ANNUAL REPORT 2007 - EuroChem€¦ · growth. while some problem areas have ... the Board of directors underwent some important ... development of the territories in which it has

ANNUAL REPORT 2007

Contents

Letter from the Chairman of the Board 4

Letter from the GeneraL direCtor 6

Key PerformanCe indiCators 8

CaLendar of events in 2007 9

aBout the ComPany 10

deveLoPment strateGy 13

Key Businesses today and PLans for the future 15

mineraL fertiLizers 19

orGaniC synthesis ProduCts 30

raw materiaLs 33

transPort infrastruCture 36

distriBution 39

investment 40

finanCiaL summary 43

euroChem’s hr PoLiCy 45

euroChem’s CorPorate soCiaL resPonsiBiLity 50

environmentaL PoLiCy 56

Key risK faCtors 58

CorPorate GovernanCe at euroChem 61

the Board of direCtors 63

exeCutive manaGement 72

internaL ControL and risK manaGement 75

ownershiP struCture 75

dividend PoLiCy 75

finanCiaL PoLiCy 76

information aBout LarGe transaCtions and transaCtions with interest 77

referenCe 78

events after the rePortinG date 79

aPPendix 80

a note to readers:for the purposes of this annual report, the terms ‘Company’ and ‘euroChem mineral & Chemical Company (“euroChem”)’ are used to refer to the company together with its consolidated subsidiaries and dependent companies. the text will also include the following mineral and chemical product names: urea ammonia nitrate (uan) solution, ammophos, diammonium phosphate, ammonium phosphate sulfate (nP 20:20, nP 14:34), complex compound fertilizers (nPK), defluorinated phosphate, and monoammonium phosphate (maP), diammonium phosphate (daP).

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Letter from the Chairman of the Board

it is safe to say that the russian economy is enjoying stable

growth. while some problem areas have developed in the global

economy, throughout 2007, russia remained one of the most

attractive markets for long-term investment. to a large extent, this

was made possible thanks to the efforts of domestic companies and

enterprises that demonstrated their competitive edge on both the

domestic and global markets. one of the key companies who have

laid the foundation for sustainable socioeconomic development in

russia is euroChem, a company that has achieved considerable

progress in terms of all economic, manufacturing and social

indicators.

euroChem today is russia’s leading manufacturer of mineral

fertilizers; it ranks among the top three fertilizer manufacturers

in europe, and is in the global top ten. euroChem is comprised

of mining and manufacturing companies, in addition to logistics

companies and a sales network with points of presence around

the world and nearly 23,000 employees. euroChem is a complex

organizational system that would be difficult to manage effectively

without clearly defined goals and top-of-the-line technologies.

that is why in 2007, our company continued to make consistent

improvements in corporate governance in alignment with the

company’s strategic goals, providing for the organic integration

of all business processes and facilitating improved management

quality. the Board of directors has facilitated the step-by-step

development of euroChem’s corporate governance system, creating

an institutional foundation for the smooth-running performance of

euroChem companies and branches. over the past year, euroChem

accomplished laying in a new, unified system for management and

financial reports, without losing any organizational flexibility; all of

the companies involved are able to adapt easily to changes in the

domestic and global environments. in april 2007, standard & Poor’s

raised euroChem’s Corporate Governance score from CGs-5+ to

CGs-6+ (equivalent to CGs-5.9 and CGs-6.5 on the russian scale,

respectively).

the large-scale goals and targets that the company has set

for itself in its new development strategy, planned to 2015, can be

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annuaL rePort euroChem, 2007

achieved by recruiting experienced and professional managers. in

2007, the Board of directors underwent some important changes.

now, directors with industry-specific expertise and experience in

global business issues and both russian and international financial

reporting standards are better represented. these changes have

had a positive impact on the performance of the Board of directors

and have ensured a professional approach to management at

euroChem.

the company’s financial results reflect not only the quality of assets

management, but the contribution it has made to the sustainability

of the national economy. in 2007, euroChem attained impressive

commercial results that have been recognized by the professional

and business communities. at present, the company is consistently

working on several ambitious projects in manufacturing development

that involve securing large investments. the development of the

Gremyachinskoye deposit and the construction of a potassium salt

mining facility, and a number of a construction projects, including

building a new urea facility at naK azot, a new melamine facility with

a 50,000 ton annual capacity at nevinnomyssky azot, and a bulk cargo

terminal in tuapse. these projects represent just a part of euroChem’s

proactive role in modernizing the domestic economy. over the course

of 2007, the company has invested over rur 7,749 million in its

russia-based manufacturing and service divisions.

in the course of operations, euroChem deals with the complex

task of technological improvements while maintaining the growth

rate of production development. i want to emphasize that the

company has been accomplishing this task successfully. in 2007,

the company achieved new heights in terms of fertilizer production

levels and sales revenue. euroChem also recognizes its responsibility

to russian agricultural manufacturers and the agricultural industry,

which is why it is expanding its presence on the domestic market

and providing more than just quality fertilizer products: euroChem is

also helping russia’s modern agro-technical culture take shape. the

company is taking part in the rebirth of russian agriculture.

the company’s employees represent its backbone, which is

why the Board of director regularly devotes attention to human

resources management. the Committee for Corporate Governance

and Personnel under the Board of directors has helped the company

move forward considerably in developing a strategic vision for

developing euroChem’s human potential. Based on annual results,

the Committee and management adopted an hr management

strategy for euroChem’s manufacturing companies. this strategy,

which has been put into action, will help the company ensure

harmonious relations between employers and employees based on

the principles of social partnership combined with increased labor

productivity. the company gives priority to forming a common

corporate culture uniting the teams of all of euroChem’s companies

and divisions.

the company’s information policy demonstrates its adherence

to transparency and openness, ensuring productive communication

with all interested parties and submission of full and detailed

information about the different aspects of company operations. the

corporate newsletter and bulletin, website and intranet, in addition

to annual and social corporate responsibility reports provide our

readers with the opportunity to learn about euroChem objectively

and in detail.

the Board of directors has given high marks to euroChem’s

2007 operations. Long-term priorities have been identified, as

have the paths toward achieving strategic goals and objectives.

solid production and financial results have also been attained. the

company is working and developing, and there is nothing holding it

back from achieving its goals. for this reason, the year 2007 should

be viewed as another step forward in sustainable growth, marking

the continued progress of euroChem, a leader in the russian

agrochemical sector.

andrey melnichenko,Chairman of the Board of directors

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Letter from the GeneraL direCtor

in 2007, euroChem continued to produce strong results in

improving its economic, manufacturing and commercial efficiency.

the company has achieved impressive results in these areas, which

has helped strengthen its position on the domestic and global

markets. in 2007, euroChem was able to increase its competitive

edge considerably by creating a common technological system that

encompasses the entire cycle, from exploratory works and mining

to a developed distribution and specialized services system. overall,

over the past year, euroChem consistently upheld the indicators set

out in the company’s long-term development strategy, which covers

a period until 2015.

the company has significantly improved its own economic and

financial indicators. as a result of these efforts made by all of the

group’s companies and the systemic approach towards corporate

asset management, revenues were up 38% and amounted to

rur 73.8 billion, while net profits increased by more than 200%

compared to the previous year, totaling rur 16.2 billion. the

company’s eBitda grew 98% and amounted to rur 22.5 billion.

over the course of the year, euroChem demonstrated a high level

of financial transparency after establishing itself as an open joint-

stock company in 2006. this required a more responsible approach

from euroChem’s management team in terms of planning and

implementing the corporate financial policy, and the results of these

efforts have proven to be positive. Laying in a common corporate

governance system has allowed euroChem to streamline current

and strategic asset management and ensure a systemic approach to

dealing with the economic aspects of company operations.

in 2007 the company oversaw the balanced development of

its manufacturing base. total investments in development and

production modernization came to over rur 7,749,357,000. major

upgrades in technological equipment were achieved at a number of

euroChem divisions: naK azot, one of the oldest chemical plants

in the country, got a new production base that meets all modern

engineering and environmental requirements. a carefully planned

manufacturing policy has also borne positive results: in 2007,

euroChem produced 6.1 million tonnes of fertilizers, or 5% more

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than in 2006. furthermore, the consolidated output of phosphate

fertilizers, for example, increased 5% in 2007 and amounted to 1.7

million tonnes. thanks to the launch of a new facility for enriching

baddeleyite-apatite sands, the production of apatite concentrate

amounted to 2.5 million tonnes, or 25% higher than 2006

production levels. stable production levels have been maintained in

other production lines, in line with demand on domestic and global

markets.

stable chemical production is based on a reliable raw-material

base. that’s why in 2007, euroChem worked on expanding and

strengthening the mineral resource mining segment for the

company’s own production needs. euroChem made considerable

investments in the creation of a one-of-a-kind raw material resource:

the Gremyachinskoye deposit, which will help the company reinforce

its leading position in the long term. in taking on the development

of the Gremyachinskoye deposit, euroChem has made a major

investment in the sustainable development of the volgograd region

in particular, and the south of russia in general.

the company has also made continued efforts to expand

its transport infrastructure. the global nature of the company’s

operations presents demanding requirements for a stable corporate

transport system, which is why in 2007 euroChem undertook to

modernize its rail car park and develop a system of terminals. in

particular, work on the construction of a bulk freighter terminal in

tuapse is already underway.

the revitalization of the domestic agricultural industry is

one of russia’s top priorities. this task can be resolved only if a

modern agro-industrial manufacturing culture is in place. euroChem

recognizes the importance of this goal, and has incorporated it into

its corporate development strategy for a new style of sales and

marketing organization — the company consistently and successfully

implements the holding’s concept, providing comprehensive

agrochemical services without limiting its communication with

agricultural manufacturers to the moment of sale. an innovative

approach allows first and foremost for the rational use of fertilizers

without harming people or the environment, and also stimulates

increased efficiency in agriculture, and improves euroChem’s long-

term competitiveness. in terms of implementing a new corporate

model, the company played an active role in 23 agro-consulting

centers across russia, opened distribution centers in rostov,

Belarus, and ukraine.

the achievement of excellent results in 2007 was made possible

by taking employee interests into account, as well as the interests of

the company as a whole. euroChem devotes a great deal of attention

to taking on a practical, proactive stance in corporate social

responsibility. the company participates in the socioeconomic

development of the territories in which it has a point of presence

and makes large-scale social investments. total social investments

in 2007 amounted to over rur 470 million, while processes to

reinforce corporate social responsibility principles were continued.

euroChem is the first among russia-based companies in the

chemical industry to publish an annual social responsibility report

addressing operations in 2006. the report underwent independent

verification and met all international Gri G3 Guidelines.

overall, in 2007 euroChem reaffirmed its leading position on

the fertilizer market. Clear progress in the company’s economic

and manufacturing development was made possible thanks to the

employees at all divisions and companies, who pooled their efforts

and laid the foundation for the past year’s challenging but fruitful

work. the company’s strategic vision ensures it is a living, breathing

organism that looks to the future with optimism.

dmitri strezhnev,General director

Key PerformanCe indiCators

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Indicator unit of measurement

2007 2006 Changes 2007 from 2006, %

Production volume on key product lines, raw material and semi-finished products

tonnes, thou. 24 016 23 929 0,4

sales volume (on key product lines) tonnes, thou. 13 348 12 604 6

revenue rur, mln 73 821 53 403 38

incl. Key products rur, mln 69 483 50 145 39

other rur, mln 4 338 3 258 33

Profit tax rur, mln 4 059 2 453 65

net profits rur, mln 16 174 6 986 >100

Product Gross Output, thou. tonnes Shipping, thou. tonnes

2007 2006 Change, % 2007 2006 Change, %

ammonia 2 602 2 591 100,4 438 601 72,9

urea 1 665 1 664 100,0 1 345 1 254 107,3

ammonium nitrate 2 316 2 120 109,2 1 690 1 360 124,3

uan solution 1 063 1 075 98,9 1 149 1 078 106,6

monoammonium Phos-phate

863 671 128,6 874 650 134,5

diammonium Phosphate 842 829 105,1 838 850 98,6

mineral fertilizers (nP, nPK, super phosphate)

379 598 63,3 396 589 67,2

methanol 496 551 90,0 437 458 95,4

acetic acid 161 161 100,0 127 125 101,6

iron ore concentrate 5 241 5 613 93,4 5 376 4 927 109,1

apatite concentrate 2 500 2 007 124,6 2 482 1 998 124,2

Baddeleyite concentrate 7,56 7,51 100,6 8,22 8,12 101

feed Phosphates 258 264 97,7 127 145 87,6

Key Financial and Business Indicators — EuroChem Holding, 2006-2007

Key Production Indicators — Reporting Year

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euroChem rePorted its over 1 miLLion t saLes of fertiLizers in the russian marKet.

the ComPany met its Key PerformanCe indiCators set By its annuaL oPerationaL ProGram: on ammonia, urea and aCetiC aCid – By 100%, ammonium nitrate – By 109%, PhosPhoriC aCid – By 100.2% and PhosPhoriC fertiLizers – By 106%.

with further deveLoPment of the networK of transPort, distriBution and aGro faCiLities the hoLdinG was joined By the murmansK aLuminuos terminaL CjsC, the euroChem-uKraine aGroCenter, the euroChem-Krasnodar aGroCenter LLC and the euroChem-enerGo LLC. euroChem mCC’s rePresentative offiCe was oPened in ByeLorussia. the euroChem-Bmu LLC Commissioned the first staGe of the distriBution Chain with storaGe CaPaCity of uP to 50 thousand tonnes of fertiLizers.

KovdorsKy GoK was awarded with the russian federation Government’s diPLoma as winner of the aLL-russia ComPetition russian enterPrise of hiGh soCiaL effiCienCy.

euroChem mCC PerformanCe was hiGhLy aCCLaimed By the rf President at the exhiBition russian fieLd – 2007. the ComPany was awarded with the GoLd medaL for ammonium PhosPhate universaL tyPe, ProduCt of PG PhosPhorit.

euroChem-Bmu Commissioned the ProduCtion Line for diammonium PhosPhate, LoCaL disPosaL faCiLities and introduCed new methods for warehousinG PhosPhoGyPsum ameLiorant.

KovdorsKy GoK ComPLeted ConstruCtion of the system to ProCess sand of the human-made dePosit and fine-Grained aPatite-staffeLite ores. its ConstruCtion worth of over ruB1 BiLLion of investments Created additionaL CaPaBiLities for manufaCture of PhosPhorus-ContaininG fertiLizers.

nevinnomyssKy azot is the onLy ProduCer of PoLyvinyL aLCohoL (Pva) of aLL Grades, unique ProduCt for russia. it suPPLied a few PiLot Pva Lots for GoznaK.

novomosKovsKy azot emBarKed on revamPinG the ammonia ProduCinG PLant, overhauLinG urea-3 ProduCtion faCiLity and adoPted the ProGram for the ConstruCtion of a new urea-4 ProduCtion faCiLity.

PG PhosPhorit deveLoPs a ProGram for overhauLinG a suLPhuriC aCid ProduCtion to reaCh an annuaL CaPaCity of uP to 1 mLn tonnes of monohydrate Per year.

2007 events

the ComPany made further efforts to exPand aCCess of fertiLizers to foreiGn marKets. the euroPean union Lifted anti-dumPinG restriCtions on the russian urea; euroChem mCC siGned aGreements of ammonium nitrate and uan soLution deLiveries. By resuLts of the anti-dumPinG investiGation, the u.s. dePartment of CommerCe revoKed duty on urea imPort for mCC euroChem. terms and Conditions of an aGreement of ammonium nitrate deLiveries to the usa are at the staGe of enthusiastiC disCussions.

the voLGoGrad reGion administration and euroChem entered into the aGreement vaLued at ruB 50 BiLLion to ConstruCt GoK at the GremiaChinsKoye dePosit with Potassium saLt reserves of more than 1 BiLLion tonnes.

aLL of the hoLdinG’s enterPrises shifted to new BudGetinG in CLose ComPLianCe with ifrs requirements. the ComPany PuBLished the CorPorate soCiaL rePort «Key to suCCess», PrePared aCCordinG to the Gri internationaL standard and the united nations GLoBaL Convention.

the ComPany issued 5 year-usd 300 mLn. euroBonds LPn.

the ComPany aCted as Partner of the seCond tuLa eConomiC forum.

the internationaL ratinG aGenCy standard and Poor’s uPGraded euroChem mCC internationaL CorPorate GovernanCe ratinG to CGr 6 + and nationaL one to CGr 6.5.

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euroChem is the largest russian manufacturer of mineral

fertilizers. founded in 2001, euroChem took on a complex action

plan aimed at improving production efficiency, and over a short

period of time the company achieved a position among the top

three industry leaders in europe, and the top ten industry leaders

worldwide.

euroChem is a large, vertically integrated holding, and the

only chemical company in russia that combines mining plants,

manufacturing plants, logistics firms and a sales network with points

of presence all over the world and 24,000 employees.

the company is comprised of nevinnomyssky azot ojsC

(stavropol Krai), novomoskovskaya joint-stock Company azot (or

naK azot, located in the tula region), Kovdorsky mining Plant (or

KGoK, located in the murmansk region), Phosphorit industrial Group

(Leningrad region), euroChem - Belorechenskie minudobrenia

(euroChem-Bmu, located in Krasnodar Krai), Lifosa aB (Lithuania,

eu) and euroChem - volgaKaliy (in the town of Kotelnikovo,

volgograd region). the unification of these companies into the

euroChem group has stimulated growth within each of the holding

companies. the gross production volume at euroChem companies

in 2007 amounted to 24 million tonnes. total product sales in 2007

amounted to 13.3 million tonnes, and sales revenues totaled rur

73.8 billion in 2007.

euroChem’s primary line of business is the production of nitrogen,

phosphoric and compound fertilizers. the product line includes over 100

kinds of mineral fertilizers organic synthesis products, feed phosphates

and mineral raw materials.

euroChem’s development strategy covers a period of up to 2012 and

envisages investments of usd 3.2 billion for production development

and the construction of new facilities. the company is active working on

the development of a new company: euroChem-volgaKaliy. the launch

of mining plants at euroChem volga-Kaliy on-site at the Gremyachinsky

potassium salt deposit (in the volgograd region) will allow euroChem

to become the first russian company and the fourth company in the

world to produce a full spectrum of mineral fertilizers using nitrogen,

phosphorus, and potassium.

euroChem’s key sales markets are russia and the Cis, western and

eastern europe, the us, asia, and Latin america.

today nearly 80% of the company’s products are exported, which

has allowed euroChem to gain a considerable share of the global

fertilizer market. in order to work directly with consumers in europe

and the us, euroChem has set up subsidiary sales firms in these

regions. euroChem was also the first company in russia to develop

a distribution network in russia and the Cis for fertilizer as well as a

system for protecting plant life and seeds, in addition to developing

herbicides and providing an extensive array of agrochemical services.

fertilizer shipments on russia’s domestic market are steadily on the

rise. in 2007, domestic consumers received over 1 million tonnes of

shipped fertilizers.

the dynamic development of the euroChem holding is taking

place in line with a development strategy that is in place until 2015.

the primary goals are to improve performance and achieve excellent

manufacturing and financial results. these goals are being achieved

thanks to the development of competitive production, reduced expenses,

improved quality of finished products, and growth in labor productivity.

the long-term investment programs that are underway at euroChem

companies as a part of the holding’s general company strategy are

aimed at updating existing production facilities, launching new ones,

and incorporating new technologies.

high growth rates and maintenance of the leading position in terms

of efficiency have been the result of adhering to international standards

and modern management methods. the company has taken steps to

incorporate best global practices in corporate governance. furthermore,

the Board of directors now includes independent directors, which also

includes committees for strategy, audit and corporate governance and

personnel.

thanks to these efforts, in 2006 standard & Poor’s gave euroChem

the highest Corporate Governance score in russia’s industrial sector

(CGs-5+), and raised it to CGs-6+ on the international scale in 2007.

increased transparency and efficiency have been achieved thanks

to the incorporation of oracle e-Business suite in euroChem’s corporate

management system.

euroChem consistently uses integrated management systems for

quality control, environmental protection and industrial safety in line

with international iso standards.

in line with the principles of sustainable development set out in

the un’s Global agreement, euroChem practices a policy of corporate

social responsibility. the company publishes an annual corporate social

responsibility report.

aBout the ComPany

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ComPetitive advantaGes

A major market shareeuroChem holds a leading position in russia’s nitrogen fertilizer

market and produces 23% of all nitrogen fertilizers. euroChem

accounts for over 13% of all fertilizer production in the russian

federation. total product sales in 2007 amounted to 13.3 million

tonnes. Salesrevenuesin2007totalednearlyRUR74billion.

An extensive portfolio of key productseuroChem produces over one hundred different finished products,

including ammonia, ammonium nitrate, diammonium phosphate,

monoammonium phosphate, uan solution, and methanol. the

company is also working towards increasing the diversification of

its product portfolio by taking on projects to develop deposits for

potassium-based fertilizers. as a result of this project, the company

will become the only company in russia and one of the few companies

in the world to produce nitrogen, phosphoric and potassium fertilizers.

euroChem realizes that it will gain a competitive edge with its extensive

product line, gaining flexibility in dealing with temporary fluctuations

in consumer demand for different products.

The sole manufacturer of certain productseuroChem is the only company in the world manufacturing

baddeleyite concentrate and the only company in russia

manufacturing commercial quality synthetic acetic acid. the

company is not aware of any plans on the part of competitors in

russia or abroad to launch production of these products in the near

future.

Cost-efficient productioneuroChem believes its production expenses are relatively low

compared to some competitors on the domestic and international

markets. the company’s gross profits in 2007 amounted to rur

43.375 billion. euroChem is confident that these indicators exceed

those of its competitors. euroChem is also confident that the

key factors in achieving low production costs are: an effective

logistics system, a developing international sales network, and a

fully-functional cost-efficiency program, including reduced costs

for resource consumption, the closure of loss-making production

lines, improved product quality, and a presence on premium sales

markets. one of the main reasons for high gross profits is the

company’s access to energy resources at competitive prices

(for example, natural gas supplied by Gazprom ojsC and its

subsidiaries under long-term contracts) and certain types of raw

materials (such as high-quality apatite concentrate produced by

Kovdorsky GoK).

Vertically-integrated productioneuroChem’s business is vertically integrated and includes significant

mining, manufacturing, logistics, transport and marketing components

making it possible for the company to lower costs at production and

marketing levels. the company is confident that it’s vertical integration

will also help minimize price fluctuation risks related to certain types of

raw material, such as materials produced by its mining divisions. this

gives the company an indisputable advantage over its competitors. for

example, the company’s demand for high-quality apatite concentrate is

satisfied by Kovdorsky GoK.

A developed transport networka major component in fertilizer prices is the cost of

transportation. euroChem manages a large-scale transport and

logistics network, including specialized terminals, owned and leased

portable equipment, and freight ships. this allows the company to

keep transportation costs down in comparison with competitors who

do not have their own networks. euroChem’s transport and logistics

operations reliably ship raw materials to euroChem companies

and supply consumers with finished products from euroChem’s

manufacturing companies.

A dynamic, experienced management team

euroChem possesses a dynamic management team that offers

extensive experience and impressive achievements in improving

operational results at production facilities. the company’s senior

management complement each other and the company with their

industrial, marketing, and financial experience, as well as their

capable management skills. the majority of the members of the

euroChem Board of directors are independent directors. tools

recognized by the international business community are used in

the company’s management system, in addition to an integrated

management system that meets iso and ohsas standards, and

progressive corporate governance methods. the company is

now currently completing the process of introducing a resource

management system from oracle.


12

Managing Company

Sales Business Units EuroChem Logistics Business Units

6 sales companies 7 manufacturing companies, including 5 manufacturers of finished products Logistics Company

euroChem trading usa Corp. (tampa, usa)

euroChem trading Gmbh (zug, switzerland)

agroCenter euroChem-ust-Labinsk (ust-Labinsk, russia)

agroCenter euroChem-volgograd (mikhailovka, volgograd region, russia)

agroCenter euroChem-Krasnodar (Krasnodar, russia)

agroCenter euroChem-ukraine (Kiev, ukraine)

novomoskovskaya joint-stock Company azot (novomoskovsk, russia)nevinnomyssky azot, ojsC

(nevinnomyssk, russia)euroChem-Belorechensk mineral fertilizers,

LLC (Belorechensk, russia)Phosphorit industrial Group, LLC

(Kingisepp, russia) Lifosa aB (Kedainiai, Lithuania)

harvester shipmanagement Ltd. (Limassol, Cyprus)

6 Branches in russia including 2 mining Plants 3 transshipping Companies (to and from ports in russia and abroad)

Belorechensk branchnevinnomyssk branch

Kingisepp branchKovdor branch

novomoskovsk branchnovorossiysk branch

Kovdorsky GoK, ojsC (Kovdor, russia)

euroChem volga-Kaliy, LLC (Kotelnikovo, russia)

murmansk aluminum oxide Plant, LLC (murmansk, russia)

tuapse Bulk Cargo terminal, LLC (tuapse, russia)

tankChem, jsC (tallinn, estonia)

investment Company 6 service Companies scientific Center for design & development

euroChem asset management (Cyprus)

Kingisepp remstroiservice, LLC (Kingisepp, russia)

novomoskovsk remstroiservice, LLC (novomoskovsk, russia)

nevinnomyssk remstroiservice, LLC (nevinnomyssk, russia)depot-euroChem, LLC

(nevinnomyssk, russia)euroChem-energo, LLC

(novomoskovsk, russia)euroChem-novoselskoye, LLC (Kaluzhskaya region, russia)

tulagiprokhim, ojsC(tula, russia)

ComPany struCture (as of the end of the rePortinG year)

ComPetitive advantaGes

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The company’s strategic task is to become one of the five largest

global manufacturers of fertilizers in terms of production volumes,

sales, and profits. In order to achieve these goals, the company has

developed and is implementing a development strategy that sets out

the following key objectives:

The Nitrogen Business and Organicsthe development strategy for the nitrogen business and

organics (2008-2012) places priority on target sales markets

and envisages the expansion of production and the introduction

of new products. some of the approved investment projects are:

organizing the production of low density ammonium nitrate (Ldan)

at novomoskovsky azot, the construction of a melamine production

facility at nevinnomyssky azot, and the reconstruction of a methanol

production facility at novomoskovsky azot. furthermore, work is

also underway to reduce import duties on product shipments, in

addition to other logistics initiatives.

in terms of developing human potential, goals have been set

to ensure the company is staffed with qualified specialists, while

optimizing the total number of employees. there are also plans to

develop training and professional development programs, in addition

to streamlining the incentives system.

euroChem’s competitive advantages in this business segment

include:

• proximity to markets with high growth potential;

• strong market position in russia, proximity to target sales

markets for acetic acid;

• competitiveness in part due to comparatively competitive

prices for gas and electricity;

• potential for further improvements in production.

The Phosphoric Businessin terms of euroChem’s 2008-2012 development strategy for

its phosphoric business, the company is planning to concentrate

phosphoric product sales in the most attractive markets and

work towards the abolition of import duties in eu countries

and turkey (2010-2012). initiatives in manufacturing include:

increased output of sulfuric acid up to 1 million tonnes per

year at Phosphorit industrial Group, and up to 720,000 tonnes

at euroChem-Belorechenskie minudobrenia, in addition to the

construction of a new feed phosphates production facility with

a capacity of 150,000 tonnes per year at Lifosa (replacing an

outdated facility with a 75,000 tonnes capacity) and opening

a new nPK fertilizer complex at euroChem-Belorechenskie

minudobrenia. in order to generate its own energy to reduce

production costs, euroChem plans to install a 12mw turbine

at Phosphorit and a 6mw turbine at euroChem-Belorechenskie

minudobrenia.

as regards the hr policies at euroChem-Bmu and Phosphorit,

programs will be developed for retraining and professional

development, in addition to new incentives systems. Personnel

cutbacks are also planned at these companies in 2008-2012. Lifosa

will see a number of measures toward recruiting and retaining

young specialists in order to compensate for and replace retiring

employees.

euroChem’s competitive advantages on the phosphates market

are:

•thecompanyminesitsownhigh-qualityapatiteconcentrate

•proximitytomarketswithhighgrowthpotential

•theconvenientlocationofLifosa(thekeycompanyinthis

segment)andlowlogisticscostsforexportingproductsto

Europe,andnoimportduties

•opportunitytodevelopNPKfertilizersonhigh-growthpoten-

tialmarkets.

Kovdorsky Mining PlantKovdorsky mining Plant’s program (2008-2012) includes

measures to extend the service life of the mine and improve mining

and extraction efficiency. it envisages the reconstruction of an ore

crushing and conveyor point (second processing line), including the

construction of a tubular belt conveyor and, in order to increase the

company’s production life, reduce the costs of transporting ore from

the pit, and optimize capital investments in transport technologies

(heavyweight dump trucks).

one of the issues facing this company is a deficit of human

resources in the Kovdor district and the lower salary rates

compared to market levels in the murmansk region. as a result,

the company has a plan in place to ensure long-term personnel

retention, including providing employees who are hired from

different regions with housing and opportunities to earn a pro-

fession and retrain in a second profession. average salaries will

also be increased.

euroChem’s competitive advantages in this business segment

include:

•aconsiderablerawmaterialsbase(reservesaresufficientto

sustainmininguntil2030)

•comprehensiveprocessingofmineralrawmaterialsfromthe

Kovdorskoyedepositofapatite-magnetiteore,whichhelps

deveLoPment strateGy

1�1�

deveLoPment strateGy

obtainironore,aswellasapatiteandbaddeleyiteconcentrates

•highproductquality(lowironoremoisturecontent,low

siliconcontentandhighcontentoffluxelements(CaO,MgO)

•profitablelogistics,closeproximitytoEuropeanmarketsand

proximitytotheMurmanskPort.

The Potassium Business Segmentin 2006 euroChem began exploratory works at the

Gremyachinskoye deposit of potassium salts in order to estimate and

confirm balanced resources. the first stage of geological surveys

was completed in 2007. a technical and economic assessment has

been prepared, as has a report calculating the resources. the report

has been approved by russia’s Government resource Committee

for mineral resources, and the resources are protected.

during the planned preparatory period in 2008-2012,

euroChem intends to conduct a full range of geological survey

works in addition to organizational and construction works which

will ease the launch of production in 2013 and gradual expansion

into full capacity in 2016, when total production volume is expected

to reach 4.6 million tonnes of potassium chloride.

under the development strategy for the potassium business (2008-

2012), a project has been approved for the development of three mine

shafts on the deposit and the construction of a mining plant with a

treatment facility (using flotation and halurgy technologies).

euroChem’s competitive advantages in the potassium

production segment include:

•aqualityresourcebase

-highKCIcontent(33-41%)

-highlytreatableore(89%)

-lowcontentofdetrimentalimpurities(upto1.5%)

•cost-efficientlogisticssystem,convenientproximitytothe

SouthofRussiaandproximitytotheexportterminalin

Tuapse

•abilitytoproduceafullrangeofcomplexcompoundNPK,NK

andPKfertilizers.

LogisticsLogistics expenses represent a considerable share of the final

cost of mineral and chemical products, which is why streamlining

the logistics system is one of the main components of the company’s

development strategy.

according to the logistics development strategy (2008-2012),

the company’s goal is to become less dependent on russian

railways over 2007-2010 by acquiring and leasing its own means of

transport. Plans are also in place to expand the functions of the rail

car depot in order to compensate for demand and compensate for

regular maintenance and repairs.

furthermore, the company plans to launch its own aluminum

oxide terminal in 2008 in murmansk. in order to keep costs down

on regular freight routes, euroChem is also planning to purchase

Panamax ships.

euroChem’s competitive advantages in logistics include:

•directcontractswithshippers(nointermediaries)

•amajorpartofthelogisticschaininfreightshippingfromthe

producertothebuyerisorganizedbyEuroChem

•alargenumberofstablebusinesslines.

Regional Sales and DistributioneuroChem’s target markets for developing its own sales network

are: russia and the Cis, western europe, Central and eastern europe,

the Baltics and turkey.

the company’s goal on the russian market is to increase the

company’s share of the market up to 30% and 20% of the ukrainian

market by 2012. that will make it possible to gain a solid position

on growing markets that are the most accessible. on the european

market, euroChem aims to increase sales and gain a 7% share of

the market.

the following goals have been set out in the development stra-

tegy for regional sales and distribution (2008-2012): developing

the company’s own distribution network in key regions of russia

and the Cis, organizing extensive agrochemical customer service,

and organizing an efficient sales system with optimum sales at 5%

of 2012.

euroChem’s competitive advantages in sales and distribution

include:

•shipmentofalltypesofmineralfertilizers

•agrochemicalcapabilities

•provisionofextensiveagrochemicalservices(soilanalysis,

consultation,cropprotectionagents,seeds,mineralfertilizer

andcropprotectionagentservices

•advantageousgeographicallocationintermsoftarget

markets.

1�


Key Businesses today and PLans for the future

100 items of finished products

7th Place in the world rating of ammonia producers

7,1 million tonnes of fertilizers, ammonia, feed phos-phates were realized in 2007

5th place in the world in termsof production capacities,5% of world production uan solution

1,7 million tonnes – Consolidated output of phosphoric fertilizers, increase by 14%

2,5 million tonnes – production of apatite concentrate (increase by 25% thanks to introduction into operation of the complex for enrichment of baddeleyite-apatite sands)

2nd place in the world in terms of volume of production facilities in the market of agricultural ammonium nitrate

the company provided mineral fertilizers to more than

60 countries. volume of supplies of ammonium nitrate to the Brazilian market increased in 3.5 times чем в

29% - increase in production of one of the main phosphoric fertilizers – ammophos

1�

1�


euroChem companies currently manufacture over 100 different

types of finished products, including a variety of mineral fertilizers,

organic synthesis products and mineral raw resources.

EuroChem Product Structure

EuroChem Revenue Volumes — 2005–2007 (RUR, bln)

Factories 2007

naK azot 5,5

nevinnomyssky azot 5,4

Kovdorsky GoK 7,7

euroChem-Bmu 1,1

Phosphorit 1,8

Lifosa 2,5

Total 24,0

Production Volumes (mln. tonnes)

1�


By 2012 the company plans to launch operations at EuroChem-VolgaKaliy (Kotelnikovo, Russia), Russia’s third producer of potassium fertilizers.

mineraL fertiLizersProduction of nitrogen and phosphoric fertilizers is the primary

business at euroChem and represents over 70% of the company’s

revenue.

Key products include ammonia, urea, ammonium nitrate, uan

solution, ammophos and diammonium phosphate (daP).

the company’s primary mineral fertilizer manufacturing

facilities are located at five different companies in russia and

abroad.

•NAKAzot(Novomoskovsk,Russia)—oneofthelargest

Russianfactoriesproducingfertilizersandorganicchlorine

products.

•NevinnomysskyAzot(Nevinnomyssk,Russia)—Russia's

largestmanufacturerofnitrogenfertilizersandorganicsyn-

thesisproducts.

•EuroChem–BelorechenskieMinudobrenia(EuroChem-BMU)

(Belorechensk,Russia)–amanufacturerofphosphatefertilizers.

•PhosphoritIndustrialGroup(Kingisepp,Russia)–alead-

ingRussianmanufacturerofphosphatefertilizersandfeed

phosphates.

•LifosaAB(Kedainiai,Lithuania)–thelargestmanufacturerof

phosphoricfertilizersandfeedphosphatesintheBaltics.

By 2012 the company plans to launch operations at euroChem-

volgaKaliy (Kotelnikovo, russia), russia’s third producer of potas-

sium fertilizers.

Product Company 2007, thou. Tonnes

2006, thou. Tonnes

%

Nitrogen fertilizers 7 645 7 450 102,6

ammonia total, incl: 2 602 2 591 100,4

naK azot 1 516 1 526 99,4

nevinnomyssky azot 1 086 1 065 101,9

ammonium nitrate total, incl: 2 316 2 120 109,2

naK azot 1 195 1 072 111,5

nevinnomyssky azot 1 121 1 048 107,0

urea total, incl: 1 665 1 664 100,0

naK azot 825 849 97,2

nevinnomyssky azot 840 815 103,0

uan solution total, incl: 1 063 1 075 98,9

naK azot 309 326 94,6


Phosphoric fertilizers 1 783 1 696 105,1

daP total, incl: 842 829 101,5

Lifosa 842 786 107,2

euroChem-Bmu 0 44

МАP total, incl: 863 671 128,6

euroChem-Bmu 315 227 138,6

Phosphorit 548 444 123,5

nP 14:34 Phosphorit 0 100

nP 20:20 euroChem-Bmu 72 85 84,4

1�

Product Company 2007, thou. Tonnes

2006, thou. Tonnes

%

super phosphates Phosphorit 6 10 62,3

Feed phosphates 258 264 97,7

defluorinated phosphate Phosphorit 193 196 98,7

monocalcium phosphate

Lifosa 65 56 115,8

dicalcium phosphate Lifosa 0 6

monodicalcium phosphate

Lifosa 0 6

Compound fertilizers 301 402 74,7

ammophos – universal Phosphorit 11 0

nPK 8:4:24 nevinnomyssky azot 16 13 122,0

nPK 17:0,1:28 nevinnomyssky azot 76 98 77,9

nPK16:16:16 nevinnomyssky azot 87 62 140,5

nPK 11:10:11 naK azot 0 43

nPK 21:0,1:21 nevinnomyssky azot 111 187 59,4

Sales structure for mineral fertilizers, ammonia, and feed phosphates — 2007

in 2007, the company sold 7.1 million tonnes (61.01% of

total sales volumes) of fertilizers, ammonia and feed phosphates

for a total of rur 53.5 billion (73% of total company revenues).

in 2007 euroChem’s key markets (russia, the Cis, europe,

north america and Latin america) saw sales of 86% of all fertilizers,

ammonium and feed phosphates.

a total of 91% of all fertilizer sales (rur 48.6 billion) was achieved

in six key product lines: urea, ammonia, ammonium nitrate, uan

solution, diammonium phosphate and ammophos.

Regional Sales Structure for Fertilizers, Ammonium and Feed Phosphates, 2007

Fertilizers Sales Structure


CIS

Africa

Asia and Oceania

Latin America

North America

Europe

Russia Ammonium nitrate

Urea

UAN Solution

MAP

DAP

Ammonia

Other

Tonnes, mln RUR, bln

1�


Nitrogen fertilizersProduction volumes of euroChem’s main types of nitrogen

fertilizers (urea, ammonium nitrate, ammonia and uan solution) were

increased 1.8% from 2006 and amounted to 4.04 million tonnes (for

conversion to 100% nitrogen).

overall, the international nitrogen fertilizer market in 2007 was very

strong for fertilizer manufacturers due to growing consumption in nearly

all regions worldwide.

Key Sales Markets

Marketable Ammonia

Average yearly price level, ammonium and nitrogen fertilizers in 2006-2007 (Black Sea FOB, USD/tonne)

Phosphoic & Compound Fertilizers

Nitrogen Fertilizers

Product 2007 2006 Growth, %

ammonia 268 244 9,8

urea 306 222 37,8

ammonium nitrate 201 145 38,6

uan solution 234 146 60,3

20


Indicative prices for ammonia and nitrogen fertilizers (Black Sea FOB shipments) – 2007, bulk, USD/tonnesource: fertecon, fertilizer week, fmB, the market

source: British sulfur Consultants

Based on the average annual levels in

a historical breakdown, prices for mineral

fertilizers are still at peak levels.

Ammoniaammonia is a base raw material used in the production of

mineral fertilizers. nearly 77% of the world’s ammonia consumption

is used in fertilizer production, 23% is used in agriculture for

fertilizing purposes. ammonia is also used for technical purposes.

euroChem’s total volume of ammonia produced in 2007 amounted

to 2,602,000 tonnes of which 558,000 tonnes was marketable

ammonia.

Ammonia production and EuroChem companies, thou. tonnes

Top Global Ammonia Manufacturers (mln tonnes/year)

21



Ammonium nitrateammonium nitrate production volumes at euroChem companies

in 2007 amounted to 2,316,000 tonnes, of which 1,641,000 tonnes

were marketable products. Production volumes in 2007 were up 9%

from 2006 (up 19% for marketable products). euroChem is ranked

in second place worldwide in terms of production output capacity on

the agricultural ammonium nitrate market

ammonia sales volumes to third-party buyers in 2007 amounted to

rur 3.5 billion, down 18% from 2006. this drop was the result of increased

sea shipping within the holding and reduced third-party purchases. Based

on 2007 results, ammonia sales took place in 6 countries. the largest

ammonia markets for euroChem are spain, the us and morocco, which

together represent 91% of euroChem’s total ammonia sales.

euroChem’s main competitors in europe are russian, ukrainian and

north american manufacturers. euroChem is restricted on the european

market by a 5.5% import duty.

Markets Share, %

russian production 19,8

russian shipping 15,4

exports from russia 15,9

Global commerce 2,5

Global production 1,7

EuroChem’s share of Russian and global markets

Ammonium sales structure by region, 2007

Ammonium nitrate production and EuroChem companies, thou. tonnes

Top Global Agricultural Ammonium Nitrate Manufacturers (mln tonnes/year)

on the us market, euroChem’s main competitors are Latin

american manufacturers, which are expected to increase their output

capacities, in addition to other russian and ukrainian manufacturers.

in 2007, 87% of ammonia was sold on key markets in north

america, europe and russia.

Akron

EuroChem

Terra

Cherkassky Azot

Nazonazot

Yars

Grando Parolsso

Azot (Bereznyaki)

Kirovo-Chepetsky Industrial Complex

Azot (Kemerovo)

22


total ammonium nitrate sales volumes in 2007 amounted to rur

9.4 billion, and sales were made in 24 countries. the largest ammonium

nitrate markets for euroChem are Brazil, russia, syria, and ukraine,

which together represent 78% of euroChem’s total ammonium nitrate

sales. ammonium nitrate shipments to Brazil at optimum prices have

increased three times over (155,000 tonnes in 2006 to 556,000 tonnes

in 2007) thanks to preferential duty-free terms for euroChem.

Market6s Share, %




Global commerce 12,0



Ammonium nitrate sales structure by region, 2007

Urea production and EuroChem companies, thou. tonnes

Ureaurea production volumes in 2007 did not change much from

2006 and amounted to 1,665,000 tonnes (including 1,284,000

tonnes of marketable urea).

euroChem ranks 17th in the world among global urea

manufacturer in terms of production capacity, and represents

approximately 1% of total global urea production.

Promising ammonium nitrate markets for euroChem include

russia, the Cis and Latin america, where consumption is expected to

increase significantly. europe is another good market and is the largest

in the world. however, there are trade barriers that currently present

restrictions. euroChem has advantages in terms of expenses on the

ammonium nitrate market in Latin america compared to other Cis-

based manufacturers, including market access without having to pay

anti-dumping duties. euroChem’s priorities in this segment for 2008 are:

expanding the company’s presence on the large market in russia and

the Cis by actively developing the regional sales system, maintaining its

position on the Latin american market, and taking a proactive position

in negotiations to remove trade restrictions and non-tariff barriers on

key sales markets.

in 2007, 82% of ammonium nitrate was sold on key markets in

Latin america, russia and the Cis.

euroChem’s share of key ammonium nitrate markets (consumer

regions) are: 22% in Latin america, 15% in russia, and 5% in the Cis.

23


Top Global Urea Manufacturers (mln tonnes/year)

Urea sales structure by region, 2007



Markets Share, %




Global commerce 3,9


Based on 2007 results, the volume of urea sales amounted to 1.3

million tonnes (rur 10.8 billion). sales were made in 35 different

countries. the largest carbamide markets for euroChem are Brazil,

italy, Germany, mexico, russia, and india, which together represent

63% of euroChem’s total urea sales.

shipments to Brazil increased considerably (more than twice

over, from 144,000 tonnes in 2006 to 387,000 tonnes in 2007),

as did shipments to italy (from 82,000 tonnes in 2006 to 167,000

tonnes in 2007).

euroChem ranks first place among exporters to the european

market. euroChem’s main priority on the european urea market is to

maintain and expand its position. the company’s chief competitors

on the european market are manufacturers from the Cis, egypt, and

the middle east, which are actively expanding their output capacities

for granulated urea.

in Latin america, euroChem places third on the market, and first

place among exporters.

in order to gain a foothold in the us urea market, work is

currently underway to remove or reduce prohibitive anti-dumping

duties on euroChem products.

in 2008, the company will continue to work towards minimizing

trade barriers on imported russian urea (at present, the us imposes

a 68.26% anti-dumping duty, and europe imposes a 6.5% import

duty) and develop product sales with partner manufacturers in

order to strengthen the company’s position as a leading Cis-based

exporter.

in 2007, 87% of urea was sold on key markets in russia, the

Cis, europe, Latin america and north america. euroChem’s share of

key urea markets (consumer regions) are: 4% in europe, 8% in Latin

america, and 13% in russia.

2�


UAN Solution Production and EuroChem Companies (mln tonnes/year)

UAN Solution sales structure by region, 2007Top Global UAN Solution Manufacturers (mln tonnes/year)

source: British sulfur Consultants, ifa, euroChem mCC»


Markets Share, %




Global commerce 27,8


UAN Solutionuan solution production in 2007 fell 12,000 tonnes fro 2006

and amounted to 1,063,000 tonnes in 2007.

euroChem has placed 5th worldwide in terms of uan solution

production. euroChem’s uan solution products represent 5%

of global output, after the north american companies terra, Cf

industries and PCs

.

total uan solution sales volumes in 2007 amounted to rur

7.5 billion, and sales were made in 5 countries. the largest uan

solution markets for euroChem are the us, argentina, and australia,

which together represent 96% of euroChem’s total uan solution

sales.

euroChem’s target markets for uan solution are the growing

markets in the us and Latin america, as well as europe, where work

is underway to gain access to eu country markets, which currently

pose restrictions in the form of anti-dumping duties.

euroChem’s main competitors on the uan solution market in

the us are manufacturers based in romania, Lithuania and the Cis.

in 2007, 90% of uan solution was sold on key markets in north

america, Latin america and russia.

2�


in 2007, skyrocketing price growth of 60% was observed on the

phosphoric fertilizer market. this surge is due to the sharp increase

in demand and the resulting supply deficit on the global phosphoric

fertilizer market. Price growth on the compound fertilizer market was

less dramatic at 36%.

Production volumes for euroChem’s main phosphoric and

compound fertilizers amounted to 2,084 million tonnes in 2007.

Рroduction growth requires significant investments in the

production base and the modernization of the existing production

capacity.

among the most important production initiatives: increasing the

output of sulfuric acid at iG Phosphorit and at euroChem-Bmu, the

construction of a new workshop for feed phosphates at Lifosa aB,

and a production facility for complex nPK-fertilizers will be opened

at euroChem-Bmu.

Fertilizers 2007 2006 Growth, %

ammophos 408 245 66,8

diammonium Phosphate 411 246 66,9

nPK 16-16-16 265 194 36,3

Average yearly price level, for phosphoric and compound fertilizers in 2006–2007 (Black Sea FOB, USD/tonne)

EuroChem’s share of Russian and global phosphoric fertilizer markets, %

Indicative prices for Phosphate and Compound fertilizers 2006–2007, USD/tonne

Phosphoric and compound fertilizersin 2007 the company continued to realize the plans laid in the

strategy for the development of euroChem’s Phosphate Business

up to 2012. these plans are furthered by a favorable global

business climate.

2�


Global Manufacturers of Phosphoric Fertilizers: 2007 (output, million tonnes/year)

EuroChem’s share of Russian and global phosphoric fertilizers markets

Ammophos sales structure by region, 2007

Diammonium phosphate sales structure by region, 2007

Product Monoammonium Diammonium Phosphate

russian production 37,3 –

russian shipping 24,3 –

exports from russia 48,1 –

Global commerce 13,8 7,3

Global production 5,3 3,9

ammophos sales volumes in 2007 amounted to rur 9.2

billion. the largest ammophos markets for euroChem are Brazil,

russia, argentina, and ukraine, which together represent 61.7% of

euroChem’s total ammophos sales.

in 2007, euroChem’s ammophos shipments to europe rose 72%.

this significant increase in shipping was due to overall growth in

demand for fertilizers in europe. shipments to Latin american countries

nearly doubled.

sales volumes of diammonium phosphate in 2007 amoun-

ted to rur 8.2 billion in 2007 and sales were made in 24 different

countries. the largest diammonium phosphate markets for euroChem

are the netherlands, ethiopia, German and Lithuania, which together

represent 45.6% of euroChem’s total diammonium phosphate sales.

monoammonium phosphate sales structure by region, 2007 (%)

in 2007, 95% of ammophos was sold on key markets in Latin

america, europe and the Cis. in 2007, 66% of diammonium phosphate

was sold on key markets in europe and Latin america.

2�


EuroChem Feed Phosphate (thou. tonnes)

EuroChem’s share of Russian and global feedphosphate markets

Sales structure by region: feed phosphates, 2007

International feed phosphate manufacturers, 2007 (output, million tonnes/year)

Feed phosphatesfeed phosphates sales volumes in 2007 amounted to 258,000

tonnes, which is close to 2006 sales volumes. total feed phosphates

sales in 2007 amounted to rur 2 billion.

euroChem placed 7th worldwide in terms of feed phosphates

production. the company’s products represent 3% of the global

market.

Markets Share, %




Global commerce 4,3


2�


orGaniC synthesis ProduCts

euroChem’s 2007 sales of organic synthesis products amounted

to 5% of the company’s output and accounted for 10% of company

revenues.

euroChem’s primary organic synthesis products are methanol,

acetic acid, acetates, and chlorine-based products, which include

chloride, sodium hydroxide, and products processed from these two

components.

organic synthesis and chlorine-based products are used

in many industrial sectors: chemical and petrochemical, metal

processing, wood, timber and paper processing, construction

material production, food and light industry, and water purification.

euroChem main organic synthesis product manufacturing

facilities are located two leading companies in russia’s chemical

industry: naK azot (novomoskovsk, russia) and nevinnomyssky

azot (nevinnomyssk, russia).

in 2007, the two primary markets for base chemical product

sales were the Cis markets and neighboring european markets,

which constituted 89% of all sales.

Product Company 2007, thou. tonnes 2006, thou. tonnes Change, %

Methanol naK azot 371 426 87,1


Total 496 551 90,0

Acetic acid nevinnomyssky azot 161 161 100,0

Production dynamics of methanol and acetic acid in 2006-2007

Organic synthesis product sales structure by region, 2007

Organic synthesys products sales structure by region, 2007

euroChem’s main base chemicals products are methanol (66% –

437,000 tonnes: rur 3.9 billion - 52%) and acetic acid (19% -

127,000 tonnes: rur 1.8 billion - 24%). these two products account

for 76% of all organic synthesis and base chemical products.

methanol

acetic acid

Butyl acetate

vinyl acetate

acetaldehyde

tonnes, mln rur, bln

2�


Methanolmethanol production volumes at euroChem in 2007 fell 10% and

amounted to 496,000. reduced output was due to the closure of old

m-150 production unit.

euroChem ranks 17th worldwide among methanol manufacturers

in terms of output. the company’s production accounts for 1% of

global output.

EuroChem Methanol Production, thou. tonnes

Global Methanol Manufacturers, 2007 (million tonnes/year)

metafraks

tolyatti azot

methanol, tomsk

30


EuroChem’s share of Russian and global methanol markets, %

Methanol sales structure by region, 2007

EuroChem Acetic Acid Production, thou. tonnes

Global Manufacturers of Acetic Acid, 2007 (output, million tonnes/year)

Markets Share, %




Global commerce 2,1


in 2007, 84% of euroChem’s methanol was sold on key markets

in europe and the Cis, and methanol was shipped to 17 different

countries. the largest markets for this segment are russia, Poland,

the netherlands, and slovakia, which together represent 71% of

euroChem’s total methanol sales.

intensifying product treatment is euroChem’s top strategic goal in

methanol production for 2008.

Acetic acidacetic acid production volumes at euroChem in 2007 remained at

2006 levels and amounted to 161,000 tonnes.

euroChem ranks 8th worldwide among acetic acid manufacturers

in terms of output. the company’s production accounts for 1% of

global output.

Severodonetsky Azot

31


EuroChem’s share of Russian and global Acetic Acid markets, %

Acetic Acid sales structure by region, 2007

Markets Share, %




Global commerce 7,5


in 2007, 95% of euroChem-produced acetic acid was sold

on key markets in russia and europe, and shipped to 9 different

countries. the largest market in euroChem’s acetic acid sales

structure is russia, which accounted for 80% of euroChem’s total

sales in this segment.

euroChem’s strategic goals in the acetic acid segment for 2008

involve introducing a flexible price policy and ensuring reliable

shipments within russia and the Cis, in addition to providing support

for sustainable product distribution channels using a system with as

few interim levels as possible.

raw materiaLsanother of euroChem’s business lines accounts for roughly

12% of the company’s revenues (not including intra-holding

shipments): the production of iron ore and apatite and baddeleyite

concentrates. operations within this segment are concentrated at

Kovdorsky GoK (Kovdor, russia).

Comprehensive treatment and processing of ore is

performed at Kovdorsky GoK, and currently the plant is the sole

manufacturer of baddeleyite concentrate and the second largest

manufacturer of apatite concentrate in russia.

total sales volumes of mineral raw materials in 2007 amounted

to rur 8.5 billion. Key markets in mineral products are the Cis and

europe, which represent 80% of sales in this segment, and 60%

of revenues.

32


MINERAL RAW MATERIALS sales structure by region, 2007

Iron ore concentrate sales structure by region, 2007

Iron ore concentrate production and EuroChem companies, thou. tonnes

Iron ore concentrateiron ore concentrate (ioC) production volumes at Kovdorsky

mining Plant in 2007 amounted to 5,241,400 tonnes.

sales of iron ore concentrate in 2007 were up 11% from 2006 and

reached 5.4 million tonnes, with total revenues at rur 8 billion. sales

were made in 7 different countries.

increased sales volumes and higher prices for ioC in 2007 were

results of increased demand for raw materials on the Chinese market.

on the domestic market, which accounts for 63% of euroChem’s

sales structure in this segment, the company’s strategic partner is

severstal Group, to which euroChem shipped over 3.3 million tonnes

of iron ore concentrate in 2007.

Key foreign markets for iron ore concentrate sales include China

and eastern europe (the Czech republic, Poland and hungary). Based

on 2007 results, euroChem shipped 1.1 million tonnes of iron ore

concentrate to China, or 21% of the company’s total shipments in

this segment.

the company’s strategic goal in ioC sales in the short term is to

increase direct shipments to China and gain a foothold on the western

europe market by accomplishing the following:

• Improvingthequalityofthefinishedproduct(primarilydesul-

furization,i.e.reducingsulfurcontentinIOC)(currentlyinthe

planningstages)

• Obtainingnewtypesofproductswithhigheraddedvalue

(granulatediron)

• Reducingtransportexpensesforseashipping

• Purchasingafleetforthecompany’sprivateuseforIOC

shipments

33


Apatite concentrate production and EuroChem companies, thou. tonnes

Baddeleyite concentrate production and EuroChem companies, thou. tonnes

Baddeleyite concentrate sales structure by region, 2007

Apatite concentrateapatite concentrate is a phosphorus-based raw material with high

P2o5 content, which is primarily used for manufacturing phosphoric

fertilizers and phosphoric acid. in 2007, apatite concentrate output

at euroChem increased 25% from 2006 and amounted to 2,500,000

tonnes. nearly all of euroChem’s apatite concentrate is used internally

within the euroChem group for producing phosphoric fertilizers,

compound fertilizers, and feed phosphates.

increased production of apatite concentrate in 2007 was the

result of launching operations at a new apatite flotation facility which,

together with measures to replace outdated fixed assets and renovate

and modernize existing production, will help expand the volume of

apatite concentrate production to 2.8 million tonnes per year. these

steps will also contribute to the development of an apatite-staffelite

ore deposit.

Baddeleyite concentrateKovdorsky mining Plant is the world’s only producer of baddeleyite,

a natural zirconium oxide (zro2 - 98.99%) which is used to produce

refractory materials, abrasives, ceramic pigments, technical ceramics,

etc. in 2007, baddeleyite concentrate production volumes were

maintained more or less at 2007 levels, amounting to 7,600 tonnes.

sales volumes in this segment amounted to 8,300 tonnes, or rur

0.4 billion. most of euroChem’s baddeleyite concentrate was exported

to japan and european countries. in 2007, baddeleyite concentrate

was sold in 10 different countries. Baddeleyite concentrate exports

account for 91% of sales in this segment.

3�


ManagingCompany

Manufacturingandextractiveenterprises

Branches and representative offices, sales

agroindustrial centers

Logistics

EuroChem Trading GmbHSwitzerland,Zug

EuroChem Trading USA Corpusa, tampa

3�


Kovdorsky Mining Plant OJSC Kovdor,MurmanskRegion

Lifosa ABLithuania,Kedainiai

Tankchem JSC Estonia,Tallinn,

Harvester Shipmanagement Ltd. Cyprus,Limassol

Murmansky Aluminous Terminal LLCMurmansk

Tuapse Bulk Terminal LLCTuapse

EuroChem-Belorechenskie Minudobrenia LLCBelorechensk,KrasnodarTerritory

EuroChem MCC OJSCMoscow

EuroChem-Volga-Kaliy LLCKotelnikovo,VolgogradRegion

Industrial Group Phosphorit LLCKingisepp,LeningradRegion

Nevinnomyssky Azot OJSCNevinnomyssk,StavropolTerritory

Novomoskovskaya Joint-Stock Company Azot OJSC Novomoskovsk,TulaRegion

the LoCation of manufaCturinG and extraCtive enterPrises within the aGriCuLturaL networK

of euroChem

Minsk

Kiev

KurskB E L A R U S

U K R A I N E

TverRegion

RyazanRegion

TambovRegion

LipetskRegion

Dagestan

KChR

KBR

BelgorodRegion

Rostov-on-Don

Odessa

Vinnitsa Kirovograd Donetsk

R U S S I A

3�3�

transPort infrastruCture

transport expenses continue to represent a considerable

percentage of the production cost of mineral and chemical

products. in order to minimize these costs and to increase the

competitive edge of euroChem products in russia and other

countries, the company is working on a project to develop its own

transport infrastructure.

in order to ensure continuous shipments of raw materials to its

companies, as well as finished products to consumers, euroChem

companies have their own park for specialized railcars and trains

and are investing in railway developments. in late 2007, the railcar

park included 44 trains and 6,204 railcars, after adding 3 trains and

817 railcars and tankers to its collection. Plans for 2008 include

making comparable additions.

in 2007, euroChem’s largest transshipment complex was the

tankchem terminal in estonia, which organizes the transfer of liquid

chemical freight from euroChem and other manufacturers to the

sillamae Port on the Baltic sea. this terminal was put into operation

in late 2006 and processes up to 1 million tonnes per year. in 2006,

the volume of euroChem-produced methanol shipped via terminals

at estonia ports amounted to 138,000 tonnes, in addition to 5,000

tonnes of acetic acid.

since may 2007, in line with the rulings adopted by the

Government of the russian federation on developing transport

services at russian ports, the volumes of euroChem products

transshipped via the tankchem terminal in sillamae dropped

dramatically.

due to these circumstances, the company was forced to redirect

a portion of its products on sea routes to railway transport as much

as possible using the company’s own rail fleet. the remaining portion

of shipments were directed through the Port of hamina in finland.

the terminal’s transshipment volumes were less than planned and

amounted to 96,000 tonnes of euroChem products, plus 42,000 tonnes

of other freight.

in an effort to receive and ship products and raw materials via standard

routes, novomoskovsky azot renovating the agregatnaya railway station,

which has a direct route to malkets station along the moscow route, which

is a branch of russian railways. euroChem-Bmu and Phosphorit industrial

Group are also reconstructing railway lines by replacing outdated wooden

rail parts with P65 reinforced concrete parts.

euroChem continues to make investments in purchasing and

constructing specialized facilities for transshipping products throughout

russia. in the near future, the company plans to create transshipping

facilities near the Black sea and the Barents sea.

in terms of refocusing sales of iron ore concentrate from

Kovdorsky GoK to exports, there are plans to reequip an aluminum

oxide terminal purchased by euroChem at the Port of murmansk for

the transshipment of iron ore concentrate. in may 2007, the terminal

began construction of the iron ore concentrate terminal from berth

no. 17 while continuing to make aluminum oxide shipments. there

are also plans to bring the capacity of the first processing line up to

1.5 million tonnes per year. other options for the aluminum oxide

terminal are also being considered and primarily involve reequipping

terminal areas for the transshipment of other imported freight.

aluminum oxide transshipment volumes in 2007 amounted

to 252,000 tonnes, up from 185,000 tonnes in 2006. at least

500,000 tonnes are expected to move through the terminal in

2008.

in order to reduce transport costs for shipments of mineral

fertilizers and in order to increase the company’s independence

from the stevedoring services market in the Black sea basin,

euroChem has commenced construction of its own specialized

terminal at the tuapse sea Port for transshipment of mineral

fertilizers from railway transport to ships. the planned annual

capacity of the terminal is 2.3 million tonnes, and the warehouse

onsite for shipment lots will hold up to 105,000 tonnes. Loading

and unloading speeds are planned at up to 1,700 tonnes per

hour. the maximum deadweight of ships at the terminal is 52,000

tonnes. thyssenKrupp foerdertechnik (Germany) is serving as

the supplier of key equipment for the terminal. the planned costs

for terminal construction works are rur 2,429 billion. operations

are set to be launched in the first quarter of 2009.

together with ust-Luga, euroChem is working on participating in

a project to establish transshipping facilities (possibly a seed-capital

based enterprise) in the sea port of ust-Luga.

in may 2007 in nevinnomyssk, euroChem established a new

subsidiary, depot-euroChem, LLC which is meant to oversee up to

5,000 planned maintenance and repairs annually. the creation of the

company’s own railcar repair and maintenance station was a natural

next step after euroChem increased its railcar fleet to 8,600 cars.

operations at the railcar depot are set to be launched in the second

quarter of 2009.

harvester shipmanagement Ltd is an integral component of

euroChem’s transport infrastructure.

in 2007, the primary points of coordination in euroChem’s transport

system were divisions of harvester shipmanagement Ltd, which is

owned by euroChem.

3�


Harvester Shipmanagement Ltd. (Limassol, Cyprus)

harvester shipmanagement Ltd’s head office currently deals with

counter party settlements and contractual transactions, in addition to

handling ship time charters.

in 2007, 16 ships with a total capacity of 575,000 tonnes were used

under time charters. over the year, these ships transported 1.72 million

tonnes, 1.23 million tonnes of which was euroChem products. these

numbers represent a considerable increase from 2006.

in 2007, the time chartered fleet handled one-sixth of euroChem’s

import-export freight. in 2008, the company’s goal is to significantly

increase the volume of time chartered shipments, and/or begin

accumulating its own shipping fleet.

in 2007, harvester shipmanagement Ltd. procured 245 charter

agreements, chartering 272 ships, which handled 4.825 million tonnes

of freight for euroChem companies.

of the total volume of euroChem’s 7.338 million tonnes of freight

in 2007, harvester shipmanagement Ltd handled 83%, or 6.055 million

tonnes under charter agreements.

Harvester Shipmanagement Ltd’s Moscow Representative Office

in 2007, harvester shipmanagement Ltd’s representative office in

moscow was a logistics coordination point for all euroChem freight and

handled railway freight forwarding within the russian federation.

Harvester Shipmanagement Ltd Novorossiisk Office

this office acts as a forwarding agent to the novorossiysk port

and coordinates euroChem freight for export via the novorossiysk port

and other russia-based ports on the Black sea, in addition to providing

forwarding services to third parties.

the volume of freight transshipped (loading/bulk) for three of

euroChem’s companies via the novorossiysk Port in 2007 remained

at previous annual levels and amounted to 2.022 million tonnes.

Harvester Shipmanagement Ltd’s Representative Office in Greece

staff at harvester shipmanagement Ltd’s representative office in

Greece provide a comprehensive range of services for organizing freight

sea shipping to buyers in their countries of destination under charter

agreements for one-time shipments or multiple routes. the company

organized transport support and served as a charter operator for ships

handing euroChem freight.

in 2007, harvester shipmanagement Ltd. procured 245 charter

agreements, chartering 272 ships, which handled 4.825 million tonnes

of freight for euroChem companies.

Harvester Shipmanagement Ltd Representative Office in Odessa (Ukraine) — Harvester Ukraine (a privately-owned company)

this company oversees, keeps records of and coordinates the

movement of euroChem freight being exported via ukrainian ports on

the Black sea.

in 2007, euroChem freight transshipped via ukrainian ports reached

1.7 million tonnes.

Klaipeda Coordination Center (Lithuania)the Klaipeda Coordination Center organizes and oversees

euroChem freight movement through ports in finland, estonia, Latvia

and Lithuania on the Baltic sea.

in 2007, transshipment volumes through the ports of Klaipeda,

ventspils, tallinn, Paldiski, sillamae, Kotka, and hamina amounted to

approximately 1.6 million tonnes of freight exported by euroChem’s

russian companies.

total volume of euroChem company freight (including from Lifosa)

to russian and non-russian ports in the Baltic, Barents and Black seas,

2007

the total volume of freight from euroChem companies transshipped

to ports on the Baltic, Barents and Black seas in 2007 increased 17%

from 2006 and amounted to 7.9 million tonnes. transshipment volumes

increased due to the export of 1.07 million tones of iron ore concentrate

to China by sea. the table below shows the shipping structure.


3�

3�

Cargo transshipping by port, 2007

Note:

Cargo transshipment is more than the total number of import-export of freight since apatite concentrate shipments delivered from Murmansk to Klaipeda are included

at both ports.

EuroChem products and raw materials (tonnes, ships) (the ship numbers shown in this table do not include con-tainers, motor vehicles or small freight lots)

Transshipment in tonnes Number of ships

BLACK SEA PORTS, TOTAL: 3 708 000 219

including:

novorossiysk 2 025 000 95

Kerch 12 000 2

temriuk 17 000 15

yuzhny 130 000 2

ilichevsk 372 000 6

Kherson 124 000 20

nikolayev 59 000 3

oPz 337 000 56

tis 632 000 20

BARENTS SEA PORTS, TOTAL: 773 000 34

including: murmansk 773 000 34

BALTIC SEA PORTS, TOTAL: 3 421 000 453

including:

Klaipeda 2 477 000 293

tallinn 366 000 33

Paldiski 96 000 29

sillamae 101 000 15

Kotka-hamina 120 000 30

Kaliningrad 155 000 42

ventspils 96 000 7

st. Petersburg 10 000 4

TOTAL: 7 902 000 706

transPort infrastruCture

3�

НА ПРЕДПРИЯТИЯХ «МХК «ЕВРОХИМ» ПРОИЗВОДИТСЯ БОЛЕЕ 100 НАИМЕНОВАНИЙ ГОТОВОЙ ПРОДУКЦИИ, ВКЛЮЧАЮЩИЕ РАЗЛИЧНЫЕ ВИДЫ МИНЕРАЛЬНЫХ УДОБРЕНИЙ, ПРОДУКЦИЮ ОРГАНИЧЕСКОГО СИНТЕЗА И МИНЕРАЛЬНОЕ СЫРЬЕ

distriBution

developing the distribution network is a priority for euroChem.

the company continued to develop its distribution network for

product sales on the domestic market and increased sales in russia

by over 1 million tonnes of fertilizer per year. euroChem’s agricultural

network includes over 20 agricultural centers located in 18 of

russia’s regions. in 2007, the company opened new agricultural

centers in the volgograd, rostov and tambov regions.

Events in distribution the most important events in distribution in 2007 were:

•Operationswerelaunchedatthedistributioncenterat

EuroChem-BMU(interseasonalreplenishment),withastor-

agecapacityof50,000tonnes.

•AdistributioncenterintheVolgogradRegionwascreated:

AgroCenterEuroChem-Volgograd(inthetownofMikhai-

lovka).

•EuroChempurchasedMosaikKrasnodar(renamedAgro-

CenterEuroChem-Krasnodar)inthecityofKrasnodar.

AgroCenterEuroChem-Krasnodarhasahighlevelofagro-

chemicalcapabilitiesandinadditiontohandlingfertilizer

shipments,itoffersafullrangeofagrochemicalservices:

growingagriculturalcultures,gatheringandresearching

soilsamples,developingplantfoods,andfertilizersupply.

•EuroChemalsopurchasedMozaikUkraine(renamed

AgroCenterEuroChem-Ukraine).Inadditiontosupplying

EuroChemfertilizerswithinUkraine,AgroCenterEuroChem

-Ukraineoffersavarietyofagrochemicalservices.The

companyhastwoproductionlinesfordryfertilizermixtures

withcapacitiesofupto100,000tonnesperyearandisan

industryleaderinUkraine.

•EuroChemalsocelebratedthegrandopeningofanewrep-

resentativeofficeinMinsk,Belarus.ThisMinskoffice’skey

assignmentsaretocooperatewiththeMinistryofAgricul-

tureintheRepublicofBelarusaswellasothergovernment

agenciesandprominentcompaniesbasedinBelarusforthe

shipmentofmineralfertilizers.

•EuroChemincreaseditsstakeinAgroCenterEuroChem

-Ust-Labinskto77%.

•EuroChemalsoincreaseditsstakeinChemAgro(Odessa)

to31%.Thiscompanyspecializesintheproductionofdry

fertilizermixturesandhasanoutputcapacityof50,000

tonnesperyear.Itisalsolocatedalongtheborderofthe

OdessaPortsidePlant.

•In2007,EuroChembecametheofficialdistributorfor

globalmanufacturersofchemicalplantprotectingagents:

Syngenta,Bayer,BASF,andDupon.Theproductportfolio

includesover150differentnames.

3�

�0

investment

EuroChem Investment Volumes in 2007, RUR thousand (without VAT)

Company Total investments R&D and Design & Exploration Work

Development and modernization

Replacing outdated equipment and

executing orders

nevinnomyssk azot 598 824 9 618 482 126 107 079

naK azot 2 161 801 22 862 2 010 434 128 504

Kovdor mining Company (KGoK) 1 093 820 54 618 776 307 262 894

Phosphorit industrial Group 317 816 12 222 154 242 151 352

euroChem-Bmu 170 152 4 328 96 944 68 879

Lifosa 146 023 0 64 218 81 805

euroChem-volgaKaliy 715 699 715 699

euroChem maintains its leading position in the industry and

its competitive edge on global markets by consistently carrying

out long-term investment programs aimed at modernizing exis-

ting production facilities and launching new ones, reequipping

companies, employing cutting edge technological processes, and

mastering new types of products.

all of the companies in the euroChem group undergo large-scale

reconstruction projects to diversify production. in 2007, a total of rur

7.749 million was spent on modernization, repairs and implementing

new investment projects. of that sum, rur 5.239 million was spent

at euroChem’s manufacturing companies. investment volumes in 2007

are shown in more detail in the table below:

the company’s program for the development of ammonia

production in 2005-2007 was fully completed. the program was

approved by the Board of directors in 2005. the company is also

working on a strategic development program at Kovdorsky GoK

(2006-2015).

Kovdor Mining Plant (KGOK)•In2007,theprimaryprojectatKovdorskyGOKwastoincrease

therawmaterialsbasebyattractingandreprocessingendsof

manmadedepositsandfinely-grainedapatite-staffeliteoreata

newtreatmentfacility.

•ThankstothepooledeffortsofspecialistsatKovdorskyMining

PlantandEuroChemMCC,inrecordresultswereachievedin

2007:

•Apatite concentrate output reached 2,500,700 tonnes (up

124.6%from2006).

•Baddeleyiteconcentrateoutputreached7,562,000tonnes.

NAK Azot•Keystepsweretakenunderaprojecttomodernizeammonia

productionfacilitiesandimprovetechnicalandeconomicindi-

cators.Thefollowingfacilitieswereinvolved:

•Ammonia-2:thispartoftheprojectwillincreaseammoniapro-

ductionby144tonnesperday,reducenaturalgasandsteam

consumption,andlowerthecostofpurchasingacatalystfor

transferring a medium temperature carbon monoxide con-

verter.

•FacilityNo.3-A: thispartof theprojectwill increasepro-

ductivityfrom420-447tonnespershiftto1,250tonnesper

shift.

Lifosa•AwasteheatdisposalprojecthasbeencompletedatLifosain

theproductionofsulfuricacid,whichhashelpedsave64mil-

lionkilowatthoursoversixmonths.

Phosphorit Industrial Group•Measureshavebeen takenatPhosphorit to improveammo-

phosquality,whichwillinturnimprovethequalityoffinished

productsandboostthecompany'scompetitiveedge.

•A set ofmeasures is underway to renovate a facility for the

productionofsulfuricacid,whichwillincreaseproductivityup

�1


to1million tonnesand increase theuseofprocessheat for

recyclingelectricity.

•Phosphogypsum resources are being re-planned in order to

supportwet-processphosphoricacidproductionfacilities.

EuroChem-BMUKey steps have been completed on the following projects:

•Construction of local treatment plants will facilitate the

disposalofconditionedpurewaterforreuseatproduction

facilities.

•Modernization of a EPA facility and increasing the output

capacity to 240,000 tonnes of Р2О5 per yearwill increase

outputvolumesandcutproductioncosts.

•Aprojecttoreplaceoutdatedequipmentinthedryingtower

atthesulfuricacidfacilityatEuroChem-BMUisunderway.

Thisprojectwillstabilizeandincreaseproductioncapacity.

Nevinnomyssk Azot•Urea-2 production facility wasmodernized, and as a result,

productivity increased to 100 tonnes per day, while saving

0.01GigaCalofsteam.

•Ammoniumcompressorsinfacility1Bweremodernized.Asa

result,thefacilityisnowabletopreventammoniumlossesof

2.2tonnesperday(68.2tonnespermonth).Oilconsumption

isalsodown100tonnesperyear,andthecompanynowsaves

930GigaCalsofsteampermonth.

Investments in the transport infrastructurein 2006, euroChem started working on a program for developing

railway transport for its companies as part of the company’s logistics

development strategy.

in 2007, work continued on a specialized railcar part, and

euroChem’s management Board approved an investment project for

the creation of depot-euroChem, a new subsidiary. work was started

on the company’s own railcar repair and maintenance depot, which

will be capable of handling 5,000 repairs annually. furthermore, the

agregatnaya station was renovated in order to ensure the receipt

and transit of freight along regular routes.

also in 2007, euroChem purchased 600 mineral wagons, 20

covered trucks, 197 tankers for shipping various types of freight and

3 diesel locomotive shunters.

at present, euroChem has over 6,200 units in its own fleet, 44 of

its own engines and shunting engines.

investments in reconstructing railways with euroChem-Bmu’s

contact grid amounted to rur 22 million. railway reconstruction

efforts at Phosphorit industrial Group amounted to rur 17.45 million,

and purchases of diesel-locomotive shunters ran rur 58.23 million.

total investments in developing railway transport in 2007

amounted to rur 1.346 million.

in 2007, work began on the construction of the tuapse bulk

cargo terminal which will be used to transship mineral fertilizers

through the tuapse port. Construction of underground routes

and a tunnel is underway. work is also being performed to build

a portside access platform. equipment has also been ordered,

and construction of two residential buildings has begun.

in line with approved organizational plans, a terminal for

the transshipment of iron ore concentrate exports is under

construction at the murmansk aluminum oxide terminal.

Construction of an open warehouse has been completed, crane

paths have been lengthened, and repairs and dredging at berth

number 17 has been completed. Key equipment units have been

ordered form Germany, including two movable freight handling

cranes. operations at the terminal will be launched in the second

quarter of 2008. total investments in this project are planned at

rur 540.5 million.

Investments in distribution network development:

the amount of funds invested in developing the distribution

network in 2007, including the cost of stakes and shares in acquired

companies, totaled rur 281 million.


�1

�2


Investments in the transport infrastructure

Investment purpose Actual spending, thou. RUR

railcar and tanker purchases 1 002 750,85

Construction of the iron ore concentrate transshipping terminal (incl. purchase of the murmansk aluminum oxide terminal)

316 797,0

Construction of the tuapse Bulk Cargo terminal 702 063

reconstruction of the agregat station 21 701,7

Construction of the railcar repair depot 31 780,0

Purchase of diesel-locomotive shunters 49 347,5

reconstruction of railway lines and contact grids 35 129,0

Total: for factories 1 140 708,5

Total with terminals 2 159 568,5

total number of projects 15implementation of approved investments, % in 2007 100%

Investments in Information Technologiesin 2007, euroChem completed a project to build an it infra-

structure and create a centralized email system at the company’s

central office, and at its subsidiaries (nevinnomyssky azot,

euroChem-Bmu, Phosphorit industrial Group, Kovdorsky GoK, and

naK azot). investments under this project amounted to rur 34

million in 2007.

the subsidiary euroChem-volgaKaliy saw the launch of ope-

rations of a new it infrastructure and was also hooked up to the

euroChem it infrastructure. it investments at euroChem-volgaKaliy

amounted to rur 4 million.

also in 2007, a project was started to build a common corporate

telephone network. total investments under this project are planned

at rur 90 million.

investment

�2

�3


finanCiaL summary: ComPany oPerations in 2007 Based on ConsoLidated ifrs

finanCiaL rePorts

Key financial indicators are shown in the table below.

Indicator 2007 2006 Change Growth, %

revenue, rur mln 73,822 53,403 20,418 38

Production cost, rur mln (30,447) (26,506) (3,941) 15

Gross profits, rur mlnshare of gross profits in revenue, %

43,37559

26,89750

16,4789

61–

operational expenses, rur mln (23,726) (18,048) (5,678) 31

operational profits, rur mlnshare of operational profits in revenue, %

19,64927

8,84917

10,80020

>100–

Pre-tax profits, rur mln 20,234 9,439 10,795 >100

Profit taxeffective profit tax rate, 1%

(4,059)20

(2,453)26

(1,606)–6

65–

Pre-eBitda profits, rur mlnshare of eBitda in revenue, %net profits, rur mln

22,51031

16,174

11,88822

6,986

10,6229

9,188

89–

>100

share of net profits in revenue, % 22 13 9 –

1 Ratio of the profit tax rate to pre-tax profits

this financial summary has been prepared based on

euroChem’s 2006 and 2007 operational results in line with

consolidated reports. Consolidated financial reports were drawn

up in line with ifrs based on assessments of actual expenses,

except for investments that are currently for sale, which have

been assessed at fair value. euroChem’s consolidated reports

include consolidated indicators for the parent company and its

subsidiaries.

Sales Revenuethe company’s consolidated revenue increased 38% and amo-

unted to rur 73.822 million in 2007, compared to rur 53.403

million in 2006. increased revenue was the result of higher prices

and favorable conditions on the mineral fertilizers market.

Production coststhe cost of production is the cost of products sold in the

reporting year, as well as the cost of producing goods for resale,

and services rendered. in 2007, production costs in consolidated

reports came to rur 30.447 million, or 15% more than in 2006

(rur 26.506 million).

increased production costs were primarily related to increased

expenses for the following items:

• rawandothermaterials,RUR2.236million(+18%from

2006)

• third-partyservicesforrepairingandmaintenance,

RUR474million(morethan100%upfrom2006levels)

• fuelandutilities,RUR388million(+11%from2006)

�3

��

EuroChem Expense Structure

• HRexpenses,RUR520million(+21%from2006)

• lossesfromdevaluationoffixedassets,RUR277million

(100%upfrom2006levels).

Gross profits

Gross profits are calculated as revenue minus production

costs. Consolidated gross profits in 2007 amounted to rur 43.375

million, or rur 16.478 million more (61%) than in 2006 (rur

26.897 million). the amount of gross profits rose due to higher

revenues from product and service sales.

Operational expensesoperational expenses include commercial, administrative

and other operational expenses, as well as revenue from financial

transactions. in 2007, total operational expenses rose 31% and

totaled rur 23.726 million, compared to rur 18.048 million in

2006. the main reason behind this growth was the increase in

transport expenses and other delivery services by rur 4.036 million

(24%), increased hr expenses (up rur 217 million - 9%) and

other types of administrative and operational expenses. decreased

income from financial transactions amounted to rur 325 million

(37%) compared to rur 883 million in 2006.

Operational profitsoperational profits are calculated as gross profits minus operational

expenses. in 2007, this indicator amounted to rur 19.649 million,

which is more than 100% up from 2006 levels (rur 8.849 million).

Profit taxProfit taxes rose 65% and amounted to rur 4.059 million, compared

to rur 2.453 million in 2006. the effective profit tax rate in 2007 was

20% of pre-tax profits (26% in 2006). the decrease in the effective tax

rate was the result of a lower tax base from accrued losses from previous

years at euroChem-Bmu and Phosphorit industrial Group, which became

profit-making companies based on 2007 operational results.

ЕBITDAeBitda (earnings before interest, taxes, depreciation and

amortization), or pre-tax profits minus interest rate expenses and

amortization, increased 89% and amounted to rur 22.510 million

in 2007, compared to rur 11.888 million in 2006.

Net profitsthe company’s net profits in 2007 rose to rur 16.174 million,

or 22% up from 2006 levels (rur 6.986 million).

2007 2006

��

finanCiaL summary

��

euroChem’s hr PoLiCy

average salary of em-ployees increased by

26,7%

over 1200 of students passed through practice at enterprises of the Company

35% of average number of employees in 2007 mastered programs of professional retraining

7,7 billions of rubles were expenses on personnel

380 best employees were awarded with corporate rewards at euroChem

209persons – number of person in the succession pool of euroChem

training centers of enterprisesCompanies have licenses for training in

250 working professions

1st corporate meeting of young specialists

130 graduates of higher education establishments were employed by the Company

��

��

euroChem strives to be the leading producer of agrochemical

products and provider of a broad range of guaranteed quality

services, while continuously improving the technologies it uses,

as well as living standards. in order to achieve these goals, the

company must recruit, train, and retain talented and incentivize

employees that share euroChem’s philosophy and values.

euroChem’s employees form the foundation for the company’s

success. we are conscious of the fact that having productive and

motivated employees that share our values is the most important

factor contributing to our prosperity.

in order to ensure that our staff is loyal and motivated,, we

have implemented transparent human resources principles that

summarize euroChem’s key goals:

• SupportingandfosteringEuroChem’svalues;

• Attractingandcultivatingtop-qualityemployeesandoptimiz-

ingtheroletheyplaywithinthecompany;

• Creatingasafeworkingenvironmentthatstimulatesemploy-

eestoachieveoutstandingresultsandencourageteamwork;

• Usingtransparentandfairperformanceevaluationmethods

andappropriaterewards;

• Usingtransparentandeffectivemanagementmethods;

• Acceptingdiversityasacompetitiveadvantage.

euroChem’s human resources policy accounts for both

industry and market realities. the policy aims to increase the

efficiency of company operations by ensuring that it employs

qualified professionals and contributes to their development,

motivation, and retention. euroChem has traditionally followed

the principle of hiring locally at its sites. By focusing on our

human resources methods, we were able to reduce the rate of

personnel turnover at our manufacturing facilities in 2007 to

7.3% (10.2% in 2006).

euroChem does not use forced, compulsory, or child labor,

or permit the violation of the rights of indigenous and minority

peoples.

Organizational structure and performance management

in order to become more competitive, euroChem has worked

for several years to restructure all aspects of its business. Changes

have included streamlining of the company’s management

structure, the shutdown of non-performing production facilities,

the creation of promising new enterprises, and hence, the

creation of new jobs. in turn, business processes became more

efficient in 2007 and personnel productivity grew.

Consequently, the company headcount for 2007 was reduced

by 9.2%, while the productivity, measured as output in tonnes (labor

efficiency) of one average worker, increased by 13.5%.

Personnel incentives and benefitsas it strives to be the leader in all aspects of its activity,

euroChem attaches great importance to ensuring that its

employees benefit from fair wages. wage levels vary among the

different company enterprises but the common goal remains the

same: ensuring competitive wage increases from year to year.

the average monthly salary for all euroChem enterprises for

2007 was 16% higher than the average monthly salary for an

industrial worker in the russian federation and 55% higher that

the average monthly salary overall in russia. the company’s

strategy on regional labor markets is designed to offer average

yearly salaries at every production facility at 10% higher that the

average salary indicator for the main regional industrial sectors. a

number of enterprises have managed to reach this goal already,

while euroChem has made significant progress toward this goal

in other regions. euroChem adheres to a policy of transparency

with respect to raising the actual wages. each year the company

publishes information that transparently and publicly states its

intent to raise the average salary at each production facility.

in 2007, the company increased the real average salary of

its employees by following a two-stage process for indexing

the base salaries and wages of its employees. the index was

differentiated according to the different entities and affiliates of

the company and was set based on a comprehensive analysis

of the current situation and forecasts of trends on the regional

labor markets and salary levels for key industry sectors of the

economy.

in recent years, euroChem has been increasing base salaries.

Plans are in place to increase base salaries 70%. with respect

to this indicator, euroChem has positioned itself as a socially

responsible company.

the company adheres to the principles of differentiating

salary levels based on employee productivity, professionalism,

skill level, and accepted responsibility.

Compensation in the form of additional payments and

bonuses, incentive payments, guarantees and compensation for

expenses are paid by euroChem in full compliance with applicable

russian law and internal regulatory documents.

in order to attain a high level of efficiency and productivity,

euroChem has used a variety of incentives methods, including

regular and one-time incentive payments and monthly, annual,

and project-based bonuses.

euroChem always honors its commitments.

with respect to benefits, euroChem uses a system of

benefits that are part of corresponding social programs defined

in the Collective agreements. the average unit cost of a benefits

package for one employee is 1/12th of the annual salary.


��


EuroChem’s human resources – key indicators for 2007

Indicators 2005 2006 2007

average headcount 29 753 26 410 23 805

Change in headcount, % 3,2 11,2 9,9

Labor costs, in rur 5 926 6 757 7 704

Change in labor costs, % 19,7 14,0 14,0

average monthly wage, rur 12 694 16 698 20 685

Change in average month wage, % 28,5 31,5 23,9average monthly wage of an average employee, rur

12 215 16 025 20 305

Change in average monthly wage, % 35,0 31,3 26,7

in order to stay competitive and be seen as a socially

responsible company, euroChem sets its benefits budgets based

on the annual index of the average benefits package for a single

employee being no less than the level of annual inflation rate.

the existing system of incentives offers both tangible

(material) rewards as well as intangible ones.

since january 1, 2007, euroChem has adopted the company’s

social Benefits regulations.

rewarding the company’s best employees on euroChem

day and day of the Chemist, corporate holidays have become

a strong tradition. in 2007, 380 of the company’s best workers

were recognized with euroChem corporate awards.

the main current goals for further development of the

company’s incentives system are:

• torevisethepaymentsystemstoincreaselaborproduc-

tivity,

• todevelopasystemofprofessionalgrades,

• tomanagetheperformance-basedincentivessystem,

• todevelopsupplementarybenefitsandinsurancepro-

gramsattheregionallevel,

• toconsistentlyreducelaborcostsaspartoftheproduc-

tioncoststructure.

Personnel efficiency management hr efficiency management has been in place since 2005 using

a management tool to set targets and evaluate performance – the

management by objectives Program. in 2007, the number of

program participants reached 295 (13.5% more than in 2006),

including managers at different levels. the achievement of individual

goals by each manager directly contributed to the achievement of

objectives within the company and its entities.

Personnel Training and Development to improve and maintain the continuity of its management

system in 2007, the Company continued the personnel pool

project. one-hundred twenty managers from the Company took

part in the assessment. Consequently, the personnel pool has

grown to 209 employees.

in order to develop the management skills of employees

within the personnel pool, as well as those of key Company

managers and technical experts, a set of new corporate programs

have been developed and initiated:

• MBAprogram(throughtheAcademyofNationalEconomy

undertheGovernmentoftheRussianFederationand

KingstonUniversity,UnitedKingdom),

• Afour-componentprogramfordevelopingbasicmanage-

mentskills(ANE,HigherSchoolofCorporateGover-

nance).In2007,instructionwasofferedintwoofthe

modules:“PerformanceManagement,Planning”and

“ManagingPeople.”Thethirdandfourthmodules,“Ef-

fectiveCooperation”and“StructuredTeamWork”are

plannedfor2008.

Personnel training and development is based on the target

and individual approach, the principle of ongoing training, and

the application of effective and high-quality training programs.

all employees have equal opportunities for training and career

development within the company provided that they observe

corporate rules and procedures.

with an eye to revitalizing its personnel pool, the company

has been particularly attentive to attracting young specialists

to jobs with euroChem’s entities. in 2007, the first young

specialists Conference involving over 100 participants from

all euroChem companies took place; professional and personal

��


development programs were developed targeting young

employees. euroChem participated in job fairs at specialized

secondary education institutions in 2007.

Improving the personnel management system

in february 2008, euroChem Board of directors adopted the

hr management strategy that will remain in effect until 2012.

the strategy comprises personnel management initiatives

for 2008–2012, including:

• strategiesdevelopedbymanagementandadoptedbythe

BoardofDirectorsfordifferentareasofbusinessactivity

ofthecompany(rawmaterialsproduction,nitrogenand

phosphatefertilizers,salesandlogistics);

• currentstateoflaborresourcesofthecompanyand

expectedtrendsaccordingtoabaselinemodelthrough

2012(determinedusingmodelsoftheagingandperson-

neldismissalprocessesaccordingtoemployeecategory);

• trendsinquantityandqualityoflaborresourceson

regionallabormarketsthrough2012,developedbasedon

ananalysisofmigrationanddemographicsprocesses,as

wellasincreasingcompetitionforlaborresources;

• trendsinregionalmarketsforlaborcompensation

through2012,includinginflationprocessesandgrow-

ingcompetitionforpersonnel,inviewofanexpected

decreaseintheworking-agepopulationinRussiaasa

wholeandineachregionwherethecompanyisactive,

butatrates;

• idiosyncrasiesofindividualregions;

• bestpracticesofcompaniesinasimilarlineofbusiness

withrespecttolaborproductivityandefficiency;

• potentialproblemsandrisks,whichEuroChemcompanies

willfaceintheprocessofsupplyingtheirproduction

facilitieswithasufficientnumberofqualifiedemployees.

Thestrategywasadoptedintheformofseparatedocu-

mentsforeachofthecompanyenterprises,presentedusing

asingleformat,andunifiedusingasinglecompany-wide

approach.

Strategicinitiativesaredirectedatreachingtargetquantita-

tiveandindividualqualitativeindicators,withthepurposeof

meetingbusinessgoalsandraisingpersonnelefficiency.

Thisisanappliedstrategyandhasbeenpresentedinfull

detail,includingspecificmeasureswithacostestimatefor

eachpersonnelmanagementinitiativefortheperiod2008–

2012inthefollowingareas:

• Fulfillingbusinessgoalsandincreasingpersonnelef-

ficiency;

• Improvingpersonnelqualifications;

• Personnelrecruitment,retention,anddismissal;

• Organizationaldevelopment,performancemanagement;

• Incentives;

• Personneltraininganddevelopment,careerdevelopment;

• Internalemployerimage.

a system of indicators (hr metrics) will be used to monitor

the attainment of strategic initiatives and evaluate their

effectiveness.

the timely fulfilment of these strategic initiatives will enable

the company to:

• Meettheneedsofthebusinessthroughthehireof

qualifiedpersonnelintheappropriatenumbersforthe

requisitetimeperiods(tominimizebasisrisk).

• Reducetherateoflaborcostgrowthanditssharein

productioncost.

• Reducepotentialpersonnelcostsin5years(by20–30%)

frompotentialexpendituresaccordingtoabaselinesce-

nariothankstoareductioninthenumberofemployees,

anincreaseinlaborproductivityandemployeequalifica-

tions,aswellaseffectivemanagementoflaborcompen-

sationissues.

• Increasetheeffectivenessofpersonnelpoolcreationand

development,managepersonnelcareerdevelopmentand

optimalpersonnelplacement.

• Ensurecompetitivewages.

• Improvetheutilizationofemployeeresources(reduce

theshareofmanagersandmanagementapparatusat

enterprises);

• IImprovepersonnelmakeupwithregardtoqualifications

��


andquality(reducetheaverageageandproportionof

retireesintheworkforce);increaseoverallpersonnel

qualifications;

• Stabilizepersonnelturnoverat3–5%peryear.

• Reducefactorscontributingtoinefficientlossofwork

time.

• IncreasepersonnelloyaltytotheCompany.

Theseareappliedinitiatives,detailedatthelevelofspecific

annualmeasureswithrespecttodifferentaspectsofpersonnel

management,andshouldbeusedwhendesigningshort-term

businessplansforproductionentities.

�0

euroChem’s CorPorate soCiaL resPonsiBiLity

470 million rubles –total amount of funds were invested into euroChem mineral and Chemical Company, ojsC for social purposes in 2007

33,8 million rubles were allocatedin 2007 for trips for restof employees of enterprises

reconstruction and construction of

18 sport facilites were carried out

185,5billions of rubles were invested into sports and healthy life-style support

12 social projects of residents at the amount of 5.48 million rubles were supported in the city of nevinnomyssk

100 million rubles were allocated within the framework of agreements with territories of presentation of the Company

11,4 million rubleswere directed towards development of corporate sport

5 new euroChem classes in secondary schools of regions were opened

12% Lost time injury rate reduction

�0

�1


The scope of the company’s social responsibility and activities

euroChem is engaged in carrying out a considered corporate

social responsibility policy that does not contradict its business

interests and simultaneously takes into consideration current

and future needs of key stakeholders. euroChem considers it its

corporate social responsibility to make a voluntary contribution to

economic, environmental, and social activites that provide for and

support sustainable development of the company, the regions in

which it does business, and the society as a whole. the company’s

sphere of corporate social responsibility consists of three

components – corporate social policy, corporate social action, and

corporate social responsibility. Corporate social policy dictates the

company’s behavior with regard to its responsibilities in conjunction

with its personnel, interested parties, and society as a whole.

Corporate social action consists of practical measures that further

the objectives of the company’s corporate social responsibility

policy. Corporate social responsibility is the process for informing

interested parties of the progress made and results achieved in the

area of social responsibility.

a recognized goal of the company’s corporate social responsibility

efforts is the attainment of sustainable development on all fronts,

based on economic, environmental, and social conditions. in acting

on its corporate social responsibility, euroChem must assist social

EuroChem corporate social responsibility

Corporate social responsibility

Corporate social policy Corporate social activity Corporate social reporting

progress of the society and help improve the quality of life of the

population. it is also called to work toward a stable social and

economic development of the regions in which it is present through

higher fertility (intensification of agriculture, development of agro-

industrial complexes) based on effective and environmentally safe

production driven by resource-saving technologies.

euroChem systematically raises the level of responsibility it

carries by undertaking significant social investments in selected

strategic areas:

• Supportofsportsandhealthylifestyles;

• Developmentofhumancapital;

• Contributingtostablesocialandeconomicdevelopmentof

theregions.

over the course of 2007, euroChem had invested a total of

rur 470 million in social projects.

in terms of its scope, the euroChem corporate responsibility

approach has been implemented through a systematic joint effort

involving various groups representing interested parties: first, it

has involved forming harmonious relations among all company

employees using the principles of social partnership; second,

the approach has involved the creation of a model of corporate

citizenship with respect to external interested parties. Corporate

citizenship implies the integration of the development strategy for

the holding’s companies in the regions and that of the company as a

whole, taking into consideration the interests of the local population,

consumers, partners, and the country as a whole. also, many

principles of corporate citizenship are formalized in the euroChem

Code of Corporate ethics. the Code set the standards of behavior

for all employees of euroChem, its affiliates, associated entities,

offices, and subsidiaries and which enable the company to attain

its key goals and act on its principles in all aspects of its business

operations. the Code is founded on the principles of honesty,

openness, trust, and respect.

the company’s systematic approach to joint cooperation with the

regions where the company does business takes the form of signing

annual cooperation agreements and making timely and complete tax

payments into the local budgets. an innovative approach to working

with the regions has involved the implementation of a program of

social planning, together with the international fund usaid and a

number of russian charitable funds. the project involved the support


�1

�2

of initiatives taken by the residents of the city of nevinnomyssk

to improve their quality of life. the positive experience from the

completion of the project in 2007 will be used in other regions. in

all, euroChem has paid rur 100 million under agreements with

municipal authorities in regions where it is present.

a special focus of euroChem’s corporate social responsibility

efforts is the implementation of the process of corporate social

responsibility, which corresponds to the principles and procedures

put forth in international standards and russian initiatives in

this regard. By the end of 2007, euroChem published two social

responsibility reports covering the periods 2002–2005 and 2006.

the euroChem corporate social responsibility report for 2006

was independently audited by veritas Certification with respect to

compliance with social accountability Gri guidelines version G3.

the publication of the report made it possible, in 2007, to divulge a

large volume of information having to do with euroChem activities in

the area of corporate social responsibility and, secondly, to raise the

quality of management of investments in sustainable development

efforts. at the same time, preparatory actions were taken to

implement the social accountability process covering 2007.

in all, throughout the year 2007, euroChem conducted its

economic, manufacturing, and business activities based on the

principles of corporate social responsibility and accountability.

Facts illustrating the implementation of the social policy principles

the euroChem social policy is a set of guidelines formulated at

the company level that are implemented by the company enterprises

in the regions where they have economic or manufacturing interests.

these guidelines stipulate adherence to legislative norms and

fulfilment of voluntary responsibilities and are intended to help

balance business profitability, its long-term development, and the

social and economic development of the regions.

the social policy is an integral part of euroChem’s corporate

social responsibility. the social policy of euroChem is strategic in

nature, formulated in a set of documents, and integrated into the

company’s corporate culture.

the framework document, which defines the fundamental

principles of the euroChem social policy is the company development

strategy for the period through 2015. the strategy states: first, the

need for an optimal balance between the growing efficiency of the

core business and consistent voluntary participation in russia’s

social and economic development; second, the need for the company

to engage in social actions in an open and public manner, these

being continuous in nature, and having a long-term institutional

impact; third, the need for increased effectiveness of the company’s

social investments, by creating a system of “partner” projects

and innovative management technologies in the field of social

responsibility; fourth, the need to provide systematic investment

in the development of labor resources taking into consideration the

future needs of company enterprises in qualified employees. it is also

stressed that the choice of locations for social actions by euroChem

should use a target-oriented and systematic approach and fall in line

with russian initiatives and international standards in this area.

in 2007, euroChem completely transitioned away from one-

time charitable allocations to substantiated and regular social

investments, conducted on the basis of an objective selection of a

competitive social project and a transparent evaluation of the way the

allocated funds are used. this has enabled the company to increase

its level of involvement in promoting sustainable development in the

regions where it does business and in the county as a whole, and

also improved social investment management.

the euroChem social policy envisages the involvement of

interested parties in a dialogue regarding common goals with

regard to social and economic development of the country and

of the regions in which the company operates. in 2007, as part of

preparing the company’s forthcoming social accountability report,

a number of meetings with representatives of internal and external

interested parties were held, surveys were conducted, and round

table discussions were organized. these meetings enabled the

company to correct its current social activities to match the true

needs and wants of its employees, partners, and the residents of the

cities where company businesses are located. at least 300 people

took part in the different forms of dialogue with the company on

the topic of social policy. Participants represented all regions where

euroChem has manufacturing facilities.

in the context of carrying out a social policy, over the course of

several recent years of the holding’s operations, the company has

been consistent in applying the principle of undertaking planned

social investments and rejecting the idea of spontaneous social

payments. an important achievement in this area is the practice of

concluding agreements regarding social and economic cooperation

between euroChem and local authorities every year. these

agreements indicate the responsibilities accepted by the company,

strictly adhering to the legislation of the russian federation with

regard to the payment of taxes and fees, with an indication of specific

amounts of tax payments to the regional and local budgets, and the

scope and specific directions for social investments by the company.

in light of the particular nature of the company’s business, a great

deal of attention is accorded to funding efforts in environmental

protection and implementation of resource-saving technologies.

for example, the agreement with the authorities in tula for

2007 includes the implementation of technologies and measures


�3


to reduce the negative effects of the manufacturing facilities on the

surrounding environment involving funding in the amount of rur 60

million. alongside this project, euroChem undertook the renovation

of the azot Culture and Business Center and Learning Center requiring

an investment of rur 34 million. at least rur 6.6 million was also

allocated to support sports activities and healthy lifestyles in the city

of novomoskovsk and over rur 5 million was provided for science

and education. during the reporting period, euroChem was involved

in the renovation of the sports complex at one of the schools at

novomoskovsk, new equipment was provided to the training centre

at the novomoskovsk d. i. mendeleyev Chemistry and technology

university, funds were provided to the novomoskovsk v. m. Kachalin

theatre for the dramatic arts to renovate spectator seating, and

material assistance was provided to veterans of war and labor. in

other regions where the company operates, such agreements have a

similarly profound social impact.

in 2007, euroChem continued implementing an innovative

approach to conducting its social policy by attracting experienced

experts from a number of authoritative non-profit organizations.

in collaboration with usaid, zdorovaya rossiya, and ustoychivoe

razvitie, both development funds, euroChem made targeted

investments in pioneering social projects, selected through a grant-

based competition in the city of nevinnomyssk. the most interesting

of the projects currently underway are:

• Constructionofasportsandleisurecomplexforyouthhealth

anddevelopmentforpreschoolersandelementary,middle,

andhigh-schoolstudentsattheNevinnomysskschoolNo.10.

Totalprojectcost:RUR562,102.

• Constructionofachildren’shealthprotectionandrehabilita-

tioncomplexusinganimprovedenvironmentalconditionsat

DomDetstva,acentreforchildren’swelfare.Sixtypiecesof

specializedequipmentwereprocured,including:waterand

airpurificationdevices,forrestorativeandhealingrehabili-

tationprograms,exercisemachinesforDomDetstvaand

thechildren’sclinic,andequipmentforpreparingoxygen

cocktails.Totalprojectcost:RUR948,906.

• Refurbishmentofarecreationareaonthegroundsofthe

lyceumwith670studentsandyouthfromtheGolovnoe

neighborhoodofthecityofNevinnomyssk.Totalprojectcost:

RUR600,000.

• Actingonscientificandenvironmentalrecommendations,

thecreationofawintergarden,titledNevinnomyssk’sYoung

NaturalistsWorkstation,opentostudentsandthegeneral

public,attheofficesoftheInterregionalInstitutionofContin-

uedSecondaryEducation.Totalprojectcost:RUR585,145.

work is currently underway to share the company’s positive

experience with investment in social projects with other regions

where euroChem is present.

an area in which the principles of social policy are especially

applicable is investment in personnel development. employees are

the company’s greatest asset. as such, foremost attention is paid

to ensuring the development of human capital when planning and

implementing the company’s social policy. in 2007, euroChem spent

rur 5,476 on personnel programs and rur 29,180 on personnel

training. total investments in development of human capital made

up rur 34,656,000. in 2007, 250 company employees received

corporate awards, recognizing their contributions.

throughout 2007, the company continued to seek solutions

to the strategic challenge of attracting young specialists to the

company: opportunities for career development and personal growth

have been created for them, as well as the chance to take part in

the life of the company by entering the personnel pool. altogether,

in 2007, 300 young specialists were included in a variety of social

programs.

in a number of regions where it has manufacturing facilities,

the company took measures to optimize the size of the workforce,

in connection with facility reprofiling and technological upgrades

to production capacity. in particular, in Kovdor, as a result of the

shutdown of the loss-making enrichment facility, a part of the

workforce underwent additional training and was able to continue

working for the company.

the company is engaged in an open dialogue with industry-

specific and local unions and associations, making it possible to

conclude collective agreements that satisfy all sides. Consequently,

the company has approached its relationship with its employees

as a social partnership: based on constructive negotiations at all

subsidiaries in 2007, euroChem continued with the process of

improving the collective agreements with an expansion of social

benefits and guarantees.

euroChem cares for its employees not only with regard to their

work, but also their leisure activities. each year, corporate olympic

Games are held in six different events: mini-soccer, table tennis,

volleyball, power lifting, billiards, and chess. a large number of

company employees participate in the games. furthermore, rur 34

million were allocated for company-sponsored vacation packages for

its employees: the company used both its own recreation facilities

and used third-party resorts. in addition, the company takes an

active part in organizing and conducting a number of industry-

specific, profession, and national holidays: day of the Chemist, day

of the metallurgist, city celebrations, victory day, and other events.

all of the abovementioned activities are directed at building trust

between the company and its employees, developing its corporate

culture, and building the company’s reputation as a socially

responsible citizen of the russian society.

��

EuroChem’s Information Policy euroChem’s corporate culture combines the best aspects

of a modern business structure and the traditions of smooth

communication between employees and employers. euroChem

sees itself as a member of a social partnership, and uses this

approach to build strong, trusting relations between employees

and managers. this is a corporate tradition that has helped

euroChem achieve excellent manufacturing and economic re-

sults. the principle of a social partnership is brought to life not

only by practicing a socially responsible policy when it comes to

company employees, but also by supporting an ongoing dialogue

with employees. euroChem devotes a great deal of effort to

strengthening employee trust in the company and developing its

internal communications system.

euroChem’s primary channel of information is its corporate

newspaper. this paper is released twice per month and is accessible

to all company employees. distribution reaches 10,000 copies.

the newspaper contains detailed and accessible information for

company employees about the news and events that are taking

place at all euroChem companies and the industry as a whole.

company staff may read about the opinions of division mangers and

executive management about important issues within the holding. at

the same time, the newspaper also devotes a good deal of space to

the opinions of employees working at different levels of production,

from factory workers, to specialists and managers. euroChem’s

bimonthly paper is very popular among its readers. in 2007, the

newspaper won the national russian dialogue expert award for

corporate media from the russian association of Corporate media

in recognition of the company’s achievement of an effective channel

of communication between management and employees. euroChem

also won the Corporate Press Leadership’s feedback award under

the 4th national Corporate Press forum.

in 2007, the company continued developing its internal radio

broadcasting, which is organized at 4 holding companies: Kovdorsky

mining Plant, nevinnomyssky azot, Phosphorit industrial Group and

euroChem-Bmu. euroChem’s corporate radio has a good number of

listeners, and the shows are broadcast over more than 1,000 wired-

radio outlets, which helps inform employees of news and important

events at euroChem.

within the past reporting year, efforts were made to improve

Kovdorsky mining Plant’s television broadcasts. a license was

obtained for television broadcasts, and all television studio equipment

was updated, which will help meet all of the high technological

demands of television broadcasting today.

another important effort in internal corporate communications

is content development on the company’s intranet. this has helped

create electronic archives and exchange information in real time

among all of the company’s divisions, marking a new era for

euroChem in terms of information openness. on average in 2007

euroChem’s website received over 50,000 hits per month.

Pressing issues, goals and questions for euroChem company

management teams can be voiced by employees through the one-of-

a-kind trust mail system. each company has a special inbox where

messages may be sent. all messages are processed; responses are

provided and actions are taken in response. employees are then

informed of the responses and actions via intra-corporate media

outlets. the trust mail system has proven to be highly effective and

has raised the level of mutual understanding across all levels of the

company: in 2007 over 150 responses were published to inquiries

sent through trust mail.

Corporate events and holidays also help reinforce the company’s

corporate culture. Personal socializing and spending free time with

coworkers is one of the best ways to establish trusting relations among

team members. at corporate holidays and events, special attention is given

to forming a common identity among euroChem employees and uniting

employees into a kind of family among holding companies, even when

companies are located thousands of kilometers from one another.

euroChem’s information policy envisages a communications

division and an external target audience: shareholders, partners,

suppliers, clients, representatives of government agencies, the

media, and others. euroChem’s information policy is aimed at

achieving maximum openness for both internal and external

audiences, without detriment to our business processes. it also

envisages strict compliance with all confidentiality requirements as

applicable to commercial information.

a key resource of daily and strategic information about euroChem

operations is the company’s official website: www.eurochem.ru. this

resource allows users to keep up to date with the latest corporate

events by receiving information in real time, including press releases

and official reports. the number of visitors at euroChem’s website

increased 28% in 2007 from 2006. improvements to the corporate

website are made on a regular basis.

in 2007, the company continued to issue its corporate glossy

nPK, which is issued in both russian and english. the magazine’s

average circulation is over 900 copies. this publication is primarily

aimed at business and professional communities and informs readers

about development strategies that are underway at euroChem, as

well as the positions of key company managers on important issues

concerning corporate and industry development. nPK journal

also includes detailed commentary from well known scientists

and government and public figures regarding the development of

russia’s agrochemical sector. the original design and informative

content of nPK journal make it a popular read among euroChem’s

target audience.


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Corporate reports provide the business community and

all stakeholders with the most reliable, objective and weighted

information about the various aspects of euroChem’s operations.

the company has also begun to publish annual reports. also, the

company produces corporate social responsibility reports on a

regular basis aimed at improving euroChem’s information openness

while minimizing non-financial risks. at this time, two corporate

social responsibility (Csr) reports have been published, covering

the periods of 2001-2005 and 2006. euroChem’s 2006 Csr report

meets all Gri G3 standards and has undergone independent

verification, which also makes it more valuable as a source of

objective and accurate information.

Personal meetings with the management teams of euroChem

and its subsidiaries with the press are a major component that

helps put the company’s information policy into practice. in 2007,

over 10 press conferences were held with members of euroChem’s

executive management and holding experts, both in moscow

and other russian regions. furthermore, the following leading

regional and federal publications have featured news stories about

euroChem: vedomosti, Kommersant, rBC, rBC-daily, Profil,

Kompaniya, interfax, izvestiya, reuters, Business&fm, and many

others.

in addition, euroChem and the holding companies play an active

part in regional, national and international forums, conferences and

exhibitions — over 20 different events. the most important events

that euroChem attended in 2007 include the international Chemical

assembly, the sixth international investment forum (hosted in sochi

in 2007), the international Conference of mineral fertilizer Producers

(ifa-2007), the second tula economic forum, and the national field

day event, among others.

all of these different forms of communication have allowed

euroChem to provide company employees and key stakeholder

groups with maximum information openness. the holding’s

management and the company as a whole consistently follows an

information transparency and openness policy aimed at ensuring

mutual understanding and a productive dialogue.

Sponsorship ProgramseuroChem’s sponsorship projects are part of the company’s

corporate social responsibility (Csr) policy and business strategies.

sponsorship activities are also a natural complement to euroChem’s

priority tasks in Csr.

in the long term, euroChem has been the sponsor of the sKa

st. Petersburg hockey club, which complements the company’s

strategic focus in corporate social responsibility.

in november 2007 under the yuragro agricultural exhibition,

euroChem organized a practical scientific conference on soil arability

in the Krasnodar Krai. at the conference, participants discussed

issues that are of special importance to Kuban agriculture, which have

since been developed into a target program for the region. Priorities

include the need to enforce regular agrochemical monitoring of

soils, phosphogypsum amelioration of solonetz, and lands that are

prone to degradation, in addition to introducing mineral fertilizers

based on actual plant life demand. representatives from the national

tssas in Krasnodar, the regional department of rosselkhosnadzor

and euroChem mCC took part in this event. the conference also

addressed the safety use of herbicides in agriculture, the most

effective uses of mineral fertilizers, and other issues.

in the future, euroChem plans to continue sponsoring projects

associated with key elements of Csr at the company.

��

environmentaL PoLiCy

Harmful Emissionsthe rational use of natural resources and compliance with

russian federal law are integral components of euroChem

operations.

the following principles comprise euroChem’s policy, which

addresses industrial safety, labor safety and environmental

protection:

• continuallyreducingindustrialmanufacturingrisksand

hazards;

• reducingnegativeenvironmentalimpact;

• reducingthenumberofaccidentsandinjuries.

all of these components are monitored by the holding’s

managing organization. euroChem ensures the development and

implementation of nature conservation efforts and efforts aimed

at ensuring industrial safety and labor safety. expenses related

to environmental protection efforts in 2007 amounted to rur

600 million.

euroChem companies ensure compliance with environmental

regulations. Production control and environmental monitoring

are carried out for the following purposes:

• preventingenvironmentallyhazardoussituations;

• supportingtheenvironmentalsafetyofindustrialopera-

tionsbyidentifyingdeviationsfromstandardenvironmen-

talimpact;

• ensuringproductionsafetybyidentifyinganyvariationsin

equipmentperformance.

euroChem’s annual pollutant emissions amounted to 29,100

tonnes. this is 6.9% lower than emissions recorded in 2006

Positive trends were most predominant in 2007 despite

developments in production and a considerable amount of

repair. work. emissions from the recycling and reprocessing

industries for utilization and sterilization exceeded the

amount of pollutants produced over the course of the year.

the waste produced by the mining industry and categorized

as a fifth-class hazard represented 98% of total waste.

increased use of waste in the reprocessing industry was

the result of using phosphogypsum at euroChem-Bmu for the

construction of sludge collector dams.

the company also reports publically on its initiatives in the

area of resource conserving, ecologically safe production and in

the area of occupational safety.

the “instruction on risk management in the area of

industrial safety, occupational safety and the environment” has

been developed, and comprehensive work for identifying dangers

Total volume of discharge of waste water, million cub. meters

and evaluating risks is undertaken in accordance with it. the

company’s specialists conduct internal audits of industrial safety,

occupational safety, and environmental safety management

systems in all the organizations under management, as well

as specialized training seminars for enterprise employees on

managing risks.

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Ratio of actual waste to waste limit standards(actual/limit) (taken as 100%)

Number of registered accidentsat EuroChem Companies


Handling Industrial Reprocessing Waste

due to the implementation of the management decisions which

have been made, the rational use of natural resources and compliance

with rf legislation in the area of ecological safety in 2007, a decrease in

the harmful and dangerous effects on the environment occurred in 2007

in comparison with 2006:

• discharges of polluting substances into the atmosphere were

reduced by 2.15 thousand tons;

• discharge of wastewater was reduced by 25 million cubic meters;

• consumption of fresh water was reduced by 18 million cubic

meters;

• the consumption of electrical energy was reduced by 354.6 million

kwh;

• the consumption of heat energy was reduced by 1,219,913 Gcal;

• the use of heat from sulfuric acid production was 422,665 Gcal.

��

Key risK faCtors

Industry risks and company risks

Risks related to the increased

cost of electricity and natural gas

the operational results of euroChem companies depend a great

deal on access to competitive sources of natural gas and electricity.

any barriers to access to natural gas and electricity may seriously

affect business and financial indicators.

if electricity supply is interrupted as the result of an accident or

another reason, including a problem caused by people, production

at euroChem factories may be stopped, either in part or in whole.

restoring production equipment after downtime may be a time-

consuming process.

electricity prices in the russian federation are state-regulated.

furthermore, the government of the russian federation is currently

carrying out a plan to overhaul the electricity sector in order

to develop competition and to liberalize this particular market,

transitioning from a regulated price structure to market prices for

electricity. further price growth and supply interruptions in the

future caused by the transition of electricity from the state to the

private sector may have a negative effect on the company’s financial

indicators.

natural gas prices in the russian federation are also state-

regulated. over the past several years, we have seen natural gas

prices rise steadily. moreover, prices have been slightly more

competitive in terms of prices in europe and north america, which

has given euroChem an advantage over its competitors from those

regions. further growth in natural gas prices may have a negative

impact on the company’s financial indicators.

Equipment maintenance and repair risks

most of the company’s manufacturing facilities were put into

operations in 1930-1970. as a result of the end of the service lives

of these facilities, the company will require considerable investments

in their maintenance and repair or replacement. despite the fact that

large amounts have already been spent and that the company’s budget

envisages considerable expenses for schedule maintenance and repairs,

there is no way to guarantee that the planned expenses will be sufficient

in the event of an accident or unplanned equipment downtime. repairs

and maintenance could potentially interrupt the regular production

process and affect both production and financial results.

risks related to developments in the agricultural industry of the

russian federation and the countries that import company products

the conditions under which the agricultural industry are

developing in the russian federation and countries that import

euroChem products are closely tied to company results. intensive

agricultural development will lead to increased consumption

of mineral fertilizers, while a decline in agricultural production

could lead to decreased demand for mineral fertilizers.

the level of production in the agricultural industry greatly

depends on a number of factors, including weather, the level of

demand for agricultural products, and state policies. the impact

of weather conditions in particular may have a major impact on the

use of different types of mineral fertilizers by agriculturalists.

Seasonal demand risks

historically, mineral fertilizer prices have fluctuated depending

on demand. factors that have impacted mineral fertilizer prices

include the season, fluctuations in the population, changes in the

areas of cultivated lands, popular diet trends, etc.

Periods of high demand and price growth lead to higher

investments and increased production output. Lowered demand,

in turn, will lead to lower production output volumes and lower

investments.

over an economic decline, the company’s operational results

could worsen as the result of lower product prices.

Competition risks

euroChem competes with a number of different mineral

fertilizer manufacturers based in the russian federation and

abroad.

mineral fertilizers, as consumer products, do not differ

greatly among various manufacturers. Consumers primarily

base their selection of mineral fertilizers on the product price.

euroChem competes with a large number of both domestic and

foreign manufacturers, including companies that are state-owned

and national subsidies.

stronger competition on the global market is a result of the

introduction of new production facilities, many of which, as a

rule, are concentrated in russia’s regions where natural gas

prices are low and manufacturers are highly export-oriented.

• in2008-2015,ammoniummanufacturingfacilitiesworld-

wideoutputwillincreaseby23.7milliontons(13%)over

thisperiod,including5.4milliontonsintheMiddleEast

(+35%)and3.3millioninAfrica(outputvolumesinthis

regionmorethandoubled,andgrowthamountedto56%)

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• in2008-2015,carbamidemanufacturingfacilities

worldwidewillincreaseoutputby23.3milliontons(15%)

overthisperiod,including4.4milliontonsintheMiddle

East(22%)and3.5millioninAfrica(outputvolumeswill

increase64%)

• in2008-2011,carbamide-ammoniummixtureproduction

outputworldwidewillincrease5milliontonnes(global

growthof18%oversaidperiod),andalmostallnew

facilitieswillbeconcentratedinoneregion:LatinAmerica.

Carbamide-ammoniummixtureoutputinthisregionwill

increasemorethansixtimeoverduringafour-yearperiod.

increased competition on the mineral fertilizer production

and sales market will create the potential risk that the company

will not be able to successfully compete with mineral fertilizer

manufacturers with access to inexpensive raw materials

sources.

trade barrier risks for russian manufacturers

today, euroChem product sales on the markets in europe,

asia, Latin america and north america are becoming more

difficult due to a variety of trade barriers, such as anti-dumping

duties, tariffs and quotas. meanwhile, the company loses its

competitive advantages. a number of commodity markets are

more or less closed to euroChem products due to high anti-

dumping duties.

stringent trade barriers may result in squeezing euroChem

products out of key markets, and consequently a negative impact

on financial indicators.

Railway transport risks

railway transport is one of the main modes used to transport

raw materials for production and finished products. as a result,

company operations in terms of both domestic and foreign

counter parties depend on the efficiency of russian railways,

which is a state-run company and controls most railway transit

in the country.

russia’s railway system is potentially susceptible to the risks

of breakdowns due to outdated equipment, insufficient railcars,

restricted access at border stations, and decreased loads, including

due to insufficient technical maintenance for railcars and train

crashes. the worsening situation with russian railways could lead

to a breakdown in the transportation of euroChem’s raw materials

and products and increase transit expenses. the need to lease

railcars in the future, if such a need does arise, in combination

with other related expenses could have a major negative impact on

the company’s financial and production indicators.

setting railway tariffs and fees is the jurisdiction of the

Government of the russian federation, which regularly imposes

increases. in 2006, railway tariffs increased 13% from 2005,

and another 12% in 2007. the potential privatization of russian

railways, investments in repairs and modernization of the

national fleet may well result in further rate increases, which in

turn would lower euroChem income.

environmental risks: expenses for environmental protection,

health protection, and industrial safety.

Company operations are affected by a number of statutory

acts that regulate environmental protection, public health and

industrial safety, including land improvement, handling hazardous

substances and waste, and cleaning hazardous emissions.

Contemporary russian environmental law is developing

rapidly. environmental standards and enforcement are becoming

more stringent, which results in additional obligations for the

company and increased expenses.

one of the results of inspections carried out by regulators

in terms of compliance with environmental legislation is the

possibility that manufacturing operations found in violation of

environmental standards will be suspended. if one of several of

euroChem’s production units is stopped either in part or in full

as the result of and inspection, it could have a negative impact on

the company’s financial and production indicators.

National and regional riskseuroChem believes that the economic and political conditions

in russia, both on a nationwide and regional level, are generally

favorable for company operations.

risks related to the geographical location of the country and

the regions in which euroChem holds a presence have little to no

negative influence on company operations.

Financial riskseuroChem is an export-oriented company, which is why a great

deal of its sales revenue abroad is received in foreign currency (usd).

as a result, changes in the usd exchange rate with the russian ruble

affect the company’s financial standing.

euroChem and its subsidiaries have secured a good deal of

loans in usd; these loans have floating interest rates and are

tied to the LiBor rate. as a result, fluctuations in the LiBor

rate and the exchange rate influence the company’s financial

standing.

in order to minimize exchange rate risks, loans are secured in

usd, i.e. the same currency in which the company receives most

of its revenue. in order to control lending costs related to floating

interest rates as a margin over LiBor rates, the company holds

negotiations with creditors on optimizing credit portfolio structure

and lower the LiBor margin.


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Legal risksas a result of monitoring the media, the federative Council’s

work in terms of bills that have been discussed and would affect

currency regulation, tax and customs law, in addition to licensing

requirements for various company operations, one may conclude

that potential changes in the aforementioned areas do not carry

major legal risks for the company when compared to current

legislation.

there are no legal risks associated with existing lawsuits

involving euroChem companies, including cases on the liquidation

of euroChem or its subsidiaries, the transfer of ownership rights to

assets (property), disputes concerning license rights, patents, or the

solvency of euroChem or its companies.

Key social riskseffective risk management will facilitate euroChem’s sustainable

development. euroChem conducts an internal assessment and

inventory of both economic and non-financial risks that arise during

operations. social risks include some of the most pressing non-

financial risks. that’s why the holding monitors and manages this

risk group on a regular basis. the company’s baseline approach to

managing social risks is based on prevention and early detection.

euroChem carries out preventative measures for the following

subgroups of social risks:

Labor relations risks related to a poor level of understanding

between employees and the employer and, as a result, lowered

productivity and the potential loss of key personnel. Considering the

high level of competition for qualified staff on a number of labor

markets that interest euroChem, the company has integrated its

risk management system into its long-term development strategy.

the development of the internal communications system, as well

as the remuneration, incentives and hr systems, helps minimize

labor-related conflicts. an important component of this process is

maintaining an open and constructive dialogue with labor unions.

Sociopolitical risks, related to the general socioeconomic and

political conditions in the regions in which the company holds a

presence. in many regions, euroChem companies are the basis

around which towns are formed, which adds another level of

social responsibility. that’s why to a large extent, stable operations

depend on the social environment. euroChem applies a systemic

approach to social risk management and actively takes part it

the socioeconomic development of russia’s regions by making

targeted social investments and entering into agreements with local

authorities. this helps improve the social situation in the regions

and prevent risks that may arise in euroChem’s social environs.

Image risks arising from the information made available as a

result of malicious intent or a communication breakdown. the result

of these risks is a negative impact on the company’s business image

and reputation and the public’s perception of euroChem. these

risks are prevented by the organized actions of euroChem’s Pr

department, which are aimed at forming smooth communication

lines between the company and its target audience by setting the

groundwork for positive relations with the media. Preventing image

risks is based on a policy of providing objective, reliable and up-

to-date information that concerns all of euroChem’s business lines

without detriment to the company’s commercial interests.

Environmental risks arise from the negative impact of the

company’s manufacturing operations on the environment.

euroChem works in an industry where environmental safety risks

are relatively high. that is why the company conducts regular

environmental monitoring of the impact its operations have on

the environment and the local public. it also makes significant

investments in developing resource-conserving and green

technologies. furthermore, euroChem adheres to an information

policy that is based on honestly and openly addressing issues

concerning its manufacturing operations in an environmental

context. the company’s published press releases and corporate

social responsibility report provide full information about

environmental risk management.

euroChem continues to develop a risk prediction and management

system that is integrated in the corporate management system. this

minimizes the chances of out-of-the-ordinary situations.

Key risK faCtors

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�1


�1

Key Achievements over the reporting periodfor several years now, euroChem has declared its goal to

adhere to recognized corporate governance standards and gradually

develop its corporate governance practices in line with its strategic

goals. as a holding company, for euroChem the mechanisms of

corporate governance are especially important, as they provide for

the effective management of euroChem’s manufacturing entities in

terms of legal aspects.

the euroChem Board of directors realizes that sound solutions

in this field have a considerable impact on the company’s future

and recognizes improving the corporate governance system as

a key process. the Board of directors’ key role is demonstrated

in identifying the areas which require reform, setting targets for

management, and making sure these targets are achieved.

in key changes made to the corporate governance system

include:

• ensuringsmoothcommunicationamongthecompany’sbod-

iesofmanagementandimprovingthesystemofdelegationof

authoritiesamongmanagementbodies:delegatingopera-

tionalissuestoexecutivemanagementandexpandingthe

authoritiesofmanufacturingcompanies;

• increasingtheopennessofinformation,promptlysubmitting

oftop-qualityfinancialandnon-financialinformationabout

companyoperationstoregulatorybodies,shareholders,and

investors;

• takingthelogicalstepstowardimprovingthecorporatecul-

tureandintroducingnewcorporategovernanceprocedures

acrossalllevelsoftheorganization.

the fundamental principles of the company’s corporate

governance system are set out in the Charter, the Code of Corporate

Conduct, the Code of Corporate ethics, and other internal regulatory

documents. these documents are available in the investors and

shareholders section of euroChem’s website: www.eurochem.ru.

despite the fact that euroChem is a privately-owned

company, its owners and management have confirmed the

company’s goal to uphold the rights of a wide range of financial

stakeholders, and have demonstrated the high level of corporate

responsibility. Corporate principles are viewed as standards both

for the company as a whole, and for the management teams and

employees of subsidiaries. the results of the company’s corporate

social responsibility policy (Csr Policy) can be found in its Csr

report, which has been published in the social Policy section of

euroChem’s website (www.eurochem.ru).

Changes cannot be introduced in a large company all at once.

this is a major, step-by-step undertaking. successes thus far include

one of the highest corporate governance scores from standard and

Poor’s among private companies, with positive reviews since 2005.

in april 2007, standard and Poor’s Corporate Governance score

service raised the corporate governance score for euroChem mCC,

ojsC from CGs-5+ to CGs-6+ (on the russian scale, these scores

are CGs-5.9 and CGs-6.5, respectively). in april 2008, this rating

was confirmed at CGs-6+ on the international scale, and raised from

6.5 to 6.7 on the russian scale.

according to the methodological recommendations approved

by decree no. 03-849/r issued by the federal securities market

Commission (fsmC) on 30 april 2003, euroChem prepared

a report on compliance with the fsmC’s Code of Corporate

Conduct.

Management Bodiesthe company’s principal management bodies are: the General

meeting of shareholders, the Board of directors, the management

Board, and the General director.

The General Meeting of Shareholdersthe General meeting of shareholders is euroChem’s highest-

ranking management body.

in 2007, the company organized the annual General meeting

of shareholders and 5 extraordinary General meetings, 3 of which

where held in line with requests from the company’s controlling

shareholder, mCC holding Limited.

the main issues considered by the General meeting in

2007 are related to the approval of the annual report and 2006

accounting reports, the allocation of 2006 profits and approval of

the amount of dividends to be paid for the year 2006 and 9m2007,

the election of the company’s independent auditor, the election

of the Board of directors and regulation of Board remuneration

issues, the election of the revision Commission and regulation

of revision Commission remuneration issues, the approval of

transaction with interest concerning d&o liability insurance for

euroChem managers, and the approval of other transactions

with interest. the shareholders also approved amendments to

the charter and other internal regulatory documents governing

the activities of management bodies. finally, the General meeting

ruled to approve euroChem’s membership in the russian as-

sociation of fertilizer manufacturers.

CorPorate GovernanCe at euroChem

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�2

despite its smaller number of shareholders, euroChem strictly

adheres to the rules and procedures applied to public companies.

Procedures for calling, preparing for and convening General

meetings are set out in the company charter. thirty days ahead of

each General meeting, the company publishes information on its

website (www.eurochem.ru) related to the upcoming meeting, as

well as meeting materials.

Beyond general meetings, the Board of directors regularly informs

company shareholders of its decisions on the most important issues

concerning company operations, achievements and plans, as well as

detailed presentations on progress and performance. investors may

also receive additional information at press conferences.

The Structure of the Board of Directors

since 2005, euroChem’s Board of directors has included in-

dependent directors, who represent at least 50% of Board mem-

bers. the criteria for independent director status are set out in the

Board of directors regulations and are more stringent than the

requirements of the fsmC’s Code of Corporate Conduct and russian

stock exchanges.

in 2007, the Board of directors underwent some important

changes. now, directors with industry-specific expertise and

experience in global business issues, specialized knowledge in

financial reporting in both russian and international financial reporting

standards are better represented. over one-half of the directors have

experience on the boards of directors of public companies and are

well acquainted with the practical aspects of corporate governance

in companies with various ownership structures.

euroChem has invited directors with experience in successfully

collaborating with other companies, and that has helped euroChem

significantly reduce the period of time required to achieve smooth-

running, coordinated Board performance, while focusing efforts

on learning about the industry-specific features of the company.

measures aimed at ensuring succession have also played a positive

role in the process of keeping new directors “in the loop.”

in june 2007, the Board was joined by mr. strezhnev the com-

pany’s General director. euroChem management and shareholders

shared the opinion that enforcing a strict reporting structure in

which executive management reports to the Board of directors, goes

hand in hand with achieving effective collaboration and teamwork,

particularly in fostering an open dialogue and creating mutual in-

centives for increasing shareholder value.

despite the comparatively small number of members, the current

Board as a whole is comprised of people with the expertise needed

to function smoothly and effectively. the Board of directors’ budget

envisages the opportunity to work with consultants and experts in

the relevant industries and sectors in order to produce professional

judgments.

the procedures governing the activities of the Board of directors

are setout in the company charter and the Board of directors

regulations. these documents can be found in the investors and


CorPorate GovernanCe statement

�3


The EuroChem Board of Directors as of 15 June 2007seven members total

MR. ANDREY MELNICHENKO | Chairman of the Board of Directors.

Born in 1972.

mr. melnichenko graduated from Plekhanov economic academy.

he is one of the founders of mdm Bank. in 1993-1997 he served as the Chairman of the mdm Bank Board

of directors, in 1997-2001 he went on to serve as the Chairman of the bank’s management Board. in 2000

mr. melnichenko became one of the co-founders of mdm Group, and then served as the President of mdm

Group in 2001-2004. over the years, mr. melnichenko has been a member of the Board of directors at rao

ues russia and tmK. since 2007, he has been serving as the Chairman of the Board of directors at euroChem

and is a member of the sueK Board of directors. mr. melnichenko was elected to sit on the Bureau of the

management Board of the russian union of industrialists and entrepreneurs.

mr. melnichenko does not hold any shares in euroChem or its subsidiaries. a company that holds the business interests of mr. melnichenko

owns 95% of mCC holding Limited (Cyprus), euroChem’s parent company.

he is not related to any parties sitting on euroChem’s management bodies or financial and business control bodies.

MR. CHARLES ADRIAENSSEN | Member of the Corporate Governance and Personnel Committee,

independent director.

Born in 1956.

mr. adriaenssen graduated from vienna university and the university of antwerp (Belgium) with degrees in law

and philosophy.

after a career in diplomacy, mr. adriaenssen has been, since 1999 an independent director, consultant and

lecturer on corporate governance and public affairs. he was previously a member of the Board of directors

at interbrew (now inbev). he is currently the Chairman of the Board of directors at Bastille investments s.a.,

outhere sa., and mhP s.a., ukraine’s largest agro-industrial company. he is also a member of the Board of

directors at ePs sa and sebastien holdings sa (inbev holding companies) and serves as President of vLoro

(a flemish consultative body on territorial planning and housing).

mr. adriaenssen does not hold any shares of euroChem or its subsidiaries.



�3

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MR. GEORGE CARDONA | Chairman of the Strategy Committee.

Born in 1951.

mr. Cardona graduated from trinity College (oxford) with a diploma with honors in Philosophy, Political

science and economics.

mr. Cardona was the head of strategy of hsBC Group before being appointed hsBC’s General manager for

international Banking. he was a member of the Board of directors at several banks and financial companies

in europe and the americas. in 1979 he was appointed special adviser to the uK treasury under the margaret

thatcher administration. he is a director at Linea, Cardona Lloyd hedge Portfolio as well as a member of the

Boards of directors of sueK and Linea Limited.

mr. Cardona does not hold any shares of euroChem or its subsidiaries.


MR. KEITH JACKSON | Member of the Audit Committee and the Strategy Committee, independent director.

Born in 1949.

mr. jackson graduated from selwyn College, Cambridge, faculty of economics, and manchester Business

school with an mBa.

1996-2005 he was a senior vice President and a divisional Cfo of anglo american plc, a global leader in

mining and natural resources, listed on the Lse. from 1997 to 2003 he was а Chairman of Cleveland Potash

Ltd. 1989 – 1996 he was the Cfo of Cape plc, a leading listed manufacturer of specialist building and industrial

materials and provider of insulation and scaffolding services to power generation and petrochemical companies.

1973-1989 mr. jackson was working with the Charter plc Group of Companies, a diversified industrial group,

taking various positions in finance and general management in London, malaysia and the Philippines.1986-1988

he was the Cfo of amcorp sa in Buenos aires.

mr. jackson is Chairman of the russian timber Group Ltd and a non-executive director and audit Committee Chairman of Chamberlin plc,

a leading foundry and engineering group in the uK. mr. jackson is also a non-executive director and an audit Committee member of solana

resources Ltd, an oil and gas exploration and production company dual listed in toronto and London.

mr. jackson does not hold any shares of euroChem or its subsidiaries.



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MR. VLADIMIR STOLIN | Chairman of the Corporate Governance and Personnel Committee, independent

director.

Born in 1947.

mr. stolin graduated from Lomonosov moscow state university with a degree in Psychology.

he went on to earn a doctorate in Psychology and a Professorship. he is the author of over 100 scientific

works, including 3 monographs. mr. stolin has also worked as a consultant at rhr international (Chicago,

us). in 1989 he founded ecopsy Consulting and became the head of this company, which specializes in human

resource management, motivation and development. he is a member of american society of training and

development.

mr. stolin does not hold any shares of euroChem or its subsidiaries.


MR. DMITRY STREzHNEV | Chairman of the Management Board, General Director.

Born in 1968.

mr. strezhnev graduated with honors from Lomonosov moscow state university with a degree in Physics.

throughout his career, mr. strezhnev has served as the head of agrodortekhsnab LLP, tekhsnab-2000 LLC,

and Likinsk Bus manufacturing Plant ojsC. in 2001 he was appointed General director of rusPromavto LLC.

since 2003 mr. strezhnev has been General director at euroChem mineral and Chemical Company. he is a

member of the Board of directors of euroChem.

mr. strezhnev does not hold any shares of euroChem or its subsidiaries. he is a beneficiary of euroChem’s

parent company, mCC holding Limited (Cyprus), in which he holds a 5% stake.

he is not related to any parties sitting on euroChem’s management bodies or financial and business control

bodies.

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MR. RICHARD SHEATH | Chairman of the Audit Committee, Member of the Corporate Governance and

Personnel Committee.

Born in 1962.

mr. sheath graduated from City university and university of york (the uK).

mr. sheath is director of «independent audit Limited». he began his professional career with the Bank of

england and the ministry of finance (hm treasury) and has more than 20 years of experience in banking,

general management, audit and risk management. Previously he was a risk management consulting partner

with PricewaterhouseCoopers.

his recent work has involved providing consultation to the Boards of companies in the uK and overseas, with a

particular focus on audit and risk committees, internal audit and risk management.

mr. sheath does not hold any shares of euroChem or its subsidiaries.


all of the current directors were nominated by the controlling shareholder for election by the General meeting of shareholders in 2008.


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EuroChem Board of Directors Structure: 2007 Date Elected Date of Departure

adriaenssen Charles – non-executive director, independent director

27.06.2006 –

alex jean de valukhoff – non-executive director, independent director

27.06.2006 24.09.2007

jacob ioffe – non-executive director, independent director

27.09.2005 15.06.2007

sergei Popov – non-executive director 27.09.2005 15.06.2007

alexis rodzianko – non-executive director, independent director

27.09.2005 15.06.2007

Paul rossnagel – non-executive director, independent director

27.09.2005 15.06.2007

ralf Bethke – non-executive director, independent director

15.06.2007 14.12.2007

George Cardona – non-executive director 15.06.2007 –

andrey melnichenko – non-executive director 15.06.2007 –

Keith jackson - non-executive director, independent director 15.06.2007 –

vladimir stolin – non-executive director, independent director

15.06.2007 –

dmitri strezhnev – Chairman of the management Board, General director

General director from 30.01.2004 ,Chairman of the management Board since 25.01.2006, andmember of the Board of directors since 15.06.2007

–

richard sheath – non-executive director, independent director

15.06.2007 –

Changes to the Board Structure in 2007.


��


Key Achievements over the reporting periodthe Board of directors has served as the main center of the

decision-making process in terms of strategy and the company’s

most important and pressing issues. one event of particular

importance for the company’s mid-term development was the

approval in 2007 of the development strategies for the phosphate,

potassium and nitrogen business segments, as well as the approval

of operational strategies in distribution, logistics and development

plans for individual manufacturing companies.

a great deal of the Board’s time in 2007 was dedicated

to the review of investment projects and strategic initiatives

from executive management. as a body that defines the

company’s investment policy, the Board of directors oversaw

the implementation of the long-term investment program aimed

at updating existing manufacturing capacities, creating new

facilities, introducing advanced and innovative technologies, and

expanding the range of products at euroChem companies. Large-

scale investment programs and favorable market conditions have

laid the foundation for growth in the company’s key operational

indicators.

important investment projects in 2007 included development

of the Gremyachinsky deposit and construction of a potassium salt

mining facility, a construction project to build a new carbamide facility

at naK azot, a construction project to build a new melamine facility

with a 50,000 ton annual capacity at nevazot, and a construction

project to build the tuapse bulk carrier terminal.

in autumn of 2007, the Board supported management’s

proposal to increase the company’s share in the assets of subsidiary

companies to 100%. in line with current russian federal law, a

shareholder with over 95% of a company’s authorized capital has

the right to buy out the stakes of minority shareholders.

the purchase of minority stakes in euroChem companies

(Kovdor mining Plant, nevinnomyssky azot, and novomoskovskaya

azot)took place in strict compliance with the law. the Board of

directors ruled to determine the fair price for these shares at all

stages of the process based on statements issued by an independent

appraiser who had undergone an examination by a third-party

appraiser regulator.

as of 1 march 2008, the procedures for purchasing the shares

in Kovdor mining Plant were completed, and euroChem is now the

sole shareholder. the consolidation of the stake in nevinnomyssky

azot and novomoskovskaya azot is expected to wrap up by the

established legal deadline of 1 august 2008. more information

about euroChem’s participation in manufacturing companies can

be found in the Corporate structure section of euroChem’s website:

www.eurochem.ru.

for the first time, a consolidated financial and business budget

for euroChem and subsidiaries was approved, and a common

management and financial reporting system was introduced for the

company and its subsidiaries. this will help track budget execution

for the entire group of companies.

the deadlines for ifrs report preparation have been brought

closer in alignment with international practices and are now at

under four months. just as in previous periods, reports have been

published on the company website, along with other information

important to clients and potential investors.

tenders were held in 2007 (and completed in early 2008) to

appoint the company’s auditor for the 2008 consolidated ifrs financial

reports and ras financial reports. furthermore, a policy was adopted

for procuring non-audit services from external auditors. auditor

reports are reviewed by the Board of directors on a regular basis.

the Board Committee for Corporate Governance and Personnel

marked an achievement in 2007, namely the approval of hr strategies

for euroChem’s manufacturing companies, which are linked to the

approved development strategies for the company’s key business

segments. these strategies account for the current status of labor

resources at companies in the regions and the factors that affect labor

resources, including the idiosyncrasies of each specific company.

in 2007 the Board also focused on management performance

reviews and adjusting the management incentives packages in order

to motivate management to achieve the targets that are priorities for

the company as a whole.

the Board has conducted regular analyses and reviews of

management processes and procedures in line with recognized

international practices. these efforts are reflected in the amendments

made to the Charter and the company’s other internal regulatory

documents: the Board of directors regulations and the Board

Committee regulations, the dividend Policy, the financial Policy,

the Board member remuneration regulations, the information

Policy and the Code of Corporate ethics.

euroChem’s new information Policy is now more open. the

company voluntarily discloses material information online on its

website and via mass media outlets. the information Policy confirms

and reflects euroChem’s obligations as regards the continuous

improvement of its transparency in terms of operations issues.

euroChem also released a Corporate social responsibility (Csr)

report for 2006.

the Board of directors has approved the Csr Policy for 2008

and the main priorities in that field up to 2010.

the functions of the corporate secretary have been streamlined:

the role of the corporate secretary has been expanded, as have the


��

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annuaL rePort euroChem, 2007annuaL rePort euroChem, 2007

rights and degree of involvement in company operations. this helps

meet the needs of the Board of directors’ high level of activity in

this dynamically developing company. a new Corporate secretary

was elected in 2007. the Corporate secretary reports to the Board

of directors, in order to support the secretary’s independent status

and objectivity.

the regulations governing the functions of the Corporate sec-

retary are incorporated in the Board of directors regulations and the

Charter, which can be found in the investor and shareholder section

of euroChem’s website (www.eurochem.ru)

the Board of directors considered all issues which fall within its

terms of reference, including establishing euroChem’s position as a

shareholder or participant in manufacturing companies.

the proactive stance of the directors, their professionalism

and the efforts they make in order to expand their understanding

of company operations has contributed to the Board’s success.

in 2007, the members of the Board of directors continued the

practice of actively learning about the manufacturing companies

by visiting nevinnomyssky azot and Kovdor mining Plant. Plans

are in the works to hold similar events at other manufacturing

facilities.

over the past year, the Board held 20 meetings, 6 of which were

joint-presence meetings. Compared to 2005, the number of Board

meetings has been cut in half, which speaks to improvements in

performance and the increased experience of this body within the

company. a strong level of efficiency is achieved in part due to

organization and scheduling — a meeting schedule is planned one year

in advance with a review every six months. another important factor

contributing to efficiency are clearly delegated authorities among

the Board and other executive bodies, and smooth communication

among management bodies. the strong performances of the Board

Committees and Corporate secretary and accumulated experience

in preparing for and convening meetings are also positive factors.

the Board of directors and the Board Committees schedule joint

presence meetings in order to discuss more complex issues. other

meetings are held as absentee votes when formal decision making

without much discussion is required, or when agenda items have

been discussed in detail on previous occasions. Board member

attendance at Board of directors meetings in 2007 amounted to

88%.

The Board CommitteeseuroChem first established Board Committees in 2005.

independent committees prepare recommendations and consult

with the Board of directors, in addition to preliminarily reviewing

complex and detailed issues that fall within the Board’s terms

of reference. euroChem currently has 3 Board Committees:

the audit Committee, the Corporate Governance and Personnel

Committee, and the strategy Committee. these committees

reflect the company’s priorities and the focus of the Board of

directors.

the integrated membership of directors on Board Committees

ensures smooth communication among these bodies. the coor-

dinated exchange of information via the Corporate secretary allows

all directors to take part in establishing a position on any issue

handled by each Board Committee, and helps relieve part of the

Board’s heavy workload by maximizing time management. one of

the distinguishing features of the Board Committees noted over this

past year was their proactive stance. it was the Committees that

ensured the involvement of Board members in company operations

outside of formal Board meetings. they are an intellectual and

information resource for company management, with which they

work closely.

all of the euroChem Board Committees were formed based

upon the same principles, which are set out in each Committee’s

regulations. these documents are available in the investors and


The Audit Committee

Committee membership as of the 15 june 2007 General meeting

of shareholders:

richard sheath – Committee Chairman, independent director

Keith jackson – independent director

the members of the audit Committee possess extensive knowledge

in financial reporting, ifrs requirements and accounting.

standing audit Committee invitees (without the right to

vote) include the General director, the financial director, and

the head of the internal audit service. the audit Committee

holds regular meetings with euroChem’s independent auditor,

PricewaterhouseCoopers, both with and without management

representatives in attendance.

Audit Committee Activities

the professional fields of specialization of the audit Committee

members in accounting and financial control combined with their

experience in different industries has made the audit Committee

the center of expertise when it comes to financial reporting, internal

control procedures and risk management. the audit Committee’s

performance remains strong, even with just two independent

directors. “the audit Committee currently has two independent

directors. it is recognized that a third member may be beneficial

but the Committee believes that its current size does not have a

significant impact on its effectiveness. the shareholders and Board

of directors will keep the question under review.” mr. sheath

comments.

��

�0

the audit Committee performs a supervisory function and

exercises control over the quality and deadlines of preparations

for both ras and ifrs financial reports. successes can be clearly

seen in the company’s 2007 interim and annual ifrs reports, being

prepared to a tighter timetable than in previous years..

working with the company’s independent auditor has remained

one of the Committee’s key priorities. the audit Committee also

held a competitive bidding process to select the independent

auditor for 2008 reports. this process involved working closely with

management to determine the company’s key needs in terms of

scope and quality of audit services. the Committee reviewed issues

concerning the independent status of the external auditor, the terms

and conditions of the contract with the auditor, and drew up a policy

on procuring non-audit services provided by external auditors.

the audit Committee also makes an effort to ensure that the

Board of directors has complete and accurate information at

its disposal regarding company operations and has facilitated

improvements in the internal audit service, a crucial component of

the internal control system. a new head of the internal audit service

was appointed in 2007, and a great deal of effort was devoted to

reinforcing the internal audit team. review of reports and planning

he ias’s work schedule and regular meetings with the head of the

ias are integral parts of the Committee’s work.

the audit Committee also worked consistently on issues

concerning a system for identifying, assessing and optimizing risk

levels. over the reporting year, the audit Committee focused on

compliance with requirements of anti-trust legislation, assessing

legal risks in the current operational model and fraud risks, in addition

to preparing a set of risk maps for the company as a whole.

in 2007, the audit Committee held a total of 11 meetings, 9

of which were held as joint presence meetings. traditionally the

audit Committee plans its work schedule based on the company’s

reporting cycles.

The Strategy Committee


of shareholders:

George Cardona – Committee Chairman

Keith jackson – independent director

standing strategy Committee invitees (without the right to vote)

include the General director, the financial director.

Strategy Committee Activities

in recognition of the importance of a clear-cut strategy for the

entire group of companies and aligning the development of separate

business segments, the strategy Committee considers management

proposals and has drawn up recommendations concerning

euroChem’s most important strategic decisions and investment

projects, including m&a projects, and projects involving promising

new technologies.

the strategic planning experience represented by the

Committee’s two members make sure that the right questions

are asked and helps reveal the best paths for existing assets, and

confirm management’s abilities to manage the company’s assets

properly. the strategy Committee adds a different and important

business perspective to day-to-day management.

the Committee has made considerable efforts to improve

the quality of the analytical materials used by the Board to make

decisions on strategic initiatives.

the strategy Committee hears progress reports on strategy

implementation and provides consultation regarding the review of

long-term programs and strategic development plans for euroChem

and its subsidiaries.

the Committee is also keenly focused on environmental issues

and industrial and labor safety.

in addition, the strategy Committee has also prepared re-

ommendations on the company’s dividend policy.

in 2007, the strategy Committee held a total of 12 meetings,

10 of which were held as joint presence meetings. Considering the

complexity of planned investment operations throughout the holding

company, the strategy Committee will continue to demonstrate

active performance in 2008. it expects to give particular attention to

the substantial investments that will be made in the company’s newly

acquired potash fields and also possible acquisition opportunities.

The Corporate Governance and Personnel Committee


of shareholders:

vladimir stolin – Committee Chairman, independent director

Charles adriaenssen – independent director

richard sheath – independent director

standing invitees at Corporate Governance and Personnel

Committee meetings include the General director, the administrative

director, the head of the Legal department and the Corporate

secretary.

Corporate Governance and Personnel Committee Activities

the committee was also closely involved in the development of

a new, very detailed hr strategy which brings together individual

strategies for the operating companies which reflect the specific

challenges they each face.

“for a group of companies like euroChem with a complex

manufacturing system, human resources are of crucial importance.

in 2007, euroChem developed its first quantified and detailed


�1


hr management strategy, which covers a five-year period. the

strategy is aligned with the company’s business strategies as well

as the economic and demographic situations in the regions,” notes

vladimir stolin, Committee Chairman.

the Committee is dedicated to improving the incentives system

for upper executive management, including for key managers of

the plants. the Committee reviews management’s financial and

non-financial targets in terms of strategic development priorities.

during 2008 its focus will be on building a long-term management

incentives system.

one of the Committee’s key tasks was regularly planned work to

ensure the maintenance of a succession pool in alignment with the

company’s long-term strategy and values.

the Committee supported the key efforts in implementing

euroChem’s corporate social responsibility policy, with plans up to

2010, and the principles for evaluating the performance of external

social investments.

the Corporate Governance and Personnel Committee also dealt

with internal audit at the corporate governance level by seeking out

effective and balanced governance mechanisms. the ideal delegation

of powers among management bodies at this stage of development

is of crucial importance for efficient company operations. the

Committee formulated clear terms of reference of all Committees,

conducted in-depth analyses of management proposals on the

consistent and appropriate re-delegation of authorities among

the Board of directors and other bodies of management, prudent

adjustments in the balance of controls. in particular, this concerned

the transfer of some authorities in factory management to the

euroChem management Board and reflecting these changes in the

company’s Charter.

the Committee regularly addresses the comments and

suggestions voiced during external inspections of the state of the

company’s corporate governance system.

the Committee has devoted a considerable amount of time to

developing proper approaches to conducting an evaluation of the

Board’s performance, which will be done for the first time in 2008.

in 2007, the Corporate Governance and Personnel Committee held a

total of 14 meetings, 6 of which were held as joint presence meetings.

Board Member Remunerationissues concerning Board member remuneration are referred to

the General meeting of shareholders. the criteria for determining

the amount of remuneration for Board members and the procedures

for processing remuneration and compensations are set out in the

Board member remuneration regulations. this internal regulatory

document that was published for the first time in 2005 and has since

undergone a number of revisions.

the most recent version of the Board member remuneration

regulations was approved by an extraordinary General meeting on

14 december 2007. the structure and amount of individual director

remuneration was not changed from the system applied in 2006 —

remuneration is fixed and adjusted based on Board Committee

membership and chairing and the executive responsibilities of

the Chairman of the Board. the main changes were concerned

compensation payment procedures for work-related expenses

incurred by directors.

the total amount of remuneration for Board and Board Committee

membership in 2007 came to rur 55 419 000. Compensation

payments totaled rur 3 013 000.

Information Disclosure PracticeseuroChem has undertaken additional obligations in the voluntary

disclosure of material information, brining it closer in line with the

requirements for public companies. the new information Policy has

laid the foundation for solid relations between the company and its

broad range of stakeholders.

the company demonstrates a high level of corporate social

responsibility and has taken practical steps toward improving the quality

of both financial and non-financial reports in an effort to earn partner

trust and build a dialogue with stakeholders based on mutual interests.

By demonstrating its adherence to the ideology of transparency

and openness by example, the Company strives to increase its

trustworthiness with the public and other potential interested

parties; it also intends to encourage the practice and propagation

of quality management methods, thus making a contribution to the

development of business in russia.

euroChem demonstrates a reasonable balance in information

disclosure aimed at supporting the commercial interest of the

company as well as those of its clients and partners. euroChem may

disclose any other information which is not subject to mandatory

disclosure by the company’s information Policy if management

believes that the information is material and important for third

parties. the company’s disclosure Committee helps take balanced

decisions on information disclosure. forming a positive company

image is the shared responsibility of the Board of directors and

management.

Procedural disclosure requirements, the rules and deadlines for

preparing information and the people responsible in the disclosure

process are defined in the internal regulatory documents that the

management Board has approved as part of the process of drawing

up the information Policy. the information Policy is available in

the investors and shareholders section and the Charter and internal

regulatory documents section of euroChem’s website: www.

eurochem.ru.

�2

Executive managementChief Executive Officer — General Director

mr. dmitry strezhnev was elected General director of euroChem

by an extraordinary General meeting of shareholders on 30 january

2004.

he was born in 1968 and gradated with honors from the physics

division of moscow state university. in 1996, he began working as

deputy director of dostroikomplekt, and later headed Linkinsky Bus

factory. in 2001 he was named general director of rusPromavto

LLC, a holding comprised of companies manufacturing light autos

and freight vehicles, as well as busses, construction and road

equipment, and automobile parts. he has been head of euroChem

mineral and Chemical Company since august 2003.

mr. strezhnev does not hold any shares in euroChem or its

subsidiaries. he holds a 5% stake in euroChem’s parent company:

mCC holding Limites (Cyprus). he holds no relation to any person who

sits on the management bodies and / or control bodies at euroChem.

remuneration criteria for euroChem’s General director in 2007

in 2007, the following principles were set as guidelines for

determining the General director’s amount of remuneration and

compensation:

the amount of monthly base salary, the conditions under which

remuneration (bonuses), benefits and compensation are to be paid

to the General director are set out in euroChem’s contract with the

General director.

the terms and conditions of his contract, including regarding

remuneration amounts, benefits and compensation, were approved

by the company’s Board of directors.

in order to support and incentivize the achievement of company

objectives, each year efforts are made to update the General

director’s compensation package in order to make sure that it is

aligned with current market levels. this issue is referred to the terms

of reference of the euroChem Board of directors.

the General director’s fundamentally new remuneration,

benefits and compensation system was approved by the Board of

directors on 30 november 2005, and came into force on 1 january

2006. it has not been amended since.

the General director’s employment contract and all

supplementary agreements thereto are signed by the Chairman of

the Board of directors.

the General director’s 2007 remuneration and compensation

package includes the following components:

•Monthlybasesalaries,whicharepaidfordaytodayperformance.

TheamountofmonthlysalaryisupdatedeachyearbytheBoard

ofDirectors,whichtakesintoaccountaveragelevelsofremunera-

tionforexecutivemanagementontheRussianmarket.

• Annualbonusesarebasedontheresultsofanannualreviewof

theGeneralDirector’sperformanceandhisachievementofan-

nualtargets(anindividualmanagement-by-objectives(MBO)pro-

gram)includinggrouptargetsforallmembersoftheManagement

Boardandbothqualitativeandquantitativeperformancetargets

thatarealignedwiththecompany’sgoals.TheBoardofDirectors

setstheGeneralDirector’sperformancetargetsandassesseshis

achievements,inadditiontodeterminingtheamountofremunera-

tionbasedonannualperformance.

• Along-termbonusisbasedonindividuallong-term(strategic)

targets.InterimassessmentsoftheGeneralDirector’sachieve-

mentoflong-termstrategicgoalsarecarriedoutannuallyby

theBoardofDirectors.BasedontheresultsoftheBoard’sas-

sessment, remuneration ispaid in installmentsonanannual

basis50%andpartiallyreserved(theremaining50%)untilthe

endofthethree-yeartargetperiod.Thesepaymentsareinfla-

tion-indexed.

• Employmenttermsandconditionsarestatedinnaturalterms

andstructuredwithinacommoncompany-widesystem(non-

standardworkday,communicationsallowance,representative

andbusinesstripexpenses).

• Astandardarrayofbenefits(medicalhealthcoverageandac-

cidentinsurance).

The Management Board

Companies with a complex business structure often run into

situations which require experts in different fields to contribute to

finding a solution. reinforcing one’s professionalism and in-depth

knowledge of a certain field will lead to the need to form a team for

the decision-making process. in order to improve clarity and reduce

the risk of errors and improve the grounds upon which executive

decisions are made while evenly distributing responsibilities among

executive management, the Board of directors ruled on 25 january

2006 to establish the management Board.

the following responsibilities fall within the terms of reference

of the management Board:

•providingmulti-lateral,comprehensiveanalysesinpreparing

strategicallyimportantissuesforconsiderablybytheBoardof

Directorsbasedonsubmissionsandrequestsfromexecutive

bodies;

•takingdecisionsonthemostcrucialaspectsofcompanyop-

erations;dealingwithunusualissuesoranunusualsituation;

coordinatingdifferentbusinesses,divisionsandprojectsin

linewiththecompany’sstrategyandpolicies.

according to article 1.5 of euroChem’s management Board

regulations, the management Board reports to the General meeting

of shareholders and the Board of directors. in 2007, the Board of

directors reviewed the reports submitted by the Chairman of the


�3


management Board regarding the management Board’s performance

at regular scheduled meetings. according to article 8.3 of the

management Board regulations, one original copy of management

Board meeting minutes are to be submitted to the Board of directors

within seven days after the minutes are finalized.

Presently, the euroChem management Board is comprised of six

members. on 25 january 2006, the Board of directors determined that

six members would be the standard membership of the management

Board, and approved the following managers as members:

1.Mr.DmitriStrezhnev—GeneralDirector, andChairmanof

theManagementBoard(electedtotheManagementBoardby

theBoardofDirectorson25.01.2006);

2.Mr. Nikolai Pilipenko — Chief Financial Officer (elected

to the Management Board by the Board of Directors on

27.09.2006);

3.Mr.ValeryRogalsky—SalesandMarketingDirector(elect-

ed to theManagementBoardby theBoardofDirectorson

25.01.2006);

4.Mr. Alexander Tugolukov — Technical Director (elected


25.01.2006);

5.Mr. Igor Schekunov — Administrative Director (elected


25.04.2007);

6.Mr. Pavel Yakovlev — Purchasing and Logistics Director

(electedtotheManagementBoardbytheBoardofDirectors

on25.01.2006);

Based on recommendations from the Board of directors, the

management Board invites the head of the company’s internal audit

service and the director for General issues to management Board

meetings on a regular basis as advisors, and periodically invites the

managers of euroChem factories.

The EuroChem Management Board Members:

Mr. Dmitri Strezhnev

General director

information about mr. strezhnev can be found in the section on

the General director (p. 72).

Mr. Nikolai Pilipenko

he was born in 1965 and gradated with honors from the physics

division of moscow state university. he is currently a candidate for

a doctorate in economic sciences.

mr. Pilipenko has worked in both russian and foreign commerce

and industrial companies. since 1994 and until recently, he worked at

aBB, one of the world leaders in power equipment manufacturing and

automation products and technologies, where he served in managerial

positions in various divisions. in august 2006, he was named Chief

financial officer at euroChem mineral and Chemical Company.

Mr. Valery Rogalsky

mr. rogalsky was born in 1968 and graduated from the

automatics and computing technology division at moscow energy

institute. he has been in the industry since 1992. in 1996, he

worked as the commercial director for vti Group, a holding that

deals in the production, transport and distribution of fertilizers.

in november 2002, mr. rogalsky served as the head of the

department for fertilizer sales at euroChem, and was named sales

director in january 2004.

Mr. Alexander Tugolukov

mr. tugolukov was born in 1962 and graduated from the

dzerzhinsky dnepropetrovsky Chemical and technical institute.

in 1984-1994, he worked at Concern stirol in ukraine, where he

followed a career path from engineer to deputy technical director.

he was appointed technical director of the concern in 1994. in 2001,

he was named senior vice President for technology development

at Concern stirol. since october 2002, he has been the head of

euroChem mineral and Chemical Company’s technical division.

Mr. Igor Schelkunov

mr. schelkunov was born in 1967 and graduated from the

tyumen industrial institute with a degree in technology and complex

oil and gas deposit development.

he has many years of experience in a variety of managerial

positions at yuganskneftegaz, russia’s largest oil and gas company.

in 1988 - 1997, he worked at a number of different manufacturing

divisions, and in 1997 through january 2005, he worked on the

company’s hr policy as head of the department, deputy head of the

hr policy department, and later director of the yuganskneftegaz hr

policy. mr. schelkunov has been with euroChem since 2005. he has

served as deputy administrative director and head of the hr Policy

department. in april 2007, he was appointed administrative director

of euroChem.

Mr. Pavel Yakovlev

mr. yakovlev was born in 1968 and graduated from the urals state

economic university’s industrial entrepreneurial division. he began

his career in 1987 as a technical equipment engineer at automatika

in yekaterinburg. in 1997 he was named deputy general director

of urals auto factory, where he was later appointed commercial

director. in 2000-2001, he worked as general director of urals tire

factory. in 2001, he served as general director of ruspromavto and

��

chairman of the board of directors at the urals automobile factory.

in august 2003, he was named Purchasing and Logistics director at

euroChem mineral and Chemical Company.

members of the company’s management Board do not hold any

shares in euroChem. they do not have any relation to one another

or to the members of the Board of directors. there is one exception,

as the Chairman of the management Board and General director

mr. strezhnev has been an owner of a 5% stake in euroChem’s

shareholder, mCC holding Limited, since 10 august 2007.

Management Board Member Remuneration

the members of the management Board do not receive

additional remuneration for their membership on the management

Board. their remuneration packages are defined by the company’s

top management functions. total remuneration payments (including

monthly base salaries, annual bonuses and long-term bonuses) for

all of the members of the management Board in 2007 amounted to

rur 212,190,000.


��


Internal control and risk managementthe internal control and risk management system is an

integral part of corporate governance. this system helps

guarantee the company’s efficient operations and protect the

interests of shareholders and investors.

the foundation of this system is proper delegation of

authorities among the bodies and persons who carry out the

development, approval, application and assessment of internal

control procedures:

•executivebodiesdevelopinternalcontrolprocedures

•theManagementBoardandtheChairmanoftheManage-

mentBoardapproveinternalcontrolprocedures

•thecompany’sexecutivebodiesapplyinternalcontrolpro-

ceduresthathavebeendevelopedandapprovedinternal

regulatorydocuments

•theInternalAuditServiceconductsassessmentsofthe

internalcontrolsystem

•theAuditCommitteeundertheBoardofDirectorsprovides

in-depthrecommendationsonhowtheinternalcontroland

riskmanagementsystemfunctions.

Key control bodies overseeing the company’s financial and

business operations include the revision Commission and the

Board’s audit Committee. assessments of the internal control

system are carried out by the internal Control service.

The Revision Commission

the revision Commission’s primary task is to oversee the

company’s financial and business operations and the operations

of its standalone divisions, daily management, the managers

and employees of the company’s divisions, and the company’s

compliance with russian federal law. the authorities of the

revision Commission and the procedures for its duties are set out

in the revision Commission regulations.

Revision Commission Structure

in early 2007 the following were members of euroChem’s re-

vision Commission:

•Mr.DmitriGodunov

•Ms.TatianaKhilyuta

•Mr.SergeiVoinsky

the 2007 annual General meeting elected a new revision Com-

mission with the following members:

•Mr.RomanSemiletov

•Mr.RuslanIshkayev

•Mr.YevgenyMatushin

The Internal Audit Service

a key task of the internal audit service is to assist the Board of

directors audit Committee and company management by providing

an objective and independent assessment of the risk management

system, as well as the internal control and corporate governance

systems.

in order to ensure the internal audit services’ (ias) objectivity

and independent status, the head of the ias reports directly to

the Board’s audit Committee for functional issues and the Chief

financial officer for administrative issues. the head of the ias is

appointed by the Board’s audit Committee.

the ias is to perform its duties in line with international

professional internal control standards.

in 2007, 18 planned and unplanned internal audits were

conducted at euroChem companies and divisions in all of the

company’s different business lines.

Key audit tasks included:

•analysisofperformance,includinginvestmentperfor-

mance

•identifyingexistingrisksandpreparingrecommendations

tominimizethem,improvingtheriskmanagementsystem

•analysisofmanagementoperationsatsubsidiariesand

EuroChemdivisionsintermsofensuringreliabilityand

effectivefunctioningofthedifferentcomponentsofthe

internalcontrolsystem

•continuousenforcementofinternalauditrecommenda-

tionsanddecisionstakenbymanagementbodiesbasedon

theresultsofinternalaudits.

Ownership structureeuroChem’s authorized capital is comprised of 68,000,000

common registered shares with a par value of rur 100 each.

a company that holds the business interests of mr.

melnichenko owns 95% of mCC holding Limited (Cyprus), which

owns 99.9% of euroChem mCC. the remaining 5% of mCC

holding Limited is held by mr. dmitri strezhnev, Chairman of the

euroChem management Board (as of 10 august 2007).

Dividend policyeuroChem’s dividend policy was approved by the Board of

directors on 26 april 2006. on 26 february 2007, the Board of

directors approved a new version of the dividend Policy in which

a lower threshold for annual dividend payments was removed

(previously established at no less than 30% of net profits).

the shareholders meeting on 25.12.2007 ruled to pay

dividends for the first 9 months of 2007 in the amount of rur 54

per share. the total amount of funds paid in dividends amounted

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Shareholders Number of common shares Stake in authorized capital, %

mCC holding Limited (Cyprus) 67 932 000 99,9

Phosphorit industrial Group 68 000 0,1

Total: 68 000 000 100

EuroChem Ownership Structure(as of 31.12.07 - no changes were made to the shareholder structure in 2007)

to rur 3.672 million. the dividend policy is states and confirms

the principles that govern the Board of directors in preparing

recommendations for general shareholder meetings regarding

dividend payments. when preparing recommendations on

dividends, the Board of directors will account for the company’s

development strategy and the budget.

according to the approved dividend policy, the amount of

dividends to be paid will be determined by the Board of directors

based on data in accounting reports prepared in line with ras

for the respective period. when determining interim dividend

payment amounts, the Board of directors bases its decision on

management reports and other report data prepared in line with

ifrs (if it is available for the corresponding reporting period;

if not, it will use the reports from the previous reporting period).

when setting the amount of annual dividends, the Board

of directors bases its decision with due account for interim

dividends that have already been paid over previous reporting

periods (1q, 1h, 9m) and recommends dividend payments based

on the company’s current financial standing in such a way as to

ensure that in the long-term, dividend payments will not come

to contradict the principles of the company’s financial policy.

dividends may be paid in monies (russian rubles) based on the

results posted for the first quarter, the first half of the year, or the

first nine months of the year.

actual dividend payments processed to shareholders are

made within 30 days after the corresponding ruling is passed by

a general meeting of shareholders.

the dividend policy and information about the amount

of dividends paid (total amount and dividends per share) are

published, including on the company’s website, in accordance

with euroChem’s information Policy.

Financial Policythe company’s financial policy was approved by the Board of

directors on 19 december 2006. on 26 february 2007, the Board

of directors approved a new version of the financial policy.

the new financial policy states the principles and formulas

that are to guide the company when preparing plans, budgets,

business plans, development plans, and strategies that concern

the company’s funds and total debt. euroChem’s operations

adhere to the principles set out in the financial policy.

the coefficients and formulas set out in the financial policy

are reference points aimed at ensuring financial sustainability,

solvency and liquidity in everyday operations. monitoring of

compliance with the financial policy’s principles is carried out via

quarterly ifrs reports and management reports.

the company controls a minimum level of funds required

to ensure short-term payments. these funds may be balances

on current accounts in banks, deposits, short-term financial

investments or other instruments that may be classified as

monies or the equivalent thereof in line with ifrs principles.

the company’s minimum level of funds is maintained on a daily

basis and also includes accessible credit lines with or without

bank obligations, the credit limits extended to euroChem and its

subsidiaries, save for credit limits and lines that are already in

use.

the company set the requisite minimum at a level of at least

10% of the company’s revenue indicator for the previous four

reporting periods (quarters).

the company also controls the company’s total debt based

on total debt divided by eBitda. this coefficient may not exceed

1.5.

euroChem monitors its financial burden in the form of net

financial expenses using the coefficient of eBitda divided by net

financial expenses (at least 10).

the financial policy and information about compliance

with the policy is published in accordance with euroChem’s

information Policy.


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information aBout LarGe transaCtions and transaCtions with interest

over the reporting year, euroChem entered into 2 transactions

that are defined by the federal Law on joint-stock Companies (jsC

Law) as transactions with interest. the Board of directors ruled to

approve both of these transactions:

•supplementaryagreementtoaservicecontractformanage-

mentconsulting

•acontractforreimbursableservices

events after the reporting date

•euroChem held a roundtable discussion with representatives

from roskhimprofsoyuz, the russian union of Chemists,

and the union organizations of euroChem’s five key industrial

companies. a report on the roundtable, euroChem’s Corporate

socially responsible Business, was discussed and published.

•an agreement was signed on cooperation between euroChem

and the department of agriculture and reprocessing industries

of Krasnodar Krai in order to supply agriculturalists with fertilizers

and chemical protection agents in order to increase agricultural

products and improve quality.

•euroChem won an auction for the rights to use the resources

of the Palashersky and Balakhanotsevsky sections of the

verkhnekamsky potassium salt deposit. investments in creating

facilities for the production of potassium (2-2.5 million tonnes

per year) were valued at rur 40 billion. By 2018, euroChem’s

resource base, together with work on the project to develop

a potassium ore deposit in the volgograd region, will help

the company produce 5-7 million tons of potassium chloride

annually, or 10% of the world’s potassium market.

•euroChem opened a new subsidiary in Kiev: agroCenter

euroChem - ukraine. euroChem placed second among importers

and first among russian importers in ukraine.

•the department for architecture and town Planning of Krasnodar

Krai granted euroChem a permit to build the tuapse Bulk Cargo

terminal. the terminal’s annual freight turnover will amount to

2.3 million tonnes of mineral fertilizers.

•a keystone ceremony was held setting the first stone in the

construction of euroChem’s new railcar repair depot, depot-

euroChem.

•By decree of the President of the russian federation, five

employees of key production facilities at Phosphorit industrial

Group were presented with government awards.

•a cooperation agreement was signed between euroChem and

the moscow state university for environmental engineering on

training highly qualified specialists in chemistry with subsequent

recruitment to euroChem companies.

•euroChem’s corporate social responsibility report was submitted

to the national register of Corporate non-financial reports.

•in april 2008, standard & Poor’s rating agency confirmed

euroChem’s corporate governance score at CGs-6+ on the

international scale, and raised the russian score to CGs-6.7.

•euroChem began work on a new project in the Kaluzhsk

region: developing agricultural production and production

of grains and rapeseed at euroChem-novoselskoye, which

will carry out production, processing and sales of seed-based

products.

Contact Information

euroChem mineral and Chemical Company, ojsC

address: 53 ulitsa dubininskaya, bldg. 6, moscow 115054

tel.: (495) 795-25-27; fax: (495) 795-25-32

e-mail:[email protected]

Pr and Communications department

e-mail: [email protected]

Shareholder Registrar

national registrar Company, CjsC

Place of business: 6 ulitsa veresayeva, moscow

mailing address: 6 ulitsa veresayeva, moscow 121357

tel.: (495) 440-6345, 440-79-18/20/29, 440-79-30/37; fax: (495) 440-6355

website: www.nrcreg.ru

License information:

date of issue: 6 september 2002

number: 10-000-1-00252

form: series 03 —000397

valid until: no expiration date

issued by: the russian federal securities Commission

signed by: mr. i.v. Kostikov, Chairman of the russian federal securities Commission

Auditor Information

full name:

PricewaterhouseCoopers audit

Place of business: 52 Kosmodamanskaya naberezhnaya, bldg. 5, moscow 115054

tel: +7(095)9676000 fax: +7(495)9676001

e-mail: www.pwcglobal.com

audit License information:

License number: Е 000376

date of issue: 20.05.2002

valid through: 20 may 2007

issuing Body: russian ministry of finance

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referenCe

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Post-rePortinG date events

euroChem mCC won the auCtion to deveLoP reserves of the PaLashersKoye and BaLaKhontsevsKoye sites of the verKhneKamsKoye dePosit of Potassium saLts. investments to Create Potassium ProduCtion CaPaCities of 2-2.5 miLLion tonnes a year are vaLued at ruB40 BiLLion. By 2018, the ComPany’s resourCe Base, inCLudinG ProjeCts on deveLoPment the verKhneKamsKoye dePosit in the uraLs and dePosits of Potassium ores in the voLGoGrad reGion, wiLL enaBLe to ProduCe annuaLLy 5-7 miLLion tonnes of Potassium ChLoride, aBout 10 % of the worLd Potassium marKet.

the euroChem-uKraine aGroCenter oPened its new offiCe in Kiev. euroChem mCC is the seCond imPorter to the uKraine and the Leader amonG russian imPorters to the uKraine.

dePo-euroChem heLd a soLemn Ceremony of LayinG down the first stone at the ConstruCtion site of a raiLCar rePair dePot.

By the deCree of the President of the russian federation, Government’s awards were Conferred on five emPLoyees of PG PhosPhorit’s Core ProduCtion faCiLities.

the ComPany siGned a CooPeration aGreement with the dePartment of aGriCuLture and ProCessinG industry of the Krasnodar Krai to suPPLy farmers with fertiLizers and ChemiCaL aids to inCrease aGriCuLturaL outPut and imProve quaLity.

the dePartment of arChiteCture and town-PLanninG of the Krasnodar Krai authorized ConstruCtion of the tuaPse BuLK terminaL with the annuaL Goods turnover of 2.3 miLLion tonnes of mineraL fertiLizers.

the ComPany heLd the round taBLe with PartiCiPation of rePresentatives of the CentraL Committee of the russian ChemiCaL worKers trade union, the russian union of ChemiCaL worKers and trade unions of the hoLdinG’s five Core manufaCtures. the event was foLLowed By adoPtion and PuBLiCation of the finaL doCument euroChem mCC soCiaLLy resPonsiBLe CorPorate Business.

euroChem mCC and the mosCow state enGineerinG eCoLoGy university siGned an aGreement to train hiGhLy sKiLLed ChemiCaL enGineers to Be emPLoyed By the ComPany’s enterPrises uPon their Graduation from the university.

euroChem mCC soCiaL rePort was entered in the nationaL reGister of CorPorate non-finanCiaLs.

in aPriL 2008, the internationaL ratinG aGenCy standard and Poor’s Confirmed the euroChem mCC internationaL CorPorate GovernanCe ratinG at CGr 6 + and uPGraded a nationaL one to CGr 6.7.

a new ProjeCt «deveLoPment of aGriCuLturaL and Grain and raPe seeds ProduCtion By euroChem-novoseLsKoe» was LaunChed in the KaLuGa reGion. under the ProjeCt, the hoLdinG’s suBsidiary wiLL Be enGaGed in ProduCtion, ProCessinG and saLes of hiGh reProduCtions.

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aPPendixList of suBsidiaries and dePendent ComPanies as of the end of the rePortinG year manufaCturinG ComPanies

Manufacturing Companies

Name Address Shareholder/participant (over 2%)

Stake in authorized capital, %

Kovdorsky mining Plant, ojsC

184140 murmansk region, city of Kovdor, sukhachyova dom 5

euroChem mCC, ojsC 100 of common stock, 100 of preferred stock

nevinnomyssky azot, ojsC 357107 stavropolsky Krai, city of nevinnomyssk-7, ulitsa nizyaeva dom 1

euroChem mCC, ojsC 95.3

novomoskovsky azot, ojsC 301660 tula region, novomos-kovsk, ulitsa svyazi dom 10


euroChem - Belorechenskiye mineral fertilizers, ojsC (euroChem-Bmu)

352636 Krasnodar Krai, city of Belorechensk

euroChem mCC, ojsC 100

Phosphorit industrial Group, LLC

188452 Leningrad region, Kingisepp district, Phosphorit industrial zone


Lifosa aB ulitsa yuodkishke 50, Lt-5030, Kadainiai, Lithuania

euroChem mCC, ojsCeuroChem a.m. Limited

91.153.65

euroChem-volgaKaliy, LLC 404350 volgograd region, city of Kotelnikovo, ulitsa Lenina dom 7


novomoskovsky Khlor, LLC 301660 tula region, novomos-kovsk, ulitsa svyazi dom 10

novomoskovsky azot, ojsC

100

�0


Name Address Shareholder/partici-pant (over 2%)


euroChem trading Gmbh Bundesstrasse 5, Ch-6301, zug, switzerland


euroChem trading usa Corp.

island Center 2701 n. rocky Point drive suite 1100 tampa, fL 33607, usa


euroChem a.m. Limited Christodoulou Chatzipavlou, 205, Louloupis Court, 2nd floor, flat/office 201, P.C. 3036, Limassol, Cyprus


harvester shipmanagement Limited

agias sofias, 94B, P.C. 3066, Limas-sol, Cyprus


harvester ukraine, a private company

65020 ukraine, odessa region, odessa, ulitsa novoselskogo 73, 25

harvester shipmanage-ment Limited

100

tankChem aktsiaselts Kannikese 7-2, tallinn, 10613 estonia euroChem mCC, ojsC 100

tuapse Bulk Cargo terminal, LLC

352800 Krasnodar Krai, tuapse dis-trict, tuapse, ulitsa Gagarina 10-a


Kingisepp remstroiservice, LLC

188480 Leningrad region, Kingisepp district, Phosphorit industrial zone


novomoskovsk rem-stroiservice, LLC

301600 tula region, novomoskovsk, ulitsa svyazi dom 10


nevinnomyssk rem-stroiservice, LLC

357107 stavropolsky Krai, city of nev-innomyssk, ulitsa nizyaeva dom 1


tulagiphokhim ojsC 300026 tula region, tula, Prospekt Lenina 106


Chemagro LLC 65007 ukraine, odessa, ulitsa vodo-provodnaya 10


agroCenter - euroChem ust-Labinsk ojsC

352323 Krasnodar Krai, ust-Labinsk, ulitsa imenno s.G. shaumyana 1

euroChem mCC, ojsC 98.32 of common stock and 96.5 of authorized capital

agroCenter euroChem-vol-gograd, LLC

403343 volgograd region, mikhailovsky district city of mikhailov-ka, ulitsa Promyshlennaya dom 8


euroChem-novoselskoye, LLC

249280 Kaluzhskaya region, sukh-inichesky district, slippovo village 10


murmansk Bulk Cargo terminal, LLC

city of murmansk, Portovy proyezd 19


depot-euroChem, LLC 357107 stavropolsky Krai, city of nevinnomyssk-7, ulitsa nizyaeva dom 1


agroCenter euroChem-Kras-nodar, LLC

350000 Krasnodar, ulitsa Kommun-arov dom 268 a


agroCenter euroChem-ukraine subsidiary company

ukraine, 01133, Kiev, ulitsa schor-sa 44


euroChem-energo, LLC 301660 tula region, novomoskovsk, ulitsa svyazi dom 10


Service Companies

�1

�2

Name Address Shareholder/partici-pant (over 2%)


Kovdorsky trading house, LLC murmansk region, city of Kovdor, ulitsa Lenina dom 8


novomoskovsky food factory, LLC

tula region, novomoskovsk, ulitsa svyazi dom 10


Kovdorsky health and safety facility, LLC

murmansk region, city of Kovdor, ulitsa Koshitsa dom 16


Cozy hotel, LLC murmansk region, city of Kovdor, ulitsa Koshitsa dom 28


Palace of Chemistry, LLC stavropolsky Krai, city of nevinno-myssk, ulitsa mendeleyeva dom 11


Chemist resort, LLC Krasnodar Krai, tuapse district, village of novomikhailovsky-2


Green hotel, LLC stavropolsky Krai, city of nevinno-myssk, Pereulok zelyony dom 5


tonus Plus, LLC tula region, city of novomos-kovsk, Parkovky prospect, dom 1


ors-Phosphorit, LLC Leningrad region, Kingisepp dis-trict, Phosphorit industrial zone


nevinnomyssk service, LLC stavropolsky Krai, city of nevinno-myssk, ulitsa nizyaeva dom 1


yuG service, LLC Krasnodar Krai, city of Belorech-ensk, chemical industrial zone


sKa st. Petersburg (hockey club), CjsC

Leningrad region, st. Petersburg, ulitsa zvenigorodskaya dom 5


Other subsidiaries

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aPPendix

www.euroChem.ru

Documents

ANNUAL REPORT 2007 - EuroChem€¦ · growth. while some problem areas have ... the Board of directors underwent some important ... development of the territories in which it has