Russia Coal Resources & Logistic 1 PAGE

Coal Reserves 2 Recoverable reserves are those quantities of coal which geological and engineering information indicates with reasonable certainty can be extracted in the future under existing economic and operating conditions.  Russia holds the 2 nd largest amount of recoverable coal reserves in the world

Coal Reserves  Note: Data for the United States represent recoverable coal estimates as of January 1, Data for other countries are as of January 1, Source: Energy Information Administration, International Energy Annual 2003, DOE/EIA-0219(2003) (Washington, DC, June 2005), Table 8.2, web site StatesRussia United Stated Australia South Africa Ukraine Kazakhstan Yugoslavia Other Countries Russia China India

Coal Reserves and productions  Russia coal reserves distribution and production areas 4 Source:

Coal Production  Expansion of Coal Production in Russia – With 173 billion short tonnes, Russia holds the world’s second largest recoverable coal reserves, behind the United States, which holds roughly 274 billion short tonnes (1). Russia produced 321 million short tonnes in 2006 (roughly a quarter of U.S. coal production), making it the fifth largest in the world. The country consumed roughly 260 million short tonnes, leaving 61 million short tonnes for export. – According to its Government's energy strategy, Russia should produce between 441 and 496 million short tonnes by After restructuring in the last couple years, almost 80 percent of domestic coal production comes from independent producers. Russian coal production began a three-year upswing in After a slight decline earlier in the decade, production has increased markedly in recent years. 5 (1) 1 short ton = metric tonnes

Coal Production  Russia is expected to expand its international coal trading significantly – In the early 1990s, Russian coal supply was characterized by low mine productivity, relatively poor coal quality, and long distances between mines and markets. The productivity of its coal mines has improved since then, however, lowering mining costs and compensating in part for the expense of transporting coal to ports. – Rail and port infrastructure investments are critical for the continued expansion of Russia’s coal exports, and in addition, growth in the country’s domestic coal consumption could limit the availability of coal for export. Nevertheless, Russia is expected to play a growing (and in time to come, dominant) role in seaborne world coal trade. – In 2030, Eurasia’s coal exports are projected to total 2.5 quadrillion Btu—63 percent more than in 2006—largely as a result of growth in Russian exports. 6

Coal Export Route  Based on the coal mine and port development plan for coal exports, the transportation routes for the Federation via Russian Far East (“RFE”) and East Siberia will include the route – from the Neryungrinsky and other mines in southern Yakutia in the Sakha Republic along the Baikal Amur Railway and Trans-Siberian Railway to Vostochny Port; – from the Elginsky mine in southern Yakutia in the Sakha Republic via the Baikal Amur Railway to Muchike Bay; and – from the Tugunuisky and other mines in Buryat Republic in East Siberia via the Trans-Siberian Railway to Muchike Bay.  It will be necessary to increase the capacity of the Baikal Amur Railway and the line connecting it to Muchike Bay and Vanino Port to meet the increased exports needs from Vanino Port on Muchike Bay. The line connecting the Trans-Siberian Railway to Vostochny Port will also have to be improved. 7

Coal Export Route 8 Legend: Baikal-Amur Railway or BAM TransSiberian Railway or Transsib secondary railway links (dotted line between BAM and Transsib)

Coal Export Route

10 Kuznetsky Tugnuisky Sovgavan Vostochny Nakhoda Possiet Neryngrisky Vanino TayShet Ust-kut Elga Urgal Khabarovsk Vladivostok Irkutsk Ulan-Ude Chita Coal Production Areas Coal Export Terminal

Coal Terminal Facilities  Coal Terminal – The number of seaports in the RFE Region is 32, including 23 commercial seaports, 11 of which with year-round navigation are connected to trunk- railways. – The bulk (80%) of overall freight turnover in the seaports and of marine foreign trade shipments is provided via four major ports of Vladivostok, Nakhodka, Vostochny, and Vanino.  Capacity Limitation – RFE Region biggest dedicated coal handling terminal in Vostochny has been operating above installed capacity for a number of years. The situation is becoming acute as the Asian-Pacific demand for coal is forecast to grow substantially. – Experts think Russian ports are not able to provide the complete range of services necessary for coal transshipment, and export of Russian coal is limited by insufficient capacity of these ports. 11

Coal Terminal Facilities  General conditions of coal terminals in Russia are as follows:- VOSTOCHNYVANINO NAKHODKA (not comparable) POSHIET (not comparable) MALY (not comparable) Coal TerminalTerminal 1Berth 5,6Berth 9 Berth 1,2,3 Annual Capacity12.0 mil ton2.5 mil ton1.2 mil tonn.a.2 mil ton0.3 mil ton Larger Vessel Accommodated 150,000 dwtPanamax20,000 dwt30,000 dwt20,000 dwt15,000 dwt Coal Storage Capacity600,000 ton 70,000 ton – 80,000 ton 45,000 ton – 50,000 ton n.a.150,000 ton15,000 ton Water Depth in Front of Berth m-11.5 m – 13.0 m-9.5 m-11.0 mDraft 9.5 m-8.25 m Loading Capacity3,000t/h × 4 unit7,000t/d10,000t/dn.a.4,000 – 5,000t/dn.a. Equity Holders 60%: Krutrade 20%: Federal Govt: 20%: Others 20%: Russia Alumi 74%: Federal Govt: 06.%: Port Worker 98%: Yuyraz Holding 02%: Others 80.20%: Mechel 13.33%: Federal Govt 06.47%: Others n.a. RemarksExpansion of coal yard adjacent to the existing yard (3,000 ton) Expansion plan includes building new berths. A freezing port which operates only 6-8 months within a year. An annual turnover of 25 million mt of coal terminal is expected to be completed by year Coal terminal was discontinued in 2005 Coal shipping port of SUEK. Export started from

Coal Terminal Facilities  Existing Vostochny port is primarily controlled by “KRU Trade AG” (a trading branch of OAO UK "KuzbassRazrezUgol" - one of the biggest coal mining companies in Russia) which has a 60% equity stake in the port. Thus, the export loading capacity of the port caters principally for Kru Trade AG’s own coal production.  Coal concession operators in various areas are desperately searching for alternative coal terminals to export their coal productions. For instance, OOO “Yakutugol”produces 70 million metric tonnes of coal supply per year, OOO “Kuzbassrazrezugol” and OOO “Paspadskaia”jointly produce approximately 100 million metric tonnes of coal supply per year. 13

Coal Export  Continual Growth in Russia Coal Export 14 Note: figure for 2006 are estimated Sources: IEA “Coal Information 2007” Major Coal Exporters and Importers of the World

Coal Export The Coal Demand 15

Prime Site – Sovgavan Port  All-Year Round, Non-Freezing Port in Russian Far East – Sovgavan Port can be upgraded into a all-year round, non-freezing port to support the loading and unloading of up to two panamax /cape size vessels at the same time. During winter time, the assistance of ice-breaking vessel is required occasionally. – The natural depth of Sogavan Port allows the design a loading bay of up to 17 meters, that can berth both panamax and Cape size vessels. 16

Prime Site – Sovgavan Port  A Challenge to Vostochny Port – Sovgavan Port is the only alternative location suitable for upgrading to a 15 million metric tonnes annual turnover coal terminal for Russia coal export in the RFE Region, – Sovgavan port can be developed as dedicated coal Terminal for tran shipment of coal resources from opposite Sakhalin Region. The distance between Sovgavan and nearest coal mines in Sakhalin region is less than 100 Nautical miles.  17

Current Market RFE Region Seaborne Coal Export (‘000 ton) JAN 09JAN 08% CHANGE VOSTOCHNY1,146.21, VANINO POSHIET NAKHODKA SAKHALIN TOTAL1,473.81,