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Russian Supreme Arbitrazh Court Dismisses Apatit Appeal, Upholds Lower Court Rulings to Fix Apatite Concentrate Prices

On October 14, 2008 the Presidium of the Russian Supreme Arbitrazh Court put an end to the two-year legal battle between mineral fertilizer producer Acron and Apatit, the market-dominating producer of apatite concentrate, over apatite concentrate pricing. The Presidium dismissed Apatit’s request to review the price and upheld rulings made in Acron’s favor by the 9th Arbitrazh Court of Appeals on December 12, 2007 and Moscow District Federal Arbitrazh Court on February 21, 2008.
In 2006, the Moscow City Arbitrazh Court forced Apatit to enter into a direct five-year contract with Acron for apatite concentrate supplies at fixed price of RUB 1,600 per tonne. The contract conditions allowed the parties to negotiate on any changes to the price. Acron and Apatit signed the contract ordered by the court on December 28, 2006.
Immediately after the contract was signed, Apatit filed a motion to review the price, citing inflation and higher prices for apatite concentrate under contracts with other consumers. Apatit, which is a monopoly, did not ask the court to revise the fixed price. Instead, it proposed a vague pricing formula that would have allowed it to set prices at its own discretion. The lower court upheld Apatit’s claim, but neither the court of appeals nor the court of cassation found the monopoly’s arguments convincing. As a result, the fixed price was upheld.
The Russian Supreme Arbitrazh Court upheld the rulings by lower courts, which did not find any grounds to revise the pricing terms of the contract. The Presidium noted that apatite concentrate is currently supplied at the price recommended by the Russian Federal Antimonopoly Service and agreed upon between the parties of RUB 2,232 per tonne. The court also took into account Acron’s proposal to increase the price for next year to RUB 2,800 per tonne, which balances the interests of both parties.

Alexander Popov, chair of Acron’s Board of Directors, commented on the Supreme Court ruling: “The Russian Supreme Arbitrazh Court decision essentially creates a precedent for the entire mineral fertilizer industry. Fertilizer producers are tired of the monopoly’s unilateral actions over the past several years, and now they have the legal grounds and a good chance of forcing Apatit to enter into direct long-term supply contracts at reasonable prices. Our subsidiary, Dorogobuzh, is preparing to file suit based on this ruling. Chances are that court will award Dorogobuzh a similar type of arrangement.

This ruling by the Russian Supreme Arbitrazh Court is in line with the recent resolution of the Russian Federal Service for Financial Markets (FSFM) to shut down the apatite concentrate exchange. The FSFM resolution states that such trading is aimed at evading antimonopoly regulations and allows the monopoly to abuse market mechanisms and dictate inflated prices.

This ruling is also in line with the good faith discussions currently underway between the Russian Government and mineral fertilizer producers with a view to supporting domestic farmers by fixing prices for mineral fertilizers and the key raw materials for their production.