Employee relations may adversely affect Group’s operations

In the hard coal sector, trade unions have an important role in shaping the salary policy, often using protests to renegotiate the salary policy.

The strong position of trade unions gives rise to a situation in which there exists a risk of increasing salaries under the negotiated salary agreements, which consequently may adversely affect the financial performance of the Group. The Group’s failure to maintain proper employee relations may exert a material and adverse impact on the Group’s operational outlook, results and financial position.

As at the date of this report, there were 38 Trade Union Organizations operating in the Parent Company. The total number of trade union members, as employees may belong to several unions, exceeds the number of employees employed with JSW S.A. and as at 31 December 2012 is 27 068, which means that the trade union membership percentage ratio at JSW S.A. is 119.4%.

The Parent Company aims at negotiating with the trade units a Company Collective Bargaining Agreement for JSW S.A. employees and the Labor Rules and Regulations. During the negotiations on the Collective Bargaining Agreement and consultations about the Labor Rules and Regulations, the trade unions did not accept the proposals included in the draft Collective Bargaining Agreement and draft Labor Rules and Regulations presented by the Management Board of JSW S.A. The Parent Company intends to continue the negotiations of the Collective Bargaining Agreement for JSW S.A. employees and the Labor Rules and Regulations.

The Parent Company is considering the implementation of flexible work time to facilitate the achievement of the mines’ production targets by extending the work week to six days depending on the needs of the particular mines. This requires acceptance of the trade unions and the hiring of additional employees. During negotiations the trade unions did not consent to the solution proposed by the Management Board of JSW S.A. whereby mines would operate to pursue their production targets six days a week – while employees would have a five day work week.