UPDATE 1-Mechel receives govt support for coal project

* Govt calls for tax breaks at Elga coal deposit in Far East

* Putin also asks banks to buy 10 bln roubles of bonds

(Adds company confirmation, details, background)

By Polina Devitt

MOSCOW, Sept 3 (Reuters) - Heavily indebted Russian steel and coking coal giant Mechel (MTL.N) was given a boost on Thursday from potential tax breaks and a government order calling for state banks to consider purchasing its bonds.

Prime Minister Vladimir Putin last month instructed Sberbank (SBER03.MM), VTB (VTBR.MM), Gazprombank and VEB, as well as three government ministries, to look into buying 10 billion roubles ($313 million) of Mechel bonds.

The order was printed in the minutes of a meeting chaired by Putin last month in the diamond-mining city of Mirny, located in the Yakutia region. Reuters obtained the documents on Thursday. "We welcome this show of support from our government," a Mechel official, speaking on condition of anonymity, said.

"In the context of the global crisis, this is really quite significant assistance for the development of the (Elga) deposit in Yakutia, as well as the accompanying rail and port infrastructure, which is a very complex project," he said.

The document called upon the Finance, Energy and Economy Ministries to look into providing tax breaks for the project.

Mechel acquired the Elga coal deposit via a government auction in 2007. It has about 2.2 billion tonnes of coking coal, meaning that it could become Russia's largest coal project.

However, before the project can be launched, Mechel must invest heavily in the mine, as well as the port and rail infrastructure required to export its output.

Mechel, already one of the most indebted Russian steel companies, said in August it would issue 10 billion roubles worth of bonds before the end of 2009 and another 30 billion roubles in 2011. [ID:nLL297891]

A railway link to the mine is scheduled to open next September, while the planned port facility at Vanino on the Pacific is not scheduled to start operating until 2012.

Mechel, majority owned by billionaire Igor Zyuzin, had debts totalling $5.8 billion as of March 31. [ID:nLA583218]

In July last year, the company lost half its market value in three trading days after Putin twice attacked its pricing policy and sparked fears of a Kremlin-backed drive to punish the firm. [ID:nL8570708] (Additional reporting by Maria Kiselyova, writing by Alfred Kueppers; editing by Elaine Hardcastle)