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Kobe Steel uncovers irregularities in compliance

Air emissions exceed limits, data handled improperly, and boiler equipment accidents go unreported

May 22, 2006

Message from President & CEO Yasuo Inubushi:

I would like to report our findings on compliance irregularities with regard to air emissions exceeding the statutory limits, the improper handling of data, and the non-reporting of boiler accidents at two steelworks.

First, I wish to express my sincere regret over what happened and offer my deepest apology for betraying the trust of many people including community residents, the authorities and other stakeholders.

Kobe Steel will make company-wide, concerted efforts to restore the public's trust by thoroughly investigating the cause and taking steps so that similar incidents do no happen again.

The following are the details of the findings:

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Kobe Steel, Ltd. uncovered in an internal investigation the following irregularities at Kakogawa Works:

* At the in-house power generation plant, nitrogen oxide (NOx) and sulfur oxide (SOx) emissions had exceeded the statutory limits set for equipment stipulated under the Air Pollution Control Law. *Environmental continuous measurement data had been handled improperly. * Boiler equipment accidents had not been reported.

It was also found in the investigation that Kobe Works had similar problems of exceeding emission limits and the improper handling of data.

These incidents, which violate Japan's Air Pollution Control Law, Electricity Utilities Industry Law and other regulations, have led to a loss of trust between Kobe Steel and the community, relevant agencies and other stakeholders. Kobe Steel expresses its deep regret and apologizes for these incidents.

Kobe Steel will place its full effort into finding the causes and preventing further occurrences.


The incidents that have been identified are as follows:

Kakogawa Works

1.Emissions exceeded the limits et forth in the Air Pollution Control Law.
1.1.Boilers for in-house power generation
NOx:  11 hours,    SOx:  22 hours
(Note: Measurement records of seven boilers covered the past five years and a cumulative 590,000 hours. Although full records were not kept, it is possible that SOx emissions could have exceeded the emission limit by 590 hours.)

1.2.Steel production facilities
NOx:  96 hours (blooming mill)
SOx:  1 hour (pellet plant)
(Note: Measurement records covered the past three years and a cumulative 220,000 hours.)

2. Improper handling of environmental continuous measurement data
Data exceeding the emission limits of the Air Pollution Control Law and other regulations had not been fully recorded or had been altered.

3. Number of times the in-house power generation plant did not undergo safety inspections by an outside authority after internal inspection: 5

4. Twelve incidents of equipment accidents at the in-house power generation plant were not reported to the outside authority. Internal records on those incidents were not recorded as equipment accidents, but were attributed to other reasons.

Kobe Works

1.Emissions exceeded the limits set forth in the Air Pollution Control Law.
1.1.Boilers for in-house power generation
NOx:  2 hours
(Note: Measurement records of four boilers covered the past five years and a cumulative total of 270,000 hours.)

1.2.Steel production equipment
NOx:  20 hours (At soaking pits and heating furnaces: total of 3)
(Note: Measurement records for the soaking pits and heating furnaces covered the past three years and a cumulative total of 110,000 hours.)

2. Improper handling of environmental continuous measurement data
Data exceeding the emission limits of the Air Pollution Control Law and other regulations had not been fully recorded.

Timeline of Events to Date

1. Since April 2004, Kakogawa Works had frequent equipment accidents. In March 2006, the Kinki Branch of the Chubu Kinki Industrial Safety and Inspection Department in the Nuclear and Industrial Safety Agency, which is under the Ministry of Economy, Trade and Industry (METI), conducted an on-site inspection on safety management. In April, the Department issued a written warning to Kobe Steel.

2. After receiving the warning, Kobe Steel conducted its own internal inspection on safety management. At the same time, Kobe Steel reviewed compliance with the law and the abovementioned incidents were uncovered.

3. After verifying the incidents, Kobe Steel reported them to the Kinki Branch of the Chubu Kinki Industrial Safety and Inspection Department, Hyogo Prefecture, Kobe City, and Kakogawa City.

4. On May 15 and 16, the Kinki Branch of the Chubu Kinki Industrial Safety and Inspection Department made an on-site inspection of Kakogawa Works. In the near future, the Department will make a similar inspection of Kobe Works.

5. Today, May 22, Hyogo Prefecture and Kakogawa City made an on-site inspection of Kakogawa Works, while Kobe City made an on-site inspection of Kobe Works.

6. Today, May 22, Hyogo Prefecture instructed Kobe Steel to submit a "Report on the Air Pollution Control Law and Agreement on Pollution Prevention." Kobe City instructed Kobe Steel to submit a "Report on Smoke and Soot Measurement Data from Smoke and Soot-emitting Facilities."

At present, at the steelworks Kobe Steel is implementing corrective measures including lowering warning-alert levels, reviewing operational standards, stopping equipment before environmental standards are breached, and strengthening internal education on compliance. At the same time, Kobe Steel has organized a task force headed by President Yasuo Inubushi and intends to place its full effort into conducting a thorough investigation and implement drastic measures to regain the trust of its stakeholders.

Kobe Steel extends its heartfelt apologies for the trouble and concern it has caused.

Omission of Periodic Safety Inspection at In-house Power Generation Plant, Kakogawa Works

Equipment	Statutory In-house Inspection Ended	Validity Period of Inspection Ended
No. 4 boiler (in-house power generation)	Jan. 13, 2006	Feb. 12, 2006
No. 4 turbine (in-house power generation)	Jan. 13, 2006	Feb. 12, 2006
No. 5 boiler (in-house power generation)	Feb. 23, 2006	Mar. 22, 2006
No. 1 blast furnace top gas turbine	Mar. 31, 2005	Apr. 30, 2005
No. 2 blast furnace top gas turbine	Apr. 18, 2005	May 17, 2005

Non-reporting of equipment accidents at In-house Power Generation Plant, Kakogawa Works

Equipment	No. of unreported incidents
No. 3 boiler (in-house power generation	1
No. 4 boiler (in-house power generation	3
No. 6 boiler (in-house power generation	8
Total	12

Period: Since April 2001