2.2.

Operating Review Consolidated cargo turnover

NCSP Groups consolidated cargo turnover grew by 1.9 million tonnes or 1.2% compared to 2011 to 158.9 million tonnes in 2012. Cargo transhipment increased by 2.5% at NCSP Group companies operating at the Novorossiysk Port and by 19.3% at the Baltiysk Port, while remaining relatively stable at the Primorsk Port. There were no substantial changes in individual companies share of the Groups consolidated cargo turnover in 2012.

NCSP Group cargo turnover 2011-2012

000 tons Change, 000 tons 2012 Cargo turnover, total Liquid c argo, total Crude oil Oil products UAN Seed oils Bulk c argo, total Grain Mineral fertilizers Sugar Iron ore and ore concentrate Scrap Metal Cement General c argo, total Ferrous metals Timber Timber. thsd. cubic meters Non-ferrous metals Perishable cargo Other Containers Containers Containers, thsd. TEU 158 905.1 131 105.5 110 829.7 19 396.0 464.0 415.8 11 592.2 7 963 871 643 1 756.1 37.4 321.7 11 120.3 8 652.1 730.0 1 319.5 1 092.6 241.4 404.2 5 087.2 5 087.2 623.6 2011 156 986.3 130 447.0 113 393.9 16 516.8 432.3 104.1 12 580.0 5 776 2 088 1 581 2 906.3 80.4 148.8 9 030.0 6 855.6 602.2 1 094.9 1 105.2 353.4 113.5 4 929.4 4 929.4 597.5 1 918.8 658.5 -2 564.2 2 879.2 31.8 311.7 -987.8 2 187 -1 217 -938 -1 150.2 -43.0 172.9 2 090.3 1 796.5 127.8 224.6 -12.6 -112.0 290.7 157.8 157.8 26.1 1.2% 0.5% -2.3% 17.4% 7.3% 299.6% -7.9% 37.9% -58.3% -59.3% -39.6% -53.5% 116.2% 23.1% 26.2% 21.2% 20.5% -1.1% -31.7% 256.0% 3.2% 3.2% 4.4% Change, %

Transhipment volumes in 2012 grew by 17.4% for oil products, 37.9% for grain, 26.2% for ferrous metals, 21.2% for forest products, 3.2% in tonnes and 4.4% in TEU for containers, 7.3% for liquid fertilizer, as well as 299.8% for vegetable oil and 116.2% for cement, among other cargo. The Group exceeded average industry growth rates for cargo such as oil products, grain, forest products and ferrous metals. This enabled the Group to completely offset the decline in transhipment of crude oil (-2.3%), bulk mineral fertilizer (-58.3%), iron ore (-39.6%), raw sugar (-59.3%) and other cargo. The Group maintained its leading market positions in transhipment of crude oil and oil products, grain and sugar, ferrous metals and timber. These dynamics were the result of a range of external factors and managements prompt action to offset negative trends and adjust the Groups operating and marketing efforts accordingly. External factors that affected the Groups performance included: Over 715 hours or 29 days of stormy weather at the port of Novorossiysk in the first quarter of 2012;

Over 715 hours or 29 days of stormy weather at the port of Novorossiysk in the first quarter of 2012; Suspension of traffic to Novorossiysk during July 7-12 2012 due to railways damaged by the flooding of July 6-7 2012, and 50% reduction of traffic to Novorossiysk during July 13-15 2012 due to extensive repairs on the North Caucasus Railway; Prioritization of traffic destined to Olympic projects in Sochi on the North Caucasus Railway; Changes in schedules for oil shipments via trunk pipelines in Russia in order to supply new export routes; Fluctuations in international demand for iron ore, the reduction of Russian exports of this commodity and greater competition with Ukrainian ports for this type of cargo; Early cessation of 2011-2012 grain export season, poor grain crop in 2012 due to droughts and flooding, and higher domestic prices, which drained grain exports in the second half of 2012. In order to maintain overall cargo turnover, to offset these negative factors and to develop promising areas of business in 2012, the Group took a number of steps to increase operating efficiency and consolidate marketing efforts, and implemented new cargo projects, including: The launch of a bunkering complex at the Primorsk Port with capacity of up to 360,000 tonnes in the first quarter of 2012; The completion of construction of LLC Novorossiysk Fuel Oil Terminal (NM T) facilities with capacity of up to 4 million tonnes per year in the second quarter of 2012 and the subsequent launch of the terminal, as well as the completion of the overhaul of PJSC NCSPs Pier No. 4 to handle oil products from this terminal; The signing of an agreement in April 2012 with Turkeys Cimsa, one of Europes largest producers of white and grey cement, to increase cement transhipment by 200,000 tonnes per year; The diversification of the cargo base with the organization of steam coal transhipment of up to 125,000 tonnes per month on a long-term basis starting in August 2012; The diversification of the oil product transhipment business with the launch of a facility to handle low-sulphur fuel at PJSC IPP with capacity of up to 150,000 tonnes per month in August 2012; The implementation of accelerated technology for processing container trains, making it possible to double the throughput capacity for rail shipments of containers from Novorossiysk Port and to reduce the average storage time of containers at terminals.

Cargo turnover of NCSP Group, mln. tonnes

158.9

Cargo turnover, total

82.0 131.1

157.0

Liquid cargo

130.4 127.3 11.8

Bulk cargo

12.6 11.8 10.9

General cargo

9.0 10.6 5.1

Containers

4.9 3.8

2012

2011

2010*

* 2010 figures do not include LLC PTP

Change in cargo turnover in 2012 compared to 2011, mln. tonnes

0.60 1.80

0.16

0.13

0.03 -0.01 -0.94 -1.15 -1.22

2.19 -2.56

2.88 158.9

157.0

Ferrous metals and pig-iron

Cargo volume 2011

Grain

UA N

Geographic structure of cargo turnover

Exports remained the mainstay of NCSP Groups cargo turnover, accounting for 95.5% of total turnover in 2012. The main export cargos are crude oil and oil products, ferrous and nonferrous metals, grain, forest products, bulk and liquid mineral fertilizers, ore and coal. Traditionally container cargo accounts for some 42% of all imported traffic at NCSP Group. Other imports include raw sugar and perishable goods. The main export destination is Europe, which accounted for 81.1% or 123.0 million tonnes of export cargo in 2012. Crude oil and oil products are primarily shipped to European countries. The second most important export destination, with 11.4% or 17.3 million tonnes of cargo in 2012, is Asia, to which Russia primarily exports ferrous metals, pig iron, oil products and grain. There were no major changes in the geographic distribution of export cargo in 2012.

Cargo volume 2012

Other

Sugar

IORM / IOC

Forest products

Oil products

Nonferrous metals

Mineral fertilizers

Container cargos

Crude oil

Geographic structure of NCSP Group Export Cargo Turnover in 2012, mln. tonnes
0.9% 1.7% 4.9% 11.4%

152 mln. tonnes

81.0%

A sia

A frica

Europe

North A merica

South A merica

Crude oil
0.5% 0.6% 0.4% 2.6%

110 830 thsd tonnes

95.9%

Europe

North A merica

South A merica

A sia

A frica

Oil products

1.0%

18.0%

3.7%

18 244 thsd tonnes

77.3%

A sia

A frica

Europe

South A merica

Ferrous metals
2.6%

20.7%

8 275 thsd tonnes

53.7%

16.1%

6.9%

Europe

North A merica

South A merica

A sia

A frica

Grain

34.6%

7 963 thsd tonnes

61.3% 1.0% 1.6% 1.5%

A frica

Europe

North A merica

South A merica

A sia

Iron ore

6.9% 25.6%

1 579 thsd tonnes

1.3%

66.2%

Europe

North A merica

A sia

A frica

Fertilizers*
14.6%

17.6%

24.6%

1 224 thsd tonnes

28.4%

14.9%

Europe

North A merica

South A merica

A sia

A frica

* Includes liquid and bulk fertilizers.

Cargo turnover by type of cargo

NCSP Groups cargo turnover is dominated by crude oil, the share of which shrank to 69.7% of the total in 2012 from 72.2% a year earlier. The second largest cargo is oil products, which grew to 12.2% of the total in 2012 from 10.5% in 2011. Despite the difficult market situation and poor harvest, the share of grains in the Groups cargo turnover grew to 5.0% in 2012 from 3.7% in 2011 on the back of a substantial increase in transhipment. The share of ferrous metals rose to 5.4% of the Groups cargo turnover in 2012 from 4.4% in 2011, while the share of containers and other cargo was virtually unchanged.

NCSP Group Cargo Turnover Structure in 2012

3.2% 0.4% 5.4% 0.5% 0.2% 0.2% 1.5% 1.1%

0.5%

5.0%

12.2%

158 905 thsd tonnes

69.7%

Crude oil Container cargos

Oil products Iron ore

Mineral fertilizers Forest products

Grain Cement

Sugar Coal

Ferrous metals Other

Crude oil
Crude oil transshipments at NCSP Group companies fell by 2.564 million tonnes or by 2.3% to 110.83 million tonnes. PJSC NCSP handled 42.585 million tonnes of oil and LLC PTP handled 68.245 million tonnes, which is 682,600 tonnes and 1.882 million tonnes less than in 2011, respectively. The main reason for the volatility of oil volumes was the change in pumping schedules in Russias system of trunk pipelines in order to ensure supplies to new export routes. Nonetheless, NCSP Group remains the undisputed leader in transhipment of oil among Russian ports, with a market share of 55.9% in 2012. The Groups oil export cargo traffic by destination breaks down as follows: 106.3 million tonnes or 95.9% of the total was shipped to Europe; 2.9 million tonnes or 2.6% to Asia; 0.6 million tonnes or 0.5% to Africa; 0.7 million tonnes or 0.6% to South America; and 0.4 million tonnes or 0.4% to North America. Exports surged by 150% to Africa and 71.7% to Asia in 2012, but fell by 83.1% to North America and 2.0% to Europe. Russias leading oil companies export crude through the Groups terminals, including Rosneft, Lukoil, TNK-BP, Surgutneftegas, Gazpromneft, Tatneft, Russneft and Bashneft.

Crude oil, mln. tonnes

2012 2011

42.6 43.3

68.2 70.1

110.8 113.4

NSCP

PTP

Oil products
Oil product transhipment made a major contribution to the Groups operating results, growing 17.4% to 19.4 million tonnes in 2012. The Groups growth in this segment far outstripped the industry average. Oil product transhipment at Russian seaports rose by 6.4% in 2012. Transhipment of diesel fuel at LLC PTP grew to 6.524 million tonnes in 2012 from 4.998 million tonnes in 2011, but fell by 1.587 million tonnes to 3.368 million tonnes at PJSC IPP. NM T handled 2.347 million tonnes of fuel oil in 2012. PJSC NCSP at Sheskharis handled 2.528 million tonnes of diesel and 3.884 million tonnes of fuel oil, 580,300 tonnes and 162,600 tonnes more than in 2011, respectively. Bunkering in 2012 amounted to 41,200 tonnes of diesel and 584,800 tonnes of fuel oil at the Novorossiysk Port, and 177,600 tonnes of fuel oil at the Primorsk Port. Of the total volume of oil products handled by the Group, 77.3% was exported to Europe, 18.0% to Asia, 3.7% to ports in Africa and 1.0% to South America. Shipments to European countries surged 40.5% while shipments to ports in South America plunged 76.3% compared to 2011, and shipments to ports in Asia and Africa were down by 33.0% and 12.1% respectively. Oil product shippers include major Russian oil companies and refiners such as Rosneft, Lukoil, Tatneft and Russneft.

Oil products, mln. tonnes

2012 2011
6.0

8.8 5.0

6.6 5.5

4.0

19.4

16.5

NSCP

PTP

IPP

Ferrous metals
The Groups transhipment of ferrous metals and pig iron surged 26.2% to 8.652 million tonnes in 2012, while ferrous metal volumes at Russian ports in general grew by 8.0%. Of the total amount of ferrous metals and pig iron handled in 2012, 53.7% was exported to Asia, 20.7% to North America, 16.1% to Europe, 6.9% to Africa and 2.6% to South America. The steepest increase in exports was 113.6% to South America, and shipments also grew 51.5% to ports in North America, 28.6% to Asia and 25.6% to Europe, while shipments to ports in Africa fell 32.0%. The main exporters of ferrous metals were Novolipetsk Steel (NLM K), Evraz, M agnitogorsk Iron & Steel Works, TM K, M echel, and M etalloinvest.

Grain
Despite a difficult situation on the grain market, NCSP Group increased grain transhipment by 37.9% to 7.963 million tonnes in 2012, while grain transhipment at Russian ports in general grew by only 22.7%. PJSC NGT handled 4.613 million tonnes of grain and PJSC NCSP handled 3.16 million tonnes in 2012, which was 1.294 million tonnes and 915,300 tonnes more than in 2011, respectively. Of the export grain handled by NCSP Group in 2012, 4.9 million tonnes or 61.3% of the total was shipped to ports in Africa; 2.8 million tonnes or 34.6% went to ports in Asia; 0.1 million tonnes or 1.6% to ports in Europe; 0.1 million tonnes or 1.5% to ports in North America; and 0.1 million tonnes or 1.0% to South America. The most dramatic increase in grain exports in 2012 was 346.6% to North America, while the steepest drop was 37.3% to European countries. The Groups largest grain clients include United Grain Company, International Grain Company, Bunge, Louis Dreyfus Commodities and Cargill, among others.

Grain, mln. tonnes

2012 2011
3.3

4.6 2.5

3.4

8.0

5.8

NGT

NSCP

Container cargo
Container cargo handling grew 4.4% to 623,600 TEU in 2012 from 597,500 TEU in 2011. This included 438,500 TEU handled at the terminals of PJSC NCSP and PJSC NLE in Novorossiysk. The LLC BSC terminal at the Baltiysk Port led the Group in terms of growth, increasing container turnover by 23.5% to 185,100 TEU in 2012 from 161,600 TEU a year earlier. Of the total amount of containers handled by the Group, 72.4% were exported to Asia, 14.6% to Africa, 12.8% to European ports, and 0.2% to North and South America. Container cargo exports to North American ports jumped 68.0%, while shipments to South America fell 66.7% compared to the previous year, and shipments were down 2.4% to Asia and 31.7% to Europe. The Groups container terminals handle vessels from the worlds leading shipping lines, including M editerranean Shipping Company, ZIM , M aersk, ARKAS, Nippon Yusen Kaisha Line, Hapag Lloyd, Evergreen, Norasia, Pacific International Lines, and Fesco.

Containers, thsd. TEU

2012 2011

166.1 169.2

272.4 266.7

185.1 161.6

623.6 597.5

NSCP

NLE

BSC

Additional port services and ship repair

NCSP Group also provides a broad range of other port services, such as storage and repacking of cargo, processing of customs and shipping documents, as well as auxiliary port fleet services such as bunkering, tug and mooring services, firefighting services and waste collection. Towing services (nominal total volume of ships) amounted to 912.8 million cubic meters in 2012, including 532.7 million cubic meters by NCSP Fleet at ports in the Azov-Black Sea basin, and 380.1 million cubic meters by SFP at ports in the Baltic basin. Diesel fuel and fuel oil bunkering, drinking water supply services, firefighting services and waste collection services provided by NCSP Fleet in 2012 amounted to 312,500 tonnes, 1.1 million tonnes, 137.6 million cubic meters and 6.8 million cubic meters respectively. The NSRZ shipyard carried out contracts to repair 16 ships in 2012, including five ships for NCSP Fleet, two for the Russian Federal Security Services Border Department for Krasnodar Territory, and nine ships for other customers.

Remediating the consequences of the flooding of 6-7 July 2012

Professional and courageous actions of all NCSP Group employees in Novorossiysk enabled advanced warning of the flooding and swift emergency response actions on the night of July 6-7, 2012. As soon as warning of the flood was received, a 24-hour emergency response center was set up at the port. The emergency rescue teams of PJSC NCSP and other Group companies worked alongside the emergency services of the city and ports administration. On the night of July 6-7 PJSC NCSP Fleets vessels were able to localize and clean up oil products spills in the Tsemes Bay almost immediately. M eanwhile, the rapid response of workers at oil terminals onshore prevented possible contamination of land and harbor. In most challenging conditions NCSP Group employees managed to maintain equipment in an operational state even within the flood zone, enabling the Group to restore power supply quickly, and resume loading operations within 24 hours, as well as get treatment facilities running again, clean up the ports and pump water from flooded buildings. Operations were restored on July 7 at PJSC NLE, PJSC NSRZ, and PJSC IPP. Loading operations with water-resistant cargo were resumed at PJSC NCSPs container terminal and the Western pier. The Administration of the Novorossiysk Sea Port expressed its gratitude to NCSP Group companies for their wellcoordinated and professional emergency response effort during the flooding.