Ukrnafta agrees to rent Dniproazot ammonia plant

Ukrnafta (UX: UNAF UK) reached an agreement to rent an ammonia plant from Dniproazot (both companies are affiliated with Privat Group), Interfax reported Tuesday, citing Dniproazot’s chairman. In February 2011, the Antimonopoly Committee of Ukraine allowed Ukrnafta to rent all of Dniproazot’s physical property. In 2010, Dniproazot produced 455.1 ths mt of ammonia, about 11% of Ukraine’s total production. Antonina Davydenko: The lease makes economic sense for both Dniproazot, approx. 80% of whose costs are gas, and for Ukrnafta, which can sell its gas to the fertilizer producer at prices above the government price cap. However, the effect of the lease on Ukrnafta’s performance depends on the details of the deal since potential synergies can be destroyed through transfer pricing.