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Kobe Steel to start Indonesian trial project to upgrade brown coal into high-rank coal

Project to be carried out under the Japan Coal Energy Center

July 5, 2006

TOKYO, July 5, 2006 - Kobe Steel, Ltd. announces that it will start a large-scale demonstration project in Indonesia to upgrade brown coal into high-rank coal, which can be used for power generation. Although Indonesia has an abundance of brown coal, the high moisture content makes utilization of this natural resource difficult.

In starting the project, Kobe Steel signed cooperation agreements with natural resources investment company PT. Bumi Resources Tbk and its subsidiary, PT. Arutmin Indonesia, to construct and operate a demonstration plant at Arutmin's Satui mine in southern Kalimantan, Indonesia. Total investments in the demonstration project are forecast to reach about 8 billion yen (approximately US$70 million).

Plans call for the construction of the 600-ton-per-day demonstration plant to start in late 2006. From second-quarter 2008, trial production of Upgraded Brown Coal (or UBC) will begin. Bulk samples of UBC will be supplied for trial use to a number of power companies, including Japanese power companies. The trial operation is to continue for two years, to first-quarter 2010. Following the demonstration phase, a commercial plant is anticipated to be built in 2010.

The UBC demonstration plant project has the support of Japan's Ministry of Economy Trade and Industry through the Japan Coal Energy Center, in which Kobe Steel is a member. With its long experience in the steel industry and know-how in the power generation business, Kobe Steel will contribute its technological expertise in energy utilization and environmental technologies to the UBC demonstration project.

Coal meets one-fourth of the world's energy demand. It is the second-most important resource after oil. Over 20% of the electricity for everyday use in Japan is made by coal-fired power generation. Japan is dependent on overseas energy supplies. Coal is more abundant than oil and gas in terms of volume, and reserves are spread throughout the world. A stable source of energy, coal is expected to play an important role in the future.

The variety of coal used by many countries, including Japan, is high-rank bituminous coal. Conversely, a representative low-rank coal is brown coal. Low-rank coal, comprising about half of the world's coal reserves, has a high moisture content and low heat value. It is also prone to spontaneous combustion. These factors make it difficult to utilize. On the other hand, Indonesian brown coal is noted for its low sulfur and ash content, as well as for its large reserves. Roughly 85% of the coal reserves in Indonesia consist of low-rank coal.

Kobe Steel has been involved in coal utilization research for many years. Starting in 1980, Kobe Steel participated in a national project to develop brown coal liquefaction, a coal-to-oil technology. The UBC Process currently under development uses dewatering technology to reduce the moisture in the brown coal. This innovative five-step process uses light oil to efficiently remove the water in the brown coal.

Upgraded Brown Coal Process

1. Low-rank coal is pulverized.
2. The pulverized coal is mixed with recycled oil (normally petroleum light oil) and heavy oil to make slurry.
3. The slurry is then heated in an evaporator and the moisture is evaporated.
4. The oil is recovered from the dewatered slurry using a decanter. At this stage, the upgraded coal is still in a powdery state.
5. The upgraded coal is briquetted for easy transportation.

Kobe Steel began development of the UBC Process in 1993, applying slurry dewatering technology used in coal liquefaction to upgrade low-rank coal. Using a 100-kg-per-day bench-scale unit built at Kakogawa Works, Kobe Steel began working on the practical application of the process in the mid-1990s. In 2001, Japan and Indonesia adopted the UBC Process as a national project. In the years to 2004, a 3-ton-per-day pilot plant was constructed and operated in Indonesia.

The new, scaled-up demonstration plant provides the next major step to realizing a commercial UBC plant. The UBC Process raises the heat value of brown coal 1.5 times, to the same level as high-rank bituminous coal and has only one-third the ash. At the same time, it solves the problem of shipping and storage limitations, making possible the utilization of upgraded coal as a substitute for high-rank coal. UBC has the potential of becoming a clean, outstanding source of energy. Both Indonesia and Japan have high expectations for the early commercialization of the UBC Process.

Background Information

Japan Coal Energy Center (JCOAL)
The Japan Coal Energy Center is a non-profit organization under Japan's Ministry of Ministry of Economy Trade and Industry. Its activities cover all aspects of coal, from coal mining to coal utilization. JCOAL promotes increasing the world coal supply and environment friendly coal utilization to reduce the global environment burden. To contribute to the stable supply of energy and sound growth of the industrial economy, JCOAL undertakes coal research, business support, human resources development, coal surveys and coal research. More information is available at: www.jcoal.or.jp/index-en.html

PT. Bumi Resources Tbk
PT Bumi Resources Tbk is involved in coal mining and oil exploration. Based in Jakarta, Indonesia, Bumi was established in 1973. In 2005, the company produced a total of 36 million metric tons of coal. More information is available at: www.bumiresources.com

Besides Arutmin Indonesia, Bumi Resources conducts coal-mining operations through PT. Kaltim Prima Coal. In 2005, Kaltim Prima Coal produced 21.4 million metric tons of coal.

PT. Arutmin Indonesia
PT. Arutmin Indonesia is Indonesia's fourth largest coal company, producing 14.6 million metric tons in 2005. Arutmin Indonesia is based in Kalimantan, Indonesia. More information is available at: More information is available at: www.arutmin.com

Kobe Steel, Ltd.
Kobe Steel, Ltd. is one of Japan's leading steelmakers and producers of aluminum and copper products. Other businesses include welding consumables, industrial machinery, engineering, construction equipment, and electronic materials. More information is available at: www.kobelco.co.jp