QUALITY FOR CHANGING,CHANGING FOR QUALITY

54th EOQ Congress, A Heritage for the Future “Quality”

Kenan YAVUZCEO,

SOCAR&TURCAS Enerji A.Ş.PETKİM Yönetim Kurulu Üyesi

October 27, 2010

STEAS Snapshots

▬ STEAS is a JV between the State Oil Company of Azerbaijan Republic (51%), Turcas Petrol (25%), and Aksoy Holding (%24)

▬ STEAS has acquired Petkim with the long-term intention of creating Oil, Refining & Petrochemicals Integration.

STEAŞ

▬ SOCAR, with large-scale investments in Azerbaijan is one of the world’s oldest petroleum companies.

▬ SOCAR is a shareholder and major supplier of the 50 million ton capacity BTC crude oil pipeline and the BTE natural gas pipeline, which transports 6,6 billion cubic meters of natural gas to Turkey

SOCAR

▬ TURCAS is the first privately-owned petroleum company in Turkey focusing on distribution of oil products and energy investments through its international strategical partnerships

TURCAS

PETKİM PROJECT A bridge linking Caspian and the Aegean

Group Structure

STEAŞSOCAR & TURCAS Energy Inc.

PETKİMPetkim Petrochemical Holding Inc.

STRAŞSOCAR & TURCAS Refinery Inc.

OTHER SUBSIDIARIES

Our VisionTo be a regional force in the refinery sector

Our ObjectiveTo compensate the supply of Turkish

Petroleum Products Market by manufacturing by the year 2014

Our VisionTo be a leader company who has a

Refinery-Petrochemical-Energy-Logistics integration in the area covers Turkey,

Azerbaijan and their neighboring countriesOur Objective

To be the greatest industrial production force of Turkey by accomplishing the

Refinery-Petrochemical-Energy-Logistics Integration until the year 2018

Our VisionTo Become A Regional Force in the

Petrochemicals sectorOur Objective

To Achieve Domestic Market Share of 40% by 2018 through Sustainable Growth

VISION & OBJECTIVES

A powerful symbol of economic cooperation

Petkim’s Privatization

ALİAĞA COMPLEX (20.000 m2) Factory Area 6,394Housing Area 2,012Güzelhisar Dam 7,008Çayağzı Area 2,929Other 1,502Total 19,845

Site & Localization

PETKİM Snapshots

▬ 1.564 thousand tons of gross production realized in H1 2010▬ Realized capacity utilization rate of 95,4% (planned as 96% in

2010)

▬ Established in 1965/Second complex commissioned in 1985▬ The sole petrochemical producer in Turkey ▬ 25% domestic market share and well positioned assets in an

ever growing market▬ USD 921 mn net sales (H1 2010)▬ USD 68 mn EBITDA (H1 2010)

▬ Naphtha, LPG, C4, Condensate▬ Main product groups Olefins, polyolefins, chlorine vinyl

chain, aromatics and other basic chemicals

▬ 15 main plants, 8 auxiliary units▬ Located in Aliağa near İzmir.▬ Sit on the land of 1,900 hectares (4,700 acres). ▬ Port, Dam, Power generation unit▬ Adjacent to Tüpraş Aliağa Refinery

PETKIM

PLANTS

MAIN FEEDSTOCKPRODUCTS

PRODUCTION

1965 : Establishment of Petkim

1984 : Plants at the Aliağa complex begin production.

1996 : PETKİM is certified by T.S.E. According to ISO 9002 Quality Assurance System.

2004 : PETKİM general cargo jetty is opened for service to third parties.

2006 : First self-assessment according to EFQM

2007 : Following investments totaling USD 90 million, a 57 MW Gas Turbine and its related Waste Heat Recovery System go into operation at the Steam Production and Electric Power Generation Units

2008 : The official sale of the state-owned 51% block of shares in PETKiM to the second highest bidder, the SOCAR & TURCAS Consortium, for USD 2.04 billion, is formally completed.

2009: Petkim certified ISO 9001:2008-Quality management systems, ISO 14001:2004-Environmental Management Systems and TS 18001:2008-Occupational health and safety management systems by T.S.E.

Important Milestones

1 Ethylene (520,000), VCM (152,000), PA (34,000), Chlorine (100,000), Benzene (134,000), MB (10,000), Plastic Products (4,000)

ETHYLENE 520 PROPYLENE 240C4 140 PY-GAS 390AROMATICS 346

BENZENE 160P-X 136O-X 50

CHLORINE 100 VCM 152 PVC 150 LDPE 334 HDPE 96 PP 144 MEG 89 ACN 90 PTA 70 PA 34 Power (MW) 226

Product Capacities (thousand tons)

PETKIMALIAGA COMPLEX

START-UP 1985

TOTALCapacity 1,916,000 ton/yr

Other Products1Capacity 954,000 ton/yr

Fiber Raw MaterialsCapacity 249,000 ton/yr

ThermoplasticsCapacity 713,000 ton/yr

PLANT CAPACITIES

Petkim : Products and Capacity

▬ Turkey’s only manufacturer of petrochemical products

▬ 15th in Turkey and 1st in Aegean Region among 500 Industrial Enterprises

▬ The second most chemical products exporting company in Turkey.

▬ Third among the companies that realized the highest production in Aegean Region.

▬ Fourth among the companies that provided the highest employment in Aegean Region.

▬ Fourth among the companies that realized the highest export in Aegean Region.

▬ Fifth among the companies that realized the highest investment in Aegean Region.

How Big is Petkim ?

Petkim’s Ethylene Capacity :• 2% of Europe, • 0.4% of the World

How Big is Petkim ?

General Overview of Turkey

MARKET SIZEThe strongest point of Turkey in competitiveness

15th in market size

Source: WEF, Global World Competitiveness Report, 2009-2010

Place of Turkish Companies Among the World’s Largest 2000 Companies

▬ Garanti Bankası 274▬ İş Bankası 288▬ Akbank 343▬ Sabancı Grubu 414▬ Halk Bankası 534▬ Vakıfbank 609▬ Türk Telekom 666▬ Turkcell 683▬ Enka 934▬ THY 1507▬ Doğan Holding 1872

* Calculated based on the Market values of the companies at 1 March 2010

Kaynak:FORBES

Forbes Journal ‘Global 2000’ Research

▬ Globalizing Markets – Increasing Global Trading

▬ Decrease in the Profitabilities

▬ Widespread of Information and Communication Technologies

▬ Price Competitiveness

▬ Increased Customer Expectations

▬ Important Change in Manufacturing Centers

▬ Accelerated and Easy Access to the New Technologies

Outlook

Structural TrendsIncreasing Globalization Effect of the private and public companiesIncreasing legal obligations

Long Term TrendsOil/ Gas pricingPeriodicity in the profitabilityShifting to raw materials and active markets

CompetitivenessSmoothing of the supply curveIncreasing complexity and mobility in the marketsRapid Commercialization

Strategical OutlookSurvival CapabilityOperational ExcellenceMinimal Environmental ImpactMore Customer OrientationExcellence Risk Management

Leadership Best in the class for costsProduct or Market Advantage Superiority in organizational ability

Shifting from the survival to the leadership, requires a deep viewpoint and an open vision at the sectoral position

Source:CMAI

Strategical Outlook: Never Had Became So Much Important

Sustainable development is the way to program the life and development of today an tomorrow by;

▬ establishing a balance between human and nature,

▬ without consuming natural resources,

▬ allowing to meet the needs of next generations and developing.

Sustainability

These names were forgotten within 10 years▬ ICI▬ BP Chemicals▬ Hoechst▬ Petrofina▬ Union Carbide▬ Ciba Geigy▬ Rhone Poulenc▬ Veba/Huels

These names were absent 10 years ago▬ Ineos Capital▬ Access Industries▬ Clariant▬ Invista▬ Sabic Europe▬ Lanxess▬ Arkema

•Sabic purchased DSM in Netherlands, Huntsman (Wilton) in UK andPolymers and engineering plastics department of GE in the USA

•Purchasing of Lyondell by Basel with a value of 19.5 Billion $ was the biggest handover in 2007

Source:CMAI

Western Europe’s Changed Owners

CRUDE OIL REFINERYPETROCH.

PRODUCERPOLYMER

PRODUCER

POLYMER

PROCESSORMANUFACT.

LOW OIL PRICES INCREASE THE PROFIT IN SUBSECTORS

HIGH OIL PRICES DECREASE THE PROFIT IN SUBSECTORS

▬ End-user needs▬ Supply demand balance▬ Competition dynamics

▬ Raw Material Prices▬ Energy Costs▬ Invested Capital

Increase

importance

Value Chain in the SectorValue Chain in the Sector

Source:ICIS

Increase

importance

Changing Field in Competition

Basic Chemicals

Semi-Products Special Products Services

BEFORE

NOWProfitability stucked between the special

chemicals and intermediates

Low cost suppliers Solution providers

ROCE driving companies Innovation driving companies

Source:ICIS

Basic Chemicals

LAYOUT

SCALE

TECHNOLOGY

GLOBAL ACCESS

Synergy captured through the integral management structure of the plants at a definite region

Coastal layout for a good logistic

Reliable, renovated, low cost

Produce that you can sell most actively

Ability to offer the products to the regional markets

INTEGRATION/CLUSTERING

Critical Success Factors for Low Cost Manufacturers

Source:ICIS

Maximum manufacturing with minimal fixed cost

TIME SCALE

APPLICATIONS

TECHNOLOGY

GLOBALOUTLOOK

A multidisciplinary powerful research team

Development period of 5-10 years

Patent protected advanced technology

Produce that you can sell most actively

Opportunities to reach the sectors and regions

RESEARCH

Critical Success Factors for Specific Product Manufacturers

Source:ICIS

World leadership in specific fields, close cooperation with the main customers

Ethylene capacity at world scale

0 250 500 750 1000

1965

1975

19851995

2005

2010

1000 ton/year

1000-1500 ton/year

750-850 ton/year

450-550 ton/year

300-550 ton/year

150-250 ton/year

50-60 ton/year

World scale capacity x1000

Ethylene Production Capacity

World Average

PETKİM Capacity

Change by Years of the Scale Economy

Changing Scale Economy

A large scale company, can product alone the quantity that is produced by many of the companies coming together with a much lower cost.

In petrochemical industry, the technology licensors have resorted increasing the reactor capacities to lower the fair values. Many of Polyethylene and Polypropylene licensors present at least 400.000 ton/year of single line capacity.

Source:Nexant

Cost

Average Total Cost

Product Quantity

▬ As operating experience increasing, the costs reduce depending on the technological development at the petrochemical plants and the improvement realizing at the management.

▬ Cost reductions indicate the correlation between current output and fixed costs at the Experience Curve

▬ In petrochemical sector, two times increasing at the current output causes to 25% reduction in the fixed costs.

▬ A reduction is observed in the other costs in PP and AYPE except the price of propylene and ethylene since 1990.

POLYPROPYLENE

LOW DENSITY PE

Source:Nexant

Experience Curve Effect

SalesPrice

ActualCost

profit profit

Cost +Profit = Price Price - Cost = Profit

Increasing the pricesIncreasing the prices Decreasing the costsDecreasing the costs

Changed Cost Concept

Compatibility with changing market conditions

Employees and per Capita Efficiency

13IMPROVEMENT / EFFICIENCY

Energy12,0%

Raw Material74,0%

Labour6,0%

Others8,0%

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008 20090

1000

2000

3000

4000

5000

6000

7000Marketable Production Per Capita (ton) (Left Axis)# of Employees (Right Axis)

Efficiency in Raw Material Cost ▬ Feedstock Flexibility (The use of LPG in

addition to the Naphtha)

▬ Operating times of plants were extended.

▬ Debottlenecking type investments were done in order to increase production capacity.

Labor Efficiency ▬ Increased capacity, reduced number of

employees

▬ Marketable production per capita was 584 in 2009, while it was 378 in 2006.

▬ Per capita revenue was increased to a value of $551.000 in 2009 from the value of $411.000 in 2006.

Working capital management by condensed cash flow cycle

Unit Energy Consumption

13Energy Efficiency

266427342876

27552854

28042682

308129412928

27742950

2827

277289271265271268

283

218

260269269

253 254

Sep Oct Nov Dec 10.Oca 10.Şub 10.Mar Apr.10 May .10 10.Haz 10.Tem 10.Ağu 10.Ey l

Unit Energy Consumption Gross Product

Efficiency in Energy Cost ▬ Energy efficiency mobilization was declared

▬ Energy efficiency teams was established .

▬ Debottlenecking type investments were done in order to increase production capacity.

PETKİM Energy&Loss Team Activities: ▬ Optimization of Pumps and Compressors

▬ Efficient Electric Motors and DHS

▬ Optimization of Steam Consumption within the Complex

▬ Decrease in Air and Nitrogen Consumption

▬ Change of unproductive and damaged isolations through the Complex.

Operational Improvement Programme by SGS (Shell Global Solutions)

▬ ISO-9000 Quality Management System Certificate was received in 1996

▬ EFQM Excellence Journey was introduced in 2004

▬ Vision, Mission, Principles and Values were created following the Strategic Management Reviews in 2005

▬ Total Quality Concept was deployed to all employees

▬ Corporate Performance Management was established and the performance of all white collar employees began to be measured through Balanced Scorecard method.

Strategic ManagementStrategic Management

In order to increase the contribution to Improvement Works and to provide increase in the productivity;

▬ Petkim Suggestion System (PETÖS)

▬ Cost Reduction and Process Improvement Teams

▬ Improvement Project Teams were established.

HOW CAN I DO MY WORK BETTER ?

ImprovementImprovement

Vernacularization

Our replacement parts need is met by the manufacturers from Izmir by 80%. Replacement parts of 600.000 $ were vernacularised in 2009.

▬ Heat exchangers one of heavy machinery industry group products were produced in GİMAS Makine Sanayii A.Ş. and HAVATEK Makine Sanayii A.Ş. Companies located in Çiğli.

▬ The rotary dryer ring belongs to YYPE plant with 2,7 m diameter is produced in TİBET Makine located in Menemen.

▬ K-202 B/P Compressor Body of AYPE Plant which is 10 tons in weight has been cast in AKDAŞ DÖKÜM Company located in Ankara and its manufacturing continues.

Listening to the Voice of Customer

TARGET40% MARKET SHARE

Continuous Customer Visits accompanying by the leaders

Customer Information System receives the

complaints, demands and satisfactions of the

customers

Annual Customer Satisfaction

Surveys

What is going on the

market ?

MARKET / CUSTOMER INFORMATION

Quality and Sustainable Development

Quality oriented working concept andContinuously increasing product quality

Customer support with R&D and technical information capacity

With Quality, Environment, Occupational Health and Safety Management Systems; Quality oriented, People and Environment Sensitive production concept

With EFQM Excellence Model Business Excellence Targeted Management

Annual Self-AssessmentRegularly

EFQM

Enterprise Resource Planning (ERP)

Refinery Investment

Wind and Solar Energy Investments (Renewable)

Logistics and Port Investments

e-Ticaret

Outsoursing

ERP

MRP

Proses Kontrol

1975 1980 1985 1990 1995 2000 2005

e-Ticaret

Outsoursing

ERP

MRP

Proses Kontrol

1975 1980 1985 1990 1995 2000 2005

Changing role of the IT Technologies in Chemical Industry

Investments and Projects

34

ERP: Enterprise Resource Planning

▬ Cluster Model in growth and development of the regions/countries today

▬ There is a close relationship and intensive knowledge exchange among the economical actors such as companies, research institutions, technology development centers and intermediary companies mostly resulting from the close distance among them.

▬ These economical actors undertake a complementary role for each other.

▬ Existing infrastructure and potential labor force in the region are used.

Chemical Industrial Parks (Cluster Model)

Improving Productivity by Cluster Model

A STRUCTURE EITHER

PETROCHEMICAL CENTEREDAND/OR

PETRO-REFINERY CENTERED, TOGETHER WITH

ITS SMALL AND MEDIUM SIZED ENTERPRISES (SME’s), SUB-

INDUSTRIES, RESEARCH INSTITUTES, TECHNOLOGY DEVELOPMENT CENTERS,

INNOVATION SUPPORT INSTITUTES, WHERE COMPANIES EXCHANGE

PRODUCTS, SHARE LOGISTICS, ENERGY AND

HUMAN SOURCE AND GAIN COMPETITIVE ADVANTAGE

CLUSTERING MODELIMPORTANT CLUSTERING EXAMPLES:• WILTON INTERNATIONAL, TEESSIDE, ENGLAND• MARL CHEMICAL PARK, GERMANY• JURONG ISLAND, SINGAPORE

▬ BASF Ludwigshafen▬ Dow Value Park▬ CeChemNet▬ ChemCoast▬ ChemCologne▬ Chempark▬ ChemSite▬ Industrial Park

Gersthofen

▬ 129.7 Billion EUR export in 2007 , ▬ Trading volume: 173.6 Billion EUR ▬ Total sales 162 Billion EUR, ▬ 25% of the Chemical Sales in Europe▬ 75% of the sales is Export ▬ Average annual increase + % 4.2▬ Capital expenditure 6.4 Billion EUR, ▬ R&D Expenditure 9.5 Billion EUR ▬ 32.2 Billion EUR foreign investment in

2006

▬ MARKET – Germany is the undisputed leader of both Europe and the world. ▬ CHEMICAL PARK and SITES - strategically managed industrial parks; "plug and play." application▬ SECTORAL INFRASTRUCTURE – Logistic network in the center of Europe▬ PERSONNEL – 441,000 trained staff work in the sector in Germany▬ R&D - 58 chemical faculties of the universities and German Government support the researches. ▬ INCENTIVES – A wide range of incentives for the investors ▬ STABLE INVESTMENT ENVIRONMENT - Social, economical and political stability.

ADVANTAGES

GERMANY REALITY

THERE ARE 35 CHEMICAL INDUSTRIAL PARK IN GERMANY

Singapur Model (Jurong Island)

▬ 7 small islands in the beginning (991 ha), total 3.200 ha with the areas obtained by reclamation.

▬ Having 150 companies 3 crackers 30.000 staff, Estimated investment cost: 25 Billion $

▬ Total turnover is expected to be 75 billion $ in 2010.

SINGAPORE TURKEY

Surface Area 622 Km2 814.578 Km2

Population 4.484.000 people 71.517.100 people

Refinery Capacity 65 M. tons/year 28 M. tons/year

Petrochemicals Production 15.4 M. tons/year 3 M. tons/year

Ethylene Capacity 2.040.000 tons 520.000 tons

Gross National Product - GNP(2007)

28.940 $ 7.500 $

Great Domestic Product -GDP 132.155 M. $ 937.267 M. $

▬ World Class Infrastructure▬ Perfect Integration▬ Equipped Manpower▬ Great Research and Development

Opportunities▬ Comprehensive Security Network

LogisticsUtilities

Supporting Facilities

Downstream Petrochemical Plants

IntermediatePetrochemical Plants

“Cracker”

Refinery

Integration Chain

We target to increase our

PRODUCTIVITY

&

COMPETITIVE POWER

by realizing Cluster Model

&

becoming the biggest

petrochemical and logistics centre on Petkim Site

Cluster Model Project

Creating Efficiency by Clustering ModelIN ORDER TO REALISE THE CLUSTER MODEL IN PETKİM

PENINSULA, WE TAKE THE CONSULTANCY SERVICES FROM JURONG INTERNATIONAL

Turkish Society is Open for Changing

Her gün bir yerden göçmek ne iyi

Her gün bir yere konmak ne güzel

Bulanmadan donmadan

Akmak ne hoş

Dünle beraber gitti cancağızım

Ne kadar söz varsa düne ait

Şimdi yeni şeyler söylemek lazım

What a good to migrate everyday from somewhere to another place,

What a nice to perch everyday to a place,

What a nice to flow.Without getting dirty and without

freezingMy sweetheart has gone with

yesterday.A lot of words about yesterday,

Now, must say new things.

MEVLANA

THANK YOU

SOCAR & TURCAS Enerji A.Ş.SOCAR Plaza, Büyükdere CaddesiNo 47 Kat 3 Maslak İstanbulTel : 0 212 276 43 40 Faks : 0 212 276 43 50www.socarturcas.com.tr