Ammonia Producer Shuts Plants After Gas Price Hike

Russia's largest producer of ammonia, TogliattiAzot, said Tuesday that it had shut down six of its 11 production facilities after Mezhregiongaz, a Gazprom subsidiary that provides the company with natural gas, raised gas prices this year.
The Federal Tariff Service raised gas prices from Jan. 1, and Mezhregiongaz followed suit by increasing the prices that it charges to TogliattiAzot to the maximum allowed level, company spokesman Igor Bashunov said.
The Federal Tariff Service sets the price for gas suppliers contracted to provide limited supplies, and suppliers who offer unlimited supplies are allowed to sell gas from that price and higher.
Mezhregiongaz provides limited gas supplies to TogliattiAzot, while its subsidiary Samararegiongaz makes up the rest of the company's needs with a contract for unlimited supplies.
Bashunov complained that Mezhregiongaz was overcharging for unlimited supplies.
"Mezhregiongaz has a price range for unlimited gas that is higher than the price set by the Federal Tariff Service. Prices for unlimited gas supplies set by Mezhregiongaz for us are reaching the upper limit of this range, although they could have set a lower price," Bashunov told The Moscow Times.
The price that TogliattiAzot pays per 1,000 cubic meters of limited gas supplies has been raised from 2,037 rubles to 2,835 rubles ($69 to $96), he said. The price for unlimited supplies has grown from 2,843 rubles to 3,403 rubles ($96 to $114).
"It wasn't a one-time increase. The prices have been raised gradually since early 2009," Bashunov said. "Our company will be unprofitable if we buy gas at these prices."
The company posted a net profit of 8.58 billion rubles on revenue of 29.97 billion rubles in 2008.
TogliattiAzot consumes 360 million cubic meters of natural gas, which is the main raw material for the ammonia, carbamide and methanol that the company produces, per month. Of the total consumption, 220 cubic meters is limited gas and 140 cubic meters is unlimited gas.
TogliattiAzot signed an agreement on gas supplies with Mezhregiongaz in October 2007.
Mezhregiongaz said Tuesday that it and its subsidiary had fulfilled their obligation on gas supplies to the company in full and accused TogliattiAzot of delays in gas payments in 2009 and illegal gas extraction.
"Starting from the second quarter of 2009, TogliattiAzot stopped fulfilling its contract obligations, allowing it to go into debt for months," Mezhregiongaz said in an e-mailed statement.
"In addition TogliattiAzot systematically violated the gas consumption agreement and allowed unsanctioned gas extraction," it said.
TogliattiAzot is currently in talks with Gazprom about the issue, Bashunov said.
"We're holding talks with Gazprom on a price that would be acceptable for both us and them," he said.
In case the sides don't come to an agreement, TogliattiAzot will have to cut expenses and consider possible cutbacks, he said, declining to specify how many workers might be fired.
The company may cut as much as half of its 4,500-member workforce, Bloomberg reported.
Bashunov declined to comment on these figures. "We're trying to keep our labor force," he said.