TOP MANAGERS TAKING QUESTIONS

With ZapSibNeftekhim startup, SIBUR has significantly increased its export volumes.

Consolidation of production capacity will allow for upgrading of the lower-capacity plants to produce niche and higher-value products for certain segments. For example, we are currently considering production of special PE brands at Tomskneftekhim, which would have been unfeasible without the recent ZapSib launch.

Our strategic priority is to maintain high operational utilization of megaprojects (such as ZapSib, PP production in Tobolsk and soon Amur), and facilitate strong demand for our products through the existing local (taking advantage of our strong position in Russia) and global (Asia-bound, including Sinopec’s distribution capacity) supply channels. At the same time, we will benefit from expanding into the new market segments in Russia and thus ensuring effective engagement of smaller operations in creating value for the company. The same approach will be applied to new assets.

We also believe that the synergy arising from the centralized logistics and supply management can deliver additional benefits.

Over 600 piles have been driven at the foundations of the future air terminal building at the construction site of the joint project between SIBUR and Tyumen Region. The foundations have been laid, and the heating system for special airport equipment storage has also been completed. Main metal structures were installed in January.

In the near future, we are planning to begin work on the exterior of the air terminal’s building, and start installing external and underground utility systems. We plan to use ZapSip polyethylene pipe for these systems. The total length of the aerodrome’s drainage system exceeds 17 thousand metres.

The construction of the air terminal itself is scheduled for completion in the autumn of 2021.

The air terminal will be a modern, comfortable building, with capacity for up to 380 passengers per hour. The new terminal’s design concept provides flexible space solutions for the waiting area, check-in and baggage claim areas. This innovative design is in step with modern trends and will ensure passengers enjoy a comfortable and safe visit.

Construction is tentatively scheduled to be completed in mid-2024, while pre-commissioning activities should conclude in 2025. Piles are currently being driven and foundations are being prepared on the Amur GCC construction site. On-site concrete production has been rolled out.

We signed a set of agreements for SINOPEC to acquire an equity stake in the project, and to take the lead in selling Amur GCC’s polymer products in the Chinese market.

Contracts for detail design, off-site facilities, and equipment and materials supplies for the facility’s key process units have been signed and are being fulfilled.

In terms of the process facilities, we have already ordered key equipment, which will be delivered during the 2021 and 2022 navigation windows. An 80.6 m, 1,540-tonne fractionation column will also be delivered for a steam cracker later this year.

The construction of the complex is progressing in step with the gradual ramp-up of Gazprom’s Amur GPP to full capacity, meaning the latter could supply ethane and LPG to Amur GCC for further processing.

Indeed, countries phasing out single-use plastics is now a global trend. In reality though, this hot trend towards ditching plastics, as well as government restrictions on its use only apply to the handful of varieties which are practically impossible to sort and recycle. However, cases fr om across the world demonstrate that these bans and restrictions do not always have a meaningful effect on the environment.

California, for example, banned single-use plastic bags in 2016. As a result, sales of 15 and 30 litre plastic bin liners sharply increased, as people had previously been using plastic shopping bags for this purpose, which were often used multiple times. The ban on single-use plastic bags in California led to a growth in demand for paper bags, which have a much higher environmental footprint than single-use plastics. According to research, including that carried out by Greenpeace, 70% more hazardous substances are emitted during the production of paper bags, while 50 times more pollutants find their way into bodies of water.

It is obvious, therefore, that banning single-use plastics (including plastic bags) is not a panacea for environmental problems because people will continue to use alternative materials, which also have a more significant environmental impact (glass, paper or metal), and will use them in greater quantities. In other words, there will still be waste and the impact on the environment will actually increase.

Plastic production is actually far more environmentally friendly than producing other base materials. Using plastic helps reduce CO₂ emissions, save energy and water, and preserve forests and air quality. Furthermore, using plastic bags, rather than paper ones, saves 15 million trees every year in Russia.

Ditching plastic represents a step backwards for human development, as in certain segments single-use plastics have no alternatives with similar performance. Take healthcare, for example, wh ere plastic is used in masks, gloves, single-use syringes, blood transfusion bags, and prosthetic implants. This has also been highlighted by the coronavirus pandemic, which has forced the world to take a different perspective on plastic, causing a major setback for anti-plastic campaigns across the world, especially in the USA.

The problem doesn’t so much lie in how we use plastic, but in where it goes after we have used it and thrown it away. The majority of countries, therefore, have chosen to develop recycling and a circular economy. In this context, fostering a culture of waste sorting is particularly important, since in the modern world, rubbish (waste) is a valuable resource, which must be recycled and turned to new uses.

Last year, we set up a sustainable development team to address all ESG-related matters. Its main task is to make sure that both our production facilities and various functions at the corporate headquarters contribute to our consistent sustainability efforts, to analyse best practices and develop centralised procedures and response to global challenges and opportunities on the sustainable development path.

At the end of last year, SIBUR’s Board of Directors approved the Company's 2025 Sustainable Development Strategy. Now we are working to gradually integrate sustainable development priorities into all strategic documents at the level of both corporate headquarters and production facility development plans. For example, SIBUR’s 2020 performance contract now has a KPI focusing on delivery against the sustainable development strategy that is cascaded down to the production facilities as well as the functions involved.

Improved sustainable development performance is one of the Company’s key focus areas for 2020 and we work to ensure that each and every of SIBUR's employees understands what it means and how he or she can contribute to the cause. We run an ambitious awareness campaign and take ongoing efforts to involve our people in improving the business. It will be even easier to accomplish now that we have set a corporate social responsibility objective and created a dedicated sustainable development social media group for people to share related news and discuss key matters online.

Late last year we took a major cross-functional effort to design an online course on sustainable development that is already available to all employees. Going forward, we plan to circulate it among our clients and partners. A special module of this course focuses on the personal contribution of SIBUR’s employees to the sustainable development cause such as useful habits and tips on how to be more environmentally friendly. This module was created with input from across all of our Russian operations. Today, everyone in the Company knows our department and we continue to receive ideas, questions and suggestions and decide together on the best way to implement them. The idea of an eco-friendly office (including offices of all production entities) is also on our radar. We adopt green practices aimed at reducing our resource use and waste generation and promoting separate waste collection.

In addition, last year saw the creation of the Management Board's Committee for Ecology, Sustainable Development and Social Investments followed by the Sustainable Development Committee established by the Board of Directors this year.

To promote the sustainability agenda externally, we hold webinars for our clients with a focus on sustainable development. In 2019, we had four webinars on this topic, namely Sustainability as a Key to Success, Circular Economy, Plastic Waste Recycling, and Carbon Footprint Management. This year, we have held a webinar on an especially relevant topic and discussed Key ESG Trends through the Lens of COVID-19.

The sustainability strategy approved by the Board of Directors at the end of 2019 establishes certain goals relating to a sustainable product portfolio. Now we are in the process of a large-scale sustainability assessment of the existing and new products. We are also integrating sustainability criteria into the assessment of R&D projects and investment ideas and developing new projects aimed at promoting circular economy. We work closely with the marketing team to ensure that our products help our clients to achieve their own sustainable development goals. Once we have embedded sustainability across the entire value chain and internal business processes, assessed our products for compliance with sustainability principles and expanded our portfolio with green products, we will be able to communicate our value proposition as sustainable and this is when specific KPIs for the marketing team will be introduced.

SIBUR prioritises the health and safety of its employees. That is why we, in addition to compliance with recommendations of Rospotrebnadzor and the WHO, make extra efforts to prevent the coronavirus from spreading in the Company’s production facilities and offices.

On 10 March, SIBUR restricted, and on 16 March completely cancelled business trips of its employees. In addition, we urge our employees to refrain from personal trips outside of their home region. We have implemented a ban on such large-scale events as in-house sessions, training workshops, conferences, and customer events, cancelled all meetings with external counterparties, courier visits, and working meetings involving more than five employees.

Employees who travelled abroad after 1 March or are in close contact with those who did became subject to special guidelines regarding access to offices and production facilities and were required to self-isolate for 14 days upon return.

From 18 March to 30 April 2020, SIBUR employees are authorised to work from home. Part of employees from the Company's corporate headquarters and part of daytime workers from production facilities in the regions worst hit by the coronavirus can be sent to work from home with 100% pay retained as long as this move does not affect the stability and management of production processes. We readily employ a variety of available digital tools enabling remote control over production processes. Internal and external communications will not be affected and will remain as efficient as previously. 

We have instructed all our employees on how to prevent infection. Across our sites, we have introduced toughened personal hygiene requirements for employees and visitors along with mandatory health check measures. The Company's offices and facilities have been provided with more disinfectants and air purifiers.

The example of other countries shows that strict quarantine is the most effective tool to fight and fend off the coronavirus.

That is why part of employees ensuring business continuity at ZapSibNeftekhim’s production and service facilities are being transitioned to live and work at on-site shift camps, with 20% of base salary paid to them on top of their fixed remuneration. Employees (including heads of production units) who have taken coronavirus tests and have been found to be healthy will be isolated from the outer world subject to their consent. They will take the ultimate responsibility for ensuring disruption-free operations at production facilities, including the power, heat and steam generation plants that supply heat to the local communities. We have put in place special on-site camps that will accommodate the shift workers. Even though transition to the shift camp model incurs additional costs for the Company, we see it as a viable solution for maintaining our operating stability.  Going forward, we plan to roll out this model to other production sites. Needless to say, this will cause a number of inconveniences for employees and their families, but it is human health that becomes of paramount importance under current circumstances. That is why our workers proved to be understanding of this decision.

Falling oil prices primarily put LPG and naphtha under pressure, but have limited impact on petrochemicals. We are seeing lower demand in Europe, our key export market, due to the quarantine. SIBUR is getting prepared to diversify its logistics in order to redistribute supplies among the regions, if necessary. The decline in naphtha prices leads to wider spreads in petrochemical markets, despite only a marginal drop in prices. Logistics bottlenecks caused by the quarantine may disrupt supplies for polyolefin processors in Europe. Several processing plants have already been reported to shut down. The largest tyre manufacturers such as Continental, Michelin and Pirelli have suspended operations at some of their production sites. As demand in Asian markets remains strong, we have an opportunity to redirect most of our chemical exports to Asia. We are seeking ways to support both our own sales and the sales of our customers. In the medium and long term, as ZapSibNeftekhim reaches its design capacity to become one of the most competitive facilities globally, the Company will focus more on petrochemicals, which, coupled with higher domestic feedstock consumption, will partly offset negative midstream performance.

As demand in Asian markets remains strong, we have an opportunity to redirect most of our chemical exports to Asia. Up until recently, we saw China's ports burst with stockpiles, whereas now the situation is changing, with new shipments underway and the demand for polymers rising. This is yet another proof of market recovery. That said, the risk of quick oversupply in the Chinese market is tangible. The Russian market also continues to be of crucial importance for the Company, as it traditionally provides stable demand as long as there are no significant restrictions. With the nation-wide quarantine extended, we are closely monitoring the situation leaving the door open for part of our sales to be redirected to Asia.

There are three key factors that distinguish Europe’s flexible packaging market from Russia’s.

First, European households enjoy higher income. Second, Europe’s consumption culture is different. By and large, it saw BOPP film packaged products much earlier, therefore these have taken a solid share of daily consumption already.

Third, Europe is a major exporter of foodstuffs, which, too, bolsters packaging consumption.