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Precious Ethane. Vladimir Putin Sorted Out The Controversy Between "Kazanorgsintez" and "Sibur"

  Yesterday Federal media published one more piece of news on the petrochemical discussion in Nizhnekamsk held by the Prime Minister of the Russian Federation Vladimir Putin on November 17. The intervention by the head of the Government resolved the issue of the dispute between “Kazanorgsintez” and the agent of “Gazprom” –“Sibur” company in regards to the conditions of the supply of ethane to the Tatarstan enterprise.
Looking back, “Gazprom” and “Kazanorgsintez” have not been able to come to any agreement on the supply of ethane for a long time. In 2007 “Sibur” suspended delivery of ethane to “Kazanorgsintez” for three months blaming the Tatarstan company for nonperformance of the obligations on ethane processing under the processing agreement (toll manufacturing). In July 2008 Director General of “Kazanorgsintez” Mr. Leonid Alekhin reported about the expected deficit of 200 thousand tons of ethane which prevented the enterprise from increasing the planned production output of ethylene from 430 thousand to 640 thousand tons per year.
Every time negotiations ended with some kind of compromise; meanwhile, however, the situation remained unsolved. Furthermore, things came to a new pass in connection with the demand of the Federal Antimonopoly Service (FAS) to exclude toll manufacturing scheme from the contract on raw material supply. As early as in 2007 the head of the organization Igor Artemiev imposed an obligation on “Gazprom” – the main supplier of the raw material for “Kazanorgsintez” – to shift to the supply mechanism on the basis of a buy and sell agreement providing an economically justified price. FAS stated that this would have allowed to make raw material pricing more predictable and transparent. However the decision of FAS was revoked by court.
The Government got back to this issue in July 2009, when “Kazanorgsintez” found itself on the verge of bankruptcy having 2,8 bln. of losses in 2008 and facing problems in paying off the bonds. Senior Vice-Premier of Russia Igor Shuvalov who visited the company five years ago promised state guarantees to the amount of 15 bln. rubles, however he noted that the enterprise’s raw material supply system isn’t transparent. "And, after investigating the situation, will issue certain guidelines or a decision on how to enter into a long-term contract with determination of the price of the commodity supplied", he added having assigned FAS to issue recommendations.
However FAS’s guidelines virtually coincided with the conclusions that FAS came to two year ago – i.e. to quit processing schemes, that was reported to Shuvalov. “We are still convinced that the enterprise must shift to supply based only on the basis of sell and buy agreements with removal of the toll scheme of ethane supply. Current two-component scheme of ethane supply to “Kazanorgsintez” by “Gazprom” structures is not justified from economic point of view as it involves a cross profit earning from two existing trade flows”, Igor Artemiev said at that time. Once again he announced his position to journalists at the International Conference on Competition under the auspices of BRIC in Kazan in September.
Meanwhile, at the time being Tatarstan enterprise still continues receiving half a supply on toll manufacturing basis. The sticking point was the price formula which could not be agreed due to controversy between the parties.
"Vedomosti" cited Vladimir Putin speaking at the petrochemical meeting the day before yesterday: “We have managed to clinch a longstanding argument… the parties put their signatures under the prices, terms and volumes of raw materials supplied”. The edition provides no details however it says about a commission assigned by the Prime Minister to his Deputy Igor Sechin along with the Antimonopoly Service to ensure that the issue would be resolved completely and the companies would sign the agreement. Also it was revealed that the questions was the discrepancy between “Kazanorgsintez” and “Sibur” regarding the volumes and prices of raw material supply. Federal journalists learned this from the Premier's spokesperson Dmitry Peskov.
Now “Kazanorgsintez” must sign a contract on purchase of ethane for five years minimum – this is the condition under which the company may obtain a credit facility from Sberbank to 35 bln. rubles under the state guarantees. "Gazprom" didn’t refuse to enter into a long-term contract however the parties had not been able to agree on the price till now. By order of the Government, FAS developed a formula of the price of ethane bound to the price of polyethylene - final product of Kazan enterprise. According to "Vedomosti", the recommended price was 6319 rubles per ton. The newspaper refers to the Head of FAS’s department Mr. Teimuraz Kharitonashvili who said “Kazanorgsintez” was satisfied with this price in general, unlike “Gazprom”. As one of the meeting’s participants told, the calculation of the formula took half a day. Nevertheless, the price under which the companies signed is still unknown: the parties’ representatives give no comments on the issue.


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