Sunoco 2008 Annual Report Download - page 21

Where available, any additional production is sold either to ArcelorMittal or to other steel producers. Indiana
Harbor also supplies the hot exhaust gas produced at the plant to a contiguous cogeneration plant operated by an
independent power producer for use in the generation of steam and electricity. In exchange, the independent
power producer reduces the sulfur and particulate content of that hot exhaust gas to acceptable emission levels.
SunCoke Energy is also supplying ArcelorMittal with approximately 700 thousand tons per year of coke
from the Jewell operation. Under the applicable coke supply agreement, the term of that agreement is concurrent
with the term of the Haverhill agreement with ArcelorMittal. Accordingly, coke is being supplied on a
take-or-pay basis through October 2012, and thereafter will be supplied based upon ArcelorMittal’s requirements
in excess of its existing coke production (subject to the Indiana Harbor coke supply agreement).
Coke production at Jewell through 2007 was sold at fixed prices that escalated semiannually. Beginning in
2008, the price of coke produced at Jewell is an amount equal to the sum of (i) the cost of delivered coal to the
Haverhill facility multiplied by an adjustment factor, (ii) actual transportation costs, (iii) an operating cost
component indexed for inflation, and (iv) a fixed-price component. Coke selling prices for Indiana Harbor and
Haverhill production reflect the pass through of coal costs and transportation costs. Such prices also include an
operating cost and fixed-price component.
SunCoke Energy is supplying approximately 550 thousand tons per year of coke from its Haverhill plant to
ArcelorMittal through September 2020. Under the applicable coke supply agreement, coke is being supplied to
ArcelorMittal on a take-or-pay basis through September 2012, and thereafter based upon requirements in excess
of ArcelorMittal’s existing coke production and its other off-take obligations with respect to SunCoke Energy’s
Jewell plant and subject to the Indiana Harbor coke supply agreement.
In February 2007, SunCoke Energy entered into an agreement with two affiliates of OAO Severstal under
which a local affiliate of SunCoke Energy would build, own and operate an expansion of the Haverhill plant (that
would double its cokemaking capacity to 1.1 million tons of coke per year) and a cogeneration power plant.
Limited operations from this cokemaking facility commenced in July 2008 with full operations expected in the
second quarter of 2009. Total capital outlays for the project are estimated at $265 million, of which $254 million
has been spent through December 31, 2008. In connection with this agreement, two affiliates of OAO Severstal
agreed to purchase on a take-or-pay basis, over a 15-year period, 550 thousand tons per year of coke from the
cokemaking facility.
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 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 project company during 2007 by becoming the sole subscriber of preferred
shares for a total equity interest of $41 million. Under a series of agreements with the local project company, in
which ArcelorMittal Brasil is the major shareholder (“AMB”), AMB will purchase all of the coke and steam
produced at the cokemaking facility under a long-term tolling arrangement and SunCoke Energy will 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 2009, assuming certain minimum production levels are achieved at the facility
that are caused by SunCoke Energy. 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.
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