Electricity Markets A Consumer perspective

1. Electricity MarketsA Consumer perspective Liechtenstein Palace conference, Prag September 2008

2. Contents • Global Electricity outlook • Overview of Europe situation • ArcelorMittal & electricity • Conclusion Liechtenstein conference

3. Clear Shift towards much hardest times of Energy scarcity The age of abundance is over : Competition for energy sources becomes fierce. No more “easy” sources :Low hanging fruits are gone, we have to deal with huge investments to keep up with ever-growing demand and to cope with years of underinvestment. Diversificationof energy sources is becoming pivotal, both to guarantee energy security and to mitigate costs. Need for consolidation to create entities with the necessary resources and clout to cope with the projects and investments needed. Cheap & abundant energy times are gone With developing countries emergence and older economies renewal needs Energy complex is heading towards the « long road » scenario Leading to long term uncertainty Economy Policies Energy prices Supply /Demand Environment & Energy policies $ ? ? More disruption in supplies. Political conflicts increase and under-investment remains Delayed shifts until weather-related and geo-political events take place. Stringent regulations emerge to control investment and energy choices Prices fluctuate abnormally. Supply shocks cause price spikes andLT uncertainty Unsustainable shift towards developing nations. Liechtenstein conference Sources: IEA, GBN

4. On worldwide scale, a booming demand… • Electricity demand rises in every region, following population and economic growth • Demand in developing countries grows twice as fast as in developed ones • In the long term, the developed world is no longer the driver of power demand. Emerging economies take the lead and take part in key decisions such as technology choices Exxon, 2007 Liechtenstein conference Sources: Exxon, IEA, Alstom

5. … Which means big challenges ahead for supply : new capacity to be installed by 2030 > existing one • 2010-2020 period will define the shape of the power industry for the decades ahead • Especially in developing regions, where the sector is expanding • In industrialized regions, enormous replacement needs for retiring plants • Enormous investments will be needed • More capacities will be constructed in the 2005-2030 period than exist today, about 5 000 GW • According to the graphs on the right, about 80% of the capacities reaching 40years are being replaced. The rest accounts for long-life assets (hydro, nuclear) ~1500 GW Liechtenstein conference Sources: Alstom, Exxon, IEA

6. Nuclear: A revival ahead? • Interest in nuclear power is rising around the world • Based on favorable economic and low CO2 impact • Fuel resource is abundant when compared to fossil fuels and accounts for a modest part of total cost (<10%) • Safety issues are a major concern. • Come back of Nuclear Energy in the last years 50% of planned, not realized, 25% of actual, retired +42% • NPPs are being built in many countries around the world • During the last 20 years, expansion has been concentrated in Southeast Asia (China, Taiwan, Japan, Korea, India) • In recent years preparations have been under way for extensive new construction also in the West • In many more countries, the discussion on nuclear is initiated: South Africa, North Africa, Middle East, Italy… (9% nuclear) (11.5% nuclear) • Outlook: The IEA forecasts between 14% and 42% of nuclear capacity increase by 2030 • More than 200 GW of NPPs could be built around the world in the study horizon • The number of decommissioned reactors is difficult to quantify, due to the possibility of reconstruction • Some countries have a stated policy for nuclear phase-out (Germany, Belgium…). However, worries about security of energy supply lead to re-opening of the discussion on extension of nuclear use (UK) Liechtenstein conference Sources: IEA, Vattenfall, CitiGroup

7. Contents • Global Electricity outlook • Overview of Europe situation • ArcelorMittal & electricity • Conclusion Liechtenstein conference

8. European electricity market openingResulted in rapidly increasing prices… • Upward convergence of overall wholesale electricity prices in Europe • Disconnection between prices and economical fundamentals of electricity production • Sudden increase in the margins of historical producers Historical operators argue having lost all their economic freedom. Indeed, to avoid a cost based discussion, only the so-called “market price” is taken as a reference, bringing them advantages. Evolution of year ahead base load price (€/MWh) +190% Cost of development announced by EDF for its NPP Average long term price of the French park including investment needs = “Green Tariff” Liechtenstein conference

9. Additional margin from market liberalization €/MWh €/MWh 75 Different tariff levels 20 TWh T Wh 339 305 218 339 305 218 924 924 796 796 Hydraulic Gas* Fuel Hydraulic Gas* Fuel Nuclear Nuclear Coal • Ebitda Capacity 2001 indicative figures for EU 15 (*): Gas used as main switching fuel • Cash cost … due to market design change at the sole benefit of utilities Windfall profit has been further increased with EU-ETS « Market reference » alignment 12 • Short term Market based system: • Electro intensive industries do no longer get access to segmented cost-based prices • Power companies tend to limit their investments, therefore increasing market volatility • Increasing remuneration for interruptibility • LT cost based system: • Electro intensive industries benefit from cost + long term prices • Tendency to over-investment ( “public service” constraints imposed to utilities + balanced tariffs) Liechtenstein conference

10. Pool system « Power exchange » model « Single  buyer » model System depending on the States, no unique system Market organizations are more industryfriendly out of Europe United Kingdom: Failure of the pool > set up of pseudo bilateral systems with centralization and adjustment. Energy price: 50 to 80 €/MWh Canada: Each province chooses its market organization. Single buyer system in Quebec and British Colombia. CO2: No market, ratified the Kyoto protocol Scandinavia: Pool Energy price: 30 to 50 €/MWh Long term contracts + direct investments for industrials. Gradual disconnection between pool prices and fundamentals. New-Zealand: Pool is obligatory Energy price + transport: 45 €/MWh Maintain of long term contracts for industrials. CO2: no market, ratified the Kyoto Protocol Continental Europe: Energy price: 65 to 75 €/MWh CO2 = EU-ETS USA: Each state chooses its market organization 18 are completely open to competition 33 did not deregulate or interrupted the process (ex: California) CO2: local markets, did not ratify the Kyoto protocol South Africa: Failure of wholesale market > set up of a single-buyer system Energy price: 15 to 20 €/MWh Regulated tariffs will be maintained Australia: Pool is obligatory. Energy price: 20 to 40 €/MWh Maintain of regulated tariffs in some states. Lack of investments. Liechtenstein conference

11. Contents • Global Electricity outlook • Overview of Europe situation • ArcelorMittal & electricity • Conclusion Liechtenstein conference

12. Electricity: with 64 TWh/yr(*), AM consumption exceeds the production of 5 nuclear reactors 33.9 Total Consumption 64.1 TWh 13.4 4,5 0.8 6.3 5.2 With more than 50% of group consumption in Europe Electricity is key to our competitiveness unit: TWh (*) 2006 figures Liechtenstein conference

13. ArcelorMittal specificities… • Attractiveness for power plant projects • On-site off gases project are big enough (up to 300 MW) • Excess land on « brown field » is very attractive • Long term industrial visibility • Blast Furnaces relining and re-investments, gives a 2025 - 2030 visibility • New Major steel projects in many countries • New blast furnaces in existing plants will require additional power capacities • Associated power plants to be built in real Greenfield projects (India, Africa) • Ability & willingness to invest whenever necessary & attractive • Securing LT volume & cost Liechtenstein conference

14. ArcelorMittal main integrated sites with off gases based assets or projects Sid Gas Plants LT Contract – LT Nuclear power plant – NPP Thermal power plant – TPP Bremen EKO Gent Katowice Dunkirk Liege Ostrava Kriviy Rih 2009-2028 (Exeltium) Galati Fos (Cernavoda) 100 MW, 2013 Aviles Gijon On top of Off-gases power plants, AM developped thermal assets or participates to either VPP (exeltium) or real asset (Cernavoda) consortiums Temirtau (Kazakhstan) Liechtenstein conference

15. …Lead to specific opportunities • Synergies with on-site off gases power projects • Meet both ArcelorMittal needs and new capacities search for Utilities • New projects co-invested with new entrants looking for brown field • Joint administrative lobbying • Greenfield projects brings synergies for AM and Utilities • From power plant fuel sourcing (mining…) to power production • Long term partnerships developed with utilities • All potential opportunities assessed • Appropriate means decided on a case by case basis (VPP, JV, real asset offtake contracts…) Liechtenstein conference

16. Contents • Global Electricity outlook • Overview of Europe situation • ArcelorMittal & electricity • Conclusion Liechtenstein conference

17. Conclusion • Global electricity market is heading towards higher & volatile prices scenario due to high growth in emerging markets & replacement needs in OECD =>Utilities must face huge investments both in « home » country and in respective new markets • AM strategy is to reach long term self sufficiency to back its industrial activity (Cost + based on long term) • However, European market opening, is endangering industrial competitiveness • On the short term, via price increases de-correlated from economic fundamentals • On the long term, by lack of new asset investments & impossibility to sign long term contracts • Clear Synergy for long term perspective between AM & utilities • AM capability to invest or commit on the long term; • Attractiveness of off-gases based projects; • Brownfield lands availability. Liechtenstein conference