Annual Report 2007 - Severstal

Risks
Operational risks
Investment effectiveness
Personnel
Industrial safety and
environmental protection
Description of risks
Technological and technical risks
The risk of errors in implementing design works and manufacturing
operations.
Risk of delays with starting up equipment. These risks may lead to
lost time and an increase in the overall cost of the project. This may
ultimately have a negative influence on the financial results.
There is also a risk of personnel error while working with unfamiliar
equipment, which may lead to breakdowns, downtime,
manufacturing of low-quality products and the subsequent
loss of profits.
Risks tied to the acquisition of new assets
The risk of investments with low effectiveness.
The growth in average labour costs as well as a shortage of
personnel, especially among qualified workers, is a significant risk
for the metallurgic industry.
The metallurgic and mining industries are potentially dangerous for
people and for the environment. In recognition of this, companies
in these industries are obliged to meet strict labour safety
requirements, the provision of industrial and fire safety precautions,
and environmental protection.
The consequences of accidents or fires may lead to additional
expenditure to restore damaged buildings and equipment, as
well as the additional expenditure needed to observe contract
obligations for the delivery of products or services to customers.
Risks involving a potential threat of labour disruption or illness
among the workforce may lead to increased costs for additional
measures to guarantee the safety of production processes,
technologies or equipment.
Measures to reduce the risks
Severstal exercises a well-developed and economically-grounded
investment programme for the modernisation of equipment and
construction of new production facilities. All of the work is done in
accordance with our investment plan.
To neutralise the technological and technical risks, Severstal is very
careful in choosing contractors for construction, installation and
launch of equipment. The company also has a complex
programme of personnel training.
We acquire new companies only after very careful analysis,
including a discussion of the Board of Directors, half of whom
are Independent Directors.
Severstal is working to increase labour productivity as well as
carrying out personnel optimisation and implementing various
motivation programmes.
Each of Severstal’s businesses develops and implements a plan
aimed at excluding or minimising risks that present potential
danger to people and to the environment.
These measures include:
– Investments in modernisation and re-equipping existing
production facilities aimed at guaranteeing safe production
and a reduction in its negative effects on the environment
– Creation of complex systems of industrial safety, especially
for our mining businesses
– Constant personnel training in production safety
– Strict internal controls to ensure the necessary regulations
and operational procedures are followed
– Timely fulfilment of certification procedures for the
company’s equipment
– Insuring buildings and equipment from damage in case
of accidents
– Insurance of losses from suspension of operations in form
of the compensation for certain fixed expenses
– Insurance of obligations to third parties pertaining to materials
damages or environmental damages
– Obligatory personnel insurance against accidents and illnesses
in the workplace.
Severstal Annual Report 2007 31