Objectives/Targets/Scope of SHE Report 2003

1. ObjectiveThe objective of this report is to openly communicate SK Corp.’s current SHE operation to allconcerned parties and reflect their opinions to the future management plans.

2. Report TargetsThis report is prepared to be reviewed by all stakeholders such as customers, shareholders,academia, government, partners, local residents and others.

3. Scope of the ReportThe SHE performance section in this report is focused on SK Corp.’s Ulsan CLX while theother information deals with SHE management activities over SK’s whole value chain.

This report was prepared based on Environmental Report Guideline 2002 by the Ministry of Environment and 2002 Sustainability Report Guideline by GRI (Global Reporting Initiative).

SK SHE Report 2003

ContentsObjective/Target/Scope of SHE Report 2003 2

Message From Chairman 4

Message From CEO 6

Company Overview 10

SK SHE History 11

Corporate Sustainability Management 12

SHE Management System 16

Advanced Management Methodology 21

Resource Usage 26

Environment Performance 27

Safety and Health Performance 32

Cleaner Production Activities 36

Environment Friendly Products and Services 37

Preservation of Ecosystem 46

Social Contribution 50

Stakeholder Relation Improvement 51

Regulatory Compliance 53

Awards and Certification 54

Sustainability

Integrated Management

Continual Improvement

Product Stewardship

Relationship with Stakeholders

SK SHE Report 2003

Message From Chairman

In the past century, mankind established the industrial society based on mass production andconsumption, enabled by explosive population growth and rapid industrial technology development. Asthe result, the problems of resource scarcity and environment pollution have become the critical issuesfor people who are worried of lack of pleasant life and resource to be passed over to the futuregeneration. Rio World Summit on Sustainable Development (SD) was held in 1992 to resolve this crisis.It was the turning point that disseminated concept of SD throughout the world.

To correspond to time of change, SK, the clear leader of Korea s energy industry for the past halfcentury, proclaimed itself as the energy company no more but the sustainable environment orientedcompany in 1999. SK s new beginning was the manifestation of our intention to remain as theresponsible corporate citizen through continuous environment performance improvement.

Following the new vision, the companywide management plan, containing the environmentmanagement strategy of corporate operations with consideration to social cost, has been prepared andimplemented. Cleaner production technology, and cleaner fuel and alternative energy sourcedevelopment are only some examples of direct results of SK s endeavors to promote the environmentmanagement not as the expenditures but as the opportunity to differentiate itself and improve itscompetitiveness.

SK intends to be reborn as a sustainable corporate which is not engrossed in short term profits butaccomplishes economic growth, social responsibilities and environmental soundness all together forlong term.

To achieve the goal, SK regards SHE (Safety, Health and Environment) management practice built onthe basic principle of respect to mankind and environment preservation as the most important essentialmanagement activity.

This report was prepared to publicly communicate SK s SHE performance for the past 5 years. SK willuse it as the basis for improvement by sincerely listening to critique. It will also be used as the effectivetool to strengthen communication with public and improve mutual trust.

For the future, SK pledges to continue our effort to incorporate the global proposition of SustainableDevelopment to all our activities in order to remain as the socially responsible corporate.

April 2004

Tae-won CheyChairman of the Board, SK Corporation

SK SHE Report 2003

As more and more people are recognizing that human lives cannot be separated from naturalenvironment, Sustainable Development (SD) has become the key word of our time. For the industry, itis the challenge and the opportunity at the same time. There were times when creating economic profit was considered as the utmost priority for acommercial enterprise, but the concept of SD is now challenging the companies to be concerned withsocial and environmental responsibilities as well as the economic performance. The corporationsdisregarding the concept will face the risk of being perished while those well adapted will be awardedwith the additional business opportunities, improved economic efficiency and, most of all, the newopportunity to establish the business platform that can coexist with the ecosystem. SK Corp. is proud of its role as the leader of the energy oriented industry, the driving force for thiscountry s rapid economic growth over the years. Having recognized the seriousness of environmentalproblems from early on, we have instituted the policies that fully reflect the environmental as well aseconomic issues by extensively reviewing the advanced environmental trends of other countries. Andthese policies have been adapted to the work sites since the early 1990 s. In 1993, SK Corp. announcedthe Environmental Policy in an attempt to articulate our commitment to environment consciousmanagement and formulated an Environment Management Master Plan to continually improveenvironmental performance. In 2003, the SHE management infrastructure was completed as all existingsafety, health and environment systems were converged to an integrated SHE management system. With respect to the global environmental changes, SK Corp. has been promoting the various energyreduction activities and developing the CO2 inventory system and National Registry Program in order tocooperate with international Climate Change Agreement. In addition, we have invested considerableeffort to develop the alternative energy, low pollution fuel in concert with the National Clean TechnologyDevelopment Program. We have also conducted LCA of all petroleum products to manage the wholeprocess encompassing production, usage and disposal. The internally developed Environmental IndexSystem will help further advancing our environmental management system. SK Corp. pledges to become more than just an energy oriented company as we intend to remain as asustainable enterprise to the 21st century and beyond. SK Corp. no longer considers SHE managementas the expenditures or local issues but as the opportunity to improve our competitive edge. On theglobal perspective, we intend to build its corporate foundation which is environmentally friendly, sociallyconscious and economically sound and more importantly where human beings coexist with nature inharmony.By issuing this report reflecting SK s effort to the environmental issues to the public, we hope to showour commitment to the environment. We welcome any constructive criticism or advice as they will helpus further improve our performance and remain the responsible corporate citizen. SK Corp. pledges to put our best effort to remain as the socially responsible and safety, health andenvironment conscious company.

April 2004

Heon-cheol ShinCEO, SK Corporation

Message From CEO

SK SHE Report 2003

To assure sustainable development, SK Corp. considers respect for human beings andpreservation of environment as the utmost corporate values and formulates

the safety, health and environment policies accordingly.

Sustainability

SK SHE Report 2003

Table 2. Main Products and Revenue, 2002 (unit: million KRW)

Fig 1. SK Corp. Business Structure

Since its beginning as the nation s first oil refining company in the 1960 s,SK Corp. has been a driving force for national economic development. The70 s saw the company s continual expansion to ensure stable supply ofthe nation s needed energy resources as well as entry to the petrochemicalindustry. During the 1980~1990s, SK led the rapid growth of the nationalenergy industry and was recognized as the nation s largest all-aroundenergy and chemical corporation.

While the rapid paradigm shifts to Digital Network in the late 1990 s, SKsecured the engine for the sustainable future growth by successfullyentering the new businesses, such as the total service for the drivers (TSD),OK Cashbag programs and the life science business based on the core

competency, know-how, superior technology and experience from theexisting business.

The last 40 years of successes have allowed SK to be reborn as thecustomer-driven marketing company. SK s recent grouping of all customeroriented divisions - the energy service, total service for drivers (TSD) and OKCashbag - into the new Energy & Marketing Business Unit will enable us toprovide the detailed and individualized customer service based on thelargest database in the nation. SK s commitment is to be with thecustomers and to create new value through innovative thinking anddifferent perspectives. Our changes and challenges shall continue.

Company Overview

Revenue

Operating Profit

Assets

No. of Employees

No. of SHE Personnel

100million 112,371 140,216 141,148 133,882

100million 7,925 9,982 5,654 3,895

100million 141,700 151,101 142,415 135,068

persons 4,320 4,434 4,842 5,001

persons 247 (as of end of 2002)

Classification Unit 1999 2000 2001 2002

Table 1. General Status (unit: KRW)

Petroleum Product Gasoline Automobile Enclean 1,265,560 9.45%

Kerosene Heating and cooking 100 Kerosene 1,009,473 7.54%

Diesel Heating and automobiles Power Diesel 2,475,158 18.49%

Fuel Oil Fuel - 2,032,473 15.18%

Others Others Asphalt, etc. - 3,272,000 24.44%

Chemical Product Ethylene Synthetic resin and rubber - 210,821 1.57%

Para-xylene Synthetic fiber - 362,407 2.71%

Styrene Monomer Synthetic resin and rubber - 264,619 1.98%

Resin Plastic container, film, automobile parts - 556,622 4.16%

Others Others Solvent, etc. - 1,164,910 8.70%

Others Others Others Engine oil, base oil, etc. ZIC, etc. 774,108 5.78%

Total 13,388,151 100.00%

Business Type Product Usage Brand Revenue %

SHE Compliance Stage: 1962 ~ 1990Oct. 1962 Korea Petroleum Corporation founded Sep. 1972 Began operation of a biological treatment facility for the first time in Korea Jun. 1990 Installed electronic dust collectors in boilers and heating systemsOct. 1990 Received Award of Honor for safe operation from the US National Safety Council

SHE Control Stage: 1991 ~ 1995Jul. 1991 Began study of environmental impact throughout the Ulsan CLX Aug. 1992 Established the Environment Management Master PlanMay 1993 Declared the Safety Environment Policy Nov. 1993 Completed all-purpose environment facilities

(Composite wastewater treatment and incineration facility, desulfurization unit no. 1) Dec. 1993 Received ISO 9001 certification for the entire products and process in 7 areas

SHE Management Stage: 1995.12 ~ Dec. 1995 Received ISO DIS 14001 preliminary certification Nov. 1996 Received ISO 14001 certificationOct. 1997 Company name changed to SK Corp. Oct. 1999 Received ZIC-A certification for environment markOct. 1999 Received recertification of environment management systemDec. 1999 Developed environmental indexDec. 1999 Joined Responsible Care Group Committee as a founding memberJun. 2000 Received the Grand Prize for Environmental Management from Maeil Business NewspaperDec. 2000 Designated as the Excellent Energy Saving Company by the Ministry of Industry

and ResourcesJun. 2001 Received the Best Safety and Health Management Company certification from

Mail Business DailyMar. 2002 Joined KBCSD (Korea Business Council for Sustainable Development) as a founding memberApr. 2002 Established LCA system for gasoline and diesel productsMar. 2003 Conducted a pilot project for the National GHG (Green House Gas) RegistryApr. 2003 Completed SHE management systemOct. 2003 Conducted SCEM Project supervised by the Department of Production and Technology,

Korea Institute of Industrial Technology under the Ministry of Industry and Resources

SK SHE History

SK VISIONThe Highest Valued Company in Korea

* Most Successful Value Innovation Company* Continuous Customer Values Creating Company

SK SHE Report 2003

Corporate Sustainability Management

Fig 2. Company Vision and SHE Mission

Safety : Zero accident work site through advancedsafety management

Health : Value creation by the healthful employeesat the optimal work environment

Environment : Continual environmental improvementthrough proactive environmentalmanagement

Value maximization for the shareholders,investors and employees

Company growth in linewith society

2. SHE Policy

Under the guiding principle, Recognizing that SHE management based on the respect for human dignity andpreservation of environment is the key element of all management activities, SK strives for sustainabledevelopment through zero accident and environment friendly management. , SK has announced the following 8SHE policies with which all SK employees must comply.

1) SHE Impact AssessmentThe SHE impact of all processes from procurement of raw material, production, transportation, usage to disposal is evaluated inadvance and countermeasure implemented.

2) Legal Compliance and Internal Management StandardsIn order to continuously improve SHE performance, the national regulations and international agreements are strictly complied,and the internal SHE targets and improvement plans are prepared and implemented.

3) Optimum Facility OperationEnvironment pollutant and SHE accident risk are minimized through introduction of the latest SHE technology as well as theoptimum operation and improvement of the facilities.

4) Cleaner Production Environment pollution from the manufacturing process is minimized through clean production which is economical andenvironment friendly.

5) Pleasant Work EnvironmentThe pleasant work environment and health management program are maintained to ensure safety and health of all employees.

6) Emergency Response CapabilityThe internal and external damages due to accidents are minimized by establishing the procedures to respond to the emergency oraccidents and then conducting regular training.

7) Social Responsibilities Mutual understanding and trust are established by positively reflecting the stakeholders demands to the management activitiesand through open performance system.

8) SHE Management Rights and ResponsibilitiesThe management provides adequate staffing and material resources and conducts education/training of the employees to carry outSHE policies.

1. Company Vision and SHE Mission

SK s vision is to become a value innovative company through continuous enhancement of customer values. Webelieve that this vision can be achieved only when Safety, Health and Environment issues, which are the keyfactors for an energy oriented company, are resolved. Accordingly, to ensure sustainable development as an energycompany, SK defines the mid and long term SHE missions to guide the future direction for the value innovationcorporation.

SK SHE Report 2003

Recognizing that SHE management is the essential element of management for sustainable development, SK has constructed, implemented and operated the strategic integrated management system with

consideration of all possible safety, health and environmental impact.

Integrated Management

SK SHE Report 2003

In order to maximize SHE performance SK has consolidated and operated the SHE management programs, whichhad been managed separately until the end of 2002. This is because, as the development in economy andinformation and communications technology led to unprecedented high interest for the SHE management system,the SHE management has been recognized as the core element for sustainable development in order to ensuremaximum company value. Accordingly, SK is endeavoring to create the optimum value by formalizing the advancedSHE management system to satisfy the stakeholders interest in SHE.

SHE Management System

1. System Overview

Fig 3. SK SHE Management System Strategy Diagrm

Table 3. Internal environmental guideline

2. SHE Impact Assessment

SK has been assessing direct and indirect impact of the SHE managementactivities, products and services. This impact is quantitatively analyzed indetails to identify the needed improvement which must be incorporated inthe SHE goals and improvement plan of each and every work site byregulation. As a rule, the regular environmental impact assessment andevaluation is carried out biannually and prior to expansion/modification ofthe production process or addition of a large scale facility. SK is alsoconducting process safety evaluation prior to changing the majorproduction structure or building a new process. The evaluation usesHAZOP (Hazard & Operability Study), WHAT-IF and CHECK-LIST as well asthe impact extent simulation program for quantitative assessment.

3. SHE Information Management

All SK s SHE information is managed by companywide KMS(KnowledgeManagement System) under the topic of SHE. Providing an environment inwhich each employ can easily access the scattered SHE knowledgeincreases the company s overall knowledge assets and improves SHEoperation efficiency through shared information. KMS is also used as theeffective communication tool to propagate SHE consciousness throughoutthe company.

The major SHE topics include SHE regulation/agreement, governmentpolicy and legal enactment information, international trend, new technologydevelopment and application information, fire service facility management,SHE education, safety inspection, SHE terminology, etc. All the necessaryinformation is shared through online network on a volunteer basis.

4. SHE Objectives

To minimize SHE impact, SK has formulated a set of comprehensive,measurable and quantitative environmental objectives for each businessunit based on environmental impact, process risk assessment and workenvironment evaluation listed in the environmental impact registry. Theseobjectives, established in consideration of company s SHE policy, urgency,and economic and technology feasibility, are used as the basic tools forpreparing the SHE improvement plan.

Fig 4. SK Environmental Impact EvaluationProcedure

Fig 5. SHE Topics for Companywide KMS

Type Internal guideline

Air 85% of a regulatory standardsWater 50% of a regulatory standardsWaste Recycling standards of international

industry benchmark (BP)Soil Regulatory standards

SK SHE Report 2003 SHE Management System

5. SHE Emergency Response System

As a contingency plan against any unforeseen environment hazardous accidents or natural disasters which cancause serious damage to operation, SK has set up emergency response procedures to minimize any potentialdamage to environment. The synchronized announcing system is established to ensure prompt countermeasures.Furthermore, mobilization training and simulated marine control training programs are conducted regularly tominimize damage from the accidents.

The diagram below shows SK s control procedures during the marine oil leak accident.

Fig 7. Marine Oil Leak Accident Control Procedures

Fig 6. Emergency Response System and Organization Chart

Response Organization

Person in Charge

Emergency Level

Emergency Response Committee

Emergency Response CommitteeSupport Team

Media RelationsPublic Relations

(government/residents/other sites)

Communication SupportSecurity/Access Control

Material SupportStaffing/Welfare Support

Medical SupportEquipment Support

Etc.

Emergency Response HQ

On - site Command HQ

On - site Command HQ

CEO

Level 1

Emergency Response HQ

Executive Dir. Site Responsible Division

Level 2

On - site Command HQ

DirectorSite Responsible Division

Level 3

Sang-cheol Chung, Manager, SHE Team

Conducting Emergency Response Training

1. BackgroundAlthough the emergency response training has beenongoing for sometime, as three sub teams were combinedinto one, the need to comprehend the geographicalformation and facilities within the Ulsan CLX; to improveoperability and expertise of the fire engine trucks; and toimprove the assistant leaders’ skills in distinguishing firehas been recognized.

2. ActivitiesSince 1999, the emergency response training has beenconducted daily or periodically except for the regularlyscheduled maintenance or fire engine repair or otheroccasions that prevent such training.

Fire Engine Operation TrainingSince reorganization in May 1998, a person in charge hasbeen designated for each fire engine, and the training tocomprehend the characteristics of the fire engines and toimprove its operation expertise has been conducted inrotation.

Ad Hoc Simulated TrainingFire engines dispatch and drainage training to respond tothe simulated emergency situation announced throughradio has been conducted, and afterward a meeting toreview the problems and suggestions has been held.

Regular TrainingSince 1999, daily training of fire distinguishing in themorning and toxic gas leakage response in the afternoonhas been held. The result of the training is evaluated,reported and then distributed to all staff.

Strategic Fire Fight PlanThe fire fight strategic plan, based on the real-time trainingsince 1999, in accordance with the fire engine locations,nearby obstacles and equipment types was prepared. Thisplan has been revised after each verification exercise.

Coordinated Training with the Field StaffThe coordinated training with the field staff in accordancewith the annual plan has been conducted everyWednesday and Friday since e 2001.

- Preparation of the annual plan- Preparation and review of the training scenario- Actual training and review(safe team and the supervisor of the field staff)

- Report

3. Outcome* The fire accident in the Unicracking Unit (UC) on May 13,

1999 was contained with minimum damage. As theresult, our response procedure was benchmarked byfour other companies (3 in Korea and 1 overseas) on therecommendation by the reinsurance company.

* SK received commendation from the city government ofUlsan for the prompt and appropriate response againstother accidents including FCC(Fluid Catalytic Cracking)explosion and T/T(Tank Truck) explosion.

* SK’s command and response capability against theemergency situation has been greatly improved.

Case Study 1

SK SHE Report 2003 SHE Management System

7. SHE Inspection

SK successfully established an integrated SHE inspection system at the end of 2002 as a part of SHE managementsystem integration. The inspection system has been set up to comprehensively evaluate whether 1) SHE legalrequirements are complied; 2) the management system is properly executed; and 3) any potential risk factors arecontrolled. Moreover, internal and external ISO 14001 environmental audit of each plant is conducted every yearwhile the additional companywide SHE management audit is held every two years to complement systematic ISOaudit to include safety and health. Furthermore, SK has systemized the management reporting process which willbe followed by detailed improvement plan and implementation procedures to ensure actual SHE performanceoutcome.

SK also conducts special audit which can be ordered by the top management when safety/environmental accidentor natural disaster is predicted to or does actually occur. The special audit is conducted by the department in chargefor each business unit along with a corporate level department in charge.

6. SHE Improvement Plan

As a part of ongoing process to fulfill the established SHE objectives, SK sSHE improvement plan is prepared and continuously reviewed by eachplant. The plans are then to be implemented within three years for eachplant and 5 years for the companywide improvement plan. In considerationof importance of environment issues for an energy related company, theadditional or modified improvement plan for each plant is incorporated intothe companywide short-term management plan. To ensure actual SHEoutcome, the improvement plan is required to clearly state its goals,detailed planned improvement, estimated cost, launching schedule as wellas department in charge.

<Table 4> shows the SHE responsible team for each plant at the UlsanCLX while <Table 5> shows the main environment improvement plan as apart of overall SHE improvement plan.

Table 5. 2002 Ulsan CLX Main Improvement Plan

Oil Refinery 956

Petrochemical Plant 5,920

HOU/FCC Plant 6,154

Power Plant 1,283

Synthetic Resin Plant 914

Operation 4,864

Environmental Process 740

Total 20,831

Atmospheric TMS facility improvementOdor/VOC and work environment improvement

NEP process energy reductionOdor/VOC and work environment improvement

#2 HP Process Condensate recoveryCO recovery facility installation

Low NOx burner installationIncreased condensate recovery

Noise/vibration/dust prevention facility installationVOC/odor improvement T-5 wastewater treatment improvementVOC/odor improvement (asphalt treatment facility, odor reduction)

Odor/VOC and work environment improvementLegal measurement and inspection improvement

Table 4. SHE Responsible Team for Ulsan CLX

Plants Budget(Million KRW) Main Improvement Plan

Oil Refinery Refining Production Team

Petrochemical Plant Petrochemical

Production Team

HOU/FCC Plant Heavy Oil Cracking Team

Synthetic Resin Plant Synthetic Resin

Production Team

Facility Area Facility Team

Power Plant Power Supply Team

Operation Process Operation Team

Environmental Process SHE Team

Plant Responsible Team

1. Life Cycle Assessment (LCA)

In 2002, SK participated in a national project to build the comprehensive database of environment friendlytechnology platform, taking the part of life cycle assessment of gasoline and diesel production. The LCA dealt withthe process of crude oil storage as well as refined oil production, transportation and storage. For the upstream anddownstream association, the reliable environment D/B from the Ministry of Environment was used. As the result,SK was able to build a basic LCA D/B that enabled scientific environmental performance management bycomparison of the energy production process improvement and actual process. For the country, a comprehensiveenergy resource process catalogue database, the essential elements for the industry, has caused proliferation ofLCA projects among the industries in this country.

Fig 8. Gasoline Product LCA Boundary

Advanced Management Technology

SK SHE Report 2003 Advanced Management Technology

2. Environmental Index Development

SK has developed objective and scientific environmental performance management indices of environmentalperformance in consideration of the entire Life Cycle ranging from the supply of raw materials to the distributionof products in order to better support environmental management decision making.

The indices consist of process environmental index (PEI), environmental cost index (ECI) and energy environmentalindex (EEI) based on eco-efficiency concept. Each index is the basis for SK s mid to long-term environmentimprovement plan which identifies the future key environmental factors that will be the focus of futuremanagement and investment.

Process Environmental Index (PEI)SK PEI is a result of categorizing environmental pollutants into six major classes, converting each into a respectiveindex and then comparing them with amount of discharged pollutants from the worldwide 64 oil refineries ofsimilar processes. In this process, different weight according to its environmental impact in consideration of thecharacteristics of the refinery is applied. The most representative contaminants include air pollutants such as SOx,NOx, CO2 and dust as well as wastewater and other waste material.

Environmental Cost Index (ECI)SK ECI is an index for analyzing the environmental cost more objectively through comparison with the advanced oilrefineries in terms of process and business unit. It is developed to improve corporate competitiveness by providinga tool to more effectively support environmental management decision making and cost control. To ensure clearcomparison with other refineries, environmental cost calculation guide line by US API is applied. The environmentalcosts for the petroleum business unit generated during production, transportation, warehousing and packaging areclassified into five stages and calculated on the basis of occurring point according to AIMS and then compared withother oil refineries into a final index.

Energy Environmental Index (EEI)Recognizing that limitation of energy usage depends upon environmental issue, SK developed EEI to supportpreparation of mid to long term energy business strategy by analyzing the impact of environment issue to theenergy industry. The index is a quantification of mid to long-term environment related energy cost increase byanalyzing environment characteristics of each energy source.

Fig 9. SK Environmental Index Development Procedure

Process Environmental Index (PEI)Environmental Cost Index (ECI)Energy Environmental Index (EEI)

SK SHE Report 2003

SK strives to continuously improve safety, health and environment performance throughoutthe raw material supply, production, transportation and product supply processes.

Continual Improvement

SK SHE Report 2003

Resource Usage

SK has been conducting continuous energy reduction drives so that everyprocess will maintain world top class energy efficiency.

Each department is required to include power utilization plan, includingelectricity, fuel, industrial water, steam, etc., for the budget at the beginningof the year in order to maximize energy efficiency at energy demand supplystage. Moreover, a series of energy expense reduction activities rangingfrom voluntary agreement campaign, ESCO campaign to processengineering technology development and its operation methodimprovement are some of the activities to maintain optimal energyefficiency.

Considering that energy is essentially natural resource; that scarcity ofnatural resource is becoming the worldwide issue; and that energy usage isconsidered as the main cause of greenhouse affect and variousatmosphere pollutions, SK realizes energy efficiency is the essentialmanagement factor in terms of not only economy but also environmentfriendly operation.

Class 2

Class 1

Class 3

Class 4

SK EEI (Energy Efficiency Index)Fig 10. 2002 Solomon Study Energy

Efficiency Assessment Result

Fig 13. Water Treatment FacilityFig 11. Air Compressor at a Power Plant Fig 12. FCC Power Plant

SK Steam Consumption SK Electricity ConsumptionSK Fuel Consumption SK Industrial Water Consumption

Fig 14.

unit : TOE/MB unit : Esston/MB unit : MWH/MB unit : Ton/MB

Environmental PerformanceSK has been striving to provide an environmental friendly operation in allbusiness aspects to curtail contaminants generated from the entiremanufacturing processes. SK has aggressively been minimizing pollutionfor the past five years by strictly observing the internal environmentalstandards that exceed the legal regulations. SK s steady environmentalperformance improvement is the direct result of energy reduction policythat can attain management at the origin, corporate and environmentperformance improvement at the same time; and aggressive facilityimprovement.

1. Air Pollution Management

SK has been conducting air pollution reduction campaign for the past fiveyears, focusing on managing air pollution at its source and clean processimprovement, such as conversion to low sulfur fuel, low NOx burnerinstallation, catalyst development for VOC/odor removal and other energyreduction process improvement activities. The discharge and preventionfacilities are strictly managed by the internal guidelines while TMS (tele-metering system) enables tight management of air pollution.

As the result of such efforts, SK has been able to reduce SO2 by 72%, NOx68% and Dust 76% as of the end of 2002 compared to 1998.Furthermore, the average air pollution for the last five years have beenmaintained at 34~40% of regulation standards for SO2, 51~54% for NOxand 15~26% for Dust.

Fig 15. Electric Dust Collector

Fig 16. Incinerator

Fig 17.

SK SO2 Discharge per Crude Oil Processed SK NOx Discharge per Crude Oil Process SK Dust Discharge per Crude Oil Processed

SK Avg. NOx Discharge ConcentrationSK Avg. SO2 Discharge Concentration SK Avg. Dust Discharge Concentration

Fig 18.

unit : Ton/MB unit : Ton/MB unit : Ton/MB

unit : ppm unit : ppm unit : mg/

SK SHE Report 2003 Environmental Performance

2. Water Pollution Management

SK has formated the internal standard to manage all water pollution atbelow 50% of legal regulations. For this, SK has invested in expandedrecycling of wastewater, reduction of water pollution at the source,development and application of concentrated organic wastewatertreatment technology, etc. for the past five years. As the result, dischargedwastewater has been reduced by 18%, COD by 32%, Oil by 30%compared to 1998. In addition, the average water pollutant dischargeconcentrations have been managed 15~22% for COD, 14~28% for SS and6~12% for Oil of legal standard regulations for the past five years.

Fig 19. SK Ulsan CLX WastewaterTreatment Facility No. 1

Fig 20.

SK Wastewater Discharge perCrude Oil Processed

SK Oil Discharge per Crude OilProcessed

SK COD Discharge per CrudeOil Processed

SK Avg. Annual SS DischargeConcentration

SK Avg. Annual CODDischarge Concentration

SK Avg. Annual Oil DischargeConcentration

Fig 21.

unit : kg/MB unit : kg/MB unit : kg/MB

unit : p.p.m. unit : p.p.m. unit : p.p.m.

Dong-bok Chin, Senior Manager, SHE Team

Wastewater TreatmentFacility Odor ImprovementProject

1. BackgroundOdor Improvement within the Ulsan Complex became amain issue as the government odor regulation had beenstricter since early 2000, and the residents complaints ofodor as well as the employees demand for better workenvironment have increased.

2. ActivitiesOdor Creation and Problem InspectionOdor creating facility conditions, facility operation status,odor substance type and amount/concentration and odorprevention facility conditions are analyzed and theirproblems diagnosed.

Formation of Environmental Management T.F.T* Participation: Production technology team, SHE team,

facility technology team * Period: June ~ August 2002 (3 months)* Main Activities: Analysis of odor creation status, review

and selection of the odor prevention facility,improvement program and planning, and budgetestimation

Master Plan and Improvement Project Approval* Master plan for overall environment management

including odor removal was prepared by T.F.T andreported to management

* 2002~2006 Midterm investment plan and approval forenvironmental improvement

Odor Improvement Project for Wastewater TreatmentPlant No. 1 * Improvement of Odor at Its Origin

- Management of wastewater treatment plant no. 1 inletwastewater at its origin: Inflow of odor generating wastewater after re-treatment

- Repair of existing odor proof cover and additional installation

- Closing of redundant wastewater collection system- Installation of local ventilation device for the sludge

water removal facility* Improvement of Odor Prevention Facility

- Installation of RTO(Regenerative Thermal Oxidizer) and collection pipeline(34,000N /hr)

3. Outcome* Improvement of odor discharge area and plant boundary

to the level of no odor

* Zero complaint from the residents after the odorprevention facility at the no. 1 wastewater treatmentplant was put in service

* Designated as the exemplary case for odor improvementby Ulsan Metropolitan City and was used for thebenchmark case by other companies

Odor discharge area 3rd degree odor No odor

Plant boundary 1st degree odor No odor

Before Improvement After ImprovementType

Case Study 2

SK SHE Report 2003 Environmental Performance

3. Waste Management

SK has been trying to reduce, reuse and recycle (3R) the waste created bythe plant sites. Our internal standard, which are already stricter than thelegal regulations, have been continuously strengthened. It has strictlyprohibited direct reclamation of sludge from the wastewater treatmentplant since 2001. To ensure that industrial waste is treated legally, SK isconducting periodic supervision and inspection of the waste handlingsubcontractors as well as continuous education/training of the employees.In 2001 and 2002, SK conducted cleaning of the wastewater treatmentfacility buffer tank and oily sludge accumulated in the crude oil farm. As theresult, total general and designate waste creation shows somewhat highvalue for the last two years.

Oily sludge and slop oil, which are wastes from the production process andcontain high heating value, are treated at TRC (Total Recycling Company), afuel recycling plant, and used as the fuel for the cement company andothers.

4. Hazardous Chemical Substance Management

SK clearly states the hazardous chemical substance managementstandards in the company regulation and publishes MSDS (Material SafetyData Sheets) information over Intranet. This ensures removing of thehazardous and dangerous elements beforehand from the overall processesfrom introduction to usage and disposal, and safe work practice by theemployee through prompt identification of all related information. SK sMSDS information consists of 16 areas including chemical product andsupplier information, toxicity, emergency response procedures, etc., foreach chemical, and it is easily shared by employees. From the managementperspective, a person in charge of managing the hazardous chemical isassigned for each department. Furthermore, education/training, routineinspection and thorough preventive measures and inspection activities inrelation to warehousing, transportation and disposal are conducted toprevent environment pollution accident.

Fig 23. SK e-MSDS

SK Designated Waste Discharge perCrude Oil Processed

SK General Waste Discharge perCrude Oil Processed

SK Recycling per Crude OilProcessed

Fig 22.

unit : ton/MB unit : ton/MB unit : ton/MB

5. Soil and Underground Water Management

Since 1996, SK has been conducting soil and underground watermanagement activities for the Ulsan CLX, distribution center and gasstations. For systematic and effective soil and underground management,soil management guideline is published to standardize related work. Soiland underground monitoring, pollution inspection and restorationoperations have been ongoing with the appropriate equipment (samplecollection and analysis) as well as the specialized experts. Furthermore, thesystem to immediately dispatch and restore after pollution accident is inplace. SK is also participating in the voluntary agreement for soil pollutioninspection and restoration in corporation with the government.

6. Environmental Education

SK has been conducting environmental education for the employees aswell as supporting the external education. The subjects of the employeeeducation include environment regulation to understand the environmentregulation required for work duty; environment audit to inspect complianceof the internal environment management system; environment technologyrequired for the process; and emergency response to preventenvironmental accident and minimize damage when the accident occurs.The external education support includes opening SK plant to the localstudents and residents as the on-site environmental education for thestudents and parents. Each year, thousands of people visit SK for the on-site education.

7. Environmental Investment Cost

Each year, SK is investing tens of billion KRW to minimize environmentpollution creation and to realize clean production.

In 2002, KRW 20.8 billion was invested on 111 environmentalimprovement activities including KRW 3.6 billion for 26 energy reductionprograms, KRW 12.5 billion for 42 projects related to air and water pollutionprevention facilities. In addition, KRW 4.7 billion extraordinary investmentwas spent on 43 items for VOC/odor and work environment improvementas specified in Environment Improvement Master Plan. This figurerepresents about 4% of total company investment, 2.6 times that of 1998.The significant investment increase was due to increased interest of thestakeholders and the management s new recognition of importance inenvironment investment.

Fig 24. Voluntary Agreement Ceremony forSoil Pollution Inspection and Restoration

SK Annual Environmental Investment

Fig 26.

SK Accumulated External Education Participants

Fig 25.

SK Accumulated Internal Education Participants

unit : Persons

unit : Persons

unit : KRW million

SK SHE Report 2003

1. Safety Management Performance

Aiming to achieve zero industrial accident throughout the company, SK hasadapted process safety management (PSM) to our safety managementsystem even before it became requirement by the country s Industrial Safetyand Health Act. Various standards and guideline such as the engineeringstandards, safety and health technology standards and safe operationstandards have been formulated as a part of setting up the safety and healthmanagement system. Furthermore, the advanced tools to secure facilitysafety, such as risk based inspection (RBI) and facility remaining lifeassessment have been introduced.

In 2003, IT of all safety and health related systems were completed by addingthe accident management system, substance safety and health informationsystem, emergency response management system and audit/inspectionmanagement system on top of the existing change management system,pre-operation safety inspection system and safety and health educationsystem.

As the result of these efforts, SK has recorded below 50% accident rates ofthe domestic industries.

Safety and Health Performance

Table 7. PSM 12 Elements

Table 6. SK Industrial Accident Rate, 2002

Fig 27. SK PSM Photosystem

Fig 29. Fire Engines at Ulsan CLX Fig 30. Watering TrainingFig 28. Fire Fighting Training

PSI Process Safety Information

PHA Process Hazard Analysis

OP Operating Procedure

TRN Training

CONT Contractor Safety

PSSR Pre-startup Safety Review

SWP Safety work Practice

MI Mechanical Integrity

MOC Management of Change

II Incident Investigation

EAP Emergency Action Plan

CA Compliance Audit

SK PSM 12 Elements

(Ref.: Ministry of Labor, 2002)

Type Average Accident Rate

Industry Overall 0.77

Manufacturers 1.22

Chemical Manufacturers 1.12

SK Corp. 0.35

Fig 31. Ulsan CLX Medical Service

Fig 32. Ulsan CLX Sports Center

2. Health Management Performance

SK provides systematic medical diagnosis and work environmentassessment procedures so that the employees of both SK and thesuppliers can maintain the optimum health condition at the best workenvironment, thus creating the most value. Trying to always be stepsahead of the country s Industrial Safety and Health Act, for the employeeshealth awareness, SK plans to build an Industrial Health Center with thelatest diagnosis and treatment facilities as a part of advanced healthmanagement. All of our employees fully participate in the healthmanagement practice.

At the end of 2002, SK integrated health management, which wasoperated independently until then, into the SHE management system. Thisis the result of SK s recognition that employee s health is crucial forcreating corporate values. With the integration, SK s health management isnow practiced with the advanced management system from regulation toaudit. Furthermore, each business unit at SK has its own health regulationprocedures.

1. Work environmental management - industrial ventilation, hazardous materials and elements

2. Work environment assessment and improvement - noise, dust, organic solvent, heavy metal, etc.

3. Medical check up and follow-up management- management of employees who are diagnosed

to have diseases, diseases-related statistical analysis

4. Employee health improvement - prevention of muscular and skeletal disorders; VDT syndrome;

and cerebral and cardiovascular diseases, etc.

5. MSDS management and use

6. Hazardous chemical substance management system

7. Distribution and management of individual protective gear

8. Employee health education

9. Health management for outsourcing companies

10. Health Inspection

11. Industrial accidents compensation and proceeding

Table 8. Health Regulation Procedures per Business Unit

Health Regulation Procedures

SK SHE Report 2003

SK continuously strives to develop clean production process and environment friendly products.

Product Stewardship

SK SHE Report 2003

Table 9. Clean Production Technology Development and Application Status

Cleaner Production Activities

SK aims to become a Clean Company through steady investment in production process improvement and relatedprocess technology development to establish environment friendly production site. These efforts go beyond justimproving the process to reduce environment pollution and include advanced development to reduce resource inorder to attain environmental and productivity improvement at the same time. Furthermore, ESCO and otherenvironment technology support services based on technology know-how accumulated through the production sitebring in additional revenue and contribute to improve energy efficiency and environment conditions of domesticindustry.

<Table 9> lists the main clean production technologies developed and applied by SK.

Description Period Investment (unit: KRW million)

Technologies

Regenerative fuel manufacturing process using advanced technology. It was set up within the UlsanCLX to produce regenerative fuel from waste oil, waste lubricant oil and sludge discharged from eachprocess.

Maximized energy reduction and efficiency at the Ulsan CLX by developing and applying theadvanced real-time monitoring system. The system can monitor smokeless steam loss; manage theenergy efficiency related variables, such as excessive oxygen, stack temperature and heaterefficiency, of 95 heaters; and analyze other variables such as process energy index, steam systemand heater performance, etc.

Establishment of safe process and pleasant environment through smokeless and low noise flaring byimproving flare facility and installing enclosed ground flare.

Significant reduction of NOx discharge by replacing 7 burners installed in the boiler with the low NOx,two-stage heating type burners in order to decrease the amount of nitrogen oxide discharged fromthe chimney.

Creating the pleasant work environment and eliminating the civil complaints through facility and workprocedure improvement. All 49 odor creating locations within the CLX were thoroughly investigatedand analyzed before the most advanced odor removing technologies, imported and/or internallydeveloped, were applied individually for each odor type.

Since the new enclosed solvent cleaning procedure is performed without having to open the heatexchanger process, the overall energy consumption is reduced; no steam purge is necessary; andVOC discharge is only 1/2 of the previous procedure. Even when the heater exchanger needs to beopen, it is cleaned before opening, reducing VOC discharge.

Removal of sulfur fume by installing a filter on the sulfur tank no. 4 vent line.

10 to 20 times improvement of wastewater treatment efficiency through pre-processing of highconcentration (COD 30,000 ppm or higher), hard-to-decompose wastewater using bioengineeringtechnology based on 2 years of research and know-how accumulated through water managementover the years.

The existing tubes of the naphtha crackers, which decompose naphtha to olefins at more than 1,000 temperature, were replaced with the high performance MERT tubes. As the result,reduction of CO discharge by 4,862 Ton/year was realized by lowing the tube temperature by 22 .

The additional crude oil coil was installed in the convection section of the cruder heater. This resultedin reduction of heater exhaust gas temperature by 35 and additional recovery of heat from refiningprocess. Through improved heater efficiency and reduced fuel consumption, it realized reduction ofCO discharge by 5,954 Ton/year.

95.1~97.1 11,000

97.7~98.7 650

97.12~99.1 11.600

97.3~97.7 25001.3~01.11 780

94.7~98.12 2,510

99.2~00.8 300

96.7~97.8 300

96.1~97.12 1,230

01.6~01.9 344

01.9 ~01.12 277

Fuel Recycling (RFP)

New AdvancedProcess

(Flare Heater &Energy PerformanceMonitoring System)

Flare IncineratorImprovement

Low NOx BurnerInstallation

Odor PreventionFacility Installation

Development ofEnclosed CDU

Process SolventCleaning

Development andInstallation of SulfurTank Odor Removal

Equipment

Development ofHigh Efficiency

Modularized Bio-Reactor

Naphtha CrackerTube Replacement

Project

Crude Heater HeatRecovery Project

SK VOC/Odor RemovalOxidized Catalyst

1. Environmental Catalyst

SK has commericialized and supplied Korea s first SCR (selective catalyticreduction) catalyst which helps to efffectively remove NOx, the main causeof atmospheric pollution, such as acid rain and photochemical smog. Thecatalyst uses the byproduct from the oil refining process. Its performancehas been well proven since it was tested in a pilot test conducted at SKUlsan CLX in early 2000. It is an environment friendly denitrification catalystwhich can reduce more than 90% of NOx discharge without any change inboiler heat efficiency.

In addition, SK has developed the oxydized catalyst which can effectivelyremove VOC (Volatile Organic Compound) and odor geenerated from theproduction process or storage tanks. Its application in various VOC/odorgenerating processes including Ulsan CLX has resulted in dramaticimprovement in atmospheric environment and work conditions. Thecatalyst is an environment friendly product that can reduce VOC/odor bymore than 95% and substantially decrease waste catalyst through longcatalyst life due to mechanical and chemical stability.

Environment Friendly Products and Services

SK Extruded Ceramic Honeycomb Catalyst

Fig 33. SCR Pilot Plant

Chemical Reaction of SCR4NO+4NH3+O2 4N2+6H2ONO+NO2+2NH3 2N2 3H2O

Reaction mechanismCxHyOz + O2 CO2 + H2O

VOC Air Carbon Dioxide Water

SK SHE Report 2003 Environment Friendly Products and Services

2. Environmental Mark Certified Engine Oil, ZIC-A

ZIC-A is SK developed and commercialized lubrication oil for the gasolineengine. Using YUBASE, a highly viscous synthetic oil, it offers many qualityimprovements such as low temperature engine start, maintained highviscosity, stable oxidation and wear and tear resistance. It is alsoenvironment friendly as its low oil consumption reduces the amount of toxicexhaust gas and increases replacement period, generating less waste oil.Because of its environment friendly characteristics, ZIC-A receivedEnvironmental Mark Certification from the Environmental Mark Association.SK is currently working on environmental improvement of the lubrication oilfor the diesel and motorcycle engines as well.

3. Fuel Cell Reformation System Development

The main cause of urban atmospheric pollution is the automobiles and theboilers for heating. The hydrogen fuel cell has been recognized as the nextgeneration power source because of its environment friendly nature. To usethe hydrogen fuel cell as the power source, methanol and gasoline must beconverted into hydrogen. In 1999, under the project code G-7, SKdeveloped fuel reformation system by integrating fuel reformation,hydrogen separation and combustion catalyst technologies required toconvert the liquid fuel to hydrogen. This system produces ultra purehydrogen (99.999%) while maintaining the world s best heat efficiency(89%). It is expected that the system will eventually help reducingatmospheric pollution by increasing energy usage efficiency for theautomobiles and buildings as well as reducing nitrogen oxides, sulfuricoxides and carbon dioxide discharge. As of the end of 2002, SK hascompleted development of 24KW class fuel reformation system incooperation with Hyundai Automobiles and is currently studying the fuel cellreformation system for household use.

In addition, SK, as a way to become Clean Energy Company, is currentlyplanning to develop the core technology for hydrogen delivery stationneeded to satisfy the demand for environment friendly fuel.

4. Diesel Engine Exhaust Reduction System (DPF)Development

In 2002, SK developed catalyst based diesel engine exhaust reductionsystem (DPF) in cooperation with Hyundai Mobis. SK developed thecatalyst while Hyundai Mobis developed the attachment system. Using thecatalyst coated ceramic filter, exhaust gas is automatically combusted usingthe engine heat, dramatically reducing exhaust from the diesel engine. Thetechnology has been certified by seven Japanese municipalities includingTokyo, making it eligible for the Japanese market expected to be more thanUS $1.2 billion in total size. Furthermore, it will be the significant foundationfor globalization of this country s environmental technology.

Fig34. ZIC product

Fig 35. Fuel Cell Vehicle-SK on-boardreformer

Fig 36. Prototype DPF

Fig 38. VOC & Odor Solution Service

5. VOSS (VOC & Odor Solution Service) Business

Based on its VOC and odor removal technology know-how, SK has starteda new business that provides total solution service ranging from VOC andodor origin analysis to design and construction of optimized removalsystem which has been applied to tens of plant sites including SK s own.SK plans to enter China and Southeast Asia with the technology.

Fig 37. VOC Removal, Heat RecoveredCatalyst Combustion System (SKICO-REC)

SK SHE Report 2003 Environment Friendly Products and Services

6. LFG Project

Based on our know-how from operating its own waste landfill and internallydeveloped technology, SK successfully completed Korea s first project toconvert landfill gas to industrial fuel in 2001, contributing to stabilization ofthe reclaimed land and development of alternative energy.

In 2001, the city government of Ulsan contracted with SK to recycleSeongam municipal waste landfill to produce LFG, a type of methane gas,in cooperation with the city government. 20% of all LFG gas collected from49 gas extraction wells, equivalent KRW 2.1 billion worth of LNG, is used bythe on-site facilities, and 80% is sent to nearby Kumho Petrochemicalthrough 1.9km pipeline. This is a clean energy technology project thatrecycles LFG gas which is otherwise discharged to nature. It contributes todevelopment of alternative energy as well as reduction of greenhouseeffect.

7. Incinerator Excess Steam Recycling Project

Since April 2002, SK has been carrying out a project that produces steamusing waste heat from an incinerator located at Koentech, a wastetreatment company, and uses it at the Ulsan CLX and other nearbycompanies. SK supplies internally produced pure water for boiler toKoetech which then uses it for the waste heated boiler to produce steam.Steam is then supplied back to the Ulsan CLX through the pipeline,recycling 30,000 TOE waste heat annually. This project offers more thanKRW 10 billion worth of energy import substitution and operationimprovement for both companies. In addition, by recycling waste heat, itreduces carbon dioxide discharge to air by 27,000 Ton/year, contributing toslowing down of global warming.

Fig 41. Steam line of Incenerator

Fig 39. Seongam LFG Site

Fig 40. LFG Project Diagram

City Incinerator(10,000 /d)

Kumho Petrochemical(35,000 /d)

Gas Transmission Header

Condensate Tank

Flare

Chiller

Blower

Extraction Well 49 ea

1. BackgroundIncreased need to enter into the strategic business in orderto deal policy of energy source diversification, revenuediversification through alternative energy, and complyingwith the international climate change convention throughthe fossil fuel reduction.

2. Project DescriptionA consortium of SK and Halla Industrial Developmentparticipated in the open bidding for alternative energydevelopment project issued by Ulsan Metropolitan City. SKconsortium won on a basis of donating the facility to thecity government and receiving the commercial right for thefollowing 10 years as soon as construction is completed(BTO). This business protects environment and creates profit atthe same time by recycle/refine landfill gas generated fromthe waste reclaimed land to LNG or B-C alternative fuelwhich is supplied to nearby petrochemical CLX.

3. Activities and Achievement Planning* Seongam LFG Project feasibility study TFT formation* Overseas LFG resource recovery business

benchmarking (7 sites in US and Europe) * Seongam LFG recovery feasibility study

Project Introduction* LFG recovery TFT formation (9 people from 6

departments)* Seongam LFG recovery project consortium with

Halla Industrial Development* Successful bidding participation* Agreement on roles and responsibilities of each partner

Construction* Landfill excavation* Gas extraction well and pipeline installation

- Slow construction progress due to hot and humidweather and bad odor

- After detailed review of construction progress, the gasextraction well and pipeline were installed after

excavation is completed to improve workers morale- Successful construction completion with thorough

supervising* Supply pipeline connection work

Gas Supply* Certification and approval

* Supply of gas at 1,800N /hour to the city incinerator andKumho Petrochemical

4. Outcome- Energy substitution benefit of KRW 2.1 billion per year- Reduction of methane (CH4), global warming substance,

to environment by 1,800N /hr

Jae-poong Seoh, General Manager, Domestic Technology 1 Team

LFG Project

Case Study 3

SK SHE Report 2003 Environment Friendly Products and Services

8. DESS (Dust Elimination Solution Service) Business

SK is currently offering a dust ellimination total solution serivce based on ourknow-how accumulated through sythetic resin and coumpound resin plantoperation. The service inlcudes diagnosys of the dust creating system aswell as design and construction of optimum dust removing system. SK sown technology is the result of many trials and errors to make the plantzero dust site. With 2 patents, SK have successfully implemented DESS attens of sites outside of SK plants.

9. Alternative Energy (Solar/Wind)

SK has been investing considerable efforts to maintain its status as thenation s leader to develop and distribute alternative energy. Ourexperiences include cogeneration power system for independent powersupply to SK Telecom earth stations and Ulsan Metropolitan City alternativeenergy pilot project. Through partnership with the alternative energy relatedventure companies, SK is endeavoring to remain as the next generationenvironment company and alternative energy leader.

10. ESCO Business

SK is offering ESCO services that improve customer s corporate value andenvironment friendliness at the same time. The services include energydiagnosis and consulting, power reduction through waste heat recovery andprocess improvement, and electricity saving through inverter/fluid coupling.They have been applied in not only the petrochemical industries but also inautomobiles, pulp and paper, and environment. We are considering entry toChina and Southeast Asia as the first step to global market penetration.

This business is the direct result of the country s best technologyaccumulated through 40 years of oil refining and petrochemical processoperation and improvement. Our field experienced energy experts willprepare the optimum energy saving plan through accurate benefit andinvestment calculation.

Currently, two types of ESCO business are in practice: the class 1 ESCObusiness is offered to the industrial customers, and the class 2 ESCOservice to the building operators.

Fig 43. Shinil Silo System

Fig 42. Automatic Silo System

Fig 44. ESCO Project Onsite Inspection

11. SK Energy Center Power Service Business

Taking advantage of its 40 years of operating the power facilities, SKEnergy Center has been steadily supplying low cost energy such as steam,electricity, industrial water, compressed air and such. It serves not only the40 unit plants within the CLX of 2,050 acres but also more than 10 nearbyplants.

SK Energy Center has focused on achieving the highest facility efficiency,minimum energy loss and optimized power facility operation. Our effortsinclude accumulating operation experience and know-how, and building theDB of energy reduction cases and various energy related accidents. As theresult, we have achieved the most advanced power facility operation andmanagement capability, enabling us to supply stable energy to seamlesslymaintain the power network and power facilities located in the SK UlsanCLX.

Based on our knowledge and experience, SK has provided power servicesto more than 60 customers since three years ago. We guide our customersthe shortcut to save energy cost and improve production cost edge at thesame time.

Fig 45. Excess Steam Generation Boiler

SK SHE Report 2003

To be reborn as the socially responsible corporation, SK values relationship with all stakeholders.

Relationship with Stakeholders

1. Countermeasure Against Global Warming

As the leading company of the oil refining industry, SK has been carryingout many measures to actively cope with global warming that is becomingthe worldwide environmental issue. SK formulated a companywide ClimateChange Agreement strategy in 2002 and has been using it as thecompanywide regulation in order to reduce greenhouse gas and cope withthe international Climate Change Agreement for the next five years. Inaddition, SK is actively participating in the government s Climate ChangeAgreement policy making.

SK has been participating in the government s VA (voluntary agreement)program including the five year campaign to reduce energy and COdischarge sine 2000. As the result, CO discharge has been reduced bytotal of 14% and 6% unit based in 2002 over 1999. This is the directoutcome of SK s own TOP (Total Operational Performance) program alongwith the VA activities.

In addition, SK has participated as the leading company for the successful2002 national registry registration system pilot project. The objective of thisresearch project, which methodically registers greenhouse gas reduction ininternational standard, is to secure the evidence material needed for Koreas reduction effort to be recognized internationally in the future ClimateChange Agreement negotiations; and to be used as the researchprecedence to promote early voluntary reduction of CO discharge by thedomestic industries. To continue our effort to secure monitoring andverification method fit to Korean industries, SK is again participating in thesecond phase pilot project that will establish the method to verify existinggreenhouse gas registry. SK plans to continue participating in thegovernment led pilot projects related to the Climate Change Agreement inorder to support the government policy making that can be effectivelyapplied to the private industries. Furthermore, SK will do its best to establishthe platform which can be internationally recognized as the way to showthe domestic industries effort to reduce the greenhouse gas.

SK SHE Report 2003

Fig 46. SK Implementation of Climate Change Agreement Strategy

Preservation of Natural Ecosystem

Fig 47.

SK CO Discharge per Crude Oil Produced

unit : Ton CO /MB

unit : 1,000Ton

SK Total CO Discharge

Preparation of Phased Implementation Plan in Comprehensive Consideration of Domestic and International Policies and Industry Trends

2. Ulsan Park

To establish local environment as a friendly leisure space in its appreciationto the citizens of the Ulsan Metropolitan City, the area containing SK s mainCLX, SK is building Ulsan Park, an ecosystem based theme park at a cost ofKRW 100 billion. Starting in 1996, construction of the park will becompleted in 10 years. Partly open in April 2002, the park is providingpleasant resting place and ecological space to experience naturalecosystem for the visitors. Once it is completed in December 2005, it willbe open for free to the Ulsan citizens.

Location : Vicinity of Shinjeong-dong and Ok-dong, Nam-ku, Ulsan Metropolitan City

Area : 900 acres (190 acres of facilities) Construction Period : 1996 ~ 2005

(10 years)1st Open : April 20022nd Open : September 2005Homepage : www.ulsanpark.com

Fig 51. Ulsan Park Overall View

Fig 48. Inside Aquasys Fig 49. Ulsan Park Main Gate Area Fig 50. Pond and Wind Mill

3. Environmental Improvement for the Plant Vicinity

In order to provide pleasant resting space for its employees; preserveecosystem; and improve work environment by expanding environmentfriendly space in the vicinity of its plant, SK and its employees are carryingout green vegetation and cleaning activities. These activities includeTaehwa River cleaning, Ulsan CLX cleaning and planting of environmentpurifying trees are held year round.

4. Local Environment Preservation

In an attempt to resolve the environment pollution problems of not only itsplants but also the local society, SK has been actively participating in thelocal environment preservation activities. These activities, includingenvironment preservation campaigns, environment education andenvironmental NGO activities, are conducted year round and are focused toincrease the residents environment consciousness.

Table 10. Environment improvement activities near productions sites

Table 11. Local Environment Preservation Activities and Support

Tasks PeriodPlan

Location Activities

SK SHE Report 2003 Preservation of Natural Ecosystem

Fig 53. Environment Education CenterOpen to Public

Fig 52. Taehwa River Cleaning Activities

Taehwa River Cleaning Taehwa River River cleaning Twice a year

Ulsan Complex Cleaning Plant vicinity Cleaning of nearby hill Once a yearand stream

Environment Purifying Plant vicinity Planting of environment Year roundTree Planting purifying trees in accordance

with a tree-planting plan

Environment education Twice/ month Students and parents Propagation of importance and consciousness of environment preservation to the local students and residents

Environment love essay contest Once/ year Elementary students nationwide Propagation of importance and consciousness of environment preservation

River cleaning campaign Once/ month All employees Taehwa River cleaning

Mountain cleaning campaign Once/ quarter All employees Cleaning and repairing of valley streams and mountain tracks

Environment control training Once/ year Volunteers Support for pollution prevention and control training

Nature protection mountain climbing Once/ year All employees Cleaning of Mt. Shinbool

Activity Period Subject Description

Table 12. Public and NGO Activity Support

Environment Day 4 times/ year Local residents and employees Cleaning up of the local streams, shoreline and nearby mountains

Water Day 4 times/ year Local residents and employees Cleaning up of the local streams, shoreline and Taehwa River

KVO Activities Frequently Students and Environment Boys Club Donation and environment educationEnvironment Promotion Support Frequently Local residents Environment campaign and promotionNGO Support Once/ year KFEM, ECOFEM, CMEJ Paid corporate membership to support NGO activitiesFire Watch Campaign Twice/ year Local residents Support to fire watch campaign activities

and Ulsan South Fire Station

Activity Period Subject Description

Mt. Weolmi located on Weolmi Island near Incheon was finally open to public after 50 years of closing by the military headquarter.

Our teacher Mz. Jae-sook Do, who was the mountain keeper recently took me and my sister to the mountain as we were designated

as the mountain keeper for our school. At first, I thought mountain climbing would be hard, but it was fun. Using the stethoscope,

we listen to trees and plants absorbing water. Although we could hardly hear anything, we felt like being a doctor.

After that, we went into nature that was rarely visited by people. Teacher explained, The ginkgo tree is sometimes called fossil tree

because it has existed since the time of dinosaurs. Interesting thing is that it is separated into male and female tree. It is very

resistant to pollution and has high survival instinct. It is mainly used for the street trees, lumber and oriental herbal medicine.

I didn t know that a tree can be a male or a female.

I also learned that there are the Korean and western dandelions. At a certain time, the pistil of the western dandelion falls down

and meets the stamen for pollination while Korean dandelion needs the bees or butterflies for pollination. That s whey there are

more western dandelions. The receptacle of the western dandelion points up while that of the Korean dandelion points down.

I learned that the pine trees, just like men, breed with other pine trees to produce better plant. The pine trees have two leaves while

the big cone pine trees have five. The reason the pine trees have many pine cones is because it wants to reproduce well in the bad

surrounding environment.

I thought that the dead trees can be good for only manure but learned that it can do many good things. The woodpecker builds the

nest almost only on the dead tree. And the mushrooms grow on the dead tree, and many bugs live on it. It s amazing. I think the

plant is nice. It provides good things to the animals while it s alive, but it does the same after it is dead.

I thought that it would be nice if people can learn from the nature and dead trees to give others and sacrifice self. Then everybody

will help each other, and the society will become brighter. We went to observe the pond in Mt. Weolmi and collected water beetle,

tadpole and water flea.

I could see that the water beetle kept eating the water fleas. Teacher said, We need the creatures like the water beetle. Without

them, there will be too many of water fleas and will cause problems. This is called food chain. I knew food chain but thought about

it again. If we kept killing animals and plants with no good reason, it will eventually damage us because men are part of the food

chain.

We also made the natural palette. Teacher told us to apologize before breaking off the branch since the plant could hear us too. We

were able to gather many different colors. If this were the real palette, I could paint a beautiful picture with nice natural colors.

A kestrel, a natural monument, was treated, and we flew it away. The bird was beautiful as it lives and flies with value of nature at its

heart.

I really enjoyed the chance to experience nature and life as the Mt. Weolmi keeper.

Men alone cannot live in this nature. Men can exist only among the plants and animals. I hope that every person realizes

importance of nature and lives with it at heart.

Geon-goo Kim (Shingwang Elementary School, Incheon)

Title: Story of My Experience with Nature and Life

11th SK Environment Love Essay Contest Best Award

Award Winning Essay

SK SHE Report 2003

SK is practicing human oriented management based on SK ManagementSystem (SKMS) formulated in 1979. The human oriented managementmeans various business activities based on respect to mankind anddistribution of profits through such activities to the internal and externalstakeholders. Under this management principle, SK Ulsan CLX has beenconducting wide range of social welfare activities for the local society.

Helping the Needed NeighborsSince the 1970 s, SK has been supporting 8 social welfare facilitiesincluding Taeyeon School and Maeari Welfare Center, home of thementally and physically disabled children; Ulsan Children s Home for theorphans; and Maengin Welfare Center for the blinds. In addition, SK hasbeen providing heating oil and support for living expense to the nearbyneeded residents as well as the support to the senior people. Since 1998,we have also provided lunch to the nearby elementary students who cannot afford lunch expense. In 2003, 982 students from 35 elementaryschools benefited from our support.

Helping the Youth Family HeadsSK has been carrying out Customer Matching Donation in which acertain amount for each time a customer uses an SK gas station is donatedto the families headed by the youth. For Thanksgiving in 2003, giftsamounted total of KRW 120 million in rice or fruits, in the winter, heating oilamounted KRW 180 million were provided. In 2004, 650 middle and highschool students received the school uniforms. This program was a part ofcause-related marketing designed to offer the customers joy ofparticipating in helping the needed neighbors. Our employees keep findingthe new ideas for the program.

ScholarshipThe scholarship program has been ongoing since foundation of SK Groupas the basis of social contribution spirit. SK Corp. has been carrying out theindustry-academy scholarship program through Ulsan ConstructionCommittee founded in 1960 s. Five students selected from UlsanUniversity receive twice a year scholarships, and starting in 1992, 100middle and high school students have received the scholarships every year.In addition, SK Corp. has supporting various events (Children s dayceremony, athletic meeting, etc.) of the nearby 8 elementary schools andproviding the graduation scholarships.

Social Contributions

Fig 55. Helping the Youth Family Heads

Fig 54. Needed Neighbor Help Event

Fig 56. Scholarship Awards to Middle andHigh School Students

1. KBCSD (Korea Business Council for Sustainable Development)

SK has been participating as the founding member of KBCSD since March2002. The objective of the organization is to expand the horizon of industrys recognition of sustainable development which enables harmonicdevelopment of environment, economy and society. As more companiesjoin the practice, the sustainable management efforts can be propagatedand shared and make the nation s industries be environmentally friendlier.KBCSD under FKI is the Korean partner of WBCSD (World BusinessCouncil for Sustainable Development) and the industrial partner of PCSD(Presidential Council for Sustainable Development). SK is activelyparticipating in the various committees to propose policies for national SD,to promote industry s effort for SD, and to propagate the best practices ofSK s environment management.

2. Responsible Care Activities

Responsible Care is an international voluntary campaign of thechemical industry to establish and promote the strategies forSHE improvement to protect environment and human healthfrom development phase to manufacturing, sales, distribution,

usage and disposal phases of the chemical products. Started in December1999, Korea RC Council currently includes 74 member companies. SK isactively participating in Regulatory Committee and ImplementationCommittee. The SK Ulsan CLX is trying to establish 4 RC implementationguidelines formulated by Korea RC Council.

Stakeholder Relation Improvement

Fig 58. The 8th Asia Pacific RC Conference

Fig 57. The 2nd KBCSD CEO SustainableManagement Academy

Table 13. SK s 4 Basic RC Guidelines

Pollution Prevention (Prevention of Contaminants)Guideline to assess the industry effort to prevent pollution including management commitment and target to reduceenvironment pollution; and analysis and evaluation of potential impact

Process SafetyGuideline to assess the industry effort, i.e. safety evaluation and protection procedure to minimize damage from fireand explosion, to maintain process safety

Employee Safety and HealthGuideline to assess development of health program, evaluation of potential health and safety risk of the facilities, andmaintaining work site safety

Emergency ResponseGuideline to assess emergency response plan, local society potential risk evaluation and emergency response drilling

SK SHE Report 2003 Stakeholder Relation Improvement

3. Korea Chamber of Commerce Environment Committee Activity

SK is an active member of the Environment Safety Committee under KoreaChamber of Commerce. Utilizing the environment friendly managementexperience gained from the field, SK hopes to improve the nationalenvironment safety level, the essential element for improving the citizensquality of life. As such, SK has been actively supporting publiceducation/training to improve the industry s environment managementlevel for the past few years. SK has also been participating in coping withthe international trade regulations and implementing compliance withinternational environment agreements including the Climate ChangeAgreement. In addition, we are actively participating in the nationalenvironment safety policy development and international cooperationprojects as well as discussions of environmental issues raised byenvironment related NGO and media.

4. SCEM (Supply Chain Environmental Management)

In October 2003, SK was designated as the main petrochemical partner tolead the Cleaner Production Transfer and Dissemination Programsponsored by National Cleaner Production Support Center under theMinistry of Industry and Resources. SK is conducting SCEM project totransfer and expand its environment management and clean productiontechnology to its suppliers. This project is important in that it will transfer, ata reasonable cost, its technology to the small to medium sized companywhich could not practice environment management due to lack of financialand/or technical resource and contribute the nation s industrial structure tobe environment friendly and sustainable.

For the next year, SK plans to assess the current condition of workenvironment and then transfer and disseminate its environmentmanagement and cleaner production technology to ten suppliers in phases.For the second and third year, the project will be expanded to othersuppliers.

Fig 60. CP Technology Transfer andDissemination Program Agreement Signing

Ceremony

Fig 59. KCC Breakfast Meeting withMinister of Environment

SK defines an environmental accident as when 1) SK was penalized bymore than fine or improvement order by the government, 2) company simage was damaged due to media report or group civil complaint, or 3) costof environment recovery was more than KRW 1 million. SK is endeavoringto completely eliminate environmental damage to the local society andmaintain the proper environment operation management. The focus is to prevent the environmental accident, classified as water,atmosphere, waste and oil leakage, but if it occurs it follows its ownemergency response procedures to recover it as soon as possible incompliance with the regulations. Through Internet homepage and routineoffline contact, SK tries to listen to the residents complaints and opinionsfor even the mundane environmental issues. When a civil complaintoccurs, our own internal regulation requires it to be dealt with promptly sothat it will not be elevated to accident. As the result of our efforts, the environmental accident as defined abovehas been steadily decreased each year to 0 reported last year. This isbecause of reduced flaring accidents due to safer process operation andcontinuous communication with the local community; and no oil leakaccident due to strengthened prevention activities.

Regulatory Compliance

Fig 61.

Annual Environmental Accidents

unit: case

SK SHE Report 2003

ISO 14001 Environment Management System CertificationAs SK s Ulsan CLX causes most of environmental impact by SK Group, SKhas been trying to apply the international level of environmental standardsto the CLX in order to demonstrate environment management practice onthe production sites. After three years of preparation, the Ulsan CLXreceived ISO 14001 certification for the first time in Korean on November 9,1996. With the certification, SK concluded the advanced environmentmanagement system beyond the existing hardware oriented practice ofenvironmental investment and management. SK s system is now capableof comprehensive and systematic environment management fromenvironmental impact evaluation to audit and management review.

Environmental MarkSK has been steadily improving environmental impact of its gasoline enginelubrication oil, ZIC-A, by improving fuel consumption and reducinggenerated waste oil. As the result, the product was recognized for itsenvironment friendliness and received Environmental Mark from theEnvironmental Mark Committee in October 1999.

Awards and Certifications

Fig 65. Energy Saving Expert Certificate

Fig 62. ISO System Certificate

Fig 66. Safety and Health ManagementExcellent Case Certificate

Fig 67. Ulsan Social Welfare Award (Ulsan City)

Fig 64. VA Volunteer Certificate

Fig 68. 2000 Environment ManagementAward - MOE

Fig 69. Green Energy Design Pledge-EnergyManagement

Fig 63. Environmental Mark Certificate

2000 Maeil Business Newspaper Environmental Management AwardSK received the best award for the energy industry sector for 2000Environmental Management Award sponsored by the Ministry ofEnvironment and Maeil Business Newspaper. The award was created torecognize social contribution of the companies or organizations whichvoluntarily carried out exemplary environmental activities, mainly focusingon the environment friendly management activities of the private industries.Unlike other environment related awards which evaluate the level ofenvironment management, this one assesses the company s organization,operation and culture. By receiving the award, SK has been publiclyrecognized for its environment friendliness.

2000 Superior Energy Reduction Case AwardSK has been actively supporting the government s energy reductionpolicies through process improvement, operation condition improvement,unit cost management, energy management, and reduction systemdevelopment. SK s efforts have been recognized by being awarded for thesuperior energy reduction every year.

Certification of Excellent Safety and Health Management Company for 2001SK s Ulsan CLX received the certification of excellent safety and healthmanaged company for 2001 by Maeil Business Newspaper Safety andEnvironment Institute. The nation s most respected certification system insafety and health management had been sponsored by the Ministry ofLabor until December 2000 before evaluation of corporate safety andhealth management was transferred to Maeil Business Newspaper SafetyEnvironment Research Institute in a privatization effort. SK was recognizedfor its management of safety and health at the world s best level asdemonstrated by the highest points received in its history. SK s IT systemfor safety and health management was especially cites as second to nonein the world.

Other Environmental AwardsIn addition to the awards above, SK s endeavor in environment friendlymanagement, energy reduction activities and environment preservationactivities have resulted in numerous other environment related awardssuch as Recognition of Appreciation for Environment Day in June 1999;Environment Preservation Effort Recognition in December 1999;Presidential Award for Environment Day in June 2002. This is because ourefforts in becoming our world environment friendlier have been publiclyappreciated.

Fig 70. Maeil Business NewspaperEnvironmental Management Award, 2000

Fig 71. Receiving 2000 Superior EnergyReduction Case Award

Fig 72. Ceremony for Certification of 2001Excellent Safety and Health Management

Company

Fig 73. Presidential Merit for 2002Environment Day Award

ContactsAddress: 99 Seorin-dong, Jongno-gu, SeoulPostal Code: 110-110

Tel.: 02-2121-7233Fax: 02-2121-7377

E-mail : byungno@skcorp.com

www.skcorp.com

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