The annual electric power generation plan, which included the production of 1.6 billion kWh of electricity and was approved by the Federal Tariff Service of Russia, was fulfilled ahead of schedule in November 2007. Southern Kuzbass Power Plant is expected to generate an additional approximately 400 million kWh of electric power before the year end.

The increase of electric power generation by Southern Kuzbass Power Plant was due to a deficit of electric power in the Southern Kuzbass caused by specific environmental conditions. Beginning in June of this year, the water level in the rivers of Siberia, where hydroelectric power stations traditionally generate significant electric power volume, was below the average. Southern Kuzbass Power Plant uses steam coal as fuel, which is steadily supplied to it. Thus, power production at the plant is not as affected by environmental conditions.

Another distinguishing feature of Southern Kuzbass Power Plant is its technical capability to expeditiously increase its power generation in accordance with market conditions and growing demand. This enabled the power plant to increase its power generation and, consequently, profit. The competitive advantage of the power plant is its location close to the coal mining sites as well as the coal and ore mining companies in the Southern Kuzbass, which ensure its consistent load.

Southern Kuzbass Power Plant became Mechel’s subsidiary in March 2007. The objective of acquiring Southern Kuzbass Power Plant was to increase Mechel’s performance through the possibility of producing high value added product in the form of electric power using Mechel’s own steam coal. The acquisition of the new power generating asset was also aimed at developing the power component of Mechel's business, which, in particular, includes reduction of production cost by generating Mechel’s own electric power, growth of the Company's capitalization, and making additional profit from marketing the generating electric and heat energy.

Following the integration of Southern Kuzbass Power Plant into Mechel, implementation of its technical re-equipment and revamping program was started with the objective to increase its performance and reduce production costs.