The acquisition of Southern Kuzbass Power Plant is in line with Mechel's strategy to further develop its mining segment. The objective of acquiring Southern Kuzbass Power Plant is to increase Mechel’s performance through the possibility of producing high value added product in the form of electric power using Mechel’s own steam coal. The acquisition of the new power generating asset is also aimed at developing the power component of Mechel's business, which, in particular, includes reduction of production cost by generating Mechel’s own electric power, growth of the Company's capitalization, and making additional profit from marketing the generated electric and heat energy.

As a result of the auction Mechel-Energo OOO owned by Mechel OAO has taken up 565,833,970 of ordinary registered shares of Southern Kuzbass Power Plant OAO comprising 93.35% of the charter capital of Southern Kuzbass Power Plant OAO for RUR 6,9 billion (approximately US$ 265 mln.)

The sellers of 93.35% of the shares of Southern Kuzbass Power Plant OAO are three Russian joint stock companies: RAO UES of Russia OAO (22.97%), SUEK OAO (20.38%), and Kuzbassenergo OAO (50.00%).

Being now a part of Mechel Group, Southern Kuzbass Power Plant OAO will secure its continuous and efficient work by stable steam coal supply from Southern Kuzbass OAO owned by Mechel OAO. The annual demand of the power station in steam coal, which is planned to be covered by deliveries from Southern Kuzbass OAO, amounts to about 1-1.2 million tonnes of coal. With further increase of the production capacity of Southern Kuzbass Power Plant OAO, coal supply from Southern Kuzbass OAO can reach 2 million tonnes annually. The power plant’s operations within Mechel group will allow Southern Kuzbass Power Plant OAO to provide its facilities with modern power equipment resulting in improvement of its economic and ecological performance. The competitive advantage of the power plant is its location close to the coal mining sites, the largest power consuming steelmaking works in the region, coal and ore mining companies, and presence of such major consumer as the Southern Kuzbass region’s public utilities, which altogether ensure consistent load of the power plant.

Southern Kuzbass Power Plant OAO was separated from Kuzbassenergo as the result of the reorganization process in July 2006. Southern Kuzbass Power Plant OAO is located in the town of Kaltan, Kemerovo Region. As of January 1, 2007, its installed electric power capacity is 554 MWt, and the heat power capacity is 560 Gcal/h.

“It is the first time Mechel has acquired a large power generating asset, thus confirming its serious intentions to single out power production into a separate business segment and to broaden and strengthen synergy relations between the group’s subsidiaries. To implement the program of developing the power sector in Mechel’s operations, a new subsidiary, Mechel-Energo, appeared in April 2004. Mechel-Energo is engaged in both providing deliveries of energy resources to Mechel’s other subsidiaries, and marketing electric and heat energy to third parties on the free competitive market. Mechel’s power business is a logical stage in the Company's development. Coal is the main product we manufacture and market, including saleable coal for external consumers, coking coal for internal needs of Mechel’s steel segment, and now production of finished product in the form of electric and heat energy from Mechel’s own steam coal,” - Mechel’s Chief Operating Officer Alexey Ivanushkin commented.