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Upgraded Brown Coal Demonstration Plant starts operations in Indonesia

December 3, 2008

JAKARTA, December 3, 2008 - Kobe Steel, Ltd. announces that the Upgraded Brown Coal Demonstration Plant in Indonesia will begin operations tomorrow. This project operates under the Japan Coal Energy Center and is supported by Japan's Ministry of Economy, Trade and Industry.

An opening ceremony on December 4 will mark the inauguration of the plant located in Satui, South Kalimantan. Attending the ceremony will be officials from Indonesia's Ministry of Energy and Mineral Resources and the Ambassador of Japan to Indonesia. Representatives from the Ministry of Economy, Trade and Industry, the Japan Coal Energy Center, and executives from Kobe Steel are also planning to participate.
Main Officials and Executives Attending the Ceremony
Prof. Dr. Purnomo Yusgiantoro Minister of Energy & Mineral Resources

H.E. Mr. Kojiro Shiojiri Ambassador of Japan to Indonesia
Ms. Sachiko Akahori Director for Coal Policy, Director-General's Secretariat Agency for Natural Resources and Energy,Ministry of Economy, Trade and Industry
Mr. Toru Namiki President, Japan Coal Energy Center

Kobe Steel, Ltd.
Yasuo Inubushi President & CEO
Takashi Matsutani Senior Managing Director
Seiji Okita Officer
About the Project
Although Indonesia is rich in brown coal, the high moisture content of the coal makes it difficult to utilize this natural resource. The aim of the demonstration project is to upgrade the brown coal into high-rank coal that can be used for power generation.

"The Upgraded Brown Coal Process can effectively utilize brown coal, an unused natural resource in Indonesia," said Yasuo Inubushi, President & CEO of Kobe Steel. "At the same time, it will be an effective way to moderate the world supply and demand of raw materials and energy."

The UBC® demonstration plant project is being undertaken by the Japan Coal Energy Center (JCOAL), in which Kobe Steel is a member, and is supported by Japan's Ministry of Economy, Trade and Industry. Total investment is expected to reach 8 billion yen (US$72 million), of which METI will provide half of the funding.

To carry out this project, Kobe Steel formed partner agreements with natural resource investment company PT Bumi Resources Tbk and its coal subsidiary, PT Arutmin Indonesia. It then constructed the demonstration plant at Arutmin's Satui mine in South Kalimantan, Indonesia.

Load operations, in which brown coal is introduced for trial operation, has commenced at the 600-ton-per-day facility. Demonstrative operation will continue for the next year and a half to the end of fiscal 2009 (March 2010). Bulk samples of upgraded brown coal (UBC) will be supplied for trial use mainly to a number of power companies in Japan as well as Indonesia. Following successful demonstration, Kobe Steel will begin commercial marketing of the UBC Process from fiscal 2010, which begins in April 2010.

"Upgraded Brown Coal offers coal-producing countries a way to add value," said Inubushi. "For coal-using countries, UBC will help meet their energy requirements. For suppliers and users alike, Upgraded Brown Coal holds the promise of enriching their economies and building their industries," he said.
World Coal Situation
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 has more reserves than oil and gas and is found throughout the world. A stable source of energy, coal is expected to continue playing an important role in the future.
About Brown Coal
The variety of coal used mainly by Japan and many other countries is high-rank bituminous coal. Conversely, a typical low-rank coal is brown coal. Low-rank coal, comprises about half of the world's coal reserves. In Indonesia, roughly 85% of its reserves consist of low-rank coal. Brown coal has a high moisture content and low heat value. It is also prone to spontaneous combustion, which makes shipping and storage a problem. As a result, brown coal is hardly used. On the other hand, Indonesian brown coal is noted for its low ash and sulfur content. When used, it is environment friendly.

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 uses dewatering technology developed during those years to reduce the amount of the water in the brown coal. Using the same principle that makes tempura crispy, this innovative process uses light oil to efficiently remove the water in the brown coal. Kobe Steel began development of the UBC Process in 1993. From 2001, covering four years, Kobe Steel operated a small pilot plant 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. The process is able to control spontaneous combustion and has the potential to become a clean, outstanding source of energy. Both Indonesia and Japan have high expectations for the early commercialization of the UBC Process.
About Kobe Steel
Kobe Steel, Ltd. is one of Japan's leading steelmakers and producers of aluminum and copper products. It also offers plant engineering services. Other businesses include welding consumables, industrial machinery, construction equipment, and electronic materials. More information is available at: www.kobelco.com