PetroKazakhstan pays special attention to modernization of its production facilities. Since purchasing the Shymkent Oil Refinery in 2000 the company has invested significant funds in its modernization. By renewing equipment and making technical improvements the Company has managed reduction of costs and increase of production performance. PetroKazakhstan Oil Products has completed a series of projects aimed at increasing the quality of oil products and improving product ranges. One of these projects was the reconstruction of a vacuum fuel oil distillation plant (VFDP), which will help to increase the production of high value light oil products. After launching the VFDP, the Shymkent Oil Refinery began producing vacuum gas oil, which is a new product. Projects have been launched to increase the period of time between each repair of main refining equipment, which has meant that the refinery has not had to close for maintenance.

The Shymkent Oil Refinery takes annual measures to increase fire and ecological safety. Last year the company reconstructed electric lighting on the oil loading and unloading trestle. Fire-fighting facilities were installed on metal constructions supporting the loading trestles. Observation wells and the condition of underground water are monitored around the refinery and at the Akdalin evaporation pond. A project has also been launched to stop underground water pollution. In total the company has spent over 5.5 million USD on industrial safety and emergency projects.

Company initiated the Shymkent Refinery Modernization Project aimed at achieving higher product quality standards. The project is included in the 2008-2015 RK Oil Industry Upgrade Program with a proposed budget of over 3 billion US dollars including 670 million US dollars allocated for PKOP refinery.

The goals of the Project are as follows:

• Increase the capacity of the refinery to 6 million tons;
• Increase the yield of light oil products from 61% to 89%
• Improve the quality of products to meet EURO-3 standard requirements;
• Expand the product slate by producing petrochemicals such as polypropylene, benzene and elemental sulfur;
• Reduce the output of effluent discharge;

As part of the modernization project it is planned to build a catalytic cracker, gasoline hydrotreater, isomerization and absorption/gas fractionation units. The petrochemical section of the modernization project is included in the Governmental Program for Development of Petrochemical Industry of the Republic of Kazakhstan for 2008-2013.

At the end of February 2009, the refinery management had a preliminary meeting with the contractor to discuss the implementation of the feasibility study for the Project. At the meeting the basic design data was handed over, Minutes were signed, and the Project launched.

To implement the Project a contract was signed early in March 2009 with Honeywell ACS (Almaty). The Contract is expected to be completed by October 1, 2009. It is planned to carry out a feasibility study and obtain all approvals from state construction supervision authorities including a State Expertise Opinion.

As part of the Project it is expected to hold public hearings in South Kazakhstan Oblast to discuss the Preliminary Environmental Impact Assessment section of the Project, and have the Project approved at the RK Ministry of Environmental Protection.

At the end of April the RK Government set a task to organize the first in Kazakhstan production of lubricants under the PKOP Refinery Modernization Project. Preparations to implement the task have commenced. First and foremost, the Company will perform a detailed marketing research of the lubricants market of Kazakhstan. Implementation of this Project will allow increasing the economic security of Kazakhstan, reducing its dependence on raw materials, and creating new jobs.

Modernization work has not led to any suspensions in production or a reduction in production volumes. All new facilities will be built simultaneously.