Updated August 27, 2008

   On July, 24, Russia's prime minister Vladimir Putin held the meeting devoted to the metallurgical industry, as a result of which Mechel faced the problems.

According to the protocol of the meeting, the state that until recently didn't pay any special attention to the metallurgy, decided to "come back" to this industry. The core task is the reorientation of the metallurgical companies

to the internal market due to the principles revision of granting licenses for the key resources.

   On July, 24, prime minister Vladimir Putin held the meeting in Nizhniy Novgorod w here

the situation and the development prospects of Russia's ferrous metallurgy were discussed.

During this meeting, the prime minister severely criticized Mechel that resulted both in the company' s capitalization fall and in the drop of the overall Ru ssian market. If Mechel's problems are already solved with the minimal losses,

the Russian metallurgists will only face the changes. According to the protocol, within September-November, the Russian ministries and agencies will develop a certain range of regulatory documents and will submit proposals directed to the actualization of the industry's development strategy by 2020.

   The majority of measures are directed to the reorientation of the metallurgical segment form the export to the internal market.

In particular, by October of this year the draft law on zeroing import taxes on the metallurgical raw materials and on the flat rolled products for pipes and tubes production and for the motor industry as well

will be introduced to the government; and by November of this year – the law on raising export duties on scraps and wastes

of the nonferrous and ferrous metals will be introduced as well. Moreover, the metallurgical companies are recommended to move to the exchange mechanisms of the products realization to exclude price collusions.

   At the same time, the government is going to interfere in the process of resources distribution among the companies.

The Russian ministries should develop "the optimization mechanism of granting licenses for raw materials' extraction that the enterprises of the metallurgical sector require for the primary deliveries of products in order to satisfy the needs of the internal Russian market and for the output of the deeper processed products". Moreover, for the first time it goes about the direct financial backing "of the enterprises that produce the special steel and alloys for the military-industrial complex in the form of the budgetary compensation of some expenditures for the payment of interests on loans they received in the Russian lending organizations and use for the technical rearmament". The last measure would improve Mechel' s situation, as its enterprises produce special steels.

   The industry participants don't treat the planned activities of the government negatively. Now the internal Russian prices for the scrap exceed the export ones almost 1.5 times, and because of this fact, scrap-packers have voluntarily reoriented their deliveries to the internal market, as the president of Industrial Group MAIR Victor Makushin reported.

"The introduction of the tax on scrap export will not lead to the collapse, but will fix the present situation", as Mr. Makushin assured.

   At the same time, the head of UBS analytical department Aleksey Morozov notices some ambiguity of the intentions to optimize the granting of licenses.

The government meant the necessity to spell out in the subsoil law the mechanism of granting licenses for the investment competition and the concept of the important terms of a license agreement, as the head of the Ministry of Natural Recourses press-service Nikolay Gudkov considers. In the metallurgical companies expect that licenses will be granted taking to account what the applicants already have. "For instance, only those companies that have already occupied the leading positions in the certain grade of coal can take part in new auctions", as say in one of the metallurgical companies.

" There should be introduced a limiting border for them. For instance, if a company's stake in this grade is already more than 35%, it can't take part in new trades". Thus, the metallurgical companies are already preparing to get the dividends from the recovery of the government's active policy in the industry and expect that the leaders will change here.