IX. Report on results of the implementation of the "Czech Steel Sector Restructuring Programme"...

IX. Report on results of the IX. Report on results of the implementation of the implementation of the "Czech Steel Sector "Czech Steel Sector

Restructuring Programme"Restructuring Programme"

March 2007

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For strengthening competitive ability of the Czech steel industry and achievement of permanent For strengthening competitive ability of the Czech steel industry and achievement of permanent viability was accepted (see the Government Resolution of the Czech Republic No. 840 dated 29 viability was accepted (see the Government Resolution of the Czech Republic No. 840 dated 29 August 2001) the document "Czech Steel Sector Restructuring August 2001) the document "Czech Steel Sector Restructuring ProgrammeProgramme" (hereinafter " (hereinafter "Programme"), which included after discussion with the EC the following definition of the "Programme"), which included after discussion with the EC the following definition of the targeted position of the Czech steel sector:targeted position of the Czech steel sector:

possibility of the steel production to achieve after permanent dismantling of 1possibility of the steel production to achieve after permanent dismantling of 1 ..9 million tonnes 9 million tonnes of redundant capacities (within the entire metallurgical cycle) about 6 million tonnes of liquid of redundant capacities (within the entire metallurgical cycle) about 6 million tonnes of liquid steel per year;steel per year;

rationalization of all activities shall bring about a significant reduction of number of jobs in rationalization of all activities shall bring about a significant reduction of number of jobs in steel sector and, as to the number of employees in primary metallurgical operations of the steel sector and, as to the number of employees in primary metallurgical operations of the entire Czech steel sector, it shall reach the targeted state of affair of 8500 employees, which entire Czech steel sector, it shall reach the targeted state of affair of 8500 employees, which corresponds to an illustrative productivity of about 700 tonnes of liquid steel per employee of corresponds to an illustrative productivity of about 700 tonnes of liquid steel per employee of primary metallurgy.primary metallurgy.

production with increasing share of flat rolled products, and particularly with the growth of production with increasing share of flat rolled products, and particularly with the growth of finalization of the production by means of creation of product chains, proceeds from apparent finalization of the production by means of creation of product chains, proceeds from apparent domestic consumption;domestic consumption;

At the same time, as a way out for achievement and maintenance of permanent viability, it has At the same time, as a way out for achievement and maintenance of permanent viability, it has been accepted to proceed by means of creation of "product chains", valorization and finalization been accepted to proceed by means of creation of "product chains", valorization and finalization of processing of primary metallurgical products with higher value added in terms of finalization of of processing of primary metallurgical products with higher value added in terms of finalization of long rolled products, flat rolled products and welded tubes.long rolled products, flat rolled products and welded tubes.

IXIXthth Report on results of the implementation Report on results of the implementation

of the "Czech Steel Sector Restructuring Programme"of the "Czech Steel Sector Restructuring Programme"

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2004 2005 2006 2007 1)

GDP (growth in %) 4.2 6.1 5.8 4.9

industrial production (growth in %) 9.6 6.7 10.1 5.1

prices of industrial products (growth in %) 5.7 3.1 1.5 2.0

average inflation (%) 2.8 1.9 2.6 3.0

unemployment rate (%) 8.3 7.9 7.2 6.7

Note: 1) – Forecast

Source: Czech Statistical Office, Czech National Bank, Ministry of Finance

Macro-economic prediction for the Czech Republic Macro-economic prediction for the Czech Republic

a) a) Basic economic indicators in the Czech RepublicBasic economic indicators in the Czech Republic

Growth of the GDP in the Czech economy has been exceeding the 5% level for the last three Growth of the GDP in the Czech economy has been exceeding the 5% level for the last three years; wealth differentials with the advanced countries are gradually disappearing, which is an years; wealth differentials with the advanced countries are gradually disappearing, which is an effect resulting from the CZ accession to the EU. effect resulting from the CZ accession to the EU.



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b) b) Overall position of the Czech steel sector in 2006Overall position of the Czech steel sector in 2006

The volume of finished steel production increased by 7The volume of finished steel production increased by 7 ..9% inter-annually and primary production (pig iron 9% inter-annually and primary production (pig iron and steel) by 9and steel) by 9..5%. The production of long products increased by 115%. The production of long products increased by 11..4%, flat products by 104%, flat products by 10..8% and steel 8% and steel tubes by 9%.tubes by 9%.

The last results are signalling recovery of economic growth in the groups processing the decisive part of steel The last results are signalling recovery of economic growth in the groups processing the decisive part of steel production, which contributed to growth of the real consumption of steel products in Europe. It should production, which contributed to growth of the real consumption of steel products in Europe. It should henceforth gradually enhance and stimulate accordingly the growing demand for steel products.henceforth gradually enhance and stimulate accordingly the growing demand for steel products.

Deliveries grew both on foreign markets (by 11Deliveries grew both on foreign markets (by 11..8%) and on the domestic market (by 58%) and on the domestic market (by 5..2%).2%).

Year-on-year growth of material productions of steel products in the CZ was in this comparison Year-on-year growth of material productions of steel products in the CZ was in this comparison simultaneously accompanied by price decline, when compared with high base of 2005. It significantly simultaneously accompanied by price decline, when compared with high base of 2005. It significantly influenced the fact that the prices in the entire branch of basic metals, metallurgical and fabricated metal influenced the fact that the prices in the entire branch of basic metals, metallurgical and fabricated metal products had dropped by 2products had dropped by 2..6%. Year-on-year price decline was taking place in majority of the important 6%. Year-on-year price decline was taking place in majority of the important commodity groups. Price development of the finished steel products was also influenced by the continuous commodity groups. Price development of the finished steel products was also influenced by the continuous growth of prices of iron ore (approx. +19%) and steel scrap (approx. +15%) and on the other side by price growth of prices of iron ore (approx. +19%) and steel scrap (approx. +15%) and on the other side by price decline of coal. The prices of steel tubes dropped inter-annually by 2decline of coal. The prices of steel tubes dropped inter-annually by 2 ..3% only. The prices of other steel 3% only. The prices of other steel products declined by 4%.products declined by 4%.

Because of ongoing restructuring of the steel sector, further decline in the number of employees by 3Because of ongoing restructuring of the steel sector, further decline in the number of employees by 3 ..6% 6% was reported. Nominal average earnings went up by 5was reported. Nominal average earnings went up by 5..6%.6%.

Whereas profitability of revenues within the entire branch amounted to 10Whereas profitability of revenues within the entire branch amounted to 10 ..1%, return on owner´s equity 1%, return on owner´s equity achieved 23achieved 23..3%.3%.



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Particularly the following development factors can be specified for the nearest period:Particularly the following development factors can be specified for the nearest period:

internal consolidation of steel companies;internal consolidation of steel companies;

In addition to cyclical development in demand, the branch vulnerability is further enhanced by In addition to cyclical development in demand, the branch vulnerability is further enhanced by the "fragmentation" of the manufacturers. The major advantages of mergers - globalisation are as the "fragmentation" of the manufacturers. The major advantages of mergers - globalisation are as follows:follows:

strategy of procurement of raw materials and energies;strategy of procurement of raw materials and energies;

necessity to resolve environmental issues.necessity to resolve environmental issues.

strengthening of negotiating position with the suppliers and major customers;strengthening of negotiating position with the suppliers and major customers;

implementation of production discipline and production flexibility consisting inimplementation of production discipline and production flexibility consisting in utilization of utilization of available capacities, which strengthens the ability to meetavailable capacities, which strengthens the ability to meet requirements of the final consumers;requirements of the final consumers;

financial strength and possibility to stimulate interest in steel sector withinfinancial strength and possibility to stimulate interest in steel sector within investors´ investors´ community and to get resources for modernization.community and to get resources for modernization.

Traditional path to manufacture as much as possible from the available capacities and to realize Traditional path to manufacture as much as possible from the available capacities and to realize sales for achievable prices is being, and will be, substituted by profit maximization from synergy sales for achievable prices is being, and will be, substituted by profit maximization from synergy effects both from integration and production finalization into product chains, which are focused effects both from integration and production finalization into product chains, which are focused on more sophisticated products in compliance with the market requirements.on more sophisticated products in compliance with the market requirements.



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Financial situationFinancial situation

Operating profit/loss increased, when compared with 2005, labour productivity went up by 10Operating profit/loss increased, when compared with 2005, labour productivity went up by 10 ..4%. 4%. The profit/loss accordingly was to decisive extent influenced by the results, which were reported in The profit/loss accordingly was to decisive extent influenced by the results, which were reported in dominant steel companies in the Ostrava region.dominant steel companies in the Ostrava region.

From the view of "internal rationalization" the reduction of material and energy intensity of the From the view of "internal rationalization" the reduction of material and energy intensity of the production by 11production by 11..6% took place; turn of inventory accelerated by 14%.6% took place; turn of inventory accelerated by 14%.

The overall profitability from revenues reached 10The overall profitability from revenues reached 10..1%, which can be considered good position for 1%, which can be considered good position for steel sector.steel sector.

Total (of orientation) data for the entire branch of steel industryTotal (of orientation) data for the entire branch of steel industry(including price cost-squeeze)(including price cost-squeeze)

I n d i c a t o r 2006 EC´ Criteria

Gross operating profit/sales 12.7 > 10.0

PBIT/sales 7.7 > 1.5



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Labour productivityLabour productivity

Labour productivity assessed by the level of steel production per employee (in tonnes per year)Labour productivity assessed by the level of steel production per employee (in tonnes per year)

Year 2003 2004 2005 2006 2010 2)

Total number of employees 28 250 27 125 25 026 23 780 22 000

out of which employees of core

metallurgical production activity 1) 12 740 10 960 10 248 9 800 8 500

2) Forecast

1) It concerns production workers in metallurgical plants according to ECSC´ Classification, thus without manufacture of tubes and without overhead, servicing and nonmetallurgical activities as well.

Year 2003 2004 2005 2006

Production per employee in the CZ 532 641 605 700

Development in employment is showing a trend of ongoing reduction of jobs in metallurgy, namely Development in employment is showing a trend of ongoing reduction of jobs in metallurgy, namely rationalisation of production processes in particular, by means of outsourcing of servicing rationalisation of production processes in particular, by means of outsourcing of servicing activities.activities.

For illustration, there were 38For illustration, there were 38 549 employees in the Czech steel sector in 2001 (beginning of the 549 employees in the Czech steel sector in 2001 (beginning of the implementation of the "Programme").implementation of the "Programme").



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Implementation of EU environmental legislationImplementation of EU environmental legislation

The total emission factor for the branch the period 1999 - 2005, including enterprise The total emission factor for the branch the period 1999 - 2005, including enterprise heating plants, was ranging between 1heating plants, was ranging between 1..98 – 298 – 2..14 tonnes of CO14 tonnes of CO22 per tonne of liquid steel per tonne of liquid steel

and it completely corresponds to the achieved factors within the EU (professional and it completely corresponds to the achieved factors within the EU (professional literature states for integrated metallurgical plant with heating plants production only literature states for integrated metallurgical plant with heating plants production only for ensuring of metallurgical production its value 2for ensuring of metallurgical production its value 2..14 tonnes of CO14 tonnes of CO22 per tonne of per tonne of

liquid steel).liquid steel).

It is in compliance with the fact that all monitored equipment are being operated on It is in compliance with the fact that all monitored equipment are being operated on the level of BAT.the level of BAT.

AAfter considering factors, which influence reduction as well as enhancement of specific fter considering factors, which influence reduction as well as enhancement of specific emissions we may say that also for the period 2008 - 2012 the value of composed total emissions we may say that also for the period 2008 - 2012 the value of composed total emission factor for the branch of the production and metal processing will be ranging emission factor for the branch of the production and metal processing will be ranging between 2between 2..03 – 203 – 2..14 tonnes of CO14 tonnes of CO22 per tonne of liquid steel, i.e., it is not expected more per tonne of liquid steel, i.e., it is not expected more

significant change in comparison with the period 2005 - 2007.significant change in comparison with the period 2005 - 2007.

Trading with greenhouse gasesTrading with greenhouse gases



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IPPC – Integrated Prevention Pollution and ControlIPPC – Integrated Prevention Pollution and Control

steel companies joined in "Steel Association" have submitted an application for IPPC for more steel companies joined in "Steel Association" have submitted an application for IPPC for more than 95% of the facilities, which are liable to the Act No. 76/2002 Coll., in wording of the later than 95% of the facilities, which are liable to the Act No. 76/2002 Coll., in wording of the later regulations;regulations;

average time to process respective application is 4 - 8 months, average time of ratification average time to process respective application is 4 - 8 months, average time of ratification process is about 1 year;process is about 1 year;

steel companies joined in the above-mentioned association should not face to any problem to get steel companies joined in the above-mentioned association should not face to any problem to get IPPC until stipulated deadline - 30 October 2007;IPPC until stipulated deadline - 30 October 2007;

on the basis of the assessment, which was performed by independent organizations, it may be on the basis of the assessment, which was performed by independent organizations, it may be said that all steel companies are being operated in compliance with BAT;said that all steel companies are being operated in compliance with BAT;

revision of European BREF´s Regulation, which is applied for manufacture of pig iron and revision of European BREF´s Regulation, which is applied for manufacture of pig iron and steel, is being performed.steel, is being performed.



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REACH REACH – Legislative aspects (registration, evaluation and permitting of chemical– Legislative aspects (registration, evaluation and permitting of chemical s substances)ubstances)

total costs could achieve CZK 1total costs could achieve CZK 1..8 billion in the course of next 5 years8 billion in the course of next 5 years;;

the costs per one registration in the amount of CZK 20 - 30 million determine that one-off costs the costs per one registration in the amount of CZK 20 - 30 million determine that one-off costs during three years shall achieve CZK 400 - 600 million, which is approximately 0during three years shall achieve CZK 400 - 600 million, which is approximately 0 ..35% of the 35% of the receipts of steel enterprisesreceipts of steel enterprises;;

effect of the procured chemical substances could present CZK 200 - 300 million per yeareffect of the procured chemical substances could present CZK 200 - 300 million per year (as (as steady impact of implementation of REACH)steady impact of implementation of REACH);;

impact on decreasing of costs (in the area of workforce) by 250 - 480 jobs (until 2012).impact on decreasing of costs (in the area of workforce) by 250 - 480 jobs (until 2012).

European legislation, related to this issues, was accepted on 18 December 2006 (Directive No. European legislation, related to this issues, was accepted on 18 December 2006 (Directive No. 1907/2006/EC) being effective from 1 July 2007.1907/2006/EC) being effective from 1 July 2007.

REACH impact calculation on metallurgy is as follows:REACH impact calculation on metallurgy is as follows:



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Targeted position of Czech steel sectorTargeted position of Czech steel sector

production was concentrated on more heavy-duty and efficient unitsproduction was concentrated on more heavy-duty and efficient units;;

adaptation of production capacities by means of cessation of non-efficient obsolete units adaptation of production capacities by means of cessation of non-efficient obsolete units (4 sintering belts, 10 coking batteries, 6 blast furnaces, 43 steel-making furnaces (largely with (4 sintering belts, 10 coking batteries, 6 blast furnaces, 43 steel-making furnaces (largely with open hearth), 4 blooming mills and 21 rolling mills were closed downopen hearth), 4 blooming mills and 21 rolling mills were closed down););

modernization and construction of new units improving technological as well as economic modernization and construction of new units improving technological as well as economic parameters of the branch level (improvement of secondary metallurgy, construction of parameters of the branch level (improvement of secondary metallurgy, construction of continuous casting, modernization of rolling mills, construction of new minimill - ladle continuous casting, modernization of rolling mills, construction of new minimill - ladle metallurgy, continuous casting and hot strip mill of Steckel type).metallurgy, continuous casting and hot strip mill of Steckel type).

Permanent dismantling of 590 thousand tonnes of finished rolling capacity has been realized in the Permanent dismantling of 590 thousand tonnes of finished rolling capacity has been realized in the entire range of Protocol 2 of the Czech Republic´s EU Treaty of Accession.entire range of Protocol 2 of the Czech Republic´s EU Treaty of Accession.

The important technological changes in steel industry had already commenced in 1985. During the The important technological changes in steel industry had already commenced in 1985. During the entire time period a number of important trends in capacity changes were manifested:entire time period a number of important trends in capacity changes were manifested:

In 2005 VPFM´s Hot Mill No. 1 and VPFM´s Hot Mill No. 2 were closed down (altogether 70 In 2005 VPFM´s Hot Mill No. 1 and VPFM´s Hot Mill No. 2 were closed down (altogether 70 thousand tonnes capacity), and in 2006 Duo Mill at VS was closed down (altogether 130 thousand thousand tonnes capacity), and in 2006 Duo Mill at VS was closed down (altogether 130 thousand tonnes capacity). At the same time in 2006 technical and technological reduction of HCC Heavy tonnes capacity). At the same time in 2006 technical and technological reduction of HCC Heavy Section Mill was carried out with capacity reduction by 270 thousand tonnes.Section Mill was carried out with capacity reduction by 270 thousand tonnes.



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a)a) In 2004 7In 2004 7..0 million tonnes of steel was produced. In 2005 this figure was 60 million tonnes of steel was produced. In 2005 this figure was 6..2 million tonnes and 2 million tonnes and in 2006 it was about 6in 2006 it was about 6..9 million tonnes9 million tonnes..

b)b) The volume of continuously cast steel has already achieved (1997) the level of technologically The volume of continuously cast steel has already achieved (1997) the level of technologically possible maximum and it is ranging on the level of 90% approximately.possible maximum and it is ranging on the level of 90% approximately.

Apparent domestic consumption Apparent domestic consumption

Consumption of finished steel products in the Czech Republic (million tonnes)2003 2004 2005 2006 2010 1)

4.4 5.2 5.2 5.8 6.51) Forecast

Annual production of about 6 million tonnes of steelAnnual production of about 6 million tonnes of steel

Some characteristics of steel production (development connecting with implementation of the Some characteristics of steel production (development connecting with implementation of the "Programme") in comparison with 1975:"Programme") in comparison with 1975:

the share of continuously cast steel - growth by 77 %the share of continuously cast steel - growth by 77 %;;

consumption of crude steel per 1 tonne of rolled material - decline by 223 kg/tconsumption of crude steel per 1 tonne of rolled material - decline by 223 kg/t;;

consumption of pig iron per 1 tonne of crude steel - decline by 40 kg/tconsumption of pig iron per 1 tonne of crude steel - decline by 40 kg/t;;

energy intensity (per 1 tonne of steel production) - reduced by 12 GJ/t.energy intensity (per 1 tonne of steel production) - reduced by 12 GJ/t.



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2001 2002 2003 2004 2005 2006

Total (as per the "Programme" dated August 2001)

38 549 31 060 29 000 28 000 - -

Total (as per the "Programme" dated December 2002)

38 549 29 535 28 700 26 000 25 600 24 900

Actual situation 38 549 29 500 28 250 27 125 25 026 23 780

Number of employees Number of employees

In order to resolve social and employment consequences of the Czech steel sector restructuring, In order to resolve social and employment consequences of the Czech steel sector restructuring, the government approved a "Comprehensive project of associated social programme for the government approved a "Comprehensive project of associated social programme for resolving steel sector restructuring" in 2000 (hereinafter ASP), which was helping to eliminate resolving steel sector restructuring" in 2000 (hereinafter ASP), which was helping to eliminate social problems of redundant employees.social problems of redundant employees.

Associated Social Programme for resolving steel sector restructuringAssociated Social Programme for resolving steel sector restructuring

For implementation of ASP in the period from 2000 to the end of 2006 were provided financial For implementation of ASP in the period from 2000 to the end of 2006 were provided financial means of the state budget in the amount of CZK 1means of the state budget in the amount of CZK 1,,093 million, which covered in a full extent the 093 million, which covered in a full extent the requirements of steel companies for providing contributions to dismissed employees.requirements of steel companies for providing contributions to dismissed employees.

Within the framework of ASP 7Within the framework of ASP 7..8% of the employees found their other job. The average period of 8% of the employees found their other job. The average period of continuous employment of the dismissed workers in metallurgy presented 31 years. A great part continuous employment of the dismissed workers in metallurgy presented 31 years. A great part of the dismissed workers (61 %) was laid off at a claim for pension from one to five years.of the dismissed workers (61 %) was laid off at a claim for pension from one to five years.



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Spent funds from state budget for implementation of ASPSpent funds from state budget for implementation of ASP

Year Number of persons 1) Spent funds in million CZK

2000 1 971 1302001 988 2152002 1 261 1712003 1 180 2032004 785 1672005 694 972006 709 110

1) Workers dismissed from the reason of restructuring and fulfilling conditions of ASP

There are other instruments for resolving social and employment consequences of the Czech steel There are other instruments for resolving social and employment consequences of the Czech steel sector restructuring, which are included in:sector restructuring, which are included in:

utilization of the "Programme START" to support business undertaking. In 2006 there were utilization of the "Programme START" to support business undertaking. In 2006 there were provided 290 interest-free loans in total volume of CZK 109 million across all industrial provided 290 interest-free loans in total volume of CZK 109 million across all industrial business undertakings. More than two-thirds of these loans, which were being provided by the business undertakings. More than two-thirds of these loans, which were being provided by the Czech-Moravian Guarantee and Development Bank, focused on business support of Czech-Moravian Guarantee and Development Bank, focused on business support of redundancies within the framework of restructuring of steel companies;redundancies within the framework of restructuring of steel companies;"Programme of regional development", which stimulates a creation of new jobs in the regions "Programme of regional development", which stimulates a creation of new jobs in the regions touched by the restructuring.touched by the restructuring.



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Companies A B

NH 5 700.1 4 937.8

VPFM 292.0 291.8

VS 8 155.3 3 063.3

In total 14 147.4 8 292.9

Overall State Aid - steel sector restructuring expenditures in the period 1997–2003 (million CZK)

A – State Aid according to Protocol 2 - maximum amount of the limit

B – Actual State Aid provided within the framework of Protocol 2

In the determined period there was not granted to the Czech steel sector after In the determined period there was not granted to the Czech steel sector after accession of the CZ to the EU in 2003 any further restructuring aid. The accession of the CZ to the EU in 2003 any further restructuring aid. The commitments, which relate to granting of maximum legal amount of State Aid to the commitments, which relate to granting of maximum legal amount of State Aid to the beneficiary companies listed in Attachment 1 of Protocol 2, beneficiary companies listed in Attachment 1 of Protocol 2, werewere fulfilled. fulfilled.

Utilization of state aidUtilization of state aid



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Reduction of finished rolling capacities(according to the Attachment No. 2 of Protocol 2 of the Czech Republic´s EU Treaty of Accession)

Steel company

Description of the facility (aggregate)

Date of production cessation

Date of permanent dismantling completion

Capacity reduction

(kt)Finished product

POLDI Hütte Rolling mills V1 – V8 1.8.1999 31.5.2000 120 long products

VS Duo rolling mill 30.6.2006 31.12.2006 130 flat products

VPFM Hot rolling mills 1 and 2 31.12.2005 30.6.2006 70 flat products

NH (MSO) HCC heavy section rolling mill 31.8.2006 31.12.2006 600 long products

Steel company

Description of the facility (aggregate)

Date of investment launching

Date of production start-up

Change of capacity

(kt)Finished product

NH (MSO) section rolling mill 31.8.2006 1.1.2007 330 long products

Change in operated capacity

Cessation, reduction of finished production capacitiesCessation, reduction of finished production capacities

The targeted project of cessation and permanent capacity dismantling by 590The targeted project of cessation and permanent capacity dismantling by 590,,000 tonnes was 000 tonnes was fulfilled by the end of restructuring period, i.e., until 31 December 2006.fulfilled by the end of restructuring period, i.e., until 31 December 2006.



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Summary of the fulfilment of the obligations of Protocol 2 Summary of the fulfilment of the obligations of Protocol 2 of the Czech Republic´s EU Treaty of Accessionof the Czech Republic´s EU Treaty of Accession

In compliance with Protocol 2, state aid could be granted only to beneficiary In compliance with Protocol 2, state aid could be granted only to beneficiary companies listed in Attachment 1 of this protocol, namely for period from 1997 to companies listed in Attachment 1 of this protocol, namely for period from 1997 to 2003.2003.In the course of the monitored process the NPF of the CZ completed the sale of NH In the course of the monitored process the NPF of the CZ completed the sale of NH and VPO to the company LNM Holding in 2003. In 2005 OSINEK, a.s. in the form of and VPO to the company LNM Holding in 2003. In 2005 OSINEK, a.s. in the form of public bidding sold VÍTKOVICE STEEL, a.s. to the company Mastercroft Ltd. (from public bidding sold VÍTKOVICE STEEL, a.s. to the company Mastercroft Ltd. (from Russian group EVRAZ), while the acquirers are meeting the conditions and Russian group EVRAZ), while the acquirers are meeting the conditions and principles, which were determined by Protocol 2. At the same time, on the basis of principles, which were determined by Protocol 2. At the same time, on the basis of permanent dismantling of the production capacities, net reduction of level of permanent dismantling of the production capacities, net reduction of level of capacities in accordance with time table determined in Attachment 2 of the protocol capacities in accordance with time table determined in Attachment 2 of the protocol was met and verified.was met and verified.The CZ, in compliance with Protocol 2, has removed trade barrier on the market with The CZ, in compliance with Protocol 2, has removed trade barrier on the market with coal and enabled to the Czech steel companies to have an access to coal for coal and enabled to the Czech steel companies to have an access to coal for international market prices.international market prices.



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Modernization and restructuring processes resulted in enhancement of labour productivity of the Modernization and restructuring processes resulted in enhancement of labour productivity of the employees in the branch. At the beginning of restructuring the labour productivity in the Czech employees in the branch. At the beginning of restructuring the labour productivity in the Czech Republic, in tonnes of annual steel production per employee, amounted to 100 - 120 tonnes per Republic, in tonnes of annual steel production per employee, amounted to 100 - 120 tonnes per year, while in the EU these values at the given enterprises were ranging within the limits of 400 - year, while in the EU these values at the given enterprises were ranging within the limits of 400 - 500 tonnes per year.500 tonnes per year.



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At present time we may identify within the framework of the support to the branch of At present time we may identify within the framework of the support to the branch of steel industry the following valid legal regulations dealing with the said issue:steel industry the following valid legal regulations dealing with the said issue:

instructions for regional instructions for regional aidaid, which specify steel sector itself reglementing providing of state aid , which specify steel sector itself reglementing providing of state aid in the years 2007 - 2013, resp. specifying prohibition of providing of regional in the years 2007 - 2013, resp. specifying prohibition of providing of regional aid;aid;

other regulations, reglementing specific cases of a possibility to provide the other regulations, reglementing specific cases of a possibility to provide the aidaid in steel sector in steel sector area, which deal namely with:area, which deal namely with:

aidaid focused on research and development focused on research and development;;

aid focused on environment protection;aid focused on environment protection;

aidaid focused on training and employment focused on training and employment;;

aidaid associated with enterprise closure associated with enterprise closure..



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ConclusionsConclusionsThe results reported by the Czech steel sector from the beginning of implementation The results reported by the Czech steel sector from the beginning of implementation of "National Restructuring Programme", which was approved by the EC, indicate of "National Restructuring Programme", which was approved by the EC, indicate that especially economic results and growth of productivity are associated with that especially economic results and growth of productivity are associated with intensification measures in restructuring of the Czech steel sector as recommended by intensification measures in restructuring of the Czech steel sector as recommended by the EC. Also the process of transformation and privatisation of steel companies has the EC. Also the process of transformation and privatisation of steel companies has also contributed to a transparent implementation of the restructuring programme and also contributed to a transparent implementation of the restructuring programme and essentially to enhancement of competitiveness of the final steel production, mainly in essentially to enhancement of competitiveness of the final steel production, mainly in the three State Aid beneficiary steel companies.the three State Aid beneficiary steel companies.The programme of the Czech steel sector restructuring has been completed. We The programme of the Czech steel sector restructuring has been completed. We consider the commitments of the Czech Republic resulting from Protocol 2, which consider the commitments of the Czech Republic resulting from Protocol 2, which concern restructuring of steel sector, as fulfilled.concern restructuring of steel sector, as fulfilled.

Traditionally strong steel industry of the Czech Republic, similarly like an access on Traditionally strong steel industry of the Czech Republic, similarly like an access on the EU market, are substantial advantages, which should guarantee success in the the EU market, are substantial advantages, which should guarantee success in the upcoming years. The measures, determined in restructuring programmes and business upcoming years. The measures, determined in restructuring programmes and business plans, will enable to focus on needed improvement and strengthening of operation plans, will enable to focus on needed improvement and strengthening of operation output so that the companies may gain a larger resistance against possible economic output so that the companies may gain a larger resistance against possible economic decline.decline.



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Meaningful and favourable aspect in meeting objectives of the "Programme" was application and Meaningful and favourable aspect in meeting objectives of the "Programme" was application and implementation of more than 40 project of research and development, which contributed to implementation of more than 40 project of research and development, which contributed to growth of production quality, effectiveness and to achievement and maintaining of viability.growth of production quality, effectiveness and to achievement and maintaining of viability.

Based on knowledge of procedures and positions of EC it is necessary to stress that any further Based on knowledge of procedures and positions of EC it is necessary to stress that any further state aid for steel industry would be in contradiction with "Treaty of Accession". Attainment of state aid for steel industry would be in contradiction with "Treaty of Accession". Attainment of permanent viability of steel companies must be realized without any state aid.permanent viability of steel companies must be realized without any state aid.

Development in steel market and a pressure on implementation of investments focused on Development in steel market and a pressure on implementation of investments focused on increasing receipts from sales of products with higher value added and on meeting requirements increasing receipts from sales of products with higher value added and on meeting requirements of ecological legislation will be a decisive factor governing business effectiveness for the next of ecological legislation will be a decisive factor governing business effectiveness for the next period.period.



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IX. Report on results of the implementation of the "Czech Steel Sector Restructuring Programme"...

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