Prime Minister Vladimir Putin yesterday clinched the argument between Kazanorgsintez (KOS) and Gazprom, which agreed the terms of ethane supplies to the Kazan plant.
"We have managed to resolve a dispute that has dragged on for years," Putin boasted as he opened a meeting on gas and petrochemicals in Nizhnekamsk. "The prices, deadlines and amounts of supplies of raw materials have been sealed with the signatures of the parties."
He did not disclose the details, but instructed his deputy, Igor Sechin, together with the Anti-Monopoly Service to see that the deal was followed through and that the companies signed the contract. The differences between KOS and Sibur (an agent of Gazprom) were over the quantities and price of raw materials, the prime minister's press spokesman Dmitry Peskov explained.
The main supplier of raw materials to KOS is GazpromdobychaOrenburg, which sells half of the ethane and processes the other half under contract. Now KOS must sign a contract to buy ethane for at least five years: this was the condition on which Sberbank agreed to lend the company the 35 billion roubles guaranteed by the state. KOS needs the money urgently as it has to pay 27.9 billion roubles in debts to the banks before the year is out. It is already in arrears on 20% of its payments, the company's report for the third quarter states. KOS may have to redeem $200 million worth in Eurobonds if the holders ask for repayment.
Gazprom does not mind signing a long-term contract, but the parties were unable to agree on a price. On the government's instructions, the Federal Antimonopoly Service (FAS) came up with an ethane price formula linked to the cost of polyethylene (KOS's final product ). The recommended price was 6,319 roubles per metric ton, says Teimuraz Kharitonashvili of the FAS: the price was acceptable to KOS but not to Gazprom. The final price the parties have signed up to is not known.
It took half of yesterday to develop a formula for KOS and Gazprom, a participant in the meeting told Vedomosti. The representatives of the parties had no comment on the agreements.
Other suppliers and consumers of raw materials that have been advised to sign long-term contracts include Salavatnefteorgsintez (SNOS) and Bashkhim, says the draft protocol of the meeting (it has been obtained by Vedomosti, with its content confirmed by at least two participants.) This is a reasonable policy which will make it possible to plan investment, says SNOS General Director Danir Shavaleyev (the plant buys raw materials from Gazprom under long-term contracts.)
Raw material supply is one of the industry's main headaches, says VTB Capital analyst Yelena Sakhnova: many companies have depended on each other since the Soviet times. In 2004, the Angara Polymer Plant suspended supply of ethylene to Sayanskkhimplast when the companies could not agree on prices, and in 2007, Gazprom cut supplies of ethane to KOS, accusing the company of violating the terms of the processing contract. However, long-term contracts are not always good, Sakhnova warns: a year and a half ago Putin recommended them to coal men and steel men, but these contracts do not work at present. Access to infrastructure is another problem, the prime minister said: "All the enterprises concerned must have non-discriminatory access to them [product pipelines]." The FAS has until April 2010 to prepare the documents that would disallow the owners of pipelines to abuse their position, the draft protocol says. For example, Sterlitamak-based Caustic accused Nizhnekamskneftekhim of inflating the tariff for pumping ethylene through the Salavat-Kazan pipeline and unsuccessfully sued it for 70 million roubles. Regulation of the owners of infrastructure would work off some of the tensions from the relations between the companies, but the important thing is to strike a balance, Sakhnova notes.
Alexandra Terentyeva; Maxim Tovkailo