Face 2 Face - Interview with Evgeny Griva

Face to Face

Face 2 Face Interview with

Evgeny Griva (CEO)

SIBUR Petrochemical India Private Limited

Inauguration of new plant - coconout breaking by two CEO`s Mr. Konov and Mr.Meswani 52 / April 2014

Face to Face

What new can we expect from SIBUR in terms of the product portfolio from the new plants under constructions worldwide?

What shall be the installed capacity of these new plants?

When shall these Plants become operational?

For example, last year SIBUR completed several key investment projects,expandingboth its feedstock processing and polymers production c a p a c i t i e s . S I B U R ’s landmark Tobolsk-Polymer project cameonstream last year and will see the company double its basic polymers production capacity.Such projects are expected to enable Russiato substituteimports of basic polypropylene (PP) grades and become an exporter of PP.

SIBUR has two operating and reportable segments: feedstock&energy and petrochemicals. SIBUR is the owner and operator of the largest gas processing business in terms of APG processing volumes and boasts the most extensive integrated infrastructure for Also due for processing and transportation completion this year of APG and NGLs in Russia. is RusVinyl, a 50:50 The Company’s strategy is joint venture between to secure access to feedstock SIBUR and Netherlandsthrough the expansion Evgeny Griva headquartered SolVin, of existing APG and CEO, SIBUR Petrochemical India Pvt. Ltd. which will see the NGL processing and construction of a 330,000 tonne/year PVC plant and a 225,000 transportation infrastructure.Several projects are currently being implemented and the Company is arranging long-term tonne/year caustic soda unit. SIBUR is keen to capitalize on contracts with oil and gas companies. Another priority is to a booming PVC market in Russia and the CIS, which boasts monetize stranded feedstock through the construction of large- growth rates of 5-6%/year from 2012-2020, mainly driven by the construction industry. scale petrochemicals facilities in Russia.

Russian ambassador His excellency Mr A. Kadakin, Consul General of RF in Mumbai Mr. A. Novikov, CEO of SIBUR Mr. D. Konov, CEO of RIL Mr. N. Meswani, Managing Director of Rubber division in Sibur Mr. M.Gordin.

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Ceremony of ground breaking - Jamnagar - CEO of Sibur - Mr. Dmitry Konov and CEO of RIL Nikhil Meswani - inaguration of a new plant, Feb, 2013 SIBUR achieved 50,000 tonnes/year SBS productionand expanded itsbutyl rubber facility in Togliatti by 5,000 tonnes to 53,000 tonnes/year.

A decision will soon be made on the ZapSibNeftekhim project. The proposed project, which, if approved, SIBUR claims will be one of the world's largest, includes a 1.5m tonne/ year ethylene cracker, and will produce 1.5m tonnes/year of downstream polyethylene (PE) and 500,000 tonnes/year of PP. It will include an 800,000 tonne/year swing linear low density polyethylene (LLDPE) and high-density polyethylene (HDPE) plant, as well as producing 700,000 tonnes/year of HDPE. The fast-developing and highly attractive Russian marketis SIBUR’s main focus. The countless hurdles involved in moving into a new territory mean that entering foreign markets is only possible through establishing JVs with local partners. SIBUR is therefore working with Reliance in India to construct a 120 ktpa butyl rubber production facility in Jamnagar.

Given that the automotive industry is SIBUR’s largest customer segment, how does SIBUR see the growth of the Indian automotive industry in the coming years?

54 / April 2014

The Indian market is large, fast-growing and undersupplied. Rubber consumption has shown strong growth in recent years triggered by increased volumes of tyre production. In response to strong demand, Indian car production is growing and boosting the consumption of rubber used for tyre manufacture. Market experts estimate India’s overall rubber demand at 400,000 metric tonnes per annum.

Annual demand for butyl rubber is more than 60,000 metric tonnes and is supplied entirelythrough import (Source: IISRP).

The medium-term (5-year) growth of composite demand for butyl rubber and halobutyl rubber is expected to be 6.3%, with the growth of demand for butyl rubber alone forecasted at about 5.5% (Source: IHS, SIBUR’s estimates).

India is now seen as the global hub for small cars. Have the performance requirements changed? In what ways?

Small car production in India increased 8% last year and is expected to maintain the same growth rate over the next 3 years while regular car production is expected to remain at the same level (Source: LMS). We therefore anticipategrowth in demand for butyl rubbers used in tyre production.

How open are Indian customers to implement/ introduce new rubber technologies in the Indian market? How does

Face to Face

SIBUR plan to enhance their services to understand and implement them better?

Does SIBUR have any other new investments in the pipeline?

India has historically had a goodfeedstock base but limited technology to produce synthetic rubbers. By contrast, Russia has maintained a leading position in the global synthetic rubber market. SIBUR will provide its technology to produce butyl rubber at Reliance SIBUR Elastomers, a JV between SIBUR and Reliance in Jamnagar. We are one of the few companies that has the technology to produce butyl rubber and we also have the practical experience to produce and sell our product. The technology which will be used in Jamnagar is a unique solution polymerization technology which assures consistency inproduct quality and is eco-friendly as it uses non-toxic solvents. This technology is currently only being used atone plant in the world, Sibur’sTogliattikauchuk, which has been operating its Butyl Rubber production facility since the early 1980s, with an annual capacity of 53 000 tonnes.

SIBUR doesn’t currently have any expansion plans apart from the JV with Reliance in India, but the Group is extending its geographic reach into India and South Asia through SIBUR Petrochemical India. The subsidiary was established in 2012 andis conducting initial detailed research into the petrochemical products market and supporting business development in a number of ways, including government relations.

How are the SIBUR R&D facilities placed globally?

The Group’s R&D activities are aimed at developing business opportunities, new products and improving environmental sustainability.

SIBURconstantly seeks to improve operations at its production facilities, principally by improving operating efficiency, reliability and capacity. The Group’s R&D program is first being implemented at two corporate R&D centres in Tomsk and Voronezh, as well as at the research departments of production subsidiaries. The Group’s R&D program focuses on areas including: information and analytical research on global achievements in the petrochemical chemistry, researchinto improving existing processes and products in order to reduce operational costs and increase profits, theoretical research into developing crucial new processes and products to position the Group well for future markets.

Evgeny Griva,CEO, SIBUR Petrochemical India Pvt. Ltd.

Share your vision for the market in this region.

Significantly improved demand for petrochemicals in India will be underpinned by rapid GDP growth. India’s per capita consumption of polyolefinscurrently lags considerably behind Southeast Asia, and even further behind Western Europe or North America. With personal incomes in India rising and levels of consumption changing, this gap shows thehuge potential for growth in India (and Southeast Asia).

Significantly, India’s tyre output is expected to expand rapidly, with the ICRA estimating growth at 8 to 10% a year, drivingthe Indian synthetic rubber industry forward.

What are SIBUR's views on shift from NR to SR consumption, viewed at the backdrop of higher consumption of NR than the production?

According to LMC, demand for natural rubber (NR) rose 3% last year on the back of an industry surplus and growth is expected to continue at the same level over the next 10 years.

Tyre production accounted for more than 75% of total NR demand.

Demand for synthetic rubber (SR) rose 5% in 2013 and is expected to see growth of 6-8% over the next 10 years. The SR market continues to be undersupplied and dependant on imports of certain SR grades.

Two heads of the project - from Sibur - Denis Kulkov, from RIL - Gautam Chakraborty

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With Indian companies like ISRL,Reliance gearing up SR production, how much time in SIBUR’s view, when we become selfsufficient from being an importing nation" SIBUR believes that once production begins at Jamnagar India will stop importing butyl rubber. Once domestic demand is being satisfied in India RSEPL may export its remaining output to neighbouring countries, but the JV’s prime focus will be India. SIBUR intends to stop exporting IIR to India from Russia once the JV is fulfilling this demand and the Company would then move sales of butyl rubber to other countries.

Is the industry still looking for duty-free imports? Why? SIBUR doesn’t export any significant volumes of SR to India and therefore can’t offer any relevant comment on import duties.

Rubber plant in Tolyatti - licensor for RIl and Sibur project

How is the competition from Chinese rubber industries look like? Are they still a force to be worried about?

According to various forecasts, China’s consumption of rubbers (natural and synthetic) is set to continue growing at a healthy pace in the short term. Based on EIU data, consumption growth will average at 5.4% a year, with total consumption reaching 6.5 mtpa. The growth is driven by the national tyre industry, which is heavily focused on external markets: China exports around 43% of all the tyres it makes.

Today, China is a net importer of rubber but is now committed to a policy of actively replacing imports with domestic production.

Russian project team

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SIBUR's views on the currency volatility Depreciation of the Russian rouble against the US dollar and the euro is positivelyaffecting SIBUR’s financial performance as an exporter.

Our functional and reporting currency is the Russian rouble. However, our exports are primarily denominated in US dollars and, to a lesser extent, in euros, while most of our expenses are denominated in Russian roubles. As a result, depreciation of the Russian rouble relative to the US dollar or the euro has a positive impact on SIBUR’s export revenue and on our operational results.