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United Metallurgical Company Annual Report 2005 1

The year 2005 became significant and mean-ingful for OMK. We were fulfilling the tasks con-tained in our long-term development program bypursuing large-scale modernization, installingnew production lines, mastering new promisingproducts, and implementing high quality stan-dards.

The principal task of the OMK Pipe-RollingDivision is to meet requirements of Russianenergy and transportation companies operating

in the fuel and energy sector. These companiesare in the process of implementing large-scaleprojects aimed at the construction of main

pipelines and the development of the largest oiland gas fields. Over the past three years,including 2005, OMK has invested in pipe pro-duction more than $500 million. The manufac-ture and sale of pipes of various sizes and gradesincreased by 10 percent as compared with 2004;it is planned that we will achieve a 40-percentincrease in 2006.

In April 2005, Vyksa Steel Works put intooperation a line for manufacturing 1,420 mm

single-seam longitudinal welded pipes with awall thickness of up to 48 mm, rated for pres-sures of up to 250 atm. This production line is

equipped with multilayer external and internalcoating facility, and its annual capacity is 570thousand tonnes. This package of technologiesis unique for the Russian and FSU pipe indus-tries. We currently supply large-diameter pipesto Gazprom, Transneft, LUKOIL, TNK-BP, andother companies for the construction of theNorth European Gas Pipeline, Eastern Siberia-Pacific Ocean Oil Pipeline, as well as for thedevelopment of Vankorskoye, Varandeyskoye,Kovyktinskoye, Talakanskoye, and other fields.

We believe that offshore field developmentwill become the most important direction of theRussian fuel and energy sector development inthe near future. And now, Vyksa Steel Works ismastering the manufacture of large-diameterpipes for subsea pipelines. The Company hasalready acquired experience of making pipes foroffshore applications; specifically, in October

2005, we completed the deliveries of pipes for thesubsea section of the Varandeysky oil terminalpipeline.

Message from Anatoly Sedykh, Chairman of theBoard of Directors of United MetallurgicalCompany

Message from Chairmanof the Board of Directors

Table of contents

ANNUAL REPORTU n i t e d M e t a l l u r g i c a l C o m p a n y

Moscow, 2006 www.omk.ru

1. INTRODUCTIONMessage from Chairman of the Board

of Directors 1

2005 Events: Major Achievements and

Projects 4

| 12. COMPANY PROFILEGroup Structure 8

Group Strategy 9

Key Financial and Performance

Indicators 12

| 83. PIPE-ROLLING BUSINESS

| 134. WHEEL-ROLLINGBUSINESS

| 155. METALLURGICALBUSINESS

| 16

6. PRODUCT QUALITY.TECHNOLOGIES AND INNO-VATIONS

| 187. PERSONNEL DEVELOP-MENT. SOCIAL RESPONSI-BILITY.

| 208. FINANCIALSTATEMENTS

| 24

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Only several years ago, United MetallurgicalCompany (OMK) placed its hopes on enteringinto alliances with Chelyabinsk Tube RollingPlant and Severstal. However, in 2002, theowners of Chelyabinsk Tube Rolling Plant

decided to form their own group, and the plantleft OMK. Almost simultaneously, OMK andSeverstal abandoned the Alliance 1420 projectfor the joint production of large-diameter pipes.But OMKs co-owner and permanent chief Anatoly Sedykh did not give up. It took OMKonly two years to independently construct itsown modern production li ne for 1,420 mmpipes at Vyksa Steel Works. Moreover, inseveral years, OMK will be less dependent onRussian steelmakers: the Vyksa works will havea casting and rolling facility around $500million worth. As for alliances, Mr. Sedykh is nolonger interested in them. He wants to create awell-balanced metallurgical group-andabsolutely independently. Mr. Sedykh told theVedomosti about his plans.

Unlike your competitors-ChelyabinskTube Rolling Plant and Pipe MetallurgicalCompany (TMK)-you are not striving for

expansion of operations, not buying newassets; instead, you are trying to developwhat you own. Why?

Youre correct, we are not going to acquirenew pipe manufacturing assets in the near

future. We are a metallurgical company ratherthan a pipe manufacturer. Unlike TMK andChelyabinsk Tube Rolling Plant, we are acompany with a complete metallurgical cycle.And we consider it to be our serious competi-tive advantage. Our production is not limited topipes; we have a quite wide range of products.Our goal is to create a well-balan ced company.

There are different understandings of lead-ership criteria. While somebody aspires tocapture a large market share and becomenumber one in terms of production volume;others, like OMK, aspire to create the industrysmost efficient company and use it to become theleader.

What are the fundamental principlesof the OMK st rategy?

We abide by four principles.First, its concentration of production. And,

unlike Pipe Metallurgical Company and

Chelyabinsk Tube Rolling Plant, not inside asingle company, but inside a single business unit.For example, we put a 1,420 mm pipe productionline into operation at an active large-diameterpipe workshop. Now, the two lines operate on

one and the same production site. However, theworkforce didnt change. This approach allowsus to considerably improve the efficiency of useof the enterprises infrastructure. The sameformula is applied to the rehabilitation of theother production units. We are building a newcoke-oven battery at Gubakhinsky Coke: this willenable us to double the production; the plant willannually produce 1.5 million tonnes of coke. Inaddition, this is extremely important in a socialaspect, because OMKs wage level is directlylinked to labor efficiency. Our employees havealready understood that the more labor effi-ciency, the more compensation.

The second principle is vertical integration.OMK has all necessary cast iron and coke. Weare the largest steel strips consumer in Russia;the company purchases more than one milliontonnes of steel strips a year. It would be verylogical to make this steel on our own. When the

casting and rolling facility is put into operation,well be provided with our own steel strips forsmall and medium-diameter pipes. And in ayear, OMK will also be completely providedwith its own coal.

Another principle is well-balanced diversi-fication of production. We believe that beinglimited to pipe production is risky, because thepipe market has business cycles. A company canbe stable only if having a wide range of prod-ucts. Pipes currently account for slightly morethan 50 percent of OMKs sales. The rest isother products: rolled section steel, cast iron,ferrovanadium, automobile springs, shape steel,railroad wheels . . . .

And the fourth principle is the implementa-tion of state-of-the-art technology. We are notinterested in the purchase of any obsolete orworn-out production assets, because the effi-ciency of process solutions is becoming numberone in the world. Within the next four years, thecompany will invest over $1 billion in produc-tion assets.

What do you lack to create the verti-cally integrated company that youve justdescribed?

We dont have sufficient sheet rolling; butwe are working on it: the company will build acasting and rolling facility in 2.5 years. And thiswill be the most advanced sheet production inRussia and, possibly, in the world.

You said that you were a metallurgicalcompany rather than a pipe manufacturer.Meanwhile, youve invested most funds inpipes . . . .

Yes, but last year. This year, our maininvestment project is connected with satisfyingthe companys demand for sheet steel by pro-viding OMK with its own shee ts. Above all, weneed the casting and rolling facility to satisfythe demand of our pipe manufacturing division;meanwhile, steel sheets are a separate com-modity item. The facility personnel will exceed1,000 employees, and its output will be 1.2million tonnes a year. Labor efficiency at thecasting and rolling facility will be several timesas high as that of Russian manufacturers of similar products.

Besides, the wheel rolling business is of principal importance to the company. OMK andRussian Railways signed a unique contract forthe supply of around five million railroadwheels in the amount of over $1.2 billion until2010. This will cover 60 percent of the demandof Russian Railways for wheels. Last year, we

2

Introduction.Message from Chairman of the Board of Directors1

United Metallurgical Company www.omk.ru

Anatoly Sedykh: We AreNot in Pursuit of Anyone.

OMK is successful at developing Vyksa SteelWorks facility for manufacturing medium-diameter pipes. In the gas and oil pipe segment,we carried out a large-scale modernization andrehabilitation of production facilities, whichallowed us to improve labor efficiency and

increase output. Vyksa Steel Works is also plan-ning to supply a full range of casing pipes withsealed threads designed for well completion.

As part of medium-diameter pipe produc-tion development, OMK began the constructionof the Casting and Rolling Complex near thetown of Vyksa, Nizhni Novgorod Region, in June 2005. The Facility will employ the 21stcenturys technologies. The commissioning of equipment under the Projects Phase 1, having acapacity of 1.2 million tonnes of rolled productswith special properties, is scheduled for late2007. This will allow us to provide our own rawmaterials for medium- and small-diameter pipeproduction at Vyksa Steel Works andAlmetyevsk Pipe Plant.

OMK actively develops the manufacture of railroad wheels by constantly implementinginnovative solutions in production processesand upgrading the equipment. In 2005, OMKproduced 800 thousand wheels, whereas thedesign capacity is 560 thousand. This is a

record-breaking result in the global wheelrolling industry. Our specialists developed andset up the production of several wheel modelswith improved service life and increased loads.These are our intellectual and financial invest-ments in the s trategic partnership with RussianRailways.

In 2005, the OMK Metallurgical Divisioncontinued to implement its facility moderniza-tion programs, improving efficiency, optimizingproduction costs, and adopting environmentalprotection technologies. Gubakha Coke com-pleted the first stage of the overhaul repair of coke-oven battery No. 1-BIS, whose commis-sioning will make it possible to double theoutput. It should be noted that Chusovoy

Metallurgical Works has mastered the manu-facture of a promising product, Vanadium-80.In 2005, the production and sale of automobilesprings, varied rolled products, ferrovanadium,and coke remained at the 2004 level.

OMK was successful in the borrowed capital

market. In 2005, the Company floated the firstissue of United Metallurgical Company bonds.During the bidding process, demand for OMKbonds was 1.8 times as much as supply.

The year 2005 ended with OMKs highfinancial results: revenues increased by 32% ascompared with 2004; profits, by 37%. Thegrowing results are due to the commissioning of new advanced production facilities, harmoniza-tion of marketing policy with manufacture,implementation of engineering solutions thatdid not require any increase in operating per-sonnel, and optimization of business processes.

The development of United MetallurgicalCompany is in line wi th the principal targetscontained in industrial policies of the Russian

economy: modernization of production, raisingof social and environmental standards, imple-mentation of cutting-edge technology, settle-ment of import substitution issues. TheCompanys task is not limited to the achieve-ment of the highest possible financial results.

OMK, as a strategic partner of the countrys keyeconomic sectors, also contributes to the devel-opment of Russian industry.

In 2005, OMK made several steady stepstoward its strategic goal: achieving the industryshighest labor efficiency results by 2010, insuringlong-term competitive advantages in the mainbusinesses, and becoming the most efficientcompany in the Russian ferrous industry. Weintend to become a world level company! Andthis is more than only a hope; this is a reality thatwe are building.

A. M. SedykhChairman of the Board of Directors OMK

It took OMK only two years to independently con-struct its own modern production line for 1,420

mm pipes at Vyksa Steel Works. Moreover, inseveral years, OMK will be less dependent on Russian steelmakers: VyksaWorks will have a casting and rolling facility around $500 million worth.As for alliances, Mr. Sedykh is no longer interested in them. He wantsto create a well-balanced metallurgical group-and absolutely independ-ently. Mr. Sedykh told the Vedomosti about his plans.

April 27, 2005, Maria Rozhkova

The Media About Us

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Introduction.Message from Chairman of the Board of Directors1

3United Metallurgical Company Annual Report 2005

upgraded our wheel production, developed anew wheel. Its service life was extended to 12years from seven, while the wheel price becameonly moderately higher. I believe that RussianRailways set a good example for natural monop-olies and showed how they shoul d cooperate

with Russian manufacturers. IPOs, Eurobonds, and other instru-

ments of raising money in the market-arentthey suitable for you? You have ruble bonds,but I have never heard that you are plan-ning to enter Western capital markets . . . .

An IPO is the sale of shares. In ouropinion, the company has been undervalued byinvestors yet, and this method of raising moneyis too expensive for OMK. Its not time to sellour shares still. Cu rrently, were not interestedin Eurobonds either.

We have enough money for investments. Wefinance our projects by using our own fundsand bank loans. In 2004, the share of borrow-ings in our investment program did not exceed15 percent. Loans will reach 60 percent of thefinancing package of the casting and rollingfacility. Weve cooperated with Sberbank for along time; in addition, we obtained export creditloans for the purchase of equipment.

You say that youre undervalued byinvestors; and what is your own valuationof OMK?

I wouldnt like to answer this question. The amount of investments in the con-

struction of the foundry and rolling facilitywill be about $500 million. You spent about$200 million on the setup of 1,420 mmpipe production. These are expensive proj-ects; arent you afraid that they may fail topay back? What if these pipes are found notto be in demand? Indeed, Gazprom gaveyou no guarantees . . . .

Im sure that the 1,420 mm pipe produc-

tion line is launched at the absolutely right time.Imagine that we signed a fixed-price contractwith Gazprom two or three years ago: whatwould we do now? Skelp price are constantly onthe increase. Thats why secured contractsinvolve great risks today. Of course, we dis-cussed the issue with Gazprom. And we agreedthat, if our prices are at the market level,Gazprom would buy pipes from us. Legally, thisis not a binding contract, but a moral obliga-tion. However, Im sure of the sales of large-diameter pipes. Pipes are in enormous demandnow: activities of Transneft and Gazprom over-lapped. Several large-scale projects simultane-ously started in Russia, CIS countries, Iran,where they need 1,420 mm pipes as early asnow. Therefore, I think that pipe demand willbe exceeding supply during the next two years.As early as now, we have orders for more thatthis line can actually produce.

And weve been engaged in the casting androlling facility project since 2002. The con-struction is to begin in early May; weve alreadyentered into a contract agreement with GamaEndustri, Turkey. The reason why this projectis important for OMK is not limited to higherprices of metal products. First of all, its aboutpipe quality. High quality pipes chiefly requirehigh quality steel she ets. Domestic steelmakerscant offer such quality yet. This is not becausethey make low quality products. In the pipemanufacturing context, they simply occupy thelower quality segment. Their area of specializa-tion is medium-quality rolled steel.

The production of 1,420 mm pipes

will start this summer. Have you concludedyour first contract?

Gazprom is ready to buy 100,000 tonnesof pipes from us this year.

What is the possible payback period for your investments?

Three years at least. Severstal is currently carrying out a

similar project. However, its Kolpino plantwill only be put into operation in severalyears. Do you think that t hey are late orthey still have a chance of finding them-selves in that right time youre talkingabout? Will the large-diameter pipe marketbe growing for a long time?

During the next four or five years, the pipemarket situation will be favorable for manufac-turers. There will be enough space in the marketfor Severstal too.

They are a very serious competitor. Severstalhas its own plates. But this is n ot the decisivefactor. Indeed, when i t comes to price competi-tion, it turns out that competing products arentpipes, but-for example-Severstal-made sheetsand sheets that we buy from another supplier.

To make gains in this situation, Severstal willhave to supply sheet steel at cut prices, thus sub-sidizing its pipe production. I dont think theyrebuilding the Kolpino plant for these purposes.

You were once going to produce large-diameter pipes in association with Severstal.Do you regret that you parted from themlater?

Perhaps, such an alliance would reducethe payback period. On the other hand, it tookus only two years to independently completethis project. When youre on your own, youclearly understand that the time has come foraction, you have to make a decision. Wh enyoure a partner of somebody with a differentmentality, decision making is a slower process.You have to prove something to your partner,persuade your partner, then bargain . . . . The

process takes a longer time, you lose time.Thats why Im very cautious about alliances.

The casting and rolling facility will usescrap as raw material. How will you tacklethe raw material problem?

There is no such problem. In my opinion,the fact that the facility is located near Vyksa isoptimal for such production. Indeed, this areais rich in metal-processing companies; CentralRussia is abundant in scrap. Weve recentlyestablished a company called OMK-EkoMetallthat will be engaged in scrap picking in thisarea. This company will procure around amillion tonnes of scrap metal a year.

Will the commissioning of the castingand rolling facility satisfy your demand forsheet steel completely?

As for small and medium-diameter pipes,yes. But in the case of large-diameter pipes,well buy plates from outside suppliers.

Do you plan to increase your pipeoutput?

Including the output of our new produc-tion line, we should reach 1.4 or 1.5 milliontonnes next year.

The current leader in pipe exports isTMK. Does OMK plan to increase itsexports?

This is not a championship, and we arenot in pursuit of anyone. However, well bestepping up our exports. Our companys goal isto export 30 percent of output by 2008-2009.The Russian pipe market is not bottomless.Ours is probably one of the largest markets inthe world, but it has limits. Moreover, the

Russian metallurgical and pipe industries haveserious competitive advantages.

Are you going to buy anything fromabroad? For instance, from CIS countries?

No. We have a large enough investmentprogram in Russia. Speaking about how to makeour investments more efficient, we believe thatRussia is the most attractive to us. At present,

annual pipe consumption is about 5.5-6 milliontonnes, whereas OMKs capacity is 2.5 milliontonnes. With 100-percent capacity utilization,we can theoretically corner a market share closeto 40 percent. Besides, its important that theseproducts will come from one and the same plant.Therefore, costs will be at the minimum level.

To increase a market share, its not necessaryto buy assets. For example, Chelyabinsk TubeRolling Plant purchased PervouralskyNovotrubny Works. They are virtually alike interms of equipment and technology. Will they beable to utilize all of this capacity? Perhaps, theywill face a problem: which facilities should beclosed? But even if a part of these facilities isclosed, TMK, OMK, or Interpipe can makesimilar products, and its not for sure that such

closure will strengthen their market positions. Do you share the fashion for the glob-alization and consolidation of the metal-lurgical industry?

Each specific case should be consideredseparately. The worlds largest s teelmakingcompany, Mittal Steel, is pursuing an under-standable strategy. This strategy consists in thepurchase of undervalued assets i n developingcountries. [Mittal Steel owner Lakshmi] Mittalestimates that these very regions will have thelargest demand for metal products in the nearfuture. China is demonstrating impressive eco-nomic growth, which contributes to the globalsituation with metals in international markets.Prices are becoming higher. Mittal expects thesame situation to develop in other countries.But the purchase of assets in developed coun-

tries, especially unprofitable assets, is not quitecomprehensible to me. Maybe, Mittal Steelintends to use this to promote its own productsin sheltered markets. Perhaps, this is simplydiversification of political risks. It would beincorrect to say that globalization is only eithergood or bad.

Would an amalgamation of, forinstance, OMK and TMK be a wild idea?

This alliance wouldnt bring about anysynergy. Instead, we would first have to come tothe antimonopoly agency and try to persuadethem to authorize the merger; after that, wewould have to justify our prices there. Even if we set aside ethical considerations, the mecha-nisms existing in Russia now wouldnt let thismerger take place.

Is OMK a profitable company now? In 2004, our consolidated revenues

reached $1.43 billion, the net profit was $186million. As compared with 2003, the revenueswere increased by $500 million, and the netprofit was doubled. Such growth is due to ourwell-balanced diversification and concentrationof production. If our only product was pipes,such development would be impossible. Thepipe-rolling business is not the most profitable.The cost of sheet steel accounts for 70 percentof the prime cost of pipes. What helps us is thatour pipe-rolling enterprises have a wideproduct range.

Spring has come, but none of the pipeor oil producers have made any complaintto ministries against metal makers aboutincreased metal prices. What has changed

since last year when the discussion about itwas particularly serious?

Indeed, we cant see the springtime aggra-vation. [Laughing.] In fact, the change is asfollows. Of course, the prices keep onincreasing. But last years increase was dra-matic. Just imagine: oil companies, wi th every-thing accounted for in their budgets, suddenly

saw pipe prices double. There was no clearunderstanding about why it was going on. Itlooked like somebody grabbed the opportunityto raise the price and somebody cashed in onthe situation. At that time, consumers didntunderstand that it was the ontic reality, that theChinese demand for metal increased consider-ably. Steelmakers couldnt satisfy that demand.A serious imbalance arose, and there was asharp rise in metal prices. Nobody was preparedfor that. Now, everyone understands that it wasthe ontic reality. And when a price rise is severalpercent rather than a doubled figure, it doesntworry anybody as much as it did at that time;moreover, budgets contain adequate figures.Indeed, gas and oil prices have shown a moreimpressive uptrend.

Does this bear any relation to the factthat metal producers began working underlong contracts? Last year, EvrazHoldingentered into a one-year contract with TMK.

I reply for our company only: OMK hasquarterly contracts. The prices have nowbecome stable.

Will the prices come down soon? I dont think soon. Some correction is pos-

sible; however, I dont see any global factorsthat would show a possible reduction in metalprices in the near future.

The efforts to reach an agreement withUkraine on quotas ended in success. Areyou content with everything?

The agreement reached with fiveUkrainian pipe plants provides that their salesin Russia should be limited to 395,000 tonnes a

year. But this agreement doesnt cover large-diameter pipes. The issue relating to these pipeshas not been settled yet. We would be contentwith quotas at last years level: 230,000 tonnes.With slight proportional growth. We dontdemand more severe restrictions. We under-stand that, in Soviet times, the Ukrainian pipeindustry was directed at supplying products tothe Soviet oil industry and that it is currentlyextremely difficult to make drastic changes.However, the Russian pipe indus try is also in adifficult situation. Its important that theRussian government support us. Indeed, almostall companies in the pipe industry are local eco-nomic mainstays.

How did you go into the metallurgicalbusiness?

I graduated from the Moscow StateInstitute of Steel and Alloys; I have been in themetallurgical industry for all of my life. In 1991,I went into this business: my partners and Ilaunched the production of ferroalloys nearMoscow. We earned some money an d began tothink over the purchase of metallurgical assets.The first purchase was Chusovoy MetallurgicalWorks in 1996-1997; then Vyksa Steel Works,Shchelkovo Metallurgical Works, GubakhaCoke, and Almetyevsk Pipe Plant.

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4

Introduction.2005 Events: Major Achievements and Projects1


January Vyksa Steel Works held the second awardingceremony of the Ivan and Andrey BatashevFoundation. Vyksa Steel Works put into operation a unitfor local heat treatment of weld seams under theElectric-Weld Pipe Workshop 3 rehabilitationproject.

February The Vyksa Steel Works casing pipe workshopput into operation a new line for applying coat-

ings to pipes. This allowed improving the effi-ciency of the casing pipe workshop and willenable the Works to enter the market of oil welltubing with phosphated couplings.

March United Metallurgical Company and Danieli &C. Officine Meccaniche SpA, Italy, signed a con-tract for supply equipment for the construction of the Casting and Rolling Complex in the NizhniNovgorod Region. Vyksa Steel Works was awarded the Banner of Honor of the Governor of the Nizhni NovgorodRegion in the category For High InvestmentActivity. Chusovoy Metallurgical Works was recog-nized as an excellent supplier of KAMAZ, themain consumer of automobile spring-foils.

April Vyksa Steel Works put into operation Russiasfirst line for manufacturing 1,420 mm single-seam longitudinal welded pipes with a wall thick-ness of up to 48 mm, rated for pressures of up to250 atm. The annual capacity is 570 thousandtonnes. This package of technologies is unique forFSU countries. OMKs organizational and financial partici-pation resulted in opening the educationalbuilding of the local branch of the Moscow StateInstitute of Steel and Alloys (MISIS) in Vyksa,Nizhni Novgorod Region.

May The Federal Financial Markets Service of the

Russian Federation (FFMS) registered the issueof certified interest-bearing inconvertible bearerbonds (Series 01) of United MetallurgicalCompany (OMK) floated by way of publicoffering.

June United Metallurgical Company held a cere-mony in the Vyksa District, Nizhni NovgorodRegion, on the occasion of the beginning of con-struction of the OMK Casting and RollingComplex. Vyksa Steel Works hosted the second(summer) stage of sports events for OMK enter-prises employees OMKiada 2005. Chusovoy Metallurgical Works conductedpanel games within the framework of the corpo-rate festival OMK Youths 2005. United Metallurgical Company floated its firstissue of bonds. During the bidding process,

2005 Events:Major Achievements and Projects

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demand for OMK bonds was 1.8 times as much assupply

July Chusovoy Metallurgical Works held the envi-ronmental conference Dialog About Smoke.

The conference discussed environmental issuesrelating to Chusovoy and formulated top-prioritytasks in the environmental protection area. Vyksa Steel Works dispatched to Gazprom thefirst commercial batch of 1,420 mm pipes pro-duced at its TESA-1420 line.

August Vyksa Steel Works redeemed its bond issue. Gubakha Coke completed the first stage of theoverhaul repair of coke-oven battery No. 1-BIS Chusovoy Metallurgical Works signed a tri-partite agreement with Perm Territory medicaland insurance organizations for the arrangementof medical recreation activities for the Works per-sonnel under the Corporate Health Program.

September At the Magistral-2005 exhibition, OMK madea presentation of the wheel with enhanced rimhardness made by Vyksa Steel Works. Vyksa Steel Works put into operation a line forapplying two or three-layer polyethylene /polypropylene external coatings to 508-1,420 mmpipes.

October OMK completed the deliveries of pipes for thesubsea section of the Barents Sea pipeline con-necting the Varandeysky oil terminal with theArctic marine terminal. Vyksa Steel Works dispatched the first thou-sand of tonnes of 1,420 mm pipe s for the con-struction of the land section of the NorthEuropean Gas Pipeline.

OMK summarized the results and conducteda business game under the 100 Best ManagersProgram; the final stage of the program was heldon the Maldives.

November Vyksa Steel Works put into operation a line forapplying friction-reducing internal coatings to273-1,420 mm pipes. Chusovoy Metallurgical Works launched theproduction of high-grade ferrovanadium. Thefirst tonnes of ferrovanadium products containing80% of vanadium were obtained.

December A ceremony was conducted on the occasion of

the opening of the North European Gas Pipeline(NEGP). Chairman of the Russian GovernmentMikhail Fradkov and Chairman of GazpromsManagement Committee Alexey Miller wrotetheir signatures on a Vyksa-made pipe. At the construction site of the OMK Castingand Rolling Complex in the Vyksa District, NizhniNovgorod Region, the builders erected the firstpillar of the scrap preparation shop building. Gubakha Coke entered the final stage of theoverhaul repair of coke-oven battery No. 1-BIS:prefiring installation. The coke-oven battery wasbrought into the drying and heating process.

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In the 1970-80s, at the time of construction of thetranscontinental pipelines intended to supply gasfrom Urengoy and Yamburg to Western Europe, itwas decided to increase their capacity by enlargingthe pipe diameter to 1,420 mm. Those so-calledRussian-size pipes were delivered to Gazpromfrom Germany by Europipe, a subsidiary of thesteelmaking giant Mannesmann; Europipe wasable to produce pipes of 400-2,800 mm in diam-eter and with wall thicknesses ranging from 4.5 to400 mm. Gazproms demand for pipes was alsosatisfied by ILVA, Italy, and Sumitomo andNippon Steel, Japan.

To reduce the dependence on imports, the

USSR launched its own manufacture of 1,220-1,420 mm double-seam pipes at Khartsyzsk TubeWorks as long ago as 1974. However, Khartsyzskpipes could not compete wi th imported productsbecause they had much thinner walls and did nothave factory-made pipe insulation. Besides, theproduction of 1,420 mm multilayer pipes that wasstarted at Vyksa Steel Works in 1982 turned outto be a failure and was closed in the end.

Therefore, Gazprom and Transneft continuedto buy imported pipes for their facilities con-structed in the north. It was no t until the 1998crisis, when imports from Europe and Japanbecame too expensive, that state-owned pipeline

monopolists approved development programsproviding for import substitution with respect tolarge-diameter pipes. Domestic manufacturers of large-diameter pipes (Volzhsky Pipe Plant,Chelyabinsk Tube Rolling Plant, and Vyksa SteelWorks) and Khartsyzsk Tube Works, Ukraine,interpreted the decisions made by Gazprom andTransneft as a signal to modernize their produc-tion.

On the way to the optimaldecisionAs the first step, all plants built facilities forapplying external corrosion-resistant coatings,

which did not require large-scale investments.Then, Khartsyzsk Tube Works (without ceasingto produce 1,420 mm double-seam thin-wallpipes) had its upgraded Electric-Weld PipeWorkshop 2 make single-seam longitudinalwelded pipes with diameters of up to 1,067 mm.

In 2001, Khartsyzsk began the construction of a new line for manu facturing 711-1,220 mmsingle-seam pipes having wall thicknesses of up to32 mm and rated for pressures of up to 100-120atm; the pipe design incorporated an internal cor-rosion-resistant coating.

In November 2002, the Khartsyzsk Tube

Works position in the 1,420 mm market segmenttook a blow from Pipe Metallurgical Company(TMK). TMKs Volzhsky Pipe Plant launched themanufacture of 1,420 mm spiral welded pipes witha 18.7 mm wall thickness, meant for use in a coldclimate and rated for pressures of up to 84 atm (atpresent, this is a working pressure of most of Gazproms main pipelines). However, as early as June 2003, Khartsyzsk Tube Works made its first1,220 mm pipe having a 20.5 mm wall; then, its1420 mm double-seam pipe with a 24.9 mm wall.Vyksa Steel Works embarked on the course of modernization too (its Electric-Weld PipeWorkshop 4 could have made pipes with sizesreaching 1,020 mm and wall thicknesses of up to32 mm as early as 1996), but OMK chose to createversatile and flexible manufacture of l arge-diam-eter pipes designed for use in extremely severeconditions.

In fact, Russias oil and gas production proj-ects whose beginning is planned for the nearfuture provide for the construction of high-capacity pipelines through tundra in permafrostconditions (Yamal, Vankor-Dickson, Usa-Indiga),through vast mountainous areas and waterloggedlands (Taishet-Pacific Ocean), under water(Shtokmanovskoye field, North European GasPipeline). In such conditions, it is economicallyfeasible to reduce the number of pump and com-pressor stations and increase pumping pressure.By upgrading the production of large-diameterpipes at Vyksa Steel Works, OMK focused onhigher quality of metal used for pipes, larger wallthicknesses, as well as the possibility of makingboth single-seam and double-seam pipes and

applying factory-made external and internal mul-tilayer polymer coatings to pipes.

Built in 2003-2004, the new production lineof VSW-Electric-Weld Pipe Workshop 4 (seeProject 1420)-includes a unique stage-by-stagemolding press that is capable of producing 530-1,420 mm pipes with a wall thickness of up to 48mm. This product range includes single anddouble-seam pipes rated for working pressures of up to 250 atm; the pipe diameter is in accordancewith the customers requirements: for instance,1,420 mm for Gazprom, 1,220 mm for Transneft.As a result, the efficiency of Vyksas new line formanufacturing large-diameter pipes will not b ecritically dependent on any monopolistic con-sumer of certain pipe sizes.

OMKs President Anatoly Sedykh told thepress conference organized after the Project 1420launching ceremony that he did not see anyproblem connected with the sale of VSWs new

6


Vyksa Makes 1,420 mm Pipes

Russian pipe producers are ready to accept anyorders from Gazprom and Transneft

In early April, Vyksa Steel Works (VSW), part of United Metallurgical Company (OMK), put into operationRussias first production line for single-seam longitudinal welded pipes with sizes ranging from 508 to 1,420 mmand wall thicknesses of up to 48 mm. The new equipment of Electric-Weld Pipe Workshop 4 can annually produceup to 500 thousand tonnes of large-diameter pipes rated for pressures of up to 250 atm (25 MPa) with internal and external corrosion-resistant coatings. VSWs new products can be used for the construction of pipelines inhard-to-reach areas and subsea pipelines. Formerly, pipes rated for pressures exceeding 9.8 MPa were bought from foreign suppliers; to all appearances, import has now become unnecessary.

However, according to OMKs President Anatoly Sedykh, Russian companies still require more large-diameter thick-wall pipes than the output of the new production line. But this situation will change by the end of 2006,when Severstal launches a similar line at Izhorskiy Pipe Plant.

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products. Even the current demand of Gazpromand Transneft for high quality pipes will be muchhigher than the capacity of the new productionline (up to 500 thousand t/y) in the near future.As early as 2005, Gazprom is ready to buy around100 thousand tonnes of Vyksa pipes of 1,220-

1,420 mm in diameter: deliveries will begin in Juneafter the certification of the new manufacture.

Transnefts Taishet-Pacific Ocean oil pipelinewill require approximately 2.8 million tonnes of 1,067-1,220 mm pipes, out of which around 1.3million tonnes will be needed as early as 2006-2007. According to Mikhail Polonsky, DirectorGeneral of Stroyneft (a subsidiary of Transneft),Vyksa Steel Works with its new products ranksamong the most probable suppliers of pipes forthis huge project. Gazprom and Transneft projectsare naturally attractive to other Russian and

Project 1420

The idea of constructing a production line for single-seam longitudinal welded pipes with sizes ranging from508 to 1,420 mm and wall thicknesses of up to 48 mm on the base of Vyksa Steel Works Electric-Weld PipeWorkshop 4 appeared in the spring of 2001 and, at first, was considered for implementation within the frame-work of an alliance with Severstal. In 2001, VSW created a working group, conducted research, and beganto prepare a construction site for the new 400-meter-long pipe-molding shop. In addition, OMK agreed withSMS Meer, Germany, upon the design and manufacture of main equipment for the new production line.In accordance with the contract confirmed in 2003, SMS Meer delivered to VSW a plate-edge beveling machine, flanging press, hydraulic press, assembling and welding mill, expanding mill, and a unique custom-made stage-by-stage molding press. In addition to SMS Meer, the equipment for the new product ion linewas supplied by several European and CIS producers.For the delivery of 3.2-4.5 m x 11.3-12.3 m rolled sheets, Dneprovagonmash, Ukraine, made 200 special flatcars having pneumatically-actuated turntables and allowing sheets to be transported on the tilt withinthe dimensions of CIS and Baltic rolling stock. At the first stage (in 2003), without stopping the active production line for 1,020 mm pipes, the new pro-duction area for sheet preparation was constructed. In February 2004, Vyksa Steel Works launched the com-mercial production of pipes with diameters of 508-1,067 mm and wall thicknesses of up to 32 mm. October 2004 saw the beginning of the installation of the stage-by-stage molding press. On March 12, 2005, the first

skelp was molded; it was X65 grade, 1016 mm in diameter and had a 19.1 mm wall. Formally opened on April 8, the new line can produce up to 570 thousand tonnes of pipes with diameters reaching 1,420 mm.This increased the total capacity of VSW Electric-Weld Pipe Workshop 4s production of large-diameter pipes to 1.5 million tonnes.

Supply Structure for Large-Diameter Pipes in the RussianMarket

I m p o r t s ( i n c l . K h a r t s y z s k

T u b e W o r k s )

3 2 %

V o l z h s k y P i p e

P l a n t

2 0 %

C h e l y a b i n s k T u b e

R o l l i n g P l a n t

2 6 %

V y k s a S t e e l W o r k s

2 2 %

2003 .

I m p o r t s ( i n c l . K h a r t s y z s k

T u b e W o r k s )

4 0 %

V o l z h s k y P i p e

P l a n t

1 7 %

C h e l y a b i n s k T u b e

R o l l i n g P l a n t

2 3 %

V y k s a S t e e l W o r k s

2 0 %

2004 .

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8

Company Profile.Group Structure2


Vyksa Steel Works (Nizhni Novgorod Region) the leader in

the Russian and CIS pipe production; a supplier of large-diametersingle-seam longitudinal welded pipes for land and subsea sectionsof main pipelines, as well as medium-diameter pipes for hydro-carbon production and transportation, as well as for public utilitypipelines. The total output of pipes of various sizes and gradesexceeds 2 million tonnes a year. Almetyevsk Pipe Plant (Tatarstan) a manufacturer of steelpipes with high-quality external and internal coatings; a key sup-plier to the Volga area fuel and energy sector. Trubodetal (Chelyabinsk) one of the largest producers of fit-tings for 57-1,420 mm pipelines in Russia and CIS countries.

Chusovoy Metallurgical Works (Perm Territory) one of the

Urals oldest ferrous metallurgy companies with a complete processcycle of metal production. Major product groups: rolled sectionsteel, automobile spring-foils, ferrovanadium. Gubakha Coke (Perm Territory) the leading coke producer inthe Urals area. Schelkovo Metallurgical Works (Moscow Region) Russiasunique producer of precision steel bands used for picture tubeshadow masks.

Under construction. Beginning of the Project: June 2005; com-

missioning of Phase 1: December 2007. OMK Casting and Rolling Facility (Vyksa, Nizhni NovgorodRegion) production of high-quality hot-rolled steel coils (thick-ness: 1-12.7 mm) for small and medium-diameter pipes (21-530mm) with high application properties. The annual capacity of equip-ment to be put into operation under the Projects Phase 1 will be 1.2million tonnes.

Group StructureUnited Metallurgical Company (OMK) is a group of industrial companies operating in theferrous industry. OMK is a leading Russian manufacturer of metal products for energy, trans-portation, and production companies.

Pipe-Rolling Division Metallurgical Division Casting and Rolling Division

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2

United Metallurgical Company Annual Report 2005

Company Profile.Group Strategy

9

It is of principal importance toUnited Metallurgical Company toachieve profitable growth in its business, balancing its goals against the interests of its share-holders and employees, customers, governmental and local authori-

ties, and the entire society. TheOMK Group is making active progress and striving to becomethe leader in all key markets. The following principles underlie theCompanys strategy:

Vertical integration of the OMK enterprises Concentration of production and investmenton a limited number of production sites with themaximum potential Well-balanced diversification of production Implementation of state-of-the-art tech-nology and equipment; constant search for andpractical use of more advanced process solu-tions Increased share of controlled costs

Development of the Companys personnelpotential

The above principles of business manage-ment enable the Company to achieve high laborefficiency and control its costs to the maximumextent.

Within the scope of this strategy, theCompanys management focuses on improvingthe competitive advantages of products,building up professional management systemsat the OMK enterprises, identifying and real-

izing the enterprises inner potential, creatingand implementing investment programs aimedat technical development, studying andadopting the worlds best practices in the fieldof management, engineering, and technology.

The key event for the Companys Pipe-Rolling Division in 2005 was the commissioningof a unique line for manufacturing large-diam-eter pipes at Vyksa Steel Works. The new pro-duction line is des igned for the manufacture of single-seam longitudinal welded pipes with cor-rosion-resistant external and internal coatings,with sizes ranging from 530 to 1,420 mm andwall thicknesses of up to 48 mm. The designcapacity is more than 570 thousand tonnes.Pipes produced by the new line withstand pres-sures reaching 250 atm and are in tended formain oil and gas pipelines, which is in full com-pliance with all requirements of the major con-sumers of such products: Gazprom, Transneft,

ExxonMobil, Royal Dutch/Shell and otherRussian and foreign companies. In addition, thelarge wall thickness and the ability to withstandhigh pressures allow Vyksa pipes to be used forthe implementation of offshore developmentprojects.

The year 2005 saw the beginning of the con-struction of the Companys own casting and rollingfacility. The Casting and Rolling Complex (CRC)will be built at the village of Motmos, VyksaDistrict, Nizhni Novgorod Region. The CRC will

be the worlds first facility specializing in the man-ufacture of rolled products meant for pipes withspecial properties. The CRC will produce1-12.7 mm hot-rolled steel coils intended for 21-530 mm pipes to be made by Vyksa Steel Worksand Almetyevsk Pipe Plant. The CRC capacity willbe 1.2 million tonnes of steel coils a year, which willfully cover OMKs demand for rolled steel neces-sary for the manufacture of small and medium-diameter pipes. Besides, on completion of thisproject, OMK will be able to concentrate its pipeproduction and rolled steel production within asingle manufacturing complex.

OMK is a leader and one of the worldslargest manufacturers in the market of solid-rolled railroad wheels for passenger and freightcars. The Company has a long-term contractwith Russian Railways for the supply of about 5million wheels in the total amount of $1.2billion until 2010. The strategy relating to the

development of this product group consists inthe development of exports, the in troduction of new products, and the improvement of tech-nology, namely, the transition to the continuouscasting of steel for wheel blanks.

The main strategic initiatives of theCompanys Metallurgical Division are primarilyconnected with the implementation of projectsaiming to insure energy and raw material secu-rity and optimize the existing production.

The well-balanced diversification of OMKsmetallurgical production is based on the intro-duction of new product types and the improve-ment of process solutions.

Chusovoy Metallurgical Works, Russias onlyenterprise with a complete cycle of ferrovanadiumproduction, has developed and is mastering thetechnology for manufacturing the Vanadium-80high-grade ferrovanadium, which makes it pos-sible to enhance the Companys competitivestrength in the world ferrovanadium market.

In the automobile spring-foils segment,OMKs top-priority task for 2006-2010 is to

continue to be the leader in the Russian market.Within this product group, ChusovoyMetallurgical Works plans to launch the pro-duction of small-plate spring-foils in 2006,which will increase the output of automobilespring-foils, expand the product range, andimprove the product quality.

One of the largest projects of the OMKMetallurgical Division started in 2005 is therepair of a coke-oven battery at Gubakha Coke.This will increase the annual production of theCompanys own coke to 1.3 million tonnes.

The OMK investment activities planned forthe near years are aimed at the implementationof strategic projects related to insuring theCompanys raw material security, constructingthe casting and rolling complex designed for themanufacture of OMKs own steel sheets, andenhancing product competitiveness and tech-nology.

OMK aspires to become one of the most efficient metallurgical com-panies in Russia.

Group Strategy

Construction of Foundry and Rolling Facility, December, 2005.

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Company Profile.Group Strategy2


Sakhalin 1 and Sakhalin 2 are the largest projectsin terms of the amount of direct foreign invest-ments in the Russian oil industry. The estimatedtotal production under these projects is more than400 million tonnes of oil and 900 billion cubicmeters of gas, which requires large investments

in the infrastructure, specifically the constructionof main pipelines with the total length exceeding2,000 km.

United Metallurgical Company (OMK)decided to participate in the Sakhalin 1 and 2Projects in 2000 after scrutinizing technicalrequirements for the pipelines planned for con-struction on Sakhalin Island. OMK made pre-sentations in the offices of the project operators,Sakhalin Energy and Exxon Neftegas, onSakhalin and held meetings with local authori-ties. At first, we encountered a preconceptionon the part of foreign companies as to Russianpipe manufacturers product quality and expe-rience. For instance, Sakhalin Energy told usthat Vyksa Steel Works (VSW), like the otherRussian pipe plants, stood little chance of par-ticipating in the Sakhalin 2. That was due toprevious, often negative experience of Westerncompanies cooperating with Russian manufac-turers, but updated information about engi-neering capabilities of domestic companies wasnot available at the time.

Meanwhile, in 1998-2000, after changes inownership of Russias major pipe plants, the newowners began to rehabilitate and modernize theirproduction facilities and master new products. In2000, VSW put into operation a new line forapplying external corrosion-resistant coatings;similar lines were commissioned at Volzhsky PipePlant and Chelyabinsk Tube Rolling Plant, whichallowed domestic oil and gas companies andTransneft to stop importing large-diameter insu-lated pipes for main pipelines.

In early 2001, the Administration of the

Sakhalin Region and Starstroy conducted aseminar for potential contractors of the Sakhalin2 Project. The seminar enabled Sakhalin Energyspecialists to become more aware of Russian pipemanufacturers potential. In the summer of thesame year, Shell conducted an audit of VyksaSteel Works and its management company, OMK.The audit showed that, in general, VSWs tech-nical capabilities are sufficient for filling an orderfor the supply of oil pipes under the Sakhalin 2Project. The main condition for the technicalqualification of Vyksa Steel Works as a bidder wasto implement corrective measures and produce atrial batch of pipes in accordance with SakhalinEnergys specifications.

WarmupBefore bids were invited in August 2002, VSWhad done a lot of work to meet the criteria estab-lished by the potential customer. For example, thethen existing automatic ultrasonic weld inspec-tion units for acceptance tests did not satisfy theproject requirements. The problem was settled byreplacing three of the units with Krautkremerequipment that insures 100% weld and weld-affected zone inspection for large-diameter pipesmeant for main pipelines. At the same time, wereplaced obsolete manual ultrasonic weld inspec-tion units and installed additional equipment for100% X-ray and TV inspection of weld ends.

To make welding conditions more stable,Vyksa Steel Works replaced power supply unitson welding mills with ESAB equipment, installedlaser weld tracking devices, and implemented apackage plan aimed at the use of new welding

consumables. In addition, we put into operationnew equipment for incoming and acceptance

Participation in complex oil and gas projects, such as the development of theSakhalin shelf, provides Russian companies with unique opportunities toimprove their competitive strength, including in international markets, and

gives a new impetus to development. This is of special relevance to pipe manufacturers whose principal customer in Russia is the fuel and energy sector (about 60%). Against the backdrop of oil production boom in recent years, the pipe industry has become on of the most dynamicsegments of the Russian economy. However, Russian pipe manufacturers need to develop export operations toreduce risks relating to a possible diminution in domestic demand. To withstand fierce competition in the global market, it is not enough to make good pipes; it is also necessary to know the rules of the game. Problems that pipe

companies may encounter while entering international markets are well seen in the case of OMKs participationin the Sakhalin 1 and 2 Projects.

Maturity Test

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Company Profile.Group Strategy2


inspection of both black pipes and corrosion-resistant coatings.

Vyksa Steel Works developed and imple-mented a computer-aided system for large-diam-eter pipe production control intende d for pro-duction sequencing and information support for

technical services and personnel. Inspectionpoints were equipped with networked computerterminals capable of issuing all necessary docu-ments on completion of each production step.According to BP auditors, this is currently thebest system used by a large-diameter pipe manu-facturer in Russia and the CIS.

Specialists of Severstal and the CentralResearch Institute for Ferrous Metallurgy(TsNIIchermet) under the supervision of Sakhalin Energy auditors did a lot of work todevelop the steel sheet production technology of the required quality. Formerly, it was thought thatnone of the Russian steelmaking plants was ableto stably produce X65 steel in accordance withadditional requirements of high complexity proj-ects. VSW, together with Severstal, made six trialbatches of pipes during a year, and test resultsmade it possible to assert Russia could make suchmetal too.

The upgrading of VSWs facilities was sup-ported by Sakhalin Energy specialists and Mitsui(OMK signed an agreement with Mitsui for coop-eration in pipeline projects). As a result, VSWimproved its production processes and the relia-bility and quality of its products, which in i ts turnenabled Vyksa Steel Works to pass anExxonMobil audit in 2002 and, finally, becomeapproved for participation in the Sakhalin 1Project.

Double effectOMK participated in four biddings under theSakhalin 1 and 2 Projects and be came the pre-ferred bidder in all of the four events. In the case

of the Sakhalin 1 Project, we were awarded a con-tract for the supply of pipes for 176 km out of the232-km pipeline, or 70% of the total scope of delivery. VSW delivered 34.5 thousand tonnes of pipes with an outside diameter of 610 mm and awall thickness of 12.1 mm. The steel used for the

pipes complied with all requirements for the man-ufacture of pipes with three-layer corrosion-resistant external coatings according to ISO 3183-3. Besides, we met additional requirements of thecustomer, specifically we conducted mechanicaltests of parent metal and welds on both transverseand longitudinal specimens, tests of mechanicalproperties after strain ageing of pipes, and cracktip opening displacement (CTOD) tests.

In the case of Sakhalin 2 Project, the consor-tium of OMK and Mitsui was awarded a contractfor the supply of pipes for the construction of a647-km oil pipeline. OMK delivered 43 thousandtonnes of pipes, which accounted for 50% of thetotal length of the pipeline. The steel was X65grade, had a three-layer corrosion-resistantexternal coating according to API Spec 5L, andmet additional requirements of the customer. It isnoteworthy that OMK was the first in Russia toproduce, cause to be certified, and deliver pipesrated for working pressures of up to 125 atm anddesigned for use in seismic areas to which belongSakhalin Island.

Participation in projects like the Sakhalinprojects enabled OMK to make a breakthrough inits development. First, participation in large inter-national projects had a positive effect on theimprovement of production processes, as well asthe issues relating to occupational safety and cor-porate culture. Second, in the process of fillingthe orders, we acquired essential experience of cooperating with foreign auditors from orderingcompanies (SEIC, ENL, Nippon Steel) and thirdparty inspections, such as Moodys Internationaland Tuboscope.

Third, we actually feel growth in the per-sonnel potential-the potential of VSW employeesand OMK managers. And fourth, participation inthese projects raises the rating of Russian manu-facturers and encourages the development of full-scale export programs. In this context, an impor-

tant factor is the inclusion of Russian companieson the authorized supplier list of the largesttransnational corporations, such as Shell andExxon, and the willingness of other customers tocertify large-diameter pipe production for furtherinclusion on the authorized supplier list.

Too early to relaxWhile implementing pipe production modern-ization programs, we encountered several seriousproblems, the most significant of which is thequality of steel sheets. And, in principle, thisexplains why many biddings abroad (especially,in the Middle East) establish requirements formetal to be used for pipes: metal should not bemade in Russia. The quality of Russian sheet steelis far poorer than that of s teel made in Japan,Germany, and, unfortunately, even Ukraine.

It is more and more difficult to compete in theinternational market each year and, without steel-makers and pipe manufacturers combining theirefforts, unreal. To satisfy the long-term demandof the fuel and energy sector, it is necessary toconstruct new generation pipelines having 60-70years of standard operation time, not 30-40 yearsas we have now. In particular, this will decreaseinvestments in the development of gas fields andconsiderably reduce gas transportation costs. Toextend pipeline operation time, it is necessary toimplement innovations not only in pipe produc-tion, but also in steelmaking.

We estimate that the amount of investmentsin the upgrading of Russian pipe companieswithin the next three years will exceed $700million. Due to ever-growing pipe performance

requirements, it is necessary to expand the rangeof steel grades and change production conditions,which will require no fewer efforts on the part of steelmakers.

Below is a tentative list of tasks to be jointlyfulfilled by steel works, pipe plants, and the

industrys design institutes: Enhance the chemical composition and pro-duction technology for K52-K60 grade steels witha view to improving their performance character-istics Develop and commercialize K65 grade steelsand pipes and conduct industrial tests of K70-K80 grade products Develop and master production technologyfor steels and thick-wall pipes for subsea pipelines Develop and commercialize steels and pipesfor the transportation of sulfurous gases Develop and master production of coldresistant steels and pipes for extremely low oper-ation temperatures of -60C Find new methods for enhancing pipe steelstrength and cold resistance Create technologies insuring the productionof high-purity rolled metal with a low level of surface defects

Until these tasks are fulfilled, we will be com-pelled to contemplate buying metal from foreignsuppliers so as to produce pipes according to thehighest world standards. Moreover, we began theconstruction of the Foundry and Rolling Facilityin the summer of 2005 to make our own skelps.The construction of the Facility is OMKs largestinvestment project. After its commissioning,OMK will have a complete steelmaking cycle: itwill be able to obtain high-quality raw materialsand, therefore, make high-quality medium-diam-eter pipes. However, the construction of theFoundry and Rolling Facility resolves only theissues relating to rolled metal quality, the issuesrelating to large-diameter pipes remain open.

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Company Profile.Key Financial and Performance Indicators2


Pipe output (thsd t) 1097 Railroad wheel output (thsd pcs) 806 Ferrovanadium output (thsd t) 2.254 Automobile spring-foils output (thsd t) 63.5 Rolled section output (thsd t) 411 Coke output (thsd t) 627

Share in Russian pipe market 16% Share in Russian railroad wheel market 69% Share in Russian ferrovanadium market 18% Share in Russian automobile spring-foil market 73% Share in Russian rolled section market 2%

ASSETS 2004 2005Noncurrent assets 11 501 16 600Current assets 18 683 31 555

LIABILITIES 2004 2005Equity 15 278 23 160Long-term liabilities 2 836 9 053Short-term liabilities 12 070 15 942Balance 30 184 48 155

Key Financial andPerformance Indicators1. Performance

Indicators

2. OMKs Sharein Russian Consumptionof Its Main Product Groups,% (2005)

3. OMK Group FinancialIndicators(millions of rubles)

Balance Sheet Structure(millions of rubles)

4 0 1 7 3

7 6 8 3

5 4 3 5

5 7 0

0 1 2 2 7 9

7 4 6 5

5 4 6 9 7

2004 2005

Revenues

EBITDA

Net profit

Investments

9 0 2 5

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Pipe-Rolling Business3


Electric-welded pipes with sizes rangingfrom 508 to 1,420 mmare designed for the construction of main gas, oil, and oil productpipelines rated for working pressures of up to 12.5 MPa,including subsea pipelines. High mechanical properties of pipebase material and weld seams allow these pipes to be used forpipeline construction in varied climatic regions, including farnorth areas. Single-seam longitudinal welded pipes with sizesranging from 508 to 1420 mm and wall thicknesses ranging from7 to 48 mm are made of K38-K60 strength grade steels, includingnorth version products. Pipes can also be made for working pres-sures reaching 250 atm.

Pipes for oil and gas pipelines and general-purpose pipeswith sizes ranging from 114 to 530 mm are designed for the con-struction of oil and gas pipelines, oil product pipelines, processand field pipelines (including pipelines in Siberian and far northareas), water pipelines, heating systems, various structures, as

well as for gas and oil field construction. In 2005, the Companyput into operation a new line for pipe finishing and a new line

for corrosion-resistant pipe coatings.The manufacturing process includes multiple-stage nonde-

structive examination of all pipes, i ncluding eddy-current, auto-matic and manual ultrasonic, mechanical, and 100% hydraulictesting.

Mechanical properties of pipe base material and weld seamsare determined during elongation, impact, flattening, andbending tests.

Casing pipeswith sizes ranging from 114 to 245 mm are designed for gas andoil field construction, as well as for the construction of wells, sep-aration of oil-bearing and gas-bearing formations, prevention of water encroachment of production horizons, and casing of wellwalls and heads. To insure compliance with the world standards,the workshop was provided with advanced equipment made bythe worlds leading manufacturers: Nippon Steel Corporationforming mill, pipe-welding machine, and sizing mills; Toshibaequipment for local heat treatment; DBM rotary piercer;Mitsubishi ultrasonic flaw detector. As a result, Vyksa Steel

Works welded casing pipes have the following unquestionableadvantages:

Precision of geometrical dimensions as compared with seam-less pipes (fewer variations in wall thickness, less out-of-round-ness, etc.) Pipe lengths; possibility of manufacturing 11.8 m pipes of anydiameter within the product range Possibility of producing thin-walled pipes, which allows less

metal consumption during well construction

Pipes for water and gas supply lines andgeneral-purpose pipeswith sizes ranging from 15 to 108 mm are designed for the con-struction of gas and water supply lines, h eating systems, andvarious structures. The pipe production process includes non-destructive examination to SEP 1925 standards and mechanicaland hydraulic testing.

Almetyevsk Pipe Plant produces pipes with sizes rangingfrom 10 to 219 mm and, upon request, with double corrosion-resistant coatings.

All of OMKs pipes are produced in accordance with ISO9001:2000 and API quality standards.

OMKs major customers include leading Russian and foreigncompanies: Gazprom, LUKOIL, Transneft, Surgutneftegas, TNK-BP, Sibneft, Rosneft, Bashneft, Tatneft, ExxonMobil, RoyalDutch/Shell, Amiri Nassab Commercial (Iran), ExplorecoEnergy Inc (U.S.A.), etc. OMK pipes are supplied to the U.S.A.,United Kingdom, Germany, Bulgaria, Poland, Iran, Azerbaijan,Kazakhstan, Uzbekistan, and other countries.

OMK is a frequent participant and winner of prestigiousinternational biddings. In 2005, as the preferred bidder, theCompany began the supply of 1,420 mm pipes to Gazprom forthe construction of the North European Gas Pipeline underPhase 1 of this Project.

Pipe-Rolling BusinessIn 2005, the OMK Pipe-Rolling Division produced around 1.1million tonnes of pipes of various sizes and grades. OMKsshare in the Russian pipe market exceeded 16%.

Vyksa Steel Works produces steel pipes wi th sizes ranging from 15 to 1,420 mm and wall thick-nesses of up to 48 mm. Vyksa Steel Works pipes have two or three-layer corrosion-resistant polyethylene coatings.

2004 . 2005 .Large-diameter pipes 335.0 380.7Pipes for oil pipelines 209.0 223.2Casing pipes 187.5 215.5Pipes for water and gas supply lines 65.6 56.9Thin-walled pipes 86.0 86.5

TOTAL 882.0 967.5

Vyksa Steel Works. PipesShipped to Customers(thsd t)

2004 . 2005 .Pipes for oil and gas pipelines 54.7 57.8Shaped pipes 17.0 18.7Pipes for water and gas supply lines 3.9 8.5Thin-walled pipes 17.6 16.5

TOTAL 93.3 101.6

Source:Metal-Courier: Metal-Expert Steel Pipes; Issue No. 2, 2006

Almetyevsk Pipe Plant.Pipes Shipped toCustomers(thsd t)

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Pipe-Rolling Business3


United Metallurgical Company is a leadingdomestic manufacturer of products for energy,transportation, and production companies. OMKsPipe-Rolling Division comprises Vyksa SteelWorks and Almetyevsk Pipe Plant; OMKsMetallurgical Division comprises ChusovoyMetallurgical Works, Gubakha Coke, andSchelkovo Metallurgical Works. OMK productsaccount for over 20% of all pipes consumed inRussia, including more than 30% of large-diam-eter pipes, over 60% of railroad wheels and auto-mobile springs. In 2004, the OMK enterprisesproduced around one million tonnes of varioussize pipes, 430 thousand tonnes of rolled metalproducts, and over 750 thousand railroad wheels.Vyksa Steel Works revenues in 2004 increased by1.4 times as compared with 2003 to reach 26,627million rubles; the profit increased by 12% to

2,695 million rubles, including an 11% increasein the net profit reaching 2,027 million ruble s.

OMKs major customers include such leadingRussian and foreign companies as Gazprom,LUKOIL, Transneft, Surgutneftegas, Rosneft,Yukos, ExxonMobil, Royal Dutch/Shell, GeneralElectric, Samsung, LG-Philips, Thomson.

Russian companies have faced an issuerelating to the production of large-diameterpipes over the past 40 years. The issue arosewhen the Soviet Union began creating a pow-erful oil and gas sector oriented to the export of raw materials. At present, around 70% of 1,420mm pipes are imported from Ukraine; around30%, from Europe. European pipes are of highquality, but expensive. Ukrainian pipes arecheap, but their quality leaves much to bedesired. Meanwhile, customers decisive factorsare both pipe quality and pipe competitiveness.That is why OMK engaged the best specialists

and the worlds leading equipment suppliers toparticipate in the Project 1420. Im sure that

our pipes will s atisfy all quality requirements of the customer, and their prices will be competi-tive, said OMK President Anatoly Sedykh.

The VSW project for the production of large-diameter pipes is called 1420. But thisdoes not mean that the project will include onlythe manufacture of 1,420 mm pipes. The newproduction line purchased for VSW is designednot only for the manufacture of 1,420 mm forGazprom. When this line is put into operation,Vyksa Steel Works will be able to make pipeswith sizes ranging from 508 to 1,420 mm andwall thicknesses of up to 48 mm, i.e. a full rangeof large-diameter single-seam longitudinalwelded pipes. It is planned that VSW will beginthe commercial supply of pipes produced at thenew line in May-June 2005. The annual designcapacity is 500 thousand tonnes of 1,420 mm

pipes. VSW will be capable of manufacturinglarge-diameter pipes rated for pressures of up

to 250 atm. The amount of investments in theproject implementation is $170 million.

VSWs new products is to a considerableextent meant for Russian large oil and gas com-panies: Gazprom, Transneft, etc. Russiaslargest gas concern is currently spending huge

money on imported pipes. The point is thatRussian companies have not made any offersmeeting Gazproms requirements, saidAleksandr Razuvaev, Head of the AnalyticDepartment of Megatrustoil. When such offersare available, Gazprom as a state company willhave to support Russian manufacturers.Gazproms management itself has said about itmore than once. For instance, in April 2004,OMK and Gazprom signed a memorandum of intent providing for the possible purchase of OMK pipes from 2005.

Meanwhile, Gazprom is not the only one tobe interested in Russian-made 1,420 mm pipescomplying with world standards. When the newproduction line is put into operation, OMK willbe able to participate in Russias large-scale

pipeline projects whose beginning is scheduledfor the near future. For example, VSWs newproducts can be used for pipelines transportingoil and gas to China and Southeast Asia. Thatis to say, this project will be efficient in any case.Besides, VSWs new products are in demand inthe global market. Some Japanese companieshave already displayed interest in them. Verypromising are shelf development projects thatwill use high-pressure pipes, said AnatolySedykh, speaking about the companys plans.By the way, foreign companies interest in OMKproducts is not accidental. This company isRussias only supplier of pipes for the interna-tional shelf-development Sakhalin 1 andSakhalin 2 Projects whose operators are Shelland ExxonMobil. In addition, Vyksa productsare good enough for US oil and gas companies:

OMK has annually been increasing the supplyof its pipes to the North American marker overthe past several years. Irina Lozhkina, ananalyst of Prospekt, is sure that the Project1420 is undoubtedly commercially successful.On completion of the project, Vyksa SteelWorks revenues may increas e to $1.2 billionfrom its current $950 million, she said.

To enhance profitability and increase thecompanys profit are the principal objectives of another projects implemented by OMK. A shorttime ago, United Metallurgical Company signeda contract with Danieli & C. OfficineMeccaniche SpA, Italy, for the delivery of equipment for a foundry and rolling facility tobe constructed in the Nizhni Novgorod Region.The new facility will supply rolled metal to thepipe production of Vyksa Steel Works andChusovoy Metallurgical Works. Its hot andflat-rolled steel coils will be used for the man-ufacture of pipes having diameters from 21 to530 mm. The annual capacity of the foundryand rolling facility is 1.2 million tonnes of steelcoils. This will allow OMK to reduce its depend-ence on rolled steel suppliers. The projectimplementation will take 30 months. TheDanieli & equipment will cost more than$250 million, and the total amount of invest-ments in the project is over $500 million. Theconstruction of OMKs own foundry and rollingfacility is an extremely forward-looking step,said Irina Lozhkina. Thanks to the new facility,OMK wont be dependent on high skelp pricesthat contribute a lot to reducing profits of pipemanufacturers. Therefore, lower pipe produc-

tion costs will enhance their profitability, whichwill considerably raise the companys profits.

Russia to Have Large Pipes

Vyksa Steel Works (VSW), part of OMK, is nearing completion of the Project 1420aiming to produce large-diameter pipes. VSW will become Russias first plant tomanufacture 1,420 mm single-seam longitudinal welded pipes that will be in full

compliance with Gazproms requirements for main gas pipelines. The company believes that major consumers of new products, in addit ion to Gazprom and Transneft, will include gas companies from CIS countries, first of all,Uzbekistan and Kazakhstan, as well as from non-CIS countries. Therefore, European and Ukrainian 1,420 mm pipe producers will have a serious Russian competitor.

05.04.2005.

United Metallurgical Company (OMK) is launching a new line for man-ufacturing large-diameter pipes.

The Media About Us

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Wheel-Rolling Business4


Vyksa Steel Works operates a quality manage-ment system certified to ISO 9001:2000. OMKis the leader in the production of solid-rolledrailroad wheels (its share in the Russian marketexceeds 60%). The wheel-rolling shop of VyksaSteel Works is the worlds largest wheel-rollingfacility. In 2005, the Company substantiallyincreased the sales of its wheels thanks to thecontract signed in 2004 with Russian Railwaysfor the supply of 4.8 million railroad wheelsuntil 2010 in the total amount of $1.2 billion. Inaddition to Russian Railways, traditional buyersof OMK wheels include the largest internationalcorporations, such as General Electric andSamsung.

Vyksa Steel Works pays special attention tothe manufacture of wheels because of greatresponsibility for rolling stock safety. Thewheel-rolling facilities of Vyksa Steel Works are

equipped with up-to-date productionmachinery, including two Wheelabrator,Canada, shot-blasting machines for the hard-ening of wheel disks, apply multiple-stage tech-nical control and various inspection tools,including eddy current, ultrasonic, and mag-netic-particle testing and hardness control forwheel rims. Upon request, wheel machininglines before and after heat treatment mayproduce wheels with any required tread areaprofile, surface cleanliness, dimensional accu-racy, and mechanical properties. The equipmentof the wheel-rolling facilities i s remarkable forits high level of automation and mechanization;Vyksa Works has developed and applies a tech-nology for the production of a wide range of solid-rolled wheels with different disk configu-rations (conic and curvilinear), including wheelsall of whose elements are machined.

Vyksa Steel Works carries out purposefu lwork to improve the specifications and qualityof railroad wheels. The new wheel productsinclude as follows:

Wheels with shot-blast hardeneddisks Wheel disk fatigue strength increased by atleast 30-40% Absence of fatigue cracks throughout theservice life Wheel fatigue failure prevention, higherwheel safety and reliability for loads of up to 30t/axle

Wheels with 320-360 HB rimhardness Carbon, 0.55-0.70 not less than 320-360 at a depth of 30

mm and not less than 300 at a depth of 50 mmfrom the tread surface Homogeneous, highly dispersed perliticstructure (without martensite or bainite) More than a four-fold reduction in con-tacting and fatigue damage of wheel rims

Service life extended at least by 1.5 times Reduced costs relating to the machining, pur-chase, and maintenance repair of the rollingstock

Wheels with curved disks At least a 1.8-fold reduction in radial stresses At least a 1.6-fold reduction in stress inten-sity Improved stress pattern evenness withoutsubstantial local stress concentrations Wheel flange and entire wheel rim forcedfrom the rail when circular mechanical loadingis applied Disk fatigue strength increased by at least 1.5times Axle loads increased from 23.25 to 30 t Wheel travel increased by more than 15% ascompared with traditional wheels with 320-360HB rim hardness Reduced repair and operation costs

In 2005, Vyksa Steel Works shipped 800thousand wheels, which is 50 thousand morethan in 2004.

The commissioning of German-madeLisinger sawing equipment in 2005 considerablyreduced the consumption index.

Source:OMKs estimate based on statistics of the StateCustoms Committee and the Ministry of RailwayTransport of the Russian Federation.

Wheel-Rolling Business Vyksa Steel Works produces more than 140 wheel types with diameters ranging from 710 to 1,098 mm Since 1973, Vyksa Steel Works has manufactured about 15 million railroad wheels The Vyksa Steel Works share in the Russian total output of railroad wheels exceeds 69% In 2005, wheels were exported to 11 countries Railroad wheels comply with the requirements of domestic and international standards: International Union of Railways (UIC) standard American Association of Railroads (AAR) standard Indian and Korean railroad standards

2004 2005755 806Railroad wheel output

(thsd pcs)

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16

Metallurgical Business5


Chusovoy Metallurgical Workshas a complete metallurgical cycle with blast-furnace, steel-smelting, ferroalloy, rolling, andspring production processes and manufactureshigh-quality metal products.

Cast iron Over the past s everal years, theblast-furnace smelting technology has been sig-nificantly improved. Chusovoy MetallurgicalWorks has mastered s everal grades of cast i ronhaving varied compositions for use in alloying of special purpose steels, as well as iron and steel cast-ings. Chusovoy Metallurgical Works specialistsdeveloped the fundamentals of a technology forsmelting of vanadium-containing and complex-

alloyed cast iron taking account of specific featuresof titanium and vanadium oxide recovery.

Vanadium cast iron, Spec. 14-2R-360-2002,Grade V, used for alloying of special grades of steels, as well as iron and steel castings Vanadium cast iron, complex-alloyed, Spec.14-2R-360-2002, Grade VHT, used for alloyingof special purpose iron and steel castings Refined cast iron (semiproduct car-bonized), Factory Standard 115-28-2003, usedfor alloying of special purpose iron and steelcastings Conversion vanadium pig iron, Spec. 14-2R-360-2002, used for alloying of special purposeiron and steel castings

Ferrovanadium An iron and vanadiumalloy made in electric furnaces by the silicoalu-

mothermal method of technical vanadium pen-toxide recovery, designed for alloying of steel

and cast iron. Chusovoy Metallurgical Worksmanufactures a wide range of ferrovanadiumproducts with varied content of vanadium andadmixtures, as well as nitrogen and silicon-containing alloys: Nitrated ferrovanadium designed forvanadium and nitrogen-alloying of quick-cutting, low-alloyed, stainless, and frost-resistant steels Vanadium pentoxide designed for pro-duction of titanium alloys, vanadium catalystsand other chemical agents

Under OMKs general investment programaimed at the development and commercial pro-duction of modern products and materials,

Chusovoy Metallurgical Works began the man-ufacture of Vanadium-80 in late 2005.

Automobile spring-foils The productionincludes: manufacture of blank spring sheets,heat treatment, sheet surface hardening, springassembly. Chusovoy Metallu rgical Works pro-duces all types of spring-foils delivered to CISmanufacturers of trucks, passenger cars, buses,

and trolleybuses. Chusovoy Metallurgical Workshas been recognized as an excellent supplierby Russian leading automobile plants.

Rolled steel All steel is processed in tworolling-mill shops. The rolling-mill shops areequipped with an 800 blank preparation mill, a550 medium-section mill, and 250 and 370small-section mills. Chusovoy MetallurgicalWorks produces over a hundred fifty types of steel sections mostly used as structural steel andfor automobile spring-foils.

Gubakha Cokehas a complete coke-chemical cycle, specializesin the processing of coal, and comprises the CoalPreparation Shop, Coke Shop, Coal TarProcessing Shop, and the By-product RecoveryShop. Gubakha Coke manufactures the fol-lowing products: Furnace coke of the fractions + 40 mm, 25-40 mm, and + 25 mm; nut coke of the fraction10-25 mm; and breeze coke of the fraction 0-10mm. Chemical coking products derived fromprocessed coal tar that is recovered from cokegas: pitch for electrodes, coke-chemical rawmaterials for technical carbon production,refined naphthalene, oils for different applica-tions (including sleeper impregnation oil); theconstruction of benzol production facilities isunder way.

Schelkovo Metallurgical Worksis Russias unique steel manufacturer usingstate-of-the-art engineering solutions developed

by leading Russian and Western Europeandesigners. Shchelkovo Metallurgical Worksmanufactures the following products:

High-accuracy cold-rolled steel bands withultralow carbon content and customer-specifiedmechanical and magnetic properties.Thicknesses range from 50 to 700 m. Themechanical and magnetic properties and thequality of metal surfaces meet the customersseverest requirements and are suitable for avariety of applications. In 2005, ShchelkovoMetallurgical Works produced 13.303 thousandtonnes of cold-rolled steel bands. This figureincludes 3.412 thousand tonnes of section steel(steel for inner magnetic shields and shadowmasks) and 9.891 thousand tonnes of general-purpose products.

The highly stable quality characteristics sat-isfying the worlds best production standards areinsured by: Skilled personnel Quality control starting from the metalsmelting process Integrated electronic system for productioncontrol Cutting-edge technology State-of-the-art equipment Highly automated production Solid relationships with partners

At present, Shchelkovo Metallurgical Worksis creating its quality management system inaccordance with ISO 9000.

Major consumers of OMKs metal productsinclude KamAZ, GAZ, Severstal, Evraz,Azovstal, UAZ, UralAZ, Siemens, Samsung,

Thompson, LG Philips Displays, and MicroPrecision Technologies B.V.

Metallurgical Business

The OMK Metallurgical Business comprises Chusovoy MetallurgicalWorks, Schelkovo Metallurgical Works, and Gubakha Coke.

Some of OMKs commodity items enjoy a considerable share in the Russian metal product market. In 2005, theMetallurgical Division produced over 2 thousand tonnes of vanadium, 63 thousand tonnes of automobile spring- foils, 411 thousand tonnes of rolled section steel, and 627 thousand tonnes of coke. In 2005, output of semiprod-ucts increased by 17.7%; reinforcing steel, by 7.5%; spring bands, by 10.0%; ferrovanadium, by 11.7%. Sales of automobile spring-foils increased by 7.0%. The reduction in output of certain rolled products is due to a change in

the sales structure toward the most profitable product types.

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Metallurgical Business5


2004 2005Semiproducts: Gross output 623,6 734,0

Sales of finished products 221,0 441,5Wheel steel ingots Output 14,5 6,362Reinforcing steel Gross output 147,7 158,9

Angle section steel, channel bars Gross output 101,1 87,3and beams, steel beams

Special shaped steel Gross output 41,3 22,7Spring bands: Gross output 134,6 142,0

Sales 67,6 74,3Vanadium contained in ferrovanadium Gross output 2,075 2,25

Automobile spring-foils Sales 62,4 66,7

Chusovoy Metallurgical Works Products Manufacturedand Shipped (thousands of tonnes)

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Product Quality.Technologies and Innovations6


In March 2005, QualityManagement Institute, Canada,conducted an annual audit of Vyksa Steel Works for compliancewith ISO 9001:2000. The audit results showed that the VyksaSteel Works Quality Management System (QMS) was effective.Certificate CERT-0011401-

802084 confirming that the VyksaSteel Works QMS is in accordancewith ISO 9001:2000 is valid until December 9, 2006.

Vyksa Steel WorksIn March 2005, Quality Management Institute,Canada, conducted an annual audit of VyksaSteel Works for compliance with ISO 9001:2000.The audit results showed that the Vyksa SteelWorks Quality Management System (QMS) waseffective. Certificate CERT-0011401-802084confirming that the Vyksa Steel Works QMS is inaccordance with ISO 9001:2000 is valid untilDecember 9, 2006.

In September 2005, an annual audit of therailroad wheel production confirmed its compli-ance with the M-107/208-2004 standard of theAmerican Association of Railroads (AAR).

In December 2005, the Vyksa Steel WorksQMS was audited for compliance with the AARM-1003 standard. The audit confirmed thatVyksa Steel Works complied with the AARrequirements (Certificate QA-VYK issued toVyksa Steel Works is valid until December 15,2006).

QMS audits for compliance with GOST R ISO9001-2001 conducted in January and October2005 confirmed that the Vyksa Steel Works QMScomplied with all of the requirements.

Within the scope of product certification inthe Transsert voluntary certification system, theVyksa Steel Works QMS was certified in April2005 for compliance with GOST R ISO 9001-2001. Following the audit, Vyksa Steel Workswas granted Level Two Certificates No. 356/2and No. 1043.356/2; the latter is valid until June30, 2006. These certificates allow Vyksa SteelWorks products to be supplied to Transneft.

With a view to defining whether the QualityManagement System and pipe productionconform to their requirements, Vyksa SteelWorks was audited by Sakhalin Energy (Januaryand August 2005), TNK-BP (February 2005),and Agip KCO (June 2005).

In October 2005, Vyksa Steel Works pipes were

certified as complying with the requirements of regulatory documents in the Ensertiko voluntarycertification system of the electricity industry(Certificates No. SP0214311005 and No.SP0215311005, valid until October 31, 2008).These certificates allow Vyksa Steel Works prod-ucts to be supplied to RAO UES of Russia.

Vyksa Steel Works made up a certificationschedule for railroad wheels according to Spec.TU 0943-170op-01124323-2004 Curvilinear-Disk Solid-Rolled Wheels with Enhanced RimHardness for New-Generation Railroad Cars;the certification is planned to be completed inMay 2006.

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Product Quality.Technologies and Innovations6


In 2005, within the scope of steel-smelting development, Vyksa Steel Works: replaced the existing steel-teeming ladleswith ladles of higher capacity, which increasedthe height of the freeboard necessary for effi-cient open-hearth steel degassing;

adopted the casting into molds with feederheads lined with heat-insulating inserts. Thisreduced the consumption index from 1.417 to1.402 for the production of wheels under Spec.TU 0943-157-01124328-2003; adopted the casting of metal with an argon-protected stream, which reduced gas content of finished wheels;

within the scope of wheel-rolling develop-ment, Vyksa Steel Works: installed sawing equipment consisting of twohigh-efficiency saws. This stabilized wheeldimensions owing to reduced variances in blankweights and decreased the consumption index; upgraded Tempering Furnaces No. 1 andNo. 3. This allowed wheel pairs

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