HYR.L Regulatory News (HYR)

 11 July 2011

Hydrodec Group plc

("Hydrodec")

First operating joint venture in Japan signed

Hydrodec, the cleantech industrial oil re-refining group, and Kobelco Eco-Solutions, the Kobe Steel Group environmental company, are pleased to announce that they have formally executed a shareholders' agreement to establish Pacific Eco Refining Co., Ltd ("Pacific Eco Refining"), the first joint operating entity to use the Hydrodec technology in Japan.

This agreement follows the establishment of a strategic alliance between Hydrodec and Kobelco in March 2010 to exploit the Hydrodec technology, including re-refining polychlorinated biphenyl (PCB) contaminated transformer oil, in Japan and other major Asian territories. Since then, the two partners have been working closely on plans for the construction and operation of the first re-refining plant in Japan, where Hydrodec's technology has received approval from the Japanese Ministry of Environment for the treatment of PCB-contaminated waste oil.

The signing of the agreement enables the parties to begin joint operations through Pacific Eco Refining including the plant construction phase, the conclusion of commercial negotiations with suppliers and customers, and the securing of debt finance within Japan.

While commercial negotiations with suppliers and customers are underway, specific details, including the location of the plant, remain subject to commercial confidentiality. Good progress continues to be made towards the start-up of this first plant in the second half of 2012, as indicated previously.

Pacific Eco Refining will re-refine contaminated transformer oil to produce high grade transformer oil and also supply clean transformer oil for decontaminating electricity industry transformers before their disposal. The technology behind Pacific Eco Refining remains unique and patented and is exclusively operated in Asia through the 50:50 Kobelco Eco - Hydrodec technology company, Hydrotek-Eco Japan Co., Ltd.

Kobelco and Hydrodec plan jointly to establish PCB-contaminated transformer oil refining operations in several locations in Japan. The business will also be expanded to other Asian markets where there are also large volumes of PCB-contaminated oil requiring treatment in accordance with the Stockholm Convention on Persistent Organic Pollutants.

Hydrodec previously announced that, based on industry data, the estimated potential processing demand for treatment of low level PCB-contaminated transformer oil in Japan alone is in excess of 1 billion litres, or US$1 billion in potential revenues. Independent market research commissioned jointly by Hydrodec and Kobelco has confirmed the scale of the potential Japan market, transformer oil selling prices and the costs of the alternative disposal by incineration which, when combined, produce an outlook at least as good or possibly better than this previous estimate.

In Japan, PCB-contaminated transformer oil and PCB-contaminated hardware (transformers, condensers, etc) are a major challenge in the quest to destroy all PCB. Applying the Hydrodec technology to this challenge saves precious crude oil reserves by refining and not destroying electrical oils. The technology is more efficient and less wasteful than incineration, it decreases Japanese dependence on imported crude oil, it creates large savings in CO2 emissions and does not have any by-product emissions or create other problem wastes.

The combination of the Hydrodec technology with a proprietary method for using recirculated refined transformer oil to clean the PCB-contaminated transformers and hardware, in an associated business to be operated and run by Kobelco, is also a highly effective and environmentally beneficial solution to the challenge of removing PCB from equipment in the electricity system which is required in Japan before its disposal.

Mark McNamara, Chief Executive of Hydrodec, said: "Considerable progress has already been made by Hydrodec and Kobelco since we established the strategic alliance. With the signing of the first operating agreement, we now have the foundations on which to roll out and operate our first plant in Japan. Kobelco have been outstanding partners and we look forward to continue our work with them to deliver a proven, environmentally friendly and safe solution for the treatment of toxic industrial waste oil."

A spokesperson for Kobelco said: "Our alliance with Hydrodec has made excellent progress and we believe the potential for this technology across Asia is considerable. Japan is leading the world in addressing the global problem of PCB-contaminated transformer oil and together with our partner we will ensure that Japan and other countries will for the first time have an economically-viable process that not only benefits the economy but also our environment."

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Notes to Editors:

The refining technology was originally developed and commercialised in Australia then in the United Sates by Hydrodec. Kobelco and Hydrodec jointly applied for technical approval with the Japanese government. The technical committee of the Japan Waste Management Foundation on behalf of the Japanese Environment Ministry granted process approval in December 2009. The first plant site was identified in March 2010 and environmental baseline testing necessary for final environmental approvals were successfully completed on this site in April this year.

Kobelco Eco-Solutions is the Kobe Steel Group environmental company. Hydrodec Group plc is a public company incorporated in England and trading on the AIM market of the London Stock Exchange.