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January 20, 2011

Magnitogorsk Iron & Steel Works (MMK) receives approval for Joint Implementation project within the framework of the Kyoto protocol

The Russian Ministry of Economic Development has approved the Joint Implementation project “Implementation of arc-furnace steelmaking at Magnitogorsk Iron and Steel Works”. The project has been implemented in accordance with the rules of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. As a result Magnitogorsk Iron and Steel Works has received “project investor” status and is entitled to receive Emission Reduction Units (ERUs) as provided for by the flexible mechanisms of the Kyoto Protocol.

Joint Implementation mechanism, as defined in Article 6 of the Kyoto Protocol, gives Annex I countries the chance to invest in projects that reduce Greenhouse Gas Emissions in any other Annex I country (as for example Russia) as an alternative to reducing emissions domestically. After approval of projects by designated state authorities of such countries so called Emission Reduction Units (ERUs) are issued for actually achieved and verified emission reductions. Such ERUs can be sold in the international carbon market. Implementing the project will provide MMK with additional revenues that will improve the economics of the project and partly compensates for the project’s costs.

During 2004 - 2006 Magnitogorsk Iron and Steel Works conducted a major reconstruction of its smelting facilities. The modernization project involved a complete switch to continuous steel casting and the replacement of open-hearth production methodology with state of the art electric furnace steelmaking. The project has significantly increased the production capacity of Russia’s largest metallurgical enterprise. By replacing the outdated open-hearth furnace technology the company`s capacity to produce high quality electrical steel (including profiled and slab grades) has increased from 2 mln tons to 4 mln tons.

At the same time the project will reduce the emissions of CO2 - one of the main greenhouse gases causing the ‘greenhouse effect’ - by 7 mln tons during 2008-2012 which is the largest reduction rate achieved in the Russian metallurgical industry.

The implementation of the project is a very important event for the Russian steel industry as it has increased the company’s competitive position in the domestic and foreign markets. The project has also significantly reduced the energy consumption for steel production and lowered the emissions of pollutants.

MMK’s partner in the Joint Implementation project is Carbon Trade & Finance (a joint venture of Gazprombank and Commerzbank) which will act as the buyer of all generated ERUs and provider of project development services.

MMK expects to receive additional (carbon) revenue of approximately 70 mln EUR from the sale of ERUs in 2011-2013. The funds will be used to repay the project-related loans and to further finance the company’s modernization program up to 2013.




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