Updated August 20, 2008

The head of the Federal Antimonopoly Service (FAS) Igor Artemiev kept the promise of issuing Mechel with lenient penalty.

The turnover fine for Igor Zyuzin's company is only 5%, or RUR 790 million rub, and the compulsory price cut is only 15%, when the maximum is 30%. Mechel's ADR (American depositary receipts) became champions of the growth on the background of the severe market drop.

The FAS head Igor Artemiev announced the penalties' size that Mechel will be imposed on after the meeting with Vladimir Putin whose severe criticism became the start of Mechel's troubles. The fine the company has to pay will be "below the average" – only 5% from the market turnover of cocking coal for the previous year (the maximum fine size is 15%), as Mr. Artemiev has promised.

According to him, it is about RUR 790 million in money terms.

Thus, the FAS imposed the compulsory and minimal price cut, as it is the lowest figure in the range of 15-30%.

In Mechel confirmed the decision about "the voluntarily price cut by 15% from September, 1". The source close to the company estimates Mechel's losses at RUR 1 billion.

In this case, one can draw a conclusion that the company that has been severely criticized by Vladimir Putin after Yukos's case and has been directly accused of evading of taxes via some offshore schemes, has gotten off very easily.

"The sum of RUR 790 million is small, and the 15% price cut is humane on the background of the double price rise since the early year", VTB Bank analyst Alexander Pukhaev considers.

As Sergey Krivokhizhin from Alfa Bank calculated, the total Mechel's losses due to the price cut would reach about $43-72 million. Still, the sum is uncritical for the company taking to account the export deliveries.

The investors agree with the fine size, as on the Tuesday evening, August, 19, on the background of all Russian stocks' slump, Mechel's ADR have grown by almost 4% on the NYSE.

On August, 19 Igor Artemiev has again explained the comparatively soft measures by the active Mechel's cooperation with the state bodies. "When we speak about such lenient penalty, this decision has been made taking to account the Russian market, so it wouldn't have collapsed", Dmitry Baranov from Finam Management says. "From the very beginning of Putin's speech, it was absolutely clear that an effect on the whole Russian market was too severe.

Obviously, it was an attempt to intimidate those, who don't play by rules", Sergey Krivokhizhin from Alfa Bank says. Apparently, the state expects that other coal miners will cut their prices as well,

if they don't want to pay penalties, the expert considers.

Nevertheless, other coal companies, the activity of which is investigated by the FAS, will also be "punished" – Evraz Group and Raspadskaya's mines. Igor Artemiev was quoted as saying that "analogical penalties will be imposed on them". According to the data of

the source aware of the investigation, the FAS discusses the level of prices cut that will be low as well. Still, the decision of imposing turnover fines is not taken yet,

the source adds.

In the opinion of Pavel Shelekhov from Kapital Company, the imposition of "analogical fines" on Evraz and Raspadskaya is improper: since the beginning of the year Mechel has been selling coking coal for $300 per ton, when, for instance, Raspadskaya has raised prices to $220 per ton, and just for 2H. "If both companies are made to cut prices by 15%, Mechel's coal will still remain the most expensive at the market", the expert explains.

"In this case, Raspadskaya will bear the highest losses, as coking coal is the only product it produces, as opposed to Evraz and Mechel that can recover their losses by means of the metallurgical sector", Alexander Pukhaev agrees.

The source close to Evraz Group confirmed this statement, and specified that both the penalties and the requirement about the price cut would be lower than of the rivals because

of the insignificant stakes of internal deliveries. However, the head of KIT Finance department for equity market analysis Maria Kalvarskaya is sure that because of the high profitability of Raspadskaya's production, the imposition of "the analogical penalty" will have less negative influence on the overall mine's activity, unlike Mechel's.