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Kobe Steel reports findings on air emission problems

June 22, 2006

As reported on May 22, 2006, Kobe Steel, Ltd. discovered at its Kakogawa Works and Kobe Works that air emissions had deviated from emission standards, data had been handled improperly, and boiler accidents had not been reported. Kobe Steel expresses its deep regret and sincerely apologizes for these incidents, which caused a loss of trust among the community, relevant agencies and other stakeholders.

Kobe Steel compiled a report on the results of an internal investigation and submitted it today to the Chubu Kinki Industrial Safety and Inspection Department in the Nuclear and Industrial Safety Agency, which is under the Ministry of Economic Trade and Industry (METI); to Hyogo Prefecture; and to Kakogawa and Kobe cities.

To determine the causes of the problems, Kobe Steel investigated its business processes as far back as it could, conducting interviews and surveys with approximately 350 individuals to collect pertinent information. In 25 meetings involving the entire task force members and small-group meetings, the contents of the findings were confirmed, and measures were planned and discussed. Following deliberation by the Compliance Committee and Kobe Steel's Board of Directors, the following conclusions were reached.

1. Fact finding

Although there were a variety of reasons for the problems, it was found that the inappropriate handling of environmental data had continued for many years due to the under awareness of some managers.

The company's top executives regret that upper management failed to grasp the situation, and as a result, the unlawful conditions were allowed to continue for many years. Despite environmental protection and compliance being top priorities at Kobe Steel, the Company focused on production and did not follow emission standards, a breach of its own compliance rules. Furthermore, Kobe Steel could not audit these incidents adequately and could not make the necessary corrections. Kobe Steel recognized that these conditions were not due to individual employees, but were the fault of its internal control system.

2. Measures concerning company organization and administration

2.1.

Throughout the company, Kobe Steel will thoroughly implement policies that place top priority on environmental protection and compliance. Kobe Steel will execute expanded education based on these priority areas relevant to its operations and business activities.

2.2.

Kobe Steel will increase the number of people in environmental administration in the head office. The executives responsible for environmental administration in Kobe Steel will have the authority to stop production at manufacturing facilities. The current staff of eight will be increased to 15. In addition, environmental auditing will be conducted under a system that includes Kobe Steel's Audit Department and outside consultants (e.g. auditing firms).

2.3.

Kobe Steel will set up the Environmental Control Committee to be headed by the President of the company. The committee will include the participation of outside experts. Reports on the environmental control situation will be made and third-party opinions will be obtained.

2.4.

To ensure the transparency of the environmental measurement data, a system will be implemented that will enable environmental administration in the head office to always have access to the measurement data. The environmental control data of Kakogawa and Kobe works will be made available to the government and local community.

2.5.

The environmental control departments at Kakogawa and Kobe works will have the authority to stop production at their respective facilities. Employees for the departments will be increased and environmental patrols will be implemented. A system will also be created to monitor environmental control data 24 hours a day.

At Kakogawa Works, the current Environmental Control & Plant Safety Section will be upgraded to the Environmental Control & Plant Safety Department. The current eight members will be increased to 23.

At Kobe Works, the current six members will be increased to eight.

3. Measures covering technology and facilities

3.1.

So that emissions do not deviate from the statutory limits, operational methods will be standardized and facilities will be upgraded and maintained.

3.2.

To improve and maintain the environment at Kakogawa and Kobe works, environmental work already under consideration in the Medium-Term Business Plan will be implemented ahead of schedule. At the same time, new capital investments will be made. A total of approximately 27 billion yen will be invested in planned and new investments.

Capital investments will include:

	Measures to reduce emissions
	*	Automatic combustion control at boilers
	*	Low NOx burners at boilers and annealing furnace
	*	Desulfurizer at Kakogawa's No. 6 boiler
	*	Upgrading of desulfurizer at sintering plant

	Measures to reduce dust
	*	Build dust-control fence at raw materials yard. Increase the number of dust collectors.
	*	Increase and upgrade environment measuring devices.
	*	Upgrade environmental control systems.

3.3.

To prevent further facility accidents at Kakogawa's in-house power plant, Kobe Steel will upgrade the condensers and boiler tubes. Existing boilers will be replaced successively with low-pollution models.

3.4.

Placing top priority on complying with emission standards, work standards will be revised (i.e. reducing production levels and in some cases ceasing operations), and education programs will be thoroughly implemented.

Disciplinary actions

Due to the emission problem, the Board of Directors on June 20 decided on the following disciplinary actions.

Title	Name	Disciplinary Action
Chairman	Koshi Mizukoshi	50% reduction in pay for 3 months beginning in July
President & CEO	Yasuo Inubushi	50% reduction in pay for 3 months beginning in July
Executive Vice President	Toshio Kimura   (Head of Iron & Steel Sector)	40% reduction in pay for 3 months beginning in July
Executive Officer	Tsuyoshi Tanaka   (General Manager, Kakogawa Works)	Demoted to Senior Officer effective June 20
Executive Officer	Masaaki Nakazono	Demoted to Senior Officer effective June 20
Officer	Takanori Kominami   (General Manager, Kobe Works)	30% reduction in pay for 3 months beginning in July

In addition, four managers who were involved will be reprimanded and transferred elsewhere.

As a member of society, Kobe Steel recognizes the gravity of its responsibilities. Kobe Steel is placing its full efforts into implementing measures to prevent further occurrences throughout the company.

Further details on the causes and measures to correct the deviation from the air emission standards and improper handling of data are outlined below. This information has been submitted to the Chubu Kinki Industrial Safety and Inspection Department in the Nuclear and Industrial Safety Agency, which is under the Ministry of Economic Trade and Industry (METI); to Hyogo Prefecture; and to Kakogawa and Kobe cities.

Kakogawa Works

	1. Air emissions exceeded the statutory limits stipulated under the Air Pollution Control Law.

1.1. The Facts
Data on the boilers for in-house power generation covering the past five years was examined. Records for steel production facilities covering the past three years were also inspected. The inspections on the boilers and steel production facilities represent a cumulative total of 1.3 million hours of operation.

As a result of the inspection, it was discovered that nitrogen oxide (NOx) and sulfur oxide (SOx) emissions had at times deviated from established emission standards. In cases where data was missing, it was feared that emissions had also deviated during the unaccounted periods.

Statutory limits have been stipulated for NOx and SOx emissions under the Air Pollution Control Law (i.e. emission standards for each equipment) and under the pollution control agreements set forth with Hyogo Prefecture and Kobe City (i.e. total emission volume per hour). With regard to the number of hours the emissions had deviated from the emission standards and the improper handling of records had occurred, the figures were recalculated. (In cases where records were unavailable, the amount of fuel supplied and past operation records were collated, and the highest assumptions were used in the calculations.) The findings concluded that emission figures on a total volume basis were found to be lower than the agreed-upon levels.

	Actual Emission	Agreed limits
Sulfur oxide (SOx)	525.1	< 612 =
Nitrogen oxide (NOx)	566.9	< 675 =

Table 1. Air emission data

(Unit: m³N/h)

Equipment	Hrs	Item	Limit	Max. value	Cause
No. 4 boiler	13	NOx	180ppm	--	To prevent black smoke, excessive air was used. No. 5 boiler has no NOx gas reduction equipment.
No. 5 boiler	22	NOx	100ppm	115ppm
No. 6 boiler	22	SOx	K value 1.75	K value 2.37	Fuel blockage due to use of wood chips. Insufficient supply of low-sulfur coal.
Blooming mill	96	NOx	170ppm	--	Low sealability
No. 1 pellet sintering furnace	2	SOx	K value 3.5	K value 4.62	Insufficient treatment of high-sulfur iron ore
Alloy sintering	5	NOx	260ppm	415ppm	Operating with excessive amount of oxygen
Annealing furnace	2	NOx	150ppm	176ppm
Total	162

Table 2. Operations exceeding statutory limits by equipment and speculated major causes (In the case where deviations were known or where deviations could be determined from estimations of the operating conditions)

Notes:

NOx concentration is equivalent to NOx value. In the maximum value category, no figures mean clear values could not be determine.

Equipment	Hrs	Item	Limit
Boilers 1 to 5	357	NOx	100 to 190 ppm
No. 6 boiler	626	SOx	K value 1.75
Total	983

Table 3. Equipment operating outside emission standards (In the case where data was unavailable, and emissions could have gone beyond limits)

The inappropriate handling of data is as follows:

1.	Record charts discontinued at times	993 hours
2.	Data omission at environmental control system when emissions were beyond the standards (lack of measurement values)	101 hours
3.	Handwritten alteration of data	209hours
4.	Automatic alteration of data at environmental control system	389 hours
5.	Handwritten chart records	237 hours
6.	Inappropriate use of sampling method for reanalysis during periodic measurements (batch analysis)	21 hours

The total hours of operation amounted to 1,950 hours.

In addition, it was found that record charts were not kept at times for the steel production facilities.

1.2. Findings of the internal Investigation

After conducting the internal investigation, the Company came to the following conclusions.

Boilers

In 1977, the No. 5 boiler went into operation. The discontinuance of the record charts took place some time during the first two to three yeas of operation, because in the initial years operational skill was not established and it was difficult to meet the emission levels set forth under the Electricity Utilities Industry Law. With the awareness of the staff, record-keeping was stopped for short periods of time. After the operational skills were fully established, the No. 5 boiler began operating well, and stable operations continued for a 10-year period.

In 1990, the No. 6 boiler went into operation and various types of coal were tested. The same practice of not keeping records, as occurred at the No. 5 boiler, went on for two years.

In addition, the No. 6 boiler started to use recycled fuel in 1999 and operators found it difficult to maintain emission levels within the standards set forth in the Electricity Utilities Industry Law. Until May 2005, when the use of wood chips, a type of recycled fuel, was terminated, the same practices as previously mentioned were continued.

The operating condition of the boilers, which supply energy to all manufacturing facilities in the steelworks, has a substantial influence on the manufacturing facilities. Stopping the boilers disrupts the byproduct-gas balance and affects costs at the steelworks.

The power plant operators were strongly aware that violating the Electricity Utilities Industry Law would invite scrutiny by the government. To avoid scrutiny, records were not kept for certain periods of time or were altered. While boiler operators understood the significance of compliance, they placed a higher priority on the continuous operation of the facilities. This was the fundamental cause of the problem.

In the investigation, although it was uncertain whether the staff gave clear instructions, the keeping of incomplete record charts and other practices went on for such a long time that the operators believed the staff naturally had the same understanding. Although a number of staff members did not know the frequency and other details of the incidents, they suspected misconduct had been going on.

Environmental Control System

In 1977, a system went into operation that corrected measurement devices and eliminated abnormal readings that resulted from system malfunctions. Shortly thereafter, emission standards were registered within the steelworks to prevent deviations from the statutory limits and a warning function was added for this purpose.

Deviating from the emission standards is rare in practice. When emissions go over the limits, Kobe Steel is required to inform Kakogawa City of the fact. At the same time, it must conduct an investigation on the cause and implement corrective measures. The internal investigation discovered that judging from the computer functions and capabilities at that time, it was impossible for computers to register emission levels outside the standards.

In 2001, the environmental telemeter system, which brings together environmental data in the steelworks, was upgraded. At that time, the systems staff incorporated a program that deleted abnormal readings, as well as deleted deviations of emission standards. This practice was passed down from predecessors.

In the process of transferring figures on "abnormal values" and "values over the standard," abnormal values were supposed to be deleted while values over the standard were to be retained for the purpose of internal warning. However, both ended up being deleted.

On the other hand, when the computer was upgraded, managers should have known. However, workers said it was not a new function, but an existing one. After this explanation, the matter was not pursued and was overlooked.

In upgrading the environmental telemeter system, the most important system of trust between the Company and the local area and government, the work was left to only one person. Management at that time had the chance to check on the work, but did not. This situation should have been recognized, but no corrections were made. This was an even bigger problem.

	2.Non-reporting of equipment accidents at in-house power plant and failure to undertake safety control review

Of the equipment accidents at the in-house power plant that occurred between 2001 and 2004, 12 incidents went unreported to the Chubu Kinki Industrial Safety and Inspection Department in the Nuclear and Industrial Safety Agency under the Ministry of Economic Trade and Industry. In the safety control reviews for the authorities, internal records in most cases falsely reported the incidents as "stoppage for power adjustment."

The internal investigation uncovered that work pertaining to the Electricity Utilities Industry Law was concentrated to the boiler and turbine technical managers. As a result, the incidents were left unreported to the authorities, and furthermore there was no awareness that accident reports were subject to submission. In other words, Kobe Steel, as an organization, did not properly understand the law and act accordingly.


From 2005 to 2006, Kobe Steel discovered five incidents in which periodic reviews were not carried out. These periodic reviews should have taken place after mandatory periodic inspections of the power generation equipment. In May 2005, Kakogawa Works' in-house power plant suffered from a major accident. In overcoming this accident, boiler and turbine technical managers missed the chance to apply for the inspection.

To counter this problem, Kobe Steel will decentralize tasks by changing the organization and transfer work to other departments. It will also implement multiple checking systems.

	3.Dust measures

Ever since Kakogawa Works went into operation, Kobe Steel has undertaken improvements in dust reduction. Unfortunately, the improvement in dust reduction in the surrounding area did not decrease complaints from people living in the vicinity of the Works. This was also pointed out by Hyogo Prefecture and Kakogawa City in their on-site inspections.

Dust reduction is regarded as a pressing issue. Kobe Steel will examine all aspects of the problem and implement strong measures to reduce the amount of dust.

(1)	In the coal and iron ore yards, a dust reduction fence will be constructed. (The fence will be 15 to 20 meters high and 4 to 5 kilometers in length.)
(2)	The recycle zone, where slag is held, will be enclosed by a confining wall 3 to 5 meters high and 3 kilometers in length.
(3)	The belt conveyor for raw materials handling and the holding area for ash will be hermetically enclosed.
(4)	Dust collection equipment and water-sprinkling equipment will be upgraded.

	4. Other Environmental Problems

(1) Water Quality
In the on-site inspection conducted by Hyogo Prefecture and Kakogawa City, it was pointed out that discrepancies were found in the handling of measurement data, including the variance in the automatically recorded data and analyzed data. To correct this problem, Kobe Steel will install new automatic measurement equipment, revise work standards to confirm measurement accuracy, and clarify abnormal data definition.

However, with regard to water quality control, no violation of the Water Pollution Prevention Law was found.

(2) Waste Material
In the on-site inspection conducted by Hyogo Prefecture and Kakogawa City, it was pointed out that Kobe Steel should improve the administration of the outsourcing of its industrial waste and the operation and maintenance of its waste incinerator within the steelworks. Kobe Steel will review the current outsourcing contract of its industrial waste, strengthen the management of its industrial waste, and improve the storage area for burnt residue.

Kobe Works

	1. Boiler emissions deviate from standards, Telemeter transmission discontinued

When the No. 2 boiler was restarted after it had been stopped for a period of time, it was found that the transmission of data had been discontinued at times. This practice should have been limited to the beginning of the start-up phase of the boiler, as boiler combustion was unstable. However, Kobe Steel speculates that this practice could have started in 1978 when the telemeter system began. The operators were under the mistaken understanding that "at any time during the start-up and periods of unstable operation, it was acceptable to terminate data transmission." The direct cause of the problem was that clear operational standards were not determined for the starting and stopping of telemeter transmissions. The fundamentals of the compliance system to prevent violations was deficient.

	2. Inappropriate logic applied at rolling mills

In the case when oxygen concentration is extremely high, the equivalent NOx value is calculated at abnormal levels, so not recording the values was considered appropriate. In addition to this logic, in the case when equivalent NOx values were outside the emission standards, measurement devices were set to disregard such readings. Consequently, those responsible for environmental control, who were looking only at the data sent from the rolling mills, believed the devices were being corrected.

Operation of the above-mentioned measurement devices began in 1992 at a number of plants. The investigation uncovered that over the next several years, all heating furnaces and soaking pits were equipped with such functions.

Such practices at that time could have started from discussions among environmental control staff, production workers and plant supervisors. The practices were passed on through the years. Since these acts did not occur at the same time, it is therefore believed that the practices did not originate from instruction by management.

The survey results indicated that the existence of this logic -- incorporated in the manipulation of the measurement devices -- was known to approximately 60% of the people working at the heating furnaces and soaking pits, including a number of managers.

	3. Measures

*	Shortcomings in operational standards for boilers were corrected immediately and the transmission timing of the telemeter system was clarified and made known.
*	The lack of compliance understanding will be remedied by continuous education.
*	Two additional employees will be added for environmental administration. On-site inspection and other measures will be strengthened.
*	Administration of the environmental measurement data transmission system to Kobe City will be strengthened.

Other Plants

On May 26, the Chubu Kinki Industrial Safety and Inspection Department in the Nuclear and Industry Safety Agency under the Ministry of Economic Trade and Industry instructed Kobe Steel to investigate and report on the legal compliance of all of its thermal power plants. Outside of Kakogawa Works and Kobe Works, Kobe Corporate Research Laboratories in Nishi-ku, Kobe City and the Daian Plant in Inabe City, Mie Prefecture were subject to investigation. The results of the internal investigation showed that these locations were not in violation of the law.

Kobe Steel deeply regrets causing these problems and is determined that such incidents do no happen again. Once again, the company will place its full efforts into winning the trust of its stakeholders as a company that places full priority on environmental management.

Kobe Steel asks for your continued support and understanding.