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The Cabinet Considering Differentiation of Gas Pricing For N-Fertilizer Producers

The Cabinet Considering Differentiation of Gas Pricing For N-Fertilizer Producers

28 November 2008

According to a press release from Azot Severodonetsk, the Cabinet is considering differentiating gas prices for companies using natural gas as their main production input. The authorities and representatives of six domestic producers of nitrogen fertilizer have agreed to form a working group, which is to develop a mechanism for price differentiation. So far, the parties have agreed to peg the price of gas to prices for ammonia, urea and ammonia nitrate on global markets. The preliminary agreement also presumes that the companies will be divided into three groups, depending on their transportation costs. The following companies participated in the meeting: Stirol (STIR: SELL), Dniproazot (DNAZ: SELL), Azot Cherkasy (AZOT: Susp), the Odessa Portside Plant, Azot Severodonetsk, Rivneazot. Vladimir Nesterenko: In our report from Oct. 2006, we accounted for the possibility of government support by attaching a 20% probability to our ‘optimistic’ scenario, under which nitrogen fertilizer producers pay for gas slightly less than other industries. However, despite the positive news, we do not expect government support to be substantial enough to save the companies’ valuations. Should the state decide to help, the effect is likely to be both immaterial and non-sustainable. Sell-outs/mergers with gas-rich businesses could prop up their valuations much more radically.

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