Grupa Azoty S.A.

Environmental & Social Information • Apr 19, 2018

Consolidated statement of payments to governments for 2017

Contents

1.	General information 3
1.1.	Basis of preparation3
1.2.	Description of the Group 3
1.3.	Upstream operations3
2.	Payments to governments by country5
3.	Payments to governments by project 6
4.	Policies followed in the preparation of this report on payments to governments7
4.1.	Key preparation policies7
4.2.	Key presentation policies7

1. General information

1.1. Basis of preparation

This consolidated report on payments to governments has been prepared in accordance with the provisions of Section 6a of the Accounting Act of September 29th 1994 (Dz.U. of 1994, No. 121, item 591, consolidated text: Dz.U. of 2018, item 395), and presents payments to governments made by the Grupa Azoty Group with regard to the upstream sector.

To satisfy the requirements of Art. 63e–Art. 63j of the Accounting Act, the Grupa Azoty Group prepares a consolidated report on payments to governments including information on:

• Total amount of payments made to governments in a given country, broken down into payments made at appropriate government levels,
• Total amount of payments made to governments in a given country, at appropriate government levels, broken down into payment categories set out in Art. 63e.6 of the Accounting Act,
• Where payments have been assigned by the entity to a specific project − total amount of payments for each project, broken down into payment categories set out in Art. 63e.6 of the Accounting Act.

Grupa Azoty S.A., as the parent of the Grupa Azoty Group, is obliged to issue a consolidated report on payments to governments as at December 31st 2017, including data of the Group companies operating in the upstream sector.

Payments to governments presented in this statement are related to the exploration for, appraisal and production of sulfur in Poland and phosphorites in Senegal.

1.2. Description of the Group

The Grupa Azoty Group consisted of Grupa Azoty S.A. (the parent) and nine subsidiaries.

The Parent was entered in the Register of Businesses in the National Court Register (entry No. KRS 0000075450) on December 28th 2001, pursuant to a ruling of the District Court for Kraków-Śródmieście in Kraków, 12th Commercial Division of the National Court Register, dated December 28th 2001. The Parent's REGON number for public statistics purposes is 850002268.

Since April 22nd 2013, the Company has been trading under its new name Grupa Azoty Spółka Akcyjna (abbreviated to Grupa Azoty S.A.).

The Grupa Azoty Group is one of Central Europe's major chemical groups with a strong presence on the market of mineral fertilizers, engineering plastics, OXO products, and other chemicals.

Grupa Azoty has brought together companies with different traditions and complementary business profiles, seeking to leverage their potential to deliver a common strategy. This has led to the creation of Poland's largest chemical group and a major industry player in Europe. Thanks to its carefully designed structure, the Group offers a diverse product mix, ranging from nitrogen and compound fertilizers, engineering plastics, to OXO products and melamine.

1.3. Upstream operations

The Grupa Azoty Group includes two subsidiaries operating in the upstream sector: Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A. and African Investment Group S.A. of Senegal.

Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A.

Sulfur is produced at the Osiek Sulfur Mine, based on a closed-loop system for heat and formation water.

On the premises of the Osiek Sulfur Mine, there is a sulfur granulation and pastillation unit enabling transformation of liquid sulfur into granules (sized 0.5mm–6.3mm) and pastilles. The key purpose of the granulation and pastillation processes is to facilitate and reduce the cost of long-haul transport (by sea). The Osiek Sulfur Mine is the only operational sulfur mine in the world. Sulfur is typically obtained through refining crude oil and natural gas. This product is economically competitive to sulfur extracted using the underground melting method as the costs of its production are charged to the main product – oil or gas.

African Investment Group S.A.

The company's business includes exploration for and extraction of mineral resources under exploration licence. It is also involved in document drafting and applying for the required licences and concessions.

The company made payments to governments mainly with respect to the Kebemer project.

The Kebemer project is pursued within the area of the Senegal-Mauritania sedimentary basin, where phosphorites are widespread and their presence at current extraction sites is documented. The project area is located near Kébémer, 160 km from Dakar, where the company carries out activities related to exploration for phosphorites.

2. Payments to governments by country

Payments by country in 2017

	Taxes levied on income, production or		Licence fees, rental fees,
	profits, excluding taxes levied on consumption, such as value added taxes,	entry fees, and other considerations for licences
	personal income taxes or sales taxes	Royalties	or concessions	Total
POLAND:
Central and local authorities:
Tax Office in Kielce	528	-	-	528
County Councils	-	-	182	182
Marshal Office	-	197	-	197
Regional Directorate for State Forests in Radom	-	344	-	344
Customs Chamber in Kraków	494	-	-	494
National Fund for Environmental Protection and Water Management	-	444	-	444
Undertakings supervised or controlled by the authorities:
Municipality and Town Municipal Offices	-	609	7,980	8,589
POLAND TOTAL	1,022	1,594	8,162	10,778
SENEGAL:
Central, regional and local authorities:
General Directorate for Taxes and State Treasury: tax office, local government	2,637	-	-	2,637
General Directorate for Customs	171	-	-	171
SENEGAL TOTAL	2,808	-	-	2,808
TOTAL PAYMENTS	3,830	1,594	8,162	13,586

3. Payments to governments by project

Payments by project in 2017

	Taxes levied on income, production or profits, excluding taxes levied on consumption, such as value added taxes, personal income taxes or sales taxes	Royalties	Total
Payments at project level			or concessions
Sulfur Production Project	386	1,015	-	1,401
Kebemer1)	2,044	-	-	2,044
Total projects	2,430	1,015	-	3,445
Payments at entity level
Payments at the level of Grupa Azoty KiZCh Siarkopol S.A.2)	636	579	8,162	9,377
Payments at the level of African Investment Group S.A.)	764	-	-	764
Total payments at entity level	1,400	579	8,162	10,141
Total	3,830	1,594	8,162	13,586

1) The largest item (PLN 2,044 thousand) is tax on non-trading income (withholding tax at a rate of 20%).

2) The largest item of taxes levied (PLN 142 thousand) is corporate income tax, offset against value added tax; the largest item of fees is real property tax of PLN 7,945 thousand and service fees of PLN 1,015 thousand.

3) The largest item (PLN 433 thousand) is the fee relating to the 5% tax on the sale of a test batch of phosphates in July 2013.

4. Policies followed in the preparation of this report on payments to governments

4.1. Key preparation policies

This consolidated report on payments to governments has been prepared on a cash basis. In 2017, no in-kind payments were made.

The data contained in this consolidated report on payments to governments is presented in the Polish zloty, rounded to the nearest thousand. The Polish złoty is the functional currency of the parent − Grupa Azoty.

In the case of African Investment Group S.A., individual items of the consolidated report on payments to governments have been translated into PLN using the exchange rates calculated as the arithmetic mean of the XOF/PLN rates quoted by the National Bank of Poland as effective for the last day of each month in the reporting period:

In the period January 1st–December 31st 2017, the average exchange rate was XOF 1 = PLN 0.006455.

The translation has been made by multiplying amounts expressed in XOF by the exchange rate.

4.2. Key presentation policies

The following presentation policies have been applied in the preparation of this consolidated report on payments to governments:

Payments

Amounts paid to governments of individual countries, related to the exploration for, discovery, development and production of minerals, sulfur, phosphorite and other deposits (upstream operations).

Governments

Government means any national, regional and local authority, including undertakings supervised or controlled by such authorities (including state-owned companies).

Projects

A project is defined as the operational activities carried out in a distinct exploration area under a licence obtained for that area, which form the basis for payment liabilities to a government. Payments are disclosed at project level, except where it is impossible to assign them to a given project – in such cases payments are disclosed at entity level.

Identified payment categories

• a) Taxes levied on income, production or profits of the companies, excluding taxes levied on consumption, such as value added taxes, personal income taxes or sales taxes. This payment category includes also excise tax on electricity consumption and interest accrued from the date of classifying amounts spent on acquisition or production of assets as tax-deductible
• expenses until the date on which the period of their use exceeds one year.
• b) Royalties

This item includes emission charges, annual charges, and environmental charges.

c) Licence fees, rental fees, entry fees, and other considerations for licences or concessions. This category includes also payments related to tax on means of transport used in upstream operations and paid property taxes.

This consolidated statement of payments made by the Grupa Azoty Group to governments in 2017 contains 8 pages.

Signatures of members of the Management Board

……………………………… ……………………………… Wojciech Wardacki, PhD Witold Szczypiński President of the Management Board

Vice President of the Management Board Director General

……………………………… Vice President of the Management Board

……………………………… Paweł Łapiński Grzegorz Kądzielawski, PhD Vice President of the Management Board

……………………………… ……………………………… Józef Rojek Artur Kopeć Vice President of the Management Board

Member of the Management Board

Tarnow, 18 April 2018