Zelezara Smederevo LLC Smederevo General Information

Company for steel production and processing Full legal name Zelezara Smederevo LLC Smederevo Address Radinac, 11300 Smederevo Identification Number 07342691 Manufacture of basic iron and and steel Core activity and of ferro-alloys 1913, founded as Serbian Joint Stock Mining and Smelt- Foundation Year ing Company “SARTID” 4996 (total number of employees with Company for Number of Employees processing and coating of metals “SERBIAN ROLL SERVICE COMPANY” LLC RADINAC – 50% owned by Zelezara: 5007)

Capital structure (in%)

Republic of Serbia 100 General Information

Smederevo is positioned at 40.39° northern latitude and 20.57° eastern longitude. It is located in the northeast part of the Republic of Serbia, on the second largest European river Danube. It is only 45 kilometers far from the capital, Belgrade. Main potential of the City of Smederevo is its very characteristic micro position, that is, exceptionally favorable geographic location between two European corridors – the land one X – the highway, and the water one – VII – the Danube. This advantage should be exploited to the maximum from the local viewpoint.

SMEDEREVO Pan-European Transport Corridors General Information

Distance form the Company to:

Belgrade 45 km Regional Center 7 km Main road 0.1 km Port 10 km Railway 0.1 km

Smederevo /Tin Mill Plant – Head Office Building Short History

The Company was founded in 1913, and this Plant at the current location was built from year 1971 thru 1979. In March 2002, at the Plant’s premises, Government of the Republic of Serbia, US Steel and SARTID a.d. had signed the Letter of Intention and Strategic Partnership.

On September 12th, 2003, US Steel acquired SARTID a.d. in bankruptcy and its four affiliated companies.

U. S. Steel Serbia, d.o.o. was registered. Having bought 100% of U. S. Steel Serbia, d.o.o. shares, as of January 31st, 2012 Republic of Serbia become the owner of the company which currently operates as “Železara Smederevo” d.o.o. Company locations & productions Land and Buildings

Smederevo (Radinac) - Plant • Surface - 293.5ha • Within the fence - 283ha (under facilities 726.340m2) • Outside the fence - 10.5ha (under facilities 18.767m2) Šabac - Tin Mill • Surface - 6.9ha • under facilities 39.255m2 Kučevo - Limestone production • Surface - 71ha • under facilities 10.365m2 Old Port smederevo • Surface - 4.4ha • under facilities 1.049m2 New Port smederevo • Surface - 15ha • under facilities 213m2

Facilities are in working order, owned by the company. Zelezara Smederevo LLC is spread across vast area of land. Some of the most important facilities include Agglomeration plant and machinery, Industrial Steel Plant building, Exhaustor hall etc. Capital investments 2004 - 2011

Investment structure Total investments

2004 – 2011 I Infrastructure ...... …… 37,3 million USD 313,8 milion USD • Information Technology 17,4 • Security and Fire protection 10,4 • Energetics infrastructure 4,4 • Transportation 5,1 Year milion USD II Productivity and Savings ...... 167,6 million USD 2004 36,0 • BF1 34,0 2005 43,2 • BF2 43,2 2006 16,7 • PCI 46,0 • Steel making 26,8 2007 65,4 • Cold Rolling Mill - Tandem DCR 10,2 2008 58,1 • Sabac 3,9 2009 15,6 • New Port 3,5

2010 22,8 III Improving Quality ...... 28,4 million USD 2011 56,0 IV Environmental ...... 80,5 million USD Quality Assurance

Quality assurance certificate ISO 9001 Company owns quality assurance certificate ISO 9001.

ISO 9001:2008 Valid from June 6, 2013 to April 1, 2016

2016 HACCP Codex Alimentarius Valid from April 18, 2014 to April 17, 2017

For products:

TUV NORD QA System acc to Pressure Equipment Directive 97/23/EC and AD 2000- Merklblatt WO Valid from April 2012, to April 2015

TUV NORD of factory production control acc to DIN EN 10025 -1:2005 and DIN EN 10025 - 2:2005 (for CE) Valid from July 1, 2012 to June 30, 2017 Environmental

Ecology According to applicable regulations, the requirements for environment protection are fulfilled. Environmental

Air Quality Water quality

• Process, storm and sanitary waters are discharged through collectors #1 and #2 There are 48 stacks at • Five facilities for waste water the location, controlled treatment, per one after each on regularly basis in production unit including accordance with valid sanitary waste water decree • Internal control of discharged • Five air cleaning water quality is made by systems are build or sampling at the key locations totally reconstructed every working day • Four stacks are • External controlling of equipped with discharged water quality is continuous device for made by licensed company emission measuring in accordance to the law • Reporting to State regulative. officials in accordance • Every discharging location is with actual law equipped with flow meter regulative • Reporting to officials is based on actual low regulative Environmental

Waste management

The amount of generated waste • Non hazardous waste – 650 000 t/year • Hazardous waste – 30 000 t/year

1. Facility for waste management - Disposal of non hazardous waste - Disposal of solid hazardous waste

2. Disposal of liquid hazardous waste - Abroad; Zelezara pays the service - Total cost: 143. 500 EUR in 2011 - Data for years 2012 and 2013 YTD are not relevant due to a lack of production

3. Recycling inside the plant

4. Selling to the third party Environmental

Environmental protection according to the Law obligations

1. LEGALISATION (Legal requirement, Construction and Planning Law and IPPC Law) Deadline: before issuing IPPC permit, what is, according to the Law 2015 Total estimated cost for projects for location Smederevo: 13.050.000 $ (location Sabac obtained IPPC permit in March 2014)

2. SYSTEMS FOR CONTINUOUS STACK AIR MONITORING (Legal requirement, Official Gazette 71/2010) Dead line: end of 2015 Total estimated cost: 1.100.000 $

3. REPLACING AND DISPOSAL OF EQUIPMENT WITH PCB (Legal requirement, Official Gazette 37/2011) Dead line: end of 2015 Total estimated cost for replacement (buying new equipment: 2.852.000 $ Estimated cost for PCB disposal: 915.000 $

4. LACK OF INDUSTRIAL WASTE WATER DISCHARGE PERMIT FOR SMEDEREVO LOCATION Estimated investments for Water Treatment Projects: 26.100.000 $. IPPC permit for location Smederevo can not be issued without this permit previously. In contact with the Ministry investigating possibility to obtain waste water discharge permit without capital investments. Environmental

Summary from IPPC permit request for location Smederevo which talks about harmonization between existing equipment and best available techniques. Achieving best available techniques must be economically feasible and that is something that has to be negotiated with the competent Ministry.

1. Recirculation of waste gases in sinter plant 2. “Catching” and using of the heat from sinter cooling and sinter screening 3. Collecting energy from gas pressure from the top of the blast furnace when there is possibilities for that 4. Recycling or burning of cleaned gasses from steel shop 5. Minimization of NOx in sinter plant 6. Minimization of emission from blast furnace cast floors and gas evacuation from emission sources, and it is necessary to clean the gasses by filtration

*there is suggestion for Law change, and suggestion is in the procedure for discussion in the Government to extend the dead line for IPPC until 2020. It that case all dead line mentioned above will be moved from 2015 to 2020. Safety and Industrial Hygine

Programs, instructions, procedures Significant successes • 228 consecutive days without OSHA recordable injury • Energy control • Confined space • 630 consecutive days without DAFW injury • Fall protection • Handling with hazardous gases • Hot metal • Mobile equipment • Internal rail - way • Safe activity at the cranes • 2 min. huddle • PPE • Hot works • Purging and blanking of hazardous fluids gas-lines • Laceration prevention • No hands on the lift • Arc flash protection • Excavation program • Safety of the Contractors • Traffic rules • Investigation of the incidents Production facilities

Smederevo PLANT

• Sinter plant, two Blast furnaces and PCI facility • Steel shop • Hot srip mill • Cold rolling mill • Two industrial river ports at the Danube river, Industrial water supplying channel and industrial land – 165,9 ha

Šabac • Tin mill facility

Kučevo • Lime stone quarry and lime production facility

PRODUCTION CAPACITY IS 2 MILLIONS OF TONS OF FINAL PRODUCTS Smederevo Plant

Iron Production

Sinter lines no. 1 i 2 – working capacity 75m2

Sinter lines no. 3 i 4 – working capacity 90m2

Sinter line no. 1 is out of work since 2010 / Reason - unadjusted with the Law on Environmental Protection of the Republic of Serbia / Smederevo Plant

Iron Production

Blast furnace no. 1 Started with work in 1971 /Idled in 1987/ Blast furnace no. 2 Modernized in 2005 Started with work in 1987 Total volume: 1146m3 Modernized in 2007 Working volume: 948m3 Total volume: 1735m3 Capacity: 2500t /day Working volume: 1455m3 Capacity: 3300t/day

PCI - Pulverized coal injection Started with work in 2011 Smederevo Plant steel shop

Three converters / vessels Projected heat weight: 100t Total volume: 73.5m3 Biggest heat weight: 106t

Two continuous casting machines Slab width: 1050 – 2080mm Slab length: 6 – 12m Max speed: 1,30m/min Capacity: 6200t/day / 2,2 million tones annual capacity /

Smederevo Plant

hot strip mill

Reversible rougher mill Coilers 1 and 2 up to 2200mm / weight: to 35t 5 -9 pass Slab tickness180 - 250mm

Pushing furnaces 1 and 2 Capacity: 250t/hour, each Slab dimensions: lenght 4800 – 12000mm width 720 – 2080mm Hot shears and slitting line 6-stand finishing mill up to 2200mm / weight: to 35t Strip thickness: 1,5 – 15mm Thickness: 3 – 20mm Smederevo Plant cold strip mill

Pickle line 1 Continuous cleaning Width: 700-1550mm, thickness: 1.5-6mm Width: 600-1270mm Coil weight: 15t, OD of coil: do 1800mm Thickness: 0.15-1.20mm Capacity 300.000t/annual Speed: 610m/min Coil weight: 18t Pickle line 2 OD of coil: to 1800mm Width: 675-1600mm, thickness 1,2-6,0mm Coil weight: 35t, OD of coil: do 2500mm Capacity: 750.000t/annual Continuous annealing Width: 600-1050mm 5-Stand Tandem mill Thickness: 0,15-0.50mm Entry thickness: 1,8-5.7mm Speed: 366m/min Exit thickness: 0.17-3.0mm Coil weight: 18t Width: 660-1515mm OD of coil: to1800mm Batch annealing Speed: 2000m/min / Coil weight: 35t max BA 1 Capacity: 750.000t/annual 14 furnaces 40 bases

BA 2 20 furnaces 40 bases

Total capacity: 600.000t/annual Smederevo Plant cold rolling mill

Shear line 1 Capacity: 600t/daily Strip thickness: 0,5-1,0mm Coil weight: 15t max

Shear line 2 Capacity: 600t/daily Strip thickness: 1,0-4,0mm Coil weight: 35t max

Temper mill Capacity: 200.000 t/annual Max speed: 500m/min DCR Strip width: 680-1550mm Coil Capacity: 400.000 t /annual weight: 20t max Max speed: 2000 m/min Slitting line Strip width: 600 -1350 mm Capacity: 200.000 t /annual Coil weight: 35t max Dimensions 0,4 – 4,0mm Šabac tin mill facility

Electrolytic tin coating line

Strip thickness: 0,14-0,50 mm Strip width: 680-1025 mm Speed: max. 400 m/min Coil weight: 17t max Capacity: 200.000 t. /annual

Lines for cutting and packaging of tin plate

Plate length: 500-1150 mm Coil weight: 17t max Capacity: 120.000t annual at both lines Energetics

• Four boilers disigned capacity: 75t/h of steam

• Three turbo blowers /Support work of both Blast furnaces /

• Two turbo-generators – 12MW

• Three compressors – 45000m3/h

• Four main power stations (GTS) - 444MVA

• Twelve pump stations Kučevo limestone production

Lump production

Lime stone production 0-4mm for Sinter plant Capacity: 12500 t /monthly Lime stone production 30-60mm for Blast furnaces Capacity: 1500 t /monthly

Two kilns for powder and calcite lime Capacity: 150 t /daily (out of work) Port Smederevo

Old port - Smederevo New port - Smederevo

One crane capacity 2000t of coke/daily Two Ganz cranes One crane 40t – for shipment Capacity: 260.000t/monthly of bulk material, annual Products

Assortment of products per finishing facilities

Product thickness (mm) width (mm) length (mm)

Hot rolled material 1.5 - 15.0 720 - 2050 2000 - 12000

Cold rolled material 0.35 - 3.0 700 - 1500 1000 - 4000

Tin material 0.14 - 0.50 685 - 990 500 - 1150 2003 - 2013

8.02% 6.91% Plant Diversion Rate Percent of acecepted claims % Coeficient accepted claimes

1.28 3.80% 3.47% 1.02 0.97 2.96% 2.84% 2.59% 2.48% 2.22% 0.59 0.59 0.53 0.53 1.51% 1.37% 0.45 0.27

5.032t 2005 2006 2007 2008 2009 2010 2011 2012 2013 52.761t 75.854t 48.254t 52.761t 50.582t 47.780t 40.666t 25.064t 37.827t 47.020t

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Plan  2,11% 2012 goal  0,50% • 2013 goal  0,50%

6.03% Plant Retreatment Rate Claim cost €/mt 2.41 2.40

1.74 1.59 1.51 1.50 1.47 2.07% 0.81 0.97% 1.10% 0.91% 1.02% 0.74% 0.73% 0.74% 0.69% 0.51% 0.35

2.279t 1.896t 2005 2006 2007 2008 2009 2010 2011 2012 2013 39.697t 22.737t 12.554t 12.652t 12.256t 12.146t 12.433t 13.323t 12.607t

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Plan  0,77% 2012 goal 1,42 Euro/mt • 2013 goal  1,42 Euro/mt Logistics delivery of strategic raw materials 2011-2013

Row material type Type of delivery

Pellets By Danube 1.003.648 mt 29% 38% 2.656.972 mt

Oreas 33% 77% 1.142.410 mt By rail 790.857mt Coke and Coal 23% 1.302.154 mt Logistics supply channels 2011-2013

5% 6% 4%

13% 0% 72% Dabowa Garnicza

Cop

Budapest

Izmail

Lukavac Constanza Danube upstream 166.286 mt

Rail, North 213.460 mt Burgas Rail North Corp 123.076 mt Bar Rail Bosnia 435.715 mt Rail Bulgaria 18.606 mt Danube downstream 2.490.698 mt Logistics transport cost 2011-2013

Port Plant Danube $ 2.47 $ 11.41 12% 29% Other $ 0.41 2%

Dabowa Garnicza Rail $ 11.41 57% Cop Budapest

Average cost 19.98 $/mt Izmail

Danube downstream Lukavac Constanza Izmail, Constanza 18 - 21 $/mt Burgas Rail Bosnia 21.45 $/mt Bar Rail Nort 14 $/mt Rail Crop 36.4 $/mt Logistics

Shipment of final products 2011-2013

13% 8% Shipment Shipment from the plant from the plant per type of transportation per type of 21% 32% devlivery 27%

Total: 1.616.953 mt Waterways 458.501 mt By rail 28% 606.000mt 126.133 Distributive Centres 37%

513.624 EXW

By trucks 430.724 Directly to a customer 562.932 mt 35% 342.774 Sea Ports

203.698 Danube Logistics distribution chanels 2011-2013

smederevo

5% 5% 4% Other 28% Trucks 8.32 $/mt 20% 8.27 $/mt

West Europe Ex YU by rail Danube by trucks downstream 38% Waterways Rail 9.23 $/mt 22% 16.11 $/mt 27% 16% 23% Average cost 41.93 $/mt Others Serbia Bar / Italy EXW / FCA Serbia Exw/FCA 0 $/mt Bar / Italy 48 $/mt 7% 6% 5% Italy direct by rail 56 $/mt Central Europe by trucks 45 $/mt West Europe by trucks 84 $/mt EX Yu by rail 22 $/mt Danube downstream 20 $/mt Italy direct Danube Central Europe by rail upstream by trucks Production program

HOT ROLLED PRODUCTS

• Structural steels for general range of application • Low-carbon steel products for cold rolling and direct application • Steel for shipbuilding industry • Fine -grained micro-alloyed steels • Steels for boilers

HRC • Thickness range 1.5 – 15.0 mm /checkered 3,0 – 10,0 mm / P&O 1,5 – 6,0 mm • Width range 720 – 2050 mm /checkered 720 - 1550 mm/ P&O 720 – 1500 mm • Coil weight 6 – 28 t

HRSH • Thicknes range 3.0 – 15.0 mm / checkered 3.0 – 10.00 mm • Width range 720 – 2050 mm / checkered 720 – 1550 mm • Length 2000 – 12000 mm / checkered 2000 – 8000 mm • Bundle weight max 15 t Production program

COLD ROLLED PRODUCTS

• Low - carbon steels • Products from structural steels • Enameling steels

CRC • Thickness range 0.35 – 3.0 mm • Width range 700 – 1500 mm • AM / BM surface, oiled / un oiled, ID 508 / 610, mill / trimmed edges • Coil weight 5 – 24 t

CRSH • Length 1000 – 4000 mm • Bundle weight 2-6 t

CRSC • Width range 200 – 700 mm Production program

TIN PRODUCTS

Production capabilities are for BA and CA material and both kind in Single reduced and Double reduced

SR - material • Thickness range 0.17 – 0.49 mm • Width range 700 – 990 mm • Coil weight 4 –18 t

DR - material • Thickness range 0.14 – 0.29 mm • Width range 700 – 990 mm

Cutted tin plate – sheets, for both SR & DR material • Length 500 – 1150 mm • Bundle weight 0.5 - 2 t HR&CR Product - TOP 15 destination

2011 2012

2013 Sales - Product type

2011 2012 2013

TOTAL1.135 TOTAL367 TOTAL348 Production and Capacity

Quantity Value in 000 EUR Product Unit 2011 2012 2013 2011 2012 2013

Hot Rolled products MT 675,235 218,894 271,489 415,771 111,420 122,239

Pickled MT 151,622 30,771 15,884 96,678 16,106 7,894

Cold Rolled products MT 160,770 34,554 29,609 115,374 20,894 16,385

Tin Mill MT 149,562 45,290 38,781 141,638 37,854 31,728 Production and Capacity

Capacity utilization % of utilization Machine (Production line) Unit Installed capacity Real capacity 2011 2012 2013 Blast Furnace 1 t 750,000 675,000 36.52 0 0 Blast Furnace 2 t 1,100,000 990,000 83.60 28.75 33.10 Steel Mill t 2,200,000 2,000,000 41.80 15.85 18.13 HR rolling line t 2,200,000 2,000,000 56.32 15.11 16.99 HR sheers t 600,000 540,000 24.23 6.28 5.11 HR Sliter t 300,000 270,000 10.84 1.80 1.42 Pickling line 1 t 300,000 270,000 25.44 0 0 Pickling line 2 t 750,000 675,000 59.24 15.75 12.64 Tandem t 750,000 675,000 47.49 11.95 10.38 Conti cleaning t 120,000 108,000 71.81 22.23 13.62 Conti annealing t 120,000 108,000 76.92 22.30 23.08 ZCNK1 + ZCNK2 t 500,000 450,000 50.39 12.79 9.34 DCR t 450,000 405,000 54.44 16.45 10.80 Tempering t 300,000 270,000 31.65 4.67 4.41 Sheer 1 t 100,000 90,000 3.56 1.69 1.21 Sheer 2 t 100,000 90,000 25.47 8.05 8.76 Sliter t 200,000 180,000 38.00 6.36 6.31 ETL t 180,000 162,000 81.83 26.61 21.43 Sheer 1 Sabac t 60,000 54,000 2.19 0 0 Sheer 2 Sabac t 60,000 54,000 78.52 24.76 25.41 Realization

Movement in sale volume Quantity sold Value in 000 EUR Product/service Unit 2011 2012 2013 2011 2012 2013

HR products MT 671,745 233,000 267,934 413,622 118,601 120,638

Pickled products MT 146,213 34,305 15,472 93,230 17,956 7,689

CR products MT 148,444 41,228 27,655 106,529 24,930 15,304

Tin Mill MT 148,357 58,643 36,776 140,497 49,015 30,077

TOTAL : 753,878 210,501 173,708

Sales structure Distribution channels

Sales structure in % 2011 2012 2013 Distribution channels % of share Direct sale 76.22 Domestic market 21.03 43.28 28.38 Wholesale 0 Foreign market 78.97 56.72 71.62 Retail 0 TOTAL : 100.00 100.00 100.00 Intermediaries 23.78 Organization

Employees

Number of employees Working 4,033 Paid leave 151 Unpaid leave 1 Other (sick leave, vacation, etc.) 841 Total number of employees 4,996

Age structure of employees Age -25 25-35 35-40 40-45 45-50 50-55 55+ Number 118 561 512 648 738 1,003 1,416

Average salaries in EUR (gross and net) in 2011, 2012 and 2013 Year Gross Net 2011 818 586 2012 684 488 2013 609 436 Assets Overview

Value in 000 EUR 31/12/2012 31/12/2013 Current assets 68,728 95,313 Fixed assets 136,011 122,758 Operating revenues 188,440 188,926 Total equity 144,356 17,980

A) Information contain in this document is based on the data reciev ed from the company, and as such has not been veryfied by the Privatization Agency. Accordingly, the Privatization Agency shall have no liability with respect to the accuracy and validity of the information contained here in.

B) Pursuant to the law, enterprises from the Republic of Serbia were obliged as of 2004 to prepare Financial Statements in accordance with the International Standards of Financial Reports (ISFR). SWOT Analysys

Strengths: Weakness: Good production capacity, except VP 1 High transportation costs of raw materials, (requires masonry) and agglomeration regardless of the route of delivery; High machines; Competitive dimensional range, energy prices (electricity and natural gas); especially in hot-rolled products; Working No coke plant within Zelezara increases the and technological discipline according to cost of coke and energy; reduced capacity the highest standards in the steel industry; to produce sinter due to reconstruction number of employees adjusted to the current s w of Agglo machines undertaken in order to organization and technological equipment. reduce emissions of particles in atmosphere; unfinished process of legalization of buildings.

Threats: Numerous staff is going to keep leaving due Opportunities: to retirement, not enough young workers Expanding product portfolio by investing who would be trained to take over the work; in new facilities, primarily galvanizing and Uncertain perspective is moreover affecting coating plates; Two large car manufacturers the outflow of qualified personnel; high cost close to or within a reasonable distance from of production and low domestic and ex-Yu the town of Smederevo; Good geographic market lead to losses even with a smalest l position, assuming the recovery of industry o t disturbances in the market of raw materials and construction in southeastern Europe. and / or finished products; problems in the legalization of objects reduce the ability for credit support. Advantages of Investing in Serbia

Favorable geographic position, owing to which any shipment can reach any location in Europe within 24 hours Highly educated and cheap labor force Restructured and stable financial system Simple procedures for a company start–up and registration Simple procedures for foreign trade transactions and foreign investments Several free trade agreements have been signed, ensuring supply of goods to nearly 800 million consumers: • In March 2012 Serbia was granted the candidates status by the EC • CEFTA • Agreement with the EFTA members • Autonomous trade preferences granted by the EU in December 2000, and implementation of the Interim Trade Agreement with the EU started in February 2010 • Agreement with the Russian Federation, Belarus and Kazakhstan • Agreement with Turkey Contact

Ministry of Economy Republic of Serbia Address: 20, Kneza Milosa Street, 11000 Belgrade, Serbia

www.privreda.gov.rs

Privatization Agency Republic of Serbia Adress: 23 Terazije, 11000 Belgrade, Serbia Phone: +381 11 / 3020-800 Fax: +381 11 / 3020-828 Email: [email protected]

www.priv.rs