ACCESSION TO THE EU - WITHOUT TRANSITION PERIODS, WITH MORE STRINGENT ENVIRONMENTAL REQUIREMENTS, IN TOKEN OF BIG INVESTMENTS AND DYNAMIC CHANGES IN PRODUCTION TECHNOLOGY

Maintaining competitive ability of VÍTKOVICE STEEL, a.s. in a sensitive world of steel market after the accession of the Czech Republic to the European Union is into large extent contingent on innovations (skills, efficiency, research & development).

This is a clear conclusion of a study prepared by a task force responsible for readiness for the accession to the EU, which was working for more than a year in VÍTKOVICE STEEL, a.s. on the preparation of all measures resulting from our membership in the EU. Unlike most accession countries, Czech steel companies do not have any transition period. For this reason it is necessary to invest more than 1 billion crowns by the end of 2007. This corresponds with the company business plan which is monitored by the European Commission and which is evaluated twice a year. Massive investments made by VÍTKOVICE STEEL, a.s. in the next three years will be concentrating mainly on increasing the efficiency of TG processes and on modernization of secondary metallurgy. In line with an act on integrated prevention and on register of pollution, production plants will also be modernized as per the requirements of BAT technology (best available technology). The EU countries have been implementing the requirements of Directive 96/61/EC already for 5 years (since 1996).

A strict timeframe – the deadline for fulfillment of more stringent environment pollution limits is October 30, 2007 – is contained also in Integrated Permissions for operation of the individual technological units and it is subject to negotiations with the Regional Authority of the Moravian and Silesian Region. Presently, the company meets all current mandatory limits. VÍTKOVICE STEEL, a.s. holds also Integrated Permission for the intended ISSM (integrated system of secondary metallurgy) investment project. Presently the company is asking for the same permit for Steel Plant I. By the end of the year the company will submit an application for the permit for the rolling mills operation.

A principal novelty for VÍTKOVICE STEEL, a.s. in the area of ecology after the accession to the EU will be CO2 limits. These limits are defined in Directive 2003/87/EC. However, it is a generally known fact that the Directive is discriminating European producers against the rest of the world. The originally planned Kioto protocol has not been ratified yet, the obstacle is the stance of the USA and Russia. The limits for VÍTKOVICE STEEL, a.s. have not been established yet.

Based on the audit carried out by the task force responsible for readiness for the accession to the EU the key to success is orientation on quality. Priority shall be given to high-quality steel grades custom tailored as per the needs and wishes of the individual customers. Fulfillment of all ecological norms, physical and technological preconditions for the production have been fully integrated to the company business plan (see the list in table no.1)

Table 1: Key investment projects of VÍTKOVICE STEEL, a.s. in the past

Probably the most radical change in the technological part of the enterprise will be the shut down of the 4.5 Two-High Rolling Mill. Transformation of the production will be invoked by new legislative requirements. As per Protocol no. 2 of the Accession Agreement between the Czech Republic and the EU (Appendices no. II, III and IV) and the Program for Restructuring of the Czech Steel Industry the 4.5 Two-High Rolling Mills, the so called ingot route, shall be shut down by the end of 2006. This will represent an essential intrusion into logistics and technology of the production process with implications to economy, logistic links and product mix. Currently, a frame study has been prepared which describes specific implications to the financial, personnel and product structure of the company. The costs for dismantling are currently assessed at 95 mln. CZK. The shut down of the 4.5 Two-High Rolling Mill is not in the interests of VÍTKOVICE STEEL, a.s. and it is invoked by the Accession Agreement between the Czech Republic and the EU.