Aug. 14 (Bloomberg) -- OAO Mechel, attacked by Vladimir Putin for inflating Russian coking-coal prices, was ordered to cut tariffs for domestic steelmakers ``considerably'' after an antitrust probe found the company violated competition law.

The company faces a fine at the ``lower end'' of a 1-to-15 percent range of the previous year's coking-coal sales, Igor Artemyev, head of the Federal Antimonopoly Service, told reporters in Moscow today. Company revenue from the market was $869 million last year, according to Marat Gabitov, an analyst at UniCredit SpA. The FAS will set the penalty early next week.

Mechel lost half its value in New York trading in the week after Prime Minister Putin said July 24 that the company avoided taxes and sold coal to a Swiss unit at a quarter of the price charged domestically. The investigation, five years after the state's assault on OAO Yukos Oil Co., helped undermine investor confidence in Russian stocks this quarter.

Mechel discriminated against Russian consumers, ``unreasonably refused contracts'' and maintained a monopoly in the coal market, the FAS said. Putin had said the company's actions contributed to a coal shortage and higher steel prices in Russia. The watchdog is also probing competing coal producer OAO Raspadskaya and steelmaker Evraz Group SA over the price of the steelmaking raw material.

Mechel's domestic clients were charged less than export customers in only two of the past six months, according to Anatoly Golomolzin, deputy chief of the antitrust body.

Long-Term Accords

The company, controlled by billionaire Igor Zyuzin, may have to pay the equivalent of 7 to 8 percent of domestic coal revenue and may agree to lower prices in Russia by 30 percent, Kommersant reported earlier today, citing unidentified people familiar with the results of yesterday's hearing. Mechel spokesman Ilya Zhitomirsky declined to comment.

FAS will order Mechel to switch to long-term contracts starting in 2009 and require it to agree on prices and sales volumes with steelmakers in the next three months, Golomolzin said. Once Mechel lowers coking-coal prices, the FAS will demand steelmakers cut their prices as well, Artemyev said.

Coking-coal prices almost doubled in the first quarter and averaged $145 a ton after rising 52 percent to $90 a ton in 2007, according to a Mechel presentation on its Web site.

Output of the material will climb to 18 million metric tons from 10.4 million tons last year, Zyuzin said May 29.

Worst Case

Mechel's American depositary receipts rallied 13 percent in New York yesterday on expectations that the company wouldn't receive the maximum fine and that the political campaign would end. Each depositary receipt represents one ordinary share.

``Investors discounted a worst-case scenario,'' Alfa Bank chief strategist Ronald Smith said in a note today.

The ADRs rose 47 cents, or 1.8 percent to $27.39 at 4:15 p.m. New York time today, valuing the company at $11.4 billion.

Investors from Firebird Management LLC to Wermuth Asset Management are avoiding Russian shares following the country's invasion of Georgia and on concern that the government is interfering in business.

Russia's RTS stock index has fallen 22 percent since June 30, the worst performance of the world's 20 biggest equity markets, according to data compiled by Bloomberg.

While the rebuke of Mechel was the biggest since Putin led a campaign against Yukos, Zyuzin's company is unlikely to share the same fate as the now-bankrupt oil producer, according to Troika Dialog.

``We believe that the attack on Mechel will have neither the scale nor the significance of the attack on Yukos,'' strategists Kingsmill Bond and Andrey Kuznetsov wrote in a note to investors Aug. 7.

Yukos was broken up and sold by the state after it was hit with more than $30 billion in tax claims.

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net.

Last Updated: August 14, 2008 17:02 EDT