, this amount is actually the potential for Ukrainian coal mining industry development. The additional demands in crude oil and natural gas can be covered by imported supplies as from the Russian Federation, using the existing routes, and from Caspian region, from the Middle East and from the South-East Asia. The figures display that by 2020 the first stage of the Terminal may cover all the Ukrainian demand in imported natural gas. This will help to minimize the expenses for purchasing this resource by Ukrainian economy. The second stage of the Terminal will increase the profitability of the Terminal construction project, providing also the maximal load of Ukrainian Gas transportation system.

3.5.3. Raw materials market in Australia.

The total annual demand of the refinery planned for construction is 15.0 mln tonnes of coal, 10.0 mln tonnes of crude oil and 15.5 bln m3 of natural gas. Correcting ~ 68 ~

Project Environment

Project Summary

the technologies according to Australian purposes and conditions will increase the total annual demand up to 18.8 mln tonnes of coal, 12.0 mln tonnes of crude oil and 19.4 bln m3 of natural gas.

The natural gas for processing is to be supplied by pipelines from Carnarvon Gas Basin, Browse Gas Basin and Bonaparte Gas Basin. The map of the main gas reserves in Australia is shown at Figure 28.

Figure 28. Gas reserves in Australia.

The coal for processing is to be supplied by sea transport from Perth Coal Basin, Canning Coal Basin and potentially from Arckaringa Coal Basin, Sydney Coal Basin and Tasmania Coal Basin, also by sea. The map of coal basins in Australia is shown at Figure 29.

Project Environment

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Project Summary

Figure 29. Coal basins in Australia.

The crude oil for processing is to be supplied from the Middle East (e.g., from Qatar, UAE, Saudi Arabia, Oman), considering the outgoing supplies from this region to the USA. In addition, the oil is to be supplied from Togo, Angola and from the Russian Federation. The oil extracted in Australia can also be involved into processing. The oil supplies are planned to perform by sea.

3.6. The markets for selling the finished products.

The markets for selling the finished products have been considered for the Russian Federation only.

From 60% to 70% of fuels produced in Ukraine will be sold out at the domestic market, substituting the imported supplies. In Australia, up to 100% produced of motor fuels will be sold out at the domestic market, substituting the imported supplies. ~ 70 ~

Project Environment

Project Summary

The selling of finished products on both internal and external markets is provided by the project. The finished products for domestic market are to be delivered for the European part of the Russian Federation, including Ural. The finished products is split by the selling segments as follows 10% of the products providing the profitability comparable with the exports is to be sold out at the domestic market while the rest of the products is to be exported. This decision made at preliminary study of the project was caused by the need in the most accurate assessment of the project performance, when the absence of market-based pricing mechanisms in the domestic market of the Russian Federation as well as the prices established on it may lead to significant errors in the calculations. The finished product that cannot be exported due to legal restrictions by law or because of the profitability are presumed to be sold out in the domestic market in the volumes of their production. The segmentation of finished products to markets is shown in Table 3.

Table 3. The segmentation of finished products to markets.

Name Premium Euro-95 gasoline Premium Super-98 gasoline Euro-V environmentally friendly diesel fuel Ethanol fuel, 99.9 vol. % Ethyl tertiary butyl ether(ETBE) Petroleum benzene Petroleum toluene p-Xylene

Project Environment

Internal market, %

External market, %

0 (1st stage) 10 (2nd stage) 0 (1st stage) 10 (2nd stage) 0 (1st stage) 10 (2nd stage) 0 0 0 (1st stage) 10 (2nd stage) 0 (1st stage) 10 (2nd stage) 0 (1st stage) 10 (2nd stage)

100 (1st stage) 90 (2nd stage) 100 (1st stage) 90 (2nd stage) 100 (1st stage) 90 (2nd stage) 100 100 100 (1st stage) 90 (2nd stage) 100 (1st stage) 90 (2nd stage) 100 (1st stage) 90 (2nd stage)

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Table 3 (continuation).

Project Summary

Name Isopropyl alcohol, 99.9 wt. %.

Anhydrous ammonia Ammonium sulphate, granulated Ammonium nitrate, granulated Ammonium sulphate-nitrate, granulated Polypropylene, granulated Argon, liquefied Krypton-xenon concentrate Carbon dioxide, liquefied Fly ash for concrete production Grained slag macadam for concrete Electric power, MW

Internal market, %

External market, %

10 0 10 10

90 100 90 90

10

90

10 100 0 100 100 100 100

90 0 100 0 0 0 0

The export prices on the finished products in accordance to FOB conditions in Baltic Sea ports are shown in Table 4. The table displays the products considered in the calculations for export selling.

Table 4. The basic export prices on the finished products.

Name Premium Euro-95 gasoline Premium Super-98 gasoline Euro-V environmentally friendly diesel fuel Ethanol fuel, 99.9 vol.% Ethyl tertiary butyl ether(ETBE) Petroleum benzene Petroleum toluene p-Xylene Isopropyl alcohol, 99.9 wt. %.

Anhydrous ammonia Ammonium sulphate, granulated

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Price at May 1, 2008, USD, excluding VAT

Price at Sep 1, 2010, USD, excluding VAT

936.0 per tonne 947.0 per tonne

686.5 per tonne 723.75 per tonne

1,074.75 per tonne

664.0 per tonne

729.2 per tonne 1,292.0 per tonne 1,179.0 per tonne 991.0 per tonne 1,204.0 per tonne 1,325.0 per tonne 460.0 per tonne 227.3 per tonne

807.9 per tonne 999.0 per tonne 900.5 per tonne 742.0 per tonne 902.0 per tonne 1,115.0 per tonne 375.0 per tonne 183.5 per tonne

Project Environment

Table 4 (continuation).

Project Summary

Name Ammonium nitrate, granulated Ammonium sulphate-nitrate, granulated Polypropylene, granulated Argon, liquefied

Price at May 1, 2008, USD, excluding VAT

Price at Sep 1, 2010, USD, excluding VAT

345.0 per tonne

278.5 per tonne

280.5 per tonne

210.5 per tonne

1,670.0 per tonne 2,900.0 per tonne

1,585.0 per tonne 2,400.0 per tonne

The domestic market prices on the finished products in accordance to CIP conditions in the point of delivery 11 are shown in Table 4. The table displays the products considered in the calculations for internal market selling.

Table 5. The basic prices on the finished products at the domestic market.

Name Premium Euro-95 gasoline Premium Super-98 gasoline Euro-V environmentally friendly diesel fuel Ethanol fuel, 99.9 vol. % Ethyl tertiary butyl ether(ETBE) p-Xylene Isopropyl alcohol, 99.9 wt. %.

Ammonium sulphate, granulated Ammonium nitrate, granulated Ammonium sulphate-nitrate, granulated Polypropylene, granulated Argon, liquefied Carbon dioxide, liquefied Fly ash for concrete production Grained slag macadam for concrete Electric power, MW

11

Price at May 1, 2008, RUR, including VAT

Price at Oct 1, 2010, RUR, including VAT

25,000 per tonne 26,400 per tonne

26,000 per tonne 28,450 per tonne

21,800 per tonne

22,600 per tonne

26,000 per tonne 20,800 per tonne 26,700 per tonne 36,750 per tonne 6,300 per tonne 9,575 per tonne

27,050 per tonne 21,650 per tonne 27,800 per tonne 40,200 per tonne 6,625 per tonne 10,050 per tonne

7,800 per tonne

7,600 per tonne

46,325 per tonne 30,525 per tonne 5,750 per tonne 1,730 per tonne 1,075 per tonne 2,080 per MW

57,050 per tonne 29,525 per tonne 5,600 per tonne 2,075 per tonne 1,275 per tonne 2,310 per MW

European regions of the Russian Federation, including Ural.

Project Environment

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3.7. The taxes.

Project Summary

The taxes have been considered for the Russian Federation only.

The following taxes and duties considered in the calculations are currently legislated in the Russian Federation: 1. Profit tax (PT). Tax rate at May 1, 2008 and at September 1, 2010 was equal to 24%. The object of taxation is corporate profit. Taxable period is 1 month.

Payments periodicity is monthly.

2. Value added tax (VAT). Tax rate at May 1, 2008 and at September 1, 2010 was equal to 18%. The object of taxation is value added. Taxable period is 1 month.

Payments periodicity is monthly.

3. Property tax. Tax rate in Tver Oblast at May 1, 2008 and at September 1, 2010 was equal to 2.2%. The object of taxation is balanced cost of fixed assets.

Taxable period is 1 year. Payments periodicity is quarterly.

4. Unified social tax (UST). Tax rate at May 1, 2008 and at September 1, 2010 was equal to 26%. The object of taxation is gross payroll. Taxable period is 1 month.

Payments periodicity is monthly. Since January 1, 2010, this tax was abolished and replaced with the insurance payments for relevant governmental funds; the cumulative rate remained the same.

5. Land tax. Tax rate at May 1, 2008 and at September 1, 2010 was equal to 1.5%.

The object of taxation is cadastral value of the land. Taxable period is 1 year.

Payments periodicity is quarterly.

6. Automotive gasoline excise duty. It calculates for automotive gasolines with 80 RON or higher. Tax rate at May 1, 2008 was equal to 3,629 RUR per tonne. Tax rate at September 1, 2010 was equal to 3,992 RUR per tonne. The object of taxation is automotive gasoline sales volume at the domestic market. Taxable period is 1 month. Payments periodicity is monthly.

7. Diesel fuel excise duty. Tax rate at May 1, 2008 was equal to 1,080 RUR per

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Project Environment

Project Summary

tonne. Tax rate at September 1, 2010, was equal to 1,188 RUR per tonne. The object of taxation is diesel fuel sales volume at the domestic market. Taxable period is 1 month. Payments periodicity is monthly.

8. Light petroleum products export duty. Tax rate at May 1, 2008 was equal to 241.4 USD per tonne. Tax rate at September 1, 2010 was equal to 196.5 USD per tonne. According to the current law, the synthetic petroleum products are not the subjects of export duties and therefore they are not considered in the calculations. The object of taxation is exported light petroleum products sales volume. Taxable period is 1 month. Payments periodicity is monthly.

9. Transportation tax. Tax rate at May 1, 2008 and at September 1, 2010 is shown at Table 6 12. Taxable period is 1 year. Payments periodicity is annual.

Table 6. Transportation tax rate in Tver Oblast.

Vehicle type and characteristics 1. Passenger vehicles.

From 150 to 200 hp (from 110.33 kW to 147.10 kW) incl.

From 200 to 250 hp (from 147.10 kW 183.90 kW) incl.

Over 250 hp (over 183.90 kW) 2. Buses.

Up to 200 hp (up to 147.10 kW) Over 200 hp (over 147.10 kW) 3. Lorries and trucks.

From 150 to 200 hp (from 110.33 kW to 147.10 kW) incl.

From 200 to 250 hp (from 147.10 kW 183.90 kW) incl.

Over 250 hp (over 183.90 kW) 4. Other self-propelled vehicles, pneumatic and crawler machinery.

Over 1 hp (over 0.7355 kW)

Tax rate, RUR/hp 30 45 90 50 100 50 65 85 25

10. Water consumption tax. Tax rate at May 1, 2008 and at September 1, 2010 was equal to 288 RUR per 1,000 m3 of water intake. The object of taxation is cadastral value of the land. Taxable period is 1 quarter. Payments periodicity is quarterly.

12

Tax rates are shown only for vehicle types being provided to use at the Complex.

Project Environment

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Project Summary

11. The environmental adverse impact fee. According to the regulations in charges for pollution of atmospheric air, surface and underground water objects, and in accordance with the charge rates for waste disposal, currently legislated in the Russian Federation 13 . Taxable period is 1 quarter. Payments periodicity is quarterly.

3.8. The transportation infrastructure.

There is almost whole transportation infrastructure necessary for the project implementation (besides electric mains) in the close proximity from the site. Their sufficiency will be determined after considering the Complex demand in transportation services by their shareholders and transportation operators. The preliminary evaluation of the transportation infrastructure sufficiency and its condition has determined the need for investments in transportation infrastructure in order to render it complying with the project requirements. Considering the demand in finished products on both domestic and foreign markets, as well as paying attention on the relatively high prices for transportation services, one may conclude that the load of the transportation infrastructure after its reconstruction and extension is guaranteed and the investments in it are returnable. The transportation infrastructure adjacent to the site includes the following facilities: 1. The oil pipeline Yaroslavl-3 – Torzhok – Polotsk equipped with oil registration unit (Zakharkino village, 1.5 km away from the site), with projected capacity of 55 mln tonnes, its current load is less than 50%.

2. The gas pipelines Yamal – Europe and SRTO – Torzhok. The projected capacity of Yamal – Europe pipeline is 33.0 bln m3, it has been brought into operation in

13

Currently this tax rate is calculated from the average amount of payments for negative impact on the environment for fuel companies of the Russian Federation. The tax rate is 0.045% of the enterprise costs for the finished products manufacturing.

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Project Environment

Project Summary

1999. The projected capacity of SRTO – Torzhok pipeline is 29.0 bln m3, it has been brought into operation in 2005. In 2008 the construction of gas transmission pipeline Bovanenkovo – Ukhta – Torzhok has been started. The projected capacity of this pipeline is 81.5 bln m3, the estimated date of putting into operation in 2012.

3. The railroad system includes Torzhok railway junction station and Moscow – Riga and Moscow – Tver – St. Petersburg railways.

4. Automotive transportation system includes Moscow– Tver – St. Petersburg highway. The nearest road Torzhok – Ostashkov is located in 250 m from selected site.

5. A harbour at Volga River and Tver airport.

The lacking transportation infrastructure is the following: 1. Electric mains providing the stable and continuous electric power supply by the Complex in amount 19.1 TWannum (generating capacity is 1.8 – 1.9 GWhour).

2. Product pipeline allowing to diversify the transportation technologies for the finished products shipping.

The transportation infrastructure in Ukraine allows the complete project implementation. There are the following facilities in the close proximity from the site: 1. Druzhba pipeline.

2. Torzhok – Dolina gas pipeline.

3. Korosten railway station and Kalinkavichy – Korosten, Kyiv – Korosten, Zhytomyr – Korosten and Lviv – Korosten railways.

4. Kyiv – Kovel and Kalinkavichy – Zhytomyr roads.

5. Kyiv electric power substation with 750 kW capacity.

The lacking transportation infrastructure necessary for successful project implementation in Ukraine is the following: Project Environment

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Project Summary

1. The railway station reconstruction is required.

2. The electric mains infrastructure is to be constructed.

3. The infrastructure providing the guaranteed and continuous water supply for the Complex: river beds cleaning and deepening at Zherev and Uzh Rivers for the channel water intake units and construction of a reservoir with 20 mln m3 capacity on these rivers.

4. Oil pipeline Stalnoy Kon – Uzhgorod leading to pumping station in city of Rovno and new oil pipeline Korosten – Kyiv – Odessa, as well as 5 to 6 oil depots on the pipelines intended for domestic Ukrainian market supply.

The transportation matters for Australia have not been considered because the site location for the Complex there has not been selected yet.

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Project Environment

Project Summary

4. Constructive, technical, technological and environmental solutions.

4.1. Basic technical and technological solutions.

A simplified technological diagram displaying all the principal technological solutions included into the project is shown at Figure 30.

The provided technological scheme provides implementation for all the goals within the project. The main idea of the project is construction of modern and profitable oil refining enterprise providing both high quality and environmentally friendly production by using environmentally friendly technologies that meet the strictest international requirements. Besides solutions providing completion of the Complex goals, there are another ones included into the scheme, allowing to decrease the impact of above described factors affecting the economic performance of oil refining companies worldwide. The scheme is also considering the Russian refining industry’s specificity.

Another important criterion for choosing the technologies and the Licensors for them is providing the working conditions for the staff as comfortable as possible.

Due to certain lack of water resources in Ukraine, there are some changes included into the technological scheme for this country, e.g., the cooling system of steam turbine condensers is using freon gas as a coolant instead water. It allowed to decrease the required feed amount for the recycling water supply system from 35,000 m3 per hour (up to 10 m3 per second) down to 4,300 m3 per hour (about 1.2 m3 per second).

Constructive, Technical, Technological and Environmental Solutions

~ 79 ~

Project Summary

The changes in technological process described above will also be applied in Australia. Moreover, a desalination plant is planned to be built up in Australia, providing water feeding the recycling water supply system of the Complex and water for technical purposes. According the agreement with the governmental authorities, the desalination plant capacity may be increased in order to supply fresh water for city of Perth and for other neighbour settlements and farms.

Considering the specificity of Australian petrochemical market and the perspectives of its growth, the following changes will get included into the technological scheme: 1. The capacity of the first phase of the Complex (coal and natural gas processing) is to be increased by 25% with simultaneous increase of diesel fuel and jet fuel rates in the product line of the first phase of the Complex approximately by 1.82.2 mln tonnes in total.

2. The capacity of the second phase of the Complex is to be increased by 25% on coal and natural gas processing with simultaneous increase of crude oil processing from 200,000 bbl per day to 240,000 bbl per day. In addition, the technical solution allowing to maintain the same level of gasoline production with processing the increased amount of refined oil into diesel and jet fuel will be added to technological scheme. This will provide to increase diesel and jet fuel production by 1.8-1.9 mln tonnes per annum at that stage.

In the above changes have been implemented in the technological scheme, the amount of produced diesel fuel and jet fuel will increase by 3.6-4.1 mln tonnes per annum with a slight change in the balance of other products.

The investment plans for the above changes have not been recalculated. However, the changes in the investment plan will relate with changing the costs of equipment required to increase the capacity on the processed raw materials. In case of making the investment, decision regarding the increase of costs related to production facilities increase, the only result is the substitution of imports. It means that a lot of Australian demand in the imported fuels will be compensated; therefore, the export supplies have ~ 81 ~

Constructive, Technical, Technological and Environmental Solutions

not been considered.

Project Summary

The concepts of all the finished products manufacturing are obviously seen from the simplified chart shown above at figure 30: 1. Coal and natural gas are the raw materials for synthetic oil and petrochemical products manufacturing. Further on these products are processed into motor fuels and organic synthesis products by using the most modern and effective processes currently applied n oil refining and petrochemical industry. Besides synthetic oil and petrochemical products, there are the finished products and raw materials for fertilizers manufacturing are produced. In addition, the secondary energy is emitted and used for electric power generation.

2. Crude oil is the raw material in mineral petrochemical products manufacturing.

After further refining using the most modern and effective processes currently applied n oil refining and petrochemical industry, these products are processed into the motor fuel components. Besides these components, the raw materials for organic synthesis products and fertilizers manufacturing are produced.

3. The synthetic components obtained from coal and natural gas processing and mineral components of motor fuels obtained through crude oil processing are mixed in optimal proportions for manufacturing of high-quality motor fuels complying the requirements of various standards and the customers’ expectations. The components that have not been used for mixing are sold out as the finished products.

The Licensors for the processes involved into the Process flow diagram are the following: 1. Shell, Netherlands.

2. ExxonMobil, USA. 3. UOP LLC, USA. 4. Axens, France.

5. GE Energy, USA 6. Linde Engineering GmbH, Germany.

Constructive, Technical, Technological and Environmental Solutions

~ 82 ~

7. Foster Wheeler, USA.

Project Summary

8. Uhde GmbH, Germany.

9. Haldor Topsøe, Denmark.

10. LyondellBasell, Netherlands.

11. Basell Polyolefins, Netherlands.

12. CDTECH, USA. 13. Stratco-DuPont, USA. The target activity in raw materials processing is motor fuels manufacturing: 1. Premium Euro-95 gasoline.

2. Super Euro-98 gasoline.

3. Euro V ecologically friendly diesel fuel.

4. ТS-1 or Jet A-1 jet fuel. If necessary, it may be produced by partial separation of initial boiling – 240°С fraction being is a part of diesel fuel as an independent product, by the rate of this fraction required by diesel fuel quality standard.

5. Ethanol fuel, 99.9 vol. % 6. Ethyl tertiary butyl ether (ETBE).

The gasoline rate in total amount of motor fuels being produced is to be 55%; the diesel fuel rate is 45%. Therefore, the ratio between gasoline and diesel fuel produced volumes is 1.22. Such ratio has been received consciously during the technological model development. According to car manufacturers’ forecasts, the current ratio is 1.75; however, the increasing quantity of passenger cars equipped with diesel engines will bring it down to 1.2-1.35.

The quality and environmental characteristics of diesel fuels produced by the Complex corresponds to requirements of the highest current international standards as Euro V, TIER 2, and CARB 2. In addition, the quality and environmental parameters of motor fuels in future will meet even harder standards, e.g., Euro VI or TOP TIER. In addition, there are non-petroleum components in motor fuels; their rate is over 30 wt. % which is encouraged by the legislation in many industrial countries. For instance, the fuels containing less than 70 wt. % of petroleum or bitumen-processed components are ~ 83 ~

Constructive, Technical, Technological and Environmental Solutions

Project Summary

not the subjects of import duties in

EU and USA. Moreover, the excise duty rate in EU on environmentally friendly fuels, including

14.46%

ethanol-containing

gasolines, is less by 15-25 Euro.

The traders in the USA selling

49.08% 36.46%

ethanol-containing gasoline get a reduction from profit tax equal to 45 cents per gallon of ethanol containing in gasoline. In our case, the reduction is to be 4.5 USD per tonne.

In

addition,

the

US

Automotive gasolines and their components Diesel fuel Other petroleum products Figure 31.

The structure of the Complex facilities.

legislation provides a reduction from the excise duty paid after selling the fuels produced from the alternative raw materials (this is coal in our case), the reduction is 50 cents per gallon or 135-150 USD per tonne. Besides the tax benefits, there are the legislative limitations in the USA for selling environmentally hazardous motor fuels in megacities, in the national parks and in highly populated areas. Selling the synthetic petroleum products in the US market may save up to 828 mln USD per annum as tax benefits.

The structure of the Complex facilities on the petroleum products is shown at Figure 31. The diagram displays that the motor fuels are the main products in the structure. The rate of other products does not increase 15%.

According to chosen technology, the motor fuel manufacturing process is also producing the significant amounts of secondary products and electric power generated during it. These products require further processing for receiving their higher value added. The line of finished products manufactured from these secondary components has been defined from the purposes and aims of the Complex as well as from their demand on the market and from profitability of their production. In addition, another Constructive, Technical, Technological and Environmental Solutions

~ 84 ~

Project Summary

important criteria of chosen technology is non-producing any toxic or hazardous products and friendly and comfortable working conditions provided by technology.

The main activity in secondary products processing provided by the project is manufacturing of high-quality organic synthesis products, such as: 1. Isopropyl alcohol, 99.9 wt. %.

2. Polypropylene, granulated.

3. Aromatic hydrocarbons as benzene, toluene, p-xylene.

The second important activity in secondary products processing provided by the project is generating of electric power from the secondary energy. The amount of secondary energy generated by the process is significant, allowing cost-effective generation of large amounts of electric power. Further, on it can be used for the Complex’s own needs and its excess can be sold out on electric power market. The electric power generation is a vital process for the Complex providing the functionality of main technological units (e.g., the secondary heat removal, including the cooling of reactors). Electric power generation from the secondary energy sources produced during operation is currently the only profitable and environmentally friendly way of secondary energy processing. The electric power generated by the Complex may be used either for traditional consumption or as environmentally friendly energy source for hybrid and electric vehicles. The amount of electric power produced by the Complex is equal to 3,970,000 tonnes per annum (or 5,293 bln litres per annum) of high-octane gasoline or to 2,720,000 tonnes per annum (or 3,297 bln litres per annum) of diesel fuel. The fuel equivalents have been calculated from the performance of diesel fuel and gasoline in modern engines and from the performance of electric motors, which is equal to 92%.

The third important activity in secondary products processing provided by the project is manufacturing of fertilizers. Processing the secondary products into fertilizers is caused by the aims of achieving the maximal environmental friendliness of the Complex along with receiving the maximal value added in raw materials and secondary products processing. The fertilizers produced by the Complex are as following: 1. Anhydrous ammonia. ~ 85 ~

Constructive, Technical, Technological and Environmental Solutions

2. Ammonium sulphate.

Project Summary

3. Ammonium nitrate.

4. Ammonium sulphate-nitrate.

The technological processes involved into the flow production model also provide the additional finished products manufacturing. The corresponding investments are also provided by the project because they will improve the economic performance of the Complex and will allow the demanded products manufacturing. The list of these products is the following: 1. Argon, liquefied.

2. Krypton-xenon concentrate.

3. Carbon dioxide, liquefied.

Besides the target products, the products manufactured from the secondary sources and electric power generated in the process, there are some low-worthy products which manufacturing at the current technological level is unavoidable. There are the following ones: 1. Fly ash for concrete production.

2. Grained slag macadam for concrete.

In order to achieve the maximal environmental friendliness and for keeping the technological process profitable, this project provides the technological solutions allowing to achieve the highest quality of these products and also to deliver them in consumable form. For this purpose, the project provides the creation of storage infrastructure allowing to store and ship the products, keeping their consumer quality as at the storage, and during their delivery to the customers. Those technical and technological solutions allow to sell out the fly ash and grained slag macadam for concrete with revenue. However, the profit from these products cannot provide the investments payback; therefore, these solutions are environmental only, allowing to avoid production of significant amounts of solid industrial waste disposed at landfills or dumps. In comparison to the Complex, most of Russian power plants dispose these products as a waste distorting the environmental balance and allocated in the dumps in Constructive, Technical, Technological and Environmental Solutions

~ 86 ~

Project Summary

close neighbourhood to the plants.

4.2. Main constructive solutions.

4.2.1. Approach to project implementation.

The approach to the project implementation has been worked out for the Russian Federation. It also can be used for both Ukraine and Australia with probable some changes.

The project provides the turnkey construction of the Complex according to EPCM+C target price contract conditions. Various options of EPC and EPCM contracts have been considered as the contract for the Complex construction. The selected EPCM+C target price contract provides design works, equipment supply, construction, transfer of completely finished turnkey object to the Customer 14, putting the object into operation and transfer it to the Customer after the object achieves the projected parameters. This kind of contract is based on “costs and commissions” principle with limited, “indicative” costs. The contract price consists of two parts. The first part is commissions for ЕРСМ+C contractor15 that he receives for the project management; the second part is direct costs: the total cost of all the works, materials and equipment related to the Complex construction and putting it into operation. Thus, the only firmly fixed sum is the General Contractor’s commissions. This approach requires that the part of risks on implementation of the project will be put on the Customer (actually on project participants). This approach provides a significant reduction of the contract price in comparison to the contract with solid price. The price reduction will happen because there’s no need in reserved funds included in the Contract Price, remaining at the General Contractor’s disposal under a fixed-price contract. The reserved funds will be at least 14 15

In this case, the Complex is the Customer.

In this case, the ЕРСМ+C contractor is the General Contractor with a certain set of rights and obligations presumed by ЕРСМ+C contract.

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Constructive, Technical, Technological and Environmental Solutions

Project Summary

10-15% of the estimated total direct cost and they will be provided by the General Contractor in the contract price due to high complexity of the project and because of absence of the similar projects with the same range of technical and technological solutions within a single enterprise. It will result to impossibility of a reasonably accurate estimation of the direct costs required for implementation of the project before completion of the design works. In addition, besides the price reduction, this approach provides more opportunities in order to control the project implementation and in order to influence on technical and technological solutions accepted by the General Contractor.

It will enable to minimize the final project cost and to introduce the most modern and efficient technical and technological solutions through the appropriate control implementation. The contract will provide the following: 1. The contract price consists of two parts: the fee of General Contractor and direct costs.

2. The fee of General Contractor are fixed and the direct costs are indicative.

3. The contract will provide the solid terms of putting the Complex into operation.

4. The contract will provide the bonus and fine system in General Contractor’s fees structure.

5. The risk of direct costs exceeding will be shared between the Customer and the General Contractor.

6. The Customer will get the authorities stipulated by the contract in order to control the General Contractor and their subcontractors.

7. The General Contractor’s liability is limited by the amount of their commissions.

The major benefits provided to the Customer in comparison with the other variants of EPC and EPCM contracts: 1. Shortening of the project implementation terms by 15-20%.

2. The contract price reduction by 10-15% in comparison to EPC with fixed price.

3. Transparency of the project for all its participants during its implementation.

4. The project implementation control by the Customer.

5. The project risks management.

Constructive, Technical, Technological and Environmental Solutions

~ 88 ~

Project Summary

The potential General Contractors who are able to implement the project have been selected according to the following criteria: 1. Experience in implementation of the projects of similar scale.

2. Experience in dealing with chosen Licensors.

3. Well-established relationships with suppliers of equipment and materials necessary for the project implementation.

4. Availability of the minimal required number of designers for performing the most of design works in Detailed Engineering and well-established relationships with subcontractors performing the project work.

5. Availability of the minimal required number of builders for performing the most of construction works and well-established relationships with subcontractors performing construction works.

6. Availability of the minimal required constructing machinery in order to ensure the most effective implementation of construction works in minimal terms and well-established relationships with subcontractors leasing or renting the constructing machinery out or providing the partial implementation of the construction works carried out with the constructing machinery.

7. Ability to insure the professional liability of General Contractor’s architects, engineers and designers by large insurance companies with a minimal insurance fee.

8. Ability to insure the General Contractor’s construction risks by large insurance companies with a minimal insurance fee.

After performing the analysis of the companies carrying out the design works, ordering and delivering of equipment and performing the turnkey construction of petrochemical plants and refineries, no such company has been found in the Russian Federation. In former USSR, there was no company complying the EPC or EPCM requirements and actually, the Ministry of Oil Refining and Petrochemical Industry of the USSR had performed the EPC or EPCM function. The structure of this ministry included various projecting institutions; construction enterprises as well as the ministry ~ 89 ~

Constructive, Technical, Technological and Environmental Solutions

Project Summary

had had the wide contacts with the suppliers of equipment and materials required for the construction of refineries and petrochemical plants controlled by the other Soviet ministries. After the USSR collapsed, the Ministry of Oil Refining and Petrochemical Industry of the USSR has been liquidated and its associated projecting institutes and construction enterprises have been privatized as independent engineering and construction companies. As a result of such transformation, their experience and facilities have been partly lost and there was no company appeared on their basis, corresponding the requirements to EPC or EPCM companies.

In order to evaluate the EPC or EPCM companies while selecting potential General Contractors, there was a calculation performed on the basis of Investment Plan data, aimed for definition of the minimal required number of designers for the project implementation within the terms provided by Investment Plan. The calculated minimal number of General Contractor’s specialists required for design works is shown in a graph at Figure 32. The graph shows that the peak number of General Contractor’s specialists required for design works is 920 people during the construction of the Complex’s first stage and 1,099 people during the construction of the second stage. The calculated minimal number of General Contractor’s specialists required for construction works is described below in Section 4.2.2.

Constructive, Technical, Technological and Environmental Solutions

~ 90 ~

Project Summary

1200

1000

800

600

400

200

0 01 May 2011

01 May 2012

01 May 2013

01 May 2014

01 May 2015

01 May 2016

The General Contractor’s staff involved in design works

Figure 32. The General Contractor’s specialists involved in design works.

Constructive, Technical, Technological and Environmental Solutions

~ 91 ~

Project Summary

As a result of solid understanding that there is no EPC or EPCM company in the Russian Federation because of the absence of both necessary experience and minimal required staff with proper qualification, the General Contractor has been chosen among the foreign companies only. After selection, the following companies complying the above described criteria and able to implement the project are considered as potential General Contractor contenders: 1. Bechtel Corp., USA. 2. Foster Wheeler Corp., Switzerland.

3. Technip, France.

4. Fluor Corp., USA. 5. Chicago Bridge & Iron Company N.V., Netherlands.

6. Snamprogetti, Italy.

7. Toyo Engineering Corp., Japan.

8. Chiyoda Corp., Japan.

Considering the facts that the headquarter of the Swiss company Foster Wheeler Corp. is located in Switzerland and all their engineering departments are located in the USA (same is about the Dutch company of Chicago Bridge & Iron Company N.V. which headquarter is located in Netherlands and their engineering departments are located in the USA), the application of the US technical standards will be the most efficient for the success project implementation with planned amount of investments and within required terms because the EPC and EPCM companies have the widest experience in using these standards.

Due to the project’s high complexity and due to the significant involvement of the Complex in its implementation a large number of skilled human resources is required.

For guaranteed solution of this problem, a Technical Auditor will get involved into the scheme of the project implementation. The Technical Auditor is to carry out the examinations of the essential technical and technological solutions accepted by the General Contractor and the Customer, as well as to consult the staff on the matters requiring more experience than they actually have. After the construction is complete Constructive, Technical, Technological and Environmental Solutions

~ 92 ~

Project Summary

and the refinery is passed to the Customer, the functions of General Designer of the Complex will be given to the Technical Auditor. In addition, during the project implementation, the skills and experience of the General Contractor technical audience can be taken over by the Technical Auditor and the effective EPC and EPCM company can get established on their base and with appropriate support from the government.

Besides the above-described tasks, the Technical Auditor will also be responsible for performing the translations of documents into Russian, which is required by supervisory authorities of the Russian Federation in order to monitor the compliance of the enterprise to the US technical standards being used during the refinery design and construction.

The potential Technical Auditors that are able to implement the project have been selected according to the following criteria: 1. Experience in implementation of the projects in oil refining and petrochemical industries.

2. Experience in dealing with chosen Licensors.

3. Availability of the minimal required number of the staff experienced in design works, in ordering and procurement of the equipment and in construction and assembly works management. The staff is to perform the most of the technical audition of the General Contractor at all the stages of the project implementation.

In addition, the Technical Auditor is to have well-established relationships with subcontractors that are able to perform part of this work.

4. Ability to perform the General Designer’s function after the project is complete.

While selecting the engineering companies complying the above criteria, the minimal required number of staff experienced in design works, in ordering and supply of the construction machinery and in construction works management, has been counted as 8.5% from the total number of General Contractor’s staff engaged in design works.

As a result, the peak number of Technical Auditor’s specialists is 80 people during the construction of the Complex’s first stage and 95 people during the construction of the second stage. After selection, the following companies complying the above described criteria and able to perform the functions of General Designer after the Complex ~ 93 ~

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Project Summary

construction is complete are considered as potential Technical Auditor contenders: 1. PMP, Ltd., St. Petersburg.

2. Lengiproneftekhin, LLC, St. Petersburg.

3. Neftekhimproekt, JSC, St. Petersburg.

4. VNIPINeft, JSC, Moscow.

4.2.2. The volume of construction.

The project provides construction of the following objects included into the Complex: 1. Technological units that are to be put into operation after the construction of the first phase of the Complex is complete. Number of units is 36. Total amount of investments is 7,337,961,40016 USD. 2. Technological units that are to be put into operation after the construction of the second phase of the Complex is complete. Number of units is 47. Total amount of investments is 6,945,788,900 USD. 3. Tank farms for petroleum products storage that are to be put into operation after the construction of the first phase of the Complex is complete. Total capacity is 540,000 m3. Total amount of investments is 241,241,400 USD. 4. Feed tank farm for crude oil storage that is to be put into operation after the construction of the second phase of the Complex is complete. Total capacity is 200,000 m3. Total amount of investments is 123,974,400 USD. 5. Feed tank farm for storage of the reactants and raw materials involved into processing and being partly pass into the finished products. Total amount of investments is 16,262,491 USD. 6. Tank farms for petroleum products storage that are to be put into operation after

16

Hereinafter, he sum is shown with considered governmental benefits provided for project implementation conditions at May 01, 2008.

Constructive, Technical, Technological and Environmental Solutions

~ 94 ~

Project Summary

the construction of the second phase of the Complex is complete. Total capacity is 660,000 m3. Total amount of investments is 265,233,200 USD. 7. Tank farm for liquefied ammonia storage that is to be put into operation after the construction of the first phase of the Complex is complete. Total capacity is 16,000 m3. Total amount of investments is 44,764,600 USD. 8. Tank farm for liquefied ammonia storage that is to be put into operation after the construction of the second phase of the Complex is complete. Total capacity is 20,000 m3. Total amount of investments is 50,733,300 USD. 9. Cryogenic tank farm for liquefied atmospheric gases storage that is to be put into operation after the construction of the first phase of the Complex is complete.

Total capacity is 32,000 m3. Total amount of investments is 71,590,700 USD. 10. Cryogenic tank farm for liquefied atmospheric gases storage that is to be put into operation after the construction of the second phase of the Complex is complete.

Total capacity is 20,000 m3. Total amount of investments is 45,802,200 USD. 11. Intermediate feed tank farms providing a stable and uninterrupted operation of the major processing facilities and stable quality of their products. Tank farms are to be put into operation after the construction of the first phase of the Complex is complete. The capacity of a single tank is up to 6,000 m3. Number of tanks is 21. Total amount of investments is 218,270,100 USD. 12. Intermediate feed tank farms providing a stable and uninterrupted operation of the major processing facilities and stable quality of their products. Tank farms are to be put into operation after the construction of the second phase of the Complex is complete. The capacity of a single tank is up to 6,000 m3. Number of tanks is 30. Total amount of investments is 376,604,400 USD. 13. Tank farms for storage of the freshly prepared and regenerated amine solutions.

Tank farm are to be put into operation after the construction of the second phase of the Complex is complete. Number of tanks is two. Total amount of investments is 55,626,700 USD. 14. Indoor storages for storage of finished products, auxiliary materials and spare ~ 95 ~

Constructive, Technical, Technological and Environmental Solutions

Project Summary

parts, with total area of 119,000 m2. The warehouses are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 117,189,500 USD. 15. Outdoor storages for storage of raw materials, finished products, containers, auxiliary materials and spare parts, with total area of 434,000 m2. The depots are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 308,574,500 USD. 16. Silo-type storages for storage of granular finished products with total capacity of 180,000 m3. The depots are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 176,660,800 USD. 17. Indoor storages for storage of finished products, auxiliary materials and spare parts, with total area of 123,000 m2. The warehouses are to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 131,394,400 USD. 18. Outdoor storages for storage of raw materials, finished products, containers, auxiliary materials and spare parts, with total area of 189,300 m2. The depots are to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 188,727,100 USD. 19. Silo-type storages for storage of granular finished products with total capacity of 207,000 m3. The depots are to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 220,631,600 USD. 20. Railway station including the railways, the objects for feedstock collection and for finished products shipping, as well as the objects of its livelihood. The part that is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 648,127,000 USD. 21. Railway station including the railways, the objects for feedstock collection and for finished products shipping, as well as the objects of its livelihood. The part Constructive, Technical, Technological and Environmental Solutions

~ 96 ~

Project Summary

that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 185,431,400 USD. 22. Circulation water supply system that is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 771,128,500 USD. 23. Circulation water supply system that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 379,465,900 USD. 24. Water treatment facilities, including water intake and water pipeline to the Complex territory. The facilities are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 904,022,600 USD. 25. Water treatment facilities, including water intake and water pipeline to the Complex territory. The facilities are to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 638,825,200 USD. 26. Hydraulic structure: a pond for storm water collection as from the Complex territory and from the town. The water surface area is 401,500 m2. The facility is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 126,622,000 USD. 27. Hydraulic structure: a pond for reserve water stock for circulating water system feed. The water surface area is 387,200 m2. The facility is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 116,625,300 USD. 28. Distributive electric power substation. The part that is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 157,401,600 USD. 29. Distributive electric power substation. The part that is to be put into operation after the construction of the second phase of the Complex is complete. Total ~ 97 ~

Constructive, Technical, Technological and Environmental Solutions

Project Summary

amount of investments is 92,582,600 USD.

30. Linear facilities: three power transmission lines of 500 kV voltages for electric power transmission from the refinery’s distributive electric power substation to FGC UES, JSC substation. Total amount of investments is 25,738,900 USD. 31. Administrative buildings that are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 53,377,200 USD. 32. Administrative building that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 17,792,400 USD. 33. Laboratory buildings for analysis of the quality parameters of intermediate and finished products. The buildings are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 62,478,600 USD. 34. Laboratory building for analysis of the quality parameters of intermediate and finished products. The building is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 12,495,700 USD. 35. Buildings for gas rescue service, EMERCOM department and ambulance. Total amount of investments is 135,266,100 USD. 36. Other auxiliary buildings and facilities providing reliable and accident-free operation of the equipment and machinery. Total amount of investments is 93,884,800 USD. 37. Parking areas that are to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 18,742,900 USD. 38. Parking area that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 3,277,100 USD. Constructive, Technical, Technological and Environmental Solutions

~ 98 ~

Project Summary

39. Bulk truck-loading station for loading grained slag macadam for concrete to the dump trucks for its delivery to nearby located construction companies. The facility is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 1,439,500 USD. 40. Bulk truck-loading station for loading grained slag macadam for concrete to the dump trucks for its delivery to nearby located construction companies. The facility is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 1,461,600 USD. 41. Instrument Air Supply System that is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 114,915,000 USD. 42. Instrument Air Supply System that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 78,593,900 USD. 43. Flare system that is to be put into operation after the construction of the first phase of the Complex is complete. Total amount of investments is 42,279,000 USD. 44. Flare system that is to be put into operation after the construction of the second phase of the Complex is complete. Total amount of investments is 25,274,700 USD. Besides the capital buildings construction, the following preparatory works are provided: 1. Trees and shrubs removal from the site.

2. Disposal of trees and shrubs accumulated during the project site preparation.

3. Swamped areas draining.

4. Landscaping works at the site.

5. Removal of peat-containing ground and wood and bush felling waste for subsequent re-cultivation of the land that has not been used for construction on ~ 99 ~

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Project Summary

both plant territory and the town area.

6. Providing the temporary electric power supply for the project site.

7. Temporary fencing construction.

8. Temporary roads construction for the transportation of construction machinery, building materials and consumables required for construction.

The cost of the preparatory work prior to the first phase of the Complex construction is to be 90,750,000 USD. The cost of the preparatory work prior to the second phase of the Complex construction is to be 16,500,000 USD. The design and construction of the first phase of the Complex is planned to complete within 48 months after the project is started. The design and construction of the second phase of the Complex is scheduled to begin in 36 months after the project is started and to complete within 71 months from the start of the project.

Construction of high reliability and high technology capital facilities provided by the project, including the preparatory works, would require to involve and to accommodate in the close proximity from the project site a large number of highly skilled workers. The mechanism for solving the problem regarding the accommodation of specialists engaged for performing the construction works will be developed according to the results of negotiations with the General Contractor. The solution of the accommodation problem can be the outstripping construction of the town with necessary housings that are to be used in order to accommodate the professionals engaged in the construction and installation works, not only the Complex employees or other categories of residents. The missing part of the housing stock will be created by the construction of prefabricated low-rise hostels built up with sandwich panels. The hostels further usage will be determined during the detailed pre-design works of the town construction (at feasibility study stage).

The number of General Contractor’s specialists required for construction and installation works within the terms provided by Investment Plan is shown in a graph at Figure 33.

Constructive, Technical, Technological and Environmental Solutions

~ 100 ~

Project Summary

The graph shows that the peak number of General Contractor’s specialists required for construction and installation works is 34,854 people during the construction of the Complex’s first stage and 37,774 people during the construction of the second stage. In addition, according to the same graph data, one can make a conclusion regarding the dates and amount of commissioning of the housing stock and the infrastructure required for its proper use.

~ 101 ~

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Project Summary

40000

35000

30000

25000

20000

15000

10000

5000

0 1 January 2012

1 January 2013

1 January 2014

1 January 2015

1 January 2016

The General Contractor’s staff involved in construction and installation works

Figure 33. The General Contractor’s specialists involved in construction and installation works.

Constructive, Technical, Technological and Environmental Solutions

~ 102 ~

Project Summary

4.2.3. The transportation infrastructure characteristics.

The project envisages the construction of transportation infrastructure providing full preparation of cargo to shipping in order to ensure uninterrupted Complex operation, to reduce the transportation costs and to avoid the risks associated with poor quality of cargo preparation for shipping that the transportation contractors may carry out. The transportation infrastructure consists of the following objects: 1. Railway station with the following facilities: 1.1. The railway-yard for arriving of rail cars from the main railway system.

1.2. The railway-yard for dispatching of rail cars to the main railway system (goods sidings).

1.3. The railway tracks for marshalling the trains for loading and unloading.

1.4. The railway tracks for marshalling the trains outgoing to the main railway system.

1.5. The railway tracks for yard operation for washing and steaming station.

1.6. The washing and steaming station.

1.7. The series loading facilities for loading: benzene (3 stations), toluene (3 points), p-xylene (4 stations), isopropyl alcohol (4 stations), ethanol fuel (2 stations), ETBE (2 stations), ammonia liquefied (6 stations), argon liquefied (4 stations), carbon dioxide liquefied (2 stations).

1.8. The On Spot loading facilities for loading gasoline and diesel fuel to railway tank cars with total capacity of 24 On Spot loading stations.

1.9. Series loading facilities for loading the krypton-xenon concentrate to tank containers (6 stations).

1.10. The rack for unloading the chemical cargo from tank containers.

1.11. Railcar defrosters: 5 defrosting houses on 30 rail cars places each.

1.12. Rotary car dumpers: 4 rotary car dumpers on 2 rail cars places each.

1.13. The railway tracks for uncoupling rail cars repair.

1.14. Railcar unloading docks for unloading the clothes, the equipment spare ~ 103 ~

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Project Summary

parts and packed chemicals.

1.15. Bulk railcars loading station for loading into the rail cars of grained slag macadam for concrete production (for 3 rail cars), fly ash (for 10 rail cars), ammonium sulphate-nitrate (for 8 rail cars), ammonium sulphate (for 4 rail cars), ammonium nitrate (for 4 rail cars).

1.16. Railcar loading docks for loading the rail cars with: polypropylene, ammonium sulphate-nitrate, ammonium sulphate, ammonium nitrate and ammonium sulphate-nitrate.

1.17. Four vapour recovery unit of On Spot loading facilities and one vapour recovery unit of series loading facilities.

1.18. Three Control rooms of series loading facilities, On Spot loading facilities and washing and steaming station.

1.19. The Control room of railway station.

1.20. The Dispatch center of railway station.

1.21. Motive power depot and repair facility (7 tracks for shed, 3 tracks for locomotives and rail cars repair).

1.22. Service support equipment of railway station.

2. The automotive infrastructure consisting of: 2.1. The roads with 8 m surface width and 177 km total length (including circular roads as well as the inner and outer perimeter roads).

2.2. The roads with 5 m surface width and 15 km total length.

2.3. Four truck and container loading docks for loading the trucks with: polypropylene, ammonium sulphate-nitrate, ammonium sulphate, both ammonium nitrate and ammonium sulphate-nitrate.

2.4. Seven checkpoints of automobile transport to the territory of the Complex.

2.5. Ten parking areas.

2.6. The park (garages and workshop) for corporate cars and special vehicles.

2.7. Bulk truck-loading station of grained slag macadam for concrete for Constructive, Technical, Technological and Environmental Solutions

~ 104 ~

Project Summary

loading into the dump trucks.

Besides the railway station construction, the project provides it to be equipped with diesel locomotives of both shunting and mainline types, as well as with the rolling stock for cryogenic cargo shipping. The project also envisages the purchasing of special equipment required outdoor depots operation, fire engines, ambulances, communal vehicles, trucks, buses for personnel delivery to the plant and home, and corporate passenger vehicles. Total sum of investments that required for purchasing the automotive vehicles, special machinery, shunting and mainline locomotives, railway cars and shipping containers would be 149,305,600 USD. 4.3. Main environmental solutions.

Providing as minimal as possible impact on the environment was the principled position during the project development. Based on it, the technical solutions allowing to withstand the most stringent environmental emission standards for air, water and solid industrial waste accepted worldwide have been included into the flow processing scheme. In order to achieve the goal of creating the most environmentally friendly technological process, the project provides the following investments: 1. The amount of investments provided for the construction of water treatment facilities, sewage treatment facilities and units of recycling wastes from water treatment, as well as for the implementation of water protecting technical and technological solutions at the first phase of the Complex construction is equal to 1,695,628,400 USD. 2. The amount of investments provided for the construction of water treatment facilities, sewage treatment facilities and units of recycling wastes from water treatment, as well as for the implementation of water protecting technical and technological solutions at the second phase of the Complex construction is equal to 1,327,617,500 USD. ~ 105 ~

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Project Summary

3. The amount of investments provided for the construction of gaseous emission treating units as well as for the implementation of technical and technological solutions intended to eliminate the atmosphere pollution at the first phase of the Complex construction is equal to 558,363,900 USD. 4. The amount of investments provided for the construction of gaseous emission treating units as well as for the implementation of technical and technological solutions intended to eliminate the atmosphere pollution at the second phase of the Complex construction is equal to 488,812,800 USD. 5. The amount of investments provided for the implementation of technical and technological solutions intended to eliminate the solid industrial and household waste production at the first phase of the Complex construction is equal to 87,126,100 USD. 6. The amount of investments provided for the implementation of technical and technological solutions intended to eliminate the solid industrial and household waste production at the second phase of the Complex construction is equal to 74,269,800 USD.

4.3.1. Technical solutions protecting the atmosphere. Gaseous wastes.

The project incorporates technical and technological solutions ensuring the compliance and a significant excess of all applicable requirements for harmful substances concentration in the atmosphere and neighbour areas. Table 7 displays the occupational exposure limits for the most common air polluting substances according to Russian standard GN 2.1.6.1338-03 and their concentrations in the flue gases of the enterprise. The data demonstrate that the harmful substances concentrations comply with GN 2.1.6.1338-03 requirements regarded to the harmful substances concentration in the atmosphere of the settlements. Considering the diffusion, it allows to provide the concentrations 10-100 times less. It indicates an almost total absence of the negative impact on the atmosphere of the region.

Constructive, Technical, Technological and Environmental Solutions

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Project Summary

Table 7. The occupational exposure limits for the most common air polluting substances.

Name of the substance Carbon monoxide Ozone Lead inorganic and organic compounds in lead equivalent Nitrogen monoxide Sulphur dioxide Dusts (reduced diameter of the particles is 10 µm) Dusts (reduced diameter of the particles is 2,5 µm)

Occupational exposure limit, µg/m3 3,000 30

Concentration in the flue gas, µg/m3

0.3

0.0

60 50 60 35

485.0 18 70.4 19 1 20 520

2,600 – 3,250 17 0.0

The Complex includes the technological units and plant facilities polluting the atmosphere with the substances typical for the petrochemical industry. There are the following products of combustion in industrial furnace units emitting into the atmosphere through the flues and chimneys: nitrogen and sulphur oxides, carbon monoxide and unburned hydrocarbons. The flues and chimneys are considered as the organised emission sources.

Since the natural gas is passing the preparation before compressing to the pipeline and since the low initial concentrations of impurities causing the harmful substances formation while being burned in the furnaces, the additional treating of the flue gases from the units consuming this kind of fuel is not usually necessary. Nevertheless, the additional systems for catalytic afterburning of unburned hydrocarbons and carbon 17

18

19

20

It allows to conclude that the initial concentration of carbon monoxide doesn't increase the occupational exposure limit, and maximal once-only occupational exposure limit of carbon monoxide equals to 5 000 µg/m3 will never get reached at all. Moreover, according to Tver Centre for Hydrometeorology and Environmental Monitoring data, the average daily (background) concentration of carbon monoxide in Tver was 1 200 µg/m3 in 2008. Considering the diffusion, the carbon monoxide concentration will not ever increase the background value and will be much less.

The maximal once-only occupational exposure limit of nitrogen monoxide equals to 400 µg/m3 will never be reached at all. Moreover, according to Tver Centre for Hydrometeorology and Environmental Monitoring data, the average daily (background) concentration of nitrogen monoxide in Tver was 98 µg/m3 in 2008. Considering the diffusion, the nitrogen monoxide concentration will not ever increase the background value and will be much less.

The maximal once-only occupational exposure limit of sulphur dioxide equals to 500 µg/m3 will never be reached at all. Moreover, according to Tver Centre for Hydrometeorology and Environmental Monitoring data, the average daily (background) concentration of sulphur dioxide in Tver was 10 µg/m3 in 2008. Considering the diffusion, the sulphur dioxide concentration will not ever increase the background value and will be much less.

These values will be achieved by installation of the fine filters removing dust from natural gas and air before their feed to the furnace burner.

~ 107 ~

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Project Summary

monoxide are presumed at the Complex, as well as the systems for reduction of nitrogen oxides by ammonia, converting them into nitrogen and water. The Figure 34 displays the flow diagram of CATOX process for catalytic afterburning of unburned hydrocarbons and carbon monoxide.

Figure 34. Flow diagram of CATOX process for catalytic afterburning of unburned hydrocarbons and carbon monoxide.

Figure 35. Flow diagram of SCR process for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water.

Constructive, Technical, Technological and Environmental Solutions

~ 108 ~

Project Summary

The Figure 35 displays the flow diagram of SCR process for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water. The Figure 36 shows the design of reactor for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water.

The reactor is integrated into the flue.

Figure 36. The design of reactor for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water. The reactor is integrated into the flue.

In order to reduce the sulphur oxides emission, there are the traps for hydrogen sulphide and mercaptans that will be included in the fuel system at each customer input.

The traps allow to reduce the total concentration of hydrogen sulphide and mercaptans down to 0.5 ppm and below. The Sulfatreat chemisorbents manufactured by M-I LLC, USA are to be used as the traps for hydrogen sulphide and mercaptans. After the hydrogen sulphide and mercaptans, chemisorption the mineral pyrite is produced. It is absolutely harmless for environment and it either can be disposed at industrial waste sites or it can be recycled as the filler in asphalt production or as the part of the road

~ 109 ~

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Project Summary

surface basis 21. The Figure 37 displays the flow diagram of the traps included in the fuel system.

Figure 37. Flow diagram of the sulphur traps included in the fuel system.

Besides the above systems, the highly effective torches manufactured by John Zink, USA, are presumed to use in the furnaces. Their patented design reduces the concentration of NOx in the flue gases down to 15 ppm and below and the total concentration of unburned components such as hydrocarbons and carbon monoxide is reduced down to 85-100 ppm. After the above technical solutions are implemented, the concentration of NOx in the flue gases will get reduced down to в 0.375 ppm (485 µg/m3), and the total concentration of unburned components such as hydrocarbons and carbon monoxide will get reduced down to 2.0-2.5 ppm (2,600 – 3,250 µg/m3).

21

The saturated chemisorbent production volumes will not exceed 7 000 tonnes per annum.

Constructive, Technical, Technological and Environmental Solutions

~ 110 ~

Project Summary

The catalytic cracking units are considered as the most polluting units on many oil refineries due to the following reasons: 1. Up to 60% of sulphur mass transfers to coke, which is adsorbing on the catalyst surface. Therefore, burning it out from the catalyst produces a significant amount of sulphur dioxide.

2. While burning out the coke from the catalyst surface, the oxidation of nitrogencontaining substances being a part of coke produces a lot of nitrogen oxides.

3. The coke consists of condensed high-molecular aromatic hydrocarbons. While burning it out, carbon monoxide and volatile organic compounds are produced.

4. After mechanical destruction, the regenerated catalyst transforms to catalytic dust, containing carcinogenic polycyclic aromatic hydrocarbons. The dust passes through the cyclonic separation and electrostatic smoke precipitators and significant amounts of it gets into the atmosphere.

The project provides the elimination of all the three sources of air pollution being normally produced by the residual oil catalytic cracking unit. Most of such units operating worldwide include double-reduction system for smoke gases filtration, consisting of cyclone separators and electrostatic precipitators. The ESP modules are able to extract about 96 to 98% of the catalytic dust volume from regenerator flue if reduced diameter of particles does not exceed 5 μm. However, the ESPs do not essentially change the concentration of particles which reduced diameter is less than 5 μm. Thus, the concentration of those particles increases in the atmosphere of settlements located nearby, though the concentration of the particles with reduced diameter less than 2.5 μm should not exceed 35 μg/m³, according to Russian GN 2.1.6.1338-03 federal standard. Most of the modern catalytic cracking units operating nowadays exhaust the catalytic dust consisting of particles with reduced diameter less than 10 μm, with total concentration of them equal to 400,000 μg/m³. The project provides to upgrade the reduction system with extra stage of gas filtration connected after the ESP module, using the sintered-metal cartridges by Pall Corporation, USA. Those filters provide the microfiltering of smoke gases, almost completely extracting the catalytic dust particles ~ 111 ~

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Project Summary

with reduced diameter over 1.3 μm down to 5,000 μg/m³ and less. The GN 2.1.6.133803 standard does not regulate the concentration of the particles with smaller reduced diameter.

While burning out the coke from the catalyst surface, all the sulphur contained in it transforms to gaseous sulphur dioxide. The most of oil refineries never solve the problem of sulphur dioxide emission to the atmosphere at all. Some oil refineries provide the flue gas washing with alkaline solutions. It allows to reduce the sulphur concentration in the flue gases by 70-90%. During the process of flue gas washing with alkaline solutions the sulphur dioxide is being chemically bound, producing solid compounds, which are usually the solid industrial wastes or the components of salt-containing industrial wastewater. The project provides the process of flue gas treating by oxidation of sulphur dioxide to sulphur trioxide with its further condensation by water vapour, producing the sulphuric acid, which is used in further fertilizers manufacturing.

Figure 38. Flow diagram of WSA process for catalytic oxidation of sulphur dioxide to sulphur trioxide with its further condensation by water vapour to sulphuric acid.

Constructive, Technical, Technological and Environmental Solutions

~ 112 ~

Project Summary

The Figure 38 displays the flow diagram of WSA process for catalytic oxidation of sulphur dioxide to sulphur trioxide with its further condensation by water vapour to sulphuric acid. It is included into the module right after the SCR process for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water.

In addition, there are the following facilities included into the module of catalytic cracking flue gases treating: 1. The SCR process for catalytic reduction of nitrogen oxides by ammonia to nitrogen and water. It is included in the module right after the sintered-metal filters for flue gas pre-treating from mechanical impurities.

2. The CATOX process for catalytic afterburning of unburned hydrocarbons and carbon monoxide.

In order to reduce the atmospheric air pollution through the breathing valves of product tanks, feed tanks and intermediate feed tank farms, all tanks complying the corresponding technological requirements is to be equipped with pontoons that prevent the formation of vapour cushion above the stored crude oil, intermediate or finished product. In addition, in order to reduce the atmospheric air pollution with hydrocarbons during filling the tank cars, the RECOGEN filling recuperation units produced by Edwards Engineering, USA, are to be applied. These units provide to reduce the hydrocarbon emissions during the tank filling by over 99.9%, as well as to reduce the concentrations of hydrocarbons and carbon monoxide in the outgoing air down to 50 mg/m3. For example, the vapour recuperating units operating in the Russian Federation and in most of European countries provide the air treating from hydrocarbons during the filling down to 35,000 mg/m3 only. The most stringent requirements regarding the air treating from the vapour during the filling are in Germany. The concentration of hydrocarbons in the air there should not exceed 1,500 mg/m3. The RECOGEN unit consists of two modules: low-temperature vapour separation by 85 wt. % with their further recycling as a raw material in technological process and for electric power

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generation 22 using the remained 15% of hydrocarbon vapours mixed with air as a fuel.

Therefore, the vapour recuperation unit completely covers its own demand in electric power. The upgrade of the vapour recuperation unit with the system for catalytic afterburning of unburned hydrocarbons and carbon monoxide allows to reduce their concentrations in flue gases down to 1.2 mg/m3, which is less than the occupational exposure limit requirement equal to 1.5 mg/m3.

Besides the above-described facilities, in order to minimize the atmosphere pollution by leaks of harmful substances through the seals, valves and fittings, as well as during the sampling or maintenance, the modern technical solutions will be applied.

These atmosphere-protecting solutions will provide to form the favourable environmental situation in the settlements located nearby, as well as to arrange the comfortable working conditions for the employees. The total negative impact on environment will be at about 4-5% from the pollutions (on the finished products) emitted by the oil refinery with similar capacity in Russian Federation or at about 50-60 wt. % from the pollutions emitted by the oil refinery with similar capacity in the EU countries or in the USA. All the organised emission sources will be equipped with the flow analytic equipment providing to monitor the concentrations of harmful substances emitted through these sources into atmosphere. This will allow to correct operatively the technological process in order to ensure the projected values. The unorganised fugitive emission sources will get equipped with stationary analytic equipment placed nearby in order to monitor the real time concentrations of harmful substances at these sources. The aims of such monitoring are to identify whether the concentration of harmful substance exceeds the projected values or not and to identify the reason of harmful substances appearance and for the rapid elimination of these reasons. In addition, the Complex will set up the environmental control service that will perform monthly monitoring of air quality in the air quality monitoring points given by the project. In addition, in order to

22

Piston electric power generator.

Constructive, Technical, Technological and Environmental Solutions

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Project Summary

prevent the occurrence of hazardous substances fugitive emission sources, the company’s Technical Supervision Service will provide the monthly monitoring of process equipment, flanges, valves, fittings and seals for the prevention, early detection and elimination of leaks of hazardous substances into the atmosphere.

The general list of harmful substances emitted into atmosphere, the occupational explosive limits for them, their hazard classes and estimated volumes of their emissions are described in Feasibility Study, in “Evaluation of Impact on Environment” section.

4.3.2. Technical solutions protecting water resources. Liquid wastes.

The project provides the technical and technological solutions ensuring compliance and significant over-fulfilment of all applicable requirements regarding the concentrations of harmful substances in the water basin of the water supply objects used by the Complex processing. The enterprise does not provide the controlled wastewater discharges, whereas the periodic discharges during the long rainfalls filling the reserve stock pond will comply the requirements Russian GN 2.1.5.2307-07 standard and will totally correspond GN 2.1.5.1315-03 regarding the harmful substances’ concentration in Tvertsa River. This result is planned to achieve by application of closed water cycle at the enterprise, as well as by treating the circulated and technical water by the purity value higher than for drinking water and by treating the water for steam generating units by the purity level similar to distillated water. This approach to water management in addition to environmental aspects solves a set of the following technical problems regarded the water usage by the enterprise: 1. The rise of biological sludge (such as bacteria and algae) is eliminated without using a significant amount of biocides. The solution of this problem is provided by the following technical decisions: 1.1. Deep water treating killing all forms of biological life, both at the stage of ultrafiltration and by photolytic water ozonation.

1.2. Continuous microfiltration (with reduced diameter of 1 µm) and ~ 115 ~

Constructive, Technical, Technological and Environmental Solutions

Project Summary

ultraviolet disinfection of recycled water supplied to the circulating cycle. These solutions provide the consistent quality of circulating water concerning the biological life forms contained in it at the feed-up water level.

Besides the technical advantages, these solutions provide the environmental benefits, such as the emission of microorganisms, viruses, spores and algae zygotes into atmosphere during processing the circulating water in the cooling towers is practically eliminated. In addition, the biocides will be added to the water in order to inhibit their formation.

2. The formation of mechanical sediments on the surfaces of heat-exchanging equipment is eliminated. The solution of this problem is provided by the following technical decisions: 2.1. Continuous microfiltration (with reduced diameter of 1 mm) provides the consistent quality of circulating water concerning the mechanical impurities contained in it at the feed-up water level.

2.2. Partial diversion of circulating water (with sediment removal by microfiltration) from the bottom of the cooling tower basin to the sewage treatment system in order to prevent the accumulation of solid impurities (with a reduced diameter less than 1 Âľm) in colloidal form in the circulating water.

Besides the technical advantages, these solutions provide the environmental benefits, such as the emission solid impurities into atmosphere during processing the circulating water in the cooling towers is practically eliminated.

3. The accumulation of carbonate and sulphate precipitates on the surfaces of heatexchanging equipment is eliminated without using any special chemicals. The solution of this problem is provided by the following technical decisions: 3.1. Deep treatment of the feeding water from the hardness salts (the most of salts with multivalent anions is removed) at the nanofiltration stage (the pore diameter is 1 nm). At this stage the carbonates, sulphates, also Constructive, Technical, Technological and Environmental Solutions

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phosphates, and other salts with multivalent anions are removed.

3.2. Partial diversion of circulating water from the bottom of the cooling tower basin to the sewage treatment system in order to eliminate the accumulation of salts that may cause the precipitates formation in the heat-exchanging equipment.

4. The corrosion of heat-exchanging equipment is eliminated without using any special chemicals. The solution of this problem is provided by the following technical decisions: 4.1. Deep treatment of the feeding water from insoluble organic phase (the most of it are hydrocarbons) that may oxidize during the circulation, producing compounds that may occur aggressive to the heat-exchanging equipment materials.

4.2. Deep treatment of the feeding water from all the organic compounds solved in it at the stage of photolytic ozonation, which is, unlike chlorination, never produces compounds aggressive to the heatexchanging equipment materials. In addition, at this stage the oxidation of weak acid anions is performed, such as nitrites or sulphites that form the alkaline condition during dissociation. In addition, some other salts that may produce aggressive compounds and cause the heat-exchanging equipment corrosion (e.g., the salts of iron or manganese) are oxidizing, converting to insoluble forms and removing by nanofilters.

4.3. Water pH control at the nanofiltration stage, with bringing it to pH=7.0 by dosing potassium hydroxide or hydrochloric acid, depending on the initial pH value.

All of these technical solutions will help to significantly extend the lifetime of the heat-exchanging equipment, to reduce the heat losses due to the heat-exchanging equipment surfaces contamination of heat exchange equipment and to eliminate totally the heat-exchanging equipment failures due to the ducts for circulating water clogging, as well as to extend the period between the stopping repairs. Moreover, the funds ~ 117 ~

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Project Summary

intended for performing both planned preventive and stopping repairs may be used in order to maintain a high residual life resource of the Complex fixed assets.

The Figure 39 displays the simplified flow diagram of sewage treatment system.

The water intake from Tvertsa River will be as following: 1. Up to 25,000 m3 per hour at the first phase of the Complex construction.

2. Up to 35,000 m3 per hour at the second phase of the Complex construction.

The periodic discharges to Tvertsa River will be as following: 3. Up to 15,000 m3 per hour at the first phase of the Complex construction.

4. Up to 20,000 m3 per hour at the second phase of the Complex construction.

The sewage treatment system of the Complex will also provide the processing of pre-treated wastewaters from the town. The pre-treatment of these wastewaters is to be performed in septic tanks of the private low-rise housings and at the sewage pretreatment system processing the domestic sewages from the multi-storeys and from the urban infrastructure objects.

Constructive, Technical, Technological and Environmental Solutions

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The domestic sewages will be discharged to the central wastewater pumping station that will implement a centralized pumping of urban wastes to the enterprise.

Along with domestic wastewater, the excess of activated sludge will be discharged from the urban pre-treatment facilities. The urban wastewater-pumping mode will provide the intensive turbulent flow in pipelines at all the stages of the flow discharge, minimizing the formation of the sediments on the walls.

Besides the periodic discharges to Tvertsa River, the liquid wastes containing mainly hydrocarbons and some other organic compounds (e.g., various wasted oils and lubricants, technological liquids, etc.) will be produced at the enterprise. There will be two ways of liquid waste disposal: 1. The flammable liquid wastes will be passed to the gasification unit of liquid waste treatment facilities, where they will be converted into the synthesis gas and into the fly ash. The fly ash will be sold out as a separate finished product as the fly ash produced by coal gasification unit, and the synthesis gas will be sent for further processing at the deep synthesis gas treating unit.

2. The inflammable liquid wastes will be returned to the manufacturer of the liquid chemicals (or to the specialized enterprises) from which they have been obtained in accordance to the previously signed agreement providing the liquid waste chemicals return for their disposal. The cost of such materials processing will be included in their price. The liquid chemicals that may result to formation of nonflammable liquid wastes that cannot be disposed at all or without significant expenses are not to get involved into the production cycle of the enterprise, due to the Technical Design Assignment for design and turnkey construction.

4.3.3. Solid industrial wastes.

There are the technical and technological solutions included in the project, providing the accumulation of solid wastes, their sorting by type and further environmentally safe disposal. ~ 120 ~

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All the solid wastes produced at the enterprise will be sorted and disposed as follows: 1. Paper, cardboard and other materials usable for recycling will be packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

2. The lamps used for lighting and in UV decontaminators or in photolytic ozonizers will get packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

3. The tires and other rubber-containing materials will be packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

4. The wastes containing various plastics will get pre-grinded on the specialized equipment and will be passed to solid waste gasification unit of the Complex’s sewage treatment system.

5. The wasted catalyst, filters and other periodically replaceable equipment will be returned to the manufacturer of those materials from which the wastes have been obtained in accordance to the previously signed agreement providing the return of wasted catalyst, filters and other periodically replaceable equipment for their disposal. The cost of such materials processing will be included in their price. In the absence of such agreement, the General Contractor will propose the companies providing the disposal of the wasted catalyst, filters and other periodically replaceable equipment. The rest of the wasted catalyst, filters and Constructive, Technical, Technological and Environmental Solutions

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other periodically replaceable equipment will be placed at the sites for solid industrial and domestic wastes. The wasted catalyst, filters and other periodically replaceable equipment which placement at the sites for solid industrial and domestic wastes may be environmentally hazardous are not to get involved into the production cycle of the enterprise, due to the Technical Design Assignment for design and turnkey construction.

6. The salts obtained during evaporation of brines produced during the wastewater and river water treatment, will be granulated, encapsulated and packed into the big bags for their subsequent placement at the sites for solid domestic and industrial waste. The salt granules must be encapsulated with water-insoluble, water-resistant material that provides their long-term storage without access to water. This would exclude the penetration of wasted salts into the soil, into the water and into the underground water.

7. Wasted metal parts and other metal-containing secondary raw materials will be packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

8. Computers and other microelectronic products (including consumer electronics) that have spent their projected lifetime will be packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

9. Electric cables and communication wires, as well as other electric power supply equipment that have spent their projected lifetime will get packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material ~ 122 ~

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is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

10. Accumulators and their elements that have spent their projected lifetime will be packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

11. The household appliances that are not the microelectronic products will get packed into containers and sent to the specialized recycling companies, processing this kind of secondary raw materials. If the recycling of such kind of secondary raw material is impossible in the Russian Federation, it will be shipped by the enterprise to the specialized companies processing this kind of waste abroad.

12. Other wastes (e.g., food waste, rags or wasted clothing, failed or broken furniture) that are not covered by any of above category, as well as the construction waste, will be removed and placed at the site for solid domestic and industrial waste.

4.4. Solutions creating the necessary social infrastructure.

4.4.1. The approach to social infrastructure construction.

The project provides the turnkey town construction regarding EPCM+C target price contract conditions, implementing the approach similar to one that has been developed for the construction of the Complex. The EPCM+C target price type of contract has been selected for the town construction due to the similar reasons as for the enterprise. The terms and the procedure of housing stock and urban infrastructure

Constructive, Technical, Technological and Environmental Solutions

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commissioning will be defined in the Technical Design Assignment for the town and urban infrastructure construction that will be developed in association with General Contractor of the Complex construction. For developing the Technical Design Assignment for the town construction, the Feasibility Study for the town construction will be developed. The Feasibility Study will optimize within the investments approved by the government the type and the structure of the housing stock along with the urban infrastructure that mostly intended for providing the highest possible quality of life for the town residents. In addition, the Feasibility Study will determine the procedure of usage and depreciation compensation for housing stock and urban infrastructure that will be provided for General Contractor’s staff accommodation during the Complex construction.

Since the town construction for the project requires non-core investments, the project provides an interest-free loan for the next 10 years as a source of financing. The loan is issued by a credit institution 23 authorized by the government, under the governmental guarantees and with compensation for the interest rate on it by the government. The financing and construction order for the social infrastructure provided by the project to be carried out as follows: 1. The government and the enterprise together establish a non-profit Investment Fund as a Customer for town construction with the participation of the Complex and governmental financial institution (Federal Mortgage Agency).

2. The credit institution authorized by the Government offers to Investment Fund a targeted credit financing by issuing the interest-free loan for the next 10 years under the governmental guarantees as security for credit and with the compensation of interest rate on the loan. The exact amount of the loan will be determined after the Feasibility Study is developed and the General Contractor for the town construction will be determined.

3. The interest-free loan will get returned as follows:

23

As a credit institution, The Agency for Housing Mortgage Lending, JSC may act.

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3.1. By the Complex in the carrying amount of housing stock that required for the employees accommodation.

3.2. By the Government in the rest of the carrying amount of the town.

4. During the Complex construction, housing stock built by Investment Fund is envisaged to use in the necessary amounts in order to accommodate the builders constructing the Complex and town, on a rental basis by the General Contractor.

The rental price will be determined by the price of housing insurance and by the cost of its renovation after it will be returned to the Complex.

5. After the interest-free loan is returned, the procedure of Investment Fund liquidation will get started by transferring its property to the enterprise and the government. The project envisages the construction of at least 19,736 households, 11,000 of which will be passed to the Complex and the remaining 8,736 households are provided to transfer to the government. The most of the households transferred to the government are envisaged by the project to use for accommodation of other categories of citizens.

While developing the Feasibility Study for town construction, the priority in using the investments will be ordered as follows: 1. Housing stock.

2. Urban infrastructure including gas supply, electric power supply, heating, sanitation and water supply.

3. Critical infrastructure including health care facilities, pre-school and high education facilities, law enforcement department, MES facilities, etc.

4.4.2. The social infrastructure construction volume.

In order to evaluate the amount of investments required for the town and necessary urban infrastructure construction, the preliminary General Plan of The City has been provided. Its development along with calculations have been carried out by using the approaches and standards of housing construction currently existing in the Russian Constructive, Technical, Technological and Environmental Solutions

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Federation. This approach allowed to perform such an assessment within the shortest time, as well as it allowed to determine the minimal required amount of investments and area necessary for the town and urban infrastructure construction.

The initial data for the preliminary General Plan of The City development based on the estimated number of residents of 51,600 people, with the possibility of increase up to 100,000. The number of employees in accordance with prior staffing tables is going to be 9,393 people. Considering the family coefficient of 3.5, the part of the town population formed by employees and their family members is going to be 32,876 people.

In order to accommodate the estimated number of residents of 51,600 people, the preliminary General Plan of The City provides the construction of housing in the amount of 19,736 apartments with total area of the premises equal to 1.67 mln m2. The structure of the housing stock by the type of buildings and by their intension is as following: 1. 44 five-storey residential houses built up of the sandwich panels. These houses will be used as hostels during the construction stage.

2. 144 seven-storey residential houses. 30 of them will be used as hostels during the construction stage.

3. 8 twenty five-storey residential houses. They also will be used as hostels during the construction stage.

From the main social infrastructure facilities, the preliminary General Plan of The City provides the construction of the following of them: 1. 12 preschool institutions for 180 children each. The estimated area of a single institution is 4,200 m2.

2. 8 high schools for 660 pupils each. The estimated area of a single school is 10,824 m2.

3. Swimming pool, the estimated area of foundation is 6,000 m2.

4. Two sports centres; the estimated area of foundation is 9,462 m2 each.

5. The municipal cultural centre, the estimated area of foundation is 4,000 m2.

6. Two entertaining centres with cinemas, the estimated area of foundation is 2,800 m2 each. ~ 126 ~

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7. The municipal policlinic, the total estimated area is 12,000 m2.

8. The municipal hospital: four buildings with total estimated area of 31,200 m2.

9. 12 shopping centres. The estimated area of foundation is 2,100 to 10,000 m2.

When calculating the area and configuration of apartments as well as the list of non-residential social infrastructure and its configuration, the experience of large Russian cities such as Moscow, St. Petersburg, Novosibirsk, etc., in construction of a high-quality social infrastructure and its further operation has been considered. In addition, for the comprehensive assessment of solutions intended to improve the quality of life in relation to the solutions applied in the Russian Federation, during the development of the preliminary General Plan of The City the experience gained in the construction of high-quality social infrastructure in the European Union and the USA had also been considered. Such approach used for development of the preliminary General Plan of The City was selected on the basis of the need in quick and accurate integrated estimation of the parameters and the size of the social infrastructure, as well as in fast and as precise as possible assessment of the investment required for the infrastructure construction. The investment amount required for building the town by using the solutions provided by the preliminary General Plan of The City according to preliminary integrated estimation is equal to 4.0 bln USD. The high productivity of the enterprise is achieved by the implementation complex and modern technologies. Considering this, the reliable operation of the Complex may only be achieved by engaging highly skilled labour force. Moreover, due to absence of most of technical and technological solutions provided by the project on the oil refineries and petrochemical plants currently operating in the Russian Federation makes really difficult the search and training such personnel in the Russian Federation. This will require to involve lots of skilled foreign experts, as during the construction and for the Complex operation, as well as in order to teach and train the Russian staff on the whole range of specialties. All of these factors will be considered during the Technical Design Assignment for the town construction developing. Feasibility Study has considered the variability of solutions intended for the social infrastructure arrangement for the Constructive, Technical, Technological and Environmental Solutions

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Project Summary

Complex construction and the efficiency of them will be investigated during the Feasibility Study for the town construction development. While considering the variability, the main criteria for selecting the solutions will be the investments efficiency.

Its major characteristics are the ratio of the quality and specific cost of the social infrastructure elements, their required durability and minimal amount of additional investments necessary for their development. These criteria will relate to the cost of the overhead of creating the necessary temporary technical and constructive solutions in order to ensure the gradual implementation of social infrastructure in operation within projected terms.

The following variability for the social infrastructure arrangement has been considered by the project: 1. A combination of low-rise private householdings and seven-storey apartment houses. For the low-raised householdings, the variability is possible either in quality of the building materials or by the complexity of the constructive solutions.

This combination allows significantly to reduce the capacity and cost of the temporary technical and constructive solutions for the housing stock maintenance, such as: water supply, effluents drainage, heating supply and electric power supply. The apartment houses exploitation is impossible without these facilities, and lining the necessary communications on the temporary basis will lead to significant overhead expenses. At the one hand, the low-rise householdings do not require the significant capacities; on the other hand, their needs will be partly covered by self-sufficient heating, hot water supply and effluents drainage. In this case, due to effective planning of the housing construction, the lining of temporary communications for low-rise private houses can be almost completely eliminated.

Besides the temporary communications, the sewage is going to be a serious problem for the multi-apartment houses until the construction of the wastewater treatment facilities is complete. The solution will also will be acutely pumping domestic sewage, the solution of which also require significant overhead expenses and complicated solutions. There will be no sewage problem for the low-rise ~ 128 ~

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householdings: it will be solved by application of the private digestion tanks for water treatment. In addition, it will reduce the overheads. Further, on the digestion tanks may be used along with the sewage facilities as the pre-treating stage.

2. A combination of low-rise townhouses and seven-storey apartment houses. As for the private householdings, this solution will reduce the overhead expenses on lining the temporary communications to townhouses and it will also solve the sewage problem by using the digestion tanks. The digestion tanks may also be used further on along with the sewage facilities as the pre-treating stage. In comparison with the private householdings, such solution will allow to decrease the length of municipal communications, especial the roads and sewer system length. This will also reduce the costs on their construction and further maintenance.

3. A combination of low-rise private householdings and low-rise townhouses. This solution will allow to minimize the overheads on the necessary temporary technical and constructive solutions as well as to build up the housing stock with the maximal quality. However, this solution of the infrastructure arrangement will be the most expensive and it will require will require the significant land area for construction.

4. A combination of low-rise private householdings, low-rise townhouses and seven-storey apartment houses. This solution, as the previous, will allow to minimize the overheads on the necessary temporary technical and constructive solutions due to effective staging of the construction. This solution of the infrastructure arrangement is preliminarily defined as the most probable, and the housing stock allocation between the low-rise private householdings, low-rise townhouses and seven-storey apartment houses will be defined according to results of the Feasibility Study for the town construction development.

Figures 40, 41 and 42 demonstrate the photographs of the low-rise private householdings with estimated cost of 750-1,100 USD per m2.

Constructive, Technical, Technological and Environmental Solutions

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Figure 40. Private low-rise householding with living premises area of 147 m2 and total premises area of 211 m2.

Figure 41. Private low-rise householding with living premises area of 235 m2 and total premises area of 306 m2.

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Figure 42. Private low-rise householding with living premises area of 300 m2 and total premises area of 384 m2.

The photographs of the low-rise private householdings with estimated cost of 8501,150 USD per m2 are shown at Figures 43, 44 and 45.

Figure 43. Low-rise townhouse with living premises area of 524 m2 for three families.

Constructive, Technical, Technological and Environmental Solutions

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Figure 44. Low-rise townhouse with living premises area of 935 m2 for eight families.

Figure 45. Low-rise townhouse with living premises area of 1,210 m2 for twelve families.

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5. Project Scales and Results.

5.1. Consumed Raw Materials and The Volumes of Their Purchase.

During the project development there was made a decision to diversify maximally the raw materials involved into processing. The diversification is to be balanced, i.e., each raw material is to affect on the finished products cost equivalently as the others.

After considering the results of analysis of modern and verified processing solutions for motor fuels and organic synthesis products manufacturing, of as raw materials, the following raw materials have been decided to use crude oil, natural gas and coal. In order to optimize the investments necessary for project completion, the order of implementation the raw materials into the operation has been split by the two stages corresponding to two stages of the Complex construction. The natural gas and coal will get involved into processing after the first stage is complete, while the crude oil will get involved after completion of the second stage with simultaneous increase of coal and natural gas processed volumes.

The acceptable quality of raw materials involved in the processing according to the parameters influencing the process is given in Volume 1 of the Feasibility Study.

5.1.1. Raw material balance of the Complex.

Table 8 displays the raw material balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on May 1, 2008.

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Project Summary

Table 8. Raw material balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on May 1, 2008.

Name

Purchased amount, tonnes per annum

1. In the year, that provides the stopping repair.

Coal 10,731,622 7,157,100 Natural gas (thousand m3) (9,860,592) Other materials 161,003 TOTAL: 18,049,725 2. In the year, that does not provide the stopping repair.

Coal 11,386,750 7,594,016 Natural gas (thousand m3) (10,462,546) Other materials 170,832 TOTAL: 19,151,598

Purchased amount, USD. 1,234,136,530 1,651,156,130 169,053,150 3,054,345,810 1,309,476,250 1,751,953,328 179,373,600 3,240,803,178

Table 9 displays the raw material balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on September 1, 2010.

Table 9. Raw material balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on September 1, 2010.

Name

Purchased amount, tonnes per annum

1. In the year, that provides the stopping repair.

Coal 10,731,622 7,157,100 Natural gas (thousand m3) (9,860,592) Other materials 161,003 TOTAL: 18,049,725 2. In the year, that does not provide the stopping repair.

Coal 11,386,750 7,594,016 Natural gas (thousand m3) (10,462,546) Other materials 170,832 TOTAL: 19,151,598

Purchased amount, USD. 858,529,760 1,398,626,369 128,802,400 2,385,958,529 910,940,000 1,484,007,525 136,665,600 2,531,613,125

Figure 46 displays the structure of the raw materials consumption after completion of the first stage of the enterprise construction.

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Table 10 displays the raw

0.89%

material balance of the enterprise after completion of the enterprise construction in basic prices on 59.46%

May 1, 2008.

39.65%

Natural gas

Coal

Others

Figure 46.

The structure of the raw materials consumption after completion of the first stage construction.

Table 10. Raw material balance of the enterprise after completion of enterprise construction in basic prices on May 1, 2008.

Name

Purchased amount, tonnes per annum

1. In the year, that provides the stopping repair.

14,595,011 11,002,855 Natural gas (thousand m3) (15,159,025) Other materials 318,588 Crude oil 9,800,570 TOTAL: 35,717,023 2. In the year, that does not provide the stopping repair.

Coal 15,485,986 11,674,541 Natural gas (thousand m3) (16,084,431) Other materials 338,037 Crude oil 10,398,860 TOTAL: 37,897,424 Coal

Purchased amount, USD. 1,678,426,265 2,538,378,736 334,517,400 4,348,875,906 8,900,198,307 1,780,888,390 2,693,337,971 354,938,850 4,614,359,338 9,443,524,549

Table 11 displays the raw material balance of the enterprise after completion of the enterprise construction in basic prices on September 1, 2010.

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Project Summary

Table 11. Raw material balance of the enterprise after completion of the enterprise construction in basic prices on September 1, 2010.

Purchased amount, tonnes per annum

Name

Purchased amount, USD.

1. In the year, that provides the stopping repair.

Coal 14,595,011 11,002,855 Natural gas (thousand m3) (15,159,025) Other materials 318,588 Crude oil 9,800,570 TOTAL: 35,717,023 2. In the year, that does not provide the stopping repair.

Coal 15,485,986 11,674,541 Natural gas (thousand m3) (16,084,431) Other materials 338,037 Crude oil 10,398,860 TOTAL: 37,897,424

1,167,600,880 2,150,156,106 254,870,400 2,675,402,601 6,248,029,987 1,238,878,880 2,281,415,693 270,429,600 2,838,726,430 6,629,450,603

Figure 47 displays the structure of the raw materials consumption after completion of enterprise construction.

The diagrams at the Figures 46 and 47 display that the engineers

could

achieve

the

equivalent proportions of each raw material

(excluding

the

0.89%

ash

40.86%

27.44%

content in coal) in the finished products.

30.81%

Natural gas

Coal

Others

Crude oil

Figure 47.

The structure of the raw materials consumption after completion of the enterprise construction..

~ 136 ~

Project Scales and Results

Project Summary

5.1.2. Integrated amount of the raw materials purchased by the Complex.

The integrated amount of the raw materials purchased by the Complex for the calculated project lifetime is shown in Table 12 in monetary equivalent, according to the project operating conditions on May 1, 2008.

Table 12. Integrated amount of the raw materials purchased by the Complex in monetary equivalent, according to the project operating conditions on May 1, 2008.

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

1. Natural gas.

2. Coal.

Project Scales and Results

Purchased integrated amount, USD 2,153,319,628 2,504,448,900 3,581,472,710 3,813,269,324 3,684,433,292 4,006,316,084 3,870,957,727 4,209,135,836 4,066,924,962 4,422,223,337 4,272,813,038 4,646,098,394 4,489,124,199 4,881,307,125 4,716,386,111 5,128,423,298 1,851,000,707 1,910,796,906 2,372,988,029 2,521,551,771 2,436,366,308 2,649,205,329 2,559,707,352 2,783,321,349 2,689,292,536 2,924,226,992 2,825,437,971 3,072,265,984 2,968,475,769

~ 137 ~

Table 12 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Purchased integrated amount, USD

3. Crude oil.

4.

3,227,799,450 3,118,754,854 3,391,206,797

0 877,787,083 6,412,988,658 6,533,162,518 6,312,438,545 6,863,903,871 6,632,005,747 7,211,389,004 6,967,751,038 7,576,465,573 7,320,493,434 7,960,024,142 7,691,093,414 8,363,000,364 8,080,455,018 8,786,377,258 Other components of the merchantable products and the expendables.

240,317,975 285,074,184 479,803,742 502,544,947 485,566,876 527,986,285 510,148,698 554,715,589 535,974,976 582,798,067 563,108,709 612,302,219 591,616,088 643,300,018 621,566,653 675,867,082 TOTAL INTEGRATED AMOUNT: 219,751,079,844

The integrated amount of raw materials to be purchased by the Complex is shown at Figure 48. The data is presented in monetary terms, for operating conditions by May 01, 2008 and within the calculated lifetime of the project. ~ 138 ~

Project Scales and Results

Project Summary

The integrated amount of the raw materials purchased by the Complex for the calculated project lifetime is shown in Table 13 in monetary equivalent, according to the project operating conditions on September 1, 2010.

Table 13. Integrated amount of the raw materials purchased by the Complex in monetary equivalent, according to the project operating conditions on September 1, 2010.

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

1. Natural gas.

2. Coal.

Project Scales and Results

Purchased integrated amount, USD 1,823,988,391 2,121,415,539 3,033,718,061 3,230,063,428 3,120,931,730 3,393,585,388 3,278,928,898 3,565,385,649 3,444,924,673 3,745,883,297 3,619,323,986 3,935,518,639 3,802,552,262 4,134,754,271 3,995,056,470 4,344,076,206 1,287,652,665 1,329,250,022 1,650,774,281 1,754,122,971 1,694,863,519 1,842,925,446 1,780,665,984 1,936,223,547 1,870,812,200 2,034,244,864 1,965,522,067 2,137,228,510 2,065,026,622 2,245,425,704 2,169,568,594 2,359,100,380

~ 139 ~

Bln USD

Project Summary

225

200

175

150

125

100

75

50

25

0 2015

2016

2017

2018

2019

2020 Natural gas

2021

2022

Каменный уголь

2023

2024 Others

2025

2026

2027

2028

2029

2030

Crude oil

Figure 48. Integrated amount of purchased raw materials according to the project operating conditions on May 1, 2008.

Project Scales and Results

~ 140 ~

Table 13 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Purchased integrated amount, USD

3. Crude oil.

4.

0 540,009,395 3,945,232,494 4,019,162,738 3,883,374,663 4,222,632,852 4,079,970,505 4,436,403,640 4,286,519,012 4,660,996,574 4,503,524,037 4,896,959,526 4,731,514,941 5,144,868,102 4,971,047,885 5,405,327,050 Other components of the merchantable products and the expendables.

183,099,409 217,199,378 365,564,756 382,891,388 369,955,715 402,275,264 388,684,723 422,640,449 408,361,887 444,036,622 429,035,207 466,515,977 450,755,115 490,133,347 473,574,592 514,946,349 TOTAL INTEGRATED AMOUNT: 154,850,727,856

Figure 48 displays the integrated of the raw materials purchased by the Complex in monetary equivalent, within the calculated lifetime of the project, according to the project operating conditions on May 1, 2008.

Figure 49 displays the integrated of the raw materials purchased by the Complex in monetary equivalent, within the calculated lifetime of the project, according to the Project Scales and Results

~ 141 ~

Project Summary

project operating conditions on September 1, 2010.

The above tables and diagrams display that engineers could also achieve the equivalent proportions of each raw material in the cost of the finished products.

In order to evaluate the scale of operations of the Complex, the averaged parameters according to the raw materials have been calculated. The averaged integrated amount of purchased natural gas will equal to 61,982,517,200 USD, whereas the annual amount will equal to 3,873,907,3002 24 ,25 USD. The averaged integrated amount of purchased coal will equal to 40,007,650,400 USD, whereas the annual amount will equal to 2,500,478,20024,25 USD. The averaged integrated amount of purchased crude oil will equal to 93,623,887,600 USD, whereas the annual amount will equal to 6,687,420,50024,25 USD. The averaged integrated amount of other components of merchantable products and the expendables purchased by the enterprise will equal to 7,911,936,600 USD, whereas the annual amount will equal to 494,496,00024,25 USD. Total averaged integrated amount of the raw materials purchased by the enterprise within the calculated lifetime of the project will equal to 203,525,991,800 USD.

24 25

The value is averaged and calculated for analytical evaluation of the scale of the operations of the project.

The value is calculated for the period of 14 years within which the enterprise is purchasing crude oil, since oil processing is provided only after the completion of the whole Complex construction. The average annual volume of the rest raw materials purchase is calculated for the period of 16 years within which the enterprise is purchasing that kind of raw material.

~ 142 ~

Project Scales and Results

Bln. USD

Project Summary

160

140

120

100

80

60

40

20

0 2015

2016

2017

2018

2019

2020 Natural gas

2021

2022 Coal

2023 Others

2024

2025

2026

2027

2028

2029

2030

Crude oil

Figure 49. Integrated amount of purchased raw materials according to the project operating conditions on September 1, 2010.

Project Scales and Results

~ 143 ~

Project Summary

5.2. Finished products and the volumes of their manufacturing.

The project provides the following finished products manufacturing: 1. Premium Euro-95 gasoline.

2. Super Euro-98 gasoline.

3. Ethyl tertiary butyl ether (ETBE).

4. Euro V environmentally friendly diesel fuel.

5. Ethanol fuel, 99.9 vol. % 6. Isopropyl alcohol, 99.9 wt. % 7. Polypropylene, granulated.

8. Petroleum benzene.

9. Petroleum toluene.

10. P-Xylene.

11. Anhydrous ammonia.

12. Fertilizers: ammonium sulphate, ammonium nitrate, ammonium sulphate-nitrate.

13. Argon, liquefied.

14. Krypton-xenon concentrate.

15. Carbon dioxide liquefied.

16. Fly ash for concrete production.

17. Grained slag macadam for concrete.

18. Electric power.

5.2.1. Motor fuels and their components.

The volume of motor fuel production after the completion of the first stage construction will equal to 6,286,155 tonnes per annum, if the stopping repair is planned and 6,669,902 tonnes per annum if the stopping repair is not planned. The volume of motor fuel production after the completion of the enterprise construction will equal to

Project Scales and Results

~ 144 ~

Project Summary

16,463,651 tonnes per annum, if the stopping repair is planned and 17,468,701 tonnes per annum if the stopping repair is not planned.

The quality and the environmental characteristics of the motor fuels correspond to the requirements of the highest current standards: 1. Technical regulations “The Requirements to Automotive and Aviation Gasoline, to Diesel and Ship Fuel, to Jet Fuel and to Residual Fuel Oil“ applied in the Russian Federation 2. EN 590:2004 and EN 228:2008 (Euro V) applied in the EU. 3. TIER 2 and CARB 2 applied in the USA. Moreover, the quality and the environmental safety parameters of the motor fuels have a substantial margin for the future (e.g., Euro VI, TOP TIER).

The quality of ethanol fuel 99.9 vol. % corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, the purity of ethanol fuel allows its usage in organic synthesis and in perfume industry. Therefore, the profitability of ethanol fuel selling may be increased.

The quality of ethyl tertiary butyl ether (ETBE) corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, ETBE is produced from absolute ethanol with very high purity and it provides its manufacturing with very high octane number and with very low concentration of water and other impurities. The separator with coalescent elements included in the ETBE production train allows to remove the emulsified water from the product almost totally. High purity of ETBE will increase its storage period without decreasing its quality; it will decrease the opportunity of water separation into the layer during the storage and will not provide its compounding with other components of automotive fuels. The above characteristics are also applicable for manufactured automotive gasoline storage and transportation.

Project Scales and Results

~ 145 ~

Project Summary

5.2.2. Organic synthesis products.

The volume of organic synthesis products manufacturing after the completion of the first stage construction will equal to 641,449 tonnes per annum, if the stopping repair is planned and 680,609 tonnes per annum if the stopping repair is not planned. The volume of organic synthesis products manufacturing after the completion of the enterprise construction will equal to 1,759,435 tonnes per annum, if the stopping repair is planned and 1,866,843 tonnes per annum if the stopping repair is not planned.

The quality of isopropyl alcohol 99.9 wt. % corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, the purity of isopropyl alcohol allows its usage in perfume industry. Therefore, the profitability of isopropyl alcohol selling may be increased.

The quality of benzene, toluene and p-xylene corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, the purity of toluene allows its usage in toluene diisocyanate (TDI) production. Therefore, the profitability of toluene selling may be increased.

The quality of polypropylene, granulated corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, polypropylene may be manufactured with various molecular mass, both as monomer and as block-copolymer by ethylene and 1-butene addition in the amounts required for modification of the polymer properties. Therefore, the profitability of polypropylene selling may be increased.

5.2.3. Fertilizers.

The volume of fertilizers production after the completion of the first stage construction will equal to 791,077 tonnes per annum, if the stopping repair is planned Project Scales and Results

~ 146 ~

Project Summary

and 839,369 tonnes per annum if the stopping repair is not planned. The volume of fertilizers production after the completion of the enterprise construction will equal to 2,884,308 tonnes per annum, if the stopping repair is planned and 3,060,386 tonnes per annum if the stopping repair is not planned.

The quality of liquefied ammonia and fertilizers as ammonium sulphate, ammonium nitrate and ammonium sulphate-nitrate corresponds to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries. Moreover, the technology allows the addition of dolomite, limestone and their mixtures with microelements to granulated ammonia nitrate. After that, it cannot be used as the component of explosives. In addition, such fertilizer can decrease the soil acidity and can be enriched with the set of microelements required by the customer. The granulated ammonium sulphate and ammonium sulphate-nitrate can also be enriched with the microelements; the technology allows the addition of their required amounts. In addition, all the granulated fertilisers can be manufactured in the encapsulated form, i.e., the granules may be coated with special waterproof compound retarding dissolution of the active component. These fertilizers are gradually coming into the soil under the influence of water and heat, this mechanism allows plants to tolerate a fertilizer easily and absorb 80-90% of the capsule contents. The traditional fertilizers, as a rule, instantly oversaturate the soil with the active component; while the plants absorb the nutrients only by 30-40% and the rest of nutrients are washed away polluting the environment. Encapsulated fertilizers will be produced with different validity, from 3 to 24 months. This kind of fertilizers is highly demanded at the global market, whereas it is innovating for the Russian market. Therefore, the enterprise will receive the stable additional revenue producing and selling the fertilizers. The quality parameters for the merchantable finished products manufacturing by the enterprise are described in Volume 1 of the Feasibility Study.

Project Scales and Results

~ 147 ~

Project Summary

5.2.4. Electric power.

The volume of electric power generation after the completion of the first stage construction will equal to 13,088,767 MW per annum, if the stopping repair is planned and 13,887,790 MW per annum, if the stopping repair isn’t planned. The volume of electric power generation after the completion of the enterprise construction will equal to 15,574,092 MW per annum, if the stopping repair is planned and 16,524,836 MW per annum, if the stopping repair isn’t planned.

Electric power is considered as a separate category of finished products due to its various intentions. For example, it can be used as the energy source in hybrid and electric vehicles. The quality parameters of electric power will correspond to the most stringent requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries.

5.2.5. Other products.

The volume of other products manufacturing after the completion of the first stage construction will equal to 2,065,792 tonnes per annum, if the stopping repair is planned and 2,191,904 tonnes per annum if the stopping repair is not planned. The volume of other products manufacturing after the completion of the enterprise construction will equal to 2,903,569 tonnes per annum, if the stopping repair is planned and 3,080,822 tonnes per annum if the stopping repair is not planned.

The liquefied atmospheric gases as argon, krypton-xenon concentrate carbon dioxide will be manufactured with improved degree of purity and will correspond to the most stringent quality requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries.

The price of fly ash for concrete production and grained slag macadam for concrete production is low. Nevertheless, these products will be manufactured as the high-quality components of the building materials and will correspond to the most Project Scales and Results

~ 148 ~

Project Summary

stringent quality requirements applied in the Russian Federation, in the US, in the EU and in other industrial countries.

5.2.6. Merchantable products balance of the Complex.

Table 14 displays the merchantable products balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on May 1, 2008.

Table 14. Merchantable products of the enterprise after completion of the first stage of the enterprise construction in basic prices on May 1, 2008.

Name

Sales volume, tonnes per annum

1. In the year, that provides the stopping repair.

Anhydrous ammonia 95,755 Argon, liquefied 453,814 Premium Euro-95 gasoline 3,082,662 Petroleum benzene 76,746 Euro V environmentally friendly diesel fuel 2,726,544 Fly ash for concrete production 1,165,183 Isopropyl alcohol, 99.9 wt. % 174,119 Krypton-xenon concentrate 8,491 Polypropylene, granulated 343,023 Ammonium sulphate-nitrate, granulated 695,322 Petroleum toluene 47,561 Carbon dioxide liquefied 147,011 Grained slag macadam for concrete 291,293 Electric power, MW 13,088,767 Ethanol fuel, 99.9 vol. % 349,871 Ethyl tertiary butyl ether (ETBE) 127,078 TOTAL: 9,784,473 2. In the year, that does not provide the stopping repair.

Anhydrous ammonia 101,601 Argon, liquefied 481,518 Premium Euro-95 gasoline 3,270,848 Petroleum benzene 81,431 Euro V environmentally friendly diesel fuel 2,892,990 Fly ash for concrete production 1,236,314 Isopropyl alcohol, 99.9 wt. % 184,749

Project Scales and Results

Sales volume, USD. 44,047,300 499,195,400 2,885,371,632 90,483,534 2,930,353,164 72,241,346 230,707,675 24,623,900 572,848,410 158,046,691 47,132,951 30,431,277 11,069,134 981,657,525 255,125,933 164,184,776 8,997,520,648 46,736,460 529,669,800 3,061,513,728 96,007,149 3,109,241,003 76,651,468 244,792,425

~ 149 ~

Table 14 (continuation).

Project Summary

Name

Sales volume, tonnes per annum

Sales volume, USD.

Krypton-xenon concentrate Polypropylene, granulated Ammonium sulphate-nitrate, granulated Petroleum toluene Carbon dioxide liquefied Grained slag macadam for concrete Electric power, MW Ethanol fuel, 99.9 vol. % Ethyl tertiary butyl ether (ETBE) TOTAL:

9,010 363,964 737,768 50,465 155,986 309,076 13,887,790 371,229 134,835 10,381,784

26,129,000 607,819,880 167,694,666 50,010,815 32,289,102 11,744,888 1,041,584,250 270,700,187 174,206,820 9,546,791,641

Table 15 displays the merchantable products balance of the enterprise after completion of the first stage of the enterprise construction in basic prices on September 1, 2010.

Table 15. Merchantable products of the enterprise after completion of the first stage of the enterprise construction in basic prices on September 1, 2010.

Name

Sales volume, tonnes per annum

1. In the year, that provides the stopping repair.

Anhydrous ammonia 95,755 Argon, liquefied 453,814 Premium Euro-95 gasoline 3,082,662 Petroleum benzene 76,746 Euro V environmentally friendly diesel fuel 2,726,544 Fly ash for concrete production 1,165,183 Isopropyl alcohol, 99.9 wt. % 174,119 Krypton-xenon concentrate 8,491 Polypropylene, granulated 343,023 Ammonium sulphate-nitrate, granulated 695,322 Petroleum toluene 47,561 Carbon dioxide liquefied 147,011 Grained slag macadam for concrete 291,293 Electric power, MW 13,088,767 Ethanol fuel, 99.9 vol. % 349,871 Ethyl tertiary butyl ether (ETBE) 127,078 TOTAL: 9,784,473

Project Scales and Results

Sales volume, USD. 35,908,125 372,127,480 2,116,247,463 69,109,773 1,810,425,216 67,114,541 194,142,685 20,378,400 543,691,455 127,591,587 35,290,262 22,786,705 10,195,255 837,681,088 282,660,781 126,950,922 6,672,301,738

~ 150 ~

Table 15 (continuation).

Project Summary Sales volume, tonnes per annum

Name

2. In the year, that does not provide the stopping repair.

Anhydrous ammonia 101,601 Argon, liquefied 481,518 Premium Euro-95 gasoline 3,270,848 Petroleum benzene 81,431 Euro V environmentally friendly diesel fuel 2,892,990 Fly ash for concrete production 1,236,314 Isopropyl alcohol, 99.9 wt. % 184,749 Krypton-xenon concentrate 9,010 Polypropylene, granulated 363,964 Ammonium sulphate-nitrate, granulated 737,768 Petroleum toluene 50,465 Carbon dioxide liquefied 155,986 Grained slag macadam for concrete 309,076 Electric power, MW 13,887,790 Ethanol fuel, 99.9 vol. % 371,229 Ethyl tertiary butyl ether (ETBE) 134,835 TOTAL: 10,381,784

Figure 50 displays the structure of production facilities

Sales volume, USD. 38,100,375 394,844,760 2,245,437,152 73,328,616 1,920,945,360 71,211,686 205,995,135 21,624,000 576,882,940 135,380,428 37,445,030 24,177,830 10,817,660 888,818,560 299,915,909 134,700,165 7,079,625,606

6.56%

8.09%

after the completion of the first stage construction.

Table

16

displays

21.10%

the

merchantable products balance of

64.25%

the enterprise after completion of the enterprise construction in basic prices on May 1, 2008.

Motor fuel Organic synthesis products Fertilizers Other Figure 50.

The structure of production facilities after the completion of the first stage construction.

Project Scales and Results

~ 151 ~

Project Summary

Table 16. Merchantable products of the enterprise after completion of the enterprise construction in basic prices on May 1, 2008.

Name

Sales volume, tonnes per annum

1. In the year, that provides the stopping repair.

Anhydrous ammonia 274,533 Argon, liquefied 617,191 Premium Euro-95 gasoline 6,472,184 Super Euro-98 gasoline 2,472,070 Petroleum benzene 444,714 Euro V environmentally friendly diesel fuel 6,644,415 Fly ash for concrete production 1,584,644 Isopropyl alcohol, 99.9 wt. % 174,119 Krypton-xenon concentrate 11,550 Ammonium nitrate, granulated 735,042 P-Xylene 399,040 Polypropylene, granulated 343,023 Ammonium sulphate, granulated 392,025 Ammonium sulphate-nitrate, granulated 1,482,708 Petroleum toluene 398,539 Carbon dioxide liquefied 294,019 grained slag macadam for concrete 396,165 Electric power, MW 15,574,092 Ethanol fuel, 99.9 vol. % 267,254 Ethyl tertiary butyl ether (ETBE) 607,728 TOTAL: 24,010,963 2. In the year, that does not provide the stopping repair.

Anhydrous ammonia 291,293 Argon, liquefied 654,869 Premium Euro-95 gasoline 6,867,289 Super Euro-98 gasoline 2,622,981 Petroleum benzene 471,862 Euro V environmentally friendly diesel fuel 7,050,034 Fly ash for concrete production 1,681,381 Isopropyl alcohol, 99.9 wt. % 184,749 Krypton-xenon concentrate 12,255 Ammonium nitrate, granulated 779,914 P-Xylene 423,400 Polypropylene, granulated 363,964 Ammonium sulphate, granulated 415,957 Ammonium sulphate-nitrate, granulated 1,573,222 Petroleum toluene 422,868 Carbon dioxide liquefied 311,968 grained slag macadam for concrete 420,349

Project Scales and Results

Sales volume, USD. 126,285,180 678,910,100 6,057,964,224 2,341,050,290 524,317,806 7,141,085,021 98,247,928 230,707,675 33,495,000 253,589,490 480,444,160 572,848,410 89,107,283 415,899,594 394,952,149 60,861,933 15,054,270 1,168,056,900 194,881,617 785,184,576 21,662,943,606 133,994,780 720,355,900 6,427,782,504 2,483,963,007 556,325,298 7,577,024,042 104,245,622 244,792,425 35,539,500 269,070,330 509,773,600 607,819,880 94,547,026 441,288,771 419,062,188 64,577,376 15,973,262

~ 152 ~

Table 16 (continuation).

Project Summary

Name grained slag macadam for concrete Electric power, MW Ethanol fuel, 99.9 vol. % Ethyl tertiary butyl ether (ETBE)

TOTAL:

Sales volume, tonnes per annum

Sales volume, USD.

420,349 16,524,836 283,569 644,828 25,476,752

15,973,262 1,239,362,700 206,778,515 833,117,776 22,985,394,501

Table 17 displays the merchantable products balance of the enterprise after completion of the enterprise construction in basic prices on September 1, 2010.

Table 17. Merchantable products of the enterprise after completion of the enterprise construction in basic prices on September 1, 2010.

Name

Sales volume, tonnes per annum

1. In the year, that provides the stopping repair.

Anhydrous ammonia 274,533 Argon, liquefied 617,191 Premium Euro-95 gasoline 6,472,184 Super Euro-98 gasoline 2,472,070 Petroleum benzene 444,714 Euro V environmentally friendly diesel fuel 6,644,415 Fly ash for concrete production 1,584,644 Isopropyl alcohol, 99.9 wt. % 174,119 Krypton-xenon concentrate 11,550 Ammonium nitrate, granulated 735,042 P-Xylene 399,040 Polypropylene, granulated 343,023 Ammonium sulphate, granulated 392,025 Ammonium sulphate-nitrate, granulated 1,482,708 Petroleum toluene 398,539 Carbon dioxide liquefied 294,019 grained slag macadam for concrete 396,165 Electric power, MW 15,574,092 Ethanol fuel, 99.9 vol. % 267,254 Ethyl tertiary butyl ether (ETBE) 607,728 TOTAL: 24,010,963 2. In the year, that does not provide the stopping repair.

Anhydrous ammonia 291,293 Argon, liquefied 654,869

Project Scales and Results

Sales volume, USD. 102,949,875 506,096,620 4,443,154,316 1,789,160,663 400,464,957 4,411,891,560 91,275,494 194,142,685 27,720,000 204,709,197 359,934,080 543,691,455 71,936,588 312,110,034 295,715,938 45,572,945 13,865,775 996,741,888 215,914,507 607,120,272 15,634,168,848 109,234,875 536,992,580

~ 153 ~

Project Summary

Table 17 (continuation).

Name

Sales volume, tonnes per annum

Sales volume, USD.

Premium Euro-95 gasoline Super Euro-98 gasoline Petroleum benzene Euro V environmentally friendly diesel fuel Fly ash for concrete production Isopropyl alcohol, 99.9 wt. % Krypton-xenon concentrate Ammonium nitrate, granulated P-Xylene Polypropylene, granulated Ammonium sulphate, granulated Ammonium sulphate-nitrate, granulated Petroleum toluene Carbon dioxide liquefied grained slag macadam for concrete Electric power, MW Ethanol fuel, 99.9 vol. % Ethyl tertiary butyl ether (ETBE) TOTAL:

6,867,289 2,622,981 471,862 7,050,034 1,681,381 184,749 12,255 779,914 423,400 363,964 415,957 1,573,222 422,868 311,968 420,349 16,524,836 283,569 644,828 25,476,752

4,714,393,899 1,898,382,499 424,911,731 4,681,222,576 96,847,546 205,995,135 29,412,000 217,206,049 381,906,800 576,882,940 76,328,110 331,163,231 313,768,056 48,355,040 14,712,215 1,057,589,504 229,095,395 644,183,172 16,588,583,351

Figure

51

displays

the

structure of production facilities after

the

completion

of

the

68.57%

enterprise construction.

12.09% 12.01%

Motor fuels Organic synthesis products Fertilizers Other

7.33%

Figure 51.

The structure of production facilities after the completion of the enterprise construction.

Project Scales and Results

~ 154 ~

Project Summary

5.3. The markets and selling volumes for finished products.

5.3.1. Motor fuels and their components.

The averaged selling volume of motor fuels after the completion of the first stage construction will equal to 5,760,347,700 USD per annum, if the stopping repair is planned and 6,111,995,900 USD per annum, if the stopping repair is not planned. The averaged selling volume of motor fuels after the completion of the enterprise construction will equal to 15,256,934,600 USD per annum, if the stopping repair is planned and 16,188,318,800 per annum, if the stopping repair is not planned.

The project provides to sell the motor fuels manufactured by the Complex on both foreign and domestic markets. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship the motor fuels for foreign market. The motor fuels for domestic market will be shipped by filling and in wholesale parties by railroad, delivered for any region, according to requirements of the customer. Selling the motor fuels on the domestic market is planned after the construction of the whole enterprise is complete.

The economic section of the Feasibility Study provides the price of petroleum products allowing their delivery at the fixed price in European regions of the Russian Federation, including Ural. In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from the motor fuels selling.

Ethanol fuel, 99.9 vol. % produced by the Complex will be sold out at foreign market only, due to the excise duties from sales of any sorts of ethanol, making the selling on the domestic market unprofitable. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship ethanol fuel for foreign market.

Ethyl tertiary butyl ether (ETBE) produced by the Complex will be sold out at foreign market only, due to the absence of limitations for methyl tertiary butyl ether (MTBE) sales on the domestic market as the automotive fuel component with high octane number, and the existing price for ETBE is higher than for MTBE which is Project Scales and Results

~ 155 ~

Project Summary

undercutting the demand for ETBE. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship ethanol fuel for foreign market.

5.3.2. Organic synthesis products.

The averaged selling volume of organic synthesis products after the completion of the first stage construction will equal to 916,438,000 USD per annum, if the stopping repair is planned and 972,385,600 USD per annum, if the stopping repair is not planned.

The averaged selling volume of organic synthesis products after the completion of the enterprise construction will equal to 2,100,939,900 USD per annum, if the stopping repair is planned and 2,229,196,200 per annum if the stopping repair is not planned.

The project provides to sell the isopropyl alcohol, 99.9 wt. % manufactured by the Complex on both foreign and domestic markets. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship the isopropyl alcohol for foreign market. The isopropyl alcohol for domestic market will be shipped by filling and in wholesale parties by railroad, delivered for any region, according to requirements of the customer. Selling the isopropyl alcohol on the domestic market is planned after the construction of the whole enterprise is complete. The economic section of the Feasibility Study reasonably provides the price of isopropyl alcohol allowing its delivery at the fixed price in European regions of the Russian Federation, including Ural. While the transportation costs have been calculated, the location of potential customers of isopropyl alcohol has been considered. In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from the isopropyl alcohol selling.

The project provides to sell polypropylene manufactured by the Complex on both foreign and domestic markets. Delivery through the Baltic ports Muuga, Ventspils and Klaipeda will ship the polypropylene packed in big bags and railway containers for foreign market. Polypropylene for domestic market will be shipped packed in big bags and railway containers and in wholesale parties by railroad, delivered for any region, Project Scales and Results

~ 156 ~

Project Summary

according to requirements of the customer. Selling the polypropylene on the domestic market is planned after the construction of the whole enterprise is complete. The economic section of the Feasibility Study reasonably provides the price of polypropylene allowing its delivery at the fixed price in European regions of the Russian Federation, including Ural. While the transportation costs have been calculated, the location of potential customers of polypropylene has been considered. In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from polypropylene selling.

The project provides to sell the aromatic hydrocarbons as benzene, toluene and pxylene manufactured by the Complex on both foreign and domestic markets. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship the aromatic hydrocarbons for foreign market. The aromatic hydrocarbons for domestic market will be shipped by filling and in wholesale parties by railroad, delivered for any region, according to requirements of the customer. Selling the aromatic hydrocarbons on the domestic market is planned after the construction of the whole enterprise is complete.

The economic section of the Feasibility Study reasonably provides the price of the aromatic hydrocarbons allowing its delivery at the fixed price in European regions of the Russian Federation, including Ural. While the transportation costs have been calculated, the location of potential customers of the aromatic hydrocarbons has been considered.

In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from the aromatic hydrocarbons selling.

5.3.3. Fertilizers.

The averaged selling volume of fertilizers after the completion of the first stage construction will equal to 192,445,400 USD per annum, if the stopping repair is planned and 204,193,500 USD per annum, if the stopping repair is not planned. The averaged Project Scales and Results

~ 157 ~

Project Summary

selling volume of fertilizers after the completion of the enterprise construction will equal to 836,587,600 USD per annum, if the stopping repair is planned and 887,658,700 per annum, if the stopping repair is not planned.

Liquefied ammonia produced by the Complex will be sold on a foreign market only, since there is actually its overproduction at the domestic market. Filling through the Baltic ports Muuga, Ventspils and Klaipeda will ship ethanol fuel for foreign market.

The project provides to sell fertilizers as ammonium sulphate, ammonium nitrate and ammonium sulphate-nitrate manufactured by the Complex on both foreign and domestic markets. Delivery through the Baltic ports Muuga, Ventspils and Klaipeda will ship the fertilizers packed in big bags and railway containers for foreign market.

Fertilizers for domestic market will be shipped packed in big bags and railway containers and in wholesale parties by railroad, delivered for any region, according to requirements of the customer. Selling fertilizers on the domestic market is planned after the construction of the whole enterprise is complete. The economic section of the Feasibility Study reasonably provides the price of fertilizers allowing its delivery at the fixed price in European regions of the Russian Federation, including Ural. While the transportation costs have been calculated, the location of potential customers of fertilizers has been considered. In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from fertilizers selling.

5.3.4. Electric power.

The averaged selling volume of electric power after the completion of the first stage construction will equal to 981,657,500 USD per annum, if the stopping repair is planned and 1,041,584,200 USD per annum, if the stopping repair is not planned. The averaged selling volume of electric power after the completion of the enterprise construction will equal to 1,168,056,900 USD per annum, if the stopping repair is planned and 1,239,362,700 per annum, if the stopping repair is not planned.

Project Scales and Results

~ 158 ~

Project Summary

The electric power generated by the Complex will be sold on a domestic market only, since in the Russian Federation, according to Resolution of the Government #793 from June 12, 1996, only FGC UES JSC has the monopoly right on importing and exporting the electric power. Selling it to monopoly exporter will perform the delivery for the foreign markets.

5.3.5. Other products.

The averaged selling volume of other products after the completion of the first stage construction will equal to 601,321,400 USD per annum, if the stopping repair is planned and 638,032,200 USD per annum, if the stopping repair is not planned. The averaged selling volume of other products after the completion of the enterprise construction will equal to 836,059,600 USD per annum, if the stopping repair is planned and 887,098,600 per annum, if the stopping repair is not planned.

Liquefied argon and carbon dioxide produced by the Complex will be sold out at domestic market only, since carbon dioxide selling for foreign markets is unprofitable and for argon selling the significant additional quantity of cryogenic tank containers is to be purchased that requires large additional investments. Nevertheless, in case of any problem with selling those products on the domestic market, the Investment Plan provides the investment funds reserve allowing the purchase of tank containers. Argon and carbon dioxide for domestic market will be shipped by filling them into cryogenic tank containers and tank cars, delivered by railroad for any region, according to requirements of the customer. Selling argon and carbon dioxide on the domestic market is planned after the construction of the whole enterprise is complete. The economic section of the Feasibility Study reasonably provides the price of argon and carbon dioxide allowing its delivery at the fixed price in European regions of the Russian Federation, including Ural. While the transportation costs have been calculated, the location of potential customers of argon and carbon dioxide has been considered. In case of shipping according to EXW conditions, the sum of discount is less than transportation Project Scales and Results

~ 159 ~

Project Summary

costs used for economic calculation in Feasibility Study. It allows receiving additional revenue from argon and carbon dioxide selling.

Krypton-xenon concentrate produced by the Complex will be sold on a foreign market only, since there is no demand for this product on the domestic market. Kryptonxenon concentrate will be sold on a foreign market by filling in the tank containers through the Baltic ports Muuga, Ventspils and Klaipeda.

Fly ash for concrete production and grained slag macadam for concrete production manufactured by the Complex will be sold on a domestic market only, since their selling for the foreign markets seems to be difficult due to the ratio of the costs, including transportation expenses, and the saturation of the markets with these products. The economic section of the Feasibility Study reasonably provides the price of fly ash and grained slag macadam for concrete allowing their delivery at the fixed price in European regions of the Russian Federation, up to Volga region. While the transportation costs have been calculated, the location of potential customers of fly ash and grained slag macadam for concrete has been considered. In case of shipping according to EXW conditions, the sum of discount is less than transportation costs used for economic calculation in Feasibility Study. It allows providing the discount while selling fly ash and grained slag macadam for concrete, attracting more potential customers.

5.3.6. Integrated amount of the finished products selling by the enterprise.

Integrated amount of the revenue received by the enterprise from the finished products selling within the calculated lifetime of the project is shown at Table 18.

Project Scales and Results

~ 160 ~

Project Summary

Table 18. Integrated amount of the revenue received by the enterprise from the finished products selling.

Integrated amount of the revenue from the finished products selling, USD 1. For the project operating conditions by May 01, 2008.

2014 292,711,092 2015 11,081,222,561 2016 25,292,864,303 2017 52,097,199,176 2018 80,254,554,414 2019 107,463,448,058 2020 137,046,269,405 2021 165,632,613,289 2022 196,713,064,968 2023 226,746,592,511 2024 259,400,492,056 2025 290,954,466,931 2026 325,261,470,140 2027 358,412,864,993 2028 394,456,660,240 2029 429,286,344,457 2030 464,445,637,103 2. For the project operating conditions by September 01, 2010.

2014 216,995,836 2015 8,238,084,074 2016 18,754,079,594 2017 38,373,795,078 2018 58,997,215,166 2019 78,925,942,553 2020 100,593,423,283 2021 121,531,042,494 2022 144,295,439,436 2023 166,293,025,620 2024 190,209,870,157 2025 213,321,084,142 2026 238,448,718,934 2027 262,729,938,126 2028 289,129,659,429 2029 314,640,115,343 2030 340,396,776,830 A year by the end of which the integrated amount is calculated

The structure of income received from the finished products selling after completion of the first stage of the enterprise construction is shown at Figure 52. The structure of income received from the finished products selling after completion of the Project Scales and Results

~ 161 ~

Project Summary

enterprise construction is shown at Figure 53.

The averaged parameters of the

finished

products

68.98%

selling

performance are calculated for evaluation of the scales of the enterprise

operations.

The

averaged integrated amount of the finished products selling will equal to 433,433,422,000 USD, whereas the annual amount will equal to 27,089,588,900

26

USD.

The amount of finished goods

10.87%

10.42%

7.07% Motor fuels Organic synthesis products Fertilizers Electric power

2.65%

Figure 52.

The structure of income received from the finished products selling after completion of the first stage of the enterprise construction.

manufacturing and selling by the Complex will increase the annual GDP of the Russian Federation27 by 2% according to conditions of 2010, as well as considering the synergic

76.12%

effect, the annual GDP growth 28

10.15%

will be by about 5.5%.

The

enterprise’s

staff

working performance 29 will equal to 2,908,600 USD for the project operating conditions by May 01, 2008, and 2,131,700 USD for the project operating conditions by

Motor fuels Organic synthesis products Fertilizers Electric power Other

4.13% 4.15%

5.45%

Figure 53.

The structure of income received from the finished products selling after completion of the enterprise

The value is averaged and calculated for analytical evaluation of the scale of the operations of the project.

According to IMF, the Russian Federation GDP in 2010 was equal to 1 476 912 mln USD. 28 Calculated according to IMF methodology.

29 The estimated number of employees equals to 9 393 people.

26 27

Project Scales and Results

~ 162 ~

Project Summary

September 01, 2010. Note: the working performance in oil refining divisions of such companies as Chevron, Shell, ExxonMobil, considering the service staff, was equal to 2,150,000 USD for the project operating conditions by May 01, 2008, and 1,700,000 USD for the project operating conditions by September 01, 2010. These figures demonstrate the maximal efficiency of selected technical and technological solutions nowadays.

5.4. Finance and economic performance.

5.4.1. Investments into the project implementation.

The economic feasibility of the Complex construction is based on the present state and prospects of markets development for the production and consumption of motor fuels in the Russian Federation, the European Union and in the USA. Competitive advantages of the Complex are complying the manufacturing process and the products to most stringent existing environmental standards; meeting and even exceeding the parameters of the quality of products required by existing international standards; diversification of raw materials (oil, coal, natural gas), as well as their availability and accessibility within the existing infrastructure conditions; high value added and wasteless production.

The funding of the project is provided from two sources: by direct investment (Strategic Investor’s funds) and by financial investment. Direct investments is made by Strategic Investor in accordance with the Investment Plan, and they are considered as direct investments which allocation is provided by buying shares of the authorized capital. From these funds (direct investments) the funding for 20% of the cost of the Investment Plan is provided (allowing to cover the most of expenses for project work), as well as the interest payments on bank loans and the formation of 20% of financial reserves at the investment stage. The Strategic Investor is also raising the funds by

Project Scales and Results

~ 163 ~

Project Summary

receiving the bank credit by 7.5% for the baseline project operating conditions on May 1, 2008, and at 6.0% for the basic operating conditions of the project on September 1, 2010.

Through financial investments, the operating costs are funded for the period of construction of the first stage as well as the remaining 80% of the costs of Investment Plans and financial reserves.

Figure 54 displays the graph of incoming investments for funding the project for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The amount of direct investments allocated by Strategic Investor will equal to 6,102,369,000 USD. The amount of financial investments allocated by Strategic Investor as the loan capital will equal to 13,156,119,000 USD. The amount of net profit and depreciation charges allocated for the construction of the second stage will equal to 7,427,898,800 USD. Total amount of investments, net profit and depreciation charges required for project implementation will equal to 26,686,386,800 USD. Figure 55 displays the graph of incoming investments for funding the project for the baseline operating conditions on September 1, 2010, if the government provides tax benefits. The amount of direct investments allocated by Strategic Investor will equal to 5,972,468,000 USD. The amount of financial investments allocated by Strategic Investor as the loan capital will equal to 15,306,969,000 USD. The amount of net profit and depreciation charges allocated for the construction of the second stage will equal to 4,896,101,700 USD. Total amount of investments, net profit and depreciation charges required for project implementation will equal to 26,175,538,700 USD. Figure 56 displays the graph of incoming investments for funding the project for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits. The amount of direct investments allocated by Strategic Investor will equal to 7,879,811,200 USD. The amount of financial investments allocated by Strategic Investor as the loan capital will equal to 17,701,943,000 USD. The amount of net profit and depreciation charges allocated for the construction of the second stage will equal to 7,527,206,300 USD. Total amount of investments, net profit and depreciation charges Project Scales and Results

~ 164 ~

Project Summary

required for project implementation will equal to 33,108,960,500 USD. Figure 57 displays the graph of incoming investments for funding the project for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits. The amount of direct investments allocated by Strategic Investor will equal to 7,938,717,700 USD. The amount of financial investments allocated by Strategic Investor as the loan capital will equal to 20,973,165,000 USD. The amount of net profit and depreciation charges allocated for the construction of the second stage will equal to 3,445,910,900 USD. Total amount of investments, net profit and depreciation charges required for project implementation will equal to 32,357,793,600 USD. The total cost of the Complex construction is summarised costs of the first and the second stages construction. The first stage is funded from direct and financial investments only, whereas the second stage is funded from direct and financial investments and from the profit and depreciation charges from operations of the first stage.

The total cost of the Complex construction, excluding the administrative expenses and wages, equals to: 1. 23,027,739,000 USD, if the government provides tax benefits; 2. 28,679,631,000 USD, if the government does not provide tax benefits.

The initial data for calculations of both investment and operating plans, as well as the price of equipment, design and construction works considered for Business Plan and Investment Plan calculations, are based on the business proposals of Foster Wheeler, USA (the company is a candidate for the implementation of General Designer and General Contractor functions).

Project Scales and Results

~ 165 ~

Bln USD

Project Summary

20 18 16 14 12 10 8 6 4 2

0 01 January 2011

01 January 2012

01 January 2013 01 January 2014 01 January 2015 Direct investments Financial investments

01 January 2016

Figure 54. Schedule of funds for project funding under the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

Project Scales and Results

~ 166 ~

Bln USD

Project Summary

22 20 18 16 14 12 10 8 6 4 2 0 1 янв 11

1 янв 12

1 янв 13 Direct investments

1 янв 14

1 янв 15

1 янв 16

Financial investments

Figure 55. Schedule of funds for project funding under the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

Project Scales and Results

~ 167 ~

Bln USD

Project Summary

26 24 22 20 18 16 14 12 10 8 6 4 2 0 1 янв 11

1 янв 12

1 янв 13 Direct investments

1 янв 14 Financial investments

1 янв 15

1 янв 16

Figure 56. Schedule of funds for project funding under the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

Project Scales and Results

~ 168 ~

Bln USD

Project Summary

30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 1 янв 11

1 янв 12

1 янв 13 Direct investments

1 янв 14 Financial investments

1 янв 15

1 янв 16

Figure 57. Schedule of funds for project funding under the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

Project Scales and Results

~ 169 ~

Project Summary

The experts of Smith Barney Citigroup, New York note that there is actually no risk of the project investments non-repayment, as the risks are hedged by the enterprise assets in proportion to the investment rate in the costs of the Investment Plan, i.e., 20% of assets for direct investment and 80% of assets for bank credit. The share that is not covered by assets (the financial risk) is insured.

5.4.2. Securing the obligations of the project.

Figures 58-61 display the amounts of financial investments into the project and the project assets calculated for the four various conditions. The assets may cover the credit being provided if necessary. As it is obviously seen, the assets are totally protecting the project from credit non-repayment, since the encashment of the assets at any stage allows complete refunding of the loan.

5.4.3. Integrated parameters.

Integrated parameters of the project allow the estimation of the economic performance of the project. For this purpose, the calculations have been performed for the four variants of the project.

The economic parameters have been calculated for the period of 20 years.

The discount rate of the project is calculated within the initial data of the Business Plan using the average capital cost method and equals to 6% for the project with the baseline conditions on May 1, 2008, and 5% for the project with baseline conditions on September 1, 2010.

The difference in the values is caused by different cost of the loans in 2008 and 2010.

For all the projects, the Investment Plan cost has been calculated according to the equal conditions, i.e., in the prices of May 1, 2008.

Project Scales and Results

~ 170 ~

Bln USD

Project Summary

25

20

15

10

5

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets

01 January 2016

01 January 2017

01 January 2018

01 January 2019

01 January 2020

01 January 20

Credit balance

Figure 58. Schedule for securing the project obligations by assets under baseline operating conditions on May 1, 2008, if the government provides tax benefits within 2011-2012.

Project Scales and Results

~ 171 ~

Bln USD

Project Summary

25

20

15

10

5

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets

01 January 2016

01 January 2017

01 January 2018

Credit balance

01 January 2019

01 January 2020

01 January 202

Figure 59. Schedule for securing the project obligations by assets under baseline operating conditions on September 1, 2010, if the government provides tax benefits within 2011-2012. ~ 172 ~

Project Scales and Results

Bln USD

Project Summary

30

25

20

15

10

5

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets

01 January 2016

01 January 2017

01 January 2018

Credit balance

01 January 2019

01 January 2020

01 January 202

Figure 60. Schedule for securing the project obligations by assets under baseline operating conditions on May 1, 2008, if the government does not provide tax benefits within 2011-2012.

Project Scales and Results

~ 173 ~

Bln USD

Project Summary

30

25

20

15

10

5

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets

01 January 2016

01 January 2017

01 January 2018

01 January 2019

01 January 2020

01 January 202

Credit balance

Figure 61. Schedule for securing the project obligations by assets under baseline operating conditions on September 1, 2010, if the government does not provide tax benefits within 2011-2012. ~ 174 ~

Project Scales and Results

Project Summary

Various scenario conditions for projects have been extended on the cost of raw materials and finished products and aimed to assess the behaviour of the project in terms of both crisis and growing markets.

Integrated parameters of the project under the baseline operating conditions on May 1, 2008, if the government provides tax benefits, are shown in Table 19.

Table 19. Integrated parameters of the investment efficiency for the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

Parameter Discount rate, % Payback period (PB), months Discounted payback period (DPB), months Average rate of return (ARR). % Net present value (NPV), USD Profitability index (PI) Internal rate of return (IRR), % Modified internal rate of return (MIRR), %

Value 6,00 84 89 37.64 55,281,367,090.21 4.43 33.67 13.53

Integrated parameters of the project under the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits, are shown in Table 20.

Table 20. Integrated parameters of the investment efficiency for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

Parameter Discount rate, % Payback period (PB), months Discounted payback period (DPB), months Average rate of return (ARR). % Net present value (NPV), USD Profitability index (PI) Internal rate of return (IRR), % Modified internal rate of return (MIRR), %

Project Scales and Results

Value 6,00 93 100 28.56 50,923,342,747.65 3.39 27.79 12.03

~ 175 ~

Project Summary

Integrated parameters of the project under the baseline operating conditions on September 1, 2010, if the government provides tax benefits, are shown in Table 21.

Table 21. Integrated parameters of the investment efficiency for the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

Parameter Discount rate, % Payback period (PB), months Discounted payback period (DPB), months Average rate of return (ARR). % Net present value (NPV), USD Profitability index (PI) Internal rate of return (IRR), % Modified internal rate of return (MIRR), %

Value 5,00 102 109 23.50 37,054,890,999.09 3.04 23.68 10.81

Integrated parameters of the project under the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits, are shown in Table 22.

Table 22. Integrated parameters of the investment efficiency for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

Parameter Discount rate, % Payback period (PB), months Discounted payback period (DPB), months Average rate of return (ARR). % Net present value (NPV), USD Profitability index (PI) Internal rate of return (IRR), % Modified internal rate of return (MIRR), %

~ 176 ~

Value 5,00 115 127 17.50 31,700,943,303.49 2.30 18.54 9.26

Project Scales and Results

Project Summary

5.4.4. Analytics based on the integrated parameters.

In order to estimate the time required for coverage the allocated direct and financial investments from the net profit and depreciation and charges generated by the investment project, the economic calculation provides to calculate the payback period of the project shown at Figure 62. According to current Russian legislation, the parameter has been calculated as the number of months from starting date of the investment project funding to the date when the difference between the accumulated sum of net income with depreciation charges and the amount of investment expenses becomes positive.

Payback period is to be shorter than the calculated project lifetime, this condition is mandatory. Both 120

Strategic Investor and Financial

110

Investor

100

insist that the payback

90

period is to be less than

80

120 months.

70

As it is seen

60

from Figure 62, even

50

the highest value is

40 30

significantly less than

20

the calculated horizon

10

of the project. The

0

values of the payback

Baseline 2008, Baseline 2008, Baseline 2010, Baseline 2010, with benefits no benefits with benefits no benefits

period of the project shown in the chart for all the options of the project

meet

the

Payback period, months

Figure 62.

Payback period of the Complex.

expectations of both Project Scales and Results

~ 177 ~

Project Summary

Strategic Investor and Financial Investor and the values are less than 120 months.

In order to estimate the time required for coverage the initial investments from the net cash flow generated by the investment project, the economic calculation provides to calculate the discounted payback period of the project shown at Figure 63. This parameter is calculated as the number of months from starting date of the investment project funding to the date when the difference between the accumulated discounted sum of net income with depreciation charges and the amount of investment expenses becomes positive.

Discounted payback period is to be shorter than the calculated project lifetime, this condition is mandatory. Both Strategic Investor and Financial Investor insist that the payback period is to be less than 120 months.

As it is seen from Figure 63, even the highest value is

130 120 110

significantly less than

100

the calculated horizon

90

of the project. The

80

values

of

discounted

the

70 60

payback

50

period of the project

40

shown in the chart for

30

three

of

the

four

options of the project meet the expectations of

both

Strategic

Investor and Financial Investor and the values are

less

than

120

20 10 0 Baseline 2008, Baseline 2008, Baseline 2010, Baseline 2010, with benefits no benefits with benefits no benefits discounted payback period, months

Figure 63.

Discounted payback period of the Complex.

months. The value of ~ 178 ~

Project Scales and Results

Project Summary

the discounted payback period for the baseline conditions for September 1, 2010, without providing any benefits from the government exceed the investors’ expectations of 120 months; however, it is not crucial since this option evaluates the project performance in crisis condition and it is not the baseline model.

In order to estimate the average annual profitability of the project, the economic calculation provides to calculate the average rate of return of the project shown at Figure 64. This parameter is calculated as the ratio of the average annual profit amount to the amount of initial investments and displays the profit rate that the project generates from the funds being invested into it.

As it is seen from Figure 64, the

40.00%

parameter

35.00%

value

calculated for the four options is varying from

30.00% 25.00%

17.5% to 37.6%.

Considering the profitability of the riskfree

financial

instruments

in

20.00% 15.00%

the

10.00%

Federation,

5.00%

which is up to 10% (the

0.00%

Russian deposits),

the

parameter values can be

considered

acceptable

as

Baseline 2008, Baseline 2008, with benefits no benefits Baseline 2010, Baseline 2010, with benefits no benefits Average rate of return, %

for

investors. In addition, these figures are to be

Figure 64.

Average rate of return.

kept in mind of shareholders while considering the alternative projects.

In order to estimate the revenue of the project considering the expected change of Project Scales and Results

~ 179 ~

Project Summary

the money value over time, the economic calculation provides to calculate the net present value shown at Figure 65. Net present value parameter is the difference between the sums of all the incoming and outgoing cash flows calculated for the current moment.

It shows the amount of cash that the investors expect to receive from the project after the cash flows return their initial investment costs and recurring cash outflows related to the project. Since cash payments are assessed according to their timed value, the parameter can be interpreted as the value to be added by the project regarding the discount rate that reflects the timed value of money. Mandatory condition for the implementation of the project is that net present value should never be negative.

As it is seen from Figure 65, the parameter values for all the options of the project meet the most important condition for successful project implementation and in each The

values

vary

between 32 billion

Bln USD

case, it is positive.

60 55

USD and 55 billion

50

USD. Since there is

45

no project of such scale in Russia with which

40 35 30

performance

25

the value of the NPV

20

parameter

be

15

the

10

can

compared,

shareholders should consider

the

net

present value index for

alternative

5 0 Baseline 2008, Baseline 2008, Baseline 2010, Baseline 2010, with benefits no benefits with benefits no benefits Net present value, USD

projects or group of projects. Evaluating the ~ 180 ~

alternative

Figure 65.

Net present value.

Project Scales and Results

Project Summary

investments into various financial instruments in Russia, one may conclude that there is no financial instrument in Russia that can provide such net present value.

In order to evaluate the relative value of project profitability, the economic calculation provides to calculate the index of profitability of the project shown at Figure 66. This parameter is calculated as the ratio of the net present flow to the initial investments in the project and determines the amount of profit per unit of invested funds.

Mandatory condition for the implementation of the project is profitability index must be higher than one.

As it is seen from Figure 66, the parameter values for all the options of the project vary between 2.3 and 4.4, which is very good. Actually, this indicator provides an understanding of how much extra profit per unit of invested funds does project the give regarding

to

the

alternative investment

4.5

funds. In this case, the

4

project brings from 1.3 to 3.4 dollars in profit per

dollar

being

3.5 3 2.5

invested.

In

to

2

evaluate the threshold

1.5

level

order of

project

profitability,

the

economic calculation provides to calculate the internal rate of return

shown

at

1 0.5 0 Baseline 2008, Baseline 2008, Baseline 2010, Baseline 2010, with benefits no benefits with benefits no benefits Profitability index, times

Figure 67. Internal rate of return is the average return

on

capital

Project Scales and Results

Figure 66.

Profitability index.

~ 181 ~

Project Summary

provided by this investment project, i.e., the efficiency of capital investments in the project is the efficiency of investment by the same interest rate in any financial instrument with even income. This indicator is defined as the discount rate of the project at which the net present value of the project equals to zero. An investment is considered to be acceptable if the IRR value is higher than the minimum acceptable rate of return on investment into a financial instrument. Such investments are the matter of interest to the investor.

The economic sense of this parameter is that the investor can make any investment decisions if their level of profitability is equal to or higher than the current value of the indicator, that compares to IRR calculated for a particular project. They related in a way that, actually, the IRR indicates the expected profitability of the project.

If the IRR value is

lower

than

the

discount rate of the project,

it

will

be

unprofitable and NPV will be negative. The positive

difference

between the IRR and the discount rate shows the level of additional return

compared

risk-free

financial

instruments revenue reflected

to

which

is

actually by

the

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Baseline 2008, Baseline 2008, with benefits no benefits Baseline 2010, Baseline 2010, with benefits no benefits Internal rate of return. %

discount rate.

As it is seen from Figure 67, the ~ 182 ~

Figure â„–67.

Internal rate of return.

Project Scales and Results

Project Summary

parameter values for all the calculated options of the project vary between 18.5% to 33.7%. Comparing these figures with the discount rate displays a significant additional return on invested capital. In considering the project by investors, the IRR values to be compared with the values of the alternative projects or group of projects.

From the practical point of view, the most significant disadvantage of internal rate of return is the assumptions accepted for determining all the discounted cash flows generated by the investment, presuming that compound interest is calculated at the fixed interest rate. For projects with the return rate close to the interest rate, reinvestment problems do not arise, since there is a sensible assumption that there are many profitable investment options, the profit rate of which is close to the capital cost. However, for investments that provide a very high rate of return, the proposal to reinvest the income can distort the real return on the project. The corrected (modified) internal rate of return considering the reinvestment rate is used to withstand this distortion, which is inherent to traditional IRR. The modified internal rate of return (MIRR) is calculated as following: 1. The total present value of all cash outflows and total accrued value of all cash inflows is calculated.

2. Discounting is carried out according to the price of the financing source of the project (the cost of capital being allocated, the rate of funding or the required rate of return on investment), i.e., at the hurdle rate. Accruing is carried out at the interest rate equal to the level of reinvestment. Accrued cost of net inflows is called net terminal value (NTV).

3. The discount rate considering the total present value of the outflows and inflows of the terminal value is to be set. A discount rate that balances the present value of the investment (PV) with its terminal value is called the modified internal rate of return.

The cost of capital expressed as a discount rate is also the threshold level of MIRR. Modified internal rate of return is shown in Figure 68.

Project Scales and Results

~ 183 ~

As it is seen from Figure 68, the MIRR values

for

all

the

calculated options of the project

exceed

the

capital cost expressed

Project Summary 14.00% 12.00% 10.00% 8.00%

by the discount rate. It indicates profitability

the of

the

6.00% 4.00%

project, and exceeding its value indicates the additional received shareholders.

revenue by

2.00% 0.00% Baseline 2008, Baseline 2008, with benefits no benefits Baseline 2010, Baseline 2010, with benefits no benefits Modified internal rate of return, %

Figure 68.

Modified internal rate of return.

5.5. Revenues for the project participants.

The revenues for the project participants within the calculated period of calculation consist of the following components: dividends paid during the project lifetime and the cost of project assets at the end of the calculations. Accrual of dividends is semi-annual; paying the earnings per share performs it. The payments start after the enterprise's financial reserve formation is performed. Within six months, part of the retained earnings is accumulated for the dividend payments and then invested in highly reliable securities (in this case this is the US Treasures) by 3.0% per annum.

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Project Summary

The value of assets at the end of the calculations is formed from the following balance sheets: 1. funds, including arrears of VAT refund by government; 2. raw materials and components; 3. residual value of fixed assets.

It is assumed that by the end of the calculations there will be neither investments in high-reliable securities nor incomplete investments.

5.5.1. Project Organizers.

The share of Project Organizers in the authorised capital is 35% if the government provides tax benefits and 36% if not. Table 23 displays the schedule of dividend payments for Project Organizers (undiscounted cash flow).

Table 23. The schedule of dividend payments for Project Organizers (undiscounted cash flow).

Dividend pay-out year

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Payment amount, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

0 1,249,500,000 1,499,750,000 1,516,900,000 1,761,550,000 2,297,400,000 3,068,100,000 3,100,650,000 3,234,700,000 3,276,700,000 3,410,050,000 3,453,800,000 3,600,800,000 3,639,650,000 3,943,450,000 TOTAL: 39,053,000,000

Project Scales and Results

~ 185 ~

Table 23 (continuation).

Project Summary

Dividend pay-out year

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2016 2017 2018 2019 2020 2021

Payment amount, USD

2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

0 216,300,000 370,685,000 445,669,000 603,079,050 1,457,750,000 2,053,100,000 2,094,050,000 2,170,000,000 2,215,150,000 2,299,500,000 2,348,500,000 2,427,950,000 2,480,450,000 2,711,450,000 TOTAL: 23,893,633,050 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

0 619,200,000 1,145,880,000 1,185,840,000 1,456,560,000 2,350,080,000 3,157,200,000 3,196,440,000 3,352,680,000 3,376,800,000 3,538,800,000 3,568,680,000 3,730,284,000 3,769,200,000 4,099,680,000 TOTAL: 38,547,324,000 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

0 0 0 0 0 1,482,480,000

~ 186 ~

Project Scales and Results

Table 23 (continuation).

Project Summary

Dividend pay-out year 2022 2023 2024 2025 2026 2027 2028 2029 2030

Payment amount, USD

TOTAL:

2,112,696,000 2,155,829,040 2,243,412,000 2,284,056,000 2,373,048,000 2,417,256,000 2,515,608,000 2,556,972,000 2,814,372,000 22,955,729,040

Total amount of assets at the disposal of Project Organizers is proportional to their share in the authorized capital and equals to 35% if the government provides tax benefits and 36% if not.

Table 24 displays the amount of the project assets at the disposal of Project Organizers (undiscounted cash flow).

Table 24. The amount of the project assets at the disposal of Project Organizers (undiscounted cash flow).

Clause

Total assets, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

Assets at the disposal of Project Organizers 4,892,055,300 TOTAL: 4,892,055,300 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

Assets at the disposal of Project Organizers 4,396,464,250 TOTAL: 4,396,464,250 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

Assets at the disposal of Project Organizers 5,541,290,100 TOTAL: 5,541,290,100 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

Assets at the disposal of Project Organizers 5,028,255,160 TOTAL: 5,028,255,160

Project Scales and Results

~ 187 ~

Project Summary

The net income of Project Organizers for the calculated period is 43,945,055,300 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The net present value of Project Organizers is 18,811,119,300 USD. The net income of Project Organizers for the calculated period is 28,290,097,300 USD for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits. The net present value of Project Organizers is 13,261,198,800 USD. The net income of Project Organizers for the calculated period is 44,088,614,100 USD for the baseline operating conditions on September 1, 2010, if the government provides tax benefits. The net present value of Project Organizers is 18,433,708,800 USD. The net income of Project Organizers for the calculated period is 27,983,984,200 USD for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits. The net present value of Project Organizers is 12,748,385,700 USD. The values being presented indicate significant revenue for Project Organizers with relatively small investments. This ensures that the project is risk-free for its Organizers.

5.5.2. Strategic Investor.

The share of Strategic Investor in the authorised capital is 40% if the government provides tax benefits and 49% if not.

Table 25 displays the schedule of dividend payments for Strategic Investor (undiscounted cash flow).

~ 188 ~

Project Scales and Results

Project Summary

Table 25. The schedule of dividend payments for Strategic Investor (undiscounted cash flow).

Dividend pay-out year

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2016 2017 2018 2019

Payment amount, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

0 1,428,000,000 1,714,000,000 1,733,600,000 2,013,200,000 2,625,600,000 3,506,400,000 3,543,600,000 3,696,800,000 3,744,800,000 3,897,200,000 3,947,200,000 4,115,200,000 4,159,600,000 4,506,800,000 TOTAL: 44,632,000,000 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

0 247,200,000 423,640,000 509,336,000 689,233,200 1,666,000,000 2,346,400,000 2,393,200,000 2,480,000,000 2,531,600,000 2,628,000,000 2,684,000,000 2,774,800,000 2,834,800,000 3,098,800,000 TOTAL: 28,673,332,800 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

0 842,800,000 1,559,670,000 1,614,060,000

Project Scales and Results

~ 189 ~

Table 25 (continuation).

Project Summary

Dividend pay-out year

Payment amount, USD

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

1,982,540,000 3,198,720,000 4,297,300,000 4,350,710,000 4,563,370,000 4,596,200,000 4,816,700,000 4,857,370,000 5,077,331,000 5,130,300,000 5,580,120,000 TOTAL: 52,467,191,000 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

2016 0 2017 0 2018 0 2019 0 2020 0 2021 2,017,820,000 2022 2,875,614,000 2023 2,934,322,860 2024 3,053,533,000 2025 3,108,854,000 2026 3,229,982,000 2027 3,290,154,000 2028 3,424,022,000 2029 3,480,323,000 2030 3,830,673,000 TOTAL: 31,245,297,860

Total amount of assets at the disposal of Strategic Investor is proportional to their share in the authorized capital and equals to 40% if the government provides tax benefits and 49% if not.

Table 26 displays the amount of the project assets at the disposal of Strategic Investor (undiscounted cash flow).

~ 190 ~

Project Scales and Results

Project Summary

Table 26. The amount of the project assets at the disposal of Strategic Investor (undiscounted cash flow).

Clause

Total assets, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

Assets at the disposal of Strategic Investor 5,590,920,400 TOTAL: 5,590,920,400 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

Assets at the disposal of Strategic Investor 3,658,207,000 TOTAL: 3,658,207,000 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

Assets at the disposal of Strategic Investor 7,542,311,500 TOTAL: 7,542,311,500 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

Assets at the disposal of Strategic Investor 6,844,013,940 TOTAL: 6,844,013,940

The net income of Strategic Investor for the calculated period is 50,222,920,400 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The net present value of Strategic Investor is 16,516,866,500 USD. The net income of Strategic Investor for the calculated period is 32,331,539,800 USD for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits. The net present value of Strategic Investor is 10,133,520,300 USD. The net income of Strategic Investor for the calculated period is 60,009,502,500 USD for the baseline operating conditions on September 1, 2010, if the government provides tax benefits. The net present value of Strategic Investor is 18,676,734,700 USD. The net income of Strategic Investor for the calculated period is 38,089,311,800 USD for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits. The net present value of Strategic Investor is 10,707,878,400 USD. Figures 69-72 show the graphs of the uncommitted net assets attributable to Strategic Investor (the amount of assets available to the enterprise minus the short-and

Project Scales and Results

~ 191 ~

long-term liabilities).

Project Summary

Before all of the assets attributable to Strategic Investor exceed the direct investments (point of intersection), the investment risks of Strategic Investor are hedged with net assets of the enterprise in the amount equal to projected assets minus total liabilities.

~ 192 ~

Project Scales and Results

Bln USD

Project Summary

7

6

5

4

3

2

1

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets without obligations at the disposal of Strategic Investor

01 January 2016

01 January 2017

Investments of Strategic Investor

01 January 20

Figure 69. Schedule for securing of investments of Strategic Investor with assets for the baseline operating conditions on May 1, 2008, if the government provides tax benefits within 2011-2018.

Project Scales and Results

~ 193 ~

Bln USD

Project Summary

7

6

5

4

3

2

1

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets without obligations at the disposal of Strategic Investor

01 January 2016

01 January 2017

01 January 2018

Investments of Strategic Investor

01 January 20

Figure 70. Schedule for securing of investments of Strategic Investor with assets for the baseline operating conditions on September 1, 2010, if the government provides tax benefits within 2011-2018.

~ 194 ~

Project Scales and Results

Bln USD

Project Summary

9

8

7

6

5

4

3

2

1

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

Project assets without obligations at the disposal of Strategic Investor

01 January 2016

01 January 2017

Investments of Strategic Investor

01 January 20

Figure 71. Schedule for securing of investments of Strategic Investor with assets for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits within 2011-2018.

Project Scales and Results

~ 195 ~

Bln USD

Project Summary

10

9

8

7

6

5

4

3

2

1

0 01 January 2011

01 January 2012

01 January 2013

01 January 2014

01 January 2015

01 January 2016

Project assets without obligations at the disposal of Strategic Investor

01 January 2017

01 January 2018

01 January 2019

Investments of Strategic Investor

01 January 20

Figure 72. Schedule for securing of investments of Strategic Investor with assets for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits within 2011-2020.

~ 196 ~

Project Scales and Results

Project Summary

5.5.3. The Government.

The share of The Government in the authorised capital is 25% if the government provides tax benefits and 15% if not.

Table 27 displays the schedule of dividend payments for The Government (undiscounted cash flow).

Table 27. The schedule of dividend payments for The Government (undiscounted cash flow).

Dividend pay-out year

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Payment amount, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

0 892,500,000 1,071,250,000 1,083,500,000 1,258,250,000 1,641,000,000 2,191,500,000 2,214,750,000 2,310,500,000 2,340,500,000 2,435,750,000 2,467,000,000 2,572,000,000 2,599,750,000 2,816,750,000 TOTAL: 27,895,000,000 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

0 154,500,000 264,775,000 318,335,000 430,770,750 1,041,250,000 1,466,500,000 1,495,750,000 1,550,000,000 1,582,250,000

Project Scales and Results

~ 197 ~

Table 27 (continuation).

Project Summary

Dividend pay-out year

Payment amount, USD

2026 2027 2028 2029 2030

1,642,500,000 1,677,500,000 1,734,250,000 1,771,750,000 1,936,750,000 TOTAL: 17,066,880,750 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

2016 0 2017 258,000,000 2018 477,450,000 2019 494,100,000 2020 606,900,000 2021 979,200,000 2022 1,315,500,000 2023 1,331,850,000 2024 1,396,950,000 2025 1,407,000,000 2026 1,474,500,000 2027 1,486,950,000 2028 1,554,285,000 2029 1,570,500,000 2030 1,708,200,000 TOTAL: 16,061,385,000 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

2016 0 2017 0 2018 0 2019 0 2020 0 2021 617,700,000 2022 880,290,000 2023 898,262,100 2024 934,755,000 2025 951,690,000 2026 988,770,000 2027 1,007,190,000 2028 1,048,170,000 2029 1,065,405,000 2030 1,172,655,000 TOTAL: 9,564,887,100

~ 198 ~

Project Scales and Results

Project Summary

Table 28 displays the amount of the project assets at the disposal of The Government (undiscounted cash flow).

Table 28. The amount of the project assets at the disposal of The Government (undiscounted cash flow).

Clause

Total assets, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

Assets at the disposal of The Government 3,494,325,200 TOTAL: 3,494,325,200 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

Assets at the disposal of The Government 3,140,331,600 TOTAL: 3,140,331,600 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

Assets at the disposal of The Government 2,095,106,300 TOTAL: 2,095,106,300 4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

Assets at the disposal of The Government 2,290,949,855 TOTAL: 2,290,949,855

The net income of The Government in dividends for the calculated period is 31,389,325,200 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

The net income of The Government in dividends for the calculated period is 20,207,212,350 USD for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

The net income of The Government in dividends for the calculated period is 18,370,255,900 USD for the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

The net income of The Government in dividends for the calculated period is 11,659,993,400 USD for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

The net present value of The Government from the project implementation, Project Scales and Results

~ 199 ~

Project Summary

including the dividends, tax payments, excuses and duties and the social duties will equal to: 1. 93,061,561,500 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The net presented value of The Government assuming the taxes will equal to 43,090,380,800 USD. 2. 66,606,391,100 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The net presented value of The Government will equal to 34,402,063,000 USD. 3. 79,264,680,800 f USD or the baseline operating conditions on September 1, 2010, if the government provides tax benefits. The net presented value of The Government assuming the taxes will equal to 36,954,149,700 USD. 4. 57,613,433,900 USD for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits. The net presented value of The Government will equal to 29,969,862,900 USD.

5.5.4. Financial Investor.

Financial Investor is involved in the project under the terms of loan capital allocation. Financial Investor has no share in the enterprise. The funds allocated by Financial Investor will be returned within 120 months from the beginning of the project.

Under the terms of the calculation, the amount of investments is fully refundable.

According to it, the revenue of Financial Investor is the interest payments on the credit.

Table 29 displays the schedule of the interest payments on the credit for Financial Investor (undiscounted cash flow).

~ 200 ~

Project Scales and Results

Project Summary

Table 29. The schedule of the interest payments on the credit for Financial Investor (undiscounted cash flow).

Dividend pay-out year

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Payment amount, USD

1. For the baseline operating conditions on May 1, 2008, if the government provides tax benefits.

8,656,013 115,036,256 329,509,331 652,181,106 937,321,638 966,001,800 875,955,882 634,312,880 392,669,878 151,026,876 1,678,076 TOTAL: 5,064,349,738 2. For the baseline operating conditions on September 1, 2010, if the government provides tax benefits.

6,916,110 91,937,165 263,326,965 521,074,735 755,834,945 869,052,790 815,330,389 590,411,661 365,492,933 140,574,205 1,561,935 TOTAL: 4,421,513,835 3. For the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits.

10,409,700 143,121,906 410,982,025 811,503,593 1,151,882,350 1,277,727,450 1,132,403,706 820,016,477 507,629,247 195,242,018 2,169,355 TOTAL: 6,463,087,831

Project Scales and Results

~ 201 ~

Table 29 (continuation).

Project Summary

Dividend pay-out year

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Payment amount, USD

4. For the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits.

8,319,080 114,405,755 328,505,065 648,532,680 941,439,230 1,128,441,677 1,073,332,561 777,240,820 481,149,079 185,057,338 2,056,192 TOTAL: 5,688,479,480

The net income of Financial Investor for the calculated period is 5,064,349,738 USD for the baseline operating conditions on May 1, 2008, if the government provides tax benefits. The net present value of Financial Investor is 817,926,122 USD. The net income of Financial Investor for the calculated period is 4,421,513,835 USD for the baseline operating conditions on May 1, 2008, if the government does not provide tax benefits. The net present value of Financial Investor is 625,249,485 USD. The net income of Financial Investor for the calculated period is 6,463,087,831 USD for the baseline operating conditions on September 1, 2010, if the government provides tax benefits. The net present value of Financial Investor is 1,041,921,700 USD. The net income of Financial Investor for the calculated period is 5,688,479,480 USD for the baseline operating conditions on September 1, 2010, if the government does not provide tax benefits. The net present value of Financial Investor is 802,765,218 USD.

~ 202 ~

Project Scales and Results

Project Summary

5.6. Financial and analytical indicators.

In case of unforeseen expenses at the investment and operational stage of the project and for the formation of sufficient liquidity of the enterprise, the project is forming a balance of cash and performs the formation of financial reserves.

During the construction of the first phase of the enterprise, the cash balance at the end of the period is formed as 50% from the payment for the Investment Plan resources for the current period and as 100% from the total fixed costs of the current month plus the taxes paid within this period.

During the operation of the enterprise’s first stage when the need in investment funds is actual, the Strategic Investor payments retain the original structure, and the payments of transaction costs are performed from the working capital. The free cash flow remained at the end of the billing period after the cash balance is formed is allocated for the Investment Plan resources funding. If at the end of the month part of Investment Plan resources remains underfunded, this part is funded by both Direct and Financial investments in the original aspect ratio (20/80). If the free cash flow is sufficient for funding of 100% of the Investment Plan, during this period the financial investments are not involved. In this case, the interest on the loan, despite the lack of the own funds, is paid out from Direct investments. Direct investments are incoming throughout the whole period of financial investments performing (the period of their involvement) plus one month, which is the last for direct investments and in which they are paid by the interest on the loan only.

During the operation of both stages, the cash balance is generated in the amount of 100% of the total fixed costs of the current month plus the taxes paid in the period.

Before the credit is returned, the enterprise’s financial reserves are formed in the amount of 100% of the working capital (the maximum amount of, the total fixed cost plus taxes, excluding the customs and excise duties, within current year), and after the loan is returned, the financial reserves are formed in the amount of 150% of the working capital. The finance reserves are invested in highly reliable securities (in this case this is Project Scales and Results

~ 203 ~

Project Summary

the US Treasures) with annual period of investing and with maturity for 10 years. The profitability on these securities is taken equal to 3% per annum, with revenue paid at the sale. At the end of the year, the appropriate financial reserves of the enterprise are recalculated and then reinvested in highly reliable securities.

5.6.1. Current ratio.

In order to evaluate the sufficiency of the enterprise funds that can be used for the short-term debts repayments, the economic calculation provides to calculate the current ratio. This coefficient is calculated as the ratio of current assets to current liabilities (in %). The average values of balance sheet indicators for the billing period are used for calculation. This ratio shows, whether the funds that can be used for short-term obligations repayments are sufficient. In the international practice, the normal value of the current ratio is the value of 100% to 200% (sometimes up to 300%). The lower bound indicates that the current assets should be at least sufficient for current liabilities coverage. The excess of current assets over the current liabilities by more than three times is also undesirable, since it can indicate the unsustainable assets structure.

Figure 73 displays the current ratio for the four calculated project options for the period of 2011-2030.

The indicators for all the four projects have the same trend and differ only in values.

During the construction, the current ratio value is in the range of 150 to 200%.

Such values of the parameter indicate that funds are sufficient for covering the current obligations and also for covering the contingencies that may arise.

During the operation, there are two trends of indictor increase: 1. Once in two years the indicator value becomes very high. This is explained by the stopping repairs carried out when the volume of short-term debt is reduced (it happens due to the suspension of production and reduction of purchased materials amount) and the amount of working capital remains unchanged, and ~ 204 ~

Project Scales and Results

Project Summary

the amount of working capital remains unchanged.

2. Each six months the indicator value increases slightly and then falls down to an acceptable level (about 250-400%). This is explained by the accumulation of retained revenue which is embedded in a highly reliable securities (in our case this is the US Treasures), and semi-annually is paid as the dividends to shareholders.

In general, during the operation the level of indicator is supported at about 250%, which allows the coverage of short-term liabilities and keeps the reserve for unforeseen expenses.

In 2010, Lukoil JSC, one of the potential project competitors, had the current ratio within 41% to 97%, which is less than in the project being calculated.

Project Scales and Results

~ 205 ~

Project Summary

%

2000 1800 1600 1400 1200 1000 800 600 400 200 0

Baseline 2010, with benefits

Baseline 2008, with benefits

Baseline 2010, no benefits

Baseline 2008, no benefits

Figure 73. Current ratio values calculated for various project options. ~ 206 ~

Project Scales and Results

Project Summary

5.6.2. Fixed assets turnover.

In order to evaluate the efficiency of fixed assets usage by the enterprise, the economic calculation provides to calculate the fixed assets turnover. This coefficient is calculated as the ratio of the total annual sales revenue to the average value of the sum of fixed assets. The higher the coefficient, the more efficiently the company uses the capital assets. The low level of assets return indicates the lack in sales volume or too high value of capital investments. Note: this ratio is strongly industry-specific. In addition, the value of this parameter depends on the depreciation calculating method and on the asset evaluation practices. The situation when the enterprise using the frayed facilities has the assets turnover ratio higher than a modernized enterprise is entirely possible.

Figure 74 displays the fixed assets turnover values for the four calculated project options for the period of 2015-2030.

The indicators for all the four projects have the same trend and differ only in values.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are equal to zero since there is no operating activity.

The values within the second stage of the enterprise construction (January 2015 to December 2016) are downwarding due to gradual increase of the fixed assets value.

Lowering the parameter value indicates the capital investment made into fixed assets that do not depreciate until the second stage is put into operation.

The values within the enterprise operation (January 2017 to December 2030) are gradually increasing due to the fixed assets depreciation and indicates their proper usage.

Project Scales and Results

~ 207 ~

Project Summary

5

5

4

4

3

3

2

2

1

1

0 1-Jan-15

1-Jan-16

1-Jan-17

1-Jan-18

Baseline 2010, with benefits

1-Jan-19

1-Jan-20

1-Jan-21

1-Jan-22

1-Jan-23

Baseline 2008, with benefits

1-Jan-24

1-Jan-25

1-Jan-26

Baseline 2010, no benefits

1-Jan-27

1-Jan-28

1-Jan-29

1-Jan-30

Baseline 2008, no benefits

Figure 74. Fixed assets turnover values for the period of 2015-2030. ~ 208 ~

Project Scales and Results

Project Summary

5.6.3. Time interest earned.

In order to evaluate the degree of creditors’ protection against the interest nonpayment on loans being granted, the economic calculation provides to calculate the times interest earned that indicates how many times had the enterprise earned the amount of money sufficient to pay the interest on loans during the billing period. This indicator is calculated as earnings before interest and taxes to the amount of interest payments. This indicator also measures the allowable decrease in income that is used to pay the interest.

Figure 75 displays the values of times interest earned within the period of 20152020.

The indicators for all the four projects have the same trend and differ only in values.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are negative since there is no operating activity and the revenue is also negative or equal to zero. In that period until the repayments on debt start (January 1, 2017), the interest is paid from the direct investments allocated by Strategic Investor.

The values within the second stage of the enterprise construction (January 2015 to December 2016), since the first stage has started, are within the range of operating profit and several times greater than it required to pay the interest on the loan.

The values within the enterprise operation (January 2017 to December 2030) are gradually increasing indicating a sufficient safety margin for paying the interest on obligations.

Project Scales and Results

~ 209 ~

Project Summary

550

450

350

250

150

50

-50 1-Jan-15

1-Jan-16

Baseline 2010, with benefits

1-Jan-17

1-Jan-18

Baseline 2008, with benefits

1-Jan-19

Baseline 2010, no benefits

1-Jan-20

1-Jan-21

Baseline 2008, no benefits

Figure 75. Time interest earned values for the period of 2011-2030. ~ 210 ~

Project Scales and Results

Project Summary

5.6.4. Long-term debt to total assets index.

In order to evaluate how much of assets is financed by long-term loans, the economic calculation provides to calculate the long-term debt to total assets indicator (Long-term debt to total assets). This coefficient is calculated as the ratio of long-term debt to total assets of the enterprise.

Figure 76 displays the values of long-term debt to total assets indicator within the period of 2011-2020.

The indicators for all the four projects have the same trend and differ only in values.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are at about the same level, which means borrowing the loans for the first phase of the enterprise construction. The indicator values determine how much of the project assets is financed by long-term loans.

The values within the second stage of the enterprise construction and during the enterprise operation (January 2015 to December 2020) are gradually decreasing down to zero until the loan is completely returned. The decrease is related to the reduction of longterm debt on the loan until its full repayment.

5.6.5. Net profit margin.

In order to evaluate the net profit value in the amount of sales of the enterprise, the economic calculation provides to calculate the net profit margin. This coefficient is calculated as the ratio of net profit to the amount of sales of the enterprise. The net profit is a finished profit remained at the enterprise, intended for dividend payments or for reinvestments in further development of the enterprise.

Figure 77 displays the values of net profit margin within the period of 2011-2030.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are equal to zero since there is no operating activity.

Project Scales and Results

~ 211 ~

Project Summary

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00 1-Jan-11

1-Jan-12

1-Jan-13

Baseline 2010, with benefits

1-Jan-14

1-Jan-15

Baseline 2008, with benefits

1-Jan-16

1-Jan-17

1-Jan-18

Baseline 2010, no benefits

1-Jan-19

1-Jan-20

1-Jan-21

Baseline 2008, no benefits

Figure 76. Long-term debt to total assets indicator values (%) for the period of 2011-2020. ~ 212 ~

Project Scales and Results

Project Summary

The values within the second stage of the enterprise construction (January 2015 to December 2016) are significantly high in comparison to further activity of the project because the overhead costs of the Complex are not fully implemented yet. However, the values of the index decrease slightly, due to the increase in administrative expenses during the construction of the second stage.

The values within the enterprise operation (January 2017 to December 2030) remain at about the same level and its slight increase caused by the inflation considered in the project calculations. The single fallings of the indicator value are caused by the stopping renovations to be performed in April of each second year.

Comparing the results with the similar parameter of the main competitor Lukoil JSC, its high values for the project are obvious. The data of this index for Lukoil JSC enterprises have been taken from open sources and lay within the range of 12% to 15%.

In this project, the parameters values are always higher than the competitors’ is ones.

5.6.6. Return on investment index.

In order to evaluate how many monetary units have been used per unit of revenue, the economic calculation provides to calculate the return on investment index. This indicator is calculated as the ratio of the net income to the assets. It is one of the most important indicators of competitiveness.

Figure 78 displays the values of return on investment index within the period of 2015-2030.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are negative since there is no operating activity and the revenue is also negative or equal to zero.

Project Scales and Results

~ 213 ~

Project Summary

50

40

30

20

10

0

-10

-20 1-Jan-15

1-Jan-16

1-Jan-17

1-Jan-18

1-Jan-19

Baseline 2010, with benefits

1-Jan-20

1-Jan-21

1-Jan-22

1-Jan-23

Baseline 2008, with benefits

1-Jan-24

1-Jan-25

1-Jan-26

Baseline 2010, no benefits

1-Jan-27

1-Jan-28

1-Jan-29

1-Jan-30

Baseline 2008, no benefits

Figure 77. Net profit margin values within the period of 2015-2030. ~ 214 ~

Project Scales and Results

Project Summary

The values within the second stage of the enterprise construction and during the enterprise operation (January 2015 to December 2030) are gradually increasing, which indicates a gradual improvement of the project performance. In other words, the assets generating net income are used more efficiently, bringing more net profit. The single fallings of the indicator value are caused by the stopping renovations to be performed in April of each second year.

The similar parameter of the main competitor Lukoil JSC in the 4th quarter of 2010 was equal to 29%. The values increasing in the considered project further on gradually exceed the competitor’s indicator.

5.6.7. Earnings per ordinary share index.

In order to evaluate how much net profit per ordinary share in circulation, the economic calculation provides to calculate the earnings per ordinary share index. This index is calculated as the ratio of the net profit to the quantity of ordinary shares. The number of circulating ordinary shares is defined as the difference between the total number of ordinary shares being issued and number of shares in the own portfolio. If there are privileged shares in the capital structure of the company, the amount of dividends paid on them must first be deducted from the net income value. Note that this indicator has a significant impact on the market value of the company shares.

Figure 79 displays the values of earnings per ordinary share within the period of 2015-2030.

Total number of ordinary shares within the calculated period is 100,000 and it is assumed to remain invariable within the project lifetime.

The values within the first stage of the enterprise construction (January 2011 to December 2014) are negative since there is no operating activity and the revenue is also negative or equal to zero.

The values within the second stage of the enterprise construction (January 2015 to December 2016) are about 3,000 USD per share.

Project Scales and Results

~ 215 ~

%

Project Summary

70

60

50

40

30

20

10

0

-10 1-Jan-15

1-Jan-16

1-Jan-17

1-Jan-18

Baseline 2010, with benefits

1-Jan-19

1-Jan-20

1-Jan-21

1-Jan-22

Baseline 2008, with benefits

1-Jan-23

1-Jan-24

1-Jan-25

1-Jan-26

Baseline 2010, no benefits

1-Jan-27

1-Jan-28

1-Jan-29

1-Jan-30

Baseline 2008, no benefits

Figure 78. Return on investment index values within the period of 2011-2030. ~ 216 ~

Project Scales and Results

Project Summary

The values within the enterprise operation (January 2017 to December 2030) are gradually increasing while the net profit of the project grows.

Note that the similar parameter value of the main competitor Lukoil JSC in the 4th quarter of 2011 was about 6 USD per share. Such difference is because the shares of Lukoil JSC are quoted at the stock exchange and there were operations for changing the quantity of shares circulating at the market.

There is no such operation provided by the current project within its lifetime.

5.7.

Tax load.

The integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government provides tax benefits within the calculated lifetime of the project is given in Table 30.

Table 30. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government provides tax benefits.

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

1. Profit tax (PT).

Project Scales and Results

Integrated tax payments amount, USD 0 0 0 0 462,085,999 1,079,342,895 1,924,074,491 2,135,885,711 2,090,546,535 2,390,607,072 2,324,102,251 2,586,220,716 2,471,987,951 2,738,776,549 2,618,631,663 2,898,732,118

~ 217 ~

Project Summary

60000

50000

40000

30000

20000

10000

0 1-Jun-17

1-Jun-18

1-Jun-19

1-Jun-20

Baseline 2010, with benefits

1-Jun-21

1-Jun-22

1-Jun-23

Baseline 2008, with benefits

1-Jun-24

1-Jun-25

1-Jun-26

Baseline 2010, no benefits

1-Jun-27

1-Jun-28

1-Jun-29

1-Jun-30

Baseline 2008, no benefits

Figure 79. Earnings per ordinary share values within the period of 2011-2030. ~ 218 ~

Project Scales and Results

Table 30 (Continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

30

2. Value added tax (VAT).

3. Property tax.

Integrated tax payments amount, USD 2,772,371,711 3,066,518,664 2,933,568,651 3,242,723,667 0 0 0 0 -201,602,423 30 -315,728,773 -963,266,889 -1,226,211,887 -1,184,751,462 -1,288,288,864 -1,244,729,504 -1,353,508,488 -1,307,743,936 -1,422,029,855 -1,373,948,472 -1,494,020,117 -1,443,504,614 -1,569,654,885 -1,516,582,035 -1,649,118,663 160,624,782 264,870,105 422,364,788 458,902,838 438,955,505 420,269,030 399,939,893 380,935,445 360,205,175 340,866,657 160,624,782 264,870,105 422,364,788 458,902,838 319,714,948

Negative value presumes the VAT refund after the export operations.

Project Scales and Results

~ 219 ~

Table 30 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

4. Social payments.

5. Land tax.

~ 220 ~

Integrated tax payments amount, USD 300,025,447 278,430,962 258,372,711 236,313,035 215,867,365 1,939,739 5,984,322 12,160,566 27,932,561 37,975,383 52,487,511 53,356,481 53,759,064 54,175,732 54,602,816 55,040,577 55,489,283 55,949,206 56,420,627 56,903,834 57,399,121 57,906,790 58,427,151 58,960,521 59,507,225 33,750 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000

Project Scales and Results

Table 30 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

6. Excise and customs duties.

Integrated tax payments amount, USD 45,000 45,000 45,000 45,000

0 0 0 0 0 235,474,040 2,302,265,728 2,353,754,829 2,274,668,790 2,472,913,667 2,389,823,897 2,598,104,921 2,510,808,732 2,729,633,983 2,637,918,424 2,867,821,703 2,771,463,044 3,013,005,177 2,911,768,361 3,165,538,564 7. Transportation tax, water consumption tax, environmental adverse impact fee.

2011 0 2012 0 2013 251,968 2014 503,936 2015 2,679,599 2016 3,459,714 2017 4,518,787 2018 4,629,543 2019 4,624,369 2020 4,637,198 2021 4,631,762 2022 4,645,240 2023 4,639,529 2024 4,653,690 2025 4,647,689 2026 4,662,567 2027 4,656,263

Project Scales and Results

~ 221 ~

Table 30 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2028 2029 2030

TOTAL TAXES OVERALL:

Integrated tax payments amount, USD 4,671,894 4,665,271 4,681,693 61,672,236,291

Figure 80 displays the integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government provides tax benefits.

The integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government provides tax benefits within the calculated lifetime of the project is given in Table 31.

Table 31. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government provides tax benefits.

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Integrated tax payments amount, USD

1. Profit tax (PT).

~ 222 ~

121,434,602 583,201,571 1,133,436,325 1,293,419,020 1,273,823,401 1,499,617,161 1,466,324,969 1,648,671,168 1,567,476,753 1,756,174,916 1,670,572,905 1,868,545,853 1,778,249,544 1,985,907,977

Project Scales and Results

Bln USD

Project Summary

65 60 55 50 45 40 35 30 25 20 15 10 5 0 2011

2012

Profit tax (PT)

2013

2014

2015

2016

Value added tax (VAT)

2017

2018

Property tax

2019

2020 Land tax

2021

2022

2023

Social payments

2024

2025

2026

2027

Excise and customs duties

2028

2029

2030

Other taxes

Figure 80. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government provides tax benefits.

Project Scales and Results

~ 223 ~

Table 31 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

31

2. Value added tax (VAT).

3. Property tax.

Integrated tax payments amount, USD 1,890,739,169 2,108,301,399

-150,159,661 31 -237,620,371 -623,805,828 -780,943,689 -754,791,441 -820,478,964 -793,002,758 -862,015,711 -833,148,522 -905,655,257 -875,326,666 -951,504,054 -919,640,079 -999,673,947 -966,196,858 -1,050,282,440

160,402,852 263,954,061 420,572,494 453,117,467 429,934,500 404,958,192 379,861,066 354,573,152 329,487,562 304,201,526 279,128,057 253,843,994 228,783,260

Negative value presumes the VAT refund after the export operations.

~ 224 ~

Project Scales and Results

Table 31 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

4. Social payments.

5. Land tax.

Project Scales and Results

Integrated tax payments amount, USD 203,501,269 178,453,914 153,174,102 1,424,542 3,865,531 8,027,692 18,897,267 24,681,131 34,304,835 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,750 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000

~ 225 ~

Table 31 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

6. Excise and customs duties.

Integrated tax payments amount, USD 45,000 45,000

192,587,928 1,880,933,835 1,923,165,526 1,858,545,924 2,020,525,781 1,952,634,812 2,122,814,898 2,051,486,949 2,230,282,403 2,155,343,476 2,343,190,449 2,264,457,739 2,461,814,466 2,379,095,912 2,586,443,823 7. Transportation tax, water consumption tax, environmental adverse impact fee.

2011 0 2012 0 2013 194,139 2014 388,279 2015 2,064,609 2016 2,665,681 2017 3,481,689 2018 3,567,025 2019 3,563,038 2020 3,572,923 2021 3,568,734 2022 3,579,119 2023 3,574,719 2024 3,585,630 2025 3,581,007 2026 3,592,470 2027 3,587,613 2028 3,599,656 2029 3,594,553

~ 226 ~

Project Scales and Results

Project Summary

Table 31 (continuation).

A year by the end of which the integrated amount is calculated 2030

TOTAL TAXES OVERALL:

Integrated tax payments amount, USD 3,607,206 46,955,594,981

Figure 81 displays the integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government provides tax benefits.

The integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government does not provide tax benefits within the calculated lifetime of the project is given in Table 32.

Table 32. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government does not provide tax benefits.

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

1. Profit tax (PT).

Project Scales and Results

Integrated tax payments amount, USD 0 0 0 0 363,636,114 952,559,713 1,767,996,232 1,997,534,331 1,971,549,767 2,291,806,414 2,239,699,983 2,505,119,647 2,393,494,159 2,663,227,083 2,545,466,969 2,828,479,990 2,704,398,579 3,001,368,108 2,870,637,395 3,181,880,411

~ 227 ~

Bln USD

Project Summary

50 45 40 35 30 25 20 15 10 5 0 2011

2012

Profit tax (PT)

2013

2014

2015

2016

Value added tax (VAT)

2017

2018

Property tax

2019

2020 Land tax

2021

2022

2023

Social payments

2024

2025

2026

2027

Excise and customs duties

2028

2029

2030

Other taxes

Figure 81. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government provides tax benefits. ~ 228 ~

Project Scales and Results

Table 32 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

32

2. Value added tax (VAT).

3. Property tax.

Integrated tax payments amount, USD 0 0 0 0 -201,602,423 32 -315,728,773 -963,266,889 -1,226,211,887 -1,184,751,462 -1,288,288,864 -1,244,729,504 -1,353,508,488 -1,307,743,936 -1,422,029,855 -1,373,948,472 -1,494,020,117 -1,443,504,614 -1,569,654,885 -1,516,582,035 -1,649,118,663 0 0 0 0 199,484,677 328,265,924 523,158,033 563,727,672 534,327,621 503,134,229 471,820,019 440,315,020 409,012,347 377,509,226 346,218,673 314,717,525 283,439,707 251,940,632

Negative value presumes the VAT refund after the export operations.

Project Scales and Results

~ 229 ~

Table 32 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

4. Social payments.

5. Land tax.

~ 230 ~

Integrated tax payments amount, USD 220,676,193 189,179,296 1,939,739 5,984,322 12,160,566 27,932,561 37,975,383 52,487,511 53,356,481 53,759,064 54,175,732 54,602,816 55,040,577 55,489,283 55,949,206 56,420,627 56,903,834 57,399,121 57,906,790 58,427,151 58,960,521 59,507,225 33,750 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000

Project Scales and Results

Table 32 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Integrated tax payments amount, USD

6. Excise and customs duties.

0 0 0 0 0 235,474,040 2,301,006,442 2,352,464,061 2,273,352,264 2,471,557,554 2,388,440,722 2,596,680,155 2,509,355,534 2,728,137,088 2,636,391,657 2,866,249,028 2,769,858,985 3,011,352,885 2,910,083,096 3,163,802,625 7. Transportation tax, water consumption tax, environmental adverse impact fee.

2011 0 2012 0 2013 251,968 2014 503,936 2015 2,679,599 2016 3,459,714 2017 4,518,787 2018 4,629,543 2019 4,624,369 2020 4,637,198 2021 4,631,762 2022 4,645,240 2023 4,639,529 2024 4,653,690 2025 4,647,689 2026 4,662,567 2027 4,656,263 2028 4,671,894 2029 4,665,271 2030 4,681,693 TOTAL TAXES OVERALL: 60,894,424,934

Project Scales and Results

~ 231 ~

Project Summary

Figure 82 displays the integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government does not provide tax benefits.

The integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government does not provide tax benefits within the calculated lifetime of the project is given in Table 33.

Table 33. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government does not provide tax benefits.

A year by the end of which the integrated amount is calculated 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015

33

Integrated tax payments amount, USD

1. Profit tax (PT).

2. Value added tax (VAT).

452,568,403 977,849,321 1,153,251,043 1,152,317,854 1,395,707,519 1,560,593,888 1,482,019,285 1,671,103,493 1,586,944,583 1,786,420,757 1,697,626,315 1,906,848,722 1,813,122,333 2,032,248,831 1,560,593,888

-150,159,661 33

Negative value presumes the VAT refund after the export operations.

~ 232 ~

Project Scales and Results

Bln USD

Project Summary

65 60 55 50 45 40 35 30 25 20 15 10 5 0 2011

2012

Profit tax (PT)

2013

2014

2015

2016

Value added tax (VAT)

2017

2018

Property tax

2019

2020 Land tax

2021

2022

2023

Social payments

2024

2025

2026

2027

Excise and customs duties

2028

2029

2030

Other taxes

Figure 82. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by May 1, 2008, if the government provides tax benefits.

Project Scales and Results

~ 233 ~

Table 33 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016

3. Property tax.

4. Social payments.

~ 234 ~

Integrated tax payments amount, USD -237,620,371 -623,805,828 -780,943,689 -754,791,441 -820,478,964 -793,002,758 -862,015,711 -833,148,522 -905,655,257 -875,326,666 -951,504,054 -919,640,079 -999,673,947 -966,196,858 -1,050,282,440 0 0 0 0 199,484,677 328,265,924 523,158,033 563,727,672 534,327,621 503,134,229 471,820,019 440,315,020 409,012,347 377,509,226 346,218,673 314,717,525 283,439,707 251,940,632 220,676,193 189,179,296 1,424,542 3,865,531 8,027,692 18,897,267 24,681,131 34,304,835

Project Scales and Results

Table 33 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2011 2012 2013 2014 2015 2016

5. Land tax.

6. Excise and customs duties.

Project Scales and Results

Integrated tax payments amount, USD 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,229,662 33,750 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000

192,587,928

~ 235 ~

Table 33 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated

Integrated tax payments amount, USD

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

1,880,933,835 1,923,165,526 1,858,545,924 2,020,525,781 1,952,634,812 2,122,814,898 2,051,486,949 2,230,282,403 2,155,343,476 2,343,190,449 2,264,457,739 2,461,814,466 2,379,095,912 2,586,443,823 7. Transportation tax, water consumption tax, environmental adverse impact fee.

2011 0 2012 0 2013 194,139 2014 388,279 2015 2,064,609 2016 2,665,681 2017 3,481,689 2018 3,567,025 2019 3,563,038 2020 3,572,923 2021 3,568,735 2022 3,579,119 2023 3,574,719 2024 3,585,630 2025 3,581,007 2026 3,592,470 2027 3,587,613 2028 3,599,656 2029 3,594,553 2030 3,607,206 TOTAL TAXES OVERALL: 46,509,856,700

Figure 83 displays the integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government does not provide tax benefits.

~ 236 ~

Project Scales and Results

5.8. Shipping costs.

Project Summary

Table 34 displays the integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project by May 1, 2008.

Table 34. Integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project

by May 1, 2008.

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023

1. Shipping services for sales at domestic market.

2. Shipping services for export sales.

Project Scales and Results

Integrated amount of purchased shipping services, USD 54,765,112 64,267,183 94,821,013 100,964,839 97,553,607 106,076,183 102,492,259 111,446,291 107,680,929 117,088,259 113,132,276 123,015,853 118,859,598 129,243,530 124,876,865 135,786,483 479,723,354 612,012,108 1,312,679,401 1,374,509,594 1,328,070,223 1,444,094,142 1,395,303,778 1,517,201,408 1,465,941,032

~ 237 ~

Bln USD

Project Summary

50 45 40 35 30 25 20 15 10 5 0 2011

2012

Profit tax (PT)

2013

2014

2015

2016

Value added tax (VAT)

2017

2018

Property tax

2019

2020 Land tax

2021

2022

2023

Social payments

2024

2025

2026

2027

Excise and customs duties

2028

2029

2030

Other taxes

Figure 83. Integrated amount of taxes and duties to be paid by the enterprise for the operating conditions of the project by September 1, 2010, if the government does not provide tax benefits. ~ 238 ~

Project Scales and Results

Table 34 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2024 2025 2026 2027 2028 2029 2030

TOTAL INTEGRAL AMOUNT

Integrated amount of purchased shipping services, USD 1,594,009,730 1,540,154,297 1,674,706,472 1,618,124,608 1,759,488,487 1,700,042,166 1,848,562,592 24,366,693,672

Figure 84 displays the integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project by May 1, 2008.

Table 35 displays the integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project by September 1, 2010.

Table 35. Integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project

by September 1, 2010.

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

1. Shipping services for sales at domestic market.

Project Scales and Results

Integrated amount of purchased shipping services, USD 54,943,430 64,061,446 92,068,227 98,080,642 94,766,853 103,045,975 99,564,425 108,262,677 104,604,874 113,743,475 109,900,496 119,501,739 115,464,209 125,551,514 121,309,585

~ 239 ~

Table 35 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

2. Shipping services for export sales.

TOTAL INTEGRAL AMOUNT

Integrated amount of purchased shipping services, USD 131,907,560 470,439,674 601,432,819 1,298,959,398 1,359,106,995 1,312,517,014 1,426,481,447 1,377,615,145 1,497,266,731 1,446,008,868 1,571,635,520 1,517,865,024 1,649,769,229 1,593,358,898 1,731,858,457 1,672,674,649 1,818,103,453 24,001,870,448

Figure 85 displays the integrated amount of shipping services to be purchased from RZD, JSC along with port facility services for the operating conditions of the project by September 1, 2010.

~ 240 ~

Project Scales and Results

Bln USD

Project Summary

26 24 22 20 18 16 14 12 10 8 6 4 2 0 2015

2016

2017

2018 2019 2020 2021 Shipping services for sales at domestic market

2022

2023

2024

2025 2026 2027 Shipping services for export sales

2028

2029

2030

Figure 84. Integrated amount of shipping services to be purchased from RZD, JSC for the operating conditions of the project by May 1, 2008.

Project Scales and Results

~ 241 ~

Project Summary

Table 36 displays the integrated amount of services for maintaining the FGC UES JSC electric power infrastructure for the operating conditions of the project by September 1, 2010, within the calculated lifetime of the project.

Table 36. Integrated amount of services for maintaining the FGC UES JSC electric power infrastructure, for the operating conditions of the project by September 1, 2010.

A year by the end of which the integrated amount is calculated 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

TOTAL INTEGRAL AMOUNT

Integrated cost, USD 55,239,636 61,866,455 70,306,882 75,713,954 73,155,884 79,546,973 76,859,401 83,574,039 80,750,408 87,804,975 84,838,397 92,250,101 89,133,341 96,920,263 93,645,716 101,826,851 1,303,433,276

Table 37 displays the integrated amount of services for maintaining the FGC UES JSC electric power infrastructure for the operating conditions of the project by May 1, 2008, within the calculated lifetime of the project.

Table 37. Integrated amount of services for maintaining the FGC UES JSC electric power infrastructure, for the operating conditions of the project by September 1, 2010.

A year by the end of which the integrated amount is calculated 2015 2016 2017

~ 242 ~

Integrated cost, USD 39,303,354 44,018,378 50,023,795

Project Scales and Results

Bln USD

Project Summary

26 24 22 20 18 16 14 12 10 8 6 4 2 0 2015

2016

2017

2018 2019 2020 2021 Shipping services for sales at domestic market

2022

2023

2024

2025 2026 2027 Shipping services for export sales

2028

2029

2030

Figure 85. Integrated amount of shipping services to be purchased from RZD, JSC, for the operating conditions of the project by September 1, 2010.

Project Scales and Results

~ 243 ~

Table 37 (continuation).

Project Summary

A year by the end of which the integrated amount is calculated 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

TOTAL INTEGRAL AMOUNT

Integrated cost, USD 53,870,962 52,050,879 56,598,180 54,685,954 59,463,462 57,454,431 62,473,800 60,363,061 65,636,536 63,418,941 68,959,386 66,629,525 72,450,455 927,401,099

5.9. The market value of the company.

During the enterprise construction, the value of the company will equal to the sum of assets held by the company. This value is assumed on the basis that by this period there won’t be any production activity performed by the company and, therefore, no indicators that could be put for comparison.

During the operation, the value of the company will equal to the sum of its assets discounted for the predicted period and the sum of income (i.e., the sum of the net income and depreciation) discounted for the predicted period. For the developing economies, the reasonable evaluation period is a period of 3-5 years. For the calculation of the project, the evaluation period has been accepted equal to 3 years. Thus, buying the shares in the period of the project operation, the investors are to pay just for the cost of the enterprise and the value of its overweight income for the billing period. After this period is over, the shareholders begin to receive the revenue exceeding the discount rate.

Figure 86 reflects the dynamics of company value within the period of 2011-2027.

Figure 86 displays that the company value during the construction period until May 1, 2015, is matching with the assets values for the project options. ~ 244 ~

Project Scales and Results

Project Summary

Since May 1, 2015, the indicator values significantly increase because, besides the discounted value of the assets, the present values of project revenue (net income and depreciation charges) over the predicted period of 3 years is also included to the value of the company. The recurrence of the value at the operational phase is caused by the dividends accumulation and pay-outs.

Project Scales and Results

~ 245 ~

Bln USD

Project Summary

60

50

40

30

20

10

0 1 янв 11

1 янв 12

1 янв 13

1 янв 14

1 янв 15

Baseline 2010, with benefits

1 янв 16

1 янв 17

1 янв 18

1 янв 19

Baseline 2008, with benefits

1 янв 20

1 янв 21

1 янв 22

1 янв 23

Baseline 2010, no benefits

1 янв 24

1 янв 25

1 янв 26

1 янв 27

Baseline 2008, no benefits

Figure 86. The dynamics of company value according to various project options. ~ 246 ~

Project Scales and Results

Project Summary

6. The Government participation.

6.1. The Russian Federation.

6.1.1. The enterprise construction and operation.

The enterprise construction scale and its technical complexity are significant regarding to oil refining industry, both in general and for single units. In accordance to the General Plan, there will be 306 objects constructed within the boundaries of the enterprise, among them 83 are the main technological facilities and the rest of are the object of auxiliary and transportation infrastructure.

The scale of the planned enterprise construction regarding the existing legislative framework and its affection on various aspects of the region life (including the town construction for employees and builders, considering its development for the period of 20 years up to 100 thousand inhabitants) is that significant that the project implementation is impossible without participation of government authorities.

Particularly, due to several factors as the technical complexity of the project, a comprehensive application of advanced foreign technologies and the necessity in performing the turnkey construction by the foreign company as the General Contractor, the following issues regarding the land allocation sufficient for construction works and further operations along with permissions for such activities for JSC TORC must get resolved for the project successful implementation: 1. Accreditation by the governmental authorities of the foreign General Contractor selected via tender by government authorities for performing the prospecting, projecting and construction works required for the Complex construction by their own forces and means at the territory of the Russian Federation, as well as accreditation of foreign subcontractors involved into the process.

2. Authorization for General Contractor during the design works and the enterprise The Government Participation

~ 247 ~

Project Summary

construction and operation to apply the foreign technical standards and construction norms of the country where their major designing and construction divisions are located and where they perform their main economic activities.

3. Authorization for General Contractor during the design works and the enterprise construction and operation to apply the foreign OSH and environmental standards of the country where their major designing and construction divisions are located and where they perform their main economic activities.

4. According to current legislations of the Russian Federation and the country which national standards are approved to be used, the International Agreement to be signed by and between the Russian Federation, represented by the authorized institution, and General Contractor, with respect to the following: 4.1. General Contractor receives all the necessary legally obligating expert conclusions confirming the approval for the construction of the enterprise from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The government authorities of the Russian Federation responsible for approval the construction of the enterprise stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the construction of the enterprise stated hereinabove by JSC TORC. 4.2. General Contractor receives all the necessary legally obligating expert conclusions confirming the approval for the operation of the enterprise from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The government authorities of the Russian Federation responsible for approval the operation of the enterprise stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the operation of the enterprise stated hereinabove by JSC TORC. 5. Authorization for General Contractor during the design works and the enterprise construction and operation to apply the equipment, materials and other ~ 248 ~

The Government Participation

Project Summary

components of enterprise that passed all the certifications in the EU and/or in the USA and approved by the national standards of their country for usage. The EU and/or US certificates on the equipment, materials and other required components are to be applied according to procedure stated hereinafter: 5.1. General Contractor receives all the necessary legally obligating certificates confirming the compliance of the equipment, materials and other components of enterprise to fire safety, environmental safety, sanitary and phytosanitary regulations and other requirements prescribed by the legislation from the manufacturers and from the national authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

5.2. The government authorities of the Russian Federation responsible for the certification of the equipment, materials and other components of enterprise, acting on the basis of certificates received by General Contractor, approve on the basis of certificates being provided the import and application in the Russian Federation the equipment, materials and other components of the enterprise stated in the certificates being provided, by General Contractor and/or JSC TORC.

6.1.2. Involvement of high-qualified foreign specialists.

In order to provide the enterprise with high-qualified experts within the terms required for the project successful implementation, the following issues must get resolved: 1. Providing the foreign high-qualified specialists with work visas, residence and work permits in JSC TORC during the period of construction and operation of the enterprise in the required amount in the period of 10-15 days, with the approval to use the results of the medical examination issued in the country of residence.

The Government Participation

~ 249 ~

Project Summary

2. Providing the General Contractor’s and their subcontractors’ specialists with the visas of that categories that required for implementation of the Contract for Turnkey Construction of The Enterprise and for the social infrastructure arrangement, which means the construction of the town for the enterprise employees and builders.

6.1.3. Benefits of taxation and legal support of the project.

According to current legislation of the Russian Federation, including its part concerning the foreign investments, the following benefits (part of which has been considered in the calculations of the Business Plan) are to be provided for the project successful implementation: 1. Elimination of taxes and fees for the period of construction of the following types of investments: VAT on all types of purchased equipment and services (both as in the Russian Federation, and imports) aimed for the formation of the project fixed capital; customs duties on all types of equipment and services imported directly from abroad. In addition, the similar benefits are to be provided for the operations aimed for the social infrastructure arrangement, which means the construction of the town for the enterprise employees and builders.

2. Tax benefits provided by the legislation of the Russian Federation for the payback period.

3. Provision of the governmental guarantees from deterioration of economic conditions, including: 3.1. Elimination of the export duties on petroleum products manufactured from oil-alternative raw materials regarding JSC TORC, if any introduced, and if their application will reduce the profitability of JSC TORC. 3.2. Elimination of the export quotes on the finished products manufactured

by JSC TORC. ~ 250 ~

The Government Participation

Project Summary

3.3. Elimination of the requirements on partial or complete sale of the finished products manufactured by the enterprise in the domestic market at a fixed, state-regulated prices (excluding energy) regarding JSC TORC, if their application will reduce the profitability of JSC TORC. 4. Provision of the benefits on excise duties rates for gasolines and diesel fuel manufactured from oil-alternative raw materials and sold at the domestic market as a solution encouraging the production of high-quality, environmentally friendly motor fuels. Further, on this solution may become the basis for excise taxes differentiated scale as the current scale on the EU, or for the list of benefits for excise taxes reimbursement by reducing the taxable base of the profit tax as the benefits currently applied in the USA.

6.1.4. Decisions required for infrastructural support of the project.

In order to implement the enterprise operations and, accordingly, in order to attract the investments needed for its construction, the following decisions made by the government are required: 1. Provision of the governmental guarantees for the construction of the necessary infrastructure supplying natural gas and crude oil prior to enterprise start-up date.

The capacity of the constructed infrastructure supplying raw materials should be at least 120% of the rated capacity of the plant on natural gas and crude oil.

Provision of the governmental guarantees for the supply by governmental monopolies the necessary amounts of raw materials as following: natural gas of at least 16.1 bln m3 per annum, crude oil of at least 7,500,000 tonnes per annum (150,000 bbl per day) within the calculated project lifetime equal to 25 years.

2. Provision of the governmental guarantees prior to the start-up date of the enterprise for shipping services of the governmental RZD JSC company in the amount that ensures the stable and uninterrupted delivery of raw materials to the enterprise from selected starting points, and stable and uninterrupted delivery of The Government Participation

~ 251 ~

Project Summary

finished goods to the point of transfer to the customer in selected destinations according to the logistical calculations of enterprises to start up date in operation.

Technical solutions and organizational decisions being accepted must provide the flexible traffic reallocation between the selected destinations. Estimated cargo turnover of the enterprise is 50-55 million tonnes per annum.

3. Provision of the governmental guarantees for the construction of the network infrastructure by the governmental monopoly FGC UES JSC in order to ensure the stable and uninterrupted supply of electric power and its supply by RAO UES Russia JSC in the estimated amounts. The capacity of transmitting infrastructure should provide electric power supply of 2.3 GWh (annual electric power generation equal to 19.1 TW). The estimated volume of electric power generation will equal to 1.5-1.6 GWh (annual generation equal to 13.1-13.9 TW) at the first stage and 1.8-1.9 GWh (annual generation equal to 15.6-16.5 TW) after the construction of the plant.

4. Provision of the governmental guarantees for the construction of the required network infrastructure by the governmental monopoly FGC UES JSC, such as: electric mains, substation in the town, and temporary substation for electric power supply of the enterprise during construction of the first stage. The infrastructure is to provide the electric power for the objects stated above in the amount of at least 240 MVA. Provision of the temporary electric power supply equal to 240 MVA by UES Russia JSC governmental company.

5. Allocation of the agricultural land and forests and transfer them to industrialpurpose land at the plant construction site with total area of 3,000 hectares and adjacent territory with a total area of 1,500 hectares, as a necessary reserve and to for ability to arrange the service and maintaining infrastructure.

6. Land allocation for construction of the following objects: 6.1. Water intake unit on the right bank of Tvertsa River along with Savinskoe village with total area of 7 hectares. The coordinates of the proposed site for the water intake unit construction are 56째58'8.0'' latitude, 35째8'23.3'' ~ 252 ~

The Government Participation

longitude.

Project Summary

6.2. Water line from the water intake unit to the boundaries of the land allocated for the enterprise construction. Total area of the plot is 70 hectares.

7. Authorisation for Tvertsa river bed cleaning and deepening on a site of 1 km long, adjacent to Savinskoe village to the depth of 5 m below the present bottom of the river, with further construction of channel-type water intake unit with projected water intake Qв in the amount equal to 35,000 m3 per hour (up to 10 m3 per second). The relative water intake value will equal to 0.182.

8. Determination of the procedure for the additional water discharge for Tvertsa River from Vyshniy-Volochek reservoir in case of water level lowering in Tvertsa River below the projected minimum (in case of abnormally high temperatures or other reasons). Also, making decisions necessary in order to ensure the possibility of such discharge for the normal intake by the enterprise.

9. Allocation of the land for product pipeline construction at the route "Torzhok – Western Dvina – Polotsk" with total length of 440 km and the estimated area of 500 hectares. 310 km of the length and 350 hectares of area are estimated to be allocated in the Russian Federation and the rest 130 km with estimated area of 150 hectares are in Republic of Belarus.

10. Provision of the governmental guarantees for the construction of the main product pipeline 34 at the route "Torzhok – Western Dvina – Polotsk" by AK Transnefteproduct, JSC governmental company. The pipe diameter is 1,000 mm, the projected capacity on gasolines and diesel fuel is up to 19.5 mln tonnes per annum.

11. Provision of the governmental guarantees for pumping gasolines and diesel fuel

by AK Transnefteproduct, JSC governmental company through the main

34

According to preliminary estimations, the total investment cost of the product pipeline will equal to 563 mln USD. From this amount, the investment cost of the pipeline will equal to 511 mln USD, the cost of infrastructure will equal to 52 mln USD.

The Government Participation

~ 253 ~

Project Summary

pipeline "Torzhok – Western Dvina – Polotsk" and further on by the route “Polotsk – Ilukste – Ventspils” with total capacity of up to 12.5 mln tonnes per annum.

6.1.5. Decisions required for social infrastructure development.

The town construction and implementation of all solutions provided for it as well as the quality of construction directly affect on the terms and quality of the enterprise construction. Moreover, the town construction building is planned as turnkey. It presumes that the foreign General Contractor is to be engaged. During the town construction on the area allocated in the sufficient amount for its successful completion, the following issues concerning authorizations and permissions for JSC TORC are to be solved: 1. Establishing a non-profit Investment Fund for the town construction, founded by JSC TORC and authorized government authority, that both act as the customers for the town construction.

2. Provision of the governmental guarantees for allocation of interest-free loan or for the loan under the governmental guarantees securing it with an interest rate refundable by the government in the amount defined in Feasibility Study of the town construction. According to preliminary estimations, the total investment cost of the town turnkey construction with 20,000 households per 4 persons including all the necessary urban infrastructure (the networks, roads, health care facilities, education institutions, law enforcement authorities, etc.) would be equal to 6.5-7.5 bln USD 35.

3. Provided elimination of the Investment Fund after the town construction is complete by paying off the balance cost value of the housing stock in the amount

35

This amount is derived from the preliminary cost evaluation for the town construction with the construction of the most of the housing stock as low-rise private houses and townhouses. According to this evaluation, the total area of the housing stock will equal to 3.45 mln m2.

~ 254 ~

The Government Participation

Project Summary

required the enterprise employees accommodation, as well as by repayment of the remained Investment Fund payables by the Government.

4. Accreditation by the governmental authorities of the foreign General Contractor selected via tender by government authorities for performing the prospecting, projecting and construction works required for the town construction by their own forces and means at the territory of the Russian Federation, as well as accreditation of foreign subcontractors involved into the process.

5. Authorization for General Contractor during the design works and the town construction to apply the foreign technical standards and construction norms of the country where their major designing and construction divisions are located and where they perform their main economic activities.

6. Authorization for General Contractor during the design works and the town construction to apply the foreign OSH and environmental standards of the country where their major designing and construction divisions are located and where they perform their main economic activities.

7. According to current legislations of the Russian Federation and the country which national standards are approved to be used, the International Agreement to be signed by and between the Russian Federation, represented by the authorized institution, and General Contractor, with respect to the following: 7.1. General Contractor receives all the necessary legally obligating expert conclusions confirming the approval for the construction of each object in the town from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove. The government authorities of the Russian Federation responsible for approval the construction of each object in the town stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the construction of each object in the town stated hereinabove by Investment Fund.

7.2. General Contractor receives all the necessary legally obligating expert The Government Participation

~ 255 ~

Project Summary

conclusions confirming the approval for the operation of each object in the town from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove. The government authorities of the Russian Federation responsible for approval the operation of each object in the town stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the operation of each object in the town stated hereinabove by Investment Fund.

8. Authorization for General Contractor during the design works and the town construction and operation to apply the equipment, materials and other components of the town that passed all the certifications in the EU and/or in the USA and approved by the national standards of their country for usage. The EU and/or US certificates on the equipment, materials and other required components are to be applied according to procedure stated hereinafter: 8.1. General Contractor receives all the necessary legally obligating certificates confirming the compliance of the equipment, materials and other components of the town to fire safety, environmental safety, sanitary and phytosanitary regulations and other requirements prescribed by the legislation from the manufacturers and from the national authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

8.2. The government authorities of the Russian Federation responsible for the certification of the equipment, materials and other components of the town, acting on the basis of certificates received by General Contractor, approve on the basis of certificates being provided the import and application in the Russian Federation the equipment, materials and other components of the town stated in the certificates being provided, by Investment Fund and/or General Contractor.

~ 256 ~

The Government Participation

6.2. Ukraine.

Project Summary

The Investment Agreement between the company implementing the project and the Government should be the final summarizing document that covers all the conditions and solutions for the enterprise construction and operation, including the specific issues described below. This Investment Agreement also regulates the relationship between the Government and the company implementing the project. In order to perform the Investment Agreement, the Cabinet of Ministers of Ukraine and the State Regional Administration shall accept the appropriate Acts instructing all the relevant government authorities at all levels assigned to solve the practical issues related to the investment project.

6.2.1. Decisions providing the construction and operation of the enterprise.

1. Accreditation by the governmental authorities of the foreign General Contractor selected via tender by government authorities for performing the prospecting, projecting and construction works required for the Complex construction by their own forces and means at the territory of Ukraine, as well as accreditation of foreign subcontractors involved into the process.

2. Authorization for General Contractor during the design works and the enterprise construction and operation to apply the foreign technical standards and construction norms of the country where their major designing and construction divisions are located and where they perform their main economic activities.

3. Authorization for General Contractor during the design works and the enterprise construction and operation to apply the foreign OSH and environmental standards of the country where their major designing and construction divisions are located and where they perform their main economic activities.

4. According to current legislations of Ukraine and the country which national The Government Participation

~ 257 ~

Project Summary

standards are approved to be used, the International Agreement to be signed by and between Ukraine, represented by the authorized institution, and General Contractor, with respect to the following: 4.1. General Contractor receives all the necessary legally obligating expert conclusions confirming the approval for the construction of the enterprise from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The government authorities of Ukraine responsible for approval the construction of the enterprise stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the construction of the enterprise stated hereinabove by the company implementing the project.

4.2. General Contractor receives all the necessary legally obligating expert conclusions confirming the approval for the operation of the enterprise from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The government authorities of Ukraine responsible for approval the operation of the enterprise stated hereinabove, acting on the basis of expert conclusions received by General Contractor, approve the operation of the enterprise stated hereinabove by the company implementing the project.

5. Authorization for General Contractor during the design works and the enterprise construction and operation to apply the equipment, materials and other components of enterprise that passed all the certifications in the EU and/or in the USA and approved by the national standards of their country for usage. The EU and/or US certificates on the equipment, materials and other required components are to be applied according to procedure stated hereinafter: 5.1. General Contractor receives all the necessary legally obligating certificates confirming the compliance of the equipment, materials and ~ 258 ~

The Government Participation

Project Summary

other components of enterprise to fire safety, environmental safety, sanitary and phytosanitary regulations and other requirements prescribed by the legislation from the manufacturers and from the national authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

5.2. The government authorities of Ukraine responsible for the certification of the equipment, materials and other components of enterprise, acting on the basis of certificates received by General Contractor, approve on the basis of certificates being provided the import and application in Ukraine the equipment, materials and other components of the enterprise stated in the certificates being provided, by General Contractor and/or the company implementing the project.

6.2.2. Decisions required for provision the enterprise with infrastructure.

Development and signing the following agreements supported by the Cabinet of Ministers of Ukraine with the following state-owned companies: 1. “Ukrzaliznytsia”. The agreement is to be signed prior to the start-up date of the enterprise and it is to provide the implementation of all the required technical solutions and organizational decisions guaranteeing provision of the shipping services of the governmental “Ukrzaliznytsia” company in the amount that ensures the stable and uninterrupted delivery of raw materials to the enterprise from selected starting points, and stable and uninterrupted delivery of finished goods to the point of transfer to the customer in selected destinations according to the logistical calculations of enterprises to start up date in operation. Estimated cargo turnover of the enterprise provided by the agreement is 50 million tonnes per annum. Technical solutions and organizational decisions being accepted must provide the flexible traffic reallocation between the selected destinations.

2. Naftogaz of Ukraine, NJSC. The agreement is to be signed prior to the start-up The Government Participation

~ 259 ~

Project Summary

date of the enterprise and it is to provide the implementation of all the required technical solutions and organizational decisions guaranteeing the construction of the necessary infrastructure supplying natural gas and crude oil. The agreement should provide the capacity of the constructed infrastructure supplying raw materials of at least 120% of the rated capacity of the plant on natural gas and crude oil. In addition, the agreement should assume provision of the shipping services within the calculated project lifetime equal to 40 years.

3. Ukrenergo, NEC. The agreement is to provide the implementation of all the required technical solutions and organizational decisions guaranteeing the stable and uninterrupted supply of electric power and its supply by Ukrenergo, NEC in the estimated amounts. The agreement should provide the construction of the network receiving and transmitting infrastructure with capacity of transmitted electric power of 2.3 GWh (annual electric power generation equal to 19.1 TW).

In addition, the agreement is to provide receiving and selling the electric power generated by the enterprise via Ukrenergo, NEC in the estimated volumes of electric power generation equal to: 1.5-1.6 GWh (annual generation equal to 13.1-13.9 TW) at the first stage and 1.8-1.9 GWh (annual generation equal to 15.6-16.5 TW) after the construction of the plant.

4. Ukrenergo, NEC The agreement is to provide the implementation of all the required technical solutions and organizational decisions guaranteeing the temporary power supply to the enterprise during its first stage construction period and continuous power supply for all the newly built residential and infrastructural objects in the city of Korosten required for the accommodation of the enterprise’s employees and the builders with total capacity of 120-130 MVA. Technical solutions and organizational decisions regarding temporary power supply of the enterprise during the construction period must provide further transfer of the equipment applied for temporary power supply of the enterprise to Korosten city. The agreement must provide the temporary power supply by Ukrenergo, NEC with capacity of 120 MVA. ~ 260 ~

The Government Participation

Project Summary

The decisions made by the government authorities of Ukraine, providing the following: are required: 1. Allocation of the agricultural land and forests and transfer them to industrialpurpose land at the plant construction site with total area of 3,500 hectares and adjacent territory with a total area of 1,200 hectares, as a necessary reserve and to for ability to arrange the service and maintaining infrastructure. The area stated above does not include the sanitary protecting zone and the area required for further development the industrial zone in total.

2. Land allocation for construction of the following objects: 2.1. Two water intake units on Zherev and Uzh rivers with total area of up to 10 hectares.

2.2. Two water lines from the water intake units on Zherev and Uzh rivers to the boundaries of the land allocated for the enterprise construction. Total area of the plots is up to 20 hectares.

3. Decision on the land transfer into ownership for the company implementing the project, within the land allocation plots intended for construction, as well as plots allocated for water intakes, pipelines, access roads and railroad link.

4. Authorisation for Zherev and Uzh river beds cleaning and deepening on a site of 1 km long, adjacent to water intake units, to the depth of 5 m below the present bottom of the rivers, with further construction of two channel-type water intake units with projected water intake Qв in the amount equal to 4,300 m3 per hour (up to 1.2 m3 per second) . The relative water intake value will equal to 0.471.

5. Considering the interests of the company, the areas of Zherev and Uzh rivers are to be defined for the construction of river type reservoirs with working water volume equal to 25-30 million m3 each. The procedure managing the water accumulation and discharge from these reservoirs to the rivers is to be established.

6. Allocation of the land for product pipeline construction and approval for product pipeline construction in order to connect the enterprise to main pipeline "Stalnoy The Government Participation

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Project Summary

Kon – Uzhgorod" leading to pumping station in city of Rovno and new product pipeline Korosten – Kyiv – Odessa with estimated length of 180 and 600 km correspondingly, as well as 5 to 6 oil depots on the pipelines intended for domestic Ukrainian market supply.

6.2.3. Decisions for high-qualified foreign specialists’ involvement.

In order to provide the enterprise with high-qualified experts within the terms required for the project successful implementation, the following issues must get resolved: 1. Providing the foreign high-qualified specialists with work visas, residence and work permits in the company implementing the project during the period of construction and operation of the enterprise in the required amount in the period of 10-15 days, with the approval to use the results of the medical examination issued in the country of residence.

2. Providing the General Contractor’s and their subcontractors’ specialists with the visas of that categories that required for implementation of the Contract for Turnkey Construction of The Enterprise and for the social infrastructure arrangement, which means the construction of residential and infrastructural objects in city of Korosten for the enterprise employees and builders.

6.2.4. Benefits of taxation and legal support of the project.

According to current legislation of Ukraine, including its part concerning the foreign investments, the following benefits are to be provided for the project successful implementation: 1. Elimination of taxes and fees for the period of construction of the following types of investments: VAT on all types of purchased equipment and services (both as in Ukraine, and imports) aimed for the formation of the project fixed capital; ~ 262 ~

The Government Participation

Project Summary

customs duties on all types of equipment and services imported directly from abroad. In addition, the similar benefits are to be provided for the operations aimed for the social infrastructure arrangement, which means the construction of the town for the enterprise employees and builders.

2. Tax benefits provided by the legislation of Ukraine for the payback period.

3. Provision of the governmental guarantees from deterioration of economic conditions, including: 3.1. Elimination of the export duties on petroleum products manufactured from oil-alternative raw materials regarding JSC TORC, if any introduced, and if their application will reduce the profitability of the company implementing the project.

3.2. Elimination of the export quotes on the finished products manufactured by the company implementing the project.

3.3. Elimination of the requirements on partial or complete sale of the finished products manufactured by the enterprise in the domestic market at a fixed, state-regulated prices (excluding energy) regarding the company implementing the project, if their application will reduce the profitability of the company implementing the project.

4. Provision of the benefits on excise duties rates for gasolines and diesel fuel manufactured from oil-alternative raw materials and sold at the domestic market as a solution encouraging the production of high-quality, environmentally friendly motor fuels. Further, on this solution may become the basis for excise taxes differentiated scale as the current scale on the EU, or for the list of benefits for excise taxes reimbursement by reducing the taxable base of the profit tax as the benefits currently applied in the USA.

The Government Participation

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Project Summary

6.2.5. Decisions required for social infrastructure development.

Construction of housings for the enterprise employees and builders, as well as related social infrastructure which involves all the architectural, structural and aesthetic solutions, as well as the quality of construction directly affect on the terms and quality of the enterprise construction. Moreover, the city blocks construction building is planned as turnkey. It presumes that the foreign General Contractor is to be engaged. During the city blocks construction on the area allocated in the sufficient amount for its successful completion, the following issues concerning authorizations and permissions for the company implementing the project are to be solved: 1. Accreditation by the governmental authorities of the foreign General Contractor selected via tender by government authorities for performing the prospecting, projecting and construction works required for the city blocks construction by their own forces and means at the territory of Ukraine, as well as accreditation of foreign subcontractors involved into the process.

2. Authorization for General Contractor during the design works and the city blocks construction to apply the foreign technical standards and construction norms of the country where their major designing and construction divisions are located and where they perform their main economic activities.

3. Authorization for General Contractor during the design works and the city blocks construction to apply the foreign OSH and environmental standards of the country where their major designing and construction divisions are located and where they perform their main economic activities.

4. According to current legislations of Ukraine and the country which national standards are approved to be used, the International Agreement to be signed by and between Ukraine, represented by the authorized institution, and General Contractor, with respect to the following: 4.1. General contractor receives all the necessary legally obligating expert conclusions confirming the approval for the construction of each object ~ 264 ~

The Government Participation

Project Summary

from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The state authorities of Ukraine responsible for approval the construction of the objects stated hereinabove, acting on the basis of expert conclusions received by General contractor, approve the construction of the objects stated hereinabove by Investment Fund.

4.2. General contractor receives all the necessary legally obligating expert conclusions confirming the approval for the operation of each object from the authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

The state authorities of Ukraine responsible for approval the operation of the objects stated hereinabove, acting on the basis of expert conclusions received by General contractor, approve the operation of the objects stated hereinabove by Investment Fund.

5. Authorization for General Contractor during the design works and the city blocks construction and operation to apply the equipment, materials and other components of the city blocks that passed all the certifications in the EU and/or in the USA and approved by the national standards of their country for usage.

The EU and/or US certificates on the equipment, materials and other required components are to be applied according to procedure stated hereinafter: 5.1. General Contractor receives all the necessary legally obligating certificates confirming the compliance of the equipment, materials and other components of the city blocks to fire safety, environmental safety, sanitary and phytosanitary regulations and other requirements prescribed by the legislation from the manufacturers and from the national authorities of the country which national standards are approved to be used, according to current legislation of country stated hereinabove.

5.2. The government authorities of Ukraine responsible for the certification of the equipment, materials and other components of the city blocks, The Government Participation

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Project Summary

acting on the basis of certificates received by General Contractor, approve on the basis of certificates being provided the import and application in Ukraine Federation the equipment, materials and other components of the city blocks stated in the certificates being provided,

by Investment Fund and/or General Contractor.

The following procedure is provided for funding the construction of the urban infrastructure objects: 1. Establishing a non-profit Investment Fund for the city blocks construction, founded by the company implementing the project and authorized government authority, that both act as the customers for the town construction.

2. Provided elimination of the Investment Fund after the city blocks construction is complete by paying off the balance cost value of the housing stock in the amount required the enterprise employees’ accommodation, as well as by repayment of the remained Investment Fund payables by the Government.

3. Credit funds involvement for financing the city blocks (i.e., residential buildings, social and communal infrastructure) is proposed as following: the Strategic Investor provides their guarantees in terms of the credit intended for funding the construction of residential buildings for builders and enterprise’s employees, and also as a sign of their social responsibility to the city, financing this way the construction of day care centres and schools, as many as required by the current regulations. In this part, the loan is paid off by the enterprise. In part of social and municipal infrastructure, as well as housing stock intended for distribution among the city officials (police, health care, etc.), the loan is repaid by the government.

A similar procedure is proposed to finance the construction of infrastructural objects: for modernization and expansion of the railway station, for construction of the oil pipeline and gas pipeline branches to the enterprise, for construction of electric power infrastructure. In this part, the Strategic Investor may provide their assurance that ~ 266 ~

The Government Participation

Project Summary

infrastructure facilities being constructed will operate within predetermined volume and will generate the appropriate current cash flow from which the loan repayment and maintenance will be performed.

6.3. Australia.

The matter of state involvement in the project has not been not considered for Australia since there is no need in additional governmental decisions for successful implementation of the project from the point of view of the legal environment of the project, particularly, due to various factors, i.e., the absence of the state monopolies, matching the Australian technical norms and standards to both American and international ones, developed markets, including the labour market, and solved matters regarded the involvement of high-qualified specialists, including foreign ones.

The matters of cooperation with WA state authorities are the following: 1. Land allocation with required area for its purchase by the enterprise.

2. Land allocation for infrastructural facilities, i.e., electric mains, distributive power substation, roads and railroad, gas pipeline, water intake for desalination plant, including the route for water pipeline for the city of Perth and for the enterprise; harbour for raw materials supply and finished products shipping; residential housing stock for accommodation of the enterprise’s employees and builders.

3. Provision by Australian Government and WA state authorities, tax exemptions, and other preferences stipulated by the legislation for construction and operation of the enterprise.

The Government Participation

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Oil Refinery Complex Construction Project.

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