Qafco Anual Report English Final 2010

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Evolving unbound
ANNUAL REPORT 2010
Contents
Board of Directors Corporate Objectives Qatar Fertiliser Company QAFCO Downstream Brief History Chairmans Message Management Report QAFCO Corporate Governance Report Independent Auditors Report Consolidated Statement of Financial Position Consolidated Statement of Financial Income Consolidated Income Statement 3 4 5 5 7 9 11 15 17 18 19 20 21 22 23
Contents
Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements
P.O. Box 50001, Mesaieed, Qatar Tel. (+974) 4422 8888, Fax (+974) 4477 0347 Email: admin@qafco.com.qa www.qafco.com
Evolving unbound
His Highness
His Highness
Sheikh Tamim Bin Hamad Al Thani

Heir Apparent
Sheikh Hamad Al Thani

Emir of the State of Qatar
Evolving unbound
Board of Directors
H.E. Abdulaziz A. Al-Malki Chairman
Mr. Khalifa A. Al-Sowaidi Vice Chairman/CEO
Mr. Hamad Rashid Al-Nuaimi Member
Mr. Jorgen Ole Haslestad Member
Mr. Nasser J. Al-Kuwari Member
Mr. Meshaal M. Al-Mahmoud Member
Mr. Saeed Mubarak Al-Kuwari Member
Mr. Egil Hogna Member
Board of Directors
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Corporate Objectives
Our Mission
We shall operate the plants Efficiently, Safely, and in an Environmentally Responsible manner to Produce and Supply Ammonia and Urea at the Quality required by our Customers and to carry out investments to Maximize Shareholders Returns.
Our Vision
Largest Quality Ammonia and Urea Producer.
QAFCOs Main Objectives are to

Achieve highest possible production at comparatively low cost. Operate the plants with maximum online factor. Design and operate the plants in a safe, secure and environmentally responsible manner. Meet customers expectations with regard to Quality and Timely Delivery.
WE ARE COMMITTED THROUGH OUR OCCUPATIONAL HEALTH & SAFETY, ENVIRONMENTAL AND QUALITY MANAGEMENT SYSTEMS TO:
Lead QAFCO in ethical ways that increases the benefits to society by protecting our people, environment and community. Increase the competency of personnel and use of adequate technology to enhance Customers Satisfaction, environmental, safety, health and security performance. Prevent pollution and control operational and security risks in order to protect the environment, the safety and health of our employees, contractors, visitors, the neighbors and the community. Steward our products and services through each life cycle stages in order to protect people and the environment. Implement Occupational Health & Safety, Environmental, Quality and Responsible Care Integrated Management Systems as a prime line responsibility at all levels of our organization and continually improve their performance and effectiveness. Involve and consult with our employees on matters related to our Integrated Management Systems. Comply with all relevant Qatari Legislations, Regulations and Standards adopted by the Company.
Communicate this Policy and systems performance measures to our employees, contractors and other stakeholders including public and make it available to them and other interested parties. Monitor, study and record the environmental impacts of our operations caused by discharges to the sea and emissions to air for possible reductions. Encourage re-use and recycling and manage our solid waste to reduce environmental impacts. Conduct regular reviews of relevant Occupational Health, Safety, Security, Environmental, Quality and Responsible Care activities for compliance with the adopted Standards. Open information, communication and share experiences with all parties affected by or interested in our activities on safe use, transportation and disposition of our products and to recognize, respect and respond to our community concerns about our products and operations. Work with Governments, Agencies and Associations at all levels in the development of effective and efficient health, safety, security and environmental laws and industry standards and support research.
Qatar Fertiliser Company

Qatar Fertiliser Company (Q.S.C.C.) (the Company) was incorporated on 29 September 1969 as a Qatari Shareholders Closed Company (Q.S.C.C.) in the State of Qatar. The Company is engaged in the production and sale of Urea and Ammonia. The shareholders and their shareholding interests in the Company are as follows:
Name of the shareholder Industries Qatar (IQ) Yara Netherland BV
Country of incorporation Qatar Netherland
Interests 75% 25%
IQ is the immediate parent of the Company, which is a 70% owned subsidiary of Qatar Petroleum (QP). Thus QP is the ultimate parent of the Company.
QAFCO Downstream
Gulf Formaldehyde Company
The Shareholder and their shareholding interests in the company are as follows: Name of the shareholder Qatar Fertiliser Company Q.S.C.C. Qatar Industrial Manufacturing Company (S.A.Q) United Development Company P.S.C. Amwal Investment Co. Interests 70% 15% 10% 5%
Qatar Melamine Company

Qatar Melamine Company was established following a Shareholders and Services agreement between Qatar Fertiliser Company and Qatar Holding to produce and sell melamine. Name of the shareholder Qatar Fertiliser Company Q.S.C.C. Qatar Holding Interests 60% 40%
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Gulf Formaldehyde Company (S.A.Q) was incorporated on 3rd March 2003 as a Shareholder All Qatari Company in the State of Qatar. The company is engaged in the production and sale of Urea Formaldehyde Concentrate (UFC).
A Brief History
Evolving unbound
Qatar Fertilizer Company A Brief History
QAFCOs inception in 1969 as a joint venture company to produce chemical fertilisers was the first and a significant step in Qatars industrial diversification program to utilize its abundant natural gas resources. Since then QAFCO has steered its way
Milestones in history
1973 - QAFCO-1 1997 - QAFCO-3 2003 - Gulf Formaldehyde Company 2004 - QAFCO-4. 2004 - Inauguration of QAFCOs ammonia vessel LPG/C Al Marona. 2006 - Qatar Melamine Company established. 2008 - Foundation stone laid for QAFCO V. 2009 - Construction starts for QAFCO 6 expansion project 2009 - QAFCO adopts new brand identity 2010 Qatar Melamine Company inaugurated
QAFCO today is the worlds largest single site producer of urea with an export market extending to more than 35 countries across continents. QAFCO today is poised to become the largest producer and exporter of the Urea and Ammonia in the years to come.
Through scientific strategic plans and integration of the latest technologies, QAFCO has developed steadily, over the years, in terms of nameplate capacity, production quantities, quality and competitiveness of products and become one of the main producers and exporters of ammonia and urea in the world. QAFCO became the worlds largest single site producer of ammonia and urea.
successfully, responding adequately to the world market demand for fertiliser and living up to the expectations of its shareholders, IQ and Yara. QAFCO inaugurated its first plant in 1973 with a design capacity of 900 tons of Ammonia and 1000 tons of urea daily. Presently QAFCO complex comprises four completely integrated trains; QAFCO-1 (1973), QAFCO-2 (1979), QAFCO-3 (1997) and QAFCO-4 (2004). Each train is made up of two units, one for production of ammonia and the other for urea. Through scientific strategic plans and integration of the latest technologies, QAFCO has developed steadily, over the years, in terms of nameplate capacity, production quantities, quality and competitiveness of products and become one of the main producers and exporters of ammonia and urea in the world. QAFCO became the worlds largest single site producer of ammonia and urea. With the completion of QAFCO-V, QAFCO would further bolster its image as the worlds largest single site producer of ammonia and urea.
Our products:
Ammonia Urea prilled and granular Urea Formaldehyde Melamine
A Brief History
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1979 - QAFCO-2
Chairmans Message
Evolving unbound
Chairmans Message
produced 3, 009, 951 Mt of urea. In the year under review, QAFCO sold 2,851,862 MT of urea at an average sales price of USD 295/t to Australia, Thailand, Bangladesh and the United States of America (USA). Over the years, QAFCO has evolved responding to the market conditions to give maximum benefit to its shareholders. The year 2010 was yet another example of this, as QAFCO declared its arrival into melamine production. On the 12th of October 2010, His Highness Sheikh Hamad Bin Khalifa Al-Thani, the Emir, dedicated the Qatar Melamine Company to the nation. Our expansion plans are well and truly in place. The QAFCO 5 project is into its final stages as preparations are on track for inauguration in the later part of 2011. QAFCO -6, on the other hand is on track for opening in the year 2012. With addition of these two plants to our existing plants, our production capacities will rise to 3.8 million MT of ammonia and 5.6 million MT of Urea. With sustainability and environment becoming a prime focus of business discussions, it is the adaptability of companies towards these that will guide the path to future. At QAFCO, we are in the process of achieving Responsible Care certification. This is our commitment towards promoting sustainable development, with due care for future generations and bringing further benefits to people, environment and community. Our initiative into the realm of Product stewardship is yet another example wherein we center our environmental protection around the product itself. The year 2011 is expected to see a growth in nitrogen based fertilisers. The addition of more production plants in the Middle East and elsewhere in the coming years will be an interesting challenge in 2011. However, the facilities with easier and economical access to the natural resources will , obviously have the upper hand, what remains to be done is the effective consolidation of markets. Today, QAFCO moves ahead and it is time for us to realign ourselves to the changing realities of business. Optimum utilisation of resources and diversification to expand product base is the need of the hour. QAFCO is responding to it by diversification and value addition to its product line. We remain steadfast in our commitment towards helping to feed the world. With the mercurial rise in population predicted and the ever-depleting land resources, we as a fertiliser producer have a big role to play in the coming years. In the coming years, I hope more such milestones are achieved and closer we come towards realising the vision of His Highness Sheikh Hamad Bin Khalifa Al-Thani, Emir of the State of Qatar and His Highness Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent. I am grateful to the guidance given by HE Abdulla Bin Hamad Al Attiyah, Deputy Prime Minister and HE Dr. Mohammad Saleh Al Sada, Minister of Energy and Industry and the QAFCO board. I express my gratitude towards industries Qatar, Yara International and QAFCO Management and staff who have helped QAFCO to the pedestal it is on today.
H.E. Abdulaziz A. Al-Malki Chairman

The year 2010 was a very good year for QAFCO. The year was the year of consolidation for QAFCO after the tremendous hard work and prudent strategic decisions had helped QAFCO weather the global economic slowdown of 2008 - 2009. QAFCOs focus has always been on its core skill that is producing quality ammonia and urea. And QAFCO did wonderfully well as it breached 3 million MT mark in urea production in the year under review. The ball was set rolling last year itself as QAFCO set its production record and bettered in the year under review. Yet another achievement of the year under review was that the
The year under review saw excellent profit figures of 2.1 billion Qatari riyals, it is the third highest in QAFCOs history. The spurt in the cost of fertiliser also helped our cause of capitalising from a market that opened up opportunities after the aftermath of global recession.
records were made without a single lost time accident for five million man-hours, yet another example of exemplary safety standards that we set for ourselves. The year under review saw excellent profit figures of 2.1 billion Qatari riyals, it is the third highest in QAFCOs history. The spurt in the cost of fertiliser also helped our cause of capitalising from a market that opened up opportunities after the aftermath of global recession. In 2010, QAFCO also expanded and consolidated its market presence as it further spread its marketing reach to the Southeast and East Asia. It also further secured its market in the American and African continents. If the year 2009 posed a challenge to keep up with surmounting demands for fertiliser across the globe, the year 2010 was the year to build up on the success that all the hard work had given. QAFCO had met the challenge of 2009 and further consolidated on its standing as a reliable producer this helped QAFCO in 2010 to further its market reach. In the year under review, QAFCO sold 538,785 MT of Ammonia at an average competitive price of USD 339/MT, primarily to India, Jordan, and S. Africa. In the year gone by, QAFCO further consolidated its position in East Asia with South Korea and Indonesia accounting for 2 per cent each of the QAFCO exports. South Africa was the major importer from the African continent. As for Urea, QAFCO surpassed the 3 million mark when it
Abdulaziz A. Al-Malki Chairman
Chairmans Message
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Management Report
Evolving unbound
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Management Report
The emerging economies lead the global economic recovery from the 2009 recess of economic contraction. The good work of the previous year helped QAFCO to capitalise on the opportunity that the emerging economies provided and the result was the third highest profits in QAFCOs history.
In the year under review, QAFCO achieved a net profit of 2.1 Billion Qatari riyals. This is the third highest profit figure in QAFCOs history. Considering the global meltdown after the exceptional year of 2008, and the challenge that the year 2009 posed, QAFCO, in 2010, took steps in the right direction to capitalise on the markets created by the depletion in the supply lines of the major consuming countries, thereby making the year yet another successful one. Globally, overall, there was a spike in the fertiliser prices in the year 2010 compared to 2009, which too, benefited QAFCOs bottom line. Apart from this, QAFCO also announced its arrival into Melamine with the inauguration of Qatar Melamine Company by His Highness Sheikh Hamad Bin Khalifa Al-Thani, the Emir of the State of Qatar. QAFCOs diversification into Melamine, Urea Formaldehyde, Aqueous Ammonia and initiatives into product value addition like Sulphur Coated urea are examples of optimum utilisation of resources and a process towards evolving unbound.
Ammonia sales: Consolidating in East Asia.

In the year under review, QAFCO sold 538,785 MT of Ammonia at an average sales price of USD 339/MT as compared USD 243/ MT in the year 2009. India, Jordan, S. Africa, continued to be the major importers of Ammonia from QAFCO. Of these, India re-established its primacy, as it bought 57 per cent of the total QAFCO ammonia export while Jordans 122, 494 mt of Ammonia saw it spreading its influence in the QAFCO Ammonia export pie. In the year under review, QAFCO consolidated its position in East Asia with South Korea and Indonesia accounting for 2 per cent of the QAFCO exports. South Africa on the other hand shipped the lions share of African ammonia imports with 76, 375 mt while Morocco followed with 11, 722 mt. QAFCO Ammonia Exports 2010
Ammonia
Ammonia Production
QAFCO operates four Ammonia plants with a combined production capacity of more than 2 million MT per annum in its only facility in Mesaieed, Qatar. In the year under review, QAFCO produced 2,269,512 MT of Ammonia, the highest volume ever in its production history, of which 1,679,531 MT was utilised in QAFCO for the production of Urea, Aqueous Ammonia and melamine, and the remaining exported. The previous highest production was in 2009, when QAFCO produced 2,202, 145 MT of Ammonia. QAFCOs environment friendly processes along with optimum energy utilisation have augmented our standing in the international arena as a reliable producer. The history stands testimony to our role of meeting the demands of the fertiliser market as and when uncertainties have plagued, as in the year 2009 when recession bolted out many fertiliser plants, QAFCO stood firm and helped fill the lacuna created in the global demand and supply. Ammonia production for the last ten years
QAFCO expanding globally

QAFCO in its efforts to consolidate and expand its product reach signed many long-term marketing agreements. Notable among them being the one to supply 100,000 mt of ammonia to South Korea, which will further enhance QAFCOs reach into East Asian markets. Chinas export regulations too will further create markets for QAFCO to prosper further in East Asia. Other agreements included the supply of further 100,000 mt to India and 80,000 mt to S. Africa. QAFCO has been proactive in its efforts to expand globally. Today, QAFCO has been able to penetrate markets in the Latin American continent as well as East Asia. In the coming years more production facilities, especially in North Africa and the Middle East are expected to come on stream and possibly blunting the sharp demand in the major consuming markets, however, a sound marketing strategy of consolidating the existing markets and establishing oneself in the new ones will go a long way into the future. QAFCO knows it. It has already taken those steps.
Urea
Urea Production
QAFCO operates four Urea plants in its vicinity in Mesaieed, Qatar, with a capacity of producing more than 3 million MT of urea annually. The ammonia produced in its ammonia plants is the feedstock for the production of urea. QAFCO produces two kinds of urea, the prilled and granular. QAFCOs relatively older plants Urea-1and Urea 2 produce prilled urea while the later plants Urea 3 and Urea 4 produce urea granules. In the year under review, QAFCO surpassed the 3 million mark when it produced 3, 009, 951 Mt of urea. Exemplary workmanship and team spirit guided towards this landmark. The previous production record was for the year 2009, which was 2,998,440 MT. Year The 21st century is seeing a tremendous improvement in the living standards of the developing countries, as a corollary, this
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also brings into focus the need for increment in food production. With decreasing arable lands and increasing population, there is a need to improve the quality of soil to help increase the crop production per acre and here fertiliser producers will play a stellar role. QAFCO, with its continued focus on increasing production in the existing plants and its investments in the forthcoming trains of QAFCO 5 and 6, is prepared to take up the challenge. Urea production for the last ten years
Management Report
Urea sales
In the year under review, QAFCO sold 2,851,862 MT of urea at an average sales price of USD 295/t. Australia, Thailand, Bangladesh and the United States of America (USA) took the major share of the QAFCO urea exports. Urea exports saw a spurt, predominantly in September, in response to the increased demand from industrial and agriculture sectors especially in Australia and USA. From Asia: Thailand, Bangladesh, South Korea, Philippines and Sri Lanka remained bullish for urea from QAFCO. The South American continent, meanwhile, increased its presence in the QAFCO urea exports with countries like, Brazil, Argentina shipping about five percent of the total QAFCO urea.
Urea Marketing highlights

Exploring, expanding and consolidating markets in the farther reaches of the globe, QAFCO signed various agreements and MoUs. During 2010 Qafco signed long term agreement with Yara to supply 75, 000 mt of Urea to New Zealand; 200,000 mt to Philippines, and 400,000 mt to Thailand and 250,000 mt to South Africa. Apart from these QAFCO also further entrenched its position in the East during 2010 by signing various agreements to export around two hundred thousand metric tonnes of urea in the coming year. Our relationship with Bangladesh continued to prosper as QAFCOs long term contract with Bangladesh delegate to supply urea was further extended to another year. QAFCO Urea exports in 2010
QAFCO Plant Maintenance
The Maintenance Department main objective is to ensure that all production- and utilities plants are available for maximum production. The main KPIs are maintenance cost pr. ton of product and unforeseen shutdown downtime (UFS, % of available production time). For 2010, the Maintenance cost for Ammonia dropped to 11.2 QR /Ton vs 12.48 QR/Ton in 2009. For Urea there was a slight increase to 7.67 QR/Ton vs 6.57 QR/Ton in 2009. The Unforeseen Shutdown statistics for 2010 shows similar trends. Ammonia Plants had a record low UFS of 1.99 % of the total available time, vs 2.97 % for 2009. Urea Plants had UFS of 2.63% vs 1.29% for 2009. The increase is mainly contributed by technical issues related to Urea 1 Revamp.
Major shutdown 2010

In March 2010, Qafco 4 was stopped for a major maintenance shutdown. Planned jobs were more than 16,000 with a total effort of 293,000 man-hours. The number of contractors reached 1600 at its peak. Urea 4 was back on stream after 22 days and Ammonia 4 after 26 days. Safety-wise the shutdown was conducted without any lost time accidents. It was recorded two minor personal injuries by contractors. Totally this is among the best results in Qafco shutdown history. Unscheduled shutdowns at QAFCO were limited to anticipated budget days.
Financial performance
QAFCO achieved a provisional net profit of QAR 2.1 Billions in the year under review. The sales income saw an increase due to the higher sales price achieved for ammonia and urea. The ammonia sales price saw an increase by 36 per cent and a 13 per cent
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increase in the volume sold. Meanwhile, urea saw a 4 per cent decrease in the sold quantity while registering a spike of 17 per cent in the sales price.
and housekeeping. Another prominent point for the year 2010 was zero lost time accidents during the QAFCO 4 major shutdown.
Human resources
Behaviour Based Safety

Pilot programme on Behaviour Based Safety (BBS) in QAFCO workshops was completed after six months of implementation. Apart from this an electronic reporting system is being implemented for reporting BBS observations in the Safety Information System. BBS films on STOP programme has been included in Safety Information System (QAFCO intranet) for better awareness.
QAFCO believes that one of the ways to achieve the fundamental function of its overall business objectives is through proper Training & Development Plan of its workforce. Our training and development programs ensure that our people are up to date at international level of competitiveness in their respective fields of expertise.
Qatarization & Development

QAFCO is committed to maximize the number of Qatari Nationals in its workforce. As part of the commitment towards achieving its goals of Qatarisation Plan, QAFCO recruited forty nine nationals as Trainee, QP TAFE Intake Trainee and as sponsorship students. Our Human Resources focuses on the development of existing Qatari Nationals together with ongoing efforts to recruit fresh Qataris in various engineering, technical, vocational and administrative disciplines. Given below are some of the programs that we follow with focus on Qatarization: Training Programs (In-house, Local, Abroad) Development (OJT, OJDP, Scholarship) Summer training Graduation Projects Recruitment Networking (Schools, Universities, Educational Sectors) In line with QAFCOs commitment to develop its National workforce, the Human Resources Department through Training & Development Section has effectively followed up Qatari Nationals progression and movement to established/targeted positions in their respective area of specialization. In 2010, a total of 12 Qatari Nationals were promoted to established positions and 12 Qatari Nationals were upgraded to developee after completing their respective On-Job-Training with an above par performance.
Environment at QAFCO
QAFCO continued to maintain its leadership position in Qatar and worldwide for its environmentally responsible operation of its plants. Proactive steps have ensured that ammonia emissions and urea dust emission were well controlled from QAFCO.
QAFCO achieves the consent to operate Qatar Melamine Company.

The recently inaugurated Qatar Melamine Company received the consent to operate in the year 2010. The consent to operate was also achieved for Urea -1 after the revamp.
The Minister for Energy and Industry Affairs H E Dr. Mohammed Al Sada and the Minister of Environment H E Abdullah bin Aaboud Al Midhadi being presented with the Baseline Ecological Survey Report at QAFCO stand at the QP Environment Fair by QAFCOs Technical Services Manager Mr. Humoud Al Mannai In the meantime, QAFCO released the Baseline Ecological Survey report which is based on the inferences drawn from the baseline ecological survey conducted at Al-Besheriya island. The survey conducted in March 2009, is part of QAFCOs initiative to develop an Environmental Management Program for the island.
Scholarship Programs
QAFCO identified High Fliers (Qatari employees) with excellent performance, hard work, commitment and helped design a career path. Along with that, in line with the development plan, national employees sent to pursue further studies. In the year under review, 44 students were supported by QAFCO towards furthering their education.
Quality at QAFCO
Safety at QAFCO
Certifications for Qatar Melamine Company (QMC)

Qatar Melamine Company is in the final stage of certification for Quality, Occupational Heath & Safety and Environmental Management Systems based on ISO 9001, OHSAS 18001 and ISO 14001 standards. The certification audit will be conducted in February 2011.
QAFCO achieves 5 million man-hours free of lost time accidents

Behaviour Based Safety (BBS) is a proactive process for identifying at-risk behaviour and removing the barriers for safe behaviour. A study concluded that ninety six percent of incidents are due to unsafe act / behaviour of personnel.
In the year 2010, QAFCO achieved 5 million man-hours free of lost time accidents. It is yet another example of safety being given utmost importance in QAFCO. Several contractor accidents were reduced considerably because of various awareness and training campaigns that were conducted on heat stress, shutdown safety
Product Stewardship Certification

Product stewardship is a concept whereby environmental protection centers around the product itself, and everyone involved in the lifespan of the product is called upon to take up responsibility to reduce its environmental impact. Product Stewardship covers all stages of a products lifecycle initial concept, design, research and development, the sourcing of raw materials, manufacture, storage, distribution, applications, reasonably foreseeable uses, recycling and disposal. QAFCO
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is planning to achieve Product Stewardship certification from International Fertilizer Association (IFA) during 2011.
Significant events
Gulf Formaldehyde Company (GFC)
His Highness Sheikh Hamad Bin Khalifa Al-Thani, the Emir inaugurates the Qatar Melamine Company.
The inauguration of the Qatar Melamine Company (QMC) marks the debut of a new potentially beneficial industry in Qatar that will enable the country to avail itself of the comparative advantage it enjoys in terms of abundance of feedstock and competitive energy supplies. In its totality, this new industry represents a unique and genuine addition to Qatars cluster of economic activities. QMC is an initiative by Qatar Fertiliser Company (QAFCO) to further support the State of Qatars industrial diversification strategy.
Gulf Formaldehyde Company (GFC) was created in 2003 and began operations in 2004. GFC produces 82 tons per day of Urea Formaldehyde (UFC-85), a viscous liquid with 60 percent formaldehyde, 25 percent urea and 15 percent water. Eighty percent of the UFC-85 produced is consumed by QAFCO and is used as an anti-caking agent in the production of urea, a solid fertilizer, and one of QAFCOs primary products. Production continues to increase and the plant is currently operating at 120 percent of its design capacity. In the year under review, Gulf Formaldehyde Company produced 31, 706 MT, the highest ever in its production history. Of the total produced, 23,330 MT was used within QAFCO and the rest was exported to The Oman India Fertiliser Company (OMIFCO), Oman and FERTIL, United Arab Emirates. Throughout 2010 QAFCO, which operates, maintains and administers the plant, ensured efficient, safe, and environmentally sound UFC-85 production.
QAFCO expands its Urea Formaldehyde Market.
Management Report
In the year under review, QAFCO renewed its contract with OMIFCO and also increasing its quantity exported to 15000 mt. Apart from, this, a 3 years contract has been signed with Fertil to supply 4,380 mt UFC85.
His Highness Sheikh Hamad Bin Khalifa Al-Thani, the Emir, dedicated the Qatar Melamine Company to the nation in mid October 2010. The inauguration ceremony was attended by their Excellencies Ministers, Sheikhs, Qafco board Chairman, QP board members and ambassadors from countries that participated in implementing the melamine project. Among those present on the occasion were board members from QAFCO, Yara International, senior officials Snamprogetti, which executed the two projects, a number of distinguished personalities, and officials representing international, GCC and Qatari firms and companies. Qatar Melamine Companys capacity of 60,000 tons per year makes it the largest melamine facility in the Middle East, and the second largest in the world. Right now, Qatar Melamine Company is capable of supplying 5% of the entire worlds melamine demand. And by utilizing QAFCOs excess urea supply, our costs have been controlled very efficiently, allowing Qatar Melamine Company to provide excellent return-on-investment for Qatar.
The year 2011 strong increase in demand anticipated.

The year 2011 augurs to be better than the year gone past, as strong demand for nitrogen based fertilizers is anticipated in the American continents and Oceania. The not so robust 2009 gave way to a better business in 2010 and the trend is expected to continue in the year 2011 as well. According to IFA estimates, world ammonia capacity is projected to grow by 3% in 2011, however, the supply and demand balances for nitrogen show a decreasing potential surplus. Meanwhile, trade in urea is expected to increase due to the potential demand in major consuming countries in the year 2011. I hope that the fertiliser industry is nearing the end of a challenging period triggered by the global economic crisis that had been marked by delays in projects for new plants and a drop in demand. However, with the industry earmarked for expansion, particularly in countries that have gas surpluses, will definitely help stabilise the market. I am grateful to QAFCOs Board of Directors that has helped us on the path as envisioned by HH Sheikh Hamad Bin Khalifa Al-Thani, Emir of the State of Qatar and HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent. I express my gratefulness to HE Abdulla Bin Hamad Al Attiyah, Deputy Prime Minister and HE Dr. Mohammad Saleh Al Sada, Minister of Energy and Industry and the QAFCO board. I also express my sincere appreciation and gratitude to the Management and employees of QAFCO, with whom I look forward towards yet another year of progress.
Updates
QAFCO5:
The QAFCO 5 train is well and truly on its way to scheduled startup as commissioning activities have already started. The plant will be inaugurated in 2011.
QAFCO 6:
The construction activities are going on schedule and is expected to be completed in 2012.
Khalifa A Al Sowaidi Vice-Chairman / CEO
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QAFCO Corporate Governance Report

QAFCO believes in having a strong corporate governance standard to focus on fairness, transparency, accountability and responsibility which are vital for our continued growth. A sound and efficient corporate governance process helps stimulate companys performance and protects shareholders interest.
Qafcos Board of Directors re-constituted the Board Audit Committee (BAC) in 2008 to provide better oversight in the following areas: companys financial statements compliance with legal and regulatory requirements internal control framework and management of internal and external auditors activities. The Board Audit Committee members are independent and do not participate in companys executive management. The Board Audit Committee has held 5 meetings in the year 2010 with following measures being implemented to strengthen the corporate governance environment in Qafco: Ethics and Whistleblowing Programs have been implemented to establish a mechanism for employees to report concerns about unethical behavior or violation of companys code of conduct and ethics policies. Conflict of Interest declarations are obtained from all employees on an annual basis to ensure compliance with Code of Conduct and Ethics policies. The Board Audit Committee has initiated a Report Rating structure which comprises with the use of traffic lights that enables management to focus on the high risk issues first and implement corrective action within agreed target dates. The Board of Directors continues to place emphasis on the control environment to ensure early identification of risk and to ensure effective control.
QAFCO Corporate Governance Report

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Evolving unbound
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Independent Auditors Report

To the Shareholders of Qatar Fertiliser Company (Q.S.C.C)
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Qatar Fertiliser Company (Q.S.C.C.) (the Company) and its subsidiary (together referred to as the Group), which comprise the consolidated statement of financial position as at 31 December 2010 and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2010 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Report on legal and other requirements

Furthermore, in our opinion, proper books of account have been kept by the Group, an inventory count has been conducted in accordance with established principles, and the consolidated financial statements comply with the Qatar Commercial Companies Law No. 5 of 2002 and the Companys Articles of Association. We have obtained all the information and explanations we required for the purpose of our audit and, we are not aware of any violations of the above mentioned law or the Articles of Association having occurred during the year which might have had a material effect on the business of the Group or on its financial position.
A. Mekhael of Ernst & Young
Date: 9 February 20 II Doha.
Auditors Registration No. 59
Independent Auditors Report

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Consolidated statement of financial position

ASSETS
Non-current assets Property, plant and equipment Project under development
At 31 December 2010
2010 Notes QR 2009 QR
3 4 5
13,661,654,167 1,015,203,230 46,012,156 14,722,869,553
9,949,112,643 990,968,858 41,557,884 10,981,639,385
Consolidated statement of financial position
Catalysts
Current assets
Inventories Accounts receivable and prepayments Other financial asset Bank balances and cash 6 7 16 8 391,388,789 778,321,901 497,003,830 1,666,714,520 331,500,709 564,898,452 3,035,827 1,907,800,697 2,807,235,685 13,788,875,070
TOTAL ASSETS EQUITY AND LIABILITIES Equity

Share capital Legal reserve Cumulative changes in fair values Retained earnings 9 10
16,389,584,073
1,000,000,000 206,403,954 (307,745,529) 9,372,252,014 10,270,910,439 18,161,862
1,000,000,000 205,354,707 (128,196,557) 8,255,631,605 9,332,789,755 17,114,121 9,349,903,876
Equity attributable to equity holders of the parent

Non-controlling interest
Total equity Non-current liabilities

Interest bearing loan Other financial liabilities Employees end of service benefits 12 16 13
10,289,072,301
3,825,123,070 307,745,529 69,550,362 4,202,418,961
3,594,067,629 129,977,389 69,789,957 3,793,834,975
Current liabilities
Interest bearing loan Accounts payable and accruals Other financial liabilities Income tax payable 12 14 16 15 1,228,493,146 561,046,072 108,553,593 1,898,092,811 575,574,309 1,254,994 68,306,916 645,136,219 4,438,971,194 13,788,875,070
Total liabilities TOTAL EQUITY AND LIABILITIES
6,100,511,772
16,389,584,073
Abdulla Hussain Salatt Chairman of the Board

The attached notes 1 to 28 form part of these consolidated financial statements.
Khalifa Abdullah Al-Sowaidi Managing Director
18
Consolidated statement of financial income

Sales - net Cost of sales
Year Ended 31 December 2010
2010 Notes 20 21 QR 3,880,038,408 (1,438,507,686) 2,441,530,722 22 23 24 116,237,189 (64,572,783) (372,377,731) 2,120,817,397
2009 QR 3,306,600,136 (1,359,622,027)
Other income Selling and distribution costs Administrative expenses
196,964,008 (55,118,244) (392,791,623) 1,696,032,250
PROFIT FOR THE YEAR

Attributable to: Equity holders of the parent Non-controlling interest
2,117,669,656 3,147,741 2,120,817,397
1,692,742,786 3,289,464 1,696,032,250
Consolidated statement of financial Income

19
GROSS PROFIT
1,946,978,109
Consolidated statement of Comprehensive Income

Profit for the year

2010 Note QR 2,120,817,397 2009 QR 1,696,032,250
Consolidated statement of Comprehensive Income
Other comprehensive (loss) income

Net unrealised (loss) gain on cash flow hedges 16 (179,548,972) 318,213,012 2,014,245,262
Total comprehensive income for the year

Attributable to: Equity holders of the parent Non-controlling interest
1,941,268,425
1,938,120,684 3,147,741 1,941,268,425
2,010,955,798 3,289,464 2,014,245,262
20
Consolidated statement of Cash Flows

OPERATING ACTIVITIES
Profit for the year Adjustment for: Depreciation of property, plant and equipment Amortisation of catalysts Provision for employees end of service benefits Provision for obsolete and slow moving inventories Profit on disposal of catalysts, property, plant and equipment Capital work-in-progress write-off Provision for impairment of receivables Interest income Working capital changes: Accounts receivable and prepayments Inventories Accounts payable and accruals Cash from operating activities Interest paid Employees end of service benefits paid Advance paid against end of service benefits Net cash from operating activities
2010 Notes QR
2009 QR
2,120,817,397 3 5 13 21 22 24 24 22 318,451,595 12,982,873 15,845,083 5,301,835 (2,478,983) 144,820 (22,686,274) 2,448,378,346 (173,176,772) (65,189,915) (14,528,237) 2,195,483,422 (193,541,449) 13 (13,764,930) (2,319,748) 1,985,857,295
1,696,032,250 292,846,761 11,708,937 16,125,455 5,272,267 (25,010) 153,836 113,434 (164,551,763) 1,857,676,167 (67,226,372) (29,679,868) (710,846,852) 1,049,923,075 (191,032,196) (11,831,904) 994,066 848,053,041
INVESTING ACTIVITIES
Additions to property, plant and equipment Movement in short term deposits maturing after 90 days Contribution to project under development Additions to catalysts Interest income received Proceeds from disposal of catalysts, property, plant and equipment Net cash used in investing activities 4 5 22 (3,472,506,578) 1,324,740,000 (382,724,313) (17,437,145) 22,686,274 2,479,285 (2,522,762,477) (4,624,290,062) 3,353,900,000 (129,926,223) (28,178,995) 164,551,763 25,010 (1,263,918,507)
FINANCING ACTIVITIES
Proceeds from interest bearing loan Dividends paid to equity holders of the parent Finance arrangement changes paid Dividends paid to non-controlling interest Net cash from financing activities 11 12 1,456,000,000 (1,000,000,000) (3,051,685) (2,100,000) 450,848,315 1,820,000,000 (1,150,000,000) (9,850,371) (1,500,000) 658,649,629
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents at 1 January
(86,056,867)
583,060,697
242,784,163 340,276,534 583,060,697
CASH AND CASH EQUIVALENTS AT 31 DECEMBER

497,003,830
Consolidated statement of Cash Flows

21
22
Consolidated statement of Change in Equity
Consolidated statement of Changes in Equity

Attributable to equity holders of the parent
Share capital QR 1,000,000,000 1,096,488 318,213,012 1,692,742,786 (1,096,488) (1,150,000,000) 318,213,012 1,692,742,786 204,258,219 (446,409,569) 7,713,985,307 QR QR QR QR 8,471,833,957 1,692,742,786 318,213,012 2,010,955,798 (1,150,000,000)
Legal reserve
Cumulative changes in fair values Retained earnings Total
Noncontrolling interest QR 15,324,657 3,289,464 3,289,464 (1,500,000)
Total equity QR 8,487,158,614 1,696,032,250 318,213,012 2,014,245,262 (1,151,500,000)
Balance at 1 January 2009
Profit for the year 2009
Other comprehensive income
Total comprehensive income
Transfer to legal reserve
Dividends paid (Note 11)
Balance at 31 December 2009 205,354,707

1,049,247 (179,548,972) (179,548,972) -
1,000,000,000
-
(128,196,557)
8,255,631,605
2,117,669,656 2,117,669,656 (1,049,247) (1,000,000,000)
9,332,789,755
2,117,669,656 (179,548,972) 1,938,120,684 (1,000,000,000)
17,114,121
3,147,741 3,147,741 (2,100,000)
9,349,903,876
2,120,817,397 (179,548,972) 1,941,268,425 (1,002,100,000)
Profit for the year 2010
Other comprehensive loss
Total comprehensive income
Transfer to legal reserve
Dividends paid (Note 11)
Balance at 31 December 2010
1,000,000,000
206,403,954
(307,745,529)
9,372,252,014
10,270,910,439
18,161,862
10,289,072,301
Notes to the consolidated financial statements

1 CORPORAT`E INFORMATION
Qatar Fertiliser Company (Q.S.C.C.) (the Company) was incorporated on 29 September 1969 as a Qatari Shareholders Closed Company (Q.S.C.C.) in the State of Qatar. The Company is engaged in the production and sale of Urea and Ammonia. The Companys registered office is at P.O. Box 50001, Mesaieed, State of Qatar. The shareholders and their shareholding interests in the Company are as follows: Name of the shareholder Country of incorporation Interests Industries Qatar (IQ) Yara Netherland BV Qatar Netherland 75% 25%
At 31 December 2010
recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. Non-controlling interest represented the portion of profit or loss and net assets that were not held by the Group and were presented separately in the consolidated statement of income and within equity in the consolidated statement of financial position, separately from the parent shareholders equity. Acquisition of non-controlling interest was accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognised in goodwill. Adoption of new and amended standards for the year The accounting policies used in the preparation of the consolidated financial statements are consistent with those used in the preparation of the financial statements for the year ended 31 December 2009, except for the adoption of new and amended standards as of 1 January 2010 as noted below: IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010 IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS 7, IAS 21, IAS 28, IAS 31 and IAS 39 IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items effective 1 July 2009 IFRIC 17 Distributions of Non-cash Assets to Owners effective 1 July 2009 Improvements to IFRSs (May 2008) Improvements to IFRSs (April 2009) The adoption of the standards or interpretations is described below: IFRS 2 Share-based Payment (Revised) The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Group adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the Group. IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010. The Group adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the Group. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the
During the year, Fertiliser Holdings ASA transferred their 10% shareholding in the Company to Yara Netherland BV. IQ is the immediate parent of the Company, which is a 70% owned subsidiary of Qatar Petroleum (QP). Thus, QP is the ultimate parent of the Company. The consolidated financial statements of the Group for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the Board of Directors on 9 February 2011.
2 SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation The consolidated financial statements of the Group have been prepared on a historical cost basis modified to include the measurement at fair value of derivative financial instruments. The financial statements are presented in Qatari Riyals. Statement of compliance The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the applicable requirements of Qatar Commercial Companies Law No. 5 of 2002. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiary, Gulf Formaldehyde Company (S.A.Q.) (together referred to as the Group). The Company has 70% interest in Gulf Formaldehyde Company (S.A.Q.), a limited liability company registered under Commercial Registration No. 36137 in the State of Qatar and is engaged in the production and sale of Urea Formaldehyde Concentrate (UFC). Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interest Derecognises the cumulative translation differences, recorded in equity Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parents share of components previously

23

designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the amendment will have no impact on the financial position or performance of the Group. IFRIC 17 Distribution of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either, the financial position nor performance of the Group. Improvements to IFRSs In May 2008 and April 2009, the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to some accounting policies but did not have any impact on the financial position or performance of the group. Issued in May 2008 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that when a subsidiary is classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity remains a non-controlling interest after the sale transaction. Issued in April 2009 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply if specifically required for such non-current assets or discontinued operations. IFRS 8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. IAS 7 Statement of Cash Flows: States that only expenditure that results in recognising an asset can be classified as a cash flow from investing activities. IAS 36 Impairment of Assets: The amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group: Issued in April 2009 IFRS 2 Share-based Payment IAS 1 Presentation of Financial Statements IAS 17 Leases IAS 34 Interim Financial Reporting IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IFRIC 9 Reassessment of Embedded Derivatives IFRIC 16 Hedge of a Net Investment in a Foreign Operation Standards, amendments and interpretations issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Groups financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective. IAS 24 Related Party Disclosures (Amendment) The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate
At 31 December 2010
inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities. The Group does not expect any impact on its financial position or performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard. IAS 32 Financial Instruments: Presentation Classification of Rights Issues (Amendment) The amendment to IAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Group after initial application. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Groups financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRIC 14 Prepayments of a minimum funding requirement (Amendment) The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Group. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group. Improvements to IFRSs (issued in May 2010) The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they become effective for annual periods on or after either 1 July 2010 or 1 January 2011. The amendments listed below, are considered to have a reasonable possible impact on the Group: IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosures IAS 1 Presentation of Financial Statements IAS 27 Consolidated and Separate Financial Statements IFRIC 13 Customer Loyalty Programmes The Group, however, expects no impact from the adoption of the amendments on its financial position or performance. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Capital work-in-progress is not depreciated.

24
Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows: Buildings and foundations Plant, machinery and equipment Vehicles and mobile equipment 13-20 years 3-20 years 3 years
recognised in the consolidated statement of income; (b) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; (c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective interest rate. Accounts receivable Accounts receivable are stated at original invoice amount less provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank balances and short term deposits with an original maturity of three months or less. Interest bearing loan Interest bearing loan is recognised initially at fair value of the amounts borrowed, less directly attributable transaction costs. Subsequent to initial recognition, the loan is measured at amortised cost using the effective interest method, with any differences between the cost and final settlement values being recognised in the consolidated statement of income over the period of the borrowing. Installments due within one year at amortised cost are shown as a current liability. The costs of raising finance applicable to amounts already drawn down are amortised over the period of the loan using the effective yield method. Gains or losses are recognised in the consolidated statement of income when the liabilities are derecognised. Borrowing costs Borrowing costs directly attributable to the acquisition or construction or production of an asset that necessarily takes a substantial period of time for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Derecognition of financial assets and liabilities a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired; The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Groups continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and value in use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statement of income in the year the asset is derecognised. The assets residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. Capital work-in-progress will be transferred to the respective class of property, plant and equipment when the asset is ready for its intended use. Project under development Project under development is stated at cost less any accumulated impairment in value and will be transferred to property, plant and equipment when the asset is ready for its intended use by the management. Catalysts Catalysts are initially recorded at cost. Subsequently, they are measured at cost less accumulated amortisation and any impairment in value. Catalysts are amortised over the estimated useful lives of 1 to 12 years. Catalysts not in use at the plant are kept under inventories and stated at the lower of cost and net realisable value. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition, as follows: Packing materials, chemicals, supplies and spare parts - weighted average purchase cost Finished goods - weighted average cost of direct materials, direct labor, other direct costs, plus attributable overheads based on normal level of capacity.
Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal. Impairment and uncollectibility of financial assets An assessment is made at each reporting date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated statement of income. Impairment is determined as follows: (a) For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously

25
Expenditure incurred over QR 200,000 on new or to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure over QR 200,000 is capitalised only when it increases future economic benefits of the related item of property, plant and equipment. All other expenditure is recognised in the consolidated statement of income as the expense is incurred.

on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
At 31 December 2010
the fair value of a recognised asset or liability or unrecognised firm commitment (except for foreign currency risk); or cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instruments effectiveness in offsetting the exposure to changes in the hedged items fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting change in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the criteria for hedge accounting are accounted for as follows: Fair value hedges The change in the fair value of a hedging derivative is recognised in the consolidated statement of income in finance cost. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in the consolidated statement of income in finance cost. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity. The Group uses interest rate swap contracts to hedge its risk associated primarily with interest rate fluctuations relating to the interest charged on its interest bearing loans and borrowings. These are included in the consolidated statement of financial position at fair value and any resultant gain or loss on interest rate swaps contracts that qualify for hedge accounting is recognised in the consolidated statement of changes in equity and subsequently recognised in the consolidated statement of comprehensive income when the hedged transaction affects profit or loss. For cash flow hedges which meet the strict criteria for hedge accounting, the effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cumulative changes in fair values, while any ineffective portion is recognised immediately in the consolidated statement of income in finance costs. The Group uses forward currency contracts to hedge its risks associated with foreign exchange rate fluctuations. These are included in the consolidated statement of financial position at fair value and any subsequent resultant gain or loss on forward currency contracts is recognised as other comprehensive income in the cumulative changes in fair values. Amounts recognised as other comprehensive income are transferred to the consolidated statement of income when the hedged transaction affects profit or loss such as when a forecasted transaction occur or is expired. Use of estimates The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the managements best knowledge of current events and actions, actual results may ultimately differ from those estimates.
b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of income. End of service benefits The Group provides end of service benefits to its employees in accordance with employment contracts and Qatari Labour Law. The entitlement to these benefits is based upon the employees final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. Under Law No. 24 of 2002 on Retirement and Pensions, the Group makes a contribution to a government fund for Qatari employees calculated as a percentage of the Qatari employees salaries. The Groups obligations are limited to these contributions, which are expensed as due. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and the costs to settle the obligation are both probable and able to be reliably measured. Foreign currencies Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of income. Derivative financial instruments and hedging Derivative financial instruments are contracts, the value of which are derived from one or more underlying financial instruments or indices, and include a call option to repurchase equity at a predetermined price. The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is calculated by reference to the market valuation of the swap contracts. For the purpose of hedge accounting, hedges are classified as:
26
fair value hedges when hedging the exposure to changes in
Revenue Sale of goods Sale of goods is recognised when the risk and rewards of the product is transferred to the buyer, which is at the time of loading at the terminal in Mesaieed, State of Qatar and the amount can be measured reliably. Revenue from sale of goods is recorded net of direct costs such as freight and insurance. Interest income Interest income is recognised as the interest accrues. Operating leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the
consolidated statement of income on a straight-line basis over the period of lease term. Income Taxes Taxation is provided in accordance with the Qatar Income Tax Law.

27

3 PROPERTY, PLANT AND EQUIPMENT
Buildings and foundations QR Plant, machinery and equipment QR 4,787,672,563 245,344,515 (121,479,863) 4,911,537,215
At 31 December 2010
Vehicles and mobile equipment QR 12,261,156 1,474,185 13,735,341
Capital work-inprogress QR 8,143,174,622 4,029,664,055 (246,151,197) (144,820) 11,926,542,660
Total QR 14,140,646,665 4,031,138,240 (121,479,863) (144,820) 18,050,160,222
Cost: At 1 January 2010 Additions Transfers Disposals Write-off At 31 December 2010 Depreciation: At 1 January 2010 Charge for the year Relating to disposals At 31 December 2010 Net carrying amount: At 31 December 2010
1,197,538,324 806,682 1,198,345,006
651,325,011 45,801,081 697,126,092
3,528,615,504 271,840,208 (121,479,562) 3,678,976,150
11,593,507 810,306 12,403,813
4,191,534,022 318,451,595 (121,479,562) 4,388,506,055
501,218,914 Buildings and foundations QR
1,232,561,065 Plant, machinery and equipment QR 4,622,070,973 381,141,836 (215,540,246) 4,787,672,563
1,331,528 Vehicles and mobile equipment QR 11,729,716 755,300 (223,860) 12,261,156
11,926,542,660 Capital work-inprogress QR 3,251,473,890 5,309,759,617 (417,905,049) (153,836) 8,143,174,622
13,661,654,167
Total QR 9,046,049,690 5,310,514,917 (215,764,106) (153,836) 14,140,646,665
Cost: At 1 January 2009 Additions Transfers Disposals Write-off At 31 December 2009 Depreciation: At 1 January 2009 Charge for the year Relating to disposals At 31 December 2009 Net carrying amount: At 31 December 2009 Notes:
1,160,775,111 36,763,213 1,197,538,324
606,262,179 45,062,832 651,325,011
3,497,035,514 247,120,236 (215,540,246) 3,528,615,504
11,153,674 663,693 (223,860) 11,593,507
4,114,451,367 292,846,761 (215,764,106) 4,191,534,022
546,213,313
1,259,057,059
667,649
8,143,174,622
9,949,112,643
(i) Buildings and foundations, which include the industrial plant, office site and administrative facilities at Mesaieed are constructed on the land leased from Qatar Petroleum, except the staff housing complex, which is constructed on the land leased from the Industrial Development Technical Centre. (ii) Capitalised borrowing costs of QR 384,573,645 (2009: QR 191,032,196) are included in the capital work-in-progress. (iii) The depreciation charge has been allocated in the consolidated statement of income as follows: 2010 QR Cost of sales (Note 21) Administrative expenses (Note 24) 290,431,124 28,020,471 318,451,595 2009 QR 265,940,660 26,906,101 292,846,761
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4 PROJECT UNDER DEVELOPMENT

2010 QR Advance for formation of a subsidiary Advance for QAFCO - 5 Advance for QAFCO - 6 754,740,459 104,482,001 155,980,770 1,015,203,230 2009 QR 594,056,146 990,968,858 396,912,712
Advance for formation of a subsidiary The Group has signed an agreement with Qatar Intermediate Industries Holding Company Ltd. to establish a separate legal entity namely, Qatar Melamine Company. The subsidiarys prime objective is to produce and sell Melamine through the ownership of a plant which is currently under construction. The balance as at 31 December represents the contribution by the Group towards the construction of their plant facilities. The Group will own 60% of the shares of Qatar Melamine Company, the commercial operation of which is expected to commence early in 2011. The movement in the advance for formation of a subsidiary is as follows:
2010 QR At 1 January Additional fund contribution At 31 December 594,056,146 160,684,313 754,740,459
2009 QR 464,129,923 129,926,223 594,056,146
Advance for QAFCO - 5 The Group has signed an agreement with Hyundai Construction & Engineering Co Ltd. and Snamprogetti S.P.A, (Main Contractors) to construct its plant expansion project namely, QAFCO - 5. In accordance with the terms of the agreement, the Group made a 10% advance payment to the Main Contractors and this amount will be recovered at the same percentage through progress billings. The project is expected to be completed in mid 2011. The Group also entered into an agreement with a consortium of banks led by Hongkong and Shanghai Banking Corporation (HSBC) as the facility agent on 2 December 2007, to obtain a term loan facility amounting to USD 1.6 billion (See Note 12). The movement in the advance for QAFCO 5 is as follows: 2010 QR At 1 January Recovered during the year At 31 December 396,912,712 (292,430,711) 104,482,001 2009 QR 888,460,891 (491,548,179) 396,912,712
Advance for QAFCO - 6 The Group has signed an agreement with Hyundai Construction & Engineering Co Ltd. and Snamprogetti S.P.A, (Main Contractors) to construct its plant expansion project namely, QAFCO - 6. In accordance with the terms of the agreement, the Group made a 10% advance payment to the Main Contractors and this amount will be recovered at the same percentage through progress billings. The project is expected to be completed in September 2012. The movement in the advance for QAFCO - 6 is as follows: 2010 QR At 1 January Paid during the year Recovered during the year At 31 December 222,040,000 (66,059,230) 155,980,770 2009 QR -

29

5 CATALYSTS
At 31 December 2010
2010 QR Cost: At 1 January 94,136,050 17,437,145 (31,233,160) 80,340,035
2009 QR 68,617,873 28,178,995 (2,660,818) 94,136,050
Additions Disposals At 31 December Amortisation: At 1 January Charges for the year (Note 21) Disposals At 31 December Net carrying amount at 31 December
52,578,166 12,982,873 (31,233,160) 34,327,879 46,012,156
43,530,047 11,708,937 (2,660,818) 52,578,166 41,557,884
6 INVENTORIES
2010 QR Spare parts Finished goods Chemicals and catalysts Goods in transit Packing materials, consumables and supplies Less: Provision for obsolete and slow-moving inventories 297,439,944 99,763,341 19,411,528 9,622,259 2,114,086 428,351,158 (36,962,369) 391,388,789 Movements in the provision for obsolete and slow-moving inventories are as follows: 2010 QR At 1 January Provided during the year (Note 21) Amounts written off At 31 December 32,506,805 5,301,835 (846,271) 36,962,369 2009 QR 28,769,941 5,272,267 (1,535,403) 32,506,805 2009 QR 282,939,722 52,156,492 18,931,254 9,476,742 503,304 364,007,514 (32,506,805) 331,500,709
7 ACCOUNTS RECEIVABLE AND PREPAYMENTS

2010 QR Trade accounts receivable Amounts due from related parties (Note 19) Prepayments and advances Other receivables Less: Provision for impairment of receivables (Note 24) 206,366,984 526,311,137 44,758,539 885,241 778,321,901 778,321,901 2009 QR 215,717,024 282,149,456 48,941,873 18,203,533 565,011,886 (113,434) 564,898,452
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As at 31 December 2010, trade accounts receivable at nominal value of QR Nil (2009: 113,434) were impaired and fully provided for. Movement in the provision for impairment of receivables is as follows: 2010 QR At 1 January Provided during the year (Note 24) Recovered during the year At 31 December As at 31 December, the ageing of unimpaired financial assets is as follows: Past due but not impaired < 30 days QR 719,264 31 120 days QR 45,231 > 120 days QR 579,583 113,434 (113,434) 2009 QR 113,434 113,434
Total QR 2010 2009 733,563,362 515,956,579
Neither past due nor impaired QR 732,219,284 515,956,579
Unimpaired receivables are expected, on the basis of experience, to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the entire financial assets are, therefore, unsecured.
8 CASH AND CASH EQUIVALENTS

2010 QR Bank balances and cash Short term deposits maturing after 90 days Cash and cash equivalents at 31 December 497,003,830 497,003,830 2009 QR 1,907,800,697 (1,324,740,000) 583,060,697
Bank balances and cash include call deposits of QR 300,000,000 (2009: QR 250,000,000) denominated in Qatari Riyals.
9 SHARE CAPITAL
2010 QR Authorised, issued and fully paid: 10,000,000 ordinary shares of QR 100 each 1,000,000,000 1,000,000,000 2009 QR
10. LEGAL RESERVE

As required by the Companys Articles of Association, 10% of the profit for the year should be transferred to legal reserve until the reserve totals 20% of the issued share capital. The Company resolved to discontinue such annual transfers since the reserve reached the required amount. In the books of the subsidiary company, as required by Qatar Commercial Companies Law No. 5 of 2002 and the subsidiary companys Articles of Association, 10% of the profit for the year is required to be transferred to a legal reserve until the reserve equals 50% of the issued capital. The current year transfer represents only the subsidiary companys share of transfers to the Group. The reserve is not available for distribution except in the circumstances stipulated in the above law and the Companys and subsidiary companys Articles of Association.
11. DIVIDENDS PAID AND PROPOSED

2010 QR Declared and paid during the year: Final dividends for 2009 QR 100 per share (2008: QR 115) 1,000,000,000 1,150,000,000 2009 QR

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12. INTEREST BEARING LOAN
At 31 December 2010
The Board of Directors has proposed a final cash dividend of QR50 per share totaling QR 500,000,000 for 2010, which is subject to the approval of the shareholders at the Annual General Meeting.
2010 QR Term loan Less: Deferred financing arrangement costs (ii) 5,096,000,000 (42,383,784) 5,053,616,216 Presented in the statement of financial position as follows: 2010 QR Current portion Non-current portion 1,228,493,146 3,825,123,070 5,053,616,216 Notes: (i) The Group has entered into an agreement with a consortium of banks led by HSBC as the facility agent on 2 December 2007, to obtain a term loan facility amounting to USD 1.6 billion to finance the construction of QAFCO-5 project, which is currently under construction. The loan bears interest at LIBOR plus an applicable margin. The Group has entered into two interest rate swaps to hedge its risk associated with interest rate fluctuation as explained more in Note 16. The loan is repayable in semi-annual installments commencing after 4 years from the date of the loan agreement. The Group has assigned to the security trustee, all monies which at 2010 QR At 1 January Additions Amortised during the year At 31 December 45,932,371 3,051,685 (6,600,272) 42,383,784
2009 QR 3,640,000,000 (45,932,371) 3,594,067,629
2009 QR 3,594,067,629 3,594,067,629
any time may be or become payable to the trustee, all its present and future rights, title and interest in, under various agreements pursuant thereto and the net proceeds of any claims, award and judgments which may at any time be receivable or received by the Group. (ii) The finance costs associated with obtaining the above loan represent arrangement, underwriting, participation and agency fees paid (arrangement fees). Movements in the arrangement fees are as follows: 2009 QR 39,726,481 9,850,371 (3,644,481) 45,932,371
The amortised arrangement fees were capitalised in the capital work-in-progress as borrowing costs (see Note 3).
13. EMPLOYEES END OF SERVICE BENEFITS

The Group provides for end of service benefits for its employees. Movements in the provision are as follows: 2010 QR At 1 January Provision during the year End of service benefits paid 117,700,498 15,845,083 (13,764,930) 119,780,651 Less: Advances against end of service benefits At 31 December (50,230,289) 69,550,362 2009 QR 113,406,947 16,125,455 (11,831,904) 117,700,498 (47,910,541) 69,789,957
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14. ACCOUNTS PAYABLE AND ACCRUALS

2010 QR Trade accounts payables Amounts due to related parties (Note 19) Other payables and accruals 196,061,753 284,038,429 80,945,890 561,046,072 2009 QR 211,455,601 262,513,703 101,605,005 575,574,309
15. INCOME TAX PAYABLE

In accordance with the regulations of the Qatar Public Revenues and Taxes Department, the Company is subject to corporate income tax in the State of Qatar for the share of profit attributable to foreign shareholders excluding exempted profit of QAFCO Plant 4. For the purpose of these consolidated financial statements, the income tax obligations of the Company have been included as amounts due from foreign shareholders given that such shareholders are fully liable for the tax payment. Effective from the taxable year beginning 1 January 2010, Law No. 21 of 2009 introduced a new corporate income tax rate of 10% on companies. The new income tax law is not clear on the tax rate applicable to the share of profit attributable to the foreign shareholders of the Company whether 10% or 35%. The Company has applied the rate of 35% in calculating the income tax obligation for the year ended 31 December 2010 as a conservative measure.
Reconciliation between income tax and the product of accounting profit multiplied by the effective tax rate for the year is as follows: 2010 QR Profit attributable to QAFCO Plants 1, 2 and 3 Profit attributable to QAFCO Plant 4 (Exempt from tax) Profit from subsidiary (Exempt from tax) Accounting profit Accounting profit entitled for taxation Expenses that are not deductible in determining taxable profit: Provision for impairment of receivables Board of Directors remuneration Provision for obsolete and slow moving inventories 840,434 3,976,376 4,816,810 Expense that is deductible in determining taxable profit: Slow-moving inventories provision write-off Taxable profit Effective tax rate for the share of profit attributable to foreign shareholders Income tax payable (634,703) 1,240,612,493 8.75% 108,553,593 (1,151,552) 782,179,046 8.73% 68,306,916 66,522 930,804 3,954,200 4,951,526 1,236,430,386 873,894,542 10,492,469 2,120,817,397 1,236,430,386 2009 QR 778,379,072 906,688,298 10,964,880 1,696,032,250 778,379,072
QAFCO Plant 5 and QAFCO Plant 6 are under construction and there are no operational activities for the year ended 31 December 2010.

33

16. OTHER FINANCIAL ASSETS AND LIABILITIES
Other financial asset Derivative: Forward foreign exchange contract collar Current Other financial liabilities Derivatives: Interest rate swap Forward foreign exchange contract collar
At 31 December 2010
2010 QR
2009 QR
3,035,827
307,745,529 307,745,529
129,977,389 1,254,994 131,232,383
Presented in the consolidated statement of financial position as follows: Non-current portion Current portion 307,745,529 307,745,529 The maturity profile of the derivatives is as follows: 129,977,389 1,254,994 131,232,383
At 31 December 2010 Interest rate swaps Forward foreign exchange contract with collar Spot forward currency contract
Positive fair value QR Mn Positive fair value QR Mn
Negative fair value QR Mn 308 308 Negative fair value QR Mn 129 1 130
Notional amount QR Mn 4,004 4,004 Notional amount QR Mn 4,004 526 365 4,895
3 12 months QR Mn 146 146 3 12 months QR Mn 526 365 891
1 5 years QR Mn 1,165 1,165
More than 5 years QR Mn 2,693 2,693 More than 5 years QR Mn 2,985 2,985
1 5 years QR Mn 1,019 1,019
At 31 December 2009 Interest rate swaps Forward foreign exchange contract with collar Spot forward currency contract 3 3 Interest rate swaps: The Group has two interest rate swap contracts replacing its floating interest rate bearing loans for fixed interest bearing loans, designated as hedges of expected future LIBOR interest rate payments during the period to 5 December 2017. The terms of the interest rate swap contracts have been negotiated to match the terms of the commitments of the term loan (Note 12). At 31 December 2010, the measurement of the fair values of the hedges resulted in a negative amount of QR 308 million (2009: QR 129 million) which has been recognized in the equity as changes in fair values and as derivative liabilities. Forward foreign exchange contract with collar: Collar are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, to either buy or sell at fixed future date or any time during a specified period, a specified amount of a currency at a pre-determined price.
At 31 December 2010, the measurement of the fair values of the collar resulted in a positive amount of QR Nil (2009: QR 3 million) and negative amount of QR Nil (2009: QR 1 million) which has been recognized in the equity as changes in fair values and as derivative assets and liabilities. Spot forward currency contract: The Group has signed a spot forward currency contract to sell USD Nil (2009: USD 100 million) and buy Qatari Riyals at the spot rate of QR 3.6475. The fair values of above derivative financial instruments as of 31 December 2010 amounted to QR Nil (2009: QR 212,101) which has been included in the consolidated statement of income as the transaction do not qualify for hedge accounting and the resultant asset has been disclosed as other receivables.
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17. EXPENDITURE COMMITMENTS

2010 QR (a) Capital expenditure commitments: Estimated capital expenditure contracted for at the reporting date but not provided for: QAFCO - 5 expansion project (i) QAFCO - 6 expansion project (ii) Qatar Melamine project (iii) Urea-1 Revamp project (iv) Other contract commitments 2,091,930,954 1,590,430,598 79,469,110 6,330,881 250,309,989 4,018,471,532 (i) On 2 December 2007, the Group signed an agreement with Hyundai Construction & Engineering Co Ltd., and Snamprogetti S.P.A., for building a new Ammonia plant and Urea Formaldehyde Concentrate (UFC) Plant UFC 85. The value of the contract including variation orders is USD 3,515,467,000. (ii) On 9 October 2009, the Company signed an agreement with Hyundai Construction & Engineering Co Ltd., and Snamprogetti S.P.A., for building a new Urea plant. The value of the contract is USD 620,000,000. 5,227,424,519 2,256,800,000 306,155,333 24,612,897 188,759,803 8,003,752,552 2009 QR
(iii) The Group has signed an agreement with Qatar Intermediate Industries Holding Company Ltd., to establish a separate legal entity namely, Qatar Melamine Company for constructing plant facilities to produce Melamine. The value of the contract is USD 353,205,689. The Group will own 60% of the shares of the Qatar Melamine Company. The amount represents the Groups share of the committed future capital expenditure on this project. (iv) The Group has signed and agreement with Urea Casale S.A for building a new Urea - 1 Revamp project. The value of the contract including variation orders is USD 95,153,395.
2010 QR (b) Operating lease commitments: Future minimum lease payments: Within one year After one year but not more than five years More than five years Total operating lease expenditure contracted for at the reporting date 43,235,481 59,416,192 184,520,881 287,172,554
2009 QR
36,788,917 45,509,080 100,329,169 182,627,166
18. CONTINGENCIES
Contingent liabilities At 31 December, the Group had the following contingent liabilities from which it anticipates that no material liabilities will arise: 2010 QR Letters of credit Bank guarantees 71,387,071 264,264 71,651,335 2009 QR 95,020,056 3,504,401 98,524,457
19. RELATED PARTY DISCLOSURES

Related parties represent major shareholders, directors and key management personnel of the Group, and entities controlled, jointly controlled or significantly influenced by such parties. Industries Qatar (IQ) is the immediate parent entity of the Group and the ultimate parent entity of the Group is Qatar Petroleum (QP). Related party transactions A significant portion of the Groups transactions have been entered with the shareholders. The prices and terms of payment for these transactions are in accordance with specific agreements entered into, with the shareholders as follows: a) Urea Marketing Agreement dated 18 June 1994 entered with Yara International ASA (formally known as Hydro Asia Trade Pte Limited), dated 18 June 1994 to market prilled and granulated Urea produced by the Group in the regional markets of Europe, America, Africa and Asia, in return for a marketing commission. This initial agreement was replaced by the Urea Marketing and Off-take Agreement dated 5 September 2001 and shall remain in force until 31 December of the year from the tenth anniversary of the successful performance test of the QAFCO - 4 expansion project (i.e. 31 December 2016).

35

b) Advisory and Technical Services Agreement entered with Yara International ASA to render technical services and provide qualified management and operating personnel to the Group in return for an agreed lump sum fee.
At 31 December 2010
c) Gas Sale and Purchase Agreement dated 18 June 1994 entered with QP for a period of 25 years (renewable) to purchase feed gas at rates, which are lower than the prevailing international market rates, to use for the production of Urea and Ammonia.
Transactions with related parties included in the consolidated statement of income are as follows: 2010 QR Shareholder: Yara International A.S.A - Sale of Urea and Ammonia - Sales commission - Technical service charges - Purchase of inventories Ultimate parent: Qatar Petroleum - Purchase of feed stock - Purchase of Methanol - Insurance - Land lease and staff accommodation lease charges - Training costs - Other charges Related party balances Balances with related parties included in the consolidated statement of financial position are as follows: 2010 Accounts receivable QR Yara International A.S.A Qatar Petroleum Qatar Fuel Additives Q.S.C.C. Fertiliser Holding A.S.A 508,141,543 18,169,594 526,311,137 Accounts payable QR 22,768,055 258,677,118 2,593,256 284,038,429 2009 Accounts receivable QR 237,568,605 17,258,085 27,322,766 282,149,456 Accounts payable QR 17,639,496 241,419,458 3,454,749 262,513,703 892,523,373 21,701,913 20,200,270 13,977,951 11,640,012 2,435,787 853,142,611 13,918,604 18,753,236 13,416,083 6,428,402 663,053 1,707,940,627 51,239,201 3,500,000 39,323 1,539,956,679 45,890,730 3,500,000 43,403 2009 QR
Amounts due from and due to related parties are disclosed in Notes 7 and 14, respectively. Compensation of key management personnel The remuneration of directors and other members of key management during the year are as follows: 2010 QR Short-term benefits Remuneration for Directors (Note 24) Qatari employees pension fund contribution 12,534,484 1,396,664 398,363 14,329,511 2009 QR 11,884,683 1,516,927 379,349 13,780,959
20. SALES - NET

2010 QR Sales gross Freight and insurance Sales net 3,924,277,692 (44,239,284) 3,880,038,408 2009 QR 3,395,371,787 (88,771,651) 3,306,600,136
36
21. COST OF SALES

2010 QR Raw materials consumed Depreciation (Note 3) Salaries, wages and related expenses Spares and equipment consumed External services Insurance, rents and fees Amortisation of catalysts (Note 5) Provision for obsolete and slow moving inventories (Note 6) Amortisation of shutdown costs Others 926,109,875 290,431,124 125,465,306 38,698,319 21,078,443 16,862,017 12,982,873 5,301,835 313,775 1,264,119 1,438,507,686 2009 QR 877,433,399 265,940,660 41,953,336 23,007,112 10,861,389 11,708,937 5,272,267 35,131 1,485,473 1,359,622,027 121,924,323
22. OTHER INCOME

2010 QR Foreign currency exchange gain Interest income Reversal of excess provision Sale of gas Demurrages and dispatch Profit on disposal of catalysts, property, plant and equipment Club contribution Rent income Contribution from Norwegian Government for QAFCO Norwegian School Miscellaneous income 52,015,193 22,686,274 11,434,789 10,966,324 5,660,173 2,478,983 1,278,119 1,169,061 6,969 8,541,304 116,237,189 2009 QR 164,551,763 18,460,720 3,389,786 4,137,479 25,010 2,696,458 1,459,698 11,548 2,231,546 196,964,008
23. SELLING AND DISTRIBUTION COSTS

2010 QR Sales commission Other sales expenses 59,232,191 5,340,592 64,572,783 2009 QR 51,780,599 3,337,645 55,118,244

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24. ADMINISTRATIVE EXPENSES
Salaries and related expenses Insurance, rents and fees External services Depreciation (Note 3) Spares and equipment consumed Travel expenses Public relations and gifts Communication expenses Remuneration for Directors (Note 19) Capital work-in-progress write-off (Note 3) Foreign currency exchange loss Provision for impairment of receivables (Note 7) Miscellaneous expenses
At 31 December 2010
2010 QR 206,406,931 43,510,016 42,504,793 28,020,471 27,790,645 7,598,440 5,482,885 4,129,879 1,396,664 144,820 5,392,187 372,377,731
2009 QR 205,457,041 45,311,427 34,110,244 26,906,101 29,360,461 7,195,304 11,928,377 3,825,498 1,516,927 153,836 20,363,093 113,434 6,549,880 392,791,623
25. FAIR VALUE OF FINANCIAL INSTRUMENTS

Set out below is a comparison by class of the carrying amounts and fair value of the Groups financial instruments that are carried in the consolidated financial statements. Carrying amount 2010 QR Financial assets Trade and other receivables Other financial asset: Forward foreign currency collar Bank balances and cash Total Financial liabilities Interest bearing loans Floating rate borrowings Trade and other payables Other financial liabilities: Interest rate swaps Forward foreign currency collar Total 307,745,529 5,883,845,711 129,977,389 1,254,994 4,245,201,687 307,745,529 5,883,845,711 129,977,389 1,254,994 4,245,201,687 5,096,000,000 480,100,182 3,640,000,000 473,969,304 5,096,000,000 480,100,182 3,640,000,000 473,969,304 497,003,830 1,230,567,192 3,247,928 1,907,800,697 2,427,005,204 497,003,830 1,230,567,192 3,247,928 1,907,800,697 2,427,005,204 733,563,362 515,956,579 733,563,362 515,956,579 2009 QR Fair value 2010 QR 2009 QR
The fair value of financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: Bank balances and cash, trade and other receivables and trade and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments. Interest bearing loan is estimated based on discounted cash flows using interest rate for items with similar terms and characteristic. The Group enters into derivative financial instruments, principally with financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps and foreign exchange forward contracts (collar). The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. At 31 December, the marked to market value of derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
38
Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 : quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2 : other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3 : techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. At 31 December, the Group held the following financial instruments measured at fair value:
Assets measured at fair value Forward foreign currency collar Spot forward currency contract Liabilities measured at fair value Interest rate swaps Forward foreign currency collar 307,745,529 31 December 2009 QR Assets measured at fair value Forward foreign currency collar Spot forward currency contract Liabilities measured at fair value Interest rate swaps Forward foreign currency collar 129,977,389 1,254,994 129,977,389 1,254,994 3,247,928 212,101 3,247,928 212,101 Level 1 QR 307,745,529 Level 2 QR Level 3 QR -
During the reporting period ending 31 December 2010 and 2009, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
26. FINANCIAL RISK MANAGEMENT

Objectives and policies The Groups principal financial liabilities comprise interest bearing loan, trade accounts payable and amounts due to related parties. The main purpose of these financial liabilities is to raise finance for the Groups operations. The Group has various financial assets such as trade accounts receivable, amounts due from related parties and bank balances, which arise directly from its operations. The main risks arising from the Groups financial instruments are cash flow interest rate risk, credit risk, liquidity risk and foreign currency risk. The Board of Directors review and agree on policies for managing each of these risks which are summarised below. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Group is minimally exposed to interest rate risk on its interest bearing assets and liabilities (term loan and short term deposits).
At reporting date, the interest rate profile of the Groups interest bearing financial instruments is as follows: 2010 QR Fixed interest rate instruments: Short term bank deposits Effective interest rate Floating interest rate instruments: Call deposits Interest bearing loan The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups financial assets and liabilities with floating interest rates and fixed interest instruments. To manage the risk of changes in floating interest rate on its interest bearing loan, the Group has entered into interest rate swaps as explained in Note 16. Under the swap agreements, the Group will pay an agreed fixed interest rate and receive a floating interest rate. 300,000,000 (5,096,000,000) (4,796,000,000) 250,000,000 (3,640,000,000) (3,390,000,000) 1,324,740,000 12.42% 2009 QR
The following table demonstrates the sensitivity of the consolidated statement of income (due to call deposits), property, plant and equipment (due to borrowing costs capitalised) and equity (due to interest rate swaps) to reasonably possible changes in interest rates by 25 basis points, with all other variables held constant. The sensitivity of the consolidated statement of income, property, plant and equipment and equity is the effect of the assumed changes in

39
31 December 2010 QR
Level 1 QR
Level 2 QR
Level 3 QR

interest rates for one year, based on the floating rate financial assets and financial liabilities held at 31 December. The effect of decreases in
At 31 December 2010
interest rates is expected to be equal and opposite to the effect of the increases shown. Profit +25b.p. QR Property, plant and equipment +25b.p. QR Equity +25 b. p. QR
At 31 December 2010 Variable rate instruments Call deposits Interest bearing loan Interest rate swaps 750,000 750,000 12,740,000 12,740,000 Property, plant and equipment +25b.p. QR (10,010,000) (10,010,000)
Profit +25b.p. QR At 31 December 2009 Variable rate instruments Call deposits Interest bearing loan Interest rate swaps 625,000 625,000 Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Groups exposure to credit risk is as indicated by the carrying amount of its assets which consist primarily of account receivables, bank balances and derivatives. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks. With respect to customers, the marketing department has established a credit policy under which each new customer is analysed individually for creditworthiness
Equity +25 b. p. QR
9,100,000 9,100,000
(10,010,000) (10,010,000)
before Groups standard payment and delivery terms and conditions are offered and monitoring outstanding receivables. The Group is engaged in production and sales of Urea and Ammonia. The five largest customers of the Group account for 82 % of outstanding receivable at 31 December 2010 (2009: 78%). With respect to credit risk arising from the financial assets of the Group, the Groups exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments as follows: 2010 QR 2009 QR 1,907,800,697 282,149,456 215,603,590 21,239,360 2,426,793,103
Bank balances Amounts due from related parties Trade accounts receivable Other financial assets
497,003,830 526,311,137 206,366,984 885,241 1,230,567,192
Liquidity risk Liquidity risk is the risk that the Group will not be able to meet financial obligations as they fall due. The Groups approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation. The Group limits its liquidity risk by maintaining adequate funds in the
banks and ensuring bank facilities are available. The Groups terms of sales require amounts to be paid within 30 days of the date of invoice. Trade payables are normally settled within 45 60 days of the date of purchase. The table below summarises the maturity profile of the Groups financial liabilities at 31 December based on contractual undiscounted payments.
40
Year ended 31 December 2010
Less than 3 months QR 196,061,753 284,038,429 48,703,306 528,803,488 Less than 3 months QR 211,455,601 262,513,703 36,646,896 510,616,200
3 to 12 months QR 80,622,549 1,383,629,839 1,464,252,388 3 to 12 months QR 133,859,548 109,940,687 243,800,235
1 to 5 years QR (69,321,979) 1,851,116,635 1,781,794,656 1 to 5 years QR 42,584,912 1,203,918,163 1,246,503,075
> 5 years QR (26,558,835) 2,969,920,043 2,943,361,208
Total QR 196,061,753 284,038,429 6,253,369,823 6,718,211,740 (15,258,265)
Trade accounts payable Amounts due to related parties Derivative financial liabilities (net basis) Interest bearing loan Total Year ended 31 December 2009
> 5 years QR (57,841,177) 3,290,435,493 3,232,594,316
Total QR 211,455,601 262,513,703 118,603,283 4,640,941,239 5,233,513,826
Trade accounts payable Amounts due to related parties Derivative financial liabilities (net basis) Interest bearing loan Total
Currency risk Currency risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. As the Qatari Riyal is pegged to the US Dollars, the balances in US Dollars are not considered to represent significant currency risk. The table below indicates the Groups foreign currency exposure at
31 December, as a result of its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the Qatari Riyal currency rate against the GBP and Euro, with all other variables held constant, on the consolidated statement of income (due to the fair value of currency sensitive monetary assets and liabilities). The effect of decrease in currency rates is expected to be equal and opposite to the effect of the increase shown. Changes in currency rate to the Qatari Riyal Effect on profit QR (122,324) (437,923) (82,398) (780,704)
2010 GBP Euro 2009 GBP Euro Capital management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balances. The Group makes adjustments to its capital structure, in light of changes in economic and business conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment +5% +5% +5% +5%
to shareholders, or issue new shares. During 2009, the Group has obtained a loan facility to finance the QAFCO 5 Plant. Capital includes share capital, legal reserve, and retained earnings and is measured at QR 10,578,655,968 at 31 December 2010 (2009: QR 9,460,986,312).

41

27. KEY SOURCES OF ESTIMATION UNCERTAINTY
a) Impairment of accounts receivable An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. b) Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this
At 31 December 2010
estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision is applied according to the inventory type and the degree of ageing or obsolescence, based on historical realisable value. c) Useful lives of property, plant and equipment The Groups management determines the estimated useful lives of property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset, physical wear and tear, technical or commercial obsolescence.
28. COMPARATIVE FIGURES

The net of certain expenses and income which were previously included under Cost of sales and Other income amounting to QR 190,148,265 and QR 17,412,735, respectively, have been reclassified to Administrative expenses of QR 172,735,480 for the year ended 31 December 2009. However, these reclassifications did not have any effect on the profit and total equity of the prior period. These changes have been made to improve the quality of information presented.
42

Qafco Anual Report English Final 2010

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1

Sheikh Tamim Bin Hamad Al Thani

Sheikh Hamad Al Thani

H.E. Abdulaziz A. Al-Malki Chairman

Mr. Khalifa A. Al-Sowaidi Vice Chairman/CEO

Mr. Hamad Rashid Al-Nuaimi Member

Mr. Jorgen Ole Haslestad Member

Mr. Nasser J. Al-Kuwari Member

Mr. Meshaal M. Al-Mahmoud Member

Mr. Saeed Mubarak Al-Kuwari Member

Mr. Egil Hogna Member

QAFCOs Main Objectives are to

Qatar Fertiliser Company

Name of the shareholder Industries Qatar (IQ) Yara Netherland BV

Country of incorporation Qatar Netherland

Interests 75% 25%

Qatar Melamine Company

Qatar Fertilizer Company A Brief History

H.E. Abdulaziz A. Al-Malki Chairman

Abdulaziz A. Al-Malki Chairman

Ammonia sales: Consolidating in East Asia.

QAFCO expanding globally

Urea Marketing highlights

QAFCO Plant Maintenance

Major shutdown 2010

Behaviour Based Safety

Qatarization & Development

QAFCO achieves the consent to operate Qatar Melamine Company.

Certifications for Qatar Melamine Company (QMC)

QAFCO achieves 5 million man-hours free of lost time accidents

Product Stewardship Certification

Gulf Formaldehyde Company (GFC)

QAFCO expands its Urea Formaldehyde Market.

The year 2011 strong increase in demand anticipated.

Khalifa A Al Sowaidi Vice-Chairman / CEO

QAFCO Corporate Governance Report

QAFCO Corporate Governance Report

Independent Auditors Report

Report on legal and other requirements

A. Mekhael of Ernst & Young

Date: 9 February 20 II Doha.

Auditors Registration No. 59

Independent Auditors Report

Consolidated statement of financial position

13,661,654,167 1,015,203,230 46,012,156 14,722,869,553

9,949,112,643 990,968,858 41,557,884 10,981,639,385

Consolidated statement of financial position

TOTAL ASSETS EQUITY AND LIABILITIES Equity

1,000,000,000 206,403,954 (307,745,529) 9,372,252,014 10,270,910,439 18,161,862

1,000,000,000 205,354,707 (128,196,557) 8,255,631,605 9,332,789,755 17,114,121 9,349,903,876

Equity attributable to equity holders of the parent

Total equity Non-current liabilities

3,825,123,070 307,745,529 69,550,362 4,202,418,961

3,594,067,629 129,977,389 69,789,957 3,793,834,975

Total liabilities TOTAL EQUITY AND LIABILITIES

Abdulla Hussain Salatt Chairman of the Board

Khalifa Abdullah Al-Sowaidi Managing Director

Consolidated statement of financial income

Year Ended 31 December 2010

2010 Notes 20 21 QR 3,880,038,408 (1,438,507,686) 2,441,530,722 22 23 24 116,237,189 (64,572,783) (372,377,731) 2,120,817,397

2009 QR 3,306,600,136 (1,359,622,027)

Other income Selling and distribution costs Administrative expenses

196,964,008 (55,118,244) (392,791,623) 1,696,032,250