CORRAL PETROLEUM HOLDINGS AB (PUBL) - Preem

purchase a minimum of 10% to 20% of our total emission allowance requirements in order to comply with the stipulatedenvironmental regulations. In addition, the EU adopted even stricter restrictions on the sulphur content of gasoline anddiesel, which took effect on January 1, 2009. Although we already produce diesel and gasoline in compliance with theEU’s 2009 specifications, we may be required to incur additional capital expenditures if more stringent standards areimplemented in the future.We are also subject to laws and regulations relating to, among other things, the production, discharge, storage,treatment, handling, disposal and remediation of crude oil and refined petroleum products and certain materials,substances and wastes used in our operations and other decontamination and remedial costs. For example, the system inthe European Union for registration, evaluation and authorization of chemicals (“REACH”) is expected to be among themost significant environmental issues affecting our operations in the future. REACH required companies, including us,to register and perform risk assessments in relation to certain regulated substances. During 2010, all of Preem’s productswere successfully registered as required under REACH. Our failure to comply with any of these requirements, which insome cases would constitute a criminal offense, would subject us (including individual members of management) to finesand penalties and may force us to modify our operations. In addition, we require a variety of permits to conduct ouroperations. From time to time, we must obtain, comply with, expand and renew permits to operate our facilities. Failureto do so could subject us to civil penalties, criminal sanctions and closure of our facilities. The risk exists that we will beunable to obtain or renew material permits or that obtaining or renewing material permits will require adopting controlsor conditions that would result in additional capital expenditures or increased operating costs.Our oil refining transportation and distribution activities are also subject to a wide range of supranational,national, regional and local occupational health and safety laws and regulations in each jurisdiction in which we operate.These health and safety laws change frequently, as do the priorities of those who enforce them. Any failure to complywith these health and safety laws could lead to criminal sanctions, civil fines and changes in the way we operate ourfacilities, which could increase the costs of operating our business.We are subject to strict Swedish and European competition laws, which limit the types of supply, sales,marketing and cooperation arrangements we can enter into, and may subject us to fines, damages and invalidity of suchagreements or certain provisions thereof. Legal action by the Swedish Competition Authority, other regulatoryauthorities or any related third party claims may expose us to liability for fines and damages.Changes in legislation or regulations and actions by Swedish and other regulators, including changes in tax lawsor administration and enforcement policies, may from time to time require operational improvements or modifications at,or possibly the closure of, various facilities or the payment of additional expenses, fines or penalties. We cannot predictthe nature, scope or effect of legislation or regulatory requirements that could be adopted in the future or how existing orfuture laws or regulations will be administered or interpreted in the future. For instance, based on recent energylegislation effective from January 1, 2009 to December 31, 2011, each of our refineries was reclassified as an electricityintensive business. This means that during this time period we do not need to purchase electricity certificates, which weestimate would otherwise have cost approximately SEK 30 million per annum. From January 1, 2012, we will need toapply to keep such classification, which may not be approved. In addition, Preem has been granted extensions to thedispensation from its obligation under Swedish law to provide renewable fuel at 140 of its service stations. However, thedispensation will expire for 21 stations as of June 30, 2011, will expire for 21 stations as of December 31, 2011, and willexpire for the remaining 98 stations as of June 30, 2012. While we believe that Swedish law may change in the nearfuture with respect to the requirement, there can be no assurance that such changes will take effect in the near future or atall. Preem will apply for further extensions of these dispensations, but there can be no assurance that such extensionswill be granted or that Preem will not have to make substantial capital expenditures to upgrade these stations uponexpiration of the applicable dispensation. We estimate that the investment required would average approximately SEK500,000 per station.We expect that the refining business will continue to be subject to increasingly stringent environmental andother laws and regulations that may increase the costs of operating our refineries above currently projected levels andrequire future capital expenditures, including increased costs associated with more stringent standards for air emissions,wastewater discharges and the remediation of contamination. Consequently, we may need to make additional andpotentially significant expenditures in the future to comply with new or amended environmental and energy laws andregulations. We may not have sufficient funds to make the necessary capital expenditures. Failure to make these capitalexpenditures could negatively impact our business, financial condition and results of operations. It is difficult to predictthe effect of future laws and regulations on our financial condition or results of operations. We cannot assure you thatenvironmental or health and safety liabilities and expenses will not have a material adverse effect on our financialcondition or results of operations.We may be liable for environmental damages, which could adversely affect our business or financial results andreduce our ability to pay interest and principal due on the Senior Secured Notes.We believe that the risk of significant environmental liability is inherent in our business. We are subject to risksrelating to crude oil or refined product spills, discharge of hazardous materials into the soil, air and water, and otherenvironmental damage. Our feedstock and refined products are shipped to and from our refineries in tankers that pass5