ArcelorMittal Kriviy Rih

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The aim of the project is to optimise the use of current production capacity, and increase the productivity and energy efficiency at ArcelorMittal Kriviy Rih (the “Company”) in Ukraine. The proceeds of the Loan are being used for targeted capital expenditures to achieve the above aims. ArcelorMittal’s investment in the Company is a landmark transaction for Ukraine and its transition to a market economy. It has the potential to demonstrate to other foreign investors the benefits arising from a transparent privatisation, successful restructuring and the introduction of international business management practices. The key sources of transition impact of the project are: ArcelorMittal Kriviy Rih, the largest Ukrainian steelworks (formerly “Krivorizhstal”). The Company is controlled by ArcelorMittal S.A., the largest steel company in the world. ArcelorMittal owns 93.02% of ArcelorMittal Kriviy Rih. Loan, USD 200 million. Approximately USD 500 million. Screening category and justification Screened B/1, requiring an Environmental Audit of the existing steel plant and iron ore mines as well as an Environmental Analysis of the proposed investment programme. The project involves provision of finance for an ongoing modernization programme at the existing steel plant and iron ore mines. The Bank’s financing are not being used for a major expansion of the plant. The investment programme will significantly improve the current environmental and safety performance of the steel plant and mine operations and new investments will be structured to allow long term attainment of EU environmental standards. The Bank as part of its due diligence has undertaken an Environmental Audit and Environmental Analysis by independent international consultant. Based on the findings of the environmental due diligence an Environmental Social Action Plan (ESAP) has been developed and agreed with Borrower. This among others, reflects the required environmental investments included in the Share Purchase Agreement agreed with the Government of Ukraine. Due diligence undertaken and outcomes An environmental due diligence was undertaken of the project by an international environmental consultant. This consisted of an Environmental Audit of the existing steel, coke and mining operations sites as well as an Environmental Analysis of the planned investments programme. The environmental due diligence confirmed that this is an old facility, with little if any investment in environmental abatement equipment in the past 20 years due to economic stagnation. This has resulted in the facility being run down and the abatement equipment installed at the plant not fully functional or in poor state of repair. The result is a significant environmental impact with dust emission and air quality being a major problem. The planned modernization being undertaken is aimed at improving the environmental situation considerably and the agreed ESAP has included specific investment with clear milestones set for attaining specific standards. The implementation the ESAP will allow the plant to attain a level of environmental performance comparable to many plants in new EU Member States. The project, as structured, will ensure that all new investments and new facilities being constructed will be structured to meet EU IPPC requirements. Therefore any new steel converter shop, continuous casters, etc. will be designed to meet EU Best Available Techniques (BAT) requirements. For existing installations, the investment process aims at reducing the most significant environmental impacts. In some areas due to technological constraints, IPPC compliance can not be fully achieved in the short to medium term. In line with the Bank’s Environmental Policy, in these situations the environmental performance requirements have been structured to meet EU standards in a reasonable timeframe, given the current condition of the plant. Implementation requirements The Company has agreed to implement an Environmental and Social Action Plan (ESAP) over the next six years. These range from improving on site environmental, health and safety management to specific environmental and safety requirements such as replacing the Open Hearth Furnace (OHF) with BAT compliant technology as well as upgrading the main sinter plants. The ESAP can be summarized as follows: These are only some of the main points of the EAP, which in total includes over 40 specified tasks to be undertaken over the next six years. The EAP includes specific emission targets form various operations by specified dates. The Company has also been required that all new developments, including any significant mine extension or construction of any new tailing ponds is subject to an Environmental Impact Assessments (EIA), inclusive of public disclosure and consultation. Furthermore, the Company is also subject to a set number of requirements as agreed with the Ukrainian authorities in the Share Purchase Agreement (SPA). This has been subject to separate review by the relevant Ukrainian authorities. The monitoring and implementation can be summarised as follows: In line with the agreements the first monitoring was undertaken within 6 months of the loan agreement, and confirmed that the Company was on track with the implementation of the agreed ESAP. This was also confirmed in 2007. However in 2008 and subsequently in 2009, delays in the implementation of the agreed ESAP occurred due to the development of a comprehensive investment programme which would have resulted in a significant capacity increase and would have required a complete reconstruction of major parts of the steelworks. This investment programme would have addressed many points of the ESAP. However, due to the global economic crisis, this investment programme had to be put on hold and the Company has to review in which way it intends to address the outstanding ESAP items. In 2009, the Bank held a number of meetings with senior ArcelorMittal management. It has been agreed, that although the CAPEX intensive investments such as the new sinter plant and the converter shop upgrade have been delayed, the Company will implement remaining provision of the ESAP, including additional BAT Assessments aimed at reducing the environmental impacts of the plant operations. The Company has agreed to fully implement the stakeholder engagement programme in 2009 and further disclose environmental information on its web site. The Company confirmed that all its obligations under the existing ESAP will be implemented. However, the implementation of CAPEX intensive investments will resume only when the production return to the pre crisis levels. None. Jean Jouet ArcelorMittal Kryvyi Rih 1 Ordzhonikidze Street Kryvyi Rih 50095 Ukraine Fax: +380 564 785 376