NPK production will reach full capacity by September 9 after interruption on August 12.
Production was interrupted when CJSC FosAgro AG failed to deliver apatite concentrate according to schedule. The company accused Acron of being in breach of contract by not filing a purchase order on time.
Acron officially reported that it submitted a purchase order to FosAgro on July 9, 2007 for delivery of 40,000 tonnes of apatite concentrate in August. The order was made under the terms of the companies’ five-year contract. Acron was able to produce documents confirming that FosAgro received the order, indicating that the supplier simply acted in bad faith and lost (or discarded) Acron’s order.
FosAgro disseminated misleading information to the effect that Acron only became concerned about the situation in early August. In fact, Acron became aware of the monopoly supplier’s intention to cut off supplies as early as July 19, after which company management immediately took measures to avoid a crisis. Acron held talks with FosAgro executives, in addition to preparing and filing a complaint with the Federal Antimonopoly Service (FAS) regarding illicit actions by the monopoly. Unfortunately, these actions did not dissuade FosAgro, which discontinued deliveries because it expected to go unpunished. As a consequence, on August 12, 2007 Acron had to stop production of complex mineral fertilizers.
FosAgro’s efforts to blame Acron for its contractual failures were unconvincing. At its August 30 meeting, the FAS committee reviewed the supplier’s actions and its compliance with antimonopoly law, after which the committee resolved to organize a technical investigation to discover whether or not FosAgro received Acron’s order by fax. Furthermore, notwithstanding FosAgro’s objections, the FAS committee granted Acron’s request to call as the main witness Pavel Shvarkov, the FosAgro employee who received Acron’s faxed order for apatite concentrate and discussed the order with an Acron representative.
FosAgro management expressed alarm when Shvarkov was called as a witness. Perjury is a serious criminal offence, which means that Shvarkov risks criminal prosecution if he shields his managers. Now that the FAS has legally obtained a range of tools for bringing the monopoly producer to justice, consumers can expect to see their interests protected.
FosAgro resumed deliveries only recently, shipping the first lot on September 2 and the next on September 5. As a result, Acron must wait until September 5-8 to get its feedstock.
Resuming production after a lengthy interruption is a complicated process that takes time. Acron’s first output is expected on September 6-7. The forced downtime resulted in substantial losses for the company. Acron’s management has taken all available steps to mitigate adverse effects, and the company still expects to see record year-end performance in terms of output and profit.
However, the Company remains concerned about the losses inflicted on the farmers and glass manufacturers who are its clients. Acron is also concerned about the effect of the crisis on its shareholders.
FosAgro’s actions leave Acron no alternative but to seek redress in court.