Sunoco 2009 Annual Report Download - page 21

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The flue gas produced at Haverhill during the cokemaking process is used to generate low-cost steam that is
sold to the adjacent chemical manufacturing complex owned and operated by Sunoco’s Chemicals business and
electricity for sale to AK Steel and into the regional power market. The cogeneration plant, which includes a 67
megawatt turbine, will provide, on average, 46 megawatts of power.
During 2007, SunCoke Energy commenced operations on behalf of the local project company at a
1.7 million tons-per-year cokemaking facility and associated cogeneration power plant located in Vitória, Brazil.
It also increased its investment in the Vitória coke plant during 2007 by becoming the sole subscriber of
preferred shares in the project company for a total equity interest of $41 million. Originally, under a series of
agreements with the local project company, in which ArcelorMittal Brasil is the major shareholder (“AMB”),
AMB agreed to purchase all of the coke and steam produced at the cokemaking facility under a long-term tolling
arrangement and SunCoke Energy agreed to operate the cokemaking facility for a term of not less than 15 years
and receive fees for operating the plant as well as for the licensing of SunCoke Energy’s proprietary technology.
SunCoke Energy is also entitled to a $9 million annual dividend for 15 years beginning in 2008, assuming certain
minimum production levels are achieved at the Vitória coke plant. In addition, AMB and SunCoke Energy have a
call and put option, respectively, on SunCoke Energy’s investment in the project company, which can be
exercised in 2024. The option price is $41 million, plus any unpaid dividends and related interest. In the fourth
quarter of 2009, the commercial and investment structure was modified to allow the local project company to
lease the coke facility to AMB rather than enter into a long-term tolling agreement for coke. As part of this
restructuring, the long-term operating and maintenance agreement with SunCoke Energy was assigned and
restated with AMB and AMB has guaranteed the dividend payable by the local project company to SunCoke
Energy.
In February 2008, SunCoke Energy entered into a coke purchase agreement and related energy sales
agreement with US Steel under which SunCoke Energy would build, own and operate a 650 thousand
tons-per-year cokemaking facility adjacent to US Steel’s steelmaking facility in Granite City, IL. Operations
from this cokemaking facility commenced in the fourth quarter of 2009. Capital outlays for the project totaled
$320 million. Under the agreement, US Steel has agreed to purchase on a take-or-pay basis, over a 15-year
period, all coke production as well as the steam generated from the heat recovery cokemaking process at this
facility. The coke price under the coke agreement with US Steel reflects the pass through of coal and
transportation costs as well as an operating cost and fixed cost component.
In March 2008, SunCoke Energy entered into a coke purchase agreement and related energy sales
agreement with AK Steel under which SunCoke Energy will build, own and operate a cokemaking facility and
associated cogeneration power plant adjacent to AK Steel’s Middletown, OH steelmaking facility subject to
resolution of all contingencies, including necessary permits. In February 2010, the Ohio EPA issued a final air
permit which is subject to a 30-day appeal period. These facilities are expected to cost in aggregate
approximately $380 million and be completed in the second half of 2011. The plant is expected to produce
approximately 550 thousand tons of coke per year and, on average, 46 megawatts of power. In connection with
this agreement, AK Steel has agreed to purchase, over a 20-year period, all of the coke and available electrical
power from these facilities. Expenditures through December 31, 2009 totaled $76 million. In the event
contingencies (including permit issues) to constructing the project cannot be resolved, AK Steel is obligated to
reimburse substantially all of this amount to Sunoco.
SunCoke Energy is currently discussing other opportunities for developing new heat recovery cokemaking
facilities with domestic and international steel companies. Such cokemaking facilities could be either wholly
owned or developed through other business structures. As applicable, the steel company customers would be
expected to purchase coke production under long-term contracts. The facilities would also generate steam, which
would typically be sold to the steel customer, or electrical power, which could be sold to the steel customer or
into the local power market. SunCoke Energy’s ability to enter into additional arrangements is dependent upon
market conditions in the steel industry.
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