Q&A with our Chairman, Andrey Melnichenko

Q. Why is corporate governance a priority for a privately-held company?

A. I see three key benefits to ensuring that EuroChem has sound corporate governance systems in place. First, it helps me to be sure that the company is well run, from the Board of Directors down to the plant level and line management; this business involves risks that must be carefully monitored and managed, and we have instituted practices that help management and the Board receive information in a timely manner in order to make informed decisions based on an accurate understanding of the situation. Second, by investing time in building good corporate governance practices over a number of years we have been able to figure out what works and what doesn’t in our company. Right now we have a stable Board that knows the business and the industry well, and we are able to concentrate on strategically important issues like maintaining or improving our global competitive positions in N and P while dedicating the necessary attention to our significant investments into potash. Finally, it is a question of shareholder value – good corporate governance that has been in place for a number of years and functions well helps to create sustainable value for EuroChem in the long term.

Q. What is expected of the Directors?

A. We are not just looking for big names: the Directors must have a strong understanding of our business, and bring value to the table. The current Board has been in place for four years now, and the Directors have served through one of the most challenging times for our industry. They have had time to gain a deep understanding of both EuroChem and the global industry in which we work. To ensure they have a first-hand understanding of the business and its operations, the Directors also visit at least one operating facility per year: in 2010 we reviewed the construction underway at Volgakali, and in 2011 we plan to visit the Kovdorsky GOK mine and enrichment facility. These site visits enhance our understanding of the state of each facility and its operations, as well as provide us with an opportunity to see the sites for which we consider investments and strategic development plans.

Q. Where is the balance between having first-hand knowledge of the company and getting too involved in day-to-day management?

A. I think that we have figured out the right formula at EuroChem: all of our Directors are involved in management briefings and strategic decision-making on our current production activities, major investment projects and the development of our distribution network. Thanks to this level of understanding of the company’s assets, combined with a first-hand knowledge of nearly all of the strategic decisions that were taken on the activities that management is currently executing, we are well positioned to hold management accountable. The Directors know what was intended and what was agreed, on short-term and long-term targets, annual budgets or strategic plans – and this means they don’t have to get involved in actual day-to-day operations.

Q. How does the Board stay informed about key strategic projects and strategic risks?

A. The Board and management have been working together for four years now and have established a working relationship based on trust and understanding. This has not always been a simple process, but the Directors feel that communication is good. At the same time, we have worked hard to develop information systems to provide management and Directors with timely and regular reporting on the operations and financial position of the company. This has been one of the priorities of our risk management desk, and is supported by IT systems that give us access to up-to-date operational and financial data.

Q. How do you view yourself against your peers in terms of transparency and disclosure?

A. Our benchmarks are the leading global companies in the fertilizer industry. Timely reporting and disclosure was an important area in 2010 and we are making measurable progress. The Board set goals for management to achieve tighter deadlines for IFRS reporting, while also maintaining the quality and accuracy of the company’s financial disclosures. This has helped EuroChem to become one of the leaders among Russian corporates in its financial reporting. The Board also reviewed new corporate disclosure and crisis communications policies aimed at ensuring that the company’s counterparties are informed of material information in a timely and systematic manner.