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Joint Statement of ACRON Group and OJSC UCC URALCHEM

ACRON Group and OJSC United Chemical Company URALCHEM have expressed a lack of confidence in Russian Fertilisers Producers Association (RFPA) president Dmitry Strezhnev.

On November 7, 2008, RFPA members adopted a resolution that is inconsistent with the law to vote on pricing principles for apatite concentrate and potassium chloride, the raw materials used to produce mineral fertilisers. Strezhnev was entrusted with setting out the basic pricing principles and putting the principles to a vote in order to apply them later. The mechanism of defining the cost of raw materials proposed by Strezhnev would set prices at the minimum export price, despite the fact that this figure is easily manipulated by monopoly suppliers. On this key issue of pricing mechanisms, Strezhnev – who is also director general of JSC EuroChem – is apparently taking the side of monopoly raw material suppliers to the detriment of other companies in the fertiliser industry. In this regard, the companies insist that Strezhnev resign from his post as RFPA president as soon as practicable.

Both ACRON Group and URALCHEM believe that the resolution to vote on pricing mechanisms for apatite concentrate and potassium chloride, the raw materials used to produce mineral fertilisers, violates the Federal Law “On Protection of Competition,” which prohibits companies from entering into agreements or coordinating their actions in the commodity market if such agreements or coordinated actions result in or have the potential to result in price fixing or support. The law also expressly prohibits non-commercial organisations like the RFPA from coordinating companies’ business activities if such coordination results in or has the potential to result in the above-mentioned consequences. A simple vote cannot resolve an issue of such importance. Of the RFPA members participating in the vote, six companies are either producers of mineral raw materials or have their own raw material base. Three more of the voting companies do not use potash and/or phosphorous raw materials and therefore have no financial interest in settling the issue. Only three companies – ACRON Group, OJSC United Chemical Company URALCHEM and JSC Minudobreniya (Rossosh) – are independent consumers of apatite concentrate and potassium chloride. ACRON Group and URALCHEM are the country’s largest producers of nitrogen and compound mineral fertilisers. Together these companies’ operations process up to 80% of mineral supplies delivered by monopolies to independent consumers. Thus, at the moment of voting, independent fertiliser producers essentially find themselves fully dependant on supply monopolies.

The raw materials for mineral fertiliser production have historically been supplied by monopoly companies that are able to abuse their dominance and destabilise supplies. The issue of how these monopolies set their prices should be decided at the government level in accordance with the Russian Federal Law “On Protection of Competition” in order to ensure that the provisions of the law are complied with and the interests of the State and all raw material consumers receive due consideration.

At a time when producers are trying to cut prices to the minimum, monopoly suppliers continue to increase prices, demonstrating once again their extraordinary position of power. Independent mineral fertiliser producers cannot counteract the self-interest of these monopolies without the government’s help. .

Dmitry Strezhnev’s actions would seem to be aimed at forcing independent fertiliser producers out of the RFPA and undermining the Association.

Despite the abuses of monopoly suppliers, ACRON Group and URALCHEM confirm that the current situation will in no way affect their mineral fertiliser supplies to Russian farmers under the agreement executed on October 17, 2008 between the RFPA and the Russian Agro-Industrial Association.

ACRON Group and URALCHEM ask the Russian Federation government to restore order and take measures to free the fertiliser market from manipulation by monopolies.

ACRON Group:
JSC Acron President Ivan Antonov
JSC Dorogobuzh Senior Vice President Vladimir Kunitsky

United Chemical Company URALCHEM:
URALCHEM, MC LCC  Chief Executive Officer Dmitry Osipov
Аzot, OJSC Director of the Branch of URALCHEM, MC LCC (Berezniki) Mikhail Markin
Kirovo-Chepetsk Chemical Works, OJSC Managing Director – Director of the Branch of URALCHEM, MC LLC (Kirovo-Chepetsk) Sergey Drinevskiy
Voskresensk Mineral Fertilizers, OJSC Chief Executive Officer Murad Chaparov