Rosneft is the largest refiner in the Russian Federation. In recent years, the Company's refining activities have been focused on meeting the market demand for quality petroleum products. Over a number of years, Rosneft has consistently implemented a refinery modernization program, including reconstruction of the Komsomolsk Refinery, reconstruction of Tuapse Refinery, reconstruction and modernization of Achinsk Refinery and Angarsk Petrochemical Complex and Samara Group plants, which has improved the quality of products and increased their competition value. It is the most ambitious program for the modernization of oil refining facilities in the Russian oil industry. Within this program, in 2015, the production switched 100% of motor fuels to Euro-5 class for the Russian domestic market, as required by the Technical Regulations.

As of the end of 2016, the Company’s oil and gas refining block included 10 large oil refineries located in key regions of Russia, three petrochemical and four gas processing plants (including assets of PJSC JSOC Bashneft and a share in JSC Slavneft-YANOS), as well as two plants producing catalysts.

The total designed capacity of the major oil refineries in Russia is 118.3 million ton of oil per year.

The Company also includes several mini-refineries in the Russian Federation, the largest of which is the Nizhnevartovsk Oil Refinery.

In Q4 2016, as part of the acquisition of Bashneft’s assets, Rosneft’s oil refining business was amplified by additional refining capacities.

Upon the completion of the acquisition of Bashneft, the Company expects to achieve a synergistic effect by changing the composition of raw materials and redistributing component flows among the refineries within the Rosneft Group. In addition, a positive effect will be achieved through improved control over the implementation of the investment program, timing optimization of the implementation of support projects at the refineries, the implementation of Rosneft's practices for efficiency management and optimizing operating expenses.

In order to ensure fulfillment of this potential, a plan has been developed and approved to implement the synergy of the integration of Bashneft, the successful implementation of which will significantly improve the efficiency of the oil refinery block.

Within the acquired Bashneft assets, Rosneft's oil refining business now includes the following large enterprises: Bashneft-Ufaneftekhim, Bashneft-Novoil and Bashneft-UNPZ, a part of the Ufa Group refinery, the Ufaorgsintez Petrochemical Complex, and gas processing enterprises Shkipovskoye and Tuimazinskoe.

Currently, Bashneft’s oil refining and petrochemical enterprises operate focusing on the following key objectives:

• Strict compliance with the operational safety and labor protection requirements;
• Implementing the plan of action on synergetic effect from integration with Rosneft;
• Introduction of Rosneft’s best practices on efficiency management and optimization of operating expenses;
• Increasing the production yield of high-margin products;
• Implementation of a loss reduction program;
• Optimizing the investment program and capital expenditures.

Rosneft also owns a number of processing plants abroad: in Germany and Belarus. In Germany, the company owns shares in three refineries, controls over 12% of refineries with a total refining capacity of 12.5 million ton per year, and indirectly owns a 21% share in Mozyrsky Oil Refinery in Belarus.

Rosneft is the largest oil refiner in Russia. In 2016, the Company’s total refinery yield at Russian refineries increased to 87.5 million ton vs. 84.7 million ton in 2015. In addition, the Company's refining capacity at the foreign refineries (12.8 million ton) exceeded the 2015 level by 4.8%.

Rosneft successfully continues optimizing the refineries loading in order to ensure the efficient processing of raw materials, taking into account the capacity of secondary processes, to minimize the production of heavy petroleum products.

In 2016, the production of fuel oil at Russian refineries decreased by over 17%, while the production of Euro-5 class gasoline and diesel fuel increased to 31.1 million ton, exceeding the 2015 level by 56%.

With the increased plant efficiency and the operation optimization at the Russian refineries, taking into account the new assets, the light oil products yield increased by 1.3 pp and reached 56.6% in 2016, while the processing depth increased by 5.5 percentage points vs. 2015 and amounted to 72.0%.

The 2016 processing yield of the Company's mini-refineries in the Russian Federation amounted to 1.9 million ton.

The 2016 processing yield of the German plants increased by 17.8% as compared to the previous year due to the acquisition of an additional stake in PCK Raffinerie GmbH in November 2015.

Implementation of the modernization program for the Company’s Russian refineries.

Rosneft is implementing the most ambitious modernization program in the Russian Federation: over 30 projects for the construction, reconstruction of reprocessing plants, aimed at significant increase of the processing depth and quality of the end petroleum products.

The Company's commitment to the production refocusing on the gasoline and diesel fuel of the highest ecological class has been fulfilled ahead of schedule.

As part of the modernization program, the construction of the following large facilities was completed in 2016:

• a catalytic cracking plant with site utility facilities within the FCC complex and a production plant for a high-octane component of MTBE gasoline at the Kuibyshevsky Refinery, which will enable the enterprise to meet the demand for high-octane gasoline components due to their production at the Company’s own facilities and to increase the production of high-quality motor fuels;
• pressure-swing adsorption plant at Syzran Refinery;
• catalysts regeneration plant "away from the reactor", which will ensure the regeneration of the imported catalysts for the hydro-treatment of Euro-5 fuels at the Novokuibyshevsk Catalyst Plant without their foreign export for regeneration.

Within the program implementation, the following reconstruction and construction works are now in progress:

• reforming, isomerization, alkylation plants for the production of high-octane gasoline agents;
• catalytic cracking plants for high-quality gasoline components and increasing the efficiency of oil refining;
• hydrocracking plants for high-quality components of diesel fuel, aviation fuel and increasing the depth of oil refining;
• hydrotreating units.

As part of the Company's import substitution program, in 2016, the kerosene fraction hydrotreating plant at Achinsk Refinery and the catalytic reforming unit at Ryazan Refinery were switched to the catalysts produced by Angarsk Catalyst and Organic Synthesis Plant.

Rosneft actively develops the production of oils.

The major production sites include: Novokuibyshevsk Plant of Oils and Additives, oils production at the Angarsk Petrochemical Company, Moscow Plant Nefteprodukt, the oil plant of LLC RN-Lubricants in Ryazan and the refinery of JSC Slavneft-YANOS (shared property). The total annual capacity of these enterprises is over 700 thousand ton of commercial products, including over 500 thousand ton of oil per year.

The Company's structure also includes Neftegorsky and Otradnensky gas processing plants in Samara Region, with the total capacity 1.8 billion cubic meters of gas per year.