Vedomosti: "Putin’s price formula"
Vedomosti daily has learned the terms for ethane supplies to chemical company Kazanorgsintez (KOS) agreed upon with Gazprom following Prime Minister Vladimir Putin's intervention.
The years-old dispute between KOS and Gazprom is settled, Putin said on November 17. At a meeting in Nizhnekamsk, he handed a document to his deputy Igor Sechin with the terms of supplies and the sides' signatures. The document also contains the ethane price formula, according to two participants in the meeting. The raw material price will be tied to the price of polyethylene (produced by KOS.) With polyethylene price at 30,000 roubles (which is an average quarterly price,) a metric ton of ethane will cost 6,750 roubles (exclusive of VAT and delivery costs,) Vedomosti sources say. The agreement covers a period of five years, as set forth in the document. However, the volumes of supplies differ: Gazprom intends to supply 270,000 metric tons of ethane a year, while KOS hopes to receive 390,000 metric tons, the sources say.
A spokesman for Sibur, Gazprom's agent, confirmed that agreements had been reached but declined to disclose their substance before the documents are signed. A representative of TAIF Group, KOS's main owner, refused to comment.
KOS used to annually receive up to 315,000 metric tons of ethane from Gazprom Dobycha Orenburg. The plant bought half of the necessary raw material and processed the other half under a tolling arrangement. TAIF said that the plant incurred losses from processing operations (2.96 billion roubles to IFRS in 2008.) Now KOS is obliged to give up the toll scheme in order to get a 35 billion rouble loan from Sberbank (the loan is needed to refinance the company's debt of 29 billion roubles.)
The sources say that the partners negotiated the ethane price for several months but failed to come to terms. The Federal Antimonopoly Service, which calculated the raw material price at 6,319 roubles per metric ton, has not helped either: KOS wanted to pay no more than 6,500 roubles per ton, while Gazprom expected to receive 8,500-10,000 roubles. The new price is a compromise, one source says.
Under the new terms, the profitability of polyethylene manufacturing operations at KOS is about 20%, says Marina Alexeyenkova, an analyst at Renaissance Capital. The plant's EBITDA may reach $120 million this year, and even this will hardly be enough to pay interest on debts. However, polyethylene prices are bound to rise, Alexeyenkova forecasts.
Alexandra Terentyeva
